Japan hesitates while defining casino rules Gaming Page 7
Thursday, July 6 2017 Year VI Nr. 1333 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro M&A
Probe into Mainland dealmakers raises doubts about debt Page 10
Subsidies
Government financial help for SMEs jumps Page 2
Expansion
MSAR accepts Alibaba application for trademark protection in the territory Page 2
www.macaubusinessdaily.com Pataca
Domestic money supply rebounds Page 4
Financial sector
Singapore postpones capital rules implementation Page 16
Divide and conquer Election
Legislator Chan Meng Kam has unveiled his strategy for the coming legislative elections. His whole group has decided to divide its forces in two for maximum exposure. With past election successes under his belt, he has confirmed, however, that he will not personally run. Page 3
Far horizons
BNU CEO Pedro Cardoso analyses the risks and challenges of the MSAR and Hengqin’s financial sector. Top of the agenda for the bank are the opportunities presented by the local property market - and the company’s strategy for expansion.
Facing up to the future
ATMs Mixed reactions. From economists and academics. Regarding the new measures implemented to monitor Mainland-card cash withdrawals from local ATMs. The consensus is that ID verification and face recognition will be just a temporary inconvenience for tourists. Page 4
Lam signals change in the weather
Banking Page 5
HK Hang Seng Index July 5, 2017
25,521.97 +132.96 (+0.52%) Worst Performers
Ping An Insurance Group Co
+3.66%
Galaxy Entertainment Group
+1.23%
China Unicom Hong Kong
CLP Holdings Ltd
-0.06%
Geely Automobile Holdings
+2.37%
Hengan International Group
+1.21%
China Mobile Ltd
-1.28%
Industrial & Commercial
+0.00%
China Life Insurance Co Ltd
+1.91%
China Resources Land Ltd
+1.12%
Cheung Kong Property
-1.26%
China Merchants Port Hold-
+0.00%
China Mengniu Dairy Co Ltd
+1.77%
China Resources Power
+1.09%
Kunlun Energy Co Ltd
-0.29%
Bank of Communications
+0.00%
AIA Group Ltd
+1.28%
CNOOC Ltd
+1.04%
CITIC Ltd
-0.17%
China Petroleum & Chemical
+0.00%
-4.09%
26° 30° 27° 29° 27° 30° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
HKSAR A message of conciliation. Sent by Hong Kong’s newly minted Chief Executive, Carrie Lam, from the Legislative Council yesterday. In a valid attempt to distance her Administration from the former chief, Lam promised to engage in frequent meetings with legislators. Page 8
2 Business Daily Thursday, July 6 2017
Macau Forum Macau
attributed to the Macau Forum. Teresa Mok steps in as Forum Macau fund president According to a dispatch published The co-ordinator of the Support Office of the Permanent Secretariat of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Macau) - also known as Forum Macau - will assume the additional position of president of the permanent fund
in yesterday’s Official Gazette, and confirmed with the Macau Forum, Ms. Teresa Mok Iun Lei takes over from Ms. Lao Man Teng, who held the position as a substitute when former President of Macau Forum Cristina Gomes Pinto Morais, who assumed the position in November 2015, stepped down.
Support
SME subsidies: Over MOP40 mln disbursed in June
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ome MOP41.8 million-worth of subsidies were granted to young entrepreneurs and small and medium enterprises (SMEs) during the month of June, according to the most recent information from the Macau Economic Services (DSE). This represents a 21 per cent jump from the same month last year, and a 119.3 per cent increase month-on-month. The support is divided into three SME aid schemes and one Young Entrepreneur Aid Scheme. The SME Aid Scheme, offering interest-free loans of up to MOP600,000 per applicant, awarded MOP20.47 million during the month, a 55.3 per cent increase month-on-month, the third highest value attributed so far this year. This was divided between 50 approved applications for funding
under the scheme. The SME Credit Guarantee Scheme granted MOP18.67 million during the period, divided between nine applicants, the most so far granted this year under the scheme. The SME Credit Guarantee Scheme for Special Projects did not grant any loans or subsidies last month, having so far this year only granted one, a MOP2 million loan in April, to two approved applicants. Total loans approved so far this year under both the SME and Young Entrepreneur schemes, until end-June, amounted to MOP179.92 million, with the Young Entrepreneurs receiving MOP2.68 million in funding in June and MOP22.28 million in funding during the first five months of the year. The scheme offers interest-free
loans of up to MOP300,000 for applicants aged 21 to 44, with repayment for the loan starting after 18 months. The major recipients of the scheme so far this year were the commerce and retail sector, with 47.3 per cent of the funding, or MOP10.53 million, while the next largest recipient was the services sector – at 13 per cent,
or MOP2.9 million. The largest recipients of the SME credit schemes were largely grouped in the Construction and Public Works sector, with a total of MOP34.23 million attributed so far this year, while the retail trade has received MOP42.48 million so far this year. K.W.
Open sesame!
The Alibaba Group is ready to do business in Macau By Alex Lee alex.lee@macaubusinessdaily.com
Alibaba Group Holding Limited has had its application for trademark protection accepted in Macau, enabling the Chinese e-commerce giant to enter the MSAR with a series of products. Brands Ant Star, Ant Star Bank, Alimebot, 阿里蜜， 星匯，星安，智惠，星匯銀 行，智惠銀行, are now able to create and commercialise in Macau products ranging from newspapers and magazines to credit and debit
cards, scientific and nautical instruments, file sharing software and GPS equipment. But also advertising, execution and supervision of loyalty programmes and
incentives, business consulting to traffic optimisation of websites, large warehouse retail services or even insurance, financial and monetary businesses.
In total, many hundreds of products and services that the company - based in Hangzhou and founded in 1999 by Jack Ma and Peng Lei - is now allowed to conduct here. With over 50,000 employees, Alibaba provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals. Recently, the Chinese giant invested US$1 billion (MOP8 billion) in Southeast Asian online retailer Lazada Group increasing its stake to more than 80 per cent and making
is presence even stronger in the region. According to Forbes magazine, over the past year Ma has spent more than 800 hours flying to dozens of countries, meeting business leaders and heads of state to introduce his grand vision: small businesses from all corners of the world trading freely and securely on the Alibaba platform. Highly reported Jack Ma’s ambition is to see his company reach the US$1 trillion mark in gross merchandise value by 2020.
Intellectual property
HZMB
Trademarks dominate June intellectual property rights
Superbridge fatalities report under wraps
Overall applications for Intellectual Property Registration related to industry saw a 17.1 per cent rise in June, year-on-year, according to the most recent data published by the Macao Economic Services (DSE). Some 1,281 patents were applied for during the month, 95.3 per cent of which related to trademark applications, while the second largest group - extensions to invention patents – made up only 3.12 per cent of total monthly applications. Trademark applications alone
jumped 20.3 per cent year-on-year during the month, while those of industrial design or modelling plunged 32 per cent, year-on-year. The second quarter of the year saw 3,397 patent applications, according to the data, with those of trademarks up 13.1 per cent, compared to the previous quarter, to 3,219. Utility patents went up 100 per cent quarter-to-quarter, while those of design and modelling increased 42 per cent. Patents for inventions in the second quarter fell 77.5 per cent quarter-to-quarter. The first half year saw applications for brands reach 6,064; inventions – 49; extensions on invention patents – 192; utility – 9; design and modelling – 87; and name and insignias of establishments – 5. The oversight of this area falls locally to the Intellectual Property Rights Department, under Macao Customs Service.
The investigation into the two workers killed in an accident last March on the Hong Kong-Zhuhai-Macau Bridge (HZMB) has been concluded but not yet made public by the Highways Department in Hong Kong, Hong Kong Free Press reported yesterday. The two workers died after a work platform, to which they had their safety belts attached, collapsed, leaving three fellow workers injured. The Department said it would not
yet publicise the report, which was completed in late June, in order not to affect ongoing investigations by other departments, as well as eventual prosecution procedures that might evolve from the investigation. It added it has referred the findings to law enforcement agencies, claiming further that onsite inspections will now be conducted on a surprise visit basis instead of pre-arranged checks. S.Z.
Business Daily Thursday, July 6 2017 3
Macau Election
Chan Meng Kam to step down Two groups led by incumbent legislator Si Ka Lon and Song Pek Kei will instead run the coming election Cecilia U cecilia.u@macaubusinessdaily.com
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egislator Chan Meng Kam confirmed yesterday during a press conference held by the service group of legislator Chan that he will not run in the legislative election this coming September after serving the city as a legislator for 12 years. Owner of Hotel Golden Dragon and Chairman of City University of Macau, Chan will not run in either the direct or indirect elections. He explained that his stepping down is to allow more young people to step in whilst pledging that he will continue to support the two groups in the future. “I had said in 2005 that I would not take the job as a legislator appointed by the government,” stressed Chan. “If I take the job as a legislator I will take it as a directly elected legislator.” The strategy of the whole group this year is to split into two groups led by current legislators Si Ka Lon and Song Pek Kei. “As you know . . . by splitting into two groups we wish to retain three seats in the Legislative Assembly,” said Chan. “But whether these three seats can be retained will depend on voters decisions.”
Since it is the first time to have two groups running in the election, Chan admitted bearing a greater pressure compared to his participation in the previous election. “I can say the pressure is unprecedented,” echoed Chan. In the last election his list ranked first, with 18 per cent of the votes cast, securing three seats for himself plus incumbent legislators Song Pek Kei and Si Ka Lon.
Strategies
The two groups that will run in the coming election will consist of ten candidates each. Legislator Si revealed, after the groups submitted their manifesto yesterday, that the average age of his group is 38.2 years old, with lawyers, engineers and workers engaged in logistics and commercial fields as well as individuals who had previously served the city for years. Kyan Su Lone is the second candidate in Si’s group, while Kyan is the founder of Chongou Holding Group and owner of Langham Hotels & Resorts in Xiamen. “We wish to push forward using 10 per cent of the city’s gross gaming revenue for residents,” said Si, further proposing the 10 per cent be used in particular on the purchase of medical
Legislator Chan Meng Kam
insurance for chronic diseases, supporting the first-time purchase of homes as well as increasing pensions to MOP5,000 (US$622). Meanwhile, Song’s group gathers the majority of individuals who have long served society, including former civil servants. “Our group is also rather young with the average age 35 years old,” said Song, revealing that her group will mainly focus on the shake-up of the administrative system, explaining
that many social issues relate to the system, in particular the accountability of high government officials. Loi Chi On is the second candidate in Song’s group, who is currently the vice-chairman of the Institution of Macau People’s Alliance (Aliança de Povo de Instituição de Macau). Yesterday, the Union for Promoting Progress led by legislator Ho Ion Sang also submitted their manifesto for the direct elections, according to TDM Radio News. advertisement
4 Business Daily Thursday, July 6 2017
Macau Opinion
Economy
‘Know Your Customer’ measures sets cat among the pigeons Ashley Sutherland-Winch* Watch out! Facial recognition The Monetary Authority of Macau (AMCM) has instructed local automated telling machine operators to refuse cash withdrawal services to China UnionPay customers from Mainland China if their ATMs do not allow face-recognition verification. The ‘Know Your Customer’ technology, unveiled in Macau in May, has now been installed in 834 of the 1,300 ATMs in the territory to combat Mainland China money laundering, increase bank security, and reduce the rapid flow of money out of the country in contravention of strict currency controls. The technology will include facial recognition as well as identification card review. In a statement on its website, the AMCM said the move was designed to ‘protect the legal interests of financial institutions and Mainland China UnionPay cardholders . . . [and to] . . . ensure the effectiveness of measures to monitor ATM cash withdrawals’. Increased security is always a great thing, especially in this day and age. It was reported by South China Morning Post in May that cash dispensing machines in Macau cough up more than HK$10 billion a month and that special measures would be introduced to ensure ATMs never run out of banknotes. Since Mainland China tourists make up the vast majority of visitors to Macau - 20 million of the city’s 30 million tourists hailed from the Mainland in 2016 - adding a higher level of security to ATMs seems reasonable. I wonder; however, if this new technology could expand to other areas and potentially cause an unforeseen hiccup in banking practices for foreigners in Macau. Currently, Macau businesses employ many foreigners that add to the expat community but it is very challenging for foreigners to obtain bank accounts if they do not hold a work visa. Specifically, spouses of blue card holders are allowed to co-sign on bank accounts but it is uncommon for a spouse to have a bank card in his or her name and not the spouse. If ATM facial recognition is installed, why not apply it to all customers? If using the technology were to expand to other demographics outside of Mainland customers, it would be possible that spouses might not be able to withdraw cash from ATMs anymore because their face would not match that of the account holder. Perhaps banking institutions in Macau could review their policies to allow dependents to open accounts of their own. Clearly, rolling out the ‘Know Your Customer’ technology is the most important thing on the agenda - but it will be interesting to follow the expansion of the tech and its reach. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Diverse opinions have been expressed by economists and academics regarding the newly tightened measures on cash withdrawals for CUP cardholders Cecilia U cecilia.u@macaubusinessdaily.com
U
niversity of Macau Professor Davis Fong Ka Chio says the mandatory requesting of Chinese-issued Union Pay (CUP) cardholders to verify identification will not pose significant impact on Macau’s economy, not even the city’s gaming industry. The verification system - titled ‘Know Your Customer’ (KYC) - requires cardholders to provide proof of their Chinese Resident ID card status and subjects them to face recognition. Professor Fong noted that the withdrawal limits of Mainland Chinese-issued bank cards from local ATMs to MOP/HKD5,000 per transaction (US$621) in December last year did not affect the gaming sector much, thus he believes that the extra procedures for withdrawing cash from ATMs will not result in a negative impact. “The amount [that can be withdrawn] is more important than the face recognition system,” opined the professor. “[if not having enough cash] they could also use card payment [...] as well as third party payment methods.”
He said that the new restriction will effectively prevent the use of other people’s cards which is considered illegal behaviour, while stressing that it will not affect consumers who spend legally. The professor is, in fact, more concerned about whether the ATMs would run properly. Business Daily recently withdrew cash using a CUP card, with the transaction successfully completed in less than five minutes. With the suspension of cash withdrawals for ATMs unequipped with the KYC system, Fong agreed that this current stage would pose an inconvenience to tourists, but opined that the issue would only be confined to the technical field. When asked if the cash withdrawal limits would affect the VIP gaming sector, the professor said non-negotiable chips would normally be used for gambling, with the value of these chips being more than MOP10,000 and as such would not affect the sector at all. Regarding the mass market sector, Professor Fong cited from his previous studies that the medium outlay on mass market gambling is around MOP5,000 with the average some MOP15,000, which in the majority of
cases would only affect spontaneous gamblers. “Spontaneous gamblers are tourists who only want to gamble when they enter the city and so are most likely to obtain cash from ATMs,” explained Fong. “In the event of less convenience, the number of these spontaneous gamblers would be fewer.” Overall, Fong believed that tourists would get used to the new measures after a few months.
Less complex ways
Economist Albano Martins, meanwhile, said the government should invent other simpler ways to combat money laundering. “I believe the quantity of money that will be taken out from ATMs will be less,” he remarked, while adding that the situation is difficult unless the authorities impose other ways requiring less complicated procedures. “For now, this is the only way to combat money laundering,” said Mr. Martins. “But my experience is every time the Chinese community will invent a way to escape and this will continue.” He indicated that the new implementation would impact the gaming industry because “UnionPay cards are widely used to escape the authorities”. Despite the new procedure requested for cash withdrawals spending less than five minutes, Mr. Martins said it is still a fact that it now takes longer to withdraw cash than previously. “Because it takes longer to get money less money is taken from the machines and thus less money is used in the market,” commented the economist. Meanwhile, in response to Business Daily enquiries, the Gaming Inspection and Co-ordination Bureau (DICJ) replied that the Bureau ‘so far has not seen any negative impact on the gaming industry after the introduction of the KYC system in ATMs’, adding that it ‘welcomes any measures that will enhance the promotion of betterment, integrity and quality in Macau’s gaming industry.’
Economy
Rebound in money supply Total deposits with the banking sector increased 1.5 per cent month-on-month Cecilia U cecilia.u@macaubusinessdaily.com
The Monetary Authority of Macao (AMCM) revealed a rebound in the money supply in May, while concurrently both resident deposits and loans grew month-on-month. The latest data shows that the currency in circulation decreased by 0.9 per cent month-on-month whilst demand deposits increased 0.7 per cent. As such, M1 grew 0.4 per cent and quasi-monetary liabilities increased 2.1 per cent from a month earlier. M2, the sum of M1 and quasi-monetary liabilities, was MOP553.8 billion (US$68.87 billion) in May, up 1.9 per cent month-on-month. When compared to the same period a year ago, M1 and M2 both increased by 14.2 per cent and 16.6 per cent, respectively. The shares of Pataca (MOP), Hong Kong dollar (HKD), Chinese Yuan (RMB) and United States Dollar (USD) in M2 were 31.3 per cent, 52.9 per cent, 3.9 per cent and 9.8 per cent, respectively.
In terms of the city’s deposits, the city saw an increase of 2 per cent month-on-month in resident deposits, amounting to MOP539.8 billion. Non-resident deposits grew 0.9 per cent vis-a-vis April, to MOP263.1 billion. For public sector deposits with the banking sector, the amount increased
0.9 per cent to MOP185.6 billion. As a result, the total deposits with the banking sector registered a growth of 1.5 per cent compared to April’s deposits, which recorded MOP988.5 billion. Regarding the loan sector, 0.6 per cent month-on-month growth was posted by the city’s domestic loans, with a total of MOP424.8 billion loaned in May. Meanwhile, external loans rose 3.9 per cent to MOP417.4 billion. As at the end of May, the loan-to-deposit ratio for the residential sector was 58.6 per cent, as compared to 59.2 per cent in April.
Business Daily Thursday, July 6 2017 5
Macau
BNU CEO, Pedro Cardoso
Finance industry
Banking on property As the lending business for gaming operators slows and the government continues to generate a surplus, good banking business prospects present themselves in property, both in Macau and on the Mainland, BNU CEO Pedro Cardoso told Business Daily Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he property market has been providing stable indications of a bright outlook for banking mortgage loan services, the CEO of Banco Nacional Ultramarino (BNU), Pedro Cardoso, told Business Daily in an interview yesterday. “We’re seeing a good pick-up, not spectacular, but a good pick-up in terms of housing loans, and also financing real estate types of asset. We believe we will have a good evolution in that area, better than last year,” Mr. Cardoso explained. In terms of expanding business, the CEO said the banking sector is also experiencing a “good evolution” - in particular, towards opportunities for providing services related to acquiring Point of Sale [PoS] and ATM businesses.
Less opportunity for expansion in that sense is expected from the gaming sector. Since the gaming economy got back on track earlier this year, borrowing demand has decreased, on a pace with the rise in revenues. “The more cash load [casino operators] generate, the less financing they need. And with the concession expiration date approaching, for the next few years, other than maintenance investment, we probably won’t have too much big investment in that sector,” he indicated. Nevertheless, the corporate segment he called tourism and gaming industry still remains, according to him, BNU’s most important customer base.
Property a two-way market
Demand for property acquisition in Mainland China has also been
showing good prospects for the banking business, according to the CEO, who claims that the BNU branch which opened on Hengqin in January 2017 has been receiving such requests from Macau residents. He explained, however, that the opposite trend, of Mainland China residents wishing to acquire property in Macau has not been particularly the case. “People from outside Macau purchase from an investment point of view. If they think it is a good investment, there will be more offshore investment in Macau,” he said.
‘Pedro Cardoso recently received the Asia Banker of the Year Award (20162017) from World Finance Magazine’ In view of increasing infrastructure development and integration within the Greater Bay Area, the CEO said he does not
“see infrastructure development having a link” with an increase in demand for property acquisition from Mainland buyers, at least not in the near future. For the time being, he says the statistics continue to show that “the large majority of people [acquiring property in Macau] are local buyers.”
Hengqin and the OBOR ‘spirit’
Being positioned in Hengqin, the bank has also clearly devised strategies to enable financing solutions catering to business from China and the Portuguese-speaking countries. “We look at that as a two way business. On the one hand, we have Chinese and Macau-based companies that are investing across the world, and in particular in Portuguese-speaking countries, [providing] them with support through our sister banks and parent company. On the other hand, [we assist] Portuguese-speaking companies that have been investing in China, with some of them also using Macau as a platform for that investment,” the BNU CEO said. Accordingly, the strategy is inscribed both in the “One Belt, One Road [OBOR] spirit,” as Mr. Cardoso described it, and in the Greater Bay Area “pillar,” which he concedes is more concretely equipped to enable cross-border co-operation between Macau and Guangdong Province.
Civil Service
Complain unmasked: The siren call of new Civil Service rules Come September, filing a complaint as a civil servant will require that those in question do so with their relative department or management committee, but they will have to do so non-anonymously. Some are noting that this could be a “big step forward”, given that previously “most complaints were only handled by the relative departments of the staff, which would not help change anything,” according to Lei Kong Weng, Secretary-General of the Macau Chinese Civil Servants Association. Not being able to make
the complaint anonymously would be “fair”, he points out, whilst opining that the mechanism in question will have to be “further improved when it has been enforced”. The new system seeks to manage conflicts between senior and junior staff in public bodies and to continuously improve the internal operation of the Civil Service. It ensures the rights of civil servants filing complaints, while building a harmonious working environment in government departments, the Public Administration and Civil Service
Bureau claimed in a statement. With the number of civil servants reaching 30,875 in the first quarter of the year, a 3.26 per cent yearon-year growth, not all government workers are satisfied with this new complaint mechanism, with the President of the Macau Civil Servants Association, José Pereira Coutinho, pointing out the acid test will be “whether the civil servants have faith and confidence in it.” Described as “the beginning of their nightmares” when civil servants made complaints throughout
the MSAR’s 17-year history, workers often feared retaliation or transfer. While the body meant to handle the complaints, the Association head and legislator points out that its members are “recommended” by the Secretary for Administration and Justice, and appointed by the Chief Executive, noting “it’s difficult to believe this system can inspire trust and faith”. Read more in this month’s edition of Macau Business, on shelves now. Original writer: Tony Lai
6 Business Daily Thursday, July 6 2017
Macau Tender
Airport opens tender for shop space
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ocal airport operator Macau International Airport Co. Ltd (CAM) has put out a tender for one of the shop spaces located in its Arrival Hall of the passenger terminal building, according to a response to Business Daily enquiries. The tender relates to a ‘complex retail services shop,’ located ‘at landside, south arrival level’ of the passenger terminal, and formerly operated by China Travel Service (Macao) Ltd. Due to the expiration of the contract with the company, the retail shop, which CAM hopes to have offering ‘a combination of retail and/or take-away products’ is now open and accepting submissions until August 4 at noon. The total shop size is 46 square metres, according to the information provided. This comes as the group continues its North Extension project, aimed at increasing the airport’s passenger
handling capacity to ‘around 7.5 million,’ the group notes in previous responses to Business Daily. The airport authority informs that the extension is still ‘expected to be completed and put into operation in the second half of 2017’.
In late May, CAM opened up a Fixed Base Operator (FBO) tender, ‘to enhance the overall quality of business aviation services and create better and enjoyable travel experience to customers,’ encompassing maintenance, storing, passenger handling
and aircraft leasing services. While not divulging how many proposals have been received so far, noting only it’s ‘still under bidding phase’, the deadline for proposals is still fixed for August 9 of this year. K.W.
Taipa Ferry Terminal
CSI opens submissions for commercial and operational areas of Taipa Ferry Terminal The group awarded the contract for the management of the commercial areas in the new Pac On Ferry Terminal in Taipa has announced that it is accepting candidates for the rental of the commercial and operational areas, but only until the 14th of this month, according to a published notice. The rental relates to 117 items deemed ‘Commercial’ and 55 ‘Operational’ areas. For the commercial areas, the spaces concern: - 15 hotel and travel agency counters - 4 banks and currency exchanges - 15 retail shops over the border - 1 ‘light food’ shop over the border - 2 retail and sales shops over the border - 1 ‘light food’ shop this side of the border
- 1 convenience store this side of the border - 15 ATM machines - 39 vending machines - 14 public payphones - 10 ‘communication equipment [items]’ The operational areas include: - 23 operational areas for passenger transport - 9 baggage registry counters - 13 ticket sales counters for passengers - 6 automatic ticket sale machines - 4 waiting rooms for VIP passengers Business Daily contacted CSI for comment on the short submission deadline but had not received a response by the time this report went to print.
Convention
Second phase construction of Zhuhai Exhibition Centre to complete in 2019 The second phase of construction on the Zhuhai International Convention and Exhibition Centre (ZICEC) is expected to be completed by October 2019, local Chinese newspaper Macao Daily reported.
The project is estimated to cost some RMB550 million (MOP650.58 million/US$80.92 million) and occupy some 270,000 square metres. The new phase will include facilities for exhibition, commercial,
office and car parking, and act as an extension of the first phase of ZICEC. Including the existing centre building, ZICEC will comprise 980,000 square metres, with the total construction expense reaching RMB12
billion. Opened in October 2014, the first phase of ZICEC had already held over 60 exhibitions, 1,200 conventions and received some 1.6 million participants and visitors. C.U.
living nearby. Last month, the city’s Chief Executive, Fernando Chui Sai On, noted that the MSAR Government is “very determined” to continue developing the site, named Wai Long, into housing for residents, noting that “the focus should be about how to create suitable conditions […] so that the health of the residents in the area will not be affected”. “Should the public think it is fine to live in Wai Long,” opines political activist Jason Chao Teng Hei, “an environment [possibly] exposed to carcinogens, as long as they can buy a flat . . . [then] it’s a very sad situation for Macau”. The Secretary for Transport and Public Works, Raimundo do Rosário, in May pointed out that the department had not conducted any environmental assessment for the Wai Long project aside from that conducted for the scrapped La Scala project, but that the government will soon open a tender to appoint
a third-party consultant to evaluate noise pollution, air quality, traffic flow and other factors. However, the proposal to build 8,000 public homes, with a height cap of 155 metres on the site, even without an environmental evaluation, is
receiving support from many quarters of society. Read more in this month’s edition of Macau Business, on shelves now. Original writer: Tony Lai
Housing
Wai Long way away With the ever-growing demand for public housing in the MSAR it comes as no surprise that the land requisitioned by the government located opposite Macau International Airport became an immediate focus for its construction. Pan-democratic legislator Au Kam San supports the government’s current plan to do so, noting “I have urged the Administration many times that they should use the site for public housing”. The site in question - an 83,700 square metre plot originally granted to a company controlled by Hong Kong tycoon Joseph Lau Luen-hung to develop the luxury housing project La Scala - is six times the size of Tap Seac Square. However, the site is also located within 500 metres of an incinerator, raising concerns about released chemicals that could be toxic or carcinogenic to those
Business Daily Thursday, July 6 2017 7
Macau Legislation
Japanese casino ID checks could deter customers, lawmaker says The world’s major casino operators have expressed interest in a market expected to generate billions of dollars in revenue Yuki Hagiwara and Isabel Reynolds
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apan could deter customers from its casinos if it forces gamblers to submit their social security numbers before entering, according to the head of a ruling party panel working on plans for the Singapore-style resorts. Lawmaker Takeshi Iwaya’s comments indicate a potential clash between bureaucrats and politicians as they prepare a bill to regulate gambling resorts following their legalization late last year. Speaking in an interview, Iwaya also called for the legal framework to allow casinos to be opened in regions, as well as major cities. The government is planning to submit a bill on casino operations to parliament in autumn, with the first such resorts expected to open their doors sometime in the early to mid 2020s. The world’s major casino operators, including Las Vegas Sands Corp, Melco Resorts & Entertainment Ltd, Wynn Resorts Ltd and MGM Resorts International, have expressed interest in a market expected to generate billions of dollars in revenue. “It’s important to make sure access doesn’t become extremely restricted,” LDP panel head Takeshi Iwaya said on Monday, when asked about
the use of social security numbers. “These will be leisure and entertainment facilities, so they must be friendly to customers and we mustn’t go too far” with attempts to prevent wrongdoing. He suggested passports and drivers’ licenses as alternative forms of ID.
‘Bureaucrats are seeking to resolve public concerns over gambling addiction and money laundering’ Public concerns
Bureaucrats are seeking to resolve public concerns over gambling addiction and money laundering in a country where crime rates are low. An expert panel working with officials said government identification cards with chips that contain data including social security numbers should be a requirement for entry by residents of Japan, including foreigners.
This would be a stricter requirement than in the U.S., where social security numbers are required only when collecting winnings over a certain limit. Foreign tourists in Japan should be allowed to use their passports as ID, the expert panel said last month. Strict entry requirements for residents of Japan would lessen the attractiveness of the market for casino operators who hope that local visitors will become a pillar of their gaming revenue. Japan introduced social security numbers less than two years ago amid widespread public unease and lawsuits by individuals concerned about data security and potential
invasions of privacy. A campaign to make sure all Japanese and foreign residents have what is known as a “My Number” card has stumbled, with only 9 per cent of the population in possession of such cards as of May. “Even if we use them, we must avoid any data leaks or having people’s activities monitored by the government,” Iwaya said. “If enjoying gambling is treated as a bad thing, the integrated resorts won’t be a success.” Smaller cities have already expressed annoyance that the bidding framework for casino licenses may exclude them and run counter to Prime Minister Shinzo Abe’s goal of reviving Japan’s regions. Bloomberg News advertisement
Business Awards
Grand Lisboa to host Business Awards of Macau Gala Ceremony for fifth consecutive year Now entering its fifth year, the Business Awards of Macau will be returning to the Grand Lisboa Hotel on November 24. The event invites Macau’s most distinguished companies and professionals to participate in the Awards, with the closing date for submissions set for August 20. “SJM is proud to be the sponsoring host of the Business Awards of Macau to be held at the Grand Lisboa for the fifth consecutive year. The Business Awards recognise achievements and new talent across all industries and non-profit organisations. Together, we will contribute to the prosperity and welfare of Macau, and propel
our city forward,” stated Dr. Ambrose So, Chairman of the Board of Directors of SJM. Praising the partnership for this year’s event, Business Awards Chairman Paulo A. Azevedo notes that “the steady partnership between the event and SJM shows the commitment to enhancing public awareness of the great abilities and talents of Macau’s civil society”. Applications for the Business Awards are available on the website: www.awardsmacau.com. For additional information, please call (853) 2833 1258 or email info@awardsmacau.com
8 Business Daily Thursday, July 6 2017
Greater china Politics
Hong Kong’s Lam has veiled dig at predecessor in unity call Lam’s first appearance at the legislature was largely orderly, despite pro-democracy lawmaker “Long-hair” Leung Kwok-hung being removed for rowdiness Shawna Kwan and David Tweed
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ong Kong’s new leader distanced herself from her predecessor’s fraught relationship with lawmakers, vowing better communication as she sought to break years of political deadlock. Five days after becoming the city’s first female chief executive, Carrie Lam went before the Legislative Council yesterday promising more frequent meetings with lawmakers. Hong Kong’s former No. 2 said her government would lobby the chamber’s 70 democratically elected members directly to ensure their concerns were heard. “I am a bit saddened seeing the internal conflicts and scuffles in the past few years,” Lam said in a rare public critique of her ally and former boss, Leung Chun-ying. “Seeing the poor administrative-legislative relationship and the lack of trust between officials and lawmakers slow down the speed of policy implementation, I am concerned, but not disheartened.” Lam delivered the olive branch days after President Xi Jinping presided over her inauguration on the 20th anniversary of Hong Kong’s return to Chinese rule on a promise of a “high degree of autonomy.” Xi -- making his first visit since mass pro-democracy protests in 2014 -warned Saturday that challenges to China’s sovereignty wouldn’t be tolerated. Lam’s speech to lawmakers was
more accommodating and represented her most substantive attempt to differentiate herself from Leung, whose five-year term was marred by legislative gridlock and increasingly radical protest movements. Her challenge will be wooing his critics without running afoul of China’s Liaison Office, which democrats have accused of meddling in local affairs. “Even before she assumed office, she tried to make peace with legislators and other political parties in Hong Kong to offer something new to society rather than adopting the C.Y. Leung approach,” said Chung
Kim-wah, a political scientist at Hong Kong Polytechnic University. “The question is whether the Liaison Office is willing to step back and stop interfering.” Lam’s first appearance at the legislature was largely orderly, despite pro-democracy lawmaker “Longhair” Leung Kwok-hung being removed for rowdiness. Her predecessor’s question-and-answer sessions were often interrupted by opposition lawmakers chanting slogans, throwing objects and staging walkouts. Lam, 60, a one-time colonial civil servant who was preparing to retire before Leung decided not to seek a second term, has pledged to focus on healing political divides. China’s support helped her overcome a more popular challenger in March to win an election by a committee of 1,200 political and business elites dominated
Hong Kong Chief Executive Carrie Lam speaks at the Legislative Council in Hong Kong yesterday. Lusa
by Beijing loyalists. “At a time when some citizens are feeling anxious and confused, my top priority is to unite the society,” Lam said. “Therefore, connecting all parts of society extensively would be an important job for me and my executive team.” Lam is seeking an early victory in the legislature, where the pro-democracy opposition blocked many of Leung’s most ambitious proposals including a China-backed overhaul of the electoral process. She started by proposing a HK$5 billion (US$640 million) education fund, which includes converting contract teachers to full-time positions and paying annual subsidies of HK$30,000 for students who are funding their own undergraduate education. The proposal appeared to enjoy across-the-board support. Wu Chiwai, chairman of the opposition Democratic Party, said the move showed Lam’s willingness to engage with stakeholders and “could improve the administrative-legislative relationship.” The test for Lam will come should she attempt to push through proposals that touch on more controversial issues, such the national security legislation sought by Chinese authorities. She’ll also have to deal with rising tensions as the courts proceed with cases that could result in the ouster of as many as 10 pro-democracy lawmakers. Legislator Alvin Yeung, leader of the opposition Civic Party, said he was withholding judgment on Lam for now. “I adopt a wait-and-see attitude,” Yeung said. “It is now premature to make judgments without seeing any concrete policies being put forward.” Bloomberg News
Getting scrappy
Mainland iron ore demand may falter as steel recycling grows China currently only produces around 11 per cent of its steel from scrap Manolo Serapio Jr and Muyu Xu
China’s supply of steel scrap is surging as aged buildings, bridges and cars produced over decades of rapid economic growth are knocked down, dismantled or crushed. That should push Chinese steelmakers to use more of the material in coming years, potentially sapping demand for steel ingredient iron ore from the world’s biggest metals consumer. Faltering appetite for iron ore could hit a critical lifeline for international mining giants which have banked on China continuing to suck up hundreds of millions of tonnes of the most widely traded bulk commodity. “In the medium to long term, scrap is the real threat to iron ore, for sure,” said Daniel Meng, an analyst at brokerage CLSA in Hong Kong. “We believe by 2020, replacement would become faster and the risk on iron ore from scrap would become more serious.” China currently only produces around 11 per cent of its steel from scrap, compared to over 70 per cent in the United States, suggesting it may have plenty of room to grow in recycling the material. The recent abundance of scrap in China followed Beijing’s decision to shut mills churning out low-quality steel from induction furnaces - typically big users of scrap - as part of
its drive against pollution and a glut in steel supply. The closure of these mills, with a combined production capacity of 120 million tonnes, helped push the nation’s scrap exports to an all-time high in May. China last year generated a record 143 million tonnes of steel scrap, up nearly fourfold from 2002, data from the World Steel Association and CLSA showed. That could potentially replace around 200 million tonnes of iron ore, equivalent to about a fifth of China’s imports of the commodity last year. China’s steel scrap generation should rise to 200 million tonnes by 2020, the China Association of Metal Scrap Utilization said.
Electrifying
The bulk of China’s steel is produced via blast furnaces where iron ore is melted and later mixed with steel scrap. As domestic scrap prices tumbled 20 per cent in May from this year’s peak, mills increased scrap use in these furnaces to 20 per cent from 8 per cent, Chinese traders and mills said. But as demand picked up in June, some scrap traders say profits have doubled. And renewed interest in electric arc furnaces (EAFs), or mini-mills that use only scrap, could fire up demand for recycled steel.
EAFs emit far less carbon than blast furnaces, which use coal as fuel, suiting China’s anti-pollution campaign. “In the long term, I believe the authorities do support EAFs in China,” said Wang Guangrui, vice-general manager at Xuzhou Jinhong Steel Group in Jiangsu province, which restarted a 1-million-tonne EAF. The company first launched its EAF in 2011, but was forced to shut it to switch to a much cheaper induction furnace. It moved back to the EAF after the closure of all the nation’s induction furnaces. Up to 20 million tonnes in EAF capacity may be installed this year, said CLSA’s Meng. China’s current EAF capacity is around 100 million tonnes and could grow by 10-20 million tonnes a year over the next three years, he said. Over 60 EAFs will be running in August-October and 20 more next
year, said Guo Xianzhen, vice general manager at Anyang Steel Group which plans to launch a 1-million-tonne capacity EAF in September and another 1 million-tonne plant in 2018. But Australia’s Fortescue Metals Group, the world’s No. 4 iron ore miner, believes China’s iron ore appetite won’t wane any time soon, as its scrap supply - usually tied to growth in car ownership - remains low compared to the size of its population. “Currently, there are more than 700 vehicles per 1,000 people in the U.S. and Australia, with this figure at around 140 in China,” Fortescue CEO Nev Power said by email. “Given the high marginal cost of electricity, the level of scrap contribution will likely be lower overall in China than has been the case in the developed economies,” he said. Top iron ore miners Vale, Rio Tinto and BHP declined to comment. Reuters
Business Daily Thursday, July 6 2017 9
Greater China Markets
In Brief
Tencent shrugs off impact of play-time limits The popularity of the ‘Honour of Kings’ game has prompted scores of complaints from teachers and parents worried that children are becoming addicted to it Sijia Jiang
Tencent Holdings Ltd has shrugged off concerns that a move to limit play time for some users of its top-grossing “Honour of Kings” game could hurt its bottom line, saying those targeted make up only a small portion of its overall user base. The company said on Sunday “Honour of Kings” players below 12 years of age would be limited to one hour of play time each day, while those aged 12 to 18 years would be limited to two hours a day, responding to concerns from teachers and parents that some children were addicted to the game. Shares of Tencent, China’s biggest gaming and social media firm by revenue, fell nearly 4 per cent this week up to the close of trade on Tuesday, wiping some US$12 billion off its market value. The stock was up more than 1 per cent yesterday, reversing earlier losses, and compared with a flat broader market. It is up more than 40 per cent this year. China’s communist party mouthpiece, the People’s Daily, has also criticised Tencent twice this week, describing the “Honour of Kings” game as poison and calling for tighter regulatory controls of online games, which further weighed on its shares. “(Those) under 12 years old constitute a small proportion of our total user base and a smaller per centage of our paying user base. We do not expect these measures will have a material impact on our overall financial results,” Tencent said in an
email response to a Reuters request for comment. Tencent also said it would step up the requirement of real-name registration for all users and upgrade a parental-control platform rolled out earlier this year that makes it easier for parents to monitor their children’s gaming account activities. It was not immediately clear if Tencent, which has a portfolio of over 200 games, can effectively impose the play-time restrictions or how easy it will be for players to skirt the measures. Chinese gaming industry database CNG estimates “Honour of Kings” raked in revenue of more than RMB5.5 billion (US$810.47 million) in the first quarter, accounting for nearly half of Tencent’s smartphone games revenue of RMB12.9 billion in the period. Tencent, one of Asia’s most valuable firms with a market value of HK$2.6 trillion (US$333 billion), has spread its tentacles into nearly every facet of Chinese life, making it vulnerable to any regulatory measures imposed by Beijing at a time of growing political risk in China. Chinese regulators have launched a sweeping crackdown on what it deems inappropriate content on the internet, including closing celebrity gossip websites and restricting what people can post, forcing individuals and companies to walk a fine line to address government concerns. The popularity of “Honour of Kings” has prompted scores of complaints from teachers and parents worried
that children are becoming addicted to the game, for which half of users are below 24 years of age, according to Chinese mobile data firm Jiguang. A wider or more heavy-handed crackdown by authorities on the online gaming sector could pose significant challenges for China’s tech champions. “The question now is whether public criticism will be followed up with state regulation of the thriving online gaming market in China,” said Paul Haswell, a partner at law firm Pinsent Masons, who specialises in technology. “Seeing that market so effectively shut down, either by public criticism or state intervention, is a big shock to China’s gaming industry.” In its commentaries, the People’s Daily cited examples of addiction where teenagers had stolen money to spend on game features and also a case of alleged suicide. Honour of Kings, a fantasy multiplayer role-playing battle game, is the most popular mobile game in China with around 55 million daily active users, more than Pokemon Go at its peak. Reuters
Auto industry
Geely’s Volvo to go all electric with new models from 2019 The electric models will be produced at Volvo plants worldwide Niklas Pollard
All Volvo car models launched after 2019 will be electric or hybrids, the Chinese-owned company said yesterday, making it the first major traditional automaker to set a date for phasing out vehicles powered solely by the internal combustion engine. The Sweden-based company will continue to produce pure combustion-engine Volvos from models launched before that date, but its move signals the eventual end of nearly a century of Volvos powered solely that way. While electric and hybrid vehicles are still only a small fraction of new cars sales, they are gaining ground at the premium end of the market, where Volvo operates and where Elon Musk’s Tesla Motors has been a pure-play battery carmaker from day one. As technology improves and prices fall, many in the industry expect mass-market adoption to follow. “This announcement marks the end of the solely combustion engine-powered car,” Volvo Cars CEO Hakan Samuelsson said. The company, owned by Zhejiang Geely Holding Group, said five new models set to be launched in 2019 through 2021 - three of them Volvos and two Polestar-branded - would all be fully electric. “These five cars will be supplemented by a range of petrol and diesel plug in hybrid and mild hybrid 48-volt options on all models,” Volvo
said. “This means that there will in future be no Volvo cars without an electric motor.” The electric models will be produced at Volvo plants world-wide - it has factories in Europe and China and is building one in the United States - while development costs will be met from within its existing budget, Samuelsson told Reuters. “This also means we won’t be doing other things. We of course will not be developing completely new generations of combustion engines,” he said about future investment needs. Volvo has invested heavily in new models and plants since being bought by Geely from Ford in 2010, establishing a niche in a premium auto market dominated by larger rivals such as Daimler’s Mercedes-Benz and BMW. Part of its strategy has also been to embrace emerging technologies that allow higher performance electric vehicles as well as, eventually, self-driving cars. Only last month, Volvo said it would reshape its Polestar business into a standalone brand, focused
on high-performance electric cars aimed at competing with Tesla and the Mercedes AMG division. Volvo has also said it will build its first fully electric car in China based on its architecture for smaller cars which will be available for sale in 2019 and exported globally. Still, Volvo is not alone among traditional carmakers in pushing strongly into electrics and plug-ins – or among premium brands in resorting to 48V mild hybrid systems to lower fuel consumption and CO2 emissions from their combustion-engine cars. Among them, BMW plans to introduce an electric version of its popular 3 series in September to meet the challenge from Tesla, Handelsblatt reported last month. Volvo has also taken steps towards an eventual listing, raising 5 billion crowns from Swedish institutional investors through the sale of newly issued preference shares last year, though the company has said no decision on an IPO has been made. “It is still an option and a question for our owner,” Samuelsson said. Reuters
Markets
Vanke HK shares halted ahead of Guangdong trust deal China Vanke said yesterday it would make an announcement about its acquisition of assets of Guangdong International Trust Investment Corporation and asked that its shares in Hong Kong be suspended from trading. China’s No.2 property developer by sales said on Friday it had won an auction to buy the equity interests and creditors’ rights of the bankrupt trust company’s subsidiaries for RMB55.1 billion (US$8.1 billion). The principal assets involve 16 land parcels in prime districts of Guangzhou. Vanke shares in Shenzhen continued to trade yesterday. Corruption probe
Authorities to prosecute ex-chief of People’s Insurance China will prosecute the former president of the People’s Insurance Co (Group) of China Ltd after an investigation found he engaged in corrupt practices including bribery, the ruling Communist Party said yesterday. The party’s corruption watchdog said Wang, who was also the vice-chairman and executive director of People’s Insurance, had been expelled from the party for “serious discipline violations,” the usual euphemism for corruption. In a notice on its official website, the Central Commission for Discipline Inspection said Wang interfered with inspections and audits, corroborated with corrupt officials, used public funds to pay for personal holidays and took bribes. Commodities
GSR eyes substantial stake in lithium miner SQM Chinese private equity firm GSR Capital is looking to buy a substantial holding in Chile’s Sociedad Quimica Y Minera (SQM), one of the world’s biggest lithium producers, according to two sources with knowledge of the matter. GSR could buy a stake of around 20 per cent - worth just under US$1.9 billion at current market values, one of the sources said, but added there was no firm agreement. SQM is one of just a handful of established lithium miners globally and a Chinese investment would go hand in glove with an electric car boom in the world’s biggest auto market. PBOC
C.bank to skip open market operations China’s central bank said it would skip open market operations for the ninth day in a row, as liquidity levels in the banking system were “relatively high”. The People’s Bank of China said in an online statement that the liquidity remained at relatively high levels after “countering reserves payment by financial institutions and maturing reverse repos”. Maturing reverse repos will drain a net RMB90 billion (US$13.24 billion) from the market for the day. The PBOC drained a net RMB330 billion last week via open market operations.
10 Business Daily Thursday, July 6 2017
Greater China
Financing
Dealmaker debt raises alarm amid probe China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due.
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he nation’s top corporate dealmakers, including HNA Group Co. and Fosun International Ltd., must pay off the equivalent of at least US$11.5 billion in bonds and loans by the end of 2018 -- a feat now complicated by government efforts to rein in their aggressive rush overseas. That figure represents just a fraction of the total debt of RMB1.1 trillion (US$162 billion) that the Chinese companies have reported as they projected their money and influence around the world with a record number of acquisitions. The size of their obligations -- and whether they will be able to shoulder them -- has begun to worry global banks and investors now that Beijing has pressed companies to dial back their ambitions abroad. “Those companies the banking regulator is checking on have very high financing demand for M&A activities,” said Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “But banks will heighten their risk control when lending to them going forward, which could increase their funding costs and hurt the pace of their expansion.” The moves threaten to end an era of easy access to money for the firms. People familiar with the matter said last month that China Banking Regulatory Commission asked some banks to provide information on overseas loans to HNA, Fosun, Anbang Insurance Group Co. and Dalian Wanda Group Co. Yields on some bonds issued by the firms jumped. The CBRC is examining examples of acquisitions gone awry to assess potential risks to
the financial sector, people familiar also said. To be sure, the companies, which are among the biggest private-sector firms in China, are sitting on a cash pile that they can tap to meet upcoming debt deadlines. They have more than RMB400 billion of cash and cash equivalents, according to the latest filings compiled by Bloomberg. “HNA Group has built up a strong global business with world class tourism, logistics and financial services assets,” the company said in an emailed reply to questions. “The company is in a sound financial and operational situation.”
Funding options
“Fosun has a variety of financing capabilities which not only include bond issuance, but also bilateral and syndicated bank loans, capital market financing, management fees, operating income and divestments from our global platform,” said David Wu, head of investor relations. A representative at Wanda declined to comment. There was no immediate reply to a request for comment from Anbang. Debt markets that were eager to dish out funds have helped fuel more than US$310 billion of overseas acquisitions by Chinese companies since the start of 2016. Borrowers are now waking up to a hangover.
Rising costs
The top dealmakers face rising bond and loan maturities in the next three years, according to Bloomberg-compiled data. JPMorgan Private Bank in Asia and Baring Asset Management are among market
participants warning that regulatory risks mean investors need to be more cautious. “We anticipate that yield levels for bonds from companies like HNA, Dalian Wanda and Fosun could rise in the near term,” said Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia. “For now, we are advising investors to take a cautious view on those companies’ bonds and we are waiting for the dust to settle before taking further actions.”
“We anticipate that yield levels for bonds from companies like HNA, Dalian Wanda and Fosun could rise in the near term” Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia The new debt has ballooned the firms’ balance sheets. A local bond market rout that began at the end of last year means the cost to refinance some of those liabilities has risen. Add to that the uncertainty of rising regulatory risks, and some investors are getting cold feet. “We are waiting to figure out where those noises are leading to, before investing,” said Sean Chang, head of Asian debt investment at Baring Asset Management. The companies’ high leverage is a key concern, according to Christopher Lee, managing director of
corporate ratings at S&P Global Ratings.
Acquisition financing
“What confounds me is they are highly leveraged and continue to get financing by lenders, both offshore and onshore, and the financing is not always transparent,” Lee said. “Now that CBRC has started to look into their financing, it may be more difficult for them to get funding for overseas acquisitions.” The companies have at times turned to financing channels that don’t require the level of public disclosure that bond markets do. In one recent example involving a form of shadow financing, HNA Group was seeking trust funding in the local market last quarter for at least RMB4.5 billion, according to Lawrence Yu, founder of Totodi Technology, a provider of regulatory compliance services to trust firms, private equity companies and asset managers in China. The firm was offering rates as high as 7 per cent, higher than the average rate on such deals in the nation, according to Yu. “We would tend to be conservative and avoid those companies that could potentially suffer from headline risks arising from central government policies and initiatives,” said Todd Schubert, head of fixed-income research at Bank of Singapore, the private banking unit of Oversea-Chinese Banking Corp. The changes mean that investors can no longer rely solely on analysis of fundamentals, relative value and technicals, according to Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management in Singapore. “Now, the regulatory aspect surrounding Chinese companies, which is always an unknown, is taking on a larger life form and posing higher risks,” he said. Bloomberg News
Business Daily Thursday, July 6 2017 11
Asia Monetary stance
Bank of Japan to cut inflation forecasts but hold off on easing Japan’s economy expanded an annualised 1.0 per cent in the first quarter on robust exports and household spending Leika Kihara
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apan’s central bank will cut its inflation forecasts but hold off expanding stimulus this month, people familiar with the matter say, in another sign the bank is retreating from Governor Haruhiko Kuroda’s initial pledge to do whatever it takes to achieve his ambitious inflation target. The inflation downgrade would be a fresh blow to Kuroda less than a year before his tenure ends next April, and underscores the challenges the central bank faces in using monetary stimulus to both lift prices and convince the public that its policies are working. Th e Ba n k o f Ja p a n ’ s ( B O J ) nine-member board will seek to explain why the strength in the economy has yet to translate into inflation, a dilemma they are struggling with as wages and prices remain stubbornly weak, say sources familiar with its thinking. “Given the economy is in such a good shape, it’s hard to explain why inflation remains so weak. This will be among key topics of debate at this month’s BOJ meeting,” said one of the sources, a view echoed by two other sources. At a rate review on July 19-20, the
BOJ is set to keep monetary policy steady and offer a more upbeat assessment of the economy than it did in June to say it is expanding moderately, reflecting robust business sentiment and consumption, the sources said. But the BOJ is likely to cut its inflation forecast for the current year ending in March 2018, and possibly that for the following year, in a quarterly review of its long-term projections to be released on July 20, they said. At its April policy meeting, the BOJ said it expects core consumer inflation to hit 1.4 per cent in the current fiscal year and 1.7 per cent in fiscal 2018. That exceeds a Reuters poll projecting inflation of 0.7 per cent in the current year and 0.8 per cent the following year. The downgrades will likely be minor and reflect the effect of recent oil price falls, companies’ reluctance to raise prices and weak inflation expectations, the sources said.
Dearth of ammunition
Japan’s economy expanded an annualised 1.0 per cent in the first quarter on robust exports and household spending, while business confidence hit a three-year high in the three months to June, adding to signs the economic recovery is gaining pace.
An inflation downgrade would be a fresh blow to Governor Kuroda (pictured) less than a year before his tenure ends next April
The output gap was positive for the third straight quarter in January-March, BOJ data showed yesterday, a sign the economy was growing comfortably above its potential. But core consumer prices rose just 0.4 per cent in May from a year earlier, well below the BOJ’s 2 per cent target. Tokyo inflation, a leading indicator of nationwide prices, was flat in June from a year earlier, stunning BOJ officials who expected a stronger reading given recent signs of life in consumption. Despite the gloomy outlook on inflation that could lead to further delays in achieving its price target, the BOJ is wary of ramping up stimulus due to a dearth of policy options.
“The economy is in good shape, so it’s time to wait for the positive effects to push up prices,” one of the sources said. The sources say the BOJ will only act if a severe external shock, such as an unwelcome yen spike, threatens the recovery. The reluctance to ease contrasts with Kuroda’s pledge four years ago that he “won’t hesitate to act” to hit his target. “If the BOJ were to loosen policy, it will deepen negative interest rates or lower its bond yield target. Either way, the cost would be huge, so the bank won’t act easily,” said Izuru Kato, chief economist at Totan Research. Reuters
Labour
Gender inequality is a risk for South Korea’s workforce The drop in the female participation rate is severe for women in their thirties as they marry and have children Hooyeon Kim and Myungshin Cho
South Korea is at a demographic tipping point that’s making it even more important to address the gender inequality that’s discouraging millions of women from working. With the nation’s workforce projected to begin a steady decline after peaking this year, the gap between the labour force participation rate for women (53.1 percent) and men (74.5 percent), looks like a critical weak point for the economy. Newly elected President Moon Jae-in acknowledged the issue when he urged parliament to approve his plan for an extra budget that includes training for women returning to work after maternity leave and funding to help women with start-up companies. “The discontinuity in women’s careers is a loss for the nation,” he told lawmakers on June 12. The drop in the female participation rate is severe for women in their thirties as they marry and have children, and too few of them return to
employment after family life settles down. “There are some real difficulties,” said Chung Hyun-back, who is Moon’s pick as Gender Equality Minister. The problem for women “comes from the difficulty of maintaining work-family balance.”
“The discontinuity in women’s careers is a loss for the nation” Moon Jae-in, South Korean President If Chung’s appointment is finalized, she’ll be the fourth woman among 17 ministers nominated by the president. He’s still well short of an ultimate goal of having women occupy half of ministerial positions. There’s also a big issue with the quality of jobs held by women, with
too many of them in non-regular positions, which means temporary and part-time jobs that typically come with lower wages. This in turn reduces their incentive to remain in the workforce. Women exceeded men in numbers of new college graduates in 2016, according to data from the Korean Educational Development Institute. This helps put them ahead their twenties, when compulsory military service interrupts men, before things change in their thirties. Chung’s predecessor at the Gender Equality Ministry noted that women run up against entrenched practices that disadvantage mothers by often judging people on the hours they put in rather than their skill and productivity. While the law prohibits employers using gender-based pay scales, in practice, they often end up earning a lot less than men. While Moon makes efforts to better balance his ministers, the board rooms of corporate Korea remain a male domain. Only 2.5 percent of board seats in the nation are held by women, a ratio that ranked it second-last in a Deloitte survey of 44 countries. “A first step to cracking the ceiling could be to implement measures that
make raising children easier, with more accessible child care options,” Kim Young Sam, a partner at Deloitte Korea, said in the survey report. “Men also have an important role to play in promoting and advocating for gender equality in the boardroom.” Bloomberg News
Women exceeded men in numbers of new college graduates in 2016
12 Business Daily Thursday, July 6 2017
Asia GDP
Thai c.bank lifts 2017 growth forecast a tad, holds key rate The Monetary Policy Committee said monetary conditions remained accommodative and conducive to growth Orathai Sriring and Satawasin Staporncharnchai
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hailand’s central bank has turned slightly more optimistic about how fast the country will grow this year while leaving its key interest rate at same low level it has been since April 2015. As expected, the Bank of Thailand (BOT)’s Monetary Policy Committee yesterday voted unanimously to keep the one-day repurchase rate at 1.50 per cent, a quarter-point above the record low. The BOT continues to count on government spending to support economic growth, which has lagged regional peers, as Southeast Asia’s second-largest economy continues to face global risks and high household debt at home. Thailand’s military government has ramped up investment to try to lift domestic activity, as pivotal exports are just recovering. The growth outlook has improved due to better exports “while domestic demand continues to expand at a gradual pace and is not yet sufficiently broad-based,” the MPC said. But the improved growth outlook is “still subject to external risks”, it said, citing policies of the United
States policies and other factors. The committee said monetary conditions remained accommodative and conducive to growth with ample financial system liquidity. It said recent movements in the baht were in line with regional currencies, and the BOT would continue to monitor short-term capital flows. The baht has gained more than 5 per cent against the dollar this year, making it Southeast Asia’s best performing currency. All 22 economists polled by Reuters
forecast no policy change on Wednesday, and most who gave a year-end projection saw the BOT holding rates through 2017.
2018 rate hold too?
With the economy showing signs of improvement, “there is no pressing need for the BOT to adjust rates any time soon,” said Capital Economics, adding it expects the benchmark to stay 1.50 per cent “not just for the rest of 2017 but also 2018”. The BOT raised its 2017 economic growth forecast to 3.5 per cent from 3.4 per cent. It predicted 3.7 per cent growth in 2018, up from 3.6 per cent seen in March The economy expanded 3.2 per cent last year.
The central bank now expects exports to rise 5.0 per cent this year, rather than 2.2 per cent. “Their projections suggest they take comfort in the recent uptick in exports while flagging caution on the lack of inflation,” said Kobsidthi Silpachai, head of capital markets research at Kasikornbank.
Key Points Committee unanimously keeps policy rate at 1.50 pct Raises 2017 growth forecast to 3.5 pct from 3.4 pct 2017 exports seen up 5 pct vs 2.2 pct seen earlier Says monetary policy remains ‘accommodative’ Says recent baht’s moves in line with regional currencies
Exports, traditionally a key growth driver, rose 7 per cent in January-May from a year earlier. They increased for the first time in four years in 2016, customs data showed. The central bank cut its 2017 headline inflation forecast to 0.8 per cent, below its 1-4 per cent target, from 1.2 per cent earlier. The central expects headline inflation to return to the target band in October-December after consumer prices fell for a second month in June. Reuters
Labour
Japan Inc scrambles for job-hoppers to cope with shortages The number of job-hoppers rose for the seventh straight year to 3.06 million in 2016 Tetsushi Kajimoto
Japan’s labour shortage has pushed job-hopping to its highest since the global financial crisis, as companies scramble for workers with experience in the rapidly-ageing economy. Job-hopping goes against the grain of Japan’s work culture, where many companies hire graduates and employ them until they retire. But the country’s jobs-for-life system is slowly giving way as firms curb labour costs and society shifts. Switching jobs for better conditions is no longer taboo amid a tightening labour market, and the trend is being led by mid-career workers. “There’s always a risk of failure. But you can’t get what you want if you don’t try,” said Hiromichi Itakura, 44, head of a medical job placement department at Saint Media Inc in Tokyo, who changed jobs in January. “I took up this job because it gives me a more responsible post. As a salary man, I also wanted a higher salary,” he said, adding that his pay is now 20 per cent higher than previously. The number of job-hoppers rose for the seventh straight year to 3.06 million in 2016, the highest since 2009, though it still accounts for just 4.8 per cent of the labour market. Older workers have more opportunities because of demographics: a fast-ageing society, low birth rate and falling working-age
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population. The jobless rate has stood at a near two-decade low while the jobs-to-applicants ratio is at a 43-year high. Big firms say the labour market is at its tightest since 1992, according to the Bank of Japan’s latest “tankan” survey published this week. Though job turnover is still low relative to other major economies - the change should be welcome news to Prime Minister Shinzo Abe, who has been championing labour flexibility and merit-based pay - with little success so far. Enhancing labour mobility is expected to help raise low productivity and boost wages, getting Japan convincingly out of a deflationary rut.
Competition for workers
Companies facing labour shortages are willing to pay for battle-tested workers who don’t need as much training.
Electric motor maker Nidec Corp is actively hiring mid-career engineers and remunerating them for their experience. “Competition is tough for triedand-true personnel,” a company spokesman said on condition of anonymity. “We are doing our best to persuade talented people to join our company.” Job-hoppers aged between mid40s and 65 or older are on the rise, hitting their highest, according to comparable data going back to 2002. “The mid-career job market is booming,” said Hirofumi Amano of en-japan inc, a job placement agency. People older than 35 used to be considered past their prime in the mid-career market but these workers are now sought after. Companies are seeking experienced managers and engineers and offering higher pay, Amano said. Workers who secured higher salaries from changing jobs outnumbered those whose pay checks shrank, labour ministry data from 2015 showed. A quarter of job-hoppers saw their salaries rise by 10 per cent or more. In comparison, average base wages in April rose just 0.4 per cent from a year earlier. The International Monetary Fund has urged Japan to enhance worker mobility to strengthen productivity and wage pressures. “Low labour mobility, a strong preference for job security, and wage setting based on past inflation constitute the main bottlenecks for triggering needed wage-price dynamics.”
New attitude
The rising mid-career job market reflects Japan’s changing business climate and evolving attitudes about lifetime employment and seniority-based promotion, analysts say. “Look what happens to even big firms like Toshiba, there’s no guarantee for job security. Lifetime employment is something of the good old past,” said Masae Miyachi, 41, of an IT venture company kaonavi, inc. Miyachi changed jobs a year and half ago and her annual salary has now increased by 1 million yen (US$8,857), helping her finance a home loan. “You need to carve out a career for yourself to earn stable income, and I’m doing just that by changing jobs.” Japanese firms have curbed labour costs by replacing full-time jobs with part-time positions since the asset-inflated bubble burst in the early 1990s. Now a rising rank of non-regular workers - including part-timers and contract workers - account for nearly 40 per cent of the workforce. Hiroaki Okutani, a 57-year-old contract worker at a logistics company Ueda Co Ltd, who left his job at a food processing firm two years ago, said his decision was partly due to anxiety about life after retirement. “There’s no compulsory retirement with this job,” Okutani said. “I’m happy working here as long as my body holds up because I don’t think I can live on my pension alone.” Reuters
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Business Daily Thursday, July 6 2017 13
Asia In Brief Results
Aeon Q1 profit jumps Aeon Co Ltd, Japan’s largest retailer by sales, yesterday reported a 11.4 per cent rise in first-quarter profit, beating estimates, boosted by improved performance at its struggling general merchandising stores. Operating profit reached 36.6 billion yen (US$323.18 million) for the three months through May. That compared with a 35.2 billion yen average of three analysts polled by a Thomson Reuters. The supermarket operator reiterated its operating profit forecast for the year ending Feb. 28 at 195 billion yen, versus the 198.9 billion yen average of nine analyst estimates. Official data
M&A
Indian e-commerce firm Snapdeal rejects rival Flipkart’s initial bid SoftBank is expected to invest about US$1 billion in Flipkart through a fresh cash infusion and by buying equity stakes from its investors Tiger Global and Naspers Sankalp Phartiyal
India’s No. 3 e-commerce player Snapdeal has rejected an initial takeover offer from its larger rival Flipkart this week, but the talks
between the two camps that have been attempting to forge a deal for months continue, said two sources close to the matter. Flipkart’s initial bid for Snapdeal came in below the widely anticipated advertisement
US$1 billion valuation, said one of the sources. The Mint newspaper in India, citing unnamed sources, said on Tuesday that Flipkart’s bid was worth US$700-US$800 million, while rival publication Economic Times said the bid had come in between US$800US$900 million. Snapdeal, which is operated by Jasper Infotech, opened its books to Flipkart in May for the company to run a due diligence process on it. Japan’s SoftBank, Snapdeal’s biggest investor, is keen to fold the e-commerce firm into Flipkart as it plans to invest in the larger player at the same time and sell Snapdeal in an all equity deal, giving itself a sizeable stake in India’s biggest e-commerce firm. “The due diligence came up all clean,” said one of the two sources, adding that the low-ball offer put forward was hence inexplicable and therefore rejected.
Key Points Snapdeal rejects Flipkart lowball buyout bid - sources Talks between the two camps continue Deal likely to be finalized by mid-July - source “I think it’s basically just negotiation,” said the source. Flipkart’s offer, made before a July 2 deadline during which sale talks were exclusive between the two companies, is not the end of negotiations, the source said. The second source also said that talks would continue and added a deal is expected to be finalized by mid-July. Flipkart, Snapdeal and its key investors did not immediately respond to requests for comment. Flipkart has not currently bid for Snapdeal’s logistics arm Vulcan Express and its digital payments venture FreeCharge, said the first source, adding that these assets may be sold separately. SoftBank is expected to invest about US$1 billion in Flipkart through a fresh cash infusion and by buying equity stakes from its investors Tiger Global and Naspers, sources have previously told Reuters. The deal is likely to help Flipkart, which is already backed by Microsoft Corp, China’s Tencent and online auction site eBay, to stay ahead of Amazon in the world’s fastest-growing internet services market. Reuters
S. Korean current account surplus slips South Korea’s current account surplus fell in May to a seasonally adjusted US$4.52 billion from a revised US$6.70 billion surplus in April, central bank data showed yesterday. The decrease was mainly due to a smaller goods account surplus, which shrank to US$8.03 billion from a revised US$10.56 billion in April in seasonally adjusted terms. Exports were US$46.08 billion in May, while imports were US$38.05 billion, the Bank of Korea said. Real estate
NZ house price growth slows Prices for New Zealand homes grew at their slowest annual pace in more than two years, as previously sizzling demand was crimped by regulatory curbs, government property valuer QV said yesterday. Quotable Value’s (QV) residential property price index rose 8.1 per cent in the year to June, the slowest since March 2015, compared with an annual rate of 9.7 per cent in the previous month. The index is now 54.2 per cent above the market’s previous peak in late 2007. The Reserve Bank of New Zealand has raised concerns about the nation’s soaring home prices. Auto industry
Australia new vehicle sales surge Australian new vehicle sales jumped to a record in June, a second straight month of bumper results that augured well for consumer demand across the economy. The Australian Federal Chamber of Automotive Industries’ VFACTS report out yesterday showed 134,171 new vehicles were sold in June, up 4.4 per cent on the same month last year. Both months had the same number of selling days. June is typically a strong month as dealers clear stock for the end of the financial year. Sales of sports utilities alone surged 11.7 per cent in June, with the upper large segment rising almost 21 per cent
14 Business Daily Thursday, July 6 2017
International In Brief Letterbox entities
US$10 trillion-worth of targeted by EU Investment firms may have to move thousands of jobs to the European Union after regulators said “letterbox entities” nominally based in the EU but run from abroad will not be tolerated, lawyers and advisers say. The proposal would affect UCITS, a type of mutual fund domiciled in the European Union, that hold about 9.1 trillion euros (US$10.3 trillion) of assets. The European Securities and Markets Authority said in May that passports to sell funds -- effectively, a stamp of approval allowing fund managers to offer a product globally -- should be rejected unless major decisions are made by management based within the bloc. Aviation
Emirates, Turkish say laptop ban lifted on U.S. flights The United States has lifted the in-cabin ban on laptops and other large electronic devices on U.S.-bound flights from Dubai and Istanbul, Emirates and Turkish Airlines said yesterday. The announcements come three days after restrictions were lifted on Etihad Airways’ hub Abu Dhabi International Airport. The ban was lifted “effective immediately” on Dubai International, the world’s busiest airport for international travel, after new security measures announced by the U.S. last week were implemented, an Emirates spokeswoman said in a statement.
ECB
Euro’s global role could grow as Europe stabilises The euro remained the second most-used currency worldwide on a range of measures The euro gained ground as a reserve currency in 2016 after years of decline, the European Central Bank said yesterday, suggesting that receding political uncertainty in the eurozone could boost the trend. The euro’s share of foreign currency reserves worldwide inched up 0.3 point to 19.7 per cent in the fourth quarter, according to an annual ECB report. “Instability seems to be receding in the eyes of market participants,” ECB board member Benoit Coeure told journalists in Frankfurt. “That might bode well looking forward for the role of the euro as a reserve currency.” By comparison, the U.S. dollar accounted for some 64 per cent of foreign currency reserves worldwide, a drop of more than 6.0 percentage points from the 2007 level, while China’s renminbi stood at 1.1 per cent. A 2017 survey of foreign reserves managers highlighted by the central bank found that one in three were concerned about political instability
in Europe. But the failure of anti-European Union and anti-euro parties to take power in French and Dutch elections this year could see those fears dwindle, Coeure suggested.
‘The U.S. dollar accounted for some 64 per cent of foreign currency reserves worldwide, a drop of more than 6.0 percentage points from the 2007 level’ “Given what we hear from investors, they perceive political uncertainty in the eurozone to be less,” he
said, suggesting that “we could see a rebound in the role of the euro” in future. The euro remained the second most-used currency worldwide on a range of measures, with its share of international payments for goods and services growing almost 2.0 points to 31.3 per cent. Some 42 per cent of international payments were in dollars and 1.7 per cent used renminbi. Most other measures saw the euro used less, notably on international debt markets, where the share of both outstanding and newly-issued debt denominated in euros fell. Its share of new foreign-currency-denominated debt dropped 4.4 points to 20.4 per cent by the end of 2016. The ECB insists that it does not aim to increase international use of the euro, as its mandate empowers it only to work for price stability -- or a steady rate of inflation just below 2.0 per cent. Nevertheless, Coeure acknowledged that “the single currency is an instrument for Europe to play a role on the global stage... it’s only normal that European leaders would see it that way.” AFP
Budget
Irish tax collection shortfall narrows further in June Ireland collected slightly less tax than expected in the first half of the year, but the shortfall narrowed sharply in June thanks to strong corporation tax receipts, the finance ministry said on Tuesday. Ireland’s tax collection was 0.5 per cent below target in the year to the end of June up from a shortfall of 2.4 per cent reported two months earlier, a level that had raised questions about the government’s spending plans. The improvement was mainly due to corporation tax, which was 12.5 per cent, or 205 million euros, ahead of target in June, one of the most important months of the year for the tax. Borrowing
Bank of England demands tougher line on consumer lending The Bank of England took a tougher approach towards banks over their booming lending to consumers on Tuesday, ordering them to apply credit rules prudently and prove by September they are not being too complacent about risks to their balance sheets. The BoE, which can force curbs on lending, said last week it had spotted weaknesses in the way firms have been ramping up offers of credit to consumers who are the main driver of Britain’s economy. Consumer borrowing is growing at more than 10 per cent a year, while the household savings rate has hit an all-time low.
Sweetheart tax
U.S. government seeks to intervene in Apple’s EU appeal The General Court is expected to hear the case in late 2018 Diane Bartz
The U.S. government has sought to intervene in Apple’s appeal against an EU order to pay back up to 13 billion euros (US$14.8 billion) in Irish taxes, a source familiar with the matter said on Tuesday. iPhone maker Apple took its case to the Luxembourg-based General Court, Europe’s second-highest, in December after the European Commission issued the record tax demand saying the U.S. company won sweetheart tax deals from the Irish government which amounted to illegal subsidies. The decision was criticised by the Obama administration which said the European Union was helping
itself to cash that should have ended up in the United States.
‘Apple has said it was a convenient target for the EU and that the EU competition enforcer used an “absurd theory” to come up with a punitive figure’ Th e T r u m p a d m i n i st rati o n , which has tentatively proposed a tax break on US$2.6 trillion in
corporate profits being held offshore as part of its tax reform, has not said anything in public about the case. “I can confirm the United States filed an application with the European Union General Court to intervene in the case involving the retroactive application of state aid rules to Apple,” said the source, who declined to be named because of the sensitivity of the matter. The General Court is expected to hear the case in late 2018, another source with knowledge of the matter said. Apple has said it was a convenient target for the EU and that the EU competition enforcer used an “absurd theory” to come up with a punitive figure. Amazon and McDonald’s are also in the EU crosshairs over their tax deals with Luxembourg. Ireland, the Netherlands, Luxembourg, Starbucks, Fiat Chrysler Automobiles and several other companies that were also ordered to pay back taxes to other EU countries have similarly challenged their EU rulings. Reuters
Business Daily Thursday, July 6 2017 15
Opinion
China’s electric cars are actually pretty dirty Mark Buchanan a Bloomberg View
C
ould China, the world’s largest automobile market, help address the threat of global warming if it went completely electric? The answer isn’t as obvious as it seems. China has been making great strides toward electrification. Electric vehicle sales are booming: Consumers bought more than 300,000 last year, and more than 5 million are expected to be on the road by 2020. The government just announced bold plans for a wave of big new battery factories. Encouraging as that may be, though, the move away from conventional cars and trucks won’t immediately reduce the country’s carbon emissions. On the contrary, the production and exploitation of electric vehicles in China actually produces more greenhouse gases and consumes more overall energy. In the short run, China’s moves could make greenhouse emissions go up, not down. Electric vehicles seem environmentally benign. They’re lightweight, energyefficient, and potentially greener than their conventional counterparts. But the reality is more complex. Their manufacture entails energy-intensive mining of rare elements, such as the lithium required for their batteries. Their fuel efficiency can make up for that in the course of use, but only if the electricity is produced in a relatively clean way. Developed nations get the best results, because they tend to generate electricity using cleaner sources. By one estimate, the average electric car in the U.S. has just half the greenhouse gas impact of a conventional car over its life cycle. It’s even less in the western, southern and north-eastern parts of the country, where power plants draw more renewable power. A comprehensive energy model being developed by Argonne National Laboratory produces a similar estimate. Europe does well, too. Looking at all the processes involved in the manufacture, use, and ultimate disposal of a range of both electrical and conventional vehicles, Norwegian researchers found that electric vehicles offer at least a 10 percent reduction in greenhouse gas emissions (assuming they were driven about 150,000 kilometres). To be sure, electric-vehicle batteries impose a host of other environmental costs linked to the mining of rare metals. But on carbon emissions, electric vehicles win out. The real challenge to reducing greenhouse gas emissions will be in developing nations -especially China, which is likely to dominate the global auto market for decades to come. Unfortunately, the structure of China’s industrial economy will make it difficult. One recent study by Chinese engineers estimated that electric vehicles generate about a 50 percent increase in both greenhouse gas emissions and total energy consumption over their life cycle. The manufacture of the lithium-ion battery alone accounts for 13 percent of the energy consumption and 20 percent of the emissions. The most promising ways to make electric vehicles better have little to do with the vehicles themselves. Energy infrastructure matters more. In China, electricity production still relies quite heavily on high-carbon sources including coal. Hence, both the manufacturing of the batteries and the operation of the vehicle produce more pollution than they would elsewhere. The recycling industry in China is also underdeveloped. U.S. steel is about 70 percent recycled, compared with just 11 percent in China. Electric vehicles can help China reduce greenhouse emissions only in the context of a deeper shift toward renewable sources of energy and greater efficiency. No one technology alone can create a green revolution. Bloomberg View
“Taper Tantrum II”: A less scary sequel for emerging market
T
he fright factor in sequels is often less acute than in original features. In May 2013, emerging markets recoiled in horror as the U.S. Federal Reserve signalled it was time to stop pumping them full of new cash, bearing the brunt of a “Taper Tantrum” that rippled around the globe. As other major central banks look to follow suit four years on, “Taper Tantrum II” is unlikely to pack the same shock value - at least not for developing economies jarred by the original. Compared to May 2013, emerging market currencies are significantly lower, borrowing rate premiums wider and overall asset valuations less frothy. With current account deficits more manageable, emerging economies are also less vulnerable to global shocks or sudden reversal of capital flows. Their debt levels have risen. The Institute of International Finance shows emerging economies have ramped up an extra US$3 trillion of borrowing over the past year alone to a US$56 trillion total while debt in mature markets had receded. But developing world exposure to non-dollar debt is much smaller and the actions of the European Central Bank (ECB) or Bank of Japan (BOJ) are unlikely to match the impact of the Fed - whose policy trajectory remains the biggest threat but where gradual tightening has been under way for years. Data from the Bank for International Settlements shows that dollar credit to non-financial customers in emerging markets was US$3.6 trillion last year, about a third of total dollar credit outside the United States. The euro- and yen-denominated equivalents were just 600 billion euros and 16 trillion yen (USUS$143 billion), respectively.
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Jamie McGeever a Reuters columnist
Analysts at Deutsche Bank dubbed it the “Sintra Pact”. Coordinated or not, the ECB, Bank of England, Bank of Canada and even Bank of Japan are, to varying degrees, talking along the same lines and looking to take their feet off the stimulus pedal. In response, long-term borrowing rates in the four major reserve currencies jumped suddenly, with yields in German Bunds, British gilts, U.S. Treasuries and Japanese government bonds all recording some of their biggest weekly rises of 2017. But the original “Taper Tantrum” hit emerging markets so hard because their heavy reliance on dollar borrowing left them as, or even more, vulnerable to an outsize surge in the dollar exchange rate as any rise in borrowing rates themselves. Between early 2013 and the time of the first Fed rate hike in December 2015, the dollar index soared 25 per cent. Emerging stocks fell 15 per cent in less than a month and by early 2016 they had lost around a third of their value. JP Morgan’s emerging market EMBI bond index fell 10 per cent between May and September 2013. The EMBI sovereign yield spread widened almost 100 basis points in barely a month to 366 bps from 270 basis points. But if it’s now a case of the ECB or BOJ catching up, the singular dollar surge is less likely and that dollar dampening effect should cushion the impact on emerging markets too. What’s more, developing markets appear less stretched. Stocks have rallied strongly in the past 18 months but remain below highs of 2015, 2014 and 2011 and well short of the records of 2007. That contrasts with the all-time records Wall Street has been grinding out all year. And while developed market bond yields popped higher last week in response to signals from Sintra, the EMBI yield spread actually narrowed slightly and EM stocks barely budged. ‘Taper Tantrum II’ may yet become uncomfortable viewing for emerging markets, but it won’t be the video nasty of four years ago. Reuters
Coordinated or not, the ECB, Bank of England, Bank of Canada and even Bank of Japan are, to varying degrees, talking along the same lines and looking to take their feet off the stimulus pedal
Take two ...
That’s not to say emerging markets are completely insulated. If last week does prove to be a game changer, a tightening of central bank largesse across the world tends to lift U.S. Treasury yields regardless of any change of Fed thinking. Many of the world’s top central bankers last week at the European Central Bank’s annual forum in the Portuguese town of Sintra indicated that the post-crisis era of zero interest rates and powerful quantitative easing stimulus was drawing to an end.
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16 Business Daily Thursday, July 6 2017
Closing Aviation
Airbus signs deal to sell 140 planes to China
Airbus has signed an agreement to sell 140 aircraft to China, it said yesterday, in a deal worth around US$23 billion at list prices. The agreement, signed during a visit by Chinese President Xi Jinping to Germany, is for 100 A320 family aircraft and 40 A350 planes, Airbus said. The planes will be purchased
by state-owned China Aviation Supplies Holding Company, which will then allocate the planes to Chinese airlines. Airbus group CEO Tom Enders said the group was also in talks with the Chinese over the A380 super jumbo, which has suffered slow sales. “It won’t happen overnight. It has to be intensively discussed,” he told journalists. Reuters
Legislation
Singapore to postpone bank capital rules A Monetary Authority of Singapore spokeswoman said the regulator remains committed to a full implementation of Basel III reforms Michelle Price
S
ingapore’s banking regulator has told lenders it will delay by a year the implementation of global rules designed to rein in trading risks - the latest sign that the post-crisis overhaul of the world’s banking system may be stalling. The move follows similar postponements by banking regulators in Hong Kong and Australia as concerns grow over the complexity of the rules and as it is also uncertain how they will fit with other capital reforms yet to be finalised.
Key Points
international effort to prevent a repeat of the 2008-2009 global financial crisis. The FRTB rules, which require banks to hold more capital against their trading books, were scheduled to become effective in January 2019. A MAS spokeswoman said the regulator remains committed to a full implementation of Basel III reforms but was not rigidly adhering to a timeline. “In determining the implementation timeline, MAS will consider factors such as the state of global implementation guidance, the industry’s readiness and implementation progress in other jurisdictions,” she said in a statement. Basel has no powers of enforcement
and relies on member countries to commit to the implementation of reforms agreed by the committee. A person familiar with the committee’s workings said there was no sign of the FRTB being ditched outright. In addition, capital for trading books is a small proportion of a bank’s total buffer and therefore a delay in the FRTB does not materially affect the bigger capital picture for the banking sector, this person said. Group of 20 (G20) countries meet in Germany this week to take stock of the implementation of global banking reforms. Mark Carney, chairman of the Financial Stability Board, which coordinates financial rules for the G20, warned on Monday that global growth would suffer if regulators give in to “reform fatigue” and fail to complete the agreed changes. But after an intensive decade of rule-making, some policymakers now want to prioritise growth
over yet more complex banking regulation. U.S. President Donald Trump has said regulation is holding back lending and the U.S. Treasury has recommended delaying the FRTB, as well as another measure that strengthens bank funding. Regulators in Asia are worried their banks may be at a disadvantage if they push ahead with the rules while other countries hold back, the sources said. The European Union’s executive European Commission has proposed delaying its full application of FRTB, and officials are now waiting to see whether U.S. regulators follow the U.S. Treasury recommendation. The Hong Kong Monetary Authority said last month the FRTB rules would be implemented no earlier than January 2020, while the Australian Prudential Regulation Authority (APRA) announced a delay in March that would likely see the rules come into force in 2021. Reuters
MAS notified banks of delay in a letter last month Hong Kong, Australia have also delayed the capital rules Singapore is “committed” to implementing Basel reforms - MAS
The Monetary Authority of Singapore (MAS) notified local banks of the delay to the so-called ‘fundamental review of the trading book’ (FRTB) in a letter last month that also flagged a number of other regulatory issues, two people briefed on the matter said. The people declined to be identified as the letter was not made public. The rules were finalised last year by the Basel Committee on Banking Supervision as part of a decade-long
Commisioner
Environment
Missing tycoon
EU, Japan officials seal trade agreement
Beijing backs hundreds of global coal power projects
Tomorrow Holdings puts investments up for sale
Senior European Union and Japanese officials reached a free-trade agreement yesterday, paving the way for leaders to conclude the political accord today, European Trade Commissioner Cecilia Malmstrom said. “We’ve reached political agreement at ministerial level on an EU-Japan trade deal. We now recommend to leaders to confirm this at summit,” she tweeted after meeting Japanese Foreign Minister Fumio Kishida in Brussels. “We ironed out the few remaining differences.” Japanese Prime Minister Shinzo Abe is due in Brussels today to sign a political agreement with the heads of the main European Union political institutions. Senior EU officials said some issues, as well as legal technicalities, had to be worked out in the coming months before a full treaty would be ready for signing. He said that EU food and drinks exporters would in time get almost completely tariff-free access to nearly all Japanese markets - a key European demand - and European carmakers would “not be disappointed” by a transition to ending tariffs on Japanese vehicle imports. Reuters
Chinese companies are planning or constructing hundreds of coal-fired power projects around the world, data show, even as Beijing talks up its commitment to fighting climate change. The report by German environmental lobby group Urgewald comes as China seeks to fill a vacuum left by the United States following President Donald Trump’s decision to exit the Paris climate agreement. Urgewald estimates about 250 Chinese companies are involved in nearly half of the 1,600 new coal power projects planned or being built worldwide. They include state-owned energy giants China Datang Corporation, China Huaneng Group, and SPIC. Urgewald bases its figures on publicly available company information and the Global Coal Plant Tracker published by San Francisco-based research platform CoalSwarm. It estimates more than 840,000 megawatts will be added to the world’s coal-fired power capacity if the 1,600 projects are completed. Just 120 major coal plant developers -- including 26 Chinese companies -- are responsible for about two-thirds of the planned expansion. AFP
The financial empire of missing Chinese-born tycoon Xiao Jianhua has put billions of dollars of investments up for sale, including stakes in a life insurer, a trust and banking assets, three people involved in the process told Reuters. A billionaire with links to China’s Communist Party elite, Xiao vanished earlier this year. He was last seen in the early hours of Jan. 27, leaving the Four Seasons Hotel in Hong Kong in a wheelchair with his head covered, accompanied by several people described in media reports as mainland Chinese agents. Xiao’s whereabouts are not known but his dramatic disappearance sparked widespread speculation he had been caught up in Chinese President Xi Jinping’s crackdown on corruption. Chinese authorities have not commented on Xiao’s disappearance, and his family could not be reached for comment. Two of the sources with knowledge of the process said that now Chinese authorities are pressing Tomorrow Holdings, Xiao’s conglomerate, to pare back its sprawling asset portfolio, which includes stakes in more than 30 domestic financial institutions. The sale is part of Beijing’s broader efforts to rein in risky practices by financial services firms, the sources said. Reuters