MSAR celebrates World Tourism Day Tourism Page 4
Wednesday, September 27 2017 Year VI Nr. 1392 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Education
MSAR institutions ink agreements with Portuguese counterparts Page 5
Gaming
www.macaubusiness.com
Transport
Philippine gaming market potentially at risk of oversupply Page 7
Strategy
Bicycle-sharing services booming in Asia Page 16
Alibaba consolidating logistics offensive Page 8
Gov’t targets addicted dealers Gaming
Reducing the number of gaming addicts through policy. Banning croupiers from entering gaming areas outside of working hours. Public consultation starts today. Increased regulations on entry, working and gaming in casinos, seizure of casino chips from those in violation of regulations and simplifying sanction procedures for under-21s are on the cards. Page 2
Floating mystery
No local records found on companies allegedly involved in initial cyber coin offering linked to the territory’s ‘first’ floating casino-hotel. Touting 400 rooms and 16,000 square metres of gaming space. No local partners, says DICJ. Yet plans are already in place, project designers claim.
Food without borders
Trade Local restaurants can take advantage of CEPA. Opening franchises on the Mainland, say industry representatives. While Mainland chains eye the MSAR. Utilising the ‘Made in Macau’ brand can help ease competition. Page 3
Better outlook for Asia
Cryptocurrency Page 6
HK Hang Seng Index September 26, 2017
27,513.01 +12.67 (+0.05%) Worst Performers
CNOOC Ltd
+3.99%
Want Want China Holdings
+1.75%
AIA Group Ltd
-1.52%
Swire Pacific Ltd
-0.59%
PetroChina Co Ltd
+3.52%
China Petroleum & Chemical
+1.72%
Tencent Holdings Ltd
-1.17%
Hengan International Group
-0.50%
China Shenhua Energy Co
+2.41%
China Merchants Port Hold-
+1.50%
AAC Technologies Holdings
-1.10%
CK Infrastructure Holdings
-0.44%
Kunlun Energy Co Ltd
+2.37%
CK Asset Holdings Ltd
+1.18%
China Overseas Land &
-0.98%
New World Development
-0.36%
China Mengniu Dairy Co Ltd
+1.85%
China Mobile Ltd
+1.01%
WH Group Ltd
-0.63%
China Unicom Hong Kong
-0.36%
26° 33° 28° 32° 27° 31° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
ADB report Brighter prospects for the region. Asian Development Bank raised China and Developing Asia’s 2017 growth forecast in its latest Asian Development Outlook Update. U.S. monetary policy figures among the most important risks. Pages 8 & 12
2 Business Daily Wednesday, September 27 2017
Macau Casinos
Dealing with gaming addiction the hard way Due to the high percentage of dealers who request government assistance for gaming addiction, the Gaming Inspection and Co-ordination Bureau started a public consultation today for a change in the law proposing that dealers be banned from entering gaming areas outside working hours Nelson Moura nelson.moura@macaubusinessdaily.com
increased by 26, for around 150 inspectors.
he public consultation process for a proposed law change that recommends dealers be banned from entering gaming areas outside of working hours starts today. An initiative of the Gaming Inspection and Co-ordination Bureau (DICJ), the proposal is based upon a revision of the law which came into effect in 2012 regulating the entry, work and act of gaming in casinos, which at the time raised the minimum age limit for entering and working in casinos from 18 to 21 years of age. The new proposal involves three main revisions; namely, to include frontline gaming workers in the entry ban in gaming areas; to simplify the sanction procedures for under-21 gamblers; and to introduce a precautionary seizure of casino chips in the possession of individuals found to be infringing the law. The public consultation period will finish on October 17 of this year, with DICJ Director Paulo Martins Chan saying he hopes the new proposal will be presented to the Legislative Assembly (AL) at the beginning of next year.
Speed it up
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Problem croupiers
According to Director Chan, the proposed changes were
made after taking into consideration data from the Social Welfare Bureau (IAS) which indicates an increase in cases of gaming addiction by casino dealers. “A lot of the gaming workers suffer from gaming addiction since they feel they have more knowledge about gaming and of the days during which they have more chances of winning,” the DICJ Director added. According to the head of the IAS Problem Gambling Prevention and Treatment Division, Hoi Va Pou, between 2011 and 2017 some 947 requests for gaming addiction treatment were received by the department,
amounting to 140 cases annually. According to the public consultation document, of the 141 requests for help in 2016, 13.6 per cent were from dealers and 10 per cent were from other workers in the gaming sector. “Since IAS installed the Central Registry System of Individuals with Gambling Disorders in 2011, croupiers have made up the largest percentage of requests for gaming addiction treatment, with the remaining being employees in the gaming sector,” Ms. Hoi stated. The new proposed ban only applies to frontline gaming workers, not casino
employees involved in management, security or food and beverage operations. Infractions of the new law will result in a fine of between MOP1,000 (US$124) and MOP10,000. The ban would also not come into effect during the first three days of the Chinese New Year, with the DICJ head stating “it is a local tradition to gamble on those days”. When questioned on how the department would verify if gamblers in casino gaming areas were frontline workers, Mr. Chan stated that video surveillance would be employed and that the number of gaming inspectors would be
The new law proposal also considered that with the majority of gamblers aged under 21 identified as tourists, the procedures for notifying and fining offenders should be reduced, with inspectors to be able to immediately start procedures after catching someone infringing the law. That person would then be liable to pay the fine 15 days after being notified, with the right to contest the decision. The proposal also suggests that after someone is suspected of infringing the law by a DICJ inspector, the inspector would have the authority to seize the casino chips or other wins that the person was holding and deposit them in the casino reserve until a final decision was made by authorities apropos such infraction. According to the current law, any amount gambled by anyone caught infringing the law and other benefits revert to the MSAR Government; however, the deposit of that amount in the casino requires the consent of the person incurring the infraction. The DICJ head guaranteed that no matter whether the person caught breaking the law wins or loses, that amount would be seized, with gaming operators unable to profit from similar cases.
Rights
MGM raises awareness of human trafficking In a step to increase awareness of human trafficking, gaming operator MGM China has participated in two recent initiatives, inviting non-profit group the Mekong Club to speak to over 100 of its management members.
The United States State Department, in its annual report on human trafficking, stated that Macau ‘does not fully meet the minimum standards for the elimination of trafficking; however, it is making significant
efforts to do so’. Despite the MSAR’s efforts, it was downgraded to the Tier 2 listing of the U.S. department’s watch list, along with countries such as Guatemala, Laos and Pakistan, with the group noting ‘the [MSAR] Government initiated eight trafficking investigations and two prosecutions [during the reporting period], but did not obtain any trafficking convictions for the second consecutive year. Macau authorities identified four sex trafficking victims - the lowest number in the past five years. Therefore, Macau was downgraded to Tier 2 Watch List.’
Speaking at yesterday’s event, the CEO of the Mekong Club, Matthew Friedman, noted that MGM’s role in creating awareness of the issue is “inspiring other hotels and businesses to step up and join the fight against modern slavery”. MGM China Holdings Ltd. CEO Grant Bowie had previously in the 2017 Anti-Slavery Summit organised by Thomson Reuters, acted as a speaker, noting that “for the 40 million victims of modern slavery all over the world, we believe this is a critical issue for us to engage in and make a difference”.
Business Daily Wednesday, September 27 2017 3
Macau CEPA
F&B across borders A catering association representative says the MSAR’s yearly visitor numbers are one of the biggest boons for Chinese F&B investors Cecilia U cecilia.u@macaubusinessdaily.com
I
nheritors of old local restaurants in the MSAR could expand their business into the Mainland with assistance from the Guangdonng Restaurant Association (GRA) or other related associations in the city, believes Tan Haicheng, the executive president of GRA. “[We] can help them standardise their brands so they can develop [their businesses] either through industrial food production or the establishment of chainstores,” Tan told the press on the sidelines of a CEPA (Closer Economic Partnership Arrangement) promotional session yesterday. The session attracted around 50 to 60 food and beverage firms, according to Tan, who stated that the biggest attraction of Macau for those in the Mainland F&B industry is the massive number of annual visitors. In addition, the developments in transportation between cities in Guangdong Province - which allow easier access between cities, as well as speaking the common dialect of Cantonese - are also
factors encouraging Mainland Chinese F&B firms to invest in Macau, said Tan. “Some of these chainstores [from China] are already negotiating with the MSAR Government and the real estate sector,” revealed Tan. “We hope to see some good positions and co-operations come about.”
Fast growing F&B industry in Mainland
The Chairman of the United Association of Food and Beverage Merchants of Macao, Kenneth Lei, on the other hand, said that Macau firms had suffered fierce competition within the Chinese market in the past. “F&B in China is growing quickly plus it is common for these industries to experience fierce competition,” said Lee, while pointing out that local firms in the old days did not have enough experience to properly compete in the market. Nevertheless, the local F&B industry representative said there are food products from the city which are highly popular in the Chinese market “such as beef jerky from Macau, which is sold all over the country; you can see these products have their
[label stating] they are made in Macau” although saying that there are no large scale F&B firms in Macau which have yet entered the Chinese market. Meanwhile, Lee said CEPA has provided more convenience in various areas, such as simplified clearance for firms from both Macau and the Mainland. According to Lee, however, some criteria, such as the regulations on environmental protection, are now stricter. As such, Lee said yesterday’s session would allow firms to obtain more information about establishing businesses in both regions as well as enabling them to
voice opinions on how to improve co-operation between regions. “Through today’s session we hope to get to know more about procedures such as the license registration in Mainland China,” said Lee.
Opening up business opportunities
Yesterday’s exchange session, hosted by the Macao Economic Service (DSE) and the Department of Commerce of Guangdong, invited representatives from notable Chinese restaurant chains and Guangdong authorities to introduce the practicalities of establishing F&B businesses in Mainland China.
The DSE also invited representatives from Macao Government Tourism Office (MGTO) and the Civic and Municipal Affairs Bureau (IACM) to explain administrative and management procedures for F&B businesses in Macau. Meanwhile, the head of DSE, Tai Kin Ip, cited information from the Statistics and Census Service (DSE) during his speech, remarking that there are over 2,200 restaurants or F&B outlets in the city and that the industry employs almost 23,000 workers, accounting for 6 per cent of total employment in the MSAR. advertisement
4 Business Daily Wednesday, September 27 2017
Macau Opinion
Tourism
Tourism brings wealth The city welcomes another year of World Tourism Day
José I. Duarte* Cecilia U cecilia.u@macaubusinessdaily.com
Labour pains, continued The government has launched a consultation process concerning the revision of some points of the labour law. The document will be open for comment for about two months. The drafters of the document did as best as possible to make the changes appear important. They refer to them as ‘priorities,’ suggesting their selection is the outcome of some methodical process albeit it is hard to infer the approach or criteria used. The outcome is a list of seven changes, and they are not overwhelming. We rest assured, however, that the first three of them are those that elicit “bigger concerns in society,” and that the other “may increase flexibility.” What kind of meaningful input is expected from the public is not easy to fathom. They touch mainly on minor changes to maternity and paternity leave, and the compensation and arrangements concerning working on public holidays. None of the existing regulations on these topics is especially generous; the changes will not represent a major departure from that tenor. So, assuming the changes are introduced in the future law proposal, what may change? Fathers may be entitled to three to five days of additional paternity leave and mothers may have an additional 14 days of unpaid leave. It is an improvement that will get the region’s regulations closer to international practice, but they are hardly striking. The other five issues relate to work undertaken on public holidays, and the ways to compensate for them, either by rest days or monetary outlay. The rationale for them is ‘to reflect the fairness and reasonability of the compensation,’ and ‘to reinforce the ‘operational-ity’ (sorry) of the law.’ It is not too clear what that means, but it is conceivably a suitable intention. These are minor changes that will steer the discussion away from other more significant and contentious labour regulation topics. The hot topics are adjourned. The provisions of the Basic Law, nonetheless - the laws touching on trade unions, workers’ rights, and collective bargaining - are unlikely to enter the agenda for the foreseeable future. The status of the ILO (International Labour Organization) conventions, supposedly valid in Macau, is a non-existent issue. Even the promised discussion about a minimum wage is only vaguely scheduled for the first half of 2019. With the selection of the new Chief Executive looming then, it is a subject that will probably have to wait for the new Administration. *economist and permanent contributor to this newspaper.
W
orld Tourism Day, taking place today, is set to be marked with a series of activities, organised by Macao Government Tourism Office (MGTO). This year’s theme of ‘Sustainable Tourism - A Tool For Development’ is set to be commemorated through four main activities, conducted by the Office: Welcome souvenirs for lucky tourists at Macao Ferry Terminal; MGTO Tourist Information counters present souvenirs to visitors throughout the day; Tray Race with competitors from the F&B industry of the MSAR and; World Tourism Day Dinner Banquet with local travel trade partners and media representatives Together with the gaming industry, tourism is one of the main pillars o the city’s economy, with the GDP of exports of tourism services hitting MOP60.98 billion in 2016, according to the Statistics and Census Bureau (DSEC). For the year 2016, the city received MOP52.66 billion in spending by visitors, with the hotel industry alone raking in MOP28.47 billion. Currently, according to data collected by the Macau Hotel Association,
there are 40 3-star to 5-star hotels in the territory, with new major resorts Grand Lisboa Palace and MGM Cotai set to open this year and next, respectively. Despite the significant supply of hotels in the city, the average hotel occupancy rate in 2016 stood at 85.4 per cent, while the hotel sector employed more than 50,000 workers in the third quarter of 2016, according to DSEC.
Mainland tourists prevail
The city welcomed over 30.9 million tourists last year, of whom 20.45 million are Mainland tourists. During the first eight months of this year, 14.36
million tourists from the Mainland entered the MSAR. Brokerage firm Sanford C. Bernstein Co. LLC stated in its recent report that the spending of Mainland tourists will increase by MOP411 billion from 2017 to 2025, an increase of 160 per cent. ‘With rising incomes, rising passport issuance and easing visa restrictions, Chinese travellers are going to become more common in just about every market globally in the coming year,’ wrote the brokerage. The per capita spending of Mainland visitors in the MSAR last year, as shown by DSEC data, stood at MOP1,975, the highest among visitors to Macau.
Infrastructure
Development of new Macau-Zhuhai checkpoint in ‘fast-track’ mode Macau and Guangdong authorities agreed in a recent meeting held in Guangzhou to put the development of the new Qingmao checkpoint into ‘fast-track mode,’ an official announcement informed yesterday. The authorities, represented by the Director of the Land, Public Works, and Transport Bureau (DSSOPT) of the Macau SAR, Li Canfeng, and the Sub-director of the Office for Hong Kong and Macau Affairs of the Guangdong Province, Ye Weiyuan,
noted that the construction of the new checkpoint is to start soon after the demolition of the wholesale market currently located in the area. The authorities did not announce, however, what the timeline is for the demolition. Both parties pledged they would conclude ‘in a timely fashion’ studies related to the inspection circuit and the creation of passageways in order to define the concrete implementation plan.
In what regards the construction of the checkpoint facilities, it was announced that the design work on the Macau side had already begun, and that the design work on the Zhuhai side of the border will commence soon after the demarcation of the boundary of the building. Currently, the construction of the new wholesale market, slated to be part of the first phase of construction of the new border access between the two cities, has been completed. The new border access between Macau and Guangdong will operate around the clock, drawing on a new model of border control called ‘full checkpoint inspection.’ In the new model, residents from Macau travelling to Mainland China need only present their identity cards at the border, while visitors from China heading to Macau need only present the relevant document. S.Z.
Liaison
CE meets with new Liaison Office Director The city’s top official met with the new Director of the central government’s Liaison Office, Zheng Xiaosong, yesterday morning, according to official information. Chief Executive Chui Sai On welcomed the new representative, stating his conviction that under the new Director the MSAR would continue its direct and amicable relationship with the Mainland. The Chief Executive briefly described the MSAR’s future development plans, in particular relating to the Mainland’s One Belt, One Road initiative and that of the Greater Bay Area, as well as infrastructure development and that of the Forum for Economic Co-operation between China and Portuguese-speaking
Countries. The new Liaison Office Director noted his satisfaction with the developments, and his prior contact
with the Chief Executive in previous posts, noting that the MSAR has maintained a stable economic and social development.
Business Daily Wednesday, September 27 2017 5
Macau Higher education
Honing one’s Portuguese GAES invited a delegation of eight local higher education institutions to tour a number of counterpart organisations in Portugal to foster exchanges and co-operation Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
delegation of eight higher education institutions from the MSAR returned to the city this Monday from a week-long trip in Portugal where they visited counterpart institutions by invitation of the Tertiary Education Services Office (GAES), according to information provided by GAES to Business Daily. The trip was organised with the purpose ‘of gaining a deeper understanding of tertiary education development in Portugal, as well as strengthening exchange and co-operation among higher education institutions of Macau and Portugal,’ the office noted in replies to enquiries. According to GAES, from September 18 to 23 the delegation accompanied by the Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, held meetings in the Portuguese cities of Lisbon, Porto, Coimbra and Leiria. In addition to a meeting held with the Portuguese Ministry of Science, Technology and Higher Education, the delegation visited some of
Eight local higher education institutions invited by GAES to visit Portugal: University of Macau Macao Polytechnic Institute Institute for Tourism Studies
Portugal’s most reputable higher education institutions and departments, including the Catholic University of Portugal, the Polytechnic Institute of Leiria, the Joanina Library of the University of Coimbra, and the Science and Technology Park of the University of Porto, to name but a few. According to information provided by a spokesperson from the Institute for Tourism Studies (IFT), represented in the delegation by its President, Fanny Vong, the itinerary was fully organised by GAES. Among the institutions comprising the delegation – and having a established Chinese-Portuguese language programme with the Polytechnic of Leiria – the Macao Polytechnic Institute (IPM) took part in two main activities during the trip. One of was the signing of a protocol agreement between IPM President Lei Heong Iok and the President of the Portuguese School Foundation of Macau (FEPM), Roberto Carneiro, in Lisbon on September 20, to foster the learning of Portuguese in Mainland China at primary and secondary education level. In a press release, the institution
Academy of Public Security Forces Macau University of Science and Technology City University of Macau University of Saint Joseph Kiang Wu Nursing College
said the protocol was signed with further activities in mind within Guangdong Province, especially Hengqin, where the institution still has yet to initiate any activity, according to information provided to Business Daily by a spokesperson from IPM. The second initiative consisted of the launching of a week-long exhibition on September 22 to promote Chinese culture and Macau’s cultural and creative industries, at the University of Porto, north of Portugal. The ‘pioneering’ initiative in Portugal is a joint project between the Advanced School of Arts and IPM’s Pedagogical and Scientific Centre for the Cultural and Creative Industries,
the institution announced in another press release. In response to Business Daily’s questions, the IPM spokesperson said the institution’s President was not involved in the signing of any other protocol related to the eventual establishment of a unified entry exam to Portuguese universities for Macau students. The University of Macau also said its Faculty of Arts and Humanities had signed a collaboration agreement with the Faculty of Arts of the University of Porto on September 22 for an exchange programme of undergraduate students, entering ‘a formal stage of promoting student exchange.’ advertisement
6 Business Daily Wednesday, September 27 2017
Macau Casinos
Cryptocurrency and a floating mystery Official commercial records and local gaming authorities don’t seem to be able to verify the existence of several alleged Macau gaming companies reportedly involved in a future US$500 million cryptocurrency initial coin offering said to be linked to local junket operators financing the development of a future floating casino Nelson Moura nelson.moura@macaubusinessdaily.com
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he Gaming Inspection and Co-ordination Bureau (DICJ) and local registration records fail to reveal the existence of the recently mentioned local companies allegedly involved in a deal to raise US$500 million (MOP4.02 billion) in cryptocurrency to be used in junket operations funding the development of a new floating casino hotel. According to a recent report from American news broadcaster CNBC, an alleged Macau gaming company named Dragon Corp. was seeking to raise the funds through an initial coin offering (ICO) in partnership with a Thai-based company named Wi Holding Company Limited. The resulting cryptocurrency would then be used by junket operators, with the currency owners effectively becoming shareholders in the junkets or even in casinos through credit provided by junkets to gaming operators. In the report, Chakrit Ahmad, the CEO of Wi Holding - which is allegedly behind the cryptocurrency encryption - stated that this would be the first time people could become shareholders of junket operators using virtual currency. Ahmad also stated in the report that the group has already secured US$265 million in funding and that digital tokens would not be issued until October 27. “We basically provide liquidity via our own exchange, and also major exchanges in the world for the digital currency, so that tokens will be listed in multiple exchanges […] You can have a digital exchange in Hong Kong or in Thailand or elsewhere, and you can cash out,” Mr. Ahmad said in the report. The Wi Holding CEO also stated that the group would develop a debit card or “social wallet” holding the digital currency, allowing users to withdraw fiat currency from an ATM.
Mystery company
When questioned about the deal and about the existence of Dragon Corp. the head of DICJ, Paulo Martins Chan, responded yesterday that he was unaware of the company or its relation to the local gaming market. “[Both Dragon Corp. and Wi Holdings] are not gambling companies or companies responsible for the production of slot machines, and for the time being it is not possible to find
the connection between these two companies and the gaming industry in Macau,” Director Chan said. The DICJ head also stated that local regulations have “very strict proceedings” regarding how to become a shareholder and that local authorities would “never allow such an easy way to become a junket operator shareholder”. No record of a company registered in Macau as Dragon Corp. was found by Business Daily in the local commercial registry in English or Portuguese.
Mystery boat
The CNBC report also said that the money raised by the ICO would be used to fund the construction of 16,000 square metre casino ship named ‘Dragon Pearl Casino Hotel’, which is allegedly currently being developed in Norway and is to be deployed to Macau by 2019. The concept of a Dragon Pearl floating hotel was presented in a video posted by Art-In Fusion on Youtube on September 22, in which the project is described by Brova Idea, a company belonging to Brova Holdings Ltd., a group based in Malta and focused on real estate, tourism, naval construction and in aviation industries.
In the video – in which the CEO of Wi Holding appears - the project is described as an environmentally friendly floating hotel powered by sustainable energy, with the group collaborating with ‘Norwegian naval technology institutions’ to develop the project. Ahmad states in the video that using a local partner “already running casinos” in Macau, his company could help develop the “first floating casino hotel”, adding that the idea for the project first came from Dubai. “The hotel is composed of 400 rooms with 16,000 square metres of gaming floor […] We believe we could really build something spectacular in Macau,” Mr. Ahmad says in the video, in which a man named Las H Choi is described as the Chief Operating Officer of China Kingdom Company Limited, the alleged Macau partner. “We’re strongly confident that new blockchain technology will bring out a great solution for players and a new model of operation for gaming industries in the world,” Mr. Las says in the video. Business Daily could not find any record of a locally registered company named China Kingdom Company Limited, either in English or Portuguese.
A company with a similar name in Portuguese but described in English as Chong Wong House Investment Company Limited, is recorded in the Official Gazette as being founded in 1996. The video information states that the video was commissioned by Paul Moynan, described as one of the founders of a company named Dragon, together with a man named Aarni Saarimaa. According to Brova Idea’s website, the project design for a ‘Brova Pearl’ is being developed by Norwegian group Dr. techn. Olav Olsen As and naval architect YSA AS – Petter Yran, with hotel operations under a ‘company under formation’ created by Adrian Zech, founder of Regent International Hotels and Aman Resorts. Brave Idea also states it has export finance support from Norwegian Eksport Kreditt, with no mention of the ICO. The floating hotel is described in the website as already ‘contracted and is in the process of being realised’ with an engineering, procurement, and construction contract with a Norwegian yard expected to be entered into in the next three to six months, with the Brova Idea website not indicating the date when this information was posted.
Health
MGM buffet customers taken ill Some 45 customers are presumed to have suffered food poisoning after eating at Rossio Buffet restaurant, located in MGM Macau. According to a stool sample collected from one such person, Norovirus was found to be present. Most of the affected customers claimed they had consumed oysters at the restaurant. The affected customers had meals during the period between September 21 to 23, although none of those affected registered severe reactions.
The Civic and Municipal Affairs Bureau (IACM) sent staff to inspect the restaurant in question after receiving reports from those affected. IACM selected food samples from the restaurant and requested the halt of provision of the purportedly contaminated oysters. Earlier this month, an alleged case of food poisoning broke out in one of Galaxy Macau’s buffet restaurants, with 11 customers displaying symptoms of food poisoning.
Business Daily Wednesday, September 27 2017 7
gaming Oversupply
Philippines’ booming casino sector at risk of oversupply The government said this month it wants to start privatising the casino assets of the Philippine Amusement and Gaming Corp (PAGCOR) from next year Farah Master
O
verinvestment in the Philippines’ thriving casino sector could become a reality as investors chase lucrative returns in Asia’s fastest-growing gaming hub, casino-to-ports magnate Enrique Razon Jr told Reuters on Tuesday.
Key Points Overinvestment a risk as investors chase returns - Razon More foreign operators to vie for licences on privatisation Increased casinos in the country are a certainty – analysts Business is also at risk of being cannabalised when casinos operated by the state are privatised next year, said Razon, who is the chairman of Bloomberry Resorts and International Container Terminal Services. “Cannibalisation – it is
always possible, over investment. With liquidity nowadays and [low] interest rates, people are making investments that 10 years ago [they] wouldn’t even think about, those kinds of returns.” The Philippines is one of the fastest-growing casino hubs in Asia after Macau and Singapore. The government has said it hopes to draw millions of foreigners to casino resorts in ‘Entertainment City’, a 100-hectare area that aims to mimic Las Vegas and Macau. Ranked as the Philippines’ third-richest person with a net worth of US$4.4 billion according to Forbes, Razon opened the US$1.2 billion Solaire by the azure waters of Manila Bay in 2013. Other projects now open include casinos owned by Macau magnate Lawrence Ho and Philippine billionaire Henry Sy, and a company founded by Japanese billionaire Kazuo Okada.
Boom
Gross gaming revenue has boomed over the past year, up 27 per cent in the year to August, Morgan Stanley said, due
to robust demand for proxy betting via video streaming, strong visitor arrivals and a solid domestic market. The government said this month it wants to start privatising the casino assets of the Philippine Amusement and Gaming Corp (PAGCOR) from next year. The state-run organisation is presently both a regulator and operator of more than 40 casinos across the country. Razon said Bloomberry would be interested in PAGCOR’s casinos in the provinces but said further details were needed to understand
how any sale would work. On foreign competition for the licences, Razon said Bloomberry had the advantage of being already well established. “We are not the ones coming in creating the oversupply. It is tougher for the entrant [...] if Macau companies came to try to buy the licences, we would try to compete with them to buy the licences.” Industry analysts are waiting to assess the impact of the privatisation but some expect more gambling venues. Ben Lee, managing partner
at gaming consultancy IGamiX said the move would “create a whole lot of mini casinos all over the place and I expect that to increase.” Razon said competition inside Entertainment City was already strong and expected Okada’s new property to ramp up further. The company is finalising plans to build a smaller casino in Quezon city, located in Metro Manila, he said, which would mainly cater to the dense population in the area. Construction is expected to begin in the second half of next year. Reuters advertisement
8 Business Daily Wednesday, September 27 2017
Greater china Outlook
ADB raises Mainland 2017 growth forecast Forecasts for 2017 and 2018 now match those of the International Monetary Fund
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he Asian Development Bank raised its outlook for China’s economic growth this year on the back of strong domestic consumption, an export recovery and solid growth in services. ADB now expects China’s economy to grow 6.7 per cent in 2017, up from a previous projection of 6.5 per cent made in April. The 2018 growth forecast was also raised to 6.4 per cent from 6.2 per cent. China’s economy has grown at a faster than expected 6.9 per cent pace in the first half of this year, on track to beat the government’s target of around 6.5 per cent despite Beijing’s efforts to curtail risky forms of investments and rising debt. “The PRC economy remains resilient, solidifying its role as an engine of global growth,” said Yasuyuki Sawada,
ADB Chief Economist. “Supply-side reform is moving forward, but eventual success hinges on a careful balancing of the role of the market and the state, particularly as the country continues its transition to a more market and services-driven economy.” ADB’s forecasts for China in 2017 and 2018 now match those of the
International Monetary Fund, which upgraded its own China growth forecast in July. But 6.7 per cent growth for the full year would still indicate a notable slowing over the second half of the year. A cooling property market due to strong government controls and weaker exports growth could impact
overall economic output in the second half, analysts say. Indeed, August economic data suggested the world’s second-largest economy is finally starting to lose some momentum as borrowing costs rise. Rising debt in the economy and a reliance on credit to drive growth has also raised worries among groups including the IMF and led S&P Global Ratings last week to cut China’s sovereign credit rating. ADB said it expects China’s monetary and financial policies will remain unchanged this year, while exchange rate reform could include a widening of the trading band for the yuan. But the bank highlights risks that include liquidity shortages from regulatory tightening, global trade protectionism and renewed capital outflows if the dollar begins to strengthen. Reuters
Strategy
Alibaba takes control of logistics business The company said yesterday a US$15 billion investment will be used to develop its data technology and improve its warehousing and delivery development Chinese e-commerce firm Alibaba Group announced it will invest RMB100 billion (US$15.12 billion) over five years to build a global logistics network and also take control of a US$20 billion unit, underpinning an aggressive overseas expansion. Alibaba is investing RMB5.3 billion in Cainiao Smart Logistics Network to boost
its stake to 51 per cent from 47 per cent. The investment would value Cainiao, a joint venture of top Chinese logistics firms, at around US$20 billion. “Our commitment to Cainiao and additional investment in logistics demonstrate Alibaba’s commitment to building the most-efficient logistic network in China and
around the world,” Alibaba CEO Daniel Zhang said in a statement yesterday. The announcement comes as Alibaba is rapidly expanding its e-commerce and logistics network abroad, including newly announced direct sales channels in Indonesia, Thailand and the Philippines, facilitated by a US$2 billion investment in Southeast Asian online retailer Lazada Group. Alibaba’s latest investment in Cainiao also signals its intention to boost control over the domestic warehousing and delivery market, which has become increasingly competitive as firms seek to capitalise on logistics data assets. In June top logistics firm SF Holding Co cut ties with the Cainiao coalition, which provides logistics support
directly to Alibaba’s top e-commerce platform Taobao, claiming Alibaba had requested data unrelated to the existing partnership agreement. Alibaba denied the claims. Alibaba said yesterday the US$15 billion investment will be used to develop its data technology and improve its warehousing and delivery development. Alibaba subscribed to new shares of Cainiao to boost its stake to a majority, according to a person close to the e-commerce firm. Alibaba will gain a new board seat in Cainiao, and will represent four out of a total seven seats. Despite attracting billions of dollars from equity investors, Chinese logistic firms haven’t fared well in recent public listings. Shares of ZTO Express Inc,
Natural gas
Beijing plans to create national pipeline company The National Development and Reform Commission said earlier this year it expects the country’s gas pipelines to total 104,000 kms by 2020 China’s state economic planner has revived a plan to create a national natural gas pipeline company, aiming to provide gas producers with better access to infrastructure to help increase take-up of the cleaner-burning fuel, two senior officials said. The National Development and Reform Commission (NDRC) is working with state oil companies including China National Petroleum Corp (CNPC) and Sinopec Group on the proposal, the two officials familiar with the plan said. The talks include what assets would be included in the company and how it will be run, they said. The plan, first raised about five years ago, is part of Beijing’s proposed reforms to make the state-dominated
oil and gas sector more efficient and follows a string of smaller steps over the past two years, including cutting down transportation costs and encouraging investment in gas storage. “The NDRC is engaging a small group of company people to design a plan for creating the national pipeline company,” said one of the sources. The NDRC did not immediate respond to request for comment. The two sources declined to be named as they are not authorized to speak to the media. The proposed national pipeline company is expected to oversee China’s trunk line projects such as the West-to-East pipelines operated by CNPC and Sinopec’s project linking gas fields in the south-western
province of Sichuan to the east coast. China is the world’s third-largest gas consumer after the United States and Russia, with imports of the fuel making up about a third of consumption. The world’s top energy user aims to boost the use of natural gas, which emits half of the greenhouse gases produced by that burning coal produces, to about 15 per cent of the total energy share by 2030 from just under 6 per cent currently. The NDRC said earlier this year it expects the country’s gas pipelines to total 104,000 kms by 2020, up from 64,000 kms at the end of 2015. CNPC currently operates nearly 80 per cent of China’s gas pipelines, according to its website. Reuters
which raised US$1.4 billion from its New York IPO last October in the largest U.S. offering by any Chinese company since Alibaba in 2014, are down 22 per cent from the listing price. And Best Inc, a Chinese delivery firm backed by Alibaba, raised US$450 million in a U.S. IPO last week, nearly half of what it had initially intended to raise. Cainiao is not currently considering any IPO, the person said. Alibaba did not immediately respond to a request for comment. Alibaba co-founded Cainiao in 2013, with partners including department store owner Intime Group, conglomerate Fosun Group and a few logistics companies. It oversees roughly 57 million deliveries a day. Reuters
Business Daily Wednesday, September 27 2017 9
Greater China M&A
In Brief
High-flying HNA Group comes down to earth as scrutiny hits deal-making One concern for regulators and bankers is the company’s opaque shareholding structure Matthew Miller
HNA Group, the high-flying Chinese conglomerate caught in the crosssights of Beijing, has hit turbulence as deals stall and scrutiny of its finances and shareholding structure intensifies. Beijing’s clampdown on highly-leveraged foreign investment has led to more regulatory scrutiny around the world, putting the brakes on a remarkable period of growth that saw HNA announce US$50 billion of acquisitions in just over two years. New deals have dried up and investment banks like Goldman Sachs and Bank of America Merrill Lynch have grown wary of working with the company that has sprawling interests in aviation, logistics and tourism. HNA’s long-term strategy of debtfuelled growth, which peaked with its purchase of stakes in Hilton Worldwide Holdings and Deutsche Bank, is fraying, compounding the company’s problems as it struggles to allay concerns over its opaque shareholding structure. A plan to publicly list Pactera, a Chinese technology services company HNA bought last year, was suspended this month after Goldman Sachs said the deal failed to meet its internal due diligence requirements. HNA has defended its health, saying it maintains strong working relationships with more than 300 financial institutions and has a healthy line of credit.
Key Points Chinese crackdown on debt raises red flags globally Financing costs soaring to pay for acquisitions Some investment banks shun HNA over opaque leadership “A lot of the stuff going on in the media is just perception, and that perception doesn’t accurately reflect our business,” said Guang Yang, chief investment officer of HNA Capital, the company’s financial arm. “Our business continues to be very strong.” HNA bonds have dipped slightly since the extent of Beijing’s crackdown on debt became clear. Two bonds from HNA Group and Hainan Airlines due in 2018, for instance, are being bid at under 99 cents on the dollar, versus around 100 in June. Finance costs have soared to RMB14.19 billion in the first half of 2017, from RMB6.47 billion in the year-earlier period, as HNA completed acquisitions and utilized RMB454.5 billion in credit. Shareholder equity now finances 40 per cent of RMB1.21 trillion in total assets, with the rest coming from borrowed funds, after stakeholders injected RMB488.5 billion into the company last year. Some western bankers say their ability to work with HNA is limited by lingering questions about the company’s dependence on leverage. “International banks are reluctant to do any new business,” said a senior banker with a European lender, requesting anonymity because he was not authorized to speak with the media. “The regulatory environment has changed.” Brock Silvers, managing director at Kaiyuan Capital in Shanghai, said a main concern for Beijing was “whether HNA’s aggressive financial structure could result in a domino effect through its tightly levered and pledged portfolio, putting Chinese
Crime
Authorities bust underground bank in Guangzhou Chinese police have broken up a secret banking operation used to transfer assets abroad, the official China Daily reported yesterday. The underground bank, hidden in a food market in the southern city of Guangzhou, is suspected of being involved in cross-border transactions worth more than US$70 million in the past month alone, the paper said, citing a statement from Guangzhou’s public security bureau. China is cracking down on underground banks and other foreign exchange violations in a bid to “prevent and resolve risks from cross-border capital flows” and bolster the yuan, the country’s forex regulator said in July. Health
Beijing to delay deadline for food import rules
investors and bank capital at risk.” HNA investments controlled by unlisted domestic subsidiaries with little track record and lacking offshore regulatory oversight are a particular concern, bankers say. “Nobody really knows how much leverage they have,” said Andrew Collier, managing director at Orient Capital Research in Hong Kong. “They use all of these off-balance sheet companies to raise a lot of capital.” Another concern for regulators and bankers is the company’s opaque shareholder structure. Last week, the Swiss Takeover Board asked HNA to clarify its ownership by Oct. 3 given apparent changes since its US$1.5 billion takeover last year of the aviation services company Gategroup. HNA announced in July that a New York-based foundation controlled by HNA management would act as its largest stakeholder. But the move raised questions about individuals who had been holding the shares previously and their role at HNA. Under the restructured shareholding, a dozen senior executives - led by the founding chairmen Chen Feng and Wang Jian - hold a combined 47.5 per cent stake in the group, with the New York foundation and a China-based charity holding the bulk of the rest. All this comes as the company is undertaking U.S. government reviews for its proposed acquisition of SkyBridge Capital, a hedge fund platform, from Anthony Scaramucci, and a bigger stake in Old Mutual’s U.S. asset management unit. HNA abandoned a bid for Global Eagle Entertainment Inc, an in-flight services company, after failing to get U.S. regulatory approval in July.
Debt risks
HNA’s debt-fuelled strategy peaked this year with the Hilton and Deutsche Bank deals, and buyouts of the U.S. technology provider Ingram Micro and CIT Group’s aircraft leasing business. HNA Group, which controls 19 listed companies, reported that total debt doubled to 717.99 billion at the end of June from the end of 2015. Total assets increased 157 per cent to 1.21 trillion. At Bohai Capital Holding Co, which oversees HNA’s aviation and container leasing businesses, the debtto-asset ratio reached 87.6 per cent, with short-term borrowing of about RMB34 billion, according to its latest filing.
Moody’s Investors Service in September warned that “Bohai’s high leverage, reliance on short-term financing and high debt-funded growth represent a risk.” But it also upgraded its ratings for Bohai’s Avolon airplane leasing unit, expecting the company to “strengthen its financial profile,” citing, among other things, “slower growth as a result of reduced debt-funded acquisitions.”
Leverage strategy
HNA’s debt-driven growth strategy dates from 2003, when Hainan Airlines, the HNA Group flagship that counted George Soros as an early investor, was battered by the SARS outbreak. “We came up with the idea, why don’t we leverage ourselves,” HNA’s chief executive, Adam Tan, said in April. “We can leverage this business” against the “ups and downs” of the airline business. The vehicle was HNA Group, which invested in airlines, airports, tourism, and real estate in China and around the world. Domestic deals have often been backed by guarantees provided by other HNA companies. Abroad, the group started using cross-border standby letters of credit, backing offshore hard-currency debts with onshore cash deposits. More recently, HNA has turned to structured deals like loans guaranteed by acquired assets and share pledges, often combined with hedging strategies, corporate filings show. HNA secured a US$3 billion margin loan, for example, to help finance its US$6.5 billion Hilton share acquisition, pledging its entire shareholding to a consortium of banks. In August, to acquire stakes in Deutsche Bank and Dufry AG, an airport shop operator, HNA used equity margin financing, backed by an equity collar, a hedging strategy.
Push back
Amid all the scrutiny, Yang of HNA Capital said the company was pressing ahead with some deals. HNA this month took control of Frankfurt-Hahn Airport in Germany, a US$16 million deal. HNA Holding Group Co is also moving forward with a US$1 billion takeover of the Singapore-listed logistics company CWT Ltd “The company is in great shape,” Tan, the chief executive, said in July. “We’re going to keep on going.” Reuters
China plans to delay a deadline for implementing new food import regulations by two years until Oct. 1 2019, a senior EU official said yesterday, following a lobbying effort by Europe and the United States amid concerns about disruption to trade. Jerome Lepeintre, minister counsellor for health and food safety at the European Union delegation in Beijing, said he received official documents on Monday night confirming the decision had been logged with the World Trade Organization (WTO), as required by global trade rules. Results
State-owned firms’ profits up Profits at China’s stateowned firms rose 21.7 per cent in the first eight months of 2017 from the same period a year earlier, the Ministry of Finance said yesterday. Total profits stood at RMB1.9 trillion (US$287.27 billion) in January-August, while revenue rose 15.5 per cent to RMB33.08 trillion. State firms’ liabilities rose 11 per cent from a year earlier to RMB96.49 trillion at the end of August, the ministry said. Markets
Qiyi considers U.S. listing as early as 2018 Baidu Inc’s video streaming service iQiyi, a Chinese-style Netflix, is eyeing a potential initial public offering in the United States as early as next year, a person with direct knowledge of the plans said yesterday. The listing could value the company at between US$8 billion and US$10 billion, Bloomberg reported earlier, citing two people familiar with the matter. The video steaming service, which competes with Tencent Holdings Ltd and Alibaba Holdings Ltd’s Youku Tudou, is set to start negotiations with banks and deal arrangers, Bloomberg said. The up to US$10 billion valuation would still be a fraction of U.S. rival Netflix’s near US$80 billion market capitalisation.
10 Business Daily Wednesday, September 27 2017
Greater China Demand
Global banks sharpen focus on yuan offerings Chinese acquisitions in the 68 countries officially linked to the Belt and Road initiative are soaring Sumeet Chatterjee
G
lobal b a n k s including Citigroup and HSBC are boosting their staff and presence for offerings in yuan -- from capital market solutions to hedging -- as China’s drive to build a modern Silk Road fuels demand. The push rides on hopes Chinese President Xi Jinping’s policy of building a Silk Road to expand global trade and influence of China will accelerate the internationalisation of yuan, also known as the renminbi (RMB). The Chinese currency’s ranking as a world payment currency fell to sixth in June from fifth two years ago, according to industry tracker SWIFT, as capital outflow curbs take some shine off the yuan. However, bankers believe Chinese firms’ aggressive expansion in countries from Vietnam to Belgium could reverse this trend as such businesses demand products and services denominated in their home currency. “As our clients increase their operations across the BRI (Belt and Road) countries ... we are seeing a pick-up in demand for RMB,” said Rajesh Mehta, Citi’s Asia Pacific treasury and
trade solutions head. Citi is planning to add 25 staff to work in eight key trade corridors over the next one year under the Belt and Road programme, some of them redeployed from other parts of Asia Pacific to South Korea, Vietnam, China, Japan and Hong Kong.
“As our clients increase their operations across the BRI (Belt and Road) countries ... we are seeing a pick-up in demand for RMB” Rajesh Mehta, Citi’s Asia Pacific treasury and trade solutions head Its yuan-linked services include trade finance, hedging, cash management, and capital markets solutions in most of the 58 markets across the Belt and Road countries.
Chinese President Xi Jinping during the Belt and Road Forum in May
It also has nine China-specific business desks along the Silk Road corridor. Unveiled in 2013, the Belt and Road project is aimed at connecting China’s economy by land and sea to Southeast Asia, Pakistan and Central Asia, and beyond to the Middle East, Europe and Africa. Chinese acquisitions in the 68 countries officially linked to the initiative are soaring and totalled US$33 billion in the year to mid-August, surpassing the US$31 billion tally for all of 2016. Standard Chartered has set up a “core team” in China for Belt and Road projects, and is also building a team of
“corridor bankers” along the main Belt and Road trading routes including in Europe, said its global head of RMB solutions Carmen Ling. Although HSBC and other global banks have used the Silk Road in advertising and speak enthusiastically of leveraging the network, analysts say foreign banks would find it harder to compete with Chinese banks for yuan loans due to higher costs of funding. Therefore, global banks are expected to vie for a bigger share of the yuan-denominated fee income-based products and services by beefing up their expertise and
resources in that segment, they said. To tap that, HSBC, which makes more than half of its profits in Asia, is relying on its 24 China-dedicated business desks across the globe and has started hiring Chinese-speaking staff in client facing teams in Europe. “The majority of the capital and trade transactions are in U.S. dollars along the Belt and Road corridor now, but we are now seeing a pickup in usage of RMB,” said Vina Cheung, global head of RMB internationalisation at HSBC. “We are hiring in the way we have right resources to support that growth.” Reuters
Official data
Fuel exports to North Korea slow again, but coal imports return Gasoline shipments to North Korea were kept to a trickle at 180 tonnes China’s fuel exports to North Korea fell in August, along with iron ore imports from the isolated nation, as trade slowed after the United Nations’ latest sanctions, but coal shipments resumed after a five-month hiatus, customs data showed yesterday. China imported 1.6 million tonnes of coal from North Korea, according to data from Beijing’s General Administration of Customs, the first since February when Beijing banned purchases of the fuel from its northern neighbour. The release comes after data on Saturday showed China’s trade with North Korea jumped in August even after the U.N. sanctions, mainly driven by a rise in imports. It was not immediately clear why the data showed coal shipments had resumed. A customs official said she would investigate the matter.
A spokesman for the foreign ministry at a daily briefing said it would refer the issue to customs. The volume of coal was similar to the monthly average for the six months before the Chinese government’s ban and its value of about US$140 million was in line
with a jump in total imports from July. Last month, the U.N. Security council unanimously imposed new sanctions on North Korea targeting its exports of coal, iron ore, lead, lead ore and seafood. The sanctions took effect this month, but China enforced the new
measures from Aug. 15. China’s gasoline shipments to North Korea were kept at a trickle at 180 tonnes, up slightly from July’s 120 tonnes but down from almost 5,000 tonnes a year earlier. Diesel were just 170 tonnes, compared with zero tonnes a year ago. At the end of June, Reuters reported China National Petroleum Corp (CNPC) suspended sales of gasoline and diesel to North Korea over concerns CNPC would not get paid for its goods. The measures are still in place, sources familiar with the matter say. Fuel prices in the country have surged in recent months, people familiar with the matter say. Iron ore arrivals from North Korea were 143,343 in August, the lowest since December and down from
175,980 in July. Imports were down 27 per cent on a year ago, according to customs’ records.
Key Points Coal imports resume with 1.6 mln t of arrivals Reason for coal return unclear CNPC stopped selling diesel, gasoline to Pyongyang in June Lead concs imports highest on records going back to 2010 Lead concentrate imports were 14,216 tonnes, the highest on Reuters’ records going back to 2010, reflecting a scramble by smelters near the border to secure material ahead of the sanctions. Reuters
Business Daily Wednesday, September 27 2017 11
Asia Fintech
Singapore cryptocurrency firms facing bank account closures The complaints illustrate some of the difficulties faced by cryptocurrency firms at a time when the sector is under growing scrutiny around the world Chanyaporn Chanjaroen
S
ingapore banks have closed accounts of several companies which specialize in providing cryptocurrency and payments services, according to two local bodies which represent financial-technology firms. Noting that cryptocurrency firms have had similar problems with their banks in other countries, the head of Singapore’s Cryptocurrency and Blockchain Industry Association, or Access, asked the government to step in. “From our analysis, it appears to be common among leading FinTech hubs,” Access Chairman Anson Zeall said in an emailed statement. “If this is the case, we would urge Singapore to take a leadership role and demonstrate how to come to an effective resolution among all parties.” Zeall said his organization had heard from 10 companies which had encountered problems with their banking relationships in Singapore. The banks didn’t give a reason for their action, Zeall added.
Account closures
The Monetary Authority of Singapore, the country’s central bank, said in a statement that it doesn’t interfere with commercial decisions taken
by banks “including those in relation to the establishment and termination of business relationships.” Banks are expected to establish suitable procedures and controls, including those governing customer transactions and relationships, and to comply with customer due diligence requirements of MAS rules on preventing money laundering and the financing of terrorism, the statement added. Chia Hock Lai, president of the Singapore Fintech Association, which has broader membership than Access, said some of his organization’s members also experienced account closures, though he didn’t provide figures. N e i t h e r o rga n i za t i o n named the banks which had closed their member firms’ accounts, but Access said the action had been taken by a “range of financial institutions.” Access has 106 members and the Fintech Association has 185, though the two organizations said some companies belong to both groups.
CoinHako blog
One local cryptocurrency-related firm, CoinHako, said in a blog post earlier this month that its bank account had been closed by DBS Group Holdings Ltd., Southeast Asia’s largest bank.
CoinHako, which provides cryptocurrency and digital assets wallet services, said in the blog it would be no longer able to process deposits and withdrawals in Singapore dollars as a result. “We understand that banks also have their concerns on anti-money laundering and know-your-customer issues,” said Yusho Liu, co-founder of Singapore-based CoinHako. “We do not fit anywhere in the current regulatory framework.” DBS declined to comment on CoinHako, citing banking secrecy, though it said any decision to close a customer’s account could be due to multiple factors. Those include “failure to maintain the account in good standing, failure to provide timely and accurate information, unexplained inconsistencies in account behaviour, or unacceptable risk of criminal or terrorist behaviour,” DBS said in an emailed response to questions. “We remain open to exploring banking relationships with companies working with cryptocurrencies,” DBS added. Koh Ching Ching, a spokeswoman for Oversea-Chinese Banking Corp., said the bank reviews customer accounts for risk management purposes “and may close these
accounts for various reasons.” United Overseas Bank Ltd., the third of the large Singapore banks, declined to comment.
Fintech festival
The MAS has said it will regulate the offer or issue of digital tokens if they constitute products regulated under the Securities and Futures Act. It doesn’t regulate virtual currencies per se, a similar position to that taken by central banks and regulators in other countries. The MAS has also taken a leading role in efforts to promote Singapore as a regional centre for financial technology, and is one of the organizers of a ‘fintech festival’ due to take place in November. Last year’s event drew more
than 10,000 attendees. The MAS has also been working on a distributed ledger project and on the creation of a central bank digital currency, to be used for cross-border payments. In its statement, the MAS said it “remains committed to developing Singapore as a reputable financial centre and fintech hub.” It said that requires ”pairing a progressive and nurturing environment for fintechs together with strong controls to mitigate risks such as fraud and money laundering.” “We must be mindful that new technological developments and products bring with them new areas of risks, which the financial industry and regulatory authorities should pay heed to.” Bloomberg News
Japan
Finance minister needs new time frame to hit budget-balancing goal He also said it was worth considering measures to encourage companies to spend their cash pile on boosting wages and capital expenditure Tetsushi Kajimoto
Japan’s government needs to set a new time frame for achieving its budget-balancing goal, currently set at fiscal 2020/21, Finance Minister Taro Aso said yesterday. He made the remarks a day after Prime Minister Shinzo Abe announced he would redirect some revenue from a planned sales tax hike in 2019 to child care and education rather than paying back public debt, in a bid to overhaul the social security system. Abe admitted that would make it difficult to meet the government’s aim of balancing the budget - excluding debt-servicing costs and new bond sales - by the year ending in March 2021. “It’s clear the primary balance is hard to achieve by fiscal 2020, so we’ll need to adjust for that and set
an appropriate (new) goal, say 2022, 2023, though we have not calculated yet,” Aso told reporters after a cabinet meeting. A primary budget balance is a key gauge of measuring how spending on
policy measures is financed without relying on debt. Balancing the budget is seen as a crucial step to rein in the world’s heaviest public debt burden at twice the size of Japan’s economy.
Taro Aso, Japan’s Finance Minister
Some analysts say the delay will weaken fiscal discipline, which could cause the government to pile pressure on the Bank of Japan to prolong monetary stimulus to keep borrowing costs ultra-low, which effectively help finance government debt. Aso also said it was worth considering measures to encourage companies to spend their cash pile on boosting wages and capital expenditure. “It’s common sense that such (abundant) cash should be used for (boosting) wages, capital expenditure and dividends. It’s abnormal that labour’s share of corporate income has become very low.” The government was considering introducing new tax breaks aimed at encouraging companies to boost wages and accelerate capital expenditure to spur economic growth, government and ruling party sources told Reuters last week. Reuters
12 Business Daily Wednesday, September 27 2017
Asia ADB report
Asian growth outlook flags risks from Fed unwinding India’s growth was seen at 7.0 per cent and 7.4 per cent for this year and next
D
eveloping Asia is on track to grow faster this year and next, the Asian Development Bank said yesterday, buoyed by a pick-up in world trade and China’s expansion, but it flagged risks from tightening U.S. monetary policy. Developing Asia is expected to grow by 5.9 and 5.8 per cent in 2017 and 2018, respectively, the Manila-based lender said. That is unchanged from its July estimates, but higher than the 5.7 per cent forecast it gave for both years in its Asian Development Outlook (ADO) released in April. ADB Chief Economist Yasuyuki Sawada said developing Asia should take advantage of favourable shortterm economic prospects to invest in infrastructure, improve productivity and maintain sound economic policies to lift long-term growth. However, the ADB trimmed its growth forecast for South Asia to 6.7 per cent this year and 7.0 per cent next year, compared with estimates of 7.0 per cent and 7.2 per cent made in July. India’s growth was seen at 7.0 per cent and 7.4 per cent for this year and next, weaker than the July forecasts of 7.4 per cent and 7.6 per cent. Southeast Asia’s economy will grow 5.0 per cent this year and 5.1 per cent next year, stronger than July forecasts
Asian Development Bank headquarters
of 4.8 per cent and 5.0 per cent. Still, the ADB said regional policymakers need to brace for potential capital outflows and higher borrowing costs as the Federal Reserve begins the unwinding of a decade of aggressive monetary stimulus and continues to raise interest rates. “Because long-term interest rates
in many Asian economies are closely linked to those in the U.S., policymakers need to strengthen their financial positions further and monitor debt levels and asset prices,” the ADB said. The ADB said Indonesia, Malaysia, Thailand and Taiwan could benefit from a boost in accommodative
policy, but intensifying inflationary pressures make the case for stimulus in the Philippines and South Korea less clear. Inflation in the region was forecast to be slightly slower at 2.4 per cent this year and 2.9 per cent next year, compared with the 2.6 per cent and 3.0 per cent estimated in July. Reuters
Monetary policy
Sri Lanka’s central bank keeps rates steady to spur growth Analysts say the central bank is now focusing more on GDP growth than on credit expansion Shihar Aneez and Ranga Sirilal
Sri Lanka’s central bank held its key rates steady yesterday, saying past steps were keeping inflation and credit growth under control, as policymakers focus on supporting an economy hit by extreme weather. As widely expected, the central bank kept the standing deposit facility rate (SDFR) at 7.25 per cent and standing lending facility rate (SLFR) at 8.75 per cent - both are now at over a four-year high.
Key Points Weak external demand, extreme weather affect growth Credit growth slows to 18 pct in August Analysts expect GDP growth to remain subdued C.bank expects inflation to slow by end 2017 “Economic growth continued to be affected by extreme weather conditions and weak external demand,” the central bank said in its policy statement. “Although disruptions to near term growth prospects continue, forward looking indicators show improved medium term prospects, which are likely to be realised with the envisaged structural reforms and expected
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inflows of foreign investments.” Analysts say the central bank is now focusing more on GDP growth than on credit expansion as economic momentum is expected weaken further due to bad weather - the most severe drought in 40 years in the first quarter and the worst flooding in 14 years. Treasury bill rates have fallen between 86-201 basis points since April, mainly driven by foreign buying, which could be good for the economy but may also add to inflationary pressures. The previous four rate increases since December 2015 have dragged on the US$81 billion economy, which grew at an annual pace of 4.0 per cent in the quarter ended June 2017, nudging up from 3.8 per cent in the previous quarter. Tight fiscal policy has also crimped growth. Analysts expect 2017 growth will significantly undershoot the central bank’s forecast of between 4.5 and 5 per cent, although Prime Minister Ranil Wickremesinghe has predicted up to 5 per cent growth for the year. “With fiscal policy set to be tightened over the coming year and the impact of recent interest rate hikes still filtering through, the economy is likely to remain subdued,” Gareth Leather, senior Asia economist at Capital Economic said in a market note. “We are forecasting GDP growth of just 4 per cent over the next couple of years.” Th e c e n t ra l ba n k p r evi o u s
tightening steps, which were partly aimed at fending off pressure on the fragile rupee, have had some impact on loans growth. Annual private sector credit growth of 18.0 per cent in August was well off a near four-year high of 28.5 per cent hit in July 2016. Consumer inflation, however, was up 6 per cent in August from a year earlier, accelerating from the previous
month’s 4.8 per cent. The central bank expects inflation to ease by year-end. “Projections indicate that inflation will revert to the envisaged mid-single digit levels by end 2017 and stabilise thereafter, underpinned by tight monetary conditions that have been in place from the beginning of 2016,” the bank said. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, September 27 2017 13
Asia Japan
In Brief
Central bank wants to stick with current policy The Bank of Japan now expects inflation to reach 2 per cent sometime in the fiscal year ending in March 2020 Stanley White
Bank of Japan (BOJ) policymakers said they should stick with their current policy framework and had reason to be optimistic about consumer prices because measures of inflation expectations have stopped falling, minutes of the central bank’s July 19-20 meeting showed yesterday. The BOJ kept monetary policy on hold at the meeting in July but pushed back the timing of its inflation target for the sixth time since Governor Haruhiko Kuroda launched quantitative easing in 2013.
Key Points Doubts about BOJ policy dog inflation plan Economy is performing well, but inflation lags BOJ to update forecasts at October meeting Policymakers’ optimism about achieving their inflation target is unlikely to quell concern that BOJ needs to change its policy stance because it has so far failed to boost prices. “ M o st m e m b e rs sha r e d th e view that, although the recent
Bank of Japan headquarters
developments in CPI had been relatively weak, the year-on-year rate of change was likely to continue on an uptrend and increase toward 2 per cent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations,” the minutes said. A few members argued Japan’s jobless rate and output gap needed to improve even further to build the economic momentum needed to reach the BOJ’s 2 per cent inflation target, the minutes showed. The BOJ now expects inflation to reach 2 per cent sometime in the fiscal year ending in March 2020. The
BOJ has postponed the price target timeframe six times since Kuroda launched his massive asset-buying programme in 2013. The BOJ will publish new forecasts at its next meeting ending Oct. 31. The central bank could come under pressure to either ease policy further or come up with a new framework if it were to push back the timing of its price target yet again. At a subsequent meeting on Sept. 20-21, one new member on the BOJ’s board opposed the central bank’s decision to keep monetary policy on hold, arguing that the current framework was not sufficient to generate inflation. Reuters
Growth estimates
Vietnam sees rising remittances aiding currency About 60 per cent of Ho Chi Minh’s remittances come from the U.S.
Energy
India unveils plan to electrify all households Prime Minister Narendra Modi on Monday launched a US$2.5 billion project to electrify all of the country’s households by the end of 2018. More than 40 million households - about a quarter of all in the country - are yet to be electrified and about 300 million of India’s 1.3 billion people are still not hooked up to the grid. The states will need to complete the electrification by December 2018 and the government will identify those eligible for free electricity connections across the country. “No fee will be charged for electricity connection in households of poor citizens,” Modi said. Survey
S. Korean consumer sentiment lowest in 5 months South Korea’s consumer sentiment index eased to a five-month low in September, a central bank survey showed yesterday, as escalating tensions between North Korea and the United States weighed on confidence. The Bank of Korea’s composite consumer sentiment index (CCSI) fell to 107.7 for September, from 109.9 in August. While the figure was still well above the 100-mark, which means more consumers are optimistic about economic conditions in coming months than pessimistic, it was the lowest reading since April. Households’ perceptions on current economic conditions worsened to 87 from 93 in August, the lowest since May. Central bank
Nguyen Dieu Tu Uyen
Vietnamese working abroad and sending money home will help keep the currency stable and enable the central bank to focus on supporting economic growth, a senior official said. Nguyen Hoang Minh, deputy head of the State Bank of Vietnam in Ho Chi Minh, said remittances to the city are forecast to rise 10 per cent to US$5.5 billion this year, helping ensure enough supply of foreign currency. The city, Vietnam’s economic hub, accounted for about 60 per cent of total remittance inflows last year. Vietnam was one of only a handful of Asian central banks to ease monetary policy this year, unexpectedly cutting its benchmark interest rate for the first time in three years in July.
The Communist Party-led government is struggling to meet its target of 6.7 per cent economic growth this year, and economists from Australia & New Zealand Banking Group Ltd. and Standard Chartered Plc said another rate cut cannot be ruled out. Minh said in an interview at his office on Sept. 22 that rising remittances have helped to ensure enough dollar supply to meet demand from companies and individuals, while also allowing the central bank to build foreign-exchange reserves. “So we see no pressure on the dong to drop against the dollar at the end of the year,” he said. “It will enable the State Bank of Vietnam to pursue monetary policies that help economic growth.” About 60 per cent of Ho Chi Minh’s remittances come from the U.S., the
Debt-burdened Australian households vulnerable to shocks
central bank official said. More than 70 per cent is allotted for family businesses while about a fifth is for property purchases, Minh said. The Vietnamese dong has emerged as one of the most stable Asian currencies this year. While others like the Thai baht and the Malaysian ringgit have surged and the Philippine peso has fallen, the dong is little changed. “Remittances have steadily increased in the past several months,” Minh said. “We expect the trend to continue toward the end of the year as overseas Vietnamese people usually send money to help their families ahead of the New Year holidays.” The Southeast Asian nation has transformed over the years from an agricultural economy to an electronics manufacturing hub, drawing investment from companies such as Samsung Electronics Co. The economy has been among the fastest growing in the world, expanding more than 6 per cent in the past two years, underpinned by foreign investment. Bloomberg News
Vietnam’s top sources of foreign-exchange in 2016 Exports US$176 billion Disbursed foreign direct investment US$15.8 billion Remittances US$9 billion Source: Government data
Australian households are burdened with very high levels of debt and sluggish income growth which leaves them vulnerable to economic shocks, a top central banker said yesterday. Reserve Bank of Australia (RBA) Assistant Governor Michele Bullock said that high levels of debt meant households would be very sensitive to any rise in official interest rates and the central bank would take this into account when considering monetary policy. The head of the RBA recently noted that the next move in rates was more likely to be up than down and households needed to be aware of the risks. Fiscal drive
Philippines’ budget secretary confident on tax reforms Philippine Budget Secretary Benjamin Diokno said yesterday that he is confident the tax reform package of 134 billion pesos (US$2.6 billion) will be approved. The tax reforms, critical to President Rodrigo Duterte’s ambitious infrastructure plans, has been approved by the lower house of Congress in May. The bill still needs Senate approval. Diokno, speaking on the side-lines of a seminar in Tokyo, also dismissed concerns about the financial impact of the on-going conflict in Marawi, saying the estimated cost so far is only 3 billion pesos, a fraction of the annual budget.
14 Business Daily Wednesday, September 27 2017
International In Brief WTO
U.S. concerned about Chinese cyber security laws The United States has told the World Trade Organization that a new Chinese cyber security law could have a significant adverse effect on global trade in services, a document posted on the WTO’s website showed yesterday. “China’s measures would disrupt, deter, and in many cases, prohibit cross-border transfers of information that are routine in the ordinary course of business,” said the U.S. document that was submitted for debate at the WTO Services Council. “We request that China refrain from issuing or implementing final measures until such concerns are addressed.” Debt
Saudi central bank announces measures to cut mortgage costs
Marketing
Facebook, Google bound to change handling of political ads Last week, Facebook Chief Executive Mark Zuckerberg vowed to do more to deter governments from using Facebook to manipulate elections in other countries David Ingram
F
acebook Inc and Alphabet Inc’s Google have little choice but to rein in internet political ads in the face of growing U.S. government pressure, a panel of advertising consultants and executives said on Monday. Speaking at a trade conference, the marketers seized on allegations that Russian operatives bought U.S. political ads on Facebook as evidence that the sector cannot go on being unregulated. “I think there will be more scrutiny, and there better be more
self-regulation. Otherwise, I think regulation will be coming,” Brent McGoldrick, a political ad consultant and a Republican, said at Advertising Week New York. Last week, Facebook Chief Executive Mark Zuckerberg vowed to do more to deter governments from using Facebook to manipulate elections in other countries, after the company disclosed US$100,000 in Russian ad purchases in the months before and after the 2016 U.S. presidential election. The 3,000 ads included some that highlighted support for Democrat Hillary Clinton among Muslim women, as well as others that showed a
Saudi Arabia’s central bank has scrapped administrative fees for mortgage holders if they switch between fixed and floating rate loans, as part of new measures to boost the housing market. The Saudi Arabian Monetary Authority also announced, via its twitter account, other measures to help reduce mortgage costs, including allowing a mortgage holder to move to a new lender without additional costs. Mortgage laws and regulations are still being ironed out, according to one Jeddah-based analyst, and may be subject to modifications.
deep understanding of U.S. social divides, the Washington Post reported on Monday. Zuckerberg has also unveiled sweeping changes to how his company handles political ads, saying it would make them visible to all users regardless of whom the ads target. Andrew Capone, senior vice president of NCC Media, a cable trade group, joked on Monday’s panel that during the 2016 election campaign, “Facebook took in over 300 million rubles - I’m sorry, dollars.” McGoldrick said on the panel: “If I were Facebook and Google and everyone else, I would be developing a code of conduct and a set of criteria. They may already exist, but obviously it’s not either robust enough or transparent enough.” Google has said it has no evidence on its ad platform of a Russian propaganda campaign like the one Facebook found. The two Silicon Valley firms are set to take a combined 63 per cent of the U.S. market this year, according to research firm eMarketer. Though Facebook and Google have for years resisted regulation of political ads, congressional investigators and U.S. special counsel Robert Mueller have helped to change the situation, said Jefrey Pollock, president of public relations firm Global Strategy Group. “Things change with a subpoena,” Pollock, a Democrat, said as part of the panel. Reuters
Portugal
Left Block calls for ‘courage’ to cut payments to energy companies The leader of Portugal’s Left Block, Catarina Martins, has called on the Socialist government to show the “courage” to trim excessive rents in the energy sector and so make it possible for electricity tariffs to be cut next year for the first time ever. The issue of guaranteed state payments to energy suppliers to compensate them for capital invested in large-scale energy capacity has long been a hot topic in Portugal, with several cases now being considered by the courts. Monetary policy
Fed policymakers clash on outlook for inflation A debate within the Federal Reserve over the outlook for U.S. inflation burst into public view just days after a rate-setting meeting in Washington, with one central banker saying inflation weakness is fading and another suggesting he’s nervous it won’t. Both New York Federal Reserve Bank President William Dudley and Chicago Fed President Charles Evans said they believe the U.S. economy’s fundamentals are sound, and both said they support gradual rate hikes ahead. But while Dudley reinforced Fed Chair Janet Yellen’s confident tone at the close of last week’s meeting that inflation is set to rise back to the Fed’s 2-per cent target, Evans sounded much less certain.
Car industry
California mulls following China with combustion-engine car ban The internal combustion engine’s days may be numbered in California, where officials are mulling whether a ban on sales of polluting autos is needed to achieve long-term targets for cleaner air Ryan Beene and John Lippert
Governor Jerry Brown has expressed an interest in barring the sale of vehicles powered by internal-combustion engines, Mary Nichols, chairman of the California Air Resources Board, said in an interview Friday at Bloomberg headquarters in New York. Brown, one of the most outspoken elected official in the U.S. about the need for policies to combat climate change, would be replicating similar moves by China, France and the U.K. “I’ve gotten messages from the governor asking, ‘Why haven’t we done something already?’” Nichols said, referring to China’s planned phase-out of fossil-fuel vehicle sales. “The governor has certainly indicated an interest in why China can do this and not California.” Embracing such a policy would send shockwaves through the global car industry due to the heft of California’s auto market. More than 2 million new passenger vehicles were registered in the state last year, topping France, Italy or Spain. If a ban were implemented, automakers from General Motors Co. to Toyota Motor Corp. would be under new pressure to make electric vehicles the standard for personal transportation in the most populous U.S. state, casting fresh doubts on the future of gasoline- and
diesel-powered autos elsewhere. California has set a goal to cut carbon dioxide emissions by 80 per cent from 1990 levels by 2050. Rising emissions from on-road transportation has undercut the state’s efforts to reduce pollution, a San Francisco-based non-profit said last month. “To reach the ambitious levels of reduction in greenhouse gas emissions, we have to pretty much replace all combustion with some form of renewable energy by 2040 or 2050,” Nichols said. “We’re looking at that as a method of moving this discussion forward.”
Legal means
California has the authority to write its own pollution rules, which dates back to the 1970 Clean Air Act. Those rules are underpinned by waivers granted by the U.S. EPA. Nichols said the state would likely take a different legal route to enable a possible ban rather than use an EPA waiver, since the Trump administration would be unlikely to approve one. For example, California could use vehicle registration rules or control the vehicles that can access state highways, she said. “We certainly wouldn’t expect to get a waiver for that from EPA,” Nichols said. “I think we would be looking at using some of our other authorities to get to that result.”
China will likely order an end to sales of all polluting vehicles by 2030, the chairman of electric-car maker BYD Co. said Thursday. France and the U.K. have announced 2040 as their end date for sales of fossil fuel-powered cars.
‘If a ban were implemented, automakers from General Motors Co. to Toyota Motor Corp. would be under new pressure to make electric vehicles’ A ban for California could also still be decades away from implementation, and just how far out remains to be seen, Nichols said. “There are people who believe, including who work for me, that you could stop all sales of new internal-combustion cars by 2030. Some people say 2035, some people say 2040,” she said. “It’s awfully hard to predict any of that with precision, but it doesn’t appear to be out of the question.” Bloomberg News
Business Daily Wednesday, September 27 2017 15
Opinion Business Wires
The Star China Communications Construction Co Ltd (CCCC) intends to make Kuala Lumpur its hub for the Asean region as the port and construction group expands its footprint here. “We will set up our regional centre in Kuala Lumpur (pictured),” CCCC vice-president Peng Dapeng told reporters at the group’s headquarters in Beijing. He said the group was building the “CCCC tower”, a commercial building in the Tun Razak Exchange (TRX). “We have acquired the land. We are in the midst of reviewing the project so details are scant now,” he said, without disclosing the gross development value (GDV) and investment value.
Moon Jae-in, President of the Republic of Korea, speaks during the General Debate of the 72nd United Nations General Assembly at UN headquarters in New York last week. Source: Lusa
Inquirer.Net The World Bank is firming up a US$200-million loan for a project aimed at modernizing the graft-laden Bureau of Customs (BOC). Documents obtained by the Inquirer showed that the World Bank plans to pitch for its board’s approval in July next year financing for the Philippines Customs and Trade Facilitation Project. The project’s development objective is to “improve the efficiency, effectiveness and transparency of the BOC,” the World Bank said. The Washington-based multilateral lender will finance the entire US$200-million project cost. Project appraisal will start in November this year.
Taipei Times The government will raise the salaries of soldiers in chemical warfare, engineering and communications units, President Tsai Ing-wen said during her review of the 99th Marine Brigade yesterday. If a plan by the Ministry of National Defence to give bonuses to combat troops is approved by the Executive Yuan, military personnel in other branches might also receive extra pay, a ministry official said on condition of anonymity. The ministry does not know whether the Executive Yuan, which is evaluating the plan, will accept it in part or as a whole, the official added.
The Phnom Penh Post The Securities and Exchange Commission of Cambodia (SECC) has issued new regulations and procedures for solving disputes involving parties operating in the securities sector. A prakas (regulation) signed September 12 and posted on the SECC website comprises eight chapters and 48 articles that detail the process of submitting dispute cases, the rights and obligations of the disputants and the process of resolving disputes. The prakas applies to disputes involving securities firms, underwriters and derivatives firms such as central counterparties and brokerages, as well as public investors and other concerned parties.
South Korea’s Moon tries to rescue liberalism Michael Schuman a Bloomberg View columnist
W
hile much of the world’s attention is fixated on North Korea and its nuclear ambitions, something with the potential to be equally globe-rattling is taking place, generally unnoticed, in South Korea. There, new President Moon Jae-in is charting an entirely contrary course in economic policy than much of the rest of the developed world. If successful, the experiment could alter how governments tackle the most challenging problems of our day. Moon is embarking on a highly liberal economic program -- and unapologetically at that -that’s heavily dependent on the kind of taxing and spending conservatives loathe. The goal is to boost household income, workers’ welfare and small businesses. As the Ministry of Strategy and Finance outlined in a July statement, Moon intends to raise wages, build more public housing and increase unemployment insurance and other benefits to widen the social safety net. Education spending will be beefed up; so will job training programs. To pay for all this, Moon plans to raise taxes on the wealthy. He’s already made progress since winning the presidency only four months ago. Moon quickly introduced a fiscal stimulus package to increase the number of public-sector workers, expand the social security system, fund start-ups and subsidize employment at small enterprises. Then he proposed a record budget for 2018. In July, his administration announced a 16 per cent hike in the minimum wage, the biggest leap since 2001. This agenda runs counter to current economic wisdom. Politicians throughout the developed world argue that the only way to boost growth and create jobs is to withdraw the state from the economy -- slashing taxes, spending and regulation. Even in France, that bastion of welfarestate socialism, President Emmanuel Macron has proposed loosening up the country’s vaunted labour laws. Where progressive experiments have gone ahead -- such as Seattle’s efforts to hike minimum wages -- they’ve generally been limited and local. That’s precisely why Moon’s experiment is so worth watching, since the results could help determine which side is right. South Korea is an especially fitting crucible. The country is confronting many of the same woes that plague other rich nations. The income gap, while not as severe as in the U.S., has widened significantly since the early 1990s. Wage increases have been feeble, while productivity gains have tapered off. And then there’s Korea’s rapidly aging population. The International Monetary Fund warned in a
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January report that Korea faces a demographic crisis as bad as Japan’s, threatening future growth. At the same time, the Korean economy boasts certain strengths that could make Moon’s job easier. Government finances are in such good shape that Moon can afford a bit more fiscal spending, unlike many of his Western counterparts. Korea’s gross government debt is not even 39 per cent of its national output, compared with 107 per cent in the U.S. Korea also never built out a weighty welfare state similar to those in Western Europe; it ranks near the bottom in public social spending among OECD countries. Strengthening the safety net could thus free up workers from the need to care for elderly parents, expanding the labour force. Koreans, too, may be particularly receptive to Moon’s program. They’re arguably more sensitive than, say, Americans are to the idea that their fellow citizens are getting left behind; mass layoffs and high unemployment are still considered socially unacceptable. That gives Moon sizable political capital; he won election handily. Will his policies work? Many of them make good sense. Some of Moon’s new public spending is earmarked to widen access to child daycare, which he hopes will encourage more women to join the workforce, and to enhance job opportunities for unemployed youth. Both are critical steps to offset the drag from an aging population. Raising wages and providing more generous government services could lift household income and thus unleash greater consumption. And better education and job training could help South Korea maintain its innovative edge over a rapidly ascending China. At the same time, Moon is no anti-capitalist radical; he’s striving for a balance between supporting workers and business. He favours free-trade deals and he has been a die-hard defender of Korea’s pact with the U.S., which has come under fire from U.S. President Donald Trump. Moon has also vowed to close down “zombie” companies kept alive by the state and banks and to enforce freer competition by cracking down on unfair business practices -- all of which should theoretically be good for productivity. South Korea has successfully defied the economic consensus before, when it embraced global trade to propel industrialization rather than turning inward like many other postcolonial nations; exports powered its decades-long rise into the ranks of rich nations. Now, instead of paying lip service to the plight of the middle class, Moon is trying to tilt the scales in its favour. We should hope South Korea proves the naysayers wrong again. Bloomberg View
Instead of paying lip service to the plight of the middle class, Moon is trying to tilt the scales in its favour
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16 Business Daily Wednesday, September 27 2017
Closing Transport
Two wheels good: Bike boom nibbles on Asia gasoline demand growth Just in the past month, Chinese bike-sharing start-up Mobike introduced its services in Kuala Lumpur and Bangkok Jessica Jaganathan and Florence Tan
I
t is not quite going back to the horse, even if the bicycle was the first contraption to replace beasts as a means of personal transport. This is a new two-wheeled animal, though, that millions of consumers in Beijing, Taipei, Singapore and cities across Asia are renting via phone apps to cover the last mile of journeys, leaving cars and motorcycles at home, and forgoing taxis. The two-year bike-share boom has put over 16 million bikes in China alone, according to its Ministry of Transport, with more than 100 million riders registered, eating into car use and gasoline demand growth already expected to stagnate by 2025. “I often use bike-sharing services because it’s very convenient. I can find it anywhere and will not worry about losing the bike,” said life-long Beijing native Wei Zhang, 36, who uses a shared bike several times a week on her commute, riding 5 km or more. Analysts can’t keep up with bike numbers, let alone estimate how much gasoline consumption growth has dropped off due to the rapid rise in bike-sharing. But it is clear from industry estimates, government
reports and a Reuters survey that bike services are resulting in fewer trips by motor vehicles. “Bike-sharing has been crazy since late last year ... The general belief is that (it) boosts the utilization of public transport as shared bikes help to complete the journey,” said Harry Liu, downstream consultant with IHS Markit. Even before the number of bikeshare units began growing by multiples, analysts had already been saying greater fuel efficiency in autos and the rising use of electric cars meant gasoline’s big growth story was over.
Key Points More people dropping cars, buses for bicycles to cover last-mile Convenience, healthy lifestyle, pollution control boost bike use Gasoline demand growth to slow partly due to surge in bike-share China’s gasoline demand growth is expected to slow to nearly 4 per cent this year, compared with 6.5 per cent growth last year, said Sri Paravaikkarasu, head of East of Suez oil at FGE. And Chinese demand for gasoline
is expected to peak as early as 2025, according to state-owned China National Petroleum Corp. “There used to be long queues of taxis waiting for customers outside train stations, but I don’t see them anymore,” said a Beijing analyst, who took part in a Reuters survey of bikeshare users and wanted to be known only by her surname Wang.
Asian bikes, Asian cities
Just in the past month, Chinese bike-sharing start-up Mobike introduced its services in Kuala Lumpur, Malaysia, and Bangkok, Thailand, as well as in U.S. capital Washington, D.C. Mobike, which launched in April 2016, and China-owned rival Ofo have attracted combined funding of more than US$2 billion from venture capital and private equity firms that include Temasek Holdings, Tencent Holdings, DST Global and Ant Financial. Ofo - which has more than 10 million bikes globally to Mobike’s 7 million - says it is on track to increase its global bike units to 20 million over the next three months. The investments “demonstrate investors’ confidence in the global bike-sharing industry,” said Lawrence Cao, head of Asia Pacific
business for Ofo. Consultancy Roland Berger said the “unforeseeable” amounts of venture capital put into bike schemes made it almost impossible to estimate the growth potential of bike operators, particularly in China, over the last two years. Taiwan, where the government backs a bike-sharing scheme, is aiming to have bikes account for a 12 per cent share in trips to work by 2020, up from about 5 per cent now. The Taipei city government is expanding bike-sharing programme Youbike - which uses docking stations - to have a bike station within a 10-minute walk of every citizen by 2018. Singapore-owned Obike and U.S.based VBikes - both free-range systems - are also operating in Taiwan. “Once bike-sharing pushes it really to the limit, to the extent to impact the way people think of mobility, then it could be disruptive,” said IHS’s Liu.
Four wheels bad
A survey done by Mobike of 100,000 customers across 36 cities in China found that car trips among the respondents had more than halved since its service was introduced. A report from the Transport Commission of Shenzhen, one of China’s richest cities, said more than 500,000 bike-share units there had replaced nearly 10 per cent of travel by private car or 13 per cent of gasoline consumption. Bike-sharing could pose a risk to gasoline consumption “if a stronger state push to reduce carbon intensity and improve air quality translates to more drivers replacing shorter-distance driving with bike rides,” said Peter Lee, an oil and gas analyst at BMI research. Chinese growth of passenger car sales, which grew an average annual rate of 10.1 per cent over 2011 to 2016, is expected to slow to 2.5 per cent over the next five years, said BMI’s Lee. Still, mismanagement of bike numbers and misuse of some bicycles may attract legislation that could curb their use. New shared bikes were recently banned in some areas in the Chinese cities of Wuhan, Shanghai and Guangzhou, because of bicycles being discarded in public spaces. Reuters
Security
Aviation
U.S. financial regulator launches unit to police cyber-threats
In-flight Wi-Fi to make you worth Major Thai banks strong, US$4 more to airlines every trip bad loan growth slows
The U.S. Securities and Exchange Commission has announced it is setting up a special unit dedicated to identifying cyber-related misconduct. The announcement came days after the top U.S. financial regulator disclosed that it had been the victim of a hacking attack in 2016, and that the perpetrators may have been able to profit from the information. In a statement the SEC said the new unit, which has been in the works for months, “will focus on targeting cyber-related misconduct” including market manipulation schemes, hacking and intrusions into retail brokerage accounts. “Cyber-related threats and misconduct are among the greatest risks facing investors and the securities industry,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division. “The Cyber Unit will enhance our ability to detect and investigate cyber-threats through increasing expertise in an area of critical national importance.” The attack on the SEC targeted the agency’s EDGAR database, which contains data from publicly traded companies such as earnings statements and corporate transactions. AFP
Each airline passenger will be worth US$4 more per flight to carriers once they’re able to offer uninterrupted broadband services, according to a study commissioned by satellite-communications provider Inmarsat Plc. In-flight connectivity should generate US$30 billion for airlines by 2035 out of an overall market of US$130 billion including technology providers and related companies, the report compiled by the London School of Economics says. Revenue will flow from four main sources: access charges, online shopping, advertising and premium content such as on-demand video. While only 53 operators worldwide currently offer in-flight internet, such access has already become an “expectation” rather than a luxury, according to Inmarsat Chief Executive Officer Rupert Pearce. The service will become ubiquitous over the next two decades, with Asia-Pacific airlines benefiting most, followed by Europe and North America, the study published yesterday says. “We will see innovative deals struck, partnerships formed and business models fundamentally changed,” Alexander Grous of the LSE’s media and communications faculty, the report’s author, said in a statement. Bloomberg News
Central bank
Thailand’s major commercial banks remain strong with high capital adequacy ratios, while bad loans are rising at a slower pace, the central bank said yesterday. The comment came a day after the Bank of Thailand (BOT) listed the country’s top five banks as “domestic systematically important banks”, which warrant stricter regulation to ensure they stay secure and to reduce risks to the banking system. The five are Bangkok Bank, Krung Thai Bank, Siam Commercial Bank, Kasikornbank and Bank of Ayudhya. But those banks are strong, with CAR ratios much higher than the BOT’s requirements, Deputy Governor Ruchukorn Siriyodhin told reporters. In 2019, the five banks must have a total CAR ratio of 11.5 per cent, against the minimum requirement of 11 per cent. Bangkok Bank said its ratio was 18.7 per cent as of June and KTB said its ratio was 16.27 per cent. Ruchukorn also said overall banks’ non-performing loans (NPLs) were still increasing, but at a slower pace, and banks’ high provisioning would be able to cope with that. Reuters