Link to Zone A to cost gov’t MOP300 mln Infrastructure Page 5
Tuesday, November 22 2016 Year V Nr. 1178 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Judiciary Police following up on alleged junket thief appearance in Vietnam Page 7
Spending
Gov’t spends MOP13.1 mln for new Housing Bureau office Page 3
www.macaubusinessdaily.com
M&A
Formula 1
Fosun acquires controlling stake in Millenium bcp amid doubts Pages 8 & 15
Ecclestone says Singapore could drop Grand Prix Page 11
Inflation slowdown CPI
The city’s inflation rate hit its lowest level since February 2010, slowing to 1.33 per cent y-o-y in October. Higher charges for eating out, rents on parking spaces and increases in property management fees and vehicle prices drove the month’s figures, joined by increases in education, transport and alcohol and tobacco. Page 5
Continuing a legacy
Bright eyes for the future
Analysts are predicting a positive Q4, finding encouraging signs in increased regulation of the city’s junkets and anti-money laundering policies. ‘Resilient’ Chinese consumers with positive spending sentiments are driving a 7 pct y-o-y growth estimate for gross gaming revenues for the quarter.
Racing Three years after re-launching his father’s famous Theodore Racing team, Teddy Yip Jr. has sets his sights on the Japanese Super Formula championship, as part of an expansion strategy including a continued presence in IndyCars and collaborations with MGTO to promote the local Grand Prix further afield. Page 4
Trade loses steam
Gaming Page 7
HK Hang Seng Index November 21, 2016
22,357.78 +13.57 (-0.06%) Worst Performers
China Life Insurance Co Ltd
4.96%
Sino Land Co Ltd
1.07%
Li & Fung Ltd
-3.72%
Tencent Holdings Ltd
-0.92%
Ping An Insurance Group Co
3.34%
CITIC Ltd
1.03%
AAC Technologies Holdings
-1.96%
Want Want China Holdings
-0.83%
Sands China Ltd
3.25%
Belle International Holdings
0.91%
China Resources Power
-1.71%
China Merchants Port Hold-
-0.72%
China Mengniu Dairy Co Ltd
1.99%
CK Hutchison Holdings Ltd
0.90%
MTR Corp Ltd
-1.28%
China Unicom Hong Kong
-0.66%
Galaxy Entertainment Group
1.67%
Cheung Kong Infrastructure
0.70%
Hong Kong & China Gas Co
-1.24%
China Shenhua Energy Co
-0.63%
20° 25° 15° 21° 16° 20° 17° 21° 16° 21° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Global weakness The headline has been repeating for a while: Trade figures shrink. No country can say it is not affected and just cyclical rebounds make up a generalized slow situation. This time Taiwan, Thailand and Japan join the downward trend. Pages 8, 11 & 12
2 Business Daily Tuesday, November 22 2016
Macau
Legislative Assembly
A bet is placed The city’s Secretary for Economy and Finance emphasised that expenses for next fiscal year are an investment to stabilise the city’s economy Cecilia U cecilia.u@macaubusinessdaily.com
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he MSAR government’s budget for 2017 obtained unanimous approval by the Legislative Assembly in its first reading yesterday, despite doubts voiced by lawmakers regarding the government increasing its expenditure, even though it is predicted that the city's total revenue will remain more or less the same. Secretary for Economy and Finance, Lionel Leong Vai Tac explained that the government’s expenses, in particular the amount put into the Public Investment Plan (PIDDA), seek to stimulate local businesses and GDP so as to stabilise the city’s economy. “Certainly the government considers the science as well as the true needs of the public before making any investments,” said Secretary Leong. The Secretary added that research is underway with the aim of increasing the execution level of the PIDDA, saying that the government continues to strive for improvements in communication between its various departments. The latest Policy Address states that the government is planning to put MOP4.1 billion more into the investment plan, indicating an increase of 37.8 per cent year-on-year.
Transparency
Legislator Chui Sai Cheong questioned the government as to why it is not making investments by pulling from the city’s surplus, instead of including the investment under public expenditure. Moreover, several legislators such as Lei Cheng I and Lam Heong Sang pointed out that there is a lack of information relating to the investment plan by the government, as well as the companies that will be involved in the scheme. In response to enquiries made by the lawmakers, Secretary Leong explained that the government is currently adopting a bookkeeping system that has also been adopted by other regions including the neighbouring SAR. He indicated that the categorisation of expenses for public investment under public expenses is based on the distinctive function of expenses – the government’s normal
operations and investments. He further clarified that third parties such as the Commission of Audit will participate in inspecting the operations of companies involved, adding that the value of the companies’ assets will also be evaluated. The Secretary stated that related information will be posted for the public to access. Regarding a more appropriate use of the surplus for investment purposes, Secretary Leong revealed that the MSAR government is considering proposing a scheme in the future to use the reserves for investments, subject to the approval of the Legislative Assembly.
Other expenses
Several legislators questioned the significant increase in the salaries for civil servants. The Secretary emphasised that the government considers the quality of services for residents when determining the number of civil servants, instead of reducing the number of personnel based on the city’s economic performance. Legislator Ng Kuok Cheong suggested increasing government revenue through schemes such as taxes on real estate, to which the government official responded that it is the demands and needs of the residents that they weigh most in decision-making. “The implementation of the law for controlling the real estate market should consider mainly the city’s residents’ demands and needs,” said Secretary Leong. “We care about the market’s health and we do not only care about the income that we can make […] we constantly make enquiries to other departments about foreign currency flow in the city.” In addition, in response to legislator Song Pek Kei’s enquiry about how the government plans to reduce expenses through other approaches, Secretary Leong stated that progress is on-going regarding the government using its own properties to house the operations of its various departments, instead of renting other offices. The Secretary emphasised that the government should not only look towards shrinking its expenses during economic recession but consider other options also. “No matter whether the city’s economy is having a good or bad time, the
government will still consider greatly (its policies) even if the economy is good,” noted the Secretary. According to the 2017 Policy Address, the MSAR government predicts that the government’s total revenue for the next fiscal year will drop slightly by 0.3 per cent to MOP102.9 billion (US$12.9 billion).
Increased housing benefits for civil servants
Meanwhile, the Legislative Assembly has also passed an amendment for housing benefits, by unanimous decision of all attending the session. The MSAR’s Secretary for Administration and Justice, Sonia Chan Hoi Fan, introduced the bill, which will increase the housing benefit for public servants from 30 salary points to 40, indicating that the benefit will
reduce half of one civil servant’s expenses on average normal family and fuel needs. Including the introduction, which increases the salary levels for public servants to 83 points, the government will be spending an extra MOP380 million to provide the housing subsidies. However, Legislator José Maria Pereira Coutinho criticised that the proposed benefits are not sufficient, pointing out that the government hasn’t constructed new accommodation for civil servants since the city’s return to Mainland China. He also indicated the need for other provisions, such as night shift pay. Secretary Chan responded that the Chief Executive has announced reserving land plots for the construction of accommodation for civil servants. She also explained that other provisions of benefits will require time to research, stating that works have to be done step by step.
Corruption
Ho Chio Meng trial starts Feb 17 The trial of former Prosecutor-General Ho Chio Meng will begin on the morning of February 17, according to information released by the Prosecutor’s office. The trial will take place in the Court of First Instance and will include nine other defendants,
accused of various crimes. Crimes relating to the former prosecutor-general include fraud and abuse of power, among others. As previously announced, the prosecutor will be facing over 1,900 charges of illegal activities.
Business Daily Tuesday, November 22 2016 3
Macau Language skills Local English proficiency considered lower than in Hong Kong but higher than Mainland China
Do you speak English?
EF Macau Graph
The MSAR ranks 11th in Asia and 37th worldwide according to a survey on English proficiency conducted by international education company EF Education First Nelson Moura nelson.moura@macaubusinessdaily.com
A
survey conducted by international education company EF Education First (EF) places Macau 11th in Asia and 37th worldwide in terms of English proficiency. This was the first time the MSAR was ranked separately from Hong Kong in the sixth annual EF English Proficiency Index (EF EPI), with the most recent study ranking 72 countries and territories based on test data from more than 950,000 adults who took EF’s online English tests last year. “Every year we introduce more regions into the statistics and we
had never included Macau before, a very international city in the AsiaPacific region. The city is also the second administrative region in China and this was a good occasion to separate the city from Hong Kong,” the company’s Country Manager, Henry Wong told Business Daily. Singapore ranked as having the highest English proficiency within Asia - with an average score of 63.52 - while Macau’s 51.36 score set the city in the ‘Low Proficiency’ category. The average MSAR respondent is considered as being able to ‘navigate an Englishspeaking country as a tourist’, and ‘engage in small talk’ and understand ‘simple e-mails’ from English-speaking colleagues. With a 54.29 average in the survey,
Hong Kong was placed 6th in Asia and 30th worldwide, a result Henry Wong considers is due to the region’s “British heritage and the importance given to English in the local education system”. Mainland China, Japan and Pakistan were also included in the same ‘Low Proficiency’ category, with the MSAR ranking ahead of Mainland China. The Netherlands, Denmark and Sweden were respectively the first, second and third-highest ranking countries worldwide, according to the report. In the MSAR data was collected from around 2000 online English surveys taken by local residents, taking into account data on grammar, vocabulary, reading and listening taken from an EF online free English skills test and the company’s online placement test used during its English course enrolment process. EF warns that the test-taking population represented in the index is self-selected and thus is not representative of the region, since generally only people interested in learning or improving their English skills take the survey. However Henry Wong told Business Daily that the survey participants' ages were all “over 18 and volunteers, with only 5 per cent of the (survey) takers actually being involved in EF activities”, although according to the Country Manager, last year there were 2000 Macau students involved in EF programmes, the same number of online English surveys completed in the city. Founded in 1965 in Sweden, EF has offices and schools in 53 countries, but currently its office in Macau doesn’t provide English classes, only cultural exchange and educational travel services.
In Brief Hotels
JW Marriott Macau names new GM JW Marriott Hotel Macau has appointed Gary Fung as its new General Manager, the company announced in a press release yesterday. The new general manager of the hotel – located in the Galaxy complex in Cotai - will be responsible for overseeing the hotel operations and maintaining the property’s positioning in Asia. According to the release, Mr. Fung has worked with Marriot for 25 years, starting his career with the company as Training Manager at The Ritz-Carlton in Hong Kong. Fung also served as General Manager for Courtyard by Marriott Hong Kong, as well as in general manager roles at the Renaissance Shanghai Yangtze Hotel and Renaissance Shanghai Caohejing Hotel.
Transport
Kai Fong receives another MOP4.1 mln for traffic assistance The General Union of the Neighbourhood Associations, also known as ‘Kai Fong’, has obtained another annual contract to provide “traffic assistance services” for the whole year of 2017, according to a dispatch by Chief Executive Fernando Chui Sai On in yesterday’s Official Gazette. The year’s contract is worth a total of MOP4.06 million (US$507,500), an increase of 9.7 per cent compared to MOP3.7 million for a same contract granted to the association for the whole year of 2016. The government set up the service in August 2005, providing “traffic assistants” to advise road users to obey local traffic laws. Finance
New financial institution set up in Macau The MSAR government has approved the operation of a financial institution – GPAP Macau, S.A. – in the city, according to a dispatch released yesterday in the Official Gazette. The institution mainly provides services for bankcard transactions, the dispatch states. The minimum capital amount of the institution is MOP10 million (US$1.2 million). Business Daily contacted the Macao Monetary Authority to acquire further information about the newly established institution, but the government office stated that it could not disclose the background of the company. C.U.
Public administration
Gov’t spends MOP13.1 mln for Housing Bureau’s new office The government is spending MOP13.1 million (US$1.6 million) to set up an office for the Housing Bureau on the ground floor of the public housing project Edificio Cheng Chong, in Ilha Verde. According to yesterday’s Official Gazette, the works for the new office have been awarded to Ad & C Engenharia e Construçōes Companhia Limitada. The government will pay the contractor in two instalments: MOP2 million this year, and the other MOP11.1 million next year. Currently, the Bureau has three offices, located in Ilha Verde, Taipa and Seac Pai Van, respectively.
4 Business Daily Tuesday, November 22 2016
Macau Opinion
Albano Martins* The ‘LAGs’ The Governance Action Lines (LAG) are under discussion. The Five-Year Plan, again, did not appear to be quantified. A Plan without goals is not a Plan. LAGs should be a strategic orientation exercise for the current year. I would like to see better tax justice related to salary tax, once exemption from Complementary Tax has been doubled. The evolution of rents should be followed with caution, with a quarterly publication of the kind that exists for the sale and purchase of real estate. The Consumer Price Index facilitates the calculation of inflation. Within the composition of the family shopping basket - which details the weight of each expense in this basket rents appear. It is important to have two indices. One for those who own a house (which is not reviewed in the current index) and another for those who are renting housing! I still do not comprehend this obsession with the recessionary budget contraction. The Public Administration, because of the weight it has in the economy, is not a big determinant regarding the change of signals in the economy - but it is very important that the right message be sent when the cutting winds blow! A government without debt and without deficits should use the accumulated funds to generate more demand, in order to nullify the effect of the recessive shockwaves of the private economy. Getting to the top of the wave and surfing it is not the ideal place to be. Promoting the emergence of conditions for diversification is one thing. Emergence diversification is another. It is up to the government to create these conditions so that the entrepreneurs can get in the business and take the risks. Now, it is not acceptable to ‘block’ the growth of other industries that have a brutal weight in the economy, just so that others can grow. The function of a government is to read the pernicious effects of economic development to try to counter them quickly and, if possible, to foresee them before complicated problems are created. The role of the government is not to prevent the growth of an industry which is the only one in which Macau actually has the know-how to generate enormous wealth, but to create conditions so that this growth does not generate problems for the rest of the economy or constraints and bottlenecks that prevent it from growing in quality and sustainability! * an economist and contributor to this newspaper
Teddy Yip with drivers Racing Theodore Racing is considering entering the Japanese Super Formula Championship
Carrying the Teddy Yip name Continuing the legacy of former local businessman Theodore “Teddy” Yip, Teddy Yip Jr. successfully resurrected his father’s racing team SJM Theodore Racing team in 2013, with the team conquering two of the last three Macau Formula 3 Grand Prix. After a second place position in this year’s Formula 3 championship by the team’s driver Felix Rosenqvist, the Theodore Racing owner talks about his successful partnership with Italian motorsport team Prema Powerteam and his plans for Asian expansion. Nelson Moura nelson.moura@macaubusinessdaily.com
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eddy Yip Jr. might be the son of mythical local businessman Theodore “Teddy” Yip, one of the most important people in the development of the Macau gaming industry and one of the grandfathers of the Macau Grand Prix, but he hasn’t rested on his father’s laurels. In 2013, when he announced he was resurrecting his father’s legendary team Theodore Racing, with the support of local gaming operator SJM - 10 years after Teddy Yip Sr. passed away at 93 and on the 30th anniversary of Ayrton Senna’s victory in the competition’s first Formula 3 Grand Prix - whether it would be a successful comeback or not was up in the air. However an immediate victory in 2014 and another win in 2015 made SJM Theodore Racing the record holder of wins at the Macau F3 championship, with a total of eight victories. Although the team’s champion, Felix Rosenqvist didn’t manage a third consecutive win at this year’s F3 Grand Prix, the Swedish racer still managed to move up from sixth
Ayrton Senna with Teddy Yip Sr.
position on the starting grid to second place in the final race, at least assuring Theodore Racing another presence on the podium. Teddy however, was also positive about the other team drivers’ performances over the weekend. “Our rookie driver Maximilian (Gunther) showed great pace all weekend, but luck was not on his side. The same can be said for Nick Cassidy whose performance in today’s race was remarkable. He made up 17 places and who knows how high he could have finished if his race had not been cut short when he clipped the wall. Still, second place tastes pretty sweet,” Teddy Yip Jr. tells Business Daily regarding the past weekend’s results at the 63rd Macau Grand Prix.
A successful marriage
Despite this year’s lack of luck, the team owner expressed his content about partnering with Italian motorsport team Prema Powerteam for the races. “Team Manager Rene Rosin and the entire team were also really keen to work with us and it seemed like the perfect fit. The partnership has exceeded all expectations with so far
two out of three wins in Macau and four out of four teams’ championships in 2016. Things just don’t get much better than that,” says Teddy Yip Jr. Bringing his father's team back to the Guia track and to the world of motorsport is a “dream come true”, especially with the positive results obtained, pushing Yip Jr. to pursue further opportunities abroad, through partnerships such as that with the Macau Government Tourism Office (MGTO) and travel and lifestyle social media agency Beautiful Destinations, in a campaign to promote the city and the Macau Grand Prix overseas.
Resurrecting the legacy abroad
Branching out has been the team’s strategy over the past few years, marking their presence at the Formula 3 European Championship, the German Formula 4 Championship, and Formula One support series GP2 and GP3 championships. The team’s founder, Teddy Yip Sr., was extremely influential within IndyCar racing in the United States, entering or sponsoring races between 1977 and 1984 and helping to create the Toyota Grand Prix, held in Long Beach, California. Teddy Yip Jr. is happy to see his team return this year to the IndyCar Series races in the U.S. in a partnership with Rahal Letterman Lanigan Racing, the team founded by his father’s former partner Bobby Rahal. “There’s a certain sense of style there that doesn’t really exist elsewhere in the world. That, paired with top class racing, is something that certainly makes me want to continue in the U.S.,” Teddy Yip Jr. tells Business Daily. However, despite Theodore Racing’s historical presence in the Macau Grand Prix, their influence hasn’t yet reached the rest of Asia. But that is about to change. Teddy Yip Jr. tells Business Daily that the team is planning to compete in the Japanese championship Super Formula championship for the first time. “They’re the quickest cars I’ve ever seen through corners and the level of competition is so high that it would be a great championship for Theodore Racing to compete in,” he states. Although Theodore Racing started as an F1 manufacturer, the team hasn’t competed in the category since 1983, and Teddy Yip Jr. still considers a return to the category as a far off reality, for now. “I think Formula 1 is still quite a way off as it would take a great number of jigsaw pieces to come together to make it happen. It’s certainly an aspiration, but a step too far at the moment. That said, never say never,” he states.
Business Daily Tuesday, November 22 2016 5
Macau Consumer prices
Inflation drops further to 1.33 pct in October Higher costs for education, transport and alcoholic beverages & tobacco in the month Kam Leong kamleong@macaubusinessdaily.com
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he city’s inflation rate slowed to 1.33 per cent yearon-year for October, the lowest rate recorded since February 2010, according to the latest official data released yesterday by the Statistics and Census Service (DSEC). Compared to 1.59 per cent yearon-year growth in overall prices for September, the inflation rate dropped a further 0.26 percentage points. The month’s composite consumer price index (CPI) reached 108.36, compared to 106.94 one year ago. According to the DSEC, October’s inflation was attributable to higher charges for eating out, rising rentals for parking spaces, and an increase in property management fees, motor vehicle prices and tuition fees. The price index of education and transport grew by 7.4 per cent and 6.4 per cent year-on-year, respectively, while that of alcoholic beverages & tobacco also posted an increase of 10.2 per cent year-on-year. Meanwhile, the price index of food & non-alcoholic beverages, which accounted for the largest share of household expenditure, showed a continued slowdown in growth, up by only 1.68 per cent year-on-year. H o w e v e r, t h e c o s t o f communications went down 1.97
Prices of alcoholic beverages & tobacco posted a 10.2 pct y-o-y increase in October
per cent year-on-year, together with decreased prices for clothing & footwear and housing & fuels, down by 1.25 per cent and 1.18 per cent year-on-year, respectively.
Slightly more costly than September
Compared to September, October’s composite CPI increased by 0.17 per
cent, up from 108.18. The month-onmonth growth in prices was driven by increased prices for clothing & footwear due to new arrivals of winter clothing, which went up by 3.26 per cent. Increases were also registered in the prices for alcoholic beverages & tobacco on account of higher prices of alcoholic beverages, up by 0.57
per cent month-on-month, while rising charges for maintenance & repair of motor cars also boosted the price index of transport, up by 0.39 per cent month-on-month. On the other hand, the price index of communications decreased by 1.72 per cent month-on-month due to lower charges for Internet services, while costs for housing & fuels also fell slightly by 0.1 per cent monthon-month as electricity charges fell. For the first ten months of the year, an increase of 2.55 per cent in the average composite consumer price index was recorded, compared to the same period of last year. For the twelve months ended October, the average composite CPI grew by 2.75 per cent from the previous period. In particular, the price index of alcoholic beverages & tobacco surged by 27.1 per cent period-to-period, while that of education and transport also jumped by 8.67 per cent and 6.44 per cent period-to-period, respectively.
Infrastructure
Peninsula-Zone A links to cost MOP305 mln A new link connecting the city’s northern district and Zone A of the new urban reclamation area is to cost MOP305 million (US$38.1 million), yesterday’s Official Gazette indicated. According to a dispatch by Chief Executive Fernando Chui Sai On, the construction works for the project have been awarded to China Harbour Engineering Company Ltd. The government will pay the
contractor MOP99.5 million during this fiscal year, a further MOP175 million next fiscal year, culminating with a MOP30.5 million payment in the 2018 fiscal year. According to the Infrastructure Development Office, the construction for the project is mandated for completion between November 20 and 30 of next year. The new link, with a total length of
400 metres and including six traffic lanes, will connect the Oriental Pearl district in the northern Peninsula with the northern part of Zone A. A recent press release by the Office indicated that a total of three bids were considered, with proposed costs ranging from MOP297 million to MOP392 million. The works are also expected to provide 120 job opportunities.
6 Business Daily Tuesday, November 22 2016
Macau
Business Daily Tuesday, November 22 2016 7
Macau Junkets
PJ: paying attention to Huang Shan case updates
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udiciary Police (PJ) Director Chau Wai Kuong said the security body is following up on the recent appearance of alleged junket thief Huang Shan in Vietnam, via the International Criminal Police Organization. Speaking to reporters yesterday morning, the PJ head opined that the suspect is currently in Vietnam. However, he indicated that time and judicial procedures would be required if the fugitive is to be transferred back to the MSAR, given that he is a Mainland Chinese resident rather than a Macau resident. The security body leader claimed his office would continue to stay in close contact with the local gaming regulator, the Gaming Inspection and Co-ordination Bureau, to follow up on the case. A shareholder of local junket operator Kimren Group, Mr. Huang is accused of luring his investors with
the offer of higher returns on investments. He is alleged to have fled with HK$10 billion (US$1.2 billion) in April of 2014. Last month, local junket operator Heng Sheng Group posted a photo of the fugitive holding a Chinese-language statement on the social media platform of the Macau Gaming Information Association, which is the first appearance of the alleged junket thief since his disappearance 30 months ago. The statement read that he was in Ha Long Bay in Vietnam and was willing to repay all his debts using all the revenues generated from his projects in the Southeast Asian country. The Huang Shan incident was the first junket fraud case exposed to the public, followed by two cage thefts and fraud cases at junket operator Dore Entertainment Co Ltd and the junket operations of Casino L’Arc Macau, involving at least HK$500
million and HK$99.7 million. The PJ head also stressed yesterday the difficulties in investigating cases of illegal capital collection. He
believes it is necessary for the city to amend its current laws given that the current penalties for the crimes are not strict enough.
‘In recent months […] the anti-corruption campaign appears to have begun moderating,’ note the analysts, distinguishing that the ‘continued softening of the anti-corruption campaign would be very positive to recovery of high-end gaming’ in the city and that this moderation may increase in 2018 following the November 2017 Communist Party and government reshuffle. In addition the enhancement of the regulatory framework in the city and stricter anti-money laundering regulations will ‘create some uncertainty […] but impact should be minimal’. However, despite this increased scrutiny on junkets driving consolidation – leading to 80 per cent of the junket market share being held by the top four junket operators - given high cost of compliance, the outcome could be positive for the MSAR, referencing recent comments by government officials on the positive contributions junkets have made to the city. ‘We view the positive commentary surrounding VIP to be reflective of the fact that Macau (and China) do not necessarily want to see large VIP revenue outflows going to foreign casinos (but rather retain the revenue and associated taxation in Macau)’. The analysts also note that tightening anti-money laundering
regulations in the city, in particular relating to the banking sector, ‘will likely make certain operations in foreign jurisdictions (outside of Macau) more difficult and may have the effect of shifting some VIP demand back to Macau’, increasing the city’s regional competitiveness.
Revenues
A bright new world Analysts are predicting a bright Q4, as conditions – including increased regulation – point to a positive outlook for the city’s gaming industry Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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rospects for the city’s gaming industry, and related industries, are looking up, according to analysts at Bernstein. Positive points for the future of the city’s dominant industry include a moderation in the intensity of China’s anti-corruption campaign, an enhanced regulatory framework towards junkets, improvements seen in liquidity in China and increased non-gaming being a driver of visitation and growth in the mass segment. These positive points are further fuelled by the future openings of MGM Cotai and SJM’s Grand Lisboa Palace, the ramp-up of the new properties on the Cotai Strip, further infrastructure development and the ‘resilience of the Chinese consumer’ – due to positive consumer spending sentiment despite the economic slowdown.
Mass-driven
Estimates are for seven per cent yearon-year growth for the fourth quarter of the year, as well as for full-2016 gross gaming revenue figures to be down four per cent year-onyear compared to 2015 – which hit MOP230.8 billion (US$28.9 billion). This is accompanied by estimates for an eight per cent compound average growth rate (CAGR) for full-year 2016 until full-year 2020, which places VIP CAGR at about three per cent and mass CAGR at about 11 per cent. Year-on-year growth in the fourth quarter will be driven in large part by mass growth, which the analysts expect to increase 15 per cent in the fourth quarter, ‘driven by the ramp up of four newly opened projects’: Wynn Palace, The Parisian Macao and the upcoming MGM Cotai and SJM Grand Lisboa Palace. The analysts also note ‘slowing modest declines’ in the VIP segment, but positively point out that sustainable year-onyear revenue growth as well as profit growth ‘should continue to be the story around most’ of the operators. The overall market earnings before interest, taxation, depreciation and
amortisation (EBITDA) are expected to ‘continue to grow’, with a forecast that from end-2016 to end-2018 the market will experience CAGR of 14 per cent. The percentage of EBITDA from the VIP segment is expected to decline to about 12 per cent by the end of 2018 due to mass and non-gaming driving the figures.
Lifeblood
‘While there is an evident slowdown in the Chinese economy, we do not currently see a significant impact on the Chinese consumer,’ note the analysts. This continued ‘resilience’ is reflected in the data gathered by the analysts, showing particular growth in the lower and mid-tier Premium Mass segment, and driving an increase in sign-ups to casino loyalty programs, strengthened by the additional room capacity. Both liquidity and real estate price improvements have helped drive, in particular, the Premium Mass.
Non-gaming
‘The future of Macau is supply-driven,’ note the analysts, ‘in particular, the nature of that supply (more hotel rooms, greater non-gaming features and experiences) will lead to rejuvenated growth’. This growth is long-term, with expectations that by end-2020 the market will reach US$27 billion in gross gaming revenues, with mass making up 62 per cent. ‘While non-gaming will never be a significant component of Macau industry revenues, non-gaming is becoming a more important driver of visitation and Mass growth,’ note the analysts, stating that the hotel, entertainment and retail options provided by the concessionaires are ‘critical for the sustainability of overnight Mass visitation’. Non-gaming revenues are expected to make up over 10 per cent of gross gaming revenues by 2018end, note the analysts, demonstrating a CAGR of nearly 17 per cent from 2015 to 2018.
Crown arrest
Three Aussie Crown staff reportedly officially arrested Three Australian employees of gaming operator Crown Resorts have been formally arrested after being detained in China for “gaming-related crimes” over the past month, reported the country’s news outlet the Australian Financial Review. The newspaper indicated that a fourth Australian, who does not directly work for the Australian company, is also understood to have been formally arrested, along with 13 other China-based employees of the operator. The arrested individuals will be held in custody for at least six months while Chinese authorities finalise their case, said the news outlet, adding that details of their exact crimes would only be revealed when the case is handed over to the country’s court prosecutors. On October 14, Chinese authorities detained 18 Crown Resort employees for “illegal gaming activities,” including the three now-formally-arrested
Australians, including the company’s head of International VIP programme, Jason O’ Connor, the company’s Beijing-based director of international marketing Jerry Xuan, and a female employee named Pan Dan. Earlier this month, the Australian-based casino operator said that one of the 18 staff arrested in China had been released from detention. According to the Financial Review, this released worker is Jenny Jiang, who worked in administration in Shanghai. Crown was among the companies that received warnings after China arrested employees last summer at Korean casino operators Paradise Co. and Grand Korea Leisure Co., Bloomberg reported last month, quoting an
identified source. Police had been investigating Crown for several months as part of an operation targeting gambling-related activities dubbed “Duanlian” - or “break the chain” with the goal of terminating personal and financial links between foreign casino operators and Chinese clients, the news agency quoted its source as saying at the time.
8 Business Daily Tuesday, November 22 2016
Macau Trade
Taiwan export orders rise much less than expected The downbeat result comes amid uncertainty over Asia’s trade outlook Liang-Sa Loh and J.R. Wu
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aiwan’s export orders grew much less than expected in October, raising questions on whether the island’s economy can get much of a boost from seasonal holiday demand before Donald Trump becomes U.S. president.
Taiwan’s export orders are seen as a leading indicator for Asia’s exports and reflect shipment activity 2-3 months ahead. Traditionally, exports are bigger in the second half of the year due to new product launches before Christmas. October orders from major markets were mixed. Those from China rose 7.4 per cent in October from a year ago, a faster pace compared to September. However, orders from
the U.S. contracted 1.3 per cent, reversing the near 13 per cent jump in September. For electronics goods, orders rose 5.6 per cent last month from a year ago, while those for information and communications goods were up just 0.9 per cent. The downbeat result comes amid uncertainty over Asia’s trade outlook ahead of Trump taking office in January.
The trade-dependent island economy would be one that could see a “significant growth shock” if U.S. companies delay foreign investment plans, according to Credit Suisse. Expectations for a more hostile trade policy from Trump could also hit Asian processing exports to China if the new U.S. government launches more anti-dumping cases against Beijing, it said in a report this month. “But at this stage it is hard to quantify this effect,” Credit Suisse said. Much of Taiwan’s export orders are processed through manufacturing plants in China operated by Taiwanese tech companies. Reuters
Key Points Oct orders +0.3 pct y/y, compared with poll’s +3.35 pct U.S. Oct orders -1.3 pct y/y, China +7.4 pct, Japan -13.1 pct Orders for high-end notebooks cause of weak data - ministry Last month’s orders increased 0.3 per cent from a year earlier, well below a Reuters poll expectation for a 3.35 per cent gain and sharply below September’s 3.9 per cent yearon-year growth. Orders related to mobile phones were in “peak season”, but the replacement ones for “high-end notebooks” were slower, which weighed on overall orders, the economics ministry said in a statement. The ministry, which issued the data, did not elaborate.
M&A
Portuguese bank BCP accepts Fosun’s offer A Fosun spokesman in Lisbon said investing in BCP was a big step in the Chinese company’s internationalisation strategy Chinese conglomerate Fosun has agreed to buy a 16.7 per cent stake in Portugal’s largest listed bank, Millennium bcp, for 174.6 million euros (US$185 million) via a reserved capital increase and confirmed its intention of raising that stake to up to 30 per cent. The deal will bolster the capital of BCP, which along with other Portuguese banks has been a cause of concern to investors as the country’s banking system, saddled with debt and bad loans, is still reeling from two bank rescues by the state in 2014 and 2015. Millennium bcp said in a statement on Sunday that as well as agreeing the deal, which followed Fosun’s offer in July to take a 16.7 per cent stake, the two signed a memorandum of understanding, where Fosun “expresses strong interest to subsequently raise its shareholding in BCP to around 30 per cent” via primary or secondary market transactions. Before that further increase to 30 per cent, BCP shareholders have to raise stakeholders’ voting rights limit
to 30 per cent from the current 20 per cent. The bank said a shareholder meeting that had been due to take place yesterday will now be rescheduled to Dec. 19 and will include a vote on the proposed rights cap.
‘Angola’s state oil company Sonangol was the largest shareholder in the Portuguese bank before the offer’ Under the terms of the deal, Fosun subscribed to the issue of 157,437,395 new BCP shares at a price of 1.1089 euros, below Friday’s closing price of 1.249 euros. Up to now, Angola’s state oil company Sonangol was the largest shareholder in the Portuguese bank with
a stake of 17.84 per cent, followed by Spanish bank Sabadell with 5.07 per cent. After the dilution of existing capital Fosun will become the largest shareholder with its 16.7 per cent stake. Fosun also agreed to a lock-up of any sale of shares subscribed by it in the capital increase for a
period of three years. A Fosun spokesman in Lisbon said investing in BCP was a big step in the Chinese company’s internationalisation strategy. Fosun already owns Portugal’s leading insurer Fidelidade, since 2014. Fosun and Millennium bcp also agreed to jointly work on projects in the insurance business outside of Portugal. Millennium bcp has core operations in Poland, Angola and Mozambique. Reuters
Business Daily Tuesday, November 22 2016 9
Macau In Brief APEC meeting
Xi says gov’t fully acknowledges work of HKSAR leaders
Green energy
Domestic solar firm to build plant in Chernobyl China has been trying to encourage the use of damaged or contaminated land for solar and wind power projects Two Chinese firms plan to build a solar power plant in the exclusion zone around the Chernobyl nuclear reactor, which has been off limits since a devastating explosion contaminated the region with deadly radiation in 1986. GCL System Integration Technology (GCL-SI), a subsidiary of the GCL Group, said it would cooperate with China National Complete Engineering Corp (CCEC) on the project in Ukraine, with construction expected to start next year. “There will be remarkable social benefits and economic ones as we try to renovate the once damaged area with green and renewable energy,” Shu Hua, the chairman of GCL-SI, said in a press release.
The 1-gigawatt plant was part of the group’s plan to build an international presence, he added. CCEC, a subsidiary of state-owned China National Machinery Industry Corp, will be in overall charge of the project, while GCL-SI will provide and install solar components. GCL-SI did not say how much it would cost. The Chernobyl reactor, which is due to be covered next year by a 1.5 billion euro (US$1.6 billion) steelclad arch, is surrounded by a 2,600 square km exclusion zone of forest and marshland. GCL-SI would not disclose exactly where the solar plant would be built, but a company manager told Reuters that the site had already gone through
several rounds of inspections by the company’s technicians. “Ukraine has passed a law allowing the site to be developed for agriculture and other things, so that means (the radiation) is under control,” said the manager, who did not want to give his name because he was not authorised to speak to the media. In a bid to protect farms from urban encroachment, China has been trying to encourage the use of damaged or contaminated land for solar and wind power projects, with plants now operating in subsidence-hit regions of Shanxi, the country’s top coal province. China is the world’s biggest solar power generator, with 43 gigawatts of capacity by the end of last year. It is also the world’s top manufacturer, producing 72 per cent of global solar power components in 2015, according to a research note by Everbright Securities last week. Reuters
Real estate
Anbang may buy Japanese property from Blackstone The assets Blackstone is planning to sell are chiefly apartment buildings aimed at middle-class residents Junko Fujita
China’s Anbang Insurance Group Co is in talks to buy as much as US$2.3 billion in Japanese residential property assets from Blackstone Group, two people involved in the discussions said, in what would be Japan’s biggest property deal since the global financial crisis. The U.S. asset manager is discussing the sale of properties it had bought from investors, including in a deal with General Electric Co in 2014, according to the sources, who asked not to be identified. The talks are in an advanced stage, one of the sources said.
‘Anbang has assets worth more than RMB800 billion’ For Anbang, seeking to diversify its assets globally, the deal would be its first foray into Japanese real estate. The Chinese firm last year lost out to a Japanese developer Hulic Co in bidding for property asset manager Simplex Investment. A Blackstone official declined to comment. Anbang officials did not provide an immediate comment. The deal could fetch about 260 billion yen, the sources said, marking the biggest Japan property transaction since a fund managed by Morgan Stanley bought 13 hotels from ANA
Holdings Inc for 281 billion yen in 2007, the height of the property investment boom. Japan’s property market has rebounded since Prime Minister Shinzo Abe took office in late 2012 and championed ultra-easy money policies that have driven down interest rates and boosted asset prices in a bid to pull Japan out of decades of deflation. Prices for office properties have rebounded to levels where investors find it hard to justify future returns, but some say residential prices can rise further on housing demand in the biggest cities, where growth is robust. The assets Blackstone is planning to sell are chiefly apartment buildings aimed at middle-class residents.
They include properties in Japan’s largest cities - Tokyo, Nagoya and Osaka - that Blackstone bought in 2014 from GE’s property unit for 190 billion yen. The U.S. asset manager bought some residential assets from other investors that are also part of the deal. It is not immediately clear how much of a return on its investment Blackstone may make through a sale to Anbang. Privately owned Anbang has assets worth more than RMB800 billion (US$116 billion). It agreed in March to buy Strategic Hotels & Resorts also from Blackstone for US$6.5 billion as it expands its U.S. hotels portfolio. In the same month the Chinese insurance group aborted a US$14 billion bid for Starwood Hotels & Resorts Worldwide Inc. It also owns New York’s famous Waldorf Astoria Hotel. Reuters
Chinese President Xi Jinping on Sunday said the central government fully acknowledges the work of the chief executive and government of the Hong Kong Special Administrative Region (HKSAR). Xi made the remarks when meeting with HKSAR Chief Executive Leung Chun-ying on the side-lines of the Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting. After hearing the report made by Leung on the recent situation in Hong Kong and the work done by the HKSAR government, Xi expressed the central government’s acknowledgement of the work of the HKSAR chief executive and government. Officials
Cabinet reshuffles senior positions The State Council, China’s cabinet, has announced a reshuffle of several senior officials, according to a circular issued yesterday. Gou Zhongwen will replace Liu Peng as head of the General Administration of Sport, and as the Executive President of the Beijing Organizing Committee for the 2022 Olympic and Paralympic Winter Games. Cai Qi will replace Wang Anshun as Executive President of the Beijing Organizing Committee for the 2022 Olympic and Paralympic Winter Games. Meanwhile, Chen Zhigang will replace Zheng Wenkai as deputy head of the State Council Leading Group Office of Poverty Alleviation and Development. Premier Li
Government continues to promote global health Chinese Premier Li Keqiang yesterday said that China will continue to promote global health issues while providing assistance to other developing countries. Li made the remarks during a speech in Shanghai at the opening ceremony of the 9th Global Conference on Health Promotion (GCHP). China has taken an active role in pushing forward global health, Li said, adding that China will continue to honour its international obligations. In the past 50 years China has sent 20,000 medical workers to 67 countries and regions, treating more than 260 million patients, Li said. Real estate
Greenland HK raises US$300 mln for fund with Kuwait Greenland Hong Kong Holdings Ltd said its US$8 billion real estate fund co-established with Kuwait Strategic Investor has raised US$300 million in the first phase, but it has shelved plans to buy a stake in a luxury New York City development from its Kuwait partner. The Shanghaibased developer, a unit of state-backed developer Greenland Holdings Corp, first announced the deal in April to set up a Silk Road Integrated Real Estate Fund for a term of eight years to “invest in top-tier world class real estate” and properties in major cities.
10 Business Daily Tuesday, November 22 2016
Greater China
Energy
Mainland turns the trash challenge into power Authorities have struggled to reach previous targets, with daily incineration capacity of 235,224 tonnes by the end of 2015 missing a goal of more than 300,000 tonnes David Stanway
T
housands of tonnes of urban waste are hidden behind scrubbed white walls at a new power plant on the outskirts of the Chinese city of Wujiang, with even its chimney disguised as a clock tower. Desperate to fight mounting trash problems but wary of public opposition, China is building new incineration capacity designed to blend into its surroundings and limit environmental damage. Located in sparsely populated farmland around 100 km west of Shanghai, with white geese dotting the lake around it on three sides, the Wujiang plant is designed to burn 1,500 tonnes of garbage every day. It generates heat to run turbines that deliver 500,000 kilowatt-hours of electricity to the power grid at preferential tariffs, around double those of coal-fired plants and the
source of two-thirds of its revenue. “Combustion reduces the volume, turns it into a resource and detoxifies it, so we believe it is going to be a mainstream product within 20 years,” said Cai Shuguang, deputy general manager of China Everbright International, which built the plant. With land scarce and consumption surging, China has little choice but to burn as much trash as it can, said Cai. The landfills encircling Beijing are known collectively as the capital’s “seventh ring road”, while throughout the country burial of untreated waste has contaminated land and built up potentially hazardous pockets of methane. About 200 trucks dump up to 10 tonnes of trash each day in a silo 26 meters deep at the Wujiang plant. Toxic emissions are captured and little is wasted, with furnace slag recycled into bricks. Everbright’s first waste-to-energy (WTE) plant was built in nearby
Suzhou more than a decade ago. China as a whole had 223 WTE plants by the end of last year, and that number could double by 2020. But household waste treatment and recycling rates are still way too low, China said in a plan published in September, adding that industry spending would need to reach RMB192.4 billion (US$28 billion) from 2016 to 2020. The plan aims to incinerate more than 500,000 tonnes of waste a day by then, or 2-1/2 times the 2014 figure. Better-off cities will have to burn most garbage, and curb landfill expansion. “Waste-to-energy is being encouraged from top to bottom: subsidies are very high and profits far exceed those from recycling,” said Zhao Youcai, a waste management expert at Shanghai’s Tongji University.
Tackling nimbyism
But China has struggled to reach previous targets, with daily incineration capacity of 235,224 tonnes by the end of 2015 missing a goal of more than 300,000 tonnes. “The main reason is the level of understanding among local governments, and we also need to work on
eliminating the problem of Nimbyism,” Cai said. Waste incinerators have provoked protest as communities worry about stench and the risk of toxic emissions. Last week, the housing ministry vowed to toughen pollution controls and combat “Nimbyism” by offering cheaper water, heat and electricity for those living near waste projects. Such moves would transform perceptions to “profit in my backyard” from “not in my backyard”, the ministry said.
Incentives
China wants to remedy environmental damage caused by three decades of breakneck growth through incentives for private businesses to profit from environmental protection. It now has fewer low-income “scavengers” to sort garbage in big cities, as rising living standards and falling prices of raw materials have blunted recycling incentives, Zhao said. “Garbage mountains” and “garbage rivers” litter the countryside, where China aims to treat 90 per cent of household waste by 2020. But officials say innovative funding mechanisms are needed. Subsidy is not a sustainable path, so China must boost market participation, Zhao said. “Garbage recycling relies on government, and waste-to-energy is subsidized,” he added. “It is a bottomless pit: the amount is just too high and the profits too low.” Reuters
Expansion
Alibaba Cloud stretches global reach with four new facilities It will launch the data facilities through partnerships with Vodafone in Europe, Softbank Group Corp in Japan and YVOLV in Dubai Alibaba Cloud plans to open four new data facilities outside China, the cloud unit of Alibaba Holdings Ltd said yesterday, as it seeks to grab global market share from leading players Amazon.com Inc and Microsoft.
“Our focus is to keep expanding our market leadership and presence and this is our priority for now” Yu Sicheng, general manager of Alibaba Cloud’s international business
The data facilities in Dubai, Germany, Japan and Australia will extend the reach of China’s leading cloud computing service provider to every major continent, and marks the latest step in the unit’s US$1 billion infrastructure investment drive. Also known as Aliyun, the unit has flourished domestically thanks to Beijing’s strategic emphasis on building home-grown cloud technology,
while foreign firms have grappled with stringent licensing restrictions in the country. However, it accounts for a much smaller slice of the global market for cloud computing, defined as the storage of data on remote networks rather than local servers, which is expected to reach US$135 billion by 2020, according to research firm Canalys. Alibaba Cloud is forecast to take 7.8
per cent of that market, while leading players Amazon.com Inc, Microsoft, International Business Machines Corp and Alphabet Inc are expected to account for 69.1 per cent. Yu Sicheng, general manager of Alibaba Cloud’s international business, said the unit’s strength in China was a significant advantage and a lynchpin in the company’s globalisation plans. “We have the U.S., Europe plus China, which is quite difficult,” he told Reuters in an interview. The new additions bring Alibaba Cloud’s total number of foreign cloud facilities to eight, surpassing the six within China, though the majority of
the company’s data volume remains squarely within China. It will launch the data facilities through partnerships with Vodafone in Europe, Softbank Group Corp in Japan and YVOLV in Dubai, a joint venture between Alibaba Cloud and Meraas Holdings LLC. Yu, however, declined to comment on when the unit will likely post a profit, even as it has seen six quarters of consecutive triple-digit growth, to become Alibaba’s fastest growing business sector. “Our focus is to keep expanding our market leadership and presence and this is our priority for now,” he said. Reuters
Business Daily Tuesday, November 22 2016 11
Asia Growth data
Thai GDP momentum cools Tourism has been a rare bright spot but it may slow on cutbacks in entertainment since the death of King Bhumibol Adulyadej Orathai Sriring and Kitiphong Thaichareon
T
hailand’ s e c o n o m y expanded less than expected in the third quarter on slower consumption and public spending, but early signs of an export recovery raised hopes for stronger growth ahead. Southeast Asia’s second-largest economy grew a seasonally adjusted 0.6 per cent in July-September from the prior three months, the National
Economic and Social Development Board (NESDB) said yesterday. The pace slightly lagged the revised 0.7 per cent in the second quarter, and the 0.7 per cent forecast in a Reuters poll. From a year earlier, growth was 3.2 per cent, down from 3.5 per cent in the second quarter and against the poll’s median of 3.4 per cent growth for July-September. Annual growth in public investment and household spending slowed in the September quarter while private
investment contracted, the agency said in a statement. The army took power in May 2014 to end months of political unrest but the export-dependent economy has struggled to get on a strong growth path due to weak global demand, sluggish consumption and high household debts. The government estimated the economy would grow 3.2 per cent in 2016, with exports being flat. Previously it forecast 3.0-3.5 per cent growth for this year, while exports were projected to fall 1.9 per cent. The NESDB predicted 2017 GDP would grow 3.0-4.0 per cent and exports expand 2.4 per cent. Last year’s growth was 2.8 per cent Tourism has been a rare bright
spot but it may slow on cutbacks in entertainment since the death of King Bhumibol Adulyadej on Oct. 13. The government declared official mourning for a year. Meanwhile, a crackdown on cheap tours has reduced the number of visitors from China, Thailand’s biggest source.
Key Points Q3 GDP +0.6 pct q/q, vs +0.7 pct in Reuters poll Q3 GDP +3.2 pct y/y, vs +3.4 pct in poll 2016 growth f’cast 3.2 pct vs previously 3.0-3.5 pct 2016 exports forecast seen flat vs -1.9 pct seen earlier 2017 growth seen at 3.0-4.0 pct, exports +2.4 pct - agency
Thailand’s economy, which has lagged regional peers, may also fall prey to capital outflows on the prospect of higher U.S. interest rates. Foreign investors have sold a net of about 99.4 billion baht (US$2.79 billion) of Thai bonds and stocks since Nov. 9, a day after the U.S. presidential election. However, Deputy Prime Minister Somkid Jatusripitak said on Friday outflows were not a worry and a weak baht was good for exports, which have contracted in each of the past three years. If needed, the finance ministry was ready to introduce additional steps, he said. Reuters
Formula One
Ecclestone says Singapore wants to drop race Singapore GP is a private company owned by Ong Beng Seng, one of the city-state’s richest men Marius Zaharia
Singapore does not want to host an annual Formula One grand prix anymore, F1 CEO Bernie Ecclestone told German magazine Auto Motor und Sport, casting doubt on the future of Formula One in Southeast Asia as Malaysia is also considering pulling out. Ecclestone’s comments come amid a significant drop in attendance, with Singapore’s race in September seeing an average of 73,000 spectators in each of the three days, down from 87,000 last year. The inaugural race in 2008 got more than 100,000 spectators daily. Ticket sales have dropped in Malaysia as well, with TV viewership the lowest this year. Authorities and organisers of the Kuala Lumpur Grand Prix are considering halting the race after the contract ends in 2018. “Look at what we have done for Singapore,” Ecclestone was quoted as saying by Auto Motor und Sport. “Yes, the Grand Prix has cost Singapore a lot of money, but we’ve also given them a lot of money. “Singapore was suddenly more
than just an airport to fly to or from somewhere. Now they believe they have reached their goal and they do not want a Grand Prix anymore,” he said.
Key Points Ecclestone made comments to German magazine Auto Motor und Sport F1 attendance dropping in Singapore, Malaysia
comment on on-going commercial negotiations.” Singapore GP is a private company owned by Ong Beng Seng, one of the city-state’s richest men. The government helps with 60 per cent of the cost of the organisation. Next year’s race will be Singapore’s last if the city-state cannot reach a new deal with F1. Singapore’s tourist arrivals have been on the rise. In the first eight months of this year, before the F1 race, the number of visitors was up 10.3 per cent from the same period of 2015, at 11.3 million. The sector is seeing a structural shift away from heavy spenders and
Number of tourists arriving in Singapore rising regardless of F1 Ecclestone, 86, is famous for outspoken media interviews during negotiations. The Briton did not attend this year’s Singapore Grand Prix, one of the most popular races on the calendar, as he was held up by negotiations on F1’s takeover by U.S. cable TV mogul John Malone’s Liberty Media. A spokeswoman for Singapore GP, the event’s organiser in the citystate, said in an email: “We don’t
Singapore’s panorama during night race
towards the emerging middle classes of China, India and Indonesia, analysts say. Singapore’s tourism receipts in the first half of the year grew 12 per cent to S$11.6 billion (US$8.13 billion), driven mainly by shopping, accommodation and food and beverage, which offset a fall in sightseeing, entertainment and gaming. Trinh Nguyen, a senior economist for emerging-market Asia at French investment bank Natixis SA in Hong Kong, said the recent drop in F1 attendance may be a sign that the novelty of the event is wearing off, and may also be a reflection of weak regional growth. “It (F1) also comes with costs. Thus, with tourism receipts (from F1) waning the cost benefit calculus is tipping in the other direction,” Nguyen said. Reuters
12 Business Daily Tuesday, November 22 2016
Asia In Brief Trade
Vietnam spends US$40.24 bln on Chinese imports As of the end of October 2016, Vietnam’s total import revenue reached US$140.6 billion, of which, China was the largest supplier with US$40.24 billion. According to the latest statistics by Vietnam Customs yesterday, compared to the same period last year, Vietnam’s import revenue from China went down by 1.4 per cent, or US$576 million. There are eight groups of Chinaimported goods with over US$1 billion revenue each including machines, equipment and tools (US$7.35 billion), cell phones and accessories (US$4.9 billion), computers, electronic products and accessories (US$4.76 billion) among others, said Vietnam Customs. ADB loan
Bangladesh to boost gas industry The Asian Development Bank said yesterday it will provide a US$167 million loan to Bangladesh to boost natural gas production and expand transmission infrastructure, part of a development project valued at US$453 million in total. “The project will help the government address the country’s energy crisis by making available additional clean energy, particularly imported natural gas, through the transmission network,’ the ADB said, quoting Hongwei Zhang, Finance Specialist (Energy) in ADB’s South Asia Department, in a statement. The ADB said in September it would lend Bangladesh US$8 billion in loans over the next five years to improve infrastructure.
Trade
Japan exports fall more than expected The value of exports to China fell 9.2 per cent in October from a year earlier Minami Funakoshi
J
apan’s exports fell in October for a 13th consecutive month and by more than expected as the strength of the yen and sluggish foreign demand weighed on trade, although current yen weakness could change the outlook. Ministry of Finance (MOF) data showed yesterday that exports fell 10.3 per cent in the year to October, pulled down by a strong rise in the value of the yen and lower export volumes, much weaker than the expected 8.6 per cent drop and September’s 6.9 per cent decline. The trade results came on the heels of recent data showing Japan’s economy expanded for a third quarter in July-September as exports recovered and imports fell. Exports dipped 1.4 per cent in volume terms in the year to October, falling for the first time in three months and following a 4.7 per cent gain in the previous month. “Overall exports are starting to stall and this month’s results are disappointing,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. “The data once again shows that global economic recovery isn’t necessarily smooth sailing,” said Kodama, adding that overall economic growth in October-December may stall. But Marcel Thieliant, senior Japan economist at Capital Economics, took a different view saying that the dramatic fall in the value of the yen
since Donald Trump’s election to U.S. president could help turn around Japan’s export performance. “Looking ahead...we expect it (the yen) to decline further next year, which should lift trade values. “We also expect growth among Japan’s main trading partners to pick up marginally, and have pencilled in a 1.5 per cent rebound in export volumes next year,” Thieliant said in a commentary after the trade figures were posted. Imports in October fell 16.5 per cent versus the median estimate of a 16.3 per cent fall. The trade balance came to a surplus of 496.2 billion yen (US$4.47 billion), versus the median estimate for a 615.4 billion yen surplus. The value of exports to China fell 9.2 per cent in October from a year earlier, for the eighth straight month, as shipments of communication devices fell.
Shipments to Asia, which account for more than half of Japanese exports, fell 9.9 per cent, marking a 14th month of declines. U.S.-bound exports decreased 11.2 per cent, posting an eighth falling month.
Key Points Oct exports -10.3 pct yr/yr vs forecast -8.6 pct Imports -16.5 pct yr/yr vs forecast -16.3 pct Trade balance 496.2 bln yen vs forecast 615.4 bln yen Strong yen, lower export volume weigh on trade However, a private business survey showed that Japanese manufacturing activity expanded at the fastest pace in nine months in October as output and new export orders picked up. Reuters
The strength of the yen weighed on trade
Legislation
Lao amended investment law shortens concession period Amendments to the Investment Promotion Law has shortened investment concession periods to ensure closer scrutiny of investors’ operations, Lao state-run daily Vientiane Times reported yesterday. A draft amendment to the law, which was passed by Lao National Assembly (NA) last week, shortens the investment concession period from 99 years to 50 years, a change that was widely welcomed by NA members during parliament’s ordinary session, said the report. Lao Deputy Minister of Planning and Investment Khamlien Pholsena said that he believed that the proposed 50 year concession period would remain unchanged even though changes could be made to the original draft. M&A
Vietnam says no specific buyer for Vinamilk stake Vietnam’s State Capital Investment Corporation (SCIC) said yesterday that it did not have a specific buyer in mind for its 9 per cent stake in Vinamilk and that the shares would go to the highest bidders at the sale next month. SCIC, which represents the state and owns 44.7 per cent of Vinamilk, has not decided the time for selling its remaining stake in the state-controlled dairy firm, SCIC Chairman Nguyen Duc Chi said. The bidding price will have to be no less than a starting price set by the SCIC, to be announced this week.
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Global warming
New Zealand backs fast-tracking of Paris climate agreement Climate campaigners and environment groups have criticized the New Zealand government for its lack of a plan to tackle emissions and for encouraging the exploration for fossil fuels in its waters New Zealand has signalled its commitment to the Paris Agreement on climate change by joining an international program to fast-track the accord, Climate Change Minister Paula Bennett said yesterday. New Zealand had joined countries at the 2016 UN climate change
conference, COP22 (the 22nd session of the Conference of the Parties to the United Nations Framework Convention on Climate Change), in supporting to the Marrakech Proclamation, which highlighted the global momentum on tackling climate change, said Bennett.
“The COP22 global meeting has reaffirmed New Zealand’s absolute commitment to playing our part in the global action to reduce climate change,” said Bennett, who attended the conference in Marrakech. “It was also an opportunity to have fruitful discussions on issues important to New Zealand such as how to reduce emissions from agriculture and how to create high integrity international carbon markets,” she said in a statement. “New Zealand has a fair and ambitious target of reducing emissions by 30 per cent below 2005 levels by 2030. I have several work streams in place which will help form an effective plan to meet that target.” Climate campaigners and environment groups have criticized the New Zealand government for its lack of a plan to tackle emissions and for encouraging the exploration for fossil fuels in its waters. New Zealand ratified the Paris Agreement, agreed in December last year, on Oct. 5. Earlier this month, the opposition Green Party said the government needed "real evidence” of a plan to reduce New Zealand’s emissions, which were up 19 per cent since 2008. The international campaign group, Greenpeace, has called for a summer of action to highlight the government’s “sham plan” on climate change, saying the country was forecast to meet 80 per cent of its target by offsetting emissions in the international carbon market. 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 22 2016 13
Asia Political crisis
Park closer to impeachment as Korea Party faction wants her out While the opposition parties lack the numbers needed to oust her, a rift within the ruling party may increase the risk of an impeachment motion A faction of lawmakers in Park Geun-hye’s ruling party is calling for her ouster, putting the opposition closer to the numbers needed to impeach South Korea’s president over an influence-peddling scandal shaking Asia’s fourth-biggest economy. Thirty-five Saenuri lawmakers estranged from the party held a meeting after prosecutors said Sunday she “colluded” with former aides in the corruption case. Thirty-two agreed to pursue Park’s impeachment and demand that she leave the party, with lawmaker Hwang Young-cheul saying in a briefing that the number of proponents will increase. In response to the allegations, the presidential Blue House on Sunday questioned the neutrality of the prosecutors, saying the interim investigation was being conducted as if she committed a serious crime. The president’s lawyer also rejected the results of the probe, saying they are based on “imagination and conjecture.” Park has shown few signs that she plans to step down any time soon, despite hundreds of thousands of protesters gathering near the presidential compound over the past two weekends to demand her resignation and arrest. While the nation’s constitution protects a president from being indicted, it allows for impeachment should two-thirds of the 300-member National Assembly approve. La w m a k e rs f r o m th e th r e e
opposition parties control a combined 165 seats, while Park’s ruling Saenuri Party has 129 seats. Six are with unaffiliated members.
Party rift
While the opposition parties lack the numbers needed to oust her, a rift within the ruling party may increase the risk of an impeachment motion for Park, said Choi Chang-ryul, a political commentator and professor at Yong In University. Choo Mi-ae, leader of the main opposition Democratic Party of Korea, said yesterday that her party would set up an apparatus to push for impeachment, Yonhap News reported. Moon Jae-in, the leading contender to take over as president in opinion polls, said there’s a strong case for impeachment. Both urged Park to step down as president first.
Samsung, Hyundai
Prosecutors on Sunday said they’ve secured enough evidence to show Park played a role in the scandal, while her long-time confidante Choi Soon-sil extracted money from some of the country’s biggest companies and gained access to classified information. Charges against Choi and a former presidential aide include attempted coercion and abuse of authority, while another aide was accused of leaking classified information, Lee Young-ryeol, the head of the Seoul
Choo Mi-ae (R), leader of the main opposition Democratic Party of Korea (DPK), and other party officials salute the national flag at a plenary meeting of DPK lawmakers at the National Assembly in Seoul, South Korea, 21 November 2016. Lusa
Central District Prosecutors’ Office, said Sunday. Prosecutors will continue to investigate Park, Lee said. The corruption probe has widened to companies including Samsung Electronics Co. and Hyundai Motor Co. amid allegations the conglomerates provided about 77.4 billion won (US$65 million) to two foundations controlled by Choi. “The companies could not help but follow the demands by Choi and An in fear
of facing both direct and indirect disadvantages in their business activities,” said Lee. South Korean law stipulates that the Constitutional Court should make the final decision within 180 days after it receives an impeachment proposal from the National Assembly. At least seven judges are required to try an impeachment case, while at least six have to vote for the proposal to be eventually passed. Bloomberg News
Economic Partnership (RCEP), which does not currently include countries in the Americas. Tan Jian, a senior member of China’s delegation at the APEC meeting, said more countries are now seeking to join its bloc, including Peru and Chile, and that China wants to reach an agreement soon. He said, however, that the TPP and RCEP were both valid paths to a broader Free Trade Area of the Asia-Pacific, which has long been a goal of the APEC bloc that represents 57 per cent of the world economy. APEC leaders echoed that sentiment. “We encourage that all regional undertakings, including TPP and RCEP, remain open, transparent and inclusive and draw on each other,” they said in a final declaration. Some APEC leaders in Lima have suggested the TPP could continue without the United States, but others
said that would require a complete renegotiation. Another way forward might be to make some cosmetic changes that would allow Trump to change his mind and support the accord without losing face, New Zealand Prime Minister John Key suggested. Obama said he was already hearing calls for a less ambitious free trade agreement with fewer protections for workers and environmental standards. “That kind of agreement would obviously exclude U.S. workers and businesses and access to those markets,” he said. Peruvian President Pedro Pablo Kuczynski, who hosted the summit, said it was too early to write off the TPP and that Trump’s support was due more to “difficult economic conditions” than to fierce protectionist sentiment. Reuters
Commerce deals
APEC leaders vow to fight protectionism Some leaders in Lima have suggested the TPP could continue without the United States Mitra Taj and Jeff Mason
Pacific Rim leaders vowed on Sunday to fight protectionism and Chinese officials said more countries are looking to join a China-led trading bloc after Donald Trump’s election victory raised fears the United States would scrap free trade deals. Trump campaigned for U.S. president on a promise to pull out of the 12-nation Trans-Pacific Partnership (TPP) trade deal, and also threatened to impose steep tariffs against China and Mexico.
“We encourage that all regional undertakings, including TPP and RCEP, remain open, transparent and inclusive and draw on each other”
would be a mistake for the United States. “I think not moving forward would undermine our position across the region and our ability to shape the rules of global trade in a way that reflects our values and our interests,” Obama told a news conference at the end of the summit. Obama negotiated the TPP but has stopped seeking its congressional approval and says its ratification is up to the incoming Trump administration. China is not part of the TPP but it has been pushing an alternative vision of free trade in Asia under the so-called Regional Comprehensive
APEC final declaration
Regional leaders responded on Sunday, saying they would “fight against all forms of protectionism” and push ahead on the TPP. “We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism,” they said at a summit meeting of the 21-country Asia-Pacific Economic Cooperation (APEC) group in Peru. On his last foreign trip, President Barack Obama said abandoning TPP
Participants pose during the family picture of the meeting of leaders of the Asia Pacific Economic Cooperation (APEC) Forum, in Lima, Peru, 20 November 2016. Lusa
14 Business Daily Tuesday, November 22 2016
International In Brief Finance minister
German slowdown expected A slowdown in the German economy during the third quarter was expected after strong growth in the first six months of the year, the finance ministry said yesterday, adding that private consumption and state spending were the main drivers. The German economy grew by 0.2 per cent for the quarter after it expanded 0.4 per cent in the three months to June as exports weakened. The ministry said in its monthly report that the labour market remained solid and job creation was positive in the autumn. Oil industry
Putin optimistic about OPEC deal Russian President Vladimir Putin said he sees no obstacles to an OPEC agreement this month after oil exporters made major progress in overcoming differences as he reaffirmed Russia is willing to freeze crude output at current levels. “Whether an agreement will be reached, I can’t say 100 per cent, but there’s a strong likelihood that it will be achieved,” Putin told reporters on Sunday after attending the Asia-Pacific Economic Cooperation summit in Lima. “The main contradictions within OPEC, if they’re not yet eliminated, can be eliminated.”
Europe financial sector
Brexit banks told to relax: ECB won’t give first-mover advantage The ECB’s Single Supervisory Mechanism is preparing to deal with an influx of requests from global banks Gavin Finch
F
inance executives planning to shift operations out of the U.K. because of Brexit have been told by European Central Bank officials not to rush as there will be no first-mover advantage when it comes to gaining regulatory approvals, according to people briefed on the discussions. To avoid any potential bottlenecks in the process, policy makers are considering allowing banks to use their U.K.-approved internal risk models for an extended period until euro-area regulators are able to hire more staff and perform their own assessments, said one of the people, who asked not to be identified because the deliberations are private. No formal talks have taken place and no decisions reached, the person said. Banks are bracing for the worst the loss of their right to sell services freely around the EU from London - and are set to start the process of moving operations to the euro zone within weeks of the government triggering Brexit, which is scheduled to
happen by the end of March. British Bankers’ Association head Anthony Browne said last month that bankers’ hands are “quivering over the relocate button.” The ECB’s Single Supervisory Mechanism, which began overseeing the currency bloc’s largest lenders two years ago, is preparing to deal with an influx of requests from global banks with their European headquarters in London, Sabine Lautenschlager, the vice chair of that organization’s supervisory board said. Many banks have already reached out to the ECB, she said.
Grandfathering precedent
We have “a task force which looks into all of the different scenarios, thinking about what does this mean with regard to passporting or no passporting, what does it mean with the whole question of authorizations and model approvals,” Lautenschlager said in Frankfurt, adding that supervisors are already in talks with the U.K.’s Prudential Regulation Authority. Spokesmen for the ECB and PRA
Property
Dubai real estate prices seen falling Real estate prices in Dubai will continue declining in 2017, with a recovery only starting late next year, property consultancy Cluttons said. Home values in the emirate dropped 7.4 per cent on an annual basis at the end of the third quarter and will probably slip another 5 per cent next year, Cluttons head of research Faisal Durrani said in an interview Sunday in Dubai. Prices have been falling since 2014 and are almost 27 per cent lower than their peak in the third quarter of 2008, he said. Values will only begin to stabilize in the last three months of next year. Germany election
Merkel says she wants to run for 4th term Germany’s Angela Merkel told leading members of her conservative Christian Democrats (CDU) on Sunday that she wants to run for a fourth term as chancellor in next year’s election, senior party sources told Reuters on Sunday. The 62-year-old conservative is widely seen as a stabilising force in Europe amid uncertainty after Britain’s vote to leave the European Union and as a bastion of Western liberal values after the election of Donald Trump as the next U.S. president. Merkel has already served 11 years as chancellor of Europe’s biggest economy.
declined to elaborate on the nature of these discussions. While the regulator may be able to expedite approvals, the overall process of moving people and operations abroad will still take time, forcing banks to make decisions soon, Ignazio Angeloni, a board member at the ECB’s supervisory arm, said this week.
“These arrangements could become very complicated” Jan Putnis, a partner at law firm Slaughter and May in London And even reaching a common position within the SSM, which includes appointees from 19 euro-area nations as well as the ECB, might not be easy. On Friday, Finland’s top bank supervisor Anneli Tuominen, said the ECB would welcome banks as long as they weren’t looking to exploit gaps in regulation. There is precedent for the socalled grandfathering of model approvals. When the ECB assumed its oversight role in 2014 it didn’t initially authorize models, relying instead on the previous judgments of national supervisors. It only began a review - still on-going - of the thousands of risk models nearly two years ago. “Grandfathering the risk models would be the most logical approach,” said Jan Putnis, a partner at law firm Slaughter and May in London. “There is no real alternative in the short term. But this will require close co-operation between regulators, not least because the models might require adjustment during the grandfathering period. These arrangements could become very complicated.” Bloomberg News
Commodities crisis
Nigerian economy contracts in third quarter The oil industry contracted by 22 per cent from a year earlier Dulue Mbachu
Nigeria’s economic slump continued in the third quarter on low oil revenue and foreign investors who are wary of the government’s fiscal and monetary responses. Gross domestic product in Africa’s most populous country contracted by 2.2 per cent in the three months through September from a year earlier, after shrinking 2.1 per cent in the second quarter, the Abuja-based National Bureau of Statistics said in an e-mailed statement yesterday. The median of 15 economist estimates compiled by Bloomberg was for a 2 per cent contraction. The economy expanded a non-seasonally adjusted 9 per cent from the second quarter, the statistics office said. Government revenue has plunged with the decline of oil prices, the country’s main export, since mid2014, and production fell as militants in the Niger River delta blew up pipelines. The authorities have struggled to manage the economic fallout, at one point pegging the exchange rate against the dollar for more than a year and more recently using law enforcement to bring down the street
price of foreign currency. Crude production fell to 1.63 million barrels per day in the third quarter, from 1.69 million barrels in the three months through June, the statistics office said. The oil industry contracted by 22 per cent from a year earlier. The non-oil sector, which includes manufacturing, banking and agriculture, expanded 0.03 per cent.
“Nigeria is still undergoing a severe economic realignment to adjust to lower oil prices and the knock-on effect on its U.S. dollar oil exports” Aurelien Mali, a vice president and senior credit officer at Moody’s Investors Service The slump in oil and shortages of foreign currency and power could cause the economy to shrink 1.7 per cent this year, according to the
International Monetary Fund. That would be Nigeria’s first full-year contraction since 1991, according to data from the Washington-based lender. The central bank removed its 197-199 naira per dollar peg on June 20, causing the currency to lose more than a third of its value. The Monetary Policy Committee, which will announce its interest-rate decision today, left the benchmark rate unchanged at 14 per cent in September to help prop up the naira and fight inflation, which quickened to an 11-year high in October, even as the economic outlook deteriorated. “Nigeria is still undergoing a severe economic realignment to adjust to lower oil prices and the knock-on effect on its U.S. dollar oil exports, which have led to reduced U.S. dollar supply and lower GDP growth,” Aurelien Mali, a vice president and senior credit officer at Moody’s Investors Service, said in a Nov. 16 report. Investment inflows will remain “constrained,” while wide gaps persist between official and parallel market foreign-exchange rates, easing as multinational companies move to “further strengthen their domestic position in Nigeria or establish a presence,” leading to improved dollar supply, according to Moody’s. Bloomberg News
Business Daily Tuesday, November 22 2016 15
Opinion BCP’s Chinese white knight is wearing borrowed armour Christopher Langner a Bloomberg Gadfly columnist
D
esperation can sometimes get you deeper into the kind of trouble you’re fleeing from. The announcement over the weekend that Banco Comercial Portugues SA, Portugal’s largest publicly traded lender, agreed to sell a 16.67 per cent stake for 174.6 million euros (US$185 million) to Fosun International Ltd. may be such a case. At first glance, the cash injection is a welcome relief for a bank that saw its common equity Tier 1 capital ratio drop to 9.5 per cent in September from 10 per cent a year earlier. However, the fact that it’s coming from a Chinese conglomerate that is itself highly leveraged should give Lisbon regulators pause. At the end of June, Fosun had RMB119 billion (US$17 billion) of debt, with more than a third due within one year and over half payable before July 2018. What’s even more concerning, as Gadfly’s David Fickling pointed out in August, the company is burning cash. To be sure, Moody’s gives Fosun a Ba3 rating, one level higher than the B1 grade BCP currently sports. And the Chinese company’s chairman, Guo Guangchang, is already a familiar face among Portuguese regulators after Fosun bought the insurance arm of state-owned bank Caixa Geral de Depositos in 2014. Guo has every reason to celebrate. The acquisition will cement his group’s financial institution footprint in the Portuguese-speaking world. Aside from Caixa’s insurer, Guo this year took over Rio Bravo Investimentos in Brazil, an asset manager founded by former central bank head Gustavo Franco. billion RMB Plus, it’s coming very Fosun’s debt cheap. The 1.1089 euro per share price is only 1.3 per cent higher than the all-time low that BCP’s stock reached on Sept. 23. It also implies a price to book ratio of less than 0.22 times. There’s an extra flavour of victory for Fosun in this deal, too. Last year, the company was one of three bidders turned down by Portuguese regulators in an auction for Novo Banco, the lender that emerged from the restructuring of Banco Espirito Santo SA. At the time, authorities said Fosun, Chinese insurer Anbang Insurance Group Co. and Apollo Global Management LLC had all failed to offer enough. This time, it seems regulators aren’t concerned about Fosun’s lowball price as long as BCP’s equity is replenished. One might think such a bargain would have attracted other takers, but perhaps the growing bad loans in BCP’s books were too scary. Not to Fosun, which is all too familiar with unwilling debtors through its banking investments back home. As for the regulators, sure, they must have had some debate about the financial soundness of the bidder, but ultimately agreed that sometimes it’s better the devil you know. It’s unclear what the alternative was for BCP, if any, just two years after a major rights offering. Yet while Fosun comes dressed as a saviour, it’s no paragon of financial virtue itself. Given the short-term nature of most of its liabilities and the sheer amount of them, the chances that something could go wrong are significant. The group already had a scare in December last year, when Guo was reportedly held by authorities to assist in a probe. He returned to the helm but has since been shier about his expansion plans. Fosun’s borrowing lines don’t look to have been affected by Guo’s temporary absence. But in China, it’s hard to predict when a knock-on-thedoor will become a knockdown. If something were to happen to Fosun after the acquisition, Portugal’s biggest lender and one of its biggest insurers would both be simultaneously at risk. It hardly sounds like Portuguese depositors are safer now than before. Bloomberg Gadfly
119
As the site of both economic opportunity and disparity, cities are where we must look to tackle inequality
Inclusive growth depends on cities
W
e live in turbulent times, and popular discontent with the status quo is mounting. The reasons for popular frustration vary from country to country, but the common thread everywhere is a growing sense that the economy is rigged in favour of the few. Indeed, the gains from economic growth are increasingly going to the very highest earners. In OECD countries, people in the top 10 per cent of the income distribution earn around ten times more than people in the bottom 10 per cent – up from seven times more nearly 30 years ago. In 2012, among the 18 OECD countries with comparable data, the top 10 per cent accounted for 50 per cent of total household wealth, while the bottom 40 per cent accounted for only 3 per cent. We all pay a price when inequality reaches new heights. In a range of OECD countries, rising inequality knocked 6-10 percentage points off overall GDP between 1990 and 2010. When the poorest people are unable to fulfil their potential, economic growth suffers. As policymakers and political leaders look for ways to make economic growth more inclusive, cities will play a central role in any solution. A survey of OECD countries shows that half the total population lives in cities of more than 500,000 inhabitants, and that cities have accounted for 60 per cent of total growth of employment and GDP since 2001. However, this growth has not been inclusive: income inequality in cities is higher than the national average in all OECD countries surveyed, except Canada. In the United States, 95 of the 100 largest metropolitan areas added jobs and increased their economic output in the five years following the Great Recession, but only 20 experienced median-wage growth. Economic gains in recent years have not made the typical worker better off, and as wealthy individuals have reaped the benefits of growth, poverty has become more concentrated. According to research by the Brookings Institution, the number of extremely poor neighbourhoods in the U.S. has more than doubled since 2000. This has far-reaching costs. Growing up in a poor neighbourhood has been shown to reduce a person’s life prospects dramatically, even when earnings remain constant. And in metropolitan areas such as London and Baltimore, the difference in life expectancy between poor and wealthy neighbourhoods just a few miles apart can be more than 20 years. As the site of both economic opportunity and disparity, cities are where we must look to tackle inequality. In March, the OECD, the Ford Foundation, Brookings, and other institutions launched the Inclusive Growth in Cities Initiative, in partnership with New York City Mayor Bill de Blasio and 20 other mayors from around the world. By bringing together “Champion Mayors” to define a shared inclusive-growth agenda, the Initiative acknowledges the crucial role mayors play in creating economic opportunity and boosting the productive capacity of individuals and firms. At a recent Brookings event, OECD SecretaryGeneral Angel Gurría discussed four key areas
“
Lamia Kamal-Chaoui Director of the OECD Centre for Entrepreneurship, SMEs, and Local Development and Head of the Champion Mayors for Inclusive Growth Initiative Amy Liu Vice President at the Brookings Institution and Director of its Metropolitan Policy Program
where cities can work to reduce inequality. These ideas will be developed further at a meeting in Paris on November 21, hosted by Paris Mayor Anne Hidalgo. First, cities should make education systems more inclusive by investing in vocational schools where people of all ages and backgrounds can learn marketable skills. For example, in Atlanta, Mayor Kasim Reed has launched a partnership between a local start-up incubator, the city’s workforce development agency, and a coding school to provide young people with mentorship networks, through which they can develop financial literacy and critical thinking skills, while also learning how to write code. Second, cities should ensure that employment and entrepreneurship opportunities are available to all people, including women, young adults, immigrants, and disadvantaged populations. In Stockholm, which took in 8,000 asylum-seekers between fall 2015 and spring 2016, Mayor Karin Wanngård is developing a new type of school for adults. As part of a comprehensive integration strategy, the new schools will teach the language, cultural, and technical proficiencies necessary to participate in Stockholm’s job market. In Seoul, Mayor Park Won-soon is levelling the playing field for small and medium-size enterprises with targeted financial support, fairer transaction and subcontracting rules, and informal-work regularization. Third, cities must ensure high-quality, affordable housing for all in safe, healthy neighbourhoods. In Paris, Hidalgo’s “right of first refusal” plan allows the municipal government to acquire residences that come on the market in selected neighbourhoods so that it can provide them to poorer residents at risk of being displaced. Finally, cities should ensure that public infrastructure and services – including public transportation, water, energy, waste management, and broadband – are easily accessible for all. In New York, de Blasio’s IDNYC initiative is providing free government-issued identification cards for all residents – including the homeless, undocumented immigrants, and former convicts – so that marginalized groups can make use of the city’s resources. Efforts such as the Inclusive Growth in Cities Initiative and the United Nation’s Habitat III conference are helping to turn the tide against rising inequality one city at a time. The more we can capitalize on local solutions for common global problems, the more progress all of us will make. Project Syndicate
As policymakers and political leaders look for ways to make economic growth more inclusive, cities will play a central role in any solution
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16 Business Daily Tuesday, November 22 2016
Closing Railway link
Tianjin FTZ launches China-Europe freight train
according to the administrative committee for Tianjin Dongjiang Port Area. The return trip will carry goods to China, including wood products A freight train departed a pilot economic zone in the northern coastal city of Tianjin for the first from Belarus and surrounding countries. Scheduled to operate 20 times per year, the time yesterday morning. Tianjin-Minsk freight train will carry an annual Loaded with 104 containers of construction materials, it is the first China-Europe freight train total of 30,000 tonnes of goods, the committee said. to leave the Tianjin Pilot Free Trade Zone (FTZ), As the new China-Europe freight train service and is set to arrive in Minsk, capital of Belarus, opens, the Dongjiang Port Area will play an around December 4. The train will leave China via Erlianhaote Customs important role in linking the 21st Century Maritime Silk Road with the Silk Road Economic in northern China’s Inner Mongolia and head Belt, the committee said. Xinhua to the China-Belarus Industrial Park in Minsk,
Logistics shift
China grain buyers turn abroad after local supply shrinks Domestic grain markets have been in a state of flux since Beijing this year abandoned a state stockpiling policy Dominique Patton and Hallie Gu
A
surge in Chinese corn prices after the government clamped down on the overloading of trucks has boosted demand for cheaper feed grains like sorghum and barley from top exporters the United States and Australia. Beijing launched a nationwide crackdown on overloading lorries in late September, hitting supplies of corn which usually have to be transported around the country from northern growing regions. Chinese corn prices have climbed 16 per cent since the start of October, also supported after the government introduced subsidies for corn processors and as wet weather slowed the latest harvest. That has provided an unexpected boost to overseas suppliers of grains that can be used as alternatives to corn in animal feed, with traders reporting an uptick in shipments of sorghum from the United States and barley from Australia. “Inspections on overloading ... have limited overall transportation capacity and pushed up the cost (of local corn). Imported grains now have more price advantage,” said Cherry Zhang, an analyst with Shanghai JC Intelligence Co. Ltd. The government wants to stamp out overloading to curb damage to roads and reduce accidents. Beijing has also been giving priority to coal freight on its railways amid
surging prices for the fuel as winter starts to bite, according to energy market participants. U.S. sorghum shipped to south China currently costs around RMB1,660 (US$240) per tonne, said traders and analysts, compared with domestic corn arriving at Shenzhen’s Shekou port for 2,040 yuan per tonne. Feed barley is about RMB1,500 per tonne. China has booked more than 20 vessels of U.S. sorghum since late October for arrival by February, said a trader in China, declining to
be identified as he was not authorised to speak with media. That would amount to more than 1 million tonnes. While overall volumes of sorghum imports are still seen dropping in 2016/17 from previous years, suppliers had not expected a sudden jump in demand just after China had harvested a bumper corn crop. And at least three vessels of Australian barley are on their way to China, said a Singapore-based trader, adding that there had been a significant upturn in enquiries. China is the world’s top sorghum importer and its No.2 importer of barley. China’s grain markets have been in
a state of flux since Beijing this year abandoned a state stockpiling policy that had seen it amass about 250 million tonnes of corn, more than the country can consume in a whole year. It had been looking to offload grain, but suspended auctions to encourage purchasing of new crop corn. Meanwhile, the China-based trader said that new bookings for corn substitutes may begin to ease as buyers expect more corn to reach southern China soon after the government takes measures to boost transport capacity. And sorghum prices have strengthened on recent Chinese activity, deterring forward purchases. Reuters
Financial stability
Official visit
2016-2020 budget
Citi and JPMorgan top list of globally systemic banks
UN secretary-general designate to visit Mainland
Vietnam targets to raise state revenue
Citi has joined JPMorgan at the top of global regulators’ list of systemically important banks, replacing HSBC and meaning the U.S. bank will have to hold extra capital from 2019 to help preserve financial stability. The group of 20 economies (G20) agreed after the 2007-09 financial crisis that top banks, whose size and complexity mean a collapse could wreak havoc in markets, should hold extra capital, according to the level of risk they present. Members of the list of 30 lenders will also have to begin holding bonds from 2019 that can be written down to help replenish capital that is burnt through in a crisis. In the annual update of rankings published yesterday by the G20’s Financial Stability Board, Citi has replaced HSBC in the top “bucket” facing a 2.5 per cent capital surcharge on top of global minimum requirements. No lender joined or dropped out of the top 30 list this year. Barclays dropped a category to the 1.5 per cent surcharge group. Industrial and Commercial Bank of China and Wells Fargo rose a category to join the UK bank. Morgan Stanley fell a category to the 1 per cent surcharge group. Reuters
United Nations Secretary-General designate Antonio Guterres will visit China from Nov. 28 to 29 at the invitation of the Chinese government. Foreign Ministry spokesperson Geng Shuang made the announcement during a routine news briefing yesterday, saying that China values the visit of Guterres. During his trip, Guterres will meet Chinese leaders and Foreign Minister Wang Yi, but specific arrangements are still under discussion, Geng said. China and Guterres will discuss the current international situation, the future development of the United Nations, China-UN cooperation and international and regional issues of common concern, he said. China hopes the trip will boost mutual trust and map out the future cooperation between the two sides, Geng added. I n Ja n u a r y , G u t e r r e s w i l l s u c c e e d B a n Ki-moon of South Korea as leader of the 71-year-old institution with 105,000 peacekeepers deployed around the world and an annual budget of more than US$13 billion.
Nguyen Phu Trong, General Secretary of the Communist Party of Vietnam has signed a Politburo resolution on policies and measures to restructure the state budget and manage public debts, in which, total state budget collection during 20162020 period is set to rise by 1.65 times over the amount in 2011-2015, the state-run news agency VNA reported yesterday. Among the figure, domestic collection is expected to account for 84 per cent to 85 per cent of the state budget revenue, with 14 per cent to 16 per cent coming from crude oil and import-export activities. Meanwhile, Vietnam’s central budget collection is set to reach 60 per cent to 65 per cent of the state budget revenue, according to the resolution. It aims to keep the state budget expenditure in 20162020 at 24-25 per cent of gross domestic product (GDP) on average, with about 25-26 per cent of the total sum to be allocated to development investment and up to 64 per cent to regular spending. The resolution also focuses on maintaining national financial security and positive budget balance and reducing state budget overspending to below 4 per cent of GDP in 2020 and about 3 per cent in 2030, aiming at a balanced state budget collection and spending. Xinhua
Xinhua with Bloomberg News