Melco’s net profit increases over 100-fold Results Page 8
Monday, April 3 2017 Year VI Nr. 1267 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Electronic services
Internet replacing China’s traditional means of name selection Page 20
M&A
Shenzhen gov’t takes control of property giant Vanke Page 13
www.macaubusinessdaily.com
Gaming
Labour Affairs
FBI makes arrest at Imperial Pacific’s casino construction site Page 9
Gov’t : universal minimum wage consultation to start in Q4 Page 4
The Lucky Eight Gaming
Gaming revenue registered an eighth consecutive month of growth in March, beating analysts’ expectations by growing 18.1 pct y-o-y. Accumulative revenue for the first quarter of the year also recorded an increase of 13 pct y-o-y. Believing the return of high-rollers is the main driver, analysts point out that China’s real estate bubble is also playing a role in the recovery. Page 8
Trade back on the rise
Medical tourism? Improve public services first
Desmond Yen, Executive Director of non-profit health care organisation the Australian Council on Healthcare Standards (ACHS), believes the city still needs to do a lot of work to achieve its goal of becoming a medical tourism destination. Improvements in the public health sector, plus leadership and culture, are key, he tells Business Daily.
Imports & Exports MSAR’s total trade value went up by 11.4 pct y-o-y in February due to imports and exports both registering increases. In particular, imports of luxury goods - namely, watches, gold jewellery, handbags and wallets - also posted double-digit growth. Meanwhile, total exports soared by 27.2 pct y-o-y. Page 4
Different gauges, different results
Interview Pages 10 & 11
HK Hang Seng Index March 31, 2017
24,111.59 -189.50 (-0.78%) Worst Performers
Kunlun Energy Co Ltd
+2.71%
Link REIT
+0.37%
AAC Technologies Holdings
-2.93%
Belle International Holdings
-1.37%
Want Want China Holdings
+2.28%
Cathay Pacific Airways Ltd
+0.36%
Hang Lung Properties Ltd
-2.42%
Sino Land Co Ltd
-1.30%
China Mengniu Dairy Co Ltd
+1.00%
Power Assets Holdings Ltd
+0.15%
Hengan International Group
-1.78%
Galaxy Entertainment Group
-1.28%
Lenovo Group Ltd
+0.99%
Hong Kong & China Gas Co
+0.00%
Geely Automobile Holdings
-1.49%
China Construction Bank
-1.26%
Hong Kong Exchanges &
+0.62%
China Overseas Land &
+0.00%
Wharf Holdings Ltd/The
-1.40%
Ping An Insurance Group Co
-1.25%
19° 22° 20° 22° 21° 23° 21° 24° 21° 24° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
China’s PMI China’s official factory gauge climbed to its highest level in almost five years, the latest evidence of increasing momentum in the world’s second-largest economy. However, Caixin/Markit private survey data suggests steady but slowing growth. Page 12
2 Business Daily Monday, April 3 2017
Macau Sino-Luso
Food for thought Macau, cited as a reference for tourism by Forum Macao members, has improved its bilingual talent Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
ngola and Mozambique are seeking economic diversification as a way to gain further visibility and access to the Chinese market, said Vicente de Jesus Manuel, Assistant Secretary of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao). Speaking to Business Daily on the sidelines of an event organized by the Forum and the Macao Trade and Investment Promotion Institute (IPIM) last Friday, the Forum’s vice secretary-general said the two Portuguese-speaking African countries
are investing in the manufacturing of goods, which is expected to boost their value of exports. “Angola, which used to depend only on oil, has potential [to develop] other areas such as fishing and agriculture. [It] is working intensely
Chinese investment
Mozambique’s Consul General to Macau, Rafael Custódio Marques, explained to Business Daily that Chinese investments in Mozambique have accrued intensely in recent years, through both the Forum platform and at the bilateral level since the independence of the country in 1975. The presence of Chinese
to develop areas such as the manufacturing of wood, in order to increase the aggregated value [of goods],” said Mr. Manuel. Food products are among the new areas to be developed, not only in Angola, but also in Mozambique, where natural resources continue to top the country’s exports to China, according to Rafael Custódio Marques, Consul General of Mozambique.
companies in Mozambique is mainly apparent in the field of infrastructure, such as roads, bridges, airports and schools, in addition to the field of exploitation of natural resources and agriculture, according to the consul-general. Types of investment include concessionary loans and public-private partnerships (PPP).
Last Friday, the Forum and IPIM celebrated the first anniversary of the Exhibition Centre of Food Products from Portuguese-speaking countries, in addition to launching ‘Exhibition Points’ for the Luso countries.
Mr. Marques explained to Business Daily that Mozambique’s main exports to China comprise wood, gas and coal, “which are now in a process of prospection.” In regards to the current difficulties in diversifying exports to the Chinese market, the Consul General said phytosanitary barriers are still in place. However, he added: “they are in the course of being suppressed and [may] be overcome soon.”
Bridging
“Forum Macao performs a complementary role, but it does not replace bilateral relations,” explained Mr. Manuel at the Forum. Last Friday, the Forum and IPIM celebrated the first anniversary of the Exhibition Centre of Food Products from Portuguese-speaking countries, in addition to launching ‘Exhibition Points’ for the Luso countries. The exhibition, showcasing new food products and products from the Lusophone world that are already on the market in Macau and China, is perceived as another way of expanding bilateral business, in addition to the online platform IPIM launched a year ago. “I think [the Centre] is a very good ‘window.’ In order to conquer the Chinese market, we have to exhibit the products and make ourselves known. We have been using the online platform, but it is always better when we can see and taste [the products],” suggested Mr. Marques. Tourism is another area in which Macau is seemingly performing an important role, with Mr. Manuel noting that the city has appeared as “a reference” in the conferences the Forum has organized in the past few years. According to the Assistant Secretary-general, Macau is also developing in the training of bilingual professionals. “[During] the 4th Conference of the Forum, it was decided that Macau had to invest more in the training of bilingual personnel. We already have several courses here, and it is producing results.”
Ho Chio Meng Trial
Prosecutors request to include additional facts Prosecutors in the bribery case against former Prosecutor-general Ho Chio Meng requested last Friday to add Ho’s purchase of a home unit in Villa De Mer and other related information, to the case’s indictment as factual information. According to Chinese newspaper Macao Daily, the information will include the fact that Or Wai Sheun – the boss of Villa de Mer developer Polytec Asset Holdings Ltd – had offered a 25 per cent discount to Mak Im Tai, a co-defendant in the case, to purchase the housing unit,
with the purchase contract later being transferred to the name of Mr. Ho’s spouse, Chao Siu Fu. Mr. Or allegedly instructed his subordinates to issue four receipts under the name of Ho’s wife – Chao Siu Fu – amounting to MOP1.98 million (US$247,370). While the payments were never made by the couple, Mr. Or, instead, ordered his subordinate to pay the amount via his other company, Hongs Trading Ltd., witnesses testified to at the hearing last Wednesday. Meanwhile, Pro-Rector of the
University of Saint Joseph, Vincent Yang took the stand last Friday. He testified that he had seen the name of Wang Xiandi – another defendant in the case and the alleged consultant of the Prosecutor’s Office (MP) – on the name list of an event in 2005. However, in response to Presiding Judge Justice Sam Hou Fai’s enquiry, Mr. Yang said he had never seen Wang at the MP before, despite being familiar with many of the MP staff. Meanwhile, the defense lawyer
pointed out last Friday that part of the MP contracts awarded to the alleged shell companies in the case, had not been approved by the former prosecutor-general. A witness from the Commission Against Corruption (CCAC) admitted that contract documents do not necessarily prove the ex-official was the one granting MP projects to the involved shell companies. However, the prosecutors did present a contract with one of the alleged shell companies in the case approved by Mr. Ho.
after detecting traces of avian influenza, with the most recent cull taking place in February. According to the Secretary, live poultry inspections through random sample collections “can’t assure that all live poultry are not infected by avian flu”, putting all workers involved in the industry and local residents in danger. “We don’t want local residents to have contact with poultry and lose their life. There are many risks for residents that purchase live poultry in markets. If there’s an outbreak in Macau, we can imagine how this will affect the city as an international tourism centre,” she added. Ms. Chan added that the government is in negotiations with the sector so as to “provide more offers for
the sector to transform,” saying a decision on the issue will be made this month. The President of the Civic and Municipal Affairs Bureau (IACM), José Tavares claimed that sellers of live poultry “don’t now have a deep knowledge of avian flu and of the risks,” according to his two meetings with them. “They sent a letter to insist on the import of live birds. They want the government to change its position,” he said, adding that the letter gathered the signatures of 250 sellers and was filed days after the government’s first meeting with them. “They say they can’t survive from frozen meat sales, but we can help them change to other sectors,” Mr. Tavares guaranteed.
Business
Cutting live poultry The MSAR Government aims to terminate the sale of live poultry and will announce a final decision on the matter this month Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com
Terminating the importation of live poultry is the only way to avoid human infection by avian flu, the MSAR Government believes, saying a final decision on whether to resume the sale of live poultry will be made this month. “The avian flu has become increasingly serious internationally (…) the
only solution left is the cessation of the importation of live poultry (…),” the Secretary for Administration and Justice, Sonia Chan Hoi Fan said last week at the Legislative Assembly (AL). She added that only halting the supply of live poultry “could suppress any possible threat of avian flu to residents”. In less than 12 months, the MSAR authorities have culled live poultry in the city on at least five occasions,
Business Daily Monday, April 3 2017 3
Macau
4 Business Daily Monday, April 3 2017
Macau Imports and exports
Total trade expands 11.4 pct in February Notable increases were evident in both import and export values for the month Kam Leong kamleong@macaubusinessdaily.com
T
he city’s trade activity posted a year-on-year increase of 11.4 per cent in total value, boosted by increased exports, the official data released last Friday by the Statistics and Census Service (DSEC) shows. For the month, total trade value reached MOP6.09 billion, with the value of exports surging by 27.2 per cent year-on-year to MOP904.3 million, while that of imports also grew by 9.1 per cent year-on-year
to MOP5.18 billion. Of the total imports, the value of watches jumped by half during the month, totalling MOP386.1 million, while that of gold jewellery and handbags & wallets rose by 20.6 per cent and 18.5 per cent year-on-year, amounting to MOP483.4 million and MOP255.9 million, respectively. In addition, imports of food & beverages, garments & footwear and mobile phones registered single digit increases, amounting to MOP743.5 million, MOP479.3 million and MOP343.9 million, respectively. However, imports of construction materials dropped by 12.7 per cent
year-on-year to MOP112.3 million. For the whole month, the city’s imports from the European Union jumped by 16.1 per cent year-onyear to MOP1.4 billion, accounting for some 27 per cent of the total. Meanwhile, those from Mainland China went up slightly by 1.6 per cent year-on-year to MOP1.64 billion, accounting for 31.6 per cent of the total.
Surging exports
On the other hand, the city’s exports of non-textiles rose by 32.4 per cent year-on-year to MOP855 million for the month. In particular, that of diamonds & diamond jewellery soared by 93.6 per cent year-on-year to MOP117.6 million, while exports of tobacco &
wine nearly doubled from one year ago to MOP63.8 million. Exports of watches and electronic components also increased by 8.5 per cent and 14.2 per cent year-on-year, amounting to MOP95.9 million and MOP76 million for the month, However, total exports of textiles and garments registered a drop of 24.4 per cent year-on-year to some MOP49.3 million. Hong Kong remained the biggest destination for the city’s merchandise exports, with exports to the neighbouring city jumping by half to MOP609.4 million for the month, followed by Mainland China, which received a total of MOP122.5 million worth of exports from the MSAR, increasing by 23.4 per cent year-on-year. For the first two months of the year, the total trade value of the MSAR reached MOP13.6 billion, rising by 2.8 per cent year-on-year. Of the total, imports accounted for MOP11.7 billion and exports reached MOP1.88 billion, expanding by 1.6 per cent and 11.2 per cent year-onyear, respectively.
Local imports of watches jumped by half in February
Labour affairs
Gov’t: Universal minimum wage consultation in Q4 The government aims to implement the bill in 2019, stressed the Secretary for Economy and Finance Cecilia U cecilia.u@macaubusinessdaily.com
The MSAR Government will commence public consultations on the implementation of a universal minimum wage in the fourth quarter of this year, the Secretary for Economy and Finance, Lionel Leong Vai Tac said during Friday’s plenary session at the Legislative Assembly (AL). The consultation will follow discussions on two other proposed bills, which are taking place this month. The two bills aim to revise seven areas of the local labour law and the part-time
AL rejects Gabriel Tong’s “interpretative land law” debate
The recordings of the 2013 AL committee meetings, where the then-new Land Law was discussed, disclosed that the Chief Executive can only terminate or extend a land grant during the land-use term of a concession, according to a report released by the Legislative Assembly last Friday. The conclusion refutes the suggestion made by legislator Gabriel Tong Io Cheng, that the city’s top official can make
work system. In her oral interpellation, legislator Ella Lei Cheng I complained that the government had changed the schedule, from previously planning to implement the universal minimal wage bill by the end of 2018 to bringing “the policy to legislative procedure within three years’ time”. However, the Secretary reiterated that the city would implement the bill for all occupations from 2019, as stated in the government’s five-year plan. The Secretary also noted that the Labour Affairs Bureau (DSAT) would collect opinions from both employers
decisions regarding land contracts at any given time. Last July, a draft of an “interpretative law” on the clauses related to temporary land concessions of the Land Law, was submitted by the Legislator and law professor to the legislature to debate and vote on. The Assembly officially rejected the proposal last Friday after checking all the recordings of the meetings related to discussions of the Land Law back in 2013. The 476-page report from the Assembly reads that the government agreed to impose
and employees, regarding the current effective minimum wage policy for property security guards and cleaners, by the end of this month. Secretary Leong added that the consultation on the current law would
a land-use term of a maximum of 25 years for temporary or conditional concessions, as opposed to the interpretations of the legislator that the MSAR Government could carry out possible plans for policies for developers who were unable to develop their plots of land by the expiry of their land concessions. Enforced in March 2014, the Land Law mandates that no extension is allowed for a temporary or conditional land concession if developers fail to complete their projects on their sites by the expiry of their concession terms.
be very important for the drafting of the universal minimum wage bill. “[The] opinions will be included in the review report for the universal minimum wage bill and be used as reference,” he said. According to the official, no employers have been penalized for violating the current minimum wage laws.
Disputes over the land law arose after the MSAR Government announced its plans to reclaim the plot where luxury residential project Pearl Horizon was to be built in Areia Preta. The property project had over 3,000 units sold off-plan. The review of the recordings on the discussion aimed to analyse whether the government had made any promises, or proposed any solutions for situations in which developers faced the prospect of having their undeveloped plots being taken back by the government.
Business Daily Monday, April 3 2017 5
Macau
6 Business Daily Monday, April 3 2017
Macau Opinion
Sheyla Zandonai* Shipyards’ agreement Last week, the government went back on its decision to tear down the shipyards in Coloane after relentless pressure from activist groups and public opinion. I have previously written in this column that local authorities had earmarked the shipyards for renovation and preservation in 2012. Earlier this year, the tourism office confirmed that the site was going to be revamped, just a couple of months before its death sentence was declared. Now, we are back to an awkward pardon note. It is never a done deal in urban affairs. What happened in the meantime, while the government let the place fall to ruins, nobody seems to know for sure. The few people who may be either acquainted or directly involved with the case are not keen to step out and give face to explain the unexplainable. This is one point of the story that should be clarified. Public trust is weary. Lengthy delays and changes of plans for several urban projects make a long list – the central library, the hospital, residential buildings surrounding the lighthouse, and so on. The other, related point, which hangs around the shipyards ‘mystery’ like a ghost, is accountability. In Western political theory, modern mechanisms of representation have been consolidated, at least since the French Revolution, based on the idea of the ‘social contract’ that Jean-Jacques Rousseau, a Swiss-French philosopher, developed in the eighteenth-century. Basically speaking, the social contract defines the bond between people and government on the grounds of the sovereign rights of the people, removing a principle from the Ancient Regime according to which rulers were invested by divine laws to govern. In contemporary parlance, the social contract is not strictly a statement for independence claims, though it could run that length – as has been the case in Hong Kong – but a claim for responsible governing. Accountability, a much more fashionable term, works now as synonymous with what the social contract used to stand for, before governments became too entrenched in compromise with business and capital interests – so-called neoliberalism. People’s agency and application in check-balancing governance, as they felt there was an attack on the common good or rights, historical and cultural, they considered legitimate, were the tools that have enabled the shipyards to stand still. The other part of the agreement is for the government to fulfill. *scholar and contributor to this newspaper.
Gaming
China Star posts HK$336 mln loss for 2016 The company, which runs Lan Kwai Fong Hotel in the MSAR, saw its hotel and gaming business in the territory suffer a loss for the year as revenue declined Cecilia U cecilia.u@macuabusinessdaily.com
C
hina Star Entertainment Limited, operator of the Lan Kwai Fong Hotel (LKF), posted a yearly loss of HK$335.6 million (US$41.9 million) in 2016, down from a profit of HK$107.9 million one year earlier, it announced last Friday in a filing to the Hong Kong Stock Exchange. The group attributed the loss to a 75 per cent year-on-year decline in gross profit for 2016, down to HK$115.9 million, due to a significant drop in revenue generated from gaming operations ‘as a result of the recession in the gaming industry in Macau,’ in addition to the gross loss from a new film released last year to the tune of HK$222.9 million. According to the filing, a loss of HK$45 million was recorded in the company’s hotel and gaming service operations last year, compared to a HK$62.3 million profit in 2015. Total revenue from the segment plunged by 21.8 per cent year-on-year. The firm operates Casino Lan Kwai Fong located in the hotel property under the license of Sociedade de Jogos de Macau, S.A. (SJM). The filing reads that its service income from the casino VIP market
fell by 37 per cent year-on-year to HK$20.4 million. In addition, that from mass market and slot machines plunged by 22 per cent and 42 per cent year-on-year, down to HK$535.8 million and HK$4.2 million, respectively.
The casino was operating a total of 84 gaming tables and 70 slot machines as at the end of last year. The firm added that the occupancy rate of the hotel for the whole year was about 98 per cent, a decrease of one percentage point from 2015. The group also revealed that construction will commence this year on its luxury residential and commercial complex of two towers next to its current hotel property, with completion slated for 2019.
Gaming
Success Universe net loss expands Ponte 16 operator Success Universe Group Ltd posted a significant downturn in revenue and profits for the year of 2016, mainly attributable to a decrease in share profits from its local casino. According to the company’s annual results filed with the Hong Kong Stock Exchange last week, the loss attributable to the owners of the company expanded to HK$31 million, up
from HK$6.7 million in 2015. Share profits of the group’s associates within Ponte 16, the company’s flagship investment project in the MSAR, fell 40 per cent to HK$17.5 million, down from HK$29.3 million one year earlier. Meanwhile, total adjusted EBITDA of the casino at Ponte 16 was HK$277.4 million for the year, a decrease of HK$303.7 million from
2015, the filing reads. The company was operating 109 gaming tables, including 96 mass gaming tables, seven high-limit tables and six VIP tables as at the end of the year. The average occupancy rate of Sofitel Macau At Ponte 16 was 88 per cent for 2016. The company saw its total revenue for the year plunge 43.3 per cent to HK$573.1 million (US$73.8 million), down from HK$1.01 billion in 2015. The company’s lottery commission and services income in Macau –despite not being its main business segment – registered the most notable drop, down by 88 per cent year-onyear to HK$8.28 million, compared to HK$69.59 million a year earlier. The company noted that the decline in results in the Macau market was mainly attributable to ‘the voluntary and temporary suspension of the paperless lottery sales agency services’. S.Z.
Remuneration
SJM announces salary raise up to 9.1 pct Gaming operator SJM Holdings Ltd announced a salary increase for qualifying staff of between 2.5 per cent and 9.1 per cent, effective from this month. According to an internal notice to its employees, the gaming corporation has raised the monthly salary of employees whose monthly wages are below MOP16,000 (US$2,000) by MOP600, representing a hike of up to 9.1 per cent, while those earning between MOP16,000 and MOP70,000 have received an salary increase of 2.5 per cent. The
company added that the salary increase primarily benefits local
employees, which make up 95 per cent of the company’s staff. SJM was the last major gaming operator to announce a salary increase for its workforce this year. C.U.
Business Daily Monday, April 3 2017 7
Macau
8 Business Daily Monday, April 3 2017
Macau Results
Gaming revenue grows 18 pct in March Meanwhile, analysts at Wells Fargo believe the recovery of the local gaming industry has been driven by Chinese liquidity growth and the housing bubble Kam Leong* kamleong@macaubusinessdaily.com
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he local gaming industry posted an 18.1 per cent increase in revenue for the month of March, marking the eight consecutive month of year-on-year growth and beating expectations, as wealthy gamblers took their chances in the territory. According to the official data released on Saturday by the Gaming Inspection and Coordination Bureau (DICJ), March’s gaming revenue amounted to MOP21.2 billion (US$2.65 billion), as compared to MOP17.98 billion for the same month last year. On a month-on-month comparison, March’s revenue, however, represents a decrease of 7.7 per cent, down from MOP22.99 billion in February. Total revenue for the first quarter of the year reached MOP63.5 billion, a jump of 13 per cent from MOP56.2 billion one year ago. Analysts were expecting growth of between 12 per cent and 16 per cent for the month of March. In a Sunday note, analysts J.P. Morgan Securities (Asia Pacific) Ltd
estimated that year-on-year VIP growth reached “the high-20s” for the month, while the mass market also registered an increase of some 10 per cent. The DICJ will only release the first quarter’s breakdown of VIP and mass revenue later this month. For the period, the J.P. Morgan analysts believe VIP soared by 17 per cent year-onyear, while mass jumped by 10 per cent year-on-year. ‘As we’ve been writing for some time, junkets are seemingly enjoying an end-demand recovery from the favourable China macro backdrop of 2016 (e.g., property market rally,
eased liquidity, commodity price hikes), fuelled by improved liquidity and ‘confidence’ at junkets,’ they added. A similar perspective was offered by analysts at Wells Fargo Securities, LLC, who wrote in a March 31 note that the recovery of the city’s gaming industry, especially the VIP segment, ‘could stall once the stimulus from loose credit and the Chinese housing bubble wears off’. ‘A key component of our neutral thesis is recent growth has been driven by Chinese liquidity growth and a housing bubble. We are continuing to see VIP drive growth in the market… In our view, the VIP strength has been partly led by a Chinese real estate bubble,’ the analysts, led by Cameron McKnight wrote. ‘There has historically been a strong correlation (85 per cent) between the housing market and VIP volume
growth. We expect the increased government restrictions on real estate to at some point cool the market,’ they further explained. Last week, Beijing authorities announced an expansion of the capital’s property curbs, from the housing market to commercial real estate, which restrict individual purchases of commercial properties and suspend personal loans for commercial real estate. Macau’s gaming revenues have surged since the second half of 2016 with the opening of new resorts helping to draw in high-rollers and more casual gamblers. Chinese President Xi Jinping’s campaign against shows of wealth by public officials in 2014, had dried up the stream of VIP spenders from the mainland. Analysts remain cautious about the sustainability of revenues from the VIP market, but have called a bottom to a slump that has afflicted Macau for more than two years. Overseas visitors are an increasingly common sight in Macau, which is trying to diversify an economic model that has depended on mainland high-rollers for more than a decade. *with Reuters
Results
Melco Int’l’s net profit soars over a hundredfold The firm said its joint-bid for a casino license in Cyprus with Hard Rock is now in the final stage Kam Leong kamleong@macaubusinessdaily.com
Gaming investor Melco International Development Ltd saw its profit attributable to owners surge by over one hundredfold to HK$10.4 billion (US$1.29 billion) for the year of 2016, as total revenue jumped by over 50 times, according to the company’s annual results filed with the Hong Kong Stock Exchange last Friday. Total net revenue of the group amounted to HK$23.9 billion for the year, as compared to some HK$400 million for 2015. Of the total, some HK$21.8 billion was derived from its casino revenue; HK$1.93 billion
from non-gaming facilities; HK$60.3 million from its lottery business; and some HK$57.8 million from electronic gaming machines. Adjusted EBITA (earnings before interest, taxation, depreciation and amortization) also soared by over ten times to HK$4.9 billion, up from HK$400 million one year earlier. The company, chaired by gaming mogul Lawrence Ho Yau Lung, became the major shareholder of local gaming corporation Melco Crown Entertainment Ltd in February, after its consortium partner, Australian – based Crown Resorts, reduced its stake in the corporation to 11.2 per cent as at the end of
VIP boosting Tigre de Cristal
Meanwhile, the company’s subsidiary Summit Ascent Holdings Ltd, an investor in the casino-resort Tigre de Cristal in the Russian Far East, posted a net profit of HK$559 million for 2016, compared to a net loss of HK$85.4 million one year earlier. According to a filing from Summit Ascent on Friday, Oriental Regent Limited, through which Tigre de Cristal is operated, generated an adjusted EBITDA of approximately HK$132 million for the full year of 2016. Opened in October 2015, the casino
last year. Meanwhile, the company noted in the filing that its bid for a casino license in Cyprus ‘has now entered the final stage’. The corporation’s bid is in co-operation with Hard Rock International and Cyprus Phasouri (Zakaki) Limited. The consortium became the sole bidder for the tender, after its two major contenders
- Cambodian casino operator NagaCorp Ltd. and the Philippines’ Bloomberry Resorts Corp. - decided to retract their bids last October. If successful, the joint venture will be granted a 30-year license to operate a new casino resort in Cyprus.
Japanese dream
On the other hand, the company’s chairman stressed in
Lawrence Ho Yau Lung, chairman of Melco International Development Ltd
project, located in the Integrated Entertainment Zone of the Primorye Region near Vladivostok in Russia, saw its rolling chip turnover at the casino property reach RUB14.1 billion (HK$1.94 billion/US$241.5 million) for the whole year of 2016, while total table drop at mass tables reached RUB4.3 billion, with slot machine handle totalling RUB13.8 billion. Summit Ascent noted in the filing that the main contribution to the profitability of Tigre de Cristal comes from its rolling chip business, which targets VIP customers from Northeast Asia.
The same filing shows the property’s VIP business is on the rise, indicating total rolling chip turnover for the first quarter of this year reached RUB3.46 billion, a surge of 159 per cent year-on-year, whereas revenue from mass market and slot machines amounted to RUB976 million and RUB3.09 billion, a decrease of 18.2 per cent and 1.72 per cent year-on-year, respectively. ‘Management remains optimistic about the prospects of further ramp-up of the business in light of the recent announcement by the Primorsky Government that a
the filing that the company in also interested in obtaining a casino license in Japan. ‘We are also eagerly advancing our plan to secure a gaming license in Japan, as the legalization of casinos in December 2016 has paved the way for tremendous business opportunities in this wealthy and populous country,’ the chairman said in the filing. ‘Although the regulatory framework is yet to be set up, we are optimistic about the prospects of Japan and are committed to earmark significant resources with the goal of developing a distinctive integrated resort for Japan in the long run,’ he added. During a briefing held at a CLSA Ltd. conference in Tokyo in February, the gaming tycoon said the opportunity in Japan “is priceless” and the company will “spend whatever it takes to win” a license, adding that his top choice for a casino resort would be in the country’s second largest metropolitan area Osaka.
much simplified visa regime will be implemented in the summer of 2017,’ the company noted. According to the company, the first part of its Phase II resort in the Russian gaming zone is expected to be launched during the second half of 2019. “We now expect to maintain our monopoly position and first-mover advantage until at least 2019… All the above factors lead us to believe that there remains significant opportunity to further expand our business in 2017,” remarked the company’s chairman, Lawrence Ho Yau Lung in the filing. K.L.
Business Daily Monday, April 3 2017 9
Gaming Violations
And the saga begins? FBI makes arrest in connection with Saipan casino construction Matthew Campbell and Greg Farrell*
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he Federal Bureau of Investigation arrested one person in connection with the death of a construction worker at Imperial Pacific International Holdings Ltd.’s casino on the remote U.S. island of Saipan, according to an agency spokeswoman. “The FBI conducted a search and made an arrest in response to the recent death of an individual working at the construction site of the Imperial Pacific Resort,” Michele Ernst, a spokeswoman in the FBI’s Honolulu field office, said in an email Friday. “The investigation is related to allegations of a federal violation of the workplace visa system, including reports the company was systematically harboring individuals who are out of status and in violation of federal statutes.” The bureau’s statement comes after a legislator and local residents said FBI agents and local law enforcement on Thursday visited an office used by Imperial Pacific, staying for several hours and blocking access to the building. Imperial Pacific, which is listed in Hong Kong and
controlled by mainland Chinese entrepreneur Cui Lijie, didn’t respond to email and phone requests for comment on the FBI statement. In a stock exchange filing Friday, Imperial Pacific said “neither the Group nor any of its staff has received any investigation notice from any of the U.S. Federal Bureau of Investigation or government departments.” Local media reported on March 23 that a 43-year-old Chinese national had fallen to his death from a scaffold on the nearby site of the company’s planned casino resort, which will replace a temporary facility currently in use. The FBI “routinely partners with federal agencies when there are reports of widespread and systematic human trafficking within the labor sector,” Ernst said.
Strong connections
Saipan, an island of 50,000 residents closer to China than to Hawaii, relaxed rules on casinos in 2014 and soon awarded Imperial Pacific exclusive rights to open casinos there. The casino, run by an executive who cut his teeth in Atlantic City casinos then owned by Donald Trump, enlisted a slate of luminary overseers including former leaders of both the
Republican and Democratic national parties in the U.S. Its board members include James Woolsey, who ran the U.S. Central Intelligence Agency in the early 1990s and was among national-security advisers to Trump’s presidential campaign. Former FBI director Louis Freeh and Ed Rendell, a former Pennsylvania governor and Democratic National Committee chairman, sit on an advisory committee, as does Haley Barbour, the ex-Mississippi governor and Republican National Committee chairman who’s now a prominent lobbyist. Woolsey, Freeh and Barbour didn’t immediately respond to requests for comment. Rendell, through a spokesman, said he wasn’t aware of any developments at Imperial Pacific facilities and said an “independent, prestigious account organization” had reviewed the company’s finances and found nothing improper. In 2015, the company opened
Best Sunshine Live in a mall between a laundromat and a cellphone shop. From its sleepy storefront, Best Sunshine Live has posted per-table revenues far greater than those at the largest resorts in Macau, Asia’s gambling capital. Those cash flows attracted interest from the U.S. Treasury unit that monitors suspicious financial flows, a person familiar with the matter said in November. A spokesman for the unit declined to comment for this article. Imperial Pacific has been sued several times since it opened the casino, including in December by a former executive accusing it of violating money-laundering rules. The company says it complies with regulations and that high transaction volumes are the result of high-rollers, including Chinese who sometimes bet millions of dollars at a time. In response to the former executive’s suit, it told the court this month that it would file an amended answer soon.
More recently, in a dispute to which Imperial was not a party, a court found credible evidence that effectively illustrated connections between the company and a separate firm, Esteem Capital Success Ltd., that paid for Saipan legislators to take “fact-finding” trips to Hong Kong and Macau shortly before the island granted its sole gaming license to the Hong Kong company.
Mark Brown, remember him?
While Imperial Pacific and Governor Ralph Torres said last year that Esteem wasn’t involved in the bidding process, the judgment described evidence that Ji Xiaobo, the son of Imperial Pacific’s controlling shareholder, was an Esteem representative. Imperial Pacific’s headquarters are currently in the same suite as the one specified in the decision as Esteem’s office. Imperial Pacific this week declined to comment on any links with Esteem. Torres said he wasn’t aware of any connection. Mark Brown, Imperial Pacific’s chairman who has also served as its chief executive officer, is a former executive in President Trump’s Atlantic City casino empire. He has led Imperial Pacific’s plan to replace what it describes as a temporary gaming facility with a much larger casino complex in coming weeks. Brown didn’t respond to email and phone requests for comment. *With Daniela Wei and David Kocieniewski, Bloomberg
10 Business Daily Monday, April 3 2017
Macau
Desmond Yen, Executive Director of ACHS
Interview | Health service
‘A long road to medical tourism’ Last week, the city’s public hospital, Hospital Conde de São Januário (CHCSJ) had its medical accreditation renewed for four more years by the Australian Council on Healthcare Standards (ACHS), a non-profit health care organisation that operates in 23 countries. Business Daily spoke to Desmond Yen, Executive Director of ACHS, to discuss the current problems with health care services in Macau. Mr. Yen pointed out there’s still a long road ahead for the city to become a medical tourism destination. Nelson Moura nelson.moura@macaubusinessdaily.com
H
ow do you see Macau’s potential to be a medical tourism destination? In my personal opinion, that is not an easy objective, since the city doesn’t have the infrastructure or the manpower here. To change into a health tourism destination, you need a lot of specialties and you should avoid sending people out for treatment. One of the problems I see is that if Macau is currently even trying to improve its public health sector, how can it attract tourists for health tourism? It’s a weakness it faces. If you’re running a wonderful public health system, you can bring tourists in. What measures would you advise to bring about this change? These things take time and it won’t happen overnight. What we do is that we look at the systems in place to improve the hospitals. The two most important things are leadership and culture. Leadership [thinks about what to in order to] provide in terms of staff, the work environment and material to clinicians. The culture is not about having the best equipment, but the doctors and nurses caring about the patients. That is more important than having the most glamorous hospital. The best care you can receive is from your family, and that’s because they care about you. Asian countries like India, Thailand and Singapore have managed to
develop themselves as popular health tourism destinations. How did these regions achieve that? They definitely achieved this more through quality than prices. There is a market for low cost health services of course, but in general, the quality of your workers is more important than the price. Nobody can really say what medical tourism is. Many Indonesians and Malaysians travel to Singapore for health care, but they’ve done that for years. Is that medical tourism? That happens because the medical culture in Singapore is better.
that’s not what accreditation is about. Regulation is generally provided by governments, providing the basic criteria for when you open a hospital to have proper operative blocks, pharmacies, infection control and the right material. Accreditation is about quality, in other words how do you learn from
what you do and improve. It is a new concept in the sense that it appeared in the last 10 to 20 years, becoming more and more popular. However a lot of countries, particularly in Eastern Europe and the Middle East, think accreditation is regulation, and that’s an attitude I also see in Macau. We’re seen as someone coming to regulate them and beat them over the head for not having certain things, but that’s not what accreditation is about. Accreditation is about having systems in place and learning from your mistakes. One of the problems with the perception people have about accreditation is that the rating is not the most important to us. If you look for example at surgery, you have many
“If Macau is currently even trying to improve its public health sector, how can it attract tourists for health tourism? It’s a weakness it faces” While ACHS has accredited 34 hospitals in Hong Kong, in Macau only the public hospital received accreditation. What in your opinion is the main difference? I can’t say what the answer is for sure, but in my opinion some people tend to see accreditation as being regulatory. They see it as us coming and telling them what to do, and
The government is developing a new medical complex in Cotai named Islands District Medical Complex, with an estimated investment of around MOP10 billion.
Business Daily Monday, April 3 2017 11
Macau types with the surgery average providing the rating. But if there’s only one human resource management then it’s easier to define the rating. We try not to compare hospitals in terms of their ratings. You shouldn’t compare hospitals. What is good today might not be good tomorrow, and it depends on the doctors and staff. The rating is more about the culture of the organization rather than an individual aspect. What medical centres has the ACHS evaluated in Macau? The CHCSJ and eight community health centres.
“The private health sector has a different role than the public sector, in the sense that they can choose what medical services to provide, therefore they can decide to improve those services that are more profitable” The hospital was without accreditation for half a year. What happened exactly? It’s true. The accreditation expired last year, in about June of 2016. What happened was that there were problems in the hospital, which our group of consultants visited regularly. We identified a number of problems. The Head Director of the CHCSJ, Kuok Cheong U, also knew it and he turned to us and said ‘can you help us? I don’t want to go forward with accreditation yet, I need to fix up some things before I do that’. That’s what happened. He brought in an Australian and three Hong Kong consultants. They worked from around January until about September helping to fix things up, but even then nothing was 100 per cent. It’s not easy. It’s one of those things that is difficult to fix. CHCSJ went through an accreditation survey in November of last year. In December the report was produced, and only this January 2017 the council approved the accreditation. There was a delay in getting the report out because of the Christmas break. It will expire in four years, but each
year the hospital has to do something and there will be another survey in November of 2018. This year they have to make a self-assessment report and send it to our organization, and we’ll look at it to see how has the hospital addressed the recommendations from this past survey, which are the hospital’s current risks. What were the problems found at CHCSJ? We saw issues that are common in a lot of hospitals, in waiting times for surgery and disease infection control. These were the main ones we picked up when we first came here, although surgery waiting times have improved quite substantially. What makes CHCSJ a bit different from other hospitals is having the government control, as opposed to operating as a stand-alone organization. Personally I see it as a problem, because there’s a lot of political influence in the hospital management, which you don’t see in so many countries. It’s a small city and everybody knows everybody, which becomes a problem. The lack of hospital beds is also discussed as one of the main issues in Macau. How do you believe the issue can be solved? The problem is being addressed, but fixing it takes time. You’re building a new hospital in Taipa and that’s one way of dealing with the issue. Another solution could be converting some of the excess emergency unit areas into actual hospital beds. Another contentious issue is the construction of an infectious disease control centre on the Macau Peninsula. How would you rate Macau in terms of infectious disease control? I think Macau is quite good at that, just like Hong Kong. The authorities are aware of the issues that occurred in Hong Kong and have learned from it. To be honest until [an outbreak] happens, you can’t know, but I actually believe the city is reasonably prepared. Another issue being debated publicly is the establishment of the electronic health record (eHR) program since January 1, which has raised some privacy concerns. Is this kind of system common internationally? Systems like the eHR are common in most countries. It’s a trend and it has a lot of benefits. Doctors have the worst handwriting in the world, so electronic records simplify the prescriptions and help access to medical information. The privacy issue
is common for electronic databases with personal data. What health care practices do you see being applied in Hong Kong that could be applied in Macau? In general, Macau health professionals are aware of all the issues in Hong Kong. There are regular visits to hospitals there and we organize these kinds of trips to other regions too. For example, we encouraged cardiologist Mário Évora [the Head of the Cardiology Department at CHCSJ and President of the Macau Cardiology Association] to attend the Bahrain Cardiac Centre and learn from what they do. We encourage more Macau people to get out there and not be in your little isolated hospital. Go out there and see how the world is doing it. One of Macau’s problems in the past is that it was too isolated. Private hospitals in Macau receive a lot of financial support from the government too. In 2016, just from the Macao Foundation, Kiang Wu Hospital received MOP123.6 million through the Kiang Wu Hospital Charitable Association. Do you think private clinics should receive so much support from the government? The private health sector has a different role than the public sector, in the sense that they can choose what medical services to provide, therefore they can decide to improve those services that are more profitable. In Hong Kong, private clinics were, until very recently, considered second class, but I can’t talk with certainty about the Macau private sector. I visited Kiang Wu Hospital around five years ago and also visited the Macau University of Science and Technology Hospital in 2014. They were interested in our accreditation, but nothing has happened since then. If you think about it, the hospital is putting itself on the line
to be investigated. In essence, you’re paying someone to criticize you, so not everybody, especially the private sector, is willing to ask for it. Should private clinics be required to undergo accreditation inspections? Because accreditation is about continuous quality assessment, you can’t force someone to do it. What is lacking in a place like Macau is that you don’t have a regulation for hospitals in terms of management and other issues, which is in itself a problem. Having said that, I do believe accreditation would help, but we don’t push for it. Our philosophy is that unless the organization wants to improve and asks for inspections, you can’t force them. A new health complex is being developed in Cotai with an estimated investment of around MOP10 billion, and it is said it will include an organ transplant centre. Do you think Macau has the resources for a centre like that? I know there are talks about it. That would require the appropriate specialists and I don’t know what’s available in Macau. The MSAR Government has made developing Traditional Chinese Medicine (TCM) an important goal for the diversification of the local economy. What is your medical opinion of TCM? There is a growing trend towards alternative medicines. Western medicine is not always considered the best. Actually, community health centres under the government that offer TCM services in Macau are quite good. I visited them when I came out here at the end of last year. We did an inspection of these clinics and I was impressed. The herbs storage and the medication management are very well done.
12 Business Daily Monday, April 3 2017
Greater China PMI
Factory activity grows fastest in nearly 5 years But the Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 51.2 in March
A
ctivity in China’s manufacturing sector unexpectedly expanded at the fastest pace in nearly 5 years in March, adding to evidence that the world’s second-largest economy has gained momentum early this year as construction booms. China’s official Purchasing Managers’ Index (PMI) rose to 51.8 in March from the previous month’s 51.6, data showed on Friday.
Key Points China March factory activity strongest since April 2012 Service sector growth strongest since May 2014 Readings suggest economy is gaining momentum Construction booming but new property curbs may drag on growth
In an encouraging sign that China’s economic growth is also becoming more balanced and broad based, activity in the services sector accelerated last month. The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 55.1, the highest since May 2014, a separate survey showed. The March activity readings and a raft of upbeat data for January and February point to solid growth early in 2017. China’s economy likely expanded 6.8 per cent in the first quarter from a year earlier, in line with the previous quarter, said Zhang Yiping, an economist at Merchants Securities. China will release the first-quarter data on April 17.
Unsustainable growth?
China’s better-than-expected performance so far may be largely due to a surprise rebound in home sales
and strong government infrastructure investment, which have added fresh impetus to a months-long construction boom that has lifted demand for materials from cement to steel. Factory output accelerated in March, with the sub-index rising to 54.2 from 53.7 in February. Highlighting the strength of the building boom, a measure of the construction industry stood at a robust 60.5, compared to 60.1 in February. Total new orders -- which cover domestic and export demand -- also showed improvement, rising to 53.3 from February’s 53. But economists continue to have worries.
Caixin PMI
However, the Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 51.2 in March, missing economist forecasts’ of 51.6 and down from February’s 51.7. While the index was still well above the 50.0 mark which separates expansion from contraction on a monthly basis, the rates of growth
in output, total new orders, input and output prices all slipped in March from the previous month. Growth in export orders slowed sharply, falling to a three-month low of 51.9 from 53.8 in February. It also showed orders improved from home and abroad. The Caixin/Markit survey tends to focus more on small and midsized manufacturers, which may be benefitting less from a months-long construction boom than big industrials such as steel mills. The private survey is also believed to be more reflective of export-oriented firms. The Caixin/Markit survey showed manufacturers continued to shed staff, and at a slightly quicker pace than the previous month, but the employment outlook remained relatively positive as it was the second-weakest seen in just over two years. On the brighter side, the pace of inventory reduction quickened in March with stocks of purchases and stocks of finished goods both falling into contractionary territory. Reuters
Threat of U.S. trade protectionism worrying for Asia’s exporters Caixin/Markit PMI fell to 51.2 in March That was the strongest reading since April 2012 and well above the 50-point mark that separates growth from contraction on a monthly basis. Economists had expected 51.6. Manufacturers also stopped shedding jobs in March for the first time in nearly five years as profitability improved. A prolonged slump in the sector and Beijing’s recent campaign to cut excess capacity in “smokestack” industries such as steel have put millions out of work.
Liquidity
PBOC injects US$89.9 bln in March Outstanding MLF loans totalled RMB4.064 trillion at end- March China’s central bank injected RMB618.99 billion (US$89.93 billion) into the financial system via shortand medium-term liquidity tools in March, up nearly 50 per cent from the previous month, even as financial markets feared a cash crunch. The sharp increase followed a 35 per cent drop in injections in February, which in turn fuelled worries about tighter liquidity in March, sending some short-term money market rates higher and knocking China’s stock markets in recent weeks. The People’s Bank of China (PBOC) skipped open market operations for seven straight sessions through Saturday, repeatedly saying that liquidity levels in the banking system were “relatively high”, despite typically stronger demand for funds at the end of the quarter. Adding to tighter conditions, some banks were believed to be hoarding cash and curbing lending to each other ahead of a rigorous quarterly inspection of their books by the PBOC. In recent months, the PBOC has adopted a modest tightening bias in a bid to cool explosive growth in
debt and wring excess leverage out of the financial sector, though it is treading cautiously to avoid hurting economic growth. Its modest short-term interest rate increases this year have often been accompanied by various forms of liquidity injections to keep financial markets from reacting too strongly. On March 16, the PBOC raised interest rates on its reverse repurchase agreements, standing lending facility (SLF) and medium-term lending facility (MLF) loans, following a rise in rates on the reverse repos and SLF in
early February. Outstanding MLF loans totalled RMB4.064 trillion at end- March, compared with RMB3.761 trillion at end-February, implying a net injection of RMB303 billion. Outstanding SLF loans were at RMB70 billion at end-March, compared with RMB14.92 billion the previous month, implying a net injection of RMB55.08 billion. Total March SLF injections were RMB121.99 billion, with around twothirds of that in loans for a period of seven days or less, suggesting there
was strong demand from banks for short-term funds. The PBOC uses the SLF and the medium-term lending facility as tools for managing liquidity in the banking system. China’s pledged supplementary lending (PSL) facility stood at RMB2.216 trillion at end-March, up 5.2 per cent from end- February, the central bank said.
‘China’s banks made RMB1.17 trillion in new local-currency loans in February’ China’s banks made RMB1.17 trillion in new local-currency loans in February, falling sharply from near-record levels in the previous month but more than analysts had expected, highlighting the difficulties authorities are facing as they struggle to get rising debt under control. Even as officials warned about the dangers from a rapid build-up in debt, China’s banks extended a record RMB12.65 trillion of new loans in 2016. The credit spree helped the economy to expand 6.7 per cent, roughly in the middle of the government’s target range. Beijing has set a slightly more moderate growth target of around 6.5 per cent this year. Reuters
Business Daily Monday, April 3 2017 13
Greater China Official data
In Brief
Outstanding foreign debt falls The size of China’s foreign debt would steadily rise in 2017 China’s outstanding foreign debt fell to US$1.42 trillion at the end of 2016 from US$1.43 trillion at the end of September, the foreign exchange regulator said on Friday. Short-term foreign debt stood at US$870.9 billion at end-2016, down from US$894.4 billion at the end of the third quarter, the regulator said.
Key Points
within internationally recognised boundaries. Overall China’s foreign debt risks are manageable,” SAFE said. “Companies need to be able to borrow a reasonable amount of debt to go about their daily operations,” SAFE said, adding that Chinese companies would independently decide when, how much and in what currency to borrow. Short-term foreign debt accounted
for 61 per cent of the total at the end of last year, while medium- and long-term debt made up 39 per cent of the total, SAFE said in a statement on its website. Yuan-denominated foreign debt made up 34 per cent of total foreign debt at the end of 2016, compared with 40 per cent at the end of September. The yuan fell 6.5 per cent against a surging dollar in 2016, its biggest annual drop since 1994. China’s foreign debt deleveraging process had basically finished and the size of China’s foreign debt would steadily rise in 2017, the regulator said in a note accompanying the statement. Reuters
Foreign debt fell to US$1.42 trillion at end-2016 - regulator Says deleveraging process in China’s foreign debt is over Says size of China’s foreign debt will rise in 2017
Readjustment
PBOC says economy stable China’s economy remains “generally stable” but it is facing complexities that “cannot be underestimated”, the country’s central bank said in a statement on Saturday following a quarterly meeting of its monetary policy committee. The People’s Bank of China said in a statement posted on its website that the world economy was still in a period of readjustment following the global financial crisis, and there were still many risks in global markets. It said it would continue to implement a sound and neutral monetary policy, and rely on a range of monetary policy tools to keep liquidity at a stable level. Results
Huawei posts flat profit growth
At the end of 2016, China’s outstanding foreign debt was 13 per cent of GDP and its short-term foreign debt was 29 per cent of FX reserves, the State Administration of Foreign Exchange (SAFE) said in a separate statement on its website. “China’s foreign debt risks fall
M&A
Questions over Vanke’s strategy after Shenzhen govt stakes claim Clare Jim
China Vanke has come under the direct control of the Shenzhen government, a move that may end a struggle for boardroom control but raises questions as to what extent the property giant will remain a market-driven company. The Shenzhen body that oversees government-controlled enterprises said Vanke had become one of its newest members, according to the Wechat post seen by Reuters on Friday. Vanke, China’s No. 2 homebuilder by sales, has been in crisis since late 2015 as financial conglomerate Baoneng Group built up a 25 per cent stake and sought to oust management. To counter Baoneng, state-owned Shenzhen Metro Group, a key Vanke ally, bought a 15 per cent holding for US$5.4 billion and this month became its largest shareholder in terms of voting rights after a proxy agreement with Vanke’s No. 3 shareholder. The moves have widely been seen as a prelude to the subway operator gaining control of Vanke and the cause of much speculation that
the firm would begin to resemble a state-owned enterprise. Vanke has attended a recent meeting to set targets on social responsibilities, including the role of state-owned enterprises in promoting Shenzhen’s growth, the city’s supervisory body for state-owned assets said in its Wechat post. Some current and former employees have said that since late last year when Vanke was in talks with Shenzhen Metro, the company has gradually been adopting some practices that pointed to it becoming more like a state firm. Vanke, worth US$33 billion by market value, is reorganising its party committee - which controls corporate governance - and promoting more policies proposed by President Xi Jinping, the sources said, declining to be identified due to the sensitivity of the issue. The policies include the “One Belt, One Road” initiative - which envisions building a network of land, sea and air routes that will open new markets and education campaigns focusing on honesty, they said. “The state-owned culture is obviously growing inside the company,”
said one former senior official who left Vanke earlier this year.
Interests of the state
“There’s no market traits in this case; it’s all about interests of the state,” said Roy Qiu, a lawyer who specialises in mergers and acquisitions at DeBund Law Offices based in Shanghai.
Chinese telecom equipment and smartphone maker Huawei Technologies Co Ltd on Friday said annual profit growth was nearly flat, its slowest pace in five years, as it ramped up spending to boost market share amid fierce competition. Strong competition in China’s smartphone market from previously little-known domestic rivals OPPO and Vivo cost Shenzhen-based Huawei its top spot as the biggest vendor in the domestic market last year. Huawei said 2016 net profit edged up just 0.4 per cent to RMB37.1 billion (US$5.3 billion). FTZs
Key Points Vanke showing some signs it becoming more like an SOE -sources Shenzhen move may end protracted corporate power struggle Some analysts think Baoneng may still want board seats Asked to comment on whether it could be considered a state-owned enterprise, Vanke said on Friday it had always been ‘a mixed-ownership enterprise’ and would continue to be one. It declined to comment on the reorganisation of its party committee. Whether the more direct control by the Shenzhen government will cause Baoneng to back down remains to be seen. Some analysts believe it is still interested in gaining seats on Vanke’s board. Baoneng and Shenzhen Metro did not respond to requests for comment. The term of Vanke’s current board officially expired on March 27, company rules allow the current board to serve until a new one is formed. The property developer said this week that no time frame to select a new board had been set as yet as various parties were discussing proposals. The corporate power tussle has taken a large toll on Vanke. In addition to ceding much power to the Shenzhen government, it has also lost its title as the country’s biggest homebuilder to rival China Evergrande Group - one that it had previously held for a decade. Some staff had left the company and projects were facing cancellation, it has said. Reuters
Beijing approves 7 new free trade zones China’s cabinet has approved the establishment of seven new free trade zones to prepare for further opening up its economy, the commerce ministry said on Friday. The new free trade zones (FTZs) will be in Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi, a document issued in Beijing showed. “We are building free trade zones with the aim of creating reform experiences that can be replicated throughout the country and conducting risk testing for openness throughout the country,” vice commerce minister Wang Shouwen told a news conference. Results
Foxconn net profit up Taiwan’s Foxconn, the world’s largest contract electronics maker and a key Apple Inc supplier, on Friday reported 30 per cent growth in fourth quarter net profit from a year ago, defying expectations for a decline. The profit was likely to have been boosted by solid bookings for Apple’s bigger-sized iPhone 7 models, which Foxconn, formally known as Hon Hai Precision Industry Co assembles, analysts said. Net profit in the final three months of 2016 ended four quarters of year-on-year declines to reach T$68.77 billion (US$2.26 billion).
14 Business Daily Monday, April 3 2017
Greater China Crude
Mainland steps up Americas oil imports Crude imports from the Americas, led by Brazil, Venezuela and Colombia, hit 5.61 million tonnes in March Florence Tan
C
hina’s largest crude oil buyer Sinopec aims to ship more cargoes from Brazil, the United States and Canada, to help ensure stable crude supplies as the Middle East boosts refining capacity and Africa suffers disruptions.
Key Points China buys record Americas oil imports in March - Reuters data Americas market share rises 1.1 pct points in Q1 to 14 pct Unipec urges Asian buyers to diversify from Mideast, Africa Seeks supply from new frontier - greater U.S. Gulf coast region Shipments from the Americas hit an all-time high in March, boosting the region’s share of the Chinese market by 1.1 percentage points in the first quarter to close to 14 per cent, data from Thomson Reuters Oil Research &
Forecasts showed. “We’re facing a big challenge on the supply side,” said Chen Bo, president at Unipec, which purchases crude for Asia’s largest refiner Sinopec. Asia needed to step up crude imports from the “new frontier”, the greater U.S. Gulf Coast region made up of the United States, Canada and Latin America, to meet its growing demand, he told a seminar this week. China is on track to overtake the United States as the world’s largest oil consumer this year, Chen added. China will add just under 2 million barrels per day (bpd) of refining capacity between 2016 and 2020, taking its total capacity to nearly 12.5 million bpd by the end of this decade. Also, by end-2018, the total crude import quota for independent refineries will grow to 2 million bpd, about 500,000 bpd more than March 2017 as government approvals flow through, he said.
Supply diversity
Asia, which will account for a third of the world’s refining capacity by 2020, will have to
look beyond traditional markets Middle East and Africa for crude supplies, Chen said. Security of supply and the optimization of supply were vital for Unipec. “If every consumer goes to the Middle East and Africa we don’t know what will happen to the market. So we have to diversify,” he said.
China’s crude imports from the Americas, led by Brazil, Venezuela and Colombia, hit 5.61 million tonnes (1.3 million bpd) in March, the highest in Reuters’ data going back to 2006. In the same month, China’s crude oil deficit came in at a hefty 15 million tonnes, after touching a record 19 million
in December 2016, as domestic production shrank while imports surged, customs data showed. “Record imports are being driven by falling production, higher refinery runs, huge infrastructure and Strategic Petroleum Reserve builds,” said Virendra Chauhan of consultancy Energy Aspects. The agency expects Asia’s crude imports, led by China, to rise by 900,000 bpd on the year in 2017. A preference for low-sulphur oil produced in the Americas by China’s private refineries, or so-called “teapots”, helped boost imports from the region, while increasing U.S. shale output and production cuts by the Organization of the Petroleum Exporting Countries have made it economical for traders to send huge volumes of crude from west to east. Next month, China will import its first Southern Green Canyon and Thunderhorse crude from the United States. Brazil overtook Venezuela as the top South American crude supplier to China in the first two months of this year due to its favoured medium-heavy quality grades, while China became the No. 3 destination for U.S. crude exports in 2016. The Americas has the potential to become a “global trading hub” in the next decade, Chen said. Reuters
Results
Bank of China not optimistic about 2017 after profit drop BoC President Chen Siqing told a briefing late on Friday that the bank was facing a declining interest rate environment Bank of China Ltd (BoC), the country’s fourth-largest lender by assets, reported a fall in full-year profit for the first time in more than a decade on Friday, the only one of China’s “Big Five” banks to do so. The most international of China’s largest listed state-owned lenders, BoC follows the other four in posting its lowest interest margin since at least 2011, due to successive central bank interest rate cuts between 2014 and 2015. For 2016, net profit fell 3.67 per cent to RMB164.58 billion (US$24 billion) from RMB170.85 billion a year earlier. BoC President Chen Siqing told a briefing late on Friday that the bank was facing a declining interest rate environment, where it was “impossible” to receive high interest income, even as the lender is forced to pay more for its funding.
The compression in net interest margin - the difference between interest earned on loans and interest paid out to depositors - continued in the fourth quarter, falling to 1.83 per cent from 1.85 per cent at the end of September.
Key Points BoC 2016 FY profit falls 3.67 pct NIM falls to 1.83 pct in Q4 from 1.85 pct in Q3 NPL ratio falls to 1.46 pct end-Dec from 1.48 pct end-Sept For just the fourth quarter, net profit fell about 24 per cent to 29.8 billion yuan, missing analyst estimates of RMB32 billion. Chief Risk Officer Pan Yuehan said
he was not very optimistic about the quality of assets this year. The bank is now seeking to increase non-interest income, Chen said. BoC reported that net fee and commission
income declined 6 per cent in 2017. BoC’s non-performing loan ratio was 1.46 per cent as at the end of December, from 1.48 per cent three months prior. Reuters
Business Daily Monday, April 3 2017 15
Asia
Trade
South Korea exports rise for 5th month Imports surged the most since September 2011, signalling a rebound in domestic demand Cynthia Kim and Christine Kim
S
outh Korea’s exports grew more than expected in March thanks to stronger global demand, even as souring relations with China, its biggest trading partner, continue to pose risks to its economy. Shipments in March rose 13.7 per cent to US$48.88 billion from a year earlier, while imports jumped a faster 26.9 per cent to US$42.32 billion, resulting in a trade surplus of US$6.55 billion, government data showed on Saturday. Exports had been expected to expand by 13 per cent in March, marking the fifth straight month of gains, according to a Reuters poll found.
They had jumped 20.2 per cent in February, the strongest pace in five years. Imports surged the most since September 2011, signalling a rebound in domestic demand after months of weakening consumer sentiment amid a corruption scandal that led to the ouster of president Park Geun-hye. Economists had expected a 23.7 per cent expansion. Park Sang-hyun, chief economist at HI Investment & Securities, said South Korea is well positioned to benefit from improving global economy and temporary factors including the new flagship smartphone Galaxy S8 released by Samsung Electronics Co Ltd.
Exports comprise roughly half of South Korea’s economy. “There could be some softness from U.S. demand but overall, the improving global economy will continue to lift South Korean exports,” Park said. Sustained improvement in global demand would support a modest recovery in Asia’s fourth-largest economy, although Seoul sees worrying signs that China may be stepping up economic retaliation over its decision to deploy a U.S. anti-missile system. South Korean officials suspect that Beijing is indirectly taking action to curb some consumer products and cultural imports from South Korea. Last month, Chinese authorities closed dozens of retail stores of South Korea’s Lotte Group following inspections. Some Chinese airlines have stopped website offers of flights to South Korea. South Korea’s exports to China
jumped 12.1 per cent on-year in March, slowing from a 28.8 per cent jump in February but still rising for a fifth straight month on improving sales of semiconductors and petrochemical products. Despite the spat, overseas sales of cosmetic products posted a record jump of 35.3 per cent in the fist quarter. Shipments to the United States fell 5.3 per cent in March on-year due to weaker sales of telecommunication devices and car components. That led to a reduced trade surplus of US$1.82 billion for South Korea over the United States, from US$2.75 billion a year earlier, the ministry said. The average export value per working day stood at US$2.04 billion in March, compared to US$1.96 billion in February, according to Reuters calculations. Reuter
Energy industry
Power companies prepare to pounce as Japan liberalises gas market Utilities are well positioned to enter the gas market as they already account for roughly 70 per cent of Japan’s LNG Osamu Tsukimori
Power utilities are poised to steam into Japan’s city retail gas market, with the over US$20 billion a year sector from Saturday opening to companies beyond the regional gas firms that have typically piped the commodity into homes around the country. The liberalisation comes in the wake of similar moves in the nation’s electricity market, with the government looking to dismantle the final barrier to cross-ownership for an energy sector in turmoil since the 2011 nuclear disaster in Fukushima. Increased competition in Japan’s retail gas market could boost the number of firms looking to purchase liquefied natural gas in what is already the world’s top LNG buyer. The former power
monopolies will be pushing to win a chunk of the country’s city gas markets to compensate for the around 3 million, or 5 per cent, of the retail power customers they lost to gas and other suppliers in the first 11 months since electricity markets were fully liberalised.
Key Points Japan will open city retail gas market from Saturday Follows similar step in electricity sector Power utilities looking to win new business Country is world’s top LNG buyer “We have lost many retail power customers, but we can launch a hard strike (into the retail gas market),”
said Michio Sato, a managing director at the retail energy unit of Tokyo Electric Power Holdings (Tepco). Electricity utilities, still mostly without operating nuclear units, have few options for expansion except for overseas business or domestic gas as power demand is in gradual decline, Sato added. Tepco, best known as the operator of the crippled Fukushima Daiichi nuclear plant, has already nabbed a contract that was previously held by gas giant Tokyo Gas (Togas). It has signed a deal to supply 240,000 tonnes of LNG a year to Nippon Gas, which has 320,000 customers around Tokyo. “We are losing 300,000 customers at the start of the gas liberalisation, so we will be in a severe situation from the get-go,” said a Tokyo Gas spokesperson. A spokesman for Toho Gas, another major supplier, said the company expected to lose some customers, but hoped to limit its losses. Power utilities are well positioned to enter the gas
market as they already account for roughly 70 per cent of Japan’s LNG, using the fuel in gas-fired power stations. Kansai Electric Power, Chubu Electric and Kyushu Electric are registered to provide retail city gas from April 1. Procurement of gas is difficult for non-energy companies due to the specialized terminals needed to bring in LNG and the lack of a
wholesale gas market, unlike the one in the power sector. That explains why only a dozen firms are registered so far to supply the city gas retail market, compared with more than 100 companies registered to sell retail electricity before last year’s power liberalisation, said Takeshi Fujimoto, Director of the Gas Market Office at the government’s Agency for Natural Resources and Energy. Reuters
16 Business Daily Monday, April 3 2017
Asia Blacklist
U.S. sanctions North Koreans it links to weapons, financial networks Two North Koreans based in China and one North Korean based in Cuba were blacklisted
T
he United States on Friday sanctioned 11 North Koreans and one North Korean company for their links to the country’s weapons programs, banks and commodities trade, the U.S. Treasury said. It said the people were working as agents of North Korea’s government in Russia, China, Vietnam and Cuba to provide financial support or help procure weapons for previously sanctioned companies.
allies to take similar measures to cut off its funding.” Friday’s actions by the administration of President Donald Trump do not represent a major ramp-up in North Korea sanctions and were issued under authorities established by former presidents George W. Bush, a Republican, and Barack Obama, a Democrat. Two North Koreans based in China and one North Korean based in Cuba were blacklisted for ties to Korea Ryonbong General Corporation, a
previously sanctioned company that “specializes in acquisition for North Korean defence industries and support to Pyongyang’s military-related sales,” the statement said. Another worked for a North Korean trading company in Dalian, China, the U.S. Treasury said. It said six North Koreans based in Vietnam, China and Russia were sanctioned for their ties to North Korean banks. One person on the sanctioned list worked as a North Korean government official who was trying to establish a cargo shipping route between North Korea and Vietnam, Treasury said.
The U.S. measures on Friday block any property those on the sanctions list may have in the United States and bar Americans from dealing with them. The Trump administration is considering sweeping sanctions aimed at cutting North Korea off from the global financial system in order to counter Pyongyang’s nuclear and missile threat, as well as increased pressure on Chinese banks and firms that do business with North Korea. The administration is conducting a broad review of North Korea policy, expected to be completed in coming weeks. Reuters
‘The Trump administration is considering sweeping sanctions aimed at cutting North Korea off from the global financial system’ “Today’s sanctions are aimed at disrupting the networks and methods that the Government of North Korea employs to fund its unlawful nuclear, ballistic missile, and proliferation programs,” Treasury Secretary Steven Mnuchin said in a statement. “I urge our partners and
Aviation
AirAsia plans Vietnam venture on Southeast Asia travel boom AirAsia has over the years established affiliates in Indonesia, Thailand, India and Japan Anurag Kotoky and John Boudreau
AirAsia Bhd., the low-cost carrier headed by Malaysian tycoon Tony Fernandes, plans to start a Vietnamese carrier in a local partnership, as cheap fares and rising incomes fuel a travel surge in the Southeast Asian nation. The region’s largest budget airline will partner Gumin Co., Hai Au Aviation Joint Stock Co. and businessman Tran Trong Kien for the venture, which is expected to start flying early next year, AirAsia said in a statement
to the stock exchange. Gumin will own about 70 per cent of the new venture, with AirAsia holding the rest. Vietnam is the latest country to lure Fernandes, who is seeking to build a pan-Asian budget airline, as the 28 per cent growth in passenger traffic was triple the pace in other Southeast Asian nations. The fifth-biggest market in the region has seen domestic traffic double since 2013, and the middle-class will comprise close to a quarter of its population by 2010, AirAsia said. Shares of AirAsia climbed 1.3 per
cent to 3.14 ringgit in Kuala Lumpur on Friday. They have gained 37 per cent this year. AirAsia has over the years established affiliates in Indonesia, Thailand, India and Japan, and is betting on a low-cost, long-haul model for international travel through its AirAsia X unit. It has ordered hundreds of planes worth billions of dollars from Airbus SE to meet its growth ambitions, and is in the process of selling a plane-leasing unit to raise more cash.
Marketing stunts
VietJet Aviation Joint Stock Co., known for marketing stunts like bikini-clad flight attendants, listed its
shares on an exchange last month, and has gained 52 per cent since. Vietnam will continue to see a double-digit gain in passenger numbers in the next decade, after annual growth of 17 per cent in the past decade, according to ACB Securities in December. “AirAsia is very late to the party in Vietnam and as a result faces huge challenges,” said Brendan Sobie, Singapore-based chief analyst at CAPA Centre for Aviation. “The market is now well served by two low-cost carriers, VietJet and Jetstar Pacific. The rate of growth will likely slow in the coming years as the market is now more mature.”
‘Venture will need investments of US$44 million’ AirAsia’s Vietnam venture will need investments of 1 trillion Vietnamese Dong (US$44 million), and AirAsia will contribute 30 per cent of that after raising internal funding, according to the filing. Kien is the chief executive officer of Hanoi-based Gumin, which was founded March 29, according to Vietnam Planning and Investment Ministry’s website. He is also the chairman and CEO of Thien Minh Group, or TMG, which owns Victoria Hotels & Resorts in Vietnam and Laos. Hai Au Aviation is a unit of TMG. Bloomberg News
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Business Daily Monday, April 3 2017 17
Asia Real estate
In Brief
Australia sticks with blunt instruments to battle housing bubble “There is no one national housing market in Australia. So, what may impact in Sydney in one way can impact exactly the reverse in Perth,” explained Treasurer Scott Morrison. “So, the use of big-stick, sledgehammer-type changes, one must be very cautious of that, because it can have quite negative impacts in markets.”
Neighbouring New Zealand had been grappling with a similar problem in Auckland Swati Pandey and Wayne Cole
In their struggle to cool red-hot property prices in Australia’s big cities, authorities are ratcheting up measures that could dent the whole market but avoiding more targeted steps that have had some success in New Zealand and China. Australian regulators first focused on reining in investment loans nationally in 2015, by imposing an annual limit of 10 per cent on how much banks could expand their investor loan book. Those steps worked for a while, but the heat is on again in Sydney, where prices are rising almost 20 per cent a year, having more than doubled since 2008, and Melbourne, where the pace is over 15 per cent, according to property consultant Core Logic. That and all-time high household debt prompted the Australian Prudential Regulatory Authority (APRA) to move again on Friday, asking banks to limit new interest-only loans to 30 per cent of total new mortgage lending, from 40 per cent now, and promising a lot of “monitoring”, “scrutinising” and “observing”. Industry players doubt that will do the trick. “I personally don’t think this will have a material impact,” said Simon Orbell, director at Sydney-based mortgage broker Smartmove, as prices kept rising even though it was already a tough lending market.
Targeted response
“Maybe more needs to be done,” he added. Behind-the-scenes pressure has already led the major banks to raise rates on investment loans, particularly for interest-only products favoured by speculators, according to sources with knowledge of the situation. Variable interest rates on investor loans from Commonwealth Bank of Australia - the country’s top mortgage lender - are as high as 5.94 per cent, compared with 5.25 per cent for owner occupiers and an official cash rate of 1.5 per cent. There has been market speculation that the Reserve Bank of Australia will be forced to hike interest rates, a yet blunter instrument, though record low inflation and weak wages growth make that an unattractive option. There is also political resistance to measures that could make prices actually fall, with two thirds of households owning their homes. The uneven nature of the market means such measures, even if they cool the hotspots, can cause collateral damage elsewhere.
Neighbouring New Zealand had been grappling with a similar problem in Auckland until its central bank asked lenders to seek a greater deposit for home loans just in that city. The tactic seems to have worked. The explosive Auckland market has cooled since last September, with sales volumes at their lowest levels in at least five years, according to the latest data from the Real Estate Institute of New Zealand. In China, the solutions are tailor-made to the locality, with some cities requiring deposits of 40 per cent or more, others putting limits on how many homes an individual can buy or barring non-residents from buying. More recently, the Reserve Bank of New Zealand (RBNZ) has been lobbying the government to get permission to add debt-to-income (DTI) limits to its macroprudential arsenal aimed at combating the brisk pace of home prices.
Key Points Prices in Sydney rising 20 pct a year, Melbourne 15 pct Australian authorities broadly target investor loans New Zealand has employed steps to cool Auckland alone China also tailors measures to specific ‘bubble’ cities
Corporate
Japan’s listed companies bankruptcy-free Japan had no bankruptcies among listed companies in the just-ended fiscal year for the first time in 26 years, a research firm said on Friday. Tokyo Shoko Research, which tracks Japanese bankruptcies, credited the weaken yen, for helping boost corporate earnings, and the low interest rate policy that made borrowing cheaper. “The environment for listed companies has improved since various measures were taken under Abenomics,” said Masashi Seki, the firm’s manager. “Overall the environment for fund raising has got better,” said Seki. Cargo
S.Korea ore carrier missing in South Atlantic A South Korean cargo vessel is missing after making its last contact in the South Atlantic about 2,500 kilometres from shore and 22 crew members are unaccounted for, South Korea’s foreign ministry and news reports said on Sunday. Two Filipino crew members have been rescued floating in a life raft on Saturday, but other lifeboats and rafts found in the area were empty, South Korea’s Yonhap news agency reported. “A search operation is continuing for the 22 people,” a South Korean foreign ministry official in Seoul said by telephone, adding eight of the missing are South Korean nationals and 14 are Filipinos. Ties promotion
“DTI policies can increase the resilience of households to income shocks, reducing the number of forced house sales in a downturn,” the RBNZ said in March. Together with loan-to-value restrictions, the RBNZ said it hoped to achieve “a more targeted response to rising house market risks”. That remains just a proposal for now, however. “There hasn’t been any real political appetite or enthusiasm for DTIs,” said Christina Leung, senior economist at the New Zealand Institute for Economic Research. “There’s a lot of uncertainty as to ... what it would do to house prices.” In Australia, such policies won’t wash, said John Hewson, professor at the Crawford School of Public Policy, Australian National University. “We have had a long history of deregulating our financial system, so there is a strong reluctance to start regulating banks with lending restrictions or interest rate caps,” said Hewson, a former leader of the ruling Liberal Party. Regulators are also worried about the risks from a slowdown in the home-building boom. According to official estimates, every A$1 spent on residential construction generates A$1.31 worth of spending elsewhere in the economy, and every A$1 million creates 17 full-time jobs. And unlike in China, Australians still largely expect government to let the market take its course. “They should ... just sit in a corner and not do a thing,” said Lindsay Partridge, managing director of Brickworks . “Any of the things that they do are going to affect confidence, and that is going to affect construction activity ... The state governments should release more land for construction and just let the market run and correct itself.” Reuters
Trump sends letter to Vietnam’s president U.S. President Donald Trump has written to Vietnamese President Tran Dai Quang to promote more cooperation between the two countries, the government website cited Quang as saying. Vietnam and the United States had advanced ties to a new level under the Obama administration amid a dispute with China over South China Sea issues, while Trump has also expressed his hope for a stronger relationship. Trump sent a letter to Quang “affirming his wishes to promote cooperation on economics, trade, regional and international issues”, the Vietnamese government website said. M&A
Apple, Amazon, Google join bidding for Toshiba Apple Inc, Amazon.com Inc and Google have joined bidding for Toshiba’s NAND flash memory unit, vying with others for the Japanese firm’s prized semiconductor operation, the Yomiuri Shimbun daily reported on Saturday. Toshiba shareholders on Thursday agreed to split off its NAND flash memory business, paving the way for a sale to raise at least US$9 billion to cover U.S. nuclear unit charges that threaten the conglomerate’s future. The Yomiuri newspaper said bidding prices from Apple, Amazon or Google, owned by Alphabet Inc, were not known.
18 Business Daily Monday, April 3 2017
International In Brief Tax probe
German prosecutor cooperating with Dutch Prosecutors in the German city of Cologne are cooperating with Dutch authorities investigating tax fraud and money laundering, a spokesman for the prosecutor’s office said on Friday. “We have launched an investigation against clients of a bank,” the spokesman said, declining to identify the lender. Credit Suisse, Switzerland’s second biggest bank, said earlier on Friday local authorities in Amsterdam, Paris and London had visited its offices concerning client tax matters, adding that it was cooperating with the probe. The Dutch office for financial crimes (FIOD) said on Friday the coordinated raids had been prompted by a tip-off about 55,000 suspect accounts of a Swiss bank. Official data
U.S. consumer spending slows U.S. consumer spending barely rose in February amid delays in the payment of income tax refunds, but the biggest annual increase in inflation in nearly five years supported expectations of further interest rate hikes this year. The slowdown in consumer spending reported by the Commerce Department on Friday is, however, likely to be temporary with consumer confidence at a more than 16-year high and a tightening labour market pushing up wage growth. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 per cent. GDP
Russian economy returned to modest growth Russia’s economy grew by 0.3 per cent year-on-year in the fourth quarter of 2016, official data showed on Friday, confirming the country is gradually emerging from a deep slump linked to weak oil prices and Western sanctions over the Ukraine conflict. The direction of travel tallied with data from February, which showed gross domestic product contracted by a less than expected 0.2 per cent in 2016, a revision which prompted economists to conclude that the economy had returned to growth late last year after seven quarters of contraction. Personal Finance
Wealthy White House staffers’ finances detailed President Donald Trump on Friday released details of the personal finances of his many wealthy staffers, including senior adviser Steve Bannon, whose pre-White House bank accounts, real estate and other holdings were valued at between US$3.3 million and US$12.6 million. The late-night download of federal employee disclosure forms confirmed the affluence of many Trump personnel. The White House disclosed Gary Cohn, former Goldman Sachs president and now head of the White House National Economic Council, had assets worth at least US$230 million, but possibly much more. Little information was given on several of his assets and only indicated they were worth more than US$1 million.
Capital market
Global equity listings start to recover after 2016 slump Representing more than a tenth of global follow-on proceeds, Italian bank UniCredit had the biggest equity offering of the year so far Dasha Afanasieva
G
lobal equity listings rose in the first quarter compared with a year earlier, driven by issuance in Asia and the United States, Thomson Reuters data showed, pointing to a more buoyant year for share sales than 2016. Companies globally issued US$193 billion of equity in the first quarter of the year, up 61 per cent from the first quarter of 2016, which was the worst since 2008. “We have had a backdrop of rising markets, low volatility and better macroeconomic data. These combine to produce strong appetite for new issues,” Bank of America’s global head of equity capital markets, Craig Coben, said. Upbeat news on the economy helped boost equity capital market (ECM) activity by U.S. firms by 63 per cent, delivering proceeds of US$59 billion in the first quarter. “The U.S. stands out with the secondary markets having been large beneficiaries of this reflation trade over the last nine months. This has helped drive the Americas back to more normalised
capital markets volumes,” said Frank McGee, chief operating officer, Global ECM at Credit Suisse. London, Europe’s biggest market for initial public offerings, bucked the global trend with equity listings at a five-year low. However, the proceeds from European IPOs were up 33 per cent.
Key Points Issuance in Asia, U.S. drives jump in ECM activity Unicredit rights issue boosts European issuance Bankers see ECM recovery in 2017 after tough 2016 Russell Holden, corporate partner at international law firm Taylor Wessing, said he expected this to continue as companies waited for more favourable conditions. “With the share price gains over the past six months, combined with some uncertainty over the outcome of the Brexit negotiations, a market correction may be down the road so investors are taking a cautious
approach at the moment and do not want to be overpaying for assets.” Expected listings of Blackstone’s warehousing business Logicor and Telefonica’s UK telecoms operator O2 may bolster the IPO market in Britain in the coming quarters. In continental Europe, Gestamp is set to become the biggest IPO this year when it lists on April 7 with a valuation of around 3.5 billion euros (US$3.75 billion). Goldman Sachs overtook JP Morgan as the leading bank for equity capital markets globally in the first quarter, thanks to its mandates for follow-on offerings. JP Morgan kept the top spot for IPOs globally. Representing more than a tenth of global follow-on proceeds, Italian bank UniCredit had the biggest equity offering of the year so far, raising 13.8 billion euros and potentially generating hundreds of millions dollars in fees for banks. Ed Sankey, EMEA Co-Head ECM and Global Head of Equity Syndicate at Deutsche Bank, said merger and acquisition activity, subsidiary IPOs and privatisations by European governments would drive deal flow. “There was a wave of IPO exits in 2013-15 and this year we don’t expect to see the sheer number we saw in that time frame, especially from private equity in this time zone, but globally we expect a busier year than 2016.” Reuters
M&A
Portugal sells Novo Banco to Lone Star Bank Resolution Fund will retain 25 per cent stake in Novo Banco Sergio Gonçalves
Portugal has agreed to sell a 75 per cent stake in state-rescued lender Novo Banco to U.S. private equity firm Lone Star in exchange for a capital injection of 1 billion euros into the institution, the government said on Friday. The sale was carried out ahead of an August deadline agreed with the European Commission and closes a banking saga which started with the collapse in 2014 of Banco Espirito Santo (BES), at the time Portugal’s largest private bank. Portugal injected 4.9 billion euros into the BES rescue, which at the time was the first such collapse to fall under new European rules on operations for failed banks. Prime Minister Antonio Costa said the sale fulfilled a key criterion of not extending any state guarantees to the buyer, as had been raised earlier in the negotiations with Lone Star, and guarantees Novo Banco’s future. “The operation has removed the spectre of a liquidation, Novo Banco’s future to carry out its role of financing the economy is guaranteed,” the prime minister told journalists. “There is no direct or indirect impact on public accounts, nor any new costs to taxpayers.” Bank of Portugal governor Carlos Costa said the “sale is an important step for stability of the banking system.” Under the deal, Portugal’s Bank Resolution Fund will retain the remaining 25 per cent stake in Novo Banco, which is the bridge bank carved out of Banco Espirito Santo, which collapsed in August 2014. The country injected 4.9 billion euros,
mostly via the resolution fund, into the “good bank”. Under the terms of the deal, Lone Star will inject 750 million euros when the deal is formally closed and another 250 million within three years.
“The operation has removed the spectre of a liquidation, Novo Banco’s future to carry out its role of financing the economy is guaranteed” Antonio Costa, Portugal’s Prime Minister Also, Novo Banco will swap 500 million euros of senior bonds for new bonds as means to reinforce its common equity Tier 1 capital ratio before Lone Star takes over the bank. The Bank of Portugal said a
contingent capital mechanism will be set up to meet potential capital needs at the bank worth up to 3.89 billion euros, explaining that the mechanism did not represent any guarantee to cover any losses. The sale is the end of a long process that started with the emergency rescue of BES, which at that time was Portugal’s largest listed bank. BES collapsed under the weight of the debts of its founding family and an investigation is still ongoing. A first attempt to sell Novo Banco failed in 2015 as bids came in far below the rescue amount, stirring investor concerns about the already flagging banking sector’s contributions to the Bank Resolution Fund. In March, the government extended the maturities on state loans to the resolution fund by nearly three decades to 2046 to avoid imposing extra costs on the banking sector. The sale was also complicated by a decision, late in 2015, by the central bank to transfer some bonds from Novo Banco back to “bad bank” BES, thus boosting Novo Banco’s capital. A group of bondholders, including Pimco and BlackRock, have challenged the decision in the court. Reuters
Business Daily Monday, April 3 2017 19
Opinion
When ‘tourist’ investors come to Silicon Valley
Long-awaited ‘Asian Century’ might not ever come
Shira Ovide a Bloomberg Gadfly columnist
I
’m taking you on a nostalgia trip. Remember the olden days (2016), when it seemed outlandish investments in technology start-ups were a thing of the faraway past (2015)? Snap out of it. Just look at the headlines of the past few weeks. China’s on-demand ride king Didi Chuxing is considering a US$6 billion investment backed by SoftBank. Airbnb finalized a US$1 billion stock sale. Another US$1 billion or more is flowing to Indian e-commerce firm Flipkart. Instacart put US$400 million in its shopping basket. Google’s corporate cousin Verily pulled in an US$800 million investment. I know we’ve all become inured to buckets of money sloshing around in Silicon Valley and other global technology capitals. But these are crazy large sums for young, private companies with unproven businesses. Many of these start-up financing deals share a common thread: the participation of investors who aren’t the traditional venturecapital crowd. They’re the new new new start-up money. The post-2010 boom for tech start-ups was fuelled in part by investors other than Sequoia Capital, Kleiner Perkins and similar firms that specialize in backing the next Google or Facebook. Some growth of these investors in active corporate i n c l u d e b a n k s’ venture divisions from asset-management 2009 to 2016 divisions, mutual funds such as T. Rowe Price, hedge funds and governmentowned investment vehicles. No strangers to Silicon Valley, these start-up investing “tourists” were around in the dotcom bubble days, too, but closed their check books for a time when the party ended. What’s been different in the latest tech boom is the variety and number of investors funnelling money to start-ups, typically in waves. Hedge fund investors and money management firms such as J.P. Morgan Asset Management plunged in big time in the early 2010s, then pulled away somewhat from investing in tech start-ups after getting burned on a few investments. There was more than enough money to fill the void. Chinese hedge funds became more active in tech start-up investments. Corporations -- even those adorable Muppets -- increasingly are forming divisions to invest in private tech companies. The number of companies with active venture-capital arms doubled from 2009 to 2016, according to PitchBook. Government-owned investment vehicles in Saudi Arabia, Australia, Singapore and beyond have become more active, too. And suddenly, SoftBank has an even bigger cash bazooka and isn’t afraid to use it. These non-traditional start-up investors have kept the tech boom (or bubble) from deflating. The Bloomberg U.S. Start-ups Barometer, which tracks fundraising, initial public offerings and acquisitions, is recovering from a three-year low. It’s easy to be sceptical of the newcomers, but this is rational behaviour on both sides. Investment firms are turning to tech startups to find better-than-blah returns for their money. Without a buffet of financing sources, big-spending companies such as Uber could not have existed. One thing is for sure, though. When the start-up investing tourists are everywhere, it’s a sign the tech start-up boom is far closer to the end than to the beginning. Bloomberg Gadfly
2x
P
eople in the West, certainly Americans, have long had a fascination with the East, with many predicting an inevitable “Asian century” marked by economic and market dominance. I have long disagreed with the consensus on China and other Asian Tigers, and others are beginning to agree. Many problems stand in the way of the “Asian century.” Japan dazzled Westerners with the speed of its recovery from the ashes of World War II. Japanese purchases of U.S. trophy properties such as the Pebble Beach golf resort in California and Rockefeller Centre in Manhattan in the 1980s, on top of the leaping property and equity prices in Japan, convinced many in the West that Japan would soon take over the world. Japan’s economic decline in the early 1990s did not curb fascination with Asia. It simply shifted to the rapidly-growing developing economies, the Asian Tigers. The original four, Hong Kong, Singapore, South Korea and Taiwan, were later augmented by the likes of Malaysia, Thailand, the Philippines and, of course, China -- and more recently, Pakistan, Vietnam, Indonesia and Bangladesh. The late-1990s Asian financial crisis only temporarily disrupted Western fascination with the East and the prospects for an “Asian century.” The 2007-2009 Great Recession and financial crisis ended rapid economic growth in Western countries and, therefore, the robust demand for exports that were the mainstay of developing economies. Still, Western zeal for Asia persisted and many, for no logical reasons, believed emerging countries could independently continue to grow rapidly and, indeed, support economic activity in the sluggish U.S. and Europe. Chinese real economic annual growth rates nosedived from double digits to a recessionary 6.3 percent during the worldwide downturn, but then revived due to the massive 2009 stimulus program. Easy credit fuelled a property boom and inflation, and excessive infrastructure spending replaced exports as the growth engine. As with the Asian Tigers earlier, many thought Chinese growth was self-sustaining and unrelated to ongoing sluggish economic performance in North America and Europe, especially after Chinese GDP topped Japan’s in 2009. There are five main reasons why it won’t get any easier for Asia: 1. Globalization is largely completed. There isn’t much manufacturing in North America and Europe left to be moved to lower-cost developing economies. At the same time, the West is basically saturated with Asian exports, and those countries are competing fiercely among themselves for limited total export demand. Also, exports are shifting among those countries as low-end production moves from China to places such as Pakistan and Bangladesh, much as they shifted out of Japan in earlier decades. As economies grow, a greater share of spending is on services and less on goods. This reality is a long-term drag on almost all the other Asian lands, except India, due to their goods-export orientation. This will temper longterm growth for Asian goods exports even after rapid economic growth resumes in the U.S. and possibly other Western economies. 2. The shift from being export-led economies to ones driven by domestic spending, especially by consumers, has been slow. Chinese leaders want
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Gary Shilling president of A. Gary Shilling & Co., a New Jersey consultancy
this transition, but it is moving at glacial speed. At 37 percent, Chinese consumer spending as a share of GDP is well below major developed countries such as the U.S. at 68.1 percent, Japan at 58.6 percent, and even Russia at 51.9 percent. 3. There are government and cultural restraints. Almost all developing Asian economies are tightly controlled by governments. Top-down regimes stoutly resist reform and often persist until they’re overthrown by revolutions. The current Mao dynasty in China, as I’ve dubbed it, seems seriously worried about popular unrest due to the lack of promised economic growth and is reducing what little political liberty was previously allowed. President Xi is now the Big Brother with lots of little brothers insuring proper thoughts and actions, even at the local level. In Malaysia, Prime Minister Najib Razak is enmeshed in a multibillion-dollar investment scandal. In the Philippines, crime and drug trafficking are so rampant that President Rodrigo Duterte was elected on a platform of eliminating drug dealers, even by murderous vigilante squads. South Korea’s former president Park Geun-hye was thrown out over corruption. 4. Population problems endure. Despite the need for new workers in Japan as its population falls and ages, women are still discouraged from entering the labour force, and Japan continues to be unwelcoming toward newcomers. There’s no such thing as an immigration visa despite the fact that 83 percent of Japanese hiring managers have difficulty filling jobs, versus a global average of 38 percent in the last five years. China also has a looming labour shortage and severe limits to economic growth due to its earlier onechild policy, which resulted in about 400 million Chinese not being born. Low fertility rates are also destined to reduce the populations of Hong Kong, Taiwan, Singapore and South Korea. At the other end of the population spectrum are Asian countries like Indonesia and India, whose population is expected to exceed China’s by 2022.5. Military threats are growing in Asia, and could severely disrupt stability and retard economic growth if they flare up. China is exercising its military muscles by challenging U.S. military influence in the region by, among other actions, building military islands on reefs in the South China Sea. Japan is abandoning its post-World War pacifism and shifting from defensive to offensive capabilities. The Russians are also making military threats. The region contains five nuclear-armed countries: China, India and its rival Pakistan, Russia, and -- most troubling -North Korea, which is testing long-range missiles. China isn’t happy about that, but it wants North Korea as a buffer between it and South Korea as well as a deterrent to its old foe, Japan. There may well be an “Asian century” in the future, but don’t hold your breath. It took about a millennium for the West to develop meaningful democracy, the rule of law, large middle classes that support domestic economies and all the institutions that are largely lacking in developing Asian lands. Bloomberg View
Japan’s economic decline in the early 1990s did not curb fascination with Asia
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20 Business Daily Monday, April 3 2017
Closing Green energy
Mainland scientists explore all-weather solar cells
with Yunnan Normal University, developed a solar cell using a crucial material called long persistent phosphor (LPP), which can store sunlight energy in A photovoltaic revolution is taking place with the emergence of all-weather solar cells, according to a the day and harvest it in darkness. “Only partially visible light can be absorbed by Chinese scientist. light absorbers and then converted into electricity. “Solar cell research is mainly focused on elevating But solar energy from unabsorbed visible and photoelectric conversion efficiency upon direct sunlight until new light has been shed on persistent near-infrared light can be stored in LPP, releasing monochromatic visible light at night,’ Tang high-efficiency power generation in poor light said. “The released light is re-absorbed by light conditions such as rain, fog, haze and night,” said Tang Qunwei, a professor with Ocean University of absorbers to convert it into electricity, realizing persistent power generation in the day and in the China. Tang’s team and one led by Yang Peizhi, a professor dark.” Xinhua
Tradition
What’s in a Chinese name? Ancient rites and growing business A quick web search reveals more than a hundred businesses promising names that will pave the way for future success Yanan Wang
I
n a one-room shop tucked inside a Beijing alley, a bearded 74-year-old fortune-teller in crimson tunic offers what Chinese parents have sought for centuries: an auspicious name for their new-born. But business has been tough lately for Mao Shandong and others in his trade as tech-savvy entrepreneurs have turned the ancient naming tradition into a lucrative online business. “We can’t make a living these days,” lamented Mao. Chinese have for centuries believed that a well-chosen name can ensure a lifetime of good fortune. Unlike in English, where one draws from a lexicon of Josephs and Richards, a Chinese name can be created from any combination of two or three characters. And for many Chinese parents, making the right choice has become even more imperative as they seek to help their children stand out in the world’s most populous country. “ Pa r e n t s c a r e m o r e and more about personal
brand,” said Zhang Ruxin, the 37-year-old co-founder of the Beijing-based naming service Qimingtong, which essentially means “Clear Naming.” “They realise that the name will follow their child for their entire life, be judged by their employers and have an impact on their values.” Qimingtong operates almost entirely online, with parents filling out web questionnaires and Zhang offering consultation services through the popular messaging app WeChat. A quick web search reveals more than a hundred such businesses in China, each promising names that will pave the way for future success.
Branding for babies
It has been used by more than 10,000 people. Zhang and her employees also help name dozens of newborns every day either via walk-ins or online consultations. Rates range from RMB400 (US$60) to RMB10,000 for a private consultation with Zhang. Liu Qiang, a police officer in central Henan province, and his wife wanted to use a modern naming method that still accounts for “bazi” -- the traditional belief in a destiny determined by one’s date of birth. “Bazi” or “eight characters,” refers to the eight digits denoting the year, month, date and hour of birth. It is believed to determine the natural elements present in one’s life, such as metal, wood, water, fire and earth. A name can compensate for the elements that a child lacks. Liu’s son lacked a wood
element, so Qimingtong named him “Bailin,” combining the characters for cypress tree and a mythical, dragon-like creature from Chinese folklore to create a name which his parents hope will help him forge a unique identity. “We want him to realise his personal dreams,” said Liu, 39.
A colleague called ‘Eleven’
Chinese looking to move abroad or work for international companies may also seek help choosing an English name. At Lindsay Jernigan’s first job in Shanghai, she worked alongside Apple, Yoyo and Eleven. The last co-worker’s English name, inspired by a Liverpool footballer’s jersey number, regularly caused confusion. Was the meeting with Eleven, or at 11 am? Was
Zhang founded Qimingtong in late 2014 with her business partner, Chen Jun, after working for two decades as a newspaper reporter while pursuing a hobby helping friends and colleagues name their children. Qimingtong’s software uses an algorithm to compile the best names for a child based on their parents’ responses to a personality quiz.
she making a reservation for Eleven, or for 11 people? While her company was filled with “really smart, driven” professionals, Jernigan, a 27-year-old American, feared their names would hurt their prospects in English-speaking work environments. Two years ago she founded BestEnglishName.com, which charges RMB 248 for a 30-minute consultation via WeChat. Some clients request English names that still adhere to “bazi”, forcing Jernigan to get creative. If someone wants a water element, she may suggest “Brook,” “Morgan” (a water sprite in Welsh), or “Lindsay,” which means “Linden trees by the water.” “Of course you can just get lists of names online, but we’re the only ones that truly understand the Chinese mentality,” Jernigan said. “Naming is a way of self-expression. The demand is definitely here.” Not everyone shares her optimism. Mao said he is ready to abandon his fortune-telling business, even as he scorns his rivals in the naming industry. “All those websites, they’re the scams,” he said with a sigh. “They don’t truly understand Chinese tradition.” AFP
Consolidation
Real estate
Taxes
Abu Dhabi’s US$180 billion lender to be named First Abu Dhabi Bank
China freezes property sales Treasurer may revive in new economic zone in Hebei Australian business tax push
First Gulf Bank PJSC and National Bank of Abu Dhabi PJSC completed a merger to create the United Arab Emirates’ biggest bank with assets of US$180 billion, with the new entity to be called First Abu Dhabi Bank. The lender began trading on the Abu Dhabi Securities Exchange yesterday under the ticker NBAD. “This is a transformational moment for Abu Dhabi, the region and beyond,” Abdulhamid Saeed, group chief executive officer of the new combined bank, said in an e-mailed statement yesterday. The new bank’s key priorities have been established in line with the vision and growth ambitions of Abu Dhabi and the U.A.E., it said. Abu Dhabi, holder of about six per cent of the world’s oil reserves, combined its two largest banks to better compete with rivals and bolster its ability to lend and secure funding as the emirate grapples with low oil prices. The merger may lead to further consolidation in the United Arab Emirates’ financial services industry where about 50 lenders compete in a market of about 9 million people, according to analysts. FGB and NBAD were Abu Dhabi’s two biggest banks by market value before the merger, which was originally announced in July. Bloomberg News
China is banning new property sales in counties earmarked as part of a new special economic zone in Hebei province. Government officials alerted developers and agents of the halt at emergency meetings yesterday morning in Hebei’s Xiongxian and Anxin counties, according to the National Business Daily. Officials had already been investigating some real estate sales operations in the region, the report said. Over a dozen Chinese cities have imposed fresh curbs on home purchases in recent weeks in a bid to cool off heated prices, after the property market largely shrugged off earlier measures. Frenzied buying has spilled over from big cities into nearby satellite cities where price rises had been more modest. The new special economic zone, dubbed the Xiongan New Area, was announced on Saturday and covers 100 square kilometres, with plans to extend it to 2,000 square kilometres. China is hoping to mimic the rapid growth seen following the establishment of a similar zone in Shenzhen in 1980. It is also part of a wider project to integrate the economies of Hebei, Tianjin and Beijing. Reuters
Australian Treasurer Scott Morrison could seek to push through legislation before the next federal election to implement parts of the government’s business tax plan that have been stymied by parliament. The Liberal-National government was forced to water down measures to get the support of upper house lawmakers, with amended legislation passed on Friday only providing tax cuts for businesses with annual revenue of less than A$50 million (US$38 million). Morrison said yesterday that this is merely “stage one” of the government’s plan and that he would aim to present additional measures when it looks as though the Senate might be in a position to agree to them. “I was encouraged by the progress we were able to make,” the Treasurer said in a television interview with the Australian Broadcasting Corp. “If the Senate is in the position to look at this before the next election, then we would be more than happy to bring those things forward.” The tax reductions were the cornerstone of Morrison’s annual budget announcement last May and were aimed at spurring growth in the economy as it shifts away from its reliance on mining investment. Bloomberg News