Typhoon Hato causes havoc for flights and ferries Weather Page 3
Wednesday, August 23 2017 Year VI Nr. 1367 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Investment
Wanda retreats from London real estate acquisition Page 9
Gaming
Analysts forecast strong numbers for August Page 3
Macau Forum
Nine bids accepted to develop Service Complex Page 2
www.macaubusiness.com
HK filing
Suncity warns of poor results Page 4
Law enforcement
Chinese prosecutor pledges to intensify fight against white collar crime Page 16
Hotel occupancy healthy Occupancy
The whole sector is enjoying a sweet ‘high occupancy’ Summer. Figures released by Macao Government Tourism Office point to subtle changes in the tariff of different hotel room categories in the city. Driven by diverse factors. Page 3
Losing face
Several experts, a diversity of views. Regarding the news that Hong Kong is seeing an increase in ATM withdrawals. As a direct result of KYC facial recognition technology targeting UnionPay cardholders in the majority of Macau’s machines.
Reel memories
Interview We talk to film director Harriet Wong. Who reviews the professional path she took and relates her current projects. Providing a unique perspective from an industry that is flourishing on the Mainland. Pages 6 & 7
Dealers needed
Manpower The need of more employees in the gaming sector continued rising in Q2. The Manpower Needs and Wages of the Gaming Sector survey released yesterday indicates more than half of the vacancies were for dealers. Page 2
Big Four prepare for Belt & Road ATM Page 4
HK Hang Seng Index August 22, 2017
27,401.67 +246.99 (+0.91%) Worst Performers
Ping An Insurance Group Co
+4.20%
Wharf Holdings Ltd/The
+2.75%
Want Want China Holdings
-6.49%
Tencent Holdings Ltd
-0.61%
China Overseas Land &
+3.73%
China Life Insurance Co Ltd
+2.58%
China Unicom Hong Kong
-2.59%
Hang Lung Properties Ltd
-0.41%
CITIC Ltd
+3.34%
Industrial & Commercial
+2.55%
Lenovo Group Ltd
-1.80%
Power Assets Holdings Ltd
-0.37%
Geely Automobile Holdings
+2.92%
BOC Hong Kong Holdings
+1.98%
Hong Kong & China Gas Co
-1.21%
China Resources Land Ltd
+2.83%
AAC Technologies Holdings
+1.96%
Cathay Pacific Airways Ltd
-0.84%
Hang Seng Bank Ltd
-0.29%
Hong Kong Exchanges &
+0.46%
27° 30° 28° 32° 28° 31° 26° 30° 27° 30° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Funding Leading Chinese banks are ready for the off. Investing in Belt & Road countries. As the strategy takes shape, top financial institutions plan to increase funds for projects related to gov’t supported OBOR. Page 8
2 Business Daily Wednesday, August 23 2017
Macau Casino work
Hiring spree The number of newly hired employees in the gaming sector went up 56.8 per cent to 1,035 in the second quarter of this year, with the average wage for gaming employees rising 4.6 per cent to MOP23,080 Nelson Moura nelson.moura@macaubusinessdaily.com
J
ob vacancies in the gaming sector increased by 57.2 per cent yearon-year in the second quarter of this year to 923, according to a Manpower Needs and Wages of the Gaming Sector survey released yesterday by the Statistics and Census Service. Around 51 per cent of vacancies were for clerical work, while 24.8 per cent were for services and sales workers. Of the total 472 clerical vacancies, more than half were for dealers. The number of full-time employees engaged in the gaming sector between April and June remained almost the same as in the same period of last year, at 55,726. Of this number, around 92.8 per cent worked in shifts, 76.3 per cent were clerks and 10.6 per cent were service and sales workers. Of the total number of 42,522 full time clerks, 43 per cent were dealers, with the number of dealers in the second quarter of this year going down by 1.3 per cent to 23,980. A total of 1,035 new employees were hired - a considerable increase of 56.8 per
cent yearly from 660 in the same quarter of last year with the employee recruitment rate going up 0.7 percentage points to 1.9 per cent.
Wages up
The average wage for fulltime gaming employees as of the end of June - excluding bonuses - went up by
4.6 per cent year-on-year to MOP23,080 (US$2,863), with resident and non-resident employees earning an average of MOP23,270 and MOP19,450, respectively. Meanwhile, the average wage for dealers went up 5.1 per cent yearly to MOP19,930 in June, with the average wage for directors
and managers going up 1.7 per cent year-on-year to MOP52,360.
Continuous education
Although 78.6 per cent of gaming companies provided vocational training for their employees - 782 courses were organised in the second quarter - the number
of participants dropped by 27.0 per cent year-on-year to 57,934. Almost 99.2 per cent of vocational training participants attended courses during office hours, with 45.6 per cent attending courses in Gaming & Entertainment Services and 28.2 per cent courses in Business & Administration.
Sino-Luso
Ready, set, bid A total of nine proposals, with bids ranging from MOP598.4 million to MOP1.06 billion, for the planning and construction of the Sino-Luso commercial co-operation complex were accepted by the DSSOPT Nelson Moura nelson.moura@macaubusinessdaily.com
Of the 12 applications received for the planning and construction of the Service Complex for Commercial Co-operation between Portuguese-speaking countries, nine were accepted, the Land, Public Works and Transport Bureau (DSSOPT) announced yesterday.
The lowest bid, MOP598.4 million (US$74.2 million) to finish the project in 586 days, was made by a consortium comprising Empresa de Construção e Fomento Predial Nam Fong, Limitada, Companhia de Construção e Investimento Predial Ming Shun, Limitada, and AD & C Engenharia e Construções Companhia Limitada. Regarding the accepted bids,
Companhia de Engenharia e de Construção da China (Macau), Limitada submitted the highest, proposing to finish the 14,000 square metre complex to be developed near the Legislative Assembly (AL) building in 600 days for MOP1.06 billion. Companhia de Engenharia e de Construção da China (Macau), Limitada has been involved in several major projects in the MSAR, having
Officials of the Land, Public Works and Transport Bureau open pricing documents of tenders submitted for the design and construction of the China-PSCs Commercial and Trade Service Platform Complex. Source: GCS
also been granted a MOP1.28 billion contract for the construction works for the Macau Peninsula LRT Public Transport Interchange at Barra, in joint venture with Companhia de Construção de Obras Portuárias Zhen Hwa, Limitada.
Co-operation home
O the proposals are evaluated by a technical committee the chosen developer will be presented by the DSSOPT, with construction expected to start by the end of the year. The complex will be constructed in the C15 and C16 land plots near Baia da Praia Grande. According to the land plots Urban Condition Plan (PCU) the maximum height for projects in the two plots is 14 metres and 21.9 metres, respectively, with two underground floors earmarked for basement and parking use. The complex will host forums for Sino-Luso co-operation, and will house an exhibition centre for food products from Portuguese-speaking countries, a business service centre for enterprises from Forum countries, a training centre, an information centre, an exhibition hall showcasing Sino-Luso relations and their cultures, and a room to stage exhibitions related to Macau’s urban development. The complex construction is expected to be finished before the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries’ (Forum Macao) 6th Ministerial Conference to be held in 2019.
Business Daily Wednesday, August 23 2017 3
Macau Hotels
Occupancy rate remains strong in July Cecilia U cecilia.u@macaubusinessdaily.com
T
his year’s Summer has proven to be a strong one in terms of hotel occupancy, with the occupancy reaching 93.8 per cent in July compared to 90 per cent in the same month a year ago, up 3.8 percentage points. The rate was, in fact, the highest compared to the previous six months of this year, driven by hotels in the 3 to 5-star range all registering growth in occupancy for the month. The latest data released by the Macao Tourism Office (MGTO) reveals that the general occupancy rate in July increased by 6 percentage points when compared to last month, with 5-star hotels more attractive when compared to last year as well as in June, with the rate increasing from 88.8 per cent last year in July to 93.1 per cent, up 4.3 percentage points, and 5.8 percentage points month-on-month. Growth in occupancy also appeared in 4-star (94.1 per cent) and 3-star hotels (96.5 per cent), with the rate inrceasing by 3 and 2.3 percentage points year-on-year, respectively, and up 6.6 and 5.5 percentage points when compared to June. Regarding rooms, the average price during July was MOP1,225.3, down
0.2 per cent year-on-year. When compared to the price in June, July’s price increased 4.3 per cent. The price for 4-star hotels recorded a prominent year-on-year increase of 7 per cent to MOP756.9, while 3-star room prices experienced a 2.1 per cent increase to MOP790.2.
According to MGTO, 5-star hotel rooms registered a negative growth, down 1.1 per cent from MOP1,556.7 to MOP1,539.1. For the seven months of this year, hotel occupancy increased by 5.9 percentage points, driven by the growth of 6.8 percentage points
year-on-year registered by 5-star hotels, to 87.1 per cent. While the price for the months dropped 3.1 per cent year-on-year. Data released by the tourism office was gathered from the Macau Hotel Association, which includes some 40 3-star to 5-star hotels.
Gaming
Analysts believe strong revenue figures to continue into August Cecilia U cecilia.u@macaubusinessdaily.com
Brokerage firm Sanford C. Bernstein Co. LLCA and analysts at Telsey Advisory Group expect the city’s gaming revenue to increase some
24 per cent to 26 per cent. Vitaly Umansky of Bernstein revealed that the gross gaming revenue for the first 20 days of August reached MOP15.4 billion, with the average daily rate hitting MOP770 million. The latter
amount posted an increase of 4 per cent compared to last month and 32 per cent over a similar period last year. Bernstein explained that the growth in the average daily rate last week was the result of ‘strong visitation
(occupancy rates and roomrates increased last week) and popular multi-day concerts at The Venetian’. The past several weeks registered an increase of high single digits monthon-month for mass performance, with middle single digits for VIP, stated Bernstein. Similarly, according to the Telsey group, revenue growth ‘slowed modestly’ during the month due to seasonality as expected. Nevertheless, the market continued to grow strongly, particularly in Cotai. The recent player loss in the VIP of Las Vegas Sands (LVS) properties in Macau as reported by the press will pull up the operator’s Macau revenue in August, wrote the Telsey group. Bernstein analysts pointed out in their weekly report that the weekly channel checks appear to be ‘less than accurate and more
volatile’ hence there should be greater consideration of the weight of overall gaming revenue numbers. Telsey analysts, meanwhile, observed that gaming operators’ stocks ‘remain positive’, but also surmised that ‘the competitive landscape remains somewhat in flux through the remainder of the quarter and perhaps the year’. The group also pointed out that the opening of The Parisian Macao and Wynn Palace in the third quarter and August of last year, respectively, had made the fundamental evaluations for this August ‘challenging’. Telsey conclusively anticipated that the share of LVS and Wynn be ‘volatile but essentially flattish in performance through the remainder of the year’, holding a positive outlook for MGM’s soon to be opened Cotai property.
Typhoon
Typhoon Hato sweeping SARs With the approach of Typhoon Hato, three two-way flights between Macau, Jinjiang, Jeju Island and Shanghai-Pudong were cancelled before 9:00pm yesterday. The flight numbers were MS8660/ MS8659, MX9858/MX101 and HO1296/HO1295. Regarding local seaborne routes between Taipa, Shenzhen-Shekou and Fuyong services were suspended at 3:00pm yesterday when Typhoon Signal 1 was hoisted at 11:00am by Macao
Meteorological and Geophysical Bureau (DSPA). TurboJET also posted a notice at 6:00pm to inform customers that services between Macau and Hong Kong International Airport were suspended. The Marine and Water Bureau advised passengers to obtain the latest arrangements and information from mobile app Macao Sailings or make enquiries from related ferry operators. Meanwhile, the Cultural Affairs Bureau advised
responsible parties to take precautions to protect historical heritage sites threatened by the typhoon and the Labour Affairs Bureau has called for construction sites to pay special attention to hoisting machinery and rooftop structures. In Hong Kong, Signal 3 was hoisted by the Hong Kong Observatory at 6:20pm, and Cathay Pacific said a majority of flights to and from Hong Kong between 6:00am and 5:00pm today were cancelled. With Bloomberg
Macau Airport activity was affected yesterday
4 Business Daily Wednesday, August 23 2017
Macau Opinion
José I. Duarte* Shades of bright Last week, I spotted a headline in one of the local newspapers (the Portuguese language HojeMacau, for the record) that arrested my attention. Titled ‘Macau is the Brightest City in the World,’ I at first thought it was another metaphor concerning the immense riches of the city. I was wrong. It was literal. According to a researcher from one of the local universities, preliminary results suggest that this is possibly the shiniest spot on earth. That is a ranking that we are not sure we should celebrate. This orgy of light has some drawbacks. The intense nightlights in many buildings can impact negatively on the health of residents, disturbing their circadian rhythms. And the consumption of electricity is anything but environmentally friendly. Most readers may not be aware but the environmental protection services have guidelines on external illumination. It is instructive to mention some of them. Their stated aim is to prevent ‘light pollution’ and ‘save energy’. For example, the second ‘general instruction’ states that bright displays outside buildings should be set in a way that prevents light from ‘reaching the facades of nearby buildings directly’. Further, it determines that the light intensity measured on the windows or doors of those building should not exceed four lux. For reference, that is about the luminance registered at the end of a clear sky day, when twilight is just about to surrender to total darkness. Further, the document recommends that external light panels be switched off between 11:00 pm and 6:00 am. How many illuminated buildings follow the rules above? It is hard to figure for a simple reason: they are very difficult to find. We cannot be talking about Macau. The rules may apply somewhere else, but not here. The guidelines published in the environmental services website only highlight how pointless environmental regulations are when there is no willingness or capability to enforce them. However, let us not despair: they seem to produce effects outside Macau. Readers may remember that some months ago the press reported on complaints addressed to the Zhuhai authorities about the excessive illumination of buildings on the Zhuhai side. They even reacted with, should I say, some humour, projecting the message ‘We love Macau’ for a few days. But in the end, they did reduce the lighting significantly. Whomever Zhuhai lights disturbed can accomplish there what appears impossible here. *economist and permanent contributor to this newspaper.
Liquidity
Does Hong Kong know your customer? Opinions are divided about recent claims by Hong Kong media that the implementation of the Know Your Customer technology with facial recognition in local ATMs has triggered a surge on cash withdrawals in Hong Kong Sheyla Zandonai sheyla.zandonai@macaubusiness.com
W
hile a ‘staggering’ growth in withdrawals in Hong Kong’s ATMs following the implementation of the Know Your Customer (KYC) technology with facial recognition in Macau’s ATMs last June “would be expected,” says a local source, it continues to be unsubstantiated by the Hong Kong Monetary Authority (HKMA). In the last few days, South China Morning Post (SCMP) has produced a couple of pieces in which it reported that the implementation of the KYC technology in Macau targeting mainland Chinese UnionPay (CUP) cardholders had triggered a ‘surge’ in money withdrawals in Hong Kong. The KYC technology entails facial recognition and identity card reading, in addition to PIN number verification of CUP cardholders withdrawing cash in Macau, limited to two transactions per day not exceeding MOP10,000. The policy was implemented with the aim of discouraging the use by the same person of several CUP cards in an effort to curb illegal cash outflows. Speaking to Business Daily on the phone, Professor Jacky Yuk Chow So, Dean of the Faculty of Business Administration at the University of Macau, recalled that other goals of the new policy concern “controlling money laundering and perhaps discouraging gambling activity.” Just yesterday, SCMP reported that Hong Kong police had launched ‘a significant number’ of investigations into what the newspaper termed the ‘suspicious use of China UnionPay bank cards to withdraw cash from ATMs in the city amid growing concern over illicit capital flight from the
Mainland, according to sources with knowledge of the situation.’ On Monday, the same newspaper reported that HKMA had instructed local banks to submit data on cash withdrawals by UnionPay cards conducted in the city’s ATM network as the regulator is allegedly cracking down on unauthorised capital outflows from Mainland China. Speaking to Business Daily, a source familiar with the gambling and financial system in Macau said that “despite the SCMP report, there has been no ‘surge’ in ATM withdrawal patterns in Hong Kong,” adding that ATM withdrawals in the neighbouring city “are up a little bit compared to previously, but not substantially so.” As for the volume of transactions conducted across the Delta, the same source pointed out that “the reality is that Hong Kong always had significantly higher ATM volumes than Macau anyway.”
Loopholes
Professor So argued there might be a possible correlation between an alleged rise in the number of cash withdrawals in Hong Kong’s ATMs – where the technology has not been implemented – and the enactment of the policy in Macau in June. “We have to consider that for ‘normal’ tourists there should be no problem keeping within the limits [defined by the latest regulations]. But those who come to Macau to gamble are not ‘normal’ tourists. They are individuals with special purposes. People would look for all the loopholes they can find,” explained the professor. All things considered, it is also possible that some people might take advantage of Hong Kong’s less strict position on customer authentication to withdraw money from
ATMs, suggests Professor So, and not necessarily use it for the purpose of gambling. In such cases - say, where people would like to “purchase luxury goods” - the professor claimed that going to Hong Kong “doesn’t necessarily have to do with gambling anymore, but simply with the fact that people cannot take [as much] money out” as they would be able to do here. That said, this would lead to a different problem, which is the amount of cross-border money portables, somewhat “uncontrolled and not strictly checked” So highlighted. The Monetary Authority of Macao (AMCM) has not replied to our questions about the variation in the amount of withdrawals since the KYC technology was implemented in the city or about the current number of ATMs featuring the new technology since the latest data provided by the Authority to Macau Business in July that is, 1,000 of a total of 1,250 ATMs as at the end of last month.
UnionPay
As a company that provides services to several banks, UnionPay is at the core of the KYC system. But it is not the only one. “I don’t think UnionPay is the only way to get money in Macau. I’m pretty sure you can use other bankcards like Mastercard and Visa,” our source with knowledge of the gambling system suggested. UnionPay was not reachable for comment in their Hong Kong office, overseeing Macau and Hong Kong operations, as at the time this story went to print. As for alternatives to generate liquidity, they range from the use of bitcoins to Point of Sale (PoS), our sources suggested. Apropos the use of bitcoin, Professor So claimed that although some people “are proposing . . . [its use] . . . it is still very unregulated and uncontrolled,” in addition to the fact that “people may not yet be very knowledgeable about the technology itself or the ways of using it.” As for the PoS system, the professor argued they offer another “loophole” by enabling people to “artificially buy something while not really buying it.” UnionPay operates some 6,257 PoS ‘sites’ in Macau, according to the latest data provided by the company.
Junkets
Setting sun Suncity Group is expecting to see a ‘significant’ increase in loss attributable to owners in the first half of this year, caused by issues such as litigation expenses against two subsidiaries in Mainland China and change in fair value of convertible bonds Nelson Moura nelson.moura@macaubusinessdaily.com
Junket operator Suncity Group Holdings Limited has announced it was expecting the company together with its subsidiaries to record a ‘significant increase in its loss attributable to owners’ for the six months ending in 2017, a filing with the Hong Kong Stock Exchange reveals. The group owned by Macau junket investor Alvin Chau Cheok Wa registered net losses of RMB64.8
million (MOP78.3 million/US$9.7 million) in the first six months of last year. According to the filing, the increase in losses was caused by five different factors, such as the ‘loss on change in fair value of derivative component of the convertible bonds of approximately RMB697.7 million’ and around RMB411.8 million in losses caused by litigation against two indirect wholly owned subsidiaries in Mainland China. The junket group also suffered an
increase in income tax expenses of around RMB99.0 million with a ‘gain from the reversal of impairment loss on trade and other receivables’ of approximately RMB150 million. The group’s full unaudited interim results are expected to be published on August 28, according to the release. In June of this year, Suncity Group signed a Memorandum of Understanding to acquire Star Admiral Limited, a company which owns a 34 per cent equity interest in an integrated resort in Hoi An, Vietnam.
Business Daily Wednesday, August 23 2017 5
Macau
2016 Grand Merit Award winner - IFT Macau Institute for Tourism Studies
2016 Business Awards of Macau winners
Corporate
Business Awards deadline extended to September 15
G
iven the high volume of applications, the organisers of the Business Awards of Macau announced this week that the deadline will be extended to September 15 to allow latecomers to join the biggest professional recognition programme in Macau. All nominations, with supporting materials, must now be received by 11:59 p.m. on Friday, September
15, 2017. Now in its fifth year, the Business Awards of Macau is the most prestigious awards event on the business calendar, and is firmly established as the first recognition programme for Macau’s local and international business sectors. A team of distinguished judges is currently preparing to undertake the crucial task of evaluating the entries to short-list awardees. “We have been striving for
four years to recognise the excellent achievements and contributions made to Macau by local enterprises, entrepreneurs and organisations,” said Business Awards of Macau Director Victoria Man. “In this regard, we are happy to discover new Macau talent and the surprising success and potential of innovative made-in-Macau products.” The finalists will be presented at a prestigious Gala Ceremony on November 24
in the Grand Ballroom of the Grand Lisboa. Up for grabs is a maximum of 40 Excellence Awards and 11 Gold Awards, judged by an independent panel of jurists comprising acclaimed entrepreneurs, academics and professionals invited from different sectors of Macau society. The event organisers are being advised by an Honour Commission and an Advisory Board, the membership of which was publicly
announced in August. “It is particularly pleasing for us to see the Business Awards growing with Macau,” Ms. Man added, “as each year more and more Macau local companies win awards, expanding their businesses from Macau to China and other countries. In the meantime, the Awards have become increasingly influential in both the local and international business sectors of Macau.” advertisement
6 Business Daily Wednesday, August 23 2017
Macau Interview
Harriet Wong, film director Maintaining strong links to our city, the artist reviews her career, studies and current projects, offering an alternative insight into the movie industry Kelsey Wilhlem kelsey.wilhelm@macaubusinessdaily.com
W
hy did you choose film? It enlarges the emotions. When I was in high school I got to have a DV (digital video) camera. And I used to take my grandmother’s pictures – I would ask her to act elegantly and film her, but actually in all the video I made she was angry with me, saying “No, you can’t film me because I’m not wearing a good dress” and things like that. One afternoon, I put my camera in front of her, but I didn’t notice that the record button was still on. When I came back and rewound the tape I was really surprised. It showed a close-up of her heartbeat. Which I’d never seen in my 16 years. I realised that the camera has something magical. How did you go about pursuing your studies? In 2005, nobody was going into the film industry. I had two really good teachers who actually went to USC [University of Southern California] but they focused on video art, so they didn’t really talk about movies at all. Because I think the whole of society didn’t have the market, we not only didn’t have the cinema market but we also didn’t have someone to generate [the content]. So, I tried Beijing Film Academy. Actually, I also went to look at academies in Taiwan and Shanghai but they all only focused on drama and theatre, and didn’t have any film academy. It’s like a Kung Fun school, which you go to and you forget why you study Kung Fu; you just learn all the techniques and foundations. I really worked hard. The year that I graduated I found out that I’d gotten all the prizes – honour student, the Sony Scholarships. Those four years really helped me in a political sense and in the scale of how a film market can be.
“You can see film production – the market selling or the producers or the executive producers are very crucial. But for the networks I think it’s also very crucial ...” Choosing to stay on in Beijing after the degree, what did you think of the industry? My first job after graduating with a Bachelor’s degree was to work in a commercial film directed by Wang Leehom, a Taiwanese-American. He was already a very famous singer but then he wanted to try his first movie. When I was in the film industry I found out “Oh no, they’re not really making movies” - at that time I was very naïve. I was the on-set editor and they asked me to do lots of product placement (implanting products in the film). After those four years of learning I supposed I was already well trained in all the techniques and knowledgeable about the passion of making movies. But on this project I really learned how the film industry is, and that made me feel like I should question whether what I was choosing as
Harriet Wong, film director
a career was correct. But that was good [because] after the film academy I focused on all the techniques but I forgot that when someone is hitting me I have to avoid [the blows] or I have to fight back. How did you go about pursuing film? I returned to Beijing Film Academy for my Master’s degree to find an opportunity to make my own films. At that time, they exchanged 35-millimetre film for digital. Everything was changing; I went for the Master’s degree when the whole system was changing, so people were changing also. So, I pitched a project set in Paris about a jazz singer who tries to create a second life in Paris as a chef. A total change but lots of inner self-reflection since she has to be highly motivated as everyone thinks she can only be a singer, and in China the profession of chef isn’t seen as so prestigious. So, we made the project in three years, and I tried to again be a high school student and take my camera and follow her everywhere to make the documentary. In addition, I was working on some short films, including ‘Macao Stories 2 – Love in the City’. This series is a feature film but with six different directors . . . we went to Portugal, Japan, everywhere to meet other filmmakers. So, it’s another kind of exchange activity [thus] I gradually formed a film industry network of my own. In the Master’s degree period I also worked on a commercial movie which did very well at the box office called Finding Mr. Right. It was a commercial love story made with a small budget, and we went to Vancouver and New York to make the movie. But then the product was very successful, making a mark at the Chinese box office - I think something like RMB5-6 billion but the film was made for less than RMB500,000. So in my involvement then in the Mainland film industry I was editing a feature film, doing IPs - adapting novels into scripts - all because of my classmates who are all in different positions in the film industry. They tried to get lots of opportunities for me. Did you choose Bejing Film Academy because you knew you would get a network out of it? No, it just happened naturally. When I was about 17 no-one told me what
Beijing Film Academy was. At that time I wanted to do movies but none of the universities were offering film classes except Beijing Film Academy. The Internet was still taking off, there was no YouTube, so I think we’ve experienced a lot in the years since then – YouTube, ITE, Youku, the whole online network. You can see film production – the market selling or the producers or the executive producers are very crucial. But for the networks I think it’s also very crucial but it makes it quite easy. When I talk to my friends who are producing a network film they really have lots of money to do post-production, and also there’s not a very big cast, so they’re not limited in that sense. What about your current project? ‘My Dreamer Daddy’. After all this journey – high school, bachelor, film crew, implanting commercials, joining the commercials as the on-set editor in Vancouver and New York, doing the documentary – I felt that it might be good timing to start my first feature film. So I found a Hong Kong producer named Matthew, who is the executive producer of ‘Finding Mr. Right’. All the nine features which he produced were either successful or didn’t [suffer] any loss. So, he’s really well known in the whole industry, including Taiwan and across Asia. He told me that if I’m ready I have to find something which I have confidence in doing. I told him about this piece – a father and son’s interaction, speaking of dreams and reality – and found this is what I have a strength in. For this project we don’t have a very big budget, it all depends upon the cast. In particular, I have a father figure in this movie, so if the father – if he is a well known actor - the whole production will be upgraded to a more commercial product. The two-day investment fair [Guangdong–Hong Kong–Macao Film Production Investment and Trade Fair], groups such as Sony Entertainment or Mainland China investors, they all asked my producer about how they could invest in the project. I found it’s a really good opportunity to attend this kind of pitching because now I still have to create a lot of content – the pre-production, etc. - but I will have knowledge of the financial side; I won’t be as stubborn as I was when in high school or a fresh graduate from the film academy.
I found that implanting commercials is really good, if you can do it skilfully and make it not so obvious, that’s a good way [for extra funding]. My producer asked me to choose the investment, saying that in China nowadays the investment is huge so everyone is finding projects to invest in, so not everyone is the most suitable investor for you.
“... In China nowadays the investment is huge so everyone is finding projects to invest in, so not everyone is the most suitable investor for you” Do you like storywriting? I like all the things that I can do by myself. In high school I had this kind of energy and tension because I went to a drama class at the conservatory that was held as an extracurricular activity. I started going to it when I was 13 with my sister. I didn’t know yet but I found that I could change from a visual image to a story already when I was that age. Later on in the drama class, we had all kinds of activities and exercises – we had to go out to the street and have a paper and observe people. Asking myself “Why does this guy have three watches” and so on. So, I wrote these types of things down and then would go and share them with the class. That’s why when I went to university I found it actually quite easy to access the process. Was leaving Macau and then coming back to work a hard decision? It was really tough. The conservatory where I had been studying called me, and the headmaster said that they wanted to [launch] a scriptwriting course, mainly about film scriptwriting, but just for short films. He asked me “Can you do this?” and I wasn’t sure because I was actually writing a script for an IP, and it was paying well. So I said “Okay, maybe I can” since I was just writing, so I thought
Business Daily Wednesday, August 23 2017 7
Macau maybe I could be based in Macau. But later on I found out it was a trap, I started the semester and every Friday I had to teach at night from 7:00pm10:00pm, something like that – but then the Beijing producer said “Okay, you have to come to Beijing, we’ll have a meeting”. Monday to Thursday I was in Beijing, then I came back on Friday to teach. I felt guilty because all I earned went into buying the plane tickets, but at least I gained the miles to fly to Europe.
“I found that implanting commercials is really good, if you can do it skilfully and make it not so obvious, that’s a good way [for extra funding]” In July, I moved back to Macau, but I had no job. I just kept some creative work in Beijing. I went to the U.S. and stayed with my brother for a month and found a topic to film in the U.S., and then when I came back there were offers like the part-time job at the University of Macau. At that time, in September and December I also went to some primary and secondary schools to just give a talk about action movies and how students can open their hearts to capture things. I also went to an association for the deaf, trying to learn if I can’t really hear, how can I visually make [the film] strong. I met lots of people and
Harriet Wong, film director
from this experience, from that point of view, I could write a story which I really felt was connected to people. All those days when I was in Beijing I was doing a very routine job. I would go to the office, then go to a coffee shop and edit or write my script with
nobody [around]. This new experience changed me a lot. Also, when I went to teach at the university I had to make them write their own scripts and because I was also writing my script we actually jammed and influenced each other.
So, after the class all 29 students had their own script and they knew that it was a script with soul. I also felt when I was making movies the energy and the contentment with my work - but now I feel another kind of contentment. advertisement
8 Business Daily Wednesday, August 23 2017
Greater china Investment
‘Big four’ banks raise billions for Belt and Road deals The sources said CCB and BOC would raise U.S. dollars for the offshore portion of their funds and yuan from onshore investors Kane Wu and Julie Zhu
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hina’s largest state-owned commercial banks are raising tens of billions of dollars to fund the country’s Belt and Road investment push, according to people familiar with the matter, bolstering Beijing’s ambitions as private capital pulls back.
The people said China Construction Bank Corp (CCB), the country’s second-biggest bank by assets, was raising at least RMB100 billion (US$15 billion) for a fund to specifically finance Belt and Road investment. The people added CCB was raising cash onshore and offshore, and has already been running road shows with investors.
Bank of China (BOC), another major state bank, aims to raise around RMB20 billion for a similar fund, according to two of the people. The cash, raised via banks’ private equity or other investment platforms, is part of a broader push sponsored by China’s central bank to use onshore yuan capital for offshore investments, including Belt and Road deals, according to one of the people. The other two of China’s “big four” banks - Industrial and Commercial Bank of China Ltd and Agricultural Bank of China Ltd - are considering similar fundraising plans, two of the people said. The people could not be identified as they are not authorised to speak to the media. The four banks and the People’s Bank of China did not immediately respond to Reuters’s requests for comment. Chinese President Xi Jinping in May pledged a US$124 billion funding boost to help his plan to build a modern Silk Road, connecting China with new and old trading partners. He also said China would encourage financial institutions to expand their overseas yuan fund businesses to the tune of 300 billion yuan.
Beijing is trying to contain overseas deals after some extravagant purchases in recent years, but while private spending on deals has slumped, acquisitions by Chinese companies in countries that are part of the Belt and Road initiative are soaring, totalling $33 billion as of mid-August.
Key Points CCB raising at least RMB100 bln -sources Bank of China also aims to raise RMB20 bln fund -sources ICBC, AgBank mull similar fundraising plans -sources Banks’ fundraising part of central bank’s broader push -sources That compares with a US$31 billion tally for all of 2016, showed Thomson Reuters data. The people said CCB and BOC would raise U.S. dollars for the offshore portion of their funds and yuan from onshore investors. Some of the onshore capital could be used offshore for Belt and Road deals overseas, two of the people said. Reuters
Reform
Mainland has more room to tackle debt - if it wants to Marius Zaharia and Tripti Kalro
Rising corporate profits are providing Chinese policymakers with room to do more to tackle the country’s growing debt problems without inflicting major damage on the economy. Profits are increasing even though financial conditions are tightening in some significant areas of the economy; lending rates have inched higher, regulators have clamped down against risky lending and have moved to take the heat out of the property sector. The economy is also comfortably on course to meet the government’s GDP growth target this year of around 6.5 per cent. Although it is far from certain the government will tighten credit conditions further, some economists expect policymakers to move that way once President Xi Jinping consolidates power at a key five-yearly Communist Party Congress later this year. “There’s more room to experiment (with tightening credit) ... It is the right timing and moment to do so against this backdrop of a strong growth momentum,” said Andrew Fennell, the main sovereign analyst for China at Fitch Ratings. The government has made reducing China’s debt burden a priority this year after credit soared following the global financial crisis. The International Monetary Fund warned last week that China’s credit growth was on a “dangerous trajectory” and called for “decisive action.” The Bank for International Settlements said in September excessive credit growth was signalling a banking crisis in the next three years. But a few things are falling into place to ease worries that further moves to curb debt would prompt an economic and financial crisis. Thomson Reuters data of almost 1,000 Shanghai-listed non-financial companies shows net profits rose almost 70 per cent in the first quarter from the same period of 2016. Results so far from the second-quarter earnings season suggest continued momentum on a pick-up
in global trade and economic activity: Gansu Jiu Steel expects a 54 per cent first-half net profit rise, while China Coal Energy expects net profit of RMB1.5-1.8 billion from RMB616 million a year earlier. For the 104 companies for which 2017 estimates are available, analysts predict a 38.25 per cent overall increase in net profits, compared with 10.6 per cent growth in 2016.
Key Points Chinese companies see strong profit growth, larger cash buffers Credit not so important to stock market success Financial conditions slightly tighter, defaults on the rise But little evidence policymakers want to rein in credit further Still, IMF says credit rise “dangerous”, seeks “decisive” steps Annual profits either shrank or barely grew over 2011-2015, which contributed to the rapid accumulation of debt.
Benchmark policy rates have been on hold for almost two years. But average lending rates edged up to 5.67 per cent in June, the highest since September 2015, from 5.53 per cent in March, the second-quarter policy report from the People’s Bank of China showed earlier this month. Total social financing (TSF), a broad measure of credit and liquidity, fell to RMB1.22 trillion in July from RMB1.78 trillion in June. Still, TSF grew 13.2 per cent from a year earlier, suggesting authorities do not want to hit the brakes too hard.
Rising bankruptcies
The government appears more tolerant of company failures as well. A Fitch analysis of files from the Supreme People’s Court shows there were 4,700 bankruptcy cases between January and July this year, compared with 5,665 for all of 2016 and 3,684 in 2015. Even if this signals Chinese policymakers are more tolerant of companies being pushed into bankruptcy, analysts say it also suggests they are moving slowly so as not to destabilise the economy. Still, only 12 per cent of the bankruptcies were in the indebted state
sector and the figures pale in comparison with bankruptcies in developed economies: they were 10 times lower than in France and four times lower than in the United States last year. A large chunk of the corporate debt, which the BIS estimates at almost 1.7 times the economy, has been taken by non-listed entities, especially in the state sector, which employs over 60 million workers. Analysts say many state-owned companies are loss-making and only kept alive by loans from state banks. “Deleveraging is a process that is very long,” said Iris Pang, ING’s Greater China economist. “No one wants the clean-up to happen in a short time span, because it would be very costly not only for the banking sector but for the whole economy in terms of defaults, write-offs of banking loans and redundancies.”
Cash reserves
Corporate deposits have also risen sharply, while a strong correlation between finance pumped into the economy and the performance of the Shanghai stock market has broken down for the first time in at least two decades, suggesting the performance of those companies, on aggregate, may not be as credit dependent as in the past. China Inc’s new profits are not entirely risked away in new spending or investments. Cash holdings and short-term investments for non-financial, Shanghai-listed corporates rose 26.3 per cent in the first quarter from a year earlier, having posted double-digit growth rates for the past three years. Oxford Economics’ Louis Kuijs said China could rein in credit so that it stopped growing by 2021 and only lose 1 percentage point of economic growth a year. “They would achieve something that is good for the long run while they would still end up with growth that is ... pretty good in any other economy,” said Kuijs, who is head of Asia economics. “They should consider it because it’s not the end of the world.” Reuters
Business Daily Wednesday, August 23 2017 9
Greater China Real estate
In Brief
Dalian Wanda drops plans to buy Nine Elms Square in London Chinese banks have been told to stop providing funding for several of Wanda’s overseas acquisitions Shu Zhang and Clare Jim
Dalian Wanda Group said yesterday it had scrapped plans to buy Nine Elms Square in London, the latest setback for the Chinese conglomerate as Beijing tightens controls on overseas investment. St. Modwen Properties, owner of the London building, said on Monday it had completed the 470 million pound (US$605.6 million) sale, without naming the buyer. It said in a June filing it had exchanged contracts with Wanda Commercial Properties
(Hong Kong). Wanda’s International Real Estate Center said in a statement to Reuters yesterday that ownership of the 4-hectare Nine Elms belonged to a third party. It is unclear who the buyer is at this stage. A sale of Nine Elms was first mooted in 2013. China’s cabinet on Friday reiterated it would limit overseas investment in property, hotels, entertainment, sports clubs and the film industry, and planned to maintain a blacklist of domestic firms that violated overseas
investment rules. Chinese banks have been told to stop providing funding for several of Wanda’s overseas acquisitions in order to curb its appetite for offshore deals, according to sources familiar with the matter.
‘China launched a clampdown on capital outflows and overseas direct investment last year, and Wanda has been one of the companies most affected’ China launched a clampdown on capital outflows and overseas direct investment last year, and Wanda, a property-to-entertainment giant run by one of China’s richest men, Wang Jianlin, has been one of the companies most affected. In March, Wanda’s proposed US$1 billion purchase of U.S. TV production company Dick Clark Productions collapsed under the heightened pressure from Beijing on outbound deals. Squeezed for finance, Wanda in July agreed to sell 77 hotels to Chinese developer Guangzhou R&F Properties Co for RMB19.9 billion (US$2.99 billion) and 91 per cent equity in 13 tourism projects to Sunac China for RMB43.8 billion. Reuters
Wang Jianlin, head of Wanda
Football
China Super League plots foray into online soccer games with deal The counterpart, Crazy Sports, also previously ran an online lottery platform through a separate business tie-up until the Chinese government started banning online lottery sales in 2015 China’s top-flight soccer league has signed a deal with a local developer to produce online soccer games in its first foray into gaming as it searches for new sources of revenue. The Chinese Super League (CSL) said on Monday that it had signed a six-year partnership with Beijing-based developer Crazy Sports to develop soccer-related games based on 16 CSL teams and the league through 2022.
‘China’s soccer industry has lured in billions of yuan investment since President Xi Jinping, a self-professed soccer fan, came to power in 2012’ Fans of soccer video games such as Electronic Arts Inc’s top-selling FIFA franchise, have been closely watching the CSL’s gaming plans as its deep-pocketed teams have recruited global stars such as Carlos Tevez, Oscar and Hulk in recent months. EA in June poured cold water on rumours that the CSL would feature in “FIFA 18”, the latest version of the
franchise, citing licensing issues, according to sports website goal.com. EA has deals with leagues around the world including the English Premier League and Italian Serie A. Crazy Sports said the CSL deal, that would give it non-exclusive rights, was worth over RMB100 million (US$15.02 million). Streaming revenue from the CSL-themed games could reach RMB1 billion in 2020, the firm’s chief executive Peng Xitao said. “The Chinese Super League is dedicated to expanding the influence and commercial value of the league. The development of CSL-themed games is a new revenue growth point for the league,” said CSL’s chairman Ma Chengquan. They said that they would also make the games’ content accessible
to overseas gamers through European gaming partners From the Bench and Soccer Manager. Crazy Sports, which also previously ran an online lottery platform through a separate business tie-up until the Chinese government started banning online lottery sales in 2015, said it hoped to convert its over 100 million sports lottery users to play the CSL games. China’s soccer industry has lured in billions of yuan investment since President Xi Jinping, a self-professed soccer fan who repeatedly expressed desire for China to host a World Cup and eventually win one, came to power in 2012. A five-year deal to broadcast the games in China was sold at a record-high RMB8 billion in 2015 to China Sports Media. Reuters
NDRC
Government to set new power transmission prices China said yesterday it will set new power transmission prices by the end of October, in its latest effort to liberalise the power market and promote trading of electricity across different regions. Beijing has made a series of moves to open up the country’s monopolised power market since late 2015, including launching a power trading scheme for eight provinces and reducing power distribution prices. The National Development and Reform Commission (NDRC) said in a statement it will announce transportation prices on the major West to East power grid by October and revisit prices every three years. Rersults
Country Garden H1 core profit rises 35 pct Country Garden Holdings Company Ltd, China’s top property developer by sales, yesterday reported an almost 35 per cent rise in its core profit over the first six months of the year, helped by a property boom. The homebuilder which focuses on smaller cities said in a statement its core profit, which excludes revaluation gains, rose to RMB7.2 billion (US$1.08 billion) during the period. Country Garden, which has an internal target to double sales this year to RMB600 billion, posted RMB288.9 billion sales for the first six months, more than double year-ago levels. Investment
COFCO Capital draws new state, private shareholders A group of state and private companies will invest a total of RMB6.9 billion (US$1.04 billion) in COFCO Capital, a subsidiary of state-run agribusiness COFCO Group, according to a notice published on Monday on a state investment platform. COFCO is currently restructuring its business as part of wide-ranging reforms of China’s state-owned companies. Part of the overhaul includes introducing mixed ownership into its 18 subsidiaries and listing more of its divisions on public markets. COFCO Capital’s new shareholders include state-run investors such as the State-owned Enterprise Structural Adjustment Fund and Beijing Capital Agribusiness Group. M&A
Seven Group to sell Mainland mining machinery business Australia’s Seven Group Holdings said yesterday it would sell its Chinese mining machinery division WesTrac China to Chinese firm Lei Shing Hong Machinery for A$540 million (US$428 million). Lei Shing Hong Machinery is a subsidiary of Chinese conglomerate Lei Shing Hong Ltd which distributes Caterpillar earthmoving, mining and construction equipment throughout eastern China and Taiwan. The Chinese government must approve the deal with the Australian media and mining company, Seven Group said in a statement to the Australian Securities Exchange. Seven Group Holdings was created from a A$3 billion merger of the Seven and WesTrac businesses in 2010.
10 Business Daily Wednesday, August 23 2017
Greater China Commodities
Metal frenzy sparks investor rush to smokestack debt The 179 China-listed companies in the metals, mining and coal industries reported a total RMB26.1 billion in profit in the first quarter
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hina’s so-called old-economy companies are enjoying a renaissance in the debt market, bouncing back from a beating on Beijing’s quest to modernize growth. Pressured to reduce capacity and tackle emissions since the end of 2015, coal and metal companies are now seeing some payoff, with a surge in raw materials prices contributing to buoyant earnings -- making their credits a hot commodity. Market pariahs a year ago, when their debt lost money for investors, these companies have staged a turnaround. Coal bonds have returned 5.74 per cent in the past six months, the second-best performance in China after electronics. They’re followed by the 5.5 per cent returned on notes issued by iron and steel firms. Companies are boosting supply to meet the demand, with RMB41 billion (US$6.2 billion) of AAA rated onshore bonds already sold this quarter. “The overcapacity curbs have eased competitiveness,” said Xu Hua, deputy head of research at Colight Asset Management in Shanghai, which has about RMB30 billion under management. “Upstream industries like coal, steel and petroleum refining have the strongest profitability.” China is trying to pivot its economy toward newer, high-tech industries, while also making the old ones that have fuelled growth for decades leaner and more resilient to potential
shocks. That belt tightening has made metals rock-star commodities this year, with reduced output from Chinese producers boosting prices for aluminium to gold. Coking coal, used in steelmaking, has also recovered from a mid-year slump, surging to 2017 highs in China.
“We shouldn’t ignore the fact that companies in overcapacity industries still have higher burden than other industries and their financing channels are relatively limited” Zhang Qinghua, general manager of fixed income at E Fund Management Co. in Guangzhou The price boost has translated into profit gains, with Aluminum Corp of China Ltd., the top state-owned smelter, posting an 11-fold increase in first-half earnings, and Hesteel Co.,
the nation’s second-biggest steelmaker, predicting net income could almost triple in the first six months of 2017. In fact, the 179 China-listed companies in the metals, mining and coal industries reported a total RMB26.1 billion in profit in the first quarter, compared with a loss of RMB1.7 billion in the same period of 2016, data compiled Bloomberg show.
prices through the first half of last year required significant borrowing. Chinese companies active in metals and mining, coal operations, iron and steel, and steel production had an average a debt-to-equity ratio of 129 per cent as of March 31, Bloomberg data show. That compares with an average ratio of 87 per cent in other industries.
Capacity cuts
While the worst may be over for these companies, investors need to keep their eyes open, according to Zhang Qinghua, general manager of fixed income at E Fund Management Co. in Guangzhou, which oversees about RMB484 billion in assets. “We shouldn’t ignore the fact that companies in overcapacity industries still have higher burden than other industries and their financing channels are relatively limited,” he said. Aluminium futures on the Shanghai Futures Exchange reached their highest price in almost six years this month, while rebar jumped to a more than four-year high as investors bet China’s production curbs, coupled with strong demand, will support prices into the second half. “Overall, the credit risk of leading companies in overcapacity industries has declined,” said Zhang. “But they won’t be worth investing in without some liquidity premium for protection.” Bloomberg News
The government’s supply-side reform initiative has been good for sectors that have struggled with overcapacity, says Hong Kong-based Patrick Song, a portfolio manager for CSOP Asset Management, which oversees US$4.8 billion. “For China onshore credit, we continue to prefer those leading companies in overcapacity industries,” he said. “We have seen some consolidation, there will be more consolidation -- their profitability has improved significantly.” Demand has seen debt costs slide. Aluminum Corp., known as Chalco, saw yields of as much as 5.6 per cent on its AAA rated debt due 2018 last year. In 2017, the yield has dropped 10 basis points to 4.84 per cent, according to Chinabond data. Similarly, yields have retreated for steelmakers and coal companies. But for many of these companies, weathering the government’s policy shifts and the downturn in metals
Debt piles
JV
Ford, mainland’s Zotye Auto plan to build electric vehicles Zotye, which Ford described as the market leader in China’s all-electric small vehicle segment, sold more than 16,000 all-electric vehicles this year through July Brenda Goh
Ford Motor is exploring setting up a joint venture with Chinese firm Anhui Zotye Automobile Co to build electric passenger vehicles in China under a new brand, tapping into a boom for such vehicles in the world’s top auto market. China, struggling with alarming pollution levels in major cities, is aggressively pushing plug-in vehicles and has poured in tens of billions in investment, research funding and subsidies, drawing many new automakers to launch projects. Tesla, Daimler AG and General Motors are among firms that have already announced plans for making electric vehicles in China, which wants electric and plug-in hybrid cars to make up at least a fifth of the country’s auto sales by 2025.
Ford, whose overall China sales are down 7 per cent this year, said in a statement yesterday that it had signed a memorandum of understanding with Zotye Auto to build a new brand under which the electric vehicles will be sold. Both firms will hold a 50-50 stake in the JV, it said.
Key Points Eyes 50-50 JV with Zotye Auto to create new brand Brand will sell all-electric vehicles in China Ford’s sales are down 7 pct in China this year It did not provide details of financial commitments nor say by when it will take a firm decision on the JV. Ford sees China as the fastest growing market in the
world for new energy vehicles (NEV) and forecasts that segment to grow to six million vehicles per year by 2025, of which approximately four million would be all-electric. The potential JV with Zotye Auto would represent a deepening of commitment to electric vehicles in China by Ford. In April, it outlined plans to offer by 2025 hybrid or fully electric versions of all models built in China with its domestic joint venture partner, Chongqing Changan Automobile Co Ltd . However, it also said at the time that it would take a cautious approach to the market due to uncertainty about consumer interest and government policy. Zotye, which Ford described as the market leader in China’s all-electric small vehicle segment, sold more than 16,000 all-electric
vehicles this year through July, representing a year-onyear growth of 56 per cent, it said. The privately-owned company, which is headquartered in China’s coastal Zhejiang province, also makes sport utility vehicles and
cargo trucks. On Monday, it reported a near six-fold jump in first-half profits. Ford said it would release details about the brand, products and production volumes at a later date, pending a final agreement and regulatory approvals. Reuters
Business Daily Wednesday, August 23 2017 11
Asia Trade
S.Korea, U.S. fail to reach agreement on possible revision to FTA deal Seoul maintains that the deal has been mutually beneficial, and said last month that the joint committee meeting did not necessarily mean that South Korea would renegotiate terms Jane Chung
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outh Korean and U.S. officials failed to agree yesterday on how to move forward on discussions over their fiveyear-old free trade agreement that Washington is seeking to change to help cut its trade deficit with Asia’s fourth-largest economy. U.S. President Donald Trump, in an interview with Reuters in April, had branded the bilateral trade agreement with South Korea a “horrible deal” and indicated he would renegotiate or terminate the accord. Last month, Washington issued a request to convene a special session of the Joint Committee under the Korea-U.S. (KORUS) Free Trade Agreement to negotiate amendments to the trade pact. South Korean Trade Minister Kim Hyun-chong and his American counterpart U.S. Trade Representative (USTR) Robert Lighthizer held the meeting via a video conference earlier yesterday. “We have found the two sides have different views on the free trade agreement and have not reached any agreement,” Kim told a news conference after the meeting. Kim said Seoul had stressed that the U.S. trade deficit with South Korea was not the result of the bilateral trade deal and proposed a joint study to examine the effects of the agreement.
Yu Myeong-hui (C), South Korean free-trade agreement (FTA) negotiator, is surrounded by reporters as she ends her first meeting with a U.S. Trade Representative delegation. Source: Lusa
The trade minister said the U.S. side had not brought up the possibility of terminating the trade pact during the talks, adding, South Korea would wait for the U.S. review of yesterday’s discussions and its proposals. Lighthizer said in July the U.S. trade deficit in goods with South Korea had doubled to US$27.6 billion last year from US$13.2 billion in 2011. The United States has been keen to address trade imbalances with South Korea, particularly for its
automakers, since President Trump pointed out the imbalance in auto trade. In 2016, South Korea’s car exports to the United States stood at US$16.2 billion, while its imports of U.S. cars were US$1.74 billion, a trade ministry official said based on data from the Korea Trade International Association. Seoul maintains that the deal has been mutually beneficial, and said last month that the joint committee
meeting did not necessarily mean that South Korea would renegotiate terms. South Korea has also said it first needs to be established whether the U.S. deficit is a result of other structural issues in U.S. industries. The bilateral accord was initially negotiated during the Republican administration of President George W. Bush in 2007, but that version was scrapped and renegotiated by President Barack Obama’s Democratic administration three years later. Reuters
Budget
Japan’s MOF eyes FY2018/19 debt-servicing worth US$218 bln Government ministries and agencies will submit their budget requests to the finance ministry later this month Japan’s Ministry of Finance is set to seek 23.8 trillion yen (US$217.8 billion) in fiscal 2018 to finance the cost of debt-servicing, with the help of rock-bottom interest rates as a result of the central bank’s monetary easing, government sources told Reuters.
‘Analysts say the total budget request for fiscal 2018 will exceed 100 trillion yen’ The budget request for debt-servicing compared with 24.6 trillion yen the MOF had requested last year for this fiscal year, the sources said on condition of anonymity because the plan has not
been finalised. The MOF will assume the borrowing rate as measured by the 10-year government bond yield at 1.2 per cent, in requesting its budget for the next fiscal year, they said. That compared with the interest rate of 1.6 per cent the MOF had assumed last year when requesting its budget for this fiscal year. The assumed rate was later lowered to an all-time low of 1.1 per cent when the MOF compiled this fiscal year’s budget in December, which has brought the debt-servicing cost to 23.5 trillion yen. Given that interest rates are weighed down under the Bank of Japan’s yield curve control, the assumed rate could be lowered further from 1.2 per cent in December when the MOF compiles a draft budget for the next fiscal year that starts in April 2018. Government ministries and agencies will submit their budget requests to the
finance ministry later this month, which will be scrutinised and trimmed towards December when the next fiscal year’s budget draft is compiled. Analysts say the total budget request for fiscal 2018 will exceed 100 trillion yen because the MOF did not cap
budget requests by ministries and agencies, as Prime Minister Shinzo Abe attaches greater importance to growth than fiscal consolidation. S n o w ba l l i n g w e l f a r e spending to fund the cost of services for the fast-ageing population has pushed this fiscal year’s annual state
budget to 97.5 trillion yen, the biggest amount ever. Abe faces pressure to spend further in other areas such as defence to cope with North Korea’s missile and nuclear threats, making it harder to achieve his ambitious goal of achieving a primary budget surplus by March 2021. Reuters
12 Business Daily Wednesday, August 23 2017
Asia Monetary policy
Indonesia resumes policy easing Governor and other central bank officials told reporters in Jakarta that the rate cut was motivated by lower inflation data Karlis Salna, Rieka Rahadiana and Eko Listiyorini
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ndonesia’s central bank cut its benchmark interest rate by a quarter percentage point, resuming its policy easing to spur growth in Southeast Asia’s biggest economy. Governor Agus Martowardojo and his board lowered the seven-day reverse repurchase rate for the first time since October, reducing it to 4.5 per cent yesterday. All but six of 28 economists surveyed by Bloomberg had expected the benchmark rate would remain unchanged at 4.75 per cent. Bank Indonesia follows counterparts in India and Vietnam in easing monetary policy in recent months as low inflation gives policy makers in Asia room to provide stimulus to their economies. Six interest rate cuts last year in Indonesia have failed to spur economic growth above 5 per cent, while credit demand is still lacklustre, enabling the central bank to restart its easing cycle. “The rate cut from BI is a measured move, as it is coming on expectations of lower inflation, and reasonable growth,” said Rahul Bajoria,
an economist at Barclays Plc in Singapore, who had correctly predicted the decision. “We believe the central bank remains focused on maintaining financial stability, and any further easing will be done keeping that in mind.”
“The rate cut from BI is a measured move, as it is coming on expectations of lower inflation, and reasonable growth”
to spur credit demand and economic growth, they said. “The mandate of BI is to maintain stability,” Mirza Adityaswara, senior deputy governor, said. “And we believe by doing so, the growth will be well.” Bank Indonesia sees inflation averaging about 4 per cent this year and below 3.5 per cent in 2018, remaining within its 3 per cent to 5 per cent target band. Inflation slowed to 3.9 per cent in July from 4.4 per cent in June. While Indonesia’s economy is growing about 5 per cent, that’s still short of President Joko Widodo’s 7 per cent
goal he set when he came to office three years ago. The government is projecting growth of 5.4 per cent next year compared to 5 per cent last year. The central bank said loan growth, which slowed to 7.8 per cent in June, will average 8 per cent to 10 per cent this year, below its previous target of 10 per cent to 12 per cent. The economy is seen improving, expanding an estimated 5.1 per cent to 5.5 per cent in 2018, it said. Bank Indonesia had put its policy easing on hold until yesterday, concerned that tightening U.S. monetary
policy may spur outflows from emerging markets, undermining the currency. The rupiah has been relatively stable this year, gaining about 1 per cent against the dollar. “The main reason BI has not cut rates sooner is worries about the outlook for inflation and the exchange rate,” said Gareth Leather, a senior Asia economist at Capital Economics Ltd. in London. “However, these concerns are starting to recede.” He predicts another reduction this year, but said the timing will depend on the performance of the rupiah. Bloomberg News
Rahul Bajoria, an economist at Barclays Plc in Singapore Martowardojo and other central bank officials told reporters in Jakarta that the rate cut was motivated by lower inflation data, expectations of only one more U.S. interest-rate increase delayed to later this year and projections for the current-account deficit to remain manageable. The policy easing may help
Technology
Singapore is seeking business with start-ups to spur them Singapore has already earmarked US$14 billion for research and development over a five-year period from 2016 Melissa Cheok
Singapore’s government will support technology start-ups by doing business with them rather than having them rely on grants as the city-state pushes ahead with a plan to become a high-tech hub, a top minister said. The government wants to fuel private-sector innovation, especially among small and medium-sized firms, in a bid to create a digitally integrated economy, Vivian Balakrishnan, the minister in charge of the country’s “Smart Nation” initiative, said in an interview in Singapore yesterday. “We’re going to feed the private sector, not by giving grants, but by buying services,” he said. “It’s a demand-driven model. I don’t believe in a grant or grantocracy.” Trade-reliant Singapore is trying to restructure its economy to make it a global centre of innovation, spending billions of dollars on research and development, reskilling people and building a cashless society. Balakrishnan said it was crucial for Singapore to reach its goals to create a digital economy in order to preserve incomes and jobs for the middle class. “If we don’t address this, you’ll see the danger of the middle class being hollowed out and of jobs being lost,” the minister told Bloomberg TV’s Haslinda Amin. “You need to
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completely retool and reskill your society and you’ve got to do it in a way that no one is left behind.” “There is a danger of complacency in any place, which is apparently efficient and where things work too well, and we need to get out of that,” he said.
Trade fears
Balakrishnan, who is also minister of foreign affairs, cautioned against
blaming trade for the erosion of middle-class jobs and wages, an argument used by anti-globalization advocates like U.S. President Donald Trump. Rather than nations trying to protect obsolete jobs, “you need to be looking at where the new jobs are being created, the new ways of distributing value and opportunities and prepare your people for that,” the minister said.
Singapore has already earmarked S$19 billion (US$14 billion) for research and development over a fiveyear period from 2016. Open data platforms will also be made accessible to the private sector to speed up the creation of new products and services, Balakrishnan said.
“We’re going to feed the private sector, not by giving grants, but by buying services” Vivian Balakrishnan, minister in charge of the country’s “Smart Nation” initiative
Vivian Balakrishnan, minister in charge of the country’s “Smart Nation” initiative. Source: Bloomberg
The city-state’s high Internet usage and smartphone penetration have helped boost its efforts to become a digital economy and may help bolster economic growth. In his National Day Rally speech on Sunday, Prime Minister Lee Hsien Loong urged Singaporeans to embrace technology and said the country still had some way to go to create a cashless society and to simplify its e-payments systems. Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, August 23 2017 13
Asia Poll
In Brief
Bank of Japan price goal a tall order, but Japan Inc not interested in more easing Two-thirds of respondents in the Aug. 1-16 survey saw the inflation goal as unrealistic Tetsushi Kajimoto
A vast majority of Japanese firms do not want any further radical monetary easing, even though they believe the central bank’s inflation goal will either take more than three years to achieve or is an impossible target, a Reuters poll showed. Deflation - where consumers believe declining prices are here to stay, restraining their spending - has hobbled Japan’s economy for nearly two decades, bedevilling policymakers despite drastic measures aimed at engineering a sustainable recovery. The results of the Reuters Corporate Survey underscore the view that authorities may not have the means to bring about an escape to deflation, with respondents noting it has become too entrenched and that the mind-set of a rapidly ageing but mostly middle-class population worried about pensions hinders any exit. “Given that Japanese people are generally satisfied with the material goods they have, we have no choice but cut prices to sell more goods,” a manager at an electrical machinery maker wrote in the survey. “This trend needs to wane in order to beat deflation, but it’s impossible as long as people are satisfied materially.” Despite the introduction of negative interest rates and a new approach that seeks to control the yields of government bonds, the central bank just last month delayed for a sixth time its target for reaching 2 per cent inflation - this time not until the fiscal year ending March 2020. Even so, two-thirds of respondents in the Aug. 1-16 survey saw the inflation goal as unrealistic, with 37 per cent saying the target would take more than
Bank of Japan headquarters in Tokyo
three years to achieve and 31 per cent saying it was not feasible at all. Compared to October when the same question was asked in the monthly survey, the number of firms believing it was impossible saw a 5 per centage point uptick although the number saying it was achievable within three years also saw a 5 per centage point rise. Pessimism about the inflation goal notwithstanding, only 14 per cent of firms want the Bank of Japan to go further with monetary easing. Forty-six per cent want it to stand pat with current policy while 40 per cent said they would prefer that the central bank sought some sort of exit from its ultra-easy stance. “Under the current circumstances where effective demand is declining, pursuing an ultra-easy monetary policy including negative interest rates hardly produces positive effects. Instead it causes side effects to materialise,” wrote a manager at another electrical machinery maker. Potential side effects could include the encouragement of speculative moves in financial markets that cause bubbles. Firms were split when asked about their overall satisfaction with the central bank’s policies to date, with 52 per cent of saying they were satisfied and remainder saying they were unhappy. On the 2 per cent inflation goal itself,
53 per cent said it should be maintained, while 20 per cent believed it should be lowered and 24 per cent said it should be ditched altogether. Further highlighting the struggle with deflation, the survey showed three-quarters of firms had no plans to lift prices of their main goods and services this financial year. That comes despite two-thirds saying their labour costs rose in the past year. Of those, 60 per cent said labour costs had risen 1-5 per cent, while 5 per cent said they had climbed 6-10 per cent. When asked about how they planned to cope with higher labour costs, the most popular option - picked by 42 per cent of firms - was “doing nothing in particular” - a choice that could squeeze profits. Thirty per cent said they planned to invest in labour-saving technologies, and 27 per cent said they would review their corporate structure and employee training. Only 15 per cent opted for price hikes of their goods and services. Respondents were allowed multiple responses to the question. The survey, conducted for Reuters by Nikkei Research, polled 548 big and mid-sized firms that reply on condition of anonymity. Some 244-250 companies answered questions about BOJ policy. Reuters
M&A
Malaysia’s RHB Bank and AmBank drop merger plans A source familiar with the matter told Reuters deal talks have stumbled over valuation because of contingent liabilities Liz Lee
Malaysia’s RHB Bank and AMMB Holdings (AmBank) have dropped plans for a merger on grounds that both could not arrive at mutually acceptable terms. In a joint statement filed to the bourse, RHB Bank and AmBank said that “after much discussion and deliberation, (both parties) were not able to reach
an agreement on mutually acceptable terms and conditions for the proposed merger.” The banks have “mutually agreed to end discussions on the proposed merger of the two banking groups.” The banks said they will continue with their respective business strategies, at the cessation of the three-month long negotiations. advertisement
Reuters reported earlier, citing sources, that the deal was likely to be called off. The merger talks began in June after receiving the Malaysian central bank’s blessing to start. RHB had said it planned to acquire AmBank in an all-stock deal. The Malaysian central bank has encouraged consolidation of the sector, although deals have proved hard to conclude. RHB, CIMB and Malaysian Building Society started negotiations in 2014 over a US$20 billion three-way merger to create Malaysia’s largest bank, but talks collapsed in 2015. A successful takeover of AmBank -- which has a market value of 14.16 billion ringgit (US$3.31 billion) -would reinforce RHB’s ranking as the fourth-largest Malaysian bank by assets behind Maybank, CIMB Group Holdings and Public Bank. AmBank is the sixth-biggest. A source familiar with the matter told Reuters deal talks have stumbled over valuation because of contingent liabilities. The source did not want to be named because the talks were confidential. Australia and New Zealand Banking Group, a 24 per cent shareholder in AmBank, had been looking to divest its stake through the sale, though Malaysian retirement fund KWAP may yet buy the holding. Reuters reported in July that they were in negotiations over a US$900 million deal. Reuters
Philippines
FinMin says not worried about the peso’s weakness Philippine Finance Secretary Carlos Dominguez said yesterday the authorities were not worried about the peso’s weakness, but were monitoring the speed at which it moves against the U.S. dollar. The peso hit an 11-year low on Friday but opened slightly firmer yesterday at 51.45 versus its close on Friday at 51.49. “It is not so much the rate of change that we are looking at but the speed by which the currency moves,” Dominguez told reporters. “If the speculation gets too much, I think the speculators will get hurt.” Ride-sharing
Singapore taxi firm in exclusive talks with Uber Singapore’s biggest taxi operator, ComfortDelgro Corp Ltd, entered into exclusive talks with Uber Technologies Inc for a potential tie-up, it said yesterday, in a move that could help Uber in its fight with dominant ride-hailing firm Grab. ComfortDelgro signed a letter with Uber for exclusive discussions to form a potential strategic alliance, which may include collaboration to manage fleet vehicles and booking software solutions in the city-state, the taxi firm said in a statement to the Singapore Exchange. The taxi operator said the potential tie-up would also include the company’s taxis being made available on Uber’s app. M&A
Japan Tobacco to buy Philippine cigarette maker Mighty Japan Tobacco Inc said yesterday it would buy the Philippines’ No. 2 cigarette maker Mighty Corp for about US$936 million, its second large deal in Southeast Asia this month as it deepens its push into emerging markets. The acquisition will help Japan Tobacco, which sells the Winston, Mild Seven and Camel brands in the Philippines, challenge the local dominance of PMFTC Inc, a venture owned by a Philip Morris International and unlisted Fortune Tobacco Corp. Japan Tobacco has said it is also looking for acquisitions in Africa and Latin America. Financial report
PwC Japan exec denies political pressure on Toshiba audit The head of auditor PricewaterhouseCoopers Aarata LLC on Monday denied it came under political pressure to sign off on an annual financial report by Toshiba Corp, a move which helped the troubled Japanese conglomerate avert a delisting. PwC earlier this month endorsed Toshiba’s annual financial report with a “qualified opinion”. But it also issued a separate, “adverse opinion” on corporate governance, saying Toshiba was late in booking losses at its U.S. nuclear power subsidiary Westinghouse. The auditor’s rare, two-part verdict came at a sensitive time for Prime Minister Shinzo Abe.
14 Business Daily Wednesday, August 23 2017
International In Brief Real estate
Home prices in U.S. rise in Q2 Home prices in the U.S. increased 6.6 percent in the second quarter from a year earlier as buyers competed for a shrinking supply of listings. Prices rose 1.6 percent on a seasonally adjusted basis from the previous three months, the Federal Housing Finance Agency said in a statement yesterday. In June, prices climbed 0.1 percent from May, less than the 0.5 percent average estimate of 12 economists. The U.S. has been starved for inventory, in part because builders slowed production after the last decade’s property crash and many seniors are choosing to remain in their houses rather than downsize. Guinea-Bissau
Situation ‘complicated’ The situation in Guinea-Bissau is “complicated” since “the parties involved still persist in taking extreme positions” the executive secretary of the Community of PortugueseSpeaking Countries (CPLP), Maria do Carmo Silveira said in São Tome and Principe on Monday. Ms Silveira was beginning a three-day visit to the country and mentioned her recent visit to GuineaBissau where she noticed the positions were very extreme. “They all recognise the need for dialogue but very little is done in terms or real progress to find a common platform for the dialogue”, she said.
M&A
EU Commission starts in-depth probe of Bayer, Monsanto deal Germany’s Bayer said it still aimed to have the transaction approved by the end of the year
T
he European Commission has started an in-depth investigation of Bayer’s planned US$66 billion takeover of U.S. seeds group Monsanto, saying it was worried about competition in pesticide and seeds markets. The merger would create the world’s largest integrated pesticides and seeds company, the Commission said, adding this limited the amount of competitors selling herbicides and vegetable seeds in Europe. “The Commission has preliminary concerns that the proposed acquisition could reduce competition in a number of different markets resulting in higher prices, lower quality, less choice and less innovation,” the European Commission said in a statement yesterday. Germany’s Bayer said it still aimed to have the transaction approved by the end of the year. “Bayer looks forward to continuing to work constructively with the Commission with a view to obtaining the Commission’s approval,” the company said in a statement. Bayer had previously offered
commitments aimed at easing the EU’s antitrust concerns over the deal with Monsanto, but the company declined to say what was proposed.
“Over a million people are calling on her to block the merger from hell” Nick Flynn, campaign group Avaaz legal director
If approved, the deal would be the third large tie-up in the agrochemicals sector but other companies also had to offer concessions to win over regulators. Dow secured regulatory clearance to acquire DuPont only after pledging to sell key research and development activities and other major assets. And ChemChina had to sell a large chunk of its subsidiary Adama’s pesticide, herbicides and insecticides
business, its seed treatment products for cereals and sugar beet and a substantial part of its plant growth regulator business for cereals to win EU approval to buy Syngenta. The Commission said it was working with regulators in other markets, such as the United States, Australia and Brazil to vet the Bayer-Monsanto deal. Bayer offered to sell its Liberty crop chemical, also known as glufosinate, and canola and cotton seeds that resist the chemical’s plant-killing effect to get approval for the deal from South African regulators. The proposed tie-up has also hit a raw nerve with some environmental activists who fear such a combination would hurt farmers and consumers. U.S. based campaign group Avaaz said it had submitted a petition with one million signatures to Competition Commissioner Margrethe Vestager, calling on her to block the deal. “Over a million people are calling on her to block the merger from hell,” said Avaaz legal director Nick Flynn. The Commission said it would asses the deal only from a competition perspective. Reuters
Sentiment
German investor morale plunges as emissions scandal bites
M&A
Italy, France, Germany ask EU to boost powers to block foreign acquisitions Italy, France and Germany have asked the European Commission to reinforce existing regulations that allow EU states to block foreign acquisitions of European companies, two Italian dailies reported yesterday. The request cited the ‘golden powers’ to bar or set conditions for would-be buyers “that operate with rules that do not follow the market and that do not respect rules of reciprocity for acquisitions,” Il Sole 24 Ore and La Stampa reported, citing a leaked letter. European Union leaders agreed in June to consider screening investments by state-owned Chinese firms, and France, Germany and Italy have backed the idea of allowing the EU to block Chinese investments. Motor Industry
Cars made in U.K. may struggle to be British enough post-Brexit Manufacturers of “Made in the UK” cars are facing a worrying dilemma: Their vehicles might not be British enough to escape expensive tariffs after Brexit. Current trade pacts generally require exporters to prove that 50 to 60 per cent of a product’s components are from the originating country to avoid tariffs. But UK cars are now just 44 per cent British-made on average, according to the Automotive Council. Such numbers mean auto companies are already bracing themselves for the UK to strike post-Brexit trade deals that will most likely require them to source more vehicle parts from within Britain.
The Bundesbank said the economy could grow faster than expected this year thanks to exceptionally strong industrial output, exports and consumption though Michael Nienaber and Maria Sheahan
The mood among German investors fell for the third month running in August, a survey showed yesterday, linking the drop to an emissions scandal engulfing the country’s car industry. The sector’s reputation and the “clean” diesel technology at its core has been battered since Volkswagen admitted in 2015 to cheating U.S. emissions tests to conceal polluting fumes. Last month EU antitrust regulators opened an investigation into claims of collusion among German carmakers over pricing diesel emissions treatment systems. Achim Wambach, president of the ZEW research institute, said the scandal, along with broader signs of weakness in the export sector, had driven the drop in its sentiment reading for Europe’s biggest economy. The Mannheim-based institute’s monthly index fell to 10.0 in August from 17.5 in July, undershooting a Reuters consensus forecast of 15.0 and the lowest reading since last October. “The significant decrease ...reflects the high degree of nervousness over the future path of growth in Germany,” Wambach added. He also said the overall outlook remained “relatively stable at a fairly high level” - an assessment more in line with a bullish monthly report issued on Monday by the German central bank. The Bundesbank said the economy could grow faster than expected this year thanks to exceptionally strong industrial output, exports and consumption. The economy’s solid performance is playing into the hands of Chancellor Angela Merkel in the run-up to a
The automobile sector’s reputation and the “clean” diesel technology at its core has been battered since Volkswagen admitted in 2015 to cheating U.S. emissions tests to conceal polluting fumes
federal election on Sept. 24, when she is heavily tipped to win a fourth term. The car industry, which is Germany’s biggest exporter and provides about 800,000 jobs, has agreed with Berlin to renew engine software on millions of diesel cars and pay customers bonuses to upgrade to cleaner vehicles as they face potential driving bans in major cities and dwindling diesel sales.
Earnings bonanza
A separate ZEW gauge measuring investors’ assessment of the economy’s current conditions edged up to 86.7 from 86.4, compared with a Reuters consensus forecast predicting a dip to 85.5. Second quarter figures released by the Statistics Office last week showed an annualised economic growth rate of 2.1 per cent in the April-June period, driven by soaring private consumption and higher state spending. The Bundesbank said in June it expected a 1.9 per cent expansion in 2017, an upbeat picture supported by solid figures from the private sector. That includes Volkswagen, Germany’s biggest blue-chip company by market value, raised its 2017 sales forecast last month after cost-cutting
and higher-margin new models at its namesake brand helped it beat quarterly profit expectations. Nearly a third of blue-chip companies raised their full-year guidance after recording a rise in profits for the second quarter to June. According to consultancy EY, the 30 DAX index-listed companies’ combined operating profits jumped by almost a third to a record level of over 39 billion euros (US$45.9 billion), helped by demand from Asia and the United States. The German government predicts an unadjusted growth rate of 1.5 per cent for 2017. This would translate into a calendar-adjusted figure of 1.8 per cent. With the euro zone economy expanding for the 17th straight quarter, Germany has been the engine of recovery, giving the European Central Bank some room to at least discuss curtailing its unprecedented stimulus cocktail. The ZEW indicator, based on the survey of some 200 analysts, will be followed by the closely watched Ifo business climate index on Friday. Analysts expect it to fall to 115.5 points after hitting three record highs in a row from May to July. Reuters
Business Daily Wednesday, August 23 2017 15
Opinion
Warren Buffett
Buffett can’t afford to keep coming up empty-handed Tara Lachapelle a Bloomberg Gadfly columnist
T
hird time’s the charm, Mr. Buffett? That’s not like you. After Sempra Energy muscled its way past Warren Buffett’s Berkshire Hathaway Inc. in the bidding for Texas utility Oncor, that makes two deals backed by the billionaire this year that may now be kaput. It’s a problem for Berkshire as its cash quickly builds. The total reached US$99.7 billion in the second quarter, well on its way to surpassing US$100 billion in the current period. The longer the cash sits there, the more compelled Buffett may feel to do what he really doesn’t want to do: return money directly to Berkshire shareholders. It would be an admission of defeat by an M&A market master in the face of a deal environment he no longer recognizes -- one in which parties involved in his talks dare leak them to the press and counter bidders dare emerge publicly. Last week marked six months since Kraft Heinz Co., which is controlled by Berkshire and 3G Capital, abandoned its plan to acquire Unilever for US$143 billion after the press caught wind of the negotiations and their reports threw Unilever’s team into a tizzy. It was an unusual situation for Buffett to be in, as he tends to get the deals he wants and certainly rarely -- if ever -- gets blindsided by leaks. If negotiations in his past transactions had ever hit bumps along the way, investors wouldn’t know it. Buffett also rarely gets elbowed out by competing bidders. But now Oncor Electric Delivery Co., the takeover target that Berkshire’s energy division was pursuing, is slipping away. Over the weekend Sempra, a San Diego-based utility owner, made a US$9.45 billion bid for the bankrupt parent of the Texas power distributor, topping Berkshire’s US$9 billion offer that had been agreed to just six weeks ago. It’s a win for another billionaire, Paul Singer, whose Elliott Management Corp. had been fighting the Berkshire deal. According to Elliott, Sempra’s acquisition provides “substantially greater recoveries” to all creditors of Energy Future Holdings Corp., Oncor’s parent. Buffett is not one to get into bidding wars, but he does need to find large, attractive takeover candidates and Oncor was a deal the market liked. Even with it, though, Berkshire’s cash is getting far too large. When I raised the idea of Berkshire needing to pay a dividend back in January, some readers thought that was outlandish. Why would the world’s most successful investor -- or even his eventual successor -- resort to a dividend or buybacks when he can spend the cash on high-return acquisitions that do better for Berkshire and its shareholders? They assumed Buffett could find such acquisitions. I explained here why it hasn’t been so easy lately, although our Gadfly analysis in May did unearth some interesting mega-sized candidates: Buffett turns 87 next week. Not many octogenarians are spending their time searching for US$50 billion-plus acquisitions. But finding one last elephant would neatly tie the bow on his incredible career. Bloomberg Gadfly
‘Berkshire’s cash is getting far too large’
Coal price surge justified by China’s dynamics, for now
H
ow much of the current surge in thermal coal prices in Asia is because of a fundamental shift in the supply-demand balance, and how much is down to speculative froth? This is a question often asked when a commodity experiences a strong gain - or drop - in price, especially when the fundamentals don’t appear to have shifted that much, at least on a casual view. Virtually everybody in the coal industry can agree that the strong performance in seaborne thermal coal this year is being driven by market dynamics in top importer China. What’s harder to work out is whether this rally will run out of steam or whether there has been a structural change in the market. The argument for a structural change in China is quite compelling. It goes a long way toward justifying some of the explosive 43.2 per cent rally in spot cargoes from Australia’s Newcastle port in the past three months. The price has risen from the low so far this year of US$71.30 a tonne on May 16 to end at US$102.10 on Aug. 18, though it should be borne in mind that the gain since the end of last year is a more modest 9.2 per cent. The main fundamental reason is China’s increased appetite for imported coal. Inbound shipments are up 18.2 per cent to 152.7 million tonnes in the first seven months of the year compared with the same period in 2016, according to customs data. And vessel-tracking data compiled by Thomson Reuters suggests that August will be another robust month for seaborne coal imports. As of Aug. 20, the amount of coal already discharged at Chinese ports was 15.68 million tonnes, according to the vessel-tracking data. If search parameters are widened to include ships already en route and expected to complete discharging by the end of the month, an estimated seaborne imports of 21.46 million tonnes are due in August - up from the July’s 20.1 million tonnes and the second-strongest month this year behind May.
“
Clyde Russell a Reuters columnist
While this suggests domestic coal output is robust, to some extent it is still recovering from last year’s decline, caused by official restrictions on the number of days mines could operate. It’s also worth noting that July’s coal output of 294 million tonnes was the lowest since October and down 4.5 per cent from June, with environmental restrictions, safety checks and a crackdown on illegal mines cited as reasons for the drop. The rise in coal output this year has largely been matched by increasing demand from electricity producers. Thermal power generation has grown 7.8 per cent in the first seven months of the year. Th i s w as l a rg e l y b eca u s e hydropower was curtailed earlier in the year, with hydro generation dropping 3.4 per cent in the January-July period. The decline in hydro isn’t a structural change, and its likely recovery, together with rising output from nuclear and renewables such as wind and solar, may result in growth in thermal generation slowing in coming months. Overall, it appears coal in China is being subject to competing structural influences. On the one side are on-going attempts to limit domestic output by closing inefficient mines and stopping illegal mining. On the other are efforts to limit consumption by more stringent environmental requirements and moves to cut excess capacity in coal-consuming industries such as steel and cement. In an ideal world, these two efforts would largely work in tandem, with lower output growth being offset by reduced consumption growth. The reality is more messy. It’s this dynamic that allows for seaborne imports to be price-competitive and in greater demand. It’s still far from certain that the structural changes in China’s coal production and consumption will be bullish for imports in the longer term. It’s highly doubtful that the authorities in Beijing want to import more coal on a sustained basis, meaning the current increase in imports, and prices, probably has a limited, but indeterminate lifespan. The current rally in prices does seem largely justified by the fundamentals of increased Chinese imports, but expecting it to continue would be a brave position to take. Reuters
The price (of coal) has risen from the low so far this year of US$71.30 a tonne on May 16 to end at US$102.10 on Aug. 18
Competing influences
The increase in imports has come against a backdrop of efforts by Beijing to curb excess coal mining capacity by closing unviable mines. This is a structural shift aimed at boosting the efficiency of coal mining in China, but not necessarily at cutting output. Coal production in the first seven months of 2017 was 5.4 per cent higher than the same period a year ago at 2 billion tonnes, according to official statistics released on Aug. 14.
”
16 Business Daily Wednesday, August 23 2017
Closing Financial crimes
China’s top prosecutor to intensify crackdown
crimes that include inside trading, fake initial public offerings, information leaks and market manipulation. China’s top prosecutor said yesterday it will intensify a crackdown on financial crime, and The prosecutor would also intensify a clampdown on illegal fundraising, pyramid would step up punishment and efforts to prevent risks to safeguard financial security. scams, “Ponzi Scheme”, and other financial frauds. The Supreme People’s Procuratorate said This year, high profile regulators who have China would strictly crack down on any been caught up in President Xi Jinping’s anticrimes that seriously damaged financial security and that destroyed financial orders. corruption drive include the former head of the insurance regulator, former vice chairman In said a notice in an official newspaper managed by the top prosecutor it would also of the securities regulator and former assistant chairman of banking regulator. Reuters tighten the screws on securities and futures
Election
Angola Unita party says talk of election causing war is ‘crazy’ Today’s election will see Angola’s first change in leadership in almost four decades Henrique Almeida and Candido Mendes
A
ngola’s main opposition party repeated its threat to hold street protests if it deems this week’s elections unfair, but said there’s no way the vote could lead to a return to conflict in the oil-producing southern African nation. “People are being told that if they vote for Unita there will be war,” the leader of the National Union for the Total Liberation of Angola, Isaias Samakuva, said at his party’s last campaign gathering in the capital, Luanda, before today’s vote. “Not here. We’ve seen what war is. Are you crazy or what?” Unita is a former rebel group that fought the ruling Popular Movement for the Liberation of Angola during the 27-year civil war that ended in 2002. Samakuva, 71, came to head the party a year later and has lost general elections to the MPLA in 2008 and 2012. Today’s election will see Angola’s first change in leadership in almost four decades, after President Jose Eduardo dos Santos, Africa’s second-longest serving ruler, said he would step down. The MPLA’s candidate, Defence Minister Joao Lourenco, is expected to win the election with 61 per cent of votes, according to a poll last month. Samakuva, whose party enjoys strong support outside Luanda but has been losing influence since senior officials left in 2012 to form a new party, has promised to create jobs and introduce a minimum
Isaias Samakuva, the candidate of the Unita waves during the closing campaign rally in Luanda. Source: Lusa
wage of US$500 per month if elected. He’s accused the MPLA of ignoring widespread corruption and not doing enough to improve the lives of Angolans, about a third of whom live in poverty, according to World Bank data.
‘Profound crises’
“They’re speaking about an economic crisis but in reality our country is going through profound crises in the economy, politics, education, culture and corruption,” Samakuva told thousands of supporters dressed in the green and red party colors who waved flags and cheered. Samakuva also called on the
Money market
National Electoral Commission to ensure a fair vote. He cited the overwhelming coverage of the ruling party’s campaign by state-owned media, the requirement for some of electorate to vote at stations outside their home areas and problems registering opposition officials to monitor the vote among the party’s concerns. “If we’re unable to fix this we will ask for your support,” Samakuva said in an hour-long speech. “All we want is for the law to be respected.” Last month, the European Union cancelled plans to observe the elections after it failed to agree on conditions with Angola’s government including access to stations in all parts
Formula one
of the country. Miguel Trovoada, who heads a mission of election observers from the Community of Portuguese Language Speaking Countries, said Monday he expects the vote to be peaceful. “We’ve been here for some time and have witnessed a climate of great tranquillity,” Trovoada, a former prime minister and ex-president of Sao Tome and Principe, said in comments broadcast by state-owned Radio Nacional de Angola. “We hope that Angola, which has experience with past elections, can once again serve as an example to Africa in terms of the development of the democratic process.” Bloomberg News
Blockchain
China cash squeeze lurks again Chinese GP set as billions of NCDs come due to extend stay
Nestle, Unilever, Tyson and others team with IBM
China’s money market is bracing for yet another squeeze. A record RMB2.3 trillion (US$340 billion) of negotiable certificates of deposit (NCDs) -- a funding lifeline for medium and smaller banks -- are set to mature next month, adding to the stress of an official deleveraging drive that has pressured onshore bonds lower in all but two months of this year. The flood of maturities comes at an especially challenging time for the nation’s interbank market, with lenders hoarding cash every September to satisfy quarter-end regulatory checks. Money rates spiked in April and May, with the government rolling out a range of deleveraging measures. Markets felt the squeeze again in June amid regulatory requirements that helped push the yield on NCDs to a record. “Unless the People’s Bank of China takes very strong measures to revert market expectations -- which is unlikely -- money rates are likely to climb in fluctuation next month amid the large NCD maturities,” said Liao Qiang, senior director of financial institutions at S&P Global Ratings in Beijing. “Banks will try to refinance most of them, and smaller ones will have to try harder to seek deposits if they find issuing NCDs more difficult.” Bloomberg News
Nestle SA, Unilever Plc, Tyson Foods Inc and other large food and retail companies have joined IBM’s project to explore how blockchain technology can help track food supply chains and improve safety, the companies said in a joint statement yesterday. Blockchain, which first emerged as the system underpinning cryptocurrency bitcoin, is a shared record of data maintained by a network of computers, rather than a trusted third party. A total of eight companies announced yesterday that they will share data and run trials with IBM, including Kroger Co, Dole Food Company Inc, McCormick & Company Inc and Golden State Foods Corp. Wal-Mart Stores Inc is also participating and has worked with IBM since October to track the movement of food products. “It is not just about building the technology, it is about building the ecosystem,” Brigid McDermott, vice president for blockchain business development at IBM, said. Wal-Mart said in June that blockchain trials had helped it narrow the time it took to trace the movement of mangoes to 2.2 seconds from about seven days. Reuters
A new deal to keep the Chinese Grand Prix in the Formula One calendar has been agreed in principle and will likely be sealed within weeks, a senior F1 official said yesterday. The sport, under ambitious new U.S.-based owners, released its 2018 race schedule in June and Shanghai was only listed as provisional, along with Singapore. That prompted speculation that both races might be axed from the roster. But Sean Bratches, F1 managing director of commercial operations, told AFP in Shanghai: “We’ve been working hard with Juss Event, the promoter, and we’ve got an agreement in principle. “My suspicion is that it will be executed by the end of next month, fully executed.” Bratches said that F1 chiefs released next year’s race schedule earlier than previously as part of efforts to make Formula One more fan- and sponsor-friendly. “Next year the schedule will be released and there will be nothing provisional about Shanghai because we will have a long-term deal,” he added, following talks in the city that pushed the agreement along. AFP