Macau Business Daily November 4, 2016 by Business Daily

Macau Foundation releases funding record Social projects Page 5

Friday, November 4 2016 Year V Nr. 1166 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro

www.macaubusinessdaily.com

Property

Food safety

Government jobs

HKEx

Asian traders

China’s land barons sense opportunity in current restricted environment Page 9

Carcinogens found in crabs imported to territory Page 5

Public administration employment offer attracts over 8,000 responses Page 2

Club Cubic operator to list on Hong Kong stock market Page 4

Young players prefer high-speed trading to traditional banks Page 16

MIXED FORTUNES Operators’ results

Melco Crown and Wynn Macau both released their results yesterday. Melco’s rosy spreadsheets came courtesy of the success of Studio City and the Philippine business. Although other properties in the city didn’t fare so well. Meanwhile, Wynn’s figures came in below expectations. Put down to higher capital expenditure, no apparent increase in market share, higher cannibalisation, and a slower ramp-up. Pages 6 & 7

Going local, going young

Subsidies Macao Economic Services want to extend a helping hand. By funding young entrepreneurs through the SME Aid Scheme and the Young Entrepreneur Aid Scheme. The number of projects approved, however, has halved m-o-m. Page 4

Thorny amendments

Electoral law Members of the Legislative Assembly are in a fix. Changes to improve the electoral rules would be very complicated, they maintain. Particularly with regard to issues affecting the role of candidates’ supporters. Page 5

Blind faith

Lionel Leong Vai Tac is confident. The Secretary for Finance and Economy says this year’s gaming revenue target will be accomplished. With MOP200 billion clearly in sight based on the current performance of the sector.

Servicing momentum

SAR Targets Page 3

HK Hang Seng Index November 3, 2016

22,683.51 -126.99 (-0.56%) Worst Performers

China Unicom Hong Kong

+1.23%

BOC Hong Kong Holdings

+1.11%

China Resources Land Ltd

+0.31%

Wharf Holdings Ltd/The

-2.63%

Tencent Holdings Ltd

-1.17%

Hang Seng Bank Ltd

+0.14%

China Shenhua Energy Co

-1.88%

Hong Kong & China Gas Co

-1.17%

Bank of Communications

+1.02%

New World Development

+0.10%

Hong Kong Exchanges &

-1.38%

Sino Land Co Ltd

-1.10%

Link REIT

+0.82%

China Life Insurance Co Ltd

+0.00%

Sun Hung Kai Properties Ltd

-1.28%

Li & Fung Ltd

-1.05%

Kunlun Energy Co Ltd

+0.35%

CITIC Ltd

+0.00%

China Petroleum & Chemical

-1.23%

Power Assets Holdings Ltd

-1.02%

21° 24° 23° 26° 24° 27° 24° 27° 21° 26° Today

Source: Bloomberg

Best Performers

SAT

sUN

I SSN 2226-8294

Mon

Tue

Source: AccuWeather

China’s PMI A private survey’s cast light on the stronger momentum of China’s service sector. Adding to evidence that the world’s second-largest economy is on a steadier footing. The service sector grew at its fastest pace in 4 months buoyed by new orders, the Caixin China General Services PMI showed. Page 8

2 Business Daily Friday, November 4 2016

Macau Society

SAFP: Over 8,000 apply for civil servant openings The SAFP estimates around ten thousand applicants would apply for the 183 posts of senior officers under the newly-established recruitment system Cecilia U cecilia.u@macaubusinessdaily.com

he recent opening of 183 vacancies for public departments under the new central recruitment mechanism has attracted over 8,000 applicants, Deputy Director of Public Administration

and Civil Service Bureau (SAFP) Joana Maria Noronha told local Chinese newspaper Macao Daily News. Last month, the government announced the recruitment of 183 senior officers, with MOP34,830 basic salary offered based upon the current salary point at MOP81. The positions cover, among others, public administrative management,

e n v i r o n m e n t a l e n g i n e e r i n g, museology, electrical and mechanical engineering openings. In her interview with the local newspaper, the SAFP Deputy Director anticipated that the the recruitment drive would net more than 10,000 applicants by the end of the application period. The recruitment has adapted, f o r t h e f i r s t t i m e, t h e n e w mechanism for hiring public servants implemented in July. The new scheme has two separate sections: general-ability test and departmental examinations.

Acc o r di n g t o M s . N o r o n ha, applicants will be able to apply directly for departmental examinations, or lower positions, in three years time if one has passed the first general ability test. When asked about the schedule of the general ability test, the SAFP official estimated it would take place during the first quarter of next year following the completion of related administrative procedures such as the inspection of applicants’ documents and the announcement of confirmed candidate list.

Improved efficiency

The past mechanism for central recruitment took, on average, at least 14 months due to its complex procedures. However, Ms. Noronha believes the new scheme, which adapts an electronic marking system, will shorten the whole process for the general ability test to 5 months. For the second section of the civil servant recruitment drive, SAFP perceives that the new system will prevent favouritism during departmental examinations, given that departments are required to follow the guidelines of SAFP, including conducting a written examination and interview. Meanwhile, the time required for departmental examinations will vary according to different requirements and operations of departments, she said.

Society

Macao Foundation disbursed MOP292.5 mln in Q3 A total of MOP292.5 million (US$ 36.6 million) was disbursed to 374 associations throughout the third quarter of this year by the Macao Foundation, according to a dispatch published in the Official Gazette yesterday. Of the total associations that received funding, the Kiang Wu Hospital Charitable Association received the largest amount, at MOP32.9 million, accounting for 11.2 per cent of the total funding. This amount counted as the third contribution towards the

reconstruction of the Kindergarten and Primary sections of Keng Peng School. The recipient of the second largest fund, at MOP20.8 million, was the Macau Federation of Trade Unions (FAOM), which amounted to 7.1 per cent of the total, and was allocated for eight different projects, spread between the group’s 28 institutions and 46 branches. The allowance was paid as the last grant of the year. The third largest amount granted by the Macao Foundation was to the

General Union of the Neighbourhood Associations (UGAMM) at MOP16 million, or 5.5 per cent of the total. The fund was used to subsidise seven projects from its 26 branches and seven service centres, and counts as the last grant of the year under the 2016 annual funding plan. The smallest subsidy given out by the Macao Foundation during the third quarter, amounting to MOP5,000, was used to partially cover the costs of an annual debate about environmental protection. A.L.

Cultural Fund

Cultural Fund subsidies run to MOP19.1mln in Q3 The city’s Cultural Fund disbursed subsidies amounting to MOP19.1 million (US$2.4 million) throughout the third quarter of 2016, according to a dispatch signed by Guilherme Ung Vai Meng, President of the Cultural Affairs Bureau, and published in the Official Gazette yesterday. The funding was distributed between 215 associations, 12 individuals and three enterprises.

Of the MOP19.1 million, MOP18.8 million - or 98 per cent - was disbursed to associations to fund cultural activities in music, the arts, design and drama as well as for the Cultural Arts Management Personnel Training Programme. The funding to private individuals amounted to MOP295,700 or just 1.6 per cent of the total, and was used for educational grants, of which the

largest fund was MOP118,500 and used for music publishing. With regard to MICE-related industries, MOP4,996 was awarded for participation in the Shenzhen International Cultural Industry Fair 2016. A number of groups received funding, with furniture design company Zawood receiving MOP4,009 and accounting for 80 per cent of the total in the individual category.

Corporate

CEM launches ‘Power Elites’ programme for local secondary students

Grand Hyatt Macau presents ‘Come Back La’ at Beijing Kitchen

To cultivate youngsters’ good habits in power consumption and conservation of resources, CEM launched its ‘Power Elites’ training programme in September. Coorganisers include The Chinese Educators Association of Macau and General Association of Chinese Students of Macao. Some 52 Form 1 and Form 2 fulltime secondary school students will participate in the Programme. The Programme will enable the Elites to learn about the local power generation process and the daily work of CEM engineers, as well as enabling them to visit Hong Kong and Mainland China to learn and

As the saying goes: ‘The people in Shanxi have the courage to taste hot chillis and peppers, as they do in Sichuan and Hunan’. Grand Hyatt Macau’s Beijing Kitchen is presenting ‘Come Back La’ until the end of this year. Restaurant chef Jason Sun has

exchange in order to broaden their horizons. It is hoped that students can cherish the opportunity and study hard.

Of the associations receiving funding the largest amount was allocated to the General Union of Neighbourhood Associations (UGAMM) at MOP692,521 for funding cultural activities, accounting for 3.7 per cent of the total funding allocated to the Association category. The second largest amount, MOP619,360, was awarded to Step Out to fund its cultural activities. The third largest funding was allocated to Comuna de Pedra Art and Culture Association to organise dance and drama events. A.L.

prepared authentic and regional specialties from Chengdu, Chongqing and Wuhan, combining peppery, hot and spicy flavors to please the palates of diners who love hot food. There are three spicy levels that guests can choose from when ordering signature dishes: Mild, Medium or Outrageously Hot.

Business Daily Friday, November 4 2016 3

Macau Economy

Safe landing Secretary for Economy and Finance Lionel Leong Vai Tac perceives that the city will be able to accomplish the annual target of MOP200 billion in gaming revenue, maintaining a similar target for 2017 Cecilia U cecilia.u@macaubusinessdaily.com

ecretary for Economy and Finance Lionel Leong Vai Tac said the government is optimistic about reaching the goal of generating MOP200 billion (US$25 billion) in gaming revenue for the whole of 2016. According to his interview with local Chinese language newspaper Macao Daily News, the estimation is made based on the current performance of the local gaming market. According to the official data of the Gaming Inspection and Coordination Bureau (DICJ), the city’s gaming revenue has rebounded for the past three months, following a slump of 26 consecutive months, reaching a total of MOP184.6 billion for the last ten months of this year. The Secretary added in the interview that the government projects a similar estimate for the total gaming revenue of 2017, at MOP200 billion, given that the gaming industry may still be affected by instability and uncertainty. Although gaming revenue has been posting a reviving pattern in the past three months, Secretary Leong noted that the city should keep its determination to strengthen nongaming elements in the city. The Secretary agrees that the development of non-gaming elements

in Macau would be long-term issues, stating that the development can only be improved by the co-operation of the entire society. He believes the encouragement of cultural development by the young population would assist the development of the city’s nongaming elements. Despite the official adding that nongaming elements have yet to produce significant influence upon the city’s overall GDP, once the non-gaming elements hit solid ground the city’s overall revenue will consequently improve, which will also boost the city’s development as an attractive world centre of tourism and leisure.

Canidrome’s unclear future

Secretary Leong also indicated that local greyhound race track o p e r a t o r M a c a u ( Ya t Y u e n ) Canidrome Co. had discussed with DICJ the prospect of continuing its operations of dog-racing betting, but replacing it with betting on greyhound racing or overseas racing. The MSAR Government has requested the operator to leave its current location by July 2018. DICJ has not received any indications by the operator regarding when that might happen.

Rolled into one

Meanwhile, Secretary Leong revealed the government’s plan to combine

Lionel Leong Vai Tac, Secretary for Economy and Finance

the two parts of amendments to the current procurement law into one, hoping the amendment bill could be submitted to the Legislative Assembly next year. The initial plan to amend the current law was scheduled in two stages, the first amending the current minimum requested amount for procurement. According to the Secretary, the

city’s Financial Services Bureau (DSF) continues to conduct research on the overview of public procurement affairs. In addition, the Bureau will obtain suggestions from the Commission Aga i n st C o r r u p t i o n a n d t h e Commission of Audit in order to assist the comprehensive amendments of the procurement law.

Politics

Chief Executive discussing territorial waters with Beijing Chief Executive (CE) Fernando Chui Sai On was in Beijing yesterday to discuss the management of the city’s territorial waters and their future development plan with Minister of Transport Li Xiao Peng, according to a press release published by the MSAR Government Information Bureau (GCS) yesterday. ‘The Ministry of Transport of the People’s Republic of China and the MSAR Government are to strengthen co-operation in the future’, Mr. Li stated. The Chinese central government granted an area of 85 square kilometres of territorial waters to the MSAR in December of last year. The CE remarked that the granted area would provide further development opportunities for the MSAR. “The State Oceanic Administration will study the ideas proposed by the MSAR Government regarding the maritime management and uses of the sea area with relevant

departments”, the Deputy Minister of the State Oceanic Administration, Shi Qing Feng, stated. The CE also met with Minister of Water Resources Chen Lei to discuss the nearby maritime affairs and the safety of water supply from the Mainland to the MSAR. The CE stated that the MSAR Government had signed co-operation agreements with the Ministry of Water Resources this year, which could develop the MSAR’s nearby waters in the Pearl River Estuary for co-ordinated management and scientific use. “The Ministry of Water Resources works on the safety of water supplied to Macau. It also supports the diversification of the MSAR economy, as well as [helping] continue promoting ‘one centre and one platform’ establishment”, Mr. Lei stressed. The CE concludes his three-day trip to Beijing today. A.L.

Politics

Minister of state security named to CPPCC National Committee panel

Shuffle, shuffle The Minister of State Security for the Mainland, after being named deputy director of the Chinese People’s Political Consultative Conference (CPPCC) National Committee’s panel on Hong Kong, Macau, Taiwan and Overseas Chinese Affairs, and reaching retirement age, may step down from his security role, according to the South China Morning Post. Geng Huichang, aged 65, and after holding the position as the head of the state security ministry for nearly a decade, had his new appointment to the panel announced at the same time as two other senior official appointments. Both of the senior officials had recently retired from

their former roles before also being elected to the CPPCC – one under the education, science, culture and health committee and another under the foreign affairs committee. The CPPCC is China’s top political advisory body, notes the publication. Expectations, notes the publication, are that the appointment, and presumed stepping-down, will lead the way for the Ministry of State Security’s communist part committee head, Chen Wengqing, to eventually take up Geng’s former role. Geng is originally from Hebei Province, having previously served as deputy director of the China International Cultural Exchange Centre and vice-minister of state security before his 2007 appointment to the security ministry.

4 Business Daily Friday, November 4 2016

Macau Opinion

SME Nearly MOP30 million in subsidies was shelled out to SMEs and Young Entrepreneurs in October

More money, more money Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

Pedro Cortés*

Dura lex sed lex The recent report of the city’s anti-graft Ombudsman (in the Portuguese acronym CCAC) on the car park adjudications sends a strong signal that Mr. Andre Cheong and his team are doing their job properly without suffering any ‘pressures’. It is good to understand that the courts (in most cases) and CCAC keep good track of the legality of the acts of the Public Administration in our Special Administrative Region. They are the ultimate bastions of the Rule of Law which should give confidence to residents and non-residents of Macau alike. We’ve seen lots of imperfections of such public interventions in the past, from the security forces to higher officials of the Macau Administration. To have a body like CCAC verifying whether the Administration complies with the rules and courts that are totally independent may encourage us to conclude that the second system may continue to exist. The old Roman aphorism of dura lex sed lex should be followed by all public intervenient with the purpose of serving the population and not serving themselves. It’s always difficult to withstand the temptations of the public powers. The cultural behaviour that was left by the former Administrations sometimes shows traces of its worse side: authority and the sentiments of some that their acts are above the law should be fought in order to have a better environment and feeling of the population. We do hope that after this serious advice from CCAC all public services can once and for all consider that the only obligations are those stated in the Macau laws and that the population shall be served appropriately. There is, in this context, hope of a better future of our Administration. The same applies to the decisions of the courts and to the best of my knowledge and belief they have applied and shall continue to apply the laws and render justice completely independent from the public powers to fulfill the ‘Second System’ designed by Mr. Deng Xiao Ping and applied in the Joint Declaration between China and Portugal and the Macau Basic Law, our mini-constitution which should be a mandatory matter with a strict exam before any admission to the Macau Public Administration is made. Without knowing what is the content and the spirit of our foremost law none of the other specific laws can be accurately executed by the Public Administration and its servants. *lawyer and frequent contributor to this newspaper.

etail and wholesale commerce continue to make up the primary segments of the three SME aid programmes offered through the Macao Economic Services (DSE) so far this year, according to the most recent data. In addition, retail commerce leads by segment in terms of subsidised amounts given out through the Young Entrepreneur Aid Scheme, receiving 46.2 per cent of the overall, at MOP26.7 million. During the month of October, the DSE - via the SME Aid Scheme – approved a total of MOP12.25 million in subsidies, divided into 36 different approved projects, a 50 per cent drop in the number of approved projects compared to the month before. In addition, the overall attributed amount dropped by 56.9 per cent compared to the previous month, when it reached its second-highest amount so far this year, at MOP28.45 million. While the SME Aid Scheme saw its subsidies drop, the SME Credit Guarantee Scheme rose 113.7 per cent from the previous month, reaching MOP11.96

SME Aid Scheme to launch second-time funding

The city’s Secretary for Economy and Finance, Lionel Leong Vai Tac, has revealed that the government is amending the current law in order to disburse second-time funding under the SME Aid Scheme for local firms that have previously enjoyed the financial aid from the scheme and have repaid all their debts.

million in October, as compared to MOP5.6 million the month before. The SME Credit Guarantee Scheme provides each successful applicant with a credit guarantee equal to 70 per cent of the loan approved by the participating banks. The amount of requests for funding under the scheme doubled between September and October, from three to six, with none of the applicants’ requests rejected. So far, only 12 requests under the scheme have been denied, while 590 have been approved since the funds began in 2003.

Approve me, please

The DSE’s SME Credit Guarantee Scheme for Specific Projects, the

The Secretary, speaking to local Chinese language newspaper Macao Daily News, said the capping amount for secondtime subsidies under the scheme would be MOP600,000. The Secretary revealed that the DSE is currently conducting research on the amendment of the law for the supporting plan, hoping that the amendments will be completed early this month.

third of the SME subsidy schemes, approved its one and only request for funding in October, awarding MOP1 million through the aid scheme. So far, a total of four projects have been approved under the scheme this year, while three have been denied. The approved projects total MOP3 million in funding and are equally divided between the restaurant and hotel segment, the education, medical services and social welfare segment and the processing industries segment. Regarding the Young Entrepreneurs Aid Scheme, which offers interest-free loans of up to MOP300,000 for entrepreneurs aged 21 to 44, a total of 19 projects were approved during October, amounting to MOP4.14 million subsidised under the scheme. Of the MOP57.72 million disbursed so far this year, some MOP26.7 million went to the retail sector, whose closest competitor was the building operations and services sector, which received MOP5.77 million, or 10 per cent of the overall attributed amount. Six of the subsidy requests under the scheme were denied during the month of October. Under the four schemes some MOP29.36 million was granted during the month of October.

Business

Diamond brand Nirav Modi opens first store in MSAR Despite the downturn in revenues from the luxury retail market, luxury diamond jewellery brand Nirav Modi is expanding its presence in the Pearl River Delta; in the wake of opening three stores in Hong Kong the brand launched it first store in Macau, located in MGM Macau. The shop was inaugurated on Wednesday, in a ceremony attended by Pansy Ho Chiu King, Co-chairperson and Executive Director of MGM China, and Grant Bowie, CEO of MGM China. The luxury brand, created by Indian jeweller Nirav Modi - considered the 71st richest person in India this year by Forbes – operates worldwide, and the opening of a Macau branch was

described in the release as a ‘fitting expansion’ of the brand’s Southeast Asia presence. However, the opening also coincides with a continual downturn in

the luxury goods market. According to data provided by the Statistics and Census Services (DSEC), the import of luxury goods registered a considerable drop in September, especially that of watches and gold jewellery, with decreases of 32 per cent year-on-year, to MOP3.3 billion (US$413.1 million) and 21.4 per cent to MOP4.2 billion, respectively. However, analysts from Brokerage firm Sanford C. Bernstein Co. LLC state that despite the economic slowdown, luxury goods will remain well established in the MSAR, pointing out that that the number of luxury brands present in the MSAR exceeded other cities and territories including Spain, Las Vegas and Canada. N.M.

Stock market

Club Cubic operator listing this month The operator of Club Cubic, Luk Hing Entertainment Group Holdings Ltd., will be listed on November 11 this year, according to a filing posted on the Growth Enterprise Market (GEM) of the Hong Kong Stock Exchange. The operator is selling 450 million

shares to the market, representing 25 per cent of the total issued share capital of the operator upon completion of the Placing and the Capitalisation Issue. According to the filing, the nominal value per share costs HK$0.01.

Luk Hing engages in the clubbing and entertainment business based in Macau. In 2011, it established Club Cubic in City of Dreams run by casino operator Melco Crown Entertainment in Cotai. The entertainment venue occupies a total gross floor area of 25,780 square feet cross two levels. Luk Hing, according to the application proof on GEM, generated HK$9.4 million (US$1.7 million) net profit for the whole year of 2015 and HK$536,000 for the first four months of 2016. According to the company filing, its expansion of business in the MSAR is limited to its current agreements with COD that it will need the consent of the casino-resort operator if it is to own, operate, or has any interest in developing business similar to Club Cubic. However, its overseas business is not limited. C.U.

Business Daily Friday, November 4 2016 5

Macau Health

Carcinogenic hairy crabs

Chemicals that can accumulate and cause cancer have been found in a number of hairy crabs farmed in the Mainland and exported to Macau, Hong Kong, Singapore and Taiwan, claims the South China Morning Post. On Tuesday, Hong Kong’s Centre for Food Safety stated that it had found excessive levels of dioxins in five hairy crab samples taken from two Mainland farms. Amounts from two separate samples contained between double and nearly seven times the safe level. The crabs originate in Jiangsu and a quarantine bureau official from the area said

that export clearances for the two farms had been suspended and that water and product sampling were being conducted by a taskforce, as reported by Xinhua. A director of one of the crab farms said the crabs were tested for pesticides and heavy metals but not dioxins. “It’s the first time that my company’s product has been accused of dioxin contamination in 16 years of exporting. I have no idea what a dioxin is”, Sun said. Dioxins are not easily broken down and dissolve in fat, accumulating in the human body and can potentially cause cancer and damage to the reproductive and immune systems notes the report.

Legislative Assembly Tax revenues from public concessions on wholesale market and bus companies raise questions

Committee treads Electoral Law minefield Sub-committees raise spectre of possible gagging of freedom of expression and vote limits created by Electoral Law amendments Nelson Moura nelson.moura@macaubusinessdaily.com

egislators consider that new Electoral Law could be “too complicated” and hard to enforce while debating if changes restrict electoral freedoms, TDM Radio has reported. In August, changes to the Electoral Law were passed on the first reading in the Legislative Assembly (AL), with a majority vote of 28 votes for and four votes against, with the law amendments currently being debated by the Second Standing Committee. After the AL resumed work the government clarified some of the more contentious issues with the new electoral law, such as rules for applications of candidates’ supporters; however, many legislators still expressed doubts about whether the new reforms would restrict electoral freedoms.

According to the current law proposal, candidates are mandated to declare their candidacy supporters, with the government now stating that each candidate may only have a maximum of 300 supporters.

Supporters also won’t be able to campaign for direct and indirect candidates at the same time, with the rule applying to associations which have more than one candidate campaigning through the two systems. “Some [legislators] believe that this restricts electoral freedoms, while others say ‘maybe it’s better not to use this system because without campaigning you can also participate and help candidates to get votes’”, said Chan Chak Mo, chairman of the sub-committee, reported TDM Radio. According to the legislators, association supporters, even if not registered as such, would still be able to support candidates as long as it wasn’t considered electoral campaigning.

Restraining liberties

Directly elected Legislator Antonio Ng Kuok Cheng considered the new electoral rules a “political attack” against civil society and freedom of expression. The legislator considers that society should be able to organise itself in order to support more than one candidate and believes the Electoral Law

would restrict freedom of expression on political matters. “With this bill, only those who participate in the elections and candidacy supporters can give suggestions to the government on issues related to the elections. That is, no other person can express their opinion during the election campaign period”, the legislator stated.

Tax troubles

The Third Standing Committee of the AL, currently scrutinising the government’s budget execution report for 2015, also raised questions following a meeting yesterday, but on the issue of revenues from direct taxes on exclusive public concessions. According to the sub-committee chairman, Cheang Chi Keong, the government should clarify a registered 14 per cent reduction on tax revenues from wholesale and bus transport sectors granted public concessions. Legislators also requested more information on government investments in the Hong Kong-Zhuhai-Macau Bridge (HZMB) project.

6 Business Daily Friday, November 4 2016

gaming Earnings

Analysts: Wynn Q3 results disappoint Restricted access plagues Wynn Palace, with no market share increase apparent in Q3 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

igher capital expenditure, no apparent increase in market share, higher cannibalisation than anticipated and a slower ramp-up than expected are all plaguing Wynn Macau, note analysts in the wake of the operator’s release of its third quarter results on the Hong Kong Stock Exchange yesterday. ‘Initial knee-jerk reaction will likely be negative’, note analysts at J.P. Morgan, pointing, however, to a mixed bag with regard to the group’s results including details that are ‘actually encouraging’ such as a stronger than expected EBITDA (earnings before interest, taxation and amortization) from the newly opened Wynn Palace, based upon strong VIP and ‘better-than-feared mass’. Wynn Palace generated US$26 million (MOP207.7 million) in property EBITDA during the first 40 days of operation, which, according to J.P. Morgan, is ‘much better than what we/the market feared’. In total ‘very strong VIP’ generated table yield of US$42,100 per table/ day, which was ‘by far the highest in Macau’ and nearly double the industry average, noted analysts. Mass was seen as ‘quite decent’. Overall, Wynn Macau saw casino revenues amounting to US$488.3 million during the third quarter, a 10.9 per cent drop year-on-year. However, overall profit fell from US$62.1 million in the same quarter last year to a loss of US$8.6 million in the third quarter. Revenues from the two properties were up 17 per cent year-on-year, note analysts at Union Gaming, with US$683 million brought in during the quarter. These gross gaming revenues, note analysts at J.P. Morgan, trailed the industry average of a 7 per cent quarter-to-quarter increase by one percentage point, ‘mainly due to a high base in the second quarter from good luck’.

Other inhibitors to the property’s growth, note analysts at Union Gaming, regard ‘minimal initial marketing, and certain non-gaming amenities that are in the process of being tweaked’. Expectations in the short term are that the worst of the construction disruption will continue until mid-2017, ‘with a more notable non-premium mass ramp at the property thereafter.’ To fight the detrimental elements, J.P. Morgan analysts note that Wynn management is focusing on adding more elements, in particular VIP businesses – with one additional junket room and smaller junkets sharing rooms to open this month. However, this focus should not

come to the detriment of other segments which Wynn is less familiar with, say analysts. ‘Premium mass should begin to ramp at a rate inbetween VIP and non-premium mass, but the right marketing programmes and the right human capital will need to be put in place,’ note analysts at Union Gaming, commenting that Wynn Palace ‘should ultimately be the property of choice for many higher net worth individuals who have a proclivity for Cotai,’ expecting that to only happen in 2018 or later.

Looking forward

One way to speed up the process, suggest J.P. Morgan analysts, is through management’s increase of ‘casual dining options’. These outlets could be fuelled by high hotel occupancy - the Palace’s hotel

occupancy hit 81 per cent in October, verses 71 per cent in the third quarter. However, of the occupied rooms only 30 per cent were ‘cash-sold’, whilst the other 70 per cent were comped to guests. Cannibalisation of the group’s Macau property caused a 19 per cent quarter to quarter drop in gross gaming revenue, with the VIP rolling on the Peninsula falling 8 per cent quarter-to-quarter and mass and slot falling 13 per cent. Daily operating expenses during the quarter amounted to about US$2.6 million, about 24 per cent higher than Wells Fargo estimates, with analysts noting that expenses are ‘expected to hold around this level,’ and management ‘expect to rationalise resources and costs, but also hire additional mass market dealers’.

What’s in the way

One major problem facing the operator is that customers in the mass segment have problems getting in the door, which the operator’s management told J.P. Morgan has ‘highly encumbered access’ due to construction around th e p r o p e r t y i n v o l vi n g b o th government infrastructure and other competitive operators. This lack of access, note the analysts, is the ‘biggest stumbling block’ for its ramp up of the mass segment; however, management is ‘working to improve access’ in ways such as partnerships with taxi operators, and increased number of bus pickup points.

VIP

Saipan posts second highest VIP turnover since opening The temporary casino on the island of Sampan, located in the Northern Marianas and operated by a subsidiary of Imperial Pacific International Holdings Ltd., generated US$3.84 billion (MOP30.6 billion/HK$29.8 billion) in VIP rolling chip turnover for the month of October, according to a filing with the Hong Kong Stock Exchange. This comes amid a 2.8 per cent drop month-on-month, yet marks the second-highest rolling chip turnover seen since VIP operations began on the island, on 1st November, 2015.

Next month’s results will allow for the first year-on-year comparison of the operator, which currently operates 16 VIP gaming tables, 32 mass gaming tables and 144 electronic table games and slot machines. The gaming company is expected to open its new Imperial Pacific Resorts on the archipelago by the end of the Chinese New Year period in January next year. The new property will add 200 new gaming tables and 400 new slot machines to the group’s operations. K.W.

Business Daily Friday, November 4 2016 7

Gaming Society

Problem gambling treatment centre moves

The Resilience Centre of the Problem Gambling Prevention and Treatment Division, operated by the Social Welfare Bureau, will relocate to the second floor of 11 Rua Francisco H. Fernandes, AK1 office, in the NAPE district on the Peninsula, commencing operations on November 8, according to a press release published by the Social Welfare Bureau (IAS) yesterday. The help centre is currently situated on the 1st floor of the Associação de Construtores Civis e Empresas de Fomento Predial de Macau, located on 103

Rua do Campo, blocks B-D in the city centre. The Resilience Centre was set up by IAS in late 2005 as a response to potential problems accompanying the development of the gaming industry in the MSAR. In 2016, the name of the Centre was changed to ‘Problem Gambling Prevention and Treatment Division’. The Centre offers counselling services to those affected by gambling addiction and their families via face-to-face and telephone counselling, as well as by offering financial counselling services and promoting awareness activities through community events. A.L.

Results

Positioning for the future Melco Crown results see 22 pct increase in net revenue Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

elco Crown Entertainment Limited sa w a 22 p e r c e n t increase in net revenue for the third quarter of 2016, according to results released late yesterday. Revenue expanded to hit US$1.15 billion (MOP9.2 billion/ HK$8.92 billion), which the group notes as ‘primarily attributable to the net revenue generated by Studio City’, among others. The results from the property, coupled with the increase in casino revenues for the group’s Philippines property - City of Dreams Manila - were ‘partially offset by lower casino revenues at City of Dreams in Macau and Altira Macau’, notes the operator in its earnings statement. “Studio City […] delivered a sequential increase of over 24 per cent in mass table gross gaming

revenues and over 110 per cent in adjusted property EBITDA (earnings before interest, taxation, depreciation and amortization)”, states the group’s Chairman and Chief Executive Officer, Lawrence Ho. The group’s City of Dreams Macau property saw an 11 per cent decrease in its adjusted EBITDA during the period, amounting to a 11 per cent year-on-year decrease, hitting US$170.4 million during the third quarter, which the group attributes to ‘lower mass market table games revenues and gaming machine revenues’.

Further abroad, and right at home

Rolling chip volume at the City of Dreams property amounted to US$10.6 billion during the quarter, according to the group, amounting to nearly a 14 per cent increase year-onyear. The group’s Studio City property saw mass market table games drop at US$657.6 million.

The group’s Manila operations saw net revenue amounting to US$131 million, with rolling chip volume reaching US$1.6 billion during the third quarter. Mass market table drop hit US$146.8 million during the quarter. “City of Dreams Manila delivered improvements in all gaming segments which, together with our company-wide focus on managing reinvestment costs and other operating expenses, resulted in an increase in adjusted property EBITDA of approximately 85 per cent on a year-over-year basis,” says the CEO. “City of Dreams Manila provides us with a diversified earnings stream which complements our operations in Macau.” Net income attributable to Melco Crown for the quarter amounted to US$62 million. The CEO notes that as “trends stabilise” in the local market, the operator is positioned to

benefit from the city’s “evolution into a mass-focused, multi-day stay destination.” To do this the aim is to “lead Macau in its transformation to the integrated resort model and away from the traditional gaming model through the development of diversified, mass-focused integrated resorts that deliver world-class entertainment and other nongaming amenities which cater to a broad spectrum of customers,” says Ho.

8 Business Daily Friday, November 4 2016

Greater China In Brief M&A

Senators urge rejection of China aluminium deal Twelve U.S. senators urged on Wednesday that a national security review panel reject Chinese aluminium giant Zhongwang International Group Ltd’s proposed US$2.3 billion purchase of U.S. aluminium products maker Aleris Corp . The senators asked Treasury Secretary Jack Lew in a letter to launch a review of the deal by the Committee on Foreign Investments in the United States and “ultimately reject it” on grounds that it would damage the U.S. defence industrial base. The deal, announced just over two months ago, would give one of the world’s largest makers of extruded aluminium products access to U.S. technology and customers. Premier Li visit

Kyrgyzstan agree to further boost cooperation

Index

Services sector grows at fastest pace in 4 months Caixin’s composite PMI covering both the manufacturing and services sectors expanded at the fastest pace in over three years

hina’s services sector grew at the strongest pace in four months in October as new business picked up, encouraging companies to hire more workers, a private survey showed. The findings, along with upbeat official factory and services readings earlier this week, add to the view that the world’s second-largest economy is on a steadier footing. Beijing is increasingly counting on the services sector to create jobs and drive growth as it looks to shift its economic model more toward consumption from a traditional reliance on investment and exports. Th e Cai xi n/Ma rki t se rvi c es

purchasing managers’ index (PMI) rose to 52.4 in October on a seasonally adjusted basis from 52.0 in September, posting the strongest reading since June. A reading above the 50-mark suggests expansion in activity on a monthly basis. Services companies saw the fastest growth in new work since June, though the pace was still modest. Some firms attributed the improvement to better underlying market conditions and an associated upturn in demand. Backlogs of work also increased slightly, ending a four-month sequence of marginal contractions, as some firms reported the increase

Chinese Premier Li Keqiang and his Kyrgyz counterpart, Sooronbay Jeenbekov, on Wednesday agreed to further boost cooperation between the two countries in a variety of fields. Li is in the Kyrgyz capital of Bishkek for an official visit to the central Asian country and the 15th prime ministers’ meeting of the Shanghai Cooperation Organization (SCO). After the meeting, the two leaders signed and released a joint communique between the two countries and witnessed the signing of a number of cooperation documents in such fields as economy, technology, production capacity, transport, agriculture and intellectual property rights. Co-operation

Baidu, Unicom partner to promote AI Chinese Internet giant Baidu inked a strategic partnership with leading telecom company China Unicom on Wednesday with the aim of applying artificial intelligence (AI) and other leading technologies to future products and services. The two companies will leverage their expertise and advantages in online and offline services to cooperate on projects in mobile Internet, AI, big data and telecom services. Baidu will help China Unicom put the services of more than 10,000 brick-andmortar outlets and 300,000 franchised stores online. China Unicom will offer Baidu stronger telecom infrastructure support such as Internet data centres and information and communication technology. Property

HNA’s unit to pay highest price for land in Hong Kong A unit of China’s HNA Group will pay HK$8.8 billion (US$1.13 billion) for a plot of residential land in Hong Kong, almost double market forecasts, marking the most expensive land deal yet this year as the aviation and shipping giant stepped up its international buying spree. The transaction, the first land acquisition by HNA in Hong Kong, comes as the city steps up efforts to contain prices in one of the world’s most expensive property markets. HNA has scored a handful of high-profile deals this year, with real estate purchases including Radisson hotels and a stake in Hilton Worldwide.

in orders was creating capacity pressures. Companies in the survey added staff for the second month in a row, and at the fastest pace since January, though gains were moderate. Business expectations were more positive than the previous month, but still slightly below August when they hit a six-month high. All measures improved from the previous month except prices charged for services, as increased competition and efforts to attract new business have curbed the pricing power of some firms. Most companies were only able to pass along a small part of the increase seen in their input costs in October. Caixin’s composite PMI covering both the manufacturing and services sectors expanded at the fastest pace in over three years, rising to 52.9 from September’s 51.4. Economists called for continued government policy support to sustain the momentum. “It may be possible to sustain this stable condition throughout the fourth quarter, but it’s important that supportive policies are not relaxed because the economy still lacks sufficient growth momentum,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group. China’s official services survey showed robust growth in October, with the index rising at the fastest pace since December 2015. Manufacturing surveys also suggested the economy was stabilising, thanks to improved domestic demand and a construction boom. The surveys by Markit, which is a registered trade mark of IHS Markit Limited, focus more on small and medium-sized firms, which have been facing greater financial strains than larger, state-owned companies. Reuters

National debt

Foreign holdings of government bonds rise Optimism around Chinese bonds was also bolstered by the authorities’ focus on managing economic risks Foreign holdings of Chinese government bonds rose for the 12th straight month in October, shrugging off weakness in the yuan currency against the dollar. Foreign investors raised their holdings of Chinese government bonds by 12 billion yuan (US$1.78 billion) last month, bringing the total to 398 billion yuan, according to Reuters calculations based on data from the official bond clearinghouse. In September, overseas investors purchased 41 billion yuan of government bonds. Overall, foreign institutions raised their holdings of Chinese debt by 16.8 billion yuan in October to 743.2 billion yuan, data from the Central Depository and Clearing Co showed on late Wednesday, off from a record of 50.7 billion yuan increase in the previous month. Some analysts attributed the global surge of interest in Chinese debt to Beijing’s opening up of its interbank bond market to more types of foreign investors in February and a relaxation of foreign exchange repatriation rules in May. Optimism around Chinese bonds was also bolstered by the

authorities’ focus on managing economic risks and stemming capital outflows in the face of a depreciating yuan, also known as the renminbi (RMB), some said. “Even with the recent weakness against the USD, the RMB’s basket value has actually remained within a relatively narrow range since early July 2016,” Kelvin Lau, Senior Economist at Standard Chartered in Hong Kong, wrote in a note on Wednesday. “We believe this is a sign of China not planning to pursue a new CNY depreciation trend,” he added, suggesting economic fundamentals would not justify broad-based yuan depreciation. The yuan lost around 1.6 per cent

Bull is in the Bund, Shanghai

of its value against the dollar in October, booking its worst month since August 2015, when the central bank led a one-off sharp devaluation in the Chinese currency that roiled global markets. However, a gauge for the yuan’s value based on the market’s trade-weighted basket stood at 94.22 at end-October, up 0.16 per cent from a month earlier, data from the official China Foreign Exchange Trade System (CFETS) showed on Tuesday. China officially entered the International Monetary Fund’s reserve basket, known as Special Drawing Rights, on Oct.1, which traders believe will support foreign interest in yuan-denominated assets. Chinese yields also remain attractive, with 10-year government bonds at 2.74 per cent compared with around 1.8 per cent for similar U.S. notes. Reuters

Business Daily Friday, November 4 2016 9

Greater China Property

Land barons sense opportunity as prices cool Despite some analysts’ estimates China’s newest land barons would need home prices to surge more than 100 per cent in the next three years to cover their costs Clare Jim

As China’s property market shows signs of softening, the country’s resurgent ‘land kings’ say they are ready to seize on any price weakness to buy more building plots - a conundrum for policymakers grappling with a toxic mix of risks in the sector. Any indication developers are poised to increase their buying is likely to unnerve authorities, given the unprecedented debt burden these companies already carry. Many of China’s most indebted companies are developers. “Developers won’t stop buying land, they’re just waiting for the right moment,” said Rosealea Yao, analyst of Gavekal Dragonomics based in Beijing.

Home and residential land prices have soared in many parts of China this year, prompting authorities to introduce restrictions on buyers and the ability of developers to raise fresh funds. Over 20 cities have announced cooling measures over the past few weeks and the provider of China’s official purchasing managers’ index said on Tuesday that residential prices were showing signs of easing in October. Land prices in top-tier cities, where most of China’s property rally has played out, have fallen in the past month, research company CRIC said. The total land sold fell by 38 per cent in October from September and the overall value of transactions dropped 49 per cent, it said. But property heavyweights say any

cooling in prices is a chance to buy more land. Demand for new homes in big cities is still healthy - tales of couples divorcing to get better mortgages or sales of cupboard-sized flats abound - and residential housing supply is tight. “We don’t expect the property market to crash because of the tightening. It’s still very cheap to borrow money,” said an executive at a developer that has bought a dozen top-end land parcels across China in the last quarter. “If prices come down somewhat, we’d be more optimistic on the health of the market,” he said, declining to be identified as he was not authorised to speak to the media. Another executive at a Shanghaibased developer said his group would sweep in: “Once land prices soften, we will jump back into the market especially in first-tier cities.”

Debt burden

But underlining the debt risk, some analysts estimate China’s newest land kings - the names given to companies

willing to pay sky-high prices for land - would need home prices to surge more than 100 per cent in the next three years to cover their costs. Take, for example, Ronshine China, which was crowned a land king in August when it outbid 17 rivals to pay US$1.7 billion for a plot in central Shanghai. At that rate, Ronshine, a company that listed only in January, paid about 100,000 yuan (US$14,756) per square metre - a record price for China - and close to top-flight plots in London’s Kensington and Chelsea districts or New York. Ronshine declined to comment. Analysts and industry executives say the tougher rules on fundraising would strain the ability of some smaller developers to finance deals, forcing consolidation in a cut-throat market. Already, the market share of the top 20 developers has increased from a fifth to over a third, one executive said. The new rules are being put into action. CRIC said Shanghai asked bidders on three land sales in November to provide additional documentation on their funding. Nanjing in the eastern coastal province of Jiangsu, which auctioned nine land parcels on October 14, requested that bidders provide the sources of their funding for deposits. On October 23, Shanghai Shimao Co said its application for a private share sale to raise 4.7 billion yuan had been rejected by the regulator, the first rejection since the China Securities Regulatory Commission (CSRC) tightened refinancing for property firms in August. Still, developers are shrugging off the restrictions. Shimao said it could use its internal cash to pay for three projects held by its subsidiaries. “Companies are still positive on the market outlook, that’s why many don’t see it as a problem to leverage,” said an executive at a state-backed developer. “There’s a lot of liquidity in the market.” Reuters

10 Business Daily Friday, November 4 2016

Greater China In Brief M&A

Fosun in exclusive talks to buy stake in miner Fosun International Ltd, is in exclusive talks to buy a large minority stake in Russia’s biggest gold miner Polyus, three sources with knowledge of the matter told Reuters, in what would be the Chinese group’s maiden Russian deal. Fosun, an aggressive buyer known internationally for its purchase of French resort operator Club Med, is keen to invest in Russia and other emerging markets such as India, as it moves away from Europe and developed markets. Reuters reported in August that Fosun is also in talks to buy a minority stake in Russian investment bank Renaissance Capital. Results

Lenovo swings to profit on property sale China’s Lenovo Group Ltd, the world’s largest personal computer (PC) manufacturer by shipments, yesterday said it returned to profit in its second fiscal quarter, beating analyst estimates, due primarily to gains from an asset sale. Lenovo is the world’s largest PC vendor with a 21.3 per cent market share, showed data from researcher IDC. Profit reached US$157 million for the three months ended Sept. 30, from its worst-ever quarterly loss of US$714 million in the same period a year earlier when Lenovo booked oneoff costs to restructure and integrate the mobile business of Motorola. Insurance

HK’s new insurance regulator plays down Beijing curbs Hong Kong’s new insurance regulator said it sees Chinese demand for Hong Kong insurance products staying strong because of their high quality despite recent curbs on such purchases, as Beijing moves to discourage capital outflows. Moses Cheng, chairman of Hong Kong’s Independent Insurance Authority (IIA), also told Reuters in an interview he expects the regulator to discuss the matter with its mainland counterpart once the IIA is fully up and running by early next year. “That’s absolutely unavoidable. This is something we need to work together,” Cheng said. Job market

Shanghai offers foreigners easier work permits Shanghai on Wednesday issued its first work permit since the city initiated a pilot program to simplify applications for work permit for foreigners. Wang Haiyan, section chief with the Shanghai Municipal Bureau of Foreign Expert Affairs, said the new application process had cut the application formalities in half. Shanghai hopes the new process will help attract more top talent. Shanghai was among the first group of Chinese cities to pilot the new process, on November 1. The program unifies the previous two permits, one for “foreign employees” and another for “foreign experts,” into one single “foreigners’ work permit.”

People’s Bank of China headquarters in Beijing Financial risks

PBOC switches to selective tightening China’s short-term goal is to bring down leverage ratio growth, Deputy Governor Yi Gang said in early September

hile you wait for the next interestra t e i n c r e a s e i n the world’s largest ec o n o m y , p o l i c y has quietly tightened in the secondbiggest: China. The People’s Bank of China has allowed a steady increase in money market rates in recent weeks to squeeze leverage in the murky shadow banking realm. A side benefit: higher short-term rates cushion a weakening yuan, which is under pressure as capital flows out and the dollar strengthens on expectations the Federal Reserve will raise interest rates by year-end. China’s benchmark one-year lending and deposit rates have been on hold for more than a year, giving the appearance of a neutral footing. But with interest-rate policy midway through a multi-year makeover, the old benchmarks may not be where the action is. A majority of economists in a recent Bloomberg survey estimate the next broad policy move will come via new channels, such as money market rates. “They’ve started to tighten selectively,” said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “They don’t want to change the cost of funding with the broad policy rate, but selectively if they see excess liquidity in the money market or bond market they may mop up some of the excess to prevent bubbles.” There’s even been some signalling from the opaque PBOC on its intention. China’s short-term goal is to bring down leverage ratio growth, Deputy Governor Yi Gang said in early September. The central bank didn’t respond to a faxed request for comment Wednesday. The PBOC started using its influence t h r o u g h r ev e r s e- r e p u rc h a s e

operations in August to nudge up funding costs in the financial system. Here’s how the short end of the yield curve has responded: One reason the PBOC may feel it can switch gears is because past stimulus has done the job. China has posted three straight quarters of 6.7 per cent growth, two key factory gauges rose to the highest since July 2014, producer prices snapped a fouryear deflation streak and profits at industrial corporations are rising again. Economists are raising growth

“Recovering economic fundamentals are paving the way for such a tightening bias” Wang Yifeng, a research director at China Minsheng Bank in Beijing forecasts. “Recovering economic fundamentals are paving the way for such a tightening bias,” said Wang Yifeng, a research director at China Minsheng Bank in Beijing. “Liquidity tightening is more likely than loosening this year, and the turning point is around the corner.” With the deflationary fog lifted for now, real borrowing costs have declined for China’s manufacturers. That makes it easier for the central bank and other authorities to pursue policies aimed at reining in excessive leverage. And top of the list is putting a lid on a leveraged bond rally and the growth in wealth management products. The PBOC is conducting a trial monitoring of banks’ WMPs under its macroprudential assessment system,

people familiar with the matter said last month. Meanwhile, big city property prices are still soaring even after cities from Beijing to Suzhou announced curbs including raising down payment requirements to ruling some buyers ineligible. The PBOC wants to cool the sector. China has been retooling its monetary policy framework to focus less on the old benchmark deposit and lending rates and take a more market-based approach. The PBOC last year signalled the use of shortterm repurchase agreements and the Standing Lending Facility (SLF) to guide markets, with the MediumTerm Lending Facility (MLF) and Pledged Supplementary Lending (PSL) rates guiding and stabilizing mid- and long-term market rates. Policy makers probably will rely more on those new instruments to guide longer-term rates because pushing easy money from the short end to the long end is better for growth, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “They can be more certain this money will flow to the real economy,” he said. “They can’t hike interest rates because that would be too strong of a signal, but they want to reduce liquidity in the short end and allow more in the long end through the new instruments.” That’s giving commercial banks less incentive to borrow to make speculative bets. Transactions of overnight repurchase agreements have plunged since the central bank started to use longer-term reverse repos with higher interest rates to inject liquidity. “The PBOC wants to bring down leverage and channel the liquidity into the real economy,” said Ming Ming, head of fixed-income research at Citic Securities in Beijing who previously worked in the central bank’s monetary policy division. “Despite seasonal fluctuations in the money market, the overall monetary policy is neutral with a tightening bias.” Bloomberg News

Business Daily Friday, November 4 2016 11

Greater China Environmental finances

Mainland grabs global green bond lead China issued new measures to boost investment in green industries before President Xi Jinping opened the Group of 20 meeting in Hangzhou in September Sandy Hendry and Lianting Tu

China is extending its dominance of the global market for green bonds, just as the Paris Agreement on climate change takes effect this week. The world’s most-populous nation accounted for US$21.9 billion of the US$61.1 billion in global green bond sales this year, data compiled by Bloomberg show. China, which in 2015 sold less than US$1 billion of the debt whose proceeds are earmarked for environmental projects, is accelerating regulation to channel funds toward reducing pollution, Moody’s Investors Service said in a report last week. “When you live in Hong Kong or China, pollution is there, it bothers you,” said Vincent Duhamel, head of Asia in Hong Kong at Lombard Odier Darier Hentsch & Cie. “There’s been a number of family offices here in Hong Kong that once Dad has given away the controls and the kids take over they go for a much more impact-investing viewpoint.” Lombard Odier estimates that within three years green bonds will account for 20 per cent of the US$700 billion annual investment needed under the Paris Agreement on climate change, which takes effect Nov. 4. China issued new measures to boost investment in green industries on Aug. 31 before President Xi Jinping opened the Group of 20 meeting in Hangzhou in September with

five-year environmental goals that would help make China “a beautiful country with blue sky, green vegetation and clear rivers.” “Concerns over rising levels of pollution in China and Hong Kong have raised awareness of the consequences of China’s growth story that started a few decades ago,” said Magdalene Teo, head of fixed income research Asia, at Bank Julius Baer & Co. in Singapore. “A growing number of investors worldwide including Chinese investors are interested in

Legislation

Authorities loosen land transfer to spur farms efficiency Farmland in China is collectively owned and farmers only have the right to contract and use the land

China has relaxed rules to allow farmers to transfer their land rights to help promote more efficient, largescale farms, amid an exodus of farm workers to the cities. The authorities on Sunday recommended separating various rights to rural land, which they say would improve land circulation, increase farmers’ incomes, and contribute to the development of modern agriculture. China’s Agriculture Minister Han Changfu told a news conference yesterday that the separation of rural land ownership rights, contracted rights and operating rights is a key reform step. “This helps guide the orderly transfer of land operating rights and lay a system foundation for appropriate-scale agricultural operations the development and modern agriculture,” he said. The step will help improve land and labour efficiency in the farm sector, he said, but he added that farmers

will not be forced to transfer their land rights. Farmland in China is collectively owned and farmers only have the right to contract and use the land. Many rural migrant workers have leased out their land to those who stay in the countryside or commercial entities. Over 30 per cent of rural land has already been leased to others to operate, said Han. Chinese farmers still cannot sell their land rights freely and the lack of clear rights makes many farmers vulnerable to land grabs by local administrations for development. A programme to issue certificates confirming rights to land has covered 60 per cent of farmland. He said the guidelines will also better protect the rights of those that lease and operate the land from farmers, helping to encourage more investment in more efficient and productive agriculture. The priority for the world’s most populous country is to ensure enough land and rural labour to maintain food security. Land reform and household registration are two key issues if China is to succeed in its plan to get 100 million migrants to settle in cities by 2020. China’s leaders aim for 60 per cent of the population of almost 1.4 billion to be living in cities by 2020, turning millions of rural dwellers into consumers who could be a driving force for the world’s second-largest economy. Reuters

combining their investment objectives with environmentally sustainable investments.” Green industries are facing teething troubles. Shanghai Chaori Solar Energy Science & Technology Co. was the first company to default on onshore bonds in 2014 amid solar panel overcapacity. Asian clean-power investment slumped 41 per cent to US$70.1 billion in the first nine months as governments curbed subsidies, according to Bloomberg New Energy Finance. Authorities are struggling to integrate this year’s 13 per cent jump in production from such plants into grids, it said. “China is playing somewhat of a catch-up game,” said Daniel Shurey, a New York-based BNEF analyst. “A

lot of the proceeds have been used for refinancing. We have seen a slowdown in investment in renewable energy which suggests refinancing won’t be as big next year.” Bank of China Ltd. may price threeyear green covered dollar bonds, underpinned by “qualifying green” domestic notes, as early as today at about 115 basis points over Treasuries, a person familiar said. While Chinese issuers often simply state proceeds will be used for activities on the domestic Green Finance Committee’s endorsed-projects list, the notes’ annual progress reports will help “build awareness” of responsible investing, Shurey said. “While there are some investors who are attracted to green bonds because of the eco-friendly nature of the investment, the vast majority of Asian clients invest because of the specific return potential, name recognition and credit fundamentals,” said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp. Issuers can be confident of demand. Developer Modern Land China Co. plans a yuan green note after selling US$350 million of similar dollar notes with a 7 per cent coupon on Oct. 14. When MTR Corp., owner of Hong Kong’s mass transit system, raised US$600 million selling 10-year green bonds on Oct. 25 it got orders for US$1.4 billion. “Green bonds are quite new in Asia and largely promoted by the Chinese government,” Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JPMorgan Chase & Co. in Hong Kong. “Some institutional investors may have social responsibility mandates but I don’t see the awareness on the individual client level yet.” Bloomberg News

12 Business Daily Friday, November 4 2016

Asia In Brief Sri Lanka

President says probe needed over bond scam Sri Lanka’s President, Maithripala Sirisena, yesterday said that an independent probe must be held over a controversial bond scam at the Central Bank. Speaking at a public rally, in the capital, Sirisena said that he will obtain legal advise on a report on the Central Bank bond controversy, released last week by a parliamentary group. He further said that politicians should not interfere in the probe. “I have never spoken on the bond scam before but now I am saying it must be investigated independently,” he said. Global ranking

NZ welcomes top place in prosperity index The New Zealand government yesterday welcomed the country’s top ranking in a London-based think-tank index of prosperity in 149 economies. New Zealand rose to first in the 2016 Legatum Institute Global Prosperity Index, up from fourth place last year. The index ranks 149 economies according to their performance across eight equally weighted categories and New Zealand ranked first in both economic quality and social capital, second in both business environment and governance, and third for personal freedom.

Real estate

S.Korea’s property curbs could temper GDP boost from construction The new rules come as a deepening political crisis has rattled South Korea’s financial markets

fter years of struggling to curb household debt, South Korean policymakers are slowly turning the screws on speculative housing investments to curb financial perils even as the rules risk dousing one of the few bright spots in a wobbly economy. The nation’s outgoing finance minister Yoo Il-ho said yesterday the government will limit the resale of newly built homes in Seoul and some parts of Busan - areas where overheating has raised worries about a bubble. “We plan to take pre-emptive measures to stabilize the property market in all of Seoul, Sejong, and parts of Gyeonggi province and Busan, to make sure the market is focused on actual demand,” Yoo Il-ho said in a meeting with other ministers. On Wednesday, South Korea’s presidential office named a new prime minister and said it will replace Yoo with Financial Services

Commission Chairman Yim Jongyong - the highest-level shake-up since President Park Geun-hye’s administration was rocked by a scandal involving a friend accused of meddling in state affairs. While the crisis has created uncertainty over policy making, analysts don’t expect any changes to the property curbs, which are effective immediately. Officials are attempting to cool speculative investments in Seoul and some areas of Busan without harming other regional markets after a polarization of house prices in Asia’s fourth largest economy. The curbs though could put a dampener on construction activity, one of the few strong suits in an economy hobbled by weak exports and low domestic consumption. “We expect an imminent shift to tightening to hit the construction sector, which has been a major beneficiary of the relaxation of macroprudential policy,” Tim Condon, an Singapore-based economist at ING

Tourism targets

Indonesia presses aviation sector Indonesia is pressing its aviation authorities to boost up the number of plane seats in a bid to meet targets in tourism sector that has been set as the nation’s core business. Sufficient number of plane seats is the key for the nation’s success in attaining foreign visitor number targets as 75 per cent of them are accommodated by flights, Tourism Ministry Arief Yahya said at a signing ceremony of a memorandum of Understanding between the Tourism ministry, airport administrators and air navigation agency. Results aftermath

ANZ to sell wealth, insurance business Australia and New Zealand Banking Group (ANZ) yesterday said it will sell its Australian insurance and wealth division to raise cash, as it posted its weakest profit in five years and warned that a soft jobs market could crimp growth. Coming on top of a decision to shrink its Asian presence, the announcement signals a broader retreat to ANZ’s traditional commercial retail. Australia’s third-largest bank by market value reported a lower-than-expected cash profit of A$5.9 billion (US$4.52 billion) for the year ended Sept. 30, 18 per cent down from a year earlier.

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said in a report. The central bank has cut interest rates to a record low of 1.25 per cent, but has repeatedly said that lowering borrowing costs aggressively would inflame an already growing household debt burden. Household debt stood at 88.4 per cent of the gross domestic product as of the end of 2015.

Policy dilemma

South Korea’s property market challenges mirror those in China and New Zealand where a hot housing market in big cities have complicated policy making. The Reserve Bank of New Zealand in September tightened mortgage deposit requirements except for new homes, while China’s southern cities in October imposed new cooling measures to ease a buying frenzy. Those buying a property in Seoul will be required to maintain their ownership for up to 18 months before they can put it on sale, extending the period from the current six months, the government said. While all of Seoul and the administrative capital of Sejong will face the fresh limits, the new measures will be applied to only parts of the Gyeonggi area on the outskirts of the capital and the southern port city of Busan. The targeted approach was necessary due to heated competition for new apartments in some regions, such as the affluent Gangnam district of Seoul, while other areas suffered from an oversupply of homes. Apartment prices in Gangnam area grew 5.08 per cent in October from a year earlier, well above the nationwide average of 1.8 per cent, Kookmin Bank data showed on Tuesday. The new curbs follow earlier measures requiring new home buyers to take out amortized loans instead of the interest-rate only payments since February this year. Reuters

Commodity windfall

Australia’s trade deficit at 20-month low Data from the Australian Bureau of Statistics showed exports rose 2 per cent Swati Pandey

Australia’s resource-rich economy likely got a fillip last quarter from resurgent commodity prices as its trade deficit shrank to the lowest in 20 months, and further gains looked likely in coming months. Yesterday’s data could bolster views that the Reserve Bank of Australia’s (RBA) five-year easing campaign may have ended. The central bank left interest rates at 1.50 per cent this month, seemingly content to keep to the side-lines as it took a sanguine view on the economic outlook. Data from the Australian Bureau of Statistics (ABS) showed exports rose 2 per cent, helped by a surge in coal and metal prices, while the trade deficit narrowed to A$1.23 billion compared with expectations of A$1.7 billion. Spot prices for Australian hard coking coal have jumped 230 per cent this year to top US$258 a tonne. That is a huge windfall for Australia where coal accounts for a tenth of exports at around A$2.8 billion (US$2.1 billion) every month.

“It’s encouraging to see that the trade deficit narrowed by such a margin,” said Savanth Sebastian, economist at CommSec. “What it highlights is the play around the lift in commodities prices is starting to filter through. It’s a positive momentum.” The ABS added that its data did not yet fully reflect the surge in commodity prices, suggesting exports will likely be revised higher, and the deficit lower, in future releases. Analysts say, if the price increases are sustained, it could help Australia completely wipe out its trade deficit. The RBA’s own index of commodity

prices surged further in October, with spot prices for coal, iron ore and LNG implying an increase of over 34 per cent on the same month last year. Australia’s A$1.6 trillion economy celebrated 25 years without recession last quarter as growth accelerated to its fastest pace in four years, mainly thanks to a huge contribution from net exports. However, the performance at home has been patchy. Anaemic inflation and a lacklustre labour market could keep the RBA on notice for further cuts. Underlying inflation is stuck at a record low of 1.5 per cent and seems likely to remain below the RBA’s 2 to 3 per cent target band for another year or more. Employment growth has also disappointed in recent months, while being heavily skewed toward parttime jobs. Futures market imply at most a 40 per cent chance of a cut next year. A Reuters poll of 60 analysts last week found a majority of respondents had expected one more easing to 1.25 per cent by mid-2017. “The risks are around a further rate cut, but we don’t expect a move earlier than the second quarter of next year,” Sebastian added. Reuters

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Business Daily Friday, November 4 2016 13

Asia India’s summit

Tobacco treaty leaders proposes ejecting delegates with ties to industry At the last WHO FCTC conference, in Moscow in 2014, China’s 18-person delegation had four members from the “State Tobacco Monopoly Administration” Duff Wilson and Aditya Kalra

The World Health Organization is about to get tough with the global tobacco industry. Delegates at a conference next week on controlling tobacco with ties to the business could be refused credentials and ejected, according to an internal document seen by Reuters. The proposal, if adopted by the full Framework Convention on Tobacco Control (FCTC) at the conference in India, could affect delegates sent by countries like China and Vietnam, where governments own cigarette companies or promote tobacco growing and have in the past sent representatives linked to the industry. Any such members of the 180 delegations at the Nov. 7-12 conference near New Delhi “would be requested to leave the premises”, according to the Oct. 17 “note verbale”, an official diplomatic communication, from the WHO FCTC secretariat on behalf of the treaty’s leadership group to its parties. At the last WHO FCTC conference, in Moscow in 2014, China’s 18-person delegation had four members from the “State Tobacco Monopoly Administration”. At the 2012 conference, in Seoul, two of eight Vietnamese delegates were from the “Vietnam Tobacco Association”. When asked about the letter, a

Vietnamese government official who declined to be identified told Reuters there would be no industry representatives in their delegation. China’s Ministry of Commerce did not immediately respond to a request for comment. The proposed restriction highlights a growing battle between the industry and backers of the treaty, which went into effect in 2005 to guide national laws and policies in an effort to curb tobacco use, which kills an estimated 6 million people a year worldwide.

António Abrunhosa, chief executive of the group and a Portuguese tobacco grower, said in an email to Reuters that such a step was “unthinkable for a United Nations agency”. John Stewart, deputy campaigns director at Corporate Accountability International, a Boston-based advocacy group that has supported tobacco-control efforts, praised the proposed restrictions. “The tobacco industry has really forced parties and the secretariat into a corner,” he said in an interview. “This is a bold good-government action to ensure that the treaty space, the place where public health policies

will save millions of lives, is free of tobacco industry intimidation.” Issues for debate at the conference include alternative livelihoods for tobacco farmers, e-cigarette regulation and trade and investment issues. The secretariat earlier wrote to the treaty’s party nations asking them to exclude people with tobacco interests from their delegations. In the latest note, the secretariat said it then turned to a FCTC leadership group for guidance after receiving a number of nominations from countries that ignored the suggestion. Reuters

Key Points India hosts WHO FCTC tobaccocontrol conference Nov. 7-12 Countries told delegations should not include tobacco industry Such members could be asked to leave the conference: document Tobacco industry-backed group said measure “unthinkable” The global tobacco industry is estimated to be worth nearly US$800 billion this year. The International Tobacco Growers Association, a non-profit group partly funded by big international cigarette companies, said the proposal was “beyond the wildest imagination”.

World Health Organization headquarters in Geneva

14 Business Daily Friday, November 4 2016

International In Brief Brexit

British government loses Article 50 court case England’s High Court ruled yesterday that the British government requires parliamentary approval to trigger the process of exiting the European Union. The court granted the government permission to appeal against the ruling and a government lawyer said the Supreme Court had set aside Dec. 5-8 to hear the matter. If the legal challenge finally succeeds, members of parliament might have to vote on whether and when Article 50 should be triggered, which could lead to delays or even, in theory, block Brexit altogether. Tax fraud

French prosecutor says HSBC should stand trial France’s financial prosecutor has requested a trial for HSBC Holdings and its Swiss private banking unit on suspicions it helped customers dodge taxes in 2006-2007, a source familiar with the matter told Reuters. “We take note of the recommendation... and will continue to defend ourselves vigorously,” HSBC said in an emailed comment to Reuters. The bank was put under formal investigation last year. It will be up to investigating magistrates to decide on whether it should stand trial. Magistrates had previously estimated the Swiss arm’s alleged fraud at around 2.2 billion euros.

Currency

Egyptian central bank floats pound Egypt’s dollar bonds rallied 2 per cent across the curve after the flotation

gypt’s central bank floated the pound currency yesterday, devaluing by 32.3 per cent to an initial guidance level of 13 pounds to the U.S. dollar in a move to rebalance currency markets after weeks of turbulence. The Egyptian pound had been pegged at 8.8 to the dollar since March, but a shortage of dollars in the economy had put the currency under intense downward pressure in recent months. Egypt has struggled to earn dollars since a 2011 uprising drove away tourists and foreign investors - the country’s main sources of foreign currency. The central bank has been rationing dollars and imposing strict capital controls whilst maintaining the pound at an artificially strong official rate hampering trade in a country

that relies on imports of everything from cars to food. A rapid slide on the black market to 18 earlier this week prompted importers to cease buying greenbacks. The rate then strengthened to 13 per dollar by late on Wednesday, creating a rare opportunity for the central bank to devalue. In a surprise announcement early yesterday, the central bank said it had gone further than bankers expected, to freely float the Egyptian pound. It simultaneously hiked benchmark interest rates by 300 basis points to buoy the currency. “The Central Bank of Egypt hereby announces its decision to move, with immediate effect, to a liberalised exchange rate regime in order to quell any distortions in the domestic foreign currency market,” it said in a statement.

As part of those reforms, Egypt was widely expected to devalue the pound and ditch its currency peg to the dollar for a more flexible exchange rate mechanism, a move economists say could unlock billions of dollars in foreign investment. The central bank also said in a statement that it would abolish the priority list for imports and that banks would be allowed to operate until 9 p.m. every day, including weekends, for foreign exchange transactions and transfers only. Reuters

Curbing inflation could change Russia’s economy

Angola

Budget bill revokes levy on bank debit operations Angola’s banks are to stop charging the 0.1 per cent levy on debit operations that is foreseen in this year’s state budget, under a provision in the draft budget for 2017, which is currently being considered by parliament. Under article 19 of the 2017 budget bill, the presidential decree of 24 February this year that approved the legal framework for the Special Contribution on Banking Operations, as it is known, “is revoked”. The special contribution was introduced in the 2016 budget, but only began being applied from 1 July, after the publication of the presidential decree that regulates its application.

“The resetting of Egypt’s economic equation has begun at last, but much more needs to be done by the government to reform the economy.” Angus Blair, Chief Operating Officer of Pharos Holding, a Cairo-based financial services company

Bank chairman

The Russian Central bank’s policy on maintaining its high key rate and curbing inflation could change the economy in two years, said Mikhail Zadornov, chairman of VTB24 bank yesterday. “If the inflation rate falls to a 3 to 4 per cent level in two years, it will completely change the behaviour of both business and the population in Russia”, Zadornov said in an interview with the Russian newspaper “Izvestiya.” He also said low inflation has the most beneficial effects on long-term projects, such as manufacturing, infrastructure, as well as scientific and technological projects.

“This move will allow market demand and supply dynamics to work effectively in order to create an environment of reliable and sustainable provision of foreign currency.” With a budget deficit of 12 per cent in the 2015-16 fiscal year and currency markets facing severe distortions, Egypt reached a preliminary deal with the International Monetary Fund in August for a US$12 billion threeyear loan to support an economic reform programme.

Monetary policy

Fed holds rates steady, sets stage for December hike The Fed has held its target rate for overnight lending between banks in a range of 0.25 per cent to 0.50 per cent since last December Lindsay Dunsmuir and Jason Lange

The Federal Reserve kept interest rates unchanged on Wednesday in its last policy decision before the U.S. election, but signalled it could hike in December as the economy gathers momentum and inflation picks up. The U.S. central bank said the economy had gained steam and job gains remained solid. Policymakers also expressed more optimism that inflation was moving toward their 2 per cent target. “The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” the Fed said in a statement following a two-day meeting. That suggests the bar is low for a rate increase at the Fed’s final policy meeting of the year in mid-December, which has largely been factored in by financial markets. U.S. stocks extended earlier losses and Treasury yields fell after the release of the Fed statement. The U.S. dollar briefly pared losses before falling further against a basket of currencies. “You are still pointing to a December hike, they just didn’t pre-commit to it,” said John Canally, investment strategist and economist for LPL

Financial in Boston. In the statement, the Fed’s increasing confidence that prices were moving higher was reflected in its view that “inflation has increased somewhat since earlier this year” and the removal of its previous reference to inflation remaining low in the near term. Policymakers have increasingly converged on the likelihood of a December hike. In September, Fed Chair Janet Yellen said that a move before year’s end was likely as long as U.S. employment and inflation continued to strengthen. Since then, job gains have continued at a solid rate and inflation has ticked higher, putting both close to the Fed’s long-run targets. The economy also has gained momentum, growing at a 2.9 per cent annual pace in the third quarter after a fairly sluggish first half.

Election uncertainty

Investors had all but discounted an increase in borrowing costs this week ahead of the Nov. 8 U.S. election. Polls showing Republican Donald Trump gaining ground on Democratic rival Hillary Clinton in the race for the White House sparked a slide on global equities markets, with the benchmark S&P 500 index headed for its seventh straight day of declines. A Reuters/Ipsos poll released on Monday showed the former

secretary of state leading Trump by 5 per centage points, but some other surveys this week put the New York businessman ahead by 1-2 per centage points. A Trump victory could trigger financial market volatility given investor worries about his stance on trade, immigration and foreign policy. Trump has also accused the Fed of keeping rates low because of pressure from the Obama administration.

Key Points Fed more optimistic inflation rising to target Says case for rate increase has continued to strengthen Traders still expect rate hike next month “It just reinforces that unless Trump wins and markets become dislocated, the Fed has a green light to tighten,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management in Philadelphia. The Fed has held its target rate for overnight lending between banks in a range of 0.25 per cent to 0.50 per cent since last December, when it raised borrowing costs for the first time in nearly a decade. Ka n sas Ci t y F e d P r esi d e n t Esther George and Cleveland Fed President Loretta Mester dissented in Wednesday’s decision in favor of an immediate hike. They were among three policymakers who dissented at the last meeting in September. Reuters

Business Daily Friday, November 4 2016 15

Opinion

Chinese banks aren’t immune from Hong Kong IPO heat wave Nisha Gopalan a Bloomberg Gadfly columnist

ong Kong’s IPO market has increasingly become a playground for Chinese banks. But as their role expands, they’d do well to keep half an eye on a regulatory probe that’s ensnared two Western counterparts. UBS Group AG and Standard Chartered Plc are being investigated by Hong Kong’s Securities and Futures Commission over their role as joint sponsors in China Forestry Holdings Co.’s 2009 initial share sale, the Financial Times reports. Both banks have acknowledged being under investigation but haven’t specified for what deal. China Forestry, now in liquidation, was suspended from trading two years after its listing because of accounting irregularities. Having been the sponsors, or lead banks responsible for the overall management of the IPO and its documents, UBS and StanChart aren’t only susceptible to as-yetunknown fines, but the individual bankers who worked on the deal could be criminally liable. For Western financial institutions, it’s the latest blow after having weathered a rocky few years during which investment-banking revenue from the region has dropped. Helping mainland Chinese companies go public in Hong Kong has traditionally been a large part of a Hong Kong IPO manager bank’s equity capital YTD Haitong Securities markets business. The city ranked as the world’s top IPO market until a few years ago and still plays host to some huge transactions, including the US$7.4 billion offering in September of Postal Savings Bank of China Co., the biggest globally since Alibaba Group Holding Ltd.’s record 2014 float. But IPO fees are shrinking and Chinese banks, willing to work on the cheap, have been eating into Western banks’ dominance. The once unusual system of locking up a significant portion of a float by pre-sales to cornerstone investors - typically large state-owned enterprises - has also worked in Chinese banks’ favour, thinning liquidity and handing well-connected financial institutions in Beijing and Shanghai deals that may otherwise have gone elsewhere. Western lenders have also become increasingly nervous about getting IPO mandates through mates of mates. Ever since the U.S. Department of Justice and the U.S. Securities and Exchange Commission began looking into inappropriate hiring practices - like charges against JPMorgan Chase & Co. of hiring princelings to win contracts - the guard has gone up. The rise of Chinese banks has been swift. Last year, Haitong Securities Co. ranked 17th in terms of Hong Kong IPO market share; this year it’s No. 1. In fact, of the top 10 managers in 2016, eight are from China. It’s not as if Chinese banks are immune from being wrapped up in the odd troubled new listing themselves. In May 2014, Hong Kong’s Securities and Futures Commission fined ICBC International Capital Ltd. and ICBC International Securities Ltd. in connection with their role in the 2009 IPO of Shanghaibased Powerlong Real Estate Holdings Ltd. As regulators start combing through past deals, they’re bound to find other examples of impropriety that snares financial institutions from both sides of the globe. Given their bigger role, it’s probably only a matter of time before Chinese banks begin to feel the heat too. Bloomberg Gadfly

No. 1

Big danger at the lower bound

arkets nowadays are fixated on how high the US Federal Reserve will raise interest rates in the next 12 months. This is dangerously short-sighted: the real concern ought to be how far it could cut rates in the next deep recession. Given that the Fed may struggle just to get its base interest rate up to 2 per cent over the coming year, there will be very little room to cut if a recession hits. Fed chair Janet Yellen tried to reassure markets in a speech at the end of August, suggesting that a combination of massive government bond purchases and forward guidance on interestrate policy could achieve the same stimulus as cutting the overnight rate to minus 6 per cent, were negative interest rates possible. She might be right, but most economists are sceptical that the Fed’s unconventional policy tools are nearly so effective. There are other ideas that might be tried. For example, the Fed could follow the Bank of Japan’s recent move to target the ten-year interest rate instead of the very short-term one it usually focuses on. The idea is that even if very short-term interest rates are zero, longer-term rates are still positive. The rate on ten-year US Treasury bonds was about 1.8 per cent at the end of October. That approach might work for a while. But there is also a significant risk that it might eventually blow up, just the way pegged exchange rates tend to work for a while and then cause a catastrophe. If the Fed could be highly credible in its plan to hold down the ten-year interest rate, it could probably get away without having to intervene too much in markets, whose participants would normally be too scared to fight the world’s most powerful central bank. But imagine that markets started to have doubts, and that the Fed was forced to intervene massively by purchasing a huge percentage of total government debt. This would leave the Fed extremely vulnerable to enormous losses should global forces suddenly drive up equilibrium interest rates, with the US government then compelled to pay much higher interest rates to roll over its debt. The two best ideas for dealing with the zero bound on interest rates seem off-limits for the moment. The optimal approach would be to implement all of the various legal, tax, and institutional changes needed to take interest rates significantly negative, thereby eliminating the zero bound. This requires preventing people from responding by hoarding paper currency; but, as I have explained recently, this is not so difficult. True, early experimentation with negative interest-rate policy in Japan and Europe has caused some disenchantment. But the shortcomings there mostly reflect the fact that central banks cannot by themselves implement the necessary policies to make a negative interest rate policy fully effective. The other approach, first analysed by Fed economists in the mid-1990s, would be to raise

“

Kenneth Rogoff a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University

the target inflation rate from 2 per cent to 4 per cent. The idea is that this would eventually raise the profile of all interest rates by two percentage points, thereby leaving that much extra room to cut. Several central banks, including the Fed, have considered moving to a higher inflation target. But such a move has several significant drawbacks. The main problem is that a shift of this magnitude risks undermining hard-won central bank credibility; after all, central banks have been promising to deliver 2 per cent inflation for a couple of decades now, and that level is deeply embedded in longterm financial contracts. Moreover, as was true during the 2008 financial crisis, simply being able to take interest rates 2 per cent lower probably might not be enough. In fact, many estimates suggest that the Fed might well have liked to cut rates 4 per cent or 5 per cent more than it did, but could not go lower once the interest rate hit zero. A third shortcoming is that, after an adjustment period, wages and contracts are more likely to adjust more frequently than they would with a 2 per cent inflation target, making monetary policy less effective. And, finally, higher inflation causes distortions to relative prices and to the tax system – distortions that have potentially significant costs, and not just in recessions. If ideas like negative interest rates and higher inflation targets sound dangerously radical, well, radical is relative. Unless central banks figure out a convincing way to address their paralysis at the zero bound, there is likely to be a continuing barrage of outside-the-box proposals that are far more radical. For example, the University of California at Berkeley economist Barry Eichengreen has argued that protectionism can be a helpful way to create inflation when central banks are stuck at the zero bound. Several economists, including Lawrence Summers and Paul Krugman, have warned that structural reform to increase productivity might be counterproductive when central banks are paralyzed, precisely because it lowers prices. Of course, there is always fiscal policy to provide economic stimulus. But it is extremely undesirable for government spending to have to be as volatile as it would be if it had to cover for the ineffectiveness of monetary policy. There may not be enough time before the next deep recession to lay the groundwork for effective negative-interest-rate policy or to phase in a higher inflation target. But that is no excuse for not starting to look hard at these options, especially if the alternatives are likely to be far more problematic. Project Syndicate

If ideas like negative interest rates and higher inflation targets sound dangerously radical, well, radical is relative

”

16 Business Daily Friday, November 4 2016

Closing Investors

High-speed traders woo more Asia recruits than ‘gloomy’ banks China, the world’s second-largest economy, cracked down on algorithmic traders in the aftermath of last year’s market rout Andrea Tan

or students like Sun Jiaxuan at the National University of Singapore, the future of finance is all about high-frequency trading (HFT) firms, not the Wall Street banks that graduates once aspired to. Recruiters from DRW Holdings LLC, a Chicago firm that’s expanding in Asia, found that out last month when they visited the school. “The future is HFT, it’s like a superstar in the finance world,” said Sun, 23, who is studying for a masters in financial engineering. “The big banks are cutting a lot of head count, closing trading desks even in Asia, that sounds like a scary place to be.” High-frequency traders, which over the past decade have taken over many traditional banking roles in the U.S. and European capital markets, are expanding in Asia. American firms including DRW, Virtu Financial Inc. and Jump Trading LLC are hiring, while local outfits such as Grasshopper Pte and Eclipse Trading have plans to expand. Meanwhile, international banks such as Morgan Stanley, Barclays Plc and Macquarie Group Ltd. are cutting trading jobs in the region. “Everyone who’s a somebody in HFT is hiring,” said Nicholas Wells, managing director at NewtonChase, a recruiting firm in Singapore. “The race for talent is hot as they expand in Asia where there are new markets and HFTs aren’t in as much of the spotlight as in the West.” The reception to HFT in Asia has been mixed. Japan, where high-speed trades make up about 70 per cent of orders at the Tokyo Stock Exchange, is mulling new rules. Brokers in India, the developing world’s biggest electronic-trading market, have asked the regulator to reconsider plans to slow down computer trading. China, the world’s second-largest economy, cracked down on algorithmic traders in the aftermath of last year’s market rout. Meanwhile, several electronic traders have set up shop in Singapore, which started

as a trading port and where HFT is viewed positively. “Trading is a part of Singapore’s DNA and a natural base for participation across Asian markets,” said Kevin Pereira, managing director for Asia Pacific operations at Jump, which opened an office in the citystate in 2011. Asian exchanges have ramped up speeds to levels conducive for automated trading, said Greg Griffin, head quant at Eclipse. The Hong Kong-based firm, started by three former Optiver BV traders in 2007, is looking to add 20 employees to its current 100, he said.

Bank slump

HFT recruitment in Asia is a blessing for would-be traders who might otherwise be looking at a tough job market. Barclays shut its securities operations across Asia earlier this year, while Macquarie’s equity trading unit has been reduced. Morgan Stanley cut fixed-income jobs and

Logistics

CLSA Ltd. asked its staff to take unpaid leave to save costs. The pullbacks have come amid a drop in trading jobs as the industry becomes more automated. “In the good days when banks hired for trading desks, they would look at filling 50 or more,” said Will Tan, managing director at Principle Partners Pte, an executive search firm in Singapore. “These days, you’re lucky to have a job there and not be replaced by a machine.” When the big firms add to their electronic desks these days they’re mainly hiring for their risk and compliance functions, said Wells of NewtonChase. The banks have seen a rebound, with the five biggest U.S. investment banks reaping US$20.7 billion in revenue from bond and stock trading in the third quarter, the most for the period since 2009. But they did it with fewer traders and sales people, according to data compiled by Bloomberg. Automated trading firms say they’re better insulated from the swings faced by other financial companies. “As a market maker, we’re indifferent to markets going up or down,” said Fieke Korporaal, a Singapore-based

spokeswoman at Flow Traders BV. Grasshopper has more than 50 employees and is planning to increase that by 20 per cent in the next 18 months, said founder John Lin. He’s looking for mainly tech and quantitative roles because only the “fittest, fastest or scrappiest survive.” High-speed firms don’t usually tout new hires in a cut-throat industry where trading strategies are fiercely guarded, said Lin, 47, a former pit trader.

“Competitors are definitely coming... Everything is moving so quickly in our space, if you don’t invest for the future, there’s no way we can keep up.” Greg Griffin, a former head of Asian automated market making at Morgan Stanley

Campus hiring

Campus recruiting is the bulk of hiring and usually little or no experience in finance is required, said Principle Partners’ Tan. Virtu has four jobs available in its Singapore office. DRW has six open job postings for its newest office, in Singapore, which opened in March 2015 and has 30 employees. The firm recently hired Tower Research Capital LLC’s Brook Teeter to run its business in Asia. Jump has 11 open positions for its Singapore office, according to its website. The firm has over 40 employees in the Asian city, Pereira said. “It’s nice to hear that these guys are hiring and growing,” said Rehan Sondh, a 22-year-old masters in financial engineering student, who was one of about 100 students to attend the DRW event. “That’s a refreshing change from the doom and gloom news at the big banks.” Bloomberg News

Retailers

Luxury market

Rail cargo service extends Hong Kong sales slide from Chengdu to Rotterdam for 19th month

Hermes bags strong sales on Mainlanders demand

A rail cargo line departing from Chengdu, capital of southwest China’s Sichuan Province, has been extended to Rotterdam in the Netherlands. The rail cargo service was extended from an existing line which connects Chengdu with the Dutch city of Tilburg, said Cheng Jie, vice manager of Chengdu International Railway Services Company. Trains depart from Chengdu to export mechanical and electric parts to Rotterdam, Europe’s largest port. A single trip takes 13 days. Chengdu has planned three major rail line services to Europe, with a northern route to Germany and the Netherlands, a middle route to Turkey and beyond, and another northern route to Moscow. Extensions will be made to reach more European cities in the future, Chen said. The National Development and Reform Commission said there will be around 5,000 cargo trains running between China and Europe annually. Some 43 transport hubs will be created by 2020, and 43 railway lines will be built. There were 1,881 China-Europe cargo trains in service as of the end of June, which transported imports and exports worth US$17 billion. Xinhua

Luxury goods maker Hermes reported rising sales for the third quarter yesterday, as strength in China helped offset weakness at home in France where demand was still hurt by a string of deadly attacks. Turnover rose by 9.9 per cent in the third quarter over the same period last year to 1.25 billion euros (US$1.4 billion), ahead of analysts’ forecasts compiled by Factset of 1.22 billion euros. “We are seeing a good acceleration of sales growth in the third quarter,” CEO Axel Dumas told a conference call. “This growth is particularly healthy because it is based on organic growth,” he said. Organic growth is self-generated growth, as opposed to growth by acquisition. Dumas said sales in continental China improved, remained steady in the United States and were strong in Europe, although France continued to be impacted by lower tourism numbers following attacks, notably in Paris last November and in Nice in July. Leather goods, including the company’s signature handbags, and saddle-making generated a 16-per cent increase in sales in the quarter. But clothes, accessories, silk goods and textiles all saw declines because of French weakness. AFP

Hong Kong’s retail sales fell for the 19th straight month in September as China’s economic slowdown and a strong local currency crimped business activity and tourism, though the rate of decline eased from the previous month. Retail sales slid 4.1 per cent from a year earlier to HK$33.8 billion (US$4.36 billion) in value terms, after a 10.5 per cent decline in August, government data showed yesterday. In volume terms, September sales dropped 3.9 per cent on-year, compared to a 11 per cent decline in August. “The near-term outlook for retail sales is still subject to uncertainty, depending on the performance of inbound tourism as well as the extent to which local consumer sentiment will be affected by various external uncertainties,” the Hong Kong government said. Hong Kong’s currency is pegged to the U.S. dollar, which means it is prone to strengthen when other Asian currencies weaken. Tourist arrivals in September fell 3 per cent from a year earlier to 4.42 million. That followed a 9.4 per cent fall in August. Mainland China visitors, who account for 75.4 per cent of the total, fell 5 per cent to 3.33 million in September after a 11.3 per cent decline in August. Reuters