Monday, August 22 2016 Year V Nr. 1113 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
2 Business Daily Monday, August 22 2016
Ng Lap Seng asked if former associate is a Chinese agent Graft Page 5
Monday, August 22 2016 Year V Nr. 1113 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Finance
www.macaubusinessdaily.com
Court
Fiscal surplus reaches MOP16 billion in first seven months Page 5
Infrastructure
Wynn to ‘vigorously defend’ itself in Dore gaming promoter case Page 6
HKZM bridge project border superstructure works to begin this quarter Page 4
Staying legendary Gaming
Despite an increase in net losses and declines in revenue, company chairman David Chow Kam Fai says he is bullish about the future of Macau Legend. The company reported a HK$175.3 million loss for H1, more than double that from the same period last year. The group is looking to its international projects in Portugal and Cape Verde, plus its newly signed agreement with the Lao government for the Savan Vegas complex, for future growth. Page 7
Taiwan shows optimistic mood raising economic growth outlook Page 11
Central bank
Too hot
India’s Prime Minister bets on reforms with new governor appointment Page 12
Retail Clothing retailer Bossini expects a positive profit surge of 157 pct y-o-y after making HK$267 million on the sale of its three-story Avenida do Infante D. Henrique property. Without the one-off sale however, the retailer would have seen a 75 to 85 pct decrease in profit for the first half of the year. Bossini notes weak consumer sentiment and less visitors, as well as unseasonably warm weather and intensified competition, as driving its revenue down for the period. Page 6
Accelerate into the future
Tesla is breaking into the local market with the first batch of its Model S arriving in the next two months. Isabel Fan, Regional Director of the car manufacturer says that the city has potential for electric vehicles, depending on policy support and charging solutions. Tesla EVs have a current range of 470km, meaning a single charge could last up to a month of driving in the SAR.
Should I stay or should I go?
Transportation Uber tells its drivers that it is facing ‘difficulties’ but does not admit or deny it is going to leave the city. Despite incurring MOP10 million in fines, its drivers facing increased police pressure, and comments by legislator José Pereira Coutinho that the company is leaving the SAR, the car hailing service says it still hopes to maintain its local presence. Page 4
Volatility control tools
HKEx The Hong Kong Exchange has announced a new system to limit the effects of extreme price swings on its stock market. The new tool will help to prevent so-called fat fingers and rogue algorithms from causing erroneous price swings, according to the market regulator. Page 9
Interview | Automobile Pages 8 & 9
HK Hang Seng Index August 19, 2016
22,937.22 -85.94 (-0.37%) Worst Performers
China Unicom Hong Kong
+3.43%
China Overseas Land &
+0.93%
China Shenhua Energy Co
Galaxy Entertainment Group
-2.74%
Kunlun Energy Co Ltd
+2.19%
China Resources Land Ltd
+0.92%
Sands China Ltd
-4.09%
Tingyi Cayman Islands
-2.44%
New World Development
+1.77%
Ping An Insurance Group Co
+0.86%
Swire Pacific Ltd
-4.03%
Cathay Pacific Airways Ltd
-1.94%
China Resources Power
+1.32%
Power Assets Holdings Ltd
+0.72%
Lenovo Group Ltd
-3.84%
China Merchants Port Hold-
-1.55%
Cheung Kong Property
+1.19%
Link REIT
+0.71%
Bank of East Asia Ltd/The
-2.99%
MTR Corp Ltd
-1.39%
-4.31%
26° 31° 26° 31° 26° 32° 26° 32° 26° 32° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
GDP
4 Business Daily Monday, August 22 2016
Macau Transport
Uber says it is trying to maintain operations in the city
Difficulties hard to overcome Legislator José Pereira Coutinho said the car hailing service is going to leave the city. The company does not admit nor deny this, but it is telling its drivers that “difficulties” need to be overcome. Kam Leong kamleong@macaubusinessdaily.com
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ar hailing application Uber told its driver-partners that it is trying its best to maintain operations in the Special Administrative Region, following news reports last week indicating that the mobile application-based service will leave the local market next month. “Regarding news reports about Uber’s operations in Macau, you should even more understand about the difficulties we are facing,” the company wrote to its driver-partners on Saturday, in a text message obtained by Business Daily. “We hope you understand that we are trying our best to overcome [the difficulties] so that we can continue providing services for you and passengers,” the text message reads, adding that the company will keep drivers updated when there is new information.
Last week, directly-elected legislator José Pereira Coutinho told two Portuguese-language newspapers that Uber is considering suspending its services in Macau at the beginning of September as it has been fined some MOP10 million (US$1.3 million) by the local police since the launch of the platform in the city last October. Contacted by Business Daily for comments on the news reports, the ride hailing service did not give a clear answer as to whether it is departing the local market or not. “We hope to continue to deliver convenient services for riders and economic opportunities to drivers who rely on the Uber platform every day, under an innovation-friendly regulatory environment without prohibitive fines,” the General Manager of Macau, Trasy Lou Walsh said. The operation of the company has been deemed illegal by local authorities since its launch. In the first seven months of the year, local police prosecuted 286 cases of unlicensed
DSEC
Tourists spending less in Macau Visitor expenditure dropped by 4.5 pct y-o-y in Q2. Annie Lao annie.lao@macaubusinessdaily.com
Total expenditure by tourists in the city during the second quarter, hit MOP11.7 billion (US$1.47 billion), a drop of 4.5 per cent year-on-year, as indicated by the latest data from the Statistics and Census Service (DSEC). The figure however indicates a 1.4 per cent increase from the previous quarter. Total spending by overnight visitors during the second quarter hit MOP9.29 billion, a three per cent year-on-year fall but a 4.9 per cent quarter-toquarter rise. Total spending by same day visitors decreased by 10.3 per cent quarter-to-quarter and 10 per cent year-on-year. Average per capita spending by visitors also dropped by four per cent during the quarter when compared with the same period the previous year, hitting MOP1,601. Meanwhile, average per capita spending by overnight visitors hit MOP2,543 – a 9.8 per cent drop year-on-year. Same-day visitor’s per capita spending dropped by 2.8 per cent year-on-year for the quarter, to MOP658 on average.
Visitors spending less
When looked at in terms of visitor
place of origin, the data shows that Mainland tourists spent the most in the city, with total spending reaching MOP8.88 billion, a 7.3 per cent yearon-year drop, while their average per capita spending amounted to MOP1,850 – a year-on-year decline of 4.5 per cent. The biggest source of the city’s tourists – Guangdong Province – saw its visitors to the MSAR spend MOP1,604 each on average, a drop of 3.2 per cent year-on-year for the period. Spending by visitors from Fujian Province – the second largest source of Mainland tourists to Macau – fell 31.1 per cent during the period, compared to last year, hitting a per capita average of MOP1,561. Those travelling under the Individual Visit Scheme from the Mainland, also spent less than during the same period in 2015, with average per capita spending amounting to MOP2,244 in the second quarter. Visitors under the long-haul category saw growth in per capita expenditure, particularly those from Taiwan, with a 12.7 per cent year-on-year increase, and Japan, with a 12.1 per cent yearon-year increase, amounting to an average of MOP1,548 and MOP1,731, respectively. Per capita spending by long-haul visitors from Australia decreased by 5.1 per cent year-on-year to MOP1,445 on average. Shopping accounted for 43.4 per cent of total visitor spending, with local food products being the main focus of visitor expenditure.
taxi services related to Uber, official data from the Public Security Police Force (PSP) shows. According to local laws, a fine of MOP300,000 will be imposed whenever unlicensed taxi service providers are caught. Up until now, Uber has covered such fines for its driver-partners when caught, in addition to other expenses for legal services.
Fiercer prosecutions
An Uber driver, who preferred to remain unnamed, told Business Daily yesterday that the authorities’ enforcement against Uber has become ferocious since May of this year. “I have been stopped by the police a total of seven times driving Uber, of which four times I was successfully prosecuted by the police,” the driver claimed, adding that he had also been stopped by the police three other times when he was driving with his family. The driver, who joined Uber as a part-time driver last December, said many Uber drivers believe that the mobile application is indeed considering leaving the local market. “We received the [aforementioned] message from Uber. And we do think they may leave. The departure of Uber from the local market, however, will bring bigger impacts to passengers, as the application has changed their life pattern - with many giving up their own cars and relying on Uber cars,” the part-time driver said. As of now, the company has not released any details regarding the number of drivers or passengers using the platform in Macau, however an editorial article written by its general
manager, published in this newspaper earlier this month, indicated that the company’s driver-partners in Macau have earned over MOP21 million via the platform. According to the driver, a chat group of Uber drivers on social media suggests that the mobile application has at least 500 driver-partners in the city, while he knows of some 20 full-time drivers. “We are quite calm about the departure news as most of us have our own jobs,” the driver said, adding that he supports the idea of the car hailing service being regulated in the city as it brings benefits to local passengers.
Gov’t stands firm
In July, the company petitioned the government, delivering 3,000 letters from local residents and tourists to the Secretary for Transport and Public Works, Raimundo do Rosário, as a way of starting a conversation on the legalisation of the application. The Office of the Secretary, however, did not back down after the move. “The government stressed that any establishment operating in Macau must obey local laws,” the Office said in an e-mail earlier this month, responding to Business Daily’s enquiry. “According to the laws, the carhailing application is not illegal, but it is illegal for the application to team up with unauthorised parties to provide taxi services,” it wrote. “The government would combat illegal activities in accordance with the law”.
HZMB
Superstructure for delta-bridge border starts this quarter The Infrastructure Development Office (GDI) says that the superstructure works for the Macau Border for the Hong Kong-Zhuhai-Macau Bridge will kick off within this quarter, after the foundation works for the project are finished later this month. ‘We are striving to complete the works at the same time as that of the whole bridge,’ the acting director of the
Office, Tomas Hoi, wrote in a reply to legislator Kwan Tsui Hang’s enquiry. The construction of the local border for the delta-bridge, which began in January of this year, is under the management of the Zhuhai authorities. GDI has said that the infrastructure would be completed based on local standards. The cross-region bridge is expected to open in late 2017.
Business Daily Monday, August 22 2016 5
Macau Public finance
Fiscal surplus down 41 pct as at July Kam Leong kam.leong@macaubusinessdaily.com
T
he SAR government posted a fiscal surplus of MOP16 billion (US$2 billion) for the first seven months of the year, plunging 41.4 per cent year-on-year, as total revenue continued its downward trend, reveals the latest updates to the central account by the Financial Services Bureau (DSF). Nevertheless, the surplus recorded for the seven months is 4.6 times higher than the government’s target of MOP3.5 billion for the whole year of 2016.
During the period, the government’s total revenue dropped by 14.2 per cent year-on-year to MOP55.5 billion. The decrease is due to gaming taxes - that accounted for 81.6 per cent of the total - falling by 12.8 per cent year-on-year to MOP45.3 billion, even though other direct taxes increased by 3.1 per cent year-onyear to MOP2.7 billion. In addition, indirect taxes received by the authorities dropped by 22.5 per cent year-on-year, amounting to nearly MOP2 billion during the seven-month period. The total revenue that the government has received for the year so far represents 60 per cent of the
budgeted annual revenue of MOP92 billion for 2016. Meanwhile, total expenditure amounted to MOP39.5 billion for the period, an increase of 5.8 per cent year-on-year. Of the total, MOP37.3
billion, or 94 per cent, was current expenditure, which grew by 6.6 per cent year-on-year. In addition, the government’s expenditure on investment plan (PIDDA) surged by 37.7 per cent year-onyear to MOP2.08 billion during the seven months, however the amount only accounted for 18.8 per cent of the budgeted MOP11.1 billion for the item for the whole year. On the other hand, total expenditure transferred to the Social Security Fund amounted to MOP9.5 billion between January and July this year, down by 6.9 per cent compared to MOP10.2 billion for the same period last year.
Graft
Ng Lap Seng asked if partner was a Chinese agent The local businessman said he did not know. Local billionaire Ng Lap Seng was questioned by the Federal Bureau of Investigation (FBI) of the United States last year, as to whether one of his partners was a Chinese agent, Reuters reports. Last Fall, the real estate developer and his assistant, Jeff Yin, were charged by U.S. authorities with bribing John Ashe, who was an ambassador of Antigua and Barbuda to the United Nations General Assembly from 2013 to 2014. According to the news agency, the lawyers of the businessman filed a
transcript of an interview the FBI conducted with Mr. Ng, with a federal court in Manhattan last week. In a motion, the lawyers noted that FBI
agents questioned if Mr. Ng knew whether his business associate, Qin Fei, was a Chinese agent or had contact with Chinese intelligence. The businessman responded that Qin was a partner at his UN-focused news outlet South-South News, which was allegedly used for funnelling money to Mr. Ashe. He added that Qin was also a consultant at his company in Macau, Sun Kian Ip Group. Earlier this month, the Associated Press reported that lawyers for the 68-year-old businessman claimed that the charges against Mr. Ng were politically motivated, and were a way of preventing him from building a major UN conference centre in the
Special Administrative Region. The lawyers added in the papers filed to the court that the U.S. government’s motives in charging the billionaire were demonstrated in its classified documents and its focus on whether his partner was a Chinese agent. The property developer is alleged to have given Mr. Ashe over US$500,000 (MOP62,500) in bribes, for the now-deceased official to seek support from the UN to build a conference centre in Macau, which was to be developed by his company. The former UN official, however, was found dead at the end of June from injuries resulting from lifting a barbell while he was on a weight bench. Mr. Ng and his assistant, who have both pleaded not guilty, will face a federal trial on January 23 next year.
6 Business Daily Monday, August 22 2016
Macau Opinion
Sheyla S. Zandonai Trade ambassadors The 2016 edition of the Latin American Cultural Festival was launched last Friday. Organized by MAPEAL, the Macau association for promoting trans-Pacific exchange between Asia and Latin America, the festival brings to the city a series of events that will appeal to many different senses: food, movies, talks and books. MAPEAL’s vocation lies in fostering commercial partnerships through iterating dialogue and the promotion of cultural and artistic expressions. In a world in which businesses continue to be mediated by laws, language, and ways of acting which are culturally-rooted, this is rather welcomed, for the landscape is still rife with misunderstandings. Under the pressures of economic competition, MAPEAL’s agenda is somewhat counter-current and yet entirely apposite to sustainable interaction in a diplomatic vein. The origins of modern diplomacy lie in the development of thriving economies: the Italian city-states. Think Marco Polo, the Venetian merchant who descended from a family of traders. His empirical knowledge of Cathay and proficiency in Chinese drew him into service at the Khan court. France perfected modern diplomacy under Louis XIV. The French King was a pioneer in acknowledging the political value of “culture” by exporting arts and intellectual knowledge as a strategy to increase France’s international influence. To be sure, a man who came to be known as the Sun King had a propensity for conceitedness, to say the least, yet he was a man of vision. Today, France’s worldwide reputation owes much to the maturation of its cultural diplomacy. The persistence of French as one of the main diplomatic languages – although French-speaking countries have a lower demographic representation than English, Chinese, Portuguese, and Spanish-speaking countries – reflects its history as the global diplomatic language for over a century. It is a position that was only acquired through longterm investment and hard work. Although diplomats are being increasingly trained more as technocrats – losing some of the patrician aura of old-school foreign affairs representatives – language acquisition and above-average historical, geopolitical, and cultural knowledge are still vital competencies in trade and politics. And because the strengthening of economic ties seems to go hand-in-hand with intercultural understanding, people and groups acting as ambassadors of culture for trade are crucial to the task. Diplomacy is, after all, the art of not making war. Something at which Macau has set the example for centuries. In encouraging cultural exchange and diversity, MAPEAL sticks to one of the roles the city performs best.
Sheyla S. Zandonai is a scholar and contributor to this newspaper.
Retail
Disposal of local property boosts Bossini’s H1 profit Kam Leong kam.leong@macaubusinessdaily.com
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lothing retailer Bossini Holdings Ltd. expects its net profit to surge by up to 157 per cent year-on-year for the first half of the year, despite the company having posted a notable decrease in revenue from its Hong Kong and Macau markets, it told the Hong Kong Stock Exchange last week. ‘[The increase] was mainly due to a gain of approximately HK$267 million (US$33.2 million) on the disposal of property and leaseback arrangement recognised in profit and loss of the Group for the year ended 30 June 2016,’ the retailer explained in the filing. This refers to the company’s three-storey property in Avenida do Infante D. Henrique on the Macau Peninsula, which is currently one of its retail stores in the city. In March, the company announced its intent to sell the property to investment holding company Deep
Thought Investment for a consideration of HK$350 million, claiming the disposal ‘gives a good opportunity to realise its investment with considerable gain’. Nevertheless, the retailer added in the filing last week that the group would have registered a decrease in interim net profit of 75 per cent to 85 per cent for the period, if the aforementioned gain had not been included. ‘Such expected decrease in profit was mainly caused by the significant decrease in revenue and gross profit attributable to less visitors and
strong Hong Kong dollar, which led to less consumption from them in Hong Kong and Macau,’ the company wrote. It added that weak local consumer sentiment, unseasonably warm winter weather and intensified competition in several core markets where the Group operates, had also driven down its total revenue for the period. For the first half of 2015, the retailer’s net profit plunged by 84 per cent year-on-year to HK$14 million, while total revenue fell by 12.9 per cent year-on-year to HK$1.15 billion.
Courts Wynn faces lawsuits over Dore junket case
Wynn Macau discloses lawsuits Complaints made to the Macau police from those claiming to be investors in the cage operations of Dore Entertainment amounted to at least HK$520 million (US$64.7 million). Joanne Kuai joannekuai@macaubusinessdaily.com
Wynn Macau has been named a defendant in several lawsuits filed in the Macau Court of First Instance by individuals who claim to be investors in, or persons with credit in, accounts maintained by Dore Entertainment Company Limited, an independent, Macau registered and licensed company that operates a gaming promoter business at Wynn Macau. The information was included in Wynn Macau’s unaudited interim
report for the six months to June 30, filed with the Hong Kong Stock Exchange after trading hours on Thursday. As of October last year, following a preliminary investigation, the Judiciary Police (PJ) revealed that the theft of cage capital from local junket operator Dore Entertainment Ltd. involved at least HK$520 million (US$64.7 million). It was reported at the time that the estimate was made based on 49 police reports filed in the case. Secretary for Security, Wong Sio Chak said at the
time that the investigation into the case was complicated as it involved a certain number of people and large amounts of money. However, he claimed that the investigation was on-going, indicating that the police would announce more information when there was progress.
‘To vigorously defend’
‘In connection with the alleged theft, embezzlement, fraud and/or other crime(s) perpetrated by a former employee of Dore, the plaintiffs of the lawsuits allege that Dore failed to honor withdrawal of funds requests that allegedly has resulted in certain losses for these individuals,’ notes the company’s filing. The filing states that the principal allegations common to the lawsuits are that Wynn Macau’s subsidiary Wynn Resorts (Macau) S.A., as a gaming concessionaire, should be held responsible for Dore’s conduct on the basis that Wynn Macau was responsible for the supervision of Dore’s activities at Wynn Macau that resulted in the purported losses. The Company made a voluntary announcement in connection to the Dore incident on 14 September 2015. ‘The Company has sought advice from counsel in Macau, and based on such advice, the Company believes the claims are devoid of merit and are unfounded,’ reads that filing. ‘The Company intends to vigorously defend Wynn Resorts (Macau) S.A. in the lawsuits. The lawsuits are only in the early phases of litigation.’
IT
Sheraton and St. Regis feature a new IT tool for event planning In another move to attract event planners and boost the city’s MICE (meetings, incentives, conferences and exhibitions) industry, Sheraton Grand Macao and The St. Regis Macao at Sands Cotai Central have launched a new mobile tool called eVent Portolio. The tool provides event planners, event managers and clients a centralized web-based platform to collaborate, by streamlining their event-planning process and reducing the carbon footprint for event planners, according to an article published by MICE BTN AisaPacific, an Australia publisher, last Thursday. In addition, 4,400 rooms from
the two hotels will soon provide phone devices to their customers for
unlimited local voice calls and data access in Macau, the report states.
Business Daily Monday, August 22 2016 7
Macau
Gaming Signing ceremony held for Savan Vegas acquisition
Macau Legend net loss more than doubles in H1 Despite an increase in net loss and declines in revenue, company chairman David Chow Kam Fai says he is bullish about the future of Macau Legend. Joanne Kuai joannekuai@macaubusinessdaily.com
H
ongKong-listedhoteland casino operator Macau Legend Development Ltd. reported a HK$175.3 million (US$22.6 million) net loss for the first half of 2016, more than double the HK$68.4 million loss in the same period last year, according to a filing of its financial results for the first half of the year with the Hong Kong Stock Exchange, published last Thursday.
Savan Vegas acquisition signing ceremony held in Laos Macau Legend and the Lao government have signed agreements on project development, asset purchasing taxation, and land leases. A signing ceremony was held last Friday in Vientiane, the capital of Laos, according to a report by Chinese news outlet Macao Daily. The company says the signing of the agreements marks the official acquisition of the Savan Vegas complex in the Savannakhet province in Laos. The agreements will come into effect starting next month. The tax agreement stipulates that when operations begin, Macau Legend will pay annual taxes of US$10 million (HK$77.5 million) to the local government. On 13 May 2016, the Company reached an agreement with the
Revenue totalled HK$666 million during the period in review, down 4.6 per cent from the figure posted for the same six months of the previous year. Macau Legend attributed the poorer results, when compared to what was generated last year, to the challenging environment in Macau. The company currently manages two integrated hotel and casino companies in the special administrative region - the Landmark Macau and Macau Fisherman’s Wharf. The casinos are operated under the casino licence of Macau
Lao government to pay US$42 million (HK$325.9 million) for the right to operate a casino hotel in Laos known as the Savan Vegas Hotel and Entertainment Complex. The deal also includes the right to a 50-year monopoly on casino operations in three Lao provinces including the one where the resort is located. The Group obtained the approval for the acquisition of the Savan Vegas casino hotel from the shareholders of the Company at an extraordinary general meeting of the Company held on 18 August 2016. According to Macau Legend, the Savan Vegas complex includes gaming amenities with 92 tables and 493 slot machines, along with a 472-room hotel, convention facilities, restaurants, bars, spa services and shops.
gaming operator SJM Holdings Ltd. Adjusted EBITDA [earnings before interest, taxation, depreciation and amortisation] for the period amounted to HK$46.6 million, down 63.7 per cent year-on-year. Loss attributable to company owners totalled HK$175.3 million. The operator said that it was mainly affected by a decline in revenue from mass market gaming tables, as well as by outsourced VIP tables at its Pharaoh’s Palace Casino. A drop in interest income from fixed deposits was also believed to have contributed to the overall loss.
Self-managed VIP
Macau Legend generated gaming revenue of HK$419.4 million during the six months ended June 30, 2016, down 6.8 per cent year-on-year. Revenue from mass market tables at the operator’s Pharaoh’s Palace Casino was down 14.2 per cent to HK$265.4 million. Babylon Casino generated total revenue of HK$60.8 million during the period in review, reflecting an 18.4 per cent increase from the prioryear period. Pharaoh’s Palace Casino’s outsourced VIP tables contributed HK$10.5 million to the overall figure posted, down 53.8 per cent year-on-year. New Legend, a self-managed VIP operation of Macau Legend, generated HK$51.9 million at Pharaoh’s Palace Casino, up 4.8 per cent year-on-year, and HK$26.3 million at Babylon Casino, up 107.6 per cent. R ev e n u e f r o m n o n -ga m i n g operations amounted to HK$246.6 million, reflecting a 0.7 per cent decrease from the prior-year period.
Looking overseas
On 7 July 2016, the Group also entered into a memorandum of
understanding with the Setúbal Municipality in Portugal for the proposed development of an integrated leisure, tourism and entertainment project. The first phase of this project is said to include a hotel, a shopping area, a residential area, a marina, a parking lot, a new multi-sport pavilion and a gaming arcade with slot machines. In February this year, the Company began construction of a 250 million euro casino resort on the African island nation of Cape Verde. The lease on the designated land for Project Cape Verde is 75 years. The Group has been granted a 25-year gaming concession on Santiago Island, the largest island of Cape Verde. The filing also indicates that the Macau Legend shareholders– in an extraordinary general meeting last Thursday – approved the agreement to acquire the Savan Vegas complex in Laos. Meanwhile, an entity that claims to be backed by a global casino operator, said it also had submitted an offer to acquire the casino hotel.
Bullish on the future
Despite the increase in net loss and decline in revenue, company chairman and chief executive David Chow Kam Fai said he was bullish about the future of Macau Legend. “The past two years was a very challenging environment in Macau. The economic situation in China negatively impacted both the gaming and non-gaming businesses in Macau. Over the past two years, the revenue from the VIP segment of the gaming business in Macau has consistently decreased, and inevitably the outsourced VIP operators at the Pharaoh’s Casino have experienced difficulties too,” David Chow, Chief Executive Officer of Macau Legend, said in a statement. “However, we are confident that improvements will be apparent once the second new hotel at Macau Fisherman’s Wharf is opened, The Landmark Macau is sold and our overseas project in Laos commences operations.”
8 Business Daily Monday, August 22 2016
Macau
Interview Tesla regional director sees the MSAR as the perfect city for electric vehicles
Charging the city
American electric car manufacturer Tesla recently announced the opening of its first charging station in Macau at Studio City, while the first batch of Tesla Model S will arrive in the territory in the next two months. Business Daily talked to Isabel Fan, Regional Director of the manufacturer for Hong Kong, Macau and Taiwan, to know more about the MSAR’s potential for electric vehicles (EVs), what Hong Kong has done so far in the EV area, how the HKSAR acts as an example for Macau, and what electric has to do to beat petrol. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hy has Tesla only now decided to enter the Macau market, given its lengthy presence in Hong Kong? For us we can’t just arrive and open a store. The whole backbone has to change; hundreds of people have to focus to support the new market. Macau is a market we really want to cover to complete the Greater China coverage. We have the resources and the experience from Hong Kong, since the Tesla Model S has been present in Hong Kong since July of 2014. Before that period we had the Tesla Roadster, but there were only 40 of them on the road since it was a limited production. Macau is a stand-out market from Hong Kong, and I believe it is a perfect city for EVs [electric vehicles]; there’s a lot of potential here. How would you describe that potential? There’s a lot of government support. The market might not be there yet; it needs the industry, better education, and information sharing on EVs so everyone can take advantage. Hong Kong has a tax waiver for first EV car registration, and Macau too, which is good for consumers. Tesla is seen as a more high-end option. How would you sell it to the Macau
public? I don’t consider Tesla a high-end option. The current products are in the luxury sedan and SUV area. The Model S is the medium level production vehicle, and our goal now is to produce the Model 3, which we announced a few months back to cover the mass market. Its price will be half that of the Model S. That’s the long-term goal.
“Macau is a stand-out market from Hong Kong and I believe it is a perfect city for EVs [electric vehicles]; there’s a lot of potential here.”
We’ll start production in 2017, delivery for the North American market in the end of that year. The right-hand driving market will maybe be reached in 2018. What are the challenges for electric vehicles entering a market? For any new technology wanting to enter a new market, in order to be successful you need two things:
a great product and policy support. Our company is only a 13 years old and in the auto industry many brands for internal combustion cars have 80 or 100 years of history. It will take a while and we want to set the example. Our CEO, Elon Musk wants more people in the industry to sell EVs and for consumers to have more choice in order for more people to switch from internal combustion engines, so he has opened up all the Tesla patents for the industry to leverage. Since we spent so much time with research and development, we think this way the industry can move faster. The other half of the problem is charging solutions. And in that Tesla is quite unique because we own the solution and we try to implement them practically. However we don’t have control over policy, we don’t own the land and we don’t run the utilities. We own the technology and we can install it if all parties work together. But we need the whole industry to cooperate, more EV players in the market and
Business Daily Monday, August 22 2016 9
Macau
“For any new technology wanting to enter a new market, in order to be successful you need two things: a great product and policy support.”
government and utility companies to make it a viable business. How was the reception to Tesla in Macau after the website started operating last year? After we opened the Tesla website last year, the reception was very positive. EV is a new technology with people needing a lot of education about it, and we will need time to build some infrastructure. Also we try to tweak the products a little bit: what we sell in North America will be different from what we sell in Hong Kong or Macau. It’s a build-to-order model where we can customise the orders; very different to the other auto companies, where they just sell what they have. The reason for opening the website before the cars arrive is so you can consider and study the models a little bit and change them to fit your own needs. People can change the user interface, language, charging ports and voltage. Apart from government support, what other advantages does Macau have for EVs? The Macau people have great forward thinking. And the entertainment and hospitality industry here will need vehicles. In Macau, there are often pollution and congestion issues, with so many cars on the road. If there’s a choice I don’t think people will stop buying vehicles, and I think Macau is perfect for EVs. Tesla has very sophisticated technology. Our current car has a total range of 470km, depending on the battery you purchase, and in Macau the daily driving distance of many of my friends is around 10km, so essentially you can
Tesla Gigafactory
In order to reduce waste and capitalize on economies of scale and new manufacturing techniques, Tesla has created the Gigafactory outside Sparks, Nevada, U.S.A, to produce batteries, with cell production expected to kick off next year. The factory should reach full
charge once a month. It’s one of the reasons why Hong Kong became so big for Tesla. It will need sufficient charging infrastructure, enabling accessibility and convenience in order for people to charge when they go out. Sometimes it can take a while to charge, so this way is the best way to provide a good user experience.
don’t have estimates for Macau but we’re very optimistic about the upcoming momentum for the city. You’ll see.
What changes are normally needed in order for a city to be able to accommodate EVs? More EV charging infrastructure in car parks; government installed public charging; and utility company support in order to enable older buildings to have power so that owners have sufficient power for their home chargers.
Any plans to bring the Powerwall home battery to Macau? Definitely, but there’s no deadline yet since our Tesla Gigafactory only opened on July 29. We will produce market support for North America first, and so far I don’t know when it will reach this region, but there’s been a lot of enquiries and demand for it the region.
How does the Tesla charging system work? The home chargers are very important for supporting the charging solutions, with people being able to charge at their homes and offices, charging them like an iPhone in their downtime. The number of hours a medium home charger takes to charge depends on the power source; maybe in one hour you can have enough charge for 40km or 80km. The supercharger can fill half of the battery in 20 minutes and needs one hour for the full charge. Batteries are produced by us and by Panasonic, and different sizes have different ranges too.
How many Tesla vehicles currently exist in Hong Kong? Right now I believe there are around 5,000 EVs total on the road - with Tesla composing the majority of them - using around 54 superchargers we have implemented in 12 locations and 104 middle chargers installed in malls, public car parks and commercial buildings.
So how many charging stations do you think Macau will need to install? We don’t have a cap for charging stations. We invite any party wanting to work with us, whether they want to install a charging station for others or for their internal fleet. That will happen in Macau: where companies will buy EVs for their internal fleet to support their services. And every buyer will already have a charger they can install at home like installing an air conditioner. The Macau government also has a plan to install chargers in public car parks, so they actually have a short-term plan and a long-term plan. Within a year they plan to install 50 chargers in 10 locations and 400 in four years. And this is a trend that has been seen around the region, in Mainland China and Hong Kong. There are also Tesla charging stations in Zhuhai. Why did you pick Studio City as the installation location? Studio City wants to support sustainable energy and before we approached them they already had that policy. Have you approached other gaming operators? We’re being reached [out to] by other parties [to] consider how to support the industry and the market, but right now I can’t announce anything. Are there plans to install chargers on government-owned land in Macau? Currently no, since the government already has plans to do so and Macau is a small city. Most chargers will be installed by Tesla Model S [owners] in their homes. When will the first batch of Tesla Model S be available in Macau? We’re still awaiting authorisation from the government to deliver them. It’s an inevitable process that will be done soon. I think the first delivery will take place in the next month or two. Do you have any estimates for how many Tesla Model S will be sold in Macau? Tesla usually doesn’t do these kinds of forecasts. We prefer to focus on people’s needs for charging and invest in that. We
capacity by 2020. Annually, the factory expects to reduce the cost of the company’s battery packs by over 30 per cent, as well as claiming to be able to produce as many batteries per year as were produced in 2013 worldwide. The factory aims to achieve net zero energy by using renewable energy sources.
How about in terms of job creation in the city? Everyone we hire is a local, to build local sales, I.T. and charging infrastructure. Right now it is a small team but it will definitely increase.
Was it hard to negotiate with the government and local businesses to install the stations? In Hong Kong, we negotiated a lot and tried to work together with the government and private sector. We tried to get feedback on how to build
Tesla Powerwall
The Powerwall is a lithium-ion battery made by Tesla that charges using electricity primarily generated from solar panels and which can power a household at night. A
better coverage and how we could help the industry. Would you say Hong Kong is Tesla’s most successful market? I would say Hong Kong has the highest density of chargers. As a city, Tesla is doing pretty well there and Hong Kong is on the path to becoming the best city for EVs in the world. In term of success, we’re doing very well in China; we have major coverage in all the Tier 1 to 2 cities. We even have enough coverage that you could drive a Tesla from the south of China to Tibet. Why do you think Tesla has become so successful in Hong Kong? Well, again, forward thinking people, readiness of the infrastructure and government support, not just for Tesla, but for any EV, which they implemented over 10 years ago. When you have the right product in the market and people love your technology, then they’ll enjoy it. EV is just a part of Tesla, but at the same time we do intelligent vehicles, since sometimes people don’t want to compromise their lifestyle just to be green, they want the total experience. How do you see Asia in general as a market for EVs? With Hong Kong setting an example for the region and the world, I think Asia will be very important for EVs. Elon Musk sees the world as a whole, but this region definitely has his attention.
7kWh Powerwall model retails for US$3,000 (MOP23,958) with an installation price of around US$500, however full production is not expected until the Tesla Gigafactory is completed.
10 Business Daily Monday, August 22 2016
Greater China In Brief WHO
Mainland over-reliant on hospitals China’s healthcare system is overly reliant on large, over-burdened hospitals, which will struggle to cope with a spike in diseases linked to the fast-ageing population, the World Health Organization said on Saturday. Even for minor ailments, Chinese patients often shun family doctors or general practitioners in favour of big city general hospitals, a trend that creates often snarling queues and fierce competition for treatment. “As China’s health challenges ... continue to mount, with an aging population, so too will the demands on the country’s health system, along with the costs,” WHO China representative Bernhard Schwartlander said in a commentary. Bid blocked
State Grid expresses regret over Australia rejection State Grid Corp of China expressed “deep regret” on Friday after Australia formally blocked the A$10 billion (US$7.6 billion) sale of Ausgrid to Chinese bidders on security grounds. State Grid said it had followed regulations set by Australia in its bid and met all the bidding requirements. Australia’s Treasurer Scott Morrison, who must approve major foreign investments, formally blocked the sale earlier on Friday to preferred bidders State Grid Corp of China and Hong Kong’s Cheung Kong Infrastructure Holdings. The state of New South Wales will now re-start the tender process for the grid’s majority stake. Internet litigation
Baidu sues Tencent, Sohu Baidu Inc. is suing fellow internet giants Tencent Holdings Ltd. and Sohu.com Inc. over a spate of articles that purported to expose poor hygiene at restaurants featured on its food delivery service. Baidu accused Tencent and Sohu of carrying a series of articles defaming its Waimai service earlier this year, according to a notice posted on the official website of Beijing’s Haidian district court. The articles reported, among other things, the washing of vegetables in toilets, according to the court’s notice. Baidu is demanding that Tencent and Sohu suspend and hand over information on social media accounts linked to the reports. Telecom
Operators to scrap roaming fees China’s major telecom operators have announced plans to cancel domestic roaming charges as they are instead turning to 4G services as a major source of profit. China Mobile Communications Corp, the country’s largest telecom operator, recently said they will stop charging domestic roaming fees by the end of this year. Since July, they have stopped selling new service packages that include domestic roaming charges on cross-province phone calls. Mobile users are currently charged 0.6 yuan (9 cents) to 0.8 yuan per minute for the roaming service under different payment schemes.
State owned enterprises
Secret lists of domestic zombie borrowers leave banks in the dark A key question is how the overhaul of stateowned enterprises will impact banks already reeling from the highest badloan levels since 2005.
T
here’s a list Ni Baixiang, h ea d o f I n d u st r i a l & Commercial Bank of China Ltd.’s Jiangxi branch, would love to get his hands on. Commonly referred to as the “zombie list,” it’s compiled by Jiangxi regional authorities and holds the names of the most deadbeat of borrowers: state-owned enterprises (SOE) deemed too weak to survive and destined to be wound down. In short, the kind of companies banks already weighed down by rising bad loans want to steer well clear of. Only, neither Ni nor his competitors in Jiangxi are allowed to know who they are. “They won’t tell us because if we know, we’ll lose confidence,” Ni, whose bank is China’s largest, told reporters after a press briefing in Beijing earlier this month. Ni’s dilemma underscores the challenge China faces as it tries to stem a tide of bad loans while carrying out an orderly restructuring of a state corporate sector burdened by overcapacity and bloated bureaucracies. Several provincial governments are withholding information on zombie borrowers from banks for fear that they’ll cut off financing immediately, according to officials who asked not to be identified.
Economic shift
In several provinces, governmentcompiled lists of zombie companies are also kept secret from local banking regulators, the people said, asking not to be named discussing sensitive information. The local branch of the National Development & Reform Commission declined to comment. Knowing which state-owned companies get the “zombie” designation can be crucial for bankers because authorities ultimately decide whether they’ll fail, and local officials often meddle in banks’ lending decisions. An economy growing at the slowest pace in a quarter century is adding urgency to President Xi Jinping’s push to steer China away from the investment-led model it’s relied on in the past. A key part of that is restructuring industries saddled with
overcapacity, such as steel, cement and coal. McKinsey & Co. estimates that shedding surplus industrial capacity could add US$5.6 trillion to the economy between now and 2030.
Banking impact
At the same time, the shift has made some provinces reliant on those sectors vulnerable to slowing growth and joblessness. Jiangxi, for example, plans to shut down 205 coal mines and suspend approving any new coal projects over the next three years. The region’s bad-loan ratio is above the nationwide average and banks there are becoming reluctant to lend. A key question is how the overhaul of state-owned enterprises will impact banks already reeling from the highest bad-loan levels since 2005. Many banks’ financial health is intimately tied to that of SOEs because they’ve spent decades lending predominantly to such entities. “Local governments and banks have very different interests,” said Harrison Hu, Singapore-based chief greater China economist at Royal Bank of Scotland Group Plc. “There’s no clear solution to satisfy both. The opaqueness creates significant risks for the whole system.”
“The opaqueness creates significant risks for the whole system.” Harrison Hu, Singapore-based chief greater China economist at Royal Bank of Scotland Group Plc. Plans to reform state-owned c o m p a n i es c o u l d l ea d t o a n additional 1.2 trillion yuan (US$181 billion) of loans turning sour, China International Capital Corp. estimated in March. For creditors, including banks and bondholders, the prospect of defaults makes it important to gauge the level of support such firms may get from the government. Keeping the identities of zombie companies from banks could compromise Xi’s economic reform blueprint because capital won’t be allocated efficiently, said He Xuanlai, a Singapore-based analyst at Commerzbank AG.
Working together
Some regional governments are more open to sharing information. In eastern Zhejiang province, the
local bureau of the China Banking Regulatory Commission (CRBC) said in March it’s working together with authorities to compile such a zombie list and formulate plans for those companies to “exit” the market. The regulator said mergers and restructurings are preferred over bankruptcies. Not all provincial-level governments compile lists of zombie companies, the people said. On a national level, officials are debating how to deal with ailing SOEs. Ma Jun, chief economist of the central bank, wrote this month that China’s corporate debt is high by international standards and the government should reduce leverage by cleaning up zombie companies and implementing debt-to-equity swaps. The National Development & Reform Commission cautioned in June that deleveraging must be gradual to limit risks. The body, which supervises everything from national and regional economic planning to infrastructure investment, said zombie companies should be allowed to go bankrupt while enterprises that have good prospects, but face short-term difficulties to refinance debts, should get government support.
‘Severe situation’
Jiangxi province, where the nonperforming loan ratio among banks reached 2.5 per cent last year - 0.83 percentage point above the national average - is facing a “severe situation” as lenders grow reluctant to extend credit, the CBRC’s local bureau said at the same Beijing briefing where ICBC’s Ni spoke. The local banking regulator, which has been unable to get information about deadbeat borrowers from Jiangxi authorities, has compiled its own zombie list, according to a person with knowledge of the matter. In addition, banks there have worked with the CBRC to set up creditor committees to make sure good companies get support and those in difficulty are “kept stable,” while “zombies” are let go in an orderly way, the regulator’s local branch said at the briefing. The committees cover 365 enterprises that together have almost 250 billion yuan in outstanding loans. That mechanism has been key in avoiding a panicked withdrawal of credit, according to Ni. “We are often finding ourselves in a situation where someone screams all of a sudden and all banks, including ICBC, run for the door,” Ni said. “And the company kicks the bucket.” Bloomberg News
Business Daily Monday, August 22 2016 11
Greater China Stock markets
Hong Kong Exchange to start volatility control system The controls will in the fourth quarter be expanded to include eight index futures contracts. Eduard Gismatullin
Hong Kong Exchanges & Clearing Ltd. (HKEx) is introducing a measure designed to help deal with extreme price swings on its stock market. The company will roll out a volatility control mechanism for its largest securities from today. The system will restrict a stock from moving more than 10 per cent during a five-minute period once a session. The new tool will help to stop so-called fat fingers and rogue algorithms from causing erroneous price swings, according to the market regulator.
“If it restricts the wild things then it’s great,” said Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong. “As long as it doesn’t become intrusive, then it’s not a bad thing, because it does give that moment for the market to readjust.” The new mechanism will be triggered if a stock climbs or drops 10 per cent from the last traded price five minutes ago. That would be followed by a five-minute cooling-off period
during which the assets can trade only within a prescribed band. The plan for the new mechanism prompted structured products market makers to ask the exchange earlier this year to relax requirements for providing instantaneous quotes, said two people familiar with the discussions. Structured products, such as warrants and callable bull/ bear contracts, had turnover of about HK$334.2 billion (US$43 billion) on HKEx last month, equal to more than a third of equities trading. The exchange “has dialogs from time to time with various market participants, including product issuers,” a spokesman said by e-mail declining to provide more details. “HKEx will continue to work with market participants to enhance their understanding of the possible impact on liquidity provision when there is a
volatility control mechanism event.” The controls will in the fourth quarter be expanded to include eight index futures contracts, according to the exchange. The volatility control may help minimize sudden swings in stock prices, but will not stop trading in a stock or derivative for the day. BYD Co., a Chinese electric-car manufacturer, fell as much as 12 per cent on January 7 in Hong Kong trading and closed 10 per cent lower from the previous day after it was downgraded by Morgan Stanley. June 24 was the most volatile trading session for the Hang Seng Index, Hong Kong’s equity benchmark, in a year. The index fell as much as 5.8 per cent and rose as much as 0.8 per cent in the aftermath of the U.K.’s vote to leave the European Union.
Australia, adding to Brazil’s current allure. Brazilian Mines and Energy Minister Fernando Coelho has repeatedly said he has “no prejudices” against Chinese takeovers. Latin America’s largest economy has become State Grid’s No. 2 M&A destination since 2010, accounting for 23 per cent of the US$20.1 billion it spent on acquisitions during that period, Thomson Reuters data showed. Brazil acquisitions represented 15 per cent of Three Gorges’s US$27.8 billion worth of M&A deals in the same period. CPFL will offer State Grid a springboard to expand further in Brazil’s power generation, transmission and distribution sectors, according to analysts. The power conglomerates’ shopping
spree also represents a boon for Chinese suppliers to the industry that are struggling with a domestic slowdown, executives and analysts said. Brazilian electricity assets expected to go on the block after years of heavy borrowing and a two-year recession include Geração Paranapanema SA, being sold by Duke Energy Corp, and a stake in Renova Energia SA, a large renewable energy producer. Often seen as resilient during downturns, the industry is struggling with declining electricity consumption and the highest borrowing costs in nine years. “It’s evident that these Chinese companies would be willing to temporarily accept some sub-par returns on their purchases ... but be sure that they are not going to overspend,” Upside Finance’s Gargiulo said. Reuters
Bloomberg News
“If it restricts the wild things then it’s great” Andrew Sullivan, managing director for sales trading at Haitong International Securities Group
The change comes about a month after the bourse started a closing auction for the first time in seven years after completing a market consultation last year. The new volatility control will be similar to the models used by the Singapore Exchange Ltd. and Tokyo Stock Exchange.
M&A
Mainland power conglomerates becoming dominant forces in Brazil Latin America’s largest economy has become State Grid’s No. 2 M&A destination since 2010. Luciano Costa
Chinese power conglomerates are gradually becoming the dominant force in Brazil’s electricity industry, where high debt, a harsh recession and less stringent takeover barriers than in other major markets have stoked a wave of acquisitions. Since the start of 2015, Chinese companies have been the protagonists in three of the six largest announced electricity mergers in Brazil, according to Thomson Reuters deals intelligence data. The number is poised to grow significantly in the coming months as debt-laden targets speed up their sale for prices and conditions deemed as attractive by the Chinese. Still, growing appetite does not mean State Grid Corp of China, the world’s largest utility, or other Chinese peers will overpay for Brazilian assets, said Humberto Gargiulo, president of Upside Finance, which advised State Grid in prior bids for Brazilian transmission lines. On July 1, State Grid agreed to buy
construction conglomerate Camargo Correa SA’s 23.6 per cent stake in CPFL Energia SA for 5.9 billion reais (US$1.8 billion). State Grid will have to extend the same offer to CPFL’s remaining shareholders, which might quadruple the deal’s value. The CPFL deal has helped re-price Brazilian utilities’ shares, which this year have gained 49 per cent after almost four years of declines. Likewise, China Three Gorges Corp is analysing a number of assets up for sale, people with direct knowledge of the situation told Reuters. No move is imminent, the people said, because Three Gorges wants to carefully assess the implications and value of any deal. “There are multiple opportunities and potential purchases that we are analyzing ... we want to become a relevant player,” Li Yinsheng, the chief executive officer of the local unit of Three Gorges, the world’s largest hydroelectric power producer, told Reuters in an interview, without elaborating. The stampede of Chinese investment into Brazil’s beleaguered power industry underscores efforts by the world’s No. 2 economy to seek new sources of growth overseas. Proposed Chinese power takeovers have encountered increased opposition in North America and Europe and
12 Business Daily Monday, August 22 2016
Asia Governor appointment
India taps insider Patel as central bank head At home, he is seen as carrying less political baggage than current governor. Manoj Kumar and Rafael Nam
R
eserve Bank of India insider Urjit Patel won a promotion to run the central bank on Saturday with a mandate to cement the bank’s commitment to keeping inflation low, as the tenure of the man he is replacing draws to a turbulent conclusion. Raghuram Rajan, a former International Monetary Fund chief economist feted as a “rock-star” central banker by investors, took financial markets by surprise in June by announcing he would return to academia after a single term as head of the RBI. Prime Minister Narendra Modi ended two months of ensuing uncertainty by picking Patel, Rajan’s 52-year-old deputy and a driving force behind the RBI’s transformation into an inflation-targeting central bank. Patel’s appointment will reassure markets by offering the promise of monetary policy continuity just as inflation ticks higher, though he is likely to face pressure from government officials who would like interest rates to come down. “He is the architect of inflation targeting. Investors don’t want any change in policy direction,” said Devendra Kumar Pant, chief economist at India Ratings & Research. Patel will also need to address a clean-up of bad debts at banks that has prevented credit from flowing into India’s US$2 trillion economy, which is one of the world’s fastest growing but is not generating enough jobs to cater for an expanding workforce.
At home, he is seen as carrying less political baggage than Rajan, which may help Patel in his dealings with Modi and Finance Minister Arun Jaitley. Rajan faced a backlash from hardright elements in Modi’s Bharatiya Janata Party (BJP) for the social criticism he sometimes resorted to in his public statements. Patel is little known on the conference circuit and has refrained from making major policy speeches while deputy governor. “He (Patel) should continue to work with the government on reducing long-term inflation expectations and maintain stability in the currency,” said Mihir Vora, Chief Investment Officer of Max Life Insurance in Mumbai “The measures to address (non-performing asset) issues of public-sector
banks should continue. However, a lot more needs to be done to lay out a plan for capitalising these banks.” Patel, who headed a shortlist of candidates that also included IMF Executive Director Subir Gokarn and World Bank Chief Economist Kaushik Basu, will start his three-year term on Sept. 4. An aide to Modi praised Patel as “young and dynamic” and with a wide international policy perspective. Patel also worked at the IMF as an economist from 1990 to 1995, and for Boston Consulting Group and Indian conglomerate Reliance Industries .
Not such a consensus-builder?
As deputy governor, he headed a panel that recommended landmark changes to monetary policy in India, including a switch to inflation-targeting and the creation of a committee to set interest rates.
Current governor Rajan (pictured) faced a backlash from hard-right elements in ruling Bharatiya Janata Party for the social criticism he sometimes resorted to in his public statements
Modi backed that inflation target of 4 per cent, within a range of 2 to 6 per cent, in his annual Independence Day speech on last Monday. But Patel takes over at a time when consumer inflation has risen above that range, accelerating to 6.07 per cent in July, the fourth consecutive month above the RBI’s near-term target of 5 per cent. Analysts said bond markets would likely fall initially given expectations Patel, like Rajan, would keep interest rates on hold in the near term. Patel was reappointed in January as deputy governor in charge of monetary policy, a department he has run since 2013 after first being appointed by a Congress-led government. He will now get to implement the policies he helped shape and that have substantially changed the role of the RBI governor from that of final arbiter of policy to first among equals. The government is soon expected to announce the lineup of the six-member Monetary Policy Committee to decide on interest rates. It will be made up of Patel and two other RBI officials, along with three members appointed by the government. That arrangement may benefit from the presence of a consensus-builder in the mould of some central bank heads in developed markets. But some within the RBI describe Patel as a moody man who avoids social interaction and huddles only with close aides. “He has an abrasive personality,” said one RBI official who has worked with him. “At a time when RBI policy will be decided by a monetary policy committee, good communication skills are a necessity, which are lacking in him.” Reuters
Tax amnesty
Indonesia finance minister warns dodgers: Join or face ‘hell’ The government hopes that more than US$70 billion of assets overseas will return home under the amnesty. Gayatri Suroyo and Randy Fabi
Indonesian Finance Minister Sri Mulyani Indrawati warned tax dodgers that an eight-month tax amnesty programme was their last opportunity to have all of their “sins deleted” or face “hell” afterwards. In her first interview with the foreign media since returning as minister, the former World Bank managing director also told Reuters on Friday her top priorities were restoring credibility in the state budget and improving investors’ confidence in the economy. The 53-year-old Indrawati, named finance minister in last month’s cabinet reshuffle, said revenue collected so far from the tax amnesty was less than expected, only a tiny fraction of the billions of dollars the government hopes will go into state coffers to narrow substantial fiscal deficit. To people who owe taxes, she offered a choice: “Basically you have heaven and hell. This is the opportunity for you to go to heaven with only 2 per cent (tax penalty) and all of your sins have been deleted.” “If you’re not using the opportunity this time, I’m not going to play around,” Indrawati added, warning wealthy business owners that she had “a lot” of video of them admitting
they do not pay taxes. Indrawati did not disclose any names. The amnesty lasts until March and has so far collected only 757 billion rupiah (US$57.61 million). That is just 0.5 per cent of the 165 trillion rupiah the government hopes to collect by the end of December.
Past enemies
In addition, the government hopes that more than US$70 billion of assets overseas will return home under the amnesty. Indonesians can pay the lowest rate of 2 per cent if they enter by September 30. Under current law, the punishment that tax evaders will face after the tax amnesty is a 400 per cent penalty on amounts due. Indrawati, who has a doctorate in economics from the University of Illinois, said she was “cautiously optimistic” collections will improve after September. As f i n a n c e m i n i st e r u n d e r former President Susilo Bambang Yudhoyono, Indrawati made enemies within Indonesia’s elite by naming and shaming tax dodgers. Battered by strong opposition from some Indonesian tycoons, she resigned in 2010 and joined the World Bank. President Joko Widodo, after his 2014 election, tried to get her in join
Lack of clarity
Over the past two years, perceptions had emerged that “all the figures in the budget have been decided in a way that created more questions rather than clarity,” she said. Indrawati said she expects the economy to grow faster in the second half and post a full year growth of
5.2 per cent, although she admitted that target would be “a little tough” to reach. “I think that 5.2 is going to be possible but it requires a lot of hard work,” she said. “Demand side growth is still very bullish, inflation is very stable at this very moment and for Indonesia’s history it’s considered very low so that’s going to be something that will provide momentum for the domestic economy.” “That will require a little bit higher than 5.2 per cent, in the second half, a little bit tough I must say, but we’ll see.” In the April-June quarter, Indonesia had better-than-expected annual growth of 5.18 per cent. In the first quarter, the pace was 4.92 per cent. Reuters
Indonesian Finance Minister Sri Mulyani Indrawati
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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his initial cabinet, but she declined. Nearly two years later Indrawati -ranked number 37 on the Forbes list of the world’s 100 most powerful women this year - agreed. Asked why she returned to Indonesia, Indrawati said “I see the momentum of Indonesia’s leadership and it is being managed well. There is a clear intention to improve the performance of the country.”
Business Daily Monday, August 22 2016 13
Asia S&P warning
In Brief
Investors confident on Australia debt after ratings scare An official agency estimates that three quarters of the world’s 30 largest foreign currency reserve managers hold Australian government bonds. Investors have concerns about a possible decline in Australia’s coveted triple-A credit ratings, but remain confident of the country’s debt quality, a top Australian government official said. Moody’s last week affirmed Australia’s Aaa rating with a stable outlook, in contrast to S&P which recently warned of a downgrade within two years due to a deteriorating budget deficit. “Everyone is monitoring our ratings,” said Robert Nicholl, chief executive officer of the Australian Office of Financial Management (AOFM), the government funding agency, who just ended an annual investor update in Asia. Australia is one of only a dozen countries rated triple-A by S&P and
Moody’s with A$430 billion (US$328 billion) of bonds on issue, up from around A$50 billion before the global financial crisis of 2007-08. Two-year debt paying around 1.4 per cent is relatively high yielding compared with near-zero returns in most of the rich world and even negative rates of Germany and Japan, explaining why Australian debt is highly sought after and tightly held. With around 60 per cent of Australia’s national debt in the hands of international investors, Nicholl said Asia was the largest regional holder and included central banks as well as fund managers. He noted growing interest from large hedge funds. The ratio of foreign buyers, however, is a lot lower than in 2012 when it peaked at 80 per cent.
The funding agency CEO said the drop was the result of a decline in the number of central banks and reserve managers allocating money to the Australian dollar. The debt agency estimates that three quarters of the world’s 30 largest foreign currency reserve managers hold Australian government bonds. Even though international bond holding has slipped, the AOFM noted new investors buying the country’s debt, just not at the same rate as before. Nicholl cited particular interest from Japanese life insurance and pension funds keen on long-term debt. In fact, Australia is actively considering lengthening its yield curve with a new 30-year bond to be issued by June next year. The longest-dated nominal bond so far matures in 2039. It was also planning a 2041 bond to support the 20-year futures contract. In terms of opening a new market, Nicholl ruled out issuance in foreign currency as it would require approval from Parliament. “We are restricted by law,” he said. Reuters
“Their open question is ‘it is the start of a trend in the underlying deterioration of the government’s fiscal position or is it a one-time off?” Robert Nicholl, chief executive officer of the Australian Office of Financial Management
Strategy
Chevron says no plan to exit Thailand The company and its partners aim to invest more than US$2.9 billion in 2016 for projects in the Gulf of Thailand. Chevron is committed to its Thailand investments despite job cuts that have spurred rumours of the U.S. oil major’s exit, and may keep a Myanmar gas field stake if no attractive offer is made for the asset, an executive said in a statement on Friday. The U.S. oil major - the country’s largest oil and gas producer, supplying more than one-third of its natural gas demand - operates several exploration and production blocks in the Gulf of Thailand.
“We are focusing our resources on our operated assets. We’re happy to keep it if the market value of it is not what we think it should be” Stephen Green, President of Chevron Asia Pacific Exploration and Production
Its main concessions at the Erawan gas field and nearby blocks are due to expire in 2022, with the Thai military government planning to put them up
for auction next year. “The core assets that we operate in the Gulf of Thailand are a core part of Chevron’s portfolio and we have intention of it remaining a core part of our portfolio. We are not leaving Thailand,” Stephen Green, President of Chevron Asia Pacific Exploration and Production said in the statement. The government decided earlier this year to put up for auction oil and gas contracts expiring in 20222023 after activists had protested a proposal to extend the concessions with existing operators. Chevron and other license holders will be able to participate in the sales, and if no other bidders surface, then Bangkok will negotiate extensions of the concessions with them. A Chevron spokeswoman said
Fintech drive
Singapore to update electronic payment Singapore will make regulatory changes to facilitate the use of electronic payments, the central bank said on Friday, as the citystate aims to become a major centre for financial technology (fintech). “Our vision is to make Singapore an electronic payments society, a society that spurs innovation in payments technology, that gives consumers maximum convenience and confidence in making payments,” said Ravi Menon, Managing Director of the Monetary Authority of Singapore. Central bank will streamline existing money changing, remittance and payment systems law into a single piece of legislation to govern both traditional and innovative payment businesses, Menon said. Repos rate
Indonesia holds new key rate steady Indonesia’s central bank on Friday held steady the 7-day reverse repurchase rate, its new main policy rate, as expected. The new key rate, which Bank Indonesia (BI) also uses for one week reverse repo contract with commercial banks, was left at 5.25 per cent. In line with a previous announcement, the central bank cut its overnight repo rate to 6.00 per cent to peg it 75 basis points (bps) above the new main rate. The deposit facility rate was kept at 4.50 per cent. This year, the central bank slashed its previous benchmark four times by a total of 1 percentage point. Bank of Japan
separately that the company has not decided if it will participate in any auction, and that “they are willing to work with the government”. Chevron and its partners aim to invest more than 100 billion baht (US$2.9 billion) in 2016 for projects in the Gulf of Thailand, and are on average drilling 300-400 wells each year to maintain production levels, according to the statement. Chevron has also put its Myanmar gas block stakes worth an estimated US$1.3 billion up for sale. Thailand’s PTT Exploration and Production has said it is keen to make the purchase. The offering includes Chevron’s 28.3 per cent stake in Yadana, one of three major gas fields in Myanmar that supply to Thailand, which uses natural gas for nearly 70 per cent of its power generation. Chevron this year laid off more than 800 staff and contractors in Thailand to cut US$500 million in costs to weather the fall in global oil prices. Chevron Thailand now employs about 1,600 staff and another 1,300 contractors, the statement said. Reuters
Governor says won’t rule out deepening negative rate cut The Bank of Japan will not rule out deepening a cut to negative rates it introduced in February, the Sankei newspaper quoted Governor Haruhiko Kuroda as saying, even as the controversial policy has failed to spur inflation or economic growth. In an interview with the daily, Kuroda said the Bank of Japan’s negative rate policy has not reached its limits. “The degree of negative rates introduced by European central banks is bigger than Japan. Technically there definitely is room for a further cut,” Kuroda told the Sankei. Ratings
S&P cuts Mongolia’s sovereign credit Ratings agency Standard & Poor’s lowered Mongolia’s sovereign credit rating to Bfrom B on Friday, after the country raised interest rates by 4.5 percentage points in an attempt to halt a plunge in the currency. S&P said the hike was likely to inflict more pain on the economy and that external support was required. “The rate hike appears to be an attempt to take some pressure off the exchange rate but will likely harm already weak growth prospects,” Kyran Curry told Reuters.
14 Business Daily Monday, August 22 2016
International In Brief M&A
Bank mergers heading for seven-year high Mergers and acquisitions by U.S. banks surged last year to about US$18 billion, the highest level since 2009. This year, firms are set to fly past that mark, according to data compiled by Bloomberg. In nine of the 10 biggest deals completed in 2016, banks selling themselves cited heightened regulatory burdens as a driver, Securities and Exchange Commission filings show. The extension of low interest rates is compounding that pressure by eroding profits. “It’s harder to grow earnings, grow revenue in the environment we’re operating in for all of the banks,” Huntington Bancshares Inc. CEO Steve Steinour said. African swine fever
WTO backs EU in row over Russian import ban A World Trade Organization (WTO) panel on Friday backed the European Union (EU) in a two-year dispute over Russia’s ban on pig and pork imports from the bloc. Russia imposed the ban after a handful of cases of African swine fever in some EU areas in 2014, invoking sanitary and phytosanitary measures allowed under WTO rules. A panel of arbitrators found that Russia did not meet international standards for such a ban which was discriminatory, violating WTO rules. Each side has 60 days in which to appeal the findings.
Brexit fears
New York nabs global property crown from London Concerns the UK market was coming toward the end of the cycle amid signs pricing was reaching unsustainable levels only partially explains the drop-off in investment flows to Britain. Herbert Lash
N
ew York has knocked off London as the world’s premier city for foreign investment in commercial real estate due to fears the vote to leave the European Union would diminish the British capital’s appeal as a global financial centre. Data on cross-border property transactions indicate greater unease among investors prior to the referendum, which voters unexpectedly approved on June 23, than had been captured in the capital markets prior to the vote. Cross-border capital flows into London real estate fell 44 per cent in this year’s first six months from the same period in 2015, according to data from brokerage Jones Lang LaSalle Inc. Property investors feared Britain’s exit from the EU would erode London’s role as a premier financial centre and reduce the value of their investments, the majority of which are office buildings. Norway’s sovereign wealth fund, one of Britain’s largest foreign investors, said on Wednesday it cut the value of its UK property portfolio by 5 per cent because of the vote. “It would be fair to say that London bore the brunt of Brexit fears,” David
Green-Morgan, director of global capital markets research for JLL in Chicago, said in an interview. “The big fear is that London will lose a lot of the financial service jobs that has made it such a global financial center.”
“You’re going to see people look to redeploy their capital elsewhere and the big one will be the U.S.” Ken McCarthy, senior managing director, regional research director for Tri-State New York at Cushman & Wakefield New York gained US$10.3 billion in cross-border investments in the first six months of the year compared with the US$6.9 billion that London took in, data from JLL show. In the same year-ago period, London garnered US$12.4 billion while US$11.3 billion flowed to New York, according to JLL. The 8.9 per cent decline in cross-border investment New York
experienced is in-line with the roughly 10 per cent decline major cities experienced this year when compared to 2015, a stellar year in property investment around the world. Concerns the UK market was coming toward the end of the cycle amid signs pricing was reaching unsustainable levels only partially explains the drop-off in investment flows to Britain, the largest decline since the financial crisis. It is now obvious that people were becoming increasingly nervous about the Brexit vote, Green-Morgan said. Britain is viewed as more investor friendly than the United States because of beneficial tax arrangements. However, underlying property fundamentals - strong demand and not too much supply - must be in place to attract capital, as now is the case for the U.S. office and multifamily real estate sectors. The uncertainties created by Brexit has made investors more cautious about Britain and to a lesser extent about Europe, said Ken McCarthy, senior managing director, regional research director for Tri-State New York at Cushman & Wakefield. Negative interest rates across the euro zone also are driving investment to the United States, he said. “You’re going to see people look to redeploy their capital elsewhere and the big one will be the U.S.. Most likely given that it is overseas capital, it will focus on gateway cities,” McCarthy said, citing New York, Boston, Washington, Los Angeles and San Francisco. Reuters
Ratings
Fitch cuts Turkey debt outlook The ratings agency Fitch on Friday cut its outlook for Turkey’s sovereign debt rating to “negative”, saying last month’s coup attempt underscored risks to political stability in the country. The agency affirmed the country’s rating at BBB-, a notch above junk grade. Fitch said political uncertainty follow the failed coup will impact economic performance and could hurt economic policy. Fitch said revenues from tourism arrivals were down 41 per cent year-on-year for the first half of 2016, a sector which accounts for 13 per cent of external receipts. SEC
Deutsche Bank whistleblower spurns reward A former Deutsche Bank AG risk officer said he was refusing an US$8.25 million reward from the U.S. Securities and Exchange Commission (SEC) for blowing the whistle on the lender overvaluing a derivatives portfolio, because of his concern that the SEC didn’t go after senior executives. The US$55 million fine that Deutsche Bank paid in a settlement announced by the SEC in May last year had penalized shareholders, while top executives retired with their multi-million dollar bonuses intact, Eric Ben-Artzi wrote in a Financial Times column published Friday.
A New York panorama
Consumption
Canadian retail sales disappoint Separate data showed inflation rate was 1.3 per cent in July. Leah Schnurr
Canadian retail sales unexpectedly fell in June, reinforcing the likelihood that growth contracted in the second quarter as the economic malaise hit the consumer, who has been a key pillar of support in recent years. Separately, the annual inflation rate cooled as expected in July, according to data released by Statistics Canada on Friday, pulled down by cheaper gasoline prices, even as the cost of food and shelter climbed. The 0.1 per cent decline in June retail sales was well short of economists’ expectations for a 0.5 per cent gain. May’s sales were revised down to show no change from an initially reported 0.2 per cent gain. Nonetheless, economists do not expect that consumers are down for the count just yet, particularly with the additional money they are getting
from the government in the form of a revamped child benefit. “With Ottawa sending out the first of the Child Care Benefit checks in July, there’s reason to be optimistic on the second half of the year,” Nick Exarhos, economist at CIBC, wrote in a note.
“It just suggests that maybe the Canadian consumer is growing a bit tired of carrying the burden of growth” David Watt, chief economist at HSBC
The economy likely contracted in the second quarter, partly due to May’s wildfires in northern Alberta that forced residents to evacuate and disrupted oil production. Although the data underscored weakness in the economy in the second quarter, analysts and policymakers still expect growth to rebound in the third quarter. After cutting interest rates twice last year in the face of the oil price slump, the Bank of Canada is seen holding rates where they are until late 2017. “I think the Bank of Canada continues to look through both readings,” Derek Holt, economist at Scotiabank, said of the day’s reports. “We knew the consumer was going to be weak overall in the second quarter.” Separate data showed Canada’s inflation rate was 1.3 per cent in July, down from 1.5 per cent in June. Annual core inflation, which strips out some volatile items and is watched by the central bank, was more robust at 2.1 per cent. The central bank has said the inflation rate is being influenced by temporary factors. Reuters
Business Daily Monday, August 22 2016 15
Opinion Business Wires
Taipei Times The (Taiwanese) Financial Supervisory Commission (FSC) yesterday said that it has asked local banks to tighten control over their overseas outlets after Mega International Commercial Bank ran into regulatory problems in the U.S. and was ordered to pay a massive fine for breaching rules against money laundering. FSC Vice Chairman Kuei Hsien-nung said that Taiwan’s banks should improve the auditing of their overseas branches’ operations and demand that they closely follow laws in foreign markets to avoid breaches similar to the one for which Mega Bank has been fined.
The Korea Herald Korea Development Bank, a key creditor of Daewoo Shipbuilding & Marine Engineering Co., is expected to provide a short-term loan to the struggling shipbuilder early next month, according to KDB and the Financial Services Commission yesterday. The planned loan worth between 200 billion won (US$178.6 million) and 300 billion won is likely to help Daewoo Shipbuilding address its liquidity shortage and repay maturing debts. Daewoo Shipbuilding has been under pressure to repay commercial papers worth 400 billion won by September 9. The decision came after the shipbuilder announced that it will deliver two drill ships worth 1 trillion won.
Philstar The Philippines is one of the few Asian countries to watch out for because of positive demographics and stable fiscal position, said Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management. In his keynote address during a recent investment summit organized by the Financial Times and First Metro Investment Corp. (FMIC), Sharma said the country’s demographics is an area where the Philippines ranks well. “Given its working age population, it is still expanding at a decent pace. It has the necessary condition for being able to grow well over the next five years,” he said.
The Times Of India State Bank of India on Saturday said the on-going merger of five of its associate banks and Bharatiya Mahila Bank will add Rs 8 trillion or US$120 billion to its assets and will create a banking behemoth with global scale. The bank also said the merger of State Banks of Bikaner & Jaipur (SBBJ), Travancore (SBT), Patiala (SBP), Hyderabad (SBH) and Mysore (SBM), and also of Bhartiya Mahila Bank, a bank for women set up in November 2013, will lead to a 36 per cent increase in the SBI’s total assets at Rs 30 trillion or about US$447 billion.
Gustavo Valentim via Foter.com / CC BY
An OPEC for migrant labour?
I
n September 1960, delegates from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela met in Baghdad to form the Organization of Petroleum Exporting Countries. As the world’s dependence on oil increased, so did OPEC’s power. Today, with many developing countries, including a majority of the countries in the Middle East, serving as some of the world’s main labour exporters, might it be time to consider the formation of an OPEC-like cartel for migrant workers? OPEC succeeded in protecting its members’ shared interests that they could not protect individually. When a market has structural distortions, political tools and collective action of the sort that OPEC embodied can be more effective than public policy. Labour-exporting countries today are not so different from OPEC’s founding members in 1960. They, too, are vulnerable in a market where their customers call the shots. Rich labour-importing countries and poor labour-exporting countries have a mutually dependent relationship; but labour importers can unilaterally tighten or loosen immigration or labour-market regulations, leaving exporters in a constant state of uncertainty. This imbalance can have serious costs for labour exporters. Remittances by expatriate workers are an essential lifeline for many developing countries – more so than any other financial inflows, including foreign direct investment and aid – and often help to balance a country’s books. Indeed, according to the World Bank, in 2013 remittances amounted to 20-24 per cent of GDP in the Philippines and Indonesia, 42 per cent in Tajikistan, 32 per cent in Kyrgyzstan, 17 per cent in Lebanon, 10.8 per cent in Jordan, 9.9 per cent in Yemen, and 6.6 per cent in Egypt and Morocco. For many developing countries, labour is a strategic production factor, just as commodities are for resource-rich economies. When we think about migrant labour, we think of low-skill work in agriculture, construction, services, and domestic work. But countries such as Jordan and Lebanon (among others) are now educating workers to compete as high-skilled expatriates, too. Labour exporters now need to protect their investments in human capital, and a cartel-like political body is the most effective way to do this. If the countries listed above were to join with China, Mexico, India, and other major labour exporters, they would be holding most of the chips in a collective negotiation about wages, visa terms, and other conditions – some of which would also benefit non-members as global norms changed. Labour importers would have to vie for access to a collective market, rather than individual national markets, and countries that gained access would have a significant comparative advantage over those that did not. A cartel would prevent labour-exporting countries from cannibalizing their own interests, as currently happens with bilateral arrangements. For example, if they were to conclude separate agreements with Gulf Cooperation Council countries, individual Southeast Asian countries would undercut one another, with the result that they might end up with worse deals.
“
Sami Mahroum Director of the Innovation & Policy Initiative at INSEAD
With a cartel, governments would instead set minimum-wage rates for different professions and trades, as well as for different skill levels. As exporters trained their migrant workforces, demand for their labour would grow and spark competition among venders rather than suppliers, thus fuelling a virtuous cycle of higher wages and even more skills training. And, because this would all happen on global markets, the prices of certain skills would become more transparent to training institutions, students, employees, and employers alike. In this new system, importing countries would collect taxes – on the basis of the newly set minimum wage – and remittances would remain untaxed. In this sense, the cartel would double as an international workers’ union, lending bargaining power to employees in countries where unions are weak or not permitted at all. A labour-exporting cartel would have far-reaching effects on the current system. Cartel members would be empowered to reward and penalize third parties acting in bad faith. And, most important, the workers themselves would be empowered to reclaim their dignity in a system that has long stripped them of it. Indeed, we could expect xenophobia to wane worldwide as access to foreign workers became more privileged. A cartel could advance the cause of comprehensive i m m i g rat i o n a n d ex p at labour reform in many countries, including the United States, Japan, and the Gulf states. Under a newly negotiated arrangement, labourexporting countries would likely have an incentive to curb free riders and illegal emigration, and labour-importing countries would likely have an incentive to legalize and manage the status of illegal immigrants already within their borders. One likely objection to this proposal is that low-skilled labour will cost more, which could accelerate automation. But the jobs automation displaced from the production sector would simply move to the leisure sector, because demand for domestic workers, waiters, gardeners, and the like would increase. Because a cartel would make these market changes more discernible, labour exporters would be able to respond and adjust their worker-training systems accordingly, increasing labour importers’ ability to recruit migrant workers better suited to the available jobs. All told, a labour-exporting cartel would bring order to an industry that has long been mired in controversy, damaging the reputations of more than a few labour-importing countries. It would change the dynamics of labour supply and demand to the benefit of both workers – who would have new protections – and importing countries, which would have access to trained labourers to respond to rapid changes – often driven by technology – in economic conditions. Project Syndicate
A labourexporting cartel would have far-reaching effects on the current system
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16 Business Daily Monday, August 22 2016
Closing Fuel trade
National diesel exports rise to record previous month, they more than doubled China’s diesel exports rebounded to a record in July as severe flooding in some parts of the country curbed domestic fuel demand. The world’s largest energy consumer exported 1.53 million tons of diesel last month, a 39 per cent jump from June and beating the previous record in May, according to data posted yesterday on the website of the General Administration of Customs. While outbound gasoline shipments in July slipped from a record the
from last year to 970,000 tons. China’s worst flooding since 1998 will reduce the nation’s oil demand by as much as 10 per cent in July and August, Morgan Stanley analysts including Adam Longson said in a report earlier this month. The floods caused about US$33 billion in economic losses last month, according to London-based insurance broker Aon Plc. Gasoline shipments slowed as the nation’s output growth in July was the weakest since February 2015. Bloomberg News
App fever
How companies are cashing in on Pokemon Go Bars and restaurants from New York to Sydney are reportedly paying for “lures”, a feature of the game which draws Pokemon to a location. Daxia Rojas and Erwan Lucas with Karyn Nishimura-Poupee in Tokyo
P
okemon Go has sent millions of people onto the streets in a worldwide hunt for virtual monsters - and from neighbourhood restaurants to multi-national corporations, businesses smell a profit. “It’s going really well - this is the fourth time we’ve had to restock our Pokemon cuddly toys in two weeks,” said salesman Corentin Flamand, surveying a row of mini Pikachus at the Micromania store in Paris’ bustling Bastille area. The chain has brought in mugs, baseball caps and a slew of other products to mark this year’s 20th anniversary of the cult Japanese franchise, and is now hoping to profit from the surge of new fans created by the smartphone game. Beyond products, companies see huge potential in the app’s ability to attract crowds to places in a way that typical advertising does not, by tempting them with the prospect of adding new Pokemon to their collections. Bars and restaurants from New York to Sydney are reportedly paying for “lures”, a feature of the game which draws Pokemon to a location, hoping this will draw in customers to linger and spend money. “If you run a bar/restaurant and aren’t spending US$10/day on lures and advertising the fact, what are
you even thinking?” Eric Neustadter, former head of Microsoft’s Xbox Live gaming service, wrote in a widelyshared tweet.
Pokemon milkshakes
Philippe Bonnasse, a retail expert at French consultancy CA Com, said companies could profit from showing “that their brand is in sync with the times - that they’re ‘Pokemon Go compatible’.” Some firms are offering Pokecoins - the game’s currency, which players can spend on accessories to help them hunt - as prizes for competitions. And then there are the many businesses putting a Pokemon twist on their products. Maxwell’s, a restaurant in London’s Covent Garden, says it has seen a 400 per cent jump in sales of its elaborate “freakshake” milkshake since it started offering a new version inspired by the beloved turtle-shaped Pokemon, Squirtle. Topped with a donut in the shape of one of the “Pokeballs” that hunters
use to catch the critters, manager Lloyd Vaughey says the restaurant is shifting 200 of the violently coloured drinks a day. “Now the sales have levelled but stay very good,” Vaughey told AFP. In Edinburgh, a taxi firm is offering flat-price journeys that take punters past at least 50 “Pokestops” to load up on Pokeballs, while specialised hunting tours have sprung up everywhere from Barcelona to Mexico City. At the extreme end of the industry, San Francisco start-up PokeWalk is even charging busy players to have their phones walked for them by full-time professionals.
Sponsorship deals?
Industry tracker Sensor Tower estimates that the game has already generated more than US$200 million since its release in early July. Pokemon Go is free to download, but players can pay for extra add-ons that make them better hunters. Commercial partnerships with other brands could offer another hugely lucrative source of income for its owners - but the Pokemon Company, which licenses the franchise, is currently concentrating on the game’s rollout.
People play Pokemon Go at the Parc de la Villette where some rare creatures from the game are known to appear in Paris
McDonald’s is so far the only brand with a sponsorship deal, in Japan hoping that having its restaurants designated as “PokeStops” and “Gyms”, where players can fight and pick up virtual supplies, will bring in customers in a country where it is badly struggling. But the game’s developer Niantic has invited companies to express an interest in tie-ups on its website, signalling that similar deals could follow. “The partnerships will be agreed in a second phase, but it will be selective,” a Pokemon Company representative told AFP. In Japan, the game is seen as a potential boost for tourism especially in the northeast, desperate for visitors after the massive 2011 earthquake, and in Kumamoto in the south, also hit by a series of deadly quakes in April. Japanese authorities have signed a deal with Niantic to place Pokestops and Gyms in a way that guides tourists to neglected sites - steering clear of the exclusion zone around the devastated Fukushima nuclear plant. In Japan and beyond, cafes may well profit from players looking for somewhere to hang out and hunt but retailers may find that footfall from customers glued to their phones has limited benefits, say analysts. There is also the burning question of whether Pokemon Go is here to stay - or whether it’s a fad we will soon forget about. “Betting on a duration of three to six months, until Christmas, could allow companies to organise themed operations around the game,” said Yves Marin of the Wavestone consultancy - hopefully winning new customers whose loyalty could outlast the craze. AFP
Results
Moody’s report
M&A
Vanke profit gains on strong sales
Mainland’s natural gas tariffs positive for industry
Soccer-Liverpool not for sale despite Chinese interest
China Vanke Co., the developer at the centre of a battle for control, posted a 10 per cent increase in first-half profit as a home-market recovery boosted sales, helping offset uncertainties over the company’s future because of the ownership struggle. Net income at the nation’s largest residential developer climbed to 5.35 billion yuan (US$804 million), or 0.48 yuan a share, in the six months ended June 30, from 4.85 billion yuan, or 0.44 yuan a share, a year earlier, the company said in a filing to the Shenzhen stock exchange yesterday. Revenue grew 49 per cent to 74.8 billion yuan, it said. The Shenzhen-based company’s earnings have been helped by surging residential property prices and a long-term strategy that focuses on China’s rising middle class in leading regions. That helped shield the company during the first half as it cautioned about the negative fallout from a shareholder fight that has been going on since the end of last year when Baoneng Group emerged as the developer’s biggest shareholder, prompting an outcry from Vanke’s management. Bloomberg News
China’s proposals on regulated transmission tariffs for inter-provincial natural gas pipelines will be credit positive for the natural gas transmission industry in the long run, according to a Moody’s report. If implemented, the proposals will enhance the transparency and predictability of the regulatory framework, said Moody’s. The National Development and Reform Commission (NDRC) on Tuesday released its proposals on regulated transmission tariffs for public consultation. The highlights of the proposal include that permitted revenue will consist of permitted costs, permitted returns and taxes. Permitted costs, which are audited and approved by the NDRC, will include depreciation and amortization expenses, together with operating and maintenance (O&M) expenses. “The enhanced transparency and predictability of the tariff mechanism - assuming the proposals are implemented - would promote the development of the natural gas transmission industry over the long run,” said Moody’s Assistant Vice President and Analyst, Ivy Poon. Xinhua
The American owners of Liverpool, one of the most famous teams in English soccer, are not planning to sell, a senior source at the club said yesterday, after reports that a Chinese-backed consortium wanted to buy a sizeable stake. There were no active discussions involving Fenway Sports Group, the Boston-based owners, and the English Premier League club had received no bid, added the source who declined to be named because of the sensitivity of the subject. The source restated the club’s position that its owners would listen to any expressions of interest from potential investors in Liverpool but move forward only with the right partner. Chinese companies are increasingly interested in buying up stakes in European soccer clubs not only as good investments but also a way to help President Xi Jinping’s bid to raise the profile of the sport in China. Chinese groups announced deals this month to buy Italy’s AC Milan, English Premier League West Bromwich Albion and second-tier French side Auxerre. Reuters