Gross gaming revenues for last week ‘weaker than expected’ Gaming Page 7
Wednesday, September 21 2016 Year V Nr. 1135 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Tourism
Bus accident
Diplomatic drive
Monetary times
Tourism Development Committee greenlights Grand Prix Museum renovation Page 3
MGTO to mediate meeting between affected residents and tourist bus agency Page 3
Premier Li reaches agreement with Obama to co-operate on North Korea Page 9
The eyes of the world are on Bank of Japan and U.S. Federal Reserve meetings Pages 11 & 14
Tourism Consumption Under Discussion
Tourism
The 5th edition of the Global Tourism Economy Forum gets a budget boost to MOP45 mln. Chief of Office of the Secretariat for Social Affairs and Culture, Ip Peng Kin, says gaming and tourism continue to be pillar industries of the MSAR. And pushes for a change in consumption patterns via “profound discussions” to be held during the Forum, scheduled for October 15 & 16. Page 4
Taking back the Palace
Sacked local construction workers have been reinstated. Legislator Ella Lei spoke up for dozens of workers dismissed by a contractor working on the Grand Lisboa Palace. All part of the escalating Locals vs. Non-local employment tinder box fanned by the slowing economy.
Dwindling manufacturing power
Survey A slowdown in locally made concrete. Reduced production of F&B products. And further shrinkage of traditional apparel manufacturing. Leading to a 6 pct y-o-y decrease in total receipts for the manufacturing sector last year, to MOP7.1 bln. Page 2
Glint of steel Labour Page 5
HK Hang Seng Index September 20, 2016
23,530.86 -19.59 (-0.08%) Worst Performers
Wharf Holdings Ltd/The
+1.68%
Bank of Communications
+0.99%
Galaxy Entertainment Group
-2.17%
CK Hutchison Holdings Ltd
-1.58%
China Shenhua Energy Co
+1.67%
China Overseas Land &
+0.95%
AAC Technologies Holdings
-1.96%
Want Want China Holdings
-1.43%
Hong Kong Exchanges and
+1.47%
Link REIT
+0.90%
China Mengniu Dairy Co Ltd
-1.82%
Cheung Kong Property
-1.32%
CLP Holdings Ltd
+0.75%
China Life Insurance Co Ltd
-1.63%
AIA Group Ltd
-1.27%
China Construction Bank
+0.68%
BOC Hong Kong Holdings
-1.63%
Hang Lung Properties Ltd
-1.20%
China Resources Land Ltd Industrial & Commercial
+1.11% +1.02%
27° 30° 27° 30° 26° 31° 27° 30° 26° 30° Today
Source: Bloomberg
Best Performers
Thu
Fri
I SSN 2226-8294
Sat
Sun
Source: AccuWeather
M&A Two of China’s biggest steelmakers have agreed to merge their listed units. Edging towards a union that would create the nation’s biggest mill to rival ArcelorMittal SA. The publicly traded arm of Shanghai Baosteel Group Corp., the second biggest Chinese mill by output, will swap shares with the listed unit of Wuhan Iron & Steel Group Corp. Page 16
2 Business Daily Wednesday, September 21 2016
Macau Statistics Total receipts of the manufacturing sector decreased 5.9 pct y-o-y to MOP7.13 bln in 2015
Survey a litmus of industrial power The total receipts of the industrial establishments in Macau decreased by 1.7 pct y-o-y to MOP10.50 bln last year. Joanne Kuai joannekuai@macaubusinessdaily.com
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ast year, due to the slowdown in demand for locally produced cement and concrete for construction, coupled with the reduced production of food products & beverages, and further shrinkage of the traditional apparel manufacturing industry, total receipts of the local manufacturing sector decreased by 5.9 per cent year-on-year to MOP7.13 billion, according to data from the Statistics and Census Service (DSEC) Industrial Survey 2015. Of manufacturing Total Receipts, the Value of Production (MOP7.0 billion) shrank 6.4 per cent. Meanwhile, Intermediate Consumption (MOP4.97 billion) fell by 12.1 per cent - owing to
the reduction of raw materials used. As the decline in Total Receipts was smaller than the decrease in Intermediate Consumption, both the Gross Value Added (MOP2.16 billion) and the Gross Surplus (MOP805 million) rose by 12.8 per cent and 36.5 per cent, respectively. Also in the industrial sector, with an increase in local electricity generation, Total Receipts (MOP3.36 billion) and Intermediate Consumption (MOP992 million) of the Electricity, Gas & Water Supply sector increased by 8.4 per cent and 14.7 per cent, respectively, year-on-year; Gross Value Added (MOP2.37 billion) and Gross Surplus (MOP1.78 billion) rose by 5.9 per cent and 15.0 per cent. The Industrial Survey covers the Mining & Quarrying, Manufacturing and Electricity, Gas & Water Supply
sectors. In 2015, there was no active establishment in the Mining & Quarrying sector.
Overall industrial sector
Total Receipts of the industrial establishments in Macau decreased by 1.7 per cent year-on-year to MOP10.50 billion in 2015; meanwhile, Intermediate Consumption (MOP5.97 billion) and Compensation of Employees (MOP1.94 billion) dropped by 8.6 per cent and 3.5 per cent, respectively. As the decline in costs outpaced the decrease in receipts, the Gross Surplus grew by 20.9 per cent to MOP2.59 billion. Gross Value Added - which measures the sectorial contribution to the economy - amounted to MOP4.53 billion, up 9.1 per cent. Some 898 establishments were operating in industrial production, a year-on-year increase of 35 establishments, all of which were manufacturing establishments employing less than 30 persons. The total number of persons engaged decreased by 420 to 11,888.
DSEC data also shows establishments in the Manufacturing sector increased by 35 year-on-year to 892; establishments in Manufacture of Food Products & Beverages rose by 32, Publishing & Printing establishments went up by 24, and establishments in Manufacture of Textiles, Wearing Apparel, etc. decreased by a total of 19. Total number of persons engaged dropped by 407 to 10,804. Establishments in the Electricity, Gas & Water Supply sector remained at 6. The number of persons engaged totalled 1,084, similar to that of 2014.
Different industries
In the manufacturing sector, analysed by industry, Total Receipts of Manufacture of Cement & Concrete (MOP2.03 billion) decreased by 8.3 per cent as demand for locally produced cement and related products in construction dwindled; Intermediate Consumption shrank by 16.9 per cent owing to a reduction in raw materials used; Gross Value Added (MOP506 million) rose by 33.6 per cent and Gross Surplus (MOP399 million) grew by 43.6 per cent. Total Receipts of Manufacture of Food Products & Beverages (MOP1.73 billion) declined by 3.9 per cent after rising for 6 consecutive years; Intermediate Consumption (MOP1.04 billion) dropped by 14.8 per cent as expenditure on raw materials fell upon reduced production and promotion expenses shrank. Reduction in costs brought Gross Value Added (MOP684 million) and Gross Surplus (MOP171 million) up by 19.2 per cent and 62.2 per cent. Principal indicators of Publishing & Printing pointed upward, with Total Receipts (MOP762 million), Gross Value Added (MOP308 million) and Gross Surplus (MOP39.72 million) rising 20.0 per cent, 24.1 per cent and 85.6 per cent, respectively. Meanwhile, Total Receipts of Manufacture of Wearing Apparel decreased by 15.6 per cent year-onyear to MOP525 million, of which receipts of Manufacture of Garments (MOP413 million) dropped by 26.2 per cent while receipts of Manufacture of Tailor Made Clothing (MOP 112 million) rose by 80.3 per cent. Total Receipts of Manufacture of Chinese Medicine (MOP29.39 million) increased by 12.6 per cent, representing two consecutive years of growth.
Road accident
Bus accident parties get down to brass tacks MGTO will arrange a meeting between the residential building’s owners and the local tourist bus agent regarding the recent accident. Annie Lao annie.lao@macaubusinessdaily.com
A meeting will be scheduled to bring together the residents of Wa Keong Building and the local travel agent that operated the tourist bus that crashed into the building early last month. Maria Helena de Senna Fernandes, Director of the Macao Government Tourism Office (MGTO) and co-ordinator of the Tourism Crisis Management Office (GGCT), said that the government office will co-ordinate the meeting MGTO representatives, GGCT, and the Social Welfare Bureau (IAS) met earlier this week with 11 representatives of the residential building owners at the Tourism Activities Centre (CAT) to explain work undertaken so far and announce the planned meeting. During the meeting, the building owners requested information on arrangements regarding repair work to the damaged building, related liabilities for the damage incurred and compensation issues, as well as changes to the transportation arrangements in the area.
In response to the questions the MGTO Director replied that regarding the transport arrangement issue MGTO, the Transport Bureau (DSAT) and the Public Security Police Force (PSP) have together conducted
research regarding traffic circulation in the area and are working to improve vehicular traffic flow in the area in the future.
Awaiting verdict
Given that the tourists injured in the accident have filed a criminal suit against the local tourism agency, the case has been referred to the Public Prosecutor’s Office, with final liability for the accident
to be determined upon completion of the judicial process of the case, said the Director. The comments were made on the sidelines of the Global Tourism Economy Forum’s press conference held at the Macau Tower Convention & Entertainment Centre yesterday. Four of the injured tourists, from Mainland China, are still undergoing hospital treatment, while a further four tourists are in the MSAR to negotiate compensation issues with the travel agent. The other 36 tourists have already left Macau.
Business Daily Wednesday, September 21 2016 3
Macau Culture
Green light for Grand Prix Museum renovation Tourism Development Committee members agree on renovating the city’s ageing Grand Prix Museum. Annie Lao annie.lao@macaubusinessdaily.com
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serve as exhibits in the expanded museum. “The timetable for the new Grand Prix Museum project does not need to be completed for the 65th Macau Grand Prix in November 2018. However, it doesn’t mean that the renovation plan will have to take many years to be finished. The new Grand Prix Museum will be presented to the public in a reasonable time
he Tourism Development Committee has agreed to undertake the renovation of the Grand Prix Museum. The renovation, to occupy the entirety of the building where the museum is currently located, was discussed in the Tourism Development Committee’s general meeting yesterday, according to a report by TDM Chinese Radio. During the meeting, government representatives introduced the new Grand Prix Museum project to Committee members, who agreed with the renovation plans which would expand the museum to occupy the entirety of the Tourism Activities Centre, due to the lengthy history of the Macau Grand Prix (MGP) in the city. One of the Committee members suggested collecting items from past participants in the MGP to
frame though,” said MGTO Director Helena de Senna Fernandes. “We don’t want to keep working on the
Sporting chance
The Sports Bureau has conducted an assessment of the effect of the Wushu Masters Challenge, the city’s first martial arts event, held last month, with the results of the assessment released for public review soon, said Secretary for Social Affairs
project renovation for too long as other neighbouring regional tourism projects will also launch soon”.
and Culture Alexis Tam Chon Weng. “It will depend upon the assessment’s outcome and feedback from the local martial arts organisations and the pubic in order to determine if the event will take place again next year,” Secretary Tam explained.
Education
Insurance sector thumbs up to continuing education The insurance industry agrees with the government’s requirement for insurance agents and brokers to complete ten-hour continual education courses before renewing their licence, says the President of the Macau Insurance Agents and Brokers Association, Leong Chi Pang, according to local public broadcaster TDM Chinese Radio. The Association held a forum yesterday to discuss past experiences, current issues and future developments of the industry.
The government has mandated that starting from next year staff engaged in the insurance sector must complete a number of courses before getting their licence renewed. Leong said that currently the Macau Institute of Financial Services and other training organisations have been providing relevant courses in finance, languages and taxation laws, among others. He said that the industry generally agrees with the government’s
Retail
Diamond deals Luxury diamond jewellery shop Nirav Modi considers the territory to be an important gateway to business in Asia. After opening the doors of its first boutique store in the MSAR, the owner of luxury jewellery Nirav Modi considers the city to be an important entry point for business in Asia, Modi told the South China Morning Post. The comments came in an interview with the publication in the wake of the shop opening on September 14 in MGM Macau. “Macau is known as an integrated resort city, and international hub for business and leisure travellers.
With a mixture of Eastern and Western culture, it provides an important gateway to expand our business networks in Asia,” jewellery shop founder Nirav Modi told the Hong Kong newspaper. The jewellery brand opened its first boutique store last year in New York, and with the new shop in Macau adds one more outlet to its Asian portfolio, having opened three boutiques in Hong Kong and two in India. N.M.
initiative and believes such a measure will help the local insurance industry be more professional. Leong indicated that there are around 3,000 insurance agents and brokers in Macau, stating that there used to be a lot of people in the
insurance business on a part-time basis, but currently the majority of individuals in the sector are fulltime workers. He believes this will be more beneficial for insurers as the service will become more comprehensive. J.K.
4 Business Daily Wednesday, September 21 2016
Macau Opinion
José I. Duarte Clarity required Last week, the government’s economic services (DSE) organised a small conference on competition law. Two Mainland speakers came to talk about the regulatory framework in China. References about creating such legislation have been around for quite some time; legislators have occasionally mentioned it. But the public mentions of the subject are often clouded by a certain fuzziness about the concepts, let alone the purpose and process. It is common, for example, when there is talk about the future competition law, to hear of officials refer in the same sentence to the consumer protection law. In a declaration to the media last week, in fact, they made clear that the latter is their priority. Such a priority is defensible, albeit debatable; but, although the basis for the priority is not made clear, that is not my main issue here. The two subjects, and the values they want to protect, do have some connections – but are clearly distinct. Why conflate both as if they are part of the same, unformulated, policy problem? Another common association involves the concept of unfair competition. This concept already exists in the Macau legal system through a provision of the Commercial Code. Again, as in the consumer protection case laid before, there are links and, at certain levels, proximity between these two concepts. But they are not equivalent or interchangeable. To make things fuzzier, for convenience or habit, competition laws are often called anti-monopoly laws. Regulating competition involves certainly dealing with market concentration issues – but goes well beyond that. No doubt, competition law is a tough job. The existing laws and practice in the U.S. and the EU provide a general reference and guidance many other countries have used. Nonetheless, the sensitivity of the issues and the characteristics of each country make the adaptation and their implementation of such laws a non-trivial political and legal matter. China, where the law has been in force since 2008, has drawn extensively on that experience. Yet, it took more than a decade to develop and approve its competition law. A somewhat loose usage of concepts is acceptable in most of our daily practices and in private chitchat. It is part of us keeping our communication channels open to the outside world. When discussing legislation, however, we would be better served if all parties – government members and officials, legal experts, journalists – strive for the greater clarity of the legal concepts and objectives. José I. Duarte is an economist and permanent contributor to this newspaper.
MICE Global Tourism Economy Forum to be held in October at Studio City
Forum charged with reshaping global tourism The fifth edition of the event is budgeted at MOP45 mln, a 7.6 pct increase compared to the previous year. Joanne Kuai joannekuai@macaubusinessdaily.com
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he Global Tourism Economy Forum (GTEF), entering its fifth edition, scheduled for 15 and 16 October and to be held at Studio City, will see its total budget increase to MOP45 million (US$5.63 million), according to the Chief of Office of the Secretariat for Social Affairs and Culture, Ip Peng Kin. The representative of the Secretariat, the main organiser of the event, says the figure represents a 7.6 per cent increase vis-a-vis the previous edition. Of the total funding, MOP22 million will come from the Tourism Fund, with the rest contributed by other sponsors, such as local gaming operators, explained the representative. Speaking at a press conference held at the Macau Tower Convention and Entertainment Centre yesterday, Mr. Ip said that the gaming and tourism industries stand as the pillar industries of Macau. While facing adjustments in gaming revenues as well as pursuing the quest for economic diversification, it has become a major issue to explore ways in which to develop non-gaming elements. “Through profound discussions on the change of consumption patterns, the Forum will offer a golden opportunity for Macau to turn its goals into reality,” said Mr. Ip. “With an exchange of insightful perspectives and the sharing of experiences, the Forum will play an active role in opening up new horizons for the local tourism and leisure industry and fostering the city’s development into a World Centre of Tourism and Leisure.” This edition of the GTEF is themed ‘The Growing Consumer Class Rethinking and Reshaping the Future Tourism Landscape’. The organiser said it will zero in on how this increasingly resourceful and tech-savvy group is more than ever the driving influential force of the tourism industry.
Non-gaming benefits
Vice Chairman and SecretaryGeneral of the GTEF, Pansy Ho, said that hosting GTEF is part of Macau’s effort to develop its non-gaming sector but admitted that it takes time for things to be pushed forward and to change people’s impression of Macau. “Every year, we try to come up with new programmes, new topics and invite influential guests from around the world,” said Ms. Ho. “All this is laying the foundation for Macau to
gradually diversify. The results take time to be revealed.” She also indicated the importance of regional co-operation, in order for neighbouring regions to help Macau achieve its goal to be a platform, and revealed that the Guangdong Tourism Authorities will lead a delegation to join the event. “Topics such as how to design a tourism route with several stops that would include Macau and how to deepen regional co-operation in many other fields can all be discussed at the Forum,” said Ms. Ho. “Our objective is for the Forum to be a platform so that Macau can gain its influence in this aspect. If we want to just promote Macau as a tourist destination, we would have promoted it elsewhere.” She added that this year’s Forum will explore how the growing consumer class is reshaping the global tourism industry, and how their consumption behaviour and use of technology has brought unprecedented changes to the industry. With regard to visa restrictions which may impact the number of participants, Pansy Ho indicated that all sectors have been working handin-hand in order to provide interested parties with ultimate convenience and assured that the issue will be solved over time. Last year’s edition attracted over 3,000 participants from 45 countries and regions. The Forum has welcomed 49 provincial and municipal delegations from China, and has welcomed presentations by 13 world-renowned speakers, including government ministers, business leaders and scholars, to its stage.
Highlights
In celebration of its fifth anniversary, GTEF has invited France and Beijing to be its featured partners this year. As the Partner Country, France will reflect how the country continues
its cultural legacy and maximises its spread of influence beyond borders through cultural exchanges in a session titled ‘France: Arts and Culture as Drivers of Tourism’. Partner City Beijing will showcase the state capital as an epicentre of Chinese culture and economic power, shedding light on China’s three millennia of history and heritage and on the distinctive preferences of Chinese consumers. As in previous editions, GTEF will begin with its signature ‘Face to Face, Ministers and Private Sector CEOs’ session in collaboration with the World Tourism Organization (UNWTO), where leadership from the public and private sectors will tackle the subject of ‘Harnessing the 1 Billion+ Opportunities’. Industry leaders will share their insights in sessions titled ‘Maximizing the Dualities of the Chinese Consumers’ and ‘Tourism and Technology: the Inseparable Duo’. For this anniversary edition, GTEF has created new sessions such as ‘Women Leadership – The Softer Side of Leadership’, ‘World Tourism Cities – Consumers, the Transformers in City Tourism’, ‘Investment Workshop – The Burgeoning Consumer Class: Investing in a New Era’ and ‘Youth Leadership Roundtable – Understanding the Needs and Wants of the Millennials’. GTEF will count China Daily, Pacific Asia Travel Association (PATA), Connecting Travel, World Cities Tourism Federation (WTCF), and BOA Merrill Lynch as collaborative partners and sponsors for these sessions. During the Forum, the World Tourism Organization UNWTO and the Global Tourism Economy Research Centre will present their third joint annual report on Asia’s tourism trends, with special chapters on travel trends driven by the growing consumer class and tourism investment, infrastructure investment and human capital investment, providing an indepth analysis of the latest tourism developments in Asia.
Business Daily Wednesday, September 21 2016 5
Macau Labour dispute Local construction workers on Grand Lisboa Palace project reinstated
Palace revolution Legislator Ella Lei cautions that such an incident reflects flaws in the government labour policy which she appeals local authorities review. Joanne Kuai joannekuai@macaubusinessdaily.com
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group of local construction workers on the Grand Lisboa Palace project - developed by local gaming operator SJM Holdings Ltd. in Cotai – have been given their jobs back. The u-turn came about after the workers accompanied legislator Ella Lei Cheng I to the Labour Affairs Bureau (DSAL) on Monday to complain about unfair dismissal. The group said that dozens of local construction workers from the Grand Lisboa Palace project had been dismissed by the construction company without fair reason while non-resident workers were still working on the site doing similar jobs. In a meeting on Monday night betwen the involved parties, the Federation of Trade Unions and the workers demanded the contractor follow the law and prioritise the hiring of locals – while giving the local workers their jobs back. The DSAL also urged the employer to respect the Labour Law. In a statement issued by the legislator, it was revealed that following the Monday meeting the owner of Grand Lisboa Palace, the main contractor for the project, the Federation of Trade Unions and the workers met again yesterday. During the meeting the owner and
the contractor promised to rehire all the affected workers and to sign a new contract with them today and arrange other procedures for the workers to be back at the construction site and resume work immediately.
Loopholes
Legislator Ella Lei revealed that about 3,700 non-resident workers are currently working on the construction
site. Some non-resident workers perform the same type of job as the local construction workers hired, Lei said. She stressed that the unreasonable dismissal of the local workers is a breach of the government’s principle of hiring local workers as a priority and urged the government to resolve this issue. She said in her statement that despite the case having been resolved after communications among all parties, the incident reveals that there are many problems in Macau’s construction labour market and policies in hiring non-local workers. Ella Lei said that if the government fails to supervise and monitor the situation, it will seriously damage the rights of local workers. She added that
especially now that Macau’s economy has entered an adjustment period the government and society should pay more attention to the matter. The legislator stressed that any construction project that is not yet finished and has been authorised quotas for many non-resident workers, where local workers lose their job, is a clear indication that the rule of “prioritising local employment” has been broken. She urged the authorities to strictly enforce the law. On Monday, the affected workers claimed that they had started working at the site on September 12 but had received notice of suspension of employment or dismissal from the construction contractor of the Grand Lisboa Palace after working for only two to three days.
6 Business Daily Wednesday, September 21 2016
Macau
Gaming Cambodia considered one of the city’s emerging main competitors
Anti-corruption downers Newspaper points finger at Chinese government’s anti-corruption policies for MSAR’s falling gross gaming revenues. Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com
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he recent decline in gaming revenue in Macau is still related to the campaign against corruption launched by Beijing, the Chinese English-language newspaper China Daily stated in an article yesterday. ‘The Las Vegas of Asia started to lose some shine since 2014 (...) when Beijing’s crackdown on corruption and extravagance amid the floundering Mainland economy scared
Mainland high-rollers away to other regional gaming destinations,’ China Daily stated. The publication considers Cambodia to be ‘an emerging rival’ to the MSAR, noting how the country’s Hong Kong-listed casino operator NagaCorp posted a 24 per cent surge in net profit to US$125.2 million (MOP1 billion) for the first half of 2016 with a new casino housing 200 gaming tables on the way in 2017. The newspaper then compared NagaCorp’s increased profits with Wynn Macau’s 20.6 per cent tumble
in net profit, to US$1.14 billion, and Sands China’s 25 per cent decrease in net profit to US$551 million over the same period.
Downward spiral
Macau’s gaming revenue has dropped into a tailspin since June 2014, with only the month of August braking 26 consecutive months of annual declines, China Daily reported. This downward spiral, the longest ever experienced in the MSAR, has been attributed by analysts to an array of factors, with the anti-corruption campaign launched by Beijing one of the most important. The connection between the crackdown and the sliding revenues has been a common talking point by the official Chinese press, with China Daily having made the same causal link at the end of the golden year of 2014, when it pinned the decline on the anti-corruption campaign underway in China after incumbent President Xi Jinping assumed leadership of the Communist Party. Two years later the news continues in the publication, as borne out by yesterday’s article titled ‘Macao’s Game for Recovery’. In it, the group mentions that casinos have so far contributed billions of dollars to the local economy, while promising to reverse the recent contraction. Despite the decline, just this year two new casinos have opened - Wynn Palace and The Parisian - owned by Wynn Resorts and Las Vegas Sands, respectively, with MGM debuting on the Cotai Strip next year, while SJM’s Lisboa Palace is slated to open in 2018. The cluster of new casinos was represented by China Daily as proof of the gaming operators’ attempts to entice players back, with hopes set high for a recovery of the gaming industry.
Why insist?
Stanley Au Chong-kit, chairman of Macau-based bank Delta Asia Financial Group, told China Daily that he
believes policymakers’ tough stance on curbing gaming growth is a sure thing for the foreseeable future. “By 2018, at the latest, some casinos failing to make ends meet will be forced to restructure. But the point is, why does the market cling to the hope of a turnaround, defying the fact that the gaming business has already developed excessively in Macau?” Au queried. The MSAR’s casino revenues reached Las Vegas values for the first time in 2006, with the sector now contributing over 75 per cent of total MSAR revenues, China Daily reported. Even with a sharp drop of 34.3 per cent in 2015, Macau gaming revenues are still three times higher than Las Vegas, six times higher than in Singapore and ten times those of South Korea and the Philippines, notes the publication, citing the MSAR’s Chief Executive, Fernando Chui Sai On.
Easy does it
Last week, Fitch predicted a 5 per cent year-on-year decrease in casino revenues for 2016, with the financial rating agency considering any ‘v-shaped recovery’ unlikely, Business Daily reported. Fitch analysts also estimate that the Macau gaming industry will take approximately a decade to return to the revenues registered at the beginning of the ‘crisis’ in 2014. Estimates reveal a more optimistic prediction than the one presented in June by Secretary for Economy and Finance Lionel Leong Vai Tac – who predicted that the MSAR would close out the year with gross gaming revenues of MOP200 billion, thus forecasting a 13.35 per cent year-onyear decrease. Dragged down by the performance of the sector, Macau’s economy has been in decline since the third quarter of 2014, for the first time since the transfer of sovereignty from Portugal to China in 1999, news agency Lusa reported. In 1999, the territory’s gross domestic product (GDP) decreased 0.9 per cent, while in 2015 it contracted 20.3 per cent, the news agency stated.
Business Daily Wednesday, September 21 2016 7
Macau Gaming
Static September sets the stage Macau’s gross gaming revenue in the first half of this month remained flat, but analysts see positive prospects for the year ahead. Cecilia U cecilia.u@macaubusinessdaily.com
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ast week’s gross gaming revenue results were ‘weaker than expected’, according to a report by brokerage Sanford C. Bernstein. The analysts from the firm, led by Vitaly Umansky, noted that according to their channel checks for the first eighteen days of this month MOP11.3 billion (US$1.41 billion) was recorded in gross gaming revenue, implying an average daily rate of MOP628 million. The weakness of the results are ‘in light’ of the opening of The Parisian and the Mid-Autumn Festival Holiday during the period, however the week’s results demonstrate a 15 per cent increase when compared yearon-year. The group predicts that for the rest of September gross gaming revenue ‘should be better than previous years’, when compared to an average month-on-month decrease of 6 per cent seen in the past five years, predicting a year-on-year increase of between 4 per cent and 7 per cent to be ‘in the range’ of MOP18 billion for the month. The Telsey Group, meanwhile, sees flat growth year-on-year for the MSAR’s gross gaming revenue so far and predicts HK$16.6 billion for the whole of September. The group notes that it expects a ‘possible uptick’ from The Parisian, while
warning of potential ‘softness’ in the lead up to Golden Week, beginning October 2.
Better years ahead
In terms of yearly performance, the Telsey Group adopts a positive outlook that improvement will appear in 2017 while the city’s gaming industry is currently ‘continuing to establish a solid base’. The group also remarked that the MSAR is likely to experience ‘a more pronounced period of modest growth’ noting that often before finding a clear direction markets
‘frequently’ demonstrate volatility. Although noting that trends so far this month are ‘slightly below August’ analysts at the group note that they remain focused on the new openings and while information is ‘fluid and less accurate’ than desired ‘it is clear the market is improving’. Meanwhile, analyst Jon Oh for CLSA, as quoted by Benzinga, advises investors to be cautious about the limited near-term improvement of Macau gaming stocks. The CLSA analyst notes that they expect the city’s overall gaming revenue this year to decline by 6 per cent, while predicting 6 per cent growth in both 2017 and 2018, year-on-year.
VIP vortex
Analysts at Bernstein point out that
the city’s VIP growth continues to be ‘structurally challenged’ by the crackdown on corruption in China, resulting in a dampening of ‘high-end spend, junket liquidity constraints and junkets facing potential regulatory headwinds in the near-term’. Expectations continue to be that mass will be the driver of growth this year ‘and continuing through the rest of the decade’. The firm notes that ‘junket space […] continues to undergo consolidation’, pointing to the recent closure of the Iao Kun Group’s two rooms in Galaxy properties and the closure of its VIP room in Sands Cotai Central. ‘The difficulties in Macau may be a result of liquidity constraints the junket is experiencing or it may be having financial problems which may create a stumbling block in its planned acquisition of a casino in South Korea,’ comment the analysts.
8 Business Daily Wednesday, September 21 2016
Greater China Debt relief
First debt-to-equity swap plan approved China’s vast state-owned sector had accumulated total liabilities of 83.74 trillion yuan by the end of July.
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hina’s state-owned metals trader Sinosteel will be permitted to swap 27 billion yuan (US$4.05 billion) of debt into equity convertible bonds, the online financial magazine Caixin reported yesterday citing anonymous sources. It marks the first swap this year under a wider debt-to-equity swap programme mooted by policymakers as one solution to reducing China’s corporate debt overhang. Policymakers hope the swap plan will help clean up a bad debt problem that is increasingly worrying global investors amid warnings that a banking crisis is looming. Debt has emerged as one of China’s biggest challenges, with the country’s total load rising to 250 per cent of GDP last year. At about 145 per cent of GDP, corporate debt “is high by any measure”, China IMF Mission Chief for China James Daniel said in the fund’s annual review of China in August. China’s vast state-owned sector had accumulated total liabilities of 83.74 trillion yuan by the end of July, up 17.6 per cent on the year and representing 66.2 per cent of total assets, official data showed. Caixin said Sinosteel’s 27 billion yuan swap plan would represent nearly half of the 60 billion yuan of debt owed directly to financial institutions. That debt would be changed into convertible bonds, which could be exchanged for equity in the company at a later date. Officials at Sinosteel could not be immediately reached for comment. Sinosteel would set up a special subsidiary to handle the conversions, which would also receive a 10 billion
yuan capital injection from a Chinese central government body responsible for managing state-owned assets, the magazine said. The remaining debt would still need to be repaid but at a low interest rate of around 3 per cent, Caixin said. The publication had previously reported that Sinosteel and its subsidiaries had more than 100 billion yuan of debt at the end of 2014. In October 2015, Sinosteel asked bondholders not to exercise an early redemption option on one of its bonds maturing in 2017 as the firm would not be able to make full payment.
Solutions?
China has floated plans to introduce more market tools for managing the country’s rising debt load, including credit default swaps and debt securitisation. In March, Reuters reported that
Chinese policymakers were planning a debt-to-equity swap programme that would convert some non-performing bank debt into equity. It was later confirmed by regulators. Officials have insisted the programme would be used to restructure competitive companies suffering temporary operational challenges, and would not prop up so-called “zombie enterprises”, those that would not survive without life support from local banks and governments. China experimented with debt-to-equity swaps in the late 1990s as part of sweeping reforms to the state sector that led to around 28 million layoffs over five years. But experts said the programme created perverse incentives and made state-owned firms less willing to find ways to pay back debts. Wang Hongzhang, chairman of the China Construction Bank, one of the country’s biggest banks, warned earlier this year there was a danger the programme would simply convert “bad debt into bad equity”. Caixin reported on Monday that some
of the liabilities of another debt-stricken steel conglomerate, the Tianjin-based Bohai Steel Group, would be converted into bonds as part of a proposed rescue plan for the firm.
“If used improperly, the simplistic implementation of asset restructuring by sacrificing the interests of creditors is not in accordance with the rules of development” Xie Duo, head of the China Interbank Market Trade Association
It owes 192 billion yuan to 105 creditors, and Caixin quoted an unidentified banker as saying that the proposals could lead to bank losses of at least 60 billion yuan. Xie Duo, head of the China Interbank Market Trade Association, told a forum at the end of August that China’s previous debt-to-equity swap programme “played a positive role” in the restructuring the country’s economy, but it also posed risks. “If used improperly, the simplistic implementation of asset restructuring by sacrificing the interests of creditors is not in accordance with the rules of development,” he said. Reuters
Diplomatic front
Premier Li and Obama reach deal to co-operate on North Korea China has been angered by Pyongyang’s repeated nuclear and missile tests. U.S. President Barack Obama and Chinese Premier Li Keqiang agreed on Monday to step up cooperation in the United Nations Security Council and in law-enforcement channels after North Korea’s fifth nuclear test, the White House said. China and the United States are also targeting the finances of Liaoning Hongxiang Industrial, a Chinese conglomerate headed by a Communist Party cadre, that the Obama administration thinks has a role in assisting North Korea’s nuclear program, the Wall Street Journal reported on Monday. U.N. diplomats say the two countries have started discussions on a possible U.N. sanctions resolution in response to the nuclear test earlier this month, but Beijing has not said directly whether it will support tougher steps against North Korea. Obama met Li on the side-lines of the annual United Nations General Assembly session in New York. “Both leaders condemned North Korea’s September 9 nuclear test and resolved to strengthen coordination in achieving the denuclearization of the Korean Peninsula, including by invigorating cooperation in the United Nations Security Council and in law enforcement channels on North Korea,” a White House statement said. China is isolated North Korea’s most important diplomatic backer and its biggest trading partner. It has been angered by Pyongyang’s
repeated nuclear and missile tests and signed on to increasingly tough U.N. sanctions, but it has said it believes such steps are not the ultimate answer and called for a return to talks with North Korea. Chinese Foreign Minister Wang Yi told his Japanese counterpart last week China opposes “unhelpful” unilateral sanctions on North Korea but will work within the United Nations to formulate a response. Washington has pressed Beijing to do more to rein in North Korea. The United States has said it is willing to negotiate with the North if the country commits to get rid of its nuclear weapons, which Pyongyang has refused to do.
Hongxiang probe
The U.S. Department of Justice (DoJ)
is preparing as early as this week to announce legal action against Chinese firms suspected of providing financial assistance to Pyongyang, the Journal reported, citing officials familiar with the matter. It said DoJ prosecutors visited Beijing twice last month to make their Chinese counterparts aware of alleged criminal activities being committed by Liaoning Hongxiang Industrial. A social media post last week from the police in Liaoning, the north-eastern border province of China, said they were investigating the firm’s alleged long-term involvement in “serious economic crimes” and that relevant suspects were cooperating. A report by Asan Institute for Policy Studies in Seoul and C4ADS in Washington says it identified more than
Premier Li Keqiang speaks at a meeting at United Nations headquarters in New York. Lusa
US$500 million in trade from January 2011 to September 2015 between the North and the Liaoning Hongxiang Group, which states on its website that it trades heavily with the North. The figure includes more than US$360 million in imports from North Korea by one group company, Dandong Hongxiang Industrial Development Co., an industrial machinery and equipment wholesaler. “While no judgement is being made on the final use of these funds, trade at this volume is of particular note. By one estimate, this amount would have been almost enough to both fund North Korea’s uranium enrichment facilities, and to design, make and test its nuclear weapons,” the report said. Certain assets related to the company, its founder and top executive Ma Xiaohong, and some of her relatives and associates, have been frozen by Chinese authorities in recent weeks, according to government and corporate filings cited by the Journal. The Asan report said its trading of goods that could qualify as potential military and nuclear dual-use products under U.S. export restrictions were of particular concern. The companies identified have had dealings with sanctioned North Korean entities, the report said. Chang Yong-seok, senior researcher at the Institute for Peace and Unification Studies, Seoul National University, said this case was symbolic and could have real practical impact. “This was the U.S. taking China into consideration and working with China. More such cases may follow if the U.S. or South Korea have firm evidence ... Chinese companies that have capacity for producing or securing goods for
Business Daily Wednesday, September 21 2016 9
Greater China Going public
In Brief
Postal Savings Bank set to price HK IPO near low end The bank secured orders worth up to US$5.86 billion from a group of six cornerstone investors. Fiona Lau and Elzio Barreto
State-owned Postal Savings Bank of China (PSBC) is set to price its Hong Kong initial public offering near the bottom of expectations on tepid demand - although at around US$7.6 billion, the deal is still set to be the world’s largest in two years. China’s biggest lender by number of branches is now planning to price the IPO between HK$4.76 and HK$4.86 per share, Thomson Reuters publication IFR reported, citing people close to the deal.
“The price to book is relatively high,” said Jasper Chan, assistant manager of corporate finance at Hong Kong brokerage Phillip Securities, which offers margin loans for retail investors to buy into IPOs in the city. “Most of the banks are now trading below book, so it’s not a good investment in the short term. Longer term, some clients may want to hold it because they think the bank will grow.” Retail investor demand for margin loans to buy into PSBC’s IPO totalled HK$83 million through Monday at Phillip Securities.
By comparison, the US$18 million listing of contractor Shun Wo Group Holdings Ltd had HK$5.9 billion worth of margin loans at the brokerage. PSBC secured orders worth up to US$5.86 billion from a group of six cornerstone investors, nearly three-quarters of the total IPO, signalling weak demand from a broad range of institutional investors. That would put it near the record 77 per cent cornerstone tranche for the US$810 million listing of China Development Bank Financial Leasing Co Ltd in July. Cornerstone investors buy big chunks of IPOs on a preferential basis in exchange for pledging not to sell the shares for at least six months. Reuters
Key Points IPO set to be priced at HK$4.76$4.86/share range-IFR
Key Points President Obama, Premier Li attending UN meeting in New York Diplomats say U.S., China discuss possible N.Korea sanctions Discussions follow this month’s 5th nuclear test by N.Korea China probing Liaoning firm that trades heavily with North U.S. believes firm has role assisting North’s nuclear program The Liaoning Hongxiang Group is also heavily involved in North Korearelated shipping, with Ma and other people associated with the group owning and operating a combined fleet of 10 ships that regularly sail between the North and China. Ma, who served on Liaoning’s People’s Congress before resigning at the weekend, is described by Chinese media as the most successful businessperson in Dandong involved in cross-border trade with North Korea. Government records say Ma’s investment in Hongxiang was frozen on September 2. Reuters
China’s foreign service trade amounted to 3.01 trillion yuan (US$456 billion) during the first seven months of the year, up 24.6 per cent year on year, the Ministry of Commerce said yesterday. Service trade accounted for 18.2 per cent of the country’s total imports and exports during the January-July period. This is 2.8 percentage points higher than 2015, according to a statement on the ministry’s website. In the first seven months, service exports stood at 1 trillion yuan, up 10.8 per cent year on year, and service imports rose 33.5 per cent to reach 2 trillion yuan.
Beijing critic with foreign investment point of view
PSBC’s marketed valuation was far above Hong Kong-listed rivals
North Korea may be worried now,” he said. China’s Foreign Ministry said relevant departments were investigating Liaoning Hongxiang Group and were following the provisions of U.N. resolution 2270, which imposed tighter sanctions on North Korea in March in response to its fourth nuclear test in January and the launch of a long-range missile a month later. Representatives of the U.S. Department of Justice and Hongxiang Industrial were unavailable for comment.
Foreign service trade tops 3 trln yuan
Ministry of Commerce
Most of the IPO was covered by cornerstone orders
It had marketed the 12.1 billion new shares on offer in a range of HK$4.68-$5.18. PSBC declined to comment on its IPO pricing. The bank originally sought to raise up to HK$63 billion (US$8.1 billion), counting on its network of more than 40,000 branches and low level of non-performing loans to ask for a valuation higher than Chinese rivals. But many fund managers saw its valuations as too pricey. Its initial marketing range had valued the bank at a price-to-book ratio for 2016 of 0.94 to 1.02 times, far higher than the average of 0.76 for Hong Kong-listed banks.
Service exports
Premier official tour
Authorities show roadmap to join UN sustainable development agenda Premier Li also announced that China’s donation to the Global Fund to Fight AIDS, Tuberculosis and Malaria will reach US$18 million in the next three years. China released on Monday its national plan for the implementation of the 2030 Agenda for Sustainable Development at the United Nations Headquarters in New York. The plan was released by Chinese Premier Li Keqiang when he chaired a roundtable on the Sustainable Development Goals (SDGs). The plan consists of five parts, including China’s achievements and experience in implementing the Millennium Development Goals, and the challenges and opportunities, guiding principles, roadmap and detailed plans of implementing the SDGs. As the first national plan that specifies various domains and goaloriented concrete measures, the plan comprehensively expounds China’s development policy and its efforts to help other developing countries to forge ahead the process of global implementation. The 2030 Agenda, endorsed and launched at the UN Summit for Sustainable Development last year, is a blueprint for eradicating poverty across the world for the years leading up to 2030. Implementation of the Agenda, including its 17 SDGs and 169 targets, is high on the agenda of the 71st session of the UN General Assembly, which opened last week. Leaders attending the Group of 20 (G20) summit, which was held earlier in September in east China’s Hangzhou City, also pledged to actively implement the 2030 Agenda. Pursuing sustainable development is the fundamental solution to all kinds of global problems, said Li, adding that accelerating the implementation of the agenda is of great significance for now and in the long term amid a weak global economic recovery and
increasing difficulties and risks. While deeming eradicating poverty and hunger as the top priority, the premier called for more efforts to promote robust, sustainable, balanced and inclusive growth. In the past 15 years, China highly valued and took the lead in realizing the UN Millennium Development Goals, and has made remarkable achievements in poverty reduction, health service and education, the premier said. Over the period, China has lifted over 400 million people out of poverty, reducing the mortality of children under five years old by two thirds and that of pregnant women by three fourths, said Li. Looking into the future, China has fully started its efforts to implement the 2030 Agenda, and has approved and released the national plan for carrying it out, he added. As a responsible developing country, China is willing to participate in relevant international cooperation, continuously increase investment in South-South cooperation, and share development experience and opportunities, he said. In order to support a bigger UN role in the implementation of the Agenda, China pledges additional US$100 million in annual aid to UN development agencies by 2020 on top of the amount in 2015, Li said. The roundtable, hosted by the Chinese government, was attended by UN Secretary-General Ban Ki-moon, UN General Assembly President Peter Thomson and heads of 16 international organizations including UNDP Administrator Helen Clark, IMF chief Christine Lagarde, World Bank President Jim Yong Kim, WTO Director-General Roberto Azevedo and WHO DirectorGeneral Margaret Chen. Xinhua
Criticism of China’s foreign investment environment is biased, the commerce ministry said yesterday, as commentary mounts that it is more difficult for overseas firms to invest in China than it is for Chinese firms to invest overseas. “Why are there complaints? Because foreign companies in China that rely on low costs and preferential treatment are now struggling,” Shen Danyang, a ministry spokesman, told reporters. China’s foreign investment environment is not deteriorating, Shen said. The outlook for China trade remains tough and the government is not “blindly optimistic”, he added. Closer ties
Lufthansa, Air China ink joint venture deal Germany’s biggest airline Lufthansa and China’s flagship carrier Air China have agreed a route joint venture deal that will allow them to sell each other’s tickets on some routes, the companies said yesterday. The deal caps off two years of talks that began with a signing of an accord in July 2014 and represents the closest agreement such carriers can enter short of a full-scale merger. The German airline has sought closer ties with Air China to improve its position in the world’s fastest growing aviation market as European traffic slows and to stem competition from fast-growing Persian Gulf carriers. Province finance
Liaoning auctions bonds China’s struggling Liaoning province auctioned municipal bonds yesterday at 6 to 14 basis points (bps) above the lower limit, traders said, in line with recent auction results. The lower limit is calculated as the average yield of central government debt of the same duration over the past five business days, according to the auction rules. Liaoning is the only Chinese province in recession and is facing population flight and rising debt levels. The province has had to sell some bonds as high as 30 bps above equaltenor sovereign debt in 2016.
10 Business Daily Wednesday, September 21 2016
Greater China Trading probe
Beijing freezes Trafigura’s investment in smelter The events highlight the complexity of doing business in China, a key market for the Swiss merchant which deals in everything from oil to copper. Chen Aizhu
T
he Chinese authorities have frozen part of commodity t r a d e r T r a f i g u r a’ s investment in a Chinese copper smelter as part of a years-long probe into the Swiss firm’s oil trading, according to documents from the police and banks reviewed by Reuters. In October last year, police in the northern Chinese city of Cangzhou, froze US$32.9 million Trafigura Pte Ltd had injected into the metals project, a joint venture with Chinese metals producer Jinchuan Group Co Ltd in the southwestern city of Fangchenggang, documents dated October 28, 2015 show. The documents were from the Cangzhou Police Bureau and a Bank of China branch in Fangchenggang,
which authorized the move. The frozen funds represented just over a third of the US$94.4 million investment Trafigura Pte Ltd had pledged. Investigators arrested Tian Meng, Trafigura’s Beijing-based oil marketer in August 2014, following a complaint to police by private Chinese trader Qingdao United Energy, alleging it had lost US$32 million from trade financing deals arranged by Tian without its knowledge. Tian was released on bail last month - without being charged - after more than two years in detention. Reuters couldn’t reach Tian for comment. Trafigura declined to comment on the fund freeze. The Cangzhou Police Bureau and Cangzhou prosecutors’ office declined comment. Jinchuan did not respond to requests for comment. Li Yixing, founder of Qingdao United
Energy, said he was briefed by the police of the fund freeze, but declined to comment further. The events highlight the complexity of doing business in China, a key market for the Swiss merchant which deals in everything from oil to copper. Trafigura’s investment in the smelter was seen as an important step for Trafigura in expanding its footprint in the copper concentrates and metal market in the world’s top commodities consumer. Senior sources at Trafigura have repeatedly said the company believes the dispute is a commercial one and is not a matter for police or state prosecutors. The Fangchenggang smelter, in Guangxi province, is not connected to the trading being investigated. Senior industry sources said the freezing of Trafigura’s investment should not have a material impact on the Swiss firm given it reported US$97.2 billion in revenue and US$2.6 billion of gross profit in 2015 as shown in Trafigura’s annual report. The one-year freeze expires next month, the documents showed.
Authorities also detained Li Bo, head of Trafigura’s Beijing-based oil operation, in June 2015, as part of the investigation into the same case. Li was released later on bail last February and has not been charged.
market in the world so it’s going to bring significant benefit,” Hewitt said of Bright Foods’ involvement. Shanghai Maling President Wei Ping Shen said in a statement the regulatory approval “clears the way for us to move ahead with the partnership”. Chinese companies have in recent years been attracted to New Zealand’s agricultural sector as the Asian giant seeks sources of high-quality protein to feed its fast-growing middle class. However, some Chinese investors have hit roadblocks from political opposition to foreign ownership of domestic assets. In September 2015 the New Zealand government blocked the NZ$88 million purchase of a local farm by China’s Shanghai Pengxin, despite the OIO approving the sale. The
government said at the time they were not satisfied there would be “substantial benefit” to New Zealand. Investors have also complained the OIO process was slow and uncertain, a problem the government acknowledged in May when it announced plans to speed up approvals by employing more staff. Neighbouring Australia has also grappled with concerns around foreign ownership of farmland and rural businesses. Early this year, the government rejected a bid by a China-led consortium to buy Australia’s S. Kidman & Co, the country’s largest agricultural land owner, concluding the offer for Kidman and its agricultural land, about the same size as Ireland, was not in the national interest. Reuters
‘Senior industry sources said the freezing of Trafigura’s investment should not have a material impact on the Swiss firm’ Police targeted Trafigura Pte Ltd because it was the counterparty of the Qingdao firm in the alleged trade financing deals, according to Qingdao United Energy’s Li and another source with direct knowledge of the probe. Reuters
M&A
Bright Food approved to buy stake in NZ’s largest meat processor The acquired company is particularly focused on the Chinese market. New Zealand approved yesterday the sale of a 50 per cent stake in the country’s largest meat processor Silver Fern Farms to a unit of China’s Bright Food Group, enhancing the South Island-based company’s access into the Chinese market. The approval of the NZ$261 million (US$191 million) deal is an
Key Points NZ approves Chinese SOE 50 pct purchase of Silver Fern Farms Unit of Bright Food Group to pay NZ$261 million encouraging outcome for Chinese investors, following a high-profile rejection and complaints over the slow approval process. The Dunedin-based company had voted in October to allow Shanghai Maling Aquarius Co, a unit of Chinese state-owned enterprise Bright Food Group, to take a half-share in the firm and applied for approval from foreign investment regulators the same month. Minister for Land Information, Louise Upston, who approved the
deal after it received the go-ahead from the Overseas Investment Office (OIO), said in a statement it would “put the company in a better financial position and allow it to increase its exports”. Silver Fern Farms Chairman Rob Hewitt told Reuters the capital invested would allow the company to develop its brand and strategy. The company is particularly focused on the Chinese market, their biggest by volume, and can take advantage of Bright Foods’ supply chains and 8,000 Chinese supermarkets. “It’s the fastest growing protein
Business Daily Wednesday, September 21 2016 11
Asia
Japan’s central bank headquarters in Tokyo Monetary challenge
Japanese central bank may rattle global bond markets There is speculation it may lower short-term interest rates deeper into negative territory and change its bond purchasing program. Richard Leong and Vidya Ranganathan
T
he Bank of Japan (BOJ) may steal the thunder from the U.S. Federal Reserve and its chair Janet Yellen this week if it chooses to give more monetary stimulus in its latest effort to jumpstart its economy and the U.S. central bank decides to stand pat on interest rates. If the BOJ, led by Governor Haruhiko Kuroda, decides to shake up its policy stance, one avenue would be to be less aggressive in purchasing longer-dated assets, thereby allowing yields to go up, while cutting short-term rates deeper into negative territory. This would likely result in a rise in yields of U.S. Treasuries and other government bonds, and on the margin push up long-term borrowing costs for consumers and corporations. Japanese investors have poured money into foreign bonds in a scramble for income-generating assets as domestic bond yields have turned negative. This is contributing to holding global yields near historically low levels. “The BOJ is important in part because the Japanese have been buying anything abroad that gives them yields,” said David Keeble, global head of interest rates strategy at Credit Agricole Corporate & Investment Bank in New York. Last week, the yield on 10-year Japanese government debt rose close to zero per cent, a level not seen since March, in a global bond market
sell-off triggered by the European Central Bank’s decision to refrain from expanding its asset purchase program on September 8. The ECB’s move intensified worries that major central banks are running out of tools to aid their economies. “Japan has struck a chord in terms of the generalised perception that there isn’t that much left in that tank for policymakers from a monetary standpoint,” said Charlie Diebel, head of rates at London-based asset manager Aviva Investors.
“If you still need to provide stimulus, perhaps monetary policy isn’t the way it is going to be forthcoming.” Charlie Diebel, head of rates at London-based asset manager Aviva Investors.
“Therefore, if you still need to provide stimulus, perhaps monetary policy isn’t the way it is going to be forthcoming.” The U.S. economy is far from robust, posting a sub-par 1.2 per cent increase in second quarter gross domestic
product. However, Japan, the world’s third-biggest economy, is struggling even more, eking out just 0.7 per cent growth in the same period. The BOJ will undertake a comprehensive review of its monetary policy at its September 2021 meeting, and there is speculation it may lower short-term interest rates deeper into negative territory and change its bond purchasing program. Fed Chair Yellen and other U.S. policy-makers, who will convene during the same period as their Japanese counterparts, are widely expected to leave their benchmark policy rate unchanged in a range of 0.25-0.50 per cent. They will likely keep the door open for a rate increase by year-end. To be sure, if the Fed stuns investors by raising rates within hours of their Japanese counterparts’ decision, that would overshadow anything coming from Tokyo. The consensus is the Fed will keep its powder dry given the recent patch of soft economic data. Also, it may be reluctant to raise rates, and possibly upset financial markets, ahead of a tightening presidential election on Nov. 8.
One foot out the door
Japan’s struggle has persisted even as the BOJ adopted unconventional measures of negative interest rates and massive asset purchases aimed at spurring consumption and investments, while also helping exports with a weaker yen. Instead the yen has risen 15 per cent against the dollar and 13 per cent versus the euro so far this year. Bond curves globally have meanwhile steepened, led by a rise in Japanese long-term yields, in the past couple
of weeks. “If you think about the last 15-20 years, we always thought Japan was the outlier. In fact, it turned out they were pretty much the leader,” said Ashley Perrott, head of Asian fixed income at UBS Asset Management in Singapore. “The rest of the world has followed the Japan path to lower yields. And I think they are still probably leading,” he said. The BOJ’s ability to communicate its intent is therefore key, and some analysts even suspect the confusion heading into Wednesday’s meeting is intentional, aimed at upsetting the single-bet mentality in the market and thus limit any fallout. Interest rate markets implied traders expect a 17 per cent chance the BOJ would lower its target rate to -0.30 per cent on Wednesday and a 14 per cent chance the Fed would raise the federal funds rate by a quarter point, according to Reuters data. Real money and leveraged investors are therefore playing it extremely safe. Perrott, whose team manages US$3 billion in its Asian portfolios, has cut back on interest rate exposure, while still holding derivatives that will protect UBS should bond markets rally once again. “It is a wild card and will definitely see markets move,” Scott Mather, chief investment officer of U.S. Core Strategies and a managing director at the $1.5 trillion Pacific Investment Management Co (PIMCO), referring to the BOJ. “We are relatively neutral on the government-bond market and we don’t have a large position to our risk exposure in Japan. Definitely, investors are coming up to the sense that the effect of monetary stimulus is not as advertised.” Reuters
12 Business Daily Wednesday, September 21 2016
Asia In Brief Property
Commercial land prices in Japan’s areas rise Commercial land prices in Japan’s three major metropolitan areas grew at the fastest pace since 2008 as of July 1 this year from a year ago, boosted by real estate investment, a government survey showed yesterday in a rare bit of good news for the ailing economy. Nationwide commercial land prices stopped falling in the period for the first time since 2007, according to the Ministry of Land, Infrastructure, Transport and Tourism. “Demand for retail spaces and accommodations has risen due to an increase in foreign tourists,” the ministry said. Corporate investigation
Lotte boss appears for probe South Korean prosecutors yesterday questioned Lotte Group Chairman Shin Dongbin, the most senior executive to face interrogation as part of a sweeping criminal probe into the country’s fifth-largest conglomerate. Investigators will ask Shin about suspected embezzlement and breach of trust as well as other suspected corporate crimes at Lotte Group, a prosecution source with direct knowledge of the matter told Reuters on Monday. As a boss at the time of the alleged crimes, Shin, 61, is expected to be a key witness in the investigation which has already seen dozens of Lotte Group officials called in. Petrochemical
Sri Lanka to seek foreign assistance for oil refining Sri Lanka is exploring the possibilities of private investments in oil refining and has invited several foreign companies to present their proposals, Minister for Petroleum, Chandima Weerakkody, said yesterday. Speaking to reporters, Weerakkody said that Sri Lanka is looking to get investments of an estimated US$4 billion in the petroleum sector to meet domestic demand and also exploit export potential, keeping in view the strategic location of the island nation. According to Sri Lanka’s Central Bank, the country imported US$2.7 billion worth of petroleum and petroleum products in 2015. Trade deal
New Zealand moves to secure FTA with Gulf states New Zealand Trade Minister Todd McClay will visit the United Arab Emirates and Saudi Arabia this week in the hope of pressing home a free trade deal that has been under negotiation since 2009. The trip was announced yesterday after Prime Minister John Key held talks at the United Nations in New York with Saudi Arabian Deputy Prime Minister Prince Mohammed Bin Nayef Bin Abdulaziz Al Saud on the ongoing negotiations over a free trade deal between New Zealand and the Gulf Cooperation Council states.
Commodities
Mongolia to pitch railway projects to China-backed AIIB “One Belt One Road” project, along with another initiative to create an “economic corridor” connecting it to Mongolia and Russia, has provided opportunities to kick-start new projects. Terrence Edwards
M
ongolia will p i tch a n u m b e r o f railway projects to the China-initiated Asian Infrastructure Investment Bank (AIIB), an adviser to the government told Reuters, as the crisis-hit nation tries to attract investment and boost trade. The landlocked country, wedged between China and Russia, is mired in debt following a slump in commodity prices, a precipitous drop in foreign investment and a rapidly declining currency, forcing the government to hike interest rates and slash spending. It sits on vast, untapped mineral wealth but inadequate transportation infrastructure has held back development, with several proposed railway projects to ship copper, coal and gold to China long out of reach because of prohibitive costs and arguments over security. But China’s “One Belt One Road” project, along with another initiative to create an “economic corridor” connecting it to Mongolia and Russia, has provided opportunities for Mongolia to kick-start new projects, including the expansion of the TransMongolian railway and construction of a new route going east, said Yondon Manlaibayar, an adviser to Mongolia’s Ministry of Roads and Transportation Development.
‘The Tavan Tolgoi railway project is one of five major infrastructure projects flagged as priorities by the finance ministry’ Mongolia wants to find financing to build 550 km of new railways, and plans to expand existing routes. Manlaibayar didn’t say how much Mongolia would seek to borrow to finance the projects, but said preliminary discussions have
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Manlaibayar said Mongolia plans over the next four years to bolster railway capacity and build new routes that will eventually connect it to a trading route spanning from China to Europe. “It will go forward,” Manlaibayar told Reuters. “We’ve been a driving force for the economic corridor,” he said. The corridor agreement signed by Mongolia, China and Russia in June committed the countries to upgrading regional rail transport by modernising existing capacity and building new routes.
already been held with the AIIB. A spokesman for the AIIB declined to comment when contacted by Reuters yesterday. The plans include the Northern Railway project led by Australian coal miner Aspire Mining. The China Development Bank has already expressed interest in providing threequarters of the financing needed for the project. Also on Mongolia’s list will be a rail line linking its Tavan Tolgoi coal mine to the Chinese border. Mongolia has already invested US$200 million, Manlaibayar said, but the project needs another US$800 million. The Tavan Tolgoi railway project is one of five major infrastructure projects flagged as priorities by the finance ministry last week as the country tries to dig itself out of an economic crisis. Five years ago, foreign investment helped drive Mongolian growth into double digits, but capital inflows have been on the decline since 2012 because of disputes with miners and a slump in commodity prices brought about partly by slowing Chinese growth. The government has also identified Rio Tinto’s underground expansion of the Oyu Tolgoi copper-gold mine and the Gatsuurt gold mine owned by Canada’s Centerra Gold as development priorities. Manlaibayar said he is seeking approval from the government to launch a road show to get other institutional investors involved in the railway projects. “We’ll present one-by-one because it’s difficult getting all these investors in one room,” Manlaibayar said. Reuters
Business Daily Wednesday, September 21 2016 13
Asia Financing
Ride-hailing app Grab raises funding led by SoftBank The company operates in Singapore, Indonesia, the Philippines, Malaysia, Thailand and Vietnam. Southeast Asian ride-hailing firm Grab said it raised US$750 million in a funding round led by investor SoftBank Group, helping it build a warchest to solidify its leading position in the region and head off competition from Uber. Southeast Asia is fast becoming a key battleground for ride-hailing firms thanks to a burgeoning middle class as well as a youthful, Internetsavvy demographic. Grab’s announcement comes a few weeks after Uber sold its China operations to bigger domestic rival Didi, an existing Grab investor, and analysts have said Uber may focus its efforts and money elsewhere, such as in Southeast Asia. The company is now valued at over US$3 billion, a source familiar with the matter said. Its total capital position had increased to over US$1 billion, the company said in a statement, without naming the other investors in the round. S o ft Ba n k i s j o i n e d b y n e w
and existing investors including institutions from the United States and China, a Grab representative told Reuters. It planned to continue expanding its services in Southeast Asia and significantly invest in mobile payments capabilities, Grab said.
Key Points
conglomerate Lippo Group to roll out a mobile payment platform in its biggest market, Indonesia. “We are particularly excited about the growth opportunity in Indonesia, where we see an almost US$15 billion market for ride-hailing services alone, as well as the potential to extend GrabPay’s platform regionally,” CEO and co-founder Anthony Tan said. Previous investors in Grab include sovereign wealth fund China Investment Corporation, and Vertex Ventures Holdings, a unit of Singapore state investor Temasek Holdings.
The company operates in Singapore, Indonesia, the Philippines, Malaysia, Thailand and Vietnam. Such services have become popular on the traffic-clogged streets of cities such as Jakarta, Indonesia and Manila, the Philippines. The apps are also prominent in Singapore, one of the most expensive places in the world to own a private car. In August, Indonesian ride-hailing service Go-Jek raised fresh funding of more than US$550 million from KKR, Warburg Pincus and other investors. Reuters
Round includes new and existing investors Southeast Asia is key battleground for ride-hailing firms Grab says it has 95 per cent market share in third-party taxi-hailing services, while its private-car business has more than half of the Southeast Asian market. Since its launch in 2012, the company has expanded into motorbike hailing, carpooling and delivery. It also recently teamed up with Indonesian
Cattle cull data
Australia crimps beef export forecast The pullback in Australian exports comes as South American nations, in particular Brazil, are looking to expand shipments to key markets such as China. Colin Packham and Zoe Cooney
A
ustralia has crimped its forecast for beef exports by nearly 7 per cent, with farmers easing off on slaughtering cattle as they look to rebuild herds from 20-year lows following three years of drought. Shipments from the world’s No.4 exporter of the meat are expected to total 1.025 million tonnes in the 2016/17 season, the Australian Bureau of Agriculture, Resource Economics and Rural Sciences (ABARES) said, down from its June forecast of 1.1 million tonnes and dropping from over 1.17 million tonnes the year before. Declines in one of the country’s main rural exports are a blow to the government as it looks to shift the economy away from its reliance on mining as a commodity boom fades. They are also giving rival beef exporting nations like Brazil the chance to ramp up market share in key consumers such as China, where a rapidly-expanding middle class is developing a taste for foods like steak and hamburgers. “Producers are stretching themselves to be able to try and get back as quick as possible, but losing market share is something that is going to inevitably happen in the shortterm,” said Matt Bennetto, a farmer in Queensland, the country’s largest cattle producing state. Like many in the country’s cattle industry, Bennetto is rebuilding his herd in the wake of the arrival of rains in the last three months that are starting to nurture pastureland he needs to feed animals.
The worst El Niño weather pattern in 20 years wilted grass and dried out dams in parts of Australia, pushing slaughter numbers to record highs. After operating around the clock until as recently as December 2015, many slaughterhouses in states such as Queensland are now idle. Slaughter rates for Australian cattle were down more than 20 per cent during the first seven months of 2016 com-
“Losing market share is something that is going to inevitably happen in the shortterm” Matt Bennetto, a farmer in Queensland, Australia pared to the same period last year, according to Reuters calculations based on official data. The pullback in Australian exports comes as South American nations, in particular Brazil, are looking to expand shipments to key markets such as China. Brazil for the first time in July became the largest supplier of beef to China as Australian shipments fell 45 per cent, data from the industry body, Meat and Livestock Australia showed. Brazil’s drive to capture a greater share of the Chinese market gathered
momentum earlier this month as Agriculture Minister Blairo Maggi visited China to secure greater access to for beef exporters from his country. “Brazil is going to be a major wrench in the works for (Australia),” said Lygia Pimentel, director of Agrifatto
Consultancy in Sao Paulo. Meanwhile, ABARES lowered its forecast for Australian milk production during the 2016/17 season to 9.3 billion litres, from its June forecast of 9.5 billion litres. Australian sugar production was seen at 5.1 million tonnes, edging up from the June estimate of 5.08 million tonnes, ABARES said. Reuters
14 Business Daily Wednesday, September 21 2016
International In Brief Oil prices
OPEC may decide on extra meeting after Algiers OPEC members could decide to hold an extraordinary meeting to discuss oil prices immediately after an informal gathering in Algiers next week, Algerian Energy Minister Noureddine Bouterfa said yesterday. Bouterfa told local radio he was optimistic that participants would reach a consensus on how to stabilise the oil markets at the Algiers meeting of OPEC and non-OPEC producers on September 26-28. Algeria has been pushing for oil to be stabilised at around US$60 a barrel. Bouterfa has travelled to Qatar, Iran and Russia to lobby for action to steady the market.
Cyber security
SWIFT plans measure to help spot fraudulent bank transfers New reports will be sent to customers’ payments and compliance teams through a separate channel to the normal SWIFT terminal. Tom Bergin
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he SWIFT inter-bank messaging network plans to send daily reports to clients to help them more quickly identify unauthorised payment instructions like those used by hackers to steal US$81 million from Bangladesh’s central bank in February. Trillions of dollars worth of inter-bank payments are made each day using SWIFT messages but the Bangladesh theft and others which
have came to light this year have knocked confidence in the supposedly super-secure system. SWIFT said in a statement yesterday that from December it would begin sending ‘Daily Validation Reports’ to clients. These would list the messages sent from the client’s SWIFT terminal, thus allowing a bank to spot any payment instructions that it had not intended to send. The report will also contain a risk report aimed at showing whether transfer instructions deviated
Brussels warns banks may impact on budget The European Commission (EC) said on Monday that the final impact of Novo Banco (formerly the bankrupt BES) and the recapitalisation of state-owned bank Caixa Geral de Depósitos (CGD) on the public accounts is not yet known, but warned that they could compromise this year’s budget. Brussels said that the bank recapitalisation is one of the negative risks for the public accounts but the funding needs were not known. JPMorgan hack
U.S. judge says Bitcoin is money
Sovereign financing
Argentina needs US$15 bln debt in 2017 Argentina expects to issue no more than US$10 billion to $15 billion in international debt next year, Finance Minister Alfonso Prat-Gay said on Monday. President Mauricio Macri ended a decade-long legal battle with mostly U.S. creditors who refused to accept payment terms from a record 2002 default, enabling Argentina to issue international bonds again. Macri’s government has focused on attracting investment and reconciling Argentina with global capital markets since he took office in December, closing a bitter chapter following a US$100 billion default in 2002, the largest ever at the time.
‘Some former SWIFT staff and clients say the organization have been slow to react to growing security risks in recent years’ In both cases, it took days for the thefts to be discovered. The new reports will be sent to customers’ payments and compliance teams through a separate channel to the normal SWIFT terminal, so that even if hackers have gained access to the terminal, the reports will get through. Some former SWIFT staff and clients say the Belgium-based organization, a co-operative controlled by the biggest global banks, have been slow to react to growing security risks in recent years. SWIFT denies it overlooked risks around unauthorised access to client terminals, saying it was up to banks to secure their own facilities. However, in June the co-operative launched a new ‘Customer Security Programme’ and is in the process of developing new measures to help clients, particularly smaller banks, ensure they are not victims of hacking. Reuters
Portugal
Bitcoin qualifies as money, a federal judge ruled on Monday, in a decision linked to a criminal case over hacking attacks against JPMorgan Chase & Co and other companies. U.S. District Judge Alison Nathan in Manhattan rejected a bid by Anthony Murgio to dismiss two charges related to his alleged operation of Coin. mx, which prosecutors have called an unlicensed bitcoin exchange. Murgio had argued that bitcoin did not qualify as “funds” under the federal law prohibiting the operation of unlicensed money transmitting businesses.
from the client’s typical payment patterns. In the Bangladesh heist and a US$12 million theft from a Colombian bank last year, hackers covered their tracks by deleting records of fraudulent SWIFT messages they sent from the banks’ terminals.
Monetary meeting
Fed again poised to cut longer-run interest rate forecast The Fed has not raised rates this year despite signalling in December that four rate hikes were coming in 2016. U.S. Federal Reserve policymakers are set this week to again cut their forecasts for how high interest rates will need to go in an economy where output, productivity and inflation are growing at a slower pace than in past decades. It would be the fourth time in 15 months that the U.S. central bank has been forced to admit its estimate of this so-called neutral rate was too optimistic, raising questions about the health of the economy in the coming years. The Fed, however, still insists low interest rates and its large balance sheet of bonds are sufficient to continue bolstering economic growth. Conversations with Fed officials suggest some will cut their predictions for the longer-run rate at this week’s monetary policy meeting, with the median forecast possibly falling to 2.75 per cent. It was 3.75 per cent in June 2015 and 4.25 per cent four years ago. The Fed is expected to leave its benchmark overnight interest rate unchanged following its two-day meeting today, according to a Reuters poll of economists. The Fed’s policy rate has been about 0.38 per cent since it was raised in December, the first increase in nearly
a decade. The expected reduction in the longer-run neutral rate forecast amounts to a lower speed limit on future rate hikes, and points to fewer increases with longer gaps between them than U.S. central bankers and investors had expected. The lower the neutral rate forecast, the less anxious the Fed needs to be about tightening policy, which would justify its repeated decisions to defer rate increases.
“They are not very far from being in a tightening mode” Shehriyar Antia, founder of Macro Insight Group and a former senior analyst at the New York Fed The result, says San Francisco Fed President John Williams, will be the “shallowest” set of rate hikes ever; “much flatter,” according to Dallas Fed President Robert Kaplan in a separate conversation, than anything in the past.
The Fed has not raised rates this year despite signalling in December that four rate hikes were coming in 2016. That number has since been scaled back to two hikes this year, with another three hikes in 2017, due to a global growth slowdown, financial market volatility and tepid U.S. inflation. But given the new thinking on the neutral rate, that seems overly optimistic. Fed policymakers say an aging U.S. population and decline in productivity growth is sapping economic potential, making them wary about raising rates too fast.
Fed toolbox
Regardless of any reduction in the neutral rate estimate this week, Fed Chair Janet Yellen is likely to stick with her view that the central bank’s so-called toolbox - its more than US$4 trillion in Treasuries and mortgage-backed securities, low interest rates and planned gradual removal of stimulus - is appropriate for an economy that has consistently fallen short of growth forecasts. During the global central banking conference last month in Jackson Hole, Wyoming, Yellen said that policy mix had served the Fed well and would likely be useful in the face of a future economic downturn. But the Fed’s constant walk-backs have served to undercut some of the market’s faith in the central bank. Traders of short-term rate futures, for instance, are now betting the Fed will not hike rates until early next year. Still, any cut to the Fed’s neutral rate forecast does not mean it will never raise rates. Reuters
Business Daily Wednesday, September 21 2016 15
Opinion Business Wires
The Times of India A high-level meeting chaired by finance minister Arun Jaitley (pictures) last week decided to set up a ‘war room’ in the finance ministry comprising of top officials of the Revenue department and the Central Board of Excise and Customs for day-to-day monitoring of the implementation of the Goods and Services Tax. The FM’s meeting, attended by Infosys CEO Vishal Sikka along with senior officials of the finance ministry, came a day after prime minister Narendra Modi took a review of the progress of the GST roll out. The PM had directed the FM and his officials to strictly stick to the deadline of April 1 next year.
The Korea Herald South Korea will likely see its gross domestic product per capita touch the landmark US$30,000 level in 2018, a parliamentary report predicted yesterday. If the US$30,000 plateau is attained in two years, it will have taken 12 years since South Korea reached the US$20,000 level in 2006. Other leading economies of the world have spent 8.2 years on average in raising their per capita income from US$20,000 to US$30,000. Switzerland needed only two years to make the jump and Japan spent five years, while it took 13 years for France and the Netherlands and 10 years for Britain.
Taipei Times The Chinese Nationalist Party (KMT) yesterday urged President Tsai Ingwen’s administration to refrain from being jealous over a recent meeting between Chinese cross-strait officials and a delegation of predominantly KMT local government heads, saying the delegation was merely trying to find a way out for their nation. KMT Culture and Communications Committee deputy director Hu Wen-chi said the group, made up of six KMT members and two independents, made three requests during their two-day visit to Beijing, during which they met with Chinese People’s Political Consultative Conference Chairman Yu Zhengsheng and Taiwan Affairs Office Minister Zhang Zhijun.
Viet Nam News Việt Nam expects to earn US$900 million from exporting beverage products by 2035, according to the industry’s planning. Under the new plan to 2025, with a vision to 2035, the Ministry of Industry and Trade has targeted the development of a modern industry which can compete in global integration. Accordingly, focus would be placed on applying technologies to improve product quality, diversify products and build brand names. The industry wants to reduce the percentage of alcohol and beer products, while increasing non-alcoholic beverage products. Production of nonalcoholic beverages will be more than doubled during the 2020-35 period.
United Nations Office at Geneva. Falcon_33 via Foter.com / CC BY-SA.
The coming anti-national revolution
F
or the past several centuries, the world has experienced a sequence of intellectual revolutions against oppression of one sort or another. These revolutions operate in the minds of humans and are spread – eventually to most of the world – not by war (which tends to involve multiple causes), but by language and communications technology. Ultimately, the ideas they advance – unlike the causes of war – become noncontroversial. I think the next such revolution, likely sometime in the twenty-first century, will challenge the economic implications of the nation-state. It will focus on the injustice that follows from the fact that, entirely by chance, some are born in poor countries and others in rich countries. As more people work for multinational firms and meet and get to know more people from other countries, our sense of justice is being affected. This is hardly unprecedented. In his book 1688: The First Modern Revolution, the historian Steven Pincus argues convincingly that the so-called “Glorious Revolution” is best thought of not in terms of the overthrow of a Catholic king by parliamentarians in England, but as the beginning of a worldwide revolution in justice. Don’t think battlefields. Think, instead, of the coffeehouses with free, shared newspapers that became popular around then – places for complex communications. Even as it happened, the Glorious Revolution clearly marked the beginning of a worldwide appreciation of the legitimacy of groups that do not share the “ideological unity” demanded by a strong king. Thomas Paine’s pamphlet Common Sense, a huge bestseller in the Thirteen C o l o n i es w h e n i t w as p u b l i s h e d i n Ja n u a r y 17 76 , m a r k e d a n o t h e r such revolution, which was not identical with the Revolutionary War against Britain that began later that year (and had m u l t i p l e c a u s e s ) . Th e reach of Common Sense is immeasurable, because it wasn’t just sold but was also read aloud at churches and meetings. The idea that hereditary monarchs were somehow spiritually superior to the rest of us was decisively rejected. Most of the world today, including Britain, agrees. The same could be said of the gradual abolition of slavery, which was mostly achieved not by war, but by an emerging popular recognition of its cruelty and injustice. The 1848 uprisings around Europe were substantially a protest against voting laws that limited voting to only a minority of men: property holders or aristocrats. Women’s suffrage followed soon after. In the twentieth and twentyfirst centuries, we have seen civil rights extended to racial and sexual minorities. All of the past “justice revolutions” have stemmed from improved communications. Oppression thrives on distance, on not actually meeting or seeing the oppressed. The next revolution will not abolish the consequences of place of birth, but the privileges of nationhood will be tempered. While the rise in anti-immigrant sentiment around the world today seems to point in the opposite direction, the sense of injustice will be amplified as communications
“
Robert J. Shiller a 2013 Nobel laureate in economics and Professor of Economics at Yale University, is co-author, with George Akerlof, of Phishing for Phools: The Economics of Manipulation and Deception.
continue to grow. Ultimately, recognition of wrong will wreak big changes. For now, this recognition still faces strong competition from patriotic impulses, rooted in a social contract among nationals who have paid taxes over the years or performed military service to build or defend what they saw as exclusively theirs. Allowing unlimited immigration would seem to violate this contract. But the most important steps to address birthplace injustice probably will not target immigration. Instead, they will focus on fostering economic freedom. In 1948, Paul A. Samuelson’s “factor-price equalization theorem” lucidly showed that under conditions of unlimited free trade without transportation costs (and with other idealized assumptions), market forces would equalize the prices of all factors of production, including the wage rate for any standardized kind of labour, around the world. In a perfect world, people don’t have to move to another country to get a higher wage. Ultimately, they need only be able to participate in producing output that is sold internationally. As technology reduces the cost of transportation and communications to near the vanishing point, achieving this equalization is increasingly feasible. But getting there requires removing old barriers and preventing the erection of new ones. Recent free-trade agreements under discussion, the TransPacific Partnership and the Transatlantic Trade and Investment Partnership, have suffered setbacks as interest groups attempt to bend them to their own aims. But, ultimately, we need – and probably will get – even better such agreements. To achieve factor-price equalization, people need a stable base for a real lifetime career connected to a country in which they do not physically reside. We also need to protect the losers to foreign trade in our existing nation-states. Trade Adjustment Assistance (TAA) traces its roots in the United States back to 1974. Canada experimented in 1995 with an Earnings Supplement Project. The European Globalization Adjustment Fund, started in 2006, has a tiny annual budget of €150 million (US$168.6 million). US President Barack Obama has proposed to expand the TAA program. But, so far, this has meant little more than experiments or proposals. Ultimately, the next revolution will likely stem from daily interactions on computer monitors with foreigners whom we can see are intelligent, decent people – people who happen, through no choice of their own, to be living in poverty. This should lead to better trade agreements, which presuppose the eventual development of orders of magnitude more social insurance to protect people within a country during the transition to a more just global economy. Project Syndicate
In a perfect world, people don’t have to move to another country to get a higher wage. Ultimately, they need only be able to participate in producing output that is sold internationally.
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16 Business Daily Wednesday, September 21 2016
Closing Disaster relief
Chinese authorities allocate injection to typhoon-hit province
China’s top economic planner yesterday allocated 28 million yuan (US$4.2 million) from the central budget to typhoon-hit Zhejiang Province to support its disaster relief work. The money will be used in restoration and construction of infrastructure and public facilities damaged by Typhoon Meranti and Typhoon Malakas this month, said the National Development and Reform Commission (NDRC). Areas of Zhejiang flooded, power was disrupted and houses were damaged by gales and rainstorms
brought by Malakas over the weekend, wreaking further havoc after Meranti, according to the NDRC. Typhoon Malakas also triggered disaster relief emergency responses from the National Commission for Disaster Reduction and the Ministry of Civil Affairs. On Sunday, a team was dispatched to Zhejiang to review the situation and assist in disaster relief. Earlier in the week, Meranti, the strongest typhoon to hit China this year, killed at least ten people in Zhejiang as it brought heavy rainfall. Most casualties were caused by landslides and flashfloods in rural areas, Zhejiang provincial flood control headquarters said Saturday. Xinhua
M&A
Mainland steelmakers announce merger to combat glut Analysts said the mergers would help China deal with overcapacity that has long plagued manufacturers.
T
wo of China’s top steelmakers announced plans yesterday to merge, creating the world’s second-largest manufacturer of the commodity as markets struggle with a glut caused by Chinese overcapacity. The world’s second largest economy is trying to overhaul its lumbering state sector and especially its steel industry, by using mergers and restructuring to cut chronic overproduction and create world-beating mills. Baosteel Group, China’s second-largest steelmaker, will issue new stock to existing shareholders of Wuhan Iron and Steel Group to absorb the other company, the stateowned companies said in separate statements to the Shanghai bourse, where they are listed. They did not give details. The two firms rank fifth and 11th respectively in world production capacity. The merger will form a new firm called China Baowu Iron and Steel Group, China Business News reported late Monday, adding the state asset watchdog had already okayed the plan and submitted it to the State Council - China’s cabinet - for final approval. The combined production capacity of the two firms reached 60.7 million tonnes last year, data from the World Steel Association showed, which would make the new entity the world’s second biggest producer by capacity - behind ArcelorMittal. Chinese steel demand has slumped as economic growth slows and the
global steel industry is assailed by overcapacity. The crisis has seen manufacturers in Asia, Europe and the US suffer huge losses and led to political rows and accusations of dumping. Shanghai-based Baosteel’s net profit plummeted 83 per cent to 1.0 billion yuan (US$150 million) last year, while Wuhan Steel lost 7.5 billion yuan, compared with a 1.3 billion yuan net profit in 2014.
‘Unstoppable trend’
An analyst said the merger between Baosteel and WISG was “merely the beginning” of more such moves in China’s steel industry. “Restructuring in China’s steel
Markets
industry is the trend and it’s an unstoppable one,” Chen Bingkun, an analyst at Minmetals and Jingyi Futures, told AFP. Restructuring of another two Chinese steel giants both based in north-eastern province of Liaoning - Ansteel and Benxi Steel Group - is next on the agenda, Shanghai Securities News reported yesterday. It quoted Chi Jingdong, vice secretary general of the China Iron and Steel Association. Ansteel is the world’s seventh biggest mill and Benxi Steel ranks 21st. The listed arms of the two groups suspended trading in Shenzhen yesterday pending statements on the report. Analysts said the mergers would help China deal with overcapacity that has long plagued manufacturers. Beijing has vowed to eliminate
100-150 million tonnes of capacity - out of a total of 1.2 billion tonnes - by 2020. “China is now trying to cut down its steel production through policy. And restructuring of the industry is a second way to help. Once the merged giants form a monopoly in the market, it will start to control production,” said Minmetals’s Chen. “The result of this restructuring is to integrate China’s steel industry and pave the way for China to export its steel capacity.”
“China is now trying to cut down its steel production through policy. And restructuring of the industry is a second way to help.” Chen Bingkun, an analyst at Minmetals and Jingyi Futures However, another analyst said the merger would not give Chinese mills an edge over global competitors like ArcelorMittal and US Steel. “I don’t think these mergers will be able to change the current market status of the world’s steel industry,” Qin Jiawei, Hangzhou-based analyst with Xinhu Futures, told AFP, adding that high-end markets would still be dominated by foreign companies. “China’s high-end steel products don’t have the competitiveness in the international markets. It’s not the size of the company that counts. You can’t change the global steel market by just adding them up.” AFP
Private report
Online retailing
Hong Kong regulator proposes Taobao most valuable easing trade in derivatives Chinese brand
Aussie business not keen on social media shopping
Hong Kong’s securities regulator began consultations with market participants yesterday over plans to ease curbs on trading listed derivatives, in an effort to boost the futures and options market. In a statement, the Securities and Futures Commission (SFC) said it proposed lifting the existing cap on brokers’ so-called ‘excess’ position limits - positions in equity option and futures contracts not being used to directly hedge underlying share holdings. The SFC has also proposed establishing new excess position limits for index arbitrage activities, asset managers and market makers of exchange-traded funds, allowing such players to more efficiently hedge their risks. The SFC has also proposed trebling to 150,000 contracts the statutory limit for stock option contracts. “The proposed enhancements address market participants’ business needs and encourage them to conduct more of their derivative activities on exchange markets,” SFC Chief Executive Ashley Alder said. “By improving market efficiency and enhancing liquidity, this will help to promote Hong Kong as a risk management centre.” Reuters
A small but growing number of consumers are shopping via social media however Australian businesses have been slow to embrace the trend, a new report found. Social commerce, where people make purchases directly through social media channels such as Facebook, Twitter and Pinterest, has emerged as a new player in online shopping, the Australian Associated Press reported yesterday. Eleven per cent of Australian smartphone users have made a purchase via a social platform in the past six months and 18 per cent have bought something after seeing it on social media, according to the PayPal mCommerce Index report. Businesses aren’t lagging too far behind consumers, with 7 per cent of businesses surveyed able to accept payments via social media sites or apps. Yet the report also found a whopping 89 per cent of businesses have no intention of jumping on the social commerce bandwagon within the next six months, while more than a third of businesses have no social media presence at all. The biggest barrier for consumers considering social commerce is the security of their personal information, the report found. Xinhua
China’s e-commerce powerhouse Taobao has surpassed Tencent to become the nation’s most valuable brand, according to a report published yesterday. Taobao’s brand value stands at 230 billion yuan (US$34 billion), followed by China Mobile at 227 billion yuan, and Baidu at 218 billion yuan, according to Hurun Research Institute. Last year’s champion Tencent fell to fifth position at 210 billion yuan, as WeChat was counted independently this year. Wechat, which has 700 million users, debuted at seventh place on the list, with a brand value of 132 billion yuan. The combined brand value of the 200 Chinese companies listed in the report reached 4.6 trillion yuan, up 7 per cent year on year, and a record high. Of the 200 companies listed, 139 have seen their brand values grow, and 97 are private businesses. The value of state-owned brands has decreased by about 3 per cent on average, while those of private businesses are up by about 20 per cent on average. Financial and property sectors have the most brands on the list, but technology brands recorded the biggest rise, with their average value increasing by about 59 per cent. Xinhua