Ho Chio Meng’s pre-trial request accepted Court Page 2
Monday, October 3 2016 Year V Nr. 1143 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Anti-graft
www.macaubusinessdaily.com
Tourism
CCAC goes after Alto De Coloane home project Page 4
Finance
Golden week visitors down Page 3
China’s currency to become part of IMF’s reserves basket Page 10
New supply paying off Gaming
Macau’s casino revenue achieved another year-on-year growth figure in September, up by 7.4 pct. The second consecutive monthly increase after a 27-month slump is thanks to the openings of Wynn Palace and The Parisian Macao, analysts say. They expect the trend to continue going forward, but growth in October may not be so robust, due to the possible visit of China’s Premier Li Keqiang. Page 5
Shills and loans in Las Vegas
MSAR lacks insurance awareness
High rollers How can two Chinese housekeepers owe US$6 million to a Las Vegas casino? A complicated case casts some light on the twisted clockwork that allows Mainland high rollers to gamble in the famous destination and fly under the radar. Pages 8 & 9
The depth and density of insurance is still very low in Macau, Jiang Yidao, president of Macau Insurer’s Association, tells Business Daily in an interview. While the Hong Kong life-insurance sector is targeting the Chinese market, the MSAR cannot he says, due to a lack of talent and limited size of the local market.
Retailers strong enough
Retail The city’s luxury retailers can survive, brokerage firm Sanford C. Bernstein says in its latest report. The sector’s differentiated offerings will ultimately be a benefit, as visitors indicate that shopping and visiting local restaurants are primary reasons for coming to the MSAR, the report says. Page 5
More Koreans, fewer Chinese Insurance Pages 6 & 7
HK Hang Seng Index September 30, 2016
23,297.15 -442.32 (-1.86%) Worst Performers
China Merchants Port Hold-
+0.49%
Wharf Holdings Ltd/The
-0.70%
Bank of East Asia Ltd/The
-4.12%
Bank of Communications
-3.27%
CLP Holdings Ltd
+0.00%
BOC Hong Kong Holdings
-0.76%
China Shenhua Energy Co
-4.05%
AAC Technologies Holdings
-3.17%
Link REIT
-0.09%
Lenovo Group Ltd
-0.77%
China Resources Land Ltd
-4.00%
Industrial & Commercial
-2.81%
China Petroleum & Chemical
-0.53%
PetroChina Co Ltd
-0.78%
China Life Insurance Co Ltd
-3.38%
China Unicom Hong Kong
Sino Land Co Ltd
-0.58%
MTR Corp Ltd
-0.93%
China Mengniu Dairy Co Ltd
-3.36%
China Mobile Ltd
-2.51% -2.44%
25° 30° 25° 30° 25° 31° 26° 30° 26° 31° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Tourism Total package-tour visitors were down 20.6 pct y-o-y in August, due to those from Mainland China decreasing by 24.9 pct y-o-y. But the MSAR saw more Korean tourists arriving on tours in August, soaring by 146.3 pct y-o-y. Page 3
2 Business Daily Monday, October 3 2016
Macau In Brief Business
Hong Kong billionaire Cheng Yu-tung dies aged 91 The billionaire founder of Hong Kong property group New World Development Co Ltd, Cheng Yu-tung, died late on Thursday aged 91, the company said last Friday. Mr. Cheng amassed a fortune of over US$16 billion (MOP128 billion) building an empire that spans jewellery, real estate, hotels, infrastructure and telecommunications. He is also known for making Chow Tai Fook Jewellery Group Ltd, which he joined as a trainee in 1947, a household name across Asia. Mr. Cheng, who was born in China’s southern province of Guangdong, died peacefully with his family at his side, New World said in a statement, without elaborating on the cause of death. He is survived by his wife Chow Tsui Ying and four children. The tycoon was a golfer and poker player with a reputation for being soft spoken and friendly. His friends included other Hong Kong billionaires including Lee Shau Kee, chairman of Henderson Land Development Co Ltd, and Macau casino mogul Stanley Ho. Reuters
Court
Central Steel license abolished The Court of Final Appeal last week turned down an appeal from Central Steel (Macao Commercial Offshore) Ltd (CSM) attempting to overturn the government’s abolition of its license. CSM is a subsidiary of Hong Kong-listed company – China Metal Recycling (Holdings) Ltd (CMR). The Securities and Futures Commission of Hong Kong discovered that CMR had been falsifying the majority of its annual revenue figures and official documents from 2007 to 2012. In the meantime, CSM was penalised by the Macao Trade and Investment Promotion Institute for the late submission of its annual audited financial report, despite the fact that the company had been granted extended time for the submission. Moreover, CSM was not able to submit its financial statements during its appeal at the Court of Final Appeal, as required by the offshore business law. C.U. Hotel
Chinese budget hotel chain enters local market Mainland Chinese budget hotel chain operator Jinjiang International Hotel (Holdings) Co Ltd. has signed a franchise agreement with local firms to launch its first budget hotel, Jinjiang Inn in Macau, Mainland Chinese newspaper Beijing Business Today reported. The news report stated that the company’s new hotel project in the city will be worth HK$430 million (US$53.5 million). The property, occupying 450 square metres, will include 21 floors and two basement levels, and will provide a total of 144 hotel rooms. The construction of the project began in late 2014 and is expected to be completed by the end of 2017 or early 2018. A.L.
Justice
Former top prosecutor corruption case to be pre-trialled Ho Chio Meng’s pre-trial request has been accepted by the Court of Final Appeal. The pre-trial is scheduled for after the new judiciary year which begins on October 19.
T
he city’s former ProsecutorGeneral Ho Chio Meng, who has been in custody since February, applied for pre-trial at the end of last month and his request has now been accepted by the Court of Final Appeal, said the president of court, Justice Sam Hou Fai. Mr. Sam said the pre-trial will take place at the earliest when the courts resume work after the summer holidays and begin the next judiciary year on October 19. The process of the pre-trial is expected to take around two months, Mr. Sam told reporters on the sidelines of the National Day reception on Saturday. The president of the city’s top court added that he is not aware of the exact pre-trial date or the details of the supporting documents, as Portuguese-national judge Viriato Lima is in charge of the case. Mr. Sam said that during the pretrial, which won’t be open to the public, the court would examine the evidence. If the pre-trial judge decides there is not enough evidence, the case will be dismissed and the suspect will be released immediately. As the pre-trial is to be undertaken by the Court of Final Appeal, such a decision cannot be overturned and is not subject to any further appeal. However, if there is enough evidence, the case will officially go
Protests
to trial. The former Prosecutor-General is accused of colluding with local businessmen by awarding some 2,000 public contracts of the Public Prosecutor’s Office by illicit
600 Pearl Horizon homebuyers take to the streets
National Day Protests Some 900 residents joined the rallies last Saturday. Annie Lao annie.lao@macaubusinessdaily.com
A
means between 2004 and 2014. The Commission Against Corruption (CCAC) has said suspects in the case illegally gained at least MOP44 million (US$5.5 million) through the deals.
total of five local groups and one local resident staged protests on the National Day, of which the biggest group was a gathering of some 600 claimed home buyers of the uncompleted high-end residence Pearl Horizon. According to local broadcaster TDM radio, the group of some 600 Pearl Horizon homeowners marched to the government headquarters last Saturday, urging the government to carry out financial actions against the project’s developer, Polytec Asset Holdings Ltd, in order to protect the interests of the buyers. The president of the Pearl Horizon Condominium Owners United Association, Kou Meng Pok, told reporters that the homeowners had tried to push the government in different ways in order for the authorities to deal with the unfair situation that the buyers are facing. “The developer and the government should provide resolutions for protecting the buyers’ interests. We urge the government to strictly
enforce the developer to halt its transferal of assets so as to avoid the developer falling to bankruptcy,” the news outlet quoted Mr. Kou as saying. In December last year, the land concession of the plot for the residential project was announced as invalid by the government, as the developer had failed to complete the project before its 25-year temporary land concession on the plot expired. Meanwhile, the Office of the Secretary for Administration and Justice responded in a statement on Saturday afternoon, saying that the government has been following up the progress of the case. But the statement stressed that the nature of the matter is an interest dispute between the homebuyers and the developer that could only be resolved by legal means. The Office added that it is still waiting for the court’s ruling on the case, claiming the government would protect the interests of buyers based on the current legislation, no matter what the ruling is.
Local workers protest
Four other local associations, including the Macau People’s Power
Association, the Macau Democratic Action Association, the Macau Iron bar Union and the New Macanese Dreams’ Association, jointly staged a protest on the same day. The groups gathered at the Iao Hon Garden, marching along Rua do Campo, and ending up at the government headquarters to petition the government to protect local employment. The rally attracted some 300 participants who demanded the government reduce the import of non-resident workers to the city, combat illegal workers and increase local construction workers’ wages, in addition to urging the government to build more public housing. Some of the iron bar workers complained about a lack of work due to their jobs being filled by non-resident or illegal workers, according to TDM Radio. “Sometimes we have work to do. But when we have no work, we will be put on holiday. Our work would be assigned to non-resident workers instead,” the broadcaster quoted one of the workers as saying. In addition, another protest staged by a local resident complained about the lack of law enforcement in the city, and urged the government to pay more attention to the issue. According to PSP, a total of 150 police were dispatched to patrol during the protests. The police concluded that all the protests were peaceful and took place in an orderly manner.
Business Daily Monday, October 3 2016    3
Macau
Tourism
Korean package tours soar More Koreans visited the city on package tours in August, and vice versa. Cecilia U cecilia.u@macaubusinessdaily.com
I
n August, Macau saw the number of Korean tourists on package tours register the highest growth, soaring by 146.3 per cent year-on-year to
32,000, whilst the opposite was also true, with Macau tourists to Korea surging by 580.4 per cent year-onyear to 3,900, according to the latest figures released by the Statistics and Census Service (DSEC) last week. The data shows that the number of visitors to Macau on package tours
totalled 728,000 in August, a decrease of 20.6 per cent year-on-year, as those from Mainland China, the major origin of package-tour visitors, fell by 24.9 per cent year-on-year to 523,900. In addition, the number of tourists on package tours from Taiwan was down by 11.1 per cent year-on-year to 24,200 in the month, compared to 46,000 during the same month in 2015.
Tourism
Visitor arrivals on Oct 1 down 8.7 pct The first day of the National-day Golden Week attracted a total of 134,481 visitors to the MSAR, a decrease of 8.7 per cent year-onyear, according to data published yesterday by the Macau Government Tourist Office (MGTO). Of the total visitors, 109,011 visitors were from Mainland China, representing a decline of 11.9 per cent year-on-year. The Border Gate recorded the highest number of visitor arrivals compared to other ports of entry to the city, with a total of 97,691 entries recorded, accounting for 73 per cent of the total. The second most popular entry port for tourists was the Outer Harbour, where 12,633 arrivals were recorded, accounting for 9.4 per cent of the total. Most of the Mainland Chinese visitors - 91,692 - arrived at the city
through the Border Gate on the first day of the holiday, accounting for 84 per cent of total Mainland Chinese visitor arrivals. The data from MGTO also comprises the arrivals of non-resident workers
Aviation
MSAR, Turkey ink air services agreement The Macau Civil Aviation Authority (AACM) signed a bilateral Air Services Agreement (ASA) with the Republic of Turkey yesterday in Montreal, Canada, according to a press release published by the AACM yesterday. The agreement, based on the most liberal standards set by the International Civil Aviation Organization (ICAO), aims to foster the development of the air transport markets between the two regions. The President of AACM, Chan Weng Hong inked the agreement with the Directorate General of Civil Aviation (DGCA) of Turkey, Mr. Bilal Eksi
during his attendance at the 39th ICAO Assembly as part of the China delegation. The agreement will allow the two regions to have multiple designated airlines enjoying no restrictions on capacity in scheduled passenger and cargo flights. In addition, the two cities will also enjoy the fifth freedom traffic rights with no restrictions on the number of stops to be served. Until now, Macau has signed ASAs with 49 foreign countries. A total of 30 local and foreign airlines now operate in the Macau International Airport, connecting the city to a total of 45 destinations. A.L.
and students, the Office noted. Meanwhile, some other 29,700 border-crossings had been recorded as of 5pm yesterday, the Public Security Police Force said. According to the data, 21,700 of the total crossings were registered at the Border Gate, with arrivals from Mainland China accounting for 11,500 of the total crossings. A.L.
In terms of outbound travel, the total number of local residents using the services of travel agencies decreased by 17.3 per cent year-onyear to 190,000 in August. In addition, those travelling on package tours dropped by 27.7 per cent year-onyear to 41,000. According to the DSEC, the decrease in the number of outbound residents travelling on package tours was due to the decline in residents travelling to Mainland China, which decreased by 37 per cent year-on-year to 28,000. In addition, those travelling on package tours to Taiwan also fell by 14 per cent year-on-year to 2,700. As at the end of August, the number of hotels and guesthouses operating in the city totalled 105, indicating an addition of three compared to the same month of 2015. The DSEC data indicates that some 1.08 million guests checked-in to hotels and guesthouses in August, posting a month-on-month increase of 3.3 per cent, or year-on-year increase of 7.7 per cent. The number of hotel guests from Mainland China, Hong Kong and Taiwan saw year-on-year increases of 5.5 per cent, 14.3 per cent and 11.8 per cent, respectively. Meanwhile, the number of Korean guests staying in the city surged by 40.3 per cent year-on-year in the same month. The average occupancy rate of local hotels and guesthouses was 90.3 per cent in August, with 4-star hotels taking the lead with rates of 92.3 per cent, up by 7.3 percentage points year-on-year.
4 Business Daily Monday, October 3 2016
Macau Opinion
Sheyla Zandonai
National Day
CE prioritises local employment, SMEs The city’s top official says his government will strive to keep the jobless rate low. Nelson Moura nelson.moura@macaubusinessdaily.com
On foot In the early 1990s, the departing Portuguese administration decided – somewhat secretively – to pave the area in front of the Senado building in central Macau, thereby converting the traffic roundabout into a square covered with cobblestones in the now-distinctive Portuguese sea-pattern. They faced popular resistance and distrust at that time. Shopkeepers were dubious about the impact of prohibiting private cars and public transportation from entering the area: it could be bad for business. Many years later, this decision of the controversial urban project has proven its commercial value. Patronage increased, and businesses profited from the growing influx of visitors – though it is true that small and medium enterprises have been gradually replaced by those chain stores that are more able to afford gradually rising rents. For better or worse, it seems it is good for business to be located in Senado Square today. Needless to say, eliminating vehicular traffic has produced another type of traffic: the square is inundated with a seething mass of human beings on a daily basis. But that’s another matter. Car-free zones yield many benefits: less noise and lower air pollution, for instance, benefiting healthier lives. It is simple common sense that people should walk more. But, as Voltaire once said, common sense is not that common. So car enthusiasts, automobile manufacturers, government bureaucrats, and construction companies still resist progress toward more sustainable cities – that is to say, car-less cities. Macau’s government has made efforts to provide better pedestrian facilities, increasing the number of flyovers and underground passageways, allowing residents to walk more freely if they choose not to drive. However, it is just unwilling to embark on the hectic bus “races” of which drivers force passengers to endure every day. But such strategies still prioritize vehicles in city planning. A much more environmentally-friendly approach would be to invest in the development of pedestrian areas and greenery – lots of it, as Macau’s climate can sometimes be merciless on city dwellers. Public gardens are extremely well maintained. More of these would be a visual delight, and greatly welcomed by our lungs and hearts. Greener streets combined with fewer cars, and perhaps most importantly, pollution-free public transportation, would engender a much cleaner, pleasanter, and cooler environment for the city as a whole. What about taking on the area between the Old Court Building and New Yaohan? I may be wrong, but that seems like a strong candidate for conversion into a pedestrian zone.
Sheyla Zandonai is a scholar and contributor to this newspaper.
C
hief Executive Fernando Chui Sai On stated that the city’s economy is still under “adjustment,” noting the government will continue to focus on helping local SMEs, optimizing local human resources and boosting the MSAR as a platform between China and Portuguesespeaking countries. “For the first half of the year, the Gross Domestic Product (GDP) suffered a contraction of 10.3 per cent, which is significantly narrowed compared to that for last year. We will continue dealing the situation with the determination to guarantee a stable development [for the local economy],” the top official said in his speech at the reception celebrating the 67th anniversary of the establishment of the People’s Republic of China on Saturday. The Chief Executive also stated the MSAR government has paid “particular attention” to the operations of local SMEs and the employment of citizens. “We have been carrying out measures in order to stabilise local employment and to optimize the city’s manpower,” the top official said, adding the government will ensure that the city’s unemployment
rate continues to hover at a rather low level. As at the end of August, the SAR’s unemployment rate remained stable at 1.9 per cent. On the other hand, Mr. Chui claimed in his speech that the government would speed up the process of diversifying the city’s economy. “We will continue boosting the development of the Meetings, Incentives, Conferences, and Events (MICE) sector, the Traditional Chinese Medicine and cultural industries, as well as spurring new initiatives of special financial activities, community economy and youth entrepreneurship,” the CE stated.
Portuguese Platform
In addition, the top official also underlined the importance of the city building its role to be a platform between Mainland China and Portuguese-speaking countries. N o t i n g t h e 5 t h M i n i st e r i a l Conference of the Forum for Economic and Trade Cooperation between China and Portuguesespeaking Countries, which is to take place in the city on October 11 and 12, he urged all relevant parties to prepare well for the forum in order to “strengthen Macau’s position and effect as the platform”. The Portuguese consul-general to
Macau and Hong Kong, Vitor Sereno, agrees with the Chief Executive that the forum will bring significant meaning to the city. “As a representative of Portugal, my assessment is that so far the cooperation between the MSAR, Mainland China and Portugal has been excellent in diplomatic terms,” he told Business Daily on the sidelines of the flag-raising ceremony at Golden Lotus Square. The Portuguese diplomat also considers the presence of Portugal’s Prime Minister Antonio Costa at the upcoming Ministerial Conference will be “extremely symbolic” for Macau’s role as a Sino-Luso platform.
The celebration
The celebrating event of the 67th anniversary of the establishment of People’s Republic of China saw the presence of many representatives of the Mainland China government and the MSAR, such as the Central Government Liaison Office, the Commissioner of the Ministry of Foreign Affairs as well as the local garrison of the People’s Liberation Army. The event involved cultural, sporting and fireworks performances after the flag-raising ceremony. Meanwhile, the National Day Celebration Running March also took place at the same time as the ceremony, with the CE chairing the departure and presenting the prizes.
Land disputes
CCAC to investigate Alto de Coloane residence project The anti-graft body says it has enough grounds to investigate the project being developed by local businessman Sio Tak Hong. The Commission Against Corruption (CCAC) has opened a file on the luxury residential project on Estrada do Campo in Coloane, the commissioner André Cheong Weng Chon said on Saturday. Following the National Day celebration reception, the anticorruption body head told reporters that CCAC found it has sufficient grounds to follow-up the case. “As the case involves many documents that date back to [the twentieth century], it requires more time to study,” Mr. Cheong
told the press. The controversy surrounding the project relates to questions as to why the government would have given the greenlight to the developer to build the 100-metre high project in 2011, despite the fact that it is located in Coloane, where height restrictions require that most of the architectural projects not exceed a 90-metre threshold. In March this year, local pandemocratic group New Macau Association petitioned the anticorruption body to investigate
whether the Land, Public Works and Transport Bureau had been involved in any wrongful actions such as misadministration or benefit transferring, when it granted the greenlight for the project. The developer of the project is Win Loyal Development, a company controlled by local businessman Sio Tak Hong. Meanwhile, the commissioner told reporters that CCAC is still considering whether there are grounds to open a file relating to complaints regarding a land concession for a quarry-plot in C oloan e in volvin g Executive Council member Liu Chak Wan. One of the complaints was filed by pan-democrat legislator Au Kam San. N.M.
Business Daily Monday, October 3 2016 5
Macau
Gaming September casino revenue increased 7.4 pct y-o-y
Into the recovery But analysts are concerned that the possible visit of Chinese Premier Li Keqiang next week will prevent October from posting robust growth. Kam Leong* kamleong@macaubusinessdaily.com
T
he city’s casino revenue posted a second consecutive month of growth in September following a 27-month slump, with figures up by 7.4 per cent year-on-year to MOP18.4 billion (US$2.3 billion). Compared to MOP18.8 billion in August, last month’s casino revenue decreased by 2.3 per cent. Accumulative revenue for the first three quarters of the year, meanwhile, dropped by 7.5 per cent year-onyear to MOP162.8 billion. Secretary for Economy and Finance, Lionel Leong Vai Tac noted last Saturday that Macau might still be affected by fluctuating external factors, claiming the government
would continue to monitor the situation closely. The official added that the rebounding of casino revenue in August which delivered growth of 1.1 per cent year-on-year - reflects changes in the city’s tourist market, with the recent openings of new casino-resorts as well as new non-gaming offerings in the past two months. Analysts also credit the rebounding growth to the openings of Wynn Palace and The Parisian Macao. Grant Govertsen at Union Gaming wrote in a note on Saturday that ‘September 2016 benefitted from one extra Friday, and, of course, from the benefit of new supply of Wynn Palace and Parisian Macao’.
Li’s visit to dampen growth
Predicting casino revenue for October,
the analyst, however, anticipates that performance may not be as good as that of September, despite the positive impact of the Golden Week of the National Day, due to the possible visit of Chinese Premier Li Keqiang next week. ‘We are pleased with the direction of gross gaming revenue and we are generally looking for positive year-on-year trends going forward,’ Mr. Govertsen wrote. ‘However, we believe it’s likely that October’s year-on-year growth rate will be less robust than September given the visit to Macau by China’s Premier, Li Keqiang’. The Chinese Premier is expected to attend the 5th Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries, which is to take place in the city on October 11 and 12. However, the schedules of China’s top leaders are considered secret, and his trip has not been confirmed by the country’s foreign ministry.
The MSAR government spokesperson, Victor Chan Chi Peng, would only confirm to reporters on Saturday that national leaders would be chairing the Luso-Sino forum. However, he declined to reveal names, claiming the list would only be announced by the Chinese State Council. A potential visit from a senior government official “is unlikely to bode well for VIP revenue,” according to a September 27 note by HSBC Holdings Plc analyst Charlene Liu, while Credit Suisse’s Kenneth Fong wrote earlier this month that Mr. Li’s possible presence “raises concerns about traffic control around the trip”. Still, some investors are speculating that supportive policies might be announced by the Beijing official during his visit, as recently eased procedures for business visas for conventions “signal that the central government is more supportive to Macau, especially on the development of non-gaming activities,” Fong wrote. On the other hand, Secretary Leong said on Saturday that the government is confident of generating MOP200 billion in casino revenue for the whole year of 2016 as it has forecasted. *With Bloomberg
Retail
Bernstein: Luxury retail can survive Analysts believe that the city’s retail market, especially the luxury sector, is strong enough to face the long-term risks. Cecilia U cecilia.u@macaubusinessdaily.com
Brokerage firm Sanford C. Bernstein Co. LLC believes that the MSAR’s retail market, in particular for luxury goods, is strong enough to cope with the city’s long-term risks. The firm’s analysts, led by Vitaly Umansky, explained that ‘a critical mass of differentiated retail offerings’ would be able to attract tourists to visit Macau, and lead expenditure on accommodation, food and beverage, and desirably, gaming, despite the modest amount of revenue and profit generated by the retail sector itself. The view is supported by a survey conducted by the group, which shows 23 per cent of Macau’s visitors identifying shopping, and 36 per cent identifying restaurants or food, as their main reasons for visiting the city. In fact, the investment firm expects that Macau will exceed Hong Kong in attracting tourists in the future. It is also confident about Macau’s retail market in the years ahead, despite the fact that the retail sector in the city has been suffering, along with retail in the neighboring SAR. ‘We believe that in the future, the tale of the two cities [Hong Kong and Macau] will be different, with Macau outperforming Hong Kong given its on-going change of paradigm to broaden the appeal of the city beyond gambling,’ stated Bernstein.
In addition, according to a database by Bernstein Proprietary Store Count, the number of luxury brands present in Macau has already exceeded Spain, Canada and Las Vegas, demonstrating the city’s established nature in luxury retailing, as well as positioning Macau as one of the most profitable markets in the world for the group’s coverage companies.
Risks in the city
Nevertheless, the firm’s analysts identified that Macau’s domestic population is too small to cope with its concentrated luxury store franchise.
They reckon such high concentration could raise the question of profit cannibalization. ‘Most tourists stay in their resorts during the entire visits given their short length of visits. Combined with the ever more encompassing l o y a l t y p r o g ra m s, g u ests a r e almost “captive” consumers for the hotel compound,’ the analyst wrote. They indicated that brands are thus selective in choosing openings of new projects, noting those deemed unsuited to a brand’s style will struggle. ‘Like we saw in Studio City who had to contribute significant initial fitting costs,’ they said. Meanwhile, the firm noted that many retailers have been struggling to hire sufficient high standard personnel to sustain their franchise growth in the city, with unclear
guidance for quotas on domestic and foreign labour ratios. Yet it perceives the situation can improve if the government allows more workers from Mainland China to enter the labour force. With the growth of other countries engaging in the gaming industry, Macau is facing strong competition from cities such as Manila, the brokerage firm said. It remarked that Chinese officials are now more attracted to go to other cities to gamble, due to recent reports about the arrest of some Chinese officials by China’s secret police in Macau, accused of corruption. However, the analysts added that the recent geopolitical strains between Mainland China and the Philippines in the South China Sea might weaken the attraction. Th e y a l s o b e l i ev e that th e MSAR government’s policies and investments in new projects and developments can offset the current risks in the city.
6 Business Daily Monday, October 3 2016
Macau Insurance Local insurers appeal for better awareness of insurance
“Insurance depth and density is still very low in the city” In Macau, the depth and density of insurance is still very low due to a lack of awareness in society, says Jiang Yidao, President of the Macau Insurers’ Association and Managing Director of China Taiping Insurance (Macau) Company Ltd. With its limited size and lack of talent, Macau’s life insurance sector can’t go after the Mainland Chinese market, and instead must focus on penetrating the local market where great potential still exists. With Macau’s economic downturn and the completion of major construction projects, the property insurance sector is facing hard times, and even anticipating negative growth. But Mr. Jiang believes, once the gaming industry recovers, other sectors could flourish as well and one day help to achieve Macau’s goal of being a World Tourism and Leisure Centre. Joanne Kuai joannekuai@macaubusinessdaily.com Photos by: Cheong Kam Ka
M
acau-licensed vehicles are expected to be able to travel to Hengqin freely by the end of the year. How are local insurers preparing for this? The integration between the Macau Special Administrative Region (SAR) and Mainland China is a major trend, especially under CEPA (the Closer Economic Partnership Agreement). There is a wider range of co-operation between the two places. The connection between Zhuhai and Macau presents a great opportunity for Macau’s development. When Macau people and vehicles travel to Hengqin freely once the border is opened, due to Hengqin’s positioning as a special zone within a special zone (Free Trade Zone), it will benefit both places. The local insurance industry has been preparing for the day when Macau single-licensed vehicles can enter Hengqin freely, as well as the Monetary Authority of Macau (AMCM) and Macau Insurers’ Association (MIA). I believe the industry has made adequate preparations so that once the SAR government and the Mainland authorities reach a final consensus, we can provide the services and products to Macau residents immediately. What are the major challenges in doing cross-border insurance business? There are two main areas. Firstly, it will be a change in administration and management. In order for vehicles from both Macau and the Mainland to purchase insurance products in either place, the governments and supervisory bodies from both sides must make some breakthroughs in terms of policy-making and co-ordination in the some framework arrangements. Secondly, local insurance companies
have basically never been an agent for sales of insurance products from the Mainland. We have to provide services for Macau residents in order for them to purchase Mainland vehicle insurance and have a better guarantee now. This will be challenging for local companies, especially later, as it will involve compensation services. Macau insurance companies have no experience in this. There is a tremendous amount of work to be done as well. On one hand, it’s the change in business system. On the other hand, it’s the practical operation difference. There are different ways of practicing the insurance business in the Mainland and Macau. Now it has to be integrated. We have to co-operate with Mainland Chinese companies as well. In addition, capital flows are not completely free between the two places. It will need the supervisory bodies, AMCM and the People’s Bank of China (PBOC) to allow the flow of the premiums and the compensation. There is a series of work. This involves financial innovation that both sides have been talking about. What can we expect from this innovation? It depends how far the government wants to go. The insurance industry is an indivisible part of finance and the economy. The innovation of the insurance industry alone is very difficult. It has to be connected to banking, securities, financial leasing or other forms of financial products. Only through integrating with all these, can insurance companies be innovative. In terms of the development of the local insurance industry, I believe there are two key points: it has to rely on the development of Macau’s economy as well as the diversification of it, otherwise insurance will only be ‘a castle in the sky’, with nothing to be insured; Secondly, it’s the diversification of the overall financial
sector in Macau. Without the development of the local economy and financial sector, the development of the insurance industry will be largely constrained. Of course, we have been making an effort, such as enhancing co-operation with Mainland insurance companies, in communication in regards to providing more insurance products and services. That’s also why we always participate in the East Asian Insurance Congress, meeting our counterparts from the cross-strait four regions, visiting Mainland insurance industry supervisory bodies, associations and other peers so as to enhance the exchange and communication among us. This will help the local industry to learn and grow, but the most important factor still lies in the development of the local economy. What kind of innovations can the insurance industry achieve? The insurance industry is an ancient industry with hundreds of years of history. It’s an industry of risk management. The innovation of its products depends on the demands of the market. We can have 100 new products but if 99 of them don’t sell, it’s of no use. The insurance business is a demand-oriented market. It depends on the degree of knowledge towards insurance within the local society. In Macau, compared with other more developed neighbouring regions, the depth and density of insurance is relatively low. I believe the most important thing in developing the insurance business in Macau, is how to nurture the local demands for insurance. We have a wide range of products but a lot them only sell in a small quantity, but there is a huge demand for the same products in Hong Kong, Mainland China or even Europe and America. In Macau, we need to increase the depth and density of insurance. Currently, the awareness of insurance in Macau is still very low.
“Currently, the awareness of insurance and of its importance is still very low in Macau” What size of a gap are we talking about? The gap in the insurance business between Macau and some neighbouring regions can be compared through the depth and density of insurance, as in the premium per
capita and the percentage of premium in GDP. These numbers are low in Macau compared to Hong Kong and other more developed cities in Mainland China. In recent years, with the development of Macau’s economy, the gap has been narrowed. But there is still a need to nurture the need. To give you an example, car insurance. The third-party liability insurance is compulsory in both the Mainland and Macau, meaning that without it a vehicle cannot go on the streets. However, over 95 per cent of Macau vehicles do not have automobile damage insurance, which is optional, but such insurance enjoys a high popularity in Mainland China and Hong Kong, where over 80 per cent of the vehicles are insured with such a product. Even in some less-developed cities in Mainland China, over 50 per cent of cars have such insurance. This example gives rise to my case that Macau still has a very low awareness of insurance consumption. There is huge potential in the market. What is the reason behind this small penetration in the local market? In my opinion, insurance consumption is similar to luxury goods consumption. You won’t buy it if you don’t have the money or the need. You have nothing to be insured and you don’t have the spending power. Once the average expenditure of a society reaches a certain level, there will be demand for insurance products. In the recent decade, Macau’s insurance business development has also reflected a fundamental change in the demand for insurance in Macau society. The demand for insurance has started to increase in Macau, but it’s only at its very beginning. How is the development of Macau’s insurance industry? The growth of Macau’s insurance business is positively co-related to the growth of Macau’s economy. Before the handover, the GDP and average income in Macau were low. In the recent decade, with the increase in GDP per capita and average income growth, the local insurance industry has experienced a period of rapid growth simultaneously, way faster than in neighbouring regions. With the development of the local economy, the demand for insurance will grow for sure. As an industry, we are very confident in our future. If the Macau economy grows, the demand for insurance will grow. If the Macau economy slows, the demand for insurance will slow. What efforts has the industry made to promote awareness? We have been communicating with local authorities and local media, in addition to appealing to the public to raise their awareness of the importance of insurance. You can see from the headlines of local newspapers like Macao Daily News. One fifth of its headlines a year are disaster-related, either car crashes or typhoon damage. The media has been reminding the public that risks are everywhere. It needs a social consensus for the industry to make a change. It’s very difficult for these few insurance companies to make a change. Two requisites are needed here: the development of the local economy; and secondly, the attention and support of the whole industry and overall society. With the slowdown of Macau’s economy, how has the insurance sector been affected? With the economic downturn in Macau, the rapid development of the insurance industry that we witnessed previously has ceased to exist. It has entered into a phase of stagflation. The industry even expects possible negative growth, in the event
Business Daily Monday, October 3 2016 7
Macau the gaming industry. Monte Carlo is a fine example, where the gaming industry now represents less than 10 per cent of its income. However, without the gaming industry in the first place, it would never be what it is today - a world tourism and leisure centre. Therefore, Macau has to develop its gaming industry in accordance with laws and regulations, so that other industries can grow, and one day other industries will surpass the gaming industry to be the mainstream so that Macau can have a wider road to walk on for future development. But you have to give it time.
that Macau’s economic slowdown persists. This also illustrates that the insurance industry is very closely connected to the local economy. It is actually also independent of the industry’s own will.
“The demand for insurance has started to increase in Macau, but it’s only at its very beginning” For example, with the completion of many major large-scale construction projects, and the decline in the number of projects opening, there is a tremendous decline in the (nonlife / property) insurance business. The business that has supported the industry in the past year does not exist anymore. A large portion of the insurance industry’s income is gone. However, under the national 13th Five-Year Plan, and also the SAR government’s Five-Year Plan that was recently revealed, another round of infrastructure projects will be pushed forward, another round of new policies from the SAR government will be put in force. Once Macau’s economy has successfully transformed, the insurance industry will for sure rebound. The Macau government is introducing an initiative to develop a financial sector with Macau’s own characteristics. What do you think these characteristics are? Macau’s biggest characteristic is, as mentioned in the national 13th FiveYear Plan, to be a World Tourism and Leisure Centre. In order to show this characteristic, Macau should enhance its infrastructure, the building of a smart city, and improve its tourism services and software. There is a lot of room for improvement in all these areas. How are insurance companies going to co-operate with this plan? The business of life insurance companies will grow steadily with the increase of average income in the Macau population. The non-life insurance or property insurance business has little to do with the population’s income level. It’s more to do with risk awareness among the society, and the importance they attach to risk management. It will take time to grow. The industry has been making an effort to provide better services, such as with online platforms. With the development of technology, we have launched services such as buying insurance online, or through mobile applications, and even applying for compensation online. All these have been showing some results. We believe that with the popularisation of new technologies, the development of a digital and smart city, and rising awareness of risk management among people, Macau’s property insurance sector will see great stimulation. However, it will take a long time and progress will be slow. Hong Kong’s insurance sector has been going after the Mainland market, with the latest figures from Hong Kong’s Office of the Commissioner
Jiang Yidao and China Taiping (Macau)
Jiang Yidao started his career at China Ocean Shipping (Group) Company (COSCO) and worked in London, United Kingdom. He later joined China Merchants Group’s Hong Kong office and became involved in the financial and banking world. In the early 2000’s, he was invited to join China Insurance Company in the
of Insurance showing that income from Mainland Chinese customers accounted for nearly 37 per cent of the HK$81.5 billion (US$10.5 billion) in total new premiums brought in during the first half of 2016. Yet, the Monetary Authority of Macau (AMCM) does not make such data available. What’s your calculation? We (Macau Insurer’s Association) estimate the number is below 10 per cent here in Macau. The Macau government is not a big fan of it - there might be some challenges in terms of regulating. Unlike Macau, Hong Kong is a financial centre. It has many advantages. There are many more and various financial products in Hong Kong for Mainland customers to choose from. There are various channels for Mainland customers to purchase insurance products in Hong Kong. In addition, there is a big team of life insurance sales people in Hong Kong who have a close connection to Mainland China. There are a lot of Mainlanders acting as agents or brokers there, whether they are new immigrants or Mainland students that have stayed after graduating. The Macau market is not equipped with any of those, which will constrain Macau’s ability to pursue the Mainland China market. Do you think Macau’s insurance sector has the potential to pursue the Mainland China market? No, I think Macau’s insurance industry is very limited in terms of developing the Mainland China market. Is it because of the government regulations here? I can’t really put it that way, as the Macau government has never set any rules or limitations in regards to that. However, certain policies don’t play in our favour. To give you an example, talent. Currently, there is a lower percentage of non-residents engaged in Macau’s finance sector than in Hong Kong. It’s more difficult for outsiders to come and work in Macau. For the financial industry, without the talent,
Mainland and was transferred to Macau over a decade ago. China Taiping Insurance (Macau) Company Limited offers property and casualty insurance products. The company was incorporated in 1952 and is based in Macau. Since December 31, 2014, China Taiping Insurance (Macau) Company Limited has operated as a subsidiary of China Taiping Insurance Holdings Company Limited.
it is largely constrained. The Macau government talks about talent all the time. But in practical terms, it has much more to learn from some successful precedents in importing talent, such as Hong Kong, Singapore and Luxembourg. What about nurturing local talent? Talent is a very important factor. Without importing talent, it will be difficult to cultivate talent. Without the development of an industry, it will be hard to grow the talent. For a company, it’s hard to pay a group of people who do not have production [value], but still keep them for the sake of cultivating them. Look at Hong Kong, Singapore and Luxembourg. They are successful micro-economies but none of them achieved that level of success solely with locals. The majority of the people or companies engaged in their financial sector are foreigners and foreign companies. Luxembourg now enjoys the reputation of having the highest GPD per capita in the world, and this can all be attributed to its financial industry. Does Macau have the potential to be a financial centre? Macau has great potential. It’s up to the government to see how far we can go, such as in importing talent, the free flow of capital, the appropriate level of control and monitoring, and efforts to promote the city worldwide. In Macau, where gaming is the main industry, how has the insurance sector adapted? The gaming industry has little to do with insurance. There is little to be insured. But gaming is the pillar of Macau’s economy, and the local economy is the cornerstone of the insurance industry. That is to say, the gaming industry must do a good job, so that the non-gaming sectors can flourish on that foundation. That’s what Las Vegas and Monte Carlo have been through, which all started out from
2016 East Asian Insurance Congress
The 28th East Asian Insurance Congress (EAIC) is to be held from October 11 to October 15 at The Venetian Macao. It will be the second time Macau has hosted the event, the last being in 1998. The theme of this year’s EAIC is ‘The Future of Insurance – Customer Centricity’. EAIC was founded in 1962 with the objective of furthering and developing international
As the Managing Director of China Taiping Insurance (Macau), a company that’s been in the leading position of the non-life insurance market in terms of market share in premiums, can you share with us some development plans of the company? China Taiping Insurance (Macau) has been operating in Macau for more than 60 years. There are two major things that we attach great importance to. Firstly, it’s to run the company well, so that we can provide the most diversified and comprehensive insurance products for Macau society. Secondly, it’s to build a healthy industry. We are not only here to build the company, but we are also responsible for the development of the whole industry. We’ve been elected three times to the roll of president of the Macau Insurers’ Association, during which time the industry has witnessed great development. The company’s market share has always been stable, no dramatic increase has been observed over the years. Bigger market share has never been our priority. We want to provide our customers with the best products and compensation services. Our customers have a great loyalty to our company. Many have been with us for several decades. In addition, I would like to appeal to Macau society to have a better awareness of insurance and its importance. Risk is everywhere. No matter if it’s a company or an individual, we would like them to better consider for themselves and plan ahead to safeguard their interests. Macau will host this year’s East Asian Insurance Congress. What can we expect from the event? The biggest significance of this congress, I would say, is to showcase Macau to the whole of Asia. We want to show them that Macau is now a world-class meeting and convention centre. The insurance industry has lots of meetings and congresses every year. Macau is the only destination in the region that has the top facilities for that. It’s part of the Macau Insurers’ Association’s efforts, in line with the government’s initiative to diversify the local economy and promote the meetings and conventions industry, to host this event in order to showcase the city to these Asian countries. Once they come, they will realise Macau is the best city to host these kinds of meetings. Secondly, we would like to enhance co-operation among Asian insurance sectors. Asia is now where the insurance industry has been developing the fastest in the world. When we gather and meet, we can learn from each other and lead the industry to an even brighter future.
collaboration in the field of insurance of every sort. Its 12 member cities include Macau, Hong Kong, Bangkok, Jakarta, Kuala Lumpur, Manila, Phnom Penh, Seoul, Singapore, Taipei and Tokyo. Mr. Andrew Rear, Chief Executive of Digital Partners of Munich Re Group will deliver the keynote speech on ‘How digital innovation can improve customer centricity’ following the opening ceremony of the Congress on October 12.
8 Business Daily Monday, October 3 2016
Gaming gami Gaming
Ian Coughlan named new served as President of Wynn Macau since 2007. The new Wynn Macau president Local gaming operator Wynn Macau Ltd. has appointed Ian Michael Coughlan as the new president for overseeing both Wynn Palace Cotai and Wynn Macau, according to a press release from the company on Friday. Mr. Coughlan previously
appointment follows the resignation of the company’s previous president, Gamal Aziz, last Friday. Mr. Aziz was responsible for the opening of Wynn Palace Cotai that opened its doors in late August. A.L.
Las Vegas’ clockwork
Casino’s attempt to collect debt exposes world of Chinese high-rollers A cumbersome episode shows how crucial Mainland money has become to the American gambling capital at a time when Macau has eclipsed Las Vegas as the world’s biggest betting hub. Joel Schectman and Koh Gui Qing
B
y the time the Las Vegas Sands Corp tried to collect on the gambling debts last year, the two women owed US$6.4 million, lost during a few disastrous days of baccarat. But when the Sands asked prosecutors to press criminal charges against Xiufei Yang, 59, and Meie Sun, 52, over the bad debts, attorneys for the two women struck back with a surprising allegation. Yang and Sun weren’t high-stakes gamblers, their attorneys said in court filings. They were local housekeepers, recruited with the cooperation of Sands personnel to take out millions of dollars in credit in their names and sit near the players as they gambled with the borrowed chips. The real gamblers then were able to play without a paper trail at the company’s Venetian and Palazzo casinos at the heart of the Las Vegas Strip. The attorneys for the women, Jeffrey Setness of the law firm Fabian VanCott and Kevin Rosenberg of Lowenstein & Weatherwax LLP, contend the Sands may have violated federal anti-money laundering rules prohibiting casinos from helping players keep their names off the books.
“For the high-end gaming, the main risk is the lost opportunity” Joe Flippen, a former vice president of credit at Caesars Entertainment
The lawyers describe the women as the bottom rung of a network of hosts and handlers who court wealthy gamblers from China and sometimes help them play anonymously. Since all sides knew the debts were a sham, the attorneys argued, Sun and Yang’s markers - the IOUs players sign to get credit from casinos - should be null and void. The women were “the real victim(s) here,” the attorneys alleged, and the court should dismiss any effort to have them convicted for activities the Las Vegas Sands “initiated and to which it was completely complicit.” Sands spokesman Ron Reese called the allegations a “smokescreen” intended to distract from the debts the women owe. The company has no “clear evidence” these women were recruited by Sands employees, he said. The case, unreported in the media until now, opens a window into how Las Vegas casinos keep multi-milliondollar bets sloshing freely across gaming tables in the post-9/11 era, when big cash transactions have come under
tighter U.S. regulatory controls. In interviews, Las Vegas industry executives, casino floor employees and independent agents said the use of shills is a frequent practice at some casinos catering to high-stakes Chinese players. In recent years, Vegas has tried to draw wealthy mainland Chinese gamblers, often to the baccarat tables, by loading up casinos with exclusive VIP rooms featuring the décor of Macau.
Revenue stream with a catch
The effort paid off. Over the past decade, as overall gambling revenue on the Strip stagnated, baccarat winnings for casinos nearly doubled to US$1.3 billion - 40 per cent of take from all games, state records show. Asians account for as much as 90 per cent of baccarat gambling in Las Vegas, with the majority being Chinese, said Steve Rosen, president of the casino consulting company Marketations. Asian players now represent around 75 per cent of Las Vegas’ high-rollers, he said. But the Chinese revenue stream comes with a catch: Most of these games are played on credit, because the sums are so large. Two-thirds of all table bets placed at the Sands Las Vegas properties are made through borrowing from the house, according to the company’s financial filings. And gambling debt isn’t recognized as valid by Chinese courts, so it is largely unenforceable in China, said Andrew Klebanow, a casino specialist at the consulting firm Global Market Advisors. Gamblers use shills to gain additional credit lines after bad losing streaks, or because they wish to avoid disclosing the source of funds on casino records, according to six industry veterans with experience catering to high-stakes Chinese players. “It happens every day,” said an agent who specializes in bringing in Chinese high rollers. F o u r p e o p l e w i t h ex t e n s i v e experience working at Sands’ Venetian and Palazzo casinos say the practice was well-known by the executives and hosts who specialized in drawing this clientele. Unlike the crowded main betting floors at the Venetian and Palazzo, the high stakes rooms are intimate, often seating one or two tables of players. The shills, who signed for the credit, would sit near the gamblers. Little effort was made to conceal the shill arrangements, former employees said. “It was obvious,” said one. The Sands says that even if Yang and Sun were shills, it was beside the point: “Ultimately those people signed credit on behalf of their name and that debt should be collected,” spokesman Reese said. In a later statement, Reese said: “If credible proof is presented that an employee or employees were complicit, we will promptly take appropriate
action as required by our policies. However, even a scenario in which a company employee was involved still does not void the debt.”
Money laundering target
U.S. law enforcement officials have become increasingly concerned that inadequate vetting of customers and huge cash transactions could make Las Vegas a target for money launderers. It’s a violation of federal anti-money laundering laws to help gamblers evade financial reporting requirements and stay anonymous. “I fear there may be a culture within some pockets of the industry of reluctant compliance with the bare minimum, if not less,” Jennifer Shasky Calvery, then director of U.S. Treasury’s Financial Crimes Enforcement Network, FinCEN, said at a 2013 Las Vegas gambling industry convention. Such concern has triggered a crackdown and record penalties against casinos for alleged violations of antimoney laundering rules. The Sands, for instance, paid US$47 million in 2013 to settle a U.S. Justice Department investigation after the discovery that an alleged ChineseMexican drug trafficker, Zhenli Ye Gon, lost more than US$84 million at the Venetian. U.S. authorities said the Sands continued to do business with Ye Gon, even when he told casino employees he was wiring money incrementally to avoid government scrutiny, according to a statement of facts the Sands agreed to as part of its settlement with the Justice Department. Ye Gon is currently in a U.S. jail in Virginia awaiting extradition to Mexico on drug charges. Gregory Smith, an attorney for Ye Gon, said his client was running a legitimate pharmaceutical company and was not a narcotrafficker. More recently, federal authorities have been scrutinizing practices at U.S. casinos that allow gamblers to play without leaving a paper trail. For example, last year FinCEN fined a Caesars Entertainment Corp casino US$8 million for poor anti-moneylaundering controls in its VIP salons. Caesars Palace, in a civil settlement with the Treasury Department, admitted permitting high-stakes gamblers to play using other people’s credit, potentially allowing “guests to conceal their identities and transactions” and play anonymously. This year, the regulator fined southern California Hawaiian Gardens Casino US$2.8 million for violating antimoney-laundering rules. Hawaiian Gardens admitted allowing players to gamble anonymously, even after gamblers had attracted suspicion at the casino.
Shills for debtors?
In the Sands case, exactly how the two women each ended up owing more than a million dollars came under question after prosecutors brought the criminal charges in separate cases last year. In Nevada, failing to pay a gambling debt is a felony criminal offense comparable to passing a bad check. Defence attorneys say the women, Chinese citizens living in the United
States, made their living working as housekeepers and assisting highrolling Chinese gamblers in their visits to casinos. Reuters could not reach the women for comment. Their attorneys would not say how they became involved in the case or who was paying their fees. The attorneys also declined to make the women available for interviews or provide documentation to confirm their occupations and backgrounds, but said they are still in the United States. The attorneys filed motions that sought to turn the tables on the casinos. One filing contended “the Venetian/ Palazzo’s conduct may have run afoul of federal criminal anti-money laundering laws.” Setness and Rosenberg are former federal prosecutors, and this is not Rosenberg’s first time confronting the Sands. As a former assistant U.S. attorney, Rosenberg helped lead the Ye Gon money laundering case against the company in 2013. Casino marketing employees could have an incentive to skirt the rules, Rosenberg said in an interview, since they are paid based partly on how much customers play. “They need to be incentivized to care,” he said. To prepare for trial, the attorneys subpoenaed casino surveillance footage of the women in the betting rooms, and the names and credit files of a score of high-rollers. The attorneys believed those records would support their claim: that the women were recruited by employees at the Sands’ Venetian and Palazzo to help high-rollers from China gamble millions without documents signed in their names. In court papers, a Sands attorney said the subpoenas were merely to intimidate the casino into dropping its claim by airing “unsupported, specious and highly speculative allegations.” After the defence attorneys raised the counter-allegations, Clark County prosecutors dropped the charges against Sun and Yang this spring during preliminary hearings in Las Vegas Justice Court. In court filings, prosecutors said they now intend to pursue the charges through a grand jury, rather than before a judge. Often, prosecutors in the state pivot to a grand jury if preliminary hearings before a judge show proving their case will be harder than expected. The Clark County District Attorney’s Office declined to comment on the cases. The prosecution marked a rupture of years-long relationships between the shills and the casino company, the defence contends. Starting in 2009, the attorneys said in court filings, a host at the Palazzo named only as David in court records - told Sun she could make money by fronting for other players. She would sign markers - a gambling IOU form - and then sit near the actual players, who used the borrowed chips for baccarat, “sometimes losing more than a million dollars in a matter of hours,” the attorneys wrote. In exchange, Sun would pocket US$2,000 to US$3,000 in tips from the player, her lawyers wrote. Employees of the casino told her, in substance, that
Business Daily Monday, October 3 2016 9
g gaming In Sun’s case, she was introduced to the casino in 2009 by junket operators Liming Jiang and her husband, Fai Wong, who was Sun’s guarantor, according to Reese.
Familiar face at baccarat salons
Wong was well known in the Venetian and Palazzo baccarat salons. He often brought high-stakes players who would gamble millions of dollars over the course of a visit, said two former casino employees with direct involvement in his transactions. Wong’s relationship with the Las Vegas Sands deepened in 2013 when he produced Panda!, a Cirque-DuSoleil-style acrobatic show that ran at the Palazzo for over a year, using more than a million dollars of his own money, according to court papers filed in an unrelated lawsuit.
‘Las Vegas has tried to draw wealthy Mainland gamblers by loading up casinos with exclusive VIP rooms featuring the décor of Macau.’
they had no expectation she would be responsible for those debts. Ya n g w a s o f f e r e d a s i m i l a r arrangement in 2011 by another Palazzo host, the lawyers said. The women continued the arrangement for years, obtaining millions of dollars in chips for highstakes baccarat players such as one identified by their attorneys as WeiDang Wang. In two days in January 2012, the restaurant owner from Shenyang, China, lost around US$2 million after Sun signed for his credit. Reuters was unable to locate Wang. The Sands’ Reese said most of the players named by the women were known gamblers at the casino, but declined to comment further. For years, as players lost millions in Sun’s and Yang’s names, all was good. The wealthy players apparently repaid those debts once home in China, the defence attorneys said. The women never made payments themselves, and the Venetian and Palazzo never asked, they said. But during 2012, Sun and Yang’s relationship with the casino changed, their attorneys said, after the players for whom the women signed credit stopped paying the casino back. In February 2012, Yang signed for credit for a player named Quanlong Wang; she sat nearby as he played with the borrowed chips. He initially won US$5 million before leaving for a trip to Los Angeles. Later that month he returned, placing bets as high as US$300,000 a time, losing all his previous winnings and nearly US$5 million more. Reuters was unable to reach Wang at addresses listed for him in Las Vegas.
In August of that year, a player Sun shilled for lost US$1.38 million that was never repaid, the lawyers said. Unlike in years past, those debts went unpaid. And in January and August of 2015, almost three years later, Clark County’s Bad Check Unit pressed charges. The criminal complaint filed against each woman was just two pages, charging them for defrauding the Sands. Chinese regulators have tightened currency controls as part of a crackdown on corruption and capital flight in recent years. Those controls, among other factors, may have made it harder for Sun’s and Yang’s gamblers to make good on the debt, the lawyers said. Reese said it was possible some players who overextended their credit lines entered a private arrangement with the women to borrow money on their behalf. But a debt is still a debt: “They are the ones that signed the credit - they are responsible for it,” he said. In a follow-up email, Reese said it is not “a common practice for agents or anyone else for that matter, to sign markers on someone else’s behalf.”
‘On the fly in the pit’
The case highlights how Las Vegas’ unusual credit policies allow money to flow with little scrutiny on the casino floor. Casino gambling credit is loosely regulated in Nevada, industry veterans say. Typically, a casino will run a credit check the first time a customer seeks a loan. Casinos generally use a service called CentralCredit - a kind of Experian for the gaming industry showing a person’s gambling history around town.
For example, Sun’s credit line spiked during a single visit in December 2010 from US$100,000 to US$2 million, according to credit documents included in the court record. Yang’s credit line went from US$1 million to US$5 million during subsequent visits. Casinos do check if the player has outstanding gambling debts at other establishments. But Joe Flippen, a former vice president of credit at Caesars Entertainment, said some casinos often won’t do a deeper credit check on a foreign player if they get a strong recommendation from a host or a junket operator. Junkets are independent agents who bring players to the casino in exchange for a percentage of what the gamblers spend. Casinos don’t calculate their risk the same way a bank does when making a loan. When a player loses, “the money is not leaving the building ... It’s not a mortgage,” Flippen said. “For the highend gaming, the main risk is the lost opportunity” if the gambler doesn’t play. For that reason, when players get buried by cascading losses, the hosts - who get commissions based on how much customers spend - will sometimes extend a credit line for the session by as much as three or four hundred per cent, as long as it’s done during the same visit. “It’s done on the fly in the pit. We want to make it fast because it’s customer service,” Flippen said. The state’s gaming board requires casinos to record some justification for customer credit limits. But that justification may be just the recommendation of hosts or an outside junket operator who has a relationship with the player.
Wong often brought women to the casino to act as shills on behalf of other high-stakes players, two former employees said. After signing for the credit, the women would sit at a nearby table as the players gambled, sometimes passing them chips. The practice was easy to spot, they said, because the women would be sitting at a vacant nearby table without playing. In July, a person who identified himself as an assistant for Wong but wouldn’t give his name returned Reuters’ calls to Wong. The caller said the two women were part of Wong’s junket organization. They were used by the organization with the encouragement of the casino staff to keep deeply indebted gamblers coming back to the table. Once a player owes money from a previous visit, “the system is barred from dispensing more cash to you. It can’t give you more credit,” the assistant said. “For the sake of business, the casino will find another ‘human head’ to borrow the credit to do more business.” The assistant invited Reuters to discuss the matter with Wong in person in Las Vegas, declining to provide more detail over the phone. The phone number of the caller was identified as Wong’s on the Chinese social media app WeChat. Previously, lawyers Setness and Rosenberg declined to say whether they had heard of Wong. But a day after reporters agreed to meet with Wong in Las Vegas, Setness and Rosenberg asked Reuters to stop contacting the man. They represented Wong, too, they said. Reuters was unable to reach Wong or his wife in trips to homes he owned in Las Vegas and Los Angeles. Wong hasn’t been charged; the attorneys would not discuss why he retained them. In a gated community 10 miles away from the Las Vegas-strip, Wong owns a handful of houses. His neighbours said Wong could often be seen in a golf cart shuttling an ever-changing group of guests between his homes. Neighbours would see casino limousines picking up people outside Wong’s homes. Sands spokesman Reese declined to comment on what, if anything, the casino knew of the relationship between Wong and the housekeepers. But in arguing that their clients were shills, Reese said, the defence attorneys were essentially admitting the women were part of a much larger scheme. “It’s a very unusual defence,” he said. Reuters
10 Business Daily Monday, October 3 2016
Greater China In Brief QFII, RQFII
Authorities to scrap limits on asset allocation China’s securities regulator will scrap limits on asset allocations under two investment schemes, it said on Friday in an attempt to attract more long-term capital. The China Securities Regulatory Commission will let investors in the Qualified Foreign Institutional Investor (QFII) programme and the yuan-denominated variant RQFII scheme decide themselves how to allocate their assets in China. By the end of August, China had granted US$81.5 billion of investment quotas to 300 institutions under QFII, and 510.3 billion yuan (US$76.52 billion) of quotas to 210 institutions under RQFII, CSRC said.
Official PMI
Factory activity expands again Industrial overcapacity remains one of the main drags on economic growth.
A
China is expected to maintain “relatively big” account surplus in the second half this year, helped partly by demand from Western countries during the holiday season in the latter part of 2016, the country’s foreign exchange regulator said on Friday. China posted a final current account surplus of US$64.1 billion in the second quarter of this year and a deficit of US$14.3 billion in its capital and financial account, the State Administration of Foreign Exchange (SAFE) said. SAFE expects China’s domestic demand to remain more or less stable, with commodity prices staying on the low end.
ctivity i n C h i n a’ s manufacturing sector expanded again in September, an official survey showed on Saturday, which may indicate that recent positive momentum can be sustained. The official Purchasing Managers’ Index (PMI) stood at 50.4 in September, identical with the previous month’s level. A reading above 50.0 shows growth on a monthly basis. September’s 50.4 reading matched the prediction of a Reuters poll. After a significant pick-up in March, China’s official PMI slipped, falling below 50 in July before showing expansion in August. In an encouraging sign, new export orders increased in September, rising to 50.1 from the previous month’s 49.7. In September, output edged up to 52.8 from 52.6 in August, but the index for total new orders slipped to 50.9 from 51.3. A sub-index for smaller firms fell, while performance at larger companies improved, a sign that the government’s dependence on big state firms for growth this year has not changed. Economists say the pattern over the past few months suggested sustained economic growth, but a growing dependence on government spending and an overheated property market may pose increased risks later this year with debt levels continuing to rise. Industrial profits rose at the fastest pace in three years in August, with rising sales and higher prices stimulated by a construction boom and heated property market.
Investigation
Still struggling
FX regulator
Current account surplus to stay “relatively big”
Mega Financial says lapses at second branch found A U.S. state regulator has found the Chicago banking branch of Taiwan’s Mega Financial Holding Co has not met required compliance controls, the president of the Taiwanese financial firm told Reuters on Friday. It is the second bank branch of the state-controlled firm to run afoul of U.S. financial authorities, after its New York branch was fined US$180 million for lax compliance and anti-money laundering violations in August. Mega Financial, which has close ties to Taiwan’s government, has been under scrutiny since about 200 of its customers were named in the so-called Panama Papers. Demography
Elderly population to reach 240 mln in 2020 China will have 240 million people aged 60 or above by the year of 2020, according to a senior health official. Liu Qian, deputy head of the National Health and Family Planning Commission, was addressing the InterAcademy Partnership for Health 2016 Conference, held on Tuesday and Wednesday in Beijing. By 2020, senior citizens will make up 17 per cent of the population, the official said. Liu noted the severe situation with regard to chronic disease, with more than 260 million chronically ill patients in the country. These illnesses are to blame for over 86 per cent of deaths in China.
excess capacity such as steel still struggled for growth. Sectors like high-tech, auto manufacturing and shipbuilding showed strong expansion, the survey showed. Jobs were again lost, though at a slower pace, with the employment sub-index rising to 48.6, compared to 48.4 in August. Job losses could be rising as the government has pledged broad capacity cuts across a range of industries. Beijing has pledged to quicken the pace of its industrial capacity cuts, particularly in steel, after falling behind earlier in the year. China’s state planner rejected a request in September by the nation’s steel makers for coal mines to ramp up coking coal output to help ease supply tightness that has triggered a frenzied price rally. China’s slowing economy and problems with industrial overcapacity have also reduced investment opportunities, a view reinforced
by Fan Gang, a member of China’s central bank monetary committee. Private investment grew just 2.1 per cent in the first eight months of the year, remaining at record lows. A similar official survey showed activity in China’s services sector expanded at a slightly faster pace, with the official reading at 53.7 in September from 53.5 in August. A measure of the construction industry rose as the government has gone on an infrastructure spending spree. The services employment subindex rose in September, but still indicated services companies were cutting staff. Beijing has been counting on a strong services sector to pick up the slack as it tries to shift the economy away from a dependence on heavy industry and manufacturing exports. A private business showed on Friday that factory activity expanded in September but the improvement was marginal and manufacturers continued to shed jobs. The Caixin/Markit Manufacturing Purchasing Managers’ index for September rose to 50.1 from a nochange level of 50.0 in August. Reuters
But profits remained uneven, as traditional heavy industries with
Currency internationalization
Yuan joins IMF reserves in first revision since 1999 The Chinese currency constituted 1.1 per cent of official reserves in the latest IMF survey. Robin Ganguly
The yuan took on the mantle of a global reserve currency Saturday, a milestone that is seen breathing life into China’s bond markets by prompting estimated inflows of as much as US$1 trillion over the next five years. The currency’s entry into the International Monetary Fund’s Special Drawing Rights - alongside the dollar, euro, pound and the yen - comes amid China’s efforts to boost its international usage and ambitions of providing an alternative to the dollar. Describing the inclusion as a “historic
milestone,” IMF Managing Director Christine Lagarde said in a statement Friday that it reflects the progress that the Asian country has made in reforming its financial systems and liberalizing markets. “SDR entry will pave the way for closer interaction between China’s capital market and that of the rest of the world,” Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore, said on Saturday. “The first impact will be on the yuan, which the authorities are likely to keep stable for the next few weeks as any sudden volatility spike will damp the yuan’s image.”
While an IMF statement Friday said the yuan has been deemed freely usable, China has been suspected of meddling in the foreign-exchange market after a shock devaluation in August last year rattled investor confidence. It has been seen intervening heavily even offshore - driving yuan interbank rates to more than 20 per cent in Hong Kong - and clamping down on capital flows. The median estimate in a Bloomberg survey is for the Chinese currency to decline 1.1 per cent in the rest of this year to 6.75 a dollar. The yuan’s addition is the first change to the SDR basket since 1999, when the euro replaced the deutsche mark and the French franc. The new weightings will be 41.73 per cent for the dollar, 30.93 per cent for the euro, 10.92 per cent for the yuan, 8.33 per cent for the yen and 8.09 per cent for the British pound. There were 204.1 billion SDRs allocated to IMF members as of March, equivalent to around US$285 billion, compared with about US$11 trillion of global reserves. The basket, created in 1969, gives IMF member countries who hold it the potential right to obtain any of the currencies in the basket to meet balance-of-payments needs. Inclusion could be a catalyst for central banks and sovereign wealth funds to shift funds into the yuan. The Chinese currency constituted 1.1 per cent of official reserves in the latest IMF survey, compared with 63.7 per cent for the dollar. Bloomberg News
Business Daily Monday, October 3 2016 11
Asia Downward trend
Hong Kong retail sales fall for 18th month Economic slowdown, political convulsion and a strong Hong Kong dollar have crimped business activity and tourism. Hong Kong’s retail sales fell for the 18th straight month in August, hit by a drop in big-spending mainland Chinese visitors and weak consumer spending at home amid an uncertain economic outlook. Retail sales slid 10.5 per cent from a year earlier to HK$33.9 billion (US$4.4 billion) in value terms, after a 7.7 per cent decline in July. In volume terms, August sales dropped 12.7 per cent on-year, government data showed on Friday. Once a favourite shopping destination for mainland Chinese, those tourists are now heading to other cities, including Japan and South Korea. “The near-term outlook for retail sales will still hinge on the performance of inbound tourism,” the Hong Kong government said in a statement. Hong Kong tourist arrivals in August fell 9.4 per cent from a year earlier to 5.09 million. They had risen 2.6 per cent in July, the first gain after 13 months of decline.
Mainland visitors, who account for 79.4 per cent of the total, fell 11.3 per cent to 4.04 million in August after a 2.2 per cent rise in July. The surprise drop in visitor numbers has dampened hopes of a turnaround in the tourism and retail sectors during China’s week-long National Day Golden Week holiday.
Key Points Aug retail sales fall 10.5 pct y/y in value, down for 18 months Overall sales volume down 12.7 per cent Tours set to fall during China’s long National Day holiday Aug tourist arrivals fall 9.4 pct vs 2.6 pct rise in July Paul Leung, chairman of the Hong Kong Inbound Travel Association,
said the city received about 300 tours a day during the Golden Week holiday in the same period last year. “In view of the current situation, a drop of 30 per cent (from a year back) is not surprising,” Leung said. Hong Kong is facing mounting economic challenges at a time when its currency is strong. Hong Kong’s peg to the U.S. dollar means it is prone
to strengthen when other Asian currencies weaken. In addition, uncertainty due to Britain’s vote to leave the European Union is expected to weaken European currencies, making Hong Kong an even more expensive destination. Sales of jewellery, watches, clocks and valuable gifts in August fell 26.6 per cent in value terms, the 24th consecutive month of decline. Department store sales slid 10.7 per cent on the year. Reuters
12 Business Daily Monday, October 3 2016
Asia In Brief Spectrum auction
India gets US$8 bln worth telecoms bids India started its biggest ever telecoms airwaves auction on Saturday, receiving 535.31 billion rupees (US$8.04 billion) worth of bids on the first day of the sale, a senior government official said. Market leaders Bharti Airtel Ltd, Vodafone’s local unit and Idea Cellular Ltd are pitted against new entrant Reliance Jio Infocomm Ltd in the battle for airwaves to boost their high-speed data services in what is the world’s second-biggest market by mobile phone subscriptions. The total value of the airwaves put on the block is estimated to be worth US$84 billion based on the auction reserve price set by the government. Sector crisis
Kawasaki Heavy may pull out of shipbuilding Japan’s Kawasaki Heavy Industries Ltd said it would consider a drastic revision of its shipbuilding business due to its worsening profitability and indicated that it may pull out of the business. The company on Friday revised its profit outlook lower for the business year ending next March, citing a stronger yen against the dollar and a decline in operating profitability from the shipbuilding business. The company said it would consider what to do with the shipbuilding business including whether to continue the business and aimed to reach a final decision by the end of March. Financial assistance
Mongolia requests help from IMF Mongolia has sought financial assistance from the International Monetary Fund (IMF), as it grapples with balance of payments woes and looks to stabilise its economy, the IMF said. Mongolia’s government, elected in a landslide at the end of June, has been plunged into turmoil after years of collapsing foreign investment, unsustainable fiscal expansion and a decline in demand for commodities. Mongolia raised its benchmark interest rates by 450 basis points to a record 15 per cent in August in an attempt to stabilise a currency that had been in free-fall. Monetary action
Bank of Japan to trim buying of super-long bonds The Bank of Japan (BOJ) said it plans to trim buying in long-dated Japanese government bonds (JGBs) in market operations in October to its lowest level since 2014. The move is one of the first steps the BOJ has taken to adjust its operations after it rebooted its policy framework last week by introducing a target for 10-year JGB yields of around zero per cent. The BOJ said it would reduce its purchase of JGBs with more than 10 years to maturity to 300 billion yen (US$2.97 billion) in its initial market operation in October.
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Trade
South Korea exports down due to strikes The average export value per working day was US$1.95 billion in September, compared to US$1.67 billion in August, a three-month high.
S
outh Korean exports in September fell, as expected, after posting the first rise in 20 months in August, as slightly fewer working days and a strike at the biggest automaker hit shipments, data showed on Saturday. Exports fell 5.9 per cent on-year to US$40.86 billion in September while imports slipped 2.3 per cent to US$33.76 billion, trade ministry data showed, resulting in a trade surplus of US$7.11 billion in September, up from a revised US$5.11 billion surplus in August. In August, exports and imports rose 2.6 per cent and 0.7 per cent, respectively. The rebound in August was widely expected not to continue as policymakers expressed concerns over major strikes at Hyundai Motor. Its labour union staged its first full nationwide strike in 12 years on Monday over stalled wage talks, putting the automaker’s earnings and sales targets at risk. The strikes, on-going since July, have accumulated losses of nearly 2.5 billion won (US$2.27 million), the finance minister said on Wednesday. “Although it’s a fall, trade data today isn’t a disappointment given that strikes at Hyundai and shipment disruptions from the collapse of Hanjin
Shipping must have been dragging overall overseas sales,” Moon Junghui, a Seoul-based analyst at KB Investment & Securities said after the data was released. “Sectors other than auto and shipping seems to have fared alright. The Bank of Korea may not rush to cut rates again this year. They are likely to maintain their wait-and-see mode since recovery is very weak,” he said. The trade ministry also said the recent global recall of Note 7 smartphones by Samsung Electronics, due to faulty batteries causing some of
the phones to catch fire, had also affected September trade numbers. Shipments to China fell 9.1 per cent, while those to the U.S. and the EU slumped 6.1 per cent and 14.5 per cent, respectively. September this year had 0.5 fewer working days compared to the same month in 2015. While the economy is improving on the back of domestic demand, the prolonged contraction in exports is a source of concern as policymakers wait the effects of expansionary fiscal and monetary policies. Other challenges the economy faces include the on-going corporate restructuring and the enforcement of the anti-graft law, which restricts meals and gifts public officials journalists can accept. Reuters
Moody performance
Thai factory output unexpectedly rises but consumption slips Auto output fell 11.4 per cent in August as firms waited to produce new models later this year. Kitiphong Thaichareon and Orathai Sriring
Thailand’s industrial output unexpectedly rose in August at its fastest pace in 40 months but the central bank’s private consumption fell, suggesting an economic recovery remains fragile in light of sluggish demand at home and abroad. In a rare bit of good news, the Industry Ministry said on Friday its manufacturing production index (MPI) in August increased 3.13 per cent from a year earlier, buoyed by
stronger demand for air conditioners, appliances, electronics, rubber and steel. The output recovery may be just a blip and was helped by low base effects, economists say. “The problem for Thailand is generally its producers lack competitiveness,” said Jack Chambers, economist of Moody’s Analytics in Sydney. “Given their export orientation and the ongoing weakness in the global economy, it’s unlikely that results will be carried forward next month.” Exports, worth about two-thirds of Thai GDP, have long been weak. Although government spending and tourism have helped activity, domestic consumption is curbed by high household debt. The Bank of Thailand (BOT) on Friday said its private consumption
index dropped 0.2 per cent from July, as supporting factors remained subtle and real non-farm income stayed flat. BOT director Roong Mallikamas said the economy in July-September might grow less than the second quarter, when annual growth was a higher than expected at 3.5 per cent.
Excess capacity
The BOT said its private investment index rose 0.5 per cent from July but investment in manufacturing had not shown a clear sign of recovery due to existing excess capacity. August’s capacity utilisation was 64.44 per cent, slightly up from July’s 62.38 per cent. Industry Ministry official Verasak Supprasert said factory output should rise further, given higher imports of raw materials in August. “We believe output can grow 1-2 per cent this year,” he told reporters. In January-August, annual output fell 0.02 per cent. Industrial goods accounted for 80 per cent of exports in August. The BOT said exports, based on financial settlements, rose 2.7 per cent in August from a year earlier. Earlier customs-cleared shipments jumped 6.5 per cent. The central bank has forecast exports will contract for the fourth year running in 2016, by 2.5 per cent, and the economy will grow 3.2 per cent. Last year’s GDP pace was 2.8 per cent. Reuters
Founder & Publisher 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; Matthew Potger; Cecilia U 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
Business Daily Monday, October 3 2016 13
Asia Monetary policy
India’s new central bank team face close call on rates Leaving rates on hold would make it almost certain that the RBI would cut in December, analysts say. A month into the job, India’s new central bank governor will today and tomorrow chair his maiden policy review, which for the first time will see a committee set interest rates, though views are divided on whether there will be any change this time round. If the six-member monetary policy committee (MPC) is split over whether to hold or cut, Reserve Bank of India Governor Urjit Patel could end up exercising his casting vote. Regardless of the outcome, market players will closely scrutinise how the newly-formed MPC votes, trying to spot the doves and hawks among the six panel members - Patel, two other RBI officials and three government appointed economists. The policy repo rate has stood at 6.50 per cent since April. As inflation is likely to slow on the back of slumping food prices after a good monsoon, most analysts expect the benchmark rate to be cut by 25 basis points this year - which would take it to its lowest since November 2010. But the question is when. A Reuters poll showed 26 of 44 analysts surveyed expect the MPC to wait for more signs that inflation is easing and hold rates steady for now. But 16 economists see prospects for a 25 bps cut, while two expect an aggressive 50 bps cut. Some analysts urged the RBI to act now as inflation is fallen back within the RBI’s 2-6 per cent target range. “We expect a 25 basis point rate cut at the October policy largely because inflation is at 5 per cent and
is expected to remain around 5 per cent for most part of the rest of the fiscal year,” said Anjali Verma, chief economist at PhillipCapital. “Also, growth is largely tepid and therefore a rate cut is warranted now.” But the RBI could opt to wait. The U.S. Federal Reserve’s gradual approach to increasing rates has given India, and other emerging market economies, extra time in a low rate environment to support their economies.
Though the MPC has been given a mandate of “maintaining price stability,” it must do so “while keeping in mind the objective of growth,” according to the amended RBI Act.
Patel steps to limelight
Investors are keen to hear Patel’s views as he has made no public appearances since becoming governor on September 4, following three years as a deputy to his predecessor, Raghuram Rajan. Patel is regarded as less likely to stir controversy than Rajan. The former International Monetary Fund chief economist had irked some members of India’s Hindu nationalist
government with his socio-economic commentaries before quitting after just one three-year term. Investors say they will seek clues to how Patel plans to steer the rupee through some pressure over coming months due to expected outflows of US$25 billion as dollar deposits raised during a rupee crisis three years ago are due to mature. Patel, a former executive at energy conglomerate Reliance Industries, will also be scrutinised to see how he follows through on a campaign to make banks clean up their balance sheets. Some bankers have complained that Rajan’s March 2017 deadline was pushing them too fast. Reuters
Former RBI Governor Rajan (L) and current one Urjit Patel (R)
Tax pardon
Indonesians line up to beat deadline for amnesty’s best terms On Thursday, thousands of workers protested peacefully against the amnesty in Jakarta. Thousands of Indonesians queued for hours on Friday to get the most attractive terms on offer under a tax amnesty that’s recovered strongly after a slow start and which the finance minister calls the most successful a country has had. The amnesty, which runs until March, aims to provide the government with billions of dollars in revenue to help cover a large fiscal deficit. Facing government threats of an unprecedented crackdown on tax evaders, nearly 330,000 Indonesians have joined the tax amnesty scheme and declared US$250 billion of assets
since its launch in July. Friday marks the end of the programme’s first phase, during which the lowest penalty of 2 per cent on previously unreported assets applies. The penalty rates rise 1-2 percentage points on Saturday and rise again from January 1 for the final phase. As of Friday afternoon, 328,611 taxpayers had signed up, declaring 3,441 trillion rupiah (US$263.74 billion) with 134 trillion rupiah pledged to be repatriated back to Indonesia, according to a government website giving updates. Indonesians who declare assets
overseas are not required to bring them home, but pay a lower penalty rate if they do. The bulk of Indonesia’s offshore assets are believed to be in Singapore, with an estimated US$200 billion there in private banking assets. To date, the amnesty has generated 97 trillion rupiah in government revenue, or nearly 60 per cent of Jakarta’s 165 trillion rupiah target.
A strong September
In the past few days, people wanting to join the amnesty started lining up outside tax offices at 3 am, officials said. Some of Indonesia’s wealthiest individuals have also signed up. Tax offices have stayed open until midnight. “There has been rapid development
Indonesian labourers shout slogans during a rally toward the presidential palace in Jakarta on Thursday. Thousands of labourers staged a protest against the government’s tax amnesty programs and demanded better wages and living standard.
this month,” Finance Minister Sri Mulyani Indrawati told reporters on Thursday. The former World Bank managing director said a parliament hearing that while many countries have done tax amnesties, Indonesia “is at the highest position” among them with revenue collection equivalent to 0.65 per cent of gross domestic product.
Key Points Thousands join on the last day to get most attractive terms More than 325,000 people joined, declaring more than US$250 bln Penalties to go up by 1-2 pct points from Saturday India received revenue representing 0.58 per cent of GDP, Chile 0.62 per cent, Italy 0.2 per cent and South Africa 0.17 per cent, Indrawati said. Wellian Wiranto, OCBC economist, wrote that the success of the amnesty “marks the start of a silent paradigm shift that would change Indonesia’s political economy dynamic for the better”. Wiranto noted that Indonesians who join the amnesty will “learn to demand a say in how their money is spent by the government” after they commit to paying taxes on their income. To encourage more amnesty participation, the government is letting participants declare their assets and pay a penalty by Friday, but submit paperwork by December 31. Not everyone has been happy about the amnesty. A lawsuit challenging it as forgiving past crimes of rich taxpayers has been filed in the Constitutional Court, which will rule at a later date. Reuters
14 Business Daily Monday, October 3 2016
International In Brief Private survey
OPEC oil output hits record on Iraq, Libya boost OPEC’s oil output is likely to reach its highest in recent history in September, a Reuters survey found on Friday, as Iraq boosted northern exports and Libya reopened some of its main oil terminals. The increase comes despite lower output in top exporter Saudi Arabia and this week’s agreement by the Organization of the Petroleum Exporting Countries in Algeria to limit supply to support prices, its first such decision since 2008. Supply from OPEC has risen to 33.60 million barrels per day (bpd) in September from a revised 33.53 million bpd in August, according to the survey. Brexit
Sterling in worst run of quarterly losses since 1984 Sterling edged up on Friday but was on track for a fifth consecutive quarter of losses against the dollar - the currency’s worst run since 1984. The pound plunged to a 31-year low after Britain voted to leave the European Union, falling as low as US$1.28 early in the third quarter, having already weakened in the run-up to the June referendum on worries about its outcome. Sterling is now trading more than 40 U.S. cents - or 25 per cent - lower than the six-year highs it reached in mid-2014.
Fine expected
EU wants Google to stop anti-competitive practices The penalty could be based on revenue generated from AdWords clicks by European users, Google Search product queries, Play Store apps purchases and AdMob’s in-app advertisements. Foo Yun Chee
E
U antitrust regulators plan to order Alphabet’s Google to stop paying financial incentives to smartphone makers to pre-install Google Search exclusively on their devices and warned the company of a large fine, an EU document showed. Th e d o c u m e n t, r u n n i n g t o more than 150 pages, was sent to complainants last week for feedback. Google received a copy in April in which the European Commission accused it of using its dominant Android mobile operating system to shut out rivals. The EU competition enforcer in its charge sheet, known as a statement of objections, said it planned to tell the U.S. technology giant to halt payments or discounts to mobile phone manufacturers in return for pre-installing Google’s Play Store
with Google Search. The regulators also want to prevent Google from forcing smartphone makers to pre-install its proprietary apps if this restricts their ability to use competing operating systems based on Android. Google “cannot punish or threaten” companies for not complying with its conditions, according to the document seen by Reuters. The Commission’s investigation followed a complaint by FairSearch, a lobby group supported by companies that want to ensure they are not disadvantaged by search engine market dominance, in March 2013. Google could face a large fine because the anti-competitive practices, which started from January 2011, are still on-going, the document said. “The Commission intends to set the fine at a level which will be sufficient to ensure deterrence,” it said.
Commission spokesman Ricardo Cardoso declined to comment. Google said: “We look forward to showing the European Commission that we’ve designed the Android model in a way that’s good for both competition and consumers, and supports innovation across the region.” Separately, the Commission, which has also charged Google of favouring its own shopping service over those of rivals, could also fine it in that case, according to a second charge sheet seen by Reuters. Google may have to rank rival comparison shopping services in the same way as its own services, the charge sheet sent in July and forwarded to its foes last week said. The document, close to 150 pages, was heavily edited, with large sections of confidential information redacted by Google. The Commission said it would decide at a later stage whether to let Google charge competitors for displaying their services prominently, with the amount corresponding to Google’s operating cost or a nominal amount based on the lowest reserve price for AdWords which is currently 0.01 euro per click. Reuters
Weak consumption
U.S. consumer spending falls unexpectedly U.S. consumer spending unexpectedly fell for the first time in seven months in August but inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates. The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1 per cent last month after accounting for inflation. Robust consumer spending partially offset weak business investment and falling business inventories in the second quarter when the economy expanded at a lacklustre 1.4 per cent annual rate. ???
Nigeria spends US$2.4 billion to defeat recession Nigeria has spent 720.5 billion naira (US$2.4 billion) on capital expenditure this year to help drag Africa’s biggest economy out of recession, President Muhammadu Buhari said on Saturday. He also said the government has been negotiating to end militant attacks on oil and gas facilities in the Niger Delta, the country’s oil hub, but would not be intimidated by armed groups. He said oil production had temporarily dropped to less than one million barrels a day, down from 2.2 million bpd, due to militant attacks, but he did not say how much current output was.
Markets
Global equity deals pick up Bankers said some listings were postponed to August and September. Global equity fundraising rose in the third quarter, Thomson Reuters data showed on Friday, but failed to make up for the sharp slowdown of the first half of 2016, when volatile markets deterred listings. Equity fundraising worldwide fell 30 per cent to US$463.5 billion in the year to date. Bankers said a robust pipeline of deals may improve conditions over the next two quarters but equity fundraising is unlikely to reach levels seen last year. Money raised from flotations, or initial public offerings (IPOs), fell more than a third to US$79.2 billion in the first three quarters, the slowest such period since 2009, Thomson Reuters Equity Capital Markets (ECM) data showed. Bankers said deals which could not be done earlier in the year because of choppy market conditions saw their window in the last few months, resulting in an unseasonably busy third quarter. Global ECM volumes rose 23 per cent to 166.1 billion in the third quarter, compared to the same period in 2015. Global markets were on track for their biggest quarter-on-quarter boost for five quarters, compared
to a decline in the first three months of the year. Worries about a slowdown in China, the world’s second biggest economy, and falling oil prices which hit US$27 a barrel in January, made for a volatile first quarter with investors wavering between calm and panic.
Lukewarm issue
In the final days of the quarter, a US$7.4 billion IPO of Postal Savings Bank of China made a flat debut in Hong Kong as worries over the health of the banking sector squeezed retail demand. The IPO was the biggest in two years and drove a more than five-fold increase in the value of IPOs in China in the quarter. Shares in Dutch online food-ordering site Takeaway.com made their debut on Friday and were up more than 6 per cent compared with their issue price. The demand for shares in Nets, issuer of Denmark’s most used debit card, exceeded expectations last week, but it closed 8 per cent below its offer price on Friday. The tech business was valued at US$4.5 billion, nearly double what
Advent International, Bain Capital and pension fund ATP paid for it two years ago. Bolstered in part by a US$4.1 billion convertible bond issue for Vodafone in February, JP Morgan came out top of the league table for equity offerings. It was also the top book runner on IPOs globally.
Key Points Global ECM falls 30 pct to US$463 bln YTD Global IPO volume down 34 pct to US$79 bln YTD JP Morgan tops global league table An IPO of British mobile unit O2 by Spain’s Telefonica is expected to be one of the biggest listings in London later this year, with the group expected to take advantage of the relative market calm following the Brexit vote. The firm has hired UBS, Morgan Stanley and Barclays as global coordinators for the listing, which could value O2 at about 10 billion pounds (US$13 billion). Bankers said they had a robust stream of equity raising deals coming up, but no bank was likely to see the business pipeline of 2014-15, when a season of private equity exits helped keep ECM bankers busy. Reuters
Business Daily Monday, October 3 2016 15
Opinion Business Wires
The Korea Herald Samsung’s newest Galaxy Note 7 boasted strong sales on its first day of relaunch, industry sources said yesterday, after the tech giant ordered a full recall over the defective battery issues. The new device saw its sales reach 21,000 units in South Korea on Saturday after Samsung officially resumed the sales for the first time after it suspended all shipments last month. The company first kicked off sales of the much-awaited mobile device on August 19, but sales were suspended shortly afterward due to reports of some handsets catching fire while charging.
Escaping the new normal of weak growth
T The Times of India India’s select industrial output rose by 3.2 per cent in August from a growth of 3.00 per cent in July, official data showed on Friday. The gauge for select factory output — Index of Eight Core Industries (ECI) — had risen by 3.2 per cent in the corresponding month of 2015. The cumulative growth during April to August stood at 4.5 per cent. The data which represents the output of major infrastructure sectors was released by the Ministry of Commerce & Industry. The ECI comprises nearly 38 per cent weightage of the items included in the Index of Industrial Production (IIP).
Taipei Times President Tsai Ing-wen yesterday said she will call a policy coordination meeting every week starting tomorrow in the hope of making her administration’s policymaking more efficient and comprehensive. Through the mechanism, her administration will set the direction and tempo of important policies, and discuss how to divide up the work, said Tsai, who serves concurrently as chairperson of the Democratic Progressive Party (DPP). Besides Tsai, the meetings will be attended by Vice President Chen Chien-jen, Premier Lin Chuan and Vice Premier Lin Hsi-yao, Presidential Office spokesman Alex Huang said.
Philstar DBS Bank of Singapore said it expects (Philippines’) inflation finally touching the lower end of the two to four per cent target set by the Bangko Sentral ng Pilipinas (BSP) in September. Gundy Cahyadi, economist at DBS, said September inflation was seen at two per cent after easing to 1.8 per cent in August from 1.9 per cent in July. He pointed out core inflation may have bottomed out in the second quarter of the year as it was expected to come in at 2.1 per cent in September. He pointed out food inflation is currently trending around three per cent.
here is no question that the recovery from the global recession triggered by the 2008 financial crisis has been unusually lengthy and anaemic. Some still expect an upswing in growth. But, eight years after the crisis erupted, what the global economy is experiencing is starting to look less like a slow recovery than like a new low-growth equilibrium. Why is this happening, and is there anything we can do about it? One potential explanation for this “new normal” that has gotten a lot of attention is declining productivity growth. But, despite considerable data and analysis, productivity’s role in the current malaise has been difficult to pin down – and, in fact, seems not to be as pivotal as many think. Of course, slowing productivity growth is not good for longer-term economic performance, and it may be among the forces holding back the United States as it approaches “full” employment. But, in much of the rest of the world, other factors – namely, inadequate aggregate demand and significant output gaps, rooted in excess capacity and underused assets (including people) – seem more important. In the eurozone, for example, aggregate demand in many member countries has been constrained by, among other things, Germany’s large current-account surplus, which amounted to 8.5 per cent of GDP in 2015. With higher aggregate demand and more efficient use of existing human capital and other resources, economies could achieve a significant boost in mediumterm growth, even without productivity gains. None of this is to say that w e sh o u l d i g n o r e th e productivity challenge. But the truth is that productivity is not the principal economic problem right now. Tackling the most urgent problems confronting the world economy will require action by multiple actors – not just central banks. Yet, thus far, monetary authorities have shouldered much of the burden of the crisis response. First, they intervened to prevent the financial system’s collapse, and, later, to stop a sovereign-debt and banking crisis in Europe. Then they continued to suppress interest rates and the yield curve, elevating asset prices, which boosted demand via wealth effects. But this approach, despite doing some good, has run its course. Ultra-low – even negative – interest rates have failed to restore aggregate demand or stimulate investment. And the exchange-rate transmission channel won’t do much good, because it does not augment aggregate demand; it just shifts demand around among countries’ tradable sectors. Inflation would help, but even the most expansionary monetary measures have been struggling to raise inflation to targets, Japan being a case in point. One reason for this is inadequate aggregate demand. Monetary policy should never have been expected to shift economies to a sustainably higher growth trajectory by itself. And, in fact, it wasn’t: monetary policy was explicitly intended to buy time for households, the financial sector, and sovereigns to repair their balance sheets and for growthenhancing policies to kick in. Unfortunately, governments did not go nearly far enough in pursuing complementary fiscal and structural responses. One reason is that fiscal
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Michael Spence a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution.
authorities in many countries – in particular, in Japan and parts of Europe – have been constrained by high sovereign-debt levels. Furthermore, in a low interest-rate environment, they can live with debt overhangs. For highly indebted governments, low interest rates are critical to keep debt levels sustainable and ease pressure to restructure debt and recapitalize banks. The shift to a high sovereign-debt-yield equilibrium would make it impossible to achieve fiscal balance. In the eurozone, the European Central Bank’s commitment, announced in 2012, to prevent debt levels from becoming unsustainable is politically conditional on fiscal restraint. There are also political motivations at play. Politicians simply prefer to keep the burden on monetary policy and avoid pursuing difficult or unpopular policies – including structural reforms, debt restructuring, and the recapitalization of banks – aimed at boosting market access and flexibility, even if it means undermining mediumterm growth. The result is that economies are stuck in a so-called Nash equilibrium, in which no participant can gain through unilateral action. If central banks attempt to exit their aggressively accommodative policies without complementary actions to restructure debt or restore demand, growth, and investment, growth will suffer – as will central banks’ credibility, or even their independence. But exit they must, because expansionary monetary policies have reached the point at which they may be doing more harm than good. By suppressing returns to savers and holders of assets for a protracted period, low interest rates have spurred a frantic search for yield. This takes two forms. One is rising leverage, which has increased globally by about US$70 trillion since 2008, largely (though not entirely) in China. The other is capital-flow volatility, which has driven policymakers in some countries to pursue their own monetary easing or to impose capital controls, in order to prevent damage to growth in the tradable sector. It is past time for political leaders to show more courage in implementing structural and socialsecurity reforms that may impede growth for a time, but will stabilize their countries’ fiscal position. More generally, fiscal authorities need to do a much better job of cooperating with their monetary counterparts, domestically and internationally. Such action will probably have to wait until the political consequences of low growth, high inequality, mistrust of international trade and investment, and the loss of central-bank independence become too great to bear. That probably won’t happen right away; but, given the rise of populist leaders seizing on these adverse trends to win support, it may not be too far off. In this sense, populism can be a beneficial force, as it challenges a problematic status quo. But the risk remains that, if populist leaders do secure power, they will pursue policies that lead to even worse results. Project Syndicate
Fiscal authorities need to do a much better job of cooperating with their monetary counterparts, domestically and internationally.
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16 Business Daily Monday, October 3 2016
Closing Private survey
Golden Week to see rising tourism revenue
(US$70 billion) during the period. The number of outbound tourists is expected China’s “Golden Week” holiday (National Day to hit a record high of 6 million, with the honour ceremony in Beijing pictured) is set to Republic of Korea, Thailand and Japan being justify its title with a surge in tourism revenue, the most-favoured destinations. The holiday spree is also likely to give rise to according to a survey by China Tourism public complaints about crowded transport, Academy and Ctrip, an online travel agent. The survey, based on analysis of more than 1.7 destinations and restaurants as well as traffic congestion. billion Ctrip app users, China’s major tourist According to statistics from China Railway destinations are expected to receive a total Corporation, on Saturday, the first day of the of 589 million visitors during the holiday, up holiday, a record of 14.4 million passengers 12 per cent from last year. Tourism income travelled, up 15 per cent year on year. Xinhua should rise 13.5 per cent to 478 billion yuan
Smartphones
Advertising on mobile: it’s all about ‘stopping the thumb’ Digital ad spending is projected to reach US$72.1 billion in 2016. John Biers
A
lmost 80 years old, the deodorant Old Spice is learning new tricks for finding customers in the era of smartphones and social media. The Procter & Gamble product, having spoofed itself for years with advice on how to become more “mantastic,” posts to its 2.6 million Facebook followers a steady stream of video games, prize entries, and advertisements as short as two seconds. Creating “thumb-stopping” content is the goal, and marketers are doing everything they can to achieve it. That includes using neuroscience to study which visual and audio cues offer the best bet to grabbing and keeping an impatient smartphone user’s attention. Estimates show that the average person looks at his or her smartphone as much as 150 times a day. The attention is there, but it’s just not long-lived. “ Y o u g et th e th r e e-s ec o n d audition,” said Frank Amorese, media director at Heineken USA. “If you are relying on the 14th or 15th second to do the heavy lifting of the ad, it’s not going to work.”
changing at an increasingly fast rate.” Digital ad spending is projected to reach US$72.1 billion in 2016, growing at a rate of 21 per cent and now comprising almost 37 per cent of the overall market, according to eMarketer. Social media accounts for US$15.4 billion of this. Heineken has doubled its spending on digital ads to 30 per cent over the last five years. The dominance of smaller mobile devices has heightened the challenge of capturing the attention of potential shoppers. Ads must be tailored depending on whether they are being seen on a widescreen television, a tablet or a smartphone and must not demand too much time if a consumer is merely
glancing at a feed and not planning on a lengthy stay. “We have to really identify how do consumers engage with every single platform and then what is the creative experience we need to give them,” said P&G chief brand officer Marc Pritchard at the four-day Advertising Week conference in New York this week. “But it also has to look like one brand because people have 5,000 ads coming at them every day and that’s 10 times what it was just 10 years ago.”
Measuring ‘sharing velocity’
Anna Fieler, chief marketing officer at PopSugar, a women’s shopping and content site, said marketers are devising benchmarks like “sharing velocity” to monitor resonance. “Shareability is the gold standard of how engaged people are,” she
Ever-changing mobile landscape
Advertisers are in a dizzying race to connect with customers as new mobile-borne social media platforms emerge and evolve. “The landscape changes every six months,” Amorese said. “It’s
said. “People like it so much that they want to share it with someone else.” Not all Ads place the brand front and centre. Frito-Lay, which spends about 40 per cent of its advertising budget on digital media, offers tips on its Facebook feed on professional mentoring and networking, in addition to the usual fare of ads that aim to excite and amuse. “People are using social media to build their (personal) brand,” said Jeff Klein, vice president of brands and portfolio marketing. Sometimes Frito-Lay just “takes a little bit of a back seat.”
‘Upload videos like crazy’
Much of the buzz at the Advertising Week conference was the wildfire growth of video streaming and broadcast of live events. Facebook vice president Will Platt-Higgins predicted video could comprise 80 per cent of all smartphone content by 2020. “You’ve got the perfect marriage of basically a supercomputer, which is in your pocket, plus super powerful Wi-Fi, plus a video composer and a high-definition camera,” he said. “All of that together creates the perfect storm for all of us to upload videos like crazy and that’s what’s happening.” The growth of video also opens up new opportunity for rivals like Twitter, which has lagged Facebook in terms of building profits from ads. Twitter posted 18 per cent growth in advertising revenue last quarter spurred by video. It is betting that marketers will see more upside in plans for live events in pro football and other sports. Video “is the number one ad format for us now and it barely existed a year ago,” said Matt Derella, vice president of global revenue and operations at Twitter. “It’s risen extremely fast and it’s driven by consumer behaviour.” AFP
EU negotiation
Real estate
Investment
May to pull Brexit trigger by March
Chengdu, Zhengzhou Nation’s medtech sector restrict property purchases hot spot for M&A
Prime Minister Theresa May said she’ll begin the U.K.’s process of withdrawal from the European Union in the first quarter of next year in her clearest announcement yet about her government’s Brexit strategy. “I will be saying in my speech today that we will trigger before the end of March next year,” May said yesterday in an interview with BBC Television’s “Andrew Marr Show” before the start of her Conservative Party’s annual conference in Birmingham, central England. By invoking Article 50 of the EU’s Lisbon Treaty, May will set in motion two years of discussions to formulate the nature of Britain’s relationship with the bloc’s 27 other members. May also said she’ll introduce a bill next year to convert all EU laws into U.K. legislation on the day that Brexit is completed. “The remaining members of the EU have to decide what the process of negotiation is. I hope and I’ll be saying to them that now that they know what our timing is going to be - it’s not an exact date, but they know that it’ll be in the first quarter of next year - that we’ll be able to have some preparatory work so that once the trigger comes we have a smoother process of negotiation,” May said. Bloomberg News
Chinese cities have announced new restrictions on property purchases, the latest among secondand third-tier cities across the country to try to cool soaring home prices. Residents of the inland city of Zhengzhou who already own two properties and non-residents who own one will now only be able to buy homes larger than 180 square meters, according to a notice posted on the local government’s website late on Saturday. In Chengdu, the capital of southwest Sichuan province, prospective buyers will only be allowed to purchase one property in certain city districts, and those buying their second property will need to place a down payment of no less than 40 per cent of the purchase price, the local government said. The Chengdu government also said it would penalise developers who were sitting on land without starting construction on time as promised and would clamp down on rumour mongering. Such cities have become the target of property speculators looking for the next big thing beyond China’s major cities. Other cities such as Tianjin, Hefei and Suzhou have also recently introduced measures to limit purchases as home prices jump. Reuters
China’s medical technology sector has attracted numerous investors with a growing value of mergers and acquisitions (M&A), according to a recent report by the Boston Consulting Group (BCG). The total number of medtech M&As in 2015 turned out to be almost three times that posted in 2013, with the aggregate value of deals rising to US$4 billion in 2015 from US$1.5 billion in 2013. These M&As featured more private equity and venture capital and more cross-industry acquisitions. High-value consumables and in-vitro diagnosis sub-sectors have become focal points of domestic deals. Valuations of Chinese medtech companies are relatively high due to rising interest in the medtech market, relatively few good targets for acquisition, and a comparatively rosy outlook for business growth and the profitability of Chinese companies, the report added. “For multinationals, acquisition of Chinese players can help them enter into the medium and low-end product segments, aside from their existing high-end product segments, and also entitle them to certain favourable policies targeting Chinese companies,” according to Ying Luo, a BCG partner who leads BCG Greater China’s medtech practice. Xinhua