Centaline: Housing market rebounding Property Page 2
Thursday, October 27 2016 Year V Nr. 1160 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong
www.macaubusinessdaily.com
Crown arrest
Smoking ban
Labour
Investors
Economic forecast
Ten more reportedly detained in China investigation Page 7
Smoking in VIP rooms still divides committee Page 2
Unionist legislators propose new trade union law bill Page 6
Futures in Mainland markets skyrocket, propelled by coal prices Page 8
Economic reports & analysis reveal ambiguous picture of China’s shortterm evolution Page 10
Galaxy Not So Far Away Gaming
Galaxy Entertainment Group posts a y-o-y increase of 28 pct in its adjusted EBITDA for Q3. With gaming revenue up 5 pct y-o-y. Driven by strong growth in mass market revenue. Despite encouraging signs of stabilisation, the company remains cautious about declaring the bottom. Page 5
Ring-a-ding discounts
Inflation lowest since 2010
The MSAR’s average consumer prices increased 1.59 pct y-o-y in Sept. The lowest growth since Jan. 2010. Due primarily to higher costs for parking spaces, eating out and study.
Telecom Local telecom operator CTM is giving it back. Announcing substantial reductions in tariff for leased-circuit services and direct Internet access services. CEO Vandy Poon predicts the new tariff scheme will exert pressure on the company in the short term. But will benefit all in the long run. Page 3
Tech giants in town
Technology The year’s Canalys Channels Forum kicked off yesterday. Welcoming worldwide tech giants to the MSAR. The gurus believe that Asia Pacific and Japan will play a dominant role in pushing global tech development. Page 6
Coming home to roost Consumer prices Page 4
HK Hang Seng Index October 26, 2016
23,325.43 -239.68 (-1.02%) Worst Performers
AAC Technologies Holdings
+1.95%
China Resources Power
Belle International Holdings
-3.94%
China Construction Bank
-1.72%
Galaxy Entertainment Group
+1.91%
CLP Holdings Ltd
-0.13%
Hang Lung Properties Ltd
-2.25%
BOC Hong Kong Holdings
-1.61%
Sands China Ltd
+1.28%
Want Want China Holdings
-0.21%
China Petroleum & Chemical
-2.21%
China Shenhua Energy Co
-1.55%
Wharf Holdings Ltd/The
+0.26%
Hong Kong & China Gas Co
-0.27%
PetroChina Co Ltd
-2.13%
China Resources Land Ltd
-1.49%
Henderson Land Develop-
+0.00%
Power Assets Holdings Ltd
-0.27%
CNOOC Ltd
Industrial & Commercial
-1.46%
+0.00%
-2.06%
26° 29° 25° 30° 22° 28° 23° 26° 22° 28° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Chinese banks Analysts warn that Chinese banks are facing tough times. Citing massive bad debt. And a challenging economic situation that will probably impact annual balance sheets. Page 16
2 Business Daily Thursday, October 27 2016
Macau Real estate
Centaline: Housing market rebounding The agency’s Property Climatic Index shows housing prices tending to increase Annie Lao annie.lao@macaubusinessdaily.com
H
ong - K ong based real estate agency Centaline (Macau) Property Agency Ltd. says the city’s property market is rebounding, both in terms of transactions and housing prices. The trend has been reflected in the number of housing transactions in September, which rose by nearly 25 per cent year-on-year, as well as in the increased housing prices for two consecutive quarters, with an accumulative increase of 20 per cent, said Jacky Shek Po Tak, senior director of Centaline Macau. The property agency held a press briefing yesterday presenting the company’s review on the property markets in Macau and Hengqin during the third quarter of the year. According to the property agent, the increase in housing transactions was due to the recent sales opening of the city’s new luxury Sky Oasis residences in Cotai. “The developer kicked off the sales of the project by selling smaller resident units, with a selling price of some HK$9,000 (US$1,160) per square foot while 128 units were sold in two days during its first batch of sales last week,” the senior director noted. He estimated that the opening of sales for new housing units in the city would also help boost transactions in the local second-hand housing property market.
yesterday, which reached 57.14 for the third quarter of this year. The index suggests property prices will tend to go up in the future when higher than 50 points. “It is expected that the housing market will perform even better in this quarter than the third quarter based on the current property market situation in the city with increasing property prices,”
the senior director predicted. “Property developers will monitor the sales performance to see whether to launch new property units in order to meet market demand”, he said. The property agent estimated that about six to eight property developers would launch sales for new residential apartments in the following two months.
Hengqin market
Meanwhile, the agency said its business performance in
Hengqin was positive for September, said a director of Centaline Macau, Roy Ho Siu Hang. “Up until now, our office in Hengqin has profited about HK$50 million from commission income,” he claimed. Th e p r o p e rt y ag e n c y is planning to expand its business in the Hengqin market to seize business opportunities from the policy allowing Macaul i c e n s e d ca rs e n t e ri n g Hengqin as well as from the [future] opening of the Hong
Kong-Zhuhai-Macau Bridge, the director revealed. “Hengqin has a strong potential to see increases in housing prices while its rental is getting expensive, too, at around HK$30 per square foot,” Mr. Ho said. Meanwhile, the property ag e n c y p r e d i c t e d that investors in Zhuhai might switch to Macau following the Zhuhai Government imposing restrictions on property purchases in the Zhuhai city area earlier this month.
Housing prices rise
Meanwhile, the real estate firm published its latest Centa-Macau Climatic Index
Society
Local arbitration lacks users Opinions suggest the inadequacies of the legislative system as well as the low awareness of the general public have led to the minimum usage of arbitration to resolve conflicts in the MSAR Cecilia U cecilia.u@macaubusinessdaily.com
Most people in the city do not seek arbitration to resolve conflicts, the Secretary General of the World Trade Centre Macao – Arbitration Centre (WTCM), Ivan Fong Kin Fao, said during TDM radio programme Macau Forum yesterday. The arbitration system encompasses a number of advantages when compared to litigation in court, including higher flexibility, said Mr. Fong. He explained that arbitration enables confidentiality, which is the biggest advantage for resolving uncomplicated cases related to business conflicts. However, unlike litigation, the approval of involved parties is required for the performance of arbitration. “There are a lot of applications for assistance in the WTCM; the problem is most applicants are representing
only one party in cases,” said Mr. Fong. “If the other party refuses to resolve the problem by arbitration the WTCM will then be unable to run the [arbitration] system”.
Inadequacies in legislative system
An audience member pointed out that cases relating to property management that are resolved by arbitration are very uncommon in the city, commenting that the government should introduce policies to encourage the usage of arbitration thereby easing pressure on the courts. The Secretary General of WTCM said that arbitration would not be fully utilised even if the policy or system has improved. He added that the lack of use of arbitration might be due to the current residents’ attainments and civic awareness. Suggestions were made by another audience member that the MSAR Government should introduce a law
to ensure the necessity of arbitration before embarking upon litigation via the courts. In Hong Kong, the high expense required if arbitration is not performed prior to any submission of cases to the court has led to its full utilisation in the neighbouring city, Mr. Fong said. Fong revealed that the MSAR Government is conducting research on the matter referencing cases in Hong Kong, but also noted that judicial costs are generally affordable by Macau residents, thus leading to the low
awareness of exploiting the alternative way of resolving conflicts. Meanwhile, the Director of the North District Family Service Centre under the Women’s General Association of Macau, Chu Oi Lei, reflected that the arbitration system that deals with family conflicts in the city is insufficient. Ms. Chu revealed that parties are often unable to contain their emotions, and that the male parties often complain of favouritism by social workers for female parties.
Land
Gov’t reclaims two more plots of land Two land plots located near Avenida Dr. Rodrigo Rodrigues were taken back by the MSAR Government on Tuesday. The company claimed it would use part of the land, which occupies some 10,195 square metres in all, to construct a building for the Prosecutor’s Office. One of the plots – some 3,415 square metres - is currently used for storing construction materials, with illegal installation built on the slope nearby. The slope, on which stairs are built, is also being exploited. Numerous bamboo
scaffolding poles and discarded vehicles occupy the other nearby plot, which also has an illegal structure. The plot - covering 3,415 square metres - has two occupiers, one of whom refused to return the land to the government and was later found against by the Court of Final Appeal. The remaining area of the plots will likely be utilised for public facilities. The government has recovered 62 illegal occupied plots in the city occupying some 333,000 square metres. C.U.
Business Daily Thursday, October 27 2016 3
Macau Telecommunications
CTM tariffs to be ‘comprehensively slashed’ The telecom operator is cutting its tariff for leased-circuit services and direct Internet access services. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
L
ocal telecom operator Companhia de Telecomunicaçōes (CTM) has decided, despite the fact that its concession contract with the government could end this year, to reduce tariffs on its local leased circuits (LLC), international private leased circuits (IPLC) and direct Internet access (DIA) services for the city, to the tune of average reductions of 37 per cent, 49 per cent and 50 per cent, respectively. The news was announced yesterday in a press conference following CTM receiving government approval for the reductions yesterday morning, says Vandy Poon, Chief Executive Officer of CTM. “Introducing the new tariff scheme puts quite a bit of pressure on the company’s business in the short tem, but focusing on the long-term benefits instead of the short-term business,” is the goal, noted the CEO, commenting that the reductions, as well as investment in “maintenance, operations, new investment development and R&D (research and development)” to the tune of MOP500 million (US$62.5 million) to MOP600 million, are all part of the company’s “holistic view and approach” to service provision in the MSAR. “Just five years ago it (maintenance costs, etc.) was MOP300 million. We’ve doubled our investment and commitment,” said the CEO.
Politics
“The way that the government has endorsed and appointed CTM in the past and in the present moment hopefully going forward as well - to manage the whole portfolio of services and activities, in order to make it most effective and efficient, we always addressed and planned ahead for both the current needs and going forward for the future”, said Poon with regard to both the investment and maintenance costs as well as the slashing of tariffs, which the CEO noted are primarily aimed at enabling one of the group’s “major customer groups of leased circuits and Internet access”: the banking sector. “Particularly in the banking sector, they probably don’t need the reduction for their profits but the reduction I personally will foresee translating into them building a bigger, more robust connectivity for their banking networks both within and outside Macau so the Macau financial sector will be more connected to the world,” said the CEO.
Hang up or keep talking?
Mr. Poon noted that the decision as well as the investment, seeks to
Smoking in VIP rooms still divides committee
Smoke gets in your eyes The smoking ban committee has promised that a final decision for a universal smoking ban in casinos would be made by the end of this tenure of the Legislative Assembly Nelson Moura nelson.moura@macaubusinessdaily.com
The bill for a universal ban in local casinos will be nailed down by the end of the current legislative year on August 15, 2017, the chairman of the second standing committee of the Legislative Assembly, Chan Chak Mo, said yesterday. Following yesterday’s meeting, both the legislator and Health Bureau Director Lei Chin Ion told reporters that the bill is still under discussion. Even though whether to allow smoking rooms in casinos follow ing the implementation of the bill remains one of the most contentious issues most of the committee members support the government conducting a full smoking ban, the health official said. At present, smoking is prohibited on the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms. The government-backed bill, meanwhile, proposes banning smoking in all indoor areas of gaming venues, as well as eliminating the current smoking lounges. In May, the AL sub-committee chairman stated that seven of the nine committee members supported the establishment of smoking lounges if it could be ensured that the smoke from
these rooms would not permeate to outside areas, with only two members objecting to the suggestion. In addition, Secretary for Social Affairs and Culture Alexis Tam Chon Weng has stated the government could be open to new approaches to the smoking ban but that the bill would not be abandoned despite disagreements between lawmakers.
Smoking decisions
During yesterday’s AL sub-committee meeting, legislative members suggested cigarettes not be displayed in local shops, as this elicits young people to purchase them; in addition, they suggested tobacco shops install smoking rooms as well, according to the Health Bureau Director. He reaffirmed the government’s position that no smoking rooms should be installed in tobacco shops and that cigarette brand exposure should be reduced to a minimum. In terms of banning the sales o f e l e c t r o n i c c i ga r e t t e s, t h e Health Bureau Director stated that a l th o u g h r ec e n t st u d i es reveal “electronic smoking is, in fact, unhealthier than normal cigarettes,” the government wasn’t mulling a ban despite the paradox of allowing users of these products to enter the city.
coincide with the MSAR Government’s Five-Year Plan as well as the ‘One Belt, One Road’ policy by the central government. “I think going forward we are as committed as ever,” said Poon, noting that: “we have a commitment to both the government and Macau at large that all elements of telecom infrastruct u r e w i l l b e s o u n d a n d g o o d, in any period of the contract, w h e th e r i t’ s d u r i n g o r at th e end of the contract.” With regard to the overall continued investment and potential conclusion of the contract, for which the CEO attributes an average of MOP500 million annually over the past four years, whether any of the results of the investment will revert to the company, he said: “the government has the priority or
preferential status if they want to keep it,” a situation in which CTM would not retain any of the invested-in elements. “Why would I put a dollar in now hoping that it will be compensated? I’m not concerned whether I will take it back,” he said. The new pricing for the tariff reductions will be implemented for all customers, noted CTM, impacting 189 LLC customers, 91 IPLC customers and 52 DIA customers. The pricing was arrived at by benchmarking the neighbouring regions of Hong Kong, China and Singapore, and under the new scheme other ‘local licensed telecom operators’ – will have a ‘more favourable offer […] aiming to build a solid infrastructure for industry development’, noted the information provided during yesterday’s press conference.
4 Business Daily Thursday, October 27 2016
Macau Opinion
Ashley Sutherland-Winch* Robot-strong by 2025 Robot technology was the popular topic this week at a five-day World Robot Convention in Beijing where people in the robotics field were eager to show China’s advances in the area. Challenged by the ‘Made in China 2025’ initiative, robotic technology and automation are at the forefront of plans where massive upgrades are needed in Mainland Chinese factories and production lines. This technology is vital due to an aging workforce and probable decreased workforce since the one-child policy drastically decreased future numbers. China is under major pressure to leap ahead in technology ahead of Germany, Japan, and other nations whose robotic technology is much more advanced. “Mainland China has set national goals of producing 100,000 industrial robots a year and having 150 robots in operation for every 10,000 employees by 2020, a figure known as robot density. Currently, China ranks 28th in the world for robot density, behind Portugal and Indonesia. Chinese suppliers sold about 20,000 robots last year to local companies”, according to Associated Press. Debuting this week is Canbot U-Partner, a service robot from Infinities International Group, based in Shandong. Canbot can be programmed to run in shopping malls, restaurants and banks and is modelled on the ‘Pepper’ robot made by Japan’s SoftBank, one of the potential suitors interested in acquiring Twitter. The ‘Pepper’ robot assists customers with shopping in stores, helps patrons in restaurants, and has the capability of detecting human emotions. Associated Press reports that thousands of factories in southern China’s industrial centres traditionally manned by low-cost migrant workers are now turning to robots. China has become the world’s top consumer of industrial robots and will soon have the most commercial robots in operation in any country. As Mainland China attempts such incredible leaps in technology, will Chinese-made robots be able to keep up with the complexity of tasks required? ‘There has never been such a dynamic rise in such a short period of time in any other market’, the International Federation of Robotics said in an analysis of China’s robot industry published earlier this year. As history shows, when Mainland China pursues a goal they do so with great vigour and I am sure that robotic technology advancements will be successful as well. Regardless of the tech that unfolds in the next nine years, it will be exciting to watch history unfold and technology revealed on the road to 2025.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Consumer prices
Inflation slows to 1.59 pct in September The recorded growth in average consumer prices was the lowest since January 2010 Kam Leong kamleong@macaubusinessdaily.com
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he city’s inflation reached 1.59 per cent year-on-year in September, a drop of six percentage points from the 1.65 per cent registered in the previous month, in addition to being the lowest year-on-year growth since January 2010. According to the latest official data released yesterday by the Statistics and Census Service (DSEC) the city’s composite consumer price index (CPI) totalled 108.2 last month, an increase of 1.7 points compared to 106.5 one year ago. The increment in average consumer prices was attributable to higher rentals for parking spaces, dearer changes for eating out, increases in property management fees and tuition fees for the new academic year as well as the hike in motorcar prices, DSEC said.
These price growths boosted the price index of Food & Non-Alcoholic Beverages, which accounted for the largest share of household expenditure, up 2.04 per cent year-on-year. In addition, that of Transport, Education and Alcoholic Beverages & Tobacco rose by 7.84 per cent, 7.43 per cent and 5.39 per cent, respectively, compared to the same month of last year. Meanwhile, the average price index of Clothing & Footwear went down by 2.94 per cent year-on-year, while that of Housing & Fuels recorded a slight decline of 0.81 per cent year-on-year.
Slightly more expensive from August
On a month-on-month comparison, the city’s CPI grew 0.08 per cent from 108.1 due to the increase in tuition fees and dearer charges for tutorial classes in the new academic year. The average price index of Education and Miscellaneous Goods
and Services thus rose 7.18 per cent and 0.8 per cent month-on-month, respectively, in addition to a 0.4 per cent increase in the average costs for Transport, driven up by higher gasoline prices. However, the price index of Recreation & Culture recorded a decrease of 2.33 per cent month-onmonth due to falling prices of package tours post-Summer holidays, whilst the seasonal sale of women’s clothing and adults’ footwear pushed down the prices of Clothing & Footwear by 1.22 per cent month-on-month. For the twelve months ended September 30, an inflation of 2.98 per cent was registered compared to the previous period due to the growth in the price index of Alcoholic Beverages & Tobacco and that of Education, which went up by 29.4 per cent and 8.8 per cent period-to-period, respectively. Meanwhile, the city’s average composite CPI for the third quarter of the year went up by 1.78 per cent year-on-year whilst that for the first nine months of the year jumped 2.69 per cent year-on-year.
Yachting
Water Bureau announces regulations for Coloane yacht berths The city’s Marine and Water Bureau has announced regulations for yachts travelling to the MSAR under the future FreeYacht Travel scheme for berthing near the Coloane Pier, such as limiting their length of stay.
Acc o r di n g t o a di s p atch i n yesterday’s Official Gazette, yachts from Guangdong travelling under the Macau-Guangdong Free Yacht Travel Scheme may only stay in the berthing area in Coloane, fronting
Subsidy
Science & Technology Fund disburses MOP52 mln in Q3 The Science and Technology Development Fund (FDCT) disbursed a total of MOP52 million (US$6 million) in financial support between July and September, according to a dispatch in the Official Gazette yesterday. The Fund gave out MOP46 million in support of science and technology projects and MOP5 million for education to promote science. Among the beneficiaries, the University of Macau received the biggest total amount of financial support, some MOP27 million, representing
52 per cent of the total financial support awarded by the Fund during the period. The subsidies for the University were for a wide range of research activities such as medical development to cure cancer, and genealogical studies. During April and June, the FDCT disbursed MOP9.7 million whilst around MOP340 million was given by the Fund in 2014 in support of local science and technological development. C.U.
Concordia Industrial Park, for a maximum of 14 days. In addition, they cannot berth at local docks for longer than six months for each 12-month term. The city plans to implement a Free Yacht Travel Scheme with Guangdong Province, and earlier this month Chinese Premier Li Keqiang said during his visit to the MSAR that the scheme should be implemented by the first half of 2017. Bureau Director Susana Wong Soi Man previously said a total of 50 provisional berths for yachts would be provided by the MSAR on the waterway near Coloane Pier for the future yacht scheme, Meanwhile, the same dispatch also mandates that yachts participating in the city’s yacht expos could only berth in the area for two days before and two days after the shows. Currently, the city has 57 other berths off Lam Mau Peir on the Macau Peninsula managed by the Macau Yacht Club and 22 others at Macau Fisherman’s Wharf. C.U.
Business Daily Thursday, October 27 2016 5
Macau Gaming The company says, however, it’s still too soon to talk of recovery
Galaxy Q3 adjusted EBITDA soars 28 pct y-o-y The casino operator saw its mass market pay off during the three months, which registered an increase of 17 per cent in the segment’s total revenue Kam Leong* kamleong@macaubusinessdaily.com
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ocal gaming operator Gal ax y E n t e rtain m e n t Group reported HK$2.7 billion (US$336.2 million) in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter of this year, surging 28 per cent year-on-year as the company’s mass market performance turned stronger, it told Hong Kong Stock Exchange yesterday. For the three months, the company’s total revenue amounted to HK$12.9 billion, up 5 per cent year-on-year. Of the total, gaming revenue accounted for HK$12 billion, which climbed by 5 per cent compared to the same period of last year. The increase in gaming revenue was boosted by the company’s 17 per cent growth in total mass table games revenue, which reached HK$5.4 billion, as total VIP revenue declined by 4 per cent year-on-year to HK$6.1 billion. ‘Macau continues to transition to the mass market,’ the casino operator noted in the filing. It added that despite continuing signs of market stabilisation ‘it remains too early to
call the bottom of the market’. ‘The recently reported growth in monthly revenue in August and September followed by a strong Golden Week in October are encouraging signs, but we would like some more time before calling it a definitive trend,’ the gaming corporation wrote. The operator also said in the filing that it welcomed the recent visit of Chinese Premier Li Keqiang to the MSAR despite analysts predicting that the visit of the national leader might have harmed the performance of the
overall VIP market for the month. ‘With the continuing support of both the Macau and Central Governments, combined with the ongoing completion of infrastructure projects, we remain confident in the longer term outlook for Macau,’ the locally-based operator wrote. During the three months, the company’s flagship property in Cotai - Galaxy Macau - saw its adjusted EBITDA surge 31 per cent yearon-year to HK$2.2 billion whilst StarWorld Macau, located on the Macau Peninsula, registered year-onyear growth of 4 per cent in adjusted EBITDA to HK$536 million.
Hengqin plan details later this year
Meanwhile, the company mentioned in its quarterly results that the company’s plan for its new project
on Hengqin Island ‘continued to progress’. It said that further details for its new investment project on the Mainland would be announced later in the year. For the company’s Phase III and Phase IV development for Galaxy Macau, it said in the filing that ‘site preparing works’ for Phase III may potentially commence this year with that for Phase IV in 2017. ‘We expect to be able to provide additional information on our development plans in late 2016 or early 2017’, it wrote.
Outperforming the market
Galaxy shares have jumped 29 per cent this year as at Tuesday, ahead of the 7.5 per cent rise in the Hang Seng index and the 23 per cent gain in Bloomberg Intelligence’s index of Macau casino stocks. “Mass market showed strong growth at Galaxy Macau, which was well in excess of the market,” said Grant Govertsen, a gaming analyst for Union Gaming Group LLC, referring to the operator’s flagship casino resort. “Galaxy is outperforming the market despite the addition of new supply during the quarter”. Still, the increase in the number of competing casinos, with more due to open next year, could put pressure [on performance] in the coming months. An ongoing price war could bring risks to margins, as Macau casino operators cut hotel rates and lowered minimum bets to attract players, Daiwa Capital Markets Hong Kong Ltd. analysts led by Jamie Soo wrote in a note before the results. Hotel room rates fell to recent record lows following the early October Golden Week holiday and ‘this is not an encouraging sign as a proxy for gaming demand’, they wrote. *with Bloomberg
6 Business Daily Thursday, October 27 2016
Macau Opinion
José I. Duarte*
Not too light Some topics never seem to go away. The light rail system is one of them. It has been going on – the topic, not the rail - for a decade or so now. We are seldom reminded of the subject for good reasons. As a rule, it is usually about overrunning costs, missed schedules or blatant management omissions; occasionally, it is promises or targets that may appear as just wishful thinking. Some fear the expected operational starting date for the Taipa section is, at best, well-intentioned optimism. Building the Taipa section has been a never-ending source of administrative troubles and operational disruptions. Regardless of the date for the effective start of operations, we can only wish that the construction works will end soon so that the daily activities of residents and the traffic flow can regain a certain degree of normalcy. The date for operations on the peninsula section, whether it will ever come, is still being guessed at. October has been prodigal; the topic made several media headlines. The new track location, we are told, will be announced before the end of the year. Is it good news? Construction on the peninsula side, if and when it starts, risks becoming a nightmare. It is difficult to avoid the feeling that many seem to believe that the light rail solution is not adequate for the peninsula, but nobody seems to want to acknowledge that. As a result, we may be stuck with a worst-case scenario. One where implementation is delayed because few believe the solution is good; and yet no alternative is seriously considered, as that would imply recognizing that somewhere, someone got it wrong. So we keep hoping that somehow things will find a way to settle on their own. The drama, if we may use the word, is that in all likelihood what may happen is that the situation will become more intractable with the passage of time. The more we delay, the narrower the range of viable alternatives, and the greater the negative impact and costs will be. That might be changing. Some legislators raised the possibility of ditching the current solution and opting for a different one. Regardless of the merits of the proposed alternative, one virtue it has is that this is possibly the last opportunity we have to carefully assess the pros and cons of a transport solution that may prove inefficient and most damaging for this side of the city. Owing to a mistake in editing, we republish this opinion article.
*economist and permanent contributor to this newspaper.
Technology
Facing mega-trends How tech firms should be Asia Pacific-centric, face down emerging global trends proactively and prepare for the tech wave of the future, drove the Canalys Channels Forum, which welcomed tech giants worldwide to the MSAR Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he Asia Pacific and Japan (APJ) Region will lead the world’s technological push, both in innovation and consumption, so said experts at this year’s Canalys Channels Forum, to which Macau plays one of three host cities for the event which welcomes 3,000 attendees, over 1,000 of whom are present in the MSAR. The event, concluding today, hosts keynote speakers from tech giants such as Hewlett Packard Enterprise, Lenovo and recent merger DellEMC, and is invite-only – as it seeks to connect the major tech companies
involved with their ‘Channels’ – sales channels through which the tech companies derive the majority of their revenues. The value of the channel system, as described by Richard Bailey, President of the Asia Pacific and Japan region for HP, is in the numbers. “Channel will account for 87 per cent of revenue,” said Mr. Bailey, referring to figures for HP’s projected returns for next year. However, HP completes the circle, to ensure value through its partnerships – many of whom hope to be established during the Macau, and future Barcelona (Spain) and Riviera Maya (Mexico) editions of the forum – by “investing US$1 billion (MOP8 billion) annually in channel enablement and rewards”.
Mr. Bailey describes the company’s forward-looking strategy as Asiacentric, due to “two-thirds of the world’s population living in cities, 50 per cent of which will be in Asia”, spread across 22 “mega-cities of 10 million or more inhabitants, the “consumption of which will top US$30 trillion”.
Mega-trends
However, to seize these markets the HP regional president advises that tech companies, and their channel partners through which they derive the majority of their revenues, must face four fundamental focuses in order to evolve their businesses for the current environment: rapid urbanisation, demographic changes, faster blending of consumer and commercial, and hyper-globalisation. The first of these – rapid urbanisation – Mr. Bailey notes is often mentioned “when referring to China”, pointing, however, to the growing presence of India which “will take less than 10 years to double its GDP (gross domestic product) – from US$2.3 trillion to something in the order of US$5 trillion”. However, this spending will be “outstripped” by the spending in the information technology sector, says Mr. Bailey, due to the fact that “every government in this (APJ) region is sponsoring initiatives like ‘Smart City’” and stating that “cities, governments, armed forces will all need a stronger focus on integration of data and infrastructure”. Initiatives which the MSAR is attempting to follow the model of cities such as Singapore in doing.
Challenges and opportunities
President of the Asia Pacific and Japan region for HP, Richard Bailey
Labour
Unionist legislators propose trade union law bill A new union law proposal was submitted to the Legislative Assembly (AL) by unionist legislators Kwan Tsui Hang, Ella Lei Cheng I and Lam Heong Sang, who are all from the Macau Federation of Trade Unions. The leigslators want to fill the city’s blanks in legislation when it comes to labour unions in the MSAR, even though the Basic Law states residents have the right to unionise and participate in union activities or stage strikes. ‘This legislative initiative is intended to enforce the provisions of the Basic Law, to comply with the required conventions of the International Labour Organization, and to bridge the legislative gap in this area’, the legislators wrote in the bill. The proposed law includes provisions to regulate the establishment and functions of local
union associations, in addition to the exercise of trade union activity in companies. The three legislators had previously proposed a similar bill in Janaury, which was rejected by the legislature – with 18 votes against and 12 in favour. At the time, the proposal was rejected by legislators who perceived the law would create social and economic instability and drive investors away from the territory. But legislators in favour of the proposal argued that the local economy had undergone expansion and recession periods without any union law. Since the handover of Macau to China in 1999, a total of seven union law bills have been proposed and rejected by the AL. Of the seven bills, five were submitted by legislator José Pereira Coutinho. N.W. with Lusa
Challenges facing Macau and countries throughout the APJ region, notes Mr. Bailey, also lie in the remaining three focuses of HP (and that suggested to other tech companies by Bailey) in its strategy, one primary part of which is an ageing (and changing) demographic. This, says the HP executive, creates two types of consumers: ‘silver spenders’ and ‘millennials’. “Silver spenders - or spenders who have money, who’ll stay in the workforce longer and are tech savvy will provide opportunity,” contrasting the millennial demographic in that they can provide more funding, although the millenials drive future progress. “Across the region, on top of the silver spenders, we’re seeing the rise of millenials,” says Mr. Bailey, “mostly represented in India and Southeast Asia. These are the people who walk and talk in a social mobile lifestyle,” he notes, creating the third of the opportunity points HP is focusing on: “the ‘consumerisation’ of IT”, driven by millennials’ demand for the integration of technology in both corporate and private consumer parts of their lives. These first three points are drivers for the continued importance and dominance of the APJ region, leading to the final point – hyperglobalisation, driven by the world’s “interconnectedness” which takes advantage of the Asia-centric focus due to its rapidly expanding (India) and dominant (China) economies. “Fifty per cent of tech companies will be headquartered” in the APJ region in the near future, says the HP president, causing “innovators to scale at an unprecedented rate,” citing YouTube’s change of the music consumption culture “in just five months”. “The pace of change is exponential and not linear,” he says, counselling both potential channel partners and other tech giants present at the forum that: “how we approach these megatrends will inform our future technology choices.” The final keynote sessions of the forum are held today.
Business Daily Thursday, October 27 2016 7
gaming Gaming
Nevada gaming regulator probes LVS over front gamblers The investigation followed allegations that the casino operator allows Chinese high-rollers to bet by not using their own names Joel Schectman and Koh Gui Qing
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evada’s state gambling regulator is investigating allegations that Las Vegas Sands Corp casinos allowed high-stakes Chinese players to bet millions of dollars in other people’s names, according to people directly familiar with the investigation. The Nevada Gaming Control Board “has made inquiries related to this matter and we’ve responded in a timely and transparent matter, as we always do,” said Ron Reese, a Sands spokesman. As Las Vegas has sought to draw wealthy Chinese baccarat players, some casinos have allowed highstakes players to gamble through frontmen who would sign the credit paperwork, a Reuters investigation published last month found. The allegations against the Sands initially surfaced after Clark County prosecutors brought charges last year against two women accused of failing to repay millions of dollars in gambling debts at the Las Vegas Sands’ Venetian and Palazzo casinos. Attorneys for the women, Jeffrey Setness and Kevin Rosenberg, said
the two were actually shills - local housekeepers recruited with the cooperation of Sands personnel to take out millions of dollars in credit in their own names. The women would then sit near the actual players, allowing them to use the chips and gamble millions of dollars without a paper trail, the attorneys said. Previously, a Sands spokesman said
the company had no clear evidence anyone from the company asked the women to take out credit in other people’s names. After the defense attorneys raised the counter-allegations, prosecutors dropped the charges this past spring during preliminary hearings in Las Vegas Justice Court. The state’s gambling regulator, the Nevada Gaming Control Board, is investigating those allegations and whether the use of fronts violates the state’s bookkeeping regulations and broad “decency” requirements, according to a person with knowledge
of the investigation. In recent years, state and federal authorities have scrutinized practices in Las Vegas casinos that allow gamblers to play without leaving a paper trail. The Sands, for instance, paid US$47 million (MOP5.9 million) in 2013 to settle a U.S. Department of Justice investigation after the discovery that an alleged Chinese-Mexican drug trafficker lost more than US$84 million at the Venetian, according to a statement of facts the Sands agreed to as part of its settlement with the DOJ. Reuters
CEO of Las Vegas Sands, Sheldon Adelson
Crown arrest
China detains ten more in Crown investigation China’s further investigations into the alleged illegal gaming activities of Australian-based Crown Resorts Ltd. has led to the arrest of ten more people, The Australian newspaper reported yesterday.
According to the news outlet, the latest detainees are ‘organisers of junkets licensed by the casino operator to bring high rollers to its Australian properties’, and were some of the 87 Crown customers questioned by the
Chinese authorities following the recent arrest. On October 14, Chinese authorities detained 18 Crown Resort employees for illegal gaming activities, including the vice president of the
Lawsuits
Woman sues Crown Resorts for “misleading machine design” An Australian woman has sued casino operator Crown Resorts Ltd and slot machine maker Aristocrat Leisure Ltd, saying a slot machine had provided misleading information to customers about their chances of winning. Shonica Guy is not seeking damages but court-ordered declarations that the companies engaged in misleading conduct and an injunction banning them from continuing to provide the machine in its current configuration,
the court filing said. The lawsuit comes at a time when Crown is grappling with a crisis in China after 18 company employees were detained for suspected “gambling crimes”. The filing said a slot machine called Dolphin Treasure at Crown’s flagship casino in Melbourne suggested its five “reels” had the same number of characters but one column had substantially more, lowering the chances a gambler would win.
Representatives for Crown were not immediately available for comment. A spokeswoman for Aristocrat declined comment. In September, Aristocrat said it was aware law firm Maurice Blackburn was preparing a lawsuit and that it expected to defend the action. Maurice Blackburn said that while some gamblers in the U.S. have sued casinos for personal injury in relation to gambling losses, its case was the first to challenge the design of poker machines. Shares in Crown and Aristocrat were both down 2 per cent in early trade, while the broader market fell 1.4 per cent. Reuters
group’s international VIP team, Jason O’Connor, in addition to two other Australian citizens. The article stated that the Chinese authorities had been tracking the Crown team for about a year, and that one of the group’s executives was warned by a customer based in Shanghai two weeks before authorities acted. However, Crown has stated that none of its employees was ‘aware or received any warning from Chinese authorities before the arrests’. According to the newspaper, Crown believed it could operate discreetly in China, as long as it adhered to rules limiting marketing activities, and that Chinese authorities acted after realising the amount of money going from China to Australian gaming tables. The newspaper stated that industry sources said Crown customers were ‘furious’ that the company’s database was reportedly in possession of the Chinese authorities, after the employees’ computers and smartphones were seized upon arrest. Chinese authorities were also reported to have obtained information on other casino resort promotion teams, such as 12 employees working for Australian gaming and entertainment group Star Entertainment Group Limited, with most of them having left the country already. According to The Australian, the largest shareholder of Crown Resort - Perpetual Limited - had sold more than one-third of its shares in the group, albeit sales had started prior to the arrests. Gaming analysts stated recently that the arrests could be an attempt to target promotional activities of non-Chinese casinos, with no intention to pursue Macau casino promoters and junkets, as reported by Business Daily. However, they believed the arrests could lead to an overall feeling that all gaming activities are unwelcome, forcing Macau VIP market players and junket agents to keep a low profile. N.M.
8 Business Daily Thursday, October 27 2016
Greater China Coal rush
Domestic commodity futures bets jump to record Aggregate daily trading volume averaged about 30 million contracts across the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange this week Alfred Cang
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he number of outstanding bets across Chinese commodity futures markets jumped to the highest on record as winter supply concerns prompted a surge in coal contracts. Aggregate daily open interest on the three largest commodities exchanges rose to almost 30 million contracts this week, the highest level since at least March 2015, according to bourse data compiled by Bloomberg. That compares with a daily average of about 26.5 million this year. Thermal
coal prices reached an all-time high on the Zhengzhou Commodity Exchange with outstanding bets holding near unprecedented levels. While open interest has skyrocketed, trading volume has shrunk since a speculative frenzy in March and April when short-term retail investors charged into everything from iron ore to cotton, driving up prices and stoking fears of a bubble. The authorities brought an end to the mania by introducing curbs on excessive speculation. This time around, the surge in holdings accompanied by subdued volumes indicates longer-term investors are entering
the market, according to Everbright Futures Co. “More long-term, bullish investors are betting on further price increase in the Chinese futures market right now with aggressive bets on assets prices, led by thermal coal and coking coal,” said Xu Maili, a Shanghai-based analyst with the broker. Aggregate daily trading volume averaged about 30 million contracts across the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange this week, bourse data compiled by Bloomberg show. That’s lower than the daily average of 34.6 million this year and a shadow of April’s peak of 80.6 million. Chinese exchanges double count trading volume and turnover.
Output squeeze
Power-station coal futures traded in Zhengzhou advanced 2.9 per cent to 643.4 yuan (US$95) a metric ton at the close on Oct. 25 and climbed as much as 2.9 per cent further on Wednesday before retreating. Open interest held near a record 447,000 lots reached on Oct. 24. That’s even after the Zhengzhou Commodity Exchange increased trading fees for the futures to 6 yuan a lot from 4 yuan, effective from the night trading session on Monday, according to statement on its website. Coal prices have more than doubled this year amid efforts by the government to cut industrial overcapacity by ordering miners to curb output and ease a glut. Now, as winter looms, prices are extending gains
amid speculation that efforts to stabilize the market may be too late and that producers won’t be able to boost domestic output fast enough to meet peak demand for the fuel. China’s National Development and Reform Commission on Tuesday urged coal miners to meet temporary increased production limits as soon as possible to boost supplies and stabilize prices, two people with knowledge of the matter said. The top economic planner told producers at a meeting in Beijing that it doesn’t want prices to rise further, according to the people, who asked not to be identified because the information isn’t public.
“More long-term, bullish investors are betting on further price increase in the Chinese futures market right now with aggressive bets on assets prices” Xu Maili, a Shanghai-based analyst with the broker The jump in coal is also boosting its fellow bulk commodity iron ore. Benchmark spot prices topped US$60 a ton for the first time since August after futures in China went limit-up as coal’s rally pulled steel and other raw materials in the supply chain higher. Aluminum in Shanghai jumped to its highest level in almost two years. Bloomberg News
Business Daily Thursday, October 27 2016 9
Greater China Home-grown rivals
In Brief
Apple slides in national market For an answer to Apple Inc.’s 30 per cent sales slump in China, just look to what their home-grown rivals are up to Huawei Technologies Co. turned to prestigious camera maker Leica to improve photos as Oppo boosted components to make its phones faster. Xiaomi has just unveiled a device with a display covering almost the whole front after collaborating with iconic designer Philippe Starck. Along with improved customer service and a push to open their own retail stores, especially in smaller cities, Chinese smartphone makers have moved away from budget devices. That helped them secure the top four spots in the local market in the September quarter according
to data from Counterpoint Research. Meanwhile Apple’s sales in the Greater China region have slumped. “They’re doing more marketing and doing much more customer engagement with the younger generation in China,” said Di Jin, China research manager at IDC. Oppo shipments jumped 82 per cent in the latest period from a year earlier and the brand garnered 16.6 per cent of the Chinese market, according to Counterpoint. Vivo’s shipments more than doubled to take 16.2 per cent and second place. Huawei and Xiaomi Corp. were next while Apple
came in fifth. For Apple, sales in Greater China last quarter declined to US$8.79 billion from US$12.5 billion a year earlier, according to results the company released Tuesday. That’s even with the release of new iPhone models. “The focus on traditional offline retail and wider distribution network which still constitutes three-fourth of smartphone demand has been key to Oppo and Vivo success,” said James Yan, a research director at Counterpoint. Huawei and Xiaomi have both brought out premium devices, seeking to capture upmarket users that have typically flocked to Apple and Samsung Electronics Co. Xiaomi unveiled its most ex p e n si v e s m a rt p h o n es ev e r yesterday, with the Mi Note 2 and Mi Mix, developed with Starck and featuring a ceramic body and bezel-less screen. Bloomberg News
Fitch
Hard landing, yuan risks recede Global rating agency Fitch said risks of a hard landing for China’s economy and of a further sharp depreciation of the yuan have receded in the near term. “There are signs of stabilization in the Chinese economy... the policy response in China will allow the country to manage its growth gradually to a sustainable level and avoid a hard landing,” according to Fitch Ratings’ latest report on economic risks in the Asia Pacific. The report came in as China’s GDP growth held steady at 6.7 per cent for a third straight quarter, with encouraging signs including rising rail freight volume and industrial profits. Cross-Strait relations
CPC, KMT leaders meeting significant for ties
‘For Apple, sales in Greater China last quarter declined to US$8.79 billion from US$12.5 billion a year earlier’
A meeting between the leaders of the Communist Party of China and the Kuomintang (KMT) party will be significant for safeguarding the peaceful development of cross-Strait relations, a Chinese mainland spokesperson said yesterday. An Fengshan, spokesperson for the State Council Taiwan Affairs Office, made the remarks in regard to the upcoming visit of Hung Hsiu-chu, leader of the KMT in Taiwan. Hung is scheduled to lead a delegation to visit the mainland from October 30 to November 3, the mainland-based office said Monday. Markets
StaChar successfully issues SDR bonds in Mainland Mismanagement
State media says pension funds investment scheme raises graft risk More than one million have been punished for corruption between 2013 and this September A Chinese state-run paper has warned against potential pitfalls from Beijing’s moves to invest a portion of pension funds in capital markets, including the prospect that it could lead to graft and mismanagement.
‘China announced last August that it would for the first time allow pension funds to be invested in stocks and other assets’ The influential state-run newspaper Global Times said late on Tuesday in its English-language edition that announcement from the Ministry of Human Resources and Social Security’s (MOHRSS) decision to proceed with the plan has triggered concerns over the management of the pension funds. “Managing the pension could be a problem since the funds are currently in the hands of local governments,” Peng Xizhe, dean of the School of Social Development and Public Policy at Fudan University was quoted as saying.
Mismanagement of public funds is known to be rampant. More than one million have been punished for corruption between 2013 and this September, as president Xi Jinping pushes ahead with a nationwide anti-graft campaign, according to party statistics, though many only get administrative punishments. China announced last August that it will for the first time allow pension funds to be invested in stocks and other assets. Previously, the funds could only be invested in loweryielding bank deposits and treasuries. Some provinces have already
drafted plans including investment quotas for their investments, the Ministry of Human Resources and Social Security (MOHRSS) told reporters in Beijing on Tuesday, without identifying the provinces or giving more details. The first batch of provincial g o v e r n m e n t s w i l l b e ab l e t o sign a contract with the National Council for Social Security Fund to invest within this year, the ministry said. Analysts have long warned about China’s state pension having a severe funding shortage. Some estimate the cash shortfall could rise to nearly US$11 trillion in the next 20 years. The Global Times said China’s pension fund had a surplus of more than 3 trillion yuan (US$443 billion) at the end of 2015, citing information from the Research Institute for Fiscal Science under the Finance Ministry. Reuters
Standard Chartered Bank (Hong Kong) priced oneyear bonds denominated in Special Drawing Rights (SDR) at 1.2 per cent on Tuesday, according to Reuters IFR, the first commercial bank to sell SDR bonds. The bank raised SDR 100m (about RMB925 million or US$139 million) from the offering, within the indicative price range of 1.0 to 1.5 per cent. The notes, to be settled in yuan, were 1.96 times subscribed. China’s yuan was included this month in the basket of currencies which determines the value of SDRs, the International Monetary Fund’s synthetic reserve currency. Digital center
Huawei expands presence in Malaysia China’s telecommunications giant Huawei expanded its presence in Malaysia yesterday by launching a new digital centre in downtown Kuala Lumpur, 15 years after the company entered the Southeast Asian nation market. The Customer Solution Integration and Innovation Experience Centre (CSIC), designed as a centre for the development of Information Communication and Technology (ICT) hub to drive the industry’s open ecosystem, was launched by Malaysian Prime Minister Najib Razak, who proposed to accelerate Malaysia’s digital economy transformation in his annual budget speech last week.
10 Business Daily Thursday, October 27 2016
Greater China Economic forecast
Early indicators a mixed bag as stability meets curbs Economists now see the People’s Bank of China as largely on hold, according to the most recent survey by Bloomberg
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he earliest indicators of China’s economy for October give mixed readings, reflecting the t u g - o f- w a r b e t w e e n resilient domestic demand and fresh challenges as policy switches to reining in financial risks. Confidence among small and medium-sized companies, c o n s u m e r s’ s e n t i m e n t a n d manufacturing activity are holding up, while larger firms are less confident in the outlook, private reports for this month show. Meantime, official numbers from the statistics authority show there’s signs of cooling in the overheated property market.
“Chinese consumer confidence is again showing promising signs of a sustained lift with the more positive picture on family finances and durables spend a welcome development”
yesterday from Westpac Banking Corp. and Market News International. “Chinese consumer confidence is again showing promising signs of a sustained lift with the more positive picture on family finances and durables spend a welcome development,” Matthew Hassan, a senior economist at Westpac, wrote in the statement. “That said, the lacklustre picture on business conditions is clearly still a headwind feeding into consumer concerns about job security and a ‘risk averse’ attitude to spending and saving decisions.”
Satellite view
The China Satellite Manufacturing Index increased to 50.3 this month, up from the final reading of 50.1 in September, said San Franciscobased SpaceKnow Inc., which uses algorithms and commercial satellite imagery to analyse thousands of industrial facilities. Like the official manufacturing purchasing managers index, readings above 50 indicate expansion.
Large companies
Business leaders reported worse news. The Market News International China Business Sentiment Indicator dropped to a five-month low of 52.2
Matthew Hassan, a senior economist at Westpac With the world’s No. 2 economy expanding at 6.7 per cent in the first three quarters - smack in the middle of the government’s planned 6.5 per cent to 7 per cent target - policy makers are pledging to switch gear with efforts to curb debt expansion and rein in surging home prices in the nation’s biggest cities. Here’s a look at what the latest tea leaves say about China’s US$11 trillion economy.
SME confidence
Standard Chartered Plc’s Small and Medium Enterprise Confidence Index edged up to 56.1 this month from 56 in September. Investment momentum and employment remained solid, Shen Lan, a Beijing-based China economist, wrote in a report. “We expect the authorities to maintain reasonable liquidity to contain funding costs, and to use expansionary fiscal policy and accommodative monetary policy to support real activity for the rest of this year,” Shen wrote.
Consumer sentiment
The Westpac MNI China Consumer Sentiment Indicator rose to 117.1 in October, the highest in six months. Consumers are more willing to spend on appliances, technology products and phones, according to a statement
Iconic new Beijing buildings
in October from 55.8 last month. The indicator is based on a survey of executives of companies listed on the Shanghai and Shenzhen stock exchanges. “Companies are now less optimistic about future business conditions than current conditions, a warning that the macro climate will likely remain uncertain in the near term,” Andy Wu, a senior economist at MNI Indicators, wrote in the report. “The October survey confirms that the business backdrop remains volatile and that further policy support, particularly from the fiscal side, is needed.”
Sales managers
An index by London-based research firm World Economics Ltd. edged down to 51.2 in October from 51.3 in the previous month. The services sector widened its lead over manufacturing, while managers are concerned about increasing costs of labour, land prices, transportation and real estate, according to a statement by the research agency. “Overall the data reveal evidence of the continuing rebalancing of China’s economic activity away from investment, with private consumption now the chief growth agent,” the firm says in the statement.
Property prices
China’s overheated property market started to show signs of cooling after local governments in at least
21 cities introduced home-buying curbs including larger downpayments and purchase limits per household. New home prices in Beijing retreated by 3.7 per cent in the first two weeks of October from September, and slid 2.5 per cent in Shanghai and dropped 2.2 per cent in Shenzhen, according to data released by the National Bureau of Statistics on October 21.
Steel outlook
The S&P Global Platts China Steel Sentiment Index slumped to 48.92 this month from 74.43 in September as the national “golden week” holiday kicked in at the start of October. The gauge is based on a survey of about 75 to 90 China-based market participants including traders and steel mills. “October is a seasonally weaker month for the index as most steel trading activity stops during the Golden Week holidays, so the large month-on-month drop in the outlook for new orders is not necessarily indicative of a big slump in demand,” said Paul Bartholomew, senior managing editor of steel & raw materials for S&P Global Platts. “That said, there is a lot of uncertainty about how the market will respond when trading resumes after the holiday, and sentiment in the second half of September was the most bearish since June,” said Bartholomew. Bloomberg News
Business Daily Thursday, October 27 2016 11
Asia Monetary meeting
Bank of Japan set to hold fire Under a new “yield curve control” framework, the BOJ’s main easing mechanism would be to deepen negative rates Leika Kihara
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he Bank of Japan (BOJ) is likely to hold off on expanding stimulus next week despite an expected downgrade in its price forecast that may show Governor Haruhiko Kuroda won’t see inflation hit his 2 per cent target before his tenure ends in 2018. With policy on hold, the nine-member board may also debate some operational details of its new policy framework adopted last month, such as to what extent the central bank could slow its bond purchases if yields fall below target. In a quarterly evaluation of its forecasts due at the rate meeting, the
central bank will cut next fiscal year’s inflation forecast slightly, reflecting weak consumption and falling import costs from a strong yen, sources have told Reuters. The review may also extend the timeframe for hitting its ambitious inflation target beyond Kuroda’s fiveyear term that ends in April 2018. At present, the BOJ projects inflation to reach 2 per cent during the fiscal year ending in March 2018. The BOJ is expected at the twoday meeting ending on Tuesday to maintain its minus 0.1 per cent shortterm interest rate target and a pledge to guide 10-year government bond yields around zero per cent, after having modified its policy framework to one better suited for a long-term
battle against deflation. While global uncertainties such as the outcome of the U.S. presidential election loom, the central bank sees few imminent risks that could derail Japan’s moderate economic recovery. “A downgrade in the BOJ’s inflation forecast won’t automatically lead to additional easing,” said a source familiar with its thinking, a view echoed by two other sources.
Smooth for now
The BOJ last month switched to a policy of targetting interest rates rather than the pace of its money printing, after years of massive asset purchases failed to jolt the economy out of stagnation. Under a new “yield curve control” (YCC) framework, the BOJ’s main easing mechanism would be to deepen negative rates, accompanied if needed by a cut in its 10-year yield target. BOJ officials believe the yield curve
control is working smoothly for now. Bond markets have remained stable even as the bank slightly trimmed its purchases of super-long bonds this month. But officials are hardly complacent and stress the BOJ won’t sharply cut bond purchases for the time being particularly to avoid markets jumping to the conclusion that the BOJ was getting ready to taper its massive stimulus programme.
Key Points 2-day meeting ends Nov 1, decision expected 0330-0530GMT BOJ seen keeping interest rate targets unchanged BOJ unlikely to sharply reduce bond buying for now Board set to cut price f’cast in quarterly review Gov Kuroda to brief media 0630GMT Some officials say the biggest challenge for the board would be to agree at each rate review what a desirable yield curve should look like, particularly if bond yields spike on external factors beyond the BOJ’s control, or slump on gloomy projections of Japan’s economic outlook. “Just because things are going smoothly so far does not mean they will remain so in the future,” another source said. At the usual post-meeting news conference, Kuroda may reiterate that the BOJ could accelerate or slow bond purchases any time in the future with interest rates - not the amount of buying - now the main policy target. Reuters
World Bank ranking
NZ gets top spot as easiest place to do business New Zealand also came under fire this year when the Panama Papers showed the country’s shell companies and trusts were touted as a secretive way to channel funds around the world Charlotte Greenfield
New Zealand has edged out Singapore to take top spot for ease of doing business in the World Bank’s latest rankings, but money laundering experts warned the honour masked the darker side of the Pacific nation’s vulnerability as a channel for illegal funds. In its annual “Doing Business” report released on Tuesday, the World Bank cited tax improvements as a key reason for moving New Zealand to the top spot from its previous runner-up position. The country also topped the Bank’s indicator on ease of company formation, a particularly worrisome aspect for anti-money laundering efforts and one that had recently raised some alarm bells given the use of shell companies to launder funds. New Zealand-registered companies were among a network of opaque firms that were used to dupe Chinese investors out of millions of dollars in a pyramid scheme called ‘EuroFX’
reported by Reuters earlier this year. New Zealand also came under fire this year when the Panama Papers showed the country’s shell companies and trusts were touted as a secretive way to channel funds around the world, including for tax avoidance purposes. “You want a jurisdiction that has a clean reputation, but doesn’t ask many questions when you’re setting up a company there,” said Jason Sharman, an Australia-based money laundering expert and co-author of the book ‘Global Shell Games’.
New Zealand Minister for Economic Development Steven Joyce said the government was aware of risks and was taking steps such as bringing anti-money laundering regulations in line with international standards. The justice ministry was also “looking into” the feasibility of a registry that showed the beneficial owners behind companies. “It’s all about the management of risks and we’ve taken a number of steps,” Joyce told Reuters in a phone interview on Wednesday. Others said the risks were not being managed well enough. “Anyone who wants to...hide dirty money, just needs a local director (anyone will do), a physical address and US$45, and in a few minutes they’ve got just what they need to do it with,” said Ron Pol, Wellington-based head
of anti-money laundering firm AML Assurance. The World Bank report tracks regulatory changes in 190 countries for businesses throughout their life cycle - from the ease of business startup regulations and getting credit to property rights.
“You want a jurisdiction that has a clean reputation, but doesn’t ask many questions when you’re setting up a company there” Jason Sharman, an Australia-based money laundering expert It said a record 137 economies undertook reforms to make it easier to start and operate businesses in the last year, with more than 75 per cent of the changes occurring in developing countries. The World Bank says better performance in the “Doing Business” rankings generally equates to lower levels of income inequality and reduced poverty. Reuters
12 Business Daily Thursday, October 27 2016
Asia Official trip
Philippine’s Duterte tells Japan his China visit was just economics Duterte has threatened to abrogate defence agreements with the United States several times but has yet to take any concrete action
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hilippine President Rodrigo Duterte sought to assure Japan yesterday that his high-profile visit to China last week was about economics not security, and he had more harsh words for long-time ally Washington, saying he might end defence treaties. The volatile Philippine leader’s visit to Japan comes amid jitters about his foreign policy goals after weeks of verbal attacks on ally the United States and overtures towards China.
Key Points Duterte visit to Japan amid jitters over his foreign policy Philippine leader calls Japan “long-standing friend and ally” Duterte repeats threat to end U.S.-Philippines military pacts Philippine foreign minister says no reason to end pacts now Duterte last week announced in China his “separation” from the United States, but then insisted ties were not being severed and that he was merely pursuing an independent
foreign policy. His perplexing comments pose a headache for Japanese Prime Minister Shinzo Abe, who has tightened ties with Washington while building closer security relations with Manila and other Southeast Asian countries as a counter-weight to a rising China. “You know I went to China for a visit. And I would like to assure you that all there was, was economics. We did not talk about arms. We avoided talking about alliances,” he told an audience of Japanese businessmen. Calling Japan a “long-standing friend and ally”, he also said the Philippines was trying to improve its business environment and called for Japanese firms to invest more. Duterte said he did not pick quarrels with his neighbours, but had tough words for Washington, threatening once again to revise or cancel Manila’s defence pacts with the United States and insisting the Philippines was not “a dog on a leash”. “I have declared that I will pursue an independent foreign policy. I want, maybe in the next two years, my country free of the presence of foreign military troops. I want them out,” he said. “And if I have to revise or abrogate agreements, executive agreements, this shall be the last
manoeuvre, war games between the United States and the Philippines military.” Duterte has threatened to abrogate defence agreements with the United States several times but has yet to take any concrete action beyond cancelling some minor navy patrol exercises. In a pattern already becoming familiar, Duterte’s foreign minister,
Perfecto Yasay, tried to soothe concerns raised by the president’s remarks. He told a news conference that Manila would respect treaty obligations as long as mutual interests converged and there was no reason to end them at present. “There is no reason at this time to terminate our agreements, because our national interests still continue to converge,” Yasay said.
Philippines President Rodrigo Duterte addressing the Filipino community at the Palace Hotel in Tokyo, Japan, 25 October 2016. Lusa
Currency
Strong baht adds to challenges facing Thailand Bank of Thailand officials have said that some industries relying on domestic consumption may be affected during a mourning period Suttinee Yuvejwattana
Faced with a year-long mourning period for King Bhumibol Adulyadej that’s set to curb spending, Thailand’s economy also confronts a new challenge: a resurgent currency that may hurt exports just as the industry is showing some signs of recovery. The prospect of an orderly royal succession has stoked a 1.6 per cent appreciation in the baht against the dollar since the king’s death on Oct. 13 - the biggest climb in an Asian currency basket tracked by Bloomberg. The baht has strengthened 3 per cent this year. Exports fell in all but six of the 24 months through August, customs data show, and probably declined again in September, according to a Bloomberg News survey. The export industry was in decline even before the currency gains. Political upheaval, the rise of manufacturing rivals such as Vietnam and weak global demand put the brakes on a sector that makes up about 70 per cent of gross domestic product. The US$395 billion economy, Southeast Asia’s second largest, exports everything from electronics and cars to rice and rubber. “That the global economy remains sluggish is also a hurdle, which explains the struggle faced by many export-dependent economies,” said
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Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “Beyond that, Thailand also needs to think about its competitive edge given the rise of the manufacturing sector in the likes of the Philippines and Vietnam.” Thailand’s ruling junta declared a year of mourning for Bhumibol, who
was a symbol of unity in a country that saw 10 coups during his time on the throne, the last in May 2014. Junta leader Prayuth Chan-Ocha has said elections could happen again from late 2017. Bank of Thailand officials have said that some industries relying on domestic consumption may be affected during the mourning period, but that overall, the economy’s fundamentals remain sound. The central bank has kept its benchmark interest rate unchanged since lowering it to 1.5 per cent in April
2015, even with inflation close to zero and calls from the International Monetary Fund for looser policy to spur expansion. “We don’t expect a rate cut, despite calls for the Bank of Thailand to slow the pace of baht appreciation,” said Tim Leelahaphan, a Bangkok-based economist at Maybank Kim Eng Securities Thailand Pcl.
“We don’t expect a rate cut, despite calls for the Bank of Thailand to slow the pace of baht appreciation” Tim Leelahaphan, a Bangkok-based economist at Maybank Kim Eng Securities Thailand Pcl. Central bank Governor Veerathai Santiprabhob said last week the economy is recovering, cushioned by a robust financial system, low unemployment and a healthy fiscal position. Annual gross domestic product growth is running at just over 3 per cent. That compares with a yearly average of 7.5 per cent in a decade-long boom to 1996, according to the World Bank. A push to make innovation and technological creativity bigger engines of expansion, called Thailand 4.0, remains a work in progress. Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, October 27 2016 13
Asia In Brief Real estate
S.Korea faces housing oversupply risk South Korea faces a growing risk of housing oversupply as its population ages, a central bank report said yesterday, recommending that construction investment should focus on quality issues rather than on boosting real estate volume. “Recently construction investment has been growing rapidly but in the near term as the economy is sluggish, low birth rates and an aging economy is expected to hold construction investment back,” said the Bank of Korea research report, which does not reflect the bank’s official view. From 2012, demand for housing has remained steady around 340,000 homes per year, but supply has exceeded it every year. Theme biz
Man Utd. legends to bring football hotels to Asia
Tata Motors’ profits have also slowed because of falling sales of Jaguar Land Rover Giant hurdles
India’s Tata in race against time to save global image Tata Group’s revenue slipped 4.6 per cent for the financial year ended March to about US$103 billion Vishal Manve
India’s largest conglomerate Tata faces one of the most turbulent periods in its long history after its shock decision to sack its chairman, analysts say, as it battles to save its global reputation. Seventy-eight-year-old patriarch Ratan Tata dramatically returned to the helm of the family business this week after he became upset at the direction Cyrus Mistry was taking the sprawling group. The abrupt sacking Monday, out of character for the 148-year-old organisation, has plunged the US$100 billion conglomerate into acrimony and highlighted its divisions at a time when it faces major financial challenges. “Tata group is going through an economic crisis and most of its businesses are not performing well,” G. Chokkalingam, managing director at Mumbai-based Equinomics Research & Advisory Pvt, told AFP. Tata Group’s revenue slipped 4.6 per cent for the financial year ended March to about US$103 billion. One of its worst performers is Tata Steel, which last month reported a quarterly net loss of almost 32 billion rupees (US$475 million), as it winds back its European operations. The company announced earlier this year that it was selling its lossmaking British assets owing to a global oversupply of steel, cheap Chinese imports into Europe, high costs and currency volatility. Tata Motors’ profits have also slowed because of falling sales of Jaguar Land Rover (JLR) in China as the country’s economy stutters, while IT behemoth Tata Consultancy Services is suffering from cautious client spending in the
face of an uncertain global economic outlook. “It was not any leadership problem but economic factors that played out in ousting Mistry,” said Chokkalingam, suggesting he had unfairly lost his job over circumstances out of his control. An outstanding payment of almost US$1.2 billion to Japan’s NTT Docomo is also tarnishing Tata’s reputation abroad. “It could take a new leader 10 years to get control of things and maintain Tata Group’s image,” Mahesh Singhi of corporate advisory firm Singhi Advisors told AFP:
“It could take a new leader 10 years to get control of things and maintain Tata Group’s image” Mahesh Singhi, corporate advisory firm Singhi Advisors Tata led the company for 21 years during arguably its most successful period, increasing the group’s revenues from around US$6 billion to US$100 billion as he made a string of big-name purchases. While he travelled the globe buying the likes of JLR, Britain’s Tetley Tea and Anglo-Dutch steel firm Corus, Mistry has focused on reducing the sprawling group’s US$30 billion debt level by selling assets and refinancing loans. Ratan Tata is said to have become increasingly frustrated by 48-year-old
Mistry’s focus on divestments, believing the group should hold on to its assets for the long term and not reduce its global reach. But Chokkalingam stresses that Mistry’s departure should not mark the end of his more prudent approach, saying Tata has no option but to reduce its size to balance the books.
‘Leadership vacuum’
“With no return to the parent companies in recent times due to a weak economic outlook, divestment has become a compulsion. Tata Sons had to either continue with losses or restructure their businesses,” said the analyst. Mistry became the first chairman from outside the immediate Tata family when he succeeded Ratan Tata in December 2012. His coronation was carefully planned, with the group announcing Mistry as heir a year beforehand. He was only the sixth chairman in the history of the conglomerate, which was formed in 1868, and analysts say the unceremonious manner in which Mistry was deposed speaks of a wider malaise. “It highlights a leadership vacuum,” corporate governance expert Shriram Subramanian of InGovern Research Services told AFP. Mistry’s sudden dismissal following a vote at a routine board meeting has unsurprisingly been acrimonious. Tata immediately scrapped a council of advisors he had set up and on Tuesday it filed caveats at an employment tribunal as a precautionary measure in case Mistry sought to legally challenge his sacking. Whoever succeeds Tata at the end of the four-month search period faces a fight to maintain its international reputation that has been damaged by its travails in Britain, where 15,000 jobs are at risk. Tata is a keen Anglophile and may be reluctant to see the sale of assets he brought in, posing problems for his successor. “The problems of inherited legacy will not be cleared overnight,” said Subramanian. AFP
Former Manchester United stars Ryan Giggs and Gary Neville, who have teamed up with Singapore billionaire Peter Lim on property developments in Manchester, are seeking to bring their football-themed hotels and cafes to Asia. Giggs and Neville are in talks with potential partners to expand in China, Thailand, India, Singapore and Malaysia, the pair said in an interview in Singapore. Some developments will house a hotel and cafe, while others will only be a cafe, Neville said. Results
Apple supplier LG Display tips strong Q4 South Korea’s LG Display Co Ltd on Wednesday said it expects strong fourth-quarter earnings as the Apple Inc supplier tipped growth in shipments of medium-to-small sized panels to a key client it would not name. Apple on Tuesday warned of supply constraints for its new iPhones, particularly the larger-sized iPhone 7 Plus, suggesting it may not be able to fully capitalise on rival Samsung Electronics Co Ltd’s decision to scrap the fire-prone Galaxy Note 7 smartphone. LG Display, which analysts say counts on Apple as its top client by revenue, did not say what devices the unnamed customer was buying the screens for. Logistics
Kirin, Japan Coca-Cola bottlers talk distribution deal Japanese beverage company Kirin Holdings said it is in talks with Japan’s two CocaCola bottling companies, Coca-Cola East Japan and Coca-Cola West, on cooperating in distribution and procurement through a capital tie-up. “We are discussing the matter with Coca-Cola group and nothing has been determined at this point,” Kirin said in a statement after the Nikkei business daily reported that they are in negotiations. “We are looking at cooperating in distribution and procurement, a Kirin spokesman said. The agreement may be concluded before the end of the year, the Nikkei reported.
14 Business Daily Thursday, October 27 2016
International In Brief Official trip
Portugal’s President in unprecedented visit to Cuba The president of Portugal began an unprecedented visit to Cuba yesterday, where he is to meet Raúl Castro, and possibly also with the island’s historical leader, his brother Fidel Castro. Marcelo Rebelo de Sousa flew to Havana on Tuesday on a commercial flight via Paris, but the programme only begins today. Raúl Castro invited Marcelo Rebelo de Sousa to visit Cuba and the took advantage of his trip that was scheduled to the Ibero-American Summit that is being held on Friday and Saturday in Cartagena das Indias, in Colombia, to accept the invitation. Angola
Supreme Court accepts injunction against president’s daughter Angola’s Supreme court agreed to receive an injunction that intends to suspend the effectiveness of the appointment of Isabel dos Santos as chairwoman of oil company Sonangol, and has given the president and his daughter eight days to reply. The information was announced to Lusa in Luanda by David Mendes, the spokesman of a group of Angolan lawyers who filed the injunction, quoting a court source and guaranteeing that the notifications to José Eduardo dos Santos, who as head of state appointed his daughter to the job, was issued “between 19 and 20 October”. Finance minister
Saudi financial position strong Saudi Arabia’s financial position remains strong despite sinking oil prices, although there is “some pressure” on bank liquidity, the finance minister has said. The kingdom projects a budget deficit of US$87 billion this year as a result of the fall in oil revenues, which still account for most of its income. Among measures to cover the fiscal gap, Riyadh has drawn on its foreign reserves, issued domestic bonds and last week raised US$17.5 billion in its first international bond offering. “We have been able to maintain a good position in public finances,” Ibrahim al-Assaf told a seminar. On Sunday, Saudi Oil Minister Khaled al-Falih said the current cycle of falling crude prices is close to an end as market fundamentals improve. Mozambique’s government
Spending cuts ‘painful, necessary’ to deal with crisis Mozambique’s Ministry of Economy and Finance on Tuesday said that measures being implemented to deal with the country’s current crisis are painful but necessary to ensure the recovery of the economy. “The cuts ... may be painful in the short term but they will be beneficial in the medium and long term,” the national director of economic and financial studies at the ministry, Vasco Nhabinde, told journalists in a break from a conference in Maputo on the macroeconomic challenges facing the country. Mozambique’s economy is this year expected to grow at its slowest rate in a decade.
Trade agreement
EU’s Tusk says Canada deal signing summit still possible European Commission President Juncker later told the parliament he was optimistic Philip Blenkinsop and Robert-Jan Bartunek
A
planned EU-Canada summit to sign a free trade deal was still possible today, European Council President Donald Tusk (pictured) said yesterday, as Belgian politicians entered a second day of talks on the future of the pact. Prime Minister Charles Michel hosted talks from early on Tuesday of regional authorities, including of Wallonia and Brussels that have rejected an accord backed by all 27 other EU governments. The talks paused after two hours to allow some of those present to attend a funeral of a Belgian politician. Without assent from its regions and linguistic communities, Belgium
cannot sign the Comprehensive Economic and Trade Agreement (CETA) at a planned EU-Canada summit on Thursday to be attended by Canadian Prime Minister Justin Trudeau. “I still hope that Belgium will prove that it is a consensus-building champion and that we will be able to finalise this agreement soon,” Tusk told a session of the European Parliament. Tusk said that there would be consequences for Europe’s global position if it failed to strike a free trade deal with Canada, “the most European country outside Europe and a close friend and ally”. “But it is too early to go there yet. As we speak, the summit tomorrow is still possible. European Commission President
Jean-Claude Juncker later told the parliament he was optimistic that there would be an agreement in the course of the day, but it was not clear whether this would allow a signing today. “When it happens is less important that than it happens,” he said. Belgium’s federal government failed in six hours of negotiations on Tuesday to overcome the regional veto centred on agricultural imports and an investment court system that critics say can be abused by multinationals to dictate public policy. Paul Magnette, the Socialist premier of Wallonia, said he was not looking for Ottawa to relaunch negotiations. “Between the EU and Canada the agreement is closed and we are very happy with that, but we still have some problems in Europe and Belgium and we’re doing our best to solve them,” he told reporters as the talks paused. Oliver Paasch, head of Belgium’s 76,000-strong German-speaking community which also wants improvements, said progress has been made on the investment court issue, with agriculture still needing to be discussed. An entire package would be discussed from Wednesday afternoon. “Today we see that the European Commission has made many concessions, I believe an agreement is possible, also within Belgium,” he told Reuters television. Only the Michel’s centre-right federal government and the Dutchspeaking Flanders region, with a majority of Belgium’s population, supports CETA as it stands. Reuters
Shortage
Bitterness as Egypt rolls out economic reforms With two presidents deposed in six years, political turmoil has left the country’s economy in deep crisis Facing a weeks-long shortage in a country already restless with rising prices, Egyptian authorities this week raided a Twinkies snack cake factory and confiscated its sugar stocks - all 2,000 tonnes. The raid Sunday on Edita Food Industries, one of Egypt’s largest producers, came as discontent with increased food prices and empty shelves bubbles to the surface in the most populous Arab country. Egypt, its latest President Abdel Fattah al-Sisi has suggested, is facing a moment of truth when tough, long-deferred economic reforms can no longer be avoided. Sugar is only the latest good to see shortages - before it was rice, cooking oil, baby formula and medicines. Authorities have accused companies of hoarding and promised to resell seized stocks at lower prices. But patience is already wearing thin. Outside a bakery in Cairo’s Maadi suburb on a recent weekday, a small crowd complained about rising prices. “We’re seeing bitter times,” said Umm Mahmoud, a cleaner, as she bought bread. “I voted for Sisi. He is making projects, but they’re not for us,” she said, referring to schemes like an expansion of the Suez Canal. And frustration is likely to grow as Sisi, who overthrew his Islamist predecessor Mohamed Morsi in 2013, rolls out an austerity programme including subsidy cuts in return for a US$12 billion loan from the International Monetary Fund.
Egypt’s international reserves were up to US$19.6 billion in September, an increase from previous years but less than 50 per cent of the early 2011 level, before an uprising unseated autocrat Hosni Mubarak.
‘Worrying to investors’
Much of the money went to propping up the pound against the dollar with incremental devaluations well short of the rates offered by the black market, increasingly the only recourse for importers. The reforms, such as devaluing the pound and cutting subsidies, have long been demands of investors and international creditors. The pound is expected to undergo a major devaluation by the end of the year. But the reforms, including cuts to fuel and electricity subsidies to narrow the budget deficit, have been accompanied by haphazard measures with an eye to assuaging public discontent -- such as the sugar seizures. Prime Minister Sharif Ismail told the Bloomberg news agency that the government has so far seized 9,000 tonnes of sugar which it will be reselling at lower prices. Menna Shams El Din, investment relations director at Edita, said the seizure of the company’s sugar stocks had “raised concerns from the investment community”. “The whole management of the sugar crisis is, I agree, very worrying to investors,” said Ziad Bahaa Eldin, a former deputy prime minister and economist. “It shows a capacity to take measures that sound and look effective
when everyone knows that the bottleneck is due to something else,” he said, in this case rising global sugar prices and a new tariff. In a country where 27.8 per cent of the population is considered poor and inflation has reached 14 per cent, the possibility of mass protests is a real concern to the government.
“What the government is trying to do over the last period is to get the IMF loan and utilise a decent level of financing to resolve the shortages of foreign exchange and mispricing” Mohamed Abu Basha, an economist with EFG Hermes investment bank
On the other hand, after a crackdown that has killed hundreds of Morsi supporters and jailed thousands of Islamist and secular dissidents, there may not be anyone left to organise sustained protests. Many Egyptians are also weary of the unrest and jihadist violence that drove away tourists and investors over the past six years. AFP
Business Daily Thursday, October 27 2016 15
Opinion Business Wires
New Zealand Herald Tourism earnings have soared to edge out dairy as New Zealand’s top export earner for the first time since 2010. Spending by international tourists grew by almost 20 per cent on the previous year while domestic tourism spending grew by 7.4 per cent giving the sector a NZ$3.8 billion increase on last year. Statistics New Zealand national accounts senior manager Daniel Griffiths said a strong growth in overseas visitors along with a buoyant domestic market contributed to the growth. Tourism accounted for 5.6 per cent of GDP with a direct contribution of NZ$12.9b while directly employing 188,136 people.
The blind alley of monetary populism
Jakarta Post The country is embracing the opportunity to be one of the biggest exporters of military uniforms in the world, aiming for market expansion in Africa and the US. “We are eyeing new markets in the US and African countries. They have big markets there,” Iwan Kurniawan, vice president of PT Sri Rezeki Isman, known as Sritex, told The Jakarta Post during a visit to the Sritex factory, recently. Sritex, a garment company in Sukoharjo, Surakarta, currently produces around 5 million military uniforms annually, of which around 1.5 million are exported to 30 countries around the globe.
The Times of India Around 84 per cent Indian workers are extremely optimistic about getting an opportunity to develop and upgrade their relevant skills in the next 12 months, according to a survey. “This was an improvement of 3 per cent from the previous quarter,” the Job Confidence Index Q3 survey by Michael Page revealed. The survey drew a comparison between responses of 580 employees in India and 4,200 employees across the Asia Pacific. Further, the survey revealed that 59 per cent of respondents in India were ‘satisfied to very satisfied’ in their jobs compared to 53 per cent in Asia Pacific.
The Korea Herald Despite the high season, flower sales in South Korea have tumbled more than 20 per cent in October from a year ago, data showed yesterday, apparently due to the implementation of a draconian anti-corruption law. According to the data by the Korea Agro-Fisheries & Food Trade Corp., flower transactions came to 1.96 million bunches in the first 24 days of this month, down a whopping 22 per cent from the same period a year earlier. The plunge is deemed unusual as flowers are in high demand in October when many youths tie the knot or companies start to announce their year-end promotions.
I
n the United States and elsewhere nowadays, populist politicians often claim that easy monetary policy is hurting ordinary workers, thereby exacerbating income inequality. But while inequality is a problem, raising interest rates is no way to address it. To say otherwise is a strange claim for anyone to make, especially populists. After all, low interest rates benefit debtors and hurt creditors, as does the inflation that can be spurred by monetary easing. Throughout most of US history, for example, populists have supported easy monetary policy as a way to help the little guy against distant bankers with hard hearts devoted to hard money. That was why the Andrew Jacksons of the nineteenth century fought the efforts of the Alexander Hamiltons to establish a national bank. It was also the argument William Jennings Bryan made during his 1896 presidential campaign, when he promised easier money to his core constituency: Midwestern farmers who had been hit hard by high interest rates and declining commodity prices. And it was the argument made by supplysiders who opposed US Federal Reserve Chair Paul Volcker’s high-interest-rate policy in the early 1980s – an argument that spurred President Ronald Reagan to appoint two Fed governors to challenge Volcker in 1985. Today, however, the script has switched – and not only fringe populists are working from it. British Prime Minister Theresa May, for example, declared earlier this month that low interest rates were hurting ordinary workingclass people, while benefiting the rich. Falling interest rates help push up the prices of securities – both stocks and bonds – which are disproportionately held by the wealthy. “People with assets have gotten richer,” said May. “People without them have suffered.” In a sense, May has a point. In the US, stock prices have reached near-record highs. And the Fed’s 2008 decision to reduce the policy interest rate virtually to zero, together with the subsequent economic recovery, surely contributed to the strong stock-market rebound that began in early 2009. But there is little evidence that low interest rates have been behind the continued rise in equity prices from 2012 to 2015 – a period when markets were anticipating an interest-rate hike. Populist arguments against easy monetary policy are flimsy, at best. But so are populist arguments for tightening monetary policy – in the US, Donald Trump, following Ted Cruz and other Republican leaders, has advocated a return to the gold standard. The truth is that monetary policy – which aims to promote overall economic growth, while maintaining price and financial stability – is not an appropriate lever for addressing income inequality. That is a job for progressive taxation, universal health insurance, financial reform, and other such tools. This is not to say that monetary policy cannot
“
Jeffrey Frankel Professor of Capital Formation and Growth at Harvard University
affect inequality. An economy running hot enough to create jobs at a rapid rate – what some, most recently Fed Chair Janet Yellen, have called a “high-pressure economy” – will eventually lead to higher real wages and incomes for workers. This happened in the late 1990s, with a high-pressure economy eventually pushing the unemployment rate below 4 per cent. And it is happening now. Since early 2010, US employment growth has been running well above the natural rate of labour-force growth, with the economy adding more than 15 million private-sector jobs in the longest continuous series of monthly employment increases on record. This job growth brought the unemployment rate down to 5 per cent last year, from above 9 per cent in 200910, and is now pulling previously discouraged workers back into the labour force. Thanks to increased demand for labour, workers’ real wages – up 2.5 per cent in the last year – have risen in this business cycle at the fastest rate since the early 1970s. It was not until last month, however, that the full extent of these gains came to light, with the Census Bureau’s annual economic statistics showing that median household income had increased by a record 5.2 per cent (US$2,800) in 2015. These gains were felt at every level of the income distribution, with the largest percentage gains going to those in the bottom tier and the smallest gains going to those at the top. These are big changes, and offer important confirmation that lower-income families are finally sharing in the economic recovery. The unconventional monetary policies of recent years may also have some new effects. Low interest rates have lately been squeezing banks’ profits. In Europe, this has become particularly pronounced, because banks are unable to pass negative interest rates on to depositors. Any self-respecting populist should like this squeeze on banks, especially one who is still angry about the 2008 global financial crisis. Ultimately, easy money probably does more to reduce income inequality than to exacerbate it – an observation supported by econometric estimates. Nonetheless, it is not a particularly reliable tool for balancing income distribution. That should not be surprising: ensuring a more equitable distribution of income is not a central bank’s job. The Fed and other central banks are balancing rapid growth not against equality, but against the dangers of future overheating and financial instability. They view their jobs as managing the overall economy. They are right to do so.
That should not be surprising: ensuring a more equitable distribution of income is not a central bank’s job.
”
Project Syndicate
16 Business Daily Thursday, October 27 2016
Closing Changing rules
Japan’s ruling party to allow Abe to extend term
Japan’s ruling Liberal Democratic Party is set for a rule change that may allow Prime Minister Shinzo Abe to remain in office until after the 2020 Tokyo Olympics. Party lawmakers accepted yesterday a proposal by LDP Vice President Masahiko Komura to permit party leaders to serve three consecutive three-year terms - a change that would become official after a party convention in March. Under the current regulations, Abe would be forced
to step down in 2018, six years after taking over as party leader. In Japan, the leader of the ruling party is nearly always voted in as prime minister by parliament. Abe has led the LDP to four straight national election victories, and maintains solid support rates that have eluded his recent predecessors. While his economic policies have had mixed success, rivals in the party haven’t gathered much support and the main opposition party has yet to offer a credible alternative, even under a high-profile new leader. Bloomberg News
Financial sector
China banks running out of ways to keep profits expanding China’s five largest banks are facing an increasingly daunting balancing act as they try to avoid snapping a streak of rising earnings
T
he state-controlled lenders have managed to keep profits increasing every year since 2004, sending a message about the resilience of China’s financial system. Keeping that trend alive is becoming tougher because of rising bad loans and pressure on lending margins. While analysts expect another quarter of profit growth when Bank of China Ltd., Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Bank of Communications Co. report earnings this week, it might just be a matter of postponing the inevitable. For the full year, the five are projected to post a 2 per cent decline in net income, according to analysts surveyed by Bloomberg. A politically-driven focus on keeping profits rising distracts the banks from addressing deeper issues such as how to rein in new bad loan formation, said Richard Cao, a Shenzhen-based analyst at Guotai Junan Securities Co. “For a big state bank, reporting a profit decline means sending a bad signal to the market about the status of the Chinese economy. That’s not politically correct,” said Cao. “For most investors, they look beyond the bottom line and are concerned more about the fundamentals.” Most attention will focus on ICBC, the world’s largest lender, which is due to report on Friday and faces the
toughest challenge in maintaining profit growth. The bank has kept earnings rising this year by letting its bad-loan buffer sink below a regulatory minimum. ICBC had 196.3 billion yuan (US$29 billion) of nonperforming loans as of June 30, an increase of 20 per cent from a year earlier. But it raised total allowances for bad debts by just 5 per cent, allowing the coverage ratio to dip below the 150 per cent minimum
in the first two quarters. ICBC would need to set aside another 13.7 billion yuan to bring its bad-loan coverage ratio back to 150 per cent, which would cut the bank’s full-year profit by almost 5 per cent, according to He Xuanlai, a Singaporebased analyst at Commerzbank AG. The Beijing-based lender might choose to keep profit rising even if it means another quarter of missing the required ratio, said Sanford C. Bernstein & Co. analyst Wei Hou. “It’s about choosing which profit you want to sacrifice - is it now or is it at some future time,” Hou said. ICBC declined to comment on its earnings or whether it will meet the
Most attention will focus on ICBC, the world’s largest lender, which is due to report on Friday and faces the toughest challenge in maintaining profit growth
bad-loan coverage threshold. Recent signs that bad loans may be stabilizing could offer banks some respite. China’s official bad-loan ratio held at 1.75 per cent in the second quarter after almost three years of increases, while ICBC reported the first decline in its bad-loan ratio since 2012. China’s cabinet this month released guidelines for allowing banks to swap corporate debt for equity on a market-oriented basis, opening another potential avenue for shedding bad debts. Earlier this year, the large banks had lobbied the China Banking Regulatory Commission to lower the threshold, which would ease pressure on their profits. The regulator resisted and instead urged them to take steps to restore their buffers, people with knowledge of the matter said in July. ICBC’s breaches this year prompted the central bank to deduct points from its metrics under the so-called Macro Prudential Assessment framework, a measure of the health of Chinese banks, Caixin reported this month. Bank of China also breached the threshold in the first quarter, but managed to add sufficient provisions in the following three months to move back above it. The steady erosion of profit growth has also raised questions about future dividend pay-outs. The top four Chinese banks cut the dividend pay-out ratio to 30 per cent in 2015 from 33 per cent a year earlier as the sought to preserve capital. Hong Kong-traded shares in Chinese lenders have underperformed the benchmark Hang Seng Index in Hong Kong for five of the past six years, and are trading at average 0.8 times their forecast book value. Bloomberg News
Results
Official data
Public accounts
Cnooc third-quarter sales drop
Singapore’s manufacturing Indonesia approves output up 2017 state budget
Cnooc Ltd., China’s biggest offshore oil and gas producer, posted a 15.2 per cent decline in third-quarter sales as output declined with capital spending. Revenue from oil and natural gas was 30.75 billion yuan (US$4.5 billion) in the three months ended Sept. 30, the Beijing-based company said in a statement to the Hong Kong stock exchange Wednesday. Cnooc, which doesn’t report quarterly profit, said output fell 7.7 per cent. Brent oil, the global benchmark, averaged US$46.99 a barrel in the third quarter, an 8.4 per cent decline from the same period last year. Cnooc, which has no refining operations and earns almost all its income from petroleum production, pumped 117.7 million barrels of oil equivalent in the third quarter. Capital expenditures declined almost 21 per cent to 11.7 billion yuan from a year ago, according to the statement. Cnooc has gained almost 30 per cent this year in Hong Kong, compared with a 6.4 per cent rise by the city’s benchmark Hang Seng Index. Brent is up more than 30 per cent this year. The company closed down 2.1 per cent at HK$10.48 before the revenue numbers were released. Bloomberg News
Singapore’s manufacturing output increased 6.7 per cent in September on a year-on-year basis, said the country’s Economic Development Board (EDB) yesterday. Excluding biomedical manufacturing, output grew 3.5 per cent year-on-year, said EDB in the press release. On a seasonally adjusted month-on-month basis, manufacturing output rose 3.3 per cent in September. Excluding biomedical manufacturing, output grew 0.9 per cent. As for performance by cluster, the biomedical manufacturing cluster’s output increased 22.2 per cent in September compared to the same period a year ago. EDB said pharmaceutical segment expanded 26.9 per cent due to higher production of active pharmaceutical ingredients and biological products, while the medical technological segment rose 9.6 per cent with higher export demand for medical instruments. Output of electronics cluster increased 15.9 per cent in September year-on-year. The semiconductors segment grew 34.8 per cent, but this was partially offset by declines in the rest of the electronic segments, according to EDB. Xinhua
Indonesia’s parliament yesterdayapproved the government’s 2017 budget, described by Finance Minister Sri Mulyani Indrawati as a “balanced budget”. The budget, at a deficit of 2.41 per cent of gross domestic product, is bigger than the initial 2016 budget of 2.15 per cent but smaller than the expected 2.7 per cent deficit this year. Revenue and spending targets were both set below the plan for this year, at 1,750.3 trillion rupiah (US$134.64 billion) and 2,080.5 trillion rupiah, respectively. Indrawati, a former World Bank managing director, had said previously that 2017’s figures were set taking into account the large shortfall expected from tax revenue this year. “With the support of the parliament, finally, construction of a more balanced and credible 2017 state budget can be completed, which hopefully can be an important instrument to boost a better national growth in 2017,” Indrawati told parliament. Indrawati’s predecessor Bambang Brodjonegoro was largely criticised for setting unrealistic tax targets which led to a budget deficit crisis near the end of the fiscal year. Reuters