Chow Tai Fook sales drop in Q2 Retail Page 4
Wednesday, October 19 2016 Year V Nr. 1154 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong MICE
MIF deploys MOP33 mln budget Page 2
Property
Sky Oasis transacts 128 units in two days Page 3
Hotels
Karl Lagerfeld to launch hotel chain Page 7
www.macaubusinessdaily.com
Gaming
Packer ‘deeply concerned’ about staff detained in China Page 8
Fighting poverty
State firms create fund for Mainland’s impoverished zones Page 10
Budget Framework Law Inching Ahead
Public Finances
Proposed amendments to the city’s budget framework law have initially been nodded through by the Legislative Assembly. With 23 votes in favour. Legislators, however, want stricter definitions of responsibility and greater transparency. Secretary for Economy and Finance Lionel Leong Vai Tac has promised to take their opinions onboard. Page 2
A sporting proposition
Sport Macau Sports Bureau has marked the Asian Tour for next year’s calendar, Business Daily has learned. Although the Bureau said it is still ‘in talks’ with the organiser. Meanwhile, it’s trying to attract more people to attend local golf events. Page 6
Fuelling growth
RMB supply The financial fabric of China may be feeding the stabilisation it has recently been enjoying. China’s new yuan-denominated lending continued to surge in September to RMB1.22 tln (about US$181.3 bln), an increase of RMB164.3 bln year-on-year, official data revealed. Page 9
Tourist prices down in Q3
The Tourist Price Index decreased 3.5 pct y-o-y in Q3, says the Statistics and Census Service. Cheaper hotel room rates and lower charges for transport and communication services are cited.
Three shell game
Tourism Page 5
HK Hang Seng Index October 18, 2016
23,394.39 +356.85 (+1.55%) Worst Performers
China Overseas Land &
+4.65%
China Petroleum & Chemical
+2.28%
China Unicom Hong Kong
-0.52%
Cheung Kong Infrastructure
+0.24%
China Resources Land Ltd
+3.35%
China Mengniu Dairy Co Ltd
+2.22%
Hang Seng Bank Ltd
-0.35%
Swire Pacific Ltd
+0.30%
Galaxy Entertainment Group
+2.56%
CNOOC Ltd
+1.95%
Kunlun Energy Co Ltd
-0.17%
CLP Holdings Ltd
+0.32%
Bank of China Ltd
+2.34%
Bank of East Asia Ltd/The
+1.94%
MTR Corp Ltd
-0.12%
Lenovo Group Ltd
+0.39%
Sino Land Co Ltd
+2.32%
Bank of Communications
+1.74%
Power Assets Holdings Ltd
China Resources Power
+0.44%
+0.07%
25° 28° 27° 31° 27° 30° 26° 29° 24° 30° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Gaming Q3’s mass market revenue might be higher than the announced official data. Analysts say table reclassifications by casino operators skew the figures. Suggesting a proportion of mass market earnings should have surpassed that of VIP for a period of time. Page 7
2 Business Daily Wednesday, October 19 2016
Macau Fraud
Chong Hing Bank warns of fake app
Chong Hing Bank Limited (CHB) has released a press release warning the public of suspicious Apps. The bank warns its clients that ‘anyone who has provided personal information to or has conducted any transactions through the […] website and/or CHB Mobile App downloaded/installed from the […] website should contact’ the bank via its customer services hotline, any Hong Kong police station or the cyber crime segment of the Hong Kong Police Force’.
The false App site uses a similar download format to the App Store or Google Play. ‘CHB hereby clarifies that it has no connection with the website involved,’ notes the release. The bank also warned the Hong Kong Monetary Authority, which later published a warning on its official website on Monday, in addition to another announcement warning of a fraudulent website for the Bank of China. Both Chong Hing Bank and Bank of China operate in Macau. K.W.
Public finances
New budget framework law approved in principle Majority of legislators approve bill, push for stricter definitions of responsibility and transparency Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
W
ith a final vote of 23 in favour, with two against and one abstaining, the bill amending the current budget framework law was passed in principle and now moves on to be debated article by article. The vote in favour came despite the majority of legislators speaking at yesterday’s Legislative Assembly (AL) meeting, which included representatives of the Secretariat for Economy and Finance as well as Secretary of Economy and Finance Lionel Leong Vai Tac, expressing that the proposal is incomplete, leaving vague areas including attribution of responsibility and function of the Legislative
Assembly in the oversight process. “This is just a formative document. I will vote in favour but I hope that the Secretary (Leong) and his colleagues can later present us with the administrative regulations that will accompany this law so that we can learn how the government will apply this law at an operational level,” said indirectly elected legislator Chui Sai Cheong. One consensus arrived at between legislators and government was that the law, unchanged for years, is outdated. “This has been eagerly awaited by all. We see the current situation we have doesn’t fit with the actuality of society,” said Chief Executiveappointed Mak Chi Seng. However, despite the long wait, not all the expected advances were
made, according to the legislators. “We waited for this for over 10 years,” said directly elected legislator Au Kam San, “Was there improvement? Yes, but it doesn’t correspond with the expectations of the people.” Mr. Au was referring in particular to public discontent over large construction projects running over budget and execution rates of zero per cent on infrastructure projects. Mr. Au, who together with directly elected legislator Ng Kuok Cheong made up the two votes against the passing of the proposal, urged for an additional clause requiring the government to “have projects very well prepared” before being presented to the Legislative Assembly, a sentiment echoed by directly elected legislator Ho Ion Sang. “For me, the evaluation on the front end is the most important,” said Mr. Ho. “If it is very well done – work that falls on the government, which counts on professionals for the creation of the budget […] if it is (well elaborated upon) - the data presented to the AL will be more precise,” he concluded.
Get it right at the beginning
The proposal involves four areas of oversight: during the creation of the budget, the management of the budget, the execution of the budget, and the evaluation of its results; with some legislators commenting that more transparency for the public will increase the effectiveness of oversight. “The essential I think is to increase
the transparency of the budget execution in order to satisfy the needs of the population to control the budgets of the MSAR,” said directly elected legislator Angela Leong On Kei, suggesting the involvement of an additional third party, aside from the public, AL members and government, to present parallel reports on the budget execution throughout the year. Indirectly elected legislator Vitor Cheung Lup Kwan even suggested involving non-resident workers to create and execute budgets effectively. “We can’t only use local professionals. If there’s a lack of talent we can hire them from outside to do the job well. We cannot accept that the public services present a bill and we have to accept it,” said the legislator. Secretary Leong listened to the critiques, and sporadic praise from the legislators, guaranteeing to take them into account during the second stage of evaluation of the law proposal. “There’s much preoccupation in terms of the work we need to do on the front end so that there is information, clarification and we’re more transparent,” said the Secretary. “This way […] the AL can know what the objectives are for a certain fund and how it’s spent.” Mr. Leong also noted that even if elaborated upon budgets for the year don’t evenly balance between revenue and cost, the government can dip into the “financial reserve as a resource to finance and achieve the equilibrium of the budget.” In addition, at the beginning of the AL session, members rejected a vote appeal aimed at pushing Chief Executive Chui Sai On to begin a political reform process to allow for universal suffrage in the 2019 Chief Executive elections.
MICE
Slimmer MIF budgeted at MOP33 mln The budget remains similar to last year but the Fair has attracted fewer exhibitors Annie Lao annie.lao@macaubusinessdaily.com
This year’s Macao International Trade & Investment Fair (MIF) is budgeted at around MOP33 million (US$4.1 million), unchanged from the previous year, said the Executive Director of the Macao Trade and Investment Promotion Institute (IPIM), Irene Lau, during a press briefing yesterday. The length of this year’s event, in its 21st edition, has been reduced from four days to three days, starting October 20 at The Venetian Macao. The event - themed ‘Co-operation - Key to Business Opportunities’ and occupying some 30,000 square metres in total - will house about 1,600 exhibition booths, a decrease of 300 from the previous year. “This year, we have a decrease in the number of registered exhibitors. We believe it is due to the 5th Ministerial Conference of Forum Macao that took place last week in the city, as well as the challenging situation of the world economy,” Mrs. Lau explained.
According to the IPIM Executive Director, this year’s participants hail from over 50 different countries and regions. The event co-ordinator also revealed that more than 90 per cent of the co-operation projects signed last year have been initiated while IPIM has been following up on the initiatives. “The annual event gives full play to Macau’s advantage of being the service platform for economic and trade cooperation, enhancing bilateral trade and investment exchanges as well as business collaboration opportunities
between Macau, Mainland China and overseas, especially with the Portuguese-speaking countries,” the IPIM official said.
New features
This year’s MIF will establish two new exhibiting areas titled ‘Partner Country Pavilion- Portugal Pavilion’ and ‘Partner City- Beijing Pavilion’ for the first time, which together will occupy some 800 square metres at the exhibition. The Portugal Pavilion will feature Macau as the ‘commercial and trade co-operation service platform between China and Portuguesespeaking countries’, said Mrs. Lau. Meanwhile, the Beijing Pavilion will present traditional Chinese
medicine and the preparatory work of the Beijing Winter Olympic Games, said Yang Hong, Director of the Hong Kong and Macao Affairs Office of the State Council. In addition, the ‘Small to Medium Enterprise (SME) Service Corner for China and Portuguese-speaking Countries’ will debut this year, providing information on products, services, investment projects and business legislation. On the other hand, the ‘Portuguesespeaking Countries Products and Services Exhibition’ will be held again this year, occupying an area of 1,800 square metres, with 140 exhibitors signed up. “This event introduces business opportunities for Portugal to promote its agriculture, wine, banking services and creative industry to Mainland China and South East Asia,” said Maria João Bonifácio, counsellor for the Economic and Commercial Affairs of the Consulate General of Portugal in Macau and Hong Kong, during the press conference. The three-day fair - run by IPIM and co-organised by 15 Macau, Mainland China and Hong Kong trade and economic government agencies, chambers of commerce and business associations - is together coordinated by the Macao Convention & Exhibition Association, Macau Fair & Trade Association, and Association of Advertising Agents of Macau.
Business Daily Wednesday, October 19 2016 3
Macau Economy
Macau-Fujian ink co-operation agreements
exchanges and on tourism co-operation. The Secretary said during the meeting that Macau could offer its own unique advantages The first co-operation meeting between the MSAR and Fujian Province was held in the city to Fujian in order to help the province’s on Monday, with the two governments signing development of the 21st Century Maritime Silk Road in its core areas, in addition to supporting three co-operation deals. According to a press release, the Secretary for the Province’s infrastructures for a Free Trade Zone. The Secretary also suggested the two Economy and Finance Lionel Leong Vai Tac and the Vice-Governor of the Chinese Province, parties strengthen their tourism co-operation in terms of tourist routes and products for Liang Jiangyong, inked one agreement on launching a ‘Mazu Cultural Tour’ to develop the economic and trade co-cooperation as well as two memorandums, on medical and health tourism market of the Maritime Silk Road. A.L.
Property
Pearl Horizon buyers plead for gov’t help Buyers of the Pearl Horizon units perceive Macau will not achieve the expectations of Prime Minister Li Keqiang if the MSAR Government is unable to resolve the Pearl Horizon case as soon as possible Cecilia U cecilia.u@macaubusinessdaily.com
P
earl Horizon property owners have declared that their demands were unable to reach Premier Li Keqiang during his visit to Macau last week, with neither the Office of the Chief Executive nor the Liaison Office of the Central People’s Government in the MSAR giving any response to their many petitions and protests. The Chairman of the Pearl Horizon Condominium Owners United Association, Kou Meng Pok, expressed that the indifference of the government to resolving the case will not be able to reach the expectations of Premier Li’s optimistic outlook for Macau. “If the Pearl Horizon case continues to be unresolved, I believe it will be hard for Macau to become better,” said Mr. Kou yesterday during the press conference. “In terms of the investment market, investors are losing confidence over the policy in Macau.”
To heal, not to cure
During the press conference, the chairman of the Association criticised
the arrangement of Premier Li’s inspection of the Hong Kong-Zhuhai-Macau Bridge, saying he had to use binoculars to inspect the bridge from a faraway place, instead of the nearby location where the Pearl Horizon properties are situated. The arrangement of the location for inspection, from the perspective of Mr. Kou, was to avoid the protest staged by the buyers during Premier Li’s visit. “Our case is like a person’s health,” Mr. Kou said. “If the health of a person is not good enough, he will be prone to sickness, in spite of supplementing with tonic.”
The appeals
The chairman of the Association urges the government, as the leading party, to organise a meeting between the government, buyers and the developer - Polytex Corporation Ltd. - as soon as possible. He also pressed in the press conference that the government supervise the financial activities of Polytex in order to prevent the illegal transfer of owners’ funds and assets. In addition, Mr. Kou emphasised that many affected buyers are affected by adverse conditions such as depression, schizophrenia, domestic
Property
Sky Oasis moves 128 units in two days So far, the developer has recorded 230 transactions, involving HK$1.4 bln Some 230 units have been transacted on the city’s new luxury Sky Oasis residence, with total off-plan sales reaching HK$1.4 billion (US$175 million), the project’s developer said in a press release yesterday. The project, an extension of the One Oasis complex on the southern part of the Cotai Strip, is being developed by the joint venture Concordia comprising Hong Kong-based ITC Properties, Nan Fung Group, Success Universe Group, ARCH Capital and Macau-based Linkeast Investments. The company said in the press release yesterday that its first batch of
sales for 128 units, launched during the past weekend, were all sold out in the two days at an average of HK$9,000 per square foot, which made the total number of transactions on the new project some 230. According to the company, local buyers accounted for 80 per cent of the total, while 20 per cent primarily comprised investors from Hong Kong and Mainland China. The joint venture also pointed out that one of the local buyers had spent HK$68 million for 12 units of the luxury project. Sky Oasis will comprise three towers with 500 units currently under construction and able to accommodate around 1,000 people, with a scheduled opening for the first quarter of 2018, the chairman of the consortium, Edwin Cheung, told reporters last week. The first batch of units on sale was 360 studio units for the first tower, with sizes ranging from 600 square feet to 700 square feet. The consortium had expected last week that the sale of the larger special units in the first tower - 3,000 square feet for a total price of at least HK$30 million - could start one month after completion of the sale of the smaller units. K.L.
Pearl Horizon home buyers held a press briefing yesterday
and social violence, and work problems, while some have passed away because of excessive sadness. Meanwhile, the vice chairman of the Association expressed buyers’ concerns about the government’s policy of compensating affected buyers if Polytex loses its [trial] hearing, complaining that the government is unclear about the terms of compensation. Mr Kou also said that the best way to resolve the problem is to finish the
construction of the Pearl Horizon project, indicating that many buyers had re-mortgaged their old property to buy a new one. Earlier this year, the Court of Second Instance rejected a request filed by Polytex Corporation Ltd. to overturn the government’s decision to reclaim the plot on which Pearl Horizon was to be built. Most buyers are still paying instalments on the mortgage of their Pearl Horizon property, according to Mr. Kou.
4 Business Daily Wednesday, October 19 2016
Macau Opinion
José I. Duarte*
Clearing signs The visit of the Chinese premier to Macau was very symbolic in both political and economic terms. Several measures were announced to help Macau develop and deepen its role regarding the Portuguese-speaking countries (PSC), taking centre stage. A full estimation of their likely impact is difficult at this point, nonetheless. The nineteen announced measures are diverse in their scope and novelty; the available details were not always abundant. One set of issues, however, became dominant – those about an increasing financial role for Macau in the framework of the economic relations between China and PSC’s. Somehow, it almost seemed that the main thrust for diversification (a topic always present) was vested in financial services. That is a slightly surprising development. Such emphasis is easier to understand as a message intended to the other side of the delta than as the backbone of a fully-fledged diversification effort. Financial services have never got a relevant part in the debate about diversification. It is not obvious what advantages Macau can bring to the table, or how significant the sector may become. First, there is the ‘weight’ of the financial sector, not to mention other business-oriented industries, in neighbouring Hong Kong. The dependence of Macau in this domain is well documented. After all, there must be some reason why bank holidays in Hong Kong mean banks closed in Macau. Pour in the concurrent ambitions and arguments of cities like Shanghai or Shenzhen, and it is not immediately clear what significant role Macau can dream about. A lot of emphasis was also put on Macau becoming a clearing centre for renminbi operations. Well, Macau is already a clearinghouse for RMB – and I’m confident the Macau branch of the Bank of China has hunted aggressively all the transactions with the PSC’s that it could. The share of China trade with those countries is limited. In some cases, it pertains to strategic goods and businesses that it is unlikely the central government will ‘delegate’ to Macau. And one of the main partners – Brazil - has a significant currency swap agreement with China. Under the circumstances, it is still less than obvious how Macau may become a major player in the operations between China and those countries, or how such changes would impact the other sectors of the economy. Indeed, the measures announced are positive signs; but a fuller evaluation of their potential impact requires further, and yet unavailable, details. * economist and permanent contributor to this newspaper.
Retail The jewellery retailer saw sales DECLINE in all major markets
Chow Tai Fook sales value weakens in Q2
C
how Tai Fook Jewellery Group Ltd. reported a same store sales decline of 30 per cent year-on-year in Hong Kong and Macau for its second fiscal quarter ended September 30, with overall retail sales value down 33 per cent year-on-year, according to its latest operational data
updates for the Hong Kong Stock Exchange yesterday. The luxury jewellery retailer, however, did not indicate its sales revenue figure for the period in the filing. During the three months, the company’s same store sales of gold products plunged 36 per cent year-on-year in the two Special
Retail
Crocodile warns annual profits to drop Clothing retailer Crocodile Garments Ltd. anticipates that the company’s net profit for the fiscal year ended July 31 will fall ‘significantly,’ according to its filing with the Hong Kong Stock Exchange on Monday. It said in the filing that the decrease in annual net profit would be within the range of HK$200,000 (US$25,778) to HK$2 million. The decline is due to ‘the weaker performance of the garment business and the material lower revaluation
gain arising from the revaluation of the group’s investment properties’, the statement notes. In 2014, the company’s performance started to decline, registering a net profit of HK$106 million, a decrease of 55 per cent year-on-year. In 2015, the downward trend continued, with a net profit of HK$51 million, a yearon-year drop of 52 per cent. The audited annual results for this fiscal year are scheduled for release in late October, the company said. A.L.
Administrative Regions, whilst that of gem-set jewellery fell 23 per cent year-on-year. On the other hand, the company saw sales decline in its Mainland Chinese market, registering a yearon-year drop of 17 per cent in its overall retail sales value, as well as a decrease of 22 per cent in same store sales in the Chinese market. ‘[The performance of Retail Sales Value] for both Mainland China and Hong Kong and Macau markets during the second [fiscal] quarter was affected by the high base, which resulted from a surge in sales of gold products as gold prices fell in the same period last year,’ the company wrote in the filing. As at the end of September, the retailer had a total of 2,326 points of sale in Macau, Hong Kong and Mainland China. For the company’s last fiscal year, its net profit attributable to shareholders amounted to HK$2.94 billion (US$366 million), down 46.5 per cent year-on-year, with total revenue down 12 per cent year-on-year to HK$56.6 billion. K.L.
Retail
Uniqlo plans to expand Japanese clothing retailer Uniqlo plans to expand throughout Greater China as well as the rest of the world ‘opening in major cities’ in order to ‘consolidate Uniqlo’s position as a key global brand’, according to a filing by the retailer’s parent company Fast Retailing Co. Limited, on the Hong Kong Stock Exchange. In a recent interview with the South China Morning Post, Uniqlo’s Greater China Chief Executive, Tiger Pan Ning, described the group’s strategy to reach an “initial target” of nearly double its current outlets throughout the Macau, Hong Kong, Taiwan and the Mainland, reaching 1,000 stores. This comes despite the company recording a 56 per cent drop in profits year-on-year for its 2016 fiscal year, ended August 2016, when it brought in 48 billion yen (MOP3.7 billion / US$46 million). “As we expand our business in China, it will be possible that
consumers can order goods online, and receive them from their nearest Uniqlo store within a minimal period of time. That will also meet the needs from increasingly mobile Chinese consumers, ”Mr. Pan stated, cited by the publication. This web-centric push would accompany its focus on key cities, particularly within the Mainland.
“Second tier and third tier cities are still somewhere we shall extend our footprint given their considerable spending power,” he stated. ‘The Group’s medium-term vision is to become the world’s number one Information Powered Retail Business,’ states the parent company in a filing, noting that by combining physical and virtual stores the group hopes to boost e-commerce transactions from its current 5 per cent of total sales to 30 per cent. K.W.
Business Daily Wednesday, October 19 2016 5
Macau Land
Land debt doubts submitted to CCAC
reporters on Monday. According to Chinese language newspaper Macao Daily, the legislator had Legislator Ho Ion Sang said his urged the government to provide social group Collective Wisdom full disclosure of six land debts Policy Centre (CWPC) had to the group but had received no submitted a report regarding the land debts owed by the government reply from the government. He thus passed the report to CCAC, hoping to the city’s graft watchdog the Commission Against Corruption of the anti-graft body could probe into the matter. Macau (CCAC) last week, he told
Tourism
Tourist Price Index slips 3.5 pct in Q3 Local visitors were able to stay in local hotels at cheaper rates, driving down the overall price index Kam Leong kamleong@macaubusinessdaily.com
T
he city’s Tourist Price Index (TPI) fell by 3.5 per cent year-on-year to 126.9 during the third quarter of the year, a significant slowdown compared to the yearon-year drop of 7 per cent one quarter ago as local hotel room rates continued falling, according to the latest official data released yesterday by the Statistics and Census Service (DSEC). Between July and September, the average cost of the city’s accommodation declined 15.5 per cent year-on-year. DSEC explained that the drop was prompted by the lower charges for hotel accommodation. In addition, the TPI for Transport & Communication registered a notable decline of 14.5 per cent year-on-year due to the reduced prices of airfares. Meanwhile, the price index of
Miscellaneous Goods and Restaurant Services posted a year-on-year increase of 4.4 per cent and 2.2 per cent year-on-year, respectively. TPI reflects the price change of goods and services purchased by visitors.
Other comparisons
On a quarter-on-quarter comparison, however, the city’s TPI registered an increase of 1.33 per cent, driven up by hotel room rates during the Summer holidays. The increase in hotel room rates boosted the average price index of Accommodation up by 13.2 per cent quarter-on-quarter, even though the price index of Clothing & Footwear fell 7.2 per cent quarter-on-quarter due to the seasonal sales of handbags and Summer clothing. For the first three quarters of the year, TPI declined 5.8 per cent yearon-year; again, due to the decrease in the average costs of Accommodation
and Transport & Communications, which fell by 23.1 per cent and 7.7 per cent year-on-year, respectively. For the 12 months ended September 30, the average tourist price index also dropped by 5.1 per cent compared to the previous period. In particular, notable decreases are
again registered in the price index of Accommodation and Transport & Communications, which are down 19.4 per cent and 6.3 per cent periodto-period, respectively. The average cost of Food, Alcoholic Drinks and Tobacco jumped 2.6 per cent periodto-period.
6 Business Daily Wednesday, October 19 2016
Macau
Sports
Sports Bureau swings into action Macau’s golf open, which saw a new winner last Sunday, has already committed to next year’s calendar. An agreement was concluded even before the champion gave his press conference. But members of the organisation criticise the greens and the dearth of spectators Alex Lee and Nelson Moura newsdesk@macaubusinessdaily.com
S
oon after 27 yearold Pavit Tangkamolprasert raised the Venetian Macao Open trophy last Sunday, the Macau Sports Bureau confirmed next year’s event of the Asian Tour, a close source to the organisation told Business Daily. “Even if this year’s greens were far from perfect, it is important to secure the event in next year’s calendar,” explains the source because the Asian Tour “has been facing some cancellations”. In a response to Business Daily, the Sports Bureau explained it is currently in talks with the Asian Tour for the organisation of next year’s
tournament and that it will announce the dates at a later stage after “making sure of the Asian Tour schedule for next year”. The Sports Bureau also told this newspaper it has not yet inked any agreement with The Venetian to sponsor next
year’s event remains in discussions with the group. “After many years, many private enterprises are supportive of the event so we are confident that different enterprises will partner with us in the next year,” the Sports Bureau told Business Daily.
Recent winners Results 2016 2015 2014 2013 2012 2011 2009 2008 2007 2006 2005 2004
Pavit Tangkamolprasert Scott Hend Anirban Lahiri Scott Hend Gaganjeet Bhullar Yih-shin Chan ThawornWiratchant David Gleeson Wen-teh Lu Kane Webber Ter-chang Wang Jason Knutzon
1 2 3 4 5 6 7 8 9 10
Scott HEND (AUS) Marcus FRASER (AUS) CHAN Shih-chang (TPE) Jeunghun WANG (KOR) Miguel TABUENA (PHI) Soomin LEE (KOR) S.S.P. CHAWRASIA (IND) Yuta IKEDA (JPN) Anirban LAHIRI (IND) Gaganjeet BHULLAR (IND)
Created in 1998, the golf event in Macau offered a US$1.1 million (MOP8.8 million) prize this year. Mr. Tangkamolprasert defeated 2014 champion Anirban Lahiri in a playoff after both succeeded to birdie the last hole and finish with 16 under par. The winner took home US$198,000 and jumps from 91st to 12th on the Asian Tour Order of Merit. Well-known players, like this year’s Ryder Cup captain Darren Clarke, fell easy prey to the Asian players. The 48-year old from Northern Ireland didn’t make the cut after the first two days. Ranked number 14 in the world, Branden Grace finished in a humble position (34th), the same as last year’s champion Scott Hend. English player Ian Poulter, who returned to golf after a fourmonth layoff due to injury, didn’t do much better, finishing in 28th.
Few spectators
Business
Wan Kei flags decrease in interim net profit Wan Kei Group Holdings Ltd., an investment holding company which provides foundation and ground investigation fieldworks for public and private sectors in Hong Kong and Macau, is anticipating a decrease in its net profit for the six months ended September 30, according to the group’s filing with the Hong Kong Stock Exchange on Monday evening.
Asian Tour Order of Merit – Top 10
The company stated in the announcement that the decrease in revenue of foundation works of the group during the period is one of the primary reasons for the decrease in its interim net profit. In addition, the firm registered a drop in gross profit margin of the newly tendered foundation works projects during the interim period as
a result of the keen competition in the industry causing the decline in profit. For the same period last year Wan Kei posted an interim net profit of HK$25.9 million (US$3.2 million), according to the filing. The Hong Kong-listed firm operates Wan Kei (Macau) Civil and Foundation Construction Company Limited in Macau. The local subsidiary, established in 2004, principally deals with construction site foundation engineering and bore pile pre-drilling works in the MSAR. C.U.
The local Open, which has been increasing the amount of prize to maintain its competitiveness in the Asian calendar and seen some big names coming to Macau due to parallel agreements by sponsors, continues to attract almost nobody to the Macau Golf and Country Club. While in other similar events several thousands watch the players – for example, the attendance of major tournaments in US and in Europe is counted by the tens of thousands – the Venetian Macao Open attracted “less than 100,” said a member of the organisation. “And most
US$770,842 US$679,053 US$528,750 US$499,643 US$483,663 US$348,724 US$323,607 US$292,849 US$280,707 US$277,787
of them were members of the Golf Club and some families of the players”, he lamented. On the website dedicated by the Sports Bureau to the event, it claims that “[the event] was first broadcast live in 2011 to over 200 countries [and] 850 million households worldwide”. However, photos from the Open in 2015 were still not uploaded “which shows a bit of a lack of interest. It seems that there’s money in Macau to pay for the event so everyone’s happy, no matter what,” the same source told Business Daily. When questioned about the lack of attendance at the event, the Sports Bureau told Business Daily the event was “drawing more and more spectators these few years” and that during weekdays attendance might look lower but at weekends a “bigger attendance was recorded”. “We can’t say there was a thousand, but more and more people are coming to the event, to support and learn from the players,” the Sports Bureau told Business Daily. Q u e st i o n e d o n w h a t measures it would take to increase attendance at the tournament, the Sports Bureau explained that it is trying “to attract more people to learn about golf” and wants to add more elements that could “make the whole family come to the event” turning “spectators into participants”. This year, the Asian Tour “had more activities for kids and demonstration classes for university students”, the Sports Bureau concluded.
Business Daily Wednesday, October 19 2016 7
Gaming HOtels
Karl Lagerfeld to launch hotel chain
Fashion designer Karl Lagerfeld is planning to launch his own branded hotel chain, with the first hotel now being built with local casino operator SJM Holdings Ltd. for the latter’s new Cotai project Grand Lisboa Palace, slated to open in 2018. Currently, the Lagerfeld group is ‘in the process of studying other opportunities to open other properties around the world,’ the company said in a statement, quoted by UK
newspaper The Guardian. The agreement between SJM and Karl Lagerfeld was signed in March 2014 and involves building a hotel branded under the designer’s own name in Grand Lisboa Palace. The project is expected to house 270 rooms and suites. The new Cotai project of SJM, in addition to a Karl Lagerfeld Hotel, will feature a Palazzo Versace Hotel with 270 rooms and suites, as well.
Gaming Analysts predict October gross gaming revenue will jump 3 pct to 8 pct y-o-y
Shuffling tables and results Gaming analysts consider mass market revenue should have been higher than that presented Nelson Moura nelson.moura@macaubusinessdaily.com
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aming analysts believe the actual revenue growth in the mass market for the third quarter of the year might be higher than that presented by the MSAR gaming regulator due to operators’ table reclassification of mass tables to VIP in order to accommodate the smoking ban. According to data released by the Gaming Inspection and Coordination Bureau (DICJ) on Monday, the third quarter of 2016 saw a yearon-year growth of 1.2 per cent in total revenue generated by games of fortune, amounting to MOP55 billion (US$6.9 billion). The official data reveals mass market casino games, including slot machines, registered a 3.9 per cent year-on-year increase to MOP26.3 billion in the third quarter of 2016, while VIP market revenues decreased 1.2 per cent to MOP28.6 billion. Analysts at Union Gaming Research believe the actual year-on-year growth in mass market revenue excluding that from slot machines might have been between 8 per cent and 9 per cent, whilst the decrease in VIP revenue should have been around 6 per cent to 7 per cent ‘after adjusting for the ongoing premium mass table reclassification scheme at several casinos’. Union Gaming considers the official data fails to take into account the table ‘reclassification scheme’ instituted by certain operators since the end of 2014, when it stated VIP accounted for 52 per cent of total revenue in the third quarter and mass market and slots machines for 48 per cent. This table reclassification refers to some gaming operators classifying their mass market tables to VIP rooms following the smoking ban on casino mass floors implemented in 2014 in order to circumvent smoking restrictions. According to gaming analysts, this table change has made analysis of the city’s mass market and VIP revenue margins more complicated. Based on the estimates of Union Gaming analyst Grant Govertsen, the actual proportion of VIP and mass market revenues should be 44 per cent and 56 per cent for the third quarter, respectively, with mass market overshadowing VIP revenues for the “fifth consecutive quarter”. The analyst believes one of the factors driving the positive mass market results was the increase in mass market supply by the new Cotai properties, especially The Parisian with its “strong pre-opening marketing” in China. Deutsche Bank analysts share the same view, considering the actual mass market and slot machine share should be pitched at around 54 per cent. For Deutsche Bank analysts, however, the swing factor in the third quarter of this year was actually the VIP sector, considering the 1.2 per cent year-on-year decrease in the
quarter was “encouraging”, albeit “misleading and event driven”, after the premium market revenue showed double digit yearly decreases in the first two quarters of 2016.
Bright lower tiers
According to Union Gaming analyst Grant Govertsen, “grind” or “lower tier” games were the “brightest spots” in the DICJ provided data on casino games of fortune revenues, with baccarat gross gaming revenue losing some of its previous importance. The analyst noted that Live Multi Game gross gaming revenue registered an increase of 16 per cent year-on-year between July and September; Sic-Bo revenues grew 12 per cent year-on-year; while slot machine revenues were down 3 per cent year-on-year. The analyst also pointed out that baccarat revenue has registered its lowest share in seven years, only accounting for 87 per cent of total gross gaming revenues. He considers the decrease a sign that “non-baccarat games favoured by lower tiers of mass are gaining traction,” while the three abovementioned ‘grind’ games categories account for nearly 10 per cent of total gross gaming revenues
in the third quarter of 2016. “Total baccarat gross gaming revenue (VIP and mass) grew 0.7 per cent while non-baccarat grew 4.1 per cent. (…) Lower tiers of mass represent the bulk of the future profit growth story in Macau,” the gaming analyst stated. According to Mr. Govertsen, a greater reliance upon grind mass business should help insulate operators from incremental VIP risks
The Li Keqiang effect
Meanwhile, analysts are divided on the impact of the recent visit of Chinese premier Li Keqiang on the city’s October gross gaming revenues. Analysts from Bernstein believe post-Golden Week activities, especially those in the VIP market, were impacted by Li’s visit. They estimate overall average daily rate to have fallen to MOP491 million for the past week after the national holiday period, anticipating October will finish with a year-on-year growth of between 3 per cent and 6 per cent in total gross revenue. However, analysts at Telsey Group considered business volumes in the first half of October remained ‘strong’ despite the visit of the Chinese premier’s visit, projecting a growth in gross gaming revenues for that period of 11.7 per cent year-on-year.
Telsey analysts estimate October will end with a year-on-year increase of 3 per cent to 8 per cent, stating, however, to have ‘muted expectations’ for the sector performance until the end of the month due to the two typhoons predicted to affect Macau next week. ‘Overall indications, both anecdotal and quantitative, continue to suggest that the Macau market is improving,’ Telsey analysts stated, adding both Wynn Palace and The Parisian properties registered ‘strong volumes and performance’ and are ‘doing well at opposite ends of the customer spectrum’. A similarly positive outlook was held by Wells Fargo analysts, who estimat the first 16 days of October saw average daily revenue of around MOP800 million. They expect average daily revenue will be between MOP530 million to MOP610 million in the remaining weeks, with October finishing with a year-on-year growth rate of between 3 per cent and 8 per cent. Regarding the 19 measures announced by the premier to support Macau’s development, Wells Fargo analysts considered these policies ‘encouraging and supportive on face value,’ whilst noting the announcements weren’t considered ‘clear tangible initiatives to help boost Macau in the near-term’.
8 Business Daily Wednesday, October 19 2016
Gaming Detainment
Tycoon Packer ‘deeply concerned’ about staff held in China
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ustralian gaming tycoon James Packer said he was “deeply concerned” on Tuesday about 18 of his Crown Resorts staff detained in China as his board held an emergency meeting to determine what to do next. The marketing staff were seized in raids late last week, including an executive in charge of luring high-rollers to Australia, with Beijing saying they had been “criminally detained ... for suspected gambling offences”. Shares in Crown plunged more than 13 per cent on Monday, but rebounded around two per cent to AUD11.40 (MOP70.1/US$8.7) when the market opened on Tuesday. “As the major shareholder of Crown Resorts, I am deeply concerned for the welfare of those Crown employees detained in China,” said billionaire Packer, who is engaged to pop diva Mariah Carey and is the company’s largest shareholder. “Crown will do whatever it can to support our employees and their families at this difficult time. Our number one priority is to be able to make contact and to ensure they are all safe.” The Crown board held an emergency meeting via phone late Monday amid reports that Chinese police were preparing to charge the employees with organising gambling activities for Chinese nationals overseas. Gaming companies are not allowed to explicitly advertise gambling in China. The Sydney Morning Herald said speculation among industry insiders
linked the crisis to an attempt by Crown to collect AUD15 million in gambling debts from a Chinese high-roller at its Melbourne casino. “I have sought regular updates on this issue and have asked Crown to do everything possible to contact our employees and to support their families, as we await further details from Chinese authorities,” added Packer. “I am respectful that
these detentions have occurred in another country and are therefore subject to their sovereign rules and investigative processes.” Crown operates casinos across Australia and the world, including in Macau, where revenues have been hit hard by a Chinese corruption crackdown that has driven away many big-spenders. Graft has become endemic in China and President Xi Jinping launched a
much-publicised anti-corruption drive after he came to power in 2012. One of those being held is the company’s executive vice president VIP International, Jason O’Connor, along with two other Australians. Australian Foreign Minister Julie Bishop said the government had been notified of their detention in Shanghai and consular officials were making arrangements to visit them. AFP
Legalisation
Abe’s political gains help odds of Japan legalising casinos Japan’s political shifts may open a new frontier for the world’s high rollers Thomas Wilson and Emi Emoto
Moves to allow casinos in Japan have failed for 15 years, but the chance of success has improved sharply, people involved in the effort say, thanks to political shifts that could open the world’s next great frontier for high-roller gambling. The Japanese public opposes casinos by 2-to-1 on concerns such as gambling addiction, yet insiders say political momentum has shifted in favour of the latest in a string of bills proposing to legalise them. Companies from Las Vegas Sands Corp to domestic game-machine maker Sega Sammy Holdings Inc stand to benefit if casinos come to what CLSA estimates could be a US$40 billion (MOP320 billion) annual market, the world’s second-biggest after the United States. “Integrated resorts will be a headline attraction for Japan’s growth strategy,” Prime Minister Shinzo Abe said in 2014, referring to projects that combine casinos with hotels, shopping and conference facilities. “We will continue to consider them from the viewpoint of how to attract people from around the world.” A landslide July election win for Abe’s Liberal Democratic Party (LDP), the elevation of key gambling proponents in the LDP, division in Abe’s junior coalition partner and a relatively uncrowded parliamentary schedule all increase the likelihood casinos could finally get the nod. “There’s a near 100 per cent chance” of the bill being debated in the session ending November 30, said Hiroyuki
Hosoda, head of the main pro-casino parliamentary group and one of three casino proponents recently named to top LDP spots.
LDP Dominance
If the bill makes it to committee, it is virtually assured of success given the LDP’s dominance of both houses of parliament. Backers say casinos would boost tourism, a success of “Abenomics”. A sharp fall in the yen under easy-money stimulus and relaxed visa rules have led to a flood in visitors, especially from China, since Abe swept to power in December 2012. Foreign tourists surged to 19.7 million last year from 8.4 million in 2012, but Abe’s target of 40 million a year by 2020 and for doubling the 3.5 trillion yen (MOP272billion/ US$34 billion) they spend annually is under threat. With the yen rebounding over the past year and visitors spending less per person, a second wind for tourism could help Japanese banks, manufacturers, construction firms and travel agencies.
Japan already has gambling aplenty, from ubiquitous “pachinko” pinball halls - officially tolerated despite a hazy legal status - to government-backed betting on horse, boat and bicycle races. But these pastimes tend to be low-stakes and aren’t popular with the deep-pocketed foreign visitors Japan covets. The public also isn’t on board, with opinion polls in recent years indicate casino opponents outnumber supporters by around 65 per cent to 30 per cent. Still, with support for Abenomics robust, the premier has used his political clout to push through other unpopular measures, such a more assertive military and a tough official secrets act.
Growing Momentum?
Though reticent to discuss their lobbying efforts, Las Vegas Sands, MGM Resorts International and Caesars Entertainment Corp said they are watching political developments in Japan with interest. “We are encouraged by what seems to be growing momentum for integrated
resorts in Japan,” Steven Tight, president of international development at Caesars, told Reuters. Beneficiaries in Japan would include machine makers Sega Sammy and Konami Holdings Corp, as well H.I.S. Co Ltd, a major travel agency jockeying to develop a casino in southern Japan, said Jun Kitazawa, an analyst of Miki Securities Co. Sega Sammy expects a “constructive debate” in parliament, said spokesman Hiroyuki Komine. Casino proponents are right to be cautious: previous hopes have been dashed as bills languished in parliament, victims of a busy legislative calendar, as well as to opposition from some elements of Abe’s coalition. But those barriers have fallen in recent months, three advocates of casinos say. In a July election, Abe’s LDP secured a majority in the upper house of parliament. It can now enact laws without junior partner Komeito, which is split on casinos. In August, Abe picked 77-year-old veteran lawmaker Toshihiro Nikai as number two in the LDP, replacing a lawmaker seen as cautious on casinos. According to the three advocates, Nikai’s elevation, along with Hosoda and Toshimitsu Motegi to top LDP posts, mean it’s more likely the casino bill will reach the committee. Nikai is considered close to LDP partner Komeito and will ensure the Buddhist-backed party is placated to ensure the bill’s passage, the three say. The LDP will want Komeito’s help on legislation to implement any law legalising casinos. “He’s considerate towards Komeito, that’s his greatest strength,” Deputy Chief Cabinet Secretary Koichi Hagiuda, a casino supporter, told Reuters. “In that sense, momentum (for the casino bill) is building.” Reuters
Business Daily Wednesday, October 19 2016 9
Greater China Money supply
New yuan loans rise to 1.22 trillion yuan Strong lending has been driven by a sharp jump in local government debt swaps
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hinese banks extended 1.22 trillion yuan (US$181 billion) in new loans in September, a three-month high and well above expectations, while money supply growth edged up, indicating the central bank is keeping policy accommodative to support economic growth. The central bank has pledged to keep policy slightly loose, but recent data has suggested many Chinese companies are hoarding cash rather than investing it, adding to views that further central bank easing would not be as effective in spurring the economy as in the past. Analysts polled by Reuters had expected new lending to increase modestly to 1 trillion yuan, after more than doubling in August to 948.7 billion yuan. Broad M2 money supply grew 11.5 per cent in September from a year earlier, the People’s Bank of China (PBOC) said yesterday, slightly below forecasts but up from August’s 11.4 per cent rise. Outstanding yuan loans grew 13 per cent by month-end on an annual basis. Outstanding loans had been forecast to rise 12.9 per cent, while money supply was seen up 11.6 per cent. New bank loans totalled 10.96 trillion yuan in the first nine months. Strong lending has been driven by a sharp jump in local government debt swaps, aimed at reducing their interest payments, and by strong mortgage demand, highlighting the risks to the banking system if a property boom pops. In the first nine months household
loans, which are mostly home mortgage loans, accounted for 46 per cent of total loans, up from 39 per cent in the first half of the year. In recent weeks, a growing number of Chinese cities have announced new restrictions on property purchases as the government tries to cool soaring home prices. “Although we expect economic growth to slow again in the fourth quarter, the tightening measures taken by local governments suggest that
short-term policy is now focused on reining-in the surge in home prices rather than boosting growth,” analysts at Nomura said in a note. “Against this backdrop, room for the PBOC to further cut interest rates or the RRR this year is limited. As such, we remove our call for one more interest rate cut and one more RRR cut through the rest of this year.” China’s debt has soared to 250 per cent of GDP and the Bank for International Settlements (BIS) warned in a report published in September that a banking crisis was looming in the next three years. “Credit booms, even stealth mini
ones, have a stair-step effect on the credit-to-GDP ratio, which at 250 per cent China can ill afford,” Tim Condon, ING’s chief Asia economist, wrote in a recent note. But Condon believed the recent credit boom driven by lending for government debt swaps had already peaked. Total social financing (TSF), a broad measure of credit and liquidity in the economy, rose to 1.72 trillion yuan in September from 1.47 trillion yuan in August.
Key Points Sept new loans 1.22 trln yuan, vs f’cast 1 trln yuan (Aug 948.7 bln) M2 money supply +11.5 pct y/y, vs f’cast +11.6 pct (Aug +11.4 pct) Total social financing at 1.72 trln yuan, vs 1.47 trln yuan in Aug
The central bank (headquarters pictured) has pledged to keep policy slightly loose
TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offers, loans from trust companies and bond sales. M1 money supply, which includes cash and short-term deposits, rose 24.7 per cent in September from a year earlier, versus August’s 25.3 per cent rise. A widening gap between M1 and M2 growth has fuelled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus policymakers pump into the system. The gap narrowed to 13.2 percentage points in September from 13.9 percentage points in August. Reuters
10 Business Daily Wednesday, October 19 2016
Greater China In Brief Statistics agency
Decline in mainland tourists could trim Taiwan’s GDP A decline in Chinese mainland tourists to Taiwan could trim the island’s GDP growth, Taiwan’s statistics agency has said. If the number of mainland tourists to Taiwan declines 10 per cent this year, the island’s service revenue would shrink by T$17.8 billion new (US$560 million), according to the Directorate-General of Budget, Accounting and Statistics (DGBAS). This represents a 0.1 percentage point fall in the islands annual economic output. The estimate is based on figures showing that each mainland tourist spent US$228 per day and stayed seven days in Taiwan on average in 2015. Corporate
Data confirm continued surge in new firms The number of newly founded companies in China continued to surge in the first three quarters on government efforts to streamline the process for starting businesses, official data showed on Monday. A total of 4.01 million new companies were set up in the Jan.-Sept. period, rising 27 per cent from the same period last year, according to statistics from the State Administration of Industry and Commerce (SAIC). An average of 14,600 new firms were set up daily, surpassing the average of 12,000 recorded in 2015, according to SAIC. China has a total of 83.72 million market entities, said SAIC. Investment
ODI surges in first nine months Chinese companies continued to invest big in the overseas market during the first nine months of the year, the Ministry of Commerce said yesterday. China’s nonfinancial outbound direct investment (ODI) surged 53.7 per cent from a year ago to RMB882.78 billion (US$134.22 billion) in the January-September period, Shen Danyang, spokesman for the ministry, told a press briefing. In September alone, China’s ODI rose 56.9 per cent year on year to US$16.16 billion. The Belt and Road Initiative had boosted business cooperation between Chinese and foreign firms, Shen said. Production
Honda to build new factory in Mainland Honda Motor Co will build a factory in Wuhan, China, to produce compact cars from spring 2019, boosting output capacity in the country by about a fifth, the Nikkei business daily said yesterday. Japan’s thirdlargest automaker by sales will spend “hundreds of millions of dollars” on the plant which will initially be able to produce 120,000 cars a year with output eventually doubling, the paper said. Local partner Dongfeng Motor Group Co will jointly operate the planned factory, the Nikkei said.
IMF Paper
China corporate debt window ‘closing quickly’ The IMF staff estimate that exiting from loss-making firms would cost 7.8 million jobs
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hina urgently needs a plan to address a build u p o f c o r p o rat e d ebt that is manageable but with a window to address it “closing quickly,” said an International Monetary Fund working paper. The rapid increase of debt since the global financial crisis has left China with a credit gap comparable with those experienced previously by countries such as Thailand, Spain and Japan that subsequently experienced “painful deleveraging,” said the paper by IMF staffers. China’s risks appear high but are manageable if the problem is addressed promptly, it said. The working paper’s warning adds to a drumbeat of concern over a surge in corporate debt that coincides with dwindling economic returns as the nation gets less growth for each buck of credit. China’s government released guidelines last week for reducing debt and said it won’t bear final responsibility for borrowing by companies.
“International experiences suggest that credit booms of this size increase the risk of slower growth or a disruptive adjustment,” said the IMF staffers. “The authorities recognize the problem, but appear to be still searching for a comprehensive, proactive, strategy.”
a boost of 0.2 per cent in the fourth, the paper estimated. China’s total debt grew 465 per cent over the past decade, according to Bloomberg Intelligence. Total debt rose to 247 per cent of gross domestic product in 2015, from 160 per cent in 2005, with corporate debt jumping to 165 per cent of GDP from 105 per cent.
465
Potential losses
Potential debt at risk is estimated to be about 15.5 per cent of the total corporate loan portfolio as of end2015, which could yield estimated potential losses of about 7 per cent of GDP, the authors conclude. The IMF staff estimate that exiting from lossmaking firms would cost 7.8 million jobs - 2.8 million in overcapacity sectors like coal and steel and 5 million in construction. Cuts to overcapacity would likely take time and displaced workers will be gradually absorbed into new sectors, the authors said. The net impact on GDP of sector consolidation is estimated to be a loss of 0.6 per cent in the first year, 0.2 per cent in the second, close to zero in the third and
per cent China’s total debt growth over the past decade Bloomberg Intelligence
The corporate debt problem should be addressed urgently with a comprehensive strategy, t h e p a p e r s a i d . Th a t s h o u l d include identifying companies in financial difficulties, proactively recognizing losses in the financial system, burden sharing, corporate restructuring and governance reform, hardening budget constraints and facilitating market entry, the authors said. Bloomberg News
Poverty fight
State firms launch fund to invest in impoverished regions Priority zones included ethnic minority and border areas as well as old “revolutionary bases” of the Chinese Communist Party A group of 51 enterprises run by the Chinese central government has launched a 12.2 billion yuan (US$1.83 billion) fund to invest in the country’s poorest regions, as part of China’s strategic plan to use market forces in the fight against poverty. Firms like the Three Gorges Project Corporation, the State Grid Corporation and the State Development and Investment Corporation will gradually increase the fund to 100 billion yuan, the StateOwned Assets Supervision and Administration Commission (SASAC) said on Monday on its website. According to the official Xinhua news agency, 70 million people still live on incomes of less than RMB2,300 yuan, which is China’s official poverty line. China aims to reduce that number by 10 million a year starting from 2016.
Xinhua said the fund will invest in resource exploitation, the construction of industrial parks and urbanisation in China’s poorest regions. It said priority regions included ethnic minority and border areas as well as old “revolutionary bases” of the Chinese Communist Party. China is in the middle of a sweeping reform programme designed to rejuvenate its lumbering state sector and create industrial champions capable of competing internationally. But the government and the Communist Party have delivered mixed messages to the country’s giant state firms, saying they should be more responsive to th e m a r k e t w h i l e at the same time fulfilling their social and political responsibilities.
At a meeting earlier this month, President Xi Jinping told heads of stateowned firms that the Party would continue to play a leadership role in the
‘70 million people live on incomes of less than RMB2,300 per year’
reform of the state sector. He described China’s state owned enterprises as “the most dependable support for the party and the state” and an important force behind the party’s efforts to “win many more historical victories”, according to an account of the meeting published by SASAC. Reuters
Business Daily Wednesday, October 19 2016 11
Asia Election talk
Malaysia’s Najib seen pushing populist budget Most analysts don’t see much room for Prime Minister to spend heavily Joseph Sipalan
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alaysian P r i m e Minister Najib Razak is expected to put a raft of populist measures into the 2017 budget he unveils on Friday, in a bid to assuage voters unhappy with his leadership and rising living costs. The budget will be Najib’s best opportunity to shore up support before possible early polls, but any widening of the fiscal deficit at a time the economy is cooling could risk downgrades to Malaysia’s sovereign rating. Growth has slowed in each of the last five quarters, reaching 4.0 per cent in April-June as poor oil prices have squeezed Southeast Asia’s thirdlargest economy. The government’s current 2016 full-year forecast is 4.04.5 per cent. Public debt as a percentage of gross domestic product is just short of Malaysia’s 55 per cent ceiling, rising from 43 per cent in 2008. Its budget deficit was 5.6 per cent of GDP in January-June, far above the year’s 3.1 per cent target. Najib has battled calls to step down over a scandal involving 1Malaysia Development Berhad (1MDB) scandal, removed critics from his administration and consolidated support in a state election and two by-elections this year.
The past year has been turbulent for Najib as 1MDB became the centre of a civil suit filed by U.S. prosecutors. The fund is linked to probes in at least six countries including Switzerland and Singapore. Najib has denied any wrongdoing.
Voters and goodies
An election can wait until August 2018, but Najib - who will face his toughest poll test - may call one in the second half of 2017, a government official said. Wellian Wiranto, economist for OCBC in Singapore, said the coming budget could be “more crucial” than previous ones.
“People always remember the last goodies they have, and the more goodies you can deliver to the political vote bank, the better,” he added. Populist measures have been a theme of Malaysian budgets since Najib became prime minister in 2009. The focus has been on cash aid to lowincome families and development projects for rural regions where the ruling Barisan Nasional (BN) coalition gleans a large chunk of votes. In the budget, Najib is likely to stick to his past formula, driven “more by political calculations”, Wiranto said. “It’s a matter of ‘what can we do to be popular enough’.” But the extent of government largesse will be constrained by Malaysia’s need to contain its budget deficit.
Malaysian Prime Minister Najib Razak
“Deterioration in fiscal discipline and broader public finances leading to higher government debt and deficit levels could be negative,” Fitch said in a statement to Reuters.
More of the same
Most analysts don’t see much room for Najib to spend heavily as revenue from natural gas and oil Malaysia has been hurt by low global prices. The sharp dive in global crude prices made state oil firm Petronas slash its dividend pay-out to the government to 16 billion ringgit this year from last year’s 26 billion ringgit. Najib, who is also the finance minister, hinted at constraints last week, telling the state news agency Bernama “There are so many things that we need to do but one have to realise that it has to be in the context of our affordability and also that we need to rein in or at least manage our debt and fiscal deficit in a prudent way.” Asset management firm Affin Hwang expects Najib to increase annual hand-outs to poor households, to possibly make tax cuts for the middle-class and to keep the goodand-services tax rate at 6 per cent. Public housing is also expected to figure prominently in the new budget, which could allow first-time house buyers to access more of their pension funds to buy property. Analysts also expect Najib to announce that the corporate tax rate, now 24 per cent, will be cut by 1 percentage point in 2018. Reuters
Policy meeting
Australia’s central bank weighing jobs and household debt Figures for the third quarter are due next week and are expected to show core inflation stayed stuck around 1.5 per cent Australia’s central bank is watching the health of the labour market and of household finances when deciding on future monetary policy, while coming data on consumer prices will be important for setting inflation expectations. Reserve Bank of Australia (RBA) Governor Philip Lowe noted core inflation of 1.5 per cent was well below the target band of 2 to 3 per cent and looked set to remain low for some time. “Achieving the quickest return of inflation back to 2.5 per cent would be unlikely to be in the public interest if it came at the cost of a weakening of balance sheets and an unsustainable build-up of leverage in response to historically low interest rates,” Lowe told an investment conference. “Conversely, the case for moving more quickly would be strengthened in a world where the labour market was deteriorating and people were having increasing difficulty finding jobs.” It was surprisingly low inflation that led the RBA to cut interest rates
in August and May, taking them to an all-time trough of 1.5 per cent. Consumer prices rose a meagre 1 per cent in the year to June while core inflation hit a record low at 1.5 per cent, well below the RBA’s target band of 2 to 3 per cent. “The experience elsewhere suggests that we do need to guard against inflation expectations falling too far, for if this were to occur it would be more difficult to achieve the inflation
target,” Lowe said yesterday. “We will get an important update next week, with the release of the September quarter CPI.” Overall, Lowe said the Australian economy was performing “reasonably well” with a long slump in mining investment past its worst and growth set to benefit from a recent rise in prices for resource exports. Lowe said data on the labour market had been more mixed, with unemployment drifting lower but new jobs weighted heavily to part-time work and wages growth still weak. The evidence on the housing market was also mixed, with home prices rising briskly in some areas, but
falling in others. Rental growth was already very low and a large increase in new housing supply was coming on stream.
“The experience elsewhere suggests that we do need to guard against inflation expectations falling too far, for if this were to occur it would be more difficult to achieve the inflation target” Philip Lowe, Reserve Bank of Australia Governor Household credit growth was still exceeding income growth, though much of that was being used to finance new housing construction rather than consumption. Reuters
12 Business Daily Wednesday, October 19 2016
Asia In Brief M&A
Hyundai says it may bid for Hanjin’s assets South Korea’s Hyundai Merchant Marine said yesterday it may submit a preliminary bid for Hanjin Shipping Co Ltd assets used in Asiato-U.S. routes - a sale seen as key to Hanjin’s prospects for paying off creditors. Hanjin, the first major shipping line to be dragged down by global industry overcapacity and low freight rates, put up manpower and logistics systems, five container ships and 10 overseas businesses, for sale last week. Shipping sources in South Korea have said that potential interest in the assets is unclear, particularly for the manpower and logistics systems that established shippers already have. Corruption probe
S. Korean prosecutors to charge Lotte Chairman South Korean prosecutors plan to charge Lotte Group chairman Shin Dong-bin, wire service Yonhap reported yesterday, in the latest twist to a wide-ranging corruption probe that has convulsed the country’s fifth-largest conglomerate. Prosecutors last month asked for an arrest warrant for Shin on charges of embezzlement and breach of trust but a South Korean court rejected their request for the warrant. Yonhap said that while Shin would be charged, he would not be arrested. Prosecutors will announce the results of their probe into Lotte Group on October 19, a prosecution source with direct knowledge of the matter told Reuters.
Tax
Indian panel gathers to set rate for new sales tax Finance ministry and state finance ministry officials gathered in New Delhi yesterday for a three-day meeting that will seek to finalise the main rate of the Goods and Services Tax and pave the way for its introduction next April. The long-delayed tax, which would transform Asia’s third-largest economy into a single market for the first time, should boost revenues through better compliance while making life simpler for businesses that now pay a host of federal and state levies. Prime Minister said India needed the tax reform to end widespread evasion by businesses and prevent officials from waging arbitrary tax “terrorism”. Financial sector
Indonesian loan growth lowest since 2009 Loans by commercial banks in Indonesia grew 6.83 per cent in August from a year ago, slower than July’s expansion pace of 7.74 per cent, the financial services authority (OJK) said in a statement. August loan growth is the slowest since November 2009. The OJK said banks’ foreign currency denominated credit contracted 11.76 per cent from a year ago in August, while loans in local currency grew 10.70 per cent.
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Private poll
Corporate Japan unimpressed with central bank policy Previous survey also said the new policy would either do little or nothing at all to help economy Malcolm Foster and Tetsushi Kajimoto
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apan Inc has little faith in the central bank’s latest shift in monetary policy, with companies saying it won’t generate long-desired inflation, spur further business investment or have an impact on the economy. The findings of the Reuters Corporate Survey - the first broad survey on Japanese companies’ reaction to the policy change suggest a long road ahead for Prime Minister Shinzo Abe as he seeks to pull an economy out of more than 15 years of deflation and stagnation. More than 80 per cent of firms said last month’s overhaul in policy - one that targets the bond market’s yield curve instead of the amount of money pumped into the financial system will not have an impact on prices or change their capital spending plans. Two-thirds of companies in the Sept. 28-Oct. 12 survey also said the new policy would either do little or nothing at all to help the world’s third-largest economy which is also grappling with a strong yen, tepid consumer confidence and a declining population. “Monetary policy is no longer effective,” wrote a manager at a machinery firm, in comments echoed by many others. “The BOJ has created a phenomenon where there is a lot of money sloshing around but interest in investing has receded so the money is not going anywhere,” the manager wrote. Companies answered anonymously to the monthly survey which is conducted for Reuters by Nikkei Research. Of the 532 big and
medium-sized non-financial firms polled, more than 250 responded to questions on BOJ policy.
Inflation goal unattainable?
The ne w BO J pol i cy follow s extraordinary lengths over the past three years by the central bank to fan inflation with radical stimulus that has included negative interest rates and massive bond buying. But even so nearly half of firms in the survey saw the Bank of Japan’s inflation target of 2 per cent as taking more than three years to attain while a quarter said the goal was impossible. None thought the target was attainable within a year. In contrast, the BOJ currently forecasts inflation will hit 2 per cent in the next 18 months. “With the population shrinking, demand in general is on the decline and so prices will not rise,” wrote a manager at a real estate firm. The BOJ’s move has been seen as an attempt to repair some of the damage to the finance sector caused by its shock move to negative interest rates early this year and promote bank lending by widening the gap between long- and short-term rates, ensuring that banks can earn a profit on loans. But in addition to the 82 per cent of firms that said the policy change would not change their capital spending plans, another 12 per cent said it had actually made them more cautious about investing. “ I t s e e m s as i f c o m p a n i es increasingly believe that monetary policy has its limits and that other efforts such as social security reform, deregulation and a growth strategy are needed,” said Taro Saito, director
of economic research at NLI Research Institute, who reviewed the results. The results of the survey underscore the sometimes odd sense of crisis besetting corporate Japan. On one hand, a sharp strengthening of yen since the start of this year threatens to depress profits and has prompted penny-pinching measures from major firms like Toyota Motor Corp and electronic goods maker Panasonic Corp such as turning off lights and cutting down on the number of elevators in use..
Key Points Two-thirds see no economic impact from BOJ’s policy shift 82 per cent see no effect on investment, 12 pct more cautious Nearly half see 2 pct inflation taking over 3 years to achieve About a quarter see inflation goal as impossible Corporate Survey underscores view monetary easing hitting limits
But at the same time, companies are sitting on plenty of funds that they could invest if they were convinced of a brighter long-term future for Japan. Central bank data shows nonfinancial firms were sitting on a record 242 trillion yen (US$2.4 trillion) in cash and deposits in the second quarter, up by 12 trillion yen from three years ago. In comparison, capital spending grew only 5 trillion yen over the past three years to 70 trillion yen in fiscal 2015 - 10 per cent below levels seen just before the 2008 financial crisis. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, October 19 2016 13
Asia M&A
Australia’s Tabcorp, Tatts in talks to create gaming giant The companies failed in a previous attempt to merge in 2015 Jamie Freed and Tom Westbrook
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ustralia’s Tatts Group Limited and Tabcorp Holdings Ltd yesterday said they are in talks to create a A$9.34 billion (US$7.1 billion) betting industry giant, hoping to join forces to fend off popular online rivals. An investment banker involved in the talks, who declined to be named as he was not authorised to speak publicly, said a transaction could be announced within the next two days. In almost identical statements, the companies requested trading halts until market open today, pending “a potential change of control transaction”. They declined to comment further. Australia’s two largest non-casino gambling firms are struggling to cope with mounting competition from online betting agencies which have taken off since the deregulation of gambling licences in 2012, and both reported profit falls in August. “The entry of large global operators such as William Hill and Sportsbet could have helped push a deal across the line as they have taken a sizeable slice of the local wagering market,” said Matthew Felsman, a wealth adviser at AAP Securities. Brisbane-based Tatts, a 135-yearold company whose name is synonymous with lotteries in some parts of Australia, has a
market capitalisation of A$5.3 billion. Melbourne-based Tabcorp, Australia’s biggest betting company, has a market value of A$4.1 billion. Together they command more than two-thirds of Australia’s A$3.5 billion sports wagering market, but onlineonly players are growing their share, according to a March report from researcher IBIS World. The companies failed in a previous attempt to merge in 2015, and since then Tabcorp’s shares have gained 11.4 per cent while Tatts has fallen by the same amount. The companies provided no details of the merger’s structure, but Deutsche Bank analysts estimated Tabcorp could pay up to A$4.75 per Tatts share in a deal that would boost Tabcorp’s earnings per share by 1 per cent. “Mergers of equals are normally struck based on a stock’s last closing price, so you would assume Tab is a
little happier to revisit the deal now,” Felsman said.
Scheme of arrangement
The companies indicated that the deal would be a scheme of arrangement, which would require the approval of 75 per cent of the target’s shareholders by value through a vote at a shareholder meeting. Australia’s competition regulator said it also would scrutinise the proposal, citing “a range of potential issues and areas of overlap”. Analysts said last week’s reversal of a ban on greyhound racing in New South Wales state may have been another motivating factor behind the talks. “You make hay while the sun shines and it will be a lot easier for them to put together a growth story while the greyhounds are on play,” said Mathan Somasundaram, analyst at stockbroker Baillieu Holst.
“They are probably both running out of growth, so put them together and they probably could do savings and on aggregate they might pull out a double-digit growth number.”
Key Points Companies request trading halts to pursue merger talks Profits being squeezed by rise of online betting Tabcorp is Australia’s largest betting company Deal expected within days - banker Both companies posted modest revenue growth for the 2016 financial year citing tougher competition, particularly from foreign players. Reuters
Demand
India’s clampdown on ‘black money’ curbs appetite for gold Gold imports fell for a ninth month in September Manolo Serapio Jr and Koustav Samanta
India’s crackdown on undisclosed foreign assets and income is curbing demand for gold in the world’s second-biggest consumer, while rising real interest rates and better returns from other financial markets are also hurting purchases, a banker said. Although consumption should pick up from now until the end of the financial year, when India buys more for gifting during festivals and weddings, weak demand so far has dragged on the global gold price that has shed nearly 9 per cent from a two-year high in July to US$1,258 an ounce yesterday. “There is a crackdown on black money in India and many people who were looking at gold as an investment for unaccounted income are no longer investing in gold at all,” Shekhar Bhandari, executive vice-president of Kotak Mahindra
Bank, told Reuters on the fringes of an industry meet. Unofficial estimates suggest funds illegally deposited in banks outside the country to avoid tax, known as “black money” in India, account for about 10-30 per cent of the country’s gold demand, said Bhandari.
Key Points “Black money” accounts for about 10-30 pct of gold demand-Kotak Indians disclose US$10 bln in hidden wealth in tax evasion amnesty Higher returns from equities, bond dent gold’s appeal India’s 2016/17 H2 imports seen up 25-50 pct vs H1 -Scotiabank A tax evasion amnesty scheme, led by the government of Prime Minister Narendra Modi, that closed in September disclosed nearly US$10 billion in undeclared income.
India’s gold demand has also been hit by higher returns from other asset classes, Bhandari said, with returns on equities and bonds at 12-13 per cent dwarfing gold’s 0.9 per cent in terms of rupees since 2013. Rising real interest rate due to declining inflation is dimming gold’s draw as well.
‘Pathetic’
“The returns on gold in rupees is pathetic,” Bhandari said. “I think it won’t be advisable to invest in gold given current levels where investment returns are likely to be negative in Indian rupees.” India’s gold imports fell for a ninth month in September as weak retail demand and higher discounts prompted banks and refineries to
cut overseas purchases. But imports in the second half of India’s financial year to March will probably be 25-50 per cent more than the first half, said Sunil Kashyap, managing director for global banking and markets at Scotiabank. “With Diwali just about two weeks away from now, demand so far looks good. Expectation is that it’ll sustain until the end of the year,” Kashyap said. Gold discounts dropped to the smallest in nearly nine months last week as the festive season began. “If stability of the rupee continues and gold prices are stable, then we can expect positive trends. But any kind of volatility could hamper gold,” said Scotiabank’s Kashyap. Reuters
14 Business Daily Wednesday, October 19 2016
International In Brief Prices
U.K. inflation rate surges U.K. inflation accelerated to the fastest pace in almost two years in September, part of an upward trend that’s set to continue as the weaker pound pushes up import costs. Consumerprice growth quickened to 1 per cent from 0.6 per cent in August, the Office for National Statistics said yesterday. That’s above the 0.9 per cent rate forecast by economists and is the highest since November 2014. The core rate of inflation also reached a two-year high. The pound’s 18 per cent decline since the U.K. voted to quit the European Union is forecast to fuel faster inflation in the coming years. Moody’s
Mozambique-IMF agreement positive The agreement between the Mozambican government and the International Monetary Fund (IMF) on an international audit of the country’s public accounts is positive in terms of rating Mozambique’s sovereign debt, ratings agency Moody’s said on Monday. “The transparency of an independent and credible audit of public companies Empresa Moçambicana de Atum, Mozambique Asset Management (MAM) and Proindicus, using paramaters agreed upon by the IMF and Mozambique, even if it presents negative conclusions, would start to restore the country’s position in relation to international donors,” Moody’s said in a statement.
Injection needed
Summers urges U.S. to spend on infrastructure On the U.S. presidential election, former U.S. Treasury Secretary said it now looked highly unlikely that Donald Trump would win Michael Heath
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ormer U.S. Treasury Secretary Lawrence S u m m e rs ca l l e d for a US$2.5 trillion infrastructure investment program over 10 years to energize the American economy and help it exit from “secular stagnation.”
“If you look at federal infrastructure investment, net of depreciation, net investment, it is rounded to the nearest integer: equal to zero” Lawrence Summers, former U.S. Treasury Secretary Speaking to a Sydney conference via live video yesterday, Summers cited one of his favourite examples in reiterating his call for new U.S. infrastructure. He got a large show of hands after asking how many in
the Australian audience had been to New York’s Kennedy airport. He then asked how many thought the U.S. should be “really proud” of that airport as a gateway to America’s greatest city. The response: no hands, and a lot of laughter. “It is a no-brainer,” Summers said. “Because of what it means for job creation and demand in the short run; because of what it means for economic capacity in the medium run; because of what the growth means for the financial health of the government.” He highlighted historically low funding costs, “very low” materials costs and the employment needs of non-collegeeducated males in his call.
The bill
Asked what it would take to get out of secular stagnation, where trend economic growth rates have been reduced, Summers nominated 1 per cent of gross domestic product a year for a decade as “a reasonable target to do something substantial with infrastructure investment” that would have a meaningful impact. He said he didn’t think it would be a problem for the country’s fiscal health, representing “about US$2.5 trillion over 10 years.” “Infrastructure investment as a share of GDP is lower than it’s been
any time since 1947, and if you look at federal infrastructure investment, net of depreciation, net investment, it is rounded to the nearest integer: equal to zero,” he said. In a question-and-answer session with a moderator at the Citigroup Inc. investment conference, Summers’s comments included: While government debt is high, it’s serviceability is “extraordinarily low,” thanks to current interest-rate levels; Substantial parts of Europe -- particularly Germany -- should join the U.S. in investing in buildings, roads, bridges and the like; The Trans Pacific Partnership trade deal could still be passed; The Federal Reserve should avoid raising interest rates. On the U.S. presidential election, Summers said it now looked highly unlikely that Donald Trump would win, and criticized the Republican’s platform. “I had never supposed that populism personified by Juan Peron in Argentina or many other Latin American leaders would be successfully exported from Latin America to the United States,” said Summers, who served with Trump’s opponent, Democratic candidate Hillary Clinton, in the Obama administration. “And I think it’s very dangerous.” On the TPP, Summers said President Barack Obama “is very determined, and it is a mistake I think to count him out given he’s been successful at accomplishing things like universal health care that many people thought were impossible.” Bloomberg News
FTA
EU to sign off on Canada deal ‘next week’ A troubled EU-Canada free trade deal (FTA) can be signed “next week” despite the last minute opposition of the Belgian region of Wallonia, EU Trade Commissioner Cecilia Malmstroem said yesterday. In a shock vote, the small Belgian region of Wallonia on Friday blocked the deal, known as CETA - meaning that Belgium itself cannot sign up to the pact and leaving the deal in limbo after seven years of negotiations. The vote threatened to torpedo the deal’s long-delayed signing by Canadian Prime Minister Justin Trudeau in Brussels on October 27 which would have opened the way for CETA’s partial implementation. Angola
Hard currency injections fall The amount of foreign currency injected into the Angolan banking system dropped by 31 per cent last week to €226.7 million, mostly to ensure imports of food and raw material for industry, the National Bank of Angola said. In the previous week the central bank’s foreign cash injection totalled €328.1 million. According to the report the foreign currency provided in direct sales of the equivalent of US$230.9 million, where used to cover imports of food and to ensure the needs of industrial units, as well as auctions of €44.8 million euros to cover the needs of a variety of sectors.
Lawrence Summers, former U.S. Treasury Secretary. Bloomberg News
ECB poll
Euro zone banks to tighten company access to loans Companies’ demand for credit grew less than banks had expected in the third quarter of the year Euro zone banks are set to tighten access to corporate credit for the first time in two and a half years as they become more wary of risk and negative interest rates eat into their profit, a European Central Bank survey showed yesterday. The ECB’s ultra-easy policy - including bond purchases, free loans to banks and a charge on deposits - has fuelled a recovery in euro zone lending but banks’ margins have started to suffer, raising concerns about the negative side effects of sub-zero rates. Banks stopped easing credit standards for enterprises in the three months to September and a narrow majority expects to tighten them in the current quarter, an ECB survey of 141 lenders showed. The banks, polled last month, cited lower risk tolerance as a tightening
factor when deciding which companies would get a loan or credit line in the three months to September. They also voiced their discomfort with the ECB’s negative deposit rate, effectively a charge on banks’ excess deposit with the central bank. A large majority of banks said the charge had a negative impact on their lending rates and margins over the past six months. Some even said it was leading to an increase in their charges to corporate customers over and above interests. Companies’ demand for credit grew less than banks had expected in the third quarter of the year, with banks in Spain and Italy actually reporting a fall. The ECB’s ultra-low interest rates were seen as the main contributing factor behind the increase in demand
in the third quarter, with mergers and acquisitions activity and debt refinancing also contributing.
‘The banks cited lower risk tolerance as a tightening factor when deciding which companies would get a loan or credit line in the three months to September’ On balance, lenders still expect demand to grow in the last three months of the year. Reuters
Business Daily Wednesday, October 19 2016 15
Opinion Business Wires
Bangkok Post Demand for everything related to the late King Bhumibol Adulyadej is reaching a fever pitch, and commemorative banknotes are also being distributed at a brisk pace. Thai people who wore black and white to mourn the passing of the King on Tuesday flocked to banks and snapped up the 100-baht commemorative banknotes on the auspicious occasion of the King’s seventh cycle birthday anniversary on Dec 5, 2011. Around 14,000 of the 100-baht commemorative banknotes were sold yesterday alone at the Government Savings Bank (GSB) headquarters, an informed source at the bank said.
The chimera of stock-market short-termism
Viet Nam News Over 240 domestic and foreign firms are showcasing their handicraft and gift products at the Hà Nội Gift Show 2016, which opened its door on Monday at the National Exhibition Construction Centre in the capital city. The four-day exhibition is a good opportunity for handicraft and gift producers and traders from across the country to advertise their products, seek new customers and expand their export markets, the event’s organisers said. The organisers said that some 600 importers from 35 countries and territories have registered to participate in the event.
New Zealand Herald New Zealanders drink up large before boarding a flight, with half of parents admitting they have a tipple to help ease the strain of travelling with kids. A survey for Cheapflights.co.nz finds locals consume almost two drinks on average at the airport, spending NZ$17.40 each visit on alcohol - about NZ$43.6 million a year. One in 10 drink before 9am and in addition to the 49 per cent of parents who hit the bottle to make the prospect of travelling with kids more bearable, 63 per cent also enjoying a drink after take off.
Inquirer.net Cash sent home by Filipinos living and working abroad in August grew at its fastest pace in over two years, jumping 16.3 per cent year-on-year to US$2.319 billion. Bangko Sentral ng Pilipinas data released showed that cash remittances from Filipinos overseas last August increased from US$1.994 billion a year ago, marking the fastest yearly growth since March 2014’s 16.6 per cent. So far this year, the remittance flows in August were the third biggest on a monthly basis, only exceeded by March’s US$2.362 billion and June’s US$2.332 billion.
A
n often - heard refrain , increasingly voiced in US politics, is that corporate America is excessively influenced by short-term stock-market considerations. While the US presidential election is not particularly focused on policy at the moment, the campaign will soon end, at which point people will govern and policies will be adopted. Given that both Republicans and Democrats have criticized short-termism, it is possible that some of those policies might aim to address it. They are unlikely to make any difference. Not only has the problem of short-termism been woefully exaggerated, but the policy proposals for addressing it are severely lacking. Consider Democratic presidential nominee Hillary Clinton’s proposal – which Vice President Joe Biden has endorsed – to use the capital gains tax to encourage shareowners to hold on to their stock for a longer time. The idea is that when shareowners furiously trade their stock, corporate executives feel pressed to ensure high earnings every quarter, so that the share price does not fall. Investment in, say, research and development, despite its long-term benefits, can induce shareowners to sell, punishing the company with a declining stock price. Today, the lower capital gains rate is available on shareholder profits made when selling stock held for one year or more. Clinton and her advisors hope, instead, to tax capital gains at ordinary rates for stock held for up to two years, after which the rate would decline by four percentage points per year until, after several years, it reached the current long-term rate, which tops out for wealthy investors at 20 per cent. If stockholders know that holding a company’s stock will eventually allow them to benefit from a lower tax rate, the argument goes, they will be more willing to withstand a drop in that company’s quarterly earnings. With greater scope for longerterm thinking, executives would make decisions that have a long-term payoff, even if they are costly today. The plan certainly sounds reasonable. The problem is that a falling tax rate for capital gains will not stop most stockholders from trading; at most, it will impel some of them trade less often. Executives will still have to worry about the price that traders accord to their stock. Of course, curtailing the velocity of trading may have other effects, both good and bad. If too many resources and too much brainpower are now devoted to finding slight underpricing or overpricing of stock, Clinton’s program might be a good thing, as it would help to reallocate
“
Mark Roe a professor at Harvard Law School
those resources. If, however, less trading makes markets more volatile and unpredictable, taxing short-termism could turn out to be a cure worse than the disease. In any case, Clinton’s program will not achieve its stated goal of inducing those doing the trading, and thus setting stock prices, to take a longer-term perspective. Nor will it make corporate executives less concerned about the next quarter’s results. Prices will, after all, still be going up and down. There is another reason the proposal will not be effective: many of the largest shareowners are institutions that don’t pay tax anyway, such as pension funds and foundations. And many other stockholders buy and sell within a year, even though it means paying the full tax rate. Their decision-making time horizon will not be affected by a long phase-in of the more advantageous tax rate. But the fact that Clinton’s plan will not achieve its goal is not exactly the end of the world. Contrary to widespread belief, stock-market-induced shorttermism is probably not much of an economic handicap anyway. There is considerable (though not conclusive) evidence that it is not nearly as widespread – or as problematic – as many think. Consider this: four of the ten biggest companies in the United States today, measured by stock-market capitalization, are Amazon, Apple, Alphabet (Google), and Microsoft. None of them can be accused of failing to invest in R&D or other longterm, sometimes even visionary, projects. And the stock market supports all of them well. If they can do it, others can – and surely do. Simply put, ending short-termism has turned into a bigger political issue than it deserves to be. It is a cause that resonates widely not because shorttermism is hampering the economy, but because saying that it is justifies protecting those with a stake in the status quo – well-paid employees; CEOs and senior managers; and board directors – from rapid change. The bottom line is that there are bigger, more pressing problems to address. And, even if shorttermism were a major problem, Clinton’s tax proposal would not resolve it. The good news here is that the plan is not particularly high on Clinton’s agenda, leaving a chance that she might not feel compelled to implement it when elected.
Simply put, ending short-termism has turned into a bigger political issue than it deserves to be
”
Project Syndicate
16 Business Daily Wednesday, October 19 2016
Closing Royalist vs. offence
Thai minister urges ‘social sanctions’ as mobs hunt critics
Thais should “socially sanction” those who defame the monarchy following King Bhumibol Adulyadej’s death (commemorative display pictured), the junta’s justice minister said yesterday, as fresh videos emerged of mob justice against people accused of insulting the institution. The death on Thursday of the world’s longest reigning monarch has left the nation bereft of its key pillar of unity and seen mass outpourings of grief from black-clad Thais.
But it has also unleashed small but vocal ultramonarchist forces, including mobs and online crusaders scouring the web and bent on punishing anyone perceived to have insulted the monarchy. “There is no better way to punish these people than to socially sanction them,” Justice Minister Paiboon Koomchaya told reporters yesterday, as he vowed to “pursue those people who violate the law”. His message comes amid a growing number of cases of vigilantism by royalist Thais against people accused of insulting the monarchy. AFP
China’s FX
Central bank sales highest in 8 months as it seeks to steady yuan Sales signal renewed capital outflows amid expectations of an interest rate rise by the U.S. Federal Reserve
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et foreign exchange sales by China’s central bank hit the highest in eight months in September as it sought to support the weakening yuan as capital outflows picked up, data indicated. The People’s Bank of China (PBOC) sold a net 337.5 billion yuan (US$50.1 billion) worth of foreign exchange in September, according to Reuters calculations based on central bank data released yesterday.
That is the highest since January, when net sales were 644.5 billion yuan. The rebound in the PBOC’s net currency sales signalled renewed capital outflows amid expectations of an interest rate rise by the U.S. Federal Reserve in December and worries about China’s growth outlook. Still, most analysts believe the pressure remains modest due partly to stricter capital controls, unlike heavy outflows last year and in early 2016.
China’s reserves, the largest in the world, fell by a record US$513 billion last year after Beijing devalued the yuan, sparking a flood of capital outflows that threatened to destabilise the economy and alarmed global financial markets. Foreign exchange reserves fell for a third straight month in September and by slightly more than markets had expected, suggesting fresh outflows. Traders suspect authorities kept the yuan largely stable over the summer ahead of several highprofile political and market events such as the G20 leaders’ summit in China in early September and the yuan’s inclusion in the International
Monetary Fund’s reserve currency basket on October 1. But it has been allowed to slip since then against a resurgent dollar and is now hovering around six-year lows ahead of Chinese economic data today. Third-quarter growth in the world’s second-largest economy is seen steadying at 6.7 per cent on increased government spending and a property boom, but the property market is showing signs of overheating and exports remain weak.
‘The yuan has lost about 3.7 per cent against the dollar so far this year’ The yuan has lost about 3.7 per cent against the dollar so far this year, making it one of the worst performing currencies in Asia. A R e u t e rs p o l l ea r l i e r t h i s month showed foreign exchange strategists expect it to depreciate by about 3 per cent more by September 2017. Persistent capital outflows could increase pressure on the PBOC to cut banks’ reserve requirement ratio (RRR), but analysts believe the central bank is trying to use other policy tools, such as the mediumterm lending facility and standing lending facility, to inject cash into the banking system. The latest Reuters poll forecast a RRR cut in the first quarter of 2017. Reuters
Auto industry
Ministry of Commerce
Results
Beijing issues third permit to make green cars
China's foreign trade still faces strong headwinds
Manchester City rakes in record revenue
China’s main state planning body has granted a subsidiary of automotive design contractor CH-Auto permission to build 50,000 electric vehicles per year, the third start-up automaker to gain approval under a new licensing system. The government has employed a raft of policies to promote a switch from petrol-powered to electric cars, including spending billions of dollars in subsidies. It sees the segment as an opportunity to leapfrog global automakers that had a nearly century-long head start in making internal combustion engines. In response, automakers have moved to broaden their range of green car offerings. Yesterday, South Korea’s Hyundai Motor Co said it would build nine green models in China by 2020, making up 10 per cent of its China sales by that year. As part of the government’s efforts, the green car segment has been opened up to non-automakers, including technology companies. Qiantu Auto (Suzhou) became the third company to gain approval under that system, receiving permission for a 2 billion yuan (US$300 million) factory project, showed a statement on the National Development and Reform Commission website yesterday. Reuters
China’s foreign trade still faces strong headwinds as uncertainties mount, a commerce official said yesterday. The difficulties will not end in the near term, with uncertain and unstable factors increasing, Shen Danyang, spokesperson for the Ministry of Commerce, said at a press briefing. On September 27, the World Trade Organization cut its forecast for global trade this year to 1.7 per cent, down from its previous estimate of 2.8 per cent in April. The new figure of 1.7 per cent represents the lowest growth rate since the 2008-2009 financial crisis, reflecting a drastic slowdown in global trade this year, Shen said, adding that painstaking efforts from the country are needed to stabilize its foreign trade. China’s measures to stabilize foreign trade, which emphasize both exports and imports, have somewhat taken effect. The country’s encouragement of imports of advanced equipment and technology as well as key components contributed to the 2.2per cent growth in total imports in September, he said. Foreign trade in the first three quarters was down 1.9 per cent from a year earlier to reach 17.53 trillion yuan (US$2.61 trillion), with exports dropping 1.6 per cent and imports falling 2.3 per cent, official data showed. Xinhua
English Premier League leaders Manchester City yesterday announced record turnover of US$480 million and its Abu Dhabi owners said the club has reached a “turning point”. City, who were hit by UEFA sanctions over th ei r fi n a n c es i n 2014 , a n n o u n c e d a 20 million pound (US$24.5 million) profit from revenues of 391.8 million pounds (US$480 million). With broadcasting, match-day and commercial revenues all up, City announced a second straight year of profit. Chairman Khaldoon Al-Mubarak said the 2015-16 season when City reached the Champions League semi-finals was a “turning point” on and off the field. “Manchester City has now reached a level of sporting and commercial maturity that allows one to feed the other,” said the chairman. Broadcasting revenue from Europe and the Premier League increased 19 per cent to 161 million pounds. Match day income went up from 43 million pounds a year ago to 52.5 million pounds. Other commercial revenues went up from 351 million pounds to 391 million pounds. AFP