Business Daily #1355 August 7, 2017

Authorities to prevent crime opportunities linked to the superbridge Crime Page 3

Monday, August 7 2017 Year VI Nr. 1355 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro eSports

Video games steal the stage in HK Page 8

Trial

Okada’s Universal loses defamation trial Page 9

Health

Authorities update on Cotai public hospital progress Page 4

www.macaubusiness.com Incorporations

Results

Hengqin shows muscle attracting companies Page 2

Crown profits missing China Page 9

The future starts now Smart city

The MSAR came a step closer to the future thanks to the signing of the Framework Agreement of Strategic Cooperation on Smart City Development with the Alibaba Group on Friday. The agreement will apparently provide the city with the most advanced technology in fields like health and transport, and will have a very important impact on its economic structure and development. Page 4

Clearing clouds

The Electoral Committee gathered with candidates last Friday to clarify details regarding the upcoming election campaign.

Candidates will have until August 30 to communicate their planned activities for the campaign.

Big jump

Inc registration Incorporations in the territory in the second quarter of the year increased 88 per cent year-onyear. Just one large capital fund caused the registered capital to skyrocket by 5,104 per cent year-on-year. Page 2

Rattling the nerves

Licences renewal Casino operators are feeling uneasy after the government seized more than 100 plots of land from developers over the past few years. Despite not having a direct relation to the industry, operators fear the government could be a hard negotiator when dealing with licence renewals in 2020. Page 5

Next round Election Page 3

HK Hang Seng Index August 4, 2017

27,562.68 +31.67 (+0.12%) Worst Performers

Cheung Kong Property

+4.31%

Sun Hung Kai Properties Ltd

+1.06%

CK Hutchison Holdings Ltd

-3.13%

China Resources Land Ltd

-0.82%

Geely Automobile Holdings

+4.28%

Wharf Holdings Ltd/The

+1.06%

China Shenhua Energy Co

-1.29%

China Overseas Land &

-0.56%

China Merchants Port Hold-

+2.64%

China Mengniu Dairy Co Ltd

+1.05%

China Life Insurance Co Ltd

-0.99%

Kunlun Energy Co Ltd

-0.52%

MTR Corp Ltd

+1.43%

AAC Technologies Holdings

+1.03%

CK Infrastructure Holdings

-0.96%

CNOOC Ltd

-0.46%

Henderson Land Develop-

+1.29%

China Resources Power

+0.93%

AIA Group Ltd

-0.89%

Hang Seng Bank Ltd

-0.45%

28° 32° 28° 32° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

Interview Business Daily talks to ONE Championship’s Victor Cui. The CEO of the mixed martial arts organization based in Singapore unveils plans for expanding further in the Asian market after securing an investment from Sequoia.

Pages 6 & 7

2 Business Daily Monday, August 7 2017

Macau Companies

Around 57.5 per cent of all capital for newly incorporated companies came from Hong Kong

New kid on the block The incorporation of a single large fund capital company led to a 5,104 per cent year-on-year spike in the total value of registered capital in the second quarter of this year to MOP7.3 billion Nelson Moura nelson.moura@macaubusinessdaily.com

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he incorporation of just one fund company led to a massive 5,104 per cent yearly increase in the total value of registered capital in the second quarter of this year to MOP7.3 billion, up from MOP123 million in the same period last year, official data from the Statistics and Census Service (DSEC) showed on Friday.

At the beginning of June, the US$1 billion (MOP8 billion) fund for cooperation and development between China and Portuguese-speaking countries officially launched its headquarters in Macau, with the creation of a locally registered company in May named Fundo de Cooperação e Desenvolvimento China-Países de Língua Portuguesa de Sociedade Limitada to manage the fund.

The name of the fund company wasn’t disclosed in the DSEC data and the Commercial Registration department of the Legal Affairs Bureau (DSAJ) wasn’t able to confirm if the newly incorporated large fund company was the Lusophone fund by the time this newspaper went to print.

companies registered in the MSAR had capital under MOP50,000 in the second quarter of this year, with their total value of capital accounting for only 0.9 per cent of the total, or MOP23 million.

Meanwhile, only 27 new companies were registered with capital of MOP1 million or above, however their total capital value reached MOP7.2 billion or 99.1 per cent of the total value.

The majority of registered capital came from Hong Kong, almost MOP4.2 billion or 57.5 per cent of the total capital, with MOP3 billion or 41.1 per cent originating in the MSAR. According to the DSEC, the origin of capital for 196 of the new companies registered between April and June

was mainland China, totaling almost MOP60 million.

Of this total, some MOP39 million came from 152 companies from the nine provinces of the Pan-Pearl River Delta.

Analysed by industry, there were 378 new companies operating in the wholesale & retail industry, and 309 providing business services, with the value of registered capital amounting to MOP45 million and around MOP50 million, respectively.

Of the new companies, 849 were set up with solely local shareholders, while 223 were by foreign shareholders of just one country.

Some 135 new companies had a combination of shareholders from Macau and other countries, and 22 had

other combinations of shareholders.

In the second quarter of this year a total of 195 companies were in dissolution, with the total registered capital in dissolution amounting to MOP30 million.

The year so far

In the first half of 2017, the number of newly incorporated companies went up by almost 20 per cent yearly to 2,701, with the total value of capital going up 2,737 per cent yearly to MOP7.5 billion.

In the first six months of this year, 418 companies were in the process of being dissolved, with the value of registered capital of companies in dissolution amounting to MOP86 million.

Newcomers to the city

The number of new incorporations in the MSAR between April and June also went up considerably by 88 per cent year-on-year in the second quarter of this year, with 1,229 newly incorporated companies.

In terms of the amount of registered capital, 72.5 per cent of the new

Hengqin

Continuing growth The city in Zhuhai Prefecture is showing steady growth in all aspects Cecilia U cecilia.u@macaubusinessdaily.com

A total of 1,488 enterprises from both the SARs were registered in Hengqin as at the end of June this year, of which 860 were firms from Macau and 628 from Hong Kong.

The most recent official data reported that, as at the end of June, there were a total of 5,189 financial firms in Hengqin, indicating an increase of 39.6 per cent year-on-year. The total registered capital reached RMB639 billion, up 18 per cent. Official data also revealed that 10 enterprises are listed companies.

The financial sector of the neighbouring Chinese city saw its value increase to RMB926 million, making up 12.5 per cent of the total national GDP. Regarding Chinese Yuan settlements, the amount for the first half of this year recorded a total of RMB64.3 billion, up 35.32 per cent.

There were a total of 3,809 investment firms and 89 financial entities registered in Hengqin at the end June,

with Banco Nacional Ultramarino (BNU) being the first Macau-based bank to have a branch there.

Since the establishment of the city as a free trade zone in 2015, some 20 projects have been introduced by the MSAR Government to the Guangdong-Macau Co-operation Industrial Park and have signed cooperation agreements. A total of 18 projects have obtained land for development and 14 of these have started construction. The total amount of investment reached some RMB61.1 billion (MOP73.1 billion/US$9.1 billion).

The developing projects involve business services, leisure travel, cultural creation, e-commerce and e-logistics, medical and healthcare services, and science and educational research and development.

Meanwhile, another major project in Hengqin is the Guangdong-Macau Traditional Chinese Medicine Science and Technology Industrial Park (TCM), which has attracted 10 investments from Macau and has signed a land leasing agreement.

The first phase of TCM is already operational, while the part including a GMP (Goods Manufacturing Practice) pilot production base building is expected to be operational in the second half of 2017.

Innovalley of Hengqin, a platform in Hengqin which invites young entrepreneurs from both SARs to startup businesses in mainland China, has attracted some 205 startups in its

two years of operations, with the amount of financing reaching over RMB100 million.

With close cooperation between the SARs and Hengqin, the Chinese authorities rolled out a tax rebate policy to benefit individuals from Hong Kong and Macau working in Hengqin.

The policy has so far benefitted 176 cases, amounting to RMB40.4 million of tax rebates.

A panorama showing the MSAR and Hengqin

Si Fong Garden

Over MOP12 mln spent on temporary works at Sin Fong Garden The city’s Public Prosecutor’s Office (MP) disclosed that some MOP12.8 million has been spent on the temporary and monitoring works at Sin Fong Garden, adding that the total cost is still currently being calculated.

In response to public opinion

regarding the slow progress to resolve the situation, the MP posted a press release reporting that the evaluation report made by the three appointed experts had already been submitted to the Court.

In 2012, at least 140 homes in the

Sin Fong Garden residential building in Patane were evacuated after one of its supporting pillars collapsed, threatening the whole structure. The residences have been sealed off ever since.

In October 2015, the MP filed a

civil action with the Court of First Instance against four construction companies related to the Sin Fong Garden incident.

The lawsuit aims to retrieve the amount used by the developers in question.

Business Daily Monday, August 7 2017 3

Macau Elections

Close-fitting electoral plans Authorities clarify electoral campaigning dos and don’ts during a session held for candidates, limiting spontaneous activities to a minimum Sheyla Zandonai sheyla.zandonai@macaubusiness.com

B

roadcasting live videos is not a campaign option unless incumbent candidates for the coming Legislative Assembly (AL) elections have previously declared their intent to do so to the Electoral Committee (CAEL).

“In order to perform such activities, candidates should first declare them. While they could still do it without prior notification, they should know that punishment is foreseen by the electoral law,” said Tong Hio Fong, CAEL’s President, on the sidelines of a clarification session held on Friday for candidates.

In regards to candidates publicizing information in their own offices, Tong clarified that “only information about the work they have accomplished in the AL, of neutral type, can be posted there.”

According to information provided by the relevant authorities during the session, candidates have until August 30 to communicate their planned activities for the 15-day campaign period, which stretches from September 2 to 17.

The provisions concern candidates on an individual basis and the electoral lists with no prejudice.

In addition to activities linked to the 15-day campaign period, candidates also ought to declare their affiliation with companies and associations or foundations in which they hold executive positions.

Organization of activities which are not directly planned with campaigning proper, but which involve the “allocation of benefits” such as subsidies, gifts, trips outside Macau, and food and beverages, must also be declared, according to Lam Chi Long, Assistant Commissioner for the Commission Against Corruption (CCAC).

Campaign tours

The majority of questions raised during the session came from lists newly registered in the electoral process.

In reply to questions raised by the audience, CAEL’s head further said that the Committee “will still hold meetings with the lists to co-ordinate” car campaigning, adding that the Committee is working “to avoid overlapping of routes and itineraries of different lists.”

CCAC’s head, Cheong Weng

The Electoral Affairs Commission for the Legislative Assembly Election and the Commission Against Corruption hold a briefing session on the Legislative Assembly electoral system.

Source: GCS.

Chon, added that “on the day of the elections, candidates are not forbidden to transport voters to pooling stations, as long as there is no explicit or implicit propaganda displayed in the vehicle.”

As for the participation of candidates in private meals and banquets before the election, Cheong said that “the law does not prohibit it, unless [such meetings] are organized intentionally, in the name of the candidate or the list,” in which case they would be considered a “violation of the law.”

CAEL’s President also explained that “the law does not forbid the conducting of

surveys during the electoral campaign process,” but cautioned that “survey reports cannot be published during the campaigning period until one day after the election.”

Non-adherence to regulations constitutes a crime of disobedience and non-abiding candidates may be subject to fines ranging from MOP10,000 to MOP100,000.

Speaking on the sidelines of the session, CCAC’s head informed that there are currently 67 cases under investigation for violation of the electoral law, however the details of which cannot be disclosed due to the fact that investigations are ongoing.

The forms

Candidates are required to fill in forms available online at CAEL’s webpage in order to inform the committee of activities to be conducted both for campaigning purposes and on subsidiary matters, such as those related to distributing benefits, according to information provided by CCAC’s Assistant Commissioner during the session.

Candidates can request changes to forms already submitted or withdraw them.

All information provided by the candidates will be uploaded on the CAEL’s webpage, the authorities stated.

Economy

Slight growth in money supply, deposits and loans in June The city saw a slight increase in the money supply of 0.5 per cent in the month of June, with M1 growing 0.5 per cent month-on-month, revealed the Macao Monetary Authority (AMCM).

M2, the sum of quasi-monetary liabilities and M1, experienced a rise of 0.5 per cent to MOP556.6 billion (US$69.11 billion).

M1 and M2, on the other hand, both increased notably by 17 per cent and 16.2 per cent respectively, when compared to the amount recorded a year ago.

Regarding the share of currency in M2, patacas (MOP) took up 31.7 per cent, while Hong Kong dollars (HKD) accounted for 53.2 per cent, Chinese yuan (RMB) 3.9 per cent and United States dollars (USD) 9.1 per cent.

AMCM data also revealed that deposits made by residents registered an increase of 0.5 per cent monthon-month to MOP542.5 billion, whilst deposits by non-residents

dropped 2.2 per cent to MOP257.3 billion.

In overall terms, total deposits saved in local banks grew slightly by just 0.1 per cent when compared to the previous month, amounting to MOP989.8 billion.

Hong Kong dollars made up the

highest share of total deposits, accounting for 51.2 per cent.

On the other hand, domestic loans to the private sector were MOP433.1 billion, up 2 per cent month-onmonth. Some MOP280.4 billion of loans were HKD-denominated, making up 64.7 per cent of total loans

granted, while MOP129.2 billion was MOP-denominated and accounted for 29.8 per cent.

In terms of economic sectors that applied for loans, ‘manufacturing industries’, ‘gaming’ and ‘information technology’ were the three sectors that experienced increased rates, up 20.5 per cent, 19.3 per cent and 10.3 per cent quarter-to-quarter, respectively.

For loans granted to sectors relating to ‘education’ and ‘transport, warehouse and communications’, the number dropped 3.2 per cent and 1.9 per cent, respectively.

Meanwhile, external loans in June totaled MOP428.0 billion, up 2.5 per cent month-on-month.

As at the end of June, the loan-to-deposit ratio for local residents had increased by 0.5 percentage points to 59.1 per cent.

The non-performing loan ratio remained more or less stable at 0.2 per cent.

Crime

Waiting for the bridge With the Hong Kong-Zhuhai-Macau Bridge expected to open this year, criminal investigation departments from Hong Kong, Macau and Guangdong met to discuss how to prevent possible cross-border crime resulting from the synergies created by the new bridge Criminal investigation and law enforcement departments from Hong Kong, Macau and Guangdong met between August 2 and 4 in Hong Kong to review

police cooperation between the three regions, and to find ways to strengthen information exchange and combat cross-border drug-related crime,

telephone fraud and illicit gambling.

According to a press release, with the anticipated opening of the Hong Kong-Zhuhai-Macau Bridge by the

end of the year ‘greater economic and social inter-regional development is expected, causing a great movement of people and goods’. The stated purpose of this year’s meeting was to prevent and combat cross-border crime resulting from this new Greater Bay Area inter-regional project.

Representatives from the MSAR Public Security Police Force (PSP), Judiciary Police (PJ) and the Unitary Police Service (SPU) represented the territory in the 23rd Working Meeting of Criminal Investigation Police Officers of Guangdong, Hong Kong and Macau. N.M.

4 Business Daily Monday, August 7 2017

Macau Opinion

Smart city

Covering the city with the cloud Sheyla Zandonai* Eye cloud Last week, Macau received a visit from a distinguished guest, the head of Alibaba giant, Jack Ma. Ma was in town to sign an agreement of co-operation with the Macau SAR Government, to develop an automated platform for Big Data and artificial intelligence use in the city.

The term used to describe the goal underlying the creation of a local cloud-computing centre, to be implemented within the next four years, was ‘urban brain.’

All brains welcome.

So the previously announced smart city plan is now bound to take shape within a series of areas, ranging from transport and healthcare to talent pooling and development.

The framework agreement will provide structure to the fiveyear plan the local government announced last year as a comprehensive chart of principles to be pursued.

What was intention is now being designed as actual policy.

The plan is ambitious, and one might question whether or not there will be enough vision and capacity for it to materialize. But this being Jack Ma, the chances are it will work out.

Enabling an urban cloud management system could inform governance with efficiency, alleviate urban plights, improve tourism management and healthcare access – although having the new hospital built once and for all seems equally efficacious in regards to the latter.

But a cloud, as dynamic and interconnected – as well as volatile and subject to breaching – as it can be, still has to operate within extant, physical infrastructures. If they are not in place, they will have to be.

This raises a series of questions.

During the protocol signing, it was mentioned that the cloud-computing centre will complement the information technology infrastructure already in place.

In addition to asking what ‘information technology infrastructure’ they were referring to, one might ask, who will actually be in charge of implementing the new system? Will it be centralized, and under which government department? Does Macau have local people to develop and oversee the related operations?

Secondly, authorities claimed that the data will be stored in the city. Alibaba’s representatives in town also said the system will be connected to other cloud systems which belong to the group worldwide. That means there will be a mechanism for cloud data distribution and sharing from the start.

Talk about integrating Macau within the Greater Bay Area.

Infrastructure-wise, the process is moving forward at a fast pace. Now, it is time for integrating people.

Personal data protection will be at the core of the process.

Plug and pray.

*Journalist.

Government signs agreement with Alibaba Group to help develop the MSAR into a smart city by 2021 Nelson Moura nelson.moura@macaubusinessdaily.com

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he Alibaba Group signed a Framework Agreement for Strategic Cooperation in the Area of Building an Intelligent City with the MSAR authorities on Friday, with a deadline being set to fulfill the project in two phases by 2021.

In an event attended by Alibaba’s Executive Chairman, Jack Ma, the MSAR Chief Executive, Fernando Chui Sai On, and most of the city’s chief government representatives, it was announced that the first phase of the project’s implementation would be completed by June of 2019, with the second phase to be completed

by June of 2021.

With the group’s subsidiary Alibaba Cloud to lead the project, the agreement expects to establish a cloud computing centre and promote Big Data usage in Macau, in order increase efficiency and further improve the city’s tourism, transportation, health care, governance and talent development.

“The data will be stored in Macau.

We will build an autonomous smart city platform connected with other platforms from us or the rest of the world,” the Alibaba Cloud President, Hu Xiaoming, said on Friday.

According to information provided, Alibaba Cloud is a cloud computing company with 2.3 million customers

worldwide - including 874,000 paying customers. The company’s revenues rose by 121 per cent annually to RMB6.66 billion (MOP7.98 billion/ US$991.1 million) in the fiscal year ended March 31 of this year.

“Alibaba Cloud is the largest cloud service provider in mainland China and it has services spread out in more than 200 countries and regions,” according to the Chief of Office of the Chief Executive, O Lam. The CE Chief of Office also stated that the system would not replace, but complement the already existing information technology infrastructure in Macau, with Alibaba Cloud system described as “allowing a high degree of compatibility”.

Step by step

The first phase of the project’s implementation will involve the development of the first section of the cloud computing centre, with its applications in data analysis used to improve the city tourism, qualified personnel training, traffic management, health care services, urban management and financial technology.

According to the Alibaba representatives “positive results and applications” are expected to already be seen by 2018.

The second phase is expected to see the conclusion of the computing centre development, with focus directed to environmental protection and financial predictions.

The Chief Executive, Mr Chui Sai On, meets with the Executive Chairman of the Alibaba Group, Mr Ma Yun, at the Government Headquarters. Source: GCS

“We’re confident to create a new structure for the development of Macau, constructing a modern platform and injecting new development forces in the city,” Ms. O added.

As an example of positive applications, the Alibaba Cloud representatives described how camera footage data from the city’s main intersections could be analysed by an intelligent network to better distribute the city’s traffic lights.

“We will build an autonomous smart city platform, connected with other platforms from us or the rest of the world” Hu Xiaoming, Alibaba Cloud President

Alibaba Cloud’s President described how in Hangzhou the implementation of an “urban brain” allowed adjustments to the city’s traffic lights, improving vehicle circulation speed by “between 3 to 11 per cent”.

Data with privacy

When questioned about security concerns for the cloud computing system to be developed, the Legal Affairs Bureau’s (DSAJ) Service Director, Liu Dexue said creating a cloud computing system would “imply sensible issues like interconnection, data transfer and security of databases”.

The official stated that the newly enacted Data Protection Law was “sufficient but that it could be “reinforced” through some “legislative improvements”.

According to Mr. Xiaoming, the cloud computing centre to be set up in the MSAR would follow standards set by the European Union and the United Nations.

The Alibaba Cloud President also added that local Macau residents would receive qualified training on issues such as Artificial Intelligence, IT, e-commerce and entrepreneurship.

“We will cooperate with local education institutions and support young entrepreneurship. We want young Macau people to be entrepreneurs,” Mr. Xiaoming added.

Infrastructure

Lei: Cotai public hospital expected to be 80 pct finished by 2019 Director of the Health Bureau, Lei Chin Ion told the press on Saturday that the construction of the public hospital complex on the Cotai Strip would be 80 per cent complete by 2019.

The Bureau director reported that the construction of the complex’s foundations is already complete, with the design of the hospital currently under evaluation, adding that the government is striving to open tenders for the construction work by the end

of the year.

Lei indicated that all projects are required to go through related departments for evaluation and collection of suggestions, and the selected construction company would revise the plans according to the suggestions made.

He said that the design for the general administration building, auxiliary facility building and staff accommodation are complete.

Meanwhile, with the government’s current expenses on health care reaching some MOP7 billion, Lei noted that the budget would double when the hospital complex in Cotai starts operations, explaining that the majority of expenses come from the purchase of medicine and medical equipment.

The construction design contract was awarded in 2013 to a company owned by Executive Council (ExCo) member Eddie Wong Yue Kai, with an initial budget of MOP235 million, although the government has announced that the cost of the medical complex has reached some MOP1.4 billion to date.

Subsidy

MOP29 mln disbursed for lift maintenance The MSAR Government had distributed a total of MOP29 million (US$3.6 million) to support the maintenance of lifts within buildings as at the end of July.

According to information provided by the Housing Bureau, a total of

195 cases were approved to obtain support for the maintenance of lifts, of which 117 cases were ‘building maintenance funding schemes’, involving some MOP28 million.

Fifty-six cases were ‘interest free schemes for building maintenance’

involving MOP630,000 and 22 cases were ‘building maintenance program support plans’ which received MOP380,000.

The aforementioned schemes provide free inspection of communal areas and the preparation of maintenance plans or suggestions.

Business Daily Monday, August 7 2017 5

Macau Renewal

Land row rattles casino bosses ahead of 2020 licence talks The casino executives said their companies are taking action to make sure they stay on the right side of authorities Farah Master

A

no-nonsense approach by the Macau government in disputes with land developers is rattling the nerves of casino executives, who fear it portends a rough ride from authorities in talks they will hold to renew operating licences.

The government has seized more than 100 plots of land from developers under a 2013 law it says is intended to root out corruption and better utilise land that has stood idle for over 25 years.

For casino executives, the government’s uncompromising position in the land disputes despite protests from investors, some lawmakers and would-be residents, is a flavour of the uncompromising attitude they expect to face when they negotiate to renew their gaming licences, which start to expire in 2020.

“It’s really a warning sign that the government is not backing down for the casino concessions,” said a senior casino executive. Like others interviewed for this story, he requested anonymity due to the sensitivity of the issue.

“Nobody really knows what is going to happen.”

Casino operators, such as Galaxy Entertainment Group’s Galaxy Macau to Wynn Macau’s Wynn Palace, have invested some US$30 billion into the centre.

The government’s fight with land owners has no direct connection to the casino owners’ licence negotiations. The Macau government has said it has no intention to change the land law and would only say it will analyse several options for how it will conduct the licence renewals.

The first licences to expire are those of SJM Holdings and MGM China.

“Just because you have a licence now doesn’t mean you will have one in the future. They are setting our expectations that some operators may not continue,” said a second senior casino executive.

The licences were first awarded in a complex process in the early 2000s.

Government officials have said there may be a new public bidding process when they expire.

Sands China, MGM China, Galaxy and Wynn declined to comment, while SJM did not respond to a

How casino licences work

Macau’s gambling history dates back to the 16th century when the former Portuguese colony first opened its harbour to visitors.

Stalls run by bankers were spread over streets and primarily catered to mainland Chinese workers.

In the 1960s, a company belonging to billionaire Stanley Ho won a casino monopoly allowing him to dominate the gambling industry for over 40 years.

Ahead of the handover between China and Portugal in 1999, the government decided to break up the monopoly and award a maximum of three concessions, according to the government.

In February 2002, SJM Holdings, Wynn Resorts and Galaxy

Casino Licence Issue Years Concessions SJM Wynn Galaxy

Subconcessions MGM Melco Sands

Year Awarded

2002 2002 2002

2005 2006 2002

Date Expires

2020 2022 2022

2020 2022 2022

request to comment. Melco said it hoped to continue working with the government.

“Melco has deep roots in Macau, we are confident that the government will set and communicate clear and appropriate renewal guidelines and criteria,” a company spokeswoman said.

Diplomacy

The land disputes have their roots in a real estate boom in the 1990s and early 2000s, when many developers rushed in to buy up plots of real estate hoping they would appreciate in value.

Critics say the government is using the land seizures to deepen its control over the special administrative region.

In one example, a parcel of land was seized even though the developers had carried out infrastructure work including building underground tunnels, roads and manmade lakes.

The tough stance helps prevent future graft cases, said one civil servant, who was not authorised to speak to the media. In July, Ho Chio Meng, the territory’s chief public prosecutor until 2014, was jailed for 21 years for graft in a case that prosecutors said involved about 2,000 public contracts that were illegally awarded.

Despite the concerns of the gaming executives, the casino sector is a huge part of the economy. Casino resorts employ two-thirds of Macau’s workforce, and their taxes produce around 80 per cent of government

Entertainment were chosen out of 21 bidders from countries including Malaysia, Australia and Britian.

In December 2002, the government allowed Galaxy to issue a sub-concession to Las Vegas Sands for no additional payment.

SJM in 2005 issued a subconcession to MGM Resorts for US$200 million and in 2006 Wynn issued a subconcession to Melco for US$900 million.

SJM and MGM are currently constructing their new casinos ahead of their concession expirations in 2020. They are the only companies yet to have a presence on Macau’s fast-growing Las Vegas styled Cotai strip.

revenues.

The casino executives said their companies are taking action to make sure they stay on the right side of authorities. This includes efforts to take on more local staff and working more with small local companies and suppliers. Conversely, many

executives are subject to shorter-term contracts given the uncertainties of the licensing round.

The casinos are also pushing soft diplomacy. In July, for example, MGM hosted an event to provide the elderly with health checks.

Within the companies, the tempo of internal meetings to discuss the upcoming licensing rounds have become more frequent, the executives said.

“It’s all very sensitive at the moment,” said a fourth, senior executive at a casino company. “We are just trying to understand what the government wants.” Reuters advertisement

6 Business Daily Monday, August 7 2017

Macau

Victor Cui, CEO of ONE Championship

Interview | Sports

Here comes the boom Pushing closer to a US$1 billion valuation, having recently secured a sizeable investment from venture capital group Sequoia, ONE Championship’s CEO Victor Cui explains plans for moving forward, increasing international audiences and fighter origins, a focus on China, virtual reality, films, Tencent and more Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

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oes the Sequoia investment change the business outlook going forward, and were you expecting it?

The first important thing about Sequoia is: when it comes to businesses, like anything, the more blue chip and the greater quality of people you bring together, the more you can achieve. And so we’re very, very lucky to have such a globally recognized, experienced new shareholder with Sequoia that can open doors for us, or build relationships. They’re a series A investor in Facebook, a series A investor in Apple, in AirBnB, so they know what is going on and they have a really great vision. They see the opportunity for ONE Championship to be a multi-billion dollar company, they want to help us get there. And they like what we’re doing already. The great thing about it is that they don’t come in and then want to change it to a completely different company because that’s what they’ve bought into.

So they like what we’re doing, they just want to add to that. So I think you’re going to see some fantastic growth continuing for ONE Championship in the next 18 months.

This puts us significantly closer to our US$1 billion valuation that we’ve been working towards, and then maybe after that in a couple of years, if we want as a strategy, to IPO (initial public offering).

“China is a really important part of our focus.

I have now moved to Shanghai and I’ve been living in Shanghai for the past six months” Does that accelerate any of the plans that you already had?

Right now it’s still too early, we only closed the deal a couple of weeks ago.

So we’ve got to sit down together and find out what our first 90 days looks like and the direction we want to go.

We’re excited about it, but my first board meeting is next week.

We’re seeing more non-Asian fighters on the rosters. Is that also a part of the strategy, is ONE Championship still Asian-focused?

We’re still Asian-focused, we’re still about building local heroes in Asia.

We’re still about building the great heroes like we’ve done with Aung La N Sang in Myanmar and with [Edward] Folayang in the Philippines, Angela Lee in Singapore, Ann Osman in Malaysia. We’re still about building the local heroes. But particularly our global broadcast is growing so fast, we also want to have a balance between giving our fans around the world international [contenders] that they already know and can relate to, like Bibiano Fernandes [who fought in Macau last Saturday] for example, but keep that balance with the international and the local. It’s a challenging thing to do, it’s really, really difficult.

So it’s not always going to be a perfect 50-50, sometimes it’s 60-40, 70-30.

We’ve 18 events that we’re doing this year, next year we’re going to expand to 24 events, so we’ve got a lot of space to work with and move different fighters on the cards.

Four big events happening in Manila next year. Is that looking like one of your primary markets? Are you targeting your event locations by country, by city?

It depends on which country really.

Australia, New Zealand – Australia is huge, with different state laws in each region. It’s really on a case by case basis, and we get a lot of pull from government bodies inviting us to come and bring our event, because it’s such a huge opportunity for, for example, Macau or for any country that we go to when we do a live event; 118 countries, a billion viewers, and suddenly they just get all of this exposure. Whereas sure you can have a great Dreamworks show here with Shrek or Kung Fu Panda, but that never gets televised, that’s only to service the people here.

We do an event in any country and suddenly it puts them on the map. It’s huge market exposure, huge tourism dollars, huge things that they can leverage right across the board. So a lot of interest everywhere from Dubai to Kazakhstan, to Canada, to Australia, but we’ve got to stay focused. And that’s one of the challenges when we’re growing this big and this fast, is to really prioritize where we want the business to go, what are the key

Business Daily Monday, August 7 2017 7

Macau But we have had numerous discussions with a lot of people over the last couple of years. The AR (augmented reality) and VR (virtual reality) stuff, I think our sport is particularly suited for that. Particularly suited for VR, for 360 experience, because we’ve got a confined space, we can do really unique things: corner-man perspective, referees perspective, locker room perspective - just a lot of different things that other sports cannot do. We are looking at that, I’ve been talking to a number of people. The challenge right now is: the technology is there, the bandwidth to make it live is still limited. Cause it just sucks so much bandwidth. If you want to do VR 360, you’ve got to have phenomenal internet connectivity in each venue, and not a lot of countries in Asia have that yet.

So we could do a post-produced thing easily, and that kind of stuff, but what’s really cool is if at any time you could jump online, catch each cornerman’s perspective, listen to what they’re saying, catch it in 360, all that. That just requires the kind of infrastructure that’s not in place in Asia in a lot of places yet.

Singapore is quite advanced, Shanghai is quite advanced, but then Philippines and Myanmar is a little bit different, you know. There are solutions there, and we’re looking at that. I think it’s a really cool thing, something we’d like to do, but it’s also something you have to kind of pace with what’s there. We’re not an infrastructure company, we’re not here to build internet pipelines.

“They [Sequoia] see the opportunity for ONE Championship to be a multi-billion dollar company, they want to help us get there.

And they like what we’re doing already” markets for us.

China is a really important part of our focus. I have now moved to Shanghai and I’ve been living in Shanghai for the past six months. Our headquarters is still in Singapore, and that’s where we keep our business, but I’ve moved my family and everybody and we’re building the business in China.

Is that going to be tier-1 cities?

Yeah, our focus will be on [that]. We have an event in Shanghai September 2, then October 21 in Beijing and we’ll focus on the tier-1 cities.

This isn’t your first event in China.

What kind of growth have you seen so far in terms of attendance and broadcasting and what difficulties are you facing?

Because we’ve had our events so sporadically there, it’s been hard to kind of get the momentum going, and that’s because I was running the business out of Singapore. And I finally decided ‘man, I can’t make a go out of this, we’ve got to get up into China. I’m going to build the business there, I’m going to focus on it, I’m going to meet with everybody’. It’s like trying to run a business in Macau when you live in Thailand; it doesn’t make any sense.

Video games, virtual and augmented reality - what stage are they at in your business plan?

On the gaming side, we’re looking at everything from eSports to our own gaming. That kind of stuff is really, really resource draining in terms that you have to really focus on it to get it right; a minefield of challenges when you’re trying to create a world-class game. So that’s not something that we would rush into.

There’s been a very visible spectacle revolving around the MayweatherMacGregor fight, with lots of insults and boasting going on. How do you feel about the perception of mixed martial arts and boxing, and are they changing?

What I love about martial arts, and what ONE Championship is about in our DNA, it’s about the spirit of martial arts. It’s about the ability of martial arts to make this world a better place. I think where the sport is failing around the world is when the sport focuses on the thuggery of it, on the violence and the fighting, to me that’s not what martial arts is about. You and I coming together to challenge ourselves at the highest level of our ability as a martial artist is about skill versus skill. It’s about talent, it’s not about thugs and fighting, it’s about us as martial artists – I respect you for being fantastic, I expect you to bring your best, you expect me to bring my best. I think you want to build heroes, you want to showcase people – whether it’s female or male – about the power of martial arts.

Now I know the direction that other sports go and sensationalisation, and that’s the path that they choose, I get it. I think when you get a crossover fight like this – of boxing and MMA (mixed martial arts), what else can you really focus on to bring hype to the event but that kind of stuff – I mean what are you going to talk about? You can’t talk about someone’s MMA record, or someone’s boxing record or anything, so you have to make it WWE (World Wrestling Entertainment). There’s not many other storylines that you can do. I think that, if anything, it will raise

the awareness of sports I guess, that aspect of it.

Do you think the networks need to have that type of sensationalism to drive views? Given what you’ve proven with the amount of viewers, going on the billion-dollar valuation – do you need that type of smack talk to drive views?

Maybe in some countries you do. I think that’s clearly what is appealing to North American fans. It’s not what’s appealing in Asia. People in Asia want humble heroes. They expect their leaders, they expect the athletes to be humble. They want Yao Ming – he’s a humble giant, but if he was Dennis Rodman attitude-wise he probably would not be as successful.

Dennis Rodman is successful in his own right. I think if you look at who Asia embraces – they embrace Manny Pacquaio not [Floyd] Mayweather.

Both great athletes. If I look at our athletes –Aung La N Sang or Edward Folayang – Aung La N Sang got in there [the ring] and the first thing he does is thank his family and his parents. He’s not up there pounding his chest [going] ‘me, me, me, me’.

Can you imagine if you go into China and you wear a suit like that [suit Conor McGregor wore to pre-fight press conference whose stitching spelled f*** you] how the government would react?

There was a lot of blowback from the refereeing of the Manny PacquiaoJeff Horn fight. Do you have an opinion on that?

Manny is a shareholder so of course I was rooting for him to win. But – this is sport, and you don’t leave it up to the judges. If you want a definitive win, don’t leave it up to the judges, that’s how it is.

The thing is, any sport when it gets to the judges, can have controversy.

And how you watch it as a fan is very different from the guys that watch it there in real time, that are inches away from the action. They just see minute details of the competition that we don’t notice because we’re not trained experts.

When you’re a boxing fan and you watch Mayweather, you appreciate different things. To this day, I still regularly pull up Mohammad Ali footage and just watch his footwork. And I’m just like ‘how does a man this big move like a lightweight’.

Have you had any more of a closer relationship with the local Macau government, speaking more with the local organizers? Have they approached you recently?

Not really. We have a great partnership with the Venetian, it’s always an exciting event here. We brought a stacked card here with two championships just to continue to showcase what we do. I think we’ll be here twice a year, continue to be here, maybe three times, but twice a year is pretty good already in Macau.

of the cheap seats to walk-ups. And you just never know – it’s Macau.

If people don’t stay on the gaming floor, maybe people will come. It’s hard to say.

Are you looking at film deals, at film syndication? You’re creating these heroes, are you then thinking to propel these heroes into the film world?

Absolutely. Brandon Vera, our world champion, is starring in an A-list movie in the Philippines right now with the top two most famous actors in the country. So we’re already moving to that. We’ve got a lot of movie offers for Angela Lee – a lot of that’s just all in the works. Tencent is our partner, they’re live streaming this event. Already they’ve live streamed our last two events. So we have a big partnership with them that we’re building on and we’re going to be announcing very soon. So I think that’s a natural progression definitely.

“If you want to do VR 360, you’ve got to have phenomenal internet connectivity in each venue, and not a lot of countries in Asia have that yet” How dependent are you on making these individual heroes and what happens if they fall?

We build the heroes because there’s a lack of heroes in Asia. There’s just a lack of Asian heroes. What other major superstar Asian athlete can you mention after Pacquiao? Yao Ming hasn’t touched a basketball professionally in 10 years. Everybody knows you need another Yao Ming, but it’s been 10 years out of a country of a billion and a half people. Because it’s that hard to find another star like that. So yes we want to build them, and one good thing with ONE Championship is we also really focus on the experience of the event. A lot of people come to our events because it’s the night to go to, not because they are actually even fight fans, or that they even follow any other fight organization. They just know that when ONE Championship comes, it’s a great night, it’s an entertaining night – they want to go with their friends or their wife or their girlfriend or their clients – and they know it’s going to be a rock concert. It’s not just a bunch of people fighting in a ballroom. They know it’s going to be a great experience.

“We’ve 18 events that we’re doing this year, next year we’re going to expand to 24 events, so we’ve got a lot of space to work with and move different fighters on the cards”

What kind of pressure does constant social media attention put on you personally, constantly being linked in to the fans?

A lot, especially particularly as it grows, but I really believe in relationships both professional, built on loyalty and good people. There are people that supported us for years before we had Sequioa and I don’t forget that. I will make sure that I always make time for that, because those are the people that also put your effort and political capital on the line and took a chance with us when other people would not. So that’s how I treat my business partnerships. I’ll be very loyal and always give priority to those and I don’t take that lightly and I don’t forget it.

What kind of crowds do you expect to draw?

I expect us to sell out everywhere we go, right? (laughs) We should be well on our way to that. One good thing about Macau is we don’t have a problem with fans wanting to come to our event. But it’s hard to tell because you have to allocate a big chunk

Are you thinking of doing any events in the U.S.?

Not in the immediate future. It’s not a high priority for us right now because the timezone doesn’t really work for our Asian fans. I was just in the [United] States, had a lot of meetings, talked about ‘when will you come?’ and partners and sponsors are looking at it, but it’s not an immediate priority right now.

8 Business Daily Monday, August 7 2017

GAMING eSports

eSports bonanza As Hong Kong hosted its first eSports festival, the MSAR prepares to take its first dive into an industry expected to generate market revenue worldwide of more than US$1 billion this year Nelson Moura nelson.moura@macaubusinessdaily.com

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eld b e t w e e n August 4 and 6, the ICBC (Asia) e-Sports and Music Festival Hong Kong at the Hong Kong Coliseum, was expected to draw at least 50,000 visitors to an event that involved an eSports competition, Korean pop music concerts and an exhibition area for new eSports technology.

The ICBC (Asia) e-Sports and Music Festival Hong Kong was organised as part of Hong Kong’s 20th handover anniversary celebrations, with a HKD35 million (US$4.4 million) funding from the Hong Kong Tourism Board (HKTB).

The event’s main attraction was an invitational tournament for League of Legends, one of the most popular eSports games worldwide, with professional players from North America, Asia and Europe coming to compete against each other in the real-time strategy game.

However, although the organisation announced the participation of professional gamers from Hong Kong, Macau, Taiwan and mainland China, the local eSports organisation Grow uP eSports confirmed to Business Daily that no players from the MSAR would take part in the Hong Kong event.

The event looks to capitalise on the increased value of the eSports market, with research by website Super Data stating that the total revenue of the global eSports market reached US$893 million (MOP7.19 billion) in 2016, of which US$328 million originated from the Asia market, with worldwide revenue numbers expected to exceed US$1 billion in 2017.

Bringing it to the other side if the river

Recently, Macau’s local eSports organisation has received support from MGTO and the Macau Trade and Investment Promotion Institute (IPIM) to organise the city’s first ever eSports

event, GIRLGAMER 2017, a 4-day eSports Festival to be held at the Melco Resorts & Entertainment Limited property Studio City, between August 31 and September 3.

“GIRLGAMER is the first event of its kind happening in Macau. The best all-girl teams are flying in from all over the world to compete for a US$30,000 prize pool in a tournament that promises

to show the city how eSports should be. The games will be professionally commentated and broadcasted live in English and Chinese to all the major platforms,” the President of Grow uP eSports, Fernando Pereira, told Business Daily.

Apart from the eSports competition, the event will also include an eSports Business Conference with international industry leaders

as speakers, and a Cosplay Showcase event.

According to Mr. Pereira, so far the event has managed to attract sponsors such as Alibaba cloud, Red Bull Energy Drink and local communications company Companhia de Telecomunicaçōes de Macau (CTM). In an attempt to make the event attract a more diverse crowd “unlike other eSport events” attendance will be free of charge. advertisement

Business Daily Monday, August 7 2017 9

GAMING Results

Australia’s Crown Resorts posts profit miss after China arrests The company has pinned its growth hopes on a roughly A$2 billion luxury casino on the Sydney waterfront, due to open in 2021 Byron Kaye

Australian casino giant Crown Resorts Ltd said on Friday underlying annual profit fell by nearly a sixth, missing analyst forecasts, as a mass arrest of marketing staff in China led to a slump in high rollers visiting from the mainland.

The company half-owned by billionaire James Packer has cancelled plans to develop new casinos from

Las Vegas to Macau since Chinese authorities arrested 19 of its staff for gambling crimes in October last year.

It also stopped marketing its Australian casinos to mainland Chinese high-rollers, effectively walking away from its most lucrative customers at a time when Chinese VIPs are fuelling a boom in casino revenue in Macau.

Australian VIP turnover plunged 49 per cent due to “difficult trading

conditions”, it said. Turnover from wealthy VIP gamblers accounted for 17 per cent of Crown’s total gaming revenue, down from 27 per cent the previous year.

Key Points Crown underlying full year NPAT A$343.1 mln vs A$369.1 analysts Australia “VIP” turnover down 48.9 pct Company announces share buyback, shares up Normalised net profit before

one-off items was A$343.1 million (US$272.9 million) for the year to June 30, down from A$406.2 million the prior year and below the A$369.1 million average forecast of 10 analysts polled by Thomson Reuters I/B/E/S. Casino companies say “normalised” profit is a more reliable performance marker because it strips out win rate irregularities.

Don’t mention China

Asked on an analyst call about the link between the China arrests and the VIP gambling downturn, Crown CEO John Alexander said “we don’t intend to make any more comments about China” until the company had finished a review of its business model.

“It’s that VIP turnover. It’s unlikely it’s growing in full year 2018,” said Danial Moradi, market strategist at Lonsec Research.

“The big positive is the balance sheet and the fact that they’re reducing risk by divesting overseas operations ... but it’s a low-growth operation.”

Including one-off items, like the sale of a major stake in a Macau casino joint venture with Melco Resorts & Entertainment Ltd, profit rose 96.7 per cent to A$1.87 billion.

Crown said normalised pre-tax profit at its Australian flagship casino, in Australia’s second-biggest city Melbourne, fell 12.5 per cent due to the slump in VIP turnover.

The company has pinned its growth hopes on a roughly A$2 billion luxury casino on the Sydney waterfront, due to open in 2021. It did not offer any earnings guidance on Friday. Reuters

Litigation

Universal Entertainment Corp loses defamation case Kazuo Okada’s company to pay compensation to former executive employee in a lawsuit case begun in 2012 involving Japan, the Philippines, and the U.S. Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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apan’s Universal Entertainment Corporation has lost a defamation case against a former executive who had sued the company claiming it wrongly blamed him for helping make a US$10 million (MOP80.54 million) money transfer back in 2010, Reuters reported on Friday.

The maker of Japanese-style slot machines had sued Takafumi Nakano and two other former employees in 2012, alleging they had not followed proper company procedures to perform the transfer to the bank account of a Manila consultant.

Universal acknowledged in 2013 that the transfer was improperly sent and routed back to the company to cover a non-performing loan.

It decided to drop the lawsuit against the former employees in 2015.

In the meantime, Kazuo Okada, chairman of Universal, and formerly a director of casino operator Wynn Macau Ltd., denied directing the transfer, according to the news agency.

The ruling that Universal defamed Nakano in a February 2013 news release containing various allegations was issued by the Tokyo District Court last week on Wednesday.

One of the allegations Universal raised against Nakano was that the former employee had changed the auditor of the U.S. subsidiary that was the original source of the money

in order to cover his tracks.

Judge Masayuki Yoshimura said in a written ruling that the various allegations made by Universal in the news release could not be considered accurate. He ordered

Wynn vs. Okada

In 2012, Wynn Resorts decided to buy out Kazuo Okada’s 20 per cent stake in the company, after a year-long internal investigation concluded that

Kazuo Okada

Universal to pay Nakano JPY3 million (US$27,104/MOP218,301) in compensation for mental suffering.

The amount corresponds to onetenth of the total sum Nakano sought in the lawsuit he filed in March 2013.

The judge in the case also excluded Nakano’s claim that the lawsuit filed by Universal was criminal in nature, further rejecting defamation claims against Okada and Universal’s lawyer, Yuki Arai.

The US$10 million transfer was part of a total of US$40 million in payments made by Universal to the Manila consultant in 2010.

According to previous reports, the transfer came under the scrutiny of the Federal Bureau of Investigation (FBI) in 2012, to determine if it was used improperly to advance the company’s casino project in the Philippines, the US$2.4 billion Okada Manila.

the Japanese businessman had allegedly offered cash payments and gifts amounting to some US$110,000 (MOP885,940) to executives at the Philippines casino regulator, the Philippine

Amusement and Gaming Corporation (PAGCOR), breaching U.S. anti-corruption laws.

Okada was Wynn Resorts’ biggest shareholder at the time.

10 Business Daily Monday, August 7 2017

Greater China In Brief eFinance

Central bank to include internet finance in MPA China’s central bank plans to include large systemically important internet finance firms in its Macro Prudential Assessment (MPA), the official Xinhua news agency reported on Saturday. The MPA risk assessment framework already includes checks of loans, bond investments, equity investments and buy-backs of financial assets sold, and deposits at non-financial institutions.

China will explore different methods of covering internet finance firm risk, Xinhua reported the People’s Bank of China (PBOC) as saying in a Friday report. The PBOC will improve its supervision and strengthen regulation over internet firms, allow industry and local associations to play a bigger role and promote new technology, Xinhua said.

Markets

Shanghai exchange to increase scrutiny of M&A risk Shanghai Stock Exchange (SSE) plans to increase its scrutiny of mergers, acquisitions, transfer of control deals and other corporate actions that could lead to financial risk in the market, the official Xinhua news agency reported on Saturday. SSE said in a press briefing on Friday it plans to focus on ensuring a stable market and risk prevention, Xinhua reported.

SSE wants to prevent a small number of companies from becoming a platform for financial chaos, the agency said. The exchange plans to prevent companies from concealing the “true purpose” of deals, Xinhua reported.

Going public

Stocks regulator approves 7 IPOs China’s securities regulator has said it has approved seven initial public offerings (IPOs) that aim to raise a combined total of up to RMB2.8 billion (US$416.22 million). Three of the approved IPOs are on the Shanghai bourse, two are on the Shenzhen small and medium enterprise board, and two are on the start-up ChiNext board, the China Securities Regulatory Commission said in a statement on its official microblog late on Friday.

Telecoms

Beijing to lend Zambia over US$280 million China will lend Zambia US$282 million to improve the nation’s telecommunications infrastructure and increase mobile phone usage over three years, the Chinese ambassador said on Friday.

Zambia, Africa’s No.2 copper producer, has over 12 million mobile phone service subscribers, equivalent to about 70 per cent of the population, according to latest government statistics.

China’s Huawei will erect 808 telecommunication towers and build support infrastructure, Chinese ambassador to Zambia Yang Youming said at a signing ceremony for the project. After completion of the project, Zambia’s voice service penetration will increase to nearly 100 per cent from 70 per cent, Yang said.

Expansion

Regulators plan to crack down further on overseas deals Outbound M&A volumes nearly halved in the first six months of this year Kane Wu and Sumeet Chatterjee

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hina plans to further tighten the screws on overseas acquisitions by Chinese companies and borrowing to fund those transactions, and has started closely scrutinising the commercial aspects of the deals, three people familiar with the move said.

The National Development and Reform Commission (NDRC), and the Ministry of Commerce (MOFCOM) are now reviewing deal agreements in minute detail, said the people, who work with various regulatory bodies and Chinese companies on their acquisition plans.

The two bodies are asking companies looking to buy assets overseas to justify terms, including target valuations, deal premiums and financing arrangements, they said.

This was particularly the case with companies not seen by the Chinese government as “strategic,” they said.

The tightened measures have been issued as informal guidance by Chinese regulators and have not been made official yet, said two of the people.

The tightening of regulatory oversight for outbound purchases comes as Beijing is cracking down on some large domestic conglomerates for their debt-fuelled acquisitions abroad of assets ranging from hotels to movie studios.

The regulatory measures, if in place for an extended period, could deter some companies from making overseas acquisitions, and could also weigh on outbound deal volumes in China.

China’s outbound M&A volumes nearly halved in the first six months of this year to US$64.2 billion following a crackdown on capital outflows, after Chinese companies spent a record US$221 billion on assets overseas in 2016, according to Thomson Reuters data.

On top of tightened scrutiny of deal terms, the country’s foreign exchange and banking regulators are also looking to step up their monitoring of loans made by the overseas branches of Chinese banks, two of the people said.

Those two regulators - the State Administration of Foreign Exchange (SAFE) and the China Banking Regulatory Commission (CBRC) - also plan to make it tougher for companies to borrow overseas by pledging some assets in China, the people said.

Borrowing funds from foreign banks and overseas branches of Chinese banks by pledging real estate and other assets in the mainland with local banks has been a common practice for some companies looking to fund foreign acquisitions.

But some industry officials have questioned the quality of those pledged assets, and whether the lenders would be able to raise money against those in case borrowers defaulted on their repayment obligations.

SAFE said in a written reply to questions from Reuters that it would strengthen China’s financial market regulations along with other financial supervisory authorities to ward off overseas investment risks while promoting trade and investment.

It said it would guide financial institutions to strengthen their compliance and risk management with regards to foreign loans backed

by domestic guarantees. “We will strictly crack down on fake and malicious guarantees, to promote overseas investment in a healthy and orderly way.”

The foreign exchange regulator also said it would encourage domestic companies with the capability of investing overseas to pursue “authentic and legitimate foreign deals, and encourage domestic banks to exercise prudence when offering financing services.”

‘China’s acquisitions in the Belt and Road regions, which span vast regions from China to Europe and Africa, totalled about US$10 billion’ The three people familiar with the decision to scrutinise deals more closely declined to be identified as they were not authorised to discuss regulatory matters in public.

Officials at the banking regulator, the commerce ministry, and the NDRC did not immediately respond to faxed requests for comment.

Important focus

China started tightening capital outflows in the second half of last year. In June this year, the regulators ordered a group of lenders to assess exposure to some of China’s more aggressive dealmakers, including HNA, the property-to-film

conglomerate Dalian Wanda and Anbang Insurance Group.

Beijing’s stepped up deleveraging campaign, as part of efforts to control debt risk to the broader financial system and to maintain economic stability, comes ahead of a key party meeting later this year.

While submitting share purchase agreements for overseas deals with the NDRC is a long established practice for Chinese companies, previously the regulator did not pay close attention to pricing and funding details, two of the people said.

“The level of inquiry has gone a lot deeper than the past - who you are as a buyer and what you are buying are of important focus,” one of them said, referring to the NDRC scrutiny of the deal proposals.

Much of these new regulatory measures, however, would not be applicable for overseas acquisitions related to Chinese President Xi Jinping’s signature foreign policy, the Belt and Road initiative, the people said.

Last year, China’s acquisitions in the Belt and Road regions, which span vast regions from China to Europe and Africa, totalled about US$10 billion, according to a research report

by Thomson Reuters and Chinese institutions published last month.

SAFE also said it would back domestic companies participation in the initiative.

“The regulators want to ensure that capital now would not be that easily available to those deals that are neither strategic for the country nor for the company,” said one of the people in Beijing who advises Chinese companies on M&A transactions.

“The are looking to plug the regulatory arbitrage that some companies took advantage of.” Reuters advertisement

Business Daily Monday, August 7 2017 11

Greater China Oil market

Global refiners brace themselves as mainland cements its dominance Import surge is being driven by the expansion of its refinery capacity Jessica Jaganathan and Tom Daly

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hina is on pace to overtake the United States as the world’s biggest oil importer this year, cementing its status as Asia’s most pivotal oil market actor that will increasingly dominate the region’s fuel trade.

For the first time, China imported more crude oil in the first half of the year than the U.S., government statistics showed. China averaged 8.55 million barrels per day (bpd) versus 8.12 million bpd in the U.S., a trend that is expected to last.

The shift highlights the change in the centre of gravity in global oil markets from West to East. Chinese state-run oil trader Unipec is now the world’s biggest physical oil trader. By drawing more of the world’s oil to its shores, China, the second-biggest oil consumer after the U.S., will play a crucial role in setting the global price of the commodity, especially as the crude futures market in Shanghai develops.

China’s import surge is being driven by the expansion of its refinery capacity. But, as the domestic demand has not materialized to soak up the fuel supply, China’s exports of gasoline and diesel have climbed to record highs. This flood of products has caused headaches for competitors across Asia and depressed diesel profit margins to multi-year lows in 2016.

“China is putting a lot of pressure on

the traditional export hubs of Taiwan, Korea and Singapore to capture the market share within Southeast Asia and Australia,” said Joe Willis, senior research analyst, Asia refining, at energy consultancy Wood Mackenzie.

The trend of more refining capacity and higher exports is set to continue.

China plans to add at least 2.5 million bpd of refining capacity by 2020, according to a recent presentation from China Petroleum & Chemical Corp, or Sinopec. Sinopec is Asia’s biggest oil refiner and the parent of Unipec.

This year, PetroChina Ltd will start a 260,000 bpd refinery in Yunnan in southern China while China National Offshore Oil Corp will start up a 200,000 bpd expansion at its existing Huizhou plant in Guangdong province. The start ups will add 350,000 bpd of new Chinese capacity in 2017 though both plants will not reach full capacity until 2018.

Exports of gasoline from China are expected to increase by at least 10,000 barrels per day this year from 2016, driving overseas gasoline sales to between 235,000 bpd and 240,000 bpd this year and about 330,000 bpd in 2018, estimates from consultants FGE and Wood Mackenzie showed.

Unipec is leading the way in targeting new overseas markets, moving jet fuel from Singapore to northwest Europe in June for the first time in several years. Meanwhile, Chinese diesel shipments in 2017 have more than doubled to France, more than

quadrupled to Italy and the country shipped diesel to Kenya for the first time this year.

High quality fuel

Export-oriented refiners in Singapore, South Korea and Taiwan will be most affected by the Chinese competition.

“We’re trying to diversify and find new markets by increasing the number of our customers in existing countries,” a South Korean refining source said, declining to be named as he was not authorised to speak with the media.

“It’s affecting Korean refiners as we are having one more player in the market.”

Japanese and Indian refiners will be less affected.

China and India have eclipsed Japan as Asia’s biggest oil consumer. Japanese refiners are consolidating capacity because of a falling population and the increasing use of alternative fuels in the power and transportation sector has cut oil consumption.

Meanwhile, Indian refiners are focusing on meeting soaring domestic demand.

China’s new modern refineries are competing with the region’s exporters in producing fuels for countries with stringent fuel standards such as Australia. Diesel exports to Australia climbed seven-fold to 850,000 tonnes in 2016 and are on pace to nearly match that level this year.

A slowdown in Chinese domestic fuel demand as people use more electric vehicles or co-share bicycles and scooters has pushed refiners to export more gasoline.

China’s gasoline demand is expected to slow to 3.5 to 4 per cent in 2017 compared with last year’s 6.5 per cent growth, said Sri Paravaikkarasu, head of East of Suez oil at FGE. Sales growth for automobiles, mainly powered by gasoline, has slowed to 0.7 per cent in the first half of 2017, compared with 8.7 per cent a year ago, while those powered by alternative fuels grew 52.9 per cent, BMI Research said. Reuters

Environment

Coal-fired power plant issues green bonds China aims to reduce the share of coal in its total energy mix from 64 per cent in 2015 to 58 per cent by 2020 A power producer in the city of Tianjin has issued “green bonds” worth RMB1 billion (US$150 million) to finance a 2,000-megawatt (MW) coalfired power plant, a move slammed by an environmental group for diverting funds from cleaner projects.

Tianjin SDIC Jinneng Electric Power Co Ltd announced last week that it had registered the short-term “green bonds” on the interbank market and would complete the sale in the third quarter of this year. It said it was the first “green bond” of its kind to be launched by China’s thermal power sector.

The bond sale will be used to pay back loans used to build two 1,000-MW ultra-supercritical coal-fired generation plants, the company said in a statement.

China has been promoting new financing methods to help pay for the country’s transition to cleaner modes of growth. In June, it launched five “green finance” pilot zones, where at least RMB3 trillion a year will be spent over 2016-2020 to cut pollution and greenhouse gas emissions.

“The company’s registration and issuance of the green bonds has driven forward the green, circular and low-carbon development of the Beijing-Tianjin-Hebei region,” Tianjin SDIC said in its statement.

Supercritical technologies use high temperatures and pressure levels to improve power generation efficiency, cutting fuel consumption and reducing emissions.

Many such plants have been

financed using the United Nations’ “Clean Development Mechanism” aimed at funding carbon-cutting projects.

China aims to reduce the share of coal in its total energy mix from 64 per cent in 2015 to 58 per cent by 2020, but absolute consumption is still expected to rise over the period. To compensate, regulators have been trying to

encourage lower-emission coal-fired power generation technologies through subsidies and preferential financing policies.

Clean coal was listed in the catalogue of sectors eligible for green financing published in late 2015. The list included ultra-supercritical co-generation power plants with capacity of 300 MW or more.

But the inclusion of coal has been criticised by environmental groups, who say it diverts investment from

renewables.

“The ‘clean’ in clean coal is a relative term. Technology such as ultra-low emissions, albeit producing less air pollutants, is not a solution to lowering the carbon emissions that endanger our climate,” said Huang Wei, a climate and energy campaigner with Greenpeace East Asia in Beijing.

“It is unwise to use green bonds to support any coal projects, especially coal power and coal chemical projects,” she said. Reuters

12 Business Daily Monday, August 7 2017

Asia Monetary statement

Australia’s central bank upbeat on economy as consumers splurge Corporate profits are surging while measures of business confidence and conditions are the strongest since 2008 Swati Pandey and Wayne Cole

A

ustralia’s central bank is more confident that economic growth will accelerate over the next two years but expects little improvement in unemployment or wage growth, suggesting official interest rates are on hold for some time.

In its 66-page statement on monetary policy on Friday, the Reserve Bank of Australia (RBA) forecast the A$1.7 trillion (US$1.4 trillion) economy will grow “above potential” at around 3 per cent over the next couple of years.

Supporting the RBA’s upbeat view, data from the Australian Bureau of Statistics showed retailers enjoyed sales growth of 1.5 per cent in April to June, their best quarter in four years.

That means growth in broader consumer spending almost certainly rebounded from the first quarter’s tepid 0.5 per cent.

“Overall this is a significant upside surprise,” said Westpac economist Matthew Hassan.

“Although the retail survey is a partial measure that does not always map to the quarterly consumption figures in the national accounts, the jump from a flat first quarter to strong second quarter is a clear positive signal.”

Adding to evidence domestic consumption picked up, new vehicle sales rose to a record in July for a

third straight month.

There are some signs of life in the labour market too.

Since the start of the year, around 165,000 full-time jobs were created while average hours worked and labour force participation have both risen.

Corporate profits are surging while measures of business confidence and conditions are the strongest since 2008.

Encouraging the RBA is a broadbased pick up in global growth since the start of this year, while the price of Australia’s single biggest export earner - iron ore - has been climbing, boosting the country’s terms of trade.

Indeed, the country has run trade surpluses in seven of the last eight months.

“GDP growth looks to have recovered in the June quarter,” the

RBA said. “Further out, GDP growth should continue to recover as the drag from falling mining investment comes to an end and the ramp-up in resource exports continues.”

All work, no pay

Still, the RBA forecast little improvement in unemployment, with the jobless rate seen at just under 5.5 per cent out to the end of 2019 from 5.6 per cent now.

Underemployment - which measures people wanting to work more hours - is already near record highs.

That spare capacity will likely keep wages growth and inflation subdued, especially when households are saddled with a mountain of debt. The household debt-to-income ratio is at a record high 190 per cent and rising faster than incomes.

Core inflation - the main focus for

policymakers - is only expected to reach the bottom end of the RBA’s long-term target band of 2-3 per cent later this year.

Inflation has remained below target since the start of 2016 and was the single biggest reason for the central bank to cut interest rates to an alltime low of 1.50 per cent last year.

The bank noted utility prices were now set to rise more than first expected over the next few years, adding significantly to headline consumer prices.

The bank also cautioned against further gains in the Australian dollar, which has soared nearly 7 per cent since June to close to 80 U.S. cents.

“Further exchange rate appreciation would tend to generate a slower pick-up in economic activity and inflation than currently forecast,” said Lowe. Reuters

Environment

Indonesian military officer orders that forest burners be shot Indonesia is regularly hit by forest fires, which can result in choking smoke blowing across to neighbouring countries like Singapore and Malaysia A military official in the Indonesian province of Jambi said on Saturday he has ordered that anyone who deliberately sets fire to forest areas be shot, as authorities struggle to contain fires that cause choking smoke in the region.

Five Indonesian provinces have declared emergencies because of forest fires, according to Indonesia’s disaster mitigation agency (BNPB), with the number of hotspots steadily increasing in many areas over the past week.

The BNPB is working with many government branches, including the military, to contain the fires. Indonesian media have reported that authorities in the neighbouring province of South Sumatra, also on the island of Sumatra, had issued the same order.

“This is to stress a point to the people, who have been warned many, many times,” said Colonel Refrizal, commander of the forest fire task force in Jambi. “(This is) to show our firmness and seriousness.”

The order would be carried out

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“responsibly”, said Refrizal, who goes by one name.

BNPB spokesman Sutopo Purwo Nugroho said on Twitter the Jambi task force was working to extinguish a fire covering an area of 10 hectares.

Nugroho also said authorities had found one area in Jambi that had been “intentionally” burned by its owner.

The number of hotspots had increased to 239 by July 30, from 173 hotspots three days earlier, according to the BNPB. The hotspots were seen mostly on Kalimantan, the Indonesian portion of Borneo island, with some also on Sumatra and Java island.

The agency had previously warned that the threat of forest fires would escalate, with the dry season expected

to peak in September.

Indonesia is regularly hit by forest fires, which can result in choking smoke blowing across to neighbouring countries like Singapore and Malaysia.

The sprawling Southeast Asian archipelago suffered some of its worst forest fires in 2015, hitting Sumatra and Kalimantan.

“This is to stress a point to the people, who have been warned many, many times” Colonel Refrizal, commander of the forest fire task force in Jambi The World Bank, citing government data, said 2.6 million hectares of land in Indonesia burned between June and October 2015, causing US$16 billion of estimated economic damage.

Draining and conversion of peatland, often driven by palm oil plantations, contributed to the intensity of haze from the fires, the World Bank said. Reuters

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Business Daily Monday, August 7 2017 13

Asia Trade

Malaysia’s June export growth slows Import growth fell sharply to 3.7 per cent from a year earlier Malaysia’s exports in June grew 10 per cent from a year earlier, government data showed on Friday, well below expectations, as shipments of manufactured goods fell.

Export growth missed the 15.8 per cent forecast by a Reuters poll and was sharply down from May’s 32.5 per cent growth.

Exports of metal products and tech equipment fell 13.3 per cent and 7.0 per cent respectively in June, data from the International Trade and Industry Ministry showed, despite a rise in shipments of electrical and electronic products.

Exports of mining goods grew 40.3

per cent, driven by rising prices and shipment volumes of liquefied natural gas, the data showed.

June’s import growth fell sharply to 3.7 per cent from a year earlier, down from the 30.4 per cent growth in May and the 19 per cent growth projected in the poll.

Imports of intermediate and capital goods rose but consumption goods, which totalled 5.62 billion ringgit or 8.9 per cent of total imports, declined by 5.2 per cent. This was due to lower imports of semi-durables, particularly woven apparel.

The trade surplus in June widened to 9.9 billion ringgit (US$2.32 billion) from May’s 5.5 billion ringgit.

Malaysia reports trade data in ringgit. The currency has been one of Asia’s best-performing ones this year, strengthening about 3 per cent in the second quarter.

Exports to China remained robust, rising 27.3 per cent from a year earlier, while those to the European Union grew 10 per cent.

Key Points June exports +10.0 pct y/y vs Reuters poll +15.8 pct June imports +3.7 pct y/y vs poll forecast +19.0 pct Trade surplus 9.9 bln rgt vs poll forecast of 5.5 bln rgt Exports to China +27.3 pct y/y, U.S. +1.8 pct, EU +10 pct Shipments to the United States rose 1.8 per cent, slowing from the previous month on lower exports of manufactured goods. Reuters

Construction

Duterte’s “Build, Build, Build” plans hit Philippine peso The controversial leader says he plans a US$180 billion infrastructure campaign in his six-year term Karen Lema

Philippine construction firm Teravera Corp is planning to raise a fourth dollar loan in a year, after borrowing around US$2.5 million to buy dozens of excavators, road rollers and dump trucks from China, South Korea and Japan.

Teravera is one of hundreds of local builders contributing to a surge in capital goods imports that has turned the country’s current account surplus into a deficit and knocked the peso down to 11-year lows against the dollar last month.

While the peso’s dip is raising eyebrows in a region where the Thai baht and the Malaysian ringgit are flirting with multi-year highs, it’s come mainly because the Philippines, one of the world’s fastest growing economies, has been enjoying a construction boom.

Besides private construction, companies like Teravera are confident of more contracts coming from the government’s drive to upgrade its dilapidated roads, railways, ports and airports, which have been a drag on the economy.

“We have seen the government’s list of projects and they are bidding them out early, that is why we have been procuring equipment,” said Teravera vice-president Aldrin Cabrera.

He said the company is confident of getting subcontracted to build a long-delayed four-lane toll road project on the southern part of Luzon island later this year, as it is one of bigger players in the area.

Foreign and local businesses have been frustrated with former President Benigno Aquino’s Public Private Partnership (PPP) projects, which often took a long time to kick off because of red tape.

The game changer is that President Rodrigo Duterte, who took office just over a year ago, has decided that all projects will be entirely funded by the government, which his economic managers say should simplify the process. The controversial leader says he plans a US$180 billion “Build, Build, Build” infrastructure campaign in his six-year term.

Duterte has already approved the auction of 21 projects worth US$16 billion, including the overhaul of Manila’s shabby airport and a railway line on Mindanao island in the south.

Other projects include upgrading ports, roads, rail links and irrigation.

Despite security problems linked

to the spread of Islamic State militancy on Mindanao and Duterte’s bloody war on drugs, investors have welcomed the commitments, but say they need to see progress on the ground.

“We see a high degree of commitment and seriousness in the executive branch and probability of sufficient financing...not for every project to be completed on schedule but for very substantial and significant progress,” said John Forbes, senior adviser at the American Chamber of Commerce in the Philippines.

“However, the capacity of the bureaucracy to process a huge volume of projects ...(is) untested,” he added. “The Philippines is not China, where bulldozers rumble through neighbourhoods at the government’s command.”

Worst-performing currency

To meet existing and anticipated pick-up in demand, imports of capital goods, mainly infrastructure-related, have risen more than 7 per cent in the first five months of the year from the same period of 2016 to US$12.1 billion. For the first time in 15 years, the Philippines is expecting its 2017 current account balance to be in a deficit of US$600 million.

The peso is Asia’s worst performing currency this year, hitting lows close to 51 per dollar last month. At the market close in Manila on Friday, the peso traded 50.16 to the dollar, down 0.9 per cent in 2017.

Policymakers are often reminded of the Asian financial crisis 20 years ago whenever external balances weaken, and most economies in the region have built solid surpluses to avoid a

Philippine President Rodrigo Duterte

similar episode.

In the Philippines, Duterte’s administration dismisses such warnings.

“We are importing equipment because we are a developing country trying to make up for past neglect on infrastructure,” Budget Secretary Benjamin Diokno said last month.

Central bank deputy governor Diwa Guinigundo says the weak peso boosts the purchasing power of Filipinos receiving US$2 billion a month in remittances and, longer-term, will improve export demand.

But foreign investors are more cautious.

“Until investors feel the imports work through the economy and push it to a higher growth path, the market’s focus would be on a deterioration in the balance of trade,” said Joey Cuyegkeng, senior economist at ING. “ W e ex p ect g ra d u a l ( p es o ) weakening.”

Near term, around US$40 billion in yearly inflows from outsourcing contracts and from millions of citizens working overseas mean the trade gap is covered. But Cuyegkeng says in two years time those inflows would barely cover the gap.

Duterte has promised to usher in a “golden age of infrastructure” by raising annual spending to 7 per cent of GDP from less than 3 per cent previously and above the 5 per cent average of neighbouring countries.

Encouraged by better budget planning and a crackdown on red tape, Nomura’s economists estimate 90 per cent of the money lined up for infrastructure would be spent.

On the ground, builders share the view.

“Some of the projects may sound ambitious, but they are needed. They will happen and it is just a question of time,” said Edgar Saavedra, president and chief operating officer of building company Megawide Construction Corp. Reuters

In Brief Results

DBS Q2 profit up 8.5 pct on loan growth Singapore’s biggest lender, DBS Group Holdings, reported an 8.5 per cent increase in quarterly profit that came in line with market expectations, boosted by strong loan growth, but the bank flagged pressures on asset quality.

DBS, the last of Singapore’s big banks to post results, cited risks from the struggling offshore support services sector, which has been showing some signs of stability after a severe downturn in the past few years.

DBS reported net profit of S$1.14 billion (US$840 million) in the three months ended June.

MoU

Indonesia, Russia to trade palm, coffee for Sukhoi jets Indonesian state trading company PT Perusahaan Perdagangan Indonesia and Russian state conglomerate Rostec have signed a preliminary deal to trade Sukhoi SU-35 jets for commodities like palm oil and coffee, the Indonesian trade ministry said. A memorandum of understanding (MoU) was signed in Moscow and further details about the expected deal will be announced in the coming days by the Indonesian trade and defence ministers, Indonesian trade ministry official Imam Pambagyo said yesterday. There were no details on the value of the deal or the quantity of commodities Indonesia would potentially ship to Russia.

Auto industry

Toyota, Mazda invite U.S. states to compete Toyota Motor Corp opened the door to a bidding war among Midwestern and southern states seeking to land jobs and investment when it announced on Friday it would build a US$1.6 billion U.S. assembly plant with Mazda Motor Corp. Toyota North America chief Jim Lentz told Reuters in an interview the automaker has not started searching for sites for the plant, expected to employ 4,000 workers, but would locate the factory near Toyota’s existing supply chain. Toyota has 10 U.S. plants in eight states in an arc that runs from West Virginia through Kentucky, Indiana, Alabama, Mississippi and Texas.

Oil industry

Indian Oil plans expansion of refinery India’s top refiner Indian Oil Corp will spend US$2.4 billion to increase capacity at its refinery in western India by about a third over the next few years to meet rising local demand for fuel.

The plan, announced on Friday, will enable the plant in Gujarat state to process 360,000 barrels per day (bdp) of oil by the end of 2021. It is part of IOC’s vision to increase its refining capacity by about 89 per cent to 3 million barrels per day (bpd) by 2030 by building new plants and expanding some existing ones.

14 Business Daily Monday, August 7 2017

International In Brief Commerce

Canada trade deficit widens in June Canada’s trade deficit widened far more than expected in June as a drop in shipments of metal and energy products pulled exports back from the previous month’s record high, data from Statistics Canada showed on Friday. Canada’s trade gap with the world was C$3.60 billion (US$2.86 billion), exceeding economists’ forecasts of a C$1.35 billion deficit.

The national statistics agency revised May figures to show a wider shortfall of C$1.36 billion than the initially reported gap of C$1.09 billion. Exports tumbled 4.3 per cent to C$46.51 billion, the largest decrease since February 2016 as both prices and volumes declined.

Imports edged up 0.3 per cent to C$50.12 billion, setting a record high.

France

Lottery, Paris airport could kick off privatisations The national lottery, Paris’s main airport operator and several other firms deemed not strategic could kick off a wave of French privatisations this autumn, banking sources with knowledge of the plans said.

The French finance ministry last month announced plans to sell 10 billion euros (US$11.8 billion) worth of stakes in state-owned companies in order to raise money for a new fund to finance innovation, an election pledge of President Emmanuel Macron. Banking sources told Reuters the first privatisations are likely to be launched between the end of this month and early October but will not include the defence, aerospace and nuclear industries.

Report

UK prepared to pay 40bn-euro Brexit bill Formal negotiations with the EU began in June, with the next round of talks to resume in Brussels on August 28

B

ritain is prepared to pay up to 40 billion euros to the European Union to settle its accounts when it leaves the bloc, the Sunday Telegraph newspaper reported.

It is the first time the British side has put a figure even unofficially on the so-called divorce bill, one of the biggest sticking points in the Brexit negotiations.

However, it falls well short of the 100-billion-euro (US$118 billion) sum discussed in Brussels.

The newspaper report, based on unnamed government sources, said Britain would pay this only if the EU agrees to negotiate the financial settlement as part of a future trade deal.

Brussels has said progress must be made on the divorce bill, as well as the rights of European citizens living in Britain and the Irish border issue, before any talks can start on a free trade agreement.

EU Brexit negotiator Michel Barnier has warned that the trade negotiations, which Britain hopes will start in October, may be pushed back to December because Britain is stalling on the bill, diplomats said last month.

British officials are looking at proposing a transition deal where Britain would continue to make net payments to the EU of 10 billion euros

a year for up to three years after it leaves in March 2019, the Telegraph said.

‘International obligations’

This money, paid in return for continued access to Europe’s single market, would be a “partial down-payment” on the final bill.

Prime Minister Theresa May’s government refused to comment Sunday on “speculation”, although a source told AFP that Britain “will meet our

‘The figure falls well short of the 100-billion-euro sum discussed in Brussels’ international obligations, but not pay more than we need to”.

Barnier has declined to publicly name a figure for Britain’s divorce bill, which includes its share of EU spending projects already agreed, as well as pension contributions of staff, among other expenses.

But he said the “methodology” for determining how much Britain must

pay should be worked out during the first phase of the Brexit negotiations -- which is due to end in October, before trade talks begin.

A number of senior EU officials have previously confirmed to AFP the estimate of 100 billion euros -- a figure British ministers have rejected as “ridiculous”.

EU officials have also said the total figure may eventually come down because of jointly-held assets that the EU must reimburse Britain for.

One earlier estimate put the figure at 60 billion euros.

After the referendum vote for Brexit last year, London began the two-year process of ending its membership of the EU in March.

Formal negotiations with the EU began in June, with the next round of talks between Barnier and British Brexit Secretary David Davis due to resume in Brussels on August 28.

EU leaders meeting at a summit in October must agree there has been “sufficient progress” in the early talks before agreeing to move onto trade negotiations.

Britain is keen to agree a new free trade agreement to replace its membership of Europe’s single market, which May wants to leave in order to end free movement of workers into Britain from the rest of the EU. AFP

Employment

Strong U.S. jobs report bolsters case for further Fed tightening Manufacturing payrolls advanced by 16,000 jobs in July, the largest gain since February

Cyber concerns

U.S. Army halts use of Chinese-made drones The U.S. Army has ordered its members to stop using drones made by Chinese manufacturer SZ DJI Technology Co Ltd because of “cyber vulnerabilities” in the products. An Aug. 2 Army memo posted online and verified by Reuters applies to all DJI drones and systems that use DJI components or software. It requires service members to “cease all use, uninstall all DJI applications, remove all batteries/storage media and secure equipment for follow-on direction.” The memo says DJI drones are the most widely used by the Army among off-the-shelf equipment of that type.

Diesel compensation

Swiss demand same treatment as Germans Switzerland will demand that German automakers treat Swiss customers the same as German buyers of diesel cars being fixed to cut pollution, the head of the Swiss road transport agency said. The comments by Juerg Roethlisberger add pressure on carmakers like Volkswagen, BMW, Daimler, Audi and Porsche, which last week agreed to overhaul engine software on 5.3 million diesel cars and try to repair the sector’s battered reputation.

Politicians in Germany stopped short of demanding costly mechanical modifications to engine and exhaust systems.

U.S. employers hired more workers than expected in July and raised their wages, signs of labour market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.

The Labor Department said on Friday that nonfarm payrolls increased by 209,000 jobs last month amid broad-based gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000.

Average hourly earnings increased nine cents, or 0.3 per cent, in July after rising 0.2 per cent in June. That was the biggest rise in five months.

On a year-on-year basis, wages increased 2.5 per cent for the fourth straight month.

Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in lowwage industries. Last month, restaurants and bars added 53,100 jobs.

Key Points Nonfarm payrolls increase by 209,000 in July Unemployment rate falls to 4.3 per cent Average hourly earnings increase 0.3 per cent

July’s monthly increase in earnings could, however, offer Fed policymakers some assurance that inflation will gradually rise to the U.S. central bank’s 2 per cent target.

Wage growth is crucial to sustaining the U.S. economic expansion after output increased at a 2.6 per cent annual rate in the second quarter, an

acceleration from the January-March period’s pedestrian 1.2 per cent pace.

The economy also got a boost from another report on Friday showing a sharp drop in the trade deficit in June.

The unemployment rate dropped one-tenth of a percentage point to 4.3 per cent in July, matching a 16-year low touched in May. It has declined five-tenths of a percentage point this year and is now at the most recent Fed median forecast for 2017.

July’s decline in the jobless rate came even as more people entered the labour force, underscoring job market strength.

The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.9 per cent.

The share of the population that is employed climbed to 60.2 per cent, matching an eight-year high touched

in April.

A broad measure of unemployment, which includes people who want to work but have given up searching and those working part time because they cannot find fulltime employment, was unchanged at 8.6 per cent last month. This alternative gauge of unemployment hit a 9-1/2-year low in May. Monthly job growth this year has averaged 184,000, close to the 2016 average of 186,000. The economy needs to create 75,000 to 100,000 jobs per month just to keep up with growth in the working-age population.

Manufacturing payrolls advanced by 16,000 jobs in July, the largest gain since February. Employment in the automobile sector rose by 1,600 despite slowing sales and bloated inventories that have forced manufacturers to cut back on production.

Reuters

Business Daily Monday, August 7 2017 15

Opinion Business Wires

The Times of India The GST Council revised rates on 19 services on Saturday, including reducing the job work rate in the textiles sector to 5 per cent from 18 per cent, as finance minister Arun Jaitley appealed to businesses to pass on the benefits of the tax reform measure. The reduction in the rate of job work will be applicable across the entire textile chain and takes care of the concerns of the industry which has been pushing for reducing the rate for any job work linked to knitting, dyeing, embroidery, printing, washing, stitching, ironing and others.

Viet Nam News Domestic firms in the leather and footwear industry lag far behind their foreign directed investment (FDI) peers as Việt Nam cements its position as a leading world exporter in the sector, experts say. Việt Nam’s leather and footwear industry posted exports of US$8.5 billion by July 15, a year-onyear increase of 10 per cent, the General Department of Việt Nam Customs has reported. This figure makes Việt Nam fourth largest footwear producer in the world in terms of volume, after China, India and Brazil, and the third largest exporter in terms of value after China and Italy.

Looser bank regulation will do shareholders no favours

T The Korea Herald South Korea’s tech giant Samsung Electronics Co. registered an average of 19 patents per day in the United States in the first seven months of the year, industry data showed yesterday. According to the data by U.S. online journal Quartz, a total of 4,143 patents were registered by Samsung Electronics through Aug. 1, with a daily 19.5 patents on average. It ranked second among technology firms in terms of patent registers in the world’s largest economy, after IBM Corp., which posted 5,797 patents in total over the same period. Intel Corp. came third with 2,064 registers, followed by Google Inc. with 1,775 and Microsoft Corp. with 1,673.

Philstar The (Phillipine) Department of Environment and Natural Resources (DENR) targets to hire more legal experts to strengthen and speed up the resolution of lower level cases, including land claims and disputes. Environment Secretary Roy Cimatu wanted each of the 140 Community Environment and Natural Resources Offices (CENROs) nationwide to have at least one lawyer, who will attend to cases that can be readily resolved at the community level and need not have to be brought to the regional or national levels for resolution.

Cimatu said assigning a full-time lawyer in every CENRO is crucial to improving the DENR’s capability to deliver “immediate and meaningful services at the community level.”

he Trump administration’s vision of a rollback in banking regulation isn’t just dubious medicine for the economy, it will do shareholders no favours.

That’s because unleashing banks will likely bring on future rounds of boom and bust on Wall Street, creating the kind of volatile, low-quality earnings shareholders dislike and punish with lower valuations.

Treasury Secretary Steven Mnuchin in June released a regulatory reform blueprint which would exempt many banks from some stress tests of their ability to withstand economic and market foul weather. He also called for further exemptions giving most banks a free pass on the “Volcker Rule” prohibiting some kinds of speculative trades and holdings, as well as steps towards “transparency” which would likely make Federal Reserve stress tests less rigorous.

Randal Quarles, President Donald Trump’s nominee for Federal Reserve Vice Chair of Regulation, is thought to be sympathetic to the view that regulation is holding back economic growth.

Quarles, echoing Mnuchin, told his Senate confirmation hearing transparency should be a “theme of the Federal Reserve’s regulatory activities”.

What the administration can accomplish is unclear, but history shows investors neither like nor highly value free-wheeling big banks. Our largest banks and investments banks have generally traded at multiples of earnings far below that of the stock market, and hugely below more highly regulated sectors like utilities.

The root issue here is the preference of investors for a stable stream of earnings from a growing company, as opposed to the preference of bank insiders for speculation and volatility.

Insiders do well when banks are unleashed. Risk-taking drives up revenues, boosts annual bonus payments, and also creates the earnings and stock market volatility which makes the share options many traders and executives are paid in more valuable.

Investors, in stark contrast, want a quiet life and a steady return. Not generally fools, investors have noticed that our largest banks and investment banks have a long-standing habit, most vividly illustrated

by Citigroup’s performance in recent decades, of almost blowing themselves up every few years by taking on too much risk. In consequence, with the S&P 500 trading at a trailing price/equity ratio of just under 25, Goldman Sachs is at 12 while JP Morgan Chase, Citigroup and Morgan Stanley are all around 14. And those are multiples which have expanded more quickly than the broad market in the past year.

“

James Saft a Reuters columnist

More earnings but worse quality

To be sure, the general expectation is that banks, unchained from burdensome regulation, will, as they do, earn more revenues. Analysts at KBW earlier this year estimated that the largest banks could get a cumulative earnings uplift of an average of 30 per cent from what it termed “regulatory relief,” such as a dulling of the Volcker Rule and a fall in the extra capital U.S. banks must hold compared to global rivals.

Yet a return to pre-crisis risk-taking would bring with it two things in addition to higher revenues.

More of banks’ earnings would walk out the door, as a bidding war for talent ensued, taking the share that banks pay of revenues in compensation back towards pre-crisis levels.

Roll back regulation and you might get a short boom in bank shares, if investors are willing to take those higher revenues at face value. But then again, they might not. Certainly if banks had another volatile cycle, longterm returns to the sector would be poor, and multiples of bank earnings the stock market will pay would shrink.

And don’t believe that the whole economic pie will grow if banks are freed up to make more loans.

There is little evidence for that, as economists Stephen Cechetti and Kim Schoenholtz argue. They also say Mnuchin’s plan would make the financial system less safe. Investors hoping the whole stock market will make them rich if banks lend more should look at how that worked out in 2005-2007.

If you really want to understand the interaction between regulation and investors’ appetite for banking stocks, look at the highly regulated utilities sector, which is as boring and staid as banking is volatile.

The Dow Jones Utilities index has almost tripled on a total return basis since 2004, since when the KBW Nasdaq Bank index is up only about 40 per cent. Looking back a bit further the KBW index is up 300 per cent since January of 1995, not including dividends, compared to a 400 per cent return for the Dow Jones utilities. And those lower returns in banks have come along with more volatility and steeper falls, or drawdowns.

Which is exactly the point: investors know how banks are run when left to themselves and hate it. Reuters

The root issue here is the preference of investors for a stable stream of earnings from a growing company, as opposed to the preference of bank insiders for speculation and volatility

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16 Business Daily Monday, August 7 2017

Closing Diplomacy

China urges North Korea dialogue, says sanctions not sole solution The North Korea standoff is expected to dominate today’s ASEAN Regional Forum Christian Shepherd and Karen Lema

C

hina’s foreign minister said yesterday new U.N. Security Council sanctions on North Korea were the right response to a series of missile tests, but dialogue was vital to resolve a complex and sensitive issue now at a “critical juncture”.

Wang Yi said the U.N. resolution’s call for a return to talks emphasised that diplomatic and peaceful means were necessary to avoid tensions and it was necessary to prevent the crisis from escalating.

The U.N. Security Council unanimously imposed new sanctions on North Korea on Saturday that could slash by a third the Asian state’s US$3 billion annual export revenue over Pyongyang’s two July intercontinental ballistic missile tests.

“After the implementation of the resolutions, the Korean peninsula issue enters into a critical juncture,” Wang told reporters on the side-lines of a regional foreign ministers’ meeting in Manila.

“We call on all sides to take a responsible attitude when making judgements and taking actions.... We cannot do one and neglect the other.

Sanctions are needed but sanctions are not the final goal,” Wang said.

North Korea has been under U.N. sanctions since 2006 over its ballistic missile and nuclear programs. The new measures were a response to five nuclear tests and four long-range missile launches.

The latest, U.S.-drafted resolution bans North Korean exports of coal, iron, iron ore, lead, lead ore and seafood and prohibits countries from hiring additional North Korean labourers. It also bans new joint ventures with North Korea.

The North Korea standoff is expected to dominate today’s ASEAN Regional Forum (ARF), which gathers 27 foreign ministers - including those of Russia, Japan, the United States, China and North and South Korea to discuss security issues.

the two shook hands. Wang placed his hand on Ri’s shoulder as the two entered a meeting room.

“We actually had very thorough talks,” Wang said afterwards. “The Chinese side urged the North Korean side to calmly handle the resolutions the U.N. Security Council just made towards North Korea and to not do anything unbeneficial towards the international community such as a nuclear test.”

He declined to say what Ri had told him.

Wang earlier said it was important that Ri is attending the Manila meetings “so he can listen to suggestions from various parties and has the right to present his views.”

But it was not immediately clear if Ri planned to meet ministers of other countries in Manila. South Korean Foreign Minister Kang Kyung Wha expressed hope the two could talk.

Kang met with U.S. Secretary of State Rex Tillerson on Sunday and both expressed satisfaction with the passing of the tougher U.N sanctions.

Tillerson described it as a “a good outcome” and Kang weighed in,

adding it was “it was a very, very good outcome.”

The United States, which has long maintained that China has not done enough to rein in North Korea, negotiated with China for a month on the new resolution.

Susan Thornton, acting Assistant Secretary of State East Asian and Pacific Affairs, said in Manila that China’s support showed it recognised the gravity of the situation, but it was incumbent upon Beijing to ensure the sanctions were implemented.

Complex and sensitive

Wang said there was now a “high level of sensitivity and complexity” that had hurt China’s relations with North Korea.

He said he hoped all parties involved could seriously consider China’s dual suspension proposal, whereby North Korea halts its nuclear and missile tests and for South Korea and the United States to stop joint military drills.

“This is currently the most realistic and plausible initiative and it is the most reasonable and friendly solution,” he said.

U.S. Ambassador to the United Nations Nikki Haley ruled that out on Saturday, saying Washington would continue to take “prudent defensive measures”, including joint military drills with South Korea.

Separately, Southeast Asian officials were still trying to reach consensus on a customary communiqué that was supposed to have been released on Saturday, reflecting differences about how to address disputes involving Beijing in the South China Sea. According to several diplomats from the Association of South East Asian Nations (ASEAN), Vietnam wanted the text to explicitly oppose the building and militarisation of artificial islands in disputed waters.

China is sensitive about ASEAN including even veiled references to the expansion of its military capabilities on the islands.

ASEAN’s problem in agreeing the wording highlight China’s growing influence at a time of uncertainty over the new U.S. administration’s policy on the South China Sea and to what extent it will contest China’s assertiveness. Reuters

Cordial talks

Wang met his North Korean counterpart Ri Yong Ho yesterday for bilateral talks that started off in a cordial way, with Ri smiling continuously as

China’s Foreign Minister Wang Yi (R) shakes hands with North Korea’s Foreign Minister Ri Yong Ho (L) during their bilateral meeting on the side-lines of the Association of South East Asian Nations (ASEAN) Foreign Ministers’ Meeting (AMM) and Related Meetings in Manila, yesterday. Source: Lusa

Terrorism

Tourists

Politics

Fourth man detained over Australian plot is released

Chinese arrested in Berlin for Hitler salute

Mercosur suspends Venezuela, urges immediate transition

A fourth man detained last week over a plot to bomb a plane bound from Australia to the Middle East has been released on bail after being charged with a non-terror related offence, Australia Federal Police said in an email.

The man, 39, was charged with one count of possession of a prohibited weapon. Two of the four men arrested last week have been charged with terrorism related offences. A third was released earlier with no charge.

Australian police said during last week they thwarted one of the most sophisticated terrorism plots the nation has ever faced after two men allegedly attempted to smuggle a homemade bomb onto a Etihad Airways PJSC flight and then tried to turn it into a device to disperse chemicals.

The two, aged 49 and 32, face life in prison if found guilty of terrorism charges.

Authorities allege they tried to take an improvised explosive device, made with military-grade explosives provided by Islamic State, on to the flight from Sydney on July 15, but didn’t get through check-in. When that plot failed, officers allege the men took the bomb apart and began turning it into a device that could disperse chemicals. Bloomberg News

Two Chinese tourists were detained in Berlin for making the straight-armed Hitler salute for photos in front of the Reichstag parliament building, a police spokeswoman said yesterday.

The holidaymakers were spotted by officers on a routine patrol Saturday snapping smartphone pictures of each other posing with the banned gesture outside the historic landmark in the heart of the German capital.

“A probe on suspicion of using the symbols of anti-constitutional organisations was opened against the two Chinese men, aged 36 and 49,” the spokeswoman told AFP. The pair were questioned at a local police station and released after paying 500 euros (US$589) bail each.

Using the symbols of anti-constitutional organisations, a charge frequently levelled against members of farright groups, can carry a sentence of up to three years in jail sentence or a fine.

The spokeswoman said the men could leave the country during the investigation and that if a fine is handed down, the bail money they had already paid would likely cover it.

The Reichstag housed the assemblies of the German Empire, the inter-war Weimar Republic and Nazi Germany until it was destroyed by a suspicious fire in 1933. AFP

South American trade bloc Mercosur suspended Venezuela indefinitely, adding more international pressure on President Nicolas Maduro to dismantle a newly created pro-government constituent assembly and restore democracy.

Foreign ministers of Argentina, Paraguay, Uruguay and Brazil announced the decision in Sao Paulo, urging Maduro to release prisoners and immediately start a political transition.

“We are saying: Stop with this! Enough with the deaths, enough with the repression. It is not possible to inflict such torture on the people,” Brazilian Foreign Minister Aloysio Nunes said after the meeting.

As the suspension was announced, the constituent assembly removed dissident state prosecutor Luisa Ortega from her job. Asked to comment on Ortega’s dismissal, Nunes replied with a Latin proverb: “Whom the gods would destroy they first drive mad.”

Mercosur has no provision for expulsion. It had suspended Venezuela temporarily in December for not complying with the bloc’s regulations, and toughened its stance following the controversial election of the constituent assembly on Sunday and the arrest of several opposition leaders. Reuters