Melco may be only bidder for Cyprus casino Gaming Page 7
Thursday, September 15 2016 Year V Nr. 1131 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Business
MSAR and Zhongshan ink business co-operation agreement Page 5
www.macaubusinessdaily.com
Tourism
M&A
Air Macau launches more flights to Fukuoka Page 5
KNJ interested in Global Media Group to “expand to other areas” Page 3
Shaping The Future MICE
The MSAR is an ideal location. So say international tourism and travel experts. Strategic location, diversity of entertainment offerings and high numbers of events are to the city’s advantage. Positioning the MSAR as an incentive travel location could be a profitable bet for the ‘Smart City’ future, they say. Particularly with the LRT and Super Bridge just around the corner. Page 6
Chinese policy banks lead implementation of Gov’t stimuli injections Page 8
Trade tariffs
Beijing confronts protectionist wave led by global powers Pages 9 & 10
Iao Kun closes VIP rooms
Gaming The junket operator is closing its doors in StarWorld and Galaxy. The group’s ‘comprehensive strategy review’ predicts subsequent savings of up to US$4 million. Leaving VIP rooms in City of Dreams and L’Arc. Page 7
Smile, you’re on camera
Iron rice bowl cracking
The backlash continues. Against non-resident workers and illegal workers in the construction industry. Some 300 local unemployed construction workers will gather today to protest. Claiming local workers are hired for less than three months and laid off at the close of projects in favour of cheaper labour.
CCTV The first batch of 219 surveillance cameras comes online today. Focus is on the major borders of the city – ferry terminals, airport and border gates. Some 1,620 cameras will be installed in four phases, focusing on road and transport hubs plus higher crime zones, remote locations and hazardous areas. Page 3
Mortgage powered
China’s lending China’s broadest measure of new credit exceeded estimates in August. As a property boom in the nation’s biggest cities fuels near-term growth. But accelerates longer-term concerns about the expansion’s sustainability. Policymakers are signalling they’ll take steps to rein in ‘bubbly’ housing markets. Page 16
Construction Page 4
HK Hang Seng Index September 14, 2016
23,190.64 -25.12 (-0.11%) Worst Performers
Belle International Holdings
+3.67%
China Resources Land Ltd
+0.69%
Wharf Holdings Ltd/The
-1.97%
HSBC Holdings PLC
-1.03%
Galaxy Entertainment Group
+1.96%
Hong Kong Exchanges and
+0.66%
CITIC Ltd
-1.52%
Sun Hung Kai Properties Ltd
-1.03%
Bank of East Asia Ltd/The
+1.25%
Cathay Pacific Airways Ltd
+0.54%
Li & Fung Ltd
-1.49%
PetroChina Co Ltd
+1.19%
BOC Hong Kong Holdings
+0.52%
Link REIT
-1.17%
China Petroleum & Chemical
-0.93%
Hengan International Group
+0.51%
CNOOC Ltd
-1.16%
China Shenhua Energy Co
-0.84%
Sands China Ltd China Unicom Hong Kong
+1.00%
-0.99%
28° 32° 27° 32° 26° 32° 26° 31° 26° 31° Today
Source: Bloomberg
Best Performers
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Sustaining economy
2 Business Daily Thursday, September 15 2016
Macau Five-Year Plan
Reaching the right balance Lao Pun Lap: “Gaming and non-gaming elements should complement each other”. Annie Lao annie.lao@macaubusinessdaily.com
T
he city’s gaming industry plays an instrumental role in the MSAR economy’s revenue sources, says Lao Pun Lap, director of the Policy Research Office (GEP). The director was speaking during TDM radio programme ‘Macau Forum’ yesterday regarding the MSAR Five-Year Development Plan. During the economic adjustment period of the city’s gaming industry, the MSAR Government emphasises
the need to increase the number of non-gaming offerings in the city in order to diversify the city’s economy. However, reaching the right balance between gaming and non-gaming offerings is crucial to achieving the sustainable development of the city’s gaming industry in the long-term, says the director. “The city’s development of gaming and non-gaming elements cannot be compromising each other; instead, both need to be complementary to one another,” said the GEP head, as quoted by local broadcaster TDM.
Lao stressed that in the past the focus on both elements was imbalanced and he suggested that the relevant authorities implement appropriate regulations to monitor the gaming industry in order to achieve the proper balance, such as requiring new casino resorts to add more content to their non-gaming offerings. Lao also reiterated that the city’s gaming industry needs to be monitored in order to achieve an appropriate development scale, through a standardised management system, so as to achieve sustainability in the future.
Public concerns
The majority of the public opinions on the Five-Year Plan fall into the strategic part of the development plan, which they hope can be implemented effectively in line with
the objectives set out, explained Lao. “Mainly, the public is concerned about how the MSAR Government anchors the direction of the city’s development plan,” he said. Some 4,268 public opinions were received for the plan between April and June, of which 53 per cent were related to people’s livelihood in the city - including housing planning and construction, land reserves, the smart city concept, urban renewal, transportation and environmental protection. The rest was related to the economy and public administration, Lao stated. In addition, a third party evaluation assessment will be conducted by the Macau Polytechnic Institute in order to measure the progress of the Plan, Lei Ngan Leng, advisor to the Chief Executive’s office said during the programme yesterday.
Appointment
Beijing names Xue Xiaofeng Liaison Office vice head Th e c e n t ra l g o v e r n m e n t has appointed Xue Xiaofeng as deputy director of its Liaison Office in Macau, the Chinese State Council announced yesterday. The 55-year old Chinese official had served as secretary of the Zhongshan municipal party committee since January 2011
prior to being transferred to the Special Administrative Region. Mr. Xue, from Shanxi Province, joined the Communist Party in 1991. In July, the Liaison Office saw its new Director, Wang Zhiming, sworn into his current position, replacing former Director Li Gang.
Typhoon
Typhoon to visit on Mid-Autumn Festival Xiamen Airlines announced that the flight to Macau from Jinjiang today at 4:35 pm will be cancelled due to Typhoon Merani. The typhoon also led to the cancellation of some 11 flights yesterday. Macau International Airport has also advised passengers to pay attention to any changes of flight before arriving at the Airport. The Meteorological and Geophysical Bureau predicts that the typhoon will
land on the coast of Fujian Province today, noting that the weather in the city will be mainly cloudy with a few showers. Meanwhile, the Cultural Affairs Bureau has advised responsible parties to protect any historical heritage threatened by the typhoon, while the Labour Affairs Bureau has called for construction sites to pay special attention to hoisting machinery and rooftop structures.
Labour Dispute
Construction workers demand unpaid wages A group of construction workers on the Grand Lisboa Palace project in Cotai protested on the construction
site yesterday, requesting unpaid wages from their construction companies according to local public broadcaster Chinese TDM radio. The workers sat on a 60-metre crane tower in protest. Representatives from the Labour Affairs Bureau (DSAL) and the construction companies arrived on the site to resolve the dispute with the workers, which remains unresolved as two of the construction workers were still sitting on the crane tower when this story went to press. A rescue air cushion was set up underneath the crane tower by the Fire Services Bureau in case the workers attempted to jump. A.L.
Business Daily Thursday, September 15 2016 3
Macau CCTV
City under surveillance Operation of the first CCTV batch in the city starts today, with surveillance focused on the borders and frontiers of the city. Cecilia U cecilia.u@macaubusinessdaily.com
T
he first batch of CCTV will enter into operation today, according to yesterday’s announcement published in the Official Gazette. The first phase includes 219 surveillance cameras that will operate at major borders and frontiers in the city such as the Outer and Inner Harbour Ferry Terminals, Macau International Airport and the Border Gate. The MSAR’s Secretary for Security, Wong Sio Chak, emphasised during a tour on Tuesday that the surveillance operation seeks to support and
cameras installed in different parts of the city. Following this first phase of 219 cameras, the second batch will have 263 cameras - to focus on major road and transport hubs - while some 338 CCTVs will be installed in
major spots registering higher crime in the city for the third phase. Some 800 cameras will make up the final batch and will concentrate on locations that are secluded and have safety hazards. The completion of the surveillance system targets the prevention of crime and the aiding of traffic accident investigations, Wong claimed in April.
strengthen the police forces’ efforts in the prevention and combat of crime. The Secretary also stressed that the CCTV operation follows legal criteria and handles personal details with care, noting that personal privacy will be protected. The Secretariat of Security indicated that the surveillance system will be complemented and improved in response to social developments, as well as noting that the department is considering the installation of the system on future reclamation areas and the border of the Hong Kong-Zhuihai-Macau Bridge. The whole surveillance network plan involves four phases, with 1,620
Business
KNJ mulls purchase of Portuguese media Local company KNJ Investment Limited interested in acquiring Portuguese media company Global Media Group. Nelson Moura nelson.moura@macaubusinessdaily.com
Local company KNJ Investment Limited (KNJ) is considering the acquisition of Portuguese media conglomerate Global Media Group
(Global Media) according to news agency Lusa. Last week, the news agency reported that Macau businessman were interested in investing in Portuguese businesses, mentioning Global Media as one of the possible
targets for investment. Now KNJ - a local company involved in real estate investment, the medical and health sector, as well as restoration – has been named as one of the interested parties in the deal. Ho Kevin King Lun, nephew of MSAR’s former Chief Executive Edmund Ho Hau Wah and the company’s CEO, stated that KNJ is “an investment firm” that isn’t “limited to the real estate business”,
the agency reported Ho added that Global Media had “great potential after restructuring”, and that if the deal were to close KNJ would “expand to other areas”. G l o ba l M e d i a o w n s t w o o f Portugal’s biggest newspapers Diário de Notícias and Jornal de Notícias - and has interests in the country’s press, radio and online sectors. According to Portuguese market research company Grupo Marktest rankings, Global Media’s publications had the greatest online readership in the country as of July.
4 Business Daily Thursday, September 15 2016
Macau Opinion
Ashley Sutherland-Winch
Sweet & Sour Apple 7 It’s that exciting time of year when Apple reveals a new iPhone. Last week, like clockwork, the tech giant announced the release of the iPhone 7 and iPhone 7 Plus. The world went wild with excitement over the new features but some changes are going to be harder to navigate. The positives are better cameras, longer battery life, water-resistance, and sleek new colour options but the greatest negative has really thrown some Apple-lovers off balance. Apple removed the headphone jack on the new units. It’s a clever move to force consumers to purchase the new wireless ear buds called AirPods at US$159 a unit, but for those who don’t want to make the switch to wireless it’s a difficult choice that must be made. It will not be possible to charge the phone while using traditional headphones. Just before I moved to Macau last September I entered an Apple store in Las Vegas. I was presented with a purchase option called Apple Upgrade. If I purchased a new iPhone under this plan, I would pay a monthly fee in lieu of purchasing the phone outright but whenever a new iPhone was released on the market, I could trade my old model in for the new. This plan is a great option for consumers that always want the new cool gadget right away but the downside is a recurring monthly fee. I decided to try the plan and when iPhone 7 and 7 Plus were announced last week, I knew that I would have one soon. Unfortunately, Apple Upgrade does not exist in Macau. Macau does not have access to Pokémon Go or Apple Upgrade? It’s hard not to feel shortedchanged when our international city is being overlooked by some technology companies. Sure, Apple offers us other enticing programmes in Macau but I look forward to the time when Macau is on the top of tech lists to receive technology along with the United States and Europe. Luckily, I’m returning to the States for an event soon and while there I can take advantage of the U.S.-based Apple Upgrade plan but it’s unfortunate that my fellow Macau community must wait longer than the rest of the world. If we have learned anything in the past decade, it is Apple is innovative and always has great ideas so the Macau release will not be far away - but in the meantime we should start practicing how to keep small wireless AirPods in our ears whilst mobile. Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Labour
Unemployed local construction workers rally Increasing numbers of non-resident and illegal construction workers have caused more joblessness for local construction workers, say protestors. Annie Lao annie.lao@macaubusinessdaily.com
A
group of some 300 local unemployed construction workers will gather today to protest an alleged increase in the number of non-resident construction workers and illegal workers in the construction industry. The protestors will gather in Iao Hong Garden and march to the Labour Affairs Bureau (DSAL) to submit a petition. The workers cite a decline in the city’s economy, large private construction projects and the increasing number of government public works as well as more construction companies hiring non-resident and illegal workers as creating a direct threat to local construction workers’ employment. The main organiser of the protest is the Workers’ Self-Help Union, the president of whom, Lei Kit Meng, sent a copy of the petition to Business Daily which will today will be submitted to the DSAL. In the letter, which is addressed to Wong Chi Hong, director of the DSAL, and Lionel Leong Vai Tac, Secretary for Economy and Finance, the union urges the government to strictly enforce the law to protect and secure the rights of local construction workers in the city.
More jobless
One of the participants in the protest, Choi Tui Keng, estimates that about
4,000 local construction workers are currently jobless following the recent opening of Wynn Palace last month and The Parisian Macau on Tuesday, Choi told Business Daily. Choi has also been unemployed for about a month in the wake of the opening of Wynn Palace. Most of the local construction workers only work temporarily, as they are usually laid off after their construction company employers hire non-resident workers to replace them, explains Choi. “Construction companies prefer to hire non-resident workers. They only hire locals if they cannot hire any non-resident workers,” Choi explained. This has led to a situation in which local construction workers find it hard to keep a long-term job as they usually work temporarily for one construction site then switch to another when the contract dries up or the project finishes. “No contract needs to be signed with a construction company [contractor on construction projects] because we are usually hired for less than three months. Most construction workers lost their jobs after the opening of Wynn Palace last month. Then they went to work for The Parisian Macao and now they have lost their jobs again. So they’re moving to work for Legend Palace Hotel at Macau Fisherman’s Wharf,” Choi said.
Fatal accident
Choi claims that the contractors for
the Grand Lisboa Palace and MGM Cotai construction projects in Taipa have hired non-resident and illegal workers - especially more illegal workers for the Grand Lisboa Palace’s construction site. Following the recent fatal accident of a non-resident worker on the Grand Lisboa Palace’s construction site, the contractors have started to hire local construction workers again. “The Grand Lisboa Palace project contractors rarely hire local construction workers. But after the fatal accident of a non-resident worker which happened last Friday the contractors have started to hire resident workers, offering only MOP550 (US$ 69) for one day for a local male worker or MOP500 for a local female worker. The wage rate is the same as back in 2011 because the contractors know that there are more unemployed construction workers in town,” Mr. Choi explained. Another reason for construction contractors to hire non-residents or illegal workers is that they get paid about 50 per cent less than a local worker, claims Choi. “On average, a local worker gets paid around MOP700 to MOP800 per day, but a non-resident worker gets paid around MOP400. An illegal worker gets paid around MOP300,” Choi adds. Illegal workers are hiding on the construction sites, as they are afraid to get caught by the police, he further noted. “Most of the illegal workers are from Vietnam and the Philippines. They work secretly on the construction site and are even living there. They don’t go home because they stay on the construction site 24 hours a day,” Choi claims.
Business Daily Thursday, September 15 2016 5
Macau Society
MSAR and Zhongshan ink business agreement Cecilia U ceclia.u@macaubusinessdaily.com
T
he MSAR and Zhongshan have signed a business co-operation agreement focused on supporting youth innovation and entrepreneurialism. The inking of the agreement took place during the 2nd session of the Macau-Zhongshan collaboration task force in Macau, held on Tuesday. Secretary for Economy and Finance Lionel Leong Vai Tac expressed in the meeting that Macau and Zhongshan had already established an official co-operation mechanism but noted that the future concentration of cooperative efforts will focus on the encouragement of youth employment and entrepreneurship. The content of the agreement
includes providing platforms for the exchange of ideas between young people from the two cities, as well as promoting and supporting
young people from Macau to work in Zhongshan, especially in Cuiheng New District. Leong added that the development co-operation
Secretary Lionel Leong Vai Tac
programme in Cuiheng New District will be confirmed as soon as the direction of co-operation between the two cities is solidified. During the meeting, Leong expressed that the yacht scheme, which will be established by the end of this year, will attract more tourists and thus provide more business opportunities for young people and small and medium-sized business entrepreneurs. The scheme seeks to enable the diversification of the city’s economy and further help Macau develop as an international tourism and leisure centre. In addition, the co-operation between the two cities includes Macau acting as a platform for entrepreneurs from Zhongshan to enter markets in Portuguesespeaking countries, and vice versa, with the MSAR providing the necessary support and services. C.U.
Tourism
Tourism opportunities lift off with Japan Air Macau will offer daily flights to Fukuoka in 2017 in order to further develop tourism opportunities with Japan. Annie Lao Annie.lao@macaubusinessdaily.com
Flag carrier Air Macau is further targeting tourism development opportunities for Japan and the MSAR as the company has announced that it will increase its flight frequency to the Japanese city of Fukuoka next month for a total of five times a week. Winston Ma Sze Lok, general manager of Air Macau Commercial D e p a rt m e n t i n S o u th Chi n a, announced the increase in flight frequency during a visit to the Saga Prefecture in Japan to attend a Tourism Product Seminar on Tuesday. The seminar focused on tourism exchange opportunities between Japan and Macau, according to local broadcaster
Chinese TDM radio. The seminar was organised by the Tourism Associations of the Saga and Nagasaki prefectures in Kyushu, Japan together with the Macau Travel Agency Association. The seminar introduced tourist attractions and cultural highlights of the regions as well as other tourism resources in the Saga and Nagasaki prefectures to Macau tourism businesses. Air Macau will increase the frequency of outbound and inbound flights at the end of next month. Currently, four flights per week operate between the MSAR and Fukuoka, which will increase to five per week. In 2017, the company will further
E-commerce
Alibaba inks four co-operation projects with MSAR Mainland Chinese online shopping giant Alibaba Group inked four cooperation projects with the MSAR Government and local companies yesterday, according to local broadcaster TDM Radio. The online payment platform of the group, Alipay, is to co-operate with the Macao Economic Services (DSE) in the launch of the ‘Blue Street’ project on December 12 – when all the shops in the Rua S. Domingos in city central will accept Alipay payment. The move intends to facilitate tourist shopping in the MSAR. In addition, the payment platform will co-operate with the city’s Consumer Council in the launch of a programme allowing the committee’s
certified merchants to join the payment platform. In addition, the group’s online shopping platform - Tmall - signed agreements with three local retailers yesterday, allowing them to sell their products on the Mainland Chinese e-commercial platform. President of the Macau Trade and Investment Promotion Institute (IPIM) Lourenço Cheong Chou Weng, said in his speech yesterday that local companies should seize the advantages offered through the use of e-commerce platforms as they will help to promote the city’s own products and designs, as well as other Portuguese-speaking countries’ products, to the Mainland Chinese and overseas markets.
increase the flight route’s frequency to a total of seven per week, with one flight per day.
Mr. Ma said that the additional flights will help further promote tourism plus economic and cultural exchanges between the two regions. Furthermore, the Macau flag carrier now offers daily flights to Tokyo and Osaka from the territory.
6 Business Daily Thursday, September 15 2016
Macau
Bruce Tepper(left) and Fernando Compean (right)
MICE Incentive events represented only 4.2 per cent of total MICE attendees in H1
Putting the I in MICE Market leaders in the incentive travel business see the MSAR as having all the elements necessary to attract more MICE events, especially in the incentive travel sector. Nelson Moura nelson.moura@macaubusinessdaily.com
A
strategic location, diversity of entertainment offerings and high numbers of event organising professionals make Macau an ideal destination for incentive travel events, according to international tourism and travel experts. With the purpose of offering supplementary training to local tourism and event professionals, Macau Meetings, Incentives and Special Events Association (MISE) organised a Certified Incentive Specialist - CIS Certification Programme on September 13 and 14, held at the Macau Trade and Investment Promotion Institute (IPIM) offices, with the department also subsidising the payment of two incentive travel industry leaders to serve as instructors on the course. The Certified Incentive Specialist - CIS Certification Programme acts as an entry level certification programme from the Society of Incentive Travel Excellence (SITE), a global community of incentive travel professionals. “It’s the first time such a certification event has been held in Macau. We wanted to run an education programme on meetings and incentive travel and bring it to our members and industry players,” Rebecca Choi, Vice-President of MISE, told Business Daily. The event involved 30 tourism professionals and event organisers from the territory, with one attendee coming “all the way from the
CIS exam
Philippines”, the MISE Vice-President said. Choi added that the education programme was an opportunity for local “industry professionals a n d stakeholders to acquire key knowledge and start developing new approaches to further market Macau as a destination for incentive travel”.
Let the best one travel
The event focused on investment travel incentives: the reward through travel of employees or customers for achieving high levels of performance or customer loyalty, with travel and events sometimes being organised by independent incentive travel companies. “These are award trips with the most common being for sales or purchases. For example, an insurance company will reward an agent for achieving certain levels of performance. It can be to reward employees or customers,” said Bruce Tepper, Vice-President of business consulting group Joselyn, Tepper & Associates, Inc. and speaker at the event. For the first half of the year, a total of 628 Meetings, Incentives, Conferences, and Events (MICE) events were held in the city, of which 586 were meetings and conferences, whilst 22 were exhibitions and only 20 were incentive events, according to Statistics and Census Services (DSEC) data. Incentive events attracted 25,000 attendees to Macau in the first six months of 2016, representing 4.2 per cent of the total 588,000 MICE attendees in that period, according to the same data.
Betting on attracting incentive travel was considered a profitable bet by both speakers, considering it to be the “highest end in terms of financial reward travel”, with incentive travel trips “normally being held at 5-star hotels and offering top quality service, unique experiences and private events using private facilities”. Fernando Compean, one of the speakers and owner of travel and incentive companies Avanti Meetings and Mundo Editorial, S.A de C.V., told Business Daily that incentive events tend to spend more money than other type of event but that it’s a demanding sector in terms of what it will get out of the investment.
Award city
In order to become an attractive destination for incentive travel the speakers considered that a city needs to be affordable, offer diverse entertainment and lodging options, have destination appeal and possess local support infrastructure, factors they considered were already present in Macau. Tepper, an expert speaker on the issues of tourism, meetings and incentive travel, sees Macau as having an “enormous potential” as a travel incentive destination, due to its strategic location and entertainment offers. “I was chatting with one of my clients in Malaysia, who runs a very large travel agency, and he told me that Macau is becoming a major incentive destination for incentive travel market, since - due to its close location - he could organise two or three events a year,” Tepper told Business Daily. The business incentive expert noted how Las Vegas had built a successful incentive travel market after realising “not everyone wants a casino” and started developing the outdoor recreational side of its tourism market,
suggesting a similar approach for the city in its goal of diversifying the local economy and making it a MICE centre.
Make them come
When questioned on the high dependence upon government support of local MICE events, both experts stated that generally incentive travel companies avoid any kind of government dependence. “Incentive and corporate travel companies don’t usually look for government help or any type of benefits; we want to try to control everything regarding our programs and the experiences participants are going to have,” Compean told Business Daily. For Tepper, Macau has enough to offer that, while maybe attracting initial incentive travel groups could require government help, in the future it wouldn’t require state support. “This is an industry where people plan well in advance, so creating these events might translate into business in a year or two years. People are getting familiar with the city and I see a time where government help won’t be and shouldn’t be necessary,” Tepper said. The travel industry expert considers that government help could come in another way, since one of the aspects incentive travel organisers look for is unique events. “I would like to see Macau make more unique government building facilities available for events. I attended one of the annual conferences held by SITE in Ireland and the final gala dinner was in the Presidential Palace in Dublin. As an individual traveller I can’t book a room in the Presidential Palace so having events like that are important,” Tepper told Business Daily.
Competing with Hong Kong
Compean goes as far as to say that with the new properties in Cotai and the completion of the Hong Kong– Zhuhai–Macau Bridge the territory could start competing with its neighbour in terms of MICE events. In the first quarter of 2016, there were some 314,000 overnight MICE visitor arrivals to Hong Kong, more than double the number of visitors Macau welcomed for the sector in the same time period, according to Hong Kong Tourism Commission data. “You have new hotels and you’re building a bridge to Hong Kong that will be paramount to incentive travel events and any kind of event because you have shortened the distances between Mainland China and Hong Kong to here. Most international groups would arrive by Hong Kong airport for sure. Therefore, I think you can be a very good competitor of Hong Kong,” Compton told Business Daily.
Business Daily Thursday, September 15 2016 7
Macau Gaming Rooms formerly in Galaxy and StarWorld
Iao Kun closes VIP rooms Closures may help the group save US$4 million. Kam Leong kamleong@macaubusienssdaily.com
J
unket operator Iao Kun Holding Company Ltd (IKGH) has announced that it closed two more VIP rooms in the city last Saturday. The two rooms were located in Galaxy Macau and StarWorld, properties that are both operated by the Galaxy Entertainment Group. The company explained in a statement on Tuesday that the closures are
‘part of its comprehensive strategic review of its VIP gaming room operations in Macau’. It also indicated that the shutdown of the two rooms will generate total annual savings of US$4 million (MOP32 million) for the group. At the end of August, the Nasdaq-listed operator closed its VIP room in Sands Cotai Central, saying it would consider closing one or two more. According to that statement, such a strategic review was due to
‘the ongoing challenging VIP gaming environment’. ‘The strategic review of IKGH’s operations in Macau remains ongoing, and IKGH anticipates taking additional action to reduce its operating expenses and preserve its capital position in due course,’ it wrote in the Tuesday statement. For the first eight months of the year, the company’s rolling chip turnover was halved to US$2.41 billion, compared to US$4.8 billion during the same period of 2015. Tuesday’s statement also indicates that the junket promoter has
terminated its agreements with Sang Heng and Sang Lung Gaming Promotion Ltd. relating to the facilities in the two Galaxy VIP rooms. The latest two closures leave the company with two VIP rooms in the city, located in City of Dreams in Cotai and L’Arc Macau on the Peninsula. The operator is currently seeking gaming opportunities outside the Special Administrative Region. In June, it said it was acquiring the Jeju Sun Hotel & Casino in South Korea, including its gaming concession, from Philippine gaming operator Bloomberry Resorts Corporation for US$102 million. In addition, it has trial operations in two casinos in Australia; namely, Crown Perth Casino and Crown Melbourne Casino.
Gaming
Melco Int’l may bid for Cyprus casino alone The company’s two competitors have reportedly not yet secured a land plot for the casino projects. Kam Leong kamleong@macaubusinessdaily.com
The consortium of Melco International Development Ltd. and Hard Rock may become the only bidder for a gaming concession on the Mediterranean island of Cyprus as its two rivals have not yet found suitable plots for their proposed projects, according to Cyprus news outlet Philenews. The joint venture of Melco, Hard Rock and local conglomerate Cyprus Phasouri (Zakaki) is one of the three shortlisted bidders for the Cypriot casino concession, competing with a consortium of Philippine gaming
operators Bloomberry Resorts Corp. and Solaire Resort & Casino, and Cambodian gaming operator NagaCorp Ltd. The news report quoted an anonymous source from the Cypriot ministry of commerce as saying that the two competitors of the Melco-Hard Rock partnership had failed to secure a land plot for their bids. The source added that the Cypriot Government is not willing to further extend its deadline for the bidders to submit their final detailed plans for the project. In June, the Bloombery-Solaire consortium and NagaCorp asked for
more time to reach an agreement ‘regarding land acquisition and time to overcome state bureaucracy’, in response to which the Cypriot Government eventually granted three additional months to the contenders - until October 5 - despite opposition from the Melco-Hard Rock venture. The Cypriot Minister of Commerce, Yiorgos Lakkotrypis, said in the parliamentary committee that the local government’s aim remains to award the gaming licence to the successful bidder by the end of this year, according to the news report. The gaming concession under the bid includes a 30-year casino licence and the right to exclusive operation for 15 years. The winning bidder could operate a 5-star hotel with at least 500 rooms, 100 gaming tables, and
Lawrence Ho, Chairman and CEO of Melco International Development
1,000 gaming machines. The three contenders for the bid are aiming to develop the casino project in different cities. The Melco-Hard Rock consortium is eyeing Limassol, the second largest city on the southern coast of the Greek-controlled part of Cyprus. Meanwhile, NagaCorp is planning to build its resort in Larnaca, while the Philippine unit wants to develop in Paphos.
8 Business Daily Thursday, September 15 2016
Greater China Official data
August power consumption rises on hot temperatures A surge in power consumption supports the view that better-than-expected manufacturing and construction activities gave the economy a boost.
C
hina’s power consumption in August rose 8.3 per cent from a year ago because of increased cooling demand due to high temperatures, the country’s economic planner said yesterday during a briefing. China’s power consumption reached 563.1 billion kilowatt hours (kwh) in August, said Zhao Chenxin, spokesman for the National Development and Reform Commission (NDRC).
More specifically, power consumption from information transmission, IT service, and the software industry rose 15 per cent, while financial and property service usage rose 12.3 per cent in August. For shops, hotels and restaurants, power consumption also enjoyed a 9.3 per cent growth. Power consumption totalled 3.89 trillion kwh in the first eight months
of 2016, up 4.2 per cent from the same period last year. A surge in power consumption supports the view that betterthan-expected manufacturing and construction activities gave the economy a boost in August, as the result of a government infrastructure spending spree and housing boom. Secondary industry power consumption grew 2 per cent in the January to August period, reversing a negative growth rate from the same period last year, the NDRC said. China’s manufacturing sector unexpectedly expanded in August, with the official Purchasing Managers’ Index
(PMI) rising to 50.4, the fastest pace in nearly two years. Monthly imports in August also unexpectedly rose for the first time in nearly two years and industrial output increased at the fastest rate in fives years. The rapid rise in August power consumption reversed the recent negative growth in thermal power production, with power generated from coal and natural gas rising 7.7 per cent from a year ago in August, the NRDC’s Zhao said. Hydropower output climbed 5.8 per cent while nuclear power production increased 20.1 per cent during August. The NDRC also approved 25 fixedasset investment projects in August with a total value of 196.6 billion yuan (US$29.48 billion), which are mainly transportation, water conservancy and energy projects, Zhao said. Reuters
Key Points China Aug power consumption +8.3 pct y/y Jan-Aug power consumption +4.2 pct y/y Thermal power production growth turned positive, rising 7.7 pct y/y Average temperatures in August were the highest since 1961 and were a main factor in the percentage hike in power usage, said Zhao. He also noted that August 2015 power consumption grew by only 1.9 per cent from the prior period, exaggerating the gain for this year. Service industry and residential electricity consumption recorded the biggest rises as a result of the heat, at 15.5 per cent and 19.9 per cent respectively, Zhao said.
Policy banks
Xi’s stimulus playbook boosts Beijing’s control By the end of 2016 policy bank assets will make up about 15 per cent of the total banking sector. In Xi Jinping’s China, all roads lead to Beijing. Or so it seems, as the president tightens central controls on everything from local authorities to state-owned enterprises to the military. When it comes to the economy, stimulus is now importantly being channelled through a handful of government lenders. The shift helps explain why the People’s Bank of China has failed to live up to the forecasts of private economists early this year for interest-rate and required reserve-ratio cuts. At least 2 trillion yuan (almost US$300 billion) in new capital for lending has been amassed at the so-called policy banks, according to data compiled by Bloomberg. The China Development Bank, the Export-Import Bank of China and the Agricultural Development Bank of China have raised a combined 3.4 trillion yuan (US$509 billion) through bond sales and low-rate credit from the People’s Bank of China this year, the data show once funds to repay maturing debt is included. That’s almost eclipsed the record 2015 total. In the process, the combined assets of the three policy banks has swollen to 21.3 trillion yuan - or bigger than the U.K.’s gross domestic product. By the end of 2016, policy bank assets will make up about 15 per cent of the total banking sector, up from 8 per cent three years ago, according Larry Hu, the head of China economics at Macquarie Securities Ltd. in Hong Kong. And more is on the way: China will encourage policy banks to increase credit support to investment projects, according to a statement last week after a State Council meeting led by Premier Li Keqiang. That’ll give another dose
of stimulus and grant President Xi yet more control over where the money should flow. This is a “classic case of Chinese financial innovation,” said Fraser Howie, the Singapore-based co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “Again we see the government picking the winners. The huge inflow of government money can lead to huge overcapacity.” The latest batch of data released Tuesday show the tactic is working to sustain solid growth, for now, with factory output, retail sales and fixedasset investment all beating economists’ forecasts. Meantime, credit data for August is also expected to rebound. But there is a cost. “ Y o u c a n f r o n t- l o a d f u t u r e infrastructure demand to today for two or three years but you can’t do it forever,” said Macquarie’s Hu. “The whole economy is still adding leverage, especially in the property sector.” The three policy banks are wholly owned by the government and are charged with lending to suit policy objectives. That may be building water facilities to help farmers in landlocked provinces, stocking up on pork, cotton and tea, or renovating shanty towns. In that capacity, they do the work of fiscal policy - spending money on government projects. Once project managers receive the funds, they’ll typically deposit them at least for a time with commercial banks, which could then lend the funds on, creating a multiplier effect. When companies receive the loans, they sometimes use the cheap funds as collateral for even more credit, from commercial lenders. The knock-on
effects are a growing part of China’s complex web of monetary policies. Faster multiplier Ding Shuang, the head of Greater China economic research at Standard Chartered Plc in Hong Kong, estimates the multiplier effect of stimulus via policy banks is about 5 times - higher than what would be achieved through a cut to banks’ required reserve ratio. The
extra liquidity from RRR cuts may just end up in the interbank bond market, whereas policy bank lending is directed straight into the real economy. “It can definitely help hit the growth target because it is immediate,” he said, referring to the government’s goal to achieve an economic expansion of at least 6.5 per cent this year. “In the short term, as long as it is invested, then it is GDP. But in the long term, if it is wasted investment, then they have to pay for that.” The increased use of the policy bank channel helps explain why the PBOC
The China Development Bank headquarters
Business Daily Thursday, September 15 2016 9
Greater China Trade differences
In Brief
Domestic solar panel glut undermines accord with EU The European Union and China were on the verge of a trade war in 2013 over EU allegations of dumping of solar panels into the bloc. A sharp increase in solar power production in China and a sharp fall in domestic demand have sparked a sudden surge of cut-price exports, undermining a China-EU agreement to limit damage to European producers.
“We fear a second wave of bankruptcies” Milan Nitzschke, EU ProSun president
EU ProSun president, Milan Nitzschke, said that prices had come down by some 20 per cent in the past month to below the cost of production. “We fear a second wave of bankruptcies,” he said. The European Union and China were on the verge of a trade war in 2013 over EU allegations of dumping of solar panels into the bloc. The investigation was the largest in EU history, given the value of such exports was 21 billion euros (US$23.6 billion) in 2011. That trade war was averted by agreeing a lower amount of Chinese panels
could be imported free of tariffs as long as they did not price them below a minimum initially set at 0.56 euros. However, having signed up to the undertaking, an increasing number of Chinese firms have chosen to opt out considering it better to sell at even cheaper prices, even when faced with duties of between 27.3 and 64.9 per cent. JinkoSolar Holding Co became the latest to withdraw from the undertaking last week, saying the minimum price no longer reflected the market reality. Maggie Ma, chief financial officer of Renesola, another company no longer part of the undertaking, forecast that the third quarter would be “sluggish” after China cut preferential tariffs. Miao Liansheng, chairman and CEO of Yingli Green Energy, said in the company’s first-half report that it faced challenges and lower selling prices in the second half because of increasing competition and higher anti-dumping duties in the United States. Reuters
Hibor
State control
While policy lending has better riskreward tradeoffs than a broad credit expansion, it “runs counter to the stated objective of reducing government intervention in the allocation of credit,” according to Eswar Prasad, a professor at Cornell University in Ithaca, New York. The centrally planned spending, rather than being driven by banks or the markets, is a substitute for local-government financing vehicles that led the stimulus effort after the 2008 financial crisis, according to George Magnus, London-based senior independent economic adviser to UBS Group AG. “Policy development banks are the new LGFVs,” he said. Serving as a form of fiscal policy set by the central government, “the scale of their activities is more measured, and less reckless.” Bloomberg News
Beijing to cut import tariffs of some IT products China will cut import tariffs for over 200 information technology products for the World Trade Organization’s most favoured nations from September 15, the Ministry of Finance said yesterday. This is the first time China has cut tariffs for these products, the online statement said, adding that Beijing aims to reduce most import duties for the products on the list to zero within three to five years. A small number of products will have their tariffs reduced to zero within seven years, the statement said. Shadow financing
Shanghai police investigates online fundraising Shanghai’s police force has started an investigation into two online platforms after receiving reports from investors that they had been involved in “illegal fundraising,” the city’s Public Security Bureau said. Jinlu Fund and Dangtian Caifu had promised investors a fixed yield of about 10 per cent without obtaining proper legal permission, according to the statement, which was released on the bureau’s official Weibo account Tuesday. The police have taken “restrictive measures” in connection with the case, and will try to recover as much of the assets as possible, the bureau said.
China produced 27 gigawatts (GW) of solar photovoltaic (PV) modules in the first half of 2016, an increase of 37.8 per cent and installed 20 GW of new solar power capacity in the same period, three times as much as the same period a year ago. However, demand has since tailed off. Solar projects operational since July face a reduced price paid by grid operators for their power. The China Photovoltaic Industry Association (CPIA) has forecast total new capacity by the year-end will be 30 GW, implying just 10 GW in the second half. EU ProSun, an association of EU solar producers, says the price of some panels had fallen to below 0.40 euros per watt, compared with a previous average European price of about 0.50 euros.
has kept interest rates on hold since October and the RRR unchanged since February. With policy makers keen to avoid fuelling bubbly housing markets in some major cities or inflows into shadowy wealth management products, policy bank lending can bolster growth where it’s needed. Indeed, cities from Shanghai to Shenzhen have been rolling out tightening measures this year as local officials tackle overheating that followed past broad monetary stimulus. Ma Jun, the PBOC research department’s chief economist, called for steps to restrain bubble-like expansion in housing markets and tame excessive financial inflows into property, according to the transcript of an interview with China Business News published Sunday. The rising reliance on this small cluster of banks marks a recentralization of economic control occurring under the presidency of Xi. They’re also being used to write checks for Xi’s ambition to promote the country’s economic clout overseas by funding projects including Indonesia’s first high-speed train.
Trade
Securities
Hong Kong yuan borrowing rate at new 7-month peak Traders and analysts expect the yuan borrowing rate to remain volatile in the short-term. Michelle Chen
Hong Kong’s overnight yuan borrowing rate surged to a fresh seven-month high yesterday on tightening liquidity, as banks turned cautious about lending out yuan funds ahead of the long holiday weekend. China’s financial markets are closed from today for the Mid-Autumn Festival, and Hong Kong’s markets are shut on Friday. Traders and analysts expect the yuan borrowing rate to remain volatile in the short-term amid speculation that China’s central bank will try to keep its currency stable before its official inclusion into the International Monetary Fund’s Special Drawing Rights (SDR) basket in October. The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city’s Treasury Markets Association (TMA), hit the highest level in seven months at 8.16167 per cent for overnight contracts. It was 2.838 per cent on Tuesday. “I don’t think the rising CNH Hibor is caused by one single reason. We are near quarter-end and close to SDR inclusion, and also there will be holidays, which makes banks cautious (in terms of yuan lending),” said Kelvin Lau, a senior economist at Standard Chartered Bank in Hong Kong. “CNH Hibor is likely to drop after the National Day holiday in October,” Lau said, referring to the week-long holiday on the mainland early next month. “It’s one year after the yuan’s sharp depreciation and quite soon it will be included into the SDR basket, so there’s speculation that China’s central bank might intervene to stabilise it.
But there’s no confirmation of that,” said Mitul Kotecha, Barclays’ head of Asia Pacific FX Strategy in Singapore. Kotecha said it was hard to say when the volatility would end as there were a number of events, such as the Fed’s policy decision next week, that could affect markets. Some traders believe the rising CNH Hibor is a result of the People’s Bank of China moving yuan funds back onshore after their forward positions offshore matured recently. The central bank had acted to stabilise the yuan after its sharp depreciation last August. But traders say there is no panic in the market and no sign of big scale central bank intervention. The surge in the CNH Hibor also affected the onshore market and forced banks there to sell dollars, according to onshore traders. Reuters
Graft watchdog uncovers irregularities at regulator China’s graft watchdog unearthed a raft of problems at the country’s securities regulator in recent years, including illegal share trading by officials’ family members, prompting the head of the regulator to vow to eradicate corruption. The revelations came at an internal meeting of leading Communist Party members in the China Securities Regulatory Commission (CSRC) amid a sweeping anti-corruption campaign launched more than three years ago by President Xi Jinping, according to a notice on the CSRC’s website late on Tuesday. Markets
C.bank working on Shanghai-London stock connect China’s central bank is preparing the groundwork for a proposed link between the Shanghai and London stock exchanges that will allow investors on one bourse to invest in the other, the Securities Times reported yesterday. The newspaper said that officials from the Chinese government and the City of London met in Beijing on Tuesday to discuss financial cooperation, green finance, and other topics. If the work on the stock connect scheme runs into specific difficulties, the People’s Bank of China and other regulators will act together to push forward, Ma Jun, chief economist at the PBOC’s research bureau, was reported as saying.
10 Business Daily Thursday, September 15 2016
Greater China Protectionism
U.S. challenges Mainland wheat, rice, corn price at WTO China’s commerce ministry said that it would initiate discussions in accordance with WTO regulations. David Lawder and Nathaniel Taplin
T
he United States launched a challenge to China’s price supports for domestic wheat, corn and rice at the World Trade Organization, charging that these far exceed limits that China committed to when it joined the WTO in 2001. The move opens a new front in the increasingly tense trade relations between the world’s two largest economies, with disputes ranging from Chinese overcapacity in steel and aluminium to Chinese anti-dumping duties on American broiler chickens.
China’s Ministry of Commerce on Tuesday evening said it “regretted” the U.S. action and that its agricultural support policies were consistent with World Trade Organization regulations and international practice. The U.S. Trade Representative’s office said China’s “market price support” for wheat, corn and rice was estimated to be nearly US$100 billion above the WTO limits and constituted an artificial government incentive for Chinese farmers to increase output, lowering prices worldwide. USTR said it found that China’s domestic price supports for wheat, Indica rice, Japonica rice and corn
had all exceeded the 8.5 per cent “de minimis” level allowed under the WTO commitment for every year since 2012. The first step in its formal WTO complaint is to seek formal consultations with Chinese officials to try to resolve the dispute without litigation. China’s commerce ministry said that it would initiate discussions in accordance with WTO regulations. “These programs distort Chinese prices, undercut American farmers, and clearly break the limits China committed to when they joined the WTO,” U.S. Trade Representative Michael Froman said in a statement. “We will not stand by when our trading partners fail to follow the rules like everyone else.”
U.S. wheat industry trade groups estimate that the Chinese price supports guarantee Chinese farmers about $10 per bushel, artificially boosting production and lowering world prices. They cited University of Iowa research showing this cost U.S. farmers about US$653 million in lost revenue last year. On Monday, the U.S. Department of Agriculture said U.S. farmers would receive an average price of US$3.30 to US$3.90 a bushel for wheat in the marketing year that started on June 1.
Key Points China says its policies in line with WTO rules Move opens new front in tense trade relations Obama administration keen to show will enforce trade agreements
The action marks the Obama a d m i n i s t ra t i o n ’ s 2 3 r d t ra d e enforcement challenge lodged with the WTO since 2009, and the 14th against China. The administration is keen to show that it will vigorously enforce trade agreements as it makes a final push for Congress to pass its Trans-Pacific Partnership trade deal. U.S. lawmakers from both parties applauded the move. “When I have to go out and defend trade agreements, the single most important story I can tell is we are enforcing the agreements that we have,” said Senator Heidi Heitkamp, a North Dakota Democrat. “The message is sent: we will take aggressive action in the WTO when we see trade policy fail.” Reuters
State visit
Peru’s President throws cold water on Beijing’s railway proposal He travelled to China over the weekend for a five-day visit aimed at finding investments in refineries, ports and railways and broadening access to food markets. P e r u P r e s i d e n t P e d r o Pab l o Kuczynski said a transcontinental railway proposed by China to slash the costs of shipping Brazilian goods to Asia could be too expensive and environmentally harmful to build. Peru and China agreed to study the feasibility of a 5,300-kilometer railroad to link Brazil’s Atlantic coast with a port on Peru’s Pacific shores last year during the term of Kuczynski’s predecessor, Ollanta Humala. Environmentalists said the project, which would cross the Amazon and the Andes, could destroy rainforest and put indigenous tribes at risk. Kuczynski, who took office in July, said in an interview with local broadcaster RPP from Beijing that he flagged his concerns about the potential project with China’s main railway builder during an official visit to the Asian powerhouse. “I told them, without getting confrontational, that this transAmazonic train has very high costs, it could have environmental impacts and we have to look at that carefully,” Kuczynski said without elaborating. Kuczynski said the Chinese railway company, which he did not name, was interested in building a
commuter train on Peru’s central coast that he has pitched as part of his bid to boost economic growth through infrastructure development.
Kuczynski, a 77-year-old former Wall Street banker, travelled to top trade partner China over the weekend for a five-day visit aimed at finding investments in refineries, ports and railways and broadening access to food markets. Kuczynski told RPP that Aluminum Corp of China Limited was interested in building an alloy smelting plant in Peru and that representatives
of China’s iron and steel industry expressed interest in building a steel plates factory. Kuczynski wants Peru, the world’s third biggest copper producer and sixth largest gold producer, to squeeze more value out of its mineral exports by ramping up its refining and smelting capacity. Kuczynski has previously said Peru could process copper concentrates with high levels of arsenic from Aluminum Corp’s Toromocho mine. Chinese smelters are banned from taking concentrates with high levels of arsenic, a toxic chemical that can cause cancer. Reuters
Chinese President Xi Jinping (R) and Peruvian President Pedro Pablo Kuczynski (L) attend a signing ceremony at the Great Hall of the People in Beijing, China, 13 September 2016.
Business Daily Thursday, September 15 2016 11
Asia Monetary policy
Bank of Japan to mull making negative rates centrepiece of future easing Central bank officials have become increasingly wary of the costs of negative rates. Leika Kihara
T
he Bank of Japan (BOJ) plans to make its controversial negative interest rate policy the centrepiece of future monetary easing, promising to weigh further cuts as expansions to asset buying near their limits, the Nikkei newspaper reported yesterday. While sources have told Reuters the BOJ may make its massive government bond purchasing more flexible, the Nikkei said that in doing so the central bank will likely maintain its pledge to increase its holdings at an annual pace of 80 trillion yen (US$780 billion). The plan will be part of the BOJ’s comprehensive assessment of its stimulus programme, which combines negative rates with a massive asset-buying programme, at next week’s rate review. Such changes would underscore a growing concern within the central bank over its dwindling policy options, with its aggressive bond purchases draining market liquidity and failing to accelerate inflation to its 2 per cent target. Whether the BOJ will actually deepen negative rates next week will depend on yen moves and the board’s debate on the state of the economy, the Nikkei said without citing sources. By shifting its focus to negative
rates, the BOJ will have more options to draw on in case an expected U.S. interest rate hike comes later than forseen - strengthening the yen. But analysts doubt whether deepening negative rates next week would ensure a lasting weakening of the yen. “If the BOJ pushes rates to minus 0.3 per cent next week, that will probably leave it with just one more chance to cut rates and may reinforce views there won’t be much room left to slash rates,” said Masafumi Yamamoto, chief bond strategist at Mizuho Securities. “It’s also uncertain whether the BOJ can dispel market concerns that its bond buying is reaching its limits.” At next week’s review, the BOJ is likely to maintain its pledge to hit
its 2 per cent inflation target “at the earliest date possible,” say sources familiar with its thinking. But with more than three years having passed since deploying its huge asset-buying programme, the central bank will abandon the twoyear timeframe it set for achieving the goal, they said. BOJ officials no longer mention the two-year timeframe in their speeches and it is not included in its policy announcements. But the deadline has not been officially ditched either, blamed by critics for forcing the BOJ to come up with overly optimistic inflation forecasts. The BOJ added negative rates to its asset-buying programme in February in a renewed effort to push up prices. But the move has failed to address unwelcome yen rises and drew criticism from financial institutions for squeezing already thin margins. BOJ officials have also become
increasingly wary of the costs of negative rates, which have flattened the yield curve more than they had expected and raised concerns that it would impair financial intermediation.
Key Points BOJ to mull making its bond buying more flexible-sources BOJ likely to maintain pace of bond buying-Nikkei Changes underscore BOJ’s dwindling policy options BOJ to keep price goal, ditch 2-yr timeframe-sources BOJ to meet Sept. 20-21, review policy effects
Sources have told Reuters that the BOJ is studying several options to steepen the bond yield curve, including ways to cut short- to medium-term bond yields while pushing up super-long yields from undesirably low levels. The BOJ may consider reducing purchases of government bonds with maturities longer than 25 years to push up super-long yields and give financial institutions a better environment for earning returns, the Nikkei said. Purchases of shorter-term bonds could be increased to compensate, as some claim overall buying should be kept at the current pace, the paper said. Reuters
Infrastructure
Indonesia to resume work on “Giant Sea Wall” to save sinking Jakarta Included in the master plan is the building of 17 artificial islands off Jakarta’s northern coast. Agustinus Beo Da Costa
Indonesia will resume land reclamation that will help prevent Jakarta from sinking below sea level, a cabinet minister said, five months after work was suspended due to regulatory and environmental concerns. Greater Jakarta, one of the world’s most densely populated cities, sits on a swampy plain and is sinking at a faster rate than any other city in the world. Jakarta has focused its attention on bolstering its defences with a 15-mile sea wall and refurbishing the crumbling flood canal system. The government decided late on Tuesday to allow work to continue on a key phase of the “Giant Sea Wall”, which aims to shore up northern Jakarta while revamping the capital’s image into a Singapore-like waterfront city. “If this Giant Sea Wall is not done, that will create a big impact on Jakarta with regards to salt water penetration,” Coordinating Maritime Minister Luhut Pandjaitan told reporters on
Tuesday. Included in the master plan is the building of 17 artificial islands off Jakarta’s northern coast, where property developers plan to build shopping malls and attractions similar to Singapore’s Sentosa Island. But work on that project was
‘Work on that project was suspended in April following disagreements between the government and the Jakarta governor’
suspended in April following disagreements between the government and the Jakarta governor over who had authority to issue permits. Some fishermen have also protested against reclamation, saying it would reduce their catch. In response, the government plans to offer them fishing permits in waters near the Natuna Islands. The suspension in April also threatened to delay Indonesian property
developer PT Agung Podomoro Land’s multi-billion-dollar Pluit City, comprising apartments, offices and shopping malls on parts of artificial land it was constructing. “We are still waiting for government direction,” said Justini Omas, the company’s corporate secretary. “Previously, we had planned that construction of the island would be done in 2018.” Earlier this month, former Agung Podomoro executive Ariesman Widjaja was jailed for three years for bribing a member of the Jakarta provincial assembly to influence the regulation for the land reclamation, media said. Reuters
12 Business Daily Thursday, September 15 2016
Asia Ausgrid bids
Australia courts US, Canada after rejecting Chinese Despite China being Australia’s biggest trading partner and a major investor. Jamie Freed
N
orth American bidders will not need an Australian partner to bid for Australian electricity distributor Ausgrid, an adviser on the potentially A$10 billion (US$7.46 billion) deal said, after the government rejected sole offers from Chinese interests. Canadian funds such as Canada Pension Plan Investment Board and Borealis Infrastructure had this month been advised during a roadshow that they did not need Australian partners if they bid through a consortium, the source told Reuters.
was you needed to have domestic participation.” Despite the guidance given on the North American roadshow, there was still significant uncertainty over what kinds of bids would be acceptable and whether the government would risk angering China by approving a majority foreign bid of any sort. Australia last month blocked Chinese state-owned State Grid and privately run Hong Kong firm Cheung Kong Infrastructure (CKI) from bidding for a 50.4 per cent controlling stake in Ausgrid, citing national security concerns.
State Grid and CKI are believed to have offered about A$13 billion for Ausgrid, the largest power network in the country. A NSW government spokesman declined to comment on whether the state had received advice from the Foreign Investment Review Board (FIRB) on what sort of bids would be acceptable. A spokesman for federal Treasurer Scott Morrison declined to comment on whether his office or FIRB had provided any advice to the state government. While China is Australia’s biggest trading partner and a major investor, Canberra cooperates closely on intelligence matters with Canada and the United States. Canadian
funds have participated in recent infrastructure deals in Australia including the sales of ports and rail group Asciano and transmission network operator Transgrid. University of Western Australia international relations Professor Mark Beeson said Australia ran the risk of upsetting China if it allowed 100 percent foreign ownership of the grid. “The Chinese and others would not unreasonably ask, ‘What is going on here?’” he said. Chinese Commerce Ministry spokesman Shen Danyang last month said the rejection of the Chinese bids was “protectionist and seriously impacts the willingness of Chinese companies to invest in Australia”. But an investment banker said allowing North American bidders to act through a consortium would help the government justify the rejection of State Grid and CKI, who had bid alone. Reuters
Key Points Nth Americans told local partners not a requirement - source Investment banker says advice a “surprise” Australia cited security concerns in rejecting sole Chinese bids The adviser to the New South Wales state government, which is selling the asset, requested anonymity because he is not authorised to speak publicly. An investment banker representing interested parties said he also had heard from colleagues at the roadshow that no Australian partners were necessary for North American bidders acting through consortiums. “It was a surprise,” he said, declining to be identified for reasons of client confidentiality. “Everyone’s starting assumption
Australia last month blocked Chinese state-owned State Grid and privately run Hong Kong firm Cheung Kong Infrastructure
Islamic finance
Indonesia takes aim at sukuk shortage with 10-year plan Global sukuk issuance is lacklustre despite a surge in sovereign debt in the Middle East. Bernardo Vizcaino
Indonesia is taking aim at one of the biggest weaknesses of the global Islamic finance industry - the lack of an ample, reliable supply of sharia-compliant bonds - with one of the most ambitious schemes to boost issuance so far. Although sukuk are a common funding tool across the Middle East and Southeast Asia, with sovereign and quasi-sovereign issues representing around two-thirds of total sales, supply is irregular, in particular for U.S. dollar-denominated deals. Year-to-date, global sukuk issuance in all currencies totals US$39.5 billion, Thomson Reuters data shows, down from US$47.5 billion in 2015 a year when it was cut by a sudden decision by Malaysia’s central bank to stop issuing short-term sukuk. Shrinking issuance can put Islamic banks at a disadvantage, limiting instruments needed to manage their money profitably and meet liquidity requirements. The International Monetary Fund has urged governments to ensure regular issuance by incorporating sukuk into national
debt management strategies. Indonesia is doing just that with an industry master plan, unveiled last month, that envisages sovereign sukuk issuance rising to around 50 per cent of total debt issuance over the next 10 years from around 13 per cent last year. Sovereign sukuk issuance would increase by around 5 per cent yearon-year, with government agencies encouraged to use sukuk to fund infrastructure, agriculture and educational projects. Anita Yadav, head of fixed income research at Emirates NBD in Dubai, said Jakarta’s target is ambitious but there would be a natural incentive among issuers to meet domestic banks’ appetite for Basel III instruments. “The growth in domestic market may be easy to achieve but the growth in the international market will likely be slower.”
Gulf
Global sukuk issuance is lacklustre despite a surge in sovereign debt in the Middle East, where governments are scrambling to cover budget
“The growth in domestic market may be easy to achieve but the growth in the international market will likely be slower.” Anita Yadav, head of fixed income research at Emirates NBD in Dubai Saudi Arabia, home to the world’s largest Islamic banks, plans a debut sale of dollar bonds this year that could raise over US$10 billion, but it is unclear whether sukuk would be included. In April, Riyadh raised US$10 billion via an international bank loan.
Khalid Howladar, global head of Islamic finance at rating agency Moody’s, said many Gulf governments were reluctant to fund deficits with sukuk because of less standardised and more complex structures, leading to higher issuance costs. This conflicts with the mandate of government Treasuries to raise funding in a cheap and efficient way, he said. Some foreign investors also prefer conventional bonds over sukuk for simplicity and familiarity of structures, said Yadav at Emirates NBD. Indonesia hopes regular issuance can mitigate such concerns and provide benchmarks to encourage local firms to follow suit. Unlike the Gulf, Indonesia is an established issuer of dollar-denominated sukuk; it raised US$2.5 billion in February in a dual-tranche deal that was three times oversubscribed. Jakarta is also expanding the investor base for its sukuk. Last week it sold 2.6 trillion rupiah (US$197.2 million), more than targeted, using a new non-tradable savings sukuk aimed at retail investors. Indonesia’s drive may influence other countries seeking to develop their own sukuk markets. Last November, Pakistan’s Ministry of Finance said it would reduce use of conventional debt by between 20 to 40 per cent of total financing in favour of Islamic modes, though it did not specify a timeframe. 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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damage inflicted by low oil prices. Fresh supply may come in the next few months from Kuwait, which plans to raise up to 3 billion dinars (US$10 billion) from international markets via bonds and sukuk. Generally, however, governments have disappointed investors looking for more sukuk. In April, Abu Dhabi returned to the international market after a seven-year absence with a US$5 billion conventional bond; Qatar raised US$9 billion in May, the biggest bond offer ever seen in the Gulf.
Business Daily Thursday, September 15 2016 13
Asia Monetary policy
In Brief
Thailand holds key rate Central bank maintained its 2016 export forecast at -2.5 per cent Orathai Sriring and Kitiphong Thaichareon
Thailand’s central bank left its key interest rate unchanged yesterday, as expected, and marginally raised its 2016 growth forecast but also projected that next year will be the fifth straight in which exports shrink. It said current monetary policy still supports economic recovery and there’s a need to “preserve policy space given that the Thai economy would still be facing greater uncertainties going forward”. The Bank of Thailand’s Monetary Policy Committee (MPC) voted unanimously to keep the one-day repurchase rate at 1.50 per cent, where it has been since April 2015. The BOT (Bank of Thailand) marginally increased its 2016 economic growth forecast to 3.2 per cent, from 3.1 per cent seen three months ago, and kept next year’s growth
projection at 3.2 per cent. It also maintained its 2016 export forecast at -2.5 per cent while predicting they will slip 0.5 per cent next year, rather than not change from 2016.
Key Points Committee unanimously keeps policy rate at 1.50 pct 2016 GDP growth seen at 3.2 pct, rather than 3.1 pct Exports seen shrinking 0.5 per cent next year C.bank: We need to preserve ‘policy space’ Traditionally, exports has been a key driver of growth, but they have contracted in each of the past three years.
All but one of 25 economists polled by Reuters had predicted no rate change. One forecast a 25 basis point cut. Krystal Tan of Capital Economics said that she doubts the improvement in growth seen in the second quarter - an annual rate of 3.5 per cent - will last. “With growth set to slow and inflationary pressures very low, further easing is likely in the coming quarters,” she wrote. Jack Chambers, economist at Moody’s Analytics, said there could be a cut before year-end. Thailand has two more policy meetings in 2016.
Reduced tourist numbers?
The BOT predicted headline inflation of 0.3 per cent this year compared with 0.6 per cent seen in June. For next year, it now expects 2.0 per cent rather than 2.2 per cent forecast earlier. Although the May 2014 coup ended months of political unrest, the junta has struggled to revive Southeast Asia’s second-largest economy as exports and domestic demand remain sluggish. Tourism, accounting for 10 per cent of Thai GDP, has been a rare bright spot. But bombings in resort towns in August could hurt the industry. The central bank cut its forecast for tourist arrivals by 400,000 to 33.6 million this year due to the bombings, a crackdown on “zero-dollar” tours and economic problems of trading partners. This year, strength of the baht has sparked some calls for the central bank to weaken it. The baht has appreciated about 3 per cent this year. The baht “will still be on the MPC’s radar and the central bank will closely monitor players in the market,” Assistant Governor Jaturong Jantarangs told reporters. Reuters
Current account
India expected to post first surplus in 9 years The Reserve Bank of India is expected to release the June quarter data this month. Suvashree Choudhury
India is likely to post its first current account surplus in nine years in the latest quarter, which should bolster the rupee though it is not a good sign for the economy as it reflects weak investment demand at home and subdued exports, analysts said.
“But it is not a cause for celebration, so far as the RBI is concerned, as it is a reflection of weak investment demand which is impacting the pick up in imports.” A Prasanna, economist at ICICI Securities Primary Dealership Ltd. Forecasts given by investment houses’ research notes and from analysts that Reuters spoke to showed expectations centring on a surplus of US$4 billion, or 0.8 per cent of GDP, in April-June quarter. That compared with a deficit of US$6.2 billion, equivalent to 1.2 per cent of GDP, in the same quarter a year ago. And, if the forecasts prove correct it will be the first surplus
since January-March 2007, though India is unlikely to keep the surpluses coming. For the full year ending in March 2017, India is likely to post a deficit even lower than last year’s 1.1 per cent of GDP, as foreign investment inflows remain steady - and that should be broadly supportive for the rupee. Analysts have revised down their forecasts for the 2016/17 deficit to below 1.0 per cent from earlier projections of between 1.2-1.5 per cent. For a developing economy like India slow import growth is a negative sign, as it reflects weak investment demand because Indian firms need to buy capital goods and machinery from abroad.
That weakness in the economy, analysts say, could persuade the Reserve Bank of India to keep liquidity easy for now. The RBI is also unlikely to let the rupee strengthen too much, and any central bank action to take dollars out of the market will add to rupee liquidity. “The improvement in current account deficit is definitely positive for the rupee...” said A Prasanna, economist at ICICI Securities Primary Dealership Ltd. “But it is not a cause for celebration, so far as the RBI is concerned, as it is a reflection of weak investment demand which is impacting the pick up in imports.” Trade data released last month showed imports fell 16.33 per cent to US$114 billion in the four months through July thanks to lower gold and oil import bills, while exports fell 3.62 per cent to US$87 billion. Reuters
Customs
Vietnam trade surplus more than expected Vietnam reported a trade surplus of US$573 million in August, above the US$200 million surplus the government had estimated for last month. August exports rose 8 per cent from the previous month to US$16.1 billion, while imports increased 8.2 per cent from July to US$15.5 billion, the Finance Ministry-run Vietnam Customs said on its website yesterday. Vietnam exported US$113.21 billion worth of goods during the JanuaryAugust period and imported US$110.34 billion, leaving a surplus of US$2.87 billion for the eight-month period, the report said. In 2015, Vietnam posted its first annual trade deficit in four years, at US$3.5 billion. Finance ministry
Sri Lanka aims for reduced budget deficit Sri Lanka’s Finance Minister Ravi Karunanayake has told the International Monetary Fund the country will reduce its budget deficit to 4.7 per cent of gross domestic product (GDP) in 2017 from this year’s 5.4 per cent, his ministry said yesterday. “This year’s target will be 5.4 per cent. It will be further reduced to 4.7 per cent in 2017,” Karunanayake had told the IMF mission, his ministry said in a statement. The IMF mission is in Colombo for a review of a US$1.5 billion loan approved for Sri Lanka to support the country’s economic reform agenda in June this year. Environment
Australia to cut funds to renewable energy agency Australia is to cut A$500 million (US$375.50 million) in funding from its renewable energy agency as it strives to plug a US$6 billion budget shortfall, a smaller cut than initially planned. The Australian Renewable Energy Agency (ARENA) will get A$800 million in funding over the next five years. Under an earlier government plan, the agency’s funding was due to be cut by A$1.3 billion but the cut was softened after negotiations with the opposition. “As part of the agreement we will restore US$800m of ARENA’s funding over five years,” Minister of Energy and Environment said. Fitch
Japan experience shows risks of fiscal spending A spending spree by developed economy governments is unlikely to give a lasting boost to growth and may well just leave them with higher debts if Japan’s experiences are anything to go by, Fitch’s head of sovereign ratings said on Tuesday. Calls have been growing for governments to switch from austerity to spending again amid worries that the negative interest rates and money-printing used by some of the world’s top central banks are losing their beneficial impact. The argument is that governments should take advantage of the record low borrowing costs to invest in infrastructure for the future.
14 Business Daily Thursday, September 15 2016
International In Brief Market orientation
U.N. challenges approach to drug R&D The world cannot rely solely on free markets to deliver medicines needed by billions of people in poor countries, so governments should commit to a legally binding convention to coordinate and fund research and development. That’s the conclusion of a major United Nations report, which is bound to stir fierce debate between supporters of the current market-based system of drug development and those favouring a greater role for the state. The high-level panel was set up last year by UN Secretary-General Ban Ki-moon to find solutions to the “policy incoherence” between the rights of inventors, international human rights law, trade rules and public health needs.
Stimuli
EU’s Juncker proposes to double investment fund to create jobs The European Commission will launch a new 88 billion euro scheme to help growth in Africa and the Middle East.
T
he president of the European Commission proposed yesterday to double the capacity of an investment fund for boosting EU growth and jobs, while launching a new scheme to help countries at the source of huge migrant flows to Europe. Jean-Claude Juncker told the European Parliament in Strasbourg that the Commission plans to double to 630 billion euros (US$707 billion) the capacity of its investment vehicle for Europe, and will launch a new 88 billion euro scheme to help growth in Africa and the Middle East. The idea behind the new fund for
external investments is to create infrastructure and jobs that will reduce the incentive for people to head to Europe. In a chaotic wave of immigration last year, 1.3 million people reached the southern shores of the European Union, prompting bitter divisions over how to share responsibility for them. “Today we are launching an ambitious investment plan for Africa and the neighbourhood which has the potential to raise 44 billion euros in investment. It can go up to 88 billion if member states contribute,” Juncker told lawmakers. He also proposed to double the capacity and the duration of
the European Fund for Strategic Investments (EFSI), launched in 2015 with the aim of generating investments of at least 315 billion euros by 2018, of which 116 billion have been already raised. The fund focuses mostly on infrastructure, energy, research and education. Some EU countries are still grappling with double-digit unemployment rates since the global financial crisis. Juncker proposed to increase the level of investments generated by the fund to 500 billion euros by 2020 and 630 billion in 2022. “With member states contributing, we can get there even faster,” he said. The fund relies on private and national contributions to reach its targets. In its current form it uses 21 billion euros of EU cash and guarantees to attract private investments for 15 times that amount. Reuters
Moody’s
Portuguese banking sector remains fragile Rating agency has said it considers the Portuguese banking sector remains fragile, even after capital increases carried out over the last few years and the injection of public capital planned for state bank Caixa Geral de Depósitos. “The banking sector is a risk to sovereign [rating on sovereign debt] as it remains under capitalised”, according to the agency, which added the circumstances of Portuguese banks were a threat to the country’s economy and accounts. According to Moody’s there have been improvements in the capitalisation of the sector as a whole, but the level is less than needed to absorb the losses of restructuring their clients’ debts. Angola
Currency reserves fall by US$6 million Angola’s foreign reserves fell by US$6 million, to US$23.963 billion between June and July, or over 1.2 per cent less since the beginning of the year, according to preliminary figures from the National Bank of Angola (BNA). The figures are included in a monthly BNA report on Angola’s Net Foreign Reserves, compiled by Lusa, showing a loss of US$6 million in July, the lowest monthly drop since the beginning of the year. Angola is facing a severe financial and economic crisis due to a 50 per cent drop in revenues from oil. Google News
Publishers may get paid for online news Newspaper publishers would get the right to curb the online use of their content, allowing them to demand payment from Google News and other sites that use clips of their articles, under new European Union draft copyright rules published yesterday. Regulators are seeking to protect publishers and creators when their work is made available on the Internet, often without payment. Publishers complain that Google, owned by Alphabet Inc., is free-riding by making profits from advertising shown next to their content.
President of the European Commission Jean-Claude Juncker prepares for the annual State of The European Union speech in the European Parliament in Strasbourg, France, 14 September 2016. Lusa
Blow to stagnation
U.S. household income posts record surge While median income remained below where it stood prior to the recession, the Census Bureau data suggested the tide was turning. U.S. household income posted a record increase in 2015 after years of stagnation, suggesting the recovery from the Great Recession was finally lifting ordinary citizens who had been largely left behind. The Census Bureau said on Tuesday that median household income surged 5.2 per cent last year to US$56,500, the highest since 2007, in large part due to solid employment gains. The jump was the biggest since record keeping began in 1968. Trudi Renwick, an assistant division chief at the Census Bureau, said on a conference call with reporters it was striking that median household income rose across the board. “It’s up for almost every age group of household heads. It’s up for almost every racial group,” except Asians, she said. Concerns about income growth have hung over the U.S. presidential election, with many Americans expressing dissatisfaction with an economy that has managed only sluggish expansion since the 20072009 recession. President Barack Obama hailed the report as evidence that his administration’s economic policies were paying off, but said more needed to be done to put unemployed Americans back to work. “The Republicans don’t like to
hear good news right now. But it’s important just to understand this is a big deal,” Obama in Philadelphia, where he was campaigning for the Democratic Party’s presidential candidate Hillary Clinton.
Further gains expected
Chris Christopher, head of consumer economics for IHS Global Insight, said he expected incomes to continue to gain ground through 2017 with higher employment and modest inflation. The unemployment rate has declined from a peak of 10 per cent in October 2009 to 4.9 per cent last month. With incomes rising, the number of people living in poverty fell 3.5 million to 43.1 million last year. That pushed the 2015 poverty rate down to 13.5 per cent from 14.8 per cent in 2014. The poverty rate has continued to edge down since hitting a 17-year high in 2010. The latest drop is the largest percentage point decline since 1999, Census officials said. In another encouraging sign, the number of residents without health insurance dropped to 29 million last year from 33 million in 2014. Nearly 91 per cent of people in the United States had health coverage, up from 89.6 per cent the previous year. “The three key indicators of well-being ... all moved decisively
in the right direction in 2015 - the first time that has occurred in nearly two decades,” said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities. An alternative measure of poverty that takes into account non-cash benefits, including food stamps and refundable tax credits, fell onetenth of a percentage point to 14.3 per cent.
Key Points Median household income increases 5.2 per cent in 2015 Poverty rate falls to 13.5 per cent from 14.8 per cent Share of uninsured residents falls to 9.1 per cent
Analysts cautioned against reading too much into this still-high supplemental poverty rate because it reflects the withdrawal of generous benefits put in place during and immediately after the recession to cushion families. Women working full-time saw a boost in earnings last year, with the median income rising 2.7 per cent to US$40,742. The median income for men working full-time increased 1.5 per cent to US$51,212. The gains for both genders were the biggest since 2009. Despite the broad-based gains, there was little progress in reducing income inequality. Reuters
Business Daily Thursday, September 15 2016 15
Opinion Business Wires
Taipei Times Acer Inc is mulling merging its subsidiary Weblink International Inc into its Taiwanese operational branch in a bid to shorten the product distribution process and improve the firm’s operational efficiency, a company executive said yesterday. “The decision is not yet final, but we will certainly let Weblink share more operational responsibility with Acer’s Taiwanese branch,” Acer Taiwan operations president and Weblink president Dave Lin said. Weblink, established in 1997, is the nation’s second-largest distribution agent for software and information technology products. The company serves as a bridge between information technology vendors and local retailers.
Thanh Nien News The Netherlands-based Uber BV will have to pay taxes owed both by itself and its drivers, the Vietnamese finance ministry has decided. Uber BV issues invoices for rides and handles revenues in Vietnam, but pays no taxes. According to the decision, the taxi hailing company will have to authorize its subsidiary in Vietnam or a third party to declare and pay those taxes. Uber BV will have to pay 3 per cent VAT and 2 per cent corporate income tax. Uber drivers have to pay 3 per cent VAT and 1.5 per cent income tax.
The Times of India Implementation of Goods & Service Tax (GST) will lead to increased tax compliance and attract more foreign direct investments across sectors due to tax transparency and ease of doing business, says a survey. According to a survey of corporate India by Feedback Business Consulting Services, which covered 67 companies from various sectors, GST rollout will be positive for the economy. Around 72 per cent respondents felt investments will rise across sectors and a significant portion of this will come in the form of FDI especially in heavy engineering and automotive sectors.
The Phnom Penh Post Rising incomes (in Cambodia) and more flexible payment options are driving an increase in consumer spending on home appliances even as overall sales growth slows, according to market researchers, who found that Cambodians with rising expectations are buying bigger modern appliances for their homes. In its latest audit of domestic appliance sales for seven countries in Southeast Asia, German-based market research firm GfK found that consumer spending on refrigerators, air conditioning units and washing machines grew by 2 per cent during the year ending June 2016.
“New normal” in monetary policy implies same for stocks
A
s the Federal Reserve wakes up to the “new normal” in policy, investors will have to do the same. Having enjoyed months of nearly unexampled tranquillity, global markets staged a modest sell-off last week, with jumpy traders somehow convincing themselves that Federal Reserve archdove Lael Brainard would play the role of grim reaper in a Monday speech. Rather than hinting at a September surprise interest rate hike, Brainard argued for a “new normal” in monetary policy, implying a very slow rate of increasing interest rates. “Asymmetry in risk management in today’s new normal counsels prudence in the removal of policy accommodation,” Brainard said, noting that the “risk of being unable to adequately respond to unexpected weakness is greater.” Brainard was also blunt in highlighting the lessons of Japan and Europe, where extraordinary policy has failed to gain the expected traction. “It is striking that despite active and creative monetary policies in both the euro area and Japan, inflation remains below target levels. The experiences of these economies highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation.” Little of this is new, but as the last scheduled Fed speaker ahead of a blackout period before next week’s Fed policy meeting, Brainard did not present as someone preparing the way for an unexpected rate hike. Risk markets loved it, with stocks and bonds rallying and the dollar falling. Perceived chances of a September hike, as implied by futures trading, fell to 15 percent from 24 percent yesterday, with the first increase not priced in until December, after the November 8 presidential election. Just because the Fed will go slowly, and may not normalize rates for an extended period, does not mean strong returns ahead. The European Central Bank and Bank of Japan are buying up bonds at a roughly US$2 trillion annual pace, absorbing essentially all net new sovereign, corporate and asset-backed bond issuance in dollars, yen and euros over the past year, according to Barclays. That’s helped the broad U.S. stock market to rise 6 percent on the year but there are good reasons to think these, and the gains of the past few years, have been borrowed from the future.
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James Saft a Reuters columnist
Slow bleed
Remember that as bond yields have fallen, liquidity has flowed into other higher-yielding and riskier instruments, such as low-volatility stocks. Marko Kolanovic, global head of derivatives and quantitative research at JP Morgan, argued in a note last week that normalization of interest rates will pose difficulties for markets even if it is extremely gradual. “For instance, if central banks normalize policy very gradually over three years and the economy doesn’t stall, one could see near-zero returns for equities over that time period,” Kolanovic wrote in a note to clients. A r o u gh l y 20 p e rc e n t withdrawal of central bank liquidity over that period would, thus, more or less cancel out the typical annual return of 7 percent or so on stocks. Bonds, especially, at current yields, would have negative total returns. That’s the more positive scenario. If central banks move quickly, or investors try to get in front of a tightening cycle, we might get all of our losses out of the way at once. This, of course, is very much part of the reason central banks won’t start normalizing in September, and even if, as expected, December brings with it a hike, it is unlikely to be followed up by many next year. Which is not to say that the Fed is simply managing market risk. The arguments for going slowly, as enunciated by Brainard, are good. Inflation has now been below the Fed’s 2 percent target for more than 50 months. Judging by inflation and growth, the current very low interest rates are not what they would have been 10 or 15 years ago. It is understandable that the Fed has been wrong about this on the way down, but now that we’ve had a very long period of very low growth and an apparently lower neutral interest rate, trying to normalize soon makes little sense, and has even less merit from a risk perspective. Just as the Fed itself has had difficulty waking up to the “new normal” of economics, so have investors. They understandably have moved out the risk spectrum in response to very low rates, but they’ve not recalibrated their expectations for returns. That process, a painful one, will be one of the big stories of the next few years. Reuters
If central banks move quickly, or investors try to get in front of a tightening cycle, we might get all of our losses out of the way at once
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16 Business Daily Thursday, September 15 2016
Closing Trade
Singaporean business firms to boost investment in Myanmar
This was the first business session of Myanmar businessmen with Singaporean counterparts since the new government took office. The Singaporean businessmen in Myanmar have two sides exchanged views for potential vowed to boost trade and investment of the sectors in Myanmar such as manufacturing county, official media reported yesterday. The Union of Myanmar Federation of Chambers of construction materials, micro finance, of Commerce and Industry and 47 Singaporean information technology. Singapore is the second largest investor in businessmen jointly made a business dialogue Myanmar after China, with US$13.28 billion of and networking session over the last two days in Yangon (pictured), discussing on cooperation investment as of July. A total of 212 Singaporean firms have been permitted to operate in in maritime trade, foreign investment, construction, energy and electricity, real estate Myanmar, according to the official statistics of Myanmar Investment Commission. Xinhua and health sector.
Lending surge
China’s new loans well above expectations on mortgage boom A sharp price correction would add to strains on banks which are already wrestling with growing numbers of bad loans. Kevin Yao
C
hina’s bank lending in August more than doubled from the previous month, but analysts said much of the gain was due to strong mortgage demand, adding to evidence that Chinese companies are increasingly reluctant to make new investments. The figures, along with other data this week, paint a picture of an economy that is improving slowly but increasingly reliant on a housing boom and government spending for growth. Chinese banks extended 948.7 billion yuan (US$142.23 billion) in net new yuan loans in August, well above expectations, while broad M2 money supply (M2) also grew by a more-than-expected 11.4 per cent from a year earlier, according to central bank data yesterday. New bank lending rebounded sharply from July’s 463.6 billion yuan, which was the lowest in two years, while M2 quickened from July’s 10.2 per cent rise, which was the weakest in 15 months. The central bank has pledged to keep policy slightly loose, but sources say it is reluctant to cut interest rates or bank reserves again in the near term amid evidence that companies and banks are hoarding cash instead of investing it. “A renewed pick-up in credit growth last month will add to the growing sense among investors that
the near-term outlook for China’s economy is fairly bright,” said Julian Evans-Pritchard at Capital Economics. “Credit growth is still likely to slow over coming months as the PBOC refrains from further easing and focuses more on credit risks. But with recent activity data also strengthening, we expect economic growth to strengthen over the remainder of the year.” China’s increasingly dependence on the property market is a major concern, as more cities impose restrictions on home purchases in the face of sharply rising house prices, threatening to end a near one-year rally. Household loans, mostly mortgages, accounted for 71 per cent of total new bank loans in August, though they were down from more than 90 per cent in July, data showed.
“Mortgage loans remain the major driver of loan growth, based on booming housing market and weak loan demand from corporates,” David Qu and Raymond Yeung at ANZ said in a note. Outstanding yuan loans grew at 13 per cent by month-end on an annual basis. Analysts polled by Reuters had expected new lending of 750 billion yuan, with outstanding loans seen rising 12.9 per cent, and money supply seen up 10.4 per cent.
“Liquidity trap”
Total social financing (TSF), a broad measure of credit and liquidity in the economy, jumped to 1.47 trillion yuan in August from 487.9 billion yuan in July. TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offers, loans from trust companies and bond sales. M1 money supply, which includes cash and short-term deposits, rose
25.3 per cent in August from a year earlier. The widening gap between M1 and M2 growth has fuelled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus money policymakers pump into the system. “The rapid growth of M1 money supply indicates corporates’ preference of holding cash rather than investment. This is consistent with the slowing trend in fixed asset investment by the private sector,” ANZ said.
Key Points China Aug new loans, money growth well above expectations New loans 948.7 bln yuan, vs f’cast 750 bln yuan M2 money supply +11.4 pct y/y, vs f’cast 10.4 pct Total Social Financing 1.47 trln yuan, vs 487.9 bln yuan in July Strong lending may support growth but property risks linger Chester Liaw, an economist at Forecast Pte Ltd in Singapore, said the spread between M1 and M2 growth narrowed to 13.9 percentage points from 15.2 last month but “remains at elevated levels.” The PBOC is aiming for annual M2 growth of around 13 per cent this year, pointing to continued accommodative policy as Beijing pledges to embark on painful economic restructuring involving state-owned enterprises in key industrial sectors. Policy insiders have said that evidence companies and banks are hoarding cash, alongside concerns about property market and the yuan’s stability, has reinforced policymakers’ view there is no major benefit in easing policy further. Reuters
Currency
Investment data
M&A
China’s central bank forex sales hit highest in 6 months
Mainland outbound investment to US almost triples
Monsanto accepts sweetened bid from Bayer
Net foreign exchange sales by China’s central bank in August were the highest in six months as the bank sought to support the yuan, official data showed yesterday. The People’s Bank of China (PBOC) sold a net 191.9 billion yuan worth of foreign exchange in August, according to Reuters calculations based on central bank data released yesterday. That is the highest figure since February, when net sales were 227.9 billion yuan. China’ foreign exchange reserves fell by US $ 15 . 89 bi l l i o n i n A u g u st t o US $ 3 . 185 trillion, the lowest since 2011, central bank data showed. The decline signalled renewed capital outflows, though most analysts described them as modest at this point, unlike heavy outflows last year and in early 2016. The yuan has been trading at near six-year lows, but has recovered slightly since July. Th e A u g u st f a l l i n r e s e r v e s c a m e ev e n as China achieved a foreign trade surplus of US$52.05 billion that month, official data issued on September 8 showed. Reuters
China’s non-financial outbound direct investment rose 53.3 per cent in the January-August period from a year earlier to US$118.06 billion, the commerce ministry said yesterday. Outbound investment for August rose 13.4 per cent, to US$15.31 billion, the ministry said in a statement. China’s ODI in the United States nearly tripled in the first eight months from a year earlier, the ministry said. It said the jump was driven the completion of Haier Group’s acquisition of General Electric Co’s appliance business, with the actual transaction value at US$5.58 billion. The Chinese government has been encouraging local firms to invest overseas under Beijing’s “One Belt, One Road” programme. Earlier data from the ministry showed foreign direct investment (FDI) in China rose 4.5 per cent in the first eight months of 2016 from the same period a year earlier to US$85.88 billion. FDI from the United States rose 79.7 per cent in the first eight months from a year earlier, while FDI from Germany climbed 79.2 per cent and that from Britain jumped 96.6 per cent, the data showed. Reuters
US seeds and pesticide giant Monsanto has agreed to a sweetened takeover bid from the German pharmaceutical and chemical group Bayer, Bloomberg reported yesterday. The agency quoted sources close to the deal, and said the negotiations continue, with the final figures in the mega-deal apt to change. Monsanto’s board of directors met Tuesday evening. Several news outlets including the German newspaper Rheinische Post said Bayer is offering an increased US$129 (115 euros) per share for Monsanto, compared with the US$127.50 it proposed last week. The new offer would value Monsanto at US$56.5 billion. Bayer made a first all-cash offer in May of US$122 per share, which Monsanto rejected as “incomplete and financially inadequate”. The German company’s second offer was US$125 per share. A merger of the two companies would create a new global leader in genetically modified seeds and pesticides. As part of its latest proposal, Bayer is also offering to double, to US$3 billion, the compensation it would have to pay to Monsanto if the deal is stopped by competition regulators, Rheinische Post said. AFP