PBOC appoints Bank of China as first yuan clearing bank in U.S. Banking Page 4
Thursday, September 22 2016 Year V Nr. 1136 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Joanne Kuai Energy
CEM granted land to develop new islands hospital power supply Page 5
www.macaubusinessdaily.com
Investment directions
Markets
Beijing prepares to foster investment in venture capital Page 8
Singapore-based hedge funds take lead in dethroning Hong Kong Page 12
Inflation Hits 6-year Low
Economy
Inflation hit a new low of 1.65 pct y-o-y in August. The lowest since January 2010, DSEC data reveals. The city’s composite consumer price index (CPI) hit 108.10 for the month, attributable to parking space rentals, increased cost of eating out, and increases in property management fees and vehicles among other factors. Page 3
Trading up
Oo-la-la
Bernstein analysts have lowered estimates for Sands China’s gross gaming revenue for the remaining year up to 2018. Forecasting a further fall in VIP take as an overall percentage. And predicting The Parisian Macao will overtake Sands Cotai Central in revenue terms come 2017.
MICE UFI has released its annual report on Asia’s trade fair industry for 2015. Macau’s humble stature didn’t stop it registering an increase of 5.9 pct in total net space sold at trade fairs. Page 2
Change of paradigm
Gaming Page 6
HK Hang Seng Index September 21, 2016
23,669.90 +139.04 (+0.59%) Worst Performers
China Overseas Land &
+2.64%
Galaxy Entertainment Group
+1.37%
Hang Lung Properties Ltd
-2.10%
BOC Hong Kong Holdings
-0.74%
Sun Hung Kai Properties Ltd
+1.63%
China Resources Land Ltd
+1.32%
China Resources Power
-1.80%
China Unicom Hong Kong
-0.66%
China Petroleum & Chemical
+1.51%
Henderson Land Develop-
+1.31%
Sino Land Co Ltd
-1.70%
Hengan International Group
-0.61%
Bank of China Ltd
+1.38%
Industrial & Commercial
+1.21%
Link REIT
-1.69%
Swire Pacific Ltd
-0.59%
China Shenhua Energy Co
+1.37%
CNOOC Ltd
+1.19%
AAC Technologies Holdings
-0.85%
China Mengniu Dairy Co Ltd
-0.57%
27° 30° 26° 30° 26° 30° 27° 30° 26° 32° Today
Source: Bloomberg
Best Performers
Fri
Sat
I SSN 2226-8294
Sun
Mon
Source: AccuWeather
Japan’s monetary policy The Bank of Japan made an abrupt shift yesterday. Targeting interest rates on gov’t bonds to achieve its elusive inflation target. This, after years of massive money printing has failed to jolt the economy out of its decades-long stagnation.Page 11
2 Business Daily Thursday, September 22 2016
Macau Culture
Cultural Affairs Bureau: New library to meet increased demand IC says the city’s new Central Library will adopt a simple design and increase the number of book collections to meet the reading demand of the city. Annie Lao annie.lao@macaubusinessdaily.com
T
he Cultural Affairs Bureau’s (IC) acting director Chan Peng Fai remarked on TDM radio programme Macau Forum yesterday that the estimated MOP900 million (US$ 112.7 million) allotted to constructing a new Central Library in 2019 will restrict both the direction and framework of its design and construction while resources will be arranged at different stages for the new Central Library. When asked whether the budget includes decoration, Chan replied that the new library would be simply decorated with energy saving characteristics and would conserve the historical characteristics of the chosen location. Chan added that the positioning for a community library and a Central Library is different. Community libraries are smaller in scale as they are used to cultivate a reading culture in the city. However, the new Central Library will serve as a knowledge and information collection database, Chan explained. Thus, an initial design of the new Central Library will be divided into
different areas, including ancient book collections, government departmental information, books published in Macau, multi-media and children’s reading areas, according to Chan.
Growing demand for reading
The city needs a new Central Library to meet the growing demand for reading in the city, Chan said. “Macau is facing a transitional stage of development. In order to increase the city’s competitiveness, the new Central Library will increase the number of book collections in the city available for local residents so they will have access to cultural resources,” Chan explained. According to indicators by the International Federation of Library Associations and Institutions (IFLA), a total of 125,000 people would need a large-scale library in order to meet their reading demand, the director of Macau Library and Information Management Association, Raymond Wong, pointed out during the radio programme. Mr. Wong said the total number of books available in the city is about 700,000 at the moment. However, each person has less than one book based upon the current number of
books available in the city’s libraries. The standard ratio for a city’s library book collection should be between 1.5 to 2.5 books per person, he added. Last year, more than three million people used the public libraries in the city, according to data published by the Statistics and Census Service (DSEC). On average, local residents read about 6.6 books a year, Mr. Wong said. However, the ratio is lower than Hong Kong and Singapore, with 7.8 books and 7.2 books read, respectively, Mr. Wong pointed out.
Central location
Different public opinions were raised regarding the chosen location for the new Central Library, which will be located in the former court building
on the Praia Grande on the Macau Peninsula. Some agreed that the chosen location is suitable as it is close to many schools and many tourist attractions in the city but some disagreed saying it is impractical to locate the new Central Library in the central district of the city as the city’s office spaces are already scarce. Chan responded that the chosen location of the new Central Library had been decided ten years ago and has its advantages over other locations in the city. ‘’This location was chosen based upon consideration of sufficient space inside the building, public transport convenience, central location and history of the building,” Chan explained.
Expo
Macau Business Aviation Exhibition certified by UFI Cecilia U cecilia.u@macaubusinessdaily.com
and other activities. The organisers of the exhibition are Macao Convention & Exhibition
Association (MCEA), Nam Kwong (Group) Company Limited (NKCL) and China Aviation Supplies Group
Macau Business Aviation Exhibition (MBAE) has been certified by the Global Association of the Exhibition Industry (UFI), which has become one of the five exhibitions in the city certified by the UFI. The exhibition will be held from November 4 to 6 at Macau International Airport, according to yesterday’s press release from MBAE. T h e av i a t i o n e x h i b i t i o n embarking upon its 5th edition this year - will showcase business jets, including programmes such as jet experiences, aviation-related forums, paper plane competitions
Corporation. The MCEA and NKCL also had two exhibitions of local car vehicles and local yachts, both of which have also been certified by the UFI in previous years. The aviation exhibition will be held during the same time the other two exhibitions take place - with the local car vehicles exhibition at The Venetian and the local yachts exhibition at Macau Fisherman’s Wharf. The UFI is the global association of trade show organisers and fairground owners, as well as major national and international exhibition associations, with around 600 members from 85 countries. In Mainland China, fewer than 100 exhibitions are certified by the UFI.
Expo
Trade fair industry in the city grew in 2015 The annual report released by UFI indicates a steady growth in the city’s trade fair industry in 2015. Cecilia U cecilia.u@macuabusinessdaily.com
Being the smallest trade fair market in Asia in 2015, as well as having the shortest development history, Macau nevertheless registered an increase of 5.9 per cent in the total net space sold at trade fairs, according to the annual report published by The Global Association of the Exhibition Industry (UFI). The UFI released the annual report on Asia’s trade fair industry in 2015, the Macao Trade and Investment Promotion Institute (IPIM) announced in a press release. IPIM says the report acts as an important reference point for international exhibition organisers and exhibition management teams.
The UFI report also revealed that the rate of growth of the local trade fair market in 2015 in the city was higher than the regional average, making Macau the fastest growing market during the five-year period since 2011. The annual report also mentioned the support given by the MSAR Government, as well as the ancillary facilities helping promote the city’s trade fair industry. The development of transportation such as the future Hong Kong-Zhuhai-Macau Bridge will assist the city’s development of the trade fair industry in exceeding the regional average. The Macao Trade and Investment Promotion Institute (IPIM) is a member of UFI and participated actively in UFI’s activities. The
Institute has launched a ‘Onestop Service’ for MICE (Meetings, Inc e nti ves, Conve ntion s an d Exhibitions) Bidding and Support in the city. The service provides comprehensive services to help convention and exhibition organisers interested in holding
events in Macau, in order to attract and introduce renowned foreign events to the city. UFI is an international group which seeks to gather renowned trade show organisers and exhibition centre operators from around the globe, in order to promote the development of the exhibition industry both regionally and globally.
Business Daily Thursday, September 22 2016 3
Macau Inflation
Lowest value for y-o-y CPI increase registered since January 2010
New low for inflation Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
nflation hit a new low of 1.65 per cent year-on-year in the month of August – the lowest since January 2010, according to the latest data from the Statistics and Census Service (DSEC). The city’s composite consumer price index (CPI) hit 108.10 for the month, attributable to a number of factors including parking space rental,
the increased cost of eating out, and increases in property management fees and vehicles. For the same month last year the city saw a CPI of 106.34, mostly attributed to increased residential costs, and the increased cost of eating out. With regard to sector, that of Clothing and Footwear saw a 3.37 per cent reduction in its CPI compared to the same month last year, largely due to seasonal sales of clothing and footwear products. Housing and Fuels
also saw a year-on-year reduction, of 0.43 per cent, attributable to receding prices in Liquefied Petroleum Gas (LPG) – with a 1.97 per cent yearon-year reduction – as well as lower rental prices for residences, which fell 2.06 per cent year-on-year. This is the first decline in the Housing and Fuels sector recorded since April 2010.
Growth
The Education sector saw the highest increase in pricing by sector, at an 8.89 per cent year-on-year increase. This was mostly due to increases in pricing for pre-primary and primary education, which saw a 23.71 per cent increase, as well as secondary
education, which increased 27.54 per cent year-on-year. The Transport sector also saw a year-on-year increase, amounting to 7.32 per cent, in part due to higher charges for package tours and airfares during the Summer holidays – also linked to the increase in pricing, by 1.27 per cent year-on-year, seen in the Recreation and Culture sector. Within this sector, Cultural Services saw a 6.97 per cent year-on-year increase.
Balancing act
The Telecommunications sector, despite seeing a 0.43 per cent increase year-on-year for August, saw a 7.86 per cent decrease year-on-year in the Telecommunications equipment sub-sector, contrasted by a 1.29 per cent increase in Telecommunications services for the period. Food and non-alcoholic beverages were balanced between slightly higher prices for vegetables and fruits, as well as increased pricing for eating out, coupled with receding prices of fresh fish, seafood and pork – equating to a 2.09 per cent yearon-year increase in CPI. In addition, the sector’s Rice segment saw a 4.27 per cent year-on-year decrease in price for the month. Meanwhile, the Alcoholic Beverages and Tobacco sector saw a 5.32 per cent year-on-year increase, driven by a 7.89 per cent year-on-year increase in tobacco pricing, contrasted by a 0.81 per cent decrease in pricing on alcoholic beverages, year-on-year. With regard to eating out, the 2.28 per cent increase seen throughout the segment was concentrated in the Congee and Noodle subsector, which experienced a 3.89 per cent year-onyear increase in pricing, followed by Western food – at 2.65 per cent – and Coffee Shop refreshments – at 2.65 per cent, year-on-year.
4 Business Daily Thursday, September 22 2016
Macau Opinion
Ashley Sutherland-Winch Influencing the market Influencer marketing is taking social media by storm. Whether they are aware of it or not, consumers are being exposed to advertising campaigns in less obvious ways and being influenced by posts on their Snapchat or Instagram feeds. In the US and UK, governing bodies regulate advertising to protect consumers from being misled. The United States Federal Trade Commission, for example, has extensive and detailed guidelines about the best ways to divulge which social media posts are advertisements. For Instagram and Twitter, they basically recommend making the disclosure prominent by using hashtags such as #ad or #sponsored. The practice of not disclosing ads was getting out of hand recently and many celebrity influencers were targeted and warned that this behaviour would not be tolerated. American reality TV stars were under fire a couple of weeks ago for not labelling their social media posts as sponsored. Each year, consumers lose billions of dollars as a result of deceptive marketing and false advertising. Asia - and specifically Mainland China - are now major targets for businesses to reach consumers. Influencer marketing is a growing area for companies around the world to crack open the Chinese market. “Brands know that China is a big market, but they’re scared of it and think they’re going to have to burn through a lot of money to build their brands and get a return,” says Ivy Wong, founder of the multi-channel network in which Discovery Communications acquired a stake last month. “But by engaging influencers, brands can go from marketing to sale immediately . . . China’s Wang Hong can deliver the highest ROI of any marketing platform in the world, referring to a recent case where an influencer’s live stream sold 25 Maseratis in one hour.” AdAsia Holdings has launched CastingAsia, an influencer marketing platform, across Asia. CastingAsia will be integrated into the company’s Digital Platform portfolio, allowing marketers to develop, manage, and monitor influencer-marketing campaigns alongside programmatic campaigns for desktop, mobile, and video, be they traded through the company’s network, premium inventory or other ad exchanges. CastingAsia is taking the guesswork out of influencer marketing by offering many levels of specificity to their clients. Businesses with a target demographic of stay-at-home mums can choose a stay-at-home mum influencer with a similar fan base and advertise direct to their target market in a way that touches values and trust with incredible specificity, influencing the market in a new and exciting way. These practices will revolutionise direct to consumer marketing.
Ashley Sutherland-Winch is a Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Yuan clearing
PBOC appoints Bank of China as first yuan clearing bank in U.S.
B
ank of China Ltd.’s New York branch will be the first yuan clearing bank in the U.S. The People’s Bank of China announced the mandate in a statement on its website Wednesday. The appointment was made in conjunction with the U.S. Federal Reserve, according to the PBOC statement. “This is an important step in building the global infrastructure, as the yuan clearing system now covers 24 hours,” said Xia Le, chief economist
for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. People’s Bank of China Deputy Governor Yi Gang said in June that a U.S. yuan clearing bank was planned. The Chinese government has named yuan clearing banks in 21 overseas cities and countries as part of a drive to promote the use of the currency for transactions worldwide. The yuan ranked fifth as a global payments currency in July, according to Society for Worldwide Interbank Financial Telecommunications. The
currency’s share of global transactions shrank in June to the lowest since 2014. Bank of China has received the most yuan clearing mandates of China’s banks with 11 including Hong Kong, Macau, Sydney, Paris and Taipei. Industrial and Commercial Bank of China Ltd., the nation’s largest bank, serves Singapore, Doha, Toronto and Luxembourg. China Construction Bank Corp. was named for London and Zurich, while Bank of Communications Co. was given Seoul.
DSAT
DSAT corruption update Witness claims inspection time known by company A female witness was called for the corruption case of former Transport Bureau official Lou Ngai Wa. The hearing was held at the Court of First
Instance yesterday, according to local broadcaster TDM. The female witness was a former employee of one of the involved car
parking management companies, claiming that the fifth defendant, also the former manager of the company, had instructed the witness to modify the prices of the tenders, indicating the items modified each time was salaries. The former employer also pointed out that Pun Ngai, the second defendant and subordinate of Lou, had visited the company while she was editing the tenders. In addition, the witness noted that the staff was inadequate, being switched from other car parks when inspections were held by the Transport Bureau. However, the witness revealed that she was not aware of how the company knew the inspection time. Last year, the city’s graft watchdog, the Commission Against Corruption (CCAC), busted two DSAT public servants for allegedly receiving MOP16 million (US$2 million) in bribes for helping three companies secure parking lot management contracts from the government. The total contract amount involved reached MOP68 million, around 70 per cent of all public parking contract amounts in Macau.
Tourism
More trains to cope with Golden Week G u a n g zh o u Ra i l w a y ( G r o u p ) Corporation is to increase around 70 shifts of round-trips by trains for the upcoming National Day Golden Week which will start on October 1; in particular, increasing trips for two routes – between G u a n g zh o u a n d Zh u ha i , a n d between Zhuhai and Beijing, in order to cope with the high demand of tourists travelling to the MSAR, local Chinese language newspaper Macao Daily has reported. The peak time of the Golden Week holiday transportation will be 10 days starting September 28. The railway corporation estimates that during these 10 days some 13.7 million passengers are to be transported, some 7.3 per cent more than the same period last year. The highest amount of foot traffic is forecast to be on October 1, when 1.74 million individuals are expected to be transported by the Guangzhou Railway Corporation, which may hit the record of highest amount of passenger flow in a single day. The company also says the pattern of travelling during Golden Week shows that tourists will be more centralised when travelling to the south whilst for return journeys the pattern is comparatively sparser. The majority of passengers are tourists and those visiting relatives, plus some students. C.U.
Politics
Legislator Au Kam San speaks to MB.Tv
Speed up and review Legislator Au Kam San, speaking exclusively to MB.Tv, says that in the wake of the Commission Against Corruption investigation into the Iec Long Firecracker Factory land swap case the city should review all of the land concessions from the past. Pointing to the recent case of a plot in Seac Pai Van designated for quarry use that was eventually turned into commercial and residential use the legislator wants to look into ownership, land transfers and land “debt” created by dealings with the government from the past that are resulting in current “conspicuous” timelines and developments.
Bills due
In addition, the legislator says “leftover bills” such as the tobacco control law, are still pending discussion in
the Legislative Assembly (AL) and could be at risk of not seeing their final reading before the end of the current four-year tenure of the legislature next August. Au opines that the first-standing committee of the AL, led by unionist legislator Kwan Tsui Hang, could be the most efficient at passing bills, such as that for tobacco control, which Au considers is at “highest risk”. The legislator, in the interview with MB.Tv, commented that his resignation from the New Macau Association, of which he was a key figure, was a natural decision and that the younger generation’s influence on the Association had led to “different working styles”. For the TV interview, go today to www.macaubusiness.com. The extensive interview will be available in future editions of Macau Business and Business Intelligence.
Business Daily Thursday, September 22 2016 5
Macau Land
Gov’t claims three land plots in Taipa
claimed land comprising 50 square metres, 8 square metres and 3 square metres, respectively. Three land plots in Taipa are to The 50 square metres land will be returned to the government, be merged with another nearby according to dispatches 20 square metres plot for the published in yesterday’s Official Gazette. The dispatch, signed by construction of a 4-storey Secretary for Transport and Public commercial building. The 8 and 3 square metre plots will be utilised Works Raimundo do Rosário, for public streets. states that the government has
Construction Land plot valued at MOP9.9 million
New Islands hospital to get dedicated power supply The government has leased a 1,711 sq. m. land plot in Cotai for CEM to build an electrical substation to provide energy for the planned Islands District Medical Complex. Nelson Moura nelson.moura@macaubusinessdaily.com
C
ompanhia de Electricidade de Macau (CEM) has been granted a concession for a 1,711 square metre land plot in Cotai for the construction of an electrical substation, according to an Official Gazette dispatch released yesterday. The dispatch, signed by Secretary for Transport and Public Works Raimundo Arrais do Rosário, announces that the plot near Estrada Flor de Lótus in Cotai is valued at MOP9.9 million (US$1.2 million), with the concession contract having been granted directly to CEM without a public tender. According to the contract between the Land, Public Works and Transport Bureau (DSSOPT) and CEM, after the concession of the public service electricity supply expires on December 31 2025, if the contract is not renewed the land plot and its constructions will revert to government hands.
Start digging
The local power supplier will pay the total land premium in two instalments, with MOP5 million provided upon acceptance of contract conditions, with the remaining MOP4.9 million disbursed in four semester instalments bearing an annual interest rate of 5 per cent. According to the contract, the
Rehabilitation
substation will be designed to provide an energy supply to the planned new Islands District Medical Complex in Cotai to ‘establish medium voltage contingency network connections
Medical energy
The new hospital complex construction in Cotai is divided into two phases, with the future project planned to occupy some 76,000 square metres with a gross floor area of some 421,000 square metres, Business Daily reported previously. The first phase includes six buildings: a general hospital, an
in [Cotai] (…) and satisfy the increase in energy consumption’. The local energy supplier will have a 36-month period to present the project’s construction plan, apply for project licences, request the start of construction, and finalise construction, according to a DSSOPT response sent to Business Daily. During the substation construction period CEM will pay a total of MOP30,798 annually - MOP18 per
square metre - for the total construction area, according to the release. The substation construction area will occupy 3,135 square metres, for the development of a three-storey building; after the construction starts CEM will pay MOP9 per square metre rent. CEM made an application for the land plot concession to DSSOPT in January 2015 with the Chief Executive (CE) approving the request in June 2016, the release announced.
auxiliary facility building, a staff dormitory, a medical college and an administrative building and central laboratory building. The second phase includes a rehabilitation hospital. The construction design contract was awarded in 2013 to a company owned by Executive Council (ExCo) member Eddie Wong Yue Kai, with an initial
budget of MOP235 million, although the government has announced that expenses for the medical complex have reached some MOP1.4 billion to date. The hospital in Cotai had an initial planned construction deadline of 2019; however, Secretary Rosário announced in June that completion would in all likelihood be delayed.
Centre will have capacity for 80 patients
A house for addictions The Association of Rehabilitation of Drug Abusers of Macao has opened a drug, alcohol and gaming addiction treatment centre in Ka-Hó village. A new treatment centre for gaming and substance addiction was inaugurated this week at Ka-Hó in Coloane by the Association of Rehabilitation of Drug Abusers of Macao (ARTM), news agency Lusa has reported. The new centre has the capacity to receive 80 treatment patients - 50 women and 20 men - with 10 beds for patients of both sexes that require intensive care or have serious heath issues. “It’s an old project. ARTM has always been crowded and there was a need to increase the space or its ability to provide assistance. [The centre] is a project that we’ve had significantly in mind for a long time since 2008, and has now finally come true,” the director of ARTM, Augusto Nogueira, told Lusa. The centre will hire 28 employees, with some workers having received intensive care training in Australia.
This is the first initiative by ARTM directed in particular at specific types of dependencies, with Nogueira stating the organisation has “been working with people with alcohol and some with gambling problems, but know [it] will be specifically focused on them”. However, the ARTM director underlined that of the three addictions in focus, drug addiction would “receive greater attention” since it requires “more attention and care” and with the organisation’s initial foundation intent being its treatment. The MSAR registered 617 cases of drug addiction in 2015, an 8.63 per cent increase compared to the previous year, according to data revealed in March by the Narcotics Control Commission. However, according to Nogueira since the numbers are calculated by voluntary calls of help by people suffering from drug addiction to
New ARTM Treatment Centre Inauguration Ceremony Source: ARTM Facebook Page
non-governmental organisations or the authorities, the organisation estimates the “real numbers could be higher”. ARTM also provides units for
treatment as well as a distribution and collection programme of syringes, together with counselling and support services, and prevention and awareness campaigns. N.M.
6 Business Daily Thursday, September 22 2016
Macau
Gaming Analysts downwardly revise Sands China’s net and gross gaming revenues for 2016-18
Onward and upward Analysts have lowered estimates for Sands China’s gross gaming revenue for the remaining year up to 2018, estimating a further fall in VIP take as an overall percentage, and predicting The Parisian Macao will overtake Sands Cotai Central in revenue in 2017. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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atings agency Bernstein has downwardly revised its estimates for Sands China’s third quarter gross gaming revenue by 4 per cent, from US$1.63 billion (MOP13 billion) to US$1.55 billion, with reductions in both mass and VIP gross gaming revenue, with a 6 per cent reduction and a 10 per cent reduction, respectively.
‘Looking forward, the analysts note that Sands’ tropical garden site, located across from The Parisian and next to Sands Cotai Central, holds a ‘strong interest’ for the group in terms of development’ Analysts from the agency, led by Vitaly Umanski, also predict a shrinking percentage of VIP as a proportion of gross gaming revenue over the coming years, with predictions for full-year 2016 to see the VIP segment contribute 29.5 per cent of total
gross gaming revenue. The estimate places total gross gaming revenue for Sands China at US$6.24 billion for 2016, with mass accounting for US$3.87 billion, or 62 per cent, and slots accounting for US$531 million, or 8.5 per cent. VIP as a proportion of gross gaming revenue for 2017 is predicted to further fall to some 26.7 per cent, based upon estimates of US$1.89 billion in VIP gross gaming revenue, in a total of US$7.1 billion estimated gross gaming revenue for the year. The VIP percentage is expected to fall to 25.8 per cent in 2018, note the analysts. Estimations are that net gaming revenue is predicted to account for 84.1 per cent of net revenue for the group during the 2016 year, shifting to a weight of 83.5 per cent in the following year.
Venice then Paris
The Venetian property is expected to continue to be the driver behind net revenue for Sands China, with a predicted US$2.78 billion, or 42.7 per cent of total net revenue, coming in from the property in 2016, most closely followed by Sands Cotai Central, with US$1.89 billion, or 29 per cent. The Parisian, still in the process of ramping up, will only contribute about 3 per cent of net revenue during the 2016 year, predict analysts, estimating US$474 million in net revenue for the period. This will change to 23.4 per cent of the estimated net revenue for 2017 - predicted to reach US$7.61 billion, amounting to US$1.78 billion. Meanwhile, The Venetian will continue to lead in estimates for the 2017 year, with 36.8 per cent of overall net revenue, or US$2.8 billion,
while Sands Cotai Central will fall behind The Parisian, pulling in only 22.6 per cent – or US$1.72 billion – of estimated revenue for the year. The analysts note that ‘both Venetian and Parisian are expected to be the key profit drivers’.
Forward thinking
‘Management estimates that the mass market will need to grow 5 per cent to 10 per cent next year in order to have EBITDA growth’, notes the report by Bernstein, which also predicts EBITDA (earnings before interest, taxation, depreciation and amortization) to reach US$2.05 billion for 2016 and US$2.5 billion for 2017. ‘Sands estimates that ROI (return on investment) at Parisian will be more or less 20 per cent, but will come with some cannibalization of legacy properties,’ note the analysts, in particular pointing towards Sands Cotai Central’s Base Mass and VIP segments. This is due to the large portion of tables transferred to The Parisian from the property. The analysts note, however, that Sands Cotai Central ‘should continue to do well in Premium Mass’. Bernstein analysts estimate that when fully ramped up in 2018 the property will generate ‘over onefifth’ of profitability for Sands China, also commenting that the property can beat expectations with a quicker-than-expected ramp up than other properties have so far shown.
Tables
Table division for The Parisian is largely positioned towards the mass market, note the analysts, with a total of about 410 tables, divided between about 50 VIP and 50 Premium Mass – located in the Ruby Room on the main casino floor and the Diamond Room on Paiza level – added to about 310 Base Mass tables, which analysts note as having eight tables dedicated to the 359-seat stadium seating the Electronic Table Gaming environment. Three junkets are present on the
property, having begun operations since the opening earlier this month – Sun City, Guangdong and Tak Chun junkets. With regard to smoking, ‘certain management members’ have told analysts that in the medium run smoking, or the prohibition of smoking, will be ‘equalised’ across all Sands properties, with ‘smoking likely to be eliminated in any Premium Mass areas and perhaps in VIP areas’. However, the analysts opine that if any effect is to be seen from the change this ‘should help Sands operations’.
Mass driven
Looking forward, the analysts note that Sands’ tropical garden site, located across from The Parisian and next to Sands Cotai Central, holds a ‘strong interest’ for the group in terms of development; however, ‘there is no sign from the government that such development would be allowed’ except as a non-gaming hotel, which is ‘uncertain today’. With regard to the group’s Four Seasons and St. Regis apartments the likelihood of eventual sale of the rooms ‘remains uncertain’. If it becomes possible in the future it will be value creating, however if this were not to materialise a potential scenario would be to - in the case of increased hotel occupancy and improvements in the average daily rate - convert them into hotel suites. The group notes that Sands China continues to lead the pack in the shift to mass, with over 30 per cent share of mass, earning it ‘an outsized share of the industry’s earnings with a 32 per cent share of the sector’s total earnings before interest and taxation’. This is supported by a large room inventory, helping to profit from non-gaming, driving MICE (meetings, incentives, conferences and exhibitions) ‘in the future’ and providing complimentary rooms to premium mass players. The hotel strategy will focus on overnight visitation and both occupancy and average daily rate have showed signs of stabilisation over recent months, note the analysts. So far, the analysts see The Parisian as having gained market share ‘largely at the expense of SJM’s properties on the Peninsula’.
Business Daily Thursday, September 22 2016 7
Macau Gaming Analyst predicts MGM Cotai and SJM’s Lisboa Palace to receive 150 gaming tables
Table overload Gaming analysts estimate that total market gaming revenues will reach a 14 per cent year-on-year increase in 2018, with the ‘oversupply’ of gaming tables not having a real impact upon gaming revenues. Nelson Moura nelson.moura@macaubusinessdaily.com
M
acau’s total gaming revenues will reach a 14 per cent yearly increase in 2018, while VIP market revenues will continue decreasing, research house Morningstar Investment Management Asia Limited forecasts. According to the gaming report, the MSAR gaming sector will finish 2016 with a one per cent year-on-year decrease in total gaming revenues, with an eight per cent mass market revenue increase and 16 per cent VIP market revenue decrease. The next two years will evidence a widening of VIP market revenue decreases, while mass market growth will remain in single digits, with the analysts “continuing to see an oversupply of tables in Macau [and] do not see any significant impact in the next few years”. According to the report’s year-onyear estimates, VIP market revenues will decrease three per cent in 2017 and six per cent in 2018, while mass market revenues will increase three per cent in 2017 and five per cent in 2018. Overall gaming revenues in the next two years will become positive,
with an expected seven per cent and 14 per cent year-on-year increase in 2017 and 2018, respectively. According to the report, only after key infrastructure in the city is finalised will gaming tables utilisation increase, driven by the growth in visitation. “We expect casinos to install more live multi games - having a gaming
table connected to a number of betting terminals - and two-sided gaming tables with two dealers for lower tier gamblers, and to allocate tables to premium mass segments,” the group’s equity analyst Chelsey Tam wrote in the report.
Where are my tables?
The report predicts that the MGM Cotai and SJM’s Lisboa Palace projects in Cotai will only receive 150 tables from the gaming authorities, 100 tables upon opening and 25 more in each of the following two years. According to the analyst firm’s calculations, MGM Cotai will open in 2017 with a total of 301 tables, with SJM Lisbon Palace opening in 2018 with 350 tables. According to the report, MGM China plans to reduce its numbers of VIP tables from 176 to 155 between
2015 and 2022, with the intent of making MGM Cotai ‘purely mass and therefore a higher-margin property’.
Stricter rules
The low table allocation is justified by the analyst on a more conservative approach by the local government when dealing with casinos. ‘The appointment of the new director of the Gaming inspection and Co-ordination Bureau (DICJ) in December 2015 occurred after Galaxy Macau Phase Two and Studio City were each granted 250 tables. Since the appointment, we have seen tightened junket and anti-moneylaundering regulations,’ the report states. Morningstar analysts don’t consider the government’s justification of lack of non-gaming, family oriented facilities for the 150-table allocation to the recently opened Cotai integrated resorts Wynn Palace and The Parisian as “valid, given that The Parisian has a replica of the Eiffel Tower and an Aqua World pool deck with facilities for children”. The analyst house considers that reduced table allocation numbers are the result of stricter enforcement of the government’s 3 per cent compound annual growth limit for gaming tables when granting them to the gaming concessionaires between 2012 and 2022, approximately 190 tables a year. ’In 2015, the granting of 445 new tables far exceeded 190, and the government wants to rein in table allocation in 2016 to just 200 (…) Such an approach would unfairly punish Wynn Palace and The Parisian, which happened to open in the same year, and benefit casinos that are the only ones opening in any given year, for no good reason,” the analyst states in the report.
8 Business Daily Thursday, September 22 2016
Greater China Business trend
Authorities pave way for major influx into venture capital China’s cabinet urged state firms to invest in venture capital or set up their own funds.
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hina’s government is developing a bigger appetite for venture capital. The State Council is encouraging more government agencies and companies to funnel money into private start-ups while getting the state to take part in the nation’s technology boom. In a new document published on its website Tuesday, the country’s highest policy overseer urged government-led funds to play a greater role in guiding venture capital investment, while promising to level the playing field for foreign VCs. Venture capital has proven crucial in driving the growth of a private sector long neglected by banks, and in creating national champions from ride-sharing leader Didi Chuxing to Alibaba Group
Holding Ltd. and Tencent Holdings Ltd. In past years, the government has encouraged entrepreneurism to galvanize a slowing economy, and begun to play a major role in startup investment. “With the current rate of slowdown in the economy, the Chinese government wants to have a more vibrant market and they will need more companies to mature. All that needs funding,” said Hans Tung, a general partner at GGV Capital in Menlo Park, California. “It’s best that the local government guidance funds invest into existing VCs instead of directly participating in the market.” China is already a regional powerhouse in technology deals, even as global venture capital flows falter with investors growing wary about stretched valuations. Data from AVCJ Research
shows that venture investments totalled US$9.8 billion in 2015, more than half Asia’s total. But that excludes an eye-popping amount of state involvement. Chinese government-backed venture funds tripled the amount under management in a single year to 2.2 trillion yuan (US$330 billion) in 2015, according to consultancy Zero2IPO Group, making it the biggest pot of money for startups in the world. Much of that was in so-called government guidance funds, in which local or central agencies play some role. “Chinese local government guidance funds are more engaging with the VCs than the typical university endowments. They are curious, it’s a new trend. They also want to showcase what they’ve done,” Tung added. The new State Council guidelines, while light on details, outlined a broad spectrum of objectives and directed
agencies from the securities regulator to national economic planner to oversee specific initiatives. It expresses global aspirations, calling on local companies to develop VC funds that invest abroad. The cabinet urged state firms to invest in venture capital or set up their own funds, and said it will consider letting local government financing vehicles, which borrow on behalf of local governments often barred from doing so, to upgrade to venture capital companies. It wants to improve the environment for VC exits by establishing startup-friendly stock market boards. And it promised to level the playing field by easing entry for foreign VC firms. “Venture capital is an important method of improving investment structures and increasing effective investment,” the State Council said. One aim should be to “promote China’s venture capital industry to among the world’s most advanced.” Also on the list was the prevention of investment bubbles and illegal fundraising, major risks in a country where mom-and-pop investors tend to dominate stock market trading and often use their smartphones to invest more than US$1 trillion in personal savings. “It’s very ambitious,” said Victor Shih, a professor at the University of California, San Diego who focuses on Chinese politics and finance. “But down the road there might be very serious losses, and it’s government money, so tax payers will take a loss,” he said, referring to the country’s broad ambitions for venture capital. Bloomberg News
United States, so what he could say was very limited, but he went on to remark: “No matter who gets elected in the U.S. presidential election, I believe that China-U.S. ties will continue to grow steadily and in a positive direction.” Li responded to complaints from foreign business leaders about restricted access to the Chinese market by saying that China was open to foreign investment, although some economic sectors were not yet mature.
negotiation given disagreements about access to sectors the sides deem sensitive, Li said as long as both countries took a strong and pragmatic approach, they would be able to reach a mutually beneficial agreement. As an example of China’s willingness to open up its markets, Li said China had decided to designate Bank of China as a clearing bank for renminbi business in New York and welcomed foreign banks in the city which met eligibility requirements to become clearing banks for the currency. He also said China would soon allow imports of beef on the bone from the United States, now that Chinese quarantine procedures had been completed. Li pledged that China would not engineer a devaluation of its currency to boost exports for its economy, which is growing at its slowest rate in two decades. Some critics in Washington have charged that Beijing is still manipulating its currency, although the U.S. Treasury says its assessment is that it is not undervalued. China’s economy will continue its growth momentum this year, Li said. “I can say here that in the third quarter of this year, or until the end of this year, China’s economy will maintain this momentum of steady growth.” China’s growth target for this year is 6.5 to 7 per cent. In the second quarter of this year, the world’s second-largest economy grew 6.7 per cent from a year ago, according to official data. Reuters
American tour
Premier says U.S. ties will develop no matter who wins election Li pledged that China would not engineer a devaluation of its currency to boost exports for its economy. David Brunnstrom
China and the United States will keep developing positive relations no matter who wins November’s U.S. presidential election, Chinese Premier Li Keqiang told an economic forum in New York on Tuesday. Li declined to comment on which candidate he favoured. Republican Donald Trump has threatened to slap tariffs on Chinese goods and push for tougher trade talks
if elected. His Democratic rival, Hillary Clinton, has changed tack on trade, backing away from a Pacific trade pact she previously endorsed. Both candidates have been critical of China’s assertive pursuit of territory in the South China Sea, a potential flashpoint in Asia and a cause of significant friction in relations between Washington and Beijing. Li, who was attending the U.N. General Assembly in New York, said the U.S. election was an internal affair for the
“I can say here that in the third quarter of this year, or until the end of this year, China’s economy will maintain this momentum of steady growth.” Li Keqiang, China’s Premier “This process of them becoming more mature is also a process for them to open up and the areas of the Chinese economy open to foreign investment will only increase and China will only open its door even wider. The door will not close,” he said. Referring to a U.S.-China Bilateral Investment Treaty that has been long in
Business Daily Thursday, September 22 2016 9
Greater China Property
In Brief
Developer pays Mainland record price for land Six property developers vied fiercely for the plot of land in Dongguan with a total area of 42,500 square metres. A parcel of land in China’s southern manufacturing hub Dongguan sold for a record price after developers went into a bidding frenzy, the Shanghai Securities News reported yesterday, adding to worries the country’s property market is at risk of overheating. The winner, Times Property Holdings, became the new “land king” in the area by paying an all-time high of 12,517 yuan (US$1,876.27) per square metre, five times higher than the starting price, the newspaper said. A manufacturing hub in Guangdong province, second-tier city Dongguan has seen property prices rise sharply this year, partially due to its relatively close proximity to China’s tech hub Shenzhen, where undeveloped land is more scarce. Data from the China Index Academy, a Chinese property research institute, showed that Dongguan was among the top 10 hottest markets in the country. Prices rose 3.9 per cent in August from July and were up more than 40 per cent from the same period a year earlier. On Tuesday, developers also paid higher-than-expected prices at a land sale in Hangzhou, undeterred by the city’s move just two days earlier to restrict home purchases to cool price rises, the National Business Daily reported. The highest bidding price was more than three times higher than the starting price. Hangzhou was the host city of this year’s G20 summit and is a rising tech hub home to many tech firms such
as e-commerce giant Alibaba. “Such a high premium rate indicated that even with restrictions in place, property developers are still quite optimistic about Hangzhou’s housing market. At least they don’t think this round of restrictive policies would limit sales,” Ma Yingshu, general manager at the Hangzhou branch of real estate investment management firm CBRE China, was quoted as saying.
But Ma warned that risks of asset bubbles have been heightened by demand spilling over from some overheated second-tier cities to even smaller neighbouring cities. While the property market rally has provided welcome support to the slowing economy, Chinese policymakers have expressed concerns of late over rising debt and banks’ exposure to mortgages. The central bank’s chief economist has urged more steps to curb capital flowing into property. Fears were mounting that Dongguan would become the next city to impose restrictions, according to media reports. Reuters
Vice President meets foreign leaders Chinese Vice President Li Yuanchao met with foreign leaders attending the International Day of Peace event held in the city of Yinchuan in northwest China’s Ningxia Hui Autonomous Region yesterday. Meeting with Rosana Alvarado, first vice president of the National Assembly of the Republic of Ecuador, Li said China and Ecuador have deepened political mutual trust and conducted fruitful cooperation in finance, energy, mining, infrastructure and diplomatic exchanges. Li said the Communist Party of China is willing to cooperate with Ecuador’s PAIS Alliance movement to enhance the strategic partnership of the two countries. Welfare draw
Mainland’s lottery sales rise
IPO
Postal Savings Bank raises US$7.4 billion after pricing at low end In the world’s biggest IPO since Alibaba Group Holding Ltd’s US$25 billion listing in 2014, some 26 banks stand to jointly earn up to US$118.4 million in fees. State-owned Postal Savings Bank of China (PSBC) raised US$7.4 billion in the world’s biggest initial public offering in two years, but the deal priced at the lower end of expectations and was heavily reliant on cornerstone investors. Seeking to bolster its balance sheet and fund lending, the bank initially
Day of Peace
sought as much as US$8.1 billion in the Hong Kong listing, counting on its network of more than 40,000 branches and low level of non-performing loans to attract investors. But it had to pare back the size of the offering as some investors balked at paying valuations higher than domestic rivals.
PSBC priced 12.1 billion new shares at HK$4.76 each, after marketing the offering between HK$4.68 and HK$5.18 per share, people with direct knowledge of the deal said yesterday. They declined to be identified because details of the pricing have not been officially announced. PSBC declined to comment. A group of six cornerstone investors agreed to purchase US$5.7 billion or 77 per cent of the shares on offer, offsetting tepid demand from global fund managers and local retail investors. The cornerstone tranche came in slightly below the record set by China Development Bank Financial Leasing Co Ltd in its US$810 million listing in July.
Key Points IPO priced at HK$4.76/share, near bottom of range US$7.4 bln IPO world’s biggest since Alibaba deal in 2014 Large investments by cornerstone investors hurt liquidity for IPOs once the shares start trading, as the stock is locked up for a minimum of six months. The cornerstone money can also pressure the stock as the expiration of the lock-up period nears. In the world’s biggest IPO since Alibaba Group Holding Ltd’s US$25 billion listing in 2014, some 26 banks stand to jointly earn up to US$118.4 million in fees, according to PSBC’s prospectus. That is equivalent to a 1.1 per cent underwriting commission and a 0.5 per cent incentive fee. Bank of America Merrill Lynch, China International Capital Corp (CICC), Goldman Sachs, JPMorgan and Morgan Stanley were hired as sponsors of the IPO and will earn US$100,000 each in sponsor fees. Reuters
China’s lottery sales rose 19.8 per cent year on year to 32.4 billion yuan (US$4.8 billion) in July, official data showed yesterday. Sales of welfare lottery tickets increased 6.7 per cent year on year to 16.6 billion yuan in July, while sports lottery sales jumped 37.6 per cent to 15.8 billion yuan, the Ministry of Finance said in a statement. July’s lottery sales in the coastal province of Jiangsu rose by 725 million yuan year on year, while Shandong, Hubei, Hunan and Guangdong provinces also posted large increases, the statement said. Property
Developers may issue US$150 billion in bonds China’s listed property developers issued 960 billion yuan (US$143.92 billion) in bonds as of Sept. 19, more than three times the amount in the same period last year, financial magazine Caixin reported, citing data from WIND, a Chinese financial data provider. “At this pace, there is no suspense that bond sales by property developers would reach over 1 trillion yuan (US$149.91 billion) this year,” the report said. The report attributed the rise to easier access, low interest rates, encouraging property policies and a lack of other investment channels. Merger talks
Benxi Steel no longer on stake auction list China’s Benxi Iron and Steel Group is no longer part of an auction to sell stakes in state-owned firms to strategic investors, an official list shows, amid rumours that a long postponed merger with local rival Anshan Iron and Steel (Angang) is set to resume. The Liaoning Shenyang United Assets and Equity Exchange, a governmentbacked investment platform, said last month that stakes in nine government-run enterprises would be put up for sale to help promote mixed ownership. But Benxi Steel is not part of the auction list anymore, according to a revised list.
10 Business Daily Thursday, September 22 2016
Greater China Infrastructure
Government chalks up billionaire debt pile over toll roads Toll roads make up less than 4 per cent of China’s road network, which stretches 4.5 million km.
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hina’s toll roads have stacked up a debt pile of 4.45 trillion yuan (US$666.96 billion), with almost 80 per cent of their annual income last year going to repay loans, the transport ministry said, as the country accelerates road building. Beijing has cranked up state spending on infrastructure to support economic growth as private sector investment falters, and efforts to lure investors into private-public partnerships to build projects such
as toll roads have had few successes. The ministry published the 2015 figures late on Tuesday in a report that comes as global investors express growing concern over China’s overall credit, much of which has gone to build infrastructure. The toll road network’s debt grew an annual 15.7 per cent last year, far outpacing income growth of 4.6 per cent, the ministry said in the report. “Although China’s toll road debt is relatively large, this is just a phase,” state newspaper the People’s Daily
quoted Sun Yonghong, an official of the ministry’s highway division, as saying. “In the long run, the risks are controllable.” About three-quarters of 2015 revenue of 409.78 billion yuan went to paying down debt and interest, as banks sought payment of the principal one year after project completions, Sun said. Toll roads make up less than 4 per cent of China’s road network, which stretches 4.5 million km. Sun said much of the debt was incurred to build expressways, and accumulation would slow as the road network matured. Almost 40 per cent of China’s expressways were built between 2010
and 2015, at a cost of 3.32 trillion yuan, about 2.23 trillion yuan of which was paid through loans, he said.
‘The toll road network’s debt grew an annual 15.7 per cent last year’ China’s debt has soared to 250 per cent of gross domestic product and the Bank for International Settlements warned on Sunday that a banking crisis looms in the next three years. Reuters
Antitrust law
Mainland firms price-fixing verdict voided by U.S. appeals court In court papers, China’s Ministry of Commerce said trial judge Brian Cogan’s approach to the case “deeply troubled the Chinese government”. Jonathan Stempel
A U.S. appeals court on Tuesday threw out a US$147.8 million pricefixing verdict against two Chinese companies that were accused of conspiring to raise prices and lower supply of vitamin C sold to U.S. purchasers. The 2nd U.S. Circuit Court of Appeals in New York said the case should not have gone to trial after China, in a “historic act,” formally advised that its laws required the vitamin C makers to violate the Sherman Act, a U.S. antitrust law. Writing for a 3-0 panel, Circuit Judge Peter Hall said the Brooklyn judge who presided over the March 2013 jury verdict should have deferred to China’s interpretation of its own laws, regardless of the country’s motives. Hall said principles of international comity, and the “stark differences” between the U.S. and Chinese legal and economic regulatory schemes, meant the judge should not have asserted jurisdiction. “Recognizing China’s strong interest in its protectionist economic policies and given the direct conflict between Chinese policy and our antitrust laws, we conclude that
China’s interests outweigh whatever antitrust enforcement interests the United States may have in this case,” Hall wrote. The decision is a defeat for Animal Science Products Inc, a Nacogdoches, Texas-based livestock supplement company, and Ranis
Co, an Elizabeth, New Jersey-based food company. They accused Hebei Welcome Pharmaceutical Co and North China Pharmaceutical Group Corp of conspiring to fix prices and supply of Vitamin C from December 2001 to June 2006. The plaintiffs said the anticompetitive conduct boosted the supplement’s prices in a thenUS$500 million global market to as high as US$15 per kilogram from about US$2.50.
In court papers, China’s Ministry of Commerce said trial judge Brian Cogan’s approach to the case “deeply troubled the Chinese government,” which sent a diplomatic note to the U.S. State Department. The ministry said Cogan should have respected its “authoritative” view of applicable law, as he “unquestionably” would have done had a U.S. regulator been involved.
“...we conclude that China’s interests outweigh whatever antitrust enforcement interests the United States may have in this case” Peter Hall verdict, Circuit Judge William Isaacson, a lawyer for the plaintiffs, did not immediately respond to requests for comment. Jonathan Jacobson, a lawyer for the Chinese companies, said: “We are gratified by the decision. The decision puts new energy into the important doctrine of international comity, and reflects a sound balance of antitrust principles and those of international relations.” The appeals court ruled nearly 20 months after hearing oral arguments. Reuters
Business Daily Thursday, September 22 2016 11
Asia Monetary stance
Bank of Japan shifts policy framework The policy board also pledged to expand the monetary base until inflation is stable above the 2 per cent target. Toru Fujioka
T
he Bank of Japan (BOJ) shifted the focus of its monetary stimulus program yesterday, seeking greater flexibility to manage its side effects while strengthening its commitment to stoking inflation over the longer term. The central bank said it would move away from a rigid target for expanding the money supply, while seeking to control bond yields across different maturities. The BOJ said its target for expanding the monetary base through asset purchases, previously set at 80 trillion yen (US$780 billion) annually, may now fluctuate in the short term to enable policy makers to control bond yields. The BOJ also scrapped a target for the average maturity of its government bond holdings. Both moves will help the central bank manage the impact of lower long-term yields on Japanese banks. Governor Haruhiko Kuroda and the policy board kept the interest rate on a share of bank reserves unchanged at minus 0.1 per cent. “The move basically means the BOJ has shifted its main policy target to the yield curve from the monetary base,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “If it takes additional easing in the future, it will probably deepen the negative rate.” Kodama added his view that the central bank is approaching
the limits of bond purchases. The BOJ faced a backlash after first deploying negative rates in January. Bank shares tumbled at the time, the yen gained strength and household sentiment worsened. Kuroda recently acknowledged that negative rates had cut into financial institutions’ profits by driving long-term yields lower, while pointing out borrowing costs for businesses and consumers had also fallen.
“The BOJ’s decision to steepen the yield curve showed they are taking into account the situation of financial institutions”
to expand the monetary base until inflation is stable above the 2 per cent target - committing to an overshoot of consumer-price gains in an effort to revive inflation expectations.
Policy review
The BOJ has been the most daring of global central banks in using monetary stimulus to confront deflationary pressures and stagnation, but Kuroda recently began to publicly weigh the costs of its extraordinary easing against the benefits, a shift from his “whatever-it-takes” approach of the past three-plus years. The decisions announced yesterday followed a comprehensive review of its policies to assess their effectiveness and determine how to reach its distant 2 per cent inflation target. They signal that the BOJ has taken a longer-term view of “reflating” Japan’s economy, and is focused for now on tweaking its policy framework with sustainability in mind. Scepticism about the odds of success
for Abenomics, Prime Minister Shinzo Abe’s economic revival program, may rise if the BOJ is judged to be struggling with the limits of the aggressiveness that marked the first years of Kuroda’s tenure. The BOJ may yet decide to expand JGB purchases or cut the negative rate further as soon as its next meeting ending on November 1. Japan’s core consumer prices fell in July at the fastest pace since Kuroda took the helm of the BOJ in March 2013. Market participants increasingly shrugged off Kuroda’s repeated vows that he would act whenever necessary, helping drive the yen to long-term highs. The BOJ faces questions about the sustainability of its purchases of Japanese government bonds. It now owns a third of outstanding JGBs. The pace of its buying is draining the market of supply, and many commercial banks are running out of JGB inventory to sell. Bloomberg News
Takeshi Minami, chief economist at Norinchukin Research Institute
“The BOJ’s decision to steepen the yield curve showed they are taking into account the situation of financial institutions,” said Takeshi Minami, chief economist at Norinchukin Research Institute. The BOJ policy board also pledged
Governor Haruhiko Kuroda (pictured) and the policy board kept the interest rate on a share of bank reserves unchanged at minus 0.1 per cent.
Employment
NZ absorbs record number of migrants but key sectors missing out Foreigners with experience in areas on the country’s skill shortage list have a better chance of gaining a work visa and residency. New Zealand’s immigration boom struck a record with 125,000 newcomers landing in the 12 months through August, yet shortages of skilled labour in hot sectors like tech and construction is fuelling criticism of government policies. The latest data, released yesterday by the statistics office, will likely add to the growing calls for the government to do more to attract the right kind of workers needed to fill jobs in the Pacific nation. The country’s centre-left opposition party, rather than conservatives, has led that criticism, and in July even the central bank called for a review of migration policies. “The key issue around migration is what is the - for want of a better word - the quality of the people that we bring in,” Reserve Bank of New Zealand governor Graeme Wheeler told a news conference last month, reinforcing the call for a review. “What are the skills they’re bringing in and can they add value to the economy?” he added. Foreigners with experience in areas
on the country’s skill shortage list had a better chance of gaining a work visa and residency, which offered benefits such as the country’s free public health services. However, only eight per cent of work visas went to people on that list, according to Immigration Minister Michael Woodhouse. A housing boom in Auckland, partly driven by increased numbers of immigrants seeking a place to live, and the rebuilding of earthquake-ravaged
city Christchurch had created strong demand for construction. Yet Fletcher Building, the country’s largest building company, said the labour shortage coupled with supply constraints meant there were some “unacceptable” delays in Auckland projects. “The local labour force is stretched and we are looking to Australia and the UK, particularly for project management disciplines,” said Fletcher CEO Mark Adamson. New Zealand’s IT scene, the country’s fastest-growing export sector, was also struggling to keep up. The number of technology jobs had grown 35 per cent in the past
New Zealand’s IT scene, the country’s fastest-growing export sector, was also struggling to keep up
four years, according to the Ministry of Business, Innovation and Employment.
“The key issue around migration is what is the - for want of a better word - quality of the people that we bring in” Graeme Wheeler, Reserve Bank of New Zealand governor Rod Drury, CEO of Xero, a financial technology firm based in Wellington that is expanding in the U.S. market, said New Zealand’s reputation as a tech hub was growing, helping lure workers, but that finding enough workers remained a challenge. “We’ve got more jobs than we can fill, we’re always looking for people,” he said, adding that the company currently fills 70 per cent of its positions with recruits from overseas. Reuters
12 Business Daily Thursday, September 22 2016
Asia Markets
India makes Singapore hedge funds Asia’s best This year’s ranking reverses a multi-year trend of Hong Kong funds posting the best returns in Asia. Klaus Wille
S
ingapore-based hedge funds outperformed Asian rivals during the first seven months of the year thanks to a greater focus on India and global markets, according to data provider Eurekahedge Pte.
“Singapore has the most diversified hedge fund industry in Asia with regard to managers’ strategic and regional mandates”
While the majority of funds based in Hong Kong and Japan invest in Chinese or Japanese stocks, where markets have posted steep losses this year, Singapore has more funds with a global mandate or an India focus, according to Eurekahedge. Australia-headquartered funds mainly invest in global equity long-short strategies, which didn’t do well until August. India’s benchmark S&P BSE Sensex Index has rallied 9.4 per cent this year, compared with a 13 per cent decline in China’s CSI 300 Index and a 15 per cent slump in Japan’s Topix index. “Singapore has the most diversified hedge fund industry in Asia with regard to managers’ strategic and regional mandates,” said Mohammad
Hassan, head of hedge fund research at Eurekahedge. “Diversification has helped the domestic industry post the best overall gains in Asia, while China and Japan equity-focused centers such as Hong Kong and Japan are in the red.”
India funds
India-focused funds have returned 7.3 per cent through the end of August, according to Eurekahedge, making them the third-best performers globally, behind only Taiwan and Latin America. Funds investing in China lost 1.6 per cent and those betting on Japan declined 4.4 per cent, the data show. This year’s ranking reverses a multi-year trend of Hong Kong funds posting the best returns in Asia, the Eurekahedge data show. Funds based in the city have returned 379 per cent since the end of 1999, followed by a
354 per cent gain by Australian hedge funds. Singapore comes in third at 253 per cent, and Japan-based funds lag with a 95 per cent return. Among Singapore-based hedge funds investing in India is the Progress India Opportunities Fund, started in December 2014. The US$49 million equity fund with a long bias investing in consumer themes returned 13.8 per cent this year through the end of August, according to a newsletter obtained by Bloomberg News. The IPEplus Fund 1, also focused on India and started in 2014 by former 3i Group Plc Asia head Anil Ahuja, returned 2.1 per cent through August, according to data compiled by Bloomberg. The Singapore-based PruLev Global Macro Fund, managed by Norman Tang and August Li and investing mainly in global liquid developed markets, has gained 56 per cent through August, according to the fund’s newsletter. By contrast, the Hong Kong-based Springs China Opportunities Fund, a China-focused long-short equity fund, lost 8.7 per cent this year through July, according to data compiled by Bloomberg. Bloomberg News
Mohammad Hassan, head of hedge fund research at Eurekahedge
Funds headquartered in Singapore returned 2 per cent through July, while Hong Kong-based funds declined an average 2.3 per cent, Eurekahedge said in a report Tuesday. Funds based in Australia rose 1.9 per cent, while Japan-based funds declined 2.5 per cent, the report said.
Trade
Japanese exports fall more than expected Exports to China fell 8.9 per cent in the year to August, marking the sixth straight month of annual declines. Japan’s exports fell in August for an 11th consecutive month due to the yen strength and sluggish overseas demand, in a sign that an exportreliant economy may struggle to accelerate in the current quarter. Ministry of Finance (MOF) data showed yesterday that exports fell 9.6 per cent in the year to August, dragged down by shipments of cars and steel. The year-on-year fall was bigger than a 4.8 per cent drop expected by economists in a Reuters poll, following a 14.0 per cent decline in July. The data underscored a dominant market view that any growth in the world’s third largest economy would be moderate in July-September, offering little solace to the Bank of Japan. “Exports lacked momentum, although they were not so weak as the headline figure suggested. On average they were largely flat or on a gradual recovery,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “Given the yen’s gains, however, exports would likely struggle to accelerate ahead,” he said. The MOF data showed exports to China - Japan’s largest trading
partner - fell 8.9 per cent in the year to August, marking the sixth straight month of annual declines. Shipments to Asia, which accounts for more than half of Japanese exports, fell 9.4 per cent, led by South
Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Joanne Kuai; Nelson Moura; Annie Lao; Kelsey Wilhelm Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com Founder & Publisher
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Korea-bound shipments of steel. It was the 12th straight month of falls. U.S.-bound exports fell 14.5 per cent, hurt by declines in car shipments, while exports to European Union fell 0.7 per cent. Imports fell 17.3 per cent in the year to August, versus the median estimate for a 17.8 per cent annual decline, as the yen’s gains and dip in oil prices lowered import costs. The trade balance swung to a deficit
of 18.7 billion yen ($183.91 million), versus the median estimate for a 202.3 billion yen surplus. It was the first trade deficit in three months. Japan’s economy grew at an annualised rate of 0.7 per cent in April-June, slowing from the prior quarter’s 2.1 per cent growth, led by leap year effects, as exports and capital spending fell. The Reuters poll of economists showed the economy was likely to expand an annualised 0.7 per cent in the current quarter and 0.6 per cent in the final three months of this year. Reuters
Business Daily Thursday, September 22 2016 13
Asia In Brief Trade
S.Korea exports drop
Portfolio management
Malaysian pension fund eyes more tech investments after Uber The fund expects a 5 per cent return on total investment this year. Liz Lee
Malaysia’s US$30-billion pension fund, Kumpulan Wang Persaraan (KWAP), is looking to pump in more money into technology firms, following its recent foray into the sector with an investment in what sources have identified as ridesharing service Uber. KWAP, Malaysia’s second biggest pension fund with 123 billion ringgit (US$29.74 billion) of assets under management, is diversifying into new sectors at a time when returns across its investments have slowed. The pension fund has committed to a US$30-million investment in its “first disruptive technology deal” in a foreign firm, its chief executive officer, Wan Kamaruzaman Wan Ahmad, told Reuters in an interview. It is a “global technology company with a market value of over US$60 billion”.
“This is our first investment in this space, and we want to continue building our expertise in this area,” the CEO said. While Wan Kamaruzaman did not reveal the name of the firm, two sources close to the deal said KWAP had recently invested the amount in Uber Technologies Inc. The sources did not want to be named as the deal was still under wraps. A financing round earlier this year valued Uber at US$62.5 billion. The U.S. firm has been operating in Malaysia since 2013. Uber did not immediately reply to requests for comment. Like KWAP, other Malaysian government-linked funds have also been investing more in tech assets, such as Khazanah Nasional Bhd that has put money in Alibaba, Skyscanner and WeLab. KWAP expects a 5 per cent return on total investment this year. It posted a return of 5.4 per cent last year, lower
than a targeted 6 per cent. “This lower-for-longer climate is prevailing. We think we are able to achieve a 5 per cent target. To our standards in the current environment, that is still good,” Wan Kamaruzaman said.
Eyeing more in UK
Around 90 per cent of KWAP’s investments are in traditional assets such as fixed income and equity. The remaining 10 per cent goes to alternative investments such as private equity, but the CEO said the fund may increase that allocation to 15 per cent. Wan Kamaruzaman said the fund intends to increase exposure in logistics, healthcare, education and consumer goods, adding that it also sees opportunities in the UK where a Brexit vote has weakened the sterling and dented asset prices. KWAP, which has 250 million pounds (US$324.50 million) allocated for UK equities investment, is looking to add more UK properties to its portfolio, the CEO said. “Brexit has weakened the sterling, giving a 15 per cent discount to investments in that currency. The tourism industry there is very vibrant, and the impact of Brexit could be positive to selected sectors,” he said. Reuters
Troubled logistics
Court says Hanjin Shipping rehab plan “realistically impossible” The company has begun returning chartered ships to their owners and is trying to secure enough funds to help unload an estimated US$14 billion in cargo initially trapped on its ships around the world. Joyce Lee
The South Korean court overseeing Hanjin Shipping’s receivership said a rehabilitation plan is “realistically impossible” if top priority debt such as backlogged charter fees exceed 1 trillion won (US$896 million), South Korea’s Yonhap newswire reported yesterday. Hanjin Shipping, the world’s seventh-largest container carrier, filed for receivership late last month in a South Korean court and must submit a rehabilitation plan in December. With debt of about 6 trillion won (US$5.4 billion) at the end of June and the South Korean government’s unwillingness to mount a rescue, expectations are low that Hanjin Shipping will be able to survive. Top priority debt means claims for public interests, which are paid first to creditors and include cargo owners’ damages and unpaid charter fees, Yonhap reported citing the Seoul Central District Court. Backlogged charter fees that occurred after Hanjin Shipping’s court receivership have topped 40 billion won, while cargo owners’ claims for damages are expected to begin in earnest after 3-4 weeks have passed from original delivery schedules, the report said.
Court officials were not immediately available for comment. Hanjin has begun returning chartered ships to their owners and is trying to secure enough funds to help unload an estimated US$14 billion in cargo initially trapped on its ships around the world. The company had a total of 141 vessels, including 97 container ships as of early September. Out of the 97 container ships, 60 were chartered and 37 owned by Hanjin. Dozens of ships remained anchored off ports while Hanjin tries to secure funds to on load them and to arrange court protection from creditors seizing them for unpaid bills. Some face
other challenges to unload their cargos as thousands of containers pile up, creating havoc ahead of the crucial holiday shopping season. Shares in Hanjin plunged more than 20 per cent to a record low after the report, which lent support to the view the company will slide into liquidation. Rival shipping company Hyundai Merchant Marine Co Ltd (HMM) surged 16 per cent to a near twoweek high. “HMM is the only national shipping company that is left to take care of what Hanjin Shipping was in charge of for now,” said Cho Byung-hyun, a stock analyst from Yuanta Securities Korea. “The market is expecting HMM to take back Hanjin’s pie from the industry though there is still some possibility that shipping companies from China, Taiwan, or Hong Kong would come in.” Reuters
South Korean exports during the first 20 days of this month dropped 17.0 percent over the same period a year ago in U.S. dollar terms, while imports slumped by a slower 12.5 percent on-year, customs data showed yesterday. Korea Customs Service, which does not provide detailed numbers, showed South Korea posted a trade surplus of US$1.96 billion for the September 1-20 period. In August, exports rose 2.6 percent while imports gained 0.7 percent on-year. Art market
Vietnam’s first ever art auction house to open Vietnam will open its firstever auction house for fine arts on Saturday. The 1,000-square-meter house in Vietnam’s capital Hanoi will mainly be used for exhibitions and auctions, reported Vietnam’s staterun news agency VNA yesterday. At the opening ceremony, six works of art will be auctioned. Five of the pieces have starting prices ranging from 15 to 50 million Vietnamese dong (from US$670 to US$2,240) while the last silk picture created in 1991 will be available for auction with starting price at 110 million Vietnamese dong (US$4,930). Property
Lao real estate growth sustainable but sluggish Laos is not at risk of developing into a bubble economy despite the apparent on-going building boom particularly in the capital, according to leading economists, Lao daily Vientiane Times reported yesterday. “This is because overall growth in the real estate sector is actually quite sluggish and most investment is from overseas interests, mainly China and Vietnam,” said the report. “Another factor preventing the forming of a Lao asset bubble is the central bank not offering long-term loans over 10-20 years which are often needed by property investors.” Inflation
S.Korea producer prices fall slower South Korea’s producer prices in August declined at their slowest pace in nearly two years but still fell for a 25th straight month, central bank data showed yesterday. The findings support the central bank’s view that inflation will stay low for some time before picking up slowly. The producer price index for August fell 1.7 percent compared with a year ago, the Bank of Korea said. It was compared to a revised 2.5 percent fall in July and the slowest decline since November 2014. Producer prices in annual terms began falling in August 2014.
14 Business Daily Thursday, September 22 2016
International In Brief Energy prices impact
Qatar budget back to ‘near balance’ by 2018 Qatar’s budget should be back to “near balance” by 2018, as it overcomes the shock waves from a global fall in energy prices, economists at Qatar National Bank have forecast. The QNB, in its “Qatar Economic Insight” report, predicts that rising oil prices and the introduction of a value-added tax will help Qatar recover from the deficits expected in 2016 and 2017. “The government’s budget balance is expected to register a deficit of 5.3 per cent of GDP in 2016 and 2.2 per cent in 2017, before recovering to near balance in 2018,” the report said. Legal action
Weak trade
OECD sees globalization stalling The U.S. economy, the world’s largest, is now expected to grow just 1.4 per cent this year. Mark Deen
A
collapse in trade growth suggests that globalization may be stalling and is contributing to stagnation in world economic output, the Organization for Economic Cooperation and Development said. The OECD trimmed its global growth forecasts by 0.1 point for this year and next to 2.9 per cent and 3.2 per cent, respectively. The volume of world trade declined in the first quarter and will fall short of overall output growth in the full year, the Paris-based organization said yesterday in a report.
With Republican presidential candidate Donald Trump threatening to slap tariffs on Chinese imports and contenders for France’s 2017 presidential election advocating protectionism, the OECD warned that a key driver of prosperity in recent decades as increasingly under threat. “Trade growth rates have deteriorated dramatically since the financial crisis,” OECD Chief Economist Catherine Mann said in an interview. “Some people might say this is a good thing. No, this is damaging and it shows up as a decline in productivity growth.” Increasing trade fuelled the expansion of the world economy between
Investors seek 8.2 bn euros from VW Volkswagen investors have filed 1,400 lawsuits claiming a total of 8.2 billion euros in compensation over the German car giant’s emissions cheating scandal, a state court said yesterday. The US$9.1 billion in claims is mostly made up of “bundled” actions containing lawsuits from multiple plaintiffs, many of them private investors, according to the court in Brunswick in northern Germany. The embattled automaker also faces lawsuits from large institutional investors, German state governments and the US government. Two of the claims lodged with the Brunswick court, from groups of institutional investors, account for a total of 2 billion euros alone. Forex
U.S. judge narrows banks’ rigging lawsuit The U.S. judge overseeing litigation accusing 16 banks of rigging prices in the US$5.3 trillion-a-day foreign exchange market on Tuesday narrowed but refused to dismiss lawsuits against Deutsche Bank, Morgan Stanley and five other large banks that have yet to settle. U.S. District Judge Lorna Schofield in Manhattan dismissed antitrust claims in a class action brought by investors against the seven remaining banks arising out of some transactions executed outside the United States, and claims based on transactions conducted before December 1, 2007. Diplomatic approach
German economy minister to discuss sanctions with Putin German Economy Minister Sigmar Gabriel, heading to Moscow for talks about trade with President Vladimir Putin, said yesterday he favoured a lifting of EU sanctions on Russia but that would require making progress on peace in Ukraine. “I am doing what I can so that the sanctions, imposed after the annexation of Crimea, can be lifted step-by-step, and in the same measure as there is tangible progress in implementing the Minsk agreement,” Gabriel said. “If that succeeds, we can start to ease relations that would help both sides,” he said.
the mid 1980s and the mid 1990s, with trade growing at more than twice the pace of global output by the end of the final decade of the last century. Since the 2008 financial crisis, policy makers have struggled to revive both trade and growth. The OECD warned yesterday that the expansions in developed economies are weakening as major emerging market commodity producers show only a “gradual improvement.”
“Trade growth rates have deteriorated dramatically since the financial crisis” Catherine Mann, OECD Chief Economist
The U.S. economy, the world’s largest, is now expected to grow just 1.4 per cent this year, down from the 1.8 per cent predicted in June, according to the report. The euro-area forecast was cut by 0.1 point to 1.5 per cent and the outlook for Japan was lowered 0.1 point to 0.6 per cent. The OECD also reduced its prediction for the U.K.’s 2017 economic output by 1 percentage point to 1 per cent following the country’s vote to exit the European Union. “Erosion of trade in some ways is death by a thousand cuts with protectionism encroaching here and there,” Mann said. “If we could get global trade back on track, we would be able to recover something.” Bloomberg News
Curbing speculation
Commodity traders face tougher rules as EU fights market abuse Lobbying groups for the financial industry and commercial traders have warned that the regulation could make it more difficult to use derivatives to hedge swings in prices. Alexander Weber and Silla Brush
T
raders in commodities from sugar to oil may face tougher regulation in the European Union as policy makers wrangle over new rules intended to curb speculation. European Parliament lawmakers warn that the EU’s latest proposals for preventing market abuse and spikes in food prices aren’t strict enough. They delivered that message to Valdis Dombrovskis, the bloc’s financial-services chief, in a closed-door meeting earlier this month. Dombrovskis said he would “reflect on the points raised” and come out with a fresh proposal “soon.” The European Securities and Markets Authority sent the latest version of the rules to the European Commission back in May, and the EU’s executive arm has been considering its next move ever since. ESMA set out a method for calculating position limits for physically settled and cash-settled commodity derivatives, which are intended to reduce speculation and systemic risk. The rules are needed to implement MiFID II, which takes effect in January 2018 after a one-year delay. “One of the main goals of MiFID II is effectively to curb food speculation so that gambling on the back of the poorest won’t be possible anymore,” Markus Ferber, the European Parliament’s lead lawmaker
on the legislation, said by e-mail. “It’s imperative that the limits are set in the right way and can’t be circumvented.”
“One of the main goals ... is effectively to curb food speculation so that gambling on the back of the poorest won’t be possible anymore” Markus Ferber, the European Parliament’s lead lawmaker on the legislation
Liquid contracts
Position limits - caps on the number of contracts a trader can have - have been one of the thorniest elements of the MiFID II overhaul of trading rules across the 28-nation EU. The caps apply to exchange-traded and over-the-counter derivatives across a wide range of agricultural and energy commodities. ESMA has estimated that limits will need to be calculated for about 1,500 liquid contracts by regulators across Europe.
The limits could apply to a wide range of commodities, according to ESMA. While similar regulations in the U.S. have been proposed to apply to 28 commodity contracts, the European rules apply to all commodity derivatives on trading venues and economically equivalent overthe-counter trades. Contracts tied to sugar, oil, wheat and natural gas are some of the most commonly traded commodities and could be affected by the new rules. Lobbying groups for the financial industry and commercial traders have warned that the regulation could make it more difficult to use derivatives to hedge swings in commodity prices, leading to higher costs for consumers.
Right direction
A commission spokeswoman declined to elaborate on Dombrovskis’s remarks. Once the commission adopts final rules, the parliament and EU member states can reject them and request changes. Ferber said that while ESMA’s changes go in the right direction, work is still needed on a host of issues. And time’s running short, “because supervisors and market participants need clarity on how to set up their systems for the new requirements,” he said, adding that an agreement should be reached in the next few weeks. Other lawmakers take a harder line. “For the highly liquid derivatives that make a difference in peoples’ lives, the thresholds are still much too high, so the rules aren’t effective,” said Sven Giegold, a member of parliament representing Germany’s Green party. If the commission submitted the current proposal to parliament without changes, it “would have to fear that it would be refused,” Giegold said. “Theoretically, there could be another delay to MiFID. Nobody can want that.” Bloomberg News
Business Daily Thursday, September 22 2016 15
Opinion Business Wires
VIET NAM NEWS A proposal to use State funds to settle commercial banks’ bad debts, as stated in the draft plan on economic restructuring for the 2016-2020 period, has been met with a cold shoulder. Under the plan drafted by the Ministry of Planning and Investment, the feasibility of the proposal is to be studied by the Ministry of Finance and State Bank of Việt Nam. Authorities will have to submit a relevant resolution to the National Assembly for approval next year. Debt settlement is estimated to range from VNĐ5 trillion to VNĐ10 trillion.
Gunn Shots (Mark Gunn) via Foter.com / CC BY
BANGKOK POST The Transport Ministry has rolled out a slew of measures to tighten boat transport safety rules, including the installation of automatic tracking systems, following Sunday’s deadly boat sinking in Ayutthaya, with the death toll rising to 28. The ministry has set up a fact-finding inquiry and issued a set of preventive measures against future incidents. The first and most urgent step is for the Marine Department to look into matters relating to the oversight and law enforcement of officials, boat registration, and the issuance of licences for helmsmen.
INQUIRER.NET Despite sound economic policies, the Duterte administration’s war against drugs and related extra-judicial killings might deter foreign investment, according to debt watcher S&P Global Ratings. “Economic and demographic fundamentals continue to drive a strong domestic demand story, as indicated by nearly 7-per-cent growth in the first half of the year. The new administration’s economic policies appear sound, targeting higher infrastructure and education spending, among others,” S&P said. “However, international investors may be getting worried about potential diplomatic complications and short-term law and order issues on the ground,” S&P said.
VENTUREBEAT.COM Gamblit Gaming has teamed up with Phosphor Games to take the virtual reality shooter game The Brookhaven Experiment into land-based casinos as part of an attempt to target younger gamblers. Younger folks visit casinos often, but they don’t like older slot machines and table games as much as they enjoy video games. So Gamblit is trying to change that. Gamblit Gaming specializes in real-money gambling and skill games in both mobile and landbased casinos. Gamblit is “gamblifying” mobile games such as PikPok’s Into the Dead into real-money gaming experiences that will launch in landbased casinos in 2017.
Free trade deals claim some unwilling victims
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hen people talk about the benefits and harms from trade, they usually refer to the labour market. That makes sense, since losing a job has a huge impact on a person’s life. Even if you can find another job, it takes time and money and causes lots of stress. It disrupts your life, and sometimes you can’t find as good a job as the one you had before. That’s why recent research from economists David Autor, David Dorn and Gordon Hanson, showing that trade with China hurt lots of U.S. workers, made such a splash - we can all imagine the stress, the fear, the humiliation and the hopelessness of workers whose careers are destroyed in a day, leaving them dependent on welfare or working at a job paying half as much. If Autor et al. are right, the “China shock” of the 2000s hurt more workers than it helped. Defenders of free trade will often respond that labour markets aren’t the only markets affected by trade. Many of the things we buy, from TVs and phones to toys and clothing and food, are traded in international markets. Opening up to trade doesn’t always reduce the price of everything we buy, but it tends to make most stuff less expensive, in two ways. First, consumers get to buy things from companies that make those things overseas more cheaply - some of that cost saving gets passed on in the form of lower prices. Second, trade allows countries to shift their own production toward the things that they’re the most efficient at making, which also tends to push down prices. Lower prices take some of the sting - hopefully all of the sting - out of lower wages. They even provide a bit of relief for the unlucky few who lose their jobs. That’s why cheaper consumer prices are one of the main benefits cited by defenders of free trade policies. But there’s a catch - trade doesn’t affect all prices equally. Some things get much cheaper, other things barely change, and a few things can even get more expensive. If trade fails to lower prices for the things bought by the people who lose their jobs to foreign competition, it’s a double whammy for those folks. Economist Sergei Nigai, a postdoctoral fellow at ETH Zurich, has developed a model that breaks down trade into food and non-food goods. It shows that because agricultural productivity
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Noah Smith a Bloomberg View columnist
varies less around the globe than productivity in other industries, trade tends to lower the price of manufactured goods and traded services more than the price of food. That’s bad news for people who spend more of their income on food - that is, the working class and poor. In fact, in the U.S., the explosion of trade since 2000 has had little effect on food costs. What has fallen in price? Manufactured goods clothing, electronics, cars and toys. That provides some benefit to the poor and working class. Gone are the days when poor children would have to borrow clothes, or freeze in the winter for lack of a warm coat. My grandfather, working to help feed his family as a teenager during the Depression, would stuff his shoes with cardboard when the soles wore out. That doesn’t happen anymore, thanks in part to cheap shoes from overseas. Poor kids also undoubtedly benefit from having more toys, and phones are so cheap that many poor people can afford them. But in general, these price declines benefit the middle class more than the working class and poor because those who earn more tend to spend a larger share of their income on cars, TVs and furniture, while spending relatively less on food. Meanwhile, there’s another way that the price changes from trade can hurt the working class. Trade pushes up the incomes of the wealthier classes, and the resulting demand will tend to raise the prices of things that can’t be traded overseas, such as housing. Working class and poor Americans pay a larger percentage of their income in rent. And rent has gone up and up: So trade with China hit the U.S. working class hard in terms of jobs and wages. But its consumption benefits flowed far more to the middle and upper-middle classes. This shows how difficult it is to wave away the distributional effects of international trade. Not all boats rise equally, and many sink, when a big shock comes from overseas. Bloomberg View
Trade pushes up the incomes of the wealthier classes, and the resulting demand will tend to raise the prices of things that can’t be traded overseas, such as housing.
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16 Business Daily Thursday, September 22 2016
Closing European Court of Justice
No exceptions to cosmetics animal testing ban
distinction depending on where the animal testing was carried out,” the Luxembourg-based ECJ said in a statement. The EU’s top court yesterday ruled that there can The law aims to promote the use of alternative be no exceptions to a ban on animal testing by methods to meet consumer safety standards and cosmetics manufacturers in the bloc. that “objective would be seriously compromised if The case arose in Britain after three companies sought to market cosmetics that were developed for the prohibitions... could be circumvented by carrying out the animal testing in third countries,” it said. sale in China and Japan using animal tests outside The European Federation for Cosmetic Ingredients the European Union. The European Court of Justice said EU law bars any (EFCI), which brought the case, had argued that cosmetic product containing ingredients which have the companies did not break the law since the animal testing had been carried out to comply with been tested on animals, wherever that may occur. regulations in third countries. AFP “The Court states next that EU law makes no
Ratings agency
Philippines’ crime war a risk for economy The president remains wildly popular as many Filipinos embrace his promise of a quick solution to the deep-rooted crime problem.
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resident Rodrigo Duterte’s deadly war on crime is threatening the Philippines’ economy and endangering its democratic institutions, international credit rating agency Standard and Poor’s warned yesterday. S&P maintained its stable outlook for the Philippines, but highlighted a range of “weaknesses” under the new Duterte administration that also included his foreign policy and national security statements. “The president has a strong focus on improving ‘law and order’, which has allegedly resulted in numerous extrajudicial killings since he came to power,” S&P said. “This could undermine respect for the rule of law and human rights through the direct challenges it presents to the legitimacy of the judiciary, media and other democratic institutions. “When combined with the president’s policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policymaking has diminished somewhat.” Duterte won elections in a landslide in May after vowing an unprecedented crackdown on illegal drugs in which 100,000 people would die. About 3,000 people have been killed since he took office on June 30. About a third of the victims were shot dead by police and the rest murdered
by unidentified attackers, according to official statistics. Duterte, 71, has vowed to ignore a wave of international condemnation over the killing spree, with US President Barack Obama, the European Parliament and the United Nations among the many critics. He has typically used abusive language in responding to the criticism, branding Obama a “son of a whore” and UN chief Ban Ki-moon a “fool”, and lifting his middle finger while saying “fuck you” to the European Parliament.
Duterte has also sought to loosen the Philippines’ decades-old alliance with the United States, such as by saying he wanted to kick out US troops who are in the country for anti-terrorism efforts, while courting Chinese investment. Nevertheless, the charismatic 71-year-old remains wildly popular as many Filipinos embrace his promise of a quick solution to the deep-rooted crime problem. The Philippines enjoyed strong economic growth during the previous administration of Benigno Aquino, who was required by the constitution to stand down after a single six-year term. S&P, as well as competitors Moody’s and Fitch rating agencies, in 2013 all raised the Philippines
to investment-grade level for the first time, indicating a lower risk to investors. In maintaining the stable outlook, S&P said Wednesday it believed the Duterte administration would “broadly continue” the Aquino administration’s macro-economic policies.
“If one is able to see through the noise created by negative headlines, he may have better and comprehensive understanding of the exciting, positive changes that are ahead of the Philippines” Carlos Dominguez, Philippines’ Finance Secretary
Filipino President Rodrigo Duterte addressing the Philippine Army Scout Rangers last week.
But it highlighted “rising uncertainties surrounding the stability, predictability and accountability” under Duterte’s leadership. Finance Secretary Carlos Dominguez welcomed the decision to maintain the stable outlook, saying it affirmed the new government was on the right path. However he rejected the argument that predictability of policymaking had been diminished. “If one is able to see through the noise created by negative headlines, he may have better and comprehensive understanding of the exciting, positive changes that are ahead of the Philippines,” Dominguez said in a statement. AFP
Restructure
Luxury
Infrastructure
Yum China files to issue shares to Yum Brands shareholders
Remy defies Beijng’s war on Thailand, China agree on cost extravagance with US$80,000 cognac for rail project’s first phase
Yum China Holdings Inc, which is being spun off from KFC owner Yum Brands Inc, filed with regulators yesterday to issue 10 million common shares to Yum Brands shareholders. Yum Brands, which also owns Pizza Hut, said in October that it would spin off its China operations through a distribution of common shares to its shareholders. The offering could result in Yum China receiving proceeds of up to US$54.05 million, implying a maximum offering price per share of US$5.405, according to a regulatory filing. The 7,200-restaurant China division, which operates in over 1,100 cities, is higher risk and potentially more rewarding, while Yum Brands sans the China division is likely to be more stable with greater cash flow. The China business has been besieged by food scandals, marketing missteps and a weakening Chinese economy. Last year, Yum Brands was put under pressure by activist shareholder Keith Meister of hedge fund Corvex Management who was later appointed to the company’s board. Yum China had applied to list its common stock on the New York Stock Exchange under the ticker symbol “YUMC”. Reuters
If China’s thirst for luxury goods is on the wane, nobody’s told Remy Cointreau SA. The distiller has opened its first-ever store dedicated entirely to Louis XIII cognac, the most expensive variant of the company’s Remy Martin brand, which comprises 60 per cent of its revenue. It comes in crystal decanters ranging from tiny US$600 5-centiliter miniatures to an US$80,000 six-litre vessel dubbed a “methuselah.” The boutique in Beijing’s Shin Kong Place mall also offers pairings of cognac with caviar and ibérico ham. “It’s a changing landscape in China,” said Louis XIII brand director Ludovic du Plessis, who expects slower but more sustainable growth after the government’s four-year campaign against graft dented sales. “It’s now about self-indulgence, we need to reinvent the dialogue with our client and really get to know who can afford our product.” He declined to provide specific sales projections or data for the 142-year-old brand. The move comes as ebbing demand for luxury goods - particularly in China - has forced companies such as Cartier owner Richemont, clothier Burberry and Kelly bag maker Hermes to abandon sales and profit forecasts. Bloomberg News
China and Thailand agreed yesterday that the first phase of a planned high-speed railway project will cost 179 billion baht (US$5.15 billion), Thailand’s transport minister said, with both countries calling for closer ties following rocky negotiations. The 873 km rail line will link Thailand’s border with Laos to the ports and industrial zones in Thailand’s east. Beijing has ambitious railway plans to connect the south-western Chinese city of Kunming to Thailand, through Laos, and Thailand wants to modernise its ageing rail network. Earlier this year China put the project cost at 560 billion baht (US$16.09 billion), which Thailand said was too high. Agreement over the project’s framework comes after months of sometimes tense negotiations, officials said. “This project will cost 179 billion baht. This is what we agreed upon,” Thai Transport Minister Arkhom Termpittayapaisith told reporters in Bangkok after a three-day meeting between China and Thailand. Arkhom said Thailand will bear full construction costs, while China will provide funds for technical systems. Reuters