ChemChina gets U.S. nod for Syngenta mega-purchase M&A Page 9
Tuesday, August 23 2016 Year V Nr. 1114 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Retailing
Chinese tourists change their purchasing habits in Japan Page 10
Results
www.macaubusinessdaily.com Leisure outlook
Alvin Chau’s property business Sun Century Group still in the red Page 3
World Travel and Tourism Council offers an optimistic forecast for global tourism industry Page 14
Ups and Downs EMPLOYMENT
Gaming workers are facing a two-sided situation: some could lose their jobs while others might see their salaries increased. Data from the Statistics and Census Service shows a slight decrease in the number of workers in the gaming sector but an improvement in average wages, especially for management positions. Page 3
Employment
Chinese economics professor says Mainland’s underemployment rate has jumped to more than 5 per cent from near zero in 2010 Page 8
Cinema industry
Local filmmakers strengthen regional ties during Guangdong– Hong Kong–Macao Film Production Investment and Trade Fair Page 6
Pricier life
Rougher City
Despite a sweet day marked by the opening of Wynn Palace, the Judiciary Police announced that gaming-related crimes are on the rise. Higher loan-sharking figures are especially concerning. Despite the overall crime rate indicating a safer environment, these increasing trends should trigger an alarm for authorities.
Inflation The territory’s CPI rose by 2.08 per cent, fuelled by higher rental prices for parking spaces, pricier meals when eating out, increased prices of automobiles and more expensive property management fees. Page 4
Easier biz
Reform China’s cabinet has announced a batch of measures to lower business costs. Beijing wants to reduce financing and labour costs, expenditure on energy and logistics, and the annual tax burden for enterprises. Page 16
Uber Punished
CRIME Page 2
HK Hang Seng Index August 22, 2016
22,997.91 +60.69 (+0.26%) Worst Performers
Want Want China Holdings
+2.07%
Industrial & Commercial
+1.02%
Kunlun Energy Co Ltd
-3.14%
China Life Insurance Co Ltd
-1.17%
Sands China Ltd
+1.64%
BOC Hong Kong Holdings
+0.96%
China Resources Power
-2.32%
Belle International Holdings
-1.13%
Hengan International Group
+1.49%
Sun Hung Kai Properties Ltd
+0.92%
China Unicom Hong Kong
-1.28%
Bank of East Asia Ltd/The
-0.92%
Tencent Holdings Ltd
+1.49%
Hong Kong & China Gas Co
+0.83%
Li & Fung Ltd
-1.26%
China Merchants Port Hold-
-0.90%
Bank of Communications
+1.41%
CK Hutchison Holdings Ltd
+0.82%
MTR Corp Ltd
-1.18%
China Mobile Ltd
-0.86%
26° 32° 26° 32° 26° 32° 26° 32° 27° 32° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Prosecution Local authorities have confirmed that the car-hailing application has paid over MOP10 million since it was launched in the city last October. Police say they have prosecuted 379 cases of Uber drivers providing unlicensed taxi services since then. Page 2
2 Business Daily Tuesday, August 23 2016
Macau
Security
Gaming-related crimes up 13.5 pct in H1 Secretary for Security, Wong Sio Chak says there are signs indicating some casino-related crimes are occurring outside gaming venues. Cecilia U cecilia.u@macaubusinessdaily.com
T
he number of local gaming-related crimes jumped by 13.5 per cent y ea r- o n - y ea r f o r th e first half of the year, the Office of the Secretary for Security announced yesterday. According to official data, the Judiciary Police (PJ) opened files for 814 gaming-related crime cases during the first six months, compared to 717 gaming-related cases during the same period of 2015. In particular, loan-sharking cases surged by 52.3 per cent year-onyear to 233 cases, compared to 153 cases one year ago. Additionally, cas es o f fa l s e i m p ri s o n m e n t recorded an increase of 27.1 per cent year-on-year, to 216 cases for the same period. “The reasons that the rates increased [for false imprisonment and loan-sharking] are the initiative actions to open files enforced by the police,” said the Secretary for Security, Wong Sio Chak at a press briefing to review the crime data yesterday.
924 suspects involved in gaming-related cases were transferred to the Public Prosecutor’s Office in the first half of the year
“In addition, most of the cases happened inside casinos. There is no sign showing [these two types of crimes] spreading outside the casinos. Therefore the [increases] did not affect the general security of the society,” the official added.
Gaming crimes spreading
However, Mr. Wong noted that it is apparent that other gamingrelated crimes and casino-debt disputes are occurring outside the gaming venues, given the recent death cases of debtors resulting
from the false imprisonment, which increased in July and August this year. The secretary added that most of the victims and suspects in the reported cases during the first half were not local residents. According to the official data, 924 suspects involved in gamingrelated cases were transferred to the Public Prosecutor’s Office in the first half of the year, an increase of 18 per cent compared to 783 suspects recorded in the
corresponding period of 2015. Meanwhile, total crime cases amounted to 7,125 for the first half of the year, up by 1.4 per cent, or 100 cases, from the first half of 2015. The Secretary said the increase is because the security department has strengthened its enforcement against those over-stayers and illegal immigrants who were holding temporary permits to stay in the territory but failed to report to the police.
Transport 379 Uber rides caught by police since last October
Gov’t confirms Uber’s “fines” over MOP10 mln The commissioner of the Public Security Police Force, Leong Man Cheong confirmed yesterday that car-hailing application Uber has paid over MOP10 million (US$1.25 million) to the authorities since the platform was launched in the city last October. At the press briefing to review the city’s crime data yesterday, the PSP head said the security department has prosecuted 379 cases of Uber drivers providing unlicensed taxi services in the past 10 months. According to the local laws, drivers providing unlicensed taxi services in the city will receive a fine of MOP30,000 if they are caught. B u t M r . L e o n g ex p l a i n e d yesterday that the amount of over MOP10 million paid by the
car-hailing application represents deposits for the fines of 346 cases, in addition to exact fines for four other cases. At the moment, 29 Uber cars are being detained by the security body since the company has not paid the deposits of fines. Last week, directly-elected legislator José Pereira Coutinho told two Portuguese-language newspapers that Uber is considering suspending its services in Macau from the beginning of September, as it has been fined some MOP10 million by the local police since the launch of the platform in the city last October. In a reply to this newspaper’s enquiries, Uber claimed it had been issued “prohibitive fines” by the
government. But Secretary for Security, Wong Sio Chak yesterday denied that his departments have suppressed the operations of the car-hailing platform in the city, claiming the authorities take actions in accordance with the local regulations. “The police force does not in particular fight against certain mobile application-based transport services… I am very concerned about the safety of the police force who are dealing with these issues as I have personally experienced the dangers of the enforcement actions,” Mr. Wong said yesterday. In addition, the Secretary denied that the decrease in the number of taxi violations is due to the government shifting its focus to combatting Uber operations. According to the official data, the number of taxi violations plunged by 30.5 per cent yearon-year to 2,112 cases during the first half of 2016. Of the total, 773 were related to drivers refusing passengers, while another 729 were for overcharging. “I don’t want to relate the two [taxi violations and Uber services] as interconnected. The enforcement on fighting against taxi violations has never been lessened,” he said.
Business Daily Tuesday, August 23 2016 3
Macau Manpower
Gaming employees down in Q2 But the average earnings of workers in the industry went up in the period. Kam Leong kamleong@macaubusinessdaily.com
T
he number of workers in the local gaming industry decreased slightly as at the end of the second quarter compared to one year ago. However those workers who had stayed in the industry, were receiving higher salaries than previously. According to the latest statistics released yesterday by the Statistics and Census Service (DSEC), there were 55,708 full-time employees working in the gaming industry as at the end of June, representing a yearon-year decrease of three per cent. The data, however, excludes the number of people engaged in the junket-related business. Of the total full-time gaming
‘Only some 660 new employees were hired in the last three months’
of 66.5 per cent compared to 1,972 new hires in the same period one year ago. The decrease in the number of new employees drove the employee recruitment rate of the sector down by 2.3 percentage points year-onyear to 1.2 per cent. In addition, the employee turnover rate remained unchanged at 1.5 per cent, while the job vacancy rate rose slightly by 0.1 percentage points year-on-year to one per cent. ‘These indicators suggested a continued slowdown in demand for manpower in the gaming sector,’ the Bureau noted.
Salary raise
On the other hand, the average earnings of full-time gaming workers recorded a slight increase of 2.7 per cent year-on-year to MOP22,060 (US$2,758) in June. The average earnings for dealers jumped by two per cent year-on-year to MOP18,960. The average earnings of resident workers also recorded an increase
of 2.9 per cent year-on-year to MOP22,130 in the month, while that of non-resident workers decreased by 0.9 per cent year-on-year to MOP20,710. The situation was slightly different for employees at management levels. For senior management staff in the industry, meaning directors and managers, average monthly salaries came to MOP51,510 in the month, up by 1.2 per cent year-on-year. In pa rti c u l a r, non -residen t employees at such levels saw their average salaries climb by 12.9 per cent year-on-year to MOP81,100 in June, however the average earnings for local staff at the same levels was only up by one per cent year-on-year to MOP48,430 on average. In terms of vocational training, 79,385 employees from the gaming sector attended training courses p r o vi d e d b y th e e n t e r p ri s es, increasing by 77.3 per cent yearon-year. Most participants attended courses in Gaming & Entertainment Services, followed by Business & Administration, which accounted for 35.3 per cent and 34.1 per cent of the total, respectively.
employees, 44 per cent, or 24,285, were dealers, a decrease of 3.1 per cent compared to the same period last year. Meanwhile, the number of directors and managers in the industry recorded an increase of 3.6 per cent year-on-year-to 2,314.
Fewer new workers hired
For the three-month period, there were a total of 587 job vacancies in the sector, up by 80 year-on-year. Most of these job openings were for clerks and service and sales workers. However, only some 660 new employees were hired in the three months, which represents a plunge
Property
Alvin Chau’s Mainland property business posts interim loss Hotel consultancy services registered a loss of RMB20,000 for the first six months of 2016. The boss of local junket operator Suncity Group, Alvin Chau Cheok Wa, saw his property businesses in the Mainland remain in the red for the first half of the year despite a surge in total turnover. Property investment company Sun Century Group Ltd, which is chaired by the junket boss, posted a net loss of RMB64.8 million (MOP77.3 million/US$9.7 million) for the first six months of the year, down 54 per cent compared to losses of RMB140.6 million for the same period last year,
according to the company’s filing with the Hong Kong Stock Exchange last week. The Hong Kong-listed unit is primarily engaged in property development, as well as leasing management of properties in Mainland China, and hotel and resort management and consultancy. For the six-month period, the company’s total turnover surged by 116.3 per cent year-on-year to RMB205.6 million, of which 84.6 per cent was derived from property
development, while 15.4 per cent was from property leasing. But the investor’s hotel consultancy services, set up in 2014, registered a loss of RMB20,000 for the same period, compared to losses of RMB1.4 million one year ago. ‘The company has been in the process of setting up subsidiaries for the opportunities of hotels and integrated resorts in the Asian countries, such as Korea, Malaysia and Vietnam,’ it wrote in the filing. In July, Sun Century announced that it was going to sell its subsidiary Sun City Group Tourism Ltd to another two subsidiaries, in order to expand the company’s tourism– related business to Vietnam and South Korea.
‘The company's total turnover surged by 116.3 per cent year-on-year to RMB205.6 million during the first half of this year’ The company added at that time that the deal was also expected to diversify its tourism-related business in Macau. Ac c o r d i n g t o th e J u l y announcement, Mr. Chau holds 57.3 per cent of the issued stock of Sun Century. K.L.
In Brief Trade
Chief Executive heads to Guangzhou for trade forum Chief Executive Fernando Chui Sai On is to attend the 11th Pan-Pearl River Delta Region Co-operation and Development Forum and Trade Fair in Guangzhou this Wednesday and Thursday, according to a press release published by the Office of the Government Spokesperson. The Chief Executive will attend the opening ceremony of the Forum on Thursday morning. In addition, he is to witness the signing ceremony of cooperation projects on the same day. During Mr. Chui’s absence, the Secretary for Administration and Justice Sonia Chan Hoi Fan will be the acting Chief Executive. A.L. Public project
Gov’t to build 1.8-km-long new road in Cotai next year The Land, Public Works and Transport Bureau (DSSOPT) said yesterday that the construction of a 1.8-kilometre-long new road in Estrada Flor de Lótus in Cotai will start as soon as the first quarter of next year, according to TDM Radio. The project will include the construction of road emission networks, in addition to drainage networks and sewage pumping stations. The whole project is expected to coordinate with the city’s future land planning and the new Islands District Medical Complex, the Bureau said. According to the department, the construction area will occupy a total of 58,000 square metres, of which 4,300 square metres will be green areas. Meanwhile, the future winner of the bid for the project will be granted a maximum of 780 working days to complete the works. The Bureau stressed yesterday that the construction, taking place on the new reclamation area in Cotai, would not affect traffic in the area. A.L. Society
IC to decide Coloane shipyards planning with other departments The president of the Cultural Affairs Bureau (IC), Ung Vai Meng, said the Bureau would continue co-operating with different government departments to come up with a plan for the Lai Chi Vun shipyards area in Coloane. Replying to legislator Si Ka Lon’s written enquiry, the IC president said that the Bureau would take over and refurbish one shipyard and two iron houses in order to promote the history of Lai Chi Vun and the inheritance of the shipbuilding crafts, in addition to developing the city’s cultural creative industry. He added that the department would seek co-operation with local residents and shipbuilding masters for the future developments in the area. In the enquiry, the legislator questioned when the government would publish its development plan for the area. Meanwhile, Mr. Ung said in his reply that the government had decided not to renew the temporary occupancy permits for eleven occupants in Lai Chi Vun. According to the IC president, the Marine and Water Bureau had requested these occupants to maintain their shipyards five times, but no repair works had taken place by the time of the decision. A.L.
4 Business Daily Tuesday, August 23 2016
Macau Roadwork
Gov’t to fix damaged road in city central
to the asphalt surfaces on Avenida da Praia Grande and Avenida de D. João IV having been partly The government is to conduct damaged, which is a threat road road works at the junction of safety. In order not to cause traffic Avenida da Praia Grande and congestion, the Transport Bureau Avenida de Almeida Ribeiro for three straight nights starting from has suggested that such road works should only be conducted today, according to yesterday’s at night time, according to the Official Gazette. An official dispatch indicates the work is due announcement. A.L.
Price index
Parking rentals lead to inflation increase Pricey charges for eating out and higher property management fees also boosted the city’s price index last month. Annie Lao annie.lao@macaubusinessdaily.com
T
he city’s Consumer Price Index (CPI) increased by 2.08 per cent yearon-year to 108.35 in July, while dropping by 0.18 percentage points from the previous month, according to the latest information released by the Statistics and Census Service (DSEC) yesterday. The increase in CPI was mainly caused by higher rental prices for parking spaces, higher charges for eating out, increased prices of automobiles and higher property management fees in the city. The price index for Food & NonAlcoholic Beverages and Housing & Fuels, which account for the largest parts of household expenditure, both grew more slowly at 2.42 per cent and 0.12 per cent year-on-year, respectively. Meanwhile, the price indexes for Alcoholic Beverages & Tobacco,
Education and Transport rose by 12.64 per cent, 8.89 per cent and 7.11 per cent year-on-year, respectively. On the other hand, that of Clothing & Footwear dropped by 2.73 per cent year-on-year.
Compared to June, the CPI grew slightly by 0.05 per cent. Higher charges for package tours during the summer holidays led to an increased price index for Recreation & Culture by 3.17 per cent month-on-month. In addition, the price index for Transport went up by 0.24 per cent month-on-month due to higher airfares, rental fees for parking spaces and prices of automobiles.
However, cheaper rentals for dwellings and prices of Liquefied Petroleum Gas caused the price index of Housing & Fuels to go down by 0.16 per cent compared to June. For the first seven months of the year, the average CPI increased by three per cent year-on-year, while it rose by 3.45 per cent period-toperiod for the 12 months ended July this year.
will remain stable at the existing level with only minor fluctuations [for the remainder of the year],” notes Wong. The new additions to the Cotai strip - Wynn Palace, which opened yesterday, and The Parisian - could help an upward drift in the housing market, which can’t seem to go any lower. “The market can’t get any worse than what happened in January and February, when it hit bottom,” says Jane Liu Zee Ka, managing director of Ricacorp (Macau) Properties Ltd.
they are returning,” comments the director. “Most of them are looking for low-to-mid-priced homes at MOP4-6 million.” Whereas the number of residential transactions hit its lowest first quarter total sales since 1999, at 1,215, sales rebounded to a monthly mark over 1,000 in April and May (1,087 and 1,038, respectively) – the first time since May of 2013. This could spell good news for end-users, notes the president of the Macau General Association of Real Estate, Chong Sio Kin. “Home prices will hit bottom this year and start to hike up next year,” says Chong, “I don’t see there is room for any significant downward momentum in the rest of the year.” Chong also notes that in the worst-case-scenario, home prices may dip five per cent from the current levels.
Residential
Where to call home A strong demand exists, but a mismatch of supply and demand continues to limit end-user purchases. Despite the fact that the housing market has ‘hit bottom’ – the term now commonly being heard around town – the real estate industry does not expect any large change in prices for the remainder of the year. Additionally the volume of home sales will be based on end-users looking for low-to-mid-priced flats, which are in scarce supply. Figures from the Financial Services Bureau show that for the first six months of the year, average home
prices declined some 17.6 per cent to MOP76,629 (US$9,577.5) per square metre. Jeff Wong, head of residential at Jones Lang LaSalle (Macau) Ltd., notes that the declining casino revenues and the beating that the residential market has taken have been concurrent, but new supply will help to stabilize the situation. “With the low unemployment rate in Macau and the new gaming facilities scheduled for completion in 2016, we expect residential prices
End-users
The key to the upswing? End-users, says Liu. “Many end-users have stayed away from the market amid the economic downturn of the past two years, but
Supply
Legislator Ho Ion Sang believes that the mismatch between supply and demand in regards to the size of housing units is one of the major hindrances to locals buying homes. “There is an imbalance in the supply of the Macau real estate market; there are so many large flats in the high-end segment, but there are not enough low-to-mid-priced units to satisfy the actual needs of households here,” notes Ho. Only 2,200 of the flats completed between 2000 and 2015 were smaller than 80 square metres. “But the average size of flats transacted in the first quarter [of this year] was 65 square metres,” notes Ho. 32,000 homes were completed during the 15-year period, with the 2,200 smaller units representing just seven per cent of the total.
Business Daily Tuesday, August 23 2016 5
Macau
6 Business Daily Tuesday, August 23 2016
Macau
tanjila via Foter.com / CC BY Cinema Local filmmakers content with the opportunities provided by film investment fair.
Funding films
Developing the film industry has long been seen as the job of filmmakers, but through initiatives such as the 2016 Guangdong–Hong Kong–Macao Film Production Investment and Trade Fair, local filmmakers are getting some help in opening doors to the market, especially that of Guangdong, and securing funding to take their concepts from the page to the movie theatre. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
G
ood ideas were one of the highlights for the scripts presented in the pre-selection process for the fair, as noted by one of the members of the adjudicating panel in charge of selecting the seven local applicants who made it into the 25-strong group of filmmakers present. “I think that we have quite impressive stories,” notes Agnes Lam, Assistant Dean of the Faculty of Social Sciences of the University of Macau and panel member.
“The directors are able to look at some good topics that are not only Macau-focused, not just historical, but more contemporary,” says Lam. Lam, though impressed by the script concepts, noted that in regards to the local submissions receiving funding, certain elements could be improved. “They have good stories,” says Lam, “but in that kind of fair you need to pitch your idea in a very clear way, and also try to draw attention in a very short time.” This pitch has to be directed at a very specific audience, commented Director of the Cultural Affairs Bureau, Ung Vai Meng, during the opening ceremony, adding that it would be “advantageous for Macau filmmakers to get into the Guangdong film market”.
How to get to lights, camera, action
Local filmmaker and fair participant Maxim Bessmertny, who presented his script ‘Macau Boys’, believes this Guangdong focus makes sense, given what Macau and Guangdong have to offer each other. “That is the market where we are. You have to work with Mainland China,” comments the filmmaker, “they are interested in Macau for a reason, because of the cultural aspect and the ethnic groups and the amount of languages here. So that’s what my project was about,” he notes, expressing his desire for continued events such as the fair in the future, to bring together the film and investment communities from the region. “I think it’s important to have China, Macau and Hong Kong meet more often. What bad could come from it? Good things can happen,” says Bessmertny. Another Macau participant in the fair, filmmaker António Faria, whose script was entitled ‘The Beautiful Game’, explains the advantages that
these types of events bring to local artists. “It’s good to have this chance to pitch to investors from Guangdong, the projects that we want to develop […] these are great opportunities for all of us to learn and grow in the area,” says Faria, who wishes to develop Indie (Independent) filmmaking in Macau “with the minimum [monetary] requirements to be able to have the best quality possible.” This quality, however, comes at a cost.
Funding amounts
“There were different budgets. There were the indie budgets – as you’d call them – around HK$5 million (and less) and then there’s big budgets - up to about US$5-10 million, maybe,” opines Bessmertny, adding that his interest was not in noting how much other filmmakers were asking for, but in networking and pitching. This is a sentiment echoed by Faria, who classifies his film pitch as Indie, and is seeking a budget of US$300,000 for a feature length film, noting that: “it can’t be compared with Hollywood” in budgetary terms. A seminar on attracting investment was one of the key elements of the fair and the local participants expressed their gratitude for the offering. “We listen to speakers with more experience in the industry,” comments Faria adding that it is valuable to be able to learn from “the experiences of others that have had other struggles in the Guangdong industry. Each market is its own internal struggle. But that’s exactly why we want to be present in these events; for developing this project it’s good.” This is especially important in the changing film landscape, Bessmertny points out. “It’s a very difficult time in the film industry because of how everything’s democratised in a way. And the attention span has just completely
changed,” comments the filmmaker, noting the shrinking market for Art House films and “anything that has a great script and a great story,” in particular those that focus on the “the big theme[s]: greed, lust, pride, envy, wrath”.
Thinking provincial big
Finding a way to market these products, notes Agnes Lam, demands focusing on Guangdong province. “We all know that even in Hong Kong, if you are just relying on that market you might be successful, but it may not be big enough,” she opines, suggesting that filmmakers follow in the path of small production houses in Guangdong and Guangxi provinces who “produce micro-films [to be placed on] flights, trains, and platforms like Tudou [the video-hosting website]”. However to capture these audiences you have to find common ground, notes the professor. “Because we have kind of a wholesale cultural background, we speak the same language, even the same swear words, people feel closer when they have the same kind of slang,” describes Lam, noting the benefit of producing a product for a region and not just a city. This can come with its own difficulties though, notes Faria, in regards to some of the predominant themes of the scripts at this year’s fair. “Will these projects also be good to be distributed in China, with the censorship that implies?” enquires the filmmaker. Despite the potential limitations, Bessmertny notes that persistence is key and taking advantage of opportunities and fairs like this - because “where else in the world could I experience something like this?” – opens necessary doors. “It’s really showing that you are doing something all the time. And you do see the same people who don’t give up,” noting the familiar faces from last year’s edition of the fair and this year’s. “It’s becoming more and more transparent as to who is who and what is what,” comments Bessmertny, “which is great for filmmakers because you can start making phone calls and making decisions,” based upon the information and contacts generated from fairs like this year’s. Both filmmakers are currently working on a number of projects and further developing feature-length scripts.
Business Daily Tuesday, August 23 2016 7
Macau Infrastructure
Healthy scepticism The Islands Healthcare Project will be impossible to complete by its most-recently announced deadline of 2019, says Secretary for Transport and Public Works Raimundo do Rosário, and delays in other public works are setting the trend for government construction projects. Whi l e c o n v e rsati o n s ab o u t building a new hospital in Taipa and Coloane stretch back to before 2010, construction on the project has yet to even reach eye-level. The first phase of the project was scheduled for completion in 2014, however by June of that year the Health Bureau announced that only the preliminary design of the new hospital had been drawn up. Two years later, Secretary Rosário has confirmed that modifications to the building plans over the years have made it impossible to complete the project by 2019. Legislator Ho Ion Sang, president of the sub-committee for Land and Public Concession Affairs of the Legislative Assembly, notes that, given the evidence, planning is obviously a problem. “The government did not have a well thought out blueprint for the project so it has had to be modified several times,” says Ho, “when consulted, the government bodies did not provide all the suggestions at once […] delaying the project.” The government bodies Ho mentions encompass over 10 departments, as well as public entities, from the Fire Services Bureau to the Civil Aviation Authority to the electricity company.
“Of the seven buildings, the authorities have only finalised the construction plans for two,” notes Ho.
Oversight
This may only be the tip of the iceberg, as project management is another key area contributing to delays. “The authorities like to divide a large public project into many small
parts for different companies to bid [on] so that local constructors – albeit of smaller scale compared with Mainland Chinese and international companies – can have the opportunity to participate,” comments legislator Au Kam San. Th i s w a s ev i d e n c e d b y th e delays created by the falling out between the original contractor of the Taipa Light Rail Transit depot and the government, resulting in the termination of their contract, and leading to a new tender being re-opened in May and further delays. “The government should learn its lesson from the debacle of the railway project, avoiding dividing the [new] hospital into too many
parts, and concentrating its efforts on supervising a few contractors to make sure their works are delivered on schedule,” says Au. One way to follow the private sector example, notes Eddie Joe Wu Chou Kit, president of the Macau Society of Civil and Structural Engineers, is to give more power to the project managers to respond to contractors’ requests. “Other on-going casino projects here, like the public ones, also face similar problems but their project managers can quickly address any issues and keep the schedule on track,” says Wu. This implementation, plus a finite cap on the budget for public works, such as the hospital project, could speed up and accurately define a project, to ensure its successful completion and delivery at a reasonable rate.
“The government should learn its lesson from the debacle of the railway project, avoiding dividing the [new] hospital into too many parts” Au Kam San, Legislator
8 Business Daily Tuesday, August 23 2016
Greater China In Brief Trade duties
Japan, EU steel exports duties scrapped The Ministry of Commerce said yesterday that it would scrap anti-dumping duties on high-performance stainless steel seamless tubes imported from Japan and the European Union, effective yesterday. The ministry levied anti-dumping duties on imports of high-performance stainless steel seamless tubes from Japan and EU from November 9, 2012, the ministry said in a statement on its website. The duties ranged from 9.2 percent to 14.4 percent according to the level of dumping. On June 20, the ministry notified the domestic steel industry that it would review the anti-dumping measures. State companies
Construction materials SOEs start merger Two state-owned building materials providers have started merger preparations in the latest consolidation of China’s state-owned enterprises (SOEs). The Assets Supervision and Administration Commission yesterday announced the reorganization of the China National Building Materials Group Corporation (CNBM) and China National Materials Group Corporation Ltd. (SINOMA) in an online statement. The commission did not provide further details on the merger. CNBM is the world’s major non-metal materials manufacturer, and cement equipment and engineering service provider, with total assets over 430 billion yuan (US$64.51 billion). Results
China Overseas Land core profit up China Overseas Land & Investment, the country’s sixth-largest developer by sales value, said yesterday its first-half core profit rose 15.8 per cent on robust gains in home prices, especially in bigger cities. The state-owned homebuilder said in a statement it raised its full-year sales target by 17 per cent to HK$210 billion (US$27.1 billion), benefiting from an improving property market and the acquisition of the residential real estate business of conglomerate CITIC earlier this year. Its core profit, which excludes revaluation gains of its investment property portfolio, climbed to HK$15.8 billion (US$2.04 billion) during the period. M&A
Shanghai Electric seeks stake in Pakistani utility State-backed Shanghai Electric Power Co. said it’s seeking a stake in K-Electric Ltd., the US$2.3 billion Pakistani utility, in what could become its largest overseas deal. The Chinese company is doing preliminary preparation work on acquiring a stake in K-Electric and hasn’t decided how much it will buy, it said in a Shanghai exchange filing yesterday. Shanghai Electric Power isn’t the only company competing in the auction, so there’s no certainty it will succeed, according to the filing. Shanghai Electric Power is vying with Chinese clean-energy group Golden Concord Holdings Ltd. for control of K-Electric.
Job figures
Behind stable data, Mainland grapples with hidden unemployment The official jobless rate has been virtually unchanged at about 4.1 per cent since 2010 even as the economy slowed.
C
racks are starting to show in China’s labour market as struggling industrial firms leave millions of workers in flux. While official jobless numbers haven’t budged, the underemployment rate has jumped to more than 5 per cent from near zero in 2010, according to Bai Peiwei, an economics professor at Xiamen University. Bai estimates the rate may be 10 per cent in industries with excess capacity, such as unprofitable steel mills and coal mines that have slashed pay, reduced shifts and required unpaid leave. Many state-owned firms battling overcapacity favour putting workers in a holding pattern to avoid mass layoffs that risk fuelling social unrest. While that helps airbrush the appearance of duress, it also slows the shift of workers to services jobs, where labour demand remains more solid in China’s shifting economy. “Underemployment in overcapacity industries is a drag on the potential improvement of productivity in China, which will lead to a softening wage trend,” said Grace Ng, a senior China economist at JPMorgan Chase & Co. in Hong Kong. “It would exert pressure on private consumption demand and in turn affect the overall rebalancing of the economy.”
Underemployment tripled
Other projections indicate the employment situation is even worse. An indicator of unemployment and underemployment produced by London-based research firm Fathom Consulting has more than tripled since 2012 to 13.2 per cent. The official jobless rate isn’t much help for economists: it’s been virtually unchanged at about 4.1 per cent since 2010 even as the economy slowed. The gauge only counts those who register for unemployment benefits in their home towns, which doesn’t take into account 277 million migrant workers. Total employment is 775 million, National Bureau of Statistics data show. The NBS also compiles a newer survey-based jobless rate for big cities, which has been holding steady at about 5 per cent, but that index isn’t updated on a regular basis. There’s no official underemployment rate.
With the newly-added labour force now in decline as the population ages, workers should become more scarce during the boom of the labour-intensive services sector. That suggests economic slowdown is the main culprit of labour under-utilization, said Fielding Chen, an economist at Bloomberg Intelligence in Hong Kong. Bai bases his estimate on average labour activity and worker productivity. From 2004 to 2008, underemployment was effectively near zero following rapid productivity gains from China’s 2001 admission to the World Trade Organization and state-owned industry reforms.
Global rates
Bai’s rate is lower than numbers for other countries, which use varying methodologies. The U.S. rate known as U-6 is 9.7 per cent, down from a record 17.1 in 2009. Australia’s underemployed ratio is 8.7 per cent. Mexico’s underemployment rate is 7.68 per cent.
“Underemployment in overcapacity industries is a drag on the potential improvement of productivity in China, which will lead to a softening wage trend” Grace Ng, a senior China economist at JPMorgan Chase & Co. in Hong Kong Conflicting objectives complicate China labour market dynamics. Even as President Xi Jinping and other top leaders pledge to reduce overcapacity, other official policies prevent widespread firings, in turn letting unprofitable “zombie companies” lock up broad swaths of the labour force by keeping them in limbo with shorter shifts and less pay.
In the heart of coal country, Shanxi Luan Mining Group Co. has said it put some workers on leave to alleviate pressure from downward prices and save money on wages. In Liaoning province, Angang Steel Co. has slashed some salaries by half as it aims to cut total pay by 10 per cent this year and ordered early retirement for 3,600 workers, China Youth Daily reported in June. “Underemployment is especially rampant at state-owned companies,” said Zeng Xiangquan, a professor of labour and human resources at Renmin University in Beijing. “The government tends to overprotect them.” That keeps laid-off workers from getting retrained and hired into new jobs in more thriving sectors like services or high-end manufacturing, Zeng said.
Zombie companies
Zombies make up about 7.5 per cent of industrial businesses, which are mostly state-owned enterprises (SOE) in the northeast rust belt and the lessdeveloped western regions, the official Xinhua News Agency reported in July, citing Renmin economics professor Nie Huihua. “There’s no quick fix,” said Fathom economist Laura Eaton. “In the short term, to reduce the problem of underemployment in China, the government should allow those ‘zombie companies’ with low productivity growth and excess capacity to default or shut down.” If policy makers act swiftly, history shows it’s possible for them to tighten that unwanted slack back to where it used to be, said Bai, who has tracked China’s underemployment back to the beginning of the reform and opening up in 1978. Bai’s research shows that underemployment peaked in 1983, 1990 and 2002, but fell sharply after each episode. China began SOE overhauls and extended economic reforms from rural areas to cities in 1984, pushed further overhauls in 1992, and enjoyed an export-led lift off in the early 2000s after WTO entry. More fiscal policy support for the economy and funding to help fired miners and steelworkers get new skills would be good steps toward a solution, JPMorgan’s Ng said. If the other accompanying structural changes let the stronger services sector and healthier new industries tap idle productivity, Bai said, underemployment could decline once again. Bloomberg News
Business Daily Tuesday, August 23 2016 9
Greater China M&A
US watchdog clears ChemChina’s Syngenta acquisition Syngenta rebuffed US-rival Monsanto three times last year before accepting ChemChina’s offer. A US national security regulator has approved a state-owned China National Chemical Corp.’s planned US$43billion takeover of Swiss pesticide and seed giant Syngenta, the two companies said yesterday. ChemChina and Syngenta said in a joint statement that they had “received clearance on their proposed transaction from the Committee on Foreign Investment in the United States (CFIUS).” They said a number of anti-trust regulators around the world still need to approve what would be by far the biggest-ever overseas acquisition by a Chinese firm. They said the transaction was expected to close by the end of the year. ChemChina announced the blockbuster deal in early February, vowing to dish out US$465 for each Syngenta share, plus a special dividend. Initially, the companies had expected to wrap up the first part of
the transaction by May 23, but the period has been prolonged twice as the companies wait for the verdict of various competition authorities, which is now set for September 13. There have been few hurdles to the planned deal in Switzerland, but it raised more than a few eyebrows in the United States, where much of Syngenta’s business is based. At the end of March, four members of the US Senate agriculture committee wrote a letter to Treasury Secretary Jack Lew voicing their concerns. The senators, from both the Republican and Democratic parties, asked that the planned deal be scrutinised for “any potential ramifications the purchase may have for American national security, with a specific focus on the potential effects on food security and the safety of our food system.” This led to the review by CFIUS, an inter-agency committee that assesses
the national security implications of foreign investments in US companies. Syngenta rebuffed US-rival Monsanto three times last year before accepting ChemChina’s offer. The proposed merger is not the only mega takeover planned in the sector as low crop prices push demand down for many agricultural products. German chemicals and
pharmaceuticals giant Bayer is intent on snapping up Monsanto, last month saying it would raise its initial US$62billion offer for the company. And last December, two of the oldest US companies, Dow Chemical and DuPont, announced a tie-up to create the world’s biggest chemical and materials group, valued at US$180 billion. AFP
M&A
Vanke says Evergrande has not responded to its queries on stake buy Evergrande has built up a near 7 per cent interest in Vanke this month. China Vanke, the residential property developer at the centre of a high-profile power struggle, said smaller rival China Evergrande Group has not responded to its queries about its intention in building up a stake in the firm. “Evergrande is a relatively respectable peer of ours,” Wang Wenjin, executive vice president of Vanke, told an earnings press conference in Hong Kong yesterday. “We have been asking them about their intention in buying our shares but they have never replied.” Evergrande has built up a near 7 per cent interest in Vanke this month. Vanke’s management is already fending off a potential bid from its biggest investor, financial firm Baoneng Group,
which has built up a 25 per cent stake despite the developer’s protests. The comments by the Vanke executive mean clues about how China’s most publicly fought corporate battle will turn out are still hard to come by. The companies involved in the tussle have hardly commented so far on their motives or strategies. The saga, though is hurting Vanke, with the company saying on Sunday that some of its partners and customers have raised concerns about its prospects as a result of the battle. Vanke company secretary Zhu Xu told the briefing yesterday that Evergrande was in touch with Vanke before it bought the shares. “The power battle looks mysterious at the moment,” Zhu said. Evergrande declined to comment. Vanke president Yu Liang was absent from yesterday’s briefing, for the first time in recent years. “He’s busy
handling the company’s power battle,” Zhu said. Vanke chairman Wang Shi, who has skipped the briefings in the
Vanke company secretary Zhu Xu. Bloomberg
past few years, was also not present. Fearing a hostile takeover bid by Baoneng, Vanke’s management announced in June an agreement on a US$6.9 billion deal with white knight Shenzhen Metro Group. Both Baoneng and Vanke’s second-largest shareholder, China Resources, have said they would oppose the deal. Zhu said yesterday Vanke will continue to negotiate with major shareholders to come up with new terms on the deal that will be beneficial to all. Baoneng also proposed to oust Vanke’s board, which China Resources did not support. Vanke reported a 10 per cent rise in net profit in the first six months, falling short of analyst estimates due to lower-than-expected average selling price, dragged by booking of projects pre-sold during a market correction in 2014. Reuters
SDR
Domestic investors uninspired by World Bank bond auction Investors said Beijing will not let an auction intended to support the internationalization of the currency fail for lack of demand. Plans by the World Bank to sell special drawing right (SDR) bonds in China are facing market headwinds thanks to expectations of low yields, investors said, although state-owned banks will likely take up any slack in demand. The issue would be the first SDR bond in 35 years and is part of a wider push in China to increase the net supply of such bonds, helping boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves. The bonds will be settled in renminbi, but Chinese traders said they expected limited demand. “The first wave of SDR bonds will be held until maturity; liquidity will be relatively poor,” predicted an analyst report by China International Capital Corporation. China’s central bank said earlier in August that the World Bank will issue 500 million SDR (US$700m) in bonds as part of a 2 billion SDR programme. The IMF has agreed to include the yuan in its SDR basket from October 1 this year. It will take up 10 per cent of the basket and sit alongside the dollar, the euro, the pound and the yen.
Inclusion was seen as a major diplomatic victory for Beijing, which is trying to increase the global stature of its currency for use in trade and as a reserve currency. But the victory is largely symbolic so long as SDR bonds remain lightly used. IMF data shows that SDR holdings made up only 3.24 per cent of global official currency reserves at the end of 2014. No official yield range has been
published for the SDR bond issue and no final date for their sale has been set either.
Too low
The World Bank has discussed the potential yield at length with the underwriter, a spokesperson said, noting the issue would provide a hedge against currency risk. However, Chinese dealers said the yield on the bonds would be too low to attract much demand from commercial traders, reflecting in part low-to-negative interest rates in Japan, the United States and Europe. The latest SDR interest rate posted by
the IMF stood at 0.05 per cent. A source close to World Bank bond underwriters predicted the SDR bonds would carry a coupon of between 0.3 per cent and 0.6 per cent. A coupon of less 1 per cent would be a new low in the domestic market, traders said. “That coupon is too low. We prefer allocating offshore U.S. dollar bonds with higher yields under normal circumstances, but, still, we will buy some to support the innovation and renminbi internationalisation,” said a Beijing-based investor with a major state-owned Chinese bank. ICBC, the lead book runner on the offering, calculated that investors could get an annualised return of 2.5 per cent in renminbi on the basis of currency forwards on the four other currencies in the SDR basket, assuming a coupon of 0.5 per cent. However, domestic investors can buy far more liquid three-year China Development Bank bonds yielding around 2.7 per cent, without having to tangle with currency swaps and forwards, which remain underdeveloped in China. Still, investors said Beijing will not let an auction intended to support the internationalisation of the currency fail for lack of demand. If commercial buyers hold back, the central bank will order major stateowned banks to buy up the issue, as they have done in other offshore bond issues. Reuters
10 Business Daily Tuesday, August 23 2016
Greater China
Tourism
Mainlanders change shopping habits in Japan As incomes keep rising in China, Japan can count on its larger neighbour remaining the key to the health of its tourism industry. Keiko Ujikane and Cory Baird
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he spending power of Chinese tourists in Japan is so impressive there’s a special word for it: bakugai, or explosive buying. While the soaring yen this year has threatened to curb their enthusiasm, the latest figures from the Japan National Tourism Organization show that 731,400 Chinese visitors flocked to the country in July, a monthly record. What also emerges from a detailed look through tourism data is
the growing importance of young women travellers, the popularity of Japanese cosmetics, and waning sales of electronic goods as the quality of Chinese-made products improves. “Chinese consumers are starting to buy electronic goods domestically,” said Yoko Hayano, a senior consultant at JTB Tourism Research & Consulting Co. in Tokyo. The stronger yen and higher customs levies faced by Chinese tourists when they go home may reinforce this trend. Also behind this shift in buying patterns is a large number of women
travellers in their 20s and 30s, who accounted for more than 40 per cent of all Chinese tourists in the second quarter of this year, according to the Japan Tourism Agency. More than half of Chinese tourist come in on trips of four to six days and travel the so-called golden route that links Tokyo, Mount Fuji, Kyoto, and Osaka. “It used to be the common notion among us Chinese that Japanese electronics are superior, but I think Chinese products are just fine nowadays,” said Liu Yi, a 36-year old housewife from Hubei Province. “It’s Japanese cosmetics and health-care supplements that are very nice,” said Liu, as she lined up for opening time outside the Mitsukoshi department store in Tokyo’s Ginza shopping district.
As incomes keep rising in China, Japan can count on its larger neighbour remaining the key to the health of its tourism industry.
“A large number of women travellers in their 20s and 30s accounted for more than 40 per cent of all Chinese tourists in the second quarter of this year” Japan Tourism Agency
Liu, who was on her first visit to Japan, travelled with her daughter and mother-in-law. If statistics are any guide, they may be back. Bloomberg News
Leveraged fund
Bearish ETF fades a year after rout Regulators are paying close attention, particularly after finding such funds were partly responsible for a bout of market mayhem. Elena Popina
An exchange-traded fund (ETF) designed to profit from declines in Chinese stocks that was a standout when it was created a year ago is now languishing as the country’s growth outlook improves. Total assets in the Direxion ETF surged 101 times to US$403 million from June to August 2015 as traders piled in to take advantage of a market selloff. Now they’ve shrunk to less than US$90 million as the leveraged fund’s shares trade near a record low. The Direxion Daily CSI 300 China A Share Bear 1X Shares fund, the fastest-growing new ETF when it was started last year, has dropped 24 per cent from this year’s high in February. Better than expected economic data and government efforts to enhance market transparency have helped drive a rebound in mainland-traded stocks from the lowest levels in two years. “When it comes to a leveraged fund, one day you can be the best-performing product when the market is cooperating, and the next day you are crashed,” Mohit Bajaj, a director of ETF trading solutions at WallachBeth Capital in New York who has been covering exchange-traded funds for more than 10 years, said by phone from New York. “We may see the
fund rally again once the sentiment on China sours, but it’s easy to make a mistake and lose a lot of money.” The quick success of the Direxion ETF, the first designed to use leverage to amplify returns from falling Chinese mainland shares, was partly because of the right timing. It started just prior to a market crash spurred by a surprise yuan devaluation. For some bears, it was easier to buy the fund than use the two other main options available at the time - the futures market or short-selling the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF.
“If we see a pullback in China, I would expect that the assets in the bear fund would creep back up again” Sylvia Jablonski, managing director at Direxion Investments
A year ago, when the China market rout was at its worst, the Direxion fund’s assets swelled at the fastest pace among the almost 200 U.S.-traded ETFs that started in the prior eight months, according to data compiled by Bloomberg. After about US$5 trillion of equity value was wiped out in the rout last year, China has moved to improve access to markets and stabilize a slowdown in economic growth. The nation’s economic expansion held at 6.7 per cent in the second quarter from a year earlier, beating the 6.6 per cent growth forecast in a Bloomberg survey.
‘Amplified returns’
“If we see a pullback in China, I would expect that the assets in the bear fund would creep back up again,” Sylvia
Jablonski, managing director at Direxion Investments, said by phone last week. “We never recommend holding our ETFs for a long period of time, at least not without actively managing and reviewing your position on a daily basis.” Leveraged ETFs use swaps or derivatives to try to amplify daily index returns, delivering the multiple on a one-day return. This ultimately can produce higher-than-expected gains if the index moves in one direction over the long term. Market reversals will lead to worse-than-anticipated returns. Laurence Fink, who oversees the world’s biggest suite of ETFs as chairman of BlackRock Inc., has sharply criticized the leveraged structure, saying such funds could “blow up the market.” Regulators are paying close attention, particularly after finding ETFs were partly responsible for a bout of market mayhem last year. For the brave of heart, leveraged funds could bring some hefty returns. Four of the top five U.S. ETF performers this year are leveraged funds. The best-performing fund this year, Direxion Daily Junior Gold Miners Index Bull 3x Shares, has rallied 920 per cent this year through Thursday. Some exchange-traded fund analysts remain cautious. “The level of risk that the leveraged funds have is too much for some of the traditional ETF investors to put up with,” Todd Rosenbluth, a New York-based director of ETF research at S&P Global Market Intelligence, said by phone last week. “Leveraged funds are for some highly sophisticated traders, but even so the risk is too high you can lose all you got.” Bloomberg News
Business Daily Tuesday, August 23 2016 11
Asia Stock markets
South Korea’s boxed-in Kospi sends investors looking abroad Local shares have long traded at discounts to peers elsewhere due to low dividends and investor concerns about corporate governance. Dahee Kim
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outh Korean shares have been emerging Asia’s most becalmed for six years, trading in a narrow range as a sluggish economy and weak exports stifle profits and investment, sending local investors increasingly in search of returns elsewhere. The lack of long-term movement has led Korean investors to nickname the benchmark Kospi index the “Boxpi”, despite short-term volatility that is the highest in Asia. Koreans’ overseas stock purchases increased from US$1.5 billion in 2011 to US$7.5 billion 2015, up 370 per cent, according to Korea Securities Depository data. They have bought US$4.1 billion worth of shares so far in 2016. “Companies, especially the ones that are leading exporters, need to improve their earnings to escape this box. For this to happen, the global economy has to show clear signs of recovery,” said Yuanta Securities analyst Cho Byung-hyun. Korean large and mid-cap companies had Asia’s second-lowest return on equity (ROE) last year at 8.5 per cent, according to Thomson Reuters StarMine, ahead only of Japan’s 7.2 per cent. South Korean shares have long traded at discounts to peers elsewhere
due to low dividends and investor concerns about corporate governance and opaque shareholding structures at the conglomerates that dominate Asia’s fourth-largest economy. According to Yuanta Securities, from 2010 to July 27, the KOSPI showed the least movement among emerging Asian markets, gaining just 43.5 per cent from its lowest to highest. In the same period, Manila’s PSE jumped as much as 190.5 per cent and
the Shanghai SE Composite Index 164.9 per cent. It also moved less than markets in Japan and Hong Kong, although among developed markets Singapore has been even more range-bound. The same pattern occurs when the markets are compared by how much they moved within the middle 50 per cent range, which leaves out extreme moves and shows Korean shares gained only 6.5 per cent from the bottom to the top of that range, while stocks in the Philippines rose 62.9 per cent and Thai equities gained 39.4 per cent, according to Yuanta’s data. The short term is a different story.
“Local investors, however, have expectations that the Kospi will not strengthen beyond the 2,000 level due to sluggish exports, and dump stocks” Seo Sang-young, analyst at Kiwoom Securities
The Kospi’s standard deviation how much the daily move fluctuates from the long-term average - is 1.8 times, according to Thomson Reuters data, the highest in Asia and more volatile even than India. India’s CNX Nifty Options contracts is the world’s most heavily traded, while Kospi 200 options are the world’s fourth most popular, according to the FIA.
Opposing flows
Flows of local and foreign investors that cancel each other out help keep the Kospi in a box. Since late 2011, domestic investors have tended to take profits when the Kospi nears 2,000 points - a level where offshore investors seeking bargains start to buy, said Seo Sangyoung, analyst at Kiwoom Securities. “The Korean economy is quite stable and its currency volatility is much lower than in other emerging countries in Asia, making it less risky for offshore investors,” he said. “Local investors, however, have expectations that the Kospi will not strengthen beyond the 2,000 level due to sluggish exports, and dump stocks,” he said. South Korean stocks have been range-bound for so long that shortly before she was elected president in late 2012, Park Geun-hye pledged to boost the Kospi over the 3,000 mark during her five-year term. The benchmark, which traded at a 200-day moving average of 1,924.41 at the time of Park’s promise, closed at 2056.24 on Friday, reflecting a global rally in stocks and a meteoric 32 per cent gain this year by index heavyweight Samsung Electronics. “We’re seeing more investors take their money overseas and although exchange rates are a factor that can affect this, the trend is expected to grow stronger,” said Seo. Reuters
Currency
Thai central bank says further baht gains may hurt recovery Emerging-market currencies, including the baht, have rallied on optimism that global central banks will keep monetary policy accommodative to support growth. Lilian Karunungan and Suttinee Yuvejwattana
Thailand’s central bank is concerned further appreciation of the baht will hurt exporters and damage the nation’s economic recovery. The currency advanced to the strongest level in 13 months last week as overseas investors boosted their holdings of the country’s stocks and bonds this year. Exports have contracted in 16 of the past 18 months, prompting Prime Minister Prayuth Chan-Ocha to increase spending to counter the slump. The currency has also rallied as investor confidence was bolstered by the peaceful approval of a new constitution in an August 7 referendum. “To date, the appreciation of the baht might have dampened the cash flows of Thai exporters,” Bank of Thailand Assistant Governor of Financial Markets Chantavarn Sucharitakul, said in an e-mail interview. “Further strength in the baht might also derail the recovery of the Thai
economy – a concern which the Bank of Thailand has to monitor closely.” Funds based overseas boosted their holdings of the nation’s stocks and bonds by US$13.3 billion this year, according to exchange data. Emerging-market currencies, including the baht, have rallied on optimism that global central banks will keep monetary policy accommodative to support growth. “Given that the inflows are externally driven, the reversal process is inevitable and the best that a recipient economy can do is to ensure that it is resilient and sufficiently well balanced to be able to absorb shocks, emanating from both sides be they inflows and outflows,” Chantavarn said. Thailand’s economy grew more in the second quarter than analysts predicted, expanding 3.5 per cent from a year earlier, the National Economic and Social Development Board said last week. The authorities are resorting first to “verbal intervention” to restrain
excessive appreciation of the baht, said Charlie Lay, a currency analyst at Commerzbank AG in Singapore. Another option is to relax foreign-exchange regulations further to encourage capital outflows, he said. The central bank in July allowed investors with assets greater than 100 million baht (US$2.9 million) to invest in securities and derivatives
“The bottom line is they’ll probably want to keep the Thai baht stable on a relative basis against its major trading partners” Charlie Lay, a currency analyst at Commerzbank AG in Singapore
overseas without going through a Thai intermediary. “The bottom line is they’ll probably want to keep the Thai baht stable on a relative basis against its major trading partners,” Lay said. The currency will weaken to 35.4 per dollar by year-end, according to the median estimate in a Bloomberg survey. Bloomberg News
12 Business Daily Tuesday, August 23 2016
Asia In Brief Development
Vietnam in need of social housing Vietnam needs 10 million square meters of social housing, but currently the country has only 30 per cent of that, according to Vietnam Construction Minister Pham Hong Ha yesterday. Ha was quoted by Vietnam’s staterun news agency VNA as saying that the imbalanced developments in supply and demand of luxury projects and housing projects for low-income earners are a problem in Vietnam. Oversupply of luxury projects and shortage of housing projects are forecast for next year, said Ha. Vietnam will focus on promoting social housing developments, said the minister. Financing
S.Korea t-bond issuance less in 2017 South Korea’s treasury bond issuance next year is likely to be less than the amount planned for this year thanks to tax revenue exceeding estimates, finance ministry officials told Reuters yesterday. “Next year’s debt-financing bond issuance will be much less than this year’s, resulting in an overall smaller treasury bond issuance in 2017 as tax collection has been good,” said a finance ministry official, who declined to be named. This year, 41.4 trillion won (US$36.79 billion) out of 45.9 trillion won worth of treasury bonds to be sold will be to finance the country’s debt. Commodities market
Tokyo Steel keeps prices unchanged
Tokyo Steel Manufacturing , Japan’s top electric arc furnace steelmaker, said yesterday it would keep product prices unchanged for the third month in September, reflecting a slow recovery in its local market. Tokyo Steel’s pricing strategy is closely watched by Asian rivals such as Posco, Hyundai Steel Co and Baosteel, which all export to Japan. “There are signs of an improvement in export and domestic markets, but we want to wait and see to have a clear picture of the trend in markets,” Tokyo Steel’s managing director, Kiyoshi Imamura, told reporters. Health issue
Singapore’s PM Lee to take medical leave Singapore Prime Minister Lee Hsien Loong will be on medical leave until August 29 on the advice of his doctors, his office said yesterday. Lee took ill while delivering a National Day rally speech on Sunday but returned to the stage after a break of about an hour. Lee’s illness was brought on by a temporary drop in blood pressure due to prolonged standing, exhaustion and dehydration, the prime minister’s office said in a statement. Doctors had confirmed there were no cardiac abnormalities and no stroke, the office said.
GDP forecast
High wages flash recession warnings in Singapore Almost 42,000 businesses ceased in the first half of this year versus nearly 49,000 in the whole of 2015, government data shows. Jongwoo Cheon and Marius Zaharia
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aladStop owner Adrien Desbaillets has eased off on expansion plans for his organic food chain in Singapore because high wages are pressuring profit margins at a time when the affluent city state is grappling with low growth and slack global demand. Instead Desbaillets is branching out in Manila, Jakarta and even in wealthy Tokyo in a worrying sign for Singapore’s small, open economy. Indeed, while the city state’s economy is expected to grow between 1-2 per cent for the year, analysts say the wage-cost pressures are flashing warnings of a recession. At roughly 43 per cent of gross domestic product - though below the 55 per cent world average - wage costs in Singapore are now at levels which historically had preceded recessions in 1985, 1997 and 2001. The trouble is that the higher wages are raising business costs at a time when export-oriented Singapore has been hard hit by a cooling China, subdued domestic consumption, a downturn in commodities and global uncertainty due to Britain’s vote to leave the European Union. “We would have opened two or three more outlets in Singapore if it weren’t for the high wages ... and we would have taken on more projects,”
Key Points Wages at levels which had previously preceded recessions Salary increases surpass productivity growth Tight foreign hiring rules means local workforce less productive “We’ve started hearing of decisions to call it a day,” Wee said. The figures are telling. Almost 42,000 businesses ceased in the first half of this year versus nearly 49,000 in the whole of 2015, government data shows. Total nominal wages rose 4.6 per cent per year on average over the past decade, compared with a 0.5
“Token locals”
Singapore is the fourth most expensive city in the world, according to Mercer, a global consultancy. The high wages partly reflect that. But they would have been lower without the curbs on foreign workers introduced in 2011 amid disquiet over immigration. The tighter rules also hurt productivity, recruiters say. “Anecdotally, companies are known to have hired token locals employees needed to meet quotas so that the company can hire another foreigner,” said Lee Quane, Asia director at recruiting consultancy ECA International. A shortage of talent in sectors like IT and life sciences means wages in those industries grew faster than the economy, recruiters say. Simon Lee, CEO of IT company Thatz International Pte Ltd, is looking for merger opportunities to save on the cost with “HR, finance and admin.” But he remains frustrated with the tight labour market: “Maybe we are killing the geese that lay the golden eggs.” Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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said Desbaillets, whose chain has 15 outlets in Singapore, eight in Manila and is due to open in Jakarta and Tokyo in October. “We’ve been able to hedge our risk a little with our expansion abroad.” Desbaillets pays his Singapore staff S$1,600 to S$3,200 (US$1,191 to US$2,382), versus S$300-S$400 in Manila. His business is growing, but others with less firepower are struggling. They include the majority of the 12,000 companies that Kurt Wee, President of the Association of Small & Medium Enterprises, represents.
per cent average annual growth rate of value-added per worker in that period. And recent data showed the unit labour cost index hitting a record high of 116.7 in the second quarter. Trinh Nguyen, Natixis’ senior emerging Asia economist says this increases recession risks. “It squeezes firms’ profit margins and erodes exporters’ ability to compete,” Nguyen said. “While they cannot earn more money externally ... they cannot reduce cost structures.”
Business Daily Tuesday, August 23 2016 13
Asia Private poll
Japan Inc unenthused over Abe’s stimulus Companies voiced concerns about an uncertain outlook for consumer spending and the broader economy. Tetsushi Kajimoto
Japanese companies overwhelmingly say the government’s latest stimulus will do little to boost the economy and the Bank of Japan should not ease further, a Reuters poll showed, a setback for policymakers’ efforts to overcome deflation and stagnation. Prime Minister Shinzo Abe this month unveiled a 13.5 trillion yen (US$135 billion) fiscal package of public works projects and other measures, vowing a united front with the BOJ to revive the economy and raising speculation of a surge in government spending essentially financed by the central bank. But less than 5 per cent of companies believe the steps will boost the economy near-term or raise its growth potential, according to the Reuters Corporate Survey, conducted August 1-16. “It’s disappointing that the stimulus focuses on public works, and it lacks attention to promoting industry and technology that would lead to future growth,” said a manager at a precision-machinery maker. Abe took office 3 1/2 years ago, pledging to reboot the economy with aggressive monetary stimulus, fiscal spending and reform plans. After an early spurt of growth and surging corporate profits, helped by a sharp fall in the yen, the economy is again sputtering and prices are slipping, underscoring the challenge for Japan to beat nearly two decades
of deflation and anaemic growth. “Unless drastic steps are taken to fix the root of Japan’s problems the falling birthrate and working population - solid economic growth won’t return ... only public debt would pile up without sustainable growth,” said an electrical machinery firm. At the same time, 63 per cent urged the government to expand fiscal support for new technology such as the Internet of Things, and artificial intelligence. Companies voiced concerns about an uncertain outlook for consumer spending and the broader economy, urging Abe to accelerate structural reforms, the “third arrow” of his “Abenomics” programme, which many economists say has been neglected. The survey, conducted monthly for Reuters by Nikkei Research, polled 533 big and medium-sized firms, with managers responding anonymously. Around 260 companies responded.
BOJ exit
Corporate Japan was also cautious about fresh monetary stimulus, with over 60 per cent saying the BOJ should not ease further or should even start to wind down its massive stimulus. The combination of the central bank’s heavy buying of government debt with increased fiscal spending has led to criticism that Japan is essentially engaging in “helicopter money” - the practice of a
Prime Minister Shinzo Abe this month unveiled a US$135 billion fiscal package of public works projects and other measures
central bank underwriting profligate spending. “Helicopter money must be avoided,” said a general machinery firm. The Corporate Survey was taken just as Abe announced the economic stimulus earlier this month, and comes on the heels of data last week that showed the world’s thirdlargest economy stalled in the second quarter. The BOJ embarked on unprecedented easing more than three years ago but its adoption of negative interest rates this year - in which commercial banks are charged to park excess funds with the central bank - has drawn criticism from banks for squeezing their profits. With prices still sliding despite three years of aggressive asset purchases, the BOJ’s policy review in September
could put up for debate its target for expanding Japan’s money supply, sources say.
Key Points Less than 5 pct of firms see economic boost from stimulus Japan firms call for more focus on structural reform 62 pct say BOJ should keep from further easing or eye exit “Many companies appear to want the government to shift focus away from fiscal stimulus to structural reform and deregulation, while feeling monetary policy has hit limits,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. Reuters
M&A
South Korea aims to sell stake in Woori Bank by end-2016 The regulator said the government aims to receive letters of intent from bidders by around September 23. Joyce Lee
South Korea will attempt to sell a 30 per cent stake in Woori Bank by the end of this year in a move that could recoup nearly US$2 billion of taxpayer money spent bailing out the bank nearly two decades ago, having tried and failed to sell a majority stake four times since 2010. In a statement yesterday, country’s financial regulator, the Financial Services Commission (FSC), said it plans to 30 per cent of Woori Bank - owned by state-run
Korea Deposit Insurance Corp - to multiple suitors, both Korean and international. The FSC said it wants to auction off a series of stakes in Woori ranging in size from 4 to 8 per cent. “There is interest from diverse investors both local and overseas,” the FSC said in its statement, without identifying potential bidders. The government, which owns 51 per cent of Woori, failed to attract sufficient bidder interest in its previous attempts to sell the whole stake.
The regulator said the government aims to receive letters of intent from bidders by around September 23, decide on winning parties in November, and close the sale by December.
Key Points Stake to be sold in tranches of 4-8 pct each - regulator 30 pct of Woori worth about $1.84 bln by market value Interest from domestic and overseas investors - regulator Four previous attempts to sell controlling stake failed
A 30 per cent slice of Woori, the country’s fourth-largest bank by assets, would be worth about 2.07 trillion won (US$1.84 billion), according to its latest market value. In June, a person with direct knowledge of the matter told Reuters that China’s Anbang Insurance Group had expressed interest in buying a stake in Woori. The government is seeking to recoup some of the 12.8 trillion won it spent to bail out Woori and its former affiliates in the aftermath of the 1997-1998 Asian financial crisis. It has recouped 8.3 trillion won thus far through measures such as block sales and dividends. Reuters
14 Business Daily Tuesday, August 23 2016
International In Brief Privatization
Russia “to do its best” to privatise Rosneft in 2016 Russia’s government should do its best to privatise a stake in the nation’s largest oil producer Rosneft this year, Russian Economy Minister Alexei Ulyukayev said yesterday. “Taking into account the attractiveness of this asset and keeping in mind that this would allow us to resolve to a large extent the problem of the budget deficit, I believe a sale of part of Rosneft will be a priority project now,” Ulyukayev said. He also said that it was technically possible to privatise mid-sized oil company Bashneft at the end of 2016 or in 2017, if there was “a political decision”. M&A
Pfizer boosts cancer drug pipeline with Medivation deal Pfizer Inc said yesterday it would buy U.S. cancer drug company Medivation Inc in a deal valued at about US$14 billion, adding blockbuster prostate cancer drug Xtandi to its portfolio. Medivation shares were up 20 per cent at US$80.56 in premarket trade, just shy of the offer price of US$81.50 per share in cash. The offer is at a substantial premium to Sanofi SA’s initial offer to buy Medivation for US$52.50 in April that pushed the San Franciscobased company to put itself up for sale. Trade
Travel industry
Global tourism GDP resilient this year Overall the global sector is expected to grow by 3.1 per cent in 2016
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ravel and tourism will contribute less than previously forecast to the economies of France, Turkey and Brazil this year, hit by attacks, political and economic turmoil, though globally the sector is resilient, the World Travel and Tourism Council said. Brazil is hosting the Olympic Games this year but its travel and tourism sector has suffered under a political crisis, its worst recession since the 1930s, and the Zika virus. The sector’s contribution to Brazil’s gross domestic product (GDP) is expected to shrink by 1.6 per cent this year, against a previous forecast for a drop of 0.9 per cent, the WTTC said. Islamist militant attacks in Paris, Brussels and Nice have resulted in
lower demand for travel to Europe. In France, the travel and tourism sector’s contribution to GDP will grow 1.1 per cent this year, down from a previous forecast of 2.9 per cent. “The Paris incident did have an impact because it’s the first point of entry to Europe for a lot of Asian and North American travellers,” David Scowsill, president of the WTTC told Reuters. The number of foreign tourists fell sharply in France in the second quarter of the year, official data showed on Friday. In France, the sector contributed 80.4 billion euros (US$90.9 billion), or 3.7 per cent of total GDP, in 2015. A series of militant bombings in Turkey and a failed coup have also deterred tourists, and the sector’s contribution to GDP there will shrink by 3.2 per cent this year, sharply lower than a previously forecast drop of 0.2 per cent. Overall, however, the global travel and tourism sector is expected to grow by 3.1 per cent in 2016, faster
than predicted global GDP growth of 2.3 per cent, driven by increasing numbers of travellers from Asian countries, especially China and India. “There’s lots of macro-economic weakness around, but the travel and tourism industry is doing very well. It’s the same level of growth as 2015,” Scowsill said. He said that despite security concerns, people were still travelling but had shifted destinations. Asian travellers were tending to choose Australia for vacations this year instead of Europe, for example. Brazil’s Olympic Games, which ended on Sunday, should help to boost demand for travel there next year, Scowsill said, although he said Brazil had to deal with its economic problems. In 2015, the direct contribution of the sector to Brazil’s GDP was 190.5 billion Brazilian reais (US$59.5 billion), equivalent to 3.3 per cent of total GDP, the WTTC said. The fall in sterling as a result of Britain’s vote to leave the European Union should boost demand for trips to Britain over the next six to eight months, helping to cancel out any reduction in spending on travel by Brits, Scowsill added. Reuters
“There’s lots of macro-economic weakness around, but the travel and tourism industry is doing very well.” David Scowsill, president of the World Travel and Tourism Council
German exports to Iran soar German exports to Iran, mostly machines and equipment, jumped in the first half of the year following the removal of international sanctions against the Islamic Republic, official trade data showed yesterday. Exports to Iran surged by 15 per cent year-on-year in the first six months of 2016 to 1.13 billion euros (US$1.3 billion), the Federal Statistics Office said. This compares with a rise of 1.4 per cent in overall German exports in the same period and a fall of 14 per cent in German exports to Iran in 2015. Rate hike
Fed close to hitting job and inflation targets The Federal Reserve is close to hitting its targets for full employment and 2 per cent inflation, the Fed’s No. 2 policymaker said on Sunday in comments that did not address when the U.S. central bank should next raise interest rates. The Fed has been suggesting it could raise rates in 2016 since it tightened policy in December for the first time in nearly a decade, but investors have doubts the central bank will follow through on that guidance. Fed Vice Chairman Stanley Fischer gave a generally upbeat assessment of the economy’s current strength, saying the job market was close to full strength and still improving.
Business environment
Sun International joins South African exodus from Nigeria Africa’s largest economy is suffering its worst financial crisis in decades. Nqobile Dludla
Hotel and gaming group Sun International has become the latest South African business to pull out of Nigeria because of weak economic growth and clashes with regulators and shareholders in the west African country. In January, Nigeria’s Economic and Financial Crimes Commission (EFCC) launched a probe into Sun International’s initial investment in the Tourist Company of Nigeria (TCN), which owns and operates the 5-star Federal Palace Hotel in Lagos. Sun International, which also reported on Monday a 20 per cent fall in diluted adjusted headline earnings per share (AHEPS) to 628 cents for the year to June, said The Federal Palace had been hit by slow economic growth, low oil prices, the threat from militant group Boko Haram and a weakening naira. “The board has decided to exit Nigeria and steps will be taken to achieve this in a manner that does not erode further value,” the company said in a statement. “Continued setbacks in Nigeria as well as the on-going shareholder dispute have frustrated all attempts to develop and improve the property,” it added.
Sun International bought a 49 per cent stake of the Nigerian Stock Exchange-listed TCN in 2006, becoming the largest single shareholder. In recent years, Sun has been drawn into a dispute within its fellow shareholder, the Ibru family. The company’s decision to exit Nigeria follows food and clothing retailer Woolworths and Tiger Brands, which sold its loss-making Nigerian arm to Dangote Industries. Nigeria, Africa’s largest economy, is suffering its worst financial crisis in decades as a slump in oil revenues hammers public finances and the naira. The central bank governor has said recession is likely.
Key Points South African hotel, gaming group ends Nigerian ambitions Weak economy, shareholder dispute weighed on business No longer eying Africa expansion, focus on Latin America Analysts said Sun International’s dispute with fellow investors was at least as important in its decision to leave. “They are in a way stuck in a problematic arrangement on the
property and it’s been very difficult for them to create value there. It certainly makes sense for them to reduce exposure to Nigeria,” said Avior Capital Markets analyst De Wet Schutte. “Nigeria is a difficult place to build a business.” CEO Graeme Stephens said the exit could take a year or two, and the company was no longer committed to expanding in Africa. “We’ve been strategically exiting Africa for a couple of years and what was left was Nigeria. We’re not looking anywhere else in Africa,” Stephens told Reuters, adding the company would focus on growing its Latin America business. In June, Sun said it was disposing its remaining minority interests in Zambia, Botswana, Namibia, Lesotho and Swaziland to Minor International Public Company. Reporting its results, the company said poor economic conditions in South Africa resulted in revenue growth at casinos of only 0.8 per cent to 7 billion rand (US$515 million). “In South Africa, the economic environment remains a serious concern. We do not anticipate any meaningful growth in gaming revenue until there is a recovery in the economy and renewed consumer confidence,” Stephens said. The South African Reserve Bank expects the economy to flat line this year, due to a drought and falling commodity prices. Reuters
Business Daily Tuesday, August 23 2016 15
Opinion Business Wires
The Jakarta Post With a two-day visit to the Lake Toba region in North Sumatra, which some people envision as the Monaco of Asia, President Joko “Jokowi” Widodo has demonstrated his commitment to develop the region into a major tourism magnet. Jokowi said that although Lake Toba had immense potential and was internationally renowned, its image had declined in recent years and fresh efforts were needed to develop ecotourism in the region to capitalize on Lake Toba’s breath-taking natural beauty. The development of Lake Toba as a travel destination would not harm the local culture and would instead strengthen its unique character, Jokowi said.
Viet Nam News The (Vietnamese) Ministry of Finance proposed the government should offer a preferential corporate income tax of 10 per cent tor firms that are renovating deteriorating apartment blocks. This is aimed at attracting developers to participate in restoring unsafe old apartment buildings, which are a pressing problem in terms of living standards, safety and the urban landscape in major cities such as Hà Nội and HCM City. Under the proposal, which will be submitted to the National Assembly for comments in October, firms will enjoy a preferential tax rate of 10 per cent in the 2017-20 period.
Bangkok Post Expedia Group, the world’s largest travel company, says Thai hoteliers should realise the importance of mobile bookings as demand through this channel has risen continuously. It revealed that more than one in four room nights booked globally was made via a mobile platform. For Thailand, demand via mobile devices grew by 55 per cent with the majority of bookings coming from the US, Britain, Sweden, Hong Kong and Australia. Expedia suggested Thai hoteliers update their content and present new products and advance packages on the mobile channel to woo tourists.
The Straits Times Five minutes into his National Day Rally speech, Prime Minister Lee Hsien Loong (pictured) asked how many members of the audience arrived at the venue by Uber and Grab. Several people put their hands up but certainly more than when Mr Lee asked who came to the rally by taxi. “Our taxi drivers must be getting worried,” he said. It is such disruption that will become the defining challenge for Singapore’s economy, said PM Lee. He was delivering his National Day Rally speech at ITE College Central in Ang Mo Kio.
China tries to build trust in its markets
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hen China’s top securities regulator said recently that it plans to delist Dandong Xintai Electric Co. for falsifying initial public offering documents, it didn’t grab many headlines. But it suggested some far-reaching changes may be afoot. Xintai is the first company to be expelled from Shenzhen’s ChiNext board for such an offense, and one of only a handful that have ever been delisted in China. Its expulsion suggests that regulators are facing up to some unfortunate truths about China’s capital markets. Those markets are, in important ways, only superficially market-like. In the stock market, the government has intervened on a huge scale to prop up prices. Investment in the bond market is overwhelmingly directed to state-owned enterprises. There’s no derivatives market to speak of. Financial disclosures are often implausible, suspicions of insider trading are rife and doubts about corporate governance are widespread. All these are symptoms of a common ailment: a regulatory system focused not on disclosure and market mechanics but on setting asset prices and allocating returns. I n m o st c o u n t r i e s, w h e n companies are considering an IPO, regulators require them to accurately disclose information, then let markets dictate prices. In China, the reverse holds true: Regulators assess a company’s balance sheet and history, mandate an offering price, and then let the market figure out who might be lying or hiding things. The result is that investors, both domestic and foreign, have lost confidence in China’s markets. Foreign portfolio investment into China is down 60 per cent, year over year, through July. MSCI Inc. has repeatedly declined to include China’s domestic equities in its benchmark indexes. Even the much-celebrated Chinese retail investor is staying on the side-lines: Individual investment accounts holding less than 500,000 yuan declined to 46.8 million last month, from 47.4 million in
“
Christopher Balding a Bloomberg View columnist
July 2015. This credibility deficit affects all areas of the markets. Major Chinese commercial banks have been trading at a price-to-equity ratio of about five - compared to an average of about 12 for commercial banks elsewhere - because investors think their loan portfolios are much worse off than they’re letting on. A newly approved ShenzhenHong Kong stock-trading link could give foreign investors access to some of China’s fastest growing tech firms, but they’ll stay away if they don’t trust the data. The delisting of Xintai suggests that regulators are finally taking these pernicious effects seriously. But there are a few things they still need to address. The first is to focus on creating high-quality markets rather than setting low-quality prices. That means, above all, forcing c o m p a n i es t o c o m e c l ea n about their finances in public disclosures. Accurate disclosure, in turn, means that bad news will come out, whether it’s recognizing higher levels of non-performing loans or admitting to declining profitability. For regulators, that’s nothing to fear. Finally, China needs market mechanisms that support price discovery, transparency and trading. Too often, Beijing equates high prices with a wellfunctioning market. China will never become a dominant financial centre if traders don’t trust that the playing field is level. Just as investors can no longer rely on double-digit economic growth to bail them out of bad decisions, China can no longer rely on ever-rising stock prices to attract new cash. If the crackdown on Xintai is any indication, China’s regulators are coming to accept an annoying fact about markets: To work, they have to go down as well as up. Bloomberg View
China needs market mechanisms that support price discovery, transparency and trading
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16 Business Daily Tuesday, August 23 2016
Closing Oil industry
July diesel exports rise to record pushed by teapots
China’s diesel, gasoline and kerosene exports surged last month after state-owned refiners shipped excess fuel abroad as they struggled to compete in the domestic market with independent companies that sold at lower prices. Customs data showed yesterday that diesel exports rose 181.8 per cent to a record 1.53 million tonnes, almost tripling China’s average monthly export volume in 2015. Gasoline shipments were up 145 per cent at 970,000 tonnes, falling slightly from a record 1.10
million tonnes in June. Kerosene exports jumped 46 per cent to 1.09 million tonnes, the customs data showed. The surge in fuel exports underscores the inability of China’s state-owned refiners to deal with a domestic oversupply of oil products as private refiners, known as teapots, have started undercutting the bigger companies in order to gain customers. “Independent refiners grabbed a big chunk of Sinopec and PetroChina domestic market share especially with diesel, forcing them to export,” Zhu Chunkai, a senior analyst with data specialist Sublime China Information Group. Reuters
Reform drive
Beijing eyes broad business cost cuts to underpin growth China’s cabinet said it has already moved to lower labour costs for firms by cutting their pension contributions in some provinces.
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hina’s cabinet has unveiled detailed plans to lower business costs in the next several years, the latest steps to cushion an economic slowdown in the world’s second-largest economy. Authorities aim to cut financing and labour costs, energy and logistics costs as well as reduce the annual tax burden for firms over the next few years, according to guidance published on a government website yesterday. China is looking to achieve “’a reasonable decline’ in the overall cost for firms in the real economy in about three years”, the cabinet said, adding that the measures will help “effectively cope with the downward pressure on the economy”. Companies have been complaining about rising wages and land prices, in addition to tighter environmental and safety regulations, and some foreign manufacturers have moved to neighbouring countries to cut costs. “Cutting costs will help improve firms’ ability to cope with the impact of economic slowdown, shorten the period of economic adjustments and allow the economy to enter a new cycle,” said Li Huiyong, an economist at Shenyin & Wanguo Securities. The central bank would maintain ample liquidity in the banking system while keeping an appropriate monetary and financial environment, stepping up support for small firms via
demand, it said. According to the statement, the government aims to reduce the annual tax burden on firms by more than 500 billion yuan (US$75.16 billion) within the next one to two years.
In July, a senior central bank official was quoted by media as saying that tax cuts would be a more effective way of stimulating the economy than interest rate cuts, as companies are still unwilling to invest. Reuters
differentiated reserve requirement ratios, relending and rediscount, the cabinet said. Banks will reasonably price their loans and will be barred from linking firms’ loan applications with deposits and charging “irregular” fees, according to the cabinet’s guidance. It added that banks should also step up bad loan disposal.
Key Points China unveils detailed plans to lower business costs Aims to lower financing, labour, energy, logistics costs Aims for “reasonable decline” in costs in three years Aims to cut firms’ annual tax burden by over US$75 bln in 1-2 yrs
The government will develop equity financing, appropriately expand the size of corporate bond issuance and allow selected firms to conduct debt-to-equity swaps, the cabinet said. China has already moved to lower labour costs for firms by cutting their pension contributions in some provinces, it said. The government will also relax controls on energy prices in some sectors to reflect market supply and
Trade
Official data
Results
Taiwan export orders fall for 16th month
Mainland labour market keeps steady trend
Profit plunges for Malaysia’s Petronas on low oil prices
Taiwan’s export orders in July contracted for the 16th straight month as global demand for technology products stayed weak, but Chinese orders grew in a sign of recovering factory activity. The island’s tech manufacturers have cut their sales forecasts amid weak global growth and a China slowdown, but have been cautiously optimistic that demand for consumer electronics would pick up ahead of the year-end festive season and the anticipated launch of Apple’s new model iPhone. Export orders in July fell 3.4 per cent from a year earlier, the Ministry of Economic Affairs said yesterday, worse than a median 1.14 per cent slide in a Reuters poll and a 2.4 per cent fall in June. The decrease in July orders was due to an acrossthe-board decline in products, led by precision equipment, machinery and chemicals, the ministry said in a statement. “Looking forward, new product launches by global brands...would boost orders for semiconductor supply chain and informational and telecommunications products, and strong flat panel demand and traditional goods would help export orders get better,” the ministry added. Reuters
China’s job market was steady in the first half of this year, but labour oversupply and structural shortages continued to trouble the economy. In the first six months of the year, 7.17 million new jobs were created in Chinese cities, as the government fulfilled 71.7 per cent of its annual target, according to data from the Ministry of Human Resources and Social Security. The urban registered unemployment rate, which is based on the number of unemployed people registering with human resource authorities or employment service institutions, was just over 4 per cent. The official “surveyed” unemployment rate was 5 per cent. This rate is based on research in 31 major cities and was introduced in 2014 to serve as a supplement to the “registered” urban jobless rate after critics questioned its accuracy. Zheng Dongliang, dean of the Institute of Labour Science under the ministry, said the steady labour market came off the back of a stabilizing macro economy. Although the economy grew at a slower pace, incremental economic output remains strong, which is enough to create jobs, he added. Xinhua
Malaysia’s state energy firm Petronas said yesterday profits plunged 85 per cent in the second quarter due to low oil prices, adding to concerns about the country’s slowing economy. Petronas, Malaysia’s only Fortune 500 company and the largest source of government revenue and national export earnings, reported a net profit of 1.62 billion ringgit (US$402 million) for the period, down from 11.07 billion last year. Revenue was 48.44 billion ringgit, 21 per cent lower than the same period in 2015. The firm said it expects to be impacted by “volatility in oil prices” for the rest of the year. “Despite a modest recovery in crude oil prices, uncertainties remain due to persistent oversupply and sluggish demand outlook,” it said in a statement. Energy-exporting Malaysia has the third-largest economy in Southeast Asia, but has been grappling with falling oil prices and weak overseas demand - denting revenues and putting severe pressure on the ringgit. Oil prices entered a “bear” market at the start of the month on oversupply concerns, falling more than 20 per cent and closing below US$40 a barrel for the first time since April. AFP