Business Daily #1373 August 31, 2017 by Business Daily

Local 4G user figures skyrocket Telecom Page 3

Thursday, August 31 2017 Year VI Nr. 1373 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Real estate

Parking spaces bundled with houses to sidestep Mainland property curbs Page 8

Forecast

Analysts see fast recovery in local gaming industry Page 5

School openings

Hengqin evolving as educational hub Page 5

www.macaubusiness.com

Resorts

Money laundering

Jeju theme parks triggering new strategies Page 7

Taiwan increases efforts to polish reputation Page 10

Authorities mull tidal gate Inner Harbour

A gate for managing tides in the Inner Harbour. With work slated to start as soon as 2019. The low-lying district has long been on the authorities’ radar. With the chaos and fatalities caused by Typhoon Hato lending added impetus. Page 3

Shuttle buses beat the blues

Typhoon-proofed election

Top authorities have rebuffed modification of the upcoming election schedule. Electoral Commission Chairman Tong Hio Fong declared that the city had recovered equilibrium, and that events would progress as originally planned.

Study Shuttle buses. Once the ‘bad boys’ of Macau. And now identified by the University of Macau and Washington State University as ‘win-win’ ambassadors for providers and tourists. The universities’ research concluded the shuttles could be a positive game-changer for returning tourists. Page 4

Workers’ claims escalate

Gaming Hundreds of gaming workers. Assembling at the Labour Affairs Bureau yesterday. In order to complain about ‘typhoon’ treatment. No operator has been identified, as yet, having bowed out of the scheduled pow wow. Page 3

Big Chinese banks exceed expectations

Schedule Page 2

HK Hang Seng Index August 30, 2017

28,094.61 +329.60 (+1.19%) Worst Performers

China Shenhua Energy Co

+4.15%

Tencent Holdings Ltd

+2.13%

CITIC Ltd

-1.32%

China Overseas Land &

+0.00%

Geely Automobile Holdings

+3.98%

Wharf Holdings Ltd/The

+1.96%

Hengan International Group

-1.20%

China Unicom Hong Kong

+0.00%

China Resources Land Ltd

+2.97%

HSBC Holdings PLC

+1.94%

Ping An Insurance Group Co

-0.56%

Henderson Land Develop-

+0.10%

China Petroleum & Chemical

+2.93%

Hang Seng Bank Ltd

+1.93%

MTR Corp Ltd

-0.22%

Hong Kong & China Gas Co

+0.27%

Bank of East Asia Ltd/The

+2.14%

China Mengniu Dairy Co Ltd

+1.88%

Swire Pacific Ltd

-0.06%

China Mobile Ltd

+0.28%

26° 32° 26° 31° 27° 32° 27° 31° 27° 31° Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

SUN

MON

Source: AccuWeather

Results Three of the four big banks on the Mainland are happy. Posting higher than estimated Q2 net income. Resilient growth and a campaign against excessive leverage are helping them along. Page 16

2 Business Daily Thursday, August 31 2017

Macau Elections

Stick to the original plan Electoral Commission head says no significant impact made on polling stations Cecilia U cecilia.u@macaubusinessdaily.com

espite requests made by candidates and minor impact on some polling stations in the wake of typhoons Hato and Pakhar, Electoral Commission Chairman and judge of the Court of Second Instance Tong Hio Fong said the upcoming Legislative Assembly elections will be held as scheduled. “The city has more or less recovered to its normal state and plans will still need to progress,” said Fong to the press after the meeting yesterday. Previously, the Commission head had revealed that a number of polling stations had been affected, in particular by the super typhoon. A week after the super typhoon hit the MSAR, Fong reported that “there is no significant impact on the voting stations”. “We have reached out to the managers of the stations

and some of them have minor problems [which] have now been resolved,” said Fong. Requests had been put forward to postpone the election for two weeks, but Fong noted that due to other procedures after the election period the current timetable would need to be maintained. “We also have to handle a series of procedures after the

election,” noted Fong, “as well as procedures for the government-elected legislators and the oath-taking ceremony.” The Commission head noted that he was most concerned about potential delays in the operation of the Legislative Assembly (AL). Fong revealed that the Election Law states that

the Chief Executive holds the right to reschedule the election by 30 days if a serious crisis happens, but the Commission perceives that the original schedule is still feasible.

Casting blank votes

In the wake of the publicly criticised performance of the MSAR Government in

preventing and coping with the devastation caused by Typhoon Hato and later exacerbated by Typhoon Pakhar, Internet platforms have been blanketed with calls by voters to cast blank votes in order to call attention to the efficacy of the Legislative Assembly. Fong responded to enquiries on the topic by stating that “voters have the right to cast any vote as they wish,” while advising voters to make use of their votes. According to Fong, the Commission was notified of some 54 cases of illegal campaigning, 11 of which were sent to the Public Security Police Force (PSP) for further investigation. For any campaigning violations, candidates can be penalised by between MOP2,000 (US$248) and MOP10,000, while the Commission would not penalise involved media outlets, only requesting the removal of any campaigning materials which are in violation of the law, stated Fong.

Security

New cameras for Pac On A total of 150 surveillance cameras will be installed in the Taipa Ferry Terminal Border Gate by the Public Security Police Force (PSP), a release in the Official Gazette reported yesterday. According to the release, the Secretary for Security, Wong Sio Chak, approved the installation of the new security system, with the system’s characteristics and use approved by the Office for Personal

Data Protection (GPDP). The system will be managed by the PSP, with the law regulating surveillance systems in public spaces stating that data collected should be preserved for a maximum period of 60 days. In case data collected is considered evidence for legal purposes, the video or sounds collected have to be destroyed at least 30 days after the legal process is concluded. N.M.

Departure

Fung steps down from Executive Committee of Air Macau The departing co-ordinator of the Protocol Office, Public Relations, and Foreign Affairs (CPRPAE) of the Macau SAR has stepped down from a second function this week. Daniel Fung Sio Weng requested stepping down from his position as administrator and member of the Executive Committee of Air

Macau Co. Ltd., effective September 1, 2017, according to a dispatch published in the Official Gazette yesterday. Earlier this week, another official dispatch announced that Fung had stepped down from his functions as the head of CPRPAE, a role to which he was appointed in 2012,

requested on the basis of personal reasons, also effective from September 1, 2017. The Chief Executive appointed incumbent deputy co-ordinator Lei Ut Mui as the new co-ordinator of GPRPAE and the functional head of the Protocol group, Isabel Lam, as deputy co-ordinator.

According to official information, Fung was trained in public administration, having received his Master’s Degree from the University of Macau. He joined public service in 1987 and has held the post of Advisor of the Office of the Chief Executive since the establishment of the Macau SAR in 1999. S.Z.

Hotels

House repairs Macao Government Tourism Office told Business Daily that the suspension of hotel operations at Pousada de São Tiago was necessary in order to conduct interior renovation works, with operations expected to be concluded by December 31, 2018 Nelson Moura nelson.moura@macaubusinessdaily.com

Hotel operations at Pousada de São Tiago will be suspended until at least December 31, 2018, Macao Government Tourism Office (MGTO) has advised Business Daily. According to the Office, the company currently holding the hotel licence, Saint Tiago Hotel and Tourism Company Limited, applied for the suspension of business on February 24. In its response, MGTO stated that the company said the suspension was

in order to ‘conduct interior renovation works’. Previously, the Executive Director of SJM Holdings Limited, Angela Leong On Kei - who the company registry indicates to be one of the company’s chairpersons - stated that the suspension was due to the impact of the nearby construction of the Light Rail Train (LRT) public transport interchange at Barra. Ms. Leong stated the hotel would resume operations when the LRT transport interchange project was concluded, slated for 2019.

Representatives from SJM told Business Daily that the hotel rooms would be renovated during the suspension period, with plans to expand the hotel still awaiting authorisation from the government. Upon closing, the hotel offered 12 suites, with Saint Tiago Hotel and Tourism Company Limited holding a 25-year concession on an adjacent 1,452 square metre plot in Estrada da Penha for expanding the 5-star hotel. The land plot concession was granted in 2003, with the possibility of being renewed to 2049.

Business Daily Thursday, August 31 2017 3

Macau Damage control

DSSOPT: Construction of tidal gate slated for 2019 Government departments and related parties express opinions upon improving the infrastructure in order to prevent future damage from natural disasters Cecilia U cecilia.u@macaubusinessdaily.com

eputy head of the Land, Public Works and Transport Bureau (DSSOPT) Cheong Ion Man says the construction of a tidal gate construction in the city’s Inner Harbour area could hopefully commence as soon as 2019, according to local broadcaster TDM. Flooding of the Inner Harbour area has been an issue for decades. But authorities have only proposed improving the situation following the recent fatalities caused by Typhoon Hato. After attending live radio programme Macao Forum, the Deputy Firector informed the press that the plan for constructing a tidal gate at the Wanzai water channel had already entered into its third stage, with an engineering survey and environmental assessment as well as other special research undertaken. Victor Chan Chi Ping, Director of the Government Information Bureau (GCS), revealed earlier that the two studies to resolve flooding in the Inner Harbour District, which are being conducted by the Pearl River Water Conservancy Science Academy, are currently awaiting comment from the Chinese State Council. In June, Business Daily requested information from the DSSOPT

Flooded areas close to Ponte 16 in Inner Harbour

on when the tidal gate project was proposed, and while responses did not include this information they did, however, note that ‘at this time there is no timetable relating to its construction’. The project ‘aims to minimise the impact on the Inner Harbour caused by typhoons, astronomical tides and intense rain,’ the response reads, noting also that ‘according to the preliminary programme presented’ by the group granted with the

MOP11 million contract for the study of a possible tidal gate - initiated in 2015, ‘after the construction of the tidal gate, it will allow for continued maritime circulation’ and that during the construction period ‘the government will adopt provisional measures to guarantee maritime circulation’. When the press asked whether any short-term measures planned before the construction of tidal gate had been completed, Cheong said

the government will seek out new short term measures in accordance with the conditions surrounding Typhoon Hato, while also pledging that announcements will be made as soon as decisions are made. Local architect Chan Kuai Son, who also attended yesterday’s Macao Forum, suggested the installation of speakers for direct warnings to nearby residents when red or black storm surge warning signals were hoisted.

Workers rights

Gaming workers take complaints to DSAL Hundreds of gaming workers gathered at the Labour Affairs Bureau (DSAL) to lodge complaints against a gaming operator for unreasonable treatment, according to Chinese TDM Radio News. The broadcaster did not reveal the name of the gaming operator in question. The workers intended to discuss the issues with representatives of the company but were later informed by DSAL that the company representatives could not attend the meeting. Workers complained that

the treatment of employees has not improved despite improvements in company profits. They also criticised the arrangement of working hours during the recent typhoon incidents.

Previous complaints

In information revealed to Business Daily by three employees of The Venetian in a previous report, dealers and supervisors stated that due to their inability to leave the property during the typhoon period, they were kept working overtime. In one case, an employee

at The Venetian worked for 16 continuous hours, with a 10-hour rest period granted in order to go home and come back for his next shift. Sands China Ltd. responded to Business Daily’s enquiries that it regretted that some team members had expressed discontent regarding shift arrangements during the typhoon period. The company also stated that workers would receive overtime payment which exceeded the requirements of the Macau Labour Law, while employees would also receive additional paid leave days as

further compensation. In addition, Sands claimed that they would ensure team members received at least 12-hour breaks between

shifts for sufficient rest. Others operators’ conduct during the typhoon crisis has also been criticised in social media outlets. advertisement

Telecommunications

Pre-paid 4G subscribers treble in July The number of users of prepaid 4G services in the city skyrocketed 324.78 per cent year-on-year in the month of July, according t o th e m o st r ec e n t stati sti cs released by the Macao Post and Telecommunications Bureau (CTT). A total of 886,592 subscribers of the prepaid service were registered in the month, while 506,561 postpaid 4G subscribers were registered in July, a 113.97 per cent annual increase. Overall mobile subscription posted a 7.8 per cent increase year-on-year, with subscriptions falling in 3G services for both prepaid and postpaid users. Prepaid 3G services users dropped 57.95 per cent to 406,453 while post-paid fell 53.19 per cent to 212,203.

Users of dual-number cards posted a 18.43 per cent drop year-on-year to 46,232 subscribers. The number of fixed line residential subscribers fell 12.66 per cent while those of commercial fixed line services fell 5.51 per cent during the period. Internet use increased 6.73 per cent year-on-year to 106.81 million hours in the month of July, while the number of Internet subscribers increased 5.17 per cent. Commercial WiFi subscribers also increased by 101.61 per cent year-on-year, reaching 2,873. The number of WiFi Go hotspots increased by 13 from the same month last year. Mobile data usage during the month of July totalled 1,959.81 terabytes, according to the statistics.

4 Business Daily Thursday, August 31 2017

Macau Opinion

Ashley Sutherland-Winch* Post-typhoon judgement begins To be honest, I did not believe that an actual typhoon was on its way. In the two years that I have lived in Macau, I have observed the irony of a typhoon warning being hoisted when the weather was beautiful on several occasions. . I was sorely mistaken along with everyone else about the damage to come when the T10 was hoisted around 10:00 a.m. on the day Typhoon Hato descended upon us. While time will be the ultimate judge of our city’s performance in handling the super-storm, I would like to point out a few thoughts to ponder. The first is, “Thank God for social media!” When the storm was headed our way, residents took to social media to report the news. We were communicating with groups via Facebook, What’sApp, and WeChat messages as we were unable to receive adequate reports from television and radio when we lost power. My cell phone provider was able to keep my cellular data working and so I was never truly removed from communication. The local TV station did an incredible job of keeping everyone updated through their Facebook page in English, Portuguese, and Chinese. Once the immediate storm had passed, volunteer groups like the International Ladies Club of Macau and the Macau Youth Organization kicked into full gear identifying areas of need and communicating those needs to willing volunteers. Again, thank you social media. The second point may be incredibly redundant at this stage in our territory’s crisis, but we shall never sit idly by when a typhoon comes near in the future. We all must take the threat seriously and safeguard our homes. Too many windows were demolished in our fair city. It is my understanding that the legal requirement for windows is that the glass must be strong enough to withstand wind speeds of 240-290 kph. It is clear that this construction code may not have been met in the past. Finally, I would like to make a point about our electricity supply. The majority of our power comes from the Mainland but instead of improving infrastructure over the years, has our electricity company ignored upgrades that should have been made? For such a seemingly successful company, and with a power source connected to the Mainland, should our power and water supply have been so delicate and unstable during our Typhoon Hato crisis? I have serious concerns in this area, but as I mentioned before, only time will be the true judge of our city’s performance. I can only hope that we will perform better, next time.

*Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Tourism

Shuttle bus bonanza A study conducted by researchers from University of Macau (UM) and Washington State University suggests that as public buses and taxi services are insufficient to serve tourists here, tourism shuttle bus services have assumed an essential part of tourism development in the MSAR Nelson Moura nelson.moura@macaubusinessdaily.com

he current tourism shuttle bus services are a ‘winwin’ for service providers and tourists visiting the MSAR and provide an essential role in the city’s tourism development, according to a study co-authored by researchers from the University of Macau (UM) and Washington State University. The study sought to determine whether the quality of tourist shuttles influences the intention of tourists to revisit a tourist destination by looking at the example of Macau, with a survey conducted of 300 tourists of different nationalities, including respondents from Mainland China, South Korea and the U.S. The report argues that tourist shuttles may, in fact, increase tourists’ intention to revisit Macau, since the quality of transport increases their destination satisfaction as well as affecting how they perceive the city’s image. “Each destination tries to attract as many tourists as possible through its primary tourism products - accommodation, entertainment packages, transportation, etc. Among these products, transportation is relatively neglected […],”Associate Professor at the UM Faculty of Business

Administration, Amy Siu-Ian So, told Business Daily. According to Ms. So - one of the study’s co-authors – the MSAR stands out from other tourism destinations by offering “exceptional tourist shuttle service” with the study showing shuttle bus services can alone increase a city’s competitiveness and sustain tourism. For Ms. So, the fact that the services are free of charge, together with the routes covered, mode of operation and the superior quality compared to public buses, demonstrate the quality of the local shuttle bus service. “It has been noted that the importance of shuttles in Macau is manifested by the fact that all local transportation relies upon public buses and taxis, which are not enough to meet the demands of tourists and local residents. These shortfalls, along with the lack of other transportation means in the city, add to the importance of tourist shuttle services in Macau,” Ms. So added.

Maintaining buses

Ms. So told Business Daily that the local government could improve the shuttle bus service by providing incentives such as free occupational training programmes for people interested in working in the area, while destination marketers should focus on improving efficiency, punctuality,

and safety of the routes. “Previous studies showed that taxi drivers can play a significant role in promoting a city’s image. As such, service providers could place greater emphasis upon training programmes that encourage employees to deliver quality service to customers and promote a positive image of their area,” she added. In April, Transport Bureau (DSAT) head Kelvin Lam Hin Sang said the government was considering capping the number of casino shuttle buses. The news came in response to an inquiry submitted by legislator Chan Meng Kam. The DSAT head added that as of February this year some 454 casino shuttle buses plied the roads, providing a total of 62 routes. In his response the official stated that since the end of last year the number of shuttle bus services had been reduced by 13 buses and three routes. After the city’s six major gaming operators started joint shuttle bus services connecting the Border Gate with their Macau Peninsula and Cotai properties in November of last year, the number of casino buses commuting passengers between local casinos, and those between casinos and the Border Gate, dropped by 26.3 per cent and 33.3 per cent, respectively, the DSAT head added.

Security

New assistant co-ordinator for GPDP The Chief Executive has appointed Iao Hin Chit as the new Assistant Co-ordinator for the Office for Personal Data Protection (GPDP) effective September 2 to March 12, 2018, an Official

Gazette release has announced. Mr. Iao has held several positions in the Legal Affairs Bureau (DSAJ) since 2000, serving as Chief of the Technical Support Division, Chief of

the Department of Inspection and Litigation and having held the position of Chief Department of Registries and Notary Affairs since January of last year. N.M.

Business Daily Thursday, August 31 2017 5

Macau Casinos

Fighting back Morgan Stanley analysts believe gross gaming revenues will recover ‘sharply’ from the impact of consecutive typhoons throughout September, with the VIP sector expected to recover quicker than mass market Nelson Moura nelson.moura@macaubusinessdaily.com

ocal gaming market gross gaming revenues are expected to recover ‘sharply’ this week and in September from the damage wrought by Typhoon Hato and Pakhar, with the temporary shutdown of some casinos not expected to have ‘any permanent impact’, analysts from financial firm Morgan Stanley said in a release. Analysts from the firm believe that the recovery of

mass market revenue could be lower in August due to the cancellation of some group tours and partial closure of mass floors last week. ‘While many tables were closed on the mass floor, the tables in operation were mostly occupied, and minimum bets were not lowered, suggesting strong demand. Most casinos resumed power and water supply during the weekend, and border gates/ ferries have also resumed normal operation’ the note indicated. According to Morgan Stanley’s equity analysts Praveen

Choudhary and Alex Poon, yearly increase in VIP rolling chip volume at ‘one of the junkets’ plunged from 50 per

cent pre-typhoons to 40 per cent after, but with the analyst believing the VIP sector would recover ‘faster’ than

the mass market. Nevertheless, the note estimated that the predicted yearly growth of gross gaming revenues in August was reduced from 24 per cent to 18 per cent following the disruption, with an expected average daily revenue of MOP718 million (US$89 million). Estimated yearly growth for gross gaming revenues in September remain stable at 17 per cent, with gaming revenues in the third quarter of this year expected to increase by 21 per cent yearon-year.

Education

Hengqin: Student city The neighbouring area of Hengqin is being transformed into an educational centre, as recent announcements note that both the British institutions Harrow School and Wycombe Abbey are set to open their doors in the territory in the coming years, according to media reports. Harrow School will be conducted in concert with the Lai Sun Group, based in Hong Kong, according to information from the Zhuhai Municipal

Government. The school is set to provide education from kindergarten through secondary school. The exact opening date or expected cost for the school has yet to be divulged. Wycombe Abbey School, based north of London, UK, has signed an agreement to construct an institute in Henqgin, with doors expected to open in September 2019, according to Bucksfreepress. The school expects to teach over 1,000 pupils yearly,

from pre-prep school through until the end of secondary. The new school will be the group’s second in China, following one in Changzhou, and is expected to cost £95 million, according to the publication. The school is set to boast a 700-seat theatre, science lab, indoor swimming pool and interactive library as well as a kindergarten campus plus Chinese language and culture courses. advertisement

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6 Business Daily Thursday, August 31 2017

Macau Disposal

Major shareholder pulls out of Success Dragon the company. A shareholder in electronic gaming equipment operator Success Dragon has decided to dispose of his almost 25 per cent share in the company, according to a company filing with the Hong Kong Stock Exchange. The substantial shareholder, Mark Yong Khong Yoong, sold 503.67 million shares, or 24.29 per cent of the entire issued share capital of Success Dragon, to Shanghao Limited via an ‘off-market transaction’. Mr. Yong, after the transaction, ceased to hold any shares in

Of the total, 20.47 million shares were held by Mr. Yong himself and 483.19 million shares were held through his wholly-owned company. The stake in the company was sold at a consideration of HK$0.191 per share, notes the filing, amounting to approximately HK$96.2 million. During the fiscal year ended March 31, Success Dragon posted a loss attributable to owners amounting to HK$156.18 million, down from the HK$231.5 million registered in the previous fiscal year.

Construction

Starting big Local commercial fitting-out contractor Lai Si Enterprise Holding Limited posted MOP10.5 million in net profit during the first six months of this year, with the group believing the city will reach a ‘peak point for renovation’ following the impact of consecutive typhoons Nelson Moura nelson.moura@macaubusinessdaily.com

ocal commercial fitting-out contractor Lai Si Enterprise Holding Limited registered MOP10.5 million (US$1.3 million) in net profit for the first half of this year, a 6.1 per cent year-on-year increase from the same period of last year, the company’s half-year performance results indicate. In total, the company registered that unaudited revenue went up by 4.3 per cent year-on-year in the six-month period ending June 30, reaching MOP112.2 million. The release stated the growth in revenue was mainly due to a MOP21.8 million year-on-year increase in construction works revenues thanks to a ‘few sizeable construction projects’, but with an offset caused by a MOP17.5 million decrease in fitting-out works revenue. In total, fitting out works represented 78.8 per cent, or MOP88.4 million, of the company’s total revenue, with hotels, casinos, retail shops and restaurants the main clients for the service. Lai Si’s construction services mainly include heritage preservation, demolition works, foundation engineering and the installation of construction equipment systems, with revenue generated by construction representing 20 per cent of the group’s total revenue.

“Macau’s hotels, casinos, retailers and offices will soon enter a peak period for renovation. Not only will those who have been hit severely by the typhoon need fitting-out and maintenance works, but their demand for renovation will pick up quickly,” the company’s Chairman and Executive Director, Lai Leng Man, said in the release. The group’s chairman believes Lai Si is in a ‘good position to take advantage of the growing demand’ in local renovation work, while continuing to expand its foothold in

Hong Kong’s fitting-out market, and exploring business opportunities in the Guangdong-Hong Kong-Macau Greater Bay Area. Mr. Lai also stated the company’s efforts to expand in Hong Kong helped secure a HK$86 million fitting-out contract during the period in review, contributing to the group’s business growth. The company decided not to declare the payment of any interim dividend, with the Lai Si chairman saying this decision was to “retain financial strength for further

business development” and that the company expected to “reward shareholders with year end dividends by our first annual performance review”. Having become the first Macau construction company listed on the Hong Kong Stock Exchange, on February 10 of this year, Mr. Lai said the move provided the company with a “springboard into the international capital market . . . [becoming an] . . . investment target of funds and institutional investors” for further business expansion.

M&A

Amax to join AR/VR gaming via acquisition A subsidiary of local Amax International Holdings Limited has entered into a HK$63.5 million (US$8.11 million) agreement to purchase technology and mobile application company Explicitly Grand Investments Limited, according to a

company filing with the Hong Kong Stock Exchange. The agreement, originally entered into mid-July of this year, will involve the issuance of 150 million new shares by Amax, to be issued to the vendors – Gorgeous Smart and New

Sphere - each of which holds a 50 per cent stake in Explicitly Grand. After issuance, the amount held by the two companies will equal approximately 9.75 per cent of Amax. The acquisition by Amax comes about due to the ‘growing popularity

of virtual reality and augmented reality, the future business prospects of mobile and digital industries’ and the valuation of the company at HK$64.4 million. To date, the company has obtained contracts with SHK Properties, Maxim’s Group and Haier Electronics, and has 10 service contracts with nine customers ‘with a total contract sum of over HK$7 million’ as well as a number of potential customers and letters of intent. The vendors have guaranteed net profit for the group’s fiscal 2018, ending March 31, 2018 ‘will be no less than HK$4.91 million’, while that for the next fiscal year, ending March 31 2019, ‘will not be less than HK$6 million’. The company will be liable for payment should it not meet net profit guarantees. Amax notes that the target company ‘will not only be serving as future revenue drivers, but also as cost saving and innovation drivers’ for Amax’s current business. The group notes that it hopes to leverage the augmented and virtual reality and research capabilities of the company to expand into the entertainment business via apps and entertainment platforms and ‘simulation casino gambling’ using the technology. K.W.

Business Daily Thursday, August 31 2017 7

Gaming Integrated Resorts

Landing mulling relocation of its casino to Jeju Shinhwa World Leveraging the group’s casino operations and completing the hospitality experience drive relocation plan for Landing Casino to theme park Sheyla Zandonai sheyla.zandonai@macaubusiness.com

he developer of Jeju Shinhwa World in South Korea, Landing International Development Limited, has announced it is ‘exploring the possibility’ of moving its Landing Casino located on Jeju Island - to the theme park currently under construction, the company said in its interim results filed with the Hong Kong Stock Exchange yesterday. Revenue generated at Landing Casino, located at Hyatt Regency Jeju Hotel, was down 24.79 per cent year-on-year, amounting to HK$174.54 million (US$22.30 million/MOP179.78 million) in the first half of 2017, from HK$232.09 million over the same period a year before. Currently, the group announced it is ‘focusing on the preparation of Jeju Shinhwa World’s commencement of the full resort operations by the end of 2017.’ On January 3, Landing secured the complete ownership and control of Jeju Shinhwa World through the acquisition of the entire issued capital of Callisto, an investment holding company with a 100 per cent equity interest in Happy Bay Pte. Ltd., which holds 50 per cent equity interest in Landing Jeju – a 50 per cent owned subsidiary of the company – for a total consideration of HK$3.19 billion. As at the date of announcement, the company said that construction of the first of hotels and the theme park, which had started in the first half of 2016, was ‘close to

being completed,’ with conclusion of the project slated for 2019. Landing Jeju further announced that it plans to ‘accelerate the completion of the waterpark, theme park hotel, and dormitory and training facilities in 2018,’ instead of 2019, as originally planned, as part of phase two of the project. Under the current development plan, Jeju Shinhwa World is to host a myths and legends theme park, a waterpark and retail and food complex. When completed, the company expects the park ‘to become an iconic mega tourist attraction in Asia.’

Slowing down property sales

In its interim results the company also announced that it plans to slow down

sale activities for properties during the second half of 2017, in order to focus on the progressive opening and marketing of the theme park, believing that ‘more facilities and attractions within Jeju Shinhwa World may result in better market response to the sale of properties by that time.’ In April 2017, the company opened Somerset, a luxury resort condominium in Jeju. During the first six months of the year, Landing had capital commitments of some HK$2.38 billion in property under development – compared to HK$1.31 billion a year before – with completed properties for sale worth HK$1.16 billion. Revenue generated by property sales during the period reached HK$243.82 million, with profits reaching HK$56.47 million, coming

back from a year-on-year loss of nearly HK$223.83 million in the same period of the previous year.

Global results

Overall, Landing announced a 160 per cent increase in revenue during the six months ended June 30, 2017, with consolidated revenue of the company amounting to HK$846.29 million, up from HK$325.39 million a year earlier. Profits attributable to the owners of the company reached some HK$48.58 million, reverting from a loss of nearly HK$526.45 million during the same period in 2016. The company mainly attributed the turnaround in results during the six months to profit ensuing from its property development segment, the gain on

fair value change of financial assets through profit or loss, the gain on fair value change of investment properties, as well as the reversal of impairment for other receivables. Revenue from the company’s other gaming business - Les Ambassadeurs Club Limited, Landing’s gaming operation in London, UK amounted to HK$427.92 million, marking a rise of 78.19 per cent from HK$93.29 million in 2016. Les Ambassadeurs Club was acquired by the company on April 28 of last year. Total profit from Landing’s gaming business amounted to HK$45.27 million during the period under review from HK$82.08 million a year earlier, while total revenue amounted to HK$602.46 million, up from HK$325.39 million a year before.

M&A

LiNiu signs agreement with leading agricultural park Junket operator turned agricultural trading platform operator LiNiu Technology Group - formerly Iao Kun Group Holding Company - has signed a strategic co-operation agreement with Shou Guang Agriculture Logistics Park, according to a company release. The agricultural company, a subsidiary of agricultural wholesale group Dili Group Holdings, is located in Shougang, China, and operates a market for vegetables and fruit, and agricultural products as well as an e-business. The agreement will see the two companies collaborate on product offerings, information resources, consumers and management of the logistics park in Shouguang, with LiNiu set to provide ‘advanced technology’ relating to GPS, Intelligent Transportation Systems, Electronic Data Interchange and more ‘in order to grow the information management centre

of the logistics park,’ notes the release. LiNiu will also have access to Shou Gaung’s ‘production, sales, distribution and logistics big data,’ while LiNiu will provide access to ‘Internet sales channels’ through its agricultural trading platform. The agriculture logistics park includes 3,000 acres of vegetables, fruit and agriculture material trading areas as well as zones for agricultural products processing, storage, logistics and services, notes the release, pointing to an annual trading volume of vegetables, fruit, agriculture and ‘sideline products’ of ‘approximately 10 billion kilograms’ valued at RMB80 billion (US$12.15 billion/ MOP97.88 billion) last year, with ‘projects trading volume in excess of 10 billion kilograms and valued at over RMB80 billion in 2017,’ notes the release. Former investors in the parent company of Shou

Guang, Dili Group Holdings, include private equity and asset management company Blackstone, which bought a US$194 million stake in the

company in March 2010 as part of a consortium, according to the Financial Times. The purchase at the time amounted to approximately

10 per cent of Dili, notes the publication, which was later sold in the first quarter of 2011, earning Blackstone a 16.5 per cent return. K.W.

8 Business Daily Thursday, August 31 2017

Greater china Property

On Mainland, to snag a new home buyers may need to pay huge price for parking space Bundling has already caught the attention of Shanghai authorities Clare Jim

he cost of car parking spaces in new apartment projects in some Chinese cities is soaring as developers roll out their latest secret weapon to counter home price caps imposed by municipal authorities. As if contending with sky-high homes prices wasn’t enough, some buyers are now forced to fork out as much as RMB1 million (US$151, 821) for car parking spaces in major second-tier cities, such as Tianjin, Xiamen, Hangzhou, Nanjing and Suzhou. They are sold with an apartment worth as little as RMB2.4 million, in bundled deals that make it compulsory for residents to purchase the parking space. “There’s a price cap on apartments, but not on parking spaces, so we’re bundle-selling them with apartments to compensate,” said a Shanghai-based developer who declined to be identified due to the sensitivity of the issue. “Recently we sold parking spaces in Xiamen for over RMB1 million each. Last year one only cost less than RMB200,000,” he said, referring to spaces in the port city in Fujian province in south-eastern China. To fend off speculators and defuse a housing bubble, major cities across China have slapped a series of restrictions on property markets, including imposing limits on developers’ selling prices. That’s prompted property companies to find ways to ride out the tightening measures or skirt them, including delaying the launch of new home sales in the hope that when authorities relax some

rules, buyers will jump back into the market and they can release more supply at higher prices. Top-tier cities such as Shanghai and Beijing have seen a surge in car park prices in the past three to five years, with some asking prices over RMB1 million, mostly due to a massive shortage. But second-tier cities are catching up in the past year, and this time driven by bundle-selling, property agents said. As China’s car park marketplace is not active and transparent, it is unclear exactly how much average prices have gained in different cities in the past few years. “In almost every city with a price cap policy in place, if they allow developers to bundle-sell car park spaces, it is happening,” said Clement Luk, the CEO for eastern China at realtor Centaline. “In the past, in cities like Nanjing and Suzhou, many

car park spaces were below RMB100,000, but now many cost over RMB300,000. Is this a natural price appreciation? Definitely not.” He said the bundling had been adopted to skirt price cap policies and manipulate selling prices. Authorities in Hangzhou, Nanjing and Tianjin did not reply to emails for comment. Officials in Xiamen and Suzhou could not be reached by email or phone. Shimao Property, a higher-end developer based in Shanghai, said at an earnings conference on Tuesday that when it is seeking a pre-sales permit for a development it does ask the authorities concerned if it can raise some prices for renovation costs and car parking spaces, said Vice President Jason Hui. He noted it was much easier to get permission to do this in tier two cities than in the biggest ones. In Xiamen, the bundle-selling strategy has also

had an impact on general car park prices. According to the city’s official housing website, a high-end project by China Vanke, the country’s No. 2 developer, was selling a car park space for as much as RMB750,000, while state-backed Poly Real Estate was selling spaces for RMB500,000 bundled with smaller apartments. Vanke said the project concerned, Huxin Island, does not involve bundling and home buyers are not forced to acquire a parking space. “The pricing of the car parks is set according to market, we’ve followed through the approval process accordingly,” a company spokesman said. Poly could not be reached for comment.

Parking perils

A property sales manager in Tianjin told Reuters the price of car park spaces in the port city in prime locations had jumped to more than

RMB350,000 - from around RMB100,000 - this year and some developers there were also bundle-selling. A woman surnamed Tian, who doesn’t own a car, told Reuters she bought an apartment last month in the second-tier city of Hangzhou for RMB3.4 million. She had no choice but to pay an additional RMB500,000 for a parking space. “The sales person said I could only buy an apartment if I also bought a car park space, otherwise it’s impossible,” said Tian, who declined to give her full name due to the sensitivity of the issue. She also declined to give the name of the developer. “Of course I think bundle-selling is not reasonable, but what can I do? There’s a shortage of apartments; developers are the boss.” Tian said she may buy a car or would consider sub-letting or selling the space if that was an option. In China, a developer may only sell parking spaces to home owners of the residential development, and many have strict rules to keep non-tenants out of a development, limiting the prospects of sub-letting for home buyers, property agents said. Bundling has already caught the attention of Shanghai authorities. Officials in the commercial capital announced measures in late July to prohibit the practice, ordering developers to stop forcing buyers to purchase a car parking space with an apartment. “Governments in the firsttier cities have stepped in to stop this loophole, I think other cities will follow suit eventually,” said Luk from Centaline. Reuters

M&A

Equity fund to decide whether to take deal to Trump This would be the first such case to hit Trump’s desk if the merger partners decide to seek his review Greg Roumeliotis and Liana B. Baker

A China-backed private equity fund will decide this week whether to seek U.S. President Donald Trump’s approval for its proposed US$1.3 billion acquisition of U.S. chipmaker Lattice Semiconductor Corp, people familiar with the matter said on Tuesday. Buyout firm Canyon Bridge Capital Partners has spent close to eight months trying unsuccessfully to persuade the Committee on Foreign Investment in the United States (CFIUS), which scrutinizes deals for potential national security threats, to clear the deal. Critics of the deal worry that technology gained through the acquisition could be used by China’s military, but the companies have argued that it poses no such risk. The U.S. president has the final authority to suspend or prohibit such investments. This would be the first such case to hit Trump’s desk if the merger partners decide to seek his review, and the fourth time in the last three

decades that a CFIUS case would go to the White House. U.S. presidents have sided with the committee to block the past three questionable deals. The Lattice deal’s woes underscore a U.S. drive to prevent the transfer of sensitive technology to China. Chinese suitors have faced intense regulatory scrutiny in their pursuit of U.S. chip makers, which has jettisoned some deals in recent years. The latest 75-day CFIUS review of the Lattice deal, the third since it was announced in November, expires at the end of this week. The two sides have decided to not seek an extension from the committee, and instead may take the deal to Trump for review, as the regulations allow, the sources said. The sources asked not to be identified because the deliberations are confidential. No final decision has been made, and Canyon Bridge and Lattice may opt to terminate the deal, the sources said. Lattice Chief Executive Darin

Billerbeck, who would keep his job if the merger is completed, is in favour of taking the deal to Trump for review, one of the sources said.

‘U.S. regulatory scrutiny of the Lattice deal grew after Reuters reported that Canyon Bridge, was funded partly by cash originating from China’s central government’ Lattice and Canyon Bridge declined to comment. A CFIUS spokesman did not immediately respond to a request for comment. U.S. regulatory scrutiny of the Lattice deal grew after Reuters reported in late November that Canyon

Bridge, based in Palo Alto, California, was funded partly by cash originating from China’s central government and had indirect links to its space program. Portland, Oregon-based Lattice makes programmable chips known as “field programmable gate arrays” that allow companies to put their own software on silicon chips for different uses. It does not sell chips to the U.S. military, but its two biggest rivals, Xilinx Inc and Intel Corp’s Altera, make chips that are used in military technology. The companies have extended their agreement to the end of September. Trump’s approach to relations with China has been mixed. He has criticized Chinese trade practices but also wants Chinese cooperation in tackling North Korea’s nuclear ambitions. In the most recent example of a direct rejection by a U.S. president of a CFIUS application, Barack Obama in December blocked China’s Grand Chip Investment GmbH from acquiring German semiconductor equipment supplier Aixtron SE. Reuters

Business Daily Thursday, August 31 2017 9

Greater China Diplomacy

In Brief

Ahead of Indian leader’s visit, Beijing says huge potential for cooperation India and China have deep historical and cultural connections, but relations have seesawed since they fought a brief border war in 1962 Asian giants China and India have great potential for cooperation, Chinese Foreign Minister Wang Yi said yesterday, seeking to cast the neighbours’ difficult ties in a positive light ahead of a visit next week by India’s prime minister. The two agreed this week to de-escalate a more than two-month-old stand-off on their disputed border, just in time for Sunday’s kick-off of a summit of the BRICS grouping of nations, which also includes Brazil, Russia and South Africa. It was normal for the two giant neighbours to have differences, Wang told a news briefing ahead of the summit in the southeastern city of Xiamen that India’s Narendra Modi is to attend.

‘Modi refused to join President Xi Jinping’s signature Belt and Road initiative to knit together Asia and beyond, making India the lone country to boycott a summit in Beijing in May’ “What’s important is that we put these problems in the appropriate place, and appropriately handle and control them in the spirit of mutual respect and based on the consensus of both countries’ leaders,” he said.

China’s Commerce Ministry said it has launched anti-dumping investigations into hydrogenated butyl rubber from the United Sates, the European Union and Singapore. Producers from the three regions have been selling rubber at a discount to appropriate prices, hurting margins and sales prices in China’s domestic industry, the commerce ministry said. The ministry will hold an investigation for a year starting Aug. 30. The probe will look at products imported between April 2016 to March 2017. The products are mainly used to produce heat resistant material, according to the ministry.

Postal bank plans Shanghai listing Modi and Xi during a meeting in 2015

“There is huge potential for cooperation between China and India,” Wang added, without giving details. The stand-off in the Himalayan region began when India sent troops to stop China building a road in the remote, uninhabited territory of Doklam, claimed by both China and Bhutan. China has said its forces will continue to patrol in Doklam, known in Chinese as Donglang, and Wang added that he hoped India had learned a lesson from the incident. India and China have deep historical and cultural connections, but relations have seesawed since they fought a brief border war in 1962. Modi refused to join President Xi Jinping’s signature Belt and Road initiative to knit together Asia and beyond, making India the lone country to boycott a summit in Beijing in May.

Besides the festering border dispute, which also covers areas at the other end of the frontier close to Pakistan, China and India have a series of disagreements. India is deeply suspicious of China’s close relationship with arch rival Pakistan, and of its growing military activities in and around the Indian Ocean, such as its first overseas military base in Djibouti. In recent months India has upset China over the exiled Tibetan spiritual leader the Dalai Lama, who lives in India and is reviled by Beijing as a separatist. The Dalai Lama says he simply wants genuine autonomy for Tibet. In April, Beijing bristled at a weeklong trip by the Dalai Lama to Arunachal Pradesh, an eastern Himalayan region administered by New Delhi but claimed by China as “southern Tibet”. Reuters

Hyundai resumes production in Mainland after supply hiccup Hyundai said earlier yesterday its joint venture with BAIC Motor began shutting down production last week after a fuel-tank components supplier refused to provide parts due to non-payment

Hyundai Motor said on yesterday it had resumed production in China after a supply disruption forced the suspension of operations last week, complicating its efforts to lift sagging sales in the world’s biggest auto market. The production stoppage, although resolved, adds to investor concerns after the South Korean carmaker posted its smallest quarterly profit in five years amid political headwinds linked to diplomatic tensions between Seoul and Beijing. Hyundai had to cut production at its four factories in China earlier this

Beijing launches anti-dumping probe

Markets

Car industry

Hyunjoo Jin and Joyce Lee

Rubber imports

year due to slumping sales. Its fifth China factory was scheduled to start production this month. Hyundai Motor’s sales from its Chinese factories plummeted 64 per cent to 105,000 vehicles in April-June alone. “The effects of the China production halt are yet unclear, but Hyundai’s third-quarter results are likely to be lower than the previous quarter partly due to continued weak performance in China,” said Park Sang-won, analyst at Heungkuk Securities. Hyundai said earlier yesterday its joint venture with China’s BAIC Motor Corp Ltd began shutting down

production last week after a fuel-tank components supplier refused to provide parts due to non-payment. BAIC declined to comment and Reuters could not immediately reach the joint venture, Beijing Hyundai, for comment.

Key Points China factories suspended over past week - Hyundai Hyundai says production in all four factories resumed Shares pare losses after dipping to lowest since April 20 S.Korean firms facing Chinese backlash South Korean firms are weathering a Chinese backlash over Seoul’s decision to deploy a U.S. missile defence system to counter threats from nuclear-armed North Korea. China says the system poses a threat to its national security. Hyundai’s weak brand image has put it at a disadvantage in China versus local and global rivals such as Honda Motor, Toyota Motor and General Motors, which all saw higher China sales for last month. Reuters

State-owned Postal Savings Bank of China, the country’s biggest lender by branches, said it was planning a Shanghai listing, seeking to raise around US$785 million. The move follows its Hong Kong listing last year in which the bank raised US$7.4 billion - the world’s biggest IPO since Alibaba’s U.S. listing in 2014. The bank plans to raise as much as RMB5.17 billion (US$785 million) in an issue that would consist of no more than 5.17 billion shares at par value of 1 yuan per share, it said in a stock exchange filing Monday night. Patent dispute

Sharp asks U.S. trade body to probe Hisense Japan’s Sharp Corp said yesterday it has requested the U.S. International Trade Commision to investigate Hisense Group Co Ltd, escalating a dispute in which it has accused the Chinese firm of patent infringement. Sharp, which has licensed use of its brand to sell TVs in the Americas to Hisense, sued the Chinese firm in the United States this year, saying the firm is putting the Sharp name on what it described as low-quality TVs. Companies frequently sue both at the ITC, which has the authority to block the import of products that infringe a U.S. patent, as well as in court to win monetary damages. Investors

Three Gorges unit seeking US$1.5 bln China Three Gorges New Energy, a unit of the country’s top hydropower developer, plans to raise about RMB10 billion (US$1.5 billion) from new investors to develop its wind power business, sources with knowledge of the matter said. The wholly owned unit of state giant China Three Gorges Corporation is in talks with China Life Insurance, Chinese private equity firms and other institutional investors, the sources told Reuters. Beijing has been calling on state-owned firms to reform their ownership structure by bringing in new capital from private investors and this fundraising is part of the mixed-ownership plans, they said.

10 Business Daily Thursday, August 31 2017

Greater China Watch list

Stung by reputation, Taiwan looks to turn corner on money laundering To gain international confidence in its anti-money laundering measures, Taiwan will have to demonstrate it is putting the laws into practice Faith Hung

fter Taiwan’s state-run Mega Financial Holding Co was fined US$180 million by U.S. authorities for lax enforcement of anti-money-laundering rules at its New York branch, the bank started a rigorous training programme for its staff. Now, like Mega Financial, companies across Taiwan are working to get staff and systems up to speed after the island passed laws to meet international standards on combatting money laundering and was taken off a watch list by the Asia Pacific Group on Money Laundering (APG).

Key Points Taiwan known as moneylaundering “paradise”, minister says Island now looking to change that with new laws Adopting international standards to combat money laundering Taiwan removed from APG money laundering watch list “Unfortunately, Taiwan has earned a name for itself as a paradise for money laundering,” Deputy Justice Minister Tsai Pi-chung told Reuters. Money laundering and cybercrime connections to Taiwan, which is also in the process of pushing through

a cyber security bill, have grabbed global headlines. U.S. authorities fined Mega Financial US$180 million last year for lax enforcement of anti-money-laundering rules at its New York branch. Some money from the US$170 million cyber heist of India’s Union Bank of India was transferred through Taiwan’s Bank SinoPac. An international crime ring used malware to steal US$2.6 million from the ATMs of Taiwan’s First Bank. Taiwan was one of the six most targeted countries of the Wannacry ransomware attack earlier this year, according to security company Avast. Since 2011, 800 people from China and Taiwan have been deported from Cambodia on suspicion of telecoms fraud. Following its U.S. fine, Mega Financial said cleaning up its act is a top priority. U.S. authorities had said the Mega branch had been “indifferent” to the risks associated with transactions involving Panama, a high-risk area for money laundering. “What happened at our New York branch was just terrible,” said Robert Tsai, a senior executive vice president, referring to the fine and ensuing scandal. “Half of our 6,000 clerks have been certified with anti-money laundering training. How each of our branches implements the rules and ensures proper training is the top priority for our business.” To gain international confidence in its anti-money laundering measures, Taiwan will have to demonstrate it is

Following its U.S. fine, Mega Financial said cleaning up its act is a top priority

putting the laws into practice. The APG will review Taiwan in 2018. “The visit will focus on how effectively Taiwan will have actually implemented the anti-money laundering rules,” said Liang Hung-lieh, partner of PricewaterhouseCoopers Taiwan. “The APG’s on-site review will be new to most of the assessed, including banks, nonbank financial institutions and in particular non-financial institutions such as lawyers, public certified accountants and other professional service providers.” Under the anti-money laundering laws, these financial professionals will be required to report suspicious transactions, including bank transfers exceeding T$500,000 (US$16,500). They will have to determine where the money came

from, provide details about the client and report that to Taiwan’s newly established Anti-Money Laundering Office. These are similar to regulations that countries that have signed up to global anti-money laundering rules overseen by the Financial Action Task Force (FATF) have adopted. The cost to companies of implementing the new rules may be significant as they put processes, workers and data systems in place. “There’s a lot of extra work for them to do now, such as determining the identities of their clients’ beneficiaries,” said an official with the Financial Supervisory Commission, the island’s financial regulator. He declined to be identified in the absence of permission to speak to the media.

“They don’t yet know exactly what they have to do, and to what extent, to be considered compliant with the new regulations. They’re going to need some time to digest all of these new rules,” he said. The potential costs and increased difficulty of getting transactions done under the new rules worry those in the property market, said Wong Jui-chi, the spokesman for Taiwan’s Chinese Association of Real Estate brokers, while emphasising that his industry intends to fully comply with the regulations. “The property market is already in a bad shape and these new rules will make things worse by making the process of real estate transactions more complicated. More or less everyone in our industry is complaining about it,” he said. Reuters

Commodities

Citic warns legal battles threaten Australian mine’s future The project - China’s largest overseas mining investment - ran years late and came in nearly US$7.5 billion over budget James Regan

Chinese conglomerate Citic has warned it may suspend operations at its Sino Iron mine in Western Australia if it can’t resolve legal disputes with Australia’s Mineralogy over royalty payments and land access. Citic chairman Chang Zhenming in a letter to shareholders on Tuesday about the group’s first half results said Sino faced “unique challenges

with privately-held Mineralogy”, whose “uncooperative and adversarial approach poses a threat to the future of Sino Iron”. Citic paid Mineralogy, founded by embattled Australian businessman Clive Palmer, US$415 million in 2006 for development rights for the Sino Iron mine, and agreed to pay Mineralogy royalties. However, the project - China’s largest overseas mining investment

- ran years late and came in nearly US$7.5 billion over budget. The mine is targeting 15 million tonnes of iron ore this year, still well below its ultimate target of 24 million tonnes. Chang said Sino Iron has been seeking Mineralogy’s assistance to obtain government approvals to use more land for waste storage without success. “Mineralogy’s refusal to cooperate means that we will run out of space for waste and tailings storage in the near future. This will severely constrain operations and impact Sino Iron’s sustainability,” he said. Citic is also battling Mineralogy over royalties. Mineralogy claims it is owed money by Sino Iron over a failure to agree to a formula for calculating the value of what is mined following a shift in pricing in the iron ore market. The matter was heard by the Westen Australia Supreme Court in June and both sides are awaiting a judgement that will determine a formula. The court has not said when it will decide. The disputes with Mineralogy,

combined with an uncertain iron ore price, “could jeopardise Sino Iron’s viability and, in the worst case, lead to suspension of our operations,” the letter said.

“Mineralogy’s refusal to cooperate means that we will run out of space for waste and tailings storage in the near future” Chang Zhenming, Citic chairman “We are doing everything within our power to avoid this undesirable outcome. However, the potential risk is real.” A spokesman for Palmer declined to comment. Reuters

Business Daily Thursday, August 31 2017 11

Asia Development

Australia’s Q2 construction spending booms Construction spending in the mining-heavy state of Western Australia alone jumped 56 per cent in the second quarter Wayne Cole

ustralian construction spending boasted its biggest rise on record last quarter as miners splashed out on major engineering projects, a surprise that could lift economic growth well above initial expectations.

“I think there is a good chance we would bump up our GDP forecasts” Michael Blythe, chief economist at CBA Yesterday’s figures from the Australian Bureau of Statistics showed construction work done surged 9.3 per cent in the second quarter, from the first quarter. That was the largest increase ever and dwarfed forecasts for a rise of just 1 per cent.

The increase amounted to a whopping A$4.4 billion (US$3.51 billion) in inflation adjusted dollars, implying an addition to gross domestic product growth of more than 1 per centage point. A rebound would be welcome given weather disruptions kept growth to a pedestrian 0.3 per cent in the first quarter. Data for GDP are due next week and analysts were now considering whether to lift their estimates. “I think there is a good chance we would bump up our GDP forecasts,” said Michael Blythe, chief economist at CBA. “We have had some very solid numbers and in areas we really didn’t expect to see - in engineering and in Western Australia,” he added. “An infrastructure lift is coming through in Victoria and New South Wales, so that’s quite encouraging too.” The Reserve Bank of Australia (RBA) has already factored in a bounce in activity in its economic outlook, one reason it is expected to keep interest rates steady for the

rest of the year. Construction spending in the mining-heavy state of Western Australia alone jumped 56 per cent in the second quarter. That concentration led analysts to suspect much of the increase might be tied to Shell’s investment in a floating liquefied natural gas platform - the largest such facility. If so, the vessel would be

recorded as an import at some point and thus subtract from national GDP, muddying the overall impact on the economy. The ABS provides no detail on spending by individual companies or on particular projects. Separate data from the agency out yesterday offered upbeat news on the outlook for housing construction, a mainstay of the economy in

recent years. Approvals to build new homes dipped 1.7 per cent in July to unwind only a little of June’s hefty 11.7 per cent jump. Analysts had thought approvals might retreat by 5 per cent or more. With approvals now holding at historically high levels, any future slowdown in construction looks set to be milder than many had feared. Reuters

Consumption

Japan retail sales slow in July, still top expectations Spending on clothes rose 3.5 per cent in July from a year ago Stanley White

Japan’s retail sales growth slowed in July as shoppers spent less on clothes and cars, but economists remain optimistic that consumer spending will soon gather pace due to a tight labour market. Separate data on Tuesday showed household spending unexpectedly fell in July, which has injected some caution into the debate about whether domestic demand can continue to drive growth. Nonetheless, retail sales did grow for a ninth consecutive month in July, suggesting the underlying trend for consumption remains healthy. Some economists say retail sales could fall in August as heavy rains kept people indoors. Spending is likely to quickly resume growth as strong labour demand boosts consumer sentiment, economists say, although tensions with North Korea may undermine that confidence.

“Retail sales can remain in gradual recovery, but it is difficult to maintain the high pace of growth seen earlier this year,” said Norio Miyagawa, senior economist at Mizuho Securities. “The weather in August

was not good. However, I’m not pessimistic because the labour market is tight.” Retail sales rose 1.9 per cent in July from a year ago, which was more than the median estimate for a 1.0 per cent annual increase but still slower

than a revised 2.2 per cent increase in the year to May. Spending on clothes rose 3.5 per cent in July from a year ago, which was slower than a 5.3 per cent annual increase in June, data from the trade ministry showed

yesterday. Spending growth on cars also slowed to an annual 6.6 per cent in July from 8.7 per cent in the previous month. Demand for labour rose to the highest in 43-1/2 years in July, data showed on Tuesday, supporting optimism in the outlook for domestic demand.

Key Points July retail sales +1.9 pct yr/yr vs f’cast +1.0 pct y/y Sales of clothes and cars slow in July Economists expect consumption to pick up in Q4 North Korea’s launch of a missile over Japan in the early hours of Tuesday rattled financial markets and could start to weigh on Japan’s consumer sentiment if the standoff over its nuclear programme worsens. Reuters

12 Business Daily Thursday, August 31 2017

Asia In Brief TRADE

Peru, Indonesia to likely start negotiations in December Peru and Indonesia will likely start negotiating a free trade deal in December as Lima pursues a “very aggressive” trade agenda following Washington’s withdrawal from the Trans-Pacific Partnership (TPP), Peru’s trade minister said yesterday. Peru already has more than 15 free trade deals and this year started negotiations on agreements with Australia and India while preparing to update its accord with China. Peru is also part of efforts to reduce trade barriers between Australia, New Zealand, Singapore, Canada and the Pacific Alliance bloc made up of Peru, Mexico, Chile and Colombia. Retail

S.Korea discount store sales rise

Monetary minutes

Central bank says Thailand’s steady policy stance appropriate Headline inflation was projected to rise but at a slightly slower pace than previously assessed Orathai Sriring

hailand’s improving growth outlook and increased financial stability risks from a further rate cut were key reasons for the central bank to hold policy steady earlier this month, minutes from the bank’s latest meeting showed yesterday. The Bank of Thailand’s (BOT) policy committee unanimously voted to keep the one-day repurchase rate at 1.50 per cent on Aug. 16, where it has been since April 2015, and just 25 basis points above the all-time low. The committee expected the growth outlook to improve further on a boost from exports and tourism, with domestic demand set to expand at a

gradual pace, the minutes showed. The committee was of the view the current level of monetary policy accommodation was needed to support domestic demand growth in order to close the output gap and to facilitate a gradual return of headline inflation to target in the period. “The committee viewed the effect of a policy rate cut to foster a swifter return of inflation to target would be limited. This was because the decline in inflation was attributed mainly to supply- side factors and might partly be a result of structural factors,” they said. “At the same time, a policy rate cut at the current juncture might exacerbate financial stability risks given the prolonged low interest rate environment,” the minutes said.

South Korea’s discount store sales rose for a fifth straight month in July in a sign private consumption is picking up thanks to an uptick in consumer sentiment, trade ministry data showed yesterday. Combined July sales at discount stores run by Lotte Shopping, E-mart and Homeplus rose 1.7 per cent from a year earlier, after gaining 2.3 per cent in June, data from the Ministry of Trade, Industry and Energy showed. Demand for fresh food items including fruits jumped 4.8 per cent on-year, while that for home appliances increased 3.7 per cent. Results

Maybank Q2 profit up 43 pct Malaysia’s largest bank by assets, Malayan Banking Bhd (Maybank), yesterday reported a 43 per cent rise in net profit for the three months through June, helped by lower loan-loss provisions. Profit reached 1.66 billion ringgit (US$388.94 million) in the second quarter from 1.16 billion ringgit in the same period a year prior. The result compared with the 1.69 billion ringgit average of two analyst estimates, Thomson Reuters data showed. Net interest income rose about 10 per cent to 3.04 billion ringgit. The results indicate Maybank is recovering from a difficult 2016. Energy

Santos steps up effort to avert LNG export curb Santos Ltd is racing to boost gas supply to Australia’s eastern market to fend off government limits on exports of liquefied natural gas (LNG) in 2018, with its latest deal involving local gas swaps. Australia is on track to become the world’s biggest LNG exporter by 2019, which has tripled demand for gas on Australia’s east coast, straining supplies in the domestic market and driving up gas and power prices. To help ease soaring energy prices, the government has put in place a controversial measure to curb LNG exports from the east coast.

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Headline inflation was projected to rise but at a slightly slower pace than previously assessed mainly because of supply-side factors due to falling prices of fresh food, and last year’s high base-effect because of a drought, the minutes said.

Key Points Growth outlook improves, inflation low Effect of further rate cuts on inflation limited Financial stability sounds, but pockets of risks remain Annual headline inflation was just 0.17 per cent in July and the central bank has forecast it will be 0.8 per cent this year, below its target range of 1-4 per cent. The committee was of the opinion the stronger appreciation of the baht relative to those of regional currencies in might affect business investment in some periods, and would continue to closely monitor developments in the foreign exchange market, the minutes said. “Financial stability remained sound but there were pockets of risks that continued to warrant close monitoring,” the minutes said. The baht has appreciated 7.9 per cent against the dollar this year, becoming Asia’s best performing currency. The committee next reviews policy on Sept. 27. Most economists expect no policy change this year, but some analysts are picking another rate cut. Reuters

Trade forecast

South Korea exports seen rising for 10th mth Factory output was forecast to increase 0.5 per cent on-month in July Dahee Kim

South Korea’s exports were expected to rise for a 10th straight month in August, a Reuters poll showed yesterday, as global demand for tech products remained robust although renegotiation of a key trade pact with the United States may add to future risk.

Key Points Aug exports seen +14.3 pct y/y, imports +11.4 pct y/y Aug CPI rise seen +2.2 pct y/y

Doo-un, an economist at Hana Financial Investment. South Korea and the United States held a one-day video conference last week to discuss how to move forward in talks on the trade pact, but failed to reach a decision. July exports to China and the United States rose 6.6 per cent and 7 per cent respectively versus a year ago. China is South Korea’s biggest trade partner. Shipments to the European Union rose by 10.2 per cent. The same poll found that year-onyear inflation for August was expected to be 2.2 per cent, unchanged

from July. Respondents said a decline in global oil prices was offset by rising rises for agricultural products caused by heavy rain, keeping inflation unchanged. Factory output was forecast to increase 0.5 per cent on-month in July after shedding 0.2 per cent in June. July’s more bullish outlook was attributed to robust exports of semiconductors, petroleum products, and possibly cars as well. The industrial output data is due today, with the trade and inflation indicators to be published on Friday. Reuters

July industrial output seen +0.5 pct m/m The median forecast of the 12 analysts polled was for exports to rise 14.3 per cent from a year ago, slowing from 19.5 per cent growth in July. Import growth was seen slowing to 11.4 per cent after rising 14.5 per cent in July. “Exports to the United States probably improved, helping strong exports in the IT sector to continue, but renegotiation of the free trade agreement may hurt shipments going there in the future,” said Kim 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 Thursday, August 31 2017 13

Asia Monetary stance

RBNZ’s Wheeler calls for lower NZ dollar The RBNZ is also concerned about keeping inflation moving towards the top-end of its medium term target of 1-3 per cent Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said yesterday that a lower New Zealand dollar was needed to help bolster the export sector and push up inflation, triggering a brief selloff in the local currency. Wheeler also said there was a risk the housing market would take off again if the central bank removed its loan-to-value lending restrictions (LVRs), amid political pressure to rethink their use. “Their removal would require a degree of confidence that financial stability risks won’t deteriorate again,” Wheeler said in a speech reflecting on this five-year term as governor before he steps down on Sept. 26.

Key Points RBNZ governor says lower needed in speech Kiwi falls 0.3 pct, but makes back losses Risk of house price resurgence if LVRs removed - governor Prime Minister Bill English said this month that he had highlighted with the central bank that the rules were temporary and that the RBNZ should set out its criteria for removing them. The country’s previously red-hot housing market has cooled in recent months with home sales plummeting by almost a quarter in the year to July.

Reserve Bank of New Zealand Governor Graeme Wheeler

“He reiterated that a lower New Zealand dollar is needed, that was enough to spook the market,” said Doug Steel, senior economist at BNZ. Policymakers have long grappled with strong demand for the New Zealand dollar, often driven by its yield appeal, with the main concern being that rapid rises could hurt exporters’ margins and temper import-driven inflation. “The appreciation in the exchange rate has been a headwind for the tradables sector and, by reducing already weak tradables inflation,

made it more difficult to reach the Bank’s inflation goals,” Wheeler said. Shipments have picked up pace over the past few months, thanks to a rebound in the price of dairy - New Zealand’s main export earner. However, as the economy has slowed in the last quarter, policy makers have been keen to temper the currency’s strength lest it undermines the trade sector. The RBNZ is also concerned about keeping inflation moving towards the top-end of its medium term target of 1-3 per cent. Annual inflation is

currently running at 1.7 per cent. “A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth,” Wheeler said. The kiwi is poised for its worst monthly fall since January 2016, fuelled in part by the central bank’s ramped-up rhetoric over recent weeks for a lower currency. Investors have also sold the kiwi on speculation that the central bank could intervene in the market, though many traders have said it is nowhere near close to that step. Reuters advertisement

Ride-sharing

Toyota joins Grab’s US$2.5 bln fund raising Didi and SoftBank are already investors in Grab and other ride-hailing services globally Toyota Motor Corp’s trading arm became the latest participant in ride-hailing firm Grab’s current financing round that is expected to raise US$2.5 billion, led by Chinese peer Didi Chuxing and Japan’s SoftBank Group Corp. Toyota Tsusho Corp, in which T o y o ta M o t o r i s t h e b i gg e st stakeholder, has invested an undisclosed sum in Grab, the c o m p a n i e s s a i d i n s e p a ra t e statements yesterday.

Key Points Toyota Tsusho invests undisclosed sum in Grab Toyota Tsusho joins Didi, SoftBank as Grab investors Toyota Motor to install recorder devices in some Grab cars The investment is the latest in a Southeast Asian start-up as major companies seek growth in the region’s huge developing economies with young, tech-savvy demographics. Toyota Motor said it would install its driving recorder devices in vehicles operated by Grab, as the automaker expands further into new driving services. Under a pilot programme, Toyota will have its TransLog device installed in 100 rental cars operated by Singapore-based Grab, enabling the companies to analyse driving patterns as well as offer improved access to connected car services.

Didi and SoftBank are already investors in Grab and other ridehailing services globally. In July, Grab said the pair would add US$2 billion and that US$500 million would come from others, making the fundraising Southeast Asia’s biggest-ever single round of financing. A person close to Grab has said the US$2.5 billion fund raising would value the company at US$6 billion. G ra b o p e ra t e s p r i va t e c a r, motorcycle, taxi and carpooling services across seven countries with 1.2 million drivers. It said it has a market share of 95 per cent in third-party taxi-hailing and 72 per cent in private-vehicle hailing in Southeast Asia. But its share could be under threat as San Francisco-based Uber, the world’s largest ride-hailing service, is expected to increase its focus on the region after it folded its China business into Didi last year. The ride-hailing sector is currently dominated by technology firms, but automakers such as Toyota, Volkswagen, and General Motors have been investing in tie-ups with these service providers to hedge against the shift in the vehicle market away from private ownership. Toyota has already tied up with Uber, providing flexible vehicle leasing terms for Uber drivers, while the two also plan to share research and development efforts. This agreement also includes an undisclosed investment in Uber. Reuters

14 Business Daily Thursday, August 31 2017

International In Brief EIU

Angolan eurobond issue ‘costly and tough’ The Economist Intelligence Unit (EIU) said yesterday that Angola’s intention to issue up to US$2 billion in government eurobonds should see “higher yields and less favourable terms”. The Economist recalled the costs of the 2015 issue of US$1.5 billion. It added that the authorities say the issue opens a new and important channel, but this kind of security has had the worst performance worldwide since its launch and the current environment is less favourable than in 2015 because of the protectionist feeling, mainly in the United States and a clear weakening of the Angolan economy. Hurricane

UN’s Guterres concerned about Texas storm The UN secretary general, former Portuguese PM António Guterres, is following the “floods in Texas and the damage hurricane Harvey is doing” with attention, his spokesman said on Tuesday. “The secretary general is saddened with the loss of life and sends his condolences to the government and people of the United States and hopes the injured recover quickly”, Stéphane Dujarric said in a communiqué. Harvey, which has now been downgraded to a tropical storm, is the most powerful hurricane to hit the USA since 2005 and the worst to reach Texas since 1961. Investors

Buffett becomes Bank of America’s top shareholder Warren Buffett’s Berkshire Hathaway Inc has become Bank of America Corp’s largest shareholder by exercising its right to acquire 700 million shares at a steep discount, more than tripling an investment it made six years ago. Berkshire is now the largest shareholder in the second- and third-largest U.S. banks, with stakes of roughly 6.6 per cent in Bank of America and 10 per cent in Wells Fargo & Co, according to Reuters data. It also has an interest in JPMorgan Chase & Co, the largest U.S. bank, where Todd Combs, one of Buffett’s deputy portfolio managers, is a director. Trade

WTO chief says Brazil actively trying to lift restrictions on meat Brazil is engaged in World Trade Organization committee talks aimed at eliminating potential barriers to poultry and pork exports, with an upcoming summit in December the next opportunity to advance agreements benefiting its farm exports, the head of the WTO said. Brazil has proposed the adoption of strict scientific criteria related to sanitary standards in the food trade in one committee, WTO Director-General Roberto Azevedo told a conference on Tuesday. Sanitary barriers based on “scientifically questionable” claims are among factors restricting free trade and should be reviewed, he said.

GDP

Moody’s says G20 growth to exceed 3 per cent The agency also said there appeared to be “renewed momentum” to address bilateral trade issues that the Donald Trump administration deemed as unfair trade practices

oody’s Investors Service kept its forecast for G20 economic growth at just over 3 per cent for this year and next, but warned of geopolitical risks, U.S. protectionism and spillovers from global monetary tightening and China’s deleveraging measures. The ratings agency said surprisingly strong data in the first half of the year prompted it to raise 2017 growth forecasts for China to 6.8 per cent from 6.6 per cent, for South Korea to 2.8 per cent from 2.5 per cent, and for Japan to 1.5 per cent from 1.1 per cent. It also expected the euro zone to accelerate in the rest of the year as suggested by robust sentiment indicators and revised upwards its forecasts for Germany, France and Italy. The agency cut its forecast for the United States, however, to 2.2 per cent in 2017 and 2.3 per cent in 2018 from a previous 2.4 per cent and 2.5 per cent, respectively, citing its weaker-than-expected first half performance and expectations of more modest fiscal stimulus than previously assumed.

“The balance of risks is more favourable than it was at the beginning of the year,” Moody’s said. “However, we note event risks related to conflicts in the Korean Peninsula, the South China Sea, and the Middle East.”

“The balance of risks is more favourable than it was at the beginning of the year” Moody’s sent “The test firing of missiles by North Korea, intensification of aggressive rhetoric on both sides, and a hard-line stance from the Trump administration have raised the risk of a conflict in the Korean Peninsula.” The agency also said there appeared to be “renewed momentum” to address bilateral trade

issues that the Donald Trump administration deemed as unfair trade practices, which could hurt growth if wide-ranging measures were introduced. For markets, it warned of risks of increased volatility due to historically elevated asset prices and broad investor expectations that interest rates would remain low even as the Federal Reserve and the European Central Bank said they were preparing to start rolling back unconventional stimulus. While raising its China forecasts, the agency warned the economy has become increasingly reliant on new debt to foster growth. The agency downgraded China’s ratings by one notch to A1 in May, saying the financial strength of the economy would erode in coming years. The agency revised its India forecast slightly lower to 7.1 per cent as the government’s demonetisation move last year led to several months of acute shortages for manufacturing and construction firms in particular, although it said it expected the impact to ease in coming months. Reuters

PM May

UK looking to replicate EU’s external trade deals after Brexit The EU has trade deals with external countries like Switzerland and South Korea, and is currently finalising its own deal with Japan William James

Britain is looking at ways to replicate the trade deals that the European Union has with countries outside the bloc when it exits the EU in March 2019, Prime Minister Theresa May said yesterday. The freedom to strike new trade deals independently of the EU has been highlighted by the government as a major benefit of Brexit. But businesses have repeatedly voiced concern about how existing trade relationships will work after Britain has left the bloc. Speaking on a business trip to Japan designed to reassure investors that the British economy will flourish after Brexit, May indicated that the first step in recasting Britain as a world leader in free trade would be to copy EU trade agreements.

‘Until Britain’s EU membership ends it is unable to agree trade deals with external countries’ “There’s obviously a number of trade deals that the EU has with other countries, and we are looking at the possibility of those being able to be brought over into, certainly initially, trade deals with the United Kingdom,” May told reporters on her way to Japan for meetings with Prime Minister Shinzo Abe. “I think we will give businesses certainty, which is what business wants at the point at which we leave.” She also said Britain would later be able to change the terms of such

Britain’s Prime Minister Theresa May (L) is welcomed by Japan’s Prime Minister Shinzo Abe (2-L) as masters of tea ceremony look on, upon her arrival for a tea ceremony at Omotesenke Fushin’an in Kyoto yesterday. Source: Lusa

trade deals. “Once we’re outside the European Union, even if we start on the basis of an existing trade deal that a country has with the EU, it will be up to the United Kingdom and that country if we wish to renegotiate and change those terms in the future.” The EU has trade deals with external countries like Switzerland and South Korea, and is currently finalising its own deal with Japan. Until Britain’s EU membership ends it is unable to agree trade deals with external countries, and it is unclear how easily or quickly an already-stretched British civil service could transpose EU deals into bilateral trade agreements. The position on trade is consistent with May’s negotiating stance on several central issues of Brexit talks

with Brussels: to closely replicate many of the existing arrangements Britain has as an EU state and then gradually introduce change. That has drawn criticism from some eurosceptics who want to make a clean break with the EU, and EU officials who say Britain is looking to keep the benefits of membership without incurring the associated costs. May said she was pushing for the completion of an EU-Japan trade deal, which could then be used as a model for a future British-Japan trading agreement. “We have been one of the member states sitting around the EU table that have been pressing the EU to move forward on this deal with Japan. We think this is an important deal for the EU,” she said. Reuters

Business Daily Thursday, August 31 2017 15

Opinion

Why gold is less of a haven these days

China’s car sector needs a shakeup, not buyouts

Mohamed A. El-Erian a Bloomberg View columnist

aving waited patiently for the “any-minute-now” moment, gold investors are taking comfort from the recent rise in price in response to geopolitical tensions. Yet the responsiveness of gold, as well as the overall price, appears weaker than would have been expected from historically based models -- and for understandable reasons. The precious metal’s status as a haven has been eroded by the influence of unconventional monetary policy and the growth of markets for cryptocurrencies. Gold prices rose almost 1 per cent on Tuesday morning as part of the risk aversion triggered by yet another brazen North Korean missile launch over Japan, together with uncertainty as to how the U.S. may respond. But trading below US$1,330, the overall response of gold prices to the last few months of heightened geopolitical risks has been relatively muted, particularly as the 10-year T r e a s u r y b o n d, another traditional haven, saw its yield trade down to below 2.10 per cent that same morning. Two immediate reasons come to mind, one related to several assets and the other more specifically to gold. First, and as I have discussed in several Bloomberg View articles, the prolonged pursuit of unconventional measures by central banks has helped meaningfully decouple asset prices from underlying fundamentals. In such circumstances, historically based models will tend to overestimate the reaction of asset prices to heightened geopolitical tensions -- including the fall in risk assets such as equities, or the rise in gold. Second, a portion of the traditional buyer interest in gold has been diverted to the growing markets for cryptocurrencies, which are also benefiting from a general increase in demand. As such, the returns to investors there have been significantly greater, sucking in even more funds. The message for investors in both gold and multi-asset-class portfolios is clear. While continuing to play a role in diversified market exposures, gold is less of a risk mitigator and asset-class diversifier, for now. Luckily for investors, the need has also been less pronounced, given that ample market liquidity has boosted returns, repressed volatility, and distorted correlations in their favour. But this is not to say that gold’s traditional role will not be re-established down the road. After all, central banks are in the later stages of reliance on unconventional monetary measures and, given this year’s spectacular price appreciation, cryptocurrencies are more vulnerable to unsettling air pockets.

‘While continuing to play a role in diversified market exposures, gold is less of a risk mitigator and asset-class diversifier, for now’

Bloomberg View

Michael Schuman a Bloomberg View columnist

hina’s SUV specialist Great Wall Motor Co. Ltd. may, in the end, never get its hands on Fiat Chrysler Automobiles NV’s Jeep division. But expect more and more Chinese automakers to seek out foreign acquisitions. The Chinese government has long dreamed of creating a globally competitive car industry, and having Chinese automakers purchase established companies and brands would seem one obvious way to accomplish its goal. Unless the government rethinks its own industrial policies, however, the strategy is almost certain to fail. Its own efforts to foster a home-grown car industry are holding the sector back. Thi s sh o u l d b e evi d e n t from the fact that Chinese automakers still struggle badly to compete, even at home, despite decades of investment and supportive state policies. Chinese cars have begun to raise their profile domestically, especially in recent years. Still, only three of the 10 best-selling passenger vehicle brands in the first half of this year are from Chinese companies, according to market research firm LMC Automotive. The two largest, China Changan Automobile Group Co. Ltd. and Geely Automobile Holdings Ltd., each have a share of only 4.6 per cent, about a third of top dog Volkswagen AG’s. Meanwhile, Chinese car companies have almost no presence overseas. Exports were smaller in 2016 than two years earlier, and the biggest markets for Chinese cars tend to be in the developing world. So far this year, Iran ranks as the largest importer. Coddling local automakers, many of which are owned by the state, has weakened rather than strengthened them. China, for instance, still forces foreign automakers to set up operations as joint ventures with Chinese partners. (Ironically, Jeep was the first foreign brand to forge such a JV.) The idea has always been for local companies to exploit these shotgun marriages to glean technology, management expertise and other skills from established players. Instead, Chinese carmakers have made so much money selling these foreign brands that the joint ventures have dampened their incentive to compete against their partners. The JV system has also fallen terribly out of date with global practice. China’s emerging-market competitors, including India and Russia, don’t place any such restrictions on foreign firms. Government support has created another problem as well: too many automakers. According to Bill Russo, an expert on the Chinese car industry at

“

Gao Feng Advisory in Shanghai, there are more than 100 registered automakers in China. That’s far, far more than even the world’s largest car market can support. As a result, most manufacturers can claim only a marginal share of the market -- even some of the better-known companies. The Chery brand, for instance, commands a mere 1.8 per cent of the passenger-car market, while Great Wall’s Haval only has 3.4 per cent. We know from historical experience that even large economies, such as the U.S., can sustain only a handful of car companies. Yet while consolidation is needed, “the fragmented production network and marketplace make it exceedingly difficult for any single Chinese company to emerge as a large player,” Crystal Chang, a lecturer at the University of California, Berkeley who has studied the industry, wrote in an email. And again, government policy isn’t helping. Many local authorities have their own neighbourhood car company that they support in order to generate jobs and investment, and nobody wants to sacrifice their champion for the greater good of the industry. While many of these companies are state-owned, even private players are often treated as local heroes and offered perquisites like tax breaks. Russo blames this dilemma on the very nature of China’s growth model, which incentivizes provincial officials to promote local fixed-asset investment. Chang adds that more than politics are involved: No executive team at a state-owned enterprise wants to merge with another and possibly lose its authority. Until these problems are addressed, foreign buyouts can only take China so far. The companies and brands available for purchase will likely be small chunks of bigger firms, or troubled nameplates. Chinese managers, who already lack international experience, will have an exceedingly tough time building these acquisitions into major contenders. Look at Geely, which bought Volvo from Ford in 2010. The brand has since enjoyed a surprising comeback, with 2016 sales hitting an all-time high. Yet even so, Volvo remains a niche carmaker, with 534,332 cars sold. General Motors, by contrast, sold over 10 million vehicles last year. If it really wants Chinese car companies to upgrade and develop a global profile, the government is first going to have to abandon the very industrial policies put in place to help them. What Chinese automakers need now aren’t subsidies or foreign acquisitions, but a healthy dose of the free market.

Many local authorities have their own neighbourhood car company that they support in order to generate jobs and investment, and nobody wants to sacrifice their champion for the greater good of the industry

”

Reuters

16 Business Daily Thursday, August 31 2017

Closing Markets

Hong Kong stocks top 28,000 points on Mainland money inflows

Hong Kong’s benchmark Hang Seng index closed above 28,000 points for the first time since May, 2015 yesterday, helped by easing geopolitical tensions as well as signs mainland money continues to flow steadily into the city’s bourse. The Hang Seng index rose 1.2 per cent, to 28,094.61, while the China Enterprises Index gained 0.7 per cent, to 11,374.46 points. The market has jumped roughly 28 per cent so far this year, buoyed by China’s economic

recovery and cross-border investment from Chinese investors. But even after the Hang Seng’s surge, Hong Kong-listed shares still trade at a discount of roughly 30 per cent to their mainland peers. Stocks rose across the board yesterday, led by raw materials, energy and IT shares. The past week has witnessed a sharp rise in net inflows from the mainland, and “we believe insurance companies will continue to be a major player and contribute to southbound transactions,” wrote Gao Ting, head of China Strategy at UBS Securities. Reuters

Results

Top China banks turn in higher profits as margins stabilise All four lenders reported lower or steadying non-performing loan ratios at the end of June

our of China’s top five state-owned ba n ks, i n c l u ding Industrial and Commercial Bank of China Ltd (ICBC) and Bank of China Ltd (BoC), posted a better-than-expected rise in quarterly profits as margins and bad loan levels stabilised. Net interest margins (NIM) - the difference between interest paid and earned by banks - have fallen sharply for Chinese banks following six benchmark interest rate cuts in 2014-15. But signs of recovery are evident from the half-yearly results of ICBC and BoC, both of which saw the gauge of profitability widen.

Key Points Four of China’s Big Five post consesnus-beating Q2 profit growth Margins, bad loan ratios steady or widen for the lenders

ICBC’s net interest margin increased to 2.16 per cent by end-June, from 2.12 per cent at end-March, while BoC’s rose to 1.84 from 1.80 per cent over the period. ICBC, China’s top bank by assets, posted a net profit of RMB77.2 billion in the second quarter, up 2.3 per

cent from a year ago, Reuters calculations based on the lender’s 6-month results show. Analysts had on average forecast a 1.7 per cent rise. BoC, the fourth-biggest lender by assets, reported a whopping 23 per cent bump in quarterly profit to RMB57.0 billion, blowing past analysts’ estimate of a 3.7 per cent increase. Among China’s other state banks, the Agricultural Bank of China Ltd and Bank of Communications Co Ltd, the

country’s No.5 lender, also turned in consensus-beating quarterly profit numbers. All four lenders reported lower or steadying non-performing loan (NPL) ratios at the end of June. “The demand for loans is stronger than past years. Meanwhile local governments are also increasing investment and Chinese companies are going overseas, so BoC’s loan in the first half grew relatively fast,” BoC Vice President Gao Yingxin said.

But there are concerns lenders may face headwinds later this year from higher funding costs and slower loan growth amid a shadow banking crackdown. Analysts estimate banks have used 80 per cent of their yearly credit quota over January-June, versus the usual 60 per cent, amid the regulatory push to bring shadow financing activities to the main loan book, meaning lenders will have less money with which to make profits in the second half.

Bosom has said it plans to shore up margins by reducing cost of liabilities and operations in the second half, while BoC said it expects asset quality to remain stable for the full year. However, BoC said there was still pressure to resolve non-performing loans. Its NPL ratio fell to 1.38 per cent at end-June, from 1.45 per cent at end-March. Top lender ICBC’s NPL ratio decreased to 1.57 per cent from 1.59 per cent over the period. Reuters

Results

Panda bonds

Obituary

Fosun posts 33.6 pct rise in H1 profit

ICBC in talks with Gulf governments, firms

Flamboyant Hong Kong businessman David Tang dies aged 63

Chinese conglomerate Fosun International Ltd, one of the country’s most acquisitive overseas dealmakers, reported a 33.6 per cent rise in first-half net profit yesterday, thanks to steady growth in its core businesses. The insurance-to-tourism conglomerate, which has a market value of HK$106.3 billion (US$13.6 billion), said net profit for the six months ended June totalled RMB5.86 billion (US$889.2 million), up from RMB4.39 billion a year earlier. Revenue increased 11.6 per cent to RMB36.3 billion. The company said its key businesses - including Fosun Pharma, Club Med and Yuyuan - performed strongly. The group is one of China’s most aggressive global dealmakers, having taken control of French resort chain Club Med and Britain’s Thomas Cook Group as well as a stake in an iconic U.S. building, One Chase Manhattan Plaza. In June, a consortium of investors led by Fosun International said it would buy a 10 per cent stake in Russia’s top gold producer Polyus for US$887 million. The group has come under scrutiny in recent weeks amid a drive by Beijing to suppress showy overseas deals. Reuters

Industrial and Commercial Bank of China is talking to governments and state-linked entities in the Gulf that are interested in issuing yuan-denominated bonds in China, said an executive at ICBC, China’s largest bank. One government entity is in the process of applying to issue such instruments, known as panda bonds, which would make it the first issuer from the Middle East in China’s interbank bond market, said Zhou Xiaodong, general manager of ICBC Dubai (Dubai International Financial Centre) branch. He did not name the entity, but said potential issuers had to have investment-grade credit ratings. Beijing is encouraging foreign bond issuers as it seeks to internationalise its yuan or renminbi currency and open up sources of finance for its planned “Belt and Road” trade route connecting China by land and sea to Europe. Meanwhile, Gulf governments and companies have become more eager to issue bonds abroad in the past couple of years as low oil prices cause governments to run budget deficits and tighten liquidity in local banking systems. Reuters

Hong Kong businessman and socialite David Tang, known for founding the eponymous Shanghai Tang fashion brand, has died at the age of 63. Tang, who split his time between the Asian financial hub of Hong Kong and London, was well known for his satirical sense of humour as a weekly columnist in the Financial Times weekend edition. Lionel Barber, editor of the Financial Times, tweeted: “RIP Sir David Tang, businessman, philanthropist, networker supreme. He will be sorely missed as a friend and FT columnist.” Media reported he had battled liver cancer for some time. Tang, the father of two children and husband of British-born Lucy Tang, moved to England at the age of 13 where he said he began boarding school without speaking a word of English. He set up his high-end tailor in 1994 and turned it into a global brand before Richemont took a controlling stake in 1998. Hong Kong-born Tang aimed to fuse east and west through his business ventures such as the members-only China Club in the former British colony and the China Tang restaurant at the Dorchester hotel in London. Reuters