Business Daily #1382 September 13, 2017

Residential mortgage loans up 19.1 pct in July Real estate Page 2

Wednesday, September 13 2017 Year VI Nr. 1382 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming

Safety

Analyst opinions on impact of Typhoon Hato on results divided Page 6

DSAL expediting worker safety bill amendments Page 5

Trial

Ponzi scheme Ezubao head gets life sentence Page 9

www.macaubusiness.com Health impact

South China people live 3 years more than Northern due to pollution Page 8

Melco on the prowl Gaming

Gaming operator Melco Resorts & Entertainment could be looking to increase its stake in the Philippines as PAGCOR works to sell off its 17 exclusively-owned casinos. If price and opportunity are right, for a whole hotel to be redeveloped, it could be on the table.

Finalising the buyout of Hard Rock’s shares in Cyprus casino. Page 7

Fighting for the SMEs

Giving a voice to the SMEs in the Legislative Assembly, focusing on problems such as human resources and high costs and increasing transparency around the percentage of overseas workers that can be hired, are some of the main issues for candidate for the assembly Jorge Valente. Breaking monopolies on public contracts and promoting better training for public sector workers also on the cards.

Idle cash

Reserves US$70 billion in taxes from casinos over the past five years. Investment of less than 10 pct in infrastructure.

In the wake of Typhoon Hato academics, legislators and residents question why the money is sitting in a bank when it’s needed elsewhere, and why delays in planned projects and massive budget overruns are common. Page 4

Trust in globalization

Elections Page 3

HK Hang Seng Index September 12, 2017

27,972.24 +17.11 (+0.06%) Worst Performers

Geely Automobile Holdings

+6.05%

Tencent Holdings Ltd

+0.67%

Hengan International Group

-2.98%

Sino Land Co Ltd

-0.84%

China Resources Power

+1.94%

China Life Insurance Co Ltd

+0.62%

Hang Lung Properties Ltd

-1.67%

China Unicom Hong Kong

-0.70%

Galaxy Entertainment Group

+0.97%

China Shenhua Energy Co

+0.52%

Want Want China Holdings

-1.50%

Henderson Land Develop-

-0.66%

Hang Seng Bank Ltd

+0.77%

China Petroleum & Chemical

+0.50%

Kunlun Energy Co Ltd

-1.20%

China Mengniu Dairy Co Ltd

-0.61%

Lenovo Group Ltd

+0.71%

HSBC Holdings PLC

+0.46%

Cheung Kong Property

-1.17%

Hong Kong & China Gas Co

-0.13%

27° 32° 26° 32° 26° 30° 27° 30° 27° 31° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

IMF meeting Premier Li Keqiang strengthened the message that an open world to commerce is the best way to fight a weak economy. He also said the domestic economy will continue to maintain the trend seen in the first half. Page 8

2 Business Daily Wednesday, September 13 2017

Macau Housing

Hato delay Damages caused by Typhoon Hato delay the delivery of economic housing units at Ilha Verde for half a year

T

he delivery to residents of the economic housing units at the Edifício do Bairro da Ilha Verde project will be delayed for at least six months due to damages caused by Typhoon Hato, according to a release by the Infrastructure Development Office (GDI).

According to the GDI, flooding caused by the typhoon caused damage to the majority of the electro mechanical equipment in the project parking lot, which was under inspection at the time.

The public housing development has 35 floors and five underground levels, offering a total of 2,356 housing units.

‘The building does not meet the criteria of inspection and reception, and there is a need for replacement or recovery of equipment. As a result, the timing of the inspection and reception procedure and delivery will be affected,’ the department informed.

In a preliminary assessment the GDI believes ordering the necessary equipment will require half a year.

N.M.

Real estate

Non-residential loans push up real mortgages Oscar Guijarro oscar.g@macaubusinessdaily.com

Information showed that residential mortgage loans (RMLs) approved by banks in the territory increased by 19.1 per cent month-to-month to MOP5.8 billion in July. The increase was attributed to enterprise loans with residential properties as collaterals, as loans to residents accounted for 66.2 per cent of the total, decreasing 19.4 per cent to MOP3.8 billion.

When compared with the same period of 2016, new

approvals of RMLs increased by 65 per cent, the Authority indicated.

The institution also said that new RMLs collateralised by uncompleted units (i.e. equitable mortgage) dropped by 77.2 per cent

from a higher comparison base in the previous month to MOP166.5 million. On an annual basis, new equitable mortgage approved also fell by 28.8 per cent.

Regarding commercial real estate loans (CRELs), they rose by 79.5 per cent monthto-month to MOP10.9 billion; of which, new CRELs to residents, accounting for 99.7 per cent of the total, soared by 82.4 per cent to MOP10.9 billion, mainly driven by new loans granted to enterprises for large-scale tourism project development. In contrast,

new CRELs to non-residents fell by 70.8 per cent from the previous month to MOP33.9 million, the Authority continues, adding that on an annual basis, new approvals of CRELs increased by 210.9 per cent.

The official data also points out that at end-July 2017, the outstanding value of RMLs was MOP187.9 billion, up by 1.1 per cent from a month earlier or 6.0 per cent from a year ago. The resident component made up 93.5 per cent of the total.

When compared with the

previous month, outstanding RMLs to residents and non-residents rose by 0.8 per cent and 6.2 per cent respectively, AMCM says.

The outstanding value of CRELs was MOP172.3 billion, down 0.2 per cent monthto-month but up 1.6 per cent year-on-year. Residents accounted for 89.4 per cent of the loans. Compared with a month earlier, outstanding CRELs to residents remained largely unchanged whereas those to non-residents decreased by 1.8 per cent, the AMCM information states.

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Election

Two inappropriate campaigning cases received charges The city’s Public Security Police Force (PSP) is going forward with charges of violating the law relating to two cases of inappropriate campaigning.

Police found a member of the seventh candidate group attempting to put up a promotional flag on a fence in the Fai Chi Kei district. The police further investigated with Chan Wai Chi, the second candidate of group seven and Chan claimed responsibility. However, Chan later told reporters that the contents from the release posted by PSP contrasts the information that he gave, local Chinese broadcaster TDM reported. He claimed that he would take the responsibility for his group’s

behaviour but stressed that he was not informed by anyone, including the police officer that the ‘member was following orders made by a candidate’.

Chan submitted a request to the Electoral Commission to specify the regulations for campaigning. After that, a plainclothes officer showed Chan the records made earlier.

Chan said changes of the records would be made and he would sign for confirmation.

Meanwhile, PSP stated that the case has been forwarded to the judicial institution for further investigation, indicating that they had yet to receive any request to amend the record in question. C.U.

Politics

IACM accepts verdict over staging rally at public area The Civic and Municipal Affairs Bureau (IACM) expressed its acceptance towards the recent verdict of allowing a candidate group to stage a rally in a public area.

The Top Court released the verdict on Monday, specifying that Wong Kin Long, the fourth candidate of the seventh candidate group, has the right to stage rallies in public area for campaigning.

The Court slammed IACM that it has no reason for not approving Wong because of his position as a candidate, given that staging a rally is considered a way of campaigning and it should be initiated by candidates themselves or by candidate supporters.

‘The Court would not rule on the recent and almost undecipherable claims made by the defendant,’ the Court wrote in the verdict.

Earlier, IACM had disapproved Wong’s request of staging a rally at a public area because of his candidate position, with Wong turning in an appeal to the city’s Top Court on September 5.

IACM cited the Electoral Law in its statement that the Electoral Commission had arranged for the distribution of 19 venues and public areas for the campaign via an open lucky draw, and candidates are forbidden to rearrange or use any venues in collaboration with other candidate groups. C.U.

Business Daily Wednesday, September 13 2017 3

Macau Elections 2017

Voicing SME’s Candidate in the Legislative Assembly elections, Jorge Valente told Business Daily his electoral list plans and recommendations for improving the environment in the MSAR for SMEs applications for post-typhoon support had been received by the Macao Economic Services (DSE), with 3,499 having been approved, amounting to some MOP175 million (US$21.8 million).

The Macau government estimates that the total direct and indirect losses caused by Typhoon Hato so far amount to MOP11.47 billion.

Nelson Moura nelson.moura@macaubusinessdaily.com

A

s Vice-President of the Youth Entrepreneurs Association and a candidate for legislator in this year’s Legislative Assembly (AL) elections, Jorge Valente wants the electoral list he’s part of to better voice concerns of small and medium enterprises (SMEs) in the MSAR’s legislative branch.

“There are many legislators from the business area in the AL but in reality they don’t represent SMEs,” Mr. Valente told Business Daily.

The entrepreneur is currently running in the ‘Alliance for Change’ electoral list headed by Melinda Chan, a current legislator and also wife to the CEO of local gaming operator Macau Legend Development Ltd, David Chow Kam Fai. The President of the Macau Travel Industry Council, Andy Wu Keng Kuong, joins Valente and Chan as a candidate on the number 18 electoral list.

According to Mr. Valente, the electoral list candidates want to focus on problems that are “making it harder for SMEs to survive” such as human resources and the high costs currently associated with hiring.

“The current system for issuing work permits for non-residents is not transparent in defining the percentage of overseas workers a company can hire,” he told Business Daily.

Recycling public employees

Mr. Valente considered that the percentage of non-residents allowed to work should be defined clearly for each business sector, detailing how many work permits they might apply for.

The process for providing business licences should also be “shortened” and “simplified”, with the candidate to legislator telling Business Daily that licences should be provided in a “one month period”.

More than typhoon relief

The businessman considered that the aid schemes provided by the MSAR government to SMEs which suffered

damage from Typhoon Hato are welcome but that the real amount of losses incurred would be higher than that estimated by the government.

“The response has been good in terms of emergency measures in regard to support for SMEs but this is only one step for supporting the damages of a disaster. Not everything can be resolved by just handing out money, since it’s already hard to calculate the level of damage an individual business suffered, with losses not being just material but related to the stoppage in activity and loss of clients,” he added.

As of September 6, a total of 10,869

The candidate also considers that better training could be provided by the government to employees in the public sector, as well as allowing a more frequent renewal of public employees to be considered.

“There should be a larger ‘recycling’ of workers in the public sector and more and better training for the long term,” Mr. Valente stated.

The electoral list’s political programme also states that the current monopolies on public contracts related to services such as public transport, telecommunications, water supply and electricity should be ‘broken’ with concession contracts reviewed.

In terms of tourism development, the list states it will propose to the MSAR government measures to respond to the flow of tourists during peak seasons, implement an operating model for ‘one border, two checks’ at customs, and promote the construction of new access points between Guangdong and Macau. advertisement

4 Business Daily Wednesday, September 13 2017

Macau Opinion

José I. Duarte*

Sense and sensibility Traumatic events often make people over-sensitive to comparable circumstances. That is a normal reaction; it is part of how we cope with distress and prepare to deal with future events. It may, however, lead us to behave in ways that exaggerate the threat and stress us beyond what the situation warrants. A bit of that is happening in the wake of Typhoon Hato.

Many people complained about the perceived lateness of typhoon warnings in previous occasions. It seems the meteorological services are now clearly over-reacting, in what appears like an anxious yearning to cover their backs from any such future accusation – which many in the service may even find excessive and unfair. Now we have a permanent warning about typhoons on the top of their first web page, under the heading “Special Info,” all written over a bright red background.

It seems that any tropical depression, no matter how far away or menacing it may look, will deserve mention. That may help create a state of anxiety and alarm that is unjustified.

Not all tropical depressions become typhoons; not all typhoons come our way; not all of those that do are equally menacing. We do not need to be reminded there are many tropical depressions in the Pacific each year; we do not need to agonize about every single one of them. We surely can do without the services contributing to a state of public alarm.

Take this quote: ‘The maximum sustained winds of “Talim” is expected to be stronger than Typhoon “Hato”’. It was issued when the typhoon, still in its early stages, was located more than 2,000 kilometres away from Macau, and the track forecast indicated that it might end up in China, five to six days later, anywhere between Shanghai and Hainan. What kind of purpose does such a statement serve?

We need to trust that the information we receive is pertinent, timely, rigorous and sensitive to the circumstances. Let’s find that balance. And then keep the focus where it most matters. We need to know why the civil protection services failed so miserably when they were more needed.

The real or presumed failures of the meteorological services may be a part of it. But they cannot be the main one, or even a major one – unless we conclude that the protection services do not function at all. *economist and permanent contributor to this newspaper.

Budget

Unused billions: booming casino taxes sit in gov’t coffers The government’s execution rate for infrastructure projects like roads, bridges, ports, and schools has also been low in recent years, according to an analysis of government figures Farah Master

O

ver the past five years, the MSAR has raked in US$70 billion in taxes from the casinos that have made the territory the largest gambling centre in the world. But it has invested less than 10 per cent of that take – by far its largest source of income – in much needed infrastructure.

That shortfall was laid bare last month when Macau was struck by a typhoon that killed 10 people and wiped out power and water for over half the city. Years of mismanagement, poor planning and corruption are key reasons why the money has not been better utilized, according to academics, legislators and residents. “They could spend much more,” said Eric Sautede, a former Macau university professor, and now a researcher specializing in the former Portuguese colony, referring to infrastructure investment.

He said the government’s coffers were so large it could operate for the next several years without collecting taxes.

However, taxes from Macau’s six casino operators - which account for more than 80 per cent of government revenue annually - continue to pour in.

The southern Chinese territory has zero public debt and had fiscal reserves of US$55 billion at the end of 2016, equal to 540 per cent of public expenditure that year, according to statistics from Macau’s financial bureau.

Macau’s monetary authority said it invests the reserves in a globally diversified portfolio of assets, with

a “stringent control on the overall risk level of the portfolio.”

The annual rate of return during 2012-2016 ranged from 0.7 per cent to 3 per cent, it said.

Macau’s government typically distributes an annual cash handout of MOP9,000 (US$1,117.73) for each of the more than 600,000 people living in the territory, as well as subsidies for things like education and small businesses.

The government’s execution rate for infrastructure projects like roads, bridges, ports, and schools has also been low in recent years, according to an analysis of government figures.

In 2013, as casino revenues hit a record US$45 billion, the government had an execution rate of under 40 per cent.

The government said in an email without elaboration that projects were “hindered due to different reasons”.

Execution rates have been improving since 2014, after the appointments of Beijing-backed officials charged with cleaning up a trail of corruption left by predecessors now facing lengthy jail sentences.

In 2016 the execution rate jumped to 85 per cent, although the budget allocation for public infrastructure decreased, dropping to MOP11.1 billion in 2016 from MOP14.8 billion the year before. In 2012, the number was MOP19.8 billion.

A new bill is also planned to improve transparency in the drafting of budgets and monitoring of public finances.

Infrastructure backlog

However, unfinished public works

projects are still scattered around Macau with skyrocketing budgets, according to economists. A new public hospital was meant to open this year but is still in the early construction phase. Macau’s new ferry terminal, meanwhile, was scheduled to open in 2007 but was only finished this year, 10 years behind schedule and over five times its original budget.

Paul Bromberg, the chief executive of Spectrum Asia, a consultancy firm, said Macau’s public works were frequently delayed.

“I remember government officials talking about plans to build a light rail in 2003 and now it is 2017 and there is still no rail system,” he said.

The government is still grappling with the aftermath of the typhoon, this week estimating the losses at US$1.4 billion. More than 100 public facilities were damaged and 500,000 trees were destroyed, while two casinos remain shuttered. The figures did not include potential losses for companies forced to suspend business operations due to typhoon damage.

The government has appointed a new committee to handle natural disasters and says it will build a tidal wall to help alleviate heavy flooding in the future.

However, long-time residents say they don’t expect changes any time soon. “The government has been talking about it for decades, “ said Harald Bruning, the director of the Macau Post Daily newspaper, referring to the tidal wall project.

“I guess the project would only be completed in the next decade.”

Reuters

Business Daily Wednesday, September 13 2017 5

Macau Politics

Asking for a piece of the pie

U

nder the Greater Bay Area initiative, creating a ‘Village of Hong Kong’ in Zhuhai would attract Hong Kong residents to reside in mainland China, suggests Starry Lee, the Chairman of Democratic Alliance for the Betterment and Progress of Hong Kong (DAB).

Reported by Sing Tao Daily, Lee said constructing public housing on a piece of Zhuhai land would encourage

young people to settle in Zhuhai, given that the supply of housing in Hong Kong hardly meets the demand.

The move would also provide support to the development of the Greater Bay Area.

Lee noted that the launch of the Hong Kong-Zhuhai-Macau Bridge would create a ‘one-hour living circle’ which might improve the livelihood of residents from both cities.

In relation to the housing prices of

the suggested plan, Lee perceived that the price could be even cheaper than the public housing’s 30 per cent reduction on market price in Hong Kong.

Nevertheless, the suggestions made need to be approved by the central government as well as the Chinese city’s government, stressed Lee. Previously, DAB had offered 55 suggestions on the Great Bay Area development, including providing

Chinese identification document to Hong Kong residents and rearranging the taxation system for Hong Kongers who are working on the Mainland.

‘Everything should be started by improving convenience,’ said Lee as quoted by the publication. ‘If there are too many inconveniences for Hong Kong residents in going back to China, their intention to stay in China will be low.’ C.U.

Labour safety

DSAL expediting bill amendments on construction workers safety The progress of amending the bill for regulating the safety of construction workers is being expedited, according to a response by the Labour Affairs Bureau (DSAL) to an interpellation by legislator Chan Meng Kam. However, the Bureau has not provided the timetable for the bill to be sent to the Legislative Assembly for deliberation.

Several industrial accidents happened earlier this year which resulted in casualties on construction sites.

Apart from specifying the standards of safe construction, the DSAL is also planning to lay out the safety management system, which includes the addition of members of safety management, specifying the qualification requirements of the

members and defining member’s responsibilities.

DSAL reported that 31 suspension notices to construction sites were given out after 558 inspections were made between July 15 to 20.

Developers who had received construction suspension notices were required to submit a detailed report and to improve the work safety environment. Construction

was only resumed after approval was received from the DSAL. To raise safety awareness, the Bureau informed interested architects to participate in a talk to be held September 26 and 27 about the roles of architects in ensuring work safety on construction sites.

Participants who have attended the three-hour talks will be given an attendance certificate. C.U.

Hengqin

Financial sector growth in Hengqin up 73 pct per year since establishment Up until 2016, the value of the financial industry has seen an average growth rate of 73.18 per cent since the establishment of the Hengqin Special Economic Zone in 2009.

The zone generated RMB1.4 billion

(US$214.36 million) from its financial sector in 2016, compared to RMB30 million in 2009.

According to the latest data, provided by the Hengqin City Administrative Office, a total of 5,574

financial corporations were stationed in Hengqin as at end-July, compared to 1,858 corporations during the beginning of 2017. The registered capital of the financial corporations reached RMB654.8

billion, indicating an increase of RMB113.3 billion earlier this year.

The wealth management institutions are currently managing over RMB2.4 trillion of assets in Hengqin. C.U. advertisement

6 Business Daily Wednesday, September 13 2017

Macau Casinos

Half empty or half full?

Different gaming analysts can’t agree if Typhoon Hato impacted the MSAR gross gaming revenues in the first 10 days of September period, slowing down before the Golden Week period.

Analysts at Telsey also believed the junket operator sector has become more consolidated, ‘focused’ and ‘financially healthier’, after the fear and conservatism that affected VIP results in previous years.

Nelson Moura nelson.moura@macaubusinessdaily.com

Gaming analysts are divided over the long-term impact of Typhoon Hato on gross gaming revenues registered in the first 10 days of September.

According to analysts at Telsey Advisory Group, the first 10 days of September were ‘stronger than expected’ with gross gaming revenues seeing an increase between 19 per cent to 20 per cent year-on-year, with a table win per day between HK$770 million (US$98,5 million) and HK$790 million.

‘Although our sources indicate that the luck factor has benefited results and volumes should slow ahead of

Glass half full

the Golden Week in October, the early indications are that results are eclipsing the more challenging comparisons,’ the Telsey note informed.

Nevertheless the group

believes the higher than average table hold percentage - the portion of money gambled that a casino retains - seen in the last months could reverse for an extended

On the other hand, analysts at brokerage firm Sanford C. Bernstein Co, considered that the impact of Typhoon Hato on August 23 affected the revenue during the first 10 days of September, with average daily revenues (ADR) of MOP680 million, 8 per cent less than the MOP741 million in ADR seen in August.

‘While the slowdown in September is expected on weaker seasonality, the first 10 days of the period covered two full weekends,’ the Bernstein note stated.

The firms’ analysts also believed mass market gross gaming revenues were down monthly by mid-single digits with the VIP sector being down for around 10 per cent monthly.

Nevertheless the Bernstein note points out that even with the current level of ADR, September would see a year-on-year increase of gross gaming revenues between 8 per cent and 11 per cent, finishing with results between MOP19.8 billion and MOP20.4 billion.

Diversifying

LiNiu to partner with PICC for platform’s promotion LiNiu Technology Group, formerly junket group Iao Kun Group Holdings, is expanding its diversification efforts, announcing a three-year ‘strategic cooperation agreement’ with the Guangzhou branch of The People’s Insurance Company of China Limited (PICC), according to a company release.

Through the agreement, the two companies will develop ‘new insurance products tailored for farmers, rural residents and the agricultural industry that would help in solving the Three Rural Issues,’ notes the release.

The Three Issues are those relating to rural development in the Mainland,

namely in Agriculture, Rural Areas and Farmers, having been highlighted by previous Chinese leaders.

LiNiu will ‘prioritise promotion’ of the PICC’s products on its agricultural trading platform, while PICC will promote LiNiu’s products, services and platform ‘to its customers through brochures or booths in branch offices’.

“We are pleased to be working closely with PICC to help further enhance our presence in Guangdong province while devising new products in concert with PICC that should provide additional benefits to customers of our LiNiuYang platform,” stated Mr. Wang Shun Yang, co-Chief Executive Officer of LiNiu Technology Group.

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Casinos

End of the year bonus Galaxy Entertainment Group Limited will push forward the date for employees to sell off one-third of their granted Special Share Awards to October 4 Nelson Moura nelson.moura@macaubusinessdaily.com

Gaming operator Galaxy Entertainment Group Limited (GEG) will allow employees to sell one-third of their received Share Awards on October 4 of this year, a company filing with the Hong Kong Stock Exchange informed.

According to GEG, as of June 30 of this year 21,420,047 Special Share Awards had been provided to the group’s employees between October 28 of 2014 to December 28 of 2016, with their vested date - a date after which the stockowner can exercise her/his rights on the granted stock - set on or before June 30 of 2018.

In August of 2014 GEG offered employees Special Share Awards equivalent to three times of monthly salary, with a vesting date set on December 31 of this year.

Previously GEG stated that due to an ‘extreme situation caused by Typhoon Hato’ it would provide the option for employees whose Share Awards were vested on December 31 to advance the vesting and sell one-third of their shares.

GEG also announced it would ‘pay the sale proceed into employees’ payroll accounts as soon as practicable, likely in late October’ with the vesting of the remaining balance of the Special Share Award to continue being the previously defined date at the end of this year.

According to the recent filing, GEG had entered into an agreement with Acheson Limited - a Hong Kong company and the trustee appointed by GEG for the administration of the

Share Award Scheme - to subscribe the total share amount for HK$0.01 per share, making it a total of around HK$214,200 (US$27,415) that ‘will be settled in cash by GEG’s internal resources’.

The trustee will then transfer these Subscription Shares to the employees at ‘no cost, or sell them on market with the net proceeds to be remitted to the relevant grantees’.

Last week 300 workers from GEG protested near the Galaxy property in Cotai demanding a full-14 month salary, claiming the company announced a bonus to be offered in September that was merely an advance on the offer of a bonus set to be received in December.

Business Daily Wednesday, September 13 2017 7

Gaming Gaming markets

Expanding in the Philippines?

Melco is closely following PAGCOR’s latest developments, claims to have enjoyed ‘a strong relationship’ with the state-run corporation for many years Sheyla Zandonai sheyla.zandonai@macaubusiness.com

L

ocal casino operator Melco Resorts & Entertainment told Business Daily the company welcomes the ‘developments’ disclosed by the Philippines Amusement and Gaming Corporation (PAGCOR) over the weekend, when it announced that it will start privatizing 17 exclusively-run casinos countrywide next year.

‘The Philippines is an exciting market for international entertainment […] and we look forward to continuing to work together [with PAGCOR] in the future,’ Melco told Business Daily.

The company operates City of Dreams Manila, located in the Entertainment City in the Philippine capital. Opened in 2015, the property remains one of the most profitable Integrated Resorts in the country.

In a previous interview with Macau Business, Melco’s Chairman and CEO Lawrence Ho Yau Lung, said that while Melco would be “open-minded” about bidding on PAGCOR properties, the company would be “very strategic in terms of looking at it.”

“If there was a big redevelopment opportunity, a whole hotel that we could redevelop, we would be potentially interested in doing that,” Ho told Macau Business in June.

Reasons for privatizing the Philippine state’s gaming assets range from alternatives to raising funds for

public coffers to addressing eventual conflicts of interest tied to PAGCOR’s role as both a regulator and an operator.

Speaking to Business Daily, Ricardo Chi Sen Siu, Associate Professor in Business Economics at the University of Macau, said that PAGCOR’s decision to expand its role as regulator-only by privatizing existing properties ‘will quite likely in future

Court

elevate the efficiency of the Philippine’s casino gaming market.’

Accordingly, the professor claimed that it ‘may exert certain competition on Macau’s market,’ although at this stage ‘the actual effect may still be unclear.’

Following comments by Grant Govertsen, managing director of Union Gaming in Business Daily’s Monday edition, that junkets are ‘clearly

interested in expanding their bases of operations, including transitioning from an agency to a principal model,’ Business Daily also contacted Suncity Group, currently operating VIP rooms in the Philippines, to enquire about its interest in acquiring PAGCOR assets in 2018. However, the company had not responded to Business Daily enquiries by the time this went to print.

Cyprus

Crown and Aristocrat being sued Gaining majority for allegedly deceptive machines A woman is suing Crown Resorts and poker machine-maker Aristocrat on the basis of providing ‘deceptively designed’ machines, Australian media outlets reported yesterday.

The plaintiff, Shonica Guy, is arguing in federal court that a type of machine manufactured by Aristocrat, Dolphin Treasure, is “addictive” and “designed” to get people “on the hook,” the New Daily quoted the plaintiff as saying.

Guy, who claims to have been addicted for the last 14 years, further argues that the reels, symbols, and other design elements featuring in the machine misrepresent the true chances of winning, ABC News reported.

Aristocrat and Crown have denied the allegations, the broadcaster notes.

Crown currently operates 38 Dolphin Treasure machines.

According to Guy’s attorney, the Melbourne casino operates some 1,000 Aristocrat poker machines out of the 2,600 available on the casino floor.

Another barrister told the Justice in charge of the case that both Crown

and Aristocrat had contravened laws preventing misleading and deceptive conduct.

The CEO of the country’s Gaming Technologies Association, Ross Ferrar, was quoted outside court as saying that the industry stood by the “integrity of its products,” the media reported.

The head of social justice accompanying the case said Guy was not seeking damages from the industry, but rather wanted to shine a light on the industry’s practices, according to New Daily.

The trial is set to take place in three weeks.

Aristocrat’s head office in Asia Pacific is located in Macau.

The provider of gaming solutions is licensed in 240 gaming jurisdictions and operates in 90 countries around the world, according to the company.

Crown Resorts, controlled at majority stake by James Packer – a former partner of Lawrence Ho Yau Lung at Melco Crown (now Melco Resorts & Entertainment) – is one of Australia’s largest entertainment groups operating in the integrated resort segment.

The Cyprus government has given permission for Melco International Development Limited to buy the interest held by Hard Rock International Inc. in the joint integrated resort project in Cyprus, giving the majority stake to Lawrence Ho’s company Nelson Moura nelson.moura@macaubusinessdaily.com

Melco International Development Limited received approval from the Cyprus gaming authorities to purchase a 35.37 per cent interest owned

by Hard Rock International Inc. in a joint casino resort project in the European country, a Hong Kong Stock Exchange filing yesterday revealed.

The purchase deal is expected to be concluded today, with the company owned by local businessman Lawrence Ho to hold a majority stake of 70.74 per cent in the integrated resort project, with the remaining share held by Cyprus Phassouri (Zakaki) Limited (CPZL).

A joint bid made by Melco International, Hard Rock and CPZL was granted a gaming licence on June 26 by the Cyprus government to develop, operate and maintain an integrated casino resort in the country’s southern city of Limassol and up to four satellite casino premises in Cyprus for a 30 year period.

The licence also granted exclusive rights for gaming exploration for the first 15 years, with no additional gaming licences being granted in the country during the period.

The Cyprus Energy, Commerce, Industry and Tourism Minister, Yiorgos Lakkotrypis, said in June that the Limassol casino resort would cost more than 500 million euros (MOP4.80 billion/US$596.92 million) to build, with the project to include a

500-room hotel and a casino with 136 gambling tables and 1,200 gambling machines, news agency Associated Press reported at the time.

According to Spectrum Gaming Capital (SGC) - a New York company that advised CPZL in the joint bid - a temporary casino in Limassol and the four satellite casinos will be operational in 2018, with the first phase of the integrated resort to be completed in 2020.

The first phase of the integrated resort was also said to include 70,000 square feet of gaming space, 15 food and beverage venues and a water park, SGC informed in a press release in July.

8 Business Daily Wednesday, September 13 2017

Greater china Premier

Nations should maintain free trade amid fragile world economy Li also reiterated China’s pledge not to resort to competitive currency devaluation

T

he world economy is showing positive signs but is still fragile and countries should rely on structural reforms, not quantitative easing, to support growth, Chinese Premier Li Keqiang said yesterday.

Li, who met with the heads of global bodies, including International Monetary Fund Managing Director Christine Lagarde and World Bank President Jim Yong Kim in Beijing, said that countries should maintain free trade.

slowdown and putting the country on pace to easily meet its growth target of around 6.5 per cent.

“Based on the growth trend in recent months, the economy will continue to maintain the trend seen in the first half,” Li said.

He also addressed China’s high leverage ratio, which has been the focus

of a campaign by policymakers to control risks.

China’s leverage has stabilised and has even shown some declines, Li said.

Li also reiterated China’s pledge not to resort to competitive currency devaluation.

At the official local close on Monday,

the onshore spot yuan had gained around 6.5 per cent so far this year, about the same percentage loss it suffered in 2016.

The global economy is recovering, but could easily be derailed by policy uncertainty and the threat of protectionism, IMF chief Lagarde told the same briefing. Reuters

Key Points More positive factors in global economy, but still fragile - Li Says Chinese economy remains steady and continues to improve Li reiterates pledge against competitive currency devaluation “There are increased positive factors in the global economy and signs of warming-up in some aspects. But at the same time, the fragility persists and unstable and uncertain factors are still increasing,” Li told a joint news conference with the heads of international agencies.

“Free trade is a good medicine for resolving problems. Through free trade, we can resolve many problems in the difficult recovery, help companies transform and give consumers more choices,” he said.

Turning to China, Li said the economy would remain steady and continue to improve.

China’s economy grew a stronger-than-expected 6.9 per cent in the first half, defying expectations of a

Chinese Premier Li Keqiang speaks to the media during a joint press conference following the 1+6 Round Table Dialogue meeting at the Diaoyutai State Guesthouse in Beijing yesterday. Source: Lusa

Health

Northern smog cuts life expectancy by 3 years vs south China is in the fourth year of a “war on pollution” designed to reverse the damage done by decades of untrammelled economic growth David Stanway

Air pollution caused by coal-fired winter heating has slashed life expectancy in northern China by more than three years compared with the south, according to a new study, underlining the urgency of Beijing’s efforts to tackle smog.

Researchers with the Energy Policy Institute at the University of Chicago (EPIC) said average lifespans north of the Huai river, where China supplies mostly coal-fired winter heat, were 3.1 years lower than in the south, which is not covered by the state heating policy. EPIC’s study cites long-term smog exposure as a primary cause of the difference.

In a statement, EPIC said its study examined pollution and mortality data in 154 cities from 2004 to 2012, and found higher death rates were due entirely to increases in cardiorespiratory illnesses. EPIC didn’t give an absolute number for average life expectancy, but said its study was the first to focus on differences in air quality north and south of the Huai river.

“We know on highly polluted days more people die and more people are sick, but what this study helps to isolate are the consequences of long-run sustained exposure,” said Michael Greenstone, EPIC director and one of the report’s authors.

China is in the fourth year of a “war on pollution” designed to reverse the damage done by decades of untrammelled economic growth and allay concerns that hazardous smog and widespread water and soil contamination are causing hundreds of thousands of early deaths every year.

According to EPIC, if China were to comply with World Health Organisation air quality standards, its people could live 3.5 years longer on average.

EPIC said its study was able to isolate the impact of air pollution on health in northern China versus the south.

Every 10 micrograms per cubic

metre of additional long-term exposure to smog particles cuts life expectancy by 0.6 years, the study found.

Average readings of PM2.5 pollution - breathable airborne particles of less than 2.5 micrometres in diameter stood at 45 micrograms per cubic metre in China from January to July, with the northern Beijing-Tianjin-Hebei region reaching 69 micrograms. The national standard is 35 micrograms.

Beijing has promised to impose tough industrial and traffic curbs this winter and is also in the process of shutting thousands of coal-fired boilers.

The government has acknowledged

pollution is a health hazard but researchers have said more data was needed to understand its full effects, especially when it comes to the specific role it plays in diseases like lung cancer.

Key Points Coal in winter heating boosts smog - University of Chicago Lifespans in coal-heated areas 3.1 yrs below south China Higher death rates caused by cardiorespiratory illnesses More research needed on long-term smog effects -researcher “We have enough evidence for the short-term effects of air pollution, but for long-term health, it is far from sufficient,” said Kan Haidong, professor at the School of Public Health at Fudan University in Shanghai, adding that the government has recently commissioned new studies. Kan wasn’t involved in the EPIC work but has worked on his own pollution studies.

“In the next five years, there is going to be more and more evidence linking air pollution with health in China,” he said. Reuters

Business Daily Wednesday, September 13 2017 9

Greater China Ponzi scheme

In Brief

Leader of Ezubao online scam gets life sentence Once China’s biggest P2P lending platform, Ezubao folded last year after it turned out to be a Ponzi scheme A Beijing court yesterday sentenced the architect of the US$9 billion Ezubao online financial scam to life imprisonment, and handed down jail time to 26 others, marking the close to one of the biggest Ponzi schemes in modern Chinese history.

The ruling comes at a time when the government is stepping up efforts to crack down on risky and illicit behaviour in the country’s financial sector, including the unruly peerto-peer industry that continues to attract high volumes.

Beijing First Intermediate People’s Court sentenced Ding Ning - chairman of Anhui Yucheng Holdings Group that launched Ezubao in 2014 to life in prison and fined him RMB100 million (US$15.29 million) for crimes including illegal fundraising, illegal gun possession and smuggling precious metals.

Ding Dian, the chairman’s brother, was also sentenced to life, while Zhang Min, Yucheng’s president, and 24 others were sentenced to imprisonment for 3 to 15 years, according to an article on the Beijing Courts social media account.

Ezubao, once China’s biggest P2P lending platform, folded last year

after it turned out to be a Ponzi scheme that collected RMB59.8 billion (US$9.14 billion) from more than 900,000 investors through savvy marketing.

By the time police made arrests in early 2016, the company had failed to repay RMB38 billion.

The incident sparked a crackdown on the freewheeling online financial services market and led to new regulations to control China’s P2P industry - where monthly volumes are above US$50 billion, statistics published by industry portal P2P001 show.

Ezubao’s excesses also became a cautionary tale following its collapse.

Ding collected a monthly salary of

RMB1 million, and admitted on state television to spending an estimated RMB1.5 billion in Ezubao funds on himself.

“We fabricated projects to raise money,” Ding said, according to a Xinhua report published last year, and then used fabricated project companies to re-circulate cash back into accounts linked to his companies.

Ding also asked dozens of his secretaries to dress only in Chanel, Gucci and other luxury branded clothing to make the company appear highly successful.

He told Zhang, the group president, to buy up everything from every Louis Vuitton and Hermès store in China. Reuters

Banking

Spain probes ICBC’s European unit over money laundering According to the court ruling, ICBC Europe could face a fine, asset seizures or dissolution if found guilty Angus Berwick, David Lague and Jesús Aguado

Spain has launched an investigation into the European management of the Industrial and Commercial Bank of China (ICBC) in Luxembourg as part of a widening probe into the alleged laundering of hundreds of millions of euros through the Chinese banking giant’s Madrid branch.

A Reuters investigation in July revealed Spanish prosecutors were poised to explore the role of ICBC Luxembourg in the alleged money laundering scheme following the arrest of seven ICBC executives in Madrid in February last year, including branch manager Liu Wei and the general manager of the bank’s European division, Liu Gang.

The Spanish High Court said on Monday it had approved a request from the anti-corruption prosecutor’s office to investigate ICBC’s European headquarters for the alleged crime of money laundering.

High Court judge Ismael Moreno ruled that ICBC’s Europe board must name a representative and a lawyer to be summoned to appear before the court.

“ICBC Luxembourg was aware at the time of the way ICBC Spain was operating, and the Luxembourg headquarters provided it with internal audit services,” the ruling said.

The Luxembourg unit of ICBC holds the lender’s European Union bank licence and is responsible for supervising the Madrid branch.

According to the court ruling, ICBC Europe could face a fine, asset seizures or dissolution if found guilty.

An ICBC spokesman in Luxembourg was not available for comment on Monday.

Chinese Foreign Ministry spokesman Geng Shuang told a regular press briefing yesterday that ICBC had played a positive role in promoting financing cooperation between China and Spain.

“China always requires Chinese banks overseas to operate according to law.

We hope Spain can appropriately and fairly handle the relevant issue according to law, and earnestly guarantee the relevant Chinese financial institution’s lawful rights.”

The Reuters’ investigation drew on thousands of pages of confidential case submissions and interviews with investigators and former ICBC employees to show how a long running investigation into alleged Chinese organised crime networks eventually led Spanish police to mount an early morning raid on ICBC’s Madrid branch on Feb. 17 last year.

At the core of the ICBC case is the relationship between the bank and a group of clients from Spain’s thriving Chinese business community. These Chinese clients are alleged to have accumulated mountains of cash, much of it from avoiding duty and tax on the sale of consumer goods imported from China.

Spanish judicial officials told Reuters that between 2011 and 2013, ICBC’s Madrid branch transferred about 225 million euros to China, most of it for suspected criminal networks. These networks also sent funds via money transfer firms in Spain and by smuggling large amounts of cash by road to other European countries from where it was transferred to China.

In response to the Reuters’ investigation, a spokesman for ICBC in Europe said in July the bank was a “law-abiding company” and had cooperated with Spanish authorities. The case file, he said, was sealed by the court so the bank could not comment.

On Monday, the Spanish High Court ruling said criminal responsibility for the

alleged money laundering extended to the bank’s European headquarters, ICBC Luxembourg.

“The directors Liu Gang and Liu Wei have acted under ICBC Luxembourg’s authorisation, and in benefit of ICBC Luxembourg, seeking to capture the maximum number of cash deposits from clients, of which a great majority were involved in activities in the black economy and are suspected of tax and customs fraud,” the court said.

“The opacity of the funds was increased by dividing up the transfers they were making, by using internal unnamed bank accounts, by the use of falsified documents and identity cards, fake invoices, and massive transfers to China.”

Liu Wei and Liu Gang did not respond to requests for comment.

The court ruling said between 2011 and 2014 Spanish authorities did not detect any lending or mortgage activity at the Madrid branch.

“Therefore, it can be concluded that between 2011 and 2014 there was no banking activity other than capturing money from criminal groups to which it was providing banking services to conceal their earnings and transfer them to China,” the court ruling said.

The court said ICBC had received 148 million euros in cash in 2011, 73 million euros in 2012, eight million euros in 2013 and 281 million euros in 2014. Reuters

Spanish Guardia Civil raid ICBC’s Madrid branch on Feb. 17 last year

Cryptocurrencies

Official says ICO ban should not stop blockchain research China’s ban on initial coin offerings (ICO) is a necessary move to stop illegal fundraising and pyramid schemes but should not stop firms from studying blockchain technology, a senior central bank official told the Financial News newspaper yesterday. Sun Guofeng, director general of the People’s Bank of China’s research institute, said in an interview with the newspaper that the central bank’s move to ban the practice of creating and selling digital currencies or tokens to finance start-up projects on Sept. 4 was “necessary and timely”. “But this should not prevent relevant financial technology companies, industry bodies and other technology firms from continuing their research into blockchain technology,” he said.

Debt

Huishan Dairy says HSBC demanding repayment Embattled China Huishan Dairy Holdings Co Ltd said HSBC was demanding the repayment of US$214 million of loans following one or more counts of default.

The move adds to pressure on Huishan, which has held talks with creditors and regional government officials in China asking for help to roll over some loan facilities until it can plug a gap in its finances. Huishan’s woes came to light when its stock plunged 85 percent in March before being suspended.

Since then most of its directors have quit, it has missed loan payments and lost contact with a key executive in charge of its finances and cash.

Trade

EU seeking response over soft cheese ban The European Commission is concerned about a ban imposed on European soft cheese imports in China but has failed so far to receive a response from the authorities to letters complaining about the action, Commission sources said on Monday. Shanghai, one of the main entry ports for most products, has halted the import of cheeses such as Roquefort, Brie and Camembert in a move set to damage European exporters, diplomatic and industry sources said on Friday.

“These cheeses have been safely imported and consumed in China for decades,” the EU sources said.

10 Business Daily Wednesday, September 13 2017

Greater China eCommerce

Amazon Mainland hiring signals renewed ambitions in Alibaba battle Amazon has used its global reputation to keep a foothold in the business of importing goods for China’s rising middle class, who seek safe foods and authenticity

A

mazon.com Inc. is hiring by the hundreds in China to fill jobs ranging from internet software engineers to designers for Alexa, positioning the company to recoup some of the market share it lost to Alibaba Group Holding Ltd. in the world’s largest online shopping arena.

The online retail giant lists almost 400 Chinese-based openings on its careers website and more than 900 on LinkedIn. They include senior executives to manage and acquire content, a leader to expand its fledgling Amazon Lending program and a head for its storefront on Alibaba’s Tmall. And it’s hiring a hardware engineer to, among other things, evangelize for digital assistant Alexa, which works with third party products even though the Echo speaker isn’t available in China.

While the Seattle-based company still sells goods from abroad to Chinese consumers and has local cloud computing customers, Amazon’s been relegated to a bit player in a domestic e-commerce market dominated by Alibaba and JD.Com. But like fellow U.S. companies Facebook Inc. and Google, it isn’t giving up on the world’s most populous nation despite powerful domestic players and increasing government restrictions on foreign businesses.

China’s limits on foreign companies, and the savvy of local operators, has given rise to an alternate web universe on the Mainland. While Amazon strikes fear into rivals around the world, in China it’s dwarfed by Alibaba. Facebook’s reach stops at the border as Tencent Holdings Ltd. and WeChat rule social networking while Baidu Inc. is top of the search pile in Google’s absence.

Amazon wants to be seen as a global distribution network, not just a way to reach U.S. customers. The company is encouraging its more than 2 million merchants, many who only sell in the U.S.,

Amazon logistics centre

to use Amazon to reach international markets. It offers services for language translation, currency conversion and tariffs to streamline the process for merchants who think it’s too cumbersome and costly to sell abroad.

Amazon’s market share in China continues to shrink in the face of fierce competition. Its sales represented just 1.1 per cent of China’s online gross merchandise value in 2015, and by 2016 that figure had dropped to 0.8 per cent, according to an ICBC note that cited iResearch.

But Amazon has used its global reputation to keep a foothold in the business of importing goods for China’s rising middle class, who seek safe foods and authenticity. In the fourth quarter of 2016, Amazon controlled 7 per cent of the country’s cross-border commerce, according to ICBC. It launched its Prime free-shipping service in late 2016.

“In this past two years, Amazon’s recognized the trend of rising Chinese consumption and persisted in developing its cross-border business,” said Chen Tao, a researcher with Analysys.

“The addition of the Prime program propelled that and it’s had fair success with the business.”

In the first quarter, the company’s

cross-border sales were 11 times bigger than their level two years earlier. Ocean Audit, which tracks the global movement of goods, said Amazon imported 14,885 shipping containers’ worth of goods in 2016. This year it’s predicted to reach 20,000, according to Chief Executive Officer Steve Ferreira.

It’s unclear whether the current talent hunt is significantly accelerated from previous years. Amazon didn’t respond to an emailed request for comment.

This year, it started hiring HR executives to staff a new regional “shared-services hub” in Beijing. A new office in Hangzhou – Alibaba’s hometown – is hiring sales team leaders empowered to headhunt more staff. Joyo.com, a Chinese e-commerce platform acquired

by Amazon in 2004, is hiring logistics and delivery partners.

Beyond e-commerce, it’s building a Chinese content team to woo studio heads and negotiate deals for local movies and TV shows, including original content. But launching a domestic video service would be a bold step in a country where media is heavily censored by regulators. Netflix Inc. chose to sell content to local player iQiyi instead of entering the market directly, while

Apple Inc.’s movie service has been blocked since 2016.

“Help create the future of Chinese digital entertainment with Amazon,” one listing read.

A fraction of the Amazon listings on its website were first posted in 2016, and some specified roles supporting its businesses beyond China. A large portion of the jobs were for Amazon Web Services, the cloud computing and hosting business in which it’s the global leader against the likes of Google, Microsoft Corp. and Alibaba.

In retail, Amazon is investing billions to ramp up its operations across Asia, particularly in India. It entered Singapore this year, firing the first salvo in what could be a fierce battle with Alibaba and local players for Southeast Asia.

The battle’s proven difficult in China, much as it has for its American technology counterparts. Facebook’s main social networking service has been banned since 2009, yet it secretly launched an app under a different name with Colorful Balloons. The company, which is said to have scouted for office space, has made no secret of its interest and works with advertisers there keen to reach a global audience.

Google’s parent, Alphabet Inc., is also hunting for workers even as its search and many other services remain blocked. At least 20 positions based in Beijing were advertised on the company’s careers site, spanning engineering and marketing to product managers.

Despite rising competition from Chinese players, Analysys estimates Amazon’s share of the Chinese cross-border ecommerce market rose slightly to 7.6 per cent in the second quarter of 2017.

“As awareness grows and penetration improves, Amazon too can definitely rely on its own edge in global supply and logistics to invest further in cross-border commerce,” Chen Tao said. Bloomberg News

Sanctions

Mainland’s big banks halt services for North Koreans Tellers from banks say existing North Korean account holders could not deposit or remove money from their accounts Engen Tham

China’s Big Four state-owned banks have stopped providing financial services to new North Korean clients, according to branch staff, amid U.S. concerns that Beijing has not been tough enough over Pyongyang’s repeated nuclear tests.

Tensions between the United States and North Korea have ratcheted up after the sixth and most powerful nuclear test conducted by Pyongyang on Sept. 3 prompted the United Nations Security Council to impose further sanctions yesterday.

Chinese banks have come under scrutiny for their role as a conduit for funds flowing to and from China’s increasingly isolated neighbour.

China Construction Bank (CCB) has “completely prohibited business with North Korea”, said a bank teller at a branch in the northeastern province of Liaoning. The ban started on Aug. 28, the teller said.

Frustrated that China had not done more to rein in North Korea, the Trump administration was mulling new sanctions in July on small Chinese banks and other firms doing business with Pyongyang, two senior U.S. officials told Reuters.

A person answering the customer hotline at the world’s largest lender,

Industrial and Commercial Bank of China Ltd (ICBC), said the bank had stopped opening accounts for North Koreans and Iranians since July 16.

The person did not explain why or answer further questions.

The measures taken by the largest Chinese banks began as early as the end of last year, when the Dandong city branch of China’s most international lender, Bank of China Ltd (BoC), stopped allowing North Koreans to open individual or business accounts, said a BoC bank teller who declined to be identified.

Existing North Korean account holders could not deposit or remove money from their accounts, the BoC bank teller said.

At Agricultural Bank of China Ltd (AgBank), a teller at a branch in Dandong, a north-eastern Chinese city that borders North Korea, said North Koreans could not open accounts. The teller did not provide further details.

Official representatives for BoC, ICBC, CCB and AgBank could not be reached for comment.

Banks in Dandong have been under the microscope as tensions have risen, given their proximity to North Korea.

In June, the United States accused the Bank of Dandong, a small lender, of laundering money for

Pyongyang.

Attempts to slowly choke off the flow of funds to and from North Korea come after the United States sanctioned a Chinese industrial machinery wholesaler that it said was acting on behalf of a Pyongyang bank already sanctioned by the United Nations for supporting the proliferation of weapons of mass destruction.

The Chinese wholesaler was found to be operating through 25 accounts at banks in China.

Although measures are in place, some bankers questioned how well the rules would be enforced.

Chinese lenders have experienced high-profile failures to police money-laundering in recent years, with some facing allegations that bankers were complicit in the movement of illicit funds.

“Asking whether we will be able to enforce the new rules is the same question as asking how tight our know-your-client checks are,” said a senior corporate banker at the Bank of China who declined to be identified because of the sensitivity of the matter.

“There will always be holes,” she said. Reuters

The United Nations Security Council holds vote on sanctions resolution against North Korea at United Nations headquarters in New York, New York, USA, 11 September 2017. Source: Lusa

Business Daily Wednesday, September 13 2017 11

Greater China Real estate

Hong Kong finance chief warns again of property risk on Fed Past experience indicates that rising U.S. interest rates will “definitely” affect Hong Kong asset prices, Chan said Fion Li

Hong Kong’s Financial Secretary Paul Chan warned potential buyers to be careful buying property in the world’s most expensive housing market, as moves by the Federal Reserve to unwind its balance sheet may shrink money supply.

Chan warned in June that Hong Kong’s property market is in a “dangerous situation” and vulnerable to a correction. Hong Kong Chief Executive Carrie Lam describes housing as citizens’ No. 1 concern and recently set up a task force on increasing land supply as she tries to rein in ever-escalating prices.

“We are confident even if there’s an adjustment in the property market, we will be able to weather through strongly” Paul Chan, Hong Kong’s Financial Secretary

“One has to be very careful if one really wants to buy a property in Hong Kong,” Chan said in an interview on the side-lines of a Belt & Road Forum in Hong Kong on Monday.

Buyers need to assess their ability to service mortgages as interest rates normalize, he said.

Hong Kong home prices, the least affordable in the world, have surged 21 per cent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report from broker Knight Frank LLP. The boom in global house prices may be coming to an end as central banks worldwide step away from economic stimulus, with a slowdown in growth already evident in Europe, the broker said.

Expectations for Fed tightening have been scaled back as its preferred inflation gauge has declined for five

straight months, sitting below the central bank’s 2 per cent goal. Even so, Hong Kong’s leaders are monitoring the situation closely, especially because an unwinding of central bank support could coincide with the addition of a large supply of homes in the city, Chan said. The government estimates 98,000 first-hand housing units will come on the market in the next three or four years.

Not 1997

Past experience indicates that rising U.S. interest rates will “definitely” affect Hong Kong asset prices, Chan said. Combined with the increased supply of homes, “I would not be

surprised if there will be a certain adjustment in the market,” he said.

However, the finance chief saw limited impact on Hong Kong’s economy should a correction occur. Chan said the city is more resilient than in 1997 when the Asian financial crisis touched off a six-year property bust.

“I’m not worried about its impact on our economy because the situation is very different from that in 1997, in terms of liquidity of developers, the leverage level of our homebuyers, prevailing interest rates and serviceability,” Chan said. “We are confident even if there’s an adjustment in the property market, we will be able to weather through strongly.” Bloomberg News

Sentiment

Consumers haven’t been this confident in two decades The strength of the world’s second-largest economy has surprised forecasters, with GDP growth accelerating to 6.9 per cent in the first 2 quarters this year With things looking up across China’s economic dashboard, sentiment among consumers and households is the strongest in more than two decades.

The consumer confidence index climbed to 114.6 in July. That’s up from last May, when it dipped below 100, the line separating optimism and pessimism.

“The strong job market and the associated robust income growth have supported consumer confidence,” said Robin Xing, the chief China economist at Morgan Stanley in Hong Kong. “Consumer confidence is further driven by the unleashed consumption potential in lower-tier cities,” he said, citing their faster income growth, supportive government policies, infrastructure investment, and more affordable housing markets that make residents more willing to spend.

Meanwhile, a private consumer confidence index, compiled by Nielsen Holdings Plc, climbed to 112 in

the second quarter, the best reading since at least 2009. A component tracking willingness to spend also climbed to a fresh high, while readings for job prospects and personal finances also increased.

“Consumer confidence is further driven by the unleashed consumption potential in lower-tier cities” Robin Xing, the chief China economist at Morgan Stanley in Hong Kong

The strength comes in part from local economic policies aimed at boosting less-developed regions as well as other

reforms, and it suggests the overall economy will continue performing well, according to Vishal Bali, a managing director of Nielsen China in Shanghai. Consumers in larger cities tend to spend more on better food and beverages,

while those in smaller ones are willing to spend more on better daily necessities, Nielsen’s survey found.

“Chinese consumers are becoming more willing to spend,” Bali said in a statement released along with the latest

data. As “fast-pace economic growth offers more job opportunities to local residents, the development of China’s rural areas and lower-tier cities will become a new driver for the country’s future economic growth.” Bloomberg News

12 Business Daily Wednesday, September 13 2017

Asia Survey

Australia business conditions strong in August However the struggling retail sector saw orders fall sharply A measure of Australian business conditions climbed to its highest since early 2008 in August with a marked improvement in employment intentions burnishing the outlook for further jobs growth.

National Australia Bank’s survey of more than 400 firms showed its index of business conditions firmed 1 point to +15 in August, triple its long-run average of +5.

Most industries reported solid activity, though the retail sector continued to languish in negative territory.

The survey’s, often volatile, measure of business confidence slipped 7 points to +5, more than reversing a jump in July. Concerns about margins, demand and government policy all played a major part in the decline, the survey found.

“There was a notable jump in employment for August

- to near record highs,” said NAB group chief economist Alan Oster.

“If employment conditions maintain these levels, that should see more than sufficient jobs creation to push the unemployment rate lower.”

The survey’s employment index surged 4 points to +11, a major turnaround from earlier in the year when it was stuck around 0.

Oster noted this outcome pointed to an annual job creation rate of around 270,000 in coming months, which should be enough to nudge the unemployment rate down from the current level of 5.6 per cent.

The official measure of employment has shown a sharp pick up in recent months, helping support household incomes and spending in the face of sluggish wage growth.

That was one reason the Reserve Bank of Australia

(RBA) has kept interest rates at 1.5 per cent for more than a year even as inflation stayed stubbornly short of its target range.

The survey’s measure of sales edged back a point in August to a still strong +18,

while business profits also dipped a point to +15.

The forward orders index rose slightly to an above-average +4 points, driven by an especially large increase in manufacturing orders. In contrast, the struggling retail

sector saw orders fall sharply.

Firms reported some acceleration in labour and purchase costs from low levels, while retail prices slipped into negative territory amid intense competition in the industry. Reuters advertisement

Treasurer

Philippines plans to raise US$1 bln via global bonds in 2018 The improved fiscal position and debt management programmes have impressed global credit rating agencies Karen Lema

The Philippines plans to issue US$1 billion in sovereign bonds to help finance next year’s record budget, National Treasurer Rosalia de Leon said yesterday.

Borrowing from both domestic and foreign sources was expected to reach a total 888 billion pesos (US$17.45 billion) next year, documents from the Bureau of Treasury showed, an increase of 22 per cent from this year.

Manila raised US$500 million from a new 25-year U.S. dollar bond offering in January, which was the tightest-priced long-dated global bond issued by the Philippines - one of Asia’s most active sovereign bond issuers.

The Philippines’ improved fiscal position and debt management programmes have impressed global credit rating agencies. Moody’s and

President Rodrigo Duterte (pictured) has asked Congress to approve his proposed 3.77 trillion peso budget for next year, a 12.4 per cent increase on this year’s 3.35 trillion peso budget

Business Daily is a product of De Ficção – Multimedia Projects

Standard & Poor’s both rate the country two notches above investment grade. The government also plans to fund the increase in next year’s spending plan via US$2.45 billion of project and programme loans, the documents showed.

President Rodrigo Duterte has asked Congress to approve his proposed 3.77 trillion peso budget for next year, a 12.4 per cent increase on this year’s 3.35 trillion peso budget, as he aims to spend heavily on infrastructure to keep growth robust.

His government is pinning its growth targets on infrastructure projects to create jobs, stimulate the economy and attract foreign investors who have been put off by high power prices and transport bottlenecks that eat into profits.

Duterte’s 2018 budget assumes a deficit of 523.6 billion pesos, or 3.0 per cent of gross domestic product.

The firebrand leader has asked lawmakers to prioritise a tax reform bill, which seeks to tax sugar-sweetened drinks and raise excise taxes on fuel among other things, to ensure he can fund new airports, ports, roads and railways. Infrastructure spending is expected to rise to 7.4 per cent of GDP by 2022 from 5.4 per cent of GDP this year.

The Philippines received a record US$7.93 billion in net foreign direct investment last year, but that figure pales in comparison with regional peers, such as Malaysia’s US$12.6 billion and Singapore’s US$61.6 billion. Reuters Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Wednesday, September 13 2017 13

Asia Restructure

In Brief

Lotte founder’s eldest son to sell most of stakes in 4 units The elder Shin also said Lotte Shopping should “immediately” withdraw from the Chinese market, after most of its stores were shut down in the wake of a diplomatic row between Beijing and Seoul Shin Dong-joo, the elder son of Lotte Group’s founder, has decided to sell most of his stakes in Lotte Shopping and three other units of South Korea’s No.5 conglomerate, his company said without providing the value of the sale.

Shin raised “serious concerns” about the planned merger of Lotte Shopping with the three other affiliates - Lotte Confectionery, Lotte Chilsung Beverage and Lotte Food.

“The splits and mergers aimed at launching a Lotte holding company would not benefit individual shareholders”

his brother.

The conglomerate has been under pressure to resolve its complex structure and improve governance after a public feud between founding family members that began in 2015 and has pitted Lotte Group Chairman Shin Dong-bin against elder brother Shin Dong-joo.

“The splits and mergers aimed at launching a Lotte holding company would not benefit individual shareholders,” Shin Dong-joo’s statement said.

The elder Shin said his stake sales did not mean he would give up trying to gain management control of

the group.

Shin Dong-bin, the youngest son of Lotte Group founder Shin Kyukho, cemented control of the group in 2015 with the support of shareholders in a Japan-based holding company.

Older brother Shin is engaged in legal proceedings seeking to wrest control.

Several Lotte Group shares barely moved after Shin’s decision to sell his stakes.

The elder Shin also said Lotte Shopping should “immediately” withdraw from the Chinese market, after most of its stores were shut down in the wake of a diplomatic row between Beijing and Seoul. Reuters

Indian banks will need additional capital of US$65 billion to meet all of global Basel III banking rules by March 2019, with state-run lenders accounting for 95 per cent of the requirements, Fitch Ratings said yesterday. That is far above the US$11 billion in capital infusions into state-run lenders the government has budgeted through March 2019, with US$3 billion due to be injected in the 2017/18 and 2018/19 fiscal years. Fitch’s latest estimate is lower than its previous call of US$90 billion as weaker-than-expected loan growth reduced capital requirements.

Vietnam’s prime minister calls for further rate cut

Shareholders at Lotte Group affiliates last month approved a plan to set up the holding company by restructuring the conglomerate’s four listed units to boost operational transparency, a move analysts say could further enhance its chairman’s control amid a power struggle with

Financial industry

Australian regulator takes aim at country’s powerful banks He said Australia would make a renewed push to integrate its capital markets with the United States Australia’s corporate regulator took aim at the nation’s four major banks, saying the powerful institutions “with a lot of hubris” aren’t used to being taken on by regulators who have stepped up scrutiny of the scandal-hit sector.

Australia’s highly profitable banks have been hit by a series of scandals including allegations of benchmark rate-rigging and, in the case of Commonwealth Bank of Australia, alleged money-laundering breaches. “When I became chairman I decided we need to build a war chest to take on big cases...I am not scared of anybody,” Australian Securities and Investment Commission (ASIC) Chairman Greg Medcraft said at a Reuters Newsmaker event in Sydney, as he prepares to step down in November.

One of the emerging problems in the sector is loan fraud in the mortgage market, Medcraft said.

But it has been out-of-cycle mortgage rate changes that have generated the biggest public and political outcry, as home-owners struggle to meet high repayments with modest wages growth.

The banking sector should start repairing its reputation by offering variable mortgages at a set level above the cash rate rather than exposing customers to irregular pricing changes, he said.

“I would think the biggest thing the banks could do to win the trust of Australians would be to at least offer the option of a variable rate mortgage priced over something like the cash rate.”

Australian regulators have been pushing banks to tighten mortgage lending standards on worries

Indian banks need US$65 bln to meet Basel

Monetary policy

Shin Dong-joo’s statement

Swati Pandey and Paulina Duran

Capitalization

a debt-fuelled bubble and bust in the country’s property market could destabilise the financial system and hurt the broader economy.

Medcraft censured the banks for increasing home loan rates for existing customers while offering discounts to entice new borrowers.

Representatives of Australia’s four biggest retail banks were not immediately available to comment on Tuesday. The head of the Australian banking lobby Anna Bligh said offering such a product would “add considerable risk into the banking system” due to the volatility of banks’ cost of funding.

Key Points Banks should offer transparent mortgages to repair reputation ASIC chair ASIC chair labels private digital currencies “problematic” Regulator pushes for Australian access to U.S. capital markets Medcraft said improving the culture and conduct of the biggest banks was one of his “unfinished businesses” as he prepares to step down in November.

End to private digital currencies?

Medcraft was not surprised that China had started to clamp down on private cryptocurrencies, which included last week’s move to ban so-called “initial coin offerings”, or the practice of creating and selling digital currencies or tokens to investors in order to finance start-up projects.

He said that while it wasn’t the job of the Australian regulator to ban

private digital currencies, he added it was becoming problematic.

“It’s classic non-cash economy in digital form,” he said. “If you don’t cut it off quickly, it will flower.”

“Having something that is issued by the state is going to be something more likely in the future than essentially a cryptocurrency.”

Bitcoins are not regulated in Australia as a financial product. The government recently proposed new laws to bring in bitcoin providers under the regulatory fold for the first time ever.

U.S. market push

Australia would make a renewed push to integrate its capital markets with the United States, Medcraft said, opening up the country’s A$2.3 trillion (US$1.85 trillion) retirement savings to American companies while giving Australians access to the deepest capital market in the world.

“What Canada has is what we want...which is mutual recognition,” he told the conference, adding he would raise the issue the next time he met the U.S. Securities and Exchange Commission chair.

Australia and the United States signed a cooperation agreement to mutually recognise each other’s laws for raising capital in 2008, but little has come from it.

Local media has speculated that Medcraft will be heading to Paris when he finishes up at ASIC in November, likely as a special adviser to the OECD secretary general.

The former investment banker lived in Paris for three years in the late 1980s when he worked for Societe Generale.

“It would be a very interesting area wouldn’t it,” Medcraft told Reuters, without elaborating. Reuters

Vietnam’s prime minister has asked the central bank to try to cut its lending rate by a further 0.5 percentage point to help the country meet its economic growth target, a government statement said. The State Bank of Vietnam cut its benchmark refinancing rate by 25 basis points to 6.25 per cent in July while making 50 basis point cuts to lending rates for priority sectors. The central bank should “strive to make a further cut of 0.5 per cent to lending rates from now to the end of 2017,” Prime Minister Nguyen Xuan Phuc said in a statement published on the government website.

Consumers

Singapore retail sales rise Singapore’s retail sales in July rose 1.8 per cent from a year earlier, helped by growth in sales at petrol service stations, data showed yesterday. Total retail sales rose 1.8 per cent from a year earlier, after rising by a revised 2.0 per cent in the previous month, according to data from the Singapore Department of Statistics.

Retail sales at petrol service stations in July rose 8.1 per cent from the year-ago period. On a month-on-month and seasonally adjusted basis, total retail sales rose 3.0 per cent in July after falling by a revised 0.4 per cent in the previous month.

Smartphones

Galaxy Note 8 pre-orders highest series Pre-orders for Samsung Electronics Co Ltd’s latest premium smartphone Galaxy Note 8 are the highest among the Note series, the tech giant’s mobile chief said yesterday. Samsung is betting on the Note 8 to keep its market dominance as it competes with rival Apple Inc’s latest iPhones.

The Galaxy Note 8 goes on sale on Friday in the United States, South Korea and other countries. Samsung, the world’s largest smartphone maker by market share, has received positive feedback on the Note 8 following pre-orders from about 40 countries, said DJ Koh, President of Samsung Electronics’ Mobile Communications Business.

14 Business Daily Wednesday, September 13 2017

International In Brief Appeal

Google challenges record EU antitrust fine in court Google appealed on Monday against a record 2.4-billion-euro (US$2.9 billion) EU antitrust fine, with its chances of success boosted by Intel’s partial victory last week against another EU sanction. The world’s most popular Internet search engine, a unit of the U.S. firm Alphabet, launched its appeal two months after it was fined by the European Commission for abusing its dominance in Europe by giving prominent placement in searches to its comparison shopping service and demoting rival offerings. The Luxembourgbased General Court, Europe’s second-highest, is expected to take several years before ruling on the appeal.

Angola/Mozambique

UN suspects countries broke DPRK sanctions The UN is investigating possible breaches of the embargo and sanctions imposed on North Korea by Angola and Mozambique, according to a report the organisation released on Monday. The report said the panel continues its investigations into whether Angola’s presidential guard and other units were trained by staff from the PDRK and other diplomats accredited in Angola who work for Green Pine Corporation, including Mr. Kim Hyok Chan and Mr. Jon Chol Young”. The UN said that Green Pine Corporation is responsible for almost half of North Korea’s arms sales and it has been the target of international sanctions since 2012.

Monetary pressure

UK inflation jump puts Bank of England back in spotlight on rates The BoE said last month it expects inflation to reach about 3 per cent in October William Schomberg and Alistair Smout

B

ritish inflation hit its joint highest in more than five years in August as households paid more for fuel and clothing, complicating the Bank of England’s job this week of explaining why it is not raising interest rates.

The fall in the value of the pound since last year’s Brexit vote helped drive the biggest rise in clothing prices since the consumer price index was launched in 1997, up by 4.6 per cent in annual terms, and rising global oil costs also hit.

Consumer prices overall increased by 2.9 per cent compared with a year earlier, the Office for National Statistics said, up from 2.6 per cent in July and above the median forecast in a Reuters poll of economists for a rise of 2.8 per cent.

That took the CPI back to its level in May. Sterling hit a four-week high against the euro after the data as investors priced in a greater chance of the BoE’s Monetary Policy Committee raising interest rates for the first time since before the global financial crisis a decade ago, and

British government bond prices fell.

Sam Hill, an economist with RBC Capital Markets, said the BoE had been expecting inflation of 2.7 per cent in August and while no change in rates was likely this week, the inflation reading was a challenge for the central bank.

It is worried that uncertainty about Brexit will hurt the economy and has so far held off from raising rates to avoid adding to a slowdown in growth seen in the first half of 2017.

“I think it will be a real headache for the MPC at the moment,” Hill said. “Inflationary pressure is there but there is also evidence that consumers are having a tough time.”

Pipeline pressure

The BoE targets 2 per cent inflation, but most of its policymakers have voted to keep rates at their all-time low of 0.25 per cent as Britain prepares for the challenge of leaving the European Union in 2019.

The BoE said last month it expects inflation to reach about 3 per cent in October, much of it due to the fall in the value of the pound since the Brexit vote.

A further recent fall in the pound against the euro is likely to keep

Cape Verde

Government wants to boost secondary debt market Cape Verde wants to develop and internationalise the secondary debt market and open it to foreign investors, but its size, the country’s high debt level and the risk assessment, limit any interest in the country’s government debt. This is one of the findings of a working document prepared by the Portuguese Vieira de Almeida (VdA) law firm which is being used as the basis for a law to bolster the debt market in Cape Verde. A consultant and VdA partner said the market had all the necessary ... but there is a lack of purchases and sales and there are few buyers or sellers.

Natural disaster

Irma severely damages Cuban sugar industry Hurricane Irma seriously damaged Cuba’s already dilapidated sugar industry and flooded and flattened an extensive area of sugar cane, state-run media reported on Monday. “Some 300,000 hectares (740,000 acres) of cane were affected to different degrees,” Liobel Perez, spokesman for AZCUBA, the state sugar monopoly, was quoted as stating. He said 40 per cent of the country’s mills were also damaged, as were warehouses and other parts of the industry’s infrastructure. Despite a steep decline in output over the last 15 years, the industry remains one of the country’s most important in terms of employment and export earnings.

pressure on British inflation for longer than the BoE forecast in August.

But Paul Hollingsworth, an economist with Capital Economics, said he expected inflation to peak at 3.1 per cent in October.

Key Points CPI +2.9 pct yy, vs Reuters poll consensus +2.8 pct Joint highest CPI rate since April 2012 Bank of England to decide on rates on Thursday Clothing prices rise on Brexit effect, fuel up too Sterling hits four-week high vs euro

“With mixed signals on the current strength of the economy and the majority of the Committee appearing to be comfortable with a temporary, exchange-rate driven pick-up in headline inflation, we don’t think that the MPC will be panicked into raising interest rates imminently,” he said.

Yesterday’s data hinted at some future price pressure as the costs of raw materials for manufacturers and of goods leaving factories increased slightly.

Factory gate prices rose by an annual 3.4 per cent, the first increase in the rate since February.

Economists in the Reuters poll had expected growth of 3.1 per cent.

Prices paid by factories for materials and energy rose by 7.6 per cent.

The ONS said excluding oil prices and other volatile components such as food, core consumer price inflation rose by 2.7 per cent, stronger than economists’ expectations of 2.5 per cent. Reuters

Survey

New market risk code won’t trigger big bank capital hikes Basel issued an update yesterday outlining the impact of the revised rules on 89 large banks in 20 countries Huw Jones

Most banks will not have to hike capital significantly to meet stricter rules to counter trading risks, a survey showed yesterday, after Asian nations sought to delay introducing the code citing concerns about the need for more funds.

The code, known as the “fundamental review of the trading book” or FRTB, was drawn up by the Basel Committee on Banking Supervision and tightens “market risk” capital requirements.

The new rules, which are due to come into force in 2019, aim to reduce differences in how much capital banks set aside to cover risks from holding stocks, bonds and derivatives.

Banks say the rules will require them to sharply increase their capital, making them less willing to make markets as long as they have not raised the extra cash. Responding to concerns, some Basel member states agreed to delay introducing the code.

Basel said the capital needed to cover trading risks would rise by 52 per cent for big banks and double that for

smaller ones. But, given trading was a small portion of banking activities, overall capital would only need to rise by 2 per cent, it said.

A U.S. Treasury report recommended a delay and the European Union is under pressure from banks to follow suit.

‘Singapore, Australia and Hong Kong have already said they would delay introducing FRTB until at least 2020’ Basel has said there may be some tweaks to FRTB. It has yet to respond to the delay announcements.

In its update, Basel also reviewed how major banks were positioned to meet Basel III capital and liquidity requirements, which are due to come into effect in 2019.

A sample of international banks showed the top 30 banks, which it called “globally systemic lenders”, already met or exceeded Basel III requirements, Basel said.

It said 26 of these banks had to issue so-called “bail-in bonds” by 2022 that would be written down in any future crisis to replenish their capital and avoid taxpayer bailouts.

It also said 12 of the banks had a combined loss-absorbing shortfall of 116.4 billion euros (US$139.37 billion) in December 2016 had bailin bond rules been in full effect then. That was down from 318 billion euros in June 2016, Basel said.

Separately, Basel said European banks accounted for 60 per cent of extra core capital raised by the world’s top lenders since 2011, but only generated 20 per cent of profits after tax, compared with 30 per cent in the Americas.

The EU’s European Banking Authority said yesterday that average core capital at European banks had risen to 13.4 per cent by December 2016, up from 12.8 per cent in June that year. Reuters

Business Daily Wednesday, September 13 2017 15

Opinion Sunsets can save Hong Kong’s dual-class share vision Nisha Gopalan a Bloomberg Gadfly columnist

I

magine buying a home when the previous owner continues to live in it and call the shots, indefinitely. Imagine running a market that matched such sellers with buyers.

That’s the dilemma facing Hong Kong and other financial hubs such as Singapore and London as they consider accepting the dual-class shareholding structure used by U.S.-listed tech giants like Facebook Inc. and China’s Baidu Inc. The system allows founders to remain in control with a minority of the equity and, in some cases, gives new owners no voting rights at all.

Alibaba Group Holding Ltd. ditched Hong Kong for New York after the city’s stock exchange blocked a similar arrangement for its world-record initial public offering in 2014, dealing a blow to the former British colony’s fundraising ambitions.

On purely ethical grounds, it’s hard to see why Hong Kong should yield on its longcherished “one-share, one-vote” principle.

But there’s no doubt the city’s stock market needs to find a way of attracting China’s emerging new-economy stars or persuading those already publicly traded, such as Baidu or JD.com Inc., to seek secondary listings in Hong Kong.

If the Chinese city drops its objection to dual-class structures, then safeguards -and specifically embedded time limits, also known as “sunset clauses” -- will be key.

Hong Kong Exchanges & Clearing Ltd. ended a consultation Aug. 18 on allowing two types of market to house new-economy firms: one for “prerevenue” companies that would be open to professional investors only; and the other for firms that use weighted voting rights.

The results of the exercise will be released in the next few months but, according to the exchange operator, the cost to Hong Kong of sticking with its principles has been steep. Chinese companies with weighted voting rights raised US$34 billion in the U.S. in the past decade, or 11.5 per cent of the total netted from initial public offerings in the territory over the same period.

That the Hong Kong stock exchange needs to be sexier isn’t in doubt. Internet behemoth Tencent Holdings Ltd. may be the Hang Seng Index’s top stock, boasting a US$400 billion market value, but it sits in a lonely space in Hong Kong, with few new-economy peers for company.

At the same time, China’s listed companies have a spotty corporate-governance record, so weakening the ability of shareholders to exercise oversight may exacerbate risks.

BlackRock Inc., which has been vocal about its distaste for uneven control mechanisms, pointed out in a recent submission to the exchange that weighted voting rights are no guarantee of attracting tech stocks. Canada allows weighted voting rights, the New Yorkbased money manager said, but has fewer tech and biotech listings than Australia, which doesn’t.

If the consultation finds that such shareholding structures are the only way to shake Hong Kong out of its old-economydriven reverie, then the exchange should at least insist on sunset clauses. These set a time limit on dual-class arrangements, after which companies revert to one-share, one-vote.

Dual-class shares give founders the power to push through their vision for a company without having to worry about short-term investor pressures. But without checks and balances, management abuse and unwise decisions -- such as resisting a takeover that’s clearly in the best interests of the company -- are inevitable. All privileges need limits. Bloomberg Gadfly

‘US$34 billion potential IPO funds Hong Kong missed out’

Stanley Fischer, Vice chair of the Federal Reserve

Stanley Fischer and the IMF changed Asia for good Daniel Moss a Bloomberg View columnist

A

s he steps down as vice chair of the Federal Reserve, Stanley Fischer has been saluted for his overall contribution to central banking. His complex legacy after transforming key Asian economies should not be forgotten.

As first deputy managing director of the International Monetary Fund in the late 1990s, he played an important role in the emergency loans to Thailand, Indonesia and South Korea when their currencies collapsed. All three are American allies, and the last two are pivotal strategically.

That the nations required rescue amid the Asian economic crash is beyond question. The conditions attached to the loans, at least initially, were controversial.

Especially in Indonesia, the prescriptions were perceived as onerous and doctrinaire: limit government spending, end subsidies, raise interest rates, close banks. While the IMF did eventually revisit some of these, the short-term damage was done.

Indonesia plunged into deep recession and political chaos.

Ultimately, the structures built up around aging autocrat Suharto couldn’t bear the strain. He was forced out after three decades. In the period that followed, the country was wracked by sectarian bloodshed and separatism while millions were plunged back into poverty.

In South Korea, a deep recession helped usher onetime dissident Kim Dae-jung into the presidency in 1998. After campaigning against the IMF and the strings attached to its aid, Kim ultimately embraced it after becoming the first elected opposition leader.

It’s tempting to see the economic crisis and that election as the real start of a proper two-party system in South Korea.

It’s Indonesia, by far Southeast Asia’s largest economy, that is now unrecognizable -- mostly for the better -- from what it was before the crisis and the IMF program.

Despite the suffering and a few years of living dangerously, the country emerged stronger as a vibrant democracy determined not to go back.

The period did scar the country and altered the way it was governed beyond just elections. The country’s president is now elected directly and limited to two terms. The nation’s 34 provinces, spanning about 10,000 islands, now guard their greatly expanded autonomy. But the country didn’t come apart. Only one province, East Timor, broke away. (It had been seized by Suharto in 1975 and never really fit.)

The generation now running economic policy

“

saw the tumult first-hand. Finance Minister Sri Mulyani Indrawati was an activist at the time and recalls vividly when student protesters were shot and killed by authorities. Budget chief Suahasil Nazara was at Cornell University on a scholarship denominated in Indonesian rupiah. When the currency imploded, he had to go home.

A large part of current policy is to ensure no repeats of the 1998 crucible. There are strict limits on budget deficits and government debt, an independent central bank, a social security program, and efforts to slowly but steadily reduce the amount of government borrowing denominated in foreign currency.

The IMF certainly shouldn’t lend money for free. And some of these countries were indeed accidents waiting to happen.

There are always conditions attached to loans, and they are often unpopular at the time -just ask Greece. But it’s tough to say everyone at the IMF truly appreciated the whirlwind that was unfolding and all the dynamics at work in these countries.

Incidentally, the Asian country that did exactly the opposite of what the Washington consensus recommended -- Malaysia -- escaped with the least damage. Malaysia, where I served as Bloomberg News bureau chief for two years, bucked conventional wisdom, pegging its currency and imposing capital controls.

Malaysia’s foreign debt was relatively small.

Mahathir Mohamad, then prime minister, gambled that it would escape the need for IMF money even as the Asian economy crumbled. It did borrow from the World Bank. And Malaysia did have its own political crack-up, but it was a purge within the ruling party, not a wholesale overturning of the system.

So the IMF, during Fischer’s time as its number two official, was midwife to the emergence of a new Asia -- with a new balance of power in Indonesia and a significantly reformed political system in South Korea.

This shows Fischer’s fingerprints, even though we can’t know exactly how. A complex array of forces can shape the terms of such loans. The U.S. Treasury Department certainly played its role, as did the IMF board and an array of stakeholders.

Two decades on, Indonesia and South Korea are certainly the better for it. But they can be forgiven for not always thanking Fischer and the IMF. The nations paid a price, in blood and treasure.

So the IMF, during Fischer’s time as its number two official, was midwife to the emergence of a new Asia

”

Bloomberg News

16 Business Daily Wednesday, September 13 2017

Closing Offshore havens

Hong Kong rises as destination for overseas wealth

A study shows that one-tenth of the world’s total wealth is held in offshore tax havens, but that share jumps to as much of 15 per cent for Europe and as much as 60 per cent for Gulf and some Latin American countries, new research shows. When it comes to total offshore wealth as a share of GDP, the United Arab Emirates, Venezuela, Saudi Arabia, Russia and Argentina lead the pack, while Germany, the UK and France all have above-average holdings.

The U.S. is slightly below average.

There are a few factors that are closely associated

with a high share of offshore wealth-to-GDP – proximity to Switzerland, the presence of national resources, and political and economic instability. That could be why the U.S. is slightly below the average, said economist Gabriel Zucman, one of the authors.

Offshore wealth boosts inequality when it’s factored into tax data, because it belongs mostly to the richest households.

Also worth noting: Hong Kong is rising as a destination for overseas cash, probably thanks to the rise of the super-rich in China and increased international pressure on more storied tax havens, like Switzerland. Bloomberg News

Markets

Yuan’s 2017 advance has helped draw foreigners to China stocks, bonds The yuan’s surge this year has helped increase foreign purchases of Chinese bonds and stocks.

Now Beijing appears to want to cool the currency and make it a two-way bet while still maintaining international appetites for China’s assets Samuel Shen and Andrew Galbraith

T

he tide of capital gushing out after the 2015 stock market crash and 2016’s market turbulence has reversed this year, as China has put up good economic numbers and the yuan has erased last year’s 6.5 per cent loss against the dollar.

With the yuan in a “trajectory of appreciation”, said Yuanta Financial Holdings strategist Alvin Zhang, yuan-denominated assets have gotten “more and more attractive to overseas investors”.

Also aiding inflows were MSCI’s decision to include China stocks in its global indexes, and the weak dollar.

“People are more cautious toward the U.S. dollar,” Rene Buehlmann, Asia Pacific head of UBS Asset Management, said in Shanghai last week.

“Over time, they will realize that RMB (yuan) is a great diversifier in the portfolio,” said Hong Kong-based Buehlmann, who has been relentlessly pitching global investors to buy Chinese bonds.

China’s central bank, which earlier crushed yuan bears with a set of measures, now seems to feel the currency’s climb has been too sharp.

On Monday, it scrapped two rules intended to strength the yuan.

And yesterday, the midpoint for yuan onshore trading was set weaker than the previous day, ending an 11day streak of stronger settings.

“China’s central bank is sending a fresh signal, that it doesn’t want to see one-way appreciation, especially rapid appreciation,” said Tang Xiangbin, a researcher at China Minsheng Banking Corp. “Rather, it hopes the yuan can move sideways.”

Rising demand

Whatever happens with the yuan movement, capital market deregulation in China is likely to continue.

Reflecting rising demand for China’s fixed income assets, foreign holdings of onshore bonds increased for a sixth straight month in August, reaching RMB497.8 billion (US$76.1 billion).

The flow was partly aided by

Theft

the two-month-old Bond Connect scheme that allowed qualified overseas institutions to buy onshore bonds without quota - a move hailed by Beijing as a big step to open its capital markets.

Net purchases of mainland A-shares via the “Stock Connect” scheme increased for five months in a row to RMB27 billion in August.

And under the Qualified Foreign Institutional Investor (QFII) scheme - another main channel for foreigners to access China’s stock market overseas holdings in Chinese listed companies jumped 18 per cent during the second quarter to RMB111.3 billion, according to Yuanta Financial Holdings.

Last week, British hedge fund Man Group and Singapore’s Fullerton Fund Management said they obtained regulatory licenses to launch private funds in China.

Fidelity International Ltd and UBS Asset Management received such licenses recently, marking an accelerated opening of China’s fund market.

“China’s central bank is sending a fresh signal, that it doesn’t want to see oneway appreciation, especially rapid appreciation” Tang Xiangbin, a researcher at China Minsheng Banking Corp Buehlmann of UBS said he expected China to gradually open its capital markets and capital account so international investors “will have more ways to invest into the China market”.

“I’m convinced that the RMB holdings of large sovereign banks, institutional investors would increase significantly,” Buehlmann said. Reuters

M&A

Pilot programme

N. Korea hackers ‘suspected Mainland property buyer is of stealing bitcoins’ said to join QHotels deal

Beijing extends rural land reform trial to end-2018

North Korea is suspected of intensifying cyber-attacks to steal virtual currency in order to obtain funds and avert tightening sanctions, according to security experts.

North Korean hackers have mounted attacks on at least three South Korean cryptocurrency exchanges since May, security researcher FireEye said in a report.

The attacks include an apparently successful one when four wallets at Seoul-based exchange Yapizon were compromised.

Local news reports said that in May Yapizon had more than 3,800 bitcoins worth US$15 million stolen -- although FireEye said there were no clear indications of North Korean involvement in that case.

South Korea’s opposition Bareun Party lawmaker Ha Tae-Kyung, who has followed North Korean hacking attempts, said it had apparently stolen more than 90 billion won (US$80 million) from South Korea through hacking attacks in the four years to June, including cyber-attacks on ATMs. “North Korea has set its sights on the so-called next generation financial markets, including virtual currencies, pin-tech and blockchains,” he told journalists last week. AFP

China’s central government has approved a plan to extend a rural land reform pilot programme by another year to the end of 2018, the Economic Information Daily reported yesterday citing sources at the Ministry of Land and Resources.

The land ministry’s pilot started in 2015 and is meant to develop mechanisms for rural land use rights to be transferred on markets, allowing rural residents to receive more of the benefits from their rights to land.

China has been looking to reform landholding rights for rural citizens for years as it promotes urbanisation and more efficient, large-scale farms, though progress has been slow and there has been some resistance at the local level.

“We think the main reason for the extension concern issues regarding the revision of land administration laws, indicating the central government’s wariness of conflict with local governments when implementing the reforms,” analysts at Sun Hung Kai Financial said in a research note.

Farmers in China hold the long-term rights to small plots of land, but technically can lose the right to that land if they move away or do not actively cultivate the land. Reuters

China’s Cindat Capital Management is joining an acquisition of QHotels Group valuing the UK hospitality company at more than 500 million pounds (US$660 million), people with knowledge of the matter said.

Cindat, which focuses on overseas property deals, is negotiating a joint purchase of QHotels with UK investment firm Aprirose, according to the people, who asked not to be identified because the information is private. Aprirose, which was previously pursuing the acquisition on its own, now plans to take a 50 per cent stake in QHotels while Beijing-based Cindat would hold the remainder, the people said.

The suitors aim to reach an agreement with QHotels’s owners, Bain Capital Credit and Canyon Partners, in the next few weeks, one of the people said. QHotels runs four-star hotels catering to golf weekends and spa retreats, as well as accommodations for weddings and conferences.

QHotels, founded in 2003, has a portfolio of 26 hotel properties across the UK, according to its website. Bain Capital Credit and Canyon Partners invested in QHotels in 2014, when they bought a portfolio of QHotels loans during Irish Bank Resolution Corp.’s liquidation proceedings. Bloomberg News