Business Daily #1401 October 12, 2017 by Business Daily

Casino expansion in Russia receiving cold reception Gaming Page 7

Thursday, October 12 2017 Year VI Nr. 1401 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor OSCAR Guijarro Results

Report

Local investor Amax bathes in success of Pacific islands biz Page 7

www.macaubusiness.com

Gamers

IMF raises growth forecast for MSAR Page 2

Politics

A report traces gamblers’ profile features Page 6

Xi likely to retain 69year old graft buster, despite retirement age rule Page 10

Plugging into the Bay

Greater Bay Area

A study has been released. Produced by the Macau Economic Association in a Greater Bay Area seminar held yesterday. Concluding that the MSAR needs to develop its very own special financial features to gain traction in the economic zone. The relationship with Portuguese-speaking countries is central to the recommendations. Page 3

Heritage ahoy Coloane shipyards Coloane is taken into consideration in the Macao Tourism Industry Development Master Plan announced late September 28. Questions arise, however, regarding development details. Especially related to its shipyards. Meanwhile, cleanup continues in wake of Hato havoc. Page 4

Online rental cornered

Business Daily digs into the online rental situation. Despite repeated official statements declaring illegality of the business, websites still offer rental deals for private MSAR properties.

HKSAR CE plunges in

Sharing economy Page 2

HK Hang Seng Index October 11, 2017

28,389.57 -101.26 (0.36%) Worst Performers

Geely Automobile Holdings

+5.60%

AIA Group Ltd

+1.62%

Sands China Ltd

-2.70%

Link REIT

-1.09%

China Mengniu Dairy Co Ltd

+3.04%

Hengan International Group

+1.42%

Galaxy Entertainment Group

-1.86%

Sino Land Co Ltd

-1.00%

+1.81%

Bank of Communications

+1.18%

China Shenhua Energy Co

-1.51%

BOC Hong Kong Holdings

-0.78%

CITIC Ltd

+1.72%

Ping An Insurance Group Co

+1.11%

Cathay Pacific Airways Ltd

-1.48%

Want Want China Holdings

CK Infrastructure Holdings

+1.70%

Lenovo Group Ltd

AAC Technologies Holdings

-1.46%

HSBC Holdings PLC

Hang Lung Properties Ltd

+0.93%

-0.71% -0.64%

32° 24° 30° 25° 30° 24° 27° 25° 29° 26° Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

SUN

MON

Source: AccuWeather

Policy Address Meeting the public’s housing needs remains the “top priority” for Hong Kong. So said Carrie Lam in her maiden speech. Market expectations for more co-operation with developers on land supply not met, however, say analysts. Unlocking agricultural land for residential use the key missing element in inaugural speech of HKSAR Chief Executive. Page 8

2 Business Daily Thursday, October 12 2017

Macau Construction

Parting the waters

The construction of an underwater tunnel is considered to be a major section of the Hong Kong-Zhuhai-Macau Bridge completed

he construction of a 6.7 kilometre dual six-lane sub-sea tunnel connecting two 10 hectares of artificial islands of the Hong Kong-Zhuhai-Macau Bridge was completed on October 8, the

Zhuhai Government media portal has announced. According to the report this tunnel section near Zhuhai is the ‘dominant engineering feature’ of the bridge and the ‘first large immersed tunnel in open water in China’s history’.

The tunnel - constructed at depths of up to 48 metres below sea level - took seven years to be completed and was developed by a joint venture led by China Communications Construction Co. Ltd. (CCCC). N.M.

Hotel

Unwelcoming sharing economy

Leading hotelier says it is impossible to wipe out illegal accommodation completely given the difficulty in regulating online home rental platforms Cecilia U cecilia.u@macaubusinessdaily.com

“It is very difficult to regulate them, in my opinion; it is difficult for the government to completely crack down [on illegal accommodation],” said the president of the Macau Hoteliers & Innkeepers Association, Chan Chi Kit. Business Daily discovered that one of the popular Chinese short-term home rental sites - Xiaozhu.com - has some 52 listings in Macau, with the majority located in the NAPE area. The Director of Macao Government Tourism Office, Maria Helena de Senna Fernandes, reiterated last month that accommodation provided by online home rental sites such as Airbnb, is considered illegal given the current legal frame. According to the related clause, lawbreakers are subject to a penalty ranging from MOP200,000 (US$24,875) to MOP800,000, while tenants of illegally

operated inns would be penalised MOP3,000.

Not a threat

During the recent Golden Week, tourists said that the 5-star Parisian Hotel Macao room price hit MOP2,000 per night, Business Daily reported previously. Chan said room prices during this year’s longer than usual National Day Golden Week had increased by 10 per cent year-on-year, but noted that the price was lower last year. He explained that the high room price during holidays depended upon the level of occupancy rate and that hotels’ price strategies differed. Asked whether illegal accommodation would impact the city’s hotel industry given the average price stood at around RMB460 during normal days, according to the listings prices on Xiaozhu.com, Chan said the high advertisement

occupancy rate of local hotels is a sign of no impact, while saying that there is still business for these unlicensed inns. “There are too many visitors coming, the [MSAR] Government is always doing something but are they able to crack down on all of them? I don’t think so,” said Chan. “Many Chinese tourists would be willing to live in these houses given the low prices.” Chan further said that on normal days some of the city’s 5-star hotels would provide great offers. “Like Sands - they are promoting MOP599 per person with two-way ferry tickets, so a room for two people meaning MOP1,200 and its 5-star hotels; for 2-star hotels they offer MOP500 to MOP600 per room,” the president pointed out. Meanwhile, with the recent release of the Macao Tourism Industry Development Master Plan estimating that visitor growth would at least reach 33 to 35 million by 2025, Chan said the growth of hotel room supply is faster than the growth in number of visitors thus “the competition within the hotel industry would get fiercer and the level of price movement would get narrower.”

Legalising online home rentals

“I think it would be very difficult for the government to legalise online

home rental sites,” said the hotelier, while adding that the government has a strong stance of not revising the legal system for hotel operation. Noting that there are several consortiums from Hong Kong who are interested in investing in the hostel business in Macau, the president said that the industry had previously discussed with the government about lowering the standard requirements in the clause to allow the operation of hostels. “They [the government] just don’t [want to lower the standards] . . . [with] all hotel rooms consisting of a maximum of two beds in one room and every room must have a window,” said Chan. In Mainland China, there are several home rental sites such as Tujia.com, Xiaozhu.com, Mayi.com and Muniao. com, with the transaction value reaching RMB8.78 billion in 2016, according to data gathered by iResearch based in Mainland China. Airbnb, the U.S.-based home rental online platform also stepped into the Chinese market in August 2015, focusing on the overseas travel market. “I think Macau has its own vision of tourism,” said Chan. “Meaning they won’t introduce [hostels or online home rental] just because other places have it.”

Economy

Achieving positivity

Estimates for Macau’s economic growth have been raised by the International Monetary Fund to 13.4 per cent this year and 7 per cent in 2018 The International Monetary Fund (IMF) has increased its estimates for the MSAR’s economic growth in 2017 and 2018 in its most recent World Economic Outlook report. After having estimated in April that Macau would see its real gross domestic product (GDP) grow by 2.8 per cent and 1.7 per cent for this year and next, the IMF considers now that the MSAR would register a 13.4 per cent growth this year and a 7 per cent increase in 2018. After seeing an inflation growth rate of 2.6 per cent in 2016, the report also believes the inflation rate in Macau would reach 1.5 per cent this year and go up to 2 per cent next year. In terms of global economic growth, the IMF raised it’s estimates for this

year and next by 0.1 percentage points to 3.6 per cent and 3.7 per cent, respectively. The report considered that ‘notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence’ were supporting more positive growth predictions than earlier in the year to the ‘euro area, Japan, China, emerging Europe and Russia’. ‘After disappointing global growth over the past few years, this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly,’ the report indicated C.U.

Business Daily Thursday, October 12 2017 3

Macau Greater Bay Area

A certain uniqueness A recent study considers that the role the MSAR can take in the Greater Bay Area is linked to the development of special financial features, while further regional co-operation is essential in preventing extensive damage caused by natural disasters Nelson Moura nelson.moura@macaubusinessdaily.com

n order to provide a financial centre with special features that can contribute to the development of the Greater Bay Area, the MSAR Government should focus on establishing the announced RMB clearing centre for Portuguese-speaking countries and support the development of the private wealth management sector, according to a study released yesterday by the Macau Economic Association. “We can’t compete with Hong Kong as an international financial services centre. Therefore we want to develop a financial centre with special features that need to be defined clearly,” the Chairman of the Macau Economic Association and appointed legislator, Joey Lao Chi Ngai, said yesterday. Presented at a seminar held yesterday in co-operation with the Grand Thought Think Tank, the study by the Association sought to provide suggestions and comments on how the MSAR can contribute to better co-operation and development of the Greater Bay Area. Mr. Lao also believes the establishment in Macau of a US$1 billion (MOP8 billion) fund for financing projects between Portuguese-speaking countries and Mainland China could attract investment to Guangdong Province through the MSAR.

Talk resolves everything

Enhanced co-operation in the Greater

On behalf of the Chief Executive, the Secretary for Economy and Finance, Mr Leong Vai Tac, attends the opening ceremony of the seminar on the building of the Guangdong-Hong Kong-Macau Greater Bay Area and Macao's development. Source: GCS

Bay Area would also be essential to preventing the same level of destruction wrought by Typhoon Hato on August 23 and assure a steady supply of natural resources to the city. “We suggest the construction of the tidal barrier to reduce damage caused by natural disasters and in order to do it we need the help and co-operation of Guangdong Province. Without [co-operation] it’s impossible to build on their areas of management,” Mr. Lao added. The appointed legislator added that it would be “impossible” for Macau to be completely self-sustainable in terms of resources, so in order to prevent another shutdown after a natural disaster one of the main priorities of

the MSAR Government should be to assure the supply of electricity, gas, water, food and other natural resources through co-operation with Guangdong Province and the Chinese central government. “We should have more backup channels to ensure the supply of energy. The issue of providing more land plots for energy stations is that then they won’t be able to be used for public housing or social facilities,” he added. A recent report by Public Housing Demand Research found that demand for public housing would reach 31,247 by 2021 while the government is capable of supplying 9,273 units in the same period.

For Mr. Lao although the current land supply would not be able to meet demand in the next years, the long term development of reclaimed land and in Hengqin would provide a supply even superior to local demand. When asked how further inter-regional co-operation could help with the current housing issue in the city, Mr. Lao said neighbouring regions could provide more retirement areas for the local elderly population in the long term, while improving the purchasing power of residents. “Fostered economic development will diminish the wealth gap between residents in the Greater Bay Area,” he concluded. advertisement

4 Business Daily Thursday, October 12 2017

Macau Opinion

Maritime affairs

Ashley Sutherland-Winch* Vanishing act Macau has seen its fair share of theatrical productions close with the most recent Studio City’s House of Magic. The fascinating world of Franz Harary, along with rotating illusionists from around the globe, opened in Autumn 2015 and just two short years later presented its final trick, the vanishing act. Whether the disappearing act be long or short term is anyone’s guess but it’s a strong reminder that as locals we must actively support entertainment in our city. MGM Cotai will soon be the next to try its luck with audiences in Macau with the casino’s grand opening set for early 2018. The new resort - constructed adjacent to the City of Dreams - will create a small live entertainment district for locals and tourists with both The House of Dancing Water and the new production across the street. Viva La Broadway offers a variety of acts on the opposite side of Cotai in the Galaxy resort property. Now with only three stationary competing live entertainment productions and short term Venetian plays, musicals, ballet and musical acts, it’s vital that as locals we promote the productions in our city to friends in town and visitors alike. The average life of a Broadway, West End or Las Vegas production can vary from weeks to years but the common denominator is a steady stream of patrons that love to see shows. It is not out of the ordinary for tourists to travel across the globe to see a specific show and while in Macau our tourists do not necessarily have the objective of watching live entertainment we can still do our part to encourage their patronage. This starts by actually purchasing tickets and attending shows. If tickets to shows become hot commodities tourists will strive to get their hands on them and our resident productions will be saved from possible closure. Millennials are setting the standard that they do not want to travel in large tour groups and make similar vacation choices of their parents. More and more, younger generations seek travel destinations that offer a wide variety of experiences and now with Macau’s entertainment options we can capitalise on this momentum. Regardless of personal interest, we should all make efforts to help sustain the arts community in Macau and not sit idly by as our shows close. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Sea dreams Heritage classification of the Lai Chi Vun shipyards area are in the pipeline following the recent release of the tourism Master Plan, with renewed hopes for developing the city’s waterscape and leisure maritime industry Sheyla Zandonai sheyla.zandonai@macaubusiness.com

he development of Coloane Village and its environs for tourism purposes has been inscribed in the Macao Tourism Industry Development Master Plan, announced on September 28, as a chapter in the ‘introduction of new tourism cultural spaces for residents and visitors.’. According to information provided to Business Daily by Macao Government Tourism Office (MGTO), the Lai Chi Vun area in Coloane, which includes the shipyards’ site and Rua dos Navegantes, has been earmarked as one of the ‘potential spots’ for development. Accordingly, the Office claims it will co-operate with the overall planning of both the Land, Public Works and Transport Bureau (DSSOPT) and the Cultural Affairs Bureau (IC) for ‘any future development of the area.’ No specific strategies have yet been presented. As president of the Lai Chi Vun Villagers Association, David Pinto Marques, explained to us, MGTO’s Master Plan only “mentions the Lai Chi Vun area a couple of times, so it is still unclear what the government agency is envisioning for the site.” He further remarked that the Association has not yet been contacted by the government regarding planning, but argued he would be in favour of an “increase” in tourism patronage if it is to be “slightly higher” than the current visitation volume to the site. MGTO currently claims it ‘has been giving support to local associations to organise tourism activities in Coloane,’ which include the Parade of Tam Kong Festival, Parade in Coloane, and Coloane Historic Half Day Tour. As for the Association’s expectations of the Master Plan, Mr. Marques explained they currently have “all their attention focused on the rebuilding of

the area” after Typhoon Hato struck Macau on August 23. In the meantime, he pointed out that the government has been quite visible in the area, “reinforcing the shipyards’ structures” and “helping out residents with the building of fences and other common facilities in the area” to increase public safety.

Heritage focus

In tandem with Mr. Marques’ comments, IC told Business Daily that it ‘continues to carry out the comprehensive reinforcement and cleaning works in the Lai Chi Vun shipyards area,’ after Typhoon Hato left a trail of destruction there. IC’s spokesperson added that the Bureau expects to complete the relevant works by the end of this month. The Bureau also noted that it is ‘actively preparing the relevant works’ to conduct the ‘heritage classification’ of the Lai Chi Vun shipyards area. ‘Currently, IC is engaged in the organisation and study of the structural components with preserving value, in order to prepare for the future revitalisation and showcasing of the local shipbuilding crafts,’ said the Bureau spokesperson. IC added that detailed planning of the area will be conducted once DSSOPT concludes the overall planning of the area.

Plan it again, SAR

Business Daily contacted DSSOPT to enquire about its current ‘overall planning’ for Lai Chi Vun. A spokesperson for the Bureau told us on the phone that DSSOPT was not currently involved in the planning as referred to by MGTO and IC, requesting us to refer instead to a previous plan, dating from 2012, which is available for consultation on its website. The plan is the same Macau Business presented in a story published in May. One of its objectives comprised was highlighting the attractiveness

of the coast and waterfront as well as the relationship between local inhabitants and tourism. Some of the plans’ highlights included valuing and promoting the shipyards industry and living history, preserving the area and its waterscape, as well as creating a workshop and exhibition space for ship construction.

Open waters

In its reply to Business Daily, the Tourism Office added that it ‘supports industry partners' initiative to operate maritime tours around Macao Peninsula, Taipa and Coloane.’ The Office did not clarify, however, what types of support it was suggesting – subsidies or joint-ventures, for instance – despite further questions from us, as at the time this story went to print. A Macau-registered company which has been advocating developing the local recreational maritime segment is Macau Sailing, founded at the end of 2015, about the time the Macao SAR Government was granted administrative rights over territorial waters. Speaking to Business Daily, the head of operations for Macau Sailing – and one of the founders of the company - Henrique Silva - claimed that talks between the company and MGTO are still “ongoing.” “Now that the tourism Master Plan has been released, we believe that there is an effective intention on the part of the government to make it work,” he suggested. Macau Sailing previously operated its flagship boat (pictured), a 40-year old Chinese junk, that was runing for one year. Mr. Silva and his partners decided to halt the operation at the end of 2016, discouraged by the difficulties of having a dock attributed to the boat in one of the city’s marinas and the fact that they could not strike a partnership for service provision with support from the Macao SAR Government.

Business Daily Thursday, October 12 2017 5

Macau Cryptocurrencies

Taking the tokens to Asia Despite currently being involved in a cryptocurrency initial coin offering (ICO), eSports betting company Unikrn is looking to extend its services to the MSAR with local gaming operators having expressed interest in a possible partnership Nelson Moura nelson.moura@macaubusinessdaily.com

fter announcing it is applying for its first gaming licence in Europe and currently holding an initial coin offering (ICO), eSports betting company Unikrn told Business Daily the group has been approached by some Macau gaming operators for a possible collaboration. “Unikrn is very interested in Macau and would be open to partnering with good operators if they want to set up eSports experiences inside their venues,” company CEO Rahul Sood told Business Daily. Founded in Seattle in 2014 and with offices in Berlin, Sydney and Las Vegas, Unikrn provides bookmaking for eSports and video games “There is a significant market opportunity in Asia for Unikrn to expand our footprint. We are one of the strongest eSports brands in the world, and we have a pretty strong and growing community in South Korea,” a Public Relations professional representing the company told Business Daily. The company currently holds licences to conduct real-money wagering in Australia and the Isle of Man and has established a partnership with Australian gambling platform Tabcorp.

On September 9 Unikrn announced it had established a joint venture with French online gambling company RBP to create Unikrn EU, an eSports betting platform for the European market. “For a little over a year, Unikrn EU has been working with the Malta Gaming Authority to acquire our new licence […] Malta has some of the highest regulatory requirements and processes; they are by every measure the gold standard and one of the most respected authorities for responsible and ethical wagering,” said the CEO of Unikrn. Currently, Macau legislation does not effectively allow online gaming with the government having only provided gaming concessions for online gambling on horse racing to Macau Horse Racing Co. Ltd. and sports betting on football and basketball via Macao SLOT Co. Ltd.

Gaining tokens

In September, Unikrn launched an ICO, which according to the company managed to raise over US$30 million (MOP241.1 million) in Ethereum cryptocurrency from over 112 countries, with the Co-founder of Ethereum, Anthony Di Iorio, being part of Unikrn’s Board of Advisors. The ICO involved Unikrn selling virtual tokens called UnikoinGold that can be used on its platform to bet on eSports matches or exchanged for other cryptocurrencies such as Ethereum and Bitcoin. The group said the ICO would be extended until October 22, with a fundraising cap set at US$100 million. ‘Through continued expansion of Unikrn, and with new industry partners, the UnikoinGold token

is well positioned to become the universal token for use in eSports and gaming across the industry,’ the company recently announced. The company stated that the ICO managed to gather investment from American businessman and early startup investor Mark Cuban; and cryptocurrency venture capital companies CoinCircle, Blockchain Capital and Pantera Capital. According to the Unikrn representative, the company currently allows users in Asia to bet on eSports through the Unikoin digital token, and with users able to earn UnikoinGold by playing games on its platform. At the end of September, however, the Monetary Authority of Macau (AMCM) issued a statement declaring that financial institutions, banks and payment services in the city were prohibited from providing services for companies providing tokens and virtual currencies. The AMCM warning followed a decision by the People’s Bank of China to ban ICO’s or fundraising using the issue of digital currencies, while the Hong Kong‘s Securities and Futures Commission said at the same time that ICO’s would be covered by the department and treated as company stock purchases. advertisement

6 Business Daily Thursday, October 12 2017

Macau Customers

Report: Identifying customers and catering to needs Analysts from Bernstein found that 42 per cent of Chinese customers, on their most recent visit to the MSAR, 'stayed at or gamed for a majority of their time at a Sands property' Kelsey Wilhelm ke l s ey.w i l h e l m @ m a c a u b u s i n e s s d a i l y. co m

he average Chinese gaming consumer is '36 years old, is more likely to be male, very likely lives in a Tier 1 or Tier 2 city, earns RMB19,000 per month (US$34,00 per year), and has visited Macau three times in the past 12 months, with a gaming budget of at least RMB20,000 (US$3,000),' state Bernstein analysts in their recent report. They sought to quantify Chinese 'premium' consumption in the MSAR, noting that 'all Macau gaming spending can reasonably be called premium'. This is not to be confused with Premium Mass, but refers to the overall gaming and non-gaming spending by this demographic, in particular given their repeat-visit nature.

a casino host, a travel agent’s package trip, trip planned via a junket agent, and rewards programme communication'. In addition, the property recommendations come from 'family, friends and business colleagues'. While affordability is based upon ‘hotel room pricing, the opportunity

income levels,' noted the analysts. The analysts found that 42 per cent of Chinese customers, on their most recent visit to the MSAR, 'stayed at or gamed for a majority of their time at a Sands property', justified by the

with younger customers may give the company a long-term advantage'. Sands 'dominates as the brand of choice for visitors', while MGM 'needs to execute well on its expansion to Cotai,' which 'will be critical in determining whether MGM can step up into the upper tier in the race for China's

to receive a free room, and increased personal wealth (which is linked to the willingness to spend more)'. Younger customers (21-29) are more driven by status motivators and are less sensitive to affordability motivators like room pricing, while customers aged 45 or older are more likely motivated by recommendations from friends, family members and colleagues. 'Motivation drivers are similar across

largest number of both hotel rooms and gaming tables amongst the six operators. Wynn and Melco have the 'highest percentage of higher-income visitors,' with 'personal monthly income above RMB15,000', making up 84 per cent and 83 per cent of overall clientele, respectively. The group notes it expects Wynn to 'do well in the higher-end segments', while Melco's 'strength

gaming customers'. SJM 'may have a long-term problem due to its aging customer base with a preference for the Peninsula environment' and must 'execute well' on its Grand Lisboa Palace. Galaxy, in the long run, 'will develop a similar critical mass benefit (as Sands) as it expands Galaxy Macau (Phase 3 and builds a new integrated resort in Cotai (Phase 4)'.

Catering'

Functionality

The most important factor in choosing which property in the MSAR to reside and gamble in is 'Functionality': the quality of the casino and that of its hotel rooms and non-gaming offerings. The motivations for this functionality encompass status seeking: 'perception that the property is appropriate for the customer, the desire to increase tier of rewards programme, etc.', and can be targeted through 'organised efforts, including advertising, direct contact by

Hengqin

Tax compliance index launched, Hengqin scores 84.99 The pilot free trade zone of Zhuhai Hengqin New Area – has launched a tax compliance index, the first system in Mainland China that performs quantitative analysis on the level of compliance of taxpayers. According to the press release posted by the Hengqin New District Administrative Committee (HDAC), the compliance index for Hengqin is 84.99, which indicates a generally high level of compliance. Some 343 big corporates reside in Hengqin, none of which was rated as low compliance in paying tax. Some, in fact, obtain a high compliance level of 93.29. In order to provide a more transparent level of tax system, the head of Hengqin’s tax department, Huang Yong, has introduced a platform which collects related data from taxpayers, with an automatic calculation system for analysis which allows flexible management of corporates’ data. The newly launched system differs from conventional tax compliance

level analysis by evaluating the level of internal monitoring performed by corporations, the willingness, ability and behaviour of taxpayers in paying tax. In specific terms, for instance, the system would look at the participation level in the internal works regarding tax payment displayed by the management of corporations as well as the level of understanding of tax policies. The new system also allows corporations to prevent risks in tax payment by referencing data from the system and providing more accurate data for the tax department in managing and categorising taxpayers. C.U.

Environment

DSPA: Disposal of construction materials to be charged for The Environmental Protection Bureau (DSPA) revealed on Tuesday during a meeting that the government is planning to charge for the disposal of construction materials, reported local broadcaster TDM Radio News. The Bureau representative said that the government is planning to charge MOP30 per ton of pre-processed materials and MOP130 per ton for non-processed materials. The measure aims to cut the disposal

of construction materials in order to lengthen the years of the landfill to three to five more years. Meanwhile, the DSPA reported that the expansion of the incineration centre on which construction is slated for 2021, would be able to process 3,000 tonnes of garbage per day. The third phase or the expanded incineration centre would hopefully be able to meet the demand for the coming 10 to 15 years.

Business Daily Thursday, October 12 2017 7

GAMING Gaming bids

Frosty reception for casino market in Russia

fficials i n Crimea are soon to start accepting bids for qualified gaming operators and allowing the development of hotels and tourist attractions, casino.org reported this week. Crimea was controversially annexed by the Russian Government from Ukraine in February 2014.

The planned Crimea gaming zone, a part of Russia’s Krasnodar Krai region, is expected to be designated for nearby Yalta, a popular resort city. Stamina for Russia’s gaming market has been reportedly low. Last month, local casino investor Lawrence Ho Yau Lung pulled out from his stake in Tigre de Cristal, a

Summit Ascent Holdings’ operation in the country’s Far East near Vladivostok. The company, which is a subsidiary of Melco International, was also reported in October 2016 as having no interest in bidding for Crimea. Instability in the region and an unpredictable Russian Government have been appointed as reasons dissuading international renowned

casino companies which have operations in Macau such as MGM, Wynn and Sands, from bidding in the Russian market. Russian President Vladimir Putin approved the development of four gaming zones in 2014, having ruled out casinos and gaming operations throughout the country in 2009. The most developed is the

Primorsky Krai, where Tigre de Cristal is located. The area - supposed to become Russia’s version of the Las Vegas Strip - has only one casino in operation and vacant land plots were have been recently auctioned off. Casino development in the two other licensed areas, the Kaliningrad Oblast and Altai Krai, is nearly non-existent.

Online gaming

Amax revenue mainly derived from Pacific island operation Sheyla Zandonai sheyla.zandonai@macaubusiness.com

Local casino investor Amax International Holdings Limited has announced that its online gaming operation in the Republic of Vanuatu, an island in the Pacific, has generated most of the company’s annual revenue. In its Environmental, Social and Governance Report filed with the Hong Kong Stock Exchange on Monday, Amax stated that 57.9 per cent of its gaming business revenue was generated from the Pacific island. The Hong Kong-listed company launched its gaming business in Vanuatu in May 2016. The company also stated in the

report that it has completed the acquisition of 30 mobile game apps in the reporting year (April 2016 March 2017). Amax holds 24.8 per cent of Greek Mythology (Macau) Entertainment Group Corporation Limited, which operates and manages the Greek Mythology casino in Beijing Imperial Palace Hotel – formerly New Century Hotel – in the city. Beijing Imperial Palace Hotel remains closed after its operating licence reverted to the Macao SAR Government at the beginning of the year, while Greek Mythology casino was shut down by the Gaming Inspection and Co-ordination Bureau (DICJ) in 2015. In a filing from early September,

it referred to its intention to obtain the exclusive operating rights for a

VIP room in an undisclosed Cambodian casino. advertisement

8 Business Daily Thursday, October 12 2017

Greater china Policy address

Hong Kong developers fall as Lam's speech skirts land issue Lam said the government will launch a pilot scheme of 1,000 starter homes built on private land, reserved for mid-income, first-time buyers by the end of next year Frederik Balfour

ongKongdeveloperstocks reversed earlier gains after Chief Executive Carrie Lam’s maiden policy speech didn’t spell out proposals to boost land supply or detail a highly anticipated plan to convert farm land into homes in the world’s least-affordable housing market. Meeting the public’s housing needs remains the “top priority” for Hong Kong, Lam said in her first speech after taking the city’s top job in July. She said details of a plan to introduce “starter homes” for first-time home buyers will be unveiled in mid-2018. “It now appears that the land supply for “Starter Homes” will have to come from sites already owned by private developers or to be bought from the government,” Lam said yesterday. Shares of New World Development Co., which surged as much as 6.2 per cent before Lam’s speech, fell 1.2 per cent in Hong Kong. Sun Hung Kai Properties Ltd. fell 0.9 per cent after earlier rising as much as 1.5 per cent, while the Hang Seng Property Index also declined 0.9 per cent. “The market expected Carrie Lam to say ‘let’s have more cooperation with developers to create more land supply,’” said Raymond Cheng, director of Hong Kong and China property research at CIMB Securities. “Her

not mentioning the agricultural land scheme disappointed and that is why shares are down.” Investors had expected Lam to speed the conversion of farmland for residential developments. Lam vowed in her campaign to tackle the high cost of housing, seen as one of the major sources of unrest in the city of 7.1 million. A University of Hong Kong poll released Oct. 10 found 94 per cent of people identified housing as the most important issue for the chief executive to address.

Starter Homes

Unlocking idle agricultural land for residential use would be a boon for property developers, who have found the system of approvals unsatisfactory. “It establishes a way to monetize this land bank in a more predictable way, which would be a positive thing for the developers,” said David Ng, a property analyst at Macquarie Group. Lam said the government will launch a pilot scheme of 1,000 starter homes built on private land, reserved for mid-income, first-time buyers by the end of next year, with details to be revealed in mid-2018. To qualify for the program, buyers’ monthly income can’t exceed HK$34,000 (US$4,357) for individuals and HK$68,000 for households. “The government will strive to build a housing ladder to rekindle the

Other initiatives Lam proposed in the policy address included: • Tax relief for small and medium-sized enterprises: Lower tax rate for first HK$2 million of profit to 8.25 per cent, and standard tax rate at 16.5 per cent for profits exceeding that amount • Demolish and redevelop three government buildings next to the Hong Kong Convention and Exhibition Centre in Wan Chai for more convention and exhibition facilities • Invest HK$700 million for Smart City development • Increase paternity leave to five days from three days; to study enhancement of maternity leave, including extending the duration of the 10-week statutory maternity leave hopes of families in different income brackets to become home-owners,” she said. The property proposal was among several in Lam’s policy address that

sought to ease social tensions. Lam was elected in March pledging to bring unity to Hong Kong and tackle burning issues from inequality to innovation. Bloomberg news

Regulator

Hong Kong regulator probing 15 firms for IPO sponsorship roles The shortcomings included basic issues such as not verifying customers or revenue data for listing candidates Elzio Barreto

Hong Kong's securities regulator is probing "substandard work" by 15 firms in their roles as sponsors for initial public offerings (IPOs) in the Asian financial hub, a senior official said yesterday. The investigations are part of the Securities and Futures Commission's (SFC) efforts to stamp out corporate fraud, enforcement head Thomas Atkinson told the Thomson Reuters PanAsian Regulatory Summit. The regulator recently made its largest-ever search and is investigating 136 "active fraud cases", of which 28 are "particularly serious," he added. Cases of alleged market manipulation and corporate fraud risk tarnishing Hong Kong's reputation as a global financial centre. Atkinson admitted the city has problems, but maintained that Hong Kong remains "one of the safest markets in the world". The sloppy work from the 15 unnamed sponsors, as investment banks and securities firms that underwrite listings are called, caused billions of dollars in investment losses, he said. Theshortcomingsincludedbasicissues such as not verifying customers or revenue data for listing candidates, Atkinson said, adding that some of the behaviour could be considered "reckless". "Quite a number of these serious cases involve gross overstatement of revenue and circular financing, many facilitated by related parties and false customers," Atkinson said. "Of course, one of the

risk management tools that's essential for preventing this kind of fraud is our IPO sponsorship regime."

Higher standards

In October 2013, the SFC introduced a strict new regime to hold sponsors of IPOs to higher standards and said it would hold banks liable if listing prospectuses were found to have misled investors. In January, the regulator filed a suit against Standard Chartered Plc, UBS Group AG and four other parties over the 2009 IPO of timber company China Forestry Holdings Co Ltd. Atkinson, who joined the regulator in May 2016, said the SFC has tapped the resources of three of its divisions to create an operational unit to be able to process more actions. The so-called ICE team put together its Intermediaries division, which licenses and oversees individuals and securities firms, the Corporate Finance team that handles and regulates listing matters and the regulator's Enforcement division. The SFC recently authorized its largest ever search operation, with 136 professionalsfromthreeSFCdivisionssearching multiple premises as part of one investigation, Atkinson said, without disclosing the name of the company being probed. "We're now processing the evidence seized in the search with the continued assistance from the three divisions. This type of operation would be very difficult to do before," Atkinson said. "Anyone who's been exploiting investors through these types of schemes should not underestimate our resolve to stop them." Reuters

Business Daily Thursday, October 12 2017 9

Greater china JV

In Brief

BMW eyes China joint venture with Great Wall-source

New position

Foreign automakers have recently announced a raft of investments and tie-ups in China, especially in electric vehicles German luxury automaker BMW is looking to form a joint venture with Great Wall Motor, a source familiar with the matter said, sending shares in the Chinese automaker up by nearly a fifth yesterday. The automakers are considering the possibility of opening an assembly plant in the eastern Chinese city of Changshu, a BMW executive said, while declining to say what type of vehicles would be put together there. A venture with Great Wall would be BMW's second in China, the world's largest auto market. It has a joint venture with local carmaker Brilliance China Automotive Holdings. Foreign carmakers have to operate in the market with local partners. "We are in discussions with Great

Wall about setting up a JV to produce cars in Changshu," said the executive, who was not authorised to speak on the matter and declined to be identified. "I don't know how far along we have gone nailing this deal," or whether the two companies have official central government approval for the venture, the person said. A BMW spokesman in China did not provide an immediate comment when contacted by Reuters. A Great Wall official declined to comment. Foreign automakers have recently announced a raft of investments and tie-ups in China, especially in electric vehicles. China wants electric and hybrid cars to make up at least a fifth of the country's auto sales by 2025 and plans to loosen joint-venture regulations

in the market. Tesla, Ford Motor Co, Daimler AG, and General Motors are among firms that have already announced plans for making electric vehicles in China. Great Wall, which in August expressed an interest in the Jeep brand of Italian-American automaker Fiat Chrysler Automobiles NV's, is one of China's largest car makers. Last month it struck a deal to secure supplies of lithium, a mineral key for developing electric vehicles. The firm's Hong Kong-listed shares soared as much as 19.2 per cent to their highest level in over two years, before paring some gains to stand up 14 per cent in afternoon trade yesterday. Its Shanghai-listed shares were suspended from trading, pending an announcement.

Key Points Great Wall's HK shares surge as much as 19 pct Firms looking at possible plant in Changshu-source Foreign carmakers rushing to invest in electric vehicles Brilliance China Automotive's shares were down 2.76 per cent. The BMW and Great Wall plans were first reported by Shanghai-based www.iautodaily.com earlier yesterday. Reuters

Electric vehicles

Tesla EV network shows a US$2.7 trillion gap, Morgan Stanley says China will become the largest EV market, accounting for about a third of global infrastructure spending by 2040 Kana Nishizawa

A US$2.7 trillion chasm stands between electric vehicles and the infrastructure needed to make them popular. That’s how much Morgan Stanley says must be spent on building the supporting ecosystem for EVs to reach its forecast of 526 million units by 2040. The estimate, projected by scaling up Tesla Inc.’s current network of charging stations to assembly plants, shows how infrastructure can be the biggest bottleneck for the industry’s expansion, Morgan Stanley said in a Oct. 9 report. To support half a billion EVs, the projected investment will require a mix of private and public funding across regions and sectors, and any auto company or government with aggressive targets will be at risk without the necessary infrastructure, the report said. The industry shift to battery-powered cars is being helped by government efforts to reduce air pollution by phasing out fossil fuel-powered engines. China, which has vowed to cap its carbon emissions by 2030 and improve air quality, recently joined the UK and France in seeking a timetable for the elimination of vehicles using gasoline and diesel. China will become the largest EV market, accounting for about a third of global infrastructure spending by 2040, according to Morgan Stanley. Which companies stand to gain from the shift? The report names PG&E Corp. and

China's former UN ambassador moved to Taiwan role China's former ambassador to the United Nations has taken up a new role as a deputy head of the country's Taiwan policy-making body, the Taiwan Affairs Office, part of a leadership reshuffle connected to a key Communist Party Congress opening next week. Taiwan is one of China's most important and sensitive issues. China considers proudly democratic Taiwan to be a wayward province and has never renounced the possibility of using force to bring the island under its control. Veteran diplomat Liu Jieyi served as China's ambassador to the United Nations from August 2013 until last month when he was recalled to Beijing to await a new role. Anti-corruption

China appoints new top graft-busters at key financial regulators China's Communist Party has named new top officials to lead anti-corruption agencies at the country's banking and insurance regulators as it makes final preparations for a twice-a-decade party congress later this month. Lin Guoyao, a former municipal official in the coastal province of Fujian, has been appointed chief of the Party Disciplinary Commission at the China Insurance Regulatory Commission, according to an official online statement released late on Tuesday. Lin, 51, spent 31 years working in the southern province, rising to the post of vice mayor in the city of Xiamen before being appointed party secretary of Longyan city. Li Xinran, 45, has been named chief of the Party Disciplinary Commission at the China Banking Regulatory Commission. He worked for 22 years at the Central Commission for Discipline Inspection (CCDI), China's top anti-corruption watchdog. Real estate

Capital curbs aren't slowing Aussie property buying binge

PPL Corp. among U.S. utility firms to benefit from the EV infrastructure spend. Shenzhen Inovance Technology Co. will eye opportunities in China’s electric equipment space, while Japan’s Fanuc Corp. and Yaskawa Electric Corp. will profit from robotics demand, the report said. ai-based consulting firm Automotive Foresight. “That’s why some good foreign (carmakers) are now seeing their sales grow by double-digits.” Toyota’s sales in China grew 14.1 per cent in September from a year earlier to 118,900 vehicles, after a 13.2 per cent increase in August. It sold 960,400 vehicles in the first nine months of

the year, up 7.9 per cent against 2016. Honda’s sales in the market were up 15.5 per cent for the month, following a 20.6 per cent rise in August. Its JanSept sales totalled 1.03 million vehicles, a 17.7 per cent increase from the same period a year ago. Honda, the smaller of the two automakers, has been outstripping Toyota in China so far this year, thanks to hot-selling models that include the redesigned Civic and its subcompact crossover SUVs. Toyota, Japan’s top automaker by volume, is still on target to sell more than 1.21 million vehicles this year in China up from the 1.2 million vehicles it sold in 2016. Bloomberg news

Property-hungry Chinese investors have shrugged off the impact of tighter capital controls and continue to pour money into Australian housing. Foreign buyers are acquiring about a quarter of new housing supply in New South Wales, and China accounts for about 90 per cent of that demand, according to Credit Suisse Group AG analysis of tax office data. Foreigners are buying 17 per cent of new housing in Victoria, and 8 per cent in Queensland, Credit Suisse said. While local property agents say higher state taxes on foreigners are deterring buyers, Credit Suisse isn’t so sure they will have a big impact on prices. They point to even-higher taxes in other global cities, the relative cheapness of Australian property compared to Chinese cities, and the growing stock of wealth in China.

10 Business Daily Thursday, October 12 2017

Greater China

Wang Qishan, graft-buster and member of the seven-member Politburo Standing Committee

Leadership

China's Xi looks set to keep right-hand man on despite age Wang Qishan has transformed his commission into one of China's most powerful bodies, with 1.34 million officials punished since 2013 and dozens of top officials jailed Benjamin Kang Lim, Ben Blanchard and Philip Wen

hinese President Xi Jinping is likely to retain his right-hand man, the graft-buster Wang Qishan, in a senior position at a key Communist Party Congress this month even though he has reached retirement age, according to a majority of people with ties to the leadership interviewed by Reuters. The fate of the 69-year-old Wang, who keeps a low public profile but is often described as China's second most powerful politician, has been a source of intense speculation ahead of the Congress, which opens on Oct. 18. Twelve of the 16 people with ties to China's leadership, including former officials as well as relatives, aides and close friends of current and former senior officials, said Wang was likely to retain a leadership role. They said it was unclear what Wang's title would be and whether he would remain on the powerful seven-member Politburo Standing Committee. The other four said he would probably step down. Under one scenario, Wang would become one of two vice chairmen of the National Security Commission, set up in 2013 to increase coordination among the branches of China's security bureaucracy and headed by Xi, three of the sources said. Alternatively, he could become vice chairman of the Communist Party itself, if Xi resurrects the party chairmanship position, they said. Under other scenarios, Wang could become premier - replacing

Li Keqiang, a role that traditionally includes management of the economy, or head of parliament. "He will most likely stay on in some form, maintaining a position of power. He's important to Xi," said Zhang Lifan, a Beijing-based political commentator and historian. "Xi has shown he is willing to break with precedent before and he'll probably do it again with the 'seven up, eight down' rule for Wang," he added, referring to the unwritten rule that officials cannot be promoted when they reach the age of 68. The party signalled last year that the rule was not binding. However, deferring retirement would raise questions about whether Xi, 64, would himself use that as precedent to retain his roles as party and military chief beyond completion of the traditional two five-year terms. Regardless of title, Wang's next role may include a remit that extends to management of China's economy, whose growth is imperilled by heavy debt and inefficient state enterprises. "Wang Qishan has a very strong economic policy voice. I could entirely see a circumstance under which he's given another role that brought that out more," said Duncan InnesKer, regional director for Asia for the Economist Intelligence Unit. Wang was previously a vice governor of the central bank, and as a vice premier with an economic portfolio helped oversee China's recovery from the 2008 global financial crisis. Another possible scenario is that the retirement age for Chinese officials

would be extended to 70, the sources said. Wang could therefore retain his Standing Committee seat and head the National Supervisory Commission, a super-ministry that would absorb the Central Commission for Discipline Inspection (CCDI) he now heads. But the sources said keeping him in that role risked cementing the anti-corruption campaign as Wang's legacy, rather than Xi's. "If Wang Qishan continued as CCDI secretary, his achievements would be so great it would shock his master," a leadership source said, quoting a Chinese idiom. China's State Council Information Office, which doubles as the party's spokesman's office, did not respond to a request for comment on Wang's future. The party's anti-graft watchdog also did not respond to a request for comment.

Active schedule

After an absence from the spotlight in the summer, Wang has been increasingly active in recent weeks, meeting with high-profile foreign visitors. In September, he met Singapore's prime minister and Cambodia's deputy prime minister, while the Financial Times reported that Wang had a secret meeting with Steve Bannon, a key former advisor to U.S. President Donald Trump. "These meetings show Wang is setting himself up to stay on," said a senior Asian diplomat who declined

to be identified given the sensitivity of the matter. Wang has transformed his commission into one of China's most powerful bodies, with 1.34 million officials punished since 2013 and dozens of top officials jailed, including the powerful former domestic security chief, Zhou Yongkang. Some analysts and party insiders said it was possible Wang would simply retire, as precedent dictates. Having overseen the jailing or punishment of more than one million Communist Party, government and military officials, Wang has accumulated many enemies, the sources said. Keeping Wang on the standing committee at the expense of younger candidates for promotion could also put pressure on Xi. Wang may also want to retire, some of the sources said. "He will stand down mainly because Xi does not need him any longer and changing the retirement age rule carries significant political costs," said Steve Tsang, director of the China Institute at the School of Oriental and African Studies in London. Wang's retirement could also be perceived as a victory for Guo Wengui, the fugitive tycoon who has made unsubstantiated corruption allegations against senior party officials, including Wang and his family. More generally, one of the sources with leadership ties said, Wang's retirement could see "corrupt elements launch a counteroffensive and try to retrieve lost ground". Reuters

Investment

Alibaba to double R&D spending to US$15 billion over 3 years It’s calling its global research program the Alibaba DAMO Academy Lulu Yilun Chen

Alibaba Group Holding Ltd. will more than double research and development spending to US$15 billion over the next three years to develop next-generation technology, drive its sprawling business and explore moonshot projects that could upend industries. The e-commerce giant plans to set up seven research labs and hire 100

scientists around the world to delve into artificial intelligence, the Internet of Things and quantum computing, the company said in an emailed statement. Specific fields include machine learning, visual computing and network security. The program marks a significant ramp-up in its R&D outlay and is intended to help the US$469 billion behemoth keep pace with Amazon.com Inc. and

Tencent Holdings Ltd. in potentially industry-changing advancements. It’s in line with ambitions voiced by top policy makers who want China to become a global leader in artificial intelligence. “The labs will help solve issues that Alibaba is currently facing across its business lines,” Jeff Zhang, Alibaba’s chief technology officer, said in a telephone interview. “It will also be at the forefront of

developing next-generation technology.” The planned investment compares to the US$6.4 billion the company spent on R&D over the past three fiscal years, according to data compiled by Bloomberg. It’s calling its global research program the Alibaba DAMO Academy-- short for Discovery, Adventure, Momentum and Outlook. It will set up labs across China, the U.S., Russia, Israel and

Singapore and fund collaborations with universities, including the University of California at Berkeley. And it’s enlisted professors from institutions such as Princeton and Harvard to sit on an advisory board. Alibaba already has 25,000 engineers and scientists on staff and has spent an average RMB20 billion (US$3 billion) a year on research, the company said in the statement. Bloomberg news

Business Daily Thursday, October 12 2017 11

Asia Official data

Japan core machinery orders rise in signs of pick-up in capex Orders from manufacturers jumped 16.1 per cent month-on-month in August Tetsushi Kajimoto

apan's core machinery orders rose for a second straight month in August, handily beating market expectations, signaling a pickup in capital expenditure that should encourage Prime Minister Shinzo Abe ahead of a general election this month. The premier hopes to convince voters in the Oct.22 elections that his "Abenomics" recipe of aggressive monetary stimulus, fiscal spending and reform plans has improved the economy enough to stoke a sustainable recovery. Cabinet Office data showed yesterday that core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 3.4 per cent on-month in August. That beat the median estimate of a 1.1 per cent increase seen in a Reuters poll of economists, following an 8.0 per cent gain in July. The value of core orders, which exclude those of ships and utilities' electrical power equipment, stood at 882.4 billion yen (US$7.86 billion), the highest since July 2016. "There are uncertainties such as the outlook for U.S. President Donald Trump's trade policy, North Korea,

Key Points Aug core orders +3.4 pct m/m vs forecast +1.1 pct Core orders +4.4 pct yr/yr in Aug vs forecast +0.8 pct Govt raises machinery orders view, notes signs of pick-up Capex expected to remain on firm footing -analysts and Japan's political risks, but conditions surrounding capital spending remain basically favourable," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Capital expenditure will

perform well in the coming one to two years." Analysts expect capital expenditure to pick up gradually, backed by refurbishing demand, infrastructure investment for the 2020 Tokyo Olympic Games, and spending on labour-saving equipment, as well as spending encouraged by low borrowing costs enabled by the Bank of Japan's negative interest rate policy. "The current level of orders remains consistent with a further increase in capital spending last quarter," Marcel Thieliant, senior Japan economist at Capital Economics noted in a report. "The continued recovery in capital goods shipments

excluding transport equipment also suggests that the expansion in investment spending remains intact." Orders from manufacturers jumped 16.1 per cent month-on-month in August, driven by general-purpose production machinery such as machine tools, while service-sector orders grew 3.1 per cent, led by orders for boilers and turbines. The Cabinet Office raised its assessment of machinery orders from stalling to showing "signs of pick-up". Overseas orders, which are not counted as core orders, grew 11.5 per cent in August, due to some big-ticket orders including power generators and aircraft.

The BOJ's closely-watched quarterly tankan survey showed last week that big firms plan to increase capital spending by 7.7 per cent in the current fiscal year ending in March 2018, underscoring the view business expenditure is on a firm footing. A sustained recovery in business expenditure should support the central bank's view that a virtuous circle of private sector-led growth will take hold in the economy. Still, wage growth and inflation remain stubbornly low despite recent signs of rebounding private consumption, keeping the BOJ under pressure to maintain its massive monetary stimulus. Reuters

Survey

Australian consumers rediscover optimism in October A measure of Australian consumer sentiment jumped to its highest this year in October as an outbreak of optimism about the economic outlook and family finances overcame months of caution The survey of 1,200 people by the Melbourne Institute and Westpac Bank published yesterday found consumer sentiment climbed 3.6 per cent in October, on top of a 2.5 per cent rise the month before. The index reading of 101.4 meant optimists outnumbered pessimists for the first time since November last year. The pick-up will be a relief to policy makers after a shock slide in retail sales for August sparked concerns that consumers were going on strike. "Consistent reports of an improving global economy may have been a factor behind this lift," said Westpac chief economist Bill Evans. "Ongoing improvements in the labour market are also boosting confidence," he added, noting that sentiment

among "trade" workers surged this week confirmed the retail 22 per cent in October amid sector was under heavy presstrength in home and infra- sure, even as activity across other industries was the best structure construction. While employment growth in almost a decade. The outlook has accelerated on the economarkedly this my improved year, it was not markedly with accompanied the index for by a revival in the next 12 wages, cloudmonths up 7.1 ing the outlook per cent, and for household that for the incomes. next five years The better rising 1.4 per mood could cent. be positive for R es p o n dthe struggling Bill Evans, ents were still retail sector, Westpac chief economist guarded about with the survey's index of whether it was finances, likely reflecting a good time to buy a major wall-to-wall media coverage household item rising 3.7 per of escalating energy prices. The survey's measure of cent in October. A survey of businesses out family finances compared to

a year ago edged up 1.0 per cent in the month, but was still down 6.1 per cent on October last year.

Analysts note that, historically, business surveys have a far closer correlation to activity in the broader

Still, the measure of finances over the next 12 months fared better with an increase of 4.2 per cent from September.

economy than do polls of the consumer mood, which can prove fickle from month to month. Bloomberg

“Consistent reports of an improving global economy may have been a factor behind this lift”

12 Business Daily Thursday, October 12 2017

Asia Real estate

Australia's corporate watchdog to investigate interest-only home loans A review found borrowers who used mortgage brokers were more likely to obtain an interest-only loan than those who went directly to a lender Wayne Cole and Swati Pandey

ustralia's corporate watchdog said yesterday it will scrutinise individual home loan records to ensure that mortgage providers are not unfairly selling risky interest-only loans to make quick profits. Interest-only loans are massively favoured by speculative property investors taking advantage of generous tax breaks, driving rapid gains in housing prices in recent years. Regulators have intensified pressure on the country's biggest banks in recent months to slow down lending, worried that excessive debt in the property market will hurt spending elsewhere in the economy and lead to financial stability risks. The Australian Securities & Investment Commission (ASIC) said it would examine individual loans, including to owner-occupiers, to ensure that lenders are providing interest-only home loans in "appropriate circumstances". "The spotlight has been firmly on interest-only lending for some time, and there are no excuses for lenders and brokers not meeting their legal obligations," ASIC Deputy Chair Peter Kell said. The first stage of the ASIC review, announced in April, showed that the country's four major banks had cut

“The spotlight has been firmly on interestonly lending for some time, and there are no excuses for lenders and brokers not meeting their legal obligations”

continued to back on risky be provided interest-onwith a signifly loans but icant number smaller playof such loans, ers had offset expecting that decline solid price by increasing growth to their share. easily cover The review th e p r i n c i also found pal when the borrowers property was who used resold, putmortgage ting retirebrokers were ment incomes more likely at risk. to obtain an Home pricinterest-onPeter Kell, es across Ausly loan than ASIC Deputy Chair tralia's major those who c i t i e s h av e went directly continued to rise, although to a lender. AS I C sa i d b o r r o w e rs the gains have tempered reapproaching retirement cently as banks cut back on

lending. Sydney suffered a rare dip in September, but annual growth remained high at 10.5 per cent. Australia's "Big Four" banks control 80 per cent of the lending market and have posted record profits for years. They have been mired in controversy and scandal, including charges of interest-rate rigging. Out-of-cycle mortgage rate rises targeting interest-only loans have generated the biggest public outcry, as home-owners struggle to meet high repayments in the face of sluggish wages growth. Out-of-cycle rises refer to increases in mortgage rates imposed by banks even

though the central bank has not raised its reference rates. Westpac Chief Executive Brian Hartzer told a parliamentary committee that while commercial issues were taken into account when making out-of-cycle rate increases, decisions were driven by regulatory pressure to contain a potential housing bubble. "You are asking me about a specific change in interest rates and I am telling you the truth, which is that the driver of that was to meet the (Australian Prudential Regulation Authority) requirements while preserving choice for customers," Hartzer told a hearing into bank culture and accountability. Reuters

Fundraising

Ola raises US$1.1 bln in Tencent, SoftBank-led round The company is in advanced talks with U.S.-based financial investors for a second tranche Aditi Shah

Indian ride-hailing firm Ola has raised US$1.1 billion from investors led by China's Tencent Holdings and Japan's SoftBank Group and is in advanced talks with other investors for another US$1 billion. The funds will give a leg up to

Key Points Ola in talks with U.S.-based investors for another US$1 blnsource Ola to use funds to boost footprint in India and driver supply To also invest in AI and machine learning capabilities

Ola that has been locked in a fierce battle with rival Uber for a bigger piece of India's US$12 billion taxi market. Both firms have already

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burnt millions of dollars to lure users in a bid to outdo each other. Ola will use the funds to increase its numbers of drivers and expand its presence to more cities, it said in a statement yesterday. The company, which currently has a majority share of India's ride-hailing market, operates in

110 cities and has a wide range of transport options including bikes, auto-rickshaws and electric cars. Uber is present in about 30 cities. It also said it would invest in artificial intelligence and machine learning capabilities, which includes technologies like its in-car entertainment platform called Play

that allows riders to choose music and stream videos. The company is in advanced talks with U.S.-based financial investors for the second tranche, which would also include funds from existing investors, a source close to the company said, declining to be identified as the talks were not yet finalised. Once the second tranche is complete Ola would have raised over US$2 billion. Prior to this, the company had raised about US$1.9 billion since it began operations in 2011. Uber, valued at about US$69 billion, has pumped millions of dollars into India but has not been able to grow its presence at the same speed as Ola. And with Uber's new CEO Dara Khosrowshahi focused on portraying the firm as a reformed company that is turning a page on concerns including sexual harassment claims and a U.S. bribery probe, Ola has an opportunity to further extend its lead in India. Reuters

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Business Daily Thursday, October 12 2017 13

Asia Demilitarized zone

In Brief

South Koreans seek to visit once-jointly run factory zone in North A group of South Korean businessmen who own factories in the Kaesong industrial complex inside North Korea said yesterday they want to visit to verify the North's claim that it had restarted some operations there on its own

Forecast

India investors eye tax overhaul impact earnings Profits from India's top firms are expected to have swung back to growth in JulySeptember from a decline in the previous quarter, though economic headwinds are likely to have kept the pace of growth sluggish. The latest results are critical for investors, marking the first quarter since the rollout of a national goods and services tax (GST) on July 1 and coming amid a wider retreat in share markets on investor concern about stocks being overvalued. Forecasts compiled by Reuters show net profits are expected to rise 12.8 per cent in the latest quarter for members of the main NSE index, known as Nifty. North Korea

NZ aircraft maker pleads guilty to breaching U.N. sanctions Hyonhee Shin

outh Korea pulled out of the joint venture last year in response to the North's nuclear and missile tests, ending more than a decade of cooperation at the factory park, on the North's side of the demilitarized zone (DMZ), that was the last remaining symbol of inter-Korean cooperation. North Korea's state-run web sites said on Friday North Korean workers were operating in the district, adding that it was "nobody's business what we do in an industrial complex where our nation's sovereignty is exercised". The South Koreans said they would ask the Ministry of Unification for permission to visit. South Koreans have to obtain approval to contact North Koreans or travel in the country. The two sides

are technically still at war after their 1950-53 conflict ended in a truce, not a treaty. "We urge the North to immediately halt the operation of any of our corporate assets," said Shin Han-yong, the leader of the group, who used to operate a plant making fishing nets in Kaesong. In recent weeks, North Korea has launched two missiles over Japan and conducted its sixth nuclear test, a sign that it may be fast advancing toward its goal of developing a nuclear-tipped missile capable of hitting the U.S. mainland. U.S. Secretary of State Rex Tillerson said last weekend that Washington was directly communicating with the North on its weapons programmes but that it had shown no interest in dialogue. When the South suspended the

operations at the industrial park, it said the North had diverted wages paid to its workers by South Korean firms to fund its nuclear and missile programmes. But in July, two months after liberal President Moon Jae-in was elected in the South, a government official said there was no hard evidence to back up the assertion. Moon had initially sought to engage North Korea in talks and cooperation, but current political tensions have tied the president's hands. Despite military tension, the businessmen's visit, if it comes off, may provide a chance to restart talks with the North, Shin said. "We don't know if the North will accept our trip at a time when it only sees the U.S. as its dialogue partner, but we are pinning our hopes on a one in ten chance that may exist," he said. Reuters

New Zealand aircraft manufacturer Pacific Aerospace Ltd has plead guilty in a New Zealand court to indirectly exporting aircraft parts to North Korea, according to Fairfax Media. New Zealand Customs charged the Hamilton-based manufacturer earlier this year with unlawfully sending aircraft parts to North Korea, in breach of 2006 United Nations sanctions. Pacific Aerospace and NZ Customs did not immediately respond to request for comment. A U.N. Security Council report in February said it had investigated a 10-seater aircraft manufactured by Pacific Aerospace that had been flown at North Korea's Wonsan Air Festival in September 2016. Supreme Court

Diplomacy

Cambodia's Hun Sen renews criticism of United States amid escalating row U.S. Ambassador to Cambodia William Heidt last month rejected government accusations of U.S. interference Pooja Thakur

Cambodian Prime Minister Hun Sen (pictured) yesterday renewed his criticism of the United States, a week after a leading opposition figure fled the country over fears of a widening crackdown on government critics ahead of next year's election. Hun Sen, who has ruled Cambodia for more than 30 years and shows no sign of wanting to relinquish power, has forced the closure of several English-language media and jailed government critics, including opposition leader Kem Sokha. Bombs recently discovered at nine sites in southeastern Svay Rieng province had been dropped by the United States during the Vietnam war, Hun Sen said in a speech to workers at garment factories that export most of their output to the U.S. "These bombs dropped on Cambodia belong to the United States," Hun Sen said in his latest comments in a growing row over his accusations that American agents conspired with Kem Sokha to overthrow the government. Hun Sen accused the United States of double standards, saying it was critical of his handling of Kem Sokha's case but had shown no respect for human rights in Cambodia when it dropped the bombs. Cambodia ranks among the world's nations most littered with unexploded ordnance, says the Mines Advisory

Group, which helps find and destroy unexploded devices that kill and injure an average of two Cambodians each week. The U.S. Embassy in Phnom Penh did not immediately reply to a Reuters request for comment on the Wednesday remarks. Last week the government filed a lawsuit demanding the dissolution of the opposition Cambodia National Rescue Party (CNRP), a move that would help Hun Sen extend his rule at the election. Other parties were ready to replace the CNRP if it was dissolved, Hun Sen said yesterday, adding, "if one party is dissolved, five other parties will replace it." Western countries have condemned Kem Sokha's arrest for treason and

have questioned whether the election can be fair, following the crackdown on opposition leaders, activists and journalists. U.S. Ambassador to Cambodia William Heidt last month rejected government accusations of U.S. interference and urged the release of Kem Sokha, who faces 30 years in jail if convicted. Half of Cambodia's opposition MPs have fled, including outspoken deputy leader Mu Sochua, who left last week. Hun Sen, a former Khmer Rouge commander who defected from the genocidal group and helped drive it from power in 1979, is allied to China, and Beijing says it supports the Cambodian government's efforts to maintain national security. Bloomberg NEWS

Philippine lawyers ask to halt 'illegal' war on drugs A group of Philippine lawyers yesterday filed an injunction with the Supreme Court to try to stop President Rodrigo Duterte's bloody war on drugs, calling it as an illegal campaign that lets police kill and circumvent legal procedures. The government's directive for the fierce 15-month-old crackdown permits police to "negate" and "neutralise" targets, effectively granting them a license to kill suspected users and dealers, without gathering evidence or building a case, the lawyers said. A practice of compiling lists of "drug personalities" and encouraging citizens to anonymously provide names was tantamount to drawing up a hit list, the petition said. Monarchy

Thailand prepares to bid farewell to 'the people's king' Thailand is putting the finishing touches this month to a lavish five-day funeral ceremony in a final goodbye to its late King Bhumibol Adulyadej, who helped shape the Southeast Asian nation for decades after World War Two. Many of the hundreds of thousands of black-clad mourners are expected to camp for days near Bangkok's Grand Palace to capture a good view of the ceremonies, which will be guarded by 78,000 police officers and culminate in the cremation on Oct. 26. "October is a sad period," Prime Minister Prayuth Chan-ocha said.

14â&#x20AC;&#x201A; â&#x20AC;&#x201A; Business Daily Thursday, October 12 2017

International In Brief

Hammond

UK preparing for no Brexit deal Britain is planning for all possible Brexit outcomes, including a 'no deal' scenario, but will not give government departments money to spend on contingency arrangements yet, finance minister Philip Hammond said yesterday. "I am clear that we have to be prepared for a no deal scenario unless and until we have clear evidence that that is not where we will end up," Hammond told a parliamentary committee. "What I am not proposing to do is to allocate funds to departments in advance of the need to spend ..." Germany comments

Solution to Catalonia crisis only under Spanish law A dispute between the Spanish government and the leaders of Catalonia over the region's efforts to seek independence could only be solved through talks based on the Spanish constitution, German Foreign Minister Sigmar Gabriel said yesterday. "A unilateral declaration of Catalonian independence would be irresponsible," Gabriel said in a statement. "A solution can only be found through talks on the basis of the rule of law and within the framework of the Spanish constitution."

Diplomacy

Iran foreign minister tells lawmakers of plans to respond to Trump moves Iran will react sharply to any U.S. move against the nuclear deal with global powers, Foreign Minister Mohammad Javad Zarif told the Iranian parliament yesterday, according to a parliamentarian who attended the session quoted by state media

he comments were the latest in a series of tough remarks from Iran's leadership, showing a united front between its pragmatist and hardline factions as U.S. President Donald Trump prepares to harden policy towards Tehran this week. "In the closed session Zarif emphasised that if the Americans take any steps against the nuclear deal that the Islamic Republic of Iran will give them a more crushing response," Shahbaz Hassanpour, a lawmaker representing the city of Sirjan, told the Islamic Republic News Agency (IRNA). Another lawmaker, Behrouz Nemati, said the foreign minister discussed specific steps Trump and the U.S. Congress might take, and Iran's plans for reciprocal action to each anticipated U.S. move. Nemati did not say what actions Zarif had described.

Trump is expected this week to "decertify" the landmark 2015 deal under which Iran agreed with global powers to accept curbs on its nuclear programme in return for the lifting of international sanctions. Decertification would not by itself withdraw the United States from the agreement, but would pass that decision on to Congress, requiring lawmakers to decide within 60 days whether to re-impose sanctions. Trump is also expected to declare Iran's Revolutionary Guards Corps a terrorist organisation. Since the Guards have a vast economic empire in Iran, such a declaration could make it more difficult for Iranian businesses to access the international financial system. Washington has already blacklisted other entities and individuals for supporting Guards' activities,

but has not blacklisted the Guards themselves. The threat of increased U.S. pressure has been met by a united front of criticism from within Iran, with members of the pragmatic faction that seeks greater interaction with the West showing their support for the hardline Guards. Iranian newspapers ran photos on Tuesday of Zarif, the urbane, U.S.-educated foreign minister, laughing and hugging the head of the Guards, Mohammad Ali Jafari. During the meeting with Zarif, parliament members expressed their support for the Guards, Hassanpour said. Zarif also noted during the session that European countries will continue backing the nuclear deal regardless of what actions the U.S may take, Hassanpour told IRNA. Reuters

Trump is expected this week to "decertify" the landmark 2015 deal

Technology

Despite sanctions, Russian organisations acquire Microsoft software Software produced by Microsoft Corp has been acquired by state organizations and firms in Russia and Crimea despite sanctions barring U.S-based companies from doing business with them, official documents show U.S. poised to boost unmanned aircraft exports The Trump administration is nearing completion of new "Buy American" rules to make it easier to sell U.S.-made military drones overseas and compete against fast-growing Chinese and Israeli rivals, senior U.S. officials said. While President Donald Trump's aides work on relaxing domestic regulations on drone sales to select allies, Washington will also seek to renegotiate a 1987 missile-control pact with the aim of loosening international restrictions on U.S. exports of unmanned aircraft, according to government and industry sources. At home, the U.S. administration is pressing ahead with its revamp of drone export policy under heavy pressure from American manufacturers.

Almaz-Antey, did not respond to a request for comment. The defence ministry's health spa in Crimea declined to comment. Glavgosexpertiza said "the company operates within the Russian legal framework".

The acquisitions, registered on the Russian state procurement database, show the limitations in the way foreign governments and firms enforce the U.S. sanctions, imposed on Russia over its annexation of the Crimea peninsula from Ukraine in 2014. Some of the users gave Microsoft fictitious data about their identity, people involved in the transactions told Reuters, exploiting a gap in the U.S. company's ability to keep its products out of their hands.

transactions confirmed to Reuters the software had been acquired. The Reuters review of the database found state entities in Russia and Crimea that are subject to sanctions have acquired more than 5,000 Microsoft products worth about 60 million roubles (US$1.03 million). The sum is relatively small but such software is vital for many firms and organisations in Russia and Crimea to operate. The database also does not include private companies, so the scale of the problem could be much bigger. Among entities hit by sanctions that

One set of U.S. sanctions prohibits the export by a U.S. entity of any goods, services or technology to Crimea. Other sanctions bar U.S. firms from carrying out transactions with companies or individuals on a list of "specially designated nationals" deemed

The products in each case were sold via third parties and Reuters has no evidence that Microsoft sold products directly to entities hit by the sanctions. "Microsoft has a strong commitment to complying with legal requirements and we have been looking into this matter in recent weeks," a Microsoft representative said in an emailed response to questions from Reuters. All state organisations and state firms are obliged to disclose purchases they make on the procurement database. People involved in five of the

acquired Microsoft products was Almaz-Antey, manufacturer of the BUK surface-to-air missile. Dutch prosecutors say a BUK missile brought down a Malaysian Airlines passenger jet over east Ukraine in July 2014, though Russia denies its forces shot down the plane. Other Microsoft buyers, the database shows, include Glavgosexpertiza, a state design agency involved in work on a new bridge from Russia to Crimea and the "Krym" health spa in Crimea owned by Russia's defence ministry. T h e a r m s m a n u f a c t u r e r,

by Washington to be linked to the Russian government and its activities in Ukraine. Microsoft did not directly respond to detailed questions about specific users of its products and the compliance procedures it has in place. The products acquired by organisations hit by sanctions include "Open License Program" services, where the user must provide Microsoft with the company's full name and address. Almaz-Antey, Glavgosexpertiza and the defence ministry spa acquired "Open License Program" products, the database showed. Bloomberg news

Zainab Fattah Game of drones

Compliance crackdown

Eurogroup head Dijsselbloem to leave Dutch politics Outgoing Dutch Finance Minister and Eurogroup head Jeroen Dijsselbloem will leave national politics when a new government takes office in approximately two weeks, he wrote in a letter yesterday. Dijsselbloem's Labour party was heavily defeated in the March 15 election and will not be part of the new government, agreed this week after months of coalition talks. "I am leaving Dutch politics. It is not easy," he wrote in a letter published by the party. "I have reached the conclusion that is this position, this stage, I don't have the fire power."

Business Daily Thursday, October 12 2017 15

Opinion Business Wires

Bangkok Post The cabinet yesterday approved 4 billion baht from the National Broadcasting and Telecommunications Commission (NBTC) budget to develop a "doing business" portal, envisioned as a one-stop solution for helping startups. According to Kobsak Phutrakul, assistant minister to the Prime Minister's Office, the portal is a business licensing platform that will deliver a more user-friendly and efficient licensing experience. The portal will simplify the application and payment process for licence-related fees and let businesses apply for multiple licences at once. Other features include the updating, renewal and termination of licences. The portal will offer services at https:// biz.govchannel.go.th. The first phase is to include 21 types of licences in 2018, expanding to cover 50 services in the second phase in 2019 and 300 in 2020.

Philstar Exports extended their growth trajectory for the ninth consecutive month in August, driven by double-digit growth in shipments to ASEAN, EU and other Asian trade partners, the Philippine Statistics Authority (PSA) said Tuesday. In its report on the country’s trade balance, PSA said exports rose 9.3 per cent to US$5.51 billion during the month from US$5.04 billion last year. At the same time, PSA said increased inbound shipments of capital goods led imports to grow at a faster 10.5 per cent to US$7.92 billion in August from US$7.17 billion in the same period last year. As imports still outpaced exports during the reference period, the country still incurred a trade deficit of US$2.41 billion, up from US$2.13 billion last year.

The Phnom Penh Post The General Department of Taxation collected US$1.54 billion in tax revenue during the first nine months of the year, a 29 per cent increase compared to the same period last year, it said in a press release yesterday. The figures provided showed value-added tax collections soared by 41.9 per cent year-on-year during the first nine months of 2017, while profit tax revenue increased by 33.2 per cent. In addition, special tax revenue – which includes additional fees on automobile parts, cigarettes, beer and alcohol – increased by 12.5 per cent yearon-year during the period, with salary tax growing by 4.2 per cent.

Korea Herald South Korea imposes emission standards on eight private coal power plants under construction that are stronger than those in Germany and Japan, a report said yesterday. The government has set the permissible sulphur oxide emission level at 15 ppm, which compares with 39 ppm for Japan and 70 ppm for Germany, according to the report written by Rep. Lee Che-ik of the major opposition Liberty Korea Party and based on data obtained from the Ministry of Trade, Industry and Energy and state-run electricity firms. The level for nitrogen oxide was set at 10 ppm, while the comparable figures for Japan and Germany were 34 ppm and 97.4 ppm.

Amazon needs to prove video isn't a prime distraction

mazon is a company that gets the benefit of the doubt. A lot. No technology company is as ambitious or as feared. Yet no one really knows Amazon's business strategy, and that's by design. Most investors are happy for Amazon to remain a mysterious fog as long as it keeps surprising with one successful business after another. But there is one area where Amazon.com Inc. no longer deserves a pass from investors, and that's its internet video offerings. Perhaps for the first time since Amazon started its own Netflix-like web video service four year ago as a perk for Prime members, the company's entertainment strategy has gone off the rails. That should raise fresh doubts about the wisdom of Amazon spending billions of dollars annually to feed its internet video service. Amazon investors deserve a better justification now for what the company gets out of this business. The explanation from Amazon CEO Jeff Bezos has long been that people who use the Prime internet video service tend to stick with the shopping club, and become paying members after free trial offers, at a higher rate than people who don't watch Amazon internet video. The video options, in short, are part of Amazon's much-lauded "flywheel" for Prime. The trite phrase refers to the cycle in which people consider Prime a good value and therefore shop more on Amazon, which makes the company's shopping mall more expansive and efficient, which makes more people sign up for Prime. Amazon has said video is an important element of this flywheel. As Bezos quipped in an interview last year, "When we win a Golden Globe, it helps us sell more shoes." Lately it seems as if Amazon is simply being trod into the dirt. Numerous articles have discussed Amazon hitting the reset button on its strategy for the original movies and TV shows it commissions for Prime members. The number of viewers has been too small for Bezos's liking, and he has ordered his troops to make fewer gloomy dramas and more buzz-generating shows like HBO's "Game of Thrones." Even the U.S. television programming with the biggest mass-market appeal, National Football League games, has so far drawn only a few hundred thousand people to Amazon's streaming of Thursday night games. The entertainment industry awards that Bezos likes to brag about are getting harder to come by, and the costs are mushrooming. Wedbush Securities has figured Amazon will spend roughly US$4 billion this year on TV series and movies, up from more than US$1 billion in 2014.

“

Shira Ovide Gloomberg Gadly columnist

Television networks and Hollywood movie studios shake up their strategies often, so Amazon is in familiar company. The more worrying sign is that Amazon doesn't seem to have a coherent strategy for what programming it should be serving up. Roy Price, the executive who shepherds Amazon's exclusive entertainment programs, said earlier this year that the company didn't necessarily harness viewership information to decide what series or movies to commission. "You can look at what people watch, but you can't be too deterministic about that," he said in April. A recent Wall Street Journal article about Amazon's entertainment headaches included this brutal assessment from a company executive: "We were supposed to bring the best practices of one of the most successful companies in America to Hollywood. ... Instead, we’re getting chewed up." It sure sounds as if Amazon's approach to TV series and movies is quite similar to the hit-or-miss tactics of a Hollywood mogul, and it's not working. And if Amazon isn't being analytically rigorous about selecting which programming to splurge on, why should investors trust that the company is being rigorous about the causal relationship between usage of Amazon's internet video service and loyalty to Prime? The business validity of Amazon's internet video ambitions is more crucial now because the company is expanding on multiple fronts. It has a growing physical footprint, in part thanks to its acquisition of the Whole Foods supermarket chain. It sells an array of consumer electronics. It is adding package shipping centres and merchandise warehouses rapidly and branching out internationally. Analysts keep being surprised at the size of these investments, which have crimped the company's already skinny profit margins. Still, Amazon has been rewarded for its ambitions because the Prime shopping club has changed retailing and made a mint for the company. Fees from Prime and other subscription options amounted to US$6.4 billion last year, more than double the 2014 figure. And analysts think Prime members tend to spend more on Amazon. But we only have Amazon's say-so that its spending on internet video is fuelling the Prime flywheel. To go back to Bezos's quip, it's time for Amazon to prove the link between winning Golden Globe awards and ringing up sales of shoes. Bloomberg Gadfly

The business validity of Amazon's internet video ambitions is more crucial now because the company is expanding on multiple fronts

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16 Business Daily Thursday, October 12 2017

Closing Part Congress

No Vacancies: Airbnb shutters Beijing rentals ahead of Party Congress

U.S. short-term rental service Airbnb Inc has removed listings in Beijing as the capital prepares to host a five-yearly Party Congress later this month, the most important event on China's political calendar during which security is at its highest. A Reuters search yesterday of Airbnb listings in the city's centre yielded "zero" results for all of October. Listings were present as recently as Tuesday evening for periods including the congress dates of Oct. 18 to 31. "Due to external circumstances, homes in certain areas in Beijing are unavailable through October 31," Airbnb said

in an email to hosts reviewed by Reuters. The move, mirrored by local rental firms, comes a week before the congress where President Xi Jinping is widely expected to consolidate power in a leadership reshuffle. Such high-profile events are often accompanied by increased surveillance and online censorship. During the last Congress, in 2012, access to Alphabet Inc's Google search engine was cut off. Google services have since been blocked in China. For this year's event, authorities have stepped up ID checks at metro stations and elsewhere in an effort to detain unregistered workers and others illegally residing in Beijing. Reuters

M&A

Mainland debt-for-equity swaps turn out more like debt-for-debt One criticism is that it keeps afloat struggling enterprises, leaving excess capacity intact and pulling down productivity Lianting Tu

key Chinese initiative to rein in the world’s largest corporate-debt load has been a program swapping some loans into equity stakes. As the initiative gets going, however, it’s becoming clear the debt isn’t really going away. In a late-summer notice, central government officials said that new bonds should be used to finance the swaps, effectively moving the debt off the balance sheets of the original lenders onto those buying the new debt. The first such deal came last month, according to China Lianhe Credit Rating Co., a domestic rating firm. Shaanxi Coal and Chemical Industry Group Co., a troubled oldline industrial company, was targeted for a debt-for-equity swap. Then the Shaanxi provincial government in northwest China set up an asset-management company to raise new debt to pay off the existing lending that was designated to be swapped for an equity stake. O n e c ri ti ci s m o f th e debt-for-equity initiative, which was launched a year ago, is that it keeps afloat struggling enterprises, leaving excess capacity intact and pulling down productivity.

The Shaanxi example shows a further weakness: while the company won’t need to service debt any more, the new asset-management unit will -- without any new source of revenue having been generated. “If the funding comes from debt, it’s really not solving the issue here because the capital is not permanent capital,” said Christopher Lee, managing director of

credit for shares. Instead, new entities are raising financing that allows the original creditors to offload those assets. Funding for the deals could come from sources such as private equity or bonds sold by asset-management companies. In last month’s operation, Shaanxi Financial Asset Management Co. sold RMB500 million (US$76 million) in six-year bonds in a private

government didn’t respond to an email seeking comment on the deal. It wasn’t immediately clear who the buyers were. The total value of lending designated to be swapped into equity in China has topped RMB1 trillion, involving more than 70 companies, according to an official statement in August. Though plenty of deals have been announced, there are major gaps in funding,

corporate ratings at S&P Global Ratings in Hong Kong. “In fact, you are adding more debt just to refinance the debt that was going to be swapped.” Because of potential conflict-of-interest concerns, the original lenders to now-troubled companies aren’t encouraged to swap their own

placement, China Lianhe Credit Rating said in a Sept. 26 report. The asset manager, established in August last year with registered capital of RMB4.5 billion, has already signed RMB40 billion of debt-swap agreements with Shaanxi Coal and Chemical, the report said. The Shaanxi provincial

with institutional investors remaining cautious about the program and banks also reluctant to dive in. For example, China Construction Bank Co., one of the country’s four biggest lenders, had signed RMB544.2 billion of swap deals with 41 companies by the end of July, but less than 10 per cent

of that had been funded, according to the bank.

Diversifying risk

While it’s still a work in progress, the advantage of the program is that the financial risks stemming from these mainly state-owned enterprises will be diversified, through the participation of private companies and financial institutions along with local authorities, according to advocates including China Lianhe Credit Rating, which gave the Shaanxi bond a top AAA grade. A bigger question is whether the initiative will end up reducing debt, however. That ultimately depends on the valuation of the equity stakes taken by the financing units involved. If companies turn around and the shares climb, then the units can sell and retire the new debt. If not, then the private sector is saddled with soured SOE obligations. “The question is whether this will transfer debt from the public sector to the private sector,” said Ivan Chung, head of Greater China credit research at Moody’s Investors Service in Hong Kong. Selling bonds “could be a new direction for the debt-to-equity swap program. But whether it will result in deleveraging in a meaningful way, it will take some time to tell.” Reuters

Exports

Steel

Finance

Taiwan Sept exports surge at best pace in 7 yrs, showing solid tech demand

Indian steel capacity set to more than double on demand boom

EU revises plan on banking safety net to win over Germany

Taiwan's already-buoyant exports surged much more than expected in September, growing at the fastest on-year pace in more than seven years, thanks to strong global demand for electronic gadgets at the start of the year-end shopping season. Exports in September rose 28.1 per cent from a year earlier, the finance ministry said yesterday. That was the fastest growth pace since July 2010, when shipments shot up 38 per cent, and more than double the 12.50 per cent forecast in a Reuters poll. In the three months prior to September, Taiwan's exports increased between 12 and 13 per cent. The September export total was US$28.9 billion, which the ministry called a "new historical high". Electronic components accounted for US$10.18 billion, a level the ministry also described as "historical". The ministry said a series of global developments, including quicker economic growth and "mobile device innovation upgrades", benefitted the island's export momentum. Taiwan's robust performance indicates continued strength for Asia exports this year, lifted by improving global demand and electronics. For September, South Korea reported record exports of US$55.1 billion, 35 per cent above a year earlier. Reuters

Steel demand in India is gathering speed amid an infrastructure building boom that’s set to more than double capacity of the nation’s mills, according to the government. “We’re expecting domestic consumption to accelerate in the decade between 2020-2030,” Steel Secretary Aruna Sharma said in New Delhi. Annual capacity stands at 126 million metric tons and is forecast to rise to 150 million tons by 2021, before settling at 300 million tons, she said. India is in the midst of a wave of urbanization that is set to boost demand for everything from copper to iron ore to steel as the economy expands over the next two decades, according to an Australian government report. It’s taken seven years for per capita steel consumption to rise to 60 kilograms from 50 kilograms and just 18 months to get to 64 kilograms this year, Sharma said. While the government’s push on infrastructure will be the main driver for rising demand, the ministry is also seeking to boost steel’s use in structures including pipes for drinking water, Sharma said in an interview on Oct. 6. Bloomberg news

The European Commission proposed yesterday new measures to strengthen the EU banking sector against future crisis after two years of fruitless talks among the 28 EU states on more ambitious plans. The softer measures are designed to win over Germany, the largest economy of the bloc and the staunchest opponent of sharing banking risks among EU states. Germany's outgoing Finance Minister Wolfgang Schaeuble has repeatedly raised concerns that sharing risks would mean richer German banks propping up weaker rivals in other EU countries, such as Italy, Portugal or Greece. To convince Germany, whose new finance minister may be equally resistant, the Commission has put forward a watered-down plan, which reduces the sharing of banking risks than initially envisaged two years ago. It also proposes stricter conditions that states must meet before their banking sectors can access safety nets funded at EU level. The plan should be agreed by next year, the Commission said. EU rules guarantee all deposits up to 100,000 euros (US$118,000), a provision meant to strengthen confidence in the banking sector after a decade-long crisis that has seen the bailout of several top banks in the bloc. Reuters