Business Daily #1356 August 8, 2017

Credit card turnover hits MOP4.9 bln in Q2 Payments Page 3

Tuesday, August 8 2017 Year VI Nr. 1356 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Border

Zhuhai authorities to renovate Gongbei checkpoint for RMB416 mln Page 4

Hotel

Four Seasons to be located in Landing’s Jeju property Page 6

www.macaubusiness.com

Markets

Health

Hostility towards short sellers grows in HK exchange Page 10

New technologies fighting food fraud Page 9

Passed, but not perfect AL

Two years in the making, but finally passed.

The bill on the management of common areas of condominiums was unanimously approved, but is still facing headwinds as legislators query guard and doormen training, and responsibility for paying management expenses by owners in cases where buyers don’t yet have full ownership. Page 5

Packed summer

Not much better and not much worse

The annual report on the environment in the city shows a 15 pct increase in greenhouse gas levels from 2014-2015, while in 2016 the city’s main industries saw a near-3 pct uptick in power consumption. Maritime and air transportation fuel consumption was up and demand for water is steadily increasing.

Meanwhile, less construction projects resulted in a 32 pct drop in construction waste.

Transportation Visitor numbers at the MSAR International Airport to see an 8 pct increase y-o-y during the summer period, according to airport authorities. Full-July visitation was up 9 pct and 1st week of August was up 10 pct. With an average of 160 flights daily at the airport, the CEO of AirAsia announced increased demand for Indonesia-Macau flights was behind new route to Jakarta. Page 2

Reserves win face

Pollution Page 4

HK Hang Seng Index August 7, 2017

27,690.36 +127.68 (+0.46%) Worst Performers

Tencent Holdings Ltd

+2.95%

Power Assets Holdings Ltd

+1.35%

Wharf Holdings Ltd/The

-1.33%

Hang Lung Properties Ltd

-0.55%

Want Want China Holdings

+2.71%

China Shenhua Energy Co

+1.31%

New World Development

-1.12%

AIA Group Ltd

-0.49%

CITIC Ltd

+2.51%

Bank of China Ltd

+1.27%

China Overseas Land &

-0.76%

CK Hutchison Holdings Ltd

-0.48%

AAC Technologies Holdings

+1.94%

BOC Hong Kong Holdings

+1.15%

CLP Holdings Ltd

-0.71%

Sino Land Co Ltd

-0.46%

Cheung Kong Property

+1.70%

China Construction Bank

+0.76%

Hang Seng Bank Ltd

-0.57%

Sun Hung Kai Properties Ltd

-0.40%

29° 32° 28° 32° 28° 32° 28° 32° 28° 32° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Forex The Mainland’s FX reserves posted a sixth straight monthly increase. A stronger yuan and a weak U.S. dollar had a clear impact on the data. The foreign currency stockpile climbed to US$3.081 trillion in July. Page 8

2 Business Daily Tuesday, August 8 2017

Macau Tourism

Airport visitation to increase by 8 pct this summer holiday AirAsia launches its first direct flight between Macau and Jakarta Cecilia U cecilia.u@macaubusinessdaily.com

“

W

e estimate that the number of visitors visiting the [Macau International] Airport will increase by 8 per cent over this year’s summer holiday in comparison to last year’s,” divulged Eric Fong, director of the marketing department of the Macau International Airport Co., Ltd (CAM).

Fong revealed that visitor numbers in July grew by 9 per cent, while the first week of August saw a 10 per cent year-on-year uptick.

The director said that the number of flights, on the other hand, had slightly decreased by 1 per cent year-on-year for the first half of the year.

“The slight decrease [in the number of flights] is due to the arrangement of the flights and also the limited parking areas for airplanes,” said Fong. “But we still have close communications with flight companies and that’s why the number of visitors still increased despite the decrease in flight numbers.”

According to the director, there are currently an average of 160 flights arriving and departing the Macau airport per day.

When asked about the progress of the airport expansion, Fong said that the additional area has already been

set up at the southern section of the airport, saying that the added part would be gradually brought into operation, but the exact schedule could only be announced at a later date.

Last month, the president of the Macau Civil Aviation Authority (AACM) revealed that the MSAR Government had asked the central government for permission to reclaim land for the expansion of the city’s airport.

Direct flight to Jakarta

Prior to the inaugural flight ceremony yesterday, the CEO of AirAsia Hong Kong and Macau, Celia Lao Sio Wun advertisement

said that the demand for flights between Indonesia and Macau has been growing in recent years.

“Around 80 per cent of AirAsia clients are tourists,” said Ms. Lao. “But there is also one part that are clients for business, like businessmen from Indonesia who like to come to Macau to discuss MICE [meetings, incentives, conferencing, exhibitions] or other business.”

According to the Statistics and Census Service (DSEC), as cited by CAM, the number of visitors from Indonesia to Macau posted a yearly growth of 11.7 per cent to 182,467 in 2016.

Yesterday, the new route held its debut flight, carrying 162 passengers from Jakarta to Macau and 151 passengers on the return flight.

The CEO said the first flight from Jakarta to Macau was mostly filled with Indonesians visiting Macau, while on the Macau-Jakarta flight, half of the total number of passengers were Chinese tourists visiting Jakarta.

As such, the five-hour flight would not only benefit residents of the two regions, but also those in the Pearl River Delta area, Ms. Lao opined.

The new flight will be available three

times per week, utilising a 180-seat Airbus A320-200, with the flight frequency to be increased to four times per week starting September 1.

Jakarta is one of the Southeast Asian cities which houses a representative office of the Macao Government Tourism Office (MGTO).

When asked whether more flights would be set up in the future, the CEO said the overall market response to the new flight will be considered, remarking that the company has the capacity to add more flights, but that more promotions will be needed in the preliminary stages.

The Consul General of the Republic of Indonesia in Hong Kong and Macau, Tri Tharyat, commented that the new flight route would allow more tourists to visit both sides, as well as providing more opportunities for trade and business.

Although the number of Indonesian citizens visiting Macau has grown in the past years, Tharyat said that “there is still a limited number of Macau tourists visiting Indonesia,” noting that: “I’m sure with the direct flight, the option is very much opened now”.

Transportation

Secretariat Office for Security: Pedestrian tunnel connecting Wanzai and Macau still in preliminary stage Currently, the construction project of a pedestrian tunnel, to be built below the river in Macau’s Inner Harbour and linking the MSAR to the Mainland, is still at the evaluation and deliberation stage, revealed the Secretariat Office for Security.

In response to an interpellation made by legislator Chan Meng Kam, the Office stated that the Zhuhai Port Bureau and related departments in Macau had met several times to discuss the level of necessity and

feasibility, as well as the overall planning of the ports, the location, width of the tunnel, budget and other issues.

Meanwhile, the Office is still unable to provide a timetable for the resumption of ferry operations between Macau and Wanzai, claiming that the related project is progressing.

Last year, the border check-point building of the Inner Harbour Ferry Terminal was considered to be in a dangerous condition and has been suspended since.

Business Daily Tuesday, August 8 2017 3

Macau Finance

Credit card turnover hits MOP4.9 billion in Q2 2017 The number of personal credit cards in circulation in June increased 12.3 per cent year-on-year, totalling an average of two cards per person in the city Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he total credit card turnover in Macau reached MOP4.9 billion in the second quarter of the year, an increase of 2.1 per cent quarter-to quarter, and 8.9 per cent year-on-year, according to the latest data released by the Monetary Authority of Macao (AMCM) yesterday.

As for local cash advance turnover, the values reached MOP225.2 million, corresponding to nearly 4.6 per cent of total credit card turnover.

Credit card repayments – which include payments for interest and fees – amounted to some MOP4.8 billion, down 6.6 per cent when compared to the first quarter, but up 8.1 per cent from the same period a year before.

The number of Reminbi (RMB) cards in the city in

Across the Delta

According to the latest statistics released by the Hong Kong Monetary Authority on June 5, the number of credit card accounts in the Hong Kong SAR totalled approximately

June rose 16.2 per cent yearly to 242,327 units. The number corresponds to nearly onethird of the cards designated in MOP, or 796,992, which marked an increase of 11.4 per cent year-on-year.

The number of Hong Kong denominated cards also rose, up 10.2 per cent

16.57 billion at the end of the first quarter of this year.

Credit card receivables in the neighbouring SAR amounted to some HK$122.48 billion, of which the rollover totalled HK$22.28 billion.

year-on-year, amounting to 94,725.

As of end-June, the Authority noted that the number of personal credit cards in circulation had grown due to ‘the increasing dual-currency and triple-currency cards,’ amounting to 1,134,044, up 3.7 per cent from the previous quarter and 12.3 per cent from a year before.

Credit line

Banks had granted some MOP27.3 billion in credit card limits as at end-June, up 3.6 per cent since the end of March, and a 15.5 per cent increase from a year earlier.

Credit card receivables

amounted to MOP2.5 billion, of which rollover reached MOP751.7 million, corresponding to nearly 30.5 per cent of credit card receivables.

The ratio of delinquent amounts overdue remained low, dropping to 1.37 per cent at the end of June, down from 1.46 per cent at the end of the previous quarter.

Operating license

Another lap around the course The Macau SAR Government has extended for a period of six months, the concession granted to the Macau Horse Racing Company Limited for the commercial exploitation of horse racing, a dispatch in the official gazette announced yesterday.

Under the executive order, the

duration of the contract is extended until February 28, 2018.

The company, operated by Angela Leong On Kei, runs the Macau Jockey Club (MJC), which has failed to yield annual profits since 2005.

In its latest financial results, published in July, the company recorded

losses of MOP4.07 billion for the financial year ended December 2016.

The MJC generated total revenues from horserace betting of MOP141 million in 2016, down 15 per cent from MOP166 million in 2015, according to official data from the Gaming Inspection and Co-ordination Bureau (DICJ). S.Z. advertisement

4 Business Daily Tuesday, August 8 2017

Macau Environment

Greenhouse gas levels in the city grew 15.4 pct The Environmental Bureau released the latest environment report for the year 2016 Cecilia U cecilia.u@macaubusinessdaily.com

T

he level of greenhouse gas (GHG) emissions in Macau grew by 15.4 per cent over the course of 2015 when compared to the levels measured the previous year, according to the latest report released by the Environmental Protection Bureau (DSPA), entitled ‘Macau’s Environmental Condition in 2016’.

The report points out that the growth in GHG emissions was due to the ‘amount of locally produced electricity’, causing a surge in the emission of carbon dioxide (CO2).

Nevertheless, the growth pattern of GHG demonstrated a downward trend between 2006 and 2015.

In 2015, the level of GHG and CO2 emissions created by local electricity production exceeded the emission levels produced by land transportation.

Regarding the state of air pollution in 2016, the data from the report shows that the five automatic air-quality monitoring stations in the city recorded that over 95 per cent of the total number of days in 2016 were marked as having ‘good’ and ‘moderate’ levels of air quality last year, with no ‘very unhealthy’ levels recorded during the year.

According to the report, apart from land transportation (which accounted for 18.3 per cent of total energy use in 2016), the commercial, food & beverage and hotel industries altogether consumed 14.8 per cent of the total energy resources in the city, with both transportation and the commercial sectors seeing a 2.7 per cent uptick year-on-year.

The amount of combustibles consumed by land-based transportation underwent a 2.7 per cent annual increase in 2016, while that of maritime transport saw a 7.4 per cent increase.

Given the data, the report suggested

the use of green energy for vehicles, the promotion of electric vehicle usage and the enhancement of cooperation between regions in monitoring air pollutants.

Increased demand for water

Owing to the launch of new resorts located on the Cotai Strip, the demand for water grew notably in the area, with consumption increasing by 13.2 per cent when compared to figures registered in 2015.

In terms of consumption by different sectors, water for commercial usage experienced the highest year-on-year growth, up 3.3 per cent, while public and domestic usage grew by 1.5 per cent and 1.8 per cent, respectively.

Water for industrial use was the only sector that registered a downward

trend, decreasing by 4.1 per cent year-on-year.

Commercial usage accounted for 45.2 per cent of the total water consumption in the city for the year 2016, the report revealed.

Regarding water pollution, the report stated that the problem remained serious despite improvements over the year. The inauguration of new resorts also resulted in an increase in the volume of sewage treatment.

Less construction waste

Given the gradual completion of large scale construction projects in the city, the volume of construction wastage dropped significantly over the course of 2016, by 32.4 per cent.

However, the overall sewage disposed of during 2016 increased by 1.7 per cent year-on-year and was the

highest level registered in the past decade, despite the growth slowing last year.

In particular, the disposal of abandoned vehicles increased by 13.6 per cent, with the number of heavy vehicles and semi-trailers experiencing the highest growth, up 48.4 per cent and 33.3 per cent, respectively.

Meanwhile, the rate of recycling of solid waste increased by 1.2 per cent, but the trend showed a downward movement due to the growth recorded in the disposal of solid waste in the past ten years.

The report also revealed that the number of local hotels that were awarded for being environmentally friendly increased by 30.6 per cent year-on-year, to 47 hotels, accounting for a total of 22,655 hotel rooms.

Infrastructure

Gongbei port of entry to undergo renovations The Zhuhai government will invest RMB416.26 million (US$61.96 million/MOP499.20 million) to renovate the checkpoint building and weather-proof corridor of the Gongbei port of entry, according to an official announcement.

The Development and Reform Bureau of the neighbouring city, north

of Macau, said the renovation work aims to prevent hazards, and improve customs efficiency and the port’s overall image, given that the facilities have deteriorated since the structure was first opened 18 years ago.

The works to be carried out on the premises will include renovating power lines, water and drainage

pipes, fire extinguishers, central air-conditioning pipelines, and the indoor floor plan. Damaged indoor surfaces will also be repaired.

Other work to be conducted includes repairing the subterranean stilts-tier space structure with water leakage and seepage, the tiles of the external wall, the outward glass

doors, and the façade.

The authorities plan to improve traffic signs and guide facilities, build a new underground parking lot, and replace the weather-proof corridor with a new single-deck space.

During the renovation, temporary access to border-crossing inspection areas will be set up at the east and west wings.

The Zhuhai government did not provide information about the renovation schedule, nor the contractor hired for the task.

Border-crossings

The Border Gate checkpoint, linked on the Macau side to the Gongbei port of entry, recorded some 23.5 million border-crossing movements by local residents going to mainland China during the whole year of 2016, according to data from the Macau Yearbook of Statistics 2016.

A total of some 3.84 million cross-border vehicle movements were registered during the same period.

Other land-based border-crossing activity by residents included the checkpoints of Cotai (781,800) and of the Trans-Border Industrial Park (376,500). S.Z.

Business Daily Tuesday, August 8 2017 5

Macau Legislative Assembly

Companies responsible for management of condominium common areas now required to obtain licence from Housing Bureau

Assuming responsibility

Voting on a new law proposal has been delayed due to doubts regarding who should be responsible for paying condominium common area management expenses in cases where buyers are not living in the purchased housing units before the ownership rights are made official Nelson Moura nelson.moura@macaubusinessdaily.com

A

fter being under evaluation for two years, the final version of the new law proposal for the oversight of commercial companies in charge of managing condominiums was approved unanimously yesterday by the Legislative Assembly.

The new law will now make it mandatory for companies in charge of condominium management to obtain a licence provided by the Housing Bureau, valid for three-years, with a possibility of renewal for the same amount of time.

In order to receive the licence, companies will have to have least one technical director and MOP250,000 (US$31,025) in minimum registered capital.

The final draft of the law provided by the second standing committee raised a number of questions, with Legislator Mak Soi Kun enquiring why the new law failed to provide licensing for condominium doormen and guards.

“The company needs a technical director to guarantee the service quality, but doormen or guards are not regulated. The quality of the management depends on them, they’re the frontline of service […] Why not provide courses before the law is enacted or create a credential system that could assure the service quality?” Legislator Mak asked.

In response, the Secretary for Transport and Public Works, Raimundo Arrais do Rosário said that due to the large number of doormen and guards, the responsibility of providing training should fall on the management company and not on the government.

The responsibility hot potato

On the other hand, the discussion of the new law proposal for the legislation of condominium common area administration raised more questions from legislators, with yesterday’s plenary session only managing to approve three of the proposal’s 73 articles.

In question, were articles pertaining to the

responsibility for paying condominium management expenses in cases where buyers haven’t yet been conceded the right of ownership for a housing unit they have purchased.

According to the law proposal, the payment of condominium expenses for use, maintenance and improvement of common areas should fall on the housing unit owner until the rights of use are transmitted to a new owner, an issue that raised the objections of Legislator Lionel Alves.

“What if the developer sells an autonomous unit and the owner leaves for three years having only the intention of leasing the apartment after he receives the key? Sometimes the absence is due to personal issues, sometimes gaming related, and the developer

can’t notarise the sale. Meanwhile there’re also mortgages to pay on the housing unit.

Is it fair for the developer to be in charge of these debts?

It’s years of condominium expenses,” Legislator Alves stated.

In his response, the Legal Affairs Bureau (DSAJ) Deputy Director, Cheong Ham, said the proposal was to guarantee that maintenance fees are paid, with the responsibility having to fall on the “actual beneficiary” of the house.

“If the buyer hasn’t received the keys, the responsibility should be with the owner, the expenses should be paid on time […] We have to see who is the final beneficiary and he will be in charge of the expenses […]

The owner of the housing unit can also take the issue

to the courts in order to see the debt repaid,” the DSAJ Deputy Director added.

However Legislator Lionel Alves opined that demanding compensation for the debt in court from someone who is “in parts unknown” would take a considerable amount of time, with the official owner of the housing unit having to incur months of maintenance expenses and “possibly acquiring bad credit ratings due to unpaid or delayed mortgage fees”.

“If the seller received the full price, he can’t cancel the contract, he is at a dead end.

I agree the condominium interests should be preserved, but I think this solution is still not mature. We have the risk of approving another law that will bring many headaches to many people in Macau. If the buyer was in the owner’s shoes, he’s the only one responsible for the kicks,” he added.

The discussion led to Secretary for Administration and Justice, Sonia Chan Hoi Fan accepting that some changes would be made in regards to the debated articles, with the discussion of the law proposal to resume today. advertisement

6 Business Daily Tuesday, August 8 2017

Macau Retail business

Asian retail giant performing well in MSAR Dairy Farm’s sales slightly lower in H1, but profits up, helped by Macau and Hong Kong markets Sheyla Zandonai sheyla.zandonai@macaubusiness.com

C

onvenience stores operated by Dairy Farm International Holdings Limited in Macau and Hong Kong are said to be performing well, thanks to a modest increase in tourist numbers, according to the company.

The company noted that it recorded solid profit growth in the first half of 2017, in spite of lower sales in its supermarket and hypermarket segments.

Sales for the period by the group’s subsidiaries totalled some US$5.50

billion (MOP44.31 billion), slightly lower than the same period last year, when they amounted to US$5.56 billion.

Total sales of the group, including associates and joint-ventures, were up 3 per cent to US$10.45 billion, from US$10.11 billion a year earlier.

Underlying net profit was up 6 per cent to US$211.4 million, from US$199.3 million in the first half of 2016.

The profit increase has been attributed to strong results from Maxim’s, the company’s restaurant division, and Yonghui, a supermarket in mainland China, as well as good performance from the health-and-beauty

(Mannings) and home-furnishing divisions (IKEA) of the company.

Dairy Farm operates mainly in the food and restaurant segments, as well as in the health and beauty and home furnishing businesses.

In Macau, the group operates 7-Eleven convenience stores, Maxim’s restaurants and bakeries, Mannings health and beauty shop, as well as Starbucks outlets.

The Asian retail giant acquired Macau-based supermarket chain San Miu in March 2015, as part of a strategy to expand its businesses in the Chinese market, according to previous reports.

Maxim’s is Dairy Farm’s restaurant

branch, which introduced the Starbucks chain to Hong Kong in 2000, according to the company.

In June 2011, the Hong Kong Maxim’s group acquired the entire equity stake of Starbucks in the Hong Kong and Macau markets, assuming 100 percent equity of these markets.

Maxim’s announced in July that the franchise will be operating Shake Shack, a fast-food American burger restaurant chain, in Macau and Hong Kong.

Shake Shack and Maxim’s plan to open the first Hong Kong outlet in 2018 and a total of 14 restaurants in Hong Kong and Macau through 2027.

Hotels

New names in the game A Four Seasons Resort will be included in the currently under construction Jeju Shinhwa World in Jeju Island in 2019 Chinese developer and casino investor Landing International Development Ltd. announced that its new property on Jeju Island will include a Four Seasons Resort, a release sent to the Hong Kong Stock Exchange stated.

The hotel is expected to open in 2019 and will include 240 rooms, suites and villas. Facilities for weddings, corporate events and a spa will also be included in the Jeju Shinhwa World property.

Landing International also stated in the release that its subsidiary, Landing Jeju Development Co., Ltd. will attempt to accelerate the next steps of the first phase of the opening of its property in South Korea, with the first phase involving the opening of ‘two hotels, Shinhwa theme park, MICE (meetings, incentives, conventions and exhibitions) facility and Somerset serviced resort condominium’.

The first phase was initiated in April with the launch of a new serviced resort condominium, Somerset Jeju Shinhwa World, offering 344 three-bedroom units. The release stated that the company will now ‘build a new lobby and guest facilities’ in the hotel.

The company announced previously that it is also planning to open the first Marriott Hotel and Spa in Jeju in late 2017, with Friday’s filing

stating that Landing International expects to ‘accelerate the completion of the waterpark, theme park hotel and dormitory and training facilities in 2018’.

The company became the sole owner of Jeju Shinhwa World in early January, after Genting Singapore PLC disposed of its half of the joint venture in November 2016, in a deal amounting to US$338 million (MOP2.7 billion), Business Daily reported. N.M. advertisement

Cambodia

Power move The conversion of bonds relating to two properties in Cambodia has allowed NagaCorp’s Chief Executive to become the majority shareholder in the company Nelson Moura nelson.moura@macaubusinessdaily.com

The shareholders from Cambodian gaming operator NagaCorp Ltd. allowed one of the company’s Chief Executives, Chen Lip Keong, to become the group’s major shareholder through the conversion of two groups of convertible bonds, a Hong Kong Stock Exchange release announced yesterday.

According to the filing, in an extraordinary general meeting held on Friday, 91 per cent of NagaCorp's shareholders - representing more than 775.8 million shares - voted in favour of allowing Mr. Chen to exercise conversion rights on both TSCLK Complex Convertible Bonds and NagaCity Walk Convertible Bonds.

According to a company filing from

July 19, convertible bonds for the TSCLK complex had an outstanding aggregate principal amount of US$275 million (MOP2.21 billion), with NagaCity Walk bonds valued at US$94 million.

The conversion of the bonds received a waiver by the Hong Kong Securities and Futures Commission, releasing Mr. Chen of the obligation to make a mandatory general offer for all the issued shares of NagaCorp not already under his control.

This allowed Mr. Chen and ‘parties acting in concert with him’ to increase their share in the company from almost 39 per cent to 65.4 per cent, with public shareholders to hold the remaining 34.6 per cent, in a process expected to be concluded by August 18 of this year.

Cambodia player

Casino operations of the company comprise all gaming activities from NagaWorld, located in the capital city of Cambodia, Phnom Penh. According to its latest financial report on the first half of this year, the group employed nearly 6,400 people stationed in Cambodia, mainland China, Macau, and Singapore.

NagaCity Walk is a property next to NagaWorld, completed in August of 2016 and offering duty-free shopping operated by the China Duty Free Group.

The TSCLK Complex - also known as Naga2 - is undergoing fit-out and is expected to be operational in the fourth quarter of 2017, with the group having invested US$108 million in the acquisition of property, plant, and equipment in the first half of this year.

Business Daily Tuesday, August 8 2017 7

Gaming

High rollers

Sydney casino war battle lines redrawn amid China crackdown According to Citigroup Inc., Crown’s share of international high-roller revenue in Australia has plummeted from more than 70 per cent in 2010 to 39 per cent Angus Whitley

O

n the shores of Sydney harbour, Crown Resorts Ltd. and Star Entertainment Group Ltd. are creating the most opulent gambling resorts Australia has ever seen, in a A$3 billion (US$2.4 billion) battle of roof-top pools, private gaming rooms and fine dining.

In the city’s first casino war, billionaire James Packer’s Crown is racing to build a A$2 billion six-star hotel and casino by 2021 on prime real estate on the banks of a protected inlet west of the Sydney Harbour Bridge.

Star, which loses its monopoly in 2019, is pushing on with A$1 billion of upgrades just a few hundred meters across the water.

Packer originally won support for the new casino at Barangaroo with a pledge to attract mega-rich Chinese high rollers. But the crackdown on promoting gambling in mainland China has moved the battle lines, and now Crown looks set on a collision course to compete with Star for less wealthy blackjack, poker and baccarat players.

The prize for Australia’s leading casino operators is clear: record flows of Chinese tourists and a local population that loses more money gambling per head than any country in the world. The risks are equally apparent, as Crown’s new site potentially draws customers from its Melbourne base, and Star faces competition for the first time in Sydney.

“They are both kind of targeting the same customer,” said Sudhir Kale, the Gold Coast, Australia-based founder of GamePlan Consultants who’s worked on projects for casino operators including Crown. “Barangaroo is going to basically get into the grind market of Star, the table-game players.”

The contribution to Crown and Star from overseas high-stakes gamblers came into focus in October last year when Chinese authorities arrested a group of Crown workers. A Shanghai court in June convicted 19 current and former staff of illegally promoting gambling on the Mainland and handed out jail terms of as long as 10 months.

Since the crackdown, Crown has closed almost all its regional marketing offices in Asia that funnelled big-stakes players to Australia and sold out of a Macau casino venture.

According to Citigroup Inc., Crown’s

share of international high-roller revenue in Australia has plummeted from more than 70 per cent in 2010 to 39 per cent.

“Their business from Asia has been severely damaged,” said Roy Wheatley, CEO of gambling consultancy Global Consulting & Development Pty, which has offices in Australia, Singapore and Japan. “The majority of their revenue is from local play and this will be the case in Sydney.”

Investors will learn the scale of the fallout when Crown announces full-year results on Friday, while Star reports on Aug. 23.

A representative for Crown in Melbourne didn’t reply to emails and a call seeking comment on whether the China crackdown would see the company lean more on lower-stakes customers than offshore high rollers. The company has previously said its Sydney project would be successful partly because it would also be attractive to local gamers.

Sydney also faces competition as resorts springing up across Asia try to attract business from China. In Japan, companies are vying for a slice of a potential US$25 billion market after lawmakers legalized casinos last December. Other operators are expanding gaming to online and phone betting, with an eye to attracting Chinese players. The Philippines and Vietnam now allow phone betting that’s banned in Macau, and provide favourable tax structures and policies for gaming.

For Star Chief Executive Officer Matt Bekier, tourists and repeat

business from locals are a more reliable market than international high-stakes gamblers. Worldwide, there are probably only 1,500 ultra-big hitters comfortable betting at least US$5 million at a time, he said.

“I don’t think we can build a business hoping to attract a couple of these large players every now and then, hoping to win,” Bekier said in an interview.

The looming battle with Crown kick-started refurbishments in Sydney, as well as renovations and developments along the eastern seaboard costing up to an additional A$2.85 billion.

Gold Coast

Almost 1,000 kilometres north of Sydney, Star is building a gaming, hotel and retail resort in the Queensland state capital, Brisbane, with Hong Kong’s Chow Tai Fook Enterprises Ltd. and Far East Consortium International Ltd. Star is also upgrading and expanding its casino and hotel on the state’s Gold Coast.

Star’s developments are scheduled to be completed by about 2022, after which the proportion of its revenue from tourists could climb to at least 10 per cent from less than 3 per cent now, Bekier said. International high rollers generate less than 30 per cent of Star’s revenue and 16 per cent of earnings before interest, tax, depreciation and amortization, the company said last year.

The company, which once relied on China for almost all its high-roller

income, now aims to generate half of it from other Asian nations.

Crown announced its plans for the new Sydney resort in 2012, promising 350 hotel rooms and suites. Also on offer: three bars, five restaurants and an infinity pool on the roof. Unlike Star, the resort won’t run slot machines, making classic table games the key battle ground in the fight for customers.

Jets, yachts

Minimum bets at Crown’s new Sydney casino will be A$30 for baccarat, A$20 for blackjack and A$25 for roulette. More accessible to a wider pool of players because of the lower stakes, such tables can also be more profitable than high-roller operations.

Casino owners typically lavish those VIPs with expensive extras such as private jets, access to luxury yachts or other exclusive experiences.

Crown’s new resort in Sydney will draw business away from its flagship casino in Melbourne because it’s easier for overseas gamblers to fly into the city, said GamePlan’s Kale.

Once there, gamblers can play at both resorts, meaning Star could benefit from customers that Crown is losing from Melbourne, according to Bekier.

But he acknowledges it will be a two-way street, and at least some of his customers in Sydney will cross the water to the new Crown complex.

“There’s obviously going to be a novelty aspect,” he said. “The challenge for us will be to make sure that it remains an exploration.” Bloomberg

8 Business Daily Tuesday, August 8 2017

Greater China Debt

Bank regulator lets crackdown deadline slip over stability worries The deadline extension underlines how tough it will be for China to cut leverage and control lenders Shu Zhang and Engen Tham

C

hina’sbankingregulator has extended by two months a June deadline for banks to submit risk assessments over concerns it was putting strain on the lenders, two sources with direct knowledge of the matter said.

Under the leadership of Chairman Guo Shuqing, the China Banking Regulatory Commission (CBRC) started the year promising a “windstorm” to clean up the banking sector, which had been seen as failing to control risks as credit swelled.

The CBRC has launched eight sets of rules in the months since March, and Guo imposed a June 12 deadline for banks to submit written assessments on their lending and other practices, according to an internal notice seen

by Reuters.

That deadline has now been extended to mid-August, the sources said. While some lenders made the original deadline, adjusting their operations based on their assessments and feedback from the regulator, others have been unable to comply and have been given the extension.

The decision not to pressure banks who failed to meet the deadline reflects official worries that a tougher stance on banks could weigh on lenders and leave them and the economy weaker, the sources said.

The decision, which has not been officially announced, comes ahead of a party

congress in coming months at which economic growth and financial stability are expected to be priorities.

The deadline extension - together with a strain on resources reported by sources at the CBRC - underlines how tough it will be for China to cut leverage and control lenders as growth in the world’s second-largest economy eases.

One of the sources said the CBRC would not issue fines and has been avoiding any form of censure since the official deadline expired in June.

“The thunder roars loudly, but little rain falls,” said one banker at a regional lender

who accompanied officials during an inspection earlier this year.

The CBRC did not respond to a request for comment.

In July, President Xi Jinping announced the establishment of a new financial oversight body to improve coordination among regulators. While Xi said the power central bank would play a bigger role in managing risks in the financial system, the role of the CBRC in the new committee is unclear.

No nerves

The health of China’s banking sector, whose assets account for more than 90 per cent of China’s total financial assets,

is a concern of global proportions, and investors and bankers have urged a tougher stance from the regulator.

Those concerns will loom over the National Congress of the Communist Party later this year, a gathering held every five years at which major reshuffles of senior leaders can be expected.

Two people at the CBRC said regulators were worried that some banks - especially small- and mid-sized banks that rely heavily on the interbank market - could strain under more scrutiny, which could hurt the overall financial system and slow growth.

In May, a senior CBRC official, Xiao Yuanqi, told banks that the release of tougher CBRC rules and on-site inspections by the regulator would not have a negative impact.

“Don’t be nervous,” he said at a press conference, referring to market jitters over the impact of the new rules.

CBRC officials say they have found that on-site inspections to crack down on regulatory arbitrage and enforce rules on interbank lending and wealth management products have been tougher in practice than in theory.

Part of the issue is a lack of resources. The CBRC has not received increased resources, even as demands on the regulator grow, officials at the regulator said. Salaries have stayed flat, and fallen in some cities, and staff is sparse outside the capital.

The head of one Ping An Bank Co sub-branch in southern China said that his

bank had never had a spot check.

In its 2016 report ranking Asian countries’ corporate governance standards according to a number of factors including enforcement, the Asian Corporate Governance Association (ACGA) highlighted insufficient human resources at the main Chinese regulators as an on-going problem.

“You never see the financial sector kill itself because there is too much regulation, suicide always happens when there is no regulation” Jiahe Chen, chief strategist at Cinda Securities But China bank stocks have been performing well, an indication of confidence in the crackdown, said Jiahe Chen, chief strategist at Cinda Securities Co in Shanghai.

“You never see the financial sector kill itself because there is too much regulation, suicide always happens when there is no regulation,” Chen added. Reuters

FX

July reserves unexpectedly hit 9-month high China’s foreign exchange reserves rose twice as much as expected in July to a nine-month high as tighter regulations and a weaker dollar curbed capital outflows Reserves rose US$24 billion in July to US$3.081 trillion, compared with an increase of US$3.2 billion in June.

Economists polled by Reuters had expected foreign exchange reserves to rise US$12 billion.

It was the first time that China’s reserves had climbed for six months in a row since June 2014, with the latest gain lifting them to the highest level since October last year.

China’s foreign exchange regulator said weakness in the dollar helped push up the value of non-dollar currencies in its reserves. The euro, in particular, gained more than 3 per cent against the dollar last month.

China burned through nearly US$320 billion of reserves last year, but the yuan still fell about 6.5 per cent against the surging dollar, its biggest annual drop since 1994.

Its forex pile, the world’s largest, fell below the closely

watched US$3 trillion level in January for the first time in nearly six years, raising market fears that Beijing may devalue its currency to relieve the pressure.

‘The yuan strengthened around 0.8 per cent against the dollar in July’ But the yuan has rebounded more than 3 per cent so far this year, thanks largely to a reversal in the dollar, tougher policing of outflows and fresh steps by the central bank to flush out speculators who were betting the currency would continue to fall.

The yuan strengthened around 0.8 per cent against the dollar in July, its third

straight month of gains.

In June, net foreign exchange sales by China’s central bank rose for the first time in seven months, though they remained small compared with the end of last year as capital outflows from China have slowed.

In the first half of the year, Chinese commercial banks sold a net US$93.8 billion of foreign exchange, down 46 per cent from US$173.85 billion over the same period last year.

“The balance in the foreign exchange market in the first half of the year was the best in three years,” the State Administration of Foreign Exchange (SAFE) said last month, adding that it expected cross-border flows to remain stable due to the country’s strong economic performance and more benign conditions globally.

The yuan is forecast to weaken to 7.05 per dollar in 12 months based on

expectations of more U.S. interest rate rises this year, which would be broadly supportive for the dollar, according to a Reuters poll of more than 50 foreign exchange analysts taken in June.

It is predicted to trade at 6.95 per dollar by the end of this year, compared with

a forecast of 7.2 per dollar at the beginning of the year.

The value of gold reserves rose to US$75.084 billion at the end of July, from US$73.585 billion at endJune, data published on the People’s Bank of China website also showed. Reuters

Business Daily Tuesday, August 8 2017 9

Greater China

Health

Spies, blockchain and Alibaba: Beating mainland’s fake-food scourge Alibaba sees the potential for the eight-year-old technology to provide greater product integrity across its platforms A bowl of ice cream on a hot day in Shanghai gave American Mitchell Weinberg the worst bout of food poisoning he can recall. It also inspired the then-trade consultant to set up Inscatech — a global network of food spies.

In demand by multinational retailers and food producers, Inscatech and its agents scour supply chains around the world hunting for evidence of food industry fraud and malpractice.

In the eight years since he founded the New York-based firm, Weinberg, 52, says China continues to be a key growth area for fraudsters as well as those developing technologies trying to counter them.

“Statistically we’re uncovering fraud about 70 per cent of the time, but in China it’s very close to 100 per cent,” he said. “It’s pervasive, it’s across food groups, and it’s anything you can possibly imagine.”

While adulteration has been a bugbear of consumers since prehistoric wine was first diluted with saltwater, scandals in China over the past decade — from melamine-laced baby formula, to rat-meat dressed as lamb — have seen the planet’s largest food-producing and consuming nation become a hotbed of corrupted, counterfeit, and contaminated food.

Weinberg’s company is developing molecular markers and genetic fingerprints to help authenticate natural products and sort genuine foodstuffs from the fakes. Another approach companies are pursuing uses digital technology to track and record the provenance of food from farm to plate.

“Consumers want to know where products are from,” said Shaun Rein, managing director of China Market Research Group, citing surveys the Shanghai-based consultancy conducted with consumers and supermarket operators.

‘Business opportunity’

Services that help companies mitigate the reputational risk that food-fraud poses is a “big growth area,” according to Rein. “It’s a great business opportunity,” he said. “It’s going to be important not just as a China play, but as a global play, because Chinese food companies are becoming part of the whole global supply chain.”

Some of the biggest food companies are backing technology that grew

out of the anarchic world of crypto-currencies. It’s called blockchain, essentially a shared, cryptographically secure ledger of transactions.

Wal-Mart Stores Inc., the world’s largest retailer, was one of the first to get on board, just completing a trial using blockchain technology to track pork in China, where it has more than 400 stores. The time taken to track the meat’s supply chain was cut from 26 hours to just seconds using blockchain, and the scope of the project is being widened to other products, said Frank Yiannas, WalMart’s vice president for food safety, in an interview Thursday.

Shanghai-based Zhong An Information and Technology Services Co. said in June it will use the technology to track chickens from the coop to the processing facility and on to the market or store.

Blockchain pilot

Alibaba Group Holding Ltd., too, sees the potential for the eight-year-old technology to provide greater product integrity across its platforms, which accounted for more then 75 per cent of China’s online retail sales in 2015.

The planned blockchain project will involve the Chinese e-commerce behemoth working with food suppliers in Australia and New Zealand, as well as Australia Post and auditors PricewaterhouseCoopers LLP.

“Consumers want to know where products are from” Shaun Rein, managing director of China Market Research Group “Food fraud is a serious global issue,” said Maggie Zhou, managing director for Alibaba in Australia and New Zealand. “This project is the first step in creating a globally respected framework that protects the reputation of food merchants and gives consumers further confidence to purchase food online.”

Fraud costs the global food industry as much as US$40 billion annually, according to John Spink, director of Michigan State University’s Food

Fraud Initiative. In China, where the 2008 melamine milk crisis resulted in the death of at least six babies, it’s a hot-button issue compounded by the country’s growing appetite for higher quality food and swelling middle class. A Pew Research Center study last year found 40 per cent of Chinese view food safety as a “very big problem,” up from 12 per cent in 2008.

Global concern

“This is not a Chinese issue — it’s a global issue,” said Yongguan Zhu, director general of the Institute of Urban Environment, part of the state-funded Chinese Academy of Sciences. “What we have to do is reinforce our regulations to improve the transparency of the administration, for example information-sharing.”

Zhu says blockchain could play an important role in improving traceability. Its database of records can be built like a chain and can’t be broken or re-ordered without disrupting the entire connection.

China strengthened its food safety law in 2015 in response to the spate of scandals. Counterfeiters and food tamperers face tougher penalties, including jail time in some cases, and more than US$800 million has been spent hiring more food safety personnel and bolstering monitoring facilities, according to an April report from the Paulson Institute, a Washington-based think tank. Last month, Beijing emphasized to authorities the need to be upfront in disclosing food safety issues.

“Food-fraud will always exist,” said Yongning Wu, chief scientist at the government-run China National Center For Food Safety Risk Assessment. While authorities in China have joined the global fight against the scourge, Wu doesn’t see the problem disappearing.

“We can only develop technology to detect it,” he said. “However, fake-food producers will always update their technology to dodge inspections.”

Wily scammers

The wiliness of fraudsters is what makes Inscatech’s Weinberg less hopeful about blockchain. His firm mainly uses informants on the ground to sniff out where in the production process food-fraud is taking place,

and most of his work in China is with western companies that manufacture or source product there.

“The problem is the data is only as reliable as the person providing the data,” said Weinberg, who recalls seeing everything in China from synthetic eggs to fake shrimp that still sizzle in a wok. “In most supply chains there is one or more ‘unreliable’ data provider. This means blockchain is likely useless for protecting against food-fraud unless every piece of data is scrutinized to be accurate.”

A months-long Bloomberg investigation into the global shrimp trade last year showed how unreliable documentation had fanned an illegal transhipping scheme involving Chinese aquaculture exporters.

More transparent

But blockchain is “light years” away from the system used by the global food industry today, which relies heavily on paper records, said Yiannas, Wal-Mart’s food safety chief.

By recording the identity of those who input data into the chain, the technology removes the anonymity that has helped food-fraud to thrive, he said.

The role of humans in recording the supply chain will also diminish, said Yiannas. “More and more of these documents will eventually be captured in an automated way.”

China’s Food and Drug Administration didn’t immediately respond to an email requesting comment on the country’s food safety efforts.

The challenges for China — “the factory of the world” — are especially vast because of its size, population, multi-layered administrative divisions, and “the willingness of criminals to exploit every corner that they can in order to make money,” said Michael Ellis, who ran Interpol’s trafficking in illicit goods unit until October.

At Interpol, Ellis, a former detective with Scotland Yard in London, was involved in “Opson,” an operation that led to the seizure of more than 10,000 tonnes and 1 million litres of hazardous fake-food and drinks across more than 50 countries.

Without a presence to fight it, foodfraud globally “will explode,” Ellis said. “It will just continue to grow, and who knows where it will lead.”

Bloomberg News

10 Business Daily Tuesday, August 8 2017

Greater China

Markets

As short sellers target Mainland companies in Hong Kong, hostility mounts China’s strict investment rules make it all but impossible to take short positions in individual domestic-listed Chinese stocks from overseas Michelle Price

S

hort sellers are increasingly targeting Hong Kong-listed Chinese companies they allege have committed accounting tricks, market manipulation and fraud. And that’s despite mounting hostility faced by investors who bet against stocks.

This year, there have been nine campaigns by short sellers against Hong Kong-listed companies as of mid-July, a record for the period, according to data from Activist Insight. This time last year there had been only two and in 2015 six.

Short sellers said increasing capital flows between mainland China and Hong Kong, spurred by Beijing’s recent moves to open up its equity markets, were exacerbating corporate governance problems in Hong Kong.

“We suspect the increased capital flows between the Mainland and Hong Kong have encouraged more stock manipulations and frauds in Hong Kong,” Carson Block, founder of Muddy Waters and among the most prominent short activists, told Reuters in an email.

But calling out these frauds is not for the faint-hearted. Those betting against companies encounter a bitter response from their targets, as well as from the shareholders in those companies and from the Chinese authorities. The short sellers say the backlash can come in the form of litigation, smear campaigns, arrests, hacking of their information, surveillance, physical assault and death threats - against them, their staff and even their families.

Dan David, the 48-year old co-founder of U.S.-based short activist GeoInvesting, says he has received emails detailing how he might die, has been the target of multiple attempted hacks, sued three times unsuccessfully, and confronted in his driveway by an angry investor.

“People would rather make money on a fraud than lose money on the

truth,” said David, who unveiled his most recent campaign against food manufacturer China’s Dali Foods Group in June.

David claims the company has implausibly low expenses and salary costs, while its tax filings display troubling inconsistencies. The company has denied the allegations, which it says are misleading and based on selective information.

Small public floats

The short sellers borrow stock in a company and then sell it to take a short position – their hope being that they can buy the stock back at a lower price and close out the position at a profit.

David and other short sellers focused on mainland Chinese stocks listed in Hong Kong say that poor regulation, weak enforcement and small public floats means there are more stocks overvalued in the territory than in other major markets.

China’s strict investment rules make it all but impossible to take short positions in individual domestic-listed Chinese stocks from overseas.

Some companies may have used accounting tricks to overstate their profitability, or have over-promised – perhaps they have a fad product whose popularity will fade quickly.

Critics say short sellers are cynical opportunists who destroy shareholder value for their own gain. The shorts counter by saying they are a force for good, going to great lengths to expose fraud and persistent problems with listing and governance standards in the city.

In June, Christopher Cheung, who represents financial services and business interests in Hong Kong’s legislative chamber, called on Hong Kong’s Securities and Futures Commission to more tightly scrutinise short sellers, saying they had caused “serious disturbance to market order” in Hong Kong and hurt investors.

In a statement, an SFC spokesman

said: “The SFC considers that responsible research can all contribute to the overall market quality and price discovery process and has no intention to suppress legitimate commentaries on listed companies, whether positive or negative.”

Though less prominent than peers such as Block, David - who is also chief investment officer of hedge fund FG Alpha - has been seeking to expose dodgy dealings at Chinese companies listed outside the Mainland since 2010.

He typically sets to work screening for a range of tell-tale signs, including auditors, brokers and investment banks that have a track record of working for questionable companies.

Some firms, such as Asia-based Blazing Research, also solicit tips and will pay “handsomely” for useful information, it told Reuters in an email.

Many firms hire private investigators to review a company’s operations in China. They can spend months pulling business registrations, poring over tax filings, counting truck traffic or point of sale terminals (sometimes after installing cameras), appraising land claims, and quizzing nearby residents. They are often looking to see whether the reality on the ground matches executives’ statements.

Researcher detained

But such tactics can backfire. On one occasion, a member of David’s team was beaten-up by security guards who spotted him counting trucks driving in and out of the company’s factory. Sometimes it is worse than that. AlfredLittle.com’s researcher Kun Huang, a Chinese-born Canadian, was convicted of criminal behaviour and jailed in China for two years and then deported.

David and Block have also received anonymous threatening emails. One received by Block in 2010 mentioned his wife Kathy, asking: “Are you, Kathy and your dad ready for a

bullet?” Block moved to California the same year and now minimises his time in Hong Kong, which he said is becoming a riskier environment for short sellers because of Beijing’s increasing influence in the former British colony.

As Chinese companies grow savvier to short tactics, betting against them has become riskier. They are faster to rebut allegations and they also more often openly attack the short sellers’ credibility, making for more drawn-out, expensive campaigns.

Key Points Short-sell campaigns against HK-listed companies at record high Campaigns growing riskier amid Beijing’s rising influence in HK Activists say they are monitored, hacked, intimidated, assaulted Hong Kong lawmakers call for further regulatory crackdown They will call on large shareholders or friendly funds and brokers to help prop up the share price or to suck up the supply of borrowable stock, making it more expensive to cover short positions.

“Some Hong Kong stocks have a very limited public float, making it easy for the controlling shareholder to prop up the share price even though the company is indeed fraudulent,” said Blazing Research in an email.

It is unclear if Block made or lost money on his December campaign against China Huishan Dairy after the company quickly halted its stock and announced the chairman was increasing his stake. The share price subsequently rose and stabilised until plummeting 85 per cent on March 24.

“Being right and making money are two different things. Most of the time they do intersect for us, but not all of the time,” said Block in June. Reuters

Business Daily Tuesday, August 8 2017 11

Asia GDP

Indonesia growth disappoints amid consumption “mystery” Manufacturing and agriculture sectors also cooled in April-June Nilufar Rizki and Hidayat Setiaji

Indonesia’s gross domestic product grew more slowly than expected in the second quarter, as private consumption remained lethargic, adding to signs that Southeast Asia’s largest economy is stuck in a low gear and may need more stimulus.

The resource-rich economy grew 5.01 per cent in April-June from a year earlier, slightly slower than forecast and unchanged from the first quarter’s pace.

Indonesia has been struggling to accelerate growth to create more jobs for its 250 million population, but analysts say a 5 per cent growth rate, the level produced every quarter since the start of 2014, is not enough.

President Joko Widodo promised to revive growth to 7 per cent during his fiveyear term, which ends in 2019. This year, he set a target of 5.2 per cent. But some economists said even that could be hard to achieve, and authorities are already hinting at further monetary easing and spending to support the economy.

“All in all, full-year GDP

growth in 2017 looks set to reach only 5-5.1 per cent,” said Rangga Cipta, an economist with Samuel Sekuritas in Jakarta.

Private consumption, which accounts for more than half of Indonesia’s gross domestic product, expanded slightly faster in the second quarter compared to the first quarter, but grew more slowly against a year earlier.

Government and central bank policymakers have publicly stated their bewilderment at why people weren’t spending as much as expected, especially as the Muslim fasting month of Ramadan - traditionally the peak of consumption in Indonesia - fell in May-June in 2017.

During the second quarter, inflation remained comfortably in the central bank’s 3-5 per cent target, while investment and exports improved.

Some officials described the sluggish consumption as “a mystery”.

Gundy Cahyadi, DBS economist in Singapore, said for now he maintains a 5.1 per cent GDP growth forecast for the year, but sees “more downside risks” to its 5.4 per cent outlook for next year.

Political instability a factor?

Suhariyanto, the head of the statistics bureau, told a news conference there was a slowdown in growth of debit transactions, which could indicate “people

p s y c h o l o g i c a l l y h o l ding back spending to see what’s going on in the global economy”.

The average wage of construction workers and farmers also fell in the quarter, he said.

Political instability was another potential factor, researchers at University of Indonesia said in a note ahead of the data, referring to regional elections in April.

During a bitterly fought contest in Jakarta, where the incumbent Christian and ethnic Chinese governor was put on trial and later jailed for alleged blasphemy, religious tensions reached the highest in decades.

“Protests, which were centred on key administrative and commercial centers in Jakarta, disrupted shopping and other commercial activities,” they said, adding that more affluent consumers delayed durable goods purchases and residential investment.

By sector, growth in trade, manufacturing and agriculture sectors also cooled in April-June.

Capital Economics highlighted risks to growth

including depressed commodity prices and the government’s struggle to push through reforms. “We see little prospects of a sustained recovery,” the consultancy wrote.

Key Points Q2 GDP growth 5.01 pct y/y, same as Q1, below poll’s 5.10 pct Growth in trade, manufacturing and agriculture slowed Officials have called weak private consumption “a mystery” C.bank hints it may ease monetary policy Bank Indonesia Governor Agus Martowardojo has flagged a possibility of more monetary easing to support growth. BI slashed its benchmark rate six times in 2016 to 4.75 per cent and eased lending rules.

The government has also obtained parliamentary approval to increase spending this year, including on infrastructure. Reuters

Trial

Samsung scion Jay Y. Lee fights back tears as prosecutors seek 12-year jail term The defence reiterated Lee’s denial of wrongdoing, questioning whether the prosecution was relying on public sentiment to secure a prison term Joyce Lee and Christine Kim

Samsung Electronics Vice Chairman Jay Y. Lee fought back tears and denied wrongdoing yesterday as prosecutors sought a 12-year jail term on charges that include bribing the former president to help cement control of the South Korean tech giant.

Lee, the de facto leader of one of Asia’s largest conglomerates, has been in detention since February on trial for charges ranging from embezzlement to perjury, in a scandal that gripped the country for months and led to the ouster of former president Park Geun-hye.

He will face the longest prison term on record for a South Korean conglomerate executive if the court finds him guilty when it makes a ruling Aug. 25, two days before Lee’s current period of detention ends.

Other charges he faces include wrongfully transferring assets overseas and hiding the proceeds of a crime.

“I have never asked anyone, including the president, for anything for

the company or my personal gain,” said Lee in a final statement, his voice wavering. He stopped several times during his speech, holding back tears.

“I deeply regret that I have given such disappointment and apologise,” he said.

Key Points Prosecution says Lee bribes aimed at cementing control of group Prosecution’s logic a “fictional construct”, defence says Lower court says will make ruling Aug 25 Samsung Electronics offered no comment regarding the prosecutors’ demand. The company’s shares ended down 0.3 per cent yesterday, erasing minimal gains seen early in the session.

The prosecution has said Samsung’s intent in paying up for two funds backed by Park, and sponsoring the equestrian career of the daughter of a

confidante at the centre of the scandal, was to get government support for efforts to cement Lee’s control of the smartphones-to-biopharmaceuticals empire.

“Even though Lee is the ultimate receiver of the gains (from this bribery case), he has been pushing the blame on others accused,” prosecutor Park Young-soo told the court.

Park also sought jail terms for other Samsung executives related to the case, including 10 years for Choi Gee-sung, former head of Samsung’s corporate strategy office.

The defence reiterated Lee’s denial of wrongdoing, questioning whether the prosecution was relying on public sentiment to secure a prison term for Lee, 49, whose father, the group patriarch Lee Kun-hee, was hospitalised in 2014.

Lee’s lawyers argued that his so-called overarching intention of cementing ownership control was “a fictional construct” made up by prosecutors, with moves such as the merger of two Samsung affiliates in 2015 aimed merely at ensuring

Lee Jae-yong, vice chairman of Samsung Group, attends his final trial on his alleged bribery charge related to a nation-rocking scandal that led to the ouster of South Korean President Park Geun-hye at the Seoul Central District Court in Seoul. Source: Lusa

survival and growth of individual companies.

In Lee’s absence, Samsung Electronics reported record quarterly earnings in late July. Reuters

12 Business Daily Tuesday, August 8 2017

Asia Tillerson’s trip

Thais hope to get off Trump’s trade hit list The U.S. estimate of a Thai trade surplus of US$18.9 billion put it in 11th place on U.S. President Donald Trump’s list of countries to be investigated Orathai Sriring and Satawasin Staporncharnchai

T

hai officials voiced hope ahead of a visit by U.S. Secretary of State Rex Tillerson of escaping U.S. pressure over the size of their trade surplus with the United States as their figures point to a jump in imports, but U.S. data shows little change.

A spokeswoman for the State Department’s East Asia Bureau said Tillerson, who will be the most senior U.S. official to visit Thailand since a 2014 coup, will discuss a broad range of issues including security, trade and investment.

Tillerson visits Bangkok today after attending regional meetings in Manila at the weekend.

A narrowing trade gap would also reduce the risk of Thailand being labelled by Washington as a currency manipulator - the last thing Thailand wants as it struggles with a baht currency that exporters find uncomfortably strong.

According to Thai customs-cleared figures, imports rose 35 per cent from a year earlier in the first six months of 2017 while exports to the United States rose 7 per cent.

That meant Thailand’s trade surplus over the six months narrowed from US$6 billion to US$4.8 billion.

“We hope higher imports from the U.S. will help ease pressure on this issue... and the trend should continue,” Pimchanok Vonkhorporn,

U.S. Secretary of State Rex Tillerson speaking to members of the press in Manila, yesterday. Source: Lusa

head of the commerce ministry’s trade policy and strategy office, told Reuters yesterday.

However, U.S. figures calculated using a different methodology showed little change in the gap during the first five months year on year. The U.S. estimate of a Thai trade surplus of US$18.9 billion put it in 11th place on U.S. President Donald Trump’s list of countries to be investigated.

The growth in Thailand’s imports from the United States this year was

led by planes and parts, circuit boards, chemicals, metal and machinery and parts, the Thai data showed.

It shows “we haven’t conducted any trade protectionist policy”, said Thanavath Phonvichai, professor at the University of the Thai Chamber of Commerce.

After being put on the U.S. list, Thailand defended itself with a 22-page justification that covered everything from its support for the United States in the Korean War to investment by

U.S. companies in Thailand.

About 40 per cent of Thai exports to the United States come from U.S. firms, officials say. Thailand is the world’s No. 2 maker of hard drives, with U.S. firm Seagate Technology and Western Digital among big players.

Although the Trump administration has indicated no specific action against Thailand, Trump has ordered a study into the causes of U.S. trade deficits. Reuters

Money-laundering

Commonwealth Bank says ‘coding error’ explains breaches CBA could face fines of tens of billions of dollars if convicted Paulina Duran and Tom Westbrook

The Commonwealth Bank of Australia said yesterday a software “coding error” was responsible for the “vast majority” of the anti-money laundering law breaches it was accused of last week.

The Australian government last week accused the country’s biggest mortgage lender of widespread breaches of money-laundering and counter-terrorism financing rules, sending the bank’s shares sliding.

The issue centres on the use of automatic teller machines that accept deposits instantly by both cash and cheque, facilitating anonymous deposits, and whether the bank failed to identify, monitor and report transfers over US$10,000, the limit in Australia.

Financial intelligence agency AUSTRAC said the bank made 53,700 contraventions of the anti-money laundering and counter-terrorism financing Act, particularly with regards to so-called intelligent deposit machines, or IDMs, rolled out in 2012.

CBA is defending against the charges.

The bank said yesterday that a software update installed late in 2012 caused a “coding error” which meant

Business Daily is a product of De Ficção – Multimedia Projects

the machines did not create required transaction reports, called threshold transaction reports (TTRs). The error went unnoticed until 2015, the bank said.

“Within a month of discovering it, we notified AUSTRAC, delivered the missing TTRs and fixed the coding issue,” Commonwealth Bank said in a statement.

“The vast majority of the reporting failures alleged in the statement of

claim (approximately 53,000) relate specifically to this coding error. We recognise that there are other serious allegations in the claim unrelated to the TTRs.” The AUSTRAC case is the biggest of its kind in Australia and the first against a major lender.

Cash was deposited using fake names with proceeds going to drug importation syndicates, AUSTRAC alleges in its court filings.

CBA Chief Executive Ian Narev told The Australian Financial Review he would work through the “difficult matters” adding that it was for the company’s board to decide whether his job was on the line.

Key Points CBA accused of 53,700 breaches of anti-money laundering rules ATM ‘coding error’ caused failure to report transactions -CBA Other ‘serious issues’ are unrelated to the coding error -CBA

Commonwealth Bank headquarters in Sidney

CBA could face fines of tens of billions of dollars if convicted, with the maximum penalty for contravening the anti-money laundering and counter terrorism financing law at A$18 million (US$14.3 million) per breach.

CBA said the IDMs have been working correctly since September 2015.

In a release to the stock exchange yesterday morning, the bank said the over 53,000 contraventions arose “from the same systems error” and that penalties should be just and appropriate. Reuters

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Tuesday, August 8 2017 13

Asia Expansion

In Brief

WeWork to pump US$500 million into Southeast Asia The company, said to be valued at about US$20 billion, is seeing robust growth in South Korea Yoolim Lee and David Ramli

WeWork Cos., the world’s largest provider of shared work spaces, will invest US$500 million in Southeast Asia and South Korea, as the New York-based company steps up its expansion in global markets.

As part of the effort, WeWork will acquire Spacemob, a Singapore-based co-working start-up founded in early 2016 by entrepreneur Turochas “T” Fuad and backed

by Vertex Ventures and Alpha JWC Ventures. WeWork declined to disclose the value of the deal.

WeWork, which will absorb Spacemob’s team of about 20 people, appointed founder Fuad as its managing director of Southeast Asia.

WeWork also named Matt Shampine, currently head of marketing and revenue for Asia, as general manager of Korea.

“Both are seasoned entrepreneurs,” Christian Lee, managing director of WeWork Asia, said in a phone interview. “It was just a really obvious decision to bring them on board to significantly accelerate growth.”

The expansion is the latest in Asia for WeWork as it takes its model of

co-working spaces to new markets beyond the U.S. In recent weeks, it announced a US$500 million investment with Japan’s SoftBank Group Corp. and Hony Capital to expand its business in China, as well as a joint venture with SoftBank to start operations in Japan.

“Given who our partners are, and given WeWork’s speed, you can expect to see buildings coming soon,” Lee said. “We will be in Japan in a major way.”

WeWork, said to be valued at about US$20 billion, is seeing robust

growth in South Korea since opening its office less than a year ago, according to Lee. “Korea’s been great for us,” Lee said. “There are a lot of economic changes that are going on, and we can play a huge role in helping companies of all sizes.”

But its expansion in China is under threat from local start-up UrWork, which yesterday said it had secured a fresh round of funding worth RMB1.2 billion (US$178 million) from backers including Beijing Capital Land Ltd. and Xingpai Group.

UrWork’s increasing global footprint and continued fund raisings - it got US$58 million in May - are key challenges for WeWork as it attempts to crack the world’s second-biggest economy. Within three years UrWork plans to open 160 sites in 32 cities around the world - it is already working to expand operations in New York, London, Singapore and Los Angeles.

Still, Lee said WeWork can stand out by offering 130,000 members access to more than 163 locations in 52 cities across 15 countries. “There may be local competition, but there is really no one that’s bridging this global platform,” he said. Bloomberg News

M&A

ESR in talks to buy Singapore’s Sabana REIT Singapore’s industrial REITS sector is crowded with smaller companies such as Sabana REIT, ESR-REIT and Soilbuild Business Space REIT Anshuman Daga

Warburg Pincus-backed e-Shang Redwood (ESR) is in advanced talks to buy struggling Sabana Shariah Compliant Industrial REIT, sources familiar with the process said, in a likely first consolidation step in Singapore’s US$3.5 billion mid-cap industrial trusts sector.

ESR, an Asian logistics developer, has been conducting due diligence on Sabana REIT and is set to complete its talks in a few months, said the sources. They, however, said ESR has not yet agreed on terms of a deal.

ESR announced in March a 5 per cent stake in Sabana REIT, which has assets of about S$1 billion (US$735 million) comprising warehouses, logistics and high-tech industrial properties.

Late last year it agreed to buy up to 10.65 per cent of another industrial REIT, Cambridge Industrial Trust,

later renamed ESR-REIT. In January, ESR also bought an 80 per cent indirect stake in the manager of that trust.

ESR’s stake purchases in Singapore REITs come as smaller industrial trusts bear the brunt of falling rentals and higher vacancies, with troubled offshore marine services firms and manufacturing companies cutting operations in a lacklustre economy.

“These are strategic investments by ESR. The next step is a consolidation of subscale REITS,” said one of the sources.

Warburg Pincus, ESR, Sabana and ESR-REIT declined to comment. The sources requested anonymity as the talks are private.

As one of Asia’s biggest owners of logistics properties with assets in China, Japan and South Korea, ESR is aiming to spearhead a consolidation among Singapore REITS by taking advantage of its scale and deep funding, the sources said. advertisement

Singapore’s industrial REITS sector is crowded with smaller companies such as Sabana REIT, ESR-REIT and Soilbuild Business Space REIT which have found it challenging to grow their assets in the last few years, analysts said.

“I think they should either come together or sooner or later they could be bought out by someone who has deeper pockets and then consolidate across pan-Asia,” said Alan Cheong, senior director at consultancy Savills Research, referring to smaller REITs. REITs get their earnings from rentals and pay out most of their taxable income as dividends to investors.

One of the sources said ESR is expected to hold discussions with large shareholders in other Singapore REITS with a view to consolidating ownership in the companies.

Sabana REIT and ESR-REIT are trading at discounts to their book values while Soilbuild is trading at book value.

L a rg e r f i r m s s u c h a s T e masek-owned Ascendas REIT, Mapletree Logistics Trust and Mapletree Industrial Trust are coping much better in the downturn.

“Most of the smaller guys operate warehouses, logistics properties and factories where the occupancy has been declining and the challenges will continue easily over six-nine months before we see any recovery,” said Moody’s analyst Rachel Chua, adding that business parks are expected to fare better.

Sabana came under criticism from some investors this year after its already-underperforming unit price fell further in December following a fund raising announced by the company to finance its acquisitions.

Then Sabana’s manager set up a strategic review to explore options to boost Sabana’s performance and also terminated the acquisitions. Last week, Sabana said it was still evaluating non-binding proposals from several parties. Reuters

Employment

Australia job ads climb for fifth month Australian job advertisements rose for a fifth straight month in July, suggesting a strong pick up in employment seen in recent months could run for a while yet. A monthly survey

by Australia and New Zealand Banking Group released yesterday showed total job advertisements increased by 1.5 per cent in July, from June when they rose 2.7 per cent. Ads of 177,879 were up 12.8 per cent on July last year and at their highest since 2011. After sharp increases in employment from March to June, the government measure has finally caught up with the strength seen in ads and nudged the jobless rate down to 5.6 per cent.

Diplomacy

North, South Korean foreign ministers met Sunday South Korean Foreign Minister Kang Kyung-wha and North Korean counterpart Ri Yong Ho spoke briefly Sunday at a regional security meeting in the Philippines, the Yonhap News Agency reported. Kang urged Ri to respond as soon as possible to South Korean President Moon Jae-in’s offer to resume talks between the two countries, Yonhap said, citing an unidentified foreign ministry official from Seoul. Ri, who previously said he wouldn’t speak with Kang, said the offer “lacks sincerity,” according to the unnamed official.

The South Korean foreign ministry didn’t immediately respond yesterday to a request for comment.

Results

SoftBank says Q1 profit jumps Japan’s SoftBank Group Corp yesterday reported a 50.1 per cent rise in first-quarter operating profit, after the company included Vision Fund, the world’s largest private equity fund, as a new reportable segment and booked a valuation gain. The internet and telecoms giant said profit for the quarter through June increased to 479.2 billion yen (US$4.33 billion).

SoftBank has not released a forecast for the current business year ending March, saying there are too many uncertain factors. SoftBank is a prolific investor in technology startups, with founder and chief executive officer Masayoshi Son instrumental in creating Vision Fund.

Movies

Eros in talks with Apple, others to sell content library Indian movie production house Eros Group is in preliminary talks with Apple and other major content distributors to sell its entire content library of films and music, a source familiar with the matter told Reuters yesterday. The other parties in the fray include Amazon and Netflix, but talks are in very early stages, said the source, who declined to be named as the discussions are private.

India’s Economic Times reported the talks earlier in the day. The newspaper, which cited multiple sources familiar with the matter, said the deal could be worth around US$1 billion.

14 Business Daily Tuesday, August 8 2017

International In Brief Financing

U.S. municipal bond sales fall U.S. states, cities, school districts and other borrowers in the US$3.8 trillion municipal bond market are selling less debt this year, with issuance dropping 13.1 per cent to US$210.7 billion through July 31 versus the same period last year.

The drop has been driven by plummeting refunding volumes, which dominated the issuance calendar last year. Refinancings are down 25 per cent by par amount, while new money issuance is up by 7.3 per cent, Thomson Reuters data show. Issuers were “put off by the overall rise in rates” after November’s U.S. presidential election, Cumberland Advisors’ fixed income director John Mousseau wrote on July 31.

Food safety

Dutch may need to cull millions of hens Millions of hens may need to be culled in the Netherlands after traces of a potentially harmful insecticide were found in eggs, a Dutch farming group said, ratcheting up the strain on a sector still reeling from a bird flu outbreak. Retailers in several European countries have pulled millions of eggs from supermarket shelves as the scare over the use of insecticide fipronil widened, though Dutch industry group LTO said consumers were no longer at risk. The World Health Organisation considers fipronil to be moderately toxic and says very large quantities can cause organ damage.

Sentix research

Euro zone investor morale stable, but expectations dropping Sentix dampened expectations for a rapid shift in the European Central Bank’s monetary policy

I

nvestor sentiment in the euro zone remained stable in August, buoyed by strong current conditions, but future expectations slumped amid growing concerns about the U.S. economy and the potential impact of a widening car emissions scandal.

The Frankfurt-based Sentix research group’s euro zone index edged lower to 27.7 points from 28.3 points in July, in line with the mid-range forecast of 27.8 in Reuters poll of analysts.

But expectations fell to 16.0 points from 19.8 points in July in what the group called a worrying sign.

“It is become increasingly clear that the economic momentum has passed its high point,” Sentix said, noting that its survey often acted as a bellwether for future economic developments.

“Expectations are falling around the globe, led by the United States where they dropped for a fifth straight time ...”

“And the German ‘model student’ has also dropped sharply, with the scandal surrounding the automotive

industry killing the economic mood,” it added.

Sentix said the investor sentiment index for the United States dropped to 14.1 in August from 14.8 in July, with investors growing increasingly cautious despite U.S. President Donald Trump’s boast about “his successes”.

“Expectations are falling around the globe, led by the United States where they dropped for a fifth straight time” Sentix research The index for Germany fell for a third consecutive month, to 33.2 from 37.5 a month earlier, with expectations collapsing to 5.75 points from 12.5 in July amid growing concern about the emissions scandal affecting

some big German carmakers.

The Munich-based Ifo institute’s business climate index last week hit a record high, but Sentix said its survey showed “a noticeable decline in momentum.

“Given the crisis in the important automotive industry, that is a signal to investors,” it said.

The group said the current conditions sub-index for the euro zone rose to 40.0, its eighth consecutive increase and the highest level seen since November 2007.

But Sentix dampened expectations for a rapid shift in the European Central Bank’s monetary policy, citing a drop in inflationary pressures this year and potential concerns about declining expectations for the U.S. and German economies.

“The reasons in both cases are homemade problems, but in the end it doesn’t matter why the economic cycle shifts,” the group said. “Both tendencies are likely to cause Mario Draghi (president of European Central Bank) to remain cautious.”

Sentix polled 1,037 investors from Aug. 3 to August 5. Reuters

Cryptocurrency

Bitcoin soars to record as buyers look beyond split Bitcoin extended gains to a record, ignoring a split in the cryptocurrency over its future. The digital exchange rate jumped as much as 16 per cent from Friday to an unprecedented US$3,292.41, even after bitcoin’s division last week. The debate has revolved around how to upgrade its underlying technology, with a group of developers backing a solution called SegWit2x against miners -- some of whom have created an offshoot called Bitcoin Cash -- who want to increase the size of data blocks more drastically.

Management

Official data

German industrial output drops in June

Paddy Power Betfair’s CEO says to step down

The output data followed a run of upbeat economic indicators

Gambling firm Paddy Power Betfair’s chief executive Breon Corcoran announced plans to step down yesterday, 18 months after completing the merger of Irish bookmaker Paddy Power with Britain’s Betfair, sending the share price down over 8 per cent. Corcoran, 46, will be replaced by Peter Jackson, 41, a non-executive director at Paddy Power Betfair and CEO of the UK arm of global payments business WorldPay Group since March, the company said in a statement.

Worldpay Group is currently negotiating its own possible sale to U.S. peer Vantiv.

Michelle Martin

German industrial production unexpectedly fell for the first time this year in June, data showed yesterday, though it increased in the second quarter overall.

Output declined by 1.1 per cent on the month after rising 1.2 per cent in May, the Economy Ministry data showed. Expectations in a Reuters poll were for a 0.2 per cent gain.

But factories and construction firms in Europe’s largest economy produced 1.8 per cent more in the April-June period than in the first quarter and the ministry said order levels, along with business climate indicators, pointed to the upward trend continuing.

“As unexpected as today’s drop in industrial production has been, the

German economy is still on track to post another strong quarter,” said ING Bank economist Carsten Brzeski.

But a scandal over diesel emissions and cartel allegations engulfing Germany’s automobile industry could ultimately hurt the economy, he said, especially as cars make up around one fifth of German exports.

The output data followed a run of upbeat economic indicators, painting a rosy picture of the economy that is likely to boost Chancellor Angela Merkel’s chances of winning a fourth term in a national election on Sept. 24.

Merkel’s conservatives, holding a 15-point lead over their Social Democrat (SPD) rivals in the latest poll, are brandishing their economic credentials after 12 years in government during which Germany has prospered.

The conservatives are campaigning on a platform of economic stability and more new jobs, pledging to ensure full employment by 2025 while the SPD - currently the conservatives’ junior coalition partner - is promising to invest more and ensure more social justice if it gets back into government.

Data published on Friday showed strong domestic demand pushed up industrial orders twice as much as expected in June, boding well for the sector’s output in the coming months.

A breakdown of yesterday’s data showed energy output was the only bright spot in June, climbing by 1.4 per cent, while manufacturers of intermediate, capital and consumer goods all churned out less than in May. Reuters

Business Daily Tuesday, August 8 2017 15

Opinion Business Wires

Bangkok Post Thailand is seeking to strengthen its trade relations with Bangladesh in the hope of exporting more rice to the South Asian country, according to Commerce Minister Apiradi Tantraporn. She said delegates will be in Dhaka on Aug 9-10 for the 4th Thailand-Bangladesh Joint Trade Committee (JTC) meeting. They are due to meet Bangladeshi Commerce Minister Tofial Ahmed, who is expected to raise several trade cooperation issues. “The discussion will be a good opportunity to upgrade our ties and could lead to a free-trade agreement (FTA) in the near future,” said Ms Apiradi.

China’s ascent isn’t looking so inevitable now

The Star Foreign funds continued entering Malaysia despite the selloff in some regional peers notably Korea and Thailand, according to MIDF Research.

“For the (last) week, foreign investors acquired RM151.2mil net in the open market excluding off market deals, half of the amount in the week before,” MIDF said in its weekly fund flow report. For the month of July, cumulative foreign net purchases amounted to RM420.9mil net, the second lowest monthly inflow for the year. With seven consecutive months of foreign buying, the cumulative year-todate inflow is nearing the RM11bil mark at RM10.8bil net.

New Zealand Herald Domestic airlines are stepping up their fight against airport charges, with a new Australasian group flexing its muscle.

Airlines for Australia and New Zealand (A4ANZ) chiefs are scheduled to meet airport representatives, government departments and ministers later this month to press its case. The group represents airlines operating on either side of the Tasman. It includes Air New Zealand, Qantas, Jetstar, Virgin Australia and Tigerair. Its chairman, Prof Graeme Samuel, said airports were using their monopoly positions to effectively charge what they like.

Jakarta Globe Japan Tobacco said it has agreed to buy an Indonesian maker of “kretek” tobacco and clove cigarettes, together with its distributor, for US$677 million, giving it a bigger footprint in the world’s second-largest tobacco market. The announcement comes as Japan Tobacco has been trying to acquire tobacco businesses in emerging Asian markets.

It has said it is in talks to buy assets of Philippine cigarette maker Mighty Corp.

Japan Tobacco said it is acquiring all shares of Karyadibya Mahardhika and Surya Mustika Nusantara. Including the pair’s debt, the value of the deal is US$1 billion, Japan Tobacco said.

Michael Schuman a Bloomberg View columnist

T

he fall from grace of China’s Anbang Insurance Group Co. Ltd. continues to get steeper. Not long ago, the mysterious firm was chasing one foreign deal after another, becoming a symbol of China’s global economic ambitions. Now it appears the government may be pressuring Anbang to divest those prized foreign assets. If that proves to be the case, China will have given foreign businessmen yet another reason to be wary of working with Chinese companies: the uncertainty of an erratic, intrusive state meddling in private financial affairs.

But the Anbang case is also part of something bigger, and for China’s economic future, scarier.

In just about every category, China’s rise into a global economic superpower has stalled. And the Chinese government sits at the heart of the problem.

Most people around the world still seem to believe China’s ascent is relentless and inevitable. A recent survey by the Pew Research Center showed that while more of those polled still see the U.S. as the world’s leading economy, China is quickly narrowing the gap.

Chinese President Xi Jinping has been feeding that positive image by presenting his country as a champion of globalization, trade and economic progress.

Statistics tell a different story.

The common perception is that China is swamping the world with exports of everything from mobile phones to steel to sneakers. In fact, the entire Chinese export machine is sputtering.

Between 2006 and 2011, China’s total merchandise exports nearly doubled, powering the country through the Great Recession. Since then, they’ve increased less than 11 per cent, according to World Trade Organization data.

The same trend holds for China’s currency. In late 2014, the renminbi broke into the top five mostused currencies for global payments, reaching an almost 2.2 per cent share. China seemed well on the way to achieving its long-stated goal of turning the yuan into a true rival to the dollar. But that progress has reversed. In June, the renminbi chalked up only a 2 per cent share, according to Swift, slipping behind the Canadian dollar.

The situation isn’t very different in China’s capital markets. While the government has cracked open its stock and bond markets to foreign investors, they still prefer buying Chinese shares listed in Hong Kong or New York to those in Shanghai or Shenzhen. For instance, domestically traded A-shares in a China equities fund managed by Zurich-based GAM account for less than 10 per cent of its holdings.

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage. Facing stiff competition from

“

countries like India and Vietnam, where wages are lower, China is losing ground in apparel and textile exports to the United States. Meanwhile, the Chinese economy isn’t replacing these traditional exports with new, high-value ones quickly enough. For example, in 2016, China exported 708,000 passenger and commercial vehicles, a sharp deterioration from the more than 910,000 shipped abroad in 2014.

Rather than boosting China’s global expansion, government policy is holding it back. The renminbi remains a sideshow in currency markets because the state can’t stop fussing with its value. In May, the central bank actually reversed its stated policy to liberalize the renminbi’s trading and imposed more control. Investors haven’t forgotten the heavy hand Beijing employed to try to quell a stock market collapse in 2015, leaving them wary of exposing themselves to Chinese shares.

Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment. For a while, officials were encouraging big companies to shop abroad, resulting in a surge of deal-making by firms like Anbang. That led to a debt-crazed buying binge.

Having created the problem, the government then stepped in to “fix” it, by suddenly changing course and clamping down on foreign deals. According to the American Enterprise Institute, China’s offshore investment still grew by 9 per cent in the first half of 2017, but only because of one giant deal -- state-owned China National Chemical Corp.’s acquisition of Syngenta AG. Take that one out, and overseas investment would have fallen by about a third.

The root cause of China’s global stall is this continued inability to let markets be markets.

Meddling in the allocation of finance has ensured that much-needed capital gets gobbled up by the politically connected, not the competitive. Then the government tries to rectify the damage with more government. In an effort to rejuvenate exports, China has unleashed a subsidy-rich industrial program to upgrade its manufacturing called “Made in China 2025.” To help companies expand around the region, the government has cooked up the Belt and Road Initiative, an infrastructure-building scheme that looks to many like a boondoggle.

The fact is that Chinese companies will face enough trouble transforming into global players -- with the brands, technology, financial savvy and management expertise to battle it out with the world’s best -- without bureaucrats intruding.

Anbang may or may not be an overleveraged neophyte that bit off more than it could chew. The point is that China would be better served letting the market decide. Bloomberg View

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage

”

16 Business Daily Tuesday, August 8 2017

Closing Environment

Hong Kong cleans up greasy beaches after palm oil spill

Clumps of palm oil dot the sand on Hung Shing Yeh Beach in Hong Kong. Source: Lusa

On Pui O beach, on the island of Lantau, cleaners raked through the famous black sand yesterday morning retrieving lumps of palm A clean-up operation was under way in Hong Kong yesterday after a massive palm oil spillage oil mixed with other trash, from plastic water from a ship collision in mainland Chinese waters bottles to children’s toys.

Although there is still a red flag up and the clogged some of its most popular beaches. beach is officially closed, some people ventured The coast was coated with rancid-smelling into the water. sticky white clumps of the oil as it washed in Sunday, with 11 beaches still closed to swimmers One 61-year-old surfer, who gave his name as yesterday in the height of a summer heat wave. Simon and is a regular at the beach, said there was still oil in the sea.

There are still lumps of the solidified oil on the “It got under my feet and on my board. It’s all beaches and the sea water in some areas is slippery,” he told AFP. AFP greasy.

Commerce

Global tech, U.S. demand fuel Taiwan’s July exports Annual exports in July to China and the United States jumped 11.7 per cent and 18.7 per cent, respectively Faith Hung and Roger Tung

T

aiwan’s exports in July expanded for a 10th straight month, as factories rushed to meet orders for Apple Inc’s upcoming iPhone 8 and U.S. shipments surged.

The stronger-than-expected performance bodes well for Taiwan’s economy, setting it up to meet the government’s 2.05 per cent target and giving the central bank leeway to leave interest rates unchanged at its quarterly meeting next month.

Key Points Exports to China +11.7 pct y/y; U.S. +18.7 pct Exports expand for the 10th straight month Trade surplus with U.S. expands to US$990 mln in July vs June Cbank expected to leave rate unchanged for Q3, Q4 -analyst Exports in July rose 12.5 per cent from a year earlier, expanding for the 10th consecutive month, the finance ministry said on Monday.

That beat the 8.9 per cent forecast in a Reuters poll and was roughly flat against 13 per cent growth in June.

July imports also rose a

faster 6.5 per cent compared with June’s 3.7 per cent, resulting in a trade surplus of US$5.37 billion.

“The global economy is recovering at a stable pace, orders are coming in from international cell phone brands, while demand for non-electronics products is also picking up, and there was a lower base effect,” the ministry said in a statement, referring to the comparative base of July 2016.

July’s export value was US$27.11 billion, the highest since December 2014, the ministry said, adding exports are expected to grow yearon-year in the third and fourth quarters this year.

Apple recently delivered surprisingly strong fiscal third-quarter earnings and signalled that its upcoming 10th-anniversary phone line-up was on schedule, boosting expectations of increasing shipments from its Taiwanese suppliers.

Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is an important gauge of global demand for technology gadgets worldwide.

Leading indicators such as the Nikkei/Markit Taiwan Purchasing Managers’ Index have shown Taiwan’s factories picked up the pace in July on robust export demand.

Annual exports in July to

China and the United States, Taiwan’s two biggest markets, jumped 11.7 per cent and 18.7 per cent, respectively.

That compared with 21 per cent and 7 per cent in June.

Some analysts were bullish about prospects in August and September.

“Exports are expected to extend their growth going forward thanks to orders from Apple and better-than-expected commodities prices worldwide,” said analyst Forest Chen of

Yuanta Securities Investment Consulting.

He expects Taiwan’s central bank to leave interest rates unchanged for the rest of 2017.

Taiwan posted a trade surplus of US$990 million with the United States in July, up from US$920 million surplus in June and US$628 million in May, the ministry said. Although the gap has widened, it remains below a threshold that could trigger punitive moves by the U.S. Treasury.

“Taiwan’s trade surplus hit US$28.2 billion from January to July, up by US$420 million in the year-ago period, which indicates the stronger Taiwan dollar is not impacting Taiwan’s exports as much as expected,” Chen said.

Taiwan appeared again alongside China, Japan, South Korea, Switzerland and Germany on the latest watchlist published in April of countries that the United States would monitor as potential currency manipulators. Reuters

Mong Kok clash

Diplomacy

Infrastructure

Two jailed in Hong Kong over riot protests

Beijing said to cancel Vietnam meeting over South China Sea spat

Cambodia to ask Japan to invest US$800 million in skytrain

Two Hong Kong men were jailed for three years on rioting charges yesterday, the latest in a series of legal actions against demonstrators.

The unrest in February 2016 saw police fire warning shots in the air in the commercial district of Mong Kok as they clashed with protesters who hurled bricks torn up from pavements and set rubbish alight.

It was the worst violence the city had seen for decades.

The demonstrations were led by “localist” activists seeking more autonomy from Beijing, as fears grow that Hong Kong’s freedoms and identity are under threat from Chinese authorities and the city’s pro-China local government.

The 2016 violence was triggered by official attempts to remove illegal hawkers from the busy commercial neighbourhood during Lunar New Year celebrations.

Law Ho-yin and Lin Yun-faat, both in their 20s, were given three-year sentences yesterday after being found guilty last month.

Chris Yung, 19, was sent to a correctional training centre for up to three years.

They had all denied the charges. AFP

China’s Foreign Minister Wang Yi cancelled a scheduled one-on-one meeting with his Vietnamese counterpart in Manila at the last minute yesterday due to a spat over the South China Sea, according to people familiar with the situation.

China was upset over the wording of a communiqué released by foreign ministers of the Association of Southeast Asian Nations on Sunday night that expressed concern over land reclamation on disputed islands, according to the people, who asked not to be identified because the information isn’t public. China saw Vietnam as pushing for that language to be included in the statement, they said.

The statement said that some of Asean’s 10 foreign ministers expressed concern “on the land reclamations and activities in the area, which have eroded trust and confidence, increased tensions and may undermine peace, security and stability in the region.” Vietnam Foreign Minister Pham Binh Minh is among top diplomats from more than 20 countries attending meetings in Manila this week.

A spokesman with the Chinese delegation suggested that the one-on-one meeting wasn’t the only opportunity where the ministers could’ve had discussions. Bloomberg News

Cambodia will ask Japan to invest US$800 million in a skytrain system for the capital Phnom Penh, Prime Minister Hun Sen said yesterday during a visit to Tokyo.

Inadequate infrastructure, particularly in rural areas, has partly deterred investors in Cambodia, one of the world’s poorest countries.

Hun Sen said on Facebook the skytrain would link the capital to its international airport.

“Currently, many Japanese investors are interested in investing in Cambodia,” Hun Sen said.

Hun Sen, who is on a three-day visit to Japan, said Cambodia and Japan would also sign two other agreements following talks with Prime Minister Shinzo Abe expected later on Monday.

Trade between Cambodia and Japan in 2016 was US$1.3 billion, according to Hun Sen. Although China dominates the investment landscape in Cambodia, Japan is an important player and is the third-largest investor in Cambodia.

Since 1992, it has also been Cambodia’s biggest donor, giving more than US$2 billion in official development assistance. Reuters