Traffic affairs committee hikes street parking meter fees Transit Page2
Tuesday, November 8 2016 Year V Nr. 1168 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusinessdaily.com
Credit
Technology
Gaming
Legislation
Trade
Number of credit cards in MSAR nearly doubles Page 4
E-government to commence in 2018 or 2019 Page 2
Melco consortium bid for Cyprus gaming licence accepted Page 6
Tech companies’ rules implemented in Mainland Page 16
Chinese firms expand in Vietnam to reach trade pacts destination Page 10
Economy Continues To Adjust Retail
Wholesale and retail trade industries’ contributions to the economy are shrinking. With last year’s gross surplus from the sector falling 22.3 pct y-o-y as the local economy ‘adjusts’. Total receipts from the industry fell 5.4 pct y-o-y, topping out at MOP108.7 bln, while the sector’s contribution to the economy fell 10.7 pct. A surge in acquisitions of real estate by a number of retail establishments helped push up values. Page 5
Debtor flees cage
Hengqin scores an ace
International focus is set squarely on the MSAR. But neighbouring Hengqin’s infrastructure, business and events are expanding rapidly. Witness the US$2.2 mln WTA Elite Trophy tennis tournament. And the brand new billionRMB centre which hosted it, showcasing the nascent city’s growing importance.
Court HK$100-HK$500 mln has purportedly been purloined. A former cage manager has been ordered in absentia by the courts to repay junket operator Dore Entertainment Co., formerly located in Wynn Macau. The woman is believed to have used her position to offer high interest rates to pool deposit capital. Page 2
Purring along nicely
Results MGM China saw an 11 pct q-to-q increase. But a 6 pct y-o-y decrease in revenues for Q3. Hitting HK$3.9 bln. EBITDA saw a 24 pct q-to-q increase, while average occupation hit 95.7 pct. The group’s estimates for MGM Cotai remain ‘approximately’ HK$24 bln, with an opening date set of Q2 2017. Page 16
China switches financial head
Hengqin Page 3
HK Hang Seng Index November 7, 2016
22,801.40 +158.78 (+0.70%) Worst Performers
China Shenhua Energy Co
+4.19%
Cathay Pacific Airways Ltd
+2.14%
Sun Hung Kai Properties Ltd
-9.88%
Wharf Holdings Ltd/The
-2.69%
AAC Technologies Holdings
+3.14%
Tencent Holdings Ltd
+2.10%
New World Development
-9.03%
Hang Lung Properties Ltd
-2.27%
HSBC Holdings PLC
+2.96%
PetroChina Co Ltd
+1.70%
Cheung Kong Property
-8.81%
Hang Seng Bank Ltd
-0.92%
Sands China Ltd
+2.94%
China Petroleum & Chemical
+1.61%
Sino Land Co Ltd
-7.90%
BOC Hong Kong Holdings
-0.92%
Galaxy Entertainment Group
+2.36%
Bank of Communications
+1.53%
Henderson Land Develop-
-5.79%
Li & Fung Ltd
-0.80%
19° 27° 17° 22° 18° 21° 22° 24° 22° 25° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Finance Minister China has replaced veteran reformer Lou Jiwei. With a new finance minister who’ll be tasked with juggling fiscal stimuli. And efforts to rein in excess leverage in the world’s second largest economy. Xiao Jie, previously a senior aide to Premier Li Keqiang, will replace 65-year old Lou, who has held the job for a little more than three years. Page 8
2 Business Daily Tuesday, November 8 2016
Macau Transportation
Cost of parking on street meters to increase Traffic affairs advisors introduce new adjustments for street parking meter fees. A possible method of counting bus passenger numbers could also be on the cards Cecilia U cecilia.u@macaubusinessdaily.com
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treet parking meter costs throughout the city are set to double for the city’s light vehicles and motorcycles, with even higher adjustments for larger vehicles. The changes were announced at the Traffic Affairs Consultative Committee meeting held yesterday. Following the changes, the cost of parking a light vehicle will increase from the current MOP6 (US$0.75) per hour to MOP12, MOP2 per hour to MOP6 for a two-hour slot and MOP1 to MOP3 for a four-hour slot. Parking fees for motor vehicles, meanwhile, will only change for twohour slots, from MOP1 per hour to MOP2, whilst five-hour slots will be changed to four hours with the price remaining unchanged. Regarding heavy vehicles, the parking price will be increased from
MOP5 to MOP20 for a two-hour slot and MOP5 to MOP10 for a four-hour slot. Committee representative Kou Kun Pang told reporters after yesterday’s closed-door meeting that the
adjustments are due to pricing having remained unchanged for the past 30 years; the objective of the increase is to stimulate the turnover of vehicles parking on the street. “[The adjustment] also seeks to shrink the price gap between parking meters and car parks,” said Mr Kou. “The adjustment will reduce the pressure on parking spaces on the street.” The committee representative revealed that the majority of the
committee supported the adjustments during the meeting but that some questioned the relatively limited number of parking spaces for heavy vehicles. The exact date of the adjustments will be announced when the dispatch is posted on the Official Gazette, remarked Mr Kou, adding that new colours will be utilised to distinguish different hour slots of the parking meters.
Video recognition
Meanwhile, the committee also discussed the implementation of a counting mechanism through the video-surveillance systems of buses to estimate the number of passengers on buses and provide information at bus stops. “Currently, the implementation [of video recognition for counting passengers] is going through a trial run,” said Mr. Kou. “There are privacy issues involved [in the implementation], so the service will only be possible when it is approved by the law.” Regarding these issues of privacy the committee representative indicated that co-ordination with the Office for Personal Data Protection is underway. Kou reported that the number of passengers will exceed 200 million by the end of this year, compared to 180 million in 2014, noting that the supply of extra information about the number of passengers per bus will increase convenience for passengers waiting at the bus stops.
Politics
E-government to grow Government departments in the city have begun the first stage of the five-year e-government plan, with authorities noting that legal support is vital in making the system fully operational Cecilia U cecilia.u@macaubusinessdaily.com
Following last year’s establishment of the government’s five-year e-government plan, the Director of the Public Administration and Civil Service Bureau (SAFP), Kou Peng Kuan, said during TDM radio programme Macao Forum that an e-government can only be fully implemented with legal support, commenting that law amendments will only start in 2017. Director Kou said the five-year plan will be implemented in two stages,
with the first three years focusing on tasks such as the improvement of procedures, formation of a basic platform, application practice and legal support. During the second stage the plan will target improving the application and renewal of food and intermediary licences. Kou hopes that the plan will enable full e-government operation by 2018 or 2019. Kou revealed that the current recruitment of civil servants had received 13,000 applications, with half
of the applicants applying through either mobile or online means. When all electronic procedures are fully implemented, the Director says that the documents of applicants can be sent to respective departments for a second section of the recruitment, commenting that the new operation will effectively shorten the whole process as well as diminishing the amount of personnel required. “The sharing of documents that have been uploaded by the applicant on the personal account with different departments can only be performed with the approval of the applicant”, emphasised Mr. Kou, regarding the privacy of the system.
One step at a time
The Director of the city’s Identification Bureau (DSI), Ao Ieong U, while participating in a TDM radio programme, stated that e-services and the improvement of procedures
require time to be implemented. Ao cited the example of the preferential introduction of self-service machines, and their adequate usage prior to the introduction of online services. Ao also pointed out that the DSI receives one million visitors every year, three times the number of visitors before the city became an SAR. Ao remarked that electronic development would greatly assist the operation of the Bureau. Meanwhile, the Deputy Director of the Legal Affairs Bureau (DSAJ), Leong Pou Ieng, commented that the DSAJ has introduced an online platform for providing notary services, noting that the online platform provides easier access for government departments to obtain information on commercial applications. In addition, citizens are no longer required to submit application documents in person to different departments.
Cage theft
Public works
Court orders debtor to repay MOP103 mln to Dore
New prison construction supervision contract worth MOP15.8 mln
The city’s Court of First Instance has ruled that local resident Chao Ioc Mei has to repay junket operator Dore Entertainment Co. Ltd. MOP103 million (US$12.9 million), according to a court notice published yesterday. In September of last year the junket operator reported that a former cage manager of the company, known as Mimi Chow, had allegedly stolen over HK$100 million, and used her position to illegally pool deposit capital by offering high interest rates
without the company’s knowledge. The notice, published by the lowest court yesterday in local newspapers, indicated that Ms. Chao is currently unaccounted for. In Chinese, Chow and Chao refer to the same surname. In addition to the debt of MOP103 million, Ms. Chao is required to pay the junket operator the interest for the outstanding money, at a yearly rate of six per cent, plus other fees and taxes occurring that are related to the lawsuit, the notice reads. The debtor can still appeal against the ruling to higher courts within 20 days following the second issuance of the notice coming into force 30 days after the issuance. Local police estimated at the beginning of this year that at least HK$500 million had been purloined by Ms. Chao following reports of Dore’s reported loss plus other individual investors’ reported losses of money deposited with Dore.
The MSAR Government has granted a service contract worth MOP15.8 million (US$1.96 million) to Foundation Engenharia e Consultoria Lda company for the provision of supervision of work on the second phase of the new prison project, according to a dispatch by Chief Executive Fernando Chui Sai On published in the Official Gazette yesterday. The construction of the new prison project, located in
Ka Ho on Coloane island, is divided into four phases, the second of which was started in March and estimated to cost MOP1.1 billion. The president of the follow-up committee for public finance of the Legislative Assembly, Mak Soi Kun, told reporters this year that the first phase of the project was wrapped up with total expenditure amounting to MOP150 million.
Business Daily Tuesday, November 8 2016 3
Macau
Hengqin
Shaping a revolution Have you been to Hengqin lately? The not-so-long-ago almost deserted island is unrecognisable. And it’s just the beginning. Last weekend, it hosted the high profile women’s WTA Elite Tennis Trophy. In a new complex that magnifies the fast-paced change of the neighbouring mountain across the river Paulo A. Azevedo newsdesk@macaubusinessdaily.com
M
acau seldom notices the silent revolution that is taking shape in Hengqin, aside from the new skyscrapers that have been built on the other side of the river. But going further into the mountain - some three times the size of this gaming territory - dozens of residential and office towers are shaping the not-so-long-ago almost deserted island. The three huge hotels that are part of the Chimelong theme park – two of them the biggest in China with their 1,600 and 1,888 rooms – are just the tip of the iceberg. The ocean resort is still expanding and in its plans are included seven more hotels to accommodate the tourists who want to entertain themselves near dolphins, polar bears and penguins. Tunnels below the new highways allow for the expansion of hundreds of kilometres of cabling, avoiding the opening and closing of the roads like those that every day disrupt the livelihoods of Macau citizens. Slowly, the project of a new city is taking shape. New offices, other mega hotels and sites already being developed by gaming operators here - like Galaxy, or Pansy Ho’s Shun Tak (which has a gaming licence with MGM) - will grow the hospitality
offer of Hengqin. A hospital is in the pipeline, in this earlier stage, and conveniences stores are already open even if the main part of the city, from schools to street restaurants and pharmacies, will appear at a later stage. “At this moment, we’re still bringing more investors. Two-thirds of the first phase is already taken”, a source with in-depth knowledge of the business blueprint explains to Business Daily. The municipality, however, decided to “compensate” for the lack of daily livelihood. And as a way to attract global attention, it is investing in international events. Last weekend, a full tennis centre saw world-ranked number 13 Petra Kvitova defeating - in the final lasting little over one hour - Elina Svitolina (worldranked #14) by 6/4 and 6/2. With the victory, the Czech player gets closer to the Top 10 in the WTA Rankings, now at 11th position. “This tournament is the third biggest in China and the top 10 or 12 on the WTA tour”, tournament Director Peter Johnston explained to Business Daily. Now in its second year of a five-year contract, the WTA-sanctioned Zhuhai tour, in the new multipurpose billion-Renminbi tennis centre “is also the year-end championship”, says the Australian in charge of the event, showcasing the importance of the investment being made
in a stretch of land that supported only mountains and empty fields just years ago.
Sport as an investment gateway
The US$2.2 million (MOP17.6 million/HK$17.1 million) tournament that brought high profile ambassador and former number one Steffi Graf doesn’t at this stage have a price tag, says Peter Johnston. “A lot of tennis tournaments around the world aim for a global audience using the vehicle of entertainment to showcase [their] city”, he says. Zhuhai chose tennis to bring the world’s attention to the city and Hengqin, with the event broadcast to 22 countries. Why tennis? The fact that a recent Grand Slam winner was Chinese Li Na, who achieved a career-high ranking of world number two, is no coincidence. “Because of her, tennis in China got many more fans”, says the previous WTA Asia Pacific Managing Director. While the city invests in its sports structure and in bringing international events for more international exposure, the Huajin Securities WTA Elite Trophy Zhuhai is gaining momentum with more sponsors. Even if sponsorship is just part of the overall equation, reflects Mr. Johnston. “There’s international broadcasting rights, corporate hospitality sales, tickets
Petra Kvitova and Elina Svitolina on top in the singles final of the Huajin Securities WTA Elite Trophy Zhuhai
sales and other things around the tournament that generate revenues, like merchandise”, he says. “We’ve been doing really well with local sponsorship and this year we started to get a couple more outside the region, like Lexus, who wants to be more active with its brands. And I think the next couple of years will allow us to have an increase of investment outside the region”, he tells this newspaper.
Macau as complement
Having a major tennis tournament, in principle, blocks the aspiration of neighbouring
areas, says Johnston. “It’s not only difficult to get these sanction tournaments but the tour also protects the number of events”, in order to maintain a larger impact. Also, “players can only participate in a certain number of them”, reminds the tournament director. M a c a u , h o w e v e r, i s seen as a “very important complement” to the event, in a first-time twist of statuses. Until today, Hengqin has always been seen as a complement to Macau’s growth. “Macau is a gateway for Hong Kong audiences and the fact that we’re so near is easier to attract top players”, Johnston notes, adding “almost every night” the high-ranking tennis players have been in Macau to dine.
A new multi-purpose billion-Renminbi tennis centre glows on a stretch of land that held only mountains and empty fields just some years ago
Peter Johnston: Tennis tournaments can be a vehicle for showcasing your city
4 Business Daily Tuesday, November 8 2016
Macau Opinion
Albano Martins* Salary Tax Lionel Leong changed the Complementary Tax (CT), doubling its exemption to MOP600,000. Until the date of the change, those who worked for others, receiving wages, had a more favourable tax regime regarding the Salary Tax (ST) than the one that focused on corporate profits (Complementary Tax). This scheme for workers was always more favourable for any kind of income level. Everything has been reversed with the new Complementary Tax table, implemented by Lionel Leong! Be aware that in ST we are talking about taxable income, which, with only a very few exceptions, is not subject to deductions of any kind of expenses; while in the case of Complementary Tax, the net income is taxed - that is: the income deducted of all the expenses! That’s why ST was more favourable before the last changes. Since the date of the change there has been a clear ‘tax injustice’. We can say that now those who have a taxable income below MOP769,000 a year, equivalent to 14 wages of MOP54,929 a month, pay more tax than an entrepreneur with equal profit in CT. If the exemption of MOP600,000 for the CT was extended to the ST, whoever earned MOP42,857.14 per month, with 14 months of remuneration, was exempt from paying tax. But it’s not like that. The government, while not simultaneously changing the ST, created a serious imbalance in the taxation system. Above all, the most affected are the most disadvantaged classes and the middle class. Whoever earns MOP600,000 a year in ST will pay MOP9,644 tax after all exemptions, deductions and returns. Today, in the ST, tax is payable from MOP13,715/ month up, with 14 months remuneration per year. Those who receive wages cannot escape paying taxes because the tax is immediately kept by the company, while in the CT - where more than 90 per cent of companies are in group B, and are not required to have organised accounting, tax evasion is widespread. This more favourable treatment of CT is clearly an invitation to ‘financial engineering’! It is time to deal more favourably with the ST and end this long and complicated process that does not solve the tax injustice. My suggestion would be to go to a Salary Tax table with an exemption limit of MOP770,000 and defined levels of taxes that never allow anybody to pay more taxes in ST than in Complementary Tax. * an economist and contributor to this newspaper
Monetary
Credit card turnover hits MOP4.68 bln in Q3 The total number of personal credit cards in circulation continued to grow in the quarter Kam Leong kamleong@macaubusinessdaily.com
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ocal banks saw the total amount of credit card transactions register a quarter-to-quarter increase for the third quarter of the year as they slightly expanded the total credit limit granted, according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM). Over the three months, total credit card turnover recorded by local banks amounted to MOP4.68 billion (US$586 million), which is up by 3.1 per cent compared to MOP4.5 billion for the second quarter of the year. In addition, the turnover amount represents a growth of 5.3 per cent year-on-year as well.
Of total credit card turnover in the period, cash advance turnover decreased by 4.4 per cent quarter-to-quarter to MOP220.7 million from MOP230.8 million. On a yearon-year comparison, the amount fell 0.5 per cent. Meanwhile, credit card repayments in the quarter jumped 8 per cent quarter-to-quarter, or 5.3 per cent year-on-year, amounting to MOP4.8 billion in total.
Credit card circulation expands
As at the end of the quarter, a total of 1.03 million credit cards, issued directly or indirectly by local banks, were in circulation in the Special Administrative Region, a rise of 2.1 per cent quarter-to-quarter, or 14.6 per cent year-on-year. Total credit limits granted by banks
to cardholders amounted to MOP24 billion as at the end of September, which grew by 1.6 per cent quarter-to-quarter from MOP23.7 billion. Compared to the end of September 2015, the total amount of credit limit granted represents a growth of 18.5 per cent. Of the credit cards in circulation the number of Pataca cards amounted to 730,162, some70.8 per cent of the total and an increase of 2.1 per cent quarter-to-quarter. Meanwhile, other credit cards in circulation were primarily Hong Kong Dollar cards and Renminbi Cards, which totalled 87,607 and 213,449, a growth of 1.9 per cent and 2.4 per cent quarter-to-quarter, respectively. On an annual basis, the growth of Pataca cards and Hong Kong Dollar cards reached 12.5 per cent and 9.8 per cent, respectively, slower than the increase of RMB cards, which were up 25 per cent year-on-year despite the majority being Pataca/ RMB dual-currency cards. Meanwhile, the amount of credit card receivables totalled MOP2.28 billion for the quarter, down 1.6 per cent quarter-to-quarter from MOP2.3 billion. However, the amount went up by 7.8 per cent compared to the same period last year. Of total credit card receivables, the rollover amount accounted for 31.5 per cent to MOP718.5 million, an increase of 1.9 per cent quarter-to-quarter, or 11.6 per cent year-on-year. Meanwhile, the delinquency ratio - the ratio of delinquent amounts overdue for more than three months to credit card receivables – is slightly up, to 1.51 per cent at the end of the quarter, compared to 1.46 per cent at June.
Politics
Chair reshuffle Cristina Morais vacates position as co-ordinator of the Forum Macao Supporting Office after one year of service Cristina Morais left her position as co-ordinator for the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao) Supporting Office, effective
November 2, according to a release by the Office of the Secretary for Economy and Finance. According to the release, Ms. Morais
was appointed November 3 as head of the Macau Economic Services (DSE) Department of External Economic Relations, the same position she held between 2009 and 2015, with the recent appointment being effective for one year. The release didn’t provide further information on who will be appointed to the now-vacant Forum Macao Supporting Office position. N.M.
Research body
Policy Research Office’s operational period extended Infrastructure
Island Medical Complex contract goes to China Construction China Construction Engineering (Macau) Co. Ltd. has been awarded a contract worth MOP145.1 million (US$18.1 million) for the piling foundation works of the central laboratory of the Island Medical Complex. According to a dispatch by the MSAR’s Chief Executive, Fernando Chui Sai On, the contract will last two years, with the
government paying the contractor MOP50 million this fiscal year and a further MOP95.1 million in the next fiscal year. China Construction has been awarded several contracts for public works, including that of the Barra transportation hub worth MOP1.2 billion - and for the superstructure of the LRT depot, worth MOP1.1 billion.
Due to the non-completion of its responsibilities, the MSAR Policy Research Office (Gabinete de Estudo das Políticas do Governo da Região Administrativa Especial de Macau), operational since 2010, has had its operating period renewed for another three years - until December 31, 2019, according to a dispatch posted in the Official Gazette yesterday. The Office mainly focuses on conducting research on politics, law, economics, society and culture in the city, as well as providing technical and organisational support for the Chief Executive. The current co-ordinator of the Office is Lao Pun Lap. C.U.
Business Daily Tuesday, November 8 2016 5
Macau Retail
Wholesale & retail trade gross surplus dives 22.3 pct in 2015 Last year, the industry’s contribution to the local economy narrowed by 10.7 per cent year-on-year as receipts from establishments dwindled Kam Leong kamleong@macaubusinessdaily.com
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he total gross surplus of the wholesale and retail trade industry plunged 22.3 per cent year-on-year to MOP10.83 billion (US$1.4 billion) for the whole of 2015 due to ‘the impact of local economic adjustment,’ says the Statistics and Census Service (DSEC). The Bureau’s latest official data, released yesterday, shows that the industry’s total receipts dropped 5.6 per cent year-on-year to MOP108.7 billion. In addition, its gross value added - which measures the industry’s contribution to the local economy - dived by 10.7 per cent yearon-year to MOP19.3 billion. However, the industry’s gross fixed capital formation - which measures the net increase in fixed capital and is a component of gross domestic product (GDP) - surged 125.1 per cent year-on-year to MOP3.02 billion due to the acquisition of real estate by a number of retail establishments. Analysed by industry, a total of 6,484 retail establishments were operating in the MSAR as at the end of last year, a decrease of 13 establishments year-on-year. The total gross surplus of the sector plummeted 30.8
per cent year-on-year to MOP7.07 billion, while gross value added went down by 16.9 per cent year-on-year to MOP12.5 billion, yet gross fixed capital formation nearly tripled in value to MOP3.23 billion upon the acquisition of real estate. The retail segment experienced a decrease of 4.4 per cent year-on-year in its total receipts, which amounted to MOP65.9 billion for the year. In particular, due to a decline in visitor spending, receipts from the sales of watches, clocks & jewellery goods (MOP14.6 billion), department stores (MOP9.5 billion), and leather articles (MOP6.1 billion) recorded two-digit decreases, down 20.8 per cent, 17.3 per cent and 27.6 per cent year-on-year, respectively. Nevertheless, receipts from retail sales of adult clothing grew 19.7 per cent year-on-year to MOP8.6 billion, whilst those from household appliances surged 63.4 per cent year-onyear to MOP5.6 billion. In terms of sales of motor vehicles and automotive fuel, DSEC said that the 985 establishments in the sector had generated a total of MOP534 million in gross surplus, up 5.5 per cent year-on-year. The growth is due mainly to the segment derived from maintenance and the repair of vehicles soaring 88.3 per cent to
MOP90 million. However, due to a slowdown in domestic demand, receipts from sales of motor vehicles fell 13.9 per cent year-on-year to MOP4.02 billion whilst those from retail sales of automotive fuel dropped 12.1 per cent year-on-year to MOP1.32 billion as a result of the decline in fuel prices.
Wholesale
Meanwhile, establishments engaged in the wholesale business reported a gross surplus of MOP2.94 billion for the whole year of 2015, down 0.4 per cent year-on-year, while gross value added of the segment increased 3.3 per cent year-on-year to MOP5.39 billion. According to DSEC, some 4,910
establishments were operating in the field, down 55 year-on-year. Total receipts from the industry fell 7.5 per cent year-on-year to MOP34.3 billion due to those from wholesale fuels (MOP4.2 billion) and those of machinery, equipment & supplies (MOP5.3 billion) plunging 36.5 per cent and 17.1 per cent, respectively. However, receipts earned from the wholesale of food recorded a year-on-year growth of 10 per cent, amounting to MOP12.6 billion. For the whole of 2015, some 63,472 individuals were engaged in the wholesale & retail trade industry, including those on market stalls and fixed stalls on the street. Of the total, employees accounted for nearly 82 per cent, at 51,902.
6 Business Daily Tuesday, November 8 2016
Gaming Gaming
New anti-money laundering changes expected to positively impact inward investment
Staying positive Macao and Wynn Palace - Wells Fargo analysts still consider the third quarter results to be insufficient to assess the properties’ potential; stating, however, that Wynn Palace is ‘clearly being impacted by construction’ while The Parisian Macao is ‘benefiting from high-margin walk-in traffic’.
measures at the end of this month. Last week the Macau Executive Council proposed changes to two anti-money laundering laws from 2006 in order to widen the scope of identifiable money laundering offences and prevention of terrorism financing. The proposed changes will be debated at the Legislative Assembly (AL) prior to potential implementation. Wells Fargo also indicated that mass market revenues will improve through better infrastructure, additional hotel room offers on the Cotai Strip and improvements in gaming table technology.
Investment safe
Cheaper hotel rooms
Gaming analysts expect positive gross gaming revenue growth to continue in November, predicting an annual growth rate of between 5 per cent and 11 per cent Nelson Moura nelson.moura@macaubusinessdaily.com
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ells Fargo analysts predict single-digit growth in the MSAR’s gross gaming revenues of 5 per cent to 11 per cent as the market stabilises. With October average daily revenues reaching MOP704 million (US$88.1 million) per day and 8.8 per cent year-on-year growth in gross gaming revenues for the month, Wells Fargo expects November average daily revenues (ADR) to follow historical seasonality with an in-store ADR month-to-month decrease of 14 per cent. With regard to the new integrated resorts opened in Cotai - The Parisian
The analyst firm also considers proposed changes to anti-money laundering, increased junket regulations and stricter regulations on large money flows to and from Macau will ‘have positive implications in attracting investment’. The Asia Pacific Group on Money Laundering is set to conduct its audit on Macau’s anti-money laundering and fiscal
In terms of hotel room offerings, Wells Fargo data stated that new supply has led to more ‘pressure’ on room rates, with room rate averages having decreased 14.2 per cent yearon-year in October from HK$1,696 to HK$1,455, and predicting November will suffer a 15.4 per cent decrease year-on-year from HK$1,534 to HK$1,297.
Analysed by gaming operators, the firm predicts November will see average room rates from, Melco Crown Entertainment Ltd., Sands China Ltd., Wynn Macau Ltd. and MGM Grand Macau properties decrease year-on-year by 38.2 per cent to HK$1,387; 20.8 per cent to HK$1,122; 18.9 per cent to HK$1,878 and 7.9 per cent to HK$1,838. However, Galaxy Entertainment Group properties were estimated to increase in November by 2.1 per cent year-on-year to HK$1,321.
Lottery
MelcoLot net loss narrowed to HK$16.7 mln as at Q3 The operator predicts that the lottery market in China will remain challenging Kam Leong kamleong@macaubusinessdaily.com
Chinese sports lottery operator MelcoLot Ltd., a company controlled by local gaming mogul Lawrence Ho Yau Lung, reported a net loss of HK$16.7 million (US$2.1 million) for the first nine months of the year, narrowing from the loss of HK$25.9 million seen during the same period of last year. According to its latest filing with the Hong Kong Stock Exchange, the sports lottery operator generated revenues amounting to HK$53 million during the nine-month period, a surge of 56 per cent year-on-year compared to HK$34 million recorded one year ago. The increase in revenue was boosted by the significant growth in the
company’s sales of lottery terminals and parts, which surged 83 per cent year-on-year to HK$52.3 million from HK$28.5 million. Nevertheless, the company’s revenue derived from the provision of services and solutions for the distribution of lottery products plunged 87 per cent year-on-year to some HK$683,000 compared to HK$5.4 million for the same period of 2015. The company noted that the improvement in the financial results for the nine-month period was due to the decline in employee benefit costs and the increase in interest income. For the period, the operator did not propose any interim dividend. In the filing, despite the Hong Kong-listed operator pointing out that China’s lottery market ‘continued
to show steady growth,’ it indicates that the market will remain challenging ‘due to the evolving regulatory environment’, adding that it would seek to develop its business outside the country.
‘We are closely monitoring the development of this growing market in [China],’ it wrote. ‘At the same time, we are continuing to pursue the opportunities to develop international projects and explore [Chinese] business opportunities which can leverage our corporate expertise in the gaming and entertainment industry’.
Gaming Melco integrated resort construction in Cyprus expected to start in Q1 2017
Green light for Cyprus Melco-Hard Rock consortium bid for a Cyprus gaming licence approved by the Mediterranean country’s government Nelson Moura nelson.moura@macaubusinessdaily.com
Melco International Development Ltd. (Melco) has confirmed to Business Daily that the Cyprus Ministry of Energy, Commerce, Industry and Tourism has approved its joint bid with Hard Rock International and Cyprus Phasouri Ltd. for a Cyprus gaming licence. According to Melco, the Cyprus Government considers that the consortium proposal ‘has satisfied the technical requirements of the second phase of the tender process of licensing a single integrated casino resort in the Republic of Cyprus’ to be granted a 30-year gaming licence plus the rights to a monopoly in the country for the first 15 years. ‘The Consortium welcomes the decision and looks forward to collaborating with the Cyprus Government to meet the set targets and establish a world class integrated casino resort
that will be highly beneficial to the economy and tourism of Cyprus,’ the Melco statement sent to Business Daily announced.
The Cyprus Government licence also allows the group to build a luxury 500-room hotel, and install 1,000 gaming machines and 100 gaming tables, with Melco-Hard Rock now having to apply for a construction permit. According to Cyprus Government statements quoted by the Mediterranean country’s newspaper Cyprus Mail, ‘the consortium has been invited by the co-ordinating committee to submit an application for licensing, under which the due diligence check
will be carried out as provided by the documents of the invitation and the law. Subject to the successful completion of the aforementioned control, the permit will be issued’.
Starting in 2017
The consortium - which includes the company owned by local gaming entrepreneur Lawrence Ho Yau Lung – had announced previously that it planned to develop a casino-resort project in Limassol, the second largest city on the southern coast of Cyprus. According to Cyprus’ Deputy Minister Constantinos Petrides, quoted by Cyprus Mail, the resort construction is expected to start in the first quarter of 2017, adding that the project should bring 500 million euros (MOP4.4 billion/ US$553.2 million) in investment funding to the country, and create thousands of jobs. The group was left as sole bidder for the Cyprus gaming licence when last month the two remaining contenders - Cambodian casino operator NagaCorp Ltd. and the Philippines’ Bloomberry Resorts Corp. - decided to retract their bids. According to previous Cyprus news reports, the reason for the two companies giving up their bids could be related to the companies not being able to secure suitable plots for their proposed projects.
Business Daily Tuesday, November 8 2016 7
Gaming M&A
Hard Rock joins race for Japan casino, plans ‘major investment’ Hard Rock, LVS and MGM Resorts are all looking to start projects in Japan Grace Huang and Daniela Wei
H
ard R o c k C a f e International Inc. is prepared to make a “ m aj or in v est m e n t ” in Japan as lawmakers propose to renew the debate on legalizing casinos in the country.
10 billion US$ to
40 billion US$ Analyst estimates of worth of Japan’s yearly casino revenue
The U.S. cafe and casino chain is looking for partners to jointly bid for a license in anticipation that the legislature will approve gaming resorts, Chief Executive Officer Hamish Dodds said. “We can either play a lead role or a partnership role,” Dodds said in an interview in Tokyo. “We
really hope that we can collaborate w i t h Ja p a n e s e p a r t n e r s a n d institutions.” Ha r d R o c k j o i n s o p e rat o rs including Las Vegas Sands Corp. and MGM Resorts International in looking to start projects in Japan as legislators propose to reintroduce a bill that would lead to legalizing casinos, which the country has been considering on-and-off for at least a decade. The privately-held company, which is expanding in China with rock’n’roll music-themed hotels and restaurants, said it gets more than half of its US$4.5 billion revenue from its gaming business.
Holy Grail
“The Japanese gaming market is to be the holy grail,” said Aaron Fischer, an analyst at CLSA Ltd., said by phone. He expects casino revenue there could be from US$10 billion to US$40 billion, with the potential to be “bigger than Macau,” depending on the number of integrated resorts. Macau’s casino industry generated about US$30 billion last year. The proposal has now regained momentum, said Dodds. A record tourism boom to Japan is helping fuel renewed interest in casinos. There could also be significant domestic demand, he said. Japan’s ubiquitous pachinko parlours -pinball-like betting games that
exist in a legal grey area -- are popular attractions. Japan last considered an Integrated Resorts Promotion Bill in April 2015, though the legislature failed to act on it amid opposition from legislators concerned about the prospect of increasing gambling addiction. The parliament’s lower house may debate casino legislation Nov. 9, the Nikkei news agency reported. Last week, executives of the largest global operators, including MGM Resorts, Las Vegas Sands and Wynn
Resorts Ltd. gathered in Tokyo at an integrated resorts and gaming conference to pitch local companies and politicians on their plans should casinos get the green light. Hard Rock was among the attendees. “The feeling we get is that this is more likely to happen now,” said Dodds, who expects the Japanese casino market to be more than US$10 billion. “There’s more noise, there’s greater discussions in the commercial sector about how and when this will be realized.” Bloomberg
8 Business Daily Tuesday, November 8 2016
Greater China Reshuffle
Beijing names new finance head Policy insiders expect new minister to continue fiscal reforms Kevin Yao and Elias Glenn
C
hina appointed a new finance minister yesterday who is expected to maintain an expansionary fiscal policy and push reforms to put a lid on rising debt levels in the economy. Xiao Jie, a former tax chief and Minister of Finance deputy minister, was named minister of finance, the official Xinhua new agency said yesterday. Xiao, 59, who is currently deputy secretary general of the State Council, replaces Lou Jiwei, who had served as finance minister since March 2013. Xinhua did not say why Lou is stepping down, but analysts and policy advisors told Reuters that Lou has to retire as he is 65. The reshuffle is expected to have little impact on fiscal policy, which is expected to be supportive in 2017 as the government leans more on increased spending and tax cuts to support growth, the analysts said. Last month, President Xi Jinping said China will maintain a proactive fiscal policy, adhere to prudent monetary policy and keep reasonably ample liquidity while focusing on controlling asset bubbles and controlling financial risks. China’s current fiscal deficit target is 3 per cent of gross domestic product (GDP), up from an actual 2.4 per cent in 2015. “The fiscal deficit is likely to expand further this year,” said a government economist who declined to be identified because he was not authorised to speak to the media. “Monetary policy could still be accommodative but the effectiveness of monetary policy is falling.” Some central bank officials have said China has room to raise its fiscal
deficit ratio to between 4 and 5 per cent to more effectively boost the economy. Policy insiders expect Xiao to continue fiscal reforms, but President Xi is seen as calling the shots in setting the key economic and reform agenda. Top leaders and policymakers are expected to map out the agenda for 2017 at the annual Central Economic Work Conference, expected in December.
Under the banner of prudent monetary policy, banks doled out a record amount of credit this year to support growth, but credit has been flowing into the property sector as the real economy weakens, and fuelled debt risks. The IMF has warned that the high corporate debt ratio of 145 per cent of GDP could lead to slower economic growth if not addressed. Last week, Lou said in written comments at a forum that China is
actively pushing reforms on property taxes as it overhauls its fiscal system. But policy insiders said the tax is unlikely to be rolled out any time soon due to debates on its economic impact. China also named Chen Wenqing as the new chief of the secretive Ministry of State Security, as well as a new head of civil affairs, at the closing of a regular session of the standing committee of China’s parliament. Reuters
Key Points Xiao Jie to become finance minister, replacing Lou Jiwei-Xinhua Reform-minded Lou to retire as he reaches 65 China seen maintaining expansionary fiscal policy to spur growth Risks posted by China’s growing debt and red-hot property market have touched off an internal debate over whether China should tolerate growth as low as 6 per cent in 2017 to allow more room for painful reforms. Lou has been pushing fiscal reforms under which tight controls have been imposed on new local government debt issuance to help ward off financial risks following a borrowing binge since the global financial crisis. Local governments have been allowed to swap high-cost maturing debt for lower-cost debt, under a programme that was kicked off in 2015. China’s overall debt has jumped to more than 250 per cent of GDP from 150 per cent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.
Lou Jiwei served as finance minister since March 2013
Foreign banks
Government may let Wall Street banks run own mainland units Most foreign-backed joint ventures remain minnows in China David Scheer
China may give Wall Street firms long-sought permission to run their own investment-banking arms on the mainland, the Wall Street Journal reported, citing unidentified people briefed on the talks. Officials in Beijing are considering the move amid discussions for a new trade and investment framework with
the U.S., the newspaper said. Under existing rules, U.S. firms offer services to companies on the mainland by taking minority stakes in joint ventures with China’s domestic brokerages. Such arrangements have long frustrated some of the world’s biggest banks, which have struggled to challenge local players in China while relinquishing control of key decisions, as well as a share of profits. JPMorgan Chase & Co., the largest U.S. bank, said last month it’s in talks to sell a stake in a partnership, JPMorgan First Capital Securities, potentially freeing itself to get more control through a new venture.
People briefed on China’s deliberations cautioned that talks are continuing and that details would need to be worked out with regulators, the Wall Street Journal said. An agreement also would need to be ratified by the U.S. Senate, the paper said.
Small share
Firms including Goldman Sachs Group Inc. and UBS Group AG also established Chinese joint ventures more than a decade ago. But most foreign-backed joint ventures remain minnows in China. JPMorgan First Capital ranked 120th out of China’s 125 securities firms
by net income in 2015, according to the Securities Association of China. UBS Securities Co. whose RMB296 million (US$44 million) profit was the biggest among foreign-backed joint ventures, came in at 95th place.
‘JPMorgan Chase & Co. said last month it’s in talks to sell a stake in a partnership potentially freeing itself to get more control through a new venture’ JPMorgan’s local partner, First Capital Securities Co., has said it’s held talks to buy the U.S. firm’s stake. The joint venture generated RMB156 million of revenue in the first half. JPMorgan has weighed options including forming a new joint venture under a framework established in the Shanghai Free Trade Zone, people familiar with the matter said last month. That framework opens the door for overseas banks to achieve greater control of local ventures and pick partners that aren’t in the securities business, they said. Even so, the rules have yet to be finalized, the people said. Bloomberg News
Business Daily Tuesday, November 8 2016 9
Greater China Stock markets
In Brief
Evergrande seeks US$33 bln valuation for Shenzhen listing The company would be worth 3.7 times the current Hong Kong-listed firm Clare Jim
China Evergrande Group said it is seeking a market value of US$33.7 billion in its Shenzhen backdoor listing that will house most of its property assets, according to a document for investors seen by Reuters yesterday.
Key Points
will hold 82 per cent of the Shenzhen-listed company and house all its other businesses across the finance, tourism, culture and the internet sectors such as Evergrande Health Industry Group and internet finance firm HengTen Networks Group. The document said Evergrande is seeking RMB30 billion in investment from strategic investors who would hold 12 per cent of the
Shenzhen-listed firm, while the public would hold 6 per cent. It aims to complete the restructuring by the end of April. Representatives for Evergrande were not immediately available for comment. Regulators have yet to comment publicly on the plans for a back door listing. Evergrande’s plans follow the delisting of Dalian Wanda Commercial Properties from the Hong Kong stock exchange in September. Wanda plans to relist the company at a later stage on the mainland. Evergrande has captured investor attention after amassing some US$57 billion in debt, almost six times its market value, due to acquisitions of companies and land. Reuters
Seeking RMB30 bln from strategic investors
The top legislature yesterday adopted a law on the film industry, promising harsh punishment for firms that fabricate box office earnings or information. Film distributors and theatres will have all their illegal earnings confiscated and be fined upward of 50,000 yuan (about US$7,380) if they falsify ticket sales, according to the law adopted at the National People’s Congress (NPC) Standing Committee bi-monthly session after a third reading. If their illegal earnings exceed 500,000 yuan, the fine will be up to five times their illegitimate earnings.
Uranium demand to double by 2020
Evergrande to hold 82 pct, 6 pct would be held by public
Chinese demand for uranium is expected to nearly double to 9,800 tonnes per year by 2020 from the end of 2015, although a near-term supply glut will keep prices depressed, said the head of a unit of state-owned China National Nuclear Corporation (CNNC). China is in the middle of a nuclear reactor building programme and aims to have 58 gigawatts (GW) of capacity in full commercial operation by the end of 2020, up from 30.7 GW at the end of July. But Wang Ying, chief executive of CNNC International, said that only around 53 GW of capacity would likely be online by the turn of the decade.
The injection of assets in Shenzhen Special Economic Zone Real Estate & Properties (Shenzhen Real Estate) is aimed at taking advantage of higher valuations commanded on the mainland due to a large pool of retail investors - making it easier for heavily indebted Evergrande to raise funds. The Shenzhen-listed firm will have most of its property assets as well as a football club, Guangzhou Evergrande Taobao Football Club Co Ltd. At its estimated market value of RMB228 billion (US$33.7 billion), the company would be worth 3.7 times the current Hong Kong-listed firm. The future Hong Kong-listed firm
Education
Government bans for-profit private schools in compulsory program
China has banned profit-led private schools from the nine-year compulsory education system, which covers primary to junior high school years, according to a revised law. The revised law on private education was adopted yesterday at the close of the National People’s Congress (NPC) Standing Committee’s bi-monthly session after a third reading. China’s compulsory education is a
Beijing has law on film industry
CNNC
Strategic investors would have 12 pct of the firm
Non-profit private schools will enjoy equal policies as public schools in land use and taxation
Legislation
nationwide free system, supported b y f undi ng from the c e nt ra l government. The system is a public service that must be provided by the government, said Zhu Zhiwen, vice minister of education, at a press conference after the law’s revision was finalized. “Profit-led private schools are unsuitable for the free education program,” Zhu said. He stressed that private schools are still allowed to offer diversified, market-oriented paid educational services, as long as they comply with the law. China has about 162,700 private schools nationwide with more than
CEO
45.7 million students, according to figures from the Ministry of Education. Currently none of the registered private primary and junior high schools are for-profit, and the law will only have impact on those who want to turn their schools into profitled establishments, added Zhu.
‘China has about 162,700 private schools nationwide with more than 45.7 million students’ The revised law, which will take effect on Sept. 1, 2017, clearly defines for-profit and non-profit private schools and specifies different measures to support private education. Non-profit private schools will enjoy equal policies as public schools in land use and taxation. A l l p r i va t e s c h o o l s sh o u l d guarantee the staff’s legitimate interests in salary and welfare, and are supposed to pay social insurance contributions for their employees, according to the law. Private schools must establish a sound internal supervision system and entrust a third-party agency to inspect their educational environment. They should also establish an information publicity system. Any institution found to have issued fake degrees or educational certificates, will be punished. “Communist Party of China groups in private schools should carry out Party activities according to the Party Constitution and strengthen Party building,” read one of the articles in the revised law. Xinhua
Peer-to-peer lender Lufax positive on IPO Lufax, China’s biggest peerto-peer lending and wealth management platform, sees a potential listing helping to fund expansion at home and abroad, though it has set no specific timeline for a deal, Chief Executive Officer Gregory Gibb told Reuters in an interview yesterday. Valued at US$18.5 billion when it raised US$1.2 billion from a group of investors in January, Lufax picked four banks to prepare a Hong Kong initial public offering that could raise US$5 billion, sources said previously. Giant Chinese insurer Ping An Insurance is its biggest investor. Conflict of interest
“Prince” of Baidu resigns after probe A top Baidu Inc executive, widely seen as a potential successor to chief executive Robin Li, has resigned after an internal company probe found conflicts of interest involving another firm acquired by the Chinese search engine giant. Li Mingyuan, 32, known as the “prince” of Baidu within China’s tech community, stepped down following the investigation, according to an internal email seen by Reuters and independently confirmed by two people at the firm. The memo, sent to Baidu employees on Friday evening, said Li had engaged in “huge” economic dealings with a person in charge of a separate company acquired by Baidu.
10 Business Daily Tuesday, November 8 2016
Greater China
Expansion
Mainland firms eye ‘Made in Vietnam’ windfall - if Obama’s TPP survives A base in Vietnam gives Chinese manufacturers access to trade agreements of which China is not currently a part My Pham
F
rom textiles and shoes to paper and furniture, Chinese manufacturers are pouring investments into neighbouring Vietnam, hoping to ride on the coattails of the Southeast Asian country’s pending trade blitz. Vietnam’s Free Trade Agreement (FTA) with the European Union, signed last year, and the Trans Pacific Partnership (TPP), if it clears significant political hurdles in the U.S., would collectively give the country access to markets worth US$44 trillion in combined gross domestic product. Even as doubts linger over the future of U.S. President Barack Obama’s TPP once he leaves office, early moves by China Inc to leverage off Vietnam’s lower factory wages about a third that of China’s - show a re-centring of the world’s factory activity. Importantly, a base in Vietnam gives Chinese manufacturers access to trade agreements of which China is not currently a part. “So far this year, I’ve had more than 30 Chinese wood companies coming to me for consultation,” said Nguyen Ton Quyen, who heads Vietnam’s Timber and Forest Product Association. “There’s a considerable amount of Chinese wood furniture firms moving their investments to Vietnam, to
enjoy tax incentives.” Chinese inflows into Vietnam in 2015 doubled from a year earlier to US$744 million and 80 per cent of that was in the second half of the year, just after Vietnam signed the EU FTA and the TPP. In the first nine months of this year, investments from China quadrupled to US$1 billion compared with the same period in 2015. Vietnam has numerous other free trade agreements, including with top investor South Korea, supporting resident giants like Samsung and LG. As a part of the Association of Southeast Asian Nations, it also enjoys free trade with other members of the 10-nation zone, plus the various bilateral agreements the bloc has with other economies, like China. Nguyen Chien Thang runs a furniture factory and is also feeling the Chinese surge. He estimates a third of the approximately 500 foreign-owned wood processing firms in Vietnam are from China and Taiwan, adding to competition for his Scansia Pacific, a supplier for Swedish giant IKEA. “Tax rates here are also much more favourable,” said Thang. “Labour costs in their mainland are getting much higher.”
Manufacturing muscle
Much of the investment is going into Vietnam’s textile industry, the second biggest garment exporter to the U.S. after China, supplying brands such
as Nike, Adidas, Zara, Armani, and Lacoste. The U.S. Department of Commerce projects U.S. imports of textile and apparel from Vietnam to jump 45 per cent to US$16.4 billion by 2025 from 2015 while such imports from China are expected to tumble 45 per cent to US$23.7 billion. Vietnam’s trade agreements with TPP and the EU require textile manufacturers source their own yarns, dyes and fabrics locally or from within the respective trade blocs. For Chinese firms in Vietnam, this means securing access to local supply chains. To prepare for TPP, Chinese textile group Texhong Textile is building a US$450 million industrial park in northern Quang Ninh province, with an additional US$640 million
Key Points Chinese manufacturers seek trading base in Vietnam Vietnam’s FTAs give Chinese firms new trade options TPP’s political survival in question for supporting industries. To be sure, this year’s U.S. presidential campaign has cast deep doubts over the TPP. Before last year, TPP approval on Capitol Hill looked highly likely, but now neither candidate is willing to support a deal that could have implications for U.S. jobs. Donald Trump has called the TPP a “death blow” for U.S. manufacturing, while rival Hillary Clinton appears to have backtracked on her previous advocacy for the TPP while serving
as Obama’s Secretary of State. While U.S. political noise has created anxiety for those invested in Vietnam, there are hopes Clinton might change her tune on TPP or seek an alternative version of it if she becomes president, in contrast to Trump’s more stridently protectionist policies. Amid the uncertainty, Vietnam’s ruling party has taken the ratification of the TPP off its agenda this year. “Vietnam so far hasn’t shown a clear opinion on the two candidates ... but Vietnamese people have shown clearly that they want Hillary Clinton to win,” said economist and former government advisor Le Dang Doanh.
Surprising consequences
Even with the TPP in doubt, Chinese firms are looking to leverage off Vietnam’s clout as an emerging industrial and trade power. Ironically, deals like TPP, Obama’s signature trade policy intended to boost American influence in Asia and challenge that of China, have actually encouraged Chinese engagement. Rising investment from China is also changing Vietnam in other ways. Anti-China sentiment is entrenched in Vietnam, shaped by centuries of perceived Chinese bullying and sustained by recurring wrangles over sovereignty in the South China Sea. But there are signs Vietnamese are putting nationalist ideals aside and are learning Chinese, in the hope of getting jobs offered by China Inc and swarms of Taiwanese investors. In the sprawling industrialised province of Binh Duong, China and Taiwan are bringing huge job opportunities, with the two countries accounting for a third of over 100 new investment projects announced in the first five months of 2016. “I don’t like China, or Chinese, but their firms are coming here more and more,” said Minh Anh, a university student who juggles Chinese classes at night with university lectures and a part-time job by day. “Speaking Chinese may widen my job opportunities and help me earn a good job with good benefits.” Reuters
Business Daily Tuesday, November 8 2016 11
Asia Central bank minutes
Bank of Japan admits time needed to hit price target Data yesterday showed real wages rose for the eighth consecutive month in September Leika Kihara
A
majority of Bank of Japan (BOJ) policymakers believe it could take time for inflation expectations to firm, underscoring lingering doubts on how effective the BOJ’s new policy framework would be in achieving its ambitious 2 per cent price target. The nine board members also disagreed on whether the BOJ’s massive stimulus programme would help spur public expectations of future price rises, minutes of the central bank’s September policy meeting showed yesterday. The minutes suggested that the make-over of the BOJ’s policy framework in September had done little to narrow differences within its fragmented board and may reinforce doubts among investors on the BOJ’s ability to cast off years of deflation amid its dwindling policy ammunition. “Some members said firms’ cautious price-setting behaviour might continue for longer than expected,” as recent declines in consumer prices prevent inflation expectations from heightening, the minutes showed. “Many members expressed the view it could take time for (the BOJ’s policies) to heighten inflation expectations,” according to the minutes,
which did not specify how many of them agreed to the view. At the Sept. 20-21 meeting, the BOJ switched its policy target to interest rates from base money - or the pace of money printing - after years of massive asset purchases failed to jolt the economy out of stagnation. Under a new “yield curve control”
(YCC) framework, the BOJ’s main easing mechanism would be to deepen negative interest rates, accompanied if needed by a cut in its 10-year government yield target. While ditching its base money target, the central bank left a loose pledge to keep buying government bonds at the current pace in a move largely seen as a compromise to advocates of aggressive money printing on the board. “One member noted that a
long-run relationship between the monetary base and inflation expectations was not observed,” the minutes showed. Another board member countered the argument, saying that such a relationship “existed theoretically,” because the BOJ’s aggressive money printing could boost public sentiment by weakening the yen and boosting stock prices, the minutes showed.
Key Points Some board members warn of uncertainty on price outlook Board disagree on effect of heavy money printing-minutes BOJ revamped policy framework at Sept meeting Real wages up in Sept, may help consumption ahead
Several board members echoed the view voiced publicly by Governor Haruhiko Kuroda (pictured) that the new framework would make its monetary policy more flexible by allowing it to directly target interest rates
Several board members echoed the view voiced publicly by Governor Haruhiko Kuroda that the new framework would make its monetary policy more flexible by allowing it to directly target interest rates rather than trying to indirectly influence them through bond purchases. But one member said achieving both the interest rate targets and maintaining a loose goal on the pace of bond buying at the same time was “difficult,” the minutes said. Japan’s core consumer prices fell for a seventh straight month and household spending slumped in September, underscoring the challenges of hitting the BOJ’s 2 percent inflation target. In a glimmer of hope, however, data yesterday showed real wages rose for the eighth consecutive month in September, which could support consumption in coming months. Reuters
Inflation
New Zealand raises CPI estimate The agency said the correction was required after it discovered a “manual processing error” in the way it calculated transport prices Charlotte Greenfield
New Zealand’s statistics bureau yesterday corrected its third-quarter consumer price index to show inflation had risen faster than originally reported, just days before the country’s central bank was expected to cut interest rates to record lows. The Reserve Bank of New Zealand (RBNZ) is widely forecast to trim rates to 1.75 per cent on Thursday, largely because inflation has been uncomfortably low for far too long. Policy makers might thus be a little relieved after Statistics New Zealand corrected its consumer price index to show a 0.3 per cent rise in the three months to September, up from the 0.2 per cent originally reported. The correction put annual inflation at 0.4 per cent, up from 0.2 per cent, though still below the central bank’s long term target band of 1 to 3 per cent. The agency said the correction was required after it discovered a “manual processing error” in the way it calculated transport prices.
“I don’t think it’s relevant to what they (RBNZ) already had lined up for this Thursday, I’d be flabbergasted if it did,” said BNZ senior economist Craig Ebert.
1.75 per cent on Nov. 10. A recent run of upbeat activity data has underlined the economy’s vigour, yet inflation still remains low enough that it risks an unwelcome spiral into deflation. The RBNZ would likely ease to avoid creating any volatility in markets and to ensure inflation does rise back into its target band as desired, economists said. Yet the upward revision to inflation
did strengthen the case for holding rates next year. “The angst about inflation expectations and whether the CPI’s going to pick up at all will maybe start to dissipate,” said Ebert. The non-tradable consumer price index rose 0.5 per cent on the quarter, corrected from the originally reported 0.3 per cent. Its annual rise was 2.4 per cent, not 2.1 per cent as previously reported. Reuters
“I don’t think it’s relevant to what they (RBNZ) already had lined up for this Thursday, I’d be flabbergasted if it did” Craig Ebert, BNZ senior economist
The RBNZ has all but committed itself to at least one more easing, which is why 30 out of 33 economists polled by Reuters expect rates to be cut by 25 basis points to an all-time low of
The Reserve Bank of New Zealand headquarters
12 Business Daily Tuesday, November 8 2016
Asia GDP
Indonesia’s growth slows Household consumption, which accounts for more than half of Indonesia’s GDP, remained solid in the third quarter Nilufar Rizki and Gayatri Suroyo
I
ndonesia’s economic growth weakened in the third quarter, hurt by a slowdown in major trading partners and a slump in government spending, suggesting the economy could struggle to mount a solid rebound over the next year. Southeast Asia’s largest economy grew 5.02 per cent on an annual basis in July-September, the statistics bureau said yesterday, broadly in line with expectations in a Reuters poll, but slower than the 5.19 per cent in the second quarter.
Key Points
period last year, the data showed. Faced with a significant budget shortfall, Indonesia’s finance minister announced a US$10.2 billion budget cut for the whole of 2016 in August. The resource-reliant economy has been hobbled in recent years by low global commodity prices, cooling growth in its trading partners, tepid foreign investment and infrastructure bottlenecks. Last year’s growth of 4.8 per cent was the weakest since 2009. Capital Economics’ analyst Oliver Jones said the slowdown supported its view of Indonesia’s growth likely remaining stuck around 5 per cent for the next five years. “While we don’t expect growth to
weaken any further, with fiscal and monetary policy unlikely to provide much more support, a significant revival also looks unlikely,” Jones said in a note. Moreover, DBS economist Gundy Cahyadi said “the one worrying sign is that investment growth has actually eased to 4 per cent from 5 per cent previously”, which he linked to the moderation in government spending.
Positive signs?
Still, it’s not all doom and gloom. Many analysts argue additional revenue collection from the government’s flagship tax amnesty, which generated 98 trillion rupiah (US$7.49 billion) in state revenue, could help cushion the economy from aggressive state spending cuts. Prices of palm oil and mining products like coal and nickel have risen in recent months. The benefits were seen in the mining sector returning to
growth in the June-September period after shrinking for six consecutive quarters. Household consumption, which accounts for more than half of Indonesia’s GDP, also remained solid in the third quarter, possibly helped by Bank Indonesia’s six interest rate cuts in 2016. A few days after a surprise rate cut in October, Bank Indonesia Governor Agus Martowardojo said the easing bias will remain in place in a sign the central bank could add to the 150 basis points of cuts delivered this year. However, with the prospect of rising U.S. interest rates and a presidential election there hurting the rupiah, Aldian Taloputra, Standard Chartered economist, said BI might want to stay on hold until year-end. “The economy is gradually improving and I think the third quarter figure is very much as expected. We can see there was no shock in the market, so there’s nothing to worry,” said Josua Pardede, a Bank Permata economist in Jakarta. Reuters
Q3 growth 5.02 pct y/y, close to Reuters poll Export contraction, govt spending slump hit growth - stats bureau Outlook suggests growth might be stuck around 5 pct for sometime - analyst
The third quarter result puts Indonesia further away from President Joko Widodo’s ambitious 7 per cent growth pledge, a goal he announced when campaigning for the presidency in 2014 only to see it pushed into the distance by slow reforms, red tape and weak global demand. A contraction in exports deepened to 6 per cent in the third quarter, from the 2.73 per cent slump in the previous quarter, due to slowing growth in China, Singapore and South Korea, head of the bureau Suhariyanto said. Government spending tumbled 45 trillion rupiah (US$3.44 billion) during July-September from the same
Political crisis
S.Korea’s opposition demand new prime minister Three major opposition parties have called on the president to accept parliament-proposed prime minister South Korea’s opposition political parties yesterday demanded the retraction of prime minister nomination, which they claimed was “unilaterally decided upon by President Park Geun-hye.” Unless President Park accepts new prime minister proposed by a parliamentary agreement, political campaigns to demand the president’s resignation is expected to kick off in the near future. Choo Mi-ae, chairwoman of the main opposition Minjoo Party, told a supreme council meeting that President Park must cancel the cabinet reshuffle, which goes against the public sentiment, and nominate a new prime minister proposed by the parliament. If Park turns her head away from the demand, Choo said, the Minjoo Party will have no choice but to get into a campaign to force the president to step down. Three major opposition parties, including the People’s Party and the Justice Party, have called on
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the president to accept parliamentproposed prime minister and let him choose cabinet members in order to form a politically-neutral coalition cabinet. President Park appointed three cabinet members, including the prime minister nominee Kim Byong-joon, last week, but the oppositions have boycotted parliamentary hearing
for approval as the nomination was a result of “unilateral” determination by the president without any prior notice and consultation with the parliament. Some of Minjoo Party lawmakers stressed the need for Park’s resignation and even impeachment in their separate interviews with local media outlets. Nine first-term lawmakers of the People’s Party issued a statement calling for the president’s resignation. The opposition parties have also demanded an independent prosecutor probe and a separate
South Koreans hold placards and candles as they march to protest against South Korean President Park Geun-Hye, in Seoul, South Korea, late 05 November 2016. Lusa
parliamentary investigation into the scandal involving President Park’s long-time confidante and her former key aides.
‘Choo Mi-ae, chairwoman of the main opposition Minjoo Party, said that if Park turns her head away from the demand, the party will have no choice but to get into a campaign to force the president to step down’ The Minjoo Party already drew up a draft bill on the independent counsel investigation that mobilizes more than 30 prosecutors and continues for as long as 150 days. The party plans to coordinate with other rival parties on the draft bill. Xinhua
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, November 8 2016 13
Asia In Brief Refiners
Singapore fuel oil margins at highest since 2012
BRICS’ leaders during last meeting in Goa, India Funding projects
BRICS bank considers lending with Indian rupee bonds About 60 per cent of its loans are for renewable energy developments Chisaki Watanabe
T
he New Development Bank, which earlier this year sold RMB3 billion (US$443 million) of green bonds in China, is considering issuing notes in Indian rupees or other local currencies as it gears up to expand its support for sustainable projects. Besides rupees, the Shanghai-based multilateral lender may issue bonds in at least one other currency, such as Russian roubles or South African rand, President K.V. Kamath said in an interview on Thursday. “We want to open a strong window where we can meet local funding needs using local currencies,” he said. The bank, which started last year, was founded to support infrastructure
and sustainable development initiatives in emerging economies. It counts Brazil, Russia, India, China and South Africa as founding members. The NDB’s lending is expected to reach US$1.5 billion this year and may exceed US$2.5 billion next year, Kamath said. About 60 per cent of its loans are for renewable energy developments, while the rest is for infrastructure projects “which are sustainable,” according to the president. “I don’t think there’s a shortage of projects” for the bank to support, Kamath said.
Coal funding consideration
While the bank is keen to support efforts to expand the use of clean energy, it’s also aware of the risks with renewables, Kamath said. “The biggest risk in alternative energy is a rapidly dropping price curve which by itself should be very good for the projects that come immediately next, but which could impose a risk on a project that’s funded and
underway,” he said. China is also home to the Asian Infrastructure Investment Bank. Kamath said his bank will collaborate with the AIIB.
“We want to open a strong window where we can meet local funding needs using local currencies” K.V. Kamath, New Development Bank President As for funding coal power projects, the NDB will “examine closely” any projects before making a decision and won’t “do coal which is harmful, and which is done in a traditional manner,” Kamath said. Bloomberg News
Singapore refining margins for benchmark 180-cst fuel oil against Dubai crude yesterday rose to their narrowest discount in more than four years amid lower supplies and firm demand, despite recent efforts to boost yields. The improved margin follows winter demand for power generation, lower exports from key suppliers like Russia and Venezuela and general maintenance outages elsewhere, industry sources said. “The weak Dubai (crude oil price) this month is helping with everything. Winter has gripped China and even Seoul,” said Energy Aspects oil analyst Nevyn Nah. M&A
GIC buys European warehouse group Singapore sovereign wealth fund GIC has bought a top European warehouse developer and manager for 2.4 billion euros (US$2.7 billion) in Europe’s biggest real estate transaction this year, a joint statement said yesterday. GIC, one of the world’s top 10 state investment funds, bought P3 Logistic Parks from US-based TPG Real Estate and Canada’s Ivanhoe Cambridge, said the statement issued by the four companies. P3 Logistics, based in the Czech Republic, was described in the statement as “one of Europe’s largest fully integrated logistics platforms and developers”. It develops, owns and manages 163 “high-quality” warehouses across nine countries on the continent. Employment
Australian job ads rebound
Results
Australia’s Westpac flags lower returns after flat profit Westpac said there had been a small rise in consumer and business delinquencies over the last year that suggested the asset quality cycle had turned negative Jamie Freed
Westpac yesterday said it would abandon a longstanding target of a 15 per cent return on equity (ROE) after reporting the lowest ROE since the height of the financial crisis in 2009 due higher capital requirements and lower interest rates.
Key Points Annual cash profit unchanged at A$7.82 bln Return on equity falls to 14 pct from 15.8 pct New return on equity target of 13-14 pct Australian bank returns have been under pressure from higher wholesale funding and deposit costs, as well as regulatory changes requiring them to hold more capital against their mortgage books to provide a more level playing field for smaller rivals. Westpac said ROE had fallen to 14 per cent from 15.8 per cent a year earlier after it reported an unchanged cash profit of A$7.82 billion (US$6 billion) for the year ended Sept. 30, in line with analysts’ expectations. In the latest sign that Australia’s highly profitable major banks had entered a phase of lower growth,
Westpac Chief Executive Officer Brian Hartzer said the old 15 per cent ROE target, set by his predecessor Gail Kelly in 2012, was no longer achievable. “While we might aspire to a higher level of ROE over the longer term a target of 13-14 per cent is more realistic for the medium term,” Hartzer told analysts. In addition to low interest rates and higher capital requirements, he pointed to a rise in compliance costs across the sector after scandals involving misleading financial advice, insurance fraud and alleged interest-rate rigging. Westpac reported a ROE of 13.8 per cent at the height of the global
financial crisis in 2009. Omkar Joshi, an investment analyst at Watermark Funds Management, said the new target could “prove to be too optimistic” if regulators tightened capital requirements further. Westpac issued A$3.5 billion of new shares in October 2015 and yesterday announced a dividend reinvestment plan after issuing a final, fully-franked dividend of $A0.94 per share, the same as the previous year. The dividend was flat for the third half-year period in a row. Impairment charges rose by 49 per cent to A$1.124 billion compared with the prior year, although A$231 million of the rise was attributed to exposure to a select group of institutional clients. Westpac is the last of the big banks reporting results for the year ended Sept. 30. Rival National Australia Bank (NAB) posted a 2 per cent rise in cash earnings, while ANZ reported an 18 per cent decline. Reuters
Australian job advertisements rebounded in October, a survey showed yesterday, in a positive sign for moderate growth in employment. A monthly survey by Australia and New Zealand Banking Group showed total job advertisements rose 1.0 per cent in October, from September when they were unchanged. That lifted the annual pace of job ads growth to 5.2 per cent, from 3.8 per cent in September. ANZ no longer provides a breakdown between internet job ads and those in newspapers, as the latter are now a tiny share of total ads. Foreign flows
S.Korea bond outflows biggest since Feb South Korea suffered in October the biggest outflow of funds from bonds since February this year as a large chunk of the securities came to maturity, the Financial Supervisory Service (FSS) said yesterday. The FSS data showed offshore investors pulled a net 3.6 trillion won (US$3.15 billion) worth out of their bond holdings in October, which was the largest amount since a 4.2-trillion-won outflow in February this year. October marked the third consecutive month of outflows from bonds. Asian investors led the sales, dropping their holdings by a combined net 2.2 trillion won worth.
14 Business Daily Tuesday, November 8 2016
International In Brief Oil output
OPEC chief says Russia on board Russia, the world’s biggest energy producer, is “on board” with an OPEC agreement to limit crude oil production to help re-balance the market, according to OPEC Secretary General Mohammed Barkindo. OPEC producers remain committed to an agreement reached last month in Algiers to trim output, and cooperation from non-OPEC producers will help bring the oil market back into balance, Barkindo told reporters at an energy conference in Abu Dhabi. Russia is due to join OPEC for talks later this month in Vienna, where OPEC will convene for its bi-annual meeting. Climate deal
UN talks get down to business Under an ominous shadow cast by the US presidential election, the world’s nations gathered in Morocco yesterday to flesh out a landmark climate deal that promises to save humanity from itself. The just-activated Paris Agreement, inked in the French capital last December, is the first treaty binding all countries, rich and poor, to halt global warming, caused mainly by the burning of coal, oil and gas. But as 15,000 negotiators, CEOs and activists from 196 nations gathered in Marrakesh settle in for the 12-day UN talks, all eyes are on the United States, where voting Tuesday could thrust climate denier Donald Trump into the White House.
Weak demand
German industrial orders disappoint Lower foreign demand was driven by neighbouring eurozone countries
I
ndustrial firms in Germany, Europe’s largest economy, saw an unexpected fall in new orders in September, official data showed yesterday, pointing to weaker performance in the months ahead. Companies saw order books shrink by 0.6 per cent compared with August, correcting for price, seasonal and calendar effects, the federal statistics office Destatis said in preliminary figures. Analysts surveyed by Factset had predicted growth of 0.4 per cent for the last month of the third quarter. The drop in new business was driven by domestic demand, with orders within Germany’s borders falling by 1.1 per cent, while orders from abroad fell back by 0.3 per cent. Lower foreign demand was driven by neighbouring eurozone countries, whose orders fell sharply at 4.5 per cent, while the reading for the rest of the world grew by 2.5 per cent. Firms selling producer goods and
consumer goods were both able to increase their orders by 0.5 per cent, while capital goods makers recorded a 1.6 per cent fall driven by much lower demand in the eurozone. The overall fall in orders was mostly due to a lack of new large contracts,
“The initial relief after the Brexit shock has now given room for realism” Carsten Brzeski, analyst of ING Diba bank Destatis said, noting that if those were excluded, orders grew by 1.0 per cent overall in September. The statistics office also released revised data for August yesterday, showing orders grew slightly slower than previously reported.
Looking across the whole third quarter, “new orders again perked up slightly,” with 0.5 per cent growth compared with April to June, the economy ministry said in its own statement. “Brightening in relevant indicators points to some degree of pick-up in the industrial sector as the year goes on,” the officials continued. Some recent data from the German economy does point to further growth coming down the line, with both inflation and business confidence hitting two-year highs in October. But consumer confidence has been buffeted by bad news from abroad and weak global growth. “The initial relief after the Brexit shock has now given room for realism” in the industrial orders figures, analyst Carsten Brzeski of ING Diba bank said. Growth in the indicator had been close to flat on average over the first nine months of 2016, he pointed out. “It is hard to see how the German industry can shift to higher gear” without stronger growth in orders, Brzeski added. AFP
Results
HSBC warns of gloomy outlook in Britain HSBC Holdings warned of a dim outlook for its British business next year as slowing economic growth following the vote to leave the European Union hampers Chief Executive Stuart Gulliver’s drive to boost revenues at Europe’s biggest bank. Against a backdrop of shrinking profits, HSBC reported a sharp jump in its core capital ratio to 13.9 per cent, as the key measure of financial strength was lifted by a change in the regulatory treatment of its investment in China’s Bank of Communications. HSBC posted an 86 per cent fall in reported pre-tax profit to US$843 million for the third quarter ended on Sept. 30. Salaries
Qatar raises government wages Qatar will raise the salaries of government employees next year in a rare spending hike by a Gulf state at a time when low oil and gas prices are weighing on state finances. Some Qataris’ basic salaries will double, under a law to be passed in January that was published in Al Sharq newspaper late on Sunday. Salaries for non-Qataris remain the same. Gas-rich Qatar is the wealthiest country in the world per capita and its roughly 300,000 citizens enjoy free healthcare and education.
Election looms
Trump says he is ‘last chance,’ Clinton sees ‘moment of reckoning’ Clinton called today a “crossroads election” and a “moment of reckoning” Amanda Becker and Emily Stephenson
As Donald Trump and Hillary Clinton criss-crossed the United States on Sunday in a final, frenzied burst of campaigning, the Republican said he was the “last chance” to fix a broken country while his Democratic rival said a “moment of reckoning” had arrived. The two candidates in today’s presidential election presented starkly different views of the nation and evoked similarly disparate reactions from crowds gathered to hear them speak. In Iowa, Trump said he was the “last chance” to fix immigration and trade. Outside Minneapolis, he said the Somali refugee population there was a “disaster.” Supporters near Pittsburgh booed a song by musician Bruce Springsteen, who was set to campaign with Clinton yesterday night. Chants of “lock her up” came in waves even as news broke that the FBI again said Clinton should not face
prosecution for her email practices while secretary of state. As rocker and guitarist Ted Nugent warmed up a Trump rally in a Detroit suburb, he grabbed his crotch. “I’ve got your blue state right here,” Nugent said, referring to states that typically vote for Democratic candidates, including Michigan. “By the way, my language is much, much cleaner, as you know, than Jay Z,” Trump said at the same event. Trump has criticized crude language in a Friday night concert that rapper Jay Z and his wife, Beyonce, held for Clinton in Cleveland. “The most filthy language you’ve ever heard,” Trump said at the Minnesota rally. One of his supporters there wore a t-shirt that said: “Rope. Tree. Journalist. Some Assembly Required.” Clinton began and ended Sunday with renditions of “America the Beautiful.” The first was at a black church in Philadelphia, the second time performed by folk singer James
Taylor at a get-out-the-vote rally in New Hampshire, where the crowd swayed and sang along, linking arms. Clinton walked onto the stage with Khizr Khan, whose son was a slain Muslim U.S. soldier. Khan addressed the Democratic National Convention in July, criticizing Trump’s proposal to ban Muslims from entering the country and offering to loan him a U.S. Constitution. Some in Manchester held up miniature Constitutions in tribute.
“Our core values as Americans are being tested” Hilary Clinton, U.S. Presidential candidate
“In a race that has been marked by ugly suspicion and insults and attacks of all kinds against immigrants, Muslims and so many others, Mr. Khan, I think, reminded all of us that we are Americans,” Clinton said. Clinton called today a “crossroads election” and a “moment of reckoning,” echoing her earlier statements at a Cleveland rally with Cavaliers player LeBron James. “Our core values as Americans are being tested,” she said. Reuters
Business Daily Tuesday, November 8 2016 15
Opinion Business Wires
THE STAR Hong Kong-based Value Partners Group, which is one of Asia’s largest fund and asset management firms, plans to set up an office in Kuala Lumpur over the next 18 to 24 months. Group chairman and cochief investment officer Datuk Seri Cheah Cheng Hye told StarBiz that the Malaysian stock market had a market capitalisation in excess of US$400bil. “This is why it is worth considering. Currently, we have a few hundred million ringgit in Malaysian assets, mostly in palm oil. “Two years ago, we had already set up an office in Singapore,” he said.
THE PHNOM PENH POST Cambodia’s booming microfinance sector continues to attract international investors, with a South Korean financial institution the latest to buy out one of the Kingdom’s myriad micro lenders. The Seoul-based Welcome Financial Group (WFG) announced that it had acquired the full shareholding of Green Central Microfinance Ltd for an undisclosed sum, and rebranded it Welcome Finance (Cambodia). The rebranded microfinance institution (MFI) launched operations on Friday. Lee Sang-kook, chief executive officer of Welcome Finance (Cambodia), said the acquisition was part of his company’s strategy to capture growth opportunities in Cambodia where the financial sector is enjoying high growth.
VIET NAM NEWS Việt Nam plans to export chicken to Japan from next year and expand chicken export markets to other Asian countries in 2018, the Ministry of Agriculture and Rural Development said. To reach the target, the ministry has issued a plan to supervise production chains to process export quality chicken. The domestic animal husbandry industry has supplied between 500,000 and 700,000 tonnes of meat and 8 billion eggs per year but only salted duck eggs have been exported to Hong Kong and Singapore and the remaining was consumed in the domestic market, the ministry said.
JAKARTA GLOBE Friday’s massive protests against Jakarta’s Governor Basuki “Ahok” Tjahaja Purnama has had virtually no effect on Indonesia’s economy, an executive of the central bank said. Solikin M. Juhro, Bank Indonesia director for monetary policy, told reporters the protests, ... , is only a temporary problem to which the government has already responded. “The government’s positive attitude toward the incident surely made business players see our economy has a lot of potentials to attract investment,” Solikin said. He cited a statement made by the International Monetary Fund earlier this year which said Indonesia has successfully navigated the economy through global headwinds.
Financial risk may be China’s gift to next president
B
ack in 2008, incoming President Barack Obama inherited a U.S. financial crisis that was to some degree made in China. The next U.S. president may well confront a Chinese financial crunch with its origins in the U.S., as China unwinds the credit imbalances built up over the last eight years to defend against that global slump. The causes of the 2008 crisis were many and varied. U.S. policymakers and regulators, as well as rule-bending behaviour in real estate and banking, are largely to blame. But China’s mercantile trade strategy played a crucial role, too. Maintaining the yuan’s peg to the dollar - which kept its value artificially low in a deliberate effort to supercharge exports - created a giant Chinese trade surplus that had to be recycled into U.S. Treasuries. That in turn contributed to keeping U.S. rates too low for too long - fertile ground in which the seeds of the real estate crisis were planted. The crisis, of course, plunged the U.S. into recession and pushed the global financial system to the brink of collapse. Since then, as policymakers in Beijing have loosened the currency’s unofficial peg and U.S. consumers chopped up their credit cards, China’s external imbalances have dissipated. The current account surplus has shrunk from a peak of more than 10 per cent of GDP in 2007 to about 2.5 per cent in 2016. The People’s Bank of China is spending down its foreign exchange reserves in an effort to fend off yuan depreciation pressures. What hasn’t changed is the remarkably high savings rates that lie behind those imbalances. China continues to stash away some 47 per cent of national income. As any economist will tell you, the risk with such a high savings rate is that it leaves a gap in demand. Now though, instead of relying on U.S. consumers to fill the gap, China is leaning more heavily on domestic investment. The share of net exports in GDP has fallen to 2.7 per cent in 2014 from 8.7 per cent in 2007. Meanwhile, the share of investment has risen to 47 per cent from 41.5 per cent over the same period. Growth has held steady, but with bulging investment paid for with ever-increasing borrowing, outstanding credit has now swelled to around 250 per cent of GDP. Voices from the Bank for International Settlements to the PBOC’s own advisers have sounded alarm bells. On its current trajectory, by the end of the next U.S. president’s term in early 2021, China’s creditto-GDP ratio could be well above 300 per cent. In other countries that have seen such a rapid build-up of credit, the result hasn’t been pretty.
“
Tom Orlik a Bloomberg View columnist
To be clear, a credit crisis for China in the next four years isn’t inevitable. The country benefits from countervailing forces for stability - including that high domestic savings rate, which provides a continued flow of funding to banks. The government’s tight grip on both lenders and borrowers helps prevent disturbances escalating. Policy has started to shift to address the risks. Even so, the next president will face a strikingly wide range of possible China scenarios. If reforms are successful and credit risks are contained, growth in 2021 might not be far off the current 6.7 per cent level. If that doesn’t happen and credit imbalances unwind rapidly, pessimistic analysts see a drop to low single digits. Those different outcomes would have very different implications across Sino-U.S. relations, affecting everything from the earnings of U.S. multinationals in China to the battle for influence in the South China Sea. If it did occur, a rapid unwinding of China’s domestic imbalances would risk a global shock. Smaller disruptions, along the lines of 2015’s stock market bust, will continue to send ripples across the Pacific. In one sense, Obama had it easier than his successor. In 2007, China’s bulging current account surplus and burgeoning FX reserves were an easy target - strong evidence of currency manipulation. Successive U.S. Treasury secretaries kept delivering a simple message: Allow the yuan to float in order to level the playing field. Now that China’s current account surplus has disappeared, however, and economic pressures are pushing the yuan downward, attention has shifted to the underlying cause of China’s imbalance - its outsize savings rate. Solving that problem will require a host of difficult domestic reforms, from expanding social services so that Chinese don’t have to sock away money for illness and old age, to reforming the state-owned enterprises that continue to soak up an outsize share of income. It was hard enough for the U.S. administration to make headway on the exchange rate, which at least was clearly a bilateral issue. Gaining diplomatic traction on policies that have international implications but fall squarely within the category of China’s internal affairs could be well-nigh impossible. Bloomberg View
To be clear, a credit crisis for China in the next four years isn’t inevitable
”
16 Business Daily Tuesday, November 8 2016
Closing Results
MGM China rakes in HK$3.9 bln for Q3
MGM China Holdings Limited saw an 11 per cent increase in revenue quarter-to-quarter for the third quarter of the year – nevertheless posting a 6 per cent year-on-year drop – raking in HK$3.9 billion (US$500 million), according to a company press release and a Hong Kong Stock Exchange filing. Overall, the group saw EBITDA (earnings before interest, taxation, depreciation and amortization) increase 24 per cent quarter-to-quarter, hitting HK$1.3 billion and an average occupation rate hitting 95.7 per cent during the quarter, with REVPAR (revenue per available room) at HK$2,157, according to the release. VIP table games revenue dropped 26 per cent year-on-year;
however, the group notes it continues to see ‘stability’ on the main floor business, with a 21 per cent increase in main floor table games revenue year-on-year for the quarter. The budget for MGM Cotai ‘remains approximately’ HK$24 billion, with an opening date for the second quarter of 2017. Speaking of the MGM Cotai property, Chief Executive Officer and Executive Director of MGM China Grant Bowie noted that: “We believe it will be well received by the market and we’re confident of capturing the growth opportunities of Macau”. With regard to upcoming focus, the CEO stated that the group will focus on “customer acquisition both in mass gaming and the non-gaming leisure business”. K.W.
Technology
China passes cybersecurity law despite strong foreign opposition Parallel legislation governing the use of data for the insurance industry has also provoked objections.
C
hina has green-lit a sweeping and controversial law that may grant Beijing unprecedented access to foreign companies’ technology and hamstring their operations in the world’s second-largest economy. The Cyber Security Law was passed by the Standing Committee of the National People’s Congress, China’s top legislature, and will take effect in June, government officials said yesterday. Among other things, it requires internet operators to cooperate with investigations involving crime and national security, and imposes mandatory testing and certification of computer equipment. Companies must also give government investigators full access to their data if wrong-doing is suspected. China’s grown increasingly aggressive about safeguarding its IT systems in the wake of Edward Snowden’s revelations about U.S. spying, and is intent on policing cyberspace as public discourse shifts to online forums such as Tencent Holdings Ltd.’s WeChat. The fear among foreign companies is that requirements to store data locally and employ only technology deemed “secure” means local firms gain yet another edge over foreign rivals from Microsoft Corp. to Cisco System Inc. Companies operating on Chinese soil rarely raise public objections to domestic policy for fear of repercussions, but much is at stake in a Chinese IT market Gartner puts at US$340 billion. The draft law prompted more
than 40 business groups from the U.S., Europe and Japan to pen a letter to Premier Li Keqiang this summer, arguing it would impede foreign entry and the country’s own growth. The measures are part of a sweeping push under President Xi Jinping to control China’s internet, including the passage of a security law establishing “cybersovereignty” and making the spread of rumours and defamatory posts a crime.
Trade
The requirement on certification could mean technology companies will be asked to provide source code, encryption or other critical intellectual property for review by security authorities. This is something Microsoft already does with its software, under controlled conditions. The law also requires business info and data on Chinese citizens gathered within the country to be kept on domestic servers and not be transferred abroad without permission. That last condition hampers the operations of multinationals accustomed to a global Internet computing environment.
Some foreign companies may have already begun to ring-fence their Chinese data. In November, Airbnb sent an e-mail last week informing its Chinese users that their personal data will be transferred to servers within the country, “in accordance with Chinese laws and regulations.” It’s not clear if the move was in anticipation of the cybersecurity law. Airbnb didn’t respond to requests for comment.
“A number of IT companies have really serious concerns. We don’t want to see barriers put up” Bruce Andrews, U.S. Deputy Secretary of Commerce The law may drive further business to local giants such as Huawei Technologies Inc or Lenovo Group Ltd., the world’s largest PC maker. Alibaba Group Holding Ltd.’s paying cloud customers had already doubled in the September quarter. Alibaba said in an e-mail it will ensure it’s compliant with relevant laws. Advocates say the government will issue future regulations to clarify its scope and intent. Whether or not the legislation will be strictly, or selectively, enforced remains to be seen. Bloomberg News
Drugs production
Hong Kong
Taiwan exports jump Merck opens Mainland at fastest pace in two years pharmaceutical plant
China bars independence supporters from legislature
Taiwan’s exports rose at their fastest rate in over two years in October, signalling year-end shopping demand for hi-tech goods remains on track, powered by Apple Inc’s latest smartphones. Shipments related to microchips and smartphone components last month rose by double-digit percentages, extending September’s gains, data from the Ministry of Finance showed yesterday. October’s exports rose 9.4 per cent from a year earlier, better than expectations for a 1.8 per cent climb and reversing a 1.8 per cent fall in September when Typhoon Megi disrupted shipments. It was the fastest single-month on-year growth since August 2014. All major markets showed solid demand. Exports to China rose 14.9 per cent from a year earlier, more than doubling from September’s pace, while exports to the United States, Europe and Japan all reversed their September on-year declines. Imports also beat expectations, surging 19.5 per cent. Analysts had expected a rise of 4.09 per cent compared with just 0.7 per cent in September. That resulted in a trade balance of US$4.38 billion, edging up from September but less than US$5.35 billion economists had expected. Reuters
China’s top legislative body ruled that Hong Kong people who advocate independence can’t hold public office, according to a document published by the official Xinhua News Agency, a rare intervention that lawyers and democracy advocates have warned could undermine the courts and spark unrest. The decision by the National People’s Congress Standing Committee in Beijing yesterday represented only its second unilateral interpretation of Hong Kong law since the former British colony was returned to China almost two decades ago. It came amid a court battle over whether a pair of pro-independence activists who were elected to the city’s legislature in September could take their seats after insulting China in their oaths of office. China’s top legislative body unanimously adopted its interpretation of the section of Hong Kong’s Basic Law that pertains to the oaths of allegiance of public officials, Xinhua said. Officials who fail to meet the conditions can’t retake their oaths, according to the document. The two activists involved in the oaths fight had their oaths voided Oct. 12 after they mispronounced the country’s name and unfurled banners proclaiming “Hong Kong IS NOT China.” Bloomberg News
The world’s leading biomedicine company Merck has opened a plant in Nantong, China’s eastern Jiangsu Province, to produce pharmaceuticals on the country’s Essential Drug List. Merck has invested 170 million euros (US$188 million) in the Nantong pharmaceutical plant, which had been under construction since 2013. “By dedicating the largest manufacturing plant outside Europe to the production of pharmaceuticals to address widespread health care needs in China, Merck is connected to China more than ever,” said Mark Horn, managing director of Merck’s biopharma business. The Nantong plant will reach an annual output of up to 10 billion dosages of pharmaceuticals for the treatment of diabetes, cardiovascular disease and thyroid disorders by 2021. The first batch of its pharmaceutical products will enter the market in the second half of 2017. Merck has announced a further investment of 80 million euros in a life science centre near the Nantong plant, which will produce high-purity inorganic salts, cell culture media products and ready-to-use media. Xinhua