Hutchison HK$14.49 bln sale approved M&A Page 4
Wednesday, October 4 2017 Year VI Nr. 1396 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Attack
Local gaming authorities discuss security enhancements with operators in wake of Vegas attack Page 7
Gaming
NagaCorp sees VIP rolling up 67 pct y-o-y Page 6
www.macaubusiness.com
Environment
Antiquities
Green policies on Mainland gaining pace and impact Pages 8 & 9
HK reaches record sale with Song porcelain auction Page 9
Yacht Scheme All At Sea Diversification
Zero applications made in the first half of the year. The Zhongshan-Macau Free Yacht Scheme is moribund. Thanks to high deposits demanded, bureaucracy and Zhongshan’s unattractiveness as a destination, say yacht owners. Customs fees, insurance and visa procedures are also slowing the diversification initiative. Page 5
Strong hotel bookings are contributing to a good outlook for Golden Week. Per SJM CEO Ambrose So Shu Fai. Damage to Grand Cotai Palace is still being evaluated but no pushback of opening date so far. While MOP200 mln lost to Typhoon Hato might be recouped this week. Gaming Page 2
HK Hang Seng Index October 3, 2017
Rent Rentals of commercial properties in Hong Kong are skyrocketing. Making MSAR pricing look more reasonable. Office rental pricing still considered O.K. as multinationals seek HK HQs, says expert. That would be HK409/m2 ceiling vs. US$304/ft2. Page 4
Wheeler dealers
M&A Mobike and Ofo. Mainland start-ups for sharing bicycles are in early merger talks. Following previous experiences by other sharing-economy domestic firms, the consolidation process would also link Tencent and Alibaba, their main investors. Page 8
28,173.21 +618.91 (+2.25%) Worst Performers
Bank of Communications
+3.33%
China Mengniu Dairy Co Ltd
-1.60%
CNOOC Ltd
+0.00%
Industrial & Commercial
+7.93%
Tencent Holdings Ltd
+3.15%
CLP Holdings Ltd
-0.62%
CK Hutchison Holdings Ltd
+0.05%
China Construction Bank
+5.86%
AAC Technologies Holdings
+2.90%
China Petroleum & Chemical
-0.34%
Hong Kong & China Gas Co
+0.14%
Bank of China Ltd
+4.94%
Want Want China Holdings
+2.73%
MTR Corp Ltd
-0.33%
Power Assets Holdings Ltd
+0.15%
Ping An Insurance Group Co
+3.92%
China Overseas Land &
+2.56%
WH Group Ltd
-0.12%
AIA Group Ltd
+0.17%
+12.27%
27° 31° 28° 31° 28° 31° 28° 32° 28° 32° Today
Source: Bloomberg
Best Performers
Geely Automobile Holdings
Relatively speaking
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
High hopes for Golden Week
2 Business Daily Wednesday, October 4 2017
Macau
Gaming
SJM CEO: Positive outlook for Golden Week performance The local gaming operator, on the other hand, will stick to the original plan for the Cotai property opening as well as the budget Cecilia U cecilia.u@macaubusinessdaily.com
A
fter the third day of the National Day Golden Week holiday, the high number of hotel bookings in the city shows encouraging performance this year, according to the Chief Executive Officer of local gaming operator SJM Holdings Ltd., Ambrose So Shu Fai, remarking on the sidelines of a cocktail reception yesterday. “I can’t forecast [the gaming revenue] but logically this will be good for Macau’s revenue,” said the CEO. Saying that the number of visitors had grown from prior years, So expressed the wish that the increased number would bring more income. When asked whether there were any changes in terms of numbers between high rollers and mass market gamblers, So said there are none. “Some high rollers go to the mass market area and some mass market players play in the VIP rooms,” said So, noting that the ratio of mass market gamblers has increased compared
Royal Dragon borrows gaming tables
Ambrose So Shu Fai, CEO of local gaming operator SJM Holdings Ltd., confirmed with the press that the 20 tables for the newly opened Royal Dragon Hotel and Casino last week by former legislator Chan
to previous years. Meanwhile, when asked by the press whether the increase in satellite casinos of SJM is a shift of strategy and whether SJM would consider expanding the number of satellite casinos, he said “the contribution [of the satellite casinos] to the bottom line of SJM is minimal,” thus the local gaming operator is not considering expanding the number.
On track
In the wake of the fire that broke out last month, the CEO said the the group’s new property in Cotai - Grand Lisboa Palace - would remain on track for an opening in the second half of 2018, while evaluation of fire damage is still ongoing. “Fortunately, the fire didn’t break out at the critical part [of the project],” said So. “But of course there is certain damage to the equipment that needs to be replaced [and] luckily those are covered by insurance.” As such, the CEO claimed that the budget of the construction - MOP36 billion (US$4.47 billion) - would not be overrun.
Meng Kam were sourced from Chan’s Golden Dragon property and Oceanus. However, the CEO did not reveal the exact number of tables on loan from Oceanus, saying, “There is no fixed number of tables being borrowed [...] the tables are allocated internally.”
However, So said a partial opening of the new property could not be ruled out. “There is a possibility [of partially opening] - we will always monitor the progress of work to see whether it is a complete opening or a partial opening,” he said. “Because you have different components involved in the whole project; it is a huge project, so we don’t rule out the possibility of a partial opening.” The CEO divulged that they have yet to receive the results of the fire investigation from the Judiciary Police.
MOP200 million typhoon loss
So told the press that SJM had lost MOP200 million following the passage of Typhoon Hato in August, without taking into account gaming revenue. When asked whether the loss caused by the typhoon would pose an impact upon SJM’s yearly performance, the CEO said “the few days would not affect [things] much, let’s
hope Golden Week can cover the previous loss”. According to him, Macau Legend Casino, Ponte 16 and Kam Pek Community Centre are the most seriously affected premises.
Old premises can fit smoking lounges
With the MSAR Government’s recent release of smoking lounge regulations and guidelines, So said older premises such as Casino Lisboa can fit smoking lounges. “Old premises are continually refitted [...] so when the government has new requirements we have the new equipment installed when we renew our venues, otherwise we will install first, then renew,” he said. Meanwhile, the CEO said the installment of smoking lounges, both in the mass market and VIP rooms, would not cost a lot but a concrete budget for the setup was not yet ready.
Current gaming concessions enough
the city’s development as a World Centre of Tourism and Leisure although he is aware that “it would be a decision made by the MSAR and central governments”.
Cocktail reception celebration
for the efforts in coping with the difficult conditions resulting from Typhoon Hato in August. She also encouraged co-workers to continue their roles in passing on the Chinese spirit and in diversifying SJM’s business in order to integrate and participate in the plans made by the MSAR Government, such as diversifying the city’s economy.
CEO of SJM Holdings Ltd Ambrose So said the current number of gaming concessions is enough for
Local gaming operator SJM Holdings Ltd. celebrated the 68th Anniversary of the Founding of the People’s Republic of China yesterday with hundreds of its employees at the Macau Tower Convention and Entertainment Centre. Executive Director Angela Leong On Kei thanked her co-workers
Business Daily Wednesday, October 4 2017 3
Macau Courts
Doctor: Kim Jong-nam showed symptoms of poisoning
T
he doctor who attempted to assist Kim Jong-nam in the airport of Kuala Lumpur prior to his death affirmed yesterday that the victim, the half-brother of North Korea leader Kim Jong-un, showed clear symptoms of having
been poisoned. During the testimony relating to the crime, Dr. Nik Mohamed Adzrul Ariff stated that Kim Jong-nam’s face and eyes were red, he was vomiting and had blood in his mouth when he was being incubated. During transportation to
the hospital, the victim lost consciousness and died, the doctor stated, on the second day of the trial taking place in the court of Shah Alam, west of the Malaysian capital. The two women accused of homicide - Indonesian Siti Aisyah and Vietnamese
Doan Thi Huong - were present for the testimony and deposition via translation, following the recommendations of the defence lawyers. On February 13, Kim was preparing to travel to Macau, where he resided iile, when he was attacked by
two women in the terminal of the Malaysian airport. The autopsy conducted by Malaysian authorities found that the body contained residuals of a nerve agent known as VX, considered by the United Nations as a weapon of mass destruction. Lusa
Golden week
Mainland visitor arrivals up 4 pct by second day of Golden Week Some 186,497 Mainland visitor arrivals to the MSAR were recorded in the second day of the National Day Golden Week, up 4 per cent when compared to last year’s official data released by Macao Government Tourism Office (MGTO).
The total number of arrivals amounted to 243,778 in the first two days, an increase of 4.5 per cent. Data shows that 131,385 visitor arrivals were made via different ports of entry to the city on the second day. Of the total, 77,866
visitors crossed the border via the Border Gate, 19,417 via the Outer Harbour and 16,250 through the Cotai Checkpoin. Of the total number of visitors crossing the Border Gate on the second day, 69,976 were
Mainlanders. MGTO Director Maria Helena de Senna Fernandes said the city is expecting a 4 to 5 per cent yearon-year increase in visitor arrival numbers for this year’s Golden Week.
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4 Business Daily Wednesday, October 4 2017
Macau Opinion
José I. Duarte* Master Plan, take one Last week, the Administration published the Tourism Industry Development Master Plan. The document concludes two years of ‘studies and formulation,’ and constitutes the blueprint of tourism development for the coming 15 years. We presume that means until 2030, as the exercise started in 2015, but the presentation notes do not clarify the end target date. The objective, as underlined in the document, is transforming Macau into a World Centre of Tourism and Leisure, as determined by the 12th five-year plan of China (2011-15). We must presume the authorities were involved in its formulation process and were aware of the aim beforehand. As an expression of both diligence and urgency, a Master Plan coming out in late 2017 is not impressive. This type of literature is seldom very inspiring – it is not by chance that it is part of the so-called ‘gray literature.’ But both for what it says and what it omits, it has its uses and, occasionally, relevance. If we manage to overcome the less than vivid language and the frequent technical affectation that characterises many of these reports we may find useful indications for the economic and social agents whose lives will be affected by government policies, and practical guidelines for the public administration itself. Let us then approach the summary report first, and leave the full document analysis for a later moment. The press release (and introduction to the webpage with download links for both the full document and its summary report) is full of promise. The first sentence of the report proper, not so much: it reeks of cliché and doubtful syntax. It states [comments between brackets]: ‘Since its early days as a trading port and historical gateway between China and Europe [meaning the 16th century, presumably], Macau’s tourism industry has been developed for over a century [time inconsistency aside, it likely means gambling, tout court] and is now one of the city’s pillar industries [the pillar, we might say]. ‘The unique blend of Chinese and Portuguese cultures [certainly reflected in the design and experiential contents of the most remarkable instances of the ‘pillar’] has drawn visitors and businesspeople from all over the world. With the opening up of the travel trade [meaning the opening of China’s borders?], improvements in infrastructure [mixed outcomes] and steady economic growth, the tourism industry in Macau has been growing [causation reversed, it appears] exponentially [another cliché we could not miss].” Not a great start. *economist and permanent contributor to this newspaper.
Real estate
Office rents in Macau still a good deal Prices for renting an office in A-grade properties in the city are still extremely low vis-a-vis the cost of Hong Kong’s prime office units Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he cost of renting office space in the Macau SAR is cheap when compared with the prices commanded by the market in a city like Hong Kong. Speaking to Business Daily, Suzanne Watkinson, the Managing Director of real estate company Ambiente Macau Limited, explained that one of the reasons for the city remaining competitive in the sector owes to the fact that “global corporate clients” such as banks would rather establish headquarters in Hong Kong. “Banks and lawyers usually lead the price up,” stated Watkinson. Hong Kong topped the list of the most expensive office rentals worldwide according to a report published last week by Knight Frank, a commercial property consultant based in the UK. Renting prime office space on the upper floors of a skyscraper in the neighbouring city costs on average of US$304 (HK$2,374/MOP2,446) per square foot monthly, according to the report. In Macau, renting office space in an “A-grade property” may not cost more than HK$409 per square metre monthly, in addition to management fees, which vary from some HK$21.52 to HK$37.66 per square metre per month, according to Ms. Watkinson. The real estate expert noted that average prices for office units – normally calculated in square feet – range from some HK$237 per square metre (HK$22 sq. ft.) to HK$409 per square
metre (HK$38 per sq. ft.) in the MSAR. A-grade properties used for commercial purposes are for the most part located downtown, on the Macau Peninsula. Criteria for determining such types of property comprise quality of facilities, age of building, and provision of parking space, among other considerations. These would include buildings such as FBC, FIT, and AIA, which command some of the most expensive rental prices in the city, Watkinson points out. Other properties mentioned by the Ambiente MD include Circle Square and Macau Square, both in
the vicinity of Senado Square. The square, Ms. Watkinson notes, “is not really A-grade, but very popular, and well located.” Rental prices for local commercial properties are still higher on average than the prices for residential property rentals. According to data provided by Centaline and Ricacorp Macau for September and published by Macau Business, the most expensive rent for residential was found in The Residencia Macau (HK$18 per sq. ft/HK$193.68 per sq. mt.), followed by the Star River and Windsor Arch (HK$16 per sq. ft/HK$172.16 per sq. mt.).
Commercial units, local offer
the Macau Peninsula, with 2,289 in Taipa, and 529 in Coloane. The number of vacant commercial units in the city stands at 4,742. The total number of residential units amounted to 219,010 as at end-December.
Global cities, office rents
most expensive office space per month was in New York (Manhattan), at US$162 per square foot, followed by Tokyo, at US$140 per square foot. In Mainland China, the most expensive prime office spaces were located in Shanghai (US$67 per square foot), ranking 8th worldwide, followed closely by Beijing (US$66 per square foot), ranking 10th worldwide.
As at the end of December 2016, the total number of commercial units built in Macau amounted to 42,189, according to the latest data released by the Statistics and Census Services (DSEC). Of these, 39,371 were located on
According to Knight Frank’s Global Cities: The 2018 Report, Hong Kong has been ‘attracting strong occupier demand from Mainland firms vying for top spots in the Hong Kong financial market.’ The consultant added that nearly all the new leases in the city during the first quarter of 2017 were for Mainland firms. After Hong Kong, the second
M&A
Hutchison offloads HK fixed line licence Mobile operator Hutchison Telecommunications Hong Kong Limited has been cleared by the authorities of the neighbouring SAR to proceed with
the sale of its entire equity interest in Hutchison Global Communications Investment Holding Limited, with the carrier licensee ‘authorised to
provide internal and external fixed telecommunications services in Hong Kong,’ according to a release by the HKSAR authorities. Hutchison was serving approximately 3.3 million customers in Macau and Hong Kong as at endJune, according to the group Chairman’s statement. The group’s Macau business is concentrated on mobile services. The sale, cleared by the Communications Authority yesterday afternoon from investigation into whether it would substantially lessen competition, allows the purchaser – a private investment firm named I Squared – to acquire the company for HK$14.49 billion, a transaction which was also closed yesterday, according to a company filing with the Hong Kong Stock Exchange.
Business Daily Wednesday, October 4 2017 5
Macau
Yachts
Empty waters With zero applications having been made in the first half of this year for the Zhongshan-Macau Free Yacht Scheme, local and Mainland China members of the yachting community blame the low uptake of the scheme on high deposits, opaque policies and the low attractiveness of Zhongshan to yacht owners as the reason for the scheme’s failure Nelson Moura nelson.moura@macaubusinessdaily.com
T
he high amount of demanded deposits, bureaucracy issues and the lack of attraction of the involved Mainland city as a sailing destination are some of the factors contributing to the low participation of the Zhongshan-Macau Free Yacht Scheme, the Marine and Water Bureau (DSAMA) and people involved in the leisure ships sector have told Business Daily. The Zhongshan-Macau Free Yacht Scheme was officially launched in November of last year, allowing recreational boats to sail between the two cities and touted as one of many measures to assist in local economic diversification by exploring the MSAR’s new territorial waters. However, while DSAMA stated at the time that 100 yacht captains were qualified in the MSAR to apply for the scheme, in the last three months of 2016 only seven ships originating in the Mainland applied for the scheme, with no requests made in the first half of this year. ‘Although the green light has been given to the yacht scheme in terms of policies, there are still obstacles, including yachts from Macau being required to pay the related department of the Mainland a customs bond before entering the Mainland, while those from the Mainland are also required to pay their local related entities a sum of several thousand renminbi as handling fees before travelling to Macau,’ DSAMA informed Business
Daily. According to the President of the Macau Yacht Club, Albert Chuck, and Henrique Silva, CEO of local sailing company Macau Sailing, the amount demanded from each owner to dock in Zhongshan under the scheme is set at between 40 to 50 per cent of the boat’s value. “So, if I have a MOP10 million boat I have to leave MOP5 million. The scheme is just not happening for both sides,” Mr. Silva told Business Daily. According to DSAMA, the Mainland’s concerned departments are exploring the feasibility of allowing third party organisations involved
in yachting to pay the Customs bond on behalf of yacht owners and in this way lower handling fees. “The scheme is not easily understood and it’s not convenient. The information I’ve received is that the Chinese side will be charging a percentage of the insurance value. Before, there was no guideline, it was decided vessel by vessel in order to understand how much deposit would actually be charged. They are trying to streamline things and put some kind of system in place but it’s very much still a work in progress,” said the General Manager of luxury yachts company MayWall
Corporation Zhuhai, Jerry Wallace. The current system of applying for a visa also requires yacht owners registered in Guangdong to apply for the yacht scheme visa 48 hours before the expected time of entry in any Macau harbour, having to present a certificate that the owner purchased the mandatory insurance for leisure boats.
Zhongshan. For example, Hong Kong yacht owners have so many locations to sail to, like Sai Kung, where the water is much clearer. If the scheme included Zhuhai it would be better. I hope there’s an improvement in the scheme and that both sides realise it’s a win-win situation,” the Macau Yacht Club President added.
No incentive and no space
According to Mr. Wallace, the Guangdong authorities are currently seeking to expand the scheme to Nansha, while Hong Kong authorities also want to streamline current schemes to create a scheme of their own to Guangdong, although negotiations are certain to “take their time” to come to fruition. The yachting businessman stated that with Hong Kong currently lacking docking space and boat repair infrastructure, allowing yacht owners to berth and repair their vessels in Guangdong could ease the current situation. “The Marine Association in Guangzhou and people in Hong Kong have been working together with Nansha. There’s hope an agreement for Hong Kong vessels will be found next sailing season,” he told Business Daily. For Mr. Silva, due to Hong Kong naval tradition and the history of developing practical naval policies, there would be a good chance that the neighbouring SAR could negotiate a better scheme with Mainland authorities that would serve as an example to Macau. “I hope this can indirectly help Macau,” he concluded.
According to Mr. Silva, other issues have lowered the attractiveness and feasibility of the scheme, such as the necessity for boat owners to acquire a special licence to sail to Mainland China with no course in Portuguese or English available - and the lack of docking areas in Macau. At the time the scheme was launched there were about 129 berths in the city - 57 berths at Lam Mau Pier on the Macau Peninsula managed by Macau Yacht Club, 22 at Macau Fisherman’s Wharf, and 50 provisional floating buoy berths to be installed near Coloane Pier. Mr. Silva told Business Daily, however, that the Coloane berths have remained largely unused while the Macau Fisherman’s Wharf dock was seriously damaged by the passage of Typhoon Hato, leaving Lam Mau Pier the only location available for docking. For Mr. Chuck, one of the main reasons for the lack of enthusiasm is simply the lack of appeal of Zhongshan as a destination for yacht owners. “It’s not very attractive to only be able to go to
Opening up Hong Kong
6 Business Daily Wednesday, October 4 2017
Macau Gaming tax
Poker
Happy taxman
Busy October
The amount of gaming taxes collected by the MSAR Government in the first eight months of 2017 increased by 17.2 per cent year-on-year to around MOP60.56 billion
Macau Billionaire Poker will host two poker tournaments at the end of October in Babylon Casino
T
he amount of gaming taxes collected by the Macau Government in the first eight months of this year has increased by 17.2 per cent year-on-year to almost MOP60.56 billion, data released by the Financial Services Bureau (DSF) reveals. The total amount of government revenue between January and August amounted to MOP73.73 billion, with
gaming taxes representing 82.1 per cent of the total. Between January and August the local gaming sector generated MOP172.01 billion, a 19.1 per cent yearly increase, with the local government imposing an effective gaming tax of 39 per cent; 35 per cent are direct taxes, while the remaining 4 per cent is levied for community support. Revenue received by the MSAR Government in the first eight months of this year increased by 16.1 per cent yearly when compared to the same period of last year. The surplus registered by the Macau Government between January and August posted a considerable increase of 63.5 per cent year-on-year to reach MOP29.39 billion, with the government registering a 2.6 yearly decrease in expenses to MOP44.34 billion. N.M.
Macau Fisherman’s Wharf is set to host a series of poker events this month, with tournament organiser Macau Billionaire Poker (MBP) announcing the first edition of its MBP 50K Fall Classic tournament will take place on October 25 and October 26 at the Babylon Casino. The tournament will precede the 2017 Boyaa Poker Tour Macau Finals, taking place between October 28 and November 1, also in Babylon. Organised by Hong Kong-listed online gaming company Boyaa Interactive International Limited, the five-day tournament involves a HK$6 million (US$768,082) guarantee, with the winner taking home HK$1.2 million and the top 200 players also receiving money prizes. In July, MBP held the MBP Summer Showdown Tournament, attracting 826 players competing for its HK$20 million Guaranteed Hope Cup Main Event. Babylon Casino is operated by Macau Legend Development Ltd., with
MBP also having signed an agreement with Asia Poker Tour (APT) to bring a minimum of two international poker events to the property in the next five years. N.M.
Results
NagaCorp VIP rolling up 67 pct y-o-y Gaming operator NagaCorp Ltd., owner of NagaWorld located in Phnom Penh Cambodia, has seen a 67 per cent year-on-year increase in its VIP business, based upon the VIP rolling results for the first nine
months of the year, as published with the Hong Kong Stock Exchange. The group saw its VIP rulling chip hit US$11 billion during the period in question, up from US$6.60 billion last year.
The group’s mass market segment also saw increases – with both table buy-ins and electronic gaming machine bills-in increasing by double digits – 24 per cent and 16 per cent, respectively. EGM bills-in amounted
to US$1.32 billion while mass table buy-ins reached US$566.4 million. The company notes in the filing that the values indicated ‘represent indications of business volumes […] and do not constitute profit numbers’. advertisement
Business Daily Wednesday, October 4 2017 7
Macau Security
Guests scanned at the Wynn in glimpse of Las Vegas’s future The additional security measures highlight the dilemma facing companies in one of the nation’s top entertainment destinations Christopher Palmeri
A
t entrances to the Wynn resort in Las Vegas on Monday afternoon, guards scanned visitors with metal-detector wands and inspected their bags, creating a 10-minute wait to get inside. The new security protocol, put in place after Sunday’s mass shooting nearby, is likely to become the norm on the Strip and possibly beyond. Casinos and entertainment venues are going to have to take a more holistic approach to security, thinking about rooftops and other potential shooting perches -- considering the possibilities for an attack from all angles, said David Shepherd, a former FBI special agent in counterterrorism who later was the security director for Las Vegas Sands Corp.’s Venetian resort. “We have to start thinking like the Secret Service -- start looking at tall buildings,” said Shepherd, who co-authored a book called “Active Shooter.” “How far do we have to take it?” The additional security measures highlight the dilemma facing companies in one of the nation’s top
entertainment destinations. How do businesses keep guests safe while not imposing such drastic restrictions that the casinos, clubs and shopping thoroughfares no longer feel fun? One executive at another casino operator, who asked not to be identified because security matters are sensitive, said the Wynn’s security check at the door is probably the industry’s future because there’s no other way to screen for people carrying weapons. MGM Resorts International owns the Mandalay Bay hotel where a shooter opened fire Sunday night on an outdoor concert venue on the Strip operated by the company. MGM cancelled all its Las Vegas shows Monday following the mass shooting, which killed almost 60 people and hurt more than 500. The incident surpassed last year’s massacre in an Orlando, Florida, nightclub as the biggest mass shooting in U.S. history. MGM and Wynn Resorts Ltd. declined to comment on their security operations.
Global measures
Gambling hubs across the globe have also faced security issues. In the
Philippines, where an arson attack at Resorts World Manila in June resulted in 38 deaths, casinos routinely scan vehicles before they enter the property and require visitors to open their bags for security checks. Regulators in Macau on Tuesday contacted the territory’s casino operators, reiterating that the properties need to continue enhancing their security. Casinos in the world’s biggest gambling hub, which are currently near capacity during the Golden Week holiday, require visitors to go through a security door before entering. Casinos and concert facilities need to have plans on how they can remove people quickly in the event of an active shooter and where to lead them in order to be safe, according to Alan Zajic, a security consultant specializing in hospitality, gaming, nightclubs and retail. “In Orlando, that’s how a lot of people died,” he told attendees at a panel on security on Monday morning at the Global Gaming Expo, an industry conference that started Monday in Las Vegas. “There were only two doors. One in the back was locked. Having a good
flowing emergency exit plan is pretty important.” The future of live events will likely include anti-sniper teams, metal detectors and better separation of audiences so they can be evacuated quickly and first responders can get in, said Ed Davis, Boston’s police commissioner from 2006 to 2013 and now a security consultant. Whether the Las Vegas massacre sparks broader changes in gun laws remains to be seen, he said. “I would have thought that would have happened after Sandy Hook,” he said, referring to the Connecticut school shooting in 2012. “This doesn’t happen in other countries and that’s because of how we regulate or don’t regulate guns.” Since the Las Vegas attack occurred at an outdoor venue, there wasn’t a natural exit to run to, and concertgoers who hit the ground were vulnerable to the attack from above, Shepherd said. It’s also not enough to screen customers for firearms when a shooter has weapons with a range of more than a mile, he said. “In this case he’s not even at the event,” he said. Bloomberg
Security
Protecting the village As local gaming authorities discuss with gaming operators how to further enhance security in hotels and casinos, local gaming analysts believe the likelihood of a Las Vegas-style shooting in the MSAR is quite low Nelson Moura nelson.moura@macaubusinessdaily.com
In the aftermath of the Las Vegas shooting the Gaming Inspection and Co-ordination Bureau (DICJ) told Business Daily it will hold a meeting with local gaming operators to discuss measures on how to strengthen security in casinos and follow-up work on those measures. ‘DICJ will continue to evaluate the security measures adopted by the casinos and proceed with the improvement of supervision,
whenever it proves necessary,’ the note informed, adding that the meeting is to take place after the Golden Week public holidays. A similar meeting was held by the local gaming commission in June after a shooting at Resorts World Manila in the Philippines capital. At the time the attack led Macau police authorities to request local hotels and casinos to increase the number of personnel and equip ment for security checks, and en hance communication with judicial police in case of emergencies.
Meanwhile, Business Daily received a statement from the CEO of MGM China, Grant Bowie, saying the group was “committed to providing the highest level of protection to our guests, staff and general public.” “We keep high awareness of any risk and have comprehensive emergency procedures in place to ensure the security and safety of all our stakeholders,” Mr. Bowie added. When questioned about the likelihood of a similar incident in Macau, gaming analyst and Managing Partner at gaming consultancy company
iGamiX Ben Lee told Business Daily that firearms legislation in the MSAR placed the city in a very different position to Las Vegas. “Over here the possession of firearms is illegal and the incidence of violent crimes involving firearms almost non-existent since the handover. We have long had metal detectors in most casinos […] I believe that we in Macau have been quite fortunate and that the risk of such shooting incidents is extremely low,” Mr. Lee told Business Daily.
8 Business Daily Wednesday, October 4 2017
Greater china Forecast
SocGen says pollution curbs to slow growth, lift prices China’s drive to cut pollution could reduce economic growth by 0.25 percentage points in the next six months while boosting factory inflation, according to Societe Generale
P
roduction cuts to curb emissions and tougher nationwide environmental inspections will also support the profits of large industrial companies as producer prices rise, said Yao Wei, chief China economist at SocGen (Societe Generale SA) in Paris. She said the campaign will give a “notable supply shock” to the economy. “The Chinese government has turned very serious about fighting pollution,” Yao wrote in a note. It will be “more than a transitory objective for the current leadership. Modestly slower growth will be a necessary sacrifice for maintaining social stability over the medium term.” Authorities have intensified their anti-pollution drive before a twice-a-decade Communist Party Congress set to begin Oct. 18. The expansion hasn’t yet shown signs of suffering for it, and economists surveyed by Bloomberg project a second-straight year of 6.7 per cent growth. Yao reiterated her view that leaders are likely to tolerate growth rates below 6.5 per
cent in 2018 and beyond. That’s the country’s longerterm growth target for the five years through 2020 as well as the target for this year, when policy makers have said they’re aiming for gross domestic product growth “of around 6.5 per cent, or higher if possible in practice.”
Growth targets
Annual growth should be no less than 6.5 per cent in the next five years to realize the goal of doubling 2010 GDP and per capita income by 2020, President Xi Jinping said in 2015. The 13th five-year plan unveiled that year was the first to confront an era of sub-7 per cent expansion since Deng Xiaoping opened the nation to the outside world in the late 1970s. Now, if China manages to grow 6.8 per cent this year, the pace of expansion needed to achieve Xi’s goal is just 6.3 per cent in the next three years, Yao said. She wrote in a December report that China is poised to abandon its 6.5 per cent growth target within two years as leaders push to contain asset bubbles and financial leverage.
The Ministry of Environmental Protection’s new plan to tackle winter air pollution focuses on Beijing, Tianjin, and the provinces of Hebei, Henan, Shanxi and Shandong. It aims to reduce coal consumption, used for power generation, and vehicle emissions. Assuming production cuts are strictly implemented, industrial production growth is likely to be 0.6 percentage point to 0.8 percentage point lower than otherwise,
while GDP growth will be 0.2 percentage point to 0.25 percentage point lower in the next six months, Yao said.
Output disruptions
“This campaign is likely to result in additional production disruptions on top of the impact of the anti-air-pollution plan, as the inspections may have led to the closure or production suspension of factories throughout the country in a wide range of sectors,” Yao wrote, adding
that supplier shutdowns could upset production by several major carmakers. She said that the push may have a lasting impact on local officials’ behaviour when it comes to balancing economic growth and non-economic developments. Inspection results, she added, “are said to have affected the potential promotions of thousands of officials, a stern reminder to other officials that environmental production should be given higher priority.” Bloomberg News
M&A
Mobike, Ofo investors are said in talks to merge startups China’s bike-sharing start-ups are the global pioneers and are plotting expansions abroad Lulu Yilun Chen
Mobike and Ofo investors are in early talks to push China’s two largest bike-sharing start-ups into a merger, aimed at ending a costly competitive battle and creating a single dominant player in the fast-growing business, according to people familiar with the matter. Investors in both companies have been holding talks to sort through issues such as how to split equity as a precursor to getting the companies to the table for negotiations, said the people, asking not to be identified because the matter is private. The pair’s combined valuation would likely exceed US$4 billion. The discussions are in a preliminary stage, and may not be consummated, they said. The companies are separately backed by China’s two biggest internet giants -- Alibaba Group Holding Ltd. and Tencent Holdings Ltd. -- which have a track record of investing in competing start-ups and then combining them as a leader emerges to save money. Unlike in ride-hailing for cars however, China’s bike-sharing start-ups are the global pioneers and are plotting expansions abroad. A truce at home would give them more resources to gain ground in the U.S., Europe and other parts of Asia.
Shi Shaochen, a spokesman for Ofo, registered as Beijing Bikelock Technology Co., declined to comment. Mobike, formally Beijing Mobike Technology Co., said in a statement that it is not contemplating a merger.
‘The companies are separately backed by China’s two biggest internet giants: Alibaba Group Holding Ltd. and Tencent Holdings Ltd.’ “Mobike is the clear leader in the global bikesharing industry, supporting 30 million rides in 180 cities around the world every single day,” the company said. “We are fully focused on extending our global success.” With Tencent backing Mobike and Alibaba siding with Ofo, the start-ups have flooded major cities such as Beijing and Shanghai with their trademark orange and yellow
bicycles just a few years after their founding. They’ve raised more than US$1 billion in venture money combined and, with smaller rivals, have waged one of the strangest and most colourful battles in the technology world. Alibaba and Tencent have used the duo as proxies for a battle in mobile payments, cloud computing and winning user data. In June, Tencent, Sequoia Capital, TPG and Hillhouse backed a US$600 million funding round for Mobike and its fleet of orange bicycles. The next month, Ofo, with its canary yellow two-wheelers, raised more than US$700 million from investors including Alibaba, Hony Capital and Citic Private Equity. Mobike is valued at US$3 billion, while Ofo is US$1 billion, according to researcher CB Insights.; Ofo was seeking funding in June at a US$3 billion valuation. The companies have forced some smaller operators out
of business. Ofo has said it plans to have 20 million bikes in 20 countries by the end of the year. Ofo was founded in 2014 on the grounds of Beijing’s prestigious Peking University as a student project. Once emblematic of China’s socialist working class, bicycles are rapidly gaining popularity among students and commuters tired of inching their way through jam-packed vehicle traffic. Instead of using docks, users unlock an Ofo or Mobike off the street using just a smartphone and electronic wallet, ride them to their destination and then dump them. Merging Ofo and Mobike would follow a familiar pattern for Alibaba and Tencent. Ride-hailing services they backed separately eventually merged to form Didi Chuxing, which drove Uber Technologies Inc. out of China, while local services giant Meituan Dianping was formed in a similar way.
Such mergers have not always resulted in peaceful settlements. Meituan riled Alibaba after agreeing to a merger, leading to the e-commerce giant selling off most of its shares and forming its own neighbourhood services unit to compete. The mergers have often also led to the ousting of founders of the companies that end up with the smaller stake. There have been signs the bike start-ups would follow a similar path. Allen Zhu, an early investor in Ofo, said at a conference last week that Ofo and Mobike could only become profitable if they merged, Sina reported. A combination would allow the start-ups to raise prices, which are usually about RMB1 an hour (US$15 cents) and are sometimes discounted to free to attract customers. Mobike and Ofo could also cut back on the number of bikes they distribute around cities, saving themselves money and avoiding conflicts with locals inconvenienced by the havoc. The bike-sharing boom has boosted demand for bicycles from companies such as Shanghai Phoenix Enterprise Group Co., Zhonglu Co. and Taiwan’s Giant Manufacturing Co. Shanghai Phoenix shares surged in May when the company disclosed an agreement to supply Ofo with at least 5 million bikes. Bloomberg News
Business Daily Wednesday, October 4 2017 9
Greater China Auction
Mainland ceramic reaches sale record with US$37.7 million bowl The bowl is an example of extremely rare Chinese porcelain from the imperial court of the Northern Song Dynasty Elaine Yu
A 1,000-year-old bowl from China’s Song Dynasty sold for US$37.7 million in Hong Kong yesterday, breaking the record for Chinese ceramics, auction house Sotheby’s said. The small piece -- which dates from 960-1127 -stole the previous record of US$36.05 million set in 2014 for a Ming Dynasty wine cup which was snapped up by a Shanghai tycoon famous for making eye-watering bids. The person behind yesterday’s winning offer wished to remain anonymous, Sotheby’s said, with the auction house declining to say whether the buyer hailed from the Chinese mainland or not. “It’s a totally new benchmark for Chinese ceramics and we’ve made history with this piece today,” Nicolas Chow, deputy chairman of Sotheby’s Asia, told reporters. Bidding started at around US$10.2 million with the suspense-filled auction lasting some 20 minutes as a handful of phone bidders and one person in the room itself competed with each
other. The winning offer eventually came from one of the phone bidders and was received by a round of applause. The bowl -- originally designed to wash brushes -- is an example of extremely rare Chinese porcelain from the imperial court of the Northern Song Dynasty and one of only four such pieces in private hands, according to Sotheby’s. Measuring 13cm in diameter, the dish features a luminous blue glaze.
‘Chicken cup’
The price tag exceeds the earlier record made by a tiny white piece known as the “Chicken Cup”, decorated with a colour painting of a rooster and a hen tending to their chicks, and created during the reign of the Chenghua Emperor between 1465 and 1487. That cup sold in 2014 to taxi-driver-turned-financier Liu Yiqian, one of China’s wealthiest people and among a new class of Chinese super-rich scouring the globe for artwork and antiquities. He famously drank tea
from the dainty vessel after his purchase, causing something of a social media meltdown in China at the time. In recent years Liu, who has built his own museum in Shanghai, has made a series of record-breaking bids and has become China’s highest profile art collector. More recently he has turned to acquiring Western masterpieces. In 2015 he splashed out on Modigliani’s “Nu Couche” or “Reclining Nude” for more than US$170 million at Christie’s in what was then the second highest price ever
paid at auction for a work of art. An on-going anti-corruption drive in mainland China has done little to dent feverish bidding in Hong Kong’s auction houses. Earlier this year a giant diamond named the “Pink Star” broke the world record for a gemstone sold at auction when it fetched US$71.2 million. The 59.60-carat rock was sold to the city’s Chow Tai Fook jewellery chain which has a strong presence across East Asia. Last year the city’s auction
houses set a new record for the most expensive designer handbag -- a diamond-encrusted crocodile-skin Hermes handbag with white gold details that sold for US$300,000. China’s various dynasties were renowned for their fine ceramics with the Song period often regarded as producing some of the region’s most superb examples. Song ceramics are particularly known for their subtlety, simplicity and exquisite glazing and have long been among the most sought after objects for collectors. AFP
Energy
Northern cities face soot-free winter with gas revolution Beijing has been under increasing pressure to deal with chronic air pollution amid concerns about the damage it is causing to people’s health Meng Meng and Josephine Mason
As freezing winds whip across northern China this winter, Yao Guanghui is happy he’ll have one less chore to do: feeding the coal furnace that has long heated his small house on the outskirts of Beijing. Traipsing outside on freezing nights to haul coal for the two big burners in his kitchen was his least favourite household job. B u t n ext m o n th, th e 60-year-old will turn on the heating with a flick of a switch on the gas-powered boiler that sits in a sooty alcove that once housed his coal furnaces. “My face and nostrils would be covered with coal dust by the time I got into the kitchen,” he said on Thursday, recalling his efforts to carry coal into his two-room house during the long winter. “We hope this winter will be much cleaner and warmer.” Yao and his family are among millions of people across northern China preparing for their first winter to be heated by gas - part of a government effort to wean the nation off dirty coal and improve the nation’s notoriously bad air. The massive effort involves almost 4 million homes in 28 cities. The government is ploughing tens of billions of yuan into the project to install equipment, build thousands of kilometres of pipes and subsidise the higher costs of gas.
Beijing has been under increasing pressure to deal with chronic air pollution amid concerns about the damage it is causing to people’s health. Smog gets worse during the colder months when homes in the north of the country crank up heat that is overwhelmingly fired by coal. The air quality index for the area around the village on Thursday morning was just 4, a low level anywhere in the world. But when smog shrouds the capital during the winter, the index often rockets into the hundreds to hazardous levels. Air pollution caused by coal-fired winter heating has slashed life expectancy in the north by more than three years compared with the south, according to a recent study by the University of Chicago (EPIC). Among other measures, China has pledged to impose tough industrial and traffic curbs this winter and is also in the process of shutting thousands of coal-fired industrial
boilers. For the global gas market, the potential impact of gasifying the world’s second-largest economy is enormous, with Russia and the United States poised to benefit from China’s growing need for foreign supplies. Wood Mackenzie reckons the effort will add 10 billion cubic metres of gas demand this winter. That’s about 5 percent of China’s consumption last year or the equivalent of Vietnam’s total annual use. The project will also need heavy investment in infrastructure such as pipelines and storage tanks.
Staggering
The pace and scale of the project over the past six months has been staggering, even for a place like China, where high-rise tower blocks and shopping malls go up with blistering speed. A Reuters analysis of data released by the Ministry of Environmental Protection shows that two-thirds of the
cities under the programme have surpassed the target set by the government to switch at least 50,000 homes to clean fuel by November. That target would have meant 1.4 million homes, but two cities, Baoding and Langfang in Hebei, account for most of that together. Beijing Gas, which is overseeing the plan in the capital, must lay over 3,000 kilometres of pipelines and build 400 gas stations. It has connected 300,000 residents so far. “Some of these projects are more complicated than we expected,” said an official from Beijing Gas who declined to be named as he is not authorised to speak to the media. He said the project involved building pipelines that went under the Great Wall and crossed environmentally sensitive areas.
Piles of boilers
On a recent visit to Yao’s village of Xiaozhangwan, a few kilometres from the outskirts of Beijing, old boilers were stacked along dusty narrow alleyways ready for scrapping. Government engineers were rushing to install new radiators in 300 homes before the onset of winter. In many houses, the radiators will replace systems that have been used for centuries in rural villages in northern China - burning coal to heat large beds where whole families gather during the winter. Workmen were digging
up the main street to lay the feeder pipeline that is connected to one of three pipelines that run for thousands of kilometres from Shaanxi province to China’s northeast.
‘For the global gas market, the potential impact of gasifying the world’s secondlargest economy is enormous’ Some villagers are sceptical that gas will be as powerful and resilient as coal and have insulated the walls of their homes and sealed windows to make them more efficient. As they embark into the unknown, many residents also worry about higher bills. Gas costs almost double that of coal. The government will supply about 2,000 cubic meters of gas worth almost RMB5,000 (US$748.95) at a discount to current residential gas prices, but Yao is unsure if that would see him through a particularly cold winter. “I don’t know if that would be enough for heating and cooking for the family,” said Yao. “We will need to pay extra cost if we use more than that.” Reuters
10 Business Daily Wednesday, October 4 2017
Greater China M&A
Geely to take control of Denmark’s Saxo Bank The firms said in May that it would take a 30 per cent stake in Saxo bank as part of a diversification drive Teis Jensen
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hinese carmaker Zhejiang Geely Holding Group will increase its stake in Denmark’s Saxo Bank to more than 50 per cent in a deal that highlights China’s drive to tap the expertise of European financial firms. Beijing has generally been trying to slow the pace of overseas investments by Chinese companies, worried about capital outflows. But there are signs the authorities are still supportive of investments in foreign financial firms, particularly to access new technologies. Last month Legend Holdings, which owns computer maker Lenovo, bought Banque Internationale a Luxembourg (BIL) for 1.48 billion euros (US$1.76 billion). Also last month sources familiar with the matter said that two of China’s most acquisitive conglomerates, HNA Group and Anbang Insurance Group, had separately considered bidding for German insurer Allianz SE. Geely said in May that it would take a 30 per cent stake in Saxo bank as part of a diversification drive. The deal, which is still awaiting regulatory approval, is the first major investment into financial services for the Chinese company that owns Swedish carmaker Volvo. Now Geely aims to lift its stake to 51.5 per cent at a cost of US$300 million for the additional 21.5 per cent. Geely’s planned 51.5 per cent stake
Saxo Bank headquarters building
will cost the company a total of more than 800 million dollars. Despite its name, Saxo Bank derives most of its income from its online trading platforms for private foreign exchange traders and others rather than traditional banking. “Saxo Bank is an attractive investment for Geely because the bank, as a FinTech (financial technology) and RegTech (regulatory technology) company, has always had its main focus on technology,” a Geely spokesman said in an email to Reuters. He said Geely believed that Saxo
Bank’s technologies and product value could be expanded across Asia. Finland’s Sampo Oyj also said on Monday that it would buy a 19.9 per cent stake in Saxo Bank for 265 million euros. A spokesman for Saxo Bank told Reuters that Geely would buy its shares under the same terms as Sampo. Geely’s spokesman said the Chinese company would not comment on the price paid. Current Saxo Bank shareholders TPG Capital and SinarMas have accepted the offers from Geely and
Sampo and will sell their stakes of 29.26 per cent and 9.9 per cent respectively, Saxo said. Saxo’s chief executive Kim Fournais, who founded the company with Lars Seier Christensen and Marc Hauschildt in 1992, will keep his 25.71 per cent stake. Christensen agreed in May to sell his shares to Geely. Saxo Bank has 1,600 employees in 18 countries and made operating revenue of 2.9 billion Danish crowns (US$457.46 million) last year. Geely has more than 60,000 employees worldwide. Reuters
M&A
Energy firm head riffs on Rosneft in 12,000 character note The company plans to boost upstream supplies in Qatar and Africa, according to CEFC China Energy chairman Alfred Cang
While there’s a risk of crude sliding below US$30 as demand is displaced by alternative energy, it’ll still be needed for making petrochemicals, said the head of the enigmatic Chinese company that last month bought a US$9 billion stake in Rosneft Oil Co.
‘CEFC is next seeking natural gas, which will be the resource used most in future electricity generation, according to CEFC China Energy chairman’ In a note running longer than 12,000 Chinese characters posted on CEFC China Energy Co.’s WeChat account, Founder and Chairman Ye Jianming justified purchasing a chunk of the Russian firm from Glencore Plc and Qatar’s sovereign wealth fund -- a deal that’s thrust the previously little-known firm into the global spotlight. He also riffed on everything from his nation’s history and philosophy to the future of fossil fuels and electric vehicles. With crude’s slump since 2014 wreaking havoc on Russia’s economy,
and Western sanctions adding more pressure, there was an opportunity to take a relatively cheap share in Rosneft and contribute to the longterm supply security of China, the world’s biggest energy user, Ye said. Moreover, privately held CEFC wasn’t under pressure to exit some businesses amid weak oil and gas prices, unlike more traditional players in the industry, he said. “Won’t the acquisition of these oil and gas resources become a burden? Of course not,” Ye said in the note. He said crude’s use will prove critical in the production of petrochemicals, which are used to make everything from plastics to fabric.
Scarce chemicals
“Chemical products have been scarce, and oil is the raw material that’s used for chemical processing,” he said. CEFC plans to work with Rosneft and Abu Dhabi to produce petrochemicals for the Chinese market, according to Ye. In February, CEFC signed a deal with Abu Dhabi National Oil Co. for a share of an onshore venture that includes state-run giant China National Petroleum Corp., as well as international oil majors BP Plc and Total SA. The company currently has more than 80 million metric tons of foreign crude oil equity, of which 42 million tons is from Rosneft, 13 million tons is from Abu Dhabi and the remaining from Chad and Kazakhstan, Ye said in his note. The company’s steps toward securing oil supplies has been “very
successful,” he said. CEFC is next seeking natural gas, which will be the resource used most in future electricity generation, including for charging environment-friendly cars, as nations seek to curb pollution, according to Ye. The company plans to boost upstream supplies in Qatar and Africa, according to Ye. He also predicted that aircraft and ships, as well as cars, would be powered by electricity in the future.
Belt And Road
CEFC has followed Chinese President Xi Jinping’s efforts to boost investment and construction across a trade route between China, Asia and Europe, in what is known as
the “Belt and Road” initiative, amid his government’s encouragement of private enterprise. Russia and Central Asia provide the best solutions to China’s oil and gas needs due to the ease of land transportation, enabling fuel to bypass potential supply bottlenecks in the Persian Gulf and Strait of Malacca, Ye said in his note. Starting as a small trading firm almost two decades ago, CEFC bought assets including storage, terminals and oil fields, as well as financial units. In its statement about the Rosneft purchase, it described itself as China’s largest private oil and gas company, with 50,000 employees and revenue of more than US$40 billion. Bloomberg News
Business Daily Wednesday, October 4 2017 11
Asia Trade
President Trump wants to reduce U.S. deficit with Thailand U.S. President wants to reduce the U.S. trade deficit with Thailand, he told the country’s Prime Minister on Monday in a meeting that marked another sign of warming ties between Washington and Bangkok
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rump, who has sought to improve U.S. trade ties with a variety of countries since taking office in January, put Thailand in the spotlight when he sat down with Thai Prime Minister Prayuth Chan-ocha in the Oval Office. “Our relationship on trade is becoming more important and it’s a great country to trade with,” Trump told the Thai official before reporters. “I think we’re going to try to sell a little bit more to you, if that’s possible.” The U.S. Trade Representative’s office reported that the U.S. trade deficit with Thailand was US$18.9 billion last year, the 11th largest faced by the United States. The meeting was a sign of improved ties between the United States and Thailand after the relationship cooled when the Thai military took power in a 2014 coup. Human rights groups had strongly opposed the meeting, seeing it as a reward for an authoritarian leader who has cracked down on opposition and rolled back democratic freedoms. Thai Foreign Minister Don Pramudwinai hailed the meeting between the leaders as “special”. “It shows special attention for the Thai prime minister,” Don told official Thai media traveling with the delegation.
U.S. President Donald J. Trump (C-R) and First Lady Melania Trump (R) welcome Prime Minister Prayut Chan-o-cha (L) and Madam Chan-o-Cha of Thailand (C-L) to the White House. Source: Lusa
Don used the visit as an opportunity to praise his government’s achievements. “If we weren’t good, they probably wouldn’t invite us,” he said. The junta has promised to hold a general election in 2018 but has yet to set a firm date. Prayuth raised the issue again on Monday. “I told him (Trump) ... next year we will announce a general election date,” Prayuth told reporters.
Cool it
The Obama administration was deeply critical of the Thai junta and refused to extend an invitation to Prayuth to the White House. Human Rights Watch in a statement given to Reuters in Bangkok called on members of the U.S. Congress to demand that the Trump administration pressure Thailand to restore democracy and called on the Pentagon
to “cool their engagement” with Thai leaders. “They should be demanding that the Trump administration not give the junta a free pass,” John Sifton, Human Rights Watch’s Asia Advocacy director in Washington, told Reuters. “They should publicly reaffirm that U.S. law bars direct military assistance to Thailand and outline key benchmarks Thailand needs to meet to restore the bilateral relationship to its prior condition.” Secretary of State Rex Tillerson visited Bangkok in August in what was the highest level visit to Thailand by a U.S. official since the coup. Prayuth and members of his cabinet will also meet with representatives of Thai businesses in the United States during the three-day visit. Thailand is often cited as the oldest U.S. ally in Southeast Asia and Washington has been urging the region to do more to cut funding streams to North Korea over its nuclear programme. Prior to the 2014 coup, Thailand agreed to buy four Black Hawk helicopters from the United States. But Thai deputy prime minister Prawit Wongsuwan said yesterday that the leaders did not discuss the sale of U.S. defence equipment. “They haven’t allowed us to buy weapons from them for a while now,” Prawit told reporters. Reuters
Prices
Japan’s corporate inflation expectations flagging The tankan survey also showed companies expect the economy to lose a little momentum in the next three months Stanley White
Japanese companies’ inflation expectations eased slightly in September from three months ago in a worrying sign the economy continues to struggle with a deflationary mindset. Companies surveyed by the Bank of Japan (BOJ) expect consumer prices to rise 0.7 per cent a year from now, lower than their projection for a 0.8 per cent increase three months ago. Firms also expect consumer prices to rise an annual 1.1 per cent three years from now, unchanged from the previous survey. Japan’s economy has grown at a healthy pace this year, but consumer prices have eked out only small gains, which could hasten calls for the BOJ to either expand monetary easing or overhaul its approach to reflating the economy. “Companies are more optimistic about overseas economies and don’t expect domestic retail prices to rise that much,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “We won’t see an immediate change in the BOJ’s policy, but this
does show that monetary easing will have to remain in place for a long time.” The data come one day after the BOJ’s tankan survey on corporate sentiment showed big manufactures are the most confident in a decade as global demand adds momentum to the economic recovery.
The tankan survey also showed companies expect the economy to lose a little momentum in the next three months. Core consumer prices, which include oil products but excludes fresh food prices, rose 0.7 per cent in August from a year earlier, marking the eighth straight month of gains but
still well below the BOJ’s 2 per cent inflation target. One BOJ policymaker called for expanding monetary stimulus at a policy meeting in September, raising concerns that the board could become divided.
Key Points Inflation expectations key element of BOJ policy Economy is health, but consumer prices remain subdued Companies more optimistic, but inflation still lagging The central bank next meets on Oct. 30-31, where it will update its forecasts for consumer prices. A lowering of the forecasts would put pressure on the central bank to take further steps. The BOJ started the survey on corporate price expectations from the tankan in March 2014 to gather more information on inflation expectations, key to its current stimulus programme. Reuters
12 Business Daily Wednesday, October 4 2017
Asia Monetary meeting
Australia keeps rates on hold, sounds dollar warning Central bank left interest rates at a record low yesterday with the board upbeat about the economy, while sounding a warning about the strength of the local dollar.
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he Reserve Bank has slashed rates by 300 basis points since November 2011 to 1.50 per cent as the country wrestles with its transition away from an unprecedented boom in mining investment. But it has left rates on hold since August last year and is yet to show its hand regarding its next move. RBA governor Philip Lowe acknowledged that the Australian economy had shrugged off the sluggish start to the year, boosted by government and consumer spending, with growth of 0.8 per cent in the June quarter.
“Basically the RBA and official interest rates remain stuck between a rock and a hard place” Shane Oliver, AMP Capital chief economist “This outcome and other recent data are consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year,” he said after a monthly board meeting. “Over recent months there have been more consistent signs that non-mining business investment is picking up. A consolidation of this trend would be a welcome development.” But the bank remained concerned
about high levels of housing debt in cities where property prices have soared, at a time when wages growth remains low. It also noted the on-going strength of the Australian dollar, which was keeping inflation below its target band. “The higher exchange rate is expected to contribute to continued subdued price pressures in the economy,” said Lowe. “It is also weighing on the outlook for output and employment. “An appreciating exchange rate
would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.” The dollar fell following the rate announcement, dropping below 78 U.S. cents for the first time since mid-July and remaining at that level by mid-afternoon. AMP Capital chief economist Shane Oliver said the post-meeting statement “continues to imply a neutral short term bias on interest rates”. “Basically the RBA and official interest rates remain stuck between a rock and a hard place,” he said.
“Improving global growth, strong business confidence and jobs growth, the RBA’s own expectations for a growth pick up and already high levels of household debt argue against a rate cut. “But record low wages growth, low underlying inflation, the impending slowdown in housing construction, risks around the consumer and the strong dollar argue against a rate hike.” Westpac Institutional Bank’s Bill Evans said he expected rates to remain on hold in 2018 and 2019. AFP
Private poll
NZ business confidence sinks to 18-month low A government formation stalemate could weigh on business confidence into the fourth quarter New Zealand business confidence was hit by a turbulent election campaign in the third quarter with political uncertainty likely to drag on as politicians battled to form a government, a private think tank said yesterday. A net 5 per cent of firms surveyed expected general business conditions to improve, the lowest since March 2016, compared with 18 per cent in the previous quarter, said the New Zealand Institute of Economic Research’s (NZIER) The quarterly survey of business opinion (QSBO) was carried out during the tumultuous campaign in the lead-up to the hotly contested vote on Sept. 23, as investors and households held off from committing to any major plans during the uncertain period. “It’s not unusual for business confidence to be falling ahead of the election … given the uncertainty of the formation of the new government,” said Christina Leung, economist at NZIER, adding that the fall was moderate compared to previous pre-election drops.
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Neither major party had won enough seats in Parliament to form a government, casting populist New Zealand First Party leader Winston Peters as kingmaker. That stalemate could weigh on business confidence into the fourth quarter.
“The longer coalition talks drag out then the more uncertainty that causes and the more prolonged that decline of confidence is likely to be,” said Leung. Hiring and investments intentions remained robust and NZIER expected confidence to bounce back once a
government was formed. Nevertheless the result would reinforce the Reserve Bank of New Zealand’s determination to keep rates at a record low of 1.75 per cent and the NZIER expected the bank to hold rates until at least late 2018.
Key Points Business confidence at 5 pct in Q3 Lowest since March 2016 General election, construction constraints drag on optimism The construction sector, previously a powerhouse behind the country’s economic growth, plummeted to a two-year low of 3 per cent from 18 per cent the previous quarter on capacity constraints. “Labour shortages, particularly skilled labour remain acute in the building sector,” said Leung. The survey’s measure of capacity utilisation was 91.3 per cent, from the previous quarter’s 92.1 per cent. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, October 4 2017 13
Asia Labour shortage
In Brief
Japanese companies struggle to hire, retain staff With the economy at near full-employment, companies are being forced to try to find new sources of labour Sam Nussey
Companies in Japan’s service industries are struggling to hire and retain staff as the labour market becomes the tightest in decades, and are increasingly taking unorthodox steps to alleviate the shortage. That can include looking to housewives and the retired to come into or rejoin the labour force. In some cases it means offering better working conditions for some staff, even if this requires raising prices. In others, companies are reducing the services they offer, perhaps by cutting opening hours, or delaying expansion plans. 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 aging society. And on Monday, the Bank of Japan’s “tankan” quarterly survey showed that the ratio of companies complaining of labour shortages, rather than excess staff, was at its highest level since 1992. The labour squeeze can reduce the speed of economic development, and even curb some economic activity altogether, hurting Japan’s chances of a period of sustainable growth. For example, at Sun Mall in Chiba, east of Tokyo, labour shortages have led some tenants to abandon plans to take up space at the site, and others to shut up shop when key workers could not be replaced, according to Seth Sulkin, president and CEO of the mall’s owner Pacifica Capital K.K. He also said a new spa due to open there in a few months has been forced to push back the opening date due to
staff shortages. “The pool of people seeking part-time jobs is shrinking rapidly, particularly outside of central Tokyo,” Sulkin said. “We’ve recommended that the tenants convert some of the positions to full time and raise wages but they tell us they can’t do that and still make money,” he said. “In Tokyo it’s easier to hire people but it’s not as easy as it used to be,” he said. By contrast, “in our Chiba mall I think the location is the big issue, there’s just not enough people.”
From housewives to retirees
With the economy at near full-employment, companies are being forced to try to find new sources of labour. Fast food chain McDonald’s Holdings Co Japan Ltd, following in the footsteps of convenience store operator FamilyMart UNY Holdings, says it will try to expand its core workforce beyond young people by targeting housewives for part-time positions. More than half of housewives with children would like to work but are not able to find a suitable job, a survey of more than 4,000 married mothers by the Jobs Research Centre found. They were particularly concerned about long working days that don’t fit with their responsibilities at home. Signs of companies moving to improve working conditions to retain and attract staff include Doutor Nichires Holdings Co Ltd, which has introduced severance pay for some temporary employees at its Doutor Coffee chain. That is an unusual move in a country where there is a large gap in pay and working conditions between advertisement
temporary and permanent employees. Some restaurant operators, including Royal Holdings Co Ltd and McDonald’s Japan, have begun moving away from 24-hour operations, but that is far from the preferred option for companies in an industry that prides itself on offering convenience and service at all hours of the day. More than 80 per cent of companies surveyed in a Reuters poll in June reported that they expected labour shortages would force them to restrict the number of services they can offer over the next several years. Some efforts to expand the labour force are finding corporate thinking has only changed so much. This March, human resources firm Fullcast Holdings Co Ltd set up a recruitment agency aimed at Japan’s over 60s and, while almost 2,000 retirees have registered, many companies are not able to accommodate them, says Fullcast Senior Works President Yasuhiro Sumi. “If there were jobs that met their needs in terms of things like distance from home, job type and working hours there are lots of employable people,” he said. Many companies remain hesitant to spend their record cash piles on raising wages, in part because they are unable to pass on costs to their customers who are accustomed to nearly two decades of mostly falling prices. “It seems that deepening labour shortages are not resulting in higher prices that reflect rises in wage and labour costs,” says Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
Price hikes raise eyebrows
Still, there are some signs of price rises, with even companies famous for their low prices not immune. One of those firms, yakitori chicken restaurant chain Torikizoku Co Ltd this month raised its prices 6.4 per cent, the first time in 28 years. And Japan’s largest parcel deliver company, Yamato Holdings Co, this month increased home delivery prices by around 15 per cent, the first such rise in almost three decades. Other delivery firms have quickly followed suit. Yamato become a poster child for Japan’s labour crunch after it booked billions of yen in charges to provide backpay to delivery drivers who had been overworked and underpaid. “We have confronted the deterioration in working conditions for our front line staff,” Yamato Holdings President Masaki Yamauchi told reporters last week. The company has promised to hire 10,000 new delivery staff by the end of financial 2019 to ease the strain on the 55,000 full-time drivers, who will have their overtime reduced. The new staff will be mainly hired from among those who already work for the company as outside contractors, the company says. On Sunday, billionaire founder of fashion retailer Start Today Co Ltd Yusaku Maezawa tweeted that shoppers on his Zozotown fashion site will be able to choose how much to pay for delivery. “If this led to a sharing of feelings between the carrier and the recipient I think it would be lovely,” Maezawa tweeted. Reuters
Funding
Philippines’ AirAsia seeks to raise US$250 mln via IPO The Philippines unit of AirAsia Bhd is seeking to raise up to US$250 million via an initial public offering (IPO) in mid-2018 to fund its expansion programme, its chief executive said yesterday. Asia’s biggest low-cost airline, which has nine units in the region, is beefing up its fleet in the Philippines amid an expected long-term boom in budget air travel. AirAsia first raised the prospect of listing its Philippines unit in 2015, planning at that point to take the airline public as early as 2017. Private survey
Australia’s job ads pause in Sept Australian job advertisements were unchanged in September following six straight months of increases and remained sharply higher than a year ago, a survey showed yesterday. A monthly survey by Australia and New Zealand Banking Group showed total job advertisements were flat in September, compared to august when they rose 1.7 per cent. Ads of 180,700 were up a healthy 12.5 per cent on September last year and still near their highest since at least 2011. “Some moderation in job ads is not too surprising after a solid six-month run,” said ANZ senior economist, Felicity Emmett. Snap poll
Tokyo governor says will not run in Japan election Tokyo Governor Yuriko Koike, whose new political party poses a growing threat in elections later this month, denied speculation that she would run, the Yomiuri newspaper reported yesterday. Koike’s fledgling Party of Hope has emerged as a growing challenger to the bloc led by Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) since Abe called the snap Oct. 22 poll last month. “I have been saying I will not run for the election from the beginning,” Koike said in an interview with the Yomiuri. Exports
Thai shippers’ council raises 2017 forecast Thailand’s exports are expected to grow at least 6 per cent this year, better than the 5 per cent predicted earlier, a group of Thai shippers said yesterday, thanks to improved global demand. Exports, a key driver of Thai growth, rose 8.9 per cent between January and August from a year earlier. However, the strength of the baht remains a risk, the Thai National Shippers’ Council said in a statement. The baht has appreciated by 6.9 per cent against the U.S. dollar so far this year, the highest gain among Asian currencies.
14 Business Daily Wednesday, October 4 2017
International In Brief Investment
Investcorp eyes businesses linked to Aramco Bahrain-listed Investcorp aims to invest in companies that support oil giant Saudi Aramco and is also eyeing healthcare and education assets being sold in Saudi Arabia’s privatisation drive, its executive chairman said. The private equity and alternative asset firm, which has offices around the world, aims to more than double investments to US$50 billion in five years by expanding existing businesses and through acquisitions in areas such as infrastructure. “We are going to invest in the future of Saudi Arabia,” Mohammed Mahfoodh Alardhi told Reuters in Abu Dhabi. Rebound
Chile to trim fiscal deficit in 2018 Chile’s centre-left government aims to reduce its fiscal deficit to 1.9 per cent of gross domestic product next year despite a rise in spending, as an economic recovery boosts tax revenues, the finance minister said. Nicolás Eyzaguirre told a congressional finance committee that the growth rate of Latin America’s sixth-largest economy would double next year to 3.0 per cent. A rebound in the price of copper, Chile’s main export, is helping President Michelle Bachelet shore up public finances in the final year of her administration. The copper price rose by 9.2 per cent in the third quarter, marking its fifth quarterly increase. Cape Verde
Urban ambassadors in housing awareness campaign Cape Verde presented 40 UN-Habitat ambassadors on Monday who are going to deliver awareness messages to their communities about the importance of sustainable secure town planning and housing. One of them, Gamal Mascarenhas, was born in Achada de Santo António in Praia and saw this region grown significantly. As a PE teacher, he regrets that there is not “a single public playing field” in the neighbourhood, which he believes has brought many problems for the community. “There are a lot of young people with nowhere to practice sports or leisure”, he said. Social networks
Facebook says 10 million people saw Russia-linked ads Facebook Inc. estimates that 10 million people saw the advertisements that have been linked to Russian efforts to influence last year’s U.S. presidential election. About 44 per cent of the ads were seen before the Nov. 8 election, Elliot Schrage, Facebook’s vice president of policy and communications, wrote Monday in a blog post. About a quarter of the ads were never shown to anyone, since a relevant audience wasn’t found for their content by Facebook’s ad system. The social media company said earlier Monday that it provided congressional investigators with information on 3,000 ads linked to Russia and would be hiring an extra 1,000 people to review ads that run on its services.
Debt
UAE banks “more aggressive” about selling Qatar loans Holders of Qatari debt may find it hard to sell without accepting significant discounts Davide Barbuscia
A
number of banks in the United Arab Emirates are in talks with international counterparts to sell down their Qatar exposure as the Gulf’s diplomatic crisis drags on without resolution. In recent weeks, banking sources say, it has become clear to many UAE bankers that Qatar’s isolation could potentially last for years. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Doha on June 5, alleging Qatar funded terrorism, something it vehemently denies. At the time, UAE banks pulled back from new business with Qatari institutions but largely hung on to existing syndicated loans which they had extended to Qatari banks. Some UAE banks did discuss the possibility of selling off their exposure, but very little of any actual business was done and prospective sellers were reluctant to lower the prices of the loans significantly, the sources said. Now, however, the idea has firmed as mediation efforts have made no apparent progress. UAE Minister of State for Foreign Affairs Anwar Gargash said this week that Qatar knew what it needed to do to end the dispute, so the issue was no longer a priority for the four states. UAE banks holding Qatari loans have become “more aggressive over the past couple of weeks” in offering
the loans for sale in the secondary market, said one banker at a European bank specialising in financial institutions. Prospective sellers, including First Abu Dhabi Bank , have been in talks with a select group of potential buyers over the past two weeks to sound out their appetite for Qatari bank loans, the sources said. A spokeswoman for
Key Points UAE banks held on to Qatar exposure after dispute erupted But hopes for resolution have faded So banks offering loans more aggressively International institutions are potential buyers Most loans are to banks, some to corporates or projects First Abu Dhabi declined to comment. Qatari banks have traditionally relied heavily on external financing and raised over US$10 billion through syndicated loans since early 2014, Thomson Reuters data shows. A large proportion of that total was lent by banks in the UAE, the region’s financial centre. First Abu Dhabi, the largest bank in the UAE, participated in several syndicated loans to Qatari banks over the past few years, including loans to Ahli Bank, Commercial Bank of
Qatar (CBQ) and Qatar National Bank (QNB). Loans to QNB, the country’s largest lender, and CBQ are among assets now being offered for sale, the sources said. A spokesman for QNB said: “It’s a normal practice in the industry that lenders to banks through syndicated loans sell part or all of their exposure in the secondary market. “Nevertheless, as far as QNB is concerned, we can confirm that we have not received recently any unusual requests for our approval to sell any exposure to QNB in the secondary market, which is required. Accordingly, we can confirm that there is no systematic selling by banks who participated in QNB syndicated loans.” Spokespeople for CBQ did not respond to emails and telephone calls seeking comment. While most Qatari loans on offer are to Qatari banks, some corporate and project finance loans are also being offered, the banker at the European institution added. Holders of Qatari debt may find it hard to sell without accepting significant discounts. Credit rating agencies have downgraded Qatar since the dispute erupted and all three major agencies have negative outlooks on the country. Qatar’s ratings are still high - Fitch has it at AA-minus - but potential buyers may be especially wary of loans with over a year to run, given the risk of the dispute worsening. Reuters
Trade
United States renews WTO complaint over Canadian wine retailing By submitting a fresh version, it has effectively restarted the clock on the dispute process, giving Canada 60 days to settle out of court or face litigation Tom Miles
The United States has kept trade friction with Canada simmering by filing a new version of a trade complaint over Canadian wine retailing, a document published by the World Trade Organization showed on Monday. Trade relations, already frayed by U.S. President Donald Trump’s plans to renegotiate the North American Free Trade Agreement (NAFTA), took a nosedive last week when the U.S. Commerce Department slapped anti-subsidy duties on Bombardier Inc’s CSeries jets.
‘The complaint accuses Canada of breaking WTO rules by giving unfair advantage to wine from British Columbia’ The new WTO complaint reheats a dispute that the United States launched in January, days before Trump took office, challenging Canada over rules for wine retailing in grocery stores in the province of British Columbia.
The text of the new complaint, dated Sept. 28 and circulated among WTO members on Monday, was unchanged from the version in January except for some changes to reflect updates of Canadian regulations. The United States never pursued the January complaint at the WTO. By submitting a fresh version, it has effectively restarted the clock on the dispute process, giving Canada 60 days to settle out of court or face litigation. The complaint accuses Canada of
breaking WTO rules by giving unfair advantage to wine from British Columbia (BC) because the province’s wine gets exclusive access to a retail channel on grocery store shelves, cutting out U.S. competitors. “The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called ‘store within a store’,” the U.S. complaint said. Reuters
Business Daily Wednesday, October 4 2017 15
Opinion
Sure, PBOC’s latest move is targeted. At stocks, that is Shuli Ren a Bloomberg Gadfly columnist
T
he Xi Jinping put is alive and well. Late Saturday, the People’s Bank of China said it will reduce the amount of cash reserves required for banks that engage in “inclusive financing,” a new phrase for Beijing that refers to loans issued to farmers, small businesses, students and poverty-alleviation programs. But let’s call this “targeted” reserve ratio cut what it really is: Large-scale monetary loosening unseen since October 2015 that, according to China International Capital Corp., may unleash as much as RMB1 trillion (US$150 billion) of new liquidity. The real beneficiary? China’s stock market. According to the PBOC, banks with inclusive financing credits exceeding 1.5 per cent of their existing advances or new loan issuance in 2017 can enjoy a 50-basis-point cut in their required reserve ratio. An additional 100 basis points will be lopped off if eligible lending reaches 10 per cent or more of new advances in 2017. The 1.5 per cent threshold is far more lenient than previous targeted cuts. Based on the central bank’s own estimates, pretty much the entire banking system will get this new treatment. But why is the People’s Bank loosening its purse strings now, when China’s manufacturing sector is running at five-year high? There’s little evidence such targeted reserve ratio cuts work. Loan growth in the agricultural sector has been slowing even though China trimmed reserve ratios on farm loans seven times between 2014 and 2015. Shares of financial institutions Jiangsu Jiangyin Rural Commercial Bank Co. and Wuxi Rural Commercial Bank Co., which benefited from the policy changes, are down 9 per cent and 16 per cent respectively this year against a higher broader market. More likely, this is for show. In two weeks, Beijing will host the all-important 19th Party Congress, during which President Xi will announce his new cabinet for the next five years. The central bank wants to let ordinary Chinese know they’re included in the recent economic rebound too. Nonetheless, lower deposit reserve ratios are great news for China’s struggling banks. Profit growth has stagnated since the PBOC slashed its benchmark one-year lending rate to 4.35 per cent from 6 per cent in 2015. In the first half, publicly traded lenders reported an average 6.8 per cent rise in earnings. China’s banks are required to hold at least 15 per cent of their deposits as reserves, by far the most among major economies. As a result, the nation’s lenders trade at an average of only one-times book. Banks want to lend, except they can’t. The industry’s loan-to-deposit ratio is edging close to 70 per cent, the highest since data became available. The PBOC’s latest move could be the next leg up for China’s stock market. Spurred by improving corporate profits, the CSI 300 Index has rallied 16 per cent since January to a two-year high. Yet banks, which constitute 17 per cent of the benchmark, are laggards. Only well-capitalized blue chips such as Industrial & Commercial Bank of China Ltd., Bank of China Ltd. and China Merchants Bank Co. shine. For now, let’s not delve too deep into Beijing’s motives. Suffice to say, so long as China’s middle class sees a bull run in their share portfolios, they’ll feel suitably content. Reuters
‘PBOC measures apply to 95 per cent of rural commercial lenders’
China crude oil import data show winners and losers from rebalancing
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hina’s imports of crude oil offer a picture of which exporters are doing the heavy lifting of reducing supplies, and which countries are benefiting the most from the efforts of OPEC and its allies to rebalance the market. While looking at customs data from the world’s biggest crude importer isn’t a definitive study of global oil market dynamics, it’s important as exporters are well aware that China has been leading demand-growth in recent years, a trend likely to continue. China imported 281.1 million tonnes of crude in the first eight months of this year, equivalent to 8.44 million barrels per day (bpd), according to customs data. This is up 12.3 per cent on the same period in 2016, or about 950,000 bpd. This makes China the major contributor to global demand-growth so far this year, given that the International Energy Agency expects world oil consumption to rise 1.6 million bpd in 2017 from 2016. The breakdown of the Chinese import numbers shows who is gaining market share and who is not. Saudi Arabia was China’s leading supplier in the first eight months of 2016, but has slipped to third place behind Russia and Angola in the January-August period this year. The kingdom’s exports to China were 1.03 million bpd in the first eight months, down 1.7 per cent from the same period last year. While this looks like a relatively small decline, it becomes far more significant if you assume that the Saudis had been able to grow their exports at the same pace as overall imports by China. If China’s imports of Saudi crude were up at the 12.8 per cent overall growth rate, it would have meant that the kingdom supplied 1.18 million bpd. That’s 150,000 bpd more than what the Saudis actually supplied, and this is perhaps a good indication of how much the Saudis have given up by restricting their output in pursuit of rebalancing the global crude market and shifting prices higher. The Saudis were one of the main drivers behind last November’s agreement by the Organization of the Petroleum Exporting Countries and allied producers, including Russia, to curb output by a combined 1.8 million bpd. This initial six-month deal was later extended to at least the end of March next year as it became clear the market was rebalancing slower than what the producers had hoped for, and prices remained locked in a relatively narrow band.
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Clyde Russell a Reuters columnist
Global benchmark Brent crude was at US$56.71 a barrel in early Asian trade on Monday, not much higher than the US$53.94 it closed at the day after OPEC and its allies announced their agreement last November.
Uneven burden
So, if the Saudis have foregone crude market share in China, which other countries have joined them, and which haven’t? Among those party to the agreement to restrict output, Angola and Russia have managed to boost their share of China’s crude imports. China imported 1.05 million bpd from Angola in the first eight months of 2017, a gain of 16.6 per cent from the same period last year. If the growth in imports from Angola had matched the overall rate, it would have meant that China bought 1.02 million bpd, meaning Angola has supplied an extra 30,000 bpd over what it would have if it has just maintained its market share. Imports from Russia were 1.16 million bpd in the first eight months, a gain of 13.2 per cent. This works out to an extra 10,000 bpd over the steady market share number. Iran has lost 83,000 bpd in the first eight months compared to China’s overall growth rate, while Iraq has forgone 17,000 bpd. For exporters outside the OPEC and allies deal, Brazil has been a large gainer, with exports in the first eight months rising 41.8 per cent to 480,000 bpd, which is 100,000 bpd more than if they had merely matched China’s overall growth rate. The standout is the United States, with China importing 128,000 bpd in the first eight months, a massive leap of more than 1,000 per cent, and an extra 116,000 bpd over what imports would have been if the growth rate matched China’s overall increase of 12.3 per cent in the first eight months. In some ways the Chinese oil import numbers are a microcosm of the issues in the global crude market. China shows that the burden of rebalancing the market isn’t being shared evenly by those party to the production reduction agreement. It also shows that the Chinese have been able to quite easily replace supplies from those producers curbing output. Reuters
In some ways the Chinese oil import numbers are a microcosm of the issues in the global crude market
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16 Business Daily Wednesday, October 4 2017
Closing Auto industry
Tesla falters with Model 3 as initial output trails forecast
Musk has engendered enthusiasm about the future of electric cars and has automakers including Volkswagen AG, General Motors Co. and Daimler AG Tesla Inc. struggled to produce its cheapest model lining up to compete. But what Tesla hasn’t done is shortly after the car debuted, setting back Chief prove itself as a mass manufacturer. The slow start Executive Officer Elon Musk’s mission to reach for Model 3, which was designed for easier assembly, mainstream consumers. reignites concern that the company will struggle to The automaker built only 260 Model 3s during the reach the lofty production targets set by its CEO. quarter ended in September, less than a fifth of its “I would be surprised if anyone was surprised that 1,500-unit forecast. Output of the sedan that starts they came up short,” said Sam Korus, an analyst at Ark at US$35,000 -- roughly half the cost of the least Investment Management in New York, which holds expensive Model S -- was lower than expected because of unspecified “bottlenecks,” according to the Tesla shares. “When Musk gives a prediction, you know it’s an extraordinarily ambitious goal.” Bloomberg News company.
Marketing
Chocolate has an ally in social media for its seduction of Asia While cocoa prices have tumbled over the past year on forecasts for a surplus, Citigroup Inc. in August said that they may rebound in 2018 Anuradha Raghu
W
hile connoisseurs in developed nations jaded by chocolate’s ubiquity seek out bars that are unique in provenance, aroma and texture, aspiring consumers in large swaths of Asia are still developing their taste for the treat.
“It’s much easier nowadays to reach consumers than 20 years ago, when it was more difficult to get that experience with a new product” Harold Poelma, Cargill’s president for cocoa and chocolate In China, for example, “chocolate is not fully part of the diet and preference,” according to Niels Boetje, the managing director for the Asia Pacific region at the Cocoa & Chocolate division of Cargill Inc., one of the world’s biggest agricultural companies. “There is still a lot of growth
in China especially through new online channels, and online sales is becoming a big thing,” he said in an interview in Singapore yesterday. As more people discover the pleasures of chocolate, Asian demand is expected to outstrip the pace of consumption globally, according to Boetje. While everything from truffles to the best bean-to-bar varieties are easily accessible to most in the West and in urban regions of the developing world, chocolate continues to retain its status as an aspirational prize for a large part of the population in emerging markets. “If the economy continues to grow as we foresee it, we also expect that cocoa and chocolate will grow particularly in Asia where you have people moving into middle class incomes and people getting more familiar with the product,” said Harold Poelma, Cargill’s president for cocoa and chocolate. Social media is also helping accelerate awareness of chocolate to consumers, said Poelma. “Asia has been much much faster than Europe or the U.S. in adoption of social media technology, and that’s a big thing to spread the news,” he said. “It’s much easier nowadays to reach consumers than 20 years ago, when it was more difficult to get that experience with a new product.” While cocoa prices have tumbled over the past year on forecasts for a surplus, Citigroup Inc. in August said that they may rebound in 2018 as the oversupply narrows substantially.
The bank forecast cocoa at US$2,250 a metric ton next year. Futures in New York traded at US$2,046 at 5:15 p.m. Singapore time on Tuesday. Asian demand will probably climb 3-4 per cent annually in coming years, compared with long-term global growth of 2 per cent, according to Cargill. India’s annual growth
in chocolate and cocoa consumption over the next 5 years may be close to 15 per cent, with demand in Indonesia rising at least 5 per cent and the Philippines expanding 6 per cent. While demand in China has been flat in the last few years, it may rebound to 3-4 per cent going forward. Bloomberg News
Trade talks
World Bank
Moody’s
EU demands more UK Brexit clarity
Urban inequality a growing risk in Asia
Benefits of sales tax hike in Japan outweigh negatives
Top European Union officials teamed up yesterday to send UK Prime Minister Theresa May a blunt message: Do more to flesh out Britain’s Brexit positions or put off trade talks for even longer. European Commission President Jean-Claude Juncker and the EU’s chief Brexit negotiator, Michel Barnier, used a hearing in the European Parliament yesterday to all but extinguish any lingering hope that May might be given approval at an EU summit later this month to start negotiating the two sides’ future relationship. “We cannot talk about the future without any real clarity,” Juncker told EU lawmakers in Strasbourg, France. “The prime minister’s speech in Florence was conciliatory, but speeches are not negotiation positions.” With the UK’s departure from the EU now 18 months away, officials have yet to come to an agreement even on the priority separation issues, let alone what a post-Brexit future will look like. While the prime minister’s speech in Italy, last month started to break through the deadlock, EU officials say they are still in the dark about many details on where the UK might be willing to compromise. While the Parliament doesn’t have a formal say in that decision, it does have a veto over the entire Brexit deal. Bloomberg News
Widening inequality in Asia’s teeming cities could lead to potentially risky social divisions, the World Bank warned yesterday, urging governments to do more to help the urban poor. Half of the region’s population live in cities and rapid urbanisation has helped lift 655 million people out of poverty, the bank said in a new report. But East Asia and the Pacific are still home to the world’s biggest population of slum dwellers at 250 million, sizeable portions of them found in China, Indonesia and the Philippines, the bank said. While studies on inequality often focus on the disparity between urban and rural areas, the expanding chasm among city dwellers was a major problem, it said. Victoria Kwakwa, the bank’s vice president for the region, said a growing number of people who move to cities lack access to basic services, housing and jobs, which was creating growing resentment over the gulf between urban rich and poor. “Widening inequalities can create social divisions in society and it’s much more stark in cities because you have the wealthy living right next door too often to the urban poor in small spaces,” said Judy Baker, the bank’s urban specialist and the report’s lead author. AFP
The benefits of raising Japan’s sales tax again outweigh the negatives, even if Prime Minister Shinzo Abe diverts some of the additional revenue to education and welfare, an official at ratings agency Moody’s Investors Service said yesterday. The exact timing of when Japan achieves a primary budget surplus is not that important as long as the government is committed to fiscal reform in the medium term, Christian de Guzman, a vice president of sovereign ratings at Moody’s, told Reuters in an interview. The comments could ease concerns about Japan’s fiscal discipline after Abe called for a snap election on Oct. 22 with promises to spend more on education, and welfare to appeal to voters. “Before parliament was dissolved, there was a bit of uncertainty that the tax hike would go through,” de Guzman said. Moody’s rating on Japan is A1, which is four notches below its top rating. Its outlook for Japan is stable. A central plank of Abe’s campaign is that he wants to go ahead with a sales tax hike to 10 per cent from 8 per cent in October 2019 and use some of the funds to subsidise education for pre-schoolers Reuters