Urban Renewal Committee discuss building repair fund Society Page 2
Thursday, August 4 2016 Year V Nr. 1101 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Hospitality
InterContinental Hotels Group sees 45 pct profit fall in H1 y-o-y Page 7
www.macaubusinessdaily.com
Private investment
New rules
Chinese firms hoarding US$1 trillion cash they daren’t spend Page 8
Mainland authorities attempt to revamp national futures markets Page 9
Prescription for Success Health
The One Belt, One Road initiative could help Macau. Serving to facilitate the entry of Traditional Chinese Medicine into Europe. Portuguese health sector representatives have visited Guangdong-Macau Co-operative Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin. And say Macau has all it takes to make it happen. Page 5
Risk control
Sky-high July
A record July. The local airport recorded its highest single month of passenger traffic, with 600,000 passenger movements in total. Some 4,900 aircraft movements were registered. Southeast Asia remains the biggest market.
Banking AMCM says the city’s banking sector is gaining higher returns. Benefiting from their its expanded exposure beyond Macau. However, it counsels the SAR Gov’t to strengthen its supervision of local banks’ increasing external exposure to a limited number of jurisdictions. Page 5
Cut and thrust
Aviation Page 4
HK Hang Seng Index August 3, 2016
21,739.12 -390.02 (-1.76%) Worst Performers
HSBC Holdings PLC
+1.57%
Hong Kong Exchanges and
Wharf Holdings Ltd/The
-5.84%
CLP Holdings Ltd
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Bank of Communications
-1.12%
Li & Fung Ltd
-4.70%
Cheung Kong Property
-3.58%
Lenovo Group Ltd
-0.39%
Power Assets Holdings Ltd
-1.16%
CNOOC Ltd
-4.43%
New World Development
-3.50%
CK Hutchison Holdings Ltd
-0.54%
Bank of China Ltd
-1.23%
Sun Hung Kai Properties Ltd
-4.07%
Cathay Pacific Airways Ltd
-3.46%
China Overseas Land &
-0.58%
Cheung Kong Infrastructure
-1.27%
Hang Lung Properties Ltd
-3.99%
Galaxy Entertainment Group
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-1.09%
28° 30° 27° 31° 28° 32° 28° 33° 28° 33° Today
Source: Bloomberg
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Monetary stance Cut when appropriate. Chinese researchers at the National Development and Reform Commission were referring to interest rates and the required reserve ratio for banks. Researchers also called for implementing ‘proactive’ fiscal policy. And making investment more effective. Page 8
2 Business Daily Thursday, August 4 2016
Macau In Brief Administration
IC opens public tender for security services The city’s Cultural Affairs Bureau (IC) has announced the opening of a public tender for security services at six attraction sites for a period of three years from 2017 to 2019, according to a dispatch published in yesterday’s Official Gazette, signed by IC president Ung Vai Meng. The six sites are the Mandarin’s House, Lou Kau Mansion, Ruins of St. Paul’s, St. Joseph’s Seminary & Church, Guia Fortress & two military tunnels, and General Ye Ting’s Former Residence. The public tender will be opened on September 6 at IC building in Tap Seac Square. Labour
Police nabbed 81 illegal workers in June
Urban Renewal
More repair money, please The Urban Renewal Committee has agreed to propose an increase in the building repair fund to the Legislative Assembly. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he U r b a n R e n e w a l Committee has agreed to propose an increase in the building repair fund to the Legislative Assembly (AL) in order to fulfil the objectives for old house renewal. “The Housing Bureau will make a presentation of the background t o th e b o a r d . F o l l o w i n g thi s presentation at the next meeting, members will issue opinions and views on how to improve or expand this fund. The amount of reconstruction the fund can do at the moment is limited so we believe we can make better use of
the fund,” Secretary for Transport and Public Works Raimundo Arrais do Rosario told reporters yesterday following an Urban Renewal Committee meeting. The Director of the Housing Bureau will present the fund change jointly with the Legal Affairs Bureau (DSAJ) to the legislators on commercial activity condominium administration.
Heated forum
This decision comes after yesterday morning some Urban Renewal Committee members discussed the city’s urban renewal policy on the TDM radio programme ‘Macau Forum’, urging a better redevelopment plan for older parts of the city.
Lok Wai Tak, a committee member on the Urban Renewal Committee, suggested the administrative procedure for redevelopment of old buildings and repairing streets, sewers and landscaping in the city, has been inefficient in the past and urged the local government to speed up the urban renewal work. Mr. Lok also suggested the government relocate tenants to temporary housing units, regardless of whether the tenants are non-residents, and believed the government should ease the limit on height, arguing that otherwise developers will have difficulties participating in redevelopment projects. Fellow committee member Manuel Iok Pui Ferreira suggested that the government base its polices on how Zhuhai redevelops its old buildings, mentioning how the neighbouring territory’s government compensates affected property owners with a 1:1.2 ratio.
Local police detained a total of 81 illegal workers in the territory in June, according to an announcement by the Public Security Police Force yesterday. The security department said it had inspected a total of 314 venues with Labour Affairs Bureau personnel and other related departments. The inspected venues included construction sites, private property, and commercial and industrial venues. The authority did not announce the total number of illegal workers caught for the second quarter of the year. But for the first three months of the year, the police found a total of 106 people working without a permit in the Special Administrative Region.
Secretary for Transport and Public Works Raimundo do Rosário has chairs the third meeting in 2016 of the Urban Renewal Committee.
Courts
Investment company will save US$1.9 mln in taxes
Profitable tax dispute Television
Zhejiang TV now broadcasting in the city Mainland Chinese TV channel Zhejiang Television started broadcasting in the Special Administrative Region via Macau Cable TV on Tuesday, according to Xinhua news agency. The CEO of Macau Cable TV, Angela Lam, said at the launch ceremony on Tuesday that the broadcast of the Mainland channel in the city would fulfill the demands of local audiences, in addition to strengthening the exchange between the city and the country. Prior to the launch of Zhejiang Television in Macau, local residents have been able to watch a number of Mainland Chinese channels, including the news channel, the Chinese international channel and the English documentary channel of China Central Television (CCTV).
An Administrative Court decision in favour of investment company Terra Capital Plc in AIA Tower sale tax dispute with local government helps fund’s share price increase. Nelson Moura nelson.moura@macaubusinessdaily.com
The MSAR Administrative Court’s decision in favour of investment company Terra Capital Plc in regard to AIA Tower’s sale tax dispute with the local government has helped the fund’s share price increase, according to a company statement. A Terra Capital statement on July 29 referring to the ruling states the Administrative Court’s decision would have a positive effect on the fund’s net asset value (NAV) of approximately US$0.028 (MOP0.22) cents per share. Yesterday, the fund’s nonexecutive Chairman, Dirk Van den Broeck, stated that Terra Capital per share value grew 5.03 per cent yearon-year in the first half of 2016. “[This year] is so far shaping up to be another year of strong relative outperformance, building on the success we had in 2015 and 2014 in terms of NAV growth . . . Importantly, the returns we are generating are
less volatile than, and less correlated with, those of the wider market and our peers,” Broeck stated.
Controversy Tower
The court case dates back to 2012 when Terra Capital - at the time named Speymill Macau Property - sold the building to American insurance company AIA for HK$1.2 billion (US$162.4 million/MOP12.9 billion) per company sale information of that time. Ac c o r d i n g t o a c o m p a n y statement dated July 29, the court
Passing the Tower around
Built in 2001, the AIA Tower remained unoccupied until May 2005, when a joint venture led by Morgan Stanley Real Estate Funds, together with investors such as Hong Kong-listed Pioneer Global Group and US financial giant Wachovia Corp, purchased it for HK$600 million, according to
ruling will allow Terra Capital to deduct the accumulated, but not applied, depreciation from the selling price of AIA Tower “thereby reducing the taxes due by about US$1.9 million”. The company release also says the government can appeal the decision until September 15 of this year and if no appeal is submitted by this date then the current decision will be deemed final. When questioned if the government would appeal the decision, the Financial Services Bureau(DSF) told Business Daily it would “study the court’s decision before taking any further action at this stage”. Business Daily questioned the Administrative Court if information on the court ruling was available for consultation, with the court responding no information was available to anyone outside the involved parties.
the South China Morning Post. Following a year of renovation, it was completed in the second quarter of 2006. The Tower was relaunched and rebranded with US insurance giant AIA its primary tenant, with Speymill Macau Property acquiring the building in 2008 for HK$1.2 billion, and later selling it for the same price to AIA.
Business Daily Thursday, August 4 2016 3
Macau Banking Local banks’ return driven up by increased external exposures
Higher returns out there A research report by the local monetary authority suggests the city’s banking sector may enjoy higher returns through business diversified outside the territory. Kam Leong kamleong@macaubusinessdaily.com
L
ocal banks are benefiting from their expanded exposures outside the Special Administrative Region despite the number of jurisdictions being limited, a research report by the Monetary Authority of Macau (AMCM) reveals.
‘According to our econometric estimation, increased external assets of Macau banks have positive contribution to bank returns,’ the research and statistics department of AMCM noted in its latest quarterly report. The research indicates that the city’s banking sector has actively expanded cross-border business with the focus on Asia since the European debt crisis of 2008. ‘This development
has moderated banks’ exposure to domestic shocks,’ it reads. Previous official data of AMCM showed that the city’s banking sector held a total of MOP1,139 billion-worth (US$142.4 billion) of external assets as at the end of last year. Of the total, claims on Hong Kong and Mainland China occupied 38.2 per cent and 23.1 per cent, while those on Portugal took up some other 3.5 per cent. ‘Macau banks generally benefit from geographical diversification, although their cross-border claims are increasingly concentrated in Hong Kong, Mainland China and Portugal,’ the department says, noting there are ‘significant positive relationships
between the returns and the claims on Mainland China and Portugal’. In terms of region, the local banking sector actually witnessed the share of cross-border claims vis-à-vis Asia increase to 69.2 per cent from 61.5 per cent and the share of Europe decrease to 9.2 per cent in end-2015 from 26.8 per cent as compared to end-2008, according to the report. ‘This development reflected that Macau banks, like other Asian banks with strong balance sheets, owing to robust economic growth and conservative supervisory regimes, stepped in and made up for the reduced claims by European banks on the Asian region,’ the Authority explained.
Government monitoring
But the report also noted that the MSAR Government should strengthen its supervision of local banks’ increasing external exposure to a limited number of jurisdictions. ‘It is necessary for the authorities to strengthen supervisory measures and co-operation with home supervisors of foreign banks in order to guard against adverse cross-border financial spill-overs,’ it warned. Meanwhile, the Authority expects that the local banking sector’s exposure to Mainland China, Hong Kong and Portugal ‘are going to stay at a high level’. ‘But the apprehension of growth prospects in Mainland China and the [Renminbi] exchange-rate reform in the latter part of 2015 caused Macau banks to reduce their external claims on Mainland China,’ the research department noted. ‘It is expected that cross-border claims on the Mainland would fluctuate in the near term but will continue to expand and occupy a prominent share in Macau banks’ external assets in the long run.’
Banking
BNU profits increase 17pct y-o-y in H1 The bank posted MOP 278.57million net profit in the first half of 2016, while falling gaming revenues harmed credit card payment commissions. Nelson Moura nelson.moura@macaubusinessdaily.com
In the first half of 2016 Banco Nacional Ultramarino S.A. (BNU) registered MOP 278.57million (US$34.86 million) in net profit, a 17 per cent increase year-on-year according to a bank financial statement sent to Business Daily. The Chief Executive Officer of BNU, Pedro Cardoso, told news agency Lusa that the bank’s liquid results have followed the “trend of the last four years” with 2016 being the “fifth consecutive year of registered increase in business volume and profitability” in Macau. According to BNU’s latest financial statement business volume increased by 16.9 per cent in the first six months of the year to MOP91.15 million, with the bank’s CEO referring to the growth as “more moderate than in the past”. Business volume includes loans, deposits, guarantees given, loans to credit institutions and credit lines opened but not used. Cardoso also considered that business volume growth was “more expressive in deposits than in loans”, as BNU registered a 7.5 per cent yearon-year increase in loans in the first six months of this year to reach MOP27.25 million, while deposits saw an increase of 25.3 per cent to reach MOP51.55 million in the same period.
Gaming revenues not helping
Mr. Cardoso indicated that the contraction in the gaming sector in Macau and its impact on the city’s
gross domestic product (GDP) has had an effect on the business generated by commissions related to credit card payments. In Macau, gaming revenue for the month of July dropped 4.5 per cent
year-on-year to MOP17.77 billion, marking the 26th consecutive month of decline in gross gaming revenues for the MSAR. Official data also shows Macau’s gross domestic product (GDP) in the first quarter of 2016 decreased 13.3 per cent, and has been decreasing year-on-year since the fourth quarter of 2014. Expenses registered in the first six months of 2016 increased 2.8 per cent
year-on-year to MOP149.95 million but Mr. Cardoso stressed the bank’s “loan portfolio quality” - the ratio of total bad debt to total assets – had decreased from 0.50 per cent in June 2015 to 0.17 per cent in June of this year. The number of BNU clients in Macau has also increased by 4.5 per cent year-on-year in the first half of 2016 to 217,398 people, according to the bank’s financial statement.
4 Business Daily Thursday, August 4 2016
Macau Opinion
Ashley Sutherland-Winch Uber Gray It has been an exciting week for ride-hailing companies in Asia but whether the people of Macau will benefit has yet to be determined. Fans of Uber and Didi welcomed the news from China’s Cabinet on Friday that they recommended that local officials promote ride-hailing as a booming industry and confirmed the legal status of Uber Technologies Inc., Didi Chuxing and other local competitors. Then on Monday, Uber announced that it is selling its China operations to Didi in a deal that will also give Uber a one-fifth stake in Didi. Now that the ridehailing giants have merged, where does this leave fans of the popular apps in Macau? Utilising these apps for rides in Macau is still a veritable gray area. It’s my understanding that customers can ride with Uber and Didi in Macau - but the drivers of the cars picking up passengers drive at their own risk of potential fines and loss of their vehicles if they are stopped by the authorities. On the popular Facebook public group Macau Taxi Driver Shame there have been recent stories of passengers being stopped by Macau police while riding in an Uber-hailed vehicle. One patron shared a recent experience in which the police stopped a Uber ride, fined the driver and impounded the vehicle, but then drove the patron to the person’s intended destination! The patron also commented that the Macau police involved in the stop were very apologetic for the inconvenience. This gray area of legality causes great stress to those interested in using ridehailing applications. The popularity of the apps is generated because of their ease of use and on-demand ride opportunities, but is the risk of being stopped worth it to the consumer? The estimated worth of the merged entity of Uber and Didi is around US$35 billion, a sum that will hopefully ensure longevity and continued lobbying for operations in Macau. As an international city, we should be open to all types of companies that promote convenient transport in our city without fear of legal interaction. Upon opening the Uber app this week, you see a pop up screen announcing ‘Your Legal Rights in Macau’ which states ‘I have the right to remain silent until my lawyer is present,’ among other statements. This message does not instill confidence in the patron so I hope that the legality of ride-hailing is soon no longer uber gray. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Aviation Over 600,000 passengers used local airport in July
Record single month passenger traffic for airport MIA says Palau Pacific Airway will launch charter flights between Palau and Macau this month.
M
acau International Airport (MIA) experienced its busiest month ever in July 2016, processing over 600,000 passenger movements for the first time in the airport’s 21-year history, according to an announcement released by MIA. The local airport says this is the highest single month of passenger traffic with average daily passenger
volume of over 19,000, up some 20 per cent increase compared to last year. There were over 4,900 aircraft movements in July, two per cent more than the same period last year. Southeast Asian routes continued to perform well in July, accounting for 43 per cent of the overall market, followed by Mainland China and China Taiwan, making up 30 per cent and 2 per cent, respectively.
The three major markets recorded 36 per cent, 3 per cent, and 18 per cent increases respectively, vis-a-vis the same period last year. As at the end of July 2016, MIA handled around 1,040 weekly scheduled flights with 30 airlines connecting Macau to 42 cities around the world. Meanwhile, South Korean home-based carrier T’Way Airlines resumed 5 weekly f l i g ht s f r o m S e o u l t o M ac a u effective 22nd July 2016. Palau Pacific Airway will launch charter flights between Palau and Macau this month.
Telecommunications The operator’s mobile business slumped 62 pct in the SARs
Hutchison HK net profit down 26 pct in H1 Hutchison Telecommunications Hong Kong Holdings Ltd., the parent company of 3 Macau, saw its net profit attributable to shareholders plunge by 26 per cent year-on-year to HK$376 million (US$46.8 million) for the first half of the year as revenue derived from its mobile business in Hong Kong and Macau slumped. According to its filing with the Hong Kong Stock Exchange on Tuesday, the company’s total revenue halved to HK$5.3 billion for the six months compared to HK$11 billion for the same period of 2015. In particular, the operator’s mobile business in the two Special Administrative Regions plunged 62 per cent in revenue, some HK$3.5 billion compared to HK$9.2 billion one year ago. The decline is due to the group’s hardware revenue diving 79 per cent year-on-year to HK$1.5 billion from HK$7.2 billion. The company explained the significant decrease is due to ‘the lack of popular smartphones available on the market during the period’. Meanwhile, the Hong Kong-based company’s revenue from mobile net customer service fell 6 per cent yearon-year to HK$1.97 billion for the six months as a result of a 19 per cent drop in its roaming revenue. Nevertheless, its fixed-line service registered a better performance compared to the first half of 2015, with revenue from the segment rising 4 per cent year-on-year to HK$2.1 billion. As at the end of June, the operator had a total of 3.1 million customers in
Hong Kong and Macau, of which the number of post-paid customers accounted for nearly half at 1.5 million. ‘The Group is planning ahead cautiously in the face of economic uncertainty locally and globally, after
developing into a multi-play telecommunications service provider that launches a diversity of products and services to meet changing customer demand.,’ the company wrote in the filing. K.L.
Business Daily Thursday, August 4 2016 5
Macau
TCM ‘One Belt, One Road’ to aid entry of TCM products into Europe
Chinese expansionist medicine policy As the Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin grows, opportunities arise for those well positioned to cultivate the benefits. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
As a delegation from Portuguesespeaking countries left Macau on Monday to return to their respective countries after over two weeks in the territory and nearby Guangdong Province a question still remains as to exactly what potential exists in the development and expansion of Traditional Chinese Medicine (TCM) via the 500,000 square metre Traditional Chinese Medicine Science and Technology Industrial Park to be located in Hengqin. “The main objective is focused on the entry of the products of TCM into Europe. And this is closely linked to the One Belt, One Road strategy of the Mainland,” says Ana Correia, Head of the Co-operation Division for the Portuguese DirectorateGeneral of Health and member of the delegation from Portuguesespeaking countries. Correia and her colleagues came to the MSAR at the invitation of the Permanent Secretariat of the Forum for Economic and Trade Co-operation between China and Portuguesespeaking Countries (Forum Macao) and the TCM technology industrial park. “This is a strategy that was chosen,” notes Correia. “I think that the large bet that is being placed - in the past and more so in the past few years is the expansion, an expansionistic policy, by China, in terms of TCM, to the whole world, repeating the strategies of the One Belt, One Road strategy.” The TCM industrial park is a project based upon the Guangdong-Macau Co-operation Framework Agreement signed in March 2011, for which the MSAR Government has founded a joint venture with Zhuhai Da Hengqin Investment Co. Ltd. to construct, operate and manage the park. In its first phase, the park, set to open in 2017, has already seen investment equalling 2.3 billion yuan for three buildings housing the park’s headquarters, a testing and research centre, and a GMP (genetically modified plants) Pilot Plant.
Opportunity
“This could be an important focus of the development of the Macau territory, at the base, trying to diversify the economy away from gaming,” notes Correia, commenting
on potential development, especially within the health tourism and wellness tourism sectors. “Macau has all the conditions for this to happen, it has financial conditions. It has structural conditions to do it,” Correia opines further, noting the long-term vision that must be put in place in order to see eventual benefit. During the delegation’s visit they were taken on a tour of the facilities as well as visiting regional clinics, pharmacies and even a museum of traditional Chinese plants in order to understand both the theoretical and practical applications of TCM. “The park has very high growth potential and everything that we were shown, whether in regard to the structures themselves and their growth or in regard to the financial resources, there exists huge potential,” she said. This long-term view is echoed by the local government, especially in regard to the benefits to be mined by the local community apropos the park’s growth. “We’ll promote long-term economic development and strengthen regional co-operation, especially co-operation with Guangdong. In this way, small and medium enterprises in Macau can have more chances in the future,” Chief Executive Chui Sai On said, as quoted on the Hengqin official website.
“The combination of the industrial park, the state key laboratory and the traditional medicine center […] is bound to advance the pharmaceutical industry in Macau,” the Chief Executive added. Benefits for local companies in the pharmaceutical industry wanting to set up within the park are largely tax oriented, as Dr. Lu Hong, president of the park and consultant for the Secretariat of Economy and Finance, has explained to Business Daily. “Our basic benefit for these companies is that they can enjoy a corporate income tax of 15 per cent, which is more beneficial than the rest of the Mainland,” Dr. Lu said. “We also have a tax refund policy that targets employees from Macau and Hong Kong [working in the park] where they can enjoy the same income tax conditions as in Macau,” she added. Business Daily was awaiting a response from the park regarding specific efforts to secure contracts with local SMEs (small and medium enterprises) and developing local industries when this story went to print.
Europe
Efforts to link park officials and Forum Macao representatives with their European counterparts – through visits such as those to Holland, the Czech Republic and Portugal led by Dr. Lu Hong - are being conducted. Currently, however, Macau itself seems to have little to offer – or to receive - aside from being a meeting space, as the park moves forward since most initiatives target external opportunities.
“For Portugal, there is interest because it’s a market that could grow and it could bring business and lead to some investment,” notes Correia. “In the case of the African countries, the perspective would be a little different, as the countries are principally countries that are still under development so there might not be as much of an opportunity for profit and to make business deals. There is more [opportunity] principally in terms of research of tropical plants and in terms of trade or research,” she said. All fingers seem to point to the MSAR’s biggest advantage being its language legacy. “Macau, being a former Portuguese colony, always has the potential of the language – which is fundamental. It can function, and the Forum Macao can work, as this platform to link Mainland China and the Portuguese-speaking countries. So here there has to be an effort and commitment of investment by the Macau authorities in this direction and Portugal can be a focal point in creating this bridge,” said the health bureau representative. “Portugal has this capacity and it has the willingness to help the authorities of the territory to enter and explore the European market, obviously abiding by the necessary requirements,” said Correia, adding that despite these possibilities opportunity seekers should be prepared, as “the European market also defends itself and there has to be a trade-off between China and the European countries.”
6 Business Daily Thursday, August 4 2016
Macau SMEs
Gov’t lending to SMEs down almost 9 pct in July Meanwhile, the authorities did not approve any new loans for local young start-ups last month. Kam Leong kamleong@macaubusinessdaily.com
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he government approved lending amounting to MOP26.7 million (US$3.3 million) to the city’s small and medium-sized
enterprises (SMEs) via two of its financial aid schemes in July, representing a drop of 8.9 per cent on average compared to MOP29.3 million for the month before, official data released yesterday by Macao Economic Services (DSE) reveals. Last month, the economic bureau
approved loans of MOP17.6 million under its SME Aid Scheme for 44 applicants, down 9.3 per cent monthon-month. The latest approved subsidies brought the scheme’s total granted aid for this year to MOP134.1 million. The bureau also received 48 new applications for the subsidy scheme in the month. The scheme grants loans of up to MOP600,000 per applicant for
different finance purposes such as for the purchase of equipment, renovation and advertising, while enterprises have as much as eight years for repayment. For the first seven months of the year, the local retail industry received MOP34.7 million-worth of loans from the scheme, nearly 26 per cent of the total. In addition, those engaged in the construction field and real estate services were granted loans of some MOP20 million and MOP19 million, occupying 15 per cent and 14.2 per cent of the total, respectively. Meanwhile, some MOP9.1 million-worth of loans were approved for five applicants under the SME Credit Guarantee Scheme, down 8 per cent month-on-month. The SME Credit Guarantee Scheme provides each beneficiary with credit guarantees equal to 70 per cent of the loan approved by participating banks, up to MOP3.5 million. Between January and July, the scheme has lent a total of MOP55 million to local SMEs. Of the total, 31.1 per cent, or MOP17.1 million, was allocated to the wholesale industry, whilst 17.4 per cent and 16.6 per cent were approved to companies in the real estate services and construction field, amounting to MOP9.6 million and MOP9.1 million, respectively.
No lending to young entrepreneurs
The economic body also received some 26 applications for lending under the Young Entrepreneur Aid scheme in July but did not greenlight or reject any application during the month. Total loans that the government has disbursed via the scheme thus remained at MOP39.2 million for the first seven months of the year. The Young Entrepreneurs Aid Scheme, implemented in August 2013, offers interest-free loans of up to MOP300,000 to young local people to start their own business.
Subsidy
Industrial and Commercial Development Fund disburses MOP26.65 mln Annie Lao annie.lao@macaubusinessdaily.com
The city’s Industrial and Commercial Development Fund disbursed MOP26.65 million (US$3.33 million) in the second quarter of this year to subsidise events held by local enterprises and organizations and their bank loan interest as well as to establish or maintain small and medium-sized enterprise (SME) websites, according to yesterday’s Official Gazette, and signed by the president of the fund Tai Kin Ip, who is also Director of the Macao Economic Services (DSE). This represents an increase of 122 per cent compared to the previous quarter. During the second quarter, the Fund subsidised 248 local firms and organisations. Of the total, 30 entities were award MOP14.04 million for expenditure on their events and activities held during the period, accounting for 53 per cent of the total. The largest amount totalled about MOP4.63million, accounting for 17 per cent of the total funding, and was allocated to Transferência Electrónica de Dados - MACAU EDI VAN S.A. (TEDMEV) for financial support. Meanwhile, some MOP 7.48 million
was allocated to subsidise the bank loan interest of 186 local enterprises based on the Interest Subsidised Scheme on Bank Loans to Enterprises, representing 28 per cent of the total. The scheme, implemented in 2009,
subsidises four per cent interest on bank loans of between MOP300,000 and MOP10 million of local companies. This part has been settled by and paid by the Monetary Authorities of Macao (AMCM).
The Fund also disbursed subsidies of some MOP494,970 to 31 SMEs to set up or maintain their own websites during the second quarter of the year, which makes up 1.86 per cent of total funds, ranging from MOP14,000 to MOP16,800. The financial support programme grants subsidies of between MOP6,000 and MOP50,000 to each SME seeking to establish or maintain online sites.
Business Daily Thursday, August 4 2016 7
Macau Hospitality Holiday Inn and Crowne Plaza operator sees strong China and weak MSAR revenue
IHG sees 45 pct profit fall in H1 y-o-y Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
nterContinental Hotels Group (IHG), who run the Holiday Inn and Crowne Plaza hotel group operations in Macau, have posted total gross revenue from the group’s hotel ‘system’ – including franchising – of US$11.9 billion as well as a 3.6 per cent net room growth year-on-year for the first six months of this year, according to the interim results published by the group on their website. IHG operates, franchises or manages a number of brands including the InterContinental, HUALUXE, Crowne Plaza, Hotel Indigo and Holiday Inn within greater China, as well
as operations throughout Europe including the Staybridge brand. In America they have the EVEN, Kimpton and Candlewood Suites brands and properties in AMEA (Asia, Middle East and Africa) amounting in total to 749,721 hotel rooms in 5,070 hotels. Some 4,243 of these are franchised, with 820 managed and 7 owned and leased by the company. The group saw a profit attributable to shareholders amounting to US$20 million for the six-month period, a 45 per cent drop compared to the same period of 2015.
China
For the first half of this year the group saw growth of 4.7 per cent in Mainland China and comparable
RevPAR (revenue per available room) increasing 2.4 per cent for the sixmonth period. However, these were ‘offset by continued declines in Hong Kong and Macau,’ notes the report. The group’s approach to the region is particularly focused on the Mainland market, where it plans to ‘maximise our long term growth potential by using our mainstream brands to penetrate less developed cities’. The results of the strategy has pushed profit up 38 per cent ‘driven by strong trading in Mainland China, double digit year-on-year system growth and US$3 million managed fee contribution from InterContinental Hong Kong, which was sold on 31 October 2015,’ notes the report
regarding its China segment. The sale of property also impacted reported revenue and operating profits, which saw a 53 per cent and 41 per cent decline, respectively, for the region’s results. The group currently operates 83,330 rooms through 271 hotels in the Greater China (including Hong Kong and Macau) region, with a further 62,185 rooms through 222 hotels in the pipeline. ‘Whilst there continue to be political and economic uncertainties in some regions, our geographic diversity and resilient business model, together with current trading trends, leaves us confident in the outlook for the rest of the year,’ notes the report.
Cruises
Gaming
Genting Hong Kong anticipates US$75 mln hit
MGM Resorts acquires interest in Borgata Hotel
Genting Hong Kong Ltd., formerly known as Star Cruises Limited, a joint venture casino operator in the Philippines and a casino cruise operator, has issued a profit warning anticipating a ‘net loss in the range of US$60 million to US$75 million’ for the first six months of 2016, according to a filing on the Hong Kong Stock Exchange. For the same period in 2015 the group recorded a net profit of US$2.1 billion. Genting states that the decline is ‘mainly attributable’
to a reclassification of a one off accounting gain from the group’s investment in Norwegian Cruise Line Holdings Ltd. – amounting to US$1.57 billion and a US$559.6 million gain from the disposal of stakes in the same cruise line. In addition, the group’s launch of its Dream and Crystal cruise brands and products and overall expenses were ‘a direct result of the integration of the Group’s recently acquired businesses’. K.W.
MGM Resorts International, parent company of local operator MGM Macau, announced earlier this week that it has completed acquisition of Boyd Gaming’s interest in the Borgata Hotel Casino & Spa as well as the Water Club Hotel, located next door, in Atlantic City, New Jersey, U.S.A, the group announced in a press release.
Gaming
Imperial Pacific: VIP rolling chips jump 5 pct in Saipan Casino operator Imperial Pacific International Holdings Ltd. generated VIP rolling chips valued at US$1.74 billion (MOP13.9 billion) from its ‘temporary casino’ on the island of Saipan in July, an increase of 5.2 per cent compared to the US$1.66 billion of the month before, according to the company’s filing with the Hong Kong Stock Exchange on Tuesday evening. The operator’s temporary casino was launched last November. This May, the company said that its VIP gaming operations on the Pacific island had already reached saturation, estimating business from the segment would stop growing before the completion of its sister project, Grand Mariana Casino and Hotel Resort, during the first quarter of 2017.
“As the premier resort in Atlantic City, Borgata is a great addition to our growing presence in the mid-Atlantic and Northeast United States,” stated Jim Murren, Chairman & CEO of MGM Resorts, in the release. MGM put down approximately US$900 million for the acquisition, with US$589 million in cash proceeds, after working capital adjustments and consideration of Borgata’s outstanding debt – amounting to US$575 million, a portion of which was refinanced and assumed by an MGM subsidiary which has acquired the Borgata property from its parent company, leasing it back to another subsidiary to run the operations. The transaction adds 2,000 rooms and 161,000 square feet of gaming as well as other luxury amenities, spa and nightclubs, while the Water Club adds a further 800 rooms, meeting space, retail and spa and online gaming. MGM Resorts had to give up control of its 50 per cent interest in the complex, one of Atlantic City’s (New Jersey) best performing gaming properties, due to issues in 2009 regarding the involvement of casino mogul Stanley Ho’s daughter – Pansy Ho – as a 50 per cent partner in the group’s Macau operation, notes GGRAsia. This decision was later overturned, after the voluntary exit of MGM Resorts from the property and in 2014 the gaming commission of the state allowed MGM Resorts to re-enter the Atlantic City casino market, the publication reports. K.W.
8 Business Daily Thursday, August 4 2016
Greater China Private investment
Mainland companies too scared to spend their cash If Chinese policy makers had their way, companies would be putting that money to work instead. Kana Nishizawa
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ever before have China’s companies had so much cash and so little to spend it on. With investment opportunities sparse amid the country’s weakest economic expansion in a quarter century, Chinese firms reported an 18 per cent jump in cash holdings during their latest quarter, the biggest increase in six years. The US$1.2 trillion stockpile - which excludes banks and brokerages - grew at a faster pace than in the U.S., Europe and Japan, according to data compiled by Bloomberg. While there are worse problems than having too much cash, China Inc.’s unprecedented hoard is frustrating both policy makers and investors. Because companies lack the confidence to spend on new projects, government attempts to boost growth by pumping money into the financial system are falling short. Stockholders, meanwhile, would rather see bigger dividends or share buybacks than a build-up of idle cash on corporate balance sheets. “This is actually becoming a bigger and bigger issue,” said Herald van der Linde, the Hong-Kong based head of Asia Pacific equity strategy at HSBC Holdings Plc. “Cash is becoming a point of debate.”
The impulse to hoard instead of invest is relatively new for a country where corporate risk-taking has been rewarded for much of the past 25 years. But as economic growth moves deeper below 7 per cent from double-digit levels just a few years ago, the change in mind-set has been stark. Growth in China’s private spending on fixed assets, which topped 10 per cent last year, slowed to 2.8 per cent in the six
months through June, the weakest level on record. “The drivers aren’t there” for Chinese firms to invest, said Sean Taylor, chief investment officer for the Asia Pacific region at Deutsche Asset Management in Hong Kong, which oversees about US$803 billion globally. Not all Chinese companies are sitting on too much cash. Some don’t have enough, as reflected in an
unprecedented 17 defaults in the country’s onshore corporate bond market so far this year, more than double the tally for all of 2015. Firms in so-called old economy sectors - including industrial, energy and materials companies - have had the most difficulty growing their cash balances, while new economy businesses in the consumer and technology industries have seen their stockpiles swell.
Debt concerns
Some of the cash build-up may reflect worries among corporate executives that refinancing debt will become more difficult as the economy slows.
“If it becomes a trend for companies to keep all the cash and not distribute it to shareholders, it will create concerns about the attractiveness of mainland shares” Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong
Nation’s markets
Authorities said to plan index futures revival China’s stock-index futures market, the most active in the world before last year’s crackdown, has come under scrutiny from regulators. China’s futures exchange is planning to relax the restrictions on stock-index contracts that sparked a 99 per cent plunge in trading and heightened concern over the government’s intervention in markets, according to people familiar with the matter. The bourse is considering allowing non-hedging accounts to open 100 new positions a day on a single contract, the people said. Currently, anything over 10 is labelled “abnormal trading.” It’s also considering lower margin requirements and smaller fees on sameday transactions, the people said. The
proposals have yet to be finalized and any new rules would require approval from the China Securities Regulatory Commission. The plan, which comes almost a year after China’s US$5 trillion equity crash prompted a controversial government crackdown, suggests authorities are growing more confident that shares have stabilized. Policy makers are trying to find the right balance between their desire for control and President Xi Jinping’s pledge three years ago to give markets a central role in Asia’s largest economy.
Some traders have blamed thin volumes for exacerbating price moves in the index futures market, including a 10 per cent flash crash in May. In that incident, contracts on the CSI 300 Index plunged by the daily limit before snapping back in less than a minute. Calls to a China Financial Futures Exchange spokesman weren’t answered. The CSRC didn’t immediately reply to a faxed request for comment. Traders in Shanghai have said an increase in the minimum price movement would help stabilize the market because it would increase the number of orders at each price level. That would make it less likely that a single order could rock the market, as happened on May 31. Under narrow price increments, known as tick sizes, investors are reluctant to reveal their orders in advance because others can jump ahead
of them by increasing the price by a small fraction. China’s stock-index futures market, the most active in the world before last year’s crackdown, has come under scrutiny from regulators in part because selling the contracts is one of the easiest ways for investors to make large wagers against stocks. It’s also a favoured product for short-term speculators because the exchange allows participants to buy and sell the same contract in a single day. In the cash equities market, there’s a ban on sameday trading. The Shanghai Composite Index, which plunged more than 48 per cent from its June 2015 high through this year’s low in January, has since gained about 12 per cent. Volatility in the benchmark equity gauge is less than a quarter of what it was during the crash last year. Bloomberg News
The plan comes almost a year after China’s US$5 trillion equity crash prompted a controversial government crackdown
Business Daily Thursday, August 4 2016 9
Greater China Monetary stance
Chinese firms face a record 3 trillion yuan (US$452 billion) of maturing onshore debt in the second half, data compiled by Bloomberg show. “For highly geared companies, that is a very good reason to be cautious,” said Alex Wong, who helps oversee about $100 million at Ample Capital Ltd. in Hong Kong. “It’s difficult to raise new funds as the stock market is bad right now and the bond market isn’t that good either.” China isn’t the only country with a hoarding problem. Companies in Japan boosted cash holdings to a record last year, a sign they’re unconvinced that fiscal and monetary stimulus will revive growth in Asia’s second-largest economy. Yet the pace of accumulation in China stands out. The nation’s 18 per cent quarter-on-quarter increase in cash and equivalents compares with gains of about 13 per cent in Japan, 5 per cent in the U.S. and 1 per cent in Europe, data compiled by Bloomberg show. If Chinese policy makers had their way, companies would be putting that money to work instead. Despite state efforts to spur growth with 9.8 trillion yuan of new aggregate financing this year, the country’s official manufacturing gauge is still signalling a contraction while the services sector is expanding at a slower pace than its five-year average. The government has been forced to pick up the slack, with state firms boosting fixed-asset investment by more than 23 per cent this year through June versus the same period in 2015. “The government is trying very hard to push the economy through investment, but the private side isn’t responding,” said Francis Cheung, the head of China and Hong Kong strategy at CLSA Ltd. in Hong Kong. “They’re not very confident.” If healthy Chinese companies can’t find promising projects, they should return cash to stockholders, according to Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. Increased dividends may be one way to appease investors. Excluding banks, firms domiciled in China have an average estimated dividend yield of just 1.6 per cent for the next 12 months, versus about 2.7 per cent for non-lenders in the MSCI Asia Pacific Index. “If it becomes a trend for companies to keep all the cash and not distribute it to shareholders, it will create concerns about the attractiveness of mainland shares,” Wan said. “I can see the reasons behind it, but of course investors won’t like it.” Bloomberg News
State planner calls for easing at ‘appropriate time’ National Development and Reform Commission generally does not express public views on central bank policy. A research office at China’s top economic planner has called for the central bank to cut interest rates and bank reserve requirements “at the appropriate time”, in rare comments on monetary policy by the agency. In a statement published on its website yesterday, the National Development and Reform Commission (NDRC) also said it would lower costs for firms, encourage private enterprises to raise capital by issuing bonds, and push cities to further cut oversupply in their housing markets. The comments on monetary policy, which said China needed “to find the appropriate time to further cut interest rates and RRR”, highlight the risks the planning agency sees to economic growth. The NDRC, generally associated with China’s economic conservatives, is responsible for regulating prices, guiding state investment and otherwise operating the most planned parts of the economy. It generally does not express public views on central bank policy. The People’s Bank of China (PBOC), meanwhile, has said in the past it will maintain a “prudent” monetary policy with a slight easing bias, leaving the door open for more cuts, although it
has not adjusted interest rates since October 2015. Investors have been watching China’s bureaucracy for signs of policy dissent since May, when the People’s Daily quoted an “authoritative person” warning of a financial crisis if the government relied too much on debt-fuelled stimulus. That caused markets to sell off briefly as investors worried the easing cycle was coming to a premature end and average lending rates rose. One government official said he saw the report as a way for the NDRC to exert pressure on the central bank. “The NDRC is always in favour of cutting rates because it is charged with keeping growth steady, while the central bank is always emphasising deleveraging, so it is more inclined to cut reserve requirements than interest rates,” said the official speaking on condition of anonymity.
Mild reaction
The NDRC statement came from a research unit of the agency, not its key policymakers. Although unusual, it had little effect on domestic markets. China’s stock indexes, which tend to respond positively to signals of policy easing, rose only slightly after the announcement. “Every ministry has this kind of policy support unit - they can say anything ... This shows that the NDRC as a macroeconomic management department, they see that the economy faces downward pressure,” said Zhou Hao, economist at Commerzbank in Singapore. Reuters
Authorities scrutiny
Regulator asks insurers to examine product risks The China Insurance Regulatory Commission (CIRC) has asked insurers to thoroughly assess business risks and strengthen their risk controls, the online financial magazine Caixin reported yesterday, citing anonymous industry sources. China’s insurers have rapidly moved into risky investments in recent years, analysts say, prompting increased regulatory scrutiny in recent months. Insurers were asked to examine risks in their product offerings, their use of funds, administration practices, repayment ability, debt burden and other areas, Caixin reported. In June, the state-owned Shanghai Securities News reported that CIRC was investigating insurers’ risk controls with respect to equity and real estate investments. Ride-hailing service
Taiwan says set to order Uber to exit market Taiwan’s Investment Commission said yesterday it is set to order Uber Technologies Inc to exit the domestic market, saying the global ride-hailing giant misrepresented its business as an internet-based information technology platform rather than a transportation service. Emile Chang, Executive Secretary at Taiwan’s Investment Commission, said a final decision will be made by August 11. The commission oversees Taiwan’s inbound and outbound foreign investments. The move comes amid a major strategic shift at Uber that will see its operations in China taken over by a mainland firm. Auto industry
Volkswagen says China car market growth to slow
Digital theft
Bitcoin worth US$72 mln stolen from exchange in Hong Kong The attack on Bitfinex was reminiscent of a similar but larger breach at MtGox. Nearly 120,000 units of digital currency bitcoin worth about US$72 million was stolen from the exchange platform Bitfinex in Hong Kong, making it the second-biggest security breach ever of such an exchange. Bitfinex is one of the largest exchanges for bitcoin, and is known in the digital currency community for having a platform that has deep liquidity in the U.S. dollar/bitcoin currency pair. Zane Tackett, Director of Community & Product Development for Bitfinex, told Reuters yesterday that 119,756 bitcoin had been stolen from users’ accounts and that the exchange had not yet decided how to address customer losses. “The bitcoin was stolen from users’ segregated wallets,” he said. Bitcoin plunged just over 23 per cent on Tuesday after the news broke. Yesterday it was up 1 per cent at US$545.20 on the BitStamp platform. Tackett added that the breach did not “expose any weaknesses in the security of a blockchain”, the technology
In Brief
that generates and processes bitcoin, a web-based “cryptocurrency” that can move across the globe anonymously without the need for a central authority. The volume stolen amounts to about 0.75 per cent of all bitcoin in circulation. “It’s the biggest USD exchange, so outside China it’s the one that everyone has an account with,” said Antony Lewis, a bitcoin expert in Singapore. “It’s
very liquid, folk can trade on margin, lots of daily volume.” It is not yet clear whether the theft was an inside job or whether hackers were able to gain access to the system externally.
“It’s the biggest USD exchange, so outside China it’s the one that everyone has an account with” Antony Lewis, a bitcoin expert in Singapore Bitfinex suspended trading on Tuesday after it discovered the breach. It said on its website that it was investigating and cooperating with the authorities. The attack on Bitfinex was reminiscent of a similar but larger breach at MtGox, a Tokyo-based bitcoin exchange that was forced to file for bankruptcy in early 2014 after hackers stole an estimated US$650 million worth of customers’ bitcoins. Reuters
Volkswagen AG’s China head said the country’s overall passenger car market would see slower growth in the second half of 2016, while the potential expiry of tax breaks on small engine cars could hit the firm’s sales next year. The carmaker’s China CEO Jochem Heizmann told reporters in Beijing that sales growth in the first half had been faster than forecast and it was now expected to moderate in the second half. He added that if tax breaks on smaller engine cars expired it could help drive pre-sales at the end of 2016. Gambling
Mainland’s lottery sales rise China’s lottery sales rose 3.5 per cent year on year to 194 billion yuan (US$30 billion) in the first half of 2016, official data showed on Tuesday. Sales of welfare lottery tickets dropped 0.5 per cent to 102 billion yuan, while sports lottery sales increased 8.4 per cent to 92 billion yuan, the Ministry of Finance said in a statement. The lottery sales in south China’s Guangdong Province in H1 climbed the most, up by 2.42 billion yuan, while Hubei, Henan and Yunnan also posted large increases, according to the statement.
10 Business Daily Thursday, August 4 2016
Greater China E-commerce players
Baidu, Tencent retreat from tie-up with Wanda According to a filing, the companies have been replaced as investor-shareholders by Shanghai Wanda Network Financial Services Ltd. David Ramli and Lulu Yilun Chen
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aidu Inc. and Tencent Holdings Ltd. have pulled out of a US$3 billion venture with one of China’s richest men, barely two years after it was launched with the ambition of revolutionizing mall shopping. China’s largest search engine and its top internet company teamed up with billionaire Wang Jianlin’s Dalian Wanda Group to set up ffan.com in 2014. At the time, they talked about how the venture could become the world’s largest e-commerce platform by - among other things - helping shoppers find stuff in malls, and merchants manage payments and data. Instead, Baidu and Tencent had been replaced as shareholders by a company backed by Wang as of July 7, a corporate filing showed. The split came as China’s biggest technology companies burn billions of dollars in a race to become the goto provider of online services such as food delivery, as Tencent and Baidu focus on their own platforms. The venture, which has pivoted toward online membership and rewards programs, was in part a response to the growing dominance of Alibaba Group Holding Ltd. in every sphere of internet commerce. “They have failed to come up with a good value proposition for why customers should buy in and that essentially explains why it has fallen apart,” Sandy Shen, a Gartner Inc. research director, said. It’s unclear why Baidu and Tencent
jettisoned their investments. But the three largest internet companies have begun to encroach upon each others’ turf, and their businesses now compete head-on in everything from mobile software and online commerce to entertainment. Representatives for Wanda and Baidu declined to comment. Tencent didn’t respond to an e-mailed request for comment. The venture was launched with much fanfare in 2014, though the website didn’t get up and running until a year later despite solid financial backing. The trio invested a
total of 5 billion yuan, worth US$814 million at the time, with Baidu and Tencent each taking a 15 per cent stake. In January 2015, Wanda said it had raised another 1 billion yuan from external investors in a round that valued the venture at 20 billion yuan. Their website ffan.com, whose holding company is Shanghai Xin Fei E-Commerce Co, debuted in July 2015. At a glitzy 2014 launch event in Shenzhen, Tencent founder Pony Ma, Baidu Chief Executive Officer Robin Li and Wang talked about how they could together transform the often tedious process of mall shopping. Wanda, the vehicle for Wang’s ambitions to build a global Disney-like entertainment empire, also operates China’s largest chain of shopping centres.
“If you are walking in a Wanda mall and see a lady wearing a good-looking dress, all you have to do is take a picture of that dress and we can show you which store in which Wanda mall is selling it,” Li said, standing alongside Ma. Wanda appears committed to ffan. com. Just this week, it said it had signed up 120 million members for the mobile app. But its two highest-profile investors appear to have walked: according to the filing, Baidu and Tencent have been replaced as investor-shareholders by Shanghai Wanda Network Financial Services Ltd, though the pair could retain an inconsequential stake in the venture that needn’t be reported. “These three companies had very different areas when they started. Tencent was focused on gaming, Alibaba was focused on e-commerce and Baidu was focused on search engines,” said Kitty Fok, IDC China’s managing director. “Now they’re overlapping more and more and that’s increased competition.” Bloomberg News
“They have failed to come up with a good value proposition for why customers should buy in and that essentially explains why it has fallen apart” Sandy Shen, a Gartner Inc. research director
Official data
National online population exceeds 700 million E-commerce is a vital part of government’s efforts to transform the economy into one driven more by consumer demand. The number of web users in China - already the world’s largest online population - has risen over 700 million, authorities said yesterday as they seek to turn the internet into
a new growth driver. The country had 710 million internet users - defined as those who have gone online at least once in the past six months - by June, up 3.1 per
cent from the end of December, the government-linked China Internet Network Information Centre (CNNIC) said in a statement. The number is more than double the number of people in the United States and means more than half of the world’s largest national population are now using the internet. Beijing imposes strict controls on online content, while e-commerce is
a vital part of its efforts to transform the economy into one driven more by consumer demand. The government is pushing for a so-called “internet plus” project that aims to expand the application of online technology in industry as part of attempts to modernise. The CNNIC said that 92.5 per cent of Chinese users go online through their mobile phones.
92.5 per cent of Chinese users go online through their mobile phones
“The social lifestyle formed by the mobile internet was further developed and the internet plus project facilitated the government and companies diversifying and mobilising their services,” it said. But the number of rural users remained low - accounting for less than a third of the total - as residents in the countryside either have no knowledge of computers or the internet, or are not interested, said the CNNIC. Several Chinese tech firms, such as Jack Ma’s Alibaba, have become multi-billion-dollar giants in recent years as the country’s online population has boomed. At the same time Beijing blocks websites it deems politically sensitive in a system dubbed the “Great Firewall of China”, and social media companies censor user-generated content. AFP
Business Daily Thursday, August 4 2016 11
Asia Anti-globalization
Protectionist senators could harm Australia’s trade ties Prime Minister Malcolm Turnbull had called the election to clear away an obstructive Senate, but the move backfired at the ballot box. Tom Westbrook and Jarni Blakkarly
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our weeks after Australians went to the polls in a tightly contested election, vote counting is almost finished and has left the government with a razor-thin majority and a Senate brimming with economic protectionists who could hinder trade ties with the likes of China, Indonesia and the United States. “Pro-protectionist forces are a concern because ultimately they will degrade Australian living standards and harm Australian jobs,” Australian Trade Minister Steve Ciobo told Reuters. The new-look parliament is scheduled to sit August 30. While the last few votes are still being counted after the July 2 election, it is clear that independent or minor party Senators will control the balance of power in the upper house. This means the ruling LiberalNational coalition, which has a slim, one-seat majority in the lower house, will need either their political opponents or eight to 10 independents or minor party Senators to pass laws in the upper house. Far-right One Nation, which has won at least two Senate seats, has already demanded that Treasurer Scott Morrison block the sales of
electricity network Ausgrid and healthcare firm GenisisCare Ltd to Chinese interests. “Why would Communist China want to own our electricity...I know how Australians feel about selling our assets, we’ve had enough. We do not want our assets sold,” said One Nation leader Pauline Hanson in a video posted to her Facebook page.
consortium has put a fresh bid on ice, concerned it could be derailed by protectionist Senators. Prime Minister Malcolm Turnbull had called the election to clear away an obstructive Senate, but the move backfired at the ballot box, so much so that political scientist Haydon Manning says the government will now struggle to legislate. “I can’t expect anything but a government profoundly frustrated,” said Manning, an associate professor at Flinders University in Adelaide. “Free trade is going to be tricky...I don’t see much headway there.”
Trade minister Ciobo, in Jakarta this week to seek a Free Trade Agreement (FTA) with Indonesia, said in a statement that “negotiations are making good progress”. But an Indonesian FTA and the Trans-Pacific Partnership, due to come before parliament in the coming sitting, will face headwinds in the Senate. The latest Senate tally on Tuesday showed Turnbull’s coalition winning at least 27 seats, Labour 25, Greens 8 and the independents and minor parties winning a total of 8 seats, with eight seats still in doubt. In the lower house, the opposition Labour party on Tuesday won the final seat, by only 37 votes, leaving the government with 76 seats, Labour 69 and a further five seats split between independents and minor parties. Reuters
“Free trade is going to be tricky... I don’t see much headway there.” Haydon Manning, an associate professor at Flinders University in Adelaide Such sentiment also threatens to scupper the sale of Australia’s largest farmland holding S.Kidman & Co, about the same size as Ireland, to a Chinaled consortium, another deal which requires the treasurer’s approval. Australia has already rejected a A$371 million (US$282 million) bid for Kidman by Hunan Dakang Pasture Farming Co Ltd (Dakang), which would have seen a minority 20 per cent Australian interest, ruling it was not in the national interest. The
The latest Senate tally on Tuesday showed Prime Minister Turnbull’s (pictured) coalition winning at least 27 seats
Bank of Japan minutes
Japanese central bankers question focus of monetary easing The bank currently buys 80 trillion yen a year of Japanese government bonds to reach its 2 per cent inflation target. Stanley White
At least two members of the Bank of Japan’s (BOJ) board questioned its actions at their June meeting, minutes show, highlighting doubts about the sustainability of its policies. At the June meeting one board member called for the BOJ to reduce its bond buying while another said the BOJ had switched its focus to interest rates away from buying assets.
view that the BOJ’s current policy may be reaching its limit. BOJ Governor Haruhiko Kuroda denied on Tuesday that the review of its policies would lead it to scale back on quantitative easing, but the worst sell-off in government
bonds in three years shows there is extensive uncertainty about the policy mix. The BOJ currently buys 80 trillion yen a year of Japanese government bonds to reach its 2 per cent inflation target. The central bank also has a minus 0.1 per cent interest rate and buys exchange-traded funds (ETFs) at an annual rate of 6 trillion yen. Some economists say the BOJ’s bond purchases are so large that they
Key Points BOJ policy review has caused uncertainty in bond market Some board members worry about pace of JGB purchases BOJ’s policies have not achieved desired inflation rate At a subsequent meeting on July 29 the BOJ surprised investors by saying it would release a comprehensive review of its quantitative easing in September, further reinforcing the
Central bank headquarters in Tokyo pictured
cannot continue beyond the next few years. The negative interest rate policy has proved unpopular because it hurts bank earnings and depresses already low deposit rates. Some investors also worry that the ETF purchases have no impact on inflation expectations. The BOJ refrained from offering additional monetary stimulus at the June meeting despite imperceptible inflation and weak global growth. Reuters
12 Business Daily Thursday, August 4 2016
Asia In Brief Electronic trade
South Korea’s e-commerce exports increasing South Korea’s e-commerce exports posted a double-digit increase in the second quarter thanks to demand in China for South Korean cosmetics and clothing, a government report showed yesterday. Sales in cyberspace to foreign countries reached 497.4 billion won (US$446 million) in the April-June period, up 83 per cent from the same period of last year, according to Statistics Korea. Online purchase from overseas grew 5 per cent from a year earlier to 411.8 billion won in the second quarter, sending the surplus to 85.6 billion won in the cited period. Auto industry
Australia’s new vehicle sales resilient Sales of new vehicles in Australia dipped slightly in July form a year earlier, though it was still the second best result for that month ever and kept the market on track for a record-braking year. The Australian Federal Chamber of Automotive Industries’ VFACTS report yesterday showed 91,331 new vehicles were sold in July, down 1.1 per cent on July last year. July this year had one less selling day and sales per day were up by 93.9 vehicles. Sales were down 29 per cent on June, which is typically a very strong month. Information leak
NZ’s central bank cancels media “lockups” New Zealand’s central bank has decided to cancel media “lock-ups” for interest rate decisions and financial stability reports after a security review followed a leak of information last March. The central bank said it commissioned the review after requests by news media representatives to restore the lock-ups under different security arrangements. The security review was conducted by consulting firm Deloitte. “The review found that in the rapidly changing technology environment there is no completely failsafe option,” it said. Tax scrutiny
Indonesia delays credit card data rules Indonesia’s finance ministry has delayed a regulation requiring all credit card providers to submit customer data to the tax office until the end of its tax amnesty programme, a tax spokesman told Reuters. The finance ministry in March issued a regulation requiring card providers to submit all transaction details - including customer and merchant identities - to the tax office every month starting on May 31, a move that bankers say has pushed people back to cash. Hestu Yoga Saksama, the tax office spokesman, said yesterday that the implementation of that regulation has been delayed “to support the government’s cash-less campaign.”
Financial
Australian PM exhorts banks to slash lending rates further Australian banks are coming off a golden era of six straight years of record profits but are now facing faltering earnings growth.
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ustralian Prime Minister Malcolm Turnbull yesterday lambasted the country’s largest banks for refusing to fully pass on an official interest rate cut, demanding top executives front the public and explain themselves. The attack from the conservative leader piles political pressure on Australia’s “Big Four” lenders amid opposition calls for a high-powered judicial inquiry into the banking sector, following a series of scandals involving wealth management, insurance claims and interest rate rigging. “The banks should pass on the full extent of the rate cut,” Turnbull said at a press conference in Canberra. “They should do that, and if they are not prepared to do it, as appears to be the case, then their chief executives should explain very clearly to the Australian people and their customers why they have not done so.” The Reserve Bank of Australia slashed official cash rates by a quarter point to a record low of 1.50 per cent on Tuesday. The four major banks - Commonwealth Bank, National Australia Bank, ANZ Banking Group, and Westpac
Reuters
Australian Prime Minister Malcolm Turnbull
Central bank
Thailand holds key rate, sees higher risks to growth The Bank of Thailand said headline inflation might return to the target band later than expected. Orathai Sriring and Kitiphong Thaichareon
Thailand’s central bank kept its key interest rate unchanged yesterday, as expected, saying current monetary policy still supports the country’s economic recovery. The Monetary Policy Committee (MPC) voted unanimously to leave the one-day repurchase rate at 1.50 per cent, where it has been since April 2015, a quarter-point above the record low. “Overall monetary conditions remained accommodative and
conducive to the economic recovery,” the MPC said. “Nonetheless, the baht appreciated against some major currencies over the recent period, which might not be beneficial to the ongoing economic recovery,” it said. However, Assistant Governor Jaturong Jantarangs told reporters the Bank of Thailand (BOT) already has tools to keep the baht at an appropriate level, without having to use only interest rates. All but one of 19 economists polled by Reuters predicted no policy change at the meeting held days before Thailand’s referendum on a new constitution and the August 15 announcement of second-quarter gross domestic product data. The August 7 referendum should not have any short-term impact on
Thai police officers march while carrying the Thai national flag to raise for daily national anthem at Government House in Bangkok. Thailand is scheduled to hold a referendum on a controversial military backed draft constitution on 07 August 2016.
the economy, Jaturong said. The referendum is a major step for the junta, which took power in May 2014, as it tries to shape politics after a decade of tensions in Southeast Asia’s second-biggest economy.
Political uncertainty
Krystal Tan, economist of Capital Economics in Singapore, said she expects growth to slow in the second half, and sees scope for a rate cut in coming months. She said the referendum “is more likely to enflame rather than soothe political tensions. The associated increase in political uncertainty will in turn undermine investment and confidence.” Jack Chambers, economist for Moody’s Analytics in Sydney, said he expects a 25 basis point cut by end-2016 as growth continues to be “below potential”. The BOT said headline inflation might return to the target band later than expected. Benign consumer prices helped give policymakers leeway to keep rates low. The central bank said the economy can still grow as forecast this year but downside risks have increased. It has predicted GDP growth of 3.1 per cent this year, with exports contracting for a fourth year, by 2.5 per cent. The economy expanded 2.8 per cent last year. The BOT has forecast higher second-quarter GDP growth than January-March’s 3.2 per cent expansion from a year earlier. The junta has struggled to revive the economy as exports and domestic demand are weak. It has introduced stimulus measures and ramped up investment in a bid to lift domestic activity. 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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Banking Corp - responded by lowering borrowing costs on mortgages by only 10-14 basis points. Australian banks are coming off a golden era of six straight years of record profits but are now facing faltering earnings growth, narrowing profit margins, rising bad debts and regulatory pressure to shore up their capital base. According to a Morgan Stanley estimate, a 12 basis-point reduction in home loans by top mortgage lender Commonwealth Bank adds 4 basis points to group margins and about
2.5 per cent to cash profit on a fullyear basis. The four banks said they would boost deposit rates to attract more savings, helping them reduce dependence on offshore markets where borrowing costs have shot up. Analysts said that while higher deposit rates would further squeeze the banks’ already record-low margins, they were under pressure from the Australian Prudential Regulatory Authority to reduce their levels of short-term offshore funding. Even so, Treasurer Scott Morrison said there was “no reason on the issue of overseas funding costs” for the banks to keep the benefit of the official cash rate cut for themselves.
Business Daily Thursday, August 4 2016 13
Asia Anti-corruption law
Beef sets, lavish free meals off limits in South Korea graft crackdown A law could wipe out US$10.43 billion in revenue for sectors including food, golf, consumer and retail goods. Christine Kim
Lavish free meals, rounds of golf and expensive gifts of beef and ginseng will soon be off-limits for civil servants, teachers and journalists in South Korea under a law aimed at clamping down on graft that has long been pervasive in professional life. The anti-corruption law that takes effect next month imposes spending limits on entertainment and gifts, curbing a tradition of hospitality that many restaurants, retailers and farmers worry will deal a blow to business. “It’s making it illegal for those who have the money and are willing to pay more. This is nonsense,” Yoo Byoung-hee, 45, a cattle breeder in Jecheon, south of Seoul, told Reuters by telephone. Yoo was among farmers who protested against the law last month in front of parliament. Boxed sets of beef, especially the prized domestic hanwoo variety, can cost hundreds of dollars and are a staple of gift-giving during the Chuseok holiday next month, as well as during Lunar New Year. Less-expensive gift sets feature items ranging from apples and Spam to shampoo. The anti-corruption law had been debated since 2011 and has
been welcomed as a tool to clean up professional life in a country that ranks 37th out of 168 on Transparency International’s corruption perceptions index. But many worry about its impact
“Once the law is implemented and transparency and fairness in our society are improved, the effectiveness of our economy will increase” Park Geun-hye, President of South Korea on a sputtering economy. The law could wipe out 11.6 trillion won (US$10.43 billion) in revenue for sectors including food, golf, consumer and retail goods, the Korea Economic Research Institute said in June. Some groups, including the agricultural ministry, have called for an easing of the rules, which limit the value of gifts to people in the targeted categories to 50,000 won (US$45) and meals to 30,000 won (US$27). Gifts, meals and entertainment that
Boxed sets of beef, especially the prized domestic hanwoo variety, can cost hundreds of dollars and are a staple of gift-giving during the Chuseok holiday next month
are paid for in a personal capacity are not covered by the law. It does not apply to members of parliament or much of the private sector.
Scandals
President Park Geun-hye said on Tuesday it was important to mitigate the negative impact of the law while maintaining its core purpose. “Once the law is implemented and transparency and fairness in our society are improved, the effectiveness of our economy will increase and South Korea’s potential growth may be improved,” she told a cabinet meeting. According to a survey by the Anti-Corruption and Civil Rights Commission last year, 59.2 per cent of South Koreans believed the country was corrupt. Graft scandals are common. Last year, former Prime Minister Lee Wan-koo was convicted
after receiving 30 million won (US$27,000) in a shopping bag during a parliamentary election in 2013, according to prosecutors. He is appealing. Since the Constitutional Court ruled in favour of the law last month, many restaurants and retailers have been scrambling to adjust, tweaking meal offerings and downsizing gift sets. Dave Yoon, head of Haewoori, the country’s biggest seafood restaurant chain, said it would introduce a 30,000 won multi-course meal once the law takes effect. “Revenue is probably going to go down but we made this decision because we feel like we have no other choice,” he said. “We’ve had so many customers come to us worrying about the law because many of our clients come to Haewoori for business. You have to do what you can to keep customers coming.” Reuters
Cabinet reshuffle
Japan’s Prime Minister picks hawkish defence minister Abe will retain his right-hand man, Chief Cabinet Secretary Yoshihide Suga, along with Finance Minister Taro Aso. Linda Sieg and Elaine Lies
Japanese Prime Minister Shinzo Abe appointed conservative ally Tomomi Inada as defence minister yesterday, which risked upsetting China and South Korea, as part of a limited cabinet reshuffle that left most top posts unchanged.
Inada, previously the ruling party policy chief, shares Abe’s goal of revising the post-war, pacifist constitution, which some conservatives consider a humiliating symbol of Japan’s World War Two defeat. She also regularly visits Tokyo’s Yasukuni Shrine for war dead, which China and South Korea see as a
symbol of Japan’s past militarism. Japan’s relations with Beijing and Seoul have often been frayed by the legacy of Japan’s military aggression before and during World War Two. “Ms Inada is an ultra-conservative politician and this will be taken as preparation for achieving constitutional revision and adopting a stern stance toward China,” said Takashi Kawakami, a security expert at Takushoku University. Inada, a 57-year-old lawyer, will be the second woman to hold the
defence post. The first, Yuriko Koike, who held the job briefly in 2007, was recently elected Tokyo governor. Abe is trying to rekindle economic growth and cope with several diplomatic challenges as he ponders the possibility of staying in office after his term as president of the ruling Liberal Democratic Party (LDP) ends in 2018. He is expected to travel to China in September for a Group of 20 summit, where he may meet Chinese President Xi Jinping. Sino-Japanese ties have also been strained by a row over tiny isles in the East China Sea and China’s growing assertiveness in the South China Sea.
Top party posts
“Ms Inada is an ultraconservative politician and this will be taken as preparation for achieving constitutional revision and adopting a stern stance toward China” Takashi Kawakami, a security expert at Takushoku University Tomomi Inada, new Japan’s Defence Minister
Abe, who took office in December 2012, will retain his right-hand man, Chief Cabinet Secretary Yoshihide Suga, along with Finance Minister Taro Aso and Foreign Minister Fumio Kishida. Economics Minister Nobuteru Ishihara will also be kept on along with Health, Welfare and Labour Minister Yasuhisa Shiozaki. Deputy Chief Cabinet Secretary Hiroshige Seko will become trade and industry minister. Tamayo Marukawa, who served as environment minister in the previous cabinet, was appointed minister in charge of overseeing preparations for Tokyo’s 2020 Summer Olympic Games. Shigeru Ishiba, minister for regional revitalisation, left the cabinet to prepare for a run at replacing Abe as prime minister when his term as LDP leader expires. Abe also appointed a new LDP executive line-up. The appointment of Toshihiro Nikai, 77, as LDP secretary general was seen as signalling Abe’s hopes for a third term. Nikai has said he would support an extension for Abe, which would require a change in party rules. Reuters
14 Business Daily Thursday, August 4 2016
International In Brief Private survey
Russian services industry surges Russian services from restaurants to hairdressers grew faster than forecast last month, rising at the sharpest pace in more than three years as new business prompted companies to hire more people for the first time since February 2014. The Russia Services Business Activity Index rose to 55 from 53.8 in June, remaining above the threshold of 50 that separates contraction from growth for a sixth month, according to a statement released yesteday by Markit. That was better than every forecast in a Bloomberg survey of six analysts, whose median estimate was for 52.9.
PMI
Eurozone output unexpectedly picks up Faster output growth in July was driven by Germany. Carolynn Look
E
uro - area o u t p u t unexpectedly accelerated t o th e h i g h est i n si x months, signalling that manufacturers and services providers are shrugging off concerns that the U.K.’s vote to leave the European Union will harm business. A Purchasing Managers’ Index for both industries rose to 53.2 in July from 53.1 in June, Markit Economics said yesterday. A July 22 estimate was for a drop to 52.9. A reading above 50 indicates expansion.
The increase “presents a slightly better picture” and “is especially encouraging as it suggests the region saw little overall contagion from the U.K.’s Brexit vote,” said Chris Williamson, chief economist at Markit in London. An “improved hiring trend suggests firms have gained sufficient confidence in the durability and sustainability of the upturn to expand capacity in increasing numbers.” A pickup in private-sector activity is the latest sign of the region’s resilience to the outcome of Britain’s June 23 referendum rejecting EU
Civil servants
Portuguese union rejects health insurance privatization
In the 19-nation euro region, faster output growth in July was driven by Germany, where the PMI signals a quarterly rate of expansion of 0.5 percent. Growth in Italy and Spain slowed, while the French economy continued to stagnate, Markit said. For the euro area, the company projects a “modest” increase in gross domestic product of 0.3 percent. “Such a meagre pace of expansion will inevitably fuel speculation about what the ECB could and should do to boost growth, and when,” Williamson said. While European Central Bank President Mario Draghi has said that he remains ready to act, policy makers currently see no urgent need to adjust or expand their bond-buying program. Visibility as to the impact of Brexit on the economy is low, and officials didn’t discuss specific stimulus measures, he said at the press conference following the Governing Council’s July meeting. Bloomberg News
Tax haven
Panama seeks to punish countries that blacklist it
Budget
Brazil’s committee approves guidelines bill Brazil’s congressional joint budget committee on Tuesday approved the 2017 budget guidelines bill that sets a primary deficit goal of 139 billion reais (US$42.83 billion). The central government’s primary deficit target for next year is smaller than the 163.9 billion reais set for 2016, but remains farm from the ample surpluses of the past decade. The bill, which is a blueprint of the national budget bill that will be submitted later this year, still needs to be passed by the full Congress.
“Such a meagre pace of expansion will inevitably fuel speculation about what the ECB could and should do to boost growth, and when” Chris Williamson, chief economist at Markit in London
Portugal’s main civil servants’ union, SINTAP, yesterday rejected a proposal to turn the existing health insurance system for public sector workers, the ADSE, into a private company, insisting that it must remain in the public sphere. The final report of the commission on the reform of the ADSE, which was published on Tuesday, calls for the new entity to be a private entity of a mutual associative nature, not for profit and of “administrative utility.” The commission’s work is aimed at ensuring the sustainability of the ADSE, which in past years has built up deficits despite injections of state funds.
The government of Panama on Tuesday announced a bill that would take a range of steps against countries that put it on their blacklists of “tax havens” in the wake of the Panama Papers revelations. The legislation would impose tax, trade and migration measures on companies or individuals from those countries that “engage in practices that discriminate or imply damage to economic interests” of Panama, a statement said. The move could be directed at France, which put Panama back on its national blacklist of tax havens in April following the Panama Papers reports.
membership. Most euro-area confidence indicators have barely budged in the past four weeks, while data suggest the U.K. economy is already deteriorating. U.K. construction shrank the most since the financial crisis in July, and manufacturing slumped more than initially estimated. Bank of England policy makers are meeting this week to discuss the outlook and consider the stimulus they may need to prop up the economy. They will announce their decision today.
Bittersweet data
U.S. consumer spending gains strong momentum Economists are optimistic that spending will remain solid, underpinned by steadily increasing wages. U.S. consumer spending rose more than expected in June as households bought goods and services, suggesting strength that appeared to be sustained early in the third quarter with auto sales surging to an eight-month high in July. Despite healthy consumer spending, Tuesday’s report from the Commerce Department showed inflation still muted. Economists say this, together with weak business investment and the second quarter’s anaemic economic growth pace, could encourage a cautious Federal Reserve to keep interest rates at current low levels for a while. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 per cent in June after a similar gain in May. Economists polled by Reuters had forecast consumer spending advancing 0.3 per cent. When adjusted for inflation, consumer spending rose 0.3 per cent after climbing 0.2 per cent in May. The June data was included in last week’s second-quarter gross domestic product report, which showed that consumer spending rose at a 4.2 per cent annual rate,
the fastest in nearly two years. That jump accounted for almost all of the economy’s 1.2 per cent growth pace during the period. An inventory drawdown was behind the bulk of the economy’s poor performance in the second quarter, with other drags coming from persistently weak business investment, as well as a decline in spending on residential construction and weak government outlays.
Key Points Consumer spending increases 0.4 per cent in June Inflation-adjusted spending rises 0.3 per cent Core PCE price index edges up 0.1 per cent Separately, auto sales rose to a 17.88 million-unit annual rate last month, the highest since November 2015, from a 16.74 million-unit pace in June, according to data from Autodata. Analysts had expected sales to increase to a 17.3 million unit rate. While the second quarter’s robust
pace of consumer spending will probably not be repeated, economists are optimistic that spending will remain solid, underpinned by steadily increasing wages as the labour market tightens, as well as rising house and stock market prices. There was little sign of inflation in June. The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.1 per cent in June after a 0.2 per cent gain in May. In the 12 months through June the core PCE increased 1.6 per cent. It has risen by the same margin since March. The core PCE is the Federal Reserve’s preferred inflation measure and is running below the U.S. central bank’s 2 per cent target. Consumer spending in June was lifted by a 0.7 per cent rise in purchases of non-durable goods. Spending on services increased 0.5 per cent, but outlays on long-lasting manufactured goods such as automobiles fell 0.3 per cent. Spending increased despite personal income rising only 0.2 per cent in June after a similar gain in May. Wages and salaries advanced 0.3 per cent after rising 0.2 per cent in May. With spending outpacing income, savings fell to US$732 billion, the lowest level since March 2015. Reuters
Business Daily Thursday, August 4 2016 15
Opinion Business Wires
The Age Australians are overly optimistic about being able to use property assets to fund their retirement, according to HSBC. The banking giant surveyed Australian workers and found about 26 per cent believe downsizing or selling property will help pay for their lifestyles when they leave the workforce. There is a gap between expectation and reality when it comes to property and retirement. And they may be disappointed, with HSBC finding that only 8 per cent of Australians who have retired actually cite property as a source of income.
Why democracy requires trusted experts The Times of India India is expected to impose an antidumping duty of up to US$557 per tonne on imports of certain steel products from six countries, including China, Japan and Korea. In its preliminary findings, the Directorate General of Anti-Dumping and Allied Duties (DGAD), under the Commerce Ministry, has found that hot-rolled flat products of alloy or nonalloy steel has been exported to India from China, Japan, Korea, Russia, Brazil and Indonesia at “below-normal value”. “Accordingly, the authority recommends imposition of provisional anti-dumping duties on the imports of the subject goods, “ DGAD said in a notification.
The Jakarta Post Malaysian Prime Minister Najib Razak has said he wants to double trade with Indonesia to US$30 billion in the coming years. Last year, trade between the two countries was valued at US$16.6 billion. As of April this year, trade value reached US$4.58 billion. “Malaysia is Indonesia’s second best investor and we want to boost trade to reach US$30 billion in the following years,” Najib said. To meet the target, the two countries agreed to revitalize the Joint Trade and Investment Committee (JTIC) agreement, enhance business-to-business communication and expand market access.
The Phnom Penh Post An industry analyst has issued a dire forecast for Cambodia’s rice sector, claiming the long-grain “white gold” that has been credited with lifting millions of Cambodia’s farmers out of abject poverty, and which seems a natural fit for the Kingdom’s agrarian workforce, is on a downward trajectory. Jim Plamondon, a former technical evangelist for Microsoft who is developing new marketing strategies for Cambodian rice varieties, says the Kingdom’s rice industry – the lifeblood of its agricultural economy – is headed for a brutal and imminent consolidation.
L
ast month, I wrote a commentary asking why voters in the United Kingdom supported leaving the European Union, defying the overwhelming weight of expert opinion warning of the major economic costs of Brexit. I observed that many voters in the UK and elsewhere are angry at economic experts. They say that the experts failed to foresee the financial crisis of 2008, put efficiency first in their policy advice, and blindly assumed that the losers from their policy prescriptions could be compensated in some unspecified way. I argued that experts should be humbler and more attentive to distributional issues. The piece elicited far more comments from readers than any of my others. Their reactions mostly confirm the anger I had noted. They regard economists and other experts as isolated from and indifferent to the concerns of ordinary people; driven by an agenda that does not coincide with that of citizens; often blatantly wrong, and therefore incompetent; biased in favour of, or simply captured by, big business and the financial industry; and naive – failing to see that politicians select analyses that suit their ends and disregard the rest. Experts, said some, are also guilty of fracturing society by segmenting the debate into myriad narrow, specialized discussions. Remarkably, I also received comments from professionals in the natural sciences who said that citizens’ growing distrust of experts was pervasive in their disciplines, too. Scientific views in fields like energy, climate, genetics, and medicine face widespread popular rejection. In the United States, for example, a Pew Research survey found that 67 per cent of adults think that scientists lack a clear understanding about the health effects of genetically modified organisms. Mistrust of GMOs is even higher in Europe. Whereas overall support for science remains strong, many citizens believe that it is manipulated by special interests, and on some issues, the common view departs from the established evidence. This divide between experts and citizens is a serious cause for concern. Representative democracy is based not only on universal suffrage, but also on reason. Ideally, deliberations and votes result in rational decisions that use the current state of knowledge to deliver policies that advance citizens’ wellbeing. This requires a process in which experts – whose competence and honesty are trusted – inform decision-makers of the available options for meeting voters’ stated preferences. Citizens are unlikely to be satisfied if they believe that experts are imposing their own agenda, or are captured by special interests. Distrust of experts fuels distrust of democratically elected governments, if not of democracy itself. Why is there such a divide between experts and society? Every country has had its own series of high-profile public health or safety scandals. Experts have been guilty of sloppiness and conflicts of interest. Hard-won reputations have been quickly lost. But critics often fail to recognize that science
“
Jean Pisani-Ferry a professor at the Hertie School of Governance in Berlin, and currently serves as Commissioner-General of France Stratégie, a policy advisory institution in Paris.
involves more – and more stringent – scrutiny than, say, business or government. It is actually the standard-bearer of good practices concerning the validation of analyses and the discussion of policy proposals. Errors regularly occur in academia, but they are more swiftly and systematically corrected than in other fields. The collective nature of scientific validation also provides guarantees against capture by special interests. The problem may, in fact, be deeper than the common grievances against experts suggest. A few decades ago, it was widely assumed that progress in mass education would gradually bridge the gap between scientific knowledge and popular belief, thereby contributing to a more serene and more rational democracy. The evidence is that it has not. As Gerald Bronner, a French sociologist, has convincingly shown, education neither increases trust in science nor diminishes the attraction of beliefs or theories that scientists regard as utter nonsense. On the contrary, more educated citizens often resent being told by experts what science regards as truth. Having had access to knowledge, they feel empowered enough to criticize the cognoscenti and develop views of their own. Climate change – which the scientific community overwhelmingly regards it as a major threat – is a case in point. According to a 2015 Pew Research survey, the three countries where concern is the weakest are the US, Australia, and Canada, whereas the three in which it is the strongest are Brazil, Peru, and Burkina Faso. Yet average years of schooling are 12.5 for the first group and six for the second. Evidently, education alone is not the reason for this difference in perception. If the problem is here to stay, we had better do more to address it. First, we need more discipline on the part of the community of experts. The intellectual discipline that characterizes research is often lacking in policy discussions. Humility, rigorous procedures, the prevention of conflicts of interest, an ability to acknowledge mistakes and, yes, punishment of fraudulent behavior are needed to regain the citizens’ trust. Second, there is a case for revising curricula to equip future citizens with the intellectual tools they will need to distinguish between fact and fiction. Society has everything to gain from citizens whose minds are both less suspicious and more critical. Finally, we need better venues for dialogue and informed debate. Serious magazines, generalinterest journals, and newspapers traditionally filled the space between the ether of peer-reviewed journals and the deep sea of hoaxes; yet they all struggle to survive the digital revolution. Other venues, perhaps new institutions, are needed to fill that space. What is clear is that democracy cannot thrive if it is left empty. Project Syndicate
Experts have been guilty of sloppiness and conflicts of interest. Hard-won reputations have been quickly lost.
”
16 Business Daily Thursday, August 4 2016
Closing Local financing
Mainland’s robotics rush shows how its debt can get out of control In China as a whole, LGFV bond financing climbed 72 per cent in the first five months of 2016 from the same period last year to 740 billion yuan. Nathaniel Taplin
D
own a s i d e s t r e e t bracketed by massage parlours and cheap hotels in this city on the banks of the Yangtze river, a humanoid food service robot trundles around the corner of a table in a cafe, red eyes flashing in tune with synthesized classical music. The Wuhu Hands On Café’s waiter, named “Hero,” has no customers on a drizzly Friday morning. He is, though, a symbol of Wuhu city’s hopes of becoming a major centre for robotics, and the local government’s ability to chase that dream through the debt markets, whether it makes commercial sense or not. “Hero” was the result of six months research at a nearby robotics park that has cost 2.2 billion yuan (US$332 million) to establish. For the park’s next stage, including a hotel, an exhibition centre and a cultural plaza, Wuhu is raising another 1.2 billion yuan through a so-called local government finance vehicle (LGFV), and offering a raft of incentives for firms to set up there. The problem is it is not alone. Dozens of other medium-sized Chinese cities like Wuhu, which is west of Shanghai in Anhui province and has a population of around four million, have similar robotics park plans. And the ease with which municipalities can use off balance companies like LGFVs to finance infrastructure - some needed, some not - is rapidly boosting China’s already high debt burden. Meanwhile, investors gambling that Beijing will not allow the debt to default while infrastructure remains a critical support for growth, have bid up LGFV bonds to new highs. Beijing’s drive to make the nation a leader in robotics through its “Made in China 2025” initiative launched last year has set off a rush as municipalities up and down the country vie to become China’s robotics centre. The investment boom comes as the industry is already showing warning signs of overcapacity, despite
increasing demand for robots in auto manufacturing and electronics. Growth in demand for industrial robots in China fell by more than two-thirds to 17 per cent in 2015 - and yet more than 40 robotics parks have sprouted throughout the country in the last two years, according to industry data. In June, the National Business Daily reported Vice Minister of Industry and Information Technology Xin Guobin warning that China’s robotics industry is showing signs of over investment and of “a high-end sector becoming low-end.” China’s Ministry of Industry and Information Technology had no immediate comment when contacted by Reuters.
Shoring up growth
LGFVs first gained popularity in China in the 1990s as a way to fund municipal projects without running afoul of new restrictions on cities’ official borrowing. They played a key role in shoring up economic growth in the global financial crisis but also became a major source of China’s debt burden. Outstanding debt was US$26.56
trillion, or 255 per cent of gross domestic product at the end of 2015, up from 220 per cent just two years before, according to the Bank for International Settlements. A short-lived crackdown by Beijing on LGFV financing in late 2014 was quickly watered down as growth sputtered to a twenty-five year low last year. In China as a whole, LGFV bond financing climbed 72 per cent in the first five months of 2016 from the same period last year to 740 billion yuan, while the vehicles’ total outstanding bond debt now stands at around five trillion yuan, according to Everbright Securities data sourced from the Chinese information provider WIND. “Loads of infrastructure-investing companies are exhausting every means they can get to get money,” says Li Yujian at Bohai Trust, which offers high-interest loans to companies who cannot get all the financing they need in mainstream debt markets.
Commanded not controlled
For a command economy, China has a very decentralized fiscal system with local governments responsible for about 85 per cent of fiscal spending but receiving only 50 per cent of tax revenues. Officials turn to debt to fill the gap. As a result, Beijing often lacks a clear
picture of what local governments are doing, and cities have little reliable data on their neighbours, leading to a dangerous tendency for duplication - especially when Beijing throws its weight behind a given sector, like robotics. The convoluted work-arounds to funnel cash to oftentimes risky local projects also tend to muddy the question of who is actually responsible should matters go awry. “We are just a financing platform. We raise money and we lend it out,” says Yang Bin of the Wuhu city-owned Jiujiang Area Construction Investment Corporation, which sold the bonds for the robotic centre’s expansion. The money will be spent by building contractors for the robotics park. There are also local and central government subsidies to attract firms to use the facilities. The lynchpin of this elaborate edifice remains government backing, implicit and sometimes explicit. Market participants say investing in LGFV debt is essentially a bet on Beijing’s interest in keeping credit flowing smoothly to local governments. “All of those companies have very weak standard credit metrics. The reason they can borrow is because of local government support, which depends on central government policy,” says Jie Peng of Western Asset Management in Singapore, which invests in some LGFV debt in large Chinese cities. The support, including a 3.2 trillion yuan Beijing-backed local government debt swap last year, means LGFVs can offer relatively high interest rates while allowing bondholders to feel they are not likely to be heavily exposed to the consequences if investments sour. The yield to maturity on the Jiujiang Area Construction Investment Corporation’s 1.2 billion yuan bond is 3.8 per cent, about 0.5 of a percentage point higher than official local government debt in the same part of China. To many investors, that looks like a good deal - LGFV debt has outperformed most other corporate debt over the past year as defaults in other sectors have risen. The local debt boom, though, has raised fears of a new round of wasted investment. Elsewhere in China, cities are building gargantuan sports stadiums, far bigger than they need; hundreds of amusement parks, many of which do not have the attractions to compete against rivals in neighbouring towns; and innovation centres without enough entrepreneurs. Reuters
Private poll
Caixin PMI
Jobless crisis
Yuan seen falling another 3 pct over next 12 months
Mainland service sector continues to expand
Saudi vows ‘urgent’ action for stranded Indian workers
The Chinese yuan may fall more than 3 per cent against the dollar by a year from now, more than expected just a month ago, as the economy struggles to maintain momentum and as the dollar edges up on views of an eventual U.S. rate rise, a Reuters poll found. The survey of over 50 foreign exchange strategists over the past week found the yuan is expected to slip to 6.70 by end-October before falling rapidly to about 6.85 per dollar by this time next year. It was trading around 6.63 yesterday, not far from recent near 6-year lows and down around 2 per cent so far this year. That 12-month consensus is the weakest in several years of Reuters polls. If realised, it would mark the lowest level for China’s closely-managed currency since December 2008 - when the collapse of Lehman Brothers brought on a global recession. The most pessimistic view was for the yuan to fall to 7.60 in 12 months. Pressure on the yuan has ebbed recently on views that the U.S. Federal Reserve may not raise rates this year, which has held back the dollar, and as the People’s Bank of China tried to stabilise the currency by fixing higher mid-points. But that will eventually give way to a weaker yuan. Reuters
Business activity in China’s service sector continued to expand in July, a private survey showed yesterday. The Caixin China General Services PMI (Purchasing Managers’ Index) came in at 51.7 in July, according to the survey conducted by financial information service provider Markit and sponsored by Caixin Media Co. Ltd. However, the growth rate retreated from an 11-month high of 52.7 in June. The deceleration can be attributed to slowing new order growth and falling services employment, with the latter appearing to be the first time in four months. Services companies were downsizing to cut costs, but the overall employment decline was modest. The surveyed companies saw their unfinished work drop for the second month along with the weakest increase in costs for a year and a half. Prices charged by services providers increased slightly. Companies still maintained a positive stance toward future business activity with forecasts of improving economic conditions and an expanding market size. The optimism edged up to a threemonth high. The Caixin China General Services PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 companies. Xinhua
Saudi Arabia has promised “urgent” action to resolve the plight of some 2,500 Indian workers stranded without money in the kingdom after a plunge in oil prices sparked construction layoffs. Labour Minister Mufarrej al-Haqbani issued orders to allow the Indian workers “to immediately transfer their kafala (sponsorship) and renew their residencies,” the Okaz daily reported yesterday. Haqbani’s orders also ease restrictions on workers leaving the kingdom, Okaz quoted ministry official Abdullah al-Alyan as saying. The kafala system, applied on foreign workers in Gulf countries, restricts most employees from moving to a new job without their boss’s consent before their contracts end, leaving many trapped. It has been criticised by rights groups as a form of bonded labour or even slavery. Alyan’s announcement comes as India’s minister of state for external affairs V.K. Singh arrived in the Saudi Red Sea city of Jeddah yesterday, after New Delhi said it was negotiating to repatriate thousands of migrant workers who have lost their jobs and were left with no money to return home. Asian activists and officials have said that thousands of jobless Indians, Filipinos, and Pakistanis are stranded and destitute in Saudi Arabia following the construction layoffs. AFP