TPP members close to clinching deal Global trade Page 12
Monday, September 25 2017 Year VI Nr. 1390 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Zhuhai
Industrial park aims to attract RMB10 bln in funding within next two years Page 7
Construction
Forum Macao service complex construction to cost MOP692.8 mln and take 600 working days Page 2
www.macaubusiness.com
Fire
PJ investigating Grand Lisboa Palace fire as suspected arson Page 7
State firms
Party meeting expected to define future of public companies Page 16
Gone with the wind Tourism
Hato scared away tourists in August as visitation saw a 0.6 pct y-o-y decrease, reaching 2.86 mln, according to official data. The ‘catastrophic typhoon’ resulted in a 1.8 pct decrease m-o-m. However the first eight months of 2017 saw a 4.4 pct growth in total visitor numbers, and an 11.5 pct increase in overnight visitors, to 11.25 mln. Long-haul visitor numbers were down y-o-y but visitors from South Korea continued to surge. Page 3
Director of the Macau Economic Association, Joey Lao Chi Ngai predicts an excess of housing supply in the short term, and explains that the Greater Bay Area is first a plan rather than a policy. Economic diversification is difficult, with the gov’t seeking a ‘reasonable degree’ rather than all-out, but the economy is still less vulnerable than a decade ago. Facing down issues and opening up more to foreign labour are steps in the right direction. Interview | Economy Pages 4 & 5
HK Hang Seng Index September 22, 2017
Show us your innovators
Funding The Science and Technology Development Fund has opened a support program for local companies with innovative ideas. Funding is divided into two parts, 60 pct up front and 40 pct after a panel evaluation, and will be capped at MOP2 mln, with firms having to provide at least 20 pct. Target markets can be outside the MSAR, but businesses will ideally remain locally-based. Page 2
Small Mainland banks facing tighter conditions Financial sector Lenders in China are struggling to cope with a difficult regulatory environment. As liquidity tightens, banks are trying to find shortterm financing options amid a crackdown on the instruments just before Golden Week. Page 8 27,880.53 -229.80 (-0.82%)
Worst Performers
New World Development
+1.63%
CLP Holdings Ltd
-0.25%
China Merchants Port Hold-
-4.40%
Want Want China Holdings
-1.89%
WH Group Ltd
+1.00%
Hong Kong & China Gas Co
-0.27%
China Resources Land Ltd
-3.93%
Hong Kong Exchanges &
-1.73%
-0.13%
Tencent Holdings Ltd
-0.29%
Geely Automobile Holdings
-3.51%
Ping An Insurance Group Co
-1.60%
Wharf Holdings Ltd/The
-0.21%
Hang Seng Bank Ltd
-0.44%
AAC Technologies Holdings
-2.84%
China Shenhua Energy Co
-1.56%
Lenovo Group Ltd
-0.24%
Sino Land Co Ltd
-0.44%
China Overseas Land &
-2.33%
China Resources Power
-1.55%
Sands China Ltd
28° 31° 26° 31° 27° 32° 27° 31° 27° 30° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Building a stable home
2 Business Daily Monday, September 25 2017
Macau Fund
Seeking innovators FDCT rolls out new support programme to encourage local enterprises to innovate introduced by the FDCT committee, the market expectations of the project’s outcome and the expected economic benefits of the project will be seriously considered. For projects that include cooperation with educational institutions or R&D bodies, their level of resources invested and participation will also be evaluated.
Cecilia U cecilia.u@macaubusinessdaily.com
T
he Science and Technology Development Fund (FDCT) is set to provide a support program for local firms who are attempting to produce innovative products. Interested enterprises can apply for the new programme for an amount equaling no more than 80 per cent of the total project budget, capped at MOP2 million (US$248,655). In addition, applicants must provide no less than 20 per cent of the investment for their project, explained Federico Ma Chi Ngai, the FDCT committee chairman, when introducing the programme last Friday. Ma further announced that the expenses for personnel for research and development (R&D) should not exceed 70 per cent of the total research expenses. The new programme is available for companies registered in Macau with clean records of tax and social security contributions, while firms are encouraged
Made-in-Macau to collaborate with local or overseas tertiary educational institutions or R&D bodies. The registration period runs until November 15 and will re-open every year.
Two part funding
Eligible applicants will receive the funding in two parts. The first 60 per cent of the funding will be disbursed at the beginning of the research stage, while the remaining 40 per cent will be granted after the panel of the programme agrees on the project outcomes in terms of its expected economic benefits, level of re-investment and venture capital needed.
The maximum research period should not exceed two years. If research exceeds the two-year period, a decision on whether the second part of the fund will be provided will depend on the report provided by the firm, stating the progress of the project as well as the total amount spent. In regards to application requirements, the panel will examine applicants’ abilities to carry out the proposed research project, the innovative level of the proposed project, as well as the budget and ownership of intellectual property of the project. Most importantly, as
Transportation
Although the new programme does not have stringent restrictions on where the projects perform their R&D, Ma said firms should have a certain level of research conducted in the city, while the composition of the research team should avoid a complete absence of local R&D personnel. Regarding the ratio of local personnel, FDCT committee member Cheang Kun Wai said it will depend on the scale of the project. When asked by attendees whether there are any restrictions on targeted markets, Cheang said firms could target markets outside of Macau, but hopes that contracts could be made in the city in
order to transform the research results into a profitable industry which can be based in Macau. Meanwhile, one firm could apply for the programme for different research projects, but the major R&D personnel should not be in charge of more than one project, while the resumes of the major R&D personnel will also be examined by the panel. With more attention to be placed on the level of expected economic benefit, Ma indicated that the panel would consider benefits that can be calculated prior to the approval of funding, in order to prevent disagreements when proceeding to the disbursement of the second part of the funding. The panel could also require applicants to provide a certificate produced by a third party regarding potential economic benefits of the proposed projects. Speaking to the press prior to the introductory session, Ma expressed the hope that more firms that are developing traditional Chinese medicine and computing science will apply for the
Forum Macao
DSAT: transportation arrangements Signed and sealed for super bridge still under negotiation The prime focus of the LRT construction will be the Barra and Seac Pai Wan routes Cecilia U cecilia.u@macaubusinessdaily.com
The governments of the three regions – Macau, Hong Kong and Guangdong - are still negotiating transportation arrangements regarding a number of regional infrastructure projects, according to the city’s Transportation Bureau (DSAT). In response to legislator Kwan Tsui Hang’s enquiries, DSAT stated that the Transportation Infrastructure Office (GIT) is currently concentrating on the construction and operational preparations of the Light Rail Transit (LRT), particularly for the Taipa section, in tandem with prioritising the construction of the Barra station and the route linking Seac Pai Van. However, there is still no timetable for the concrete plan of the LRT for the Macau peninsula section, with DSAT
stating that the peninsula section is not the main task to be undertaken at present. Ho Cheong Kei, Coordinator of the Transportation Infrastructure Office told the press last Thursday that a suitable location has been decided for the station on the Seac Pai Wan route, local news outlet MASTV Net reported. Revealing that the current plan is for the Seac Pai Wan route to connect to the Taipa route, Ho further indicated that the construction budget has yet to be decided, saying that the cost will depend on the complexity and the demands of construction. The former legislator, who retired from the legislative body this month after over two decades of service, questioned the government’s 10-year-plan to improve the city’s transport infrastructure. The Bureau, in response, indicated that a series of schemes rolled out by DSAT have achieved a certain level of success, citing a 5 per cent yearon-year increase in the number of passengers taking buses in the first half of 2017. The bureau also indicated that the number of vehicles on the roads declined by 1.9 per cent yearon-year in the same period.
The new Service Complex for Economic Cooperation between China and Portuguese-speaking countries will be built by Companhia de Construção e Engenharia Omas, Limitada for MOP692.8 million Construction company Companhia de Construção e Engenharia Omas, Limitada has been granted a MOP692.8 million (US$86.1 million) contract for the construction of the Service Complex for Economic Co-operation between China and Portuguese-speaking Countries, a release from the Land, Public Works and Transport Bureau (DSSOPT) on Friday revealed. The complex will be built on land plots C15 and C16 - an area of around 14,200 square meters, located next to the Legislative Assembly building by Nam Vam Lake - with the
construction estimated to take at least 600 working days. The complex will contain an exhibition centre for food products from Portuguese-speaking countries; a business service centre for enterprises from the countries belonging to the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao); a training centre; an information centre; an exhibition hall showcasing Sino-Luso relations and their cultures; and a room to stage exhibitions related to Macau’s urban development. N.M.
Affairs Office of the State Council. Also, according to Sing Tao Daily, Zheng Xiaosong, the vice-minister of the International Liaison Department of the Communist Party of China will replace Wang as the head of Macau’s Central Government
Liaison Office. Speaking on Friday, Zhang announced the termination of his role in Hong Kong, but did not confirm Wang Guangya as his replacement as the head of the Hong Kong and Macau Affairs Office.
Politics
Chinese Liaison Office reshuffle The director of the central government’s Liaison Office in Macau, Wang Zhiming is set to succeed Zhang Xiaoming, the Liaison Office director in Hong Kong, according to news advanced by Hong Kong outlet Sing Tao Daily, reported and broadcast by
TDM Radio News. However, there has yet to be an official announcement from the Chinese authorities to confirm the arrangement. Wang was named by Beijing last July and previously held the role of the deputy director of the Hong Kong and Macau
Business Daily Monday, September 25 2017 3
Macau Tourism
Scaring away visitors Visitation to the MSAR in August suffered a 0.6 per cent year-on-year decrease due to the passage of Typhoon Hato, with 2.86 million visitors entering the city in the month Nelson Moura nelson.moura@macaubusinessdaily.com
T
he passage of Typhoon Hato caused the number of visitor arrivals to the city in the month of August to decrease slightly by 0.6 per cent year-on-year to 2.86 million, according to the official data released yesterday by the Statistics and Census Services (DSEC). The ‘catastrophic typhoon on 23 August’ also resulted in a monthon-month decrease in visitation of 1.8 per cent from the 2.91 million registered in July. Despite the natural disaster, the number of visitors to Macau in the first eight months of 2017 indicated a 4.4 per cent yearly growth when compared to last year’s results, with 21.34 million visitors having entered the city during the period. Official data also reveals that while the number of overnight visitors increased by 4.8 per cent year-on-year to 1.54 million in August, the number of same-day visitors went down by 6.2 per cent year-on-year to 1.31 million. The number of overnight visitors during the first eight months of the year saw an 11.5 per cent yearon-year increase, to 11.25 million.
Faithful visitors
Visitors from mainland China to the MSAR totalled 2.01 million in August, a 1.9 per cent yearly rise, while the second and third largest origin
markets of visitors to Macau were Hong Kong and Taiwan, registering year-on-year decreases of 10.5 per cent, to 529,676, and 1.9 per cent to 92,580, respectively. The majority of Mainland visitors originated from Guangdong Province, amounting to 841,638, with 93,692 visitors from Hunan and some 80,600 visitors from Fujian in August. Almost half of the total Mainland visitors travelled to Macau under the Individual Visit Scheme (IVS), with the number of arrivals in August remaining almost the same as in August last year.
Meanwhile despite the typhoon, visitors from South Korea registered a 30.8 per cent yearly increase in August to reach 75,548, while visitors from Japan went up 8.2 per cent yearon-year to around 29,900. However, visitor numbers from the U.S.A. and Australia dropped yearly by 7.7 per cent and 15 per cent, respectively.
Air trips not affected
The DSEC data also indicates a 13.5 per cent increase in the number of arrivals by air year-on-year, with
246,645 visitors reaching the MSAR by air in August. However, the amount of visitors arriving by sea dropped by 2.8 per cent yearly to 965,955 in August, while arrivals by land went down slightly by 1.1 per cent year-on-year to 1.65 million. Arrivals by land continued to dominate, making up 57.7 per cent of total visitors, while arrivals by sea and air made up 33.7 per cent and 8.6 per cent of total visitor arrivals, respectively, according to Business Daily’s calculations. advertisement
4 Business Daily Monday, September 25 2017
Macau
Joey Lao Chi Ngai, Director of the Macau Economic Association
Interview
Housing galore The development of almost 32,000 housing units in the new land reclamation Zone A in the next two years and the development of housing in Hengqin could create an excess of housing supply in the short-term, opines the Director of the Macau Economic Association, Joey Lao Chi Ngai. The researcher also shares his views regarding a lack of human resources in the city, and the role of the MSAR in the future Greater Bay Area plan and the One Belt, One Road initiative. Nelson Moura nelson.moura@macaubusinessdaily.com
W
hen was the Macau Economic Association started and what was its main purpose? The association started in 1989 as a non-profit organisation and a social think tank for the society and the government. It’s a research based academic association, especially [focused] on economic issues, with local researchers and with some regional cooperation, but always with Macau issues in mind. I joined the association many years ago and I have also acted as the Chairman of the Executive Board for almost nine years. What are the main issues the organisation has been examining recently? Every year we look for hot issues or socio-economic problems, and plan a study team to look at them and try to provide information or solutions to the government. Sometimes the government solicits studies. One of the important issues recently is, of course, regional economic cooperation with mainland China and in the Greater Bay Area. That would be the main issue our association is delving
into now, and our study’s results should be out in October. The Greater Bay Area and One Belt, One Road (OBOR) initiatives have been greatly discussed recently, but information on specific initiatives has yet to come to light. What are the advantages for Macau in being involved? First we should define things more clearly that OBOR would be an initiative and not a policy. The Greater Bay Area Guangdong-Macau and Hong Kong project also shouldn’t be defined as an initiative but a planning [process] with policy coming after the planning [stage]. There will be a blueprint for this plan in the future, led by the Chinese central government, with the Macau and Hong Kong governments also participating in the planning and contributing to the process. How could Macau use its capital reserves to contribute to the future plans for the region? Per capita, of course, Macau could be defined as being a rich city, but in terms of the total monetary amount of government reserves, compared to that of the Chinese central government, Hong Kong and Guangdong,
it is not that large. One of the special advantages Macau has in the development of the Greater Bay Area or OBOR is its historical connection with Portuguese-speaking countries, it’s our special strength but it’s not the only one.
“No one, neither the Chinese central government nor the MSAR government, wants pure and whole economic diversification” We should consider the Greater Bay Area as one region where we all use our special strengths without directly competing or fighting each other. An area where we have to help each other and create a synergy effect. Not like in the past where we all compete and we all lose. If we consider the
area as a whole and recognise the advantages of the other regions in something like industry, then we avoid excessive competition. Our casinos and the development of Macau as a World Centre of Tourism and Leisure here are the specific features of our business sector and we will focus on them. Having the same type of development in Guangdong cities would harm our core development. Then we have to consider the Greater Bay Area as also part of OBOR, as a platform that can help this national initiative. Could the Greater Bay Area become one of the world’s major economic centres? It could be in the future. The government has repeatedly mentioned economic diversification as one of its main objectives. How do you think true economic diversification can be effectively reached? It’s difficult and in the past years we’ve experienced how hard it is to diversify our economic industries. However no one, neither the Chinese central government nor the MSAR government, wants pure and whole
Business Daily Monday, September 25 2017 5
Macau economic diversification. What we want is a reasonable degree of diversification. Complete diversification wouldn’t be impossible, but in the short and middle terms of our development, it’s hard to see. We have to face those facts. The policy address of the local and central government also addressed that we need a reasonable degree of diversification, although this ‘reasonable degree’ has no clear measurement. The latest data shows that for the gross domestic product structure of 2015, gaming related activities accounted for about 48 per cent. I believe that share remained stable in 2016 and this year, as you can see, the gaming industry has recovered quite well in the past few months and still counts for a great portion of our economy. There might even be a slight increase in that percentage. How vulnerable is the Macau economy at the moment, due to its large dependence on gaming and tourism? I think now it’s less vulnerable when compared to five or ten years ago. If you look at the figures and the real economic situation we have actually diversified a lot in the past years. Just a few years ago, aside from the gaming industries, you can see the development of retail, hospitality, food & beverage, MICE [meetings, incentives, conventions and exhibitions]. When you look at it, the MICE industry started from zero and now we’re building a better sector that has been growing steadily. If you look at the rate of development, some of the businesses are doing a lot better than the gaming business in terms of growth rates. It’s just that their share in the overall economy is relatively smaller when compared to gaming. Other sectors in Macau are also growing and evolving.
“Without foreign labourers it’s impossible to expand the economy. This is the reality in Macau and we have to face it, since what we’re doing in terms of tourism services implies labour-intensive business”
Does this reduce the city’s exposure to impacts of stricter policies by the central government on allowed visitation from the Mainland or in regards to capital flows? Macau’s economy is better than before, but we can’t survive without favourable policies from the Chinese central government. We’re a tiny independent economy with very special features. We have no natural resources and, like other tiny economies, we highly rely on the outside. Diversification also needs human resources. How can Macau have the necessary human resources if not by resorting to skilled and unskilled non-resident labour? This issue is a dilemma for almost all developed countries or cities. In reality, and especially for Macau, the expansion of the local economy must be supported with huge amounts of imported labourers. Without foreign labour it’s impossible to expand the economy. This is the reality in Macau and we have to face it, since what we’re doing in terms of tourism services implies labour-intensive business.
We can’t replace labour with robots, we still need to face humans. Before we didn’t need that much labour, but once our economy expanded we had to import foreign labour to support this expansion, there was no other alternative. However when we import foreign labourers, there is no doubt there is harm to local labour. We need to find the equilibrium, with the government being in charge of tightening or loosening foreign labour policies. When the government tightens regulations, businessmen will complain, when it loosens them allowing more foreign labourers to come in, businessmen are happy but local permanent residents will complain. It is a real dilemma and you see the same problem in Singapore and Hong Kong. The only way is to find a balance and help the upward mobility of local workers. In the past, some entrepreneurs would recruit top management foreign workers, with even the middle management being foreigners, with Macau employees being at the bottom. Having local residents as slaves to top foreign management is not the purpose of economic development. Economic development has to help improve our living standards, to make local residents better off. Can this issue be resolved just through education? I think this is something that changes everyday. It takes time to analyse statistics. There is a Chinese saying that says ‘Changing is always faster than planning’. We need to see if there’s a trend and if that gap will be even larger in the next two years and try to plan accordingly. Do you believe government policies to improve the offer of affordable housing for local residents will help curb the current issues of housing in Macau? It’s a very complicated issue. I can only say that in the future I can see the supply of housing in Macau will increase a lot in 2018 or 2019, especially in the new land reclamation Zone A, the largest reclaimed land plot, where 28,000 public housing units and 4,000 private units will be developed, so 32,000 housing units available on the market. That’s a huge amount in only one area, with the Macau government also planning for other areas. I agree that housing prices in Macau have been increasing and they’re very high at the moment,
making it very hard for young people to afford housing. However, Macau is not the only city facing this issue. In Hong Kong it is even worse. In Guangzhou, Shenzhen or Zhuhai the prices of course will be relatively lower than Macau, but you have to look at their average earnings, at the earnings of young graduates and if they can afford housing. It’s a very hard social issue to solve and the only way to do it is to build more public housing to balance the market while helping the little people. The Macau government opened a tender for the Macau Master Plan, which will provide the guidelines for the city’s development. With the city seemingly having some urban planning issues, should there have been a better plan for the city in the past? Macau had a general plan at the beginning, but things just developed too fast with the old plan not being quite suitable. Even a general plan needs to be adapted very frequently, just like our law. We have to revise and revise. What role do you think Hengqin will play in Macau’s future development? Hengqin is a very important place for Macau-Guangdong regional cooperation. It is a very important island for Macau. It’s still an on-going
development and has seen a huge amount of investment. In my personal view I can see that in a few years the Hengqin area will offer a huge supply of apartments and buildings to local residents. However, there will be a huge supply of housing in the area, which can be seen just by looking at its developing skyline. I doubt there will be enough demand to catch up with the supply in the short term. Could the issue of supply not catching up with demand in the short-term also be applied to recent projects like the Taipa Ferry terminal or Hong Kong-Zhuhai-Macau Bridge? Yes, I believe so. We’ve done two research projects on the bridge and its social impact in the past, but things are different now. It also depends on the policies to be implemented, such as the traffic and tariffs on the bridge. These policies for the bridge would then impact the economic sectors such as logistics, the airport business and the flow of tourism visitors. Do you believe these projects will lead to a larger increase in annual visitation to Macau? I think visitation will be more stable. It won’t be like in the past, with 20 per cent yearly increases, it will be stable at a 5 per cent or 10 per cent increase. The central government has policies to stabilise it. advertisement
6 Business Daily Monday, September 25 2017
Macau Opinion
Sheyla Zandonai*
Why not? Hotel Estoril is the latest in a series of urban properties which has been, again, earmarked for renovation. As per what has become a local trend, decisions on what to do or what not to do with the defunct hotel – the first modern-style casino marking the beginning of the Stanley Ho monopoly era in 1962 – had been dragging on for a long time. For long enough if we consider that activities in the facilities were discontinued in the 1990s. Now, it seems that will no longer be the case. A few days ago, the Secretary for Social Affairs and Culture Alexis Tam pledged that a public tender would be launched this month for the renovation of the hotel. Truth be told, Estoril is not an architectural masterpiece. But it has evolved to become an icon of old times, which some also associate with happier times. Although its eventual demolition has raised a wave of popular commotion, several architects agree that the building itself has no architectural value worth the time, money, or the pain of revamping it. The members of the Cultural Heritage Committee have also supported such a position, by endorsing the government’s decision last year not to list the building as a cultural heritage property. These are technical standpoints, and people are free to disagree on other bases, affective, emotional or purely provocative. But at some point, we should come to terms with the fact that people with knowledge to assess such matters – as far as they are really experts and information on the decision-making process is made public – have reason to be listened to. That said, just because Estoril may not be an avenue for increasing the city’s heritage or urban profile, does not mean the building, part of it, or its location could not be re-signified or transformed into something else. Preserving it or part of it, because it embodies social memories or a particular history is, hence, another matter. The question would then be, what to preserve and how. So far, it seems the only value-adding part of the building – although, again, far from yielding consensus – is Oseo Acconci’s Fortuna mural hanging on the rundown facade. What to do with it? Leave it there or take it down? A friend, who follows urban matters closely, suggested the wildest idea last week: placing the mosaic on the bottom of a swimming pool. Why not? The powers that be are often too conservative, or too afraid to dare. It wouldn’t hurt from time to time to show some boldness. * Journalist.
Greater Bay Area
Small cities benefit as southern China project takes off This year the Greater Bay Area development plan kicked off, comprised of 11 cities in southern Guangdong province, plus Hong Kong and Macau Clare Jim
I
nvestors are rushing in to a sleepy city on the southern coast of China thanks to a government policy that has seen tens of billions of dollars earmarked to produce a regional economy that would rival the biggest in the world. China this year kicked off the development of the Greater Bay Area, made up of 11 cities in southern Guangdong province, plus Hong Kong and Macau located in the Pearl River Delta. Real estate consultancy Colliers International estimates the region already has the fifth biggest economy in Asia but that under the development plan will have the fifth biggest economy in the world by 2030, underlining why HSBC Holdings Plc sees the region as one of its major markets globally. The area includes cities such as Shenzhen and Dongguan, which are established tech and manufacturing centres, but the plan is having a dramatic impact on smaller cities in the region that had largely been ignored by developers until now. One such city is Huizhou, which has some of the lowest home prices in the Greater Bay Area and is benefiting from a plan that aims to mimic the likes of Los Angeles, New York or Tokyo in tying together a vast economic region via major road and high speed trains. Dramatic changes in the city of about 4.8 million people, highlight the impact of national policies in China that target specific areas for development. Huizhou’s economic growth
accelerated to 7.5 per cent in the first six months of this year, higher than the national average of 6.9 per cent, while property investment shot up 23 per cent, almost three times the rate of the 8.5 per cent per cent national average. The local government earmarked the equivalent of US$39 billion for infrastructure investment between 2016 and 2020. It aims to build 11 high-speed railway stations – the most of any city in the Greater Bay Area - along with many highways. The goal is to enable travellers to reach top-tier neighbours Shenzhen and Guangzhou within half an hour.
Key Points Huizhou booms thanks to Greater Bay Area drive The city is only one in the area without home purchase limit Strong spillover demand for property from Shenzhen hub Speculative investors pile in from other provinces “In China, if you want to invest, you go where the national policies go,” said property agent Zhang Guangzi in Daya Bay, an emerging district in Huizhou.
Investors pile in
Two years ago, HSBC brought attention to the Greater Bay Area when it announced plans to beef up its presence in the region. The global bank said it would quadruple its staff and increase lending to mid-sized companies in the infrastructure and
property sectors. Last month, Chinese developers including Logan Property , Agile Group and Yuzhou Properties said at earnings conferences they planned to expand in Huizhou and elsewhere in the Greater Bay Area. Property giants Country Garden and China Evergrande already own large land banks in Huizhou. And thanks to spillover demand from Shenzhen - where around 60 per cent of buyers are from Huizhou’s supply of new homes is tight. Based on the rate of sales, the city’s housing inventory dropped to six months of supply in 2016 from 30 months in 2015. Much of the demand for new homes in Huizhou comes from people working in Shenzhen. Many owners live in a dormitory provided by an employer in Shenzhen while housing their families in Huizhou. Huizhou’s average home prices are around RMB10,000 per square metre, a quarter of other areas near Shenzhen and just a tenth of the cost of central Shenzhen. Facing competition from other areas in the Greater Bay Area, Huizhou has avoided placing restrictions on home purchases, prevalent in many other cities in China where prices have been rising rapidly. More than 80 per cent of buyers are from outside the city, agents and developers said. Instead, it has implemented a price ceiling on the sale of new homes since late 2016. If it wasn’t for the ceiling prices would increase, said Huang Min, Country Garden’s Huizhou district marketing general manager. Reuters
Business Daily Monday, September 25 2017 7
macau Technology
Zhuhai investing in industrial intelligence The neighbouring city is pledging to attract some RMB10 billion within the next two years to develop an industrial park focused on everything hi-tech Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
total of 15 contracts with companies operating in the hi-tech industry were signed over the course of last week in Zhuhai, marking the opening of the Zhuhai Intelligent Industrial Park, according to an announcement from the Zhuhai government. Other projects announced as settling in the new park, when full construction starts within a year, include an interactive Smart City-dedicated new-media platform, the South China base for 360 Enterprise Security Group and Internet Plus for urban fire warning and control, as well as an R&D centre and production base for
developing flexible wearable sensor devices. The nearly 2.4 square-kilometre park will be overseen by the Administrative Committee of the National Hi-Tech
Industrial Development Zone – where it is located – with Zhuhai Huafa Hi-Tech Construction Holdings Co. Ltd. being in charge of its development.
A separate company – as yet to be named by the neighbouring city’s government - is said to have been established by the committee and Huafa Group to attract investments of up to RMB60 billion by the end of 2020, as well as to conduct integral operations. According to the official news, a government agent claimed the city has set up a dedicated fund to attract social capital of RMB2 billion (US$303.39 million/MOP2.43 billion) by the end of this year, and RMB10 billion within two years of the development of the industry. The five-year plan for the park indicates a development focus on Big Data, cloud computing, Artificial Intelligence (AI), and the Internet of Things (IoT). It has been designed to
comprise two sections, with the Pilot Area to serve as a start-up incubator and platform for showcasing the application of industrial technologies, and the Accumulation Area to accommodate ‘highend innovation platforms’ and projects to foster ‘national innovation-driven industrial clusters’. On its board, the project includes a Sino-Israel Innovation Accelerator, China-German Artificial Intelligence Industrial Park, Zhuhai Geographic Information (Satellite Big Data) Industrial Base, China Electronics Smart City Operation & Research Institute, Fiberhome Smart City & Big Data Operating Platform, Sci-Tech New Energy Intelligent Equipment Industrial Base, and Zhuhai Institute of Big Data Sciences.
Hengqin
International database to support enterprise development A newly launched electronic reading room is now accessible free of charge for entrepreneurs seeking international information, according to the Hengqin New Area Administration Committee. Information relating to local and overseas journals, newspapers, laws and regulations, patents and standards can be freely accessed by registering for its use. The service includes search
systems such as the U.S. based DIALOG system, STN International, as well as thousands of international large-scale databases, covering areas such as social sciences, natural science, appled science, politics and economics, intellectual property, technical standards and business intelligence information. Based in the Innovalley, the launching ceremony of the reading
room, which took place last Thursday, attracted some 60 enterprise representatives to experience the new service firsthand. Businesses who wish to use the service are required to apply for a reading card by showing their Hengqin business registration documents. Meanwhile, according to official data, some 44 innovative enterprises have entered the Innovalley
via the one-stop service, with the service including tax registration, legal services, bank account setup, human resources, business registration, intellectual property, and start-up information as well as access to the database. Furthermore, in order to provide more convenience for workers from the Innovalley, scheduled shuttle buses started operations for workers on September 11. C.U.
Fire
Grand Lisboa Palace fire under investigation A fire at the construction site for Sociedade de Jogos de Macau’s (SJM) new Grand Lisboa Palace in Cotai, which broke out late Saturday night, is being investigated by the local authorities, with Judiciary Police suspicious that it could have been arson, according to local broadcaster TDM.
The broadcaster cited local publication Ou Mun Tin Toi, stating that 88 workers were taken off the site and one trapped worker was saved by fire-fighters. The fire was detected at about 6 o’clock in the morning and put out before noon. Over one hundred fire-fighters were involved in the operation, with one
needing to be hospitalized. The site had previously received a 44-day work-halt mandate after the death of a construction worker in late June. Business Daily contacted the operator for information on the incident but had not received a response by the time this went to print.
Gaming
Jeju Shinhwa World to open casino before year-end Landing International is launching gaming as part of the attractions of its theme park in South Korea, after its casino operations in Jeju posted a 24.8 pct drop in revenue Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Casino and theme park developer Landing International Development Limited announced that it will open a casino in Jeju Shinhwa World on December 8 as part of the official opening of the theme park in South Korea, according to a press release by the group. The Hong Kong-listed company’s interim results indicate that it was ‘exploring the possibility’ of moving its Landing Casino, also located on Jeju island at the Hyatt Regency Jeju Hotel, to the theme park, which
covers an area of some 2.5 million square metres. The proposed change came following a 24.8 per cent drop in revenue at Landing’s Hyatt gaming operations, to HK$174.54 million (US$22.35 million/ MOP179.77 million) in the first half of this year, down from HK$232.09 million in the same period of 2016. However, the company did not specify in its latest announcement if it has already closed down its foreigner-only casino operation at Hyatt Regency. The company’s most recent press release indicates it is investing an additional US$300 million for the
development of Jeju Shinhwa World – overseen by its subsidiary Landing Jeju Development Co., Ltd. Earlier this month, Landing announced it had disposed of its gaming operations in the UK, Les Ambassadeurs Club, for a total consideration of HK$2.5 billion, in order to garner capital for the development of the amusement park in Jeju. Total investment in the Korean project - which commenced in 2015 and is expected to be completed and in full operation by the end of 2019 – currently amounts to US$1.5 billion, ‘the largest Foreign Direct Investment (FDI) for a one-stop integrated resort
in the history of Korea,’ the company noted in the release. In anticipation of the December 8 opening, the theme park will start receiving visitors on September 30, The Jeju Weekly reported last week. It is the second attraction of the integrated leisure resort project to be opened to the public, after the Somerset Jeju Shinhwa World Hotel opened earlier this year. In addition to the casino, other facilities to open in early December include two hotels – Marriot Resort Jeju Shinhwa World and Landing Hotel – with MICE facilities, a mall, and restaurants.
8 Business Daily Monday, September 25 2017
Greater China Funding
Small banks face crunch as regulations, liquidity tighten Interbank borrowing by small and regional banks has risen to almost 16 per cent of their total funding sources from 12 per cent in 2015 Andrew Galbraith
C
hina’s small banks are struggling to raise funds through short-term instruments as a regulatory squeeze combines with tight liquidity ahead of the quarter-end and Golden Week holiday. With few options for funding, some banks have returned to issuing negotiable certificates of deposit (NCDs), a form of non-collateralised shortterm funding that regulators have tried to discourage in their battle against speculative financing.
“I wouldn’t be surprised that you see banks being absorbed by others”
chase for new markets, they will always be penalised.” A trader at an asset-management firm in Shanghai said tight liquidity reflects on-going central bank efforts to reduce leverage combined with looming quarter-end tax bills. Adding to the pressure is the weeklong National Day holiday starting on Oct. 1, and NCDs worth RMB2.3 trillion that have been maturing this month following a surge in issuance in June. NCDs are priced with reference to the Shanghai Interbank Offered Rate (SHIBOR). The three-month SHIBOR was at 4.3611 per cent on Friday, up 107 basis points since the beginning of the year. As liquidity tightens, market demand for lower-rated NCDs has also been affected by new rules from the China Securities Regulatory Commission (CSRC), announced in early September, that limit the exposure of
money-market funds to lower-rated assets. The rules take effect Oct. 1.
Under the gun
NCDs have been in the regulatory spotlight this year as the authorities try to shut funding loopholes, most recently banning those with maturities longer than one year. Some analysts said the move marked the beginning of a new tightening cycle. The People’s Bank of China has not yet exempted banks with less than RMB500 billion (US$75.8 billion) in assets from including NCDs in quarterly assessments. “For the smaller (banks), this should be treated as a signal that their positions will also be included at a later stage,” said Becky Liu, head of China macro strategy at Standard Chartered. But with fewer options than their higher-rated counterparts, smaller
banks may not yet be responding. The value of outstanding NCDs rose by RMB843.2 billion from June through August, Shanghai Clearing House data showed. Interbank borrowing by small and regional banks has risen to almost 16 per cent of their total funding sources from 12 per cent in 2015, BNP Paribas senior economist Chi Lo said in a research note, compared with about 2 per cent for large commercial and state-owned banks. Banks that have tried to diversify out of NCDs by turning to money-market funding may find their moves stymied by the new CSRC rules. Garcia-Herrero says the rising pressure may indicate a larger end-game for China’s regulators: banking sector consolidation. “I wouldn’t be surprised that you see banks being absorbed by others,” she said. Reuters
Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis The premium paid by lower-rated Chinese banks over higher-rated ones for NCDs spiked last week, highlighting risks to the country’s smaller lenders. The spread between threemonth AAA- and AA-rated NCDs hit 51 basis points, the highest on record. While the spread has narrowed, analysts say it points to a trend of higher financing costs for weaker lenders. “What you see there is a reflection of the fact that (small banks) are forced to seek more expensive liquidity,” said Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis. “No matter how much they
Sanctions
Trade with North Korea up after UN sanctions In August, China’s imports from North Korea were US$288.3 million, up 84.4 per cent from July China’s trade with North Korea rose in August to its highest since December 2016, data showed on Saturday, even after the United Nations slapped tougher sanctions on Pyongyang in a bid to choke off a third of its US$3 billion in annual export revenue. The world’s second-largest economy imported and exported goods worth US$604.27 million in August, up from US$456.16 million in
Trucks on the Korean border
July, according to data from China’s General Administration of Customs. While the highest number this year, August trade was down from US$628.2 million in August last year, according to data on the customs website. Trade was up 7.5 per cent at US$3.61 billion for the year to date. China’s move to halt North Korean coal imports in
February and its decision to stop selling fuel have crimped Pyongyang’s ability to raise hard currency through exports. The data comes after the United Nations Security Council unanimously voted on Aug. 6 to impose a ban on exports of coal, iron, iron ore, lead, lead ore and seafood as punishment for intercontinental ballistic missile tests in July.
The sanctions were due to take effect in early September, but Beijing issued an official order implementing the new rules from Aug. 16. Tensions between the United States and North Korea have ratcheted up after Pyongyang conducted its sixth and most powerful nuclear test Sept. 3, prompting the United Nations to impose even tougher sanctions last week. Earlier on Saturday, China said it will limit exports of refined petroleum products from Oct. 1 and ban exports of condensates and liquefied natural gas immediately to comply with the latest UN sanctions. It will also ban imports of textiles from North Korea. On Thursday, U.S. President Donald Trump ordered new sanctions that open the door wider to blacklisting people and entities doing business with the isolated nation, including its shipping and trade networks, further tightening the screws on Pyongyang’s missile programme. In August, China’s imports from North Korea were
US$288.3 million, up 84.4 per cent from July and down 1 per cent from a year ago, based on data on the customs website.
‘Earlier on Saturday, China said it will limit exports of refined petroleum products from Oct. 1 and ban exports of condensates and liquefied natural gas immediately’ Exports were US$315.97 million, up 5.4 per cent from July but down 6.2 per cent from a year earlier US$336.9 million a year earlier. Reuters
Business Daily Monday, September 25 2017 9
Greater China Industry
In Brief
Rust belt opens door wider to foreign investors At least one-fifth of EU companies said they have had to share their technology in exchange for market access Joanna Chiu
Trucks carrying hi-tech car components rumble in and out the gates of an American industrial zone in the heart of China’s rust belt -- using roads that the city especially renovated for the complex. While foreign firms complain about being locked out of large swathes of China’s vast market, the door has cracked open a bit wider in north-eastern Liaoning province as the authorities seek to revive the recession-hit industrial region. The bustling activity at the Shenyang American Industrial Park, which hosts international suppliers for global car brands, stands in contrast with the darkened windows and empty parking lots of the moribund Chinese factories nearby. Foreign firms feel more welcome in the provincial capital, Shenyang, and in parts of the southwest, than anywhere else in the country, according to a survey by the European Union Chamber of Commerce in China. “The local government offers many benefits, such as easing company registration, providing discounts for factory and office space and giving family members three-year visas,” said Harald Kumpfert, chairman of the EU chamber’s Shenyang chapter. Elsewhere, companies are increasingly voicing frustration about investment barriers in sectors from automotive to finance, while China subsidises its own domestic businesses. The EU business chamber issued an annual report on Tuesday saying companies were “suffering from accumulated ‘promise fatigue’” as the government has yet to follow through on pledges to open the market. And while Liaoning is more welcoming, Kumpfert said that after setting up shop, businesses in Shenyang face similar obstacles, including lengthy waits for permits and “unclear” regulations. Settling in China can also come at a price: at least one-fifth of EU companies said they have had to share their technology in exchange for market
access in the aerospace, machinery, environment, auto, utilities and primary energy industries.
‘Work as a team’
Still, the chamber has observed an uptick in foreign entrepreneurs arriving in Shenyang in recent years. Businesses that specialise in renewable energy, tourism, agriculture or advanced technology are well positioned to succeed in Shenyang as the city addresses pollution and undergoes a “painful restructuring process”, Kumpfert said. The Liaoning Pilot Free Trade Zone was launched earlier this year, and construction continues in the 48-square-kilometre Sino-German Intelligent Equipment Manufacturing Park in Shenyang, which hosts BMW, Siemens and BASF. The city’s Bureau of Foreign Trade and Economic Cooperation said data on foreign investment was not immediately available. China’s northeast has long relied on state-owned enterprises plagued with severe overcapacity in heavy industries that have crippled the economy, costing thousands of jobs. Liaoning was the only province in the country that was officially in recession in 2016, with its economy contracting by 2.5 per cent. The province also admitted to faking economic growth figures from 2011 to 2014. “All these government projects have ignored principles of supply and demand and created all these
problems,” said Jason Lee, a director of business development for Eastern America, which bought the land from the city to build the Shenyang American Industrial Park. “Nowadays, there is more government support for foreign businesses here. There’s a lot to catch up on, but now they want to work with us as a team,” Lee told AFP, adding that city officials sometimes accompany him to meetings to woo foreign clients.
Slow process
A Shenyang car insulation factory manager, Li, is pinning his hopes on foreign capital to help the region. “If more people come and invest, then the whole environment will improve. Employment, revenue, and other aspects will all get better,” said Li, who declined to give his first name because he was not authorised to speak with the media. But at the Shenyang German Sino-Service Centre, most of the offices in a new building were recently empty, showing that the process can still be slow. Wolfgang Wagner, chief operating officer of the centre, says it was not out of lack of interest -- two dozen foreign companies have applied to join but they have struggled to get legal permits to allow them to rent in a government-owned building. “First we thought they could move in 2018,” he said. “Now it’s not going to be until 2019.” AFP
Financing
Post Bank raising US$7.3 bln via preferred shares The funds will be used to increase its so-called additional tier 1 Capital and support future business development Elzio Barreto and Sijia Jiang
Postal Savings Bank of China Co (PSBC) is raising US$7.25 billion through an issue of preferred shares to shore up its capital buffer and boost lending, becoming the latest Chinese bank to raise funds through the hybrid securities. State-run PSBC’s fundraising comes a year after it garnered US$7.63 billion in a Hong Kong IPO. The lender also unveiled plans in August for a share listing in Shanghai to raise US$785 million.
The deal will help PSBC “to enhance the overall competitiveness of the Bank, improve the capital structure and to achieve sustainable development,” it said in a statement on Friday. The proceeds will be used to increase its so-called additional tier 1 Capital and support future business development, it said. PSBC’s preferred shares will yield 4.5 per cent a year and have a par value of RMB100 each, it added. Preferred shares have the characteristics of both debt and equity,
and typically don’t trade on the open market or carry any voting rights. Listed companies can sell preferred shares to raise capital with minimal dilution in the value of shares held by existing stakeholders. China’s regulator had previously stipulated that preferred share issues to the public must not contain provisions that allow these shares to be converted to common equity. Chinese regulators implemented rules in 2014 that opened the door for banks to issue preferred shares in a bid to bolster the lenders’ finances against an expected rise in bad loans as the economy slowed down. Banks also needed funds to comply with stricter capital adequacy requirements under the global Basel III rules. Since then, several major lenders, including Shanghai Pudong Development Bank Co and Bank of China, have raised funds that way. China Citic Bank Corp said in November it plans to raise RMB35 billion (US$5.31 billion) via a preferred share sale. Reuters
Capital market
Stock regulator vows crackdown on misbehaviour A top securities regulator has vowed to crack down hard on misbehaviour including market manipulation, insider trading and collusion with “big crocodiles” in the country’s capital markets. In a statement on Friday on its website, the China Securities Regulatory Commission (CSRC) said its chairman, Liu Shiyu made the comments at a recent internal meeting. Liu, also said regulators should nip illegal activities in the bud, with zero tolerance, according to CSRC. The statement did not say when Liu, who did not identify any of the “big crocodiles”, made his vow to crack down on misbehaviour. Trade
Domestic glut pushes up gasoline exports China’s gasoline exports rose in August as refiners continued to sell excess product abroad amid a domestic glut, customs data showed on Saturday. August gasoline shipments rose 35.2 per cent from a year ago to 910,000 tonnes, according to data from the General Administration of Customs. Diesel exports rose to 1.47 million tonnes in August, up 38.2 per cent on a year ago, data showed. The gain came as state oil companies seek higher export quotas for the fourth quarter to take advantage of higher overseas profits and ease domestic oversupply. Some have already used most of their allocated volumes in August. Real estate
Shaanxi inspects banks for illegal lending The banking regulator of China’s north-western province of Shaanxi has ordered inspections of local banks to better gauge financial risks from illegal lending to the real estate sector, two banking sources said on Friday. The Shaanxi office of China Banking Regulatory Commission including (CBRC) is targeting six areas of irregularities, including illegal financing for land purchases and real estate development projects, and loans borrowed to fund mortgage downpayments, the sources said. The banking regulator also asked banks to “strictly prevent” default risks of property developers and individual mortgages, particularly those issued during the period of rapid housing price rises. Expansion
Ping An Insurance buying stake in Japan drug maker Japanese drug maker Tsumura & Co said on Friday Ping An Insurance Group Co of China Ltd will become its biggest shareholder by acquiring a 10 per cent stake for 27.3 billion yen (US$243.7 million). Tsumura is well known in Japan as a prescription drug maker specialised in “kampo” herbal medicine, which traces its roots back to China. In a statement, Tsumura, which has annual revenue of about US$980 million, said it will place newly issued shares and treasury stock to Ping An for 3,559.5 yen a share, a 9.4 per cent discount to Friday’s closing price.
10 Business Daily Monday, September 25 2017
Greater China M&A
Beijing-backed fund shunned by Trump to buy British chipmaker Canyon Bridge’s investment focus complements China’s efforts to move its manufacturers up the value chain and create innovative and competitive global conglomerates Koh Gui Qing
C
anyon B r i d g e Capital Partners, the China-backed buyout fund that was barred last week by U.S. President Donald Trump from buying a U.S. chip maker, said it would purchase British chip designer Imagination Technologies Group Plc. The all-cash 550 million pounds (US$742.5 million) deal to buy Imagination showed Canyon Bridge
remained focused on investing in Western chip makers after its US$1.3 billion deal to buy Lattice Semiconductor Corp in the United States was blocked over U.S. natural security concerns. Canyon Bridge said on Friday it had agreed to pay 182 British pence per Imagination share, a near 42 per cent premium to Imagination’s closing price on Friday. But the purchase is contingent on Imagination divesting U.S. chip designer MIPS, which Imagination had bought in
2013, the two companies said in a joint London stock exchange filing, adding that the takeover would not result in job cuts. Keeping MIPS would subject Canyon Bridge’s purchase of Imagination to a review by the Committee on Foreign Investment in the United States (CFIUS), the government panel which rejected its acquisition of Lattice. Imagination said it had agreed to sell MIPS for US$65 million to Tallwood Venture Capital, an
investment firm with offices in Palo Alto, California, and Wuxi, southern China. It was not immediately clear whether the divestment would be subject to a CFIUS review. Canyon Bridge was founded with capital originating from China’s central government and had indirect links to Beijing’s space program. It currently manages about US$1.5 billion on behalf of Yitai Capital Ltd, a Chinese state-owned company, according to Friday’s statement. Imagination, whose graphics power Apple Inc’s iPhone, licenses graphics and video-processing technology to semiconductor companies. But shares in the once-great European tech success story hit the skids in April when Apple, its biggest customer, said it would stop using its graphics technology in its new products, causing Imagination shares to crash 70 per cent. The two firms are in a legal dispute over royalties at the moment. Lattice, on the other hand, makes chips known as field-programmable gate arrays, which let companies put their own software on silicon chips for different uses. It does not sell chips
to the U.S. military, but its two biggest rivals - Xilinx and Intel Corp’s Altera - make chips that are used in military technology. Following Trump’s decision to bar Canyon Bridge from buying Lattice, Treasury Secretary Steven Mnuchin said the move reflected concerns about the transfer of intellectual property, Beijing’s role in the deal, the importance of semiconductor supply chain integrity to the U.S. government, and the U.S. government’s use of Lattice products.
‘The purchase is contingent on Imagination divesting U.S. chip designer MIPS’ Canyon Bridge’s investment focus complements China’s efforts to move its manufacturers up the value chain and create innovative and competitive global conglomerates. In the past two years, the Chinese government has set aside at least RMB350 billion (US$53.11 billion) to invest in new technologies. Reuters
Environment
Top smelting province to cut output in several industries The output reduction will take effect from October 1 until the end of this year Cities in China’s eastern province of Anhui are issuing plans to curb production in the steelmaking, non-ferrous smelting, cement and coalfired power sectors over the coming winter in a drive to meet a politically crucial air pollution target. Anhui, a key non-ferrous smelting province, took the initiative to curb output even though it has been excluded from Beijing’s winter smog “battleplan” applying to 28 cities in the smog-prone northern region. The step comes after the province failed to meet its target of reducing hazardous air pollutants, known as PM 2.5, in the first seven months of this year. In 11 of 15 cities in the province, the average PM 2.5 kept rising despite efforts to eliminate polluting coal-fired boilers and vehicles.
The city of Tongling, home to one of the country’s largest copper smelters, Tongling Nonferrous Metals Group Holdings , has asked some major cement, smelting, steel pelletizing and chemical firms to cut capacity by 30 per cent, according to a statement seen by Reuters and confirmed by people with knowledge of the matter. The statement also identified seven companies in the coke, cement, non-ferrous smelting and stone-mining sectors that must shut during the winter, including projects at two subsidiaries of Tongling Nonferrous Metals. “We have received notice from local authorities,” said a senior official at Tongling Nonferrous Metals who asked not to be identified as he is not authorised to speak to the media. “Environmental protection
won’t be a temporary method in China, instead, it will be a long-lasting policy,” he said.
‘The provincial government asked local authorities to draw up detailed schemes to improve their air quality before the end of August’ Tongling Nonferrous Metals currently has 2.05 million tonnes of copper resources,
1.35 million tonnes of annual copper smelting capacity and 380,000 tonnes of comprehensive copper processing capacity. The provincial government asked local authorities to draw up detailed schemes to improve their air quality before the end of August. Some cities, including Xuancheng,
Liu’an, Anqing and Chizhou, have published their plans. Anhui has pledged to keep its PM 2.5 concentration below 54 micrograms per cubic metre this year. In the first seven months, the average concentration was 58.5, according to data from the local environmental protection department. Reuters
Business Daily Monday, September 25 2017 11
Asia Monetary policy
Indonesia c.bank cuts key rate again to fire up growth Annual headline inflation slowed to 3.82 per cent in August, down from 3.88 per cent a month earlier Nilufar Rizki and Hidayat Setiaji
I
ndonesia’s central bank on Friday cut its main interest rate for the second consecutive month, wrong-footing most analysts as it seeks to support sluggish lending and consumption holding back growth in Southeast Asia’s biggest economy. Policymakers in Indonesia have been struggling to lift the economic growth rate, which has remained around 5 per cent in each of the past four quarters. “The rate cut is clearly aimed at boosting the economy, which has struggled over the past few years,” said Gareth Leather, senior Asia economist at Capital Economics.
Key Points Central bank cuts benchmark by 25 basis points to 4.25 per cent Second cut in two months surprises most analysts C.bank says has taken into account potential Fed rate hike Bank Indonesia (BI) cut the benchmark seven-day reverse repurchase rate by 25 basis points to 4.25 per cent, following its first cut since October 2016 last month. Twenty of 26 analysts in a Reuters poll had expected the central bank to hold rates on Friday, while the remaining six forecast a cut. BI has now cut the benchmark rate
by 200 basis points since the start of 2016. The central bank had taken into account a potential U.S. rate hike and balance sheet normalisation by the Federal Reserve when it decided to cut rates, said BI executive director Dody Budi Waluyo. He said BI would continue to monitor other external risks, such as credit rating downgrades in China. The monetary easing should help boost the pace of bank lending and would not risk reigniting inflationary pressures, said Waluyo. “The cut is still consistent with the
realisation and expectation of low inflation in 2017,” he said, adding that 2018 and 2019 inflation would also fall below the mid-point of the range. Indonesia’s annual headline inflation slowed to 3.82 per cent in August, down from 3.88 per cent a month earlier. In the second quarter, the economy grew 5.01 per cent from a year earlier, the same as in the previous quarter, blunted by weaker than expected household consumption, the biggest contributor to Indonesia’s gross domestic product. On Thursday, three Asian central banks - Japan, Philippines and
Taiwan - kept their monetary policies unchanged. Further Indonesian monetary easing would depend on inflation and the rupiah’s stability against the U.S. dollar, Waluyo said. The rupiah has gained 1.2 per cent against the U.S. currency so far this year and traded in an exceptionally narrow band. Maybank Indonesia’s economist, Myrdal Gunarto, said the rate cut could be the last for this year as “external pressures will begin to intensify” when major central banks around the world begin to tighten their monetary policy. Reuters
Policy
IMF says Bank of Japan should maintain stimulus Prime Minister Shinzo Abe has pledged to proceed with a sales tax hike to 10 per cent from 8 per cent in 2019 Leika Kihara
The Bank of Japan (BOJ) should maintain its massive monetary stimulus and enhance its communication of how it expects to achieve its 2 per cent inflation target, a senior IMF official said on Friday. Odd Per Brekk, the International Monetary Fund’s mission chief for Japan, said the BOJ will likely lag behind the U.S. Federal Reserve and the European Central Bank in normalising monetary policy. “But we think this is appropriate, as monetary policy is focused on domestic conditions and domestic conditions are different among countries and regions,” he said in a seminar. Brekk said the BOJ’s decision last year to shift to a policy targeting interest rates rather than the pace of money printing has made its stimulus programme more sustainable. “The de-emphasising of the quantitative element... is a good move,” he said. “The BOJ’s bond purchases have tapered off to an (annual) pace of around 50-60 trillion yen
(US$446-536 billion). This is fine.” Brekk also said a gradual, steady increase in Japan’s sales tax, coupled with steps to curb social security spending, is the most growth-friendly way to achieve medium-term fiscal reform. “We are worried about the 2 percentage point increase” in the sales
tax scheduled in 2019, because the previous hike in 2014 led to an economic downturn, Brekk said. “A better strategy is to pre-commit to a smaller but gradual rise of 0.5 per cent or 1 per cent each year, until the (tax rate) level reaches around 15 per cent,” he said, repeating a recommendation the IMF made in annual
Article 4 consultations. Prime Minister Shinzo Abe has pledged to proceed with a sales tax hike to 10 per cent from 8 per cent in 2019, although some of his aides have suggested the government may postpone the increase again for fear of killing off a budding economic recovery.
Key Points IMF welcomes slowdown in BOJ’s bond buying - Brekk Brekk says “worried” about impact of tax hike in 2019 IMF recommends smaller, gradual sales tax hike each year Abe is expected to call a snap election as early as next month. Sources say that to lure voters, he will pledge to use part of revenues from the scheduled tax hike to boost spending on education and child care, instead of using the bulk for social security costs and repaying debt. Reuters
12 Business Daily Monday, September 25 2017
Asia Trade
Without U.S., 11 nations in TPP inch closer to a deal Members agreed to meet again in Japan next month and aim to reach a broad agreement in November
T
he 11 nations remaining in the Trans-Pacific Partnership after the United States withdrew have inched closer to a comprehensive deal, offering hope that major countries can maintain free trade in the face of U.S. protectionism, a negotiator said on Friday. The original 12-member TPP, which aimed to cut trade barriers in some of Asia’s fastest-growing economies, was thrown into limbo in January when U.S. President Donald Trump withdrew from the agreement to
prioritise protecting U.S. jobs. Negotiators met for two days in the Japanese capital, Tokyo, to discuss what parts of the original deal they wished to shelve, in a bid to salvage an ambitious vision for a free-trade bloc that originally included the United States. The 11 TPP members agreed to meet again in Japan next month and aim to reach a broad agreement in November at an Asia-Pacific Economic Cooperation meeting set to be held in Vietnam’s central city of Danang. “We made meaningful progress,”
Japan’s chief TPP negotiator Kazuyoshi Umemoto, who chaired the twoday meeting, told reporters. “A TPP ministerial meeting is likely to be held on the side-lines of an APEC summit in Danang. Everyone has shown they are working hard to make sure we can achieve the best result possible.” Japan wants to promote free trade by continuing with the TPP 11 deal to counter U.S. protectionism and hopes Washington eventually rethinks Trump’s “America Frist” trade policy.
“The basic idea is that we would like the United States to come back as soon as possible, which would mean the original TPP would have to be ratified,” Umemoto said. “We are discussing which parts are to be frozen for an early ratification of TPP 11 until then.”
‘Negotiators need to decide how to ratify the deal’ Although the remaining members have voiced continued commitment to the deal, adoption of the pact linking 11 countries with a combined GDP of US$12.4 trillion has stalled at times, raising fears that other countries may follow the United States. At the previous meeting in Sydney late in August, Vietnam raised the prospect of changes to labour rights and intellectual property (IP) provisions in the original pact. Vietnam’s desire to shelve the IP provisions around pharmaceutical data is likely to win broad support, as Japanese and New Zealand officials have indicated they back the change. Negotiators also need to decide how to ratify the deal. The original pact required ratification by at least six countries accounting for 85 per cent of the combined gross domestic product of members. That condition cannot be fulfilled after the U.S. withdrew and would need to be changed. A free trade deal Japan struck with the European Union in July, after four years of talks, offers hope for eventual resolution of the technical difficulties around TPP 11. Reuters
Corporate debt
India eases foreign investment rules Central bank on Friday eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit The move potentially freed up 440 billion rupees (US$6.79 billion) of debt available to offshore investors. Access to the corporate bonds by foreign investors will be phased in over the next two quarters -- 270 billion rupees during October-December and 170 billion rupees in January-March, the Reserve Bank of India said in a circular. Rupee-denominated bonds -- more widely known as masala bonds -- will now come under rules for external commercial borrowings and issuers will have to take prior permission from the RBI to raise the paper. Earlier these masala bonds used to be classified under the foreign portfolio investment limit for corporate bonds that stands at 2.44 trillion rupees. This total limit has been fully taken up following massive foreign inflows. So far this year India has attracted US$23.7 billion in debt investment and US$6.08 billion in equity
Business Daily is a product of De Ficção – Multimedia Projects
purchases, helping the rupee rise 4.8 per cent. “It is in a way further liberalisation for foreign investors,” said one official, adding that India’s external debt is in comfortable shape.
‘So far this year India has attracted US$23.7 billion in debt investment and US$6.08 billion in equity purchases’ India’s total external debt stood at US$471.9 billion as of the end of March, of which external commercial borrowings stood at US$124.5 billion, according to the RBI data. Interest in Indian debt has been
very steep among foreign investors. This is seen from the high cut-off fees they paid to buy the marginal limits available under corporate debt on Friday. The cut-off stood at 50.01 basis points for 22.29 billion rupees of auction on Friday, compared with
15.25 bps a month back. The RBI also said that some 95 billion rupees of debt will be available every quarter to long-term foreign investors such as sovereign wealth funds, foreign central banks, insurance funds for investment in infrastructure sector bonds. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, September 25 2017 13
Asia Crowdfunding
A celebrity listing crashes Japanese exchange’s party Valu’s operator, a subsidiary of a company called Party Co, makes clear in its rules that listings have no intrinsic value Yoshiyuki Osada and Marika Tsuji
O
n Japan’s newest exchange, fame can pay off. That may not be so great for investors though. Last month, Hikaru, a Japanese YouTube star so famous he can go by a single stage name, listed himself on Valu, a platform for people to raise money, often for personal projects or businesses, by essentially selling shares in themselves. Unlike many crowdsourcing sites, which are platforms for people or businesses to raise money online from large groups of individuals, the exchange also allows the trading of those who list their “Valus” on the exchange. That means that prices can rise and fall. And rise and fall Hikaru did. Soon after listing, Hikaru, whose YouTube channel boasts 2.6 million subscribers, soared on the market as his fans dived in. But then, just a week after going public, Hikaru and two friends, who go by the stage names Ikkun and Raphael, cashed out, according to officials from the exchange. That made his Valu drop precipitously, prompting howls of outrage on the Internet. “I was a fan of Hikaru so I bought his “Valu” partly to support him and this is what happened,” said one tweet from someone calling themselves Hikaru Valu Victim. “I want my money back.” Hikaru said in a video that he and his friends had been competing to make the most money off the exchange. Many people listing on the exchange
often cite altruistic aims for doing so - like one person raising funds for a project to encourage young people to move to rural Japan. But Hikaru has said that he listed on the exchange just to get attention. He apologised for the move that may have ended his career, but noted that his actions did not constitute wrongdoing under the rules of the exchange. Those rules just say that members should not post untrue or deceptive information. There is also nothing illegal about driving up Valus and cashing in, since they are not considered a financial product by the Financial Services Agency. An official from the watchdog said it had been watching the Valu exchange, but would only advise it to inform investors that listings did not require financial disclosure. Since the Hikaru debacle, Valu has added restrictions on the
frequency of trading to prevent similar occurrences. Hikaru and his two fellow YouTubers did not respond to requests for comment. VAZ Inc, a company that represents Japanese YouTubers, including Hikaru and his two friends, said the star and friends made a total profit of about 50 million yen (US$444,000) in bitcoins, the currency of the exchange. He bought back an unspecified number of Valus in an effort to make amends, he said on Twitter, which VAZ and the exchange confirmed. But his Valus never recovered their highs. His shares, which hit a peak of 0.090 bitcoin, or around US$387, before he sold out, tanked to as low as 0.0075 bitcoin. They last stood at 0.014 bitcoin on Friday, or about US$50 at the current bitcoin rate. The exchange declined to comment
on how much his supporters lost. The incident was a rude awakening for Valu, which was launched this summer and has so far attracted about 60,000 members. Fund raisers sell Valus to the members, who are free to buy and sell their stakes. Valu’s operator, a subsidiary of a company called Party Co, makes clear in its rules that listings have no intrinsic value. There are also no requirements for reporting results, or any other information. There are no voting rights, or dividends. That means the sole basis for rising shares is speculation. “What Valus represent is a big question,” said Makoto Sakuma, a researcher at NLI Research Institute. “Despite their name, Valus have little economic fundamental value.” Party Co says buying Valus should be seen as a donation or show of support rather than an investment. “Our service can directly support people in any places across the globe,” said Kohei Ogawa, president of Valu Inc. Kenta Toshima, 30, listed himself on the exchange to raise funds for equipment for a project to help rehabilitate elderly people with virtual reality. He said he had raised about 200,000 yen from about 40 people within a few weeks after listing himself. The exchange’s operators say they will keep going. But the backlash against Hikaru appears to have taken its toll on the YouTuber. In early September, Hikaru posted a video in which he appeared with Ikkun and Raphael, and said he would halt his YouTubing activities. Reuters
Oil industry
Sri Lanka in talks with two Chinese firms for US$3 bln refinery The Hambantota refinery will be the second new refinery the island nation has planned in the country Shihar Aneez
Sri Lanka is in talks with two Chinese companies about investing up to US$3 billion to build in a new refinery at its Chinese-controlled port, a top government official said on Friday. Sri Lanka wants to build a new refinery in its southern Hambantota port, where China Merchants Port Holdings (CMPH) has a 99-year lease to handle commercial operations. Located near the main shipping route from Asia to Europe, Hambantota port is likely to play a key role in China’s “Belt and Road” trade route initiative. Mangala Yapa, a director at the state-run Board of Investment, said two Chinese companies had put forward a joint venture proposal for the refinery, which is expected to produce 5 million tonnes per annum with an investment between US$2.5
billion and US$3 billion. He did not name the Chinese firms. “The investment is large and we are discussing with the two companies on that basis,” he told Reuters, adding the joint venture plan was chosen from three bids including one from a U.S. company through a local partner. “The refinery needs around 500 acres of land and we can’t reserve the land. Many people try to get the land first and then look for investors.” Yapa did not elaborate on the plans of the proposed refinery. China’s influence over Hambantota port has sparked widespread anger in Sri Lanka. The deal with CMPH, which has a majority stake in the lease, fuelled speculation the port could be used for Chinese naval vessels. CMPH is also in talks with the government to develop an industrial zone next door.
This year, the government revised its original deal with CMPH to give greater influence to the Sri Lankan Ports Authority to try to allay concerns - including from Japan, the United States and India - that the port might be used for military purposes. The investment zone deal is yet to be signed. The Hambantota refinery will be the second new refinery the island nation has planned in the country. Sri Lanka already has a deal for a
100,000 barrels per day-plus (bpd) refinery with Indian Oil Corp at the country’s eastern port city of Trincomalee with the aim of exporting fuel. Sri Lanka’s sole oil refinery, staterun Ceylon Petroleum Corporation’s decades-old 50,000 bpd plant, was originally configured to run on Iranian crude and Sri Lanka had to import more refined oil products after U.S. sanctions led it to stop imports from Iran. Reuters advertisement
14 Business Daily Monday, September 25 2017
International In Brief London licence
Uber ready to make concessions U.S. taxi firm Uber is prepared to make concessions as it seeks to reverse a decision by London authorities not to renew its licence in the city, which represents a potentially big blow for the fast-growing company, a newspaper reported. The Sunday Times also quoted sources close to London’s transport body as saying the move was encouraging and suggested the possibility of talks. “While we haven’t been asked to make any changes, we’d like to know what we can do,” Tom Elvidge, Uber’s general manager in London, told the newspaper. Diplomacy
Venezuela slams Canada sanctions Government criticized Canada’s Friday announcement of targeted sanctions against 40 of its senior officials, accusing Ottawa of “submission” to U.S. President Donald Trump in a bid to overthrow the South American country’s leftist administration. Canada’s move, which followed a similar decision by the United States, came after months of protests against President Nicolas Maduro’s government. At least 125 people were killed in the demonstrations. Critics say Maduro has plunged the nation into its worst economic crisis ever and brought it to the brink of dictatorship. Maduro says he was facing a U.S.-backed “armed insurrection” seeking to foment a coup.
Brexit
Echoing France, Germany says May offered “nothing concrete” EU countries are insisting that Britain reach a deal with the bloc on the terms of its divorce before moving on to negotiate its future trading relationship
G
ermany’s foreign minister said on Saturday that he had been disappointed by British Prime Minister Theresa May’s Brexit speech, adding to a downbeat reception from France ahead of the resumption of Brexit negotiations next week. “We heard nothing concrete. It is time for the government of Great Britain to clearly state under what conditions it wants to leave the European Union,” Sigmar Gabriel told reporters in the northern German city of Wolfenbuettel. In a speech in the Italian city of Florence on Friday, May set out a plan to retain full access to the EU’s single market for two years after Brexit, to try to reassure business and reset the tone of stalled negotiations with Brussels. Shortly afterwards, French President Emmanuel Macron said there was still not enough clarity on rules
for European Union citizens living in Britain, the divorce bill it would pay, and how the land border with Ireland will work. “If these three points are not clarified, we will not be able to advance on the rest,” Macron said.
Key Points Foreign minister says: “We heard nothing concrete” Presses for more clarity from British government Business group says industry needs planning certainty On Saturday, Gabriel said the EU would not back away from its demand for Britain to pay some 60-100 billion euros (US$72-120 billion) for the divorce, adding that he continued to view Britons’ decision to leave the EU as a huge mistake.
British Prime Minister Theresa May delivers her speech on Brexit in Florence, Italy, 22 September 2017. Source: Lusa
“The Conservatives in Britain didn’t tell their citizens the truth about the consequences, and that is why they seem to be unable to present a clear strategy,” he said. “We need clarity from the British government, and no conflict within the British government between the foreign minister and the prime minister. We’re running out of time.” Britain is due to formally leave the bloc in March 2019.
“EU is unified”
Gabriel, a Social Democrat, said Britain had refused to answer the EU’s key questions on issues such as its financial obligations under the EU budget, adding: “Thank God, the EU is more unified than ever before.” A leading member of Merkel’s conservatives also criticised May’s address. “Theresa May’s speech underscores the will of London to move ahead with Brexit negotiations, but unfortunately it will not provide a new dynamism in the talks that is so urgently needed,” Michael Stuebgen, European spokesman for the conservatives in the German parliament, said in a statement. He also said May had failed to address the issue of future borders, especially in Ireland. “On this basis, we can hardly expect the needed progress in the Brexit negotiations before the European Council meeting in October,” he said. The EU’s chief Brexit negotiator, Michel Barnier, said on Friday that May’s speech showed “a willingness to move forward”, but that he wanted to hear a “precise negotiating position” when he meets his British counterpart today. Reuters
GDP
Italy hikes growth forecasts Italy on Saturday raised its forecasts for economic growth this year and next and said it would cut the budget deficit by less than previously promised. The brighter outlook may help the ruling Democratic Party ahead of national elections early next year if voters notice an improvement in living standards, though Italian growth continues to lag most of its euro zone partners. Gross domestic product (GDP) will rise by 1.5 per cent in 2017, the Treasury said, raising its previous projection of 1.1 per cent made in April to reflect better than expected data in the first two quarters and buoyant business sentiment. M&A
Lufthansa offering to pay 200 mln euros for Air Berlin The company is offering to pay 200 million euros (US$239 million) to buy its insolvent smaller rival Air Berlin and is prepared to pay up to 100 million euros to meet operating costs to keep the airline going in the interim, newspaper Bild am Sonntag (BamS) said yesterday. Citing sources close to the proceedings, the paper said that there could be three months between signing a purchasing contract and implementing the transaction because the German and European competition authorities would first need to vet any deal, BamS said.
Obamacare
Trump pressures U.S. senators to back healthcare bill Brookings Institution said on Friday that the Graham-Cassidy bill could leave at least 21 million fewer Americans with health insurance by 2020 to 2026 Amanda Becker
U.S. President Donald Trump on Saturday blasted Senator John McCain for dealing a possibly fatal blow to the latest Republican attempt to dismantle Obamacare. According to a new independent analysis, the bill awaiting a Senate vote could lead to 21 million fewer Americans having health insurance. McCain, an Arizona Republican who is being treated for brain cancer and cast a crucial “no” vote to defeat a similar bill in July, said on Friday that he could not “in good conscience” vote for the proposal authored by Republican Senators Bill Cassidy and Lindsey Graham. “He campaigned on Repeal & Replace. Let Arizona down!” Trump wrote about McCain on Twitter early Saturday morning. Senate Majority Leader Mitch McConnell has said he will schedule a vote on the Graham-Cassidy bill by Sept. 30, the last day when it could pass in the chamber with a simple majority of 51 votes instead of the 60 typically required. The bill would take federal money spent on the Medicaid program for the poor and disabled, as well as subsidies to help individuals buy private insurance, and deliver it to the states in block grants. The non-partisan Congressional Budget Office, which analyses
legislation, has not had time to assess the Graham-Cassidy bill before the expected vote. McCain, a close friend of Graham, said he could not support it without knowing how much it would cost, its effect on insurance premiums, and how many people would be affected.
‘Republicans need at least 50 votes to pass the bill, relying on Vice President Mike Pence to break a tie’ But the Brookings Institution said on Friday that the Graham-Cassidy bill could leave at least 21 million fewer Americans with health insurance by 2020 to 2026. The Washington think tank has generally been supportive of Obamacare, which is formally known as the Affordable Care Act. The coverage estimate “likely understates” reductions in insured Americans because it is not clear how states would use the money or if they would face obstacles in setting up new programs, according to Brookings researchers.
“What is clear, however, is that the legislation would result in very large reductions in insurance coverage,” they wrote. CBO estimates of previous Republican proposals showed they could lead to more than 20 million fewer insured Americans. This complicated passage in the 100-member Senate, where Republicans hold 52 seats and Democrats are unanimously opposed to repeal-and-replace measures. Republicans need at least 50 votes to pass the bill, relying on Vice President Mike Pence to break a tie. Republican Senator Susan Collins of Maine has said she was leaning against the Graham-Cassidy bill, as has Senator Rand Paul of Kentucky. Kansas Senator Jerry Moran and Alaska’s Lisa Murkowski are undecided. After blasting McCain, Trump on Saturday singled out Paul and Murkowski. “I know Rand Paul and I think he may find a way to get there for the good of the Party!” Trump wrote on Twitter. Regarding Murkowski, he tweeted that in Alaska: “Deductibles high, people angry!” The insurance industry, hospitals, consumer activists, the AARP advocacy group and organizations such as the American Medical Association, American Heart Association and American Cancer Society all oppose the bill. Reuters
Business Daily Monday, September 25 2017 15
Opinion
Central bank puzzle of our era is ... what gives? Daniel Moss a Bloomberg View columnist
M
aybe central banks aren’t quite so powerful after all. Might we be overestimating their ability to bring inflation back to their target, typically 2 per cent, at least in the near term? They’ve been chastised for that failure, but the admonishment could be wide of the mark. Perhaps inflation should be given longer to climb? Should monetary policy pay more attention to financial conditions and stability? (Hard to argue with that, given the debacle of 2007-2008.) More fundamentally, could policy makers be hostage to powerful trends built up over decades -like technological innovations and an increasingly global economy? These forces have little to do with where the Federal Reserve, the European Central Bank or the Bank of Japan set their benchmark rates. These are among the issues probed by Claudio Borio, a top official at the Bank for International Settlements, a kind of central bank for central banks. In a speech Friday, Borio said he would be deliberately provocative; he didn’t disappoint. It’s a timely and significant contribution to the intensifying debate about why, eight years into a global expansion with unemployment very low, inflation and wages just aren’t firing. The scrutiny of policy was on full display this week when Fed Chair Janet Yellen acknowledged it’s a bit of a mystery why inflation is not only stuck below target, but going the wrong way: south. If some of the issues raised by Borio are indeed to blame, the venerable cohort of Yellen, Draghi, Kuroda & Co. may not be the prime suspects. He devotes some attention to China’s entry into the world economy, and the forces of globalization that contributed to its rise and to whose rise it contributed. This is usually discussed, at least in the U.S., in the context of cheaper goods and the downward pressure put on inflation. Critically, Borio notes that this expanded not just an international market for goods and services, but of labour as well. “Is it reasonable,” he asked, “to believe that the inflation process should have remained immune to the entry into the global economy of the former Soviet bloc and China and to the opening up of other emerging market economies? This added something like 1.6 billion people to the effective labour force, drastically shrinking the share of advanced economies, and cut that share by about half by 2015.” It strikes a chord given the exasperated tone emerging from central banks. I began thinking more about this after hearing Philip Lowe, governor of the Reserve Bank of Australia, decry mediocre wage growth in June and suggest that workers demand higher pay. Stephen Jen, a classmate of Lowe’s at the Massachusetts Institute of Technology and a director of Eurizon SLJ Capital Ltd. in London, said in response that the relationship between labour and capital changed profoundly after China entered the World Trade Organization in 2001. All economic models, including those that link employment with wages, needed to be recalibrated, he said. Borio’s remarks would indicate that Jen was on to something. And so was Yellen this week, especially in her pretty candid response to a question from Chris Condon at her press conference this week: “I will not say that the committee clearly understands what the causes are.” Borio appears to have some sympathy for that view. Nonetheless, we shouldn’t abandon our quest to find out what gives. It’s not just an American issue; it’s one of the big economic policy questions of the decade. More provocation, please. Bloomberg View
‘Could policy makers be hostage to powerful trends built up over decades -- like technological innovations and an increasingly global economy?’
There’s nothing old about this bull market Barry Ritholtz a Bloomberg View columnist
I
keep reading how this bull market is the second-longest since World War II. Lots and lots of articles, comments, observations, tweets, blog posts and on and on are running with this idea. The assertion has been made by both amateurs as well as some fairly sophisticated types who should know better. But there are several problems with these claims. First, they simply are wrong about the length of this bull market. Second, whatever methodology the authors rely on to reach their errant conclusions are either unknown or deeply flawed. And third, they smack of sensationalism designed to draw readers, clicks and hits rather than to offer useful insight. Let’s see if we can unpack some of the issues here and determine if this is indeed the second-longest bull market in history. Let’s begin, as we have pointed out before, by noting there is nothing magical about a 20 move in the markets as a signifier of either a bull or a bear market. That figure is simply our mental default setting, based on the number of fingers and toes our DNA is programmed to create. I have never paid it much attention, and neither should you. Regardless, from May to October 2011, the Standard & Poor’s 500 Index fell 21.6. Some folks like to point out that based on closing prices rather than intraday moves, it only fell 19.4, so by that yardstick a bear market never registered. This raises our second question: if 20 is the magic number, why measure the decline based on closing prices? It seems as if the only reason to do so is to avoid tagging that decline with the magic 20 number. During that same May-October period, however, the Russell 2000 Index fell 30.7. To claim this wasn’t a short-term bear market in the context of a long-term secular bull market seems like a stretch if you’re using the 20 definition. Third, consider the period running from mid2015 to early 2016. My head of research, Michael Batnick, argues that this “absolutely was a bear market.” Here are the peak-to-trough numbers from that period: • Median S&P 500 stock down 25 (the index itself fell 15) • Russell 2000 down 27 • Japan stocks down 29
“
• • • • • •
Dow Jones Transportation Average down 32 Emerging-market stocks down 40 Chinese stocks down 49 Small-cap biotech stocks down 51 Crude oil down 76 New York Stock Exchange new 52-week lows were at their highest point since November 2008 • 80 of S&P 500 stocks fell below their 200-day moving average This points to another issue: relying on one index, even the S&P 500, isn’t necessarily the best measure of bear markets. Although it surely is a widely held, broad index of some of the largest U.S. companies, it isn’t imbued with any special ability to designate bull or bear markets. Looking at the broader picture of markets provides much more insight than any single index. However, for those of you who insist that the present bull market began in March 2009 and thus is the second longest, then you must also acknowledge that the prior bull market, the one you have been describing as running from 1982 to 2000, actually began in 1974. And the one before that began in 1932. As we noted near the eighth anniversary of the March 2009 stock-market lows, you don’t measure the start of a bull market from its bear-market lows. This would be akin to measuring your own age from your date of conception. So what is the length of this bull market? To me, it’s four and a half years old. I have argued for some time now that the best starting date of a new bull market is when the prior bull-market highs are eclipsed. That is how we get a date like 1982 as the start of the last secular long-term bull market. And it is also how I get to March 2013 as the start date of this bull market, when the S&P 500 topped the earlier high of 1,565 set in October 2007. To those who wish to describe the length of a bull market, I make this one simple plea: state what your methodology is, outline the thinking behind your approach, and then be consistent in applying it. Anything short of that is simply repeating myths and making unproven assertions. Investors -- and your readers -- deserve better. Bloomberg View
To those who wish to describe the length of a bull market, I make this one simple plea: state what your methodology is, outline the thinking behind your approach, and then be consistent in applying it
”
16 Business Daily Monday, September 25 2017
Closing State firms
A private solution for China’s zombie company problem? Unlikely China hopes to speed up the reforms in order to meet ambitious economic growth targets and manage its corporate debt burden Julie Zhu and Sumeet Chatterjee
C
hina’s latest push to revive its bloated state-owned sector is set to pick up pace this year, with bankers and investors expecting possible spin-offs and asset sales to follow a key Communist Party Congress in October. But the effort is likely to only involve a limited role for private money, even as Beijing has been promoting it as crucial for reforming stateowned enterprises (SOEs), according to people familiar with China’s plans. Beijing would likely lean on cash-rich SOEs like China Life Insurance and Citic Group Corporation to bail out the largest of the struggling companies, the people said. They cited China Life stepping in to help China Unicom raise US$12 billion last month. A limited role for private capital would raise questions about the depth of any overhaul of the SOEs. China hopes to speed up the reforms in order to meet ambitious
economic growth targets and manage its corporate debt burden. “The current model allows winners, companies doing better, to partially own those doing worse,” said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis. “In other words, this is a reshuffling of profit, loss among SOEs to a large extent.” China Life is in talks with China Three Gorges New Energy, a unit of the country’s top hydropower developer, according to sources familiar with the matter. They said it could also be critical to others in line for so-called mixed ownership, the injection of private capital into state enterprises. Those companies include China Southern Power Grid, China State Shipbuilding Corp and China Nuclear Engineering & Construction Corporation. China Life and Citic Group did not respond to requests for comment. China’s state-run companies dominate the country’s key industries, from banking to insurance, energy, and telecoms. They retain an edge
over their private rivals in investing both locally and overseas, in part thanks to easier financing. But they also produce lower returns than their private counterparts and account for the biggest proportion of the bad loans on the books of the country’s banks. The fund raising by Unicom, a state-owned telecoms group, had sparked hopes for the mixed ownership effort, as outlined in a 2015 government plan. The partial privatisation of Unicom in August, involving 14 investors, including the tech giants Alibaba and Tencent, was welcomed by markets. But, as Beijing balanced the need for cash with the need for control, China Life ended up with a 10.6 per cent stake in the company, nearly a third of the total sold. New investors, including China Life, were given three of 15 board seats. “For the SOE reforms to really take off, the ownership of these companies should be truly diversified both in terms of equity holding as
The partial privatisation of Unicom in August, involving 14 investors, including the tech giants Alibaba and Tencent, was welcomed by markets
well as governance,” said a Beijing-based lawyer who works with the National Development and Reform Commission, China’s top economic planning body, and private companies. “That will be difficult to achieve: there is no incentive for private enterprises to invest in most of these state-owned firms,” said the lawyer, who declined to be named due to the sensitivity of the issue. “So it will be basically a case of using one SOE’s cash balance to try and revive another.” The NDRC and SASAC did not respond to Reuters requests for comment.
Capital raising, by invitation
Private capital is still expected to play an increasing role. Responding to stagnating foreign direct investment and even a possible decline this year, China said last month that it would become more open to international investors - its latest statement about opening up to foreign cash. That includes areas like banking, insurance and securities, where foreign ownership limitations have long grated on overseas companies trying to penetrate the China market. And bankers - with one eye on next month’s Party Congress - expect the post-October wave of state enterprise reform to be more than just tie-ups. It could, some said, extend to smaller sales of unwanted, undervalued assets that may be more attractive to private investors, if they are allowed control. The Party Congress “will be a very important inflection point,” Wei Sun Christianson, China chief executive and Asia Pacific co-chief executive for Morgan Stanley, said at a conference this month, referring to possible sales or spin-offs in the aftermath.
“All of that creates opportunities for investors.” For now, the playing field is favouring the likes of China Life. China Three Gorges New Energy, its next likely investment, according to the people familiar with the matter, is planning to raise about US$1.5 billion from new investors.
‘Bankers expect the postOctober wave of state enterprise reform to be more than just tie-ups’ Other potential investors in China Three Gorges, the next enterprise to receive outside cash, are also state-backed – and there is tepid interest from private investors in the company, said one of the people who has knowledge of the process. We “will actively participate in the next round of mixed-ownership reforms,” China Life’s chairman, Yang Mingsheng, said at an earnings news conference last month. But while some mixed-ownership candidates hold little appeal for private cash, some private players will be considering more than just returns when they weigh their role in China’s reform push. “In China, you can’t always think about how to make money,” said one private investor who joined Unicom’s fundraising drive. “You also need to take part in such reforms to show your support for the government’s policy.” Reuters
Election
Real estate
Refugees
New Zealand’s ruling party ahead after poll
More Mainland cities impose property control measures
Bangladesh imposes mobile phone ban on Rohingya refugees
The leaders of New Zealand’s main parties prepared yesterday to start talks with Winston Peters, the leader of a nationalist party who emerged as kingmaker after an inconclusive general election, but Peters indicated he was in no rush to pick a side. Prime Minister Bill English’s National Party won the largest number of votes in Saturday’s general election, securing a comfortable margin over the Labour opposition after what had shaped as one of the closest votes in recent history. But it was Peters and his often controversial New Zealand First Party who emerged in a position of power, with both National and Labour needing his support to form a government under New Zealand’s proportional representation system. The National Party, which has been in power for a decade, secured 46 per cent of the vote, while Labour had 35.8 per cent and New Zealand First 7.5 per cent. A final tally, including overseas votes, will be released on Oct. 7. The results so far secured 58 seats for National in the 120-seat parliament and 45 for Labour. New Zealand First has nine seats and the Green Party has seven. Reuters
A number of second-tier cities in China have rolled out property speculation curbs in an effort to cool home property sales, according to the official Xinhua News Agency and documents published by some municipal governments. The city of Shijiazhuang, southwest of Beijing, has banned investors from selling newly bought homes for up to five years, while Changsha in Hunan province banned homeowners from buying a second property for up to three years from the time of their first home purchase, Xinhua said. Changsha has also limited property sales to non local residents to one unit per person. The city of Chongqing, as well as Nancang in the southern province of Jiangxi, meanwhile, banned transactions of new and second-hand homes for two years after purchase, according to document published on the municipal governments’ official websites. The various measures took effect last week. Average new home prices in China’s 70 major cities rose 0.2 per cent in August from a month ago, data from the statistics bureau showed. Reuters
Bangladesh has banned telecommunication companies from selling mobile phone connections to Rohingya refugees, citing security concerns for the latest restrictions, officials said yesterday. Bangladesh’s four mobile phone providers were threatened with fines if they provide any of the nearly 430,000 newly arrived refugees from Myanmar with phone plans while the ban is in force. “For the time being, they (Rohingya) can’t buy any SIM cards,” Enayet Hossain, a senior officer at the telecoms ministry, told AFP yesterday. The decision Saturday to impose a communication blackout on the stateless Muslim minority was justified for security reasons, said junior telecoms minister Tarana Halim. Bangladesh already prohibits the sale of SIM cards to its own citizens who cannot provide an official identity card, in a bid to frustrate the organisational capacity of home-grown militants. Bangladesh’s telecoms authority said the ban could be lifted once biometric identity cards are issued to the newly arrived refugees, a process the army says could take six months. The refugees have been herded by the military into a handful of overstretched camps near the border. AFP