Main section of delta superbridge completed Infrastructure Page 2
Wednesday, September 28 2016 Year V Nr. 1140 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Gaming
www.macaubusinessdaily.com
Global economy
Saipan won’t cap junket numbers Page 7
Tourism
World Trade Organization downgrades prediction of global growth Page 14
No increase in Golden Week arrivals anticipated Page 2
Protect Your Brand, Warns Gaming Guru
Tourism
Flash sales and seasonal ‘packages’. The stock in trade of local hotels in their price war. But gaming academic Glenn McCartney says these panaceas are short-term fixes for the local tourism industry. In the long run, hotels may eventually hurt themselves as pulling prices up again will be challenging. Page 5
Loan-sharking ring busted
Unemployment stable
Local unemployment remains at 1.9 pct for June and August. The unemployed population amounted to 7,400. Some 20.5 pct of the jobless were fresh grads searching for their first job.
Crime Judiciary Police recently busted a loan-sharking group from Mainland China. With 27 suspects arrested. The ring is estimated to have been linked to 100 usury cases, involving HK$20 mln. Page 4
Beacon of hope
Gaming Galaxy Entertainment Group boss Lui Che-woo says the worst is over. And he sees the light at the end of the tunnel for Macau. He’s optimistic about the gaming industry’s growth. But the glory days of the high rollers are over. Page 7
Industry speeds up Employment Page 2
HK Hang Seng Index September 27, 2016
23,571.90 +253.98 (+1.09%) Worst Performers
Li & Fung Ltd
+4.12%
Bank of China Ltd
+1.98%
China Merchants Port Hold-
-0.48%
China Mobile Ltd
Want Want China Holdings
+3.38%
China Petroleum & Chemical
+1.86%
Hang Seng Bank Ltd
-0.36%
Henderson Land Develop-
+0.21%
Sands China Ltd
+3.10%
Hang Lung Properties Ltd
+1.71%
CITIC Ltd
-0.36%
Kunlun Energy Co Ltd
+0.34%
Industrial & Commercial
+2.47%
MTR Corp Ltd
+1.67%
Power Assets Holdings Ltd
-0.26%
Wharf Holdings Ltd/The
+0.35%
China Resources Land Ltd
+2.00%
Bank of Communications
+1.66%
CK Hutchison Holdings Ltd
-0.20%
Swire Pacific Ltd
+0.36%
25° 33° 21° 26° 22° 27° 26° 29° 26° 30°
-0.11%
Today
Source: Bloomberg
Best Performers
Wed
Thu
I SSN 2226-8294
Fri
Sat
Source: AccuWeather
Chinese secondary sector China’s industrial profits rose 19.5 pct y-o-y to 534.8 bln yuan in August. Faster than the 11 pct increase posted one month earlier, according to the National Bureau of Statistics. Some 33 of 41 industrial sectors have reported y-o-y rising profits. Page 8
2 Business Daily Wednesday, September 28 2016
Macau Employment
Unemployment rate hovers at 1.9 pct The city’s unemployment rate remained stable between June and August. Cecilia U cecilia.u@macaubusinessdaily.com
T
he unemployment rate in the MSAR remained at 1.9 per cent between June and August, compared to the period from May to July, according to official data released yesterday by the Statistics and Census Services (DSEC). During the three months, the city’s underemployment rate was 0.4 per cent, down 0.1percentage points period-to-period. The official data showed that the unemployed population accounted for 7,400 of the total labour force of 400,000 in the three months. The labour participation rate was 72.7 per cent, which increased by 0.2 percentage points compared to the previous evaluative period. According to DSEC data, the number of fresh graduates in search of their first job constituted 20.5 per cent of the total unemployed population, indicating an increase of 5 percentage points compared to the previous period. M e a n w h i l e, t h e e m p l o y e d
population amounted to 392,600 in the three months, up 600 period-toperiod, but down 7,900 year-on-year. Recreational, cultural and gaming
are the major sectors that the labour force served, occupying 23.7 per cent of the total employed universe, according to the latest data. The second major industry - hotels and restaurants, which constituted 14.6 per cent of total employment saw its number of workers increase
700 to 57,200 in the three months from the previous period. The latest DSEC data also revealed that the number of people who participated in the construction sector for the June-August period was 450,500, down 3 per cent periodto-period from 469,000.
Tourism
MGTO: No increase in Golden Week visitor arrivals anticipated The city’s tourism office said visitor arrivals would echo those of Golden Week last year. Annie Lao annie.lao@macaubusinessdaily.com
It is expected that the number of tourist arrivals in the city during the National Day Golden Week will be similar to last year’s, said Cecilia Tse, Deputy Director of Macao Government Tourism Office (MGTO). This year’s Golden Week will kick off on October 1 until October 9, covering one weekend. The MGTO deputy head predicted that this year’s tourists might tend to stay in the city longer, tempted by the increased number of hotel rooms and hotel packages. But she noted that the city should be cautiously optimistic regarding prospects for the upcoming holiday period.
“We know that our neighbouring cities are very competitive in luring Mainland Chinese tourists but we are confident in our tourist products in the city,” Ms. Tse told Business Daily on the sidelines of the World Tourism Day event yesterday.
Tourist bus accident
In addition, Ms. Tse claimed that MGTO and the Tourism Crisis Management Office (GGCT) have remained in close contact with the injured tourists from the tourist bus accident that occurred at Wa Keong Building last month. “Many of them have already left Macau. They have met up with the travel agent to negotiate matters relating to treatment and compensation,” she said.
One injured tourist from Mainland China is still undergoing hospital treatment in Macau, the official noted. “We’re still waiting for the final judgment regarding compensation
Infrastructure
Main section of delta bridge completed Major construction work was completed yesterday on the main bridge of the sea-crossing project in the Pearl River Estuary – the Hong Kong– Zhuhai–Macau Bridge (HZMB). A ceremony was held in Zhuhai to celebrate completion of the route
and beginning of the assembly of the bridge floor and related work. “It means construction has entered its final stage,” said Zhu Yongling, head of the administration bureau of the bridge. More than 400,000 tonnes of steel have been consumed
in a 6.7-km undersea tunnel and a 22.9-km bridge, enough to build 60 Eiffel Towers. The bridge will have a total length of about 55 km, including a 6.7 km underwater tunnel and a 23-km bridge over the sea, making it the longest cross-sea bridge in the world. Construction began in December 2009 in Zhuhai. The Y-shaped bridge starts from Lantau Island in Hong Kong with branches to Zhuhai and Macau. The bridge will cut travel time from Hong Kong to both Zhuhai and Macau from the current three hours on the road or one hour at sea to a mere half hour drive, Zhu said. The project is part of the country’s planned national highway network, linking the western and eastern banks of the Pearl River, and has been constructed to meet the demand of passenger and freight transport between Hong Kong, the Mainland and Macau.
from the court. MGTO is not involved in the compensation issue,” she affirmed.
World Tourism Day
Yesterday, MGTO held a series of activities to celebrate World Tourism Day, including an event rewarding a “lucky passenger”, a tray race and a dinner banquet. A shopping coupon worth MOP10,000 (US$1,252) was awarded to a Mainland Chinese tourist from Shenzhen at the lucky passenger event. Some 190 participants from 28 different hotels and restaurants in the city’s hospitality industry participated in the tray race event starting from St. Paul’s Ruins yesterday afternoon. The number of participants remained similar to previous years, according to MGTO, with the event sponsored by Macau Beer Company Ltd. “This event is very important. Each year, we see a lot of people from the hospitality industry join, and this helps bring in a lot of tourists to the city,” participant Boney Si, an F&B training manager, told Business Daily. Fellow participant Alexander Lee, who works for the F&B department o f Th e V e n eti a n M aca o , a l s o expressed support for the event, saying: “The event helps unite people together and attracts more tourists to Macau. At the same time, this event makes the city more attractive,” he said.
Business Daily Wednesday, September 28 2016 3
Macau Culture
Verdict: Old court building to be new central library The majority of cultural heritage committee members support converting the old court building into a new central library. Cecilia U cecilia.u@macaubusinessdaily.com
M
ost of the members of the Cultural Heritage Committee yesterday agreed to revamp the city’s old court building in Nam Van into the new central library despite some suggesting the government be more transparent in it renovation plans, such as the arrangement of responsible departments, design, number of books and estimated numbers of visitors, as well as the cost of constructing the new library. According to the President of the Cultural Affairs Bureau (IC), Ung Vai Meng, the government will conduct an introductory session to the public on the construction of the new central library at the old court building later this year. The session seeks to elaborate upon the ideas of the new central library as well as to collect opinions from the community. The director of the Cultural Heritage Department of the Bureau, Leong Wai Man, told committee members that the façades of the court building and its east side will be preserved, in addition to certain interior parts of the court building, such as the current exhibition areas and staircases.
Objection
However, one committee member, local architect Tam Chi Wai, said in the meeting that the old court building should be reused for the Court of Final Appeal as the judicial body is currently located in a commercial building which imposes a number of restrictions upon the city’s top court.
“I don’t disagree building a new central library in the city, but would it be more preferable to choose a site with fewer construction restrictions?” Mr. Tam queried. Legislator Lau Veng Seng also suggested that Hotel Estoril is a more suitable site for the city’s new central library as no construction restrictions were imposed upon the site, which would shorten the construction time of the library.
Only in old court
Meanwhile, architect Carlos dos Santos Marreiros perceives there is not enough time for the government
to select another location for the new library despite the sites mentioned by his colleagues all being suitable. In fact, the Bureau director told reporters after the meeting that the construction project should not be delayed and that the location had already been determined. “Aside from the financial resources required, time is also a valuable criterion and we cannot delay the project any longer,” the official said. “We wish to finish the construction of this meaningful and valuable cultural infrastructure as soon as possible, therefore we have no intention to go through another selection of location for the new central library.” The government recently estimated that the total cost of building the new central library at some MOP900 million (US$112.5 million). The new library will occupy 33,000 square metres.
4 Business Daily Wednesday, September 28 2016
Macau Opinion
José I. Duarte
Chain of questions The Audit Commission (CA) recently released a report on the maintenance of public spaces, namely gardens and their leisure equipment. The conclusions are not kind to our Municipal Council (IACM). According to the report, several deficiencies were detected, with some of them there for long periods. More than that, it was noted that there were cases where the deficiencies had been reported to the municipal services, and yet they were not dealt with for many months. The deficiencies listed included persistent rubbish, broken pavements, and deficient leisure equipment that posed, in some cases, actual danger to the users. That is puzzling enough. These spaces are widely used. They attract a lot of older residents who may be especially vulnerable to faulty equipment or installations. Creating and maintaining these areas is one of the services the administration provides the closest to the daily routines of many residents; and one of the more visible ways for it to show that it cares for them. Such carelessness is, to say the least, surprising. But more surprising, if not somewhat unsettling, is the fact that it only became news because the CA produced a report. To start with, what does it say about IACM itself? There are, surely, internal monitoring and inspection mechanisms. They did not realise the problems? No users alerted them or complained? If any of those things had happened, why were corrective actions delayed? The CA states that they pointed out some problems are still not addressed. IACM decided it was not important or urgent? At the very least, were the hazardous equipment and areas signalled or protected from access? A clarification would be welcome. Then we have other services. There is an Ombudsman service provided by the anti-corruption bureau. No complaints reached there? If they did, were they followed up on? Were any injuries recorded by our health services, associated with the usage of faulty equipment or installations? If so, what actions did those services take? Then we have the media. Similar questions could be asked to understand why the matter failed to be noticed earlier. The main issue here remains unanswered, though: how come that such a trivial, mundane matter requires the intervention of the CA to be dealt with? Aren’t there other mechanisms that could, should have been called into action before the issue got that far? That these questions can be asked means that something is wrong somewhere. Is anyone liable to be held responsible?
José I. Duarte is an economist and permanent contributor to this newspaper.
Health
Trilingual medical guide to be published tomorrow A new medical guide in Portuguese, Chinese and English will allow medical professionals and patients to better clarify medical terms translations. Nelson Moura* nelson.moura@macaubusinessdaily.com
T
he Portuguese Oriental I n st i t u t e ( I P O R ) w i l l launch its first trilingual guide of medical terms in Portuguese, Chinese and English tomorrow, designed to serve health professionals, patients and students in Macau, news agency Lusa reported. The Trilingual Lexical Guide for Health includes a total of 5,700 entries of medical terms, with Portuguese the source language, covering various medical areas such as pediatrics, ophthalmology, cardiology,
Drug
dermatology, and psychiatry, among others. The project was developed with the support of the Portuguese Medical Association, and the Macau Cardiology Association (MCA). Cardiologist Mário Évora, the Association’s president, perceives the guide can serve both users and doctors, stressing its help for Portuguese-speaking health professionals. The MCA president reckons the new trilingual guide will benefit health professionals who have patients from Mainland China with medical reports – which are sometimes hard to be translated into Portuguese.
A Venezuelan nurse was arrested for drug trafficking
PJ seize MOP12 mln-worth of cocaine at airport Judiciary Police (PJ) busted a Venezuelan woman at the local airport yesterday for trafficking cocaine with a market value of some MOP12 million (US$1.5 million) local broadcaster TDM Radio reported. According to the PJ, police stopped and searched the suspect when she arrived at Macau International Airport yesterday. They discovered the cocaine concealed inside a false compartment of her suitcase. The arrested woman told police
that her destination was Hong Kong, claiming she had received US$2,500 for travel expenses upon her departure and that she would be rewarded with US$6,000 if the trafficking was successful. P o l i c e b e l i ev e t h e w o m a n accepted the order in Venezuela before flying to Brazil to pick up drugs. She then flew to Ethiopia in Africa and Thailand before heading to the Special Administrative Region. A.L.
“We always deal with the Chinese population who come to us with their medical reports […] When there are complicated terms, the nurses themselves have difficulty in translating,” Mr. Évora told Lusa.
Made in Macau
The medical professional added that the guide would also be helpful to patients as they can check the translation for the medical condition’s technical terms once they are informed. Mr. Évora described the guide as “very complete” and praised the fact that it had been produced in Macau, saying: “We need to highlight that the [translation] problem was addressed and resolved here in Macau . . . Now we don’t have to resort to translations of other [guides] from English to Chinese that are published in Hong Kong. This is our work” *with Lusa
Crime
Loan-sharking ring busted, 27 arrested Judiciary Police (PJ) have busted a loan-sharking ring from Mainland China and arrested 27 suspects, according to a report by TDM Radio yesterday. The PJ said the group had been active since April this year. It is suspected that the ring is involved in about 100 usury cases involving some HK$20 million (US$2.6 million). The arrested suspects included the group’s leaders, mid-level core members and other offline members. According to the PJ, the group had been distributing its members to station at various local casinos for the purpose of luring gamblers to borrow money from the ring. Mid-level members of the criminal group would decide whether to give loans when the borrowed amount was less than HK$100,000, whilst it was the leader’s decision if the borrowing exceeded that amount. The borrowers would be brought to a VIP room in Taipa to gamble after they were given the loans by the group but 10 and 20 per cent of their chips would be taken by the group each time they bet. The case has been handed to the Public Prosecutor’s Office. A.L.
Business Daily Wednesday, September 28 2016 5
Macau
Tourism
ACADEMIC: PERCEPTION OF MACAU AS VALUE DESTINATION CAN HURT BUSINESS IN LONG RUN
Price war not the solution Tourism expert cautions authorities to better align statistics with the reality of Macau market. Joanne Kuai joannekuai@macaubusinessdaily.com
F
lash s a l e s, s e a s o n a l ‘packages’, ‘short time only’ – all part of the hotel room sales pitch. But these are only short-term solutions. Rather, maintaining price points and careful branding are key to sustainability, says Glenn McCartney, an Associate Professor in Gaming & Hospitality Management at the University of Macau. “What we’re doing is a short-term fix. But in the long-term, it’s the brand and destination that attracts certain consumers - also the business traveller - who is willing to pay more for a hotel room,” Mr. McCartney told Business Daily yesterday. “There are luxury brands that are being sold below their price point. In the long-term if this type of discounting, if special promotions, carry on, it will be very difficult to drive the price up again,” he added. Cotai’s luxury hotel sector is increasingly challenged to sell upwards to brand point given the number of rooms available and that many visitors don’t stay or purchase a room whilst in Macau. Nevertheless, the academic cautions against the building of people’s perception of Macau as a destination. “We have to [be] very careful how we manage the branding of the destination. We’re not a low-cost destination. Even the resorts are not built for that. These rooms are giving good products. There are fantastic rooms,” said McCartney.
Pull-push factors
In a report published this week in the International Journal of Tourism Sciences, titled ‘An examination of the pull and push factors influencing hotel selection by Chinese outbound travellers’ it is indicated that to maintain price point with value added product and service tactics, luxury hotel brands will need to distinctly differentiate their push factors such as retail or dining regarding why these
are so specially more appealing than another hotel’s offerings. Authors of the report Glenn McCartney and Zhuying Ge explain that while ‘push factors’ are the desire or the motivation to push individuals to go out and satisfy their needs, they are the external, situational or cognitive aspects that influence tourists to travel to a destination. “Part of the recommendations was for data-mining loyalty card programmes adding in push and pull factors that matter to deliver reward experiences that create longer hotel stay and repeat visitation. Issues such as relaxation and a proactive and individualised service were important,” says Mr. McCartney.
Mass market, low price market
“A lot of Chinese go to a lot of expensive destination around the world. I’ve seen them in London. I’ve seen them in Paris. They’re willing to pay a certain high price point,” said Mr. McCartney.
Agreeing the mass market is the future, he insists upon that price point is not contradictory to the SAR Government’s initiative to promote more leisure groups rather than focusing on high-rollers. “We have to define what the profile of the mass market is. The mass market is multi-segmented,” he said. “I fly low-cost carriers. It doesn’t mean I’m cheap. When I get to the destination, I will spend money on retail. I will spend money on food & beverage and entertainment, and I would spend money on a good hotel room for a great experience.” “A mass market doesn’t mean a low price market,” he concluded. “We have to keep that in mind in how we position Macau. You go to Las Vegas for four days; I think people would have a full wallet of money.”
Get real
While official data shows in August that Macau recorded an eight-year high record of overnight visitors, Mr. McCartney cautioned against blind optimism, saying: “One month is never, in any type of tourism research, an indication.”
He reiterated that the large number of visitors to Macau still does not translate into an overnight visit, with Chinese visitors having to pass by a few hundred hotels in Zhuhai City. In addition, the tourism expert says the Macau Government and tourism authorities should align their statistics with the reality of the Macau market given that high occupancies have not been achieved solely based on cash purchases. “It has been misleading for a number of years,” says McCartney. “High room occupancies have been historically recorded and published by the Macau Government omitting the fact that many luxury hotel rooms are not sold to leisure groups.” “You don’t celebrate [the annual visitation of] 30 million people to a destination, unless you can align that to another couple of slices of data, such as how much they spend and how long they stay, repeat traffic and so forth,” he added. “The government should look at their statistics and better align them to the reality of what’s happening on the ground.”
6 Business Daily Wednesday, September 28 2016
Macau Gaming expo
G2E kicks off in Las Vegas
Global Gaming Expo (G2E) 2016 kicked off in Las Vegas yesterday. The President of the American Gaming Association, Geoff Freeman, said this year’s expo would focus on the US Presidential election and its impact, as well as eSports and other things of interest to the next generation of customers. Organised since
Gaming
2001, the G2E is the world’s largest gaming convention and trading show, bringing together more than 450 exhibitors showcasing new gaming and entertainment-related products. This year’s G2E takes place at the Sands Expo Centre convention centre in Las Vegas until September 29. Meanwhile, G2E Asia will take place in Macau between May 16 and 17, 2017.
Gaming experts see regulations for skills-based games facing many obstacles
In the water, with sharks The local gaming regulator says it has no plan to promote skills-based games in the territory. Nelson Moura nelson.moura@macaubusinessdaily.com
I
ntroducing more skillsbased games would take “massive and co-ordinated” efforts from every jurisdiction, Ben Lee, the managing partner of Macau-based consultancy company IGamiX told Business Daily. In fact, many gaming experts believe that skills-based games would be a way for Macau to diversify its gaming offerings, especially in the market targeting the younger generations, as reported by Business Daily in its special report published yesterday. However, Mr. Lee believes there are many obstacles for skills-based gaming to be implemented, not only in the local territory but in the whole of Asia. “Skills-based games go against the grain of most gaming laws, which require games to be based upon chance,” Mr. Lee told Business Daily. “For casinos to introduce more skills-based
games, the jurisdictions they operate in will need to have major changes of heart and that will take a massive and co-ordinated effort,” he added.
Games with sharks
In addition, from the perspective of the gaming expert, skills-based games are inherently unfair to newcomers as they would become “fodder for the veterans of the games”. “Poker is a classic example where the sharks - being the veteran players usually lie in wait for the novices who enter the game and end up paying for their ‘education’,” he said. “Poker is now dying out in Las Vegas and not only that, casinos make very little if any money out of these types of games”. Meanwhile, the iGamix analyst indicates that the regional “lack of trust in computers and online technology” are big “roadblocks” to the online betting of skills-based games. In addition, the lack of a viable, easy, instant and trustworthy payment
system will also continue limiting the development of these segments. “Online betting as well as sports are against gaming that has evolved in Western cultures. Whilst there has been some take up, I’m not sure if they’re the future of the industry here in Asia,” the analyst said.
Hooking the Millennials
Nevertheless, Mr. Lee agrees that the Millennial - people born between 1980 and 2000 - have a bigger interest in betting on skills-based games such as peer-to-peer games. This type of game allows a gamer to compete against another gamer – compared to chancebased gaming, such as slot machines. “The Millennial has grown up [with] online and peer-to-peer games, and there have been some land-based games that became very popular in Asia,” the gaming expert indicated. “The fishing game seen in some amusement arcades all around Asia, including Macau, is one such success story. It’s a peer-to-peer skills-based game, and their appearance in some Asian casinos can only be described as explosive,” he elaborated.
And this type of game is available in some of the city’s casinos, such as The Venetian Macao of Sands China Ltd, which is running a skills-based slot machine game called Paradise Fishing. This game, developed by Aruze Gaming America Inc., allows players to compete against each other in virtual fishing competitions.
No intention to promote
Despite skills-based games becoming popular among the younger generation, the city’s gaming regulator told Business Daily that the government will not promote such kind of games in the territory. “Currently, the government has no plan to promote skill-based games in Macau,” the Gaming Inspection and Co-ordination Bureau (DICJ) informed Business Daily in an email.
Business Daily Wednesday, September 28 2016 7
Gaming Lui Che-woo interview
Veteran casino tycoon ‘optimistic’ about industry growth However he doubts that figures from high-rollers times will ever return. Aaron Tam
M
acau casino big-hitter Lui Che-woo says he sees light at the end of the tunnel for the embattled gambling enclave, although the days of high rollers are gone. The city has struggled to recover its footing after coming under pressure from Beijing to diversify away from gambling in 2014 as part of a corruption crackdown by China’s President Xi Jinping. That punched a hole in the VIP market that had propped up Macau’s gaming revenues, which have nosedived. Takings were also hit by a slowdown in the Chinese economy. But the slump appeared to come to an end in August, with a modest rise
in gaming revenues of 1.1 per cent the first increase for 26 months - as casino bosses try to lure mass market tourists to fill the rooms of a host of new mega-resorts. Some analysts say the August rally, though modest, is a sign the new approach is working. Veteran Lui, 87, who founded Hong Kong-based casino firm Galaxy, says he now envisages stable growth for semi-autonomous Macau, the only part of China where gambling is legal. Speaking to AFP at his waterfront Hong Kong offices - wearing his trademark flat cap and suit - Lui says the only way forward is the “mass market” approach, adopted by his new casino resort and its rivals on Macau’s Cotai strip. “Phase two” of Lui’s existing Galaxy casino opened last year, boasting
a sprawling rooftop water park complete with river rapids. Since then, Melco Crown’s Studio City, the Wynn Palace and Sands’ The Parisian have joined the fray with restaurants, shows and familyfriendly attractions - as well as slots and gaming tables. “We are going towards the direction of mass market clients, our confidence in this is absolute,” said Lui, who is worth US$8.2 billion according to Bloomberg Billionaires. He says there has been healthy growth in the number of middleclass clients, despite China’s downturn. But despite his confidence, Lui stops short of believing there will be a return to the heady days of VIP-fuelled growth, which helped Macau overtake Las Vegas in terms of revenue in 2002. “I don’t have enough courage to say it can be bigger than the VIP market - what I can say is that we are optimistic,” Lui said.
Lui is planning “phase three” of his Galaxy resort which will include a high-tech theme park.
Time for peace
Galaxy comes under Lui’s flagship company K.Wah, set up in 1955, a multinational property developer and entertainment conglomerate. There are nerves in Macau as those concessions come up for renewal from the government in 2020 though Lui says he is confident authorities will not remove licences as casinos commit to the mass market approach.
“We are going towards the direction of mass market clients, our confidence in this is absolute” Lui Che-woo, Galaxy casino founder
I n t h e p a st t w o y ea rs t h e octogenarian father-of-five has also been advertising his philanthropic credentials. Next week sees the awarding of the inaugural US$7.74 million Lui Che Woo Prize, for people and organisations that “make the world a better and more sustainable place”. The winners of this year’s prize include former US president Jimmy Carter and French NGO Medecins Sans Frontieres. Lui says the harsh experiences of his youth inspired him to set up the prize. Having moved to Hong Kong from mainland China as a four year old, he remembers the Japanese marching into the then-British colony in 1941. “When the Japanese soldiers passed by, you had to stop moving and bow, or else they would beat you up,” Lui said. “I feel that we should be more peaceful.” AFP
Gaming
Saipan: No cap on number of junket operators The gaming authority on the archipelago perceives junket operations are ‘necessary’ for its gaming industry. Saipan will not cap the number of junket operators in its territory, said the executive director of the archipelago’s Commonwealth Casino Commission, Edward Deleon Guerrero, according to English language newspaper Saipan Tribune. “No number [limit] for the junket operators. The live training facility that currently operates only has five VIP rooms, but when the Grand Mariana opens it will have a bigger number of VIP rooms to accommodate those who come here to play,” the newspaper quoted the official as saying. The Saipan authorities granted a casino licence that carries a term of 25 years to Hong Kong-listed Imperial Pacific International Holdings Ltd. in August 2014. The gaming operator is slated to unveil the first phase of its casino resort Imperial Pacific Resort, formerly referred to as Grand Mariana Casino and Hotel Resort, before Chinese New Year in January 2017. Currently, Imperial Pacific is running a ‘temporary casino’ in Saipan, operating 16 VIP gaming tables, 32 mass gaming tables and 144 electronic table games and slot machines. The opening of its casino resort next year
is expected to provide more than 200 new gaming tables and 400 slot machines in addition to accommodation and entertainment facilities. The Saipan regulator explained that
the authorities had decided not to impose any limit on the number of junket operators due to the importance of VIP operations to the gaming industry. “The junket operators are a necessary part of the gaming industry and we are competing in a regional area; and you have the likes of Macau and Singapore,” the news outlet quoted Mr. Guerrero as saying. He added
that approved junket operators on the island would have different arrangements with Imperial Pacific – the sole casino operator on the island. According to the newspaper, the Saipan regulator has already issued a provisional licence to Korean junket operator Big Bang Entertainment. In addition, the authorities, along with Imperial Pacific, are reviewing 17 more applicants. Mr. Guerrero claimed that the junket applicants would be strictly evaluated, with credit, role, wealth, and delegation checks accessed. K.L.
8 Business Daily Wednesday, September 28 2016
Greater China In Brief Efficiency
Government issues plan to lower logistics costs The central government asked for a concerted effort to lower logistical costs in an action plan issued by the State Council Monday. China wants to reduce the ratio of logistics costs to sales revenue from 8.9 per cent in 2014 to about 8.5 per cent for manufacturers and from 7.7 per cent to around 7.3 per cent for wholesale and retail sellers by 2018. The government will streamline reviews and approvals for logistics companies, cutting taxes and fees, according to the National Development and Reform Commission plan. The document also called for a more efficient network. M&A
Wanda in talks with Dick Clark Productions Chinese real estate and entertainment conglomerate Dalian Wanda is in talks to finalize a deal with Dick Clark Productions, according to a statement on Monday, as the Chinese firm seeks to expand its growing portfolio of investments in Hollywood. “Dick Clark Productions and Beijing Wanda Culture Industry Group Co., Ltd., have agreed to enter into exclusive talks with the shared goal of finalizing a mutually satisfactory transaction,” a spokesman for Eldridge Industries, the owner of Dick Clark Productions, said in an emailed statement. Wanda is looking to bid US$1 billion for the TV production company, according to a source familiar with the deal. Bilateral exchanges
Japan to relax visa regulations for Mainlanders Japan’s Ministry of Foreign Affairs (MOFA) said yesterday that a previous plan to relax visa regulations for Chinese visitors would come into effect on October 17, with one of the objectives being to boost repeat arrivals and increase bilateral people exchanges. The ministry said that its plans that were first announced on April 30 this year, involving the scope of Chinese nationals applying for multiple entry visas for short-term stay for the purposes of business and for cultural or intellectual figures, would be expanded, with the length of stay being upped from 5 years to 10. Official position
Concern over Thai investigation into national steel China’s Ministry of Commerce (MOC) yesterday expressed concern over Thailand’s investigation into Chinese steel products and urged the country to be cautious and restrained in using trade remedy measures. “We hope Thailand can work with China to promote dialogue and cooperation in the field to resolve trade friction,” an MOC online notice quoted an unnamed official as saying. The remark came after Thailand began investigating galvanized steel imported from China earlier this month, the latest in a series of anti-dumping probes by the country targeting Chinese steel over the past two years.
Official data
Industrial profits rise at fastest pace in 3 years Total profits for the January-August period rose 8.4 per cent from the same period a year earlier.
P
rofits earned by China’s industrial firms in August grew at the fastest pace in three years helped by rising sales, higher prices and lower costs, pointing to strengthening economic activity. The world’s second-largest economy has shown recent signs of stabilisation, propped up by a housing boom and government spending, but growth has been patchy with companies in some sectors such as steel not faring as well due to excess capacity. Profits in August jumped 19.5 per cent to 534.8 billion yuan (US$80.2 billion), the National Bureau of Statistics (NBS) said on Tuesday, the fastest monthly rate since August 2013. Annual profit growth was 11 per cent in July. Industrial profits in August have shown positive changes and government
policies continue to produce effects, NBS official He Ping said in a statement accompanying the data. The official said rapid growth in August was also boosted by a low base of comparison last year. China’s traditional industries continue to struggle, particularly in sectors hobbled by overcapacity, He said. The profit data by sector, however, highlights the uneven stabilisation. Manufacturing profits rose 14.1 per cent from a year earlier while mining industry profits fell 70.9 per cent. Total profits for the January-August period rose 8.4 per cent from the same period a year earlier, compared with a 6.9 per cent rise in the first seven months of this year. Chinese industrial firms’ liabilities at the end of August were 4.6 per cent higher than at the same point last year.
The data covers large enterprises with annual revenues of more than 20 million yuan from their main operations. Bank of America Merrill Lynch highlighted risks to corporate earnings in a recent report on listed firms.
Key Points August industrial profits up 19.5 pct yr/yr vs 11 pct in July Fastest monthly pace since August 2013 Government policies continue to bolster economy - stats official “We think a housing bubble in top cities is a genuine risk, and stimulus may weaken due to a renewed focus on the supply-side reform; we expect earnings to come under significant pressure again reasonably soon,” it said. Reuters
Markets
Hong Kong small-caps: ready for Mainland fever? The opening of the Shenzhen-Hong Kong stock trading link, as early as November, will allow mainlanders to buy Hong Kong small- and mid-caps. Samuel Shen and John Ruwitch
Chasing higher returns in a slowing economy, Chinese investors could soon dominate Hong Kong’s stock market, likely redefining how shares, especially small-caps, are traded and priced there. Chinese money will account for a third of Hong Kong’s stock trading turnover in three years, up from a tenth now, UBS and other brokers predict. Some traders say it could hit 50 per cent within five years. That would be a sea change for Hong Kong’s century-old stock market and a serious challenge to western players. European and U.S. investors now account for almost a quarter of stock turnover. Fund managers say the inflow of Chinese money will be driven by deregulation, fears of yuan depreciation, and yield chasing as there are still wide valuation gaps between the two markets. The shift could trigger a culture clash between fundamentals-dependent western investors and momentumdriven Chinese, who tend to be more aggressive and speculative. It is likely to be most evident in Hong Kong’s small-caps, as the opening of the Shenzhen-Hong Kong stock trading link, as early as November, will allow mainland Chinese to buy Hong Kong small- and mid-caps, bringing much-needed liquidity, but also likely speculative fever to growth stocks.
“Small-caps in Hong Kong have long suffered from poor liquidity ... and low valuations. Mainland investors have a penchant for growth stocks, often giving them stretched valuations,” said Lu Wenjie, strategist at UBS. “Mainlanders also like stir-frying concept stocks. A growth story with a 5-year horizon is often priced in just a week in China. Such an investment style will have a big impact on Hong Kong stocks.”
Mind the gap
In blue-chip stocks, the price gap has already narrowed, with China-listed
shares around a fifth more expensive than Hong Kong, as Chinese investors have bought stocks like HSBC, Tencent and ICBC via the already open ShanghaiHong Kong Stock Connect scheme. The Shenzhen-Hong Kong link will offer a broader investment scope. “The valuation differentials between Shenzhen and Hong Kong small-caps are pretty significant,” said Kinger Lau, chief China equity strategist at Goldman Sachs. China’s small-cap companies trade at over 40 times expected earnings, the highest in Asia-Pacific, and four times the ratio in Hong Kong. The arrival of Chinese investors, who on average trade eight times more frequently than their Hong Kong peers, will likely increase market turnover, volatility and, potentially, the number of insider trading cases.
Business Daily Wednesday, September 28 2016 9
Greater China M&A responsibility
State firm managers spooked by new liability rules The new rules mean many state firms’ managers are now reluctant to take decisions. Denny Thomas and Michelle Price
Business development managers at Chinese state-owned firms have been put on notice: mess up on M&A deals and you can be held personally liable - for life. Under new rules unveiled by China’s State Council, or cabinet, last month, managers will be held accountable if they “fail to, or incorrectly, perform their duties” with respect to deals that result in a loss of state assets. A lack of specifics has prompted bankers and lawyers to say this is a draconian catch-all clause that is already slowing deal-making at Chinese state-owned enterprises (SOEs). Sanctions include pay cuts, disciplinary action or full judicial hearings even years after managers have moved jobs or retired. In the United States and Europe, company executives are rarely held personally accountable, let alone criminally liable, for bad deals - provided they met their fiduciary duties. When strategic moves go bad, typically the CEO or chairman is urged to resign. The move is part of President Xi Jinping’s overhaul of China’s bloated, debt-ridden SOEs, which have been on a buying binge in recent years. Sloppy deal-making has led to billions of dollars in write-downs. Flush with state funds and a government mandate to go global, SOE managers have enjoyed a high degree of freedom to make often big, headline-grabbing outbound deals without fear of personal reprisal. In the rush to accumulate assets, business development teams weren’t always thorough in their due diligence or market analysis. And deals were
“Investors are very clever. They will bring to Hong Kong some of the Chinese style, but will also learn about the new environment [such as short-selling and additional share issuance] and adapt,” said Fu Xuejun, strategist at Huarong Securities. “I don’t think they’ll be as crazy as they are in China.” B o u rs e o p e rat o r H o n g K o n g Exchanges and Clearing Ltd said it does not have details of fund flows from the mainland, and does not speculate on future market activity.
Funds front-running
Anticipating a re-valuation of Hong Kong stocks once the Shenzhen link opens, some Chinese fund managers are already building up stakes in select stocks to front-run mainland money. Shen Weizheng, Shanghai-based fund manager at Ivy Capital, said he has bought shares in Hong Kong-listed Yangtze Optical Fibre and Cable. “Water flows from high places to low places, naturally. Once the floodgate opens ... liquidity will flow south ... narrowing the valuation gaps,” said Shen, who manages a US$1 billion offshore fund that has 70 per cent of its portfolio in Hong Kong stocks. He noted Yangtze Optical Fibre trades at around 10 times earnings, while its China-listed rival Hengtong OpticElectric Co trades at three times that. “It’s natural to buy cheaper assets,” he said, noting the stock has jumped by more than a third since Beijing approved the Shenzhen link last month. Shen said the stock could gain another 50 per cent as optic-fibre is a popular concept among mainland investors. Shanghai-based hedge fund RPower Capital has also increased its bets on Hong Kong stocks, said Robert Di, founding partner. “Chinese regulators have stepped up a crackdown on speculation, so many domestic hedge
typically rubber-stamped by boards that tended not to look too closely at the details or valuations, said bankers and lawyers who have worked on state sector deals. State firms also paid less attention to integrating newly bought assets - often critical to delivering long-term value. “There’s growing concern around SOE investments,” said Xiong Jin, international partner at law firm King & Wood Mallesons in Beijing. “The government has realised that many SOE assets have been lost through poor investments overseas, and now there’s a sense of urgency to impose better controls. This also comes in the broader context of SOE reform.”
Key Points Under new rules, SOE managers face sanction for bad deals Managers pushing decisions on to bosses, committees SOEs pressuring external lawyers to sign-off on deals China SOE M&A splurge under scrutiny following writedowns The new rules mean many SOE managers are now reluctant to take decisions, say bankers and lawyers, and can spend weeks tied up on email chains and meetings trying to get their bosses to take responsibility for transactions and have external legal counsel sign off on commercial aspects of deals. “The blanket reaction from senior company officials would be: be passive,
funds are starting to play in Hong Kong,” said Di, whose portfolio includes both blue-chips and small-caps, such as Genscript Biotech Corp.
Pricing power
The expected wall of Chinese money heading for Hong Kong, fuelled by a need to diversify asset allocation and hedge against any yuan depreciation, will also seize more pricing power from global investors.
Key Points Chinese may make up 1/3 of HK trading turnover in 3 years Chinese small-caps 4-5 times dearer than HK peers Chinese inflows driven by yuan fears, yield hunt Potential for culture clash, but likely to converge “The shift in pricing power will likely occur first in small-caps, and then spread to big-caps,” said RPower Capital’s Di. “A single spark can start a prairie fire,” he said, referencing a civil war slogan of Mao Zedong. “It’s the strategy of encircling the cities from the rural areas.” Hong Hao, chief strategist at BOCOM International, said more Chinese participation may actually help reduce volatility in Hong Kong, rather than stoke it. “International flows used to dominate Hong Kong, and caused a great deal of volatility when they left when times were bad,” he said. “With the Connect programme, the participants in the Hong Kong market should gradually change, giving some much needed liquidity.” Reuters
making no suggestions or decisions on M&A opportunities,” said a senior official at a state energy company involved in overseas investment. The official, who didn’t want to be named due to the sensitivity of the issue, said managers would now more likely just report public information about investment opportunities to their bosses, without making any value-added proposals. “If you start looking through the lens of this document, an SOE manager will start to ask of every operational decision or small decision on every provision in a deal: ‘could I be held accountable for this in 15 years’ time’,” said Andrew McGinty, partner at law firm Hogan Lovells in Shanghai. “They will either take the path of least personal risk, which may not be best for the business, or keep going up the chain of command to make sure they have covered their position. This is slowing down deals.”
Leading the charge
With Beijing’s blessing, state-owned firms led China’s decade-long outbound M&A splurge, buying strategic assets from energy and food to technology. State-owned firms accounted for close to two-thirds of China’s US$677 billion in outbound deals over the past 10 years, Thomson Reuters data show. It wasn’t always money well spent. For example, a tie-up between China’s state-run TCL and France’s Thomson Electronics lost around half its value, and South Korean car maker Ssangyong Motor filed for bankruptcy within five years of being taken over by Shanghai Automotive Industry Corp. And last year’s oil price collapse forced companies like China Petroleum &
Chemical Corp and CNOOC to take billions of dollars in write-downs. CNOOC took a 10.4 billion yuan (US$1.56 billion) impairment charge in the first half of this fiscal year, which analysts say is largely related to its US$15.1 billion buy of Canada’s Nexen Inc in 2013. Bankers said Beijing became even more circumspect following China National Chemical Corp’s US$43 billion bid for Syngenta in February - which came with an eye-popping US$3 billion break fee, or 7 per cent of the deal value compared to 1-2 per cent typically. “It’s this over-exuberant climate that has prompted the government to rein in the excess,” said Howard Yu, professor at Swiss business school IMD. “It all points to an urgent need for systematic reform to impose a sense of discipline when it comes to international expansion through M&A.” The State Council Information Office, the public relations arm of the central government, did not respond to requests for comment. China’s State-owned Assets Supervision and Administration Commission (SASAC), which oversees SOEs, is also tightening its vetting process on outbound deals and intervening more, said M&A bankers in Hong Kong. At some SOEs, internal committees representing the Communist Party have been given new powers to effectively supersede the board and approve major deals. Sinochem International Corp pulled out of a US$3 billion acquisition of a German company last month after the SASAC questioned the valuation, a person with direct knowledge of the matter said. The SASAC did not respond to requests for comment. Reuters
10 Business Daily Wednesday, September 28 2016
Greater China GDP advance
ADB sticks to Asia growth forecasts on China, India strength The upward revision in estimate for China lifted bank’s forecast for all of East Asia to 5.8 per cent from 5.7 per cent for 2016. Manolo Serapio Jr and Enrico Dela Cruz
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he Asian Development Bank kept its growth estimates for developing Asia for this year and next at 5.7 per cent, saying sustained expansion in China and India can steady the
region but warned of risks from a looming U.S. interest rate hike. The Manila-based lender increased its growth forecast this year for China to 6.6 per cent from 6.5 per cent and for 2017 to 6.4 per cent from 6.3 per cent, citing fiscal and monetary stimulus measures in the world’s
second-largest economy. The projections for India were kept at 7.4 per cent for this year and 7.8 per cent for 2017, driven by strong consumption and an investment revival, the ADB said in an update on Tuesday of its Asian Development Outlook released in March. “Strong growth in China and India is helping the region maintain its growth momentum,” said Juzhong Zhuang, ADB deputy chief economist. “Still, policymakers need to watch for downside risks including potential
capital reversals that could be triggered by monetary policy changes in advanced economies, especially the U.S.,” said Zhuang. The possibility of a U.S. interest rate hike could disrupt capital flows and complicate macroeconomic management in the region, the bank said. “Private debt is on the rise in many Asian economies, which could become unsustainable if economies struggle or interest rates rise sharply,” ADB said.
Key Points China 2016, 2017 growth upped by 0.1 pct pts to 6.6 pct, 6.4 pct India forecasts left at 7.4 pct this year, 7.8 pct in 2017 Potential Fed hike could disrupt capital flows in the region The U.S. Federal Reserve left interest rates unchanged last week but strongly signalled it could still tighten monetary policy by the end of the year if the labour market keeps improving. The Fed has two more meetings this year. In December 2015, the Fed raised U.S. interest rates for the first time in nearly a decade.
Delayed recovery
Citing a continued delayed recovery among industrial economies, the ADB reduced its aggregate growth forecast for the U.S., Japan and the euro area by 0.4 percentage points to 1.4 per cent for 2016, before seeing it pick up to 1.8 per cent next year. The upward revision in ADB’s estimate for China lifted its forecast for all of East Asia to 5.8 per cent from 5.7 per cent for 2016 while the 2017 projection was unchanged at 5.6 per cent. In the first half of this year, China’s economy grew 6.7 per cent from a year earlier, slowing from a 6.9 per cent pace in all of 2015. The growth estimate for Southeast Asia was kept at 4.5 per cent for this year, which the ADB said was supported by first-half strength in the Philippine and Thai economies. But it cut its 2017 forecast for the region to 4.6 per cent from 4.8 per cent in its March outlook. Economies in South Asia are projected to expand by 6.9 per cent in 2016 and by 7.3 per cent in 2017, unchanged from the March estimates. Citing an uptick in global oil prices and food, the ADB increased its average inflation forecast for developing Asia to 2.6 per cent from 2.5 per cent in 2016 and to 2.9 per cent from 2.7 per cent in 2017. Reuters
GDP GROWTH (per cent)
INFLATION (per cent)
Source: ADB
Source: ADB
Business Daily Wednesday, September 28 2016 11
Asia Daigou down under
Mainland hunger for Australian food leaves massive tax hole Chinese agents buying Aussie goods become an increasing problem for fiscal authorities. Swati Pandey and Jonathan Barrett
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ustralia m i ght b e missing out on up to A$1 billion (US$763.30 million) in uncollected taxes annually from Chinese agents who ship food back home to meet a huge demand from a booming middle class. There are 40,000 so-called Chinese ‘daigou’ in Australia making anywhere between A$40,000 to A$100,000 a year selling sought after products like baby milk formula, vitamins and organic cosmetics in China, according to industry consultants. Most of that income earned by daigou - meaning ‘buy on behalf of’ in Chinese - is unlikely to be declared, said Benjamin Sun, director at consultancy ThinkChina. “A Chinese consumer pays the daigou in renminbi. The daigou buys the product using the Australian dollar and then ship it,” said Sun. The sector, almost non-existent just three years ago, is another tax headache for Australian Treasurer Scott Morrison who is overseeing a national crackdown on corporate tax loopholes targeted at major companies including Google Inc and miners BHP Billiton and Rio Tinto. Daigou first made waves in Europe
shipping luxury items like Gucci handbags to China’s growing middle class. Demand from Australia, stoked by health-conscious affluent Chinese, is mainly for dairy, general produce and health products. Paul Drum, head of policy at accounting body CPA Australia, said the tax take equated to up to US$1 billion - based on the industry estimates of the number of daigou and their annual earnings - when Australia’s sliding tax scale and tax-free thresholds were taken into account.
“The fact the fund flows might be going through a foreign bank account and never come into Australia doesn’t alleviate the requirement to declare the income as taxable,” said Peter Janetzki, a partner in Ernst & Young’s international tax services team. Daigou operate through an established network of prospective customers on popular Chinese online messaging app WeChat. They typically charge premiums of about 50 per cent above the sticker price on Australian store shelves. While there are some similarities to tax concerns raised with those who buy and sell regularly on online platforms like Ebay, tracking daigou
transactions has been made even more difficult for the Australian Tax Office (ATO) given they tend to take place in China. The ATO did not respond to requests for comment from Reuters. CPA’s Drum said the growth of the industry represented a “potential tax revenue risk” for Australia but noted that the concept of exporting by individuals was not new. “It is not surprising that (the number of daigou) is growing, given both the increasing overseas consumer demand for Australian-sourced quality products and the rise of digital communications.” Reuters
Key Points Around 40,000 Chinese shopping agents or daigou in Australia Daigou earn between A$40,000 to A$100,000 a year Most of that income unlikely to be declared - consultants Daigou may be leaving up to A$1 bln tax hole - experts While the transactions almost exclusively occur offshore in daigou bank accounts, making it difficult to track by local tax authorities, the income should be declared where the business is conducted - Australia.
Aussie milk powder still remains a top seller among Chinese consumers.
End of tour
Premier Li meets Portuguese FM on way home Premier said Portugal is China’s good friend in the European Union. Chinese Premier Li Keqiang on Monday concluded his three-day official visit to Cuba and made a stopover in Portugal’s Terceira Island on his way back to China. Premier Li and his wife Cheng Hong were welcomed by Portuguese Foreign Minister Augusto Santos Silva and Chinese Ambassador to Portugal Cai Run at the airport in the western island of the European country. During his meeting with Silva, Li said Portugal is China’s good friend in the European Union (EU) and China-Portugal relations have been enhanced in recent years with efforts from both sides. China is willing to strengthen high-level exchanges, deepen political trust, increase mutual understanding, enlarge pragmatic cooperation, establish closer civilian communication with Portugal and to diversify the comprehensive strategic partnership between the two nations, Li said. Acc o r di n g t o Li , p rag m ati c cooperation between the two countries has yielded fruitful results in various fields. Chinese investment in Portugal keeps growing and their cooperation in third markets, such
as Latin America, has seen excellent results. He hoped both sides would continue to explore the potential to cooperate in fields like energy, finance and ocean, as well as to resort to complementary advantages to better coordinate in third markets.
China encourages its companies to invest and do business in Portugal, and welcomes Portuguese counterparts to exploit the Chinese market as well, Li said, adding that both countries should make efforts to offer a fair and convenient environment to foreign investors. As the special envoy of Portuguese Prime Minister Antonio Costa, Silva firstly greeted Li and his wife on behalf of Costa.
Chinese Premier Li Keqiang (R) during his meeting with Portuguese Foreign Minister Augusto Santos Silva (L). Lusa.
He said that Portugal and China have enjoyed many exchanges in history and that their bilateral relations enjoy favourable growth momentum. Portugal wishes to increase the export of competitive farm products and dairy products to China, Silva said. As an important Chinese investment destination in the EU, Portugal attaches great importance to investment from China, the foreign minister said.
‘Foreign Minister Augusto Santos Silva said Portugal wishes to increase the export of competitive farm products and dairy products to China.’ Portugal hopes to further strengthen cooperation with China in fields like energy, transport infrastructure and logistics, and furthermore, it wishes to establish cooperation with China as the third party in wider regions, for example in Africa, Silva said. Xinhua
12 Business Daily Wednesday, September 28 2016
Asia July minutes
Bank of Japan board uncertain of reaching price goal Prime Minister Shinzo Abe offered renewed endorsement of the decision yesterday. Leika Kihara
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ank of Japan (BOJ) policymakers fretted over weak inflation expectations and uncertain prospects for achieving its price goal even before announcing its plan to conduct in September a comprehensive review of its policies, minutes of the central bank’s policy meeting in July showed yesterday. Many board members said inflation expectations were weakening and some warned they might not strengthen much any time soon, the minutes showed, a sign the policymakers were leaning toward modifying the BOJ’s policy framework as three years of massive money printing failed to boost price growth. “Members shared the recognition that risks to Japan’s economic activity and prices remained skewed to the downside,” according to the minutes of the July 28-29 meeting. At the meeting, the BOJ expanded stimulus by doubling purchases of exchange-traded funds (ETF) and announced a plan to conduct a comprehensive assessment of its policies at a subsequent meeting in September. At its rate review last week, the BOJ switched its policy target to interest rates from the pace of money
printing, after years of massive asset purchases failed to jolt the economy out of decades-long stagnation. Prime Minister Shinzo Abe offered renewed endorsement to the decision yesterday, saying it would strengthen monetary policy and help quicken achievement of the BOJ’s inflation target. “Specific policy steps should be left up to the BOJ. I trust Governor Haruhiko Kuroda,” Abe told parliament.
Structural reform needed
At the July meeting, some BOJ board members said Japan’s inflation expectations were vulnerable
to external shocks such as oil price declines and slowdown in overseas economies, according to the minutes. Given such uncertainties over the price outlook, the board decided to conduct the comprehensive review in September. “A few members said the final goal of this comprehensive assessment was to assess what should be done to achieve the price stability target of 2 percent at the earliest possible time, and did not suggest the BOJ would be reviewing the price stability target itself,” the minutes showed. Many members said the decision to expand ETF purchases was the best way to prevent market turmoil triggered by Britain’s vote to exit the European Union from hurting Japanese business and household confidence,
Japanese Prime Minister Shinzo Abe delivers a policy speech at the start of the new parliamentary session at the Diet in Tokyo, yesterday. Lusa.
the minutes showed. But one member who opposed the decision said this would be viewed by markets as indicating that monetary easing was approaching its limit.
Key Points Board shared view inflation expectations weak Uncertain price outlook led to Sept policy review Boosting ETF buying could trigger calls for more PM Abe offers endorsement to Sept BOJ move BOJ easing alone not enough to revive growth-Nakaso
“There was a risk this action could trigger endless expectations for further monetary easing,” the member was quoted as saying. Kuroda attempted to dispel views the BOJ is running out of ammunition, stressing the central bank is ready to use every possible policy tool to achieve its inflation target. BOJ Deputy Governor Hiroshi Nakaso, however, called for government and private-sector efforts to revive growth. “The BOJ took bold steps last week ... but that alone isn’t enough,” Nakaos said yesterday. “There need to be structural reforms to promote innovation.” Reuters
Law enforcing
Anti-money laundering group urges Singapore to step up its efforts The Financial Action Task Force said Singapore should strengthen its anti-money laundering regime for precious stones and metals dealers too. An international group that monitors money laundering said yesterday that Singapore should pursue more offenders involved in international cases and take more action to confiscate suspicious funds moving through the city-state. “Singapore maintains one of the lowest domestic crime rates in the world and therefore the bulk of Singapore’s exposure to ML (money laundering) risks arises from offences committed overseas,” the Financial Action Task Force (FATF) said in a report assessing Singapore efforts against money laundering and to counter the financing of terrorism. The FATF assessment came amid Singapore’s on-going probe into money laundering offences linked to Malaysian state fund 1Malaysia Development Berhad (1MDB), which cast a spotlight on one of the world’s leading wealth management centres. The task force’s examination of Singapore was conducted in late 2015, several months before Singapore ordered the shutdown of Swiss private bank BSI, charged people in connection with the probe and announced the seizure of S$240 million (US$177 million) worth of assets. The executive summary of the task force’s report did not mention 1MDB.
The Singapore government said in a statement that law-enforcing agencies will strengthen their capabilities to identify and investigate more money laundering cases of “complex transnational” nature. The Paris-based FATF said Singapore has a reasonable understanding
Financial heart of the city-state 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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of its money laundering risks and had taken steps to mitigate them, but some gaps remain. It said law-enforcing agencies should make greater use of seizure and confiscation powers to seizes funds and assets linked to crime. The task force said financial institutions generally demonstrated a reasonably good understanding of money laundering risks impacting domestic clients, but a less developed understanding of risk of illicit flows into and out of Singapore.
It said Singapore should strengthen its anti-money laundering regime for precious stones and metals dealers. In July, Singapore authorities said that as part of its 1MDB-related probe it found problems at three banks, top local lender DBS Group Holdings Ltd; UBS AG, the world’s largest private bank; and Standard Chartered. An onsite inspection of another Swiss bank, Falcon PBS, owned by one of the world’s leading sovereign wealth funds - Abu Dhabi’s International Petroleum Investment Company (IPIC) - in April 2016 found “substantial breaches” of anti-money laundering regulations, Singapore’s central bank said. Reuters
Business Daily Wednesday, September 28 2016 13
Asia Environment protection
In Brief
Philippines to suspend 20 more mines President Rodrigo Duterte has warned that the Philippines could survive without a mining industry and 10 mines have already been shuttered as part of an audit completed last month. Enrico Dela Cruz and Manolo Serapio Jr
T
he Philippines has ordered the suspension of 20 more mines for environmental violations, as the world’s top supplier of nickel ore vowed to pursue stricter standards than in global mining centres such as Canada and Australia. Most of the mines were nickel producers and the news sent global prices up more than 1 per cent yesterday, helping the metal recover from earlier losses amid worries over disruption of supply to the important Chinese market. “I am not against mining but I am definitely against the adverse effects that may happen, that are happening in some of the situations,” Environment and Natural Resources Secretary Regina Lopez told a briefing. If the additional mines recommended for suspension are halted, it would bring to 30 the number closed, 18 of them nickel producers that account for 55.5 per cent of the country’s total nickel ore output based on last year’s production. Each miner would be handed the audit report and given seven days “to explain their violations”, Environment and Natural Resources Undersecretary Leo Jasareno said. The agency would review the responses and decide whether to impose the suspension, he said, adding that miners would be able to appeal. The mine closures would result “in nickel ore stocks falling to very low levels by March/April 2017, driving
a substantial rise in ore prices and thus marginal costs of nickel production over the next 3-6 months,” Goldman Sachs analysts said in a report released before yesterday’s announcement. Ronald Recidoro of the Chamber of Mines of the Philippines raised concerns that the audit “was done in a punitive manner rather than objectively”, and questioned the grounds for suspensions. “Some of the grounds that were cited (for violations) were manageable and can be remedied in seven days but the rest are vague,” Recidoro said by telephone. Jasareno said 11 of the nation’s 41 mines had passed the audit including those owned by top nickel ore producers Nickel Asia Corp and Global Ferronickel Holdings Inc.
“There were miners that passed (the audit) and I want to work with them to push it further, better than Canada, better than Australia. We must be better and I know it can be done,” Lopez said. Global Ferronickel President Dante Bravo said the potential additional closures were “a great setback”. Among those ordered suspended were nickel miners Marcventures Mining and Development Corp and Carrascal Nickel Corp. OceanaGold Corp, the top gold miner in the Philippines, was also facing a suspension. Jasareno said the audit on OceanaGold’s Didipio gold-copper mine showed “damage to houses allegedly caused by blasting and perceived dangers of underground mining”. OceanaGold CEO Mick Wilkes said in an email to Reuters that there had been no environmental violations. OceanaGold later said it had not received a suspension order and that mining was continuing and it would work with the environment agency to avoid any disruption. Reuters
Activity disruption
Greenpeace block Malaysian palm oil company Greenpeace activists yesterday blocked operations of Malaysian palm oil trader IOI at Rotterdam Port, accusing it of forest destruction and child labour, but other traffic at Europe’s busiest port was unaffected, a port spokesman said. Ten activists are blocking IOI, one of the world’s biggest producers and traders of palm oil, from accessing its refinery, and the Greenpeace ship Esperanza is preventing oil from being unloaded from incoming tankers, Greenpeace said. The action, which began mid-morning, was focused only on one mooring place used for palm oil coming from Indonesia. Meeting
Vietnam to host ASEAN Broker Conference The third ASEAN Broker Conference and Networking event will be held in Vietnam’s capital Hanoi on October 6-10, said the Hanoi Stock Exchange (HNX), the organizer, yesterday. The event is expected to draw participation of 28 securities companies in ASEAN, 42 local companies and 133 delegates. Meanwhile, as many as 71 pairs of companies have registered for bilateral meetings to discuss cooperation at the event. The ASEAN Broker Conference and Networking event is organized alternately among the bloc’s country members. The event aims to share experience and boost business and investment cooperation, said the HNX. Minister comments
Monetary meeting quotes
Bank of Korea board members worried over debt The most dovish-sounding member of the six in the minutes said low interest rates were here to stay for an extended period of time South Korea’s central bank board members were worried about growing household debt and the side effects of prolonged low interest rates on the economy during their September 9 policy meeting, minutes showed yesterday.
“Recent changes inside and outside the country call for greater consideration in rate changes”
board member. “Amid slow global growth while export demand is low, we cannot disregard the dangers of policy aiming to shore up growth while boosting inflation, that depends solely on construction and a spike in household debt.” Another board member chimed in on growing household debt, saying it was the biggest economic issue to be addressed as it could result in an exaggerated rise in asset prices and excessive credit growth. He said, however, that household debt was unlikely to become a systemic risk to the financial system
Bank of Korea’s board anonymous member
At the meeting, all of the members voted to keep interest rates at 1.25 per cent for a third straight month after cutting them in June. But the minutes, which are traditionally kept anonymous, displayed a more hawkish tone than in previous months for a majority of the six members whose opinions were disclosed. The seven-member board includes Bank of Korea Governor Lee Ju-yeol, who automatically votes for the majority when and if it is formed. “Recent changes inside and outside the country call for greater consideration in rate changes,” said one
anytime soon. There is also a need to monitor the effect of low interest rates on banks’ falling future profits from interest margins as well as the effects of corporate restructuring on banks, a third board member said. Growth is unstable at the moment, but a fourth member voiced the need to strengthen policies that would minimise the risks that could be sparked by the liquidity brought on by previous interest rate cuts. The most dovish-sounding member of the six in the minutes said low interest rates were here to stay for an extended period of time, but warned if the bank were to stay accommodative for too long due to structural problems it would cause financial imbalances in the economy. The board will next meet to decide policy on October 13. Reuters
Indonesia targets self-sufficient cattle industry Indonesia hopes it will have enough domestic cattle to stop importing within nine years, under a new programme requiring livestock importers to also bring in breeding cattle, the agriculture minister said yesterday. Indonesia abolished its quota system for cattle imports on Monday, allowing firms to bring in livestock as long as there is one breeding animal imported for every five feeder cattle. Since coming to power in October 2014, President Joko Widodo has pursued agriculture self-sufficiency policies to protect farmers, but the result has often been volatile prices and worried investors, eroding support for the government. Private report
Islamophobia is “alive and well” in Australia Sixty per cent of Australians would be concerned if a relative married a Muslim, a new national survey has found. The snapshot of Australia’s attitudes to Islam, released by Melbourne’s Deakin University yesterday, also found that concern about Muslims is double that of any other group. A third of respondents to the study said they would not object to Muslims being more thoroughly searched at airports, and a quarter would support all anti-terror efforts being focused on Muslims. Comparatively, just 8.1 per cent of those polled said they would be concerned if a relative married a Christian.
Bank of Korea Governor Lee Ju-yeol
14 Business Daily Wednesday, September 28 2016
International In Brief Reference rate
Argentina changes inflation target methods Argentina’s central bank will continue to set its policy rate on a weekly basis in 2017 but will no longer tie the rate to short-term Lebac securities, central bank chief Federico Sturzenegger said on Monday. The reference rate will now be the seven-day interbank lending rate, which the central bank will determine weekly. Some analysts had expected the central bank to move to monthly monetary policy decisions, as in many developed economies. “This will give greater stability to reference rate prices,” Sturzenegger told reporters. M&A
Disney, Microsoft among possible Twitter suitors Walt Disney Co and Microsoft Corp joined a list of potential suitors for Twitter Inc, according to media reports on Monday. Twitter shares were marginally down at US$23.33 in after-market trading. The micro blogging service has reportedly started talks with a number of technology companies to sell itself, including Google parent Alphabet Inc. and may receive a formal bid soon. A source told Reuters that Salesforce.com Inc. is also in pursuit. Salesforce is working with Bank of America on a potential bid, a Bloomberg report on Monday said. Microsoft is also among the list of potential suitors. U.S. Senate
Top tax lawmaker targets corporate offshore profits The U.S. Senate’s senior Democratic tax law writer says he will rip up a root of corporate tax avoidance if his party wins Senate control in November, targeting trillions of dollars in tax-deferred profits being held abroad by U.S. companies. In an interview with Reuters, Oregon Senator Ron Wyden said he wants to put an end to a Kennedy-era law that lets U.S. corporations indefinitely hold profits from active business operations offshore without paying U.S. tax on them. Corporate tax avoidance is under trans-Atlantic assault. Ten days ago, the Obama administration imposed another in a series of recent clamp-downs on tax avoidance. African Development Bank
Nigeria to get billion-dollar loan for power and farming The African Development Bank (AfDB) is set to lend Nigeria a total US$4.1 billion over 2016 and 2017, and US$10 billion by 2019, its president said on Monday, to help Africa’s biggest economy plug its budget gap and develop its infrastructure. Akinwumi Adesina said he would go to the pan-African lender’s board next month to seek approval for a first, $1 billion loan to cover this year’s deficit as Nigeria grapples with its first recession in more than 20 years. “The bank is going to provide in total between 2016/2017 US$4.1 billion to Nigeria in various areas,” said Adesina.
Anti-globalization shift
WTO drastically cuts global trade forecast Trade is now expected to grow between 1.8-3.1 per cent
T
heWorldTradeOrganization (WTO) yesterday downshifted its global trade forecast, warning that antiglobalisation rhetoric and Brexit were pushing trade growth to its slowest pace since the financial crisis. The warning comes as talks on a landmark free trade deal between the European Union and United States battle stiff opposition and as Britain’s EU exit causes jitters. The WTO said that global trade was now estimated to expand by just 1.7 per cent this year, compared to its April projection of 2.8 per cent.
“The dramatic slowing of trade growth is serious and should serve as a wake-up call” Robert Azevedo, WTO director general The new figure is also a far cry from a projection a year ago that trade would swell by 3.9 per cent this year. Describing it as “wake-up call”, the Geneva-based global trade body said growth had fallen to its slowest pace in around seven years when the global financial crisis hit. “With expected global GDP (gross domestic product) growth of 2.2 per cent in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009,” the trade body said in a statement. Looking ahead, the WTO said several issues, including Brexit’s possible impact, had now cast a shadow and it had revised down its 2017 forecast. Trade is now expected to grow between 1.8-3.1 per cent, down from the previously anticipated 3.6 per cent, said the WTO, which sets the rules of global commerce.
Also clouding the outlook, the WTO said, is “the possibility that growing anti-trade rhetoric will increasingly be reflected in trade policy” as well as financial volatility due to monetary policy changes in developed countries. Last week, the Paris-based O rg a n i s a t i o n f o r E c o n o m i c Cooperation and Development said Britain - the world’s fifth-biggest economy - was poised to take a major hit next year from its decision to leave the EU. The WTO said that the main impact of the shock vote in June had been on the value of the pound and noted that it had not sparked an immediate economic downturn. But, it added: “Effects over the longer term remain to be seen. Economic forecasts for the UK in 2017 range from fairly optimistic to quite pessimistic.”
‘Anti-globalization sentiment’
The WTO said the downgrade followed a sharper-than-expected decline in merchandise trade volumes in the first quarter, and a smaller-than-expected rebound in the second quarter. The contraction, it said, was driven especially by slowing economic and trade growth in developing economies like China and Brazil.
China’s banking sector debt came into the crosshairs earlier this month of the global central bank watchdog, the Bank for International Settlements, fuelling fresh fears about the world’s second biggest economy. But, said the WTO, North America, which had showed the strongest import growth of any region between 2014 and 2015, was also hit by deceleration. “The dramatic slowing of trade growth is serious and should serve as a wake-up call,” WTO director general Robert Azevedo warned in the statement. “It is particularly concerning in the context of growing antiglobalization sentiment,” he added cautioning against this translating into “misguided policies”. Azevedo also highlighted the negative impact of inequality. “While the benefits of trade are clear, it is also clear that they need to be shared more widely,” he insisted. “We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalised groups in all economies,” he said. “This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth,” Azevedo said. AFP
Financial industry
Fed seeks more capital from big banks Under a plan regional banks would face less scrutiny during the annual stress test. Patrick Rucker
The Federal Reserve will seek significantly more capital from the largest U.S. banks and give some relief to smaller lenders as it updates its annual stress test, Fed Governor Daniel Tarullo said on Monday. The reforms will include a new capital buffer to better protect the financial system from a shock at the nation’s largest lenders like JPMorgan Chase, Bank of America and Wells Fargo. “In pulling this package of modifications together, we have consciously shaped them in accordance with the principle that financial regulation should be progressively more stringent for firms of greater importance,” Tarullo said in a speech at Yale University in New Haven, Connecticut. Under the plan, roughly 25 regional banks including Regions Bank and SunTrust Bank would face less scrutiny during the annual stress test.
Specifically, because of their size, those lenders would be spared a costly review of risk management, internal controls, and governance practices. The largest eight or so U.S. banks would still face such scrutiny. Eventually, they would also be subject to the capital buffer rule. The Fed, which regulates the banking and financial services sector, expects to outline the new capital plan next year. It will not impact the 2017 stress test, officials said.
Regulatory architect
Tarullo has been a key architect of banking rules conceived since the 2007-2009 financial crisis. He helped write the fine print of the 2010 DoddFrank Wall Street reform law. The Fed’s stress test considers how roughly 30 banks could weather a downturn lasting more than two years.
Large banks that pass the test may still have to boost capital reserves if they are deemed “systemically important” to global finance. In July, banks that got a stress test review largely received a thumbs-up from the Fed.
‘The Fed expects to outline the new capital plan next year’ The cut-off for the new capital rule is US$250 billion in consolidated assets. Banks below that threshold would not have to satisfy the new standard. Regional banks have argued for years that they do not deserve the same costly scrutiny faced by the largest Wall Street firms. The Fed on Monday formally proposed the allowance for regional banks and asked for comment by November 25. Reuters
Business Daily Wednesday, September 28 2016 15
Opinion
Resale price of new models are notably lower than previous versions.
So no joke, this guy walks into a Hong Kong iPhone store
G20’s central banks governors meeting earlier this year. Lusa.
Desperate central bankers
Tim Culpan a Bloomberg Gadfly columnist.
A
pparently Apple’s latest gadget may not be selling that well. I know, shocking.
According to a guy who knows a guy who said he saw a report written by someone who heard from somebody, sales of the iPhone 7 are down about 25 per cent on an annual basis when compared to last year’s iPhone 6s. This game of Chinese whispers apparently originates from researcher GfK and is based on data from Asia and Europe. It was reported by Business Insider, who spoke to someone who saw it. Wonderfully enough, GfK went about as close as it could to confirming the data with this reply to Bloomberg News last week: “We did not publish these figures for external release.” Beyond Apple itself, the other big company that’s betting on the success of the iPhone 7 is Foxconn, which gets more than half its US$142 billion in annual sales from Cupertino. It’s not an exaggeration to say that if Apple sneezes, Foxconn catches a cold, with proof coming in the form of slowing sales at Foxconn’s flagship Hon Hai. So far, stock in Hon Hai has climbed 1.94 per cent since the iPhone 7 went on sale. That’s the best start for a full-cycle per cent iPhone since at least One-week price drop the iPhone 4 in of scalped iPhone 7 Plus 2011. Interestingly, it’s still eclipsed by strong post-launch climbs after the halfcycle iPhone 4s and iPhone 5s. This apparent dichotomy can perhaps be explained as a mismatch in expectations. Even before the iPhone 7 came out, the talk was largely negative, with most people dismissing it as not being different enough from prior models to spur users to upgrade. Apple’s slick presentation, backed up with some early data from phone operators, helped investors get caught up in the fan boy euphoria. But reports of a GfK report have now rained on that parade. Backing up the concerns raised by this possible GfK report is some innovative research published by Smartkarma from independent analyst Edison Lee. By visiting Hong Kong’s Sin Tat Plaza, famous for its cluster of phone retailers, Lee this past weekend was able to measure the market for iPhone flipping, which is when people buy iPhones merely to resell them unused to retailers. His conclusion: Excitement about iPhone 7 is dying down rapidly. Backing up this claim is his data, which shows the resale price of a Jet Black 256Gb iPhone 7 Plus fell by 38 per cent in the space of just one week. Whereas once the device was fetching an average HK$21,000 (US$2,700), now it’s HK$13,000 - a mere 56 per cent premium above Apple’s official price. That premium is only possible because the device isn’t available at Apple’s online store. Conflicting signals were seen for other models, with the Rose Gold 32Gb iPhone 7 fetching 2 per cent more than the prior week. Yet, according to Lee, more and more shops in the plaza have completely stopped buying the iPhone 7, and crowds have died down markedly. Of course, anecdotes by one person at one mall in one city can’t tell the full story of the US$155 billion annual market for Apple’s coolest gadget. But with the chatter so bearish, it’s hard not to think investors have been suffering a little iPhone fever. Bloomberg Gadfly
38
T
he final day of the summer marked the start of yet another season of futile policymaking by two of the world’s major central banks – the US Federal Reserve and the Bank of Japan (BOJ). The Fed did nothing, which is precisely the problem. And the alchemists at the BOJ unveiled yet another feeble unconventional policy gambit. Both the Fed and the BOJ are pursuing strategies that are woefully disconnected from the economies they have been entrusted to manage. Moreover, their latest actions reinforce a deepening commitment to an increasingly insidious transmission mechanism between monetary policy, financial markets, and asset-dependent economies. This approach led to the meltdown of 2008-2009, and it could well sow the seeds of another crisis in the years ahead. Lost in the debate over the efficacy of the new and powerful tools that central bankers have added to their arsenal is the harsh reality of anaemic economic growth. Japan is an obvious case in point. Stuck in what has been essentially a 1 per cent growth trajectory for the last quarter-century, its economy has failed to respond to repeated efforts at extraordinary monetary stimulus. Whatever the acronym – first, ZIRP (the zero interest-rate policy of the late 1990s), then QQE (the qualitative and quantitative easing launched by BOJ Governor Haruhiko Kuroda in 2013), and now NIRP (the recent move to a negative interest-rate policy) – the BOJ has over-promised and under-delivered. In fact, with Japan’s real annual GDP growth slipping to 0.6 per cent since Shinzo Abe was elected Prime Minister in late 2012 – one-third slower than the sluggish 0.9 per cent average annual rate over the preceding 22 lost years (1991 to 2012) – the so-called maximum stimulus of “Abenomics” has been an abject failure. The Fed hasn’t fared much better. Real GDP growth in the US has averaged only 2.1 per cent in the 28 quarters since the Great Recession ended in the third quarter of 2009 – barely half the 4 per cent average pace in comparable periods of earlier upturns. As in Japan, America’s subpar recovery has been largely unresponsive to the Fed’s aggressive strain of unconventional stimulus – zero interest rates, three doses of balance-sheet expansion (QE1, QE2, and QE3), and a yield curve twist operation that seems to be the antecedent of the BOJ’s latest move. (The BOJ has just announced that it is targeting zero interest rates for ten-year Japanese government bonds.) Notwithstanding the persistent growth shortfall, central bankers remain steadfast that their approach is working, by delivering what they call “mandatecompliant” outcomes. The Fed points to the sharp reduction of the US unemployment rate – from 10 per cent in October 2009 to 4.9 per cent today – as prima facie evidence of an economy that is nearing one of the targets of the Fed’s so-called dual mandate. But when seemingly solid employment growth is juxtaposed against weak output, the story unravels, revealing a major productivity slowdown that raises serious questions about America’s longterm growth potential and an eventual build-up
“
Stephen S. Roach a faculty member at Yale University and former Chairman of Morgan Stanley Asia.
of cost and inflationary pressures. The Fed can’t be faulted for trying, argue the counter-factualists who insist that only unconventional monetary policies stood between the Great Recession and another Great Depression. That, however, is more an assertion than a verifiable conclusion. While policy traction has been notably absent in the real economies of both Japan and the US, asset markets are a different story. Equities and bonds have soared on the back of monetary policies that have led to rock-bottom interest rates and massive liquidity injections. The new unconventional monetary policies in both countries are obviously missing the disconnect between asset markets and real economic activity. This reflects the aftermath of wrenching balancesheet recessions, in which aggregate demand, artificially propped up by asset-price bubbles, collapsed when the bubbles burst, leading to chronic impairment of overleveraged, assetdependent consumers (America) and businesses (Japan). Under such circumstances, the lack of response at the zero bound of policy interest rates is hardly surprising. In fact, it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.” What is particularly disconcerting is that central bankers remain largely in denial in the face of this painful reality check. As the BOJ’s latest actions indicate, the penchant for financial engineering remains unabated. And as the Fed has shown once again, the ever-elusive normalization of policy interest rates continues to be put off for yet another day. Having depleted their traditional arsenal long ago, central bankers remain myopically focused on devising new tools, rather than owning up to the destructive role their old tools played in sparking the crisis. While financial markets love any form of monetary accommodation, there can be no mistaking its dark side. Asset prices are being manipulated across the board – stocks and bonds, long- and short-duration assets, as well as currencies. As a result, savers are being punished, the cost of capital is repressed, and reckless risk taking is being encouraged in an income-constrained climate. This is especially treacherous terrain for economies desperately in need of productivity-enhancing investment. And it is not dissimilar to the environment of assetbased excess that incubated the 2008-2009 global financial crisis. Moreover, frothy asset markets in an era of extreme monetary accommodation take the pressure off fiscal authorities to act. Failing to heed one of the most powerful (yes, Keynesian) lessons of the 1930s – that fiscal policy is the only way out of a liquidity trap – could be the greatest tragedy of all. Central bankers desperately want the public to believe that they know what they are doing. Nothing could be further from the truth. Project Syndicate
The new unconventional monetary policies in both countries (Japan and United States) are obviously missing the disconnect between asset markets and real economic activity.
”
16 Business Daily Wednesday, September 28 2016
Closing Prices preview
Nation’s inflation forecast at 1.6 per cent China’s Consumer Price Index (CPI) in September is likely to increase 1.6 per cent year on year, higher than 1.3 per cent in August, an industry report said yesterday. The official CPI for September is due to be released by the National Bureau of Statistics (NBS) on October 14. The Bank of Communications (BOC) said in a report that the expected rise is due to food prices, which account for around one-third of the CPI calculation. Food prices will post an increase of between 1.9 and 2.4 per cent
year on year in September, with prices of vegetables, eggs and meat all increasing, said the report. BOC expects the CPI to remain stable throughout the remainder of the year, but will see temporary increases in October and November as the National Day holidays in October will push up food prices. China’s CPI grew 1.3 per cent year on year in August, down from July’s 1.8 per cent, according to the NBS. The August data dropped for the fourth-consecutive month from 2.3 per cent in April, when the CPI reached its highest level since July 2014. Xinhua
Bond
Asian hunger for yield tested by junk-rated casino bond plan Hong Kong-listed casino operator Imperial Pacific is planning to sell dollar bonds for the first time for its Saipan gaming business. Lianting Tu and David Yong
I
nvestors are so hungry for yields in Asia’s junk bond market that even some of the riskiest firms are coming to market. Imperial Pacific International Holdings Ltd. plans to sell dollar bonds for the first time to fund its casino resort on Saipan Island, a U.S. territory in the Pacific Ocean, according to a bond document. The Hong Kong-listed company, whose receivables tripled in the first half on unpaid bills of VIP gamblers, had enough cash to cover just 18 per cent of its short-term debt as of June 30, the document
shows. The bond is rated B1, four steps below investment grade by Moody’s Investors Service. “This is a real gamble due to its short track record and execution risk,” said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore. “The valuation on Asia junk bonds is becoming very stretched so the margin of error is very thin.” Yields on Asian junk-rated dollar notes have declined 288 basis points this year to a record low 6.34 per cent on September 23, according to a Bank of America Merrill Lynch index with data going back to 1996. Asian companies excluding Japan have sold
US$13.8 billion (MOP110.4 billion) of non-investment grade securities in dollars, euros and yen this year, up 41 per cent from a year earlier, Bloomberg-compiled data show.
Casino plans
A call to Imperial Pacific’s general line went unanswered. Shen Yan, president of global capital market at Imperial Pacific, declined to comment. An e-mail to Leo Chan, chief financial officer at the company, went unanswered. It’s early days for the company, which has been operating a temporary resort since November. Cui Lijie, Imperial Pacific’s current major shareholder, bought a Chinese food processing company in September 2013 , cha n g e d i ts n a m e a n d announced the Saipan casino licence in August 2014. Its plans include a 16-storey hotel with 329 rooms and a 221 gaming table casino, according
to the document. Casinos have been opening around the Asia-Pacific region in the past two decades targeting Chinese tourists. Genting Singapore Plc, which operates Resorts World Sentosa in the city, is set to open a resort in Jeju, South Korea, late next year, according to its earnings report. Hong Kong-listed NagaCorp Ltd., a casino operator in Phnom Penh, Cambodia, completed a share placement earlier this month to raise HK$950 million ($122 million) and its stock is up 207 per cent in five years.
Winners and losers
While the red-hot market has allowed weaker companies to sell bonds, their performance has been mixed. Notes issued by Hua Han Health Industry Holdings Ltd. have slumped 7.3 per cent since their June debut. Fitch Ratings cut its debt in August to four steps below investment grade. Chinese developer Oceanwide Holdings International Ltd., rated five levels below investment grade by S&P Global Ratings, has returned 6.2 per cent since a fundraising in May. Trade receivables more than tripled to HK$3.7 billion in the first half, equivalent to almost 91 per cent of its revenue in the period, the bond document shows. Lucror Analytics said the sponsors of the project may lack the “robustness” to offer support should problems emerge. “The proposed issuance highlights challenges faced by investors when markets start to overheat,” said Charles Macgregor, head of Asian high-yield research at Lucror in Singapore. “The urge to increase yield by adding risk needs to be tempered by a more rational assessment. Bloomberg News
Real estate
Forex regulator
Eurozone
Brexit may spark ‘substantial’ London home correction
Mainland’s outstanding foreign debt up
Loan growth in private sector pauses
London’s housing market faces severe price declines if the U.K.’s vote to leave the European Union triggers an extended period of economic weakness, according to UBS Group AG. A severe recession could halt the “unsustainable price growth fuelled by ample liquidity and tight supply,” UBS said in a report accompanying its Global Real Estate Bubble Index. London is one of six cities, led by Vancouver, considered at risk of a bubble because prices have increased by an average of 50 per cent since 2011, according to the report. “What these cities have in common is excessively low interest rates, which are not consistent with the robust performance of the real economy,” Claudio Saputelli, head of global real estate at UBS Wealth Management’s chief investment office said in an e-mailed statement. “When combined with rigid supply and sustained demand from China, this has produced an ideal setting for excesses in house prices” Homes in the U.K. capital have increased at a double-digit rate each year since 2013, decoupling prices from local earnings, according to the report. Bloomberg News
China’s outstanding foreign debt rose about US$30 billion in the second quarter to US$1.39 trillion, the foreign exchange regulator said yesterday. Foreign debt at end-June increased about 2.2 per cent from US$1.36 trillion at end-March, after a 3.6 per cent drop in the first quarter, the State Administration of Foreign Exchange (SAFE) said on its website. SAFE said it expected the size of China’s foreign debt to remain stable. Short-term foreign debt stood at US$867.3 billion at end-June, accounting for 62 per cent of total debt and up about 2.1 per cent from end-March, the regulator said. Medium- and long-term debt, which made up for 38 per cent of total debt, unchanged from the end of the first quarter. Yuan-denominated foreign debt made up 43 per cent of total foreign debt, compared with 44 per cent at the end of March. The yuan has slipped about 2.7 per cent against the dollar so far this year. Reuters
Credit growth to the private sector in the euro area was steady in August, ECB data showed yesterday, boosting expectations that the bank will refrain from adding firepower to monetary policy for now. Many of the European Central Bank’s measures aim to make access to credit easier, allowing people and businesses to invest and contribute to growth - making the lending statistics a key measure of their effectiveness. August saw approved loans increase 1.3 per cent compared with the same month in 2015, the same pace as in July - when loans grew only slightly more strongly than in June. Corrected for some strictly financial transactions, loan growth to households and companies remained stable at 1.7 per cent in August, the Frankfurt institution said. Since Britons voted to quit the EU in June, ECB policymakers have not added to measures designed to boost lending to households and businesses despite fears of an economic slowdown in the single currency bloc. Meanwhile, growth in the overall money supply, known as M3, sped up, reaching 5.1 per cent in August. AFP