DICJ: gaming revenue to grow next year Gaming Page 6
Friday, December 9 2016 Year V Nr. 1191 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong M&A
Bahamian officials reportedly in SARs for due diligence on Chow Tai Fook businesses Page 6
Macau-Sino
MSAR to set up working group for Portuguese food exporters to China Page 2
www.macaubusinessdaily.com Intellectual rights
Politics
Michael Jordan wins trademark battle in China Page 11
Korea’s Park faces impeachment vote today Page 13
Housing market revives Property
Off-plan sales of new residential projects are being launched one after another. Nova Grand from Shun Tak Group is the latest one, seeing the sale of 400 units completed in three days. Purchasing power is apparently strong and has been building up in the past few years, local property agents say, adding that the city needs much more supply. Page 3
Imports rebound in November The country’s imports jumped 6.7 pct y-o-y in November, the fastest pace in over two years, boosted by demands for commodities. Exports in the month also increased 0.1 pct y-o-y, indicating that domestic and global demand are both picking up.
Virtual Reality for tourism Technology Organiser of the SIGGRAPH Asia 2016 suggests the MSAR could consider virtual reality elements in its future tourism products, such as in theme parks. Wrapping up the tech conference yesterday, the organiser also praised the city’s hotel facilities for MICE events. Page 4
No, again
Pearl Horizon lawsuits The Court of Final Appeal has denied another appeal by the Pearl Horizon developer, not long after a ruling against the company last month. Trying to stop the gov’t taking back the land plot, Polytex Corporation Ltd said in its complaint that the seizure might push the company to bankruptcy Page 5
HK Hang Seng Index December 8, 2016
22,861.84 +60.92 (+0.27%) Worst Performers
Bank of Communications
+2.03%
China Unicom Hong Kong
+1.50%
AIA Group Ltd
-1.88%
Cheung Kong Infrastructure
-0.31%
China Mengniu Dairy Co Ltd
+2.01%
China Merchants Port Hold-
+1.43%
Li & Fung Ltd
-1.17%
Hong Kong & China Gas Co
-0.28%
China Resources Land Ltd
+1.93%
Want Want China Holdings
+1.21%
China Life Insurance Co Ltd
-1.11%
HSBC Holdings PLC
-0.23%
Cheung Kong Property
+1.86%
CITIC Ltd
+1.18%
Galaxy Entertainment Group
-0.92%
CK Hutchison Holdings Ltd
China Overseas Land &
+1.82%
Hengan International Group
+1.16%
BOC Hong Kong Holdings
-0.85%
China Resources Power
-0.22% +0.00%
18° 22° 18° 22° 18° 22° 19° 22° 17° 23° Today
Source: Bloomberg
Best Performers
SAT
sUN
I SSN 2226-8294
Mon
Tue
Source: AccuWeather
China trade Page 12
2 Business Daily Friday, December 9 2016
Macau In Brief Subsidy
IPIM subsidizing SME to join 2017 MIECF Macao Trade and Investment Promotion Institute (IPIM) has announced the subsidy application for local SMEs who are interested in joining the Macao International Environment Co-operation Forum & Exhibition (MIECF) 2017, with the deadline of December 30. However, the subsidy will only be granted to SMEs with at least one Macau resident shareholder holding a 50 per cent stake and having paid at least two years of taxes. The subsidy will support a maximum of 60 per cent of the booth rental costs of eligible companies. Next year’s MIECF will be held from March 30 to April 1 at The Venetian Macao. C.U.
Macau-Sino
eSports
Lai Sun’s Hengqin stadium rated one of the most important events in 2017 The opening of the largest video game arena in Hengqin next year is considered by the New York Times as one of the most important events to happen in 2017. The 15,000-seat electronic sports gaming arena is a project between U.S. Company Major League Gaming (MLG) and Hong Kong property conglomerate Lai Sun Group. The first phase of the project will include a MOP22.2 billion (US$2.7 billion) development named Creative and Culture City. However, Chew Fook Aun, the chairman of Lai Fung Holdings Ltd. – a subsidiary of the Lai Sun Group – said last year that the first phase of the project would be delayed until the first half of 2018. N.M.
Bringing Portuguese food to China
During the meeting, the two Secretaries discussed how the MSAR, as a platform between China and Portuguese-speaking countries, could help Portuguese food businesses expand to Mainland China, as well as how Portuguese businesses could enjoy the tax benefits under the Closer Economic Partnership Arrangement (CEPA) of China. On the other hand, the city’s official also met with the country’s Secretary of State Assistant and of Commerce, Paulo Ferreira, exchanging opinions
on trade co-operation, consumer protection and food safety. In addition, Secretary Leong also met with Portugal’s State Secretary of Industry, João Vasconcelos, to discuss co-operation in development of startups between the two regions. The Portuguese representative suggested linking venture capital funds and startup companies of Portugal to those in Mainland China through the MSAR. Agreeing with this suggestion, the MSAR official said the co-operation agreement signed between Macau’s Business Incubator Centre for Young People and three Free Trade Zones in Guangdong Province should help promote entrepreneurship synergies between the regions. N.M.
plan was corroborated by the group’s recently-resigned administrative Council president, António Domingues, who is still holding office until the end of the month, and his successor Paulo Macedo. Last month, Mr. Domingues quit his position in CGD after only three months in the role, after having refused to adhere to the legislation passed in the Portuguese parliament
mandating that administrators of the state-owned bank would have to present an asset declaration to the country’s Constitutional Court. With the banking group’s losses amounted to 3 billion euros in 2016, the group is currently undergoing a recapitalisation plan, in which the Portuguese Government is acting as a sole shareholder and capital injector of up to 2.7 billion euros until next year. N.M.
Secretary Lionel Leong said the city would set up a working group to help Portuguese food exporters to expand their businesses to the mainland.
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he MSAR and Portugal have agreed to each set up a working group to help Portuguese food businesses set up in Mainland China, according to a press release from the Office of the Secretary for Economy and Finance, Lionel Leong Vai Tac. The agreement was reached after the Secretary’s meeting with Portugal’s state Secretary of Internationalization, Jorge Costa Oliveira, during his trip to Europe from December 5 until yesterday.
Banking
Shifting focus
Appointment
Hutchison Telecoms appoints new Executive Director Hutchison Telecommunications Hong Kong Holdings Limited announced it has appointed Cliff Woo Chiu Man as Executive Director and Chief Executive Officer of the company, effective from 1 January 2017, according to a company filing to the Hong Kong Stock Exchange on Wednesday. Mr Woo, 62, is currently Director of Hutchison Telecommunications (Australia) Limited. Meanwhile, the same filing announced that Peter Wong King Fai will retire from his current position as Executive Director and Chief Executive Officer and Group Managing Director of the Company from January 1 next year. In addition, Frank John Sixt will resign from his position as Non-Executive Director of the Company from the same day. Domic Lai Kai Ming will also cease to act as Alternate Director to Mr. Sixt from January 1.
Portuguese bank CGD to narrow international operations, putting focus on African Lusophone countries and the MSAR Portuguese banking group Caixa Geral de Depósitos (CGD) is planning to scale down its international operations in order to put more focus on its operations in African Portuguese speaking countries as well as in the MSAR, Portuguese newspaper Jornal de Negócios reported. According to the newspaper, the group’s new administration intends to increase their financial margin by 670 million euros (MOP5.7 billion/ US$721.2 million) until 2020, with 120 million euros expected to come from international operations, in addition to cutting costs. The strategy aims to concentrate on the group’s operations in Macau, where it runs Banco Nacional Ultramarino (BNU) and a CGD branch, as well as those in Angola, Mozambique and Cape Verde. The group is planning to sell its operations in Spain, Brazil and South Africa, in addition to shutting down its branches in London and New York. The news outlet claimed the
Business Daily Friday, December 9 2016 3
Macau Real estate
New supply heats up home market Recent sales of new property projects have registered good performances due to the current supply not yet meeting total demand Cecilia U cecilia.u@macaubusinessdaily.com
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s the MSAR comes out of its over-two-year economic adjustment phase, property developers have recently launched sales of their new projects, with nearly all receiving overwhelming responses. Managing Director of Ricacorp (Macau) Properties Limited, Jane Liu points out that current supply in the housing market has not yet satisfied demand. Over the past weekend, Nova Grand, a new residential development of Hong Kong-listed conglomerate Shun Tak Group, located in central Taipa, opened the first batch of sales of some 400 two-room or three-room units of the 1,700 unit project. The units were sold out in three days. Speaking to Business Daily, the managing director of Ricacorp said the majority of the buyers of the project were local residents. “For our agency, around 70 per cent of the clients are local residents who aim to buy the units for self-use, or parents buying flats for their kids,” said the property agent. “The other 30 per cent are investors, who are mulling long term investment due to the Special Stamp Duty dampening the resale of property within two years.”
She added that many investors are also eyeing to make a profit from the units by leasing them out in the future. Nestor Ng, President of Anzac Group, meanwhile, expressed that it was difficult to determine how many of the buyers of the new project were investors or buying for self-use. “It is hard to know the numbers because we do not know what will happen if investors will resell after the two years’ purchase,” said Mr. Ng. Nova Grand is only one of the latest projects enjoying positive responses from the local property market. In October, another luxury residential project Sky Oasis, located in Cotai, also saw the first batch of 128 units – primarily studios – sold out in two days. According to the Anzac president, Sky Oasis seems to have attracted more investors than Nova Grand. “Sky Oasis would have more investors because not many families would like to live in studios,” Mr. Ng said.
Strong purchasing power
Ms. Liu from Ricacorp explained that the strong purchasing power apparent in the performance of recent offplan sales is due to the prices being set by developers, which, compared to previous years, are still lower. “People think that the current
housing prices are cheaper compared to two or three years ago; they think that now is the best time to buy property units, otherwise the prices will go up again,” said Ms. Liu. The agent’s perspective was echoed by the President of Anzac Group, Mr. Ng who pointed out that the strong sales of the new property projects are the result of accumulated purchasing power from the past few years. One of the managing directors of Huan Yu Property Agency Limited, who preferred to be unnamed, added that buyers see the current prices as attractive. “Compared to the price in previous years, it has dropped more than 35 per cent and buyers think that it is time to buy,” said the managing director of Huan Yu.
Impact on surrounding properties
Nevertheless, the Ricacorp managing director indicated that the second-hand housing market would not be affected by the recent wave of new sales in the market. Taking Nova Grand as example, nearby properties from the same developer – Nova City, Nova Park and Nova Taipa - would not see their prices experience significant drops as their values should stay lower than that of the latest project in the short term, Ms. Liu explained. “People for sure will prefer buying a new flat rather than a second-hand flat,” Ms. Liu told Business Daily. “Moreover the price of Nova Grand is close to the price of second-hand units.” The property agent, however, said she is uncertain how the housing prices of these nearby properties will be after two years, when buyers of Nova Grand start moving in. But she added housing prices would eventually depend upon on the city’s economy. Meanwhile, the Huan Yu director remarked that prices of the surrounding second-hand properties, no matter the location, would increase, due to demand from newlyweds and young people who want to move out from their parents’ homes. “With only some 1,000 news flats provided in the market, I don’t see there will be any drop in the property prices. A decrease in housing prices will only happen when the government intervenes,” the agent said.
Pearl Horizon lesson learnt
Asked why the Pearl Horizon incident has had little effect on the determination of clients buying off-plan properties, the President of Anzac Group said that with the current law on off-plan sales, developers are required to provide information about the development period granted by the government. He noted that more information about projects is being shared by agencies, developers and buyers since the Pearl Horizon incident. Moreover, Ms. Liu indicated that agents in the city have become more careful when promoting the sale of off-plan properties. “We have confirmed with the government that the land allowance for building Nova Grand will expire in 2031, and now we are in 2016 and soon clients will be able to move in within in a few years,” Ms Liu noted.
Outlook for next year
Looking forward, the President of Anzac Group believes the housing market will grow stably. “We know that there are not many new off-plan properties and people are having a high demand,” Mr. Ng said.
A crowd of buyers and property agents waiting outside Nova Grand’s showcase room
Ms. Liu has the same projection given the real estate market is coming out of its two-year slump, in addition to the recent visit of Premier Li Keqiang introducing more plans to diversify the city’s economy. She indicated that new property
projects are going to open sales next year. But she noted the MSAR government should adjust its current property policies in order to boost further the purchasing power of buyers attempting to buy their first property.
4 Business Daily Friday, December 9 2016
Macau Opinion
Pedro Cortés* Player Ratings In football terms, what we have seen in the last few weeks has been a very unexciting performance from almost all the players. The coach started with the same speech as in previous years, without any tactical changes or strokes of genius. The supporters accept him because the administration of the club decided that he would continue coaching the team until the end of his contract. The way he positions his players is just not to lose. A draw is enough and, therefore, attacking is not in the team’s genes or spirit. We have a catennacio type of coach who prefers a 0-0 result rather than to win convincingly. The financial resources he has should have put the club at the next level of development. Unless there is any expected event, he shall continue to coach this way until the contract expires in 2019. His first player was seen as the future coach of the club when he was hired. From a great academy of players, it seems that there is some disappointment among his supporters. The game has not gone well. He appears not to know about the position he should take. Sometimes he seems to back-pedal frantically into the defending areas of the field. But when it comes to taking the team forward, he flounders in a way that makes it seem as if even the most radical supporters from the season ticket stand don’t know whether to whistle or cheer. The second player is from the youth team and has the full support of the administration and of all the fans in the stadium. A true old-school midfielder who gives full assistance to the stoppers, not allowing the strikers to enter the penalty area, even if the rules of the game are sometimes breached. The third player seems to also be entering into the favour of the administration. She played so well in the previous club that the administration gave her a five-year contract without even doing any tests at the training center. One of those players who tries to show up when needed. To watch. The fourth player is the former protégé of the coach. Plays fantastically to the stands and is intelligent at reading the game. The Portuguese supporters like him a lot, which may, after this period of his career, be an obstacle to becoming the coach. Last but not the least, the box-to-box player who was retrieved from his European campaign at the highest level. He thinks first about the team rather than about his next contract. Technically almost perfect, he tries to overcome the difficulties in reading the game of his teammates and the lack of tactical skills of the coach. Unfortunately for the club, he will not stay after his contract expires.
*lawyer and frequent contributor to this newspaper.
Virtual Reality SIGGRAPH Asia 2016 wraps up with 5,200 participants
Event city Organiser of the tech and multimedia conference believes Virtual Reality technology could be developed for tourism products Nelson Moura nelson.moura@macaubusinessdaily.com
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he city’s hotels provide an ideal setting for large-scale conferences and exhibitions, believes the Conference Chair of SIGGRAPH Asia 2016 Macao, Hongbo Fu, despite the fact that the event saw a lower number of attendants from its previous edition in Japan. The 9th edition of the computer graphics and interactive technics conference SIGGRAPH Asia, was held between December 5 and 8 at the Venetian Macao, concluding its final day yesterday with a total of 5,200 attendants. Speaking to Business Daily, Mr. Fu said the organiser had expected the number of participants would be fewer than at the event last year in Kobe, Japan - which attracted around 7,000 people. “An event of this scale generally needs at least US$500,000 (MOP4 million) in investment and the conference committee will decide which city better suits the event by analysing if the financial risk is small or not, and if it can attract many people to come,” he said. The representative of the organiser believes the four-day event could have attracted more participants if there were no requirements for entry visas to the city, given that the
event saw many attendants from the mainland. Nevertheless, the event organiser considered that the city’s tourism facilities were “fantastic”, which was also one of the major factors for the Conference Committee to select the bid made by the Macau Trade and Investment Promotion Institute (IPIM) for Macau to host the event. “In previous years, SIGGRAPH Asia was held in convention and exhibition centres but this is the first time it is hosted in a hotel. It’s impossible to organise it in hotels in other cities because we have thousands of people coming, but not a problem for some hotels in Macau. It’s very convenient for attendees, but of course the rooms are not cheap,” the Conference Chair told Business Daily. Next year’s SIGGRAPH Asia will take place in Bangkok, but Mr. Fu told Business Daily that the conference and exhibition received “positive feedback” from attendees this year, thus whether or not the event would return to Macau in the future would “depend on the local government’s initiative” in placing another bid.
Applications in tourism
The multimedia expert also told Business Daily that the Virtual Reality (VR) technology highlighted in this year’s edition could have interesting applications for the tourism industry in Macau, suggesting it “could be part
of the experience of a theme park” developed in the city. The event organiser, who is also Associate Dean at the School of Creative Media at City University in Hong Kong, believes that “from an academic point of view, VR research is not new” but he pointed out that interest in the technology’s commercial side is increasing as “hardware becomes cheaper and cheaper, while software platforms become more mature”.
Pear River Delta the VR capital
The location of the city was also one of the factors that made the pendulum swing in the direction of Macau as a host for the event, with Mr. Fu stating that the Pearl Delta Region has been contributing a lot to the development of VR, especially Hong Kong and Shenzhen. However, Macau was only represented at the event by the multimedia school iCentre, which showcased some of its own 3D printing and Virtual Reality productions. “There were quite a lot of exhibitors from Shenzhen, the region is good at manufacturing everything and has already become a hub for the hardware manufacturing industry, producing plenty of Virtual Reality hardware such as cameras and headsets. If a company needs a prototype, you can quickly make it there,” Mr. Fu said. When it comes to his hometown of Hong Kong, the Conference Chair added there were “at least four or five universities” from the city who consistently produce pretty interesting research outputs present at the event, but that the costs still made the industry a “difficult” field for small startups “even with government help in equipment discounts and free space”.
SIGGRAPH Asia 2016 symposium in Venetian in 360 virtual tour Aivi Remulla
Business Daily Friday, December 9 2016 5
Macau Disputes
Pearl Horizon developer appeal denied by top court Polytex said in its appeal to top court that the seizure of the land plot could potentially bring about the bankruptcy of the company. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he Court of Final Appeal has ruled against an appeal filed by Pearl Horizon developer Polytex Corporation Limited regarding the land seized by the government after the expiration of the group’s mandatory development period. The court rejected the developer’s appeal against a decision to not overturn a January 26 ruling, which declared the rental concession of Lot P in Areia Preta – the plot designated for the luxury residence project – expired, according to a Portuguese-language verdict published by the court on Wednesday evening. The complaint lodged by the group aimed to reverse the decision made by the Court of Final Appeal, denying the group’s Court of Second Instance appeal, by claiming that the court had not taken into account all of the information when making its decision. The group claimed that the lot in question was its only lot under development at the time of the declaration of expiration, and the results of its seizure could potentially bring about the bankruptcy of the company. However, noting a decision made in the Court of Second Instance, the court stated that ‘this suspension would only stop the applicant from
continuing this project […] but not stop it from continuing with its other activities and other ventures in progress or being planned’. The court further noted that the decision did ‘not imply the stoppage of the group’s construction and development activities on other lands, which have been conceded to the group or to others, in Macau or other places near or far’. The decision comes just days after an announcement by the Pearl Horizon Homeowners Association
Expansion
Studio City to develop remaining ‘third’ of property Studio City is working on improving its non-gaming offerings, as Melco Crown plans to develop the remaining ‘one-third’ of its property, according to GGRAsia. Although the plans are in the ‘early stages,’ according to statements made to the gaming publication, the Land, Public Works and Transport Bureau (DSSOPT) has yet to receive applications for a second tranche of development on the property. Studio City, Melco’s second on the strip and the third and last of its properties to open in the MSAR, was granted 250 new-to-market tables upon opening, yet despite its Hollywood theme and resident magic show, the property has yet to deliver exciting results, with analysts noting
more visitor foot traffic from Studio City to the newly opened Parisian than the reverse. Regarding statements made by the group’s chairman Lawrence Ho, Melco Crown told the publication that, in line with Ho’s previous statements, Melco Crown is ‘in discussion with various government units on how the project can align with its (the government’s) economic diversification strategy and overall development objectives for Macau in the future’. Given that the project is still at the planning stage, the group mentions it cannot disclose further details. Business Daily contacted Melco Crown for further clarification but had not received a formal response by the time this article went to print.
President, Kou Meng Pok, stating that about 300 homeowners of the Pearl Horizon residential project would stop repaying their bank mortgages for the uncompleted units. In November, the top court also turned down another appeal by the developer trying to overturn the government’s decision, which requested the highest court to terminate the effectiveness of a dispatch by Chief Executive Fernando Chui Sai On regarding reclaiming the land plot, on the grounds that the reclamation would create ‘unrecoverable loss’ for the company.
Protest
The Pearl Horizon project was originally designed to comprise 18 towers
with over 5,000 residential units. Over 3,000 of these units had already been sold in off-plan sales before the temporary land concession for the site expired, prompting a string of protests, requests and petitions, at various sites including the lot in question and at the government headquarters. But the parent company of Polytex, Hong Kong-listed developer Polytec Asset Holdings has been claiming that it has ‘strong legal grounds’ to win a lawsuit levelled against the government, which has yet to achieve a ruling, for compensation time to complete the high-end residential project. The grounds for the lawsuit are claims by the company that the delay in developing the property before the end of its 25-year concession agreement was due to delays by the local government in granting requisite approvals and permits for the project’s development.
6 Business Daily Friday, December 9 2016
Macau
Gaming
Paulo Chan says revenue growth may revive in 2017 The DICJ head said the city is back on the path to healthy growth Daniela Wei and Fion Li
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acau’s gaming revenue may grow next year as casinos’ efforts to lure more mass-market gamblers take hold and the city tightens regulations on risky bettors, the industry’s top official said. The imposition of stricter regulations concerning junket operators, money laundering and phone betting this year also are likely to benefit the Chinese territory’s business, said Paulo Chan, director of the Gaming Inspection and Coordination Bureau.
“Gaming revenue is expected to see stable development next year, and hopefully go upward,” Chan said in an interview at his office. “Macau has started to see healthy and sustainable growth.” The Macau government has forecast gambling revenue next year of MOP200 billion (US$25 billion), the same amount projected for this year and 13 per cent below the estimates of five analysts surveyed by Bloomberg. The industry ended a 26-month streak of revenue declines in August. The world’s biggest gambling hub subsequently posted four straight months of revenue gains, ending with
its strongest growth in almost three years in November as more visitors flocked to local resorts of Las Vegas Sands China Ltd and Melco Crown Entertainment Ltd. Gaming receipts declined in 2015 and 2014.
‘Cautious’ Forecast
Chan said the government’s zero-growth projection for next year was “just cautious” because of a slowing Chinese economy, a depreciating yuan and the uncertainties of a new U.S. presidential administration, he said. Donald Trump, who once ran four casinos with his name on them, has been critical of China’s currency and trade policies. Chan became overseer of Macau's gaming industry last year after about two decades in the government
M&A
Coming for a look-see Bahamian authorities come to MSAR and Hong Kong to do due diligence on CTFE’s intended Baha Mar purchase Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Authorities from the Bahamas flew to Macau and Hong Kong to conduct due diligence on Chow Tai Fook Enterprises (CTFE), meeting with the company and coming to look at casino operations in the MSAR, according to an editorial in Bahamian publication Tribune 242. Chow Tai Fook Enterprises is bidding to purchase and operate the Baha Mar integrated resort complex in the Bahamas, which has drawn much criticism from authorities and watchdogs in the islands, alleging that CTFE has links to organised crime, in particular in Macau. “We are going to meet with the potential owners of the property,” the territory’s Tourism Minister Obie Wilchcombe told the publication. “We are going to take a look at their operations, and we are going to take a look at the casino operations also in Macau that they do run now.”
The alleged organised crime links are due to CTFE’s investment in SJM and its links to Stanley Ho, which CTFE has publicly stated is not involved in the group’s intended purchase of the property. The delegation was comprised of four members, including the Tourism Minister, and met with the “groups and individuals they intend to have who will run the business”. According to the editorial however, days before the trip happened, the Prime Minister of the territory, Perry Christie, met with CTFE, coinciding with a presentation the company was giving to two investing Bahamian businessmen and ‘Mr. Christie told them of their intention to open 700 rooms in Baha Mar by March next year,’ notes the publication.
History
The editorial further goes on to state that ‘we hope the Christie government is not going to make it possible for history to repeat itself,’ comparing the
conditions of the current case to that of a ‘narco-dollar period’, a period in the 1980s in which the Commission of Inquiry was appointed to investigate a ‘criminal enterprise’ run by an individual named Carlos Enrique “Joe” Lehder. The commission’s discoveries noted that it was ‘alarmed at the extent to which persons in the public service had been corrupted by money derived from the drug trade,’ the editorial notes. ‘Just as in the days of Joe Lehder, The Tribune is receiving much troubling information […] Prime Minister Christie should not want a wrong decision of this potential magnitude to be his legacy,’ notes the editorial. The Macau Government Tourism Office confirmed to Business Daily that they were unaware of the alleged visit by the authorities from the Bahamas and had not received any contact or information about the visit, or requests to meet with the local tourism authorities. Business Daily contacted Chow Tai Fook Enterprises for comments regarding the alleged visit. In a response, CTFE said that it is still in the process of formulating a response regarding the alleged visit by the authorities however noted that it is ‘dedicated to the successful opening of Baha Mar and will work with the Government to achieve their goal of a phased opening.’
prosecutor’s office. Casino operators are taking a page from Las Vegas by trying to attract more families and casual gamblers instead of relying on high-stakes bettors. That comes after President Xi Jinping told Macau to vary its economy amid China’s efforts to curb corruption by public officials and limit capital outflow. “We will work more on economic diversification,” Chan said. “If we only rely on a small group of VIP patrons, we are at risk when the economy fluctuates.” Wynn Resorts Ltd. opened Wynn Palace, featuring a US$100 million water-fountain show and gondola ride, while visitors to Sands' The Parisian take selfies in front of its half-size replica of the Eiffel Tower. The number of visitors from China increased 6.9 per cent during October’s Golden Week holiday.
Risky Gamblers
“The additions are key to the city’s revenue recovery and long-term growth,” Margaret Huang, an analyst for Bloomberg Intelligence, said in a note published Wednesday. “The new resorts have lured more mainstream business and enticed longer stays.” Chan is also trying to reduce the risks from inside the industry. Junket operators, who organize trips for gamblers from China and often provide loans for betting, must adhere to stricter accounting standards in order to keep their licenses for 2017. Macau will soon publish plans to raise capital requirements for promoters and set up a credit database to weed out risky gamblers, he said. As part of its money-laundering efforts, the city in May the city banned the use of mobile phones at gaming tables to prevent anonymous betting from outside the hub. It will also require inbound travelers to disclose cash holdings of more than MOP120,000 upon entry, according to state-owned broadcaster Teledifusão de Macau. “After gaming revenue slumped for more than 20 months, the industry has learned the importance of healthy development,” Chan said. “We will continue to prescribe in the current direction. It doesn’t seem necessary for a heavier dose of medicine.” Bloomberg
Business Daily Friday, December 9 2016 7
Macau
Macau director Emily Chan’s ‘Our Seventeen’ premieres tonight
Emily Chan’s coming of age comedy ‘Our Seventeen’ has its world premiere tonight, on the second day of the 1st International Film Festival & Awards Macao (IFFAM). ‘Our Seventeen’ will be screened in the festival’s ‘Hidden Dragons’ strand. International film festival directors attending IFFAM Directors from Toronto, Rotterdam, Busan and Far East International Film Festivals are in Macau for the six-day 1st International Film Festival & Awards Macao (IFFAM). Masterclass with 2016 Academy Award for Best Picture, Tom McCarthy Oscar-winner Tom McCarthy will lead a master class on Sunday at Wynn Macau. The director of ‘Spotlight’ - the 2016 Oscar Winner for Best Picture - is also scheduled to attend the Closing Ceremony and Announcement of Award Winners on 13th December.
8 Business Daily Friday, December 9 2016
Greater China
‘Hidden Dragons’ section
Red carpet premiere for Macau director Emily Chan’s ‘Our Seventeen’ Emily Chan’s coming of age comedy ‘Our Seventeen’ is to have a red carpet premiere tonight at Macau Tower. ‘Our Seventeen’ will be screened in the festival’s out of competition ‘Hidden Dragons’ strand.
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acau screenwriter and director Emily Chan’s second feature film ‘Our Seventeen’ will get its world premiere on the second day of the 1st International Film Festival & Awards Macao (IFFAM). ‘Our Seventeen’ will be screened in the festival’s ‘Hidden Dragons’ strand, focused on the latest trends in contemporary Asian genre cinema. Macau director Emily Chan, 28 years old, reflects on the changes of her city since its handover in 1999 through a story about youth, music and first love. The story revolves around a relentless and passionate pursuit of music by teenagers and their constant exploration of self-values. ‘Our Seventeen’ starts with Winson (Macau singer Sean Pang) adjusting to a new school, at a time shortly before Macau’s handover in 1999, and stars local actor and singer Sean Pang and two Macau female talents, Mary Ma
and veteran Kate Leong, who plays a newly recruited school teacher. The Hong Kong cast includes actress and model Angela Yuen, the Hong Kong band C-all Star member
King Wu, and Kyle Li, also a Hong Kong new-generation actor. The film soundtrack was created by the Macau rock band Blademark led by local musician and artist Fortes
Pakeong Sequeira. ‘Our Seventeen’ is a low budget production – estimated at MOP3 million - sponsored exclusively by private Macau and Beijing investors. Director Emily Chan’s first feature film ‘Timing’ (2013) was also a Macau-Beijing co-production, made with self-raised funds. It was the first film from Macau to recover its total costs at the box office. C.A.
Masterclass
Oscar-winner Tom McCarthy unveils the art of storytelling Masterclass with renowned Hollywood filmmakers Tom McCarthy and Gianni Nunnari. Academy-award winning director Tom McCarthy and Hollywood producer Gianni Nunnari will deliver two master classes on 10th and 11th December, at Wynn Macau. On 11th December, Tom McCarthy will address the theme ‘The art of storytelling using the perspective of the first person to perform political topics’. During this session, McCarthy will disclose how he tells stories to describe the current circumstances of society based on personal and real
life experiences. Hollywood producer Gianni Nunnari will lead a master class on 10th December, focused on ‘Producing in Hollywood – Big Budget Blockbusters, Independent Genre Films and What Hollywood and Asia Can Learn from Each Other’. Both sessions will take place at Wynn Macau, between 3:00pm and 5:00pm. The Tom McCarthy-directed drama ‘Spotlight’ won the 2016 Oscar for Best Picture at the 88th Academy Awards. The movie was also awarded the Oscar for Original Screenplay by Josh Singer and Tom McCarthy. ‘Spotlight’ is about
the Boston Globe’s Pulitzer Prize-winning investigative team’s exposé of rampant sexual abuse of children by Catholic priests and the subsequent cover-ups. C.A.
Business Daily Friday, December 9 2016 9
Greater China
Overview of worldwide film festivals
International movie directors descending on Macau film fest With movie directors arriving from Toronto, Rotterdam, Busan and throughout Asia and beyond for the six-day 1st International Film Festival & Awards Macao (IFFAM), Business Daily provides a glimpse of the most influential and powerful film festivals worldwide. Cláudia Aranda
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ilm festivals play a major role in introducing films to world audiences. The Venice International Film Festival, in Italy; Cannes, in France; and Berlin or the Berlinale, in Germany, are the most prominent among them - the latter being the largest film festival worldwide, based on attendance. Sundance Film Festival, in the US, and Toronto International Film Festival, in Canada, have also assumed much influence, with these events establishing new trends and themes for what audiences can expect to see in the cinemas. Toronto has even produced Oscar nominees and Academy Award winners (see box). The Venice International Film Fest is the oldest major festival (since 1932), while the Cannes Festival originated in 1932, only establishing itself as a regular event in 1946. Meanwhile, the Melbourne International Film Festival is the largest film festival in the Southern Hemisphere. The Sundance Film Festival, founded in 1978, in the United States, registered 46,660 attendees (far fewer than the Berlin or Busan International Film Festivals) for this year’s 10-day event in Park City, Utah, in January. Despite the lower attendance, it is considered the most important independent film festival in the United States because it ‘sets the tone for what to expect over the next 12 months of cinema, not just in terms of great films on the horizon, but also the trends and themes that keep popping up,’ film critics say.
Asia’s ‘Big Four’
Busan (see box), Tokyo, Shanghai and Hong Kong are considered the most significant international film festivals in Asia. Busan International Film Festival (BIFF), founded in 1996 in South Korea, and Tokyo International Film Festival (TIFF), established in 1985, in Japan, along with the Shanghai International Film Festival (SIFF), launched in 1993, in Mainland China, are recognised for screening the latest trends in international contemporary cinema for local audiences, as well as their national Korean, Japanese and Chinese productions, while Hong
Calling Berlin
The Berlin International Film Festival - widely known as the Berlinale remains one of the world’s leading film festivals and most reputable media events. It is also renowned as one of the world´s ‘Big Three’ film festivals, along with Venice and Cannes. Founded in West Berlin in
In Macau for the IFFAM: Artistic director Cameron Bailey, of the Toronto International Film Festival, in Canada (IN THE PHOTO); Director Sabrina Baracetti, of the Far East Film Festival, in Udine, Italy; Director Bero Beyer, of the Rotterdam International Film Festival, in the Netherlands; and Busan International Film Festival Director and Chairman, Kang Soo Youn, and Kim Dong Ho, they are all in Macau to attend the 1st International Film Festival & Awards Macao (IFFAM).
Kong International Film Festival has gained a reputation for being the first world showcase for Asian cinema. Founded in 1976, the Hong Kong International Film Festival (HKIFF) is Asia’s oldest international film festival and a pioneer in introducing Hong Kong, Chinese language and Asian cinema and
filmmakers to the world. This year’s 40th Hong Kong International Film Festival (HKIFF40) received 3,183 film submissions, with 248 films from 66 countries/regions shown in 11 major cultural venues in Hong Kong; some 63 of the films were world, international or Asian premieres.
1951, the festival has been celebrated annually in February since 1978. With around 300,000 tickets sold and 500,000 admissions, it is considered the largest publicly attended film festival in the world based on actual attendance. Over 400 films are shown in several sections, representing
a comprehensive array of the cinematic world. Since 2001 the director of the festival has been Dieter Kosslick. The European Film Market (EFM), a film trade fair held in tandem with the Berlinale, is a major industry meeting point on the international film circuit.
The film fest claims to be Hong Kong’s largest cultural event, reaching an audience of over 600,000, including 7,000 business executives who attend the Hong Kong International Film & Television Market (FILMART), a concurrent event of the HKIFF. The festival has an impressive track record of presenting new Asian films and Hong Kong New Wave filmmakers like Ann Hui, Tsui Hark and Allen Fong, and Philippines masters Lino Brocka and Mike de Leon in the late 1970s, through to the Chinese new waves of Taiwan filmmakers Hou Hsiao-hsien and Edward Yang, and Fifth Generation of Chen Kaige and Zhang Yimou in the 1980s, to contemporary game changers, like Apitchatpong Weerathasakul.
10 Business Daily Friday, December 9 2016
Greater China
Overview of film festivals worldwide
Influential Toronto film festivals
Sabrina Baracetti
FEFF: Looking East
Sabrina Baracetti is the Director of the Far East Film Festival (FEFF), in Udine, Italy, launched in 1999 to screen International and European premieres of Asian movies. While European festivals very much target Western audiences and tend to focus programming on genre and auteur films that are specifically created for festivals, FEFF – The Film Festival for Popular Asian Cinema, “shows what people in Asia actually choose to watch in local film
Rotterdam, one of the largest industry-driven film festivals
Only seventeen people attended the opening night of the first International Film Festival Rotterdam (IFFR) on 28th June 1972. IFFR, however, grew to become one of the largest audience and industry-driven film festivals in the world, while maintaining its focus on innovative filmmaking by talented newcomers and established auteurs, as well as in presenting cutting edge media art. The festival actively supports new filmmaking talent through its co-production market CineMart, Hubert Bals Fund, Rotterdam Lab
Bero Beyer
theatres, including mainstream films that have been successful hits” the FEFF director explained in an online interview. FEFF is the largest festival in Europe dedicated to Popular Asian Cinema. FEFF 2016 attracted 60,000 viewers from over 20 countries and regions and screened movies from Hong Kong, Mainland China, Japan, South Korea, Thailand, Malaysia and the Philippines. Sabrina Baracetti is scheduled to attend the 1st International Film Festival & Awards Macao (IFFAM)
and other Industry activities. During twelve festival days, hundreds of filmmakers and other artists present their work to a large audience in Rotterdam, Netherlands. In 2016, in its 45th edition, IFFR registered 305,000 admissions and 2,538 film professionals. The festival’s Official Selection includes some 252 feature films and 225 short films from 50 countries. Award-winning independent producer Bero Beyer is the festival’s general and artistic director and is scheduled to attend the 1st International Film Festival & Awards Macao (IFFAM).
Starting out in 1976 as a collection of films from other festivals, the Canadian Toronto International Film Festival (TIFF) - the ‘Festival of Festivals’ - is regarded as an ideal platform for filmmakers to launch their careers and to premiere their new work. TIFF is one of the largest publicly attended film festivals in the world. In 2015, 397 films from 71 countries were screened, welcoming an estimated 480,000 attendees, over 5,000 of whom were industry professionals. In 2007, U.S. magazine TIME noted that TIFF had grown to become ‘the most influential film festival’, partially
because of TIFF’s ability and reputation for generating ‘Oscar buzz’ and speculation about Oscar winners, having produced Academy Awards contestants and winners. The TIFF’s Grolsch People’s Choice Award, based on popular vote by festival filmgoers, has emerged as a measure of Academy Awards season success. Past recipients of this audience prize include ‘Room’; ‘The Imitation Game’; ‘12 Years a Slave’; ‘The King’s Speech’ and ‘Slumdog Millionaire’. Piers Handling has been the TIFF’s director and CEO since 1994. Artistic director Cameron Bailey is scheduled to attend the 1st International Film Festival & Awards Macao (IFFAM).
Busan, Asia’s biggest film festival
The Busan International Film Festival (BIFF), launched in 1996 in Busan, South Korea, is Asia’s biggest film festival focused on introducing new films and firsttime directors, especially those from Asian countries. The Asian Film Market, established in 1999, remains an important platform for connecting new directors to funding sources. BIFF has for the past two years been mired in controversy with the Busan Metropolitan Government, which funds about half of the festival’s annual budget. The impasse began after the city council ordered organisers to cancel the 2014 screening of the Sewol ferry disaster documentary, but former festival executive director Lee Yong-kwan went ahead anyway. Titled ‘The Truth Shall Not Sink with the Sewol’, it criticised failed rescue measures during the tragedy, which led to the deaths of more than 300 people. In 2015 and 2016 the festival was forced to run a slightly downsized event because of the tighter budget, following a drastic cut in state funding, claimed to be ‘political retaliation’. New executive festival director and iconic Korean actress Kang Soo-yeon admitted the two-
Busan Honorary BIFF director Kim Dong-Ho
year struggle between festival organisers and city authorities ended up costing the festival in terms of lost sponsorship, lower star power and audience participation. In its 21st edition, Busan registered 165,149 admissions (versus 227,377 in 2015) and showed 299 films from 69 countries (302 films from 75 countries in 2015). Director and Chairman Kang Soo Youn, and Kim Dong Ho, are scheduled to attend the 1st International Film Festival & Awards Macao (IFFAM).
Business Daily Friday, December 9 2016 11
Greater China HK markets
Shareholders lose 99 per cent as Hong Kong rights offerings go wrong Critics of the city’s regulations say unsophisticated investors are vulnerable to firms who use repeated issuance to keep loss-making businesses afloat Fox Hu, Crystal Tse and Benjamin Robertson
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o one can fault the managers of Eminence Enterprise Ltd. for lacking chutzpah. After saddling investors with a 99.99 percent loss over the past five years, the Hong Kong-listed property firm is asking shareholders to plough fresh capital into the business for the eighth time in five years. Eminence plans to raise at least HK$478.2 million (US$61.7 million) in a rights offering next month, twice as much as its current market value. It’s a scenario that often ends badly for Hong Kong investors, who stumped up more than US$16 billion for rights offerings by the city’s smaller companies over the past five years, only to watch the median stock drop 36 percent in a rising market. Now, as China gives its citizens greater access to Hong Kong small-caps through a new cross-border exchange link, the city’s repeat rights issuers are coming under increased scrutiny. Chinese authorities have warned investors to be wary of such companies, even as offerings like the one proposed by Eminence remain legal in the former British colony. Beijing’s concerns highlight the potential for friction as the exchange link blurs the lines between a high-touch regulatory regime in China and the more laissez faire system in Hong Kong. “Individual investors from the mainland get burned when they blindly apply their small-cap knowledge to Hong Kong stocks,” said Dai Ming, a money manager at Hengsheng Asset Management Co. in Shanghai. “The mainland regulator sees small investors as the market foundation and offers them meticulous parenting. As Hong Kong seeks to boost trading by luring mainland investors, it must step up protection.” Rights issues, in which a company offers new shares to existing stockholders, are used by firms around the world to raise capital for any number of reasons, including paying off debt and funding expansion. While Hong Kong requires companies to disclose details of planned and completed offerings, critics of the city’s regulations say unsophisticated investors are vulnerable to firms who use repeated issuance to keep loss-making businesses afloat. Eminence’s proposed rights offering is subject to approval from independent shareholders, according to an exchange filing last month. The
company, which also has a money-lending business, plans to use the funds for property investments and working capital, saying most of its HK$376 million of cash and cash equivalents at the end of October has been earmarked for other purposes. The firm has no comment, according to Betty So, who identified herself as assistant company secretary for Easyknit Group, to whom calls to Eminence were transferred. The two businesses have offices and some top managers in common, and Easyknit, also a property firm, is listed as a substantial shareholder of Eminence in the latter’s latest annual report. Eminence recorded net losses in seven of the past 10 years, including a loss of HK$69.3 million in the fiscal year ended March that the company attributed to declines in the fair value of investment properties in Hong Kong, exchange filings and data compiled by Bloomberg show. Shares have tumbled more than 80 percent in each of the past four years, a period when the Hang Seng Index rose 19 percent. Eminence is hardly unique. More than 290 companies in Hong Kong with market values below US$1 billion have conducted rights offerings since December 2011, raising about six times more than their counterparts in China. The Hong Kong firms reported net losses totalling more than US$5 billion during the period, versus a combined profit of about US$2.5 billion for rights issuers in China, data compiled by Bloomberg show.
Faced with a rights issue, individual investors can buy more stock, betting the new funds will spur growth; hold tight and watch their shareholding get diluted; unload their stake; or, in some cases, sell the rights to other investors. Sun Xiongjin, a 39-year-old resident of Wuhan in central China, decided to hold tight two years ago after China Environmental Energy Investment Ltd. - a Hong Kong-listed firm whose ventures have included recycling, Internet services and diamond trading - announced a rights issue at an 82 percent discount to the stock’s market price, the company’s second offering since 2011. Sun’s HK$220,000 investment lost 90 percent of its value after the deeply discounted rights offer, while shareholders who subscribed to the rights lost more than 80 percent over two years. China Environmental reported net losses totalling about HK$1.6 billion in the three years through March, which it attributed to factors including goodwill impairments on its Internet and recycling businesses.
Shenzhen warning
“I felt terrible,” Sun said in a phone interview. “I learned a lesson and now always check a company’s history of rights.” China Environmental didn’t respond to questions from Bloomberg News delivered to the company’s Hong Kong office. The firm’s website lists no phone number or e-mail address. China’s regulations on rights issues are stricter in some respects than those in Hong Kong. Chinese offerings require approval from the nation’s securities regulator and two-thirds of the votes in shareholder meetings, while Hong Kong rights issues don’t need stockholders to sign off if new
shares amount to less than 50 percent of the firm’s existing equity. Shenzhen’s exchange is adding warnings about Hong Kong rights issues to a risk-disclosure statement for traders who use the new link. The offerings have also been highlighted by state-run Chinese media as a potential danger for investors.
‘Cowboy exchange’
For those who do their homework, Hong Kong offers all the information needed to avoid companies with a history of rights offerings that end poorly for shareholders. “I can be angry about it, but that’s the marketplace here,” said John White, a Hong Kong-based managing director at Heitman LLC, a global real estate investment firm whose holdings include publicly-traded property shares. The city operates a disclosure-based regulatory regime instead of trying to weed out bad actors ahead of time, Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., wrote in a blog post in September. The bourse’s rules offer protections for small investors, including the need for independent stockholder approval on large rights offerings, an exchange spokeswoman said in response to questions from Bloomberg News. Hong Kong’s Securities & Futures Commission didn’t reply to requests for comment. For David Webb, a shareholder activist and former board member of Hong Kong’s exchange, the city needs to do more to protect its reputation as a major financial hub. “We are starting to look like the cowboy exchange to China, while they are starting to look like the grown-up and a better regulated market,” Webb said. Bloomberg News
Trademark battle
China’s top court rules in Michael Jordan’s favour in trademark case Adam Jourdan
China’s highest court has ruled in favour of former basketball star Michael Jordan in a long-running trademark case relating to a local sportswear firm using the Chinese version of his name, overturning earlier rulings against the athlete. The ruling is a rare bit of good news for a foreign brand in China, where companies, including iPhone maker Apple Inc and shoe brand New Balance, have often come out on the losing side in trademark disputes. The former Chicago Bulls player sued Qiaodan Sports in 2012, saying the company located in southern
Fujian province had built its business around his Chinese name and famous jersey number “23” without his permission. In 2015 a court ruled in favour of Qiaodan Sports over the trademark dispute, a ruling which was then upheld by the Beijing Municipal High People’s Court. After that ruling Jordan’s legal team said they would take the case to China’s top court. The Chinese characters for Jordan’s name read as “Qiaodan” in basketball-mad China, which also has a homegrown superstar in former Houston Rockets player Yao Ming. On Thursday, China’s Supreme People’s Court overturned earlier
rulings in favour of Qiaodan Sports using the characters for Jordan’s Chinese name, although it upheld a ruling allowing the firm to use the Romanized version “Qiaodan”. It added the Chinese firm’s actions had displayed “malicious intent” by registering trademarks for Jordan’s Chinese name. “I am happy that the Supreme People’s Court has recognised the right to protect my name through its ruling in the trademark cases,” Jordan said in a statement sent to Reuters. “Chinese consumers deserve to know that Qiaodan Sports and its products have no connection to me.” The Chinese firm said in a statement
on its verified microblog that it respected the court’s judgement and would, according to law, carry out proper protection on the firm’s products and their intellectual property rights. Reuters could not immediately reach the company for further comment. Jordan, who has a net worth of US$1.24 billion according to Forbes, is the majority owner of the Charlotte Hornets basketball team and has a lucrative endorsement contract with Nike Inc, which makes Air Jordan shoes. A separate naming rights case is still to be heard. Reuters
12 Business Daily Friday, December 9 2016
Greater China Exports & Imports
China Nov trade rise unexpectedly, commodity purchases soar
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hina’s imports grew at the fastest pace in more than two years in November, fueled by its strong thirst for commodities from coal to iron ore, while exports also unexpectedly rose, reflecting a pick-up in both domestic and global demand. Imports expanded 6.7 per cent from a year earlier, easily eclipsing economists’ expectations for a drop of 1.3 per cent and its strongest gain since September 2014, official data showed on Thursday. Exports rose 0.1 per cent from a year earlier, defying predictions for a 5 percent slide. That left the country with a trade surplus of US$44.61 billion for the month, the General Administration of Customs said, versus forecasts of US$46.30 billion and October’s US$49.06 billion. “The improvement reflects a strengthening in global demand, with recent business surveys suggesting that developed economies are on track to end the year on a strong note,” Julian EvansPritchard, China economist of Singapore-based Capital Economics, said in a note. Analysts polled by Reuters had expected a slightly more modest drop in November exports after a 7.3 per cent contraction in October, while imports had been seen falling at roughly the same pace.
But China’s imports of major commodities including iron ore, crude oil, coal, soybeans and copper all surged by volume in November, despite a sharp weakening in its yuan currency. China imported 91.98 million tonnes of iron ore in November, up 13.8 per cent from the previous month and the third highest monthly tally on record. It also imported its largest volume of coal in 18 months, as utilities replenished stocks to cope with higher winter demand. Copper imports surged 31 per cent as traders stockpiled more metal amid robust construction demand. “The rise in copper imports reflected in part a rise in
Shanghai Futures Exchange inventories and stronger demand from the Chinese power and construction sectors,” said Vivek Dhar, a commodities analyst with Commonwealth Bank in Melbourne. “The debate dividing the market is whether this growth can be sustained into next year, or will things flatten out. This isn’t necessarily clear just yet.”
Performance still weak for 2016
Despite the upbeat November readings, the world’s largest trading nation still looked set for another downbeat year. Exports in the first 11 months of the year fell 7.5 per cent from the same period a
year earlier, while imports dropped 6.2 per cent. Weak exports have dragged on economic growth as global demand remains stubbornly sluggish, forcing policymakers to rely on higher government spending and record bank lending to boost activity, at the risk of adding to a mountain of debt. Recent data had suggested the world’s second-largest economy was steadying as the government rushed to launch new infrastructure projects and the housing market boomed, fueling demand for building materials from steel bars to cement. The official Purchasing Managers’ Index (PMI) showed factory activity expanded at its strongest
pace in more than two years, though a private survey pointed to more modest growth. But analysts have warned that a property boom which has generated a significant share of the growth may be peaking, dampening demand for raw materials China could also be heavily exposed to protectionist measures next year if U.S. President-elect Donald Trump follows through on campaign pledges to brand it a currency manipulator and impose heavy tariffs on imports of Chinese goods. However, Chinese Customs sai d o n Th u rs da y that pressure on exports is likely to ease at the beginning of 2017. Reuters
Currency
China’s yuan weakens on dollar demand after Nov drop in reserves The People’s Bank of China set the midpoint rate at 6.8731 per dollar prior to market open yesterday China’s yuan weakened against the dollar on Thursday morning, weighed down by companies’ demand for the U.S. currency, traders said. The People’s Bank of China set the midpoint rate at 6.8731 per dollar prior to market open, firmer than the previous fix of 6.8808. The spot market opened at 6.8796 per dollar and was changing hands at 6.8790 at midday, 70 pips weaker than the previous late session close and 0.09 per cent softer than the midpoint. Traders said corporate dollar demand was strong on Thursday, the day after China announced that November foreign exchange reserves fell more than expected, to the lowest level in nearly six years. Thursday’s demand for dollars forced major state-owned banks to continue offering dollar liquidity in the onshore market. “But they have changed their strategy to save bullets. They now sell more dollars when approaching the daytime close,” said a Shanghai-based trader at a Chinese bank. China takes the official market closing price at 4:30 p.m. the previous day into consideration when fixing the mid-point rate, part of efforts to let market forces play a bigger role
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in determining the yuan’s value. The market also has an evening session lasting until 11:30 p.m. The trader added there was little chance the central bank would relax its efforts to stabilise the spot yuan rate and ease expectations of yuan depreciation before the year’s end. ING Asia economist Tim Condon, in a note on Thursday, said that following the People’s Bank of China’s recent tightening of exchange controls “We think a second response will be a shift in the PBOC’s yuan fixing policy to give greater weight to stabilising spot yuan and less to stabilising the yuan against a basket (of currencies of its major trading partners).” Wang Tao, chief China economist at UBS, also wrote on Thursday that he expects there to be more capital outflow controls. “Controls can and will likely be tightened further including higher reserve requirement on forward transactions and stricter document verification of FX transactions,” he wrote. The global dollar index fell to 99.989 from the previous close of 100.23. The offshore yuan was trading 0.16 per cent weaker than the onshore spot
at 6.89 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations
of the yuan’s value, traded at 7.108, or 3.30 per cent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. Reuters
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 Friday, December 9 2016 13
Asia Politics
Fate of Korea’s Park to be decided today in impeachment vote The motion was endorsed by 171 South Korean legislative members Kanga Kong
S
outh Korean legislators introduced a motion to impeach President Park Geun-hye over influence-peddling allegations, completing the last procedural step toward deciding her fate in a vote today. The 40-page measure accusing Park of bribery, abuse of power and violating her constitutional duties was brought before the National Assembly at 2:45 p.m. yesterday afternoon. Parliament had at least 24 hours to review the motion before it goes to a vote. Earlier, the two main opposition parties had collected resignation letters from their members, and vowed to offer them en masse if the impeachment attempt failed. The move was aimed at pressuring members
of the ruling Saenuri Party to follow suit, People’s Party spokesman Son Kum-ju said. Democratic Party of Korea leader Choo Mi-ae said in a tweet that signers of the letter would “offer to resign to take political responsibility after failing to uphold the people’s will to impeach” the president. The motion was endorsed by 171 lawmakers, just 29 shy of the number of votes necessary to clear the parliament. A faction of Park’s ruling Saenuri Party has pledged to join the opposition, which would give it just enough support to pass.
“Ready” for the result
Saenuri’s floor leader Chung Jin-suk said after meeting Park on Tuesday that the president was “ready” to accept the result. If 200 or more lawmakers vote in favor, Park would be
suspended from power while the constitutional court takes as long as 180 days to review the move. If the court agrees, a presidential election would be held in 60 days, with the prime minister serving as interim leader. The impeachment motion follows weeks of growing outrage in South Korea over allegations that Park’s longtime friend, Choi Soon-sil, used their relationship to secure tens of millions of dollars of donations from some of the country’s biggest corporations. The case - and what it has revealed about relations between the country’s ruling elite - has stirred popular anger over corruption and a lack of jobs. Repeated denials and apologies from Park - as well a last-ditch offer to step down in April - failed to keep hundreds of thousands of protesters from gathering outside the presidential compound in Seoul. Amid the drumbeat of media exposes, demonstrations and legislative hearings, enough members of the ruling party
defected to raise the threat of impeachment. Her approval rate has sunk into the single digits.
‘Losing Confidence’
“By losing public confidence, Park can’t run the government and seek public agreement and support for major policies,” the impeachment motion said. It accuses Park of letting Choi - and her family and associates - meddle in state affairs “extensively and seriously,” even though they held no government positions. Park, South Korea’s first female president, was elected to a single, fiveyear term in 2012. She is the daughter of military dictator Park Chung Hee, whose policies are credited with spawning the country’s postwar economic miracle and who was murdered by his intelligence chief in 1979.
‘Common Sense’
Should lawmakers approve the motion, the National Assembly speaker is required to send it to the constitutional court “immediately,” according to South Korean law. Shin Pyung, a constitutional expert at Kyungpook National University, said he was confident the court’s ruling would be in line with public sentiment. “The key message in the motion is that Park doesn’t have a good understanding of the spirit of the constitution,” he said. Given the significance of the issue, the court is likely to be move fast, possibly ruling before the end of January, Shin said, adding that the court isn’t likely to wait for the outcome of an ongoing investigation by a special prosecutor. The court’s head justice is leaving office at the end of January and another justice’s term is up in midMarch, possibly leaving only seven in office should the ruling be delayed beyond March. The motion needs at least six affirmative votes to be cleared. Bloomberg
Economy
Japan Q3 growth slashed as capex, inventories shrink The country’s economy grew at a 1.3 per cent annualised rate between July and September Stanley White
Japan’s economy grew much slower than initially estimated in the third quarter, revised data showed, as capital expenditure dried up and companies ran down inventories renewing concerns about Japan’s growth prospects. The Cabinet Office said on Thursday the economy grew at a 1.3 per cent annualised rate in July-September, a severe revision from the 2.2 per cent annualised growth first estimated and barely over half the median estimate for a 2.4 per cent annualised expansion. Capital expenditure fell 0.4 per cent in the quarter, versus the preliminary estimate of 0.0 per cent, as steel and real estate companies reduced investment. On the positive side, consumer spending was revised up and separate data showed services sector sentiment improved. However, weak capital expenditure may temper optimism that the economy could accelerate heading into next year. “Capex and consumer spending are the twin engines of domestic demand, and I’m not convinced that both will recover strongly,” said Norio Miyagawa, senior economist at Mizuho
Securities. “We have government stimulus and a weak yen, so the economy will continue to grow, but growth will be modest.” Inventories subtracted 0.3 percentage point from growth, more than a preliminary reading of a 0.1 percentage point contraction, which showed that a recent buildup in inventories was slowing, and a positive sign that companies were able to sell excess goods, Miyagawa said. Net exports added 0.3 percentage point to growth in July-September, less than a 0.5 percentage point
contribution in the previous quarter. However, economists were optimistic that exports would pick up in the future as the yen had fallen to an eight-month low after Donald Trump was elected U.S. president. Japan’s government has also approved a stimulus package with 7.5 trillion yen of spending on public works, which should marginally support growth next year, economists say. Private consumption, which accounts for roughly 60 per cent of the economy, rose 0.3 per cent, versus the preliminary estimate of 0.1 per cent growth, as households spent more on food and beverages, TV sets and domestic travel. The government adopted a new
base year for calculating gross domestic product, which lifted nominal GDP closer to the Prime Minister Shinzo Abe’s target level. The new calculation method, which will include research and development as capital expenditure for the first time to conform with international standards, has been applied to GDP data going back to 1994. Because of this change, business investment was 17 per cent higher last quarter than previous data had suggested, according to Marcel Thieliant, senior Japan economist at Capital Economics in Singapore. Cabinet Office data showed the new calculation method added 19.2 trillion yen to capital expenditure in fiscal 2015, versus an 18.5 trillion yen contribution in the previous fiscal year. “The changes have made the capital expenditure data more accurate,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “This won’t change the overall pace of growth. I expect capital expenditure to bottom out in the current quarter.” An index of sentiment among socalled “economy-watcher” service-sector workers, such as taxi drivers and restaurant staff, rose to 53.5 in November, the highest since March 2014, as a stock market rally and a falling yen made employees more optimistic. Reuters
14 Business Daily Friday, December 9 2016
International In Brief Portugal
‘Golden Visa’ investment down 19 pct in Nov Foreign direct investment attracted to Portugal through the government’s ‘golden visa’ scheme of fast-track residence for major investors from outside the European Union was down 18.7 per cent in November from October, at just short of 47.6 million euros, according to figures released by the Foreigners and Borders Service (SEF). In October the total inflow through the Authorisations of Residence for Investment activity (ARI) - as the scheme is officially called was 58.6 million euros, up 0.2 per cent on September. Of the November total, the vast bulk was in property acquisitions, at 44.0 million euros, but that was down more than 9 million euros from October. In November 78 ‘golden visas’ were issued, of which 74 were for property purchases - the qualifying threshold for these being 500,000 euros. Lusa Mozambique
Draft 2017 budget sees deficit of 10.7 pct of GDP Mozambique’s government on Wednesday submitted to parliament a draft state budget for 2017 that foresees spending of some 272 billion meticals (3.5 billion euros) and a deficit equivalent to 10.7 per cent of gross domestic product. The document, which was presented by the minister of economy and finance, Adriano Maleiane, has borrowing from foreign lenders covering most of the deficit, with such loans accounting for 6.3 per cent of GDP, followed by domestic borrowing, at 2.6 per cent, and foreign aid, at 1.7 per cent. “The budget framework for 2017 shows growth in availability of financial resources through the increase in collection of state receipts, from 68 per cent to 68.4 per cent, in proportion with total resources,” it states. The budget estimates economic growth of 5.5 per cent next year, against a projected 3.9 per cent this year. Inflation is seen at 15.5 per cent, down from 18 per cent this year. Lusa USA
Majority of Americans say no need for Trump to sell businesses A new Bloomberg poll shows a majority of Americans think it is not necessary to force U.S. president-elect Donald Trump to sell his businesses in order to avoid conflicts of interest. The poll released Wednesday shows 69 per cent of the respondents believe it goes too far to force the New York real estate billionaire to sell all his businesses so that neither he nor his family could potentially profit from actions he takes as president. The poll also found that 51 per cent of those surveyed are very or mostly confident Trump will put the nation’s best interests ahead of his family’s finances when he deals with foreign leaders. Xinhua
Acquisition
Glencore, Qatar buy US$11 bln stake in Russian state Oil Giant The deal comes surprisingly despite U.S. and European Union sanctions against Russia Elena Mazneva and Ilya Arkhipov
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ommodity trader Glencore Plc and Qatar’s sovereign wealth fund agreed to buy a 10.2-billion euro (US$11 billion) stake in Russia’s largest oil producer from the state in a triumph for President Vladimir Putin over sanctions imposed by the West. The surprise deal gives the buyers a 19.5 per cent stake in Rosneft PJSC, which the U.S. and European Union have targeted with punitive measures, and is the biggest foreign investment in Russia since the crisis in Ukraine. It also marks a stunning return to deal-making for Glencore Chief Executive Officer Ivan Glasenberg a little more than a year after his company was forced to raise cash from shareholders. Glencore said in a statement Wednesday it would commit 300 million euros in equity, with the rest coming from the Qatar Investment Authority - itself Glencore’s largest shareholder - and bank financing. Glencore said the deal was still in “final-stage negotiations” and would likely close in mid-December. The QIA declined to comment. Putin, who announced the deal on television with Rosneft Chief Executive Officer Igor Sechin, put the total deal value at 10.5 billion euros. It wasn’t immediately clear why the figures differ.
‘Santa Claus’
possible with the minimum discount,” Sechin said. “One of the largest European banks” will provide financing, he added, without specifying which one. Intesa Sanpaolo SpA agreed to provide financing for Glencore, according to two people familiar with the deal who declined to be identified because they were not authorized to speak on the matter. Intesa, which worked for the Russian government as its consultant on the Rosneft privatization sale, declined to comment, as did Rosneft. A Glencore spokesman couldn’t immediately be reached. Russia is selling assets to raise money after the collapse in oil prices sapped government revenue. Putin had said in October that, in the absence of buyers willing to pay an acceptable price, Rosneft might buy back its own shares and sell them on later.
‘Major Win’
“This is also a major win for Rosneft that avoids going through a ridiculous self-privatization exercise,” Luis Saenz, head of equity sales and trading at BCS Financial Group in London, said in a note. “Most importantly, a massive positive for Russia that’s moving closer to breaking the sanction/isolation regime.” Rosneft shares jumped 6.2 per cent to a record 378.15 rubles as of 12:04 p.m. Moscow time. Contracts on the company fell 5 basis points on Thursday to 304 basis points, the lowest in
more than a month, the data show. A decrease signals improvement in perceptions of credit quality. Glencore shares added 0.5 percent to 298.20 pence. Credit-default swaps insuring Glencore’s debt against losses for five years were little changed at 170 basis points, near the lowest since July 2015, according to data compiled by CMA. The deal marks the third big acquisition for Glasenberg after he led the takeover of mining company Xstrata and grain merchant Viterra. Glasenberg has transformed Glencore, which he floated only five years ago, into a commodities trader with a huge mining footprint and, now, a large oil production base. Glencore is a longtime investor in Russia, with a blocking stake in mid-sized oil producer in RussNeft PJSC, as well as substantial agricultural holdings and shares in aluminum giant United Co. Rusal. It also participated, along with Vitol SA, in a $10 billion prepayment deal with Rosneft for crude supplies in 2013. But in a sign of the political sensitivity of dealing with Rosneft, which is subject to financial and technical sanctions, Glencore said it would be “fully ring-fenced” from exposure to the Russian state company, outside of a 0.54 percent “indirect equity interest.” The bank financing in the deal will not include recourse to its balance sheet, Glencore said. The agreement also includes a new five-year supply deal with Rosneft for 220,000 barrels a day of crude, a boost for Glencore, which last year lost its status as the top trader of Russian crude. Bloomberg
Bringing in buyers for Rosneft, especially a trader like Glencore, probably makes “Putin smile all the way to when Santa Claus comes around in Moscow,” Steen Jakobsen, the chief investment officer of Saxo Bank A/S, said on Bloomberg Television on Thursday. Putin “was under pressure because the privatization program in Russia has been very stale and it has been almost impossible to find them a deal partner.” Rosneft, which pumps almost 5 million barrels a day, held talks with more than 30 potential buyers from Europe, America, Asia and the Middle East, Sechin told Putin on state television. “The deal became possible only thanks to your personal contribution.” The price was the “maximum
Brexit
Good U.K. Data Looks Likely to Break Bad in 2017 Cormac Mullen
Economists and investors wondering how much longer they will have to wait before fallout from June’s Brexit vote appears in the data may get their answer soon. While much has been made of the resilience of the U.K. economy, with GDP data and PMI readings beating expectations while unemployment continues to fall, the tide may be turning on the run of better-than-expected prints. Wednesday’s U.K. manufacturing data, which unexpectedly came in at the worst level since January, may be a harbinger of more disappointments to come. There’s a big difference between the uncertainty caused by a vote for Brexit, and the economic impact of actually leaving the European Union, which still seems some way off. As HSBC put it in a client note this week: “It’s not so much that the U.K. is out of the woods already. More, in
our view, that the U.K. has not yet entered the woods.” Though accommodative monetary policy and sterling depreciation have had the desired effect of supporting the economy in the near term when third quarter GDP beat expectations in October, that hasn’t filled Roubini Global Economics with confidence. In a note this week, its economists predicted subdued investment spending and saw “all the risks to the downside.” Better than expected business investment growth came as something of a surprise to Investec Treasury when the latest data was released in November. However, they note investment data are extremely choppy and the underlying trend is weak. The positive impact from the FX boost to export competitiveness is slowing, Credit Suisse said in a note about the November PMI reading, which came in below expectations. Higher costs may in time offset the FX
effect, and export orders are already weaker compared to September’s five-and-a-half year high. Behind the headline numbers, data on the labor market show slowing job growth and an uptick in the number of unemployment claimants. The ONS note in their latest economic overview “some early signs that the long and steady growth in employment we’ve seen these last few years is starting finally to slow.” Retail sales were robust in October, boosted by the cooler weather which increased clothing sales. Tuesday’s BRC KPMG retail sales monitor data show November non-food sales growth was driven by online growth and discounting, according to Berenberg. They see a risk heading into the end of the year that Black Friday not only delayed early November purchases, but brought forward December purchases, and expect challenging conditions across the sector heading into 2017. Bloomberg
Business Daily Friday, December 9 2016 15
Opinion China turns hostile on insurer-driven takeover spree Nisha Gopalan a Bloomberg Gadfly columnist
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hina’s brief love affair with hostile takeovers could be coming to an abrupt end. The country’s insurance regulator is cracking down on the most active acquirers - insurance companies - by restricting their main source of firepower: sales of universal life policies that promise high returns. The China Insurance Regulatory Commission this week suspended Foresea Life Insurance Co., a unit of Baoneng Group, for three months from selling these death-benefit-plus-savings products. The policies have helped propel upstarts including Anbang Insurance Group Co., the owner of New York’s Waldorf Astoria hotel, into the ranks of China’s top insurers by premiums this year. The regulatory constraints not only imperil the insurers’ growth prospects but also threaten to spoil the fun for China’s small investors, who have been engaged in a treasure hunt for stocks seen as having the greatest takeover potential. Companies such as Anbang and Foresea have embarked on a multibillion-dollar spending spree to swallow up assets capable of helping to fund the high returns they have guaranteed on universal life products. Targets have included everything from overseas real estate and insurance assets to China-listed companies with low returns on equity or big cash chests from which acquirers could wring higher dividends. Enter China Vanke Co., the nation’s biggest home builder. Baoneng, through Foresea and another unit, Shenzhen Jushenghua Co., has emerged as the biggest shareholder in the developer. Its approach was unsolicited, and Vanke’s president has called it a hostile takeover. Baoneng isn’t alone in its pursuit: Several other insurers such as Anbang and China Evergrande Group’s life unit have also been buying Vanke’s Shenzhen-traded shares. Foresea also has been buying shares in Gree Electric Appliances Inc., a Shenzhenl i st e d m a k e r o f air-conditioners and rice cookers known for high dividends and with a 134 billion yuan (US$19 billion) cash pile that offers the potential for more. Stocks of both targets have been on a tear in the past year, with Vanke climbing more than 40 per cent and Gree gaining 27 per cent. The two are among companies that Credit Suisse says have been chased higher by the bidding activities of insurers. While most of the nine insurance companies investigated by the regulator may have escaped sanction, more attempts to rein in the industry look likely. Months before Foresea was singled out, authorities had already started making universal life products harder to sell. Moreover, there are signs of growing official unease over the spate of takeover activity, with acquisitions financed by borrowed money particularly in the cross-hairs. The stock regulator, usually a low-key presence, railed this week at purchasers that used improperly obtained money to conduct leveraged acquisitions, calling them “robbers of the industry.” While China Securities Regulatory Commission Chairman Liu Shiyu didn’t identify the companies, it’s probably no coincidence that the comments came as Shenzhen’s stock exchange questioned “abnormal trading behaviours” at companies such as Vanke. The tussle over Vanke has grabbed headlines precisely because hostile takeovers are so rare in China. If regulators get their way, it looks like they’ll remain few and far between. Bloomberg Gadfly
‘The regulatory constraints not only imperil the insurers’ growth prospects but also threaten to spoil the fun for China’s small investors’
China’s commodity trading crackdown has long-term consequences
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s there a longer-term cost to be paid by China for its on-going efforts to curb what the authorities in Beijing see as unjustified price spikes in commodity prices on the country’s futures exchanges? Certainly it is becoming clear that the authorities are continuing to ramp up their campaign against the so-called hot money pumping up commodity prices, with new measures designed to cool price action in iron ore, steel and coal among others. In recent weeks the Dalian and Zhengzhou commodity exchanges and the Shanghai Futures Exchange have all toughened trading requirements several times. The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits. F o r ex a m p l e, t h e D a l i a n Commodity Exchange (DCE) lifted the trading margin for its coking coal and coke contracts three times within the space of week, ultimately taking it to 15 per cent effective from Nov. 11. These measures are designed to cool speculative flows into commodity futures as Beijing becomes increasingly concerned about price spikes and the potential for bubbles in futures markets impacting on the realworld economy. DCE coking coal has dropped about 22 per cent since its closing peak this year on Nov. 14 to a close of RMB1,280 (US$186) a tonne on Tuesday, showing the measures to cool the market have had some impact. But the contract is still some 126 per cent higher than it was at the start of the year, which is perhaps a realistic reflection of the state of the market. Coking coal demand from China has been strong this year given higher-than-expected steel output and earlier steps by the authorities to limit domestic coal mining. By comparison, free-on-board coking coal prices in Australia, the world’s biggest exporter of the fuel mainly used to make steel, have quadrupled this year to more than US$300 a tonne. Demand from China has outstripped supply available from an industry that has spent the last five years downsizing as prices fell from record highs in 2011. The coking coal price action this year underscores the dilemma facing the Chinese authorities. While the overall increase for the year is a reflection of the global state of the market, the authorities would have been concerned about the rapid pace of the much of the year’s gains, the bulk of which came in a frenzied two-month period from midSeptember to mid-November. The coking coal contract doubled from RMB855 a tonne on Sept. 13 to RMB1,644 by Nov. 14, a rally
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Clyde Russell a Reuters columnist
that prompted the on-going measures to force speculators from the market.
Changes undermine confidence
The problem is that every time the authorities change the rules in order to force a change in prices, they surrender some of their credibility as a safe, reliable destination for investors. It’s no secret that China, as the world’s largest producer, consumer and importer of commodities, believes it should be centre-stage when it comes to trading and price-setting. To this end China has increasingly touted its exchanges as where the world should be heading, even if progress on some fronts has been slow. So far efforts to set up a viable crude oil trading hub have come to nothing. It’s yet to be seen whether a state-backed commodity hub recently launched in Shanghai that aims to become the main Asian trading point for natural gas will take off. China has had more success in establishing dynamic markets for steel, iron ore, coal and agricultural commodities such as soybeans. But exchanges like Dalian and Zhengzhou cater largely for Chinese retail investors, as well as smaller-scale trading firms. While not absent, larger companies and foreign banks and trading houses are less prevalent. Part of this may be because they aren’t fully comfortable investing on exchanges where the rules can be - and are - changed frequently in order to meet desired official outcomes. A Western bank or trading house would undoubtedly prefer to deal with the Singapore Exchange, where the rules are more constant and akin to other major global bourses, such as ICE and Nymex. In essence, ultimately the Chinese authorities are going to have to decide whether they want their commodity exchanges to be true global players, attracting a broad spectrum of users, or whether they should remain as sort of casinos for yieldchasing locals. Once that decision is made, appropriate regulations can be made, implemented and maintained. But as of now, every time the authorities change the rules for a short-term aim, they serve to remind investors why they should be cautious about trading commodities in China. Reuters
The problem is that every time the authorities change the rules in order to force a change in prices, they surrender some of their credibility as a safe
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16 Business Daily Friday, December 9 2016
Closing Oil prices
China’s drag on oil prices that OPEC’s cuts can’t alleviate Growth in crude imports by China will probably slow by more than 60 per cent in 2017
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ne of the biggest engines soaking up the world’s oil is starting to sputter. Growth in crude imports by China, the second largest consumer after the U.S., will probably slow by more than 60 per cent in 2017, according to a Bloomberg survey of analysts including FGE and Energy Aspects Ltd. Private refiners that helped boost purchases to record levels are expected to be constrained by tighter licenses and increased scrutiny on their taxes. At the same time, the current space available for stockpiles may run out. While OPEC’s deal to curb output may help erode a glut and lift prices, Chinese imports remain key for any sustained recovery. It’s the biggest buyer in Asia, the world’s top oil market, and its insatiable appetite was a significant driver for crude’s climb to more than US$100 a barrel in the past decade. “China has definitely been a huge bright spot for crude demand this year, but it won’t be as substantial next year,” said Michal Meidan, an analyst with Energy Aspects. She predicts the nation’s imports may
increase by 5 per cent to 9 per cent next year, compared with 11 per cent to 14 per cent growth in 2016. Inbound shipments into China in the first 11 months of 2016 rose 14 per cent to 7.5 million barrels a day, touching monthly records twice, according to customs data. Next year, though, the Asian nation will boost its purchases by just 4.8 per cent compared with 2016, according to the median estimate of eight analysts in the Bloomberg survey. Brent crude, the benchmark for more than half the world’s oil, traded at US$53.48 a barrel on the ICE Futures Europe exchange by 10:53 a.m. in London. Prices were at more than US$115 a barrel in mid-2014. Imports increased as China’s private refiners, known as teapots, started getting licenses to import crude on their own last year in a government push to boost private investment in energy. Previously, the processors relied on state-owned oil majors including PetroChina Co. and Sinopec for supplies.
Import Quotas
The refiners have to adhere to an import quota. As of October, the
Aviation
processors have imported 30 million tons of crude, according to Shanghaibased commodities researcher ICISChina. A total of 17 of them have been granted a combined 67.05 million tons a year, or 1.35 million barrels a day, in quotas to use overseas oil so far in 2016. A dozen others, seeking a total of 23 million tons in allocations, are still in the process of being approved. While sellers from Saudi Arabia to London-based BP Plc have been readily supplying the teapots, which account for a third of China’s processing capacity, headwinds loom. The amount of incremental new quotas allocated for private refiners in 2017 may drop “significantly” from 2016, said Pang Guanglian, deputy secretary general of the China Petroleum and Chemical Industry Federation, an industry group that is among reviewers of the allocations. Some of the teapots are falling behind on their commitment to eliminate outdated units, and a few are trading quotas instead of utilizing them, Pang said last month. Increased scrutiny over taxes by Chinese authorities could constrain demand from the private refiners. The government has said it will disqualify license applications or revoke import quotas if companies evade tax or falsify documents. Imports may
Hotels
also slow because port and pipeline infrastructure hasn’t developed as fast as oil purchases.
Teapot Challenges
C o n c e r n a b o u t t e a p o t s’ creditworthiness and lack of experience in international trade are challenges, while the implementation of higher fuel-quality standards could force some to shut. The Chinese government has signaled its intention to slow new quota approvals as it assesses whether the teapots made good on their pledges to close outdated refining units or build storage facilities, according to JPMorgan Chase & Co., which predicts the Asian nation’s oil imports may stop expanding in 2017. Stockpiling may also slow. In 2016, a lot of China’s imports went into oil storage, said Amy Sun, an analyst with ICIS-China. “Going into next year, due to the slow construction of new capacity and already full tanks in current facilities, there will be limited space for further growth.”
Crude Stockpiling
The nation stocked about 724,000 barrels a day of crude over January to October this year, the highest level for the period since 2004 when Bloomberg first started tracking official data. Bloomberg estimates the pace of China’s stockpiling by subtracting refinery runs from the combined total of net imports and domestic production on a monthly basis to arrive at a surplus crude figure. China stored a total of 31.97 million tons of oil in its strategic petroleum reserve as of early 2016, equivalent to about 234 million barrels, according to the National Bureau of Statistics. Some of those volumes are under commercial storage facilities. The country built up a total of about 400 million barrels in inventories by mid-2016, compared with a target of 511 million barrels, according to JPMorgan. “Smaller growth in China’s crude imports will be as a result of slowing stockpiling,” said Sun, who predicts purchases from overseas will grow 6.2 percent in 2017. “Also, weaker growth from independent refiners amid recent government scrutiny will trim demand.” Bloomberg
VOLKSWAGEN-EMISSIONS
Air Asia aircraft leasing unit AccorHotels buys 5 pct receives dozen bids stake of Banyan Tree
EU launches legal case over VW scandal
AirAsia Bhd has received about a dozen bids for its aircraft leasing unit, mostly from Chinese firms, including the leasing arms of China Merchants Bank and Ping An Insurance Group , said sources with knowledge of the process. AirAsia is seeking buyers for a majority stake in Asia Aviation Capital, which it has valued at about US$1 billion. This is the first time the level of interest in the leasing unit and the identities of some of the participants are coming to light. The first-round bidding closed earlier this week, the sources told Reuters. The strong interest from Chinese firms comes despite China recently announcing measures to tighten controls on money moving out of the country, adding to speculation that potentially destabilising capital flows were on the rise. One source said AirAsia had received strong interest from North Asian firms and Asian funds keen to gain long term exposure to the leasing industry, which has dollar-based revenue. He said potential buyers would start due diligence in a few weeks. AirAsia declined to comment on the bidding. AirAsia Group CEO Tony Fernandes told Reuters on the sidelines of an event in Kuala Lumpur on Thursday that the sale process “was getting too close” but declined further comment. Reuters
The European Union opened legal action on Thursday against seven nations including Germany and Britain for failing to police emissions cheating by carmakers after the Volkswagen scandal. Germany, Britain, Spain and Luxembourg stand accused of not imposing the same kind of penalties VW faced in the United States over its use of illegal software to mask emissions of health-harming nitrogen oxide (NOx) on tests. The European Commission, the bloc’s executive arm, has further called Germany and Britain to account for refusing to share details on breaches of EU emissions laws uncovered in national investigations this year. Another three countries - the Czech Republic, Lithuania and Greece - have been spotlighted for not even including within national legislation the possibility of fining Europe’s biggest industry over potential violations. Thursday’s notice is the first step in what is known as infringement procedures, allowing the EU to ensure the bloc’s 28 nations abide by agreed EUwide regulations. Member states have two months to respond. If they fail to respond to Brussels’ concerns, the EU may take them to the EU court in Luxembourg. Reuters
AccorHotels has bought an initial five per cent stake in Singapore’s Banyan Tree Holdings as part of Accor’s current strategy to strengthen its luxury hotels portfolio to give a boost to its earnings. The move follows similar deals by AccorHotels, which is Europe’s largest hotels group, in the luxury sector, such as its US$2.7 billion acquisition of FRHI Holdings, which owns the Fairmont, Raffles, and Swissotel brands, and its takeover of UK serviced home rental company Onefinestay. AccorHotels will invest S$24 million (US$17 million) to buy a stake of 5 per cent in Banyan Tree upon the conversion of a mandatory convertible bond. AccorHotels has the option to buy an additional stake of approximately 5 per cent. Luxury hotel operators can earn profit margins that are two to three times higher than those of budget hotels, and AccorHotels is hoping that expanding in this upmarket part of the industry will boost its profits, which have come under pressure due to security concerns impacting Europe. “We are confident that our investment will create incremental value for our shareholders,” said AccorHotels chief executive Sebastien Bazin in a statement, commenting on the Banyan Tree deal. AccorHotels has more than 4,000 hotels, resorts and residences worldwide. Banyan Tree Holdings has 43 hotels and resorts under the four brands of Banyan Tree, Angsana, Cassia and Dhawa. Reuters