LIVE Music Association to close at year-end Culture Page 6
Thursday, October 13 2016 Year V Nr. 1150 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Auto industry
Mainland car sales grow at faster pace thanks to taxcut stimulus Page 9
www.macaubusinessdaily.com
Retail
Financial expansion
Bauhaus expects interim loss to expand Page 6
Chinese banks target Singapore merchants after Western lenders face obstacles Page 9
Premier Li announces 19 initiatives Politics
Premier Li Keqiang has completed his 3-day trip to the MSAR. Announcing 19 measures to benefit the development of the city. Including a nod on local vehicles freely accessing Hengqin by year-end. A local renminbi clearing centre has been confirmed, with BOC Macau the operator. Pages 4 & 5
Reinsurers’ game
Insurance The 28th East Asian Insurance Congress kicked off its seminars yesterday. The conference assembled many insurance companies seeking to ‘reinsure’ themselves. Transferring some of the risk is the name of the game. Page 3
VIPs shine in Golden Week
Gaming The city’s junkets did well in Golden Week. J.P. Morgan estimate VIP revenues were up 20 pct y-o-y in the period. Bernstein also saw an up-tick for local VIPs. Overall gaming revenue is projected to register more y-o-y growth. Page 7
Consumer confidence on the rise
The MSAR’s overall consumer confidence increased in Q3. So says the latest report by Macau University of Science and Technology. Confidence in the economy, employment, and stock investment are all up.
Yuan vertigo
Consumers Page 2
HK Hang Seng Index October 12, 2016
23,407.05 -142.47 (-0.60%) Worst Performers
China Merchants Port Hold-
3.59%
CK Hutchison Holdings Ltd
0.73%
Bank of Communications
-2.86%
China Unicom Hong Kong
-1.91%
MTR Corp Ltd
1.66%
China Resources Land Ltd
0.72%
Bank of China Ltd
-2.80%
Industrial & Commercial
-1.83%
China Overseas Land &
1.46%
CLP Holdings Ltd
0.58%
Galaxy Entertainment Group
-2.66%
New World Development
-1.53%
BOC Hong Kong Holdings
0.96%
CNOOC Ltd
0.58%
Sino Land Co Ltd
-1.94%
Wharf Holdings Ltd/The
-1.53%
Hang Seng Bank Ltd
0.79%
Hong Kong & China Gas Co
0.41%
China Resources Power
-1.92%
China Shenhua Energy Co
-1.52%
25° 29° 25° 29° 26° 30° 26° 31° 25° 32° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Currencies China’s central bank weakened the yuan’s reference rate for a sixth day. The longest run of cuts in nine months. This, amid speculation policymakers will permit further declines as the dollar rises. Page 8
2 Business Daily Thursday, October 13 2016
Macau Subsidies
Opinion
per cent of the total, allocated to Cultural Industries Fund disburses MOP11.7 mln in Q3 Consultadoria de Projecto Team The Cultural Industries Fund disbursed MOP11.7 million (US$ 1.5 million) for 26 projects in the third quarter of this year, according to a dispatch published in the Official Gazette yesterday. Of this, the largest subsidy was MOP2.6 million, accounting for 22
José I. Duarte* Recurring topic The presence of the Prime Minister leading the Chinese delegation to the ministerial conference of the usually designated, for short, Forum Macau, underlined once again the role of the forum as a preferred frame for the cooperation between China and the Portuguesespeaking countries. It has also reasserted the pivotal part that Macau is expected to perform. This is a subject that will merit deeper scrutiny once a proper balance of the works and resolutions can take place. Expectations were also high, concerning the message the Premier would convey about the recent evolution of the economy. Supportive measures were announced, but we have to wait for further details. What this discussion brought to the fore again, inevitably, was the topic of diversification. And here, it is almost impossible to avoid a sense of dejà vu. As we keep coming back to it, more clarity would be helpful. What exactly is meant by diversification, what model or outcomes do people have in mind? Is it just making gambling a lighter part of the equation for our visitors, and developing and focusing on more family and entertainment oriented packages and experiences? While that was not the major driving force behind the growth in the last decade, in that sense the economy has been diversifying a lot. Services and infrastructure for trade, academic, sport or cultural events of various types exist that did not exist before. Retail, food and beverage, hospitality, and even showbiz activities have grown and changed almost beyond recognition. Those are welcome changes. But while they may change the configuration of the visitors’ driving factors, they do not break the economy away from the critical dependence on gambling and casinos. Or is it moving into new areas, less dependent on the dominant economic movements and, in particular, less sensitive to the ups and downs of visitor flows and gambling revenues? This is a worthy aspiration: but is it plausible? We can, for the sake of argument simplicity, assume that there would be no dearth of interest by potential investors, whatever new sectors one could reasonably take into consideration. Further, we could leave aside for now major issues such the as the adequacy of the city infrastructure, the lack of ancillary business services and the somewhat dysfunctional labor and real estate markets. At a very fundamental level, the question is: where will the workforce come from for such change to happen? *economist and permanent contributor to this newspaper.
Mei Lda for its ‘Macau Clothing Brand Incubator ’ project. Another MOP2.1 million, accounting for 18 per cent of the total, was given to MCDC Centro de Design Macau Companhia Lda for its ‘Macau Design Centre’s Five-Year Development Plan’ project. A.L.
Consumer
Consumers’ confidence increasing Local consumers are expressing more confidence in the local economy, employment and stock investment Annie Lao annie.lao@macaubusinessdaily.com
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he city’s overall consumer confidence registered an increase during the third quarter of the year as consumers gained more confidence in the city’s economy, employment and stock investment, the latest survey on Macau’s consumer confidence index conducted by the University of Science and Technology (MUST) reveals. During the quarter, the Macau Consumer Confidence Index (MCCI) reached 85.67 out of 200 points, up 3.11 points or 3.8 per cent compared to 82.6 for the second quarter of the year. According to the study, index scores below 100 indicate a lack of confidence whilst scores over 100 imply a degree of positive outlook. The six sub-indices of the
study comprise the local economy, employment, living standards, housing purchase, consumer prices and stock investment.
Score up
In the three months, the sub-index of the local economy index reached 98, which is the highest increase in the sub-indices, up 14.2 per cent compared to the previous quarter. The notable growth indicates Macau consumers are regaining confidence in the local economy’s overall performance. At the same time, the sub-index of stock investment increased 6.4 per cent from the previous quarter, at 81.27, whilst that of local employment topped the list at 102.48, a jump of 8 per cent quarter-to-quarter. The sub-index of living standards recorded an increase of 2.4 per cent quarter-to-quarter to 98.6. But local consumers’ confidence
in consumer prices and housing purchase decreased in the three months, with the lowest confidence posted in buying housing. According to the report, the subindex of housing purchase fell 13.2 per cent quarter-to-quarter at 74.4, while that of consumer prices dropped 0.9 per cent quarter-to-quarter to 59.3. The report indicates that the result reflects that local residents do not have much confidence in buying a property in the city. The report suggests Macau should further deepen its regional cooperation with Mainland China and Hong Kong and promote economic diversification in order to increase local consumers’ confidence. It added that the reduction of external factors regarding the local economy and balancing housing supply and demand would also help boost consumers’ confidence. The survey was conducted from September 13 to 24, and interviewed 1,005 Macau residents aged over 18 via phone calls. The Institute for Sustainable Development at MUST has released the index every quarter since 2009.
Infrastructure
Zone A - Delta bridge link to be relocated The original link connecting the city’s reclamation area of Zone A to the artificial island of the Hong KongZhuhai-Macau-Bridge will need relocating, local broadcaster TDM Radio has reported. The Chief of the Infrastructure Development Office (GDI), Chau Vai Man, said the relocation is due to the problem of sand supply for the construction works of Zone A. The GDI chief made the comments whilst briefing the construction progress of the artificial island for the Hong Kong-Zhuhai-Macau Bridge to Chinese premier Li Keqiang on Tuesday. The artificial island for the Bridge will house a joint Customs inspection building for the MSAR and Zhuhai.
The building is expected to handle 250,000 border crossings and 20,000 vehicle movements per day. The artificial island will also
accommodate two parking garages, providing between 3,000 and 7,000 parking spaces, according to Mr. Chau. A.L.
Business Daily Thursday, October 13 2016 3
Macau Labour
55 illegal workers detained in August
by 1 or 1.9 per cent. These illegal workers were discovered after 417 joint inspections were undertaken The Public Security Police Force by the security body and the (PSP) caught a total of 55 illegal Labour Affairs Bureau (DSAL) in workers in August, according to the month. Police claim they had official data released yesterday. The number represents an increase inspected different construction sites, private buildings, commercial of 17 or 44.7 per cent month-onand industrial premises and other month. Compared to the same workplaces in the city. A.L. month last year, the number rose
Insurance
Mitigating risk Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
nsurers are in the MSAR primarily to buy insurance for themselves. The process, called reinsurance, involves insurance companies purchasing insurance from one another as risk mitigation and has attracted a large number of international companies to the East Asian Insurance Congress, whose seminars started yesterday at The Venetian. The event, which welcomes the likes of large-scale international companies such as Allianz, as well as smaller local providers, has seen mixed levels of foot traffic so far; however, expectations are for this to taper down slightly as the week goes on and seminar events delve into deeper topics. “I think it’s focusing a lot on some of the more corporate business and niche products in the next two days if you look at the agenda; it’s got a bit more substance in tomorrow’s sessions and the day after,” notes Allianz CEO for Hong Kong and Greater
China Chin Feng. The CEO, based in Hong Kong, says the event is “quite positive in general but it seems a bit lighter than recent years,” in terms of attendees, and he expects this to pick up in the coming days. “We’re just here to represent AGCS (Allianz Global Corporate and Specialty), which is the corporate business of Allianz - like infrastructure. And sometimes we look for facultative partners to insure some of the bigger projects,” he commented regarding the group’s objectives at the conference. “We have the capacity as a company but sometimes we want to spread our risk, depending upon the risk profile,” the CEO added, referring to the reinsurance area.
China-centric
“It’s good to get a feel of what people are thinking of the ‘One Belt, One Road’ initiative of China; obviously, it’s going down south so anyone from Thailand or Malaysia or the Philippines has some understanding of the joint venture projects with China construction companies,” said the Allianz CEO, reflecting the group’s
focus on the China market and its intended expansion to Beijing – having applied for a licence to operate there. The group is headquartered in Guangzhou and present in Shenzhen, which Feng notes has “a lot of those tech hubs and seed companies, I personally think it’ll be a bigger stock exchange than the Shanghai Stock Exchange someday.” With regard to timing, Allianz’s Regional Head of Communications for Asia, Wendy Koh, notes that “the conference is held at a very good time as it’s very close to the renewal period. So it really is a very good platform for reinsurance brokers and insurance to get together to really discuss and negotiate the renewals taking place at the end of the year,” said Ms. Koh.
Opportunity and risk
These opportunities are being seized by not only companies based locally but those from farther afield such as Portuguese insurer Fidelidade, whose representative of the local branch, Lisa Wong, notes a push to increase awareness. “We’re trying to seek to introduce our company to those exhibitors to find the chance to have a reinsurance co-operation with them,” she
said, commenting that the group is mainly trying to “expand our brand awareness” within the region. “The focus is about regional business… if you’ve got a local company wanting to trade now, you’d come here to do it,” comments Regional Vice President for Asia and Australasia for RMS (Risk Management Solutions) Dr. Paul Burgess. The company specialises in catastrophe modeling. He notes that the type of business it conducts is long-term and as such “we wouldn’t sign anything here” - in terms of overall expected outcome he comments that the focus “is to try and get new contacts and drum up new business.” The event runs until October 15 and features topics such as cyber crime, disaster relief insurance and new life insurance models.
4 Business Daily Thursday, October 13 2016
Macau Politics Premier Li announces China’s 19 measures benefiting the MSAR
We are sailing Measures include the implementation of a timeframe for vehicles freely accessing Hengqin and yachts travelling within Guangdong Province
P
remier L i K e q i a n g announced Bejing’s 19 MSAR-favouring measures yesterday upon wrapping up his three-day trip to the city, which included confirmation of the implementation of Macau vehicles entering Hengqin by the end of the year and the Free Travel Yacht Scheme with Guangdong Province within the first half of next year. Th e t o p o f f i c i a l m a d e t h e announcement whilst conferring with the MSAR Government and various society and business members yesterday morning in the Macau East Asian Dome, prior to his departure for Beijing. The 19 measures include support for the MSAR to set up a renminbi clearing centre for Portuguesespeaking countries as well as an export credit insurance system; establishing the headquarters of the Sino-Luso Development Fund in the MSAR; developing the marine economy; boosting businesses in the Pearl Delta River region wishing to invest in Macau as well as boosting large-scale Chinese e-commerce companies wanting to co-operate with local enterprises wishing to expand the e-commerce market in Lusophone countries.
The Chinese premier noted in the meeting that these policies are expected to support the development of the city’s finance industry, merchandise and service trade. In addition, he believes the set-up of the Sino-Luso Development Fund headquarters in Macau can help fund
The Sino-Luso Development Fund
The establishment of the headquarters of the Sino-Luso Development Fund in the MSAR is expected to be completed this year, the president of the Fund, Chi Jianxin, revealed on the sidelines of the 5th Ministerial Conference business conference yesterday. According to news agency Lusa, he said the new establishment suggests a relocation of the Fund’s current headquarters from Beijing to the MSAR as the city is considered a better place for the disclosures to potential interested
national projects in the Portuguesespeaking countries. The Beijing official also stressed that the central government affirmed the work of the MSAR Government, adding Beijing has noted the city is suffering ‘temporary pains’ in order to transform its economic structure. But he expressed his confidence in the city’s economic development, noting Macau still has the potential to go further. Commenting upon the city’s current economic downturn as “a risk and a challenge,” Mr. Li said the city should boost the substantiality and diversification of its economy. Arriving in the Special
parties receiving funding. Mr. Chi added that the Fund would start discussions with local government with regard to the organisation, work procedures, structure and tax regulations of the Fund being based in Macau.Created in 2013, the Fund seeks to support companies from Mainland China and Macau wishing to invest in Portuguese-speaking countries and attracting Lusophone projects to China. “This Fund is market-oriented. It is fully commercially operated, so we need to evaluate the value of the project. Some companies
Administrative Region on Monday, the Chinese premier attended 48 events during the three days, the director of the central government’s Liaison Office in Macau, Wang Zhiming, revealed yesterday. The premier, apart from attending activities of the Sino-Luso forum, met the local community during the three days, including visiting schools, families and tourist districts. The 19 measures announced yesterday encourage the MSAR to seek co-operation with the Silk Road Fund, the Sino-Latin American Production Co-operation Investment Fund and China-Africa Development Fund.
discussed investment with us but failed to provide their basic business plans and feasibility studies,” the president said. “That’s why we decided to move the headquarters of the Fund to Macau making it easier to discuss and contact potential partners,” Mr. Chi added. According to Lusa, the Fund has only approved funding for one Angolan investment project in China and one project of Chinese investment in Mozambique since its establishment, involving a total of US$16.5 million (MOP2 million). N.M.
FORUM MACAU
5th Ministerial Conference talks tactics Macau companies are providing increasingly professional quality services in terms of language, legislation and financial co-operation for trade, investment and industry, China’s Vice-Minister of Commerce, Gao Yan, remarked yesterday at the 5th Ministerial Conference of Business and Financial Sector Professionals between China and the Portuguesespeaking Countries. The event, held at the Macau Tower, sought to bring together businessman a n d e n t r e p r e n e u rs f r o m th e Lusophone countries to participate in the forum, in addition to boosting Sino-Luso business co-operation. In her address, the Chinese minister described how Sino-Luso co-operation is expanding in sectors such as electricity and insurance, via different bilateral and multilateral agreements, urging participating companies to strengthen their ties. Ms. Gao also suggested that cooperation in the manufacturing sector is the most important way to complement the advantages China and each Lusophone country have to offer. She added that quality financial services were important bases for co-operation in infrastructure, equipment production and trade.
So far, so good
Ms. Gao also highlighted how diverse the areas and levels of co-operation between China and
Portuguese-speaking countries have been since the last Ministerial Conference in 2013. According to her, the total volume of Sino-Luso trade exceeded US$360 billion (MOP2.8 trillion) between 2013 and 2015, with China being the most important trading partner for many Lusophone countries such as
Brazil, Portugal and Cape Verde. In addition, the level of investment made by Lusophone countries in China reached US$50 billion as at the end of 2015. The event also witnessed the u n v e i l i n g c e r e m o n y f o r th e establishment of the Sino-Luso Association of Enterprises Directors.
The foundation is part of the five new Sino-Luso establishments proposed by China’s premier Li Keqiang in the MSAR in order to strengthen Macau’s role as a bridge for commercial, language and cultural co-operation between China and Portuguesespeaking countries. “I hope the participating companies can introduce more dynamics for cooperation and investment through the Sino-Luso Association of Enterprises Directors,” Ms. Gao said. N.M.
Business Daily Thursday, October 13 2016 5
Macau Economy
Triple win situation The Secretary for Economy and Finance reckons the city’s role as a Sino-Luso platform will benefit Macau’s economy by diversifying as well as sustaining the city’s long-term development Cecilia U cecilia.u@macaubusinessdaily.com
T
he Secretary for Economy and Finance, Lionel Leong Vai Tac, believes that the 19 MSAR-favouring measures as announced by Premier Li Keqiang would aid the city to participate in the strategic development of the country.
“The 19 measures will help the city have better participation in the national strategic development,” said Secretary Leong. “Within the participation, how to diversity the city’s economy [and] how to involve the city’s SMEs and younger population are the criteria that Premier Li considered when establishing the 19 measures.” Mr. Leong explained that these 19
measures, announced yesterday, are generally different from the 18 measures that the premier introduced during the Ministerial Conference on Tuesday. The latter aims to boost the development of the Forum although five of the policies focus on new establishments in the city. He added that these 19 measures will provide significant advantages for the appropriate diversification of the city’s economy.
BOC Macau to operate RMB clearing centre
“[The 19 measures] include the holding of an international forum relating to the economy, we, as the Sino-Luso
platform. having a renminbi clearing centre and the provision of an export insurance credit system to benefit the city’s diversification,” the Secretary noted. For the reminbilearing centre in the city, the Secretary announced that the Macau Branch of Bank of China has been appointed the centre’s operator in the city, adding that the operation is still under preparation and consultation. In addition, the headquarters of the Sino-Luso Co-operation Development Fund located in Macau, explained Secretary Leong, will significantly improve the efficiency of the usage of the fund by Chinese and Portuguese enterprises. In terms of the how the fund functions, Secretary Leong pointed out the importance of users’ opinions. “I think it is most important to consider users’ opinions, because enterprises are the true users […] they have the most right to voice out [how to use the fund properly],” he said. He also stated that the government would continue to collect opinions and advice from society. Questioned about the difficulties for the MSAR to serve as a financial platform, Secretary Leong said Macau is capable of building a featured financial industry, and that this new industry will assimilate with the national ‘One Belt, One Road’ strategy as well as the building of the Sino-Luso platform. However, he remarked that this plans can only be initiated with the support of many areas, such as personnel training and the construction of law infrastructure.
6 Business Daily Thursday, October 13 2016
Macau Opinion
Ashley Sutherland-Winch* Radical Candor “Is there anything I can do or stop doing to make working with me easier?” This is the ‘go to’ question posed by Kim Scott, CEO of Candor, a company and app that help track the tone of feedback. Candor is one of many companies that are revolutionising management communication styles in a movement called ‘radical candor’. ‘Radical candor divides managing into two intersecting qualities – ‘care personally’ about your employees and ‘challenge directly’ (honest, truthful communication styles made famous by Google and Apple). When you care personally, and you challenge directly, you are in the sweet zone of ‘radical candor’. Employees are well supported and the team runs smoothly,” said Mr. Scott. Believing that hard truths create faster growth is a strategy used by Ryan Hardwood of Purewow and many others. “We’re pushing back against instinct to avoid conflict and are instead facing it head on”, Hardwood said in a recent interview with Inc. This movement of management is at the root identifying that employees will never truly improve if they don’t get tough feedback. Practitioners of radical candor are quick to point out that it is not an invitation to be rude and that caring must come first. Can companies in Macau begin to implement this strategy or are some even using it now? Radical candor is gaining momentum globally and companies are springing up to coach businesses on using the technique appropriately. While this technique could be highly effective, I envision some managers potentially using pieces of the strategy but not the whole principle. While the method of being direct can seem simple, it can most definitely backfire if used incorrectly. Regardless, after stumbling upon a recent article in Inc., I became inspired by the growing movement, and was eager to discuss radical candor’s potential efficacy. I believe that all business owners and managers should explore the possibility of implementing this communication style or at least consider it as an option for management strategy. Not only does it work from the top down but radical candor can also encourage growth from the bottom of the staff levels to the top. If management communication works from a 360-degree angle, staff can openly give feedback to their superiors and vice versa, an approach that will ultimately enhance all levels of feedback within a company. If radical candor can lead the way for improved feedback and expression as a goal to improve processes, this movement can allow for rapid growth within corporations overall.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Culture
LIVE Music Association pulling the plug The lack of financial funding and human resources are forcing closure Annie Lao annie.lao@macaubusinessdaily.com
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IVE Music Association (LMA) is closing down its concert venue - the only live music venue in the city - at the end of this year, Business Daily has learned. Association president Vincent Cheang told us in a phone interview on Tuesday that the reasons for the upcoming closure are lack of audiences, human resources and funding difficulties. “Firstly, we are a non-profit organisation so we only operate when we have performances. Secondly, it is hard for us to hire people to work long-term,” said Mr. Cheang. He added that the venue has not been able to sustain a stable number of audiences to watch their live music shows, which in turn has affected the operation. The Association, located on Avenida do Coronel Mesquita Freguesia de Nossa Senhora de Fátima, has operated in the city for nine years. As k e d w h eth e r i t r ec ei v e d government support for its concerts, the president said his group does not
receive long-term financial aid from the government, only for some of its activities. A local musician, Egas Mateus Da Silva, agrees it is hard to keep LMA running given the lack of funding generated by ticket sales. “The main reason for the closure is that it doesn’t have many audiences coming on a regular basis,” Da Silva said, adding his band UniK planned to co-operate with the Association for future development. “We had great feedback from our audiences last year so we plan to develop a co-operation opportunity with LMA. Unfortunately, we’ve just been informed that [the venue] is going to shut down.”
Not enough promotion
Another local musician, Fortes Pakeong Sequeira, perceives the venue has failed to sustain its operation due to the lack of promotion. “It’s a pity to know that the closure of LMA is at the end of this year. LMA is the only one live house in Macau. The city definitely needs this kind of live house for the development of the local music industry,” Sequeira said. The musician indicated that the
industry should gain more support from the government, adding authorities should also understand more about the industry before offering aid. “For the music industry to be recognised as part of the creative and cultural sector of the city, the government would firstly need to know more about the local music industry in order to promote it well,” he explained. He pointed out that money and time would be crucial to the promotion of the industry, saying: “Without promotion, it’s hard to get people to notice local talented musicians in Macau”. The musician also noted that the current requirement for enrolling in a music programme funded by the government is high, perceiving the government should lower the standard in order to let more locals explore the industry. “The basic requirement for enrolling in a programme is that a music director needs to have at lease ten years of working experience. The administrative procedure, meanwhile, is very [convoluted],” Mr. Sequeira said. “Therefore, the benchmark should be lowered in order to provide more opportunities for the local musicians to grow in the music industry.”
Retail
Bauhaus anticipates widened interim net loss Clothing retailer Bauhaus International (Holdings) Ltd. expects the company to record a net loss of over HK$60 million (US$7.5 million) for
the six months ended September 30, it told Hong Kong Stock Exchange on Tuesday evening. In the filing, the company explained
the estimated interim loss as ‘mainly due to the streamlining of the retail networks,’ coupled with ‘adverse same-store sales performance, particularly in Hong Kong’. For the same period last year, the company posted a net loss of HK$26.6 million, suggesting the company’s net loss for this half-fiscal year is to expand by 125.6 per cent year-on-year. The same filing shows that the company’s same-store sales in Hong Kong and Macau dropped by 17 per cent year-on-year for the six months, while those in Taiwan and Mainland China fell 3 per cent and 5 per cent year-on-year, respectively. The company did not release more financial figures related to its interim results. As at the end of September, the company had a total of 199 self-managed stores, down 15 compared to the end of March. Of the total, 82 stores are located in Hong Kong and Macau, 89 in Taiwan and 28 in Mainland China.
Business Daily Thursday, October 13 2016 7
Gaming
Entrepreneurship MGM CEO urges local SMEs to be ‘aggressive
Look abroad, grow locally Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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ntrepreneurship in the MSAR is still in its infancy but local entrepreneurs should not limit themselves to ideas based on local necessities, says the CEO of MGM China, Grant Bowie.
MGM Cotai
The CEO noted that with regard to the Cotai Strip in general “there’s a lot of things happening . . . As one of the smaller and one of the later operators to come online, we better deliver something that’s somewhat different”. This could come through the use of entertainment, with the CEO commenting that “we see gaming as entertainment” but the focus is on technology as the company wishes to
The comments come in the wake of Tuesday’s StartUP Forum, which welcomed teams from China, Portugal and Macau in a pitching competition, and for which Mr. Bowie served on a panel of judges. The event was also attended by Portuguese Prime Minister Antonio Costa. “While we have talked and started to focus on entrepreneurship now
use a “more edgy, probably transformational, approach, given the way that entertainment is now being delivered based on the use of different technologies.” Apropos diversification, the CEO perceives that “diversification is not just creating necessarily more of what we have, it’s about creating choice and creating opportunities to bring different groups of customers into Macau,” adding that that’s exactly what the group hopes to bring to Cotai.
in Macau, it’s actually an emerging art, science, whatever way you want to call it,” said Bowie, commenting that the participating teams in the competition from Portugal were more advanced “given [Portugal’s] history and the closeness to, say, Europe and some other entrepreneurial environments”. Meanwhile, those from China demonstrated more technical and engineering aptitude, he noted, while local teams’ concepts were “totally connected to the services industry and the industry which has emerged in Macau,” referring to the gaming industry.
Break away from the typical
The focus on these themes is due to the fact that local entrepreneurs are “looking at relative to their own engagement with their own city and the sorts of things that they see as not being adequately provided”. This focus, while functional on a smaller scale is self-implemented.
Revenues Gross gaming revenues expected to hit MOP21 bln for October
Lady Luck steps out Kelsey Wilhelm kelsey.wilhelm@macaubusinesdaily.com
Analysts estimate gross gaming revenues may have grown by 18 per cent to 30 per cent year-on-year during this year’s Golden Week, noting a strong start to the week, with a softening towards the tail end. Due to the holiday falling in the initial part of the month, revenues are expected to taper off towards the end, after the MOP9.75 billion (US$1.2 billion) seen during the first ten days of the month, with average daily revenues of MOP975 million during the period, brokerages forecast. Analysts at Bernstein predict gross gaming revenues for the whole month to top out at between MOP21.1 billion and MOP21.9 billion, implying a 5 per cent to 9 per cent growth yearon-year. A similar consensus was upheld by Telsey and J.P. Morgan, who predict 10 per cent year-on-year growth – hitting HK$21.4 billion and 7 per cent growth year-on-year – to between MOP20 billion and MOP21.5 billion, respectively.
Analysts at Wells Fargo predict the lowest year-on-year increase in gross gaming revenues, of between 3 per cent and 8 per cent for the month of October. They note that historically the average daily revenues of the city’s gaming operators drop by about 40 per cent following Golden Week. The analysts note that the visit by Chinese Premier Li Keqiang could ‘crimp’ revenues for up to two weeks after the end of his visit to the MSAR, especially affecting the VIP sector, which underwent a positive streak during the first ten days of the month.
Lucky VIP
‘Our checks also suggest that VIP luck was favourable at over 3 per cent win rate (vs. theoretical 2.85 per cent),’ wrote analysts at J.P. Morgan, referring to the Golden Week period. The group notes that this ‘good luck’ drove VIP revenues to increase by about 20 per cent year-on-year, while mass revenues were predicted to have grown in the ‘low to mid-teens’ yearon-year. Overall, the group expects
a MOP530-530 million average daily rate for the rest of the month. Analysts at Telsey note that overall visitation was ‘strong’, principally on the Cotai Strip ‘around The Venetian and The Parisian’, noting ‘stability’ for gaming operators on the Peninsula. In addition, analysts at Bernstein have noted that with regard to division ‘The Parisian has had strong mass play while Wynn Palace was showing strong VIP results and a good pick-up in premium mass’, with a slight trickle-over effect to nearby properties. Bernstein analysts also note that while VIP results in the MSAR saw an up-tick during the Golden Week period, VIP results outside the territory during the September month did as well. The analysts point to Paradise Co. Ltd., based in South Korea, seeing an up-tick of 1 per cent in Chinese VIP volume for the month of September - the first gain in 24 months. They also point to Imperial Pacific’s Saipan operations having generated US$3.95 billion in VIP rolling chip for September, the group’s best month so far since opening and a 140 per cent monthon-month increase.
“Micro-businesses, small businesses, often build a platform that limits themselves because it’s not scaleable,” commented the MGM CEO. In addition, the near-complete reliance upon one industry in the MSAR has created a less competitive environment in which companies can grow. “I think that there’s a very old statement that says that adversity [necessity] is the mother of invention,” said Mr. Bowie, “I think that being overly comfortable and being overly protected is obviously not necessarily the best thing and I do think that that’s something that we need to understand: that in Macau to ultimately be successful you have to be competitive in a global marketplace.” The quality seen from the local entrepreneurs pitching in the competition demonstrated one thing in particular to the gaming executive: “I think the quality - it tells you that entrepreneurship is something that you need to practice.” However, this is not cause for giving up, rather the contrary – Mr. Bowie urges young entrepreneurs to “have a go”. Be aggressive “Sometimes, I think we get bogged down with theory, whereas in fact at the end of the day human nature is that there is a supply and demand equation,” the CEO said. “We need to become more sophisticated in service delivery and service solutions. And what we’re seeing today is simply the tip of the iceberg […] we need to become much more aggressive in terms of the things that we will need to take us forward here in Macau,” he says. This aggressiveness and confidence is something the MGM CEO urges local SMEs engaged through the group’s SME procurement programme to counter, combating a common misconception the CEO’s seen in the procurement programmes that ‘I don’t think I can do it’. He urges the corporation’s SME partners to “actually commit themselves to transforming and evolving their own organizations . . . old economies doesn’t mean that it’s dead; it just means that it may not necessarily be delivering in the way that the new economy needs it.” One way around this is through the use of technology. “It [technology] actually allows solutions that have been developed almost for one-toone or one-to-two theoretically it can be delivered across a much greater level of scale,” said Bowie.
8 Business Daily Thursday, October 13 2016
Greater China Forecast improved
Auto sales quicken warns on tax-cut e
China Association of Autom officials repeated their hope to be extended beyond its pl at the end of the year Fang Cheng and Jake Spring
Currencies
Beijing weakens yuan rate for sixth day Analysts expect the currency to fall further in the face of dollar strength
C
hina weakened the yuan’s reference rate against the dollar for the sixth straight trading day yesterday, the longest sequence in nine months, after expectations of a US interest rate hike put upward pressure on the dollar. A series of positive readings on the US economy, and increasingly upbeat statements from Federal Reserve boss Janet Yellen, have fanned speculation the central bank will lift borrowing costs by the end of the year. This has sent the dollar rallying against most of its peers, including the yuan, which is also known as the renminbi. China’s leadership has repeatedly pledged to liberalise trading in the currency but still keeps a tight rein
on it, only allowing it to rise or fall two per cent on either side of a daily fix in national foreign exchange markets. Yesterday the People’s Bank of China (PBOC) set the unit’s central rate against the greenback at 6.7258, a new sixyear low after it passed the 6.7 mark on Monday. It was the longest sequence of consecutive reductions since January, according to Bloomberg News, when world markets were roiled by concerns over the state of the Chinese economy and Beijing’s ability to deal with the crisis. Analysts expect the currency to fall further in the face of dollar strength, slowing growth in the Asian giant, and capital outflows. Michael Every, head of Asia-Pacific financial markets research at Rabo
Bank, told AFP: “We have smashed through what I had dubbed as ‘the linein-the-sand du jour’ of 6.70 and where we stop, no-one knows. “Clearly, the PBOC don’t want to see a sharp sell-off; but they also no longer seem to mind a slow(ish) one. Perhaps the next psychological target is 6.75,” he wrote in an email, saying it was a “round-ish number”. “After that we must surely be looking at the 6.83 level that the currency was pegged to (the dollar) from 2008 all the way to mid-2010,” he added. “Clearly, there is a lot of atoning to do for all that previous pegging.” The world’s second-largest economy expanded only 6.9 per cent in 2015 - its weakest rate in a quarter of a century and has slowed further this year. In August last year, Beijing suddenly devalued the yuan by nearly five per cent over a week, causing investors to dump the currency in volumes not seen since 1994. AFP
Auto sales in China strengthened for a fifth consecutive month in September to a more than three-and-a-half year high, leading the national automakers association to increase its 2016 growth forecast, association officials said yesterday. But the China Association of Automobile Manufacturers (CAAM) warned of a steep drop in growth if a tax cut on small engine cars is allowed to expire as planned at the end of this year. The Chinese auto market, the world’s largest, has rebounded strongly since October last year when the central government cut the sales tax on vehicles with engines of 1.6 litres or smaller in response to slower sales in a weakening economy. “If there isn’t this policy next year, growth will be extremely low,” association Vice-Secretary Shi Jianhua told reporters in Beijing. Shi said he predicts the market will grow at most 2 per cent in 2017, whereas if the policy is extended 6-7 per cent growth will be “no problem.” Vehicle sales in the world’s largest auto market rose 26.1 per cent to 2.6 million vehicles in September from a year earlier, according to the association. That is the highest monthly growth since January 2013, topping a 24.2 per
Business Daily Thursday, October 13 2016 9
Greater China Reducing leverage
n as industry expiry
mobile Manufacturers es for the tax cut lanned expiry
cent year-on-year rise in August and a 23 per cent year-on-year increase in July. Sales growth in 2016 has outstripped initial expectations, leading the association to upgrade its full-year forecast to 7 per cent growth, from 6 per cent previously. Association officials repeated their hopes for the tax cut to be extended beyond its planned expiry at the end of the year. “If the tax cut policy is not extended, this year there may be a rush to buy, it will subtract from next year’s sales,” Shi said. In the first nine months of 2016, sales grew 13.2 per cent compared with the same period in the previous year, the association said. Reuters
In Brief
Construction Bank to set up debt restructuring fund with Wuhan Steel The company is in the midst of a merger with its larger rival Baoshan Iron and Steel China Construction Bank Corp will establish a 24 billion yuan (US$3.60 billion) transformation and development fund with Wuhan Iron and Steel Group Corp to help the steel firm reduce leverage, the bank said on its website. The funding programme, which the bank said was the first of its kind which it was participating in with a central government administered state-owned enterprise, has already received its first injection of 12 billion yuan according to the statement. Although the statement released on Tuesday did not explicitly mention debt-to-equity swaps, a separate article published yesterday by official media China Daily said the reduction in leverage would be accomplished mainly through such swaps. A China Construction Bank representative had no immediate comment when reached by telephone. On Monday evening the State Council, China’s cabinet, released long-awaited guidelines for debt-toequity swaps, mooted as one solution to China’s enormous corporate debt overhang. Corporate China sits on US$18 trillion in debt, equivalent to about 169 per cent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. In a news briefing, a high-level official warned the swaps are not a “free lunch” for troubled companies, adding that loss-making “zombie” firms are strictly forbidden from such exchanges, which will be used mainly to help high-quality firms that face temporary difficulties.
International institutions have warned Beijing to stop financing weak firms, especially inefficient state-owned enterprises, which tend to crowd out the private sector. The government will take a multipronged approach to cutting company debt, including encouraging mergers and acquisitions, bankruptcies, debtto-equity swaps and debt securitisation, according to the guidelines. The debt-to-assets ratio of Wuhan Iron and Steel reached 76 per cent at the end of 2015 according to China Daily. The paper said China Construction Bank is aiming to help lower that ratio to about 65 per cent, citing comments by Zhang Minghe, head of China Construction Bank’s debt-to-equity swap programme. Wuhan Iron and Steel is in the midst of a merger with its larger rival Baoshan Iron and Steel which will create the world’s second-largest steel producer. Reuters
R&D
Apple to set up centre in Shenzhen Apple Inc will set up a research and development centre in China’s manufacturing metropolis Shenzhen, the U.S. tech giant said yesterday, as the firm looks to spur growth in the world’s second largest economy amid growing competition. The Shenzhen hub follows a similar plan for a centre in Beijing, and comes as Apple is looking to bounce back in China, where local rivals like Huawei Technologies, OPPO and Vivo have been taking market share from its flagship iPhone. Apple’s chief executive Tim Cook announced the plan during a meeting with senior officials from the southern Chinese city. Pollution
55 firms severely exceeded limits Dozens of major Chinese firms “severely exceeded” pollution limits in the second quarter of this year, the Environment Ministry said on Wednesday, as the country struggles to combat widespread air, soil and water contamination. The ministry’s official publication, China Environmental News, said the regions with the most offenders were Inner Mongolia and Liaoning in the industrial northeast, and the country’s top steel producing province, Hebei, which surrounds the capital Beijing. The ministry said 55 firms had been subject to punitive measures, including tougher supervision arrangements, fines and production restrictions. Investment
Baidu sets up fund to finance Internet projects
Trade push
Domestic lenders target Singapore metals merchants The expansion in Chinese lending comes as many Western banks have been hit by regulations Melanie Burton
Chinese banks are stepping up lending to midsize metals traders in Singapore, pushing into a gap in the market as U.S. regulations and fading appetite for risk drive Western rivals to focus on larger commodity merchants, metals industry sources said. The move adds to a broader push by Chinese banks overseas and comes as markets for metals such as zinc and aluminium show signs of revival after half-a-decade in the doldrums. It is also likely to help efforts by the world’s No. 2 economy to boost its influence in the region’s supply chain, with Singapore a major hub for trade in base metals, used in everything from batteries to construction. Three executives at medium-sized metals trading companies in Singapore told Reuters they had in the past few months been approached by Bank of China International (BOCI), a unit of Bank of China, with two of those securing new credit lines. Those two borrowers said they had also been approached by the Singapore corporate unit of Industrial and Commercial Bank of China (ICBC). None of the executives wanted to be identified due to the sensitivity of the issue. ICBC said it was unable to make immediate comment. BOCI would not comment, although it told Reuters in June that it was broadly looking to expand its financing business for commodity clients. “Before they wanted to support the Chinese firms in Singapore, but now
they are extending to the offshore trading houses, even ones with no domestic market access,” said the executive that had not taken a loan. There are around 20-30 midsize metals traders in Singapore such as UIL Singapore and Raffemet. They are mostly backed by Swiss, Chinese, Japanese or Indian firms. The expansion in Chinese lending comes as many Western banks have been hit by regulations such as the Dodd-Frank financial laws in the United States that have raised their capital holding requirements, pushing them to pare back on lending to all but their largest clients in the capitalintensive industry. “(BOCI) have offered me a credit limit. It’s an extremely competitive rate,” said one of the executives in Singapore. He said the bank was offering a flexible credit line at 1-1.5 per cent per year on top of the London Interbank Offered Rate (Libor), which is often used as a benchmark interest rate in
Financial heart of Singapore
loans. Three-month Libor this week stood at around 0.88 per cent. That compares with wider bank lending rates to the industry of 2.5-3.5 per cent over Libor, the executive said. But the executive who had not taken out a credit line warned that Chinese lenders would not simply hoover up clients, as their lack of experience in the sector compared to “first class” Western banks meant their client-base would initially be limited to those struggling for other options.
Key Points Singapore traders say offered credit by BOCI, ICBC Some Western rivals shifting focus to larger commodity traders Chinese banks have been pushing to expand overseas “You have a risk that (Chinese banks) don’t understand something and that could result in a delay in payment, mucking up your cashflow,” he said. “They will not necessarily take market share just like that.” Reuters
Chinese Internet giant decided to set up a new fund to invest in start-ups in their mid-and-late development stages, a company announced yesterday. The private-equity-style fund, Baidu Capital, will allocate about RMB20 billion (US$2.98 billion) in its first round of investment, extending about 50-100 million for each project. Baidu Capital, chaired by CEO Robin Li, will be operated independently and will invest in projects related to Baidu’s industrial chain as well as projects in other Internet sectors. The company announced it would establish a venture capital firm called Baidu Venture in September to focus on investing in early-stage projects in artificial intelligence, augmented reality, virtual reality and other innovative fields. Markets
Haitong sells US$500 mln zero-coupon convertible bonds Haitong International Securities Group Limited said yesterday that it has sold HK$3.88 billion (US$500.15 million) zero-coupon convertible bonds, which were twice times oversubscribed, in the first such bond sale from a Chinese brokerage in Hong Kong. The initial conversion price of the bonds was HK$6.81 per share, representing a premium of about 32 per cent over the last closing price of HK$5.16 per share on October 11. The bond offering was well received by institutional investors and the order book amounted to three times of the issuance volume, the firm said in a statement.
10 Business Daily Thursday, October 13 2016
Greater China
A study by the Securities and Futures Commission found that between 2013 and 2015, 56 companies saw their market value jump more than 1,000 per cent in a six-month period, even though 39 of them were losing money. Investment
World’s best IPO sees 6,000% gain as analysts say stay away Volatility on the small-company exchange where Luen Wong is listed is an issue for bourse operator Hong Kong Exchanges & Clearing Benjamin Robertson
T
he world’s best-performing n e w l i sti n g thi s y ea r is a Hong Kong civilengineering stock soaring for reasons that appear unrelated to its business. Luen Wong Group Holdings Ltd. jumped 1,438 per cent on the first trading day after its April initial public offering and is now 6,715 per cent above its offer price. The company, which reported sales of US$41 million last year and profit of US$1.1 million from projects like laying roads and digging sewers, is today worth US$2.9 billion. The run-up highlights quirks in Hong Kong’s stock market, where wild swings are a regular occurrence, many firms have a tiny portion of their shares available to trade and there’s a healthy side-line in mainland Chinese firms buying companies to engineer reverse takeovers. Luen Wong’s world-beating showing has been ascribed to a combination of all three and has left analysts urging caution. “My advice for small retail investors is to stay away,” said Francis Lun, chief executive officer of local brokerage Geo Securities Ltd. Luen Wong shares dropped 3.5 per cent yesterday trading on a single 10,000 lot transaction, a reflection on the stock’s tightly held ownership. The stock’s performance is a story that Hong Kong has seen fairly often in recent years. A study by the Securities and Futures Commission (SFC) found that between 2013 and 2015, 56 companies saw their market value jump more than 1,000 per cent in a six-month period, even though 39 of them were losing money. A Luen Wong official answered the phone and requested questions be e-mailed. The firm didn’t respond to the e-mail seeking comment. The IPO’s sponsor, TC Capital Ltd., did not reply to e-mailed questions, neither did officials at joint book runners Gransing Securities Co. and Suncorp
Securities Ltd. Volatility on the small-company exchange where Luen Wong is listed, known as the Growth Enterprise Market (GEM), is an issue for bourse operator Hong Kong Exchanges & Clearing Ltd. (HKEX), according to David Graham, the chief regulatory officer and head of the listing division, who was speaking generally. HKEX is working with the SFC to address the matter, he said in a June interview. In a speech in June, SFC Chief Executive Officer Ashley Alder said the regulator and HKEX were working on a thorough review of GEM and issues surrounding the companies that list there. “Newly-listed GEM companies are often associated with extreme price fluctuations, small public floats and high shareholding concentrations,” Alder said. “It goes without saying that we have been very concerned about these and other developments in our listed market.” Ernest Kong, a spokesman for the SFC, declined to comment.
‘Buyers beware’
Alder’s comments came amid broader complaints that GEM, conceived in 1999 with the tagline “A ‘Buyers Beware’ Market for Informed Investors,” failed to attract sufficient listings. The exchange was targeting a consultation on GEM by year-end, Graham said in June. That time frame now looks unlikely with the exchange and regulator busy with a consultation on changes to IPO application procedures. “We have done some work on GEM. We are discussing with our regulator our thoughts and we are not yet ready for discussion with the market,” an HKEX spokesman said in an e-mail on Tuesday. “We will update the market in due course.” Luen Wong’s tightly controlled shares may also have played a role in the price gains. The firm’s two founders own 75 per cent of the company, the maximum allowed under exchange rules. In April, the
Hong Kong regulator issued a warning about the stock because 96 per cent of its outstanding shares were in the hands of the controlling shareholders and 19 other investors. Wafer-thin trading volumes, with daily trading averaging roughly 1 million shares on 312 million publicly-floated shares, mean it’s vulnerable to extreme moves. The shares are also free from shorting, which can dampen outsized gains. Under the city’s rules, companies can be eligible for short selling if market value is at least HK$3 billion (US$387 million) and total trading turnover is at least 60 per cent of the company’s capitalization. Among the investors in Luen Wong is China Environmental Energy Investment Ltd., which bought a 1.43 per cent stake for HK$124.5 million in July, according to filings. The firm’s 2016 annual report named 10 mostly thinly-traded stocks held in a HK$805 million portfolio. China Environmental Energy has fallen 68 per cent in the past 12 months. A second listed investor, China New Economy Fund Ltd., held a 0.65 per cent stake in Luen Wong as of June, according to an interim results report. The seven other Hong Kong stocks in its portfolio rose an average 7.8 per cent over the past 12 months, though China New Economy is down 66 per cent during that period. Questions e-mailed and faxed upon request to China New Economy were not returned. A spokeswoman for China Environmental Energy did not reply to queries seeking comment.
Government contracts
Luen Wong, which trades at 2,196 its earnings, may have at least one thing going for it: the recent boom enjoyed by the engineering and construction sector in Hong Kong. Years of bumper revenues cemented by big-ticket government contracts and a surge in new home developments has buoyed the industry. Six of Luen Wong’s peers listed this year, with at least 20 more awaiting approval, according to Bloomberg and stock exchange data. Last year, 21 firms from the sector raised US$2.65 billion in IPOs. Building contractors are taking advantage of recent windfalls to list while valuations are high, said Alex
Wong, fund manager at Ample Capital Ltd., who predicted the sector’s stocks will slide in the next year given the high valuations, steep construction costs and a dwindling pipeline for large infrastructure projects. An early warning may have been Ching Lee Holdings Ltd., which went public in March. The shares soared nearly 2,000 per cent through July 13, but one day in September suddenly tumbled 91 per cent for reasons the firm never publicly explained. The stock has not recovered. A woman who answered the phone in Ching Lee’s communications department said the company would not comment on share price moves.
“It goes without saying that we have been very concerned about these and other developments in our listed market.” Ashley Alder, Securities and Futures Commission Chief Executive Officer Lun of Geo Securities said small Hong Kong companies often trade at their potential shell value, the amount mainland investors would pay to take control of a Hong Kong-listed company. The going rate for a shell is HK$500 million, he said, speaking generally. Hong Kong and China have recently sought to tighten rules on shell transactions amid concerns that incoming owners and asset injections were evading the scrutiny applied to new listings. Last year, a record 45 Hong Kong public companies completed a change of ownership through majority equity sales, data compiled by Bloomberg show. Even if Luen Wong is an attractive target for a buyer, its dramatic postIPO climb has made it too expensive, according to Ample Capital’s Wong. “I don’t think the price is justifiable,” he said. “Even for a shell.” Bloomberg News
Business Daily Thursday, October 13 2016 11
Asia Japan’s central bank
Monetary policymakers signal higher threshold for further easing Only a handful of analysts polled by Reuters predicted the Bank of Japan would ease at the next review Leika Kihara and Stanley White
B
ank of Japan (BOJ) policymakers kept to their pledge to expand stimulus but only to protect the economy from external shocks, signalling that the threshold for further easing has been raised after last month’s policy revamp. BOJ Governor Haruhiko Kuroda made no direct reference of the need to achieve his inflation target quickly when he reiterated his readiness to cut interest rates or expand asset buying.
Key Points
nine-member board, also said the BOJ would ease if “sudden changes in the global economy” threatened the price target. Before last month’s change in policy framework, BOJ officials have said they would not hesitate to ease if it would hasten achievement of their elusive price growth target. “It is clear from the change in the policy framework that the BOJ has essentially given up on a quick victory in achieving 2 per cent inflation,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “The BOJ will not be proactively easing policy to achieve 2 per cent inflation quickly. It is moving toward a more flexible inflation target,” he said.
The comments by Kuroda and Harada came ahead of the BOJ’s next review on Oct. 30-Nov. 1, when it may again push back the timing for achieving its price target in a quarterly review of its forecasts. Only a handful of analysts polled by Reuters predicted the BOJ would ease at the next review, while about 70 per cent said it would act next year. The BOJ last month switched its policy to target interest rates and away from expanding the monetary base - or the pace of money printing - after years of massive asset purchases failed to jolt the economy out of decades-long stagnation. Analysts say the move aimed to change the BOJ’s framework into one suited for a long-term battle to hit its 2 per cent inflation target. Kuroda has acknowledged it will take some time to hit the goal.
The BOJ maintained a loose pledge to keep the size of its balance sheet roughly unchanged even after shifting to a rate target, reflecting the views of board members such as Harada who insist aggressive money printing was key to ending deflation. Harada, who voted for last month’s policy make-over, said the BOJ’s pledge to maintain its huge monetary base remained crucial in raising inflation expectations in the long run. The BOJ’s holdings of government bonds comprised just 30 per cent of Japan’s public debt, leaving room for additional purchases by the central bank, he said in a speech to business leaders in the central Japan prefecture of Nagano. “Japan is quite distant from reaching the limits of monetary easing,” he said. Reuters
BOJ Kuroda says will ease if merits outweigh costs BOJ to ease upon overseas shock - board member Harada BOJ still distant from limits of easing - Harada Many analysts expect BOJ to stand pat on Nov. 1-poll “We are prepared to ease policy again, including lowering short-term rates, if we judge that the merits outweigh the costs,” Kuroda told parliament yesterday. Yutaka Harada, who has been among the most vocal advocates of aggressive money printing on the
Japan’s central bank governor during press conference unveiling negative rates’ monetary policy
Markets
Australia revises guidelines for equities clearing, settlement ASX said in a separate statement yesterday it had updated its code of practice on so-called post-trade services to comply. Adam Haigh
Australia’s government announced steps to break down ASX Ltd.’s monopoly of clearing and settlement of stock transactions and in return said it would make it easier for the
exchange to raise capital. Treasurer Scott Morrison commented yesterday as the Council of Financial Regulators set out the minimum conditions required to obtain a license to clear equity trades. ASX, the country’s main stock and
derivatives exchange operator and sole provider of cash equities clearing and settlement, shouldn’t raise barriers to any potential competitor in the design of its technology infrastructure, the CFR said.
“Demonstrate our commitment to open and competitive markets, which are fundamental to a vibrant, modern, world-leading economy” Scott Morrison, Australia’s Treasurer The reforms “demonstrate our commitment to open and competitive markets, which are fundamental to a vibrant, modern, world-leading economy,” Morrison said in an e-mailed statement. The government will legislate to underpin the recommendations.
The government is building on a policy outlined in March when it said it will end ASX’s monopoly on equities clearing in Asia’s sixthlargest stock market, while also loosening ownership restrictions on the bourse operator. “Recognizing the place of ASX in a more competitive environment” the government will amend restrictions in the Corporations Act to allow the exchange “more flexibility in raising capital,” Morrison said. ASX, which has cut its fees on clearing and settlement of equity trades, said in a separate statement yesterday it had updated its code of practice on socalled post-trade services to comply. The company already competes in trading with Chi-X Australia Pty, which has protested the clearing monopoly and lobbied regulators to change the system. ASX said it is committed to ensuring Australia’s clearing and settlement infrastructure is efficient, well capitalized and well regulated. The exchange will commission an annual independent audit of its governance, pricing and access arrangements and release the results of the audit on its website at the same time as it releases its full-year financial results, beginning in August 2017, it said. Bloomberg News
12 Business Daily Thursday, October 13 2016
Asia Firmer capex
Japan’s machinery orders fall less than expected Japanese companies have been hesitant to boost investment in recent years, due to uncertainty over the economic outlook Tetsushi Kajimoto
J
apan’s core machinery orders fell much less than expected in August, suggesting a relatively firm pickup in capital expenditure that is seen as crucial for sustainable economic growth. Cabinet Office data yesterday showed core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months,
fell 2.2 per cent in August from the previous month. That fall was much smaller than the 5.5 per cent decline expected by a Reuters poll of economists, following a 4.9 per cent increase in July. Compared with a year earlier the core orders, which exclude ships and orders from the electric power utilities, increased 11.6 per cent in August, versus a 6.5 per cent gain expected by economists. Japanese policymakers are counting
on capital spending to foster sustainable growth in the world’s third largest economy, but businesses have been slow to invest in the face of sluggish demand, the yen’s gains and external headwinds. Capital expenditure has recently shown some signs of a pickup as demand for smartphones has kept the information and technology sector humming, although some analysts doubt it is sustainable. “Capital spending is holding firm although it is not so strong as being a driver of GDP growth,” said Yuichiro Nagai, economist at Barclays Securities. “The risk would be a spike in the yen beyond 100 to the dollar, which
would discourage manufacturers to invest.” In August, manufacturers’ orders fell 4.0 per cent, dragged down by sectors such as steel and chemicals, while the services sector’s orders declined by 1.9 per cent, weighed by weak demand from the communications and agriculture sectors. The Cabinet Office maintained its assessment of machinery orders, saying a pickup was seen, with an official saying that the core orders would rise 8.5 per cent in the third quarter even if they turn flat in September.
Key Points Aug core orders -2.2 pct m/m vs forecast -5.5 pct Core orders +11.6 pct yr/yr vs forecast +6.5 pct Pickup seen in machinery orders -Cabinet Office The Bank of Japan’s tankan survey showed this month that big firms plan to raise capital spending by 6.3 per cent for fiscal 2016 from the previous year, suggesting there is still appetite for investment despite the yen’s gains. Japanese companies have been hesitant to boost investment in recent years, due to uncertainty over the economic outlook, even as they reaped record profits thanks to a weak yen under Prime Minister Shinzo Abe’s aggressive stimulus policy. Capital expenditure grew about 5 trillion yen (US$48.59 billion) over the past three years to some 70 trillion yen in fiscal 2015 - still 10 per cent below levels seen in fiscal 2007 just before the global financial crisis - while net profits rose about 15 trillion yen. Reuters
Note 7 fiasco
Investors demand answers, new phone from Samsung A permanent end to Note 7 sales could cost Samsung up to US$17 billion, according to calculations based on analysts’ projected sales of the phone Se Young Lee
Samsung Electronics Co Ltd needs to quickly find the cause of the fires that led to it pulling its Galaxy Note 7 smartphones and get a new model to market, investors said yesterday, as shares in the company slipped to a one-month low. The world’s top smartphone maker on Tuesday scrapped the US$882 flagship smartphone in what could be one of the costliest product safety failures in tech history. Samsung announced the recall of 2.5 million Note 7s in early September following reports of the phones catching fire. The firm appeared to have the situation under control as it issued replacement devices with
different batteries, until the new phones also began to smoke and combust. Investors and analysts agreed that the damage to Samsung’s brand and future earnings would deepen the longer the market was left in the dark about the origin of the fault, with some already predicting lost revenue in the region of US$17 billion. “It’s good that Samsung made a firm decision on the Note 7, but people are concerned about the situation because people don’t know what the problem is,” said Kim Hyunsu, a fund manager at IBK Asset Management, which owns shares in Samsung. “There needs to be explanation from Samsung in order for consumers
Myanmar man walks in front of a bus stop decorated with Samsung Galaxy Note 7 advertising in Yangon, Myanmar, 11 October 2016
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to understand that problems won’t occur in the next models ... Samsung needs to clearly explain and admit what went wrong.” Samsung would likely push ahead to get the latest version of its premium S-series smartphones to market as soon as possible, fund managers said. Typically, the South Korean company unveils a new Galaxy S phone on the side-lines of the Mobile World Congress trade show in the first quarter as it battles Apple Inc. to stay at the top of the smartphone market. “We’ll have to see what the future plans are but I suspect Samsung will move quickly to get the Galaxy S8 ready; they have the manufacturing and production capabilities,” IBK’s Kim said. Experts are baffled by what could be causing the overheating in the replacement phones, if not the batteries, and Samsung has not commented. An official at the Korean Agency for Technology and Standards, which is investigating the problem alongside Samsung, said the fault in the replacement devices might not be the same as the problem in the original product. The official asked not to be identified as he was not authorised
Samsung Electronics Co Ltd yesterday cut its third-quarter operating profit guidance to 5.2 trillion won (US$4.66 billion) from 7.8 trillion won due to the impact of pulling its Galaxy Note
to speak publicly. Aviation authorities and airlines around the world are telling passengers to switch off their Note 7s and keep them out of checked baggage, amid fears they could bring down a plane. “Damage control at Samsung will face an uphill battle to redeem the company’s tarnished image owing to the dangerous and dramatic nature of the phone’s failure,” Vijay Michalik, an analyst at research firm Frost & Sullivan, said.
Key Points Samsung shares touch one-month low on earnings worries Firm permanently halted Note 7 sales, production Note 7 crisis could seriously damage Samsung long-term -analysts While the damage to Samsung’s brand remains hard to quantify, negative publicity from the botched recall could touch off a turf war among Android smartphone manufacturers, analysts said. Reuters
7 smartphones off the market. Samsung, in a regulatory filing, also cut its July-September revenue estimate to 47 trillion won from the 49 trillion won it guided for last week.
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 Thursday, October 13 2016 13
Asia In Brief Survey
Australian consumer confidence rises
Bars and casinos were continuing to operate normally Tobacco industry
Philippines set to roll out tough no-smoking law Marlboro owner Philip Morris International is estimated to hold more than 70 per cent of the Philippines market through its joint venture with Fortune Tobacco Kanupriya Kapoor and Enrico Dela Cruz
Philippine President Rodrigo Duterte is set to sign a regulation this month banning smoking in public across Southeast Asia’s second-most populous country, rolling out among the toughest anti-tobacco laws in the region. Public health campaigners who have long battled against the country’s hefty tobacco lobby welcomed the push to end smoking in public places and said they believed Duterte, with his tough anti-vice record, was the man to do it. Health Secretary Paulyn Jean Rosell-Ubial told Reuters on Tuesday she hoped the president would sign the ban, which expands the definition of public places, into law before the end of October and that it would come into effect next month. She was quoted by newspapers as saying that no smoking would be allowed in public places, whether indoor or outdoor. “Parks, bus stations, and even in vehicles. All these are considered public places,” she said, according to media. She later clarified the law would apply only to public vehicles. Designated smoking areas will be set up, at least 10 meters outside buildings, according to a draft of the executive order seen by Reuters. Around 17 million people, or nearly a third of the adult population, smoke in the Philippines, according to a 2014 report by Southeast Asia Tobacco Control Alliance, - the second highest in the region after Indonesia. Nearly half of all Filipino men and 9 per cent
of women smoke and experts say the habit costs the economy nearly US$4 billion in healthcare and productivity losses every year. Sandra Mullin of Vital Strategies, a global public health organization, said smoke-free laws reduced smoking prevalence by 4 per cent, if fully comprehensive. Marlboro owner Philip Morris International, estimated to hold more than 70 per cent of the Philippines market through its joint venture with Fortune Tobacco, will be among the international producers most affected by the proposed ban. In 2015, the Philippines accounted for almost 1 in every 13 cigarettes sold by Philip Morris globally, though analysts estimated it was worth a far smaller 2 per cent of profit. A spokeswoman for Philip Morris International referred queries on the proposed ban to the Philippine Tobacco Institute, which represents tobacco interests in the country. A spokesman for the institute said he had no immediate comment on the proposed ban.
Scaling up
The proposed smoking ban replicates on a national level an existing law in Davao City, where Duterte ruled as mayor for 22 years until his rise to the presidency earlier this year. Penalties for breaking the antismoking law in Davao can include a 5,000 Philippine peso (US$103) fine or four months in prison. When Duterte was in Davao, he once personally forced a man to stub out his cigarette and eat it
after he refused to stop smoking in a restaurant, according to media reports. A government spokesman declined to comment on the incident but said: “Certainly in Davao, the sentiment a n d b u si n ess estab l i sh m e n ts support a smoke-free Davao. The president sees it as something that’s not ideal for health... and this is part of the public well-being,” Ernesto Abella said. Duterte also rolled out a number of other strict rules in the city of 1.5 million during his term as mayor, including banning late-night drinking and karaoke, and a 10 p.m. curfew for school children. He also oversaw a severe crackdown on narcotics and crime in the city, earning him the nickname “The Punisher”. The 71-year old won the presidency on a promise of widening that crackdown throughout the country of 100 million. Over 3,600 people, mostly small-time drug user and dealers, have died in police operations and alleged vigilante killings since he took office in June. Anti-tobacco activists said Duterte’s reputation meant the nationwide smoking ban would be implemented. “This is effectively a scaling up of the Davao City plan,” said Ralph Degollacion of Health Justice Philippines, a local NGO. “We know his track record... and given the political will in his government, we’re confident that in terms of implementation he will really push it,” he said. When asked if the ban could extend to alcohol and gambling both multi-million dollar industries - government spokesman Abella said there were no such plans in the offing and that bars and casinos were continuing to operate normally.
Big tobacco under pressure
The nationwide ban is set to be among the strictest no-smoking laws in Southeast Asia. The region is home to nearly 10 per cent of the world’s smokers and while most countries have partial smoking bans in place, enforcement is often lax. The Philippines ban will also cover ‘vaping’ or the use of electronic cigarettes. For tobacco companies, already under pressure from tobacco tax hikes under the previous government, that’s bad news. “A smoking ban could see any further recovery in the sales dynamics in the market stall,” Owen Bennett, equity analyst at Jefferies International, said in a note. Duterte’s government has also proposed increasing taxes on cigarettes and other tobacco products, Finance Undersecretary Karl Kenneth Chua said. The tax would build on a landmark tax-hike imposed by the previous government, but Chua did not elaborate on how much additional revenue the government was expected to net. Reuters
A measure of consumer sentiment rose for a third month in October as Australians became more optimistic about the economy and their own finances for the year ahead, its compilers said yesterday. The Melbourne Institute and Westpac Bank survey of 1,200 people found consumer sentiment rose by 1.1 per cent in October, from September when it edged up 0.3 per cent. That left the index up 4.7 per cent on October last year at 102.4, with optimists outnumbering pessimists. The sentiment index for those with a mortgage climbed 2.2 per cent in October to be 14.3 per cent higher than a year ago. Default
Swissco says unable to pay interest on bond Swissco Holdings, which provides rig and vessel chartering services, said it would not be able to pay interest on a S$100 million (US$73 million) note, the latest Singaporean firm in the offshore services industry to disclose debt woes. Swissco said it was not able to make a coupon payment of about S$2.9 million due on October 16 on a 5.7 per cent note maturing in 2018. But it said it expects to be able to fund current operations from cash and revenue as well as possible asset disposals. Slater & Gordon
Class action firm faces own class action suit Australia’s No. 1 class action law firm Slater & Gordon Ltd is facing a class action of its own after a rival firm said it will file suit seeking at least A$250 million (US$190 million) over alleged failings in Slater & Gordon’s stock market disclosure. Law firm Maurice Blackburn said in a statement it will represent more than 3,000 shareholders, including pension funds and institutional investors, in a case it will file with the Federal Court against Melbourne-based company Slater & Gordon yesterday. Shares in Slater & Gordon fell 7 per cent following the announcement of the suit. Forecast missed
Malaysia’s factory output picks up Malaysia’s August industrial production rose 4.9 per cent from a year earlier, helped by growth in the electricity, manufacturing and mining sectors, government data showed yesterday. Factory output rose at a faster pace than the 4.1 per cent growth in July, but was below economists’ expectations of a 5.4 per cent rise. Electricity output expanded 11.4 per cent from a year earlier, faster than the previous month’s 7.1 per cent growth, data from the Statistics Department showed. Malaysia’s exports in August had risen unexpectedly, driven by higher shipments of manufactured goods and rising palm oil prices.
14 Business Daily Thursday, October 13 2016
International In Brief Oil industry
OPEC hails Putin production pledge OPEC’s most senior official talked up Russia’s commitment to joining efforts to limit oil production even as the group’s internal disagreements over how to share the burden of cuts stood in the way of a global deal. “We are confident of Russia’s commitments,” OPEC Secretary-General Mohammed Barkindo said in an interview with Bloomberg television in Istanbul yesterday. Although it’s still too early to assign countries individual output targets, “momentum is on our side” and Barkindo said he’s “very optimistic” that nonmembers will join a deal to reduce output. Bank of England’s Cunliffe
Brexit hit to UK banking very unclear
Bank of England Deputy Governor Jon Cunliffe said yesterday said there was “great uncertainty” about the possible loss of banking activity in Britain following the country’s decision to leave the European Union. “To the extent that activities cease to happen in London, cease to happen at all or move to other jurisdictions in Europe or elsewhere, to the extent that that happens and the structure of financial firms has to change, there’s great uncertainty about how much that will have to happen,” Cunliffe told lawmakers. Workers treatment
Mali union calls five day mine strike Mali mine workers will go on strike on Oct. 24 for five days, a union official said on Tuesday, to protest what he described as unfair treatment of union workers. Mali is the third biggest gold producer in Africa behind South Africa and Ghana, and gold overwhelmingly dominates its mining sector, itself about a quarter of government revenues. “Trade unionists are persecuted in the mines,” said Mahamadou Konte, executive committee member of Synacom, the mines, energy and civil construction union, citing examples of union members who were being disciplined or fired. Assets disposal
Barclays announces sale of loan portfolio in Italy Barclays has sold 260 million pounds’ (US$323 million) worth of salary secured loans in Italy to IBL Banca, the British lender said yesterday, the latest disposal of assets from its ‘non-core’ unit that are earmarked for sale. Barclays completed the sale of its Italian retail banking network in August, as it continues to shrink its balance sheet to focus on Britain and the United States. Completion of the sale, which is subject to regulatory approvals, is expected to occur in the first quarter of 2017, Barclays said.
Legal action
May challenged over right to implement Brexit After a three-day hearing, the judges will retire and likely deliver their verdict within a few weeks
B
ritain’s government faces a court challenge today that could delay Brexit as lawyers argue Prime Minister Theresa May cannot take the country out of the EU without a parliamentary vote. England’s most senior judges will hear arguments brought by lawyers for a number of different claimants, including an investment fund manager, a hairdresser and an expatriate living in France. May has condemned their challenge as an attempt to “subvert” the result of the June referendum when 52 per cent of Britons voted to leave the EU. But the claimants argue either that the vote was only “advisory” and
must be implemented by elected lawmakers, or that only parliament can remove the rights accorded to Britons as EU citizens. “Parliament has taken us into the European Union and only parliament can take us out,” said lawyer John Halford of Bindmans solicitors. Most MPs campaigned for Britain to stay in the EU and, while many have now accepted the result, lengthy debates ahead of a vote could take months, upsetting the entire Brexit timetable. May has said she wants to trigger Article 50 - the formal procedure for starting two years of talks on departure - by the end of March at the latest. The government has argued its right to lead Brexit falls under “royal
British Prime Minister Theresa May
May to allow parliament vote on her Brexit terms Prime Minister Theresa May accepted that Parliament should be allowed to vote on her strategy for taking Britain out of the European Union as lawmakers who want to keep closer ties to the bloc began to assert themselves. The pound climbed against all of its 31 major peers as May’s
move was seen as a conciliatory gesture, calming investor concern that she was taking a gung-ho approach to negotiations with the EU. Sterling had tumbled, losing more than 6 percent this month through Tuesday, after May signalled her intention to put immigration curbs before free trade and the City of London’s interests in pulling Britain out of the bloc. Bloomberg News
prerogative” - a type of executive privilege used in foreign policy. The case reflects growing pressure from MPs themselves, led by the main opposition Labour party, for a vote on the terms of Britain’s exit over fears of an abrupt departure from the single market.
‘Kill’ Brexit by delaying it
The case will be heard by Lord Chief Justice John Thomas, Master of the Rolls Terence Etherton and senior Court of Appeal judge Philip Sales. After a three-day hearing, the judges will retire and likely deliver their verdict within a few weeks. The losing party is almost certain to appeal, but the seniority of the panel means it would probably go straight to the Supreme Court for a final decision.
‘The principle makes it possible for banks to build buffers for bad loans earlier in a credit cycle’ Jo Hunt, a law lecturer at Cardiff University, said that although the power to trigger Article 50 “probably” does fall under royal prerogative “there are strong... arguments why it shouldn’t”. In the first few weeks after the referendum, there was much speculation by so-called “Remainers” about legal challenges that could overturn the result. This is now thought highly unlikely - although May accused those behind yesterday’s challenge of trying all the same. “Those people who argue that Article 50 can only be triggered after agreement in both Houses of Parliament are not standing up for democracy, they’re trying to subvert it,” she said. “They’re not trying to get Brexit right, they’re trying to kill it by delaying it. They are insulting the intelligence of the British people.” AFP
Accounting standards
Basel to give banks more time to phase in loan provision rules Basel’s proposal to soften the impact of the accounting rules comes as banks, especially European ones, lobby against the committee’s own plans to tighten restrictions on calculating capital requirements Boris Groendahl
Banks should be given three to five years until new accounting rules for loan losses have an impact on regulatory capital, according to the Basel Committee on Banking Supervision. Ac c o u n t i n g s t a n d a r d s t h a t require banks to set aside money for expected bad-loan losses will enter into force in 2018 in most of the world, and in 2020 in the U.S. While the Basel Committee said it welcomes the change in principle, it said banks may have to raise provisions as a consequence and hence should be given more time to phase them in.
“ Th e C o m m i t t e e c u r r e n t l y sees the primary objective of a transitional arrangement as being to avoid a ‘capital shock’ by giving banks time to rebuild their capital resources,” the Basel Committee said in a consultation inviting industry comments. “The Committee’s working assumption is that the period allowed for transition could be from three up to five years.” Accounting standard-setters have joined official regulators in strengthening rules following the financial crisis, and the loan-loss accounting rules are one of the most important changes that are coming. Basel’s proposal to soften the impact of the accounting rules
comes as banks, especially European ones, lobby against the committee’s own plans to tighten restrictions on calculating capital requirements.
Expected losses
The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have both adopted standards that measure the expected credit loss for any loan, rather than the incurred loss of loans that turn sour. The IASB’s International Financial Reporting Standard 9 will take effect in 2018, while the FASB’s similar Current Expected Credit Losses standard will kick in 2020. The committee is proposing various ways of achieving this, the simplest being to calculate capital ratios on January 1 2018, taking into account the increased provisions under IFRS9, compare the result with ratios under old rules on Dec. 31, 2017 and spread the difference over the three-to-five year phase-in period. The principle makes it possible for banks to build buffers for bad loans earlier in a credit cycle, which they were in many cases not allowed to do before the financial crisis. Basel’s consultation is open for responses until January 13. Bloomberg News
Business Daily Thursday, October 13 2016 15
Opinion Business Wires
The Korea Herald South Korea’s jobless rate rose in September from a year earlier due mainly to a protracted slowdown in the manufacturing sector and exports, a government report showed yesterday. The unemployment rate in Asia’s fourthlargest economy stood at 3.6 per cent last month, compared with 3.2 per cent tallied a year earlier, according to the report compiled by Statistics Korea. It marked the highest rate for the month of September in 11 years. The number of employed people stood at 26.5 million in September, up 267,000 from a year earlier, with the monthly gain dropping sharply from the previous month’s 387,000.
Returning to investment Philstar Manufacturing activity (in Philippines) grew 13.5 per cent in August on increased production of capital and consumer goods, as well as export-oriented goods, the National Economic and Development Authority said. Factory output, as measured by the Volume of Production Index, posted significant improvement from an expansion of 2.2 per cent in August 2015. Increases in production were registered in the following sectors: machinery except electrical, basic metals, rubber and plastic products, transport equipment, beverages, wood and wood products, tobacco products, food manufacturing as well as footwear and wearing apparel.
The Straits Times Hopes that the resale property market may have finally hit bottom have been undermined by the latest transaction data. They show that private apartment resale prices fell again last month - the third consecutive month of decline alongside a slip in the number of sales. Prices of resale private condominium units dipped 0.9 per cent from August, SRX Property said. It added that last month’s reading of 163.6 on its resale price index was the lowest since the index hit 162.3 in July 2012. Condo resale prices were 1.5 per cent below their level in September last year.
The Phnom Penh Post Cambodia’s national debt stood at US$5.7 billion as of the end of June, totalling about a third of GDP, according to a report on the national budget submitted to the National Assembly on Tuesday. The report, prepared by the Ministry of Economy and Finance (MEF), revealed that the Cambodian government has signed agreements to receive more than US$8 billion in new concessional loans since 1993. About two-thirds of these loans were disbursed by foreign governments, while the remaining third were issued by international lending institutions. The newly released national debt figure puts Cambodia’s debt-to-GDP at about 31 per cent.
A
t the G20 summit last month in Hangzhou, China, world leaders outlined an ambitious plan for a “new era of global growth.” But they left out a key ingredient: fixing the investment climate. Conventional wisdom holds that, through efficient financial markets, household savings will flow to companies that can best put the money to productive use. But in many developing countries, easier access to finance – owing to unrestricted cross-border capital flows and financial-market deregulation – still has not led to more financing for long-term investments, particularly in manufacturing. Investment decisions depend on a variety of complex factors and contingencies, and a mix of public and private finance is crucial for bringing new projects to fruition. In East Asia, which has experienced rapid growth and development in recent years, policymakers have not only allowed, but encouraged, higher corporate profits, so long as they are channelled into productive investments. As a result, as much as four-fifths of large East Asian companies’ investment spending is funded from retained earnings, while publicly owned financial institutions have helped maintain the pace of investment-led growth. An imbalance between profits and investment is a major reason for today’s tepid growth in developed and developing countries alike; unless it is addressed, the result could be a wider crisis of legitimacy for corporate governance and economic management. In developed economies, corporate profitability has been steadily rising, partly owing to “shareholder-primacy” strategies that focus on shortterm decision-making, costcutting measures, and other forms of financial engineering encouraged by institutional investors. To varying degrees, conventional “retain-and-invest” strategies are being replaced by “downsize-and-distribute” strategies, whereby profits are spent on increased dividends, stock buybacks, and mergers and acquisitions. In developing economies, global financial flows have most visibly contributed to macroeconomic shocks that fuel economic uncertainty, which shortens corporations’ investment-planning horizon. More recently, one can also see developing-economy companies pursuing the same corporate-governance strategies as firms in developed countries. Judging by non-financial firms’ balance sheets, investment-to-profit ratios decreased from 1995 to 2014, with especially steep declines in Brazil, Malaysia, South Korea, and Turkey. Large public corporations are less common in most developing economies than they are in developed economies; but for those firms that do regularly distribute dividends in developing economies, payouts to shareholders have been increasing, even when profitability has remained roughly the same. Such firms are also accumulating financial assets – sometimes faster than they are accumulating corporate debt – which suggests that they lack profitable long-term investment opportunities and portfolio-investment options in liberalized
“
Richard Kozul-Wright Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development.
financial markets. It would be premature to suggest that the relationship between profits and investments has broken down in the developing world. But, as corporate profitability has risen across the board, investment trends everywhere (with the exception of China and India) have been weak, which was true even before the 2008 global financial crisis. Meanwhile, financialization continues to disrupt macroeconomic stability worldwide. For example, developed economies’ quantitative easing programs have contributed to excess liquidity – and thus to the recent corporate-debt explosion in emerging economies. Across a sample of these economies, non-financial corporations’ dollar-denominated debt rose by 40 per cent, on average, from 2010 to 2014; from 2007 to 2015, their debt-service ratios also soared by 40 per cent. These numbers suggest a systemic banking crisis in the making. Moreover, debt-fuelled investment has been concentrated in highly cyclical natural-resourcesbased sectors that do not contribute to inclusive and sustainable growth. In fact, just seven sectors – oil and gas, electricity, construction, industrial commodities, real estate, telecommunications, and mining – account for more than two-thirds of the total increase in both debt and investment. This suggests that easy access to cheap money and debt financing have not favoured the high-tech sectors that contribute the most to productivity growth. To reverse these trends, we must first reverse the trend in emerging economies toward highly financialized corporate strategies. This will require changes in corporate governance generally, and in non-financial corporations’ incentive structures, including preferential tax treatment for retained profits and equity finance, and special depreciation allowances for reinvested profits. Beyond corporate governance, we must restore balance to the profit-investment relationship through institutional as well as public-policy initiatives, and with proactive industrial policies. This will require reforming and deepening the banking system to ensure enough lending capacity for long-term investments, including for smalland medium-sized enterprises. As for the macroeconomic environment, governments can improve conditions through public investment, particularly in infrastructure, which will augment productivity and add to private-sector profitability. Lastly, the international community should vigorously pursue efforts to police tax avoidance and capital flight, both of which erode states’ revenue base. Long-term investment in productive assets is essential to ensuring the sustained growth that developing economies need. But they won’t achieve it by maintaining an environment that encourages short-term strategies. Project Syndicate
An imbalance between profits and investment is a major reason for today’s tepid growth in developed and developing countries alike
”
16 Business Daily Thursday, October 13 2016
Closing Official visit
Singapore’s PM talks trade in Australian parliament
Singapore’s Prime Minister Lee Hsien Loong (pictured during speech) yesterday hailed the relationship between his nation and Australia. In an address to the Australian parliament in Canberra, Lee took the opportunity to reflect on the friendship between the two nations. He said both governments share similar values on issues such as terrorism and de-radicalization, and said both nations had closely-aligned “strategic priorities.” “(Australian and Singaporean) security agencies
work closely and quietly together to fight terrorism, sharing intelligence and information, carrying out counter-terrorism operations, exchanging notes on religious rehabilitation and de-radicalization programs,” Lee told the parliament. Earlier this year, both governments signed an agreement for 14,000 Singaporean troops to train in Australia - a deal worth more than US$1.7 billion, while a free trade agreement between the nations was also revised and refreshed last year. The Singapore’s prime minister is in Canberra on a three-day tour to sign trade and defence deals. Xinhua
Partnership
After divorcing VW, Suzuki joins Toyota in talks The potential partnership also comes on the heels of major scandals hitting an auto industry under more pressure than ever to curtail its contribution to pollution Craig Trudell, Yuki Hagiwara and Ma Jie
S
uzuki Motor Corp. said it’s exploring collaboration with Toyota Motor Corp. amid unprecedented costs to make cars safer and cleaner, one year after the smaller Japanese automaker extricated itself from a failed partnership with Volkswagen AG.
“We would like to always keep our doors open for new partnership opportunities.”
carmakers are finding it hard to compete in the mid- to long-term not only in powertrain technologies but also in technologies for autonomous driving,” said Yoshiaki Kawano, an auto analyst at IHS Markit. “This is not a short-sighted strategy” and smaller companies like Suzuki “are forming relations with bigger companies with their future in mind.” Chairman Osamu Suzuki’s talks with Toyota come more than a year after the 86-year-old ended
an acrimonious partnership with Volkswagen that never yielded a single joint project. Suzuki’s greatest strength lies in India, where its Maruti Suzuki India Ltd. unit dominates with lowcost models. Toyota completed a buyout earlier this year of Daihatsu Motor Co., which is taking on more responsibility developing compact vehicles for emerging markets and is Suzuki’s main competitor in Japanese minicars.
Auto scandals
The potential partnership also comes on the heels of major scandals hitting an auto industry under more pressure than ever to curtail its contribution to pollution. Volkswagen has
‘Changing drastically’
“ As th e e n vi r o n m e n t w h i ch surrounds the automobile industry has been changing drastically, we need to have the ability to respond to changes in order to survive,” Toyota President Akio Toyoda said in the statement. “We would like to always keep our doors open for new partnership opportunities.” Maruti Suzuki has increased its share of India’s auto market each of the last five fiscal years, reaching 47 per cent for the period ending in March. Growth for the Delhi-based carmaker has continued this year thanks to models including the Vitara Brezza compact sport utility vehicle, which starts at 699,000 rupees (US$10,500). Bloomberg News
Akio Toyoda, Toyota President
Toyota and Suzuki just began ex a m i n i n g o p p o r t u n i t i e s t o c o l l ab o rat e o n r es ea rch a n d development, the companies said in a joint statement. Suzuki stands to gain more from a partnership limited to R&D. Its Toyota City, Japan-based peer has budgeted 1.07 trillion yen (US$10.3 billion) this fiscal year, more than seven times Suzuki’s planned spending. “Smaller and medium sized
Low rates
earmarked 18 billion euros (US$19.9 billion) to cover the fallout of rigging diesel engines with software to cheat emissions tests. Mitsubishi Motors Corp.’s improper testing for fuel economy dating back decades has led the carmaker to seek a rescue by Nissan Motor Co. Nissan’s plans to buy a stake in Mitsubishi Motor, already its partner for development of Japanese minicars, could bolster its 17-year alliance with Renault SA by getting a better foothold in Southeast Asia. Joining with Hamamatsu, Japanbased Suzuki would add to Toyota’s numerous tie-ups with Japan’s car and truck makers. Toyota said last year it would broaden technologysharing with Mazda Motor Corp. It’s the majority owner of Hino Motors Ltd., the largest shareholder in Subaru maker Fuji Heavy Industries Ltd. and has a stake in Isuzu Motors Ltd.
Aviation
Outage
Bank loans to South Korean Boeing wins billion-dollar households keep sharp order from China Southern
Power cut to 580,000 Tokyo homes in major blackout
Bank loans to South Korean households kept a steep growth last month amid the record low interest rates, central bank data showed yesterday. Debts owed by households to banks reached 688.4 trillion won (US$613.3 billion) as of end-September, up 6.1 trillion won from the previous month, according to the Bank of Korea (BOK). It was the second-highest increase measured in the month of September since the BOK began compiling the data in 2008. In September last year, the debts jumped 6.2 trillion won. This year’s September growth in household debts to banks almost quadrupled an average increase of 1.6 trillion won tallied in September for five years through 2014. The sharp expansion came as the BOK cut its benchmark interest rate by 25 basis points in June to an all-time low of 1.25 per cent. The bank began lowering the policy rate from 3.25 per cent in July 2012. The government encouraged banks to tighten standard on household loans from February this year, while unveiling a comprehensive package to reduce the supply of homes in August as part of efforts to cool down the overheating housing market. Xinhua
Tokyo was hit by a major blackout yesterday that temporarily knocked out power to a total 580,000 homes and some big office and government buildings, while two train lines were also brought to a halt. Officials said the power outage could be traced to a fire at a facility run by utility Tokyo Electric Power. The cause of the fire was not immediately known. Television footage showed plumes of black smoke billowing from street-side grates linked to an underground facility operated by the firm in Niiza City, north of Tokyo. Police received calls reporting an explosion shortly before 3 pm, prompting 10 fire engines to fight the blaze, local media said. Work crews rushed to restore power in various parts of the metropolis and the problem was fixed within an hour, the utility said. There were no injuries, officials said. Some central government buildings and downtown office towers, including the landmark Marunouchi Building, were also affected, officials said. Two train lines were briefly shut down during the blackout, which lasted for less than two hours. AFP
China Southern Airlines Co. agreed to buy Dreamliners valued at US$3.2 billion in list prices from Boeing Co. as Asia’s biggest carrier by passenger numbers expands its fleet to meet a surge in travel demand. The carrier chose the 787-9 model, with a list price of US$271 million each, according to a Hong Kong stock exchange statement yesterday. The planes will be delivered between 2018 and 2020 and funded using cash and loans from commercial banks, the Guangzhou, China-based airline said in the statement. China Southern and its subsidiaries have ordered more than US$15 billion of new aircraft from Boeing and Airbus Group SE in the past year as more people fly in the world’s most populous nation. Last year, Chinese President Xi Jinping signed an order for 300 jets valued at US$38 billion on a state visit to the U.S. as Chinese carriers expand their fleet in a nation set to become the biggest travel market in two decades. China Southern already flies 16 Dreamliners on operating and financial lease, according to data the airline released in August. The carrier had a total fleet of 684 planes, the largest in Asia. Bloomberg News