Iao Kun rolling chip turnover down 44 pct in July Gaming Page 7
Friday, August 5 2016 Year V Nr. 1102 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Going public record
Mainland’s IPO market succeeds thanks to securities regulator policy Page 9
www.macaubusinessdaily.com
MICE
Stock markets
IPIM grants MOP22 mln for MICE events as at mid-July Page 6
Taiwan retrieves its charm as a destination for investors Page 10
Gaming
MGM China’s Q2 net revenue dropped 19 pct y-o-y to US$452 mln. VIP table games revenue plunged by a third, and main floor table games revenue dipped 3pct. Meanwhile, Melco reports US$1.07 bln net revenue for Q2, a 17 pct increase y-o-y. Melco CEO Lawrence Ho reiterates that Macau “continues to face challenges in gaming demand”. Page 7
Great expectations
Well-fed piggy
Something to cheer about. Total deposits with the city’s banking sector amount to MOP913.3 bln. Of which MOP466 bln was placed by residents, up 0.8 per cent month-on-month.
Infrastructure We’ve been here before. But Secretary for Transport and Public Works Raimundo do Rosario says the new ferry terminal will open early next year. He revealed that the cost of the project has come in at MOP3.8 bln. A staggering 5.5 times its initial 2005 budget of MOP583 mln. Page 2
Steady view
HK Hang Seng Index August 4, 2016
21,832.23 +93.11 (+0.43%)
CNOOC Ltd
Worst Performers
New World Development
+1.36%
Want Want China Holdings
-2.95%
China Unicom Hong Kong
-0.86%
HSBC Holdings PLC
+2.71%
Sands China Ltd
+1.02%
Sino Land Co Ltd
-1.90%
China Overseas Land &
-0.78%
Tingyi Cayman Islands
+2.15%
Cheung Kong Property
+0.93%
Hang Seng Bank Ltd
-1.11%
China Mengniu Dairy Co Ltd
-0.77%
MTR Corp Ltd
+1.65%
CITIC Ltd
+0.86%
Link REIT
-1.09%
Belle International Holdings
-0.57%
Sun Hung Kai Properties Ltd
+1.51%
Hong Kong & China Gas Co
+0.85%
Cheung Kong Infrastructure
-0.93%
CLP Holdings Ltd
-0.57%
+3.05%
27° 31° 28° 32° 28° 32° 28° 33° 27° 32° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Private forecast A poll among economists is encouraging. With the Chinese economy expected to show a steady pace when results are unveiled during coming weeks. Weak demand, investment and rising debt levels remain the big challenges. Page 8
Monetary Page 3
2 Business Daily Friday, August 5 2016
Macau
Infrastructure
Rosario: Taipa Ferry Terminal completed for MOP3.8 bln The Secretary for Transport and Public Works said the opening date for the new terminal is set for early next year. Kam Leong kamleong@macaubusinessdaily.com
T
he construction works of the new ferry terminal in Taipa, known as Pac On Ferry Terminal, have been all completed and inspected, with the total cost amounting to MOP3.8 billion (US$475 million), Secretary for T ra n s p o rt a n d P u b l i c W o r ks
Apology for Nida forecasts
Meanwhile, the Secretary also apologised yesterday for the forecasts of Macao Meteorological and Geophysical Bureau (SMG) on Typhoon Nida hitting the Pearl Delta Region earlier this week. The local observatory announced on Tuesday that a typhoon signal no.8 could be hoisted between 11:00pm that day and 2:00am on Wednesday as the typhoon was getting close to the region. Nevertheless, the Bureau eventually did not issue any typhoon signal no.8 but a no.3 signal for more than 20 hours, triggering controversy in society.
Raimundo do Rosario announced yesterday. The total cost of the terminal has come in at 5.5 times its initial 2005 budget of MOP583 million when construction works started. The authorities expected then that the works would take no more than one year to complete. According to the Secretary, the new ferry terminal occupies 300,000 square metres and will
open for service at the beginning of next year. The Secretary spoke to reporters during his inspection of the facility with several legislators yesterday, according to local broadcaster TDM Radio, one of the few media outlets invited by the authorities. The government had expected in this year’s Policy Address that the new ferry terminal would be operational in the middle of this year. The official apologised for the delay yesterday, claiming he was too optimistic about the completion date back then. The president of the Legislative Assembly, Ho Iat Seng, told the broadcaster that he perceives the
total cost of the project, given its size, is quite reasonable. Meanwhile, directly-elected legislator Ho Ion Sang reckons the government should announce more details of its future plans for the terminal and its facilities, as well as how the city should make use of it to develop tourism. Th e n e w f e r r y t e r m i n a l i s expected to house eight operational berths for ferries carrying up to 400 passengers, and three other operational berths for ferries accommodating 1,200 passengers in addition to a helipad. A temporary ferry terminal has been operating next to the new one since 2007. The temporary terminal includes an immigration building and three operational berths, of which two are designated for ferries carrying 400 passengers while the other is for 1,200-passenger ferries.
The Secretary said the unclear information of the Bureau was because their communication is “not good enough”. The official claimed that he had also met with SMG head Fong Soi Kun on Wednesday regarding the issue. “We hope to do better next time. Give us one more chance,” he said. Following the apology of his superior, the SMG director also apologised to the public in an interview with TDM Radio. He admitted that he did not handle the situation well when deciding not to hoist the no. 8 signal, hoping to do better next time.
Opinion
China drives forward with new ridesharing regulations, Macau should follow Last week, the Central Government released national guidelines on the regulations of online ridesharing services like Uber. It was the latest step by leaders who have consistently shown themselves to be forward-thinking when it comes to innovation and long recognized the positive impact the sharing economy can have on enhancing people’s lives and the liveability of our cities. Over the past two to three years, ridesharing has been embraced in cities all across China – by riders looking for more reliable ways to get around and by drivers looking for flexible sources of income. And it’s not just riders and drivers benefiting. Cities are seeing a positive impact upon reducing car ownership. A Nielsen study in China this year showed that car-hailing apps are taking cars off the road: 68 per cent of respondents said the rise of such services meant they no longer saw a need to purchase a car; 49 per cent of car owners said they plan on driving less; and 10 per cent
of car owners even said they had considered selling their car. Carpooling is being rapidly adopted in China as well, with 30 million pooled trips happening on the Uber platform every month. With uberPOOL, riders heading in the same direction as each other share a ride, helping reduce traffic and pollution. In the first 3 months of 2016, uberPOOL eliminated 21 million automobile miles driven – which equals about 400,000 gallons of gas and 3,800 metric tons of CO2 emissions. Last week’s decision by the Central Government sent a clear message that it recognizes these benefits to riders, drivers, and cities and supports ridesharing. It demonstrates their understanding that there is no conflict between enhancing the taxi industry and promoting online ride-booking in principle. As Minister of Transport Yang Chuantang has said, “The operation mode of online ride-hailing is different in nature to the traditional taxis cruising the streets. The existing
regulatory system suits traditional taxis roaming the streets more. If we operate in full accordance with the existing regulatory system, it will be detrimental to the healthy and sustainable development of the online ride-hailing industry.” China’s decision is the latest by policymakers around the world – from Mexico to Australia to Singapore and now China – who are welcoming the benefits of ridesharing. Modern regulations can unlock these benefits while ensuring public safety and protecting consumers.
Dialogue important
Here in Macau, the benefits are clear as well. Tens of thousands of riders rely on us every day, including tourists from over 160 cities to date. And thousands of Macau residents count on our technology for their livelihood, with more and more driving on the platform to supplement their income every week. To date, driver-partners in Macau have earned over MOP21 million total
Trasy Lou Walsh Uber Macau General Manager
through the Uber platform, with the average driver-partner earning MOP130 an hour. Yet, as we can see from our friends just across the border, many more benefits have yet to be unlocked. We have a tremendous opportunity to build a better future, with smarter transportation, together. One where transportation is more reliable, affordable, and convenient; where accountability and feedback systems improve service; where efficiency improvements reduce congestion and pollution. But we can’t do it by imposing steep fines on drivers every day for simply offering a fellow Macau resident a ride. We can’t do it by letting decades-old regulations constrain modern innovation. And we can’t do it without dialogue. Instead, let’s take the Central Government’s lead and work towards improving and innovating transportation together, so we can build a better Macau for locals and tourists alike.
Business Daily Friday, August 5 2016 3
Macau Monetary
Deposits at local banks up 2.7 pct in June AMCM data also reveals local banks had approved more loans in June compared to the month before. Kam Leong Kamleong@macaubusinessdaily.com
T
otal deposits with the city’s banking sector amounted to MOP913.3 billion (US$114.2 billion) as at the end of June, up 2.7 per cent compared to MOP913.3 billion in May, the latest official data released yesterday by the Monetary Authority of Macau (AMCM) shows.
Of the total deposits, nearly half were Hong Kong Dollars (HKD), accounting for 47.4 per cent. Meanwhile, shares of the local Pataca (MOP), US Dollar (USD) and Renminbi (CNY) accounted for 20.1 per cent, 20.7 per cent and 8.9 per cent of the total, respectively. In terms of sector, MOP466 billion of deposits at local banks were placed by residents, up 0.8 per cent month-on-month, whilst
those by non-residents increased 6.7 per cent month-on-month to MOP292.7 billion. In addition, the public sector’s deposits with local banks registered an increase of 1.2 per cent month-onmonth to MOP154.7 billion.
More loans approved
During the month, the banking sector approved total domestic loans of MOP403.3 billion, which is up by 1.4 per cent month-on-month. Some 65.1 per cent of the granted loans were denominated in HKD, amounting to some MOP2.4 billion,
Public works
DSSOPT opens tender for Zone E2 drainage system The road system and drainage network construction on the reclaimed land Zone E2 is scheduled to be carried out in the first quarter of next year, the Land, Public Works and Transport Bureau (DSSOPT) announced in a statement issued yesterday. The Bureau is now accepting tenders until noon August 26; the tenders will be opened on August 29. The construction will cover an area of around 30,000 square metres, with the longest permissible working period being 550 working days. DSSOPT says that the road construction will include the building of a waste water pump station which will consist of one group floor and three underground floors of reinforced concrete structure.
The road system will cover some 1,130 metres. The underground drainage network will include
rainwater pipes, wastewater pipes and a nodular cast iron pressure piping system.
whilst those denominated in MOP totalled MOP116.7 billion, accounting for 28.9 per cent of the total. Analysed by economic sector, loans approved for manufacturing industries, non-monetary financial institutions and the wholesale & retail trade rose quarter-to-quarter by 17.2 per cent, 17 per cent and 6.9 per cent as at the end of June, AMCM noted. However, it said those approved for transport, warehousing & communications and education, fell by 8.4 per cent and 2.5 per cent quarter-to-quarter, respectively. Meanwhile, new external loans approved by local banks grew 0.9 per cent month-on-month to MOP371 billion in the month. Of the total, those denominated in USD accounted for 49.1 per cent, or MOP182.2 billion, followed by HKD-denominated loans, amounting to 27 per cent, or MOP100.1 billion. As at the end of the month, the loan-to-deposit ratio for the resident sector rose 0.3 percentage points from the previous month to 65 per cent. Meanwhile, the non-performing loan ratio was 0.1 per cent, virtually unchanged from one month earlier. On the other hand, currency in circulation increased 1.7 per cent month-on-month to MOP12.7 billion as at end-June. Money supply (M1) decreased by 1.8 per cent month-on-month, while quasi-monetary liabilities rose by 1.2 per cent. The sum of these two items, M2, thus increased 0.8 per cent month-on-month to MOP478.8 billion, of which 51.5 per cent were HKD and some other 30.5 per cent were MOP.
4 Business Daily Friday, August 5 2016
Macau Tourism
SAR to ink tourism memorandum an event promoting the ‘steppe silk road and tourism co-operation’ with with Inner Mongolia Macao Government Tourism Office is to sign a co-operation memorandum on tourism exchange with Inner Mongolia next Monday, according to the official website of the tourism department of the Mainland Chinese autonomous region. The announcement reads that the Chinese authority is to co-organise
Hong Kong and Macau in the region’s capital city Hohhot next Monday. In addition, travel establishments of the three regions will sign co-operating agreements. The Inner Mongolian authority claimed it would also announce encouraging measures for residents from Hong Kong and Macau to travel there.
Retail Casinos luring a new breed of VIP
Gaming operators diversifying retail portfolio Shoppes at Parisian will add another 170 stores to Sands Shoppes Cotai Strip portfolio for a total of over 850 stores, with many brands opening their first stores in Macau. Nelson Moura nelson.moura@macaubusinessdaily.com
T
he Parisian Macao, set to open on September 13, will host 170 luxury and lifestyle brands in its 320,000 square feet retail space, according to a press release. The new shopping space will increase the total number
of shops in the LVS duty-free luxury Shoppes Cotai Strip Macao malls to over 850. According to The Parisian release the new gaming resort will offer a selection of luxury brands in the territory from cosmetics to men and women’s fashion to jewellery and watches, confectionary, shoes and accessories.
Retail
Casablanca Group CEO resigns Casablanca Group Ltd. has announced the resignation of CEO and Executive Director Mr. Tommy Kwok, effective September 1, according to the company’s filing with the Hong Kong Stock Exchange. The group, which operates primarily in bedding products via its two main brands Casablanca and Casa Calvin as well as acting as the agent for Elle Deco, notes that Mr. Kwok has no disagreement with the board and no matters need to be brought to the attention of shareholders. The filing notes that Kwok is moving on to ‘pursue his personal interests’ and that the board is in the course
of identifying a suitable candidate to replace him as CEO – to be announced upon appointment to the position. The Casablanca Group operates two official stores and two concession counters in Macau, all on the Peninsula. The group announced in June that it expected positive profit for the first six months of the year, as opposed to a loss seen in the same period last year. The group saw HK$233 million (US$30 million) in revenue from its Hong Kong and Macau segment for 2015, nearly double the revenue from its Mainland China operations.
The space will also include 22 luxury brands available for the first time in the territory, such as Antonia, Sonia Rykiel and Temptation, the release announces. The retail space Shoppes at Parisian will also interconnect to the Sands Shoppes Cotai Strip Macao malls via air conditioned walkways and moving walkways, according to the release. A report in May by global consulting firm Bain & Company predicted that the luxury market in Macau and Hong Kong will ‘continue to struggle’. The latest official data released by the Statistics and Census
Services (DSEC) shows local retail sales value of watches, clocks and jewellery fell 18.3 per cent yearon-year to MOP3 billion for the first three months of the year, whilst overall sales volume plunged 12.3 per cent year-on-year.
Spend to stay
The Parisian Macau website states that 34 shops already have a fixed area in the resort, for known fashion and accessories brands such as Calvin Klein, Gucci, Swarovsky and Vivienne Westwood; while remaining shops have yet to be set up. The new resort will also be included in the Shop & Stay promotion available in other Sands resorts where shoppers who spend more than MOP20,000 (US$2,500) will be given the opportunity to earn stars according to their level of spending until October 16. Shoppers who spend MOP100,000 in The Parisian Macau retail area can be rewarded by a two-night stay in a Lyon Suite available for booking until December 30. Galaxy Entertainment Group Ltd. launched a VIP shopper programme last month, rewarding big shoppers with free hotel stays and access to resort facilities, some of the perks once reserved for high-rolling gamblers. Macau’s gaming industry needs to adjust by boosting its revenue share from recreational players in order to develop the city in a sustainable way, Paulo Chan, head of the Gaming Inspection and Co-ordination Bureau, the government regulator, recently observed. Macau plans to increase the proportion of casinos’ non-gaming revenue to nine per cent by 2020 from 6.6 per cent in 2014, according to the city’s five-year development plan.
Business Daily Friday, August 5 2016 5
Macau Infrastructure Urban renewal plan under discussion
Administration to lead Legislator and local real estate and construction sector representatives suggest temporary housing projects during urban renewal should be carried out by the government. Annie Lao annie.lao@macaubusinessdaily.com
L
e gislator A u K a m San and representatives from the local real estate and engineering sectors suggest that the building of temporary housing for residents during the urban renewal process should be carried out by the government rather than the private sector. Chief Executive Fernando Chui Sai On said recently that the government would allocate land for the building of new temporary housing units in order to relocate residents living in old buildings during the redevelopment of their neighbourhood. It is one of the potential measures to push forward the urban renewal plan in the city. The Urban Renewal Committee is still studying and discussing whether redevelopment projects should be implemented by the government or be outsourced to private companies as the law on urban renewal has yet to be enacted. The Chief Executive pointed out three issues regarding the urban renewal plan; namely, where to temporarily relocate residents, the ownership issues of old buildings to be redeveloped, and taxation. The government has already drafted a bill for eligible old buildings which
are in urgent need of reconstruction by providing residents beneficiary terms on tax such as exemption from stamp duty.
Government-led
Jeff Wong, director of real estate investment company Jones Lang LaSalle, agrees that the implementation of the redevelopment plan should be carried out by the government, he told Business Daily. Mr. Wong said that Macau is in need of a general plan for urban renewal as there are many old buildings in the city in need of repair and maintenance. “It takes time and money for redevelopment, such as building more public parks and other facilities,” Mr. Wong explained. Mr. Wong suggests that temporary housing units built to relocate tenants should be managed by the government because private developers would not take up the projects by only receiving rental from the relocated tenants. The idea for the project to be initiated by the private sector is not practical in Macau, Mr. Wong stressed. He added that the return on investment of building a temporary housing unit is not attractive for private developers for this long-term project as tenants would not buy the property and would just rent the unit for a period of time only. “For the current situation in Macau,
it is better to let the government manage the temporary housing units. This is a more practical and more efficient way to deal with this issue,” he said. In addition, legislator Au Kam San expressed support for the redevelopment of old buildings to be managed by the government as temporary housing units leased out at cheaper rental fees. In other cases tenants could exchange their old residential units for a newly built residential unit by the government, he told Business Daily. He said that private developers would not support cheap rental for tenants as they would not make much profit from doing this.
Not a priority
Joe Wu Chou Kit, council president of the Macau Institution of Engineers, told Business Daily that building temporary housing units is not the
imminent issue as Macau is still in the process of reclaiming land. However, he stressed that building temporary housing units is a longterm development plan. Mr. Wu suggested the MSAR Government deal with the scarcity of land in the city and find a better timing for launching its urban renewal plan as it would take a long time. He added that if temporary housing units are to be built, then new town Zone A, a reclaimed plot of land surrounding Macau that is being built, may be a good choice of location as it would help relieve pressure on the highly populated Northern District of the city. “The living surroundings of the old buildings should be improved first, such as repairing old streets, sewers and landscaping, meanwhile meeting local residents’ needs by building more public housing units for them,” Mr. Wu said.
6 Business Daily Friday, August 5 2016
Macau Opinion
Pedro Cortés All we Nida is Science! The good thing about Macau is that we are blessed at all times. Some say that it is the A-Ma Goddess. Others say that the topography of the city does not permit evil winds to hurt us. When our neighbours fight against disease, we are always immune or almost immune. When there is a great financial catastrophe, we spend three to four years haranguing it and referring to the “financial tsunami” in official speeches - but still, as always, the coffers are bulging, despite the investment made in other gaming properties in the Region. When there is an H5N1 on the horizon, we are capable of keeping aside and maintaining the hospital (yes, there is a public one with the capacity to serve more than one third of residents and non-residents than in 1999) with almost a clean record. So, what is the secret? Science, my friends, Science! Scientific Studies steer Macau away from all the troubles that our younger brother Hong Kong – yes, the Portuguese settled in the area before the sons of Albion – and Motherland China suffer. It is because of Science that we still don’t have a working LRT. It is because of Science that we don’t yet have a hospital to serve the huge number of residents that live in Taipa and Coloane. It is because of Science that we invest in speed radar detectors on the Sai Wan Bridge when the non-scientists think there are more important matters to invest in. It is because of Science that we keep ourselves happy with what we have already achieved. I tend to consider that it is because of Science that we do not yet have plans for the post-2020/22 gaming industry. Or for green vehicles in this increasingly polluted city. Well, from now on I declare myself a Scientist to the extent that I may use it as an excuse in my professional life. For instance, if a client loses a case in court, I will tell him: sorry, it was Science. And I invite all of you to join this trip with our beloved Science. I’m sure that if Thomas Hobbes can hear us (wherever he might be) he would be very proud of the positivism with which Macau has been transformed. As a matter of positivist fact, Science can, finally, explain everything that happens without any possibility of human error. That, my friends, who have just united with me in this Scientific experience, is scientifically impossible of happening. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
MICE
IPIM grants MOP22 mln for MICE events as at mid-July
M
acau Trade and Investment Promotion Institute (IPIM) granted some MOP22 million (US$2.75 million) between October last year and mid-July to subsidise 44 MICE events in the territory, according to its president Lourenço Cheong Chou Weng. In an interview with Chinese language newspaper Macao Daily, Mr. Cheong said the department had received 48 applications for its Convention and Exhibition Stimulation Programme during the period, of which 33 were approved for some MOP13 million. Meanwhile, another MICE aid scheme, the International Meeting and Trade Fair Support Programme, received some 20 applications during the same period, of which 11 were greenlighted by the authorities for some MOP9 million. The two programmes provide varied financial support for the city’s MICE events, including subsidising costs for venue rental, accommodation, marketing and promotion as well as other software and hardware costs. The two aid schemes, in fact, used to be under of Macao Economic Services (DSE). Since last October, IPIM started taking up the responsibility for receiving applications for the two
programmes and became fully in charge of promoting MICE events in the city since the beginning of this year. Excluding applications it received last year, IPIM received 34 applications for the Convention and Exhibition Stimulation Programme as at mid-July this year– a decrease of 16 compared to the number that DSE received one year ago. In addition, the application filed with IPIM for the International Meeting and Trade Fair Support Programme amounted to 16 for the seven months, which is three fewer compared to the same period of last year.
The IPIM president also noted to the news outlet that the body’s subsidies to sales-related MICE events had decreased in order to provide more precise support for the industry, stressing overall support to the industry has not been affected. He added that the rejected applications during the period were primarily due to applicants not meeting related regulations, such as the size of their events not meeting minimum requirements. Despite the intense competition of the MICE market in Asia, Mr. Cheong believes that the city’s MICE industry is competitive as [MICE] venues here are concentrated.
Oil
China’s Iran specialist Zhuhai Zhenrong tips senior crude trader as head The subsidiary of Macau-based state-controlled conglomerate Nam Kwong Group is the result of a recent merger under the Chinese cabinet’s plan to consolidate state-owned enterprises. Zhuhai Zhenrong Corp, a stateowned trader that started China’s Iranian oil business, has appointed a senior trading manager to head the company, officials at the firm said on Tuesday. Li Youmin, who joined Zhuhai Zhenrong in 1996 as her first job out of university shortly after the company was set-up, became its new general manager effective in June, replacing Zhang Dongquan who has retired, the officials told Reuters. Zh u hai Zh e n r o n g i s n o w a subsidiary of Macau-based statecontrolled conglomerate Nam Kwong Group, following a recent merger under the Chinese cabinet’s plan to consolidate state-owned enterprises. Li, in her 40s, was hired by the founder of Zhuhai Zhenrong, Yang
Qinglong, a legendary figure who brokered and started oil dealings between Beijing and Tehran in 1995. At that time, Iran was supplying
oil to China to pay for arms supplied by Beijing during the 1980-88 IranIraq war, and Zhuhai Zhenrong still specializes mainly in buying Iranian oil. Li has work since she joined in the company’s crude department, which now lifts about 240,000 barrels a day from Iran under annual supply pacts. She was heading up the crude department when she got the nod to run the company, and now leads a Beijing-based team of 40. Under the merger with Nam Kwong, two other trading units previously under Zhuhai Zhenrong - Tianjin Zhenrong International Trading Co Ltd and Tianbao Petroleum Trading Co Ltd - also become subsidiaries of the Macau conglomerate. Beijing-based Tianjin Zhenrong, which also deals oil with Iran, focuses on refined fuel such as fuel oil and petrochemicals. Prior to the merger, Nam Kwong was into real estate, logistics and travel, as well as small-scale natural gas and petrochemicals. Reuters
Investment
Free trade zone advantage China Internet Investment Finance Holdings Limited, formerly Opes Asia Development Limited, a company engaged in investments for listed and unlisted companies in Macau, Hong Kong, Mainland China and Australia, is seeking to expand its operations to Qianhai – Shenzhen’s Free Trade Zone - to explore investment opportunities in the Mainland market, and is considering applying as a private fund manager in the Mainland. Companies registered in the zone can freely convert up to US$100 million (MOP798 million / 664 million yuan) to Chinese currency a year and are allowed a 15 per cent tax rate; as of July, over 100,000 companies had
registered in the special economic zone, notes the South China Morning Post. The group is looking at a possible investment in the amount of 2.5 million yuan in a company that
currently has registered capital amounting to 10 million yuan. The group notes that the company will generate revenue from its receipt of management and advisory fees as well as income from investments. Finalisation of the investment is set to occur within six months, after which the letter of intent will be void.
Business Daily Friday, August 5 2016 7
Macau Gaming
MGM China net revenue down 19 pct y-o-y in Q2 In Macau, VIP table games revenue declined by a third and main floor table games revenue dropped 3pct.
F
or th e th r e e m o n th s ended June 30, 2016, MGM China’s net revenues were US$452 million (HK$3.5 billion), operating income was US$51 million and Adjusted EBITDA [earnings before interest, tax, depreciation and amortization] was US$119 million, a decrease of 19 per cent, 11 per cent and 10 per cent, respectively, compared to the prior year quarter. In addition, MGM Resorts International revenue decreased 4.58 per cent to US$2.27 billion from US$2.39 billion a year earlier. Profit was reported at US$474.4 million, or 83 cents a share, up from US$97.5 million, or 17 cents a share a year earlier, according to reported financial results released last night. “Our Profit Growth Plan drove our domestic resorts Adjusted Property EBITDA to grow an impressive 12 per cent and Adjusted Property EBITDA margins to improve by over 350 basis points, despite a record-breaking May last year,” said Jim Murren, Chairman and Chief Executive of MGM Resorts in the press release. “With a solid foundation of operational excellence and the continued strength in the Las Vegas market, in which we are the clear leader, we believe that MGM Resorts is well positioned to further
improve our financial strength to deliver sustainable value to our shareholders,” Murren added.
Mass trend
“The quarterly results were somewhat weaker than expected, primarily on challenging comparisons in Las Vegas and lower than expected top
line volumes in Macau,” said analyst David Katz and Brian Davis of Telsey Advisory Group in a note following the results. MGM noted that main floor table games revenue decreased 3 per cent compared to the prior year quarter and VIP table games revenue decreased 33 per cent due to a decrease in turnover of 28 per cent compared to the prior year quarter. In a press release sent out by MGM China Holdings Limited, it was noted that ‘over 80 per cent of MGM China’s profit was contributed by the mass segment’.
‘We continue to manage costs and streamline operations in a disciplined manner, while remaining focused on main-floor business by offering a high-quality experience with MGM MACAU,’ the statement reads. Grant Bowie, Chief Executive Officer and Executive Director of MGM China, said, “Mass trends in Macau have been strong and we are encouraged by the new player sign-ups and quality of play. Mass gaming and diversification are the key to the future development of Macau. We are ready to bring in more innovative and tailored offerings with MGM COTAI. With our quality product and unmatched ex ec u ti o n , w e a r e c o n fi d e n t that we can capture the growth opportunities of Macau.”
Key Points Key second quarter results for MGM China include: Net revenues of US$452 million, a 19pct decrease y-o-y Adjusted EBITDA of US$119 million, a 10pct decrease y-o-y Main floor table games revenue decreased 3pct decrease y-o-y VIP table games revenue decreased 33pct due to a decrease in turnover of 28pct y-o-y
Gaming
Melco posts US$1.07 bln net revenue for Q2 Management believes that revenue trends, particularly in the mass market segments, will improve as Macau attracts more tourists. Melco Crown Entertainment recorded net revenue for the second quarter of 2016 of US$1.07 billion (HK$13.19 billion), representing an increase of approximately 17 per cent from US$916.8 million for the comparable period in 2015. The company notes that the increase in net revenue was primarily attributable to the net revenue generated by Studio City, which started operations in October 2015, and the increase in casino revenues from City of Dreams Manila, partially offset by lower casino revenues at City of Dreams and Altira Macau. Adjusted property EBITDA [earnings before interest, tax, depreciation and amortization] was US$245.3 million for the second quarter of 2016, as compared to Adjusted property EBITDA of US$204.9 million in the second quarter of 2015, representing
an increase of 20 per cent. The company noted that the increase was mainly attributable to the contribution by newly opened Studio City and fully operating City of Dreams Manila.
in gaming demand,” said Mr. Ho. “However, we believe that revenue trends, particularly in the mass market segments, will improve as Macau further evolves into a multifaceted, mass market-focused destination, deserving the accolade of being the most exciting gaming and entertainment destination in Asia.”
Faith in the Philippines
The company also noted that for its operations in the Phillipines net revenue at City of Dreams Manila was US$120.2 million in the second quarter of this year compared to US$75.0 million in the second quarter of 2015. Adjusted EBITDA of US$36.5 million
in the second quarter of 2016 was registered at that property compared to US$12.6 million in the comparable period of 2015. The company added that the year-over-year improvement in Adjusted EBITDA was primarily a result of increased casino revenues, including from the junket operations which began in the middle of 2015. “We believe that the Philippines gaming market will continue to show robust growth as the country’s economy rapidly expands, infrastructure continues to improve and the government retains its strong commitment to supporting domestic and international tourism,” said Mr. Ho.
Challenging Macau
“Studio City, our second integrated resort in Cotai, Macau, which opened in late 2015, is still in its ramp-up phase and positioned for further increased revenues and profitability in the future as the property builds a strong customer database through its unique entertainment offerings which attract an increasingly Cotai-based mass market customer,” said Lawrence Ho, Chairman and Chief Executive Officer of Melco Crown Entertainment in a prepared statement. “Macau continues to face challenges
“Macau continues to face challenges in gaming demand” Lawrence Ho, Chairman and CEO of Melco Crown Entertainment
Gaming
Iao Kun rolling chip turnover down 44 pct in July Junket operator Iao Kun Group Holding Company Ltd. registered a decrease of 44 per cent in its rolling chip turnover in the city last month, according to its announcement on Wednesday. In July, the junket promoter generated some US$0.25 billion (MOP2 billion) in rolling chip turnover from its VIP rooms in the city, plunging US$0.21 billion compared to US$0.44 billion during the same month in 2015. Meanwhile, the win rate for the month amounted to 3.2 per cent. For the first seven months of the year, the Nasdaq-listed company’s rolling chip turnover totalled US$2.3 billion, which is nearly half compared to US$4.36 billion for the same period last year. Currently, Iao Kun operates five VIP rooms in Macau, located in StarWorld Hotel, Galaxy Macau, Sands Cotai Central, City of Dreams and
L’Arc Macau. In addition, it operates gaming businesses in Perth and Melbourne in Australia. In June, the junket announced the acquisition of the Jeju Sun Hotel & Casino in South Korea from Philippine gaming operator Bloomberry Resorts Corporation for US$102 million in order to ‘diversify outside of Macau’. K.L.
8 Business Daily Friday, August 5 2016
Greater China July forecast
Data to show broadly steady growth Inflation is expected to remain modest despite growing government fiscal stimulus. Elias Glenn
S
kittish global investors may be reassured by fairly steady growth expected in a flurry of Chinese data in coming weeks, but tepid demand, slowing investment and rising debt levels remain pressing concerns for the world’s second-largest economy. A surge in construction in recent months has kept steel mills and cement plants busier, alleviating some of the strains from chronic overcapacity that Beijing has promised to tackle. But most economists note the pick-up has been highly reliant on government spending and a housing boom, and may only be temporary. Mixed business surveys for July earlier this week showed activity was mostly steady but still sluggish, with some signs of strength among smaller manufacturers but continuing job losses. Economists polled by Reuters expected July exports fell 3 per cent from a year earlier, which would be an improvement from a 4.8 per cent decline in June but still mark the 12th month in 13 of falling shipments. A weaker yuan seems to have done little for exporters in the face of stubbornly weak global demand. Imports likely fell 7 per cent, a slight improvement from June, while China’s trade surplus is forecast to fall only marginally to US$47.6 billion.
Inflation is expected to remain modest despite growing government fiscal stimulus, with consumer inflation dipping again to 1.8 per cent and producer price declines moderating to 2 per cent, easing strains on some companies’ balance sheets. Money and credit data may be more mixed, as the government looks to rein in dangerously high leverage and debt levels without jeopardizing growth. New yuan loans in July likely fell to 800 billion yuan (US$120.5 billion), which would be a three-month low, while growth in outstanding loans may have moderated to 13.8 per cent, down from 14.3 per cent growth in June. M2 money supply is expected to have risen 11.2 per cent in July, which would be the slowest since May 2015. It rose 11.8 per cent in June. New loans in China surged to a record high in the first half of the year as government spending coursed through the economy, but that new credit is generating less growth than before as China struggles with overcapacity and entrenched roadblocks to a more efficient and productive economy. Concerns about debt and a build-up of cash on company balance sheets has led to speculation that further monetary easing will be limited, with the focus in the last five months of the year expected to be on structural reform and fiscal measures to boost growth. Growth in industrial output and retail sales likely moderated slightly in July,
the poll showed. But urban fixed asset investment likely expanded 8.8 per cent in JanJuly, a fresh 16-year low and cooling from 9.0 per cent in Jan-June. Economists are also expected to focus once again on private investment growth, which has cooled to record lows, leaving the economy more unbalanced. Foreign exchange reserves likely fell
to US$3.20 trillion after unexpectedly rising in June due to a stronger yen. China’s reserves have stabilised in the last few months despite new downward pressure on the yuan, as analysts say the Chinese government has been relatively successful with measures to limit capital outflows. Forex reserves data are expected to be released this weekend, with trade, inflation and loan figures out next week. Industrial output, investment and retail sales will be released on August 11. Reuters
Business Daily Friday, August 5 2016 9
Greater China Currencies
In Brief
Government interventions grinding down yuan bears Last month, the renminbi weakened past the psychologically important 6.7 per dollar mark, nearing six-year lows. Jongwoo Cheon
Bearish bets on the Chinese yuan fell to a more than three-month low in the last two weeks as the central bank stabilised the currency after it fell through a key psychological level, a Reuters poll showed. Sentiment on most other emerging Asian currencies grew even more positive, meanwhile, as global investors continued to flock to the region’s stock and bond markets in search of higher yields. Bullish bets on some regional currencies were the highest in two to three years, according to the poll of 20 fund managers, analysts and currency traders conducted from Tuesday through yesterday. Bets on further declines in the yuan shrank to the smallest since late April, when sentiment on the currency was nearly neutral, according to the survey. Last month, the renminbi weakened past the psychologically important 6.7 per dollar mark, nearing six-year lows. But it has rebounded 1 per cent since then as the central bank intervened to slow down the pace of its depreciation. Recent dollar weakness has also helped the yuan rebound.
Still, the Chinese currency may fall more than 3 per cent against the dollar over the next 12 months, given the slowdown in the world’s second-largest economy, a separate Reuters poll showed on Wednesday. The People’s Bank of China will allow it to resume weakening, analysts said.
Key Points Yuan short positions smallest since late April on PBOC Won, rupiah views most optimistic in over 2 yrs on inflows Baht, Taiwan dollar bullish bets largest since 2013 Disappointing U.S. data in the last few weeks, especially second-quarter economic growth, has caused investors to scale back expectations of a nearterm interest rate hike by the Federal Reserve, taking steam out of the dollar. Other major monetary authorities including the European Central Bank and the Bank of England are expected to ease policy further in the wake of
Britain’s vote to leave the European Union. Such stimulus is expected to push more capital into emerging Asia as investors scour the world for better yields. The Indonesia rupiah - which offers one of highest yields in Asia - saw the largest bullish bets since April 2014. South Korea’s won saw the highest long positions since July 2014 on equity inflows. Optimistic bets on the Thai baht increased to the largest since April 2013 on capital inflows, while the Taiwan dollar saw the highest bullish bets since January 2013. Foreign demand for Indian stocks and bonds lifted the rupee’s long positions to the largest since April 2015. The Malaysian ringgit bucked the trend, however, with short positions edging up on concerns over scandal-plagued state fund 1Malaysia Development Berhad and weak oil prices. The poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht. The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars. Reuters
Wuxi Honghui’s listing valuation of 22.98 times earnings compares to an average multiple of 43.3 for firms in the chemical products industry, the company said in a June 17 filing. “Investing in A-share IPOs is highly profitable because regulators keep prices low,” said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. “The odds of winning initial shares are falling as returns surge.” For the 13 stocks that started trading last month, the average chance for a retail investor to be allocated any shares in an offering was 0.04 per cent, data compiled by Bloomberg show.
Tougher stance
The CSRC has been signalling a tougher stance on letting companies list in China, warning brokerages last month to improve their standards when helping clients raise money. The regulator is also said to be considering measures to curb the flow of overseas-traded Chinese companies seeking backdoor listings on the mainland. As the market stabilizes, the CSRC is set to approve bigger deals for the second half, the people familiar with the matter said. Bank of Jiangsu Co. started trading August 2 after raising US$1.1 billion in the biggest IPO this year. China Film Co. has raised US$628 million and is waiting for the regulator’s green light for a debut slot.
China’s banking regulator has requested financial institutions not to “casually” cut off or cease lending to firms facing business difficulties, the National Business Daily reported yesterday citing anonymous sources. The newspaper said lenders had received a notice from the China Banking Regulatory Commission (CBRC) encouraging them to help troubled businesses resolve their difficulties by extending maturities on loans or relending. The regulator, when contacted by Reuters, had no immediate comment on the report. Chinese banks are struggling with rising non-performing loans, exceeding two trillion yuan (US$301 billion), according to recent comments by a CBRC official. Ecommerce expansion
WeChat targets NZ payments market
Bank of Jiangsu was the first A-share banking IPO since August 2010, data compiled by Bloomberg show. Lenders that received CSRC’s initial approval more than six months ago and are still waiting for a listing slot include Bank of Hangzhou Co., Bank of Shanghai Co., Jiangsu Jiangyin Rural Commercial Bank Co. and Bank of Guiyang Co.
Alternative listings
M&A
Nation’s IPOs bring record returns on supply curbs
China’s market for initial public offerings is the hottest it’s ever been, thanks to the securities regulator. The 62 new stocks that have completed their first month of trading this year soared 420 per cent on average in the span, the steepest such rally on record, data compiled by Bloomberg show. For a clue as to why: the average size of this year’s offerings has dwindled to US$88 million, the smallest since 2005. While huge returns on mainland IPOs aren’t new, the numbers are getting even more eye-watering as the China Securities Regulatory Commission seeks to stabilize the nation’s US$6.1 trillion equity market. Officials asked arrangers and companies to limit their deal sizes in the first half to avoid an oversupply of shares, according to people with knowledge of the matter, and a proposed registration system that would have given firms more flexibility on IPO pricing and timing has been delayed. The Shanghai Composite Index is down 16 per cent in 2016, one of the world’s biggest declines. “Regulators are carefully watching and testing market reactions as they approve IPOs,” said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai. “They tend to tighten approvals when the market slumps and release more deals when sentiment improves.” More than 800 companies have filed IPO applications and are waiting for approval, according to the CSRC’s website. The 78 completed sales this year compares with 219 in all of 2015, and the value of the deals is about a quarter of the 2015 amount, Bloomberg data show. Wuxi Honghui New Materials Technology Co. was one of the lucky ones, raising US$39 million in June. The shares soared 553 per cent in their first month on the Shenzhen exchange, and are now up 580 per cent from their IPO price. The company is typical of Chinese IPOs in that it priced at a multiple below the market average -- nearly all initial shares sold in the past two years were valued at less than 23 times profit, data compiled by Bloomberg show.
Regulator asks lenders not to cut off financing
Chinese social media giant WeChat yesterday announced it was entering the New Zealand payments market with its automatic payment app. WeChat said it was partnering with New Zealand company Pure NZ Gateway Ltd. to provide retailers with the ability to receive payments through WePay, part of the WeChat portal, which is used by almost 800 million Chinese. The benefits to local merchants, particularly in the tourism and services sectors, were significant with almost 4 million Chinese visiting New Zealand every year, said Pure NZ Gateway CEO Mark Christensen.
Stocks
More than 800 companies have filed IPO applications and are waiting for approval.
BANKS
Some companies have gone to Hong Kong instead. Postal Savings Bank of China Co., one of the few state-owned giants remaining unlisted, is preparing for an US$8 billion IPO in the former British colony this year. Bank of Tianjin Co. and China Development Bank Financial Leasing Co., which raised a combined US$1.8 billion in Hong Kong initial offerings this year, had both considered A-share listings, separate people with knowledge of the matter said. While IPO approvals are hard to come by, regulators appear more lenient towards listed companies selling additional shares. Companies have completed 320 additional offerings on the mainland this year, raising US$99 billion. Both the deal count and the fundraising are the second highest in the past decade. Bocom International’s Hong says the outlook for China’s IPO market remains in the CSRC’s hands. “The IPO fever will continue if regulators keep delaying a registration system and capping prices,” he said. Bloomberg News
Mainland investors in talks over Polish airline stake Poland is in talks with potential investors from China over selling a stake in the state airline LOT, Deputy Prime Minister Mateusz Morawiecki said. The two countries pledged deeper co-operation during the visit of China’s leader Xi Jinping to Warsaw in June. LOT, one of the world’s oldest airlines, has for years struggled to compete against low-cost competitors like Ryanair and bigger rivals. The state-owned airline was saved from bankruptcy in 2012 thanks to public aid of more than 500 million zlotys (US$130 million). Monetary stance
PBOC reiterates prudent policy Amid fresh calls for further monetary easing, China’s central bank reiterated it plans to keep monetary policy “prudent” this year. The People’s Bank of China said it will use multiple tools to keep liquidity at reasonably ample levels and maintain reasonable credit growth in the second half, according to a statement released Wednesday after a meeting PBOC Governor Zhou Xiaochuan held with the heads of local branches. Monetary policy will stay prudent, with flexibility and fine-tuning when appropriate, the statement said.
10 Business Daily Friday, August 5 2016
Greater China Economic outlook
Taiwan Asia’s hottest investment as concerns fade Global investors have overlooked domestic challenges of late as they hunt for high yields amid receding returns around the world. Justina Lee
G
lobal investors can’t get enough of Taiwan. Overseas funds poured US$5.4 billion into the island’s equities last month, taking inflows for the year to US$11.6 billion and making Taiwan the most popular destination for investors among nine Asian markets tracked by Bloomberg. That’s helped send both the benchmark stock gauge and the currency to one-year highs. Fuelling gains are bets that the imminent release of Apple Inc.’s iPhone 7 will boost profits at Taiwan suppliers and relief that the new political era under President Tsai Ing-wen hasn’t led to a conspicuous deterioration in ties with China. While a stronger currency may crimp overseas earnings for exporters, Prudential Financial Inc.’s local unit sees room for further gains as Asia’s second-highest dividend yield and below-average valuations lure investors. “Taiwan is especially strong because everyone knows the new iPhone will be launched in September or October, and production begins in the second quarter,” said Hsienwen Yeh, head of greater China investment at Prudential Financial Securities Investment Trust Enterprise in Taipei. The increased investor enthusiasm toward the island’s stocks is a reversal from May, when global funds rushed for the exit amid concern slower smartphone sales growth would hit the local supply chain and the new president would strain ties with China. Tsai has avoided provoking China directly, saying in her inauguration speech that Taiwan will maintain peace and dialogue.
Since Tsai assumed the presidency on May 20, the Taiex index has rallied 15 per cent on a dollar basis, the fourth-biggest gain among 94 global benchmark indexes tracked by Bloomberg. The Taiwan dollar has strengthened 3.3 per cent, the most in Asia after the currencies of Japan and South Korea. Technology companies have driven the advance. Taiwan Semiconductor Manufacturing Co., the island’s largest listed company and a major Apple supplier, climbed to a record this week after forecasting third-quarter sales that beat estimates as the new
iPhone’s release neared. Apple added to positive sentiment after reporting sales that fell less than projected in the April-June period.
Manulife’s picks
“I will increase allocation to some names related to iPhone 7 production” after reducing exposure in the first half, said Stevie Chou, Taipei-based head of equities at Manulife Asset Management (Taiwan). “The third quarter is a hot season for information technology products.” Chou sounded a word of caution, saying the index’s rally may be limited by the island’s lacklustre economy. Gross domestic product expanded 0.69 per cent on a yearly basis from April through June, after three straight quarters of contraction. A stronger Taiwan dollar is also a threat to
exports, which have shrunk for 17 months in a row. Global investors have overlooked these challenges of late as they hunt for high yields amid receding returns around the world and decreasing odds of a Federal Reserve interest-rate increase this year. The island’s 4.03 per cent dividend yield is Asia’s highest after Australia, and its 16.2 price-to-earnings ratio is still less than its five-year average of 17.4. “Taiwan’s dividend yield is better than most emerging markets,” said Peter Tzeng, senior vice president at IBTS Investment Consulting Co. in Taipei. “While there’s some uncertainty over global economic growth, the earnings of Taiwan’s listed companies haven’t been too bad. So when there’s a lot of money around, funds come to Taiwan.” Bloomberg News
Since Tsai assumed the presidency on May 20, the Taiex index has rallied 15 per cent on a dollar basis
M&A
Domestic group to buy Australian vitamin firm Shanghai Pharma said in a filing it would take a 60 per cent stake of Vitaco. A Chinese group led by drug maker Shanghai Pharmaceuticals Holding Co Ltd and private equity firm Primavera Capital has agreed to buy Australian vitamins maker Vitaco Holdings for A$313.7 million (US$239 million). Vitaco said in a statement yesterday the Chinese group would buy all of the firm at a valuation of A$2.25 per share, a 28 per cent premium to
their closing price on Wednesday, less than a year after it listed shares in Sydney at A$2.10 apiece. Vitaco said the deal would help it grow in the world’s second-largest economy, where vitamins and dietary supplements business is expected to surge to around US$20 billion by 2018, according to Euromonitor. That growth is luring firms to look for local tie-ups or tap the market
for traditional remedies. Shares in Vitaco, which owns brands such as Nutra-Life, Wagner and Abundant Earth, has seen the stock plunge over 40 per cent from a high of A$3.23 last November, in the month after it listed. Vitaco’s chairman Greg Richards said in a statement the deal was attractive for shareholders given the “on-going volatile macroeconomic conditions and regulatory uncertainty in China”. While China is a major destination for Australian goods, Beijing’s move last April to
raise tariffs and tighten controls on some imports clouded the business outlook for some players.
‘Vitaco’s chairman Greg Richards said the deal was attractive for shareholders given the “ongoing volatile macroeconomic conditions and regulatory uncertainty in China”’ Shanghai Pharma said in a filing yesterday it would take a 60 per cent stake of Vitaco for around 938 million yuan (US$141 million) as part of a take-private deal with Primavera. It said the deal would combine its own networks and sales channels in China with Vitaco’s high-quality healthcare brands. The Vitaco buyout comes less than a year after Hong Kong-listed Biostime International Holdings bought larger Australian vitamin maker Swisse Wellness for around US$1 billion in 2015 to build on strong Chinese demand. Reuters
Business Daily Friday, August 5 2016 11
Asia Regional summit
ASEAN expects slower economic growth in 2016 Corruption, transparency and good governance remain key challenges for regional outlook. Marius Zaharia
E
conomic growth in ASEAN countries was expected to dip to 4.5 per cent in 2016 from 4.7 per cent last year due to China’s slowdown and uncertainties related to Britain’s vote to leave the European Union, the member states said in a statement. Economic ministers meeting in Laos, which holds the ASEAN chairmanship this year, said jointly that growth in the 10-nation group’s US$2.4 trillion economy should recover to 4.7 per cent next year due to “strong private and public consumption and improved efficiency in infrastructure.” “The region is exposed to ... continued moderation in the Chinese economy, to uncertainties over the new relationship between the UK and the EU after Brexit,” the statement said, adding that ASEAN remained committed to further integration. Import duties on 99.2 per cent of tariffs in Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand and 90.9 per cent in Cambodia, Laos, Myanmar and Vietnam have been eliminated, the ministers said on the integration progress. About a quarter of the group’s total trade of US$2.3 trillion is intra-ASEAN. China is ASEAN’s top external partner, with 15 per cent of the total, followed by Japan, the European Union and the United States.
The countries also said they aim to harmonise economic strategies, recognise each other’s professional qualifications, improve custom clearance and intellectual property rules, and close the development gap between the poorer members - Cambodia, Laos, Vietnam and Myanmar - and the rest of the region.
They also agreed to enhance the connectivity of their transportation infrastructure and communications, better facilitate electronic transactions, integrate industries to promote regional sourcing, and enhance private-sector involvement in the economy. ASEAN’s closer economic integration is considered a major step forward from what has been considered since the earliest days of its existence as a political project for peaceful regional relations.
A joint report by AmCham Singapore and the U.S. Chamber of Commerce published on Thursday showed that 53 per cent of the U.S. companies thought ASEAN has become more important in terms of worldwide revenue in the past two years. About two thirds said it will become more important in the next two years. Vietnam, Indonesia and Myanmar were the top destinations for the U.S. companies’ expansion plans within the region, with Singapore, Laos and Brunei the least preferred. Corruption, transparency and good governance remained key challenges for the regional outlook, the report showed. Reuters
Reform drive
India’s landmark tax reform clears parliamentary hurdle The measure would harmonise 11 state and central levies into a national sales tax. Rajesh Kumar Singh
India’s upper house of parliament backed a major tax reform on Wednesday that seeks to transform the country into a common market, though opposition benches urged Finance Minister Arun Jaitley not to overtax businesses and consumers. A bill allowing the constitution to be amended so that a nationwide Goods and Services Tax (GST) could be rolled out was held up for years by political in-fighting. Its passage marks a victory for Prime Minister Narendra Modi as he eyes an economic boost for Asia’s third-largest economy. “GST is one of the most significant tax reforms in the history of India,” Jaitley told lawmakers. The finance minister vowed to roll out the new sales tax as soon as possible, but refrained from committing to a firm schedule after missing the original launch date of April 2016. The measure would harmonise 11 state and central levies into a national sales tax, reducing business transaction costs. Economists at HSBC forecast the GST would produce a boost of 0.8 percentage points in India’s economic
growth within three to five years. The gains are far from granted, however, and much will depend on its implementation, in particular pitching the tax at the right level to offset possible revenue losses without fuelling inflation. A government-appointed panel has suggested a standard GST rate of 17-18 per cent but Indian states want a higher level. Morgan Stanley reckons a higher rate could push up retail inflation by as much as 70 basis points. That should worry Modi, whose Bharatiya Janata Party (BJP) faces tough tests in crucial state elections next year. “There is most definitely a risk that
the GST will contribute to a pickup in inflation,” said Amitabh Dubey, an analyst at Trusted Sources. “That will contribute to negative sentiment.”
Road ahead
The Modi government’s most ambitious reform has been a long time coming. The Indian leader had wanted the GST to come into effect in April 2016, hoping to reap its economic dividends in time for his expected re-election bid in 2019. Although the measure enjoyed broad political support, its passage was blocked by differences over its design, and a series of compromises agreed to win over states risks diluting the tax’s impact. The two-year-old deadlock was broken only after the government offered concessions to the opposition Congress
party, which had originally proposed the GST while in power but has opposed what it termed as a “flawed” tax. P. Chidambaram, Jaitley’s predecessor and a senior Congress leader, blamed the government for the deadlock. “It could have been resolved in five minutes,” he said. “But the government was rather stubborn.” Chidambaram warned of the risk of “creeping taxation” and urged capping the GST rate by law at 18 per cent to ensure it is “non-inflationary, acceptable to public and an efficient way of taxing without tax evasion”. He also asked for safeguards to prevent any tinkering in the rate without the approval from both houses of parliament. The passage of the constitutional amendment bill on Wednesday kicks off a legislative marathon in which both the federal and state parliaments will need to pass further laws setting the rate and scope of the GST. Tax experts say that passing further legislation, training tax collectors, setting up IT systems and preparing companies for the new tax regime makes launching the GST by next April, the start of the next financial year, very challenging. If all goes well, they say, a July or October 2017 start date looks more probable. Reuters
12 Business Daily Friday, August 5 2016
Asia In Brief Banks’ health
Vietnam’s bad debt stable Non-performing loans (NPLs) as of the end of May accounted for 2.78 percent of Vietnam’s entire banking system’s total outstanding loans, according to Vietnamese central bank yesterday. The level was still under the three-percent threshold targeted by the government, local Vietnam News quoted Deputy Governor of the State Bank of Vietnam Nguyen Thi Hong as saying. The central bank would still consider the handling of bad debts a top priority during the last few months of the year, Hong said, adding that credit institutions have been asked to make provisions for their risky loans. Economic mood
Thai consumer sentiment improves Thai consumer confidence picked up for the first time in seven months in July, a university survey showed yesterday, due to improved economic and job conditions and higher commodity prices. Consumers were hoping the government would focus on spending and investment to boost the economy in the second half, the University of the Thai Chamber of Commerce said. The army, which seized power in May 2014 to end months of political unrest, has struggled to revive Southeast Asia’s second-largest economy as exports and domestic demand remain weak. Environmental crackdown
Philippines suspends seventh nickel miner
The Philippine government has suspended the operations of a seventh nickel miner, Claver Mineral Development Corp, a minister said yesterday, deepening an environmental crackdown that has caused jitters in global nickel markets. The Philippines is the biggest supplier of nickel ore to top market China and the suspension of some mines and the risk of more closures sent global nickel prices to an 11-month high of US$10,900 a tonne on July 21. “Today we are suspending Claver Mineral. We will audit all the mine sites of Mindanao,” Environment and Natural Resources Secretary Regina Lopez said.
TPP negotiations concluded last year. Family pictured after Trade deal
Philippines holds informal TTP membership talks with U.S. For the Philippines, joining the pact would open up the North American and the South American markets. Marius Zaharia
T
he Philippines is eager to join the 12-nation Trans Pacific Partnership trade deal and it has already held informal talks with the United States to do so, Trade Secretary Ramon Lopez said yesterday. In an interview with Reuters on the side-lines of ASEAN economy ministers meetings in Vientiane, Lopez said the key industries which would benefit would be electronics, automotive and garments. “If you don’t take part in it you might lose some opportunities while other countries are enjoying them. We’d like to be part of that,” Lopez said. “The new government is one that will keep the policy of maximising FTA (foreign trade agreements) participation. We’re close to the U.S. and we’ve had talks at an informal level.” The TPP has been dubbed a “megaregional accord”, and once in play would be the biggest trade pact in a generation. It will be a boon in particular for lower cost manufacturing-led economies, with the prospect of sharp tariff cuts to markets like the United States already luring factory
investment to TPP members. Lopez said his country was in a good position to join, having separate FTAs in place with seven of the 12 countries already.
“If you don’t take part in it you might lose some opportunities while other countries are enjoying them. We’d like to be part of that” Ramon Lopez, Philippines’ Trade Secretary The TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam, accounting for about 800 million people and 40 per cent of the global trade. For the Philippines, the TPP, which covers a trade area worth US$28 trillion of GDP, would open up the
North American and the South American markets. John Goyer, senior director for Southeast Asia at the U.S. Chamber of Commerce, said on the sidelines of the Laos event the signals from the new administration of President Rodrigo Duterte have been positive since he won the May election. He said reforms would be needed though, one of the key ones being amendments to foreign equity rules, which require constitutional change and were a sticking point for the previous government. However, suggestions to remove caps on foreign ownership in certain economic sectors were “well received” by the new government, Goyer said. Lopez gave no timeframe for possible TPP membership, citing ratification uncertainties for the deal. TPP negotiations concluded last year and the pact has been signed, but to take effect it requires ratification by members’ respective legislatures by February 2018. The TPP is a signature policy of U.S. President Barack Obama but its ratification before he leaves office in January next year is uncertain, with many U.S. lawmakers running for re-election in November and facing a rising tide of anti-free-trade sentiment. Reuters
M&A
Australia’s IFM makes highest bid for EDF’s assets Australian fund management firm IFM and its unit Veolia Energia Polska have submitted the highest offer to buy Polish heating assets from France’s EDF, the Puls Biznesu daily said, quoting unidentified sources. EDF launched the sale of its Polish assets earlier this year as part of a strategy to focus on low-carbon nuclear and renewable energy. EDF’s Polish plants, which have a 15 percent share of the local heating market, are valued at around 1 billion euros (US$1.1 billion), the daily said. Binding offers are expected in September but, according to Puls Biznesu.
Ramon Lopez, Philippines’ Trade Secretary
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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Business Daily Friday, August 5 2016 13
Asia Real estate
Indonesian tax amnesty pitch: Bring it home to a new home Property developers pinning hopes on the tax amnesty to help revive sluggish sales. Cindy Silviana and Eveline Danubrata
Indonesians who have stashed billions of dollars abroad over the years can now bring their hoard safely back home - literally, to a newly bought condo. That’s the pitch from PT Intiland Development Tbk and other Indonesian property developers that aim to grab a slice of at least US$30 billion expected to be brought back to Southeast Asia’s biggest economy under a tax amnesty programme implemented last month. Intiland has launched a new marketing campaign featuring a bird soaring above high-rise towers, with the slogan: “Buy property with tax amnesty.” “This is a positive momentum for the tax amnesty, which we will take advantage of as maximally as we can,” Intiland director Archied Noto Pradono told reporters last week. Indonesia will impose a 2-5 per cent tax for assets brought back by March 2017 in return for a pardon for past evasions. The funds must be kept in Indonesia for three years and can be invested in several ways, including direct purchases of property. The amnesty comes amid heightened scrutiny in Singapore and wealth management centres elsewhere over undeclared wealth. Indonesia, Singapore, Switzerland and Hong Kong are among 101 jurisdictions committed to start exchanging information to combat tax evasion by 2018. Singapore-based bankers and lawyers expect roughly US$30 billion to exit the city-state, where around US$200 billion of Indonesian money is parked. Wealth managers say the new tax information exchange would motivate some of their clients to repatriate funds, and Indonesia’s deposit rates are generally higher than elsewhere in the region. But they still have concerns about currency risk - the Indonesian rupiah has ranged between 8,200 and 14,730 to the dollar over the past 15 years - as well as uncertainties about future tax liabilities after they declare their assets. Nevertheless, President Joko Widodo said on Monday his government will “go all out” to ensure the success of the scheme. He has roped in respected former World Bank managing director Sri Mulyani Indrawati
as his new finance minister with a particular mandate to spearhead the tax drive. Officials are betting that wealthy Indonesians would opt to pay the relatively low tax rates on their assets under the amnesty, rather than receiving a tougher penalty once the automatic information exchange kicks in.
Less hesitant
Indonesia’s residential property sales grew 1.5 per cent quarter-on-quarter in the January-March period, down from 6.0 per cent in the previous three months, in line with a broader economic slowdown, according to the latest survey by the central bank. Property developers pinning hopes on the tax amnesty to help revive sluggish sales in the country of 250 million people will be targeting individuals such as Indonesian banking-to-property tycoon Tahir. “Many will participate (in the tax amnesty), including me,” Tahir, who was ranked Indonesia’s 10th richest person by Forbes with an estimated
net worth of US$2 billion last year, told Reuters in a text message. Tahir, who goes by one name, said he has not decided which Indonesian assets to invest in. He declined to disclose how much money he plans to bring home and from where. Several banks are advising tax amnesty clients to invest in real estate.
Key Points Indonesia to impose 2-5 pct tax for assets brought home Singapore bankers see US$30 bln flowing back to Indonesia Property firms to launch new projects, step up promotions Some banks are advising clients to invest in property Indonesian state-controlled lender PT Bank Tabungan Negara Tbk is partnering with some developers to offer investment opportunities to its clients, said President Director Maryono, who goes by one name. Maryono estimated the tax amnesty could boost the high-end property market by 5-10 per cent next year,
while Tulus Santoso Brotosiswojo, a director at PT Ciputra Development Tbk , expects at least 20 per cent of the repatriated funds to be invested in the overall property sector. Property assets priced above 2 billion rupiah ($153,000) are likely to sell more, as people who were previously scared of being chased by the tax office would now be less hesitant about making such purchases, Adrianto Pitoyo Adhi, President Director of PT Summarecon Agung Tbk, told Reuters. Estimates on how much the scheme will revive the property market vary. Shares of developers haven’t risen much since the announcement, highlighting some doubts over the sector’s immediate rebound. “We await implementation before we can know the tangible impact,” said Matthew Shaw, Indonesia managing director for property services provider Cushman & Wakefield. Nevertheless, wealthy Indonesians have a historical preference to invest in property as it has proven to be “quite profitable” over time, said Jeffrosenberg Tan, a director at securities firm Sinarmas Sekuritas. “This sector could be the first to see tax amnesty inflows.” Reuters
President Joko Widodo (C) said on Monday his government will “go all out” to ensure the success of the scheme
Monetary performance
Japan’s central bank to focus on obstacles to easing The central bank said it would publish a comprehensive review of its monetary policy at its next meeting in September. Stanley White
Bank of Japan (BOJ) Deputy Governor Kikuo Iwata said yesterday that a comprehensive review of the central bank’s policies due next month would focus on the monetary transmission mechanism and obstacles to its stimulus plan succeeding. The review is not meant to transmit a specific direction for future monetary policy, Iwata said in the text of a speech. Iwata reiterated the BOJ’s readiness to ease policy again if needed, but the worst sell-off in government bonds in more than three years on Tuesday shows investors are worried the BOJ may scale back the pace of its quantitative and qualitative easing (QQE) via buying government bonds and
riskier assets. “There’s no room for doubt that our policy has contributed to pulling Japan out of deflation, but we have not met our 2 per cent price target,” Iwata said in the text of a speech to members of the finance and business communities. “In light of this, I want to review the transmission mechanism and various obstacles to our policy.” The BOJ disappointed market hopes that it might increase government debt purchases or lower already negative interest rates at a policy meeting last week, cementing the view that it is running out of options to defeat around two decades of deflationary trends. The central bank said it would publish a comprehensive review of its
monetary policy at its next meeting in September, deepening policy uncertainty and pushing investors to sell bonds. The government finalised a fiscal spending package worth more than
28 trillion yen this week in a bid to kick start growth, which some economists say keeps pressure on the BOJ to run monetary policy to support government spending. Iwata said the combination of fiscal spending with the BOJ’s QQE easing was not equivalent to so-called “helicopter money” or the monetisation of government debt. Reuters
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International In Brief Results
LSE Group adjusted operating profit rises London Stock Exchange Group Plc, which has agreed to merge with German peer Deutsche Boerse to create a giant European trading house, reported a rise in first-half adjusted operating profit yesterday and said it was working on securing regulatory approvals. The company, which owns Borsa Italiana and the London Stock Exchange, said adjusted operating profit rose 9 per cent to 333.3 million pounds (US$443.4 million) in the six months ended June 30. Revenue rose 9 per cent to 721.9 million pounds, boosted by strong growth in its FTSE Russell and clearing services divisions. Employment
U.S. private sector adds 179,000 jobs U.S. private employers added 179,000 jobs in July, above economists’ expectations, a report by a payrolls processor showed on Wednesday. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 170,000 jobs, with estimates ranging from 140,000 to 190,000 jobs added. Private payroll gains in the month earlier were revised up to 176,000 from an originally reported 172,000 increase. The report is jointly developed with Moody’s Analytics. The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report today.
Energy sector
Middle East drives LNG demand as glut makes prices attractive Growing demand and a lack of cross-border pipelines in the region prone to conflict are making the Middle East and North Africa a growth market for the fuel. Mohammed Aly Sergie
C
ountries in the Middle East and North Africa (MENA) led by Egypt, Kuwait and Morocco are boosting liquefied natural gas import capacity, taking advantage of low prices to meet rising energy demand.
‘Annual capacity in the region could increase to 97.3 billion cubic meters in five years’ The region plans to add permanent terminals and temporary, off-shore units that will increase annual capacity by 58.2 billion cubic meters in 2021, energy lender Arab Petroleum Investment Corp. said in
a report. Capacity was 39.1 billion cubic meters at the start of 2016, according to a March publication of the International Group of Liquefied Natural Gas Importers, a Paris-based industry group. Arab Petroleum didn’t provide current figures. Based on the two sets of figures, annual capacity in the region would increase to 97.3 billion cubic meters in five years. New output from Australia and the U.S. is adding to an LNG glut, dragging the Northeast Asia LNG price down to an average of US$5 per million British thermal units this year from US$14 in 2014, according to assessments by New York-based World Gas Intelligence. Growing demand and a lack of cross-border pipelines in the region prone to conflict are making the Middle East and North Africa a growth market for the fuel. The region will account for 6.5 per cent of global LNG demand by the end of 2017, up from about 1 per cent in 2013, according to Apicorp. “The current market conditions – an abundance of cheap supply – will also
encourage MENA countries to think more strategically about gas’s role in their energy mix,” Apicorp said. Lower prices should “incentivise new MENA importers to do more to ensure they do not miss the opportunity to install import infrastructure and sign cheap and flexible LNG deals.”
Qatar exports
Qatar, the world’s largest LNG exporter, supplied 40 per cent of the fuel imported by countries in the region last year, according to Apicorp. Globally, it meets about a third of demand. MENA countries will invest about US$10.3 billion in LNG importing facilities in the “medium term” to meet growing demand, it said. Chartering ships to store and regasify the fuel will become more popular as floating storage is less expensive than permanent onshore terminals, Apicorp said. The lender, based in Dammam, Saudi Arabia, is owned by the Organization of Arab Petroleum Exporting Countries, with Saudi Arabia, Kuwait and the United Arab Emirates each owning 17 per cent, according to its website. It had assets of $5.7 billion at the end of last year, Apicorp said in its annual statement. Bloomberg News
Finance minister
Argentina to see ‘concrete growth’ by end of year Argentina’s finance minister said that the nation will see “concrete growth” by the end of the year due to the free-market reforms of the current government despite some slow-to-recover sectors in the South American country. “The toughest part in terms of economic activity has already passed,” Alfonso Prat-Gay told a gathering of foreign correspondents in Buenos Aires. “We are much better off than many thought.” But many sectors have yet to see the beginnings of a promised recovery, particularly construction and manufacturing, which sank 6.4 per cent in annual terms in June. Oil industry
Angola revises 2016 budget Angola’s government expects to raise around 1.512 trillion kwanzas (€8.2 billion) in oil taxes under the revised state budget for 2016, representing a reduction of 10.5 per cent on the amount previously estimated, according to Ministry of Finance figures compiled by Lusa. According to the figures, Angola exported 322,487,606 barrels of crude between January and June, bringing in tax receipts of 586.569 billion kwanzas. In the state budget currently in force, the government estimated for 2016 as a whole exports of 689,400,000 barrels, generating 1.689 trillion kwanzas, on the basis of a sale price of US$45 a barrel.
Reform
Saudis win IMF praise two years after warnings of financial ruin Gross domestic product is set to expand 1.2 per cent this year, according to IMF estimates. Donna Abu-Nasr
In October, the International Monetary Fund warned that Saudi Arabia could deplete its financial assets within five years. It’s now finding more reasons to be optimistic about the biggest Arab economy.
“The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment” Tim Callen, the IMF’s Saudi mission chief Spending cuts and measures including the gradual reduction of energy subsidies mean that the budget deficit will probably fall to 9.6 per cent of economic output in 2017 from 13 per cent this year, according to Tim Callen, the IMF’s Saudi mission chief.
The shortfall was 16 per cent in 2015. “The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Callen said in a telephone interview on Wednesday. “We’re happy with the progress that’s being made.” The kingdom responded to the drop in crude prices by laying out a plan for the biggest economic shakeup in decades, including imposing value-added taxation, selling stakes in state-owned companies and cutting the public-sector wage bill. But while the retrenchment has brought the economy back from the brink of collapse, the government isn’t finding easy answers to offset its impact on growth.
Too few jobs
Gross domestic product is set to expand 1.2 per cent this year, according to IMF estimates. It will then settle around 2.25 per cent to 2.5 per cent in the medium term, a pace that Callen said was unlikely to create enough jobs to meet demand. Economic activity “is clearly going to have to be stronger than we have in our baseline to accommodate all of the young population that is going to be moving into the labour force,” he
said. “The public sector is not going to be able to employ people at the rate that it has in the past given the much more difficult fiscal position.” The private sector, however, has historically relied on state spending for business growth and is struggling to cope with the government’s austerity measures. Building projects have fallen off dramatically along with the drop in oil revenue. Construction contracts shrank by about 50 per cent in the first quarter from the same period a year earlier, according to data published by the Jeddah-based National Commercial Bank. The government didn’t award any contracts during the first quarter in 2016 or the fourth quarter of last year, the bank said.
Finance exception
Callen said the slow down in non-oil industries “has been pretty much been across the board probably with the exception of the finance area.” The IMF said July 28 that Saudi banks were “well positioned” to weather loan losses. It also projected that the kingdom’s current-account deficit will narrow to 6.4 per cent of GDP this year and “then move close to balance by 2021 as oil prices partially recover.” The government aims to balance its budget by 2020, a goal Callen said was “doable.” “We would be worried if the fiscal deficit were to remain at the levels it reached last year for another couple of years, because that would mean there will be large fiscal financing requirements,” he said. Bloomberg News
Business Daily Friday, August 5 2016 15
Opinion Business Wires
Taipei Times S&P Global Ratings has cut its GDP forecast for Taiwan to 1.3 per cent this year, from the 1.8 per cent predicted three months earlier, to reflect continued pressure on the nation’s export-oriented economy from a slow and unstable recovery in global trade. “Taiwan’s export performance remains weak due to the slow recovery of global demand,” said Raymond Hsu, a corporate credit analyst at Taiwan Ratings Corp, the local arm of S&P. Inventory replenishment, rather than robust demand, underpins the improving performances of the nation’s high-tech sector, Hsu said.
Why don’t we trust our leaders?
Bangkok Post Thailand’s rice market is expected to face a price war next year as a result of oversupply that will lower prices in both domestic and export markets, while the stronger baht could hurt the competitiveness of rice shipments, exporters warn. Charoen Laothammatas, president of the Thai Rice Exporters Association, said paddy supply from the 2016-17 crop to be harvested from November to January, is estimated to rise by 10-20 per cent from the normal level of 22 million tonnes. The increased supply is expected after farmers enlarged their planting areas to enjoy continual rainfall after the severe drought.
The Straits Times CapitaLand reported yesterday a 36.6 per cent drop in net profit for its second quarter due to lower fair value gains from revaluation of properties, partially offset by improved operating performance. For the three months to June 30, 2016, earnings amounted to S$294 million versus S$464 million for the same period a year ago. Excluding a one-off fair value gain of S$125.9 million arising from the change of use of development projects, CapitaLand’s adjusted operating net profit rose 31.8 per cent. For the first half-year, net profit fell 18.1 per cent to S$512.3 million from S$625.3 million a year ago.
China Daily Chinese internet major LeEco is in talks with online video-streaming site Netflix Inc for possible cooperation in content, and details could be announced in September, as the Beijing-based firm steps up efforts to expand its presence in the United States. The deal, if it goes through, could also serve a steppingstone for California-based Netflix to crack the China market, which it has been eyeing for a long time, analysts said. A source familiar with the matter confirmed to China Daily on Wednesday that LeEco was looking for content partners in the US, where it will launch its smartphones and TVs this year.
I
n developed democracies today, political leadership is increasingly up for grabs. Voters, clearly tired of the status quo, want change at the top, leaving even major parties’ establishments struggling to install leaders of their choosing. In the United Kingdom, Labour Party MPs have been stymied in their efforts to unseat Jeremy Corbyn as leader. In Japan, the ruling Liberal Democratic Party’s preferred candidate for Governor of Tokyo, Hiroya Masuda, lost in a landslide to Yuriko Koike. As for the United States, the Republican Party wanted virtually anybody except Donald Trump to win the nomination for the presidency; yet Trump it is. And while the Democratic Party is being represented by the establishment choice, Hillary Clinton, her competitor, Bernie Sanders, put up a much stronger fight than virtually anyone anticipated. The message to the establishment is clear: we don’t trust you anymore. But some of the leaders voters do trust could pose a very real danger – to their supporters, their countries, and the world. Trump – with his admiration of dictators, unabashed racism and sexism, ignorance regarding the issues, and mercurial temperament – stands at the top of this list. Those who led the British campaign to leave the European Union – such as Conservatives like Boris Johnson (now the country’s foreign secretary) and Nigel Farage, the right-wing populist leader of the UK Independence Party – are similarly disparaged for recklessly jeopardizing the future of the UK and the EU alike. If mainstream leaders want to change voters’ minds, they should look carefully at what leadership really means. Here, it is worth recalling the insights of US General George C. Marshall, who contemplated the topic as he worked to rebuild the US military in the 1940s. Marshall argued that leadership is a matter not of rhetoric, but of character. In particular, leaders must display three key qualities to win the trust needed to lead effectively: purpose, impartiality, and competence. Purpose, in his view, meant putting the greater good ahead of one’s own interests. This kind of leadership still exists. A shining example is Jo Cox, the young British MP who was murdered during the Brexit campaign, whose leadership in advocating for the rights of refugees was recognized across party lines. But, in many cases, politics has become a matter of self-promotion – and a race for ratings. In today’s celebrity culture, politicians must be “personalities.” They campaign like contestants on a reality TV show. Trump, with his clownish looks and showbiz resume, is probably the ultimate
“
Ngaire Woods Dean of the Blavatnik School of Government and Director of the Global Economic Governance Program at the University of Oxford
example of this shift. (The Huffington Post even decided last summer to publish coverage of Trump’s campaign in its entertainment section.) The problem is not only that this can lead to the election of utterly unqualified leaders. It is also that, once elected, even qualified leaders can struggle to shed the personal elements of their decisionmaking, and serve the country impartially instead. The slippery slope is exposed in a memo – recently disclosed as part of the UK’s Chilcot Inquiry – written by former British Prime Minister Tony Blair to former US President George W. Bush in the run-up to the Iraq war. The note begins, “I will be with you, whatever.” He was talking about leading his country into war. Yet his language suggests that his personal bond with Bush somehow took precedence over his duty as Prime Minister. Leading with purpose, rather than personality, is closely related to the impartiality that Marshall thought essential. Once in office, leaders must act with fairness and candour. They must resist the temptation to use official power to benefit themselves, their families, or their cultural identity group, and refuse enticements, however powerful they may be, to offer special access or protection to friends, funders, and lobbyists. Maintaining a high standard of impartiality is not easy, but it is far from impossible. President Pedro Pires of Cape Verde was awarded the 2011 Ibrahim Prize for Achievement in African Leadership, for transforming his country into “a model of democracy, stability, and increased prosperity.” Pires retired from office without even a house to his name; he worked for the people, not to amass personal wealth. The third criterion for good leadership – competence – is not just a matter of how much knowledge a leader already possesses. As Marshall noted, it also consists in leaders’ capacity to learn from their mistakes and to prepare themselves and those around them for important decisions. Chilcot’s verdict on Britain’s lack of preparation for the Iraq War and its aftermath is damning in this regard. So is the Brexiteers’ lack of any plan whatsoever for how to proceed after the referendum. It is time to revitalize good leadership. Voters need to see candidates who show purpose, impartiality, and competence. If they don’t, they will continue to vote against the establishment that they believe has failed them – even if it means voting for turmoil in Europe or a reckless narcissist in the US. Project Syndicate
The message to the establishment is clear: we don’t trust you anymore
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Closing Crackdown
Philippine gaming tycoon quits after Duterte vows to destroy “oligarchs”
disgraced former president Ferdinand Marcos, whose regime was characterised by widespread corruption, decadence and military brutality. Roberto Ongpin, one of the Philippines’ richest Tycoons adds to a growing list of targets that men, resigned as chairman of a listed gaming Duterte is pursuing. The firebrand former company one day after President Rodrigo prosecutor has said he will crack down on drug Duterte (pictured) swore he would take down the country’s “oligarchs” and singled out Ongpin dealers, crime bosses, corrupt generals, business monopolies, online gambling and even Catholic as one of them. priests. Ongpin has stepped down to focus on real “I am fighting a monster... Believe me, I will estate projects developed by Alphaland Corp, destroy their clutches in our nation,” Duterte said also majority-owned by Ongpin, Philweb said at an environment summit in southern Davao yesterday. City yesterday, without identifying anyone. Reuters The tycoon was once a trade minister under
Advertising trends
China’s Mad Men have a lesson or two for Don Draper Tim Culpan, a Bloomberg Gadfly columnist
I
f ever you shed a tear for print or TV ad executives in Western markets, spare a thought for those in China. While the internet has been eating into traditional advertising spending globally, the trend in China has been particularly dispiriting for the old-timers and ought to be eyeopening for the whiskey-swilling Mad Men of developed markets. Internet outlets took the majority of Chinese advertising budgets last year with 58.1 per cent and that’s
going to climb to 81.3 per cent by 2020, according to estimates from Jefferies and iResearch. TV will fall to 14.4 per cent and print’s share of ad spend is set to shrink by 90 per cent compared with 2010, they estimate. This upheaval is being driven by rapid smartphone adoption, with more than 90 per cent of the country’s internet users connecting via mobile. The New York Times made the point on Wednesday with a feature headlined China, Not Silicon Valley, Is Cutting Edge in Mobile Tech. For all the accusations that internet titans Baidu, Alibaba and Tencent are mere
copies of U.S. counterparts, what Western advertising and technology executives are failing to see is the pace of innovation, adaptation and adoption in the China market. Payments, shopping, news and of course social are all now dominated by convenient, cutting-edge mobile apps that literally put the internet in consumers’ hands. The result is that not only are users spending more time online, particularly via mobile, but advertising executives both inhouse and agency are realizing it and shifting budgets accordingly. In her annual Internet Trends Report, Kleiner Perkins Caufield &
Byers partner Mary Meeker points out the disconnect between where U.S. users are spending their time and where advertisers are spending their money. The mismatch is particularly stark for print, where companies are overspending, and mobile, where they are underspending. Reliable data on time spent by users are hard to track for China, yet the fact that the internet is now garnering more than half the country’s advertising revenue indicates that executives there are far more informed on where to find the eyeballs.
‘Internet outlets took the majority of Chinese advertising budgets last year with 58.1 per cent and that’s going to climb to 81.3 per cent by 2020, according to estimates from Jefferies and iResearch’ Jefferies analyst Karen Chan points out that China’s growing adoption of programmatic buying - where ad placement is automated in a process akin to flash trading - means that advertisers will enjoy more efficient use of their budgets, which in turn will spur even more spending online. As Western advertisers learn more from their Chinese counterparts, expect traditional media ad salesmen to go the way of jukeboxes and encyclopaedia salesmen. Bloomberg Gadfly
M&A
Trade
High-frequency trading
Evergrande buys stake in Vanke for US$1.4 Billion
Beijing says it “regrets” EU duties on steel
China charges three for stock futures ‘manipulation’
Evergrande Real Estate Group Ltd., controlled by billionaire Chairman Hui Ka Yan, paid 9.1 billion yuan (US$1.4 billion) for a 4.68 per cent stake in China Vanke Co., the competitor embroiled in an ownership tussle. The Guangzhou-based developer bought Vanke’s Shenzhen-traded shares through a unit, it said in a filing to Hong Kong’s stock exchange after the market close yesterday. Evergrande cited Vanke’s “strong” financial performance as China’s largest developer as a reason for its investment, according to the filing. Vanke, China’s biggest residential developer by sales, has been in a battle for control since last year when Baoneng Group displaced China Resources (Holdings) Co. as the property company’s largest stakeholder. Evergrande, based in Guangzhou, has been one of the most acquisitive developers in the country. It paid 3.6 billion yuan earlier this year for a stake in Shenzhen-listed China Calxon Group Co. and acquired Mass Mutual Tower in Hong Kong last year. Evergrande earlier yesterday denied a media report saying that the developer had purchased a stake in Vanke. The A-shares of Vanke surged by the 10 per cent daily limit yesterday, advancing for a fourth day, to close at 19.67 yuan on the Shenzhen exchange. Bloomberg News
China’s Commerce Ministry said yesterday it “regrets” the European Commission’s decision to put anti-dumping duties on Chinese cold-rolled steel plates, the latest spat between the trade partners battling a global steel glut. China’s steel industry, a major employer, has struggled to meet targets to reduce its overcapacity, and rising prices for steel have encouraged firms to ramp up production for export. Rival producers have accused China of selling into export markets at below cost after a slowdown in demand at home, forcing job cuts and plant closures elsewhere amid a deepening global crisis in the industry. The European Commission said yesterday that it would levy retroactive anti-dumping duties on imports of certain cold rolled steel products from China and Russia after a year-long investigation triggered by a claim from European steel lobbying group Eurofer. The duties of between 19.7 per cent and 22.1 per cent on Chinese firms Angang Group and Shougang Group would weaken the European Union’s downstream manufacturing competitiveness, China’s Commerce Ministry said in a statement on its website. “This move amplifies legal uncertainty and gravely affects normal international trade,” the ministry said. Reuters
Authorities have formally charged three people for manipulating the stock futures market, a government statement said yesterday, as they seek to limit volatility following a share collapse last year. Two executives from an import-export company and an employee at a futures firm used 31 accounts under other names to buy and sell stock index futures using high-frequency trading software, state media have previously reported. Shanghai prosecutors said in a statement they had charged the general manager of trading firm Yishidun, Gao Yan, and its business development manager Liang Zezhong, as well as Jin Wenxian, the technical director of China Fortune Futures. The three were arrested last November. Yishidun reaped gains of more than 2 billion yuan (US$300 million), having started with just 3.6 million yuan in funds, the official Xinhua news agency said previously. Based in Jiangsu province near Shanghai, Yishidun was set up by two foreign nationals previously named by Xinhua as Georgy Zarya and Anton Murashov. The pair, believed to be Russian, have fled mainland China, business magazine Caixin reported yesterday. The China Financial Futures Exchange yesterday denied it is considering relaxing some of the futures limits imposed last year. AFP