Business Daily #1352 August 2, 2017 by Business Daily

Ferrari adapting to new times Auto industry Page 16

Wednesday, August 2 2017 Year VI Nr. 1352 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Elections

Local attention to Legislative Assembly elections average; many respondents undecided who to vote for Page 2

AMCM

Anselmo Teng to leave position as Chairman of AMCM board of directors after serving Authority since 1999 Page 5

www.macaubusiness.com

Hengqin

Real Madrid licensing agreement for entertainment centre in Hengqin going forward Page 2

M&A

Anbang pressured to bring money back to China Page 10

Up, up and away Gaming

The largest y-o-y increase since February 2014. That would be pre-crackdown. A 29.2 pct increase in July in gross gaming revenue, hitting MOP22.96 bln. Twelve months of y-o-y increases, MOP741 mln ADR during July, say analysts, predicting MOP23-26 bln for August. Caution voiced against further crackdowns ahead of the Autumn National Congress. Page 6

Holding in there

Across the board decreases in SJM’s H1 results, with 2 pct drop in gaming revenue, to HK$20.37 bln. Profit fell 12.9 pct y-o-y, while mass market revenue was down 0.5 pct, VIP down 3.4 pct and slots down 3.2 pct. Satellite casinos saw 15.6 pct fall in profit, while selfpromoted casinos saw 14.2 pct fall in VIP revenue.

New faces, new plans

Forum Macao Two new representatives join the Permanent Secretariat of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macau). A new post for São Tomé and Príncipe, after breaking ties with Taiwan, and a replacement for Cape Verde. Page 2

Export boost Results Page 6

HK Hang Seng Index August 1, 2017

27,540.23 +216.24 (+0.79%) Worst Performers

Ping An Insurance Group Co

+4.06%

Bank of China Ltd

+1.82%

Geely Automobile Holdings

-1.77%

Sands China Ltd

-0.55%

China Life Insurance Co Ltd

+3.64%

Bank of Communications

+1.38%

China Unicom Hong Kong

-1.76%

China Merchants Port Hold-

-0.41%

BOC Hong Kong Holdings

+3.51%

CK Hutchison Holdings Ltd

+1.36%

Galaxy Entertainment Group

-1.34%

China Mengniu Dairy Co Ltd

-0.39%

Cheung Kong Property

+2.21%

Bank of East Asia Ltd/The

+1.35%

China Resources Land Ltd

-1.20%

China Mobile Ltd

-0.36%

Hong Kong Exchanges &

+2.15%

Industrial & Commercial

+1.28%

CITIC Ltd

-0.84%

Kunlun Energy Co Ltd

-0.26%

28° 31° 27° 30° 28° 31° 28° 31° 28° 32° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Caixin PMI Growth in China’s manufacturing quickened in July, a private survey revealed yesterday. As output and new orders rose at the fastest pace since February on strong export sales. Page 8

2 Business Daily Wednesday, August 2 2017

Macau Elections

Low grades for AL performance A survey conducted by academics reveals that local residents have an average level of attention towards the upcoming Legislative Assembly in September Cecilia U cecilia.u@macaubusinessdaily.com

survey shows that the level of attention of local residents to the forthcoming Legislative Election is merely average, with only half of surveyed respondents expressing they ‘will pay attention’ or ‘pay close attention’ to the elections. The survey - jointly conducted by the Macao Creative Intelligence Development and Research Association (MCIDRA) and the University of Science and Technology (MUST) – was conducted over 10 days, from July 16 to 26, with a total of 456 respondents considered valid for the research. Professor Lin Guangzhi, Director of the Institute for Social and Cultural Research at MUST and also one of the survey conductors, reported that 85 per cent of the survey respondents who are registered as legitimate voters would choose to vote on election day. With the candidate lists already announced for the elections, 57.2 per cent of survey respondents were still unsure of which candidate to vote for. Two-thirds of that group are within the age groups of 25 to 34 and 35 to 44. The notable percentage of voters

who are still uncertain on whom to cast their ballot for could be advantageous for newly nominated candidates, the professor pointed out. Of the respondents, for 53.1 per cent this will be their first time to vote in the elections, while 61.4 per cent of respondents were university graduates. Regarding employment background, around 46.1 per cent of survey respondents were unemployed or awaiting a job offer. When asked about the criteria that voters would consider when placing their votes, 79.4 per cent opined that daily actions were more important

than the manifestos of candidates, for which 17.5 per cent of respondents were more inclined. The report also looks at the performance of the current Legislative Assembly (AL), with 59.6 per cent of survey respondents awarding scores below the pass mark (below 60), with ratings averaging 46.2. The survey also revealed that 71.1 per cent of respondents opined that the current AL lacks individuals representing the grassroots sector.

A platform for young entrepreneurs

Meanwhile, the vice president of MUST, Michael Pang Chuan, also the convenor of the group, introduced the three main areas of MCIDRA’s core mission during yesterday’s press conference.

The three main areas are: startup businesses set up by young entrepreneurs, the innovative economy, and the creative and cultural industries. A series of activities will be held by the group, said the vice president, such as sharing sessions about startups, forums on the innovative economy and investment, visits to successful enterprises and training courses on improving innovative ability. Pang revealed that the group has planned to create youth funding as well as a platform for crowdfunding to support young people in starting their own businesses.

Short election campaign

Speaking before yesterday’s conference, Pang said the proposal of extending the currently allowed two-week campaign period should be brought up at the next election. “There are some candidates stating that the period of two weeks for campaigning at the beginning of September is too short but [the suggestion of extending the campaigning period] should be proposed next election,” said Pang. He suggested that the period for campaigning could be extended to three weeks or even a month for future elections. Given that the regulations for this year’s elections have already been set, the MUST vice-president perceived that candidates should abide by the rules for this year.

Sino-Luso relations

New faces at Forum Macao Cape Verde and São Tomé and Príncipe have appointed new representatives for the Permanent Secretariat of the Forum Macao, a first for São Tomé Sheyla Zandonai sheyla.zandonai@macaubusiness.com

New representatives from Cape Verde and São Tomé and Príncipe took office yesterday at the Permanent Secretariat of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking countries (Macau) - also known as Forum Macao - according to an announcement by the Forum. The government of Cape Verde has appointed Nuno Miguel Melo Furtado as the new representative for the country within the Permanent Secretariat. Melo Furtado has previously served as a diplomatic advisor to the President of the National Assembly of Cape Verde.

The government of São Tomé and Principe has appointed Gualter Sousa Pontes de Vera Cruz as its new representative in Macau for the Permanent Secretariat of the Forum. Vera Cruz has previously served as an advisor to the country’s Minister of Finance, Commerce, and the Blue Economy [an expansion of the green economy, promoting sustainability and tackling environmental problems]. It is the first time São Tomé and

Cape Verde

The previous representative of Cape Verde at the Permanent Secretariat of the Forum Macao, Mário Vicente, ceased his

Príncipe has had formal representation within the Permanent Secretariat of the Forum. Speaking to Business Daily, Vera Cruz explained that the first contact with the Forum took place in March 2017 - they “have started to define a series of procedures and activities” to enable the participation of the country in the platform. Until December 2016, São Tomé and Príncipe had formal diplomatic ties with Taiwan, which made them ineligible for integration into the Forum. “After we re-established an official relationship with China, the possibility of participating in the Forum became a reality. We are joining it when it has already been operating for several years, but our goal is to be part of this family [… ] and to create the necessary mechanisms to share

term in office on July 31, 2017. Vicente had been appointed to the office by the government of Cape Verde in March 2011.

information and enable commercial exchange within the framework of the Belt and Road,” Vera Cruz told Business Daily. On the agenda for its debut role in the Forum, the new representative said there are three areas of economic development they would like to foster within the platform between China and the Portuguese-speaking countries. “One of the things we believe is important at this first stage is tourism. We would also like to find projects for our agricultural and fishing industries. We have 60 times the space of our territorial surface that is water. It is a vast maritime space that we would like to make more valuable for our economic activity,” explained Vera Cruz. Contacted by Business Daily, the newly appointed representation from Cape Verde said that he was in a meeting with his predecessor, Mário Vicente, discussing the dossiers for the transfer of functions. He said that they will present their plans and strategies for the Forum within the coming days.

Hengqin

Football entertainment centre heads to Hengqin Hong Kong listed company Lai Fung Holdings Limited and eSun Holdings Limited have entered into a licence agreement with Real Madrid Club de Fútbol to develop and operate an entertainment centre in Phase II of the Novotown project in Hengqin, Zhuhai. According to a filing posted by the company with the Hong Kong Stock Exchange, Lai Fung is currently negotiating with the Hengqin Government regarding the land concession as well as the progress of the Phase II development of Novotown. The entertainment centre will occupy an area of approximately 12,000 square metres, providing

different interactive football related experiences, food and beverage as well as retail stores. ‘The Board of Lai Fung believes that the innovative football-themed experiences that will be featured in the [entertainment centre] will broaden the entertainment horizon in Novotown and Hengqin,’ the filing reads. Lai Fung is a member of the Lai Sun Group and is the property development and investment arm of Lai Sun in Mainland China. The company engages mainly in the investment and development of serviced apartments, residential, office and commercial properties

and development and operation of and investment in cultural, leisure, entertainment and related facilities on the Mainland. eSun is the holding company of

Lai Fung, in which eSun will have no direct or indirect investment or any participation in the construction and operation of the football entertainment centre in Hengqin.

Business Daily Wednesday, August 2 2017 3

Macau Labour

Construction workers’ wages on the rise Official figures show that the price index of construction materials for residential buildings in 2017 Q2 was stable Oscar Guijarro oscar.g@macaubusinessdaily.com

onstruction sector salaries stayed buoyant in the city, data from the government indicated yesterday. ‘After discounting the effect of inflation, the wage index of construction workers for the second quarter of 2017 increased by 5.1 per cent quarter-to-quarter in real terms, and that of local construction workers (137.4) went up by 3.2 per cent,’ the Statistics and Census Service (DSEC) said. The office informed that the average daily wage of construction workers increased by 6.0 per cent quarter-to-quarter,

reaching MOP880 in the second quarter.

‘The average daily wage of unskilled workers (MOP439) grew by 1.4 per cent’ The average daily wage of local construction workers rose by 4.4 per cent, reaching MOP1,091, while that of non-resident construction workers increased 3.3. per cent quarter-to-quarter, to MOP775

(See Table 1 for average wage breakdown by occupation). The statistics office also revealed that the average daily wage for skilled and semiskilled workers, at MOP884, went up by 6 per cent quarter-to-quarter. The increase was due to a ‘significant increase of 28 per cent in the average daily wage of carpenters (MOP1,309) as interior renovation of some large-scale entertainment facilities drove up the demand,’ noted the service. Regarding construction materials, the average price of concrete increased 1.8 per cent quarter-to-quarter, reaching to MOP797 per cubic metre. Price per tonne of spiral & round reinforcing steel bars fell by 7.8 per cent quarter-to-quarter, to MOP4,231, according to the data (See Table 2 for average price of construction materials).

Source: DSEC

Reserves

Monetary reserves reach MOP478 bln Initial estimates of the city’s financial reserves by the Monetary Authority of Macau indicate that at the end of the second quarter, the city’s basic reserve had reached MOP127.95 billion and its extra reserve MOP350.11 billion, totalling MOP478.06 billion. The group notes that ‘with the

continual adoption of investment strategies based on the principles of security, efficiency and stability, in the first half year, the return on investment registered for the financial reserve reached MOP10.09 billion, corresponding to an annual return of 4.4 per cent,’ notes an AMCM release.

The Authority references that in the first quarter the United States Federal Reserve raised their interest rates twice, ‘contributing to an increase in the interest rate of U.S. Dollars in monetary markets’. ‘The allocation of funds was carried out by the financial reserve, in a staged and opportune

form, according to the situation of the interest rates of markets,’ notes the Authority, revealing that the revenue from interest on deposits of money markets reached ‘about MOP1.92 billion’ by end-June. The Authority notes that it accompanied the interest rate hike and adjusted the proportion of risk of its portfolio through hedging of exchange risks, noting that the total loss

on currency exchange ‘after the deduction of the costs from hedging operations’ saw a ‘significant reduction, to the level of MOP300 million’. Regarding securities, the group saw a MOP2.51 billion influx in the first semester, notes the Authority, while pointing out that in regard to its equity funds investments the group brought in MOP5.96 billion by the end of June. advertisement

4â&#x20AC;&#x201A; â&#x20AC;&#x201A; Business Daily Wednesday, August 2 2017

Business Daily Wednesday, August 2 2017 5

Macau Finance

Anselmo Teng, Departing Chairman of the Board of AMCM

hairman of the Board of Directors of the Monetary Authority of Macao (AMCM) Anselmo Teng will step down from his functions by the end of this month, TDM radio reported yesterday. The chairman’s current contract, which lasts for one year, ends on August 26 and will not be renewed, the broadcaster announced, citing people close to the issue. Teng is the first administrator of Chinese origin to assume office at AMCM, starting August 19, 1999. The broadcaster further reported that Benjamin Chan, also a member of the Board of Directors of AMCM, is to succeed Teng. Chan has been a member of the Board since August 16, 2015, when he replaced Félix Pontes, following the latter’s retirement.

José I. Duarte*

Legislative power

Chan currently directs the Research and Statistics Department of the Authority, in addition to being

a member of the Board of Directors of the Macau Institute of Financial Services. S.Z.

Macau GP

New Formula 3 team to join MGP A new Formula 3 (F3) team launched last weekend in Belgium is planning to make its debut in the Macau Grand Prix in November 2017, Motorsport. com reported yesterday. BullFrog GP was unveiled in the F3 European Championship round in Spa, Belgium as the first motorsport project of London-based Frenchman Jean-Charles, a.k.a. JC, according to the same media outlet. JC was referred to as saying that

the team plans to be in Macau with two cars. “We may have to try to qualify drivers for Macau, but we also have drivers we have contacted who could drive in Macau already,” the head of BullFrog GP was quoted as saying by Motorsport.com. BullFrog GP’s plan is to form an academy structure to take underfunded drivers from Formula 4 to Formula 3, Formula 2, and then

Formula 1. According to Autosport, the team’s head said he plans to buy an F3 team and an F2 team rather than setting up the teams from scratch. The team’s chassis is built by Italian constructor Dallara and powered by NBE engines, according to information on BullFrog GP’s webpage. The company had not replied to Business Daily’s request for comments by the time this story had gone to print. The 64th edition of the Macau GP will be held from November 16 to 19, 2017. S.Z.

Tourism

Growing Malaysian interest The level of interest from Malaysian nationals seeking to travel to the MSAR between April and June of this year through Hotels.com has increased by 66.1 per cent quarterly Nelson Moura nelson.moura@macaubusinessdaily.com

The MSAR registered the largest growth in interest by Malaysian travellers as an outbound destination on booking website Hotels.com between April and June of this year, with a 66.1 per cent quarter-to-quarter increase, according to website Malaysian Digest. Citing information provided by the booking site, Malaysian Digest reveals that after Macau the Japanese city of

Osaka and South Korean city Seoul were the fastest growing cities in terms of interest for Malaysian travellers in the second quarter of this year, with 45.4 per cent and 44.7 per cent quarterly growth in traveller numbers, respectively. “We have seen a significant increase in interest in overseas destinations, from Macau to London, amongst Malaysian travellers during the second quarter of the year,” the Regional Director for Greater China, Southeast

Asia & India for Hotels.com, Jessica Chuang, stated. During an April campaign promoting tourism between the MSAR and Malaysia, Macao Government Tourism Office (MGTO) Director Maria Helena de Senna Fernandes announced Malaysia was an important “middle-term” tourism market for Macau, reinforcing the group’s 2017 plan announced in January in which it would ‘promote diversification of international source markets’, pinpointing Malaysia and Indonesia as examples. According to the latest data provided by the Statistics and Census Service (DSEC) some 109,434 Malaysian visitors entered the MSAR in the first six months of the year, a 6.6 per cent year-on-year increase, with Malaysia ranking 7th in the top 10 visitor source markets during the first half year, and 9th during the month of June.

Corporate

Judging Panel for 5th Annual Business Awards of Macau revealed One new acclaimed local entrepreneur joins this year’s judging panel

Opinion

The judging panel for the Business Awards of Macau’s 5th edition has been announced, and will include a new acclaimed local entrepreneur – Mr. Kevin Ho King Lun, chairman of Anzac Group

The event takes place on November 24, 2017 in the Grand Lisboa Ballroom.

– joining as an Honour Commission and Judging Panel Member for the first time. The 30-strong Business Awards Honour Commission, Advisory Board and Judging Panel will comprise:

The Legislative Assembly has approved new internal regulations. Much has been said about them. Most comments focus on the initiatives the legislators can take, what they cannot say or show, the timing of this or that type of statement. These are surely important issues. After all, the rules that a political body abides by will determine, in many ways, the results it can achieve. Can we expect the performance of the Assembly to improve under the new rules? Some doubts are legitimate, but that may not even be the main issue. There is a distinct impression that some rule changes aim to limit the timing or the form of interventions by the members of that chamber. Setting a closed list of the types of statements allowed; setting time frames for certain types of interventions, or trying to limit what they show or how they dress are obviously ways to reduce the discretion of lawmakers on how and when to convey their opinions. Whether or not these restrictions can or will be enforced in ways that actually will further limit the ability of lawmakers to make their positions known or to communicate them appropriately, only practice will tell. It is, however, possible to see the new regulations as not much more diminishing of the role and status of the Assembly than is already the case – regardless of internal regulations, present or future. Rules count but so also do the ways they are interpreted and used. The (main) laws of a place define the role of the various political bodies. In the case of Macau, the Basic Law towers over all others. It does not define a parliamentarian regime and, as such, we would not expect the Legislative Assembly to be the heart of the local polity. However, that lesser role was (and is) compatible with various practical arrangements and understandings that might give the Assembly a stronger part in the promotion of our collective interests. In the end, the actual influence and prestige of a political body depends heavily upon what its members choose to do and how much they are committed to defending and fostering the relevance of the body (and themselves). Some seem to prefer an approach that reduces the Assembly’s role and status below what would be defensible regarding both the letter and the intent of the ‘constitutional’ laws. Lawmakers’ attitudes, more than anything, will determine what the Assembly can achieve. *Economist and permanent contributor to this newspaper.

6 Business Daily Wednesday, August 2 2017

Macau Gross gaming revenues

Up, up and away Gross gaming revenues in July rocketed 29.2 per cent year-on-year to reach MOP22.96 billion, the highest yearly increase since February 2014 Nelson Moura with agencies nelson.moura@macaubusinessdaily.com

numbers contributed to the results registered in July.

he MSAR raked in MOP22.96 billion (US$2.86 billion) in gross gaming revenue in July, the latest official figures released by the Gaming Inspection and Co-ordination Bureau (DICJ) show. The July numbers represent a 29.2 per cent year-on-year increase in gross gaming revenues, the 12th consecutive month of increases registered in the city and the largest yearly rise since February 2014. According to a survey by news agency Bloomberg of nine analysts, the expected median growth consensus was set at a 26 per cent hike, with news agency Reuters saying analysts were estimating a yearly rise of between 27 and 30 per cent. Accumulated gross gaming revenue for the first seven months of 2017 went up 18.9 per cent year-on-year to reach MOP149.34 billion. On a monthly comparison, gross gaming revenues in July went up by 14.9 per cent from the MOP19.99 billion registered in June. According to gaming analyst Vitaly Umansky of Bernstein, the average daily revenue (ADR) for July was MOP741 million, an 11 per cent month-to-month increase from June’s ADR of MOP666 million. According to news agency Reuters, the resurgence in spending by VIP gamers and the increase in tourist

Living on the edge

Despite the increase in VIP gaming results and the opening of new gaming facilities having helped bring players back to Macau, analysts still feel efforts by the Chinese central government to stop capital outflows from the country could pose a future risk to Macau’s gaming sector. “Risk of heightening enforcement and potential policy pressures we had flagged have certainly not gone

away,” Daiwa Capital Markets Hong Kong Ltd. analyst Jamie So told Bloomberg. According to the analyst, pressure on gaming revenues will “take time to manifest itself” and a potential negative impact caused by Chinese authorities actions could be “smooth[ed] out” by “stronger mass numbers for Summer months”. A possible renewal of anti-corruption crackdowns ahead of the 19th National Congress of the Communist Party of China to be held this Autumn could impact gaming revenue recovery, with Bloomberg stating investors are concerned about possible new investigations of suspicious money transfers or the freezing of junket operators’ accounts. Despite the large decrease during

the 26 months of gross gaming revenue downturn registered in the city, the VIP sector has bounced back, with revenues from VIP Baccarat seeing an almost 35 per cent year-on-year increase in the second quarter of this year, reaching MOP35.86 billion. The “VIP segment, for now, continues to see broad recovery across big and smaller junkets, a trend admittedly well above what we had envisioned,” noted DS Kim, an analyst from JP Morgan Chase & Co. However, Bernstein warns for ‘caution’ in regard to the strength and volatility surrounding VIP, with ‘high hold rates in VIP along with continued volume strength’ not allowing more accurate monthly forecasts. The analyst firm is already forecasting a possible yearly increase in gross gaming revenues for August between 22 per cent to 25 per cent, to potentially reach between MOP23 billion and MOP26 billion.

Results

SJM results down but not out Local operator Sociedade de Jogos de Macau saw an across-the-board decrease in the results of its operations during the first half of the year, according to the group’s filing with the Hong Kong Stock Exchange. Total revenue fell 1.9 per cent, to HK$20.64 billion, while gaming revenue decreased 2 per cent, to HK$20.37 billion, profit falling 12.9 per cent, to HK$955 million and adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) fell 7.7 per cent to HK1.5 billion. Mass market revenue fell 0.5 per cent during the period,

year-on-year, while VIP decreased 3.4 per cent. Slot machine operations also fell 3.2 per cent year-on-year. The group’s three self-promoted casinos – Casino Lisboa, Casino Oceanus at Jai Alai and Casino Taipa – saw a 22 per cent drop in profit during the period, to HK$165 million, with revenue falling 1.5 per cent to HK$3.04 billion. This came on the back of a 14.2 per cent year-on-year reduction in VIP revenue from the casinos, to HK$999 million, despite a 5.4 per cent increase in their mass revenue, at MOP1.92 billion. For the group’s 15 satellite casinos -13 of which are on

the Peninsula, and two in Taipa - the group saw an 8.2 per cent drop in revenue, to HK$10.02 billion, with a 15.6 per cent drop in profit, to HK$283 million. The group’s 51 per cent interest in the Sofitel at Ponte 16 non-gaming operation saw a HK92 million contribution to the group during the period, as the hotel maintained 88.8 per cent occupancy. Currently, SJM is ‘working with the local authorities to achieve recommencement of work’ on the Grand Lisboa Palace in Cotai, and ‘continues to anticipate opening’ the property ‘in the second half of 2018’. K.W.

Shutdown

Poker

The Venetian orders another shutdown of Neptune-linked junket group’s operations

Card partners

Junket operator Neptune Group Limited has issued a profit warning after a junket group associated with the company received notice from The Venetian to terminate operations with the property, just over six months after the two had signed a gaming promotion agreement, according to a filing with the Hong Kong Stock Exchange. Hou Wan, the junket operator in question, contributed ‘approximately 26 per cent of the total revenue’ of Neptune during the financial year ended June 2016, according to the filing. The termination comes into effect

August 30, according to the filing. Neptune has notified that ‘it is expected that the intangible assets in respect of the junket business of Hou Wan would be fully impaired as a result of the Termination Notice,’ and that the company is ‘accessing the recoverability of the outstanding account receivables’ of Hou Wan. This comes after an announcement that on May 31, another junket group – Hao Cai Entertainment Company Limited – had received notice from The Venetian of the termination of its agreement as well. Due to both terminations, Neptune reveals that ‘the

Group would record an impairment of intangible assets in respect of the junket business of approximately HK$365.9 million (US$46.84 million/ MOP376.88 million)’ for the fiscal year ended June 30. In addition the group expects to ‘record a loss on disposal of an associate of approximately HK$62.9 million’ for the fiscal year and that a net loss attributable to equity holders of the company is expected for the fiscal year. The group expects to publish its annual results for the fiscal year ‘on or about 29 September,’ according to the release.

Poker tournament Asian Poker Tour (APT) has signed an exclusive fiveyear agreement with Macau Billionaire Poker (MBP) and Babylon Casino, pledging to bring a minimum of two international poker events annually to Macau over the next five years, according to an APT release. According to the group’s CEO, Jeff Mann, APT needed a permanent base in Macau for its next expansion phase in the Asia Pacific region. The first event to be organised by the new partnership will be the APT Finale Championships Macau 2017 to be held in Babylon Casino from November 28 to December 9, subject to regulatory approval. N.M.

Business Daily Wednesday, August 2 2017 7

Macau Saipan

Smaller numbers Imperial Pacific has announced that the first stage of the development of its Imperial Pacific Resort Hotel will include 329 rooms by August 31 of next year; the company had initially been expected to be able to complete 1,201 rooms by end-2018 Nelson Moura nelson.moura@macaubusinessdaily.com

mperial Pacific International Holdings Limited has amended its casino licence agreement, announcing the initial implementation of its Saipan project Imperial Pacific Resort Hotel would be completed ‘by no later’ than August 31, 2018, a company release with the Hong Kong Stock Exchange yesterday revealed. I m p e ri a l Paci fi c w as granted a 25-year exclusive integrated Casino Resort Development Licence for Saipan in 2014, committing to invest US$7.1 billion in building the Imperial Pacific Resort Hotel. According to the initial developing licence from 2014, the development of the Imperial Pacific integrated resort would require the construction of at least 2,004 hotel rooms, 17,000 square metres of total

gaming area, 200 villas and a US$100 million themed entertainment facility with an amphitheatre. At that time, Imperial Pacific stated it would be able to develop at least 1,201 rooms, 400 gaming tables and 1,000 slot machines in 2018 during the integrated resort’s first stage of development. In total, the company expected to be capable of preparing 4,252 rooms, 300 villas, 1,600 gaming tables and 3,500 slot machines by 2020.

A smaller endeavour

According to the newly updated requirements, as of August 18 the resort will have to include at least a 329-room 4 or 5-star luxury hotel, 14,140 square metres of gaming area and 15 villas. The first phase of the property development will then have to be completed by no later than August 13, 2023 with the establishment of a fully functional integrated resort with 800 rooms, at

least 10,000 square metres of gaming area plus themed entertainment facility with the amphitheatre. By no later than August 13, 2028 the second phase of the resort should be completed, according to the filing, with the demanded total gaming area reduced to 7,000 square metres - and will have at least

875 rooms and 185 villas. At the beginning of July, imperial Pacific announced it would move the operations it runs at its temporary casino Best Sunshine Live to Imperial Pacific Resort Hotel upon its opening on July 6. The property opened on Garapan after a four-month

delay, with a gaming offer of 70 gaming tables and over 190 electronic gaming machines. According to the latest financial report by Imperial Pacific, its unaudited VIP table games rolling for May 2017 was more than US$2.5 billion, an amount similar to that registered in the same month of last year. advertisement

Cancellation

Australia axes Asian-led Gold Coast mega-casino plan The announcement is the second blow recently for the casino sector in Queensland A Chinese-Australian investment consortium’s plans to build a multi-billion-dollar mega-casino on the Gold Coast were canned by the state government Tuesday, following an outcry from locals over the size of the complex. The ASF Consortium, comprising a Sydney-listed Chinese-Australian investment firm and two stateowned Chinese companies, had proposed a A$3 billion (US$2.4 billion) so-called integrated resort in the tourist hotspot. The waterfront development on the

Gold Coast Spit was to have included multiple hotels up to 45 storeys high as well as retail, entertainment, residential and conference facilities. Community and environmental groups were critical of the proposal, which came after ASF was chosen as the preferred tenderer in 2014, saying it would hurt local entertainment and gambling venues in the area as well as impact local wildlife. “Like many Queenslanders, I have enjoyed visiting the Spit for decades,” Queensland Premier Annastacia Palaszczuk said in a statement as her state government announced it had “terminated the proposed ASF development”. “We need to ensure that character is preserved for future generations [...] What the Spit really needs now is a master plan to revitalise it and increase its benefit to the Gold Coast as a community asset.” Palaszczuk said the replacement -- a community-led master plan for the area -- did not rule out a future casino complex in the Gold Coast. But it would keep to local guidelines for buildings to be at most three storeys high and low density. “It also helps get the balance right between protecting environmental and community values and allowing appropriate commercial development,” state Infrastructure and Planning Minister Jackie Trad added. A response from ASF was not immediately available. The announcement is the second blow recently for the casino sector in Queensland. Hong Kong billionaire Tony Fung last year shelved the casino part of a A$8.15 billion Aquis project near Cairns, the gateway to the iconic Great Barrier Reef, citing a softening Asian gambling market. AFP

8 Business Daily Wednesday, August 2 2017

Greater china Caixin PMI

Factory activity gathers steam in July Data contrasts with the government’s official purchasing managers’ index reading Monday, which suggested factory activity expansion slowed in July

hina’s manufacturing activity increased last month as both production and new order rates grew rapidly, independent figures showed yesterday, but analysts warned the economy still faces headwinds from policy tightening. The Caixin Purchasing Manager’s Index -- an indicator of conditions at small manufacturers -- came in at 51.1 in the month, up from 50.4 in June as it marked a four-month high in July. A PMI figure above 50 represents growth while anything below points to contraction. Recent figures show steady expansion in the world’s second largest economy, which registered an expectation-beating 6.9 per cent growth in the first half of the year, but experts warn of a slowdown as regulators look to adopt stricter financial controls aimed at reducing the country’s excessive leverage. “Operating conditions in the manufacturing sector improved further in July, suggesting the economy’s growth momentum will be sustained,” Caixin analyst Zhengsheng Zhong said in a joint statement with

data compiler IHS Markit. “That said, it’s unlikely that financial regulatory tightening will be relaxed.” Other analysts shed doubt on whether growth could be sustained. “Stronger foreign demand helped

drive a pick-up in new orders,” Julian Evans-Pritchard of Capital Economics said in a note, adding that output and price indices also rose while employment edged down. “We don’t think this pick-up is sustainable, however, given the increasing headwinds from policy tightening and we still expect growth to slow during the second half of this year.” The Caixin data contrasts with the government’s official purchasing managers’ index (PMI) reading

Monday, which suggested factory activity expansion slowed in July. The official PMI skews more towards big firms and state-owned companies, while the Caixin index includes more private small and medium size companies and is considered by some analysts as more representative of the health of China’s economy. Evans-Pritchard added that even given the different focus of the two indexes, “it’s not clear why the PMIs moved in opposite directions”. AFP

Options

Mainland Inc. US$580 billion of put options to come home to roost Liquidity pressure from put clauses has already spurred some casualties in China Chinese companies battling to cope with the government-induced tightening in funding markets are bracing themselves for the next shoe to fall: a wave of early bond redemptions. The nation’s businesses sold about 65 per cent of all corporate bonds with put options worldwide, at RMB3.9 trillion (US$580 billion). Creditors holding some RMB2 trillion of mainland notes will be able to exercise those options in the next two years, forcing issuers to either increase interest payments or redeem the debt early. Bonds sold by property companies are most affected, accounting for about a quarter of the RMB2 trillion pile.

“The financing environment is not very conducive for issuers and they may face refinancing pressure, even defaults” Christopher Lee, managing director of corporate ratings at S&P Global Ratings

Chinese authorities’ efforts to cut excessive and speculative borrowing have helped drive up costs across the corporate bond market, the world’s largest outside the U.S., with yields on top-rated notes rising 144 basis points in the past year. It’s also meant the

overwhelming majority of puttable bonds are now ripe for exercising, adding to concerns expressed by ratings companies that the strain on cash flows will lead to more missed payments. “Right now liquidity conditions are relatively tight and financing costs have been high,” said Christopher Lee, managing director of corporate ratings at S&P Global Ratings, in an interview. “The financing environment is not very conducive for issuers and they may face refinancing pressure, even defaults.”

In the money

Some 82 per cent of Chinese bonds with these options are now “in the money,” after yields climbed since late 2016, according to a Fitch Ratings Inc. report from June 28. That means investors have an incentive to put the bonds back to the company or ask for higher coupons to match the changed interest-rate environment. “From mid-2018, many companies will face the problem of puts becoming exercisable,” said Huang Weiping, senior analyst at Industrial Securities Co. in Shanghai. “About 80 per cent of investors will likely want to put the bonds back to the company and get cash back into their pockets.” Companies sold bonds at much lower rates in 2015 and 2016 than the current rates, so they will be forced to honour the put options, according to Deng Rui, chief investment officer for fixed income at Changjiang Securities Co. in Beijing. His fund exercised the put option on one bond in April and Deng plans to do the same on several other bonds

in the near future. All of those debentures were sold in 2015. Liquidity pressure from put clauses has already spurred some casualties in China. Xinyang City Hongchang Pipe and Gas Project couldn’t fully repay investors when they exercised options on June 20. It was deemed a default by China International Capital Corp. State-owned Sinosteel Corp. had asked investors not to put the bonds after the option became exercisable on Oct. 20, 2015. “We do not expect puttable bonds to cause systemic stress, but some companies could face difficulties if liquidity tightens further,” Fitch said in the June report.

Hiking coupons

For issuers, one way to pre-empt liquidity pressures is to offer higher interest rates. China Evergrande Group hiked the coupon rate by 100 basis points on 6.8 billion yuan of notes sold in 2015, starting on the date when the put option on the securities became exercisable. As a result, creditors decided to demand

redemption on less than 1 per cent of the bonds. Investors will be keeping a keen eye on conditions in China for the coming year, with data compiled by Bloomberg showing the peak in property bond put dates coming in 2018 and 2019. Investors may respond to any easing in liquidity stress by deciding against putting back their bonds, S&P’s Lee said. Conditions have improved recently, with 10-year government bond yields falling six basis points from a two-year high reached in May to stand at 3.63 per cent. Some holders are seeking opportunities to get rid of property bonds amid regulatory tightening in the sector, so developers face particularly high pressure for early redemptions, according to Deng at Changjiang Securities. “Isolated problems cannot be ruled out, with companies that are heavily reliant on puttable bonds being likely to face pressure in the event of a significant tightening of liquidity conditions,” Fitch said in the June report. Bloomberg News

Business Daily Wednesday, August 2 2017 9

Greater China Financial sector

In Brief

New chiefs at nation’s top banks signal further reshuffles ahead Moves at the top of state banks and at the country’s regulators are likely The reshuffle at the top of two of China’s largest state-controlled banks is the latest phase of a management change for the country’s US$40 trillion financial industry, as the government seeks to restrain any turbulence ahead of a twice-a-decade meeting of the ruling Communist Party. Tian Guoli, formerly chairman of Bank of China Ltd., has been named as the new chairman of China Construction Bank Corp., succeeding Wang Hongzhang, who is retiring, people familiar with the matter said on Monday. Chen Siqing, previously Bank of China’s president, has been promoted to become the bank’s party secretary, a Communist party role that typically paves the way for him to take the chairmanship, the people added. The changes “show leadership reshuffles in financial and economic sectors will become a general trend,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “The leadership wants to install people that they can trust to clean the troublesome financial industry.” As President Xi Jinping prepares for a leadership transition this fall, China’s regulators have been attempting to clamp down on financial risks, with policymakers now targeting everything from corporate acquisitions to returns on savings products banks sell to yield-hungry consumers. Other moves at the top of state banks and at the country’s regulators are likely, and suggest the government is maintaining its tight control over the levers of the financial system ahead of the Party congress, said Oliver Rui, professor of finance at the China Europe International Business School in Shanghai. “We are going to see further consolidation of power

from the Party over its control of China’s biggest financial institutions,” Rui said. As well as filling Chen’s role at Bank of China, the government is expected to appoint a new chairman for the China Insurance Regulatory Commission and an assistant chairman for the China Banking Regulatory Commission, as former officials holding the jobs are being probed for corruption. Another senior financial role will come vacant if Ma Kai, one of the country’s four vice premiers and responsible for macroeconomic policies, retires as expected after the party congress. Wang Yang, another vice premier who oversees commerce, is likely to take a new role. And Zhou Xiaochuan, the nation’s longest-serving governor of the central bank, may retire.

Regulatory roles

Senior Chinese financial officials can move seamlessly between posts at the top of the state-owned banks and at the country’s financial regulators. During the last major management reshuffle in the nation’s financial industry, in late 2012 and early 2013, Tian Guoli took the helm of Bank of China from Xiao Gang, who went on to head the China Securities Regulatory Commission until he was

removed after the 2015 stock-market crash. “In the West, we also see bankers move to become regulators, but there’s normally a cooling period, which you don’t see in China,” noted Rui. Tian, born in 1960, joined Bank of China as chairman in May 2013 from state-controlled Citic Group. Before that, he was head of China Cinda Asset Management Co. and also held various positions at Construction Bank. Tian used to work under Wang Qishan, who ranks sixth in the Communist Party hierarchy and oversees Xi Jinping’s signature anti-corruption campaign. Tian was the assistant president at Construction Bank in 1997 when Wang was the president of the bank.

Bank’s expansion

Bank of China expanded assets under Tian’s leadership by over 40 per cent from the end of 2012 to stand at RMB18 trillion (US$2.7 trillion), making it the world’s fourth-largest lender by assets. Industrial & Commercial Bank of China Ltd., Construction Bank, and Agricultural Bank of China Ltd. held the top three spots. Bank of China also spearheaded the nation’s lending efforts on Xi’s Belt and Road Initiative, with a commitment to provide over US$100 billion of financing to 460 projects by the end of March. Chen, also born in 1960, is a 27-year veteran at Bank of China. He became president, the second-highest ranking position at a Chinese state-owned bank, in early 2014 after holding various positions, including head of risk management. Bloomberg News

China’s central bank has found 40 banks in violation of interbank account regulations and have ordered them to rectify the problem within three to six months, financial magazine Caixin reported on Tuesday, citing a document. Large state-owned lenders, including China Construction Bank, Bank of China (BOC), Agricultural Bank of China, China Minsheng Banking Corp, China Merchants Bank , and Ping An Bank were told to conduct an overhaul due to breaching the rules, Caixin reported. The central bank also found Hengfeng Bank, Bank of Nanjing and BOC’s Shanghai branch had severely violated regulations, the report said. Local debt

Beijing urges funds to join debt-for-equity scheme Local governments in China have been urged to set up new funds to participate in market-driven debt-for-equity swaps, the state planner said yesterday, as the government looks to ease corporate indebtedness. Local governments were encouraged to bring private capital and other investors as co-investors into such funds in order to broaden funding for the swap programme, the National Development and Reform Commission said on its website. China’s policymakers re-launched a debt-for-equity scheme in October last year aiming to expand sources of investment capital for firms struggling under heavy pressure of debt.

Didi Chuxing announces tie-up with Taxify

Pollution regulators slam metals giant Minmetals for violations China’s environment ministry has been engaged in a long struggle for authority over powerful government-backed firms

Chinese inspectors have accused subsidiaries of state-owned China Minmetals Group of repeatedly violating pollution rules in the major rice-growing province of Hunan, part of a drive by Beijing to force corporate offenders to toe the line. In an audit published by the Ministry of Environmental Protection (MEP) on Monday, the inspectors said nonferrous metals producers in Hunan had failed to address a series of violations. Most were units of Minmetals, one of the country’s biggest mining and metals trading firms, the audit said. “Since 2013, the firms have failed to investigate and deal with dozens of cases of environmental violations, making the enterprises ‘big corporate bullies’ who do not treat environmental problems with importance, do not conduct rectifications and break rules and regulations on a long-term basis,” the report said. China’s environment ministry has been engaged in a long struggle for authority over powerful government-backed firms. It has recently stepped up efforts to name and shame companies that don’t comply with guidelines on air quality or

C.bank finds 40 banks in violation of interbank rules

Ride-hailing apps

Environment

David Stanway

Regulation

wastewater treatment. A spokesman with the Minmetals Group in Beijing did not immediately respond to requests for comment yesterday. Minmetals has total assets of RMB1.6 trillion (US$238 billion) and runs projects in more than 60 countries. Environmental campaigners welcomed the MEP audit as significant step. “This statement from the MEP was unreserved and strong,” said Ada

Kong, senior toxics campaigner with Greenpeace East Asia in Beijing. “It ... shows the MEP is really getting tough on polluters, whether government, business or state-owned industry.” China’s latest inspections into provincial environmental compliance were conducted in April and May and covered seven provinces, including Hunan. The Hunan audit, focusing on the period from 2013 to 2016, accused authorities of allowing environmental protection to “give way” to economic development, saying they “did not dare and did not want” to regulate big industrial polluters. The province’s five-year plan to develop nonferrous metals from 2016 to 2020 remained skewed towards expanding capacity rather than improving the industry’s environmental record, the audit said. The issues stemmed from Hunan’s role not only as a leading metals producer, but also a major farming region, it added, describing the interaction between the two industries as “a focal point of environmental problems”. Hunan grows around 30 per cent of China’s rice, and was at the centre of a 2013 scandal involving the sale of rice contaminated with the toxic heavy metal cadmium. In many regions, wastewater runoffs from mines are used directly to irrigate farmland and its main river, the Xiang, is one of China’s most polluted. Reuters

Chinese ride-sharing firm Didi Chuxing said yesterday it would invest and collaborate with European ride-sharing firm, Taxify, in a strategic partnership. Taxify, a rival to San Francisco-based Uber Technologies, is an Estonian company founded in 2013 that has 2.5 million users in 18 countries in Europe and Africa. The two companies said in a joint statement that Didi would support Taxify’s further growth and help it become the most popular transport option in Europe and Africa. They did not provide an investment amount. Didi offers ride-sharing services to more than 400 million users, according to the company. Liquidity

PBOC lends RMB360 bln via MLF in July China’s central bank lent RMB360 billion (US$53.59 billion) for one year to financial institutions via its medium-term lending facility (MLF) in July, it said yesterday. In June, the central bank had lent RMB498 billion via the MLF facility. Outstanding MLF was RMB4,227.00 billion at the end of July compared with RMB4,224.50 billion at the end of June, it said in a statement on its website. The People’s Bank of China uses the MLF and the standing lending facility as tools for managing short- and medium-term liquidity in the country’s banking system.

10 Business Daily Wednesday, August 2 2017

Greater China

Global retreat

Waldorf owner pressured to sell as clampdown escalates The request underscores President Xi Jinping’s determination to rein in debt-fuelled investments and restrict capital outflows

hen Anbang Insurance Group Co. agreed to buy New York’s iconic Waldorf Astoria hotel for US$1.95 billion in 2014, the world took notice. It was a defining moment in the global rise of China Inc., a deal that would help kick off one of the greatest acquisition sprees in history. But now the Waldorf, along with more than US$10 billion of Anbang’s other deals, could become symbols of corporate China’s rapidly shrinking global ambitions. Chinese authorities have asked the embattled insurer to sell its offshore assets and bring the proceeds back home, according to people familiar with the matter, who asked not to be identified because the details are private. The unprecedented request marks an escalation of China’s clampdown on its biggest overseas dealmakers, which until now has focused on slowing the pace of new takeovers and prodding domestic lenders to pay more attention to their exposure. While there’s no indication that the four other active acquirers singled out by China’s banking regulator in June face similar pressure, the Anbang request underscores President Xi Jinping’s determination to rein in debt-fuelled investments and restrict capital outflows before a key leadership reshuffle later this year. “Anbang’s days as one of China’s most influential firms are clearly over, and asset sales are part of that transformation,” said Christopher Beddor, an associate at political risk consulting firm Eurasia Group. “It’s abundantly clear that the power of the state is increasing vis-a-vis private firms.”

Another setback

For Anbang, it’s another setback in what has been a remarkable fall from grace. The company rose from

obscurity to global prominence in just over a decade until its chairman, Wu Xiaohui, was detained by investigators in June, becoming the most high-profile target of an industry wide crackdown on risky investment practices. It’s not clear yet how Anbang will respond to the government’s request on overseas asset sales, said the people, who didn’t mention the Waldorf Astoria or any other specific foreign holdings. Anbang hasn’t received such a request and “at present has no plans to sell its overseas assets,” the company said in an emailed statement. Anbang’s October 2014 agreement to buy the Waldorf, which set a price record in the American hotel industry, catapulted the once-obscure insurer onto the global stage. Over the next two years, Anbang bought real estate and financial services companies in Asia, Europe and North America, including Strategic Hotels & Resorts and an office building in midtown Manhattan to house Anbang’s U.S. headquarters. The insurer’s rise was fuelled by sales of lucrative investment products that offered among the highest yields in the industry. But Anbang’s buying binge fizzled as Chinese authorities cracked down on such products this year, part of a wider campaign to rein in financial risks before the Communist Party’s twicea-decade leadership reorganization. “Authorities clearly do not want other insurance companies to copy Anbang’s growth model, which relies on short-term products,” said Steven Lam, a Hong Kong-based analyst with Bloomberg Intelligence. “The signal from the government is very strong on proper asset-liability management and being responsible to policyholders.” In June, Chinese regulators stepped up scrutiny of other serial dealmakers such as HNA Group Co., Fosun

International Ltd. and Dalian Wanda Group Co., asking banks to report their exposures to the companies. At a conference on financial regulation convened by President Xi in July, policy makers pledged to rein in corporate borrowing and said that preventing systemic risk was an “eternal theme.” Chinese acquisitions, even by firms under regulatory scrutiny, haven’t completely come to a standstill. On Friday, Shanghai-based Fosun, whose businesses range from insurance to pharmaceuticals, said it agreed to team up with a statebacked dairy producer to buy French margarine maker St Hubert for 625 million euros (US$733 million). HNA, which has taken on least US$73 billion of debt as it transformed from a small regional carrier into a global conglomerate, recently announced it will buy the operator of one of Brazil’s busiest airports.

“Anbang’s days as one of China’s most influential firms are clearly over, and asset sales are part of that transformation” Christopher Beddor, an associate at political risk consulting firm Eurasia Group Still, the pace of deals has fallen dramatically. After a record US$246 billion of announced outbound takeovers in 2016, cross-border purchases plunged during the first half of this year. Announced Chinese acquisitions of overseas assets fell 37 per cent to US$99.9 billion, from US$157.9 billion in the same period last year, according to data compiled by Bloomberg. As the government’s tolerance for debt-funded deals wanes, some firms have already begun selling assets. Wanda, led by billionaire Wang

Jianlin, agreed in July to sell most of its Chinese theme parks and hotels for US$9.4 billion.

Potential buyers

Anbang’s U.S. assets, which in addition to the Waldorf Astoria include trophy properties such as New York’s JW Marriott Essex House and the Westin St. Francis in San Francisco, may be attractive to sovereign wealth funds because of their prestigious profile, said Lukas Hartwich, a lodging analyst at Green Street Advisors LLC. Blackstone Group LP, which sold Anbang the bulk of the insurer’s U.S. real estate and has previously bought back assets it sold near market tops, would also be an “obvious candidate” as an acquirer, Hartwich said. A Blackstone representative declined to comment. “These are mostly really nice hotels,” Hartwich said. “The Waldorf is more of a turnaround play to return the hotel to its former glory.” If China exerts strong pressure to sell, whoever buys is likely to negotiate a discount. “All the potential acquirers know there’s blood in the water and that’s not usually a strong bargaining position to be in as a seller,” Hartwich said. The Waldorf Astoria may potentially be appealing to a residential developer. Anbang shut the hotel down in March to convert most of the property into luxury condominiums. Christopher Nassetta, chief executive of the hotel’s manager, Hilton Worldwide Holdings Inc., said on the company’s earnings call last week that the project is on track. He said Anbang has told Hilton it has the financial capability to complete the conversion, which is scheduled to take about three years. The market for New York luxury condos has softened as the supply of such properties mushroomed. Hilton is unlikely to buy back the Waldorf, having spun off its real estate into Park Hotels & Resorts Inc. in January. Park Hotels is focused on internal growth and New York isn’t one of the spinoff’s key expansion markets. Bloomberg News

Business Daily Wednesday, August 2 2017 11

Asia Trade

S. Korea’s July exports surge in longest expansion since 2011 A breakdown of the exports data showed nine of the 13 major shipments items increased in July Cynthia Kim

outh Korea’s exports grew strongly in July to post the longest stretch of expansion in five and a half years, led by shipments of memory chips and electronic storage devices. July exports data from South Korea, one of the first major exporting nations to publish monthly trade figures, underscored strengthening global demand and a nascent pick up in Asia’s fourth largest economy. Exports jumped 19.5 per cent in July on-year and imports were up 14.5 per cent, preliminary data from the trade ministry showed on Tuesday. The resulting trade surplus was US$10.65 billion, similar to June’s US$10.77 billion surplus. July’s rise in exports marked a ninth straight month of growth, the longest stretch of expansion since December 2011. In June, exports and imports gained 13.6 per cent and 19.8 per cent, respectively. Exports of semiconductors and portable electronic storage devices, or solid state drives, increased 57.8 per cent and 11.3 per cent each onyear, leading the export surge. Imports of cars, aircraft, and components needed to manufacture semiconductors increased in July. Park Sang-hyun, chief economist at HI Investment & Securities, said

both export prices and volumes of memory chips were rising, boosting overall sales. “Export prices of semiconductors is sharpening export growth, but it seems export volume is also increasing given that sales to India surged,” Park said, pointing to a 79.2 per cent shipments surge to India in July from a year before. “July export growth shows global demand recovery is well on its way.” A breakdown of the exports data showed nine of the 13 major shipments items increased in July, including memory chips, display, ships, computers and cars. Overseas sales of car components, mobile phones and home appliances fell. The central bank and the government both raised their growth forecasts for this year as exports and an added fiscal stimulus contributed to the optimistic economic outlook. The Bank of Korea estimates the economy will expand 2.8 per cent this year, slightly below the government’s 3 per cent forecast. Even with soaring demand for memory chips, a private business survey showed factory activity fell back into contraction in July. The Nikkei/Markit purchasing managers’ index (PMI) on South Korea’s manufacturing sector fell to 49.1 in July from 50.1 in June, as growth in total new orders stalled

and export orders fell. Sluggish manufacturing activity data shows sectors other than the booming IT industry may still be struggling even as exports are soaring. Separate data on Tuesday showed South Korea’s annual inflation in July accelerated to its fastest in four months on soaring fresh food costs and as consumer confidence improved in July. The consumer price index rose 2.2 per cent in July on-year, faster than a 1.9 per cent gain in June, Statistics Korea said in a statement. It was also the fastest rise since the index gained 2.2 per cent in March, and topped the median estimate of 2.1 per cent seen in a Reuters survey. Consumer sentiment improved for a sixth straight month in July and reached a six and a half-year high

as households saw better economic conditions ahead. The benchmark inflation index had been tiptoeing around the Bank of Korea’s 2 per cent target since January, suggesting the pick up in consumer spending is responding to the job creation and welfare policies of the newly elected Moon Jae-in government. Fresh food costs surged 12.3 per cent, while the prices of electricity, water and gas gained 8 per cent from a year earlier. Service costs grew 1.9 per cent in July on-year, after posting similar gains in June. “Heavy rainfall and summer heat wave have been boosting prices of vegetables,” the finance ministry said in a statement, adding it saw the rise in fresh food costs slowing from September. Reuters

Real estate

Australian home prices jump anew in July, testing regulators The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato Home prices in Australia’s major cities rose strongly in July led by a surge in Melbourne, putting a question mark over regulators’ attempts to cool the market through tighter rules on leveraged property investors. Property consultant CoreLogic said its index of home prices for the combined capital cities climbed 1.5 per cent in July, from June when they rose 0.8 per cent. Annual growth in prices accelerated to 10.5 per cent, from 9.6 per cent, and back toward the peak of 12.9 per cent reached early in the year. Melbourne led the pack with an outsized increase of 3.1 per cent in July alone, which lifted annual price growth in the city to a blistering 15.9 per cent. Sydney prices rose 1.4 per cent in the month, and 12.4 per cent for the year. Markets were much more mixed elsewhere with prices actually falling in Brisbane, Darwin and Perth. “Melbourne appears to be benefiting from consistently high population growth which is creating strong

demand for housing, as well as consistently high jobs growth and more affordable housing options relative to Sydney,” said CoreLogic head of research Tim Lawless.

“Melbourne appears to be benefiting from consistently high population growth which is creating strong demand for housing” Tim Lawless, CoreLogic head of research Lawless said there was some hint of cooling in the quarterly pace of price growth, which slowed to 2.2 per cent at the end of July from a top of 3.6 per cent back in February.

Seeking to temper the market, the country’s main bank watchdog has tightened standards on investment and interest-only loans and banks have followed by raising rates on some mortgage products. A moderation is much desired by the Reserve Bank of Australia (RBA) which is concerned that debt-fuelled speculation in property could ultimately hurt both consumers and

banks. The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato. The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem, while the opposition Labor Party has pointed the finger at favourable tax treatment for property investment. Reuters

12 Business Daily Wednesday, August 2 2017

Asia Monetary meeting

Australia’s central bank keeps rate steady The central bank said it still expected a gradual pick-up in inflation and forecast the A$1.7 trillion economy to grow at around 3 per cent over the next couple of years Swati Pandey

ustralia’s central bank yesterday marked a full year without changing interest rates, and many economists suspect rates could stay at record lows of 1.5 per cent for yet another year as policymakers look to put the economy on a sustainable footing. The Reserve Bank of Australia (RBA) stepped up its rhetoric against a rising local dollar saying the higher exchange rate will further compress consumer prices, weighing on the outlook for growth and employment.

result in a slower pick-up in economic activity and inflation than currently forecast.” It last cut official cash rates in August 2016 to head off the danger of deflation. But inflation has still remained below the RBA’s target band of 2-3 per cent, data out last week showed. “Taking account of the available

information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time,” the RBA said in its statement. The central bank said it still expected a gradual pick-up in inflation and forecast the A$1.7 trillion economy to grow at around 3 per cent over the next couple of years. Keeping consumer prices lukewarm is record-low wages growth at 1.9 per cent - less than half the rate workers enjoyed a decade ago. The central bank is worried that incomes

are rising at a much slower pace than the increase in household debt. “The low level of interest rates is continuing to support the Australian economy,” the RBA said. “One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.” A majority of the 42 economists polled by Reuters forecast a steady rate outlook over a one-year horizon, with only 9 expecting a rate hike. Reuters

“One source of uncertainty for the domestic economy is the outlook for consumption” RBA statement

The Australian dollar has jumped about 8 per cent since June to a twoyear peak, largely driven by a battered greenback. It was last up 0.3 per cent at US$0.8025. In response the RBA inserted a new paragraph in its August policy statement, saying, “an appreciating exchange rate would be expected to

M&A

India raises concerns about Fosun’s takeover of Gland India has privately raised objections to Chinese firm Shanghai Fosun Pharmaceutical Group’s proposed US$1.3 billion takeover of Indian drugmakers Gland Pharma, a source familiar with the matter said yesterday The deal has won the approval of the Competition Commission of India (CCI) and India’s Foreign Investment Promotion Board (FIPB) in the last few months, but some in the government have expressed concerns, the source said, declining to be named. Chinese authorities have approved the takeover of the injectable drug maker, but it is awaiting a nod from the Cabinet Committee on Economic Affairs of India, Shanghai Fosun said in a statement to Reuters. The closing of the deal, which would be China’s largest ever acquisition in India if approved, has now been extended to Sept. 26, the company added. Shanghai Fosun Chairman Chen Qiyu said in a filing to the Hong Kong bourse yesterday that India had not informed Gland Pharma of the result of its review of the acquisition. Private-equity backed Gland Pharma and the cabinet committee,

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chaired by Indian Prime Minister Narendra Modi, did not immediately respond to requests for comment on Monday. Based in the southern Indian city of

Hyderabad, Gland owns four factories from where it supplies a variety of injectables – widely used medicines administered through vials, syringes, bags and pumps, which are harder to make than regular drugs. Bloomberg, citing people familiar with the matter, reported earlier in the day that the cabinet committee was poised to block the deal, though neither company had been formally notified of the move yet. India’s Finance Ministry spokesman D.S. Malik told Reuters that

report was “totally speculative” and that the matter had not yet come before the committee. The objections come against a backdrop of heightened India-China tensions. The two countries are embroiled in a stand-off around India’s north eastern border.

Key Points Deal has FIPB, CCI approval; cabinet nod pending Fosun says closing date of deal extended to Sept. 26

I n d i a’ s c o n c e r n s o v e r t h e Gland-Fosun deal are not, however, a result of the border tensions, the source said. “They have more to do with giving control of a large pharma company to a Chinese entity that itself is facing questions from the regulators at home,” the source said. China’s banking regulator has ordered a group of lenders to assess their exposure to offshore acquisitions by a handful of companies, including Fosun, that have been on an overseas buying spree, sources told Reuters last month. 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 Wednesday, August 2 2017 13

Asia Commerce

In Brief

Japan’s Aso says Tokyo to discuss frozen beef import tariffs in talks with U.S. Tokyo and Washington are expected to hold a second round of bilateral economic talks later this year Tetsushi Kajimoto

Japan’s finance minister said yesterday Tokyo would raise the issue of tariffs on frozen beef imports from the United States and other countries in bilateral economic talks with Washington later this year.

Key Points ‘Safeguard’ tariffs hit frozen beef imports from Aug 1 U.S. agriculture secretary voices concern about tariffs

“I’m aware of the U.S. agriculture secretary’s concern,” Aso told reporters after a cabinet meeting in Tokyo. “This measure would be abolished if the TPP (Trans-Pacific Partnership) were implemented, but it remains because the U.S. withdrew from TPP.” Under current Japan measures, higher tariffs are automatically imposed if quarterly imports of specific beef products - both from all nations and from those lacking economic partnership agreements (EPAs) with Japan - rise more than 17 per cent from a year earlier.

In April-June, Japan’s frozen beef imports from all nations, at 89,253 tonnes, were up 17.1 per cent on the year, while imports from non-EPA nations reached 37,823 tonnes, an increase of nearly a quarter, government data showed. “It’s true there have been debates that the span of time (used in tariff reviews) should be extended from the current three months,” Finance Minister Aso said yesterday. “There’s room for consideration and we are likely to discuss issues of this kind in our economic dialogue.” Tokyo and Washington are expected to hold a second round of bilateral economic talks later this year, in which the Trump administration could press for concessions on trade that could increase U.S. exports to Japan. Reuters

Aso says room for consideration on review of rules Minister Taro Aso’s comments came as Japan hiked tariffs from Aug. 1 on imports of frozen beef, popular in beef bowl dishes, from countries including the United States to 50 per cent from 38.5 per cent. The measure follows U.S. president Donald Trump’s move to withdraw from the long-planned Trans-Pacific Partnership trade deal earlier this year. The tariff hike, set to be in place until next March, is a “safeguard” mechanism to protect domestic farmers, Japan’s finance ministry said last month, prompting concern in Washington.

Japan’s finance minister Taro Aso

IT Business

The IT Business Process Association of the Philippines is aiming for US$39 billion of revenue by 2022

The Philippines’ US$23 billion outsourcing empire is facing mounting risks: China is rising quickly as a competitor, the government wants to cut some incentives and a siege in the south of the country is worrying investors. “We need to put our act together,” Rey Untal, head of the Philippine association of outsourcing companies, said in an interview in Manila. “The other countries know how big this IT business process outsourcing pie is globally and they want to increase their share. This is not a static world.” Armed with a high-level of English proficiency, a young population and cheap labour, the Philippines has emerged as one of the global leaders of outsourcing with companies such as Accenture Plc among those who’ve invested. But its position is now under threat with China ranked ahead of the Philippines in terms of competitiveness, advisory firm Tholons said in a June report. “It really is a significant wakeup call,” Untal said on July 28. “It’s

S.Korea to announce new housing measures A South Korean lawmaker said yesterday that the government will announce a fresh set of measures today to rein in speculative investment in the housing market. “A comprehensive set of measures will be announced tomorrow after the government ruling-party talks,” Kim Tae-nyeon, a lawmaker of the ruling Democratic Party of Korea, said at a policy meeting in Seoul, according to a party statement. Addressing speculative housing investment is a goal of President Moon Jae-in’s government after record-low interest rates helped household debt soar in the first quarter to a record high. Results

MUFG Q1 profit jumps on sales of equity holdings Mitsubishi UFJ Financial Group (MUFG) reported a 53 per cent rise in quarterly profit, boosted by gains from sales of its equity holdings, although lending remained weak in a low interest rate environment. Japan’s largest lender by assets said net profit came in at 289 billion yen (US$2.6 billion) for the first quarter ended June, up from 188.9 billion yen a year earlier. Net interest income, or profits from lending and bond coupons, fell to 462.6 billion yen from 502.1 billion yen. For the full year through March, MUFG kept its net profit forecast of 950 billion yen. Poll

Philippines vows to defend outsourcing empire as China rises

Ditas Lopez

Real estate

good in a way. Sometimes you need to be jolted. Many of the countries that compete with us directly are enhancing all the parameters that make them competitive -- talent, infrastructure, incentives.”

Million jobs

The IT Business Process Association of the Philippines is aiming for US$39 billion of revenue by 2022. The industry is the country’s biggest source of private jobs, according to London-based research and consulting firm Oxford Business Group, with more than a million workers in 2016. Aside from competition, the industry is also bracing for a government plan to reduce some tax incentives. The finance department plans to submit a bill to lawmakers to remove the preferential tax rate on salaries of some executives working in regional headquarters including those of outsourcing companies. At the same time, rising security risks in the south could damp appetite for expansion in the provinces. The government is waging a protracted battle with Islamic State-linked

militants in Marawi City, and has placed the island of Mindanao under martial law until the end of the year. “Business process outsourcing is very important for dollar supply, especially now that the country might slip into a current-account deficit,” said Michael Enriquez, chief investment officer at Sun Life of Canada Philippines Inc. in Manila. “There’s a lot of threats to the growth of the sector, but BPOs will continue to prosper here as long as there’s government support.”

“There’s a lot of threats to the growth of the sector, but business process outsourcing will continue to prosper here as long as there’s government support” Michael Enriquez, chief investment officer at Sun Life of Canada Philippines Inc. in Manila The risks of a slowdown in outsourcing coupled with faltering remittances and higher trade deficits may exacerbate the weakness in the peso, Asia’s worst performing currency this year. The central bank is forecasting the nation’s first current-account deficit in 15 years in 2017, removing a key support for the currency. “The challenges we have are already significant,” Untal said. “We don’t need additional challenges.” Bloomberg News

Sri Lanka cbank seen holding rates Sri Lanka’s central bank is expected to keep its key interest rates steady on Thursday, as it walks a tight rope between supporting an economy hampered by the worst flooding in over a decade and keeping inflation in check amid still-strong credit growth. A Reuters poll showed that policymakers will look past advice from the International Monetary Fund to further tighten rates. All 12 economists in the survey predicted the central bank would keep its standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) unchanged at 7.25 per cent and 8.75 per cent, respectively. Missed payment

Abu Dhabi issues new deadline to 1MDB Abu Dhabi’s sovereign wealth fund has given 1Malaysia Development Berhad’s (1MDB) five days to make a US$600 million payment, which the troubled Malaysian state fund failed to pay yesterday, further complicating a dispute hanging over Southeast Asia’s third-biggest economy. The 1MDB fund said in a statement it was committed to meeting its obligations to Abu Dhabi’s International Petroleum Investment Company (IPIC), originally due on 31 July 2017, in August 2017. It did not specify a date in August. It said all payments to IPIC would be made from the proceeds of the 1MDB rationalisation plan, under which it is selling assets.

14 Business Daily Wednesday, August 2 2017

International In Brief Monetary view

Greenspan sees return of stagflation unseen since 1970s Little to slow growth and rising inflation? That’s what’s in store for the U.S. economy, according to Alan Greenspan. The former Federal Reserve chairman told Bloomberg the era of sluggish expansion without any meaningful increase in inflation is bound to end -- not with an acceleration in growth, but with faster price gains. In other words, stagflation is on the horizon and that bodes poorly for the American economy. “We’ve been in a period of stagnation since 2008 as a consequence of the sharp decline of capital investment and productivity growth,” Greenspan said during a telephone interview. “But stagflation is about to emerge.”

PMI

UK manufacturing grows as export orders climb to near record Manufacturing accounts for about a 10th of the UK economy Lucy Meakin

K manufacturing growth accelerated for the first time in three months in July, bolstered by the strongest jump in export orders in seven years. A measure of factory output rose to 55.1 from a revised 54.2 in June, according to IHS Markit’s Purchasing Managers’ Index. That exceeds the advance to 54.5 forecast by economists in a Bloomberg survey and is well above the 50 level dividing expansion from contraction. Companies reported that export

orders, which climbed to the second-highest reading since records began in 1992, were boosted by the pound exchange rate as well as stronger economic growth in the euro area, North America and Asia-Pacific regions. The domestic market also contributed to order books, albeit at a weaker level than earlier in the year. Firms were assisted by easing price pressures, with input costs rising at the slowest pace in over a year. The report suggests that the inflation effect of the pound’s drop, triggered by the vote to leave the European Union last year, is starting to fade. That may help take the strain off

Bank of England policy makers, who meet this week to decide how to respond to above-target price gains. The Monetary Policy Committee, which voted 5-3 against raising interest rates in June, will announce their decision on Aug. 3. “If this trend of milder price pressures is also reflected in other areas of the UK economy, this should provide the Bank of England sufficient leeway to maintain its current supportive stance until the medium-term outlook for economic growth becomes less uncertain,” said Rob Dobson, senior economist at IHS Markit. Manufacturing accounts for about a 10th of the UK economy. PMI data on services, which make up almost 80 per cent, will be published on Thursday. Bloomberg News

Corruption

Britain’s SFO opens investigation into British American Tobacco Britain’s Serious Fraud Office (SFO) has opened an investigation into suspicions of corruption at British American Tobacco and its subsidiaries, the regulator said yesterday. The maker of cigarette brands including Dunhill and Lucky Strike said in a statement it intended to cooperate with the investigation, but did not provide further details. The company said in February last year that it had appointed an external law firm to conduct a full investigation into allegations of historic misconduct in Africa and that it was liaising with the SFO. Mozambique

Anadarko agrees to design, build, operate LNG terminal U.S. oil company Anadarko has said it has finalised two agreements with the government of Mozambique that will let the company “design, build and operate the maritime facilities” of the liquefied natural gas project. The company said on Monday that the Final Investment Decision, the last step before starting works on the ground, would be taken after the sale and purchase contracts had been defined. Anadarko’s announcement regarding the Golfinho/Atum field comes just over a month after the Mozambican government announced its approval of a concession agreement allowing the construction of the LNG maritime terminal. Shipyards

France wants private shareholder for STX France wants a private investor for the STX France shipyards and Fincantieri is the best option but the government will be forced to consider other alternatives should negotiations with the Italian shipbuilder fail, the French Finance Minister said yesterday in an Italian paper. “The (STX) Saint Nazaire shipyards must not be directed by the French State. We want a private shareholder and Fincantieri today is the best industrial group to join this big European and Franco-Italian project,” Bruno Le Maire told daily il Corriere della Sera in an interview.

GDP

Euro-area economy steams ahead as ECB awaits inflation to follow France enjoyed its strongest continuous expansion since 2011 in the second quarter Catherine Bosley

The euro-area economy expanded apace in the second quarter, a sign the bloc’s upswing is becoming increasingly robust and self-sustaining. Gross domestic product in the 19-country region rose 0.6 per cent in the three months through June, after increasing 0.5 per cent at the start of the year. That’s in line with the median estimate in a Bloomberg survey of economists. Figures from economic confidence to joblessness and manufacturing output signalled the economy was gaining steam, underpinning expectations by the European Central Bank that price pressures would eventually begin to build. Policy makers are preparing for a debate in the autumn about the future path of quantitative easing, which has helped reduce financing costs for firms and households, thus stimulating demand. “In qualitative terms, the surveys paint a really positive picture, both for consumers and companies -- it’s a big change from a year or two years

ago,” Stephen Brown, an economist at Capital Economics in London, said before the report. “That’s why you see people finally making purchases or investments.” France enjoyed its strongest continuous expansion since 2011 in the second quarter, driven by exports and investment, while Spain experienced the fastest growth since 2015, national data published last week showed. The Austrian economy also gathered pace, while Belgium’s performance weakened. A complete country breakdown will be available on Aug. 16, with details on GDP components due on Sept. 5.

Bright outlook

Corporate results reflect the economy’s strength. European sales at luxury-goods company LVMH increased 11 per cent during the second quarter, and staffing company Randstad Holding NV recorded double-digit organic sales growth in the region. ECB President Mario Draghi has expressed confidence that the solid, broad-based recovery will extend into the second half, with a healing labor market and a closing output gap fuelling a sustained inflation pickup. Economic sentiment hit a decade-high in July, with manufacturers saying they’re working at a

higher capacity and selling-price expectations increasing in all sectors, according to a European Commission report last week. The pass-through to consumer inflation has so far been muted though. The rate stayed at 1.3 per cent in July, below the ECB’s goal of below, but close to, 2 per cent. While policy makers see enough progress to start a debate about winding down their 2.3 trillion-euro (US$2.7 trillion) bond-buying program in September, the International Monetary Fund is urging caution.

‘Gross domestic product in the 19-country region rose 0.6 per cent in the three months through June’ “Monetary policy should remain firmly accommodative,” the Washington-based lender wrote in a report published last week. “The improving near-term outlook is clouded by significant downside risks, especially in the medium and long term.” Bloomberg News

Business Daily Wednesday, August 2 2017 15

Opinion

Singapore banks should swap exuberance for scepticism Andy Mukherjee a Bloomberg Gadfly columnist

t took an earnings announcement from the smallest of Singapore’s banks to shake the edifice of optimism that investors had built around all three of them. United Overseas Bank Ltd.’s 5.5 percent profit growth in the June quarter was better than what analysts had expected. Yet UOB’s shares fell 2.2 percent on Friday (they closed 0.3 percent lower on Monday), dragging down stocks of bigger rivals -- DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp. Chalk up the nervousness to exuberance. A year ago, investors weren’t willing to pay even 1 time the consensus estimate of banks’ book value. Now the lenders command premiums of 12 to 20 percent on the same metric. While that doesn’t make Singaporean lenders as richly valued as their Hong Kong or Australian counterparts, the run-up in share prices has effectively sidelined investors’ outsize concerns over asset quality. UOB’s financials serve as a reminder that investors have perhaps been a tad too hasty in thinking that the trio’s exposure to Singapore’s distressed offshore and marine industry is no longer as big a problem as it was in 2016. Independent banking analyst Daniel Tabbush came up with this chart when he plotted the formation of per cent new nonperforming DBS shares, YTD assets at UOB versus recoveries: A sequential doubling of new nonperforming assets for two straight quarters, net of recoveries, punches a large hole in the bull case for Singapore banks. Asset quality is still showing no sign of getting better. As for the crowd-pleasing 22 percent increase in second-quarter net income at OCBC, writing for research website Smartkarma, Tabbush puts most of it down to a “staggering” 200 percent jump in the quarterly profit of OCBC’s insurance arm, Great Eastern Holdings Ltd. Moreover, as he notes, 30 percent of this bumper harvest of insurance earnings came from a revaluation of assets and liabilities and other such non-recurring, non-operational items. All this is finally making investors a little realistic about DBS, which is due to report earnings on Friday morning. The stock’s two-day, 2.8 percent slide is the steepest since just before the lender posted its fullyear 2016 results in mid-February. Short-term interest rates in Singapore are also working against banks. Two years ago, interbank rates used to be about threequarters of a percentage point higher than in Hong Kong; now they’re almost a fifth of a percentage point lower than in the Chinese territory. Hong Kong’s short-term interest rates, although stuck below the 1 percent-plus levels they reached earlier this year, are still high enough to give the city’s lenders a margin boost. That could offset the slowdown in volume growth that’s occurring because of regulatory efforts to calm runaway house prices, according to Bloomberg Intelligence analyst Francis Chan. Singaporean lenders, however, will struggle to charge more for credit, especially since it’s still unclear if the property market has bottomed after 15 consecutive quarters of sliding prices. It’s not just about asset quality. Even the core business of Singapore banks needs a healthy dose of scepticism. Bloomberg Gadfly

+24.7

Rare-earth panic rises again, now thanks to Trump Adam Minter a Bloomberg View columnist

or nearly a decade, American policy makers and industrialists have warned of a looming apocalypse in the world’s supply of rare-earth elements, which are crucial components in everything from electric cars to military hardware. Because China accounts for nearly all global production of the metals, the theory went, it could place a choke-hold on U.S. manufacturing. But the apocalypse never arrived. Instead, researchers and entrepreneurs have sought out new sources of rare earths, ensuring that markets -- and not China -- will ultimately control their supply. As Donald Trump’s administration mulls a risky new effort to exploit more rare-earth deposits, it should take a lesson from recent history. Although the rare-earth elements aren’t exactly household names, they’re essential to the modern economy. Magnets made with neodymium are critical to efficient wind turbines; praseodymium is used for hardening metals in aircraft engines; lanthanum is a crucial element in camera lenses, as well as in night-vision goggles used by the military. For decades, the U.S. was the world’s leading producer and processor of such metals. But in the 1990s, it began losing its edge to Chinese producers, who benefited from lower costs, less regulation and a burgeoning manufacturing base. The shift was fast: The Mountain Pass mine in California, the only U.S. rare-earth mine, closed in 2002. Within a decade, China was producing about 97 per cent of the world’s supplies. That market dominance didn’t go unnoticed. The U.S. Congress, alarmed that China might monopolize raw materials needed in certain weapons systems, commissioned a study on rare earths in the defence supply chain and considered legislation to spur the development of domestic alternatives. Respected publications warned of a “Rare Earth Crisis.” For a brief moment, one seemed imminent. In 2010, China ordered a halt to rare-earth shipments to Japan -- a huge market for the materials -- amid political tensions. Panic ensued and prices spiked. Cerium, which had cost US$6 a pound in 2008, shot up to US$77 a pound. Sensing an opportunity,

“

the mining company Molycorp Inc. spent nearly US$1 billion to reopen the Mountain Pass mine. As fears intensified, its stock price soared. But markets have their own means of responding to shortages. And the fact is, rare earths aren’t really rare. Rather, they’re difficult to find in economically viable concentrations and expensive to mine. Rising prices can quickly change the economics of scarcity. Even before the embargo on Japan, new sources of supply were popping up in Canada, South Africa, Kazakhstan, Australia and Malaysia. In China, meanwhile, wildcat mines quickly sprung up to take advantage of the price spike. More important, manufacturers -- spooked by the prospect of losing access to rare earths -- invested in finding alternatives. Honda Motor Co. developed the world’s first hybrid car motor that doesn’t use rare-earth magnets (thereby reducing the cost and weight of the motors). Hitachi Metals America figured out how to substantially reduce the amount of rare earths needed in its magnets. By late 2011, reduced demand and increased supply sent rare-earth prices into a tailspin, leading to an ugly bankruptcy for Molycorp. A global marketplace that many bet could be cornered by China instead adjusted to disruption by finding new supply. Thanks to improving technology and new exploration -- including in North Dakota’s shale oil fields -- the next disruption should be less severe than the last. All of which makes the Trump administration’s newfound interest in dredging up Afghanistan’s rare-earth supplies misguided. The hope seems to be that leaving American troops in the country would allow U.S. mining companies to exploit its deposits and thus reduce China’s near-monopoly. The plan is still a bit hazy, but it’s of a piece with some unfortunate alarmism among Republicans about China’s dominance of rare-earth production. In truth, there’s little reason for the U.S. to fear a shortage of rare earths any time soon. Even if China wanted to squeeze the market again, the forces of competition and innovation would likely be enough to ensure that supply meets demand. Americans who champion the free market should have a lot more faith in it. Bloomberg View

As Donald Trump’s administration mulls a risky new effort to exploit more rare-earth deposits, it should take a lesson from recent history

”

16 Business Daily Wednesday, August 2 2017

Closing Stocks

China state-owned firms power Hong Kong stocks to 26-month high

cent. Financials led the advance, as investors poured into Hong Kong stocks ended at a 26-month high, aided dual-listed big-cap insurers including New China Life Insurance, a leading life insurance firm in China, by strong gains in state-backed mainland firms, as which leapt 6.9 per cent to its highest since May investors cheered a private survey showing China’s 2015. factory activity accelerated in July. The benchmark Hang Seng index rose 0.8 per cent, China’s online gaming giant Tencent Holdings ended to 27,540.23 points, its highest close since June 2015. up 0.3 per cent at a record high. The China Enterprises Index, an index tracking major Data showed mainland investors in July spent a total of RMB42.3 billion (US$6.30 billion), the largest state-owned mainland firms, gained 1.8 per cent to monthly amount so far in 2017, buying Hong Kong finish at 11,024.13 points, a two-year high. stocks via the stock connects linking Shanghai, In July, HSI was up 6.1 per cent, marking its seventh Shenzhen and Hong Kong. Reuters straight month of gains, while HSCE gained 4.5 per

Luxury

Ferrari said to plot ‘utility vehicle’ in plan to double profit The brand will also build more hybrid models to improve its vehicles’ efficiency Tommaso Ebhardt

errari NV is considering adding a roomy four-seat “utility vehicle” as part of a major expansion push beyond its traditional supercar niche in a bid to double profit by 2022, people familiar with the matter said. The final five-year plan under Chief Executive Officer Sergio Marchionne, who’s set to retire in 2021, will target boosting annual deliveries beyond a self-imposed limit of 10,000 cars, which allows the company to operate with less-stringent fuel-economy rules, said the people, who asked not to be identified because the matter is private. Under the plan, which is set to be unveiled in early 2018 and could expose the carmaker to stricter environmental regulations, Ferrari will also build more hybrid models to improve its vehicles’ efficiency and woo new wealthy buyers, the people said. A Ferrari spokesman declined to comment. Since taking charge of Ferrari in 2014, Marchionne has been pushing volume, already blowing past an earlier cap of 7,000 cars. While that approach risks diluting the brand’s exclusive cachet, the 65-year-old flanked delivery growth with exclusive limited-edition models, such as the US$2.1 million LaFerrari Aperta convertible. He’s now seeking to dial up that effort to secure Ferrari’s independence as the auto industry grapples with the strains of shifting

to electric-powered cars. Ferrari, which reports earnings today, is on pace to increase adjusted earnings before interest, taxes, depreciation and amortization more than 14 per cent this year to at least 1 billion euros (US$1.18 billion). The new strategy is likely to include doubling that figure in five years, the people said.

SUV objections

Among projects being evaluated is a four-seat family car that offers more space than Ferrari’s current two-door GTC4Lusso. The model is internally dubbed the “Ferrari utility vehicle,” following Marchionne’s previous objections to developing an SUV. The big Ferrari would be targeted at Asian customers, particularly in China, and may alone contribute 2,000 vehicles to annual deliveries, the people said. Ferrari is studying ways to ensure

its sporty style with the new car, which the manufacturer will try to market as a new industry segment rather than as another high-end SUV, following the likes of Maserati, Bentley and Lamborghini, they said. The new auto, which could have two or four doors, is expected to be sold from 2021, the people said. No final decision on the model has been made.

‘Ferrari’s current target is to boost vehicle sales to 9,000 cars in 2019 from 8,014 in 2016’ Ferrari’s current target is to boost vehicle sales to 9,000 cars in 2019 from 8,014 in 2016. Analysts at at Mediobanca SpA, UBS Group AG and

Sanford C. Bernstein & Co. predict deliveries could jump to as high as 15,000 under a new strategy, which Marchionne hinted he was developing during his first-quarter earnings presentation in May. The plan poses a risk as raising annual deliveries to more than 10,000 cars a year would push Ferrari beyond its “small vehicle manufacturer” status, which protects it from some U.S. and European fuel-use and emissions rules.

Hybrid expansion

To address those issues, the Italian carmaker, which was spun off from Fiat Chrysler Automobiles NV in 2016, plans to introduce more hybrid vehicles starting in 2019 to help comply with stricter environmental regulations, the people said. Those models, like the current US$1.5 million LaFerrari, will be equipped with an electric motor to improve performance and add horsepower, the people said. Ferrari can also pay penalties or buy carbon credits and add those costs to the price of its vehicles, Mediobanca analyst Massimo Vecchio said. Meanwhile, boosting output could prompt Ferrari to add a second shift to its factory in Maranello, Italy, its only manufacturing site, the people said. The carmaker’s executives have had meetings with investors in the past weeks to prepare them for the new strategy, the people said. Marchionne, who is also CEO of former parent Fiat Chrysler, is set to present his final plans for both carmakers at the beginning of next year. He intends to step down from Fiat in 2019 and Ferrari two years later. Bloomberg News

Private index

M&A

Reform

India manufacturing PMI hits 8-year low

Two HNA deals hit hurdles as China tightens scrutiny

IMF says Japan needs more work for ‘durable’ deflation exit

A private gauge indicates that India’s manufacturing output slid to the lowest since the financial crisis as the roll out of a new nationwide sales tax disrupted supply chains across the country. The Nikkei India Manufacturing Purchasing Managers’ Index was at 47.9 in July, lowest since February 2009. A number below 50 indicates contraction. However, the outlook for the year ahead remains positive with companies expecting more clarity about the goods and services tax to boost growth, Pollyanna De Lima, principal economist at IHS Markit, wrote in a report yesterday. “The weakening trend for demand, relatively muted cost inflationary pressures and discounted factory gate charges provide powerful tools for monetary policy easing, which has the potential to revive economic growth,” De Lima wrote. The data comes a day before the central bank’s interest rate decision, widely seen as Governor Urjit Patel’s last chance through 2018 to stimulate the economy before the Federal Reserve begins reducing its balance sheet. The Reserve Bank of India will cut its benchmark repurchase rate to 6 per cent from 6.25 per cent, according to 41 of 57 economists in a Bloomberg survey with the rest seeing no change. Bloomberg News

At least two of HNA Group’s overseas deals have hit a hurdle as the Chinese conglomerate struggles to take money out of China, said four people familiar with the process, amid a widening crackdown by Beijing on debt-fuelled corporate acquisitions. The two HNA deals hit by the crackdown on transferring money outside China are its announced acquisition of the London-based International Currency Exchange (ICE) for about 200 million pounds (US$264.36 million) and a mandatory tender offer to buy a larger stake in a Swedish hotel group, the people said. China started gradually tightening capital outflows in the second half of last year. The regulators stepped up pressure in June, ordering a group of lenders to assess exposure to some of the more aggressive dealmakers, including HNA, the property-to-film conglomerate Dalian Wanda and Anbang Insurance Group. The stringent regulatory scrutiny of overseas deals, after Chinese companies spent a record US$221 billion on assets overseas in 2016, will not only cool new deal making but also impede the closing of some of the pending transactions, according to three bankers in Hong Kong involved in mergers and acquisition. Reuters

Japan’s economy is accelerating but further structural reform is needed to finally leave behind years of on-off deflation, the IMF warned yesterday. The International Monetary Fund highlighted concerns over price movements and public debt as it noted the mixed record of Prime Minister Shinzo Abe’s growth plan dubbed Abenomics. Abe swept back to power in late 2012 on a pledge to reignite the world’s third largest economy and the scheme’s mixture of huge monetary easing, government spending and reforms has stoked a stock market rally and fattened corporate profits. But there has been growing criticism about the plan’s muted impact on the wider economy. Consumer spending remains tepid and the Bank of Japan has struggled to lift inflation despite years of aggressive monetary easing, although Japan’s prospects have been boosted recently on the back of strong exports and investments linked to the Tokyo 2020 Olympics. The IMF’s latest forecast published in July sees Japan’s economy growing 1.3 per cent this year thanks to a continued pickup in trade and temporary fiscal support. AFP