Traditional qipao-making surviving in Taiwan Garment Page 16
Thursday, September 28 2017 Year VI Nr. 1393 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm TCM
Traditional Chinese Medicine expansion push in the territory Page 5
Tourism
MSAR to remain ‘key’ destination for Chinese tourists throughout next decade Page 6
www.macaubusiness.com
Trademark
Apple applies for trademark registration in MSAR for iCloud and MacBook Air Page 3
Loans
Central government to fight predatory lending on Mainland Page 10
Solace of quantum Fintech
The financial technology sector revolution is growing at its fastest pace in Asia. Led by the banking sector, says guru Andrew Work. With new tech sought by banks under regulatory pressure ‘like never before’. Ramping up AI needed to handle the large volume of data. Enter quantum computing, crytocurrency and blockchain technology. Page 4
Royal Dragon opens doors
Hopefully fully operational by mid-October, but opened yesterday. With 144 3-star rooms, only open to select casino guests. The property received its casino licence Tuesday. Receiving 20 of the proposed 25 tables to be shifted from the Golden Dragon.
Estoril revamp
Tender Public tender open. Renovation to house Tap Seac Youth Centre for Cultural, Recreational and Sports Activities. MOP2.24 mln deposit gets contenders admission to renovation opportunity. Of the former hotel, swimming pool, neighbouring sports field and associated areas. Page 3
China’s industries resilient New opening Page 7
HK Hang Seng Index September 27, 2017
27,642.43 +129.42 (+0.47%) Worst Performers
AAC Technologies Holdings
+5.47%
Geely Automobile Holdings
+2.03%
Kunlun Energy Co Ltd
-0.82%
China Resources Power
-0.43%
Lenovo Group Ltd
+4.32%
China Resources Land Ltd
+1.88%
China Petroleum & Chemical
-0.68%
MTR Corp Ltd
-0.33%
China Mengniu Dairy Co Ltd
+3.93%
Hengan International Group
+1.72%
Want Want China Holdings
-0.57%
BOC Hong Kong Holdings
-0.26%
Galaxy Entertainment Group
+2.66%
WH Group Ltd
+1.27%
Cathay Pacific Airways Ltd
-0.52%
Henderson Land Develop-
-0.19%
Sands China Ltd
+2.31%
CITIC Ltd
+1.23%
CK Asset Holdings Ltd
-0.47%
Sino Land Co Ltd
-0.15%
28° 33° 27° 31° 27° 31° 28° 31° 27° 31° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Official data Mainland industrial firms extended this year’s earnings surge. Official figures suggest resilience in the world’s second largest economy. Industrial profits increased 24 pct in August from a year earlier, the most in four years. Page 8
2 Business Daily Thursday, September 28 2017
Macau AL
Looking to academics for more rational discussion “
W
ith the four different areas balanced out by the 33 legislators, from my own experience, consensus would be easier met with rational discussions,” notes Davis Fong Ka Chio, Director of the Institute for the Study of Commercial Gaming and one of the seven newly appointed lawmakers selected by the Chief Executive.
Fong told Business Daily that the new Legislative Assembly (AL) is composed of legislators representing four areas - government, industry, academia and society. The Chief Executive yesterday announced via a dispatch in the Official Gazette the appointment of the seven members to the sixth AL directly chosen by the top official. With the majority of the appointed legislators involved in academia, another appointed legislator, Joey
Lao Chi Ngai, Director of the Macau Economic Association, said more scientific-based opinions would be brought into the AL. “In general, academics don’t have much benefit-related burdens so more objective [opinions will be expressed],” said Lao. “[More academics in the AL] would reduce emotion-driven speeches because too many of these [emotion-driven opinions] would obscure facts and rational ideas.”
According to the dispatch, the other appointed legislators are Ma Chi Seng, re-appointed legislator and a young entrepreneur; Michael Pang Chuan, the Vice President of the University of Science and Technology; Wu Chou Kit, President of the Association of Electrical and Mechanical Engineers of Macao; Iau Teng Pio, Associate Professor of the Faculty of Law at the University of Macau; and Chan Wa Keong, a practising lawyer. C.U.
Employment
Stability sets tone for local employment evolution Official data show a stable path in the domestic labour panorama According to data released by the Information from the Statistics and Census Service (DSEC) the June-August period saw the unemployment rate set at 2.0 per cent, the same as the previous period measured (May-July). The unemployment rate of local residents was 2.7 per cent, down 0.1 percentage point compared to the
May-July period. The underemployment rate was 0.5 per cent, up 0.1 percentage points. Official data also indicated that the Gaming & Junket Activities sector registered an increase, while that of Hotels, Restaurants & Similar Activities, Wholesale & Retail Trade and Construction showed decreases.
DSEC figures show that there were 7,900 unemployed in June-August. New entrants searching for jobs for the first time made up 17.2 per cent of the total unemployed. The statistics department also said that compared with June-August 2016 the labour force participation rate dropped by 1.2 percentage points, while both the unemployment rate
and the underemployment rate rose by 0.1 percentage points. The total labour force was 392,100 and the labour force participation rate stood at 71.5 per cent, notes the statistical department. Total employment was 384,200 and employed residents totalled 283,800, up by 100 and 1,200, respectively, from the previous period, the information reveals.
Culture
Finding a home MGTO is still looking for a suitable location to relocate the current Wine Museum to after discarding a proposed location in Coloane, while the public tender for the Grand Prix Museum is currently open Nelson Moura nelson.moura@macaubusinessdaily.com
Yesterday, Macao Government Tourism Office (MGTO) opened a public tender for the MOP300 million (US$37.5 million) renovation of the Grand Prix Museum, an Official Gazette release announced. The release states that the project will have to be concluded in 345 working days, with MGTO having stated last year that the revamp would be completed by November 2018, with the museum to re-open in 2019. Proposals will have to be made by December 4 of this year with a MOP5 million deposit provided. Meanwhile, MGTO has still not found an appropriate location for the Wine Museum, given that its current location is within the building set to be remodelled for the new Grand Prix Museum, Office representatives stated yesterday following the 6th Urban Planning Committee meeting. The Wine Museum is currently located in the Tourism Activities Centre
(CAT) near Golden Lotus Square the same building as the Grand Prix Museum - and occupies 1,400 square metres with 1,143 different brands on display. According to MGTO Deputy Director Cheng Wai Tong, the 645 square metre state-owned plot previously considered in Coloane is not suitable for the relocation due to restrictions on possible changes to the area. According to its urban plan, the land plot considered near the Coloane Village shipyards is protected by Heritage Law. The land plot plan also imposes that reconstruction cannot exceed the height of the current protected building, with one of the sections having a height limit of 8.9 metres. “We considered the current size of the Wine Museum to be too small being one of the main reasons for its change. If we want to change we need to find a place with better conditions. We hope to find another suitable location to consider. If not, we will have to stay in the same location,”
Cheng said. The exploration proposed for the 645 square metre land plot in Coloane is described as being for ‘cultural
equipment and public installations,’ with the MGTO representative saying that no project had yet been defined for the area.
Until always, comrade Death prematurely took one of our longtime friends this week. A victim of cancer, journalist Luís Andrade de Sá made his mark on Macau media with his precise writing and literary skills, having also published several books. A journalist with the Portuguese news agency Lusa, Luís Andrade de Sá arrived in Macau in the 1980s as a reporter for the Portuguese channel of TDM-TV. It was in Macau that Luís, our comrade of so many years, spent much of his career. In the 90s he was Editor-in-Chief of the Portuguese newspaper Futuro de Macau and a media correspondent for several media in Portugal. Death took Luis early at 58 years old. In 2000 he was admitted to Lusa, having held various functions for 17 years, including that of head of agency in the Mozambican capital of Maputo. Author of several books on Macau - among them Aviation in Macau: a century of adventure; The Boys from Macau, Hotel Bela Vista and The Memory in the Luggage - Luís Andrade de Sá, known by friends for his straightforwardness and forceful humour, also worked on the newspaper Plataforma and on the magazine Macau Business before returning to Lisbon. He was hospitalised in a clinic in the region of Setúbal, near the Portuguese capital, having been diagnosed with a tumour about two years ago. Luís is survived by his wife and two children.
Business Daily Thursday, September 28 2017 3
Macau Renovation
Public tender for remodelling of Hotel Estoril announced The first casino-hotel of Stanley Ho’s gaming monopoly era will be given a new shape and function Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he renovation of the former Hotel Estoril has been officially opened to public tender in a dispatch published in the Official Gazette yesterday. The official notice follows an announcement from the Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, who pledged on September 14 that the public tender for the design and remodelling of the building would be opened before the end of September.
The building will house the Tap Seac Youth Centre for Cultural, Recreational and Sports Activities, with the tender inviting applications for the provision of design and construction planning. The ‘place of construction’ outlined in the dispatch includes the former Estoril Hotel, the Estoril swimming pool, and the sportsfield of the Luís Gonzaga Gomes Luso-Chinese High School. The process, overseen by the Education and Youth Services Bureau (DSEJ), will be opened for a period of 90 days, ending January 15, 2018.
A provisional deposit of MOP2.24 million – in cash deposit or bank guarantee – is required from candidates submitting applications. The criteria for assessing the proposals is assigned as follows: design proposal (40 per cent), reasonable price (30
per cent), design period (10 per cent), profile of technicians and company (10 per cent), work plan (5 per cent), and experience in similar jobs (5 per cent). In a previous renovation bid, the Macau SAR Government invited Alvaro Siza Vieira, a Portuguese architect, in April
2015, to work on the project. However, the decision was met with resistance from local associations such as the Macau Root Planning (a city planners group) leading the government to reverse its decision and opt to launch a public tender instead. Estoril was the first modern-style casino hotel opened by Sociedade de Turismo e Diversões de Macau (STDM) in 1962, marking the launch of the 40-year monopoly era of local casino tycoon Stanley Ho. Activities have been discontinued in the facilities since the 1990s.
Technology
Apple Inc. applies for trademark registration in Macau Computer manufacturer and software developer Apple Inc. has applied for trademark registration in the Macau SAR, according to a dispatch in the Official Gazette yesterday. The company, based in California, has filed for commercial and industrial protection of three categories of services and products under the ‘iCloud’ brand, as well as one trademark protection for ‘MacBook Air.’
The several dozens of services filed for protection under the iCloud brand include storage services for archiving electronic data, electronic storage of data, storage of third-party websites with technology that allows users to access stored data, images, audio, videos and documents, computer hardware and software consulting services, provision of search engines, as well as computer hardware, software, and
peripheral devices. Apple Inc. joins the list of recent technology conglomerates which have applied for protection of commercial and industrial brands in Macau, such as e-commerce giant Alibaba Group and Baidu Online Network Technology (Beijing) Co., Ltd., one of China’s biggest Internet companies. In early August, the Macau SAR Government signed a framework
agreement with Alibaba for the provision of information technology services through the Alibaba Cloud system in order to enable the implementation of the Smart City platform foreseen by the MSAR’s five-year development plan. According to local law, complaints may only be made up to two months from the date of publication of the trademark application notice in the Official Gazette. S.Z. advertisement
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4 Business Daily Thursday, September 28 2017
Macau Opinion
Ashley Sutherland-Winch* The millennial factor Millennials are changing the game. Goldman Sachs Asia division has published a report after meeting with investors from across Asia. One outstanding question that is getting a large amount of attention is, will brick-and-mortar casinos become less popular as millennials spend more time online? Goldman argues this because 71 per cent of gross gaming revenue in Asia comes from travellers who look for a diversified entertainment experience. The report says casinos also benefit as more Asians travel abroad, especially the Chinese, who on average make three domestic trips annually, but only 0.1 trips overseas, and the latter should increase. The millennial factor is always such a hot topic because they are such a large demographic on the rise and they have a different outlook from other generations. At the 2017 Global Gaming Summit (G2E) Asia this Summer, casino operators revealed that they were actively seeking millennial customers as a way of securing their future earnings, but isn’t this an obvious business practice? Businesses watch trends to understand the potential impact of target demographics both current and future in order to develop marketing strategies that will maximise exposure of their brands. I don’t believe that it is reasonable to think that millennials will be any less interested in exploring gaming in Macau than older generations, but they will want a different experience from their parents. The millennial audience loves excitement and unique travel, both of which Macau offers; in fact, for the past two years, Macau has been diversifying and succeeding with options of entertainment and dining for all travellers young and old. It may take the generation a few more years to develop dispensable income to explore high-end travel but interest in gaming will still exist. One area, however, regarding the Macau gaming industry that continually fascinates me is the practice of offering water or tea to patrons while gaming, while fellow gaming city Las Vegas casinos offer alcohol in their options. Interestingly though, some Las Vegas casinos are now using automation to figure out how many complimentary beverages to give players. If they aren’t gambling enough, the person does not get a free drink. Might millennials respond well to these types of incentives? Research and news often indicates that casinos are emplying technology and gadgets to increase their younger demographic draw but I think that equal focus on the experience of gaming would also increase loyalty and patronage. The Millennial factor is in full flow; let’s see how it unfolds. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Fintech
Quantum leading the financial revolution Particle physics fundamentals are being applied to cutting-edge computing technology driving financial development, with Asia leading the way Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he financial technology (fintech) revolution is being led by the banking sector and it is growing at its fastest pace in Asia, according to Andrew Work, Head Content Strategist for Asia Pacific of NexChange, a professional social network for the financial services industry based in Hong Kong. “Because banks are under regulatory pressure as they have never been before, they have to find new technologies,” he stated during a talk organised by the French Macau Business Association (FBMA) yesterday. So they are pushing the revolution forward. The finance specialist also said that “big techs” in China are not only “piling into finance” – a trend that has not been observed in the West, at least initially – but that it is also one of the sectors which is “the most opened to foreign business” in the country. Work further pointed out that the technological trend, which first started in high finance, has started spreading to other fields. These would include customer-based experience services such as insurance companies, which are now “trying to sell insurance without using agents,” or micro-insurance, developing cheaper, short-term contracts, delivered
via mobile phone applications.
It is revolution
During his talk, Work explained that there are two marked technological trends driving the fintech revolution today: quantum computing, and cryptocurrency and blockchain technology. Essentially, quantum computing consists of figuring out ways of applying quantum physics knowledge to computing. The premise is to find more efficient ways to organise the “morass of data” generated and compiled through cloud technology, the Internet of Things (IoT), and financial transaction records – usually called Big Data – enabling Artificial Intelligence (AI) to process the information. “As the [volume of] data dramatically ramps up, the power of Artificial Intelligence needs to be dramatically ramped up. And that’s when quantum computing comes in,” said the expert. Work told Business Daily he would be “surprised” if a company such as Alibaba was not investing in cutting-edge technology development in fintech, such as quantum computing. “These are independent standalone companies, coming out of universities, because this is very basic research, and that gets out of university and it is commercialised,” he noted.
Hidden value
As for cryptocurrencies, the specialist
said they break up into two major categories. The first one is bitcoin, “which is like any currency,” said Work, because they draw on the “fundamentals of money,” such as the capacity to generate belief in stored value and in the use of it to acquire things. The other one is called utility tokens or smart contracts, commonly run through blockchain technology, which enables the creation of tokens than can, in turn, create the “reality of exchange.” Utility tokens, Work explained, are “a bit like airline points,” claiming they are “worth something” because they can be used “somewhere specific,” which is what “gives them value in the broader market.” “Utility means that you can connect it [the token] to a software platform, and the idea that this platform will be adopted by a lot of people, that they would need the tokens to access it and get the benefit of it, whatever it is, and therefore, the currency itself, will be valuable,” he continued. Monetary transactions, as with commonly accepted, officially recognised currencies, happen at a stage called initial coin offers (ICO), in which the people or companies which create those tokens pre-sell them to investors, who then open them out for public sale. “In the old days, you would just put it out to the public. Now, it is a two-stage process,” Work told Business Daily.
Business Daily Thursday, September 28 2017 5
Macau Economy
Traditional Medicine International Forum a real tonic Experts from traditional medicine and healthcare industries from Macau, Mainland China and other parts of the world were invited to exchange experiences in the field Cecilia U cecilia.u@macaubusinessdaily.com
J
ointly presented by the MSAR Government and the State Administration of Traditional Chinese Medicine of the People’s Republic of China, the 2017 China (Macau) Traditional Medicine International Co-operation Forum (TMIF) kicked off yesterday in The Parisian Macao Hotel. Speaking during the opening ceremony, the city’s Secretary for Economy and Finance, Lionel Leong Vai Tac, said the MSAR Government will continue to support the industrialisation and standardisation of traditional Chinese medicine (TCM) with full attention to be placed on setting up the Traditional Medicine Centre of the World Health Organisation and State Key Laboratory of Quality Research in Chinese Medicines. The Secretary added they would expedite the construction of the Guangdong-Macau TCM Science and Technology Industrial Park (GMTCM park). “The holding of TMIF
allows Macau to perform its role as a platform through the establishment of public departments, educational institutions and enterprises to exchange experience and information in order to further support the nation’s international co-operation in TCM and to allow its development in Macau,” said Leong. The forum invited 16 international lecturers to discuss issues relatrf to policies, techniques, market development strategies and investment opportunities in the field. During yesterday’s opening ceremony, the public service platform of GMTCM was inaugurated. The public service platform includes a GMP (Goods Manufacturing Practice) pilot production base building, an office building for R&D Headquarters, a power centre, a building for extraction and seven other individual project structures that commenced operation this month. The whole project construction of GMTCM is expected to be finalised in 2018. Hosted by the Traditional
Chinese Medicine Science and Technology Industrial Park of Co-operation between Guangdong and Macao (GMTCM), the Forum attracted some 600 participants.
Tradition continues to grow
Professor Gerhard Franz, Chairman of the European TCM-Working Party, one of the lecturers at this year’s TMIF, told Business Daily that TCM is experiencing a boom
in Europe. “We need to collaborate more to know what they are doing and they should know what we are doing,” said Professor Franz. “Not to work in parallel but to work together.” The professor revealed that his team has already established several collaboration projects in Mainland China, such as with Shanghai University. Aside from his invitation to
participate in TMIF, Professor Franz wishes to establish new links between Europe and Macau as well as on the Mainland in the area of TCM research. The head of State Administration of Traditional Chinese Medicine of the People’s Republic of China, Wang Guoqiang, revealed yesterday that the international estimates for the value of TCM services reached some US$50 billion per year.
Commerce
Hato also impacts merchandise Official data indicated yesterday that the supertyphoon that battered the city in August caused a decrease in import-export activity Oscar Guijarro oscar.g@macaubusinessdaily.com
Information released by the Statistics and Census Service (DSEC) reveals that total merchandise exports amounted to MOP805 million in August, down 17.2 per cent year-on-year. The value of exports (MOP112 million) slid by 50.2 per cent, with tobacco plummeting 56.8 per cent. Also, Electronic components re-exports nosedived 72.5 per cent year-on-year. Merchandise imports decreased by 4.3 per cent yearon-year to MOP6.33 billion, of which imports of Watches and Gold jewellery fell by
22.6 per cent and 13 per cent, respectively. The merchandise trade deficit in August amounted to MOP5.53 billion, according to DSEC. From January to August the total value of merchandise exports increased by
9 per cent year-on-year to MOP7.54 billion, of which the value of re-exports (MOP6.38 billion) rose 12.7 per cent, while that of domestic exports (MOP1.15 billion) decreased by 7.9 per cent. Th e t o t a l va l u e o f
merchandise imports grew by 4.1 per cent year-on-year to MOP47.41 billion. The merchandise trade deficit widened to MOP39.87 billion for the first eight months of 2017, said the DSEC. Exports to Mainland China increased by 17.6 per cent year-on-year to MOP1.42 billion in the first eight months of 2017. Exports to Hong Kong (MOP4.48 billion), the European Union (MOP122 million) and the U.S. (MOP111 million) rose by 14.3 per cent, 0.1 per cent and 14.3 per cent, respectively. Meanwhile, exports to Portuguese-speaking Countries (MOP0.7 million) plunged
87.9 per cent year-on-year, according to official data. D S EC a l s o i n d i c a ted that merchandise imports from Mainland China (MOP15.55 billion) and Portuguese-speaking Countries (MOP418 million) decreased by 5.8 per cent and 5.4 per cent, respectively, year-onyear in the first eight months of 2017 whereas imports from the European Union (MOP12.33 billion) increased by 11.3 per cent. External merchandise trade totalled MOP54.95 billion in the first eight months of 2017, up 4.8 per cent compared with MOP52.45 billion a year earlier, DSEC data showed.
Culture
Supporting cast Three public tenders were opened for services related to the 2nd International Film Festival & Awards- Macao Macao Government Tourism Office (MGTO) has opened three public tenders related to the organisation of the 2nd International Film Festival & Awards ‧ Macao (IFFAM), to take place in the Macau Cultural Centre between December 8 and December 14 of this year. The three public tenders are related to providing equipment, decoration services, decoration and construction of spaces for events; supplying invitations for the event and hosting;
and transport services, with the respective public tender acts to take place on October 19. The second edition of IFFAM will have as its Artistic Director the experienced film festival jury member and former CEO of Protagonist Pictures Mike Goodridge. The first edition of IFAAM had a total budget of MOP55 million (US$6.8 million) with the overall budget for this year’s edition not yet revealed. N.M.
6 Business Daily Thursday, September 28 2017
Macau Tourists
Still number one Bernstein analysts believe that improved transport and access, increased room capacity, and the usual gaming offerings will ensure the MSAR remains a ‘key destination’ for Chinese tourists over the next decade Nelson Moura nelson.moura@macaubusinessdaily.coms
A
s th e n u m b e r of international outbound Chinese travellers is expected to double to 260 million by 2025, Macau will remain a ‘key destination’ for Chinese tourists due to its gaming offers and proximity, a report from brokerage firm Sanford C. Bernstein states. The firm believes Chinese visitation to the MSAR will reach 34 million by 2025, while gross gaming revenues will grow to US$38.5 billion (MOP309.70 billion) by 2020. According to the report, with the city fairly close to five large international and domestic airports in the region which handle over 185 million passengers annually air traffic will be a ‘key driver’ to visitation increase Development of air traffic and other transport infrastructure will then have to be coupled to an increase in hotel capacity to meet the increase in overnight visitors. ‘In Macau, the growth of hotel, table and transportation capacity has been
e f f ec t i v e l y c o n v e r t i n g day-tripper traffic from Guangdong into weekend and mid-week traffic from across China […] The key growth in Chinese visitation will come from overnight visitors and those from outside Guangdong [with] visitation driven by increase in room supply and improvement in transportation,’ the report concluded. The report projects overnight visitation will grow by a compound annual growth rate (CAGR) of 10 per cent, with room supplies expected to increase from the current 36,000 hotel rooms to 44,700 rooms by 2020. Developing the almost 100 square kilometre area of Hengqin will also be a key long-term factor in driving Macau’s visitation in the future, complementing the city’s non-gaming sector by providing differentiated entertainment options.
More time, more money
In terms of the composition of the gaming market, the Bernstein report notes that the ‘mass market will be the key driver of sustainable growth in 2017 and through
the rest of the decade’. Meanwhile, despite showing ‘considerable strength’ since the last quarter of last year, the VIP gaming market was expected to ‘continue to face structural headwinds from a tightening regulatory environment in Macau and continued focus on capital outflows in China’ in the long run.
Non-gaming revenues were expected to represent 10 per cent of revenues from all six gaming operators in the territory by 2020, reads the report. Analysts also compared the attractive features of the city to eight major tourist city destinations in Asia for Chinese travellers, deducing Macau possesses several
advantages such as high exposure to the casino industry, distance and relatively lower costs. ‘Although facing rising competition from some other regional casino destinations (e.g.) Singapore, Philippines, Saipan etc., Macau remains the most important gaming destination for Chinese people,’ the note opined. advertisement
Business Daily Thursday, September 28 2017 7
Macau Gaming
Royal Dragon is in town The hotel sector of Chan Meng Kam’s new property will hopefully be fully operational by mid-October Cecilia U cecilia.u@macaubusinessdaily.com
H
otel Royal Dragon will only provide a small number of hotel rooms for the casino clients of the property, having opened doors officially to the public yesterday, according to information
provided by the sales and marketing department of Hotel Golden Dragon Macau. Owned by former legislator and owner of Hotel Golden Dragon and Taipa Square Hotel and Casino, Chan Meng Kam, the hotel held its opening ceremony at 11:00am yesterday. The new hotel is located in the vicinity of Hotel Lan Kwai Fong and
Macau Polytechnic Institute. Comprising 144 3-star rooms, the new hotel is expected to be fully operational by mid-October. Chan revealed that bookings for the hotel had reached 80 to 90 per cent, according to local Chinese newspaper Macao Daily. Business Daily asked Macao Government Tourism Office (MGTO)
about the operations of the hotel in question; the tourism regulator wrote in its reply that ‘the licence of Hotel Royal Dragon was issued yesterday [Tuesday]’. Meanwhile, Chan told the press that he had initially applied to transfer 25 tables from his other property of Hotel Golden Dragon but that the Gaming Inspection and Co-ordination Bureau (DICJ) had only approved 20, with all of these tables to serve mass market business. According to local news outlet All About Macau, the gaming watchdog confirmed that its related application had been approved on Tuesday afternoon. DICJ Director Paulo Martins Chan told the press on Tuesday morning that related applications were still being processed. As with Hotel Golden Dragon, the gaming concession of Royal Dragon is under SJM, while the property in Taipa is operated under the concession of Melco Resorts and Entertainment. Meanwhile, in light of the upcoming expiration of gaming concessions held by the six gaming operators in the territory between 2020 and 2022, Chan told the press that the gaming market should be more open, and that he was not considering entering the tender process for the new concessions, reported Macao Daily.
Tourism label
Studio City hotel ‘localising’ cuisine and staff Studio City has been declared to be of ‘tourist interest’ by the Macau SAR Government, according to a dispatch published in the Official Gazette yesterday. The 4-star hotel, a property of Melco Resorts & Entertainment, should follow a number of ‘special requirements’ concerning management and services offer in order to be entitled to the benefits of claiming the category. One of the requirements is that the property should operate a restaurant with traditional Macanese cuisine and/or traditional Portuguese cuisine. Regarding the hiring of staff, the
dispatch states that priority should be given to Macau residents, in addition to people who have successfully attended courses offered by the Institute for Tourism Studies (IFT), as well as other local training institutions in the hospitality field. Hotel staff at the reception desk should be able to speak both the official languages in addition to English. The hotel should also be run by the current company in charge of its management, Studio City Hotéis, Limitada, or any other hospitality group of international level. Studio City opened nearly two years ago, in October 2015. S.Z.
Gaming
Landing International appoints new independent non-executive director Casino and theme park developer Landing International Development Limited has appointed Wong Chun Hung as its new independent Non-executive Director for a three-year term, effective
September 26, a company filing with the Hong Kong Stock Exchange revealed yesterday. Mr. Wong will also sit on the audit committee, nomination committee and remuneration
committee, and is also the independent Non-executive Director for Hong Kong listed companies Pacific Plywood Holdings Limited and China Healthcare Enterprise Group Limited.
The new appointee has over 10 years’ experience in accounting, auditing and consulting and is a member of the Hong Kong Institute of Certified Public Accountants. N.M.
Report Bitcoins
No to virtual currencies A release from the Macao Monetary Authority notes that the Chinese authorities issued a notice to advise all the banking and payment institutions in the MSAR not to take part in or provide, directly or indirectly, any financial services for any virtual commodities last week, according to a press release from the Macao Monetary Authority (AMCM). AMCM warned the public that any trading in virtual commodities such as Bitcoin involves risks, including illegal practices such as potential money laundering and the financing of terrorism. AMCM stated in its press release
yesterday that virtual commodities are neither legal tender nor a financial instrument subject to supervision. Authorities on the Mainland have recently imposed stringent regulations on the trade of tokens, with financial institutions and non-bank payment institutions prohibited from providing services for tokens and virtual currencies. Cryprocurrencies such as bitcoin are used on a number of online gaming platforms, while the gaming watchdog (DICJ) head Paulo Martins Chan reiterated to the press on Tuesday that the MSAR Government has never approved any online gaming activities in Macau.
AIPIM releases freedom of press survey results The Macau Portuguese and English Press Association (AIPIM), after requesting experts to independently analyse the results of a survey on press freedom in Macau and the freedom of access to sources of information, has released the results to the public, finding that, although there is freedom of the press in Macau, there is also a lack of access to sources of information, in particular relating to certain government departments.
The details were announced at a press conference held yesterday. The results of the report note that while no threats to the physical and moral integrity of journalists were registered by respondents to the survey Internet access is not censored and the press are able to exercise their daily work in a ‘free manner’: ‘constraints [exist] in undertaking the function of informing, namely on behalf of the various authorities of the MSAR which do not disclose or facilitate in a timely manner information to the journalists’.
8 Business Daily Thursday, September 28 2017
Greater china Official data
Industrial profits jump most in four years The robust earnings growth in August was driven by higher prices of commodities
P
rofits at China’s industrial companies rose the most in four years in August as commodities prices surged, thanks to a government-backed construction boom that is helping Beijing trim high levels of corporate debt without tripping up the economy. The upbeat earnings report is another sweetener for authorities as China focuses on stripping out financial risks from years of credit-fueled growth and keeping the economy on a steady footing ahead of a crucial party gathering next month. Profits in August jumped 24 per cent year-on-year to RMB672 billion (US$101.21 billion), the National Bureau of Statistics (NBS) said yesterday.
Key Points Aug profits grow 24 per cent y/y, highest single month increase since Aug 2013 Statistics bureau says faster growth due to higher commodity prices Discounting the combined Jan-Feb profit rise of 31.5 per cent, the latest earnings boost would be the biggest single monthly percentage surge since August 2013. The statistics bureau does not release single-month figures for JanFeb due to seasonal factors. Annual profit growth was 16.5 per cent in July. “The figures are really
positive - they show China’s efforts to cut down on overcapacity is working well,” said Iris Pang, Greater China Economist at ING bank in Hong Kong. Crucially, Pang said that Beijing is also making headway in reducing debt risks. “When you close down overcapacity factories, you are also deleveraging to an extent.” The robust industrial earnings growth in August was driven by higher prices, particularly in sectors such as oil, steel and electronics, He Ping of the National Bureau of Statistics said in a statement. He estimated that surging prices contributed nearly one third of the new profits last month. A year-long, governm e n t- l e d c o n st r u cti o n boom has fuelled demand and prices for building materials, while China’s push to cut excess capacity in heavy industries and its war on pollution has also appeared to intensify a short-term supply shortage and higher prices.
Looming risks
For the first eight months this year, the firms notched up profits of RMB4.92 trillion, an increase of 21.6 per cent yearon-year, picking up slightly from the 21.2 per cent annual growth in the January-July period. The earnings data by sector, however, highlights the uneven nature of profit growth. Earnings in the mining industry soared 5.9 times from a year earlier, coal mining enjoyed a 960 per cent jump
and manufacturing saw an 18.6 per cent boost. Sectors such as electricity, gas and water production however saw their profits plunge 22.6 per cent. A private survey of thousands of Chinese firms by China Beige Book International (CBB) noted major risks are looming for 2018, with a reversal in the commodity boom being one of the top worries. “It was demand and hot money inflows that kept prices rising. Neither was sustainable and now demand has clearly sputtered,” it said. Profits at China’s stateowned industrial firms, often debt-laden, were up 46.3 per
cent at 1.08 trillion yuan in January-August, compared with a 44.2 per cent rise in the first seven months. But earnings for all SOEs for August alone were only up 4.3 per cent on-year, Reuters calculations show. A raft of August data back analysts’ expectations for the economy to slow over coming months, as efforts by policymakers to clamp down on debt risks and defuse a property market bubble have raised financing costs and generally tightened monetary conditions. S&P Global Ratings downgraded China’s long-term sovereign credit rating last Thursday, citing increasing
risks from its rapid buildup debt. Chinese industrial firms’ liabilities at the end of August were 6.4 per cent higher than at the same point last year. Still, after a robust first-half growth is expected to easily meet the government’s 6.5 per cent target for this year in a welcome sign for Beijing ahead of a Communist Party Congress (CPC), which will see a key leadership reshuffle and the setting of policy priorities for the next five years. “We are bullish on China’s growth,” ING’s Pang said. “It’s not just capacity cuts that are boosting prices. Demand is quite strong too.” Reuters
Security
Beijing mulls Yangtze river curbs during Congress Chinese authorities often crack down on safety ahead of and during the Congress in an effort to prevent incidents that might distract attention from the political gathering China is considering restricting traffic carrying some chemicals along the Yangtze River as a security measure ahead of next month’s Communist Party Congress, triggering a rally in prices as industrial buyers scramble to secure raw materials. The Maritime Safety Administration (MSA) said in a statement last week that it may bring in restrictions from Oct. 11 until Oct. 28, but had not yet made a formal decision. The agency said it had issued an internal document, but gave no further details. Traders said the document outlined possible curbs on the loading and unloading of some potentially hazardous or inflammable chemicals at ports along China’s longest river. The MSA referred queries to the Ministry of Transport, which did not respond to a request for comment. Traders said they had been informed of the safety crackdown by their logistics suppliers, who had read the internal document as formal instructions for the Congress, which occurs once every five years and will start in Beijing on Oct. 18. Ports that could be affected include
the world’s biggest liquid chemical port, Zhangjiagang, about 100 km from Shanghai, as well as major ports in Jiangyin, Taicang and Changzhou which serve petrochemical companies, said Wood Mackenzie analyst Salmon Lee. “This has led to ... a spike in spot prices for some products as players rush to bring forward loading/ unloading dates, or buy more spot
material to cover any possible shortfall,” he said in a note. The rush to deliver cargos may have been exaggerated by the week-long National Day Golden Week holiday from Oct. 1 to Oct. 7 when shipping will slow. Many buyers have requested suppliers to ship between the end of September and early October, rather than later in October, said Lee.
Spot prices of monoethylene glycol (MEG), used to make polyester and antifreeze, jumped to US$950 per tonne this week on a CFR China basis, from US$910 to US$920 a week ago, Wood Mackenzie said. Benzene prices rose to US$835 per tonne on an FOB basis this week, from US$800 a week ago, it said.
‘Ports that could be affected include the world’s biggest liquid chemical port, Zhangjiagang, about 100 km from Shanghai’ “Many market participants cannot fathom a de facto month-long pause to the petrochemical business in industrial-rich Jiangsu province and one of the key manufacturing bases in China,” said Lee. Reuters
Business Daily Thursday, September 28 2017 9
Greater China Private survey
In Brief
Growth seen slowing but still solid
Environment
Authorities fine 18 major PVC makers
The services and retail sectors both slowed more than manufacturing in the third quarter, the survey showed China’s economic growth likely slipped in the third quarter but was still in far better shape than last year, a private survey showed yesterday, while adding that major risks are looming for 2018. Profits at Chinese firms are much healthier and hiring remains robust, but a five-quarter boom in commodities which has stoked growth has begun to reverse, according to the quarterly survey of thousands of Chinese firms by China Beige Book International (CBB). “While growth eased almost across the board quarter-on-quarter, the economy boasts a number of success stories,” CBB said in its report. “The worry is not how the economy is faring now, but where it is headed. Beneath substantial accomplishments lies a potentially darker story for 2018.”
Key Points Revenue at Chinese firms down q/q in Q3, but still up y/y - survey Hiring solid, capex down only slightly Commodities boom has started to reverse as capacity continues to rise Credit picks up, lending rates ease despite “derisking” campaign While the survey painted a picture of still solid economic growth, it pointed to a number of major risks including a continued over-reliance on cheap, easy credit and “old” growth drivers such as manufacturing and property. China’s commodity prices have soared this year thanks to a government-led construction boom and official announcements of capacity cuts, which have revived the fortunes of its long-ailing “smokestack” industries such as steel. But CBB said China’s capacity cuts are largely a myth, with firms in its
Bitcoin
survey reporting that capacity and output are still on the rise. “It was demand and hot money inflows that kept prices rising in commodities, not capacity cuts as many analysts would have you believe. Neither trend was sustainable and now demand has clearly sputtered.” Chinese iron ore futures had tumbled 22 per cent as of Tuesday after hitting a high of over RMB600 a tonne in August, reflecting oversupply concerns as global miners ramp up output while near-term steel demand in China looks to be at risk. CBB also cautioned about the prevailing market view that China’s growth has so far proved largely resilient to government efforts to clamp down on riskier forms of lending and slow a rapid increase in debt. “The mistake is that deleveraging hasn’t gotten off the ground,” it said, adding that borrowing by Chinese companies was the second-highest in four years in the third quarter while lending rates fell after rising in the previous quarter. “It is a serious error to believe the current, impressive level of corporate performance is occurring despite true deleveraging,” CBB said. “If 2018 sees actual tightening, it will be far more traumatic to firms than most analysts realize.”
S&P downgraded China’s sovereign credit rating last week, saying the government’s campaign to reduce debt risks is not working as quickly as expected and credit growth is still too fast. Rebalancing may be slower, more uneven The CBB report also pointed to challenges in Beijing’s long-standing goal of rebalancing the economy to make it more reliant on consumption and less on traditional growth engines such as manufacturing. Manufacturing has outperformed, and has been the healthiest part of the economy for the past year, CBB said, with solid domestic orders and capital expenditure figures trailing only the property sector. But the services and retail sectors both slowed more than manufacturing in the third quarter, the survey showed, without giving more details. “The results certainly aren’t terrible, but they hardly support the notion that services and retail are primed to lead the next decade of growth.” China will report September data and third-quarter growth figures in mid-October. First-half GDP growth accelerated at a forecast-beating pace of 6.9 per cent. Reuters
Trade relations
U.S. Commerce Secretary says market access, protectionism top issues with Beijing Wilbur Ross, speaking to reporters in Hong Kong two days after his visit to Beijing, also said overcapacity was still a big issue in some sectors U.S. Commerce Secretary Wilbur Ross said yesterday the U.S. relationship with China was too lopsided and listed market access, protectionism and intellectual property as the biggest problems amid trade tensions between the two countries. Ross said both sides were frank and open, and articulated good points of view during his trip to Beijing, which was a good sign, although neither made concessions. “The most important thing to push
China fined 18 companies that manufacture poly vinyl chloride (PVC) a total of RMB457 million (US$68.9 million) for manipulating market prices, the National Development and Reform Commission (NDRC) said in a statement yesterday. The companies worked together to raise PVC prices through a message group on the messaging application wechat in 2016, harming the margins for downstream PVC users such as appliance makers, the NDRC said. The 18 companies account for three-quarters of China’s annual PVC production, the Commission said.
for with China is better market access for companies operating there physically and for companies exporting there,” Ross said. “Ranking equal with that would be less protectionist behaviour.” The U.S. Commerce Department said in a statement on Tuesday that Ross had pressed China on the “need to rebalance bilateral trade and investment relations” and urged it to take “meaningful action” on trade issues.
U.S. Secretary of Commerce Wilbur Ross (L) meets Chinese Premier Li Keqiang (R) for talks at the Zhongnanhai state guesthouse in Beijing, on Monday. Source: Lusa
China’s relationship with the United States has been strained by the Trump administration’s criticism of China’s trade practices and by demands that Beijing do more to pressure North Korea to halt its nuclear weapons and missile programmes. Ross, speaking to reporters in Hong Kong two days after his visit to Beijing, also said overcapacity was still a big issue in some sectors and highlighted new industries such as robotics as potential threats. “There apparently are something like 400 robotics companies in China right now and people in the industry tell me maybe 360 of those are in it to get the subsidies and tax breaks and are not really serious about the product,” he said. On Monday, Ross told Chinese Premier Li Keqiang that the United States hoped for “very good deliverables” when U.S. President Donald Trump visits China, likely in November. He did not specify what “deliverables” the United States was hoping for. Ross is due to lead a trade mission to China as part of President Trump’s visit there. Reuters
BTCChina stops accepting deposits Chinese bitcoin exchange BTCChina said that it will stop accepting yuan and digital asset deposits yesterday as it prepares to wind down its mainland-based trading platform at the end of September. The company said in a statement on its website that the halt on deposits would take effect at 0400 GMT. It also repeated that it would shut down its exchange businesses on Sept. 30, an announcement that it first made two weeks ago, and will also halt yuan and digital asset withdrawals at 0400 GMT on Oct. 31. Energy
CNNC, Shenhua team up to develop gen-4 reactor The China National Nuclear Corp (CNNC) has signed an agreement with the Shenhua Group, China’s biggest coal producer, to promote the development of advanced “travelling wave” reactor technology, the state nuclear giant said. At a ceremony on Tuesday, the two sides signed an investment agreement to promote fourth-generation travelling wave reactors (TWR), CNNC said in a notice posted on its website. The deal also involved the Zhejiang Energy Group and the Hebei Construction and Investment Group. TWR, one of several new “fourth-generation” reactor designs, uses depleted uranium and is more fuel-efficient and cheaper to run than conventional nuclear reactors. Environment
Cities order steel output cuts earlier than expected The city of Handan in the top steelmaking province of Hebei has ordered steel mills to halve output a month earlier than expected, according to media reports, the latest city to ramp up efforts to reduce the smog that blankets northern China during the winter. At a meeting on Tuesday, Handan city authorities told local steel mills to cut blast furnace production by 50 per cent from Oct. 1 until March, industry consultancy Mysteel reported without citing sources. Companies in the downstream sector fabricating steel will also face restrictions, the report said, although no details were given.
10 Business Daily Thursday, September 28 2017
Greater China Abusive credit
After spate of suicides, authorities target predatory student lending The first online finance companies targeting university students emerged in 2013 and thrived in a regulatory vacuum Shu Zhang and Ryan Woo
I
n the final hour of his life, Zheng Dexing, 21, checked into a hotel and told family and friends in a flurry of phone messages that he was about to kill himself. “Don’t come collect my body - it’s too humiliating,” Zheng wrote to his father from Qingdao, the seaside city where he had fled from his hometown in the central province of Henan. Saddled with crippling debt and hounded by collectors, Zheng plunged to his death from the hotel’s eighth floor last year. A second-year university student, he had racked up debt of nearly RMB590,000 (US$85,700) after taking personal loans from a dozen online finance companies to pay for his gambling habit. Such tales of indebted students being driven to suicide have become commonplace in Chinese media and social networks in recent years, sparking public outrage. Regulators say they are the result of a surge in borrowing driven by online lenders who target university campuses, often charging staggering rates of interest and employing violent collection methods. Monthly compounded rates on loan contracts being offered in 2015 that were reviewed by Reuters were 1 to 2 per cent, implying an effective annual rate of 13 to 27 per cent. Penalties for late payments were at least 0.5 per cent daily, equivalent to 517 per cent annually. The lenders provide credit on easy terms, capitalising on a materialism prevalent among students eager to get the latest iPhone or laptop. The ease of getting credit means that students often take out new loans to pay back older ones, or pay off interest, resulting in a cascade of unpaid debts and penalties that multiply at a dizzying rate. The government has taken aim at the online lenders, suspending them in late June from extending new loans to university students. It has also ordered state banks to take up the credit slack, a major reversal as the lenders withdrew from the student market in 2009 amid fears over high default rates. Many of the online lenders have complied with the suspension, but still appear to be targeting students - and there is an unknown number of existing loans yet to be collected. A third-year university student in Beijing said he initially borrowed about RMB10,000 to buy an iPhone 6s last year. Now he owes more than RMB200,000 to two dozen online finance companies after taking out a series of new loans to pay back debts and due to spiralling interest. Harassed by debt collectors, he has dropped out of university. “I was reckless. I wasn’t thinking about the consequences,” he said, declining to be named out of fear of loan collectors. The first online finance companies targeting university students emerged
in 2013 and thrived in a regulatory vacuum in which they were not required to secure lending licences. Official statistics are unavailable, but the state news agency Xinhua reported in March, citing unnamed research, that the industry had grown to more than RMB80 billion by 2016. Online lenders stationed marketing agents in universities, students say, plastering campuses with advertisements, and even setting up information booths.
‘The state banks are gradually returning to some campuses’ Students said the universities turned a blind eye to the practices. However, the companies started disappearing from many campuses in 2016 after a spate of student suicides made headlines, they said. There were no advertisements for the companies visible during a recent visit to Zheng’s campus at the Henan University of Animal Husbandry and Economy in Zhengzhou, in Henan province. But advertisements could still be seen at some campuses in Beijing. It is not clear if universities were paid by the finance companies. Zheng’s university did not respond to an emailed request seeking comment and phone calls to the university’s propaganda department went unanswered. Once hooked, students are extended loans on easy terms. Applicants usually only need to provide their contact details, as well as those of family and friends, according to those who took out loans. Some women have to submit images of themselves nude, or performing lewd acts, as collateral, and threatened that they will be posted online if debts are not paid. Reuters has reviewed a file of socalled “naked collateral”, videos and pictures of more than 160 naked college women holding their
identification cards or IOUs. Jiedaibao, the online finance firm named on the IOUs, said in an online statement that it was merely a “money transfer channel” for lenders and borrowers, and did not request “naked collateral”. Reuters could not reach Jiedaibao for comment. Collection is also often enforced by violent thugs, according to parents and students. “It was terrifying,” said a first-year college student in Henan who owed RMB70,000, describing threats from loan collectors. “Some boys were tied up and beaten.” The student said she had to drop out of university. Fraudulent applications, in which students’ personal details were misappropriated by others seeking loans, are also common, according to police reports. In Zheng’s case, the identities of 28 other students were used by him to secure loans, according to a lawyer who advised his family. The lawyer declined to be named as he was not authorised to speak with foreign media.
Return of state banks
The student loan problem is just a small part of China’s massive financial system, but public anger over the practices of loan companies has prompted the government to act. Guo Shuqing, chairman of the China Banking Regulatory Commission, said at a meeting of the regulator in April that campus loan companies had a “very bad social influence”, according to an official with knowledge of the matter. Two months later, the banking regulator announced the suspension of new loans by the companies, citing practices like usury, violent debt collection and naked collateral. Fifty-nine campus lenders had left the market as of June 23, according to the People’s Daily newspaper, citing statistics by Yingcan Consultancy. But there are believed to be dozens more still operating, according to industry sources and a review of finance companies websites. Some loan companies are rebranding themselves as credit services to
“young people”, according to their websites. It is not clear if the ban will become permanent. Zeng Qinghui, co-founder of Wheat Finance and chief executive of Mingxiaodai (Shanghai) Financial Technologies Co, one of the largest online campus lenders, said his company had stopped making new loans to students for now. Mingxiaodai has extended nearly RMB10 billion in loans since it was founded in 2013, he said. Zeng defended his company and the industry, saying that most companies operated ethically and charged an annualised interest rate of 15-20 per cent. The state banks, meanwhile, have already returned to some campuses. In September, Industrial and Commercial Bank of China announced it had started to offer loans to university students in 10 cities. And in May, China Construction Bank (CCB) and Bank of China announced loan programmes in selected universities. CCB does not require collateral and allows students to apply for a maximum of RMB50,000, charging an annual rate of 5.6 per cent. CCB said the bank was using a “rigorous internal control and compliance system to effectively prevent risks.” ICBC also does not require collateral, capping student loans at RMB20,000. ICBC declined to comment. BOC did not respond to a request seeking comment. The banking regulator did not respond to a faxed request for statistics and comment.
The fallout
Zheng Xianqiao, the father of the student who committed suicide, is still reeling from his son’s tangles with the loan companies. Zheng, a farmer, used his life savings of RMB120,000 to help pay back part of his son’s loans. “Campus loan companies ruined my child’s wonderful life,” he said. “We spent everything we had in the family to repay his debt.” But, he said, “in the end he was still hounded to death by campus loans.” Reuters
Business Daily Thursday, September 28 2017 11
Asia Korean crisis
S. Korean official says managing N. Korean risks utmost priority for economy Commenting on a bilateral currency swap deal with China, Hwang said Seoul is in talks with Beijing through “various channels” to discuss the agreement expiring in October Shinhyung lee and Cynthia Kim
S
outh Korea’s currency chief said yesterday that his top priority is managing risks to the country’s financial markets from rising tensions over North Korea, as the won slid to a six-week low. Increasingly harsh exchanges between North Korea and the U.S. have unnerved foreign investors in recent weeks, with both South Korea’s central bank and the finance ministry warning that further provocations could lead to sudden capital outflows.
Key Points S.Korea deputy fin min says in talks with China on bilateral currency swap Policymakers to watch global financial markets during Korea holiday week Oct 2-9 Foreign investors offload KTB for a second day yesterday “For now, managing risks (related to North Korea) and making sure that our sovereign credit rating stands unscathed are our top priorities,” deputy finance minister Hwang Kun-il told Reuters in Sejong, south of Seoul. “Short-term, its difficult to expect markets to recover fast (from North Korea related jitters),” Hwang said,
adding that his team will be on standby to provide policy responses to any escalations that occur over the long Chuseok holiday from Oct. 2 through Oct. 9, when local financial markets will be closed. Foreign investors ended a seven-month long buying spree and turned into net sellers of South Korean bonds in August. The yield on three-year treasury bonds rose 25 basis points to 1.832 per cent yesterday amid a multi-trillion won selloff this week. They also unloaded 2.4 trillion won (US$2.11 billion) of South Korean
stocks in August after buying 5.8 trillion won worth in July, data from the Financial Supervisory Service showed. The won closed at a six-week low yesterday. Still, global rating agencies won’t be adjusting their sovereign credit rating of South Korea anytime soon, Hwang said he confirmed recently, as their current rating of Asia’s fourth largest economy already reflects risks related to North Korean provocations. Hwang said the finance ministry has “detailed” contingency plans in
place for various risk scenarios, but added he could not disclose specifics of policy responses now. Commenting on a bilateral currency swap deal with China, Hwang said Seoul is in talks with Beijing through “various channels” to discuss the agreement expiring in October. Market participants see Seoul’s diplomatic standoff with Beijing over security issues as a hurdle in extending the US$56 billion swap deal, given China continues to boycott made-inKorea products over Korea’s decision to deploy a U.S. anti-missile defence system in the country. Reuters
Energy
Australian PM Turnbull says gas companies agree to domestic supply deal Shell, Origin and Santos had already announced plans to step up local supply Tom Westbrook
Australian Prime Minister Malcolm Turnbull said yesterday gas companies have agreed to a two-year domestic supply deal to plug a projected shortfall in the country’s east, preventing threatened government intervention in the export market. The agreement heads off the possibility of Australia forcibly curbing exports from Australia’s three east coast gas exporters - Royal Dutch Shell, which runs Queensland Curtis LNG (QCLNG), Origin Energy, which runs the Australia Pacific LNG (APLNG) together with ConocoPhillips and Santos , which operates the Gladstone LNG plant. “They have stated that they will offer first, as a first priority, domestic customers any uncontracted gas in the future as a priority,” Turnbull told reporters in Sydney after meeting with the three companies. Gas has become a hot political issue as soaring prices are hurting households and threatening jobs at manufacturers like food, building materials and chemical producers, and at the same time driving up electricity prices, as gas-fired power is
needed to back up wind and solar energy. To deal with the crisis the government passed a law earlier this year that would allow it to limit exports from any of the three LNG plants on the east coast to beef up local supply. Eastern Australia faces a gas shortfall of up to 17 per cent of market demand in 2018, the nation’s energy market operator and competition
watchdog projected in reports submitted to the government earlier in the week. The shortfall of around 110 petajoules (PJ) seen in 2018 is far worse than the market operator flagged in March. Shell, Origin and Santos had already announced plans to step up local supply, but they were deemed insufficient by Australia’s competition
watchdog, the Australian Consumer and Competition Commission (ACCC).
“They have stated that they will offer first, as a first priority, domestic customers any uncontracted gas in the future as a priority” Malcolm Turnbull, Australian Prime Minister
Australian Prime Minister Malcolm Turnbull
“They have also given a commitment to provide regular reporting to the ACCC on sales, offers by them to sell gas and bids to buy gas from customers that they have declined,” Turnbull said. The deal did not include a guarantee on prices. Turnbull said prices would “vary with the global price.” Reuters
12 Business Daily Thursday, September 28 2017
Asia Monetary meeting
Thai central bank raises 2017 growth forecast again Growth in Southeast Asia’s second-largest economy has picked up but still lags regional peers Orathai Sriring and Kitiphong Thaichareon
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hailand’s central bank raised its forecasts for 2017 economic growth and exports yesterday, while leaving its key interest rate unchanged, shrugging off calls from the government and businesses for a cut to hold down the baht’s strength. As widely expected, the Bank of Thailand’s (BOT) Monetary Policy Committee yesterday voted to keep the one-day repurchase rate at 1.50 per cent, just a quarter-point above the record low. The vote was a unanimous 6-0. One member was absent. The committee reiterated its longheld view that the current rate supports the country’s economic recovery, and that domestic liquidity is ample, while citing pockets of risk. Thailand’s economy has gained further traction thanks to stronger exports and tourism, while private consumption continued to expand, it said. The central bank once again upgraded its 2017 economic growth forecast, to 3.8 per cent from 3.5 per cent seen in July. It predicted 3.8 per cent growth for 2018, up from 3.7 per cent seen earlier. The economy grew 3.2 per cent last year. “Thailand’s growth outlook
improved further on the back of external demand while strength in recovery of domestic demand must be monitored,” it said in a statement. The central bank also raised its export forecast again. It now expects shipments to rise 8 per cent this year, compared with 5 per cent seen earlier. Exports, a key growth driver, rose 8.9 per cent in January-August from a year earlier.
Key Points Committee unanimously keeps policy rate at 1.50 pct Raises 2017 growth forecast to 3.8 pct from 3.5 pct 2017 exports seen up 8.0 pct vs 5 pct projected earlier Says monetary policy remains accommodative Says baht moves relative to others largely unchanged
So far, a stronger currency has not seemed to dent Thailand’s export competitiveness, but the government is worried that trade and economic growth could take a hit in 2018 if the baht continues to climb. The baht has appreciated 7.6 per cent against the greenback this year,
the most among Asian currencies. But the MPC said the baht’s moves relative to those of its main trade partners were largely unchanged. Still, the MPC warned market volatility could flare due to external factors, including uncertainties over monetary policy in the United States and other major economies. The central bank said last week it had taken action against what it said was “periodic speculation” in the baht as the currency hovered at more than 28-month highs against the U.S. dollar. All but one of 22 economists polled by Reuters had predicted the benchmark rate would be kept at 1.50 per cent - where it has been since April 2015. ING forecast a quarter-point cut, citing a need to stem the baht’s appreciation pressure and its potential impact on exports. The finance ministry and business groups have called on the central bank to cut rates for the same reason. “The Fed, along with exports on firmer footing has saved the BOT’s bacon,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank. “The unanimous decision shows cohesion within the MPC which should signal to foreign investors to price out possibility of a rate cut as well as to abstain from further extending duration in Thai bonds.”
Gareth Leather of Capital Economics said: “Even if growth does hold up better than we think, the BOT is unlikely to be in any rush to hike interest rates.” Growth in Southeast Asia’s second-largest economy has picked up but still lags regional peers. The central bank also cut its 2017 headline inflation forecast to 0.6 per cent from 0.8 per cent seen previously, below its 1-4 per cent target. The central bank expects headline inflation to return to the target band by the middle of 2018. Reuters
Corruption
Samsung scion Jay Y. Lee set to begin appeal One defence argument turns on whether there was in fact a bribe as defined under South Korean law Joyce Lee
Samsung Electronics Vice Chairman Jay Y. Lee today will begin an appeal of his five-year jail term for corruption, in a case highlighting South Korea’s issues with the family-run conglomerates that dominate the economy. A lower court last month convicted the 49-year-old Lee, heir to the Samsung Group and one of Asia’s largest technology companies, of bribing former president Park Geun-hye to help strengthen Lee’s control of the crown jewel in the conglomerate, Samsung Electronics. Park is also under trial over allegations of abuse of power and bribery. At today’s hearing, the Seoul High Court will set the order of witnesses and evidence for the appeal trial, which is expected to begin in mid-October. Since Lee filed for appeal late last month, the appellate court is likely to try to rule by next January, as under Korean law, he can only be kept in detention a maximum of four months while the court considers his appeal. Whichever side loses is likely to appeal again to the Supreme Court. Four other Samsung executives were also convicted in the lower court in the bribery case.
Seoul Central District Court chief and new lead counsel Lee In-jae. Earlier this month, the defence team laid out its strategy submitted in hundreds of pages of arguments to the High Court. The defence is expected to question the lower court’s logic that Lee expected Park’s help in “succession operations,” which the court defined as all actions Samsung affiliates took “to strengthen Lee’s control of Samsung Electronics.” Lee’s defence has argued there was no such thing as “succession operations” and actions such as a 2015 merger of two Samsung affiliates was taken for the companies’ own perceived profit. The lower court ruled that while Lee
never asked for Park’s help directly, the fact that the merger did help cement Lee’s control over Samsung Electronics “implied” he was asking for the president’s help.
Bribe definition
Another defence argument turns on whether there was in fact a bribe as defined under South Korean law, which says only civil servants come under the statute. Lee was found guilty of providing financial support for former president Park’s close friend and confidante, who was not a civil servant. The lower court found that Samsung provided financial support to entities backed by Park’s friend Choi Soon-sil, including 7.2 billion
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Key Points Lee appealing 5-year jail term for “bribing” former president Arguments to begin mid-October at Seoul High Court Defence aims to debunk argument about “succession” Team questions whether money given was a bribe
New lawyers
Lee’s legal team has added new lawyers for the appeal, including former
won (US$6.4 million) to sponsor the equestrian career of Choi’s daughter. The court said this was a straightforward case of bribery as “it can be considered the same as she (Park) herself receiving it.” Lee’s defense is expected to argue no evidence exists to back that assertion. Lee’s defense counsel at law firm Bae, Kim & Lee LLC declined comment.
Samsung Electronics Vice Chairman Jay Y. Lee
Lee testified during the trial he had limited knowledge and authority over business decisions in affiliates except Samsung Electronics and related tech affiliates, which took up about 90 per cent of his work. His lower court trial began after Park was impeached, but before her successor, President Moon Jae-in, a liberal critic of the conglomerates known as chaebol, was elected in a special presidential vote in May. 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 Thursday, September 28 2017 13
Asia Indonesia
In Brief
Freeport victory sets tone for foreign miners Widodo’s win may come at a price, with big investors monitoring the Freeport talks for a measure of how much ground they may have to give under new contracts in Southeast Asia’s largest economy Fergus Jensen and Ed Davies
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or m a n y I n d o n e sians, investment banker-turned-minister Ignasius Jonan is the man who made trains run on time. Months after being handed the mining portfolio, the minister notched up a bigger victory; securing majority local ownership of Grasberg – one of the world’s biggest gold and copper mines – following months of difficult negotiations with U.S. giant Freeport-McMoRan Inc. Foreign control of mines has been sore point for many Indonesians, who view it as a legacy of an authoritarian past when a ruling elite cut sweetheart deals to carve up precious resources. The framework agreement with Freeport on Aug 29 was seen as a victory for Indonesia and a political win for President Joko Widodo as the U.S.-based company agreed, among other measures, to cut its mine ownership from more than 90 per cent to below 50 per cent in favour of Indonesian owners. The deal showed other multi-nationals in the sector Jakarta intended to wrestle back mine ownership, part of the motivation behind a mining law introduced in 2009 that targets the replacement of mining contracts with a new mining permit system, scaling back miners’ legal rights over their operations.
Jonan, Freeport Indonesia and Freeport McMoRan declined to comment for this story. The 54-year-old Jonan knew little about the resources sector when he took the mines portfolio, but Widodo saw the qualities he needed to lead the negotiations – a brash but principled negotiator with resolve to get the job done. The former banker had overhauled the state rail company, expanding and improving the Dutch colonial-era rail network, including its time keeping. But appointed transport minister in 2014, Jonan clashed with Widodo and was dropped from the cabinet two years later. Rather than writing him off though, the president, who had described Jonan as “stubborn”, asked him to lead the Freeport negotiations as mining minister. Importantly, Widodo thought Jonan “could be trusted” to carry out his wishes to the letter, said Mangantar S. Marpaung, a former ministry of mines and energy director, referring to Widodo’s recognition of Jonan’s principled stands on getting projects completed to high standards. Jonan teamed up for the talks with Finance Minister Sri Mulyani Indrawati, a former World Bank managing director and the bestknown technocrat internationally on Widodo’s cabinet. She declined to comment. They brought a more principled approach to the talks than Indonesia advertisement
had shown in many previous such negotiations, which were often sidetracked as powerful businessmen sought to lay claim to some ownership of the mines, sources with knowledge of the matter said. They declined to be identified because of the sensitivity of talking publicly about the negotiations. “When Sri Mulyani stepped in, that was a clear sign to everybody that a deal could be done and probably would be done,” said one of the sources, a member of the U.S. business community in Jakarta who has tracked the negotiations closely. After the framework agreement, their job now is to secure a final agreement. Freeport CEO Richard Adkerson acknowledged his company had made major concessions in the negotiations. Apart from giving up its majority ownership, it agreed to increase revenues to Indonesia, build a smelter to process some of the mine’s output and to invest up to US$20 billion in the mine by 2031 – measures that were not open to compromise, Widodo had told Jonan. Securing a final agreement could take months of talks over the valuation of Freeport’s stake, which will partly be determined by agreeing on the trajectory of the mine’s future profits and its commercial reserves, said Marpaung. Grasberg’s 30 million pounds of copper reserves account for a third of Freeport’s global portfolio. Indonesia held about 20 meetings with Freeport. Jonan told Reuters in August it was important to treat Freeport like any other company because “they are not sovereign. We are not dealing with a country.” Initially, negotiations looked ominous. In January, Indonesia halted Freeport’s copper concentrate exports as it tried to press the company to accept Indonesia’s new mining laws. A month later, Adkerson threatened international arbitration, which would tie up the talks for months. He told reporters the rules Indonesia was trying to impose were “in effect a form of expropriation”. In a Reuters interview, Jonan shot back the government was “more than ready” for court.
On track
By March, both sides recognised they were losing millions of dollars in revenues, so they dialled back the tensions. Freeport received a “special mining permit” allowing its exports to resume. When Jonan and Adkerson met over breakfast on July 26 at the St Regis hotel in Houston, the only outstanding issues were taxes and royalties, a source with knowledge of the issue said. And when Adkerson signed the framework agreement in August, he was wearing a colourful Indonesian batik shirt, a sign of improved ties, contrasting with the more sober black suit he wore at a news conference in February. Still, Widodo’s win may come at a price, with big investors monitoring the Freeport talks for a measure of how much ground they may have to give under new contracts in Southeast Asia’s largest economy. “If they’re wanting to attract foreign investment, this isn’t going to help Indonesia much,” said Matthew Miller, an analyst at independent investment research firm CRFA in New York. Reuters
Politics
New Zealand’s kingmaker party defers decision The leader of the New Zealand First Party, which emerged as the kingmaker after an inconclusive weekend election, said yesterday he would not make a decision on who should form government until after the Oct. 7 release of a final count. Still to be counted are “special votes”, ballots from overseas voters and those who vote outside their home constituencies, which account for 15 per cent of total votes. While they are not expected to change the result, with the ruling National Party ahead with a comfortable 10 point lead, they could add seats to the possible LabourGreen coalition. Commodities
Roy Hill says can expand iron ore capacity beyond target Australian iron ore miner Roy Hill Holdings Pty Ltd has the ability to expand its production capacity beyond the 55 million tonnes it has targeted, its chief executive said yesterday. Roy Hill, controlled by Australian billionaire Gina Rinehart, is closing in on that 55 million tonnes a year goal as it expects to export at least 4.6 million tonnes this month from Australia’s Port Hedland, Barry Fitzgerald said on the side-lines of an industry conference in China. “We’re not saying we’re at 55 (million tonnes). We are saying we expect to be there by Christmas,” Fitzgerald told Reuters. Investment
Nippon Life in talks for stake in U.S. fund manager Japan’s biggest private-sector life insurer, Nippon Life Insurance Co, is in talks to buy a minority stake in U.S. investment company TCW Group, sources with direct knowledge of the deal said yesterday. The Nikkei business daily reported Nippon Life was in talks to take a 20 to 30 per cent stake in TCW from Carlyle Group , which owns about 60 per cent, adding it aimed to close the deal by year-end. The sources said the talks were in the early stages and specifics of the deal had yet to be determined, including how big a stake Nippon Life would buy. M&A
Hyundai Oilbank to buy Canadian oil South Korea’s Hyundai Oilbank is looking to expand its crude supply sources to include Canada for the first time, a company official said yesterday. “We have strong interest (in Canadian crude) and we have already tested it,” said Chang Ji-hak, senior executive vice president of the company’s global business division. He said that the crude was of good quality and would be suitable for refining by Hyundai Oilbank. New oil flowing to Asia from North America will help keep prices down, said Chang, adding that broad demand for oil products and petrochemicals would stay firm as long as markets stay around US$56 a barrel. Benchmark Brent crude stood at about US$58 yesterday.
14 Business Daily Thursday, September 28 2017
International In Brief Portugal
Airport security tax cut by over 20 per cent The security tax that Portuguese airports charge for every passenger who boards a plane it to be cut from €2.50 to €1.96 as of yesterday. The tax was charged to cover the cost of security services for civil aircraft to protect then passengers against any illegal acts. The security tax is paid by the carrier or the aircraft operator depending on whether they are commercial flights or not and is levied on all passengers boarding aircraft in Portugal. Payments
Argentina to increase competition among credit card firms Argentina’s Prisma credit card and payment processing network will be split up in an attempt to increase competition in the country’s financial sector, Production Minister Francisco Cabrera said. The break up of Prisma, owned by Visa International and 14 banks that operate in Argentina, is part of President Mauricio Macri’s effort at opening up Latin America’s No. 3 economy after eight years of heavy state intervention under the previous administration. Macri was inaugurated in December 2015 and has since dropped trade and currency controls that had put off investors. GMO
Syngenta agrees to settle U.S. farmer lawsuits Syngenta AG said it agreed to settle U.S. farmer lawsuits stemming from its decision to commercialize a genetically modified (GMO) strain of corn before China approved importing it, and a person familiar with the matter said the payment would be close to US$1.5 billion. The settlement does not apply to lawsuits filed by U.S. grain handlers Archer Daniels Midland Co and Cargill Inc against the Swiss seed maker, spokespeople for the three companies said. Cases brought by farmers in Canada are also still pending, Syngenta spokesman Paul Minehart said. Markets
Mexico eyes record IPOs before election season slowdown As many as 10 companies could list on Mexico’s stock exchange by the end of 2017, sources from the exchange said, potentially marking a record year ahead of slower expected activity in 2018 due to Mexico’s elections. Since January, four companies have listed in Mexico, raising a combined US$2.1 billion in initial public offerings (IPOs). In addition, Sigma Alimentos, a unit of industrial conglomerate Grupo Alfa, and Traxion, a transportation company controlled by private equity funds Nexxus and Discovery Americas, this week confirmed their IPOs. In October, Banco Mifel is expected to launch its IPO, as is the transportation subsidiary of Mexican miner Grupo Mexico. Two more companies are considering IPOs.
Report
U.S., EU fines on banks’ misconduct to top US$400 bln by 2020 Know-your-customer (KYC) and anti-money laundering (AML) processes became a key focus globally after some large global banks were hit with hefty fines in 2012
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egulators in the United States and Europe have imposed US$342 billion of fines on banks since 2009 for misconduct, including violation of anti-money laundering rules, and that is likely to top US$400 billion by 2020, a research report said yesterday. Pending cases involving missteps in the US mortgage market in the runup to the 2008 financial crisis and a fresh penalty on mostly regional banks for anti-money laundering breaches would result in a surge in fines over the next few years, Quinlan and Associates said. The Hong Kong-based financial services consultancy estimated bad behaviour had erased US$850 billion in profits for the top 50 global banks since the 2008 financial crisis in the form of write-downs, trading losses, fines and higher compliance costs. The bulk of the new regulatory fines would be against regional banks, including some Chinese banks, that have lagged their global peers in bolstering investments on compliance to combat money laundering, its CEO
Benjamin Quinlan said. Among regional banks, Commonwealth Bank of Australia is battling allegations of systemic breaches of money-laundering and terror-financing laws that could expose it to billions of dollars in fines.
‘Major international banks are now spending between US$900 million and US$1.3 billion a year on financial crime compliance’ Spain is investigating the European management of the Industrial and Commercial Bank of China as part of
a widening probe into alleged laundering through the Chinese banking giant’s Madrid branch. “Notwithstanding the massive scale of fines that have been handed out to the banking industry to-date, we believe the bloodbath is far from over,” the report said, adding the banks have failed to drive cultural change to deal with misconduct. Know-your-customer (KYC) and anti-money laundering (AML) processes became a key focus globally after some large global banks were hit with hefty fines in 2012, and triggered a flurry of initiatives across the banking sector to boost compliance. Major international banks are now spending between US$900 million and US$1.3 billion a year on financial crime compliance, according to analysis by corporate governance recruitment firm Barclay Simpson. “Despite the potential scale-back of some recent regulatory reforms in the US, we anticipate that AML, in particular, will remain a key enforcement priority, given on-going concerns over terrorism across the globe.” Reuters
EU
Top economists warn against Franco-German “small bargain” on Europe They urged Germany to accept more risk sharing and France more market discipline Acknowledging deep divisions between Berlin and Paris over European reform, leading German and French economists have urged both capitals to shift their stances, warning that a face-saving “small bargain” would not make the euro area more stable. The call reflects concern among economists in both countries that French President Emmanuel Macron and German Chancellor Angela Merkel could struggle to clinch what is often referred to as a “grand bargain” on Europe after a decade of political and economic crisis.
“Apart from allowing both the French and German governments to claim victory at home, such a ‘small bargain’ would accomplish very little” Economists’ article published in Frankfurter Allgemeine Zeitung and France’s Le Monde It comes a day after Macron sketched out his vision for a sweeping reform of the European Union in a speech in Paris and three days after Merkel won a fourth term as chancellor, but was forced to pursue coalition talks with a party that is critical of Macron’s ideas. “If both sides stick to their current positions, the outcome of the incipient Franco-German push for euro area reform is predictable – and
depressing in that it would not solve any of the key challenges,” the economists said in an article published in Germany’s Frankfurter Allgemeine Zeitung yesterday morning and to appear later in France’s Le Monde. The authors include Jean Pisani-Ferry, the architect of Macron’s economic programme, Henrik Enderlein of the Hertie School of Governance, Clemens Fuest of the Ifo Institute, and Marcel Fratzscher, head of the Berlin-based DIW institute. The economists said rising interest rates, vulnerable banks and ineffective euro zone tools to promote good policies had left the bloc fragile despite an encouraging economic recovery in the 19-nation single currency zone. They urged Germany to accept more risk sharing and France more market discipline. Without such movement, they said the likely result would be symbolic steps like a tiny euro zone budget, a finance minister
without real powers and a cosmetic upgrading of the euro zone’s bailout fund, the ESM. “Apart from allowing both the French and German governments to claim victory at home, such a ‘small bargain’ would accomplish very little,” the authors said. A lowest common denominator approach, they argued, would set the stage for more fights between member states and Brussels and lead to a false sense of security across the currency bloc, hindering reforms. The economists urged Berlin and Paris to broaden their discussion beyond fiscal policy, saying the focus on a euro zone budget was problematic. In a nod to German doubts about his idea for a budget, Macron focused his speech more broadly to include cooperation on defence and migration. “French and German officials will need to take a leap of faith away from their traditional positions,” the authors said. Reuters
Business Daily Thursday, September 28 2017 15
Opinion
The Fed is putting the dollar under pressure Jason Schenker a Bloomberg Prophets columnist
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ver since the Federal Reserve laid out the process of balance-sheet normalization in June 2017, the dovish declines in rate expectations of board members have been important marginal differentiating factors for future central bank policy. These changes underscored the institution’s persistent over-forecasting of its policy rates. A more dovish federal funds rate policy trajectory could keep the dollar under pressure, even if the U.S. currency receives a boost after last week’s Fed statement and balance-sheet normalization announcement. Plus, monetary tightening is afoot globally. The Fed’s decision to begin the reduction of its balance sheet in October 2017 is just one of many recent indicators that the tide of global monetary policy is changing. On Sept. 6, 2017, the Bank of Canada surprised markets with a 25 basis-point rate hike, and on Sept. 14, 2017, the Bank of England hinted at future increases. Logically, Canada’s dollar spiked on the Canadian central bank announcement, and the pound surged to near pre-Brexit levels on the Bank of England hints. While Fed tightening has been largely priced in -- and perhaps overpriced when it comes to federal funds rate hikes -- a question remains: Could other foreign central banks surprise markets with an unexpectedly hawkish tone? The answer is yes, and the euro is one of the currencies to watch for monetary policy that risks becoming more hawkish. Current euro-area economic strength hasn’t been fully acknowledged, nor has it led to a statement about the potential to tighten monetary policy, even though there has been an impressive 50-month expansion in the euro-area manufacturing PMI, at the same time that the German Ifo has been at or near record levels in recent months. With the euro-zone economy on a tear, and German business sentiment at the strongest levels since the fall of the Berlin Wall, it seems increasingly likely the European Central Bank will join the consensus in tightening policy sooner, rather than later. The dollar has fallen since December 2016, as the chances of tax reform, infrastructure spending and other fiscal stimulus have faded, removing the need for more proactive antiinflationary Fed monetary policy measures. Plus, inflation has been modest, further justifying Fed member decisions to ratchet their own federal funds rate expectations lower. The euro has been strengthening on trend since January on fundamental data and the subsequent technical support. But there hasn’t been an instantaneous surge -- or pop -- for the European currency, as there was recently for the Canadian dollar or the pound. So, where is the hawkish ECB surprise that sends the euro surging higher? Despite the success of the Alternative für Deutschland party in the German federal elections on Sept. 24 and the decline in the September Ifo, I expect it’s coming. And if the verbiage of the Bank of England or the actions of the Bank of Canada are any indication, it might be coming soon. Bloomberg Prophets
‘The Fed’s decision to begin the reduction of its balance sheet in October 2017 is just one of many recent indicators that the tide of global monetary policy is changing’
The Terrafugia flying car
We’ll get flying cars to go with our 140 characters Noah Smith a Bloomberg View columnist
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othing illustrates the divide between science fiction and reality better than the flying car. In movies, books and cartoon shows from the mid-20th century, people hop in their car, lift off and fly to work. In reality, we’re still enduring traffic jams or commuting by bus or train. We have supercomputers in our pockets, and deaf people can hear, but the flying car has consistently eluded us. As venture capitalist and PayPal Holdings Inc. founder Peter Thiel famously griped, “We wanted flying cars, instead we got 140 characters” -- a reference to the length of a Twitter post. It’s not that hard to see why the flying car never became the standard mode of transportation. For one thing, the basic technology of vertical take-off and landing -- which is required in order to avoid long runways -- is fairly hard. Inventors such as Paul Moller have been working on VTOL cars since the 1960s, but made only slow progress -- at least until recently. Flying is also very expensive. It takes a lot more power to lift something into the air than it does to roll something along the ground. Commercial air travel is energyefficient because we pack tons of people into the same airplane, but if everyone had their own flying car, it would cost a lot of money for the fuel. A third issue is safety. As the world saw on Sept. 11, the fuel used in a plane -- because of its high energy content and volatility -- can make a potent weapon. Flying cars also might attain high speeds, making them potentially dangerous should people decide to crash them into things. We’re already seeing how much damage normal cars and trucks can do when wielded by terrorists -- flying cars would add an order of magnitude to the danger. But inventors are slowly whittling away at these issues. Low-cost accelerometers and gyroscopes, as well as better software and processors, have made it far easier to stabilize a hovering vehicle. Advanced lithium-ion batteries have created a safe way to power them, while electric motors have become much more efficient. And incremental progress in lightweight materials has both made it cheaper to fly, and limited the damage that a hurtling vehicle can do. As a result, there has been an explosion of commercial interest in flying cars. A new crop of start-ups hopes to finally make the 1960s vision a reality. These include Lilium, Kitty Hawk, Terrafugia, China’s Ehang, Slovakia’s Aeromobil, and Larry Page’s secretive Zee.Aero. Even large companies like Uber and Airbus are plowing money into the idea. Dubai is working on offering a hover-taxi service using a prototype built by Germany’s Volocopter. Unless these all turn out to be vapourware or white elephants, the dream of the Jetsons future seems inevitable. There are still a number of serious problems to
“
overcome, of course. One of these is noise. Hoisting a car into the air creates a huge discharge of sonic pressure as rotor blades or jets chop through the air. That’s why even tiny drones are really loud. Imagine much larger and louder flying cars buzzing overhead by the thousand, all the time -- that’s sure to put a dent in someone’s property values or quality of life. The safety problem hasn’t been completely solved, either. Even if a flying car can’t be used as a bomb, it seems fairly easy to use it as a bomber. Having a huge number of high-speed moving objects flying through the air seems like a recipe for crashes of some sort. And air-traffic control systems might be hacked. A third remaining issue is existing infrastructure. Flying cars will have trouble finding places to park. They’d be too big for normal parking spaces, and their inevitable wobble would require some room between parked vehicles. Of course, people are working on solving these issues as well. Inventors are already claiming to have designed flying cars that are extremely quiet. And other companies are working on software that would -- if it could be secured against hacking -- prevent a terrorist from using a vehicle for anything other than transportation. But even the best engineer, corporate executive or political leader will have a lot of trouble getting cities to change their whole layout and infrastructure to accommodate flying cars. The demand for the vehicles would have to be absolutely enormous to get governments to pony up public funds to reshape the modern cityscape. Which brings up the question -- do we need flying cars in the first place? Flying cars could shorten commutes a fair amount. That’s useful, but ultimately a marginal benefit for a very high cost. And since terrestrial self-driving cars are getting closer to being a reality -- indeed, selfdriving technology probably would be a prerequisite for flying cars themselves -- the need to shorten commutes is about to become less urgent. When people are able to do work in their cars, spending 20 more minutes in a car isn’t that inconvenient. That makes it less urgent to spend billions of dollars to rebuild cities to accommodate flying cars, not to mention the cost of the flying cars themselves. And as videoconferencing and telecommuting become more seamless, the importance of shortening travel times will be reduced even further. That doesn’t mean flying cars are useless. The fun of flying, as a leisure activity, is undeniable. In the near future, far more people may have the opportunity to fly without taking expensive lessons and paying for expensive airplanes. But it seems likely that flying cars will mainly exist as expensive sport vehicles, used by hobbyists outside crowded areas. Sciencefiction dreams are often less grand when they become reality. Bloomberg News
There has been an explosion of commercial interest in flying cars. A new crop of startups hopes to finally make the 1960s vision a reality
”
16 Business Daily Thursday, September 28 2017
Closing Aviation
Hong Kong’s airport needs US$8.8 billion debt for third runway
Construction workers have already started the work toward filling in part of the South China Sea to make room for Hong Kong airport’s third runway. The project is also set to make bankers busy. The Airport Authority Hong Kong needs to raise HK$69 billion (US$8.8 billion) to fund the runway, and should consider selling bonds and tapping the loan market, according to a report by its
financial consultant HSBC Holdings Plc. Asia’s busiest international airfield needs capacity to counter growing competition from North Asia. The construction of the third runway, estimated to take eight years, will require massive capital expenditure for the government-backed Airport Authority. In addition to the borrowings, the authority will need another HK$47 billion, funded by its operating surplus, and HK$26 billion, to be financed through airport construction fee, the study said. Bloomberg News
Tradition
New blood and old masters keep qipao dressmaking alive Also known as “cheongsam” in Cantonese, it fell out of favour in China after communist forces seized power in 1949 Amber Wang
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n a quiet workshop in Taipei, three young women meticulously sew and iron under the watchful eye of a master dressmaker with decades of experience in creating the classic “qipao”. Lin Chin-te, 74, is among a handful of craftsmen in Taiwan who still specialise in hand making the high-collar, figure-hugging garment which was once part of many women’s daily wardrobes. His workshop is hung with dresses, from elaborate long embroidered red silk qipaos to shorter length versions in more wearable materials. Seen as increasingly impractical and pricier than off-the-peg versions, the tailor-made qipao is now mostly worn at weddings and special events. Lin worries dressmakers will no longer learn his skills and takes on apprentices to pass down his know-how. Hung Chu-tsu, 37, is one of Lin’s three 30-something female pupils. “The master is very patient,” she says, wearing a knee-length blue floral qipao she made herself. “We start practising from the basics and learn one stitch at a time.” Hung says she thinks qipaos are beautiful and left her career as a nurse to learn to be a dressmaker after having a child. Her plan is to open her own shop, selling handmade qipaos adapted to modern life. Often smiling, with braces holding up his trousers and a thimble wedged on his middle finger, Lin says he wants to ensure his 60 years of experience do not go to waste.
“I teach my pupils as much as I can and hopefully they can strike out on their own in the future,” he says. ‘Qipao hunk’ The qipao -- meaning “Qi robe” -began as a long, loose dress worn by the Manchus or “Qi” people who ruled China from the 17th century to the early 1900s. Its popularity took off in 1920s Shanghai when it was modified into a fitted must-have, favoured by actresses and intellectuals as a symbol of femininity and refinement. Also known as “cheongsam” in Cantonese, it fell out of favour in China after communist forces seized power in 1949 following a civil war and the dress became associated with capitalism. But the qipao gained a following in Taiwan, where defeated nationalist leader Chiang Kai-shek set up a separate government after fleeing the mainland. Chiang’s glamorous wife Soong Meiling belonged to Shanghai high society and was a qipao enthusiast, influencing trends in Taiwan. Many women wore the dress daily until the 1970s. Mass-produced, cheaper clothes eventually dented its appeal and some designers say recent growing anti-China sentiment has also put off young people as they associate the dress with mainland culture. However, Lee Wei-fan, 25, says there is still a fan base. He studied qipao making under an old master for five years after deciding to carve out a niche in a field few of his design peers wanted to go into. Lee opened his own business six
months ago and has built a following on social media where he goes under the name “Qipao Hunk”, something he blushes to admit was a publicity stunt. His clients range from brides to businesswomen who see the dress as elegant. Lee says there is increasing interest in traditional Asian styles, which he hopes to tap into. “Those of us who have a rarer craft will be more competitive,” he adds. Neither Lin nor Lee would reveal their prices but a master dressmaker charges
Qipao also has influence in haute couture
from around T$8,000 (US$260), not including the price of fabric. ‘A happy heart’ Arguably Taiwan’s most famous qipao maker, Chen Chung-hsin, 65, regularly opens up his modest workshop to tour groups and school trips to build enthusiasm for qipao making. Known for creating costumes for movies including Taiwanese director Hou Hsiao-hsien’s Cannes-winning martial arts epic “The Assassin”, Chen learned his skills from his father and inherited his shop. He says he makes qipaos “with a happy heart” for his clients. “I hope that more people will see the traditional tailor-made qipao is different from an off-the-peg one -- mine flatters their shapes more,” says Chen. One of his loyal clients, Taipei marketing executive Yogi Ma, has set up a qipao club aimed at making the classic dress a daily wardrobe staple once more, saying it can suit any figure and can be modernised using different cuts and fabrics. “The qipao is very elegant and pretty, it’s a pity that fewer women wear them now,” says Ma, 42, who sees it as representing the “beauty of ethnic Chinese women”. Her Facebook-based club has over 4,000 followers and arranges events where members wear the dress to take part in activities, from whisky tasting to flower arranging. She hopes that by promoting the dress she will help skills like Chen’s survive. “If more people like the qipao, there won’t be an issue of lacking people to learn the craft,” she said. AFP
Financing
Investment
Currencies
Eurozone bank lending picks up pace
CEFC wins preliminary govt China money markets calm approval for Rosneft deal ahead of holidays
Lending by eurozone bank to households and companies grew faster in August than the previous month, figures from the European Central Bank showed yesterday. Overall credit to the private sector grew 2.7 per cent year-on-year last month, adjusting for some purely financial transactions -- an increase of 0.1 percentage point over July’s pace. July had already seen a 0.1-percentage point increase in growth from the previous month’s figure. Policymakers watch lending growth closely for signs the ECB’s massive interventions in the single currency area’s economy are working as intended. The ECB hopes more credit should power the economy and boost inflation towards its target of just below 2.0 per cent, believed to be most favourable rate for growth. Looking in more detail, lending to households grew at the same 2.7-per cent year-on-year rate last month as in July, still in adjusted terms. Expansion in credit for general consumption held steady at 6.7 per cent, while mortgage lending growth sped up from 3.1 to 3.4 per cent. AFP
Privately-run conglomerate CEFC China Energy has obtained preliminary state approval for its proposed US$9.1 billion investment in Russian oil major Rosneft, three sources with knowledge of the matter told Reuters. CEFC said earlier this month it will buy a 14.16 per cent stake in Rosneft from a consortium of Glencore and the Qatar Investment Authority, strengthening energy ties between Moscow and Beijing. The approval was received just about a week after the deal was announced, the sources said. “It’s a preliminary approval from the NDRC which means the government gave the in-principle go-ahead for the deal,” said an industry executive with direct knowledge of the government decision. NDRC, or the National Development and Reform Commission, is China’s top economic planner. “The preliminary approval means the government sees the strategic significance of this deal and shall lend its backing in financing.” The government, including the State Council, or Cabinet, is expected to give final approval unless there are “material errors” during the process of proceeding with this transaction, said the executive and a second source briefed by CEFC on the matter. Reuters
Chinese money markets are approaching a quarterly health check of the country’s banks and a week-long holiday with more placidity than usual, helped in part by increased cash supplies from government spending. Chinese markets are closed all of next week for a National Day holiday. The banking system will also have its books inspected by the central bank at the end of this week as part of the quarterly Macro Prudential Assessment (MPA). Despite the increased demand for cash ahead of the holiday and efforts by banks to clean up their lending books for inspection, benchmark repo rates have not spiked higher. The volume-weighted average rate of the benchmark 14-day repo traded in the interbank market was 3.92 per cent yesterday afternoon, 11.5 basis points higher than the average close at the end of June but around 60 basis points lower than closing rate on Aug. 31. That rate had risen as far as 4.94 per cent on March 31, when banks were heading into their first MPA inspection for the year. The widely watched 7-day repo rate has also risen about 60 basis points in little over a week. Reuters