Get ready for a culinary weekend Consigliere Pages 8 & 9
Friday, September 22 2017 Year VI Nr. 1389 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Ratings
Monitoring
S&P downgrades China long-term sovereign credit Page 16
www.macaubusiness.com
AL
Activist Jason Chao comments on election irregularities Page 4
New legislator Sou to focus on youth needs Page 5
Tourism
Visa-free access for EU citizens to boost Cape Verde annual growth Page 14
Construction takes its toll Safety
Despite the intensive inspections undertaken by authorities, the human price paid by construction works is overwhelming. The latest data shows that the stress on security resulted in 31 construction sites being ‘partially or totally’ suspended and fines imposed in 101 situations. Yesterday, PJ announced the arrest of three people related to a deadly accident that occurred in June. Page 3
August shows 2017 peak in prices
Snap doubts for Japan’s casinos legislation
Experts analyse impact of Japan’s probable election next month on casino industry development in the country. Diverse voices elaborate on how a snap poll could affect the content of the legislation and the timing of its implementation.
Inflation Official figures indicated that inflation registered the highest increase so far this year. Education and Health were the chapters showing the steepest increase. However, the composite index is set in a comfortable zone. Page 2
Pixel by pixel Gaming Page 6
HK Hang Seng Index September 21, 2017
28,110.33 -17.47 (-0.06%) Worst Performers
Galaxy Entertainment Group
+2.46%
Geely Automobile Holdings
+0.83%
New World Development
-3.50%
Wharf Holdings Ltd/The
-1.29%
Sands China Ltd
+1.28%
CNOOC Ltd
+0.74%
AAC Technologies Holdings
-2.02%
Swire Pacific Ltd
-1.21%
Hengan International Group
+1.01%
Hang Seng Bank Ltd
+0.71%
CK Asset Holdings Ltd
-2.01%
CITIC Ltd
-1.18%
+0.51%
China Merchants Port Hold-
-1.69%
China Resources Power
-1.12%
Hang Lung Properties Ltd
-1.50%
China Resources Land Ltd
-1.11%
WH Group Ltd
+0.89%
Industrial & Commercial
China Unicom Hong Kong
+0.87%
Bank of China Ltd
+0.50%
27° 31° 27° 31° 28° 31° 28° 31° 27° 31° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
M&A Alphabet Inc’s Google, in second major foray into phone hardware, pays US$1.1 billion for the division at Taiwan’s HTC Corp that develops the U.S. firm’s Pixel smartphones Page 11
2 Business Daily Friday, September 22 2017
Macau Inflation
Pricier times August saw the largest yearly increase in Composite Consumer Price Index since January, a 1.36 per cent hike, with the inflation rate reaching 1.16 per cent price indices seeing increases yearon-year of 1.19 per cent and 2.75 per cent, respectively. The rise was also influenced by higher charges for package tours and airfares during Summer holidays.
Nelson Moura nelson.moura@macaubusinessdaily.com
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he Composite Consumer Price Index in August posted an increase of 1.36 per cent year-on-year to 109.57 - the highest year-on-year growth since January - with the inflation rate reaching 1.16 per cent, according to the latest data released by the city’s Statistics and Census Services (DSEC) yesterday.
‘Higher gasoline prices impacted the Recreation & Culture and Transport chapter’ The DSEC noted that the minor increment observed was mainly attributable to ‘rising tuition fees, dearer prices of adults’ footwear and gasoline, as well as higher charges for eating out and outpatient services’.
Pricier education
Th e p r i c e i n d ex o f F o o d & Non-Alcoholic Beverages - which accounted for the largest share of household expenditure - went up by 1.84 per cent year-on-year, as the cost for ‘eating out’ increased despite ‘receding prices of fresh fish and seafood’ offsetting the overall increase. Meanwhile despite the rising
gasoline costs, the Housing & Fuels price index - the second largest share of household expenses - decreased by 0.67 per cent yearly in August, due to lower prices of seasonal sales of Summer clothing and of Liquefied Petroleum Gas. Higher gasoline prices also impacted the Recreation & Culture and Transport, with the two sectors
The largest year-on-year increases were seen in the Education price index, which went up yearly by a considerable 7.49 per cent, while the Health price index rose by 5.30 per cent year-on-year. The largest decrease was again registered in the Communication price index, with a yearly fall of 5.86 per cent in August of this year. DSEC divides households into two groups: the CPI-A, which refers to nearly 50 per cent of the households in the city, with an average monthly expenditure of MOP10,000 to MOP29,999, and the CPI-B, which relates to some 30 per cent of local households, with an average monthly expenditure of MOP30,000 to MOP54,999. The CPI-A and CPI-B rose 1.38 per cent and 1.21 per cent, respectively, year-on-year.
Urban planning
Renewal Committee: consensus on draft of administrative regulations of gov’t wholly-company met Related taskforce revealed that charter of the company will be submitted at next meeting Cecilia U cecilia.u@macaubusinessdaily.com
The draft of the administrative regulations of the government’s wholly owned company was presented and a common consensus met during yesterday’s Urban Renewal Committee meeting. The co-ordinator of the second taskforce of the Urban Renewal Committee Paulino do Lago Comandante told the press after the meeting yesterday that the committee had discussed mostly the work direction of the company as well as other issues such as capital to be registered, structure of the company, the management and personnel arrangement. As revealed by the Committee earlier in June, the responsibilities of the company will encompass matters relating to urban renewal, as well as to improve facilities of the
communities and the livelihood of residents as the major aims. Meanwhile, the second taskforce head said the charter of the wholly-owned company will be submitted to the Committee by next meeting.
Rosário on Tam double position
Secretary for Transport and Public Works Raimundo Arrais do Rosário said the new arrangement of having Tam Vai Man, the Director of Environmental Protection Bureau (DSPA), to take also the position as the temporary head of Meteorological and Geophysical Bureau (SMG) was being decided by consulting all directors and vice-directors’ opinions within the Secretariat, TDM Radio reported. Rosário said yesterday that it requires courage for one person to take up two important positions, while expressing his thankfulness to Tam’s family for being considerate.
The Secretary for Transport and Public Works, Mr. Raimundo do Rosário, presides at the 8th plenary session in 2017 of the Urban Renewal Committee. Source: GCS
The Secretary also said if issues arise he would be the person to be responsible. On the other hand, the Secretary
explained that the extra 225 salary points remuneration for Tam is the maximum point arranged according to the regulations for civil servants. advertisement
Exhibition
22nd MIF partnering Angola and Guangdong The 22nd Macao International Trade and Investment Fair (MIF) will partner with Angola and Guangdong, to enhance the city’s role as a Business and Trade
Co-operation Service Platform between Mainland China and Portuguese speaking countries and also to assist the construction of the Guangdong-Hong Kong-Macau Greater Bay Area. This year’s MIF will take place from October 19 to 21 at the Venetian Macao. While there will be pavilions to be showcased, different themed forums and conferences will also be held. Being one of the countries to take part the first time along the “Belt and Road”, the 22nd MIF will also be jointly organising presentations and seminars on Cambodia’s investment and tourism, to try to grasp business opportunities brought about by the “Belt and Road” Initiative.
Business Daily Friday, September 22 2017 3
Macau Crime
Deadly sites PJ arrests three people connected to deaths on the construction site of the new Public Prosecution building Nelson Moura nelson.moura@macaubusinessdaily.com
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he Judiciary Police (PJ) arrested three people suspected of being involved in the accident at the construction site of the new Public Prosecution Office that led to the death of two workers in June, the department informed yesterday. The three detained suspects - said to be the director of the site, an engineer and the general manager of the construction company - are suspected of breaking construction safety rules and disruption of service, with the case being sent to the Macau Public Prosecution Office.
On December of last year the Macau government awarded a MOP111.7 million (US$13.8 million) contract to Companhia de Construção Urbana J & T Limitada for the construction of the first phase of the new Public Prosecution’s Office, while Macau — Serviços Profissionais, Limitada received a MOP5.8 million contract for the construction oversight. The PJ informed that the Director of the Land, Public Works and Transport Bureau (DSSOPT) concluded the work accident took place during a non-authorised weight test of an iron bar at the construction site on Avenida Dr. Rodrigo Rodrigues, leading to two deaths
eight years, if resulting from negligence.
Deadly construction
and two injured. ‘The three suspects made a joint decision to arrange an unauthorized test on the site in which a piece of iron was hanged under two i-beams. They underestimated the six-tonne iron as weighing two tonnes only and during
the test, one of the i-beams overturned and fell on the four workers,” the PJ release informed. According to the MSAR Criminal Law infractions of construction rules and disruption of service can lead to a prison penalty up to
Between July 15 and 20 of this year a total of 558 construction sites were the target of several inspections by the Labour Affairs Bureau (DSAL) due to health and security infractions registered in the constructions sector, resulting in 31 construction sites being ‘partially or totally’ suspended. Last month DSAL informed that 28 of the suspended construction sites had been allowed to resume construction work, with fines granted for 101 situations of failing to follow security requirements.
Casinos
Season of re-openings The beginning of next week will see the opening of a new VIP room operated by local junket operator David Group at Galaxy and the re-opening of the Broadway Hotel and Casino Local gaming operator Galaxy Entertainment Group (GEG) confirmed to Business Daily that local junket operator David Group will open its new VIP room at the group’s property in Cotai on September 26 of this year.
The new VIP room will be located on the second floor of Galaxy and will offer 10 tables, with the junket group having previously announced the opening of VIP rooms at Studio City and in the Macau Jockey Club Casino at the newly opened Hotel
Roosevelt. GEG also confirmed that its Broadway Hotel and Casino will resume full operations on September 25 at 12pm, after being closed for a month following the passage of Typhoon Hato on August 23.
Macau Legend’s casino property Legend Palace at the Macau Fisherman’s Wharf, which was also affected by the typhoon, also resumed operations on September 20 after a halt lasting for almost four weeks. N.M. advertisement
4 Business Daily Friday, September 22 2017
Macau Opinion
Pedro Cortés*
Courtesy assumption More than giving free interest loans or subsidies to windows – amazing how the price of glass went up in Macau – the measure that the Macau Government should take vis-à-vis the hecatomb of Hato would be to exempt all companies and individuals of the 2017 taxes. Yes, complementary tax and professional tax would not be levied for any of us irrespective of the amount or source. When a State (a paraState, in our case) cannot cope with its obligations, it shall assume the responsibility and, in turn, people would be happier. You may say that the amount that we pay is ridiculous when compared with other regions. Correct. But in other countries or regions, we have normally – well, let’s assume it is true – a government who manages a State with the sole focus on its citizens. Assume incompetence is sometimes important and gives a strong signal to the population. We had a CE who apologized to the Macau citizens for what happened during the fatidic Hato day. We must have a Government and a State which, in light of such declaration, shall undertake full responsibility of what happened and understand that more must be done in concert of our people and the future of the city. It will, for sure, establish or reestablish a little confidence on our politicians towards a future in which all of us will be prepared in case Mother Nature gets angry again and shows its power. The impact of the free complementary and professional tax is minimum to Macau’s budget. And I am sure the newly elected Legislative Assembly members will applaud such decision vehemently. Speaking about the newly elected (well, the three new elected, as the faces are almost the same) it seems that the xenophobic speech of some has not captured sufficient votes. It is a good sign of development of our city. But all of us should be curious on who are going to be the CE appointed members of the Legislative Assembly. Are we going to have surprises or, otherwise, little change, or more of the same? *lawyer and frequent contributor to this newspaper.
Elections
Hacking suspicions In his last press conference in the city, political activist Jason Chao claimed that the online services accounts of several members of the New Macau Association had been the target of government-backed hacking attempts, while also criticising the undefined lines between political and social associations in the city Nelson Moura nelson.moura@macaubusinessdaily.com
G
overnment backed attempts to hack New Macau Association members’ online accounts, disproportionate criminalisation, lack of respect for fundamental rights and unclear definitions of what constitutes corruption were some of the incidents political activist, Jason Chao Teng Hei, claims to have registered during this year’s Legislative Assembly elections. In his last press conference before departing Macau, the former Vice-President of the New Macau Association, revealed the results of its Project Just Macau, an initiative to monitor the ‘fairness’ of this year’s elections. According to Mr. Chao the project received more than 10 complaints, mainly from members of the New Macau Association, with the political activist stating the group’s candidates and volunteers have been receiving notifications from social media, email and instant messaging service providers such as Facebook, Gmail and Telegram about login attempts by “government-backed” hackers. Mr. Chao revealed a Google Mail
Far but still close
Mr. Chao has been involved in political activism in Macau since 2005 and with the New Macau Association since 2010. The political activist will leave Macau to follow post-graduate studies in the United Kingdom, having resigned his position at the New Macau Association in March of this year. “I will shift my focus to a larger area, with Macau still being one of my concerns but not the only. In the next years I will still represent Macau’s non-government organisations at United Nations meetings,” Mr. Chao informed. When questioned about the evolution of the city’s political situation, Mr. Chao stated he was “very concerned about the
alert warning the user that this service believes ‘government hackers might be trying to steal your password’. According to Google, notifications like these are sent when there is suspicion that a ‘sophisticated attacker has tried to gain access to your account using phishing, malware or some other tactic’, with the company not revealing if the attack took place or if it was successful or any other information so as to not allow hackers to understand how the company identified the attack.
“All these cyberattacks ceased to exist just one day after the election. I don’t think it’s a coincidence” Jason Chao, political activist “All these cyber-attacks ceased to exist just one day after the election. I don’t think it’s a coincidence,” he added.
general deterioration of rights protection” with the issue not being solely a local issue. “When we talk about Macau politics we have to take the Greater China Area into account,” he added, saying a larger crackdown by the Hong Kong and Mainland governments on the neighbouring SAR democracy movements impacted Macau. “The government is very interested in gathering information about activists through surveillance and is now more eager in pressing charges against them,” Mr. Chao said. This factor combined with the low development of civil society led to Macau having only a “slightly better” situation for civil liberties activists.
During the campaign period several residents claimed to have issues using communications service application - Telegram - being only able to access it through VPN’s (virtual private networks), with services resuming after the elections. Mr. Chao said he believed the Chinese central government was behind the attacks in order to better gather information on the group’s activities. “To the best of my knowledge the Macau government doesn’t possess the means to develop hacking technology. The origin of the hackers should be mainland China,” he added.
Structural problems
For Mr. Chao some of the issues of unfairness at this year’s elections are “structural problems” with the “blurred lines” between political organisations and traditional associations such as General Union of Neighbourhood Associations of Macau, commonly known by its Cantonese name Kai Fong. “These organisations provide several social services such as schools and nurseries with public funds, and easily transfer accumulated social capital from subsidised operations to their advantage at elections,” Mr. Chao stated. Another issue raised by Mr. Chao was the “unclear definition” by the authorities of what constitutes corruption during campaigning and the excessive criminalisation of campaign acts. “The Electoral Committee defined that even at assemblies the candidates may not put flags and other campaign materials on public facilities. It’s hard to understand their code of logic and this kind of criminalisation is disproportionate,” he added. The political activist also questioned the standard by which the Commission Against Corruption (CCAC) announced they would investigate a case of candidates using the WeChat Red Pocket application to hand money in exchange for support, while considering that candidates providing breakfasts to voters on election day wasn’t an infraction.
Business Daily Friday, September 22 2017 5
Macau Airport
5-day free parking to benefit residents
The Macau International Airport (MIA) has rolled out limited numbers of free 5-day car parking spaces for local residents who are to use the MIA services, starting from September 20. The airport informed interested local passengers that the programme is to be valid for passengers who have registered as a member of MIA. Programme users should demonstrate the parking confirmation voucher, the Macau ID card, departure
and returning boarding passes and the parking voucher. MIA implemented the new parking fee adjustment starting on the first day of this month, with the new adjustment to be MOP6 per hour for light vehicles and MOP2 per hour for motorcycles. In addition, daily rate service has been abolished meaning that daily parking costs are now linked to the hourly rate. Therefore, the daily price now would be MOP144 for light vehicles compared to the previous MOP50. C.U.
Politics
Sulu Sou to focus on young people development Newly elected legislator, Sulu Sou Ka Hou, will put more attention on housing and development opportunities for the city’s younger population. Speaking on the TDM Radio programme Macao Forum, Sou pledged to work on creating more development opportunities for young people such as introducing a professional certification system. On the other hand, Sou suggested opening standing committees meetings at the Legislative Assembly (AL), to keep track of potentially
Legislative Assembly building
problematic bills, such as the Pension Scheme for retired High Official, Land Law and Rental Law. The 26-year-old legislator also claimed he will make use of his rights
as a legislator, such as suggesting motion and debate at the AL. He suggested that a follow-up group should be created by AL to examine issues which happened during the hit of Typhoon Hato. Meanwhile, with many opinions commentating that Sou acted as an extremist, the young legislator proclaimed that he would argue rationally, while noting that the city’s political environment is comparatively conservative. As one of the major representatives
of the New Macau Association, Sou expressed the hope that the Association could re-open conversation with the MSAR government. “Since 2014, the government is kind of refusing to talk to the New Macau Association, but this time, via entering the AL, we hope to reopen talks with the government,” said Sou. On May 25, 2014, some 20,000 Macau citizens took to the streets to demand the AL and the MSAR government scrap the Pension Scheme for retired High Officials. C.U.
Public administration
Over 200 civil servants attended sharing meeting about complaint mechanism Around 200 public servants attended the sharing meeting to discuss the newly implemented civil servant complaint mechanism on Wednesday. The new complaint mechanism started implementation on Monday. According to the new mechanism,
the highest officials of all departments are required to assign staff to handle workers’ complaints. During Wednesday’s meeting, the Public Administration and Civil Service Bureau (SAFP) introduced the guidelines for related staff. Participants of the meeting in
general perceived that handling public servants’ complaints should be one of the management responsibilities that public departments should encompass. The new mechanism allows civil servants to lodge complaints over interpersonal relationships on
works, management and operational related matters. SAFP claimed earlier that civil servants will not be at risk of receiving repercussions despite the new measures prohibiting complaints from being made anonymously. C.U. advertisement
6 Business Daily Friday, September 22 2017
gaming
Japan’s Prime Minister in the Diet
Integrated Resorts bill
Japan casino hype Implementing the IR bill in Japan was never a government’s target for 2017, and the chances it might backfire with a new Diet in place are extremely low, say industry insiders Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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here was never intention from the beginning to implement the Integrated Resorts (IR) bill in Japan in 2017, with the attention of Japan’s government currently funnelled to first passing the bill on problem gambling. ‘It was the initial strategy of the Government and Leading parties to debate the bill for fundamental measures relating to gambling addiction firstly, which meant that until the end of November the focus is on gambling addiction,’ Toru Mihara, a professor and advisor to Japan’s government on the Integrated Resorts law, told Business Daily. According to Mihara, it was both presumed that there was ‘no practical time’ this year to debate the IR bill at length, and that ‘action to present the bill’ could only be pursued ‘during the 2018 Diet session.’ ‘Nobody has mentioned to pass the bill during 2017. It’s just markets’ anticipation without reason,’ he said. Since last week, Japanese and international news outlets have reported that a likely call by Japan’s Prime Minister Shinzo Abe for a snap election next week is being perceived as a political move that would delay the implementation of the IR bill. Mihara said the election is a matter of ‘political will,’ and that it is to affect ‘all other important bills,’ which he claimed will be equally stopped and delayed. Whatever delay is being appointed by media and political agents alike – supporters or detractors of the bill – it is not the one immediately referring to the implementation of the IR bill properly, since there was never a timeline set for it. Speaking to Business Daily, Yasuhiro Idei, a senior journalist based in Tokyo, highlighted that there are two ‘casino-related bills’ within the
process of legalizing casino gaming in Japan. The promotion bill, which was approved by the Diet in December 2016, and the implementation bill, which will outline concession details and abiding regulations, with a series of public hearings having taken place in that regard in the second half of August in nine cities in Japan. In any case, Idei said, ‘the delay will not affect the casino project as a whole, as the Diet already passed the promotion bill.’ But it might affect the timeline for passing the gambling problem bill. ‘It would be too opportunistic to guess that this could be finalized this year,’ said Mihara. According to him, the three draft bills for fundamental measures regarding problem gambling proposed by each one of the parties on the task – LDP/New Komeito coalition, Democratic Party, and Japan Restoration Party – will ‘all be abolished’ when the Diet is dissolved so that the process will have to recommence and the bills presented again.
Status quo preserved
Shinzo Abe’s move for dissolving the Diet and calling for elections is perceived by the commentators who spoke to Business Daily as a bullish move by Japan’s Prime Minister. One of the effects of Abe’s plan going right is that it might strengthen the prospects for a positive take on the implementation of the IR bill next year, suggested Grant Govertsen, Managing Director of investment bank and advisory firm Union Gaming. ‘With the LDP [Liberal Democratic Party] voting as a block, it would appear that there should be greater support for the IR bill in the 2018 legislative session, assuming Abe’s political instincts are right and his LDP party does, indeed, gain more seats,’ Govertsen told Business Daily. Closer to the action in Japan, Mihara said that ‘nothing will change as to
the majority status of LDP/Komeito’ in the country’s political scene. Chances of anti-casino forces gaining traction have also been downplayed by Idei, who claimed ‘the ruling parties are highly likely to win the election,’ in addition to the fact that ‘not all of the opposition parties are anti-casino.’ Also speaking to Business Daily, Ben Lee, Managing Partner at iGamiX, a gaming consultancy, has also shown skepticism about anti-casino forces gaining space in the Diet in the advent of elections in October, arguing it is unsure if they ‘will morph into single issue winning political parties.’ Moreover, he said, ‘the Japanese are likely to express their opposition in other forms,’ citing the example of social media, and ‘not turning out to vote.’ Mihara’s further reading of the current political configuration is that the opposition is ‘totally under chaos’ and ‘not being well prepared,’ while the Democratic Party ‘may fade away with other new forces emerging.’
Sooner or later, casinos will be there
While Idei pointed out that ‘Japan will have casinos sooner or later,’ Govertsen argued that ‘significantly more important than when the bill is passed,’ is the outlook of the final bill which ‘remains unclear.’ ‘If the bill is done right I don’t think any of the potential license holders are going to complain too much if the bill doesn’t get passed until next summer,’ he explained. On the one hand, Union Gaming Managing Director claims the Japanese authorities working on the bill ‘need to fix it if they’re hoping to attract the world’s leading IR operators.’ In a note released in mid-July, the advisory firm said the IR framework was too ‘restrictive,’ pointing out as its main problems the lack of people with gaming experience advising
the Japan government, the fact that the bill is being primarily drafted by state bureaucrats, and extreme constraints on casino square footage, all which might negatively impact one of the main aims laid out by Japan’s government when it first raised the bill, that is, attracting foreign tourists to the country. On the other hand, Lee said that the companies might use this ‘interim period’ to improve their current propositions and come up with ‘elegant solutions.’
“If the bill is done right I don’t think any of the potential license holders are going to complain too much if the bill doesn’t get passed until next summer” Grant Govertsen, Managing Director of investment bank and advisory firm Union Gaming
‘Instead of recognising the roadblocks confronting the concept, the proponents have engaged in megaphone high-pressure sales tactics more common to the West when they should have engaged in more tactful diplomacy,’ he commented. Concepts to emerge ‘most likely to be winners,’ suggested Lee, will ‘most likely be quintessentially Japanese,’ which the iGamiX’s Managing Partner described as ‘compact, beautifully architectured, and a pilot trial to see what anti problem gambling measures will work.’
Business Daily Friday, September 22 2017 7
Gaming Gaming bid
Genting Singapore turns to Japan Sheyla Zandonai sheyla.zandonai@macaubusiness.com
I
n the most recent bid for a casino operation license in Japan’s coveted gaming market-tobe, Genting Singapore PLC announced on Wednesday that it has established a branch office in Tokyo (pictured). The Japan Branch of Genting Singapore – a subsidiary of the Malaysian-headquartered Genting Group – will oversee the ‘development and management of leisure and hospitality businesses,’ and provide ‘administration and resource support,’ including research and market studies, and investment and promotion, as well as ‘any and all businesses incidental or related to each of the foregoing,’ the announcement reads. The company noted that the establishment of the new branch is not expected to have ‘any material impact on the consolidated net tangible assets and earnings of the company for the financial year ending 31 December 2017.’
In February, Genting Singapore said it was continuously tracking the progress of the IR execution bill in Japan in order ‘to pave the way for the formal bidding process for a Japan gaming licence,’ The Star Online reported.
‘In February, Genting Singapore said it was continuously tracking the progress of the IR execution bill in Japan’ The company added then it had sufficient financial resources to place it in a good position to bid for the opportunity. In anticipation of the Japan bid, the company – which operates Resorts World Sentosa in Singapore
– sold in November 2016 its half stake in South Korean integrated resort and theme park Jeju Shinhwa World to Landing International Development Ltd., making the Chinese company the sole owner of the property.
Genting Hong Kong Limited, an affiliate of the Group, operates Resorts World Manila in a joint venture with Alliance Global Group, Inc. through Philippines-listed associate Travellers International Hotel Group.
M&A
Scientific Games to buy NYX Gaming in C$775 million deal Bally slot machines owner Scientific Games Corp said it would buy Canada’s NYX Gaming Group Ltd for about C$775 million (US$632 million), including debt, expanding its existing digital gaming and online gambling portfolio. Scientific Games will acquire all of the outstanding ordinary shares of NYX
for C$2.40 per share. The deal comes two months after Scientific Games said it would buy UK-based Red7Mobile, a maker of mobile and desktop casino games for an undisclosed amount. The deal on Wednesday, which will be funded through cash and debt, is
expected to close in the first quarter of 2018, the companies said in a joint statement. Scientific Games said the deal will add to earnings in the first year after closing. Scientific Games had Deutsche Bank Securities as its financial adviser and
Cravath, Swaine & Moore LLP, McMillan LLP and Appleby (Guernsey) LLP as legal advisers. NYX had Lazard and Macquarie Capital as financial advisers and Latham & Watkins LLP, Carey Olsen LLP and Stikeman Elliott LLP as legal advisers. Reuters advertisement
8 Business Daily Friday, September 22 2017
Consigliere
Talk to the chef
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oday and tomorrow, a talented young chef-Chef Rolf Fliegauf is going to wow us by showcasing his amazing Swiss cuisine at Yi Pavilion, Altira Macau. Chef Rolf Fliegauf comes from the two-Michelinstarred Ecco Ascona, Ecco St. Moritz and Ecco Zurich; he is the only Swiss chef who has two Michelin-starred restaurants and he won his first star when he was 26 years old. A few days ago, I had the honor to have an interview with Chef Rolf Fliegauf. He kindly told us about his career life as well as the highlights of this upcoming event in Macau. You were born in Germany but why did you go back to work to Switzerland? The CEO of the Giardino Hotel Group gave me the amazing opportunity to open the restaurant as the Head Chef. That’s how I ended up in Switzerland. When you won the first star you were just 26 years old. When did you start to cook? I started my first ever apprenticeship
after school when I was 16. My parents owned a small, rustic restaurant. I was extremely fascinated by the entire concept of the restaurant and the daily running of it. I soon found myself spending my time in the kitchen What’s your feeling when you received the first star? The feeling is so hard to describe with words. First, I was really surprised because I didn’t expect it, but of course I was very proud of my whole team and just extremely happy. You are the only Swiss chef who has two Michelin-starred restaurants, what are the criteria for a Michelin-starred restaurant? There are not any rules you need to follow you just cook with passion, use the best ingredients, and try to be the best you can be every day. What’s your cooking philosophy? Our philosophy is to cook dishes that are full of flavour using one main product and try to serve this product full of as much flavour as possible. We like to incorporate different textures, making them light and fresh.
Culinary critics in the age of Internet
W
e should do a serious review of gastronomic rankings. Not only of the gastronomic ones, perhaps also of all those rankings in which the subjective factor broadly surpasses the analytical and descriptive characteristics that any classification should follow. In the case of the arts, such classifications have led to a kind of slavery for artists and craftsmen. So many creators felt inclined to feed the egos of the rankings just to get some money or fame. Most possibly both things. So many rankings have become a real profitable business based on the alienation of those who do not embrace their commercial creed. In the case of the culinary rankings, the sector is totally unleashed. After nearly a century following the classic Western guides, the Internet has brought the democratization of indices. Or what it happens to be the same in this case, the rule of the connected masses. A sufficient number of energetic people can easily sink the reputation of your restaurant (or your favorite restaurant) with the help of the precise digital social weapons. Likewise, they can lift up mediocre offers. You can always rely on the fact that time will set everyone in her/his deserved slot, but with the advent of social networks, this happens more commonly in the negative meaning of the expression. A bad restaurant with good reviews eventually will
Oscar Guijarro oscar.g@macaubusinessdaily.com
fail by its poor service offering, but a good restaurant with bad comments has to save a great gap and be really brilliant in order to overcome the social negative tide. But the realm of negative opinions and trolls is not exclusive to the Internet. The media and the culinary guides are somehow responsible for the uncontrolled scenario in which we are.
“You can always rely on time to put everyone in their place, but with the arrival of social networks, this happens more commonly in the negative sense” Just need to observe the distribution of the stars of the famous Michelin guide to see that its impartiality is more than suspicious. Everyone knows that Michelin, aside from a culinary and tour guide, it is a tire manufacturer. Coincidentally, the countries with the highest number of Michelin stars are, at the same time, some of the largest automobile producers in the world: Japan, Germany and the United States. In addition, a large part of the starred restaurants
A collection of Michelin guides
are in France, home of the company. But, do not misunderstand. Surely the quality of these restaurants is worth a visit. Although many absences surely deserve it too. But suspicions among traditional media have been increasing recently. The borders between advertising and information in this field are more than blurred. There is the need to consider that the professional critics tend to forget neighbouring restaurants. Those are the ones that common people have the chance to visit more frequently and want to read about. Also a social change among gourmands is modifying the culinary panorama. Haute cuisine is not restricted to wealthy users anymore.
Do the right thing
Therefore, what is the most reliable way to meet new restaurants? I do not think we need to answer this rhetorical question. Our readers know perfectly well that common sense should set the tone. And common sense indicates that we should not to be carried away by a single opinion but by a mix of different sources. So I suggest that the very true fan of gastronomy should adhere to the following steps: Listen to word of mouth: Always a balancing act. Do not be carried away by anyone’s comments. If the recommendations come from friends or acquaintances you should already know them enough as to know what their culinary inclinations are and what you can expect when they suggest visiting a good restaurant.
However, some of the best recommendations will probably come from word of mouth. The professionals: By this I mean the critics of the media, tourist guides, magazines and tourism focused websites. Of course they are a reliable source of essential tangible data: prices, direction, culinary style, telephone, ... And the more descriptive information they provide, the greater their reliability. Television: Be wary of the nature of restaurants based on television series, as they are closer to advertising than to information. If you happen to be tempted to visit one of the venues that appear on these television shows, compare it with other information from more professional media. The semi-professionals: They are those who express their opinions through their own digital media: bloggers, youtubers and other internet-based media. Their opinions are their prestige. Therefore their reliability is questioned in every comment and in every post. Find those whose tastes and points of view fit your own and you will not feel disappointed. But do not persist in following those whose values are alien to yours. Commentators: They are those users who criticize or praise the different offers without their face or reputation being questioned. Only follow those who make objective comments to defend their opinions. You will find that there are very few who do such a thing.
Business Daily Friday, September 22 2017 9
Consigliere
How do you get the inspiration of cooking in your spare time? Influenced by Japanese cuisine, the ECCO restaurant is now a modern kitchen that focuses on light dishes with strong flavours. I get inspiration when I travel but also from my homeland. What attracts you to visit Hong Kong and Macau this time? Both are beautiful and very interesting places and I want to give the people the opportunity to try my food. Could you tell us the concept of this menu? What’s the highlight? The concept of the menu is to start off with dishes that are light and fresh; then, as the menu progresses from dish to dish the flavour gets more intense and powerful. At the end, we have the main course which we always try to make extra special. Which dish do you like best and why? I love our lobster dish. This dish shows exactly what we want to achieve with our cooking which is to use the best fresh products and
the most intensive flavours with the combination of a little Asian influence. Could you tell us something about your signature green apple, sheep’s yogurt and dill dessert? This dessert was created in 2014. It is a very light dessert, and in my opinion the perfect balanced dessert between freshness, texture, and flavour. The yoghurt creates the perfect balance with the apple and the dill. Our guests love this dessert! Did you do any adaption in your dishes to meet the preference of people here? The only adaption we’ve made is that we’ve put less salt in our dishes, that’s all. I think the people want to try exactly what we cook up in our kitchen, so that’s why I wouldn’t change anything for this event. What’s your hope of this event? For the guests to experience something new and go away feeling happy with the food they have tried. For me, I’m looking forward to meeting some nice people and maybe find a new product that we can use in our
kitchen. How do you define success? What’s your next goal? If you are happy with your life, you’re successful in my opinion. As for my next goal, I’m not too sure yet, but I’m looking forward to finding out. This event will be the final event of this year’s Michelin guide Hong Kong Macau Dining Series’ International Chef Showcase. Michelin guide
Hong Kong Macau Dining Series is a partnership between esteemed fine wine experts Robert Parker Wine Advocate and the iconic guide to dining excellence, Michelin guide. Stemming from a shared passion to showcase the best of the gourmet world, the collaboration of the world’s best gourmet experts brings exceptional, one-of-a-kind culinary experiences to a wider audience. Edwina Liu, Essential Macau Editor
The jamón revolution Oscar Guijarro oscar.g@macaubusinessdaily.com
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pain has for some decades been one of the world’s leading gastronomic references. In the 1980s a new generation of chefs from the north of the country decided to bring traditional Basque cuisine to modernity, just as Paul Bocuse, the cook among the cooks, had done with French cuisine not long before. Almost inadvertently, those cooks, inspired by the nouvelle cuisine, laid the foundations of a revolution that was to arrive at national level and later at worldwide level.
“No food is more Spanish than jamón, excepting everything else” Like Bocuse, the new Basque cuisine (as it was known) based its revolution on the extreme quality and freshness of its ingredients. Spain was an ideal place for it. Almost every region can display products that are unparalleled worldwide. We could talk about the seafood of Galicia, the cheeses of Asturias or the vegetables of Navarre without risk of being mistaken to place them among some of the best food products of the world. Yet we would be committing a terrible grievance over the star of Spanish gastronomy: the jamón. The jamón was never the axis of that revolution of Spanish cuisine, but without it no revolution can be understood. The jamón is a centerpiece that anchors that cultural puzzle that is Spain. Always present wherever we are in its geography and resistant to the changes of trend in the salons of the haute cuisine. If Arzak and
Subijana drew the future of stoves, and Ferrán Adria made the combination of science fiction and abstract expressionism tasty, jamón kept its ubiquitous dominion in the counters of common bars, the pantries of national homes and reigning over any type of celebration. Nothing is more Spanish than jamón, excepting everything else. The jamón is deservedly the best-known Spanish product internationally. Its flavor is so powerful and unique that it resists taking a back seat in most of the preparations in which it intervenes and, at the same time, it elevates dishes that would be bland and insignificant without it. Yet it is a great stranger in many of its particularities.
What is jamón?
Properly speaking, the meat of the jamón comes exclusively from the hind legs of pork. The product coming from the front legs is denominated paleta and its price and gastronomic characteristics are slightly lower. The raw material is thoroughly cleaned and preserved in salt for a certain time. After extracting it from the salting area and receiving treatment for its ripening, the jamón is taken to a drying zone. The different varieties of jamón depend on the quality of the raw material, the time devoted to each of the salting and seasoning processes, the workers’ expertise and the environmental conditions of the place of production.
Perhaps, among all these elements, the most fascinating detail of it for the followers of jamón worldwide is the use of the so-called Iberian pig. Recognized for its characteristic black fur, this animal’s meat produces the most select editions of jamón. Jamón from these pigs is the most valued if the breeding system accompanies the purity of their breed. The most exclusive jamones are from pigs raised exclusively with acorns in the natural environments of the dehesas (meadows). These vast areas of oak trees in the south and center of the peninsula allow animals to be raised in a grazing environment. This type of aging facilitates the development of the muscles in a natural way, which means that the distribution of fats (of high quality due to food) is more distributed and this produces better pieces. Spanish orography helps in the process of seasoning
and salting. Although known to be an enclave of beach tourism, Spain is the second most mountainous country in Europe after Switzerland. This fact provides the ideal conditions for the cure at very low temperatures and high humidity that the jamón needs. The mild climates for breeding the pig, together with the high mountains for its seasoning are part of the key by which the Iberian jamón surpasses its brothers of other countries.
Consumption
In Spain, the largest consumer and producer in the world, people buy the jamón in slices, pieces and even the whole leg. The most common way to take it is as an appetizer in which the jamón slices are served on a plate. The accompaniment with a red wine and even with a champagne or cava enhances the characteristics of good jamones. It is also frequently found combined with melon during summer season. The contrast of sweet and savory flavours are fascinating to many fans. It is a fundamental taste in many traditional dishes with vegetables and legumes such as green beans, peas or lentils. However, a great jamón should be tasted without any other taste that would alter its flavour. In Spain you can find whole legs of jamón in
almost every market and supermarket. In addition, there are endless products that complement the experience as special knives to cut jamón or the frames to hold securely while cutting it. Moreover, in many towns and cities of Spain you could attend courses to learn how to cut jamón properly.
“The mild climates for breeding the pig, together with the high mountains for its seasoning are part of the key by which the Iberian jamón surpasses its brothers of other countries” Very good quality jamones can be found in Macau in some of the most renowned groceries, and even some of the local restaurants offer interesting fusion dishes using jamón.
10 Business Daily Friday, September 22 2017
Greater China M&A
Australia’s CBA to sell insurance unit to AIA Group Even after the CBA deal is completed some time next year, the M&A activity in the Australian insurance sector is expected to remain strong Byron Kaye and Paulina Duran
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ommonwealth Bank of Australia has agreed to sell its life insurance unit to Hong Kongbased AIA Group for US$3.1 billion, in the biggest Asian buyout of an Australian financial firm. The deal, which ranks among the top 10 insurance M&A in the Asia Pacific region excluding Japan, will see AIA acquiring CBA’s life insurance business in Australia and life and health insurance businesses in New Zealand.
Key Points Deal to rank among top 10 insurance M&A in Asia ex-Japan CBA’s US$3.05 bln asset sale follows NAB’s life insurance sale ANZ, Westpac said to be considering similar moves Australia life insurance facing higher payouts, scandals CBA also flagged a possible wealth management IPO as Australia’s major lenders come under regulatory pressure to achieve “unquestionably strong” capital ratios, driven by concerns about their exposure to foreign borrowing and a frothy property market. The divestment of CBA’s CommInsure insurance business is part of a trend of asset sales across Australia’s banking sector, with a particular focus on insurance as the country’s lenders struggle to cope with growing competition from large foreign firms. For pure-play global insurers including AIA, MetLife and Zurich Insurance Group AG, Australia is an attractive market with relatively low life-insurance penetration. It also has a large mortality protection gap - the difference between the amount of
life insurance people carry and the amount they need estimated at US$1.1 trillion, which is the fifth-biggest in the Asia-Pacific region. For CBA, the CommInsure sale follows damaging media revelations last year that it had used discredited methods to refuse legitimate payouts, leading to policy cancellations. The scandal was one of a series of crises that has rocked CBA in recent times, culminating in allegations of systemic breaches of money-laundering and terror-financing laws that could expose it to billions of dollars in fines. “CBA has done well selling CommInsure on a good multiple,” Shaw and Partners analyst David Spotswood said in a note to clients, adding it gave the bank “flexibility” in the event of hefty fines stemming from the money-laundering civil case. CBA shares were down 0.4 per cent by mid-afternoon, outperforming a broader market decline of 1.2 per cent. The stock has dipped about 10 per cent since the money-laundering allegations broke on Aug. 3. AIA shares were nearly unchanged from their previous close at 0302 GMT. Even after the CBA deal is completed some time next year, the M&A activity in the Australian insurance sector is expected to remain strong. Australia and New Zealand Banking Group has said it may sell its life insurance and wealth divisions, while Westpac Banking Corp also has started exploring a possible life insurance sale, according to reports in the Australian media.
Diversification
The latest transaction comes after National Australia Bank Ltd sold an 80 per cent stake of its life insurance unit to Japan’s Nippon Life Insurance last year. Under the AIA deal, CBA said it would continue to sell life insurance products
through its branches on behalf of AIA for 20 years, and customers would keep their existing benefits. The acquisition will help AIA, which had free surplus cash of nearly US$11 billion as of end May, diversify its main markets with Hong Kong and China together accounting for about half of new business growth now at the insurer. T h e d e a l i s A I A’ s
second-biggest acquisition since it listed in Hong Kong in 2010. It had bought ING Groep’s Malaysian insurance unit for $1.7 billion in 2010. AIA said in a separate statement the final net cash outflow for the CBA transaction would be about US$1.5 billion after taking into account the proceeds from reinsurance agreements and the free surplus within CommInsure Life and Sovereign.
CBA also said it was considering spinning off asset management business Colonial First State Global Asset Management in an initial public offering. Colonial has A$219 billion in assets under management. CBA did not give further details about the plan but said its wealth management chief executive, Annabel Spring, would leave the company in December. Reuters
Business Daily Friday, September 22 2017 11
Greater China In Brief
Technology
Baidu launches US$1.5 bln autonomous driving fund It comes amid a wider reshuffle of Baidu’s corporate strategy as it looks for new profit streams outside its core search business Chinese search engine Baidu Inc announced a RMB10 billion (US$1.52 billion) autonomous driving fund yesterday as part of a wider plan to speed up its technical development and compete with U.S. rivals. The “Apollo Fund” will invest in 100 autonomous driving projects over the next three years, Baidu said in a statement. The fund’s launch coincides with the release of Apollo 1.5, the second generation of the company’s opensource autonomous vehicle software. After years of internal development, Baidu in April decided to open its autonomous driving technology to third parties, a move it hopes will accelerate development and help it compete with U.S. firms Tesla Inc and Google project Waymo. In the latest update to its platform, Baidu says partners can access new obstacle perception technology and high-definition maps, among other features. It comes amid a wider reshuffle of Baidu’s corporate strategy as it looks for new profit streams outside its core search business, which lost a large chunk of ad revenue in 2016
following strict new government regulations on medical advertising. Baidu’s Apollo project - named after the NASA moon landing - aims to create technology for completely autonomous cars, which it says will be ready for city roads in China by 2020. It now has 70 partners across several fields in the auto industry, up from 50 in July, it says. Existing partners include microprocessors firm Nvidia Corp and mapping service TomTom
NV. Despite the rapid growth of its partner ecosystem, Baidu has faced challenges negotiating local Chinese regulations, which have previously stopped the company from testing on highways. In July local Beijing police said it was investigating whether the company had broken city traffic rules by testing a driverless car on public roads as part of a demonstration for a press event. Reuters
Pixel smartphones, only launched a year ago, have less than 1 per cent market share globally with an estimated 2.8 million shipments
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Raw materials are set to round out 2017 with a bang, according to Citigroup Inc., which flagged prospects for further gains in oil and metals. “Commodities have hit their stride since the start of the third quarter and are set for a sterling performance for the rest of 2017, particularly given stronger incentives for investment inflows,” the bank said in a report on Wednesday. Raw materials are headed for a gain in the quarter that ends next week, powered by gains in metals including aluminium. In the current quarter, China gave a strong push to metals and bulks on better-balanced growth, a stronger yuan, and environmental and safety policies, the bank said. “Overall, we expect strong performance to continue through year-end, with the oil complex perhaps joining, if not replacing, the strong performance of the China-related commodities and the precious metals,” Citigroup said. “After a stormy summer, crude should end the year on a high.”
BYD chief expects all vehicles to be electric in China by 2030
Google bets anew on smartphones, pays US$1.1 bln for HTC’s Pixel division
lphabet Inc’s Google said it would pay US$1.1 billion for the division at Taiwan’s HTC Corp that develops the U.S. firm’s Pixel smartphones - its second major foray into phone hardware after an earlier costly failure. The all-cash deal will see Google gain 2,000 HTC employees, roughly equivalent to one fifth of the Taiwanese firm’s total workforce. It will also acquire a non-exclusive license for HTC’s intellectual property and the two firms agreed to look at other areas of collaboration in the future. While Google is not acquiring any manufacturing assets, the transaction underscores a ramping up of its ambitions for Android smartphones at a time when consumer and media attention is largely focused on rival Apple Inc. “Google has found it necessary to have its own hardware team to help bring innovations to Android devices, making them competitive versus the iPhone series,” said Mia Huang, analyst at research firm TrendForce. The move is part of a broader and still nascent push into hardware that saw Google hire Rick Osterloh, a former Motorola executive, to run its hardware division last year. It also comes ahead of new product launches on Oct. 4 that are expected
Citigroup Hails outlook for commodities over rest of year
Automotive
M&A
Jess Macy Yu and Paresh Dave
Commodities
to include two Pixel phones and a Chromebook. Pixel smartphones, only launched a year ago, have less than 1 per cent market share globally with an estimated 2.8 million shipments, according to research firm IDC. Google will be aiming not to repeat mistakes made when it purchased Motorola Mobility for US$12.5 billion in 2012. It sold it off to China’s Lenovo Group Ltd for less than US$3 billion two years later after Motorola failed to produce appealing products that could compete with iPhones. This time around, however, the deal price tag is much smaller and the lack of manufacturing facilities also minimises risk.
HTC’s decline
Google’s strategy of licensing Android for free and profiting from embedded services such as search and maps has made Android the dominant mobile operating system with some 89 per cent of the global market, according to IDC. But it has long been frustrated by the emergence of many variations of Android and the inconsistent experience that has produced. Pushing its own hardware will likely complicate its relationship with Android licensees, analysts said. Some analysts also questioned the wisdom of the deal given HTC’s long decline. The Taiwanese firm once
sold one in 10 smartphones globally but has seen market share dwindle sharply in the face of competition from Apple, Samsung Electronics Co and Chinese rivals. “HTC is past its prime in terms of being a leading hardware design house, mainly because of how much it has had to scale back over the years because of declining revenues,” said Ryan Reith, an analyst at IDC. “Unless Google really wants to control hardware for its other businesses like Home and Chromebooks in addition to smartphones, then I don’t see this as being a bet that pays off.” For HTC, the deal will allow it to concentrate more on its virtual reality headsets while also reducing development costs. “This will be a sizeable reduction in our R&D expenses. Overall it should be in the ballpark of a 30-40 per cent reduction in operating expenses,” HTC Chief Financial Officer Peter Shen told a news conference in Taipei. The Taiwanese firm will continue to run its remaining smartphone business but the sharp downsizing of its mainstay operations has cast some doubt over its longer term future. “HTC can design and produce innovative products but it lacks the deep pockets of the likes of Samsung for marketing promotions and saturation advertising,” said Jake Saunders, an analyst at ABI Research in Singapore. “Competitors in the form of Huawei, Oppo, Xiaomi and ZTE are snapping at HTC’s heels.” HTC’s worldwide smartphone market share declined to 0.9 per cent last year from a peak of 8.8 per cent in 2011, according to IDC. HTC shares were on a trading halt yesterday. The stock has fallen around 94 per cent from a peak in 2011, giving the company a market value of around US$1.9 billion. Evercore served as financial advisor to HTC while Lazard was Google’s financial advisor. Reuters
The head of Chinese automaker BYD Co Ltd expects all vehicles in the country to be electric or hybrid by 2030, a more aggressive timeframe than even Europe, as Beijing pushes ahead on a longer-term plan to shift away from petrol-engine cars. “We are very confident about all the timetables (to eliminate fossil fuel cars) and we think it will happen earlier than expected,” said Wang Chuanfu, chairman and president at Shenzhen-based carmaker BYD, which has invested heavily in battery electric and plug-in hybrid vehicles. “Various governments have announced timetables to end the sale of fossil fuel cars and this is putting pressure on everyone else,” Wang told reporters in Shenzhen yesterday. China has set goals for electric and plug-in hybrid cars to make up at least a fifth of its auto sales by 2025 in a bid to combat air pollution and close a competitive gap between its newer domestic automakers and their global rivals. New industry
Jack Ma says stop looking to manufacturing growth for jobs Alibaba Group Holding Ltd. Chairman Jack Ma, who wooed U.S. President Donald Trump earlier this year with a pledge to help create 1 million new U.S. jobs by 2021, said people should stop looking to manufacturing to drive economic growth. While the rapid speed of technological change is understandably causing concern about the future, Ma called on leaders to embrace the promise of advances like artificial intelligence to span whole new industries. “Because of artificial intelligence, because of the robots, manufacturing is no longer the main engine for jobs.” Instead, small businesses using the internet to extend their markets will lead economic growth this century, Ma said. The message ties neatly into Alibaba’s business plan, which hinges on making the Chinese company the go-to online marketplace for entrepreneurs. Ma’s million-job plan for the U.S. centres around helping small businesses navigate and sell into the Chinese market, where Alibaba says it has already contributed to the creation of 30 million jobs.
12 Business Daily Friday, September 22 2017
Asia Economy
RBA’s Lowe says economy improving, productivity key to future The governor was positive on the outlook for business investment and the strength of employment growth Michael Heath
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ustralia’s central bank chief said the nation’s economy “does look to be improving,” while adding the key to future prosperity involves higher productivity and greater flexibility. In the text of a speech in Perth that sought to close the door on the mining boom era, Governor Philip Lowe discussed the impact of technology and the growth of Asia; the normalization of international monetary conditions; the effects of higher levels of household debt; and the capability of Australia’s workforce and businesses to be flexible, innovative and adaptable. “We have provided support and allowed time for the economy to adjust to the new circumstances. In its decisions, the board has been careful to balance the benefit of providing this support with the risks that can come from rising household debt,” Lowe said. “As things currently stand, we look to be on course to make further progress in reducing unemployment and moving towards the midpoint of the medium-term inflation target. This would be a good outcome.”
The Reserve Bank of Australia has kept interest rates at a record low for the past 13 months to spur a transition to services from mining. In his speech, the governor was positive on the outlook for business investment and the strength of employment growth. He also reaffirmed the importance of the U.S. as a supporter of open markets and a rules-based international system and its role as a breeding ground for much of the progress in technology. “It is in our interests that the
United States continues to play this important role,” Lowe said. “A retreat would make our lives more complicated.”
Global rates
The governor also noted that moves by central banks to begin reeling in some of their stimulus were positive as it suggested growth was becoming more self-sustaining. “A rise in global interest rates has no automatic implications for us here in Australia” Lowe said.
“Notwithstanding this, an increase in global interest rates would, over time, be expected to flow through to us, just as the lower interest rates have. Our flexible exchange rate though gives us considerable independence regarding the timing as to when this might happen.” The governor also reaffirmed the central bank’s focus on levels of household debt and the risk that a minor shock could become a major correction. Lowe pointed out that he’d said little on monetary policy in the speech: “This is partly because there are other forces that are likely to be more important in shaping the next chapter of the Australian economy.” Policy has an important role to play in supporting the economy as it goes through the current period of adjustment and stabilizing it after shocks, he said. It can also make for a more predictable investment climate, while having a competent, analytical, transparent and independent central bank can be a source of confidence in the country. “But beyond these effects, monetary policy has little influence on the economy’s potential growth rate,” Lowe said. Bloomberg news
Property
BlackRock sells Singapore office tower for US$1.5 billion to CCT The sale is the latest in a series of blockbuster commercial property deals in Singapore Pooja Thakur
CapitaLand Commercial Trust, Singapore’s biggest office landlord, agreed to buy BlackRock Inc.’s Asia Square Tower 2 for S$2.1 billion (US$1.5
billion) in the city’s second-largest ever sale of an office building. The transaction will be partially funded by a rights issue of about S$700 million and bank borrowings of about S$1.12 billion, CapitaLand
Commercial Trust said in a statement. The company said divestment proceeds of about S$340.1 million from previous property deals will also help fund the purchase. The sale is the latest in a series of blockbuster commercial property deals in Singapore. Qatar Investment Authority, the gulf state’s wealth fund, last year bought the adjacent Tower 1 from BlackRock for S$3.4 billion in what was Singapore’s biggest office transaction. “The deal provides another pricing benchmark which reconfirms that the recovery in office rents and prices is well underway in Singapore,” said Jeremy Lake, executive director of capital markets at CBRE Inc. in Singapore. CBRE was one of the advisers to BlackRock.
A Malaysian-led group last year paid S$2.6 billion for a rare plot in the Marina Bay district, while FWD Group, an insurance company backed by Hong Kong billionaire Richard Li, in May bought a 50 per cent stake in One George Street from CapitaLand Commercial Trust for S$592 million. The partial sale of the One George Street office tower will help fund part of the purchase from BlackRock, along with proceeds from sales of the Golden Shoe Car Park and Wilkie Edge, an office and retail complex, CapitaLand Commercial said. The 46-story Tower 2, spread over 778,719 square feet, includes office space and a Westin hotel. The building has been on the market since last year. The Westin wasn’t a part of the sale. Bloomberg news
Election
New Zealand election still too close to call, Newshub poll shows Tracy Withers
New Zealand’s ruling National Party held its the lead over the main opposition Labour Party in the final television opinion poll before a general election, though Labour could still form a government on the numbers. National had 45.8 per cent support in the Newshub/Reid Research poll broadcast yesterday in Wellington, down from 47.3 per cent in the previous survey published Sept. 12. Labour’s support fell to 37.3 per cent from 37.8 per cent.
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New Zealanders vote on Sept. 23 with National trying to win a rare fourth consecutive term on the promise of tax relief and strong economic management. Labour, revitalized after selecting 37-year-old Jacinda Ardern as leader less than two months ago, is arguing for a change of direction, saying too many people have been left behind. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National could form a government with the backing
of the nationalist New Zealand First Party, which saw its support rise to 7.1 per cent. However, Labour could also form a government with the support of New Zealand First and the Green Party, which rose to 7.1 per cent. While the Greens are a close ally of Labour’s, New Zealand First leader Winston Peters has refused to say which party he would back if he holds the balance of power after the election. New Zealand’s currency rose after the poll result. Bloomberg news
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, September 22 2017 13
Asia CPI
In Brief
Surging onion, egg, squid prices spice up Asian inflation rates So far Asia’s central banks have faced very little pressure to lift interest rates even as the Federal Reserve continues to tighten Enda Curran, Anirban Nag and Jiyeun Lee
Radish prices jumped 71 per cent from a year earlier in South Korea last month. In India, prices for tomatoes and onions have doubled from a year ago. Japan’s squid prices rose 17 per cent in July from a year earlier. And in China, egg prices have surged at least 62 per cent since April at Beijing’s Xinfadi, the nation’s largest agriculture wholesale market. With exports across Asia faring better than just about anyone expected and domestic demand in most markets robust, could this be the start of a long-anticipated inflation breakout? The short answer appears to be: no. Unlike past episodes in the region, when soaring prices threatened a broader inflation surge, the latest acceleration is expected to be transitory and remain confined. That’s because the one-off factors that drove food prices higher -- such as disruptive weather or supply constraints -- are tipped to fade. Monetary authorities in Indonesia, Japan, the Philippines and Taiwan all meet in the remainder of the week. Indeed, so far Asia’s central banks have faced very little pressure to lift interest rates even as the Federal Reserve continues to tighten -- a contrast to past cycles. “Core inflation remains muted or within manageable levels for most of the region,” said Priyanka Kishore,
lead Asia economist for Oxford Economics in Singapore. “I do not see the risk of imminent policy tightening anywhere.”
Risks
Still, there are pockets that are hurting. In India, where food accounts for 46 per cent of the consumer price inflation basket, the food index rose 1.5 per cent in August from a year earlier -- the first rise in four months. While soaring tomato prices haven’t been enough to push overall inflation above the central bank’s targeted inflation range, the swing in prices could narrow the scope for the Reserve Bank of India to lower rates again. “Upside risks to food prices remain potent as the monsoon has been deficient and the distribution too has advertisement
been uneven,” said Indranil Pan, chief economist at IDFC Bank, Mumbai. South Korea’s inflation accelerated to 2.6 per cent in August from a year earlier, the fastest pace since 2012 and above the central bank’s 2 per cent target. A sub-index for fresh food jumped 18.3 per cent from a year earlier, driven by high temperatures and heavy rain over the summer. Egg prices rose 53 per cent in August from a year earlier, impacted by a bird flu outbreak in late 2016 and early 2017 that sparked mass poultry culling. Officials don’t expect the gains to persist. The central bank said in an August statement that inflation for the whole year will be at about 1.9 per cent and the finance ministry expects prices to cool as vegetable supplies improve with better weather. Japanese inflation rose 0.4 per cent from a year earlier in July, largely due to a 0.6 per cent gain for food prices and higher energy costs. Like South Korea, unseasonal weather has had an effect, while fluctuations in the yen have impacted imported food.
“Core inflation remains muted or within manageable levels for most of the region” Priyanka Kishore, lead Asia economist for Oxford Economics in Singapore China’s consumer price index rose 1.8 per cent on year in August, with food prices the main contributor. As with elsewhere, the impact is expected to be temporary. Some are bucking the trend. Indonesia’s food prices fell in August compared to the previous month as demand slowed in the wake of the fasting month in June and Eid al-Fitr celebrations, which are commonly marked by spikes in food prices as local Muslims stock up for evening feasts. Prices for shallots, cayenne pepper, and garlic declined last month. Taiwan’s food costs are declining mainly because of sharp declines in vegetable prices, which helped offset gains in fuel and fruit. For the world’s fastest growing region, while the latest rash of food price pressures may be transitory, inflation is set to accelerate nonetheless, thanks to a broader demand pick up, said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “We should not forget that the cyclical upturn that Asia is experiencing, led by a strong recovery in global demand as well as very accommodative financial conditions locally and globally, is going to push inflation upwards,” she said. “There is no doubt about it.” Bloomberg news
M&A
Japanese brewer Asahi ready to spend “billions of dollars” on acquisitions Asahi Group Holdings Ltd is ready to spend “billions of dollars” more on acquisitions, after having recently spent US$11 billion to acquire beer brands across Europe from Anheuser-Busch InBev NV, a top company executive said. Akiyoshi Koji, president of the largest beer maker in Japan, did not give any further details on how much Asahi was looking to spend on acquisitions. “If there are big investment opportunities, we can make big investments,” he told Reuters in an interview yesterday. On possible targets, he said “bolt-on” acquisitions to boost the company’s European businesses, including beer makers and distributors, were a high priority. He did not give names. In Asia, global beer companies are closely watching Vietnam’s plan to sell a majority stake in beer makers Sabeco and Habeco. Koji said Asahi has been studying Sabeco but declined to comment further: “As a growth market, Vietnam is attractive, but our judgement will be based on whether the market fits our premium beer strategy.” Competition
Australian wheat prices rise above U.S. offers in Asia as dryness cuts output Australian wheat prices have risen above offers being made for U.S. cargoes in Asia, a rare market situation that is expected to drive more purchases from North America, two trade sources said. Australian wheat exporters have made little progress in selling newcrop wheat into Asia this year as the smallest crop in eight years is forcing farmers to hold back supplies, lifting prices above the international market. “Earlier Australia faced competition from the cheaper producers, Russia and Ukraine, but now U.S. is offering competitive prices,” said a Singapore-based trader who sells wheat into Asia. The new-crop Australian Standard White wheat was quoted this week at US$245 a tonne, including cost and freight (C&F), into Southeast Asia, the sources said. Technology
Toyota President says hybrid still central as EV momentum grows Toyota Motor Corp. President Akio Toyoda says hybrid technology will remain central to the company’s strategy even as a rising wave of governments and automakers get behind plug-in electric vehicles. Asia’s biggest car manufacturer will continue to offer a wide range of powertrain options, and customers will ultimately decide which technology is successful, Toyoda told reporters in Tokyo Tuesday. He said the Toyota City-based company would make a realistic decision on its product lineup as it watches market trends evolve. “With hybrid technology at the center, Toyota will offer fuel-cell vehicles, plug-in hybrids, gasoline cars, and -- although we’re a little bit late -- electric vehicles,” Toyoda said. “We’re not thinking about deciding that now it must be EVs, and we’ll only do EVs.” From domestic rivals like Honda Motor Co. and Nissan Motor Co. to overseas competitors like Volkswagen AG, Daimler AG and Ford Motor Co. have recently announced plans to increase their electric offerings. Honda says every new model for Europe will have electrified technology, while VW said it will build electric versions of all 300 models in the 12-brand group’s lineup.
14 Business Daily Friday, September 22 2017
International In Brief Growth
Swiss economy set for worst performance in eight years Switzerland economy will fall short of 1 per cent growth this year, the government said yesterday, the weakest performance in eight years. The State Secretariat for Economic Affairs (SECO) said it now expects economic growth of 0.9 per cent in 2017, below its June forecast of 1.4 per cent. The figure would be the lowest since the economy shrank 2.2 per cent in 2009. Around half of the reduced forecast was attributed to a primarily technical downward revision of SECO’s figures for the end of 2016 and start of 2017, which will reduce overall GDP growth for 2017 as a whole. “The Swiss economy is only gradually returning to a dynamic growth path,” SECO said in a statement. “Although in both manufacturing and the hotel and catering industry the recovery from the slump of the last few years continued, this recovery was offset by sluggish growth in most other service sectors.” Storm
Hurricane Maria lashes Dominican Republic after direct hit on Puerto Rico Hurricane Maria thrashed parts of the Dominican Republic with heavy rain and high winds as it passed off its east coast yesterday after making a direct hit on Puerto Rico that caused severe flooding and cut power to almost all the island. Maria has killed at least 10 people as it raged through the Caribbean region, the second major hurricane to do so this month. It ripped roofs off almost all structures on the island country of Dominica, where seven people were confirmed dead and the number is expected to climb when searches resume at daybreak. Maria was ranked a Category 4 storm, near the top end of the five-step SaffirSimpson scale, with sustained winds of up to 155 miles per hour (250 km per hour), when it hit Puerto Rico on Wednesday as the strongest storm to hit the U.S. territory in nearly 90 years. Funding
Iran lent billions as Asian powers reject Trump world view As Donald Trump escalates his offensive against Iran, its leaders are being bolstered by billions of dollars flowing from the east. It was the turn of the Chinese last week, as a group of Iranian banks secured US$10 billion in loans from Citic Group, and Iran signed preliminary agreements worth about US$15 billion with China Development Bank. That followed a $10 billion credit accord with Japan last year, and Iran has also signed a US$9.6 billion deal with the Export-Import Bank of Korea. The funding is a “big political statement from governments,” some traditionally close to America, at a time when the U.S. is seeking help in confronting Iran, said Henry Smith, lead analyst on Iran and the Middle East at the Dubai office of Control Risks, a global risk consultancy. Major private lenders aren’t about to drop their guard with Iran, he said, but having states heavily invested can boost the confidence of executives pondering their plans.
Growth
Visa-free access to Cape Verde for EU may boost growth to 7 per cent Economic growth slowed to an average of 1.3 per cent annually in the six years through 2015 Ana Monteiro
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ape Verde will exempt European Union citizens from needing visas to visit the West African archipelago as it strives to boost tourism, which is vital to its economy, according to the prime minister. Visa-free access for EU passport holders should begin in 2018, Prime Minister Ulisses Correia e Silva said by phone from Praia, the capital. The exemption is part of a raft of proposals that includes privatizing the ailing state-owned airline, improving management of its airports and growing crops for export so that gross domestic product can expand at a faster rate than the forecast of 5 per cent for this year, he said. “The dominant sector is tourism and we’re making strong investments to improve the islands as a destination,” Correia e Silva said. “We also want to diversify the economy so that we don’t put all the eggs in the tourism basket.” The Atlantic Ocean country of 10 main islands, some surrounded by beaches, has about 550,000 people and attracted as many tourists last
year. The total contribution of tourism was estimated to account for 44 per cent of GDP in 2016, according to the World Travel & Tourism Council. The government of Correia e Silva, elected last year, aims to boost growth to about 7 per cent by 2021, a rate last seen before the 2008 global financial crisis, which curbed the arrival of visitors. Economic growth slowed to an average of 1.3 per cent annually in the six years through 2015, International Monetary Fund data show. Last week, the council of ministers approved financial incentives for foreigners to invest in Cape Verde, which will include residency, he said. “It’s not just for tourism, but it’s to facilitate the mobility of investors, academics, culture, science and technology,” Correia e Silva said.
External debt
The “biggest problem” is the country’s external debt stock, which is “relatively high” and mainly consists of concessional loans with the African Development Bank, World Bank and Portugal, he said. Cape Verde achieved independence from Portugal in 1975. “The rates on the debts are low but
they’re still a constraint -- our strategy is to reduce the stock to levels that are more sustainable,” he said. External debt was about 63 per cent of GDP last year, above the IMF’s risk threshold of 50 per cent, and the organization estimates it will fall to 59 per cent by 2020.
44 per cent Total contribution of tourism to Cape Verde’s GDP in 2016
State-owned TACV Cabo Verde Airlines is “practically insolvent” and will be privatized, Correia e Silva said. The carrier owns one plane that isn’t operational. The government in August named Icelandair Group HF as the airline’s management partner. “When this government came in, it was very clear that the airline had to be restructured,” Correia e Silva said. “We want to develop this relationship so that there will be participation in TACV’s capital,” he said, adding that the government wants to get concession partners to manage airports as part of its plans to position the archipelago as an aviation hub. The government is also hoping to move tourism from a resort-concentrated model to an industry that will see each of the islands provide different offerings. The islands of Sal and Boavista have beaches, while other islands could offer adventure experiences, he said. Tourism has enabled development in agriculture from a subsistence-based system to one that caters for visitors and requires better distribution, inter-island transport and logistics, he said. Cape Verde is also looking for export opportunities to the EU for niche agricultural products like papaya fruit, which grows easily on the islands, Correia e Silva said. Bloomberg news
Trade
China hits back at U.S. over trade, says unilateralism is “unprecedented challenge” U.S. trade envoy Robert Lighthizer has said that China was a threat to the world trading system China hit back yesterday at recent criticism from the United States about its trade practices, saying some countries’ unilateralism is an unprecedented challenge to global trade. Ministry of Commerce spokesman Gao Feng also said that foreign and domestic firms are treated equally in China and that foreign firms should not have concerns about investing in China. The comments come amid stepped up pressure on Beijing from Washington over trade and pledges by China to further open its markets to foreign investors. “Some countries’ unilateral actions and calls for unilateralism are an unprecedented challenge to the multilateral trading system,” Gao said. The administration of U.S. President Donald Trump has begun to launch trade investigations under statutes seldom used in the World Trade Organization (WTO) era, including a “Section 301” probe of China’s intellectual property practices.
On Monday, U.S. trade envoy Robert Lighthizer said that China was a threat to the world trading system. “The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented,” Lighthizer said, according to a transcript of the speech on the website of the Center for Strategic and International Studies. Gao defended China’s foreign investment policies, saying it has no laws requiring foreign companies to transfer technology to Chinese firms. “[Any technology transfer] is market-driven behaviour between companies; there is absolutely no government intervention,” said Gao. The commerce ministry on Monday unveiled a four-month crackdown, running from September until the end of 2017, to protect the intellectual property rights of companies with foreign investors.
Gao also said China hopes the European Union will maintain an open market and create a good environment for foreign firms, including Chinese companies. China on Monday expressed concern about a proposal by European Commission chief Jean-Claude Juncker to limit its ability to buy up European companies in the infrastructure, hi-tech manufacturing and energy industries. “China and the EU are both strong supporters of free trade, and we hope that with the current international trend, both sides can jointly oppose trade and investment protectionism and actively promote facilitation and liberalisation of global investment,” Gao said. A top European business lobby said on Tuesday it hopes the new leadership to emerge from China’s upcoming Communist Party meeting will show a commitment to market opening, but that its members were not optimistic and suffering from “promise fatigue”. Reuters
Business Daily Friday, September 22 2017 15
Opinion
Chinese developers really are living off fat of the land
Bitcoin isn’t wild and wacky enough to make a good hedge
Shuli Ren Bloomberg Gadfly columnist
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here ’ s a new valuation methodology in town for Chinese developers: Buy ones with the biggest land banks. While state-backed China Overseas Land & Investment Ltd. and China Resources Land Ltd. have long been hailed as blue chip, it’s competitors such as China Evergrande Group, Country Garden Holdings Co. and Sunac China Holdings Ltd. that have shined this year. Combined, the trio have a market value north of US$170 billion. Evergrande started the year at US$23 billion. Investment banks are racing to revise their estimates. Citigroup Inc.’s Oscar Choi, the top-ranked analyst by Institutional Investor, raised his sector price target by 13 per cent this week, saying he sees industry consolidation. Choi predicts that in three years, China’s top 10 developers will double their share of the market to 40 per cent. By 2019, Evergrande, Country Garden and Sunac will be the top three revenue generators, overtaking China Overseas Land. Consolidation is a polite way to talk about the nub of the issue here. The real secret sauce behind those firms’ meteoric rise is land. A Gadfly analysis of 18 Hong Konglisted Chinese developers shows that expanding land banks account for 80 per cent of the rise in share prices, a closer correlation than with earnings growth. While home prices in China are rising at a slower pace, the cost of residential land keeps spiraling. Evergrande, Country Garden and Sunac were smart. By hoarding sites, they can not only support future growth but also benefit from price appreciation. The three now own roughly half of the total territory controlled by the 18 developers. By comparison, the reserves held by China Overseas Land and China Resources Land haven’t moved much, and their share-price gains have lagged. There are reasons to believe residential land prices will remain elevated. With local governments in China able to access the municipal bond market for funds, they’re less likely to sell off large swathes of territory. Ironically, it’s now the state-backed property companies most vulnerable to attacks from short sellers. China Resources Land still trades at 9.9 times forward earnings, in line with Evergrande, even though its profit tumbled in the first half. How the lay of the land has changed.
Bloomberg Gadfly
David Fickling Bloomberg Gadfly columnist
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et’s say the bitcoin bubble has just burst. From its peak of US$4,921 earlier this month, the digital currency is already down 16 per cent at US$4,076. Over the next two months, imagine it continues to slump to barely more than half its peak valuation. After a brief recovery, the price slides again, until by the start of 2020 it’s dropped by another third, to below US$2,000. For 20 years it then languishes around that point, never to recover its September 2017 levels in inflationadjusted terms. Does that vision of the future show that digital currencies have no place in an investment portfolio, or that they do? The answer is worth pondering, because that’s the trajectory gold followed after its peak in January 1980. Full disclosure: I don’t, and wouldn’t, invest in either gold or bitcoin. Still, as someone once said, markets can remain irrational longer than you can remain solvent -- and trying to shake other investors out of their unreason is as pointless as fighting the tide. Rather than asking whether digital currencies make sense philosophically, we should be asking whether they stack up as investments. As Gadfly argued last week, with a conventional market in digital-currency-settled derivatives emerging, the best argument for owning those currencies is the same as the best one for owning gold: Their potential to have negative beta, to rise when stocks fall and vice versa. If a negative correlation to equities can offset periods of underperformance in shares, they can go a long way to improving returns. Suppose you bought a basket of digital currencies, and held them alongside gold as the negativebeta slice of an investment portfolio, valued at no more than (say) 3 per cent of the total. Would that make sense? If all digital currencies are going to be worth zero in five years, clearly not. That’s the argument made by those who say cryptocurrencies don’t have any “fundamental value.” Gold is genuinely useful in niche medical and electronic applications, and it’s been coveted aesthetically since the dawn of civilization. Central bank bullion holdings are another 31,500 metric tons of proof that the yellow metal is more than just a fad. What’s supporting a floor price for digital currencies, though? One answer to that question was given by JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon in his anti-bitcoin spray last week: If you were in Venezuela or Ecuador or North
“
Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars ... So there may be a market for that, but it’d be a limited market. Not that limited, though. As demonstrated by the popularity of bitcoin in China, people living in countries with closed capital accounts show a great deal of interest in moving funds outside of official exchange controls. About 40 per cent of the world’s population and 20 per cent of its gross domestic product are in such jurisdictions. Other grey segments of the global economy suggest further sources of demand for anonymous transactions, as Bloomberg View’s Aaron Brown argued this week. More than US$12 trillion is stashed in tax havens, according to the Tax Justice Network, an advocacy group. The trade in illicit drugs may be worth US$320 billion, or close to 1 per cent of global GDP. The 500-euro banknote, which most Europeans have never seen but is popular with criminals, still accounts for more than one-fifth of the value of euro notes in circulation, more than a year after the European Central Bank stopped printing it. Yes, digital currencies can be used to launder the proceeds of crime -- but so can JPMorgan. Possible value of illicit drugs trade: US$320 billion While this may seem unsavoury, it cuts against the argument that demand for digital currencies can just go back to where it was in 2007, absent coordinated government crackdowns of the sort we’ve never seen. The stronger argument against digital currencies is not that they’re going to zero -- it’s that they don’t make a good hedge at all. Since 2010, gold and Treasury bonds have a negative correlation with the S&P 500; bitcoin, on the other hand, has a positive relationship, multiple regression analysis done by Gadfly shows. In addition, bitcoin moves so radically that you can’t even construct a meaningful long-short strategy with your equity portfolio. If you believe the bluster of bitcoin bugs, they’re putting their money in code because they think the fiat-money economy is on the verge of collapse. Their revealed preference, though, is to punt on bitcoin whenever rising stock markets lift their risk appetite, and vice versa. In principle, the biggest advantage of digital currencies is they have no connection to anything that’s happening in the real economy. In reality, the two are intimately connected through that most powerful of conductors, investor sentiment. Only if that changes will virtual money really be able to bite off part of gold’s domain. Bloomberg Gadfly
As demonstrated by the popularity of bitcoin in China, people living in countries with closed capital accounts show a great deal of interest in moving funds outside of official exchange controls
”
16 Business Daily Friday, September 22 2017
Closing Ratings
S&P downgrades China, says rising debt is stoking economic, financial risks While risks are rising, S&P said the government’s recent efforts to reduce corporate leverage could stabilise conditions in the medium term Elias Glenn
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&P Global Ratings downgraded China’s long-term sovereign credit rating yesterday, less than a month ahead of one of the country’s most sensitive political gatherings, citing increasing risks from its rapid build-up of debt. S&P’s one-notch downgrade to A+ from AA- comes as Beijing grapples with the challenges of containing financial risks stemming from years of credit-fuelled stimulus to meet ambitious government economic growth targets. “The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks,” S&P said in a statement, adding that the ratings outlook was stable. S&P had said in June there
was a “real” chance of a downgrade and a decision would be made based on whether China is able to move away from a credit-driven growth strategy. The demotion follows a similar move by Moody’s Investors Service in May. While S&P’s move put its China ratings on par with those of Moody’s and Fitch, the timing raised eyebrows just weeks ahead of a twicea-decade Communist Party Congress (CPC), which will see a key leadership reshuffle and the setting of policy priorities for the next five years. “The downgrade is a timely reminder for the authorities that China needs to bite the bullet on some of the more painful reforms that have been left to last, namely corporate deleveraging and restructuring of state-owned companies,” said Rob Subbaraman, an economist at
M&A
Nomura in Singapore. “The focus needs to shift from quantity to quality of growth. I hope that later this year China lowers its GDP growth target to 6 per cent to 6.5 per cent, or not have one at all. That would be a positive sign.” The International Monetary Fund warned this year that China’s credit growth was on a “dangerous trajectory” and called for “decisive action”, while the Bank for International Settlements said last September that excessive credit growth was signalling a banking crisis in the next three years. The IMF said in August it expected China’s total non-financial sector debt to rise to almost 300 per cent by 2022, up from 242 per cent last year. While worries about China’s sustained strong credit growth are increasing in some quarters, first-half
economic growth of 6.9 per cent beat expectations and some analysts said the downgrade would have little impact on financial markets.
Key Points S&P: China’s prolonged and strong credit growth has raised risks Credit growth in next 2-3 years will remain at high levels Gov’t efforts to rein in risk could stabilize trend in mid-term Analysts say market impact likely to be muted “The decision was a catchup with the other two credit agencies, instead of an initiative. Its impact on financial markets would very limited,” said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong. “For those invested in yuan-denominated bonds, they care more about yuan expectations. The downgrade decision is likely to have limited impact on capital inflows as well.” China’s stock markets had closed yesterday before the downgrade, and there was little reaction in the yuan currency. While risks are rising, S&P said the government’s recent efforts to reduce corporate leverage could stabilise conditions in the medium term. “However, we foresee that credit growth in the next two to three years will remain at levels that will increase financial risks gradually,” S&P said. S&P also lowered China’s short-term rating to A-1 from A-1+. “It is in recognition of the reality that, concerns notwithstanding, the authorities are not planning to rein in
Earnings
credit growth in a forceful way,” said Louis Kuijs at Oxford Economics in Hong Kong. Indeed, Chinese banks kept the taps open in August, handing out RMB1.09 trillion (US$165.40 billion), and the growth of outstanding loans was higher than expected, at 13.2 per cent.
Mixed progress
Analysts say China’s campaign to cut financial risks this year has had mixed success, and opinions differ widely on whether Beijing is moving fast enough, or decisively enough, to avert the risk of a debt crisis down the road. Regulators are making significant inroads in reducing interbank borrowing – perhaps the most pressing risk and have curbed some riskier types of shadow banking. But analysts agree more comprehensive structural reforms are needed. Though the pace of credit growth may be easing, new bank lending and total social financing may hit fresh records this year and continue to outstrip economic growth. A recent Reuters analysis showed corporate debt is growing faster than last year, with few companies using stronger profits to reduce debt. “China’s credit problem is the biggest problem we have ever seen in any country and probably justifies a lower rating,” said Claire Dissaux, head of global economics and strategy at Millennium Global Investments in London. “One element that models cannot capture is the strength of institutions, such as transparency of regulation of the banking sector and central bank independence. All that is an argument to say China’s rating might still be too good.” Reuters
Luxury
Japan chemical maker Kuraray Biggest cocoa growers seek Richemont hires HR head from LVMH to buy Calgon Carbon for US$1.1 bln larger slice of chocolate profits to bolster management team Japanese chemical manufacturer Kuraray Co Ltd will buy U.S. firm Calgon Carbon Corp for US$1.107 billion, Kuraray said yesterday, adding the carbon materials firm as one of its core businesses. Kuraray said it would buy all of Calgon Carbon’s shares for US$21.50 each - a premium of 62.9 per cent to the Pittsburgh-based company’s share price on Wednesday of US$13.20. Including net debt, the deal is worth over US$1.3 billion, the U.S. firm said. Kuraray said it aims to leverage Calgon Carbon’s global presence to expand its carbon materials business in areas including energy and water. The acquisition would speed up innovation and reduce costs, Kuraray said. Calgon Carbon’s products and services include drinking and wastewater purification equipment and ultraviolet light disinfection. It has production and sales bases in seven and 16 countries respectively. Kurarary said it planned to complete the deal which will be funded by debt and is subject to shareholder and regulatory approval - within the year. It will make Calgon Carbon a wholly owned subsidiary, it added. Reuters
The world’s biggest cocoa-growing nations in West Africa are targeting a larger slice of chocolate-making profits as most of the benefits of producing beans accrue outside their economies, Ghanaian President Nana Akufo-Addo said. Farmers in Ivory Coast and Ghana, the two countries which account for more than 60 per cent of global cocoa output, earned the equivalent of 5.5 per cent of a value chain that was worth more than US$100 billion in 2015, Akufo-Addo told Bloomberg Television’s Francine Lacqua in an interview at the Global Business Forum in New York. The nations’ governments are in regular talks about joint efforts to market cocoa better and develop new markets for the beans, he said. Ghana’s Akufo-Addo on Economy, Cocoa, Trade, Oil (Video) “We have to make the chocolates ourselves,” Akufo-Addo said on Wednesday. “So far, either out of negligence on our part, or difficulties in mobilizing the finance and the technology, we’ve not been able to do it. We need to find a way to connect the raw material to the finished product.” Cocoa-producing nations are looking for new ways to extract value from growing beans to counter prices that have fallen more than 40 per cent since 2015, hurting their economies. Bloomberg News
Luxury goods group Richemont moved to shore up its management team yesterday by appointing two outsiders to its senior executive committee. The maker of Cartier jewellery and IWC watches said it had hired Sophie Guieysse from luxury rival LVMH as group human resources director and Jean-Jacques van Oosten from Rewe Digital for the new role of chief technology officer. Falling sales and profits at its watch business prompted Richemont to replace almost all its brand heads and appoint a senior executive committee to take over from former Chief Executive Richard Lepeu, who retired in March. But Georges Kern, who had been touted as a future CEO, quit in July after just four months as head of the watch business to join rival Breitling. Richemont’s replacement of Thomas Lindemann, a 20-year Richemont veteran, with LVMH’s Guieysse was seen by watch expert Gregory Pons as a recognition of the problems the Swiss firm is having developing and retaining talented managers. Richemont did not give details on van Oosten’s responsibilities as chief technology officer. Reuters