Chinese banks structure restricting business capabilities Expansion Page 8
Thursday, April 27 2017 Year VI Nr. 1284 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong PMI
Mixed forecast for Chinese industry prior to official data Pages 8 & 16
Real estate
Centaline forecasts return of ‘Hengqin heat’ Page 5
Financial ads
www.macaubusinessdaily.com Resorts
Gov’t bodies disburse at least MOP67 mln in Q1 Page 2
Gaming
Landing launches Somerset Jeju Shinhwa World
Rui Cunha departing SJM board, Daisy Ho may succeed Page 4
Page 7
Accolades For Local Tax Regime Finance
The MSAR’s tax regime is straightforward. And deemed one of the most simple in Asia Pacific says a survey by Deloitte. Which is why the local tax code is ranked lowest regarding ‘changing complexity’ in the region. Only 60 pct of respondents perceive a tax reform is required in the MSAR. While other regions want a real shake-up. Page 3
Palace built, and they came
Thanks to Wynn Palace. Wynn Resorts Ltd’s Q1 results exceeded analysts’ forecasts. Thanks, in part, to the return of the high rollers. Wynn Macau’s adjusted property earnings jumped by over half from one year ago. Whilst that of Wynn Palace reached US$112 mln.
Out of order
Telecoms The Consumer Council didn’t mean to delay the announcement. The one informing local consumers about the halting of the ‘7-day return policy’ for mobile phones. Claiming the 2-month delay was due to trying to change the position of the industry. Page 5
Who fears the bears?
Gaming Page 7
HK Hang Seng Index April 26, 2017
24,543.56 +87.62 (+0.36%) Worst Performers
Galaxy Entertainment Group
+4.39%
Swire Pacific Ltd
+1.47%
Geely Automobile Holdings
-5.24%
Lenovo Group Ltd
-0.78%
Sands China Ltd
+3.66%
China Resources Power
+1.01%
Hengan International Group
-1.61%
Tencent Holdings Ltd
-0.66%
AIA Group Ltd
+1.69%
CITIC Ltd
+0.90%
China Merchants Port Hold-
-1.11%
China Petroleum & Chemical
-0.62%
Hang Lung Properties Ltd
+1.50%
Ping An Insurance Group Co
+0.81%
China Unicom Hong Kong
-0.98%
CNOOC Ltd
-0.55%
China Life Insurance Co Ltd
+1.49%
BOC Hong Kong Holdings
+0.80%
China Mengniu Dairy Co Ltd
-0.80%
AAC Technologies Holdings
-0.47%
20° 24° 21° 23° 23° 25° 24° 27° 25° 27° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Currencies Traders see the HK dollar trending downward. Pegged to the U.S. dollar, it’s still losing steam vis-a-vis the greenback. The local mortgage market and probable rate hikes in the United States suggest a weaker HK dollar in the wings. Page 9
2 Business Daily Thursday, April 27 2017
Macau
The chairman of the first standing committee of the Legislative Assembly, Kwan Tsui Hang, spoke to reporters yesterday after a closed-door meeting yesterday
Legislation
Final reading on tax info exchange bill by end-May The MSAR Government is to submit the working document before May 15, with the law implemented the next day once the law is announced Cecilia U cecilia.u@macaubusinessdaily.com
T
he bill expanding the city’s fiscal information exchange is to be submitted for the final reading in the Legislative Assembly by the end of May, said legislator Kwan Tsui Hang, the chairman of the first standing committee. “If this bill is unable to be legalised before June 30, [Macau] will then be
listed as a city incapable of fulfilling the automatic information exchange [system],” Ms. Kwan told reporters following a closed-door meeting yesterday. According to the legislative member, the MSAR Government has until May 15 to submit its new text on the bill in order to meet the deadline. The legislature unanimously passed the first reading of the bill on April 11. Currently, Macau only permits fiscal information exchange by request,
which was enforced in 2009, while the new bill proposes the enabling of automatic and spontaneous exchange of financial account information for tax purposes. The government has said the bill is to fulfil the city’s international responsibilities in combating tax evasion and money laundering. As a member of the OECD Global Forum on Transparency and Exchange Information for Tax Purposes, the MSAR has agreed to implement the organisation’s Common Reporting Standard by next year. According to the legislator, the bill will only be concerned with foreign taxpayers or local residents who have other nationalities, under which tax
information of particular taxpayers will be shared with places which have entered the protocol. Regarding how the government will define if one has foreign nationality, Ms. Kuan explained that it would be defined by the other countries, clarifying a passport holder of a particular country might not be considered a rightful foreign taxpayer. In terms of automatic exchange of information, Ms. Kuan said the MSAR Government prefers multilateral exchanges over bilateral ones, although the city will sign a bilateral agreement in the preliminary stage. Some financial entities in Macau have already signed agreements with the United States Government upon the automatic exchange of tax-related information, according to the legislator. She added that the bill, if legalised, suggests the exchange of information will be expanded to more parties and regions, in addition to wider aspects.
Unions (FOAM) and Macau Red Cross both received over MOP1 million from the Bureau. Meanwhile, the city’s Cultural Fund approved MOP2.57 million-worth of subsidies to a total of 89 beneficiaries in the three months. Praiagrande Edições, Limitada, a media group which held the The Script Road – Macau Literary Festival, was the biggest beneficiary of the Fund in the period,
having been granted MOP500,000worth of subsidies for its event. The city’s Tourism Fund disbursed MOP254,000-worth of aid to some 16 associations in the first quarter of this year. Of the total, MOP100,000 was given to Macao Association of the Thirteen Hongs for Culture and Trade Promotion for the International Kids Super Model Contest held by the group.
Subsidies
Funding all the way Four government bodies granted nearly MOP67 million-worth of subsidies to local groups during the first quarter of this year Cecilia U cecilia.u@macaubusinessdaily.com
Government departments collectively disbursed at least MOP66.99 million (US$8.37 million) in subsidies during the first quarter of the year, of which the majority were granted by the Sports Bureau, at MOP52.21 million, according to Business Daily’s calculations based upon yesterday’s Official Gazette. According to a dispatch from the Sports Bureau, Macau China Dragon Boat Association was the biggest beneficiary during the quarter, which received subsidies of MOP8.18 million
in total from the department. In particular, some MOP3.88 million was granted to the Association for hosting this year’s Macao International Dragon Boat Races whilst another MOP2.45 million and MOP1.24 million were approved for subsidising elite athletes and the group’s training team, respectively. Meanwhile, the Health Bureau rolled out subsidies totalling MOP11.96 million (US$1.49 million) in the same period, of which some MOP5.75 million went to Macau Tung Sin Tong Charitable Society for its outpatient and dentistry services. In addition, Macau Federation of Trade
Culture
MSAR to hold 28th Arts Festival with over 100 activities The 28th Macau Arts Festival will kick off tomorrow with over 100 art activities, the Special Administrative Region’s cultural department said on Wednesday. The Cultural Affairs Bureau, organizer of the Arts Festival, said the opening ceremony will be held at 7:40 pm local time, April 28, in the lobby of the Macau Cultural Centre.
This year’s edition will present 25 shows and exhibitions as well as an outreach programme. The Bureau said this year’s festival - themed ‘Heterotopia’ - establishes a diversified space away from reality through texts, stories, images, music and imagery. The opening show will feature a reinterpretation of Schubert and
Ravel’s classics by world renowned North American modern dance company Bill T. Jones/Arnie Zane. The same company will also present the hypnotizing performance A Letter to My Nephew on May 1. From April 28 to 30, the Soundscape Theater will play “Back to the Catastrophic Typhoon of 1874”, the original novel of which was
awarded at the Macao Literature Competition. On May 3, the concert “The Soul of Macao” by the Macao Chinese Orchestra will lead the audience on a journey between Macau and Beijing Opera, in its representation on stage of a real, historical story of personal romance and love for the homeland. Xinhua
Business Daily Thursday, April 27 2017 3
Macau Taxes
Deloitte: MSAR has simple tax system Both SARs are seen to have ‘simple and stable’ tax regimes, unlike the Mainland Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
HE taxation system of the MSAR is deemed to be one of the most simple in the Asia Pacific region, accord ing to a survey by profes sional services company Deloitte. The report notes that Macau, as well as neighbouring Hong Kong, ‘have more simple and stable tax regimes and are therefore ranked the lowest in terms of changing complexity.’ This compares to regimes such as China and India, which – especially given their size – have ‘become less predictable,’ while in Australia and Japan respondents to the group’s survey note that ‘tax authorities’ audits are rigorous, with many witnessing a higher frequency of such audits. This leads the group to point out that for these countries, ‘tax disputes are likely to escalate further in the future,’ while noting that ‘dispute resolution processes […] can be lengthy in many jurisdictions.’ The report points out that the fairness of tax audits is ranked ‘high,’ while the frequency is ‘low’ although confidence in the appeal system is seen as ‘neutral’ as is the relationship with authorities of respondents. When evaluating how likely it was that the MSAR would see a tax reform, only 60 per cent of respondents noted that reforms are required, as compared to countries like Australia, Mainland China, India, Indonesia, Malaysia, the Philippines, Thailand
and Vietnam – which all saw over 80 per cent of respondents pushing for reform (with Mainland China seeing the highest percentage). Regarding reform, respondents noted that Public Consultation in Tax Policy Making and Transparency in Tax Statistics could both undergo changes, whereas Mainland China could reform Timeliness & Quality of Tax Audits and Transparency in Tax Statistics. The report notes that corporations pay a 12 per cent rate on income tax, while capital gains tax is treated as income and subject to complementary tax, while a 12 per cent income tax is also applied for individuals, with no capital gains taxes applied in the territory. The group also makes note of the gaming tax and social security obligations of companies and individuals.
Larger country, more complexity
The MSAR system differs greatly from larger countries such as Australia, which for corporations applies 30 per cent income tax and 30 per cent (net) capital gains tax, with 45 per cent for both income tax and capital gains tax for individuals. China boasts a 25 per cent income tax on corporations and a 45 per cent income tax for individuals. ‘Responses to the 2017 survey reflect the escalating complexity of the tax environment in Asia Pacific jurisdictions in the three-year period since the last survey,’ notes the report.
‘Faced with an uncertain global economic environment, countries in Asia Pacific are aggressively attempting to capture their share of tax revenue from cross-border activities.’ The group quotes Hong Kong’s Chief Executive-in waiting Carrie Lam in her speech after winning office: “My new tax philosophy is not exactly ‘the more, the merrier’. Sometimes collecting less is highly desirable.” This is in line with lower corporate income tax rates to attract foreign investment, with the group observing low complexity becoming less important for companies ‘possibly because many have accepted that tax environments in Asia Pacific will be complex.’
BEPS
The report also points out that the ‘alignment of country policies to the BEPS (base erosion and profit shifting) action recommendations is top priority for tax reform across Asia Pacific,’ referring to the Organisation for Economic Co-operation and Development’s standards to combat ‘tax planning strategies that exploit gaps and
mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity,’ according to the OECD website. ‘It is widely accepted that BEPS will drive significant change in the global tax landscape as governments introduce new policies in line with global standards,’ notes Deloitte. ‘Multinationals are finding themselves preparing for this impending change,’ which the group notes is a ‘positive sign for tax development in the region.’ Given the findings, notes the group, companies are ‘less likely to pursue aggressive tax strategies’ than in the past, with three quarters of respondents indicating ‘they would not enter into a tax planning strategy if perceived by some to be aggressive.’ This is due to the ‘enormous potential for detrimental reputational risk’ if the company pursues tax strategies that are deemed risky. The report notes that in large countries, including India and China, ‘respondents will spend more time and resources on managing tax […] in the coming years.’
4 Business Daily Thursday, April 27 2017
Macau Opinion
Gaming Daisy Ho recommended for board position
Rui Cunha departing SJM board
Ashley Sutherland-Winch*
Asia is the future The spotlight is on Asia within the fashion industry and two Italian houses are eager to grow in the Chinese market. Dolce & Gabbana (D&G) is loved by China’s wealthy and recently Italian legends Domenico Dolce and Stefano Gabbana expressed their mutual admiration for Asia. In 2016, D&G held their first runway show out of Italy in Hong Kong where they offered their Alta Moda collection, an immersive couture collection–meets–social club that featured an all-Chinese cast of models. The show was presented to an audience primarily comprising clients rather than press and buyers. Following successful Alta shows in Hong Kong and Tokyo, Dolce and Gabbana were in Beijing last week to present their ‘Ode to China’ Alta Moda. It is clear that the D&G brand does have incredible faith in the market with their recent Chinese-specific show. “At these intimate Alta shows,” said Gabbana, “it’s not just things for sale. Of course, we sell things, we’re not stupid, but we don’t come here just for money. Our approach is different. I would love the Chinese to understand more about us. We’re not just a name, or a label, we are two men . . . We think that the future is here in Asia. We just have confidence about the place,” Gabbana said. Many luxury brands have had to scale back on runway shows after being hit hard by Beijing’s anti-corruption campaign but the D&G brand seem, nevertheless, to have a strong confidence in the market. Versace is another Italian brand that is expanding in our region, rolling out two flagship stores and a hotel in Greater China. One boutique is the newly opened outlet in Hong Kong’s Central and the other will be in Shanghai. Here in Macau, the Palazzo Versace Hotel is likely to open in 2018. The demand for the Versace brand is undiminished across Hong Kong, Macau and Mainland and the brand’s customers in Asia tend to be younger than those in the West. Is Asia the future of fashion? “The brands went through an ‘overbuilding’ moment and the crackdown hurt them, but it’s bottomed out and is starting to turn around again,” said a fashion expert here in Macau. “The other aspect is online shopping in PRC. Asia is of huge importance to fashion and jewellery,” they concluded. For all of the fashionistas in Macau it will be interesting to watch the exciting fashion that comes our way in the coming months. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
L
OCAL lawyer Rui José da Cunha is to leave his position as an executive di rector of the board of SJM Holdings Ltd, according to a filing of the company with the Hong Kong Stock Exchange earlier this week. The filing noted that Rui Cunha would not seek re-election as an executive director at the annual general meeting of the company due to ‘the change of his
responsibility focus as a result of the Group’s business growth and diversification.’ To succeed Mr. Cunha, the board recommends the election of Daisy Ho Chiu Fung –Stanley Ho’s daughter by his second wife, Lucina Laam King-Ying, – based on ‘her extensive knowledge and experience in financial functions of a publicly-listed conglomerate, property and hotel development, and travel and hospitality in the
Greater China and South East Asian region.’ The company further noted that Ambrose So Shu Fai, SJM’s Chief Executive Officer, Angela Leong On Kei, a lawmaker and fourth wife of Mr. Ho, and Timothy Fok Tsun Ting have manifested their will to seek re-election as executive directors of the company. Contacted by Business Daily yesterday, Rui Cunha was not available for comment. S.Z.
Retail
Luxury to mass, retail tries to recover from 2016 A turnaround in the fourth quarter of 2016 is helping to pull some retailers out of an ‘unsatisfactory’ year, however the group’s results show slow rebounds in both luxury and mass market products. Luxury handbag retailer Milan Station notes that its business was ‘bombarded’ by the slowdown in the gaming and tourism industries ‘in recent years’, seeing a 44.9 per cent drop in revenue year-on-year, hitting HK$8.57 million (US$1.1 million/ MOP8.83 million), with the group pointing out the performance of its ‘exclusive clubhouses’, catering to high-end clients, was ‘unsatisfactory’. This came amidst a 5.5 per cent slowdown in imported value of handbags and travel goods to the MSAR during 2016, year-on-year, according to data from the Statistics and Census Bureau (DSEC), worth MOP2.62 billion. Luxury jewellery retailer Chow
Sang Sang additionally saw a drop in its sales, falling 26 per cent yearon-year, with revenue for the year reaching HK$8.65 billion from the Hong Kong and MSAR segment. Same store sales growth also fell 25 per cent. Gold jewellery imports to the MSAR last year fell 18.1 per cent year-onyear in 2016, hitting MOP5.77 billion, according to the DSEC. On the other end of the spectrum, home products and perfume retailers L’Occitane and Sa Sa also saw falls,
with L’Occitane’s Macau and Hong Kong division seeing a 10.3 per cent drop in sales for the group’s fiscal year, which ended March 31, while Sa Sa is also expecting a ‘decline of 10 per cent to 20 per cent’ year-on-year for its fiscal year, also ended March 31. The beauty, cosmetics and skin care products saw a 3.2 per cent year-onyear fall in the value of imports to the MSAR during the 2016 year, according to the DSEC, dropping to MOP2.86 billion. K.W.
Profit warning
Club Cubic operator anticipates quarterly loss Luk Hing Entertainment Group Holdings Ltd., operator of local nightclub Club Cubic, expects to post a net loss of some HK$2.6 million (US$334,094) for the first quarter of 2017, according to a company filing with the Hong Kong Stock Exchange yesterday. The filing reads that the expected net loss is due to an ‘increase in legal and professional fees to ensure ongoing compliance with relevant rules and regulations after the company’s listing,’ in addition to ‘an increase in business travelling and entertainment expenses due to business expansion and exploration of potential business opportunities.’ N.M.
Luxury
Prada Macau posts MOP143 mln for 2016 Luxury retailer Prada has seen its results from its Prada Macau subsidiary generate net revenues amounting to 16.32 million euros (MOP143.12 million/US$17.9 million) for its 2016 operations, according to the group’s filing with the Hong Kong Stock
Exchange. The year was marked by a 6.3 per cent downturn in the import of handbags and wallets, some of the retailer’s primary products, reaching MOP2.61 billion during the 2016 year, according to data from the Statistics and Census Service (DSEC).
In addition, the group’s operations under its subsidiary TRS Hong Kong Ltd. – Macau saw revenues amounting to 9.51 million euros during the same period. Results are not comparable year-on-year as data wasn’t provided for 2015 revenue.
Business Daily Thursday, April 27 2017 5
Macau Telecoms
Pulling the plug on ‘7-day return’ policy Consumer Council said its delay in informing local consumers about the halting of the ‘7-day return policy’ for mobile phones was due to its attempts to change the decision of the industry Nelson Moura nelson.moura@macaubusinessdaily.com
T
he Consumer Council took more than two months to inform local consumers about the halting of the telecom retail industry’s ‘7-day return policy’ because it was trying to change the position of the industry, said its president, Wong Hon Neng, yesterday. Earlier this month, the Council announced the Macau Mobile Phones Sellers Association had stopped fulfilling the policy since February 1, having informed the Council in December, citing ‘the restricted after-sales policy of certain mobile phone brands’. The same announcement reads that the Council has suspended the Code of Conduct for the industry. “After the policy cancellation in February, we had many meetings with Association members and sent them several proposals of revision of the Code but we failed to reach an agreement,” Mr. Wong told Business Daily yesterday. “We’re preparing a new proposal and we hope the Association will accept and all certified shops can follow.” The president of the Council also underlined that it has not received any complaints from local residents related to phone swapping since the
policy was cancelled in February. In 2016, the largest group of complaints received by the Council was related to communications equipment, which amounted to some 198 complaints. Established in 2005, the Code of Practice for the Retail Industry of Telecommunication Equipment and Supplies included a phone return policy, mandating that consumers’ defective mobile phones can be returned and exchanged for the same model and colour within seven days of purchase, an Article that was accepted by the Macau Mobile Phones Sellers Association.
MSAR, Gansu ink consumer protection agreement
Yesterday, the Consumer Council signed a co-operation agreement with the Consumer Association of Gansu Province. The agreement seeks to increase co-operation and establish a mechanism for information exchange between the two regions with regard to complaints made by consumers from Macau and Gansu. According to Mr. Wong, the Council has signed similar agreements with more than 40 regions.
Real estate
Telecoms
Centaline anticipates return of ‘Hengqin heat’
Internet access breakdown still under investigation
The tightened housing curbs of Zhuhai are leading investors to shift their focus back to Hengqin, said realtor Centaline (Macau) Property Agency Ltd. in its latest property review and forecast. ‘The new restrictions make investors originally interested in Zhuhai property look for new destinations,’ the company wrote. ‘Following the implementations of several Hengqin-favouring policies, the gradual completions of auxiliary facilities and the commencements of infrastructure . . . buyers are gaining even more confidence in the Hengqin market.’ Earlier this month, Zhuhai imposed tighter restrictions stipulating that a residential unit can only be resold three years after the property certificate is obtained, while non-Zhuhai citizens are only allowed to make residential purchases after they have paid government taxes or contributed
to the social security fund there for five years, up from the previous requirement of one year. According to the real estate agency, property transactions in Hengqin totalled 442 in the first quarter of this year, plunging 70 per cent year-on-year, or 63 per cent quarter-to-quarter. The realtor claimed the decrease is due to the reduced supply on the Mainland Island since the last quarter of 2016. But it expects a total of 15 new projects will be launched for sale in the near future, the units of which will primarily be apartments or office units. ‘It is expected that the future property transactions in Hengqin will primarily be of office units and commercial units, which will boost market sentiment following more enterprises launching their offices there,’ it wrote.
Local telecom regulator said it will pursue CTM’s liability if it is found to be responsible for the incident Macao Post and Telecommunications Bureau is analysing the recent Internet access breakdown of local telecom operator Companhia de Telecomunicaçōes de Macau (CTM), saying it may conduct administrative procedures against the operator if the latter is held responsible for the incident. “If the investigation of [our] taskforce shows the operator is liable for the incident, we will initial administrative procedures [against the operator] based upon the administrative procedure code and related laws,” said the head of the Bureau’s division of market competition, Sio Weng Wengm, during radio show Macau Forum yesterday. The official said the government department will request CTM to submit more details about the incident for its investigation. “A working group will request CTM to provide further information and we will need to talk with the technicians who were on duty [during the incident] face-to-face in order to understand what happened,” he
added. Last Tuesday, a software malfunction left 30,000 users in the city without Internet access for almost four hours after an ‘an unusual surge of traffic’ led to the overload of two of the company’s Internet access servers, the company said last week. According to the operator, a total of six servers are used for 170,000 online users, with the two affected being responsible for the Internet access of 55,000 users. Speaking on the same radio show, CTM’s Vice President, Network Services, Declan Leong, apologised again on behalf of the company, claiming the company will not let the same event happen again, and it will co-operate with the government investigation. Meanwhile, Vice President of Commercial, Ebel Cham, added CTM will review its mechanism for incident announcements, saying it will make more use of social media platforms to release related information in the future.
6 Business Daily Thursday, April 27 2017
Macau Transportation
Floating by the dock of the bay Zhuhai ferry operator expects challenges once HKZM bridge opens Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he ferry service operating out of the neighbouring Mainland city of Zhuhai could be facing increased competition upon completion of the Hong Kong-Zhuhai-Macau Bridge, according to a filing by the group’s parent company Zhuhai Holdings Investment Group Limited, with the Hong Kong Stock Exchange. Currently, the group operates highspeed ferry services between Zhuhai and Hong Kong as well as Shenzhen and along the Xiangjiang River in Hunan, among other locations. The group noted that a ‘challenging operating environment’ was experienced last year, with passenger volume for ferry services between Jiuzhou Port in Zhuhai and Hong Kong, including the airport, reaching 2,105,000, a 3.7 per cent decrease from the previous year despite the group providing nearly 50 per cent (47.76 per cent) of the total ferry volume between Guangdong and Hong Kong, leading the market, notes the filing. Decreases were seen both in the group’s passenger volume on its Shekou-Hong Kong routes and its Zhuhai routes to outlying islands, which respectively saw 2.8 per cent and
15.8 per cent decreases, at 943,000 and 995,000 passengers. The group’s operations suffered ‘over 400’ suspensions of scheduled services ‘due to bad weather conditions’, which, aside from affecting travellers also posed ‘serious challenges to the sailing safety and operation of the Ferry Company,’ and cited as the company’s main challenge in the year. The ‘downward trend’ in the Mainland economy and ‘lower disposable income that dampened sentiments for travelling and shopping . . . [also[ . . . significantly affected’ the company, notes the release. In addition a tightening of the policies ‘on certain individual visit endorsements’ by the Hong Kong government meant the Mainland visitors to the HKSAR ‘continued to decrease’.
Opportunities or threats
The visitor traffic on the ferry company’s routes between Zhuhai and Hong Kong amounted to approximately 27 per cent of the visitor traffic between Hong Kong and Macau provided by Cotai Jet alone during the same period (which reached 7.8 million passengers in 2016). When compared to the 14 million passengers collectively hosted on Hong Kong-Macau routes by Shun Tak-run TurboJet this
The company saw a decrease in the passenger volume of its Shekou-Hong Kong routes
shrinks to just 15 per cent. Ferry traffic was announced by both companies through filings on the Hong Kong Stock Exchange. Visitor arrivals to the MSAR by sea in March increased 4 per cent yearon-year in March, the most recent data available, according to the Statistic and Census Service, reaching 877,254, of which visitors from the Mainland accounted for 35.6 per cent and visitors from Hong Kong made
up 43.42 per cent. However, given the interconnectivity offered by the upcoming bridge linking the three cities, the Zhuhai ferry operator notes that it will pursue its ‘transformation to grasp the opportunities presented by the future completion of the Hong Kong-Zhuhai-Macau Bridge.’ The group also operates ferries to Chimelong Resort, according to the filing.
Loans
Trying to make the future brighter The Bank of China Limited, Macau Branch, has agreed to extend a loan (‘bank overdraft facility’) to Hou Wan Group Company Limited, a wholly-owned subsidiary of Future Bright Holdings Limited, according to a filing by the company with the Hong Kong Stock Exchange on Tuesday after trading hours. The extension of the facility for a further period of one year amounts to a maximum of HK$38.83 million (US$4.83 million). The total outstanding loans due to Bank of China totalled some HK$277.57 million under various loan documents as at 31 December 2016, a previous announcement on April 13 detailed. The lender imposes that the managing director and the controlling shareholder of the company, Chan Chak Mo, and his associates hold no less than 37 per cent equity interest in the company during the term of the facility. The controlling shareholder and
his associates were holding 41.3 per cent of the total issued share capital of the company as of the date of the announcement. Failure to comply with the
Chan Chak Mo, Managing Director of Future Bright Holdings Limited
Corporate
Luxury
Chow Tai Fook jewellery expands to Hawaii Jewellery giant Chow Tai Fook is taking its products across the ocean to Hawaii, according to a company press release. The group signed an agreement with luxury retailer DFS Group on Tuesday enabling Chow Tai Fook Jewellery Group to set up its ‘first-ever branded boutique’ to be located in the T Galleria
conditions stipulated under the agreement will constitute an event of default, entitling the lender to declare all the loans immediately due and payable as well as the
cancellation of any other bank facilities. Future Bright is a Hong Kongbased investment company primarily engaged in the food and catering business in Mainland China and in Macau, where it is also engaged in the leasing of property, including six-storey commercial buildings. S.Z.
by DFS on Royal Hawaiian Avenue in the Hawaiian capital of Honolulu. The release notes that the location is near Waikiki Beach and will occupy about 970 square feet, to include gem-set jewellery, fixed-price gold products and platinum and carat gold jewellery, as well as jewellery collections. Chow Tai Fook’s Managing Director, Kent Wong, noted that the signing of the agreement “marks a key milestone” in the DFS-Chow Tai Fook partnership, predicting that the store will “capture the vast growth potential of leisure spending in the Hawaii market.” The shop is set to open next month. K.W.
SJM opens Jai Alai Avenue
Sociedade de Jogos de Macau, S.A. launched Jai Alai Avenue at the Jai Alai Complex on Tuesday. Dr. Ambrose So, Chairman of the Board of Directors of SJM, Ms. Angela Leong, Managing Director and Chief Administrative Officer of SJM, and Dr. Rui Cunha, Director of SJM celebrated the opening of the new shop with over 100 guests.
Jai Alai Avenue, occupying 30,000 square feet, showcases over 60 famous cosmetics and fragrance brands. A significant number of the brands are being introduced to Macau for the first time, including Givenchy, Whoo, Balmain Paris Hair Couture, Canvas Beauty, La Biosthetique, Adore, Odile Lecoin, B.C.A.D, Biellee and IDS.
Business Daily Thursday, April 27 2017 7
Macau Results
Wynn Palace delivers forecast-topping profit The new casino-resort in Cotai reported earnings of US$112 million for the first quarter of the year Christopher Palmeri
W
ynn Palace paid off nicely for Wynn Resorts Ltd. The company founded by Steve Wynn reported first-quarter results that easily topped analysts’ forecasts, benefiting from the company’s new casino project in the Cotai Strip and improvement in its home market of
Las Vegas. Shares in the local unit, Wynn Macau Ltd., gained as much as 5.1 per cent in Hong Kong trading Wednesday. The Bloomberg Intelligence index of Macau stocks rose as much as 3.5 per cent while the Hang Seng Index gained 0.7 per cent. Wynn shares rose as much as 4.4 per cent to US$123.47 (MOP987.8) in extended trading. Profit for Wynn Resorts excluding
Resorts
Landing’s Jeju development taking shape The company’s new serviced resort condominium on the Korean island has officially been launched Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Mainland developer and casino investor Landing International Development Ltd. officially launched its new serviced resort condominium Somerset Jeju Shinhwa World on Tuesday, a company filing with the Hong Kong Stock Exchange has announced. The property, to be managed by hospitality operator The Ascott Limited, is part of the company’s integrated leisure and entertainment project Jeju Shinhwa World in the south-western part of Jeju Island, in South Korea. According to the filing, Somerset offers 344 units of three-bedroom resort condominium units with furnished and designed interiors, in addition to clubhouse, a gymnasium, a restaurant, and indoor and outdoor playgrounds. The company announced in the same filing that it is planning to open the first Marriott Hotel and Spa on Jeju in late 2017, noting that it is ‘confident’ that under both projects Jeju Shinhwa World ‘will cater to
the needs of tourists from different countries, and is set to be a worldclass hospitality and entertainment destination for global travellers.’ The company, which currently operates the Landing Casino in the Hyatt Regency located on the same island, has not announced in the filing any plans for the opening of casino facilities in Jeju Shinhwa World. The Mainland-based company became the sole owner of Jeju Shinhwa World in early January, after Genting Singapore PLC disposed of its half of the joint venture in November 2016. The total consideration of the deal amounted to US$338 million (MOP2.7 billion), Business Daily reported. Landing’s investments in Jeju Shinhwa World – formerly named Jeju’s Myths and History Park – were launched in late 2013. The project entered the construction and development phase of hotels and the theme park in the first quarter and second quarter of 2016. According to the company, total investment in the project, which occupies an area of 2.5 million square metres, was hitherto estimated at US$2.4 billion (MOP19.23 billion).
Somerset Jeju Shinhwa World is part of the company’s integrated leisure and entertainment project Jeju Shinhwa World (pictured) in South Korea.
some items grew to US$1.24 a share, beating the 98-cent average of analysts’ estimates. Revenue jumped by almost half to US$1.48 billion, the company said Tuesday in a statement, also topping forecasts. Macau is bouncing back from a three-year slump triggered by a Chinese government crackdown on corruption that prompted high rollers to shun the casinos. Gambling revenue in the region rose 13 per cent to US$7.92 billion in the first quarter, the strongest growth since a recovery began last August. “You can see the numbers, business
is good for us,” Wynn said on a conference call, adding that he saw a “resurgence of activity at the top end in China.” Wynn Macau’s adjusted property earnings increased 53 per cent to US$293 million, above the consensus of US$254 million reported by Union Gaming. The Wynn Palace reported earnings of US$112 million.
VIP’s return
Wynn in particular benefited from the return of VIP players, who generated a larger increase in revenue in the quarter than mass-market bettors industry wide. Wynn Resorts got off to a slow start with the US$4.2 billion Wynn Palace, which opened in Macau last August. Construction around the resort impeded access, executives said last year. A new casino under construction in Boston will cost US$2.4 billion, the company said Tuesday, up from the original US$1.6 billion projection in 2014. Additional meeting space and higher-than-expected bids contributed to the increase, the executive said. The 75-year-old entrepreneur said the board approved plans to spend US$400 million to US$500 million building a lake and meeting center behind Wynn’s Las Vegas casinos. Construction could begin in December. Wynn said he was holding off on a planned 2,000-room hotel on the property until he sees how the first wave of additions perform. The CEO is convinced new attractions in Las Vegas, such as the planned move of the Oakland Raiders football team, will enhance the city’s long-term appeal as a tourist destination. “This town is a real safe bet,” he said. Bloomberg
8 Business Daily Thursday, April 27 2017
Greater china Lenders
Mainland banks miss out on U.S. investment banking bonanza Beijing so far has given no indication it is ready to relax its grip for the sake of overseas growth Koh Gui Qing
A
s scores of investment bankers profit from the fee bonanza offered by Chinese companies hunting for deals in the United States, one group is conspicuously absent - Chinese banks. Despite their deep ties with Chinese firms, the country’s largest stateowned banks are missing out on the hundreds of millions of dollars that Wall Street banks and their European rivals earn advising Chinese companies on acquisitions and share and debt sales. What is holding the banks back is the way Beijing controls the top lenders to manage the supply of credit to the Chinese economy. Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, and China Construction Bank all have China’s sovereign wealth fund, China Investment Corp (CIC), as the main shareholder. U.S. rules require the controlling shareholder - or CIC in this instance to seek Federal Reserve clearance for investment banking operations. This poses a big hurdle to Chinese banks as they would need to coordinate their applications despite having separate managements and strategies, said a banker with a Chinese lender in New York. He declined to be named due to sensitivity of the matter. The setup means the four banks are only as strong as their weakest link and two of them come with significant baggage, having drawn Fed scrutiny over enforcement of anti-money laundering laws. The Federal Reserve declined to comment and the CIC and the “big four” banks were not immediately available for comment. “We’ve hit a bottleneck,” said another banker at a Chinese lender in New York. “As a commercial bank,
we’ve done all we are meant to do. Why don’t we become an investment bank ourselves?” Without changes that would allow Chinese banks to act independently, or an agreement with the Fed to make an exception for them, those keen to expand in the United States will be in a limbo, that banker said. Lending titans at home, the “big four” have invested in boosting their profile in New York. Industrial and Commercial Bank of China, for example, has an office in Trump Tower on Fifth Avenue, while Bank of China occupies a new mid-town Manhattan office tower it bought in 2014. They take deposits from savers and businesses and provide trade financing and foreign exchange trading services. Between December 2010 and September 2016, their assets in the United States soared over seven times to US$126.5 billion, Fed data showed. Beijing so far has given no indication it is ready to relax its grip for the sake of overseas growth, even though some say state divestiture is the ultimate solution. “The leadership of China faces a choice. They control those institutions for their domestic purposes and I think that limits their ability to go international,” said David Dollar, a senior fellow in the John L. Thornton China Centre at the Brookings Institution. “If those big banks really want to go international, I think China has to privatise them,” he said. The stakes are high.
Last year, Chinese companies raised over US$22 billion in U.S. debt and stock markets, up 28 per cent from 2010 and 12 per cent higher than in 2015. The value of mergers and acquisitions involving Chinese firms soared to almost US$27 billion last year from a previous high of US$3.6 billion reached in 2013. To get a slice of that investment banking business, any foreign institution needs the Fed’s recognition as a “financial holding company” that is “well capitalised” and “well managed,” according to the Fed’s website.
“Alarming” transactions
That poses a challenge for all four because the Fed took enforcement action against China Construction Bank in 2015 and Agricultural Bank of China last year for not doing enough to fight money laundering, according to the Fed’s website. The central bank did not detail the banks’ problems. But when New York’s financial regulator in November fined Agricultural Bank of China US$215 million for violating anti-money laundering rules, it cited “alarming” transactions including “unusually” large payments from Yemen to the southern Chinese province of Zhejiang. Public records showed the Fed has not raised similar concerns about the Industrial and Commercial Bank of China and Bank of China so far. A person familiar with the Fed’s thinking said the regulators believed
Chinese banks should focus on tightening their procedures before expanding their U.S. businesses. The person, who declined to be named due to the sensitivity of the matter, said the Fed would never grant the “financial holding company” status to any bank with unresolved regulatory issues. Chinese banks have argued, without success, against being treated as one entity, the banker and the source familiar with the Fed’s thinking said. Now, bankers in New York plan to analyse the costs and risks of expanding into investment banking and present the findings to their respective boards in China, the banker said. If the banks’ headquarters in Beijing find the business worth pursuing they will conduct their own due diligence and start consulting various Chinese regulators on ways to overcome the regulatory hurdles, the banker said. Despite the challenges, the “big four” clearly has investment banking ambitions. All four have investment banking arms in Hong Kong or mainland China that target Asian deals. U.S. expansion would be the logical next step given that Chinese companies will continue investing overseas in search of growth opportunities and new technology, the banker said. “Should Chinese banks continue to miss out on this opportunity? That’s the question we should ask,” said the banker. Reuters
PMI forecast
Factory sector expansion perceived slowing in April Some analysts believe China’s economic growth may have peaked in the first quarter The pace of expansion in China’s manufacturing sector likely slowed in April, a Reuters poll showed, as factory-gate price lost steam and authorities moved to tackle risks in the property market and credit growth. The official manufacturing Purchasing Managers’ Index (PMI) is expected to come in at 51.6, which would be the ninth straight month of expansion, according to a median forecast of 25 economists in the Reuters poll. In March, the index hit 51.8, its highest reading in nearly five years. The world’s second-largest economy grew a faster-than-expected 6.9 per cent in the first quarter, boosted by higher government infrastructure spending and a gravity-defying property boom. But growth is expected to lose steam as authorities step up a battle to cool the property sector while the central bank and banking regulator have take steps to contain financial risks. “Producer price inflation is cooling and strict financial supervision
could affect funding for investment,” said Zhang Yiping, an economist at Merchants Securities in Shenzhen. The central bank is expected to guide short-term interest rates higher, and step up its oversight of the
financial sector, amid a crackdown on banks’ shadow banking businesses. Some analysts believe China’s economic growth may have peaked in the first quarter but it’s on track to hit a target of around 6.5 per cent this year. China’s producer price inflation cooled for the first time in seven months in March as iron ore and coal
prices tumbled, while property sales growth slowed in the first quarter despite robust property investment. The housing boom has been a key driver of China’s stronger-than-expected economic performance in recent months, but analysts believe it may also pose the single biggest risk to growth this year. Local governments are adopting ever tougher measures to rein in prices, which are expected to eventually slow real estate investment and construction.
Key Points China official PMI seen at 51.6 in April, vs 51.8 in March Factory sector seen expanding for 9th month but pace slowing Data due on April 30 at 0100 GMT The official PMI number will be released on April 30, along with the official services PMI. The private Caixin/Markit PMI manufacturing survey, which focuses more on small and mid-sized firms, will be published on May 2. The Caixin/Markit PMI is expected to come in at 51.0 for April, according to a Reuters poll of economists, down from 51.2 in March. Reuters
Business Daily Thursday, April 27 2017 9
Greater China Forex
In Brief
Bears have Hong Kong dollar in their sights as drops quicken It’s expected that the Hong Kong dollar will weaken under the linked exchange rate system when the U.S. dollar interest rate rises above the local rate For a pegged currency, Hong Kong’s dollar is once again posting some outsized moves. The city’s dollar -- linked to the greenback since 1983 -- is falling at the fastest pace in 14 months as a widening interest-rate gap with the U.S. reduces the lure of the city’s assets. Local banks, awash with capital and competing for red-hot mortgage demand, are in no rush to follow the Federal Reserve and charge more for loans. That means further weakness ahead for the local currency, according to Mizuho Bank Ltd. and Standard Chartered Plc. “We are bearish on the Hong Kong dollar,” said Ken Cheung, a foreign-exchange strategist at Mizuho Bank. “The interest-rate differential between the currency and the greenback will persist and investors will want to chase the higher-yielding greenback.” While the city’s dollar is still far from the lower end of its trading band of 7.85 against the greenback, its decline is drawing attention in a world where currency pegs are becoming rarer. The Hong Kong dollar has fallen 0.3 per cent this year and touched 7.7849 on Tuesday, its weakest level since February 2016 -- when the last selloff was subsiding amid jitters about both China’s economy and the end of an era of ultra-low borrowing costs. “The Hong Kong dollar typically doesn’t move much, but everyone pays attention when it does,” said Eddie Cheung, a Hong Kong-based foreign-exchange strategist at Standard
Chartered. The premium of the one-month U.S. interbank rate, known as Libor, over Hong Kong’s Hibor widened to 60 basis points on Tuesday, the most since December 2008. The Hong Kong dollar’s funding cost has declined 36 basis points this year as the greenback’s climbed 22 basis points. Investors are borrowing the currency in the money market and dumping it in the spot and forwards foreign-exchange market for the greenback, in order to take advantage of the swelling rate gap, according to Mizuho Bank’s Cheung. Standard Chartered’s Cheung said the currency will continue to decline to test 7.82 because possible future
rate hikes in the U.S. will support Libor, while liquidity in Hong Kong is likely to stay ample. Mizuho’s Cheung says he sees the local dollar weakening to as low as 7.79. The Hong Kong dollar was linked to the greenback more than three decades ago when negotiations between the U.K. and Beijing over the city’s return to Chinese rule spurred an exodus of capital, and policy makers in 2005 committed to limiting moves to the current range of 7.75 to 7.85. It’s expected that the Hong Kong dollar will weaken under the linked exchange rate system when the U.S. dollar interest rate rises above the local rate, a Hong Kong Monetary Authority spokesperson wrote in an email. The HKMA will ensure the stability of the exchange rate in accordance with the currency board system, the person said. The gap between the Hong Kong and U.S. dollar rates has gone a bit too far, Societe Generale SA strategists Frances Cheung and Amit Agrawal wrote in a note yesterday. There are no signs of capital outflows, they added. Bloomberg News
Dimplomacy
German Econ Min to attend Silk Road summit German Economy Minister Brigitte Zypries will attend a summit next month in Beijing on China’s ambitious New Silk Road plan aimed at linking Asia, Africa and Europe, adding some weight from Europe to the summit championed by President Xi Jinping. The conference is widely seen as the biggest diplomatic event of the year for China as it pushes its initiative to invest billions of dollars in infrastructure projects from railways and ports to power grids. Representing Chancellor Angela Merkel, leader of Europe’s biggest economy, Zypries will speak at the “One Belt, One Road” summit, said a ministry spokeswoman. Results
Pension fund revenue grows Chinese pension funds drew RMB970.8 billion (US$141.06 billion) in revenue in the first quarter, an increase of 25.4 per cent from the same period last year, state news agency Xinhua quoted the Ministry of Human Resources and Social Security as saying. Gross expenditures of the funds reached RMB808.5 billion, up 22.9 per cent from last year, and the pension funds’ account balance stood at over 4 trillion yuan at the end of March, it said. China is home to more than 220 million people over the age of 60, or about 16 per cent of the population, according to Xinhua. Energy
Rising wind power growth to be led by China
Real estate
Xian housing authority halts sales of developer Vanke The developer has been in crisis since late 2015 when financial conglomerate Baoneng Group built up a 25 per cent stake and sought to oust management The housing authority of China’s Xian city yesterday said it has suspended sales of projects by China Vanke Co Ltd, the country’s second-biggest homebuilder by sales, citing property transactions that it suspects are “against regulation”. The Xian House Management Bureau, in the statement on its website
dated April 24, said it suspects China Vanke of violating sales regulations at two property projects in the city in Shaanxi province. It said it has halted all sales of Vanke and those of its subsidiaries in the city with immediate effect. The bureau listed 12 projects where it had halted sales and said it had also
suspended approvals of pre-sales at other projects. In a separate statement also dated April 24, the bureau said it had suspended sales of four projects by four other local developers who it also suspected had violated sales regulations. China Vanke, with a market value of around US$33 billion, did not immediately respond to a request for comment.
Key Points Authority suspects regulation violations at two Vanke projects Suspends all Vanke, subsidiary sales in Xian Authority also halted sales of four other developers The developer has been in crisis since late 2015 when financial conglomerate Baoneng Group built up a 25 per cent stake and sought to oust management. In March, Vanke came under direct control of the Shenzhen government, a move that could end a struggle for boardroom control but which raised questions as to what extent the property giant would remain a market-driven firm. China’s real estate sector contributes around 15 per cent to economic growth, and both central and local governments have been keen to take a more active role in the market, particularly when sky-rocketing prices have become a serious concern for policymakers. Reuters
China will lead growth in global wind power capacity of almost 65 per cent over the next five years, with other Asian countries also developing more renewable energy, the Global Wind Energy Council (GWEC) said. Cumulative wind energy capacity was 487 gigawatts at the end of 2016, a 12.6 per cent rise from the year before and should grow by almost 65 per cent to 800 GW by the end of 2021, the GWEC said. Other countries such as India, which set a record for new wind installations last year in an effort to meet ambitious government targets, will also play a part. Entertainment
Netflix clinches licensing deal with iQiyi.com Netflix is to introduce original content in China in a licensing deal with local video streaming service iQiyi.com, the U.S. company said on Tuesday. Netflix has struggled to break into the Chinese market, where streaming services are subject to strict data storage regulations and foreign films and television are routinely censored. Content air times will parallel other regions, a spokeswoman said, who declined to say comment further on the tie-up. Netflix has played down the possibility of its entry into China in the past year despite its otherwise rapid global expansion.
10 Business Daily Thursday, April 27 2017
Greater China Markets
Investors boost use of unorthodox data sources in battle to beat benchmarks Only the top asset managers in the world can afford to hire top-notch data scientists to mine mountains of data to hunt for investment ideas Saikat Chatterjee
S
ometime in the third quarter of 2016, Blackrock’s scientific active equity team, which manages US$80 billion globally, began picking up increased signs of construction activity on the ground in China by using satellite imagery. Using that as a starting point and adding freight traffic and other data to the picture, the U.S.-based analysts determined that the world’s second-biggest economy was on the verge of a cyclical rebound. Their expectations were borne out when China reported last week that its economy grew a quicker than expected 6.9 per cent in the first quarter, the fastest in six quarters. Blackrock’s quantitative equities portfolios increased their exposure to China based on the data. The Shanghai Composite Index gained about 11 per cent between the end of September and early April, though it has lost some of those gains in recent days as regulators clamped down on speculative activity. “We were picking up signals by simply looking at more metal on the ground and such unconventional data sources are very essential in an economy as large and diverse as China where data may not be very timely,” said San-Francisco-based Jeff Shen, co-head of the scientific active equity team. The use of unconventional data
sources to gather price-sensitive information about a company, or even an entire economy, before it is made public isn’t a new phenomenon, especially among the hedge fund community in developed markets. But that behaviour has now spread across the world, and to many more mainstream mutual funds. Faced with fierce rivalry from low-priced exchange traded funds and desperate to show that they can outperform market benchmarks, the mutual funds are now increasingly seeking alternative kinds of information in Asia. In the first two months of the year, actively managed equity mutual funds domiciled in Asia saw a net outflow of US$1 billion compared to net inflows of US$9.3 billion in all of 2016 and US$40.3 billion in 2015. In contrast, exchange traded funds saw net inflows of US$15.16 billion in the first two months of this year compared to US$39.1 billion in all of 2016 and US$21.7 billion in 2015, according to Morningstar data. That pressure is forcing fund managers to increasingly look at alternative sources of information about listed companies ranging from shipping logistics trends, and social media chatter, to payments data for unlisted private companies that supply parts to bigger listed companies. Robert Ciemniak, founder of Real Estate Foresight, a China-focused real estate data analytics firm, routinely analyses headlines from a variety of
publicly available blogs, local news feeds and government bulletins in local cities and provinces to understand the ground-level shifts in the Chinese property sector before it garners attention from mainstream media. “Last year, online searches related to buying property in Nanjing spiked a few months before prices in the city jumped,” Ciemniak said referring to a property price surge of almost 40 per cent in 2016 in the eastern Chinese city, with the authorities rolling out tightening curbs since August last year. “In a funny way, China is quite transparent as long as you employ reliable filters and know where to look,” he said.
The signal and the noise
Only the top asset managers in the world can afford to hire top-notch data scientists to mine mountains of data to hunt for investment ideas.
While a 40-member strong investment team at San-Francisco based Matthews Asia, which manages US$26 billion in global assets, takes the conventional approach by conducting an average of 2,000 meetings on an annual basis in Asia, its investment strategists are looking at other data sources to supplement investment decisions. “We look at various sources such as financial information released by multinationals with a big presence in China, tourist spending and visitor patterns by Chinese visitors abroad to get a grip on discretionary spending,” said Sherwood Zhang, who manages the Matthews China Dividend Fund. Some others rely on companies which aggregate data from a variety of unusual sources such as Toronto-based Quandl, though most of such companies are based in U.S and Europe for now. Still, getting such information fully integrated into daily workflow of investors is not easy. “The quality, capture rate, the representativeness of the data and accuracy of prediction are only some of the problems,” said Seth Fischer, founder of Hong Kong-based hedge fund Oasis Capital. Some investors say that the increasing push for an edge from unconventional sources is inevitable. “Thirty years ago, the ability to rank 2,000 stocks on a price-to-earnings or a price-to-book ratio was considered pretty scientific but today the amount of information we process is larger than the U.S. Congress Library,” said Blackrock’s Shen. “The challenge increasingly nowadays is to separate the signal from the noise.” Reuters
Navy
First indigenous aircraft carrier launched Xi has made overhauling and modernizing the People’s Liberation Army a centrepiece of his agenda since taking power in 2012 David Tweed and Ting Shi
China launched its first domestically built aircraft carrier, burnishing President Xi Jinping’s credentials as commander-in-chief ahead of a Communist Party leadership reshuffle this year. The warship was floated at a shipyard in the north-eastern port of Dalian in a ceremony attended by General Fan Changlong, second only to Xi on the Central Military Commission, according to a statement on the Ministry of National Defence’s website. A bottle of champagne was smashed on the vessel’s bow to celebrate the occasion, the ministry said. “Launching is a key juncture of aircraft-carrier building and marks a significant achievement for our country’s home-built and designed carrier,” the ministry said. The carrier will undergo systems testing and fitting out before sea trials, it said. The aircraft carrier program lies at
the heart of China’s effort to build a “blue water” navy capable of projecting power beyond the country’s immediate coast and protecting increasingly far-flung interests. Xi has
made overhauling and modernizing the People’s Liberation Army a centrepiece of his agenda since taking power in 2012. The aircraft carrier -- the second in a planned fleet of as many as six such ships -- was based on the design of the Liaoning, a Soviet vessel China bought from Ukraine, refitted and put to sea almost six years ago. Launching the carrier allows Xi to
tout an historic milestone before he presides over the ruling party’s twice-a-decade congress, in which roughly half of its Central Committee is expected to be replaced.
“Launching is a key juncture of aircraft-carrier building and marks a significant achievement for our country’s home-built and designed carrier” Ministry of National Defence statement “China has this ambitious goal of acquiring more aircraft carriers,” said Andrew Scobell, a senior political scientist at RAND Corp. who has written about China’s aircraft carrier program for the U.S. Naval War College Review. “The program has different drivers, but the one that cannot be discounted is prestige and status for Chinese leaders.” Bloomberg News
Business Daily Thursday, April 27 2017 11
Asia Prices
Australia’s inflation highest since 2014 The central bank does not expect core inflation to top 2 per cent until late 2018 Wayne Cole
A
ustralian consumer price inflation tiptoed atop 2 per cent last quarter for the first time since 2014 as petrol, health care and education got more expensive, a hopeful sign that the danger of deflation had likely passed for this cycle. Yet, key measures of core inflation stayed stubbornly short of the Reserve Bank of Australia’s (RBA) 2 to 3 per cent target band, implying there was scant pressure for a hike in interest rates anytime soon. “Not a lot in this is going to rock the boat one way or the other,” said Michael Blythe, chief economist at CBA. “Inflation overall looks well contained, so the RBA will be happy with that. Equally, they’ll be happy that headline inflation is back within the target band.” The RBA’s favoured measures of underlying inflation ticked up to an annual pace of 1.8 per cent in the first quarter, from 1.5 per cent and in line with market expectations. A soporific mix of record-low wage
growth, fierce retail competition and a sharp slowdown in rents has restrained underlying inflation for several years, and looks like lasting for a while yet. The RBA itself does not expect core inflation to top 2 per cent until late 2018 and has repeatedly warned of the risks of trying to get it higher faster. It is particularly concerned that
further stimulus would only encourage more borrowing-fuelled speculation in housing, inflaming prices in Sydney and Melbourne and adding to already dangerous levels of household debt. There was some relief that the headline consumer price index (CPI) rose 0.5 per cent in the quarter, to take the annual pace to its fastest since 2014 at 2.1 per cent. There should be an added lift coming from rising utility costs, as well as higher vegetable prices after Cyclone Debbie damaged crops in
Queensland. Yet, the pick-up in annual CPI inflation was largely due to an unusually weak result from the first quarter of last year dropping out of the calculation. Indeed, analysts noted much of the increase in prices came from temporary or seasonal factors. Petrol alone jumped 5.7 per cent in the quarter, while health and education costs rose as they usually do at the start of a year. Excluding volatile items - fruit, vegetables and petrol - inflation ran at just 1.5 per cent. Reuters
Consumption
Luxury spenders defy Japan’s tight-fisted reputation Few brands predicted that deep-pocketed Chinese shoppers visiting Japan would support its luxury market Anne Beade
Tight-fisted shoppers, unsteady economic growth and a shrinking population: Japan doesn’t exactly fit the image of a spending powerhouse these days. But you would never know it in Ginza -- Tokyo’s answer to the Champs-Elysees or Fifth Avenue -where a new 13-storey upscale mall is proving that Japan is still a whale in the luxury business. The country logs some US$22.7 billion in annual spending on topend goods made by brands including Chanel, Dior, and Prada, ranking it as the world’s number two luxury market behind the United States. “Luxury products may be more expensive, but they are very wellmade,” said 79-year-old Toshiko Obu, carrying her long-time Fendi bag outside the Ginza Six building, which has been drawing big crowds since last week’s opening. Japan is renowned among the world’s priciest retailers for its discriminating clientele -- Chanel tries to keep local customers physically separated from tourists packing more cash than class. “You shouldn’t forget that a big portion of the luxury clientele is here in Japan,” Sidney Toledano,
chairman and CEO of Christian Dior Couture, told AFP at the opening of the 241-store building. “It remains a strategic market for luxury and, I’d say, true luxury.”
opportunity to refocus on Japanese clientele. “We don’t ignore tourists, of course, but we’re not a duty-free shop,” he added.
‘Biting their fingernails’
‘Touching everything’
Dior is counting on Japan’s luxury market to rise this year, while rival Chanel is also expecting an upbeat 2017, after global sales of personal luxury goods barely grew last year. “We did not lose our character,” said Richard Collasse, head of Chanel in Japan. “There are brands that are suffering -- the ones that at some stage stopped investing in Japan because China was the new El Dorado. And today they are biting their fingernails.” F e w b ra n ds p r e di ct e d that deep-pocketed Chinese shoppers visiting Japan would support its luxury market -- tourists account for about one-third of top-end spending. Japan is hoping to land 40 million visitors in 2020, the year that Tokyo hosts the Olympics. Last year, some six million Chinese visited, compared with 2.4 million in 2014. “Historically, (Japan has) been a very insular luxury market where 90 to 95 per cent of the spending was by locals,” said Joëlle de Montgolfier, Paris-based director of consumer and luxury product research at consultancy Bain & Company. But now some 30 per cent of sales are generated by foreign visitors owing to tourism, she added. A stronger yen dented visitors’ purchasing power last year, with luxury sales down one per cent, after a 9.0 per cent rise in 2015. Dior’s Toledano said it is an
Some other Chanel shops in Tokyo have a separate cosmetics and perfume section reserved for top Japanese customers, in a bid to keep them away from the nouveau riche crowd. It also tips off local clientele about the expected arrival time of tourist buses so they can avoid them. “The loyal Japanese clients tend to run away from customers who were not very well raised and are wearing whatever or lying all over the sofa, touching everything,” said Chanel’s Collasse. Dior’s haute couture show at the new mall’s opening featured
Japanese-inspired dresses, underscoring a focus on the local market. But warning signs lurk behind smiling clerks and glitzy interiors at the new property on one of the world’s priciest shopping streets. Japan has struggled to reverse a decades-long economic slump while a falling population continues to shrink its labour force -- and the pool of future luxury consumers. Younger people, many on tenuous work contracts, don’t have the money or the same interest in luxury brands anymore, especially since top-end goods can now be rented online instead, said Naoko Kuga, a consumer lifestyle analyst at Tokyo’s NLI Research Institute. “When you look at consumer purchasing behaviour, younger people put less value on luxury brand products” than previous generations, she said. AFP
12 Business Daily Thursday, April 27 2017
Asia Growth
Strong Singapore factory output points to GDP revision The electronics sector continued to shine growing at 37.7 per cent from the previous year Fathin Ungku
S
ingapore’s industrial production rose faster than expected in March from a year earlier, thanks to a continued surge in the electronics sector, data showed on Wednesday, pointing to a possible upward revision in the city-state’s first quarter GDP. Manufacturing output in March rose 10.2 per cent from a year earlier, data from the Singapore Economic Development Board showed, exceeding the median forecast in a Reuters survey of a 7.1 per cent expansion on-year.
new models, but it may not happen in a big way,” said UOB economist Alvin Liew. The electronics sector continued to shine in March, growing at 37.7 per cent from the previous year. This is brought about by growing demand for the city-state’s tech products, analysts say, particularly in semiconductors, which output grew by more than half. This comes after industrial output rose at the same rate in February, at a revised 10.2 per cent on-year. On a
month-on-month seasonally adjusted basis, however, industrial output contracted a revised 5.8 per cent. Despite strong electronics exports, some analysts believe industrial production will begin to moderate in coming months because of lower regional demand. Singapore has been among a number of export-reliant Asian economies to benefit from a general uptick in global demand in recent months, with the city-state enjoying strong sales of its tech products but analysts say that the tech production cycle is starting to mature. The economy has struggled over the past two years. In the first quarter
of this year, gross domestic product shrank 1.9 per cent from the previous three months and grew 2.5 per cent from a year earlier. However, March’s manufacturing output numbers point to an upward revision in first quarter GDP, analysts say. “It won’t go beyond 3 per cent but if other sectors remain stable, we are looking at a revision of around 2.7 per cent year on year”, Liew said. The country’s central bank has held its policy steady and warned of risks to the global outlook, even with recent improvements in exports and broad economic growth momentum. Reuters
Key Points March industrial output +10.2 pct y/y, +5.0 pct m/m Electronics manufacturing output continues to soar Upward revision in first quarter GDP likely, analysts say Industrial production on a monthon-month and seasonally adjusted basis also rose more than expected at 5.0 per cent in March. The median forecast was for a rise of 0.9 per cent. “I’m cautiously optimistic... we are expecting the first half to look quite good. On the longer side of things, there will be some support as some (electronics) manufacturers will have
Risks
Australia’s sky-high household debt a ticking time bomb Most of the debt is held by the richest 20 per cent Glenda Kwek
Australians are racking up extreme levels of debt to buy homes that are among the world’s most expensive, a ticking time bomb that could wreck the economy if it is hit by a sudden shock, experts warn. While the country is one of the best-performing developed global economies, soaring property prices have also made it a world-beater in household debt. The nation has a household debtto-GDP ratio of 123 per cent, largely housing debt -- second only to Switzerland, according to the Bank of International Settlements. Those levels exceed the U.S., Spain and Ireland before their property market crashes, global ratings agency Moody’s said in a report this month, warning Australians also held limited liquid assets. “Australians have borrowed up a storm, and housing prices in this nation are now dangerously dumb,” prominent Australian economist Chris Richardson said this month. “Compared with the global financial crisis, our vulnerabilities are higher, our defences are weaker.” Such dire warnings contrast with Australia’s recent economic experience, with the country on course for a record 26 years without a recession. It fared well during the 2008 financial crisis, aided by its largest
Business Daily is a product of De Ficção – Multimedia Projects
trading partner China’s hunger for commodities. But interest rates have been slashed to a record-low 1.50 per cent to boost growth as Australia shifts from a dependence on mining-driven expansion, heating up the housing market. Sydney’s median house price is Aus$1.1 million (US$830,000) and nationally prices have soared 250 per cent in real terms since the mid1990s, the OECD said in March.
Little buffer left
However, wage growth has been tepid recently, forcing people to spend a higher proportion of their incomes on mortgages. Reserve Bank of Australia governor Philip Lowe issued a blunt warning this month that “stretched balance sheets make for more volatility when things turn down”. “In some cases, lenders are assuming that people can live more frugally than in practice they can, leaving little buffer if things go wrong,” he added. Modelling by National Australia Bank found difficulties could kick in if the jobless rate, currently at 5.9 per cent, rises to 8.5 per cent, chief economist Alan Oster said. “As a bank, what we do is we look at unemployment by postcode,” Oster told AFP. “And what we find is there is around 50 postcodes where we personally don’t want to lend much,” he
said, adding that areas that benefited from the mining boom were now struggling as investment falls. Analysts said a financial crisis worsened by severe household debt would take on a different flavour in Australia. In the U.S. during the 2008 crisis, homeowners walked away from mortgages when situations turned sour. But Down Under -- home to the “Great Australian dream” of owning property -- locals go to great lengths to avoid defaulting on loans. “Australians will take their kids out of private school, they’ll sell their car, they’ll not go on holidays... they’ll do whatever they feasibly can to avoid defaulting on their mortgage,” independent economist Saul Eslake told AFP. “The risk is that if interest rates go up, people will be forced to spend more servicing their mortgages, and thus have less to spend on other things. It’s a risk to economic growth, not a risk to financial stability.”
RBA reluctance
Most of the debt is held by the richest 20 per cent, while banks’ bad debt ratios were low, Oster added. Financial institutions are meanwhile viewed as well-capitalised and able to withstand adverse shocks. At the same time, Australia is one of the world’s most urbanised developed nations despite being the sixth largest country by land mass, concentrating property purchases in
built-up areas. Coupled with local laws stifling development and population rises boosted by immigration, demand has grown faster than supply in big cities. Yet the central bank is reluctant to raise rates to cool the market, as price increases have been uneven across the country. It has instead turned to financial regulator the Australian Prudential Regulation Authority and corporate watchdog the Australian Securities and Investment Commission to tighten lending standards and police the banks. Canberra is also under growing pressure to enact policies to drive supply and affordable housing, and has hinted at new measures in May’s national budget. The government has so far cracked down on illegal home purchases by foreigners and imposed new taxes on non-local buyers. But politicians have been reluctant to wind back housing tax deductions and concessions blamed as among the biggest culprits in inflating prices, for fear of alienating voters. “There is this... immediate fear, to say we can’t impact the price because then what’s going to happen to the current borrowers,” Pimco’s Australia chief Robert Mead told AFP. “It’s not popular but I think that’s the more sensible approach. It’s harder for any government policy to immediately create jobs or immediately increase wages... to improve income.” AFP
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, April 27 2017 13
Asia Private survey
In Brief
South Korea set for strong April exports jump The same poll predicted that April annual inflation would be 2 percent
S
outh Korea’s exports are expected to surge for a sixth straight month in April, helped by growing demand for high-tech memory chips and in line with a broad global economic recovery, a Reuters poll showed yesterday. Ten analysts polled forecast exports in April would jump a median 15.3 percent from a year earlier and imports expand 21.0 percent. Exports rose a revised 13.6 percent in March and imports leapt 27.7 percent.
Key Points
outlook for this year to 2.6 percent from 2.5 percent estimated earlier. The nation’s semiconductor exports grew 44.3 percent on-year in March, while shipments of petroleum products surged 62.3 percent. South Korean chipmaker SK Hynix booked a record quarterly profit for the first quarter of this year and said demand for chips will continue to rise amid a so-called super cycle. “Both export volume and export prices are recovering,” An Ki-tae, an economist at NH Investment & Securities said. “This is a sign of
renewed vigour in exports and the global economy.” A recovery in consumer sentiment ensued. Consumer confidence in April rose by the most since 2013 as uncertainties related to the corruption scandal involving ousted President Park Geun-hye eased. The same poll predicted that April annual inflation would be 2 percent, below 2.2 percent in March, which was the highest in nearly five years. March factory output was forecast to increase 2 percent from a month earlier after it fell 3.4 percent in February, its worst performance in more than eight years. Industrial output data is due on Friday, the trade data on May 1 and inflation on May 2. Reuters
April exports seen +15.3 pct y/y, imports +21.0 pct y/y April CPI rise seen +2.0 pct y/y
Singapore is creating a S$1 billion (US$718 million) fund to help innovative companies develop their businesses and expand overseas, part of the city state’s drive to boost economic growth. The Makara Innovation Fund -- a collaboration between the Intellectual Property Office of Singapore and local private equity firm Makara Capital Partners Pte Ltd -- will invest S$30 to S$150 million each in 10 to 15 companies with globally competitive technologies over the next eight years, IPOS said in a briefing yesterday. The measures are part of a strategy outlined in February by the Committee on the Future Economy.
Abe minister resigns following gaffe on Fukushima Japan’s Reconstruction Minister Masahiro Imamura resigned, a day after apologizing for remarks he made about the country’s devastating 2011 earthquake and tsunami. Imamura, who oversaw post-disaster reconstruction efforts in northern Japan, submitted his resignation to Prime Minister Shinzo Abe yesterday morning. The previous day, he said it was “good” the quake struck the Tohoku region rather than Tokyo.
“Shipments will continue to post double-digit growth on improving sales of semiconductors, ships and cars,” Park Ok-hee, an economist at IBK Securities in Seoul, said. A six-month stretch of exports growth should take pressure off the Bank of Korea (BOK) to take bolder steps to aid the economy, especially as its monetary policy board waits for the results of South Korea’s presidential election on May 9 and new policies to be unfolded. The BOK on April 13 left interest rates unchanged at a record low of 1.25 percent and raised its growth
Ride-hailing services
S. Korean court says Uber violated transport law
Strategy
McDonald’s shelves plans to sell Japan unit stake after rebound Japan was the biggest contributor to growth in McDonald’s so-called foundational market segment McDonald’s Corp. said it’s shelving plans to sell a stake in its Japan unit that’s seen a turnaround since the company announced it was looking for a buyer more than a year ago. After a review, the world’s largest restaurant chain has “made the decision to not proceed with the transaction at this time,” said Chief Financial Officer Kevin Ozan on an earnings call with analysts Tuesday. The decision to keep McDonald’s Holdings
Singapore creates S$1 billion innovation fund
Comments
March industrial output seen 2.0 pct m/m s/adj
Grace Huang
R&D
Co. Japan won’t impact long-term financial targets or its intention to reach its goal of having 95 per cent of restaurants franchised over the long term, he said. “We’re confident that we have the right capabilities and customer-focused plans to grow our business in Japan, and we believe the market is poised to maintain its strong momentum,” said Ozan. When McDonald’s announced it was studying the prospect of a sale in Jan. 2016, the Japan unit had posted
quarterly losses since mid-2014 in the wake of a series of food scandals. Since then, the unit has rebounded and forecast in February that net income for 2017 will probably be 8.5 billion yen (US$76 million).
Pokemon frenzy
In March, the unit reported samestore sales rose almost 17 per cent from a year ago, extending its monthly sales growth to 16 consecutive months. It’s lured customers by bringing back popular menu items and maintained momentum in the wake of a worldwide mobile game frenzy sparked by Nintendo Co.’s mobile game, Pokemon Go, in which the restaurant gave away figurines of the game’s cartoon characters.
‘McDonald’s was seeking to sell as much as 33 per cent of outstanding shares in the Japan unit’ Japan was the biggest contributor to growth in McDonald’s so-called foundational market segment where it’s focused on increasing franchises, with “double-digit comparable sales on top of double-digit performance in the first quarter of 2016,” according to the company. McDonald’s was seeking to sell as much as 33 per cent of outstanding shares in the Japan unit, the Nikkei newspaper had reported. Shares of McDonald’s Japan have risen about 12 per cent this year, compared to the 0.8 per cent gain in the benchmark Topix index. Bloomberg news
A South Korean court yesterday ruled that the ride-hailing group Uber Technologies Inc illegally used private vehicles for commercial purposes, in the latest legal setback for the U.S. firm in Asia’s fourth biggest economy. Uber’s operations in South Korea were not expected to be impacted by the ruling, since it suspended its UberX service after prosecutors filed charges against the local unit in 2014 for violating the transport law, a company spokeswoman said. Uber’s local unit has “admitted and repented” its illegal act and resolved the issue, a judge at Seoul Central District Court said in a ruling. The company was fined 10 million won (US$8,863). Results
Hyundai Motor Q1 profit slides South Korea’s Hyundai Motor posted a 21 per cent fall in quarterly net profit, dragged down by a U.S. recall and sales declines in China stemming from political tensions. Hyundai’s 13th consecutive year-on-year fall in quarterly net profit underscores the fresh challenges the former industry outperformer faces. It is struggling to win consumers over with a sedan-heavy line-up in a world where sport utility vehicles (SUVs) are the hot sellers. The world’s fifth-biggest automaker together with affiliate Kia Motors reported on Wednesday a first-quarter net profit of 1.33 trillion won (US$1.18 billion). Analysts polled by Thomson Reuters I/B/E/S had on average expected a 1.25 trillion won net profit.
14 Business Daily Thursday, April 27 2017
International In Brief Results
StanChart Q1 profit doubles Standard Chartered yesterday reported its first quarter profit nearly doubled from a year ago, sending its shares up more than 4 per cent as the emerging markets-focused bank brought losses from loans under control. StanChart said it made a pre-tax profit of US$1 billion, up from US$589 million in the same period a year ago. The bank booked a US$198 million pound loan impairment charge, much less than the roughly US$500 million expected by analysts. “This is an encouraging first quarter but we are not getting carried away,” chief financial officer Andy Halford told reporters on a conference call. Trade
U.S. commerce secretary eyes more trade moves The Trump administration may undertake trade actions to protect the U.S. semiconductor, shipbuilding and aluminium industries, citing national security concerns, Commerce Secretary Wilbur Ross told the Wall Street Journal in an interview on Tuesday. He said those industries could qualify for protection under Section 232 of the Trade Expansion Act of 1962, which lets the president impose restrictions on imports for reasons of national security and was used to launch a probe of steel imports, the Journal reported. Last week, President Donald Trump launched a trade probe against China and other exporters.
Payments
Cashless society getting closer, survey finds The survey also showed that, in general, countries where cash is much in use were most likely to want to go cashless Jeremy Gaunt
M
ore than a third of Europeans and Americans would be happy to go without cash and rely on electronic forms of payment if they could, and at least 20 per cent already pretty much do so, a study showed yesterday. The study, which was conducted in 13 European countries, the United States and Australia, also found that in many places where cash is most used, people are among the keenest to ditch it. Overall, 34 per cent of respondents in Europe and 38 per cent in the United States said they would be willing to go cash-free, according to the survey conducted by Ipsos for the ING bank website eZonomics. Twenty-one per cent and 34 per
cent in Europe and the United States, respectively, said they already rarely use cash. The trend was also clear. More than half of the European respondents said they had used less cash in the past 12 months than previously and 78 per cent said they expected to use it even less over the coming 12 months. Payment systems such as contactless cards and mobile-phone digital wallets have become so prevalent the issue has become political in some countries. Cash-loving Germans, for example, have been concerned that a move by the European Central Bank to phase out the 500 euro note by the end of next year is the start of a slippery slope. Germany is one of the countries that uses cash the most. The ING survey showed only 10 per cent of
Germans saying they rarely use cash, compared, for example, with 33 per cent and 35 per cent, respectively, in neighbours Poland and France. The survey also showed that, in general, countries where cash is much in use were most likely to want to go cashless.
‘Twenty-one per cent and 34 per cent in Europe and the United States, respectively, said they already rarely use cash’ Only 19 per cent of Italians said they rarely used cash but 41 per cent said they would be willing to go cash. There was a similar trend in Turkey, Romania, the Czech Republic, Spain and even Germany. Reuters
Commodities
LME favours new pricing mechanism The London Metal Exchange wants to attract funds and reverse falling volumes by boosting liquidity on monthly settled contracts using prices from trading on other dates, Matt Chamberlain, the LME’s new chief executive, told Reuters. The LME is under pressure to build volumes after they fell 7.7 per cent last year and 4.3 per cent in 2015. The exchange is proposing a process called implied pricing that would extrapolate prices for contracts that mature on the third Wednesday of each month from trading activity on its most liquid three month date. Banks
Citi gets capital markets licence to operate in Saudi Arabia Citigroup has obtained a licence to conduct capital markets business in Saudi Arabia, a move that will allow the U.S. bank to return to the kingdom to offer banking services after an absence of almost 13 years. The business, which will be branded Citigroup Saudi Arabia, will provide a full range of investment banking services including debt and equity capital markets operations, according to a Citi statement. The licence comes as the Gulf country seeks to diversify its funding resources away from oil revenues under its National Transformation Plan.
Official forecast
Berlin sees faster growth, narrower trade surplus ahead Berlin expects unemployment to fall slightly further from already historic lows in 2017 The German government upgraded its economic forecast for 2017 slightly yesterday, saying that strong domestic consumption would increase growth and bring down its much-criticised trade surplus. Europe’s largest economy should expand by 1.5 per cent this year, Economy Minister Brigitte Zypries told journalists in Berlin, slightly more than the 1.4 per cent predicted in January. She left unchanged the government forecast of 1.6 per cent growth in 2018. “The German economy is growing solidly and remains on an expansionary path. And that’s despite a global environment marked by uncertainties,” Zypries said. “Good conditions in the labour market and strong increases in employment assure a strong domestic economy.” Berlin expects unemployment to fall slightly further from already historic lows in 2017, before stabilising next year. Low joblessness and rising wages mean that households will have more cash in their pockets, with consumer spending expected to increase by 1.4 per cent this year and next.
Companies’ investments in equipment will “gradually” pick up in 2017 and 2018, while the construction sector is boosted by public spending and households’ demand for homes, encouraged by low interest rates.
“Good conditions in the labour market and strong increases in employment assure a strong domestic economy” Brigitte Zypries, Germnay’s Economy Minister
Meanwhile, Germany’s trade surplus -- which has arisen because it exports more than it imports -- is expected to shrink, as demand from firms and consumers at home grows faster than the world economy and global trade. Exports will grow by 3.3 per cent in
2017 and 3.8 per cent next year, the economy ministry predicts, while imports will grow “somewhat more strongly”. The government economists expect a reduction in Germany’s surplus to 7.3 per cent of gross domestic product in 2018, a full per centage point lower than the 2016 figure. Longstanding grumbles from European neighbours and America about Germany’s export prowess have flared up since Donald Trump took office. Elected on an “America First” platform of bringing jobs back to the United States, Trump has refused to reaffirm multilateral commitments to fight protectionism and accused Germany of exploiting a weak euro to sell its goods abroad at knockdown prices. “Excessively large trade surpluses... are not conducive to supporting a free and fair trading system,” the US leader’s Treasury Secretary Tim Mnuchin said after a meeting of G20 finance ministers in Washington Friday. German Finance Minister Wolfgang Schaeuble acknowledged that the relatively weak euro has helped German exports, but blamed the low interest rates and other extraordinary stimulus measures by the European Central Bank to boost the euro area’s sluggish economy. AFP
Business Daily Thursday, April 27 2017 15
Opinion Business Wires
Bangkok Post Although global oil prices have rebounded more than 60 per cent from the record low of US$30 a barrel during 2014-16 to a range of US$50-55, oil demand remains high, encouraging oil retailers to run promotional campaigns to attract motorists. Thai retail oil demand has seen double-digit growth over the past few years, thanks partly to massive sales campaigns from major oil retailers, including mileage cards and lucky draws. Some retailers renovated their petrol stations to offer extra services to motorists such as more parking space for the disabled and vendor stalls for locals.
New life for the SDR?
T Inquirer.net The (Philippine) Bureau of Customs not only posted a double-digit collections growth in the first quarter but also exceeded its three-month goal as the majority of its collection districts surpassed their respective targets, the country’s second biggest tax agency said on Tuesday. In a statement, the Bureau said its collections of import duties and other taxes from January to March rose 15.6 per cent to P104.9 billion from P90.8 billion a year ago. The BOC also exceeded by 0.6 per cent its P104.3-billion target for the period.
Global Times Chinese trading companies are staying away from Venezuela as the crisis in the country deepens, a businessman who declined to be named told the Global Times Tuesday. The businessman, who started a business in Venezuela in 2014, has recently pulled out of the market, and he said that his company is not alone. “Many firms could not get their overdue payments. As for those who have completed the contracted projects there, they are only leaving several people in the country in a bid to get the final payment,” he said.
Asahi Shimbun Nikon Corp. said it has taken legal action in the Netherlands, Germany and Japan over the use of semiconductor lithography technology in products made by Dutch and German companies. Nikon said it is seeking to stop Dutch company ASML Holding N.V. and its supplier Carl Zeiss SMT GmbH from using patented technology without its permission. The move followed a failure of mediation to settle a disagreement over the right to use the technology in making computer chips. ASML expressed disappointment over Nikon’s action and denied it had infringed on any of Nikon’s patents.
he rise of anti-globalization political movements and the threat of trade protectionism have led some people to wonder whether a stronger multilateral core for the world economy would reduce the risk of damaging fragmentation. After all, lest we forget, the current arrangements – as pressured as they are – reflected our post-World War II forebears’ strong desire to minimize the risk of “beggar-thyneighbour” national policies, which had crippled growth, prosperity, and global stability in the 1930s. Similar considerations fuelled the launch, nearly 50 years ago, of the International Monetary Fund’s Special Drawing Right (SDR) as the precursor to a global currency. And with renewed interest in the stability of the international monetary system, some are asking – including within the IMF – whether revamping the SDR could be part of an effective effort to re-energize multilateralism. The original impetus for the SDR included concerns about a national currency’s ability to reconcile the need for global liquidity provision with confidence in its role as the world’s reserve currency – what economists call the “Triffin dilemma.” By creating an international currency that would be managed by the IMF, member countries sought to underpin and enhance the international monetary system with a non-national official reserve asset. Legal and practical factors, as well as some countries’ political resistance to delegating ec onom i c g ove rna nc e t o m u l ti l at e ra l i n sti t u ti o n s, have prevented the SDR from meeting its creators’ modest expectations, let alone the grand role of a truly global reserve currency that anchors the cooperative functioning of a growth-oriented global economy. Information and other market failures have added to the challenges, as have weak institutional infrastructure and inadequate branding. The result is a substantial gap between the SDR’s potential and its performance. That gap has meant missed opportunities for the global economy – particularly in terms of asset-liability management, responsive liquidity, adjustment between deficit and surplus countries – and thus a gap between actual and potential growth. With the SDR providing a stronger glue at the international monetary system’s core, prudential currency diversification could have been made easier, the need for costly and inefficient self-insurance could have been reduced, and the provision of liquidity could have been made less pro-cyclical. So, do today’s anti-globalization winds – caused in part by poor global policy coordination in the context of too many years of low and insufficiently inclusive growth – create scope for enhancing the SDR’s role and potential contributions? Addressing this question, were it to gain traction, would involve a focus on an ecosystem of SDR use, with the composite currency – which last year added the Chinese renminbi to the British pound, euro, Japanese yen, and U.S. dollar – potentially benefiting from a virtuous cycle. Specifically, the SDR’s three roles – an official reserve asset, a currency used more broadly in financial activity, and a numeraire – could ensure greater official liquidity, expand the range of new assets used
“
Mohamed A. El-Erian Chief Economic Adviser at Allianz, was Chairman of U.S. President Barack Obama’s Global Development Council
around the world in public and private transactions, and boost its use as a unit of account. Of course, given the advanced economies’ embrace of more inward-looking, populist, and nationalist politics, a “big bang” approach to reinvigorating the SDR is highly unlikely. Even an incremental approach, starting with practical low-hanging fruit that does not require amendments to the IMF’s Articles of Agreement, would face political challenges. But it would be worth considering. Areas of focus would include using the SDR for some bond issuance and trade transactions, developing market infrastructure (including payments and settlement mechanisms), improving valuation methodologies, and gradually developing a yield curve for SDR-denominated loans and bonds. This would also help to leverage the interconnectedness of the SDR’s roles, in order to reach critical mass quickly and have a foundation for further incremental gains. For the effort to succeed, the IMF’s approach would need to evolve – just like it did on country-specific issues. When I joined the IMF in the early 1980s, discussions with non-government counterparts, whether on country or policy work, were discouraged. The situation today is very different. Broader national engagement – with NGOs, local media, and a broad set of politicians – is now viewed as an integral part of effective country advice and program implementation, as well as being essential for the Fund’s “surveillance” function under its Article of Agreements. A similar pivot is needed if the IMF is to deliver better on the supra-national issues that are now migrating up its policy agenda. Specifically, the Fund would need to complement its traditional core constituency of governments and other multilateral institutions (particularly the World Bank) with systemically influential sub-national and private counterparts. The resulting public-private partnerships would enhance issuance, the development of market infrastructure, and liquidity provision for the SDR. While it is not easy to combine developmental and commercial activities, the implications for global growth and stability of not doing so suggest that it is an effort that should be explored. Moreover, the IMF could start small, focusing on interactions with other official multilateral and regional institutions, sovereign wealth funds, and multinational financial companies – all anchored by an active coalition of the willing among the G20. In an ideal world, the SDR would have evolved into more of a reserve currency during the era of accelerated trade and financial globalization. In the world as it is today, the international monetary system faces two options: fragmentation, with all the risks and opportunity costs that this implies, or an incremental approach to bolstering the global economy’s resilience and potential growth, based on bottom-up partnerships that facilitate systemic progress. Project Syndicate
Given the advanced economies’ embrace of more inward-looking, populist, and nationalist politics, a ‘big bang’ approach to reinvigorating the SDR is highly unlikely
”
16 Business Daily Thursday, April 27 2017
Closing NDRC official
Mainland’s industrial profits grew more than 20 pct
(NDRC), came a day ahead of the official data. Ning told the People’s Daily in an interview that market watchers should not be too sensitive to Profits of Chinese industrial firms grew more than 20 per cent in the first quarter from the same period minor fluctuations in China’s economic growth rate and should pay more attention to the quality of the a year ago, a senior official from the country’s top economic planner was quoted as saying yesterday. growth instead. “We can’t have zero growth, or too low of a growth While still robust, the figure could suggest a rate, but the growth rate is not omnipotent, nor is significant earnings slowdown in March from the the GDP,” Ning said. first two months of 2017, when profits surged Strong first-quarter profits, together with an almost 32 per cent, the fastest pace in nearly 6 increase of 14.1 per cent in fiscal revenue, has set “an years. excellent foundation” for improved growth quality in The comments from Ning Jizhe, vice chairman at the National Development and Reform Commission 2017, he said. Reuters
Environment
Mozambique battles illegal logging to save tropical forests New logging permits will also not be issued until at least 2019 Susan Njanji / Adrien Barbier
A
squad of Mozambican forest rangers made their first arrest just minutes after arriving at a checkpoint near the northern port city of Pemba. Nicolau Moises, the forestry department chief in Cabo Delgado province, one of Mozambique’s top timber-producing regions, quickly seized a truck piled high with freshly-cut bamboo stalks. The driver of the vehicle was accused of breaking an annual 90-day ban on logging -- just one tactic in Mozambique’s battle against deforestation. That moratorium has been extended a further three months. Tropical forests cover more than half of the southern African country’s landmass but China’s insatiable appetite for rare types of wood to feed its furniture industry -- and
an uncontrolled surge in logging -means Mozambique is being stripped of its slow-growing tropical forests while some hardwood species are facing extinction. The London-based Environmental Investigation Agency (EIA) estimated that in 2013, at least 93 per cent of logging in Mozambique was illegal -- and that most of the illicit timber ended up sold in China. “For the past five years we have seen illegal logging increasing,” Environment Minister Celso Correia told AFP. “It’s been a big challenge for the country.”
‘Limbs cut off’
Corruption, weak laws and ineffective institutions, coupled with inadequate resources to fight illicit logging, have left the country’s forests unprotected. But Correia said intelligence-gathering has proven to be particularly
Strategy
important to the fight. “Our communities, our institutions are very vulnerable to corruption,” he said. “It’s really organised crime. So it’s a different fight. It will not be normal institutions that will win this war.” He estimates that illegal logging costs Mozambique more than half a billion dollars (around 460 million euros) a year. To tackle the crisis, the government has launched a slew of measures that include a ban on the export of all unprocessed logs and a five-year moratorium on the exploitation of vulnerable species. New logging permits will also not be issued until at least 2019. “There was no regulation in the past, but now we have managed some strong regulations,” said the minister. “And we have increased our capacity of command and control on the field.” But the work of policing the sprawling country’s vast forests is “complicated,” Moises said. “We don’t have sufficient means, we don’t have enough personnel” to deploy in the forests where the trees are sawn down. “It’s like we have our limbs cut off.” According to Correia, more than 120 timber companies were raided in March alone and at least 75 per cent were found to be involved in illegal activities. At least 150,000 cubic metres of logs were seized during the sting operation. After making their first arrests, Moises and his team raided a Chinese-run timber export firm where hundreds of logs lay stacked, ready to be shipped eastward. But everything was found to be in order.
Real estate
“We are following the law and we never (export wood illegally),” said Rothschild Xu, a Chinese timber trader, who has been working in Pemba for five years. There are dozens of Chinese logging companies in Mozambique -- and some operate outside the law. China has been largely blamed for the deforestation in Mozambique since it began curtailing commercial logging in its own forests in the early 2000s.
‘Fighting for our lives’
Investigative journalist and government critic Erik Charas is not convinced the new laws will bring lasting change. He has also alleged that the reforms and anti-graft drive are a government ploy. “The government is not doing enough,” Charas said, adding that “key, leading figures in government” are working with Chinese timber traders. Mozambique’s wood processing industry however has embraced the new legislation. “I think this is a positive measure as the processing of wood locally will create more jobs locally,” said Narciso Gabriel, the owner of a sawmill in Pemba, and president of the country’s lumber association. “But obviously not everyone has the capacity to invest in wood processing, this is the big difficulty”. Processed timber can fetch high prices. The government says exporting raw logs is “daylight robbery” because merchants buy a cubic metre for around US$5 but resell it on the international market for US$300. Despite these challenges, Correia remains confident the country will prevail in its fight against illegal logging. “We will win for sure, there is no ‘plan B’. This is fighting for our lives and for future generations,” he said. AFP
Trade
Lotte splitting into holding China’s biggest property company in bid to bury family feud markets still hot
Beijing considers raising tariffs on sugar imports
Lotte Group plans to divide four key businesses valued at about US$12 billion into operating and holding units, slashing the number of cross shareholdings to 18 from 67 and allowing its chairman to tighten his grip on a hotels-to-retail conglomerate rocked by a years-long family feud and a corruption trial. Lotte Confectionery Co. will absorb the investment companies created when the South Korean group’s shopping, food and beverage units are each split into operating and holding companies under a plan to be presented for shareholder approval Aug. 29, Lotte Group said yesterday in a statement. The confectionery unit’s investment company would then merge the holdings companies into a single entity, according to the filing. The single holding company structure and fewer cross shareholdings could give more clout to Shin Dong-bin, the 62-year-old chairman and younger son of the founder, by making it harder for his elder brother and rival, Shin Dong-joo, to win over enough shareholders to gain control. Lotte has faced criticism from the government for a proliferation of cross shareholdings that allowed family members to exert excessive control relative to the number of shares they owned. Bloomberg News
China is considering special import duties on sugar as part of an anti-dumping probe, according to two people familiar with the matter, in what would be a win for domestic producers seeking help battling cheap imports from Brazil and other major growers. China’s Dairy Industry Association sent a document late last week to members asking them to comment on the Beijing proposal on duties, according to two people who reviewed it. They declined to be named since the document, addressed to some of the biggest industrial sugar users in China, wasn’t public. Beijing is set to make its first ruling on the anti-dumping probe on May 22, having launched an investigation last September following complaints from domestic mills about rising farm costs and cheaper overseas arrivals. If approved, the proposal would introduce a 45-per cent duty this fiscal year, followed by an extra 40 per cent in the following year and 35 per cent in the year after that, according to the Dairy Industry Association document. That would be on top of the 50-per cent duty now imposed on out-of-quota shipments. The dairy group represents some of China’s biggest agribusinesses, including Inner Mongolia Yili Industrial Group , China Mengniu Dairy Co, and Bright Dairy and Food Co Ltd. Reuters
Home prices in China’s biggest cities would likely rebound if government curbs are relaxed, a senior official from the country’s top economic planner was quoted as saying, suggesting authorities are in no mood to lift restrictions any time soon. A flurry of measures to cool soaring prices in the largest cities have produced “clear results”, said Ning Jizhe, vice chairman at National Development and Reform Commission (NDRC), according to the People’s Daily. But Ning said tier-1 and tier-2 cities are still seeing upward price pressure. A housing boom has been a key driver of China’s stronger-than-expected economic performance in recent months, but analysts believe it may also pose the single biggest risk to growth this year if tougher curbs spark a price crash. Over two dozen cities unveiled fresh restrictions on home buyers in March and April to curb speculation as data suggested earlier measures did little to cool the country’s property fervour. Average new home prices in China’s 70 major cities rose 0.6 per cent in March from February, higher than the previous month’s reading of 0.3 per cent, according to Reuters calculations. Reuters