Sunken engineering vessel disrupts sea traffic Maritime Page 2
Tuesday, August 30 2016 Year V Nr. 1119 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Retail
Chow Sang Sang sees 50 pct drop in Hong Kong and Macau sales in H1 Page 4
www.macaubusinessdaily.com
Monetary policy
PMI
Cash hoarding reinforces China’s central bank policy stance Page 8
A private forecast report sees China’s economy in a steady state Page 16
Demand for retail manpower declines Human Resources
The number of workers in the city’s wholesale & retail trade industry registered a y-o-y increase of 5.2 pct to 56,547 during the second quarter of the year, however, the vacancy rate and recruitment rate fell. DSEC notes that these figures indicate a decrease in demand for manpower in these fields. Meanwhile, workers in the industry received a higher average monthly salary of MOP12,600 (US$1,575), up by 2.3 pct y-o-y. Page 2
Fascination with tables
Concrete jungle
A total of 15 hotel projects were under construction during the second quarter of the year, and are expected to add 10,711 new rooms to the territory, DSSOPT reveals. Meanwhile, the Bureau issued occupancy permits to 13 private housing projects, which will add 51 new homes to the local real estate market.
Gaming Based on its three per cent cap on gaming table growth, analysts have noted that the government could have already surpassed the number of tables it planned to allocate by end-2017. This could result in those arriving late to Cotai being at a severe disadvantage in terms of table allocation, and those who benefitted initially could suffer from a table number readjustment upon renewal of their concessions. Page 6
Adjustment times
HK Hang Seng Index August 29, 2016
22,821.34 -88.20 (-0.38%) Worst Performers
Li & Fung Ltd
+3.16%
Tencent Holdings Ltd
+0.50%
Galaxy Entertainment Group
-3.78%
Sun Hung Kai Properties Ltd
-1.80%
China Resources Land Ltd
+2.56%
Lenovo Group Ltd
+0.39%
China Mengniu Dairy Co Ltd
-2.85%
CLP Holdings Ltd
-1.79%
China Merchants Port Hold-
+1.80%
China Mobile Ltd
+0.36%
Sino Land Co Ltd
-2.83%
Want Want China Holdings
-1.68%
Belle International Holdings
+1.00%
Hang Seng Bank Ltd
+0.22%
Sands China Ltd
-2.44%
China Life Insurance Co Ltd
-1.47%
China Overseas Land &
+0.79%
Kunlun Energy Co Ltd
+0.17%
China Unicom Hong Kong
Link REIT
-1.42%
-1.97%
26° 30° 27° 30° 28° 31° 28° 31° 26° 31° Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Bank results Trying to rein in debt, Mainland banks are harvesting more modest profits. Chinese financial firms are adjusting their ratios to healthier positions after months of warning messages from each and every front, both local and global. Page 8
Construction Page 3
2 Business Daily Tuesday, August 30 2016
Macau In Brief Public works
Road works for Zone E2 to start in Q1 The government is to kick off the construction of roads and emission networks for the reclamation area Zone E2 during the first quarter of next year, according to the Land, Public Works and Transport Bureau (DSSPOT). The reclaimed zone is located in front of the local airport and the Pac On temporary ferry terminal. The construction area will occupy 30,000 square metres, and a new traffic lane of 1.1 kilometers will be built. The Bureau said that it had received 11 bids for the construction project, but it has not yet released the proposed costs submitted by the bidders.
Manpower vacancy rate and recruitment rate fell in retail sector due to decreasing demand
Retail workers up 5 pct as salaries rise in Q2 But the demand for human resources in the industry actually went down in the quarter. Kam Leong kamleong@macaubusinessdaily.com
T
he number of workers in the city’s wholesale & retail trade industry registered a year-on-year increase of 5.2 per cent to 56,547 during the second quarter of the year, as establishments were offering higher salaries, according to the latest official data released yesterday by the Statistics and Census Service (DSEC). Between April and June, 16,955 employees were working in the wholesale segment, while another 35,754 were working for the retail sector, representing year-on-year growth of 8.6 per cent and 4.4 per cent, respectively. Despite the growth in the number of workers, the wholesale & retail trade industry offered only 3,820 vacancies in the same period, down by 1,243 compared to 5,063 job offerings during the same quarter last year. The vacancy rate (7.8 per cent) and recruitment rate (five per cent) in the industry fell by 2.7 and 1.4 percentage points respectively year-on-year, while the turnover rate remained unchanged at 6.2 per cent. The DSEC
noted that these figures indicate a decrease in demand for manpower in these fields.
Higher salaries
Workers in the industry, however, were receiving higher salaries compared to one year ago. According to the official data, the average monthly salary of wholesale & retail employees amounted to MOP12,600 (US$1,575), up by 2.3 per cent year-on-year. In terms of sectors, those in the wholesale businesses saw a bigger salary hike of 6.1 per cent year-onyear to MOP13,200 as at June-end, while the average salary for those in the retail segment only grew by 0.3 per cent year-on-year to MOP12,490. Analysed by occupation, the average monthly salary of sales representatives amounted to MOP16,530 as at the end of the month, up by 7.8 per cent year-on-year, while that of retail shop salespersons was also up by 2.5 per cent year-onyear to MOP12,050.
More workers in other industries
On the other hand, there were 10,872 persons engaged in the
field of Transport, Storage & Communications during the second quarter, an increase of 6.8 per cent year-on-year, according to yesterday’s data. The average earnings of full-time employees in the industry also rose by 4.1 per cent year-on-year to MOP20,710. However, job openings in the industry were down by 136 yearon-year to 932 during the period. The vacancy rate of the sector dropped by two percentage points year-on-year to 8.4 per cent, while the recruitment rate and turnover rate remained flat at 4.6 per cent and 4.2 per cent respectively. ‘This suggests that some of the vacancies had already been filled,’ the Bureau said. On the other hand, a total of 10,941 workers were engaged in Security Activities in the quarter, an increase of 8.6 per cent year-onyear. These employees saw their average earnings increase by 4.5 per cent year-on-year to MOP12,410 as at the end of the quarter. Meanwhile, 839 people were working in Public Sewage & Refuse Disposal Activities, a jump of 10.1 per cent year-on-year. These workers saw their average salaries increase by 3.1 per cent year-on-year to MOP17,480.
Public housing
Soil exploration contract granted The Civil Engineering Laboratory of Macau has been granted a project contract to undertake soil exploration for a public housing project in Avenida de Venceslau de Morais, according to a dispatch signed by Chief Executive Fernando Chui Sai On and published in the Official Gazette yesterday. The contract is worth a total of MOP5.73 million (US$717,412). The payment will be divided into two instalments over two years. An amount of MOP2.87 million (US$358,706) will be paid in 2016 and again in 2017. This expense will be classified under ‘Investment Plan’ in the MSAR financial budget. Society
Asset freeze law becomes effective The asset freeze law will come into effect starting today, the Official Gazette announced. The law was passed to fill a gap in the city’s legal framework related to financial sanctions for terrorist activities. The content of the law includes the immediate freezing of assets of individuals proven to be involved in the financing of terrorism. If mandated by the United Nations Security Council, based upon a locally developed list of individuals proven to be funding terrorism and by request from another jurisdiction, the local government would also have to comply and freeze the assets. Moreover, the law enables a list of designated individuals or entities that are believed to be involved in financing terrorism to be compiled by the authorities. The bill was passed by the Legislative Assembly on August, 12 2016.
Sea traffic
Sunken vessel affects 22 ferries The affected channel will only be re-opened today. Annie Lao annie.lao@macaubusinessdaily.com
An engineering vessel sank yesterday morning as it was sailing in the channel of the Outer Harbour Ferry Terminal. Following the incident, the Marine and Water Bureau imposed traffic controls on the channel, which led to the departure times of 22 ferries from the Outer Terminal being delayed for 40 minutes on average. Ferries departing from the Pac On Temporary Ferry Terminal in Taipa were not affected. All of the five crew members of the vessel went overboard, with one receiving minor injuries. They were all sent to the Hospital Conde S. Januário and discharged yesterday afternoon. The crew members of the vessel, a pile-driving barge, were conducting maintenance work on a light beacon in the channel when the accident happened, the water bureau said
yesterday in a press briefing. The bureau quoted the crew members as saying that the accident was due to a broken crane on the vessel.
According to the Bureau, the affected sea channel will only be re-opened this afternoon. Meanwhile, TurboJet, a major ferry operator at the Outer Harbour Ferry Terminal, said in a statement that its ferries travelling to or from the terminal had resumed normal operations around noon time yesterday, despite slight delays due to detours.
Business Daily Tuesday, August 30 2016 3
Macau Construction
10,711 new hotel rooms being built in Q2
A
total of 15 hotel projects were under construction during the second quarter of the year, and are expected to add 10,711 new rooms to the territory, the latest official data released yesterday by the Bureau of Land, Public Works and Transport (DSSOPT) revealed. Of these projects, eight were being built on the Macau Peninsula for a total of 561 rooms, while five were in the reclamation area of Cotai for a total of 9,542 new rooms. Taipa and Coloane each saw one hotel project under construction in the three months, which will include 373 and 236 new hotel rooms, respectively. These hotel projects will also provide 5,731 parking spaces for
automobiles and another 3,119 spaces for motorbikes in the future, the data said. Meanwhile, 37 other new hotel projects were in the design phase in the quarter. Together, they will provide 8,811 new rooms in the city, in addition to 3,981 parking spaces for automobiles and 1,138 for motorbikes. Thirty of these new projects will be located on the Peninsula and will provide 3,575 rooms, while four others will be located in Cotai, offering 4,642 rooms. The other three projects will be located in Taipa and Coloane. On the other hand, the Bureau issued occupancy permits to 13 private housing projects in the territory in the quarter. These residential projects
are to add 51 new homes to the local real estate market. In addition, a total of 98 residences were under construction or inspection in the period. They are expected to provide 11,040 new units for the Special Administrative Region.
Another 203 housing projects, meanwhile, were in the design stage. Of the total, 147 are planned for the Peninsula, 24 for Taipa and the remaining will be in Coloane. They are expected to provide a total of 20,406 new homes in the future. K.L.
Public contract
GIT: MTR to provide broader services for LRT The Transportation Infrastructure Office (GIT) said the increased value of the service contract granted to Hong Kong’s mass transit railway operator MTR Corporation Ltd for the LRT projects, is due to the fact that the company’s services will cover a wider range than the previous contractor.
‘The services provided by MTR would cover from the management level to the practical level,’ the coordinator of the Office, Ho Cheong Kei, wrote in a reply to legislator Si Ka Lon’s enquiry. In May, the government granted a two-year service contract worth MOP474.3 million (US$59.3 million)
Dispute
Pearl Horizon homeowners want bank loan interest cut Two claimed homeowners of the residential project Pearl Horizon are requesting interest rate cuts on their bank loans for their units, the construction of which was halted when the government reclaimed the land plot from the developer. Yesterday, around 30 claimed property owners arrived at the site of Tai Fung Bank Lei Tim Branch at Avenida de Venceslau de Morais to ‘show their support’. Police were called to the scene after bank employees called to report the gathering, according to a report from local broadcaster TDM Chinese radio. One house owner claimed to have bought Pearl Horizon units in September last year, and said their current monthly mortgage payments are MOP50,000 (US$6,259) as monthly mortgage. They said it is unfair for house owners to have to bear the consequences of the land dispute and demanded the bank stop charging interest on their loans. “It was impossible for us small property owners to know about the land dispute. The big groups must have known about it, yet the banks still granted us the loans,” said a house owner as quoted by TDM. “It’s a huge burden for us to pay the mortgage. The banks should be paying for their risk and cut the interest.” The police said that according to the
Civic and Municipal Affairs Bureau (IACM), the property owners filed requests to protest at the Tai Fung Bank Lei Tim Branch yesterday and on Wednesday. The police added that IACM said the request filed for the yesterday’s protest was not processed due to the short notice, but the police force would be arranged and deployed for the protest on this coming Wednesday. However, some claimed homeowners present insisted that they were just showing support and not formally protesting. Last December, the developer, Polytec Assets Holding Ltd.’s land concession for the plot was declared invalid by the government, as the company had failed to complete the residential project before its temporary land concession expired. However, the developer said in a filing with the Hong Kong Stock Exchange last week that it was still waiting for local courts to set a hearing date for its lawsuit against the local government, and it was confident of getting extra time from the court to complete the project. The temporary land concession granted to Polytec regarding the Pearl Horizon site was issued by the then-Portuguese Government in 1990. The plot, located on Lot P in Novos Aterros da Areia Preta, is designed to house 18 towers with a total of 5,000-plus residential units.
to MTR, for the provision of management and technical assistance on the city’s LRT projects. But directly-elected legislator Si Ka Lon queried why the contract value is much higher than the MOP290 million contract awarded to the previous contractor for similar services for over an 87-month period. In the reply, GIT explained that awarding the contract to MTR would be advantageous for the LRT project. ‘The company has its regional and language advantages in Hong Kong and Macau so that communications
between related units could be facilitated and their supports to the project could also be speeded up,’ the Office head wrote. The government official added that the Hong Kong firm had also expanded its crew size for the LRT projects. ‘The crew includes senior engineers. Hence, the cost for the services is also different [from the previous contractor]’. According to the Official Gazette, a consortium of Egis Rail S.A, Fase Estudos Pro. S.A and Setec Its S.A. was providing services for the LRT projects between 2009 and the second quarter of this year, prior to the government turning to the Hong Kong company. K.L.
4 Business Daily Tuesday, August 30 2016
Macau
Retail Chow Sang Sang sees 50 pct drop in SARs sales in H1
Stalled gold Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
S
ales in Macau and Hong Kong for jewellery giant Chow Sang Sang saw a 50 per cent slide over the first six months of the year, according to the company’s filing to the Hong Kong Stock Exchange.
The group operates in a number of areas, dominated by its jewellery sales arm, with lesser operations in wholesale of precious metals, and securities and futures broking. Same store sales growth in the SARs also saw a slide of 26 per cent during the period. Overall for the six-month period ending June 30, the group saw
its profits slashed by 50 per cent to HK$363.8 million (MOP374.8 million/US$46.9 million), down from HK$728.9 million reported in the same period of 2015. The group operates primarily in Macau, Hong Kong and Mainland China. ‘The uncertainties in the global economic and political environment and Brexit, no less, propelled gold prices upward by more than 25 per cent over the first six months of the year. However, this upshot had not stimulated consumer demand in the
Retail
Bonjour hit by fewer tourists Bonjour incurred a loss of HK$28.5 million in H1. Annie Lao annie.lao@macaubusinessdaily.com
Bonjour Holdings Ltd., a cosmetic retailer based in Hong Kong, recorded a net loss of HK$28.5 million (MOP29.38 million/ US$3.68 million) for the first six months of the year, compared to a net profit of HK$424 million one year ago.
According to a filing to the Hong Kong Stock Exchange last week, the group’s revenue generated in Macau amounted to HK$101.2 million, a decrease of 7.2 per cent from the previous period. The company’s total turnover registered a decline of 13.5 per cent year-on-year to HK$1.01 billion for the six months.
The retailer noted in the filing that its performance was affected by the economic downturn, which has led to a decline in tourist arrivals and weak local consumption. N ev e rth e l ess, th e c o m p a n y saw its e-commerce sales grow by seven per cent year-on-year to HK$18.2 million for the six months. It expects this segment will continue to grow. As at the end of June, the retailer was operating a total of 46 stores in Hong Kong, Macau and Guangzhou, China, a figure which remained unchanged from the same period last year.
way that similar hikes did in recent years,’ notes the filing. In fact, the increase in gold price caused the total weight of gold sold by the group to fall by almost 30 percent, notes the filing. A 14 per cent drop in turnover for precious metals was also seen, resulting in a HK$3 million decrease in operating profit for the segment.
Goldfinger
The group’s jewellery retail business contributed to the majority of its retail sales, accounting for 88 per cent of the group’s turnover, while operating profit in the segment slid 14 per cent year-on-year during the six-month period, to HK$482 million. Overall turnover for the group also fell 16 per cent on the back of the jewellery retail slide, hitting HK$7.8 billion during the first half-year. The group noted that the inclusion of a HK$264 million share disposal was a ‘significant drag’ on total profits. ‘Macau was still suffering from a dearth of visitors,’ notes the group, pointing out that location was key to sales, as ‘shops located in the shopping arcades performed worse than the main street shops’.
Rental, openings, closings
The impact from rental agreement renewals was less significant in this quarter than its end-year results will demonstrate, as ‘heftier shop leases will only be reviewed in the last quarter’. However, total rent expenditure increased two per cent during the period. Most of the HK$14 million in capital expenditure paid out by the group was attributed to the refitting of shops as well as a factory upgrade. The group saw the closure of eight stores on the Mainland during the six-month period due to poor performance, but opened 16 new stores in the same period, to encompass 105 cities with 351 stores at half-year-end. ‘We do not expect easing of the operating environment for the remainder of the year,’ notes the filing, ‘Our inventory control is kept in line with this view’. The group plans to open 22 more stores on the Mainland in the second half of the year, as well as ‘several refittings and closings’, whereas the group’s Hong Kong operations will see the opposite as ‘we expect to reduce the amount of floor space’ and closely study shop-lease renewals to ensure their ‘strategic and economic’ value to the group.
Business Daily Tuesday, August 30 2016 5
Macau Gaming
Positive predictions Analysts predict a brief return to VIP dominance in Q4 of this year, with year-on-year growth in the mass market returning in the third and fourth quarters, while overall gross gaming revenues will see positive growth in 2017. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ross gaming revenues for August are predicted to have remained flat or declined by two per c e n t y e a r- o n - y e a r, according to analysts at Wells Fargo. This is better than the estimated consensus of a 3-4 per cent decline, and could be propped up by the ‘solid casino attendance’ the analysts noted for Wynn Palace’s opening day. The group estimates a
month-to-date average in daily revenues of about MOP583 million (US$73 million), a two per cent improvement sequentially from July, but a five per cent decline when compared to the year-to-date average.
Mixed bag
Forecasts for the rest of the year by Deutsche Bank indicate that total gross gaming revenue will contract by 7.2 per cent year-on-year for 2016, amounting to US$26.8 billion (MOP214.1 billion) in gross gaming revenue for the year.
As there was a 9.2 per cent yearon-year drop in second quarter gross gaming revenue, the analysts predict a year-on-year contraction of 3.7 per cent and 1.2 per cent in the third and fourth quarters, respectively. Third quarter gross gaming revenue is predicted to equate to US$6.55 billion, and the final quarter of 2016 to yield US$6.78 billion in gross gaming revenue. This is still not likely to halt the year-on-year decline in revenues seen since the SAR’s peak in early 2014. These predictions are in line with comments from Galaxy Entertainment that it is still too early
Land
Capital Estate to recover payment for idle Coloane plot Capital Estate Ltd, a company chaired by local businessman Sio Tak Hong, is to receive back HK$298 million (US$37.3 million) from Sociedade de Investimento e Indústria Sun Fat Lda, according to its filing with Hong Kong Stock Exchange last week. Sun Fat was previously awarded a land plot in Coloane that the local government has announced it will repossess.
Capital Estate acquired a 99 per cent interest in Sun Fat for a total consideration of HK$320 million. The latter was awarded a land plot covering 10,154 square metres on Nossa Sra. de Ka Ho in Coloane in 1989 in order to build a steel-casting factory. Following the declaration by the government to repossess the land, Sun Fat agreed to return the amount
of HK$298 million that Capital Estate had paid for the acquisition of its stake, in three instalments. The Hong Kong-listed firm is to receive HK$60 million by the end of this year, and another HK$120 million and HK$118 million by the end of 2017 and 2018, respectively, the filing said. In July, a dispatch by the Secretary for Transport and Public Works, Raimundo do Rosário, announced that Sun Fat’s land concession over the land plot was invalid, as the company had not completed the development of the site before the expiry of its concession in March 2014. K.L.
to call a bottom on the market despite signs of stabilization.
VIP back on top?
The predictions are based on estimates that revenues from mass gaming tables will see their first year-on-year increase during the third quarter of this year, rising by 3.2 per cent when compared to the third quarter of 2015, and reaching US$3.28 billion. This would surpass VIP revenues by US$16.6 million, also due to a predicted 9.7 per cent year-on-year contraction in estimated VIP revenue during the period. However the VIP sector is predicted to outpace the mass in the fourth quarter of the year, reaching US$3.41 billion - still a year-on-year drop of 8.1 per cent, but outpacing estimates for mass of US$3.36 billion, based on a year-onyear increase of 6.9 per cent. Predictions for 2017 by the analysts see the first year-on-year rise in gross gaming revenues, of 1.2 per cent, to reach total gaming revenues of US$27.14 billion. This figure is driven by a predicted year-on-year increase of 4.8 per cent in mass market revenues to US$13.63 billion, and single-digit contraction in revenues from the VIP segment of 2.2 per cent - hitting US$13.5 billion. This would return the mass market to a dominant position during the year.
6 Business Daily Tuesday, August 30 2016
Macau
Gaming table allocation Analysts: Gov’t has already surpassed gaming table growth cap up until end-2017
Cards on the table Based on its three per cent cap on gaming table growth, analysts have noted that the government could have already surpassed the number of tables it planned to allocate by end-2017. This could result in those late to arrive to Cotai being at a severe disadvantage in terms of table allocation, and those who benefitted initially could suffer from a table number readjustment upon renewal of their concessions. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
A
ccording to analysts at Daiwa, based on the group’s analysis of the current table allocations in relation to Macau’s table cap, latecomers to the Cotai strip could be at a severe disadvantage if the government follows its proposed plan. The table cap policy aims to limit the increase of live dealer table numbers to three per cent compound annual expansion until the end of 2022, from a base of 5,485 tables recorded at the end of the fourth quarter in 2012. ‘While the government’s official goal is to cap the increase in gaming tables at three per cent per year, the official numbers suggest that current gaming table allocations (up to and including Wynn Palace) have already surpassed the government’s guided cap through to end-2017,’ notes the report. The analysts note that their results are based on the average gaming tables in operation, presented in the interim review of the gaming sector published in May of this year. ‘In regards to the allocation of gaming tables, the government will strictly adhere to its policy of limiting the number of gaming tables to a three per cent annual compound growth rate for 10 years until 2022,’ commented representatives of the Gaming Coordination and Inspection Bureau (DICJ) in response to Business Daily’s enquiry yesterday. ‘The three per cent is an annual compound growth rate and not a fixed rate,’ notes the gaming oversight bureau. According to Daiwa’s data, at year-end 2015, the government had already surpassed its three per cent mark by 1.1 percentage points, with 150 table allocations to Galaxy and 200 to Melco.
More tables
The Daiwa analysts note that this year saw a further 4.1 per cent incremental gaming table increase, as Galaxy received a further 100 tables, Melco received 50 and Wynn received the first batch of its allocated tables – 100. With the 25 new tables to be allocated to the Wynn Palace at the beginning
of 2017, the government will already be over its incremental mark by 0.3 percentage points for the whole 2017 year, predicts Daiwa. In response to Business Daily’s enquiries yesterday, the DICJ stated that “as of now, we have not yet received any one of the gaming concessionaires requesting to open a new casino in The 13 Hotel location”. However, despite this claim, analysts at Deutsche Bank are predicting an attribution of 66 gaming tables to the property. In addition, while the application by the Parisian for tables is currently under review by the DICJ, the Deutsche Bank analysts predict that 100 tables will be allocated to the property. Further openings in the ‘through to end-2017’ period include MGM Cotai, for which Deutsche Bank has predicted a total of 150 tables to be allocated. This means that if even the government has reached its cap, analysts are still predicting a further increase in gaming tables in Cotai – to the tune of 316 tables.
Wynn/Lose
The Daiwa report points out that the table grant to Wynn Palace was the ‘lowest ever granted to a major casino property in Macau,’ noting that ‘the government appears to have been much more generous in allocating tables to relatively early property openings,’ citing the example of the US$4.5 billion Sands Cotai opened in 2012, which received 400 tables, while the US$4.1 billion project Wynn Palace received just 25 per cent of that. Also, Wynn received 60 per cent less tables than Melco’s recently opened Cotai property Studio City, which opened just five months prior to Wynn’s, despite the fact that ‘Wynn is actually the original concession to which Melco Crown’s sub- concession was extended.’ This ‘unequal distribution of gaming tables’, however, existed even before 2014, notes the report. ‘SJM stands out as the operator with the lowest capex [capital expenditure] contribution and the highest allocation of gaming tables, which may be rationalised by the legacy issues relating to its former
monopoly in the sector’. ‘Future table grants could exacerbate this inequity among operators. Moreover, the government’s concern of oversupply raises the risk of overall gaming table reductions/rebalancing post-2020-2022, particularly for those operators that today are well positioned in terms of tables relative to peers,’ notes the report.
Non-gaming
In addition, in regards to nongaming contributions, ‘new property openings are likely to further state the analysts, commenting that SJM has the ‘lowest non-gaming contribution and lowest total investment’ comparative to its table allocation, when compared to its peers. ‘Even if the operator receives zero tables for Lisboa Palace, it would still have invested less than half per table than the industry average,’ comment the analysts. On the opposite end of the spectrum
sits Melco Crown, which, in the wake of its Studio City non-gaming offerings ‘still invested 40 per cent more on a per-gaming table basis than its peers. Further hit by this discrepancy is Wynn: ‘when compared with SJM, Wynn has invested almost four times more per table despite the former’s lower level of invested capital and lower level of non-gaming contribution,’ note the analysts.
Conclusion?
This ‘serves as a strong signal of the government’s longstanding policy direction that […] it is unwilling to flood the market with new gaming capacities, and […] it will not induce “unwanted, excessive and unhealthy” competition among operators,’ state the analysts. The direct effect of this will be to dampen the possibility of a recovery for the sector in the second half of 2016, as predicted by many including Deutsche Bank, which is sticking to its prediction that gross gaming revenue values will remain within MOP200 billion, mentions the report. A further consequence of this could be that: ‘upon licence renewal, it is not inconceivable that the government would trim Macau’s overall gaming table count,’ in 2020/2022, and those standing to lose the most in this scenario would be Sands China and SJM, state the analysts.
Corporate Judging panel announced for Business Awards The Business Awards of Macau is pleased to announce the list of judges for the 2016 programme. The 30-member panel for the programme, now in its fourth year, is the most prestigious to date and includes returning judges from the previous years’ panels, as well as notable new additions to the high-profile group. The judges include acclaimed business people, academics and professionals from different sectors of Macau’s economy. The two most recent well-known personalities to join the 30-member group are: Mr. Ma Chi Ngai (Fred Ma) and Mr. Sio Chi Wai (Dominic Sio). The 2016 Business Awards Honour Commission, Advisory Board and Judging Panel comprise: Manuela António, Bruno Ascenção, Paulo A. Azevedo, Henry Brockman, Oscar Chan, James Chu, António Conceição Júnior, Alexandre
Correia da Silva, José I. Duarte, António Felix Pontes, Mary Ho, Lau Pak Hung, Paula Ling, Fred Ma, Albano Martins, João Rodrigues Monteiro, João Francisco Pinto, Pedro Cortés, Alice Costa, Frederico Rato, Anabela Ritchie, Filipe Cunha Santos, Donald Shaw, Dominic Sio , Terry Sio, Jacky So Yuk-Chow, Larry So, Paul Tse, Rutger Verschuren, and Vong Kok Seng. More information on this year’s Honour Commission, Advisory Board and Judging Panel, including short biographies of all the judges, can be found on the Business Awards website at: http://awardsmacau.com/en/bay2016 The judging process will take place in October, with the judges’ scores combined and averaged to determine winners for each category. Winners will be announced on 24th November 2016 at the Grand Lisboa’s Grand Ballroom. Press Contact: Victoria Man | tel: (853) 2833 1258 | e-mail: info@awardsmacau.com
Business Daily Tuesday, August 30 2016 7
Macau Casino
Fire drill carried out at The Parisian
A fire drill took place yesterday morning at The Parisian, according to a statement by the Fire Services Bureau. The bureau said that they carried out the fire drill with The Parisian in order to enhance their ability to co-ordinate and act in times of emergency. The drill simulated a scenario where a hotel room on the eighth floor of the hotel caught fire, and hotel staff noticed it and evacuation
and other safety measures were carried out in accordance with the internal contingency plan. After the staff informed the fire department, 24 firemen and six emergency vehicles were dispatched to extinguish the fire. The drill lasted for half an hour with around 700 participants from The Parisian and the bureau. The Parisian, a new property to be added to the Cotai casino resort inventory, is scheduled to open on September 13.
Equity Australian casino billionaire sells down Crown Resorts stake to below half
Packer reduces Crown Resorts stake in US$338 mln sale Consolidated Press said the move was made as part of its financing strategy and that it remained committed to Crown.
B
illionaire James Packer has sold a A$448 million (US$338 million) stake in Crown Resorts Ltd., reducing his ownership of the Australian casino operator to less than 50 per cent. Packer’s privately held investment vehicle, Consolidated Press Holdings Pty, agreed to sell 35 million shares - about 4.8 per cent of Crown - at A$12.80 apiece, it said in a letter to Crown that was released to the stock exchange on Monday. Crown closed at A$13.52 last week. The shares fell 1.7 per cent to A$13.29 at 10:42 a.m. in Sydney trading. Consolidated Press will own about 48.2 per cent of Crown after the sale and will remain the biggest shareholder. Over the past year, Packer has reduced his involvement in Crown, the media company he inherited from his late father and turned into a global gambling conglomerate. He quit as chairman in August 2015 and as a
director in December. He has also quit as chairman of Melco Crown Entertainment Ltd, a joint venture between Crown and Macau-based Melco International Development, as Crown sold down its stake in that company to 27 per cent from 34 per cent. Packer has said previously that he wants to concentrate on a new Crown casino development in Sydney and an IT venture capital business in Israel. According to the Australian newspaper, the sale follows a review of Consolidated Press’s finances after Packer’s A$1.25 billion settlement last year with his sister Gretel Packer. Consolidated Press “remains deeply committed to Crown resorts and is excited about the future for the company,” it said in the letter. Consolidated Press added the move was made as part of its financing strategy and that it remained committed to Crown. It did not elaborate on the reason for the sale or identify the buyers. Agencies
Casino
GEG sets Guinness world record Staff members of the Galaxy Entertainment Group have set a Guinness World Record by having around 1,068 staff members from different departments form a fourleaf clover yesterday on the lawn in front of Galaxy Macau. The clover itself represents good fortune in Western culture and bliss in Asian culture, and serves as the emblem of the company’s service philosophy – ‘World Class, Asian Heart’. The Guinness World Record was achieved by having the staff form the clover and remain intact for ten minutes. Singing and dancing performances also took place during the event.
F r a n c i s L u i Yi u T u n g , t h e Vi c e P r e si d e n t o f Ga l a x y Entertainment Group, also took part in forming the clover with the rest of the staff. ‘Since the establishment of the “World Class, Asian Heart”, many customers are pleased and satisfied because of our excellent service from our staff,’ Francis Lui commented during the event. This is the first time the gaming company has held such an event. The event yesterday was aimed at strengthening the unity and morale of it staff members, in preparation for the opening of future phases. C.U.
8 Business Daily Tuesday, August 30 2016
Greater China In Brief Draft amendments
Lawmakers review investment rules Following successful trials in several free trade zones, China’ s top legislature yesterday began its first reading of a draft amendment to four laws regarding foreign and Taiwan investment. The bill was put before the National People’s Congress Standing Committee during the bimonthly session that runs from yesterday to Saturday. The bill, which effectively constitutes an easing of investment rules, suggests adding provisions to four laws: the Law on ForeignCapital Enterprises, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Chinese-Foreign Contractual Joint Ventures, and the Law on the Protection of Investment of Taiwan Compatriots. Think tank
Businesses may save under new measures Companies in China may save up to 150 billion yuan (US$22.5 billion) a year if they are allowed to contribute less to employees’ social security and housing plans, a research institute at the top economic planning agency said yesterday. China aims to cut financing, labour, energy and logistics costs and reduce the annual tax burden for firms over the next few years, the government said. Businesses may save more than 100 billion yuan annually as the government moves to reduce the amount companies need to pay for employees’ social security policies, wrote Guan Bo, a researcher at the Social Development Research Institute.
Monetary direction
Cash hoarding reinforces policy stance July money supply figures showed a sharp increase in cash and short-term deposits and a much smaller rise in longer-term deposits. Kevin Yao
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n the face of it, China’s central bank has room to cut interest rates to try to lift the economy, but sources say evidence companies and banks are hoarding cash has reinforced policymakers’ view there is no major benefit in easing policy further. The reluctance has also been shaped by the experience of Japan and the European Union. Despite much more aggressive easing policies than China, including negative interest rates, they have struggled to lift their economies out of the doldrums, these sources said. So unless China’s economic growth is at serious risk of falling below 6.5 per cent, policymakers do not see the need to reduce interest rates or bank reserves, known as the reserve requirement ratio (RRR), they said. The sources are involved in internal discussions of policy proposals and offer advice, but are not part of the final decision-making process. The People’s Bank of China (PBOC) did not respond to a request for comment. Beijing has already cranked up government spending this year to support economic growth, but the view that policymakers see limited dividend from cutting rates or the RRR
could knock any lingering market expectations for a near-term easing. It is also likely to disappoint stateowned enterprises and provincial governments, many of which are saddled with heavy debts, while many private companies are reluctant to invest right now given economic uncertainties, so cheaper credit may not make much difference to them. “The central bank is not prepared to cut RRR or interest rates. The effectiveness of monetary policy is limited and we will have to rely on fiscal policy,” said a person familiar with the PBOC’s thinking, who spoke on condition of anonymity. Even with China’s official lending rate at a record low of 4.35 per cent, economic data shows that firms are depositing money at banks rather than investing for the future, this person said. July money supply figures showed a sharp increase in cash and short-term deposits and a much smaller rise in longer-term deposits, a divergence economists say shows companies are holding onto cash and banks are not lending all that they can. China’s relatively low interest rates should favour borrowing and investing over saving, they said. A Reuters analysis of the top 100 listed companies who provided
Central bank
PBOC to inject 90 bln yuan via reverse repos China’s central bank will inject 60 billion yuan (US$9.00 billion) into money markets through seven-day reverse bond repurchase agreements and an additional 30 billion yuan through 14-day reverse repos yesterday, traders said. The People’s Bank of China (PBOC) injected a net 310 billion yuan into the banking system last week. China’s central bank on Wednesday injected cash into money markets through 14-day reverse repurchase agreements for the first time since February, and traders said the prospect of more short-term liquidity injections trimmed expectations of further broad-based monetary easing.
The draft law on national defence transport, which was deliberated for the second time yesterday, was ready to be submitted to China’s top legislature for approval. The new law, covering the use of railways, waterways and air routes for defence purpose, is expected to regulate the planning, construction, management and use of resources in transportation sectors, such as railways, roads, waterways, aviation, pipelines and mail services, for national defence. The draft was submitted to the bi-monthly session of the National People’s Congress (NPC) Standing Committee for the second time, which runs from Monday to Saturday.
Liquidity trap?
The current easing cycle began when the central bank cut interest rates in November 2014. It subsequently cut rates another five times and RRR for all banks five times. That has left the financial system flush with cash and interest rates low for borrowers, but has not pushed money into areas of the economy most in need, raising concerns of a “liquidity trap”. Household loans, mostly mortgages, accounted for more than 90 per cent of new bank loans in July as corporate credit demand faltered, central bank data shows. That lowers the urgency for the central bank to cut interest rates or RRR because the price and availability of cash do not appear to be having the desired effect, the policy insiders said. While policymakers believe rate or RRR cuts yield limited economic returns, they are also worried easing would weigh on the yuan, which hit a six-year low last month, at a time when financial markets are speculating about the next U.S. rate rise. Easing could also have other negative effects. “Cutting interest rates could increase pressure on asset bubbles as money flows into sectors outside the real economy. Housing prices in some cities are still rising due to more liquidity and loose monetary conditions,” said another policy adviser.
Ineffective?
People’s Bank of China headquarters in Beijing
Cutting rates would be an obvious incentive for companies to borrow funds if they want to invest. But many private companies, which account for 60 per cent of overall investment, are either reluctant to borrow of find themselves unable to get loans while economic growth is uncertain. Many banks shy away from lending to private firms because they are seen as more of a credit risk than a state-related
Corporate debt
Government to publish debt-to-equity plan soon Fitch Ratings said the criteria by which firms are deemed eligible for debt-to-equity swaps remain unclear.
Infrastructure
New law on national defence transport ready for vote
quarterly figures, excluding financials, showed that their cash and short-term investments at the end of June were up more than 27 per cent from a year earlier. The increase for the top 2,048 was 17 per cent, led by industrials and information technology.
China could allow industrial firms to convert their debts into equity stakes as early as next month, with the government now putting the finishing touches to a new plan, the official China Securities Journal reported yesterday. The newspaper said China’s cabinet, the State Council, was currently finalising plans to allow “firms in the real economy with development potential” to convert their debt into equity. Debt has emerged as one of China’s biggest challenges, with the total load rising to 250 per cent of gross domestic product (GDP) last year. The International Monetary Fund warned in June that China’s high corporate debt ratio of 145 per cent of GDP could erode economic growth if not addressed. In a bid to rejuvenate its economy, China is aiming to eliminate failing, debt-ridden firms, but it has also pledged to help “restructure” companies that are suffering severe operational challenges but remain basically
competitive. Officials have insisted that the new debt-to-equity programme would not be used to prop up so-called “zombie
‘Total debt load is 250 per cent of gross domestic product’
enterprises”, those that would not survive without life support from local banks and governments. However, experts have expressed concern that governments could still use the scheme to bail out failing stateowned enterprises. Financial magazine Caixin reported earlier this month that Sinosteel, a debt-stricken state metals trader, had drawn up a debt-to-equity swap plan and was now waiting for China’s cabinet to give its approval. The magazine also reported that Bohai Steel Group, which holds liabilities of 192 billion yuan (US$28.78 billion) from 105 creditors, could be about to reach a deal with the local government to restructure its debts. In a report published yesterday, Fitch Ratings said the criteria by which firms are deemed eligible for debt-to-equity swaps remain unclear, adding that local governments may use it to shore up zombie firms in a bid to protect employment and ease local debt risks. “This would hamper the progress of Beijing’s supply-side reform that focuses on cutting overcapacity and phasing out uncompetitive companies,” it said. Reuters
Business Daily Tuesday, August 30 2016 9
Greater China Results
entity that they assume would be bailed out by the government if it was unable to pay its debts. Private-sector investment grew at a record-low pace of just 2.1 per cent in January-July compared with a year earlier, while investment by stateowned firms jumped 21.8 per cent as Beijing boosted infrastructure and other spending to support the economy. Government spending overall rose 13 per cent in the first seven months of 2016, double the 6.7-per cent pace of first-half GDP growth. Earlier this month, Sheng Songcheng, head of the PBOC’s Survey and Statistics Department, was quoted by China Business News as saying China’s fiscal deficit could rise to between 4 per cent and 5 per cent of GDP, up from the 2016 target of 3 per cent. To be sure, the sources said easing monetary policy would be an option if economic growth unexpectedly dipped to near or below 6.5 per cent - a baseline needed until 2020 to meet long-term GDP goals. “Fiscal policy is definitely more effective than monetary policy, but we cannot say monetary policy is ineffective,” said a senior economist at a top government think-tank. “We won’t allow growth to slip below 6.5 per cent - it’s a bottom line,” said the economist. Reuters
Biggest Mainland banks grind out meagre gains Keeping non-performing loans under control takes its toll on profits. Agricultural Bank of China Ltd. on Friday posted a 0.5 percent increase in net income in the second quarter from a year earlier. China Construction Bank Corp. reported earlier in the week a 0.9 percent gain, while Bank of Communications Co.’s profit rose 1.3 percent. The other two lenders in the big five Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. - are due to report this week. Amid the limited profit gains, some lenders announced plans for new fundraisings. Agricultural Bank said on Friday that it would sell as much as 80 billion yuan (US$12 billion) of Tier-2 securities over three years, while mid-sized China Citic Bank Corp. on Thursday announced plans to raise as much as 40 billion yuan selling convertible bonds. While Xu Yiming, the chief financial officer of Construction Bank, told a briefing in Hong Kong on Friday that his bank was seeing less pressure from
bad loans, Agricultural Bank Chairman Zhou Mubing told reporters in Beijing that the opposite was true for his organization.
Regulatory minimum
All three banks kept their ratio of provisions for bad loans above a regulatory minimum of 150 percent of existing soured credit. Agricultural Bank reported that its nonperforming-debt ratio edged up to 2.4 percent from 2.39 percent in the previous three months. Construction Bank and Bank of Communications Co. both earlier reported that their bad-loan ratios held steady in the second quarter. Bank of Communications executives cautioned that it was too early to say
the worst was over for nonperforming loans. While bad-debt risks are “controllable,” the situation remains severe, President Peng Chun said at a briefing last week in Shanghai. Yang Dongping, the lender’s chief risk officer, said that nonperforming loans were rising faster in some places - such as Shandong, Tianjin and Fujian - than others. China’s tools for tackling leverage and a build-up of bad credit include debt swaps with local governments, plans for banks to swap loans for equity stakes in companies, and a trial of NPLbacked securities. Agricultural Bank last month sold securities backed by 10.7 billion yuan of nonperforming loans. Bloomberg News
10 Business Daily Tuesday, August 30 2016
Greater China
Global summit
Beijing wants a successful G20 but suspects West may derail agenda State media has given great play to the idea that G20 is for China to show leadership in shaping global governance rules. Ben Blanchard and Michael Martina
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hina is hoping to cement its standing as a global power when it hosts leaders from the world’s biggest economies this weekend, but suspects the West and its allies will try to deny Beijing what it sees as its rightful place on the international stage. Ensuring that this does not happen will be one of President Xi Jinping’s priorities, and a key mark of how successful China will judge the G20 summit to be. Beijing wants to use the September 4-5 meeting in the tourist hub of Hangzhou to lay out a broad strategy for global growth, but talks are likely to be overshadowed by arguments over everything from territorial disputes to protectionism, diplomats said. “From where China sits, it looks like the Americans are trying to encircle them,” said a senior Western envoy, describing conversations with Chinese officials ahead of G20 as being dominated by the South China Sea row and an advanced U.S. anti-missile system to be deployed in South Korea. In recent months, China has been incensed by a ruling against its claims in the South China Sea by an international court, a case initiated by Manila but blamed by Beijing on Washington. While China wants to make sure its highest profile event of the year goes off successfully, Xi will be under pressure at home to ensure he is strong in the face of challenges
to his authority on issues like the South China Sea, going by reports in state media. China has already made clear it does not want such matters overshadowing the meeting, which will be attended by U.S. President Barack Obama, Japanese Prime Minister Shinzo Abe, and other world leaders. State media has given great play to the idea that G20 is for China to show leadership in shaping global governance rules and forging ahead with sustainable global growth, with the official People’s Daily saying this could be one of the G20’s most fruitful ever get-togethers.
‘Western officials have their own concerns about access for their companies in China and are increasingly not afraid to talk about it’ “Let’s make cooperation ever higher,” it wrote in a commentary last week. But the state-run Study Times wrote in mid-August that Western countries were trying to deliberately exclude a rising China and deny it a proper voice on the world stage with schemes like the U.S.-led
Trans-Pacific Partnership. “Trying to get back their right to global governance, they are forging a new ‘sacred alliance’, striving to establish new rules,” the influential paper, published twice a week by the Central Party School, wrote in a G20 commentary. “These new rules will exclude China.”
Angered by Britain, Australia
Overseas, China has been angered by questions raised by Britain and Australia over strategic Chinese investments in their countries, saying it smacks of protectionism and paranoia. Australia has blocked the A$10 billion (US$7.7 billion) sale of the country’s biggest energy grid to Chinese bidders, while Britain has delayed a US$24 billion Chinese-invested nuclear project. But Western officials have their own concerns about access for their companies in China and are increasingly not afraid to talk about it. Joerg Wuttke, the President of the European Union Chamber of Commerce in China, said there has been a change in tone as European officials having been expressing more dissatisfaction with China’s overcapacity problems and a lack of reciprocal market access for European companies. “It has reached the point where people are not afraid to speak up any more. They feel like they have to be tougher in front of their own constituencies,” Wuttke told Reuters. A European official involved in trade issues with China expressed exasperation at China’s attitude on protectionism. “The Chinese would shut you down at once if you said you wanted to buy one of their grids. You wouldn’t
get to the end of the sentence,” the official added. None of this will make for plain sailing at G20. “China is angry with almost everyone at the moment,” said a second Beijing-based Western diplomat familiar with the summit. To be sure, China does want G20 to go smoothly, said a third Western diplomat. “It’s very important from the stance of national pride,” said the diplomat, pointing out it was not uncommon for G20s to be hijacked by issues other than economics. “It’s a minefield for China.”
Japan worries
Then there is Japan, a country with which China has been embroiled in disputes for much of the last decade over their wartime past and a spat over a group of uninhabited islands in the East China Sea. Last week, China’s top diplomat called on Japan to be “constructive” at G20, with the deeper fear in Beijing that Japan is angling to become involved in the South China Sea dispute as well, at the behest of its ally the United States. Wang Youming, the head of the developing countries programme at the Foreign Ministry-backed China Institute of International Studies, wrote in the widely-read Chinese tabloid the Global Times that the closer G20 got, the more Japan was trying to cause trouble. “Japan is getting entangled in the South and East China Sea issues, cosying up to the Philippines, and urging China to respect the result of the so-called ‘arbitration’ case,” Wang wrote. “Japan is up to its old tricks, and it’s hard not to think they are trying to mess things up.” Reuters
Business Daily Tuesday, August 30 2016 11
Greater China Profits evolution
Three biggest domestic airlines face billionaire currency hit The local currency depreciated 2.3 per cent against the dollar in the six months through June. Benny Kung and Kyoungwha Kim
China’s three biggest airlines are poised to report losses totalling 8.5 billion yuan (US$1.3 billion) from currency swings this year as a weaker yuan proves a drag amid rising traffic and cheaper fuel. The silver lining: The losses are narrowing. Flagship carrier Air China Ltd. may face 3 billion yuan in foreign-exchange losses, while China Southern Airlines Co., Asia’s biggest by passengers, is looking at a potential hit of 4 billion yuan and China Eastern Airlines Corp. may lose about 1.5 billion yuan, according to Taipei-based Capital Securities Corp. That compares with a combined loss of 16.2 billion yuan in 2015. The carriers are scheduled to announce their first-half earnings this week. A strategy to trim dollar-denominated debt may be paying off as the airlines seek to shield their earnings from declines in the yuan, according to Capital Securities. A weaker local currency typically hurts companies that borrow in dollars to pay for imports such as aircraft. An unexpected devaluation of the yuan last year led to an 18-fold surge in currency losses in 2015 for the three carriers. “The yuan’s devaluation raised foreign exchange loss and interest costs for the airliners,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “The yuan has stabilized after a tough second quarter and this will ease the burden on their bottom-line. The second-half should
be much better.” The local currency depreciated 2.3 per cent against the dollar in the six months through June, making it the worst performer in Asia. The yuan, trading at about 6.67 against the greenback, is likely to weaken about 2 per cent more by the end of 2017, according to the average estimate of forecasts in a Bloomberg survey. Shares of Air China and China Eastern have declined about 2 per cent
and 6 per cent this year in Hong Kong, compared with a 13 per cent slide in the Bloomberg Asia Pacific Airlines Index, according to data compiled by Bloomberg. Cathay Pacific Airways Ltd., the marquee Hong Kong-based airline that is facing competition from its mainland peers, has slumped 15 per cent. Jet fuel that cost about 30 per cent less on average in the first half compared to a year earlier provided a buffer as the carriers enjoy the benefits of cheap oil helped by their policy not to hedge. They have added more routes in a market where passenger
traffic is growing 12 per cent annually, more than twice the pace of Europe and North America. “Chinese carriers are in a better position in pricing than their rivals because they don’t hedge on fuel and their cost is lower,” said K. Ajith, an analyst at UOB Kay Hian Pte in Singapore. “On top of that, their international traffic is rising.” Every 5 per cent movement of the dollar translates to a loss or gain of about 3.4 billion yuan for China Eastern, and 2.8 billion yuan each for Air China and China Southern, he said. Bloomberg News
‘Goldman Sachs Inc., in a note last month, said it maintains a buy recommendation on China Eastern and neutral on both Air China and China Southern’
Data debated
Analysts say private investment crash not so alarming Alarmed by a collapse in private investment in China and a surge in state spending? Calm down, say three analysts, who argue that data problems are exaggerating the trend. Investment numbers this year aren’t completely comparable with 2015 because they include firms that recently migrated from the private to the state sector, says Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington. Research firm Rhodium Group and economist Louis Kuijs at Oxford Economics Ltd. have spotted the same discrepancy. “Policy makers and the market should not worry unnecessarily about misleading data purportedly implying a scary sudden divergence in 2016
“Private investment and overall fixedasset investment are undoubtedly slowing, but the actual decline is likely less severe than indicated by the official data” Andrew Coflan, Rhodium research analyst
between private and non-private investment,” Kuijs said in a report last week. Amid concern over growth in private investment plunging to a record low, China’s top economic planning agency last week announced a plan to open more sectors to private firms. Meanwhile, the nation’s cabinet unveiled a blueprint to lower corporate costs and raise profitability within about three years. During a group interview Friday, Han Zhifeng, deputy head of the investment department at the
National Development and Reform Commission, said China’s economic slowdown is making private investment sluggish, which he described as a “periodic difficulty”. Although private investment growth will continue to slow, he said, it is “not likely to be negative growth”. Public-private partnership projects will be key to boosting private investment, Yi Yun, a finance ministry official whose job is to promote such projects, said during the same interview. She said the ministry is drafting a regulation to protect private investors in the partnerships. Private investment has slowed “but not as much as official data suggest,” says Lardy, who has studied China for more than three decades. The jump in state investment in the first half appears to result partly
from the government’s intervention in the stock market a year ago, when a bailout of more than 1 trillion yuan led the government to become a dominant or controlling shareholder in companies that hadn’t been state controlled, Lardy said. But the National Bureau of Statistics didn’t reflect those ownership changes in its monthly data until January, he said. “So the surge in investment by state companies this year is real, but the data are not completely comparable with earlier data since they include investment by firms that have recently migrated into the state ownership category,” he said.
Investment riddle
Kuijs says the sharp acceleration in non-private investment isn’t plausible because sectors where state enterprises are known to be strongly represented haven’t seen soaring investment growth this year. Growth in investment in utilities edged up to almost 20 per cent in the first seven months from 16.6 per cent last year, while investment in coal and mining has plummeted, he says. Rhodium research analyst Andrew Coflan notes the likelihood that a shift in ownership of private firms by the state was only accounted for statistically in January, which he says would be understandable given the scope of the change. “Private investment and overall fixed-asset investment are undoubtedly slowing, but the actual decline is likely less severe than indicated by the official data,” Coflan said. “January’s opaque reorganization reinforces questions regarding its role for both market and policy analysis.” While the data issues on investment likely exaggerate the trends, Bloomberg Intelligence economist Tom Orlik says they don’t fundamentally alter the narrative of a state-sponsored stimulus offsetting weak spending by cautious private-sector firms. Bloomberg News
12 Business Daily Tuesday, August 30 2016
Asia In Brief GDP
Laos revises growth forecast Forecasts for economic growth in Laos for the coming year have been revised from 7.5 percent down to 7.3 percent, local media reported yesterday. The economy in the Mekong-side nation grew by approximately 6.9 percent over the past 12 months, but more will need to be done to reach future growth targets in the face of global economic uncertainty, state-run daily Vientiane Times reported Monday. The revision follows the August monthly meeting of the nation’s executive cabinet chaired by Lao Prime Minister Thongloun Sisoulith last Friday.
Trade
South Korea exports seen growing after 19 months But imports are expected to keep their long declining trend.
S
outh Korea’s exports in August are expected to rebounded into positive territory for the first time in 19 months, a Reuters poll found yesterday, mainly aided by smartphone exports and two more working days this year. The poll of 16 analysts forecast August exports would rise by a median 0.6 per cent compared to the same period a year earlier, compared with a 10.3 per cent drop in July.
Yesterday’s survey was part of a poll on major economic indicators to be released later this week. Exports have fallen since January 2015 amid stubbornly weak global demand and lower prices for oil and other global commodities. Forecasts in this poll ranged from a 7.0 per cent jump to a 5 per cent decline. Imports, on the other hand, were expected to have continued their long declining trend, but at a more modest pace. They likely slipped 3.3 per cent in August from a year earlier, less than a 13.6 per cent drop in July. “Oil prices have moved similar to last year’s level, which removes negative base effect from oil prices. Moreover, the newly launched mobile
Central bank
South Korea economy to see mild improvement
MBK scraps plan to buy Japan’s Accordia Golf Seoul-based private equity firm MBK Partners has scrapped a plan to buy Japanese golf course operator Accordia Golf Co after the value of the company surged in recent weeks, sources with direct knowledge of the matter have told Thomson Reuters LPC. In a potential deal that valued Accordia at up to 160 billion yen (US$1.6 billion), MBK was working with about 20 financial institutions to obtain 75 billion yen in seven year senior loans for the acquisition, Thomson Reuters LPC reported previously. Strategic review
Malaysia’s CIMB lowers loan growth target Malaysia’s second biggest bank CIMB Group Holdings Bhd said it will not be able to meet its 2016 targets for loan growth and return on equity as it expects a challenging macroeconomic environment in Southeast Asia for the second half. The company lowered its loan growth target for the year to 6-7 percent for 2016 from the initial target of 10 percent. “We expect moderate pick up in loan growth in the second half but it’s still a very challenging environment,” group CFO Shahnaz Jammal told a results briefing yesterday.
July industrial output seen -0.6 pct s/adj m/m vs July -0.2 pct Aug exports seen +0.6 pct y/y, imports -3.3 pct y/y
Separately, the Reuters poll also forecast factory output in July to slip by 0.6 per cent in monthly terms, worsening slightly from a 0.2 per cent fall in June on weak exports and poor car production. On year, industrial output was seen to have risen 0.3 per cent. Inflation is expected to pick up marginally to 0.8 per cent in August, the poll found, from July’s 0.7 per cent, as agricultural product prices rose on unusually hot weather this month compared to the average in previous years. Industrial output data will be released on August 31, while trade and inflation data will be announced on September 1. Reuters
Employment data
Jump in job loss among men in Japan clouds picture Behind the loss there is a further decline in the manufacturing base. Toru Fujioka
A growing number of men in their prime working years are joining the ranks of Japan’s long-term unemployed - unable or unwilling to adapt to a shifting labour market as opportunities continue to shrink in areas like manufacturing. Though Japan has a famously low jobless rate, at 3.1 per cent in June, hidden in the data is the fact that long-term unemployment among men ages 25-44 has jumped five-fold since the early 1990s after Japan’s economic bubble burst. There were 14.7 million male workers in the 25-44 age group in June, the lowest level in 48 years, even amid an overall increase in the workforce, according to the statistics bureau. This contrasts somewhat with increasing employment rates for Japanese women. Yet while women are showing more capacity to adapt, they are not necessarily winners either, as they are more likely than men to hold part-time jobs with relatively low pay and fewer benefits than for full-time, regular positions.
‘Hidden problem’
Though Japan’s jobless rate is the lowest since 1995, the trend of rising unemployment among men in their key working years is worrisome for
Prime Minister Shinzo Abe, who is trying to resolve a stubborn labour shortage. It’s especially problematic because Japan’s corporate structure makes it difficult to move among companies. “This is a hidden problem in Japan’s economy,” said Akane Yamaguchi, an economist at Daiwa Institute of Research, who published a report on the issue in April. “Abe’s government has to fix it as this is the generation supposed to be in the prime of their working life.”
Behind this is a further decline in the manufacturing base - the number of manufacturing jobs dropped to 10.3 million in June from 11.7 million a decade ago while the medical, health care and welfare sector added 2.7 million jobs, according to the statistics bureau. Employment in the service sector has risen to 74 per cent as of 2014, according to the latest report by the Cabinet Office in December. “There aren’t really any training programs offered for them so once they missed the opportunity, it gets very hard for them to find a job,” Yamaguchi said. “This is a vicious cycle.” Bank of Japan researchers wrote about the trend in a report in March, saying unemployment of more than a year is “biased heavily” toward men ages 25 to 44. Analysts found that the number of men without jobs in this age range climbed to 310,000 in 2014, about five times more than in the 1990s. Potential reasons include men’s preference to find work in their same industry and a shift of jobs from manufacturing, the BOJ report showed. Rising unemployment among these men could exacerbate Japan’s demographic challenges - a rapidly aging population and a stubbornly low birth rate - that are weighing on economic growth. Only 39 per cent of men in their 20s want to get married, a clear contrast with 67 per cent three years ago, according to a survey by Meiji Yasuda Life Insurance released in June. The most significant reason men gave in the survey for staying single: They don’t have enough income to support a family. Bloomberg News
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Key Points
Aug CPI seen +0.8 pct y/y, vs July +0.7 pct
South Korea’s economy is expected to see gradual improvement in coming months thanks to services and domestic consumption, the country’s central bank said in a regular report on regional growth yesterday. The overall pace of economic growth had slowed slightly in most regional economies over July and August, according to an assessment from the Bank of Korea’s 16 regional offices nationwide. Exports will remain sluggish but are expected to gradually recover, the report added. Manufacturing is forecast to be largely steady in coming months compared to July and August. M&A
phone model started its pre-orders which showed high global demand,” said Kathleen Oh, an economst at Standard Chartered Bank in Seoul, referring to Samsung Electronic Co Ltd’s latest product, the Galaxy Note 7. Samsung Electronics said last week pre-order results for the new premium smartphone exceeded its estimates, suggesting strong initial sales.
Business Daily Tuesday, August 30 2016 13
Asia Construction bubble
After building boom, South Korea girds for housing glut Cynthia Kim
In Yongin, a satellite city south of Seoul, orange construction cranes are racing to build gleaming new highrises, but realtor Kim Woong-jib says he is pointing would-be apartment buyers to older buildings. The city of a million people has 5,301 unsold new residential units, government data shows, the most in South Korea and a symptom of a growing housing glut that is worrying policymakers. Developers, egged-on by interest rates at all-time lows, are building apartments at a record pace, one bright spot in an otherwise sluggish economy. But the home-building boom has fuelled a surge in borrowing. South Korea’s household debt, already the highest among emerging markets, threatens to choke off consumer spending and has prompted the government to step in to prevent a damaging crash. In places like Yongin, the flood of new apartments also means re-sale prices could suffer. “They are building way too much, it’s irresponsible,” said Kim, a real estate broker in Yongin for 10 years. “I can’t possibly recommend these new ones to my customers when I’m sure they will lose money,” Kim said. The total number of housing units launched in the first half of this year in South Korea rose 3.7 percent to 299,000. In 2015, construction began on a record 720,000 new residential units, government data shows. A sluggish economy and fastest aging population among OECD countries, however, are keeping a lid on demand.
And unlike markets such as Hong Kong, Singapore and Sydney, South Korea has low immigration and few foreign buyers to stimulate sales and prices. The looming oversupply is a hangover of persistently low rates and a loosening in 2014 of the cap on the mortgage loan-to-value ratio, moves intended to stimulate the economy. That fuelled a surge in homebuying that prompted a tightening in lending rules in January in an effort to tame ballooning household debt. In the June quarter, household credit grew an annual 11.1 percent to a record high of 1,257.3 trillion won (US$1.1 trillion). At 88.4 percent of 2015 GDP, South Korea’s household debt even exceeds that of the United States and Japan, Bank for International Settlements data shows. On Thursday, the government announced further steps to rein in household credit, saying it will encourage households to take out fixed-rate loans, not interest-only ones, by cutting some fees. Guidelines
for stricter bank lending standards and curbs on the supply of new housing were also announced.
Exceptional discounts!
While new units in areas like Seoul’s wealthy Gangnam district are snapped up as soon as they hit the market - which in South Korea is typically before they are built pockets of oversupply have emerged in places like Yongin. The building boom is fuelled in part by big construction companies such as Hyundai Engineering & Construction Co Ltd and GS Engineering & Construction Corp looking to offset a plunge in orders from overseas, especially the Middle East. Ratings agency Moody’s predicts the 10 largest builders will launch projects with about 170,000 units in the second half of this year, up 57 percent from the first half. That could “significantly increase unsold inventory over the next 12-18 months,” Moody’s said in an Aug 18 note. Asked whether there was a glut forming in the property market, a spokesman for developer Seohee
Construction Co Ltd said: “It’s clearly widely debated nowadays, but it’s just difficult for me to tell.” Policymakers are worried an oversupply of houses and heavy debt could destabilize financial markets when the bubble bursts, said Lee Sang-jae, a Seoul-based economist for Eugene Investment & Securities Co. High levels of debt are also hurting real household spending, which fell 0.8 percent in the three months through June in annual terms, according to Statistics Korea. “The housing boom supports growth by driving jobs and business deals, but also squeezes consumption expenditure of households,” Lee said. So far, nationwide prices have held up, with an index of apartment prices hitting an all-time high in July. Buses in Yongin, however, are plastered with ads for apartments, promising “exceptional discounts!” and buyers are concerned about oversupply hurting values. Ji Soon-ja, who runs a convenience store in Yongin, said she made a 56 million won (US$50,330) down payment last year for a flat in a nearby building, which has yet to start construction. Now she is worried, as she sees more buildings going up and fewer would-be buyers. The spokesman from Seohee Construction, which has 11 projects under construction in South Korea and nine more at the planning stage, said 80 percent of the flats in the Yongin development had already been sold. Ji said she had not yet decided whether to pay the next installment, due soon. “It’s clearly a glut,” she said. “They are cranking out apartments and selling homes they shouldn’t, so foolish people like myself ended up buying them.” Reuters
14 Business Daily Tuesday, August 30 2016
International In Brief Stagnant economy
Italy manufacturing, consumer trust fall Italian manufacturing confidence in August fell to the lowest since early last year, as Prime Minister Matteo Renzi struggles with a stagnant economy compounded by the massive destruction from last week’s deadly earthquake. Consumer confidence also fell. The business manufacturing gauge dropped to 101.1 in August, the lowest since Feb. 2015, from 102.9 the previous month. The median estimate of economists surveyed by Bloomberg called for 102.5. Confidence among households plunged to 109.2, the lowest in more than a year, from 111.2 the month before, statistics agency Istat said yesterday in Rome. Railway corridor
Russian company to build shortcut to Pacific Russian company SamargaHolding plans to create a transport corridor in the Far East by 2025 connecting the trans-Siberian railway to the Pacific, Russian news agency RIA Novosti reported yesterday. “The transport corridor will link the Far Eastern city of Khabarovsk with the mouth of the river Samarga” through a 380-km-long railway, Alexander Vasiliev, head of the company’s development and external relations, told a news conference. The company is looking for investors from countries in the Asia-Pacific and will introduce the project at the second Eastern Economic Forum scheduled for September 2-3 in Vladivostok, he said. Adjustment
Doha airport brings in passenger tax Qatar’s international airport said yesterday it is to charge passengers an exit tax as the energy-reliant emirate adjusts to falling oil prices. The 35-riyal (US$10) levy is to be introduced this week, Hamad International Airport (HIA) said in a statement. The fee, to be added to airline ticket prices, will apply to tickets issued on or after August 30, as well as for travel starting on or after December 1. “The charge is in line with International Civil Aviation Organisation principles to support the development of world leading airports such as HIA,” it said. TTIP
German economy minister says EU-U.S. trade deal failed German Economy Minister Sigmar Gabriel said on Sunday that the negotiations between the European Union (EU) and the United States over a free trade deal had de facto failed. “The negotiations with the USA have de facto failed, because we as Europeans, of course, should not subject ourselves to American demands,” Gabriel said in an interview with German ZDF television. He noted that the two sides could not agree on a single chapter of the Transatlantic Trade and Investment Partnership (TTIP) being discussed.
ECB meeting
Draghi silence puts numbers in spotlight Euro-area consumer prices are barely rising despite 1.2 trillion euros of bond purchases and a negative deposit rate.
M
ario Draghi is letting the numbers do the talking. After five weeks of silence, the European Central Bank president is leaving it largely to a raft of economic data to fine-tune policy expectations ahead of the Governing Council’s next meeting on September 8. Reports covering inflation to business confidence and unemployment in the coming days may signal whether more stimulus is needed to sustain the recovery and revive price growth amid potential fallout from Britain’s vote to leave the European Union. Momentum in the 19-nation euro area has so far shown few signs of losing pace, and economists at both JPMorgan Chase & Co and Danske Bank A/S pushed back projections for further easing. But executives in Germany, the region’s largest economy, are beginning to wake up to the Brexit shock, suggesting that more severe consequences may still be ahead.
Policy messages
Coeure did attend Jackson Hole, and warned that policy makers “may need to dive deeper into our operational framework” if governments don’t act to boost growth potential in euro-area economies. Even so, he has previously warned of the risks from the side effects of ever increasing stimulus. The ECB’s chief economist, Peter Praet, and Governing Council members Francois Villeroy de Galhau and Ewald Nowotny are all scheduled to speak this week. The most awaited piece of data in the coming days is probably inflation. Euro-area consumer prices are barely rising despite 1.2 trillion euros (US$1.3 trillion) of bond purchases and a negative deposit rate, and policy makers agreed at their July 20-21 meeting that no clear upward trend in inflation was yet visible. Economists surveyed by Bloomberg predict the rate rose to 0.3 per cent in August from 0.2 per cent the previous month. That would be the highest since January but still far from the ECB’s goal of just below 2 per cent. Industry and consumer confidence
data out today will show how well the economy is holding up two months after the U.K. referendum. Private-sector activity unexpectedly picked up in August, driven by an improvement in services, according to surveys by IHS Markit.
Turning tides
But the tide can turn quickly. In Germany, where second-quarter earnings at blue-chip firms beat estimates by more than 10 per cent, business sentiment has plunged the most in four years, with executives warning that Brexit and other political crises may damp orders. With an expansion of 0.4 per cent, the nation drove euro-area economic growth in the April-June period. In both France and Italy, growth ground to a halt in the quarter. Manufacturing in the region’s second-largest economy has shrunk for six months and tourism is suffering from a series of terrorist attacks. Meanwhile, Italian banks are struggling to dispose of non-performing loans, and a vote on political reform expected in November has the potential to topple Prime Minister Matteo Renzi’s government. Even in Spain, where growth rates have been among the strongest in the region as investment and job creation tick up, risks remain. Acting Prime Minister Mariano Rajoy is facing a confidence vote on Wednesday to secure a second term that, if lost, could put the nation on track for a third election. Bloomberg News
Draghi didn’t attend this year’s gathering of central bankers and economists at Jackson Hole, Wyoming, at the weekend, where Federal Reserve Chair Janet Yellen said the case to raise U.S. interest rates is getting stronger. Two years ago, he used the same event to flag a major policy shift that ultimately saw the introduction of quantitative easing. Now, the ECB president is deferring judgment of the euro area’s economic prospects before fresh staff projections are published. Draghi’s analysis of the risks attached to them may shed light on his plans for monetary policy in the months to come. Executive Board member Benoit
Bank loans
IMF sees Kenyan cap on rates blunting monetary policy A law pegs credit costs at 400 basis points above the central bank rates and requires lenders to pay depositors 70 per cent of the main lending rate. Kenya’s decision to limit the rate that commercial banks can charge for loans will cloud the central bank’s monetary policy signals and may undermine efforts to keep inflation within the government’s target range, the International Monetary Fund said.
“The central bank will need to go back to revise the arsenal of its instruments to see how they can offset this blurring of signals in the market” Armando Morales, the IMF country representative for Kenya
While the Central Bank of Kenya has been more effective in containing
inflation over the past three years, “controls being introduced are going to blur the signals” that emanate from its interest-rate decisions, Armando Morales, the IMF country representative for Kenya, said in the capital, Nairobi. Kenyan President Uhuru Kenyatta last week approved a law that placed a ceiling on the amount of interest lenders can charge for debt, and prescribing how much interest they should pay on deposits. Kenyatta, whose family owns a stake in the country’s closely held Commercial Bank of Africa Ltd., cited frustration with the high cost of credit and low returns on savings.
Wrong solution
The impact of the new legislation won’t be “homogeneous” as smaller banks may bear the brunt, Morales said. While Kenyans’ demands for lower interest rates are legitimate, instituting rate caps is the wrong way to solve the problem, Morales said. “In our experience, using controls to lower the cost of financing has not been successful,” he said. “We think it doesn’t work.”
The law pegs credit costs at 400 basis points above the central bank rates and requires lenders to pay depositors 70 per cent of the main lending rate. Kenyan banks extended loans at a weighted average of 18 per cent in June, according to central bank data. Policy makers held the central bank’s benchmark rate at 10.5 per cent last month, after a 100 basispoint cut in May, as headline inflation accelerated to 6.4 per cent in July from 5.8 per cent in June. The central bank’s monetary policy committee may have to “revise some of its decisions” should inflation breach the target, he said. Treasury Secretary Henry Rotich said Kenya still upholds free-market principles despite agreeing to legislate interest rates. Authorities in the US$61 billion economy would work to improve market conditions that would make the law redundant, he said in an interview on August 26. “Obviously at some point, when the system becomes efficient, the solutions that had to happen will now be unwarranted,” Rotich said. “It’s not a backtracking in the liberal sense. We will push on that, but at the same time address the root cause of why interest rates are high.” Bloomberg News
Business Daily Tuesday, August 30 2016 15
Opinion Business Wires
The Straits Times Singapore is losing export competitiveness in the region and this is due to rising costs, according to Credit Suisse economists. Their research also found that the Republic’s small, tradedependent economy is losing market share in the global goods trade, which means export growth will likely remain weak in the coming years. Vietnam, the Philippines and China are winning the export race in Asia, according to the report by Credit Suisse head of South-east Asia and India economics and strategy Santitarn Sathirathai, economist Michael Wan and Mr Ray Farris, its head of Asia macro strategy. Second in command and leader of the delegates of the Revolutionary Armed Forces of Colombia (FARC) Luciano Marín (L), alias Iván Márquez, shakes hands with head of the peace delegation of the Colombian Government Humberto de la Calle (R) as Cuban Minister of Foreign Affairs Bruno Rodríguez (C) claps in Havana, Cuba, 24 August 2016.
Colombia’s gift to the world Bangkok Post The (Thai) government plans to cut the import tariff on 51 categories of robotic parts in order to accelerate real investment in the industry, says Kanit Sangsubhan, chairman of the Finance Ministry’s private investment promotion committee. The move comes in response to requests by major private companies led by PTT Plc and Siam Cement Group Plc, which are interested in robotics one of the government’s targeted cluster industries, he said. Mr Kanit said the committee has agreed to cut the import tariff and is to submit the plan for cabinet approval soon.
New Zealand Herald Auckland Airport is paying its staff with a NZ$1500 bonus as its underlying profit spiked 20 per cent to NZ$212.7 million in the past year. Shareholders will also get an increased dividend - up nearly 20 per cent to NZ$17.5c per share. And the airport’s chief executive, Adrian Littlewood, also enjoyed a big pay rise his remuneration, excluding exercising any share options, went up nearly 9 per cent to NZ$1.555m. The company’s chairman Sir Henry van der Heyden, said it had been another year of growth right across the business.
The Asahi Shimbun Instead of applying the old-fashioned way in person at a bank, customers can submit loan applications through a smartphone under a planned tie-up between Mizuho Financial Group Inc. and Softbank Group Corp (in Japan). Mizuho is weighing the idea of using information technology in the screening process to set customized interest rates and credit lines for borrowers based on their academic backgrounds, professional career records and other information. Softbank acquired a stake last year in Social Finance Inc. (SoFi), a U.S. venture company, which operates an online loan brokerage business in the United States. SoFi uses its own automated software to set the terms and conditions of the loans it extends.
A
fter four long years of talks in Havana, Cuba, Colombian President Juan Manuel Santos has negotiated an end to successive governments’ armed conflict with the Revolutionary Armed Forces of Colombia (FARC), the most resilient insurgent group in Latin America. Colombia’s civil war, which lasted for six decades, has killed an estimated 220,000 people and displaced another six million. Ending it was a remarkable feat of diplomacy, and Santos deserves the world’s applause. Indeed, he should be far and away the leading candidate for this year’s Nobel Peace Prize. Three significant factors led to the peace accord: the Colombian armed forces’ increased effectiveness, which enabled them to decimate the FARC’s ranks; Santos’s previous diplomatic groundwork, wherein he repaired Colombia’s previously fraught relations with neighbouring Venezuela, Ecuador, and Bolivia, an axis that had long contributed to sustaining the FARC by providing logistical and political support; and, finally, Cuba’s new policy of rapprochement with the United States, which Santos was wise to exploit in his own efforts to make peace. With the conditions for negotiations in place, Santos also had to address the root cause of the conflict. He did this by signing the Victims and Land Restitution Law in June 2011, in the presence of UN Secretary-General Ban Ki-moon. The law was a watershed, because it simultaneously pacified violent regions, delivered j u sti c e f o r m i l l i o n s o f dispossessed peasants, radically improved standards of living, and blunted the appeal of a guerrilla group that used the banner of land reform to justify its untold atrocities. It even drew praise from the Office of the UN High Commissioner for Human Rights in Colombia for its special provisions for women and children survivors of human rights abuses, and for those targeted for their perceived sexual orientation. While not flawless, the Victims and Land Restitution Law clearly helped pave the way for peace and national reconciliation in Colombia. Indeed, none other than the FARC’s former leader, Alfonso Cano (the nom de guerre of Guillermo Sáenz Vargas), acknowledged this in 2011. Inevitably, the Colombian government’s transitional-justice regime to end the conflict and re-assimilate the FARC into the Colombian political process has some detractors, and has divided the Colombian electorate. Former President Álvaro Uribe is now leading those who stridently oppose the peace deal on the grounds that it does not go far enough to punish FARC militants. Nonetheless, the accord signed in Havana is historic and innovative, because it emphasizes truth-telling without eschewing justice altogether. Its focus is not on vengeance and retribution, but on “restorative
“
Shlomo Ben-Ami a former Israeli foreign minister, is Vice President of the Toledo International Centre for Peace.
justice,” a principle Archbishop Desmond Tutu used to describe South Africa’s transition to majority rule after apartheid. The Colombian model of transitional justice acknowledges that national reconciliation is achievable only if the communities broken by the long, savage war are repaired and revitalized. In other words, Colombia’s approach to transitional justice puts the victims first – more so than any peace process seen in recent years. Victims’ delegations even joined the Havana talks and met with the FARC leadership that was responsible for so many past atrocities. The Colombian government’s pioneering approach seems to have benefited from a gender sub-commission that considered proposals from nongovernmental organizations representing women’s rights and the LGBT commun ity. Th e government was also wise to establish a special subcommission to examine the history of the bloodshed, because disagreement about the past often constitutes an insurmountable obstacle to peace and reconciliation. Colombian domestic politics should now move to the forefront of attention, because peace processes are vulnerable to public opinion. While war often unites countries, peace t e n ds t o di vi d e th e m , because it inevitably requires concessions and sacrifices. Peace comes at a cost, and people often disagree about who should foot the bill. For a democratic leader, negotiating peace is – perversely – riskier than waging war. This is especially true for an asymmetric peace process between a democratically elected government and an unaccountable non-state actor, which doesn’t have to worry about upcoming elections, opposition political parties, the press, or a sceptical public. Despite these enormous constraints, the Santos government never deviated from proper democratic procedures. It considered proposals from popular assemblies around the country, and it maintained transparency throughout the process. Santos has overcome formidable challenges, and the next one is a forthcoming plebiscite, where the Colombian people, one hopes, will recognize that their country has furnished a conflict-ridden world with a new model for peace. The international community should take note of this and assist Colombia in the difficult transition ahead as it implements policies in accordance with the new agreement. The post-conflict phase will be no less demanding than the peace process itself. Project Syndicate
The Colombian model of transitional justice acknowledges that national reconciliation is achievable only if the communities broken by the long, savage war are repaired and revitalized.
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16 Business Daily Tuesday, August 30 2016
Closing Commodities
Australia’s gold production at all-time high
Australia’s gold production has surged to a 15-year high in response to bumper gold prices prompting producers to maximize output. NewsCorp reported yesterday that a production survey conducted by industry consultant Surbiton Associates found that gold output up to June totalled 292 tonnes (9.38 million ounces), worth A$16.2 billion (US$12.24 billion) at spot prices. Surbiton director Sandra Close has advised the industry to turn more of its returns to exploration.
“Spending money on exploration for a mining company is like research and development spending for an industrial company,” Close said. She said producers had responded to the higher local gold price. “Clearly ... many companies are keen to take advantage of the prevailing prices by using various strategies to maximize their gold output,” Close said. It has been a feature of the rise in the gold price that it has given owners of “stranded” gold deposits the chance to sell their ore to treatment plant owners or to have it toll treated. Xinhua
PMI forecast
Official data likely to show steady trend Factory activity in China recovered slightly in the first quarter, but has been on a mild downward trend since.
A
ctivity i n C h i n a’ s manufacturing sector likely shrank for a second straight month in August but at a marginal pace, a Reuters poll showed, suggesting the economy is steadying even as the government vows to cut more industrial overcapacity. Th e o ffi ci a l m a n u fact u ri n g Purchasing Managers’ Index (PMI) is expected to hold at 49.9 in August, unchanged from July, according to
the median forecast of 35 analysts polled by Reuters. That would be only fractionally below the neutral 50.0 mark separating expansion in activity from contraction on a monthly basis, suggesting conditions may be stabilising after a long slowdown but also offering few signs of a pick-up any time soon. Profits earned by China’s industrial firms grew the fastest in four months in July, aided by improving sales
and reduced costs, data showed on Saturday, with government projects possibly helping to ease financial strains for some companies. But the gains may be due largely to rebounding prices for commodities such as steel. A government spokesperson said an obvious improvement in demand is still not in sight. While second-quarter economic growth was a bit stronger than expected, thanks to government infrastructure spending and a housing boom, economists point to numerous risks ahead. Beijing has pledged to quicken the pace of its industrial capacity cuts in coming months after falling behind
‘The official manufacturing PMI data will be released on September 1, along with the official nonmanufacturing PMI’
earlier in the year, raising the risk of more layoffs and debt defaults which could further strain the banking system. Slowing property investment, meanwhile, is adding to fears that a near one-year housing boom may be peaking, threatening one of the economy’s recent growth drivers. And more cities are imposing cooling measures to curb sharply rising prices. Private investment growth has also shrunk to record lows, pointing to risks of renewed weakness ahead. To be sure, China’s central bank has plenty of room to cut interest rates further. But sources say evidence of companies hoarding cash has reinforced policymakers’ view that there is no major benefit in easing policy again as long as conditions do not sharply deteriorate. Forcing more money in the system could boost already high debt levels and increase speculative activities, with policymakers already clearly worried about possible bubbles in the property and bond markets. Debt has also emerged as one of China’s biggest challenges, with the total load rising to 250 per cent of gross domestic product (GDP) last year. Services continued to expand robustly in July, as a result of strong performance in the transportation, telecommunication, construction and tourism sectors. The Markit/Caixin PMI, a private gauge of manufacturing activity which focuses more on small and mid-sized firms, also is due on September 1. Analysts expect it to fall to 50.1, compared with the previous month’s reading of 50.6. In July, the official and Caixin factory reading showed a marked divergence. Caixin showed the highest manufacturing growth since February 2015, while the government showed manufacturing starting to slump. Reuters
Shopping decline
Bank sector
Going public
Hong Kong retail sales fall for 17th straight month
Moody’s warns China’s smaller Tencent-backed Zhongan lenders are a systemic risk favours HK IPO
Hong Kong’s retail sales fell for the 17th straight month in July, hurt by fewer big-spending tourists, persistently weak consumer sentiment and a strong local dollar. China’s slowdown has depressed business activity in Hong Kong, well known as one of Asia’s shopping paradises, and the city has posted more than a year of declining tourist arrivals as mainland visitors sought out other Asian destinations, including Japan and South Korea, which offered cheaper travel options. Retail sales in July slid 7.7 per cent from a year earlier to HK$34.6 billion (US$4.46 billion) in value terms, easing from an 8.9 per cent decline in June. In volume terms, July sales dropped 8.5 per cent, government data showed yesterday. “The performance in July was mainly dragged by the fall in visitor spending on some big-ticket items, and also reflected the more cautious local consumer sentiment amid an uncertain economic outlook,” the Hong Kong government said in a statement. The Hong Kong Tourism Board has not yet released tourism figures for July. Reuters
China’s banking system faces a systemic risk from a significantly increased reliance by small and mid-tier lenders on interbank funding, top credit rating agency Moody’s Investors Service warned yesterday. The most liquid assets of these banks are held largely as interbank assets, so they would need to withdraw funds from other banks to meet their own funding needs, which could in turn cause contagion, Moody’s said in a report. “With an increasingly larger number of banks now more actively engaged in the interbank financial product business, the banks are b ec o m i n g m o r e s e n si ti v e t o th e ri s k o f potential counterparty failure, which could magnify any collective reaction to negative news and trigger a sharp tightening in system liquidity,” said Christine Kuo, a Moody’s senior vice-president. In contrast, China’s big four banks are not dependent on the interbank market and are mostly fund suppliers, reflecting their strong deposit base and more prudent growth strategy, the credit rater said. Reuters
Zhongan Online P&C Insurance Co., with more than 400 million customers, is targeting an initial public offering in the next 12 to 18 months with a preference to list in Hong Kong. The company would consider a pre-IPO private funding round to attract global investors and provide strategic value to its insurance business, Chief Financial Officer John Bi said. The company hasn’t ruled out the U.S. as a listing venue, and is currently studying both markets, he added. Backed by Chinese giants Ant Financial and Tencent Holdings Ltd., Zhongan works with internet companies to provide policies for China’s younger users in the automotive, health care and online shopping sectors. The company operates in an online insurance market that is expected to reach 2 trillion yuan (US$300 billion) by 2025, a 10-fold increase from last year, according to Shanghai-based consultant IResearch. Hong Kong’s listing “momentum is good,” Bi said in a phone interview yesterday. “For our next round of private fundraising, we are looking to attract influential global insurance or technology shareholders to endorse our development.” Bloomberg News