Imperial Pacific VIP roll jumps 1.5 times Gaming Page 7
Tuesday, October 4 2016 Year V Nr. 1144 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Telecom
www.macaubusinessdaily.com
Real estate
Leased-line tariffs may drop by year-end Page 2
World Bank
More Chinese cities adopt measures to rein in property bubble growth Page 9
A private report highlights China’s success in fighting poverty Page 10
Golden Week: not so glittering Retail
Sales were lower for the first three days of Golden Week, retailers tell Business Daily. They blame a decrease in overall visitor arrivals, which were down by 10.4 pct y-o-y in the first two days, according to the latest official data from MGTO. Lower visitor expenditure and new attractions in Cotai are also factors, retailers say. Page 3 Cheong Kam Ka
Keep it up!
Gaming Analysts predict casino revenue will remain positive for this month, with estimates of an increase of 3.5 to 8.5 pct y-o-y. They believe the recent opening of The Parisian Macao will prop up the trend, but the new casino-resort is likely to cannibalize other Sands’ properties. Page 7
Mending capacity
China’s reform The government’s drive to control excess capacity in coal production has been too successful. The restraint move in the secondary sector has pushed up commodity prices to the extent that authorities now need to amend the plan and stimulate the industry. Pages 8 & 9
Premier coming to town
China’s Premier Li Keqiang will visit the city for three days next week from October 10 to 12, the MSAR gov’t has confirmed, to attend the 5th ministerial conference of Forum Macao.
Portuguese-language books need a home
Politics Page 2
HK Hang Seng Index October 3, 2016
23,572.38 +275.23 (+1.18%) Worst Performers
Bank of East Asia Ltd/The
+3.18%
Sino Land Co Ltd
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China Overseas Land &
China Mengniu Dairy Co Ltd
+2.78%
Want Want China Holdings
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China Resources Land Ltd
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MTR Corp Ltd
+0.12%
Galaxy Entertainment Group
+2.74%
Tencent Holdings Ltd
+1.78%
Sun Hung Kai Properties Ltd
-0.51%
Kunlun Energy Co Ltd
+0.17%
AAC Technologies Holdings
+2.44%
China Mobile Ltd
+1.76%
BOC Hong Kong Holdings
-0.19%
Li & Fung Ltd
+0.25%
China Merchants Port Hold-
+2.42%
China Unicom Hong Kong
+1.50%
New World Development
+0.00%
Cheung Kong Infrastructure
+0.30%
-2.09%
CLP Holdings Ltd
25° 29° 25° 30° 25° 31° 26° 31° 26° 30°
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Today
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Society The MSAR’s archive of Portuguese-language books is the largest in Asia, but many of them are stored in an industrial building due to limited space in local libraries. Hopefully, the new central library will offer them a new home. Page 5
2 Business Daily Tuesday, October 4 2016
Macau Politics
The Chinese official to stay in the territory for three days
Li Keqiang confirmed to visit MSAR next week The Premier will attend the 5th Ministerial Conference between China and the Lusophone world, in addition to inspecting the Special Administrative Region. Nelson Moura Nelson.moura@macaubusinessdaily.com
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hina’s Premier Li Keqiang is to visit the Special Administrative Region between October 10 and 12, in order to attend the opening ceremony of the 5th Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguesespeaking countries (Forum Macao), the MSAR government confirmed yesterday. Mr. Li is one of the national leaders confirmed to be attending the SinoLuso forum. Other leaders from the Lusophone world include: the Prime Minister of Portugal, António Costa;
the Prime Minister of Cape Verde, José Ulisses Correia e Silva; the Prime Minister of Guinea-Bissau, Baciro Djá; the Prime Minister of Mozambique, Carlos do Rosário; in addition to the economy and trade ministers from Brazil, Angola and East Timor. H o w ev e r, A f r i c a n c o u n t r y São Tomé and Príncipe is not dispatching any representative to the conference, making it the only Portuguese-speaking country not to be represented during the two-day ministerial forum.
Thinking ahead
The opening ceremony of the 5th Ministerial Conference will kick off on the morning of October 11, presided over by Gao Hucheng, the
Telecom
DSRT: CTM’s leased-line tariffs hopefully cut by year-end Deputy director of the Bureau of Telecommunications Regulation (DSRT), Tam Van Iu, claimed the government and local telecom operator Companhia de Telecomunicações de Macau SARL (CTM) would strive to lower the tariffs of the company’s leased line services by the end of this year. According to local Chinese language newspaper Macao Daily News, the DSRT acting head said her department is following up on the tariff decrease proposal, adding that the proposal would only be green lighted after the Secretary for Transport and Public Works Raimundo do Rosario explains the plan to a sub-committee of the Legislative Assembly at the end of this month, and consensus among related parties is reached. Starting this month, the telecom operator has decreased its tariffs on both broadband and fibre broadband services, it announced in September. Asked by reporters whether the Bureau agreed with the cut by CTM, Ms.
Tam declined to answer the question directly, only saying the government would try its best to roll out more appropriate and reasonable tariffs based on the demands of local residents. She added that the Bureau had requested the telecom operator to adjust its tariffs based on the actual situation locally. Meanwhile, Ms. Tam declined to comment on the government’s position regarding whether or not to renew its current contract with CTM for public concession assets, when the concession expires at the end of the year. She claimed that the government’s position would only be presented to the legislature by Secretary Rosario at the end of this month. In addition, she remarked that the procedures for merging the DSRT and Macau Post would be completed by the end of the year, indicating the current merging progress was primarily focused on clarifying the financial accounts of the two bodies.
Chinese minister of Commerce. Ministerial meetings will follow in the afternoon focusing on defining the areas and modalities of cooperation between China and Portuguesespeaking countries for the period between 2017 and 2019. A conference for businessmen and financial representatives will also be held on the morning of October 12, according to a press release by the MSAR government. The announcement also stated that the presence of China’s Premier would be an opportunity to consolidate and further strengthen the role of the Special Administrative Region as a service platform for economic and trade cooperation between China and Portuguesespeaking Countries.
Inspection tour
China’s official news agency Xinhua indicated yesterday that the Chinese Premier’s visit to the city would also
be an ‘inspection tour’ of the territory, while the MSAR government considers the Premier’s presence will be part of the efforts to build ‘solid bases’ of the ‘one platform and three centres’ policy. In his speech for the National Day anniversary on October 1, the MSAR Chief Executive Fernando Chui Sai On stated that the conference “is a major event at the national level and throughout the Special Administrative Region of M acau,” urgin g all “social sectors” involved in organizing the conference to redouble their “ e f f o r ts i n p r e p a r i n g f o r th e sake of meeting success” and to consolidate the role that Beijing attributed to Macau in 2003 with the creation of Forum Macao. Since its foundation 13 years ago, Forum Macao has organised four Sino-Luso Ministerial Conferences, in 2003, 2006, 2010 and 2013 respectively.
Business Daily Tuesday, October 4 2016 3
Macau
Tourism
Retailers: sales down for Golden Week The decrease in total visitor arrivals to the city has affected overall retail sales. Annie Lao annie.lao@macaubusinessdaily.com Photos by: Cheong Kam Ka
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ocal retailers saw their sales performance decline for the first three days of the National Day Golden Week compared to the same period last year, as total visitor arrivals decreased, Business Daily has learnt. “The overall number of visitors visiting our store is lower than last year’s Golden Week. We received a lot more tourists last year,” said Kevin Ng, an assistant sales supervisor at a store of Hong Kong-listed TSL Jewellery in the city’s central area. According to the official data released yesterday by the Macau Government Tourism Office (MGTO), visitor arrivals for the first two days of the National Day Golden Week decreased by 10.2 per cent year-onyear, with the number of visitors from Mainland China also falling by 14.7 per cent year-on-year. (see box) The sales supervisor at TSL told Business Daily that his retail store recorded a five per cent decrease in sales for the first three days of the holiday, compared to last year. Mr. Ng believes the fall in sales is due to many Mainland Chinese visitors having opted to take long-haul trips during this Golden Week, rather than visiting Macau. “Most of my previous clients told me that they are travelling outside Asia this year,” he said. Some 90 per cent of the store’s customers were from Mainland China, Mr. Ng said. As the number of Mainland Chinese visitors has declined this year, he said his company has had to offer discounts in order to attract buyers.
Mass watch retailers suffer too
Luxury retailers are not the only ones suffering from the decrease in the number of visitors during the weeklong holiday. Mass watch retailer Relojoaria Yu Xing Long Limitada, whose stores are primarily located in the tourist areas, also told Business Daily that their sales have dropped during the past three days.
“We saw more visitors [yesterday] than the first two days. But our sales, in fact, have been low for several years,” said Ms. Ng, a cashier of the company. She added that the declining sales are due to changes in the consumption patterns of tourists. “The demand for watches is not as high as before. Most Mainland Chinese tourists visit Macau for entertainment and food. Our customers primarily purchase watches for selfuse, which is different from the past, when they tended to buy watches for presents,” the cashier claimed. Facing a more difficult operational environment, Ms. Ng said her company is striving to enhance their customer service in order to win back buyers.
Food souvenir sales down
Meanwhile, food souvenir shops like Macau Yeng Kee Bakery, a local brand run by Hong Kong-listed Future Bright Holdings Ltd. also experienced a similar situation in terms of sales during the first three days of the holiday, Ms. Lau, a senior shop assistant, told Business Daily. “We had more tourists coming [yesterday] than over the weekend,
with an increase of 30 per cent,” the senior shop assistant noted. However, according to Ms. Lau, overall sales at her store have registered a drop of 20 per cent, compared to the same period last year. Ms. Lau explained that although more Mainland Chinese tourists are visiting the bakery during Golden Week than on normal business days, they are spending less compared to last year. Again, the bakery brand needs to offer promotional discounts in order to attract more customers. “We have
Visitor arrivals total 293,915 in first two days
The first two days of Golden Week attracted a total of 293,915 visitors, of which 80 per cent, or 235,839 visitors, were from Mainland China, official data from MGTO showed yesterday. The Border Gate recorded the highest number of visitor arrivals compared to other ports of entry to the city, with a total of 102,232 entries recorded, accounting for 64.1 per cent of the total. Most Mainland Chinese visitors - 96,345 - arrived in the city through the Border Gate, accounting for 76 per cent of total Mainland Chinese visitor arrivals.
offered more discounts than last year, hoping to stimulate sales. We still see customers coming, but the quantity they buy is not the same as they used to,” the assistant said. In her opinion, the decrease in sales at her store may also be due to tourists preferring to buy similar products inside the casino resorts in Cotai, even though the selling prices there are higher than on the Macau Peninsula. “The openings of Wynn Palace and The Parisian Macao have had a direct impact on the businesses in Rua de São Paulo, which is near the major tourist attraction of the Ruins of St. Paul’s,” Ms. Lau observes. Looking forward, the senior shop assistant believes that the sales figures of her store will remain low for the rest of the year.
The second most popular entry port for Mainland Chinese tourists was the Lotus Bridge border crossing in Cotai, where 14,526 arrivals were recorded, accounting for 11.5 per cent of the total. The data from MGTO also includes the arrivals of non-resident workers and students, the Office noted. Additionally, another 318,000 border-crossings had been recorded as of 5pm yesterday, the Public Security Police Force (PSP) said. According to the data, 233,000 crossings were registered at the Border Gate, with arrivals from Mainland China accounting for 138,000 of the total crossings.
4 Business Daily Tuesday, October 4 2016
Macau Transportation 17 Uber rides caught
59 taxi violations prosecuted in first two days of Golden Week
(17 cases). Meanwhile, the police also prosecuted 18 cases of The Public Security Police Force unlicensed taxi services over the (PSP) said yesterday that it had two-day period, of which 17 were prosecuted a total of 59 taxi related to car-hailing application violations during the first two days Uber. The PSP emphasised of the National Day Golden Week. yesterday that it would continue The cases were primarily related to focus on combatting taxi to drivers overcharging (35 cases) violations and unlicensed taxi and refusing to take passengers services in the city. C.U.
Anti-corruption
CCAC looking into complaints against observatory head The anti-graft body says it has received complaints about Fong Soi Kun’s decision to not hoist the no.8 signal when Typhoon Nida was hitting southern China at the beginning of August. Nelson Moura nelson.moura@macaubusinessdaily.com
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he Commission Against Corruption (CCAC) is considering whether there are sufficient grounds to launch a probe into the complaints against the Director of the Macau Meteorological and Geophysical Bureau (SMG), Fong Soi Kun, for his handling of Typhoon Nida in August, TDM Radio reported. The city’s anti-graft commissioner, André Cheong Weng Chon told reporters on Sunday that CCAC had received complaints about SMG’s refusal to hoist the typhoon signal no.8 when Typhoon Nida was hitting southern China between August 1 and 2. “After receiving the complaints, CCAC is now looking into them in a usual manner,” the local broadcaster quoted the official as saying. But the CCAC head declined to disclose the current progress of the case, nor how long the inquiry could take, adding that the department
is currently dealing with many investigations. “I think on the one hand, the public has recognised our efforts, on the
other hand, it shows an increase in civic awareness,” he said, quoted by the news outlet. According to the official, the results of the investigation will only be made public if it is deemed to involve the public interest. During the two days of Typhoon Nida, typhoon signal no.3 was hoisted for 20 hours, while all flights and ferries in and out of the
Special Administrative Region were cancelled. The decision led to a public apology by Secretary for Transport and Public Works, Raimundo do Rosario, who claimed the situation was created by miscommunications at the SMG. The director of the local observatory also came forward to apologize afterwards, admitting he hadn’t handled the situation well enough.
Housing
Customs
Social Housing subsidy scheme receives 15 new applications
E-channel separation
The Housing Bureau had received 15 new applications for Social Housing Temporary Subsidies by the end of September, of which one application has been approved, according to the Bureau’s press release yesterday. The financial-aid scheme, which has been extended to August 31 next year, is to give out subsidies amounting to MOP1,650 (US$206.3) per month to approved family applicants with one to two members, while those with three or more members will receive MOP2,500 per month. Currently, the Bureau is still
assessing 13 other applications it has received, while one family applicant has withdrawn their request. As at the end of September, 594 families were receiving government financial aid via the scheme, the Bureau said. In addition, the housing department said that a total of 1,868 selected family applicants from the social housing application in 2013 had been provided units as of the end of last month. A total of 3,848 applicants were approved social housing units in the 2013 application. C.U.
Gongbei Border considering dividing e-channels for Macau & Mainland residents The Zhuhai Gongbei Customs i s c o n si d e ri n g s e p a rati n g i ts e-channels for local and Hong Kong residents from that of Mainland Chinese citizens, in order to boost the efficiency of border crossings at its checkpoints, TDM Radio reported. The proposal was submitted by the city’s National People’s Congress (NPC) delegate and local businessman, Lao Ngai Leong, who has been invited to be a supervisor of the Gongbei Customs. Th e N PC d e l egat e t o l d th e broadcaster yesterday morning that the Mainland authorities agree with the viability of the proposal, however they believe the implementation of the suggestion may take some time,
given the long opening hours and space limitations of the current Gongbei clearance building. Mr. Lao added that the Gongbei Customs is considering carrying out renovations of the main hall of the Gongbei checkpoint. In order to increase the efficiency of the border crossing, Gongbei Customs set up 10 robots at its checkpoints to assist with answering travellers’ questions amidst the waves of border traffic between Mainland China and the MSAR during the National Day Golden Week. According to the director of the Gongbei Customs, Zhao Min, the robots have been set up at the customs checkpoints at Gongbei, Hengqin and Zhongshan port. Mr. Zhao claims that the robots are able to answer some 3,000 frequently asked questions. They are also equipped with voice and face recognition systems, which will help with fighting smuggling and spotting suspicious persons.
Business Daily Tuesday, October 4 2016 5
Macau Society Book archive to fill new central library
Turning a new page
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he MSAR has the largest archive of Portuguese-language books in Asia, some of which are stored in an industrial building due to lack of space, a situation which has existed since the Portuguese administration and which the authorities are now attempting to resolve with the development of the new central library. “These books are [stored] in different areas because of lack of space. They’re not only in Portuguese, there are also books in Chinese. Of about 160,000 foreign language books, 85,000 are in Portuguese, which represents an increase of about 10,000 works since the end of the Portuguese administration in Macau, in 1999, Fanny Hong, head of the Division for Developing Bibliographic Resources of the Bureau, says. These 85,000 books are divided between various libraries as well as being stored in an industrial building, where various works are undertaken, including cataloguing, disinfecting and adding to microfilm. Of the total Portuguese archive, about 5,000 works are in the old library of Leal Senado, the former town hall of Macau, which houses the Civic and Municipal Affairs Bureau. “Not all of the books come from Portugal, because here (in Macau) we also publish books in Portuguese. Sometimes we trade (with international libraries),” states researcher Stella Lee, noting that some old collections were donated by individuals, namely Macanese families. Ms. Lee adds that priority is given to adding the Portuguese language newspapers to microfilm because
they “represent the history of Macau”.
Restoration
According to Francisco Chan, one of the two full-time workers dedicated to conservation and restoration of books in the Leal Senado library, a quarter of the 5,000 books in Portuguese in the Leal Senado library need to be restored. “As there aren’t enough workers to handle these types of books, what we could do is improve the environment
to achieve higher quality of storage, and then move on to the restoration of the books one by one,” he says. The objective of the local authorities is to gather the archive of the Portuguese-language books in the new central library in Macau, which will occupy two buildings, the Old Court Building and the Judiciary Police headquarters in the center of the city, with a total of 11 floors and an area of 33,000 square meters with a maximum height of 53 meters.
Discussions on the project began around 10 years ago, but the project was suspended following a Commission Against Corruption investigation. The project was later passed to the Cultural Affairs Bureau in concert with the Public Works department. This summer, new debates around the project began, following the announcement that the estimated cost of work would be around MOP900 million (US$112.5 million), a budget which the president of the Cultural Affairs Bureau, Guilherme Ung Vai Meng says could drop to MOP700 million, depending on inflation. Lusa
6 Business Daily Tuesday, October 4 2016
Macau Property Local businessman Eric Chiu eyeing Aussie property market
Sunny development Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ocal businessman Eric Chiu is setting his sights on the Australian real estate market with a property investment in the heart of Melbourne. The local businessman and former head of Asia Development for The Venetian Macao, is an investor in PCT Development and Management - a developer who purchased a site in
the city’s Southbank precinct to develop a premier hotel and apartment complex, according to publisher The Australian. Located behind a 90-story tower project under the lead of James Packer and Australian development group Schiavello, the nominal development cost for the project – whose current permit allows for a 73 level mixeduse tower – is around AUD400 million (MOP2.44 billion/US$305.2 million). Although the project’s hotel
component was originally slated to have 390 hotel suites, the number has since dropped to 299 hotel suites, and both the office space - amounting to 1,288 square metres - and the majority of the retail space for the project - originally 3,083 square metres and now 538 square metres - have been slashed or eliminated from the project, according to development site Urban Melbourne. The new purchasers of the development however, are pushing to
increase the number of residential apartments up from an initially slated 482 to a total of 607, banking on a recent trend by apartment developers to push forward luxury projects in the Australian cities of Melbourne and Sydney. The Southbank project, to be located at 38 Freshwater Place in the center of Melbourne, is led by a consortium comprised primarily of Asian interests including Macau’s Eric Chiu, Singapore’s Long Runn International investment company - of which Chiu is also President and Chief Operating Officer - and New South Wales-based Kevin Lui, notes the publication.
Real Estate Country Garden hits RMB174.29 billion in sales in first nine months
Build it up Chinese property developer Country Garden Holdings Company Ltd has generated a total of RMB174.3 billion (MOP208.5 billion/US$26.1 billion) in contracted sales, attributable to owners of the company, for the first nine months of the year, according to the group’s filing to the Hong Kong Stock Exchange. The Guangdong-based property developer is popular amongst local and Hong Kong investors for its residential properties in the Mainland, and rivals Guangzhoubased Agile Property Holdings Limited in property sales in the region. Agile’s most recently announced results show that it only achieved RMB35.9 billion in accumulated pre-sales for the first eight months of the year, with total gross floor area of 3.64 million square metres, lagging far behind Country Garden’s sales figures.
Country Garden achieved gross floor area sales attributable to the owners of the company of 22.37 million square metres during the first nine months of the year. This comes out of a total of 27.79 million square metres and a total of RMB225.57 billion in contracted sales handled by the company during the nine-month period.
The company announced unaudited contracted sales of RMB200 billion and contracted sales gross floor area of 24.83 million square metres up until September 19, an increase of 164 per cent and 112 per cent year-on-year respectively. This is the first time the group’s sales have reached the RMB200 billion
mark, notes its September filing, attributing the positive results to factors including a ‘favourable market environment’, exploration of products in different markets, a ‘reasonable marketing plan’ and the ‘sound execution of the partnership scheme’ it has with its affiliates and subsidiaries. K.W.
Business Daily Tuesday, October 4 2016 7
Gaming Gaming
Imperial Pacific VIP roll jumps 1.5 times in September
Casino operator Imperial Pacific International Holdings Ltd. generated US$3.95 billion (MOP31.5 billion) in VIP table game rolling chip turnover at its temporary casino on the Island of Saipan in September, according to a filing with the Hong Kong Stock Exchange on Sunday evening. The amount represents a significant increase of 153 per cent, up from US$1.56 billion
in August. The gaming company currently operates 16 VIP gaming tables on the island, in addition to 32 mass gaming tables and 144 electronic table games and slot machines. It is expected that the company’s new casino-resort on the archipelago, Imperial Pacific Resorts, will be unveiled by the end of the coming Chinese New Year period next January, and will provide 200 new gaming tables and 400 new slot machines. N.M.
photography.aiviremulla.com
Gaming October gaming revenue predicted to go up between 3.5 pct AND 8.5 pct
Up and away The Parisian Macao is expected to add an additional 100 basis points to the city’s total casino revenue in October, although the new property is likely to cannibalize the operator’s other properties through 2017-end, say analysts, who hold a bleak outlook for SJM in the near term. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com Photos by: Aivi Remulla
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n the wake of the 7.4 per cent year-on-year increase in gross gaming revenues for September, analysts are predicting that the fourth quarter results for the year ‘could be more telling’, however a ‘pickup’ in continued year-onyear growth will be in store the rest of the year. Analysts at Sanford C. Bernstein foresee the increase in the fourth quarter will be driven by a switch to mass from a ‘slowing decline in VIP gross gaming revenue’ complimented by the new project openings (Wynn Palace and The Parisian Macao) that are ‘helping drive Mass growth’. Deutsche Bank analysts are more speculative about upcoming results, given the higher expectations generated by the better-than-predicted September gross gaming revenue of MOP18.4 billion (US$2.3 billion). Analysts, led by Carlo Santarelli, opine that the ‘honeymoon periods’ of the two newly opened properties ‘played a role’ in this figure. Given the 18-day operation period of The Parisian Macao during the month of September, predictions by the Deutsche Bank analysts are for an additional 100 basis points increase for the month of October, placing the month’s year-on-year gross gaming revenue growth at 8.5 per cent. However, based upon a 13.4 per cent increase in the average win per day rate in October, when compared to September, the predictions lower to a 7.5 per cent year-on-year increase. Bernstein analysts, led by Vitaly Umansky, predict lower yearon-year increases in gross gaming
revenue of between three per cent and five per cent for October, based on anticipation of ‘mass potentially showing low double digit increases and VIP down mid-single digit decline.’ This would contrast with the ‘higher than expected’ VIP hold rate seen for the month of September, note the analysts, which resulted in ‘stronger than expected VIP volumes’ leading to ‘flat or slightly positive year-on-year growth’ seen in the segment during the month. The analysts are waiting for the third quarter breakdown of gross gaming revenue, to be released mid-October by the local Gaming Inspection and Coordination Bureau (DICJ), for further information, but estimate the mass market to have reached year-on-year growth of 11 per cent to 14 per cent for September.
New additions
Wynn Palace should be a ‘game changer’ for its operator Wynn Macau, note the analysts at Bernstein, and Cotai’s
most recent opening, The Parisian Macao, will ‘become a strong draw for the Chinese Mass market customers’. Predicted results for the new openings by Wells Fargo analysts, estimate that Wynn’s new property will lead to 11 per cent annual revenue growth for the 2016 year, hitting US$2.73 billion net revenue for the group’s Macau operations, with a further 21 per cent increase for 2017, estimated to reach US$3.3 billion. Meanwhile, predictions for The Parisian Macao estimate US$426 million in net revenue for the 2016-year, increasing 2.3 fold in 2017 to hit US$1.41 billion. However, The Parisian is expected to cannibalize the other Las Vegas Sands’ local properties, all of which are predicted to see a decrease in net revenue from 2016 to 2017. This includes a 7.5 per cent yearon-year decrease for Sands, a 7.3 per cent decrease for The Venetian and a seven per cent decrease for The Four Seasons in annual net revenues from 2016 to 2017.
Later arrivals, fewer benefits
Later arrivals to the Cotai strip will have differing results, note the analysts at Bernstein, with MGM Cotai predicted to emerge more strongly than later-to-arrive SJM’s Lisboa Palace. This particularly affects shares for SJM, about which the analysts comment: ‘We see little to excite us
about the stock in the near term, even if the stock looks relatively “cheap” as some investors have been arguing. Certain stocks are just “cheap” for a reason – we think this is one of them (at least today).’ The analysts point out concerns with ‘corporate governance’ and ‘conflict issues’ which it believes ‘warrants a valuation’. Also lower on Bernstein’s rankings is Melco Crown, whose shares it notes as being the ‘most undervalued’ of its coverage, commenting that there are ‘several catalysts to play out to achieve significant share appreciation’. This includes a ramp-up of Studio City and a fight to defend City of Dreams’ market share in Premium Mass from Wynn Palace, as well as an ‘eventual’ buyout of the minority stake in Studio City. On the flipside sits MGM China, who the analysts note will have the ‘largest incremental expansion with respect to footprint, room inventory and gaming capacity’ of all the operators, with the opening of their new MGM Cotai property. Analysts at Wells Fargo predict this increase to positively affect MGM China’s net revenues, estimated to hit nearly US$1.8 billion for 2016, with an increase of 35 per cent year-on-year for 2017, reaching US$2.43 billion. This will contribute to the estimated 22 per cent year-on-year revenue growth for parent company MGM Resorts in 2017, slotted to achieve only one per cent growth for 2016. Overall, Bernstein analysts continue to predict that ‘Mass will be the driver of rejuvenated growth beginning in 2016 and continuing through the rest of the decade’, any change from which would disproportionately benefit Galaxy – ‘as it retains a strong junket network and VIP oriented product offering’ and to a lesser extent SJM - due to its ‘a lack of scale to focus on Mass at Grand Lisboa’. Analysts at Wells Fargo predict flat visitor growth over Golden Week, and those at Bernstein note that the following week ‘may face greater than normal softness’ due to the predicted visit by Premier Li Keqiang for the fifth Ministerial Conference of the Forum of Economic and Trade Cooperation Between China and Portuguese-Speaking Countries, slated for October 11 and 12.
8 Business Daily Tuesday, October 4 2016
Greater China
R&D
The rise of nation’s innovation Policy makers want the country’s future growth to drain strength from new technologies, new ideas and new business models.
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hina has long been seen as the “world’s factory,” churning out vast mountains of lowquality goods, but it is also considered a nation incapable of producing innovative products and ideas. Now, this is beginning to change China is closing the innovation gap. From drones to artificial intelligence, the Internet to genetic engineering, innovative Chinese companies are leading global innovation and reshaping the country’s technology and business landscape. “There is a huge market with great opportunity,” said Dai Xiang, co-founder and general manager of Enpower Energy, a manufacturer of aqueous ion batteries, which are cleaner, safer and more cost-effective than lead-acid batteries. After 20 years in the United States, working as a senior manager for startups in Silicon Valley, Dai decided to go back to China and start his own business. To tap into the energy storage market, Dai and his friends set up Enpower Energy in 2012, with registered capital of 5 million yuan (about US$746,270), in eastern Jiangsu Province.
“We get a lot of support from the local government,” Dai said. Enpower Energy provides wind and solar energy storage solutions for households and businesses, and favourable policies allow it to attract talent and stay in Jiangsu for three years without paying rent.
“Only if it protects intellectual property will China see more inventions.” Ren Zhengfei, founder of Huawei The company, now with more than 50 employees and nearly 66 million yuan in total investment, plans to complete large-scale tests of its aqueous ion batteries by the end of the year and move to mass production in the middle of 2017, Dai said.
“We will become the world’s second producer of aqueous ion batteries, after Aquion Energy in the United States, and we expect the company’s business revenue to top 2 billion yuan by 2020,” Dai said. For much of China’s economic boom over the past decades, labour and capital flocked to garment and mobile phone manufacturers. But now China is trying to move beyond just being the world’s factory. “To make China an innovative country and a leader in science and technology is what China must do now in pursuing development,” President Xi Jinping said at the opening of the B20 summit in September. High research and development spending, large numbers of engineering and science graduates and a wave of new businesses all signal that China has the potential to occupy the forefront of global innovation. According to a global survey by Cornell University, INSEAD, and the World Intellectual Property Organization, China is now of the world’s 25 most innovative economies. China moved up four places from the 2015 survey to 25th overall, making it the first middle-income economy to break into the top 25, an area traditionally dominated by highly developed economies. China’s rise up the global innovation rankings has also been reflected in its businesses. It is now home to some of the world’s most innovative companies, particularly in the fields of mobile technology, biotechnology and medical services. In Forbes magazine’s “World’s Most Innovative Companies 2016,” which ranks businesses on their ability to be innovative “now and in the future,” Shanghai RAAS Blood Products ranked 16th. A separate survey by Fast Company magazine ranked Huawei 13th “for taking the upper hand in the global mobile competition.” Rising from a small workshop in the southern Chinese city of Shenzhen in 1987, Huawei has grown into one of the world’s leading manufacturers of telecoms equipment. Spending 10 per cent of its annual budget on research and development, Huawei is the subject of particular scrutiny now that the government is encouraging innovation and entrepreneurship in the hope that creativity can spur a slowing economy. Despite embracing innovation, China still lags behind on some issues. Ren Zhengfei, founder of Huawei,
said China must do more to protect intellectual property. “Only if it protects intellectual property will China see more inventions. Ensuring originality is respected will attract more people into this field and help original ideas grow into industries,” Ren said. Dai Xiang believes the Chinese government needs further reform to cut red tape. Calling it a painful process, Dai said it took him about eight months to register a joint venture with the Institute of Tsinghua University, Hebei Province. “The administrative procedure should be simplified,” he said. Xinhua
Overcapacity target
Government balan
The ensuing output decline so quickly that regulators sc to fine tune their plans. China is ploughing ahead with its yearend targets for cutting unneeded coal production capacity while also seeking to ease production controls on selected miners to cool rising prices. The world’s biggest producer is doing “extremely well” cutting overcapacity in both coal mining and steel making and is likely to surpass its annual goals, Xu Shaoshi, chairman of the National
Business Daily Tuesday, October 4 2016 9
Greater China Real estate
In Brief
More Mainland cities restricting property purchases The measures in Chengdu, Jinan, Wuhan and Zhengzhou were the latest in a string of steps to tighten credit flowing into the property sector as the government tries to balance the need to prevent bubbles while stimulating economic growth. Four Chinese cities have announced new restrictions on property purchases as the government tries to cool soaring home prices stoked by property speculators in second- and third-tier cities across the country. The spate of tightening measures over the past two weeks “shows that China’s top level may have reached consensus that the concerns about overheating in property market may have overshadowed the concerns about the economic slowdown,” OCBC said in a research note yesterday. “The shift of policy tone also shows that China is unlikely to stimulate the economy further aggressively. This may not bode well for market sentiment in the longer run,” it said. Many mid-tier Chinese cities have become targets 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 rolled out counter-measures to limit purchases as home prices jump. The average new home price in 70 major cities climbed an annual 9.2 per cent in August, up from 7.9 per cent in July, according to data from China’s National Bureau of Statistics. 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
ncing coal goal against soaring prices
pushed up prices crambled Development and Reform Commission, said in an interview Friday in Beijing. The same agency in recent weeks has allowed selected large miners to boost production to cool prices that have risen more than 50 per cent this year as the country’s output drops by a tenth. Both industries are at the heart of President Xi Jinping’s “supply side structural reforms” as his government
seeks to reduce industrial overcapacity and shift the world’s second-biggest economy toward consumer-driven growth. The NDRC warned miners and steel makers in August to speed up closures that were behind schedule. About 95 million metric tons of coal capacity had been cut by the end of July, or 38 per cent of the annual target of 250 million tons, the NDRC said last month. Steel was reduced by 21 million tons, only 47 per cent of its 45 million ton target.
Balancing act
China has struggled to balance capacity
“We are most likely to complete the target in cutting overcapacity in steel and coal earlier than planned... We will exceed the goal by the end of the year.” Xu Shaoshi, chairman of the National Development and Reform Commission
were sitting on land without starting construction on time as promised and would clamp down on rumour mongering in the property market. The eastern city of Jinan said on Sunday that residents who already owned three properties could not buy more and increased down payment requirements for those buying their first home to 30 per cent from 20 per cent, among other measures detailed in a document on the government’s website. Pictures of hopeful home buyers queuing up in Jinan to obtain spots in
Key Points New measures introduced in Chengdu, Jinan, Wuhan and Zhengzhou Down payment requirements lifted in some cities Property speculators stoking prices across China a lottery-like registry system during the public holiday weekend was widely published in state media before the new restrictions were published. Residents of certain parts of the city of Wuhan, in the central province of Hubei, would be required to make a minimum down payment of 50 per cent to qualify for a commercial loan to buy a second home or 25 per cent for a first home, according to an announcement on a city government website. No loans would be given to residents for third homes. Non-residents of Wuhan were ineligible for commercial loans for second homes in parts of the city and barred from buying third homes, it said. Home prices in at least one district in Zhengzhou, which became a symbol of China’s property excesses because of rows of empty housing developments, have risen two-thirds this year to 25,000 yuan (US$3,747.56) per square metre on average, a sales manager told Reuters on a recent visit to the city. Reuters
cuts against rising prices. Along with the boost in thermal coal, a rebound in steel prices from the lowest in more than 12 years has encouraged mills to increase output to a record and helped the price of coking coal, used in the steelmaking process, to more than double this year. The government earlier this year pursued policies aimed at eliminating out of date and inefficient coal producers while helping support larger, modern miners that were struggling with prices that tumbled to the lowest in almost a decade. Policy makers have intensified efforts to raise coal production in recent weeks. One week after deciding on September 23 to allow some miners to boost activity to raise the country’s output by 500,000 metric tons a day, the NDRC met again with miners to discuss the possibility of raising the daily extra production target to 1 million tons.
‘Advanced’ miners
The new policies aimed at lowering prices are “unlikely to lead to a decline as demand may also jump during winter, and the current inventory level is low,” Michelle Leung, a Hong Kong-based Bloomberg Intelligence analyst wrote in a report yesterday. “The decision to allow greater output is to make sure there will be enough coal for heating during the winter, which is expected to be colder than in the past. ” The NDRC is also allowing some “advanced” and “high efficiency” miners to raise production from October 1 to December 31, the China Economic Herald reported Thursday, citing an NDRC official whom it didn’t identify. Bloomberg News
Stock market
Evergrande shares suspended in Hong Kong Shares in Chinese property developer Evergrande Group were suspended from trading in Hong Kong yesterday afternoon, the stock exchange said, without giving a reason for the halt. Evergrande, the country’s no. 2 developer by sales for the first half of this year, said it would issue a statement later in the day. Highly acquisitive Evergrande has captured investor attention after amassing some US$57 billion in debt, although it has a market value of about US$10 billion. It has also bought shares worth US$2.2 billion in rival China Vanke, putting itself in the middle of a high profile corporate battle. Golden week
Mainland records more tourist visits China saw a marked increase in tourist visits and spending as millions of Chinese went on a travelling spree for the National Day holiday, also known as the “Golden Week”, latest official data showed. Altogether 104 million people visited tourist attractions around the country on Sunday, the second day of the holiday week, up 12.5 per cent year on year, according to figures released by China National Tourism Administration (CNTA). Nationwide tourist spending rose 16.1 per cent year on year to 84.5 billion yuan (US$12.7 billion) on Sunday alone, the CNTA said. Leasing
BOC Aviation to buy 5 planes from Air China Aircraft lessor BOC Aviation Ltd said yesterday it would buy five new planes from Air China, worth a combined US$1.5 billion at list prices, and would lease them back to the carrier. The Asia’s second-biggest aircraft lessor, with a fleet of more than 260 planes, said it would buy three new Boeing B777300ERs and two new Airbus A330-300 aircraft. The company expects to take delivery of the aircraft before the end of 2016. An expanding air travel market in Asia has helped many regional airlines improve their financial performance which in turn is fuelling growth in the leasing sector, BOC Aviation CEO said. High tech zone
Zhongguancun sees fastest revenue growth this year Beijing’s high-tech zone Zhongguancun saw fast revenue growth in the first eight months this year despite the country’s economic slowdown, statistics show. The revenue of high-tech enterprises above a designated size in the zone reached 2.49 trillion yuan (US$373 billion), an increase of 16.4 per cent year-on-year, the fastest this year, said the Beijing Statistics Bureau. The six key high-tech sectors including new materials, electronics and information, in the zone, all maintained rapid growth, said the bureau. Innovation continued to be active among the companies.
10 Business Daily Tuesday, October 4 2016
Greater China Investment
Pimco warns of Asia debt risk after record dollar bond sales It’s becoming harder for companies to service obligations as the region’s economic growth cools. Denise Wee
P
acific Investment Management Co. is wary of the risks of rising debt levels after sales of dollar bonds by borrowers in the Asia-Pacific region ballooned to a record. Issuance surged 66 per cent last quarter from the year earlier to US$152 billion, according to data compiled by Bloomberg. Borrowers have rushed to lock in lower financing costs as the average yield premium on the securities has fallen 72 basis points this year to 206, near the lowest since 2007, according to Bank of America Merrill Lynch indexes. Zhuzhou City Construction Development Group Co., a local-government financing vehicle, starts investor meetings in
Singapore, Hong Kong and London from last Tuesday, a person familiar said. Investors have ploughed money into riskier assets despite warning signs, in a hunt for yield as central banks in the U.S., Europe and Japan keep interest rates near zero. Median net debt at listed Asia-Pacific firms has jumped to 3.1 times earnings before interest, taxes, depreciation and amortization, from 1.9 five years ago, data compiled by Bloomberg show. It’s becoming harder for companies to service obligations as the region’s economic growth cools this year to what analysts forecast will be the weakest since 2009. “Credit is increasing in Asia but growth isn’t rising” at the same speed, said Roland Mieth, a Singapore-based
emerging markets portfolio manager at Pimco. “We don’t expect leverage or increasing debt to slow down in Asia.” China’s policy makers have been keeping monetary policy relatively supportive. Yet central Deputy Governor Yi Gang said last month that the nation’s short-term goal has to be curbing leverage. CLSA Ltd. estimates total debt may reach 321 per cent of gross domestic product in 2020 from 261 per cent in the first half. BNP Paribas SA in September warned that investors aren’t paying sufficient attention to default risks in the Asia dollar bond market as they hunt for yields, highlighting issuance linked to Chinese regional authorities. “LGFVs could see exacerbated fundamentals if they continue to issue a lot of bonds very cheaply overseas and that will have an impact on the risk of default,” said Charles Chang,
the head of Asia credit strategy and sector specialists at the firm in Hong Kong. “This may take a bit of time to play out but that risk is building as we speak.”
High Leverage
Chang also highlighted Chinese developers with high leverage levels as a long term risk to the health of the market. Haitong International Securities Group Ltd. said that many real estate companies will need to issue bonds to redeem notes that mature in 2017.
“This may take a bit of time to play out but that risk is building as we speak.” Charles Chang, the head of Asia credit strategy and sector specialists at the firm in BNP Paribas
Aberdeen Asset Management Asia Ltd. is avoiding Chinese dollar bonds as it says a lot of the demand comes from mainland investors who are willing to accept low yields because the issuers are household names to them. “China is a big underweight for us,” said Donald Amstad, a director at the firm. “Chinese U.S. dollar corporate bonds are generally very low yielding assets.” BEA Union Investment Management Ltd. said valuations on some of the sales have been stretched. It flagged risks such as the U.S. elections and the weakness of European banks, which could trigger a sell-off. “It’s true that some of the deals don’t really compensate investors for taking the risk,” said Pheona Tsang, the Hong Kong-based head of fixed income at BEA Union Investment. Bloomberg News
Poverty report
World Bank highlights Beijing success fighting poverty The report showed that half of the world’s extreme poor now live in Sub-Saharan African and another third live in South Asia. China’s success in reducing poverty has driven the poverty reduction globally, and China could set an example for the rest of the world to end extreme poverty, said a senior World Bank official.
“If anybody can show the world how to do that last mile (of ending extreme poverty), it probably is China” Ana Revenga, senior director on poverty and quality at the World Bank
“Much of the success in poverty reduction globally has actually been driven by China’s incredible success in reducing poverty,” said Ana Revenga, senior director on poverty and quality at the World Bank, at a teleconference on the institution’s inaugural report Poverty and Shared Prosperity 2016. The new report, which was released
on Sunday, showed that nearly 800 million people lived on less than US$1.9 a day in 2013. That represents around 100 million fewer extremely poor people than in 2012. According to the report, from 1990 to 2013, the extremely poor fell from 35 per cent of the world’s population to just fewer than 11 per cent of the world’ s population. The progress on extreme poverty was driven mainly by East Asia and Pacific, especially China, Indonesia and India, said the report. Despite of the good news, “there
is no room for complacency,” said Francisco Ferreira, senior advisor to the Development Research Group of the World Bank. “The pockets of poverty that remain will become increasingly harder to reach and address,” said Ferreira. The report forecasted that the world would be unable to achieve the goal of ending extreme poverty by 2030, even under optimistic scenarios for growth with no change in inequality. The World Bank set a target of reducing the poverty headcount ratio from 12.4 per cent globally in 2012 to 3 per cent by 2030. China has been a lesson to the rest of the world on how to tackle extreme poverty in a fast way, said Revenga. “If anybody can show the world how
to do that last mile (of ending extreme poverty), it probably is China,” said the senior official. The report also found that in 34 of 83 countries monitored, income gaps widened as incomes grew faster among the wealthiest 60 per cent of people than among the bottom 40 per cent, despite that within-country inequality has been falling in many places since 2008. The World Bank called on countries to adopt policies, such as early childhood education, universal health coverage, universal access to quality education, rural infrastructure construction, progressive taxation, cash transfers to poor families, in order to create growth and enable the poorest to take advantage of these opportunities. Xinhua
Business Daily Tuesday, October 4 2016 11
Asia Bank of Japan poll
Japan big manufacturers’ mood flat in fragile economic recovery Motor vehicles rebounded due to fading effects of earthquakes that hit a manufacturing hub of Kumamoto earlier this year. Tetsushi Kajimoto and Leika Kihara
C
onfidence among big Japanese manufacturers was flat in the three months to September and service-sector sentiment worsened to its lowest in nearly two years, the Bank of Japan’s closely watched tankan survey showed yesterday, underscoring a fragile economic recovery. Big firms plan to raise capital expenditure in the current fiscal year, the tankan survey showed, offering some relief to policy-makers hoping the Bank of Japan’s aggressive stimulus will boost business investment. The results followed a mixed run of recent indicators, which highlighted doubts over whether years of massive money-printing are doing any good, as the central bank rebooted its monetary policy framework last month. “Big manufacturers’ sentiment showed itself relatively resilient considering the worsening environment such as a strong yen and weak domestic demand,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “Today’s tankan itself is not the one to push the BOJ into further easing.” The headline index gauging big
manufacturers’ sentiment stood at plus 6 in September, unchanged from three months ago and roughly in line with a median market forecast of plus 7, the quarterly survey showed. By sector, motor vehicles rebounded due to fading effects of earthquakes that hit a manufacturing hub of Kumamoto earlier this year. On the other hand, general-purpose machinery, production machinery, shipbuilding and heavy machinery
sank, reflecting weak overseas demand for capital goods. Big non-manufacturers’ sentiment slipped to plus 18 from plus 19 three months ago, falling for three straight quarters and hitting the lowest level since December 2014, due to typhoons and a slowdown in spending by foreign tourists in the face of a strong yen. Markets had expected the lower reading. Despite the yen’s gains, however, Japanese firms’ appetite for capital spending remained somewhat resilient. Big firms plan to raise capital spending by 6.3 per cent for this fiscal year to March from year-before
levels, largely unchanged from three months ago. Markets had expected a 6.8 per cent rise. Big manufacturers based their business plans on the assumption the dollar would average 107.92 yen in the current fiscal year, down from 111.41 yen forecast three months ago.
Key Points Big manufacturers’ sentiment +6 vs poll +7, pvs +6 Non-manufacturers’ sentiment +18 vs poll +18, pvs +19 Business mood seen largely steady ahead Big firms’ FY2016 capex seen up 6.3 pct Analysts see little impact on BOJ policy The revised level, however, is still much higher than recent dollar/yen levels around 101, suggesting that company profits could be revised down. “Capital spending plans held relatively firm despite cuts in recurring profits caused by the yen’s gains,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “This suggested that companies think they can cope with the current level of the yen. Weak investment overseas may prevent capital spending from accelerating ahead though.” Reuters
Committee inquiry
Australian bank CEOs set to face parliamentary scrutiny Committee members said the questioning by parliament will focus on bank practices. Jonathan Barrett
The chief executives of Australia’s ‘Big Four’ banks are set to be questioned over three days this week by a parliamentary committee that could propose measures to limit the dominance of the major lenders, including imposing a new levy. The CEOs of Commonwealth Bank of Australia, Australia and New Zealand Banking Group, National Australia Bank and Westpac Banking Corp will each face three hours of questioning starting today by a 10-member panel comprising a diverse group of Australian lawmakers. The government introduced the annual committee hearings in August after the big banks’ move to not fully pass on interest rate cuts to mortgage customers sparked renewed criticism that they were using their market power to hurt customers. The Big Four control 80 per cent of Australia’s lending market and have posted record profits for years. But they are increasingly coming under fire for alleged abuse of market power following a series of scams involving misleading financial advice,
insurance fraud and interest-rate rigging, as well as for refusing to pass on official interest rate cuts in full. “We will be focusing on unethical practices and raising individual cases with them to demonstrate some of these practices are continuing despite the banks’ claim they have cleaned their act up,” Labour lawmaker and committee member Matt Thistlethwaite told Reuters. The committee is split between members of the governing coalition, who believe measures including the annual committee hearings are enough to remedy poor bank practices, and opposition politicians who support a more powerful Royal Commission to investigate the banks. Greens lawmaker and committee member Adam Bandt said the four banks should pay a levy given they use an implied “too big too fail” guarantee they would be bailed out in a crisis by the government to tap international markets for cheaper funding. “That comes at a cost of their smaller competitors,” Bandt told Reuters. “One way to increase competition would be to impose a levy on the big
banks to offset some of that public support they get.” One committee member, who declined to be named, said he intended to ask questions on competition and potentially make recommendations that would open the big banks to greater oversight.
Deposit rates
The banks have attempted to justify their not fully passing on August’s interest rate cut to customers by citing rising funding costs in an uncertain economic environment and regulatory pressure that has forced them to raise deposit rates by as much as 75 basis points. Some of those increased
deposit rates have subsequently been unwound. Australian Bankers’ Association executive director of retail policy, Diane Tate, said the banks had already introduced various measures to improve customer practices. She said the banks also needed to better explain the decisions they make including mortgage rate changes. “You can expect them (CEOs) to talk about how they need to get the balance between the interests of their customers, depositors, borrowers and then shareholders who give money to banks but expect a return,” she said. Representatives of the four major banks declined to comment. Reuters
‘The Big Four banks in Australia control 80 per cent of Australia’s lending market and have posted record profits for years’
12 Business Daily Tuesday, October 4 2016
Asia ETFs
Asia investors turn to smart-beta products Such indices have proven especially popular in Japan, where negative interest rates and a strong yen have weighed on company performance.
I
nvestorsinAsiaareembracing smart-beta exchange-traded funds that can boost profits and cut costs in the current climate of low investment returns and even lower interest rates. Traditional beta measures the volatility of a security in relation to the market. Smart-beta products are index funds that include more factors in investment decisions than pure passive strategies do, taking into account volatility and market inefficiencies to generate higher returns. This strategy makes smart-beta investment a little more expensive to manage than traditional index funds, which simply mimic the composition of a benchmark, but cheaper than actively managed products. Assets under management in smart-beta ETFs grew 47.5 per cent to US$10.5 billion in the 12 months through June in the Asia-Pacific, according to Morningstar data. The number of smart-beta ETFs rose to 130 across the region from 97 a year earlier, the figures showed. “Investors have realized that U.S. interest rates will not rise fast, and they still need a steady income stream,” said David Quah, product specialist at Mirae Asset Global Investments in Hong Kong. “And this year, in view of the easing in Europe and Japan, it’s difficult to get income stream from bonds. So investors are turning to highdividend stocks.” Mirae has seen rising flows into its low-volatility, high-dividend ETF that tracks the Hang Seng High Dividend Yield index, he said. The firm also has nine smart-beta ETFs listed in South Korea employing a
number of smart-beta strategies. In a low interest rate environment, actively managed funds become costly for investors, particularly when they do not outperform passive strategies. For instance, the average expense ratio for smart-beta ETFs investing in Hong Kong equities is 0.67 per cent, versus 1.77 per cent for actively managed funds, according to Morningstar. Yet, passive strategies have, on average, outperformed active management in seven out of 11 markets in Asia, including Hong Kong, over the past three years, Morningstar data shows. Australian pension fund CBUS Super began investing in smart-beta strategies in 2011 for global equities, starting at 5 per cent of its world stocks portfolio.
That share, employing value and low-volatility strategies, has now risen to 20 per cent, and CBUS may expand smart-beta to domestic smallcap stocks and emerging markets too, said Brett Chatfield, general manager for public markets at CBUS. Smart-beta products have proven especially popular in Japan, where negative interest rates and a strong yen have weighed on company performance. Blackrock’s iShares unit listed two smart-beta products in Japan late last year, one focused on minimum volatility and the other on high dividends. Nikko Asset Management listed one high-dividend, low-volatility smart-beta ETF on the Tokyo Stock Exchange in December. Japan accounted for the biggest slice of assets under management in smartbeta ETFs, with US$7.3 billion invested. Initiatives from the Government Pension Investment Fund and the Bank of Japan to get investors to increase their exposure to ETFs have driven some of these inflows.
Despite the growth, the Asia-Pacific region accounts for just 2 per cent of smart beta assets under management and 12 per cent of the number of smart-beta ETFs, according to Morningstar. The U.S. accounted for 89 per cent of the assets and 54 per cent of the total number of products.
“In Japan’s low-interest environment, there is strong demand from clients for high dividends” Koei Imai, head of Nikko’s ETF Centre “We will see a greater number of smart-beta ETFs list in the Asia Pacific, and those funds, and those that exist already, attract inflows,” said Susan Chan, head of iShares Asia Pacific. “That will be driven by increased knowledge of how to use smart-beta ETFs, lower returns across asset classes globally, and a greater focus on investment cost regionally, as has happened elsewhere in the world.” Reuters
Real estate
Singapore private home prices fall most in 7 years The price declines have come after authorities introduced a series of property market cooling measures in recent years. Singapore’s private home prices fell at the fastest pace in seven years in the third quarter, as sluggish domestic demand adds further pressure on the export-reliant economy ahead of a central bank policy review expected later this month. The private residential property index fell 1.5 per cent to 137.9 in the July-September quarter, according to a flash estimate released by the Urban Redevelopment Authority (URA), after falling 0.4 per cent in the previous quarter. The latest drop was the largest quarterly decline since home prices slid 4.7 per cent in the second quarter of 2009, when fallout from the global financial crisis slammed into Asia and pushed Singapore’s economy into contraction. “The main reason why this time around the drop is steeper is the market is finally feeling the brunt of the economic slowdown on top of the downward pressure from the supply
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spike in 2016, 2017,” said Christine Li, head of research for Cushman and Wakefield in Singapore. Including the drop in the third quarter, private home prices have fallen 10.8 per cent from a peak in the third quarter of 2013, having declined
for 12 straight quarters. “Vacancy rates are rising and there is still a large supply. And we think that the non-residential industrial sector is likely to feel the biggest headwinds as global trade remains weak. So it is not just residential that is feeling the pinch,” said Trinh Nguyen, senior economist for Natixis in Hong Kong. Cushman and Wakefield’s Li said an adjustment to the way the URA compiles the property price index
probably added to the fall in the property price index in the third quarter. The change takes into account various incentives and discounts that developers may use to sell property after they are completed and delicensed. Starting with the third-quarter data, the URA has started including net prices of delicensed projects in the property price index data, which is based on all property sale transaction both in the new sale and resale market, a URA spokesperson said.
Key Points Singapore’s private home prices fall 1.5 pct in Q3-URA data That marks the largest quarterly drop since Q2 2009 Reflects economy’s weakness and new calculation method -analyst “For new sales, the majority of units are sold by licensed developers before the projects are completed and delicensed. A small per centage of all property sales is from completed delicensed projects,” the URA spokesperson said. The URA is due to release full data on third-quarter private home prices four weeks later. 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; 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 Tuesday, October 4 2016 13
Asia Demography impact
In Brief
Small Japan firms dying due to lack of successors The number of voluntary closures has tripled that of bankruptcies. Tetsushi Kajimoto
Japan’s small firms, many of which are “mom-and-pop” operations, are dying out as their ageing owners struggle to find successors, in another sign that the fast-ageing population is taking its toll on the world’s third-largest economy. Prime Minister Shinzo Abe has targeted more business start-ups as a crucial part of regenerating activity, but the impact has been minimal so far, with the number of small firms that are closing their doors at a near record high. Takayasu Watanabe, 72, has closed a chalk-making business in Nagoya, central Japan, that his family had operated for more than 80 years. He sold technology, equipment and trademark rights to a South Korean company last year. “My physical condition has been deteriorating. I was unable to find a successor and business performance was not good,” Watanabe said, adding that none of his three daughters wanted to take over the firm. Shutdowns among small firms that serve as subcontractors for big firms and employ seven out of 10 workers could pose the risk of a prolonged low growth, some analysts say. The rate of start-ups among manufacturers has hovered well below shutdowns - at 3.4 per cent versus 5.5 per cent in 2014. “Ageing of business owners and difficulty in securing successors are becoming a serious problem for Japanese firms,” said Yumi Tanaka of Teikoku Databank, a private corporate credit research firm. “From cars to electronics, more and
more companies may start seeking overseas subcontractors, which could accelerate industrial hollowing out and hamper technology transfer.” The construction industry is facing a severe shortage of workers as well as ageing owners. Small hospitals, clinics and sake breweries are also facing acute shortages. In the last fiscal year that ended in March, about 26,700 firms shut down voluntarily as owners could not find successors or faced a dim business outlook, according to Tokyo Shoko Research. The number of voluntary closures has tripled that of bankruptcies, hovering above 25,000 cases since the 2008 global financial crisis, compared with some 16,000 at the start of this decade.
Voluntary shutdown
The average age of company owners is at an all-time high of 59.2 years old, versus 54 years in 1990. About two-thirds of them lack successors and the ratio is on the rise. “It is futile to expand the factory with high interest loans,” said Hitoshi
Iwai, 80, who works alone in his factory in Tokyo’s Ota ward, once bustling with small factories considered the foundations of Japan’s post-war industrial strength. Iwai and some other small factories in the area have survived this long by producing high-quality, specialty products and working together. “Only those who have a technological edge can survive,” said Toshiaki Funakubo, chairman of machine-tool manufacturer Showa Seisakusho Co Ltd, which his son has taken over. In his neighbourhood in Tokyo’s manufacturing hub, a metal mould factory closed down in July and another business owner gave up last year - both having failed to nurture talented people to succeed them. “These back street workshops may be the smallest part of the supply chain. Still, even one screw they produce may be crucial for products of their clients,” said Masashi Seki of Tokyo Shoko Research. “Two decades of deflation has sapped owners’ appetite for business, many of whom have not benefited from ‘Abenomics’.” Reuters
Prime Minister Shinzo Abe has targeted more business start-ups as a crucial part of regenerating activity.
GDP
Indonesia’s foreign visitors arrivals rise Indonesia attracted 944,455 foreign tourists in August, up 16.14 per cent from a year earlier, the statistics bureau said yesterday. The rate of growth slipped from 20.13 per cent in July. The total number of visitors in August, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, was 1.03 million, up 13.19 per cent from a year ago. Indonesia has been attracting growing numbers of Chinese visitors. The government wants to expand tourism to help reduce the economy’s reliance on exports of raw commodities. Real estate
Australia home prices keep rising Australian home prices rose overall in September as record-low mortgage rates kept demand strong in Melbourne and Sydney, though the performance of other cities was a lot more patchy. Yesterday’s figures from property consultant CoreLogic showed its index of home prices for the combined capital cities climbed 1.0 per cent in September, from August when it rose 1.1 per cent. Annual growth in prices ticked up to 7.1 per cent in September, from 7 per cent in August, though that remained a long way from last year’s peak atop 11 per cent. Environment deal
Philippines growth could exceed World Bank forecast The government has promised to ramp up infrastructure investment particularly in the countryside to build more roads, bridges and airports and to spur investment and reduce poverty in rural areas. The Philippines’ economic growth could exceed the World Bank’s projection of 6.2 per cent for the next two years if President Rodrigo Duterte’s (pictured) administration further ramps up infrastructure spending as planned, the lender said yesterday. But the three-month-old government faces policy challenges or risks, such as the need to dispel lingering uncertainty about its policy priorities, deliver on its fiscal reform programme, and accelerate structural reforms to reduce poverty, it said. “The Philippines’ short-term growth prospects remain positive despite a number of medium-term
Tourism
risks and policy challenges,” the World Bank said in its Philippine Economic Update. The bank kept its 2016 GDP growth forecast for the Philippines unchanged at 6.4 per cent and described its 6.2 per cent growth projection for 2017 and 2018 as “a conservative forecast with significant upside risks.” World Bank economist Birgit Hansl said recent volatility in local financial markets was normal because lingering uncertainty over the administration’s reform agenda could be expected to make investors cautious. “That’s why it’s such an important short-term policy priority to dispel
the uncertainty, to just say, ‘look, we mean business, this is what we’re going to do’,” she told a media briefing. The Philippine peso last week hit a seven-year low against the U.S. dollar and foreign investors have dumped local stocks in recent weeks partly because of concerns about Duterte’s anti-American rhetoric and bloody anti-drug campaign.
Key Points WB keeps 2016 growth f’cast for Philippines at 6.4 pct Philippines could surpass f’casts on infra spending WB sees medium-term policy challenges for Philippines
India ratifies Paris climate change agreement India, the world’s third largest emitter of greenhouse gases, formally joined the Paris agreement on tackling climate change on Sunday, taking the global pact a step nearer its enactment. “India has deposited its instrument of ratification of the Paris Agreement with the United Nations,” the U.N. said in a statement on Sunday. The deal, agreed by nearly 200 countries in Paris last December, aims to slash greenhouse gas emissions by shifting away from fossil fuels to limit global warming to “well below” two degrees Celsius compared to preindustrial times. Pollution claims
The lender made no direct comment on drug-related killings and Duterte’s foreign policy, or the likely impact of such issues on economic growth prospects. Last month Standard & Poor’s said it was unlikely to give the Philippines a credit rating upgrade in the next two years, citing Duterte’s unpredictability and uncertainty over his domestic and foreign policies. S&P also raised the possibility it might downgrade the Philippines’ rating if the new government fails to sustain the country’s fiscal and economic gains. Hansl said the World Bank’s outlook for the Philippines was “quite stable with real upside risk because we cannot see major policy reforms, or any policy reforms, at the moment that indicate there would be a discontinuity in these policies.” Reuters
Vietnamese rally outside Taiwanese steel plant Thousands of Vietnamese protested on Sunday at a steel plant run by a unit of Taiwan’s Formosa Plastics to demand the unit leave the country and compensate more people after one of the country’s biggest environmental disasters, witnesses said. Protesters in Ha Tinh province vented their anger at Formosa Ha Tinh Steel, which has offered US$500 million in damages and admitted that its US$10.6 billion steel plant was responsible for massive fish deaths along a 200-km stretch of coastline in April.
14 Business Daily Tuesday, October 4 2016
International In Brief Petrol sales
Iran oil exports hit pre-sanctions high Iran’s total crude oil and condensate sales likely reached around 2.8 million barrels per day in September, two sources with knowledge of the matter said, nearly matching a 2011 peak in shipments before sanctions were imposed on the OPEC producer. The run-up from shipments of around 2.5 million bpd in August comes mainly from condensate, a light oil excluded from OPEC supply quotas that is often produced with natural gas and can be used to make naphtha for petrochemical production. Iran sold 600,000 bpd of condensate for September. United kingdom
Finance minister promises new economic plan Britain needs a new fiscal plan to navigate economic turbulence caused by Britain’s vote to leave the European Union, finance minister Philip Hammond said yesterday, stressing the need to balance spending cuts with infrastructure investment. Speaking ahead of his conference speech, Hammond said data from the first half of the year showed the economy was running at “eight out of 10”, but that business and consumer confidence could suffer during the long Brexit process. “We must expect some turbulence as we go through this negotiating process,” Hammond told BBC television. Digital transformation
Dutch bank ING cutting 7,000 jobs Dutch bank ING, the country’s biggest lender, yesterday announced 7,000 jobs could be lost mainly in Belgium and The Netherlands to save 900 million euros (US$1.01 billion) by 2021. The move is partly directed by the bank’s bid to reshape its services for the digital banking market, in which it said it would be investing some 800 million euros. “Over the coming five years, around 7,000 functions might be impacted by these effects,” said chief executive Ralph Hamer. “Customers are increasingly digital and bank with us more and more through mobile devices,” Hamer said in a statement. M&A
Fund firms Janus Capital, Henderson merge U.S. asset manager Janus Capital and London-listed rival Henderson Global Investors yesterday said they had agreed to an allshare US$6 billion merger to cut costs and improve their global reach, sending Henderson’s shares soaring. The merger comes as some small and mid-sized players in the industry look to gain scale, streamline operations and diversify in order to protect margins amid widespread pressure on fees, and prompted speculation of further tie-ups. The combined company would manage more than $320 billion in assets, the firms said.
PMI
Rising demand drove up euro zone factory activity Growth in the bloc’s dominant service sector was probably at its weakest since late 2014, a sister survey due on Wednesday is expected to show. Jonathan Cable
M
anufacturingactivity in the euro zone picked up last month as demand increased from both within and outside the currency bloc, driving factories to increase headcount, a survey showed yesterday. However, the upturn remained uneven and was centred on Germany and its neighbours. Growth was far weaker than earlier in the year in Spain, Italy and Ireland, while manufacturing in France continued to decline. Markit’s Manufacturing Purchasing Managers’ Index for the bloc rose to 52.6 in September from 51.7 in August, unchanged from a flash estimate. An index measuring output also held above the 50 mark separating growth from contraction, coming in at 53.8, above August’s 53.3. “The big picture is that there have been some modest improvements in the manufacturing outlook recently. But the big question is still what is going on in the service sector,” said Ben May at Oxford Economics. Still, a sub-index measuring new factory orders jumped to 53.4 from August’s 18-month low of 51.4, registering one of its highest readings in the past year, and factories also accelerated hiring.
“For a region beleaguered by stillhigh overall unemployment, the fact that the upturn is generating more jobs is especially good news. The latest rise in factory payroll numbers was one of the best seen over the past four years,” said Chris Williamson, chief business economist at IHS Markit. Likely providing some good news for policymakers at the European
Central Bank, the manufacturing upturn came despite firms only trimming prices by the smallest of margins. Years of ultra-loose monetary policy have so far failed to get inflation anywhere near the ECB’s 2 per cent target ceiling, so any sign of the policy having an effect will be welcomed. Consumer prices grew 0.4 per cent in September, official data showed on Friday. Euro zone economies stuck in low gear need fiscal policy help rather than even more aggressive monetary policy easing, according to a majority of economists polled by Reuters last month. Reuters
Legislation
U.S. Supreme Court to weigh reach of insider trading law Many defence lawyers say that what Wall Street is looking for is a ruling clearly defining what conduct violates the law. The U.S. Supreme Court is set to consider this week a closely watched insider trading case that could limit the ability of prosecutors to pursue such charges against hedge fund managers and other traders. The eight justices, who opened their 2016-17 term yesterday, will hear arguments on Wednesday in the case of an Illinois man, Bassam Salman, who prosecutors said made nearly US$1.2 million trading on inside information about mergers involving clients of Citigroup Inc, where his brother-in-law worked. It is the first time in two decades that the Supreme Court has taken up a case involving insider trading, a crime that the U.S. Congress has never defined and has left the courts and the Securities and Exchange Commission to shape. Salman was convicted of conspiracy and securities fraud charges arising from insider trading and sentenced in 2014 to three years in prison. At issue in Salman’s appeal is whether the government in insider trading cases must prove that an alleged source of corporate secrets like the brother-in-law received a tangible benefit like cash in exchange for any tips. Lawyers and prosecutors say that requiring such proof would make it harder for authorities to pursue insider trading cases, potentially preventing prosecutions in which corporate executives tip friends or relatives without any tangible quid pro quo.
“This will be a court decision that could have significant ramifications on if tipping cases can continue to be brought with the fervour they have been brought in the last decade,” said David Miller, a defence lawyer at the law firm Morgan, Lewis & Bockius. The appeal follows ramped-up efforts by U.S. authorities to crack down on insider trading, with the SEC announcing charges against more than 550 people in the past six years. A wave of insider trading cases brought by Manhattan federal prosecutors, meanwhile, resulted in Galleon Group founder Raj Rajaratnam’s conviction in 2011 and a US$1.8 billion settlement and plea deal in 2013 with hedge fund SAC Capital Advisors LP. But in December 2014, a federal appeals court in New York dealt prosecutors a major blow by overturning the conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, and narrowing authorities’ ability to pursue such cases. The New York-based 2nd U.S. Circuit Court of Appeals held that to be convicted, a trader must know that the source received a benefit in exchange, and that such a benefit was “at least a potential gain of a pecuniary or similarly valuable nature.”
Dropping charges
The ruling forced prosecutors under Manhattan U.S. Attorney Preet Bharara to drop charges
against 12 other defendants, out of 107 people charged under his watch since 2009. While the Supreme Court in October 2015 declined to review the case, the justices in January agreed to review a similar one, Salman’s case, in which a federal appeals court in California had issued a potentially conflicting ruling. Salman argued that his trading was not illegal as no proof existed that his brother-in-law, in tipping a family member who in turn tipped Salman, received anything beneficial in exchange.
“I do think clarity is particularly important in this context, and right now there is a lack of clarity... The Supreme Court has the opportunity now to clean that up.” Stephen Ascher, a lawyer at Jenner & Block
The San Francisco-based 9th U.S. Circuit Court of Appeals rejected that argument, saying that requiring a tangible benefit in such a circumstance would allow insiders to tip their relatives so long as they got nothing in exchange. Prosecutors are hoping the Supreme Court adopts the 9th Circuit’s view and rejects the 2nd Circuit’s narrow interpretation, which authorities said could result in some people avoiding charges and could affect investigations. Reuters
Business Daily Tuesday, October 4 2016 15
Opinion Private bankers, you have worse coming. Don’t fight it. Andy Mukherjee a Bloomberg Gadfly columnist
T
he profession of providing tender loving care to the wealth of the world’s rich people is heading for its annus horribilis. Private bankers in Asia could deal with 2017 - and the headaches the year will bring - by following one simple rule: Don’t get out of bed. Showing up on clients’ doorsteps with another great investment idea will be a waste of everybody’s time. In an age of stratospheric asset prices - and subterranean yields - assets under management are bound to grow more slowly than the gung-ho expectations on which some of these very expensive wealthmanagement businesses have been built. By Oliver Wyman’s estimates, there could be a US$15 trillion gap between the assets bankers are hoping to land globally by 2020, and what they might end up with. That’s particularly a problem for Asia, where costto-income ratios for global wealth managers are off the charts: Staying in the office is an even worse idea. That will mean dealing with compliance all day long. Blame that on the regulatory clampdown on tax evasion and money laundering, which is threatening to become the bane of the banker’s existence. First, there was FATCA, or the U.S. Foreign Account Tax Compliance Act, which made it obligatory for financial institutions around the world to monitor the activities of U.S. citizens and report them to the Internal Revenue Service. But while banks in Asia could deal with FATCA by, among other things, turning away American clients, what’s coming now will be impossible to evade. The Common trillion US$ Reporting Standards, Potential shortfall or CRS, under which in bankers’ asset target 54 out of 101 signatory countries will start exchanging tax information next year, will leave banks with no choice except to invest heavily in databases and search algorithms. Maintaining up-to-date records of clients’ tax residency status, identifying “reportable accounts,” raising red flags on suspicious transactions, and making additional disclosures will cost money and time. But the extra work can’t be ignored. In Hong Kong, intentional disregard of the rules could become a personal liability for bankers, according to a white paper by AxiomSL, a provider of regulatory reporting platforms. Bankers in Asia have already been put on notice. A multi-country inquiry into allegations that billions of dollars were stolen from a Malaysian state investment firm and laundered around the world has seen Swiss private bank BSI get booted out of Singapore. Another Swiss wealth manager, Falcon Private Bank, is under investigation in the city for “serious breaches” of antimoney-laundering regulations. Singapore lender DBS, as well as local units of UBS and Standard Chartered, are being probed for “instances of control failings.” To be sure, dodgy deals aren’t limited to wealth management. The U.S. Federal Reserve has given Agricultural Bank of China 60 days to clean up its act after a former compliance officer in New York sued the lender, alleging that she was forced out for telling the Fed about money-laundering risks from international trade-finance transactions. Nevertheless, the rich are in the cross hairs. Singapore banks were in the news recently for reporting their clients’ participation in an Indonesian tax amnesty program to the city-state’s police. It’s hard for the wealthy to accept that their trusted bankers are telling on them even when they’re trying to come clean. But this is just the beginning. The scrutiny will become more intense from next year. And the bankers whose thankless task it will be to do the policing will dread getting up in the morning. Bloomberg Gadfly
15
The perils of debt complacency
“W
hat a government spends the public pays for. There is no such thing as an uncovered deficit.” So said John Maynard Keynes in A Tract on Monetary Reform. But Robert Skidelsky, the author of a magisterial three-volume biography of Keynes, disagrees. In a recent commentary entitled “The Scarecrow of National Debt,” Skidelsky offered a rather patronizing narrative, in a tone usually reserved for young children and pets, about his aged, old-fashioned, and financially illiterate friend’s baseless anxiety about the burden placed on future generations by the rising level of government debt. If Skidelsky’s point had been that some economies, including the United States, would benefit from higher infrastructure spending, even at the cost of more debt, I would agree wholeheartedly. Compelling reasons for boosting US public investment include deteriorating infrastructure, tepid growth, low interest rates, and limited scope for further monetary stimulus. For the US, such an impetus might be especially welcome as the Federal Reserve raises interest rates (albeit gradually) while other countries ease further or hold rates steady and the dollar likely strengthens. But that was not the route Skidelsky took. Instead, in his critique of a commentary by Kenneth Rogoff, he argued that it is silly and passé for a country that can issue debt in its own currency to fret over medium-term debt levels. Call me old-fashioned, but that argument smacks of complacency and is not supported by evidence. On this score, Skidelsky confuses two different papers on debt and growth, a 2012 paper of mine, in which there were some alleged data concerns, with one that I coauthored with Rogoff and Vincent Reinhart, in which there were none. Coming from an author who knows Keynes so well, such complacency disappoints. I cannot read How to Pay For the War and conclude that Keynes thought that high war debts were a “scarecrow” for the United Kingdom. In fact, the apparatus of the Bretton Woods arrangements that Keynes subsequently helped to craft were designed to ease a difficult transition out of debt. The case for near-term fiscal stimulus, even if in the form of increased infrastructure outlays, cannot ignore the medium-term outlook for economies with already large debt obligations, major entitlement burdens, aging populations, and what appears to be a steady downward drift in potential output growth. As Skidelsky notes, debts have risen significantly in the UK and the US (among others) since 2008, while interest rates have remained low or declined. Should we therefore conclude that high debt is not linked to low growth via high interest rates (which crowd out private spending)? Reading a little further into my study with Rogoff and Reinhart, one would find that there was ‘‘little to suggest a systematic mapping between the largest increases in average interest rates and the largest (negative) differences in growth during the individual debt overhang episodes.” Our research considered 26 high-debt episodes
“
Carmen Reinhart a Professor of the International Financial System at Harvard University’s Kennedy School of Government.
between 1800 and 2011, looking both at growth rates and at levels of real (inflation-adjusted) interest rates. In 23 of these high-debt episodes, growth was lower, and in eight growth slowed even as real interest rates remained about the same or edged lower. Japan’s debt overhang (entirely domestic currency debt), which we trace back to 1995, illustrates this pattern. Why do high debt and slow growth coexist, despite cheap financing? High debt levels can and do constrain a country’s abilities to cope with adverse events. For example, some of Italy’s largest banks have been diagnosed as approaching insolvency and requiring substantial recapitalization. Not surprisingly, the confidence of Italian households and firms has been shaken, and capital flight has ensued. If Italy’s debt were not already 130 per cent of GDP, might its government have been better positioned to provide the resources to tackle decisively its lingering banking and confidence problems? Our 2012 study identified three on-going publicdebt overhangs that began in the mid-1990s – Greece, Italy, and Japan. Relative to other advanced economies, these three economies are the worst growth performers (see chart). To be sure, a country’s economic performance depends on many factors. But the view that it is low growth that causes debt to rise, though important when assessing the cyclical feedback effects, can hardly explain the two-decade experience of these three countries. It is difficult to imagine a sustained revival of Greek growth without another round of haircuts and debt forgiveness from Greece’s official creditors, which now hold most of its debt. Italy depends critically on the continued large-scale purchases of its bonds by the European Central Bank (its Target 2 balances have recently climbed, reflecting capital flight). The Bank of Japan is going to greater and greater lengths to orchestrate an increase in inflation expectations and price growth, which can help erode the value of outstanding debts. (“For inflation is a mighty tax-gatherer,” as Keynes observed.) Other countries, like Portugal, are also struggling with low growth and weak fiscal positions. Concerns about debt levels (public and private) have now extended beyond the advanced economies to many emerging markets. I cannot recall an instance of a government that is concerned about having too low a level of debt. Perhaps, it is because the debt scarecrow has teeth. Skidelsky needs no reminder of the historical record, but it bears noting that more than a dozen advanced economies received debt relief in one form or another during the depression of the 1930s. The approach to unwinding current debts is likely to vary considerably across countries, but it is time to place greater emphasis on debt restructuring (which comes with a menu of options) than on accumulating more debt. Project Syndicate
High debt levels can and do constrain a country’s abilities to cope with adverse events.
”
16 Business Daily Tuesday, October 4 2016
Closing Macau fuels markets
Casino shares lift Hong Kong stocks from two-week low
photography.Aivi remulla.com
15, while Sands China Ltd. advanced 1.8 per cent. Last month’s increase in gambling revenues was the second gain in row, after a 26-month slump, and beat the median Hong Kong stocks rose from a two-week low as betterestimate of a 4 per cent advance in a Bloomberg survey of than-expected Macau gambling numbers lifted casino operators and concern about Deutsche Bank AG’s financial analysts. New projects from local units of Las Vegas Sands Corp. and Wynn Resorts Ltd. helped draw recreational health eased. gamblers. The Hang Seng Index climbed 1.2 per cent at the close, after slumping 1.9 per cent on Friday. Galaxy Entertainment “Gaming names are driven by good September results,” Group Ltd. rallied 2.9 per cent following data that showed said Yen Chiu, a Hong Kong-based trader at China Macau’s gambling revenue rose 7.4 per cent in September. Securities International Finance Holding Co. “But we will have to see if the rebound is supported by sufficient A gauge of Macau casino operators rallied 1 per cent, volume. The market will fluctuate as China is off this week, approaching its highest level since August 2015. Galaxy Entertainment closed at the highest level since September with turnover likely to decline.” Bloomberg News
Development organization report
World Bank secretly finances Asian ‘coal boom’ The report’s release coincided with the start of this week’s high-profile annual meetings of the Bank and the International Monetary Fund
T
he World Bank is indirectly financing a boom in some of Asia’s dirtiest coal-fired power generation despite commitments to end most funding for the sector, a development advocacy group charged yesterday. The power plants, which contribute to climate change and deforestation as well as premature deaths due to illness, are cropping up from Bangladesh to the Philippines, all with financing provided by financial intermediaries supported by the Bank, said a report produced by the organization Inclusive Development International. In a policy shift in 2013, the Bank said it would end virtually all support for the creation of coal-burning power plants, supporting them only in “rare circumstances” where there are no viable alternatives. However, since that pledge, 41 coal projects have received funding from banks and investment funds supported by the World Bank’s private-sector arm, the International Finance Corporation (IFC), according to the report. In response to questions from AFP, Frederick Jones, an IFC spokesman, said the global lender took the report seriously. “It raises important long-term questions about how we need to create stronger markets for clean energy and create incentives for countries and the private sector not to invest in coal, but rather in renewable
energy,” he said. Jones added that since 2005 the IFC had already invested more than US$15 billion in renewable energy, energy efficiency and other areas, and had mobilized US$10 billion more. However, Jones conceded that IFC policy did not prohibit equity clients from funding coal plants, meaning the institution might be indirectly exposed to the industry. This is despite the fact that IFC loans to financial services industry players are not intended to finance coal-related projects and targeted lending is “ring-fenced” to prevent this, according to Jones. The report’s release coincided with the start of this week’s high-profile annual meetings of the Bank and the International Monetary Fund, as the world’s finance chiefs gather to discuss efforts at poverty reduction. Campaigners in recent years have been sharply critical of the IFC’s support for third parties in the financial services sector, such as banks and investment funds, saying they can represent an endrun around environmental and social safeguards that apply to projects directly supported by the IFC. Financial-sector lending now accounts for 52 per cent of the IFC’s long-term commitments, according to IDI, which jointly produced the report with other advocacy organizations including the Bank Information Centre and
Accountability Counsel. Founded in 2011, IDI is an advocacy organization focusing on human rights and ethics in development.
Seeking compensation tough
The IFC does not identify the end recipients of financing received by such intermediaries. That can make it difficult for people harmed by such projects to demand compensation or seek redress, the report said. However, through an analysis of records, the report identified 56,127 megawatts of new coal capacity funded indirectly by the IFC. These included the planned 1,360-megawatt Rampal power station in Bangladesh, to be situated on the edge of the sprawling Sundarbans mangrove forest, which is home to endangered species and supports the livelihoods of two million people.
The report said the World Bank itself declined to support the project, which could threaten the Sundarbans with air and water pollution. But six local banks, all IFC-financed, agreed to support the project instead. The report also cited power construction in the Philippines, where coal burning is estimated to result in almost a thousand premature deaths annually and where more than thirty environmental activists were killed in 2015 alone. IFC-financed banks have supported at least 20 new coal projects since 2013 in the Philippines. They include the proposed 540-megawatt Lanao Kauswagan power station, which is expected to begin operations next year and may threaten marine life in nearby Panguil Bay and the livelihoods of fishing communities, Inclusive Development International said. “While the IFC has tried to distance itself from the projects funded by its intermediaries, the fact is that these banks are brazenly disregarding the IFC’s environmental and social requirements,” David Pred, IDI’s managing director, said in a statement. AFP
‘41 coal projects have received funding from banks and investment funds supported by the World Bank’s privatesector arm’
GDP goal
Meat scandal
Panama Papers
Vietnamese PM lowers economic growth target
Shanghai food authority fines fast food supplier
Taiwan’s top financial regulator quits over bank probe
Vietnamese Prime Minister Nguyen Xuan Phuc yesterday lowered the country’s economic growth target to 6.3-6.5 per cent in 2016, instead of the earlier one of 6.7 per cent. Phuc made the remark at a monthly cabinet meeting which opened in Vietnam’s capital Hanoi yesterday, reported the government’s e- Portal. The cabinet chief urged sectors, ministries and localities to strive to boost economic growth, improve quality of growth and sustainable development as well as realize the highest possible economic growth planned for the year 2016 at 6.3-6.5 per cent. Despite failing to reach the earlier target of 6.7 per cent in 2016, “a tough year with full of obstacles,” Phuc said 6.3-6.5 per cent is also a high growth. According to Phuc, Vietnam’s gross domestic product (GDP) expanded by 5.93 per cent in the first nine months this year, lower than that of the same period last year. In order to reach GDP growth of 6.3-6.5 per cent in 2016, Phuc said GDP expansion in the fourth quarter must be 7.1-7.3 per cent. Earlier, both the World Bank and the Asian Development Bank forecast that Vietnam’s GDP will expand by 6 per cent in 2016. Xinhua
Shanghai Municipal Food and Drug Administration yesterday ordered a major fast food chain supplier and its parent company to pay fines for producing and selling substandard products. According to the authority, Shanghai Husi Food Co. and OSI Group’s China office were fined approximately 17 million yuan (US$2.5 million) and 7.3 million yuan respectively. The district market regulators have also added the two companies to a blacklist of those who have committed serious legal violations, meaning stricter regulations in the future. In a statement, the two companies accepted the punishment and promised to pay the penalty on time. Husi is a subsidiary of U.S.-based global food processor OSI Group and a former supplier to major fast food chains including McDonald’s and Yum! Brands KFC and Pizza Hut. The case was first exposed after a local TV station reported in July 2014 that Shanghai Husi had supplied products tainted with reprocessed, expired meat to a string of fast food chains and restaurants across China. A Shanghai court in February ordered Husi’s Shanghai and Hebei plants to pay fines and sentenced 10 people to prison terms. Xinhua
The head of Taiwan’s top financial regulator resigned yesterday after US authorities fined a local bank linked to the so-called Panama Papers scandal. Ding Kung-wha, chairman of the Financial Supervisory Commission (FSC), had been criticised over his handling of the controversy involving Mega International Commercial Bank, which was hit with a US$180 million fine in the US in August. American regulators accused the bank of showing “flagrant disregard” for anti-money laundering laws, saying they had identified “suspicious transactions” between the bank’s New York and Panama Branches. The Panama Papers, which were released by media in April, comprised a trove of leaked documents that revealed a murky financial underworld of tax evasion by politicians, celebrities, and sports stars using shell companies. Mega Bank had dealings with a Panamanian law firm at the centre of the scandal, the US Department of Financial Services said. The US order does not specify whether the Taiwanese bank actually engaged in money laundering. Cabinet passed a bill to toughen its anti-money laundering laws following Mega International’s fine. AFP