Hong Kong home prices break records again Real estate Page 8
Tuesday, August 1 2017 Year VI Nr. 1351 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Central account
Fiscal surplus reaches MOP20.1 bln in H1. PIDDA execution rate finally at 40 pct Page 3
Trade
Value of merchandise exports up 14 pct in June to MOP938 mln Page 2
Delay
www.macaubusiness.com
Missing Monday’s opening date could affect The 13’s US$3 bln proposed loan Page 6
Gaming
Casino operators push back against space limits in Japan regulations Page 7
Markets
MSCI to alienate Chinese firms abusing stock suspensions Page 10
Lektou law firm expands to Lisbon
Expansion
Promoting the MSAR’s role as a Sino-Luso platform, law firm Rato, Ling, Lei & Cortés plans to open a new branch in Lisbon, Portugal on September 1. With an office in Hengqin, opened last July through a joint venture, the group hopes to leverage its presence in the regions, harnessing Chinese investment in Portugal and attracting Portuguese companies to invest in Macau and Hengqin. Page 4
A mixed bag
While the total number of licensed vehicles fell 2 pct y-o-y in June, the number of new vehicle registrations in Q2 was up 27 pct. Cross-border vehicle traffic hit 1.19 million trips in Q2, a 7 pct drop, while ferry movements were up 2 pct in H1. The weight of seaborne cargo also fell 12 pct in H1, while land cargo fell 30 pct y-o-y. Fixed-line telephone subscribers were also down 5 pct y-o-y in June.
Rental law revision on to the next round Rent Two years since being proposed, the rental law is moving on from the committee to the Legislative Assembly, with voting expected before the end of the judicial break on August 15. New changes are still polemic, in particular, proposed three-year rental contracts, rent pricing control mechanisms, use of notaries and an arbitration centre. But progress is being made, say legislators. Page 2
Mainland finds softer figures in June
Data Page 4
HK Hang Seng Index July 31, 2017
27,323.99 +344.60 (+1.28%) Worst Performers
China Shenhua Energy Co
+3.73%
HSBC Holdings PLC
+2.62%
China Mengniu Dairy Co Ltd
-1.55%
Hang Lung Properties Ltd
-0.41%
AIA Group Ltd
+3.45%
BOC Hong Kong Holdings
+1.59%
Hengan International Group
-0.91%
Sun Hung Kai Properties Ltd
-0.33%
China Merchants Port Hold-
+3.15%
Bank of China Ltd
+1.58%
Link REIT
-0.63%
Cathay Pacific Airways Ltd
-0.16%
Tencent Holdings Ltd
+2.82%
Wharf Holdings Ltd/The
+1.45%
Want Want China Holdings
-0.56%
Geely Automobile Holdings
-0.11%
Kunlun Energy Co Ltd
+2.77%
Ping An Insurance Group Co
+1.31%
China Unicom Hong Kong
-0.53%
Henderson Land Develop-
-0.11%
28° 31° 28° 31° 27° 31° 28° 31° 28° 31° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
PMI Official data yesterday showed manufacturing activity in the Mainland faltering in June. China registered steady growth during the first half of the year with stronger-than-expected GDP and exports growth, but the positive momentum will be hard to maintain, according to analysts. Page 8
2 Business Daily Tuesday, August 1 2017
Macau In Brief Court
Court of First Instance to move to new building The offices of the first, second, third and fourth criminal judges of the Court of First Instance will be moved from Macau Square to the new temporary Court Building, located near the Legislative Assembly building on Monday, August 7, according to a court press release. The temporary court building will be mainly used as a criminal court, and house staff of the court, while the Public Prosecution’s Office will also send related staff and prosecutors to work in the building. The new building covers 1,640 metre squares, with eight floors and a height of 35 metres. The construction of the court building commenced in April of 2014, and was initially planned to be completed in 2016, with the total cost of construction reaching MOP380 million (MOP47.23 million). Residency
Qualified new residents The number of temporary residency permits for highly qualified workers approved in the first half of this year went up by 243 per cent year-onyear. The Macao Trade and Investment Promotion Institute (IPIM) approved a total of 158 temporary residence permits for managerial personnel, technical and professional qualification holders in the first six months of this year, 112 more than in the same period last year. In total, in the first half of this year IPIM received 171 initial applications for temporary residency in the city, with 92.4 per cent of applications being approved and with the department having received five applications less than last year. Applicants who obtain temporary residence status and a Macau non-permanent identity card can, after maintaining it for seven consecutive years, approach the local Identification Bureau to apply for a permanent residency. Meanwhile, four applications were approved for major investment or investment plans during the first six months of the year. The scheme allows applicants to obtain MSAR residence through investment projects considered to be relevant to the city’s development, with a total of six requests having been received during the period, eight less than in the same period last year. N.M. Consultancy
PricewaterhouseCoopers on the task The Macau SAR Government has awarded a contract worth MOP4.68 million to consultancy and audit group PricewaterhouseCoopers (PwC) to provide consultancy services for Macau SAR Accounts, an official dispatch published in the Official Gazette announced yesterday. The total amount will be paid in three installments: in 2017 (MOP936,000), 2018 (MOP1.87 million), and 2019 (MOP1.87 million). PwC’s offices for China, Hong Kong and Macau have some 600 partners and 15,000 staff, according to the company. S.Z.
Rental Law
First step for new rental bill Two years since first being proposed, the new rental bill has finally been approved by the third standing committee and is expected to go for a vote in the Legislative Assembly before August 15 Nelson Moura nelson.moura@macaubusinessdaily.com
T
he members of the third standing committee gave their approval yesterday for the final draft of the new rental bill to be sent to the Legislative Assembly (AL) for discussion and voting. After first being proposed in 2015 by nine legislators, the amendments regarding the rental legislation in the MSAR civil code will now be evaluated in the plenary, before the judicial break starting August 15. “The signatories were very clear in their initial proposal that it wouldn’t solve all problems, but they expected it would solve most of the problems of renting in the city,” the committee chairman Cheang Chi Keong said yesterday.
An alternative version of the bill, taking into consideration the opinions of the committee members and a judicial evaluation made by AL consultants, was provided on July 14, with the committee chairman stating that legislators still wanted to express their opinions on four main topics of the new proposal before signing the document.
Nuts and bolts
The four contentious topics involve the bill’s proposal for: a control mechanism by the government over rental prices; a mandatory notary mechanism; the extension of the current minimum two-year contract to three years; and the establishment of an arbitration centre to resolve rental disputes. The discussion on the rental bill led to the change of the initial intention
for a permanent mechanism that would update the coefficient used to calculate rent increases. “It was agreed this system will be transitory and exceptional, meaning that after taking into consideration several factors and the necessity of the market, the Chief Executive (CE) will update the coefficient. This mechanism is a gun given to the CE to use whenever he feels necessary,” Mr. Cheang said. The CE will also be able to establish a different cap for housing units and areas for commercial use, with the committee chairman stating as an example that “if rents for parking lots are rising too much” the CE could define a coefficient cap only applied for parking lots. Legislators also questioned if the number of notaries in the city would be enough to fulfil the request to notarise all rental contracts, with the government believing the current number of three public notary offices and 57 private notaries will suffice. “Maybe our public notaries will have to work 24 hours per day,” Mr. Cheang said.
External Trade
Increase in consumer goods trade in and out During the month of June, the merchandise trade deficit amounted to MOP5.24 billion Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The value of total merchandise exports from the city reached MOP938 million (US$116.61 million) in June, signalling an increase of 14.3 per cent year-on-year, according to the latest information released by the Statistics and Census Services (DSEC). The merchandise import value rose 10.4 per cent year-on-year during the month, reaching to MOP6.17 billion. In particular, re-exports of machines, apparatus and parts saw their value rise by 221.6 per cent (MOP224 million). During the month, the merchandise trade deficit amounted to MOP5.24 billion. For the second quarter of 2017, merchandise exports grew 10.8 per cent to MOP2.67 billion, and merchandise imports rose 5.3 per cent to MOP17.23 billion. The total value of merchandise exports during the first half year reached MOP5.62 billion, an increase of 9.8 per cent year-on-year. The import of consumer goods also recorded growth, up 5.6 per cent year-on-year to MOP35.12 billion. The merchandise trade deficit during the first six months of 2017 amounted to MOP29.50 billion. External merchandise trade amounted to MOP40.73 billion during the period, up 6.1 per cent year-onyear for the period.
Outbound
Hong Kong was the main destination
for local products, receiving MOP3.50 billion worth of exports during the first half of 2017, up 16.8 per cent year-on-year. Mainland China was another important destination for local consumer goods – up 2.3 per cent to MOP917 million – with the majority of goods heading to the nine provinces of the Pan Pearl River Delta (MOP870 million), up 2.3 per cent. Although not representing a significant market, exports to France increased nearly 219 per cent during the first six months of the year (MOP36.3 million). Yet, exports to Portuguese-speaking countries dropped drastically by 87.8 per cent year-on-year to MOP700,000.
In particular, the export of diamonds and diamond jewellery rose 35.9 per cent to MOP444 million.
Inbound
The food and beverage segment was the strongest, bringing in some MOP5.75 billion in imports during the first half-year – up 3.2 per cent year-on-year. Mainland China represented the biggest exporter of goods to Macau, totalling MOP11.51 billion in the first half of 2017, a drop of 6.7 per cent. Imports from Portuguese-speaking countries also decreased 3.3 per cent to MOP306 million during the period. Imports from the European Union went up 14.8 per cent to MOP9.07 billion. In particular, the value of imported watches rose 39.6 per cent to MOP2.57 billion during the first half-year.
Business Daily Tuesday, August 1 2017 3
Macau Central account
Fiscal surplus reached MOP20.08 bln for H1 Cecilia U cecilia.u@macaubusinessdaily.com
T
he city’s fiscal surplus reached MOP20.08 billion (US$2.50 billion) in the first half of 2017, up 15.3 per cent when compared to the same period last year, according to data published by the Financial Services Bureau (DSF). The amount of surplus in the first six months of the year represents over three times the targeted fiscal surplus for the whole year, at MOP5.57 billion. The revenue, as shown in the central account, increased 14.2 per cent
year-on-year to MOP54.83 billion during the period, with the execution level reaching 60.3 per cent of the MOP90.86 billion predicted for 2017. Taxes from gaming, which constituted the majority of the revenue generated, were MOP45.23 billion, up 14.2 per cent year-on-year. Indirect taxes - including property income, taxes for transfers and fees, fines and penalties - increased by 55.7 per cent year-on-year, amounting to MOP2.5 billion. Meanwhile, capital revenue amounted to MOP166.4 million, a drop of 41.8 per cent year-on-year when compared to the MOP285.8
million generated during the same period last year. Economist Albano Martins commented that the government is still being conservative in its spending, despite a 13.6 per cent year-on-year increase, to MOP34.8 billion. Nonetheless, the economist expressed satisfaction at the increased PIDDA investment plan, which rocketed up 256.7 per cent year-onyear to MOP6.1 billion, compared to MOP1.7 billion during the same period last year, with an execution rate of 40.1 per cent. “It was not normal in Macau last year to have the PIDDA with only a
12 per cent or 15 per cent [execution rate],” said Martins, while noting that the performance in PIDDA was much better in the past. PIDDA investment involves investment in public infrastructure projects in the city such as public housing projects. The Secretariat Office for Economy and Finance (GSEF) replied to Business Daily’s enquiry, stating that the increase in PIDDA was ‘mainly due to the positive progress in the construction of the artificial island for the Hong Kong-Zhuhai-Macau Bridge as well as the construction of Light Rail Transit’.
Urban Planning
DSSOPT collects public opinion on use of 10 plots Cecilia U cecilia.u@macaubusinessdaily.com
The Land, Public Works and Transport Bureau (DSSOPT) has started a public consultancy for designating the use of 10 land plots, as announced on the official Urban Planning Information website. The public consultation period will last until August 8 this year, with opinions to be collected in regards to two long-term land concessions, two land leases and six
private plots of land. The private land plot located near Barra Square (Travessa do Petróleo) on the Macau Peninsula is the largest of the 10, taking up some 1,534 square metres. The proposal suggests the plot be used for non-industrial purposes, with the maximum height of the building at eight metres. The Cultural Affairs Bureau (IC) advised that the construction of buildings on the land should be in a style that correlates with the surrounding
structures. Another private plot, located in Taipa near Terreno junto ao Caminho das Hortas, is the second largest plot amongst the rest. The second plot occupies some 611 square metres and is similarly to be used for non-industrial purposes. The maximum height of buildings to be constructed on the land is 50 metres. Another notable plot is a villa situated on Penha Hill. The plot takes up 563 square metres and is one of
the two long-term land concessions. The villa itself is protected under the Heritage law, with the height of the structure standing at nine metres. IC suggested in the proposal that the surrounding green environment of the villa should be kept, with at least one large sized tree to be placed in the forecourt. With the implementation of the Urban Planning Law on March 1, 2014, public opinion must be sought regarding the use of all land plots except those to be used for public infrastructure, and deliberated upon by the Urban Planning Committee. advertisement
4 Business Daily Tuesday, August 1 2017
Macau Law
Local law firm to expand to Lisbon The law firm is aiming to attract both Chinese and Portuguese speaking investors to expand businesses in mainland China and Portugal Cecilia U cecilia.u@macaubusinessdaily.com
L
aw firm Rato, Ling, Lei & Cortés - Advogados (Lektou) will open a new branch in Lisbon, Portugal, on September 1 of this year, the law firm told Business Daily. The new branch in Lisbon is the next wave of expansion for Lektou after setting up a joint-venture in July of last year - ZLF - in Hengqin with law firms from the Mainland and Hong Kong. With the intention of supporting and promoting Macau’s role as a Sino-Luso platform, explains Lektou partner Pedro Cortés, the new branch in Lisbon will act as the Portuguese platform that allows clients from mainland China to invest in Portugal, and also “to attract some Portuguese companies to [invest] in Macau and Hengqin”. ‘The expansion to Portugal is part of Lektou’s internationalization strategy to better serve its clients and to position as a legal player in the Platform between the PRC [People’s Republic of China] and Portuguese-speaking countries,’ the group shared in a press release. Cortés points out that increasingly, more Chinese investors are interested and willing to invest in Portuguese-speaking countries. “We have been in Brazil and Cape Verde [...] and we consider that it is very important for us to have a pilot there [...] and also to attract those companies to [invest] in Macau and Hengqin,” remarked Cortés, adding that they would have to seek sub-contractors to assist in transactions in the aforementioned places.
Cortés stressed that the expansion plans to use “the synergy with the office in China, the office of Macau and of course the office in Lisbon”. The local law firm has been headquartered in the MSAR for three decades. “We are trying to promote the services in Hengqin,” said Cortés. “The idea, of course, is when we open this office in Portugal to attract the clients that we have in our office in China,” he stated. The new branch in Portugal will be led by Óscar Alberto Madureira and will also employ Chinese-speaking legal staff. Prior to taking up the job in Lisbon, Madureira acted as Senior Legal Counsel for Melco Entertainment in Macau for five years. Madureira told Business Daily that there are not many firms which provide similar services, stating that “Lektou has a lot of room to expand”. Madureira reiterated that the
increasing number of foreign investors in the region drove the decision to choose Lisbon. “We know that Lisbon is on China’s radar [...] and there is a newly inaugurated direct flight between China and Portugal [...] and Lisbon as the most important city in Portugal. Those are the reasons why we selected Lisbon as our first choice in terms of the overseas branch,” said Madureira. The head of the Lisbon office also revealed that, apart from investments in residential housing, investments in commercial and industrial buildings and investments relating to agriculture are most common by Chinese investors. Investments in professional services and technologies are also beginning to make an appearance in the Chinese investment market, said Madureira. With the newly opened branch in
Portugal, Cortés said the firm would hire more people in the future, or even send staff to the new office from Macau, if the business grows. “The strategy is very conservative in the very beginning, but of course the idea is to have more people [...] we may send people from our office in Macau to work there for certain transactions,” said Cortés. Regarding the business in Hengqin, Cortés noted that the firm’s operations are a “marathon, not a short run”, while claiming that the business has been positive since opening. “I would say we have been very successful in one year, but of course we want more,” remarked Cortés. Last weekend, Lektou signed the Cooperation Charter of the “One Belt, One Road” Legal Services Cooperative with 32 other firms from 20 countries during the 2017 International Belt and Road Forum in Chengdu.
Transport
Pressure on domestic vehicle fleet achieves results Vehicle traffic through the Border Gate drops 12.1 per cent
quarter of 2017, down by 7.1 per cent year-on-year. In the first half year of 2017, cross-border vehicle traffic decreased by 6.9 per cent year-onyear to 2,374,139 trips.’
Oscar Guijarro Oscar.g@macaubusinessdaily.com
Far from the road
The strong pressure exerted on private vehicle owners, through a series of surprise measures, fines and parking fee increases has proved effective, as the ‘total number of licensed motor vehicles dropped by 1.9 per cent year-on-year to 243,570’ at the end of June, figures from the Statistics and Census Service (DSEC) showed. However, vehicle registrations increased in the second quarter of the year by 27.1 per cent year-on-year to 3,494. The first six months of the year pointed to an increase of 6.0 per cent year-on-year to 7,256 vehicles. The number of victims of traffic accidents in the second quarter of 2017 in the city totalled 1,141 - 6 per cent higher than a year before. There were 3,630 cases of traffic accidents in the period, up by 2.2 per cent year-onyear, official data indicated yesterday. However, ‘in the first half year of 2017, the number of traffic accidents fell by 2.9 per cent year-on-year to 7,208 cases.’ Th e o ffi c e a l s o stat e d that ‘cross-border vehicle traffic totalled 1,198,788 trips in the second
Ferry movements in the first half of the year went up by 1.7 per cent to 69,252 trips, according to the data. ‘Commercial flight movements at the Macao International Airport totalled 13,474 in the second quarter of 2017, edging down by 0.1 per cent year-on-year.’ In the first half of 2017, commercial flight movements
decreased by 3 per cent year-on-year to 26,381, with movements to and from the Mainland and the Republic of Korea increasing by 1.5 per cent and 73.7 per cent, respectively. The number of helicopter flights to the Mainland and Hong Kong grew 26.7 per cent to 6,091 in the first half of the year.
Cargo
In the first half of the year, the gross weight of seaborne containerized cargo fell by 11.9 per cent year-onyear, while the gross weight of containerized cargo by land decreased
by 30.6 per cent year-on-year to 8,449 tonnes, of which cargo through the Cotai Checkpoint (8,013 tonnes) accounted for 94.8 per cent, the DSEC figures showed.
5.2 per cent Decrease in the number of fixed-line telephone subscribers year-on-year for June 2017
The Macao International Airport handled 17,331 tonnes of air cargo in the first half of the year, increasing by 14.6 per cent year-on-year.
Telco talks
The DSEC added that ‘at the end of June 2017, the number of fixed-line telephone subscribers decreased by 5.2 per cent year-on-year to 135,263. The number of mobile phone subscribers rose by 7.7 per cent to 2,018,665,’ while ‘internet subscribers increased by 7.3 per cent year-on-year to 376,602.’ ‘In the second quarter of 2017, the cumulative duration of internet usage reached 310 million hours, up by 5.5 per cent year-on-year, and the duration went up by 4.8 per cent to 610 million hours in the first half year of 2017,’ the DSEC informed.
Business Daily Tuesday, August 1 2017 5
Macau
6 Business Daily Tuesday, August 1 2017
Macau Delay
Luxury hotel misses opening said tied to BoCom loan The project was planned before China’s crackdown on corruption scared VIPs away and sent casino revenue into a slump for almost three years. Daniela Wei and Annie Lee
13
Holdings Ltd. missed a Monday deadline to open its luxury hotel in Macau, a condition of a HK$3 billion (US$384 million) loan from Bank of Communications Co. for the gaming project just off the Cotai strip, according to people familiar with the matter. The US$1.6 billion development, started by 13 Holdings co-chairman Stephen Hung, formerly co-head of Asia investment banking at Merrill Lynch, now aims to open before the end of the year, said the people, who
No casino?
Any potential casino on the property would have to be granted as a satellite operation under one of the MSAR’s concessionaires or sub-concessionaires. The granting of these satellite casino requests is handled by the MSAR’s Gaming Inspection and Coordination Bureau (DICJ).
asked not to be identified because the discussions are confidential. Set to feature 200 villas with furniture evocative of the French Baroque period, marble Roman baths and 24-hour butler service, the project was planned before China’s crackdown on corruption scared VIPs away and sent casino revenue into a slump for almost three years. A spokeswoman for 13 Holdings said the company has obtained the occupation permit from Macau’s government, is currently in the process of obtaining necessary licenses for the pre-opening and operational phase, and is in the final stages of
In response to Business Daily's enquiries yesterday the DICJ stated they ‘have not yet received any one of the gaming concessionaires requesting to open a new casino in The 13 Hotel location.’ In response to Business Daily's enquiries, The 13 reiterated the same response given to Bloomberg.
completion of the property known as The 13 Hotel. The entrance to the hotel over the weekend was blocked by construction materials. Shares dropped as much as 2.9 per cent in Monday afternoon trading. The company has lost more than half of its market value this year. A spokesman for Bank of Communications in Hong Kong declined to comment on the loan or its terms, while another in Shanghai didn’t immediately comment. 13 Holdings has raised US$1.2 billion for the project, according to exchange filings. Total budget for the development is US$1.6 billion, meaning US$400 million is needed to finish construction of the hotel, and pay financing fees as well as costs associated with a casino, according to people with knowledge of the matter. “I think there is a certain amount of scepticism in the capital markets regarding a project of this scope,” said Andrew Klebanow, Las Vegas-based senior partner of Global Market Advisors LLC. “The downturn in the very high-end market certainly illustrated that this market segment is vulnerable to changes in central government policy as well as traditional economic forces.” The bulk of 13 Holding’s assets are pledged, according to the company’s
most recent annual results announcement. 13 Holdings said it has plans to run a casino on the site of the hotel project. That means it would have to work with one of the six casino operators with concessions to run gaming tables. Even as VIPs have returned to Macau and gaming revenue has rebounded in the past year, operators including Wynn Resorts Ltd. and Las Vegas Sands Corp. have shifted focus to attracting casual gamblers and visitors to the only Chinese territory where casinos are allowed. Bloomberg
Gaming north
Visitors flowing in Paradise City Asia’s largest casino complex, Paradise City, located near Incheon International Airport west of Seoul, South Korea, claims it received some 310,000 visitors in its first 100 days of operation, Korean publication Chosun Ilbo reported. Construction of the complex began in November 2014, and it currently
includes a foreigner-only casino, a hotel and a convention centre, all operational. A spokesperson for Paradise City was quoted as saying that “since the first part opened, about 90 per cent of hotel rooms have been occupied.” The company also claims that the
second part of the integrated resort is 55 per cent finished. “Once it’s complete, the complex will emerge as a leading tourist attraction in Northeast Asia,” Paradise’s spokesperson stated. Paradise City is operated as a joint venture between Paradise Group of Korea and Sega Sammy Holdings, a Japanese provider of slot machines. Investment in the project amounts to 1.3 trillion won (US$1.16 billion/ MOP9.33 billion). S.Z.
Gaming Solutions
Konami benefits from mobile games while slot revenues drop Konami is increasing its stakes in skill-based games to counter the lack of interest from younger generations in slot machines Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Total revenue from the operation of gaming and systems of Konami Holdings Corporation dropped 4.4 per cent during the second quarter, to 6.47 billion yen (US$58.62 million/ MOP471.55 million) down from 6.77 billion yen a year earlier, according to an announcement by the company. The company, in its released
results, noted that ‘total revenue from this segment decreased because its new casino management systems were mostly installed at small and medium-sized casinos, despite strong sales of slot machines mainly in the North American market.’ Overall, total revenue of the company increased 12.8 per cent, amounting to 55.74 billion yen when compared to 49.41 billion yen in the
second quarter of 2016, with the company noting that the mobile games segment (digital entertainment) ‘continued to perform strongly.’ Digital entertainment accounted for nearly half of Konami’s revenue for the quarter, totaling 28.91 billion yen, against 21.65 billion yen the previous year – an increase of 33.5 per cent per cent year-on-year. Konami registered an increase of 46.4 per cent in profits for the period to JPY8.51 billion. In addition to gaming and systems and digital entertainment, Konami operates in the segments of health and fitness as well as amusement.
The company noted in the results that Fortune Cup, a horserace betting station with a model track it showcased at Global Gaming Expo Asia (G2E Asia) earlier this year, ‘received considerable attention and excellent reviews from the gaming industry.’
The firm also said that it expects opportunities in the gaming business to grow, ‘including the legalization of skill factor loading to slot machines in some states in the U.S. (…) as a countermeasure against young people’s lack of interest in gaming slot machines.’
Lottery business
Former Melco-owned company sees near-90 pct increase in Q2 losses y-o-y 500.com Limited, a lottery service provider operating in mainland China, has recorded net revenue of RMB19.3 million (US$2.86 million/ MOP23.07 million) in the second quarter ended June 30, an increase of nearly 5 per cent from a year earlier, according to the financial results announced by the company
in a release. The company noted that net revenues for the period were primarily generated from mobile gaming and sports information services, which the company launched in the fourth quarter of 2016. Net loss attributable to the company was RMB52.6 million over the quarter
however, an 89.9 per cent increase year-on-year. In early June, 500.com completed the acquisition of 40.65 per cent of the issued shared capital of MelcoLot Limited – then a subsidiary of Melco International Development Limited – for a total consideration of HK$322.23 million (US$ US$41.39
million/MOP332.92 million). Pursuant to the agreement, Lawrence Ho Yau Lung’s Melco International has no further interest in MelcoLot. In July of this year, 500.com also acquired The Multi Group, a company principally engaged in the lottery and online casino business.
Business Daily Tuesday, August 1 2017 7
Macau Regulation
Casino operators push back against Japan regulation prospects Executives said the 15,000-square-metre limit could hit foreign investment and neutralise the economic impact of resorts Thomas Wilson
F
oreign casino operators are pushing back against moves to regulate the proposed introduction of big-ticket gambling in Japan, an early sign of friction for projects expected to generate billions of dollars for the country and the global gambling industry. Japan voted late last year to legalise casinos but specifics are still being hammered out to include in legislation on regulating proposed integrated resorts - facilities hosting casinos, hotels and conference space. A key advisory panel on Monday held its final meeting on the rules, proposing a limit on casino floor space and curbs on entry by Japanese nationals. The panel is expected to submit its proposals to Prime Minister Shinzo Abe within days. The prospect of casino gambling is unpopular in Japan, given worries about gambling addiction and a potential increase in underground activities. As a result, foreign casino operators have been cautious against speaking out against specific rules. And yet, casino executives and industry players said they have begun
lobbying politicians and bureaucrats against specific limits on casino floor space. Bureaucrats have looked at a limit of 15,000-square-metres, casino and government sources said, though the panel proposed only an “upper limit” and said specific figures would be set after wider consultations. Casi n o ex ec u ti v es sai d th e 15,000-square-metre limit could hit foreign investment and neutralise
the economic impact of resorts. “The current plans risk missing the mark on achieving public policy objectives,” one casino executive said they had told bureaucrats. “It’s serious enough to halve the maximum investment we’re willing to make.” At stake, say executives and industry representatives, is the potential revenue from casinos and the potential size of their boost to Japan’s economy. Analysts think two resorts in big cities could generate revenue of around US$10 billion a year, while the government has touted their potential for boosting Japan’s tourist industry and creating jobs.
A senior source with direct knowledge of the government’s position told Reuters bureaucrats are minded to impose stricter rules on casinos to placate public opposition. “There’s a need to balance the promotion of integrated resorts with caution and listening to the public’s views,” the source said. Las Vegas Sands Corp and MGM Resorts International are among foreign operators vying to win licences to run a Japanese casino resort. The U.S. pair have previously said they would plough up to US$10 billion respectively into a project.
Key Points 15,000-square-metre floor space limit under discussion -source Space limits could cut investment -operators Govt panel says specifics to be set after further discussion But investment of that size could be cut if the 15,000-square-metre limit is pushed through, said Seth Sulkin, chair of a taskforce at the American Chamber of Commerce Japan working on casino resorts. “Gaming companies are very rational: they’ll calculate how much revenue they can generate with a 15,000-square-metre casino floor, and they will only invest as appropriate for that, which certainly won’t be US$10 billion,” Sulkin said. Reuters advertisement
8 Business Daily Tuesday, August 1 2017
Greater China PMI
Factory growth cools but construction boom fortifies economy Activity at large factories gathered steam in July
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rowth in China’s manufacturing sector cooled slightly in July as foreign demand for Chinese goods slackened, but a government-led infrastructure push kept construction humming and helped prop up the world’s second-largest economy. The official Purchasing Managers’ Index (PMI) held above the 50-point mark that separates growth from contraction for the 12th straight month, as China poured funds into a construction boom that has fuelled demand for everything from cement to steel and other building materials. But the broad consensus among China watchers is that economic growth will cool in coming months as a government crackdown on financial risks raises borrowing costs for businesses and squeezes profits. The official PMI stood at 51.4 in July, the National Bureau of Statistics said yesterday, down from the previous month’s 51.7 and a touch below the 51.6 forecast in a Reuters poll. Export orders, which helped Chinese factories stage a strong recovery in June, had ebbed this month, with manufacturers reporting slackening foreign demand. Overall factory production expanded less quickly compared with June. New export orders slipped to 50.9 in July from 52.0 in June, helping drag the index for overall factory orders to 52.8 from 53.1. “The breakdown suggests weaker foreign demand is partly to blame the new export orders fell by a larger margin than overall new orders,” said Julian Evans-Pritchard, a Singapore-based China economist at Capital Economics. While China’s foreign trade faces a mostly positive environment in the second half of the year, uncertainties still exist, Vice Commerce Minister Qian Keming said in Beijing yesterday. The United States and China failed
earlier this month to agree on major new steps to reduce the U.S. trade deficit with China, casting doubt over President Donald Trump’s economic and security relations with Beijing. Domestically, the construction sector remained robust as the government stepped up investment in infrastructure projects. Separate data showed China’s steel sector in rude health, expanding in July at its fastest pace since April 2016.
Key Points China July official manufacturing PMI 51.4 (vs June 51.7) China July official services PMI 54.5 (vs June 54.9) China July new factory orders 52.8 (vs June 53.1) The PMI reading on the construction sector showed a solid pickup to 62.5 in July from 61.4 in June. Raw material inventories eased just slightly in July, according to the
survey, while imports were almost steady and suggested stable domestic demand. Activity at large factories gathered steam in July, with the sub-index for big manufacturers rising to 52.9 from 52.7.
Cooler months
A year-long construction boom helped China post stronger-than-expected economic growth of 6.9 per cent in the first half of 2017. But higher bank funding costs seen in the first half will filter through into the real economy eventually, while the red-hot property market moderates after waves of government cooling measures. The increase in borrowing costs is expected to hit smaller firms harder. Indeed, a reading on medium-sized and small manufacturers showed activity contracted this month. Growth in the services sector also cooled in July, falling to 54.5 from a three-month high of 54.9 in June, another official NBS survey found. China’s leaders are counting on
growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports. While the PMI data yesterday hinted at a slowdown, Beijing is still expected to meet its economic growth target of around 6.5 per cent for the full year - encouraging news for President Xi Jinping ahead of a major leadership reshuffle in the autumn. Markets will now look to the private Caixin/Markit PMI manufacturing survey for July, which focuses more on small and mid-sized firms. It is due to be released on Tuesday. While economists caution against reading too much into the official PMI figures, which can be volatile, ANZ analysts say the infrastructure boost has more to run. “The slowdown in July PMIs are only temporary, and we may see a rebound in upcoming months. The continuous ascent in prices suggests to us a longer industrial recovery,” said Betty Rui Wang, ANZ’s senior China economist. Reuters
Real estate
Hong Kong home prices climb to new peaks, but growth pace slows Prices edged up 0.69 per cent in June from May Venus Wu
Hong Kong’s red-hot home prices extended their record-breaking run in June, although the pace of growth slowed, underscoring the challenges the city’s new leader faces in reining in prices in one of the world’s most expensive property markets. An apartment of less than 200 square feet can cost as much as US$500,000 in the former British colony, making the prospect of owning a home a distant dream for many residents. Hong Kong’s home prices edged up 0.69 per cent in June from May, the smallest rise since December last year, according to data released by the Rating and Valuation Department yesterday. From a year earlier, prices surged 21.6 per cent. The record prices come even as Hong Kong’s Monetary Authority announced an eighth round of mortgage tightening measures in May to help restrain sky-rocketing prices. Analysts say these curbs could push more people to non-bank lenders, many of them the financing arms
of developers. Hong Kong’s new leader, Carrie Lam, who was sworn in on July 1 has pledged to make home prices more affordable. Prices rose 9.3 per cent from January to June this year. Chinese President Xi Jinping also voiced concern over the city’s property market when he visited on
July 1 to swear in Lam and celebrate the 20th anniversary of Hong Kong returning to Chinese rule. “Housing and other issues that affect the daily life of the people have become more serious,” Xi said in a speech. Income inequality is at its highest level in over four decades in Hong Kong, stoking discontent in the city that has been rocked by large-scale protests in recent years over calls
for more affordable housing and full democracy. Senior director at property consultancy Knight Frank, Thomas Lam, said he expects prices to edge up for the rest of the year, but at a slower pace of just 2-3 per cent, as some purchasing power had already been absorbed over the past 10 months or so.
Key Points Home prices rise 0.69 pct in June from May, up 21.6 pct y/y Property experts expect further price gains If uptrend continues, govt expected to impose more measures “If the rising trend continues, the new administration can be expected to impose more tightening measures,” Lam said. Consultancy JLL said in a report this month it expected housing prices, buoyed by strong local demand and tight supply, to rise 15 per cent in the coming 30 months. Reuters
Business Daily Tuesday, August 1 2017 9
Greater China Private poll
In Brief
Funds cut equity allocations to 9-month low, boost cash Fund managers surveyed held mixed views on asset allocations for the next month Chinese fund managers have cut their suggested equity exposure for the next three months to the lowest level in three quarters, on caution after a robust run-up in blue-chips and as start-up tech firms reported lacklustre earnings, a monthly Reuters poll showed. The fund managers cut their suggested equity allocations to 75 per cent, from 76.3 per cent a month earlier, according to a poll of eight China-based fund managers conducted this week. The fund managers have, meanwhile, trimmed their suggested bond allocations for the coming three months to 10 per cent from 10.6 per cent a month ago. They have boosted recommended cash allocations to 15 per cent for the next three months, from 13.1 per cent in the previous month. “It’s difficult to predict the trend in blue-chips with solid growth and
fundamentals after their strong gains in the past year,” a South China-based fund manager said, adding that fund managers remained cautious towards start-ups as heavyweights among them reported lacklustre mid-year earnings.
‘Allocations to financial service firms edged up to 15.8 per cent from 15 per cent’ The divergence between mainboard shares and start-up companies could continue to intensify, after the start-up board index ChiNext hit a 2-1/2-year low in mid-July, a Shanghai-based fund manager said.
The fund managers surveyed held mixed views on asset allocations for the next month, with five suggesting the same level of equity exposure, two suggesting increase, while one recommended slashing. Average recommended allocations to metals shares jumped to 7.6 per cent from 2.5 per cent, and allocations to financial service firms edged up to 15.8 per cent from 15 per cent, while allocations to electronics and technology stocks were reduced to 22.1 per cent from 25 per cent, according to the poll. A rise in the prices of metals helped boost optimism for mining firms. “The value investing strategy that attaches more importance to valuations and fundamentals could continue to dominate among market participants,” another Shanghai-based fund manager said. The South China-based fund manager mentioned above recommended cyclical and infrastructure firms, including cement producers, coal miners and non-ferrous metals producers. Reuters
M&A
Authorities ask Anbang to sell overseas assets China has asked Anbang Insurance Group, whose chairman was detained last month, to sell its overseas assets, Bloomberg reported yesterday, citing unnamed sources. Bloomberg did not provide details. Anbang spokespeople in Hong Kong did not have an immediate comment. China’s insurance regulator did not immediately respond to a request for comment. Best known overseas for its 2015 purchase of New York’s landmark Waldorf Astoria hotel, Beijing-based Anbang has been one of China’s most aggressive dealmakers in recent years and pursued a string of high-profile foreign acquisitions. M&A
Hutchison sells HK fixed-line business Hutchison Telecommunications Hong Kong Holdings Ltd said on Sunday it agreed to sell its fixed-line telecoms business to I Squared Capital for about US$1.9 billion, raising funds to invest into mobile phone services and for working capital. The company is selling Hutchison Global Communications (HGC), which provides fixed-line phone services as well as Wifi all around Hong Kong, for HK$14.5 billion (US$1.86 billion) in cash to a unit of I Squared Capital, according to a filing to the Hong Kong stock exchange. Hutchison Telecommunications said it expected to make a profit of HK$5.8 billion on the sale of HGC. Monetary policy
Taiwan c.bank to release meeting minutes Corporate debt
Bond connect lures offshore money back home to credit Users have been dipping into negotiable certificate of deposit Turns out that China’s new Bond Connect with Hong Kong isn’t just good for foreigners. Offshore Chinese money is using the channel to bring money back home, taking advantage of opportunities in domestic credit products. With the Chinese yuan’s exchange rate rising in recent months against the dollar -- and likely to stay stable with a critical Communist Party leadership conference looming later this year -- that’s made it more attractive to invest in higher-yielding domestic bonds. Since the Bond Connect kicked off on July 3, offshore institutions have taken nearly RMB1.5 billion (US$222 million) of short-term corporate debt with a tenor of no more than one year in the primary market, and another RMB2 billion plus of secondary transactions, according to data from the Shanghai Clearing House. With foreign investors generally preferring government bonds, offshore Chinese fund managers are leading the charge into credit, market participants say. Yields on benchmark one-year corporate debt are about 1 percentage point higher than
comparable government securities. “Chinese institutions have a better nose and act more quickly because they’re familiar with the issuers and markets on both sides,” said Kun Shan, head of local-markets strategy in Shanghai at BNP Paribas SA. Many Chinese banks, securities houses and fund managers have Hong Kong branches or subsidiaries and would choose to repatriate the money to take advantage of the arbitrage opportunity of a rising yuan, according to Shan. Implied yields on 12-month offshore yuan forward contracts have fallen below the rates on bonds sold by China Development Bank -- a benchmark as it’s a so-called policy bank. That shift means it’s become cheaper for investors abroad to hedge yuan moves and buy bonds onshore, according to David Qu, a market economist at Australia & New Zealand Banking Group Ltd. in Shanghai. Bond Connect users have also been dipping into negotiable certificate of deposit, an instrument often used by smaller and regional Chinese banks to raise funds -- securities that would
be well known to offshore Chinese managers. Total trade in the securities reached around RMB2.23 billion since July 3, Shanghai Clearing House show. With some recent signs of disruption in the offshore Asian bond market, tapping the Bond Connect to buy domestic credit is all the more attractive. Three sub investment-grade companies recently cancelled their debut dollar bonds as buyers sought greater risk compensation.
‘Total trade in the securities reached around RMB2.23 billion since July 3, Shanghai Clearing House show’ As for international investors, in time they too might be drawn to Chinese corporate debt, after efforts by regulators to strengthen standards in the market take root. ANZ’s Qu reckons it is “just a matter of time.” Bloomberg News
Taiwan’s central bank said yesterday it will release minutes of its June policy meeting on Aug. 3, providing the minutes of its quarterly review on interest rates to the public for the first time. The central bank said it would release the agenda, conclusions, roster of attending board members at its meeting and the vote tallies. The central bank left its policy rate unchanged at its last meeting on June 22, as widely expected, with robust tech exports providing a strong anchor for the economy and inflation remaining subdued. Trade
Beijing willing to work with U.S. to improve relationship Trade between China and the United States benefits both sides, and Beijing is willing to work with Washington to improve their trade relationship, Vice Commerce Minister Qian Keming said yesterday. China-U.S. 100 day trade talks have reached important and balanced results, he said at a news conference. North Korea and U.S.-China trade issues are not related, he added.
10 Business Daily Tuesday, August 1 2017
Greater China Markets
MSCI warns Mainland companies about suspending trading of shares Comments come as the number of suspended stocks in China is at its highest level in a year Samuel Shen and John Ruwitch
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arely a month after approving the inclusion of Chinese shares in its benchmark emerging market index, MSCI is warning that companies in China that suspend trading in their shares for too long risk being dropped. MSCI’s head of research for Asia Pacific, Chin Ping Chia, said China was an outlier in global markets with too many suspensions in stock trading. He said the U.S. index provider was closely monitoring the 222 China-listed A-shares that will be added to its Emerging Markets Index next year. “If we find a company suspends for a long time, over 50 days, we will remove it from the index, and we will not bring it back to the index again for at least another 12 months,” Chia said. The 12-month removal rule would be limited to Chinese companies. Companies from other markets who are removed from the index due to a long suspension of trading would be
able to start a review process for reinclusion once they resumed trading. MSCI’s comments come as the number of suspended stocks in China is at its highest level in a year after volatility in smaller companies prompted many to halt share trading in order to avert a crash in prices. Suspensions have also increased among companies with larger capitalisations as Beijing steps up consolidation of state-owned enterprises. An average of 265, or one in every 13, listed companies in China suspended trade in July, according to data provided last Wednesday by the fund consultancy Z-Ben Advisors. The consultancy said the number had risen every month this year and was now up 30 per cent from an average of 202 in January. Last year, MSCI cited arbitrary and long suspensions as a reason for vetoing the inclusion of shares listed on the Mainland in its benchmark indices. However, MSCI said in June this year that it would add 222 A-shares to the index in May and August next year, which could trigger billions of
dollars of passive investment inflows into China. “This suspension issue in China is highly unique, both in the number and frequency,” Chia said. He said that failure to address the issue could discourage MSCI from adding China stocks to its indexes in the future. Investors have long worried about a tendency by Chinese companies to suspend trading in their shares. At the height of the 2015 stock market crash, over half of China’s 3,000-plus listed companies halted trading. In May last year, both the Shanghai and Shenzhen stock exchanges tightened rules on share suspensions by listed companies, requiring them to disclose more details and to shorten the length of suspensions. These measures, however, have had limited effect. A spokesman for the China Securities Regulatory Commission said at a press conference on Friday that Chinese regulators would work to improve suspension rules.
Kong and roughly 4 per cent on the Nasdaq. MSCI’s Chia said that suspensions last for a day at most in most global markets, whereas in China, suspensions can go on for months. In an extreme case, trading in shares of Xinjiang Yilu Wanyuan Industrial Investment, a loss-making ceramic products maker, has been suspended for about 20 months. “The issue is that in a freely accessible market, investors want to be able to get in and get out. If a market falls, they still want to be able to get out,” said Chia. “But if you suspend, investors cannot get out, that will be a problem.” Seasoned foreign investors in China’s A-share market concur. “You can tolerate losing money, but you cannot tolerate not being able to trade,” said Anthony Cragg, a senior portfolio manager at Wells Fargo Asset Management who manages US$2.2 billion in several funds - including one dedicated to China.
Outlier
Exploiting loopholes
Essence Securities, a Chinese brokerage, estimates that 8 per cent of Chinese stocks could not be traded in May due to suspensions, compared with less than 1 per cent in Hong
Suspension time on the Shanghai stock exchange cannot exceed one month
The rules announced last year specify that in the case of a private share placement, suspension time on the Shanghai stock exchange cannot exceed one month. The Shenzhen stock exchange stipulates a maximum of six months for a trading suspension in the event of a company restructuring. Yet, plenty of companies, particularly smaller companies, are able to exploit these relatively loose suspension rules. This month, when China’s start-up board ChiNext tumbled to 2-1/2-year lows, companies listed there - including H and R Century Union Corp, Xinlong Holding Group Co and Galaxy Biomedical Investment - quickly suspended share trading, citing various reasons, ranging from margin calls to restructuring, or waiting for the release of price-sensitive information. Xu Caiyuan, a prominent activist investor, said many Chinese companies were “playing dead” to avoid price falls, so that major shareholders facing margin calls could maintain control by “trapping small investors.” Reuters
M&A
Fosun’s Guo says backs crackdown on overseas deals The chairman said the campaign against risky deals was reasonable and that some people were overblowing it One of China’s richest men and most active global dealmakers has given his backing to a crackdown on overseas investments, a drive which has stymied deals and brought the spotlight onto the offshore dealmaking of a number of China’s top firms. Guo Guangchang, chairman of Chinese conglomerate Fosun International, said in a note on Saturday that tougher rules on overseas deals were “essential and timely” to root out risky investments and sort out financial “chaos”. “This can certainly eradicate a significant amount of irrational investment and things that are potential risks to financial security,” Guo said in a letter posted on Fosun’s official microblog on Tencent’s WeChat. “If no steps were taken then foreigners would simply think that Chinese firms were just silly money”, he added. Beijing’s suppression of showy
overseas deals has drawn in corporate giants including property developer Dalian Wanda, HNA Group, Anbang Insurance, Fosun and Zhejiang Luosen, which was behind the purchase
of A.C. Milan football club. Guo said the campaign against risky deals was reasonable and that some people were overblowing it. He added China’s support for rational overseas investment had not wavered. “I believe this support will continue, Chinese firms need to have a seat at the global economic table,” he said. Fosun, which owns assets including overseas insurers and French holiday
firm Club Mediterranee, announced a deal to buy French margarine maker St Hubert with Beijing Sanyuan Foods Co Ltd last week.
“If no steps were taken then foreigners would simply think that Chinese firms were just silly money” Guo Guangchang, chairman of Fosun International
Guo was drawn into the spotlight in 2015 when media reports that he had gone missing sparked speculation that Fosun had been drawn into an anti-graft campaign. The firm, one of China’s most acquisitive overseas dealmakers, later said Guo had been helping police with a probe that mostly concerned his personal affairs. Reuters
Business Daily Tuesday, August 1 2017 11
Asia Diplomacy
S. Korea starts review of ‘comfort women’ deal A government-appointed task force was launched yesterday to investigate the deal
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outh Korea yesterday began an official review of a controversial agreement with Japan over Second World War sex slaves, formally reopening an issue that still strains ties between the U.S. allies. Mainstream historians say up to 200,000 women, mostly from Korea but also other parts of Asia including China, were forced to work in Japanese military brothels during World War II. The plight of the so-called “comfort women” is a hugely emotional issue that has marred relations between the Asian neighbours for decades. For many South Koreans it epitomises the abuses of Japan’s 1910-45 colonial rule over the Korean peninsula. South Korea and Japan reached a “final and irreversible” agreement in December 2015, under which Tokyo offered an apology and one billion yen (now US$9 million) to open a
foundation for the dwindling number of comfort women who are still alive. The deal, reached by the previous Seoul administration of Park Geun-Hye, was condemned by some of the women and South Korean activists, who took issue with Japan’s refusal to accept formal legal responsibility and questioned the sincerity of its apology. A government-appointed task force was launched yesterday to investigate the deal, Seoul’s foreign ministry said. “Our task is to thoroughly review the problems in the negotiations and in the agreement itself,” its head Oh Tai-Kyu told reporters after its first meeting, adding the task force will consider “whether the opinions of the victims have been fully reflected in the agreement”. New President Moon Jae-In had promised a review on the campaign trail. But the move threatens to complicate relations with Tokyo, even as the two
countries, both of them security allies of Washington, face threats from nuclear-armed North Korea. Japan maintains that the two countries must abide by the agreement.
‘Several of the surviving South Korean comfort women -currently numbering 37 -- refused to accept the final compensation provided by Japan’ Since its signing it has pressed Seoul to remove a statue of a girl erected in front of the Japanese embassy in Seoul by activists to symbolise the victims of sex slavery. They have since put up more statues -- including one
Oh Tai-kyu, chief of a task force to review an agreement with Japan reached in 2015 over Japan’s imperial-era mobilization of Korean women as sex workers. Lusa
outside the Japanese consulate in Busan -- which led to Tokyo recalling its ambassador for three months earlier this year. Several of the surviving South Korean comfort women -- currently numbering 37 -- refused to accept the
final compensation provided by Japan. A group of 12 comfort women filed a lawsuit against Seoul last year for signing the agreement without their consent and despite Tokyo’s refusal to take legal responsibility. AFP
Industry
Japan output increase hints at more stable growth Manufacturers surveyed by the ministry expect output to rise 0.8 per cent in July and 3.6 per cent in August Stanley White
Japan’s factory output rebounded in June from a decline in May as production of cars and industrial chemicals increased, suggesting economic expansion may be on a more stable footing. Industrial output rose 1.6 per cent in June from the previous month, just below the median estimate for a 1.7 per cent increase and following a 3.6 per cent decline in May. Manufacturers forecast a steady increase in output in coming months, offering further evidence that firm overseas demand and gains in consumer spending could support overall growth in Japan’s economy. “Overall, the trend looks healthy due to domestic demand and demand from emerging markets, said Norio Miyagawa, senior economist at Mizuho Securities. “It’s safe to say the economy continued its expansion in April-June and the forecasts point to further growth in output.” Transport sector output rose 4.2
per cent in June, rebounding from a 13.0 per cent tumble in the previous month, as output of passenger cars and automobile engines recovered. Output of chemicals rose 3.4 per cent in June, also a rebound from a 2.2 per cent decline in May. Inventories across all industries fell 2.2 per cent in June, the biggest decline in more than six years, as inventories of cars, steel, and electronic equipment were reduced.
Key Points June factory output +1.6 pct vs f’cast +1.7 pct Manufacturers expect output to rise in July and Aug
Some economists were concerned that inventories in the past few months were too high, and that companies would have to cut output. However, the decline in inventories in June shows that companies still have room to expand output, said
Mizuho Securities’ Miyagawa. Manufacturers surveyed by the ministry expect output to rise 0.8 per cent in July and 3.6 per cent in August, which also shows that gains in output are likely to be maintained. Industrial output rose 1.9 per cent in the April-June quarter, handily exceeding the 0.2 per cent increase seen in January-March. Given the close correlation
between industrial output and gross domestic product this suggests the overall economy accelerated in April-June. The positive output reading follows data last week showing the biggest increase in household spending in almost two years and an increasingly tight labour market, building optimism that the economy will maintain its upward momentum. Reuters
12 Business Daily Tuesday, August 1 2017
Asia Monetary stance
Indian central bank head seen seizing chance to spur growth in rate call Consumer prices rose 1.5 per cent in June, below the RBI’s April-September forecast range of 2 per cent to 3.5 per cent Anirban Nag and Manish Modi
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year ago, India had Asia’s fastest growth and inflation. Then Prime Minister Narendra Modi took away most of its money and both indicators slowed, bolstering expectations the central bank will cut borrowing costs for a final time this cycle as pressure mounts for a stimulus. The Reserve Bank of India’s six-member monetary policy committee will lower the repurchase rate to 6 per cent from 6.25 per cent, according to 39 of 55 economists in a Bloomberg survey before Wednesday’s announcement. The rest see no change. The reduction would bring the benchmark rate to the lowest since 2010 and mark a U-turn from just six months ago, when Governor Urjit Patel jettisoned an accommodative bias for a neutral policy setting. Consensus has built for a cut because it’s seen as Patel’s last chance through 2018 to spur the economy before the U.S. Federal Reserve reduces its balance sheet, forcing emerging markets to keep pace. India’s record-low inflation is also flattered by last year’s prices and low global food costs, which are expected to reverse in coming months. “Given that the inflation reading has further surprised with a sub-2 per cent print, we find some room for RBI to be accommodative,” said Madhavi Arora, an economist at Kotak Mahindra Bank Ltd. in Mumbai, who predicts a reduction on Wednesday. “However, we reckon that the room for further monetary accommodation remains limited.”
Consumer prices rose 1.5 per cent in June, below the RBI’s April-September forecast range of 2 per cent to 3.5 per cent. It will end 2017 around the medium-term target of 4 per cent, according to the median estimate in a Bloomberg survey. Economists also reduced their growth projections for the previous quarter as loan-growth hovers near a record low and job losses mount after Modi last year surprisingly scrapped 86 per cent of currency in circulation. Earlier this month, Modi’s top economic adviser Arvind Subramanian said India was undergoing a “paradigm shift” in prices and called upon policy makers to reflect “very, very, carefully” upon June’s unprecedented inflation and soft industrial output. There were also signs of dissent within the MPC, with one member breaking ranks for the first time to urge a sharp 50 basis point cut.
Baking in a cut
Besides angering the government, a hold on rates this week would risk roiling the stock and bond markets that have pretty much baked in a 25 basis point reduction. The benchmark 10-year government bond yield has fallen to 6.46 per cent this month from 6.51 per cent -- best performance in Asia -- while India’s main stock index has risen nearly 4.5 per cent during the same period. Lower interest rates, on the other hand, could pressure the rupee that has strengthened some 6 per cent this year by offering investors who borrow in dollars the highest carry returns in Asia. Tuuli McCully, Singapore-based head of Asia-Pacific Economics at
Bank of Nova Scotia, says majority of the MPC is committed to an inflation-targeting monetary framework and are strong advocates of central bank independence.
“Given that the inflation reading has further surprised with a sub-2 per cent print, we find some room for RBI to be accommodative” Madhavi Arora, an economist at Kotak Mahindra Bank Ltd.
“Therefore, they will likely see through temporary dips in headline inflation and instead focus on core inflation that has not eased in tandem with the headline rate,”
McCully said. “They are also likely to refrain from voting according to the government’s preference of looser monetary policy.” What deepens the quandary is that while the markets are betting on a cut, Patel’s team has been mopping up excess funds in the banking system, effectively tightening policy to ensure it doesn’t fuel inflation. The RBI withdrew 200 billion rupees on July 6 and July 20 through open-market operations and announced more for August. It has also been using regular tools to drain funds and move to neutral liquidity from a surplus. “The RBI should cut rates by at least 50 basis points if they want to help genuine borrowers but the probability of that happening has significantly reduced,” said Rupa Rege Nitsure, chief economist at L&T Finance Holdings Ltd. “If they cut rates after this, as a monetary economist, it does not make any sense to me. As things stand, the RBI’s reasons for maintaining their neutral stance remain unchanged.” Bloomberg News
Allocation poll
Japan fund managers raise bond holdings, trim equities The respondents’ overall equity exposure was reduced to 37.1 per cent in July from 37.9 per cent in June. Japanese fund managers trimmed their exposure to stocks and raised their bond holdings in July for the fifth straight month, a Reuters poll showed, with Japanese debt yields declining sharply mid-month on expectations that the Bank of Japan (BOJ) would stick to its easy monetary policy indefinitely. The survey of five Japan-based fund managers conducted between July 19 and 26 showed respondents on average wanted to allocate 58.7 per cent of their model portfolios to bonds in July, from 56.9 per cent in June. All responses were received before the U.S. Federal Reserve concluded its two-day meeting on Wednesday, at which it maintained its benchmark lending rate and said it was continuing its slow path of monetary tightening but also noted that inflation had cooled. The perceived dovish tone sent the dollar to a 13-month low against a basket of currencies and pushed down U.S. Treasury yields.
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Tracking movements in U.S. and euro zone counterparts, the Japanese benchmark government bond yield rose to a five-month high of 0.105 per cent early in July. But the BOJ curbed the yield rise with a special bond buying operation on July 7, sending a message that it remained committed to its yield curve control policy.
The BOJ also pushed back its inflation target for the sixth time in July, reinforcing views that it will lag well behind other central banks in scaling back its massive stimulus programme. The 10-year JGB yield last stood at 0.070 per cent. Speculation that the Fed’s attempts to normalise its monetary policy would continue at a slow pace was also seen favouring government bonds. “The U.S. economy is well but not stellar. Higher U.S. yields could destabilise equities which are already at lofty levels,” said Yuichi
Kodama, chief economist at Meiji Yasuda Insurance. “U.S. inflationary pressures are also weak due to slow wage growth and the Fed might find it difficult to raise rates this year if it were to start trimming its balance sheet in September,” added Kodama, who also expects any remaining upward pressure on Japanese yields to ease after August. The 10-year Treasury note yield rose to a two-month high of 2.40 per cent early in July but has slipped back to 2.29 per cent. Among bonds, the respondents increased Japanese debt exposure to 38.3 per cent in July from 36.7 per cent in June. They trimmed North American bond holdings to 34.6 per cent from 35.5 per cent. The respondents’ overall equity exposure was reduced to 37.1 per cent in July from 37.9 per cent in June. Among equities, they raised their exposure to North American stocks to 30.5 per cent in July from 28.0 per cent in June as Wall Street shares reached record highs. They also increased their holdings of Japanese equities to 48.8 per cent from 46.3 per cent. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; 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 Tuesday, August 1 2017 13
Asia Election
In Brief
Old enemies unite in Malaysia as Najib woos Islamic heartland Yet while the approach may deliver votes, it also brings risks in a country with large Chinese and Indian minorities and a history of ethnic violence Anisah Shukry and Jason Koutsoukis
In Malaysia’s Islamic heartland, a door to Hollywood has opened. For the first time in more than 20 years, the city of Kuala Terengganu has a cinema, showing blockbusters like Baywatch and Wonder Woman. But the darkened hall is dotted with infra-red cameras to monitor theatre-going couples. “Are you looking at the screen, or are you doing a bad thing?’’ said Samiun Salleh, general manager of the Terengganu State Economic Development Corporation, a partner in the cinema. The effort to mollify local clerics is a political one in the conservative Islamic north-eastern state governed by Prime Minister Najib Razak’s coalition. With a federal election due within 12 months, Najib’s United Malays National Organisation is seeking to burnish its credentials with Muslim voters. To do so, UMNO has formed an unlikely arrangement with its longterm nemesis, the hard-line opposition Pan-Malaysian Islamic Party, or PAS. At the centre of the thaw -- they call it informal cooperation -- is a rapprochement between Najib and PAS chief Hadi Awang. The move is simple maths for Najib: More than 60 per cent of Malaysians are Muslim, and 50 per cent are ethnic Malays, many of them in rural areas. He needs their votes for UMNO to extend its 60 years in power, and closer ties with PAS may help. For Hadi, it gives him the ear of the prime minister and a better shot at influencing government policy. “The issues of race, ethnicity, the Malay language and especially Islam are close to the heart of the Malays,” said Mohamed Mustafa Ishak, a professor of politics and international studies at Universiti Utara Malaysia. “By working together to uphold Islam, either through the implementation of shariah law or strengthening the position of Islam within the administration, this serves both parties well.” Najib’s efforts have widened an existing rift between PAS and other parties in the opposition alliance, some of whom objected to PAS’s push for Shariah law for Muslims. PAS has now formally abandoned the opposition, raising the risk multiple candidates compete against UMNO in each seat. PAS and UMNO have had a long -- and at time rancorous -- rivalry dating back to the late 1970s, driven largely by personality politics. But
Malaysia’s Prime Minister Najib Razak
Hadi has appeared side by side with Najib at several public events in the past year. Najib has allowed Hadi to introduce legislation to broaden the power of Islamic courts nationally. The bill would increase maximum jail terms and lashes with a cane for religious infringements. “PAS is flexible,’’ according to Hadi’s son, Muhammad Khalil, 40, who is national director of the PAS youth wing. “We are willing to work with any quarters or parties,” he said last month at the party’s headquarters in Kuala Lumpur. “What matters is that it benefits Islam and that it benefits Malay Muslims.’’ “We put Islam as the foundation, and Malays must be the foundation for the country’s ruling political system,’’ Khalil added. Terengganu is PAS’s spiritual home. It’s where Hadi Awang hails from. PAS has three of the state’s eight federal seats, while UMNO has four. Prior to oil and gas discoveries off peninsular Malaysia’s east coast in the early 1970s, it was one of the country’s poorest states. But there’s been rapid industrialization and development over the past 30 years, and the state has a burgeoning tourism industry.
“The issues of race, ethnicity, the Malay language and especially Islam are close to the heart of the Malays” Mohamed Mustafa Ishak, a professor of politics and international studies at Universiti Utara Malaysia PAS has aligned with UMNO before: It joined the broader Barisan Nasional coalition in 1972 but was expelled five years later. In 1981, Hadi Awang was interpreted as saying Muslims who supported UMNO were infidels, a remark his son said was taken out of context. Now, Najib and PAS leaders are jointly advocating for the ethnic minority Islamic Rohingya in Myanmar. At the UMNO general assembly in December, Najib warned Islam would be threatened if the opposition won power. In April he wrote a blog post detailing the steps he’d taken to
protect Muslims’ welfare. Yet while the approach may deliver Najib votes, it also brings risks in a country with large Chinese and Indian minorities and a history of ethnic violence, including before Malaysia’s split with Singapore in 1965. Chinese and Indian voters are bastions of opposition support. Prioritizing Islamic voters would “be extremely harmful” to Malaysia’s harmony, said Oh Ei Sun, principal adviser to Malaysia’s Pacific Research Center. “It would also inadvertently nurture a hot bed for misguided religious extremists and fundamentalists to spread their twisted versions of intoxicating ideologies.” The weakening of Islamic State in the Middle East has led to warnings that fighters may return to Southeast Asia, raising the risk of greater homegrown radicalism or the re-energizing of localized extremist groups. UMNO’s Kuala Terengganu division chief Sabri Alwi said he was not concerned about the PAS cooperation. “We are Muslim, PAS is also Muslim, we can stand together,” Sabri said before an event to give cash handouts to lower-income earners during Hari Raya, the holiday marking the end of the Islamic month of fasting. But architect Kamarul Bahrin, 62, who designed Kuala Terengganu’s football stadium and the state museum, feels otherwise. A PAS member since the early 1980s until recently, and a lawmaker since 2013, Kamarul said the party had moved in recent years to weed out more moderate members. “In PAS today, all they want are yes men,” Kamarul said in a June interview at his offices in the city. Kamarul was part of a group that broke away from PAS to form a party known as Amanah -- or “trust” -- in September 2015. Amanah has joined the opposition alliance. “This election is crucial, it’s make or break,’’ said Kamarul. If UMNO and PAS continue to mix religion with politics “we will end up as two Malaysias.” It’s a careful dance, according to Kuala Terengganu’s PAS chief, Wan Sukairi Wan Abdullah. “PAS equals Hamas,” he said, referring to the Palestinian fundamentalist organization. “And UMNO equals Donald Trump. The two don’t mix.” “The friendliness is a new strategy born out of mature politics,” he said. “We are working together for the sake of the people and Islam. That is important.” After about five months the Kuala Terengganu multiplex has had no reports of bad behaviour, according to Samiun. Proof, he said, that compromise is possible. “So far, there are no complaints, they are very happy,” he said of the local clerics. “No bad things have happened.” Bloomberg News
Property
Australia new homes sales fall sharply in June Sales of new homes in Australia fell sharply in June to the lowest since 2013, though conditions were markedly different across states, an industry survey showed yesterday. The Housing Industry Association (HIA) said its survey of large-volume builders showed new home sales fell a seasonally adjusted 6.9 per cent in June, from May, reversing two months of gains. Sales of detached houses fell 5.7 per cent, while apartment sales dropped 10.7 per cent. Total sales in June were down 11.9 per cent on the same month last year. Monetary policy
S.Korea to keep rates accommodative for now South Korea’s central bank said yesterday that moderate inflationary pressure merits the bank keeping its interest rates accommodative for now, but it will review and adjust monetary policy if growth remains strong. “Economic growth will be solid but inflationary pressure won’t be strong from the demand-side, which warrants the bank maintaining its accommodative policies,” the bank said in its twice-yearly report on monetary policy. The benchmark interest rate is at a record-low 1.25 per cent, having been cut eight times since early 2012. PMI
Thai factory output dips Thailand’s industrial output unexpectedly dropped in June, after a rise in the previous month, due to lower production of air conditioners and steel, suggesting economic recovery remains fragile. The Industry Ministry said yesterday the manufacturing production index (MPI) in June contracted 0.16 per cent from a year earlier, compared with the median forecast of a 1.2 per cent rise in a Reuters poll. May’s index was revised to a 1.64 per cent year-on-year rise from a 1.4 per cent increase. Capacity utilisation at factories dropped to 61.05 per cent in June from a revised 62.22 per cent in May. Banking
SBI cuts rates for most savings accounts State Bank of India, the country’s largest lender, yesterday introduced a two-tier interest rate structure for its savings bank accounts, reducing interest rates for most of its depositors. Accounts with a balance of 10 million rupees (US$155,994.07) and less will earn 3.5 per cent per annum effective July 31, while those above 10 million rupees will continue to earn 4 per cent per annum, the bank said in a statement. About 90 per cent of SBI’s savings accounts have balances under 10 million rupees. “The decline in rate of inflation and high real interest rates are the primary considerations warranting a revision,” SBI said.
14 Business Daily Tuesday, August 1 2017
International In Brief Risks
UK consumer borrowing cools Consumer credit growth slowed in June after the Bank of England officials took action to limit some areas of risk from borrowing. Unsecured lending rose 10 per cent from a year earlier, the least in more than a year, the UK central bank said yesterday. It grew 1.5 billion pounds on the month. The BOE in June responded to the rapid build-up of credit by ordering lenders to hold billions of pounds of extra capital and strengthened rules on mortgage lending to rein in what one official called “pockets of risk.” The BOE will announce an interest-rate decision on Thursday. Redundancies
Shell plans 400 job cuts Royal Dutch Shell plans to cut more than 400 jobs in the Netherlands, mainly at its major projects and energy technology operations, as the oil giant shifts its business model in response to lower oil prices, according to an internal document seen by Reuters. The world’s second-largest oil company by market capitalisation said in a statement responding to questions from Reuters that “approximately 400 (staff) are potentially at risk of redundancy during the last quarter of 2017/first half of 2018”. That represents around a quarter of the roles at the department, according to the staff consultation document seen by Reuters.
Prices
Euro-area inflation holds at 1.3 per cent ECB will have ample time to ponder economic data and policy options ahead of their Sept. 7 meeting Alessandro Speciale and Piotr Skolimowski
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nflation in the euro area remained well below the European Central Bank’s goal as policy makers prepare to discuss unwinding stimulus. Consumer prices rose at an annual pace of 1.3 per cent in July, unchanged from the previous month, Eurostat reported yesterday. Core inflation, the measure that strips out volatile components such as food and energy, accelerated to 1.2 per cent, the highest in three months. While the report confirms ECB President Mario Draghi’s prediction that inflation would remain near June levels in the coming months, it also reinforces his assessment that, despite the region’s booming economy, there isn’t yet a self-sustained trend. Policy maker are gearing up for an autumn debate on the future path of ECB policy. “They need to get a clear story for September or October to make the case of the exit and it’s not going to be easy because core inflation and wages will probably roughly be where
they are now,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “They have to make the case for tapering and that will be based on growth giving them confidence that inflation is going to come back, and that’s the story they will try to sell.” So far, Draghi and his Governing Council discussion have steered away from a formal discussion about what will happen to the ECB’s 2.3 trillion-euro (US$2.7 trillion) quantitative-easing program after its scheduled end in December. While policy makers’ guidance ties bond-buying to progress on the inflation front, the Italian has suggested that purchases could be pared without tightening the stance.
Pondering data
Officials will have ample time to ponder economic data and policy options ahead of their Sept. 7 meeting, and probably even thereafter. A decision is more likely to come in October, people familiar with the matter told Bloomberg. With most central bankers taking a break from public events as Europe heads into a month of summer
Sanctions
Qatar central bank’s foreign reserves shrink The Qatar central bank’s net international reserves plunged by US$10.4 billion in June to US$24.4 billion because of economic sanctions imposed by other Arab states, central bank data showed. Reserves hit their lowest level in at least five years. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties with Qatar on June 5, causing some banks and portfolio investment funds to pull money from the country, depleting the reserves. However, Qatar’s sovereign wealth fund is believed to have around US$180 billion or more of liquid foreign assets. Politics
Trump tells Republicans to get back on U.S. healthcare bill U.S. President Donald Trump and members of his administration on Sunday goaded Republican senators to stick with trying to pass a healthcare bill, after the lawmakers failed spectacularly last week to muster the votes to end Obamacare. For the second day running, the Republican president tweeted his impatience with Congress’ inability to deliver on his party’s seven-year promise to replace the Affordable Care Act, President Barack Obama’s signature healthcare bill commonly known as Obamacare. Members of his administration took to the airwaves to try to compel lawmakers to take action.
vacation, the public discourse over monetary policy ahead will centre on economic data. Business and consumer confidence in the 19-nation region unexpectedly improved this month, and unemployment fell to 9.1 per cent in June, the lowest since early 2009. A report on Tuesday is forecast to show output increased 0.6 per cent in the second quarter. The ECB is banking on the region’s robust recovery, now in its fifth year, to create price pressures -- an endeavour complicated by an appreciating currency. Until now, wages have been almost stagnant, and a Bloomberg measure of domestically generated inflation has slowed, while the euro has gained more than 11 per cent against the dollar since the start of the year.
Discussing progress
Draghi has the opportunity to discuss his assessment with at least 19 Nobel Laureates at a conference that starts on Aug. 23 in Lindau, Germany, before he meets his international counterparts at the Federal Reserve’s Symposium in Jackson Hole, Wyoming. U.S. officials may arrive with some advice on the dos and don’ts of unwinding stimulus. The central bank sparked an uproar in markets in 2013 with a signal about reducing accommodation. It’s since stopped buying bonds and started to raise interest rates and plans to begin “ relatively soon” to build down the institution’s US$4.5 trillion balance sheet. Draghi has indicated that he’s in no rush to head down the exit path. “We need to think. We need to have lots of information we don’t have today,” he said after policy makers’ July 19-20 meeting. “But let me give you the bottom line of our exchanges: Basically, inflation is not where we want it to be, and where it should be.” Reuters
Results
HSBC profits up in first half of 2017 The bank said profits were up in the first half of the year after a turbulent 2016 which saw huge write-downs and restructuring costs as it laid off thousands of staff The Asia-focused giant has been on a recovery drive over the past two years, streamlining its operations and exiting unprofitable businesses. Like many global banks it has struggled to boost profits as China’s economy slows and uncertainty caused by Britain’s looming exit from the European Union casts a shadow over the sector. In addition, HSBC has grappled with stricter capital rules, low interest rates and scandals stemming from its own misbehaviour. However, yesterday’s results were an improvement as analysts said its overhaul was bearing fruit. Reported pre-tax profit for the six months to June rose five per cent to US$10.2 billion compared with US$9.7 billion for the same period last year. The half-year results showed operating expenses dropped 12 per cent to US$16.4 billion, partly stemming from a sell-off of its Brazil operations. Chairman Douglas Flint described the performance as “extremely pleasing”. Flint said there were still uncertainties due to increasing geopolitical tensions and “ambiguous predictions” around Britain’s future relationship with the EU post-Brexit, but described HSBC’s performance as resilient.
In his last statement as chairman before stepping down in October, Flint warned over the possible repercussions of the Brexit deal. “The essential questions that have to be addressed are whether, at the conclusion of the negotiations, the economies of Europe will continue to have access to at least the same amount of financing capacity and related risk management services, and as readily available and similarly priced, as they have enjoyed with the UK as part of the EU,” he said in a statement. Flint also called for more progress on preventing “bad actors” from accessing the financial system. “As digitalisation of commercial activity increases, the risks of confidence-threatening disruption and economic loss, not least from cyber attacks, are amplified,” Flint said.
Unacceptable failings
Analysts said yesterday’s results had outstripped predictions. “HSBC’s earnings are definitely better than market expectations,” said Dickie Wong of Hong Kongbased Kingston Securities. He described the firm as in “very good shape” after wide-ranging restructuring programmes following the global financial crisis in 2008.
Net profit for the first half of the year rose 10 per cent to US$6.99 billion from US$6.36 billion for the same period in 2016. Pre-tax profits for the second quarter rose US$1.7 billion to US$5.3 billion year on year, beating Bloomberg analysts’ estimates, which had averaged out at a US$4.6 billion forecast. HSBC also announced a share buyback of up to US$2 billion, expected to be completed in the second half of the year. The bank announced the appointment of a new chairman in March as part of a management overhaul that will also see it choose a new chief executive to replace Stuart Gulliver, following a massive drop in 2016 profits. British businessman Mark Tucker, currently group chief executive and president of insurance group AIA, will take over from Flint. Gulliver has said he will step down in 2018. Gulliver and Flint were grilled by British lawmakers in 2015 and apologised for “unacceptable” failings at HSBC’s Swiss division following allegations the unit helped rich clients hide billions of dollars from the taxman. HSBC was one of six major U.S. and European banks that were fined a total of US$4.2 billion by global regulators in a November 2014 crackdown for attempted manipulation of the foreign exchange market. It was also fined US$1.92 billion by U.S. prosecutors in 2012 to settle allegations that it failed to enforce anti-money laundering rules exposing it to exploitation by drug cartels and terrorist organisations. AFP
Business Daily Tuesday, August 1 2017 15
Opinion Business Wires
The Straits Times Former presidential candidate Tan Cheng Bock’s appeal against the timing and basis of the upcoming reserved presidential election begun yesterday. In his legal challenge dismissed on July 7, Dr Tan had contested the counting of the five consecutive terms before a reserved election from the term of President Wee Kim Wee. Mr Wee was in office when the elected presidency took effect in 1991, and there have been four other terms since including that of current President Tony Tan Keng Yam. Dr Tan, 77, had argued this was unconstitutional as Mr Wee was not popularly elected.
Viet Nam News Ten commercial banks will have to sprint to be able to meet the Government’s listing deadline on the Unlisted Public Company Market (UPCoM) by the end of this year. According to the Government’s regulations, all 730 equitized companies yet to be listed on the UPCoM will have to list on the bourse by the end of this year. Ten banks - OCB, ABBank, Techcombank and NamABank, as well as MaritimeBank, VietABank, TPBank and Seabank, along with HDBank and LienVietPostBank, are among the firms named. The 10 banks repeatedly made plans to list on the stock market in the past year.
China’s economy needs some more foreigners
The Phnom Penh Post The (Cambodian) government has issued a decree that requires all businesses to put price tags on their products and services in riel to increase transparency for consumers and boost the use of the local currency. A prakas by the Ministry of Commerce (MoC) released yesterday builds off of a similar initiative announced in 2013 that fell flat on a lack of enforcement and confusion surrounding the vague penalties for noncompliance. However, according to the MoC’s updated decree, the government will coordinate with multiple agencies to regularly inspect business operations to make sure that price tags are in place, and are properly displayed in riel.
Inquirer.net In line with President Duterte’s directive to review mining rules and regulations, the inter-agency Mining Industry Coordinating Council (MICC) will put in place a “clearer” fiscal regime that will give incentives to responsible mining activities while penalizing law offenders. The President’s pronouncement during his State of the Nation Address (Sona) last week that the government would “tax to death” the mining industry essentially meant that miners must follow the law, Finance Secretary Carlos G. Dominguez III, who co-chairs the MICC, said last Friday.
Christopher Balding a Bloomberg View columnist
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or decades, China has sought to expand its “soft power,” or the ability to extend influence through non-military means. It spends some US$10 billion a year promoting language schools and building universities overseas. It’s pushing entertainment companies to expand in foreign markets. And it has long been hoping to lure foreign travellers, just as the U.S. and Europe do. State media have said that the plan is to “develop tourism into a major driver of economic transformation and upgrading.” But that effort is faltering: Inbound tourism last year rose by only 3.8 per cent, with roughly 80 per cent of those visitors coming from Hong Kong, Macau or Taiwan. One reason is that, for all its global aspirations, China isn’t at all welcoming to foreigners. Its visa process offers a case in point. Citizens of only 13 countries are allowed visa-free entry to China (compared with 38 countries allowed by the U.S.). Everyone else must obtain a visa in advance. In the U.S., Chinese visa centres have the foot traffic associated with a Lunar New Year festival. A visa costs US$140, but unless you’re prepared to wait on line for hours to hand-deliver your application, you should expect to pay another US$100 or more for a service to do so for you. Such restrictions create significant economic barriers. One recent study found that a visa requirement for a given country will reduce inbound travel by 70 per cent. In 2015, mainland China received just 2 million visits from Americans. By comparison, Hong Kong -- which makes up less than 3 per cent of China’s gross domestic product and less than 1 per cent of its population -- received 1.8 million visits. China has often worsened this problem by using tourism to further its political aims, notably in
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disputes with Taiwan and South Korea. It rarely seems to dawn on the government that foreign consumers can reciprocate. After China restricted travel to South Korea in a spat over a missiledefence system, South Koreans responded by staying away. In May, their arrivals to China were down 42 per cent over the previous year, while visits to Japan were up 85 per cent. All this has implications for macroeconomic stability. According to a recent Federal Reserve Board working paper, as much as US$190 billion in outflows may have left China disguised as tourism-related consumption. By comparison, China receives about US$35 billion a year in foreign exchange from tourists. According to official balance-ofpayment statistics, China ran a travel deficit of US$217 billion in 2016. That was equivalent to 44 per cent of its entire trade surplus in goods. For a country keen to prevent capital outflows, a lack of tourists is hitting right where it hurts. But that’s only one symptom of a broader wariness of foreigners. In many parts of China, immigrants are almost unheard of. As recently as 2013 (the latest estimate available), less than 1 million foreigners lived in all of China -- an amount exceeded by some individual American cities. Even Japan, which isn’t exactly a hub for immigration, has twice that amount. Multiple studies have shown that immigrants tend to boost economic growth, entrepreneurship and innovation, yet in China they’re all but unknown. Solving these problems will be politically difficult. But one obvious step for China is to simplify its visa system. Other Asian countries, notably India and Vietnam, have lately made serious efforts to make their application processes simpler and cheaper. If China wants more foreign tourists -- and their hard currency -- it should make it easier for them to get there. Bloomberg View
For a country keen to prevent capital outflows, a lack of tourists is hitting right where it hurts
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16 Business Daily Tuesday, August 1 2017
Closing Investment
Chinese firms to invest US$300 mln in Abu Dhabi
Silk trade routes. Abu Dhabi Ports has signed a 50-year agreement with the Jiangsu Provincial Overseas Cooperation & Five Chinese companies will start operations in Abu Investment Company (JOCIC) to take a lease on 2.2 Dhabi’s industrial zone with an initial investment of square kms at the Khalifa Industrial Zone Abu Dhabi US$300 million in a boost for the oil-rich emirate’s (Kizad), Mohamed Juma al Shamisi, chief executive of economic diversification plans. The companies, from Jiangsu province on China’s east Abu Dhabi Ports, told Reuters. coast, are involved in sectors ranging from power and JOCIC will in turn sign separate agreements with the five Chinese companies, he said. metals to natural resources and banking, Abu Dhabi The firms are Hanergy Thin Film Power Group, Jiangsu officials said. Fantai Mining Development (Group) Co Ltd, Xuzhou Chinese companies are increasingly seizing opportunities in the Gulf as the Asian economic giant Jianghe Wood Co, Jiangsu Jinzi Environmental seeks to expand overseas with its ambition to rebuild Technology Co and Guangzheng Group. Reuters
Markets
National builders to flock to bond markets as maturities, calls loom About US$3.2 billion in bonds are maturing before the end of the year Umesh Desai
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lmost US$6 billion in dollar bonds issued by Chinese developers are due to mature over the rest of 2017 and in the first quarter of next year, ensuring a steady supply of fresh debt as these companies refinance. There is also more than US$5 billion in bonds that can be redeemed before the end of the year because they have early redemption clauses. With interest rates creeping up from historically low levels, companies will be tempted to “call” the bonds now to avoid a more costly refinancing later, debt traders said. “The current yields are still cheap for the Chinese high-yield developers given they used to pay 7 to 9 per cent last time around,” said Yin Chin Cheong, analyst at CreditSights, an
independent research firm. Times Property, for example, issued 5-year bonds in April at 5.75 per cent, having paid an eye-popping 11.45 per cent to sell a 5-year bond in 2015. “We are expecting dollar bond supply from Chinese high-yield developers to increase this year,” Cheong said. About US$3.2 billion in bonds are maturing before the end of the year and another US$2.65 billion in the first quarter of 2018, Thomson Reuters data shows. UBS estimates US$7.3 billion out of US$12.4 billion in callable bonds have been called so far in 2017, pointing to several billion dollars worth that could be refinanced by the end of the year. Greentown China called its bonds due 2019 on which it was paying coupon of 8 per cent after it sold perpetual bonds carrying coupon of 5.25 per
cent, extending the maturity of the debt and reducing its cost of funding. “These refinancing needs cover both loans and bonds. We’ve seen five-plus new issues in the past few weeks and see more in the pipeline, including Agile and CIFI,” said Tony Chen, Hong Kong-based property analyst with Nomura, noting that Chinese authorities lifted curbs in June on offshore bond issuance by developers. That provided a welcome offshore avenue of relief for some fund raisers following a sharp rise in domestic rates. For example, domestic bond yields for top-rated Chinese companies rose 170-basis points in the past nine months. “Onshore yields have risen sharply and the government focus remains on deleveraging, so there is little scope for actively raising domestic debt,” said Steve Wang, head of research at BOC International. U.S. dollar interest rates have slipped back in recent weeks, he noted. “So deal flow should remain active
near term,” he said. The flurry of debt issuance is likely to continue despite signs that China’s real estate market is cooling in some of the major cities. Home prices in Beijing fell for the first time in more than two years in June, while Shanghai declined further and Shenzhen stalled, official data showed this month.
Key Points Some US$6 bln of dollar bonds seen maturing in next 8 months More than US$5 bln in callable bonds could be redeemed Seen supporting steady flow of new issuance as rates favourable “This sector is about size – so regardless of market conditions all developers want to grow. If you are not big enough, you will no longer be relevant and get swallowed up by bigger rivals,” Nomura’s Chen said. To be sure, the market was jolted in June by a large deal from China’s second most-indebted firm Evergrande, which could stunt investor enthusiasm in the months ahead, traders said. The company’s 8.75 per cent bonds due 2025 tumbled as much as six points on their trading debut for a yield of almost 10 per cent, an unusually large price fall for a debut. The company had raised US$3.8 billion in new funds and exchanged US$2.8 billion of existing debt. “Evergrande’s jumbo deal has repriced the market so we don’t foresee an explosion of high-yield property dollar debts,” said BOC International’s Wang. Reuters
Markets
HR
Commodities
Hong Kong stocks up for 7th straight month
Construction Bank nominates BOC boss as its next chairman
Iron ore, steel soar in Mainland on environmental inspections
Hong Kong stocks closed at a 25-month high yesterday after completing a seventh-straight month of gains, powered by strength in dual-listed resource firms which forecast rises in first-half earnings. The Hang Seng index rose 1.3 per cent, to 27,323.99, while the China Enterprises Index gained 0.7 per cent, to 10,827.84 points. For the month, HSI was up 6.1 per cent, while HSCE gained 4.5 per cent. Strong inflows from Mainland investors via the stock connect program linking Hong Kong and the Mainland helped contribute to the rally in Hong Kong stocks, market participants said. Data showed southbound traffic through the stock connects remained strong in July, with dual-listed firms preferred as their names are more familiar to Mainland investors. Sectors rallied across the board yesterday. An index of major material firms rose 4.5 per cent as those shares tracked their Mainland peers, with such counters expected to benefit from China’s continued supply-side reforms and a weaker U.S. dollar. Reuters
China Construction Bank Corp (CCB), the country’s second-biggest bank, has nominated Tian Guoli, currently the boss of the smaller Bank of China Ltd, to be its next chairman, three sources with knowledge of the matter said. Tian, 57, was named the Communist Party Secretary of state-owned CCB in a closed-door meeting yesterday, the sources told Reuters. An announcement could come as early as later on Monday, one of the sources said. Two sources with knowledge of the matter said Chen Siqing, president of state-controlled Bank of China (BOC), the country’s fourth-largest lender, is likely to be promoted to take Tian’s chairman position. CCB and BOC declined to comment. Tian, after graduating with a bachelor’s degree in economics, started his banking career at a local CCB branch in 1983 and climbed to a senior role as assistant governor during his 16 years of service at the bank. Tian worked under China’s current anti-corruption chief, Wang Qishan, when Wang was running CCB in the 1990s. Reuters
China’s iron ore futures surged nearly 8 per cent yesterday, hitting their trade limit-up with their best daily performance since November 2016, underscoring concerns over tight supply amid environmental inspections and strong restocking demand. “Environmental inspections have caused great impact on iron ore prices. Production in some mines, processing plants and mills are being disrupted,” said an iron ore trader in Beijing. “The whole supply chain has been affected by the inspections,” she said. China has been sending out environmental inspection teams to iron ore mining operations across the country since late April, and more teams will be sent out by early August, according to local media reports. At the same time, steel mills are continuing to show increased activity. Data from the China Federation of Logistics & Purchasing showed yesterday that the Purchasing Managers’ Index (PMI) for the steel sector rose to 54.9 in July, the fastest pace since April 2016. “Mills are actively buying raw materials preparing to seal profits,” said Xu Bo, a steel analyst at Haitong Futures. Reuters