European lobby shows fatigue on never-coming reforms China investment Page 8
Wednesday, September 20 2017 Year VI Nr. 1387 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Expansion
Analysts: Morpheus, Lotus Bridge and CoD Manila pushing Melco forward Page 7
Changes
DICJ: reshuffle to create more positions and increase oversight capability Page 2
www.macaubusiness.com
Marine
Market
Authorities meet with regional counterparts to prepare for coming dry season Page 2
Weakest Mainland developers menaced by bond puts Page 8
The new city next door Hengqin
With 70 pct of construction of Phase I done, at an investment of RMB500 mln so far, and with all five phases expected to up the price tag to RMB18 bln, Senior Vice President of the Lai Sun Group, Larry Leung, details the plans for the massive Novotown cultural and entertainment development in Hengqin – complete with brands such as National Geographic, Real Madrid, Hyatt Regency, Lionsgate and more. Pages 4 & 5
Short, medium and long term
Secretary Lionel Leong lays out details on plans for helping the city’s SMEs affected most intensively by Typhoon Hato, the skyrocket in subsidy applications and working together with IPIM to try and stimulate consumption in the affected neighbourhoods.
Taking to the skies
Transportation Despite a typhoon, the international airport received its busiest month on record, with daily passenger traffic up 9 pct y-o-y, to 22,000 and 680,000 passenger movements. The increase was predicted, but the typhoon has delayed the expansion of the airport ‘a bit’, say airport authorities. Page 2
Dollar welcome again Recovery Page 3
HK Hang Seng Index September 19, 2017
28,051.41 -108.36 (-0.38%) Worst Performers
China Merchants Port Hold-
1.88%
China Resources Land Ltd
0.37%
China Overseas Land &
-2.57%
China Petroleum & Chemical
-1.17%
Geely Automobile Holdings
1.57%
Industrial & Commercial
0.17%
Want Want China Holdings
-2.23%
China Life Insurance Co Ltd
-1.04%
0.07%
AAC Technologies Holdings
-1.67%
CK Infrastructure Holdings
-1.01%
HSBC Holdings PLC
0.66%
Hengan International Group
Hang Lung Properties Ltd
0.65%
China Mobile Ltd
0.06%
China Unicom Hong Kong
-1.43%
AIA Group Ltd
-0.91%
Hang Seng Bank Ltd
0.39%
China Mengniu Dairy Co Ltd
0.00%
Wharf Holdings Ltd/The
-1.32%
WH Group Ltd
-0.25%
27° 31° 27° 31° 27° 32° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Reserves Beijing increased holdings of U.S. Treasuries to the most in almost a year. National position stood at US$1.17 trillion in July. Japan ranked second in the list of U.S. Treasuries ownership. Page 10
2 Business Daily Wednesday, September 20 2017
Macau Gaming
DICJ: no new table applications received Cecilia U cecilia.u@macaubusinessdaily.com
T
he city’s gaming watchdog said that no applications for gaming tables had been received recently, including for MGM’s new property located on the Cotai Strip and set to open in the fourth quarter of this year. “We also haven’t received applications that request the change of location of tables,” relating to a new hotel property on the peninsula whose signage indicated a casino, stated Paulo Martins Chan, Director of Gaming Inspection and Coordination Bureau (DICJ). The comments came on the sidelines of the inauguration ceremony of the new heads of the Macao Monetary
Authority (AMCM) and Financial Intelligence Office (GIF) yesterday. R ega r di n g th e D I CJ’ s internal structural re-arrangement, Chan informed that the framework for the arrangement has already
been completed and is now proceeding toward legislative procedures. “We wish to proceed to the legislative procedure by the end of this year or the beginning of next year,” said Chan.
The re-arrangement scheme includes the creation of more positions, revealed the DICJ head, also expressing the hope of welcoming 26 new inspectors by year end. “[We] do not have enough people to handle the large workload [since] there are more casinos and the monitoring requirements are stricter,” explained Chan. Regarding monitoring works, Chan told the press that the DICJ would place more focus on junkets operations and matters relating to bookkeeping of the casinos. When asked by reporters whether the authority would consider rolling out regulations to have casinos temporarily closed during harsh weather, the DICJ head said the department would consider the suggestions
when revising the gaming operational law. On the other hand, in light of the recent complaints lodged by gaming workers over the working hours arrangement under typhoon signal 8, Chan stated that both the DICJ and the Labour Affairs Bureau do not consider that gaming operators had violated the labour law, but rather “a more ethical issue can be resolved with more flexibility”. “The gaming operators agreed to our suggestions such as not penalising workers for being late for work [when typhoon signal 8 is hoisted],” disclosed Chan. Gaming workers also complained last month over the working hours arrangement during the typhoon period.
Aviation
Taxation
What Hato?
DSF to revise stamp duty regulations to soothe landlords
Despite the life-threatening typhoon that hit Macau in August, the city’s international airport has registered its busiest air passenger traffic on record Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Air passenger traffic in the Macau SAR has recorded ‘a stable increase’ so far during the month of September despite the passage of Typhoon Hato on August 23, according to information provided to Business Daily by the Macau International Airport Co. Ltd. (CAM) yesterday. The passage of the typhoon has, however, affected CAM’s current plans to proceed with the expansion of capacity of the Macau International Airport (MIA). ‘The entire north extension project was expected to be completed [within] this half year but actually the typhoon delayed our progress a bit,’ a spokesperson for CAM told us. According to the data on air passenger traffic released by MIA, the city’s airport experienced its busiest month in history in August, recording more than 680,000 passenger movements. ‘This is a new record as the highest single month passenger traffic with average daily passenger volume over 22,000,’ a year-on-year increase of 9 per cent, reads a release from the group. Speaking to Business Daily, CAM’s spokesperson said they had
‘predicted the increase,’ working to move forward to the ‘extension project and approval,’ adding that the ‘designed passenger handling capacity is expected to be increased to 7.5 million after the completion of the north extension.’ The company’s spokesperson also explained that CAM has started research prospects for working on the south extension of the airport facilities in the ‘short and medium-term.’ In order to cope with capacity bottlenecks, CAM said that it had created ‘a total of four remote boarding gates’ last year ‘to help ease the passenger flow.’ During the tourism peak season, July and August, MIA recorded a 9 per cent increase in passenger volume (totaling 1.35 million), and a 2.5 per cent growth in the number of flights operated in the same period (10,000), according to the release from yesterday. Southeast Asia routes corresponded to 43 per cent of the overall market, followed by mainland China (32 per cent) and Taiwan (25 per cent). As at the end of August, MIA handled nearly 1,140 weekly scheduled flights with 28 airlines connecting Macau to 45 cities.
The Financial Services Bureau (DSF) is planning to amend the stamp duty regulations in order to reduce pressure on landlords leasing their properties in the wake of the implementation of the new rental law. Given that the new rental law extends rental contracts from two to three years, a DSF response to an interpellation made by legislators Chan Meng Kam and Song Pek Kei is that the DSF’s preliminary plan is to return the amount of paid stamp duty according to the ratio if the leasing relationship has ended prior to the expiration of the lease term. The two legislators stated in their interpellation that landlords are not pleased with DSF that paid stamp duty is not to be returned to them when
tenants decided to rent for a year or shorter periods while contracts were signed for three years. Meanwhile, asked by the legislators whether DSF would consider lowering the taxation rate for housing, DSF replied in its document that there is yet a consideration of lowering the rate. ‘Owing to the achieved consistency between the current housing tax rate and other income taxes, with also the consideration of the balance of the taxation system, there is no plan of lowering the housing tax rate and related policy should be further studied,’ stated DSF in its reply. Currently, the tax rate for property leasing is 10 per cent while the rate for non-leasing property is 6 per cent. C.U.
Marine and Water
Regional cooperation to ensure water supply Meetings were held to discuss water supply in the approaching dry season as well as the management of the MSAR’s territorial waters Cecilia U cecilia.u@macaubusinessdaily.com
The Pearl River Hydraulic Committee (PRHC) has pledged that works on water storage will continue on the upstream segments of the Pearl River, in preparation for the coming dry season. The Marine and Water Bureau (DSAMA) met with the PRHC last Friday to discuss the supply of water during the season, and according to authorities, it’s expected to bring a stronger salt tide this year, which could decrease
the normal precipitation level in the coming months. PRHC reported that the major water storage in Zhuhai had already gathered a significant volume of water during the hit of the typhoons in the past weeks, which notably reduced the pressure for later replenishment. Although preparations had been made to ensure the water supply for the MSAR and Zhuhai city, the PRHC will continue to pay close attention to the water supply condition as the region still undergoes the typhoon season. The same day of the meeting, DSAMA,
together with the Land, Public Works and Transport Bureau (DSSOPT), the Infrastructure Development Office (GDI) and the Environmental Protection Bureau (DSPA) held the third meeting with the PRHC to discuss the management works for the city’s territorial waters. According to the release from DSAMA, the authorities exchanged opinions on the projects of the fourth bridge to connect the Macau Peninsula and Taipa Island as well as the reclaimed land project of Fuxiang Island in Hengqin of Zhuhai City.
Also, authorities from both regions reached a consensus that projects related to Macau’s waters would have their plans agreed by both parties prior to their execution. The meeting also produced the agreement to set up a common mechanism for both regions to monitor the management and quality of Macau waters. Under the current framework, authorities also discussed creation of a sharing mechanism between both regions on typhoons - and flooding prevention.
Business Daily Wednesday, September 20 2017 3
Macau Economy
Lionel Leong: Series of schemes to recover city’s economy Schemes include to hold large scale exhibitions to attract more spending in the city during the quiet month of September Cecilia U cecilia.u@macaubusinessdaily.com
W
hile a series of measures to provide immediate assistance to SMEs, including interest-free loans and subsidies, were set up in the wake of the typhoon, Secretary for Economy and Finance, Lionel Leong Vai Tac, states that several large-scale exhibitions to be hosted in concert with the Macao Trade and Investment Promotion Institute (IPIM) should help drive more consumption to affected neighbourhoods. These are part of the medium and long-term plans laid out for the MSAR’s economic recovery from Typhoon Hato, stated the Secretary on the sidelines of the inauguration ceremony of the new heads of the Macao Monetary Authority (AMCM) and Financial Intelligence Office (GIF), held yesterday. “We are trying to attract customers to shop at areas that were heavily affected by flood,” said the Secretary. “[But] different areas suffered different levels of damage [...] so we have been contacting the regional chamber of commerce to understand the condition.” The idea would be to encourage visitors to the exhibitions to visit and spend money in affected zones in particular. Also, Secretary Leong revealed that Macao Economic Services (DSE) and the Macau Productivity and Technology
Transfer Center (CPTTM) are paying visits to the affected stores studying whether elevated platforms can be built to prevent goods from being damaged during a flood. The Secretary explained that this could help lower the level of risk, and reduce the insurance premiums that SMEs need to pay. Regarding long-term schemes, Secretary Leong said more attention will be placed on improving the competitiveness of the old stores or SMEs. “We need to ensure the quality of products [of these SMEs] in order to make them more competitive,” said the Secretary, while revealing that CPTTM would also assist the older stores in question with plans such as re-branding or packaging. When asked about the use of cash vouchers to stimulate consumption, the Secretary said more studies on the technical terms should be performed to ensure the effectiveness of potential vouchers. Meanwhile, in response to press
No supervision over cryptocurrency yet
Cryptocurrencies such as Bitcoin are considered as a product and not fiat currency, therefore no supervision is yet in place for its trade, said the new head of Macao
enquiries, the Secretary said that the government currently is still able to handle the recovering work situation fiscally and that no budget review will be necessary. However, the official said the Secretariat is still receiving assessment reports from departments relating to demands and enquiries after the typhoon.
Exceeded the total number recorded for the past ten years The Secretary reported that the government had received a total of 13,000 applications for special funding and 6,000 applications for the MOP600,000 interest free loan as of yesterday. “Since the introduction of the special loan in 2003 up until 2007, the received applications only reached 10,000,” said the official. “But as you can see, the number of applications we have received in the past 22 days have exceeded the total number received in the past decade.” Up until yesterday, the DSE had approved over 5,000 applications.
Monetary Authority (AMCM), Chan Sau San, yesterday after the inauguration ceremony. However, Chan said parties would need to apply for a license when cryptocurrency is involved in payment activities.
Meanwhile, public opinions expressed online and through the media point out the special loans introduced by the government are not providing significant help. “Elligible applicants can actually apply both for the special loan as well as for the special fund, in which the applicant can receive a total of MOP1.2 million,” suggested the Secretary.
Insurance claims after Hato involve MOP2.9 billion The new head of Macao Monetary Authority (AMCM), Benjamin Chan Sau San, reported that there had been 1,900 cases of insurance claims related to the typhoon, involving an amount of MOP2.9 billion. The new AMCM head, meanwhile, revealed that 90 per cent of the claims are covered by insurance companies outside of the city, hence no significant pressure is placed upon the local insurance companies. On the other hand, AMCM had talks with the insurance sector on setting up policy that deals with catastrophes similar to those rolled out in other regions, or schemes that allow the insurance sector to help SMEs. Related talks are still at the preliminary stages, said Chan. Yesterday, the inauguration ceremony of the new AMCM head and Chu Un I, the new Coordinator of the Financial Intelligence Office (GIF), were carried out at the Bank of China Building. advertisement
4 Business Daily Wednesday, September 20 2017
Macau
Hengqin
Making Hengqin a wonderland
Hong Kong conglomerate Lai Sun Group has so far put RMB500 million in investment into Phase I of its Novotown cultural and entertainment development in Hengqin, with a project representative telling Business Daily all five phases of the project are expected to see total investment of RMB18 billion Nelson Moura nelson.moura@macaubusinessdaily.com
H
ong Kong property development and media group Lai Sun Group has currently finished “70 per cent” of the construction of Phase I of its Novotown development in Hengqin, with main construction works to be concluded by the end of this year, the project’s head of Business Development, Larry Leung, told Business Daily. “Current development of Phase I construction works has seen good progress, with the official topping out of all buildings by the end of 2017. In 2018 there would be mainly fit-out work, landscaping, installation of equipment, testing, training of staff and, very importantly, installation of technology […] Phase I is expected to open by January of 2019,” he added. According to Mr. Leung, in total the group expects to pour RMB5 billion (US$759.3 million/MOP6.1 billion) into Novotown’s Phase I, with the group having so far invested RMB500
A bit of everything
Hong Kong conglomerate Lai Sun Group was founded in 1947 by garment businessman Lim Por-yen, with the group’s current chairman being Hong Kong billionaire, and Mr. Lim’s son, Peter Lam Kin-ngok. The group is composed of five companies, engaging mainly in property development and in media production. According to the most recent interim report, the group’s property development subsidiary Lai Sun Development Company Limited registered HK$818.4 million in revenue for the sixmonth period ending on January 31 of this year, a 24.4 per cent year-on-year decrease.
million in the development of this section. All five phases of Novotown are expected to lead to total investment of RMB18 billion. Investment for the project will be provided solely by the Lai Sun Group, which established a joint venture between two of its subsidiaries Lai Fung Holdings Limited and the group’s investment holding eSun Holdings Limited - for the development of Phase I. Mr. Leung is also Senior Vice President of the Lai Sun Group, having previously worked as Director of Travel Trade Sales at Hong Kong Disneyland Resort.
Conquering new lands
“Back in 2009 the Chinese central government announced it wanted to develop Hengqin and I think they already had the vision to turn the area into a culture and tourism hub,” Mr. Leung told Business Daily. Due to the group’s experience in property development and media production, the group was considered as a viable candidate for a project in
Currently the group’s property development portfolio reaches more than 1 million square metres in mainland China and 250,838 square metres in Hong Kong, with Novotown being the group’s largest on-going project. The Lai Sun Group also currently owns and operates 1,291 hotel rooms, with 471 more rooms to be added when the Hong Kong Ocean Park Hotel - managed by the Marriott group - opens at the end of this year. The group owns Hong Kong production company and film distributor Media Asia Entertainment Group, with Mr. Leung stating that Lai Sun aims to produce “between 10 to 15 movies every year”.
the Hengqin Cultural and Creative Zone. According to Mr. Leung, the Guangdong party secretary approached and invited the Lai Sun Group in 2011 to take part in the development of Hengqin, with a cooperation agreement signed by eSun and Lai Fung in the same year to invest and develop on a site with a gross floor area (GFA) of 1,418,311 square metres. In 2013, Winfield Concept - an indirect wholly owned subsidiary of Lai Fung - won a bid to develop Phase I of the Novotown project, with construction starting in 2015. The first phase of Novotown will occupy 130,173 square metres, with an expected GFA of 260,346 square meters. “Novotown does not position itself as a theme park, but rather as a cultural and entertainment complex […] The Hengqin government has a very clear vision of the development purpose part of the territory. The land we sit on is set for cultural development, ” Mr. Leung told Business Daily. The development’s first phase will include a 22,000-square metre indoor Lionsgate Entertainment World, with Lai Sun having established a contract with Village Roadshow Theme Parks for consultancy during construction and to oversee the pre-opening and operate the experience centre for a minimum of ten years. A 4,500-square metre National Geographic Explorer ‘edutainment’ centre will also be developed in Phase I, together with a multi-purpose venue with a capacity for 1,500 people; a 8,000-square metre Healthcare and Beauty Cultural Centre; and a wedding pavilion.
Not your average hotels
The Novotown Phase I will also include the development of a Hengqin Hyatt Regency Hotel with 494 rooms, which is expected to open in 2019, with Mr. Leung expecting an occupancy rate “between 70 per cent to
80 per cent”. “We thought the brand Hyatt Regency would fit the property […] We will own the building with the hotel operations being under Hyatt Regency,” Mr. Leung added. The Hyatt Regency property will be the only hotel to be developed in Phase I, but the group hopes to add “one or two” hotel properties in the upcoming phases, with Mr. Leung emphasising the group would focus on hotels with unique offerings.
“Everything will be an hour’s distance. If you want shopping, you can go to Hong Kong; you want gaming, you go to Macau; and if you look for entertainment you will go to Hengqin” Larry Leung, Senior Vice President of the Lai Sun Group “In our plan they would be more like boutique hotels instead of very luxurious, since for luxurious hotels you can find it all just across the river in Cotai,” he added. The Novotown representative also told Business Daily the group won’t develop a hotel type similar to the Chimelong International Ocean Tourist Resort but look instead for something “really exclusive”. Phase I will also include “lifestyle concept stores”, with Mr. Leung stating the group didn’t want to offer
Business Daily Wednesday, September 20 2017 5
Macau something “very similar to other shopping malls”. “I don’t think people would come to Hengqin for normal shopping malls since they can buy almost everything online in their houses […] We’re currently approaching and being approached by different brands that could be interested in opening concept stores,” he added. According to the Novotown representative, brands are currently more interested in stores that showcase the brands’ message and history, with the group looking to not just open “supermarkets or convenience stores”. Mr. Leung was also adamant the Novotown project wouldn’t include any gaming related elements but that Lai Sun was “open” to establish collaborations with Macau gaming operators, such as creating shuttle bus routes between properties.
Opinion
José I. Duarte* Not exactly about elections
The next step
The group is currently discussing with the Zhuhai government the land acquisition for Phase II, with Mr. Leung telling Business Daily that the group has been receiving “very positive feedback and support from the local government so far” and that a consensus for the land acquisition was expected to be reached “by end of this year”. Novotown’s Phase II is set to be developed in a 191,070-square metre site and have 382,140 square meters of GFA, mainly for retail dining and entertainment. Due to still being in its early stages of planning, the group couldn’t provide an expected investment amount for the second phase, but advanced that this phase was expected to open in 2021. This month the group announced it entered into a licence agreement with Spanish football club Real Madrid Club to launch an interactive football experience centre upon the opening of Novotown’s Phase II. The centre will occupy 12,000 square metres of indoor space with interactive, augmented and virtual reality attractions and a Real Madrid museum, together with food and beverage outlets and concept retail concessions. “With the very extensive network of our group’s chairman, Peter Lam, the Novotown project team was able to kick-start discussion with Real Madrid last November. Together we spent months on ideation, concept planning and now finalized a partnership deal. Our vision is to create a world’s first, high-quality and fully engaging interactive football experiences centre for guests across Asia by 2021,” Mr. Leung told Business Daily. The license agreement states Real Madrid will license its intellectual property rights to Lai Fung or its subsidiary in return for payments - largely in the form of royalties for 10 years after the centre is launched - with an option to extend it for a further 10 years.
Phase II will also include a European Automobile Experience Centre - a 15,000-square metre entertainment complex focused on auto-sports attractions - and a 52,500-square metre International School for both foreign and local students, with capacity for 1,500 students and expected to open in September of 2020.
The third musketeer
Lai Sun currently estimates Novotown’s Phase I will attract 5 million visitors in the first year of opening, with Phase II expected to attract 10 million visitors. Of the initial expected 5 million visitors, 70 per cent would be from mainland China, with the remaining 30 per cent composed of Macau, Hong Kong and Southeast Asian visitors. Mr. Leung considered 10 million visitors by 2021 a “conservative estimate” if one looks at the numbers of the nearby Chimelong Ocean Kingdom, which attracted around 8.5 million visitors last year, more than the 6.1 million in attendance seen at Hong Kong Disneyland. “When Phase I opens in 2019, Chimelong will be hitting around 10 million visitors. Since Novotown is only a 3-minute drive away we don’t believe people wouldn’t spend another half-day or even another day in our property,” he added. The Novotown business developer didn’t consider that the two properties would steal each other’s visitors, but that instead they would complement each other.
“While Chimelong, as a theme park, provides a resort-wide ocean-focused encounter for families, Novotown supplements visitors’ experience with more cultural and interactive hightech experiences. Visitors can also find beauty, healthcare, live entertainment and hotel facilities in Novotown,” Mr. Leung stated. The Vice President of Lai Sun also believed by 2021 the “entire Hengqin will be more mature” with an expected population of 100,000 people.
Your neighbourhood wonderland
For Mr. Leung, the lack of space for development in Hong Kong makes it complicated to add more attractions, with Hengqing proving a “hinterland” to supplement entertainment offerings for tourists in the region. With the opening of the Hong Kong-Zhuhai-Macau Bridge, expected to take place at the end of this year, Mr. Leung believes visitors going to Hong Kong “won’t mind making the 35-minute drive” to visit Hengqin as well. The group also established an agreement with Trans-Island Limousine Service Limited to create a cross-border bus service between Hong Kong and Hengqin as part of Phase I. “Everything will be at an hour’s distance. If you want shopping you can go to Hong Kong; you want gaming, you go to Macau; and if you look for entertainment, you will go to Hengqin,” he added.
The media are full of figures and attempts to explain the election results. It is a necessary effort – also a limited one. There is little of substance I could add that is neither obvious nor highly speculative. There are not enough social and political studies, I venture, to underpin a solid understanding of the political undercurrents of the Macanese society. There is not enough substantial debate to clarify the vision and policy priorities of those elected to the chamber, where they exist beyond the immediate protection of their constituencies’ interests. All the studies and surveys requested by the government, subject to specific requirements and purposes, cannot substitute for independent and sustained research efforts. There is a want of these. Diverse and unique as this region is, in the absence of a significant trove of reliable empirical studies and substantive debate, at best we can put forward educated guesses, reasonable hypotheses. But the attitudes and priorities of those elected are not irrelevant for our future. In the past, they have avoided or delayed the discussion of many critical matters. One can hope that will change. In a recent interview, one of the legislators in the outgoing legislature, the lawyer Leonel Alves, has touched on what is, in my view, the most critical of them all: the functioning of our legal system. Few issues are as important to the future of this region and its autonomy as that one. As he points out, there is a significant amount of experience accumulated by all the participants in the legal system, since the handover, which could be brought to bear in such a debate. Failure to carry on such a reflection and assess the lessons of experience may put the integrity of the legal architecture at risk. It may lose coherence and become increasingly arbitrary. We may end up with a diminished system, where rules may be too often interpreted and applied haphazardly or based on extra-legal considerations. Most of the time, we expect, the application will follow close to the letter and intent of the law. On other occasions, however, rules may be inventively re-interpreted, as other convenience or expediency considerations will dictate and prevail. Trust in the system will weaken. The new legislators can make a difference – or not. We can only wish the new assembly comes in with the will and wisdom to deal with them. *economist and permanent contributor to this newspaper.
6 Business Daily Wednesday, September 20 2017
Macau Expert pool
Hengqin’s got talent Sheyla Zandonai sheyla.zandonai@macaubusiness.com
M
ore startups and operating projects are expected to set foot in the Hengqin New Area following the announcement of plans for building a RMB1 billion (US$151.91 million/MOP1.22 billion) edifice to headquarter the Thousand Talents Plan, the Zhuhai government informed yesterday. The building, planned to
cover a 16,000 square-metre surface and 50,000 square metres of floor space east of the Hengqin Bridge, will cater mainly to ‘high-calibre’ professions and Chinese overseas professionals trained in fields such as electronics and information technology, new materials, aviation and aerospace engineering, biological products and new pharmaceuticals, as well as new-energy and energy-saving technologies, according to the neighbouring authority. Construction is set to start
within the year. Startups and innovation teams can apply for subsidies of RMB2 million or RMB5 million upon registration of
their companies. Previously these incentives could only be expected to be received one year after registration and sixmonths after having set up in
the area. Experts within the Thousand Talents Plan programme can receive a business license within one day through the ‘expert green channel.’ Experts joining the new facility will be provided with centralized business offices and integrated services. Forty-six members of the Thousand Talents Plan have already been welcomed in 2017, with the Zhuhai government claiming the area now houses nearly nine out of ten of the city’s Chinese foreign experts.
Hengqin New Area
Security
Elife headquartering in Hengqin
Safe John Hancock
Hong Kong-listed Elife Holdings Limited has opened its headquarters in the Macao-Hengqin Youth Entrepreneurship Valley - located at the Hengqin New Area - on Sunday, according to information released on the official portal of the Zhuhai government yesterday. The investment holding company – formerly known as Sino Resources Group Limited – primarily engaged in unconventional gas business in mainland China and trading of commodities in Asia - is seeking to expand its business into consumer products, value-added services, and retailing in collaboration with Chinese online to offline (O2O) [e-commerce service Huimin since 2016]. Elife’s Chairman, Zhang Xiaobin, was quoted as saying that the new
headquarters in Hengqin will maximize the company’s core advantages in mobile technology, cloud computing, big data, and Artificial Intelligence (AI), while helping the group expand in the fast-moving consumer goods and new retailing industries which are expected to grow to achieve annual revenue of more then RMB10 billion (US$1.51 billion/MOP12.20 billion) within three years. According to the official government site, Elife has further announced plans to accommodate up to 10,000 experts and employees at its Hengqin site. At the end of August, Hengqin had registered 1,716 firms from Macau and Hong Kong, while more than 1,000 headquarters have been established in the area. S.Z.
Macao Post and Telecommunications Bureau launches signature authentication service for online documents and transactions The Macao Post and Telecommunications Bureau (CTT) launched an online signature system called eSignCloud that allows users to use real-name authentication to sign electronic documents or transactions, the department informed yesterday. According to the CTT, in an initial phase the system will be used by the Legal Affairs Bureau’s(DSAJ) online service for requests for written information in electronic form, with CTT to promote use of the system by other public departments and commercial
entities in the future. Aside from personal computers, the service can also be integrated in smartphones or tablet apps, with the department believing the service can help increase user confidence in the security of online transactions. In order to create an electronic signature, users need to register in the CTT service eSignTrust, a service that provides authentication and identity management services for individuals, organisations and government entities. N.M. advertisement
Business Daily Wednesday, September 20 2017 7
Macau M&A
Billionaire Angela Leong is said to buy US$338 mln London office Hong Kong investors have poured into London’s commercial real estate market following the Brexit vote Jack Sidders
H
ong Kong billionaire Angela Leong On Kei has bought a historic building in London’s Aldwych district for about 250 million pounds (US$338 million), people with knowledge of the deal said. Leong, who is married to casino magnate Stanley Ho, has completed the purchase of Aldwych House from Rowan Asset Management and GI Partners LLC, the people said, asking
not to be identified because the deal is confidential. The 174,000 square-foot (16,200 square-metre) building near Covent Garden has been leased to tenants including WeWork Cos. and the ROKA restaurant after a recent modernization. A spokesman for the vendors declined to comment. Representatives for Leong did not return calls and emails seeking comment. Hong Kong investors have poured into London’s commercial real estate market following the Brexit vote,
lured by the cheap pound and lower values than their domestic market. Chinese and Hong Kong buyers spent almost 4 billion pounds on London commercial property in the first half of the year, up from 2.7 billion pounds in the whole of 2016, according to data compiled by broker CBRE Group Inc. Hong Kong-based LKK Health Products Group Ltd. agreed to buy the tower known as the Walkie Talkie for 1.28 billion pounds in July and Hong Kong real estate developer C C Land Holdings paid 1.15 billion
pounds for the Cheesegrater tower in May. Cindat Capital Management is joining an acquisition of QHotels Group valuing the U.K. hospitality company at more than 500 million pounds (US$660 million), people with knowledge of the matter said earlier this month. Leong, who has a net worth of US$3.7 billion according to the Bloomberg Billionaires Index, is executive director of SJM Holdings Ltd., Macau’s third-largest casino operator by revenue. Bloomberg
Gaming property
Awakening Morpheus, rising revenue Opening of its fifth hotel property in Cotai and increased influx of visitors from mainland China via Lotus Bridge to drive growth for Melco Resorts: brokerage Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The opening of Morpheus, the fifth hotel tower in Melco Resorts and Entertainment’s City of Dreams (CoD) complex, remains a driver for growth for the group, said Sanford C. Bernstein in a note on Monday. According to the brokerage, the addition of the 780-room luxury casino-hotel targeting premium gaming customers will enable the property ‘to remain competitive’ with the development and opening of newer properties – such as MGM Cotai and Wynn
Palace, which the brokerage notes as ‘targeting a similar client base.’ A continued ramp up of Studio City, ‘as the property shifts its positioning and benefits from the opening of the rail extension on Hengqin and greater influx of visitors over the Lotus Bridge’ was also indicated as an incentive for growth for Melco. The property is located in the vicinity of the bridge, equipped with 24-hour immigration facilities, a ‘key entry point of future mass traffic’ to Cotai from mainland China, Bernstein noted. The brokerage added that it is expected that the Macau SAR government
will re-direct visitor traffic from China to the Lotus Bridge instead of Gongbei, ‘due to visitor pressures in the peninsula and the accompanying congestion.’ The visitor influx would also likely be increased by the planned mid-2018 opening of the high-speed rail station in Hengqin, which may eventually lead to ‘greater utilization of the Lotus Bridge,’ the notes read. Finally, continued growth at CoD Manila – a Melco joint-venture with Belle Corp. – ‘in both VIP and mass, with forecasted gross gaming revenue growth above the growth rate
in Macau’ was also pointed out as an incentive for growth. The brokerage further raised four ‘value creating’ corporate action scenarios that it believes might gain traction over the next few years for the group. These include a Studio City acquisition of minority partners or a Studio City IPO [initial public offering] at favorable valuation, an opportunity to invest in the development of an Integrated Resort in Japan, an increase of return of capital to investors, and a restructuring involving a merger of Melco Resorts and Melco International.
Progress
MGM Cotai: working with gov’t on inspections and approvals MGM’s Cotai property is under development and still set to open this year has ‘continued at a good pace’ during the first half of the year, according to a filing by MGM China Holdings with the Hong Kong Stock Exchange. The group notes that there’s ‘significant effort now focused on detailed finish, defect rectification and efforts related to completion and handover (including final testing and commissioning of building systems and network),’ as well as furniture and fixture installation.
The fourth quarter opening date is still unchanged, notes the group and adds that they ‘are continuing to work
with the Macau Government on the necessary inspections and approvals to accomplish’ this. The property’s total development cost is expected to be HK$26 billion, ‘excluding land costs and capitalized interest’. In addition, given that competition ‘is not geographically limited to the Macau market’, the group notes that it is ‘refurbishing key gaming areas’ in the group’s peninsula property and ‘introducing new innovative gaming products’. In addition the group notes that it
continues ‘to review our business relationship with each of our gaming promoters and identify potential gaming promoters to grow our VIP business’. In regards to non-gaming, the group notes that its new property will have ‘almost twice the square footage of MGM Macau’, which will allow the group to ‘capitalize on our international expertise’ in entertainment offerings. The group’s Cotai land plot takes up 71,833 square metres. K.W.
Okada
Okada hearsay debunked by Universal Japanese gaming group Universal Entertainment Corp. denied the claims made by a Reuters report that former Chairman and Director Kazuo Okada had been reinstalled as a representative or director of the group’s parent company Okada Holdings Ltd Nelson Moura nelson.moura@macaubusinessdaily.com
Gaming group Universal Entertainment Corp. has issued a statement saying a recent report by news agency Reuters claiming the group’s former Chairman and Director, Kazuo Okada, had been reinstalled as a representative or director of the group’s parent company had ‘no basis in fact’. A Reuters report from September 14 claimed the Japanese billionaire was ‘fighting back to try to regain control’ of Universal Entertainment. According to the report Mr. Okada would announce in a press conference that same day that he had reinstalled
himself as director of Okada Holdings Ltd (OHL), the group’s non-listed parent company, and that he had demanded a special shareholders’ meeting to install a new board that would include himself. No report was issued by Reuters afterwards on the alleged press conference. According to the response by Universal Entertainment, the group inquired with Makoto Takada and Atsunobu Ishida - the registered directors of OHL – about the matter, who responded that Mr. Okada ‘has not in fact legally acquired and maintained majority voting rights in OHL, including proxies to exercise voting rights
in place of OHL shareholders, nor has he been reinstalled as ‘representative’ or ‘director’ of OHL’. The group also informed it hadn’t received any ‘legal, valid demand to convene any extraordinary shareholders’ meeting from Mr. Okada.
Looking into it
The Reuters report cited as source ‘a person close’ to Mr. Okada, while also adding the move by the 74-year old businessman was only possible due to a ‘change of heart’ from his daughter, who decided to support him. The news agency also reported that in May of this year Mr. Okada’s son, daughter and wife voted him out of
Okada Holdings’ board, appointing afterwards two directors who dismissed him on allegations he had misappropriated US$20 million (MOP160.7 million) in company funds. This month Universal Entertainment announced that an internal investigation had revealed Mr. Okada had conducted three fraudulent acts while in his role, accusations the former Chairman had previously denied. The group announced in its recent release that it had ‘sincerely and solemnly accepted’ the investigation results and that it would ‘formulate’ detailed measures suggested by the report to measures to ‘prevent the reoccurrence of the investigated acts’.
8 Business Daily Wednesday, September 20 2017
Greater china Reform
European business hopes new leadership can cure ‘promise fatigue’ Business groups have warned that China risks a protectionist backlash from Europe and the United States if it doesn’t open up major sectors Michael Martina
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top European business lobby said yesterday it hopes the new leadership to emerge from China’s Communist Party meeting will show a commitment to market opening, but that its members were not optimistic and suffering from “promise fatigue”. China’s ruling elite will hold a onceevery-five-years congress starting on Oct. 18, at which the Politburo Standing Committee, the apex of power in Chinese politics, will be fitted with a new line-up of leaders under President Xi Jinping. Foreign businesses in China, long critical of what they see as unmet market opening pledges, are eager for Xi to match the anti-protectionism messages he has been delivering to the world with reforms at home. “We hope that the new line-up after the 19th Party Congress will show that there are people in place that are committed to further opening up,” European Union Chamber of Commerce in China President Mats Harborn said. “If you ask our member companies... they are not very optimistic that these changes will happen,” Harborn told reporters in an interview ahead of the chamber’s launch of its annual position paper.
A litany of assurances
The chamber said in the paper that companies have been “suffering from accumulated ‘promise fatigue’,
having witnessed a litany of assurances over recent years that never quite materialised”. While noting progress in some industries, such as pharmaceuticals, Harborn said Beijing should abolish its myriad foreign investment catalogues and lists of restricted industries for foreign investors, and “let one company law rule the activities of companies in China”. The chamber urged the Chinese government to not rely on “shortterm financial incentives” in designated investment zones, and instead focus on creating a predictable and
transparent business environment based on rule of law. China says that it is an ideal country for foreign investment, and that foreign companies have benefited greatly from decades of growth in its huge market. But in recent years, Beijing has sought to address slowing growth by promoting innovation in strategic industries, such as information technology and robotics, plans that have riled foreign companies and their governments with their extensive “buy China” requirements. Business groups have warned that
China risks a protectionist backlash from Europe and the United States if it doesn’t open up major sectors, such as financial services, healthcare and logistics, in which foreign firms often face far greater restrictions than their Chinese competitors do abroad. Germany, France and Italy welcomed the European Commission’s proposal last week on vetting nonEU investments, having pushed for tighter oversight of foreign acquisitions of sensitive European technology following a rise in such deals by Chinese players. Reuters
Financing
Weakest developers menaced by US$38 billion in bond puts The amount of notes on which investors have a put option will rise to RMB260 billion in 2019 Chinese property developers face a wall of local bonds that investors can force them to pay off next year ahead of schedule, just as rising interest rates raise the risk that more note holders may opt to do so. Investors have an option to offload RMB250 billion (US$38 billion) of such notes in 2018, according to Bloomberg data. To put some perspective on that amount, it’s five times all their regularly maturing onshore bond principal this year. As China’s government pushes companies to trim excessive borrowing, financing costs in the nation’s credit markets have jumped this year. That’s left about 72 per cent of the 137 local real estate bonds with put options that can be exercised next year in the money, meaning their current secondary-market yields are higher than coupon rates, according to Bloomberg-compiled data based on Chinabond valuations. That boosts the likelihood that holders will demand early repayment, a particular concern for lower-rated issuers. “The put options coming due next year may have a bigger impact on smaller and weaker developers,” said Tony Chen, a credit desk analyst in Hong Kong at Nomura Holdings Inc. “The domestic funding environment may get even tighter next year for developers. While most developers should be fine in terms of liquidity, the weakest may face increasing pressure.” There have already been increasing signs that real estate companies will
need to pay more for money, adding to strains from home-buying curbs across the country that saw prices rise in fewer cities in August. An offering of a puttable bond earlier this month illustrates the trend. Times Property Holdings Ltd., based in the southern city of Guangzhou, sold five-year securities at the highest coupon in almost three years for similar-maturity property notes with put options. The firm also said it expects borrowing costs to rise further.
Increasing costs
The developer issued the RMB1.1 billion of five-year AA rated notes in a private placement to yield 8.2 per cent on Sept. 8, it said in a stock exchange filing last week. The last time a Chinese real estate firm sold similar securities with a higher coupon was
in 2014, according to data compiled by Bloomberg. “As the general funding environment will continue to tighten, we estimate borrowing costs will rise even higher,” Times Property said in a statement responding to questions from Bloomberg News. The coupon was within a reasonable range, the firm said. China’s developers have been actively buying land, and there are signs of tight funding, according to a China International Capital Corp. report last week based on analysis of listed companies’ first-half reports. New-home prices, excluding government-subsidized housing, gained in 46 of 70 cities tracked by the government in August, compared with 56 in July, the National Bureau of Statistics said on Monday. That was
the smallest number of increases since January. “The market thinks property bonds’ credit risks are rising,” said Jiang Xiaoli, a fund manager at Tianhong Asset Management Co. in Beijing. “Sales growth is slowing and there are more and more financing restrictions. We don’t consider property bonds lower than AA+.”
“The domestic funding environment may get even tighter next year for developers” Tony Chen, a credit desk analyst in Hong Kong at Nomura
Chinese developers will also face RMB107 billion of maturing bond principal next year, Bloomberg-compiled data show. On top of that, the amount of notes on which investors have a put option will rise to RMB260 billion in 2019. “Chinese property developers will be under more refinancing pressure next year,” said Nomura’s Chen. “The issuers will either need to prepare for the possible repayment or lure bondholders to stay by offering a higher coupon rate. Either way will raise their financing costs.” Bloomberg News
Business Daily Wednesday, September 20 2017 9
Greater China Tag
In Brief
Mainland’s highest-profile fugitive assailed by businessman who says he was framed for crimes Fugitive Guo Wengui is currently living in a US$68 million apartment overlooking Manhattan from where he has been using social media to make a series of incendiary, though mostly unverifiable, claims of corruption in the top levels of the Chinese government Philip Wen
China’s highest profile fugitive, exiled billionaire Guo Wengui, is under attack from a former business partner who claims Guo got him framed for crimes he says he did not commit. After having a conviction for embezzling RMB855 million (US$130 million) from a company owned by Guo quashed, Qu Long told Reuters he is out for revenge. “When he returns I will sue him in China,” Qu said of Guo, two days after being released from jail where he served six years of a 15-year sentence. “If he can’t return, I will sue him in the United States. As long as he is on the face of this Earth, I will find a lawyer and make him pay.” In its ruling last Tuesday, the Hebei High People’s Court said there was not enough evidence to support the embezzlement conviction. Qu’s interview with Reuters was arranged by the Chinese authorities, who also provided briefings by three members of a special police taskforce investigating Guo, who is living in New York. Chinese officials told Reuters they wanted to get Qu’s narrative out through the Western media to counteract a barrage of internet postings by Guo. The officials and police involved in the case told Reuters that after an investigation that began in 2015 they had discovered that the charges against Qu were fabricated by Guo and government officials Guo had allegedly bribed, including Ma Jian, the former counter-intelligence chief at China’s spy agency, the Ministry of State Security. Ma was put under investigation for alleged corruption in 2015 and was expelled from the Communist Party the following year. He remains in detention and Reuters was unable to reach him for comment. Guo did not respond to requests
for comment about Qu. Guo’s New York-based lawyer, Josh Schiller, said Qu’s threat was “further persecution of Guo in order to silence his speech”. Guo, who left China in late 2014 shortly before Ma was detained, has previously denied bribing government officials and says accusations levelled against him are politically motivated. The police and other Chinese officials who talked to Reuters provided no evidence to support their bribery assertions in the case. Reuters was unable to independently confirm whether Guo engaged in any wrongdoing.
Battle for minds
Guo is currently living in a US$68 million apartment overlooking Manhattan from where he has been using social media to make a series of incendiary, though mostly unverifiable, claims of corruption in the top levels of the Chinese government. His campaign has been timed for maximum impact ahead of next month’s critical congress of the ruling Communist Party, which is held only once every five years. The Chinese authorities are trying to repatriate Guo, who applied
for U.S. political asylum earlier this month. In April, at Beijing’s request, Interpol issued a ‘red notice’ seeking Guo’s arrest on corruption-related charges. The same month, a video confession from Ma surfaced online, detailing 10 instances where he claimed he abused his power to benefit Guo in exchange for more than RMB60 million in bribes, including conspiring to detain and frame Qu. Guo has said Ma’s testimony should not be believed, arguing it was likely coerced or made under duress. Reuters was unable to independently confirm the events that Ma cited. Guo and Qu were once friends and business partners, having first met two decades ago and, according to Qu, bonding quickly over a mutual love of motorcycles and sports cars. The two men fell out over a dispute related to the ownership of Tianjin Huatai, an investment holding company, with Guo claiming Qu had reneged on an agreement to hand over control of the company. Qu was initially detained on suspicion of possessing firearms and he was eventually sentenced on the embezzlement charges. Qu denied any wrongdoing. Reuters
Goldman Sachs Group Inc has named veteran banker Ken Hitchner as its new chairman and chief executive officer in Asia Pacific excluding Japan, according to an internal memo seen by Reuters yesterday. Hitchner, who joined Goldman’s corporate finance department in 1991 and worked in different roles after that, is currently president of the bank in the Asia-Pacific region, excluding Japan, said the memo. In his new role, Hitchner will be replacing Mark Schwartz, who retired from the bank at the end of last year, after having worked at Goldman for 27 years. Markets
Mainland-based Qudian Inc files for IPO China-based online credit provider Qudian Inc said on Monday it has filed for an initial public offering of up to US$750 million of class A ordinary shares represented by American Depository Shares (ADSs), according to an SEC filing. The shares will trade on the New York Stock Exchange under the symbol “QD”, according to the regulatory filing. In the three months ended March 31, Qudian facilitated about RMB16.7 billion (US$2.4 billion) in transactions to 4.8 million active borrowers. Morgan Stanley & Co, Credit Suisse Securities (USA), Citigroup Global Markets Inc, China International Capital Corporation Hong Kong Securities Ltd, UBS Securities, Stifel, Nicolaus and Company Inc and Needham & Co are serving as underwriters.
Tencent, Guangzhou Auto agree to collaborate
COMAC says signs 130 orders for C919 passenger jet The company is pushing towards getting its jet certified in Europe and the United States China’s Commercial Aircraft Corp of China Ltd (COMAC) yesterday signed 130 new orders for its C919 passenger jet with four Chinese leasing firms, after the plane took its maiden flight in May this year. COMAC is leading China’s efforts to become a key player in the global civil aerospace market, threatening the dominance of U.S. and European rivals Boeing Co and Airbus. The deals take total orders for the C919 single-aisle aircraft to 730 planes from 27 customers. China Nuclear E&C Group placed
Goldman Sachs names new chairman for Asia Pacific
Connected cars
Aviation
Brenda Goh
HR
an order for 40 jets, while Huabao Leasing and AVIC International Leasing each signed up for 30 of the aircraft, according to a statement from COMAC. Agricultural Bank of China (ABC) Financial Leasing Co Ltd became the first customer to make a second order for the C919 jet, making 20 firm orders and an intention to buy 10 more. ABC Financial Leasing has made down payments of about RMB500,000 (US$75,882.90) for each firm order, the firm’s chairman Wang Yigang told reporters. COMAC did not ask for down payments before the jet’s maiden flight, industry sources say.
“Our confidence in the C919 firmed after the plane’s successful maiden flight,” Wang said, declining to give more details on pricing. The firm signed up for 45 C919 jets in 2012.
Key Points Four Chinese leasing firms place orders for C919 C919 orders rise to 730 planes from 27 customers AgBank Leasing says placed down payment for orders Wang added the firm was in talks with both foreign and domestic airlines to lease out the planes, with a focus on carriers in regions such as Central Asia and Africa that were involved in Beijing’s Belt and Road initiative. COMAC, though still some way away from delivering the first C919 for commercial use, is pushing towards getting it certified in Europe and the United States to open up markets beyond those that accept China’s certification standards. Reuters
China’s Tencent Holdings and Guangzhou Automobile Group Company Ltd have agreed to collaborate on internet-connected cars - a strategic pact that sent shares in Guangzhou Auto surging. Earlier this year, Tencent bought 5 percent of U.S. electric car maker Tesla Inc for US$1.78 billion. Tencent and Guangzhou Auto will work together to develop internet-connected cars and artificial intelligence-aided driving, as well as explore investment in areas such as auto-related e-commerce, so-called new energy cars and auto insurance, the automaker said in a filing late.
10 Business Daily Wednesday, September 20 2017
Greater China Labour
The last days of a ‘village’ in Mainland’s Silicon Valley Zhongguancun has been a national base for the science and information technology industries since the 1980s
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urrounded by the sleek hi-tech campuses and luxury condominiums of “Beijing’s Silicon Valley”, migrants from the countryside recreate village life, cooking in outdoor communal areas, playing cards and showering in the street. But their community’s days are numbered. Demolition crews will soon arrive to flatten its alleys packed with dilapidated, one-room dwellings as part of a city-wide “clean-up” campaign. For months, the authorities have bricked up and torn down thousands of shops and homes that are deemed to violate Beijing’s zoning laws as the government seeks to give the capital a facelift and limit the population to 23 million people by 2020. Migrants from China’s relatively undeveloped south-western region have lived precariously for two decades here in Zhongguancun -- which is also the base of hi-tech companies including Lenovo, Baidu, Tencent and Sohu, which help their own employees from other regions obtain legal rights to live in the capital.
‘Village behind factories’
Zhang Zhanrong, a stylish woman in her early thirties, moved to Beijing from a remote village as a teenager to look for work. She was following in the footsteps of her neighbours, who had sent word home to the rural outskirts of Chongqing that people earn much more in the capital.
A view of Zhongguancun
They all settled in a plot of land in the northwest of the city, where they built common areas and piled their families into clusters of tiny apartments. They call their adopted home Houchang Cun, which means “the village behind the factories,” but no one knows why it was named that way because there are no factories nearby. Zhongguancun has been a national base for the science and information technology industries since the 1980s. “They don’t want migrants here anymore. We’re just ordinary rural people and we
don’t try to understand the government policies,” Zhang told AFP. “We haven’t found another place yet,” she said stoically, standing with one hand on her hip while making dinner at an outdoor communal gas stove. She and her husband recently took out a loan to purchase two moving trucks. They employ neighbourhood residents as movers, who earn around RMB5,000 (US$760) a month, while Zhang and her husband together make over RMB15,000. They earn more than the average income in Beijing’s
private sector, but most of it goes toward paying off the loans and saving for their children’s schooling. They pay RMB1,000 in rent per month for two adjacent rooms. Meanwhile, the average salary at Chinese Internet giant Tencent is RMB63,000 a month, and rent for a one-bedroom apartment near the Tencent campus costs upwards of RMB5,000 a month.
Street showers
China has hundreds of millions of migrants who h av e m o v e d f r o m t h e
countryside to its towns and cities in recent decades to find work, their labour fuelling the country’s economic boom. But many remain poorly paid and cannot afford to bring their children -- who would have few rights to school places -- with them, instead leaving them behind to be looked after by relatives. Houchang residents told AFP they only heard about their pending evictions from property managers, and were not told why they are being kicked out. “We do the jobs that many locals don’t want to do, such as sanitation and heavy labour,” said Peng Shuixian, a 30-year-old mother of two who works as a cleaner. “But it is hard to stay. My kids couldn’t get into school here. Now they’re back in Chongqing with their grandparents,” she said. Most homes in Houchang do not have running water or toilets. Public facilities are filthy, but some enterprising residents have built showers by placing plastic barrels on wooden stilts and positioning them over gutters. “Some of us used to make RMB6,000 a month as Didi (ride-share company) drivers. But the government said migrants can’t drive Didi, so we had to find other work,” said Yang Qiang, a mover who uses his homemade shower to cool off after strenuous jobs. “We work, we live day by day. Can’t talk about tomorrow,” said a villager who has lived in Beijing the longest, 50-year-old Lin Huiqing. AFP
Reserves
Beijing boosts purchases of U.S. Treasuries in July Japan was the second largest non-U.S. holder of Treasuries, with US$1.11 trillion, rising US$22 billion for the month Gertrude Chavez-Dreyfuss
China ramped up purchases of U.S. Treasuries for a sixth straight month in July, data from the Treasury Department showed on Monday, as the Chinese government saw less need to sell its U.S. holdings because of a steadily improving Chinese currency.
Key Points China holdings rise for 6th consecutive month U.S. Treasuries show minor outflow Foreigners sell U.S. stocks
For most of 2016, China had to sell its holdings of U.S. government debt to support its depreciating currency as the government grappled with capital outflows. That trend has reversed this year as China’s holdings rose to US$1.17 trillion, making it the largest non-U.S.
holder of Treasuries. Since January, China has added US$114.9 billion in U.S. debt. “China has basically gone the other way,” said Subadra Rajappa, head of U.S. interest rates strategy at Societe Generale in New York. “They must be happy where their currency is right now because they have been growing their reserves once again.” The Chinese yuan has appreciated more than 5 per cent against the U.S. dollar so far this year. In 2016, the yuan weakened by nearly 7 per cent. Japan was the second largest nonU.S. holder of Treasuries, with US$1.11 trillion, rising US$22 billion for the month. Global central banks overall increased their holdings of Treasuries to US$6.25 trillion in July, from US$6.171 trillion the previous month. Data also showed that foreigners sold Treasuries amounting to US$490 million in July, after purchasing US$19.7 billion in June, data showed. Foreigners have sold in four of the last seven months.
Yields on U.S. benchmark 10-year Treasury notes at the beginning of July were 2.3460 per cent, hitting a high of 2.3980 per cent and ending the month at 2.2920 per cent. On Monday, U.S. 10-year yields were at 2.34 per cent. Foreign investors also sold U.S. stocks in July to the tune of US$7.66 billion, after outflows of US$4.47
billion in June. Overall, foreigners pared purchases of long-term U.S. securities in July. Offshore investors purchased US$1.3 billion in long-term U.S. assets after buying US$34.4 billion the previous month. Including shorter-dated securities, however, overseas investors sold US$7.3 billion in July, after buying US$5.9 billion in June. Reuters
Business Daily Wednesday, September 20 2017 11
Asia Tourism
Thailand draws 3.1 million visitors in August The number of visitors from East Asia increased 10 per cent from a year earlier to 2.26 million Kitiphong Thaichareon
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hailand w e l comed 3.13 million tourists in August, a record for the low season month, and there’s no sign that the strong baht is hurting an industry that’s been a rare bright spot for the economy. Tourism accounts for 12 per cent of Southeast Asia’s second-largest economy, whose growth has picked up after years of sluggishness but still lags regional peers.
Key Points August arrivals +8.66 pct y/y Jan-Aug arrivals +5.36 pct y/y Strong baht has not yet hurt tourism - govt officials Travel association calls for c.bank to cut rates The August arrivals were 8.66 per cent above a year earlier and marked the first
time visitors during that month topped three million. The visitors in August generated 163 billion baht (US$4.93 billion) in revenue, up 11.7 per cent from a year earlier, Pongpanu Svetarundra, permanent secretary of the tourism and sports ministry, told a news conference yesterday. “The August number is considered very high as it’s the low season,” he said. During August, the number of visitors from East Asia increased 10 per cent from a year earlier to 2.26 million, with nearly one million from China, up 10.3 per cent. Numbers from the Middle East rose 19.4 per cent to 103,784 in August while those from Europe were flat, at 437,739.
Baht not an obstacle
For January-August, there were 23.55 million arrivals, up 5.36 per cent from a year earlier. Revenue in the first eighth months rose 7.5 per cent to about 1.2 trillion baht. The government has forecast about 35 million tourist arrivals this year, up from
2016’s record 32.6 million The baht’s strength has not yet affected tourism, Pongpanu said. The currency has risen by about 8.2 per cent against the dollar this year. “The baht is not yet an obstacle to tourism, unless it gets stronger,” he said, adding that he hopes the central bank will keep the currency from appreciating further.
A central bank official told the news conference that the baht’s strength had not impacted tourism as other currencies were also appreciating, and that the central bank was closely monitoring the market. A representative from the Association of Thai Travel Agents urged the central bank to cut its policy interest
rate by 25 basis points to help hold down the baht and lower costs for the tourist industry amid increasing competition. The Bank of Thailand has left the rate unchanged at 1.50 per cent, near record lows, since April 2015. It next reviews monetary policy on Sept. 27, and most economists expect no change. Reuters
Tax
Indonesia to trace assets kept hidden during amnesty If the assets are found by authorities before July 1, 2019, they will be subject to a final income tax of 30 per cent for individuals, 25 per cent for companies, and 12.5 per cent for special cases Indonesia’s government has issued new regulations aimed at tracing and taxing the wealth of taxpayers who were not pardoned in the nine-month tax amnesty that ended in March. Around 972,000 taxpayers joined the amnesty programme and declared assets worth a total of 4,881 trillion rupiah (US$368.07 billion). About 24 per cent of that was held offshore, mostly in Singapore, and only a small percentage of it was pledged to be brought back home. President Joko Widodo vowed last year to implement a “tax law enforcement” programme in 2017 following the amnesty. His finance minister, Sri Mulyani Indrawati, warned tax dodgers that if they did not join the amnesty, they would face “hell”. But the government later acknowledged that tax amnesty declarations and the pledged repatriation of offshore assets back to Indonesia did not correspond to data it had on taxpayers’ foreign holdings. In a guide to the new regulations, the government said it had also detected onshore assets that were not reported under the amnesty and had not been obtained with taxed income.
“Given that condition, after the tax amnesty programme ended it must be followed by law enforcement in the taxation field,” it said. The regulation calls for all assets that were not reported or were misreported in the amnesty programme, and which were obtained between Jan. 1, 1985 and Dec. 31, 2015, to be treated as untaxed income. The estimated value of the undeclared assets has not been made public.
If the assets are found by authorities before July 1, 2019, they will be subject to a final income tax of 30 per cent for individuals, 25 per cent for companies, and 12.5 per cent for special cases. That compares with personal income tax rates of 5-30 per cent and corporate income tax rate of 20-25 per cent. Indonesia does not have a wealth tax. Earlier this year, Indonesia’s government granted tax authorities
wider access to information on customer accounts at banks and other financial institutions.
‘Indonesian Finance Minister has previously said Indonesia’s tax-to-GDP ratio of below 11 per cent was “hard to swallow”’ Starting next year, the tax office will also get data on Indonesian taxpayers assets kept in jurisdictions that are signatories to the OECD’s Automatic Exchange of Financial Account Information in Tax Matters. Indrawati has previously said Indonesia’s tax-to-GDP ratio of below 11 per cent was “hard to swallow” and she was committed to raising it to 16 per cent by 2019. The average tax-to-GDP ratio among OECD countries is 34.3 per cent. Reuters
12 Business Daily Wednesday, September 20 2017
Asia Salaries
Wages rising just A$3 a year has Aussies snared in debt trap There could be an offsetting counter effect as regulators attempt to cool home lending and bring the property market in to a soft landing Michael Heath
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ustralians’ average weekly household income grew by A$213 (US$170) between 2004 and 2008. Since then, it’s increased by a total A$27. The extremes roughly reflect a surge and fall in export income -as industrializing China sent demand for iron ore and coal rocketing. But despite their stagnant wages, just over a quarter of Aussies have amassed debts equal to three times their income -- mostly as housing surged during a central bank easing cycle designed to cushion the end of the mining investment boom. “Wages growth was very, very strong, but there weren’t the productivity gains to match it, so now it’s very weak because we’re simply not competitive,” said Alex Joiner, chief economist at IFM Investors. “So there needs to be a longer adjustment period, and that’s why you’re probably going to see wage growth only start to bottom out in the next few quarters.” Currency depreciation has helped, he said, but not enough to restore competitiveness.
“Wages growth was very, very strong, but there weren’t the productivity gains to match it, so now it’s very weak because we’re simply not competitive” Alex Joiner, chief economist at IFM Investors That suggests little prospect of relief for debt-laden households and puts a cloud over the outlook for consumption that accounts for more than half of gross domestic product -- despite a powerful recent labour market performance. In addition to the pincer effect of record debt and low wage growth, households are in line for sharp increases in utilities prices. In this environment, a Reserve Bank of Australia interest-rate increase remains some way off. In minutes of this month’s policy meeting released yesterday, the RBA acknowledged risks “from growth in housing debt having outpaced the slow growth in household incomes” in recent years. “Growth in wages and inflation had remained low but stable,” it said. “This was expected to remain the case for some time. Nevertheless, a gradual increase in growth in wages and inflation was expected as the spare capacity in the labour market was reduced and the economy continued to strengthen, supported by the low level of interest rates.” A psychological boost may be in the offing. When third-quarter GDP is released in December, the absence of the contraction from a year earlier could lift annual growth close to 3 per cent, compared with 1.8 per cent in
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The RBA acknowledged risks “from growth in housing debt having outpaced the slow growth in household incomes” in recent years
the second quarter. The next wageprice index will also incorporate a 3.3 per cent hike in the minimum rate and may lift the gauge above the 1.9 per cent record low it’s held at for the past year. There could be an offsetting counter effect as regulators attempt to cool home lending and bring the property market in to a soft landing. That will probably see house prices stagnate or even drop a bit and put an end to the “wealth effect” home owners enjoyed while prices were rising, which encouraged them to borrow and spend more.
14.1 per cent.
Bargaining power
Australia’s problem is that while employment growth is strong, it often involves workers shifting from higher paid mining or construction jobs to lower paid ones. There’s also the workforce’s casualization, according
to Joiner. He cited an unnamed company with 500 full-time equivalent roles but only 200 permanent staff, with the remaining employees on rotation. “In that environment, you’ve got a fair section of the workforce -- as in that particular company -- that just has very little bargaining power,” Joiner said. One thing is certain: with rates already at a record-low 1.5 per cent, monetary policy can’t do much more for the economy. Households have already done their bit by borrowing to buy properties and are generally maxed out. For businesses, a reluctance to take on debt may reflect their uncertainty about where demand will come from. As a result, it seems likely that Australian households will just have to battle through in coming quarters. “We’ll continue to muddle along,” said Fabo. “I can’t see how we get a big breakout in growth from here. I still would’ve thought numbers tracking along around that 2.5 per cent mark on average for the next few quarters feels about right.” Bloomberg News advertisement
In retreat
But as sunshine has spread across major economies, leading to the biggest coordinated upswing in seven years, Australia has fallen back to the middle of the pack. Its growth is behind the U.S. and euro zone’s respective 2.2 per cent and 2.3 per cent, and lower than Canada’s and Germany’s. Australia is still ahead of the UK, France, Italy and Japan. “We’re just behind the cycle in other big countries,” said Saul Eslake, an independent economist who has studied Australia’s economy for more than three decades. “Wages aren’t going to pick up until or unless employment picks up by enough to make serious inroads into the spare capacity there is in the labour market. That’s going to take time.” In the 12 months through June, average earnings in Australia’s national accounts -- a broader measure of household income than the wage index -- climbed just 0.1 per cent, compared with inflation of 1.9 per cent, according to the Australian Bureau of Statistics. That raises the question of where demand for consumer spending will come from. Justin Fabo, a senior economist at AlphaBeta in Sydney, reckons the public sector that accounts for 23 per cent of GDP is growing rapidly and playing a significant role. “For a quarter of the economy, that’s providing a big offset to some of the softness,” he said. Eslake is looking elsewhere. He cites business investment picking up, suggesting that strengthening conditions offshore may finally have encouraged local firms to spend. But his concerns remain on the labour market’s spare capacity. August data showed the quarterly under-utilization rate declined 0.2 percentage point, but still remained at an elevated 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 20 2017 13
Asia Survey
In Brief
Japan firms see U.S., China economies expanding at a healthy clip On China, 51 per cent expected the economy to grow at roughly its current pace and another 14 per cent predicted growth would accelerate Tetsushi Kajimoto
A vast majority of Japanese firms are upbeat about the outlook for the U.S. economy, a Reuters poll found, a reassuring sign after some market concern earlier this year that the pace of U.S. growth could be slowing. Most also had a generally positive outlook for China’s economy even if the number of companies somewhat pessimistic about prospects was higher than for the U.S. economy. The Reuters Corporate survey showed 64 per cent of Japanese companies thought the U.S. economy would keep growing at around its current pace while another 19 per cent saw it expanding further. Just 17 per cent saw growth peaking out or slowing. “Given its strong fundamentals, and just looking at economic factors, the U.S. economy should continue to expand,” a manager at an electrical machinery maker wrote. But like many other respondents, the manager also expressed concern about how well U.S. President Donald Trump’s administration would handle key policy issues. “If the U.S. government malfunctions, that will affect the economy,” the manager wrote. The survey was conducted Aug. 30-Sept. 12, during which U.S. second-quarter GDP was revised higher on robust consumer spending and strong business investment. Hurricane Harvey slammed into Texas just before the poll while Hurricane Irma hit Florida at the tail end of the survey. Prior to the survey, economists were paring their GDP forecasts ever so slightly but better economic indicators since then have led to upward revisions. A Reuters September poll of nearly 100 economists showed they expect
the U.S. economy to expand at an annualised 2.6 per cent in this quarter and 2.5 per cent in the next, up from previous predictions in August of 2.5 and 2.4 per cent. In the Reuters Corporate survey, 59 per cent of Japanese firms with direct or indirect dealings with U.S. businesses, said that their business plans were on track. But 33 per cent said there were signs of delays or stagnation while another 8 per cent said they would have to review their business plans. Analysts said, however, that it was hard to say if the number experiencing delays or problems was particularly high, and that this could just be many companies taking a cautious tone. The survey, conducted for Reuters by Nikkei Research, polled 548 big and mid-sized firms that reply on condition of anonymity. Around 250 companies answered the questions on the outlook for the U.S. economy while around 150 replied to questions about business plans.
China, Japan
On China, 51 per cent expected the economy to grow at roughly its current pace and another 14 per cent
predicted growth would accelerate. But some 35 per cent saw it peaking out or slowing. Many respondents were worried about a potential slowdown after the Communist Party’s autumn congress, at which President Xi Jinping is expected to tighten his grip on power. “The focus is the autumn congress. China’s underlying economy is performing more than expected thanks to government investment as the administration tries to sail through the congress,” said a manager of another electrical machinery maker. “The situation may change all at once after the congress, and it’s fully thinkable the economy could decelerate.” China’s economy expanded at a faster-than-expected 6.9 per cent year-on-year in April-June, setting the country on course to comfortably meet its 2017 growth target of around 6.5 per cent. However, China’s fixed-asset investment, factory output and retail sales all grew less than expected, data showed last week, reinforcing views that the world’s second-largest economy is gradually beginning to lose steam in the face of rising borrowing costs. Bloomberg News
South Korea’s August producer price index rose for a tenth consecutive month, and at a fastest annual pace in three months, with a big jump in prices of agricultural goods, central bank data showed yesterday. The producer price index (PPI) rose 3.2 per cent year-onyear, the Bank of Korea said, compared with July’s 3.0 per cent gain. The sub-index showed that producer prices rose on an annual basis for all sectors, including utilities. Prices of industrial goods, which have the heaviest weighting in the index, rose 3.8 per cent, boosted by higher global oil prices. Subsidies
Thailand approves help to rice farmers Thailand’s cabinet yesterday approved three loan and subsidy programs for the country’s rice farmers to stabilize prices and reduce an oversupply of the grain. The three programs are worth a total of 87 billion baht (US$2.63 billion) and include US$2.2 billion of loans and subsidies for rice farmers already approved by Thailand’s rice management committee earlier this month. The US$2.2 billion in spending will cover 3.7 million households and will span the seasonal harvest from the start of November this year to the end of February 2018.
Creditors back CBS’s bid for Ten Network
Suu Kyi says Myanmar ready to welcome back Rohingya refugees The crisis has threatened to sap investor confidence in the fast-growing Southeast Asian nation Myanmar leader Aung San Suu Kyi said her government was ready to welcome back Rohingya refugees who fled a crackdown by security forces over the past month. “We condemn all human rights violations and unlawful violence,” Suu Kyi said yesterday in a rare televised English-language address from the capital Naypyidaw. “We are committed to the restoration of peace, stability and rule of law throughout the state.” More than 400,000 Rohingya refugees have fled across Myanmar’s border with Bangladesh since Aug. 25, when militants from the Arakan Rohingya Salvation Army attacked 25 police and army posts, killing a dozen security officials in the eastern state of Rakhine. The military responded to those attacks with what it has called “clearance operations.” Human-rights groups have accused security forces and Buddhist vigilantes of indiscriminately attacking Muslims and burning their villages. “The security forces have been instructed to adhere strictly to the code of conduct in carrying out security operations, exercise all due restraint and to take full measures
S.Korea’s producer inflation picks up
M&A
Human rights
Kyaw Thu
Prices
to avoid collateral damage and the harming of innocent civilians,” Suu Kyi said. Authorities are ready to start the verification process for those who fled to return to Myanmar, she said. The army has said more than 400 people have died, most of them militants, while human-rights groups say hundreds of villagers have been killed. Earlier this year, United Nations investigators concluded that soldiers had “very likely” committed
Myanmar citizens hold placards as they attend a public gathering held to listen to the live speech made by Myanmar State Counselor Aung San Suu Kyi in front of City Hall in Yangon yesterday. Source: Lusa
crimes against humanity while responding to a Rohingya militant operation in October 2016. Expressing concern at the number of Muslim refugees fleeing across the border to Bangladesh, Suu Kyi pledged to find out “why the exodus is happening.” “I think it is very little known that the great majority of Muslims in Rakhine state have not joined the exodus,” Suu Kyi said. “More than 50 per cent of the villages of Muslims are intact.” The crisis has threatened to sap investor confidence in the fast-growing Southeast Asian nation, which saw the U.S. and European nations begin to ease sanctions after the military junta released Suu Kyi from house arrest in 2010. Foreign investment plunged 30 per cent last fiscal year after overseas investors pumped a record US$9.5 billion into the economy in the preceding 12 months. The investment shortfall coincided with concern over the direction of the government’s economic agenda and increased attention over Rakhine. Myanmar still has a bright economic outlook as it builds off a low base. The Asian Development Bank forecasts growth at 7.7 per cent for 2017 and 8.0 per cent in 2018. Bloomberg News
Creditors of Australia’s embattled Ten Network Holdings Ltd yesterday agreed to a A$209.7 million (US$167 million) buyout from CBS Corp, effectively ending a battle for control between the U.S. broadcasting giant and Lachlan Murdoch. Creditors chose CBS at a vote in Sydney after the U.S. company sweetened its offer by A$8.6 million late on Monday, following a counter-offer from Murdoch, son of Rupert Murdoch, and his business partner Bruce Gordon. “The industry is generally excited about having a A$27 billion big brother looking after channel Ten,” administrator Mark Korda said. Industry
Tokyo Steel says to raise product prices Tokyo Steel Manufacturing Co Ltd, Japan’s top electric-arc furnace steelmaker, said yesterday it would raise its product prices for a second month in October due to higher overseas prices and a tight domestic market. The company will boost prices on all its products in October by 3,000 yen (US$26.9) per tonne, or by 3.3 to 5.1 per cent. It increased its product prices in September by up to 5.4 per cent. “Overseas steel markets have been on an upward trend thanks to China’s strong local demand and a continued decline in exports from China,” Tokyo Steel’s managing director, Kiyoshi Imamura, told reporters.
14 Business Daily Wednesday, September 20 2017
International In Brief Portugal
Work group suggest supervisors appointed by president A work group tasked with reforming the Portuguese financial supervision, has proposed that top figures such as the governor of the bank of Portugal and the Financial Supervision and Stability Council are appointed by the president and subject to parliamentary approval. The chairman of the work group, Carlos Tavares, presented the report at the finance ministry in Lisbon on Monday. The report will be open to public debate until 20 October. It suggests keeping the three current financial oversight entities – the Bank of Portugal, the Portuguese Stock Exchange Commission and the Insurance and Pension Fund Supervisory Authority and bolster coordination among them. Retail
Toys ‘R’ Us files for bankruptcy protection Toys ‘R’ Us Inc, the largest U.S. toy store chain, filed for bankruptcy protection on Monday, the latest sign of turmoil in the retail industry caught in a vicelike grip of online shopping and discount chains. Toys ‘R’ Us said it received a commitment for over US$3 billion in debtor-in-possession financing from lenders including a JPMorgan-led bank syndicate and certain of the company’s existing lenders. The new financing, subject to court approval, is expected to immediately improve the company’s financial health and support its on-going operations during the court-supervised process, Toys ‘R’ Us said. Energy
Equatorial Guinea signs MoU with Burkina Faso on LNG Equatorial Guinea on Monday announced the signing of a memorandum with the Government of Burkina Faso to supply liquid natural gas (LNG) and build facilities to import, store and transport gas. “The initial three-year agreement pushes both parties to negotiate the LNG purchase and sale agreement and an agreement to use a terminal that will be the basis for the first trade of LNG,” said a statement published by Equatorial Guinea. The statement also explained that the member country of the Community of Portuguese Speaking Countries (CPLP) will “explore and produce oil and gas in Burkina Faso.” Index
German investor confidence surges German investor confidence rose for the first time in four months, in a sign that concern over the risk to growth from the strengthening euro is subsiding. The ZEW Centre for European Economic Research’s index of expectations climbed to 17.0 in September from 10.0 in August. The reading, which aims to predict economic developments six months ahead, compares with a median estimate in a Bloomberg survey for an increase to 12.0. ZEW’s gauge for current conditions in Germany rose to 87.9 from 86.7 in August. A measure for expectations in the euro area advanced to 31.7 from 29.3.
Investment
World’s biggest wealth fund hits US$1 trillion after dollar sinks With interest rates at record lows and returns hard to come by, the fund’s management is growing less optimistic Mikael Holter and Sveinung Sleire
N
orway’ssovereignwealth fund hit US$1 trillion for the first time yesterday, driven higher by climbing stock markets and a weaker U.S. dollar. The milestone valuation was reached for the first time on Sept. 19 at 02:01 a.m. in Oslo, Norges Bank Investment Management said in a statement yesterday. “I don’t think anyone expected the fund to ever reach US$1 trillion when the first transfer of oil revenue was made in May 1996,” Yngve Slyngstad, chief executive officer of the fund, said in the statement. “Reaching US$1 trillion is a milestone, and the growth in the fund’s market value has been stunning.”
“I don’t think anyone expected the fund to ever reach US$1 trillion when the first transfer of oil revenue was made in May 1996” Yngve Slyngstad, chief executive officer of the fund
But the extreme wealth is not unalloyed good news. The fund’s sheer size has made it a challenge to find markets big enough to invest in. Meanwhile, Norway’s politicians are finding it hard to resist the temptation to raid the world’s biggest state piggy bank, with the petro-dollar addiction threatening to overheat the US$400 billion economy. Slyngstad recently suggested it’s now largely fruitless for it to enter
new asset classes such as infrastructure because that would be costly and only deliver a blip on overall returns. The investor is also retrenching its global bond portfolio, cutting 23 currencies down to just three -- the dollar, the euro and the pound. The fund says it doesn’t make sense to have more diversification in a world in which prices and rates are converging. Its huge size has also driven the fund to respond to problems with trading by devising elaborate strategies to hide its selling and buying from anyone seeking to front-run its activities. But being big has its advantages, especially for a lean organization like Norges Bank Investment Management. The fund only employs about 550 people in offices across the entire globe (Oslo, New York, London, Shanghai and Singapore). Management costs were equal to just 0.02 per cent of assets in the most recent quarter, down from 0.07 per cent five years ago. The decline in costs comes despite the fund’s expansion into real estate. It’s snapped up prime properties in Times Square, the Champs Elysees and London’s Regent Street, among other locations. It owned 200 billion kroner (US$26 billion) in real estate at the end of June. For now, there’s been little discussion about breaking the fund up into smaller, more nimble entities, though the government is currently pondering a proposal to shift it out
of the central bank and strengthen oversight. So what lies ahead? Norway expects the fund to keep growing through 2025, when it’s predicted to hit 10.5 trillion kroner (or US$1.3 trillion at today’s exchange rate). But such estimates are notoriously unreliable. Its current size already exceeds the milestone it wasn’t expected to reach until 2018. With interest rates at record lows and returns hard to come by, the fund’s management is growing less optimistic. Central Bank Governor Oystein Olsen has warned the decline in oil prices means the fund may already have passed its peak. Norway’s government last year made direct withdrawals from the fund for the first time in its history and is expected to take out about 70 billion kroner this year. Meanwhile, Norway has lowered the fund’s expected return to 3 per cent from 4 per cent. The fund has been given permission to raise its stock holdings to 70 per cent from 60 per cent, with an equivalent cut in bonds. That could help it eke out higher returns, or at least maintain the 8 per cent annualized real return it’s had over the past five years. But Slyngstad also recently said he sees fundamental issues with the global economic system and trade, which is being buffeted by increasing global political risk. And that’s not good for a fund that owns 1.3 per cent of global stocks. Bloomberg News
Yngve Slyngstad, chief executive officer of the fund. Source: Bloomberg
Fraud
Swiss shut down ‘fake’ e-coin in latest cryptocurrency crackdown Regulators and traditional banks are increasingly concerned about the risks of fraud in the burgeoning online cryptocurrency underworld Joshua Franklin
Switzerland’s financial watchdog has closed down what it said was the provider of a fake cryptocurrency and is investigating around a dozen other possible fraud cases, in the latest clamp-down on the risks involving virtual money. The move by the FINMA watchdog comes on the heels of Chinese authorities’ ordering Beijing-based cryptocurrency exchanges to stop trading and immediately notify users of their closure. Virtual currencies such as Bitcoin, which are issued and usually controlled by their developers and not backed by a central bank, are hailed by their supporters as a fast and efficient way of managing money. JPMorgan Chief Executive Jamie Dimon last week said Bitcoin, the original and still the biggest cryptocurrency, “is a fraud” and will eventually “blow up”. The QUID PRO QUO Association
shut down by FINMA had provided so-called E-Coins for more than a year and had amassed funds of at least 4 million Swiss francs (US$4.2 million) from several hundred users, FINMA said in a statement yesterday.
Key Points Switzerland’s FINMA shuts down E-Coin “Fake” cryptocurrency amassed funds of at least US$4.2 mln FINMA investigating around a dozen other possible fraud cases Switzerland latest country to take action on cryptocurrencies
“This activity is similar to the deposit-taking business of a bank and is illegal unless the company in question holds the relevant financial market licence,” FINMA, Switzerland’s
Financial Market Supervisory Authority, said. E-Coin was not like “real cryptocurrencies”, FINMA said, because it was not stored on distributed networks using blockchain technology but was instead kept locally on QUID PRO QUO’s servers. Reuters was not immediately able to reach Zurich-based QUID PRO QUO for comment. FINMA said it had three other companies on its warning list due to suspicious activity in cryptocurrencies, and was conducting 11 investigations into other possible fake virtual currencies. The Swiss finance industry has been looking for new avenues of growth following a weakening of its bank secrecy rules during a global crackdown on tax evasion. The small Swiss canton of Zug, famed for low taxes that have drawn multinational companies, has been trying to turn itself into a hub for virtual currency firms. Reuters
Business Daily Wednesday, September 20 2017 15
Opinion
Aesthetically pleasing isn’t good for your health, Fosun
Coal’s rally isn’t all about China, it’s also quality, supply
Shuli Ren a Bloomberg Gadfly
F
osun International Ltd., the Chinese conglomerate that models itself on Berkshire Hathaway Inc., can be congratulated for bringing the first Israeli company to market in Hong Kong. It looks to have done well on Sisram Medical Ltd. In April 2013, Shanghai Fosun Pharmaceutical Group Co., a unit of Fosun International, bought Israel’s Alma Lasers Ltd. for about US$220 million. Alma, known these days as Sisram Medical, is now being taken public at a valuation of US$500 million. But Fosun hasn’t milked many synergies from Sisram, despite its extensive hospital and distribution networks. You’d imagine women in China -- anywhere, for that matter -- might jump at internationally manufactured medical devices that promise to contour the body and tighten the skin. Yet Sisram’s sales on the Mainland haven’t accelerated at a great pace. It’s partly because Sisram’s products are primarily distributed via third-party operators, rather than through F o s u n Pha r m a’ s own logistics arm Chindex Medical Ltd. Prior to Sisram’s million IPO, Chindex had a Sisram IPO 36 per cent stake in the company. Why not offer it a bit more of a helping hand? It’s also unclear from Sisram’s prospectus whether the company has any substantial proprietary technology. South Korea’s Lutronic Corp., which also makes aesthetic medical devices, has lost a third of its market value this year because of investor concern over its lack of intellectual property. Thanks to scarcity value, Sisram should be worth a lot more in China. Healthcare stocks have a weighting of only 2 per cent in the MSCI China Index, versus 26 per cent for the MSCI Israel Index. This partially explains why retail investors have rushed Sisram shares as foreign institutional money managers sat on the side-lines. Over the past five years, Fosun Pharma has done 26 deals totalling US$3.1 billion, expanding beyond its core generic drug business and into hospitals, medical devices and biosimilar drugs. To push through its biggest-ever purchase, of India’s Gland Pharma Ltd., Fosun has scaled back its proposed stake to smooth political tensions. Fosun has said it wants to leverage Gland to push into the overseas generic drug industry. But one can’t help wondering why Fosun, which has already invested in next-generation biosimilar drug manufacturing, wants to buy a sub-scale producer when the entire industry is attracting heightened scrutiny from the U.S. Food and Drug Administration. Perhaps, again, it comes back to valuation. Indian drugmakers from Dr. Reddy’s Laboratories Ltd. to Lupin Ltd. have tumbled this year even as the country’s benchmark Sensex has reached record highs. To be sure, there’s nothing wrong with Fosun behaving like a private-equity firm and snapping up assets on the cheap. But to become a first-rank player like Berkshire Hathaway, which holds investments for the long term and generates significant value for shareholders, it needs to show it can bring a bit more to the operating table. Bloomberg Gadfly
US$125
I
t is increasingly popular to write obituaries for coal, with analysts, market watchers, investors and utility bosses leaping on the bandwagon, declaiming that the days of the polluting fuel are numbered. Certainly the long-term outlook for coal is becoming less certain as more countries commit to ending, or severely curtailing, use of the fuel. But while the doomsayers may eventually be proven correct, coal is enjoying a stellar year, particularly in Asia, the main demand centre. The price of benchmark prices for thermal coal at Australia’s Newcastle Port slipped toward the end of last week, but still ended above US$100 a tonne on Sept. 15. The contract rose 45 per cent from the closing low of US$71.30 a tonne on May 16 to a peak of US$103.50 on Sept. 12, providing a bonanza for miners in Australia and Indonesia, the two largest exporters of thermal coal used in power stations. Metallurgical coal, used to make steel, hasn’t had quite as good a year as thermal, but is still holding above US$200 a tonne. Singapore Exchange contracts, priced against the Steel Index assessment of Australian cargoes, ended at US$207 a tonne on Sept. 15, down from a cyclone-induced peak of US$285 in early April, but largely steady from the US$226.50 a tonne they fetched at the start of this year. While coking coal has been affected by weather-related disruptions in Australia, the price of thermal coal has mostly been driven by Chinese import demand. Chinese seaborne imports of both types of coal were 157 million tonnes in the first eight months of 2017, according to vesseltracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts. This was up 12.4 per cent on the same period in 2016, with China importing an additional 17.3 million tonnes from the seaborne market. That sounds significant, and it certainly provides some fundamental justification for the strong rally in thermal coal prices this year. However, while China is the world’s largest coal importer, it is by no means the only major player in Asia. India, which ranks second, has seen a sharp drop in seaborne coal imports this year, down to 117.9 million tonnes in the January-August period, a drop of 19.4 million tonnes from the same period in 2016. Also down is fifth-ranked Taiwan, with seaborne imports at 42.6 million in the first eight months of 2017, a decline of 1.2 million from the same period a year ago. Asia’s other two major importers, though, Japan and South Korea, have increased their overseas purchases. Japan is vying with India for second place this year, importing 118.7 million tonnes from the seaborne market in the first eight months, up 2.8 million tonnes, while South Korea has imported 85.7 million, up 3.6 million. Put together, Asia’s top five importers are up 3.1 million tonnes for coal shipments in the first eight
“
Clyde Russell a Reuters columnist
months of the year compared to the same period of 2016. In percentage terms, this is a gain of only 0.6 per cent, which is hardly enough to justify a 45 per cent rally in prices over the past four months.
Supply disruptions the driver?
There have been some supply issues from Australia and Indonesia related to weather events, with exports dropping in the first eight months of the year in both producers. Australia exported 249.9 million tonnes of coal in the January-August period, down 10.2 million tonnes, while Indonesia’s exports slipped 11.9 million to 218 million. This drop of a combined 22.1 million tonnes from the world’s top exporters may have more to do with the increase in prices than the strength of Chinese demand, even though the prevailing market narrative gives China a starring role in coal’s rally. Certainly, higher prices have been needed to make exports to Asia from non-traditional suppliers viable. The United States exported 50.3 million tonnes of coal in the first eight months of 2017, up from 43.6 million for the same period last year. Of this, 19.7 million tonnes were shipped to Asia, up from 14.3 million for the first eight months of 2016. This means that of the additional 6.7 million tonnes the United States exported in the January-August period, 5.4 million, or 80 per cent, went to Asia. Overall, it appears that while the additional demand from Asia has been positive for prices, the drop in supply seems more relevant. This is especially the case with Australia, since its higher-quality coal has seen most of the increase in demand from China, Japan and South Korea. India’s decline in imports will have a greater impact on Indonesia, which supplies cheaper, lowergrade fuel. An example of this is the price of Eco Coal, a grade of lower-quality Indonesian coal with an energy value of 4,200 kilocalories per kilogram. The monthly assessment by the Indonesian government stood at US$45.35 a tonne as of Aug. 31, down from US$53.46 at the end of last year, but up from the low of US$41.46 for June. This shows that the rally in coal prices isn’t universal in Asia, rather it’s mainly a reflection of higher demand for Australian coal, and other grades of similar quality. The key question for the coal market is whether the sharp jump in Australian benchmark prices is justified by the lower exports and stronger demand in top Asian buyers? Certainly, with prices above US$100 a tonne for seaborne thermal coal, a supply response becomes inevitable, it’s just a matter of time. Reuters
While China is the world’s largest coal importer, it is by no means the only major player in Asia
”
16 Business Daily Wednesday, September 20 2017
Closing Aviation
Airbus expects China airlines to need 60-100 A380s over 5 years
over US$1 trillion on planes over the next 20 years. In July, Airbus signed an agreement to sell Airbus SE’s China head Eric Chen yesterday said the French plane maker expects Chinese 140 aircraft to China in a deal worth almost US$23 billion at list prices during a visit by airlines to need between 60-100 of its A380 Chinese President Xi Jinping to Germany. jets over the next five years, amid question Europe’s largest aerospace company will marks over future global demand for the inaugurate today a completion and delivery superjumbo. He was speaking at an Airbus event in Beijing. centre for its A330 jet in the northern Chinese city of Tianjin. The facility is Airbus’s first for China is the world’s fastest growing aviation wide-body aircraft outside Europe and is market and is a key battleground for Airbus expected to deliver its first A330 aircraft this and its main U.S. rival Boeing Co, which recently predicted that the country will spend year. Reuters
Commodities
Getting savvy? China corn farmers set to hold on to crops, bet prices will rise Concerns over short-term supply come after drought in parts of the corn belt in the summer delayed planting Hallie Gu and Dominique Patton
C
orn farmers in China are likely to hold off on selling their latest crops, betting higher prices down the line in the world’s No.2 producer of the grain will help them reap bigger profits. As farmers in the north-eastern corn belt start their second harvest without government price support, many are beginning to show the kind
of appetite for risk that is common in major other agricultural powerhouses such as the United States by potentially delaying sales. That has sparked worries about short-term supply in China, triggering an unseasonal rally in markets, with physical prices of first grade corn at the port of Jinzhou, Liaoning province, in early September hitting their highest in two months at RMB1,720 (US$260.97) per tonne. “Farmers won’t rush to sell their
grains this year,” said Meng Jinhui, a Beijing-based analyst with Shengda Futures. Until last year, the government bought farmers’ crops at a minimum price as part of a decade-long stockpiling programme that has now been scrapped. The move to hold on to crops comes after some farmers last year sold early in the season, missing an opportunity to make more money after prices later rallied.
“This year, I will wait for a couple of months after the harvest and see what prices will do,” said a farmer in Baishan city, Jilin province, who gave his surname as Shan. He will start harvesting his relatively modest 1.3 hectares of corn in two weeks. Jilin province is the second-largest corn producer in China, with output of around 28 million tonnes last crop year.
Key Points Farmers starting second harvest since price-support scrapped Likely to hold crops in hope prices will climb That has sparked fears over short-term supply In another sign of changes rippling across the industry as the end of the government support programme opens the market up to commercial forces, Shan said he frequently checks corn prices on the internet. “Prices are not ideal now. I am thinking they will go higher,” he said. While farmers like Shan have built warehouses that could store corn and help them delay selling, those without might find it more difficult. A farmer who gave his surname as Feng said he would like to hold out for higher prices, but may have to sell as he harvests because he doesn’t have enough storage. Concerns over short-term supply come after drought in parts of the corn belt in the summer delayed planting. Reuters
Human trafficking
IPO
Property
Fishermen ‘kept like slaves’ Alibaba is said to buy in Taiwan US$100 million in Best Inc.
Japan commercial land prices rise for first time in 10 years
A group of foreign fishermen in Taiwan were locked in tiny windowless rooms around the clock to stop them escaping while not at sea, prosecutors said in the island’s latest abuse case involving migrant workers. Fishing and boat company owners were among 19 people charged Monday in the southern city of Kaohsiung for illegally holding 81 foreign fishermen in buildings after they had berthed their boats. When they were at sea, the fishermen were sometimes made to work for 48 consecutive hours without rest for a monthly wage of US$300-US$500, the prosecutors said -- despite Taiwan’s labour laws which stipulate a maximum working day of eight hours and minimum wage of around US$930. The 19 face charges of human trafficking and offences against personal liberty and could face a maximum seven-year jail term if convicted. Prosecutors also confiscated nearly T$3.69 million (US$123,000) from the companies in back pay for the workers. According to rights groups, exploitation of migrant workers is frequently reported in Taiwan, where around 600,000 foreigners work as caregivers, fishermen, construction and factory workers. AFP
Commercial land prices in Japan rose for the first time in 10 years this year as a boom in tourism boosted demand for new hotels and retail outlets, a government survey showed yesterday. The average price of commercial land increased 0.5 per cent in the year to July 1 after steadying in the prior year, according to the Land Ministry’s broadest survey of nationwide land price trends. Other recent government surveys have also shown gains in land rates, providing welcome news for a sector dogged by deflation since Japan’s asset bubble burst in the early 1990s. The survey showed residential and overall land prices were still down for a 26th straight year, falling 0.6 per cent and 0.3 per cent, respectively, but the pace of the declines slowed. “The momentum for recovery is continuing,” said Takeo Murakami, director of the ministry’s land price publication office, ahead of the release of the survey. “The latest rise in land prices is supported by actual demand.” The recovery was led by cities outside the capital Tokyo, with Kyoto, Osaka and Aichi prefectures accounting for the 10 biggest increases. Reuters
Alibaba Group Holding Ltd. plans to invest about US$100 million in Best Inc.’s initial public offering, after the Chinese logistics provider cut the size of the deal nearly in half, according to people with knowledge of the matter. Best is seeking as much as US$495 million from the IPO after it reduced the price range and existing investors decided not to sell stock, the people said. The Hangzhou-based company is now offering 45 million American depository shares at US$10 to US$11 apiece, according to the people, who asked not to be identified because the information is private. The express-delivery firm is planning a debut after more than a month-long drought in the U.S. IPO market. Zai Lab Ltd., the Chinese drug developer seeking to raise as much as US$106 million selling shares in the U.S., is also aiming to price its offering this week, according to an earlier filing. Best and its existing investors were initially seeking to raise as much as US$932 million from the IPO, according to an earlier filing. The company was offering 53.56 million ADSs at US$13 to US$15 apiece, while existing investors were selling 8.54 million ADSs. Bloomberg News