CEPA exports decrease 26.3 pct in March Trade Page 4
Tuesday, April 4 2017 Year VI Nr. 1268 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Chinese companies
Defaulting figures in 2017 at record levels Page 10
Challenging trend
Weaker consumption in mainland defies business model Page 9
www.macaubusinessdaily.com
Violations
Two contracted employees for new Imperial Pacific casino charged Page 7
Municipal affairs
Cheng Ming Festival: a new way to bury deceased in MSAR Page 3
Gaming
Konami: Japan casinos need Vegas-style oversight Page 7
Increased outbound travel over Easter Holidays
Tourism
More residents will travel during the upcoming Easter break, according to local agencies, which see most of their tours fully booked. Japan is one of the hottest destinations, they say. However, inbound tourism is quite another story, as Mainland Chinese do not enjoy the same holidays. Page 5
Gambling, heritage, and economic diversification all come together in a town that is miles away from Macau, on the East Coast of the United States. Chloe Taft, author of From Steel to Slots: Casino Capitalism in the Postindustrial City, shares with Business Daily how the city of Bethlehem, Pennsylvania has transformed itself from an industrial city of steel to a gambling attraction, following Las Vegas Sands setting foot there in 2009. Gaming Page 6
Owing to Cheng Ming Festival, a traditional Chinese day for the remembrance of ancestors, Business Daily will not be published on Wednesday April 5, 2017. We will be back on Thursday April 6, 2017.
HK Hang Seng Index April 3, 2017
Less lending to SMEs & start-ups
Subsidy Newly approved loans by the Macao Economic Services to local SMEs and young start-ups registered decreases of over 30 pct last month, compared to the month of February. By sector, those engaged in the retail industry received the largest share of financial aid from the government bureau in the first three months of the year. Page 2
Positioning for new Shenzhen
Special economic zone The ‘New Shenzhen’ announcement unleashed a frenzy among mainlanders yesterday. After Chinese authorities announced plans to establish a new special economic zone in Hebei to promote integration with Beijing and Tianjin, companies and individuals searched to position themselves in what is hyped to be a milestone similar to Pudong and Shenzhen. Page 8 24,261.48 +149.89 (+0.62%)
Worst Performers
Kunlun Energy Co Ltd
+7.36%
Swire Pacific Ltd
+1.48%
China Mengniu Dairy Co Ltd
-2.24%
Power Assets Holdings Ltd
-0.37%
China Unicom Hong Kong
+4.42%
China Shenhua Energy Co
+1.33%
Hang Lung Properties Ltd
-1.78%
Want Want China Holdings
-0.19%
BOC Hong Kong Holdings
+2.05%
China Construction Bank
+1.12%
Bank of China Ltd
-1.55%
PetroChina Co Ltd
-0.18%
Lenovo Group Ltd
+1.95%
China Mobile Ltd
+1.06%
China Merchants Port Hold-
-0.66%
CK Hutchison Holdings Ltd
China Resources Land Ltd
+1.67%
Galaxy Entertainment Group
+1.06%
Ping An Insurance Group Co
-0.46%
MTR Corp Ltd
-0.16% +0.46%
20° 22° 21° 23° 21° 24° 21° 24° 21° 24° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
A diversification story from steel
2 Business Daily Tuesday, April 4 2017
Macau Subsidies
Gov’t lending to SMEs & start-ups drops in March Newly approved interest-free loans to both local SMEs and young start-ups registered decreases of over 30 per cent last month Kam Leong kamleong@macaubusinessdaily.com
A
total of MOP21.3 million (US$266,250) worth of subsidies were granted to the city’s small and medium-sized enterprises (SMEs) in March under the SME Aid Scheme, a decrease of 32.2 per cent month-on-month. According to official data from Macao Economic Services (DSE), it gave out a total of MOP61.9 million in subsidies to local SMEs under the scheme in the first quarter of this year. The SME Aid Scheme offers interestfree loans of up to MOP600,000 per applicant for different finance purposes. In March, the economic bureau received a total of 66 new applications for subsidies, turning down six and approving 58 in the same period. Under the scheme, 33.9 per cent of the granted subsidies went to businesses in the retail industry in the first quarter, amounting to MOP21 million. Meanwhile, those engaged in the field of construction and public infrastructure were the second biggest beneficiaries, receiving a
total of MOP10.9 million from the government department in the three months. Th e thi r d bi gg est g r o u p o f beneficiaries was companies providing personal services, namely those running vehicle maintenance businesses, and hair or beauty salons, which received a total of MOP9.44 million worth of subsidies, representing 15.3 per cent of the total.
Meanwhile in March, no subsidies were granted under another SMEsupport scheme of the Bureau – the SME Credit Guarantee Scheme. The total amount of subsidies granted via the scheme thus remained at MOP19.9 million for the first quarter of the year.
Less money to start-ups
On the other hand, another financial aid scheme of the Bureau, the Young Entrepreneurs Aid Scheme, granted MOP5.5 million in subsidies to the city’s start-ups in March, dropping by 31.7 per cent month-on-month A total of 26 new applications were filed for the financial aid scheme last
month. The Bureau gave green lights to 22 and turned down seven other applications. The accumulative amount of approved subsidies under the scheme reached MOP15.9 million for the first quarter of the year. The retail industry was again the biggest beneficiary of the programme, with successful applications receiving a total of MOP7.7 million worth of subsidies during the first three months, accounting for 48.4 per cent of the total. Enterprises providing company services were given some MOP2.9 million in subsidies in the same period, amounting to 18.2 per cent of the total. The young start-up aid scheme offers interest-free loans of up to MOP300,000 (US$37,500). Entrepreneurs aged between 21 and 44 are eligible for a loan for eight years, with repayments starting after 18 months.
Politics
HK, Taiwanese pan-democrats urge release of Taiwanese activist The activists say China’s detention of Lee Ming Cheh is harming cross-strait relations Nelson Moura* nelson.moura@macaubusinessdaily.com
Several pro-democracy and anti-Chinese influence groups in Taiwan and Hong Kong have requested Mainland China to release Taiwanese activist Lee Ming Cheh, who has been detained by the Chinese authorities for half a month for allegedly “endangering national security”. A petition was signed by Joshua Wong – a student leader in Hong Kong’s ‘Occupy Central’ movement in 2014 - and Lin Fei Fan and Huang Kuo Chang - the main leaders of Taiwan’s ‘Sunflower Movement’ that protested against the country’s then-proposed improved economic ties with the Mainland in the same year.
The activists urged the Chinese government to release Mr. Lee, who is a political activist and a former member of the Taiwanese Democratic Progressive Party (DPP), as the detention has lasted 15 days, the maximum limit for preventive prisons in Mainland China. They also defended the administrative autonomy of Taiwan and Hong Kong, urging Chinese President Xi Jinping to ‘pay special attention to this specific case’ as he prepares for his first meeting with U.S. President Donald Trump in Florida between April 6 and 7 this week. On April 1, more than 20 Taiwanese government organizations warned Mainland China that its detention of the Taiwanese activist was harming
bilateral relations between the two parties, and the country’s international image, as it failed to ‘intimidate’ Taiwanese people. The groups also addressed the lack of response in regards to the whereabouts of Mr. Lee and nature of the accusations against him, stating that the detention would further increase dissatisfaction in Taiwan with Mainland China, harming cross-strait relations.
Missing in action
Mr. Lee, a member of the Taipei Wenshan Community College, went missing on March 19 after entering Zhuhai from Macau. Nine days after his disappearance, China’s Taiwan Affairs Office revealed that Mr. Lee had been detained for alleged involvement in ‘activities endangering national security’. They claimed he was in
Administration
Customer service
Gov’t sets up Public Administrative Reforms Commission
Poker face
The MSAR Government has formed a new commission to set out targets and coordinate work relating to the city’s public administrative reforms, in addition to assisting the city to push the modernisation of its policies, a dispatch in yesterday’s Official Gazette announced. The Public Administrative Reforms Commission, whose duties start today, is chaired by the Secretary for Administration and Justice. Other members include representatives from the Chief Executive Office, five secretariats, as well as the director and vice-director of the Public Administration and Civil Service Bureau.
According to the dispatch, the commission will also coordinate different government departments to implement the reform of the civil servant system and management; reorganise organisational functions and structures; and improve and smoothen administrative processes and operations. The chairman can invite related personnel or experts to participate in certain discussions with the Commission. It is also given the power to form task forces to help better perform its duties, for which members can be representatives from different government departments or entities. C.U.
good health but did not offer any details on the alleged activities that led to the arrest. Mr. Lee’s family said he had previously discussed Taiwan’s transition to democracy with friends in China through social media, in addition to delivering donations of books and money to the families of imprisoned human rights lawyers, the New York Times reported. Last year, a similar outcry ensued after five staff members of Hong Kong bookshop Causeway Bay Books - an independent bookshop primarily selling political books disappeared, with Mainland China authorities stating afterwards that they had been arrested after travelling to the country voluntarily. While four of the bookshop staff have been released, Swedish national, Gui Minhai, is still in detention. *With Lusa
Macau is the least hospitable city compared to 66 others around the globe Macau came in last place in terms of greeting and smiling at customers, according to the 2017 Smiling Report by Better Business World Wide. The report evaluates customer-service data collected from anonymous shoppers in 67 countries across Asia, Europe, North and South America. Despite a one percentage point increase, the city’s smiling index only scored 54 out of 100. Meanwhile, Hong Kong is ranked second last on the list, although it did manage
to increase its index by nine percentage points to 57 per cent. In addition to the smiling index, Macau’s greeting index was also the lowest in the ranking, also scoring 54 per cent. Ireland again topped the list for the third consecutive year with a score of 96 per cent, followed by Latvia with 95 per cent and Puerto Rico with 94 per cent. Asia is considered the lowest ranking continent in terms of greeting and smiling, with an average score of 65 per cent. N.M.
Business Daily Tuesday, April 4 2017 3
Macau Municipal affairs
Cheng Ming Festival: the tree burial Here’s a look to the new alternative to bury deceased in the territory Wang Chenxi
T
oday marks this year’s Cheng Ming Festival, also known as Tomb-Sweeping Day, in Macau as well as in other parts of China. In the densely populated special administrative region, citizens now have a new alternative to bury their deceased family members. In Sa Kong Municipal Cemetery, Taipa District, Macau’s civil affairs authorities have set up a memorial garden to provide tree burial service for those who are ready to let their beloved ones merge into nature. “It is a new way. Frankly speaking, not every one can accept this idea, but we have 56 completed services for now, and more people are visiting here for consideration,” said Leong Kun Fong, a member of the Civic and Municipal Affairs Bureau (IACM) Administration Committee which is in charge of Macau’s tree burial service. The tree burial garden has five Indonesian cinnamons in its center, with some other smaller plants grown under the canopies. Around the cinnamons, over 440 slots on the ground are arranged in four lines to bury bone ashes. According to IACM’s service procedure, all applicants will bring their deceased family members’ bone ashes to the garden after cremation. After the ritual is completed, the
bone ash will be kept in a paper bag and put into a vacant slot. A square tile will be put above to seal the slot, then covered by stones and soil. The names of the deceased will be carved on a memorial wall inside the garden. “The bone ash will be degraded in two years and the garden can provide slots to other people on and on, so it is eco-friendly and saves land and space,” Leong said. “More importantly, the trees become a symbol of the deceased and connect them with those who are still alive.” According to him, the garden chose Indonesian cinnamon for its Chinese name “Yin Xiang” which has special
meaning in the Chinese context. In Chinese, “Yin” means afterlife, “Xiang” means fragrance. “The tree stands for a good wish that even if someone passes away, his or her virtue will bless their offspring like cinnamon’s everlasting fragrance,” Leong explained. Zhou Qingyi came here to see her deceased mother, who received a tree burial service at the beginning of this year. “My mother is a very quiet person, I think she must like this place full of trees and flowers,” she said, picking up a fallen cinnamon leaf from the ground. To treasure the good memory with her mother, she chose tree burial as it means much more to her than an
ordinary tomb or grave. “I love her very much, and when I come here, I feel a part of her is still there inside those lively trees. I can talk to the trees as if I can talk to her,” Zhou said, while holding that the leaf tightly and smelling the fragrance from time to time. According to Macau’s latest census, there are over 650,000 people live in a land area of just about 30 square kilometers. As one of the most densely populated regions in the world, grave burial is apparently unsustainable. IACM also plans to develop another piece of land in Sa Kong Municipal Cemetery into a similar garden for flower burial services in the future, which can hold around 500 slots. Xinhua
4 Business Daily Tuesday, April 4 2017
Macau Opinion
Albano Martins* Who did everything and who did nothing (Part I) In the 1980s, when I arrived during the most prosperous years of Governor Rocha Vieira’s term of office, the Administration was accumulating money due to public auctions of land, investing here and there in some modernity, which left the Macau SAR with a Land Fund of MOP10 billion. Macau was in recession for a number of years mainly due to the real estate sector, as a result of a decision by China that aimed to control the Chinese state’s capital funds. The recession was accelerated by the gluttony of the Portuguese Administration, which intended to fill its coffers through these public auctions. But by doing so, it made it impossible to buy properties without the help of external investors. NAPE looked like a desert! Obliged to put aside half of the land premiums, the Portuguese Administration failed to leave this land in a period of expansion. Later, the coffers were filled again, thanks to Edmund Ho and the liberalization of the gaming industry, and also to China, who loosened the purse strings allowing her nationals to enter the territory with fewer restrictions. Macau is a drop of water in the ocean of China! When she gets angry, Macau has a tsunami! The gaming industry exploded under the Administration of Edmund Ho, who I miss very much. The price the Public Administration has paid for having a buffer secretary, rather than a real decision maker, is thousands of times greater than the cost of having the entire economy led by a corrupt secretary! Today, practically, Raimundo do Rosario can only try to subvert the ungoverned house and unleash the mines left by the way, like the land law - when it exploded, it began to wreak havoc on many innocent people who built important infrastructure for the government, for the city and the financial sector! These infrastructure projects could never have been made by the Portuguese Administration given the enormous values in question. After building very expensive infrastructures for the Government and paying fabulous land premiums, investors have been unable to develop the land plots due to the incompetence and indecision of the government! It was because of these entrepreneurs that Macau stopped having all its shit and bad smells pouring into the visible face of this city! And now they loose all? * an economist and contributor to this newspaper
Land disputes
CE supports the rejection of “interpretative land law”
C
hief Executive Fernando Chui Sai On supports the decision of the Legislative Assembly (AL) that turned down the request of legislator-cum professor Gabriel Tong Io Cheng to debate and vote on an “interpretative law” of the Land Law, says the Government Spokesperson’s Office. The Office said in a press release yesterday that all legislators have to obtain written approval from the top official when they propose any bill related to government policy. The proposal of Mr. Tong, which is in regard to the clauses related to temporary land concessions of the Land Law, was submitted last July to the legislature and was officially rejected last Friday. A report released by the AL last Friday concludes that there are no regulations in the Land Law that conflict with the initial intention of the legislation as discussed by the legislators in 2013, citing recordings of legislative meetings from that time. 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. Enforced in March 2014, the Land Law mandates that no extension is allowed for a temporary or conditional land concession that carries a term of 25 years, if developers
fail to complete their projects on their sites by the expiry of their concession terms. But Mr. Tong had interpreted that the MSAR Government could introduce possible plans for policies for developers who were unable to develop their plots of land by the expiry of their land concessions. K.L.
Trade
CEPA exports drop 26.3 pct in March Macau’s exports of zero-tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) fell by 26.3 per cent monthon-month in March, registering the lowest export figure for this year. According to the official data released by the Macao Economic
Services (DSEC), the city’s total CEPA exports amounted to MOP5.38 million (US$672.5 million) last month, MOP1.92 million less than in February. The amount was also lower than January’s MOP7.1 million figure. For the first quarter of the year, the city’s exports of goods under the
agreement amounted to MOP19.7 million. Accumulative exports under the agreement since it came into effect in January 2004 until the end of March, totalled MOP786.2 million. As at the end of last month, a total of 616 local firms had been awarded “Macau Service Supplier” certificates. The certificates allow local companies and enterprises to operate their businesses on the Mainland and enjoy zero tariff treatment. According to the official data, 49 per cent of the issued certificates have been granted to local firms engaged in the transport industry, such as those operating freight forwarding agencies, and businesses related to logistics, storage and warehouse as well as transport. In addition, some 147 of these certificates have been given to companies providing medical and dental services, which accounted for 24 per cent of the total. Other local firms awarded the certificates are primarily engaged in real estate services, MICE business and travel agency services. K.L.
Retail
Milan Station’s yearly loss expands The company’s sales in Macau decreased sharply last year Luxury-branded handbag chain store Milan Station Holdings Ltd saw its net losses expand for the year of 2016, while the company’s sales in the MSAR plunged by nearly half from 2015, shows the company’s filing with the Hong Kong Stock Exchange last week. In 2016, the company’s revenue derived from the Macau market amounted to HK$8.6 million (US$1.07 million), a slump of 44.9 per cent year-on-year from HK$15.6 million one year earlier. The company currently only operates points of sale in exclusive local clubhouses. It explained in the filing that the performance of these
points of sale was “unsatisfactory”. ‘The gambling industry and tourism industry in Macau has shrunk in recent years, which greatly bombarded the Group’s business locally,’ it claimed. Meanwhile, the company’s total revenue for the year reached H K $ 318 . 8 m i l l i o n , fa l l i n g b y 20.2 per cent year-on-year from HK$399.6 million in 2015. Of the total, 92.1 per cent was generated from the sale of handbags, which amounted to HK$293.7 million in the year, a decrease of 25.3 per cent year-on-year. Nevertheless, the company’s sales of other products jumped by 280.3
per cent year-on-year to HK$25.1 million, compared to HK$6.6 million in 2015. In addition to sales declines in the MSAR, the company also saw its revenue in both Hong Kong and Mainland China decrease, down by 15.2 per cent and 52.7 per cent, amounting to HK$291.6 million and HK$18.6 million, respectively. ‘The international economies uncertainty will persist and make the coming years challenging. Also with social and political issues and intensive competition, the retail market in Hong Kong will remain stagnant,’ the firm forecast in the filing. ‘The consistent pressure on Renminbi will continue and affect the purchasing power of the Chinese consumers, and consequently exacerbate the downtrend in Mainland Chinese tourists’ visits to Hong Kong,’ it added. K.L.
Business Daily Tuesday, April 4 2017 5
Macau
Japan is one of the hottest destinations for local outbound residents for the Easter Holidays due to the low value of the Japanese Yen
Tourism
More travellers hunting Easter eggs outside MSAR Local travel agencies say the number of outbound package tours has increased compared to last Easter Cecilia U cecilia.u@macaubusinessdaily.com
L
ocal travel agencies expect there will be more local residents travelling outbound for the upcoming Easter Holidays compared to one year ago. For this Easter Holiday period, starting April 13, cities in Mainland China, Taiwan, South Korea, Japan and Thailand are the most popular destinations for local residents, Business Daily has learned. Atdy Chow, senior operation manager of EGL Tours (Macau) Company Limited, said the travel agency has seen a 20 per cent year-on-year
increase in the number of residents registering for the company’s outbound package tours, or buying their services for individual travel, as compared to last year’s Easter Holidays. “At the moment, our package tour bookings [for this coming Easter] are not bad,” said Ms. Chow. “In fact, they are better than our expectations”. She added that Japan is the hottest destination due to the low value of the Japanese Yen. “Although the number of tours to Japan is not big, the limited number of available flights departing from Macau has led to full bookings in a very short period of time,” noted the EGL operation manager. In contrast to last year’s holidays,
Ms. Chow observed that more clients are choosing to travel on their own, with agency services, rather than joining package tours, making this year’s ratio between outbound package tours and individual travel equally shared. “Before, people tended to join tours because it was easier for families […] but now communication is less difficult so demand for individual travel has increased,” explained Ms. Chow.
Chinese cities outbound tours
Kay You, Cultural Travel Planner at local travel agency Multinational Youth Travel Agency Limited (MYTA), meanwhile, disclosed that tours to Tianjin and Beijing on April 13 are full, while tours to other destinations such as Cambodia and Vietnam are also enjoying positive responses.
Having participated in the previous Macau International Travel (Industry) Expos to promote the company, Ms. You remarked that the number of tours booked through the company has increased by one fold when compared to last year’s performance. “There are a number of associations booking package tours via us and there are also new groups co-operating with us,” commented Ms. You. China Travel Service (Macao) Ltd. (CTS), which focuses on offering tours to Mainland China, has also seen a positive response for its Easter bookings. “Around or over 30 tours have been already confirmed,” said Patrick Puk, Travel Department Assistant General Manager of CTS, adding that more bookings are expected in the coming two weeks. Since the Easter Holidays are not mandatory in Mainland China, Andy Wu Keng Kuong, president of the Macau Travel Industry Council, explained that inbound package tours for the period, in particular from Mainland China, will remain more or less the same as during normal days.
6 Business Daily Tuesday, April 4 2017
Macau Gaming
‘From Steel to Slots’ Chloe Taft, the author of a book on the history and transformation of Bethlehem, Pennsylvania, following Las Vegas Sands’ launch of a profitable casino there, talks to Business Daily, unraveling experiences that resonate with casino development in Macau Sheyla Zandonai sheyla.zandonai@macaubusiness.com
S
ands Casino Resort Bethlehem is one of the twelve casinos that currently operate in the state of Pennsylvania, United States. The site was a retrofitted steel plant located in the centre of Bethlehem city, which Las Vegas Sands (LVS) acquired after winning a bid in 2006. This bit of history is part of the story that Chloe Taft, a Lecturer in U.S. History at Lake Forest College, decided to tell in her book, From Steel to Slots. Casino Capitalism in the Postindustrial City. During a visit to Macau last month, she talked exclusively to Business Daily about LVS’ takeover and the influence of Chinese culture in the transformation of a ‘steel town’ into a ‘gambling town.’ The themed casino-resort of LVS in Bethlehem opened in May 2009, preserving some of the original structures and buildings sitting on a huge plot of land that once hosted Bethlehem Steel Corporation, “the second largest steel plant in the world, after US Steel,” says Taft. But the property is changing hands soon. MGM Resorts International, which is developing a nearly US$1 billion (MOP8 billion) casino resort in the nearby state of Massachusetts - MGM Springfield - entered into a US$1.3 billion deal with LVS last month to acquire the latter’s casino property in Bethlehem. Why is MGM interested in purchasing it? Taft explains that MGM has lately shown an interest in expanding its developments following a “regional casino model,” given the fact that they were not previously successful in getting a license in New York. “Springfield, Massachusetts, is also a similar kind of industrial
Chloe Taft
background town, and leaders from Springfield, politicians, have gone to Bethlehem to see the model there, how it was done.” On the reasons why LVS is willing to sell the property, she suggests the company has redefined its strategy that is quite opposite to MGM’s. “Since the beginning, when Sands opened the Bethlehem casino, Sheldon Adelson said that he regretted the decision, and I think it is because it does not fit in to their global portfolio, with these very high-end, fancy, mega casino resorts. At the time, I think Sands was interested in expanding to other states in the United States with these smaller regional casinos, but they have since changed the strategy.”
Chinese spur
Casino developers in the U.S. seem to be harnessing a similar approach to Macau, that is, attracting Chinese gamblers. On the one hand, there is a clear cultural appeal in casino design and marketing strategy of late. “The Lucky Dragon is one of the few new casinos to open in Las Vegas since the recession, and it is specifically targeted towards Asian, Chinese gamblers.” In addition, casino developers are reaching deep into logistics and the training of staff to get their Asian share of the market. “In retrospect, it is obvious that Bethlehem, [being] closer to New York than Atlantic City is, right on
MGM seeking expansion on the East Coast
The acquisition of Sands Bethlehem by MGM would give the Las Vegas-based company an even bigger presence on the East Coast. MGM reentered the Atlantic City market by buying a half interest
the East-West highway, is always a prime location because it is so close to New York, which has a huge Chinese population. And so they are busing in thousands of Chinese and Chinese Americans. They are advertising in Chinese language newspapers, hiring Chinese-speaking dealers, and other service staff.” According to Taft, Sands Bethlehem has therefore become one of the most profitable gaming destinations on the American East Coast. “Since it opened in 2009, it’s always been the number two casino in Pennsylvania, after one outside of Philadelphia, but it is far ahead of that casino in table game revenues.” Sands Bethlehem is the leader casino in table games revenue in the state of Pennsylvania, hitting US$203.2 million for the whole year of 2016, up 7 per cent year-on-year, according to local media reports. In addition, its revenue from slot machines reached US$305.03 million for the whole year of 2016, up 1.84 per cent year-on-year. According to the Morning Call, some 43 per cent of the total revenues in Bethlehem came from table games, the highest in the U.S. Meanwhile, Pennsylvania’s total casino take, including slot machines and table games, reached US$3.2 billion in revenues in 2016, according to the Pennsylvania Gaming Control Board (PGCB). Sands Bethlehem’s casino currently operates 237 tables, and “the expansions they have done have been into tables and they have been almost entirely baccarat,” Taft confirms. In a bid to PGCB last year, Sands Bethlehem planned to invest about US$90 million to expand its casino floor by adding a total of 81 tables. If approved, the casino would have the largest number of table games of any casino outside Las Vegas, according to The Morning Call.
in the Borgata, the largest casino in Atlantic City, in 2016. MGM has also bought out its partner, Boyd Gaming, and taken full ownership of the Borgata. In addition, MGM opened its US$1.4 billion National Harbor casino resort in Maryland in December 2016.
A special approval would, however, be needed if the number of table games is to exceed the state’s maximum of 250. No other casino has more than 184.
Diversification ahead of gambling
The opening of Sands Bethlehem marked somewhat the passage from a single-commodity type of economy to a single-service type of economy. In a way, that’s what the title of Taft’s book – ‘from steel to slots’ – suggests. Yet, the scholar explains that economic diversification took the lead over casino development in Bethlehem. “The main economies – and it diversified fairly early – are now healthcare and technology. It’s a kind of the exemplar postindustrial community in a lot of ways. So the hospital systems there are the main employers. The casino now is up there, but there was a more diverse economy before hand.” As a matter of fact, she remarks that gambling was not legalized in the state of Pennsylvania until 2004. The Racehorse Development and Gaming Act of 2004 sought to ‘boost revenues to counties and municipalities that host gaming facilities, create jobs, and fund property tax relief,’ according to the Center for Gaming Research at the University of Nevada in Las Vegas. According to Taft, the local steel plant shut down completely in 1998, when “production at Bethlehem stopped completely, but the headquarters were still located there, operating, until the company filed for bankruptcy in 2001.” When the bankruptcy was completed in 2003, marking the end of the Bethlehem Steel Corporation, “it was sold to what became Arcelor Mittal, which still operates some of Bethlehem Steel properties,” Taft adds. At its peak, “the Bethlehem plant produced armaments and structural steel that was used in things like the Golden Gate Bridge, and a lot of New York’s skyscrapers. It really boomed through World War II,” she explains. When a long, slow decline started in the 1970s, diversification was already setting in. “Bethlehem is interesting in that, when you think of in America that image of a city that died, Bethlehem never did.”
Business Daily Tuesday, April 4 2017 7
Macau Appointment
Wynn Macau appoints new non-executive director
Gaming operator Wynn Macau Limited has appointed Kim Marie Sinatra as a NonExecutive Director of the company for a period of three years, effective from April 1, it told the Hong Kong
Stock Exchange yesterday. According to the release, Ms. Sinatra joined Wynn Resorts Ltd – parent company of Wynn Macau - in 2004 as Senior Vice President and General Counsel. She has been serving as the Executive Vice President and Secretary of the American firm since 2006. N.M
Gaming
Konami: Japan casinos need Vegas-style oversight The Japanese slot machine maker opines its home country’s future regulations on the gaming industry should be as strict as those in Las Vegas Chris Cooper and Grace Huang
K
onami Holdings Corp., which supplies slot machines to some of the world’s biggest casinos, will participate in Japan’s gaming industry if the regulations are as strict as those in Las Vegas. Satoshi Sakamoto, a senior executive director at Konami, said an industry with a good reputation will attract more Japanese visitors and turn resorts into destinations for events other than gambling, such as school reunions. At the same time, it wouldn’t threaten Konami’s licenses to operate in Nevada and other U.S. states. “In Las Vegas, if you have a license they’ll take it away if you start getting involved in strange things, and that would be a big problem,” Sakamoto said in a March 30 interview in Tokyo. “If Japan is too loose, then we’d have to remove ourselves.” Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International are among the companies interested in building resorts in Japan after legislators passed a bill in December to legalize casinos. Legislators are due to vote on a second bill and decide on the number of resorts and locations this year, with CLSA predicting the industry could generate as much as US$25 billion (MOP200 billion) in annual revenue. The first casinos are likely to start operating in 2023. Tokyo-based Konami, whose customers include MGM and the Hard Rock Cafe International Inc., has more than 400 licenses in the U.S., Europe, Australia, Singapore and South Africa. In addition to selling
slot machines, it signs agreements to share profits from leased machines. Konami had licenses in 45 U.S. states as of December. The regulation overseeing casino operators in Nevada calls for checks once every two years and examinations of the finances of top executives as well as their spouses. “The most important thing is to have compliance and rules at the same level as Nevada,” Sakamoto said. “We want a clean casino and entertainment.”
The company, which also operates health and fitness clubs, wants to see the details of the next bill before deciding on its level of involvement in integrated resorts. “We’re not going to compete with our customers,” Sakamoto said. “If our customers ask us, then we’ll look at the details and decide. First, the rules should be decided.” Konami is targeting about 12 per cent of the slot-machine market in Japan casinos, in line with its current share in the U.S., Sakamoto said. He predicts there could be about 10,000 machines with three large, integrated resorts. Konami forecast its net income grew to more than 24 billion yen (MOP1.72 billion/US$215 million)
Gaming
Results
Two Saipan casino contracted employees charged Imperial Pacific, meanwhile, denied the company has any relations with the two employees hired by its contractor, who were alleged to have hired illegal workers Nelson Moura nelson.moura@macaubusinessdaily.com
A federal court on the Island of Saipan has charged two employees involved in the construction of the new casino resort of Imperial Pacific International Holdings Ltd on allegations of bringing, harbouring and employing illegal residents, the Saipan Tribune reported. According to the newspaper, Yuqing Zhao and Pei Runa, a project manager and an electrician from MCC International - the contractor responsible for the Imperial Pacific Resort project - were arrested by the U.S.
for the year ended March 31, as it restructured and cut costs. Its shares have risen 15 per cent since Japan legalized casinos in December, compared with a 2 per cent decline in the Topix index. The company developed casino management software called Synkros to help customers, including Norwegian Cruise Lines, manage their marketing, cash, slots and tables. It’s also rolling out a new series of gaming machines called Concerto. “With much of the development cost of these new products now past, there may be room for margin to expand with sales,” Bloomberg Intelligence analyst Matthew Kanterman said in a March 23 report. Bloomberg
Federal Bureau of Investigation (FBI) and charged by the Commonwealth of the Northern Mariana Islands (CNMI) district court. The CNMI is under the jurisdiction of a U.S. territorial court based in Saipan, which possesses the same powers as U.S. district courts. According to the news outlet, during a raid at MCC International’s office in Saipan last week, the FBI found 189 Chinese passports indicating that the holders had overstayed on the Island. The action followed the death of a Chinese national at the construction site of Imperial Pacific Resort on March 23.
After the arrests, Imperial Pacific issued a release to the Hong Kong Stock Exchange on Sunday evening, rejecting any connection between the group and its employees, following the recent investigation conducted by United States federal authorities that looked ‘into the relevant construction accident of Saipan external construction team’. The company is also quoted by another newspaper, Mariana’s Variety, as saying that it ‘has paid construction contractors requisite fees for processing needed applications for workers to work on the construction project’. Meanwhile, Imperial Pacific’s temporary casino in Saipan, Best Sunshine Live, registered a VIP table games rolling chip volume of US$2.95 billion (MOP23.74 billion) in March of this year, according to another filing with the Hong Kong Stock Exchange. Last week, the company said in its annual results that the construction of the casino at Imperial Pacific Resort would be completed by the end of March and would be opened to public. The new casino property will include 193 gaming tables and 365 slot machines.
NagaCorp’s VIP rolling soars 34 pct in Q1 For the first quarter of the year, Cambodian gaming operator NagaCorp Ltd’s rolling chip volume surged by 34 per cent year-on-year to US$3.73 billion (MOP29.9 billion), the company told the Hong Kong Stock Exchange yesterday. According to the company filing, the group saw an increase of 13 per cent in its mass market table buy-ins, amounting to US$169 million, compared to US$149 million for the same period in 2016. Bills-in tally of electronic gaming machines reached US$417 million, up 10 per cent year-on-year. The company operates casino-resort NagaWorld in Phnom Penh, Cambodia. In its 2016 annual report released in February, the company said it is positive about the prospects of its casino business, believing the segment will continue to benefit from the growth of visitors to the country. C.U.
8 Business Daily Tuesday, April 4 2017
Greater China In Brief Aviation
More Tianjin flights as Beijing runway closes for overhaul Tianjin Binhai International Airport in northern China is to handle more flights in April as a runway in Beijing airport is renovated. One of the three runways at Beijing Capital International Airport is closed until April 29 for a 28-day overhaul. During the period, Tianjin will add 426 more flights, mostly from Air China, Xiamen Air, China Southern Airlines, China Eastern Airlines and Lucky Air, originally scheduled for Beijing Capital International Airport. A further 86 flights from Sichuan Airlines and Shandong Airlines will also likely change routes to Tianjin, according to the Tianjin airport. Language
Mainland to increase mandarin speaking rate China plans to increase the rate of nationals speaking standard mandarin Chinese to 80 per cent by 2020, according to a plan issued by the Ministry of Education and State Language Commission. The plan calls for improved mandarin speaking abilities among teachers, especially new teachers, who must meet national mandarin speaking standards before being enrolled by schools. The plan also highlights training of teachers from ethnic minority regions. Methods including online remote teaching will be used to ensure all ethnic teachers speak standard mandarin. Environment
Beijing steps up pollution check China’s environmental inspectors intensified pollution checks around Beijing as a new round of smog hit the region. The new round of air pollution will continue in the Beijing-Tianjin-Hebei region between April 3 and 7, with the cities of Tianjin, Tangshan, Langfang, Puyang and Anyang issuing orange alerts, the second highest in the country’s four-tier warning system. To ensure policies on fighting air pollution, the Ministry of Environmental Protection said on its website that seven teams have been sent to Beijing, Tianjin as well as the cities of Shijiazhuang, Tangshan, Baoding, Xingtai and Anyang in neighbouring Hebei and Henan provinces. Results
SPD Bank 2016 net profits up Shanghai Pudong Development (SPD) Bank said its 2016 net profit climbed 4.93 per cent from a year earlier to RMB53.1 billion (about US$7.7 billion). Revenue rose 9.72 per cent year on year to RMB160.79 billion last year, according to the bank’s annual report. The bank attributed the profit increase to rising non-interest income and lower operating costs. Non-interest income reached RMB52.67 billion, accounting for 32.76 per cent of revenue, up 9.87 per centage points year on year. The bank posted 16.12 per cent increase in total assets, which amounted to RMB5.86 trillion at the end of 2016.
Xiongan area
Mainland’s plan to create new Shenzhen triggers speculative rampage The development of the region will create an urban district in Hebei that will help move some of the non-capital functions away from Beijing Lisa Pham and Jeanny Yu
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t didn’t take long for news that China would set up an economic zone near Beijing to touch off an investor frenzy. Within 24 hours of Saturday’s announcement that the government would create the Xiongan area in Hebei province -- in the same spirit that Shenzhen and Shanghai’s Pudong (pictured) was built -- hordes of prospective buyers had thronged to the region. Highways were clogged as they came to purchase real estate, with some camping outside property agent offices overnight, according to local media reports. On Sunday the government banned all property sales in the zone to stem speculation, according to the National Business Daily. Yesterday, shares of Chinese cement, building and port-related stocks surged in Hong Kong amid optimism the decision will spark a flurry of construction activity. The move by President Xi Jinping, which evokes memories of the rise of Shenzhen since it was declared a special economic zone more than three decades ago, is seen as a historic milestone to power China’s growth for a “millennium to come,” the official Xinhua News Agency reported. The new zone is expected to eventually cover about 2,000 square kilometres and jump-start China’s economic growth. “This would be one of the centrepieces of a high-level development plan for the Beijing-Tianjin-Hebei region,” said Bill Bowler, a sales trader at Forsyth Barr Asia Ltd. in Hong Kong. “I would liken it to the development of a brand new New York City, with Beijing as Washington. The regional plan has been termed a ‘1000-year project’; the first of its kind since Mao.” The development of the region will create an urban district in Hebei that will help move some of the non-capital functions away from Beijing, Xinhua reported on Saturday. The new
district would initially cover an area of about 100 square kilometres, and authorities want to turn the region into a new growth centre as China’s economy slows, according to the news agency. Shares of cement company BBMG Corp. surged as much as 46 per cent in its biggest gain since July 2009. Tianjin Port Development Holdings Ltd rallied 14 per cent and China National Building Material Co. advanced 7 per cent. Mainland Chinese markets are closed for a public holiday and reopen on Wednesday.
“I would liken it to the development of a brand new New York City, with Beijing as Washington. The regional plan has been termed a ‘1000-year project’; the first of its kind since Mao” Bill Bowler, a sales trader at Forsyth Barr Asia Ltd. in Hong Kong
“China’s new economic zone plan makes investors feel more optimistic about China’s economic outlook,” Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong, said by phone. “The investment plan could support demand for cement, steel and construction-related materials in the next ten years in China.” Investor euphoria surrounding the plan may cause a headache for authorities, who have vowed to crack down on speculative buying frenzies spanning stocks to real estate.
President Xi and his policymakers have pledged to curb excess leverage in the financial system and have committed to enforce prudent and neutral monetary policy to deflate bubbles. Soaring home prices cities such as Shenzhen, Beijing and Shanghai have prompted authorities to impose restrictions to cool the market. China’s central bank last month asked banks in Beijing to scrutinize home loans to newly divorced couples and funding sources for borrowers, adding to other curbs to cool the market.
Heavy smog
Beijing has been suffering from pollution and traffic congestion with heavy smog prompting more than 60 cities across China, including the nation’s capital, to issue health alerts this year. Beijing’s city government’s plans to spend RMB18.2 billion (US$2.6 billion) to tackle air pollution in 2017, Xinhua reported in January. China is targeting growth of about 6.5 per cent “or higher if possible” this year, after gross domestic product slowed for a sixth year in 2016. Economic and social stability are key priorities before President Xi and his cadres gather later for a reshuffling of top officials, which is planned for the fourth quarter. “The collaborative development of the three regions is intended to solve problems like overpopulation and traffic congestion in Beijing,” Howard Lau, an analyst at Jefferies Group LLC in Hong Kong, wrote in a note. “The relocation and transformation of industries could boost infrastructure and property investment in the region.” Tangshan Jidong Cement Co. sent out an internal notice to its customers to raise cement price by RMB50 per ton starting from April 2, according to Duncan Chan, an analyst at China Securities International Finance Holding Co. in Hong Kong. BBMG last year signed a pact to buy a controlling stake in Jidong Cement. “The price raising move should be triggered by China’s plan to build an economic zone,” Chan said. “We expect other cement makers to follow the move to hike cement prices thanks to the construction needs.” Bloomberg News
Business Daily Tuesday, April 4 2017 9
Greater China Demand
Less noodles, beer and movies? Clouds on consumption horizon Retail sales in December rose at their fastest pace in a year, thanks to cars and cosmetics, but they disappointed in the first two months of this year Donny Kwok and Adam Jourdan
Official numbers may suggest a rosier 2017 for China, but the bottom lines of the country’s top consumer firms - from brewers to noodle makers and cinema chains - paint a patchy picture of spending in the world’s second-largest economy. Tsingtao Brewery Co Ltd, China’s number two brewer, posted its steepest drop in net profit in 20 years last week, blaming tough competition and weak demand. Noodle maker Tingyi saw profits drop by a third.
“Looking into 2017, it is expected that (the Chinese) and global economy will continue to face downward pressure, leading to sluggish market demand”
cagey about how they’re spending their money, (from) food to clothing and movies.” Increased caution - and sophistication - will push companies to innovate, and to spend more to fend off competitors, if they are to survive, analysts said. After growing at the slowest pace in 26 years in 2016, official data have indicated a strong start to the economy this year, supported by bank lending, a government infrastructure spree and a much-needed resurgence in private investment. But China’s consumption trends have been less clear. Retail sales in December rose at their fastest pace in a year, thanks to cars and cosmetics, but they disappointed in the first two months of this year. Consumption contributed the bulk of China’s growth last year at nearly 65 per cent, but income growth didn’t pick up, and a measure of China’s
income inequality rose slightly last year. A private business survey last month showed growth in the services sector slowed to a four-month low as increasing competition made it harder for companies to pass higher input costs on to consumers. To be sure, the picture from recent earnings reports is not comprehensive nor uniform. But the drop in profits of some of China’s best-known names flags the uneven nature of the country’s gradual shift to a consumer-driven economy, and the challenge for both brands and Beijing, which needs to stoke domestic consumption and private investment to fuel growth. Of course there were bright spots. In areas like sports apparel, firms such as Li Ning Co Ltd and ANTA Sports predicted a boost as China looks to build its sports industry and consumers become increasingly health conscious. Li Ning’s profits rose sharply. But global uncertainties - from the impact of trade policies under new U.S. President Donald Trump to political uncertainty in Europe - are expected to cloud the year.
“In 2017, great uncertainties in the economic outlook remain in view of the changes in political and economic policies in some key regions,” China Resources Beer said. The brewer reported sluggish sales growth, but also its first annual profit in three years this month. Retailers also reported a mixed outlook, although a slowdown in e-commerce was creating opportunities elsewhere. White goods maker Qingdao Haier, which posted annual net profit growth of 3.1 per cent, said China was in a new normal of consumer growth - but expects sales to eventually accelerate with rising salaries and demand for high-tech homes. Others bore the cost of change: home appliance retailer GOME posted a 73 per cent drop in fullyear profit as it spent on a strategic shake-up. “Looking into 2017, it is expected that (the Chinese) and global economy will continue to face downward pressure, leading to sluggish market demand,” said Chairman Li Dongsheng of television maker TCL Multimedia. Reuters
Li Dongsheng, Chairman of television maker TCL Multimedia China’s top cinema operator Wanda Cinema Line saw 2016 profits rise 15.2 per cent - down from growth of nearly 50 per cent the year before, as broader box office sales stalled. IMAX China’s profit tumbled, too. “There’s still a tonne of room for growth, but these markets are much more competitive now and even bigger brands are starting to struggle,” said Ben Cavender, Shanghai-based principal at China Market Research Group. “Consumers are becoming more
Fixed price offer
Broker Guotai Junan raises US$2.1 bln in HK The shares will debut in Hong Kong on April 11 Elzio Barreto
Guotai Junan Securities Co Ltd, China’s third-largest brokerage by assets, raised US$2.1 billion in a rare fixed-price share offering that was the biggest stock sale in Hong Kong in six months, a source with direct knowledge of the deal said yesterday. The Shanghai-listed company offered 1.04 billion new shares at a fixed price of HK$15.84 each, putting the total deal at HK$16.5 billion (US$2.12 billion). Guotai Junan’s deal was the largest stock sale in the city since the US$7.63 billion IPO of Postal Savings Bank of China in September. Concerns over volatility in China’s equity markets and a smaller-than-expected discount to the price of its Shanghai-listed stock curtailed demand for the deal, particularly from retail investors, analysts said. Those mom and pop investors have a significant influence over first-day trading in Hong Kong share offerings. The shares were originally offered at a discount of 25 percent to Guotai Junan’s closing price in Shanghai on
March 24, but a decline in the shares last week narrowed that discount to about 23 percent. “There wasn’t much demand from the retail investors,” said Jasper Chan, assistant manager of corporate finance at Hong Kong brokerage Phillip Securities, which offers margin loans for retail investors to buy into share offerings in the city. “The discount was not quite attractive and the market sentiment is not good at the moment.”
A fixed-price share offering is unusual, with most deals setting an indicative range before deciding on the final pricing, depending on demand. Guotai Junan did not immediately respond to a Reuters request for comment on the share sale. The company plans to use 30 percent of the share sale proceeds to develop its prime broking and lending business for institutional clients and another 30 percent to open new
retail branches and launch financial technology (Fintech) services, it said in the prospectus for the sale. The remainder will be used to expand its asset management and overseas businesses, including potential joint ventures with international firms.
Key Points Had offered 1.04 bln shares at fixed price of HK$15.84 each Narrow discount to Shanghai stock price hurt retail demand
Guotai Junan secured US$598 million in commitments from cornerstone investors for the share sale, including US$388 million from private equity firm Apax Partners and US$100 million from real estate investment firm Winland Group. Bank of America Merrill Lynch, Goldman Sachs, Shanghai Pudong Development Bank International and Guotai Junan’s Hong Kong investment-banking arm - Guotai Junan International - acted as joint sponsors for the deal. Guotai Junan also hired another 16 banks as joint book runners for the deal. The banks stand to jointly earn US$42 million in fees, equivalent to a 2 percent underwriting commission. Reuters
10 Business Daily Tuesday, April 4 2017
Greater China
Onshore bonds
Mainland just had its worst ever start to a year for defaults Four of this year’s nine defaulted bonds were issued by companies based in the northeast rust-belt province of Liaoning
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hina’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year, according to data compiled by Bloomberg. In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction. While it’s still far from a crisis point, the defaults shows how policy makers’ efforts to reduce the liquidity that had propelled the bond market until late last year is exacting casualties.
“Weak companies can’t sell bonds, which adds to the pressure on their cash flow” Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen “Weak companies can’t sell bonds, which adds to the pressure on their cash flow,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further -the current yield premium doesn’t provide enough protection against credit risks.”
Stable economic growth prompted the People’s Bank of China to start curbing leverage in money markets in August, and borrowing costs have spiked as a result. The campaign has also hit issuance: firms rated AA, generally considered junk in China, sold RMB33 billion (US$4.8 billion) of bonds in the first quarter, the least since 2011, Bloomberg data show. Chinese companies have scrapped RMB129 billion of bond sales since Dec. 31, a jump of more than 50 per cent from the same period a year before. China’s central bank boosted rates on loans aimed at small- and medium-sized financial institutions Saturday. Four of this year’s nine defaulted bonds were issued by companies based in the northeast rust-belt province of Liaoning, which has been among the areas hit hardest by China’s focus on reducing capacity in industries such as steel and coal. Here’s the full line up:
1. Dalian Machine Tool Group Corp.
company, partially state owned, was already bailed out in the early 2000s before it had to grapple with the challenges of China’s economy decelerating from around 10 per cent growth to sub-7 per cent. It’s now defaulted on its sixth bond since its latest financial difficulties began a year ago. The company is in bankruptcy proceedings. The note defaulted on was originally issued in 2013 and is due in January 2018.
3. Inner Mongolia Berun Group Co.
This investment company is based in the heart of the northern province of Inner Mongolia, which saw a surge in construction during the record credit boom unleashed during the global financial crisis. Berun Group’s home city, Ordos, was dubbed China’s biggest “ghost town,” for all the vacant buildings that went up during the stimulus period. This was the second default within two months for the company, which invests in chemicals and logistics. The defaulted security was a note issued last year that was due in January.
4. China Shanshui Cement Group Ltd.
The top perpetrator, this Liaoning manufacturer defaulted on three bonds this year, after issuing new securities as recently as October. The tool making industry has a large number of players, and is ripe for consolidation, according to Bloomberg Intelligence. Dalian Machine is also based in a province that tumbled into an outright recession last year. The securities involved include a note due in May 2017, one due in July and another due in January 2019.
While this company is based in Shandong, a province southeast of Beijing that’s better off than its neighbour across the Yellow Sea, Liaoning, cement has become a tougher industry since regulators took steps to rein in China’s property sector. China Shanshui Cement Group has defaulted on several bonds since November 2015 after a boardroom fracas stymied financing. Its Hong Kong-traded shares are suspended. The bond in question was threeyear note issued in February 2014.
2. Dongbei Special Steel Group Co.
5. China City Construction Holding Group Co.
This steelmaker based in Dalian, a port city on the Yellow Sea, is a good example of Liaoning’s troubles. The
Thi s b u i l d e r i s bas e d i n th e national capital, but Beijing’s on-going property boom wasn’t
enough to prevent it from missing interest payments. A change in the contractor’s ownership last April triggered early redemption of a Dim Sum bond, and then China City faced difficulties transferring funds offshore to repay the debt. The shifting shareholder structure has had a “serious” negative impact on the company’s on-going ability to secure funding, according to China Lianhe Credit Rating Co. The company defaulted again early last month. The security was a bond due in March 2021.
6. Huasheng Jiangquan Group Co.
Another Shandong-based company, this steelmaker suffered “huge losses” after its subsidiary cut manufacturing of the alloy, according to Dongxing Securities Co., the lead underwriter on the defaulted bond. Premier Li Keqiang said in his address to the National People’s Congress last month that China wants to reduce steel capacity by about 50 million tons. Huasheng Jiangquan repaid the overdue amount on the debt March 22. The RMB800 million bond that was defaulted on was due in March 2019.
7. Zhuhai Zhongfu Enterprise Co.
A bottle maker for Coca-Cola Co., this company sticks out because it hails from Guangdong, China’s powerhouse exporter province. Zhuhai Zhongfu said in a statement last week that it’s running at a loss amid competition in the industry and weak demand. The company’s controlling shareholder says Zhuhai Zhongfu is planning to make an overdue payment by April 26 on the bond that it defaulted on March 28. The firm defaulted on a separate bond in 2015 and repaid the debt five months later. The most recent defaulted security was a five-year note due March 28 this year. Bloomberg News
Business Daily Tuesday, April 4 2017 11
Asia Tankan survey
Japan business mood brightens as recovery broadens Big manufacturers and non-manufacturers expect business conditions to deteriorate slightly in the coming three months Leika Kihara and Tetsushi Kajimoto
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apanese big manufacturers’ business confidence improved for a second straight quarter to hit a one-and-a-half year high in March, a closely watched central bank survey showed, a sign the benefits of an export-driven economic recovery were broadening. Service-sector sentiment improved for the first time in six quarters and companies remained upbeat on their capital expenditure plans, the Bank of Japan’s (BOJ) “tankan” survey showed, offering hope the economic recovery will gather momentum in coming months. The data, which will be among factors the BOJ will scrutinise at its next rate review on April 26-27, reinforces a dominant market view the central bank’s next policy move would be to reduce rather than expand monetary stimulus. “The tankan showed a balanced improvement in corporate sentiment at manufacturers and service-sector firms,” said Yuichiro Nagai, an economist at Barclays Securities. “Overall, the results support the BOJ’s rosy view on the economy.” The headline index measuring big manufacturers’ business sentiment rose to plus 12 in March from plus 10
three months ago, the tankan showed on Monday, falling slightly short of market forecasts but marking the highest reading since December 2015. The index gauging big non-manufacturers’ sentiment improved 2 points from plus 20, rising for the first time in six quarters and hitting the highest level since March 2016,
the survey showed. Big manufacturers and non-manufacturers expect business conditions to deteriorate slightly in the coming three months, as risks to global trade such as Britain’s decision to leave the European Union and U.S. President Donald Trump’s protectionist statements cloud the outlook. Still, the survey found big firms plan to increase capital spending by 0.6 per cent in the fiscal year ending in March 2018, compared with a median market forecast for a 0.1 per cent drop.
“There has been talk about the risks of protectionism, but so far Japanese companies are not taking any specific steps related to this,” said Norio Miyagawa, senior economist at Mizuho Securities. “This tankan will reinforce expectations that the BOJ is on hold for the time being. We certainly don’t see the need to ease or tighten policy,” he said.
Key Points Big manufacturers’ sentiment index plus 12 vs f’cast +14 Service-sector sentiment index at plus 20, matching f’cast Big firms expect to increase capex by 0.6 pct in FY2017 Data will be scrutinised at BOJ rate review April 26-27 Japan’s economy has shown signs of life in recent months, with exports and factory output benefiting from a recovery in global demand. With inflation expected to accelerate later this year, a growing number of analysts now predict the BOJ’s next move would be to start scaling back its massive monetary stimulus. The tankan’s sentiment indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists. Reuters
Missiles crisis
Lotte Group says will continue to invest in China despite tensions China is Lotte’s biggest overseas market and generated more than US$2.70 billion in annual revenue in 2015 Joyce Lee
South Korea’s Lotte Group will continue to invest in its China business despite diplomatic tensions over the deployment of a U.S. missile defence system, a Lotte executive said yesterday, denying rumours it wants to scale back its China operations. Chinese authorities last month closed dozens of Lotte retail stores following inspections, ramping up pressure on South Korea’s fifth-largest family-run conglomerate after it agreed to provide land for the U.S. Terminal High Altitude Area Defence (THAAD) missile system outside Seoul. South Korea and its ally the United States say the system is designed to thwart nuclear-armed North Korea’s missile threat, but Beijing says its radar can also reach far into China. Chinese state media have called for a boycott of Lotte businesses in response to the THAAD deployment. “Currently we plan to continue to invest in our China business and continue to strengthen the business,”
top executive Hwang Kag-gyu told reporters. Hwang is the head of Lotte Corporate Innovation Office and is viewed as the second-highest executive next to Chairman Shin Dong-bin. “It’s been 20 years since Lotte entered the China market ... we believe the China business is still in an investment period,” he said.
Key Points Lotte exec denies speculation on China business reduction Hotel Lotte IPO depends on dutyfree business recovery-exec South Korean media including wire service Yonhap have raised the possibility of Lotte scaling back its China business in the wake of the backlash against the company there. Out of 99 Lotte hypermarkets in China, 75 had been closed by Chinese authorities as of April 2, a Lotte Mart spokesman said.
Hwang said Lotte was working to fix problems at the hypermarkets that were raised by Chinese regulators in the wake of the missile deployment. China is Lotte’s biggest overseas market and generated more than 3 trillion won (US$2.70 billion) in annual revenue in 2015. It is also one of four strategic markets along with Vietnam, Russia and Indonesia that Lotte has been focusing on, as retail
growth in its home market slows. Hwang said the planned initial public offering of Hotel Lotte would depend on its key duty-free business recovering from the “THAAD effect”. What had been a US$4.5 billion IPO was shelved last year. “We do not know 100 per cent what their (Chinese authorities’) intentions are, so concerning future developments, all we can do is watch,” he said. Reuters
12 Business Daily Tuesday, April 4 2017
Asia Property
Australia home prices, building approvals jump Some economists expect home prices to temper as supply catches up with demand Swati Pandey
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ustralian home prices hit new records while b u i l d i n g a p p r o va l s jumped the most in seven months, latest data out yesterday showed, even as regulators launched new measures to cool the red-hot property market. Australia’s corporate watchdog said yesterday it was introducing a new round of industry surveillance to ensure banks and brokers were not recommending overly expensive interest-only loans to customers. The move by the Australian Securities and Investments Commission (ASIC) follows steps announced last week by the banking watchdog to tighten rules on interest-only loans, which investors favour. The measures highlight the pressure that Australian regulators are
under to cool sizzling property prices as record low interest rates lead households into a debt binge. The surge in property prices has also boxed the Reserve Bank of Australia (RBA) into a corner. “The RBA can’t cut rates for fear of further fuelling an overblown housing market, and the RBA can’t hike rates due to fear of depressing an already tepid domestic economy,” said Matthew Peter, chief economist at Brisbane-based QIC, which has A$74 billion in assets under management. The RBA left interest rates on hold for a seventh straight month in March. All 50 economists polled by Reuters forecast the RBA would keep interest rates steady when it meets on Tuesday. Yesterday’s data from property consultant CoreLogic showed home values in Sydney jumped an annual 18.9 per cent while those in Melbourne surged 15.9 per cent. Canberra
and Hobart were also racing at 12.8 per cent and 10.2 per cent respectively.
Building boom
In a welcome sign, approvals to build new homes climbed 8.3 per cent, the most since last July, data from the Australian Bureau of Statistics (ABS) showed. Multi-unit approvals gained 11 per cent, pointing to a healthy pipeline of construction for the year ahead. Also adding fuel to Australia’s biggest-ever home construction boom, the value of total building approved soared nearly 20 per cent, with non-residential leaping 34.5 per cent. Some economists expect home prices to temper as supply catches up with demand. “Investors need to be aware of the risks, including recent actions by regulators to slow housing demand,” said Savanth Sebastian, senior economist at CommSec. Already, banks have jacked up mortgage rates on interest-only loans - popular with property speculators.
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. ASIC said yesterday that eight major lenders will provide remediation to consumers who suffer financial difficulty as a result of shortcomings in past lending practices.
Key Points Home prices in Sydney up annual 18.9 pct, Melbourne 15.9 pct Building approvals jump 8.3 pct, most since July ASIC to ensure banks not over-selling interest-only loans Retail sales unexpectedly fell 0.1 pct in Feb - ABS Rising home prices, weak retail sales add to RBA’s dilemma All 50 economists expect RBA to stay pat on Tuesday
“We can expect lending conditions for investment purposes will tighten,” said CoreLogic head of research Tim Lawless. “Additionally, higher mortgage rates handed down by Australia’s major banks may contribute towards cooling some of the exuberance being seen in the largest capital city housing markets.” Meanwhile, retail sales unexpectedly fell in February, adding to growing evidence that debt-laden households were tightening their purse strings. Yesterday’s data showed sales were down 0.1 per cent when economists were hoping for a 0.3 per cent gain. That fall, plus record low wages growth, a lacklustre job market and core inflation below the RBA’s target band of 2-3 per cent, all argue against a rise in official rates. Reuters
PMI
South Korea factory activity shrinks again The March reading showed the sharpest contraction since November last year Christine Kim
South Korea’s manufacturing activity contracted for an eighth straight month in March, prompting factory owners to cut jobs at the fastest pace since the global financial crisis, a private-sector survey showed yesterday. The findings, if confirmed by economic data, could suggest further risks to an already sluggish recovery in Asia’s fourth-largest economy, which is heavily reliant on exports and facing stubbornly weak domestic demand. The Nikkei/Markit purchasing managers’ index (PMI) on South Korea’s manufacturing sector slipped to 48.4 in March on a seasonally adjusted basis from 49.2 in February, data from IHS Market showed. A reading below 50 indicates activity during the surveyed month contracted from the previous month, while levels above 50 point to expansion. The March reading showed the sharpest contraction since November last year, when the PMI stood at 48.0. Factory output and new orders also shrank at a faster pace than in
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February. “A further and stronger recovery in exports is needed to reduce inventories and encourage manufacturers to expand output ahead,” said economists at DBS Bank in a research note. “An immediate recovery should be unlikely, given that the possible stimulus measures will only arrive in the second half of this year after the election is completed and a new government takes office.”
South Korea will elect a new president on May 9 after ex-leader Park Geun-hye was ousted last month over an influence-peddling scandal. With business conditions still deteriorating, manufacturers slashed jobs by the most since late 2008, the survey showed. That may bode ill for March job data slated for early next week. The unemployment rate rose to a oneyear high of 4.0 per cent in February in seasonally adjusted terms. South Korea is restructuring its shipping and shipbuilding industries and thousands of jobs are expected to
be lost during the process that started last year. Offsetting some of the gloom, the index for new export orders rose to 49.1 for March from 48.9 in February -- still contracting but at a more moderate pace as global demand picks up. Some respondents said sales to China, South Korea’s biggest trade partner, had suffered in the face of political tensions after Seoul’s decision to deploy a U.S. anti-missile system.
Key Points S.Korea March factory activity contracts at faster pace March PMI at 48.4 vs 49.2 in Feb Manufacturers slash jobs amid corporate restructuring Weak export orders conflict with strong trade data Trend bucks signs of improvement elsewhere in Asia, globally Despite weak demand, however, the survey showed some companies were able to rebuild profit margins by raising prices of their goods. The weak export order reading in the survey contrasted with official data on Saturday that showed March exports grew more than expected despite souring relations with China. Reuters
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Business Daily Tuesday, April 4 2017 13
Asia Inflation
In Brief
Thai headline consumer prices rise below forecast March inflation was kept down by lower global oil prices
Key Points March headline CPI +0.76 pct y/y vs +1.30 pct in Reuters poll
Q1 headline CPI +1.25 pct y/y, core CPI +0.66 pct 2017 headline CPI seen at 1.5 pct-2.2 pct y/y - ministry In February, the index rose 1.44 per cent year-on-year. The Commerce Ministry predicted headline inflation in the second
Indonesia’s annual inflation rate cools Indonesia’s annual inflation rate eased to 3.61 per cent in March, the statistics bureau said, against expectations for it to stay steady near February’s 3.83 per cent pace. A Reuters poll had forecast an annual rate of 3.84 per cent for March. Consumer prices fell 0.02 per cent on a monthly basis in March, with those of rice, chilli and eggs declining, as did transportation fares. Core inflation, which excludes administered and volatile food prices, decelerated to 3.30 per cent in March. The poll had expected a rate of 3.51 per cent.
Thailand’s annual headline consumer prices rose less than expected in March, government data showed yesterday, giving the central bank leeway to keep interest rates low to assist economic recovery. The headline CPI index rose for a 12th straight month in March, up 0.76 per cent from a year earlier, its slowest pace in four months, compared with the 1.30 per cent increase forecast in a Reuters poll.
March core CPI +0.62 pct y/y vs +0.61 pct in poll
Prices
Trader
quarter will be about 1 per cent, annually. The Bank of Thailand has forecast headline inflation of 1.2 per cent this year, within its target range of 1-4 per cent. The core inflation rate, which excludes raw food and energy prices, was 0.62 per cent in March, compared with 0.61 per cent forecast in the poll, and against 0.59 per cent in February. The ministry predicts headline
inflation at 1.5-2.2 per cent this year. March inflation was kept down by lower global oil prices. It has also been contained by state price controls, subsidies and sluggish domestic consumption. Last week, the central bank left its benchmark interest rate unchanged at 1.50 per cent, where it has been since April 2015. It next reviews monetary policy on May 24. Most economists expect no policy change through 2017. Reuters
A panorama of Tokyo
Commodities trader Statdrome sets up in Singapore Statdrome PTE, a metals and energy trading company backed by ex-Trafigura and Marc Rich traders, has set up in the Asian commodity trading hub of Singapore, the company said. Statdrome was incorporated in Singapore in January and is building out its commodity business. “Statdrome will be focused on non-ferrous metal trading with a particular interest on concentrates,” the company told Reuters in a statement last week. Statdrome was founded by investor David Preiskel and a group of former Trafigura, Marc Rich and Marubeni Hitochu non-ferrous and oil traders. Tourism
Indonesia’s foreign arrivals rise
Financial observer
Global auditor watchdog sets up home in Tokyo The IFIAR is the auditor version of international regulatory committees Tomo Uetake
Japan has high hopes that it will attract more international institutions after a global financial watchdog forum opened its permanent home in Tokyo yesterday. Tokyo was once Asia’s dominant financial hub but its status has been eroded by the rise of Singapore and Hong Kong due to Japan’s sluggish economic growth, language barriers and legal obstacles.
While an overwhelming majority of international financial organizations have head offices either in Europe or America, none had such an office in Tokyo. That’s no longer the case after the International Forum of Independent Audit Regulators (IFIAR) opened a permanent secretariat in the Japanese capital, thanks in part to strong lobbying by Kiyotaka Sasaki, the top bureaucrat at the securities watchdog arm of Japan’s Financial Services Agency (FSA).
The IFIAR is the auditor version of international regulatory committees, such as the Basel Committee on Banking Supervision (BCBS) for banks and the IOSCO (International Organization of Securities Commissions) for brokerages. It provides members with a platform for exchanging views and experiences on global issues relating to audit oversight, with the aim of promoting stronger collaboration and enhancing audit quality.
Key Points Global audit watchdog forum opens permanent secretariat in Tokyo May improve quality of auditing, Japan’s global status-FSA Officials hope Tokyo secretariat will attract more Asian members The organization was established in 2006 following accounting scandals in leading markets, such as Enron and WorldCom in the United States and Italian food giant Parmalat and Dutch retailer Ahold. It had no permanent base previously. Ironically, Japan is no stranger to accounting problems, with electronics-to-nuclear conglomerate Toshiba becoming the latest to join the long list of companies that have problematic record keeping. Officials at IFIAR and FSA hope that having the headquarters in Tokyo could help boost its presence in Asia. At the moment, only 10 out of its 52 members are from the region, with big economies such as China and India yet to join. Reuters
Indonesia attracted 838,686 foreign tourists in February, up 9.19 per cent from a year earlier, the statistics bureau said yesterday. January’s annual increase in tourist arrivals was a stronger 29.04 per cent. In February, the total number of visitors, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, was 957,583, up 7.80 per cent from a year earlier. The government wants to expand tourism to reduce the economy’s reliance on raw commodities. It aims to attract 20 million visitors a year by 2019. Commodities
Coal exports disrupted in cyclone-hit Australia Damage to rail lines in cyclone-hit north-east Australia will take up to five weeks to repair, disrupting exports of the steel-making material from the world’s largest coking coal region and putting pressure on global prices. The extent of the damage, which will hit coal mines operated by BHP Billiton Ltd and Glencore PLC, was revealed in the wake of deadly Cyclone Debbie, which left a disaster zone stretching 1,000 km after striking the region last week. Four people have died in the accompanying floods in the eastern states of Queensland and New South Wales.
14 Business Daily Tuesday, April 4 2017
International In Brief PMI
U.K. manufacturing slows U.K. manufacturing unexpectedly cooled for a third month in March and may weaken further this quarter, according to IHS Markit. Its factory Purchasing Managers Index declined to 54.2 from 54.5 in February, above the key 50 level that divides expansion from contraction, but below economists’ expectations for an uptick to 55. The factory survey “compared favourably” to its long-run trend, according to Markit, with the slowdown centred on consumer-goods producers. While manufacturing probably made a “solid contribution” to economic growth in the first quarter, there’s been a definite loss of momentum. OPEC
Iraq has pledged to fully comply with oil cut deal Iraq has assured OPEC it will fully comply with an agreement to cut oil supply in order to bolster crude prices, OPEC Secretary General Mohammed Barkindo said in Baghdad. Iraq’s compliance stands now at 98 per cent, the nation’s oil minister Jabar al-Luaibi told reporters, after addressing a conference in the Iraqi capital, also attended by Barkindo. Compliance with the deal agreed by OPEC and nonOPEC producers at the end of last year to cut supply is “encouraging,” Barkindo told the forum.
Eurozone
Portugal, Italy borrowing costs rise as ECB reduces stimulus Most euro zone government bond yields have risen in recent months, but investors have tended to view Spain in a kinder light than similarly-rated Italy Abhinav Ramnarayan
P
ortugal and Italy saw their 10-year borrowing costs spike compared to Germany yesterday as the European Central Bank reduced its asset purchases, putting pressure on lower-rated members of the bloc. From April, the central bank is cutting its monthly asset purchases to 60 billion euros of bonds from 80 billion in what markets see as a first step towards normalisation of monetary policy. Though policymakers last week stressed that rate rises are not on the cards in the near future, lower-rated South European states are the biggest beneficiaries of stimulus and most vulnerable to any hints of
policy tightening. “We are now in the new environment of only 60 billion euros (of bond purchases), and though this was well telegraphed it seems to be negative for peripheral spreads,” said Commerzbank strategist David Schnautz. The yield gap between Portugal’s 10-year government bond and the German benchmark 10-year bond hit an almost four-week high of 368 basis points, up 4 bps on the day. Italy’s 10-year borrowing cost gap over Germany hit 203 bps, its highest since March 24. “But notably the positive news from S&P on Spain from last week seems to be outweighing the reduced purchases,” Schnautz added. Ratings agency S&P Global last week revised its sovereign credit outlook for Spain to positive from
South Africa watchdog seeks fine against Afrimat
Auto industry
Tesla delivers quarterly record of vehicles Tesla Inc, the U.S. luxury electric car maker, said on Sunday first-quarter vehicle deliveries jumped 69 per cent from a year ago to a quarterly record of 25,000 vehicles, bouncing back from delays in the previous quarter. The company said of the total vehicles delivered, about 13,450 were Model S sedan and about 11,550 were Model X sports utility vehicle. Tesla has said it expects to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017.
Key Points Portugal/Germany 10-year yield spread hits almost-four week high Spain resilient following ratings outlook boost from S&P Upcoming data could affect pace of U.S. rate hikes DZ Bank analysts say this divergence between higher and lower-rated countries within the bloc could continue as French presidential elections loom. “As the first round of the French presidential elections will take place this month, reduced ECB purchases should lead not only to generally rising yields in the euro area, but also to wider cross-market spreads, which should weigh above all on the periphery and France,” the analysts said in a note. French and peripheral bond yields have risen in recent months on the outside chance that far-right leader Marine Le Pen wins the keys to the Elysee Palace and pushes for a French exit from the single currency. Reuters
Excessive prices
South Africa’s Competition Commission said that it had asked the Competition Tribunal to fine construction materials group Afrimat for allegedly “abusing its dominance by charging excessive prices.” “The Commission is seeking an order from the Tribunal declaring that Afrimat ... must pay the maximum fine allowable by law which amounts to 10 per cent of its annual turnover in South Africa as well as its exports from the country,” the Commission said in a statement. A unit of Afrimat supplies the main ingredient in clinker bricks, which are mostly used in the construction of low-cost housing units, known as RDP houses in South Africa.
stable, increasing the chances of an upgrade from its current BBB+ at the country’s next review. Spanish 10-year bond yields edged lower on the day, almost keeping pace with better-rated euro zone countries. Most euro zone government bond yields have risen in recent months, but investors have tended to view Spain in a kinder light than similarly-rated Italy. Spain’s 10-year borrowing costs are 68 bps lower, not far from a five-year high of 75 bps hit late in March.
Retreat
U.S. backs out of Latam development fund in sign of policy shift The IDB provides loans to governments and businesses to finance projects ranging from large-scale infrastructure to small businesses Luc Cohen
The United States, historically a major backer of multilateral lending institutions, will not renew its contribution to a Inter-American Development Bank (IDB) fund that supports pilot development projects, the head of the Washington-based organization said on Sunday. In a news conference at the IDB’s annual board of governors meeting in Paraguay’s capital, Asuncion, President Luis Alberto Moreno linked the U.S. decision to a policy shift since Republican President Donald Trump took office in January. “On this occasion, the United States, for various domestic reasons, did not want to participate,” Moreno said. He added that the U.S. delegation had indicated at an October 2016 meeting that it was willing to contribute, “but that it all depended on the result of the election.” “Once President Trump’s government began, they informed us -at the beginning of February - that the United States would not be making any contribution.” The IDB provides loans to governments and businesses to finance projects ranging from large-scale infrastructure to small businesses. Founded in 1959, it says it is the leading source of development financing
for Latin America, lending US$11.3 billion and US$13.8 billion in 2015 and 2014, respectively. The Multilateral Investment Fund, or MIF, created in 1993, was instrumental in the development of microfinance and provides technical assistance to small projects aimed at providing economic opportunity to the poor.
“Once President Trump’s government began, they informed us -at the beginning of February that the United States would not be making any contribution” Luis Alberto Moreno, IDB President It was a brainchild of former U.S. President George H.W. Bush, and the United States has historically been its largest donor, the IDB said in a statement.
IDB member countries pledge to renew the fund’s coffers every several years. At the October meeting, the IDB governors agreed to provide an additional US$300 million to keep the fund running from 2019 to 2023. This marked the first time since the MIF’s founding that the United States did not contribute to its fund replenishment, an IDB spokesman confirmed. It comes as Trump has proposed slashing the U.S. foreign aid and diplomacy budget by 28 per cent. In the U.S. absence, Latin American and Caribbean countries contributed 55 per cent of the total US$317 million added to the MIF this year, while Japan pledged US$85 million, the IDB said. During the last replenishment in 2007, contributions from Latin America and the Caribbean totalled 8 per cent of the US$501 million added to the fund. The United States contributed US$150 million. A representative of the U.S. delegation said delegates were under instruction not to comment. U.S. talking points for “MIF Replenishment Discussions” seen by Reuters and dated on Sunday, said the world’s largest economy applauded the increased contributions by Latin American countries. “While the United States will not be pledging additional funding, we remain committed to the MIF and will continue to play an active role on the Donors Committee,” the talking points read. Reuters
Business Daily Tuesday, April 4 2017 15
Opinion Business Wires
The Times of India In a major boost to its powers, (stock exchange) regulator Sebi (headquarters pictured) may soon get access to internet and call data records of fraudsters and market manipulators in a foreign country and also seek freezing of their overseas assets. Sebi already has powers to seek call data records, excluding the exact content of the communication, from telecom firms within India and these details have often helped the regulator act against defaulters in cases like market manipulation, fraudulent trades and insider trading. The new powers to seek such details from abroad will help the regulator in cases involving entities and persons in foreign countries.
Of pretentious hedge fund names and bad results Viet Nam News Despite expectations of stable interest rate levels this year, credit institutions have made adjustments in their forecast for capital mobilisation and credit growth in the second quarter and the year, according to a State Bank of Việt Nam (SBV)’s latest survey. The survey on business trends of credit institutions conducted from February 25 to March 9 by the SBV’s Statistics and Forecasting Department questioned all credit institutions and branches of foreign banks nationwide. Specifically, the capital mobilisation of the whole system would likely grow at 5.58 per cent in the second quarter of the year.
The Korea Herald The number of South Korean business groups’ affiliates subject to restrictions on mutual investment and loan guarantees rose sharply in March from a month earlier, the corporate watchdog said yesterday. The Fair Trade Commission said 1,155 firms were on its monthly watch list as of end-March, up 24 from the previous month. They are owned by the country’s 27 largest business groups, including Samsung Group and Hyundai Motor Group. Five groups, including CJ and POSCO, added a combined 34 more affiliates through stake purchases and new corporate establishments.
Philstar The Philippine Competition Commission (PCC) will look into the proposal of the Department of Trade and Industry (DTI) to give companies the freedom to decide on the pricing and necessary cost adjustments of basic necessities and prime commodities. “Of course there may be a potential competition concern but we have to study it closely. If there are only few players, the mere fact that you will let them agree on the prices can potentially create cartel or collusion,” PCC chairman Arsenio Balisacan said.
Y
ou probably already knew that hedge fund names are intended to impress, or even better to confuse just enough to make you stop asking questions, but most of all to inspire confidence. You are, after all, as a hedge fund client, about to hand over a substantial sum to people whose probity and ability you cannot measure. Fund names must set the right tone, engender the right mood. So we have the proliferation of funds with names intending to suggest ritzy addresses or locales, abstruse theorems and admirable but all-too-rare personal characteristics. “The Chappaquiddick Binomial Integrity Fund II” is one you can have for free if you are thinking of starting a hedge fund. What we now know, thanks to a nifty new study, is that hedge fund names which sound dignified are sending a signal through all the noise of marketing, and it is not the one the marketing consultants intend. Funds named with words which suggest gravitas, that solemnity and dignity the Romans thought essential to leadership, attract more investor flows and perform worse, according to the study. “Hedge fund investors chase hedge fund names containing a special combination of words related to economics and geopolitics, or that convey power,” Juha Joenväärä of Finland’s University of Oulu and Cristian Ioan Tiu of the University at Buffalo write in the study. “Having a name with gravitas is associated with abnormal negative performance.” Using the Harvard IV psychological dictionary the study devises a weighting scheme to measure funds whose names suggest attributes and subjects including politics, economics, power and influence, a category they term gravitas, looking at a sample of almost 18,000 hedge funds from 1994 to 2013. The funny part is, it works: every one word with gravitas increases the flow into an average fund by US$227,120 a year. The even funnier part, it backfires: funds with positive gravitas exposure in their names underperform those with negative gravitas by almost 1 per cent of alpha, or outperformance, a year. Average annualized returns are 0.82 percentage point lower, volatility is higher and average maximum losses in a given period are higher. These dignified funds are worse in almost all of the important ways you can measure, it seems.
“
James Saft a Reuters columnist
investors who put money into gravitas hedge funds do learn, eventually reversing their flows of cash into them. They learn so well that the gravitas funds are more likely than other funds to ultimately fail, though perhaps what is being measured here is not investor learning but that managers without much talent are more likely to try to hide behind confidence-inspiring fund names. The probability of going out of business of funds with the highest level of gravitas is more than 5 per cent higher than those whose names have no gravitas. Interestingly the gravitas funds have higher management fees and lower incentive fees. A management fee the manager gets to keep no matter what, while a performance fee only kicks in if pre-agreed hurdles are jumped. It is almost as if these guys know they are not that good. Similar studies, with similar results, have been done about mutual funds, but mutual funds market to the great ignorant mass of investors, not the supposedly sophisticated hedge fund client base, most of whom are institutions. Once again we are reminded of the extent to which financial services are a confidence game in which the ability to inspire belief is key to success, at least in terms of attracting clients. It is also similar, in its ultimate message, to a paper from February which found that firms with more fund managers and analysts produced more volatility and were more likely to engage in benchmark-hugging closet indexing rather than truly active investing. That suggests that the extra employees were there to send a confidenceinspiring signal rather than to do actual and useful work. The real message is the harder a firm tries to impress you, the more you should be wary of the value of its services. Sending a false signal of competence or gravitas is a good Darwinian tactic in an industry in which there is a huge gap in knowledge between practitioners and clients. If you believe that long-term investment outperformance is a chimera then your investing should be done with institutions which do relatively easier things, like tracking an index cheaply, rather than more difficult ones requiring, well, gravitas. Like certain great first-growth wines, more gravitas, or indeed investment skill, is bought than exists. Reuters
Funds named with words which suggest gravitas, that solemnity and dignity the Romans thought essential to leadership, attract more investor flows and perform worse, according to the study
A confidence game
The study suggests that the so-called sophisticated
”
16 Business Daily Tuesday, April 4 2017
Closing CICC report
China’s Q1 GDP growth may quicken to 6.9 pct
registered for January-February. Industrial output growth may slow slightly from 6.3 per cent in the first two months of the year to 6.1 China’s GDP growth is likely to accelerate in per cent in March because of a higher comparative the first quarter of the year following a pick-up base from last year, according to CICC. in industrial activity and improving domestic demand, according to a Chinese investment bank. It also projected fixed asset investment to grow 8.4 per cent in the first three months of the year, China International Capital Corporation (CICC) with the consumer price index rising 0.9 per cent said in a research report that GDP growth could quicken to 6.9 per cent in the first quarter from 6.8 in March. China is scheduled to release its first-quarter per cent in the fourth quarter of 2016. economic data, including GDP growth, fixed asset CICC expected China’s retail sales of consumer investment, industrial output and retail sales, on goods to increase 10.2 per cent year on year in April 17. Xinhua March, accelerating from the 9.5 per cent rise
Logistics
Shipping container price spike points to global trade growth Sector-specific factors like the scrapping of excess ships and the bankruptcy of South Korea’s Hanjin Shipping have pushed up the index Henning Gloystein
P
rices for shipping containers, the metal boxes that carry 90 per cent of the world’s manufactured goods, have risen to their highest since October 2015, a clear indicator that seaborne trade is increasing and should grow further this year. The Harpex Shipping Index, which tracks weekly shipping container rates, has climbed 40 per cent this year to 439 points. Container charterers say that lead times to order
container have risen, to over a month in some cases, as not enough are available to meet demand. The tight market for the standardized boxes is a result of carriers cutting overcapacity and follows some bankruptcies. But the gains also point to a recovery in global trading after years of lacklustre growth. “The market seems tight... (and) we are urging liners to release more box,” said Willy Lin, chairman of the Hong Kong Shippers’ Council, which represents manufacturers and cargo owners. Sector-specific factors like the
scrapping of excess ships and the bankruptcy of South Korea’s Hanjin Shipping have pushed up the index. But, shippers also say that increasing international trade has added to the container shortage. Rene Pedersen, Asia/Pacific representative in Singapore for AP Moeller-Maersk, the world’s biggest container shipper, said his company expected global container demand this year will rise between 2 per cent to 4 per cent, compared with just 1.5 per cent to 2 per cent growth in 2016.
biggest economic region is gaining momentum. “China’s export box transport market is recovering,” the Shanghai Shipping Exchange said in its most recent report, adding that growth in the United States’ economy was resulting in “a firm recovery in the North America route (from China).”
Rising Asian trade
Container shipping index up 40 per cent in 2017
The container shortage is happening as manufacturing across Asia’s big three biggest economies - China, Japan and India - grew unexpectedly fast in the first quarter, adding to evidence that the world’s
Key Points Containers are in short supply, say charterers
Bounce in East Asia trade drives container demand Hanjin bankruptcy, capacity cutbacks further tighten market The average export volumes from East Asia, including Japan, South Korea, Taiwan and Singapore, in February were more than 5 per cent higher than a year ago, Capital Economics said in a March 27 report, citing various sources. “Economies in Europe and the U.S are (also) picking up,” Maersk’s Pedersen said. Despite the jump in container rates this year, the Harpex Index remains relatively weak at a third below its last peak in 2015 and 76 per cent under its 2005 record. Maersk’s Pedersen said that “the container industry is not out of the woods yet” but that “increased consolidation activity... could lead to a more sustainable industry in 2017.” Reuters
Tax evasion
Labour market
Real estate
Credit Suisse claims innocence in global press
Euro-area unemployment declines to lowest level in eight years
Prices of Singapore’s private residential properties fall
Credit Suisse extended its global charm offensive yesterday insisting it has “zero tolerance” for tax evasion after hundreds of its clients and top employees became the target of an international fraud probe. The Swiss financial giant took out double-page ads in leading European papers claiming it had no desire to work with tax cheats. “Credit Suisse applies a strict zero tolerance policy and wishes to conduct business with clients that have paid their taxes and fully declared their assets,” yesterday’s ad said. The bank complies “with all applicable laws” in areas where it operates, it added. It took out similar ads in at least two British Sunday papers. Authorities in Europe and Australia on Friday announced a massive, coordinated tax fraud and money laundering investigation with hundreds of possible suspects across five countries. Dutch authorities have made two arrests and seized a gold bar, paintings, a luxury car and other assets. Credit Suisse’s head of international wealth management, Iqbal Khan, told the Bloomberg news agency at the weekend that he understood the probe was focused strictly on the bank’s clients. AFP
Euro-area unemployment fell to the lowest level in almost eight years in February, in a sign that the region’s economy is strengthening. Joblessness decreased to 9.5 per cent, the European Union’s statistics office in Luxembourg said yesterday. That’s the lowest since May 2009 and matches the median estimate of economists in a Bloomberg survey. Unemployment has been decreasing steadily from a peak of more than 12 per cent in 2013 as the European Central Bank deployed unprecedented stimulus to rekindle growth and fuel inflation. Euro-area factory growth accelerated in March, climbing to the highest since 2011, as an improving global economy boosted export demand in the region’s biggest economies. ECB President Mario Draghi, who has repeatedly urged governments to implement reforms to reduce structural unemployment and boost growth potential, has said the recent decline shows the success of the central bank’s 2.28 trillion-euro (US$2.4 trillion) stimulus plan. The lowest rate in the region -- 3.9 per cent -- was recorded in Germany, while joblessness in Spain was 18 per cent, according to the report. In Greece, 23.1 per cent were out of work in December, the latest month for which data are available. Bloomberg News
Prices of Singapore’s private residential properties fell 0.5 per cent in the first quarter of 2017, said Urban Redevelopment Authority (URA) in its flash estimate released yesterday. The URA said the private residential property index fell to 136.5 points from 137.2 points in the fourth quarter of 2016, representing a decline of 0.5 per cent. As for different locations, prices of non-landed private residential properties in downtown area fell by 0.2 per cent, in contrast to the 0.1 per cent increase in the previous quarter. Prices of non-landed private homes in city fringe remained unchanged after registering a decrease of 2.0 per cent in the previous quarter. Prices of non-landed private homes in suburban area increased by 0.1 per cent after registering a 0.6 per cent decline in the previous quarter. Meanwhile, prices of landed residential properties fell by 2.8 per cent in the first quarter of 2017, compared to a 0.8 per cent increase in the previous quarter. The flash estimates are compiled based on transaction prices given in contracts submitted for stamp duty payment and data on units sold by developers up till the middle of March. Xinhua