Trips of a lifetime, tailored to the clock Consigliere Pages 8 & 9
Friday, August 4 2017 Year VI Nr. 1354 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Markets
Foreign holdings maintain upward trend in Mainland bond connect Page 11
Investment
Hengqin drives Zhuhai growth Page 2
www.macaubusiness.com
Judiciary Police
Conde de São Januário Hospital hit by phone scam Page 3
Development
Gaming
Grand MixC complex picks up the pace Page 3
Morpheus yet to apply for gaming tables Page 5
Looking from the outside in
Election
Diverse voices have expressed dissatisfaction. With the anti-propaganda conditions imposed by the Electoral Committee. Sources consulted by Business Daily agree that newcomers have a rough path to becoming legislators in the upcoming elections. With regulations very much to the benefit of incumbent candidates. Page 4
Power to the people
Going through the motions
Gaming Japanese authorities will consult the public. Regarding the development of its gaming legislation. A gov’t advisor analyses a slew of hurdles to be overcome – plus opportunities. Page 5
Yesterday, legislators debated major topics of local concern. Public housing and temporary residency for skilled expats proved the most controversial. With the same old chestnuts getting their regular airing.
Macau tainted by cyber heist
Cyber heist MSAR was at the heart of a cyber theft case that shocked the financial world a year ago. Money stolen from Bangladesh’s central bank was spirited to the Philippines. With local names appearing on the radar. Pages 6 & 7
Opening the yuan
Legislative Assembly Page 2
HK Hang Seng Index August 3, 2017
27,531.01 -76.37 (-0.28%) Worst Performers
China Unicom Hong Kong
+2.28%
CK Hutchison Holdings Ltd
+0.93%
AAC Technologies Holdings
-2.72%
Tencent Holdings Ltd
-1.28%
Galaxy Entertainment Group
+1.38%
China Mobile Ltd
+0.84%
Geely Automobile Holdings
-2.31%
China Overseas Land &
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Industrial & Commercial
+1.26%
CITIC Ltd
+0.68%
Kunlun Energy Co Ltd
-1.79%
China Resources Land Ltd
-1.02%
Henderson Land Develop-
+0.98%
Sun Hung Kai Properties Ltd
+0.66%
BOC Hong Kong Holdings
-1.51%
Hong Kong Exchanges &
-0.96%
CLP Holdings Ltd
+0.96%
China Resources Power
+0.53%
China Shenhua Energy Co
-1.47%
HSBC Holdings PLC
-0.40%
28° 31° 28° 32° 28° 32° 29° 32° 28° 32° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
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Currencies Common wisdom has it Mainland authorities are ready to widen the RMB trading band. Global pressure could pay results. In the wake of a major Communist Party meeting this year. Page 10
2 Business Daily Friday, August 4 2017
Macau AL
Outsourcing of foreign experts a pressing matter Yesterday, an AL plenary session addressed the mechanism of approving temporary residency for foreign experts in Macau, as well as public housing and the city’s urban renewal Cecilia U cecilia.u@macaubusinessdaily.com
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n online evaluation service will be launched by the Macao Trade and Investment Promotion Institute (IPIM) in the third quarter of this year for non-resident management staff or specialists to obtain temporary residency, revealed IPIM’s administrative committee president Cheong Chou Weng during yesterday’s plenary session at the Legislative Assembly (AL). Cheong replied to an interpellation made by legislator Ella Lei Cheng I that the department will look at the education background, special qualifications and awards as well as related experience of applicants in approving foreign specialists to work in the city, while adding that the MSAR Government will prioritise specialists of industries related to exhibition, cultural creative industry, Chinese medicine and leasing finance.
When asked by legislators about the number of approved cases, Cheong reported that 866 expats had been approved temporary residency, with 300 engaged in the hotel industry and 91 engaged in the gaming industry. Legislator Lei claimed that the current evaluation mechanism of approving foreign workers lacks a concrete standard, while other legislators berated IPIM’s role in the matter as being ‘similar to the Labour Affairs Bureau’ in approving non-resident workers.
Public housing in the hot seat
Meanwhile, during yesterday’s AL plenary session, six of eight interpellations made by legislators addressed issues of public housing and the city’s urban renewal; in particular, legislators questioned the exact schedule of the construction of public housing projects such as Wai Long project and the renewal of Iao Hon district. The Secretary for Transport and
Public Works, Raimundo Arrais do Rosário, expressed the hope that the amendment of economic housing law would be sent to the AL by early next year, while revealing that the Administration is not currently considering special housing for the younger population. Regarding the issue of urban renewal, the Secretary said there is no timetable owing to the necessary approval by all owners of properties, although he reiterated the hope that a decision would be made on the adjustment of the percentage of approval by owners at the next Urban Renewal Committee meeting.
Macau land for Macau people
With a total of 90,000 public housing units to be rolled out by the time all public housing projects are completed, the Secretary believes there will be enough to cope with the local demand for housing. Pan-democratic legislator Ng Kuok Cheong urged the government to plan a policy to prohibit foreign investment in properties to be built on the reclaimed zones in order to avoid over investment, with legislator Au Kam San backing a policy allowing local residents to purchase private property at affordable prices, given that there are a lot of limitations on
residence in public housing. In response, the Deputy Director of the Legal Affairs Bureau, Cheong Ham, said policies can only be rolled out “when we have opinions of the majority”. The Secretary emphasised that the government would focus on large scale projects such as Wai Long project, Marais project and the project on reclaimed land Zone A over smaller projects in places such as Fai Chi Kei. In addition, the Secretary affirmed that plans for public housing can only be made once the report that addresses the demand for public housing is published next month, while revealing that the Wai Long public housing project will be approached in four phases.
Fourth Zone difficulties
Chief Advisor to the Governmental Policy Research Office Professor Mi Jian replied to queries made by legislator Si Ka Lon that there are too many limitations needed to overcome in order to create a new Macau, while not indicating any preferable location for the massive project. The professor emphasised that the central government is not in favour of using the 85 kilometres of territorial water for reclaiming land.
Government officials take questions raised by Legislative Assembly members during a plenary meeting at the Assembly. Source: GCS
Hengqin
Gross product value up in Hengqin For the first half of the year, gross product value in Hengqin reached RMB7.40 billion (MOP8.85 billion/ US$1.10 billion), up 10.8 per cent year-on-year, according to official data. The growth resulted in Hengqin being the first leading district in Zhuhai City in terms of economic growth. Meanwhile, the Chinese city attracted RMB20.37 billion-worth of
investment in fixed assets, posting an increase of 18.1 per cent. In particular, investments in infrastructure and industrial projects reached RMB17.61 billion, up 30.2 per cent year-on-year, accounting for 86.4 per cent of total investment. Investment in real estate projects dropped 25.8 per cent year-on-year, amounting to RMB2.77 billion. Official data also revealed that some US$344 million had been
recorded for the city’s actual absorption of foreign direct investments, indicating a drop of 3.9 per cent when compared to the same six months a year ago. For foreign trade, the Chinese city estimates a decrease of 4.1 per cent year-on-year to US$347 million. Industries related to construction, finance and profitmaking services had a value added of RMB2.12 billion, RMB930 million and RMB840
million, respectively, improving GDP by 10.6, 5 and 3.4 percentage points, respectively. According to official data, the construction of a deep foundation pit in Phase II of Chimelong was completed, with large scale construction projects such as the Traditional Chinese Medicine Science and Technology Industrial Park of Co-operation between Guangdong and Macau and the Hengqin International Science and Technology Innovation Centre entering the construction stage of their main structures.
Business Daily Friday, August 4 2017 3
Macau Hengqin development
Super urban structure in Hengqing takes one step forward The mixed-used complex being developed in Hengqin with funding from companies controlled by Ng Lap Seng’s son and daughter saw several contracts signed this week for space usage Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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series of contracts for space usage in the Hengqin Grand MixC complex have been signed during a global industrial investment promotion conference held this week in the Zhuhai International Convention Centre, the Zhuhai Government announced yesterday. The RMB50 billion (US$7.43 billion/ MOP59.88 billion) mixed-use complex is conjointly financed by China Resources Land Ltd., Macau-based San Fong Wang Property Development & Investment Co. Ltd. and San Fong Lok Property Development and Investment Company Limited, and China Resources Trust, according to a China Resources Land filing with the Hong Kong Stock Exchange in early February 2016. The filing announced the establishment of the fund for financing the project. As at the date of the announcement
of the fund, the Macau-based companies which are partly funding the development of Grand MixC, San Fong Wang (SFW) and San Fong Lok (SFL), were owned by Ng Lap Seng’s son, Ng Kei Nin, and daughter Ng Fei Lan. Ng Lap Seng was convicted last Friday of conspiracy, money laundering, and bribery of United Nations’ high officials linked to the development of a Convention Centre in Macau. Some of the agreements inked this week for occupying the premises of Grand MixC include Ego Group Co. Ltd., Golden Maple Holdings Pte. Ltd., Valeria Lanaro Enterprise, and
China Resources Healthcare Group Ltd. (CR Healthcare). According to the Zhuhai Government, other domestic and international companies have also signed agreements for the space, with an announcement for plans by Grand MixC to co-operate with S++ (Shanghai) Co. Ltd. to establish a global sports domain. The complex under development was created to become a retail and cultural destination in Henginq, targeting the boutique trade and exhibitions, healthcare, cultural and creative activities as well as hi-tech industries. Construction began at the end of
2016, with the first phase targeted for completion in 2018. China Resources Trust is a company established in Mainland China, principally engaged in the provision of comprehensive financial services. Macau-based SFW and SFL are principally engaged in the business of conventions and exhibitions, property management, commercial real estate investment and operation business. 10 Design is the architectural design company selected from four international competitors to design the project with a planned floor area of more than 2 million square metres.
Investment
Easier setup for SARs investors The Guangdong Administration Bureau for Industry and Commerce (GABIC) has rolled out the Bank Securities Link for investors from both SARs who are interested in investing in Guangdong Province, according to a press release posted by the Chinese department. The new policy allows a onestop service of business registration which will significantly reduce the required registration time period
from 32 working days to 11, and as such produce great benefits for the development of the Greater Bay Area Co-operation between regions. Currently, the new service will be available in Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Shantou as pilots. The policy was jointly established by GABIC with the Macao Trade and Investment Promotion Institute (IPIM), China Gaungfa Bank, and with
the assistance of the Macao Chamber of Commerce earlier in May. According to the press release, as at the end of June, a total of 58,200 firms from Hong Kong and Macau had invested in Guangdong Province, accounting for 62.56 per cent of the total foreign investment in the province. Meanwhile, there were 8,419 self-employed individuals from the SARs in Guangdong, with the capital amount at RMB705 million, accounting for 70 per cent of the country’s capital of self-employed individuals.
Crime
Scams on the rise Hospital Conde de São Januário has been the target of a recent wave of phone scams, resulting in the overload of its central line Macau’s public hospital was the target of an attempted phone scam, in a case that resulted in the hospital’s central line being overloaded. Judiciary Police (PJ) have already arrested one suspect this week related to the crime. The Health Bureau announced through a release that between 10:00am and 12.30pm on August 2 Hospital Conde de São Januário (CHCSJ) ‘was the constant target of calls from an alleged employee of the Public Security Police Force (PSP) Migration Services, with the attempted phone scam
overloading the central phone line of the hospital’. The alleged phone scam caused ‘delay of the normal appointment phone line, but without affecting medical services’ with the case reported to the PJ. On Monday, the PJ detained the first suspected perpetrator of a series of phone scams registered this year, with 796 cases recorded so far, and 14 incurring monetary losses. PJ spokesperson Chan Cho Man explained in a press conference on Tuesday that a male Macau resident had been detained following a
complaint from one of the scam’s victims, a woman, to the PSP. The alleged scammer used a similar method to the one employed in the majority of the 796 recorded phone scams this year, impersonating an employee from the MSAR or Mainland authorities. In this case, the 28-year old man impersonated a senior
employee from the PSP Migration Services, informing the victim that she was involved in a criminal case, and that she would have to pay a fine via bank transfer. Some 796 phone scam cases have been registered since the start of the year, with monetary losses in various currencies – namely, RMB1.7 million, HKD173,000 and
MOP10,000. The number of telephone scams has risen this year, particularly last month. Between July 21 and 30, the PJ registered ‘a very rapid increase in scams’ with the 592 complaints involving the ‘false employee’ method. These 592 cases alone resulted in losses of around MOP1 million. Lusa
4 Business Daily Friday, August 4 2017
Macau Opinion
Pedro Cortés*
Our future representatives The current term of the Legislative Assembly is nearing its end. It is, in accordance with the Basic Law, the legislative body of the Special Administrative Region of Macau of the People’s Republic of China. It shall, in accordance with the functions stated in the referred mini-constitution, enact, amend, suspend or repeal laws in accordance with the provisions of this Law and legal procedures. Well, since the very beginning and with little exceptions, the Legislative Assembly and its members have not presented pieces of legislation. In a nutshell, they have almost all the time and since inception relied upon pieces of legislation presented by the government. One way or another, the members of the Legislative Assembly are representatives of the Macau society. Are they not? Well, some of them, yes. Those who were elected by the people through universal suffrage, as well as some of those who were appointed through indirect suffrage. Is this enough? Until now, it seems that it is sufficient to have Macau embark upon the path of development and of prosperity through harmonious policies or those at least presented as such. But the feeling among the populace might not be exactly what the politicians think it is. With tension in the air, not even the cheques seem to calm the hidden voltage of a community who considers that more should have been done. With bureaucracy firmly entrenched, the fear is that decisions made by public servants may make the world’s third wealthiest territory a not so successful place in the future due to the wide disparity between the rich and poor. The figures are out there: according to Caritas, seven per cent of the Macau population live on the bottom line of basic conditions. Something must be done before it is too late. It is good that our Chief Executive has that sense when he says that he does not know whether Macau is prepared for the future. Bad that he should have done everything possible to prepare Macau for the future. We all hope that the new Legislative Assembly members bear that in mind and make the population of Macau a priority - with more priority than what seems to have been the priority of a big majority of the current members: themselves. *lawyer and frequent contributor to this newspaper.
The Electoral Affairs Commission for the Legislative Assembly Election posts the definitive version of the general list of accepted candidate teams in its office at the Public Administration Building. Source: GCS
AL Elections
No elections for new candidates Candidates and political analysts tell Business Daily the current regulations for the Legislative Assembly are unfavourable to newcomers to the local political scene Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com
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he 15-day period when candidates for the Legislative Assembly elections are prohibited to promote themselves or their political platform, together with ambiguous definition of what is considered propaganda, are unfair to newcomers to the MSAR political scene, candidates and political analysts have told Business Daily. Until September 2, candidates for the 2017 AL elections - scheduled for September 17 - are prohibited from performing any kind of act deemed propaganda, a prohibition period that starts the moment all electoral lists are announced by the Electoral Committee. However, for candidate and assistant Dean of the Faculty of Social Sciences of the University of Macau (UM) Agnes Lam Iok Fong, legislative candidates should be allowed to campaign right after their application is accepted by the Committee. “It should be natural but the arrangement in Macau is that once you have your list and number confirmed you’re not allowed to campaign until two weeks before the election,” she told Business Daily.
A mixed bag
Almost half of candidates for the Legislative Assembly (AL) elections are not originally from the MSAR, according to the published lists of accepted applications. Seven candidates of Portuguese descent are included in the 25 direct suffrage electoral lists, with just one among the main candidates. Of the overall group of candidates, 107 or 51.7 per cent are originally from Macau, 87 or 42 per cent were born in Mainland China, while14 or 6.3
Ms. Lam is now attempting, for the third time, to win a seat in the Legislative Assembly, having run in 2009 and 2013, and has repeatedly complained to authorities that the campaign period is too short, putting new candidates at a disadvantage to candidates with established political credentials. A total of 207 candidates will run for 26 of the 33 available seats - with 14 being for direct suffrage and 12 through indirect suffrage - with the remaining seven seats reserved for legislators to be later appointed by the MSAR Chief Executive. Of the approved candidates, 22 are currently legislators, with 13 competing for direct suffrage and nine through indirect suffrage. “Experienced candidates are allowed to report to their voters and the citizens what they’ve been doing so they have a lot of advantage,” Ms. Lam told Business Daily. This view is shared by political analyst and researcher Larry So, who considers that the allowed campaign period is “quite unfair to newcomers”. “Newcomers will have to compete with those incumbents who already have all kinds of channels to reach the public,” he says. For the political researcher, once
per cent were born in other countries and regions, the majority in Hong Kong but also from Myanmar, Cambodia and Australia. Women represented 25.1 per cent of the total number of candidates with 52 candidates, with only one candidate through indirect suffrage and with some electoral lists not including any women. The oldest candidate for the September 17 elections is 79-year old businessman and current legislator Vítor Cheung Lup Kwan, with the youngest a 20year old university student.
an application is accepted by the committee - until 70 days before the election day when applications for electoral lists can be submitted - candidates should be able to campaign.
Unclear regulations
Regulations on what is considered campaigning set by the Electoral Committee also discriminate against new candidates, since according to Mr. So they basically allow “candidates to talk about what they did in the past but not what they will do in the future”. The Electoral Law describes propaganda as ‘any activity that by any means relays a message that directs the public’s attention to one or more candidates; or suggests, expressly or implicitly, that voters should vote or not vote for a candidate or candidates’. “If we don’t talk about our platform directly we can still do interviews, we can address social issues and reveal our opinion. You can ask me what I think about the housing policy but I can’t talk about my platform. We still have some room to conduct our campaign but not so much room to reach the public and our base,” Ms. Lam told Business Daily. The candidate believes restrictions should be set on the use of candidates of public spaces and resources for campaigning, “such as squares or advertising on local broadcaster TDM” rather than restricting communication to the candidates’ voters. “They don’t really explain what they consider propaganda, saying I can communicate with my people (…) You shouldn’t block us from communicating with our voters,” Ms. Lam said. According to Mr. So, it is common to see candidates describing in promotion materials their role as incumbent legislators, or as honour members or heads of associations. “They are effectively promoting themselves and their past work. You can say they’re not campaigning but in a way they’re promoting their image and telling the people how good they are. If they don’t mention their political platform, it won’t be considered as promotion. It’s a grey area,” he said.
Business Daily Friday, August 4 2017 5
Macau Asian gaming
Japan takes its case to the people The Japanese Government is touring nine cities in the country to share information and gather feedback on the Integrated Resort Promotion Bill. Yokohama, previously viewed as a contender, will not receive an official visit Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he “consensus building process” is the “main challenge” the Japanese Government will have to face during the public hearing it is conducting this month concerning the regulation of Integrated Resorts in the country, according to Toru Mihara, an advisor to Japan’s government on the liberalisation and Professor at Osaka University of Commerce. Speaking to Business Daily, Mihara claimed that, for one, the government still has to agree on “some core options” with Congress. “How to secure consensus with major stakeholders – namely, local governments and investors - is also a hurdle to surmount. Not everything has been fixed, [and has] yet to be debated in more depth,” he explained.
From August 17 to 29, a special government committee overseeing the gaming regulatory process will hold hearings in nine cities in Japan – Tokyo, Osaka, Hiroshima, Fukuoka, Sendai, Sapporo, Nagoya,
Toyama, and Takamatsu – to present the framework for the proposed Integrated Resort Promotion Bill, according to media reports on Wednesday. The committee will address the task of explaining to the Japanese population the ways Integrated Resorts (IR) will operate in practice, strategies to address gambling problems and countering money laundering, while seeking feedback on policies. Since plans for the liberalisation were announced on December 14, 2016 the government has met with
popular unease. Back than, a survey found that 44 per cent of Japan’s citizens opposed the legalisation of broad-based casino gambling, Casino.org reported. Yet Mihara says the overall popular feeling has “yet to be verified.” “People in general don’t know anything about gambling regulations. Feelings may change depending upon how you explain, persuade, and present merits and demerits,” he told Business Daily. In what regards the recent allegations against Japan’s Prime Minister, Shinzo Abe, of illegal campaign contributions, the advisor and professor claimed it will not impact preparation of the bill. ‘It’s the government’s task to prepare an implementation bill and this has nothing to do with the political scandal. Creating a legal framework for IR is state policy which will not change,’ he concluded. The upper House of the Japanese Parliament, the Diet, will discuss the details of the bill this Autumn based upon the report released earlier this week and the ensuing public hearing consultation. It is expected to finalise the bill by the end of 2017, Japan Times reported.
Tables
DICJ: No table application for Morpheus yet Local gaming operator Melco Resorts & Entertainment has not yet applied for gaming tables for the fourth tower of the City of Dreams complex - Morpheus - according to
a response to Business Daily enquiries from the Gaming Inspection and Co-ordination Bureau (DICJ). ‘Melco has not applied for any gaming tables at
Morpheus with the DICJ yet,’ notes the response, while another response from Melco says: ’The relevant applications will be sought at the appropriate time.’
Melco told Business Daily that although not submitting the paperwork yet the operator ‘would have the capability to operate 50-plus tables at Morpheus’ and that they are ‘targeting the first half of 2018 for the grand opening.’ Since the construction work on the fourth tower
resumed on July 28, following an accident mid-July resulting in the death of a worker and serious injury of another, Melco states: ‘We don’t anticipate any delays’ in the project . . . [and] . . . are incredibly excited about the opening of Morpheus’.
Singapore
Profitable Korean deals The sale of its half stake in South Korean integrated resort Jeju Shinhwa World allowed Genting Singapore PLC to pocket a net profit of S$382.9 million in the first half of this year Nelson Moura nelson.moura@macaubusinessdaily.com
Singaporean gaming operator Genting Singapore PLC registered S$382.9 million (MOP2.26 billion/US$281.6 million) in net profits in the first half of this year, mainly due to the sale of its half of a joint venture on Jeju Island, a Singapore Stock Exchange filing said. In November 2016 the Singapore group sold a 50 per cent stake in the South Korean integrated resort Jeju Shinhwa World to Mainland
developer and casino investor Landing International Development Ltd. for SGD596.3 million, making the Chinese company the sole owner of the property. According to the filing, the disposal was completed in January of this year with the proceeds, including a ‘gain on disposal of S$96.3 million’ included in the group’s consolidated statements for the period ended June 30 of this year. The sale allowed the group to reverse a negative net loss of S$10.5 million in the second quarter of 2016 to S$143.3 million in positive net profit in the second quarter of this year.
Stable gaming
The company - which operates Resorts World Sentosa in Singapore - also recorded a 24 per cent year-onyear increase in revenue to S$596.1 million in the first six months of this year, a rise the group attributed to higher rolling win percentage in the premium player business. Meanwhile, its adjusted earnings before interest, tax, depreciation and
Hospitality awards
A first in the Far East Tigre de Cristal Hotel and Resort is the first hotel nominated in the Far East of Russia for the World Travel Awards in the category of Russia’s Leading Hotel 2017, according to information provided to Business Daily by the company yesterday. ‘Some of what differentiates us from the other nominees is our location in the heart of Northeast Asia, and extensive gaming and non-gaming
facilities,’ a spokesperson for Summit Ascent Holdings Ltd., the Lawrence Ho company which runs Tigre de Cristal, said. The company claimed that the recognition ‘demonstrates the rising awareness and development of Vladivostok and the Primoski Krai,’ while highlighting the role the hotel plays in ‘the development of the region as a tourism destination.’ Twelve hotels have been nominated for the category this year. Voting closes on August 6. S.Z.
amortisation in the first half of this year saw a considerable 85 per cent yearly hike to SGD576 million. The group’s revenues from gaming in the first half of the year went up 12 per cent year-on-year to S$876.6 million due to the stability of VIP
business. Genting Singapore also announced it was ‘closely following the progress of the Japan IR Execution Bill, which will pave the way for the formal bidding process of the Japan gaming licences’. advertisement
6 Business Daily Friday, August 4 2017
Macau Swift theft
Baccarat binge helped launder the world’s biggest cyberheist Philippine authorities have recovered almost a fifth of the stolen money and returned it to Bangladesh Alan Katz and Wenxin Fan
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or someone supposed to be laundering millions of dollars in stolen funds, with investigators from three countries scrambling to track the money, Ding Zhize was a surprisingly unhurried man. He’d brought a dozen or so high rollers from China to play in the glitzy VIP room in MetroManila’s Solaire casino. The game was baccarat. It was late February 2016—still high season for Asian casinos, thanks to the Lunar New Year holiday—and Ding had been here for days. As red-shirted dealers laid down hand after hand, gamblers smoked Double Happiness cigarettes and helped themselves to an endless supply of mineral water, lemon tea, and Hennessy XO cognac. The chips they played in a steady stream were valid only in that room. The most valuable ones were rectangular plaques worth US$20,000. Ding, his partner, Gao Shuhua, and the gamblers in tow were probably betting on both the house’s hand and the players’ hands, trying to strike a balance between gains and losses. After all, the important thing for anyone looking to launder money through a casino isn’t to win. It’s to exchange millions of dollars for chips you can swap for cool, untraceable cash at the end of the night. It wasn’t the first time the Chinese duo of Ding and Gao had managed a transaction like this. Running illegal gambling operations, including recruiting people for foreign gaming junkets, was their main business, according to previously unreported court documents in China obtained by Bloomberg Markets as well as interviews with family members and former business partners. By the time Ding, Gao, and their players had their casino accounts frozen in March 2016, they’d managed to make tens of millions of dollars disappear, according to a Philippine Senate committee that investigated the theft. The money was part of the largest cyberheist in history. In early February, US$81 million had been stolen from Bangladesh’s central bank by hackers who issued bogus instructions via Swift, the global interbank payment system, according to reports by the Philippine Senate committee, the Federal Reserve Bank of New
York, and the Bangladesh Ministry of Finance. The cyberthieves messaged the New York Fed, where Bangladesh Bank had funds on deposit, directing it to send funds to a handful of bank accounts mostly in the Philippines set up using fake names. Just a few days after the theft, Bangladesh Bank officials asked their Philippine counterparts for help. Yet the gamblers were allowed to play on for weeks, according to reports by the casino’s parent company, Bloomberry Resorts Corp., and the Philippine Senate Committee on Accountability of Public Officers and Investigations. Even after the remaining funds were frozen, no charges were filed against Ding, Gao, or the players with them, so Philippine police didn’t make any arrests, says Sergio Osmeña III, a former senator who last year was a member of the inquiry panel. “They waited until it was too late,” he says. What Ding and Gao did with the loot remains unknown. That’s the point, of course: You want to conceal the money’s criminal origins and then stir it into the rivers of legitimate cash that course around the world every day: US$60-odd million here, a few million there. It adds up. PricewaterhouseCoopers LLP says money laundering may total US$2 trillion a year worldwide—an amount roughly equivalent to the market for online shopping. Like the money, Ding and Gao left the Philippines without a trace. (Osmeña says customs authorities have no record of the duo’s departure.) Gone too, it seemed, was any chance that Bangladesh, the Philippines, or the U.S. would find the funds. But if Ding and Gao thought they’d gotten away scot-free, they were mistaken. The story didn’t end in the floral-scented VIP room of the Solaire. It just moved on—to China and then maybe even North Korea, home to Lazarus, one of the world’s most active state-sponsored hacking collectives. As big as it was, the heist could have been a lot bigger. The hackers originally intended to funnel US$951 million of Bangladesh Bank’s money into phony accounts, according to various investigations. Via Swift, they fired off a series of messages to the New York Fed to do just that. The theft of the full amount was only averted because, after the initial payments
had been made, several transactions were flagged “for sanction compliance review,” according to an April 14, 2016, letter from the Fed to U.S. Representative Carolyn Maloney, a New York Democrat. (In the wake of the Bangladesh theft, Swift took measures to prevent such intrusions. “We are fully committed to helping customers in the fight against cyber-attacks,” Patrick Kerkels, the Swift general counsel, said in an emailed response to questions. Swift’s security program, he said, “has demonstrably helped to detect and even prevent successful frauds.”) Since then, Philippine authorities have recovered almost a fifth of the stolen money and returned it to Bangladesh, but most of the rest, after flowing through a series of accounts, a money-transfer company, and into local casinos, disappeared into the muggy Manila air. Some or all of it may have found its way to North Korea. The FBI is examining the totalitarian state’s link to the hack, according to two officials with direct knowledge of the investigation. What’s required in the case of a theft like the one from Bangladesh Bank is a mix of hacking wizardry to divert the money and some oldschool laundering to clean it and cover the trail In addition, security companies, including Symantec Corp. and BAE Systems Plc, say Lazarus hackers working for the rogue state were probably behind the attack. They cite similarities between the methods used in the Bangladesh attack and those in other cases, such as the hack of Sony Pictures Entertainment Inc. in 2014, which U.S. officials attributed to North Korea. Cybersecurity experts say Lazarus was also behind the WannaCry ransomware attack in May that infected hundreds of thousands of computers around the world. All but cut off from the world and hamstrung by sanctions imposed by the United Nations, the U.S., South Korea, and Japan, North Korea needs convertible currencies to finance imports, among other things. It uses a shifting array of agents, shipping companies, and brokers to bring in illicit cash, says Juan Zarate, a former deputy U.S. national security adviser and author of Treasury’s War: The Unleashing of a New Era of Financial Warfare. Stealing money from a central bank would be another way of doing it. “It’s a clear fact that these menacing groups are continuously preparing or attempting attacks on
the financial sector,” South Korea’s government-funded Financial Security Institute said about Lazarus and related hacking rings in July. What’s required in the case of a theft like the one from Bangladesh Bank is a mix of hacking wizardry to divert the money and some old-school laundering to clean it and cover the trail. Ding and Gao were certainly not specialists in the former, according to descriptions of them in court records and from family members and acquaintances. Gao’s wife, Yan Wenli, says he’s computer illiterate. Ding is such a tech novice, he needed help setting up a WeChat account he used to post selfies while out on hikes, says a former business partner, who declined to be named.
‘Hackers originally intended to funnel US$951 million of Bangladesh Bank’s money into phony accounts’ Walk along the zig-zag lanes of Chendai, a Chinese town on the Taiwan Strait, and you’ll see a lot of Dings on business signs. They’re a prominent family, part of a Muslim community that settled along this stretch of the coast centuries ago when the region was the main port of entry for foreign traders. While some of the Ding clan built business empires here—manufacturing athletic shoes, for instance—Ding Zhize made a name for himself 600 kilometres down the coast in Macau’s casinos. Now 45, Ding set up an investment company in 2007 as Macau was becoming the world’s biggest gambling centre by revenue. Neighbours and a former business partner say he also arranged for gamblers from mainland China to go on casino trips, which would be illegal under Chinese law. In addition, these people say, Ding specialized in arranging off-table bets, private wagers from anonymous gamblers using bookmakers. These often dwarf bets by gamblers physically present at casinos, according to a paper published in the British Journal of Criminology in February. While it’s unclear exactly how much Ding earned from his operations, his spending soared. By 2008 he’d invested US$1 million in a real estate company near his hometown and hired Asian pop stars to promote a spa there called Bali. Ding and his wife eventually shut down those businesses. Afterward, they bought a Macau high-rise now valued at US$1 million. About a half-hour drive from there, the couple owns a four-story mansion surrounded by a koi pond, bonsai trees, and at least seven security cameras. The lot alone is worth US$5 million, local real estate agents estimate. The Dings’ wealth can also be measured by what they’ve lost. A police report itemizes more than US$600,000 in items stolen in a burglary at their home a few years ago, including two Swiss watches, HK$200,000 (US$25,600) in cash, and a kilo of gold. Gao, a buzz-cut 53-year-old, is from a dusty Beijing suburb that supplies the capital with watermelons and pears. He’s one of the richest men in town, people in his neighbourhood say. From there, he ran an illegal casino as far back as 2004,
Business Daily Friday, August 4 2017 7
Macau according to Chinese police reports and court documents. That summer, according to an account in Chinese court documents, thugs working for Gao beat up a group of men whom they mistook for another gang that had robbed them. The victims turned out to include cops, and Gao found himself serving an 18-month prison sentence. Upon his release in 2006, Gao apparently travelled to Macau and the Philippines, where he’d invested as much as US$2 million in businesses that ran casino VIP rooms, according to court records. One of those companies was Eastern Hawaii Leisure Co., which would wind up with more than a quarter of the stolen funds from Bangladesh, according to the Philippine Senate report. When Chinese authorities arrested Gao again in 2012, they found he ran one of the biggest gambling networks in the country—one that spanned 29 provinces and had made him more than US$8 million. He was sentenced to an additional four years in prison, according to a copy of the verdict obtained by Bloomberg Markets. Gao appealed the sentence, and a court cut it by a year, suggesting in its ruling that he’d assisted the police investigation in some unspecified way. He was officially released on medical parole in 2015, court documents show. It’s not clear how much time Gao spent in prison, because corporate records in Macau show him forming a company there in 2014. Ding and Gao’s familiarity with Macau would have been useful to North Korean hackers, says Steve Vickers, a former head of the Hong Kong Police Force’s Criminal Intelligence Bureau who now runs an eponymous risk consulting company. That, he says, is because Macau was traditionally one of the few locations where the Pyongyang government has managed to maintain covert bank accounts and interact with the global financial system. (Priscilla Fong, a spokeswoman for Macau’s Financial Intelligence Office, declined to comment on this case or to respond to questions about the region’s links to North Korea.) About 90 percent of North Korea’s trade is with China, and Chinese junket operators are well equipped to use the formal banking sector and informal financial networks created by the Chinese traders and small businessmen who’ve crisscrossed the world for 1,000 years, says Andrew Klebanow, a senior partner at Global Market Advisors LLC in Las Vegas. “These networks evolved and continue to this day, allowing money to move into and out of China,” he says. Often money doesn’t even need to cross borders, Klebanow says. As with other informal networks, a deposit in the Philippines might be credited to an account in Macau or China, even though the money stays in Manila. Months before Ding, Gao, and their baccarat players showed up in Manila, several bank accounts that would later receive the Bangladeshi funds appeared on the books at the Jupiter Street branch of Rizal Commercial Banking Corp. (RCBC) in MetroManila, according to testimony at the Senate hearings. At the hearings, Kim Wong, president of Eastern Hawaii Leisure, which operates a number of VIP rooms in Manila-area casinos, including the Solaire, testified that he’d set up the RCBC accounts along with Ding’s business partner, Gao, and the Jupiter branch manager at the time, Maia Deguito. For her part, Deguito said she’d been acting on instructions from RCBC bosses. That assertion netted her a libel claim by Lorenzo Tan, the former chief executive officer of RCBC, who also sued Deguito’s lawyer. “Based on our investigation, Ms. Deguito acted alone with the help of some of her co-workers and subordinates at the Jupiter Branch which she headed,” RCBC said in an emailed statement. “Her actions were inimical to her job and against RCBC’s policies,
which resulted in her termination and the filing of cases against her.” The bank said it’s confident the Philippine Department of Justice investigation will find that senior executives had no knowledge of Deguito’s actions. According to the Senate committee report, Ding, Gao, and Deguito ginned up the accounts using fake names, fake addresses, and fake declarations that Deguito had met the account holders in person and confirmed their identities. Assuming the Senate report got the facts right—there was contradictory testimony—the stage was set for laundering what the hackers hoped would be almost US$1 billion. “If you have a bank employee who is in connivance with creating these non-existent people in the first place, it’s easy to launder,” says Vencent Salido, head of investigations at the Philippine government’s Anti-Money Laundering Council, which is leading the local investigation into the theft. All the accounts created at the RCBC branch lay dormant until Friday, Feb. 5, 2016. The Swift attack began the day before, the last day of the workweek in Bangladesh. Sums ranging from US$6,000,039.12 to US$30,000,039.12 went zipping from the New York Fed through Citibank, Wells Fargo, and the Bank of New York-Mellon to a series of accounts at the branch, which sits below a bridal shop. Some even passed through the account of a real person who later told the Senate panel that his signature had been forged. After four such transfers (and a fifth to an account in Sri Lanka), the Fed stopped the routing, triggering a manual review that in turn ended up blocking any transactions beyond the US$81 million that had already flowed through the system. The following Monday was Chinese New Year. Banks in the Philippines were closed, so four stop-payment requests from Bangladesh Bank to RCBC went unheeded. The next morning, almost all the money in the four fake accounts was transferred through a variety of accounts, obscuring, at least initially, the money’s provenance. It then went on to a payment company called Philrem Service Corp. At about 7:45 p.m. on Tuesday, after getting a call from the Anti-Money Laundering Council, RCBC finally placed a hold on the remaining funds: US$68,305. Of the money transferred out of RCBC, about US$29 million was wired by Philrem to Bloomberry Resorts and credited to Ding, mainly for gambling at the Solaire VIP room; US$21 million was wired to Eastern Hawaii Leisure and used primarily in the VIP rooms of other casinos. An additional US$31 million, according to testimony from Philrem Chairman Michael Bautista, was delivered in cash to Wong, Eastern Hawaii’s president, mostly through an intermediary named Xu Weikang, who was working for Ding and Gao. In his Senate testimony, Wong disputed the amount. He claimed that Philrem had kept about US$17 million, and only US$13.5 million had been delivered in cash. Bautista, who’s also the subject
of a complaint by the Anti-Money Laundering Council, has repeatedly denied keeping the cash. His lawyer, Howard Calleja, didn’t respond to multiple requests for comment. When reached by Bloomberg Markets, Xu, a debt-ridden businessman from Zhejiang, China, said he was a victim of identity theft. Silverio Benny Tan, Bloomberry’s lawyer, declined to comment on the matter, citing a court case over funds the casino froze from Ding’s group. In an interview last year with Philippine Dragon Media Network, a Chinese-language website, Wong said Gao and Ding had tricked him. He said Gao, a business partner of his since 2007, told him the money had come from a land sale to the Chinese government to make way for a new airport in Beijing. Wong said Gao introduced him to Ding, who claimed he got the money by selling shares in Macau casinos, which he intended to invest in the Philippines. Wong declined to be interviewed for this article.
“Macau was traditionally one of the few locations where the Pyongyang government has managed to maintain covert bank accounts and interact with the global financial system” Steve Vickers, a former head of the Hong Kong Police Force’s Criminal Intelligence Bureau
For her part, Deguito, the fired bank manager who claimed she’d been acting on instructions from RCBC bosses, said she hadn’t meant to do anything wrong. Her lawyer, Ferdinand Topacio, declines to comment on the details of his client’s actions or statement. He notes there are three criminal cases pending against Deguito in Philippine courts that include allegations of anti-money-laundering violations, perjury, and falsification of documents. Referring to varying accounts of what happened from Deguito, Wong, and Bautista, Osmeña, the former senator, says, “I couldn’t take seriously what they were all saying.” The FBI and the Bangladeshi government have recently turned their attention to pursuing the Chinese connection in the case, Topacio says. He met twice with FBI agents between May and July. At those meetings, he says, the agents pressed for details about Ding and Gao, as well as about ethnic Chinese doing business in the Philippines such as Wong. Topacio says FBI agents and Bangladeshi law enforcement officials
told him the usual path would have taken the laundered funds from the Philippines to Macau and from there, directly or indirectly, to North Korea. While the officials didn’t give any indication that they’d been able to track the funds, they did say their suspicions were backed by the fact that the money was sent to middlemen—Ding and Gao—with direct connections to Macau. Philippine authorities are still investigating Ding and Gao as well as all aspects of the case, says Salido of the Anti-Money Laundering Council. In April, the country’s justice department indicted Deguito and the owners of Philrem but dropped the case against Wong, citing a lack of evidence, Salido says. Wong has returned US$15 million to the authorities, which was then transferred back to Bangladesh Bank. What galls Salido, among other things, he says, is that he never did manage to interview the elusive Ding and Gao. Chinese authorities apparently had better luck. Ding’s former business partner says police from Xiamen, a city near Ding’s hometown, arrested him in March 2017. In Chendai, standing next to a Lexus sedan, Ding’s sister-in-law, who declined to give her name, confirmed the arrest but refused to say more. (The Xiamen City Public Security Bureau declined to comment for this article.) It does appear that, for whatever reason, Ding’s finances have suffered. In May 2015 he and his brother, Ding Xiaoming, registered an investment company called Ninin, the same name Ding had used for a series of entities in Hong Kong, Macau, and mainland China. Held under Xiaoming’s name, the company was supposed to have rMB100 million (US$15 million) in registered capital. If Ninin was expecting an influx of money, it never arrived. Xiaoming dissolved it in July, corporate registry records show. As for Gao, his wife says the whole affair has brought nothing but grief. Gao, a devoted gambler, had met Ding at a card table, Yan says. She wouldn’t say when or where. “He knew too many people,” she says. The family compound includes an L-shaped house, parcels of farmland, and a carved stone pagoda set in a big garden five miles north of that planned Beijing airport. Sitting inside, Yan vehemently slaps down all the speculation about her husband. “He has never opened any account or received the money in question,” she says, between drags on her cigarette. In August 2016, Yan says, police, again from Xiamen, came to the compound and took Gao away to a detention centre in Ding’s home region. When she asked what she could do to get him out, one of the cops said, “Don’t bother calling a lawyer.” Katz is the legal enforcement team leader for Europe. Fan writes about China from Shanghai. With assistance from Simon Lee, Daniela Wei, Rachel Chang, Michael Riley, Peter Martin, and Norman P. Aquino. Bloomberg News
8 Business Daily Friday, August 4 2017
Consigliere
Take a break from life with these 11 amazing extended vacations
Travel
Epic wanderlust, lasting from one month to a year.
D
Meera Dattani
o you have a little time on your hands … say, a month or two, maybe even a year? Is your regular two-week sunshine vacation doomed before it begins by dark thoughts of the return to your desk? Well, if you’ve got the time, we’ve got the
inspiration. Each of these trips is at least 30 days long. Think an expedition cruise to remote Antarctic regions, a road ‘n’ rail trip around Scandinavia and even a full-year roundthe-world “wellness trip.” Here are 11 ideas sure to fire up your wanderlust.
The joy of solitude (35 days) If you crave an escape from civilization and don’t mind your vacation with a chill in the air, this is for you. Accessible for two months each year when the pack ice recedes, Antarctica’s Ross Sea region is one of the planet’s most remote places. Just a handful of tourist expedition vessels make it this far each year, and you’ll share the iceberg-littered landscapes not with camera-toting crowds, but with seabirds, penguins, whales, and the occasional scientist. Accommodation and meals are on board the Spirit of Enderby expedition vessel, which carries up to 50 passengers. You’ll cruise from New Zealand to the Ross Sea, where you’ll follow in the footsteps of some of the world’s most famous adventurers, who were locked in a race to the South Pole in the early 20th century. Visiting historical explorers’ huts, modern scientific stations, gigantic ice shelves, and vast penguin rookeries will remind you just how far away from the modern world you are. In the wake of Ross, Amundsen & Scott, Chimu Adventures, from US$25,080pp
Trading places (34 days) Let’s face it, Kyrgyzstan, Uzbekistan, and Turkmenistan probably aren’t on too many bucket lists. But the words “Silk Road’—the ancient trade route from China to the Mediterranean— can still give goose bumps to the most seasoned explorer. Beginning in Beijing, the route traverses a third of the globe, including stops in Tibet, the statue-filled Mogao Caves on the edge of the Gobi Desert, and ancient Samarkand (pictured) in Uzbekistan—one of Central Asia’s oldest cities, so pretty it’s often dubbed the “Rome of the East”—before winding up in Istanbul. Much of the journey will be undertaken by car with a private driver, but be prepared for some lengthy stretches on the road—the longest leg being 454 kilometres. Six flights and two rail journeys cover the rest. The Silk Road Tour, Pettitts Travel, from US$10,000pp
An African adventure (37 days) The U.S. would fit snugly into Africa three times over, which makes it pretty much impossible to “do” the continent, unless you have a few years to spare. But this 37-day itinerary is a start, taking in Kenya, Rwanda, Malawi, Zambia, Botswana, Namibia, and South Africa. Travellers will lay eyes on the epic terrain of the Masai Mara, visit Victoria Falls (pictured), get close to Rwanda’s mountain gorillas, and gain insights into Namibia’s hunter-gatherer San bushman culture. The agenda’s not quite as punishing as it sounds, as nine internal flights mean big savings on overland travel. Classic African Explorer, Wildlife Worldwide, from US$20,340pp
Where few have gone before (35 days) The backpacking hordes have yet to infiltrate Bhutan, thanks to tough tourism regulations—all visits must be prearranged and prepaid. And of those who do make it to the last true Himalayan Kingdom, few venture as far as Lunana in the remote northwest. This 35-day trip (27 days’ trekking) will see you in the land of nomadic yak herders, thundering waterfalls, and rare tigers. You’ll hike up mountain passes that max out at 5,200 meters, and you’ll pass Bhutan’s highest peak, the 7,570-meter giant Gangkar Puensum (pictured) —reputedly the world’s highest unclimbed peak, due to Bhutan’s mountaineering ban on spiritual grounds. Complete Lunana Snowman Trek, Bhutan; Mountain Kingdoms, from US$9,050pp
Five-star road-tripping (32 days) Driving across America isn’t all dodgy motels and brightly lit roadside diners—unless you want it to be. Even a lengthy road trip through the U.S. can be a well-planned, luxury experience. All Roads North will tailor your itinerary and organize high-end accommodation along the way. One recent package saw a client spend 32 days exploring the country’s West, kicking off on Montana’s Beartooth Highway and taking in sights that included the Grand Canyon and Yellowstone National Park (pictured). The agency will ensure you’ve got your dream wheels, too, organizing a vehicle switch along the way if required. You could spend the first part of your trip tearing up tough terrain in an SUV, before switching to a sports convertible to feel the wind in your hair. Best of the West, All Roads North, from US$42,500 for two
Live a healthy lifestyle
K
eeping fit is the lesson of a lifetime, especially for women. With the popularisation of healthy lifestyles, people now pay more attention to muscle building and healthy eating. Although we know that being fit is a way for life, it seems like we have to endure a boring, super-restrictive, complicated count-every-calorie existence of eating flavourless chicken breast and veggies. Here I have some good news for you. Maybe it can help you keep fit in a more interesting way.
Fun fitness classes
Macau does not lack gym centres or traditional fitness classes like yoga, pilates or dancing. If you think there is nothing new in this for you, you have to try the two classes I am about to introduce.
Especially designed for Summer, the BOGAFIT is a unique workout on water. Water, sunshine and breeze - all these great elements of Summer are included in this workout. The classes are held in an outdoor swimming pool on a tailor-made mat on the water. BOGAFIT combines traditional fitness techniques, yoga and pilates moves with new adaptations utilising the benefits of air and water. The coach will teach you a series of programmes that work really well for building up your muscles, and with the mat floating on the water and linked to each person in your class it really challenges your balance and teamwork; if one person falls into the water, other people will be affected, too. When you sweat profusely, you can always jump into the water to cool down! Apart from the BOGAFIT, there is another full-body workout suitable for this season.
Business Daily Friday, August 4 2017 9
Consigliere
On top of the world (33 days) For a comprehensive Scandinavian adventure, this creatively packed itinerary through Finland, Sweden, Denmark, Norway, Iceland, and Greenland neatly mixes road tripping, rail journeys, and cruising. You’ll have a total of eight nights at sea, where you’ll see puffins and orcas in the Arctic Circle, ending at Kirkenes, the land of the midnight sun, famed for stunning views of the northern lights. Epic landscapes are a given, but the trip also dips into city life, taking in Helsinki, Stockholm, Copenhagen, and Oslo. A road trip around Iceland and three days of whale-watching and hiking in the Arctic village of Ilulissat in Greenland round off the experience. The Great North Tour, Nordic Visitor, from US$15,570pp
The sea on your right (80 days) We know what you’re probably thinking. Wales? (Or, where?) But this mammoth 80-day, 1,400-kilometer hike takes in some of the most breath-taking, wild scenery Britain has to offer, much of it falling into protected National Park territory. The route runs the entire length of the Welsh coastline, with the occasional foray inland as you dodge obstacles or marshes, giving walkers a glimpse of industrial-era Wales. All you have to do is keep the sea on your right and follow the path. The price includes 80 nights’ bed and breakfast accommodation in guesthouses, inns, and farmhouses and luggage transfers to take the weight off your shoulders. Wales Coast Path, Celtic Trails, from US$7,450pp
Life in the saddle (87 days) This one may make you ache a little. Cycling more than 7,000 kilometres from Shanghai to Singapore is a pretty mammoth undertaking, but what better way to view the unfolding Asian landscape than from the saddle? By the time you get to sip your first Singapore Sling at the city’s legendary Raffles Bar, you’ll have pedalled through China, Vietnam, Laos, Cambodia, Thailand, and Malaysia. While the accommodation may not be all high-end—you’ll spend your nights in a mix of two- to four-star hotels, hostels, and guesthouses—this one’s all about the open road, fresh air, and working for your supper. Bamboo Road: Southeast Asia, TDA Global Cycling, from US$16,500pp
A flavour of India (44 days) For otherworldliness, India remains at the top of many people’s wish lists, but where do you go when you’ve got 3 million square kilometres to choose from? This 44-day trip does a good job covering the length and breadth of the country, on everything from overnight trains to auto rickshaws, and taking in no fewer than 15 Unesco World Heritage Sites. In a nice twist to the usual sightseeing tour, you’ll be joined in Delhi by author William Dalrymple and in Mumbai by historian Patrick French for talks on their experiences in the country. The sights are too numerous to list in full, but you’ll tick off the Taj Mahal, the holy city of Varanasi (pictured), Bengal tiger-spotting, caves, temples, beaches, and much more. The Great Indian Adventure, Wild Frontiers, from US$16,690pp
A floral delight (41 days) Hay fever sufferers beware, this may not be the trip for you. Kicking off at the legendary flower markets of Amsterdam, you’ll spend the next six weeks touring some of the most stunning gardens and spring shows Europe has to offer. Part tour, part cruise, you’ll spend 21 of your nights on three separate boutique riverboats. Highlights of the trip—which includes the services of an expert botanical guide— include Monet’s garden at Giverny, the “Garden Island” of Madeira, Belgium’s Floralia Flower Festival, and Spain’s Alhambra (pictured) palace and gardens. Best of Europe’s Spring Garden Festivals and Shows, Botanica World Discoveries, from US$30,100
The big one (One year) Few trips genuinely warrant the “once in a lifetime” label—but this one surely does. An entire year jetting around the globe, taking in some of the world’s best hotels and retreats, and whipping your mind and body into shape. The trip takes in 20 countries, where you’ll indulge in healing therapies, fitness training, and sport, under the guidance of a host of wellness experts. You’ll indulge in a boot camp and detox in Portugal, luxury safari spa in South Africa, Ayurveda and meditation in the Himalayas, and philosophy discussions in the Caribbean. Cooking classes in Southeast Asia, hiking in New Zealand, and diving the Great Barrier Reef are among activities to keep that holiday feeling going. Now you just need to ask the boss for a little more vacation time. And possibly a raise. Ultimate Luxury Around The World Wellness Trip, Health and Fitness Travel, from US$199,790, includes business-class flights Also held outside - on the pool deck the SurfSet is performed on top of an unstable surfboard and draws from the real movements of surfing. The coach will set a programme that focuses on building core strength and lean muscle, burning fat and improving balance. You will be driven into the fantasy of surfing in Miami by doing the surf-inspired movements with the beautiful pools and sea views. Both these two workshops are exclusively offered by MGM Tria Spa, with classes complimentary for registered guests. Non-registered guests are also welcome to join at a very reasonable class fee.
Boost your energy, drop pounds, feel better
After your hard training, how you eat will determine the effectiveness of your workout. It is generally considered that healthy eating involves raw or boiled intake without seasoning. Actually, more and more restaurants sell healthy dining
options offering not only low calorie food but delicious morsels to satiate your appetite. You can eat all the foods you enjoy - but the key is to do so in smaller quantities. Try eating from a smaller plate and you’ll be surprised by how these little habit changes add up - or should that be detract! - in the long run. Cha Bei is aware of the demand of healthy eating enthusiasts so this lifestyle cafe designs a light and delicious menu - Colours of Summer. The menu comprises Appetizers & Salad, Fish & Meat, Vegetables, Grains and Comforts, spanning an extensive variety of healthy yet delectable eats. The most important element for healthy eating is ingesting enough good quality protein. You can find delicious protein choices in this menu of Miso Glazed Cod or Chicken Meatballs cooked in Rich Tomato Sauce. Fibre is also necessary for healthy eating. Instead of eating greens, eating rainbows is the trend. Tomatoes, carrots, eggplants, sweet peppers . . .
eating these vegetables won’t increase calories; but do increase fibre and vitamin intake. You can receive your daily fill of essential veggies from the vegetable section of the menu, with dishes such as Summer Vegetable Ratatouille and Steamed Organic Greens. Meanwhile, all of the food is served on small and exquisite plates. So don’t worry about eating too much - and feel free to enjoy the meal! Edwina Liu, Essential Macau Editor
10 Business Daily Friday, August 4 2017
Greater China Inc
Bankruptcies rise steadily in 2017 amid ‘zombie firm’ crackdown Senior leadership sources estimated last year that the plans to close zombie enterprises over the 2016-2018 period could involve more than 6 million layoffs
C
hi n ese c o u r t s handled more than 4,700 bankruptcy cases in the first seven months of 2017, up “steadily” on the same period of 2016 as Beijing stepped up its campaign against ‘zombie firms’, a senior official with the judiciary said yesterday. “The difficulties of launching a bankruptcy case have been effectively eased,” He Xiaorong, a senior director at China’s Supreme People’s Court, told a news briefing. He said that after 2009, the number of bankruptcy cases in China went into decline
with creditors finding it difficult to bring insolvency cases in the courts, but subsequent reforms had improved the situation. Zombie enterprises are loss-making firms that continue to operate only with the support of government subsidies or soft loans. China promised last year to shut them down as part of supply side reform efforts to rejuvenate its debt-ridden state sector and make better use of its capital, labour and resources. Senior leadership sources estimated last year that the plans to close zombie
enterprises over the 20162018 period could involve more than 6 million layoffs, and the government has already introduced special funds to help pay for redundancies. But China’s inadequate bankruptcy mechanisms have long been regarded as
an obstacle when it comes to shutting down loss-making firms, with weak laws and inexperienced courts likely to expose companies to a ‘creditors’ race’ that forces the piecemeal sale of assets. Executives have also complained the laws leave company bosses personally liable
when it comes to repaying debts, making them reluctant to enter bankruptcy proceedings. The Supreme People’s Court’s He said China had made strides to perfect the country’s bankruptcy system, establishing mechanisms to identify zombie enterprises, handle layoffs and maintain social stability. He said that a special bankruptcy court set up in 2015 had handled 1,923 cases in the first seven months of 2017, up 28.3 per cent compared to the same period of last year. It now takes an average of 1.7 years to close a business through insolvency procedures in China, better than the East and South Asia average of 2.6 years, according to a report by BMI Research published last week. Reuters
Currency
Beijing eyes widening yuan band amid reform pressures The yuan trading band was widened in 2007 and 2012 before the party meetings Kevin Yao
China’s central bank is considering a widening of the yuan’s trading band after a major Communist party meeting this year, a largely cosmetic move that would burnish its reform credentials as official policy focuses on reducing debt. The People’s Bank of China could widen the yuan trading range to allow it to rise or fall 3 per cent against the dollar from the daily mid-point rate set by the central bank, up from the current 2 per cent, according to four sources familiar with internal policy discussions. That would allow the central bank to argue the yuan’s liberalisation was on track, and could be useful in trade talks with Washington, but tight controls on capital outflows and the level at which the yuan starts trade each day reduce its impact, the sources said. “A yuan band widening is possible. There could be some internal consensus on this,” said one source who advises the government on policy. “But the impact won’t be big - it may just be a gesture to express the commitment to long-term market reform.” Indeed, there seems to be little immediate pressure to widen the band - the yuan has never tested the 2 per cent daily limit that was introduced in March 2014. The adoption of an undisclosed “counter-cyclical factor” in May gave the central bank greater control in setting the daily level around which the yuan can trade, but raised questions about its commitment to opening up the currency.
“We are going backward by adding a counter-cyclical factor,” said the policy advisor. “It’s very clear that the leadership wants exchange rate stability.”
Key Points Central bank may make change after party meeting Seen as a symbolic move to burnish reform credentials Yuan trading range could widen to 3 pct from 2 pct Curbs on capital outflows may stay despite yuan rebound However, there have been growing calls for yuan liberalisation, a favoured reform during recent Party Congresses, which are held every five
years. The yuan trading band was widened in 2007 and 2012 before the party meetings. One difference this year is that the change would likely come after the congress as officials have put a premium on market and economic stability this year, according to the sources, who requested anonymity due to the sensitivity of the issue. The yuan has gained just over 3 per cent against the dollar so far this year, following a 6.5 per cent drop in 2016 – the biggest annual drop since 1994. The PBOC did not respond to requests for comment.
PBOC makes case
Over the past month, the PBOC has been making the case for greater exchange rate liberalisation, even as its control has increased and it has been suspected of using market intervention to push the yuan up against the dollar. The Financial News, a paper run by the central bank, said China should widen the trading band, and
a member of the PBOC’s monetary policy committee said in the paper that the band should be widened and intervention reduced. The central bank last widened the yuan’s daily trading band in March 2014, doubling it to 2 per cent. Before that, it doubled the band to 1 per cent in April 2012 and widened it to 0.5 per cent from 0.3 per cent in May 2007 - both years when a Party Congress was held. In 2007, the move was also seen as a symbolic gesture ahead of U.S.–China trade talks. “This is what the Chinese leadership is good at - they like pushing reforms in a controlled environment,” said another source familiar with the discussions on the yuan. The source added that any move before the party meeting, which is expected in the fourth quarter, would not be surprising.
Outflows contained
An important part of stabilising the yuan has been a crackdown on capital outflows - which authorities have presented as better enforcement of existing rules - and insiders expect that to continue. “We will not change the standard management measures on cross-border capital flows in the short term, especially at a time when the external picture is unclear,” said another source close to the PBOC policy discussions. China’s foreign exchange reserves dropped by nearly US$1 trillion from US$3.99 trillion between mid-2014 and January this year, but have since steadied just above US$3 trillion. Data from the Commerce Ministry showed China’s non-financial outbound direct investment nearly halved in the first half of 2017 as curbs over capital outflows took effect. Reuters
Business Daily Friday, August 4 2017 11
Greater China Bond Connect
Foreign holdings of mainland debt up in July Market participants say that the potential inclusion of China’s US$9 trillion bond market into major global bond indexes would prompt large inflows into the market Andrew Galbraith
Foreign investors increased their holdings of Chinese bonds for a fifth consecutive month in July, but official data showed little evidence that the country’s one-month-old scheme to ease bond market access for overseas investors has had a significant impact on trading. Holdings of Chinese treasury bonds by overseas investors rose by RMB37.82 billion (US$5.62 billion) in July to RMB487 billion, according to Reuters’ calculations based on data from China Central Depository and Clearing Co (CCDC), the official bond clearing house. Increases in holdings of Chinese treasury bonds and some corporate bonds offset a net decrease in holdings of policy bank bonds. Data showed that foreign investors increased their holdings of all Chinese bonds by RMB37.8 billion in July to RMB841.5 billion. For the first seven months of the year, foreign holdings of Chinese debt rose RMB62.6 billion. While the monthly increase in holdings of all Chinese bonds was the highest since September 2016, the numbers appear to reflect Chinese money lured home from overseas by a stable yuan and relatively high onshore rates, rather than significant new interest among foreign buyers prompted by the Bond Connect
scheme. “In the early days, it’s mainly the overseas companies of Chinese institutions that are coming in (through Bond Connect). Later there should be real overseas institutions. Overseas investors need time,” said David Qu, markets economist at ANZ in Shanghai. Described by regulators as a significant step toward increasing cooperation between capital markets in mainland China and Hong Kong, the Bond Connect scheme began on July 3 with the opening of “Northbound” trade, allowing eligible Hong Kong and overseas institutions to buy and sell onshore bonds. . Since then, the programme has been slow to take off as many overseas investors adopt a wait-and-see attitude to increased participation in the onshore bond market. The RMB7.05 billion in aggregate first-day trading volumes through Bond Connect, described as “brisk” in a statement by CFETS, represented a small fraction of trades in a market where a single trader chat group can produce daily trade volumes of RMB10 billion. Regulators have not released additional Bond Connect data since July 3. In an emailed response to questions from Reuters, a spokeswoman at Hong Kong Exchanges and Clearing did not provide trading data, but said that 24 onshore institutions are
participating in the programme as dealers, providing quotations to more than 150 overseas institutional investors. Seventy overseas institutions participated in trade on the launch day. Income Partners, a Hong Kongbased asset manager specialising in Asian fixed income, bought onshore paper through Bond Connect on July 3, but had not made any further trades through the programme since then, said Raymond Gui, senior portfolio manager. “It’s true that we haven’t traded more after the first day, but that’s because it’s our medium-term allocation and the onshore market hasn’t moved much since then,” he said. He said that the company remains interested in using the scheme in addition to its existing quota for
investing in onshore bonds through the RQFII program, and sees particular value in Chinese government and policy bank bonds. Market participants say that the potential inclusion of China’s US$9 trillion bond market into major global bond indexes would prompt large inflows into the market, with some arguing that the Bond Connect itself removes some barriers to inclusion. But, Bank of America Merrill Lynch Rates Strategist Yang Chen said in a note on Wednesday that while it represents a useful addition to existing programmes, “the Bond Connect alone does not increase the chance of potential inclusion much, as hedge funds and interest-rate derivatives remain excluded, at least on paper.” Reuters advertisement
12 Business Daily Friday, August 4 2017
Asia Stocks
Japan’s start-up market plunge could pressure small-caps Fund managers and analysts suspected the Mothers market is facing pressure from selling by hedge funds and foreign investors Tomo Uetake
J
apan’s stock market for start-up firms plunged to two-month lows this week as investors pulled money out of the risky and inflated market, raising concerns the broader stock market could also see some spillover. The Tokyo Stock Exchange’s Mothers start-up market saw its main index plummet this week, marking a loss of almost 10 per cent from a one-year peak hit in June.
Trading in futures on the Mothers Index, which had been mostly dormant since their inception in July last year, suddenly spiked to a record high of about 4,700 lots on Tuesday, more than 10 times larger than the daily average of about 390. The main stock market has so far been relatively untouched by the sell-off, with the benchmark Nikkei staying above the 20,000 level it scaled in June. Yet, fund managers and analysts suspected the Mothers market is facing pressure
from selling by hedge funds and foreign investors, who expect a sharp downturn. And further selling could spill over to smaller companies on the main board. “This time, something is different. Because we Japanese day traders don’t use the Mothers futures much, if not at all, I suspect it’s foreign players,” said Naoki Murakami, a professional day trader who focuses on start-up shares. “I’m going to sit on the sidelines until the storm passes.” The Mothers Index - an acronym for Market Of The High-growth and Emerging Stocks - comprises biotech and internet ventures and other small-caps. On average about 150 billion yen ($1.4 billion) worth
of shares change hands a day, or about 3 per cent of the market’s value, compared with less than 0.5 per cent on the main board. The index, which was closely correlated with the U.S. Nasdaq technology share market during the 2008 global financial crisis, had risen 28 per cent in the year to June, better than the Nasdaq’s 18 per cent and the Nikkei’s 5 per cent gains during the same period. Some traders said profit-taking on Mothers appeared to be driven in part by the sudden fall in high-flying U.S. tech shares last week. “There was market talk that some small- and midcap fund managers sold stocks last Thursday to take profits. That triggered selling on the Mothers,” said Tetsuo Inoue, CEO of Spring Capital. “Mothers is the world’s riskiest market, riskier than Chinese markets. It’s like a fireworks festival - the rocket flies high and gives spectacular explosions and then pauses -then it repeats,” he said. Some traders are worried that further selling in Mothers could prompt a sell-off of small cap shares on the main board as well. Smaller firms such as EM Systems already appear to have succumbed to the selling pressure. “Investors are nervous and eager to take profits in anything that has risen ahead
of September, when the Fed begins the process of balance sheet normalisation,” said a veteran Japanese fund manager, referring to expectations the U.S. Federal Reserve could soon begin reducing the massive monetary stimulus in place since the financial crisis.
Key Points TSE Mothers futures trading volume hits record highs “Could be the canary in the coal mine” - fund manager Foreign and domestic players appear to take profits “Mothers is the world’s riskiest market” - analyst “In a way, this could be the canary in the coal mine. Investors have been too complacent for so long,” he said , adding that he shorted some Mothers names on Tuesday, Wednesday and Thursday. Retail traders have been spooked, online comments showed. “The Mothers market is dying. Everybody run!” wrote one investor who goes by the name “Niagara man.” “Are we in a bottomless pit or something?” wrote another investor with the name “Millionaire investor.” Reuters
Penalty
Commonwealth Bank accused of massive money-laundering breaches The maximum penalty for contravening the anti-money laundering and counter terrorism financing law is A$18 million per breach Swati Pandey and Tom Westbrook
The Australian government yesterday accused the country’s biggest mortgage lender, Commonwealth Bank of Australia, of widespread breaches of money-laundering and counter-terrorism financing rules. Financial intelligence agency AUSTRAC said it had initiated civil penalty proceedings in the Federal Court against CommBank for “serious and systemic non-compliance”, in the biggest case of its kind in Australia and the first against a major bank. “The effect of CommBank’s conduct in this matter has exposed the Australian community to serious and on-going financial crime,” AUSTRAC said in a court filing. Commonwealth Bank said in a statement it was reviewing the allegations and would respond “in due course”. Australia’s biggest mortgage lender failed to report suspicious matters “either on time or at all involving transactions totalling over A$77 million (US$61 million)”, AUSTRAC said. The agency alleged 53,700 contraventions of the anti-money
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laundering and counter-terrorism financing Act, particularly with regards to so-called intelligent deposit machines or IDMs. The previous biggest such case came against Australia’s top bookmaker Tabcorp Holdings, earlier this year, with only 108 alleged breaches. Tabcorp paid A$45 million in fines, the biggest civil penalty in Australian corporate history.
is A$18 million per breach.
Anonymous deposits
IDMs are a type of automated teller machine that accepts deposits by both cash and cheque, and facilitate anonymous cash deposits. There had been significant growth in the use of CommBank’s IDMs since their rollout in May 2012, AUSTRAC said. Cash deposits in the six months to June 2016 surged to A$5.8 billion compared with A$89 million in the first six months after CommBank introduced the machines. Cash was deposited using fake names with proceeds going to drug
importation syndicates, AUSTRAC alleges in its court filings. “Even after suspected money laundering or structuring on Commbank accounts had been brought to CommBank’s attention, CommBank did not monitor its customers with a view to mitigating and managing money laundering/terrorism financing risk,” the court filing shows. CommBank accounts were also used for “cuckoo smurfing”, a form of money laundering which involves transfers between countries without the need for money to actually cross international borders, AUSTRAC added. Reuters
Key Points First case of its kind against major Australian bank Watchdog accuses bank of “systemic non-compliance” Intelligent deposit machines at centre of allegations An AUSTRAC spokeswoman declined to comment on possible penalties facing CommBank, or whether other banks could be in the agency’s firing line. The maximum penalty for contravening the anti-money laundering and counter terrorism financing law 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 Friday, August 4 2017 13
Asia Commodities
India’s gold imports to fall in H2 Gold smuggling into India is likely to rise in 2017 from last year’s around 120 tonnes Rajendra Jadhav
India’s gold imports will likely drop in the second-half of the year from the first six months after jewellers rushed to stock up ahead of new taxes introduced on July 1, the World Gold Council (WGC) said yesterday. Faltering appetite in a country where gold is used in everything from investment to wedding gifts could rein in a rally in global prices, trading near their highest level in seven weeks. “Expecting higher (taxes), certainly some of the imports and some of the demand from the second-half were advanced in the June quarter,” Somasundaram PR, Managing Director of WGC’s India operations, told Reuters. As part of a new nationwide sales tax regime introduced in July, the goods and services tax (GST) on gold jumped to 3 per cent from 1.2 per cent previously. Jewellers have to pay that tax when buying gold imported by banks, while their
customers must also pay when making purchases. India is the world’s No.2 gold consumer. The country’s demand for the metal in the first-half rose 30 per cent from a year ago to 298.4 tonnes, but imports during the period more than doubled to 518.6 tonnes, the WGC said in a report published yesterday.
‘The goods and services tax on gold jumped to 3 per cent from 1.2 per cent previously in July’ India’s gold imports typically strengthen in the second-half of the year as the precious metal is considered an auspicious gift at festivals such as Diwali and Dussehra. Indian gold demand is expected
to remain subdued for a few weeks as “consumers who have recently purchased are unlikely to do so again in the short term”, the WGC said. There have been fears the tax increase could stoke under-the-counter buying in India, where millions of people store chunks of their wealth in bullion and jewellery. Gold smuggling into India is likely to rise in 2017 from last year’s around 120 tonnes as the hike in sales tax has effectively lifted margins for “grey market” operators amid transition to the new tax system, Somasundaram said. “Already there is transitional challenge on GST. On top of it, if customs duty remains high, it could push a lot more trade into the grey market,” he said. India raised import duties on the metal to 10 per cent in a series of hikes to August 2013, looking to curb demand to narrow a gaping current account deficit. Despite robust demand in the first half, the WGC kept its forecast for India’s full-year demand at 650 tonnes to 750 tonnes, lower than a 10-year average of 845 tonnes, but just above last year’s level. Reuters
In Brief Politics
Taro Aso reappointed as Japanese finmin Japanese Prime Minister Shinzo Abe has chosen his new cabinet, reappointing key economic ministers but replacing his defence and foreign ministers in a sweeping reshuffle, the top government spokesman said yesterday. Abe re-appointed Taro Aso as finance minister, top government spokesman Yoshihide Suga, who will also remain in his job, told a news conference. Aso, who was also re-appointed as deputy prime minister, has held both portfolios since Abe swept to power in late 2012, pledging to revive the stagnant economy. Abe also re-appointed Hiroshige Seko as trade minister. Monetary policy
Sri Lanka cbank keeps rates steady Sri Lanka’s central bank held its policy rates steady yesterday and said past tightenings are helping cool inflation and credit growth, signalling receding concerns about price pressure as it focuses on supporting an economy hit by extreme weather. As widely expected, the central bank kept the standing deposit facility rate (SDFR) at 7.25 per cent and standing lending facility rate (SLFR) at 8.75 per cent - both are now at over a four-year high. The central bank expects a modest economic recovery over the coming quarters. Auto industry
Australia’s new vehicle sales notch another record
Real estate
Singapore property `bottoming out,’ CapitaLand’s Lim says Home sales jumped 72 per cent during the first half from a year earlier Klaus Wille and Paul Panckhurst
Singapore’s biggest developer, CapitaLand Ltd., detects signs that the city’s residential property market is “bottoming out” after a run of price declines, Chief Executive Officer Lim Ming Yan said.
“For a rebound to take place on a more sustainable basis, there has to be overall improvements in the fundamentals”
a more sustainable basis, there has to be overall improvements in the fundamentals,” Lim said. The government’s efforts to cool a red-hot market have triggered a record 15-quarter decline in home prices, in contrast with cities such as Hong Kong, where property keeps soaring to records. In March, Singapore eased some restrictions, but cautioned that those adjustments didn’t signal any bigger unwinding of curbs. Singapore’s restrictions are “a very stringent policy,” so further tightening isn’t likely, Lim said. “At the same time, given the current market
conditions, it’s unlikely that we will see a relaxation, certainly not within this year.” Home sales jumped 72 per cent during the first half from a year earlier as developers sold 6,567 units, according to the Urban Redevelopment Authority. Lim was commenting after CapitaLand said net income almost doubled to S$579 million (US$426 million) in the three months ended June 30 from a year earlier. Revenue declined 12 per cent to S$992 million. Assets in China made up 43 per cent of the S$44 billion CapitaLand portfolio as of June and Lim said in the interview that he’d be comfortable if that rose to 50 per cent. CapitaLand shares have gained 23 per cent this year. Bloomberg News
Lim Ming Yan, CapitaLand Chief Executive Officer
Many investors are seeing Singapore as relatively more attractive than Hong Kong, London or Australian cities, Lim, who’s also president of the firm, said in a Bloomberg TV interview with Haslinda Amin yesterday. Extra liquidity was a factor in higher transaction volumes and slower price declines in recent months, he said. “For a rebound to take place on
Lim Ming Yan, CapitaLand Chief Executive Officer. Source: Bloomberg
Australian new vehicle sales recorded a third straight month of record sales in July, a hopeful sign for spending across the economy given consumers were confident enough to splash out on big ticket items. The Australian Federal Chamber of Automotive Industries’ VFACTS report out on Thursday showed 92,754 new vehicles were sold in July, up 1.6 per cent on the same month last year. Both months had the same number of selling days. That was the highest total for a July month on record. Sales for the year to date were running at 692,306, up 0.4 per cent on the same period of 2016. IMF bailout
Mongolian banks prepare for overhaul The International Monetary Fund said Mongolia’s banks are preparing for a regulatory overhaul as the government introduces policies aimed at restoring economic growth following a US$5.5 billion bailout the IMF granted in May. Resourcedependent Mongolia was forced to seek IMF assistance when a collapse in foreign investment and a slump in commodity prices left it struggling to pay debts and sent its currency, the tugrik, into a tailspin. The IMF deal required Mongolia to make a “comprehensive effort to rehabilitate the banking system” and to strengthen the central bank’s independence.
14 Business Daily Friday, August 4 2017
International In Brief Employment
U.S. planned layoffs fall; hiring picks up in July The number of planned layoffs at U.S. companies dropped in July to its lowest since November while job-opening announcements notched up, a sign that businesses are confident that the economy will continue to expand, a report released yesterday showed. U.S. companies announced 28,307 planned job cuts in July, a 9 per cent decline from 31,105 in June and the lowest since November, according to outplacement consultancy Challenger, Gray & Christmas Inc. Overall, July’s job cuts were down 37.6 per cent from 45,346 a year earlier. Meanwhile, employers made plans to hire 88,000 workers, the highest July total on record and the third-highest total of the year, according to the report. Angola
Four more banks to sell NPL to Recredit Angolan state company Recredit intends to spend up to €765 million to expand the purchase of non-performing loans from four more banks apart from the state owned Banco de Poupança e Crédito. The chairman of Recredit, Vicente Leitão, said his company was negotiating the acquisition of non-performing loans (NPL) from Banco de Comércio e Indústria, Banco Angolano de Investimentos, Banco Keve and Banco de Negócios Internacional. He said, however, that the institution was not a ‘bad bank’ as it did not buy the assets to sell them not to recover them in the interest of the national economy and not just for financial reasons.
Private polls
Euro zone businesses outran British firms at start of second half Last quarter, the euro zone economy grew twice as fast as Britain’s for the second consecutive quarter Jonathan Cable
B
usinesses across the euro zone started the second half with robust growth, outpacing British counterparts which are struggling to regain momentum as consumers keep their hands in their pockets, surveys showed. Signalling the bloc’s positive readings could continue into August, new orders rose, backlogs of work were built up and firms increased headcount. But British services firms’ expectations for the year ahead were among the weakest since late 2012. “We are expecting growth to be a little stronger in the second half than in the first in the UK, whereas in the euro zone we are expecting it to be a little weaker,” said Ben May at Oxford Economics. “So they converge but there is a modest outperformance by the euro zone in the second half -- a relatively
sustained period of outperformance which hasn’t been particularly common over recent years.” IHS Markit’s final composite Purchasing Managers’ Index for the euro zone was 55.7 in July, down from June’s 56.3 and a flash estimate of 55.8. It has been above the 50 mark that divides growth from contraction since mid-2013.
Key Points Euro zone final composite PMI 55.7, UK’s 54.1 PMIs point to euro zone Q3 GDP growth of 0.6 pct -Markit UK PMI points to GDP growth of 0.3 pct -Markit The British version only nudged up to 54.1 from 53.8. The latest PMI figures suggest the euro zone economy will grow 0.6 per cent this quarter, IHS Markit
said, whereas Britain is set for 0.3 per cent growth. A Reuters poll last month had 0.4 and 0.3 per cent forecasts respectively. Last quarter, the euro zone economy grew twice as fast as Britain’s for the second consecutive quarter. “Typically the UK economy tends to grow much more strongly than the euro zone, so this period of outperformance by the euro zone is reasonably unusual,” May said. In September, the ECB is expected to announce a move away from its ultra-easy policy, according to a Reuters poll. Spending played a large part in Britain’s economic growth last year and although a big fall in sterling since the Brexit vote has benefited manufacturing exporters, consumers have been hit by a bounce in prices of imported goods and services. “According to IHS Markit, firms continue to cite Brexit uncertainty and the household spending squeeze as dampening factors when it comes to new orders and demand for their services,” said James Smith at ING. Reuters
Monetary outlook
Bank of England cuts growth
The Bank of England cut its forecasts for economic growth and wages as it extended keeping its benchmark rate at a record low. The downgrades, linked to Brexit, were enough for the majority of the Monetary Policy Committee keep their cautious stance, with the vote for no change coming in as expected at 6-2. Ian McCafferty and Michael Saunders maintained their push for a 25 basis-point increase, which would reverse the rate cut put in place a year ago this week. The new forecasts reflect the deterioration of the economic outlook since May. Portugal
Severe, extreme drought affects most of the country Almost 79 per cent of mainland Portugal was in a situation of severe or extreme drought in July the Portuguese Sea and Atmosphere Institute said yesterday, describing the month as “hot and very dry”. It said that at the end of the month most of the country was suffering, however the north east was faring a bit better and Alentejo was worse than average. July 13 was the hottest day so far this year with an average temperature of 27.3º (5 degrees more than the norm), 36.4º maximum temperature (7.7 degrees more) and 18.2º minimum (2.5 degrees more), it added.
Housing
The U.S. cities where rent hikes leave the most people homeless The U.S. is short more than 7 million housing units that extremely low-income households can afford Patrick Clark
When the rent rises 5 per cent in Atlanta, another 83 people become homeless. In New York, about 3,000 do. In a new study, Zillow compared its own estimates for median rent increases in major U.S. cities with homelessness data published by the U.S. Department of Housing and Urban Development in an effort to describe the relationship between rising rents and homelessness. Its conclusion: Much depends on where you live. That 5 per cent rent hike in Atlanta can be expected to boost the homeless population by 1.5 per cent—in New York, by 3.9 per cent. Cities such as Pittsburgh, Minneapolis, and Detroit may have smaller homeless populations, but theirs are also sensitive to rising rents. Rent hikes are likelier to force more people into homelessness in housing
markets with less slack, said Skylar Olsen, a senior economist at Zillow. Cities such as Houston and Tampa, she added, have been more successful in preventing rising rents from forcing people out of their homes. The study used the geographic definitions that HUD uses to count homeless populations, she said.
“There’s an overarching supply of units that’s becoming a real problem” Skylar Olsen, a senior economist at Zillow The U.S. is short more than 7 million housing units that extremely low-income households can afford, according to the National Low Income
Housing Coalition, which defines such households as earning less than 30 per cent of area median income. Such low-income renters may not be living in homes with the area’s median rent, but a median rent hike can boost prices for even the cheapest market-rate units. “There’s an overarching supply of units that’s becoming a real problem,” Olsen said. “People move down the ladder, and it pushes everyone else down, and eventually the bottom rung falls off.” Thousands of low-income households could face another crush from cuts, proposed by the White House, that would strip US$7.4 billion from HUD’s 2018 budget. Those cuts would eliminate 250,000 rental-assistance vouchers from the Housing Choice program, also known as Section 8, according to an analysis by Douglas Rice, a senior policy analyst at the Center for Budget Policy & Priorities. Some of those cuts will be cushioned by regular turnover, since some number of voucher recipients move out of the program every year, for one reason or another. But the level of proposed cuts means many local housing authorities will have to reduce how much assistance they supply to voucher holders—or, in some cases, take it away entirely. Bloomberg News
Business Daily Friday, August 4 2017 15
Opinion
The 1-2-3 of Xi’s Endgame to Avoid Japan’s Lost Decade: Gadfly Andy Mukherjee a Bloomberg Gadfly columnist
X
i Jinping doesn’t want to be condemned to repeat history, so he’s learning from it. The top economic adviser to China’s president commissioned a study on Japan’s 1980s bubble economy -- a topic that came up for a Politburo discussion in April. Soon enough, Xi was pulling the plug on his nation’s most acquisitive buyers of foreign assets, Bloomberg News reported yesterday, suggesting that the People’s Republic’s fear of becoming another Japan may be driving the clampdown. The similarity between Japan Inc.’s scooping up of trophy assets like the Rockefeller Center and Columbia Pictures back then, and Anbang Insurance Group Co.’s purchase of the Waldorf Astoria -- or Dalian Wanda Group Co.’s takeover of Legendary Entertainment LLC -- is obvious. What’s less apparent is Xi’s endgame. Is the crackdown involving Anbang, Wanda, HNA Group Co., Fosun International Ltd. and Rossoneri Sport Investment Lux, the Chinese owner of Italian soccer team AC Milan, a blanket ban on headline-grabbing outbound Chinese M&A? When will Beijing ease up again? Those answers also lie in history. Investors need to watch three things: the yuan exchange rate; the relative ease with which Chinese companies can raise domestic bank finance to make international purchases; and whether the mainland’s property market is at risk of keeling over. This 1-2-3 checklist is Japan-inspired. An overvalued yen, which made global assets appear cheap to Japanese companies, per cent sent them on an Yuan appreciation, YTD investment spree in the 1980s. This corporate wealth effect is also a problem in China where the 53 per cent appreciation in the yuan in inflation-adjusted terms in the 10 years through 2015 is comparable to the yen’s 44 per cent climb in the three years following the 1985 Plaza Accord. (Beijing has managed to reverse only 9 per cent of that surge.) However, the yen also soared 30 per cent in real terms in the first half of the 1990s, and the share of Japanese outbound M&A in the U.S. slumped to 1 per cent in 1998 from a peak of 30 per cent in 1990. This anomaly, according to economist Michael Klein and others, was because of choked credit pipes. The bursting of the 1980s bubble economy was such a blow for banks that they were in no position to offer loans to the same large borrowers with whom they had cosy relationships. Beijing is watchful. The State Administration of Foreign Exchange says it’ll work with other regulators to ensure lenders and borrowers aren’t abusing the popular financing channel of Overseas Loans Under Domestic Guarantee. To see why Xi has identified collateral as a problem area, consider this: Offshore units of Chinese companies borrowed US$37 billion under third-party guarantees (often given by the parent) in 2016 for acquisitions, a sevenfold jump versus the previous year, according to data compiled by Bloomberg. Ultimately, China’s real-estate market will determine if the collateral that Chinese companies are posting will hold its value. Japan’s buyout of America ended when its banks got into trouble following the collapse of Tokyo’s property bubble. Until Xi can guarantee a soft landing for the bloated property sector, he can’t afford to let local companies shop till they drop. The endgame is to prolong a party that ended only too soon for Japan. Bloomberg Gadfly
+3.3
The U.S. missed its chance to make China play fair Noah Smith a Bloomberg View columnist
G
enerals, the old saying goes, always fight the last war. A similar (though less pithy) principle is that politicians always propose solutions to the last decade’s problems. In the U.S., there are two main areas where we see this principle at work. The first is immigration -- net illegal immigration stopped a decade ago, but President Donald Trump and his supporters are still up in arms over it. The second is China. The standard story is that Chinese competition is devastating U.S. manufacturing. According to this tale, China’s unbeatable cost advantage, driven by cheap labour, cheap energy and lax environmental protections, is siphoning jobs and investment away from the U.S. at a tremendous rate, exacerbated by China’s artificially undervalued currency. This narrative was essentially correct in the 2000s. Chinese competition devastated large swathes of American industry, leaving shattered careers and major economic dislocations in its wake. And the Chinese government was complicit -with its steady purchases of U.S. dollar assets, China was holding down its currency to flood the U.S. market with cheap goods.
“
costs adjusted for productivity. Since Chinese workers have been getting more productive as their employers get more and better technology, China can still be a cheap place to produce things. But here too, China’s advantage has eroded substantially. A recent study by consulting firm Oxford Economics found that China’s unit labour costs were only 4 per cent lower than those in the U.S. According to that study, it’s actually now cheaper to produce things in Japan, Mexico or (especially) India. Boston Consulting Group puts the difference at only 1 per cent -- not nearly enough to motivate companies to shift production from the U.S. to China. One reason for that is energy costs. Although hydraulic fracturing has lowered the price of power in the U.S., China has struggled to increase its production of coal, its main fuel source. China’s coal boom was truly spectacular, but nothing can grow without limit -- various supply bottlenecks started to bite several years ago. Meanwhile, China’s air pollution reached truly apocalyptic levels, forcing the government to start favouring renewable energy over dirty coal. As a result, Chinese coal consumption has actually fallen since 2013. And electricity in China, though still cheap, is now only about a third less expensive than in the U.S. So China’s legendary cost advantage, so potent in the 2000s, have mostly eroded in the 2010s. And the trend will probably continue. This means that although the U.S. lost lots of jobs and industry to China in the previous decade, the bleeding has stopped. Chinese companies are even starting to build some factories in the U.S. This means that just like on immigration, the Trump administration is living in the past when it comes to China. If the U.S. had taken the China threat seriously 15 or 20 years ago, it might have been able to cushion the blow by forcing China to stop making its currency artificially cheap. But it’s now too late for that -- the damage to U.S. workers’ careers and to U.S. industrial know-how has already been done. The great China Shock is over. What U.S. leaders need to do now is stop focusing on the last decade’s problems, and start thinking about those of the next decade. Rebuilding U.S. industry and the careers of American workers will require hard work -- infrastructure investment, retraining and education initiatives, smart regulation and other policies aimed at creating the new instead of protecting the old. Bashing China might have done the U.S. some good long ago, but it will achieve little or nothing now. Bloomberg View
Just like on immigration, the Trump administration is living in the past when it comes to China
The People’s currency But that was the 2000s; how true is the story today? A few parts of it still hold -- China’s currency, the yuan, is still undervalued. The Economist has a quick and easy way to measure currency undervaluation -- just compare the price of a Big Mac hamburger in multiple countries. Here is what that it shows: So the yuan is still too cheap. But something important has changed. The Chinese government is no longer buying U.S. assets to try to keep its currency weak. In fact, during the past few years it has been selling its fabled stock of foreignexchange reserves at a fairly rapid clip: But there’s another, even bigger reason why the old China story isn’t accurate in the 2010s. Chinese wages have risen a lot. A decade ago, a Chinese worker made less than a 10th of what his or her U.S. counterpart did; today, it’s about a quarter: The trend is also important. Chinese wages have been rising so quickly and steadily that most multinational companies and investors must expect them to continue going up. That means that anyone who invests in China not only pays a much higher wages than 10 years ago, but is also signing up to pay even higher wages down the road. Of course, these pay numbers don’t tell the whole story. Businesses that look beyond the headline numbers will think about unit labour costs -- i.e.,
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16 Business Daily Friday, August 4 2017
Closing Crude industry
Oil majors gushing in cash despite cheap crude After crude prices began their descent in 2014 the oil majors reacted quickly
T
he prospect of crude remaining near the current US$50 level is no longer a doomsday scenario for the world’s oil majors whose latest earnings announcements show that cost-cutting lets them turn a profit even at these price levels. BP, Chevron, ExxonMobil, Shell and Total have all published results in recent days, showing they pocketed US$23 billion in net profit in the first half of the year. Either they increased their earnings or at least returned to profit compared with the same period last year. With the exception of ExxonMobil they all benefitted from an increase in output from the same period last year, but more importantly they all profited from a rebound in crude prices as OPEC members and Russia agreed to limit production. The price of the international
benchmark Brent crude averaged US$51.7 per barrel in the first half of this year, up considerably from US$39.8 during the same period last year. While the profits are still less than half of what the firms turned in during the same period three years ago when Brent was trading at over US$100 per barrel, they show that the major firms can survive profitably if crude prices stay at current levels, a scenario many now foresee. “It is a tough environment and it could remain that way for some time,” said BP’s chief executive Bob Dudley earlier this week. “But we are building a business that is resilient to these changing conditions,” he said. After crude prices began their descent in 2014 the oil majors reacted quickly: cutting costs, selling off assets judged non-strategic and
focusing on the projects they considered the most profitable. “Big Oils are showing strong ability to adapt to lower oil prices through cost cutting,” said analysts at US investment bank Goldman Sachs in a recent report. By one measure, free cash flow -- or the amount of funds a firm has left over after investments needed to maintain or expand their assets -- they may even be better off. Goldman Sachs analysts said European oil majors had a higher cash flow in the first half of this year than in the first half of 2014, when crude prices were more than double of what they are today.
Lower, forever
“Recent results are good news and average production costs have fallen by 40 per cent since 2014,” said David Elmes, and energy specialist and professor at Warwick Business School. “The important part of recent results is how firms are back to
generating enough cash to cover such costs” like investment and high dividend payments that have kept many long-term investors on board, he told AFP. While cheap oil was initially viewed as a phase that would soon pass relatively quickly as global demand continued to climb upwards, a shift has occurred and many now see lower prices as here to stay for a while. Shell’s chief Ben van Beurden said the firm is now working with a “lower forever mind-set”. He said that Shell still believes there is a better than 50-50 chance that crude prices will trend higher in the coming years, but wasn’t going to base its business decisions on that.
“Big Oils are showing strong ability to adapt to lower oil prices through cost cutting” Analysts, Goldman Sachs report “We do not want to have the mindset that higher oil prices are around the corner to help us out,” he said. For the moment, the oil majors have shelved costly projects like extracting crude from Canadian tar sands or tapping certain Arctic fields. However in the future they will have to face replacing their reserves at a profitable cost, something which may prove difficult in the medium term. “The amount of affordable oil and gas big oil can access is limited,” said Elmes. “Much is in the control of national oil companies keen and able to develop it themselves.” And when it comes to exploiting shale reserves in the United States, Elmes said that the smaller companies have shown themselves to be able to better control costs. AFP
Real estate
Results
Monetary minutes
Hong Kong property market dangers grow
CK Property’s H1 net profit helped by prime office market
Taiwan c.bank holds rates as export momentum seen slowing
Tiny flats are flooding Hong Kong as developers rush to target first-time buyers struggling to get into the world’s priciest market. Inventories of new flats smaller than 431 square feet (40 square meters) rose to about 1,400 at the end of June, according to Centaline Property Agency. Wong Leung-Sing, an associate director of research, said the number may rise to about 2,000 by year end, the highest in data that started in 2014. The figures include dwellings yet to be completed. The wave of smaller flats is testimony to the price surge that has put bigger homes beyond the reach of many buyers and triggered warnings from analysts and officials that the city is at risk of a property crash. Financial Secretary Paul Chan has cautioned of a “ dangerous situation” after repeated efforts to cool the market. Developers built 2,346 pint-sized flats in the first five months of 2017, or 60 per cent of last year’s total. Annual construction of small apartments surged more than 500 per cent from 2011 to 2016, according to government data. A 150 square foot home -- slightly bigger than a car park -- can cost HK$2.8 million (US$358,000) at the AVA 61 project in one of Hong Kong’s poorest districts, Sham Shui Po, according to the Apple Daily newspaper. Bloomberg News
Hong Kong’s Cheung Kong Property Holdings, controlled by billionaire Li Ka-shing, reported yesterday a 67 per cent surge in first-half net profit thanks in part to the rising market value of prime office buildings. Net profit was HK$14.4 billion (US$1.8 billion) in the six months ended June, the company said. Cheung Kong Property posted a net profit of HK$8.6 billion for the same period a year ago. Total revenue rose 8 per cent to HK$29.9 billion, compared to HK$27.6 billion for the six months ended June 2016. It also said property sales in Hong Kong, mainland China and Singapore showed “steady performance” and total sales exceeded HK$40 billion in the first six months of this year. “China reported stronger-than-expected growth in the first half of 2017 as its economy continued to grow solidly,” Li said in a statement to the Hong Kong stock exchange. “China is expected to maintain growth momentum in the second half year and realise its full-year growth target.” Cheung Kong Property, the third-largest developer in Hong Kong in terms of the number of units available for sale in 2017, has also benefited from its newly acquired aircraft leasing unit, according to a research report by Deutsche Bank published last Friday. Reuters
Taiwan’s central bank board members were unanimous in their decision to keep interest rates unchanged in June, minutes from the central bank’s last policy meeting showed yesterday, as export growth momentum will likely be limited. Growth in Taiwan’s export-driven economy was expected to be milder in the second half of this year, though full-year growth will likely top 2 per cent, the minutes said. Taiwan’s exports and export orders have been stronger than expected in recent month but some board members said it would be difficult for export momentum to rise substantially. “Momentum has slowed down for China’s economic growth. Threats of global protectionism remain,” said the minutes, which were the first quarterly rate meeting minutes released by the central bank. “With the global economy recovering at a stable pace, semiconductor demand continuing to be strong and exports of electronic components increasing...Taiwan’s January-May exports rose 12.5 per cent, and positive growth was seen in all major export markets,” according to the minutes. The central bank left its policy rate unchanged at its June 22 meeting, with robust tech exports providing a strong anchor for the economy and inflation remaining subdued. Reuters