DSF to boost transparency of public procurement Administration Page 6
Friday, September 2 2016 Year V Nr. 1122 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Labour
Casino workers urge gov’t to better enforce smoking ban in gaming venues Page 7
www.macaubusinessdaily.com
Balancing economies
Opaque lending
EU Chamber of Commerce in China says Beijing needs to open its market to foreigners or face protectionism Page 8
Shadow loans in Mainland grow again despite gov’t curbs Page 10
August Breaks Spell Gaming
Macau’s casino gross gaming revenue rose 1.1 pct y-o-y in August. Raking in some MOP18.84 bln (US$2.36 bln). Marking the first time in 27 months revenue had not contracted year-on-year. For the eight months to August 31, Macau’s aggregate casino gross gaming revenue approached MOP144.40 bln, shrinking 9.1 pct from the prior-year period. Page 3
Give us a break, say traders
Trade Local importers and exporters of Portuguese-speaking countries want help. Particularly for export insurance mechanisms and extension of tax exemptions. They recently attended an educational session for the food products trade hoping to enter Mainland China. Page 2
Making a big splash
It occupies 200,000-odd square metres. Cost MOP3.8 billion to build. And can accommodate 400,000 daily arrivals and departures. Despite currently serving fewer than 70,000 passengers on average a day. The new Pac On Ferry Terminal has prompted massive public questioning about whether it can be fully utilised.
Optimistic signs
Pac On Ferry Terminal Pages 4 & 5
HK Hang Seng Index September 1, 2016
23,162.34 +185.46 (+0.81%)
Galaxy Entertainment Group
Worst Performers
China Resources Power
+2.99%
China Mobile Ltd
-1.25%
Wharf Holdings Ltd/The
-0.91%
Sands China Ltd
+6.39%
HSBC Holdings PLC
+2.78%
China Petroleum & Chemical
-1.24%
CITIC Ltd
-0.82%
Belle International Holdings
+5.56%
Lenovo Group Ltd
+2.10%
Want Want China Holdings
-1.17%
PetroChina Co Ltd
-0.77%
China Mengniu Dairy Co Ltd
+4.76%
China Merchants Port Hold-
+2.04%
CNOOC Ltd
-1.15%
Hong Kong & China Gas Co
-0.68%
Tingyi Cayman Islands
+4.04%
China Shenhua Energy Co
+2.01%
Kunlun Energy Co Ltd
Sino Land Co Ltd
-0.45%
+8.12%
-1.05%
26° 30° 26° 30° 27° 30° 27° 31° 27° 30° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
Official PMI Activity in China’s manufacturing sector picked up in August. Due to recovery in market demand and a rebound in production, official data showed yesterday. The Purchasing Managers Index came in at 50.4 in August, signalling expansion. Page 8
2 Business Daily Friday, September 2 2016
Macau In Brief Illegal workers
Continued crackdown on illegal labour The Public Security Forces (PSP) have announced that 38 cases of illegal workers were recorded in July, a 53 per cent decrease from the 81 cases filed in the previous month. The PSP conducted 311 site inspections in July, a 1 per cent decrease from the 314 inspections undertaken in June. The inspected locations included construction sites, private buildings, commercial establishments and industrial sites. PSP, the Labour Affairs Bureau, and other departments work together and separately to combat illegal work activities in the city. Taipa-Houses Museum
No restaurant for Taipa-Houses
A restaurant project has been suspended for the Taipa-Houses Museum revitalisation project, according to a press release published yesterday by the Institute for Tourism Studies (IFT), previously commissioned to manage the operation of the proposed restaurant. One of the five buildings at the Taipa-Houses Museum was originally planned to feature a restaurant but a Committee under the Secretariat for Social Affairs and Culture decided to halt the project after taking into consideration public opinions concerning the potential impact upon the surrounding environment. In order to minimise the impact, the Bureau has decided to retain the original characteristics of the buildings. As a result, the building is to temporarily function as a guesthouse and host carnivals and other cultural activities. The Taipa Houses–Museum is housed in a set of old houses on the south side of Taipa. The museum complex comprises five houses displaying various artifacts and exhibits. Public Tender
New government office receives 15 bids A public tender was opened yesterday for the building of a new office for the SAR Government’s Protocol, Public Relations and External Affairs Office (GPRPAE) in Nam Van. The Land, Public Works and Transport Bureau (DSSOPT) received a total of 15 bids, according to a report by TDM Chinese Radio. The new office will be located on the 18th floor of Fortuna Business Centre in Nam Van. The construction project will occupy an area of 1,200 square metres. The new GPRPAE office includes an office area, a reception and meeting rooms. Its decoration and design will be simple and practical. The planned construction period is about 150 days.
Trade Traders ask Chinese officials for products from Portugal and Brazil to be exempt from taxes when entering Mainland China
Food blocks Local importers and exporters of Portuguesespeaking countries ask for an export insurance mechanism and extension of tax exemptions during clarifying session for food products trade to Mainland China Nelson Moura nelson.moura@macaubusinessdaily.com
M
acau traders of Portuguese-speaking countries’ products have asked Mainland China representatives for the expansion of import tax exemptions, while urging the city government for export insurance mechanisms. The requests were made during a clarification session on the inspection, quarantine system and the China Customs system and its application for imports of food products of Portuguese-speaking Countries held yesterday by the Macau Economic Services (DSE) at the Macau Trade and Investment Promotion Institute (IPIM). The event brought four Mainland China Customs officials and experts to clarify doubts Macau traders have regarding clearance of exports to China and what food products are allowed into the country.
“The laws in China change very quickly so we need to understand them better. We had some difficulties getting things through, especially wines; and the time to get it over with changes a lot, it can be one, three, or even six months” Guiomar Pedruco, Macau Bazaar Co. Ltd General Manager IPIM President Jackson Chang also announced that a local delegation of traders will be visiting Hengqin in Zhuhai and Nasha in Guangzhou today in order to give a better understanding of the requirements and procedures lusophone countries’ food products imports have to traverse to
enter Mainland China through Macau. The level of trade between China and Portuguese-speaking countries fell 13.34 per cent between January and June of 2016 compared with the same period last year, reaching US$41.69 billion (MOP333.06 billion). The value of China’s merchandise imports from Portuguese-speaking countries reached US$6.44 billion in the first half of this year with Brazil, Angola and Portugal being the first three biggest lusophone exporters to China.
Passing the border
Macau Bazaar Co. Ltd. specialises in selling French and Portuguese wines to Mainland China and its General Manager Guiomar Pedruco told Business Daily they attended the event to seek a better understanding of how to better bring more Portuguese products to China having experienced difficulties in the past. “The laws in China change very quickly so we need to understand them better. We had some difficulties getting things through, especially wines; and the time to get it over with changes a lot, it can be one, three, or even six months,” Pedruco told Business Daily. Local trade representatives also asked Chinese officials if other Portuguese-speaking countries could be granted the same import tax exemptions developing countries such as East Timor, Angola, Guinea-Bissau and Mozambique receive. In 2015, the Chinese authorities established a Tariff Implementation Plan stating that 97 per cent of Chinese imports from 24 nations, including Mozambique and Guinea-Bissau, would be duty-free, with 14 other countries like Angola and East Timor seeing 95 per cent of what China imports exempt from taxation. “East Timor, Mozambique, Angola, Guinea Bissau products have free entry in China but other Portuguese-speaking countries products don’t. Unfortunately, those countries still don’t have a lot of products being exported, with Portugal and Brazil being the biggest exporters to China, so something needs to be done if Macau really wants to be a platform for food products,” Rita Branco Founding President of the China and Lusofonia Countries Economic Interexchange, Trade and Cultural Promotion Association, told Business Daily. Branco mentioned high wine import taxes to China as an example of how tax exemption can create unfair competition for some lusophone
countries, as “after the many steps wines have to pass between the producer and the consumer in China, the price of Portuguese wines increases considerably”.
Export insurance the real issue
The same sentiment was echoed by the President of the International Lusophone Markets Business Association (ACIML), Eduardo Ambrosio, who stated that Portuguese-speaking countries exempt from taxes mainly export coffee, while Portuguese and Brazilian products incur “20 or 30 per cent more in taxes” for the products exported to China. The ACIML President considered the session a good way to clarify some proceedings for exporting products to China but that most of the provided information is already easily accessible online or in print, with the government failing to address the real issues faced by local traders. “Macau can be very helpful for food products from Portuguese-speaking countries going to [Mainland] China but the biggest issue continues to be the lack of a mechanism of export insurance to protect our exports like Hong Kong has and we continue to export at our own risk. Macau companies are small and our cash flow is, too, so this make it harder to export bigger quantities, and we have to settle with smaller amounts,” Ambrosio told Business Daily. Export credit insurance is an insurance policy offered by private insurance companies and governmental export credit agencies, to business entities wanting to protect their accounts receivable from loss due to credit risks such as protracted defaults, insolvency or bankruptcy.
Portuguese tasting centre
The local importers representative also believes that the promotion of lusophone products is lacking in China, and that a better temporary centre for Portuguese-speaking countries could be created since “it’s not possible to buy products directly at the current Tap Seac centre”. Currently an exhibition centre in the Tap Seac Square Glass House open since March 31 as an initiative by IPIM to promote food and beverage products - displays natural foods, snack foods, canned foods, coffee and alcoholic beverages from various Portuguese-speaking countries. “If I have friends who want to taste lusophone products and buy them they have to go to supermarkets. I think the government could create a centre to promote Portuguese products in a different way; maybe with a temporary pavilion for two or three years, with restaurants from these countries, wine tastings and cultural exhibitions. We have enough free land for that,” Ambrosio told Business Daily.
Business Daily Friday, September 2 2016 3
Macau Gaming Revenue breaks two-year downward trend
Casino revenues up 1.1 pct in August It marks the first time in 27 months that the city’s gross gaming revenue had not contracted on a year-on-year basis.
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he city’s gross gaming revenue increased 1.1 per cent in August to MOP18.8 billion (US$2.4 billion), according to data released yesterday by the Gaming Inspection and Co-ordination Bureau (DICJ). This followed a 4.5 per cent decrease in July. So far, August is the second best month of this year, following February, when some MOP19.5 billion was taken in. For the eight months ended August, Macau has an accumulated gross gaming revenue of MOP144.4 billion, a drop 9.1 per cent compared to the first eight months of 2015.
Key Points Revenues up first time since May 2014 Gaming operators shifting focus to mass market Analysts warn new properties may take time to ramp up Gaming revenue has been falling since June 2014 amid China’s economic downturn and the government’s crackdown on corruption, which has scared off high-rollers from the Mainland. Operators in Macau have been shifting their focus to tourists and recreational gamblers by adding more
non-gaming facilities as competition to attract visitors intensifies. Casino shares rose, as investors now look to see whether operators can sustain the momentum through a key holiday week. Wynn Macau Ltd. rose as much as 8.2 per cent, the biggest intraday gain in more than a month, while Sands China Ltd. advanced by as much as 4.6 per cent. The benchmark Hang Seng Index rose 0.8 per cent.
No swift rebound
Improving visitation over the Summer helped bolster the mass market segment, which has become a key focus, given the dearth of
VIP gamblers on Macau’s plentiful baccarat tables. Gaming revenue for the segment recovered in July, rising 3.2 per cent, compared to an 11 per cent drop for the high-roller VIP market, according to data compiled by Bloomberg Intelligence. A swift rebound is unlikely, say analysts, who caution that the new properties, which include a halfascale version of the Eiffel Tower and an aerial gondola ride, will be impacted by slow market growth and infrastructural bottlenecks. “We believe it is much more difficult to ramp up a new property in a low growth environment, based on Studio City’s and Galaxy Macau Phase II’s performances,” said Praveen Choudhary, an analyst with Morgan Stanley in Hong Kong, citing the examples of last year’s openings by the aforementioned,
both of which failed to boost the overall market.
New properties
There also concerns that the raft of casino resorts being completed in the newer Cotai district will result in intense competition, especially for existing casinos on the Macau Peninsula. Sands China Ltd.’s Parisian casino is due to open later this month, while MGM China Holdings Ltd.’s resort in Cotai is scheduled to open next year. “We need to wait for at least one more month to see if growth can be sustained, and if new casinos will bring more visitors during the peak Golden Week,” China International Capital Corp. analyst Chris Kwai said in a telephone interview following the results. “Compared with no growth or even a slight drop, a slight uptick makes a big impact upon market sentiment.” Wynn Palace, the US$4.2 billion luxury casino featuring a US$100 million synchronised fountain show and US$200 million-worth of art and Chinese antiques, is perceived to be off to a slow start after its August 22 opening. With Macau’s high-stake gambling segment still in decline, new projects such as Wynn’s are taking market share from the existing base, said Union Gaming Group LLC analyst Grant Govertsen. “It has largely cannibalised other properties, including their own on the Peninsula,” CLSA Ltd. analyst Marcus Liu said, referring to Wynn Palace. “The October holiday will be the true test of whether the new property, together with The Parisian, can grow the market.”
4 Business Daily Friday, September 2 2016
Macau
Infrastructure The size of the new ferry terminal in Taipa left many questioning
The new white elephant The new 200,000 square metre ferry terminal has prompted the public to wonder whether it can be fully utilised given the uncertain prospects for sea travel in the region. Kam Leong kamleong@macaubusinessdaily.com
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he new ferry terminal in Taipa has been completed at a cost of MOP3.8 billion (US$475 million). Equivalent to an area of twenty-five football fields, this new infrastructure poses doubts for society regarding whether it can see a full house one day - or is yet another white elephant in the territory’s herd of projects. Recently, the Secretary for Public Works and Transport, Raimundo do Rosário, announced the new ferry terminal, after a decade of works, had been completed and inspected. The authorities now expect the new transport facility to be operational as early as next February. Compared to the initial plan in 2005, the size of the infrastructure has expanded fourfold to 200,000 square metres from 50,000 square metres, which has also driven up the total cost 5.5 times from the initially budgeted MOP583 million some ten years ago. The expanded project now provides 16 berths for ferries carrying 400 passengers, three multifunctional berths, a helipad with five aprons, as well as a car park for 1,000 vehicles. In terms of facilities for border crossings, the new ferry terminal has 140 Customs counters installed in anticipation of handling up to 400,000 arrivals and departures per day. Some, however, perceive this designed capacity for the new project
to be unrealistic – as the majority of the city’s visitors arrive and depart at or from the territory via the Border Gate on the Peninsula. The president of the Macau Travel Industry Council, Andy Wu Keng Kuong, is one of those who doubt the full utilisation of the new building. “This infrastructure is absolutely a white elephant project,” said the Council president. “The capacity of the new terminal is much higher than the current usage recorded at the two major ferry terminals. The project is indeed prospective but I find it is unrealistic at the same time”.
Current flows
According to the official data of the Public Security Police (PSP), some 24.8 million border crossings were recorded at the city’s three ferry terminals for the whole year of 2015. Of the total, 7.9 million used the current Pac On temporary ferry terminal in Taipa, accounting for 32 per cent. The number suggests that only some 67,945 passengers arrive or depart via sea every day on average, while 21,543 of the total use the Taipa exit, accounting for 17 per cent and 5 per cent of the maximum capacity of the new ferry terminal, respectively. The Infrastructure Development Office (GDI), which was responsible for the project works, told Business Daily that the expansion of the new ferry terminal anticipates the city’s future development.
“Due to the mid-term and longterm planning [for the city], the SAR Government decided to alter the design of the new terminal and expand [the size],” the Office said. “According to official statistics, the number of visitor arrivals [at the Pac On ferry terminal] has been increasing. Hence, the new terminal will be effectively used,” it claimed.
The trend
Mr. Wu, however, does not see that there would be many more visitors arriving by sea after the opening of the infrastructure, as the central government has encouraged its residents to travel on the country’s high-speed railways, while Guangdong Province is also
Legislators unhappy with terminal
At a plenary session of the Legislative Assembly in the middle of this month, three legislators expressed their doubts about the new ferry terminal to the extent whether the city indeed needs it. “It is doubtful whether we have enough visitors to support the operation of the Pac On Terminal and whether there would be much spaces left unused and wasted,” directly elected legislator Song Pek Kei said. She called the project “unrealistic” even if we include the future demand for sea transportation and the growth in the population of Taipa and Coloane. Her colleague Si Ka Lon also questioned whether the project could be properly utilised. “International cruises cannot
promoting the concept of the ‘onehour living circle’. “The majority of Macau’s visitors are from Guangdong Province and Fujian Province. It’s always faster, easier and cheaper for them to visit the city by land instead of via sea,” the Council leader said, suggesting it would be hard for the new ferry terminal to attract new users. Leonardo A.N. Dioko, the director of the Tourism Research Centre of the Institute for Tourism Studies (IFT), takes the opposite view. “There are more visitors, excluding non-residents, coming via the Outer Harbour Terminal and the Temporary Ferry Terminal in Taipa,” the academic indicated. “Although the major entry point for visitors is still
berth at the local terminals. The current [sea routes] are only linked to Hong Kong and Shenzhen. Following the completion of the Hong KongZhuhai-Macau Bridge do we really need such a huge space?” he asked. Chief Executive-appointed legislator Tommy Lau Veng Seng also indicated at the session that the designed capacity of the new ferry terminal is way beyond the actual demands, and urged the government to study how to make better use of the project to produce important economic value. Directly elected legislators Antonio Ng Kuok Cheong and Wong Kit Cheng also filed written interpellations to the government, urging the authorities to release related arrangements for the future operation of the new terminal.
Business Daily Friday, September 2 2016 5
Macau
usage in mind as there are some days in which the number of crossings may exceed the average, in addition to the long-term trend. According to his calculations, the new ferry terminal may fulfil at least one quarter of the designated maximum capacity in the future, if the compound growth of 4.5 per cent continues for the next decade. “Add onto that incremental arrivals caused by ‘induced demand’ from new resorts or properties opening and greater integration with Hengqin, then it’s not so much beyond the ball park although there is quite a cushion,” the professor perceives. H e a d d e d th at th e f u r th e r development of Macau International Airport and its thrust to connect to more Chinese cities by ferry should also add momentum.
Sea-air connections
the Border Gate by land, the number of visitors arriving via the two major ferry terminals is increasing”. The IFT research centre head, quoting official data from the Statistics and Census Services (DSEC), said visitor arrivals at the temporary ferry terminal in Taipa has registered a compound annual growth rate of 4.5 per cent for the past five years. “This is, of course, driven in large part by the continued development of new properties in Cotai, and probably Hengqin, so we can expect this growth to continue as new properties in the next couple of years open,” he said. The scholar further explained that transport facilities like ferry terminals are developed with peak
Indeed, the authorities are planning to strengthen the city’s current sea-air connection service after the operation of the new ferry terminal. The service, named Express Link, exempts transit passengers from normal immigration checks when they travel from Hong Kong Ferry Terminal to the local airport or vice versa. But there are several factors to be considered regarding whether the strategy would be successful in boosting the usage of the new terminal, Professor Dioko notes. “This will really depend upon cost, time, convenience of experience, and service quality,” he said. “If arrangements can be made such that the Macau sea-air connection will give travellers a superior experience and value then it might make the new ferry terminal, with the airport, a more viable and competitive option as a transfer hub for travel to or from the Pearl River Delta Region”.
Mr. Wu is also doubtful whether the local airport can handle the possible increased passenger volume boosted by the new terminal – if the plan works. “We need to consider the current number of visitors using the service. Even if we can attract more visitors via the service, we need to be concerned about whether our local airport can handle the hike,” he claims.
Delta bridge impact
In fact, Mr. Wu, who is not so optimistic about the usage of the new ferry terminal, sees the future completion of the Super Bridge undermining visitation at the new ferry terminal further. “After completion of the Hong Kong-Zhuhai-Macau Bridge, the number of visitors travelling via sea would certainly be distracted,” he said. Professor Dioko also agreed that the delta bridge could dampen ferry travel. “At this moment, though, there is little information about travel times and cost for the new bridge precluding an in-depth analysis of travel behaviour patterns in the future,” he added. Nevertheless, the Marine and Water Bureau, which currently oversees the terminal, is bullish on the usage of the new infrastructure, indicating that the authorities would introduce new commercial elements into the building. “With the development of Cotai, the number of leisure facilities would increase and they will relatively attract more tourists to Macau via the Taipa ferry terminal,” the Bureau told us. “The new ferry terminal has space and conditions to introduce different kinds of services and facilities, such as the cultural creative industry and its products and exhibition venues for the products of Portuguese-speaking countries,” it added. In addition, the marine department noted that local demands on sea transportation in the island will grow in the future with the public housing developments in Seac Pai Van and other communities in the islands. “The actual capacity of the Outer Ferry Terminal has been saturated. As such, the function of the Taipa ferry terminal as diverting the influx of tourists via the sea would be enhanced,” the authority claimed.
Unknown operating costs
Asked by Business Daily how much the operating cost is estimated per month for the new terminal, the
Bureau said it has not yet computed the estimates. “The basic outsource services are still under the process of inviting tenders while the preparation works for the operation and facilities instalments are still in progress; as such, we don’t have the conditions to estimate the operational cost for the new terminal,” it said. Mr. Wu, meanwhile, suggests the government should relocate some of its departments to work in the new building in order to better use the space there.
TurboJet to expand at Taipa terminal
On the other hand, ferry operator TurboJet is planning to expand its sea business connecting to Taipa for the upcoming opening of the new terminal. The operator told Business Daily that it would gradually expand its operation in the island terminal from 25 departures to around 50 per day. “Leading up to the official launch of the new permanent terminal, TurboJET has already submitted plans for government approval to operate approximately 90 daily sailings,” it confirmed. The Hong Kong-based company added it has plans to expand its network to connecting Taipa to the SkyPier and Kowloon in Hong Kong in the future, on top of its existing service connecting Taipa and Hong Kong Sheung Wan and other routes at Macau Outer Harbour Ferry Terminal. Asked if it would downscale the operation on the Peninsula to expand in Taipa the operator stressed its services at the Outer Harbour Ferry Terminal would not be affected. The operator is also eyeing possible opportunities created by enhanced sea-air connection via the new terminal. “This sea-air connection will attract travellers from Hong Kong, Tuen Mun and Shenzhen to fly ex-bound of Macau, particularly on its relatively well developed network of low cost carriers,” the company reckons. “It is expected that the service will drive transit traffic to the city and contribute to a more integrated Pearl River Delta living economy”. M ea n w hi l e, a p p r o ach e d b y Business Daily, the city’s helicopter service operator Sky Shuttle said it has no comment on the company’s business plans for the new terminal. Meanwhile, ferry operator Cotai Water Jet had not replied to this newspaper’s enquiry before this story went to press.
6 Business Daily Friday, September 2 2016
Macau Opinion
Public procurement
DSF to boost transparency of public procurement
Pedro Cortés
The Financial Services Bureau is mulling a new database and website for public procurement.
To Uber or Not to Uber
Annie Lao annie.lao@macaubusinessdaily.com
A couple of years ago there was a huge demonstration in Macau due to a law that was going to be passed by the Legislative Assembly. For some, that May marked the birth of the civil conscience of the Macau population. The curious mark of such demonstration was that it was no longer restricted to Mr. Au Kam Sam and Mr. Ng Kuok Cheong supporters but to the anonymous people who decided that their voices should be heard. The law was not passed as the government retreated. This Sunday, it seems that there might be a big surprise for the government and a demonstration that the population no longer believes in accepting annual cheques for saying nothing. The people of Macau grew up, and instead of coping with its needs, it seems that the government prefers to bury its head, ostrich-like, in the sand. There are hidden tensions that may end badly for the supporters of this policy. What difference Uber made to our lives was something that the government and all its supporters should welcome: mobility, good service, technology at the service of the real people. People who want to catch a taxi rather be at the mercy of everyday bandits demanding more money than is legally tabulated. It seems that there is a law for some and another for those who harm the population. The pioneer application and type of service made our lives much better, especially in Macau. We could even think about not having our own car if it is finally, fully implemented. We could think about not having to pay monthly rental for a car park. Or annual insurance. We would surely have a better environment and fewer traffic jams. We might even make extra money if we decide to keep the car and capitalize it. With its help we may have a sustainable city where everyone will be safe to travel from one place to another. Yesterday, a friend of mine was almost kidnapped by a taxi driver. She posted in Facebook that this was happening. I’m sure the security forces have taken good note of the occurrence. As well as the diligence they have exercised with Uber drivers. The future is Uber and like applications that make our lives simpler, better and worthwhile. Of course, owners and cartels of taxi licences, car traders, carpark owners, gas station entrepreneurs, etc., will need to adapt. And that is, of course, a problem in our city, because they think that their cheese cannot be moved. But it has already been moved and hopefully will be more after this Sunday. Pedro Cortés is a lawyer and frequent contributor to this newspaper.
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he Financial Services Bureau (DSF) has undertaken research regarding the feasibility of setting up a new database for developers and suppliers in the city for public procurement, as well as launching a new website to announce information on public tenders. This is in response to legislator Chan Meng Kam’s written enquiry criticising the government’s excessive use of direct negotiation for public procurement rather than a public tender which might result in corruption. Iong Kong Leong, director of DSF, emphasised that the public departments do use public tenders for procurement and only when the case is fully justified and has acquired approval can the department conduct private negotiations with suppliers.
In this case, the government department will have to have quotations from at least three different suppliers, while any expense exceedin MOP15,000 (US$1,877) must be recorded. Mr. Iong added that before the government allocates money to certain expenses, it must comply with the current legal and financial rules.
Based on the current law, when a construction project is estimated to be worth more than MOP2.5 million, or the procurement of goods or services is worth more than MOP750,000, such projects have to go through a public tender. Mr. Iong said the Bureau has completed the draft revision of administrative regulations on a new threshold amount for the opening of public tenders. The Bureau head said it has finished the draft, which is waiting to enter legislation.
Investigation Qin Fei linked to Ng Lap Seng, accused of participating IN U.N. bribery
Ex-Air China worker charged by U.S. with smuggling for Chinese military In his FBI interview, local businessman Ng Lap Seng called the suspect a consultant at Ng’s company, Sun Kian Ip Group. An ex-Air China Ltd employee was indicted on Wednesday for smuggling packages onto flights from New York to China on behalf of Chinese military personnel stationed at the country’s U.N. mission, U.S. prosecutors said. Ying Lin, 46, was also accused in an indictment filed in federal court in Brooklyn of obstructing justice by helping a Chinese national the Federal Bureau of Investigation (FBI) was investigating to flee the country last year. Prosecutors did not name the Chinese national, but his description matches that of Qin Fei of Beijing, who other court records show the FBI has suspected may be involved with Chinese intelligence. Qin’s link to Lin was revealed recently following the filing in court of the FBI’s 2015 interview of Ng Lap Seng, a Macau billionaire accused of participating in a U.N. bribery and who was also linked to Lin. Lawyers for Lin and Qin did not respond to requests for comment. Ng’s lawyer declined comment. An
Air China spokeswoman did not respond to requests for comment. China’s Defense Ministry declined to comment. Chinese Foreign Ministry spokeswoman Hua Chunying said she “did not understand the relevant situation”. She did not elaborate.
“A consultant”
Lin, a resident of the city’s Queens borough, was previously arrested in August 2015 and charged for structuring financial transactions. She pleaded not guilty. The new indictment alleged Lin, while working for Air China at New
York’s John F. Kennedy International Airport, helped smuggle packages onto flights from Chinese military officers at its U.N. mission and employees at China’s consulate. In return, Lin received discounted liquor from diplomatic duty-free shops and tax-exempt electronic device purchases, prosecutors said. The obstruction charge stemmed from a warning the indictment said Lin gave to a Chinese national after FBI agents interviewed her two adult daughters in October 2015. The indictment said Lin helped the individual, called her “Confederate,” depart on an Air China flight for Beijing that October 28. While not named, the indictment said Lin was responsible for renovating and furnishing a Long Island residence the “Confederate” owned. Property records list Lin as an agent for Qin’s US$10 million Long Island mansion. In his FBI interview, Ng discussed Qin’s mansion. He called Qin a consultant at Ng’s company, Sun Kian Ip Group. Prosecutors have accused Ng of giving John Ashe, who served as U.N. General Assembly from 2013 to 2014, over US$500,000 in bribes to, among other things, support a U.N.-backed conference center in Macau his company would develop. Ashe, a former U.N. ambassador from Antigua and Barbuda, died in June awaiting trial. Ng has pleaded not guilty. Reuters
Gaming Hong Kong-based Silver heritage listed on Australian Securities Exchange
Silver Heritage successfully launches IPO Company funds will primarily be used for development and completion of an integrated resort built for Indian casino players located in Nepal close to the Indian border. Nelson Moura nelson.moura@macaubusinessdaily.com
Silver Heritage Group Ltd. (Silver Heritage), a Hong Kong based gaming company, has completed a successful initial public offering (IPO) on the Australian Securities Exchange, raising AUD25 million (MOP150.5 million/US$18.8 million), according to a company release. “We were very pleased with the IPO; it’s been a long journey,” Mike Bolsover, Chief Executive
Officer told Business Daily. “Silver Heritage once had a co-operation in Macau with Galaxy Grand Waldo but after two years we re-focused in Asia except Macau, and are now principally Nepal (for Indian consumers) and Vietnam focused.” In the Prospectus, Silver Heritage Group offered 62,500,000 ordinary shares in the Company at an offer price of AUD$0.40 per share. On listing, the indicative market capitalisation of the company postlisting is approximately AUD$80
million. Company funds will primarily be used for development and completion of Tiger Palace Resort Bhairahawa, the first integrated resort built for Indian casino players located in Nepal close to the Indian border, scheduled for opening in the first quarter of 2017. Founded in 2003, Silver Heritage Group has grown rapidly into an experienced regional gaming management operation, with interests in casinos and gaming venues in Nepal, Vietnam, Laos and Cambodia, and with past experience in Macau and the Philippines, too. However, group CEO Mike Bolsover hasn’t revealed any future projects for the SAR. According to the company’s release, the funds raised will be used to expand the group’s operations in India, such as the development of Tiger Palace Resort Bhairahawa.
Business Daily Friday, September 2 2016 7
Macau Macau Jockey Club
DICJ reviews Jockey Club proposal
Two days have passed since the deadline set by the Gaming Inspection and Coordination Bureau (DICJ) for the Macau Jockey Club to present a proposal to resolve its potential violation of the Commercial Code due to its MOP88 million (US$11 million) loss for 2015 and previous results mandating an injection of corporate capital into the company or its dissolution.
Workers rights
Gaming
The DICJ, in response yesterday to Business Daily, notes that: ‘The government has already received the proposed plan from the Macau Jockey Club and is analysing it at the moment’. The DICJ did not comment on what consequences could arise for the Macau Jockey Club regarding its backlog of potential Commercial Code violations or whether it knows if the Macau Jockey Club has broken the law.
Revenue in gaming increased slightly but gross profit dropped
Casinos are always the exception Jimei profit almost halved Petition from casino workers union urges government to tighten enforcement on smoking ban in casinos. Cecilia U cecilia.u@macaubusinessdaily.com
The Macau Gaming Enterprises Staff Association of Macau Federation of Trade Unions (FAOM) presented a petition to the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, at Macau Government Headquarters yesterday. The petition primarily urges the government to strengthen its enforcement of the smoking ban in gaming venues. The Director-General of FAOM, Kelvin Choi Kam Fu, revealed that the petition was also triggered by the 50 complaints that they had received for the last three to four days from workers currently working in a newly opened casino. Choi indicated that many gaming companies disregard the smoking law and facilitate unauthorized smoking zones - in particular, VIP rooms. In addition, many smoking-free VIP rooms were closed and companies have turned them into high betting zones in which smoking is permitted.
Many workers consequently question the determination of the government in enforcing the full smoking ban in casinos. “If the government is really determined to ban smoking in casinos the newly established casinos should not have any smoking rooms that are approved by the government and not mention the VIP rooms that allow smoking,” Kelvin Choi said. He complained that the government had never imposed any clear guidelines on the locations of those smoking-allowed areas. Workers are therefore unable to determine whether the current smoking areas in casinos are lawfully approved by the government. For this reason, the petition also urges the government to produce clear information on the locations of smoking-allowed areas. He told reporters that the petition also prompts the government to resolve the problem for tables located near smoking rooms as workers complain that smoke wafts over when the door is opened.
Jimei’s profit totalled HK$28.6 million for the first six months of 2016, compared to HK$52.8 million of the same period in 2015. Cecilia U cecilia.u@macaubusinessdaily.com
Jimei International Entertainment Group Limited (Jimei) posted a significant drop of 45.8 per cent in profit for the first half of this year, according to the company’s filing posted on the Hong Kong Stock Exchange yesterday. Profit attributable to the owner of the company for this first half-year totalled HK$28.6 million (US$3.7 million) compared to HK$52.8 million in the same period of 2015. The company explained that the notable decline in profit was due to the rise in finance coasts of approximately HK$28.9 million during the period. O th e r fact o rs i n v o l v e d th e impairment loss on trade and other receivables of HK$56.3 million as well as the gain on change in fair
value of derivative financial liabilities of HK$68.7 million. Meanwhile, the turnover of the company for the past six months this year recorded a year-on-year increase of 18.1 per cent to HK$132.7 million compared to HK$112.4 million a year a ago. Jimei gained a slight increase of 0.16 per cent in revenue in the entertainment and gaming sector, totaling HK$130.6 million vis-a-vis HK$112.4 million in the corresponding period last year. Gross profit was HK$60.5 million for the period compared to last year’s HK$60.6 million. Jimei is an investment holding company principally engaged in the entertainment and gaming business, the trading of chemical products, and energy conservation and environmental protection products.
8 Business Daily Friday, September 2 2016
Greater China Official PMI
Factories unexpectedly expand suggesting steadying trend The official Purchasing Managers’ Index rose to 50.4 in August. Yawen Chen and Sue-Lin Wong
A
ctivity in China’s manufacturing sector unexpectedly expanded at its fastest pace in nearly two years in August as construction boomed, suggesting the economy is steadying in response to stronger government spending. The best factory reading since late 2014 may reinforce growing views that China’s central bank will be in no hurry to cut interest rates or banks’ reserve requirements, for fear of adding to high debt levels or fuelling asset bubbles. But the official factory survey also highlighted growing lopsidedness in the world’s second-largest economy, with larger firms expanding, likely thanks to Beijing’s largesse, while smaller manufacturers continued to struggle. “Our view is that the People’s Bank of China doesn’t really have any reason to ease until we start to see clear signs of another downturn,” Julian Evans-Pritchard, China Economist at Capital Economics said, saying it is concerned such action could aggravate economic imbalances and credit risks. “I think eventually they’ll come under pressure to ease further, but given the economy is still stable, I don’t think it’ll happen this year,” he said, predicting the factory strength could last through the end of the year. The official Purchasing Managers’
Index (PMI) rose to 50.4 in August from 49.9 in July, and above the 50-point mark that separates growth from contraction on a monthly basis. Analysts had expected a reading of 49.9 for the second month in a row, and some thought there would be added weakness after Beijing ordered many plants around Hangzhou to close to clear the air ahead of China’s first summit of G20 leaders September 4-5. Yet factory output growth accelerated, with the index rising to 52.6, the highest this year, from 52.1 in July. Total new orders expanded sharply, though export orders continued to shrink, albeit at a more modest pace. “While many factories have been shut down before the G20 summit, overall manufacturing activities are still elevated, reflecting improving growth momentum,” said Zhou Hao, senior economist at Commerzbank AG in Singapore. Buoyed by a government infrastructure building spree and a housing boom, Shanghai futures prices for steel bars
used in construction have surged about 43 per cent so far this year, coaxing steel mills to keep output at high levels even as Beijing tries to cut overcapacity in the sector. But analysts are divided over how much domestic demand is actually improving, with China’s steel exports on track for record highs, and prolonged weakness in imports. In another sign that business conditions remain tough, factories continued to cut staff, though at a slightly slower pace than in July. China has vowed to quicken the pace of cutting excess steel and coal capacity after falling behind this year, raising the risk of more layoffs and debt defaults in coming months, which could further strain the banking system.
Smaller firms struggle
The divergence of performance between smaller and larger enterprises is also a concern if struggling smaller firms have more trouble servicing their
debt burdens, some analysts said, noting recently introduced debt-for-equity swaps are likely to help bloated state companies more than private ones. Smaller firms showed a sharp contraction in activity in August, while one for larger companies showed a solid expansion, suggesting state-owned enterprises, though often inefficient, remain the backbone sustaining China’s economic growth. “Fiscal expansion will likely need to continue at a strong pace, to ensure stable growth in the coming months,” HSBC economists said in a note. “We still see challenges in the second half, from further moderation in the housing sector to uncertainties about private investment. Therefore despite some upside surprise, withdrawal of policy stimulus at this stage would be highly premature.” A private PMI survey focusing more on small and mid-sized firms reinforced the picture of a two-track economy. The survey suggested that activity at smaller manufacturers stagnated in August as output and new orders both grew at a softer pace. The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) slipped to 50.0, the no-change mark which separates expansion of activity from contraction on a monthly basis. An official survey on the services sector showed the sector continued to expand at a rapid pace, though slightly more modestly than in July. China is counting on growth in services to offset persistent weakness in manufacturing and exports that dragged economic growth to a 25-year low. Reuters
Commerce
EU business lobby warns of protectionist backlash if Beijing doesn’t open market Beijing’s “Made in China 2025” plan calls for a progressive increase in domestic components, leading foreign firms to worry they will face increasing hurdles. Michael Martina
A top European business lobby warned China yesterday that it risked a protectionist backlash unless it opened its markets faster to foreign investment, saying the current unbalanced access for foreign companies was “not
politically sustainable”. Progress on China’s economic reforms has been “highly disappointing”, the European Union Chamber of Commerce in China said in an annual paper, released as China prepares to host leaders from the world’s biggest economies at this weekend’s G20 summit.
Beijing wants to use the September 4-5 meeting in the tourist hub of Hangzhou to lay out a broad strategy for global growth, though talks are likely to be overshadowed by concerns such as protectionism. China was angered by Australia’s recent blocking of an A$10 billion (US$7.7 billion) sale of the country’s biggest energy grid to Chinese bidders, and by Britain’s delay of a US$24 billion Chinese-invested nuclear project, saying the hurdles smacked of protectionism and paranoia. But business groups and Western officials point out that restrictions on foreign companies in Chinese industries, such as financial services, healthcare, and logistics, are often far greater than what Chinese firms face abroad. “This unbalanced situation is not politically sustainable and for its own benefit China should begin reciprocating by opening up and allowing European business to contribute more to its economy,” the Chamber said, adding that doing so was needed if China was to avoid a middle income trap. Chamber president Joerg Wuttke said he was worried about protectionist sentiments brewing among European officials as a result of China’s slow progress in opening markets. “We worry that China might unleash protectionist forces, which none of us want to see,” Wuttke told reporters ahead of the paper’s release. Chinese Foreign Ministry spokeswoman Hua Chunying said China remained an ideal country for investment for the world, including from the EU. “China’s policy on using foreign investment will not change. We’ll continue to create a good environment for investment from all countries,” she told
Joerg Wuttke, president of European Union Chamber of Commerce in China
reporters at a regular briefing. China has sought to address slowing growth by promoting innovation in strategic industries, such as information technology and robotics. Beijing’s “Made in China 2025” plan calls for a progressive increase in domestic components in such sectors, leading foreign firms to worry they will face increasing hurdles in China contrary to officials’ vows to open markets. The Chamber said the government’s increasing role in directing capital to such industries “will not allow China to realise its full economic potential” and warned that waiting to carry forward reforms until after an important congress of the ruling Communist Party in 2017 would have “significant costs”. “If it is ultimately unwilling to offer reciprocal access to its own market, China cannot assume that it will indefinitely continue to enjoy open and unhindered access to the EU’s,” the Chamber said. Reuters
Business Daily Friday, September 2 2016 9
Greater China Investment
In Brief
Nation’s wealth-management products rise to record China has been tightening rules on WMPs since late 2014 as a growing number of analysts issue warnings on the build-up of risks. Chinese households, companies and banks held a record 26.3 trillion yuan (US$3.9 trillion) of wealthmanagement products (WMP) as of June 30, underscoring risks to an increasingly leveraged financial system from an explosion in shadow banking. The products’ value rose 11.8 per cent in the first half from the end of last year, according to a statement on the China Banking Wealth Management Registration System’s website. More than 450 banks raised a total of 84 trillion yuan by selling 97,636 WMPs in the first six months, according to the statement.
banking, which Moody’s Investors Service estimates is worth more than 50 trillion yuan, and have been used by some financial institutions as a way to extend funds to risky borrowers and evade capital requirements. The China Banking Regulatory Commission has drafted new rules on WMPs, including limiting the involvement of smaller banks and of mass-market investors, a person with knowledge of the matter said in July. Smaller banks and less wealthy investors would no longer be permitted to get involved in WMPs that invest in riskier assets such as equities, the person said.
About 40 per cent of the WMP proceeds went to bonds, 17.7 per cent into cash and bank deposits, while 16.5 per cent was invested in non-standard credit assets, which are mostly loans, according to the statement. Mass-market individual investors held 48 per cent of the outstanding WMPs, while institutions had 29 per cent and private-banking clients owned 7 per cent. The remainder, t o ta l l i n g 4 t ri l l i o n y u a n , w e r e cross-held by banks themselves. That compared with 3 trillion yuan six months ago, the official data showed. The issuance of WMPs, which are sold by banks but often reside off their balance sheets, exploded over the past three years as lenders competed for funds and fees while savers and companies sought returns above those offered on deposits. The products, which offer varying levels of explicit guarantees, are regarded by many as having the implicit backing of banks or local governments. Bloomberg News
‘Mass-market individual investors held 48 per cent of the outstanding wealthmanagement products’
Mega Financial scandal
Taiwan to appoint local banking veteran as chairman Taiwan’s government is set to appoint banking veteran Michael C.S. Chang as chairman of state-owned Mega Financial Holding Co Ltd as early as yesterday, three people familiar with the matter told Reuters. The appointment would come a day after Shiu Kuang-si quit as chairman. Shiu said he wanted to quash speculation that he could influence a probe into Mega’s banking unit after a New York branch was found to have violated U.S. anti-money laundering regulations and fined US$180 million last month. The heads of state-controlled financial institutions are appointed by the government. Singapore travellers
Authorities steps up health screenings China’s quarantine authorities said yesterday they have been increasing health screenings of travellers arriving from Singapore amid an outbreak of Zika in the country. China is also increasing inspections of shipments arriving from Singapore, the General Administration of Quality Supervision, Inspection and Quarantine said in a statement on its website.
China has been tightening rules on WMPs since late 2014 as a growing number of analysts issue warnings on the build-up of risks in the country’s financial system. The products are a key reason behind the growth in shadow
Private poll
Reverse mergers
Regulator to cap valuations for companies coming home Dozens of U.S.-traded Chinese companies have received buyout offers China’s stock regulator is capping valuations for some reverse mergers, a listing method favoured by companies that previously traded overseas, people with knowledge of the matter said. The China Securities Regulatory Commission decided that reverse mergers involving companies formerly listed on a foreign bourse can’t be valued at more than 20 times forecast profit, according to the people. The valuation is calculated from the listed company’s estimated earnings following the deal, one of the people said, asking not to be identified because the information is private. Dozens of U.S.-traded Chinese companies including search-engine
operator Qihoo 360 Technology Co. and ticket-booking site Qunar Cayman Islands Ltd. have received buyout offers since the start of last year, according to data compiled by Bloomberg. Companies have announced more than US$50 billion of such take-private offers during the period, lured by the prospect of relisting at a higher earnings multiple in Shanghai or Shenzhen, the data show. Regulators have been concerned that the valuations mooted for some backdoor listings were too high and could affect the market’s stability, people with knowledge of the matter said in May. Stocks on China’s exchanges trade at a median 41 times estimated
earnings, the Bloomberg-compiled data show. Listed companies in China announcing a reverse merger transaction typically provide profit forecasts for each of the next three years. Some local investment banks recently received guidance on the new limit, the people said this week. The CSRC hasn’t formally announced the new valuation cap, according to the people. The regulator didn’t immediately respond to faxed questions. The CSRC has been limiting the valuations of domestic initial public offerings during the past two years, people with knowledge of the matter said earlier. Since mid-2014, nearly all first-time share sales in China were priced at less than 23 times historic earnings, according to data compiled by Bloomberg. Bloomberg News
Taiwan’s exports seen expanding Taiwan’s exports in August may have risen for a second month in a row, but just barely, a Reuters poll showed. Thirteen economists surveyed by Reuters predicted August exports would grow 0.4 per cent from a year earlier. In July, exports rose 1.2 per cent from a year earlier, the first expansion since January 2015, helped by improved demand from China and global demand for electronics components. Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is a key gauge of global demand for technology gadgets worldwide. Investment approval
Top planning agency vows to cut red tape
‘Regulators have been concerned that the valuations mooted for some backdoor listings were too high and could affect the market’s stability’
China’s top planning agency said yesterday it would continue to cut red tape, including steamlining approvals on investment projects, in the latest bid to bolster the economy. “We will further abolish or delegate a number of administrative approvals and investment approvals,” Yang Jie, an official with the policy research division of the National Development and Reform Commission (NDRC), told a news briefing. Premier Li Keqiang has been driving reforms to cut red tape and simplifying approving procedures for new projects and new companies to help spur growth and curb corruption.
10 Business Daily Friday, September 2 2016
Greater China Opaque lending
Mainland banks’ shadow loans grow despite glower The China Banking Regulatory Commission has tried to address the rampant growth of these products, particularly at mid-sized banks. Shu Zhang and Matthew Miller
Shadow lending by listed Chinese banks surged in the first half, underlining the challenges faced by the country’s banking regulator as it tries to rein in the use of opaque lending structures that are seen as a threat to financial stability. China’s lenders, led by the mid-tier banks, have been increasing their use of shadow lending products for years, as they can offer higher returns and tie up less of a bank’s capital than traditional lending. But they also disguise the quality of a bank’s balance sheet, and sectorwide make it harder for regulators to assess systemic risk and the volume of lending in the economy. A Reuters analysis of bank filings shows Shanghai Pudong Development Bank, a leading joint-stock lender, increased its receivables for trust schemes and asset management plans, or so-called shadow loans, by 14 per cent in the first six months of the year to 1.27 trillion yuan (US$190 billion), giving it China’s biggest portfolio of such products. The shadow loan book at China’s largest joint-stock lender, Industrial Bank Co, rose 4.4 per cent to 1.23 trillion yuan, equivalent to 63 per cent of its normal loan book, according to Reuters calculations. China Minsheng Banking Corp, China Zheshang Bank Co, Shengjing Bank Co, Bank of Jinzhou Co and Bank of Chongqing Co also substantially increased their portfolios by 9 per cent or more.
Minsheng and Zheshang both reported an 86 per cent rise, the fastest among their listed peers, according to Reuters calculations. “I’m actually a bit surprised that some smaller banks were still growing those positions,” said Wei Hou, AB Bernstein banking analyst. Given the regulatory push, the trend ought to be going the other way, he added. The China Banking Regulatory C o m m i s s i o n ( C B RC ) d i d n ’ t immediately respond to a request for comment.
New rules
The CBRC has tried to address the rampant growth of these shadow lending products, particularly at midsized banks. In April it issued Document 82 to lenders, which most bankers and analysts interpreted as an attempt to compel banks to increase provisioning
on shadow loans and bring them in line with normal loans. Some analysts at the time said the move could force banks to seek fresh capital to shore up their balance sheets, a prospect that has become more likely as banks’ capital positions deteriorated during the first half. Shadow loans had already reached 12.6 trillion yuan at the end of last year, according to calculations by UBS, about five times the size of China’s entire annual economic output. And credit rating agency Fitch said in July that around a third of system credit resides outside bank loan books, undermining asset quality data. That is particularly worrying since Chinese banks’ non-performing loans are already at a record high, according to official figures, and most analysts think the real figures are several times worse. The accounting treatment of these loan-like trust and asset management plans is significantly different. “These shadow loans are not subjected to the same rules as the loan book, despite being largely credit in nature,” said UBS Securities analyst Jason Bedford.
“As a result, normal limitations in the loan books, such as singleborrower exposure limits and nonperforming loan recognition rules, don’t apply.” Though the impact of the CBRC intervention is not evident in most of the listed banks’ first-half filings, there are some positive signs. China Merchants Bank Co was one of the rare lenders to scale down its shadow loans in the first half, with a 23 per cent decrease in receivables from trust schemes and asset management plans to 528.7 billion yuan, according to Reuters calculations. The bank’s deputy president, Li Hao, who acknowledged that “to some degree, the bank’s nonstandard investments are loans”, indicated a change of approach was taking hold at the bank. “For the future, the bank’s practice will be more standardised when it comes to new investments,” Li said. “They will no longer be put under the category of non-standard investments, but will be classified as loans,” he told analysts on a postresults conference call. Hou from AB Bernstein said he expected that mid-tier and smaller banks would scale down their investment receivable positions in the second-half of the year, else the regulator would come out with “more targeted policies”. But, he added, while stronger banks can cut their risks or increase provisions for their shadow loan holdings, it was more problematic for the weaker lenders. “For banks facing big operational pressure, increasing provisions or bringing those high-risk investments back on their loan book would hit an already weak bottom line.” Reuters
World Bank bonds
China Construction Bank expects US$7 billion SDR market SDR notes will help avoid foreign exchange and interest risk stemming from assets denominated in a single currency. China Construction Bank Corp. forecasts bonds denominated in Special Drawing Rights (SDR) will swell to 5 billion SDR units (US$7 billion) in the nation in the next few years, after the world’s first sale of such debt in three decades. The World Bank issued 500 million SDR units (US$698 million) of threeyear notes in China’s interbank market this week, the first sale of debt in the International Monetary
Fund’s alternative reserve assets since the 1980s. They were priced to yield 0.49 per cent, according to Xie Duo, the secretary general at the National Association of Financial Market Institutional Investors. “It is a milestone for renminbi internationalization,” said Wang Yong, general manager at the investment banking arm of China Construction Bank in Beijing. The bank ranked second in arranging
all onshore yuan corporate bonds this year, and ranked first for nonfinancial local notes, according to data compiled by Bloomberg. “We expect more issuers to follow and the market making for such instruments in the secondary market will improve,” he said, referring to SDR notes. The Chinese government has been promoting greater international use of the yuan to challenge the hegemony of the dollar and from October 1 its currency will be included in the basket used to calculate the value of the SDR. Major Chinese financial institutions have expressed interest in selling SDR bonds, Yi Gang, the deputy governor
at China’s central bank, said in an August 15 briefing. SDR notes will help avoid foreign exchange and interest risk stemming from assets denominated in a single currency, and will diversify asset allocation for domestic and international investors, the People’s Bank of China said in August.
“We expect more issuers to follow and the market making for such instruments in the secondary market will improve” Wang Yong, general manager at the investment banking arm of China Construction Bank The ideal investors in SDR bonds would be central banks and sovereign wealth funds that already conduct business using the reserve asset, Wang said. Xinhua News Agency dubbed the debt Mulan bonds, and said a “much bigger wave” of issuance would follow. The World Bank offering drew 50 institutions including banks, brokerages and insurers, according to a Wednesday statement on the central bank’s website. Bloomberg News
Business Daily Friday, September 2 2016 11
Asia Trade
South Korea’s exports rebound after 19 months of falls A sub-index showed that new export orders declined the most this year because of stubbornly weak global demand Christine Kim and Cynthia Kim
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outh Korea’s exports rebounded in August after falling for 19 straight months but the rise was largely expected to be temporary as the gain was due mainly to two extra working days. Exports in August rose 2.6 per cent on-year to US$40.13 billion while imports edged up 0.1 per cent to US$34.82 billion to result in a trade surplus of US$5.30 billion, government data showed yesterday. The trade ministry said it will be difficult to expect exports to rise in September due to global uncertainties and continued strikes at automakers. This was the first positive growth for exports since December 2015 and for imports since September 2014 and beat poll forecasts for a 0.6 per cent rise for exports and a 3.3 per cent fall for imports. In July, exports and imports dropped 10.3 per cent and 13.6 per cent, respectively. August this year had 24 working days, versus 22 days last year. “Exports are likely to fall again from September, as the improvement seen in August is largely due to temporary factors such as the earlier release of Galaxy Note 7. The base effect from low comparison figures last year also played its part,” said Suh Dae-il,
Seoul-based economist at Mirae Asset Daewoo said. A majority of South Korea’s 13 key export products showed positive growth, including computers, semiconductors and petrochemicals. If strikes at Hyundai Motor Co had not happened, exports would have risen around 5 per cent on-year, the ministry said. The Nikkei/Markit South Korea purchasing managers’ index (PMI) showed South Korea’s manufacturing activity contracted at its fastest pace in a year in August as production and export orders declined sharply.
A sub-index showed that new export orders declined the most this year because of stubbornly weak global demand, falling to 48.6 in August from 51.4 in July. A reduction in the volume of trade with China, Germany and Iraq contributed to the decline, according to the survey. (A number below 50 shows a contraction.) Data showed exports to the U.S., European Union and China all fell in August. Meanwhile, South Korea’s annual inflation eased to its lowest for more than a year in August following a temporary cut in electricity tariffs. As a result, annual inflation for electricity, gas and water dropped 12.6 per cent in August, compared to a 3.9 per cent fall in July. The consumer price index rose 0.4 per cent in August from a year earlier,
Statistics Korea said, down from 0.7 per cent in July. This was the smallest gain seen since April last year. The result was well below a median 0.8 per cent rise tipped in a Reuters survey. “If you look at inflation alone, the central bank might look like it has room to cut interest rates, but you have to take other countries’ policies into consideration as well as the continued surge in household debt,” said Kim Yu-kyum, economist, LIG Investment & Securities. Suh also said his view for a rate cut in October has not changed, although it assumed the Federal Reserve would take no action in September. South Korea last month took 420 billion Korean won (US$377 million) off residential electricity bills for the July to September period due to unusually hot weather. Core inflation, which strips out volatile food and fuel prices eased to 1.1 per cent in August, down from 1.6 per cent in July, all compared to a year earlier. Reuters
Manufacturers’ investment grew 2.0 per cent quarter-on-quarter in April-June, while spending by service-sector firms fell 1.9 per cent. “The key is whether manufacturers can sustain profits from now on but we cannot be optimistic due to a rising yen,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. “Service-sector firms’ cautious stance on capital spending is also a source of concern for the outlook.” Compared to the same period a
year earlier, corporate profits fell 10.0 per cent in April-June, as the yen’s gains and reduced smartphone output dented profits at electronics firms. Disruptions caused by the Kumamoto earthquakes hit automakers. Still, corporate profits were at the second-highest level on record in April-June versus the same quarter a year ago, a ministry official said. A strong yen hurts Japan’s exports, makes imports cheaper and undermines efforts to escape two decades of deflation and stagnation. Reuters
Spending data
Japan capex lacks momentum A recent batch of weak indicators including exports, factory output and household spending cemented market views that any rebound in the current quarter will be modest Tetsushi Kajimoto
Japanese business expenditure fell in April-June from the previous quarter, suggesting only minor revisions will be made to recent gross domestic product figures and a sign that sluggish capital spending is hampering economic growth. The capital spending data, which is used to calculate revised gross domestic product (GDP) due on September 8, underscores concerns about stagnation in the world’s third largest economy. A preliminary estimate showed the Japanese economy stalled in the April-June quarter, registering a meagre 0.2 per cent annualised expansion due to declines in exports and capital spending. “Looking at quarter-on-quarter declines in capital spending, revised GDP would show little change from the initial estimate,” said Yuichiro Nagai, economist at Barclays Securities. “Capital spending has been weak so
far and risks are tilting to the downside ahead, given the yen’s gains from the start of the year.” Capital spending in April-June rose 3.1 per cent year-on-year, slowing from a 4.2 per cent annual gain in the previous quarter, Ministry of Finance data showed yesterday.
Key Points Q2 capex +3.1 pct yr/yr vs +4.2 pct in Q1 Seasonally adjusted capex -0.5 pct qtr/qtr Recurring profits -10.0 pct yr/yr in Q2 Data used to revise GDP - due Sept 8 However, capital expenditure fell 0.5 per cent from the previous quarter on a seasonally-adjusted basis after excluding software spending, slowing from a slight decline at the start of this year.
12 Business Daily Friday, September 2 2016
Asia In Brief Tourism
Indonesia’s foreign arrivals rise Indonesia attracted 931,694 foreign tourists in July, up 20.13 per cent from a year earlier, the statistics bureau said yesterday. The pace of increase was much faster than in June, when there was only a 0.78 per cent annual rise. During July, the biggest source of visitors was China, with almost 60 per cent more than a year earlier. The total number of visitors in July, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, was 1.03 million, up 17.68 per cent from a year ago. Inflation
Thai consumer prices increasing Thailand’s annual headline consumer prices rose for a fifth straight month in August but remained relatively benign, data from the Commerce Ministry showed on Thursday, giving the central bank leeway to keep monetary policy easy. The headline CPI index increased 0.29 per cent in August from a year earlier after rising 0.1 per cent in July. A Reuters poll had forecast an annual rise of 0.43 per cent in August. August’s annual core inflation, which strips out raw food and energy prices, was 0.79 per cent, compared with the 0.80 per cent in the poll and July’s 0.76 per cent. Commodities
NZ Q2 terms of trade fall New Zealand’s terms of trade fell 2.1 per cent in the second quarter as price falls for key commodities offset record export levels, Statistics New Zealand said yesterday. Export volumes rose a record 10.2 per cent, powered by strong dairy exports, as well as meat, forestry and fruit exports. Import volumes rose 0.7 per cent. Export prices fell 1.9 per cent, while import prices increased 0.2 per cent. Economists were expecting the index to show a 2.0 per cent fall, with export prices falling 2.5 per cent and imports remaining unchanged, according to a Reuters poll. Real estate
Australian home prices accelerate Australian home price growth accelerated in August as record-low mortgage rates spurred demand in the hot spots of Sydney and Melbourne, though the performance of markets elsewhere was much more patchy. Yesterday’s figures from property consultant CoreLogic showed its index of home prices for the combined capital cities climbed 1.1 per cent in August, from July when it increased by 0.8 per cent. Annual growth in prices picked up to 7 per cent in August, from 6.1 per cent in July, though that remains a long way from last year’s peak above 11 per cent.
Investment
Australian business spending shows signs of life outside mining The economy is also likely to get some support from planned infrastructure investments by Australia’s state governments Swati Pandey
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ustralian business investment tumbled again last quarter as miners continued to cut back following their decade-long boom, but an upgrade in spending plans for this year provided early signs of a long-awaited recovery elsewhere. The lift in planned investment will give some comfort to the Reserve Bank of Australia (RBA) which is counting on a stronger pick up in the broader economy after cutting its cash rates twice this year to a record
OTC trading
Asia swaps trading stumbles amid confusion over margin rules The margin rules aim to secure trades that are too complex or illiquid for exchanges and clearing houses to handle. Masayuki Kitano and Michelle Price
Trading in Asia’s over-the-counter (OTC) swaps market has ground to a near halt as dealers sought clarity over confusing new derivatives trading rules that could ramp up global funding costs by more than US$500 billion. The rules, effective yesterday, directly affect U.S. and Japanese banks, major players in the region, who will be required to post and collect collateral or ‘margin’ against OTC trades - a development that is set to dramatically raise the cost of trading in the US$500 trillion global swaps market. Traders and market insiders told Reuters some major banks in the region had halted dealing in a range of OTC derivatives products, including foreign exchange non-deliverable forwards (NDFs) and interest rate swaps, as they are not yet able to comply with the rules first proposed by global regulators in the wake of the 2008-2009 financial crisis. “There is a lot of confusion,” said one interest rates trader in Singapore. “The margining is an issue. The big banks are covered under that rule, and some of them don’t yet have systems and the back-end documentation processes in place.” The markets for Asian currency NDFs and interest rate swaps are
“frozen at the moment” due to the new margining requirements said Jeffrey Halley, senior market analyst for foreign exchange broker OANDA in Singapore. “Some counterparties don’t want to face U.S. and Japanese names, because they don’t want to have to be obliged to post initial margin...so the whole market’s a bit fragmented. As a result, it’s just come to a complete halt basically,” Halley said.
Key Points U.S. and Japan banks hit by new trading rules Banks must post margin to secure over-the-counter trades Some banks halt dealing over compliance confusion Some Asian banks stop trading with U.S dealers Following the financial crisis, global regulators drew up a raft of rules to increase transparency and reduce risks in the OTC derivatives market, which was largely responsible for the collapse of Lehman Brothers and bringing insurance giant AIG to its knees. These included pushing some OTC trades onto exchange-like platforms and through clearing houses, which
guarantee payment in the event either party defaults. The margin rules aim to secure trades that are too complex or illiquid for exchanges and clearing houses to handle, but the global cost of funding the margin rules is likely to ultimately exceed $500 billion, according to U.S and European regulators. Large U.S. and Japanese banks have been scrambling to prepare for the first phase of the margin rules, which require changes to risk models, legal documents, and custody arrangements but some were not able to do so by Thursday. “We’ve been working on fixing documentations for a month but we couldn’t finish everything in time,” said one trader at a Japanese bank, who added that liquidity in NDFS had been low on Thursday.
Regulatory arbitrage
Regulators in Europe, Singapore, Hong Kong and Australia recently delayed the implementation of the margin rules amid fears their banks were not ready - in a move some experts say has created an uneven playing field. India said it was delaying its margin rules yesterday. Many banks from these markets have stopped trading OTC products with U.S. and Japanese banks, lest they are forced to post collateral to trade with them, said Kishore Ramakrish n an , a director at PricewaterhouseCoopers Consulting in Hong Kong. “It’s D-Day today and we’re seeing the market segment. Not all the rules globally are in harmony, so many banks in the region have been revising their contracts so as not to deal with U.S. banks,” Ramakrishnan said. “This regulatory arbitrage won’t change until we have a level regulatory playing field next summer.” Reuters
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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low 1.5 per cent. Yesterday’s data from the Australian Bureau of Statistics (ABS) reported investment fell 5.4 per cent to A$28.71 billion (US$21.59 billion) in the second quarter. Yet spending on equipment, plant and machinery rose 2.8 per cent, with the non-mining sector driving the growth. New investment in manufacturing climbed 13 per cent even as mining dived 16 per cent. “There are gradual signs of the rotation that the RBA is looking for,” said JP Morgan economist Ben Jarman. “I think particularly today’s capex data will give the RBA a little bit of
heart that there’s still some transmission from what they’ve done already. That’s supporting the non-mining economy to some extent.” Spending plans for 2015/16 came in at A$105.17 billion, 15.2 per cent higher than the previous estimate for the year and above the A$97 billion analysts had looked for. Resource-rich Australia has been struggling with a global slump in commodity prices which has kept economic growth to below-par levels for going on four years. A slump in business investment subtracted no less than 1.9 per centage points from gross domestic product (GDP) in the year to March. Without that drag, Australia’s A$1.6 trillion economy would have expanded at a breakneck pace of 5 per cent. Figures due next week are generally expected to show the economy grew around 0.4 per cent last quarter, from the first quarter when it rose a surprisingly brisk 1.1 per cent. The economy is also likely to get some support from planned infrastructure investments by Australia’s state governments, helping fill the chasm left by the mining sector. A recovery in investment would be welcome, given continued weakness in the country’s retail sector. Data out yesterday showed retail sales were flat in July although analysts had hoped for a rise of around 0.3 per cent. The main culprit was department stores where sales dived an unusually steep 6.2 per cent. Reuters
Business Daily Friday, September 2 2016 13
Asia GDP
Indian growth slows sharply in April-June quarter Annual growth in private spending slowed to 6.7 per cent in the latest quarter from a 7 per cent increase in the same period last year Rajesh Kumar Singh and Manoj Kumar
India’s economic growth hit a 15-month low between April and June, putting Prime Minister Narendra Modi’s target further out of reach and making it tougher for him to create millions of new jobs for a burgeoning workforce. While 7.1 per cent GDP expansion w as w e l l b e l o w ec o n o m i sts’ predictions and the 7.9 per cent growth registered in the preceding quarter, it was still faster than figures reported by China and the Philippines. But the title of world’s fastestgrowing large economy does not mask the challenge Modi faces in delivering on his promise of creating 250 million jobs over the next decade. New Delhi is targeting average growth of around 8 per cent, which economists say is the bare minimum needed to provide jobs to around one million people who enter the workforce every month. Since taking office in 2014, Modi has taken a raft of measures to attract foreign investors and revive listless domestic investment. But those initiatives have not yet succeeded in convincing cautious companies to commit to fresh capital spending. Investment as a proportion of GDP fell by about 3 percentage points in the June quarter from the corresponding period a year ago. Worryingly, private consumption that had been underpinning economic growth thus far weakened.
Annual growth in private spending slowed to 6.7 per cent in the latest quarter from a 7 per cent increase in the same period last year. The slowdown more than offset a 19 per cent annual surge in public spending. “Growth continues to be driven by government spending..., which is a worry,” said Abhishek Upadhyay, an economist at ICICI Securities Primary Dealership Ltd in Mumbai.
Dilemma
The reading on private consumption may complicate the central bank’s decision on whether to resume interest rate cuts or stay put. For some economists, Wednesday’s data strengthen the case for a rate cut in the October-December quarter. But with consumer price inflation running at 6.07 per cent, above the Reserve Bank of India’s (RBI) target band, the incoming governor, Urjit Patel, has a balancing act to perform. A hefty hike in wages for nearly 10 million federal government employees and pensioners is widely expected to fuel spending, countering some of the caution among urban consumers caused by low wage growth. “Given that the RBI faces a tough challenge in meeting its inflation targets, we think that it will keep the repo rate on hold,” said Shilan Shah, economist at Capital Economics consultancy in Singapore. The new RBI governor will also have to decide whether to take the
GDP figure at face value. It has been more than a year since India shifted to a new method of measuring economic output, which captures value addition rather than production volumes, and economists are still struggling to square GDP figures with reality on the ground. For example, other indicators point to persistent weakness in manufacturing, but GDP data show a robust 9.1 growth in the sector.
Monsoon relief
Still, few would dispute that India remains a bright spot in a gloomy global environment, which explains why foreign investors are buying
shares in Indian firms. The benchmark National Stock Exchange index has added 8 per cent this year. Looking ahead, bountiful rains in the June-September monsoon season should provide some support to growth and relief to India’s 263 million farmers as they recover from two consecutive drought years. That should help lift farm output, which grew 1.8 per cent from a year earlier in the June quarter. Normal rainfall this summer would boost rural consumption by US$80 billion in the year to end-March 2017, according to Citibank’s estimates. “We hope that in the second half, consumption will support growth,” said Shubhada Rao, group president and chief economist at Yes Bank. Reuters
14 Business Daily Friday, September 2 2016
International In Brief Russia central bank
Inflation expectations fell noticeably in August Inflation expectations fell noticeably in August, the Russian central bank said yesterday, citing data from an inFOM poll. The central bank said the poll, commissioned by the bank from inFOM, showed expected 12-month inflation fell to its lowest level since October 2014. Andrei Lipin, from the bank’s monetary policy department, said the fact that inflation was expected to fall to 5-6 per cent by year-end would help inflation expectations fall further. The central bank closely watches inflation expectations when making its decision on its key rate. The next rate meeting is on September 16. Ireland taxes
French finance minister says normal Apple pays The European Commission was right to order Apple to pay 13 billion euros (US$14.48 billion) in back tax, French Finance Minister Michel Sapin said yesterday, backing Brussels as tensions flare with Washington over the ruling. “The European Commission treated it as abnormal state aid... the European Commission is doing its job,” Sapin told a news conference. “It’s normal to make Apple pay normal taxes.” The United States has accused the European Union of grabbing revenue intended for U.S. coffers with the decision, comments that could cause friction at an international summit in China next week.
PMI survey
UK factory activity rebounds helped by slump in sterling After Britons unexpectedly voted to leave the EU sterling fell by more than 10 per cent against the dollar and the euro.
B
ritish manufacturing staged one of its sharpest rebounds on record in August as factories recovered from the initial shock of June’s vote to leave the European Union, helped by a boost to exports from sterling’s post-Brexit slump. The Markit/CIPS Purchasing Managers’ Index (PMI) - a closely watched gauge of factory activity jumped to a 10-month high of 53.3 in August after tumbling to a three-year low in July after the referendum, which was revised down to 48.3 from 48.2. The five-point monthly surge was the joint-largest in the manufacturing survey’s near 25-year history and far outstripped all forecasts in a Reuters poll of economists. But it also underscored how the weaker currency is likely to fuel inflation. Data over the past couple of weeks have shown consumer demand held up in the face of the referendum result and yesterday’s survey suggests manufacturing, which accounts for 10 per cent of Britain’s economy, is weathering the initial impact of the vote better than feared.
Markit, which compiled the PMI said, companies had reported restarting work which they had put on hold in July, as their clients saw business starting to return to normal. However the EEF trade body, which represents manufacturers, said the strength may not be sustained.
Longer-term hit?
After Britons unexpectedly voted to leave the EU sterling fell by more than 10 per cent against the dollar and the euro, losses that have not been recouped as markets bet on a long-term hit to British economic performance and that the Bank of England will lower interest rates again later this year. Economists will be keen to see if the rebound in manufacturing PMI is also reflected in figures due to be published on Monday for the far larger, more domestically focused services sector. The weak PMI surveys of July suggested the economy had begun to contract at the fastest rate since the 2008-09 financial crisis and were a big factor behind the BoE’s decision on August 4 to cut rates to a record low and restart bond purchases.
August’s manufacturing PMI showed export orders flowed in at their fastest rate since June 2014, though overall order growth was below June’s rapid pace. Factories reported that they increased output by the highest amount since January. A separate survey published last week by the Confederation of British Industry showed export orders rising at the fastest rate in two years in the first part of August, but more subdued domestic demand than the PMI. In the longer run, Britain’s access to European export markets remains uncertain. Prime Minister Theresa May’s new government has not said when it will start formal talks to leave the EU and has given no detail on whether it would allow unlimited EU migration in return for continued easy trade access - a likely demand of other countries in the bloc. The flip side of the short-run boost to exports from a weaker currency are signs of rising inflation pressure. Manufacturers taking part in the PMI survey reported the biggest rise in input costs in more than five years, and said they were also raising the prices they charged customers at the sharpest rate since mid-2011. The Bank of England expects higher inflation and lower living standards to be one of the main costs for households from the vote to leave the EU, outweighing gains to trade from a weaker currency. Reuters
Oil output
Saudi minister says OPEC moving to common position Saudi Arabia’s minister of foreign affairs said yesterday that it would be reasonable for the kingdom to go along with other producers in changes to oil production. Adel al-Jubeir, speaking at an event in Tokyo, said OPEC and non-OPEC oil producers were increasingly moving towards a common position. “I think there is a move toward a common position, toward a common effort,” he said. Members of the Organization of the Petroleum Exporting Countries are due to meet informally in Algeria on the side-lines of the International Energy Forum (IEF) on September 26-28. Mozambique
IMF official named to replace central bank governor Mozambique’s president, Filipe Nyusi, has appointed Rogério Zandamela governor of the Bank of Mozambique, to replace Ernesto Gove, who has ended his term at the central bank after a decade in the post, according to a statement from the president’s office. Zandamela has worked for the International Monetary Fund since 1988, as resident representative in Brazil and head of mission to Armenia, Costa Rica, Gambia, Guatemala, Liberia, Malaysia, Nicaragua, Peru, Trinidad and Tobago, and Zimbabwe, in the Department of Monetary and Capital Markets.
“Manufacturers ... appear to have their mojo back in August” Lee Hopley, EEF chief economist
Trading currencies
Nigeria lifts forex ban on nine banks Last week’s ban created tension in the financial system, triggering a crash in the stocks of most of the indicted lenders on the Nigeria Stock Exchange. The Central Bank of Nigeria (CBN) has lifted a suspension of nine banks from foreign exchange trading for failing to remit some oil money to the government, an official said yesterday. “The erring banks have been readmitted into the inter-bank foreign exchange market after they presented their plans to pay back the money,” the CBN official told AFP. The CBN suspended the nine banks last week for withholding US$2.12 billion belonging to the Nigerian National Petroleum Corporation (NNPC) and the Nigeria Liquefied Natural Gas (NLNG) contrary to a government regulation. On coming to power in May last year on an anti-graft ticket, President Mohammadu Buhari ordered all government revenues to be paid into Treasury Single Account (TSA) at the CBN to prevent fraud. While government agencies and ministries previously maintained
multiple accounts at local banks, Buhari instituted the TSA to ensure that all government funds were pooled.
‘The foreign exchange market reacted negatively with the naira currency slumping’ The decision was to instil more accountability in monitoring government revenue and to eliminate opacity in government. Last week’s ban created tension in the financial system, triggering a crash in the stocks of most of the indicted lenders on the Nigeria Stock Exchange.
The foreign exchange market also reacted negatively with the naira currency slumping further on the parallel market to close at 420 to the dollar on Wednesday against 396 before the suspension. Industry experts had appealed for leniency to avoid causing a run on the banks. “We should not kill an ant with a sledge-hammer. Banning nine banks from the forex market at this time of recession will worsen the situation,” Pascal Odibo at Jeff & O’Brien said. He warned that the ban would deny importers and forex users the opportunity to obtain forex through the banks under scrutiny, ramping up pressure on the black market. One of the indicted banks, the United Bank for Africa (UBA) was reinstated a day after the suspension once it remitted its own share of the held funds. Nigeria’s oil-dependent economy is in recession because of low oil prices and resulting foreign currency shortages, hammering government revenue and pushing inflation to 17.1 per cent in July. AFP
Business Daily Friday, September 2 2016 15
Opinion Business Wires
Bangkok Post Thailand’s information and technology (IT) spending is on track for double-digit growth this year, helped by the national e-payment scheme and the development of a value-added economy of innovation and creativity or Thailand 4.0, says an industry expert. The growth is to come from both the public and private sectors, especially the financial sector, said Supakit Tiyawatchalapong, managing director of Computer Union, the IT service arm of SET-listed Saha-Union Group. Despite the economic slowdown, he said state agencies and private firms are increasingly moving towards modernising their legacy systems to survive in the new era of competition and growth.
Former Brazilian President, Dilma Rousseff (C) delivers a statement to the press at Alborada Palace, Brasilia, Brazil, 31 August 2016.
Brazil’s post-Dilma peril of judicial overreach
W The Times of India Reserve Bank and the government are exploring introduction of interest-free banking, also known as Islamic Banking, to financially include sections of the society that remains excluded due to religious reasons. “Some sections of Indian society have remained financially excluded for religious reasons that preclude them from using banking products with an element of interest. “Towards mainstreaming these excluded sections, it is proposed to explore the modalities of introducing interest- free banking products in the country in consultation with the government,” RBI said in its annual report for 2015-16.
The Straits Times Higher land values in parts of downtown Singapore will mean a hefty jump in taxes that developers pay to enhance the use of some sites or to build bigger projects there. The taxes, called development charges (DCs), will rise up to 12.2 per cent for some private apartment sites in the District 9 area, such as River Valley. DC rates were raised for the overall category of residential non-landed use yesterday for the first time in over two years - up 2.7 per cent on average for this property use.
The Star Second-quarter earnings results have been a mixed bag, but green shoots are starting to show. Overall, though, most (Malaysian) companies delivered numbers that were within expectations, showcasing that the worst could perhaps be over and investors can now look forward to an earnings recovery trend moving forward. Over the last two years, earnings have been contracting, despite expectations already being lowered. This time around, while the majority of the companies met earnings expectations as usual, the ratio of companies that underperformed compared to the outperformers has narrowed.
ell before the Brazilian Senate threw Dilma Rousseff out of office on Wednesday, by a commanding 61 votes to 20, even her most fervent supporters sensed her days as head of state were numbered. Yet to judge by the commotion from her loyalist rearguard, you’d think a political comeback were underway. The suspended president took the stand at her impeachment trial on Monday with protesters in the street, an impressive entourage in tow, and blessings from Bernie Sanders all the way to Hollywood. “Impeachment is a political death penalty,” Rousseff said, adding that her ouster amounted to “a coup.” For all the drama of her trial - the partisan bombast, Rousseff’s 14-hour grilling in the Senate, the tear gas in the streets - political apostates were already negotiating the day-after. Sitting President Michel Temer was waiting for word of the proceedings with his bags packed for an official visit to China as Brazil’s new head of state. By early afternoon Wednesday, Rousseff’s mandate was finished, making her the second Brazilian leader to fall to impeachment since the return to democracy 31 years ago. But there is logic to Rousseff’s obstinacy. By insisting that her ouster is illegitimate and the charges of her fiddling the federal budget a flimsy cover for a political putsch, Rousseff is no longer playing to the Senate but to public opinion, and to courts of law in Brazil and beyond. She has vowed to appeal to the Brazilian Supreme Court. And at her urging, the human rights commission of the Organization of American States recently pressed Temer’s government for explanations (and was quickly rebuffed). Such manoeuvres are part of a compelling political endgame: Cast Rousseff as the victim of a Latin Thermidor, and blame Brazilian “elites” plotting to sweep away social gains of the last decade. Never mind that those gains are already under assault by the fiscal profligacy of the Lula-Rousseff years, which sent the Brazilian economy tumbling into severe recession, erased jobs and gutted the country’s standing among creditors. By spinning the political contest of impeachment as a travesty of justice, Rousseff may be hoping to build a narrative for an eventual comeback. Or she may be angling for something more expedient and far more troubling - turning politics over to the courts. Forget the cant about rightwing “usurpers” and a “parliamentary coup”; Brazilian democracy will survive impeachment uninterrupted. But far less attention has been paid to another kind of usurpation: judicial overreach. Yes, Brazil’s diligent police and savvy prosecutors are working overtime to bring crooked big shots to justice, and the courts have done their part. But as politicians have fallen into disrepute, judges and prosecutors are leaning in and taking up space that elected officials ought to fill, sometimes encouraged by the very politicians they are upstaging. This isn’t new. Consider the Supreme Court’s 2006 decision to overturn a congressional bill limiting the ridiculous number of political parties allowed to field candidates. The result: Brazil has 27 parties
“
Mac Margolis a Bloomberg View columnist
with representatives in Congress, many of which have no discernible platform other than to hold government ransom for the maximum amount of pork. Rousseff’s ruling coalition was a crab barrel of nine parties before it fell apart. However, the current political imbroglio has raised interventionism to alarming heights. True, often the Brazilian courts are a last recourse. Thanks to country’s indulgent parliamentary privilege, the Supreme Court is the only body that can judge sitting lawmakers, nearly half of whom are either criminal defendants or have been convicted of a crime. And of course, impeachment naturally pits the executive against its congressional adversaries, a standoff that often demands arbitration. But recently, the high court has gone beyond safeguarding the Constitution to kibitzing on the arcana of congressional regimen and refereeing points of order. In December, the 11-member high court intervened on the composition of the congressional subcommittee assigned to review the case against Rousseff, and in April the full bench spent hours deliberating over rules for the roll call vote on impeachment in the plenary. Not surprisingly, such influence can breed swagger. Although home to respected constitutional scholars, the Supreme Court also has become a catwalk of judicial vanity, with bench members even sounding off even on cases that are under adjudication. However, judges are not only to blame. With 315 articles and some 200 pages, the 1988 constitution is a monster, and holds forth on everything from interest rates to indigenous land rights. “Almost everything in Brazilian life can be interpreted as a constitutional matter” Michael Mohallem, a constitutional law scholar at the Getulio Vargas Foundation, told me. The danger of such a sweeping mandate is judicial incontinence; when every quarrel ends up in litigation, clearly, the courts cannot function. Every year, the Brazilian Supreme Court hears an “astronomical” 70,000 cases or more a year, a backlog not even the most illustrious bench could handle. The broader problem is that hyperactive courts diminish the role of elected officials -- often, ironically, with the complicity of politicians themselves. “Over and over, we have seen lawmakers defeated in a legislative vote immediately filing an appeal in court,” Mohallem said. Which brings us back to impeachment. Rousseff has every right to a full and vigorous defence. That’s what Brazil’s drawn-out, ritualistic and politically agonizing impeachment process was all about. To challenge the Senate’s ruling in the Supreme Court and seek intervention by an international diplomatic court would not just prolong the agony, but second-guess Brazil’s democracy. And that’s the last thing this crisisroiled country needs. Bloomberg View
Judges and prosecutors are leaning in and taking up space that elected officials ought to fill, sometimes encouraged by the very politicians they are upstaging
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16 Business Daily Friday, September 2 2016
Closing Hangzhou meeting
G20 coordinators confident of summit’s success
Senior officials in charge of preparations for the upcoming Group of 20 (G20) summit in Hangzhou yesterday gave thumbs-up to China’s organizing of the meeting under its presidency. A statement was issued by the Chinese Foreign Ministry after the opening of the fourth and final Sherpa meeting, also known as coordinators’ meeting in preparations for the summit slated for September 4-5. It said basic agreements have been reached on a G20 blueprint for innovation-driven growth, an
action plan to carry out the United Nations 2030 Agenda for Sustainable Development, and an initiative to support the industrialization in Africa and the least developed countries. Fundamental consensus was also reached on a set of high-level principles in cross-border manhunt and the return of illicit assets in anti-graft cases among G20 members, a global trade growth strategy, and a guideline for global investment. The statement said the coordinators expressed full confidence in a successful summit in Hangzhou, adding that the summit will undoubtedly leave an imprint in the G20 history. Xinhua
Artificial intelligence
Baidu envisions robot cars and Echo-like home gadget The company thinks driverless vehicles will become a commercial reality in coming years
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aidu Inc. has unveiled its latest plans to stake out a spot in the burgeoning field of artificial intelligence, including a partnership with Nvidia Corp. to develop driverless cars and a home gadget akin to Amazon.com Inc.’s popular Echo. Chief Executive Officer Robin Li is banking on AI to jumpstart a slowing internet search and
advertising business. It will be the single most important technology in the internet sector, the company founder told investors, employees and analysts gathered at the Baidu World conference in Beijing. The tag line for this year’s confab: “AI is the new electricity.” AI has become a strategic area of investment for technology companies including Apple Inc. and Google. The
bet is that whomever makes the most engaging digital personal assistants and software will control the layer between users and their digital lives, profiting off that relationship. By working with speaker-maker Harman International Industries Inc., Baidu wants to create a smart device that, like the Echo, can understand spoken commands and order food or summon cars. The Chinese search giant is also trying to exert its own influence on the rapidly deepening field. It will release its “PaddlePaddle”
Robin Li, Baidu’s Chief Executive Officer
software on GitHub September 30, letting AI enthusiasts freely make use of the development tools. The move resembles Google’s release of TensorFlow, an attempt to set the standard on AI programming. “AI is the next big development of the internet industry,” Li said. “We can do things that we never thought we’d be able to do. I’d like to invite everyone to rethink the sector we’re in – to rethink the Chinese economy.” Artificial intelligence enables products such as personal assistants, including Google Now and Amazon’s Alexa. It helps Baidu target advertising. And it makes new product categories possible, from autonomous cars to new models for entertainment in virtual reality. By combining its ability to crawl the web, deep understanding of hundreds of millions of Chinese users and facial and voice recognition technology, Baidu plans to create detailed profiles of every person. This in turn can be used to develop products and market services. The company demonstrated a sales call that turned the thick Beijing accent of one customer into text in real-time. Autonomous cars is another area the company is making a big bet on. Baidu thinks driverless vehicles will become a commercial reality in coming years and, like other major technology companies, is already testing prototypes. Nvidia, a maker of computer microchips for graphics, and Baidu will build operating software for self-driving that encompasses mapping and adapts to changing environments. Bloomberg News
M&A
Real estate
Consumption
EU clears Hutchison, Vimpelcom Mainland new home price Online shopping in South mobile tie-up in Italy increase picks up in August Korea hits record high The European Union yesterday cleared a mobile phone tie-up between Hong Kong’s Hutchison and Russia’s VimpelCom in Italy after they agreed to sell some of the business to boost competition. Hutchison, owned by Hong Kong tycoon Li Kashing, and VimpelCom agreed last year to merge their 3 Italia and Wind networks but the European Commission demanded they make room for new entrants in the Italian market. In July, France’s Illiad, parent company of low-cost operator Free, said it would acquire frequencies and radio towers from Hutchison and Vimpelcom. The Commission, which polices European Union competition policy, said “the effective structural remedies offered by Hutchison and VimpelCom fully address the Commission’s competition concerns.” “They will ensure the market entry of French telecom operator Iliad as a new mobile network operator in Italy,” it said in a statement. “This means that the parties can grow and reap the benefits of combining their assets, whilst Italian mobile customers will continue to profit from effective competition.” VimpelCom’s Wind business currently ranks third in the Italian market and Hutchison fourth but together they will become the largest entity ahead of Telecom Italia’s Tim and Britain’s Vodafone. AFP
Increases in new home prices in China picked up in August from a month ago, a survey showed yesterday, raising worries of further rises in major cities. The average price for new homes in 100 major cities gained 2.17 per cent month-on-month in August to 12,270 yuan (US$1,837) per square metre, the China Index Academy (CIA) said in a statement. It accelerated from a rise of 1.63 per cent in July. Real estate is a key sector for China’s economy, the world’s second largest and a vital driver of global growth. Beset by property market problems, a sluggish manufacturing sector and mounting debt, China’s economy is growing at its slowest rate in a quarter of a century, and concerns about its health have roiled global markets. Authorities have introduced several policies to try to revitalise the property sector, including reducing minimum downpayment requirements, cutting transaction taxes and providing incentives for migrant workers to buy homes. The policy loosening led prices in some big cities to rise this year as pent-up demand was unleashed. But at the same time the country has a huge inventory of unsold new homes. AFP
Online shopping in South Korea hit a new record high in July as consumers refrained from going out for shopping amid the scorching heat, a government report showed yesterday. Shopping in cyberspace jumped 17.4 per cent from a year earlier to 5.57 trillion won (US$4.97 billion) in July, according to Statistics Korea. It was the largest since the agency began compiling the data in January 2001. Mobile shopping, a purchase of goods and services through smartphones, surged 36.9 per cent to reach a fresh monthly high of 2.93 trillion won. Unusually high temperature led consumers to refrain from going outside and buying necessities via smartphones. Purchase of cosmetics and food on the Internet jumped 46.3 per cent and 31.4 per cent each in July from a year earlier, with those for consumer electronics and communication devices growing 22.4 per cent. Trip reservations in cyberspace accounted for 20.4 per cent of the total online shopping in July, followed by purchase of home appliances with a portion of 12.8 per cent. Xinhua