Yuan falls to 2008 record as greenback strengthens Forex Page 5
Wednesday, November 16 2016 Year V Nr. 1174 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Competition
MBTV Interview
Japan could have Integrated Resorts by 2021 Page 17
CEO of Macau Legend Development David Chow Kam Fai elaborates upon city’s upcoming economic hurdles Page 6
www.macaubusinessdaily.com Gaming industry
Success Dragon International Holdings posts improved results Page 7
GOOD EXPECTATIONS 2017 Policy Address
Chief Executive Fernando Chui Sai On was cautiously optimistic. Sending a positive message in his Policy Address for 2017 yesterday. Regarding almost every part of the domestic economy. Legislators saved their slings and arrows for housing and inflation issues. Pages 2 & 3
Signs of stable recovery
Cleaning house
The city has launched the fourth edition of MGS Entertainment Show. Paulo Martins Chan, Director of the Gaming Inspection and Co-ordination Bureau, says 19 junkets have to adapt to stricter rules by year-end. A blacklist of debtors is on the cards for casinos.
Private report J.P. Morgan has released a study. Stating the recent positive trend in gaming revenue figures is here to stay. The company’s analysts forecast a healthy 2017. And that the recovery is widespread and long-standing. Page 7
Take heed
Integrated Resorts Some tips for the Integrated Resorts industry. Advisors and experts attending the Macau Gaming Show said local authorities should take note of Atlantic City. By encouraging competition and diversifying markets before it’s too late. Page 4
Junkets Page 4
Meltdown
HK Hang Seng Index November 15, 2016
22,323.91 +101.69 (+0.46%) Worst Performers
China Merchants Port Hold-
+2.62%
CITIC Ltd
+1.76%
Li & Fung Ltd
-4.82%
AAC Technologies Holdings
-0.87%
Hang Seng Bank Ltd
+2.09%
HSBC Holdings PLC
+1.57%
China Shenhua Energy Co
-3.06%
Sands China Ltd
-0.87%
Hang Lung Properties Ltd
+2.08%
New World Development
+1.49%
Belle International Holdings
-1.57%
China Mengniu Dairy Co Ltd
-0.66%
China Life Insurance Co Ltd
+2.06%
China Construction Bank
+1.28%
AIA Group Ltd
-1.26%
Cheung Kong Infrastructure
-0.62%
Bank of East Asia Ltd/The
+1.77%
Ping An Insurance Group Co
+1.24%
MTR Corp Ltd
-1.09%
Hong Kong Exchanges &
-0.39%
22° 26° 23° 25° 22° 25° 23° 25° 22° 26° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Environment A UN-led summit in Morocco. Factoring in Donald Trump’s triumph in the US Presidential elections last week. The President-Elect’s pledge to abandon the fight against climate change looked like farewell from one of the leading players. UN head Ban Ki-moon, however, describes the Paris Agreement as “unstoppable”. Pages 20
2 Business Daily Wednesday, November 16 2016
Macau
Legislative Assembly
2017 Policy Address announced, no rational changes
Getting out of the recession After a period of “deep adjustment”, the MSAR’s economy is expected to get back on track Kam Leong kamleong@macaubusinessdaily.com
T
he city is to see its economy back on the path to growth next year despite total gaming revenue for the whole year of 2017 ‘cautiously’ expected to remain at the current level, said Chief Executive Fernando Chui Sai On yesterday. “For the next fiscal year, similar to this fiscal year, we predict that total gaming revenue will amount to MOP200 billion (US$25 billion)”, the top official said, indicating the projection was made in consideration of “the instability of the global economy, coupled with other fluctuation factors in the pace [of economic development]”. The Chief Executive was speaking to reporters in a Q&A session yesterday afternoon at Government Headquarters following his 2017 Policy Address to local legislators. “In the past 25 and 26 months, Macau’s economy has undergone a deep adjustment phase due to the [decrease] in the gaming revenue from MOP30 billion, to MOP20 billion and to MOP18.8 billion. That’s why we make a projection of MOP200 billion, with average monthly revenue amounting to MOP16.6 billion. We are cautious but we are optimistic”, he further explained.
Same social benefits, salary hike for public servants
For the next fiscal year, the MSAR Government is allocating MOP12.4 billion for social benefits, a growth of 5.5 per cent year-on-year, despite the amount set for the schemes remaining the same: - The cash handout scheme will continue for the tenth time with the distribution of MOP9,000 per permanent resident and MOP5,400 per non-permanent resident, whilst medical coupons worth MOP600 will be allocated to each permanent resident. - Residents will continue to receive subsidies of MOP6,000 for continued education. - MOP10,000 will be injected into the public provident fund accounts of newly qualified residents, while
The Chief Executive said the MSAR Government is confident this annual goal for the gaming industry could be reached, in addition to slight growth in the local economy. “We’re pleased to announce in the Policy Address that following a long period of downturn we’re confident that our economy will post positive growth”, the official said. He added that this economic growth for next year would be single-digit, based on studies conducted by the International Monetary Fund, the Monetary Authority of Macau and local research houses.
Special audits on junkets next year
According to the Policy Address, the MSAR Government seeks to further enhance its current supervision of the gaming business - in particular, junket operations - during the next fiscal year apart from increasing the industry’s international competitiveness. The Address reads that the MSAR Government will conduct special audits on the financial accounts of local junket operators, including the accounts of the temporary deposits of gamblers, loan records and internal control in order to analyse the current ratio of the junket company. On the other hand, next year, the MSAR Government is planning to complete bills amending the current regulations on the supply
those who have had the accounts opened will receive another injection of MOP7,000. - Pensions remain at MOP3,450 per month while subsidies for the eligible elderly remain at MOP8,000 per year. In addition to social benefits, tax relief policies saw no rational changes: - deducting 30 per cent of professional tax - refunding 60 per cent of the 2017 professional tax to all taxpayers in 2018 However, public servants are to receive another salary hike: - The government proposes increasing the wage of civil workers to MOP83 per salary point from the current MOP81 per point, a growth of 2.5 per cent.
systems and requirements of gaming machines, gaming equipment and gaming systems, as well as those amending current regulations on football betting, apart from the proposal ban on gaming workers entering casino venues during nonworking hours. In addition, a supervisory manual for the concessionaires of Pari-mutuel betting would be drafted between the first quarter and the third quarter of next year, the Address says.
Budgeted surplus slashed
For public finance, the budget plan for the 2017 fiscal year projects a total fiscal surplus for the MSAR Government of MOP7.2 billion, a plunge of 60.4 per cent compared to the budgeted MOP18.2 billion for this fiscal year. Total revenue for the next fiscal year is expected to reach MOP102.9 billion, a slight decrease from the MOP103.3 billion budgeted for 2016, whilst total expenses for the year are projected to be MOP95.7 billion, an increase of 12.6 per cent from this year’s MOP85 billion. In particular, revenue derived from direct taxes – of which the majority is generated by gaming taxes – is projected to reach MOP80.1 billion, a slight growth of 1.6 per cent year-onyear, whilst expenses allocated for
LRT on track
The Chief Executive Fernando Chui Sai On clarified yesterday that the government is not planning to cancel its plans for developing the Light Rail Transit (LRT) system on the Macau Peninsula. He stressed that the current priority of the government is to complete the LRT works in Taipa, then expand the Taipa section to Seac Pai Van and connect to the Hengqin border.
Chui: Beijing’s HK Basic Law interpretation instructional
Chief Executive Fernando Chui Sai On said yesterday that the Standing Committee of the National People’s Congress’ recent interpretation of Hong Kong’s Basic Law Article 104 is “instructional” to the MSAR. “[The interpretation] further maintains the national sovereignty, unification and safety […]
the public investment plan, known as PIDDA, will increase 37.8 per cent year-on-year to MOP15.3 billion for next year. Meanwhile, the government is splashing out MOP12.4 billion on social benefits such as cash handouts in 2017, but expects a reduction of MOP3.3 billion in tax revenue due to tax relief policies for residents and SMEs (see box).
Budget hotels next target
The Policy Address also reads that the government will conduct ‘clear policies’ to boost the development of budget hotels, themed parks and shopping complexes, without supplying related details. According to the Chief Executive, these ‘clear policies’ would favour local SMEs in order to create conditions for them to participate in the city’s development as a World Centre of Tourism and Leisure. “We hope to boost the development of budget hotels, themed parks and shopping complexes to diversify accommodation options for tourists, in addition to tourism products for family tourists”, the CE explained yesterday. He pointed out that this policy results from research on the city’s tourism master plan.
Meanwhile, the Taipa-Barra route and the bypass routes on the Peninsula would be tasks for later on. “We’re not saying abandon the Macau section. We’ve done many preparatory works, such as research and consultation”, he said. According to the Policy Address, the government will initiate the design for the TaipaSeac Pai Van route of the LRT next year, in addition to making a decision on the Peninsula routes.
which also brings an important instructional meaning for us to correctly apply the Basic Law of the MSAR”, he said. Beijing’s law interpretation bans two pro-Independence Hong Kong legislators from joining the city’s Legislative Council following Sixtus Leung and Yau Wai-ching altering their oaths when being sworn in to the Council.
Business Daily Wednesday, November 16 2016 3
Macau Policy Address
Legislators’ opinions The majority of legislators say the CE’s latest Policy Address displays no breakthrough, with housing problems the most discussed issue by most lawmakers Cecilia U cecilia.u@macaubusinessdaily.com
about amending the law regulating the accountability of chief officials. Both the Commission Against Corruption and Commission of Audit agree that the current law is not effective in combating corruption or abuse of power by officials. Overall, the Policy Address does not tell us anything new”.
of the new urban Zone A. As one can see, the supply of public housing will be very limited in the coming years.”
No prevention of unstable real estate market José Maria Pereira Coutinho
Inflation rate still higher than the increased salary rate
“When referencing the inflation rate from the year after Macau returned to the Mainland to the rate at the moment, one can see that the accumulated inflation rate has reached 4.6 per cent. [The Policy Address] has announced the new adjustment for civil servants’ salaries, which stands at only around 2 per cent. As such, the adjustment of salary does not catch up with the accumulated inflation rate. Moreover, [the Policy Address] does not include any adjustment on the yearly salary”.
Housing problems remain unresolved
“We still think that the city needs at least 80,000 [housing] units; currently the government only provides 120,000 units […] There are also some landfills for future use and we should be concerned how the government will make use of these. [Meanwhile] many civil servants wish the government could provide accommodation instead of queuing for flats with the general residents”.
Accountability systems for Secretaries
“We can see that the new Policy Address does not mention anything
Ho Ion Sang
enquiring to set up laws such as the law to combat indecent assault […] but we legislators cannot help unless the government does something about housing distribution”.
“Although [prices] for real estate have dropped due to the city’s economic adjustment, [prices] recently increased by more than 10 per cent, and the Policy Address does not introduce any preventive [measures] to deal with the possible over-heated or bubble situation of the real estate market”.
No solid plans for the development of diversified economy
“In the wake of introducing the FiveYear Plan, the government said it’s going to focus on the development of a diversified economy such as financial leasing and asset management industries. However, the latest Policy Address does not provide anything about the schedule, and it only mentions research that they are conducting. [The Policy Address] also does not state the solid plans for the creation of law to aid the financial industry, despite the confirmation made by Premier Li Keqiang of diversifying Macau’s economy.”
Uncertain housing
“The data used in the latest Policy Address is out of date […] the policy indicates 12,000 housing units will be supplied for the short to medium term, but I think it would be impossible for the coming three to five years. Moreover, many discussions have been made about the development
Si Ka Lon
Ng Kuok Cheong
Housing remains disappointing
“[The Policy Address] does not mention anything about the next application time for residents to apply for social and affordable housing and it is absolutely unacceptable. It is easy to solve a problem by legislators
“I cannot see anything about urban renewal in the plans for 2017 to 2019. In terms of urban renewal, the government has mentioned the plan of providing temporary housing. However, the government did not indicate whether legal support is to be first established before the supply of temporary housing or vice versa […] I don’t see anything about the plan regarding legal support by the government. If the government continues to omit the plan of creating legal support in 2019, this means that the creation of law will be delayed for another five years”.
Angela Leong On Kei
Simple and steady policy
“I think the Policy Address [for next year] is simple and steady. I believe the development [of the city] in the future will progress, especially the schemes and plans introduced by the government about distinctive financial development in the city, themed parks as well as other policies”.
4 Business Daily Wednesday, November 16 2016
Macau Opinion
José I. Duarte* Movie scripting Earlier this year, the news about the organisation of a big international film festival in Macau aroused great expectations. Strong ambition and commitment were promised. Macau was going to carve out a space in the international movie scene. An internationally renowned expert was hired to become the Festival director, giving punch to the stated intentions. All people having a stake in the matter hailed the effort, whether they were professionally involved in the industry or just supporting fans. Now, less than one month before the event, its star director quits. But no, no problem, we are reassured. All is fine and will go according to plan. No need for replacement; the Director of tourism, the main public institution involved in the event, will take over. An association few had heard about until now will guarantee the operational bits. All is under control. These events raise several questions. Possibly, all was done for the best, and the intentions and commitment of all involved are irreproachable. But, to start with, the division of responsibilities between the various parties is unclear. It is certainly not a stretch to state the mood does not look pretty. The consequences may prove less than benign. Good reputations are hard to build and easy to lose. The opposite happens with the bad ones. It does not help that the statements by those involved further muddied the waters. First, they mentioned unspecified divergences between the director and the association. Then, no, the director was leaving for personal reasons. Presumably, that means private affairs. But there is no sense in that the two parties ‘diverge’ about the private matters of one of them. Now the association is threatening to take the ex-director to court. No, it does not look good. The situation is hardly compatible with the expectations. We just have to go back to the news published when the hiring was announced to realise it. The departure at such short notice, and for reasons yet to be explained, can only be a source of concern. If it is so devoid of consequences, as claimed, one could ask why one needed a director at all. We are reassured about a process with unclear contours, and where the authority of the government is at stake, to say the least. We may want to believe all is well and done for the greater good. But faith becomes harder to attain when heaven fails to provide palpable, inspiring signals. * an economist and permanent contributor to this newspaper.
Junkets
Restrict, reuse, recycle A total of 19 junkets must improve their activities, while more stringent rules could be placed on applications to increase transparency Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
S
ome 19 junkets will have to improve their activities and have until the end of the year, the renewal date of the junket licence, in order to do so, says the Director of the Gaming Inspection and Co-ordination Bureau, Paulo Martins Chan. “What we want is more regulated junket activity. Right now, we’ve finished the inspection of the accounting system of all 145 junkets. Some of them are unsatisfactory so we’re giving some time for them to improve until the end of the year”, notes the Director. Chan also comments that the government still “treasures” the “huge” contribution by junkets to the city’s economy, despite the recent focus on mass market and that the DICJ is “working hard to regulate more” junket activities in an environment that currently suggests a “more stable development of our gaming revenue.” The Director’s comments came on the sidelines of the MGS Entertainment Show, which started
yesterday at The Venetian and runs until Thursday. The Director also commented upon the recent ruling on the Dore junket case: “Certainly, there will be a precedent but I don’t think that case solved every problem of the Dore case because there are still lots of issues involved” although regarding current and upcoming cases relating to junkets “we’re expecting that the results of this will certainly be very important as a ruling for future cases”. The Director also commented that the group is working towards the elaboration of a blacklist of debtors for casinos, despite “a lot of legal issues” which the group has to first address.
Controlling junkets
Regarding this blacklist, professor Wang Changbin of the Gaming Teaching and Research Centre of the Macao Polytechnic Institute points out that it “might also help but I doubt it’s workable because the VIP contractors may not like to share their customers’ information to others and the privacy law in Macau is quite strict.”
However, the professor envisages other strategies to help improve the current system. The first such measure is to expand the scope of those going through suitability tests to go beyond shareholders, directors and other “upper management and key employees”, to include “middle managers and some important employees in key positions” as well as demanding more information from key employees who already have to register – whose current application form is only one page in length. This should be coupled with scrutiny on the side of the regulator to “conduct our real investigation into the background of the applicants”, states the professor. However, to do this the professor proposes the establishment of a “team with knowledge and skills of investigation”, stating that “government employees don’t have enough experience” in the area. This team would also seek support from other jurisdictions, as “many of the licensed applicants are from outside Macau”, notes the professor. Basically, the professor proposes that “we have to regulate the VIP rooms as an operator . . . [as] . . . the threshold of running a VIP room in Macau is quite low . . . [but] . . . the VIP rooms take a lot of risk” in the way their businesses are run. In the meantime, the professor suggests a less intensive approach. “I suggest maybe we can regulate from the perspective of the law – demanding VIP contractors report to the government when the money borrowed is more than a certain amount”, says Wang, opining that “borrowing money should be in proportion to their (the junket’s) own capital”. Wang points out that the junket system’s history in the MSAR stretches back to the 1980s when operator STDM “outsourced some of its VIP rooms to third parties who had a social network . . . [and] . . . many people were sent out of Macau to reach high-rollers and bring them to gamble in Macau”. Given its long and continued presence in the MSAR, Wang says “the system is quite powerful”.
Macau Gaming Show
Las Vegas or New Jersey? True integrated resorts require continual investment, something facilitated by relaxed regulations, encouraging competition and maybe even the lowering of the tax rate Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
The MSAR can learn from the example of Atlantic City, encouraging competition and diversifying markets, before its too late – so say Eugene Christiansen, CEO of Christiansen Capital Advisors, and Anthony Cabot, partner at Lewis Roca Rothgerber Christie. “What you have in Macau today by and large is not an industry made up of integrated resorts; it’s an industry made up of casinos”, points out Christiansen, drawing a parallel with Atlantic City’s initial casino boom, which slackened after reaching its zenith between 1980 and 1990.
they want” and which shapes the consumer market and reputation of the operation – both essential for success in avoiding maturity, or once reaching maturity to have a diversified economy. “Once the market matures that window of opportunity closes and it becomes much more difficult to make extraordinary investments”, states Christiansen, pointing out that these
Step by step
“Casino markets develop through some well defined phases”, the most important of which is the growth phase, notes Christiansen, in which “operating margins and return on investment capital is very high”, allowing for operators to “build anything
Casino Peru logo in Atlantic City
investments are essential to creating a true integrated resort such as Las Vegas, in which only “10 per cent of visitors came to gamble” in 2015. “Unlike the casino market dynamic, in which capital inflow stops once growth ends, capital inflow to Las Vegas’ successful integrated resort industry has never stopped”, comments Christiansen.
Keep it going
In order to continue this investment, flexibility in regulation and competition is necessary. So points out Anthony Cabot, noting that “Las Vegas had the flexibility to build what the customer wanted, not what the government thought the customer wanted”. This is due to the complete liberalisation of gaming in the state of Nevada in 1931, absent of limitations as well as tax. This has since changed, but it spurred the current “competitive” tax rate of 8.2 per cent. “Tax rates are going to determine the ability of companies to make enough money to reinvest into the projects”, said Cabot. As Macau matures and more competition appears in the Southeast Asia region Cabot suggests Macau “revisit the tax rate” as the current rate “doesn’t necessarily define the industry when it’s young” but once it begins to mature will beg we ask the question: “Are we going to decline like New Jersey?”
Business Daily Wednesday, November 16 2016 5
Macau Law
A total of 280,000 minors were blocked from entering Macau casinos in the first 10 months of 2016
Too young to gamble
Since November 2012, Macau casinos have been prohibited from hiring or allowing entry to gaming Between January and October an average of facilities to people under the age of 21, with the 28,000 people under the age of 21 were denied previous age limit set at 18. entry to Macau casinos per month, according to data provided by the Gaming Inspection and Co- Under the law enforced four years ago, infractions can lead to fines of between MOP1,000 (US$125) ordination Bureau (DICJ) to news agency Lusa. and MOP10,000, with a ‘supervisory duty’ being The total number of underage clients denied imposed upon gaming operators, with infractions access reached 280,000 in the first 10 months of leading to fines ranging from MOP10,000 to 2016, some 44,000 more than in the whole year of 2015 when 236,000 people were denied access. MOP500,000. N.M. with Lusa
Legislation First integrated resorts could appear in Japan by 2021/2022
Un-tapping the ‘untapped’ Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he current bill aimed at introducing integrated resorts (IRs) to Japan and set to be debated before the end of the present term, if not passed in generality will be at some point - “it’s just a question of time” before eventually passing, notes Professor Toru Mihara (pictured) from Osaka University of Commerce. The Professor’s comments came on the sidelines of the MGS Entertainment Show, held at The Venetian. “If the discussion can be commenced on Friday this week, the odds can be 50/50”, said the professor. The timeline arising from an eventual positive outcome from the current session would mean that the first casinos could start to appear in Japan in 2021 to 2023, he believes. This conforms to a timeline following a government-constructed organisation to draft the law, its presentation to the Diet in its 2018 ordinary session, and the time necessary for choosing the zones, among other
procedures, all of which will depend on public opinion. “The real problem we have is even if the policy is fine, if we don’t have the effective tools to explain the position to the people in general it’ll be quite difficult to get a consensus”, explains Professor Mihara, pointing out that in more rural zones this can be more challenging. “In the big cities, when the mayor says ‘we want IR’ then that’s accepted as fact, but when you go to the small cities, it’s a different story”, states
the professor. He is confident, however, that the debate will bear fruit. “In the year 2022/2023, I’m definitely sure that the integrated resort that is seen in Macau can be seen in Japan, too,” he says, noting that “I understand Japan is the only untapped
(casino) market in the world”. “It took 10 years for the concept to be materialised and put on the Prime Minister’s desk”, states the professor regarding the bill. Since then, three years have passed, with the bill going through five ordinary sessions of the Diet. Now however, it has the highest ever chance of being voted on, with the professor declaring: “I haven’t seen this kind of situation in the past 20 years.”
Forex
MSAR’s foreign exchange reserves drop in October The preliminary estimate of the city’s foreign exchange reserves reveals a 0.3 per cent month-on-month drop, at MOP154.4 billion (US$19.33 billion) in October compared to MOP154.9 billion in September. The Monetary Authority of Macao (AMCM) has announced that the foreign exchange reserves in the city in October represented 12 times the currency in circulation or 98.3 per cent of the pataca M2 in September 2016.
Meanwhile, the city saw an increase of 1.15 per cent month-on-month and 1.52 percentage points year-onyear to 106.91 in the trade-weighted effective exchange rate index for the pataca for the month. AMCM explained that the rise in the tradeweighted effective exchange rate index for the pataca is due to the exchange rate of the pataca against the currencies of Macau’s major trading partners. C.U.
6 Business Daily Wednesday, November 16 2016
Macau Financing
Paying down debts
held mainly by Melco Crown Entertainment Limited and which manages the Cotai integrated resort Studio Studio City Company Limited will make an City. According to the release, the ‘net proceeds from international offering of senior secured notes in order the proposed offering will be used together with to repay a HK$10.8 billion loan from 2013. Studio City cash in hand’ by SCC to repay a senior secured term Company Limited (SCC) will conduct an international offering of senior secured notes - loans backed by the loan and revolving facilities agreement from 2013. The lenders’ names are not revealed in the release, borrower’s assets - due in 2019 and 2020 in order to repay a HK$10.8 billion (US$1.4 billion) loan, a company which also informs that SCC entered into a senior secured loan agreement with an undisclosed lender on release has announced. SCC is a subsidiary of Studio November 9 for a HK$234 million loan due in 2021. N.M. City International Holdings Limited, a group currently
Business
David Chow sees local SMEs further pressured by Cotai developments
The competition Local gaming boss David Chow shares his opinions on the city’s economic outlook, the gaming industry, and the development of the yachting scheme with Macau Business TV. Kam Leong kamleong@macaubusinessdaily.com
T
he city’s economy may have been subject to a bit of risk since April this year as projects in Cotai may have been overbuilt, says the cochairman and CEO of local gaming operator Macau Legend Development Ltd. David Chow Kam Fai. Speaking to Macau Business TV, the local businessman expressed his concerns that local SMEs, especially those on the Peninsula, would face the risk of shutting down their business if the completion of new projects in the Cotai Strip attracts ‘negative’ competition – which is, in his words, the provision of free services. Operating two local casinos under the gaming licence of SJM Holdings Ltd., Mr. Chow notes it’s still
too soon to say the gaming industry is recovering despite gaming revenue having registered year-on-year growth in the past three months. He also urged local gaming units stop competing with each other but work together to introduce new markets “in order to have good news”. On the other hand, Mr. Chow pointed out that the MSAR Government needs to further ponder the development of a Free Yachting Scheme with Guangdong Province – which has become a central government policy on Macau following the instruction by Chinese Premier Li Keqiang that the scheme should get implemented by the first half of next year. He believes the government first needs to resolve the current problems on regulations, licensing as well as creating the atmosphere, rather than
only providing berths for yachts to travel here. He perceives that the future implementation of the yachting scheme should allow people to enjoy the surroundings of the berths, which is “why I started to develop a marina in Macau”. Still awaiting a licence from the government to operate a marina in Macau Fisherman’s Wharf, Mr. Chow believes the MSAR Government could
start the yachting scheme with a trial run from this flagship property of the company. “With our experience, they have run the scheme with trial. They can expand the scheme if it works”, said the CEO. For the TV interview, go today to www.macaubusiness.com. The extensive interview will be available in the December editions of Macau Business and Business Intelligence.
Business Daily Wednesday, November 16 2016 7
Macau Human Resources
Fischer joins MGM as Senior Vice President
MGM Resorts International has appointed Aaron Fischer as Senior Vice President of Corporate Development, according to a press announcement released yesterday by the gaming company. The new Senior Vice President will assist the company to affiliate in the development and strategic planning of
integrated resorts in North America and Asia. Fischer has been an equity analyst for 17 years specialising in Macau and Japan as well as other emerging gaming markets and the global luxury goods industry. He recently served as the Head of Consumer and Gaming research at CLSA, a boutique brokerage and investment group based in Hong Kong. C.U.
J.P. Morgan report Gaming analysts consider MSAR gaming industry on right path
A genuine recovery A J.P. Morgan study points to genuine signs of recovery of the city’s gross gaming revenues in the next two years and estimates a 9 per cent growth in 2017, with 6 per cent growth in 2018
A
ccording to a J.P. Morgan report, Macau’s gross gaming revenues show genuine signs of recovery and point to a ‘bullish’ and positive gaming market in the years ahead. In the 60-page report titled ‘Macau Gaming - Time to Invest in Industry Upturn for Years Ahead’, J.P. Morgan analyst Sean Zhuang considers that three points reveal ‘evidence for genuine, sustainable recovery’ of the MSAR’s gross gaming revenues. ‘Recent 2016 third quarter results
demonstrated that the sector’s earnings power is much stronger than what the market had projected, driven by a benign cost environment despite new openings as well as benefits from stronger mix and operating leverage,’ the J.P. Morgan analyst stated.
Positive numbers
The J.P. Morgan report predicts 2017 and 2018 will see growth in gross gaming revenues of 9 per cent and 6 per cent, respectively. The financial group predicts that gaming industry
EBITDA will expand 31 per cent in the next two years, some 10 to 12 per cent higher than the general consensus. The J.P. Morgan analyst also said that recent positive results were not a temporary effect created by new openings such as Wynn Palace and The Parisian Macao integrated resorts in Cotai but part of an overall recovery in all gaming sectors, from VIP to mass market.
Three points recovery
The analyst described how even after the reversal of 26 months of declining gaming revenues in August, with a 9 per cent year-on-year growth registered in October, most analysts remained ‘stubbornly sceptical about the sustainability of a recovery’ capping gaming industry EBITDA growth in 2017 to 3 per cent.
However, Mr. Zhuang considers that the consecutive four months of positive growth reveal signs of a sustainable recovery and anticipate ‘up-cycles in demand/profit to stay higher for longer’. The report underlines that the recovery was ‘very broad-based’ and encouraging, with the VIP, mass market tables and slot machine segments all demonstrating improvements in the third quarter of 2016.
Key Points Three signs of sustainable gaming industry recovery Four months’ recovery suggests up-tick not due to seasonal factors Broad-based recovery of VIP, mass market and slot machine segments in 2016 Q3 Increase in high spending overnight visitors since the end of 2015
The new resort openings were described as having helped the mass market, while many junkets and marketing hosts were said to be ‘positively surprised’ by the return of player confidence in the VIP segment. ‘It goes without saying that October was even better for all three segments, printing the best year-on-year momentum and absolute run-rates in over 20 months’, stated the report. Another point raised by the analyst was that the recovery of all segments and properties is a result of the improvement in visitors since the second half of 2015. More important than the increase in the number of visitors was the improvement in the ‘quality’ of visitors, as overnight visitors from Mainland China have continued to grow since the end of 2015 while daytrippers decline, the analysts stated. The decrease of package tourists who ‘tend to have little spending power’ with the sharp improvement of ‘high-value non-package travellers’ was also considered a sign that average spending per visit was ‘structurally’ improving, too.
Results
Success Dragon interim net loss narrowed Local gaming management services firm Success Dragon International Holdings Ltd. has posted a narrower net loss for the six months ended September 30, at HK$30.2 million (US$3.8 million) compared to the HK$140.3 million of one year ago, as its core business in the city recorded improvement. According to its filing with the Hong Kong Stock Exchange on Monday after trading hours, the company’s total revenue reached HK$81.7 million for the period, which rose 2.5 per cent compared to HK$79.7 million one year ago. In particular, the firm’s core business, the outsourced business process management, posted HK$64 million in revenues, up 12.3 per cent from HK$57 million one year ago. The business includes electronic gaming equipment management in the MSAR
and the provision of management services for the greyhound racing business in Vietnam. ‘During the six months ended 30 September 2016, the management of electronic gaming equipment operations in Macau has been improving steadily with heavier emphasis on marketing. Cost control remains the key objective in Macau operations,’ it noted in the filing. However, the company, formerly known as CY Foundation, saw its revenue derived from th packaging products business plummet 58.9 per cent year-on-year to HK$9.3 million from HK$22.6 million, whilst revenue contributed by the information technology services business amounted to HK$8.3million. On the other hand, the company said in the filing that its expansion
into Vietnam on the management of electronic gaming equipment is in progress.
‘The Group expects this diversifying market to achieve credible outcome in the coming financial year,’ it wrote. The company did not propose any interim dividend for the period. K.L.
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63rd Grand Prix gunning for glory The motors start warming up, the checkered flags are washed and the drivers are pumped up, as the 63rd Grand Prix prepares to ignite tomorrow. Every GP is a new start, but this year will see plenty of changes apart from driver line-ups; after all, Macau will host the FIA F3 World Cup and the FIA GT World Cup, making it the only city in the world to organise two simultaneous world cup motor competitions. High expectations for a Grand Prix Committee that saw a total reform this year, with the Macau Grand Prix Organizing Committee (MGPOC), now comprising the Macau Sports Bureau and the Automobile General Association Macau-China (AAMC), with the FIA assuming the role of motor race consultants. The reform followed in the wake of Barry Bland’s company Motor Race Consultants leaving the organising of the F3 competition, and Yokohama being replaced by Pirelli as the official tyre supplier, both after 33 years of serving the Grand Prix. Politics apart, true motoring history is made on the Guia Circuit and the FIA F3 World Cup will probably produce one of its best line-ups ever, with Swedish pilot Felix Rosenqvist trying to break the record and win the Formula 3 World Cup for the third time, slugging it out with Portuguese pilot António Félix da Costa, winner in 2012, and Spaniard Daniel Juncadella, winner in 2011. The race will also include 19-year old Andy Wing Chung Chang, running for British team T-Sport, while veteran Macanese driver Andre Couto will take part in the FIA GT World Cup, for FFF Racing Team, switching this year from McLaren to Lamborghini. Held for the second time in Macau, the FIA GT World Cup will again see German Maro Engel lead a Mercedes team that has won the 18-lap competition for the past two editions. This year will also see an historic 50th Macau Motorcycle Grand Prix, with podium winners receiving an extra trophy to celebrate the special occasion in a race featuring Briton Peter Hickman and Martin Jessopp, respective 1st and 2nd last year, with former champion Michael Rutter and Stuart Easton also fighting for bragging rights. Suncity Group will be the main sponsor of the Macau Grand Prix for the third consecutive year, with local gaming operator SJM Holdings Ltd. sponsoring the Title Race and local telecom Companhia de Telecomunicações de Macau (CTM) sponsoring the Macau Touring Car Cup Race.
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Greater China
The show must go on It’s a new era for the Macau Grand Prix Organizing Committee (MGPOC), with a reform that saw the Macau Sports Bureau and the Automobile General Association Macau-China (AAMC) joining forces to organise the 63rd Grand Prix, with a bigger role assumed by the International Automobile Federation (FIA). Business Daily talked to some veterans of the Automobile General Association Macau-China (AAMC) and with the Sports Bureau regarding past and future decisions that can affect the local motorsport community and this historic competition that is the Macau Grand Prix.
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more careful watch will be set on this year’s Macau Grand Prix, looking to see how a new Macau Grand Prix Organizing Committee (MGPOC) fares after last September saw the departure of Englishman Barry Bland, the co-coordinator of the F3 race since 1983. The move caused some concern in F3 teams and in the foreign press regarding what the changes would mean for the competition. However, members of the MGPOC were quick to guarantee that this year’s Grand Prix will be business as usual, with no added expenses despite a year that will see Macau be the only city in the world to host two international motosport competitions, the FIA F3 World Cup and FIA GT World Cup. With a budget set at MOP200million (US$25 million), the four-day event is expected to attract a similar number of 80,000 spectators and MOP53 million in revenue as last year.
throughout the years in organising the races, claiming his exit was due to “personal reasons”. The exit of Yokohama as the main tyre supplier after 33 years of service also caused some waves in the motorsport community, with the FIA awarding by public tender a one-year contract to Italian company Pirelli. “Yokohama changed their marketing strategy, starting to spend a lot of money sponsoring Chelsea Football Club. Pirelli is an international brand so we’re not worried about the tyre quality”, Mr. Lo stated.
Changes for the best
When the FIA World Touring Car Championship (WTCC) left Macau in 2014, the TCR International Series was found as the solution to replace the empty spot in the Guia Race last year. While last year comprised the final round of the TCR International and Asia series, this year sees the competition opening to any 2.0 Turbo
cars from major touring car championships. However, it is possible the WTCC will return to Macau next year, a move that could bring three international competitions to the city. “For a race to join the competition you need two people to sing; if competitions want to stay in Macau or leave we and they have the choice. If WTCC wants to come again it’s something we’ll discuss”, Chong Coc Veng, President of the AAMC Board of Directors for 14 years, told Business Daily. For the Sports Bureau President the number of competitions trying to be part of the Grand Prix programme is always numerous and having two motorsport world cups is already a major feat for the city. Stating that the Grand Prix always had many competitions trying to be part of the programme and with this year seeing two races that became world cups, Mr. Pun says the MGPOC is “always trying to bring
“The drivers need to respect the regulations and not say if they’re right or wrong. If the father gives the son money, he is still a lucky boy” Chong Coc Veng, President of the AAMC Board of Directors
“After 60-something years, the Grand Prix has never stopped. I know some people don’t like it and say it disturbs their daily life but it’s already an iconic sport and tourist event. Hopefully, it will go on forever”, Lo Keng Chio, Chairman of the AAMC for 15 years, told Business Daily. Suncity Group, the city’s largest junket promoter, will provide sponsorship of MOP20 million (US$2.5million) to hold the event, with SJM sponsoring the FIA GT World Cup with MOP14 million and CTM again supporting the Macau Touring Car Cup with MOP1.5 million. For Mr. Lo total ticket revenues will remain similar while the level of sponsorship has increased, although he expects the current economic situation in Southeast Asia might attract a larger number of spectators, and says the organisation is “lucky” to even maintain the same revenue numbers with the “current state of the world economy”. A similar view was voiced by Pun Weng Kun, President of the Sports Bureau, who emphasised that the Grand Prix has worked for many years in a systematic way, while thanking Mr. Bland for his support
Chong Coc Veng, President of the AAMC Board of Directors
good events” to Macau and that the organisation had all the intentions to renew the contract to bring the FIA GT World Cup again next year for a third edition. For Lo, the current seven races already create a difficult and tight running schedule, but that having two international events in Macau was of great importance. “It’s a very good race and FIA would love to join our party; we’re happy together,” Mr. Chong told Business Daily. With this year the 50th edition of the Macau Motorcycle Grand Prix, members of the committee also defended a competition some have labelled too dangerous as an exciting historical race that will hopefully continue for 50 years more. “We don’t say it’s dangerous; it’s challenging. All the races have a tradition and all the riders love the Macau circuit like they love the Isle of Man”, Mr. Chong told Business Daily With regard to race regulations, some Macau drivers have also complained about the cost increases in the 1.6T class in the CTM Cup and of the race’s technical regulations, with Chong stating the rules were decided in co-operation with the FIA taking local drivers into consideration. “We don’t say it’s 100 per cent perfect but we try: the regulations are fair to all drivers. Maybe in the near future we’ll accept some new ideas to change it”, he added
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When it comes to an increase in the number of pits in the Grand Prix, the President of the Sports Bureau told Business Daily plans were on hand for expansion with further study necessary. “After the Grand Prix finishes we only have 10 months to do any changes, so we need a very detailed plan, studies, meetings with other departments and we have to check the road grid, then enforce it. Therefore we don’t have an exact date so far”, Mr. Pun told Business Daily.
Helping the local boys
Although the 63rd Grand Prix will see local pilots Andre Couto and Andy Chang Wing Chung competing for the podium against fierce competition, some doubts have been raised about how Macau can renew its local drivers and promote motorsports in the territory for the future.
“After 60-something years, the Grand Prix has never stopped. I know some people don’t like it and say it disturbs their daily life but it’s already an iconic sport and tourist event. Hopefully, it will go on forever” Lo Keng Chio, Chairman of the AAMC Competitions such as the GP World Cup have an attractive test programme but with entry fees that can reach MOP60,000 per car and insurance premiums that can range around MOP100,000 some local pilots can be driven away from the competition. Subsidies for support in overseas races also require that local drivers don’t finish in the bottom places, which critics says pushes local drivers
Pun Weng Kun, President of the Sports Bureau
to avoid being too competitive and avoiding risks. For the President of the Sports Bureau, the support for local drivers is already “superior to that in many countries” while the AAMC President of the Board of Directors told Business Daily that local drivers “should be happy with the subsidies they already receive”. “The drivers need to respect the regulations and not say if they’re right or wrong. If the father gives the son money, he is still a lucky boy. I’m not saying that the rules are okay or not but they’re the rules; every driver needs to respect them”, Chong told Business Daily. For the AAMC President drivers shouldn’t count mainly on their own effort to find support, stating how Andy Chang after getting experience in the local circuits found a sponsor to go abroad and has competed in the UK and Italy for a long time. “I also suggest that if local drivers feel like they don’t have a chance to compete in Saloon cars, F3 or any other category that they change to maybe karting or GT races”, Mr. Chong told Business Daily. A similar view was given by Mr. Lo, who stated that the AAMC supports
local drivers “to a certain degree” as they don’t want them to “take advantage of the subsidies”, adding that “after all, there’s only one race in the city and six outside it, which is not enough to create a world championship driver”. “The different entities that concede subsidies to the pilots have studied the method to grant this money. In some years we will see if there’s a necessity to change it or keep it. Right now, most pilots are satisfied with the way the subsidies are awarded. The Macau Government offers a stage for pilots to start their carer. If they have good performances, I’m sure there’ll be teams that will invite them”, Mr. Pun stated. In terms of forming new drivers, Chong considers that the AAMC has consistently provided support for the development of motorsport in Macau, with “six to seven races runs organised on the karting circuit every year”, training every year for Macau race marshals and officials, and a system that provides new drivers with an opportunity to secure international licences for the races in Zhuhai and Guangdong. For the Sports Bureau President his department has worked for a
long time with the AACM in order to train young drivers through karting competitions designed to find talent, with Andy Chang being one of those discovered through the programme.
Competitions for the future
This year October, Hong Kong hosted the FIA Formula E Hong Kong ePrix, an electric car competition initially offered to Macau to host. The Sports Bureau told Business Daily that Hong Kong having organised the competition was good for the overall automative sport sector in the region, while admitting it is possible the city will host the competition in the future. The AMCM President, however, didn’t consider the city would be organising its own Formula E in the next years, since the city already hosted a considerable number of internationally renowned competitions. With regard to the possibility that the city host the speed boat F1H20 World Championship, Mr. Pun said it would be difficult to organise the competition in Macau due to the high levels of boat traffic and the need for numerous discussions with many different entities related to maritime resources.
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Interview
SunCity Group Formula 3 Macau Grand Prix - FIA F3 World Cup
Macau Grand Prix to reach Formula One 2005 race winner Lucas Di Grassi?
I don’t think the race has lost any of its meaning. Basically, if you look back you have the cases of Kevin Magnussen, Felipe Nasr, Daniel Ricciardo, Valtteri Bottas, Carlos Sainz Jr, Esteban Ocon, Marcus Ericsson, among others, that are now racing in Formula One, and tried to win this race but failed. This means something . . . then you have drivers like Lance Stroll, who didn’t want to come this year - perhaps he had nothing to prove – but, in fact, the level of the drivers here in Macau isn’t lower – quite the opposite. Those in Formula One didn’t win here!
- You’re a BMW factory driver. BMW has a long heritage and great success in Macau. Do you believe that one day you can drive a BMW car, like a GT car, on the Guia Circuit?
Yes, I’d really like it and I believe it may happen one day. I’m a factory driver for BMW and I know that a call to race here in Macau, a place I know very well, would be quite normal. Anyway, I already have a very full and ambitious programme with BMW that fulfils my race calendar. I’d also like to thank BMW Motorsport for the freedom and for supporting my Macau comeback.
Interview – António Félix da Costa “Macau is special, it’s unique!”
It was an unexpected last minute call and a big surprise to many. The 2012 Macau Grand Prix Formula 3 winner is back in town and will try to emulate his emphatic win. António Félix da Costa’s 2012 win on the celebrated street circuit saw him become the first Grand Prix driver from Portugal since Eduardo de Carvalho won the inaugural event in 1954 (a Macau Portuguese driver won this race in 2000 but racing under the Macau SAR flag). Félix da Costa, 25, has spent the 2016 season racing with success in the FIA Formula E Championship as well as the DTM touring series as a BMW Motorsport driver. The return to Formula 3 is Félix da Costa’s fifth turn around the tricky street circuit which continues to draw talented drivers back to its clutches year after year as they all aim to tame the legendary circuit. He is racing a Dallara-Volkswagen from British powerhouse Carlin Motorsport, the same team that took him to victory in 2012 and second place in 2013. The Portuguese driver is looking to shine again on his favourite racing circuit.
- What makes you want to return to a race that you won before when theoretically you have more to lose than to win?
In fact, I don’t have anything to gain by returning to Macau, but when I got the invitation from the organiser and the phone call from Trevor Carlin I
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couldn’t say no. I’m just doing it for the love of the sport, and this particular race. There will also be a few fellow Macau winners going back, as well as a lot of young up and coming guys, too, so it will be a fun weekend. I’m looking forward to being back in Macau, mainly with Carlin, a team that I feel great affection for.
- To win is always your goal. But if you can’t make it, what would be a good result for you?
Macau is the race that everyone wants to win. I already did it and it’s an incredible feeling. This year I obviously want to win again, but we know the playing field level is high and there are a lot of talented drivers racing. Prema will be very strong; they dominated the FIA F3 European Championship. Anyway, I know that with Carlin I will have the right ‘weapons’ to fight for the win. The Macau (circuit) is a ‘mousetrap’ you need to do everything well and, of course, have Lady Luck follow you all the time.
used to. In any case, this is the same for everyone; it is one car, with four wheels, where driving makes the big difference. Therefore, we are looking forward to finding an efficient setup from the beginning with good straight-line speed to attack the magical Guia Circuit.
- You are a former Macau Grand Prix F3 race winner. Knowing that this race is still one of the most important races for young drivers, why was the last race winner of the
- Last month, you participated in the first edition of the electric car street racing event, the Hong Kong ePrix. How do you compare that event with the Macau Grand Prix?
You can’t compare it to Macau. In fact, the Hong Kong ePrix was well thought out, and the drivers liked the racetrack. It went well for me (António finished fifth overall in the race) but to compare the event with the Macau Grand Prix would be unfair. Macau is special, it’s unique! The circuit is the one that has given me more pleasure to drive until today - and the mix of F3 and Macau is something unparalleled.
Results of Macau Grand Prix F3 Race: 2010 2011 2012 2013
Dallara-VW (Carlin Motorsport) Dallara-VW (Hitech Racing) Dallara-VW (Carlin Motorsport) Dallara-VW (Carlin Motorsport)
6th place Did Not Finish 1st place 2nd place
- You had the chance of testing Carlin’s car on the Red Bull Ring before coming to Macau. How did you adapt to a car you haven’t driven since 2013, and what differences have you found? F3 is always in constant development but I adapted myself quickly to this new evolution. The Pirelli tyres are probably the area where we need to focus on more as they are completely different from what we are
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U Group Senior Analyst José I. Duarte Design Aivi N. Remulla Web & IT Janne Louhikari Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, November 16 2016 17
Greater China Forex
Yuan weakens to eight-year low Barclays forecasts that the onshore yuan will fall to 7.15 against the dollar by the end of the third quarter next year
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hina yesterday weakened the yuan’s fix against the dollar to a nearly eightyear low as the surging dollar put further pressure on the unit. The central People’s Bank of China set the value of the yuan at 6.8495 to the greenback, down 0.30 per cent from Monday’s fixing, according to data from the Foreign Exchange Trade System. The unit has reached a series of sixyear lows in recent weeks in the face of a greenback rising on expectations of sharper US interest rate hikes, with President-elect Donald Trump pledging during his campaign to ramp up spending and cut taxes. But yesterday’s fix was the weakest since December 2008, and beyond the roughly 6.83 level at which Beijing virtually pegged the unit for nine months in 2009-10. China only allows the yuan to rise or fall two per cent on either side
of the daily fix, one of the ways it maintains control over the currency. During the presidential campaign Trump repeatedly accused China of keeping the yuan undervalued to boost exports and make imports from the US more costly, and has threatened to declare Beijing a currency manipulator once in office. But analysts and officials say that Beijing is now intervening in the opposite direction, and trying to prop up the unit’s value against a strengthening greenback. The US Treasury in October cleared China of keeping the yuan cheap for trade advantages, saying the currency could have fallen more had Beijing not acted. “It’s a US$ story so far - and possible intervention to see us back from the brink,” Michael Every, head of AsiaPacific financial markets research at Rabo Bank, said in a written response to AFP. Barclays forecasts that the onshore
yuan will fall to 7.15 against the dollar by the end of the third quarter next year. The bank’s Singapore-based head of Asia FX and rates strategy Mitul Kotech said the yuan was basically tracking moves by the dollar. “We still awaiting what policies are going to be in terms of Trump’s policies towards (China) given what he said in the run-up to the election.
‘The onshore yuan was quoted at 6.8586 around midday trading’ “But it’s not a cause of concern at this point in time.” The onshore yuan was quoted at 6.8586 around midday trading, 0.26 per cent weaker than Monday’s close of 6.8409, according to the Foreign Exchange Trade System. In August last year, Beijing suddenly devalued the yuan, causing investors to dump the unit in volumes not seen since 1994 and sparking an outflow of capital from China. AFP
In Brief Markets
MSCI announces latest changes to indexes U.S. index provider MSCI announced changes to a number of its index funds, adding 55 securities and removing 34 from its World Index. MSCI also announced changes to its emerging markets index and added 44 new securities and deleted 3 from its China A index. The largest Chinese companies added were China Film Corporation A, China Grand Automotive Services A and Cultural Investment Holdings A. To its emerging markets index, MSCI added China Huarong Asset Management H, Chinese ADR Weibo Corporation, and Brazil’s Electrobras ON. Fitch
Tightening of wealth products rules to hit banks’ capital Bringing unsecured Chinese wealth management products, one of the main sources of shadow banking, on the balance sheets of the banks could dent banks’ regulatory capital buffers, ratings agency Fitch said in a report yesterday. Chinese regulators have been bolstering their oversight of financial assets including wealth management products (WMPs) that are often sold by banks and not counted on their balance sheets, amid concerns about growing debt in the economy. Fitch said if unsecured WMPs were accounted for as on-balance sheet assets, average common equity Tier 1 regulatory capital ratios would drop by 1.4 percentage points for state banks and by 2.5 percentage points for mid-tier banks. M&A
IDG in advanced talks to sell itself to Mainland group Real estate
Shenzhen steps up curbs on home purchases More than 20 cities in the Mainland have adopted restrictive measures China’s Shenzhen city yesterday stepped up measures to rein in a red-hot housing market with fresh curbs on borrowings, extending nationwide efforts by policy makers to cool prices and reduce the risk of a market crash. The downpayment level for second-home buyers who borrow from the housing provident fund will be raised to 70 per cent from 30 per cent, the Shenzhen Housing provident Fund Management centre said in a notice yesterday.
Chinese employees to save money towards purchasing their own homes. Shenzhen, China’s tech hub bordering Hong Kong, has long been one of the high-growth home markets. Average home prices in the city were up 34.1 per cent year-on-year in September. The latest curbs follow recent steps by policy makers to cool soaring home prices, especially in big cities, amid growing worries of a potential crash in the real estate sector. More than 20 cities have adopted
‘Average home prices in the city were up 34.1 per cent year-on-year in September’ For first-time buyers, the downpayment will be increased to 30 per cent from 20 per cent. Furthermore, loans will not be issued for thirdhome buyers, who only needed to put down 30 per cent as downpayment under previous rules. The changes are effective from yesterday, the notice said. The housing provident fund is a kind of social insurance that allows
A night view of the city
restrictive measures, including higher mortgage downpayments and an immediate ban on second-home purchases, to prevent speculative buying that could further fuel price bubbles. On Monday data showed China’s real estate investment growth quickened in October to its highest since April 2014, though analysts expect a slowdown in coming months as the curbs start to bite. The Shenzhen local government has twice introduced restrictive measures this year, including raising the downpayment ratio for first-home buyers and second-home buyers seeking to borrow from banks. Reuters
International Data Group, a pioneer in technology publishing and owner of such venerable names as PCWorld and the market research firm IDC, is in talks to sell itself for more than US$1 billion to a Chinese investor group headed by IDG of Greater China chairman Hugo Shong, according to people familiar with the matter. The identity of the other investors in the group and the exact size of the deal could not be learned. The privately held company had been seeking a valuation of US$500 million to US$1 billion, according to the sources. Commodities
Codelco slashes 2017 copper premium Global No.1 copper miner Codelco has cut its 2017 term premiums to China by more than a quarter, an executive at the Chilean company said yesterday, the lowest level for sales into the world’s top consumer of the metal since 2009. Senior commercial vice president Rodrigo Toro said on the side-lines of a conference that Codelco had agreed next year’s premium for the physical delivery of metal in China at US$72 per tonne over the London Metal Exchange benchmark. That is down from US$98 per tonne for this year’s contracts and the lowest since 2009, according to Reuters data.
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Asia In Brief IMF
Australian economy resilient Australia’s government should consider slowing its path to budget balance and instead spend more on growth-friendly infrastructure projects, IMF staff said in their annual check-up on the economy. The International Monetary Fund report also recommended the Reserve Bank of Australia (RBA) keep monetary policy stimulative, given that risks to the economy and inflation remained on the downside. “Ensuring the return to full employment under weak global conditions will need continued accommodative monetary policy and quality infrastructure spending, which will also boost long term growth potential,” IMF staff wrote in their regular assessment. IPO
Malaysia Airlines bets on China Malaysia Airlines is betting on its first new routes in almost a decade and growth in China, where it wants to triple business over five years, to help it return to profitability in 2018 and list the year after, its chief executive said yesterday. Peter Bellew, who took the reins at the Malaysian flag carrier in July, said the group was already losing less money than it had forecast and was on track to break even in the last quarter of 2017, with bookings for the coming months ahead of last year, despite a reduced fleet. “We are in expansion mode,” he told a gathering at the CAPA Asia Summit 2016. Savings
S. Korea’s foreign currency bank deposits slip South Korea’s foreign exchange deposits declined in October for a second month to their lowest level since June, central bank data showed yesterday. The Bank of Korea said in a statement foreign currency deposits fell by US$4.68 billion to US$61.82 billion in October, from US$66.50 billion in September. Dollar deposits in October dropped by US$3.78 billion to US$52.74 billion as corporations used their dollar deposits for trade settlements, the statement said. Just over 85 per cent of all foreign currency bank deposits were in dollars. Cash change
India to use indelible ink to prevent cheats Indian banks will use indelible ink to ensure that people only change old notes for new ones once under Prime Minister Narendra Modi’s scheme to fight “black money”, resorting to a tactic used to prevent multiple voting in elections. A top finance ministry official said the use of indelible ink - also used to stop multiple voting in Indian elections - would prevent “unscrupulous persons” from sending people from one bank branch to the next to exchange old notes. Individuals are only allowed to swap 4,500 rupees (US$66.50) once.
Monetary outlook
Australia’s central bank chief warns of high household debt Philip Lowe also emphasised the need for stronger public finances
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ousehold debt in Australia is at a record high and it is not in the public interest to encourage further borrowing, central bank Governor Philip Lowe said yesterday, in another sign that the bank might be done cutting interest rates for now. The Reserve Bank of Australia (RBA) left interest rates at a record low of 1.5 per cent at its policy meeting this month, sounding optimistic about the economy and more confident that inflation would pick up. “There remain reasonable prospects that inflation will return to around average levels over the next couple of years,” Lowe said at a business dinner in Melbourne. Lowe spoke about challenges to the outlook and managing them, while adding that the RBA’s central scenario
for the A$1.6 trillion economy was a “relatively positive one.” Rising household debt, equivalent to 185 per cent of annual disposable income, needed a close watch. “It is important that we avoid a build-up of financial imbalances in household balance sheets,” Lowe said. “It is unlikely to be in the public interest, given current projections for the economy, to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term.” Analysts have long suspected the RBA would be loathe to cut rates again to avoid fuelling yet more borrowing. Futures markets imply only a 12 per cent chance of another policy easing by mid-2017. In his speech, Lowe also emphasised
the need for stronger public finances but added that budget repair should not come at the expense of infrastructure spending.
“It is unlikely to be in the public interest . . . to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term.” Philip Lowe, Reserve Bank of Australia Governor Earlier, the International Monetary Fund said Australia’s government should consider slowing its path to a balanced budget and instead spend more on growth boosting infrastructure projects. Since the global financial crisis, the budget has been in deficit with net debt seen expanding to 19.2 per cent of gross domestic product by 2017/18. A balanced budged is not expected until 2020/21. Reuters
Political crisis
Top contender for Korean presidency to seek Park resignation In a poll released Monday, Moon Jae-in was narrowly ahead of U.N. Secretary-General Ban Ki-moon as the leading contender to become the next president Kanga Kong
Moon Jae-in, the front-runner to become South Korea’s next president, said yesterday he would seek the resignation of scandal-hit incumbent Park Geun-hye. “We have reached an irreversible situation,” Moon said in a televised briefing. “I will run a nationwide campaign to push her out until she declares unconditional resignation.” Moon’s campaign will ratchet up pressure on the president who is embroiled in an influence-peddling scandal and faces questioning this week by prosecutors. Her lawyer, Yoo Yeong-ha, said at a separate briefing yesterday that she needs more time to prepare for her defence and that it is preferable that the investigation be conducted via written questions. With about 16 months left in her single five-year term, Park has given no sign that she is prepared to step down and lose her presidential immunity. Even so, she’s twice apologized to the nation for consulting her friend Choi Soon-sil on state affairs, and her approval rate has dropped to 5 per cent. Moon, the runner-up in the 2012 presidential election, joined hundreds of thousands of people in Seoul on Saturday in the nation’s biggest protest in decades. Moon, a former leader of the opposition Democratic
Party of Korea, previously urged Park to allow the parliament to form a coalition government and take a back seat in running the country. “Park is defying the will of the people, unable to drop her obsession with power,” Moon said. “The bitter lamentation of the people is an expression of frustration that can’t be healed just by her stepping down.” Leading contender In a Realmeter poll released Monday, Moon was narrowly ahead of U.N. Secretary-General Ban Ki-moon as the leading contender to become the next president. About 21 per cent of respondents picked Moon, compared to 17.2 per cent who chose Ban. The former human rights lawyer served as President Roh Moo-hyun’s chief of staff and stands at odds with
Park over a range of issues, including how to handle the economy and North Korea. His call for Park’s resignation follows former ruling party leader Kim Moo-sung’s argument on Sunday that it was time to impeach Park. Impeaching a president requires a twothirds majority in the 300-member parliament. “Moon probably thought he can now confront the president given the public backing shown at the Saturday protest,” Rhee Jong-hoon, a political commentator and research fellow at Myongji University, said by phone. “This probably is a necessary procedure for the opposition to take the next step: an impeachment motion.” Prosecutors have arrested Park’s friend Choi Soon-sil to investigate the extent of her interference with state affairs through her private relationship with the president. They are also questioning a former presidential adviser on the suspicion that he exercised undue pressure on companies to raise money for Choi’s non-profit foundations. On Monday, the ruling and two opposition parties agreed to appoint a special prosecutor to take over the investigation. The three parties together hold 288 seats in the National Assembly. Bloomberg News
Democratic United Party leader Moon Jae-in at party headquarters. Bloomberg News
Business Daily Wednesday, November 16 2016 19
Opinion China finally boosts prices, only too well Christopher Balding a columnist
Financing the climate-change transition
B
y December 2015, China had endured four years of declining producer prices. Coal was down 38 per cent on the year, and steel down 31 per cent. That month, the Communist Party hit on a new plan for reversing this dynamic. They called it “supplyside reform,” and it was widely perceived as an attempt to eliminate the surplus capacity at mines and mills that was depressing prices and making debt difficult to repay. Almost immediately after these proposed reforms hit the press, prices started going up. From Dec. 15 through the end of October, coal prices surged 114 per cent and steel rose by 47 per cent, more than making up for the previous year’s losses. The increase was so pronounced, in fact, that the country’s top economic planner actually asked miners to cap prices next year. The problem is that these price increases had almost nothing to do with the fundamentals of supply and demand. And the government’s attempts to reassert control are likely to make things worse. The price surge had a number of causes. First, Beijing turned on the credit spigots. Year-todate total social financing is now up 13 per cent, compared to 6.7 per cent growth in gross domestic product. With a high percentage of new credit going to public-works projects and real estate, much of it passed through into primary commodities - that is, coal and steel. At the same time, the central government was pulling out the stops to cut operating capacity. It set bold reduction targets, created an assetmanagement firm to consolidate mining companies and restricted working days at coal mines. It even warned regional governments that they’d be “seriously punished” if they failed to follow t h r o u g h . T h e r e’ s plenty of debate about how much reduction has actually occurred. But it’s clear that they’ve made some significant progress. By turning on the credit taps while attempting to restrain supply, however, Beijing telegraphed its intent to the market, thereby creating arbitrage opportunities. Investors keen to profit from the expected surge in activity piled into wealth-management products targeting basic commodities. As a result, trading turnover has surged enormously relative to consumption: Trough-to-peak daily turnover grew by more than 8,900 per cent in steel. With supply flat and demand falling, prices were still pushed higher by traders and wealth managers. All this is good news for coal and steel firms, but bad news for everyone else. Consumers are suffering as electricity prices rise. Energy companies, heavily reliant on coal, are losing money and lobbying for a price cap and expanded output. Construction firms are dependent on cheap steel to make their projects profitable. As always, propping up one sector in the economy comes at the expense of others. Capping prices isn’t the answer. It creates the central planner’s dilemma: how to dictate market moves without forcing the trade-offs that market discipline imposes? If the implied price is above the market-capped price, firms will find a way to hide payments to account for the discrepancy. Chinese companies routinely get around capital controls; it isn’t hard to believe they’d do the same under price caps. A better strategy is to tighten money and credit. Until the government manages that, firms will continue making poor decisions, politics will determine lending and financial markets will be prone to bubbles. The government also needs to relax control over the economy more broadly. China has thousands of industries and a work force larger than most countries. Its markets can’t be calibrated by technocrats forever. Bloomberg View
‘All this is good news for coal and steel firms, but bad news for everyone else’
U
nless t h e world reduces greenhouse-gas emissions rapidly, humanity is likely to enter an era of unprecedented climate risks. Devastating extremeweather events are already increasing in frequency, but much of the worst climate-related damage, such as a sustained rise in sea levels, will be recognized only once it is too late to act. Clearly, the climate system’s time horizon does not align well with the world’s much shorter political and economic cycles. Listed companies report on a quarterly basis, and recent regulatory changes, such as those mandating increased use of markto-market accounting, limit long-term thinking. Governments usually have legislative cycles of no more than four years, and they must also respond to immediate developments. Yet stabilizing the climate requires sustained and consistent action over an extended period. AXA and UBS, together with the Potsdam Institute for Climate Impact Research, CDP (formerly the Carbon Disclosure Project), and the EU’s ClimateKIC (Knowledge and Information Community) recently organized a conference in Berlin. There, they discussed with leading experts in green investments and fossil-fuel divestment how financial intermediaries can help to address climate risks. The financial industry’s active involvement is urgently needed. In the Paris climate agreement reached last December, countries worldwide agreed to limit global warming to well below 2° Celsius, thereby defining the track on which the world must progress rapidly. Over the next 15 years, an estimated US$93 trillion will be needed for investments in low-carbon infrastructure. Government funding alone cannot meet this demand, so the financial sector must help fill the gap. By redirecting capital flows toward proactive efforts to mitigate and adapt to climate change, financial institutions can protect client assets from global climate risks, and from the economic risks that will attend a warming planet. They are also demonstrating their social responsibility for the wellbeing of future generations. But financing change requires changing finance. And this process is already underway. Development institutions such as the World Bank are reconsidering their investment policies. And, in the private sector, there is growing enthusiasm for “green” bonds, loans, indices, and infrastructure investments. Still, as the European Commission notes, less than 1 per cent of institutional assets worldwide are invested in environmentally friendly infrastructure assets. Given historically low interest rates and the general lack of attractive investment options, this is an ideal moment to tap into investors’ growing appetite for green financial products. Many large financial institutions have recently joined a global initiative promoting fossil-fuel divestment. Research findings indicate that global CO2 emissions must be restricted to less than one trillion metric tons between 2010 and the end of the century to comply with the Paris agreement and limit global warming to below 2°C. This means that most available coal, oil, and gas reserves must stay in the ground. As a result, investments in fossil-fuel energy sources will continue to lose value over time, eventually becoming stranded. Thus, the financial sector’s revaluation of such holdings not only helps to stabilize the climate, but also better protects its clients’ investments, and, by preventing the creation of a “carbon bubble,” helps to stabilize economies. But selling off these holdings will not suffice; the freed-up assets must also be redirected to more sustainable businesses.
“
Hans Joachim Schellnhuber Director of the Potsdam Institute for Climate Impact Research
Christian Thimann Group Head of Regulation, Sustainability and Insurance at AXA Group
Axel Weber Chairman of the Board of Directors of UBS Group AG
For financial institutions and investors to do their part, they urgently need a better understanding of the relevant climate-related investment risks, which the Financial Stability Board (FSB) has divided into three categories: physical, transitional, and liability. Informed investment decisions will require sound, scientifically grounded data and uniform standards to assess these risks, and to quantify opportunities against them. Effective disclosure will hence be a key part of any new framework. An FSB taskforce – comprising representatives from banks, insurers, institutional investors, rating agencies, consultants, and auditors – is currently shaping voluntary standards, so that companies provide consistent and comparable climate-related financial disclosures to their stakeholders, whether investors or lenders. This will also allow companies to gain valuable insights into their own potential for change, reflecting a time-honoured principle: what gets measured, gets managed. This is no easy task. For example, carbon footprints on their own will not steer investments in the right direction. Instead of identifying the champions of environmentally friendly solutions, these figures merely reveal which companies currently emit the most greenhouse gases. Meaningful disclosure standards must take account of sector-specific information and the impact on business strategies of the transition toward a low-carbon economy. All the governments that signed the Paris agreement can now be expected to adopt a range of measures to enable them to implement their de-carbonization strategies. In this context, carbon pricing will be an essential part of the policy toolbox. Some governments have already taken steps to promote the development of green products, via tax or market incentives. Overall, such changes to legal frameworks must support, not impede, the private financial sector’s efforts to tackle climate change. Financing the infrastructure projects that are too expensive for some national governments to finance on their own, but that are essential to the transformation of our energy system – such as wind farms and long-distance power lines – will require a new class of global infrastructure bonds. In the past, governments have encouraged investment in government bonds. Now, in order to increase private investment in building up clean infrastructure, investor-protection measures and dispute-resolution mechanisms must be considered. The financial sector is ready to spearhead the shift to sustainability. When Germany takes over the G20 presidency next year, it will have the opportunity to convince its partners to create an adequate framework to encourage change in the financial sector that ensures a smooth adjustment to a low-carbon economy. For both public and private actors, the time to act is now. Project Syndicate
Financing change requires changing finance
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20 Business Daily Wednesday, November 16 2016
Closing Logistics
New air freighter services launched
Macau International Airport has started cooperating with DRB-HICOM Asia Cargo Express Sdn. Bhd. (DHACE) to provide air cargo services. The first scheduled air freighter between the MSAR and Malaysia took off yesterday. The imports of the transit goods are primarily Malaysian live seafood, halal food, popular processed food and seasonal fruit. Meanwhile, export goods from the MSAR are cross-border and e-commerce commodities that will be further delivered to the Southeast Asia and Middle East regions through Malaysia.
Macau is the first strategic platform for DHACE to enter into Southern China and the Malaysian air freighter will consider further adjustment for the frequency of flights according to market demand. The predecessor of DHACE was Sari Aviation Services, which was a domestic airfreight carrier linking eastern and western Malaysia. The launch of the new air freight service seeks to facilitate the MSAR’s significant aerial port of Southern China, as well as to fully utilise the political advantages of Macau and the ‘Belt and Road Initiative’ introduced by the central government. C.U.
UN head
Global climate change action “unstoppable” despite Trump Ban said that he hoped that Republican Trump would drop his view that man-made climate change is a hoax
U
.N. Secretary-General Ban Ki-moon said yesterday action on climate cha n g e has b ec o m e “unstoppable”, and he expressed hopes that U.S. Presidentelect Donald Trump would drop plans to quit a global accord aimed at weaning the world off fossil fuels. At a meeting of almost 200 nations in Morocco to work out ways to implement the 2015 Paris agreement to limit greenhouse gas emissions, Ban said U.S. companies, states and cities were all pushing to limit global warming.
emissions drive heat waves, floods and rising sea levels. Ban said that he hoped that Republican Trump, elected last Tuesday, would drop his view that man-made climate change is a hoax and his pledge to cancel the Paris Agreement. “I am sure he will make a quick,
wise decision,” Ban said, saying that climate change was having severe impacts from the Arctic to Antarctica. He noted this year is on track to be the warmest year since records began in the 19th century. “I hope he will really hear and understand the severity and urgency of addressing climate change. As President of the United States I hope he understands this, listens and evaluates his campaign remarks,” he said. Ban said that companies including General Mills and Kellogg, states
such as California and cities such as Washington, Nashville and Las Vegas were working to cut their greenhouse gas emissions. He said that Trump, as a “very successful business person”, would understand that market forces were already acting to push the world economy towards cleaner energies, away from fossil fuels. Ban, who will step down at the end of the year after a decade in charge of the United Nations, has made action on climate change a core issue of his time in office. Reuters
“What was once unthinkable has become unstoppable” Ban Ki-moon, U.N. Secretary-General “What was once unthinkable has become unstoppable,” he told a news conference of the Paris Agreement, agreed by governments last year, ratified in record time and formally adopted by more than 100 nations including the United States. The accord, aiming to phase out net greenhouse gas emissions this century, was a breakthrough after more than two decades of negotiations, driven by increased scientific certainty that man-made
United Nations Secretary-General Ban Ki-moon speaks during a press conference at the World Climate Change Conference 2016 (COP22) in Marrakech yesterday. Lusa
Cross-border trade
Legislative council
Corruption
Beijing extends transition Hong Kong Court for e-commerce imports supervision ousts lawmakers
Russian economy minister detained over alleged bribe
China will extend the transition period for its supervision of cross-border e-commerce retail imports to the end of 2017 to encourage e-commerce retail consumption, the Ministry of Commerce (MOC) said yesterday. The State Council decided that the cross-border e-commerce retail import supervision period would have a one-year transition period, starting from May 11, 2016, during which the pilot supervision model will be rolled out. The pilot supervision model includes a series of simplified procedures, such as reduced checks on custom access or import permits. The pilot supervision program, which is being trialled in ten cities including Tianjin, Shanghai, Hangzhou and Zhengzhou, had played an important role in promoting cross-border e-commerce retail imports and encouraging enterprises to be more organized, said the MOC in an online statement. Thus, the MOC decided, the transition period will be extended to the end of 2017 to ensure a healthy environment for cross-border e-commerce retail imports, said the MOC. Xinhua
Russia’s security service has detained Economy Minister Alexei Ulyukayev on suspicion of taking a two-million-dollar bribe over a massive deal involving state-controlled oil giant Rosneft, investigators said yesterday. Ulyukayev is the highest ranking official to be detained over suspected corruption since President Vladimir Putin took power in 2000 and vowed to clamp down on endemic graft. The 60-year-old minister’s detention has sparked a wave of speculation about whether the case could be linked to an internal power struggle. Russia’s Investigative Committee, the country’s main federal investigative body, said the FSB security service, the successor to the KGB, detained Ulyukayev following an operation. It alleged in a statement that Ulyukayev received the money on Monday for giving the go-ahead for Rosneft to acquire a majority stake from the state in Russian oil company Bashneft in a US$5.2 billion (US4.84 billion euro) deal last month. The statement does not say who gave the alleged bribe to Ulyukayev. AFP
A Hong Kong court removed two pro-independence activists elected to the city legislature in September, handing the Chinese government a win in its campaign to quash separatist sentiment in the former British colony. Sixtus “Baggio” Leung, 30, and Yau Wai-ching, 25, disqualified themselves from the Legislative Council on Oct. 12 after altering their oaths of office to include insults against China, Justice Thomas Au said in the ruling. Yesterday’s decision in the Court of First Instance vacated the seats of the two “localists” and barred them from acting as lawmakers. The judge ruled in favour of Hong Kong’s China-backed chief executive, Leung Chun-ying, who had asked the court to block a second swearing-in ceremony in a case that sparked concerns about judicial independence in the city. While the judge was considering the case, China’s top legislative body intervened with a rare interpretation of local law, saying those who voice separatist views can’t hold public office. Au said that the interpretation by the National People’s Congress, which requires officials to take their oaths “solemnly and sincerely,” was binding. Bloomberg News