Gunman in Las Vegas targets country music festival Shooting Page 16
Tuesday, October 3 2017 Year VI Nr. 1395 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Neptune eyes Japan Page 6
Transportation
Proposed increase in bus fares increases prices for non-residents only Page 2
www.macaubusiness.com
Golden Week
Bitcoin market in China shows resilience Page 9
Monetary policy
China’s central bank cuts targeted requirement ratio Page 10
Tourism
More individual tourists for the first few days, followed by an influx of package tours to dominate this year’s Golden Week, says expert. An annual increase of 5 pct in visitor numbers is expected, say authorities. Incoming visitors are anticipating increased hotel prices and expecting to spend more on their holidays. Page 4
A 16 pct uptick y-o-y in gross gaming revenues in September saw figures reach MOP21.36 bln, beating the consensus of some analysts and marking the 14th consecutive month of gross gaming revenue increases. Third quarter revenues rose nearly 22 pct to MOP67 bln. The favourable Golden Week calendar is predicted to generate the ‘highest absolute level’ since late 2014. Gaming Page 5
HK Hang Seng Index September 29, 2017
Drop in non-resident
Labour A drop of nearly 3 pct in non-resident workers was seen in August as construction worker numbers fell. Hotels and restaurants were still the top foreign labour employers, with a 1.5 pct y-o-y increase, while gaming, culture and entertainment workers saw a slight decline. Real estate and industrial and commercial non-resident employment was up 5 pct y-o-y. Page 4
Mainland industry full of power PMI The official factory gauge rose to a fiveyear high, signalling that efforts to clean up the financial sector and the environment aren’t dampening economic growth yet. The manufacturing purchasing managers index rose to 52.4 in September. Page 8
27,554.30 +132.70 (+0.48%) Worst Performers
Kunlun Energy Co Ltd
+5.10%
Hang Lung Properties Ltd
Bank of East Asia Ltd/The
-0.74%
China Mobile Ltd
-0.38%
China Mengniu Dairy Co Ltd
+4.55%
CNOOC Ltd
+2.13%
AIA Group Ltd
-0.69%
China Resources Land Ltd
-0.21%
WH Group Ltd
+3.75%
China Merchants Port Hold-
+2.12%
Wharf Holdings Ltd/The
-0.57%
Hengan International Group
-0.14%
Want Want China Holdings
+3.00%
China Petroleum & Chemical
+1.56%
China Unicom Hong Kong
-0.55%
MTR Corp Ltd
-0.11%
China Resources Power
+2.92%
Cathay Pacific Airways Ltd
+1.55%
China Shenhua Energy Co
-0.43%
Henderson Land Develop-
-0.10%
+2.89%
27° 31° 26° 30° 27° 31° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Shine on October
2 Business Daily Tuesday, October 3 2017
Macau Trial
Pleading not guilty The two women accused of killing the North Korean leader Kim Jong-un’s half-brother have protested their innocence
T
he two women accused of killing the half-brother of North Korean Leader Kim Jong-un, Kim Jong-nam, yesterday declared themselves innocent, on the first day of the trial in Malaysia of a case which has sparked a diplomatic crisis. The 25-year old Indonesia Siti Aisyah and 29-year old Vietnamese Don Thi Huong spoke through interpreters at the high court of Shah Alam, a district near the airport and on the outskirts of Kuala Lumpur, where Kum Jong-nam was attacked on the 13 of February with the neurotoxic agent VX, a highly lethal version of the gas considered to be a weapon of mass destruction. If found guilty, the possible punishment for the two women is death by hanging.
Over 23 days, the court will call 40 people to testify as specialists for the defense, whose conclusion is expected November 23. The two suspects, Siti Aisyah and Don Thi Huong, are the only ones being detained for the poisoning of Kim Jong-nam on February 13 in the departure terminal of the airport in the Malaysian capital. Allegedly, one of the women distracted the victim while printing his departure ticket, while the other approached him from behind and placed a cloth carrying the highly toxic agent on his face. After the interaction, the two women attempted to leave the scene of the incident but were captured on the nearby closed circuit television system. The North Korean meanwhile requested medical assistance before
losing consciousness and falling into cardiac arrest while in transit to the hospital. After being detained in the days following the incident, the two women stated they had been misled, believing they were participating in a television prank show and that the poison was actually baby oil. The officials who conducted the autopsy concluded that the substance was the nerve agent known as VX, which is considered by the United Nations as a weapon of mass destruction. The accused told the authorities that the whole process had been orchestrated by a group of four men who had paid the two women US$80 each. The police have identified these men as North Korean citizens who later left the territory on a plane
destined for Pyongyang. Investigators have requested information regarding three other individuals who were seen at the airport seeing them off, including the second secretary of the consulate of North Korea in Kuala Lumpur, Hyong Kwang. The three people identified include Kim Uk Il, an employee of the stateowned airline company of North Korea, and Ri Ji U, who has since sought refuge on diplomatic premises in avoidance of the authorities. South Korean and United States intelligence forces have, since the time of the incident, attributed the crime to North Korean agents, while Pyongyang has countered that the death was brought on by heart attack and accused the authorities of Malaysia of conspiring with their enemies. Lusa
Transport
Positive discrimination A proposal to make bus passes more expensive for non-residents would be “positive discrimination” according to the Secretary for Transport and Public Works Secretary for Transport and Public Works, Raimundo Arrais do Rosário said on Sunday that a proposal for a bus pass with different costs for residents and non-residents of the territory is a “measure of positive discrimination”. Secretary Rosário was speaking to journalists on the sidelines of celebrations for the 68th anniversary of the establishment of the People’s Republic of China in Macau. The proposal was sent on Friday to the Traffic Advisory Council and is currently “undergoing evaluation”, introducing for the first time a distinction between residents and non-residents, as the tariffs are subsidized by the MSAR Government and “it was understood that the
allocated subsidy should not be the same for everyone,” the Secretary said. Secretary Rosário also acknowledged that the proposal presented is “a positive discrimination against residents” - holders of the MSAR Resident Identity Card (BIR) - who will pay less for the pass. “It was understood, and it is debatable to privilege the residents in relation to the non-residents. The option was this and it has nothing to do with savings or anything, but it is a proposal, there is no decision,” the Secretary said. The proposal under consideration also foresees the first increase in ten years of the price of travel on Macau buses. Lusa
Hengqin development
After soccer, come cars Cultural and entertainment complex Novotown being developed in the heart of Hengqin is adding another attraction to its second phase layout
Sheyla Zandonai sheyla.zandonai@macaubusiness.com
German luxury carmaker Porsche has entered into a framework agreement with Hong Kong property development and media group Lai Fung Holdings and an investment holding arm of the group, eSun Holdings Limited, to develop and operate an auto experience theme centre in the Hengqin New Area, Zhuhai, according to The Standard. Lai Sun said it plans to launch the centre during the second phase of the
Novotown complex it is currently developing in Hengqin, for which construction started in 2015. The Hong Kong company said in previous reports that it expects the second phase to open in 2021. The Standard also reported that Lai Fung and eSun said in a joint announcement that discussions between the group and the Hengqin government on the matter of land concessions relating to the second phase of Novotown are ongoing. The announced automobile centre will be a first for Porsche worldwide,
featuring interactive racing experiences and exclusive Porsche sports car exhibits, according to the Hong Kong media. Also to be launched during Novotown Phase II is an interactive football experience centre to be developed in partnership with Spanish football club Real Madrid, which the project developer announced last month. Both the soccer and the auto ‘experience’ theme centres are said to be adjacent low-rise buildings, according to information released by
the Administrative Committee of the Hengqin New Area. Novotown’s head, Larry Leung, previously told Business Daily that the group had concluded nearly 70 per cent of the construction of Phase I of Novotown, with main construction works to be concluded by the end of this year. According to Leung, the group expects to pour some RMB5 billion (US$751.71 million/MOP6.04 billion) into Phase I, with the five planned phases of the project amounting to a total investment of RMB18 billion.
Golden week
Number of Zhuhai Airport passengers to be over 30,000 on National Day The Zhuhai Jinwa Airport estimates that it served over 30,000 passengers on National Day (October 1) alone, with a total of 241 flights having departed and
landed, according to the latest information provided by China Aviation Daily. The official data provided by the airport states that the average daily volume
of passengers served at the airport is around 30,000, while its yearly volume reaches 11 million. The airport had arranged for more staff to be stationed
at the self-service checkin areas in order to assist passengers to complete their check-ins. Business Daily reached out to the Macau International
Airport Co. Ltd for data on the Macau International Airport but had not received a response by the time this story went to print.
Business Daily Tuesday, October 3 2017 3
Macau Golden week
Tourism industry: first individuals then package tours Meanwhile, the majority of tourists are expecting hotel room prices to go up during the Golden Week holiday Cecilia U cecilia.u@macaubusinessdaily.com
M
ore package tour visitors will come to Macau in the coming days, while the first few days of the Golden Week holiday will primarily see the arrival of individual travelers, according to the President of the Macau Travel Industry Council, Andy Wu Keng Kuong. “This is because they mostly visit Hong Kong first and then come to Macau after a few days,” Wu told Business Daily. Yesterday marked China’s National Day and the first day of the eight-day Golden Week holiday in mainland China. The Public Security Police Force (PSP) told the press yesterday that the city is expecting a year-on-year increase of 5 per cent in arrival numbers during this year’s National Day Golden Week, local broadcaster TDM Radio reported. The PSP also revealed that the coming three days (October 3 to 5) would be the peak days for crossings at the Border Gate. Meanwhile, when asked about the cancellation of 18 flights between Hong Kong and South Korea as well as Japan by the flight carrier HK Express, Wu said the impact would be more significant in Hong Kong than in Macau, since Macau also has flights
connecting the two destinations. Given that South Korea also has a 10-day holiday at the same time as Golden Week in mainland China, Wu said the actual numbers of Korean package tours visiting the city would only be available after the holiday. On the other hand, Wu told Business Daily that the number of local residents travelling outside of the MSAR over the past weekend period was not significant. “It’s not a long holiday and most of them don’t travel by tours,” said Wu. “So the growth in the number of tours outside of Macau by local residents is not big.” Wu added that local residents tended to spend their long weekend in places such as Japan, South Korea and in the Asia-Pacific region.
Tourists accept increased hotel room prices
The majority of tourists that Business Daily spoke to who are going to stay overnight in the city during Golden Week, noted that they predict growth in the city’s hotel room prices for the period. A visitor surnamed Yuan told Business Daily that they were predicting to spend about MOP2,000 (US$249) for a night at the Parisian Macao. A majority of the tourists interviewed also noted that it was not their first time to visit the city. A tourist surnamed Qiu, coming to the MSAR
with his three other family members, said they visit Macau several times a year. “We have relatives here,” said Qiu, revealing that the group was planning to spend MOP1,000 to MOP2,000 per person. In general, tourists who Business Daily spoke to said that their individual spending ranged from between MOP1,000 and MOP5,000. One of the visitors from Guangzhou surnamed Yao, noted that she was not satisfied with the operations by the authorities at the Border Gate. “I was holding my passport instead of the entry permit [for travelling to
and from Hong Kong and Macau],” said Ms. Yao. “I wasn’t informed that I needed to provide my itinerary before I queued in the line, so I needed to queue up again and it took so long [...]”. Ms. Yao said she came to Macau by plane to the Macau International Airport, travelling on to another destination, but would stay half a day in the city. She also revealed that it had taken her five hours to arrive to Zhuhai from Guangzhou by shuttle bus, a journey that usually takes two hours on normal days. advertisement
4    Business Daily Tuesday, October 3 2017
Macau Labour
Slight drop in number of non-resident workers in August Cecilia U cecilia.u@macaubusinessdaily.com
A
total o f 1 7 6 , 8 8 9 non-resident workers were exercising their professions in the MSAR as at the end of August, a slight drop compared to the 176,839 recorded in July, according to official data released by the Labour Affairs Bureau (DSAL). Compared to the same period last year, the number of non-residents fell 2.9 per cent. By industry, there was a total of 31,010 non-resident workers employed in the construction industry, a plunge of 25 per cent when compared to the 41,470 workers registered in the same month last year. Of the total number of non-resident construction workers hired, 1,035 were employed directly by gaming operators, according to the DSAL information. Industries related to hotels and restaurants hired the largest amount of foreign labourers, at 50,116 workers, making up 28.3 per cent of total non-resident labour. The number of workers involved in the hotel and restaurants sector experienced a slight increase of 67 workers month-on-month and an increase of 1.5 per cent, or 745 more workers than in August 2016. Regarding the culture, entertainment, gaming and other activities sector, the number of workers
employed as at the end of August was 13,565, a decline of 105 workers year-on-year and 6 workers month-on-month. Meanwhile, 20,536 non-residents were engaged in the wholesale and retail trade business in the month, up 5.9 per cent year-on-year. Those involved in the real estate or other industrial and commercial services sectors amounted to 19,347, an increase of 4.9 per cent year-on-year. The city had some 26,249 domestic workers as at the end of
August, an increase of 7.7 per cent year-on-year.
Origins
In total, 111,729 non-resident workers originating from the Mainland were working in the city as at the end of August, accounting for 63.2 per cent of the total number of non-resident workers employed in the city. When compared to last year’s data, the number of Chinese workers fell by 5.3 per cent. The majority of mainland Chinese labourers were engaged in either hotels and
restaurants or the construction sector. The second largest nationality represented was that of the Philippines, with 27,788 labourers in August originating from the country, compared to 25,690 last year; the majority were working in the domestic sector. On the other hand, the city saw a slump of 23.5 per cent year-on-year in the number of Hong Kong workers, from 6,930 in 2016 to 5,298 this year. According to DSAL data, the majority of Hong Kong workers, 2,036, were engaged in the construction sector. advertisement
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Business Daily Tuesday, October 3 2017 5
Macau Gaming revenues
Golden September The gaming market saw a 16.1 per cent year-on-year increase in September’s gross gaming revenues, reaching MOP21.36 billion and exceeding analysts’ estimates. The Golden Week holiday effect is prompting an October that could see the highest monthly results since late 2014 Nelson Moura nelson.moura@macaubusinessdaily.com
M
SAR gross gaming revenues increased by 16.1 per cent year-on-year in September reaching MOP21.36 billion (US$2.65 billion), according to data from the Gaming Inspection and Co-ordination Bureau (DICJ) released on Sunday. “This beats consensus of 14 per cent increase (range of 11 per cent to 17 per cent increase) as the market outperformed despite the traditional pre-October holiday slowdown, as well as the lingering impact of August’s weather events,” Union Gaming analyst Grant Govertsen stated. According to a survey of nine analysts conducted by Bloomberg, the median estimate was for a 14 per cent yearly increase in September. A note from Deutsche Bank stated that although the early increase was higher than the overall analysts’ consensus
estimates, it was below the bank’s own estimates of an 18.8 per cent year-onyear increase. According to analysts from Sanford C. Bernstein, the average daily revenues for September were registered at MOP727 million, 3 per cent less than the MOP731 million daily average seen in August.
Strong quarter
The results marked the 14th consecutive month of gross gaming revenue increases in Macau, with gross gaming revenues for the third quarter this year rising 21.8 per cent yearly to MOP67 billion. Deutsche Bank analyst Carlo Santarelli also stated that the group was expecting the DICJ to announce that the local VIP sector would register an increase in the third quarter of this year of around 38 per cent year-on-year, with mass tables and slot machines to register a rise of around 6 per cent ‘On a Company reported basis, we
expect VIP growth of about 34 per cent with mass growth of about 10 per cent,’ the note informed. With the VIP hold rate being ‘elevated’, Bernstein analysts stated they will continue to ‘voice caution’ in regards to the strength and volatility of the VIP sector, since high hold rates in VIP together with continued volume strength creates ‘volatility and lack of ability’ to forecast monthly trends accurately.
October coming
In regards to the gaming market performance for October, analysts agreed the Golden Week holiday will be a key factor for a strong performance in the month, with the Macau Government Tourism Office (MGTO) predicting the number of tourists this holiday week is expected to increase by as much as 5 per cent from the same period last year. Last year, the city registered a total of 1.15 million tourist visitors in the period between October 1 and October 7, with 970,000 being from mainland China.
‘While expectations are elevated, a favourable Golden Week calendar, coupled with adequate VIP liquidity and strong advanced bookings bodes well for October,’ Santarelli informed. A Union Gaming note estimated October gross gaming revenues will see a 10 per cent yearly hike, to MOP24 billion, making it the ‘highest absolute level’ since late 2014. According to the Deutsche Bank analyst, taking into account win per day in October for the last five years, the month was expected to finish with a ‘full month result’ of US$3.14 billion, an increase of 15 per cent year-on-year, but with the bank estimating a stronger yearly rise of 15.7 per cent. The Deutsche Bank note also predicted that the fourth quarter of this year would register an increase as high as 16.7 per cent year-on-year, with the full year able to achieve an 18.2 per cent annual increase to reach almost MOP263.83 billion.
Casinos
Weather related delays Damage caused by Typhoon Hato is one of the reasons for the opening of MGM Cotai being delayed to January 29 of 2018 The opening of MGM Cotai has been delayed to January 29 of next year, according to a filing last Friday by MGM China Holdings Limited with the Hong Kong Stock Exchange. According to the release, the change from the previously announced opening date - scheduled for the last quarter of this year - was made in order to complete repair works after the damaged inflicted by the passage of Typhoon Hato on August 23, and in order to process governmental inspections necessary for obtaining relevant licences to operate. The overall budget of the project is expected to increase
property to open in the last quarter of this year, investors were already expecting an opening in late 2017 or the first months of 2018.
A table issue
MGM Macau, the group’s property on the peninsula
from around HK$26 billion to HK$27 billion, excluding land and capitalised interest, after the company reassessed its project costs and the overall budget of the project. The new property in Cotai
will still open on time for the next Chinese New Year, set to start on February 16 of 2018. According to a note sent by brokerage firm Sanford C. Bernstein, while MGM China was expecting its Cotai
Analysts at the firm also didn’t consider the several-month delay as ‘meaningful from an investor perspective’ with most of the damage from the typhoon being minor and mostly covered by insurance companies. For the Bernstein analysts, the most important announcement for the project will be the number of new-to-market gaming tables allocated to the property by the Macau Government.
‘As MGM Macau currently has a limited table allocation (under 430 tables), a low table allocation could be problematic for MGM as it would be forced to shift a larger than desired number of tables from its existing casino, which could lead to greater cannibalization than anticipated,’ the note stated. In 2015, Galaxy Entertainment Group Ltd. and Melco Resorts and Entertainment both received 250 tables for their new Cotai properties, with Sands China Ltd. and Wynn Macau Ltd. receiving 100 new tables for The Parisian and Wynn Macau in 2016, plus 25 tables this year and in 2018.
Opinion
MGM gets that sinking feeling amid Macau casino rally Shelly Banjo
Sometimes, a rising tide doesn’t lift all boats. Macau’s gross gaming receipts increased by 16 per cent to MOP21.4 billion (US$2.7 billion) in September, the region’s Gaming Inspection and Coordination Bureau said on Sunday, as high rollers roar back and tourists flow in ahead of China’s Golden Week holiday. But relatively lost in the celebrations of 14 straight months of growth in the world’s largest gambling hub was news Friday that MGM China Holdings Ltd. will postpone the opening of its newest casino in Cotai to early 2018 from the second half of 2017. Part of the holdup is damage from August’s Typhoon Hato. Construction delays and weather problems are common in big real estate development projects. But the
several-month setback could cost MGM more than investors think. September gross gaming receipts: US$2.7 billion For one, casino fortunes in Macau often rely on a cash spigot controlled by Beijing. Funds ebb and flow on the whim of Chinese authorities, whether it’s aimed at controlling capital outflows or limiting conspicuous consumption. That makes it crucial for operators to do everything they can to sop up winnings when the tap’s on: There’s no telling when it may shut. Wynn Macau Ltd., Sands China Ltd. and Melco Resorts & Entertainment Ltd. are raking in the spoils, thanks in part to new properties along the Cotai strip. While some operators are benefiting from an increase in credit provided to VIP players, many are getting an extra bump from visitors wanting
to try their luck at fresh, shiny casinos such as Sands Parisian, which boasts a 525-foot replica of the Eiffel Tower, or Wynn Palace, which ushers guests into the resort via cable cars that rise above a synchronized fountain show. Macau casino stocks also tend to rally around new openings. After running as a pack for years, Macau casino operators’ revenue has decoupled recently, with those opening new properties racing ahead of others like MGM China. Metrics such as VIP table drop and mass market gaming show a similar trend. What is consistent is that pretty much no player is making progress on a collective promise to increase the share of non-gaming revenue through entertainment, food, retail and other attractions. Non-gaming revenue has been flat for years at MGM China, which has said
it’s staking a comeback on attracting mass-market customers. Any recovery could be further impacted by another unknown factor -- how many new casino tables Macau’s government will allow at MGM’s latest property. Sands and Wynn were permitted 100 new tables each when they opened their respective projects, requiring tables to be moved from older properties, cannibalizing revenue. MGM had just 415 of Macau’s 6,413 tables in the second quarter, versus Galaxy at 1,200, and Sands at 1,600. MGM Cotai’s 1,400-room hotel and 2,000-seat theatre will help draw guests when the new resort eventually opens, especially if that’s in time for Chinese New Year in February. But for MGM, every added delay makes edging its way back into the winner’s circle increasingly difficult. Bloomberg
6 Business Daily Tuesday, October 3 2017
Macau Junket business
Rich Goldman tapers loss from VIP business Although still recovering from the termination of its business at The Venetian, the junket operator formerly known as Neptune posted increased revenue from its remaining VIP operations Sheyla Zandonai sheyla.zandonai@macaubusiness.com
L
ocal junket operator Rich Goldman Holdings Limited – formerly Neptune Group Limited – announced that it has tapered its net loss for the year ended June 30 to HK$10.25 million (US$1.31 million/MOP10.55 million) down from HK$202.11 million registered a year before, according to a filing by the company with the Hong Kong Stock Exchange. The company attributed the relative improvement in its fiscal year to the reversal of impairment loss of trade receivables amounting to HK$306.27 million during the period under review. Rich Goldman further noted that the reconciliation of allowance for trade debtors reached some HK$407.28 million at the beginning of the year, up from HK$344.29 million at the beginning of 2016, with no impairment losses recognized in 2017, while they had reached HK$63 million in 2016. Although lower than a year
before, the group posted an impairment loss of intangible assets of HK$397.3 million for the year ended June 30 when compared to HK$450.9 million in 2016, being mainly attributable to the termination of two junket businesses linked to the company at The Venetian – Hou Wan Entertainment Company Limited and Hao Cai Sociedade Unipessoal Limitada –with effect this year. However, revenue from the company’s gaming and entertainment business segment rose nearly 6 per cent to HK$295.45 million, up from HK$287.7 million, due to increased revenue from its VIP room operations at Sands Macao and Grand Lisboa, amounting to nearly HK$42.1 million and HK$3.3 million, respectively. According to the company, the increase was ‘driven by an improving customer patronage and increasing gaming volume.’ Net profit of the group amounted to nearly HK$39.9 million, reverting from a net loss of HK$466.7 million a year earlier. In addition to its VIP junket
business in Macau, Rich Goldman principally engages in the money lending business and hotel operations. Revenue from its money lending business, its second strongest segment, amounted to HK$1.10 million during the period.
Dealing with debt
Rich Goldman noted that after June 30, 2017, trade debtors of the company made a total payment of HK$386
million to the group, charging their properties located in Macau – worth a total of HK$39.97 million – to the group as securities for repayment of overdue trade debtors. The company notes that it ‘considers the trade debtors that are neither past due nor impaired to be of a good quality,’ adding that the average credit period allowed to its trade customers ranges from 30 to 60 days.
The group entered into various agreements with trade debtors in September 2016, in which the latter agreed to settle overdue trade receivables of HK$517.47 million in monthly installments starting from October 2016. Several properties located in Macau had been used as securities for repayment of overdue trade receivables, with a market value of HK$151.72 million as at October 2016. advertisement
Business Daily Tuesday, October 3 2017 7
Gaming Diversifying
Casino scion rolls dice on Japan venture Japan already has an appetite for other forms of gambling, including horse and boat racing and pachinko The flamboyant entrepreneur has said that he has never wagered a bet, even while his casinos raked in billions in revenues annually. At the Forbes Global CEO Conference in Hong Kong Wednesday his son lauded the elder businessman for having “revolutionised” the industry. But Lawrence Ho said his father lacked the motivation to keep growing -- an aspect where their philosophies diverge. Las Vegas stalwarts including tycoons Steve Wynn and Sheldon Adelson only entered the Macau market in 2002 ending his father’s decades-long grip on the city. “My father was super lucky to have a monopoly for forty years, but the Macau government wanted to open it up to competition. It was the right decision,” he said. Ho does not keep the criticism in the family however, calling competitors “very Western” and stuck in the past. “Some of the things that the industry does are literally the same things they did in the 1960s,” Ho said. “Sheldon Adelson thinks of Macau as a vending machine placed in a gas station.”
Elaine Yu
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asino magnate Lawrence Ho - son of Macau gaming legend Stanley Ho - is eyeing a major foray into Japan as he seeks to broaden his family’s reach beyond the world’s biggest gambling hub. His father was credited with transforming the MSAR from a sleepy Portuguese outpost to a gaming boomtown boasting revenues surpassing Las Vegas. With its myriad shimmering palaces to fortune and fantasy, the city is the only part of China where casino gambling is legal and has become a favourite haunt of mainland high rollers. But the younger Ho, whose casino-to-resorts firm Melco International rivals his father’s gaming empire, is keen to strike out beyond familiar family turf, with plans for a major investment in Japan’s untapped casino market. The 40-year-old, with a net worth put at US$2.6 billion by Forbes earlier this year, has already broadened the firm’s international footprint, with casino resorts ventures in the Philippines and Russia. He is now squaring up to crack into Japan’s gaming industry after strict bars on casinos were lifted last year. “Nothing will hold me back there,” he told AFP. Japan already has an appetite for other forms of gambling, including horse and boat racing and pachinko, a slot machine-style game that is played in thousands of smoky parlours and is a huge revenue generator. Fears over gambling addiction and organised crime were swept aside as the country passed a controversial bill to legalise casinos in 2016, a move seen likely to ignite the gaming market in the world’s third biggest economy. Ho promised an ambitious pitch for the coveted casino licence. He has already sought to diversify his Macau offerings in recent years as the industry came under pressure from a slowdown in the Chinese economy and a corruption
-Doorstep of China’
crackdown by Chinese President Xi Jinping that curbed high spenders. Operators scrambled to bolster their mass market appeal to offset a dramatic drop in revenues from the VIP sector. Ho’s Studio City built the world’s first and highest figure-of-eight ferris wheel and launched with a star-studded fanfare in 2015 featuring actors Robert De Niro and Leonardo DiCaprio. Other attractions in Melco’s City of Dreams include a theatre that holds 3.7 million gallons of water for aquatic-themed performances and a now-cancelled cabaret show which he “personally loved” but
“wasn’t well understood” by mainland customers.
40-year monopoly
Hong Kong and Macau have for years been dominated by a handful of corporate clans, who amassed staggering wealth and were instrumental in galvanising the cities’ vibrant economies. But an ageing generation of pioneering patriarchs is fading from view as their progeny take the helms of family firms and steer them into new areas. Stanley Ho, 95, is largely retired since a serious fall in 2009 that left him requiring brain surgery.
Macau has seen a recovery in casino revenue in the last year, with a strong VIP-sector, propped up by mainland high-rollers. But the semi-autonomous island is under pressure from Beijing to diversify away from gambling. China has halved the cash machine limit for UnionPay cardholders visiting the gambling enclave, in an effort to curb massive capital outflows caused by the falling yuan. Ho says he is confident that his casino licence, set to expire in 2022 along with other operators’, will be renewed. Melco International is now worth US$4.36 billion in market capitalisation and Ho said that Macau would continue to be the lynchpin of his business. “Macau will always be the best integrated resort gaming market in the world because it’s on the doorstep of China,” he said. AFP
Integrated Resorts
Genting Singapore to offer yen bonds for Japan casino bid Singapore-listed casino operator Genting Singapore PLC has announced that it applied yesterday to issue Japanese yen-denominated bonds through its recently created Tokyo branch to pursue business aims in Japan. According to the information provided in a document the company filed with the Singapore Stock Exchange yesterday, the proceeds of the bonds will be used by its Japan branch, established on September 20, ‘as necessary from time to time for working capital and general corporate purposes in Japan.’ The issuance of the bonds is now subject to the approval of the Director-general of the Kanto Local Finance Bureau, to which the Singaporean company has
submitted the required Securities Registration Statement (SRS). ‘An announcement of the definitive terms of the bonds will be made by the company following pricing of the issuance and subject to the Kanto Local Finance Bureau’s approval and/or acceptance of the SRS,’ the filing reads. The Kanto Region is located in the eastern part of Honshu, the main island of Japan. It comprises the Tokyo metropolis and six prefectures, namely, Ibaraki, Tochigi, Gunma, Saitama, Chiba, and Kanagawa. It is home to a third of Japan’s population, according to official information. The operator of Resorts World Sentosa in Singapore also noted that it expects the bonds ‘to be assigned
an issue rating of ‘A’ by Rating and Investment Information. The company had previously shown interest
in bidding for a gaming license in Japan, claiming it had continuously tracked th e p r o g r ess o f th e I R execution bill and that it
had sufficient financial resources to place it in a good position to bid for the opportunity, according to our reports. S.Z.
8 Business Daily Tuesday, October 3 2017
Greater China PMI
Factories grow at fastest pace in over 5 years as prices surge An official survey on the services sector published Saturday rose at the fastest pace since 2014 Elias Glenn
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hina’s manufacturing activity grew at the fastest pace since 2012 in September as factories cranked up output to take advantage of strong demand and high prices, easing worries of a slowdown before a key political meeting next month. Production, total new orders and output prices all improved to the highest level in at least a year, while a pick-up in a reading for the construction sector indicated a building boom is undiminished. The official Purchasing Managers’ Index (PMI) released on Saturday rose to 52.4 in September, from 51.7 in August and well above the 50-point mark that separates growth from contraction on a monthly basis. It marked the 14th straight month of expansion for China’s massive manufacturing industry and the highest reading since April 2012. Analysts surveyed by Reuters had forecast the reading would ease slightly. The data comes ahead of the Communist Party Congress in mid-October, a once-everyfive-years meeting where new leaders are appointed and the government’s key political and economic initiatives are laid out, though details are usually not announced until much later. China’s manufacturers are reporting their best profits
in years, fuelled by government-led infrastructure spending, a strong housing market, higher factory-gate prices and a recovery in exports. “Over the short term, we believe the resilient demand growth and disciplined balance sheet expansion ... will point to further improvement in manufacturing profitability and investment returns,” analysts at China International Capital Corporation said in a note after the data. But cost pressures from high raw materials prices and continued underperformance of smaller firms mean some manufacturers are still struggling. “Mid- and downstream industries are worried about a further increase in cost pressures,” National Bureau of Statistics official Zhao Qinghe wrote in comments published with the data.
Input prices climb
The latest survey showed input prices continued to rise at a solid clip, with the reading at 68.4 compared with 65.3 in August, benefiting upstream producers such as miners, smelters and oil refiners. Indexes for raw materials prices in the paper, wood processing and furniture, and chemical products manufacturing industries were all above 75.0, said Zhao, indicating large price increases. Output prices also rose but at a slower pace, pointing to lower profit margins for companies further along the
sector could give policymakers confidence to stick to the push for deleveraging.
Private survey shows slower growth
supply chain who are unable to pass on all of the price increases to their customers. A separate PMI on the steel industry fell to 53.7 in September from 57.2 in August but remained in solid expansion territory, as the industry faces production restrictions aimed at reducing choking air pollution over the winter. Analysts at China Merchants Securities said stricter production limits related to efforts to improve air quality and supply-side adjustments from capacity cuts had helped to improve the supply-demand balance, with new orders rising faster than production in September for the first time since 2012. For the manufacturing sector overall, inventories of raw materials and finished goods continued to decline in September, providing little indication that factories were stocking up in preparation for winter production cuts. Big firms saw the strongest
improvement in September, with a large firms sub-index rising to 53.8, while one for small firms improved slightly but was still in contraction territory at 49.4. China’s cabinet on Wednesday said that China will take a number of measures, including tax exemptions and targeted reserve requirement ratio cuts, to encourage banks to support small businesses. The impressive performance for China’s manufacturers comes despite a government push to shutter out-dated industrial capacity and clean up polluting industries, though some analysts say official claims of massive capacity cuts are misleading as overall production is still rising. Chinese authorities are also in the midst of a campaign to reduce the risks from a rapid build-up in debt produced by years of credit-fuelled stimulus, and the continued strength of the industrial
A separate private survey may temper some of the enthusiasm, as it showed growth slowed in September amid high pricing pressure and slower new order growth. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 51.0 in September, compared with 51.6 in August, as new export order growth slipped. So far, the regulatory clampdown has focused on the financial sector, particularly interbank and shadow banking activity, and the pass-through to the real economy appears to be limited. But S&P last week downgraded China’s sovereign credit rating, saying the government’s deleveraging drive has progressed slower than expected, leading to higher economic and financial risks. An official survey on the services sector published Saturday rose at the fastest pace since 2014, though gains in that sector were also driven by higher input prices. A sub-reading for the construction sector rose to 61.1 in September from 58.0 in August. The official data showed firms in both the manufacturing and services sector continued to shed workers. Reuters
Cryptocurrency
Domestic bitcoin market alive and well as traders defy crackdown Cryptocurrency players said traders were also moving away from using Tencent’s WeChat app, to encrypted messenger app Telegram to avoid regulatory scrutiny Brenda Goh
Weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead. While several exchanges have announced that they will close by the end of this month, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps. Industry insiders say some overseas-based initial coin offerings (ICOs) are still being marketed. Although the crackdown has dissuaded large swathes of less-experienced investors from participating in the trade, market participants point to the limits Chinese regulators ultimately face in controlling the industry, where many users are anonymous and difficult to track. In the short-run, the crackdown has also created an
arbitrage opportunity for investors, with the price of bitcoin in China now trading at a discount to overseas exchanges. “They can’t set rules to stop me from investing in what I want to invest in. They say you are protecting me, but as long as I think this is good, they have no way to intervene,” said a Chinese bitcoin investor named Victor, who declined to give his full name citing current sensitivities. “I can do over-the-counter trades or I’ll go offshore... My wallet is my wallet. I’ve never registered my identification card.” The Chinese government on Sept. 4 ordered ICOs to
cease and soon after ordered some cryptocurrency exchanges to shut. Over 15 exchanges, including the three largest players OkCoin, Huobi and BTCChina, have since announced that they will close their mainland businesses by the end of September. While the clampdown caused the bitcoin price in China to tumble as much as 8 per cent on the day of the announcement, it has since recovered to RMB24,101 (US$3,615.67) on Chinese exchange Huobi. On U.S. exchange Bitstamp, it currently trades at US$4,205. Trading has spiked generally on peer-to-peer
marketplaces, according to data website Coindance. On OTC platform LocalBitcoins, China trading volumes more than doubled in the week starting Sept. 16 from the previous week to RMB74 million. It hit an all-time-high in the week starting Sept. 23, reaching RMB115 million in trades. Volumes on Paxful, another smaller marketplace, also jumped to 1.7 million in the week beginning Sept. 23, up from 351,102 in the previous week, Coindance data showed. Michael Foster, co-founder of localethereum.com, an over-the-counter marketplace for ethereum trading, said mainland China users accounted for a fifth of its 5,000 signups since it opened for registrations on Tuesday. “The fact that bitcoin is still being traded is an indication that China isn’t looking to eliminate them, but reposition things in a way to have better control over them,” said Marshall Swatt, the founder of New York-based Coinsetter, a bitcoin exchange
acquired by larger peer San Francisco-based Kraken in 2016. Other Chinese cryptocurrency players said traders were also moving away from using Tencent’s WeChat app, to encrypted messenger app Telegram to avoid regulatory scrutiny. Some said they were still seeing overseas-based ICOs being marketed in China. The Sept. 4 shutdown of ICOs stipulated that Chinese citizens were not allowed to invest in ICOs. Overseas ICOs have been returning money on a voluntary basis. “The trend of digital currency transactions moving offshore is inevitable,” Zeng Danhua, the co-author of a bitcoin investment guide, told a television programme filmed by Chinese financial news outlet Yicai on Wednesday. “The regulators may have needed to shut the platforms to guard against financial risks, and there may be a bitcoin bubble, but its investment value persists.” Reuters
Business Daily Tuesday, October 3 2017 9
Greater China Probes
In Brief
Beijing says consumer loans can’t be used to “fuel property bubble” China’s home prices have surged since late 2015, with the biggest cities including Shenzhen and Shanghai the first to see huge spikes in their markets China has launched probes into consumer loans that are being misused for home purchases, warning they cannot be used to “fuel property bubbles”, a senior banking official said on Friday. “An important lesson of the U.S. subprime mortgage crisis was financial institutions lent excessively to people who were incapable of paying back the loans,” Xiao Yuanqi, chief of the prudential regulation bureau at the China Banking Regulatory Commission (CBRC), told a news briefing in Beijing. “China must prevent this tendency.” The investigations are being carried out by local offices of the CBRC and the central bank in some regions, Xiao said.
He did not specify the locations, but two banking sources told Reuters last week that the banking regulator of China’s north-western province of Shaanxi has ordered inspections of local banks to better gauge financial risks from illegal lending to the real estate sector. China has made reining in financial risks one of its top priorities this year, and taming soaring housing prices has been a key goal in the push to defuse property bubbles. China’s home prices have surged since late 2015, with the biggest cities including Shenzhen and Shanghai the first to see huge spikes in their markets. Home prices in smaller cities started to climb last summer as property
curbs in big cities prompted speculators to look elsewhere. The rally spread to smaller tier-3 and tier-4 cities this year.
Key Points China investigating use of consumer loans for home buying Latest in series of steps to crackdown on property speculation Overlending to unqualified home buyers ‘important lesson’ from U.S. subprime mortgage crisis -senior banking official
While China has introduced a flurry of measures to dampen speculation, including raising the downpayment ratio in some cities, cases of savvy buyers skirting the rules have been reported by Chinese media. Short-term household loans in August doubled from July to RMB216.5 billion (US$32.57 billion), reflecting a surge in consumer lending as some home buyers may have turned to short-term consumer loans due to curbs on mortgages, analysts said. Reuters
Tourism
Golden getaway: cost, safety prompt more nationals to stay closer to home
Beijing-Tianjin-Hebei
Gov’t sets up fund to promote integration A new RMB10 billion (US1.5 billion dollar) government-backed fund was set up on Saturday to promote the development and integration of the region around China’s capital, state media Xinhua said. The fund will promote the government’s plan to integrate the economies of the cities of Beijing and Tianjin with the surrounding Hebei province. The plan, dubbed Jing-Jin-Ji, was initiated in 2013 and was meant to break down “fortress economies” in the region that were blamed for widening income disparities and causing a “race to the bottom” on environmental law enforcement. Index
FTSE Russell delays inclusion of China A-shares FTSE Russell said domestic Chinese equities would remain on the stock index provider’s “watch list” for possible inclusion in its emerging markets index, citing “high level of stock suspensions”. FTSE Russell, part of the London Stock Exchange Group, in 2016 also refused to include China’s A shares in its index, stating it had continuing concerns over market interventions. In a report posted on its website on Friday, FTSE Russell also said Saudi Arabia is close to an upgrade and would be assessed again in 2018. Trade
Visitor numbers to South Korea, normally a popular destination for Chinese, dropped more than 60 per cent in August against 2016 Adam Jourdan
As China’s army of tourists are enjoying ‘Golden Week’ vacation, the hottest destinations aren’t Paris, New York or Tokyo. Instead, a cooling economy means holidaymakers are staying closer to home - on the beaches of Sanya or the peaks of far-western Yunnan. Chinese travellers - who spent US$261 billion overseas last year are increasingly opting for ‘staycations’, a boon for domestic tourism operators, but a challenge for retailers and hotel chains tapping into Chinese demand abroad. The country’s tourists made 2.54 billion trips in China in the first half of this year, up 13.5 per cent from 2016, far outstripping an outbound market that has slowed as consumers tighten their belts amid recent economic wobbles. “This Golden Week, we prefer to travel domestically,” said Tian Haiqin, a 50-year-old Beijing housewife who said cost, jet lag and language barriers were the main reasons for staying at home. “It’s quite expensive to travel abroad, not only to far Western countries, but also around Asia.” Tian said she plans to spend around RMB20,000 (US$3,000) a week for her and her son to stay in a resort in the eastern city of Hangzhou, known for its scenic lakes and surrounding hills. She’s not alone. Around 710 million Chinese will make trips in the country for the National Day holiday, according to estimates from travel agent Ctrip.com International. Some 6 million will travel abroad. The holiday break - one of the world’s biggest mass movements of people - gives a snapshot of China’s big-spending tourists, who can
make, or break, the fortunes of hotel chains, duty-free stores, cruise firms and brands. Tong Yiling, Asia analyst at BMI Research, said the domestic tourism sector had seen a “rapid improvement” in competitiveness, with improved transport links and big investment in tourist sites. Better marketing about local travel destinations and the impact of tighter capital controls to deter Chinese from taking money abroad were also having an effect. Many are looking to cash in on the domestic trend. Walt Disney Co’s Shanghai park saw over 10 million visitors in its first year, while Fosun International’s Club Med has opened hotels in Guilin, island getaway Sanya and skiing resorts in the northeast.
Security worries
Some overseas destinations have taken a hit over security concerns, industry insiders said. Attacks in Europe, instability on the Korean peninsula and political uncertainty in the United States have weighed on tourist demand. “I think one of the most important reasons why people like to travel within this country is because of lots of unexpected incidents such as terrorist attacks in recent years,” said an official surnamed Zhou at travel company Leyou. “People feel it could be very dangerous to travel overseas.” Visitor numbers to South Korea, normally a popular destination for Chinese, dropped more than 60 per cent in August against 2016 due to a political row between Beijing and Seoul over South Korea’s installation of a missile defence system. To be sure, China’s outbound tourism spending is still growing. A report from CLSA in July estimated Chinese tourists would spend US$429 billion
overseas by 2021. But growth is slowing. Outbound travel was up just over 5 per cent last year, down from close to 30 per cent growth in 2010, according to BMI Research. Beijing has helped, opening duty-free zones around the country and cracking down on dishonest local tour operators. A boom in local “adventure” tours has also helped lure younger millennial tourists to domestic travel. “Compared with outbound travel, domestic travel has been greater in size and growth rate for the first several months of this year,” Ctrip, China’s largest online travel agent, said in written comments to Reuters. Outbound tourism, meanwhile, is in a “new normal of steady, slow-to-moderate growth”, with tighter shopping budgets “curbing” the rise in spending overseas, it said. Even last year, luxury brands LVMH and Burberry flagged lower Chinese tourist spending overseas. BMI’s Tong pointed to several areas of China’s tourism market that should grow fastest in the next few years: historic sites, theme parks and countryside farmhouse getaways, which the government is promoting to boost rural incomes. Many Chinese, though, still look to escape the holiday rush that can see huge crowds at train stations and tourism hotspots. Yu Yongyi, 22, has booked a trip to Vietnam, to add to holidays he has made to Spain, Thailand, Sri Lanka and Malaysia. “Most of the time I’ll go abroad for holidays because the price of flights is getting lower,” said Yu, head of marketing for start-up Eniutrip. “So it’s often cheaper to go abroad than to stay at home.” Reuters
U.S. to continue probe into stainless flanges from China The U.S. International Trade Commission said on Friday it voted to continue investigations into possible dumping and subsidization of stainless steel flanges from China and India. The Department of Commerce announced on Sept. 6 preliminary phase antidumping and countervailing duty investigations into the products. In 2016 imports of stainless steel flanges from China and India were valued at an estimated US$16.3 million and US$32.1 million, respectively, the department said. The probe followed petitions by two privately held companies, Core Pipe Products Inc of Illinois and Maass Flange Corp of Texas. Aviation
C919 jet could do 3rd test flight within days China’s domestically developed C919 passenger jet is likely to make its third test flight within days or in up to two weeks, a senior Commercial Aircraft Corp of China Ltd (COMAC) executive told reporters on Friday. The narrow-body C919, which will compete with Boeing Co’s 737 and the Airbus SE A320, completed its second test flight on Thursday, almost five months after its maiden flight earlier this year in May. Shi Jianzhong, COMAC Vice President, said a number of “issues” relating to the plane’s technology and its engine had led to the lengthy gap between the C919’s first and second flight.
10 Business Daily Tuesday, October 3 2017
Greater China Lending
Beijing makes targeted reserve requirement rate cut The PBOC said the move was made to encourage more small loans Elias Glenn
C
hina’s central bank on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to struggling smaller firms and energize its lacklustre private sector. The People’s Bank of China (PBOC) said on its website that it would cut the reserve requirement ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sector. The PBOC said that the vast majority of China’s banks would be eligible for at least a 50 basis point cut to their required reserve ratio as most met the minimum requirements to qualify. “The size of the cut is big, it covers all big banks, and 90 per cent of small and mid-sized banks. Conservatively we estimate RMB700 billion in liquidity could be freed up,” analysts at Lianxun Securities said in a note. The PBOC said the move was made to support the development of “inclusive” financial services and will
be available to all medium and largesized banks that meet requirements starting in 2018. Analysts said the cut was different from previous changes to RRR in that it was a “delayed” cut that will not go into effect until next year. “Clearly, the market will be disappointed as this cut will not help ease the liquidity conditions in the onshore banking system in the short term,” Zhou Hao, a Singapore-based analyst at Commerzbank, wrote in a note after the announcement. The PBOC said the reserve requirement rate will be cut by 50 bps - or 0.5 per cent - for banks whose loans to the targeted groups account for 1.5 per cent of their outstanding loan balance or their newly added loans for the previous year. A much higher bar is set for a further 100 bps cut: 10 per cent of loans must be to the designated “inclusive finance” groups, the PBOC said. Banks that meet the 10 per cent requirement will see their RRR cut by 150 bps.
Flagged
China’s cabinet had recently flagged a possible move, saying the
government would take a number of measures, including tax exemptions and targeted reserve requirement ratio cuts to encourage banks to support small businesses.
Key Points China to lower amount of funds some banks must hold as reserves Central bank says cuts will apply to majority of banks Reserve rate cut to spur lending to small firms, rural sector Central bank says no change to prudent, neutral monetary policy The PBOC said the move was made to encourage more small loans - those under RMB5 million - to small firms, loans to individual proprietors and lending that supports agricultural production, innovation, the poor and education. The move is in line with existing policy to encourage more targeted lending to more vulnerable sectors
of the economy, even as the government tries to cut down on speculative investment in the financial sector and property and rein in a rapid build-up in overall corporate debt. But in the last two years, the central bank has preferred using new policy tools such as short- and medium-term lending facilities for a similar purpose. Most economists polled by Reuters had not expected an RRR move before 2018. The PBOC said in a statement that the targeted RRR cut did not constitute a change to its prudent and neutral monetary policy. RRR is the amount of cash as a per centage of deposits that banks must park at the central bank as reserves. The current rate for major banks was set at 17.0 per cent after the last general RRR cut that took effect in March 2016. Lianxun Securities said the RRR cut would help to offset negative impacts to smaller firms from strict environmental protection measures and capacity cuts, while also offering some liquidity relief to small and mid-sized financial firms. The central bank in February extended a preferential programme that allows financial institutions that support rural finance and small enterprises to apply for a lower required level of cash reserves. But despite still-strong credit growth nationwide, many small businesses and farmers remain in desperate need of funds and do not have easy access to ample cheap credit that state-run firms enjoy. Also on Saturday, the central bank said it will maintain prudent and neutral monetary policy and use multiple monetary policy tools to keep liquidity basically stable. The statement, which came after the third quarter meeting of the PBOC’s monetary policy committee, said China will continue with interest rate and exchange rate reform while keeping the yuan basically stable. Reuters
Trade
EU e-bike makers make complaint against Chinese imports Chinese conventional bicycles have been subject to EU anti-dumping duties since 1993 European producers of electronic bikes (e-bikes) have filed a complaint with the European Commission against cheap Chinese e-bike imports, saying that they are sold in the bloc at excessively low prices with the help of unfair subsidies.
“You have subsidies, which generate overcapacity, which generate dumping” Moreno Fioravanti, European Bicycle Manufacturers Association secretary-general
The European Bicycle Manufacturers Association (EBMA) lodged the complaint alleging dumping of e-bikes by Chinese companies which they say are flooding the market at prices sometimes below the cost of production.
The Commission has until late October to determine whether to start an investigation. The EBMA is also preparing a related complaint alleging illegal subsidies and asking for registration of Chinese e-bike imports, which could allow eventual duties to be backdated. Such an investigation would be the latest in a string of probes into Chinese exports ranging from solar panels to steel and could raise trade tensions with Beijing, particularly with a subsidy inquiry into the support provided by the Chinese state. Bicycles have already been a flashpoint. The EU blamed China last December for scuppering a global environmental trade deal by insisting that bicycles be included as a tariff-free green product. Chinese conventional bicycles have been subject to EU anti-dumping duties since 1993. The EBMA says more than 430,000 Chinese e-bikes were sold in European Union in 2016, a 40 per cent increase on the previous year, and forecasts the figure will rise to around 800,000 in 2017. EBMA secretary-general Moreno
Fioravanti said Europeans buy some 20 million bicycles per year, of which about 10 per cent are now e-bikes, with the potential to rise to a quarter within five years. European companies had pioneered the pedal-assist technology that e-bikes use and had invested about 1 billion euros (US$1.2 billion) last year, he said, but was risking losing its industry to China.
“Today the European bikes are the best in the world and we have to invest every year to renew the range. The Chinese are getting the money from the government and the subsidies have an impact of 30, 40, even 50 per cent of the price of the product,” Fioravanti said. “You have subsidies, which generate overcapacity, which generate dumping,” he said. Reuters
Business Daily Tuesday, October 3 2017 11
Asia Real estate
Singapore Q3 private home prices rise for first time in 4 years Private home prices are likely to come in at least flat for the whole of 2017 Masayuki Kitano and Aradhana Aravindan
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ingapore’s private home prices rose for the first time in four years in the third quarter, marking a possible turning point for the sector, with analysts expecting clearer signs of a property market recovery in 2018. The private residential property index rose 0.5 per cent to 137.3 in the third quarter, after easing 0.1 per cent in the second quarter, the Urban Redevelopment Authority (URA) said. The rise in private home prices marked the first quarter-on-quarter increase since the third quarter of 2013. That was when the private home price index rose to 154.6, a record high on URA data going back to 1975. Analysts said a recent pick-up in private home sale transactions had suggested that the market was on the mend after four years in the doldrums. Private home prices are likely to come in at least flat for the whole of 2017, before edging higher next year, they added. “This is significant in that it marks the turning point and the end of the bear market,” said Eli Lee, an analyst for OCBC Investment Research, adding that he expects private home prices to rise 3 to 8 per cent in 2018. The government’s announcement in March of reductions in stamp duties that sellers are required to pay on
residential properties, as well as an improvement in the domestic economy, have helped bolster market sentiment, Lee said. Against this backdrop, transactions in the private residential market have been picking up. In August, private home sales had climbed to 1,241 units, more than doubling from the 468 units sold in August 2016. “I am seeing more viewers. Compare now and six months back, the number of people coming to look at properties that are available on the market, be it through advertisements, appointments or through open house, has increased,” said Jeff Foo, a real estate agent and the
owner of Jeff Realty. Buyers are looking for condominiums priced between S$1 million (US$735,131.96) to S$2 million (US$1.47 million), he said. Some of the demand is being driven by those who sold their homes in recent en bloc sales, he added. Private home prices will probably rise by up to five per cent in 2018, after coming in around flat for the whole of 2017, said Christine Li, research director at Cushman and Wakefield in Singapore. “Prices will pick up from next year when developers launch a significant number of new homes with higher
prices,” Li said. After hitting the record peak in the third quarter of 2013, private residential home prices fell for 15 consecutive quarters until the second quarter of this year. Private home prices fell 11.6 per cent over that span, with the market dampened by a series of property cooling measures implemented by the government. Such property curbs had been introduced over the years, as private home prices climbed more than 60 per cent from levels seen in the second quarter of 2009 to the record high set in the third quarter of 2013. Reuters
Politics
Japan ruling party pledge omits timing of primary surplus target Abe has made spending on education and welfare a central plank of his election campaign Stanley White and Takaya Yamaguchi
Japan’s ruling Liberal Democratic Party has omitted the deadline by which it aims to return to a primary budget surplus from its campaign platform, according to a copy obtained by Reuters. The platform says the LDP is committed to raising the national sales tax as scheduled in October 2019 and use part of the revenue for childcare and welfare programmes. The government’s original goal was to achieve a primary budget surplus in fiscal 2020, and eliminating the timing of this target could stoke fears that fiscal discipline is slipping away in favour of more big spending. Abe dissolved the lower house of parliament last month and called a snap election for Oct. 22. Abe has said he called the election to seek voters’ approval of his approach to North Korea’s nuclear weapons programme and his plan to use sales tax revenue not to pay down debt but to spend more on education and other popular programmes. Opposition parties have said Abe
is using the election to distract from two cronyism scandals that hurt his popularity earlier this year. Abe has made spending on education and welfare a central plank of his election campaign and wants to offer free pre-school for children aged three to five and expand education benefits for low-income households.
The platform shows the ruling LDP also wants to spend more on grants for college students and on recurrent education. The ruling party also pledges to revise the constitution to clarify the role of its military, called the Self Defence Force, and to offer free education and day care to pre-schoolers,
the platform showed. Japan’s debt burden is the worst in the world at more than twice the size of its economy, so signs that the government is willing to loosen its fiscal discipline targets so it can spend more could potentially worry investors and economists.
Key Points Ruling LDP to release campaign platform before election Abe campaigning on more education, welfare spending More spending raises concern about debt burden
Growing support for a new party formed by the popular governor of Tokyo Yuriko Koike (pictured) is drawing candidates from other opposition parties. Source: Lusa
Abe called the general election hoping to keep his conservative Liberal Democratic Party-led coalition’s majority in the lower house. However, his bet now looks increasingly shaky, given growing support for a new party formed by the popular governor of Tokyo, which is drawing candidates from other opposition parties. Reuters
12 Business Daily Tuesday, October 3 2017
Asia Central bank
Japan’s business mood hits decade-high, labour shortage bites Big firms expect to increase capital expenditure by 7.7 per cent in the current fiscal year ending in March 2018 Leika Kihara and Tetsushi Kajimoto
B
ig manufacturers have more confidence in Japan’s business conditions than they have had for a decade as a weak yen and robust global demand add momentum to the economic recovery, a closely watched central bank survey showed yesterday. In a sign the recovery was broadening, small manufacturers’ business confidence also hit a decade-high and the ratio of companies complaining of labour shortages was at a 25-year high, according to the Bank of Japan’s “tankan” quarterly survey. The upbeat data could help premier Shinzo Abe as he tries to convince voters in an Oct. 22 election that his “Abenomics” stimulus policies have improved their livelihoods. It also supports Bank of Japan (BOJ) policymakers’ hopes that a sustained economic recovery will boost wages and household spending, though many analysts expect inflation to remain distant from the central bank’s 2 per cent target. “Big manufacturers’ sentiment was probably driven by a weaker yen and hefty corporate profits,” said Yuichiro Nagai, economist at Barclays Securities Japan. “The tankan results were in line with or even stronger
than the BOJ’s scenario. But the price trend remains weak,” he said, adding he expects the central bank to cut its inflation forecasts again at a rate review this month. The headline index for big manufacturers’ sentiment stood at plus 22 in September, handily exceeding a median market forecast of plus 18 to mark the highest level since September 2007. It was higher than plus 17 seen in the previous survey in June, posting a fourth straight quarter of improvement, the tankan survey showed. The big non-manufacturers’ sentiment index stood at plus 23, unchanged from June and matching a median market forecast. Both big manufacturers and non-manufacturers expect business conditions to deteriorate in the next three months, the survey found,
reflecting their concerns about uncertain outlook. But big firms expect to increase capital expenditure by 7.7 per cent in the current fiscal year ending in March 2018, roughly unchanged from their plans in June. “The tankan shows that capital expenditure plans are on solid footing,” said Norio Miyagawa, senior economist at Mizuho Securities. “A lot of firms are upgrading equipment or investing in labour-saving technology.”
Weak prices
The survey will be among data the BOJ board will scrutinise when it issues fresh long-term economic and price forecasts at a rate review on Oct. 30-31. With inflation stubbornly low, some central bankers fret the BOJ may need to
slash its price forecasts for the year ending in March 2018, say sources familiar with its thinking. Japan’s economy expanded at an annualised 2.5 per cent in the second quarter on robust consumer and corporate spending, heightening hopes of a sustained recovery. While slowing down from the second quarter’s exceptionally fast growth, the economy is likely to have expanded 1.1 per cent in the July-September period, according to a Reuters poll. A separate survey showed Japanese manufacturing activity in September expanded at the fastest pace in four months, as domestic and export orders picked up. But price and wage growth remain weak with firms still wary of passing more of their profits to employees, forcing the BOJ to push back
the timing for reaching its price target six times since deploying a massive stimulus programme in 2013. The BOJ now expects inflation to hit 2 per cent in the fiscal year ending in March 2020, arguing that a tightening job market and solid economic growth will gradually push up prices. An index gauging firms’ views of the job market showed that those complaining of labour shortages, rather than excess staff, were at the highest since 1992, the tankan showed. Japan’s jobless rate stood at a 23-year low of 2.8 per cent in August, reflecting a strengthening economy and shrinking working-age population in a rapidly ageing society. Wary of increasing fixed costs, many firms make up for the shortage by hiring more temporary workers instead of raising salaries for their higher-earning permanent employees - a trend that has kept overall wage growth subdued. “The economy is doing well. But our labour force is shrinking, so the shortage of workers that companies experience will get worse,” said Miyagawa at Mizuho Securities. “Companies know that wages aren’t rising that much, so they are reluctant to raise prices. In this situation, the BOJ cannot exit from quantitative easing.” Reuters
Real estate
Australia home prices slow as Sydney suffers rare fall The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato Home prices across Australia’s major cities rose only marginally for a second month in September, with a rare dip in Sydney offering more evidence that tighter lending rules were working to head off a debt-driven bubble in the sector. Property consultant CoreLogic said its index of home prices for the combined capital cities rose just 0.3 per cent in September, from August when they edged up 0.1 per cent. Annual growth in prices slowed to 8.5 per cent in September, from 9.7 per cent the month before and 10.5 per cent in July. “This slowing in the combined capitals growth trend is heavily influenced by conditions across the Sydney market where capital gains have stalled,” said CoreLogic head of research Tim Lawless. Prices in Sydney eased 0.1
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per cent in September, the first decline in 17 months, dragging the annual pace back to 10.5 per cent from 13 per cent in August. A slowdown is much desired by the country’s main
bank watchdog which has tightened standards on investment and interest-only loans, leading banks to raise rates on some mortgage products. The Reserve Bank of
Australia (RBA) has also been concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks. Melbourne fared much better, however, with prices rising 0.9 per cent for September and 12.1 per cent on the year. “The stronger housing market conditions in Melbourne are supported by auction clearance rates which have consistently remained above 70 per cent,” said Lawless. “Additionally, advertised stock levels remain remarkably low and private treaty sales continue to sell rapidly, averaging 30 days on market.” Conditions varied widely across other cities, with Hobart rising 14 per cent on the year while prices in Perth fell 2.9 per cent. Outside the cities, prices
edged up 0.1 per cent in September to be 5.6 per cent higher for the year.
‘The conservative government of Malcolm Turnbull has blamed a lack of supply for the housing problem’ The central bank holds its October policy meeting today and is considered certain to keep rates steady again, in part because any further easing might only encourage more borrowing by already heavily indebted households. 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 Tuesday, October 3 2017 13
Asia Trade
In Brief
South Korea posts record exports in September The trade ministry expects exports to jump 10 per cent this year Cynthia Kim
Higher memory chip and steel product sales helped South Korea’s exports surge 35 per cent year-on-year to a record US$55.1 billion in September, notching a ninth consecutive month of double-digit growth and the longest stretch of expansion since 2011. While normalizing global demand boosted exports, South Korea’s trade minister raised concerns that export growth could slow in the fourth quarter due to a deterioration in trade relations. “From the fourth quarter, exports growth may slow down on worsening global commercial relations and fewer number of working days, which merits close monitoring of the situation,” trade minister Paik Un-gyu said in a statement. Policymakers in Seoul are in talks with Washington on renegotiating the Korea-U.S. Free Trade Agreement, after President Donald Trump told Reuters on April 28 that he will either renegotiate or terminate what he called a “horrible” deal. Meantime, imports jumped 21.7 per cent to US$41.4 billion in September, resulting in a trade surplus of US$13.8 billion, government data showed on Sunday. September exports outperformed a 21.6 per cent expansion seen in
a Reuters survey, pointing to a strengthening momentum in Asia’s fourth largest economy. “Sales to both advanced and emerging economies rose on global economic recovery, as 10 of the nation’s 13 major exporting items soared,” the nation’s trade ministry said in a statement. The increase was especially driven by growth in shipments of memory chips and steel products, which surged 70 per cent and 107.2 per cent respectively from a year earlier, the statement showed. The trade ministry expects exports to jump 10 per cent this year, although uncertainties related to geopolitical tensions over North Korea and U.S. protectionist measures cast a shadow over the outlook.
In September, shipments to the United States jumped 28.9 per cent, as demand for South Korean memory chips, cars and petrochemical products remained robust despite the trade review talks. Exports to China gained for an 11th month and expanded 23.4 per cent on-year, marking the longest run of growth since 2014. Imports grew for an 11th straight month in September, as South Korean manufacturers imported more oil and intermediary goods needed to produce memory chips. Imports of products needed to produce memory chips clipped a 211.9 per cent expansion in September, while imports of crude oil gained 17.8 per cent on-year, according to the government. Reuters
Technology
Smartphones made in India? Manufacturing ambition hits hurdles The government says it has a phased programme to manufacture phones, aiming to step up value added locally every year Sankalp Phartiyal
India’s ambitions to become a smartphone-making powerhouse are foundering over a lack of skilled labour and part suppliers along with a complex tax regime, industry executives say. Prime Minister Narendra Modi has championed a manufacturing drive, under the slogan ‘Make in India’, to boost the sluggish economy and create millions of jobs. Among the headline-grabbing details was a plan to eventually make Apple iPhones in India. Three years on, as executives and bureaucrats crowded into a Delhi convention centre for an inaugural mobile congress last week, India has managed only to assemble phones from imported components.
Key Points India only able to assemble phones Industry execs cite lack of engineers, labour unrest Sparse supplier network another hurdle, they say High profile tax disputes, GE contract also noted While contract manufacturers such as iPhone-maker Foxconn Technology Co and Flextronics Corp have set up base in India, one of the world’s fastest-growing smartphone markets, almost none of the higher value chip sets, cameras and other high-end components are made domestically. Plans for Taiwan-based Foxconn to build an electronics plant in the state of Maharashtra, which local officials said in 2015 could employ some 50,000 people, have gone quiet. According to tech research firm Counterpoint, while phones are
assembled domestically because of taxes on imported phones, locally made content in those phones is usually restricted to headphones and chargers - about 5 per cent of a device’s cost. “Rather than feeling that India is a place where I should be making mobile phones, it’s more like this is the place I need to (assemble) phones because there is lower duty if I import components and assemble here,” a senior executive with a Chinese smartphone maker said. He declined to be named for fear of harming business.
Tax disputes
Others listed the lack of skilled engineers and a sparse network of local component makers. They also cited high-profile tax disputes between India and foreign companies such as Nokia. Nokia eventually suspended mobile handset production at its southern India facility. “The Nokia escapade is in people’s memory when they try to come here,” a second industry source told Reuters at the first Indian Mobile Congress in capital New Delhi, which ended on Friday. India’s nationwide sales tax (GST), which kicked in this year to replace a string of different levies, is also fraught with its own challenges, such as a lengthy tax-refund process that delays payments to suppliers, the source added. Last week, India rattled investors after publicly musing about possible changes in a US$2.6 billion 2015 diesel locomotive contract with General Electric. The government has since said it would not take any hasty decisions. “We needed some push from the government to start manufacturing,” said Neeraj Sharma, the India head of Chinese chipmaker Spreadtrum. “It was required, because without that nothing was happening.”
But India now needs more sophisticated technology - such as surface-mounting technology, which places components directly on top of a printed board - to build a supply chain, he said. Otherwise, firms will not do research in India, Sharma said. “For design to happen, we need strong local players.”
Phased programme
The government says it has a phased programme to manufacture phones, aiming to step up value added locally every year. “While we have made a start with getting in mobile assembling, we want to move up the value chain,” India’s telecoms secretary Aruna Sundarajan told reporters. “A lot of investors have shown very significant interest in this area.” The Phased Manufacturing Programme began in 2016 with the manufacture of phone chargers and batteries and envisages the production of higher-end components by 2020. Sundarajan said the government was also trying to give investors “a reasonable degree of certainty”, while also dealing with constant disruption to the industry. But for smartphone makers used to China’s predictability, India may need to do more, executives warn. A third senior source at a Chinese smartphone maker in India said some Chinese players were rattled by labour unrest, including suspended operations at a facility belonging to smartphone maker Oppo earlier this year, after a foreign employee was reported to have torn a picture of the Indian flag. Oppo said at the time it regretted the incident. “Labour laws are lax, there’s little effort to build a component ecosystem and logistics, and transport remains a big problem,” the third source said. Reuters
M&A
Bain aims to buy Japan ad agency Asatsu-DK U.S. private equity firm Bain Capital plans to buy Japanese advertising agency AsatsuDK Inc in a deal that could be worth US$1.2 billion or more, a person familiar with the transaction said yesterday. Bain will launch a tender offer soon for as many shares of Asatsu-DK as possible, the person said, asking not to be identified because he is not in a position to speak to media. The Nikkei business daily, which reported the buyout earlier yesterday, said Bain would pay about 150 billion yen (US$1.33 billion) for the Japanese company. Accounting
New Zealand ministry punishes Fuji Xerox unit A New Zealand ministry said it had suspended its printing services contract with Fuji Xerox New Zealand and terminated an offices supplies contract after its review of an investigation into irregular accounting practices at the firm. Fujifilm Holdings Corp said in June a third-party investigation found financial incentives at the unit encouraged management and staff to book sales earlier than standard practice, artificially bumping up income. Under the suspension, Fuji Xerox New Zealand cannot enter into any new printing services contracts from government departments until certain conditions are fulfilled, the Ministry of Business, Innovation and Employment said in a statement. Tourism
Indonesia’s Aug foreign arrivals up Indonesia’s foreign tourist arrivals in the month of August rose 24.77 per cent from a year earlier to 1.18 million, the statistics bureau said yesterday. The increase was bigger than July’s 21.8 per cent annual rise. The total number of foreign visitors, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, in August was 1.40 million, up 36.11 per cent from the previous year. Japan
Watchdog finds smaller banks lag in money laundering fight Japan’s smaller banks are behind in taking steps against money-laundering and terrorism financing, Japan’s financial regulator has found, according to people familiar with the matter and documents seen by Reuters. A survey by the Financial Services Agency uncovered deficiencies among Japan’s regional banks and credit associations, and the regulator has begun onsite probes of lenders to prod them into compliance, the sources said. The Paris-based Financial Action Task Force (FATF), a 37-nation group set up by the Group of Seven industrial powers to fight illicit finance, is to evaluate Japan’s performance in 2019.
14 Business Daily Tuesday, October 3 2017
International In Brief Labour
Eurozone unemployment holds at 8-year low Unemployment in the eurozone remained stable in August at an eight-year low, underlining Europe’s continued economic recovery, official EU figures showed yesterday. The jobless rate in the 19-country single currency area in August was 9.1 per cent, the same as July and down from 9.9 per cent in August 2016, the Eurostat statistics agency said in a statement. “This remains the lowest rate recorded in the euro area since February 2009,” it said. Analysts at the data company Factset had predicted a rate of 9.1 per cent. Cryptocurrencies
Lagarde says digital currencies could boost its own SDR Global usage of the International Monetary Fund’s in-house currency, the special drawing right (SDR), could get a boost from the growth of digital currencies, the Fund’s managing director, Christine Lagarde said on Friday. “It is not a far-fetched hypothetical,” Lagarde told a conference hosted by the Bank of England when she raised the prospect of the SDR partly supplanting major international currencies such as the dollar and euro. “If the two were to come together – the digital acceleration and facilitation, and the geopolitical situation - that would be propitious for relying on an alternative,” Lagarde said.
PMI
Euro factories add jobs in struggle to keep up with order boom Factory activity expanded in all major European countries, IHS Markit said Alessandro Speciale
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uro-area factories are scrambling to add staff as burgeoning orders stretch capacity. A Purchasing Managers Index for the region’s manufacturing industry rose to 58.1 in September from 57.4 the previous month, London-based IHS Markit said yesterday. That compares with a preliminary reading of 58.2 and is the highest level in more than six and a half years. A gauge for employment rose at the fastest pace since the survey began in 1997. The currency bloc’s economy is on track to expand 2.2 per cent this
year, the strongest pace in a decade as global trade, central bank stimulus and political risks all combine to support growth. “The euro-zone manufacturing boom kicked into an even higher gear in September,” said Chris Williamson, chief economist at IHS Markit. “Surging order-book growth has encouraged manufacturers to take on extra staff at a rate never previously seen in the 20-year history of the PMI survey. Despite this expansion of capacity, backlogs of incomplete work built up at a faster rate, suggesting that the hiring upturn has plenty more room to run.” Unemployment probably fell to 9 per cent in August, according to
a Bloomberg survey ahead of the official report later yesterday. Factory activity expanded in all major European countries, IHS Markit said, led by Germany and the Netherlands. Greece enjoyed its strongest growth since June 2008.
“The euro-zone manufacturing boom kicked into an even higher gear in September” Chris Williamson, chief economist at IHS Markit While inflation in the region failed to accelerate in September, European Central Bank policy makers who will decide in October how to recalibrate asset purchases can take comfort from the fact that the buoyant expansion is starting to push prices higher. “The stronger euro has so far barely dented export growth and domestic demand conditions were generally seen to have improved,” said Williamson. “With the upturn being accompanied by rising inflationary pressures, expectations of an imminent announcement from the ECB in relation to tapering of policy stimulus will intensify.” Bloomberg News
Aviation
Monarch Airlines goes bust Monarch Airlines collapsed yesterday, the biggest ever failure of a British airline, stranding tens of thousands of travellers overseas and prompting the country’s biggest-ever peacetime repatriation effort. Monarch cancelled about 300,000 future bookings and apologised to customers and staff as it became the UK’s largest carrier to go into administration. “I am so sorry that thousands now face a cancelled holiday or trip, possible delays getting home and huge inconvenience as a result of our failure,” Monarch Chief Executive Andrew Swaffield told employees in a message. Markets
Violent Catalan referendum jolts Spain’s financial market Spain’s government borrowing costs surged and its stock market slumped yesterday as investors weighed political fallout from a violent police crackdown on an independence vote in Catalonia. The euro also drifted lower against the dollar after local officials said 90 per cent of voters favoured secession in Sunday’s referendum, which Madrid declared illegal. That opens the door to a unilateral declaration of independence in a region that accounts for a fifth of Spain’s economy. Analysts said the uncertainty could impact the country’s economic growth while reports of injuries to more 800 people could taint the reputation of Prime Minister Mariano Rajoy, who heads a minority government.
Philanthropists’ meeting
Obama: ‘No one nation’ can confront development challenges Speakers also discussed how new technologies could help the world’s poor Danielle Renwick
Former U.S. President Barack Obama said nations must cooperate to confront some of world’s most pressing challenges, including climate change, poverty, disease, and discrimination. “The biggest problems we confront—no one nation is going to be able to solve on its own—not even the United States of America,” Obama said before an international summit organized on the side-lines of the United Nations General Assembly. Obama joined a group of philanthropists, world leaders, public figures, and entrepreneurs, including Bill and Melinda Gates, Canadian Prime Minister Justin Trudeau, Jordan’s Queen Rania Al Abdullah, and Nobel Peace Prize winners Malala Yousafaza and Leymah Gbowee, to discuss progress on the UN Sustainable Goals (also known as Global Goals), 17 goals that seek to end poverty, reduce inequality, improve global health, and combat climate change by 2030. The SDG agenda entered into force in January 2016. The former president’s remarks came a day after President Donald Trump stressed the principle of sovereignty before the General Assembly, saying he would “defend America’s interest above all else.” Obama also said development officials should work to educate citizens on progress being made in the development field. “People wildly overestimate what we spend on foreign aid,” he said, making many Americans sceptical of development programs that send money abroad instead of investing locally. He said
efforts should be made to show the connection between foreign aid and international stability. “It’s a good investment to make countries work,” he said. Last week the Bill and Melinda Gates Foundation released “Goalkeepers: The Stories Behind the Data” a report card that evaluated progress in 18 areas. The report, citing data projections from the University of Washington’s Institute for Health Metrics and Evaluation, found progress in areas like poverty reduction and decreases in childhood mortality.
“If you want a healthier, better world, you need to put women at the centre of that agenda” Melinda Gates, co-chair of the Bill & Melinda Gates Foundation “We are optimistic—we think progress can accelerate,” said Bill Gates, Co-Chair of Bill & Melinda Gates Foundation. However, the report also found a risk of backsliding on some recent gains. Gates warned the death rate from HIV/AIDS could go back up if the United States went through with a proposed budget cut to foreign assistance. Participants at the Goalkeepers event discussed issues affecting
global development, including women’s movements across the globe and access to digital technology. “If you want a healthier, better world, you need to put women at the centre of that agenda,” said Melinda Gates, co-chair of the Bill & Melinda Gates Foundation. “Women are some of the most important change makers in the world.” Gates spoke with Canadian Prime Minister Justin Trudeau about the importance of gender parity in leadership roles, and on the country’s Feminist International Assistance Policy. “The best way to affect real change in struggling or developing communities is to empower women,” said Trudeau, who added that 95 per cent of Canada’s development aid would go to gender equality or women-supportive programs. Speakers also discussed how new technologies could help the world’s poor. The Netherlands Queen Máxima highlighted the importance of developing efficient, secure tools to help more people access financial systems; engineers Jenny Hu and Morgan Fowler demonstrated cooling devices that could ensure more children receive properly preserved vaccines; and Google X head Astro Teller presented a portable, flying balloon (known as a loon) that could expand internet connectivity. “Improving internet access is single best way to give people tools to learn and access opportunity,” said Teller. He said greater connectivity would have ripple effects, allowing the rural poor to access weather forecasts, financial services, and health information and care. AFP
Business Daily Tuesday, October 3 2017 15
Opinion
There’s a better way to make economic forecasts Mark Buchanan a Bloomberg View columnist
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conomists are famously bad at predicting growth. A new technique might help them get a little better. When assessing a country’s potential to prosper, economists typically look at aggregate measures such as education, investment or national debt. This hasn’t worked particularly well: China’s economy, for example, has kept growing at a fast pace even though they’ve been predicting a slowdown for nearly 30 years. An emerging line of research -- which I’ve written about before -- points to what the economists might be undervaluing: the importance of a country’s technological and industrial capabilities. The research focuses on “economic fitness,” a measure that seeks to capture the range and sophistication of the goods a country produces. Two years ago, for example, it suggested that China would keep growing rather than succumb to a much-predicted “hard landing” -- a forecast that proved correct. New research has demonstrated that the “fitness” technique systematically outperforms standard methods, despite requiring much less data. This has helped attract the interest of the International Monetary Fund and the World Bank’s International Finance Corporation, signalling what could be a major shift in perspective. Instead of encouraging countries to focus on those areas where they have a comparative advantage, economists might start seeing an economy as more like a living ecosystem, its resilience dependent on its diversity. So how can “fitness” be measured? Building on earlier research, physicist Luciano Pietronero and colleagues estimate it by assigning a value to each of a country’s exports and adding them all up. The more different things a country produces, and the more complex those things are, the greater its fitness -- and one indication of a product’s complexity is how few countries can successfully make it. Advanced nations such as Germany and the U.S., for example, make just about everything, from breakfast cereal to supercomputers. Less fit nations tend to make fewer, simpler things. Empirically, fitness tends to be roughly correlated to measures of wealth such as gross domestic product per capita, but deviations carry hidden information that can be used to make forecasts. If a nation is poorer in GDP terms than its fitness score suggests, one might expect it to soon get richer. This has proven true especially for relatively advanced nations that have become capable of producing many sophisticated products: The capacity shows up in the fitness measure even before it affects GDP. China, Vietnam and India, for example, all look poised for growth. The fitness measure can also help differentiate among nations that might otherwise appear similar. Consider the case of the BRICs -- Brazil, Russia, India and China. As early as 2005, four years after Goldman Sachs started its BRIC fund on the premise that the four countries would dominate global growth for the next several decades, the fitness measure would have suggested that the first two were headed for trouble. (Of course, Goldman couldn’t have known this -- the measure didn’t exist until 2012.) Goldman closed the fund in 2015 after suffering consistent losses linked directly to the poor performance of Brazil and Russia. Pietronero and his colleagues are now extending the method to include “fitness added” -- the difference in score between a country’s exports and its imports. Here, too, China stands out: Its added fitness ranks among the highest in the world. Only a decade ago, it was still far behind nations such as Germany and the U.S. So looking for crude correlations among dozens of inputs might not be the best way to predict growth. The quality and variety of what a country makes, however it manages to do so, appears to matter more. Economies, like ecosystems, thrive on diversity. Bloomberg View
‘Economists might start seeing an economy as more like a living ecosystem, its resilience dependent on its diversity’
What communists need to become good capitalists Michael Schuman a columnist Bloomberg View
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s it heads into a major leadership transition, China is attempting a strange breed of corporate reform. Rather than privatizing state-owned enterprises outright, the government is testing whether selling minority stakes to private investors may improve their performance. Meanwhile, state companies are busy revising their governing laws to give the Communist Party more control over management. The goals of these clauses include ensuring that apparatchiks hold greater sway over key corporate decisions and, according to a recent article in a Communist Party-run newspaper, “creating more returns for shareholders.” Karl Marx must be spinning in his grave. Communist parties were meant to overthrow capitalists, not help them get rich. But China’s leaders haven’t paid much attention to their supposed spiritual guru for quite some time. Instead, they’re hoping to prove that political direction can improve corporate competitiveness as well as the market can. Most observers, especially those outside of China, would say they’re deluding themselves. Fixing China’s bloated, inefficient state sector, economists generally believe, requires less officious oversight, not more. There’s an argument for resisting this knee-jerk reaction, however. First, China’s Communist Party, which carefully grooms and trains the country’s best and brightest for national service, does have a reasonable track record of developing talent. This is the group, after all, that has steered China’s economy quite successfully over the past three decades. While one can debate how much credit bureaucrats can claim for that performance, at least we shouldn’t be too quick to dismiss the managerial capabilities of Party members. More importantly, it matters far less who sits in the corner office than the environment that surrounds them. The main problem with China’s state sector is the fact that the government spoon-feeds them subsidies, encourages state banks to provide cheap loans and roll over soured debts and protects them from competition. The coddling eliminates most of the incentives that might actually encourage them to prune unprofitable businesses, rationalize their workforces and generally bolster competitiveness. Little wonder that they aren’t nearly as profitable as private firms in China. Party overseers might be able to ferret out some corruption and scare company managers into operating a little more diligently. But unless the government cuts off subsidies and forces these firms to stop using state banks as ATM machines, they’ll continue to waste money. Unless exposed to real competition -- both from foreign and private Chinese companies -- and the threat of
“
bankruptcy, they’ll never innovate. Forced to stand on their own, by contrast, any managers -- whether from the Party or the private sector -- would be compelled to improve productivity, product and service quality. That’s the only way to increase shareholder value. Other countries provide some evidence that such reforms can work. Singapore, for instance, boasts some highly competitive state-linked firms, such as Singapore Airlines, because their government overlords force them to act as profit-seeking corporations, not job banks. South Korea also offers a comparison. The giant conglomerates that dominate the economy there, called chaebol, have been run by founding families, not the state. But historically, they were treated much like state-owned companies -- protected from competition and able to tap almost unlimited capital. When that changed during the 1997 Asian financial crisis, so did the fortunes of the chaebol. As many of them collapsed and, with them, the assumption the chaebol were “too big to fail,” money began flowing more rationally. Though for the most part management didn’t change very much, company performance did. The rise of Korea’s biggest brands to global prominence can be traced back to the years after the crisis, when the chaebol were finally compelled to compete on their own merits. In theory, this is the direction in which China plans to head. In a 2013 plenum, the Communist Party pledged to allow the private sector and market forces a larger role in the economy, while maintaining levels of state ownership. The question economists and investors should be asking then is whether or not the party will follow through on its promise. After four years, certainly, the financial system hasn’t been opened up sufficiently to break the IV drip that sustains the state sector, nor have markets been pried open. What matters as well is how the Communists intend on wielding their new corporate influence. If party members and managers at state-owned firms are permitted to run their companies with independence, aiming for greater productivity, transparency and profitability, perhaps they have a chance of successfully reforming them. But if party officials simply become conduits for diktats from the top, aimed at pursuing the goals of policymakers rather than shareholders, these companies will remain stumbling behemoths and a drag on economic progress. That’s a lot of ifs. Perhaps in the end, China’s Communists will forge a new-fangled type of corporate governance that departs from traditional Western models. To get there, however, they can’t ignore the market. Bloomberg View
Karl Marx must be spinning in his grave. Communist parties were meant to overthrow capitalists, not help them get rich
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16 Business Daily Tuesday, October 3 2017
Closing Tragedy
Las Vegas struck by tragic mass shooting
the gunman killed himself before being apprehended. First witness accounts describe that the gunfire was first confused with fireworks, Media reports indicate that what is presumed to be the worst mass shooting beginning while performer Jason Aldean was onstage and lasting up to 10 in United States history has taken the lives of over 50 people, with a further minutes. 400 injured in Las Vegas after a gunman opened fire from the 32nd floor of the The President and CEO of the American Gaming Association has issued a Mandalay Bay Hotel. statement noting that the Global Gaming Expo will continue ‘as planned’ and the Reports suggest that the killer was a man in his 60s from Nevada, who is presumed to have taken own life before police were able to breach the room he group is ‘closely monitoring the horrific events that took place in Las Vegas’ and was said to be shooting from, finding a number of other firearms on the premises. that their ‘thoughts and prayers are with those affected’ as well as offering its The shooter opened fire on a nearby country music festival which had gathered a ‘full assistance’ together with organizer Reed Exhibitions to ‘strive to honour the crowd over 20,000-strong. The police chief of the city has indicated he believed victims of this tragic event’.
Technology
Heir to US$2 billion knitting empire is moving into car parts The company’s stock has more than tripled since February 2016 Kazunori Takada and Emi Urabe
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uilding a machine to construct highend Prada sweaters was just the start. Now Mitsuhiro Shima, who took over his dad’s knitting-machine firm three months ago, is setting his sights on -- of all places -- the car industry. The 56-year-old president of Shima Seiki Manufacturing Ltd. is in talks with auto-parts makers to use its technology to develop lighter, non-steel components, and plans to sign a deal next fiscal year. It’s the latest evolution of the company founded in 1962 by Masahiro Shima, a prodigy who made a series of inventions before he turned 20. Back then, Shima Seiki developed machines for making work gloves. More than half a century later, it’s one of the top global suppliers of advanced knitting machines, which create seamless and other clothing for brands from Prada and Giorgio Armani to Fast Retailing Co.’s Uniqlo. And it’s not stopping at that. “Our company’s spirit is to create things the world has never seen,” the younger Shima said in an interview at Shima Seiki’s headquarters in Wakayama, a small regional city near Osaka in western Japan. While Japan is known for
its giant manufacturers, such as Sony Corp. and Toshiba Corp., it also has legions of smaller firms that are world leaders in the niche products they produce. In some cases, they’re overlooked by analysts and foreign investors. Not so for Shima Seiki, which counts BlackRock Inc., the State of California and Norway’s giant sovereign wealth fund among its shareholders. The company’s stock has more than tripled since February 2016, with gains really taking off after it signed a joint venture agreement to produce “innovative” knit products for Fast Retailing, Asia’s largest clothing maker, in October that year. Headquartered in one of the country’s least populated and fastest-aging prefectures, which is known as a major grower of plums and mandarin oranges and for its tradition of whale hunting, Shima Seiki -- and its inventor
founder -- are household names among the locals. The older Shima created a type of sewing machine when he was just 16 and went on to develop a fully automated glove knitting machine during the postwar economic boom when there was big local demand for gloves for laborers. “People said he was a genius inventor,” Mitsuhiro said. Masahiro, now 80, took the chairman’s role when Mitsuhiro became president in June. But these days, the company is perhaps best-known in its industry for being the pioneer of whole-garment knitting machines, which allow apparel makers to produce entire pieces of clothing with no seams at all. Items that used to take hours or days can now be made in minutes on one machine, Shima Seiki has said. The devices, which cost as much as 18 million yen
A Shima Seiki advanced knitting machine. Source: Bloomberg
(US$159,400) each, can produce everything from pleated skirts to low-neck sweaters and even running shoes. All this can be done from start to finish in as quickly as 30 minutes. Fast Retailing said it sees the technology spreading in the clothing industry. Founder and owner Tadashi Yanai, Japan’s richest person, said in an interview in March that speeding up the clothing-making process will be key to his company’s success.
Whole garments
“The whole-garment technology by Shima Seiki enables us to create innovative and high-quality clothing in a new, efficient way that was not previously possible,” Fast Retailing said in an emailed statement. While the apparel industry will remain Shima Seiki’s main focus, Mitsuhiro Shima says the company also plans to use its knitting technology for auto-parts, as carmakers seek lighter components to increase energy efficiency. The machines would make the frames of the parts using textile fabrics, which would then be solidified by coating them with resin or other material, Shima said. He declined to give further details of the company’s talks with potential partners. “The industry has a wide
supply chain,” Shima said. “Of the various industries switching out of steel parts, this is the easiest to enter.”
Profit growth
Analysts expect Shima Seiki’s profit to rise by more than 50 per cent to 11.4 billion yen in the year ending March 2019, compared with 7.3 billion yen two years earlier. The company projects that annual sales will reach 20,000 machines from next fiscal year, compared with 15,000 forecast for this year, Shima said. But uncertainties lie ahead, even in the company’s main business. While demand from China, a target market, is increasing, it’s not a given that this will translate into actual orders, according to Tachibana Securities Co. “Whether or not the whole garment business takes off will be key,” said Yoshikazu Shimada, an analyst at the brokerage in Tokyo. Still, one thing at least is clear: as Mitsuhiro takes over the knitting-machine maker that his father built into a US$2 billion company, he has no illusions about following in his footsteps as an inventor. “I don’t think I have such powers,” Mitsuhiro said. “So I want to change the company to one where young people’s innovative thinking pushes us ahead.” Bloomberg News
Portugal
Social networks
Tycoon
PS party local election landslide, no change in Lisbon and Porto
Facebook pulls page, limits posting for exiled Chinese tycoon Guo
Head of Taiwan microchip giant TSMC set to retire
The Portuguese ruling Socialist Party (PS) has won at least 157 of the 308 mayoral seats across the country in Sunday’s local elections, according to official results published by the Ministry of the Interior. The mayors of Lisbon and Porto were re-elected. Fernando Medina kept the PS in power in Lisbon, but lost the majority that his predecessor, António Costa, now the Prime Minister, gained back in 2013. In Porto independent candidate Rui Moreira was re-elected as mayor with an absolute majority. Controversial independent candidate Isaltino Morais, who in 2013 was convicted of tax fraud and money laundering, won the election in Oeiras (an affluent town on the outskirts of Lisbon) with an absolute majority of 41.65 per cent of the vote. Morais was mayor of Oeiras for more than 20 years until he was sent to jail in 2013. Of the 303 mayors elected at the last count yesterday at 5 am, 157 are PS, 78 from the Social Democratic party (PSD), 24 from the Communist party and Green Party coalition CDU (PCP-PEV), six from the right-wing CDS-PP, 17 independents, one from JPP and one from Nós, Cidadãos! (We, the Citizens!). Lusa
Facebook has taken down a page affiliated with China’s highest profile fugitive, exiled billionaire Guo Wengui, and temporarily restricted his ability to post on his profile, citing violations of its community standards. Guo, who is living in New York, has been using social media to make a series of incendiary, though mostly unverifiable, claims of corruption in the top levels of the Chinese government. His campaign has been timed for maximum impact ahead of this month’s critical congress of China’s ruling Communist Party, which is held only once every five years. A Facebook spokeswoman said the company on Saturday had “unpublished” one page related to Guo and temporarily restricted his ability to post information on a profile page because “personal identifier information” had appeared on them in violation of Facebook’s community standards. “We want people to feel free to share and connect on Facebook, as well as feel safe, so we don’t allow people to publish the personal information of others without their consent,” she said yesterday. The spokeswoman declined to say where the initial complaint about the content on Guo’s page and profile had come from. Reuters
The man who founded Taiwan Semiconductor Manufacturing (TSMC) and made it the world’s biggest microchip producer in terms of contracts announced yesterday he would retire next year. Morris Chang, one of Taiwan’s most revered business leaders, worked at U.S. firm Texas Instruments and later headed Taiwan’s Industrial Technology Research Institute before founding TSMC in 1987. Often called the “godfather” of Taiwan’s semiconductor industry, the 86-year-old developed TSMC, a key Apple supplier, into a giant that recorded sales of US$29.4 billion last year. “The past 30-odd years, during which I founded and devoted myself to TSMC, have been an extraordinarily exciting and happy phase of my life,” Chang said in a statement. He will hand over the reins to Mark Liu and C.C. Wei, who will become chairman and chief executive officer respectively, when he formally retires after the annual shareholders’ meeting in early June next year. “After my retirement, with the continued supervision and support of an essentially unchanged board, and under the dual leadership of Mark and CC, I am confident that TSMC will continue to perform exceptionally,” Chang said. AFP