TigerAir to decide at yearend if it will close its doors Aviation Page 4
Monday, September 5 2016 Year V Nr. 1123 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Expo
Macau International Travel (Industry) Expo improves this year Page 4
www.macaubusinessdaily.com
Transportation
Gaming
Volkswagen opens branch in MSAR Page 3
Iao Kun to revise strategy amidst VIP downturn, closing one VIP room Page 5
Parisian gets 150 tables Gaming
Secretary for Economy and Finance confirms 150 total new tables for The Parisian Macao. One hundred tables will be available for the opening on September 13, with 50 more over the next two years. Though the same as Wynn Palace’s allocation, the table number is still lower than that granted to Galaxy Phase II and Studio City, missing analysts’ expectations for the “full” 250 tables. Analysts estimate that the gov’t has 797 tables in its quota for the next two projects on Cotai if it is to stay under its table cap. Page 5
Private poll
Automotive sector
Strong demand will fuel home prices in Mainland Page 10
Car loans soar in China as automakers deliver financing deals Page 11
Building Green
From progress on MGM Cotai, slated to open in Q2 of next year, to eco-friendly measures and embracing sustainability, to learning from local concrete contractors, Hunter Clayton, Executive Vice President for MGM Resorts Development explains his past five years in the MSAR developing MGM Cotai and the possibilities for a green future.
Location, location, location
MICE Real estate companies taking part in the 10th Macau International Real Estate Fair express disappointment at the low turnout and exhibition space. Participants commented that the fair was lodged between “a car exhibition and a calligraphy exhibition” and that the event organisers seemed to have “disappeared” after the initial opening ceremony. The organizers predicted at least 3,000 attendees, a step down from the 22,000 it told exhibitors had attended last year’s edition. Page 3
A worthy education
Politics Secretary for Social Affairs and Culture, Alexis Tam defends the need for a multi-functional, comprehensive central library. The current central library in Tap Seac is ‘way too small’ and not suitable to be used as a central library, comments the Secretary, noting that gov’t departments are willing to open up the books regarding construction and financing of the project. Though initially ‘a good thing’, the halting of the restaurant project for the Taipa-House Museums will allow the gov’t to ‘listen to different opinions,’ comments Tam. Page 3
Record turnout
Interview | Construction Pages 6 & 7
HK Hang Seng Index September 2, 2016
23,266.70 +104.36 (+0.45%) Worst Performers
CK Hutchison Holdings Ltd
+3.26%
China Life Insurance Co Ltd
+1.93%
China Mengniu Dairy Co Ltd
-1.56%
CITIC Ltd
China Overseas Land &
+2.91%
Hengan International Group
+1.89%
Belle International Holdings
-1.50%
Galaxy Entertainment Group
-0.92%
Sun Hung Kai Properties Ltd
+2.38%
Bank of East Asia Ltd/The
+1.73%
Li & Fung Ltd
-1.48%
Hong Kong & China Gas Co
-0.82%
Tingyi Cayman Islands
+2.28%
Ping An Insurance Group Co
+1.71%
Industrial & Commercial
-1.41%
Sands China Ltd
-0.62%
China Resources Land Ltd
+2.05%
Cheung Kong Infrastructure
+1.52%
China Merchants Port Hold-
-1.33%
Tencent Holdings Ltd
-0.39%
26° 30° 27° 30° 27° 30° 26° 31° 27° 30°
-1.16%
Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
HK Elections Hong Kong voters flooded polls, reaching record numbers for the legislative assembly election. Turnout approaches the previous high from the 2004 elections, with the city’s next five years of leadership hanging in the balance. Among the sentiment are worries about housing costs, a slowing economy and import labor, with forecasted growth dismal. Page 16
2 Business Daily Monday, September 5 2016
Macau
Society Holy House of Mercy: gov’t relocation a wasteful hassle
Unnecessary move The landlord of the First Public Notary Office claims the rent the government is charged is a fair market price. Joanne Kuai joannekuai@macaubusinessdaily.com
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resident of the Macau Holy House of Mercy (Santa Casa da Misericordia), António José de Freitas, has criticized the government for its attempt to move the First Public Notary Office out of the nonprofit organization’s property in Senado Square, according to a report published in local Chinese-language newspaper Macao Daily last Friday. Freitas claimed the rental price the government is being charged is relatively cheap or at least a fair market price, while the government’s future landlord for the Northern District’s new rental property has made it clear that the rental contract will be no longer than a year, making the move and necessary renovations a wasteful act. He also noted that losing the rental contract from the government would be a blow for the charitable organization’s finances which provides other services to the society including elderly homes and
nurseries. The government disclosed in June that the First Public Notary Office would be moved to the Northern District Integrated Services Centre Building by the end of this year, after the Legal Affairs Bureau said that current monthly rental, which is MOP1.2 million (US$150,140) for the First Public Notary Office, was too high and that the lease would expire at the end of this year.
Moving out
Mr. António José de Freitas told the publication that he received a letter from the director of the Legal Affairs Bureau on July 20 stating that the government wouldn’t renew its rental contract, which runs out on December 31 this year. Mr. António José de Freitas points out that the proposed new venue at the Northern District is also private property and the future landlord has indicated that the contract would only last until the end of next year, meaning the government would have to move again and spend more on
Illegal Smoking
Enforcing smoking ban Current enforcement of the smoking ban has been effective, said the Health Bureau in response to a complaint by the Macau Gaming Enterprises Staff Association of Macau Federation of Trade Unions (FAOM). The FAOM is urging the government to increase enforcement of the ban, especially in newly opened casinos. The Health Bureau noted that it had, together with the Gaming Inspection and Coordination Bureau
(DICJ), recently undertaken two random inspections at a newly opened casino, but that no illegal smoking activities were found. For the first eight months of this year, the total number of complaints in relation to illegal smoking reached 714, of which over 80 per cent were referred to the DICJ. A prosecution rate of 19.7 per cent was reached, higher than that resulting from inspections in non-gaming venues – which have a prosecution rate of 1.9 per cent. The Bureau and DICJ have together undertaken a total of 326 inspections and prosecuted 394 cases of illegal smoking so far this year. A.L.
relocation and renovation works. He said that the First Public Notary Office is the only space the Holy House of Mercy has rented to the government. He added that the government has been renting it since 1963. In the beginning, rent was priced at MOP300 per month, as a “charitable favour”. Eight years later, the rent was increased to MOP450 per month. In 1989, the rent was “drastically increased” to MOP10,000 and after the handover in 1999 the rent hit MOP50,000 per month. After two subsequent increases the rent stood at MOP100,000 in 2006, and was still considered too cheap. In 2009, the organization made a sixyear contract with the government with MOP200,000 as the starting rent coupled with a 10 per cent increase every two years. In 2014 the rent was further raised to MOP1.2 million, in a contract signed for three years, with the first two years being ‘unchangeable’.
Reasonable rent
The president of the Holy House of Mercy further argued that as the First Public Notary Office is around 500 square metres, with rent at MOP1.2 million, the monthly rent per square metre is around MOP2,400, which he claims to be a fair market price. He added that the ‘Popular Pharmacy’ (Farmacia Popular) who rents the shop next door had its rent increased at around the same time from MOP100,000 to MOP800,000. The shop is around 350 square meters, equalling monthly rent per square meter at around MOP2,300. A recent release by the Commission of Audit refers to one property rented by the government, for which its monthly rental has increased from MOP200 per square meter to MOP1,000 square metre, and some suspected this was referring to the Holy House of Mercy. Mr. António José de Freitas indicated that he was: “not sure if it’s the Commission of Audit’s mistake or if the Legal Affairs Bureau gave the wrong information,
but the data was all wrong”, as the monthly rent is MOP2,400 per square metre. The Commission of Audit issued a report last week, saying that 68 public services were renting private properties, costing the government MOP4 billion in rent and MOP1.03 billion in renovation from 2004 to 2014. The Commission slammed the Land, Public Works and Transport Bureau (DSSOPT) for its lack of a comprehensive plan for the construction of buildings for public service departments, saying it could put government finances at risk.
Utilization
In regards to the Commission of Audit’s criticism, legislator Ella Lei Cheng I opined that the government lacks ideas for how to utilize the spaces it has and has been forced to accept skyrocketing rental prices. She suggests that the government should review the use of its current office buildings and other facilities, make the best use of vacant properties, and quicken the pace of building government facilities. “The most important thing is that we always say Macau has a scarcity of land and there is no room for anything. As a matter of fact, there are plots of land that were planned for the government to build their offices and facilities on, such as the reclaimed land Zone B that we’ve been talking about for years,” said Ella Lei in an interview with local public broadcaster TDM Chinese Radio aired last Friday. “If the government sits still and does nothing, the problem is not going to be solved, for sure.” The legislator indicated that even when renting properties, the government could have negotiated for better deals including signing contracts for longer terms with cheaper prices, as landlords also prefer stable tenants. In addition, she said improving and promoting e-administration for certain services would also help with economizing on resources.
Tourism
Gov’t issues travel alert to Singapore The Tourism Crisis Management Office (GGCT) has issued a travel alert to Singapore following new cases of transmission of the Zika virus found in the country. As of Sunday afternoon, there were over 200 Zika cases confirmed in Singapore. ‘[GGCT] alerts Macau residents who plan to go to Singapore to remain alert to the recommendations issued by the Health Authorities, avoid mosquito bites and beware of the Zika virus,’ the Office wrote in a statement.
Pregnant women, if infected by the virus, are at risk of microcephaly for their newborns.
Business Daily Monday, September 5 2016 3
Macau Expo
Organisers predict 3,000 visitors for three-day real estate fair
Low turnout Real estate companies taking part in the 10th Macau International Real Estate Fair express disappointment at low turnout and exhibition space. Nelson Moura nelson.moura@macaubusinessdaily.com
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he number of visitors and space for the exhibition were criticised by participants of the 10th Macau International Real Estate Fair, which took place between Friday and Sunday at The Venetian Macao Convention and Exhibition Centre. The fair attracted over 30 real estate companies and was organised by Macau Decheng International Media Co., Ltd. “So far it’s been really bad. I came very far for this and there’s almost no people turning out. The organisation said the three-day event would attract 22,000 people based on numbers from last year’s exhibition, but at this rate it would be lucky to
attract 5,000 people,” one real estate company representative taking part in the event told Business Daily on the first day of the fair. The representative, who chose to remain anonymous, also expressed the group’s disappointment that the space for exhibitors was small and located in-between “a car exhibition and a calligraphy exhibition,” commenting that the event organisers seemed to have “disappeared” after the initial opening ceremony. The same sentiment was reflected by Mr. Zhang from Zhuhai real estate firm Gangcheng Garden, one of the participating companies in the fair. “We’re a bit disappointed with the turnout, but hopefully the next
days will bring out more people. Our company focuses on property in Zhuhai and we mainly cater to Mainland Chinese, so we hope to make some contacts,” Mr Zhang told Business Daily. A representative from Macau Decheng International told Business Daily that the organisers expected at least 3,000 people for the three days of the fair and apologised to participants if they felt that booth space was too small. The representative stated to Business Daily that the fair organizers hadn’t been “prepared enough” and that the company had gone through a change and “all the workers of the exhibition are new”. Tim Earle, founder of Starfish Property Investments told Business Daily that this was the first time they had attended any event in Macau, after being approached by the fair organisers. “We’re a UK company that operates in Hong Kong as well. We specialise in fully managed commercial real estate investment opportunities in the
UK, France and Cape Verde which has a huge developing high-end property market. We also offer deals for shared work spaces in Dubai and New York,” Earle told Business Daily. The British company representative stated that this was an opportunity to expand its business to Macau after operating in Hong Kong for almost two years, with the hope of attracting Mainland Chinese and Macau investors. “We’re finding many investors from this region are very interested in opportunities which are fully managed, allowing them to do the investment and take their hands off the property management. They want fixed and safe returns,” Earle told Business Daily. The real estate businessman stated that so far the show seemed “low scale” with a “mix of exhibitors, [while] property seems to be the minority of exhibitors here”. When questioned about the low turnout, Earle told Business Daily he could “see how it can be hard for the organisers to attract people, and that hopefully during the weekend turnout will be higher”.
preservation. However, he indicated that the idea of providing food in one of the houses had been proposed long ago, during renovation works before the city was returned to Mainland China, adding that the proposal is worthy of consideration, citing examples of similar offerings in other countries. “The city is now trying to become a mecca for gourmands […] we initially believed [the restaurant in Taipa-Houses] was a good thing. But we are willing to listen to different
opinions.” Tam agreed that the houses are in need of renovation, in particular the interior of the houses, and therefore renovation should be the current major priority. The Secretary emphasised the government’s sincerity and efforts to develop Macau, aiming to create diversity for the city and cement the MSAR’s position in international tourism. “All we do is for the good sake of the city, not for ourselves,” Tam concluded.
Attracting Mainland buyers
Society
Alexis Tam: Macau needs diversity Secretary for Social Affairs and Culture emphasised the need for a central library and remarked that renovations should be the main focus of the Taipa-Houses project. Cecilia U cecilia.u@macaubusinessdaily.com
Secretary for Social Affairs and Culture, Alexis Tam says that a developed city like Macau should have a multi-functional and comprehensive central library. The Secretary emphasised the government’s efforts to improve education of local citizens by providing a suitable library, noting that many cities such as Guangzhou also have a similar facility. “A modern city needs a modern library,” said the Secretary. Tam also stated that the city’s central library should not be oversized, but the scale should be adequate for the city’s use. The comments came on the sidelines of the Macau International Travel (Industry) Expo.
“Although we have our ‘Macau Central Library’ at Tap Seac Square, it is way too small and is not suitable to be considered as our central library,” noted Tam. He referred to a survey of scholars, conducted by the Cultural Affairs Bureau in 2008, which showed positive views about building a central library in the centre of the city. He also stated that government departments are willing to open the books in regards to the building costs of the library, as announced previously.
A good thing
In response to an enquiry about the halting of the restaurant project for the Taipa-House Museums, Tam remarked that the priority for the project is renovation work and
Cars
Transportation
Volkswagen opens new dealership in the city German car manufacturer Volkswagen partners with local car services company Xin Kang Shun Motors Limited to open new dealership in the territory. Nelson Moura nelson.moura@macaubusinessdaily.com
The Volkswagen Group Hong Kong Limited has opened a new car dealership in Macau in the Areia Preta area, according to a company release. The new Volkswagen Macau Centre is the result of a partnership with Xin Kang Shun Motors Limited, a local car services company that currently offers deals for car brands including Honda, Nissan, Infiniti, Jeep, Alfa Romeo, Fiat, Renault, Volvo, Audi, Isuzu, and UD commercial vehicles. According to a Volkswagen press release, Xin Kang will be the sole distributor of the brand in the MSAR, being responsible for ‘both the sale and after-sales services’. C u r r e n t l y , th e G e r m a n ca r manufacturer has three showrooms in Hong Kong, and the new Macau showroom is its first dealership in the MSAR.
The dealership will occupy a total of 3,800 square feet with a capacity for nine display cars, opening in two phases - the ground floor, already available, and a future second floor opening later. “With class-leading products from Volkswagen plus Xin Kang Shun’s professional retail expertise, we look forward to a successful partnership
which will bring Volkswagen further growth in Macau,” stated David Goggins, Managing Director of Volkswagen Group Hong Kong Limited, in the release. In statements to Business Daily, Xin Kang said the contract with Volkswagen has been in the works for at least two years. The local car dealer also stated that they previously established a maintenance centre near the Pac On Ferry Terminal in August, and that they had already received 200 requests for Volkswagen repairs and 20 requests for car demonstrations from the territory. Xin Kang also stated that the previous Volkswagen dealer in Macau sold 300 cars in the city, but didn’t provide any future sales estimates.
Pro-Uber rally attracts 300 demonstrators Some 300 residents took to the streets yesterday afternoon to support the operations of ride-sharing mobile application Uber Macau, online Chinese-language media outlet All About Macau reported. The demonstration started at Tap Seac Square at 3:00pm and ended at the Government Headquarters. One of the organisers of the protest, Cloee Chao, said the number of participants had met their expectations. She stressed that the aim of the rally was to urge the government to legalise ride-sharing operations rather than solely supporting Uber Macau. The mobile application announced last month that September 9 would be its last day of operations in Macau if its negotiations with the government did not progress.
4 Business Daily Monday, September 5 2016
Macau Opinion
Sheyla S. Zandonai
Under capacity New investments in Cotai risk generating what economists and finance analysts call “overcapacity,” that is: a situation in which availability and supply far exceed customer demands or expectations. Though the market has changed in the last couple of years, the gambling industry has been obstinately fulfilling its prior plans. Except for a few delays and the occasional altercations with the government over, say, the number of gambling tables allowed to feature in the now-coveted mass floor plateau, lavish new hotels and casino facilities are stubbornly maintaining their original expectations, puzzling to the more sceptical. Despite the gloomy economic scenario within which they have become entrapped – with little warning – enormous casino complexes continue to rise, gleaming. Consolidating the era of the so-called “Integrated Resort,” they are re-scaling gambling into a whole new entertainment portfolio. When Cotai’s current developments are completed, thousands of rooms and dozens of leisure activities and gastronomic offerings will be made available. While these projects may seem oversized, their monumentality seems to imply permanence. On the other side of the SAR’s new “gambling land,” however, daily life continues with different contingencies. In the saturated, charming peninsula, the impact of casinos has somewhat spread its tentacles through parts of old Macau, simply because the city was already there when they first emerged. To be sure, the gambling axis of Avenida da Amizade bordering ZAPE and NAPE, is a modern protuberance within the old city fabric. But it is still connected to some of the main routes and public transportation links between residential areas and schools, shops, and public services. This is a huge problem, though hardly new. Mainland workers, for instance, have to cross the Border Gate back and forth each day to reach sites in Cotai. Thousands of tourists also flow into the peninsula on a daily basis, creating congestion for the city and its transportation system. At peak hours, buses are overcrowded. Shuttle buses have added to the already huge number of vehicles circulating in Macau’s narrow streets. Traffic jams can happen at any time. Urban planning is failing to accommodate the increasing burden on the city’s squeezed spaces, harshly revealing the peninsula’s under-capacity to cope with new flows of people. This is a burden that can no longer be sidestepped in public action and debate. Sheyla S. Zandonai is a scholar and contributor to this newspaper.
Expo
Fourth MITE kicked-off last Friday Increased tourism-themed exhibitors, better transportation, more participants and the potential of the market were all highlights of this year’s Macau International Travel (Industry) Expo (MITE). Cecilia U cecilia.u@macaubusinessdaily.com
I
n his remarks at the opening ceremony of the Macau International Travel (Industry) Expo (MITE) on Friday, Secretary for Social Affairs and Culture, Alexis Tam noted the government’s increased role in this year’s edition – which boasts further ties for China and Portugal. “This year, the Expo is organized by the Macao Government Tourism Office for the first time, and coordinated by the Macau Travel Agency’s guidance and involvement as well as close collaboration with our industry. The Expo is set to achieve greater effectiveness and contributions to the industry,” commented Secretary Tam. This year’s exhibition featured a new program entitled: “China – Portugal Tourism Seminar & Networking” as its main highlight. The seminar invited distinguished speakers to present special topics including new trends in Free Independent Travel in the Asia-Pacific region and smart tourism.
of MITE - commented that the local government attracted more participants as well as providing a wider promotion platform.
Big market in Macau
Yasumasa Shimizu, Senior Director of the Japan National Tourism Organization (JNTO), told Business Daily that in terms of trends, Macau residents tend to travel to South Korea rather than Japan, but that neighbouring Hong Kong, has a completely different scene. “In Hong Kong… last year about 1.5 million people [travelled] to Japan, it’s about 20 per cent of the population,” Mr. Shimizu said. Mr. Shimizu also stated that there are only three destinations in Japan that have flights to Macau, whereas there are more from South Korea. The Director of JNTO indicated that according to their data, from 2014 to
2015, there was a 78.1 per cent increase in the number of people from Macau visiting Japan, commenting that there is a potential market in Macau if more promotions are organised.
No impact even during slump
Despite the slump in casino revenue seen in the past years, Ms. You of MYTA travel agency said the economic downturn had not had any significant impact on their sales performance. “Although this year’s economy declined slightly, we will readjust [our market policy in order] to suit the current economy […] such as strengthening our promotions,” commented You. Mr. Puk, from CTS agency, also opined that the decline in the city’s economy has in fact created more sales opportunities. “In general, [the level of] Macau’s salary has improved… the slump [in the economy] previously, to the contrary, has led more people to travel because casinos have approved more vacations to their workers, including paid and unpaid leave,” Mr. Puk explained.
Expo is improving
There have been a number of improvements in the Expo, noted China Travel Service (Macao) Ltd. (CTS), a participant in previous exhibitions. “The past two editions [of the Expo] started [to provide transportation] for local residents […] this year’s edition has more tourism-themed [exhibitors], probably required by the organizer. Last year there were more [exhibitors who] sold products [unrelated to tourism]. This year it is more professional in terms of the venue itself and the decoration [of the booths]. [This year’s Expo] has learnt from the previous experiences,” commented Patrick Puk, Travel Department Assistant General Manager of CTS. Kay You, Cultural Travel Planner of local travel agency Multinational Youth Travel Agency Limited (MYTA) – a participant in previous editions
This year’s exhibition occupied 6,800 square meters, with a total of 370 booths. The threeday event attracted over 200 enterprises and entities from 28 countries and regions, with
over 70 Mainland municipalities participating in the Expo. MGTO took the helm in organizing this year’s Expo, coordinated by MTAA and supported by the China National Tourism Administration.
Aviation Macau-Taiwan budget airliner suffers losses of NT$1.2 bln
Tigerair struggling The parent company will decide by the end of this year whether to keep Tigerair operating. Joanne Kuai joannekuai@macaubusinessdaily.com
Tigerair Taiwan, a low-cost carrier that operates Macau-Taiwan routes, is facing possible closure by the end of this year. Parent company, Taiwan’s China Airlines (CAL) says Tigerair Taiwan has suffered an aggregated loss of NT$1.2 billion (MOP303 million / US$37.93 million), according to Taiwan media reports. Tigerair Taiwan is a joint venture between Tigerair Singapore and
Taiwan’s China Airlines (CAL). The budget airline currently operates between two and three daily flights connecting the MSAR to Taiwan. According to Taiwan media outlet reports, CAL chairman Ho Nuanhsuan said that despite being a controlling shareholder of Tigerair Taiwan, the previous management of CAL left many issues when drafting the contract with its Singaporean partner. Mr. Ho commented that even though CAL has a 90 per cent stake
in Tigerair Taiwan, Tigerair Singapore has a veto vote in deciding matters relevant to the budget airliner, which has resulted in difficulties in management and operations. While both sides have been negotiating and studying the problems of the contract, CAL’s attitude towards Tigerair Taiwan remains “if we can save it, we do it. If we can’t, there is nothing much left to be done”. The CAL chairman added they are not excluding the possibly of shutting down Tigerair Taiwan’s operations, and a decision will be made by the end of this year. Currently, there are four airlines providing Macau-Taiwan routes, including Macau flag carrier Air Macau, Taiwan’s Eva Airways Corp., TransAsia Airways and Tigerair Taiwan. However, Taiwan-based airline TransAsia Airways announced in June that it would halt its flights to the city from October 30, after “evaluating the operating benefits”. On July 11 last year, TransAsia Airways Corp’s wholly-owned budget carrier V Air also suspended its flights between Macau and Taiwan after just three months of operating the route, due to an unsatisfactory passenger load factor and failing to get a favourable flight time slot.
Business Daily Monday, September 5 2016 5
Macau Gaming
Parisian Macao granted 150 mass-tables The number of tables that the new gaming project has received is the same as that of Wynn Palace, unveiled two weeks ago. Kam Leong kamleong@macaubusinessdaily.com
T
he Parisian Macao – the new casino-resort of Sands China Ltd on the Cotai Strip - has been authorized a total of 150 new-to-market mass gaming tables by the MSAR government, the Secretary for Economy
and Finance, Lionel Leong Vai Tac announced on Saturday. Of the 150 total new tables, 100 will be available for the resort’s opening on September 13, with a further 25 available January 1 in 2017, and the remaining 25 in 2018. In addition, the new property was also granted a total of 1,600 slot machines. The table allocation to The Parisian
Macao is exactly the same as that given to rival Wynn Palace, which opened its doors on August 22. Nevertheless, it is lower than the 250 new gaming tables respectively given to two other competitors, namely Galaxy Phase II and Studio City for their May and October openings last year. The Secretary explained to reporters on the weekend that the table allocations are based on the gaming operators’ offerings of non-gaming elements and efforts to develop the city into a World Centre of Tourism and Leisure, in addition to their support of local SMEs and overall international competitiveness. The table grant to Sands China’s new project is also in line with the government’s principle of a compound annual growth rate of no more than three per cent in new gaming tables between 2013 and 2022, Mr. Leong said. The US$2.7 billion (MOP21.6 billion) Parisian Macao is to provide 3,000 new hotel rooms to the territory. The new casino-resort features a halfsize replica of the Eiffel Tower with a restaurant and observation decks, in addition to meeting space, retail, a theatre and a water-theme park.
Leong: too soon to say recovery
Secretary for Economy and Finance, Lionel Leong Vai Taci opined that it is too soon to say the gaming industry is recovering, noting that the public should wait and see whether gaming revenue will continue to grow this month. In August, the city’s casino revenue rose by 1.1 per cent year-on-year to MOP18.8 billion (US$2.4 billion), which ended a 26-consecutive month slump.
Union Gaming: lower than expected
Analysts at Union Gaming Research had expected the project might receive 250 new-to-market gaming tables from the authorities. ‘We were expecting Parisian to get the “full” allocation of 250 based on its family-style non-gaming offerings,’ wrote analyst at the research house Grant Govertsen, in a note following the official statement on the allocation. However the analyst does not predict that Sands China’s new business will be affected. ‘Parisian won’t miss a beat given the company’s ability to harvest unutilized or under-utilized tables from its other properties,’ he wrote. ‘This is no different than our view that the table allocation for Wynn Palace will not have a negative impact over the near term given how much slack is in the market’. The analyst also estimates that the government now has 797 tables in its quota for the other two major gaming projects on Cotai, if it is to remain under the table cap. MGM Cotai and Grand Lisboa Palace are slated to be unveiled in the next two years. ‘With only two major projects yet to come online, and perhaps the reality of a new baseline of 150 tables, the government will have plenty of dry powder to allocate significant batches of tables in the out years,’ he perceives.
‘Of course we are glad to see this situation,’ the Secretary said on Saturday. ‘But we should note that there are still some uncertain internal and external factors for fluctuations’. The official added that historically, gaming revenue in September is usually lower than in August. ‘As such, we should keep monitoring the performance for September so that we can make a more scientific judgement [on whether the gaming revenue is recovering],” he said.
Gaming Iao Kun closes one VIP room, plans to close two more
Rolling down The junket says the closure follows a strategic review of its VIP operations amid the city’s gaming downturn. Kam Leong kamleong@macaubusinessdaily.com
Junket operator Iao Kun Group Holding Company Ltd. announced last Friday that it is scaling down its gaming business in the Special Administrative Region. Having closed one VIP room last Wednesday, the NASDAQ-listed
company expects more shutdowns are on the way. ‘[Iao Kun] is undertaking a comprehensive strategic review of its VIP gaming room operations in Macau due to the ongoing challenging VIP gaming environment and to enhance its operating performance,’ the company said in a statement last week.
Gaming
Imperial Pacific reports US$1.56 bln VIP roll in August Casino operator Imperial Pacific International Holding Ltd. generated US$1.56 billion (MOP 12.5 billion) in VIP table game rolling chip turnover
at its temporary casino on the Island of Saipan in August, according to its filing with the Hong Kong Stock Exchange last Friday. Compared to US$1.74 billion seen in July, the amount represents a decrease of 10.9 per cent. As at the end of June, the company was operating 16 VIP gaming tables on the island, in addition to 32 mass gaming tables and 144 electronic table games and slot machines. The operator expects to unveil its new casino-resort project on the archipelago, Imperial Pacific Resort, by the coming Chinese New Year in January-end.
It indicated that it had already closed its VIP gaming room at Sands Cotai Central from August 31, expecting the closure would generate annual savings of around US$750,000 (MOP6 million). The closure means the company has been left with four VIP rooms in the city – located in StarWorld Hotel, Galaxy Macau, City of Dreams and L’Arc Macau, respectively. But the junket operator is planning to shut down at least one more. ‘Upon the completion of its strategic review, Iao Kun may further close an additional one to two VIP gaming rooms in order to further optimize its operating earnings,’ it stated. For the first seven months of the year, the US-listed operator saw its VIP rolling chip turnover in Macau plunge by nearly 50 per cent to US$2.3 billion, compared to US$4.36
billion for the same period last year. “Given the lack of recovery in the VIP market in Macau and our expectations that this will continue for the foreseeable future, we are currently reviewing our overall operations in Macau in order to ensure their sustainability,” said the company’s chairman, Lam Man Pou. Meanwhile, the junket operator has its eye on developing its gaming business outside the local territory. In June, Iao Kun announced that it is acquiring Jeju Sun Hotel & Casino in South Korea, including the gaming concession, from Philippine gaming operator Bloomberry Resorts Corporation for US$102 million, in order to ‘diversify outside of Macau’. It is also operates trial gaming operations in two casinos in Australia, namely, Crown Perth Casino and Crown Melbourne Casino.
6 Business Daily Monday, September 5 2016
Macau Interview | IR
MGM Cotai: building the ‘Mega-Project’ With the recent opening of Wynn Palace, and The Parisian slated for later this month, Business Daily sat down with Executive Vice President for MGM Resorts Development, Hunter Clayton for a look inside MGM Cotai’s new ecofriendly mega-project, winner of the China Green Building (Macau) Design Label. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com Photos by Cheong Kam Ka
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e’ve heard that you’ve been called ‘The Construction Guy’. How did that come about? I’m schooled as an architect but I did a dual degree in architecture and also construction management. I started my career 27 or 26 years ago working for a program manager, and although I came out of school as an architect, I went straight into program and construction management. Then I transitioned over to an architectural firm and spent about 12 years there as an architect. [I] tied in with MGM [during] the last five years of my term with the architectural [firm] working on City Center, which is a 20 million square foot integrated resort in Vegas, so that’s where my relationship with MGM started. Was the Macau project new or different for you?
My career has been focused on international development. I’ve probably built more square footage outside of the [United] States than in the [United] States. I’ve been in the Middle East, I’ve been in North Africa, Asia, Europe, India – I’ve built kind of all over the world, so Macau for me was, especially with this scale, this kind of intriguing architecture, it was something that I was very interested in participating in. It’s a beautiful building. The suite of consultants that we have are world-class […] and having an opportunity to build something that’s multi-million square feet and multi-billion dollars worth of construction, they’re few and far between these days, so I jumped at the chance. How many people do you oversee? Within my project team we’ve got 68 individuals and they are a mixture of local Macanese, a few folks from the States, we’ve got South Africans, Australians, Hong Kong Chinese, Mainland Chinese,
so across the board, it’s a very diverse group. Would you say MGM is committed to sustainable development? We’re a world-class, worldr e n o w n e d, l a rg e h o s p i ta l i t y c o m p a n y , b u t w e’ r e a l s o a development company. So designing and constructing buildings is part of our core. We have mandates, all the way from the chairman down to everyone within our company, to carry sustainability design practices and construction practices, at every level. Was it a challenge applying that to Macau given the difficulty in sourcing materials? Applying those same principles locally, the challenge was specifying material and tracking that material to make sure that it’s confirmed to be sustainable and it’s installed as sustainable. We have so many checks and balances in place within our processes that, I wouldn’t say
it’s easy for us, but we’re very good at it. One of the elements of the award is land usage. How is that evaluated? For us, it’s maximizing the use of your allocated land. We have - just over, just under - 16 acres, and including parking we’re over four million square feet. And frankly we’re also, I don’t know how many people know this, we actually have a three-level underground basement. We have the deepest excavation, the deepest basement provision in Cotai, and being able to dig that deep, which truly was a challenge because of the groundwater and the soil condition, we were able to maximize that underground space and literally maximize the use of that land so we’re not sprawling. Being compact and dense within that 16-acre footprint allowed us to stay efficient with that land use. By using eco-friendly measures, have you saved money in the long run? Absolutely. As we are installing and commissioning today, we are just under 30 per cent in energy savings over a standard building system. I don’t have the figures with me, but year-on-year utility cost savings as a company are millions of dollars. It’s definitely a cost-effective way to do it.
“We have mandates, all the way from the chairman down to everyone within our company, to carry sustainability design practices and construction practices, at every level.” Is this a big, small, medium-sized project for you? This is a big project. The biggest project that I have delivered was City Center in Las Vegas, 20 million square feet and a total construction value of US$7 billion. We are north of 4 million [square feet] including parking here, and we are in the US$3 billion range for construction value. We call it a mega project. It’s absolutely a large, complex, challenging, project - and exciting. In other projects, you’ve used cisterns to collect rainwater. Is that something you can do here? It absolutely is, in fact, with the amount of rainfall in Macau, any ability to manage storm water is a great opportunity and we analysed it at length. Our challenge within our project is that, comparably, we’ve got a very small site and there are a couple of other points within the MGBL [Macau Green Building Label] matrix and it was almost a tradeoff. For example to achieve storm water management or retention, you literally build these massive cisterns like we did in MGM National Harbour, but we didn’t really have the space to do that because of the size of our site, and the trade-off was, we wanted to maximize underground
Business Daily Monday, September 5 2016 7
Macau occupied space. So we gave up the ability to store storm water for occupied underground space. The reason we did that is it gives us a much better, more efficient heat-load management. Peak summer you’ve got spaces that are underground and they take less cooling to be able to occupy.
“Being compact and dense within that 16-acre footprint allowed us to stay efficient with that land use.” Is something like a large fountain wasteful? We do have some water features. We’ve kept them smaller scale and we use reclaimed water to service them, to supply them, so you can do it without it being a wasteful endeavour. Do you find that the local community is experienced and understand ecofriendly technology? Are there improvements that can be made? The way we’ve built our team, we’ve got a good number of local Macanese architects and engineers and construction managers as part of our team, and frankly our delivery of the building in its design and construction and meeting these principles has been a pleasure. The level of intelligence, the talent of the architects and engineers that work as part of our team, the work ethic, I don’t think I’ve ever come across a group that has worked longer hours and had more focus and motivation to deliver a great product than I’ve experienced here in Macau. To the point where I’d be more than happy to take this team and go to do other buildings elsewhere in the world. They’re that good. So I would say yes, the local Macanese community has not only embraced sustainability, it’s easy to think that as we go forward and as the MGBL continues to grow, it will become part of their DNA and culture as well. Are there any unusual elements that are part of this project, such as using captured CO2 emissions and mixing them into the concrete as in the MGM National Harbour project? The utilisation of concrete as a building material here is far more advanced than it is in the States. The makeup of the concrete as a material and the contractors that form the concrete, pour the concrete, cure it, they’re probably better at that than anywhere that I’ve experienced. So we learned a thing or two from the folks that actually put together the concrete mix. So we saw a lot of creative means and methods using, what I’d say, is a foreign material to us, that the local market simply just had a much stronger command of. How long do these materials last? For life expectancy, the building itself, its kind of core elements, can easily last 100 plus years, but then you’ve got a maintenance and replacement program for those other things, like a roof. A roof typically will last you 20 years. A curtain wall, with
Hunter Clayton, Executive Vice President for MGM Resorts Development, has worked on multi-million square footage mega-projects worldwide. Coming from an architectural as well as construction management background, Clayton has been in the industry for nearly three
proper maintenance would last you 30 years. So it’s kind of a varying scale depending on what you’re talking about.
building’s construction now and you can literally play the video that we did four and a half years ago, do the timelapse and they look very similar.
How resistant is the building to typhoons? Is there any maximum level or wind speed it can take? There is and it’s usually 120 kilometres an hour. There’s certain local codes that we adhere to and definitely the Macau building code caters for buildings to withstand very large typhoons. And luckily they do.
In what ways do they vary? They vary in my ability to speed up the video to make it go faster and my inability to speed up the actual construction.
Were there any natural conditions that made your job easier? Mild winters make it easier. One of our challenges in [MGM] National Harbour, is that it’s in the state of Maryland, and the building – pouring concrete, placing steel – in wintertime is very slow going. Not having to deal with snow and ice in the winter in Macau helps tremendously, although managing water during a typhoon on a construction site isn’t the easiest thing to do either. In the case of the peak period, with multiple projects happening at once, do you have an escape valve? You know the Macau labour laws and the ratios, but it’s manageable. What’s really important is understanding what the limitations are on those resources. We all understand as we start a project where the peak will come, and we know where those resources will be overleveraged. So you establish a schedule and you establish what I call a ‘critical path’ sequencing of the project, accounting for what you know to be your allotment of that labour. How much margin for error do you have to put in from the beginning, to be able to know that you can at least meet deadlines? Depending on what you’re analysing, a safety factor can be anywhere from five per cent to 25 per cent. And it’s interesting because we actually did the initial concept and we understood exactly how our building maximum was going to be. We did a construction sequencing video model that literally built from digging the hole, drilling the foundations, all the way up to completing the tower, cladding the tower, and cladding the podium, and we’re doing a time-lapse of the
decades, building everything from theme parks to airports. His past five years have been spent in Macau on the MGM Cotai mega-project, set to open in the second quarter of 2016, while also managing critical aspects of the company’s operations in the U.S. and further abroad.
In terms of completion, how far do you think you are? From a construction standpoint we’re at the mid-60 per cent level. Do you expect that there’s going to be any period where you can accelerate or decelerate? Effectively we’re accelerating everywhere that we have the opportunity to do so. The only deceleration will be, as we approach completion we can start demobilizing trades that are finished with their work. When you’re not here, are you working on projects in the U.S.? MGM National Harbour completes later this year so that’s one that we continue to spend time on and we have another casino project that’s under construction in Springfield, Massachusetts. I’m part of our core corporate development team, so I’ve got responsibility on both of those projects that I keep an eye on, but this is my primary focus. In fact, being here full-time, I manage critical aspects of those two projects more remotely, and we’ve got teams there and other project leads that pick up the slack so that I can focus my attention here full-time. As part of the Macau Green Building Label criteria it notes that the ‘building shape and façade have to be plain and simple’. How did you manage with that? For us we actually met that criteria and it was primarily because of the way our architecture is masked. It’s stacked boxes, which is fairly simple and it’s not in-your-face, high glare, neon, spotlight kind of active movement. It’s really meant to be subtle architecture. But subtle architecture is kind of a subjective term when you’re building along the Cotai strip in Macau. But we’re elegant I guess is the best way to put it – again as a subjective term - but I think for
The China Green Building and Energy Saving (Macau) Association awarded MGM Cotai a two-star certification under the China Green Building (Macau) Design Label in early August. This marks the first time a private sector project has received the
everyone who looks at our buildings and compares it to the context that we’re in, it meets the criteria. As with most industries, people in the construction industry tend to know each other. Do you see each other in the industry as competition or do you share good ideas with each other? Early on when I came to Macau and [was] trying to understand local means and methods and what’s the best way to approach delivering a project like this, I’ve got colleagues that were part of our competitors that received me and we sat down and shared notes on lessons that they’d learned, and things that they pointed out that would actually improve our chances of pushing through. It’s good to have a neighbour that you can rely on, and each of our properties are different enough to where they compliment each other and it makes for a pretty cool suite of resorts. It’s a good environment to be in. Healthy competition is good for any industry. Is there an advantage to building an economy of scale by investing in the companies that are producing the materials that you use? The better way to look at it is – to enhance that market so that there are multiple manufacturers that do the same thing. It’s about economic growth in an environmentally responsible way. Replenish-able materials, being able to use products that you take and you consume and you use, but it’s the type of a product that five years from now it replenishes itself; whether it’s a fast-growing pine tree or some other type of recyclable or reusable material. Just looking across every part of our industry and finding ways of maximizing those markets so that everyone stays competitive and everyone can make a little bit of money on that type of growth in that market or industry – it’s better for all of us. Does the China market hold more opportunities in that sense? It’s certainly bigger. The natural resources in China, just because of the vastness of China, there’s plenty of opportunity there. And more and more these days, we see those types of products becoming more available within that China market.
award and makes it the largest property in Macau to achieve the certification. The label evaluates projects in six key areas: land usage, energy, water, building materials, indoor environmental quality and operations and management.
8 Business Daily Monday, September 5 2016
Greater China Hangzhou summit
U.S., China ratify Paris climate deal, setting stage for G20 China is using the G20 to push its diplomatic agenda with a raft of bilateral meetings. Roberta Rampton and Nathaniel Taplin
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hina and the United States ratified the Paris agreement to cut climate-warming emissions on Saturday, marking a major step toward the enactment of the pact as early as the end of the year and setting the stage for other countries to follow suit. The world’s two biggest emitters of greenhouse gases made the landmark announcement as heads of state from the Group of 20 biggest economies, or G20, arrived for a summit in the city of Hangzhou, parts of which resembled a ghost town as Chinese security locked down the area.
U.S. President Barack Obama’s last scheduled trip to Asia before leaving office however got off to an awkward start. Soon after Air Force One landed, a Chinese security official blocked National Security Adviser Susan Rice on the tarmac, speaking angrily to her before a Secret Service agent stepped between the two. China has gone to great lengths to try to make the September 4-5 G20 summit a success, hoping to cement its standing as a global power, but a range of thorny diplomatic topics could overshadow the agenda. G20 leaders are likely to renew their promises to use tax and spending policies to invigorate the sluggish world economy, although a new pro-growth push was unlikely. Overcapacity in the global steel industry, a sore point for China as the world’s largest producer of the metal, barriers to foreign investment and the risk of currency devaluations to protect
export markets will also figure in the discussions. Beyond economics, there may be friction over territorial disputes in the South China Sea and a U.S.-South Korea decision to deploy a missile defence system in South Korea to counter missile and nuclear threats from North Korea. When Obama met Chinese President Xi Jinping, he told him they would have candid talks on cyber, human rights and maritime issues. Nevertheless, the climate deal set a positive tone. “Just as I believe the Paris agreement will ultimately prove to be a turning point for our planet, I believe that history will judge today’s efforts as pivotal,” Obama said after he and Xi handed ratified documents to UN Secretary-General Ban Ki-moon. “We have a saying in America that you need to put your money where your mouth is. And when it comes to
combating climate change, that’s what we’re doing. Both the United States and China, we’re leading by example.” At a joint ceremony, Xi said it “speaks to the shared ambition and resolve of China and the United States in addressing global issues”. French President Francois Hollande said it was an important step that would pave the way for the implementation of the Paris agreement at the end of the year.
Residents leave in droves
The stakes are high for China to pull off a trouble-free G20 summit, its highest profile event of the year, and security in Hangzhou was intense. Volunteer security agents prevented journalists from filming in deserted parts of the normally bustling city of 9 million people. Residents left in droves after authorities declared a week-long holiday for the summit, shut down the city’s famous West Lake beauty spot and offered free travel vouchers worth up to RMB10 billion (US$1.5 billion) to encourage people to visit out-of-town attractions. More than 200 steel mills in surrounding districts were shut as part of a bid to limit pollution. With the summit wedged in between the Brexit vote and the U.S. presidential election, G20 leaders will be keen to mount a defence of free trade and globalisation. Concerns about subdued growth will be a major concern. The world’s biggest economies have pulled out the monetary policy stops to promote growth, but central banks are now “pretty close” to the limits of their ability to stimulate economies, said Angel Gurria, head of the Organization for Economic Co-operation and Development (OECD). In the absence of “breakthrough, collective” policies, global growth was likely to remain weak, he told Reuters. “We have left our good central bankers to do all the heavy lifting.” Reuters
Carbon pollution
Beijing pledge support US President Barack Obama (L) and Chinese President Xi Jinping shake hands during their meeting at the West Lake State Guest House in Hangzhou, China, 03 September 2016.
M&A
Yum to sell Mainland’s stake ahead of spinoff The spinoff is expected on October 31, with Yum China to begin trading on the New York Stock Exchange a day later. Michael Flaherty
KFC and Pizza Hut owner Yum Brands Inc said Chinese investment firm Primavera Capital and an affiliate of Alibaba Group Holding Ltd will buy a stake in Yum China for US$460 million as Yum prepares to spin off the business. The deal gives Primavera, a powerful China-focused private equity firm founded by an ex-Goldman Sachs banker, a significant stake in Yum’s China business. It also further expands the reach of Ant Financial, which runs Alibaba’s Alipay mobile payments platform and has been expanding into China’s restaurant industry. The investors will receive warrants to buy an additional 4 per cent stake in Yum China in two tranches at valuations of US$12 billion and US$15 billion, the company said on Friday. A Yum spokesman said the use of the proceeds from the deal will be determined by the future Yum China board of directors. Yum has signalled that part of the money could go toward expanding
across China, as the company signalled last October that it hoped to nearly triple the amount of its restaurants in China to 20,000. KFC and Pizza Hut brands reaped the
rewards of catering to China’s booming economy, with patrons flooding the restaurants that offered fast Western food, a higher level of service and perceived food safety. But Yum’s China business has hit road blocks in recent years, including a scandal at a minor meat supplier and bird flu outbreaks. Yum, still the largest fast-food chain in China, has also been losing ground to McDonald’s Corp. The Louisville, Kentucky-based company’s move to separate its China business followed pressure last year from one of its largest investors, Corvex Management, the activist hedge fund run by Keith Meister. Meister is on Yum’s board. Primavera will invest US$410 million, while Ant Financial, which runs Alibaba’s Alipay mobile payments platform, will put in US$50 million. China’s sovereign wealth fund and New York private equity firm KKR & Co were also in the hunt for a Yum China stake. Primavera’s founder, Fred Hu, will become non-executive chairman of Yum China’s board. Goldman Sachs is financial adviser, while Wachtell, Lipton, Rosen & Katz are legal adviser to Yum Brands and Yum China. Simpson Thacher & Bartlett LLP and Fangda Partners are legal advisers to Primavera and Ant. Reuters
Carbon offsetting will cost o of total revenue from intern beginning in 2025. China, the United States and Europe all pledged support on Saturday for a new deal to curb carbon dioxide emissions by airlines which is due to be finalised at a meeting of the UN’s International Civil Aviation Organisation (ICAO) in September and is expected to go into effect from 2021. Aviation was excluded from last December’s climate accord in Paris when countries agreed to limit the global average rise in in temperatures to “well below” 2 degrees Celsius above pre-industrial levels. The proposed new deal on aviation, which aims to cap the carbon pollution of all international flights at 2020 levels will be voluntary between 2021 and 2026 and then mandatory from 2027 for the world’s largest emitters. Airlines in participating countries would need to limit their emissions or offset them by buying carbon credits from designated environmental projects around the world. ICAO has estimated that carbon offsetting will cost operators 0.2-0.6 per cent of total revenue from international aviation beginning in 2025, and 0.5-1.4 per cent from 2035. “Today, the United States and China are expressing their support for the ICAO Assembly reaching consensus on such a measure,” the two countries said in a joint statement earlier on Saturday. The statement, released ahead of a G20 summit in the Chinese coastal city of Hangzhou, said both countries “expect to be early participants in the measure and volunteer to join”.
Business Daily Monday, September 5 2016 9
Greater China G20 summit
In Brief
Nation must rely on reforms to keep fast economic growth The United States has been pressuring China to step up its efforts to reduce excess industrial capacity. China must rely on reforms to help maintain a medium-to-high rate of economic growth over the long term, Chinese President Xi Jinping said on Saturday, as the country undergoes structural changes, including reductions in excess factory capacity. Speaking to a business forum on the eve of a summit of leaders of the world’s 20 biggest economies in Hangzhou, Xi said the G20 should combine monetary and fiscal policies with structural reforms to promote growth, and warned that isolationism could not resolve problems faced by the global economy. “We must rely on reforms to maintain
a medium- to high-speed economic growth rate ... hanging back will lose opportunities,” Xi said. “China has made clear the direction of its reforms and it will not waver; reform steps will go forward, not slow down.” Xi said plans to cut excess capacity in the steel and coal sectors were based on consideration of China’s long-term growth and structural adjustments. “In regard to capacity cuts, China’s measure is the strongest and most practical, and we will fulfil our promises,” Xi said. Xi pledged to break through resistance from vested interests to forge ahead with changes, with the aim of
letting market forces play a decisive role in allocating resources. China would continue to push yuan internationalisation and gradually open up the capital account, he said. The global economic recovery remained weak and G20 countries should take steps to revive trade and investment, Xi said, pointing to challenges including the refugee crisis, climate change and terrorism. At a time when China has rattled nerves around the region with its increasingly assertive stance on disputes like the South China Sea, and ambitious military modernisation programme, Xi said China was committed to peaceful development. “To seek harmony and coexistence has been in the genes of the Chinese nation throughout history, and it represents the very essence of eastern civilization,” he said. “The logic that a strong country is bound to seek hegemony no longer applies, and the wilful use of force will lead nowhere.” Reuters
M&A
Government probes with Uber-Didi deal China’s commerce ministry is investigating the planned acquisition by ride-hailing firm Didi Chuxing of U.S. rival Uber Technologies Inc’s China unit over anti-monopoly concerns, the ministry’s spokesman said on Friday. Shen Danyang told reporters the Ministry of Commerce would look to protect fair market competition and consumer interests in the deal, which will create a roughly $35 billion giant dominating China’s car-hailing market. It is unclear how the investigation could affect Didi’s planned acquisition and subsequent integration of Uber’s China unit, already the top two players in the market. That had raised monopoly concerns as Didi claims an 87 per cent market share. ChiNext
Watchdog plans to improve securities vetting process China’s securities watchdog said on Friday it plans to reduce the number of regulators responsible for vetting securities issuance on the country’s growth board in a bid to improve efficiency. The China Securities Regulatory Commission (CSRC) said on its official microblog it plans to reduce the number of members on the Stock Issuance Examination and Verification Committee for the ChiNext board to 25 from 35, as part of reforms to the vetting process. There are 531 companies listed on the start-up ChiNext board, compared with more than 1,100 publicly traded on Shanghai’s main board.
Chinese President Xi Jinping attends the opening ceremony of B20 Summit ahead of G20 Summit, in Hangzhou
Monopoly investigation
t for global aviation emissions pact
operators 0.2-0.6 per cent national aviation In a separate statement, the European Civil Aviation Conference (ECAC), a grouping of the EU and 16 other countries, said it would join the market-based plan from the outset and urged all other major airline operating states to do so. Participation by China, which as a developing country has traditionally been opposed to any binding emissions regime for its industries, is considered crucial to any deal, and experts say they expect it to favour Chinese airlines at least in the initial phase. “It is not an issue for China to sign up for the ICAO deal, as the mitigation actions are voluntary until 2026,” said Chai Qimin, a researcher with China’s National Center for Climate Change Strategy and International Cooperation (NCSC).
Chai said the deal could also favour China by giving it a lower share of all emissions that must be capped starting from 2020, but its participation would still depend on whether other countries could agree on terms. China has been concerned that attempts to force its planes to buy carbon credits would represent a violation of the “common but differentiated responsibility” principle that says developed countries should take the lead in cutting emissions. Negotiations are expected until the ICAO meets on September 27. “There are a lot of details that will determine the level of ambition,” said Li Shuo, climate adviser with Greenpeace. While China had been more “progressive” when it came to the Montreal protocol and the phasing out of CFCs, it was showing fewer signs of movement on aviation, he said. Annie Petsonk, international counsel at the Washington D.C.-based Environmental Defense Fund, said 80-90 per
cent of emissions above 2020 levels would need to be covered by the agreement for the civil aviation sector to hit a long-term target of carbon-neutral growth. As an aviation powerhouse, China’s participation in the deal’s initial voluntary phases from 2021 to 2026 would likely be required to hit that 80 per cent target, according to calculations by the non-profit International Council on Clean Transportation. The council’s Dan Rutherford has said China’s absence from first phases “would definitely be a big hole in the coverage”. On Thursday, the European Commission’s director-general for transport urged countries to join the deal. “Our aim must be also to try to maximize the coverage and to try to have all the key aviation nations opting in,” said Henrik Hololei during an environment committee hearing. China declined to cooperate with EU efforts to compel international airlines to buy carbon credits from its emissions trading scheme to cover flights into European airports, forcing the EU to suspend the plan. European legislators also remain sceptical of the draft ICAO resolution, arguing it falls short of EU ambitions. Some members of the EU parliament say the draft does not go far enough to justify extending the exemption for international flights from the EU’s own aviation emissions trading scheme beyond 2016. The EU has to decide whether to continue exempting international flights by the end of the year. The Civil Aviation Administration of China would not comment on China’s position, but Chai Haibo, vice-general secretary of the China Air Transport Industry Association, said the industry would support whatever decision the government made. Reuters
Anti-trust probe into Comcast, DreamWorks deal China’s commerce ministry will launch an anti-monopoly probe into Comcast Corp’s planned purchase of DreamWorks Animation after receiving unspecified complaints that the U.S. media deal could hurt competition in the Chinese market. The investigation comes as China’s anti-trust watchdog has hardened its stance on companies striking deals without seeking its clearance, with the body naming, shaming and fining almost a dozen firms over the past year for “gun-jumping”. Comcast, owner of NBCUniversal, said in April it would pay US$3.8 billion to buy DreamWorks, which was also one of the first Hollywood names to open a production studio in China. Commerce
Customs duties on 201 IT products slashed China will gradually eliminate customs duties for 201 information technology products covered by a US$1.3 trillion World Trade Organization (WTO) deal under a bill passed on Saturday by its legislature, state news agency Xinhua reported. The bill, approved by the Standing Committee of the National People’s Congress, ratifies an amendment to a tariff concession schedule of China’s WTO accession protocol. The ratification is part of the first global tariff-cutting deal in 18 years. The WTO finalized the list of 201 IT products to be freed from import tariffs in July 2015.
10 Business Daily Monday, September 5 2016
Greater China Real estate
Home prices seen up on strong demand Housing inventories has been falling slowly despite strong sales this year.
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hina’s home prices are expected to rise 10 per cent this year due to robust demand, but will nearly stall in 2017 as more cities try to curb sharp price rises, a Reuters poll found. A booming housing market and government infrastructure spree helped the world’s second-largest economy grow faster than expected in the second quarter, benefiting the construction industry and companies that sell building materials from steel to cement.
China’s average nationwide home prices are expected to rise 10.0 per cent in 2016 from a year ago, according to the median of forecasts from 11 analysts. That is significantly higher than the 6.3 per cent gain predicted in the last poll conducted in June. A n a l y s t s c i t e d f av o u r a b l e macroeconomic policies and hot demand in more developed cities as some of the reasons behind the strong price rises. “In general, current credit policy is still relatively relaxed, and this is the reason behind the price rises in
first- and second-tier cities,” Home Link Research analyst Xu Xiaole said. Other analysts believed that although price rises in first- and second-tier cities have already been “oppressed” to some extent by cooling measures, capital will keep flowing into the property market given Chinese have few other good investment options. That said, analysts surveyed do expect more cities to impose curbs on home purchases this year, such as higher mortgage downpayments, as continued price rises raise fears of overheating and property bubbles. Though home price rises in China’s biggest cities showed signs of easing in July from June, they have posted
“In general, current credit policy is still relatively relaxed, and this is the reason behind the price rises in firstand second-tier cities” Xu Xiaole, Home Link Research analyst
eye-popping gains on a year-onyear basis, with southern boomtown Shenzhen rising nearly 41 per cent. Prices in Beijing and Shanghai were up 20.7 per cent and 27.3 per cent on-year, respectively. Poll respondents believed the enthusiasm for home purchases in bigger cities will persist, and falling inventories likely will drive up prices. Secondary markets with continuous population inflow or located near the country’s largest cities, such as Wuhan, Hangzhou and Nanjing, also will see strong price growth for the remainder of this year. But prices in third- and fourthtier cities are likely to underperform due to high in ven tories an d sluggish demand. Nearly half of the respondents believed it would take over two to five years for inventories to clear with situations in less developed cities a particular worry. Housing inventories has been falling slowly despite strong sales this year. Almost all of the 11 respondents thought property investment would remain low through the end of this year, with a median forecast of 4 per cent, after growing just 1 per cent last year. Property investment in JanuaryJuly rose 5.3 per cent from a year earlier, official data showed, slowing from an increase of 6.1 per cent in January-June. Poll respondents see Chinese home prices as expensive. On a scale of 1 to 10, where 1 is extremely cheap and 10 is extremely over-valued, the median reply was 8, slightly higher than 7 in the last poll. Reuters
Infrastructure
UK’s Prime Minister defends delay on Beijing-backed nuclear power plan She is expected to ask Britain’s National Security Council to look at broader relations with China. British Prime Minister Theresa May (pictured) yesterday defended her decision to delay a partly Chinesefunded nuclear power deal, despite it causing diplomatic tension with China as she landed in the country to attend a G20 summit. In July, May upset Chinese officials by delaying a US$24 billion project that would see French firm EDF build Britain’s first new nuclear power plant in decades with the help of US$8 billion from China. The decision caught investors by surprise and has cast doubt over whether May, who took power in July following Britain’s vote to leave the European Union, will continue to court China as a major source of infrastructure investment. “This is the way I operate,” May told reporters on board her official plane on the way to Hangzhou for
the summit, which will include a one-to-one with Chinese President Xi Jinping. The summit is May’s first visit to China. “I don’t just come in and say ‘I’m going to take a decision’ - I actually look at the evidence, weigh up that evidence, take the advice and consider that and come to my decision.” A final decision is expected later this month. May is reportedly concerned about possible national security risks of allowing China to invest in nuclear projects, with the EDF plant being seen as a gateway to a deal that would pave the way for Chinese involvement in another two nuclear plants. She is expected to ask Britain’s National Security Council to look at broader relations with China to fully understand the extent of the bilateral relationship.
Asked whether she trusted China, May said: “Of course we have a relationship with them, we’re working with them... what I want to do is build on that relationship.” But, she also stressed a need to
broaden the group of nations that Britain can trade with and tap for cash to help reinvigorate its power, transport and technology infrastructure. “This is the G20, this is about talking to a number of world leaders. I’m going to give the message that Britain is very much open for business... I want to be talking about the opportunities for free trade around the world.” Reuters
Business Daily Monday, September 5 2016 11
Asia In Brief Moody’s
Fiscal reform to reduce local gov’t deficits China’s ongoing intra-governmental fiscal reform will reduce local government deficit, rating agency Moody’s said this week. China’s central and local governments must spend their fiscal revenue on public services. However, this puts pressure on some local governments, particularly those in poor areas. Last month, the State Council announced that by 2020 it would clarify budget responsibilities by reclassifying all fiscal expenditures into three groups - central government, local government, and both local and central. The central government will be responsible for spending items beyond regional borders and it will also share some existing responsibilities with local governments. Xi Jinping
BRICS should coordinate more
Households debt
Consumers take credit for boom in car loans Several Chinese carmakers also reported a significant impact from financing activity on their accounts for the first half of 2016. Jake Spring
Chinese households, traditional savers with an aversion to debt, are rapidly warming to the idea of borrowing to buy a car, as automakers push financing deals to boost sales and margins in an increasingly competitive market. Nearly 30 per cent of Chinese car buyers bought on credit last year, up from 18 per cent in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after a sticky 2015. That is welcome news to China’s government, which wants consumers to borrow and spend more to shift its slowing economy away from heavy industry and investment-led growth. Beijing resident Wang Danian said he planned to buy his first car on credit, saying it was the smart move. “I can use my cash to do other things,” the 28-year-old said while looking at an FAW Besturn X80 sport utility vehicle. “If I use all my savings at once to buy a car, and then something happens, I can’t manage the risk.” Six consumers interviewed by Reuters said they would all consider loans, lured by low-fee and interestfree deals, with half saying they’d prefer to buy on credit and save cash for other items. “I’d estimate after the manufacturer came out with the low-interest deal that about 30 per cent of potential cash buyers switched to buying on credit,” said a salesman at a Volkswagen dealership in eastern China’s Jiangsu province who gave his name as Mr. Zhao. That is still a far cry from the more than 80 per cent of cars bought on loans in the United States, but Deloitte predicts China will reach 50 per cent by 2020. Global automakers have struggled to encourage this trend for some time; Volkswagen established its finance
subsidiary in 2004, but was held back by strict regulations on underwriting loans and sources of funding. As the government gradually relaxed those restrictions over the last seven or eight years, financed purchases have grown, with Daimler’s Mercedes saying more than 30 per cent of its cars in China are now bought on credit, and it reported 31 per cent year-on-year growth in net lending as at the end of July.
Key Points 30% of cars bought on credit in 2015, vs 18% in 2013 -analysts Deloitte expects cars bought on finance to reach 50% by 2020 Rebound in car sales at end-2015 helped by credit push -analyst China’s auto market struggled last year thanks to the slowest economic growth in 25 years and a stock market rout, but rebounded in October when the government cut sales tax on smaller cars. By July, vehicle sales were rising at their fastest monthly rate in three and a half years. “While the government’s tax reduction was the most obvious explanation for the rebound in Chinese car sales at the end of 2015, soaring auto financing penetration represented another, lesser noticed, driver of the boom,” Bernstein said in April.
Default risks
More Chinese automakers jumped into the loans market last year, with Guangzhou Automobile Group and Geely setting up financing firms. Several Chinese carmakers also reported a significant impact from financing activity on their accounts for the first half of 2016. SAIC Motor Corp, China’s largest automaker, said its net operating
cash flow dropped by RMB16.6 billion(US$2.5 billion) from the same period a year ago, as money was diverted to its financing unit for consumer loans. Dongfeng Motor Group similarly reported a RMB3.6 billion year-onyear fall in net cash flow due to an increase in loans and receivables of its financial business. Great Wall Motor recorded a 140 per cent increase in interest income, mainly because of its finance subsidiary. BYD, backed by Warren Buffett’s Berkshire Hathaway, said with 13.6 per cent of its sales done on credit, financing was already making considerable contribution to its profits. Controlling the risk of default on these loans can be difficult in China, where there isn’t a reliable credit rating system for individuals comparable to the U.S., said Yale Zhang, managing director of consultancy Automotive Foresight in Shanghai. “You cannot spend one month to investigate one person and then in the end you only land RMB100,000,” Zhang said. That got the sector into trouble when China previously tried to pump up car sales through loans after the Asian financial crisis of the late 1990s. A lack of risk control resulted in widespread defaults and a government clampdown for several years in the mid-2000s, he said. “It arguably remains open to question whether Chinese auto ( n o n - p e rf o r m i n g l o a n s ) w i l l remain similarly low, should macro conditions deteriorate,” Bernstein said in April, observing low delinquency rates thus far. Chinese e-commerce giant Alibaba, which last year inked a collaboration deal with China Yongda Automobiles Services, says it can address this risk thanks to ‘big data’ it has on its customers, including their credit records. The company’s auto web portal offers “instant automobile financing”, approving loans in as little as 20 seconds, a spokeswoman said. Reuters
Chinese President Xi Jinping said yesterday that BRICS members should enhance coordination to make emerging-market economies and developing countries play a bigger role in international affairs. Since the beginning of this year, the cooperation among BRICS countries Brazil, Russia, India, China and South Africa - has maintained sound momentum of development with expanded scope and more outcomes, Xi said while attending a BRICS leaders’ meeting on the sidelines of a summit of the Group of 20 (G20) major economies in Hangzhou. Urban development
Beijing unveils key infrastructure projects Beijing has unveiled 10 major infrastructure construction projects for the coming five years to address some of the challenges faced by the overcrowded metropolitan area. The projects cover transportation, water supply, sewage, the environment and green energy, according to a plan on Beijing’s major infrastructure development for the 13th Five-Year Plan, released by the municipal commission of development and reform Friday. From now until 2020, Beijing will improve and develop public and green transportation: subway and light rail track will exceed 900 km kilometers. Meanwhile, a network of 3,200 km of bike lanes will be built. M&A
V-Grass to buy Korean fashion brand Teenie Weenie South Korea apparel and retail firm E-Land Group is selling a youth clothing brand to China’s V-Grass Fashion Co Ltd for nearly US$900 million, cashing in on a boom in Korean fashion and cosmetics China to raise funds to cut debt. E-Land, South Korea’s biggest apparel retailer, said on Friday it expected to close the sale of its Teenie Weenie business for around 1 trillion won by the year-end. It said the sale will help cut its debt-to-capital ratio by about a third. The Teenie Weenie deal comes amid surging demand in China for Korean products.
12 Business Daily Monday, September 5 2016
Asia In Brief Pharmaceutical sector
Cambodia holds health industry expo The second international exhibition on pharmaceutical and medical products kicked off yesterday with an aim of promoting the development of this nascent industry. Held at the Diamond Island’s Exhibition Centre, the two-day event brought together more than 50 international enterprises from 11 countries and a region, said Heng Bunkiet, director of the Department of Drugs and Food at the Ministry of Health. He said currently there are 16 pharmaceutical factories in Cambodia and 332 companies importing and distributing healthcare and pharmaceutical products in the country. Energy industry
South Korea, Kenya to cooperate on nuclear energy
GDP
South Korea revised growth better than estimated July factory output declined 0.6 per cent from June, while inflation slowed to a one-year low in August
S
outh Korea’s economy grew 0.8 per cent in the second quarter, revised data from the Bank of Korea showed on Friday, but third quarter growth faces downside risks including from delays in ratifying a much-anticipated supplementary budget. The June quarter’s 0.8 per cent expansion is marginally better than a 0.7 per cent rise estimated earlier by the bank. In annual terms, growth was at 3.3 per cent, also slightly above an earlier estimate of 3.2 per cent. Friday’s figures come as production and inflation data from July onwards show the economy may
fail to rebound and even decline, hit by sluggish exports and weak consumption. A finance ministry official said growth was likely to slow in the third quarter from the second as a temporary tax cut on cars expired. Still, he expected the economy to post about 2.8 per cent growth this year, in line with the government forecast. Approval of a supplementary budget would protect the economy from a sharp downturn, he added, assuming that the ruling and opposition parties approve the 11 trillion won spending shortly, as agreed at the parliament’s budget committee. Approval has been delayed as parties
State-run utility Korea Electric Power Corp (KEPCO) on Friday agreed a deal on developing nuclear energy in Kenya, as the African nation looks to broaden its sources of electricity. The company and the Kenya Nuclear Electricity Board (KNEB) signed a memorandum of understanding to cooperate on the construction of nuclear projects and sharing expertise, South Korea’s energy ministry said in a statement. East Africa’s largest economy aims to add nuclear power with a total capacity of 4,000 megawatts by 2033, the ministry said.
Thai government has ordered a crackdown on zero-dollar tour operators and instructed officials to root out the illegal operation network without fear of any vicious power, local media reported Saturday. Prime Minister Prayut Chan-ocha feels strongly that the zero-dollar tour operations have rendered huge losses to the country and have tainted the image of the Thai tourism industry, according to Thairath. Prayut’s words came after tourist police’s raid on Thailand’s biggest zero-dollar tour network last Friday. They busted five Bangkok companies allegedly operating illegal, poor-quality package tours and related businesses. Technology
LG Electronics says to invest in robot technology South Korea’s LG Electronics Inc said yesterday it will aggressively invest in robots, seeking to capitalise on advancing artificial intelligence that may eventually lead to sophisticated machines performing everyday human tasks. LG, in a statement, said its appliances division is preparing the firm’s entry into the robotics industry with the aim to develop products that will work closely with home appliances products such as refrigerators, washers and air conditioning units. Advances in fields such as artificial intelligence and wireless communications are allowing for more sophisticated machines that can talk to each other via the Internet and perform more complex tasks.
Q2 GDP +0.8 pct s/adj q/q vs +0.7 pct estimate earlier Q2 GDP +3.3 pct q/q vs +3.2 pct estimate earlier Construction investment jumps 3.1 pct q/q Finance ministry official says sharp downturn unlikely this yr
Monetary policy
Bank of Japan will debate measures against yield curve flattening Country’s yield curve flattened markedly after the BOJ in January adopted negative rates. Leika Kihara
The Bank of Japan’s (BOJ) policy review this month will debate unintended consequences of its stimulus programme such as a flattening yield curve and potential pitfalls of its purchases of exchange-traded funds, sources familiar with the plans said. The central bank may fine-tune its policy tools to address problems at its September 20-21 rate review, for example by making its bond buying more flexible, according to the sources, who insisted on anonymity. But they added that there is no consensus yet on what the best approach would be. A final decision may not come until days before the review as the nine-member board is divided on whether there is room left to expand stimulus, the sources said. “The key is to explain why the yield curve has flattened so much just by adding negative rates to asset purchases,” said one. “There may be room to consider steps to address this.” Earlier, BOJ board member Makoto Sakurai told Reuters the yield curve has flattened more than expected. “One thing we could consider as a policy option is ways to change the shape of the yield curve.” The debate on the costs of its policies will complement a more prominent element of BOJ comprehensive
review, which is to defend its stimulus that combines negative interest rates with huge asset purchases.
Worries not dispelled
Japan’s yield curve flattened markedly after the BOJ in January adopted negative rates, surprising policymakers who did not expect super-long yields to fall so much in response to a step aimed at reducing shortterm rates. The curve has steepened somewhat recently. But the uptick in yields has failed to dispel worries by some central bankers that narrowing margins will hurt commercial banks and impede Japan’s financial intermediation. However, intentionally steepening the yield curve won’t be easy. Some
policymakers favour changing the base money target, which commits to printing money at an annual pace of 80 trillion yen (US$772 billion), to a range. They say this would give the BOJ more flexibility in bond buying. But critics fret that setting a range, such as 70-90 trillion yen, may give markets the impression the BOJ is having trouble buying bonds and might taper future purchases. Another idea is to set an interest rate target, though this would face opposition from advocates of base money targets such as Deputy Governor Kikuo Iwata. The BOJ’s decision in July to double its purchases of exchange-traded funds (ETF) has given rise to another headache that may be discussed this month. While the BOJ doesn’t reveal details of its buying, analysts say it disproportionately benefits a handful of high-priced shares with heavy weightings in the Nikkei average. The BOJ may discuss making some technical changes helping level out any discrepancies as part of a broader debate on how its policies affect markets, the sources said. 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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Key Points
corporate restructuring is picking up, which should have negative spillover effects on the broad economy,” it said. A government-led restructuring of debt-ridden shipbuilding and shipping industries is an on-going concern for an economy centred on manufacturing and exports. Hanjin Shipping Co., the nation’s largest container shipping company, applied for court receivership this week after lenders halted financial support. Finance minister Yoo Il-ho said on Wednesday that the government will take measures to minimise the economic and industrial impact from the Hanjin case. Reuters
Tourism
Thailand determined to wipe out zero-dollar tour network
contested political issues. “Judging from the full set of data, we maintain the view that GDP growth will slow to about 2.5 per cent in Q3 from 2.9 per cent in Q2,” DBS Group Research wrote in a report. “More downside risks will lie ahead in the fourth quarter. The progress of
Business Daily Monday, September 5 2016 13
Asia Final speech
Governor argues for independent Indian central bank Rajan’s successor Urjit Patel inherits accelerating inflation and slowing economic growth. Santanu Chakraborty
India must have a strong and independent central bank to ensure macroeconomic stability in the world’s fastest-growing major economy, Reserve Bank of India Governor Raghuram Rajan (pictured) said a day before his term ends.
“In a poor country like India where so many people live at the margin, the role of the central bank was to ensure that growth did not exceed the country’s potential” Raghuram Rajan, Reserve Bank of India Governor
“The central banks should be independent and should be able to say no to seemingly attractive proposals,” Rajan said in a speech in New Delhi on Saturday. “Multiple layers of scrutiny, especially by entities that do not have the technical understanding, will only hamper decision making.”
Rajan is set to return to academia after steering the biggest overhaul yet of the 81-year-old central bank, including a switch to inflationtargeting under a monetary policy committee that’s due to be set up in the weeks ahead. He also pressured lenders to reveal the true scale of soured loans, lifting the lid on a US$120 billion mountain of bad debt that banks are struggling to reduce. Apart from shaking up the central bank, Rajan was outspoken on social issues such as corruption and the need for religious tolerance, angering
some members of Prime Minister Narendra Modi’s ruling party. The government framework that RBI operates on reduces the space for differences, and it was important that the constitutional authorities clearly outlined the central bank’s responsibilities, Rajan said. Rajan’s successor Urjit Patel, currently a deputy governor at the monetary authority, inherits accelerating inflation and slowing economic growth. Gross domestic product expanded 7.1 per cent in the April-June quarter from a year earlier, the fastest among major economies but the slowest pace for India since early 2015. “In a poor country like India where
so many people live at the margin, the role of the central bank was to ensure that growth did not exceed the country’s potential, adopting prudential policies that reduce the risk, and building sufficient buffers that the country was protected against shocks,” Rajan said. Consumer-price inflation breached 6 per cent in July, exceeding Rajan’s 5 per cent target for March. He left the benchmark repurchase rate at a fiveyear low of 6.5 per cent in August. There’ll be room to cut borrowing costs only if inflation is projected to fall, the monetary authority said in an annual report on August 29. The next scheduled policy review is in early October. Bloomberg News
14 Business Daily Monday, September 5 2016
International In Brief Energy sector
Russia says Japanese banks interested in LNG projects Japanese banks may take part in financing of several liquefied natural gas projects led by Russia’s Novatek and Gazprom, Russian Economy Minister Alexei Ulyukayev said on Saturday. Speaking on the side-lines of a business forum in the Russian Far East city of Vladivostok, Ulyukayev said that the Japan Bank for International Cooperation and Nippon Export and Investment Insurance (NEXI) are interested in Novatek’s Arctic LNG-2 project and Gazprom’s Sakhalin-2 LNG expansion. “We are talking about credit in dollars, but yen can also be used,” Ulyukayev told journalists. Official data
Weak global economy weighing on U.S. factories U.S. Labor Secretary Thomas Perez said on Friday the U.S. economy was enjoying solid job and wage growth, but that a weak global expansion and strong U.S. dollar were hurting the factory sector. “When you have the global economy not recovering the way our economy is and when you have that strong dollar, when you’re making things to sell to other countries they are now more expensive and the demand for those products ... is not what it needs to be,” Perez told CNBC. “Those are the headwinds that we’re seeing in manufacturing.”
OECD
Central banks nearing limits of ability to stimulate growth Organization’s head said that China likely could continue growing at around 6.5 to 7 per cent during its current five-year plan period. Nathaniel Taplin
T
he world’s central banks are “pretty close” to the limits of their ability to stimulate economies, Angel Gurria, head of the Organization for Economic Co-operation and Development (OECD), said on Saturday. In the absence of “breakthrough, collective” policies, global growth is likely to remain weak, Gurria said in an interview with Reuters ahead of a meeting of leaders of the world’s 20 biggest economies, the G20, in the eastern Chinese city of Hangzhou. “We have left our good central bankers to do all the heavy lifting,” said Gurria. “It has to be like a relay. Continued accommodative monetary policy, and then you get to the second relay like in the four-by-100s and the baton passes. “Now you need to get it to the finance ministers, to the economy ministers, to the trade ministers, to the technology ministers, the science ministers, the education ministers, the competition ministers.
Now is the big time for structural change.” Echoing remarks by China’s vice finance minister on Friday, Gurria emphasized that a combination of coordinated monetary, fiscal and structural adjustment policies are now necessary to revive growth worldwide, including in China. Nonetheless, he was relatively upbeat on the outlook for China’s growth, despite a rising debt burden and mixed progress on tackling low efficiency and overcapacity in key state-owned sectors. Gurria said that China likely could continue growing at around 6.5 to 7 percent during its current five-year plan period (to 2020) without major distortions in the structure of the economy.
Multinational tax policy
In separate remarks to Reuters, Pascal Saint-Amans, the director of the OECD’s Center for Tax Policy and Administration, addressed the thorny issue of multinational corporate tax liability, which the European Commission’s recent decision
Growth
UK economy expands at steady pace Britain’s economy appears to have largely avoided a big hit from the Brexit vote in June and is growing at a steady pace while companies have grown slightly more optimistic about the outlook, the Confederation of British Industry said yesterday. The CBI’s growth indicator rose to +8 in August from +5 in July when Britain was in the grip of a political crisis triggered by the decision by voters to leave the European Union. Consumer services companies grew moderately in the three months to August while manufacturers expanded more slowly, the survey of 833 companies showed. Monetary policy
Draghi to meet German lawmakers European Central Bank President Mario Draghi will address a German parliamentary committee on September 28 to discuss monetary policy, a spokeswoman for the bank said on Saturday. Draghi will give a short speech to the European committee of the German Bundestag, followed by questions, the Frankfurter Allgemeinen Sonntagszeitung reported in its yesterday’s issue, quoting the head of the committee, Gunther Krichbaum. Krichbaum told the paper, which first reported the date for the meeting, that the finance and budget committees would also take part, but Finance Minister Wolfgang Schaeuble would not attend.
Director-General of the World Trade Organization Roberto Azevedo, Managing Director of the International Monetary Fund Christine Legarde, President of the World Bank Jim Yong Kim, Director General of the United Nations Industrial Development Organization Li Yong, and Secretary-General of OECD Angel Gurria attend the opening ceremony of B20 Summit ahead of G20 Summit
against Apple Inc has brought back into sharp relief. The European Commission said this week that Apple owed up to 13 billion euros (US$14.50 billion) of back taxes to Ireland based on existing regulations, a decision that both Apple and Ireland, which relies on low taxes to attract investment, have vowed to fight.
“We have left our good central bankers to do all the heavy lifting” Angel Gurria, head of the Organization for Economic Co-operation and Development
Apple employs a hybrid tax structure in Ireland for its overseas profits, Saint-Amans said, which enables it to dramatically reduce its tax burden by avoiding full tax residency in either the U.S. or Ireland. Many other multinationals use similar strategies to reduce their global taxation. “You end up having hundreds of billions of profits in the middle of the Atlantic,” said Saint-Amans. “This type of aggressive tax planning is outrageous and it’s precisely because of this type of planning that we launched BEPS.” BEPS refers to tax “base erosion and profit sharing,” and the OECD has launched an aggressive initiative to crack down on it. U.S. lawmakers have also raised concerns that the case represents an attempt by Europe to encroach on the potential U.S. tax base. Nonetheless Saint-Amans, a leading force behind the OECD’s push to rationalize international tax policy, said that he did not believe the case was likely to serve as a precedent for tax treatment of future multinational profits. Those, he said, would likely be regulated under OECD’s emerging framework for cracking down on corporate tax evasion, which both the European Union and the U.S. have been a party to. Reuters
Salary evolution
U.S. wage growth moderates The timing of the next rate hike also to be determined by wage growth U.S. employment growth slowed more than expected in August after two straight months of robust gains and wage gains moderated, which could effectively rule out an interest rate increase from the Federal Reserve this month. Nonfarm payrolls rose by 151,000 jobs last month after an upwardly revised 275,000 increase in July, with hiring in manufacturing and construction sectors declining, the Labour Department said on Friday. The unemployment rate was unchanged at 4.9 per cent as more people entered the labour market. Last month’s jobs gains, however, could still be sufficient to push the Fed to raise interest rates in December. The rise in payrolls reinforces views that the economy has regained speed after almost stalling in the first half of the year. The report comes more than two weeks before the U.S. central bank’s September 20-21 policy meeting. Rate hike probabilities for both the September and December meetings rose after remarks last Friday by Fed Chair Janet Yellen that the case for raising rates had strengthened in
recent months. The Fed lifted its benchmark overnight interest rate at the end of last year for the first time in nearly a decade, but has held it steady since amid concerns over persistently low inflation.
Key Points Nonfarm payrolls increase 151,000 in August Unemployment rate holds steady 4.9 per cent Average hourly earnings rise 0.1 per cent The step-down in employment comes after the economy created a total of 546,000 jobs in June and July. With the labour market near full employment and the economy’s recovery from the 2007-09 recession showing signs of aging, a slowdown in job growth is normal. Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth.
The smaller-than-expected rise in payrolls also likely reflects difficulties adjusting the data for seasonal fluctuations. Over the last several years, the government’s August payrolls estimates have been weak only to be subsequently revised higher. The timing of the next rate hike could also be determined by wage growth. Average hourly earnings increased three cents or 0.1 per cent in August after a solid 0.3 per cent rise in July. The moderation in gains, which reflects a calendar quirk, pulled down the year-on-year gain to 2.4 per cent from 2.6 per cent in July. Americans worked fewer hours last month, with the average workweek dipping to 34.3 hours from 34.4 hours in July. Other details of the report showed the labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, unchanged at 62.8 per cent last month. The participation rate remains near multi-decade lows, in part reflecting demographic changes, and economists say this partially explains why wage growth has been sluggish. The solid payrolls gain added to July consumer spending, residential construction and durable goods orders in suggesting a pick up in economic growth after output rose 1.0 per cent in the first half of the year. Reuters
Business Daily Monday, September 5 2016 15
Opinion Business Wires
Taipei Times Thousands of retired and active (Taiwanese) civil servants, public-school teachers and military personnel took to the streets in Taipei on Saturday, demanding that the government abstain from targeting them in planned pension reforms. In the first massive demonstration since President Tsai Ing-wen took office in May, protesters spilled from Ketagalan Boulevard onto Zhongshan S Road and several other roads blocks away, with the Taipei Police Department estimating that about 117,000 attended, while organizers claimed there were more than 250,000 participants. Former premier Hau Pei-tsun marched in his capacity as a former army general, while several KMT legislators and city councilors also took part.
Swiss watches, corruption battles and the high price of Facebook shares
The Korea Herald Samsung Electronics Co. has begun the U.S. exchange program for the Galaxy Note 7 smartphones amid concern over a battery problem, the local sales arm of the South Korean tech giant said. On Friday, Samsung announced its findings that some of the new devices that went on sale two weeks ago caught fire due to a “battery cell issue.” Samsung announced a global recall of all Galaxy Note 7 phones sold worldwide in a quick and bold response. “Samsung is taking a proactive approach to address customer needs around the Note 7,” Tim Baxter, president of Samsung Electronics America, said.
Philstar New York-based business magazine Global Finance has named Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. as one of the world’s top central bankers for the eighth time despite volatile financial markets overseas. Tetangco again earned a prestigious “A” grade on Global Finance’s Central Banker Report Cards together with eight other heads of central banks all over the world. Other heads of the central banks who received “A” grade were from Israel, Lebanon, Paraguay, Peru, Russia, Taiwan, and the United Kingdom. The central bankers of Jordan, Mexico, Morocco, and the US earned “A-” grades.
The Times of India With just four weeks remaining for the black-money disclosure scheme to close, the government has given declarants an option to declare their undisclosed income through electronic filing rather than physical presentation of documents. The Central Board of Direct Taxes has provided declarants under the Income Disclosure Scheme (IDS) the option to file declarations electronically. Under the IDS scheme, an opportunity is provided to people who have not paid full taxes in the past to come forward and declare their undisclosed income and assets.
D
espite Facebook being locked out of China since 2009, Mark Zuckerberg can, in part, thank the Party for the healthy valuation of Facebook shares. That’s because the fewer Swiss watches corrupt officials in China buy, the more shares of Facebook the Swiss National Bank does. Now follow along as we trace a particularly bizarre train of cause and effect in a world where China is a huge economic force and central banks are some of the world’s largest equity investors. Butterflies beating their wings in the rainforest of Brazil have caused hurricanes in the Gulf of Mexico easier to predict than this. Facebook, locked out of China in the wake of rioting, has ceded the field to more compliant domestic social media platforms. Between 2010 and 2011 exports of Swiss watches to China more than doubled while exports to Hong Kong surged by a similar amount. A fine watch is a very fine thing, no doubt, but in China they have long served as sort of currency and talisman among the nomenklatura, both a badge of power and wealth and a favoured gift to those one wishes to impress or sway. They are also, especially at the high end, a portable store of value, worth more by far than their weight in gold, something officials, especially corrupt ones, value. Immediately upon becoming G e n e ra l S e c r e t a r y o f t h e Communist Party in 2012, Xi Jinping launched a crackdown on corruption which is still being fought. The immediate motivations were different from those behind the ouster of Facebook, but both moves had certain themes in common, namely the desire to retain a high level of control, over the internet on the one hand and over an increasingly wealthy and powerful official class on the other. As usual, China is not kidding: the party said it punished nearly 300,000 corrupt officials last year. And as gift giving came in for special disfavour in the crackdown, watch sales, both in mainland China and Hong Kong, have been hit extremely hard. Exports of Swiss watches fell, and carried on falling, with 460,000 fewer watches exported last year, down 23 per cent to Hong Kong and 4.7 per cent to the mainland. Watch exports to Hong Kong have now been contracting for 18 consecutive months, those to the mainland for seven months.
“
James Saft a Reuters coulmnist
though with volume down by a third in the year to July, the U.S. has now taken over top slot. So how do Facebook and Mark Zuckerberg come in to this? We’ll get there, but first let this sink in: The Swiss National Bank now owns more of the publicly traded Facebook shares than Zuckerberg does. The SNB also owns more Facebook shares than all but about 20 U.S. mutual funds, having a stake worth US$741 million, or a bit more than 0.28 per cent. The SNB has plenty of problems, and a sagging market for one of the country’s principal exports feeds into a number of them. First off, there is deflation, with prices falling for the vast majority of the past five years. Then there is sub-par growth, with the economy expanding in the past year by just 0.8 per cent in real terms, less than half last year’s clip. There is also the very strong Swiss franc, which makes exports that much more difficult. One of the SNB’s principal tactics in fighting its various battles is foreign exchange intervention to contain the value of the Swiss franc, a currency which, viewed as a safe haven, has attracted very large flows. This leaves the SNB holding huge amounts of foreign currency, which they must stash somewhere. One of the places the SNB puts the money is into stocks, and though it mostly buys shares in proportion to their weight in main indices, that leaves the central bank as a very large owner of companies like Facebook. As a new and large marginal buyer of shares the SNB bears some credit, or responsibility, for their valuations. Facebook shares are up 66 per cent over the past two years, the period of most heavy investment by the SNB. Without a corruption crackdown, the SNB’s job of hitting its various mandates would be easier, and while we can’t say for sure their currency or investment policy would be different, it just might. It is also possible, though not proven, that some of the safe-haven flows coming into Switzerland and driving up the value of the franc are from China and are owned by people in fear of the corruption crackdown. It is a strange and interconnected world. Mark Zuckerberg might want to thank China for the corruption crackdown, using a Facebook post, naturally. And don’t forget to tag the SNB. Reuters
Mark Zuckerberg might want to thank China for the corruption crackdown, using a Facebook post, naturally.
How now, Zuckerberg?
That’s a problem for Switzerland, which earns half of its output via exports, of which 11 per cent are watches. Until last month, Hong Kong alone was the single biggest export market for Swiss watches,
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16 Business Daily Monday, September 5 2016
Closing M&A
Spacecom seeks to keep Xinwei deal alive
belonging to Elon Musk’s SpaceX as well as Amos-6 during preparations for a routine test Israeli satellite operator Space Communications firing at Cape Canaveral in Florida last Thursday. Spacecom said the loss would have a significant said yesterday it was working on an amended deal to be acquired by Beijing Xinwei Technology impact on the company. Spacecom “updated the acquirer (Xinwei) about Group after a Spacecom communications the loss of the satellite and is examining, along satellite was destroyed last week. with the buyer, the possibility to amend the Xinwei last month agreed to buy Spacecom for agreement and adjust to the new situation,” it US$285 million, saying the deal was contingent said yesterday. on the successful launch of Spacecom’s AmosThe Amos-6 satellite was going to be used by 6 satellite - which was due to take place on a number of key clients, including Facebook to Saturday. expand internet access in Africa. Reuters But an explosion destroyed a Falcon 9 rocket
HK Election
Hong Kong voters flood polls in election test of China’s sway Natasha Khan and David Tweed
H
ong Kong voters turned out in near-record numbers Sunday for a legislative election that was expected to test the appeal of a new wave of anti-China activists and set the stage for future political fights over Beijing’s control over the city. Election officials were working through the night to count about 2 million ballots cast for the city’s Legislative Council as voters waited in long lines even after polls closed at 10:30 p.m. local time. Turnout hit 52.6 per cent registered voters as of 9:30 p.m., approaching the previous high of 55.6 per cent in 2004, according to the Electoral Affairs Commission.
Results are expected on today. The legislative election was Hong Kong’s first since police clashes with student protesters two years ago thrust the former British colony’s struggle for greater democracy into the global spotlight. The scuffles exposed rifts in Hong Kong’s political camps, with some pro-democracy advocates demanding a sharper break with China and other more establishment politicians calling for the ouster of the city’s Beijing-backed leader. The result will impact Chief Executive Leung Chun-ying’s ability to implement his agenda and get reelected in March to lead the Asian financial hub for the next five years. Also at stake is the opposition’s capacity to block legislation with more than a third of the chamber’s 70
seats, a key barrier to controversial bills like the proposed election overhaul that sparked the mass “Occupy” rallies in 2014. “I’m hoping there will be a new dawn for our city,” said Candy Lam, 21, who voted to give one of Hong Kong Island’s six seats to student protest leader Nathan Law. “For too long, it’s been the same people using the same tactics and they haven’t made a difference. Maybe new blood will bring about another era in Hong Kong politics.”
Hong Kong tries to cut path to democracy: QuickTake
Since the last legislative election in 2012, Hong Kong has seen a series of political clashes over whether China is preserving the “high degree
of autonomy” it promised before regaining sovereignty almost two decades ago. The disappearances last year of five local men who sold books critical of the ruling Communist Party drew international protests after they were revealed to be in the custody of Mainland Chinese authorities. Underlying the election campaign are worries about rising competition from Mainland Chinese workers, skyhigh housing costs and a slowing economy. Growth in 2016 is forecast to slow to a seven-year low of 1.2 per cent, according to a Bloomberg survey. A lack of reliable polling and a complicated system in which lists of candidates vie for multiple seats in each district makes predicting the outcome difficult. Thirty-five seats represent geographical districts, while 30 are allocated for various professions, industries and specialinterest groups such as medicine, finance and agriculture. Five more “super seats” are selected by citywide vote. Bloomberg News
Xi-Abe meeting
EU’s Juncker
Mainland markets
Japan-China to plan meeting amid spike in tensions
Apple tax decision not against U.S.
44 SMEs debut on New Third Board
The leaders of China and Japan plan to meet on the side-lines of the G-20 summit in Hangzhou today, at a time of tensions over territory in the East China Sea. President Xi Jinping and Prime Minister Shinzo Abe will have a sit-down in the evening - not just a handshake - according to an official familiar with the plan, who asked not to be identified, citing government policy. Asia’s two largest economies have long bickered over territory and Japan’s wartime history, but things have taken a turn for the worse in recent months, even as trade and tourism have held up. “It’s a good opportunity for both nations as they face economic downturn pressure domestically,” said Liu Jiangyong, director of international relations at Tsinghua University in Beijing, referring to a Xi-Abe meeting. “An improved relationship is needed by both China and Japan.” Their side-line meeting would be the first since a brief chat during the Asian African Conference in Jakarta in April last year. The first time Abe and Xi met formally, at the Asia-Pacific Economic Cooperation forum in Beijing in late 2014, it proved a brief and awkward affair. Bloomberg News
European authorities’ decision to slap Apple with a huge bill for back taxes was not a decision “against the United States”, European Commission chief Jean-Claude Juncker said yesterday. The 13-billion-euro demand for payment from the American electronics giant has raised hackles in the US, with the White House decrying what it described as a “unilateral” approach to rewriting global taxation norms. Speaking to reporters before the Group of 20 leadership summit in Hangzhou, Juncker said the decision was not aimed at the U.S. “It would be absurd to choose this territory of state taxation to attack the U.S.A.,” he said, adding that most of the commission’s punitive measures were against European companies. “We are applying the rules,” he said. “We are basing our decisions on facts and on the legislation.” Brussels said Apple, the world’s most valuable company, avoided virtually all tax on its business in the bloc by illegal arrangements with EU member Ireland, which gave the company an unfair advantage over competitors. Ireland has attracted multinationals over many years by offering favourable tax deals to generate much-needed jobs and investment. AFP
A total of 44 small and medium-sized enterprises (SMEs) were added to China’s New Third Board from August 29 to September 2, marking further expansion in China’s over-the-counter market, after the board was officially established three years ago. The move brings the number of companies listed on the New Third Board to 8,920 and represents China’s effort to encourage the development of SMEs, amid downward economic pressures. The market value of the 8,920 companies is about 3.4 trillion yuan (about US$509 billion). Turnover on the New Third Board reached 3.06 billion yuan last week, a 1.13 per cent decrease on the previous week. The New Third Board, or National Equities Exchange and Quotation system, serves as a national share transfer system for SMEs to transfer shares and raise funds. It started in 2006 as an experimental platform to facilitate financing for China’s small non-listed, and promising high-tech enterprises in Beijing’s Zhongguancun Science Park. The current system was officially established on January 16, 2013 after years of trials in several cities, including Shanghai, Wuhan and Tianjin. Xinhua