Typhoon Nida grounds planes Weather Page 2
Wednesday, August 3 2016 Year V Nr. 1100 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Transportation
Real estate
Commercial flights up 7 pct in June Page 4
Gaming
Pictet: Stock valuations too high relative to earnings for local casinos Page 7
Monetary policy
Australia’s central bank cuts official cash rate to record low Page 11
Chinese home prices keep rising despite Shenzhen stabilization Page 9
Economy
Signs of economic recovery as the gaming industry stabilises. So say the Monetary Authority of Macau (AMCM). Proclaiming that local gross gaming revenue is now on an even keel, AMCM predicts new integrated resort openings and increased cross-border infrastructure will positively affect the city’s tourism prospects. Page 3
More of the same
Mtel sells 30 pct of shares
Banking Chinese investment group Fosun Industrial Holdings Ltd. remain interested. In acquiring almost 17 pct of Portuguese banking group Banco Comercial Português SA. Local branch management, however, concede that revenues for H2 might continue to decrease. Page 6
The city’s fixed-line telecommunications service provider Mtel Telecommunication Company Ltd. is selling 30 pct of its shares. And values the current worth of the company at MOP800 mln. Mtel says the transfer is pending the green light from the MSAR Gov’t. And hopes the purchase will expand the company’s Internet-related capacities.
Harbour not so fragrant
Telecommunications Page 5
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
Hong Kong & China Gas Co
-0.28%
China Construction Bank
+2.88%
Bank of Communications
+2.29%
China Merchants Holdings
-0.88%
CNOOC Ltd
-0.22%
China Mengniu Dairy Co Ltd
+2.62%
China Shenhua Energy Co
+2.29%
Swire Pacific Ltd
-0.59%
Hang Seng Bank Ltd
-0.14%
-1.07%
27° 30° 27° 30° 27° 31° 28° 32° 28° 32° Today
Source: Bloomberg
Best Performers
Thu
Fri
I SSN 2226-8294
Sat
Sun
Source: AccuWeather
Retail data Hong Kong retail has racked up negative figures for the 16th consecutive month. With fingers pointed at fewer tourists and a strong currency. Mainland visitors are opting for other holiday destinations - and better shopping opportunities. Page 8
2 Business Daily Wednesday, August 3 2016
Macau Weather
Appointment
125 flights affected by tropical typhoon
press conference yesterday regarding the conditions for raising typhoon signal no. 8 that the bureau classifies signal no. 8 typhoon only after average wind speeds remain between 63 and 118 kph for a period of one hour. As wind speeds in the city had not reached these levels the SMG did not raise the signal from typhoon signal no. 3 to no. 8 yesterday, according to a report by TDM Chinese Radio.
Hong Kong stock market delays
Six of yesterday’s flights leave today due to delays caused by Typhoon Nida. Annie Lao annie.lao@macaubusinessdaily.com
Arrivals and departures of flights at Macau International Airport were severely affected by typhoon Nida’s passage through the territory, which caused typhoon signal no. 3 to be hoisted by the Macau Meteorological and Geophysical Bureau (SMG), according to a press release published by Macau International Airport Co. Ltd. (CAM) yesterday afternoon. According to the Airport’s announcement, as of 4.30p.m. yesterday at least 125 flights scheduled to depart from or arrive in Macau between Tuesday and Wednesday had been affected, 66 of which were bound for Macau and 59 were departing the MSAR.
CAM is advising passengers to check updated flight information on the Airport’s website before going to the Airport.
Seaborne transport service resumed
TurboJET and Cotai Water Jet resumed their ferry services at Maritime Ferry Terminal and Taipa Temporary Ferry Terminal as of yesterday afternoon at 1:30 pm, according to the Marine and Water Bureau, this after typhoon signal no. 8 was downgraded to signal no. 3 at 12.40 p.m. in Hong Kong. The Hong Kong Observatory noted that Typhoon Nida continued to moderate throughout yesterday afternoon, commenting that the Observatory would cancel all tropical cyclone warning signals. SMG director Fong Soi Kun said at a
Hong Kong’s stock market delayed opening yesterday due to Typhoon Nida’s arrival in the SAR, suspending trading for the whole day, according to an announcement by the Hong Kong Exchanges and Clearing Limited (HKEX) announced yesterday morning. Its securities market, including the Shanghai-Hong Kong Stock Connect, the Chinese Gold & Silver Exchange Society and the derivatives market, were delayed after the Hong Kong Observatory raised typhoon signal no 8.
Melco Int’l names Evan Winkler new managing director Melco International Development Ltd., a company controlled by local gaming entrepreneur Lawrence Ho Yau Lung, has appointed Evan Winkler as its new managing director, effective yesterday. According to the company’s announcement the new MD will report directly to Mr. Ho, chairman and CEO of the Hong Kong-listed company. Mr. Winkler will also be appointed as a director of various subsidiaries of Melco International. Mr. Winkler previously served as a managing director at international investment bank Moelis & Company. He was also previously a managing director and co-head of technology, media and telecommunications M&A at UBS Investment Bank.
Business
Secretary of Economy leads young entrepreneurs’ delegation to Hangzhou In a further push to connect young local entrepreneurs and develop Internet-based businesses the Secretary for Economy and Finance Lionel Leong Vai Tac led a delegation of 40 members from 12 associations, youth institutions and companies to Hangzhou, capital of Zhejiang Province. The visit is scheduled to last for three days and includes a trip to the headquarters of the popular Chinese e-commerce company Alibaba Group for the delegation, and comprises companies involved in the Economic Services Bureau’s Business
Incubation Centre for Young People, notes a press release by the bureau. The trip hopes to connect the business developers with their Mainland counterparts by getting to know online companies in the Hangzhou High-tech Zone, located in the city. The event, organised by the DSE in collaboration with the Association of Zhejiang Businessmen, also hopes to strengthen co-operation between companies and institutions from the two areas, mainly in the e-commerce and youth entrepreneurship disciplines. N.M.
Secretary Lionel Leong (centre) leads delegation to the Zhejiang capital
Taxis
July: 94 pct of illegal car services involve Uber The Public Security Forces Affairs Bureau (FSM) has announced that 123 cases of illegal taxi-like services were recorded in the city in the month of July. Of these, 116 cases are related to car-sharing service ‘Uber’. For the first seven months of 2016, the Bureau filed 413 cases of illegal taxi drivers, including 286 involving ‘Uber’, according to FSM. The Bureau reiterates that the local government has no objection
to using the mobile application to call taxis but that the drivers must obtain a work permit and taxi licence in order to provide such a service. If not, the drivers will be fined MOP30,000 (US$3,753). In addition, 325 taxi violations were recorded in the month of July, of which 230 were related to overcharging while those regarding refusal to take passengers accounted for about 70 per cent of the total, according to FSM. A.L.
Business Daily Wednesday, August 3 2016 3
Macau
Economy AMCM believes MSAR’s economic contraction narrowing
Monetary Authority: Local economy bottoming out Despite the economic downturn, the Authority says the city’s monetary situation remains stable whilst finance is still robust. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s economy is showing signs of an approaching recovery as the gaming industry begins to stabilise, says the Monetary Authority of Macau (AMCM) in its latest quarterly research report reviewing local monetary and financial stability. ‘Macau SAR’s current economic adjustment is cyclical, and the sign of bottoming-out is looming. Economic contraction is likely to continue through 2016 but the degree is narrowing as mainly supported by improving net trade,’ the research, conducted by the Authority’s research and statistics department, reads. The report also quotes the International Monetary Fund’s forecast in its World Economic Outlook this April for the city’s economy dropping by some 7.2 per cent this year, noting that the city is poised to resume growth by some 0.7 per cent in 2017. Claiming that local gross gaming revenue has been stabilising, the monetary body predicts that the openings of new integrated resorts during the rest of 2016 and in the coming year, as well as increased cross-border infrastructure, will positively affect the city’s tourism. ‘The completion of cross-border infrastructure projects such as the Hong Kong-Zhuhai-Macao Bridge and the new ferry terminal in Taipa, will bring about certain stimulating effects on inbound tourism’, the report states, adding that private consumption growth is also likely to resume in late2 016 - ‘alongside rising expectations of economic recovery’. Nevertheless, the AMCM report indicated that the city should weigh whether external factors would affect the city’s recovery. ‘The risks associated with the path of US monetary policy adjustments, the pace of MOP appreciation against non-USD currencies, economic performance of the SAR’s trading partners, and the pace of local property price adjustments, will all play a major role in influencing the SAR’s short-term growth prospects,’
the research document asserts. According to official data from the Statistics and Census Service (DSEC) Macau’s gross domestic product (GDP) has been decreasing year-onyear since the fourth quarter of 2014. In addition, gross gaming revenue has dropped year-on-year for 26 consecutive months since June 2014. AMCM sees the local economy contracting, albeit at a slower pace. ‘Real gross domestic product (GDP) recorded double-digit decline of 20.3 per cent in 2015 as contraction in service exports accelerated. However, the pace of decline has been moderating since the second half of 2015, from 23.7 per cent in the second quarter of 2015 to 13.3 per cent in the first quarter of 2016,’ it explained.
Stability
In general, the monetary authority opines that both the monetary and financial situation of the Special Administrative Region are stable. ‘Macau’s monetary stability has been underpinned by a credible currency board arrangement and strong fiscal discipline. The linked exchange rate between the MOP and HKD has remained stable, owing to the effective currency board arrangement and the SAR Government’s commitment to maintain strong fiscal discipline,’ it perceives. In addition, the body said that the city’s financial stability ‘has been robust and its financial system has stayed sound under influences of external shocks’. According to AMCM’s own in-house indicator - the aggregate financial stability index - the city’s financial stability rose to 0.58 during the first quarter of the year, compared to 0.52 of the third quarter of 2015. It explained that the increase in the financial stability is due to ‘the improvements in banks’ capital adequacy and liquidity, as well as Macao’s fiscal and external financial positions’. M e a n w h i l e, t h e m o n e t a r y body indicated that the MSAR Government’s balance sheet has been strengthening despite the economic downturn. ‘The external financial position of Macao SAR has been strengthening as
it has been running current account surpluses. [The MSAR Government’s net foreign-currency] have been increasing despite the current economic adjustment,’ the report reads. On the other hand, AMCM also predicts that the city’s inflation will continue falling, but that the local labour market will remain solid.
‘Consumer-price inflation will continue to lower in 2016, owing to favourable external and domestic factors such as falling property prices and rents, stronger MOP, and weaker aggregate demand. The labour market is likely to remain robust with a limited rise in the unemployment rate and slight changes in employment,’ it wrote in the report. Advertisement
4 Business Daily Wednesday, August 3 2016
Macau Opinion
José I. Duarte Honing Q&A’s The Chief Executive went to the Legislative Assembly for another round of its Q&A meetings. These meetings provide an opportunity to deepen the dialogue between the two political bodies and to clarify the public debate. It is not a perfect mechanism, but nothing prevents the participants from sharpening the contents and improving the procedures over time. These sessions are, or should be, very significant moments in our political calendar. For the legislators, and all of us, they are an occasion to open windows to the mindset of the government on a varied set of topics; to become aware of the government’s priorities, or to get a glimpse of the policies and measures under consideration. As usual, the legislators came forward with various questions and the government provided some answers. Unfortunately, the interaction is sometimes less illuminating than it could be. Both questions and answers are frequently too broad or too vague to be useful for substantial analysis or debate. One example in point refers to the oft-mentioned issue of the insufficient number of Portuguese–Chinese translators. It is one of those themes that keep recurring while it is still not clear, exactly, what is, for the administration, its exact nature and extent; or its main causes, their relative weights, or the alternative approaches to them. So, we are bound to take any policy statements with some degree of reserve. The CE reaffirmed the idea that there is a serious dearth of Portuguese-Chinese translators, a statement that many have brought forward over a long period of time. Then he added that the region needs, as a matter of priority, “200 new bilingual translators.” (An aside on redundancy: “monolingual translators” would be quite useless, wouldn’t they?) The point is: it is not clear how the administration reached this figure, or which is the related time frame. The reference was made in association with the role Macau has or should perform in strengthening relations between China and the Portuguese-speaking countries. Does it imply that this is the main obstacle to the development of the activities mentioned? What about other areas? How many translators are there, currently, and what problems are they (and their services) facing? Is the training and education system adequate, or does it need change? Are there alternative policy scenarios? Many other questions could be put forward. Without answers to them, the debate is poorer and the scope of all judgments inevitably limited.
José I. Duarte is an economist and permanent contributor to this newspaper.
Transport and telecommunications Newly registered vehicles dipped 30 pct Y-O-Y in June
City on the move In June, commercial flight movements were up 7.1 pct y-o-y. In the first six months of the year, flight movements to and from Japan rose by 64.8 pct y-o-y. Joanne Kuai joannekuai@macaubusinessdaily.com
C
ommercial flight movements to and from Macao International Airport totalled 4,422 in June 2016, up 7.1 per cent year-on-year, according to Transport and Communications Statistics released by the Statistics and Census Service (DSEC) yesterday. In the first six months of the year commercial flight movements also increased - by 6.8 per cent yearon-year to 27,202 trips. While flight movements to and from Mainland China and Vietnam dropped 2.9 per cent and 3.1 per cent, movements to and from Japan, Thailand and Taiwan rose by 64.8 per cent, 21.1 per cent and 16.6 per cent, respectively. Helicopter flight movements between the MSAR and Mainland China and between Macau and Hong Kong decreased by 11.2 per cent yearon-year to 1,074 trips in June, while movements in the first six months of the year, some 4,808 trips, fell by 31.8 per cent. In terms of air cargo, DSEC data indicates that Macao International Airport handled 2,540 tonnes of cargo in June, up 12.2 per cent year-on-year. In the first half year of 2016, inward air cargo of 3,070 tonnes decreased by 11.9 per cent year-on-year while outward air cargo increased by 20.4 per cent to 8,867 tonnes. Major cargo destination Taiwan,
which accounts for 57.7 per cent of total inward air cargo, dropped by 15.0 per cent year-on-year. Outward air cargo to Taiwan comprised 44.5 per cent of total air cargo volume during the month. The overall gross weight of containerized cargo for the month of June rose by 32.7 per cent to 16,702 tons. Transit air cargo amounted to 3,180 tonnes in the first half of the year, up 2.3 per cent year-on-year in the first half year.
Fewer newly registered vehicles
DSEC data also indicates that in June the new registration of motor vehicles decreased by 29.8 per cent year-onyear to 939. However, in the first half of the year, new registration of motor vehicles dropped by 31.6 per cent year-on-year to 6,869, with that of motorcycles falling by 25.9 per cent to 3,809 and light private cars dropping 48.4 per cent to 2,186. The total number of licensed motor vehicles reached 248,680 at the end of June, up 1.9 per cent year-on-year. Motorcycles and light private cars accounted for 52.1 per cent and 41.0 per cent, respectively, of the total. In addition, some 1,269 traffic accident cases were recorded in June, with the number of injuries 364. In the first half year of 2016, the number of traffic accidents decreased by 2.5 per cent year-on-year to 7,425, resulting in 2,276 ‘traffic casualties’ recorded, with four incidents resulting in the individual’s death.
248,680 Total number of licensed motor vehicles registered as at the end of June
In terms of cargo transport, crossborder vehicle traffic totalled 427,258 trips in June 2016, up 2.1 per cent year-on-year. In the first half year of 2016, cross-border vehicle traffic rose slightly by 0.7 per cent year-on-year to 2,549,159 trips, of which vehicle traffic through the Border Gate accounted for 77.2 per cent.
Seaborne transport becalmed
Passenger ferry movements between Macau and Mainland China and between Macau and Hong Kong decreased by 6.4 per cent year-onyear to 10,966 trips in June, while movements in the first half-year 68,080 trips - dropped by 6.3 per cent. In terms of containerized cargo, the gross weight of seaborne transport dropped 35.1 per cent year-on-year to 14,747 tonnes in June 2016. In the first half-year of 2016 the gross weight of seaborne containerized cargo decreased by 28.4 per cent year-on-year to 95,240 tonnes, of which 49.9 per cent passed through the Inner Harbour. I n th e t e l ec o m m u n i cati o n s sector, as at the end of June 2016, the number of fixed-line telephone subscribers decreased 6.9 per cent year-on-year to 140,173. The number of mobile telephone subscribers rose by 0.5 per cent to 1,874,950, of which stored-value GSM card subscribers accounted for 63.5 per cent at 1,191,099. According to DSEC, the number of Internet subscribers increased by 10.7 per cent year-on-year to 350,879. In the first half year of 2016 the cumulative duration of Internet usage rose by 12.4 per cent year-onyear to 582 million hours.
Business Daily Wednesday, August 3 2016 5
Macau
800 Million MOP Estimated value of MTel Telecommunication Company Ltd.
Telecommunications
MTel: Fibre network coverage over 50 pct
MTel selling 30 pct of shares to Hong Kong company The fixed-line telecommunications service provider says the transfer of shares is pending a green light from the MSAR Government. Joanne Kuai joannekuai@macaubusinessdaily.com
T
he city’s fixed-line telecommunications service provider Mtel Telecommunication Company Ltd. is selling 30 per cent of its shares, evaluating the worth of the overall company at MOP800 million (US$100 million), the company announced this week at a press briefing. The buyer - Elegant Way International Holdings Ltd. - is a Hong Kong-based arm dedicated to the technology business for Mainland Chinese company Zhuhai Southern Group Co. Ltd. The Group, chaired by Cao Xue Di, primarily operates in the machinery and auto sales sector. MTel chairman and CEO Michael
Choi Tak Meng said the company officially submitted its application to the SAR Government with regard to the intended transfer of the shares on Monday. The company says they will further prepare all the documents and follow up with the procedure in accordance with its concession contract. Afterwards the transaction will only hang on the approval of the city’s telecommunication regulator, the Bureau of Telecommunications Regulation (DSRT).
New shareholder
MTel announced its intention of brining in a new investor in February of this year. At the time, at a press conference, it was disclosed that a letter of intent had already been signed between Elegant Way International
Holdings Ltd. and MTEL in February, when a first injection of MOP50 million into the company before March 30 was pledged. Now, in August, when queried further on the details of the deal, Mr. Choi declined to comment. However, with the current appraisal, the acquisition of the 30 per cent of shares could cost as much as MOP240 million. It was reported that the potential second major shareholder is coming on board not only to help support the firm’s network coverage work but also to serve as a strategic partner in its data centre business by providing technical support for MTEL’s initiative to develop the business segments of big data, cloud computing and even Internet in vehicles. Additionally, the partner will provide hardware for MTEL for its data centre business. Mr. Choi added that Elegant Way has more than 10 years of experience in the telecommunications field and in areas such as the Internet of
Things, Smart City, Smart Home and finance technology. He said that he believes the co-operation will bring MTel and Macau better development in the sector.
Breakeven
The MTel boss also denied that the company is in a bad position financially. Michael Choi reiterated that the decision was made around half a year ago and that the company wouldn’t last for long if it were financially troubled. He added that the company was fully prepared when bidding for the concession and believes that in the telecommunications sector rewards come after a period of building up a foundation and infrastructure. He says that the company’s performance is coherent with their expectations. “With the efforts of our colleagues and support from the public, we can already break even within this year. This was supposedly to only be achieved next year according to the budget we handed to the government,” said Mr. Choi. He added that after the completion of this transfer of shares the company does not intend to make any further transfer of shares in the near future.
Corporate
Fibre coverage up 50 pct
According to MTel chairman Michael Choi the company has already completed nearly 63.5 per cent of fibre-to-buildings coverage on the Macau Peninsula, 53 per cent in Taipa, and 50 per cent in Coloane. Choi expressed confidence that coverage can reach the concession requirement of 70 per cent throughout Macau by this year. MTEL has to achieve a full fibre-to-buildings coverage throughout the city by 2018 as required by the concession terms. The MTEL boss also indicated that the process of its network coverage has been hindered by the inefficiency of government departments. He cited one example noting that the company
has applied to the Transport Bureau (DSAT) for access to go through public car parks over a year ago but hasn’t yet received approval. “The road can’t be excavated further as there’s a car park underneath. We need to go through the car park to reach residential buildings to provide services to relevant clients,” said Mr. Choi. He appealed to DSAT to pay attention to the matter so that the coverage of its network may proceed smoothly. Adding that there were around 20 construction sites in Taipa alone for the company to lay underground cables, the MTel boss apologised to Macau residents for the inconvenience.
Smarty Elderly
In order to enable residents to experience and enjoy the convenience and attractions of a digital lifestyle, CTM is actively promoting the popularization and application of information technology among the community. Over the weekend, CTM joined hands with The Association of CEM & SAAM Workers to organize a “Smarty Elderly’s
Brand New Wi-Fi Experience” service workshop for the retired members of the Association, introducing Wi-Fi service applications and encouraging the elderly to increase their usage of ICT services, so as to strengthen their communication and be more connected with society, enjoying a contented and plentiful life.
6 Business Daily Wednesday, August 3 2016
Macau
Banking Millennium BCP local branch management posts conservative predictions for rest of the year
Buying Portuguese In the aftermath of Fosun’s proposal to acquire almost 17 per cent of Portuguese banking group Banco Comercial Português SA, the bank’s local branch management concede that branch revenues for the second half of the year might continue to decrease. Nelson Moura nelson.moura@macaubusinessdaily.com
While refusing to comment upon the recent share purchase deal proposed by Chinese investment group Fosun Industrial Holdings Ltd. to Portuguese Bank Banco Comercial Português SA (Millennium BCP), the management of the Macau branch of the bank has admitted that branch revenues in the second half of the year might continue to decrease. Millennium BCP Macau branch General Manager José Pãosinho told Business Daily that the share deal was a topic “still too hot to comment upon,” although he said the branch’s profit decrease from 2015 to 2016 was due to “a reduction of the credit portfolio . . . [as] . . . less credit obviously leads to lower results.” In the first six months of 2016
Millennium BCP Macau branch profits fell 13.8 per cent year-on-year to MOP83.4 million (US$10.4 million), having recorded a profit of MOP96.8 million last year, according to bank statements released in the Official Gazette. When questioned about his predictions for the branch revenues in the second half of this year the Millennium BCP Macau GM said the results would probably be “in line” with the results registered previously, for the same reasons mentioned. Millennium BCP group has had a fully operational onshore banking licence in Macau since 2010, having opened its Macau branch in 2013. With regard to the Millennium BCP group’s overall recent results, Pãosinho believes that they might be negative in the short term but will improve over the long term.
M i l l e n n i u m BC P g r o u p has presented in its latest financial report a total loss of 197.3 million euros (US$220.8 million/MOP1.7 billion) for the first half of 2016. However, the group has argued that without taking into account the devaluation of corporate restructuring funds and impairment coverage enhancement the group registered 56.2 million euro in profits, noting a 77.4 per cent increase year-on-year.
Portuguese deals
According to a July 30 bank statement b y M i l l e n n i u m BC P, Ch i n a’ s investment company Fosun has made a ‘firm’ offer to buy a 16.7 per cent stake in the group, with the possibility of later increasing its share to 30 per cent. The statement noted that the acquisition - made by private placement - would be subject to ‘careful analysis’ and will await a p p r o va l b y th e M i l l e n n i u m BCP Administrative Council and Portugal’s banking supervisory entity. One of the requirements for the purchase presented by Millennium BCP was that the share price could not exceed 0.02 euros (US0.02 cents/ MOP0.18). ‘Fosun is also considering increasing its stake through secondary market acquisitions in order to potentially
i n c r eas e i ts sha r eh o l di n g i n Millennium BCP to between 20 per cent to 30 per cent,’ the Millennium BCP release announced. According to a Millennium BCP source, quoted by Portuguese news outlet Diário Económico, the bank considers the offer ‘an interesting proposal from a very credible investor’ and not as a ‘hostile bid, intended to control,’ as well as noting that it pertains to a geographical area that interests the group.
Interest in Portugal
The president and founder of Chinese group Fosun International, Guo Guangchang, recently stated that “Portugal is the best country in Europe to invest in” - and so far the Chinese group has placed their money where their mouth is. In 2014, the group purchased 80 per cent of Portugal’s largest insurance company Fidelidade for 1 billion euros, in the same year acquiring Portuguese private hospital group Luz Saúde from troubled Portuguese bank Banco Espírito Santo (BES). Last year, Fosun was one of the bidders for another Portuguese bank, Novo Banco SA, but the sale was shelved after Portugal’s central bank could not agree with the bidders on a price, according to the Financial Times.
Profit warning
Retail
Landing Int’l expects interim loss to increase
Samsonite completes Tumi acquisition
China real estate developer Landing International Development Ltd. expects its net loss to widen for the first half of this year, according to its filing with the Hong Kong Stock Exchange on Monday. The company said in the filing that the increased loss is due to ‘an increase in administrative expenses incurred in the construction and planning stages of the integrated resort development and property development’. According to the company’s 2015 annual report, its integrated resort development refers to a new US$2.2 billion casino project called Myths
and History Park, located on Jeju Island in South Korea. The project is a 50-50 joint venture between the company and Genting Singapore Plc. It added that the change in fair value of financial assets and the growth in its operating and administrative costs were also contributory factors to the company’s interim loss. For the first half of 2015, the developer posted an increased net loss of HK$143.9 million (US$17.9 million) compared to HK$129.7 million for the same period of 2014, despite revenue increasing 14.2 per cent year-on-year to HK$109.2 million. K.L.
Luggage manufacturer and retailer Samsonite International S.A. announced on Monday that its purchase of America-based Tumi Holdings Inc. has been completed. The company first announced in March that it would buy the New Jersey-based suitcase manufacturer for a total consideration of US$1.82 billion (MOP14.6 billion) and plans to expand Tumi’s business in Asia and Europe in addition to strengthening its presence in North America. ‘The Board is pleased to announce that all of the conditions to closing under the merger Agreement have been satisfied, and closing took place
[on Monday]. Upon Closing, Tumi became an indirect wholly-owned subsidiary of the Company,’ it wrote in Monday’s filing. Currently, Samsonite operates two retail stores in the SAR, located in The Venetian and in Galaxy Phase II in Cotai. There are also two Tumi stores in the city, located in The Venetian and in the DSF Galleria City of City of Dreams. For the 2015 fiscal year Samsonite posted an increase of 6.1 per cent in its net profit attributable to shareholders, amounting to US$197.6 million vis-à-vis the US$186.3 million seen one year ago. K.L.
Business Daily Wednesday, August 3 2016 7
Macau Gaming
Local casino rally purportedly overdone as Pictet questions valuations
J
ust because the local gamling industry is stabilizing doesn’t mean the city’s casino shares are worth buying. That’s according to Pictet Asset Management, which says valuations are too high relative to earnings prospects. Diam Co., a Tokyo-based investment manager, is waiting for more evidence of a sustained gambling upturn before buying. Casino shares declined Monday even after gross gaming revenue for July slipped at a slower pace than analysts predicted. “I would continue to be cautious,” said Pauline Dan, Hong Kong-based head of Greater China equities at Pictet,
which manages about US$154 billion. “From a valuations perspective, it’s hard to make a bullish case.” A gauge of Macau casino operators has jumped 14 per cent from a low on June 28, outstripping the 9.7 per cent advance in Hong Kong’s Hang Seng Index as commentators including Las Vegas Sands Corp.’s Sheldon Adelson said the industry was bottoming out. A Bloomberg Intelligence gauge of six large casino operators trades at 22 times projected earnings, 25 per cent above its three-year average and almost twice the level of the Hang Seng Index. Gross gaming revenue in the city fell 4.5 per cent in July, the smallest
drop in five months, according to data from the Gaming Inspection and Coordination Bureau. While that was better than the median estimate of a 5.5 per cent drop by nine analysts surveyed by Bloomberg, it marked a 26th straight month of declines.
Relative Strength
The index of casino shares declined 0.8 per cent on Monday. The measure’s relative strength index rose to 73 last week, above the 70 level that signals to some traders shares are poised to decline. Sands China Ltd. jumped 14 per cent last month to be among the top gainers in Hong Kong as its parent reported mass-market gaming revenue in the Chinese city rose in June for the first time in two years. Wynn Macau Ltd. climbed 13 per cent, while Galaxy Entertainment Group Ltd. reached an almost three-month high. Trading in Hong Kong’s stock market was cancelled Tuesday due to Typhoon Nida, with the no. 8 storm warning remaining in place at noon.
Cautious Stance
Toshihiko Takamoto, a Singaporebased portfolio manager at Diam, which oversees about US$165 billion globally, says casino stocks are unlikely to be a one-way bet and maintains a cautious stance after investors were “repeatedly disappointed” by signs of a recovery. Casino stocks have rallied in the past only to retreat after a turnaround to Macau’s two-year gambling downturn grew elusive. The latest signs of improvement come amid
a building boom in Macau casinos, with the US$4.1 billion Wynn Palace scheduled to open Aug. 22 while Sands China’s US$2.7 billion Parisian project is slated to open Sept. 13. Louis Wong, director of Phillip Capital Management (HK) Ltd. says stocks have room to rise further as a crackdown on mainland officials wanes and the new projects bring in more mass-market gamblers. “Around 10 per cent upside is possible from now,” Wong said. “The number of arrests of Chinese officials decreased quite substantially since the second half of last year. There is a correlation between the VIP sector and the crackdown on corruption.
Anti-Graft Campaign
The index of casino operators has fallen 67 per cent from its 2014 high as Beijing’s anti-graft campaign and increased scrutiny of the middlemen who bring in the high-rollers dragged down gambling revenue in the former Portuguese enclave. Concerns about demand at new resorts were ignited last week after Wynn Resorts Ltd. said its new casino in Macau may be allotted about half of the baccarat tables analysts were expecting. The local government determines how many gaming tables each casino may offer. Wynn Macau slumped 8.3 per cent in the two days through Monday, its biggest loss in six months. “ Wi t h h i g h va l u a t i o n s i t’ s hard to see shares continuing to test higher without real visitor and revenue recovery,” Diam’s Takamoto said. Bloomberg
8 Business Daily Wednesday, August 3 2016
Greater China Weaker consumption
Hong Kong retail sales fall for 16th straight month Sales of jewellery, watches, clocks and valuable gifts in June fell 20.4 percent in value terms.
H
ong Kong retail sales fell for the 16th successive month in June, hurt by a continued drop in mainland tourists and weak local spending, with retailers now also facing challenges from a strong local currency. Uncertainty due to Britain’s shock vote to leave the European Union is expected to weaken the British and other European currencies, making Hong
Kong an even more expensive place to visit and less attractive for shoppers. The Hong Kong dollar’s peg to the greenback means it is prone to strengthen when other Asian currencies weaken. Hong Kong retail sales in June slid 8.9 percent from a year earlier to HK$33.7 billion (US$4.34 billion) in value terms, slower than a revised 8.3 percent slump in May. In volume terms, June sales dropped 9.6 percent, government data
showed yesterday. “Looking ahead, the near-term retail sales performance will still depend on the performance of inbound tourism as well as the extent to which consumer sentiment will be affected by the lingering uncertainties about the economic outlook,” the government said in a statement. Hong Kong tourist arrivals in June fell 1.7 percent from a year earlier to 4.29 million, after sliding 6.4 percent in May. Mainland visitors, who account for 74.8 percent of the total, fell 3.8 percent to 3.21 million in June.
Mainland tourists are avoiding Hong Kong amid political tensions between the territory and Beijing and as other Asian destinations such as Japan and South Korea offer cheaper travel options. The city is also struggling with mounting economic challenges and a strong currency, as the Hong Kong dollar is linked to the U.S. dollar. Analysts said Hong Kong is most exposed to global slowdown after Brexit.
Key Points June sales of jewellery, watches, valuables down 20.4 pct y/y June tourists fall 1.7 pct y/y, mainland visitors down 3.8 pct Retailers, travel agent all flag weaker performance
M&A
Didi, Uber deal will need regulator approval It had been unclear previously whether merger filing would be required as both firms are loss-making in China. A merger between Chinese ride-hailing firm Didi Chuxing and the China unit of U.S. rival Uber could face its first
hiccup after China’s commerce ministry (Mofcom) said yesterday it had not received a necessary application to
allow the deal to go ahead. Didi’s acquisition of Uber’s China operations, announced on Monday, will create a roughly US$35 billion ridehailing giant and could raise monopoly concerns as Didi claims an 87 per cent market share in China. Uber China is the second largest player. Mofcom, one of China’s anti-trust regulators, said at a news briefing that the two firms need to seek approval for the deal to go ahead. It had been unclear previously whether such a filing would be required as both firms are loss-making in China. “Mofcom has not currently received a merger filing related to the deal between Didi and Uber,” ministry spokesman Shen Danyang said. “All transactors must apply to the ministry in advance. Those that haven’t applied won’t be able to carry out a merger” if they fall under applicable anti-trust and merger rules, he said.
‘Acquisition will create a roughly US$35 billion ride-hailing giant’ Didi Chuxing did not immediately respond to a request for comment. Uber did not respond to requests for comment. Didi and Uber have been in a fierce battle in China, spending billions of dollars to subsidize rides and win users. Other players, however, could step up competition. Jia Yueting, head of LeEco, the parent of smaller ride-hailing rival Yidao, said in a social media post the firm would offer steep rebates to attract passengers to help avoid there being a monopoly in the market. “Yidao will soon kick off an even more aggressive cash back campaign,” according to a translation of Jia’s posting provided by a LeEco spokeswoman. Regulations released last week that take effect on November 1 legitimize ride-hailing, but prohibit services from offering rides below cost. Reuters
Sales of jewellery, watches, clocks and valuable gifts in June fell 20.4 percent in value terms, the 22nd consecutive month of decline. Department store sales slid 10.5 percent on the year, while wearing apparel fell 0.6 percent. Hang Seng Bank has revised Hong Kong’s economic growth lower to 1.3 percent for 2016, from 1.5 percent previously, amid increased uncertainty from Brexit. In addition to jewellery and cosmetics retailers, travel services providers have also been hit. China Travel International warned of a 69 percent fall in first-half profit hurt by yuan depreciation, and a weaker hotel business in Hong Kong and Macau. Chow Tai Fook Jewellery, China’s largest jewellery retailer by market value, saw narrower declines in same store sales for the April-June quarter, but Hong Kong and Macau remained weak. Smaller rival Chow Sang Sang expects H1 profit to fall 50-60 percent from a year ago due to weak demand. Reuters
Equity markets
Traders flip switch from
Economic reports in the Asia are only just improving afte for most of the past year. Sofia Horta e Costa and Roxana Zega
Companies that do business with China have gone from pariahs to market darlings in less than half a year. An index of firms in developed markets that get the most sales from the Asian nation, including Qualcomm Inc., Yum! Brands Inc. and mining giants Rio Tinto Group and BHP Billiton Ltd., has risen 33 per cent since a low in February, outpacing global shares by the most in almost a year, data compiled by Bloomberg and MSCI Inc. show. That’s some recovery for a gauge that slumped as much as 35 per cent in less than a year. Signs that China’s economy is stabilizing have helped restore confidence in global companies tied to it. The effect is arguably amplified amid worries about the efficacy of centralbank stimulus from Europe to Japan, as well as concern that the fallout of British secession from the European Union will start to hurt economic growth. “For the first time in ages, we’re actually getting positive surprises out of China,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “CEOs across the world are also telling us that things aren’t too bad over there. That has helped us reduce the fear of an imminent global recession.” Morgan Stanley estimates European companies get about 8 per cent of total revenue from China, while
Business Daily Wednesday, August 3 2016 9
Greater China Real estate
In Brief
Home prices still rising, but Shenzhen may have peaked Activity in the sector could turn if prices stall out or start to decline. Home prices are still rising rapidly in most larger Chinese cities, but may have peaked in the high-flying southern city of Shenzhen, according to data giving the first insight into July price trends. Prices of new homes in 100 cities rose 12.39 per cent in July from a year ago, faster than the pace in June, research firm China Index Academy said. The average home price was 12,009 yuan (US$1,807) per square metre in July across the 100 cities, up 1.63 per cent from the previous month, Index Academy said on Monday, compared with a 1.32 per cent increase in June. But in Shenzhen, where the cost of
homes have risen the fastest in the country this year, prices peaked at 69,843 yuan (US$10,509.03) per square metre in the first week of the month, then fell over 27 per cent based on transactions later in the month, according to weekly data from property agent Centaline. For the month of July, Shenzhen home prices fell 8.15 per cent monthon-month, the fastest monthly decline since 2012, after hitting a record high in June, another agent, Midland Realty, said in a report. Shenzhen is one of a number of toptier cities including Shanghai which have tightened restrictions on home buying in recent months to cool price rises, which have sparked fears of asset bubbles. But while prices in Shenzhen may have peaked, other first-tier cities
continue to see strong year-on-year gains. Prices in Shenzhen, Shanghai and Beijing rose 41.25 per cent, 22.5 per cent and 15.47 per cent year-on-year in July, Index Academy said. It is a different story in smaller cities, with 38 of 100 cities recording a decline in prices in July from year ago levels. Chinese media has begun warning of risks in the rapid turnaround in the housing market this year, with calls for different real estate policies for different cities and concerns that speculative bubbles are forming. The property market is a key driver of the world’s second-largest economy and a robust recovery in home prices and sales gave a stronger-than-expected boost to activity in the first half of the year. However, activity in the sector could turn if prices stall out or start to decline, especially with chronic overbuilding in many smaller cities, analysts say. The China statistics bureau reports official housing price data on August 18. Reuters
‘Prices in Shenzhen, Shanghai and Beijing rose 41.25 per cent, 22.5 per cent and 15.47 per cent year-on-year in July’
Shanghai bourse
First regional bank listing since financial crisis China’s A share market saw the first initial public offering of a regional commercial bank on the Chinese mainland since the global financial crisis with the Shanghai-listed Bank of Jiangsu yesterday. It is also the first listing of bank shares in six years. Some of the bank’s 1.1 billion shares became tradable, bringing in more than seven billion yuan (about US$1.05 billion) to expand its capital base, according to the bank’s prospectus. The stock, opening at 6.27 yuan, was off to a 44-per cent surge to finish at 9.03 yuan, during which trading was temporarily halted. Management firms
Regulator shutters 10,000 funds China’s funds regulator said it has cancelled the licenses of over 10,000 funds, amid a crackdown on the country’s poorly regulated fund management sector, which has been dogged by runaway managers and misappropriation of investments. The move comes after the hedge fund industry was thrown into disarray earlier this year as managers rushed to comply with stringent new rules. “Some funds registered in reality had no intention of getting into the business,” the Asset Management Association of China said in a note posted on their official website. Official data
Tourism revenue up
m hate to love for mainland
an nation er trailing expectations Japanese firms derive about 6.6 per cent of sales from the country. For American companies, it’s 3 per cent. Data have signalled China’s economy is responding to increased policy support, with gross domestic product rising a better-than-forecast 6.7 per cent in the three months through June. China’s industrial production and retail sales for that month also exceeded projections, while the services industry improved in July. That has boosted metal prices and shares of miners including BHP and Rio Tinto, just as updates from companies have signalled rising consumer spending in China. Yum, the fast-food chain which is spinning off its Chinese business, said last month second-quarter sales grew 3 per cent in the country and that both its Pizza Hut and KFC restaurants are off to a good start in the current period. Qualcomm, the biggest maker of semiconductors that run smartphones, said it’s been gaining market share in China and forecast profit and sales that may beat analyst estimates. Nissan Motor Co. predicted sales growth for its premium brand will pick up in the largest auto market, while Honda Motor Co. reported better-thanprojected profit on higher demand in the U.S. and China. Adidas AG, whose sales have soared in the country, last week increased its 2016 profit forecast for a fourth time this
year. Swatch Group AG said it has seen a “clear improvement” in mainland China, especially for its higher-end watches. Volkswagen AG noted an increase in vehicle sales there in June, while Daimler AG predicted demand in that market will probably “recover significantly” this year. Economic reports in the Asian nation are only just improving after trailing expectations for most of the past year. In 2015, global shares with China exposure tumbled 18 per cent, versus a decline of just 2.7 per cent in the MSCI World Index, as the country’s multiple currency devaluations sapped sentiment. EFG Bank’s Alex Neil says the current rebound won’t last, as stocks have been driven higher by speculation of central-bank support and are vulnerable to any let down by policy makers or economic data. “China economic data isn’t great,” said Neil, head of equity and derivatives trading at EFG in Geneva. “My concern
is that this won’t turn into a long-term trade, at least until Chinese and EM macro data can show a consistent uptick. By pushing equities up so much, investors are risking setting themselves up for a fall.” The China effect is especially notable in Europe - the only region where firms get the majority of their revenues from overseas. There, alternatives are few for global fund managers who are bailing out of the region’s equities at a record pace. A Morgan Stanley index tracking European companies that most rely on the U.S. rebounded about half as much as a China gauge from the Feb. 11 low through Monday, while another focused on euro-area sales gained just 5.2 per cent. “Many investors are bearish on Europe and are looking for the more global stocks,” said Christian Stocker, a strategist at UniCredit Bank AG in Munich. “There has been a relief coming from commodity-related stocks and that may end soon, but consumerrelated stocks will offset it in the second half of the year.” Bloomberg News
“For the first time in ages, we’re actually getting positive surprises out of China” Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen
China’s tourism industry raked in 2.25 trillion yuan (US$346 billion) in revenue in H1, up 12.4 per cent year on year, official statistics showed on Monday. Domestic tourists made 2.24 billion trips in the first half, an increase of 10.5 per cent. Inbound and outbound trips edged up 4.1 per cent to 127 million, China National Tourism Administration (NTA) said. Tourism has become a strong engine for economic growth. The sector contributed 10.8 per cent to GDP last year and created 10.2 per cent of new jobs, according to NTA data. China’s spending in the tourism sector is likely to triple by 2020, to 3 trillion yuan, said NTA head Li Jinzao. Trade
Imports from Brazil accelerate Despite declines in China’s exports to Brazil, its imports from the South American country have accelerated this year, with the growth rate reaching 17.3 per cent year on year during the first five months, the Ministry of Commerce said yesterday. During the past two years, Brazil has become the largest source of China’s imports of poultry and beef, Shen Danyang, spokesperson for the ministry, said at a news briefing. Bilateral trade between the two countries witnessed steady growth over the past few years. Brazil is China’s 10th largest trading partner, Shen said.
10 Business Daily Wednesday, August 3 2016
Greater China Forex
Yuan spurs airlines to cut losses with sale of local bonds Chinese carriers and leasing firms announced orders for about 780 planes with a combined list price of US$102 billion last year. Kyunghee Park and Crystal Tse
C
hina’s airlines, rushing to pare dollar debt as a weakening yuan adds to servicing costs, are selling local-currency bonds at the fastest pace since 2009 to trim their exposure to the greenback. The nation’s carriers, led by China Eastern Airlines Corp., have sold a combined 106.3 billion yuan (US$16 billion) of bonds in the first seven months of this year, a fivefold increase from the same period last year, according to data compiled by Bloomberg. An unexpected devaluation of the yuan last year led to an 18-fold surge in foreignexchange losses to about US$2.5 billion for the top three operators, as dollar debt accounted for as much as 80 per cent of their total, the data show. Cutting exposure to dollar debt particularly benefits import-heavy industries like airlines, which borrow in the U.S. currency to pay for aircraft, said Richard Zhang, an analyst at First Shanghai Securities Ltd. While the Chinese currency’s depreciation means carriers will have to raise more yuan to pay off the same amount in dollars, the extra cost incurred will still be less than the loss to be booked if they maintain foreign debt, according to UOB Kay Hian Holdings Ltd. “They are rapidly deleveraging the U.S.-dollar debt exposure,” said K. Ajith, an analyst at UOB Kay Hian
Holdings in Singapore. “More bond sales are expected this year as the market expects yuan depreciation this year and next.”
Asia’s worst
Every 5 per cent movement of the dollar translates to a loss or gain of about 3.4 billion yuan for China Eastern, and 2.8 billion yuan each for Air China Ltd. and China Southern Airlines Co., Ajith said. The yuan, Asia’s worst-performing currency this year after declining more than 2 per cent against the dollar, currently trades at about 6.64 to the U.S. currency and is predicted to weaken to 6.82 by the end of next year, according to the median of forecasts compiled by Bloomberg. In January, the People’s Bank of China set the yuan reference rate at an unexpectedly weak level following a surprise devaluation in August last year. Air China said in March that it plans to cut dollar debt to 60 per cent of its total by the end of this year, from 73.5 per cent at the end of 2015. The company previously announced plans to raise 12 billion yuan in bond sales with maturity of as long as five years.
Other carriers
China Southern, Asia’s largest carrier by passengers, had 62 per cent of its borrowings in dollars in the same period and China Eastern 73 per cent. China Southern Company Secretary
Xie Bing couldn’t be reached for comments. China Eastern, in an e-mailed response, referred queries on its debt and yuan-bond plans to the company’s 2015 results presentation. Dollar debt accounted for 50 per cent of the company’s total at the end of March 2016, and China Eastern has a target ratio of 50 per cent each for foreign- and local-currency debt, according to the presentation. “Forex loss is essentially translation loss” in accounting for earnings, said Geoffrey Cheng, an analyst at Bocom International Holdings Co. in Hong Kong. “In order to reduce the U.S.-dollar exposure, it makes sense to reduce the U.S.-dollar debts by means of having these RMB bonds,” he said, referring to the yuan, also known as renminbi.
Aircraft orders
Airlines in the world’s second-biggest economy will require about 6,330 new planes worth US$950 billion in the next two decades, or about 17 per cent of the global total, according to Boeing Co. Chinese carriers and leasing firms announced orders for about 780 planes with a combined list price of US$102 billion last year, based on figures tabulated from company announcements. With the aviation industry’s spending mostly priced in dollars, airlines will keep a “certain amount” of dollar debt, said Kelvin Lau, a Hong Kong-based analyst at Daiwa Capital Markets. But given the yuan’s depreciation, “it is still suitable for them to translate as much as possible from USD to RMB or else they will have to mark even higher losses,” he said.
Air China had 76.5 billion yuan in dollar debt at the end of last year, China Southern 62.6 billion yuan and China Eastern 87 billion yuan, according to their 2015 annual reports.
“Ever since last year when the yuan depreciated sharply, many Chinese companies repaid their foreign-currency loans with yuan loans and it’s still going on” Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong
The yuan tumbled 4.5 per cent last year, the most since 1994. That triggered volatility in currency markets and swelled financing costs for Chinese companies, the biggest dollar borrowers in Asia. “Ever since last year when the yuan depreciated sharply, many Chinese companies repaid their foreign-currency loans with yuan loans and it’s still going on,” said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong. “Chinese companies across the board want to reduce their losses from the currency movement.” Reuters
Business Daily Wednesday, August 3 2016 11
Asia Monetary policy
Australia cuts rates to historic lows to head off deflation Data out last week showed consumer price inflation slowed to 17-year lows in the June quarter. Wayne Cole
A
ustralia’s central bank cut its cash rate a quarter point to an all-time low of 1.5 per cent yesterday, the second easing this year as it seeks to defend the economy from creeping deflation and restrain a too-strong currency. The local dollar did initially retreat on the Reserve Bank of Australia’s (RBA) widely expected move. But it quickly rebounded as investors anticipated easings by other central banks, underlining the challenge of keeping the currency down in a world where negative rates are now commonplace. “The Reserve Bank is clearly on a mission to avoid the near zero inflation rates that many similar countries have,” said Shane Oliver, chief economist at AMP Capital Investors. “With the inflation numbers so low and the risk that if they didn’t cut that the Aussie dollar would have been 76-77 (U.S. cents) by now, they felt they probably had to act.” The Aussie was last at US$0.7528, having been as low as US$0.7486 at one stage. That resilience is a major reason the market is already pricing in the possibility of a further rate cut to 1.25 per cent. Interbank futures imply a 68 per cent probability of a further easing by December. Likewise, yields on three-year government debt dropped
to 1.39 per cent, making it cheaper than borrowing overnight. RBA Governor Glenn Stevens, who retires next month after a decade at the helm of the central bank, was characteristically tight-lipped on the outlook for policy. “The Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,” said Stevens, while noting that inflation would likely be low for an extended period. Data out last week showed consumer price inflation slowed to 17-year lows in the June quarter while underlying inflation hit an all-time trough of 1.5 per cent.
That was well short of the RBA’s long-term target band of 2 to 3 per cent, suggesting the economy needed to grow faster if disinflation was not to become the new norm.
Less risk from housing
Neighbouring New Zealand is already stuck in that trap, with inflation at just 0.4 per cent and its central bank under intense pressure to cut rates at a policy meeting next week. Japan, long locked into deflation, added to its stimulus campaign last week and analysts fully expect the Bank of England to resume easing on Thursday. A hike from the Federal Reserve would help by lifting the U.S. dollar, but officials there seem in no hurry to act. There have been concerns that ever lower rates would merely fuel a borrowing binge in the housing
market, a real risk given Australian households are among the most indebted in the world. Commonwealth Bank was quick to trim its variable mortgage rate to 5.22 per cent, though a raft of special offers mean it is fairly easy to pay less than 5 per cent. Yet cheap borrowing costs have also driven a boom in home building, which looks to be taking some of the steam out of house prices. Figures from property consultant CoreLogic out this week showed annual growth in home prices for Australia’s capital cities slowed to 6.1 per cent July, down from 8.3 per cent in June and a long way from last year’s peak above 11 per cent. The RBA’s Stevens himself noted that a large supply of apartments would come on stream over the next couple of years, and lending f o r p r o p e rt y i n v est m e n t ha d slowed. “All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished,” said Stevens in his post meeting statement. Reuters
The signage of the Reserve Bank of Australia is seen on the headquarters building in Sydney
CPI
South Korea’s inflation eases to 10-month low The benchmark inflation index remains well below the central bank’s 2 per cent target. Cynthia Kim and Christine Kim
South Korean inflation cooled to its slowest for 10 months as domestic demand softened in July, further undershooting the Bank of Korea’s 2 per cent target and pressuring it to slash interest rates from the current record low. The consumer price index rose 0.7
The cost of fresh food fell 0.2 per cent
per cent in July on-year, slower than a 0.8 per cent rise in June, Statistics Korea said in a statement. It was also below the median estimate of 0.8 per cent of economists polled by Reuters and rose at the slowest pace since Sept. 2015, records showed. The index rose 0.1 per cent from the previous month, versus the survey’s projection for a 0.2 per cent gain.
Moderate inflation, even with the impact of higher oil costs, supports the case that the BOK may cut rates in coming months. “(The BOK) is likely to cut the interest in September or after that,” said Kim Doo-un, an economist at Hana Financial Investment said after the inflation data was published. He added that the BOK’s August meeting may be a little early for a cut as policymakers are likely to wait for parliament to approve the government’s supplementary
budget proposal before taking any action. A separate statement from the finance ministry cited stabilising public utility prices as the main reason for the weak inflation data, combined with lower food prices. Changes in global oil prices and local weather may affect consumer prices over the next few months, the ministry said. Softening oil demand in China may be one factor behind persistently low global oil prices which added to downward price pressure in Korea, a Statistics Korea official told reporters in Sejong. The benchmark inflation index remains well below the central bank’s 2 per cent target, even after its decision to lower rates to a record 1.25 per cent in June, showing that consumer spending is not active enough to support growth. A majority of analysts surveyed by Reuters last month saw rates being cut to 1.00 per cent by year-end. Core CPI, which excludes oil and agricultural products, rose 1.6 per cent from a year ago, which matched the reading for May. Service costs, however, posted a 1.9 per cent gain in the same period, marking the slowest increase since June 2015. The cost of fresh food fell 0.2 per cent, while the prices of electricity, water and gas fell 3.9 per cent from a year earlier. Reuters
12 Business Daily Wednesday, August 3 2016
Asia In Brief Rate cut action
Australia’s big 4 banks slash mortgage costs Australia’s four biggest banks slashed mortgage rates by 10-14 basis points yesterday while lifting rates on term deposits following a quarter-point interest rate cut by the Reserve Bank of Australia (RBA) at its monthly policy meeting. No.2 lender Commonwealth Bank was the first to move, with a 13 basis point cut to a record low of 5.22 per cent for owner-occupied homes. It reduced rates for small businesses by a similar amount. National Australia Bank, the country’s biggest lender, followed with a 10 basis point cut. It will also reduce its variable rate for business lending products by 10 basis points. Forex
S.Korea warns against excessive currency moves South Korea will take appropriate measures to stabilise the dollar-won exchange rate if market moves become excessively one-sided, the vice finance minister said yesterday in light of the won’s recent strength. “We are concerned over the pace at which the won has been strengthening on the broad weakness of the dollar,” said Vice Finance Minister Choi Sang-mok in a regular meeting with reporters in Sejong. “We will look closely at the exchange rate and if there is excessive herd behaviour we will take appropriate market stabilising measures.” M&A
Pertamina to take stake in French oil company Indonesia’s state oil company Pertamina will become the top shareholder in Maurel & Prom and intends to make a public offer for the French oil operator that pumps most of its oil in Africa, the companies announced Monday. Pertamina will by the 24.5 per cent stake owned by Pacifico, the company owned by Maurel & Prom’s board chairman Jean-Francois Henin, at a price that values the company at least 822 million euros, compared to its market capitalisation of 557 million euros at close of trading on Friday. Production
Nestle Philippines invests in new plant The Philippine unit of Nestle SA, the world’s largest food and drink company, said yesterday it is investing 2 billion pesos (US$43 million) to build a new plant to make a key ingredient in its Milo chocolate and malt drink. Nestle Philippines Chief Executive Officer Jacques Reber said the new facility, located south of the capital, will start operations late next year. It will be the fourth Nestle plant in the world producing ‘protomalt’, a set of carbohydrates extracted from cassava and barley, he said.
Abenomics
Japanese cabinet approves fiscal measures The package comes days after the Bank of Japan eased policy again. Tetsushi Kajimoto
J
apanese Prime Minister Shinzo Abe’s cabinet approved 13.5 trillion yen (US$132.04 billion) in fiscal steps yesterday as part of efforts to revive the flagging economy, with cash pay-outs to low-income earners and infrastructure spending. The package includes 7.5 trillion yen in spending by the national and local governments, and earmarks 6 trillion yen from the Fiscal Investment and Loan Program, which is not included in the government’s general budget. The stimulus spending is part of a renewed government effort to coordinate its policy with the Bank of Japan (BOJ), but growing concerns that the BOJ policy has reached its limit triggered the worst sell-off in government bonds in three years. “We compiled today a strong economic package draft aimed at carrying out investment for the future,” Abe told a meeting of cabinet ministers and ruling party executives yesterday morning.
Precisely how the spending will be financed is unclear, although the government is considering issuing construction bonds when compiling a supplementary budget later this year. The stress on fiscal steps is raising doubts about Japan’s ability to fix its already massive debt. The government estimates the stimulus would push up real gross domestic product (GDP) by around 1.3 per cent in the near term. The package will be implemented over several years, officials added. SMBC Nikko Securities’ analysts expect the package will push up real GDP growth by just 0.4 percentage point this fiscal year to March 2017 and 0.04 percentage point next year. “As effects of public works and cash pay-outs fade later in fiscal 2017, Japan will likely face a fiscal cliff,” said Koya Miyamae, senior economist at SMBC Nikko Securities, referring to the contraction in spending after the package wears off. “To prevent a fiscal cliff, the government will likely repeat large-scale stimulus. Considering that a general election must be held by late 2018, direct government spending would become larger, which could further delay Japan’s fiscal consolidation goal.” Reuters
Islamic banking
Indonesia, Malaysia give their banks more access to each other’s markets Under the deal, each country will allow the formation of three banking groups which would be afforded the same treatment as local lenders. Eveline Danubrata and Bernardo Vizcaino
Indonesia and Malaysia have agreed to give their banks greater access to each other’s markets, part of wider integration efforts among Southeast Asian economies. The move would link the two largest Islamic banking sectors in the region, and give Malaysian banks a potential lead in accessing the world’s biggest Muslim-majority country which remains restrictive to foreign lenders. The heads of Indonesia’s financial regulator and Malaysia’s central bank Bank Negara Malaysia (pictured) signed the pact at the state palace in Jakarta, the Indonesia Financial Services Authority (OJK) said in a statement late on Monday. “The agreement is aimed at reducing an imbalance in the market
access and banking activities of both countries through the presence of banks that fulfill certain conditions in each jurisdiction, based on the principle of reciprocity,” the statement said. Under the deal, each country will allow the formation of three banking groups which would be afforded the
same treatment as local lenders. In the case of Malaysian banks, this number will include banking groups that are already operating in Indonesia, the statement said. Malaysian lenders CIMB and Maybank already have businesses in Indonesia. Indonesian state-controlled lender PT Bank Mandiri Tbk plans to expand in sectors such as retail banking and remittance services in Malaysia, Corporate Secretary Rohan Hafas told Reuters in a text message on Tuesday. Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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“With this package, we’ll proceed to not just stimulate demand but also achieve sustainable economic growth led by private demand.” The headline figure for the package totals 28.1 trillion yen, but it includes public-private partnerships and other amounts that are not direct government outlays and thus may not give an immediate boost to growth. Abe ordered his government last month to craft a stimulus plan to revive an economy dogged by weak consumption, despite three years of his “Abenomics” mix of extremely accommodative monetary policy, flexible spending and structural reform promises. The package comes days after the Bank of Japan eased policy again and announced a plan to review its monetary stimulus programme in September, which has kept alive expectations for “helicopter money”, printing money for government debt. The expected appointment of Toshihiro Nikai, an advocate of big public works spending, to the No. 2 post of Abe’s ruling party in tandem with a cabinet reshuffle today underscores Abe’s shift toward his “second arrow” of fiscal policy amid concerns monetary easing is reaching its limits.
Business Daily Wednesday, August 3 2016 13
Asia Auto industry
South Korea suspends sales of most Volkswagen group models While the country is a relatively small market for Volkswagen, it is a major market for its luxury marques Audi and Bentley. Hyunjoo Jin
South Korea yesterday suspended sales of most Volkswagen AG models in a fresh blow to the German automaker as it struggles to overcome the global repercussions of its emissions-test cheating sandal and rebuild its tattered image. Th e g o v e r n m e n t r ev o k e d certification for 80 model variants of VW, Audi and Bentley vehicles, and fined Volkswagen 17.8 billion
won (US$16.06 million) for allegedly forging documents on emissions or noise-level tests. The move could slam the brakes on sales for Europe’s biggest automaker in the Asian market, where its local unit had more than tripled revenue to 2.82 trillion won over the past five years before becoming mired in the emissions scandal. Volkswagen described the ruling as “most severe” and said it would consider a legal challenge.
In all, 209,000 VW vehicles have been de-certified in South Korea, mainly over emissions-related problems, since November - or 68 per cent of the vehicles the automaker had sold in the country since 2007, the environment ministry said. While South Korea is a relatively small market for Volkswagen, it is a major market for its luxury marques Audi and Bentley and one of the fastest-growing markets for all brands. It could take more than three months for the affected brands to be back on showroom floors, officials said. “It usually takes three months
for vehicle certification, but this may take longer for Volkswagen, as we will take thorough steps,” environment ministry director Hong Dong-gon told reporters.
Key Points Suspension expected to last more than 3 months VW’s S.Korean unit reported US$2.5 bln revenue last year VW says penalty is “most severe”, mulls challenge Any delay in recalls previously o r d e r e d o v e r e m i ssi o n s t est manipulation could be met with an order for VW to exchange those vehicles for other models, Hong added.
Legal action
In a letter to customers posted on its South Korean homepage, Volkswagen said it would consider requesting an “injunction of execution”. It also could take legal action against the government’s decision “if this will help recover our company’s business reputation and benefit our consumers, dealers and other partners,” it added. Volkswagen voluntarily halted sales of most of its models in South Korea from July 25, ahead of the government’s decision. The company reported a 12 per cent drop in quarterly profit at its main passenger car division last week, showing the challenges it still faces since admitting in September to using software to falsify pollution tests on some diesel cars. In addition to billions of dollars in costs related to the scandal, it is also tangled in legal action in the United States, Germany, South Korea and elsewhere. South Korea has taken a particularly tough line, with prosecutors raiding Volkswagen’s Seoul offices and arresting an executive in June. Reuters
Financial industry
India eases rules for new permits The central bank is attempting to bolster lending. Anto Antony
India eased rules to allow applicants to seek permits for setting up banks on a continuous basis, replacing a system that created long delays between approvals. According to the rules - posted on the Reserve Bank of India’s website Monday - professionals with seniorlevel banking experience of at least 10 years can apply for a license, as well as companies controlled by resident Indians that have been in operation for at least a decade. By accepting applications at any time, India is changing up the existing approval structure that had previously granted permits in intervals of about a decade since 1993. Bandhan Financial Services Ltd. and IDFC Bank Ltd. were the last two lenders to get licenses when the RBI last issued them in 2014. The central bank is attempting to bolster lending in Asia’s fastestgrowing major economy and expand the reach of financial services into remote towns and rural districts. Recipients of the permits will be required to open their banks within 18 months, and one out of four branches must be located in towns with no banking services and fewer than 10,000 people, the RBI said. “Such a policy would increase the
level of competition and bring new ideas into the system,” the RBI said in its statement.
Not eligible
Any new bank should have a minimum paid-up capital of 5 billion rupees (US$75 million) and would need to list on a stock exchange within six years of starting business, according to the central bank.
“Such a policy would increase the level of competition and bring new ideas into the system” RBI statement The RBI said state-run companies and “large industrial houses” won’t be eligible to apply for permits, though the conglomerates will be allowed to own as much as 10 percent in new banks. India had 27 state-run banks that accounted for more than 70 percent of outstanding loans as of March 2015, RBI data show. The country’s
22 private lenders, led by ICICI Bank Ltd., held more than 20 percent of bank credit, while about 45 foreign banks accounted for the rest, the data show. RBI gave in-principle permits to 10 small finance banks and 11 payments banks last year. Three of the companies which got approval for payment banks have opted out of setting up their businesses.
“The banking sector in India is overcrowded with small finance banks and payment banks already in the fray,” said Gaurang Shah, a vice president at Geojit BNP Paribas Financial Services Ltd. “It remains to be seen which individuals or companies will have conviction, capacity and capability to enter this highly-competitive segment.” Bloomberg News
14 Business Daily Wednesday, August 3 2016
International In Brief Sovereign fund
Russia’s Reserve Fund edges down Russia’s Reserve Fund shrank slightly over July in dollar terms and was worth US$38.18 billion as of the start of August, the finance ministry said yesterday. The fund was worth US$38.22 billion at the start of July. Earlier in the year the ministry had sold assets from the fund to finance the budget deficit. Deputy Finance Minister Maxim Oreshkin has said Russia may resume such sales in August. The finance ministry said yesterday the National Wealth Fund, the country’s other sovereign fund, was worth US$72.21 billion as of August 1, versus US$72.76 billion a month earlier. Economy impacted
UK construction shrinks faster
LuxLeaks
Luxembourg appeals verdicts in tax scandal The case lead to a crackdown on the generous tax deals the wealthy seemed able to arrange with governments.
L
uxembourg has lodged an appeal against the sentences handed down to three LuxLeaks whistleblowers who exposed the small duchy’s huge tax breaks for giant multinationals, the justice department said yesterday. “The state prosecutor lodged a general appeal at the end of last week,” spokesman Henri Eippers told AFP. Former PricewaterhouseCoopers employees Antoine Deltour and Raphael Halet were given suspended 12-month and nine-month jail terms while journalist Edouard Perrin was acquitted of all charges at their trial in June.
Eippers said the government’s decision to launch a general appeal against all three sentences was driven largely by concerns over Perrin, a journalist with France 2 television who based his expose on thousands of documents obtained by the other two. The LuxLeaks scandal, which implicated global firms such as Apple, IKEA and Pepsi, sparked howls of protest in Europe, leading to a crackdown on the generous tax deals the wealthy seemed able to arrange with governments as normal people struggled with tough austerity policies. The revelations were doubly embarrassing since they showed
Britain’s construction industry suffered its sharpest downturn in seven years last month, according to another business survey yesterday which suggests the economy is at risk of recession after June’s Brexit vote. The Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) inched down to 45.9 in July from 46.0 in June - the lowest reading since June 2009 and some way below the 50 mark that divides growth from contraction. While better than all forecasts in a Reuters poll of economists that pointed to a reading of 43.8, the PMI showed commercial construction dwindled and confidence flagged. Monetary stance
Fed’s Kaplan urges patience in raising rates A raft of global risks that could adversely affect the United States remain on the horizon and require close monitoring, Dallas Federal Reserve Bank President Robert Kaplan said yesterday. “I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the U.S. might be impacting economic conditions in the U.S.,” Kaplan, a centrist at the U.S. central bank, said in remarks prepared for delivery at an event in Beijing. Kaplan repeated that he continues to back tightening monetary policy in a gradual and patient manner. Oil industry
Nigeria resumes cash pay-offs to former militants Nigeria’s government has resumed cash payments for former militants in the restive Niger Delta, an official said on Monday, in a bid to end a wave a wave of militant attacks on oil and gas facilities. In February, Nigeria stopped the payments for former militants who agreed under a 2009 amnesty to stop blowing up crude pipelines in exchange for cash, the official said. The government says it has been holding talks with militants they suspect of being behind a recent wave of attacks on pipelines that has reduced Nigeria’s crude output by 700,000 barrels a day.
many of the tax deals were cut during the premiership of Jean-Claude Juncker (pictured), now head of the European Commission, the executive of the 28-nation EU. Deltour and Halet, who have already appealed against their sentences, faced a maximum penalty of 10 years on charges which included stealing documents, revealing business secrets and violation of professional secrets.
‘The revelations of LuxLeaks case were doubly embarrassing since they showed many tax deals were cut during the premiership of Jean-Claude Juncker, now head of the European Commission’ The documents were used for a 2012 report by Perrin on French public television and then exploded onto the world stage two years later with the huge LuxLeaks release of all 30,000 pages into the public domain. Defence lawyers argued that all three should have been acquitted since they acted in the public good with the sentencing raising concerns about the future role of whistleblowers in Europe. AFP
Graft concerns
Mexican banks tighten lending to states Local governments account for a small fraction of total liabilities, but allegations of corruption have been punished by voters. Noe Torres and Dave Graham
Mexican banks, determined to avoid a return to past woes, are reining in lending to the country’s indebted state governments, some of whose leaders have recently become the focus of corruption allegations. The drop in bank lending to the states this year has been the sharpest since the 2007-2009 financial crisis, and coincides with a jump in liabilities in several states in the past five years. In the first half of 2016, commercial banks agreed 11 loans to local and state governments worth 8.471 billion pesos (US$451 million), less than half the sum from the same period in 2015, when 32 loans went out, according to finance ministry figures. This year’s decline was the steepest since 2009, when the financial crisis pushed Mexico into recession, the data show. Four states - Veracruz, Quintana Roo, Nuevo Leon and Chihuahua accounted for close to half of the 70 per cent jump in local government liabilities between 2010 and 2015, which stood at 536 billion pesos (US$28.52 billion) at the end of December. “We now have more cautious policies to avoid cases of overindebtedness,” said Armando Acevedo, the executive in charge of local lending at Grupo Financiero Interacciones (GFI), a major lender to states and municipalities. In June, Moody’s downgraded GFI’s ratings, citing “rising asset
risks deriving from the bank’s large exposures to Mexican regional and local governments.” And over the next six weeks, Moody’s did the same to Veracruz and Chihuahua, while Quintana Roo, home to tourist hub Cancun, had its outlook lowered by Standard & Poor’s. Mexico has suffered two major financial crises in recent decades in 1982 following a national default and in 1994-1995, which was accompanied by a sharp currency devaluation. The Mexican government insists there is no problem, and a law passed in April means lending rules are now tighter. “I detect a much more analytical banking sector,” said Marcela Andrade, head of the Finance Ministry unit responsible for coordinating with local governments. “It’s more obvious they’re looking more at who they lend to.”
Political fallout
Banks insist they are not retreating from regional borrowers, which are dominated by the 31 states and Mexico City. “What we have done is be much more careful about which states we’re lending to,” said Luis Robles Miaja, board president of BBVA Bancomer in Mexico. Another top Mexican financier, speaking on condition of anonymity, told Reuters that he was seriously concerned about corruption and
financial mismanagement in states including Veracruz, and had sought to reduce his exposure. Signs of retrenchment are evident. Between December 2015 and June 2016, commercial banks’ total outstanding loans among states and municipalities dropped 3.1 per cent to 324.3 billion pesos, according to central bank figures. In contrast, their loans to the private sector rose 5.6 per cent to 3.477 trillion pesos. Local governments account for a small fraction of total liabilities, but allegations of corruption have been punished by voters in the four states at the center of debt concerns.
“I detect a much more analytical banking sector” Marcela Andrade, head Mexican Finance Ministry unit responsible for coordinating with local governments Ruled by President Enrique Pena Nieto’s PRI going into 2015, Veracruz, Quintana Roo, Nuevo Leon and Chihuahua have all since fallen to the opposition, which has accused the outgoing governors of fraud or embezzlement. They deny the allegations. There are even fears some states could need a bailout. “Veracruz is broke,” said Armando Rios Piter, senior member of the Senate finance committee in the centre-left opposition Party of the Democratic Revolution, which captured the state in coalition with the centre-right National Action Party in June. Reuters
Business Daily Wednesday, August 3 2016 15
Opinion Business Wires
The Korea Herald South Korea will spend about 200 billion won (US$180.3 million) this year to sharply expand electric vehicle charging infrastructure nationwide as part of its efforts to foster the eco-friendly sector as a new growth engine, the trade ministry said yesterday. Under the plan, led by the Korea Electric Power Corp., the country’s sole power supplier, the government will build 150 on-street stations by November to accommodate 300 super chargers that are available for privately owned electric cars and taxis for a fee. It will also install about 30,000 regular chargers at apartment complexes across the nation, according to the Ministry of Trade, Industry and Energy.
Uber decides it’s getting tired of competition
Thanh Nien News FPT Corporation has been selected by Myanmar Payment Union (MPU) as the prime investor to implement a national financial switching system, the company said. The entire financial switching system will be funded and implemented by FPT in a year. Currently, over 95 per cent of transactions are still made in cash. FPT will offer MPU a 10-year lease on the system and generate income from the charges on electronic transactions. Of 40 local financial organizations, 24 have been connected to MPU. The new payment system will be implemented for typical banking services.
New Zealand Herald New Zealand house values have just exceeded NZ$600,000 for the first time while Auckland values climbed towards NZ$1 million. Quotable Value (QV) data just out shows the average national property value standing at NZ$602,434, while Auckland average values are NZ$992,207. Andrea Rush, QV national spokesperson, noted the significance of the numbers. “The latest QV House Price index shows values continue to rise rapidly in many parts of New Zealand buoyed by low interest rates, strong investor activity and high net migration with the average value nationwide now topping US$600,000,” she said.
Inquirer.net (Philippine) Finance Secretary Carlos G. Dominguez III said he was cold to proposals to increase the value-added tax (VAT) being slapped on a number of goods and services. Separately, the Senate leadership is supportive of the economic managers’ proposal to make tax evasion a predicate crime to money laundering and ease the bank secrecy law for taxation purposes, Senate President Aquilino “Koko” Pimentel III told reporters on the side-lines of the 112th anniversary of the Bureau of Internal Revenue. Dominguez said he was “inclined against” the proposal to raise VAT to 14 per cent from 12 per cent.
U
ber, after throwing a few billion dollars at China and not making much headway, is now throwing in the towel and selling out to rival Didi Chuxing. As somebody who wrote a column from Beijing a few weeks ago headlined, “Uber Isn’t Going to Conquer the World,” I’d crow about this - except that I’m not sure Uber’s decision really backs up my argument. The argument was that the business of ride-hailing is one of individual cities. In a city (metropolitan area, really), the market leader can rely on the “network effects” that make a service more valuable as more people use it to establish a nearinviolable competitive position. On a national or global basis, not so much. This quote from Arun Sundararajan, a professor at New York University’s Stern School of Business, summed it all up nicely: These markets are contestable, and they’re contestable cityby-city. There are network effects that are local to a particular market, but these are not like Facebook’s n e t w o r k e f f e c t s . Th e y don’t give you a multiyear advantage. But in China, Uber apparently decided that Didi’s national advantage was insurmountable - leaving the Chinese company, in which Uber will now be an investor, with a national monopoly on ride-hailing. It’s possible that Chinese antitrust regulators will have something to say about this, but this quote from Bloomberg’s story about the deal makes me suspect they won’t. “The ministry of commerce has to define the size of the market and see if the car-hailing business Didi and Uber are offering can be replaced by similar services,” said Deng Zhisong, senior partner at Beijing-based law firm Dentons. “If you count taxi services and public transportation, the car-hailing sector will not have a market share that significant.” Well, yeah, except that Didi already utterly dominates the online hailing of taxis (as distinct from private cars) in China. Regulators allowed that market to go from duopoly to monopoly last year when rivals Kuadi Dache and Didi Dache merged. This could be a reason China’s ride-hailing market isn’t a template for the rest of the world: Antitrust law works differently there, especially when home-grown companies are involved. Another is
“
Justin Fox a Bloomberg View columnist
that Didi was a uniquely rich and well-connected rival, backed by China’s two biggest internet companies, Tencent and Alibaba - and, since May, Apple. Then again, with Uber no longer haemorrhaging money in China and Chief Executive Officer Travis Kalanick no longer spending 70 days a year there, the company may be able to focus on building national monopolies elsewhere. The questions are: Can it, and does it even want to? In its home market, the U.S., Uber certainly is well ahead of chief rival Lyft, in fundraising as well as market share. Its advantage is especially big among business travellers, who value its presence in more cities - for them, the network effects are at least partially national. But business travellers are a small minority among those who use ride-hailing apps, and Lyft has claimed major marketshare gains in a few big cities where it has concentrated its efforts recently. Lyft has been able to do that in large part thanks to US$1 billion in new cash it got this year from General Motors and other investors. It has also been part of a nascent global anti-Uber alliance with Didi, which invested US$100 million in Lyft last year. With Uber and Didi’s CEOs sitting on each other’s boards, as Monday’s deal calls for, it’s hard to see Didi staying involved with that effort. Also, Uber’s stake in Didi will make it an indirect part owner of Lyft, at least for a while. It’s all very incestuous. It also seems to bespeak a less directly competitive future. Uber has reasons not to want to wipe out the No. 2: Lyft has been a useful ally in battles with regulators and taxi drivers in U.S. cities, and its continued existence makes it less likely that Uber will come under scrutiny from antitrust regulators. But Uber has far greater resources than Lyft or any other competitor in the U.S., and it has just stopped squandering them in China. It may be beatable in this city or that, but not everywhere. Bloomberg View
Then again, with Uber no longer haemorrhaging money in China and Chief Executive Officer Travis Kalanick no longer spending 70 days a year there, the company may be able to focus on building national monopolies elsewhere
”
16 Business Daily Wednesday, August 3 2016
Closing Results
Honda profit beats forecasts as sales offset FX impact
yen for the full year to March, citing uncertainties about currency moves and the upcoming Honda Motor Co. posted a stronger-than-expected presidential election in the United States, a key market. 11.5 per cent rise in first-quarter operating profit It expects slightly higher vehicle sales and as higher vehicle and motorcycle sales as well as decreased costs to recall potentially faulty Takata lower costs offset the impact of a stronger yen. Corp air bags for the full year. Japan’s third-largest automaker by sales clocked The automaker said that April-June sales were 266.8 billion yen (US$2.61 billion) in operating boosted by the rollout of the remodelled Civic profit for April-March, surpassing an average sedan in China and Malaysia, while the start of estimate of around 183.31 billion yen from 10 an additional line at one of its motorcycle plants analysts surveyed by Thomson Reuters I/B/E/S/. in India drove up scooter production and sales in Honda maintained its previous forecast for operating profit to rise 19.2 per cent to 600 billion Asia. Reuters
Health research
China’s ‘mosquito factory’ aims to wipe out Zika Mosquito-borne diseases are responsible for more than one million deaths worldwide every year.
E
very week, scientists in southern China release 3 million bacteria-infected mosquitoes on a 3 km long island in a bid to wipe out diseases such as dengue, yellow fever and Zika. The scientists inject mosquito eggs with wolbachia bacteria in a laboratory, then release infected male mosquitoes on the island on the outskirts of the city of Guangzhou.
The bacteria, which occurs naturally in about 28 per cent of wild mosquitoes, causes infected males to sterilize the females they mate with. “The aim is trying to suppress the mosquito density below the threshold which can cause disease transmission,” said Zhiyong Xi, who is director of the Sun Yat-sen University Centre of Vector Control for Tropical Diseases and pioneered the idea.
“There are hot spots,” Xi said. “This technology can be used at the beginning to target the hot spots ... it will dramatically reduce disease transmission.” Mosquito-borne diseases are responsible for more than one million deaths worldwide every year and Zika has become a concern for athletes at this year’s Olympic Games, which open in Rio de Janeiro on Friday. Some athletes, including the top four ranked male golfers, have declined to take part. An outbreak of the Zika virus in Brazil last year has spread through
“The aim is trying to suppress the mosquito density below the threshold which can cause disease transmission” Zhiyong Xi, director of the Sun Yat-sen University Centre of Vector Control for Tropical Diseases
the Americas and beyond, with China confirming its first case in February. U.S. health officials have concluded that Zika infections in pregnant women can cause microcephaly, a birth defect marked by small head size that can lead to severe developmental problems in babies. The World Health Organization has said there is strong scientific consensus that Zika can also cause Guillain-Barre, a rare neurological syndrome that causes temporary paralysis in adults. Sun Yat-sen’s Xi said that several countries had expressed interest in his experiments, especially Brazil and Mexico. In the laboratory, mosquito eggs are collected from breeding cages containing 5,000 females and 1,600 males and injected with the wolbachia bacteria. Xi’s facility has the capacity to breed up to five million mosquitoes a week. While a female mosquito that acquires wolbachia by mating is sterile, one that is infected by injection will produce wolbachiainfected offspring. Dengue, yellow fever and Zika are also suppressed in wolbachia-injected females, making it harder for the diseases to be transmitted to humans. Xi set up his 3,500 square meter “mosquito factory” in 2012 and releases the males into two residential areas on the outskirts of Guangzhou. Xi said the mosquito population on the island has been reduced by more than 90 per cent. One villager on the island, 66 yearold Liang Jintian, who has lived there for six decades, said the study was so effective he didn’t have to sleep with a mosquito net any longer. “We used to have a lot of mosquitoes in the past. Back then some people were worried that if mosquitoes were released here, we would get even more mosquitoes,” he said. “We have a lot less mosquitoes now compared to the past.” Reuters
Entertainment
Cybersecurity
Private poll
Wanda closes movie leisure complex
Vietnam’s central bank raises alarm after hackers’ attacks
Indonesia’s GDP growth seen barely higher
Chinese conglomerate Wanda has closed a movie leisure complex “for renovation” only 19 months after it went into operation, it said yesterday, dealing a blow to the company’s diversification plans shortly after opening its first theme park. The entertainment facility in the central city of Wuhan, launched in December 2014 and reportedly costing 3.8 billion yuan (now US$570 million), was shut down on Sunday, the Wanda subsidiary that runs it said in a statement sent to AFP. It will be “comprehensively upgraded and renovated” to improve services before reopening, the company said, without giving a date. The complex was receiving “far fewer” daily visitors than the 800-1,000 originally expected, the local Chutian Metropolis newspaper said Monday, with tourists complaining that they had to queue for hours for each attraction. Wanda denied the report. Owned by billionaire Wang Jianlin, Wanda is seeking to shift its focus from property to services and entertainment as profits wane in China’s real estate sector. “The era where you can make money easily is gone. This is our judgement about the long-term trend in the real estate sector,” Wang said in a speech last year. AFP
Vietnamese central bank has warned banks, credit institutions and financial organizations against hacker attacks after websites of Vietnam Airlines and IT systems at airports were hacked. Specifically, the State Bank of Vietnam has instructed the agencies to review their network safety, especially online customer service, and take necessary steps to secure their IT system, protect and recover databases if needed, reported local Vietnam News yesterday. The central bank also ordered technicians to monitor IT systems constantly and improve oversight to discover attacks immediately. Vu Ngoc Son, deputy chairman in charge of anti-malware at Vietnam’s BKAV Technology Group, admitted that the recent attacks on the website of Vietnam Airlines and airports’ IT systems were very serious attacks and hackers have entered deeply into the airlines database. “In Vietnam, most enterprises only invest in equipment and ignore online security. When they find an illegal attack, they do not know how to cope with it and it worsens the aftermath,”Son told Vietnam News. Vietnam News also cited statistics that Vietnam is among the nations to suffer the most malware attacks. Xinhua
Indonesia’s economy likely expanded only slightly faster in the second quarter than the first, a Reuters poll showed, highlighting challenges policymakers face getting the resource-dependent country onto a faster growth track. The median forecast of 16 analysts in the poll was for annual growth of 5.00 percent in April-June, compared to the 4.92 percent reported for the first quarter. Indonesia’s central bank is less optimistic, forecasting 4.94 percent annual growth for the second quarter. In its last policy statement, on July 21, Bank Indonesia (BI) cited no significant improvement in non-construction investment and weak exports as the main reasons for limited growth in April-June. Late last month, BI Governor Agus Martowardojo said growth will accelerate in the second half, bringing full-year 2016 growth to 5.09 percent. He previously said growth could be higher if the government’s tax amnesty programme attracts billions of dollar back home. The median forecast of nine analysts in the poll who gave a full-year view was 5.04 percent growth. Southeast Asia’s largest economy grew 4.79 percent last year, the weakest since 2009. Reuters