RMB clearing amounts to 523.7 billion yuan in H1 Banking Page 3
Monday, August 8 2016 Year V Nr. 1103 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Politics
Secretary for Administration and Justice says gov’t restructuring ‘almost done’ Page 2
www.macaubusinessdaily.com
Credit
Real Estate
Credit Card turnover reached MOP4.5 billion for Q2 Page 3
Rival property developers see huge gains in Mainland property market Page 4
A healthy wait Infrastructure
The city’s health bureau has received all amended plans for the new Islands District Medical Complex from the contractor. The plans have been turned over to the Infrastructure Development Office (GDI) for review and approval. The bureau claims that the GDI is unable to estimate how long the project will take. Investment so far has reached MOP1.4 billion, with total initial planned investment at MOP10 billion. Page 2
Economic reform increases the gap between Chinese cities and rustbelt zones Page 9
Nouveau not-so riche
M&A
Chinese investors acquire Silvio Berlusconi’s Milan football club Page 10
Business The total number of newly incorporated companies in the SAR fell in Q2,, as did the total value of registered capital for companies. New companies fell by 153 year-on-year, while registered capital dropped 61.8 per cent to MOP140 million, mainly due to a drop in the number of newly established companies with capital of MOP1 million or more. Page 3
Piece of cake
Using a family tradition to create a viable business, Lisa Ritchie Acconci has built a cake empire over seven years, certifying 760 people in cake confectionary and supplying three major hotel chains. The sole local representative for American cake company Wilton, Acconci sees labour and rent as problems for local SMEs, but urges them to work with integrated resorts despite the paperwork required. Interview | SME Pages 6 & 7
HK Hang Seng Index August 5, 2016
A tale of two cities
Gaming Second quarter results for Studio City are in-line with estimates, but ramp up is still slower than anticipated due to location say analysts. New VIP tables for Studio City could cannibalize City of Dreams, with estimates that twothirds of new tables will go to junkets. Focus remains on the premium mass segment for the long-term. Page 4
Stable Forex
China’s reserves China’s foreign-exchange reserves changed little in July as the central bank burned less of its hoard to defend its currency, and a weaker dollar helped to boost valuations. The reserve’s stabilization shows capital-outflow pressures have eased because of a weaker dollar and the central bank doesn’t need to defend the yuan. Page 8 22,146.09 +313.86 (+1.44%)
Worst Performers
Link REIT
+3.93%
AIA Group Ltd
+2.39%
China Shenhua Energy Co
+0.00%
CITIC Ltd
+0.34%
China Resources Land Ltd
+3.87%
China Construction Bank
+2.28%
Power Assets Holdings Ltd
+0.00%
Hengan International Group
+0.38%
Want Want China Holdings
+3.25%
China Life Insurance Co Ltd
+2.19%
Kunlun Energy Co Ltd
+0.17%
BOC Hong Kong Holdings
+0.39%
Sun Hung Kai Properties Ltd
+3.06%
New World Development
+2.01%
Hang Seng Bank Ltd
+0.30%
Hong Kong & China Gas Co
+0.42%
Wharf Holdings Ltd/The
+2.55%
Bank of East Asia Ltd/The
+1.92%
China Resources Power
+0.33%
Hong Kong Exchanges and
+0.57%
28° 33° 28° 33° 26° 32° 27° 30° 26° 31° Today
Source: Bloomberg
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Thu
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Source: AccuWeather
Overcapacity
2 Business Daily Monday, August 8 2016
Macau
Infrastructure
Health Bureau: all revised plans for island hospital received The director of the Bureau said the completion date for the new medical infrastructure project remains unknown.
Kam Leong kamleong@macaubusinessdaily.com
T
he Director of the Health Bureau, Lei Chin Iong, said that the department received all amended plans for the new Islands District Medical Complex in Cotai on August 1, from the contract awardee, a
company owned by Executive Council (ExCo) member Eddie Wong Yue Kai. Speaking to reporters on Saturday, the health official said that his department had handed all the revised drawings of the project to the Infrastructure Development Office (GDI) for evaluation and approval.
Administration
Sonia Chan: first stage streamlining to finish by year-end The Secretary for Administration and Justice Sonia Chan Hoi Fan has indicated that the first stage of the restructuring of the government administration, which involves 15
departments, is ‘almost done’. She added that the work to join the Bureau of Telecommunications Regulation (DSRT) and Macao Post is finishing up, and that the draft for
combining the Security Co-ordination Office with the Unitary Police Service is also finished. She expects the first stage of the administration streamlining process will be finished within this year - as planned. “ Th i s y ea r w e sha l l f i n i sh the discussion on the licensing mechanism on the Food and Beverage industry. We hope to launch the ‘onestop service’ as soon as possible. We also hope to enhance government e-services, such as allowing personal accounts, so that applicants can search for information and know the process of their application conveniently,” said Ms. Chan last Friday on the sidelines of a public event. In regards to public servant recruitment, Sonia Chan indicated that the government will control the growing number of staff. She said that other than replacing employees that have left their posts and filling positions, the government does not intend to hire more staff. She added that the government would work on enhancing public servant work quality as well as reviewing the employment system of the public sector. J.K.
Water
Gov’t: new raw-water price to be confirmed by year-end The government will confirm the latest raw-water tariff that it needs to pay to Guangdong Province for the 2017 - 2019 period, by the end of this year, the Marine and Water Bureau said in a press release yesterday. Currently the Mainland side is charging 2.29 yuan (MOP2.75/ US$0.34) per cubic metre for supplying raw water to the Special Administrative Region. Under the water-supply agreement between Guangdong Province and Macau, the raw-water tariff needs to be adjusted every three years. The Bureau said that the two parties are now calculating the new price based on a fixed formula, including parameters related to the Mainland’s consumer price index and electricity consumed by the water-supply systems. On the other hand, the department also indicated that the city’s water fees will be adjusted during the fourth quarter of this year, aimed at keeping the local water-tariff mechanism running effectively, as
well as strengthening local water conservation. According to the water bureau, the city’s total cost of water supply increased by 16 per cent to MOP7.75 per cubic metre between 2014 and 2015, compared to MOP6.68 per cubic metre in 2013. The announcement of the Bureau follows its working meeting with the
Zhuhai Ocean, Agriculture, Fisheries and Water Affairs Bureau, and the mainland city’s water supplier Zhuhai Water Group Co. Ltd. During the meeting, the Chinese water company said Zhuhai’s fourth water pipe, connecting to Macau, has been under construction since April this year, and it expects the work will be completed next year. K.L.
“The GDI is supposedly distributing these plans to its different departments for evaluation, which may involve ten departments. The Office has promised to give [out a result] soon. This is the second evaluation [on the drawings, for which] I believe not many parts need further alteration,” Mr. Lei said.
No timetable
At the end of June, the Secretary for Transport and Public Works, Raimundo do Rosario said that he was not sure how many times amendments would be needed on the drawings of the medical complex, given that the project is complicated. Rosario also expected that the new medical complex in Cotai would not be completed by 2019, despite his colleague Secretary for Social Affairs and Culture, Alexis Tam Chon Weng having previously assured that the project would be finished by that time. The Health Bureau director claimed on Saturday that the GDI is still not yet able to estimate how long the construction of the project will take. Meanwhile, when asked by reporters about the ExCo member outsourcing the design work of the medical complex to other companies, Mr. Lei said that he believes most of the awardees of infrastructure projects have their own cooperating partners. The official stressed that the Bureau awarded the design contract to Mr. Wong in accordance with the law. He claimed that the department had procured quotations from three architectural companies with experience in medical-facility design, and Mr. Wong’s company, Eddie Wong & Associates Ltd, was evaluated as being the most suitable for this medical project.
No budget
In 2013, Mr. Wong’s company was granted the design contract for the new medical complex for MOP235 million (US$29.4 million). Including the MOP235 millioncontract granted to Mr. Wong, the known expenses for the medical complex have reached some MOP1.4 billion so far, the government has told legislators. The total cost for the new project is still unknown, but the government initially planned to invest some MOP10 billion into the project. The new hospital complex, occupying some 76,000 square metres with a gross floor area of some 421,000 square metres, is divided into two phases. The first phase includes six buildings: a general hospital, an auxiliary facility building, a staff dormitory, a medical college and an administrative building and a central laboratory building. The second phase includes a rehabilitation hospital. Secretary do Rosario said last month that the foundation work of the two buildings of the complex has been completed.
Business Daily Monday, August 8 2016 3
Macau DSEC
1,141 new companies incorporated in Q2 New companies and registered capital fell in Q2. Annie Lao annie.lao@macaubusinessdaily.com
T
he number of newly incorporated companies in the city, as well as the total value of registered capital for companies, registered year-on-year drops in the second quarter of 2016, according to the latest data released by the Statistics and Census Service (DSEC) on Friday. The data indicates that the number of new companies registered in the second quarter of the year decreased by 153 year-on-year, down to 1,141. Meanwhile, the total value of registered capital fell by 61.8 per cent to MOP140 million (US$17.5 million) year-on-year, mainly due to the decrease in the number of newly established companies registered with capital amounting to MOP1 million or more.
The latest data from the DSEC also reveals that the majority of capital originated locally (MOP77 million) and from Mainland China (MOP30 million), including MOP21 million from the nine provinces of the
Pan-Pearl River Delta Region, of which 93.1 per cent originated from Guangdong Province. In terms of shareholder origin, 778 new companies were established solely by Macau shareholders, while 128 joint ventures were set up between shareholders from Macau and other countries or regions.
Most of the newly created companies were in the Wholesale and Retail sector
Most of the newly created companies were in the Wholesale & Retail sector, accounting for 400, or 35 per cent of all registered companies, while the Business Services sector totaled 277, accounting for 24 per cent. The value of registered capital of companies being closed down hit MOP58 million, with some 228 companies undergoing dissolution in the second quarter. Some 68.9 per cent of new companies were registered with total capital of less than MOP50,000 during the quarter – amounting to a total capital value of MOP20 million (14 per cent of the total). Meanwhile, 24 new companies were registered with capital of MOP1 million or more, with the total value of capital reaching MOP76.9 million. At the end of the second quarter of this year, the number of registered companies totaled 54,892, an increase of 3,789 from the previous year.
AMCM
Banking
Credit card turnover up 4.8 pct in Q2
Yuan clearing amounts to 523.7 bln yuan H1
Annie Lao annie.lao@macaubusinessdaily.com
The city’s credit card turnover totaled MOP4.5 billion (US$560 million) for the second quarter of the year, representing a year-on-year increase of 4.8 per cent, according to the latest statistics released on Friday by the Monetary Authority of Macau (AMCM). In the second quarter, local cash advance turnover amounted to MOP230.8 million, accounting for 5.1 per cent of total credit card
turnover. Meanwhile, credit card repayments, including interest and fees, fell 5.6 per cent quarterto-quarter to MOP4.4 billion. As at the end of June, the total number of personal credit cards in circulation grew by 3.3 per cent to 1,009,590 quarter-to-quarter. The number of cards denominated in MOP accounted for 715,147 of the total, up 13.7 per cent year-on-year. In addition, the number of Hong Kong dollar cards and renminbi cards increased year-on-year by 8.8 per cent and 28.5 per cent - amounting to 85,968 and 208,475, respectively. AMCM noted that the majority of renminbicardsincirculationweredualcurrency pataca and renminbi cards. On the other hand, local banks had granted credit card limits of MOP23.7 billion as at the end of the second quarter, up 4.2 per cent compared to the previous quarter. Credit card receivables reached MOP2.3 billion, with the rollover amount accounting for 30.4 per cent, or MOP704.9 million. Meanwhile, the delinquency ratio, which indicates amounts overdue for more than three months to total credit card receivables, registered a quarterto-quarter growth of 0.11 percentage points, up to 1.46 per cent as at the end of June, according to the monetary authority.
Crime
20 illegal workers caught at The Venetian Local police caught 20 illegal workers working inside the Cotai Arena of The Venetian Macao on Saturday night. According to an announcement by the Public Security Police Force, the security body took action following the receipt of a report indicating that a number of illegal workers were working in the indoor venue of the
integrated resort. Of the 20 illegal workers caught, 11 were Hong Kong residents, while the other six were Mainland Chinese, aged between 18 to 41 years old. They were engaged in stage setting, woodwork and technical productions, with daily salaries ranging from MOP150 (US$18.8) to MOP1,100.
Joanne Kuai joannekuai@macaubusinessdaily.com
The total renminbi clearing amount in the territory in the first half of this year amounted to 523.7 billion yuan (MOP630 billion / US$78.87 billion) according to the Bank of China Macau Branch (BOC Macau). During the first six months of this year, personal wiring ramped up to 300 million yuan, which is still 100 million yuan less than the same period last year, while trade and other transfers totalled 94.3 billion yuan - 60 billion yuan less than the corresponding period last year - according to Ms. Lucy Sun, Senior Assistant Manager of BOC Macau, as quoted by local public broadcaster TDM Chinese radio. “With Macau’s economy slumping, the industries - such as gaming, tourism and exports - are hurting. The consumption atmosphere is generally
affected. Trade with Mainland China has decreased. All of these factors have affected the renminbi clearing business in Macau,” said Ms. Sun Sun added that BOC Macau has already provided yuan clearing services for more than 30 Portuguese-speaking banks, in the amount of 2.67 billion yuan for the first half of this year. She further assured the bank’s efforts to provide more comprehensive and efficient financial services for lusophone countries in the future. BOC Macau is the city’s only bank authorised by China’s central bank - the People’s Bank of China (PBOC) - to operate renminbi clearing services. In August last year, the central bank allowed the local BOC branch to expand the scope of the company’s yuan clearing business to Portuguese-speaking countries from Macau, Hong Kong and the Association of Southeast Asian Nations.
4 Business Daily Monday, August 8 2016
Macau Opinion
Sheyla S. Zandonai Beyond Bling Saturated with “spectacular” baroque-meets-modern flirting with neo-classical décor, the “Villa du Comte” is just one of the 200 lavish suites contained within the blood-red shell of The 13, a MOP10 billion, seven-star hotel scheduled to open in Cotai later this year. Among its amenities, this 200-square-meter “standard accommodation” (yes, standard) will provide its select clientele with a private elevator lobby, butler service, and a marble Roman bath that can accommodate up to eight people. But The 13 is not alone. A series of highend urban resorts will soon reinvigorate the Cotai scene – obsolescence and renewal seem to be running fast in this business – although opening dates for the strip’s new offspring have been fluctuating together with the market of late. Publicity images promise extraordinary experiences: Wynn Palace and its idyllic garden setting complete with lake, encircled by restaurants and gondolas; The Parisian, equipped with a half-size replica Eiffel Tower and featuring an Avenue des Champs-Élysées retail mall; and City of Dreams’ new hotel tower designed by Zaha Hadid Architects, an almost unrivalled display of sophisticated, innovative architecture. We are in danger of becoming somewhat blasé to all this ostentation. Perhaps we are intrigued that, despite reduced revenues and constant political pressure, Macau’s casino operators seem to be going all-in. Indeed, these soon-to-open Cotai venues are unmatched in many respects – they occupy an increasingly exclusive world of expanding superlatives. In raising the standards for highly ambitious and aggressive marketing and hospitality service strategies, the gambling sector is striving to accommodate new business models to an old formula: high stakes yield even higher returns. The word “luxury” has become inadequate for describing this incredible, exuberant level of excess. Would it sound redundant to call it ultra-excess? Then again, when you have a Roman bath inside your own suite, I suppose that redundancy is precisely the point. There are no limits when your goal is to offer a lifestyle – or a lifetime – experience for the super-rich. But given that the privileged class of deep-pocketed Chinese seems to be less enticed by Macau’s charms these days, the industry might want to try expanding its appeal to more-distant global markets, and reach players who would be attracted to this beyond-bling enclave of the Far East. Sheyla S. Zandonai is a scholar and contributor to this newspaper.
Gaming
Melco confirms intention to set up VIP at Studio City
Tepid ramp up Analysts expect hardship for Melco as Studio City fails to deliver. Joanne Kuai joannekuai@macaubusinessdaily.com
G
aming operator Melco Crown Entertainment Ltd’s results for the second quarter of this year are in-line with estimates, but Studio City’s ramp up remains ‘slower-than-anticipated’ due to its isolated location, said brokerage Sanford C. Bernstein Ltd. in a note released on Friday following the announcement of the company’s results. ‘We remain positive on the stock in the long-run, and the company’s ability to maintain focus and strong share in the high-margin Premium Mass segment in Macau,’ said analysts Vitaly Umansky and Clifford Kurz from Berstein. To meet the financial condition requirements based on the loan agreement, analysts also ‘suspect this means a significant shift of business from City of Dreams to Studio City must occur in the absence
Property
of a wholesale market recovery,’ as noted by brokerage Union Gaming Securities Asia Ltd. ‘In the context of significant new supply coming online this month, next we think the task of ramping Studio City gets incrementally harder and the cannibalization felt at City of Dreams in order to support Studio City gets more intense,’ said Union Gaming analyst Grant Govertsen in a note released on Friday. Melco posted net revenue of US$1.07 billion (MOP8.55 billion) for the second quarter of 2016, up by approximately 17 per cent from the same period last year, the company announced last week. Adjusted property EBITDA [earnings before interest, taxation, depreciation and amortisation] were US$245.3 million for the second quarter of 2016, up by 19.7 per cent from a year earlier.
VIP comes to help
Melco Crown Entertainment has also confirmed plans to have tables for
high rollers at Studio City, which opened last year in Cotai. The CEO of the company, Lawrence Ho, said the expectation is for Macau Government authorization of 30 VIP gaming tables at Studio City, to improve the results of the casino resort. The allocation however is still pending government approval. “Consistent with our approach of maximising profitability through yield management, we are in the process of setting up rolling chip operations at Studio City, including both junket and premium direct VIP offerings,” said Lawrence Ho, Melco Crown’s CEO, on a conference call with analysts after the release of the second quarter results. Melco’s Chief Operating Officer, Ted Chan, added during the conference call that the company expects the government to make a decision later this month or in early September, and anticipates that two thirds of VIP tables will be allocated to junkets. Suncity Group and Tak Chun Group, which bring in bettors from Mainland China and loan them money to gamble with, are among the gaming promoters that will operate these rooms, Bloomberg reported in July, quoting unidentified sources. No VIP gaming is offered by Studio City at the moment.
Top rival Country Garden’s contract sales jump nearly 1.5 times in seven months
Agile pre-sales soared 39 pct in July Mainland Chinese property developer Agile Group Holdings Ltd generated some 3.58 billion yuan (MOP4.29 billion/US$536.3 million) from the pre-sales of its housing projects in the country last month, which represents a year-on-year increase of 39.3 per cent, it announced to the Hong Kong Stock Exchange. According to the company’s filing, it pre-sold a total gross floor area of 392,000 square metres in the month, an expansion of 27.3 per cent compared to that seen one year ago. For the first seven months of the year, the accumulated pre-sales value of the developer surged by 38.8 per cent year-on-year, amounting to 32.03 billion yuan. Total pre-sold gross floor area in the period also increased by 27 per cent year-onyear to 3.3 million square metres. Meanwhile, the company’s major rival - Mainland Chinese developer Country Garden Holdings Company Ltd - also announced that its contracted sales reached 149.4 billion yuan for the first seven months of
the year, soaring 142.5 per cent yearon-year from 61.6 billion yuan seen during the same period in 2015. According to its filing to the Hong Kong Stock Exchange, the gross floor area of the group’s contracted sales totalled 18.6 million square metres in the first seven months of the year, a jump of 96 per cent year-on-year.
The developer added that some 116 billion yuan of the contracted sales from the period will be attributable to the owners of the company. Both Agile Group and Country Garden are popular amongst local and Hong Kong investors for their residential projects on the Mainland. K.L.
Business Daily Monday, August 8 2016 5
Macau Gaming
MGM China sees gaming stabilizing as revenue dip slows MGM China Holdings Ltd. reported a slowing pace of revenue decline in the second quarter as more recreational gamblers plunked down bets. Shares gained the most in a week.
C
asino operator MGM China’s revenue fell 19 per cent from a year ago to HK$3.5 billion (US$451 million), it said Thursday. The pace of decline in revenue slowed from a drop of 25 per cent in the previous quarter. The company posted HK$1.03 billion in earnings before interest, taxes, depreciation and amortization. Investors are divining Macau casino operators’ results for signs of a recovery in the SAR, which has been mired in a two-year slump after a government crackdown on corruption and graft that increased scrutiny on lavish spenders. The opening of the MGM Cotai next year, along with Wynn Resorts Ltd.’s US$4.1 billion Wynn Palace later this month and Las Vegas Sands Corp.’s US$2.7 billion Parisian in September, are being closely watched for their impact on the industry. “The company is experiencing a deepening of customer quality, with r etu r ni n g f r e q ue n c y o f known customers,” wrote Sanford C. Bernstein & Co. analysts, led by Vitaly Umansky, who reiterated the company’s outperform rating in a note Friday. MGM China rose 4.6 per cent to close at HK$11.38 in Hong Kong trading Friday, outperforming its casino
peers. The Bloomberg Intelligence Macau gaming stocks index and Hong Kong’s benchmark Hang Seng Index both gained 1.4 per cent.
Slow and steady
The high end of the gaming market dominated by so-called VIP customers could take as long as three years to come back, James Murren, chief executive officer of parent company MGM Resorts International, said in an interview Thursday. While the increased room supply could result in hotel price discounts, the more
important factor will be whether betting by mass-market gamblers increases as a result of the new properties, he said. A 4.5 per cent drop in local betting last month was smaller than analysts expected. “We think the market has stabilized and started to improve,” he said. The US$3.1 billion MGM Cotai’s opening was pushed back to the second quarter of next year, at least the third time it’s been postponed. MGM Resorts posted second-quarter earnings that beat analysts’ estimates as profit growth in Las Vegas made up for sluggishness in Macau. MGM rose 1.2 per cent to US$24.06 at the close in New York Thursday. MGM Resorts total sales fell 4.8 per cent to US$2.27 billion, trailing analysts’ projections of US$2.33 billion. Gaming revenue from high
rollers fell 10 per cent from the previous quarter and 31 per cent from a year earlier. MGM China’s adjusted earnings of HK$1.03 billion is a 10 per cent decrease compared to the prior year quarter Revenue from tables frequented by recreational gamblers in the SAR increased 0.9 per cent from the previous quarter, Deutsche Bank AG analyst Karen Tang wrote in a note Friday. The sequential growth in revenue from recreational gamblers “is particularly encouraging as the other two strong players in premium mass market, Wynn Macau and Melco Crown saw declines,” she wrote. Operators including Wynn Macau Ltd., Galaxy Entertainment Group Ltd., and Melco Crown Entertainment Ltd. are wooing tourists and mainstream gamblers to Macau with new family-friendly resorts. The Wynn Palace will offer airconditioned cable car rides and Sands China Ltd.’s Parisian will feature a half-size Eiffel Tower replica when they open in coming months. Bloomberg
6 Business Daily Monday, August 8 2016
Macau
Interview Local entrepreneur in the cake business sees rent and human resources as the two major obstacles for local SME’s
A piece of the cake Using a family tradition to build something of her very own, Lisa Ritchie Acconci started by learning cake decoration techniques and baking recipes from her mother and grandmother, and now, seven years later, has certified 760 people in cake confectionary and is a supplier for three major hotel chains. As the city’s sole representative for American cake decorating company – Wilton – Acconci tells Business Daily that she stands by her decision to set up her own company - Party and Cakes Xpress – and describes her experiences as an SME working with local integrated resorts, and some of the lessons learned along the way. Nelson Moura nelson.moura@macaubusinessdaily.com Photos by Nelson Moura
H
ow did you get involved in the cake business? I studied Arts and Humanities, worked in a hotel for four and half years in the training sector, and at the same time I had a passion for baking and decorating cakes that I got from my mom and grandmother. My mom opened the first cake/party shop in Macau in the early 1990’s, and I used to go and help her after school; and my grandmother Margarida Baptista was quite famous in Macau for her traditional Macanese cakes/desserts, such as marble cake. So I learned the decorative side from my mom and the baking side from my grandmother. I was mainly involved in conducting training within the hotel, but I hadn’t
started a business before. At one point I was working 14 hours a day at hotels and - after having my first kid - I decided to quit for a while and started making cakes from home. So at that time, around eight and a half years ago, I approached Wilton to improve my decorating skills as well as continue in the training field, thus combining both passions: teaching and cake decorating. What is Wilton exactly? Wilton began as a cake decorating school in 1929. It started with cake decorating classes and now has more than 10,000 products. So we got Wilton licences - one that allows me to give classes and certify students, and one as a sole distributor in Macau. So if you see any Wilton products in supermarkets or shops in the territory with the authorized logo, they’re supplied by us. We do need to achieve
a yearly sales target to maintain our licences, like any other distributor. Their main profit is from the products. However, we still need to report every single student we teach too. We try to keep our classes to between four and six students, and since we started in 2009 we’ve certified over 760 students, without counting other projects aside from Wilton. Was it hard to start a business in Macau? To be honest, it took me one and a half years because I had to run from government department to government department to know which licences and requirements I needed, all by myself. I started really small, honestly at the time of the store opening we probably had US$4000 (MOP31,950) worth of products. It was quite tough to start with, without kitchen aids or proper
tools. But we started getting more and more students, people got more interested and our line up started getting bigger and bigger - up to the point where we are now distributing to three major hotels chains. Since we started, I’ve seen the baking business growing like crazy as a trend, with many people selling cakes on Facebook and a lot of stores doing big decorating supplies. This means a lot of competition, especially because you see a lot of people making cakes out of their houses. At the end of the day, Macau is a big cake and we don’t mind sharing it. Are you providing products for gaming operators? We mainly provide products at this point, but we are not yet at the point of giving classes to them. We are looking to do some mass Wilton courses, but we still need to check the logistics. Was it hard to start working with the integrated resorts? In the beginning it was a bit hard yes, since we’re a small medium enterprise (SME). In terms of paperwork and purchasing, you have all these background checks, so it was a bit hectic. It took us about one and a half months almost just for paperwork. But it’s part of the process and each hotel has its own procedure. It took us one big step and it was worth it. So I’m grateful and now it’s easier.
Business Daily Monday, August 8 2016 7
Macau “If you try to get a place on street level around the centre you will have to pay at least HK80,000 a month, which honestly is insane - not just for a small business, but even for a big business.” be our third. We will have two booths there to sell our products, and we applied for the booth subsidy, since booths are not cheap. The subsidies cover about 40 per cent of booth rental, but of course there’s a lot of add-ons to decorate the booth. We also tried to be part of a government scheme that allows residents to receive MOP6,000 for a culture scheme. We are still working on it. Have you done business outside of Macau? Macau is a small market but it has a lot of tiered markets - such as hotels, retail, other bakeries and stores - so we want to focus on these markets and then think of branching out.
“If you have the right attitude your qualifications can be built; you can build your skills but not your attitude.” So do you think it’s worth goint to the integrated resorts’ procurement events? For a first timer it’s a bit scary, because you are thinking you are just a small company and it’s such a big hotel and they’ll ask you about logistics - such as if you can provide 1,000 baking cups - and the turnaround time. You have to be prepared. Since we work directly with the manufacturer, it is easier, but for companies with parallel shipping it might be complicated. However once you get all the paperwork done it’s a relief. Once you get over one hurdle you think you can pass the other ones. We have gone to a lot of SME procurement meetings recently and I have to thank the Macau Trade and Investment Promotion Institute (IPIM) because if it wasn’t for them contacting us, we wouldn’t know about them. Have you received any other government help? Right now we’re involved in quite a few expos: the Asia Food Expo & International Food Culture from August 13 to 16 at the Venetian will
What are the main problems you face when doing business here? The two biggest obstacles we have in Macau now, especially for SME’s, are rent and human resources. If you try to get a place on street level around the centre, you will have to pay at least HK80,000 (US$10,315/MOP82,399) a month, which honestly is insane - not just for a small business, but even for a big business. You can look around in the centre and see a lot of shops always opening and closing. Right now we’re in a commercial building, not at street level, which doesn’t mean it’s cheap, but it’s good since it central and parking is not hard to find. In terms of human resources and manpower, I am very lucky since for four years I’ve had a lady working with me. Before that I had a lot of in-and-outs, from young part-time students to older people; people coming in and saying ‘I just want to be a cashier but I want MOP12,000 a month’. And that was five years ago. To be honest, in terms of salary, we offer a good salary but for work that is not that demanding and we’re flexible with days off, since it’s more a family business style. Have you hired non-resident workers? All our employees have been resident card holders since it’s really hard for us to sponsor a non-resident worker. It’s easy to find qualified non-resident workers, but it’s hard to get the quota of three locals to one non-resident for us to be able to sponsor them. So what’s the main issue with local residents? Honestly, there is an abundance of job opportunities in Macau, so it’s fairly easy to jump from one job to another if it pays better, especially when young people get great pay at casinos. We’re not looking for highly qualified workers. We’re only looking for someone who has the right attitude. If you have the right attitude your qualifications can be built; you can build your skills but not your attitude. So even with all these difficulties, what drives you to run your own business? I’m a driven person that can’t stay
still for too long. So after quitting my previous job working in a hotel I had to do something. It took me one and a half a years to do the research before opening the business, to see what I could and couldn’t do. And with a limited amount of capital and constraints I went forth with it and believed in it, which is really important when you start a business. I’m not saying we’re extremely successful, but given the last seven years as a distributor I think we’re doing okay, and now we’re also distributing for LorAnn oils, and we have another project coming up. What advice would you give to other entrepreneurs? Well, for example, we always try
to do a follow-up to our sales. It’s not just a one-off thing, we don’t just sell 10 baking cups to a chef and that’s it. We go and follow-up and make sure that the baking cups are working for them, if the colours are bright enough, maybe even suggest different baking cups. I believe a lot in after sales follow-up, not just because it’s professional, but also because it’s ethical. Also you have to keep on learning, even if you’re an instructor. You have to be open to learning and I still learn a lot from my students. Just be open to learning. Practice is very important. People ask me what’s the secret to doing this amazing rose decoration, and that’s the secret: practice.
8 Business Daily Monday, August 8 2016
Greater China PBOC data
Forex reserves fall but gold rises Official data suggests speculative capital flight is under control for now.
C
hina’s foreign exchange reserves fell to US$3.20 trillion in July, central bank data showed yesterday, in line with analyst expectations. Economists polled by Reuters had predicted reserves would fall to US$3.20 trillion from US$3.21 trillion at the end of June. China’s reserves, the largest in the world, fell by US$4.10 billion in July. The reserves rose US$13.4 billion in June, rebounding from a 5-year low in May.
the central bank sought to shield the yuan from market volatility caused by Britain’s decision to leave the European Union. China’s foreign exchange regulator recently said China would be able to keep cross-border capital flows steady given its relatively sound economic fundamentals, solid current account surplus and ample foreign exchange reserves. China’s foreign reserves fell by a record US$513 billion last year after it devalued the yuan currency in August, sparking a flood of capital outflows that alarmed global markets. The yuan has eased another 2 per cent this year and is hovering near six-year lows, but official data suggests
speculative capital flight is under control for now, thanks to tighter capital controls and currency trading regulations. However, economists are divided over how much money is still flowing out of the country via other channels, with opaque policymaking and some inconsistency in the data raising suspicions that the fall in the yuan may be masking capital outflow pressure. After the yuan slipped to below the psychologically important 6.7/dollar level on July 18, it has seen a mild rebound as the central bank stepped in to control the pace of its depreciation. Still, most China watchers expect it will resume its descent soon, risking a renewed surge in outflows.
A Reuters poll on Wednesday showed analysts believe the yuan may fall more than 3 per cent against the dollar by a year from now, more than expected just a month ago, as the economy struggles to maintain momentum and as the dollar edges up on views of an eventual U.S. rate rise. China will keep the yuan basically stable and continue with market-based interest rate reform, the central bank said on Wednesday. The country’s economy expanded slightly faster than expected in the second quarter but private investment growth shrank to a record low, suggesting future weakness that could pressure the government to roll out more support measures. Reuters
‘China’s foreign reserves fell by a record US$513 billion last year after it devalued the yuan currency in August’ China’s gold reserves rose to US$78.89 billion at the end of July, up from US$77.43 billion at end-June, data published on the People’s Bank of China website showed. Net foreign exchange sales by the People’s Bank of China in June jumped to their highest in three months, as
M&A
Battle for Vanke heads into unknown as peer Evergrande takes stake Analysts said they couldn’t immediately figure out exactly how the move might change the balance of power in Vanke’s spat with Baoneng. Yimou Lee
A battle for control of China’s biggest home builder veered into unknown territory after the industry’s no.2 player bought nearly 5 per cent of China Vanke as “an investment”, but left investors in the dark on its future intentions. The move by Evergrande, with a market value of US$9 billion, muddies the waters of a rare public Chinese boardroom battle: Vanke, a US$30 billion builder of homes for the middle classes, has been busy fending off a potential hostile takeover by private financial conglomerate Baoneng Group, its largest stakeholder with roughly 25 per cent.
Key Points Evergrande says paid US$1.4 bln for near 5 pct stake Vanke shares surge 10 pct after peer buys stake Deal comes as Vanke seeks to fend off suitor Baoneng Evergrande now Vanke’s 4thbiggest investor Analysts uncertain on Evergrande intentions
Evergrande chairman Hui Ka-yan cited Vanke’s “strong results” as a reason for the investment in a filing late on Thursday. Like Vanke, it didn’t respond to requests for comment on the move on Friday. A n a l y st s sa i d t h e y c o u l d n ’ t
immediately figure out exactly how Evergrande’s move might change the balance of power in Vanke’s spat with Baoneng - a tussle that has drawn scrutiny from regulators. Some said they were waiting to see if Evergrande might increase its stake further. Unusually for a large non-stateowned Chinese company, Vanke does not have a dominant shareholder. Last year, Baoneng displaced stateowned China Resources as Vanke’s largest stakeholder. Vanke chairman Wang Shi opposed the move, calling Baoneng “barbarians” with no credibility, and Vanke has asked regulators to investigate the funding of Baoneng’s share purchases. Baoneng has declined to comment on Vanke’s request. The protracted power struggle between Vanke and Baoneng is already testing Beijing’s resolve, especially as it looks to reform its big corporations. In a June 28 editorial, China’s official Xinhua news agency said the confrontation between Vanke’s management and its major shareholders had descended into “irrational wilfulness” that was hurting growth, employees and shareholder returns. Evergrande’s purchase of a stake in Vanke is just the latest in a series of investments by the acquisitive developer. In April, it said it was buying a nearly 18 per cent stake in Shengjing Bank for US$1.54 billion. This month, it completed its acquisition of a 52.8 per cent stake in developer Calxon Group for 3.6 billion yuan (US$542 million). Reuters
Business Daily Monday, August 8 2016 9
Greater China Rustbelt vs. cities
In Brief
Regions show big economic divergence Liaoning province saw first-half fixed asset investment and real estate development investment shrink 58.1 per cent and 31.5 per cent, respectively. China’s regional economies showed a marked divergence in performance in the first half of 2016, with provinces reliant on steel making and mining reporting weak or no growth but some larger cities thriving. The recently released provincial growth figures highlight growing imbalances in China as the government tries to restructure the economy from a dependence on heavy industry and exports to one that is powered more by domestic consumption. The north-eastern steel-making province of Liaoning reported its economy shrank by 1 per cent in the first half of 2016 from the same period the previous year, the only province in China to report a contraction. That was in sharp contrast to nationwide growth of 6.7 per cent. Liaoning is one of the last of the country’s 31 provinces to announce gross domestic product (GDP) data, which typically are published weeks after the national readings. Figures have yet to be released by highly industrialised Heilongjiang. Weighed down by the bloated steel industry, Liaoning province saw firsthalf fixed asset investment and real estate development investment shrink 58.1 per cent and 31.5 per cent, respectively, from a year earlier, an official from the province’s bureau of statistics told Reuters. Provincial revenues slumped 18.6 per cent. Industrial powerhouse Shanxi fared only slightly better, posting the lowest growth rate in the country. Its economy grew 3.4 per cent in the first half, well below the province’s annual target of 6 per cent. The Shanxi bureau of statistics said
that the coal-intensive province’s efforts to reduce overcapacity have had “initial effects”, saying first-half coal output dropped 14.4 per cent. And conditions could get worse before they get better, with officials vowing to step up efforts to cut capacity in the second half of the year. “As overcapacity reductions will intensify in the second half of the year, we still see significant downside risk in the traditional manufacturing sector,” economists at ANZ said in a research note this week. “While overall (economic) growth is projected to slow in the second half, we expect further divergence between the old and new economy,” they added, noting the government may ramp up spending and tax and structural reforms in provinces which are most reliant on traditional heavy industries. Growth in more diversified urban areas generally was far stronger.
The south-western metropolis of Chongqing reported growth of 10.6 per cent, the best in the country apart from the western region of Tibet. Chongqing posted double-digit growth in fixed asset investment and retail sales at 12.5 and 12.9 per cent, respectively. Private investment grew 9.5 per cent, making up more than half of total investment and diverging with national trends which have shown private investment growth shrinking to record lows. With a population of more than 30 million people, the municipality is one of central China’s key transport hubs and has booming electronics, automobile and manufacturing sectors. Beijing and Shanghai grew 6.7 per cent in the first half. China’s economy grew by a slightly more-than-expected 6.7 per cent in the April-June quarter, aided by infrastructure spending, a housing boom and record bank lending, but cooling private investment is clouding the outlook and leaving growth more reliant on government spending and ever-rising debt. Reuters
“As overcapacity reductions will intensify in the second half of the year, we still see significant downside risk in the traditional manufacturing sector” ANZ economists research note
Bonds markets
Panda issuance seen exceeding dim sum for first time The panda bond market still has barriers to its long-term development such as a deal-by-deal approval process. Michelle Chen
China’s panda bond issuance is expected to exceed that of dim sum bonds for the first time this year, thanks to cheaper onshore funding costs that are expected to continue as Beijing keeps monetary conditions loose to support its sluggish economy. Panda bonds, or yuan-denominated bonds sold by foreigners on the mainland, kicked off in 2005, but their development has lagged far behind yuan-denominated bonds sold in the offshore market, also known as dim sum bonds, which started in 2007. That began to change about a year ago when Chinese issuers switched back to the onshore market to raise cheaper funds, and as foreign investors pressed dim sum issuers for higher returns to compensate for the weakening yuan. “Panda bonds have started to show momentum and the opening-up of the onshore debt market to allow foreign investors free access has also lifted issuers’ incentive to sell these bonds,” said Frances Cheung, head of rates strategy at Societe Generale Asia ex-Japan. Sales of panda bonds in the first seven months this year totalled 55.6 billion yuan (US$8.39 billion), compared to 68.3 billion yuan of dim sum bonds. But if a 17 billion yuan dim sum bond sold by China’s Finance Ministry is excluded, panda bond issuance would have been higher.
Panda bond issuance for all of last year amounted to 13 billion yuan, less than 10 per cent of dim sum bond sales. “The pace of panda bond issuance will continue to accelerate,” said DBS analyst Nathan Chow in Hong Kong. China onshore bond yields fell by over 150 basis points (bps) in the past two years as economic growth slowed. Bankers say issuers which have dim sum bonds that need to be refinanced may either rely on the panda bond market if they can get the proceeds out, or U.S. dollar bond market. “Some might use cash flow to pay back dim sum debt. It’s difficult to refinance
“I can’t see a turning point for sluggish dim sum bond sales in the next two years since we do not expect China to tighten its monetary policy during this period” Nathan Chow, DBS analyst in Hong Kong
in offshore yuan markets (due to the high cost),” said Paul Au, co-head of credit market syndicate at UBS. At present, funding costs in panda bond market could easily be 50-100 bps lower than dim sum bonds for issuers, bankers say. If compared to dollar bonds, a typical corporate issuer with a BBB+ rating could reduce its financing cost by around 80 bps by issuing a panda bond and swapping yuan proceeds into dollars, according to JP Morgan’s estimates. But the panda bond market still has barriers to its long-term development such as a deal-by-deal approval process. China also recognizes only European and Hong Kong accounting standards for the time being, which makes it difficult for many entities that adopt the U.S. accounting format to tap the market. Reuters
Monetary moves
PBOC says it will fine-tune policy as needed China’s central bank on Friday reiterated it will fine-tune policy in a preemptive and timely way, but added that cuts to bank reserve requirements could put downward pressure on the yuan and foreign reserves. The People’s Bank of China will stick to its long-standing prudent stance and keep the yuan currency basically stable, the bank said in its second-quarter monetary policy implementation report. The focus in the last five months of the year is expected to be on structural reform and fiscal measures to boost growth. Option trading
Shanghai Stock Exchange relaxes restrictions The Shanghai Stock Exchange (SSE) said on Friday it would relax some restrictions on option trading, as regulators move to unwind some measures imposed during a stock market rout last year. The SSE said on its website a daily position-opening quota of the SSE 50 ETF option will only apply to call options starting today, in effect loosing current restrictions. Currently, the quota applies to both call and put options. The SSE 50 ETF is the only option product currently trading on the exchange. M&A
COSCO to buy 51 pct stake in Piraeus Port China COSCO Shipping, which owns the world’s fourth largest container fleet in terms of capacity, is expected to wrap up the purchase of a majority stake in Greece’s largest port, Piraeus Port (OLP), next week, sources close to the matter said on Friday. Under a deal signed in April between COSCO and Greece’s privatisation agency (HRADF), COSCO will buy 51 per cent of Piraeus for 280.5 million euros (US$312.5 million). COSCO will acquire a further 16 per cent stake for 88 million after five years, and once it completes mandatory investments of 300 million euros. NEEQ
Start-up board turnover continues to gain Total turnover on the National Equities Exchange and Quotations (NEEQ), the market for Chinese start-ups to raise funds, continued to increase in the past week. From August 1 to 5, NEEQ’s trading volume climbed 7.75 per cent week on week to 3.12 billion yuan (around US$470 million). Four companies recorded transactions worth more than 100 million yuan each. Donghai Securities, a small brokerage headquartered in the eastern city of Changzhou in Jiangsu Province, was the biggest winner with shares worth 800 million yuan traded.
10 Business Daily Monday, August 8 2016
Greater China M&A
Mainland investors agree to buy AC Milan Current owner said the buyers had committed to investing 350 million euros over the next three years into the club. Giulia Segreti and Valentina Za
F
ormer Italian prime minister Silvio Berlusconi agreed on Friday to sell soccer team AC Milan to a consortium of Chinese investors, ending his three decades of ownership of the seven-times European champions. Berlusconi’s Fininvest family holding said it had signed a preliminary agreement valuing the club at 740 million euros (US$818 million) including 220 million euros of debt. The Chinese investors, whose identity had not been disclosed during
three months of negotiations, included development and investment fund Haixa Capital and Yonghong Li, chairman of management company Sino-Europe Sports Investment Management Changxing, the statement said. It added that there were other companies involved in the deal, some of which are controlled by the Chinese state, but gave no further details on their exact identity. Last month, a source said that private investment firm GSR Capital, with its co-founder and Chinese dealmaker Sonny Wu, were among
investors but the Fininvest statement did not mention either. Chinese investors with cash to spend have been pouring money into soccer, as President Xi Jinping, a soccer fan himself, looks to make the country a global force in the sport. On Friday, a group called Yunyi Guokai (Shanghai) Sports Development Ltd, controlled by businessman Guochuan Lai, agreed to buy English Premier League club West Bromwich Albion. China’s food and beverage packaging products company ORG Packaging Co Ltd also said it planned to acquire a 60 per cent stake in French second division club AJ Auxerre for 7 million euros. Once the AC Milan deal goes through, it will mean both of the city’s soccer clubs are controlled by
Key Points Fininvest says signs preliminary deal with Chinese investors Agreement values AC Milan at 740 mln euros, including debt Chinese investors also buy England’s West Bromwich Albion
Milan AC’s crest
Chinese investors. In June electronics retailer Suning Commerce Group Co Ltd agreed to buy nearly 70 per cent of city rivals Inter Milan for 270 million euros in what was the highest profile takeover of a European team by a Chinese firm.
Cash injection
The sale of AC Milan, one of Berlusconi’s most cherished assets, is part of a wider effort by the 79-year-old former prime minister to reshape his business empire to prepare for his own succession, disposing of the most indebted businesses. The deal is due to be closed by the end of the year. Fininvest said the buyers had committed to investing 350 million euros over the next three years into the club, which has failed to win a major trophy since 2011. AC Milan reported a loss of 93.5 million euros last year and needs cash to put it on a par with the top European clubs, many now bankrolled by Gulf and Asian owners. “The deal is convenient because it has a low entrance price, but is an operation with a high value. The money (the Chinese) are putting down is to give value to a big brand, counting on the masses in Asia,” says PwC partner Emanuele Grasso. The club has weighed on the finances of the media tycoon. “It was not sustainable... it was an indulgence that Berlusconi could not afford anymore,” a source close to the club told Reuters. This is not the first time Berlusconi has tried to sell Milan. Last year, talks with Thai businessman Bee Taechaubol to sell a majority stake foundered when Berlusconi changed his mind at the last minute. The Chinese investors in the Milan deal were advised by Rothschild. Fininvest was advised by Lazard, BNP Paribas as well as law firm Chiomenti. Reuters
Oil industry
Trafigura extends credit to teapots to boost crude sales The company has emerged as one of the world’s leading oil trading companies. Chen Aizhu and Meng Meng
Trafigura has extended the credit period for two independent Chinese refiners to buy crude, marking a more aggressive push by the global commodity trader to feed the growing appetite of so-called “teapot” refiners to import oil, sources said. Trafigura has sold at least 3 million barrels of Latin American crude, worth around US$125 million at current benchmark prices, to teapots Shouguang Luqing Petrochemical Co Ltd and Huifeng Petrochemical Group, according to three trading sources with knowledge of the transactions. Delivered in May and June, Trafigura allowed the buyers to pay for the cargoes 90 days after loading, said these sources. Normally suppliers offer a tighter 30 to 60 days to make payment. Teapots, which have boosted their imports after Beijing granted them import permits, are hungry to secure financing but the rush to purchase by the relatively inexperienced buyers has increased trading risks with cases when deals have soured. One trader with knowledge of the recent Trafigura deals said that these type of deals should suit the Swiss trading house given its extensive operations but other suppliers might not be prepared to conduct similar trades.
“We will look very closely at how these deals unfold,” another source, a senior oil banker, said. A Trafigura spokeswoman declined to comment when asked to confirm these deals. Under a “third-party processing” agreement, the Chinese counterparts committed to supply Trafigura with refined fuel, mostly gasoline, allowing the transactions to enjoy tax exemptions for the crude inflows and refined fuel exports, according to Chinese customs rules. Under one of the deals, Trafigura sold 1 million barrels of Venezuelan Merey crude to Shouguang Luqing, a 60,000-barrel-per-day refinery
in eastern Shandong province, and received a commitment for 50,000 tonnes of gasoline, according to a Luqing procurement manager.
Key Points Clinches deals with Shandong refiners Shouguang Luqing, Huifeng Crude oil came from Latin America Deals seen as riskier, but profitable
Trafigura also sold to Huifeng Petrochemical, a 116,000-bpd teapot refiner, 1 million barrels of Colombian Vasconia crude and 1 million barrels
of Argentinian Escalante, under the same terms, according a Huifeng official. Trafigura has emerged as one of the world’s leading oil trading companies. It was the first to sell Iranian oil to teapots, selling part of a 2-millionbarrel cargo on the Olympic Target tanker to at least two refiners. The first teapot crude import licences were only granted last year and they have become a key driver behind the 14 per cent rise in China’s oil imports and its bulging fuel surplus. Chinaoil, trading arm of China’s state-run PetroChina, in July clinched a similar deal with Huifeng to supply 200,000 barrels of crude on credit and offtaking 10,000 tonnes of gasoline, said a trader with direct knowledge of the matter. Reuters
Business Daily Monday, August 8 2016 11
Asia GDP
Indonesia’s growth surprise spurs optimism The statistics bureau credited the second quarter’s growth on higher commodity prices and government spending, solid consumption and better crops. Hidayat Setiaji and Gayatri Suroyo
I
ndonesia surprised with its strongest growth in 10 quarters in April-June, spurring some economists to predict it will outperform most Southeast Asian nations the rest of this year. However, others cautioned that Indonesia needs more private investment to sustainably raise its growth rate, as a widening budget deficit means government spending - which helped lift annual growth to 5.18 per cent in the second quarter has to be contained. The annual growth rate for AprilJune, announced on Friday, was the highest since the last quarter of 2013, nearly a year before Joko Widodo became president. A Reuters poll predicted 5.00 per cent. The new number “foreshadows what we expect to be Indonesia’s ascent to be one of the outperforming economies in ASEAN,” ANZ wrote. WellianWirantoofOCBCinSingapore called Indonesia a “momentum play”, saying the data “adds oomph to positive sentiment” about Indonesia. The Jakarta stock exchange benchmark, up 18 per cent this year, rose 0.5 per cent after the gross domestic product data.
One reason markets have been upbeat is Widodo’s recent cabinet reshuffle that saw Sri Mulyani Indrawati, a widely-respected reformer, leave the World Bank after six years and return to being finance minister. ANZ said the reshuffle “suggests a cementing of the reform agenda”.
Dented export earnings
The statistics bureau credited the second quarter’s growth on higher commodity prices and government
spending, solid consumption and better crops. Low global commodity prices have hurt Indonesia for years, denting export earnings, investment, state revenue and purchasing power. It was the main reason growth slowed to a six-year low in 2015 to 4.8 per cent. The economy had annual growth of 4.91 per cent in January-March. Household consumption, representing more than half of the country’s GDP, gained in the second quarter as people spent more money at the start of the Muslim fasting month, which this year began in June. Gundy Cahyadi, DBS economist, said strong consumption should support growth but Indonesia needs more investment to sustain a solid pace.
Joko Widodo (C), President of Indonesia, during cabinet’s reshuffle announcement
He warned that the state’s contribution to growth may fall in the second half as “the pace of spending may actually ease... as the government will attempt to keep fiscal deficit in check.” Indrawati announced on Wednesday the government will trim spending by 133.8 trillion rupiah (US$10.20 billion) to make sure the budget deficit does not breach the legal limit of 3 per cent of GDP.
Tax Amnesty
To aid state finances and try to bring home billions of dollars Indonesians have overseas, the government last month launched a tax amnesty programme. The amnesty could provide “an additional filip to growth,” said Michael Wan, economist with Credit Suisse, which expressed a “positive view” of the Indonesian economy. After Friday’s data, RBS upgraded its outlook for Indonesia growth this year to 5.1 per cent from 4.9 per cent. Not everyone thinks Indonesia is poised to much stronger growth in future, let alone reach the 7 per cent target Widodo promised during his campaign. “While we think the worst for Indonesia’s economy is now over, a combination of fiscal tightening and low commodity prices will keep growth stuck at around 5 per cent over the next couple of years,” Capital Economics said. Widodo has announced a series of reforms to improve the investment climate and the central bank has cut the benchmark four times this year totalling 100 basis points. Some analysts expect another cut this year. Prior to Friday’s data, the central bank forecast GDP growth of 5.09 per cent this year. The government’s target is 5.2 per cent. Reuters
Trade
Malaysia’s exports post unexpected jump June’s trade surplus widened to US$1.36 billion. Malaysia’s export growth rose unexpectedly in June, driven by higher demand for manufactured goods from the United States, which offset the hit to the oil-producing country’s commodities shipments. Exports in June grew 3.4 per cent from a year earlier, data from the International Trade and Industry Ministry showed on Friday, a stark contrast to economists’ estimates of a 4.2 per cent decline. In May, exports slid 0.9 per cent, hit by the effects of weak global oil prices. Malaysia’s exports to the U.S. jumped 22 per cent in June, the highest on-year growth recorded this year, on higher shipments of electrical and electronic products, as well as optical and scientific equipment. The spike in demand helped offset declining commodity exports. Malaysia, the world’s second-largest producer of palm oil, saw a 20.3 per cent annual drop in palm oil and palm-based exports in June. Exports of liquefied natural gas and crude oil also remained weak, down 29.2 per cent and 7.3 per cent respectively. Economists said while the trade figures were a positive surprise,
sustained growth would be dependant on commodity prices. “We are in a small downturn right now but the outlook is still for a slight recovery in oil prices towards the end of the year, as
Cranes at Penang Malaysia harbour
global supplies increase,” said Julia Goh, an economist for UOB Bank in Malaysia. Exports to the European Union grew 4.1 per cent from a year earlier, but those to China fell 20.3 per cent, due to lower exports of commodities and manufactured goods. Imports in June expanded 8.3 per
cent from a year earlier, up from the previous month’s 3.1 per cent rise. June’s trade surplus widened to 5.5 billion ringgit (US$1.36 billion), compared to 3.3 billion ringgit in May. In the first half of 2016, exports grew 1.2 per cent while imports rose 1.4 per cent from the same period last year. A trade surplus of 41.8 billion ringgit was recorded, compared with 41.7 billion ringgit in the first half of 2015. Reuters
12 Business Daily Monday, August 8 2016
Asia Cyber theft
Philippines President commits to return heist money The Philippine central bank said it would fine RCBC bank US$21 million in relation to failings over the heist. Krishna N. Das, Karen Lema and Neil Jerome Morales
P
h ilippin e P r e s i d e n t Rodrigo Duterte has given a commitment that US$81 million stolen by cyber criminals from the account of Bangladesh Bank in New York and funnelled through bank accounts in Manila would be returned, the Bangladesh ambassador to the Philippines said on Friday. A Bangladesh central bank team visiting Manila to recover the money said earlier on Friday that it was close to getting back US$15 million of the loot frozen by the Philippines. Cyber criminals tried to steal nearly US$1 billion from Bangladesh Bank’s account at the Federal Reserve Bank of New York in February, and succeeded in transferring US$81 million to four accounts at Manila’s Rizal Commercial Banking Corp. The money was then laundered through the city’s casinos, according to investigators. O n l y ab o u t US $ 18 m i l l i o n , including US$2.7 million frozen by the Philippines’ casino regulator, has been accounted for. The Philippines’ Department of Justice (DoJ) has asked the Bangladesh Bank delegation to file a legal document staking its claim to US$15 million of that, but the casino money will have to be pursued separately, said two sources close to the visiting team. “We are very hopeful that we will get the total US$81 million,” said Ambassador John Gomes, who
is helping the bank representatives on a four-day visit to Manila ending Friday. “The reason is I got a commitment from the president himself,” he said. He added Bangladesh’s finance m i n i st e r m i ght c o m e t o th e Philippines to meet Duterte to help in the recovery of the money. Gomes said the bank felt RCBC should be held responsible because it did not follow a stop-payment request from Bangladesh Bank, and its lawyer Ajmalul Hossain said it would sue RCBC if it was not able to recover the entire US$81 million. The Philippine central bank said on Friday it would fine RCBC 1 billion
pesos (US$21 million) in relation to failings over the heist, the largest amount it has ever approved “as part of its supervisory enforcement actions”. In March, RCBC’s then president Lorenzo Tan acknowledged at a Philippines senate hearing there had been “some judgment error from the people on the ground”. RCBC said earlier on Friday that the transfers were made based on authenticated instructions over payments network SWIFT, and the hackers had used stolen Bangladesh Bank credentials. “Going to court instead of the media and various Philippine government agencies is the proper procedure,” it added.
Prove it
Ricardo J. Paras III, chief state counsel of the Philippines DoJ, told Reuters
“We are very hopeful that we will get the total US$81 million... The reason is I got a commitment from the president himself” John Gomes, Bangladesh ambassador to the Philippines
that it has already drafted court documents to begin recovery of the US$15 million, but it was important for Bangladesh to prove it is their money. The Bangladeshi delegation has prepared an affidavit citing a letter by the New York Fed to the Philippines’ central bank, in which the Fed said the money was stolen from Bangladesh Bank’s account. The affidavit will be given to the DoJ, the sources said. The Philippine Amusement and Gaming Corporation (PAGCOR), a government body that regulates casinos in the country, has promised to cooperate with Bangladesh Bank to help it recover the US$2.7 million it has frozen, Gomes said. “The money is with Solaire (Resort and Casino),” PAGCOR President Alfredo Lim told Reuters. “It will put us in a bad light if the money is not immediately released to them.” Solaire, operated by Bloomberry Resorts Corp, has said about US$29 million of the funds came to the casino and most was transferred to the accounts of two junket operators. Solaire declined to comment on Friday. Bangladesh Bank is relying on internal RCBC documents to buttress its assertion that the bank’s Jupiter Street branch in Manila ignored suspicions raised by some RCBC officials when the money was first remitted to the accounts on Feb. 5, and then delayed acting on requests from RCBC’s head office to freeze the funds on February 9. Gomes said Bangladesh Bank would also sue Philrem Service Corp, a remittance company that anti-money laundering investigators said was used to transfer some of the US$81 million. “They have the responsibility to return the money or face the consequences,” he said. A law yer for Philrem, w h o speaks on behalf of the company, was not immediately available for comment. Reuters
Fair trading
India’s securities watchdog may tighten algo rules Regulator said that algorithmic orders now account for around 40 per cent of trades executed in exchanges in India. Abhirup Roy and Rafael Nam
India’s capital market regulator said on Friday it was considering tightening rules for algorithmic trading, citing concerns about fair access to markets. The Securities and Exchange Board of India (SEBI) said it was looking at various potential limits on socalled algo traders, including imposing “random speed bumps,” which would randomly delay execution of some orders. The regulator is also looking at introducing order randomisation, a process that would mean trades are settled on a random basis and not on a first-come-first-serve one. In India, algorithmic trading, like elsewhere around the world, is becoming a bigger part of daily trading, prompting regulators to question whether investors with no access to this rapid form of trading are being disadvantaged. SEBI said that algorithmic orders now account for around 40 per cent of trades executed in exchanges in India. “SEBI is examining various options
to allay the fear and concern of unfair and inequitable access to the trading systems of the exchanges,” the regulator said. Among other proposals under consideration, SEBI said it would look at ways to promote fair access, including forcing exchanges to take orders from co-located servers and orders from other sources on an alternate basis, effectively giving equal
Key Points India’s SEBI considers restrictions on algo trading May impose speed bumps, randomisation of orders May also impose frequent batch auctions Looks at curbing colocation advantages
“If they want to make a change, they must also consider how much market impact there will be in terms of reducing liquidity and also that various foreign investors will have more reason to go to alternate venues,” said Kunal Nandwani, head of uTrade Solutions, which offers multi-asset trading platforms for investors. SEBI asked market participants to submit comments by August 31. Reuters Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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weighting to both. India’s two biggest exchanges National Stock Exchange and BSE Ltd offer so-called colocation services to algorithmic traders, allowing them to place servers next to an exchange and thus giving them speedier access than other investors. SEBI said it could also require a gap between when an order is placed and when it is amended or cancelled, addressing an algo strategy that involves placing and then cancelling orders in quick succession which can move markets. The regulator also could examine “frequent batch auctions” - in which
exchanges would collect orders for a period of time and then execute them as a group rather than matching them at the moment they receive them. Broker associations have been calling for tighter regulations on algorithmic trading saying retail investors were being disadvantaged by their rapid-fire trading strategies. But algorithmic traders said SEBI’s measures, if introduced, would be too restrictive and could potentially dent liquidity in India and drive trading to offshore exchanges.
Business Daily Monday, August 8 2016 13
Asia Core prices
In Brief
RBA sees Australia inflation running low for longer The RBA kept its forecasts for economic growth largely unchanged at 2.5-3.5 percent this year, before rising to 3-4 percent by 2018. Wayne Cole and Swati Pandey
Australia’s central bank warned on Friday that core inflation was likely to remain below target for the next two years, a surprisingly dovish assessment that foreshadows more rate cuts to rev up the economy. The Reserve Bank of Australia’s (RBA) subdued outlook for inflation was all the more meaningful as it had only just cut rates to an all-time low of 1.5 percent, suggesting it doubted the easing would generate price pressures anytime soon. “For us this is consistent with the risk of further easing,” said Su-Lin Ong, senior economist, RBC Capital Markets. She expects the RBA to cut again early next year. “Inflation forecasts don’t return to the 2-3 percent target range over the entire period. There isn’t a forecast to return to target. I think that tells
you very clearly that an easing bias remains intact.” The RBA aims to keep inflation within a band of 2 to 3 percent over the long run, but the headline consumer price index rose just 1 percent in the year to June while underlying measures ran at a record low 1.5 percent. That prompted the RBA to cut its cash rate by a quarter point last week, its second easing this year as it seeks to defend the economy from the creeping deflation that has become the bane of developed economies. The RBA’s 72-page report offered no forward guidance on whether it would ease again but said the cash rate was assumed to move broadly in line with market pricing. The futures market is pricing in a 50-50 chance of another cut by Christmas. “Inflation is likely to remain below
2 percent over most of the forecast period (to end-2018),” RBA governor Glenn Stevens said in his last quarterly outlook on the economy before handing over the deputy Philip Lowe next month. “While the prospects for growth in economic activity are positive, there is room for even stronger growth.”
Key Points RBA sees inflation under its 2-3 pct target for two years GDP growth seen 2.5-3.5 pct by end-2016, 3-4 pct by end-2018 Sees modest employment growth, no drop in jobless rate Australian long-end government bond futures rallied with the 10-year contract up 5.5 ticks to 98.095, implying a yield of just 1.91 percent. The RBA report did not repeat its usual line that a strong Australian dollar would complicate the rebalancing of the economy away from mining. Reuters
Investment
Foreigners turn buyers of S.Korea bonds Offshore investors were net buyers both of South Korean stocks and bonds in July, data from the country’s financial watchdog showed yesterday, after they lowered their treasury holdings in the previous month. Foreigners boosted their holdings of South Korean bonds by a net 588 billion won (US$530.59 million) after cutting them by nearly 3 trillion won in June in the wake of Britain’s vote to exit the European Union, according to data from the Financial Supervisory Service (FSS). Investment in treasury bonds by foreigners increased by 1.7 trillion won in July, the FSS said. Over-valued
Lao trade official rejects currency too strong Laos’ currency is not overvalued, a trade ministry official said on Saturday, rejecting an IMF assessment that the kip was too strong for a country with a large current account deficit. The Asian Development Bank expects the external deficit to widen to 20 per cent of GDP in 2017 from 17 per cent in 2016, a level considered dangerous for economic stability. The International Monetary Fund said in its last country report, in 2015, that balance of payments trends in Laos suggested the currency was 10-20 per cent over-valued. M&A
Nissan in talks to sell battery operations M&A
GIC in talks to own at least 7 per cent of Vietcombank Moody’s Investors Service said Vietcombank’s retail business will grow due to a strong funding franchise and client base. Singapore’s GIC Pte Ltd is in talks to own a stake of at least 7 per cent in Vietcombank, sources with knowledge of the matter said, in what would be the sovereign wealth fund’s second major investment in Vietnam this year. Vietcombank will issue new shares to GIC should the deal go through, the sources said on Friday. A successful stake sale in Vietnam’s biggest lender by value would be a vote of confidence in the country’s banking sector, once ridden with bad debts.
‘Vietcombank’s net profit in the first half of 2016 jumped an estimated 39 per cent from a year earlier’ Vietcombank has been planning to issue new shares equivalent to 10 per cent of existing stock to foreign investors. That would total more than US$600 million based on current market value. The stake is offered to GIC at a discount to market prices, the
sources said, declining to be more specific. The deal would need the approval o f Vi e t n a m ’ s c e n t ra l b a n k, Vietcombank’s biggest shareholder. A GIC spokeswoman declined to comment, while Vietcombank did not reply to a request for comment. With a 7 per cent share, GIC would be the third-biggest investor after the State Bank of Vietnam, which owns a 77 per cent stake, and Japan’s Mizuho Bank, which holds a 15 per cent share, said the sources, who declined to be identified because talks are still on-going. In March, GIC bought additional
A Vietcombank office
shares to own more than 5 per cent in leading Vietnamese food producer Masan Group. Vietcombank has said it expected a deal with a foreign investor this year. Vietcombank’s net profit in the first half of 2016 jumped an estimated 39 per cent from a year earlier on strong credit growth and lower provisions for bad debts. Vietnamese banks have enjoyed solid credit growth backed by a rebounding economy, while bad debts in the banking system have fallen from historic highs in 2012. Bad debts rose to as much as 17.2 per cent of total credit in 2012. The ratio has improved to 2.55 per cent in 2015, central bank data shows. But reforms in the sector have been hampered by complicated crossholdings and a 30-per cent foreign ownership cap. Reuters
Nissan Motor Co is in talks with Panasonic Corp and overseas companies including Chinese firms over the possible sale of its controlling stake in a car battery manufacturing venture, sources said. Two people with knowledge of the matter said on Saturday that the Japanese automaker wants to sell its 51 per cent stake in Automotive Energy Supply Corporation, which makes lithium-ion batteries for electric vehicles. The company is jointly owned by NEC Corp. The Nikkei daily on Friday reported that Nissan was looking to sell the company because it would be cheaper to buy batteries for its electric vehicles. Growth pace
Japan GDP seen slowing on weak demand Japan’s economic growth was expected to slow in the second quarter, weighed down by weak domestic demand and stagnant exports, a Reuters poll found on Friday. Weak economic growth would be a setback for Prime Minister Shinzo Abe who said this week that the top priority for his reshuffled cabinet was growing the economy and beating deflation. Gross domestic product was expected to expand at an annualised rate of 0.7 per cent in April-June, the poll of 21 analysts showed, following 1.9 per cent annualised growth in the first quarter.
14 Business Daily Monday, August 8 2016
International In Brief Transparency
Stiglitz quits Panama Papers probe The committee set up to investigate lack of transparency in Panama’s financial system itself lacks transparency, Nobel Prize-winning economist Joseph Stiglitz told Reuters on Friday after resigning from the “Panama Papers” commission. Stiglitz and Swiss anti-corruption expert Mark Pieth joined a seven-member commission tasked with probing Panama’s notoriously opaque financial system, but they say they found the government unwilling to back an open investigation. Both quit the group on Friday after they say Panama refused to guarantee the committee’s report would be made public. Unemployment
Canada unexpectedly sheds jobs Canada unexpectedly shed jobs last month, sending the unemployment rate higher even as fewer people were looking for work, and a lacklustre gain in exports in June raised questions of whether the central bank’s outlook was too sunny. The nation lost 31,200 jobs in July, Statistics Canada said on Friday, frustrating economists’ expectations for a gain of 10,000. The decline was driven by a 71,400 drop in full-time positions, while the goods-producing and service sectors of the economy fared poorly. The unemployment rate edged up to 6.9 per cent, while the participation rate slipped to 65.4 per cent.
Labour market
Strong U.S. jobs numbers to help rate hike supporters The economy generated more than a quarter of a million jobs in July.
N
on-farm payrolls rose by 255,000 positions in July while the unemployment rate remained stable at 4.9 per cent, the Labour Department reported. Forecasts had called for a much more modest increase of 185,000 jobs. Private businesses and government employers added 292,000 jobs in June, not the 287,000 first reported, and 24,000 jobs in May, not the very low, downward-revised figure of 11,000. “This month’s report confirms that the Great Recession is indeed in the nation’s rear-view mirror the economy has added jobs for 70 consecutive months, the longest streak on record,” Labour Secretary Thomas Perez said.
Fed rate hike?
The closely watched jobs figures help fill out a complex economic picture
for market observers eager for signs of whether the U.S. Federal Reserve will raise interest rates later this year. Monetary policy makers earlier this year veered off a course of planned, successive rate hikes as some signs emerged that the American economy might not be on sure footing. The Commerce Department said last month that economic activity had grown by a paltry 1.2 per cent in the second quarter. But that data was at odds with Friday’s rosier jobs report. “Employment rose in all sectors of the economy, helping to keep the rate of unemployment at 4.9 per cent amid an increase in the number of people entering the labour market looking for work,” said Chris Williamson of IHS Markit. “Adding to the good news was an improvement in pay growth. Average hourly earnings rose 0.3 per cent against expectations of a mere 0.2 per cent rise,” said Williamson, noting that pay growth was still below precrisis rates. Gains were strongest in professional and business services, with 70,000 new jobs added, and in health care,
where 43,000 new jobs were added. Together, both sectors have added nearly a million jobs in the last 12 months, according to the Labour Department.
“Employment rose in all sectors of the economy, helping to keep the rate of unemployment at 4.9 per cent ” Chris Williamson of IHS Markit
Employment in mining continued to fall, losing 6,000 positions from the prior month and putting the industry down 220,000 jobs since a peak hit in September 2014. The average workweek rose 0.1 hours to 34.5 hours while average hourly earnings inched upwards by 8 cents to US$25.69, up 2.6 per cent since the start of the year. AFP
Derivatives
Citigroup said to buy portfolio from Credit Suisse Citigroup Inc. purchased a portfolio of credit-default swaps from retreating rival Credit Suisse Group AG, two people familiar with the matter said. Credit Suisse disclosed the agreement to sell the contracts in its second-quarter report last week, without identifying the buyer. The people asked not to be named because the buyer wasn’t public. Credit Suisse said last week that the portfolio consisted of about 54,000 trades and its sale reduced the bank’s leverage exposure, a measure of assets, by US$5 billion. Spokeswomen for Credit Suisse and Citigroup declined to comment. Consumption
Mexico’s top retailers see strong sales growth Total sales from Mexico’s major retail stores will likely surpass earlier estimates of nearly 7 per cent growth this year, in large part due to abundant liquidity in the economy, the head of retailers association ANTAD said in an interview on Friday. Earlier this year, ANTAD forecast annual growth of 6.9 per cent for total retail sales, and 3.9 per cent growth for sales at stores open at least a year. Data through June already shows total sales growth of 10.1 per cent and same-store sales growth of 6.8 per cent.
Goldman Sachs saw revenue decline by 12 per cent, the worst performer of the top five U.S. banks
Investment
Banks’ equity trading revenues plunge JP Morgan was the only one of 11 institutions on either side of the Atlantic whose earnings increased. Anjuli Davies and Jamie McGeever
Stock markets may be nudging their highest ever levels, but that’s scant consolation for many of the world’s big investment banks, where revenues from equity trading, an area they have invested in heavily, fell heavily in the second quarter. Ca u t i o n a h ea d o f B r i ta i n ’ s European Union referendum, tighter regulation, low trading volumes and a particularly strong second quarter the year before depressed revenue at almost all major investment banks. European names were the hardest hit, with HSBC, the continent’s largest lender, seeing its revenue slide more than 50 per cent from the same period last year. Goldman Sachs saw revenue decline by 12 per cent, the worst performer of the top five U.S. banks. JP Morgan was the only one of 11 institutions on either side of the Atlantic whose earnings increased. The drop is a blow to investment banks since equities trading is seen as one of their few potential growth areas given it faces fewer constraints under tough new capital rules than other market businesses such as fixed income. In March, Reuters reported that Deutsche Bank, a traditional bond
trading powerhouse, was hiring about 100 people to boost its equities trading operations, seeking to recover ground in an area seen as vital to its new strategy. Until now, that strategy was making sense with data from research firm Coalition showing that while industry-wide bond trading revenue shrank 36 per cent from 2010 to 2015, stock-trading revenue rose 23 per cent.
“Commission fees are getting squeezed and banks won’t be able to earn as much as they did in the past” Neil Wilson, markets analyst at ETX Capital But with more banks focusing on this relatively low-margin business, their ability to earn large profits in a crowded market place is dwindling. “Commission fees are getting squeezed and banks won’t be able to
earn as much as they did in the past,” said Neil Wilson, markets analyst at ETX Capital. Regional factors played a part too, with Barclays’ withdrawal from Asian equities, for example, having an impact on its trading revenue. There was also a huge spike in trading volumes in Hong Kong and Chinese stocks in the first half of 2015 ahead of a sudden slide in the markets later that year and a tail-off in activity. Credit Suisse saw Asia Pacific equity sales and trading revenue drop 39 per cent year-on-year. Reuters’ latest monthly asset allocation poll showed that global investors’ equity holdings were at the lowest in at least five years. Investors have pulled US$139 billion from global equity funds so far this year, according to Bank of America Merrill Lynch. “Q2 was very dull, while Q2 last year was very, very good. Volumes were low and banks were very cautious. No one was diving in,” said Chris Wheeler, banking analyst at Atlantic Securities. Wheeler argues all is not lost for banks, with equity trading still a potentially lucrative, less capital intensive business once volumes pick-up. “I don’t think this is a collapse. It’s had a fabulous run through the last few years, but just couldn’t keep that pace up,” he said. Reuters
Business Daily Monday, August 8 2016 15
Opinion Business Wires
The Korea Herald The U.S. Department of Commerce has decided to impose nearly 61 per cent in duties against hot-rolled steel flat products imported from South Korea’s steel giant POSCO, a source said Friday. The decision is expected to deal a blow to the Korean steel industry, heavily dependent on the U.S. market. The department has set anti-dumping and countervailing duties for POSCO products at 3.89 per cent and 57.04 per cent, respectively, for a total of 60.93 per cent duties. It also decided to impose a total of 13.38 per cent duties for products from Hyundai Steel.
Jonathan Kos-Read via Foter.com / CC BY-ND
Globalization and its new discontents The Times Of India Finance Minister Arun Jaitley advocated for freehand to ministers and bureaucrats to express themselves on social media to make government functioning transparent. His comments at the event to mark the second anniversary of the myGov app came against the backdrop of the Department of Personnel and Training recently issuing draft service rules proposing to allow bureaucrats to participate freely on social media websites like Facebook, Twitter and Linkedin but criticism of government will still be a no-no. The draft rules bar officers from making “criticism of government” on television, social media or any other communication application by any means, including a “caricature”.
Taipei Times Taiwan’s Premier Lin Chuan yesterday said the government would strive to secure the return of five acquitted Taiwanese from Kenya to Taiwan. Lin made the remarks in response to media queries regarding a case in which a Kenyan court on Friday acquitted five Taiwanese and 35 Chinese who were arrested two years ago on suspicion of telecommunications fraud. The court ruled that the Taiwanese must be immediately deported to Taiwan. However, Chinese authorities are demanding that the five be sent to China with the Chinese former suspects. Lin said the government has an obligation and a responsibility toward Taiwanese implicated in legal cases abroad.
Philstar Online stock trading (in Philippines) is becoming more popular given the steady growth of online accounts, according to the Philippine Stock Exchange. Data from the PSE showed the number of online stock market accounts grew 35.6 per cent to 236,669 with the majority of these accounts held by local retail investors, the PSE said. “We expect online trading to continue to drive growth in stock market accounts. We are hopeful that the rate of expansion we saw in the last five years will be sustained especially as more trading participants start offering online trading services,” said the PSE president.
F
ifteen years ago, I wrote a little book, entitled Globalization and its Discontents, describing growing opposition in the developing world to globalizing reforms. It seemed a mystery: people in developing countries had been told that globalization would increase overall wellbeing. So why had so many people become so hostile to it? Now, globalization’s opponents in the emerging markets and developing countries have been joined by tens of millions in the advanced countries. Opinion polls, including a careful study by Stanley Greenberg and his associates for the Roosevelt Institute, show that trade is among the major sources of discontent for a large share of Americans. Similar views are apparent in Europe. How can something that our political leaders – and many an economist – said would make everyone better off be so reviled? One answer occasionally heard from the neoliberal economists who advocated for these policies is that people are better off. They just don’t know it. Their discontent is a matter for psychiatrists, not economists. But income data suggest that it is the neoliberals who may benefit from therapy. Large segments of the population in advanced countries have not been doing well: in the US, the bottom 90 per cent has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago. The effects of the economic pain and dislocation that many Americans are experiencing are even showing up in health statistics. For example, the economists Anne Case and Angus Deaton, this year’s Nobel laureate, have shown that life expectancy among segments of white Americans is declining. Things are a little better in Europe – but only a little better. Branko Milanovic’s new book Global Inequality: A New Approach for the Age of Globalization provides some vital insights, looking at the big winners and losers in terms of income over the two decades from 1988 to 2008. Among the big winners were the global 1 per cent, the world’s plutocrats, but also the middle class in newly emerging economies. Among the big losers – those who gained little or nothing – were those at the bottom and the middle and working classes in the advanced countries. Globalization is not the only reason, but it is one of the reasons. Under the assumption of perfect markets (which underlies most neoliberal economic analyses) free trade equalizes the wages of unskilled workers around the world. Trade in goods is a substitute for the movement of people. Importing goods from China – goods that require a lot of unskilled workers to produce – reduces the demand for unskilled workers in Europe and the US. This force is so strong that if there were no transportation costs, and if the US and Europe had no other source of competitive advantage, such as in technology, eventually it would be as if Chinese workers continued to migrate to the US and Europe until wage differences had
“
Joseph E. Stiglitz a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute
been eliminated entirely. Not surprisingly, the neoliberals never advertised this consequence of trade liberalization, as they claimed – one could say lied – that all would benefit. The failure of globalization to deliver on the promises of mainstream politicians has surely undermined trust and confidence in the “establishment.” And governments’ offers of generous bailouts for the banks that had brought on the 2008 financial crisis, while leaving ordinary citizens largely to fend for themselves, reinforced the view that this failure was not merely a matter of economic misjudgements. In the US, Congressional Republicans even opposed assistance to those who were directly hurt by globalization. More generally, neoliberals, apparently worried about adverse incentive effects, have opposed welfare measures that would have protected the losers. But they can’t have it both ways: if globalization is to benefit most members of society, strong social-protection measures must be in place. The Scandinavians figured this out long ago; it was part of the social contract that maintained an open society – open to globalization and changes in technology. Neoliberals elsewhere have not – and now, in elections in the US and Europe, they are having their comeuppance. Globalization is, of course, only one part of what is going on; technological innovation is another part. But all of this openness and disruption were supposed to make us richer, and the advanced countries could have introduced policies to ensure that the gains were widely shared. Instead, they pushed for policies that restructured markets in ways that increased inequality and undermined overall economic performance; growth actually slowed as the rules of the game were rewritten to advance the interests of banks and corporations – the rich and powerful – at the expense of everyone else. Workers’ bargaining power was weakened; in the U.S., at least, competition laws didn’t keep up with the times; and existing laws were inadequately enforced. Financialization continued apace and corporate governance worsened. Now, as I point out in my recent book Rewriting the Rules of the American Economy, the rules of the game need to be changed again – and this must include measures to tame globalization. The two new large agreements that President Barack Obama has been pushing – the Trans-Pacific Partnership between the U.S. and 11 Pacific Rim countries, and the Transatlantic Trade and Investment Partnership between the EU and the U.S. – are moves in the wrong direction. The main message of Globalization and its Discontents was that the problem was not globalization, but how the process was being managed. Unfortunately, the management didn’t change. Fifteen years later, the new discontents have brought that message home to the advanced economies. Project Syndicate
The failure of globalization to deliver on the promises of mainstream politicians has surely undermined trust and confidence in the ‘establishment.’
”
16 Business Daily Monday, August 8 2016
Closing Cyber theft
Hacked Bitcoin exchange users to receive tokens
accounts and assets,” the exchange wrote in a blog post on Saturday. “In place of the loss in each wallet, we are crediting a token labelled Hong Kong-based Bitfinex said all users will BFX to record each customer’s discrete losses.” lose 36 per cent of their deposits after the Efforts to reach Bitfinex were not immediately bitcoin exchange concluded its review of a successful. A representative of the exchange, US$71 million hacking attack. verified by Bloomberg, wrote on Reddit that To compensate its customers, Bitfinex said the 36 per cent loss “applies to all assets across users will receive tokens that may later be redeemed or exchanged for shares in its parent the site, so everyone.” The exchange previously said losses would only apply to users who company. either had bitcoin deposited at the exchange “After much thought, analysis, and consultation, we have arrived at the conclusion or who were in the process of lending U.S. dollars for margin trading. Bloomberg News that losses must be generalized across all
Reform impasse
Aussie AAA at risk spurs Treasurer to press on savings While Prime Minister had hoped that last month’s election would produce a more pliable parliament, the Senate now appears even more fractious than before. Benjamin Purvis
A
ustralia’s Treasurer Scott Morrison warned of risks to the nation’s top credit rating and urged opposition and minor party lawmakers to back plans aimed at curbing the budget deficit. Australia’s credit score “remains more generally under risk because of the impact of global parameters hitting our budget,” Morrison said in a television interview yesterday with Sky News. “It will be difficult to retain that rating under existing economic circumstances, and we’ll work very hard to achieve it, but what makes that job easier is passing savings that restore the budget to balance.” The government’s bid to repair public finances has been thwarted as the plunge in global commodity prices over recent years has hurt revenue and the end of the mining-investment boom has weighed on economic growth. Budget measures designed to improve the bottom line have also been stymied by lawmakers in the upper house of parliament.
outlook on Australia’s AAA sovereign score and said that “more forceful fiscal policy decisions” were needed. “There is a one-in-three chance that we could lower the rating within the next two years if we believe that parliament is unlikely to legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially and to be in a balanced position by the early 2020s,” S&P said on July 7. While Turnbull had hoped that last month’s election would produce a
more pliable parliament, the Senate now appears even more fractious than before. His Liberal-National coalition now holds 30 seats in the 76-member chamber, down from 33 before the poll, while Labour is on 26 and the Greens have nine. The number of other lawmakers has risen from eight to 11, including four aligned with anti-immigration firebrand Pauline Hanson and three for protectionist Nick Xenophon. Minor party and independent lawmakers combined with the opposition in the last term of parliament to block A$13 billion (US$10 billion) of savings measures, jeopardizing Morrison’s push to return the budget to surplus in about five years. Handing down his first budget in May, the Treasurer predicted that the annual deficit would shrink to A$37.1 billion in the
12 months through June 2017, although that was contingent upon a number of measures that remain blocked. Moody’s Investors Service said in May that “lacklustre” nominal growth presents a challenge for the government and warned that “a slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks.” Fitch Ratings has underscored the importance of a “credible fiscal consolidation strategy.” The country carries top credit ratings and a stable outlook from both firms. Credit assessors have made it clear that they’re looking not only at the government’s proposed fiscal trajectory, but also at whether the legislative measures needed are being passed, the Treasurer said yesterday. “The government can’t do that in isolation,” Morrison said. Should the Labour Party decline to provide backing for the government’s budget measures then “it’ll fall to the Greens, it’ll fall to the other crossbenchers,” he said. Bloomberg news
“The government can’t do that in isolation” Scott Morrison, Australia’s Treasurer
S&P warning
The recent election slashed Prime Minister Malcolm Turnbull’s majority in the lower house to just one, while in the Senate he will continue to be reliant on the votes of either the opposition Labour Party or minor party lawmakers to pass legislation. S&P Global Ratings last month lowered the
Australia’s Treasurer Scott Morrison
Moody’s view
Defence sector
Fandom
India’s implementation of CPI target to aid inflation fight
Beijing releases weaponry research project information
Pikachu parade as Japan goes Pokemon crazy
India’s decision to formally implement its central inflation target of 4 per cent can help moderate future price rises and support macroeconomic stability, Moody’s Investors Service said yesterday. The government last week notified parliament that it would introduce the target of 4 per cent, plus or minus 2 per cent, a key confirmation of the inflation-fighting policies championed by outgoing Reserve Bank of India (RBI) Governor Raghuram Rajan. Moody’s said an explicit target could help anchor price expectations and keep actual inflation at moderate levels. The government’s implementation was “credit positive” and underlined its commitment to controlling price rises, the ratings agency said. “Sustained moderate inflation would contribute to macroeconomic stability and help prevent a repetition of the short marked cycles of the past,” Marie Diron, Senior Vice President, Sovereign Risk Group, said in a statement. The 4 per cent inflation target for Asia’s third-largest economy, which has a history of volatile prices, is in line with the goal the government originally agreed with Rajan. India’s inflation rate has halved in the last three years, in part thanks to policies Rajan has overseen. Reuters
China has published information on military equipment research projects on an official weapon procurement website for the first time, to encourage competition in the formerly closed sector, the PLA Daily reported. The procurement bureau of the equipment development department under the Central Military Commission (CMC) and the armament departments of the Army and Navy have released over 800 projects that will receive a funding of 3.7 billion yuan (US$557.2 million). The military will continue to update the information on weain.mil.cn, which was launched in January 2015 in a move to open China’s defence sector to private enterprises and boost competition in military procurement. According to Lyu Bin from the website, the information has already clocked-up 300,000 visitors, and over 800 enterprises have sought further information at off-line consultation points in Beijing, Shanghai, Shenyang, Shenzhen, Chongqing and Xi’an cities. At present, the website has over 9,000 enterprise and institution users. It has issued over 2,000 piece of information on military procurement since last January. Xinhua
Hundreds of Pokemon Go fans gathered in Yokohama, southwest of Tokyo, yesterday to join an annual Pikachu parade as the global phenomenon soars in popularity. Some 50 life-size Pikachu characters, the most famous from the Pokemon game, marched along the city’s waterfront street as visitors took mobile phone pictures and videos of them in scorching sunshine. Some participants said they attended the event to search for rare characters of Pokemon - a word short for “pocket monster” - for the megahit smartphone app, which was launched last month globally. “I came here all the way to Yokohama, hoping to find different kinds of Pokemon characters,” said Teruko Fujisawa, a 45-year-old woman working at a trading house. The event had no direct link with the app, organisers said. Since its global launch, Pokemon Go has sparked a worldwide frenzy among users who have taken to the streets with their smartphones. The free app uses satellite locations, graphics and camera capabilities to overlay cartoon monsters on real-world settings, challenging players to capture and train the creatures for battles. AFP