Legislators debate feasibility of rent bill AL Page 2
Thursday, August 10 2017 Year VI Nr. 1358 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Monetary Authority
Benjamin Chan Sau San to chair board of AMCM Page 3
Traffic
Less than a third of 715 roadworks planned for this year completed in H1 Page 3
www.macaubusiness.com
Results
Hong Kong exchange profit flexes muscle Page 8
Debt
Chinese authorities say deleverage drive paying results Page 10
Gov’t Tightens Grip On Helping Hand
Regulation
Local entrepreneurs seeking funding via gov’t scheme will need to provide proof of at least 42 hours training in business administration or related field. While broadening the scope of funding disbursal, the gov’t announced it will also increase oversight. Including penalties for non-repayment, and simplification of application. Page 4
Gaming operator Galaxy and Chong Ou Direct Bus Services are thinking green. Possibly putting 25 electric buses by Chinese automobile manufacturer BYD into service. Each bus can travel up to 250 km on one charge - with number of charging stations to be installed in MSAR dependant upon gov’t and private sector requirements.
Transportation Page 6
HK Hang Seng Index August 9, 2017
Hengqin More special policies needed, says Hengqin New District Administrative Committee. Border clearance, healthcare, education, finance, telecom and more needed to improve co-operational development between regions. Amending policies, preparing for HKZM Bridge and training talent all necessary going forward, says Committee. Page 5
Commodities push factory inflation Prices Producer price gains on Mainland hold steady on surging commodity prices. PPI was also helped by resilient demand. While the gov’t drive to reduce industrial capacity starts to bear fruit. The CPI, however, underperformed. Page 8
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China Overseas Land &
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China Unicom Hong Kong
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China Resources Land Ltd
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Bank of Communications
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+1.47%
CK Hutchison Holdings Ltd
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2 Business Daily Thursday, August 10 2017
Macau AL
Further debates looming Part of the bill was passed despite legislators questioning the feasibility of the newly amended bill combating deadbeat tenants Cecilia U cecilia.u@macaubusinessdaily.com
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uring yesterday’s plenary session in the Legislative Assembly (AL) several legislators voiced concern over an amended rental bill, questioning whether it would be effective in avoiding renters who refused to leave a property while failing to pay the rent. The bill proposed the mandatory notary mechanism for signing rental contracts in order to verify the identities of both landlords and tenants, and also aims at limiting cases of tenants performing illegal activities such as illegal provision of accommodation. However, legislator Chan Chak Mo pointed out that “tenants could re-rent to another tenant” since signatures can be recognised by another person without the need to be conducted in person, under the amended bill. One of the Articles of the bill proposes a simplified procedure for landlords to have their signature recognised, with only the comparison made from BIR or a recognised signature card,
to obtain a permit from the court in order to force out non-paying tenants within 20 days, as explained by legislator Leonel Alves, one of the nine legislators who proposed the amendment to the bill. Alves stressed that the permit can only be obtained when the contracts are being notarised, pointing out that many landlords skip the procedure of notarisation to “evade taxes”. Government appointed legislator Vong Hin Fai pointed out that several conditions would need to be met by landlords in order to obtain a permit from the court, including the need to go through judicial procedures.
“[What I understand is that] the landlord cannot just take the notarised contract and immediately get the permit,” said Vong. Related Articles passed yesterday, while the final reading of the rental bill will
Lionel Leong: More time to evaluate MJC proposal
The Secretary for Economy and Finance Lionel Leong Vai Tac said the Administration needs time to evaluate the proposal submitted by the Macau Horse Racing Company Limited given that the proposal involves a “large amount of investment” and as such the granting of another six months of concession. According to the dispatch released
be continued today. Meanwhile, the AL unanimously passed the final reading for the budget framework bill, although several legislators raised some issues of the bill relating to transparency of public expenses.
in the Official Gazette on Monday the duration of the contract has been extended until February 28, 2018. “Given the significant importance of the related plan, the MSAR Government needs to co-ordinate with related departments [regarding] feasibility. The Gaming Inspection and Co-ordination Bureau (DICJ) also needs time to collect opinions from different departments for evaluation.” The Secretary noted that the
The new law will mandate that the government report the implementation of its investment plan PIDDA every quarter to AL, as well as disclosing the implementation of the fiscal budget every October.
proposal would pose a positive impact upon the diversity of the city’s gaming industry as well as the development of Macau as a World Centre of Tourism and Leisure. Leong also pledged that related evaluation results would be readied within six months. The Jockey Club recently revealed a plan to build a hotel within the property at Taipa and other recreational services for a more diverse business in the long run.
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Health
Kiang Wu snaps up lion’s share of Health Bureau funds Kiang Wu Hospital received almost MOP69 million (US$8.5 million) from the Health Bureau in the second quarter of this year, a dispatch published in the Official Gazette revealed yesterday. This amount represented almost 59 per cent of the total MOP117 million the Bureau had disbursed between April and June of this year. According to the release, almost half of the funds granted to Kiang Wu Hospital were to support inpatient services for the January to May period. Kiang Wu Nursing College received the second largest amount in the second quarter, at MOP23.8 million. The largest amount received by an institution not related to the private
hospital run by Kiang Wu Charitable Association, was the Macao Federation of Trade Unions, which received MOP12 million. In the first half of this year the Health Bureau disbursed some MOP129 million. N.M.
Economic crime
Trans-regional economic crimes top list Losses and damage to companies ensuing from trans-regional economic crimes have already exceeded losses generated by other types of crime against property, according to information provided by the head of the Division of Investigation of Economic Crimes of the Macau Judiciary Police (PJ), Chan Cho Man, in a story published by local newspaper Jornal Tribuna de Macau (JTM). The most common economic crimes in Macau include offences linked to market regulation, foreign trade, commercial and industrial enterprises, finance management, tax administration, and intellectual property rights. Akin to situations found in countries and territories worldwide,
trans-regional crime is one of the ‘most common’ characteristics of economic crimes perpetrated in the city, said Chan, with suggestions that more efficient investigation and prosecution procedures can be pursued by improving judicial collaboration between the Macau SAR, Mainland China, the Hong Kong SAR and Taiwan. The statements were cited from an article published by the authorities, including the statement that there is ‘considerable difficulty’ in improving collaboration in that regard due to the fact that ‘any other agreement on judicial co-operation at the regional level in criminal matters with the three regions’ has not yet been signed. S.Z.
Business Daily Thursday, August 10 2017 3
Macau Economy
Different strokes for different folks Benjamin Chan Sau San will start his role as Chairman of the Board of Directors of the Monetary Authority of Macao
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onetary Authority of Macao on August 26 Benjamin Chan Sau San will assume the role of Chairman of the Board of Directors of the Monetary Authority of Macao (AMCM) on August 26, with the term set to last until August 25 of next year according to a dispatch published in the Official Gazette yesterday. Mr. Chan - a member of the AMCM Board of Directors - will replace Anselmo Teng Lin Seng, the first administrator of Chinese origin to take up the role, working in the department
since 1999. In statements made in yesterday’s Legislative Assembly (AL) plenary session the Secretary for Economy and Finance Lionel Leong Vai Tac noted that the new appointment is a “normal personnel re-arrangement”. “The main reason is, Macau is approaching a new financial development [thus] the government has to make long term plans to suit the changing situation […] these plans would then include personnel structure, in order to allow the city to meet higher goals and have better arrangements,”
stated the Secretary. The new appointee has occupied several government positions within the MSAR and in Hong Kong, having held the position of Director of the Statistics and Census Service (DSEC) since 2001 and as a member of the MSAR Council for Economic Development. In 2001, Mr. Chan was also appointed by the MSAR Government as a member of the committee for managing the gaming concessions’ public tender. Mr. Chan was also a co-ordinator at the University of Macau’s (UM) Faculty of Business Management from 1998, in
charge of the Business Research and Training Centre and of courses in the areas of economics and international finance. N.M.
Construction
Traffic problems expected to worsen Of the 715 roadworks the government planned to finish in 2017 only 31.7 per cent were wrapped up in the first half of this year Nelson Moura nelson.moura@macaubusinessdaily.com
The Transport Bureau (DSAT) has completed less than a third of the 715 roadworks it has planned for this year, the Bureau has told Business Daily. According to DSAT, as of June 30 of this year 227 roadworks had been completed, with 75 ongoing and 413 not yet started.
Last year, DSAT announced that it planned to conduct more than 1,000 road construction works in 2017, including 711 construction projects for government departments and institutions as well as urgent maintenance for private development projects. M ea n w hi l e, th e S ecretary for Transport and Public Works, Raimundo do Rosário, said in the
Legislative Assembly (AL) that the level of roadworks would increase in 2017, with traffic problems expected to worsen.
Late hours
DSAT also informed Business Daily that since the Prevention and Control of Environmental Noise Law was enforced in 2015, four works had been authorised outside of the fixed daytime
hours and on holidays, with two projects progressing in 2017. Of these two projects, a pipe replacement project in Rua da Ribeira do Patane conducted by Macao Water Supply Co. Ltd. has already been completed, while reparation works for the water treatment station in Rotunda Ouvidor Arriaga in Taipa are still being carried out by the Civic and Municipal Affairs
Bureau (IACM). DSAT said that the two works saw their conclusion period extended due to their location in highly used public transportation lanes, with the extension allowing the ‘release of traffic and increasing the works’ progress’. The department said it had not received any complaints about noise related to construction taking place at late hours. advertisement
4 Business Daily Thursday, August 10 2017
Macau Opinion
Ashley Sutherland-Winch*
Smart city pros & cons Where is the line between personalised services for us, our community, and the amount of personal information we are giving out? We have smartphones, smart homes, and soon a smart city. While the benefits of having artificial intelligence (AI) integrated into Macau’s technological infrastructure have many pros, what are we giving up in return? We won’t be the first smart city and we certainly won’t be the last but there are some valuable considerations to be made from other smart city integrations and I have a few concerns. AI has revolutionised services like parking where a sensor can detect whether a space is occupied or not. Trash cans can alert a garbage truck when they are full. Technology like this can minimise traffic and increase the success of public services in incredible ways but it is important to consider that with more connection come more vulnerabilities. The Macau Government has launched a deal that opens up our city to Alibaba, and I can only imagine the massive amounts of data that Alibaba will receive from us. A major concern is that when an entity becomes ‘smart’ it is vulnerable to hackers and to the evolving artificial intelligence itself. Tesla boss Elon Musk and Professor Stephen Hawking have both declared AI to be the most serious threat to the survival of the human race, with AI’s ability to self-learn and act on that new knowledge as a real and present threat that needs immediate and tough governmental regulatory oversight. Making Macau ‘smart’ will allow for conveniences that will be great and we may not even notice the cons. With the rapid development of urban communities, we must step up technology in a major way and I know that we have important areas that can be improved in our city, transportation being a major example. Alibaba can assist us with this development and we will see major benefits overall. Unfortunately, it is clear to me that no data is ultimately private in this day and age and my concern living in a smart city is whether or not we will be provided security or surveillance and where will the line be drawn? As Alibaba Cloud President, Hu Xiaoming, said on Friday: “The data will be stored in Macau. We will build an autonomous smart city platform connected with other platforms from us or the rest of the world.” It will be interesting to see how our new smart world unfolds. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Regulations
Amendments to enhance capability announced The Macau SAR Government has enacted amendments to two regulations ruling on the concession of funds to young entrepreneurs and the recruitment system of civil servants, now highlighting training and higher education Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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oung entrepreneurs seeking financial support from the government will have to demonstrate that they had pursued a minimum of 42 hours of technical or academic training in business administration or a related field, the Macau SAR Government announced yesterday during a press conference held at its headquarters. The measure is one of six changes approved to amend the Young Entrepreneurs Aid Scheme, aimed at “broadening the scope of beneficiaries . . . strengthening training activities . . . [and] . . . simplifying application procedures and formalities,” said Executive Council spokesperson Leung Heng Teng. Exemption of the 42 hour-plus training is allowed for applicants holding a higher education degree or a certificate from a course of duration of no less than one year in the field of business. Expanding the scope beyond those young entrepreneurs who seek support from the scheme to set up their first business, young entrepreneurs – defined as aged 21 to 44 – who already have business experience are now allowed to apply. Those who have previously received support from the Industrial and Commercial Development Fund (FDIC) may not. Applicants now no longer need supply documents including the declaration of initiation of activities related to industrial taxation themselves, and copies of the commercial registry and the company’s constitutive act, as the relevant departments will communicate to source them. Increased oversight of activities performed by small and medium-sized
enterprises (SMEs) supported by the scheme will also be put in place. Deadlines for reimbursement will be tightened. Members of the scheme who do not pay back loan instalments within nine months will have their support terminated whilst those who fail to pay the final instalment of the loan will have their support terminated within three months.
The maths
The scheme has disbursed MOP246.37 million to fund entrepreneurial projects since its launch on August 1, 2013 to July 31 of this year, a spokesperson for the Macao Economic Services (DSE) said during the press conference yesterday. The amount covers 1,037 approved applications of 1,479 applications submitted over the period. The number of applications rejected reached 214, while the remaining 288 consist of applications still under evaluation. The number of concessions cancelled during the period reached 188, corresponding to MOP43.33 million. “Cases of cancellation of concessions take place when companies opt to stop receiving the funding because they have raised enough capital, because they have cancelled their activities, or have not presented a report,” DSE’s spokesperson explained. The government revealed that 63 cancellations have been completely reimbursed, totalling MOP15.15 million. Coercive collection of amounts due, totalling 53 cases, reached some MOP12.59 million. In terms of sector of activity, the retail business received the majority of funds allocated, corresponding to 48 per cent of the total, or MOP118.21 million. The second most important group was that of restaurants and hotels,
totalling MOP29.50 million, or 12 per cent of the funds attributed. Other sectors of economic activity financed by the scheme include vehicle repair, wholesale trade, education and healthcare, construction and public works, import and export, and cultural and recreational activities, among others.
Valuing qualifications
Highly qualified professionals willing to start careers in public service will be exempted from undergoing recruitment per the centralised recruitment system, according to information also provided yesterday by the Executive Council spokesperson. According to the amendment to the regulations on recruitment, selection and training of staff for public services, six situations define the conditions under which candidates can be directly admitted to the examination of professional or functional competencies, without having to participate in the examination of integrated competencies. Following the amendment, two recruitment modalities are enacted. The evaluation of integrated competencies will be overseen by the Administration and Public Services Bureau (SAFP). The evaluation of professional or functional competencies will be conducted by the relevant service involved in the recruitment of staff. Overall, the six situations to be considered by specific recruitment procedures include academic qualifications and higher education training, experience in positions of directorship, and functions within departments of the public administration such as the Office of the Chief Executive, the Chief Prosecutor’s Office and the Office of the President of the Court of Final Appeal.
Business Daily Thursday, August 10 2017 5
Macau Hengqin
Closer ties envisaged with Hengqin Hengqin New District Administrative Committee reveals plans for further development and co-operation with the MSAR - plus the challenges ahead Cecilia U cecilia.u@macaubusinessdaily.com
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ore special policies are to be approved for MSAR residents in aspects relating to co-operation between the MSAR and Hengqin, according to the Hengqin New District Adminsitrative Committee (HDAC). In particular, policies relating to clearance, healthcare, education, finance, telecommunications, innovative startups, standard docking and licence approval, according to the administrative body, the group notes in a report on how to achieve satisfactory devellopment between the two regions. Both special policies in co-opeation and expediting major projects of the regions are priorities, according to the report. With the 20th anniversary of the handover of the MSAR and the 10th anniversary of the development of Hengqin occurring in 2019, the HDAC says this progress will be the primary concern both for government leaders and parties from different sectors. Given the ‘one country, two systems’, HDAC points out significant difficulties will be encountered when policies needing to be amended involve several authorities from outside of each region.
Actual plans
HDAC notes that the completion of the Hong Kong-Zhuhai-Macau Bridge is one of the main factors in encouraging
co-operation in the construction of the Greater Bay Area plan, specifically defining the MSAR’s role within the project. In particular, HDAC will expedite the development of the Guangdong-Macau Co-operation Industrial Park with the rollout of policies such as launching the application for the third batch of businesses to be set up in the Park. Secondly, Hengqin will hold t h e ‘ C h i n a - L a t i n -A m e r i c a n
International Expo’ in which all sectors from the MSAR are welcome to participate. On the other hand, together with Macao Economic Services, HDAC will build a service platform for youths from Guangdong and Macau who are interested in starting up a business in Hengqin, which will enhance the support of business from Macau in the Innovalley, notes the group. Moreover, the neighbouring Chinese city is striving to lower the
threshold for Macau-based financial institutions, supporting these institutions to establish joint venture licensed securities companies with Chinese institutions under the CEPA (Closer Economic Partnership Arrangement) framework. HDAC is also placing effort in creating a closer connection between the two regions by connecting the Light Rail Transit by accelerating the construction of a transportation hub in Hengqin. advertisement
6 Business Daily Thursday, August 10 2017
Macau Tag
Electric bus transportation gathers momentum Chinese BYD Company Ltd. has signed two separate agreements with Chong Ou Direct Bus Services Limited and gaming operator Galaxy Entertainment Group that could see around 25 electric buses hit local streets in the next four to six months Nelson Moura nelson.moura@macaubusinessdaily.com
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hinese automobile and batteries manufacturer BYD Company Ltd. signed two separate agreements with Chong Ou Direct Bus Services Limited and gaming operator Galaxy Entertainment Group Ltd. possibly bringing 25 of the company’s electric buses to the MSAR. BYD signed a purchase deal with Chong Ou for five 10.6-metre C8 electric coaches, while Galaxy signed a memorandum of understanding to conduct a threemonth trial of 20 buses pending an option to purchase. “Macau is in a good position to implement a pure electric transportation system and we are honoured Macau has chosen to partner BYD to make this a reality,” the General Manager of BYD Asia Pacific Auto Sales Division, Liu Xueliang, said yesterday at the signing ceremony.
According to BYD Senior Regional Manager for Hong Kong and Macau, Henry Yip, the electric buses will arrive in the city in the next “four to six months”, with the models in question priced at an average HK$2.1 million (US$294,218). BYD C8 electric buses can travel more than 250 kilometres on a full charge, with the recharge taking four hours, company information reveals. Mr. Yip said BYD would fully support the installation of the company’s electric charging solutions but that the number of stations installed would depend upon the requests of the MSAR Government and the signing companies.
Third time is the charm
The MSAR has already seen two electric buses trial in recent years, with BYD having brought an electric bus for a trial period in 2013 as part of a local government programme to test the
implementation of green technology. In 2016, bus transport companies TCM and Nova Era introduced two electric bus routes as part of a 30-day trial, with the MSAR Government supporting the vehicles’ MOP600,000 rental. Despite applauding the recent initiative, the President of the Association for Passenger and Cargo Direct Transport between Mainland China, Hong Kong and Macau told Business Daily that the previous trials failed to result in actual implementation of electric buses due to government inaction and the high price of the vehicles. “I don’t see the government take any action to lower the numbers of vehicles or air pollution […] We’re trying to pass the government’s concerns to the government,” Mr.Lee said. As of June this year, there were 243,570 licensed vehicles in the MSAR, 1.9 per cent less when compared to the same period of last
year. However, the number of newly licensed vehicles in the first half of the year went up by 6 per cent year-on-year. According to the businessman there were no previous agreements, due to the Macau market being too small and with “the cost of electric cars or buses being too high compared to regular vehicles . . . An electric bus can cost around MOP2.3 million, while a diesel bus can cost
MOP800.000 . . . The charging time [four hours] is also long. How can a company like Galaxy keep rolling its shuttle service?” Mr. Lee told Business Daily his association is negotiating with BYD about the possibility of local companies renting the buses rather than purchasing them, while looking for other electric vehicle companies providing shorter charging periods “more suitable for Macau’s situation”.
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Cross-border
Easier border crossing Authorities regulating the border crossing on the Zhuhai side have revelaed that the co-operation plan for the clearance system between the MSAR and the neighbouring city will soon be rolled out, according to Chinese language news outlet Ta Kung Pao. The new clearance system will allow local residents to only need use a Mainland Travel Permit for Hong Kong and Macau Residents to cross the Chinese border, in addition to their BIRs to cross the Macau section of the border. Residents could use only their BIR to return to Macau. Chinese tourists will be able to go through the special self-service border crossing system after they have queued, using their ID Card to cross both Macau and Zhuhai borders. The co-operative clearance system will also be launched at the border of the Hong Kong-Zhuhai-Macau Bridge once opened later this year, as well as the new cross-border link of the passageway between Macau and Guangdong. Regarding the sharing of personal information between border authorities of the MSAR and the Mainland, as
well as concerns about technological safety, the Zhuhai border authorities stated that they have already resolved the related requirements. Chinese authorities also emphasised that the independent inspection systems of each authority at the borders will still be present. In addition, border authorities revealed that departments of both regions are currently implementing the common framework for x-ray inspections for light vehicles at the Hengqin border, indicating that the framework would also be implemented at the Gongbei border. C.U.
Government
Overhaul for administrative committee of GPDP The Macau SAR Government has ordered the restructuring of the administrative committee of the Office for Personal Data Protection (GPDP), following the cessation of functions of one of its members, a dispatch published in the Official Gazette announced yesterday. Following the proposal of GPDP and the hearing of the Finance Services Office, the government
decided that the committee would now comprise Yang Chongwei, the Office co-ordinator, as president; Lio Chi Chong, senior technical advisor, as representative; Lei Man Tou, senior advising technician, as member; Choi Sao Leng, senior advisory technician, as alternate member; and Chan Un Kei, first class technician, as substitute member. S.Z.
Business Daily Thursday, August 10 2017 7
Macau Casino license
Great Canadian, Brookfield win Ontario casinos bid The two were selected by the Ontario Lottery & Gaming Corp. to run three casinos for 22 years Natalie Wong and Scott Deveau
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reat Canadian Gaming Corp. and Brookfield Business Partners LP won a bid to operate gaming facilities in the Toronto area that generate revenue of more than C$1 billion (US$788 million) as Ontario moves to modernize gambling in the province. The Richmond, British Columbia-based casino operator and Brookfield Business, the private-equity unit of Toronto-based Brookfield Asset Management Inc., were selected by the Ontario Lottery & Gaming Corp. to run three casinos for 22 years, according to a statement released by the two companies on Monday. The properties include more than 4,000 slot machines, 60 table games and more than 2,200 staff. Financial terms of the agreement weren’t disclosed. Toronto Area concession, the largest by OLG, includes the Slots at Woodbine racetrack, Ajax Downs and the Great Blue Heron Casino in Port Perry. Great Canadian
Gaming opened the Shorelines Casino in Belleville, Ontario in January after winning a bid in 2016 for C$51.3 million. The group could invest about C$1 billion over the life of the concession and plans to expand gaming offerings while adding conference, hotel and entertainment facilities, Brookfield Business Partners CEO Cyrus Madon said. “The market is currently underserved so there is pretty strong growth potential there,” Madon said on a conference call. “We believe with improvements and expansions, and the addition of things like table games, the amount of gaming revenue to be had will be very substantial to where it is today.”
‘Huge milestone’
Ontario is giving control of some of its gambling operations in the Toronto area to a private businesses as Premier Kathleen Wynne seeks to boost casino gambling revenue in the province. Madon said the rights are effectively a monopoly in
the Greater Toronto Area, and are a stable business with consistently growing cash flows despite having limited capital and attention. Returns will fit comfortably within Brookfield’s targets of between 15 to 20 per cent, he said. The agreement may lead to additional opportunities with Great Canadian, he added. Great Canadian Gaming and Brookfield will invest through a newly formed
partnership, Ontario Gaming GTA LP, with Great Canadian Gaming and Brookfield each holding a 49 per cent interest, according to the statement. Clairvest Group Inc. will hold a 2 per cent interest. “Being partnered with Brookfield, considering their size and breadth of experience, is a huge milestone for the company,” Chuck Keeling, a spokesman at Great Canadian Gaming, said. Keeling declined to provide
details on the group’s plans, saying it will need to consult with local, provincial, First Nations and third-party stakeholders first. Even so, he expects pushback from groups opposed to expanding gambling in the province. “To the significance and the scale of what we will end up proposing, sure, there will be stakeholder groups that will not be in favour of it, irrespective of what we would propose,” he said. Bloomberg advertisement
8 Business Daily Thursday, August 10 2017
Greater china Prices
Steady factory inflation a boon for industrial profits China’s consumer price index slowed slightly to 1.4 per cent in July from a year earlier Sue-Lin Wong and Min Zhang
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hina’s factory price inflation held steady in July in a positive sign for industrial output and profits for the third quarter, even though a government-led drive to reduce debt is expected to cool earnings and economic growth by year-end. China’s economy has expanded solidly this year as commodity prices recovered, helping boost the industrial sector, while mild consumer price gains have left policymakers room to manoeuvre should growth falter. The producer price index (PPI) rose 5.5 per cent last month from a year earlier, unchanged from June, the National Bureau of Statistics (NBS) said yesterday. Analysts polled by Reuters had expected producer prices to hold steady for a third straight month at 5.5 per cent. Analysts say given expectations of deeper capacity cuts heading into the winter months, keeping supply tight and prices up, operating margins for businesses will probably remain solid in a boost to the bottom line. “We expect the PPI y/y to remain strong in the coming months, as the capacity reduction proceeds,” said David Qu, markets economist at ANZ in a note to clients. “The strong PPI indicates decent growth in corporate profits, especially for SOEs, leaving the authorities room for deleveraging,” he said. On a month-on-month basis, the PPI rose 0.2 per cent in July, after three months in the red, with the NBS attributing this to a rise in prices of commodities including steel and non-ferrous metals. Prices of commodities futures including steel rebar began to rise again in June and have continued to surge through early August, underscoring concerns over tight supply amid pollution inspections and strong restocking demand. China has eliminated around 120 million tonnes of low-grade steel capacity and 42.39 million tonnes of
crude steel capacity in the first half of the year, equivalent to 84 per cent of its target for the whole year. Beijing has also ordered steel and aluminium producers in 28 cities to slash output during the winter heating season that starts in November to curb pollution, spurring local investors to anticipate gains for big producers when a shortfall bites. Besides the capacity cuts, “the strong pipeline of infrastructure investment will continue to underpin material prices in the coming months,” ANZ’s Qu said. Shares in state-run Aluminium Corp of China (Chalco) have surged 63 per cent since the start of July, while shares in Shenzhen-listed Yunnan Aluminium have rallied 67 per cent.
Tighter credit
Inflation has been sluggish in major economies including the United States, Europe and Japan despite brightening growth. China’s consumer price index slowed slightly to 1.4 per cent in July
from a year earlier, missing market expectations, pressured by a 1.1 per cent annual fall in food prices. Analysts had predicted consumer inflation to have remained unchanged at 1.5 per cent for the third month in a row. “The current level of consumer inflation is so mild that the PBOC will be comfortable resuming the deleveraging process in the financial sector,” Iris Pang, ING economist wrote in a note ahead of the data. Chinese policymakers have clamped down on expansion of the money supply, and broad credit growth has also moderated, which could weigh on any further industrial recovery in China. The world’s second-largest economy has defied expectations for a slowdown and expanded at a solid pace in the first half, as a government-led infrastructure push has kept construction humming, though the broad consensus is for growth to cool slightly in coming quarters as authorities continue to crackdown on financial risks.
Any weakness in factory price inflation could start to weigh on profits at China’s large - and often heavily indebted - industrial firms, who have benefited from a strong commodities reflation cycle over the last year. While China’s manufacturing sector has shown solid activity, a potential slowdown in profit growth would impact their ability to trim debt levels, which remain a concern for policy makers. “We expect the central bank to keep liquidity either as tight as in July or even slightly tighter, and push interbank interest rates higher, especially at the short-end to reduce leveraging activities by interbank participants, which include banks and non-bank financial institutions,” ING’s Pang said. China has set its inflation target at 3 per cent and economic growth of around 6.5 this year, which suggests policy makers still have room to tighten controls to rein in financial risks from years of debt-fuelled stimulus. Reuters
Markets
HKEX Q2 profit rises on higher trading fees Rival Singapore Exchange last month also posted a higher quarterly net profit Hong Kong Exchanges & Clearing Ltd (HKEX) posted a 13 per cent rise in second-quarter net profit, beating analysts’ estimates, bolstered by a surge in trading and stock listing fees. The stock exchange operator of Hong Kong, which was the world’s No. 1 IPO market in 2015 and 2016, is benefitting from an improvement in investor sentiment that has translated into higher trading activity. HKEX reported yesterday a profit of HK$1.8 billion (US$230.0 million) for its fiscal second quarter ended in June, up from HK$1.6 billion in the same period last year. That compared with the HK$1.6 billion average forecast of analysts, as per Thomson Reuters data. As competition with other leading global stock listing venues has intensified, HKEX is leveraging its role as a gateway to China’s deep-pocketed investors to boost revenue. The bourse last month unveiled a proposal for a new listing board that will offer special voting rights
and waive profitability rules, aiming to attract secondary listings from Chinese firms that typically choose New York over Hong Kong. HKEX is also attempting to boost its commodities business through the
launch of new products by its LME platform. It is also expected to benefit from the recent launch of a bonds cross-trading system with China. “We are pleased to see that our mutual market access programme
continues to contribute to China’s capital market development and consolidate Hong Kong’s gateway position connecting China and the rest of the world,” HKEX Chairman Chung Kong Chow said in an earnings statement.
Key Points Q2 net profit HK$1.8 bln vs HK$1.6 bln estimates Net profit helped by higher trading and stock listing fees HKEX was the world’s top IPO market in 2015 and 2016 HKEX’s average daily turnover in the cash market on the stock exchange for the second quarter of 2017 was HK$77.8 billion, up 5 per cent compared with the year-ago period, the company said. Stock listing fees rose 7 per cent in the first half of the year to HK$398 million, it said. Reuters
Business Daily Thursday, August 10 2017 9
Greater China Stimuli
Party congress means mainland has spent year-end surge already But in the past, officials have been able to use off-balance sheet spending In the run up to China’s blockbuster Communist Party congress later this year, officials have spent big to ensure the economy is humming along nicely when the conclave begins. It’s after that that things get interesting. With the central government’s deficit limit capped at 3 per cent, officials usually turn on the taps around November and December, once they know they’ll have raised enough to fund a late-year splurge. Not this time. A push to smooth out spending means the fiscal pump is unlikely to go into high gear at year end, which is when economists see growth moderating toward the government’s baseline of 6.5 per cent. While policy makers have quasi-fiscal options up their sleeve -- like accelerating infrastructure project approvals or ratcheting up lending via policy banks -- efforts to curb profligate local governments and limit debt may restrain those channels too. “It’s China’s political-business cycle: this year is very important for the political transition, so they front-loaded fiscal spending to ensure a stable economic backdrop,” Larry Hu, head of China economics at
Macquarie Securities Ltd. in Hong Kong. “China’s economy has a fiscal system and a shadow fiscal system. If growth really slows to threaten the target, then we’re going to see spending.”
The question is, how much.
China ran a fiscal deficit of RMB918 billion (US$137 billion) in the first half, or more than 2 per cent of economic output during the period, Bloomberg calculations show. That’s a record both by value and share. The spending fuelled better-than-expected economic growth of 6.9 per cent in the first six months, and infrastructure investment surging at over 20 per cent. China International Capital Corp. analysts led by Liu Liu say the budgeted deficit will be RMB1.46 trillion in the second half, versus RMB2.46 trillion in the same period last year.
Clashing priorities
The world’s second-largest economy still depends on government spending at all levels, as construction of things like roads and railways can be a key buffer when private investors start pulling back or, as now, political sensitivities make robust
growth especially important. But those priorities are now clashing with the need to clamp down on indebtedness at lower levels of government, and the desire to avoid a yearend spending glut. As fiscal reform continues, the government’s spending pattern will be smoother, said Hua Changchun, global chief economist at Guotai Junan Securities Co. in Shenzhen. “After the 19th Congress, the government will pay more attention to deleveraging,” Hua said, forecasting infrastructure investment to decelerate next year. “That tightening will hurt
momentum in the first half of next year.” In the past, officials have been able to use off-balance sheet spending, such as policy bank loans and funds raised through local government financing vehicles, to keep their deep pockets open.
Augmented deficit
The so-called augmented fiscal deficit, a ratio that includes disposable revenues from land sales, policy banks and other channels, was estimated at more than 10 per cent last year, according to the International Monetary Fund.
That additional ammunition will be strained this year too. With top leaders tightening their oversight of local government financing and on substandard public-private partnership projects, a key fundraising channel for authorities is being put under stricter review. “Fiscal support will not pick up the slack in this second half,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “The off-the-book spending won’t swell, either. Now the government is keeping a very tight lid on local government financing.” Bloomberg News
North Korea
Trump appears to grant mainland banks sanctions reprieve after UN deal U.S. President warned on Tuesday Pyongyang “will be met with fire and fury” if it threatened the United States David Brunnstrom, Matt Spetalnick and Michelle Nichols
The Trump administration appears to be granting Chinese banks dealing with North Korea a temporary reprieve from threatened U.S. sanctions to give Beijing time to show it is serious about enforcing new U.N. steps against Pyongyang, U.S. officials said. The White House has also held off on much-anticipated trade action against China after Beijing backed U.N. Security Council sanctions passed on Saturday, although it is unclear how long President Donald Trump will delay this given domestic pressures to make good on campaign promises to crack down on unfair trade practices. Washington has made clear it is reluctant, for the moment, to take steps that would antagonize China when its cooperation is needed to tighten the screws on its ally and neighbour North Korea over its nuclear and missile programs. U.S. officials and U.N. diplomats say the threat of unilateral U.S. “secondary sanctions” against Chinese firms with North Korean ties and trade pressure from Washington helped persuade China to drop opposition to the new U.N. sanctions. “It played an important role to get China on board,” one diplomat said, speaking on condition of anonymity. The 15 Security Council members voted unanimously on Saturday to impose the toughest U.N. sanctions yet on North Korea after it tested two intercontinental ballistic missiles (ICBMs) in July. The measures are designed to choke off a third of North Korea’s US$3 billion annual export revenue.
China, North Korea’s main trading partner, has pledged to enforce the new sanctions but some critics are sceptical given what is widely seen as Beijing’s lax policing of existing restrictions. Influential Chinese state-run tabloid the Global Times, published by the ruling Communist Party’s official People’s Daily, said in a yesterday editorial that sanctions would not stop Pyongyang’s determination on its weapons’ programs. “The U.S. asks China for help when it cannot solve its problems with North Korea. Some U.S. elites even want to urge China to claim full responsibility for the issue or they will threaten to retaliate,” it said. “Moreover, those U.S. elites may not have considered the leverage China has over the U.S. What if China restricts the usage of iPhones and the number of Chinese students to the U.S., or imports fewer U.S. agricultural products?” Adding to the sense of urgency, Trump warned on Tuesday
China’s flag on the North Korean border
Pyongyang “will be met with fire and fury” if it threatened the United States. Earlier Pyongyang said it was ready to give Washington a “severe lesson” with its strategic nuclear force in response to any U.S. military action.
Watching closely
U.S. officials said they would be watching China’s enforcement closely. The administration holds in reserve a list of Chinese banks and other firms the Treasury Department has been preparing to sanction for their alleged ties to North Korea’s military programs. “Right now, our focus is on carrying out the existing sanctions and ensuring compliance with the new U.N. Security Council resolution,” a senior White House official told Reuters on Tuesday, adding there was “nothing imminent to announce” on secondary sanctions. The Trump administration has also been preparing to launch a high-profile investigation of China for
intellectual property violations. An announcement was initially planned for last Friday but was postponed, apparently after China softened its resistance to new U.N. sanctions, diplomats said.
‘China, North Korea’s main trading partner, has pledged to enforce the new sanctions’ U.S. officials said Washington’s patience with China would be limited, however, and it was important to show some progress on North Korea. “This course of action cannot be sustained indefinitely,” one U.S. official said. “With his approval ratings falling even with his base, Trump is trapped between the realities of dealing with China and his campaign promises to get tough on trade.” At the same time, U.S. officials acknowledge that even if the sanctions are properly enforced, there is no guarantee they will be any more effective than previous rounds, which have failed to halt steady progress in North Korea’s nuclear and missile programs. According to a new U.S. intelligence assessment reported by the Washington Post on Tuesday, North Korea has successfully produced a miniaturized nuclear warhead that can fit inside its missiles, crossing a key threshold. But U.S. intelligence officials told Reuters there was still no reliable evidence that North Korea had fully mastered the process. Reuters
10 Business Daily Thursday, August 10 2017
Greater China Debt
Beijing says deleveraging efforts showing results China’s corporate debt was equivalent to 166.3 per cent of GDP at the end of 2016
C
hina will push on with achieving better results in getting its corporate sector to cut excessive borrowings even though it has made initial progress in lowering debt levels as firms’ are still overleveraged, the state planner said on Wednesday. Policymakers have been trying to rein in debt risks and property bubbles amid fears that such problems could derail the world’s
second-largest economy if not handled properly. “We have seen initial results in lowering corporate leverage and debt risks have been effectively controlled,” the National Development and Reform Commission (NDRC) said on its website. But excessively high leverage ratios of Chinese companies have not been fundamentally reversed, with non-financial Chinese firms’ leverage
ratios still the highest among the world’s top economies, it said. “Therefore, we must firmly adhere to the direction of deleveraging, effectively overcome difficulties and achieve greater results in reducing corporate leverage levels,” it said. The government will focus on lower debt levels at state-owned enterprises by improving their governance structure, pushing mixed ownership reform, the NDRC said.
The state planner did not provide its own data on corporate debt levels, but cited figures from the Bank for International Settlements (BIS) that showed China’s debt-to-GDP ratio edged up to 257 per cent at the end of 2016 from 244.9 per cent a year ago.
Key Points Corporate deleveraging has achieved initial results - NDRC Says debt risks have been effectively contained Excessively high debt ratios haven’t been fundamentally reversed Will use mkt-based, legal means to address “zombie companies” On a quarter-on-quarter basis, the rate of rises in China’s debt levels slowed to 1.6 per centage points in the fourth quarter of 2016 from 1.9 per centage points in the third quarter. China will use market-based and legal means including the debt-for-equity scheme to address “zombie companies” by removing various obstacles and promote “euthanasia” of such firms, the NDRC said. Total contract value of China corporate debt-to-equity swaps so far has exceeded RMB1 trillion (US$149.35 billion), it added. China’s corporate debt was equivalent to 166.3 per cent of GDP at the end of 2016, unchanged from September, the BIS said on its website. Reuters
Trade
U.S. finds mainland aluminium foil subsidized, imposes duties The Aluminium Association, a U.S. industry lobby group, applauded the move The U.S. Commerce Department said on Tuesday it made a preliminary finding that imports of aluminium foil from China are subsidized, and it imposed countervailing duties ranging from 16.56 per cent to 80.97 per cent. U.S. aluminium foil producers had filed petitions with the U.S. government accusing Chinese producers of receiving subsidies and of “dumping” the product in the United States market, the first such case since President Donald Trump took office. In 2016, imports of aluminium foil from China were valued at an estimated US$389 million, Commerce Department figures show. U.S. Commerce Secretary Wilbur Ross said in a statement announcing the decision that the Trump administration “will not stand idly by as harmful trade practices from foreign nations attempt to take advantage of our essential industries, workers and businesses.” Wen Xianjun, the vice president of the China NonFerrous Metals Industry Association leading the antidumping negotiations for China, said the move would not only harm Chinese companies, but also U.S. downstream firms, especially in the soft packaging industry, where unemployment would rise as they became less competitive. “We do not wish to fight a trade war, but the Chinese aluminium industry is also not afraid of a trade war,” he said on Wechat.
The Aluminium Association, a U.S. industry lobby group, applauded the move. “This is an important step to begin restoring a level playing field for U.S. aluminium foil production, an industry that supports more than 20,000 direct, indirect and induced American jobs and accounts for US$6.8 billion in economic activity,” Association President Heidi Brock said in a statement. “U.S. aluminium foil producers are among the most competitive producers in the world, but they cannot compete against products that are subsidized by the Chinese government and sold at unfairly low
prices,” it said. The Commerce Department said it calculated preliminary subsidy rates of 28.33 per cent for Dingsheng Aluminium Industries (Hong Kong) Trading Co Ltd and 16.56 per cent for Jiangsu Zhongji Lamination Materials Co Ltd, the only two companies that participated in the probe. Three other China-based companies that failed to provide requested information or were found to give incorrect information about their status as exporters faced higher duties, it said. Loften Aluminium (Hong Kong) Ltd, Manakin Industries LLC and Suzhou Manakin Aluminium
Processing Technology Co Ltd were all slapped with 80.97 per cent anti-subsidy duties. Most of China’s aluminium is used in the domestic market, which still has a lot of potential to grow, China’s Wen said, adding that the preliminary tariffs were “within expectations”.
“We do not wish to fight a trade war, but the Chinese aluminium industry is also not afraid of a trade war” Wen Xianjun, the vice president of the China NonFerrous Metals Industry Association The next step in the U.S. trade action is a preliminary anti-dumping determination by the Commerce Department expected on Oct. 5. The case is separate from the department’s Aluminium 232 investigation launched in April into whether China’s aluminium overcapacity, dumping, illegal subsidies and other factors threaten U.S. economic security and military preparedness. Reuters
Business Daily Thursday, August 10 2017 11
Asia Public spending
Japan’s econ minister pledges to stick to primary budget fiscal discipline target Fiscal discipline has proved a tricky task for Japan Stanley White
J
apanese Economy Minister Toshimitsu Motegi said he would do his utmost to help the government achieve its fiscal discipline target of returning to a primary surplus in fiscal year 2020. Motegi, in a group interview with reporters yesterday, said he wanted to return to a primary surplus while simultaneously lowering the ratio of outstanding debt to gross domestic product. Motegi said he placed equal priority on fiscal discipline and economic growth.
Key Points Fiscal discipline is a tricky task for Japan Japan’s large debt burden worries some policymakers Motegi: CPI isn’t only judge of price trend Earlier this year the government made a subtle policy change that many economists saw as a step toward abandoning the primary budget surplus, but Motegi’s strong support for the target could ease concerns about fiscal discipline. “I’m not trying to say that fiscal discipline is of less importance than economic growth,” Motegi said.
“I’m trying to say they are both important. You cannot have one without the other.” Some advisers close to Prime Minister Shinzo Abe had earlier called for the government to give up on returning to a primary surplus, which excludes debt servicing costs and bond sales, because that would require big spending cuts. Instead, the government should focus more on lowering the debtto-GDP ratio, which is easier to achieve as long as the economy keeps growing. Motegi’s comments are in contrast to this and suggest that the
government may not give up on the target so easily. Fiscal discipline has proved a tricky task for Japan. Its debt burden is the worst among major economies at more than twice the size of its economy, but successive governments have felt compelled to spend more to get the economy out of deflation. Japan’s consumer prices in June rose 0.4 per cent from a year ago, which is well below the Bank of Japan’s 2 per cent inflation target and weak given that economic growth has been picking up. However, recent data points to gains in consumer spending, offering hope
that consumer prices will start to pick up. Motegi said policymakers need to look at several economic indicators to judge whether Japan is out of deflation and cannot focus solely on the consumer price index. Abe brought Motegi into the cabinet last week as part of a reshuffle to steady his government. Abe’s support ratings have plummeted in recent months after being implicated in two cronyism scandals and the resignation of his defence minister over the cover-up of information related to Japan’s participation in a U.N. peacekeeping mission. Reuters
Taxes
Get ready for first filing deadline - India’s GST chief Billed as India’s biggest-ever tax reform, the GST has replaced a slew of federal and state levies Manoj Kumar and Douglas Busvine
Millions of companies in India are still not ready to file their first returns under the new Goods and Services Tax (GST) ahead of an Aug. 20 deadline, a top official told Reuters, urging them not to leave things to the eleventh hour. Navin Kumar, chairman of the GST Network, also said barely half of the 34 service providers accredited to help firms bulk-file invoices online had received approval to go live. Yet he gave an assurance that the huge IT back end that is designed to crunch up to 3 billion invoices a month and calculate companies’ taxes would be stable, even if there is a last-minute rush to file. “It will not crash,” he told Reuters in an interview. “We are working on the assumption that 50 per cent of the people will come on the last day.” Billed as India’s biggest-ever tax reform, the GST has replaced a slew of federal and state levies. It has also cleared barriers between India’s 29 states, uniting its 1.3 billion people into a common market for the first time. Yet the complexity of the tax
- which has main rates of 5, 12, 18 and 28 per cent and multiple exceptions - has raised concerns that companies will struggle to comply and file their monthly returns on time. Even before the GST filings kick in, business surveys showed both the services and manufacturing sectors contracting at their fastest rate in years, heralding a likely dip in indirect tax revenues.
Key Points First filing deadline for new sales tax is Aug. 20 A third of firms haven’t completed paperwork Barely half of service providers ready to handle bulk uploads IT back end “will not crash” - GST Network chairman The government has allowed firms to file simplified, self-assessed GST returns by Aug. 20 for the month of July, when the tax was launched. They will have to file complete returns in early September that
itemise and reconcile every single sales invoice under a regime that, by comparison with other countries, is labour- and data-intensive. More than 7 million existing taxpayers have activated accounts on the GST’s portal - although around a third have yet to complete the form-filling required to file a full tax return, Kumar said. Another 1.3 million new firms have registered to pay GST. He waved away concerns that companies would not be able to cope,
saying that those used to paying value-added tax - now abolished - were used to online filing. Although companies can upload invoices directly into the GST portal, big businesses will rely on a new breed of service provider whose applications can format, reconcile and upload invoices in bulk. Of a first batch of 34 services providers that have been accredited, only 18 have received permission to go live. “I have been urging them to speed up their work,” Kumar said. Reuters
12 Business Daily Thursday, August 10 2017
Asia Survey
Australian consumers fret over finances in August Wage growth is running at record lows while media coverage of surging power prices has been wall-to-wall
A
measure of Australian consumer sentiment slipped to its lowest in more than a year in August as worries over family finances swamped increasing optimism about the economic outlook. The survey of 1,200 people
by the Melbourne Institute and Westpac Bank published yesterday found consumer sentiment fell 1.2 per cent in August, from July when it edged up 0.4 per cent. The index reading of 95.5 was 5.5 per cent lower than in August last year, showing pessimists outnumbered
optimists, and the lowest since April 2016. “The index components point to clear pressure on family finances,” said Westpac Chief Economist Bill Evans. “Much of the weakness is likely to reflect a mix of weak growth in wages; increases in
key costs such as electricity and emerging concerns about rising interest rates.” Wage growth is running at record lows while media coverage of surging power prices has been wall-to-wall.
‘The grim mood in the survey is in marked contrast to increasingly upbeat business polls’ The impact on consumers was clear in the survey with its measure of family finances compared to a year ago sliding 5.1 per cent. Likewise, its index of whether it was a good time to buy a major household item dived 4.9 per cent. Those falls overshadowed improvements elsewhere. The measure of family
finances over the next 12 months edged up 2.1 per cent, while the economic outlook for the next 12 months added 0.4 per cent, and that for the next five years rose 2.3 per cent. The grim mood in the survey is in marked contrast to increasingly upbeat business polls. A NAB survey out on Tuesday showed firms felt conditions were the best since early 2008 with sales, profits and employment all strong. Analysts note that, historically, business surveys have a far closer correlation to activity in the broader economy than do polls of the consumer mood, which can prove fickle from month to month. Indeed, while consumers might sound pessimistic in a survey that does not necessarily translate to spending habits. Official data has shown retail sales rebounded strongly in the second quarter as heavy discounting stoked demand, while sales of new vehicles are at record highs. Reuters
Commodities
Indonesian palm oil plantations boost security to stop thieves Around 15 per cent of the 650 members of the Indonesian Palm Oil Association are expected to use private security services this year Eveline Danubrata and Stefanno Reinard
Indonesian security companies have seen a surge in demand for guards to protect palm oil plantations from fruit thieves and land grabbers, amid a rebound in prices of the commodity used to churn out everything from cooking oil to soap. Palm prices have jumped over 15 per cent in the last few months, boosting the temptation for individuals or small-scale criminal gangs to steal fruit to sell to middlemen in the world’s biggest producer of the tropical oil. Security companies said this was driving more business their way, with palm growers looking to step up the number of guards patrolling plantations that can sometimes cover up to 30,000 hectares, equivalent to nearly half the entire land area of nearby Singapore. Some of those vast plantations are now being guarded by up to 200 people, Agoes Dermawan, secretary-general of the Indonesian Security Industry Association, told Reuters. “Palm is one of the sectors
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that require a lot of security forces because the level of theft of fresh fruit bunches is quite high, and other crimes related to plantations have also been rising, Dermawan said. Unclear regulations on land ownership in palm-growing regions such as Sumatra and Kalimantan have also led to overlapping claims for land, with indigenous people occasionally occupying the concession areas of palm oil companies.
Key Points Palm oil prices have surged in last few months That has boosted temptation for some to steal palm fruit Plantations ramping up security in response
Around 15 per cent of the 650 members of the Indonesian Palm Oil Association are expected to use private security services this year, up from 10 per cent in 2016, said Eddy Martono, head of the body’s agrarian and spatial
planning unit. Thieves of fresh fruit bunches tend to use motorbikes or pickup trucks to speed loot to middlemen, Martono said.
Hot commodity
London Sumatra Indonesia Tbk President Director Benny Tjoeng said the firm had hired security personnel relative to the size of its plantations. Tjoeng added that cases of attempted crime at those sites were “under control”,
without giving more detail. Palm prices have been pushed up as key buyer China replenished some of its stocks and as dry weather in the United States prompted buyers to switch to the tropical oil from soybeans. Reuters
PT Nawakara Perkasa Nusantara, founded over 20 years ago by former police officers, started venturing into security for palm producers after a slowdown in demand for its services from oil and gas companies, said Chief Executive Dino Hindarto. “Crude oil prices fell, so some of our clients in oil and gas also started slowing down their exploration, and that affected us,” Hindarto said, adding that the firm plans to open two offices in palm-growing regions next year. Security guards trained by Nawakara, which has around 10,000 employees in total, are tasked with preventing “unauthorised people” from accessing palm plantations, especially during the harvest season, Hindarto said. Most plantation companies declined to comment on their security arrangements, but PT Perusahaan Perkebunan
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 Thursday, August 10 2017 13
Asia M&A
In Brief
Thai beer company to buy KFC restaurants in fast-food push Emerging-market demand for KFC is strong, and the concept has a local focus in each market Craig Giammona
Thai Beverage, the spirits giant that makes Chang beer and SangSom rum, is expanding into the fast-food business to take advantage of the rising appetite for fried chicken in Asia. ThaiBev agreed to purchase more than 240 existing KFC restaurants in Thailand for about 11.3 billion Thai baht (US$340 million). A deal is also in place for the company to take over stores that are being developed, with the cost of those locations to be determined when the transaction closes, according to a filing. KFC is operated by Louisville, Kentucky-based Yum! Brands Inc., which also runs the Taco Bell and Pizza Hut chains. Billionaire Chairman Charoen Sirivadhanabhakdi, who founded the company, has been seeking to diversify ThaiBev’s operations for years, with a goal of generating more revenue from non-alcoholic beverages by 2020. The fast-food push comes as Western restaurant companies increasingly target Asia as a key market for growth. For Thai Beverage, the KFC deal is a bid to seize on the popularity of chicken in Asia, according to Nirgunan Tiruchelvam, a director at Religare Capital Markets in Singapore.
“The KFC acquisition is a very good way of exposing oneself to the rise of quick-service restaurants in Asia, especially the rise of chicken consumption,” he said.
Emerging markets
Emerging-market demand for KFC is strong, and the concept has a local focus in each market. The brand is centred around a protein with few belief-based dietary restrictions, giving it a broad base of potential customers. Yum, which spun off its China division last year, is seeking to accelerate development of its Pizza Hut, KFC and Taco Bell brands, particularly in overseas markets. At the same time, Yum aims to become 98 per cent franchised by the end of fiscal 2018. Thailand accounted for 2 per cent of KFC’s sales in emerging markets last quarter. It was the only region in that division that saw sales drop year-over-year, posting a 2 per cent decline.
More Deals
Charoen previously expanded his property business amid government measures to curb alcohol consumption in Buddhist Thailand. He was ultimately forced to list the company
unit in Singapore in 2006 after activists and monks held protests to block a local share sale by the company. The company’s long-term strategy involves generating 50 per cent of its revenue from countries outside Thailand and non-alcoholic beverage by 2020. That’s expected to drive more deals in the region. Sales outside that country amounted to less than 4 per cent in the last fiscal year, according to data compiled by Bloomberg. “Thai Beverage is a company that is looking to expand in the food and beverage space in Southeast Asia,” Tiruchelvam said. “It has very strong core cash flow from its spirits business, and it’s expanding into other areas.” Bloomberg News
Oil industry
SK Energy buys first U.S. crude oil, moves away from Middle East The narrowing spread between Brent crude and Dubai crude made the Brentlinked crude grades more attractive to Asian buyers Jane Chung
South Korea’s top refiner SK Energy is buying its first-ever continental U.S. crude oil shipment as producer club OPEC’s output cuts raise MidEast prices, giving other suppliers a chance to compete for the world’s juiciest oil market - Asia. One of Asia’s biggest fuel importers, SK Energy said it will import 1 million barrels of U.S. WTI Midland crude in mid-October. The oil will be processed at its 840,000 barrels-perday (bpd) refinery in Ulsan, about 250 miles southeast of Seoul, showcased in a recent media tour. The order is dwarfed by SK Energy’s overall oil needs of 270 million barrels per year, mostly supplied from the Middle East. But it comes as big players in Asian oil imports snap up more U.S. crude since the Organization of the Petroleum Exporting
Countries (OPEC) pledge to rein in output through March 2018 to drain a supply glut and prop up prices. “Light crude oil has become more economically viable than before and by importing light crude from Kazakhstan, U.S. and Mexico, it helps us boost profits and diversify sources,” said Kim Woo-kyung, spokeswoman at the conglomerate SK Innovation Co which owns SK Energy. Kim said the refiner is also buying more from Mexico and Kazakhstan. “We have decided to import as well 1 million barrels of Mexico’s Isthmus crude,” also to arrive at Ulsan in October, she said. SK Energy received a total of 2 million barrels of Kazakhstan CPC crude for arrival in late July and early August, Kim said. Continental U.S. oil exports to South Korea have become more frequent since the United States in 2015 relaxed advertisement
crude export rules, and have been spurred since the OPEC curbs were announced: GS Caltex, South Korea’s No.2 refiner, said last month it bought a total of 3 million barrels of U.S. crude for August-October delivery.
Narrowing Brent-Dubai spread
Korean refiners have long been eager to gradually diversify their crude slate in an attempt to reduce heavy dependence on the Middle East. While MidEast crude imports made up 83.7 per cent of total overseas orders in the second quarter, that was down from 86 per cent in the same period a earlier year, according to data from Korea National Oil Corp (KNOC). On top of increasing oil flows from North America, South Korean refiners had stepped up purchases of Brent-related crude from the North Sea, as well as Africa. The narrowing spread between Brent crude and Dubai crude made the Brent-linked crude grades more attractive to Asian buyers as it remained below US$1 per barrel for three months from April, although it widened nearly US$1 a barrel in July on stronger demand. Lee Chung-hwan, manager at the Ulsan Maritime Agency that oversees arrival and departure of oil tankers in Ulsan, said the types of crude cargoes had increased this year, now also including Kazakhstan’s Caspian Pipeline Consortium (CPC) blend. “Kazakhstan CPC crude used to come once or twice a year, but so far this year, SK Energy has brought in Kazakhstan CPC crude four times,” Lee said. As oil trickles in from the new sources, analysts say change in the overall structure of supply will be gradual. “Various crude oil supplies will keep coming little by little in the long-term,” said Lee Dal-sok, senior research fellow at state-run Korea Energy Economics Institute. Reuters
Trade
Gold imports by India are said to have more than doubled Gold imports by India are said to have risen in July on arrival of some delayed shipments booked ahead of the implementation of a new national goods and services tax on the first of last month, according to a person familiar with the information. Inbound purchases rose to 53.4 metric tons last month from 22 tons a year earlier, said the person, who didn’t wish to be identified because the data isn’t public. Sequentially, imports of the metal fell from 72 tons in June. Total imports during January to July jumped more than 2 1/2 times to 625.5 tons, according to data compiled by Bloomberg. Finance Ministry spokesman D.S. Malik declined to comment on the data. GDP
Philippines economy may have grown 7 pct in Q2 The Philippine economy may have expanded by 7 per cent in the second quarter, the economic planning minister said yesterday, outpacing the 6.4 per cent pace in January-March that was the slowest in more than a year. Asked whether gross domestic product would have grown by 7 per cent in the second quarter, Ernesto Pernia told reporters that it was “still possible”. Pernia said increased government spending as well as improved exports and agriculture output contributed to the faster economic expansion in April-June. Results
McDonald’s Japan raises annual profit forecast McDonald’s Holdings Co Japan Ltd upgraded its full year profit outlook yesterday as the fast-food chain sustained a recovery from a series of food scandals that hit consumer appetites. The company, an affiliate of U.S. fast-food giant McDonald’s Corp, forecast full year operating profit to be 16.5 billion yen (US$150.05 million) for the year ending December, compared to an earlier forecast of 15 billion yen and up 138 per cent on the previous year. Operating profit in the six months through June was 9.4 billion yen. That compared with a 47 million yen operating profit a year earlier. M&A
Nissan to sell its electric battery business Nissan Motor Co said on Tuesday it has agreed to sell its electric battery business to Chinese investment firm GSR Capital for an undisclosed sum. The business to be sold to GSR includes battery plants in Tennessee, England and Japan, the Japanese automaker said in a statement. Nissan will first take full control of the business - Automotive Energy Supply Corp - by buying the combined 49 per cent minority stake held by NEC Corp and its subsidiary NEC Energy Devices. NEC Corp said it has approved the sale of its stake.
14 Business Daily Thursday, August 10 2017
International In Brief Portugal
Prime Minister says 2017 best year this century The general secretary of the Portuguese Socialist party and prime minister, António Costa, has said in Figueira da Foz that 2017 is “surely” going to be the year of greatest economic growth this century. He went on to say that all Portuguese pay less tax today and contrary to what the critics say “it was possible to improve the income of Portuguese families” by about 10 per cent, though he did not explain the figures. António Costa also said that the reduction in health co-payments meant people paid €62 million less over the last two years. Argentina
Macri sees investment spike after mid-term vote President Mauricio Macri told Reuters that investments in Argentina would multiply after what he predicted will be a triumph for his Let’s Change Coalition in October’s mid-term elections. While Macri said his allies would win “by a lot” nationwide, he admitted polls showed a tight race between his party’s candidate and former leftist populist President Cristina Fernandez for a Senate seat in Buenos Aires province, the country’s largest. In an interview during the Reuters Latin America Investment Summit, Macri said the Argentine economy was picking up steam and would grow 4.5 per cent in the last quarter of 2017. Corruption
Brazilian President’s lawyers demand removal of top prosecutor Lawyers defending Brazilian President Michel Temer against corruption allegations asked the Supreme Court on Tuesday to remove the prosecutor general from the investigation, arguing he is no longer fit to lead it. In a filing to the top court, Temer’s lawyers said Brazil’s top federal prosecutor Rodrigo Janot, who has charged the president with taking bribes and has said more charges are imminent, was acting “beyond his constitutional limits.” “We are not, it has become clear, confronting mere institutional action,” Temer’s lawyers wrote in the document seen by Reuters. “Everything indicates that the motivation is personal.” M&A
UK government asks watchdog to look into Fox’s bid for Sky Britain’s department of culture said on Tuesday it had written to media watchdog Ofcom for more information on its views on TwentyFirst Century Fox’s bid for Sky Plc. It said it wanted some clarification following a number of representations that has been made to it about Ofcom’s finding in favour of the deal. Culture Secretary Karen Bradley, who is responsible for media issues, said in July that she needed to look at the evidence received before taking a decision about the bid, which was likely to be in the next few weeks.
Payments
U.S. card firm Vantiv clinches deal to buy Worldpay Worldpay shareholders will own approximately 43 per cent of the new business Pamela Barbaglia
U
.S. credit card processing company Vantiv moved closer to creating a US$29 billion global payments powerhouse yesterday with a formal offer to buy Britain’s Worldpay for 8 billion pounds (US$10 billion). Although the deal was first announced on July 5, it has taken several weeks of talks to conclude, with the deadline for a formal offer extended twice as the companies haggled over governance and ways to safeguard British jobs. Worldpay said yesterday that Vantiv has offered US$55 pence in cash, 0.0672 of a new Vantiv share, an interim dividend of US$0.8 pence per Worldpay share and a special US$4.2 pence dividend, valuing the former RBS unit at about 8 billion pounds or US$397 pence per share. The combined company will be renamed “Worldpay” and will be headquartered in Cincinnati with a primary listing in New York and a secondary listing in London. Worldpay shareholders will own approximately 43 per cent of the new business, while Vantiv investors will have 57 per cent of the combined group whose pro forma enterprise value is more than 22 billion pounds. The company’s international operations will be run from Britain, but there will be no formal guarantees that UK jobs and employees will be protected. The combined company will be a leading payments firm, processing approximately US$1.5 trillion in payments and 40 billion transactions through more than 300 payment methods in 146 countries and 126 currencies, with a combined net
revenue of over US$3.2 billion. The group will be led by Vantiv boss Charles Drucker as executive chairman and co-CEO while Worldpay boss Philip Jansen will report to Drucker and act as co-CEO. Vantiv chief financial officer Stephanie Ferris will retain her role as CFO and report to Drucker. The combined group will see five Worldpay directors sitting on the board with Sir Mike Rake, who is Worldpay’s non-executive chairman, becoming lead director of the new board.
Fragmented market
Goldman Sachs and Barclays acted for Worldpay, while Morgan Stanley and Credit Suisse worked with Vantiv on the deal, which gives Worldpay an enterprise value of about 9.3 billion pounds and will result in annual recurring pre-tax cost synergies of about US$200 million. These synergies are expected to be fully realised by the end of the third year following completion of the merger. But the combined group is also expected to incur one-off restructuring and integration costs of around
US$330 million. Craig Bonthron, a fund manager at Kames Capital, told Reuters that the deal was a sensible transaction which allowed UK investors to participate in the upside via a secondary listing in London. He said the deal will help consolidate “what is a fragmented market and diversify Vantiv’s revenues away from struggling ‘big box’ retailers in the U.S.” Worldpay said yesterday its firsthalf underlying earnings rose 13.6 per cent, driven by strong growth across all its businesses and tightened costs at its UK unit. The company, which had the biggest flotation on the London Stock Exchange in 2015, said underlying earnings before interest, taxes, depreciation and amortization (EBITDA) rose to 247.5 million pounds for the six months ending June 30. Net revenue rose 17.6 per cent to 2.51 billion pounds, with a 2 per cent growth in Worldpay’s UK business. Worldpay’s e-commerce payment business saw net revenue rise 16.9 per cent, driven by contributions from customers including retail, airline and digital industries. Reuters
Health
U.S. lawmakers seek missing information in review of Monsanto weed killer World Health Organization’s International Agency for Research on Cancer concluded in 2015 that glyphosate, is a “probable human carcinogen” Kate Kelland, Health and Science Correspondent
The chairman of a congressional committee has asked the U.S. National Institutes of Health (NIH) to explain why its National Cancer Institute (NCI) failed to publish data that showed no links between glyphosate and cancer. In a Tuesday letter seen by Reuters, U.S. Representative Trey Gowdy, who chairs the House Committee on Government and Oversight Reform (OGR), said he “is concerned about the new revelations” and is “seeking more information” about why the exculpatory results were not published by the NCI. Glyphosate is a key ingredient in Monsanto’s top-selling weed killer Roundup. Gowdy’s letter to NIH Director Francis Collins follows a June report by Reuters which found that a senior scientist from the NCI knew that fresh data from a large research project known as the Agricultural Health Study (AHS) showed no links between glyphosate and cancer. Draft scientific papers dating from 2013 containing the data were never published. Consequently, the information was not able to be taken into
account during the March 2015 review of the pesticide by the World Health Organization’s International Agency for Research on Cancer (IARC). An NIH spokeswoman told Reuters the NIH had received Gowdy’s letter “and will be responding directly to the committee.” Aaron Blair, the senior scientist at the NCI who knew about the data and also chaired the IARC review, previously told Reuters the data was not published in time because there was too much to fit into one scientific paper. Blair is now retired from the NCI. An NCI spokeswoman told Reuters in June the institute was drafting a manuscript on this topic. It would “explore the effects of glyphosate exposure in greater depth”, she said, and would be submitted to a peer-reviewed journal “in the coming months.” Gowdy’s letter asked for “a briefing on these issues as soon as possible”. It also asked for information and any documents relating to the unpublished AHS data on glyphosate. No one at IARC, which is based in Lyon, France, was immediately available for comment late on Tuesday. IARC concluded in 2015 that
glyphosate, is a “probable human carcinogen.” It based its finding on “limited evidence” of carcinogenicity in humans and “sufficient evidence” in experimental animals. The agency’s assessment is at odds with other international regulators who have said the weed killer is not a carcinogenic risk to humans. The OGR has been looking into U.S. taxpayer funding of IARC. It began investigating IARC’s operations in 2016 after several lawmakers raised questions about why U.S. taxpayers were funding an agency that often faces criticism for its work. A letter by Jason Chaffetz, then chairman of the OGR, in September 2016, also addressed to the NIH director, described IARC as having “a record of controversy, retractions, and inconsistencies” and asked why the NIH continued to fund it. In previous responses to questions about its assessments of glyphosate and many other substances, IARC has defended them as scientifically sound. The agency says its “monographs” the name it gives its classifications of carcinogens - are “widely respected for their scientific rigor, standardized and transparent process and ... freedom from conflicts of interest”. Reuters
Business Daily Thursday, August 10 2017 15
Opinion
A Chinese pebble in Apple’s shoe could hobble app riches Tim Culpan a Bloomberg Gadfly columnist
I
f Apple Inc. is lucky, a 10-page complaint posted on social media by a Chinese law firm might be a minor annoyance resulting in little more than some bad press. Lessons from partner-cum-foe Qualcomm Inc., however, should serve as a warning that Apple’s app store business model may be in danger. The lawyers represent around 20 app developers who are alleging that Apple abuses its dominant position, and they’ve filed complaints to two key regulators, according to a post on WeChat. One grievance is that the U.S. company failed to provide a full Chinese version of its app store terms and conditions. While perhaps not spurious, Apple can easily rectify this problem and may even face a rap-on-theknuckles fine. Far more serious is the developers’ claim that Apple’s 30 per cent cut of in-app transactions is excessive. Services brought in US$7.3 billion in revenue for Apple in the three months through July 1, posting double-digit growth for a ninth quarter. The app store was a major driver of that growth, C E O Ti m C o o k billion US$ told investors last Apple’s revenue from week, expounding services last quarter on the division’s importance: Our Services business has become the size of a Fortune 100 company, a milestone we’ve reached even sooner than we had expected. Apple’s “tax” -- where it takes a cut not only on sales of apps themselves but on purchases made within the software -- is fundamental to the business model. Cook himself boasts that the company garners twice the revenue of the Google Play store, despite iOS having around one-sixth the global share. Qualcomm’s business model isn’t dissimilar. The U.S. chipmaker charges clients not only for the components it sells, but a percentage of the total cost of all parts that go into a device -- regardless of whether Qualcomm actually supplied those pieces. Chinese regulators didn’t like this tax, and after a drawn-out legal battle they agreed on a fine. The bullet-dodging moment in that case, however, was when regulators decided not to rule Qualcomm’s fee structure illegal -- and in doing so, tacitly affirmed the legitimacy of the royalty model. Had the Qualcomm tax been judged unlawful in China, it’s likely that customers and jurisdictions around the world would have jumped on the bandwagon and forced the chipmaker to forgo one of the most lucrative revenue models in modern times. It’s arguable that Apple’s current suit against Qualcomm was emboldened by that Chinese case, however, as the rest of the industry decides it no long wants to pay the tax and regulators elsewhere continue to probe the practice. Which brings us back, ironically, to Apple facing a similar test in China. Should regulators there decide that a 30 per cent cut -- especially on lucrative in-app purchases -- is excessive or unlawful, then the implications may be felt globally. If it wants to protect its new Fortune 100 business, Apple needs to be sure this annoyance in China disappears quietly.
7.3
Bloomberg Gadfly
How the knowledge economy causes secular stagnation
T
o understand secular stagnation, with its low inflation and low growth, look first at the growth of the information economy and the expansion of intangible assets. Growth and investment in hardware like machinery have slowed while companies have boosted their investment in intangibles like intellectual property, which by some measures has gone from about 30 per cent of company capital in 1980 to nearly 70 per cent today. The information economy means companies rely far more on intangible assets, be they the ones that walk out the door every night or the advances, systems and processes those people create. Broadly speaking, those are intangible capital, or assets, and a new paper from the University of Amsterdam finds they’ve played a key role in shaping growth, asset prices and inequality in recent decades. “The transition to a knowledge-based economy and the associated shift from physical to intangible capital is a primary cause for the rising excess savings over productive investment in advanced economies, presented in the ’secular stagnation’ hypothesis,” write Robin Dottling, a PhD student, and Enrico Perotti, a professor of finance. “Falling interest rates and rising long-term asset values can be interpreted as a direct consequence of this gradual process. Critically, the approach also allows (us) to interpret the growing share of income gained by innovators, the progressive reallocation of credit from productive to asset financing uses (primarily for housing) and the rise in household leverage.” Economists have long noted the growing importance of intangible assets, leading some to posit that their growing role on balance sheets makes it harder for companies to borrow and invest. Banks, after all, may be less willing to lend against a patent or a process than a turbine. That, in turn, has led companies to build up cash on balance sheets, the argument goes. But in a world in which Tesla chooses to borrow US$1.5 billion in junk bonds to fund production of its new model, rather than selling its very expensive equity, and Brazilian oil giant Petrobras can easily sell a 100-year bond, the claim that companies are just being conservative because banks won’t lend is tough to swallow. This argument is also better at explaining trends in capital expenditure than those of asset prices and rising economic inequality.
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James Saft a Reuters columnist
broad economy in productivity growth. This sounds correct: someone writing the code for a 3D manufacturing process is improving productivity by a higher per cent than the 3 per cent annual growth we’ve traditionally seen in manufacturing. The same is also true when comparing the employees of Facebook and those of the typical university. With more improvement in productivity coming from intangibles, companies are increasingly investing in them, a process that implies lower capital expenditure. While the market price of a hot-shot coder has sky-rocketed, you only tend to pay them out of their own improvements once they are demonstrated, however, reinforcing the cycle of lower capex and borrowing. Those “innovators” capture more of the value of intangible assets, and the overall impact is to drive down the supply of assets with which to save. This pushes asset prices higher, and interest rates lower, as too much money is chasing too few assets amid too much credit. It also helps to explain growing inequality, as companies channel pay to creators of intangible capital rather than the typical person carrying out the processes they create. Since excess savings have fewer assets to buy, more ends up in real estate. Mortgage debt rises as unskilled labour, not sharing in productivity gains, must stretch more to afford shelter. All of this at the very lest rhymes very well with what we observe in the economy. Consider the robber barons of 100 years ago; the great steel, oil and automobile companies were hugely capital intensive. Autonomous cars will be, in contrast, similarly innovation-intensive. If all this is true, some possible implications stand out: Secular stagnation may be here to stay, at least until the intangible economy starts coming up with projects that require huge capital investment. Monetary policy may be fighting a losing battle to spark investment and build inflation and lowerskilled wage growth. Blowing up bubbles in housing, for example, to put less- skilled people to work, will, as we’ve seen, end badly. Taxation and redistribution may end up the only way to let the market work in producing innovation and also reach a democratically acceptable allocation of the proceeds. Reuters
With more improvement in productivity coming from intangibles, companies are increasingly investing in them, a process that implies lower capital expenditure
Monetary policy won’t avail
In Dottling and Perotti’s view, both intangible capital and skilled labour have outpaced the
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16 Business Daily Thursday, August 10 2017
Closing Crackdown
China examines official spending on luxury alcohol amid rebound
Sales of China’s premium liquor segment were hit hard after 2012, when Xi’s signature anti-corruption campaign focused on officials’ lavish spending China’s disciplinary watchdogs are examining on entertaining. However, the impact of the latest official spending on luxury alcohol as Xi Jinping push may not be significant, as makers of the steps up an anti-corruption campaign, just as most popular luxury brands are seeing a surge in premium liquor makers are regaining momentum consumption in the mass market and the economy after an earlier crackdown. is showing signs of strength. The Communist Party is asking local cadres to identify all the illegal spending on luxury liquor from Kweichow Moutai Co., the most valuable distiller in the world with a market value of about US$90 January to August, including how much officials billion, last month reported first-half profit climbed have spent and the names of those who attended banquets that included luxury alcohol, according to 28 per cent as Chinese consumers spend more on premium products. Bloomberg News notices published on government websites.
Commodities
Beijing summons steel execs, regulators, bourse to discuss price surge Steelmakers in the smog-prone northern province of Hebei will be forced to halt operations next month
C
hina has summoned regulators, a major exchange and steel company executives to meetings this week to discuss steel prices, people familiar with the matter said, as a surge in markets due to output cuts draws scrutiny from authorities. Yesterday, the China Iron and Steel Association (CISA) held a meeting in the capital with its members, an official at the association said, speaking on condition of anonymity. A second meeting, to be hosted by the National Development & Reform Commission (NDRC), will discuss futures and physical steel prices today.
said in a notice yesterday. CISA’s meeting focused on yearslong efforts to raise efficiencies in the industry, an official from the association said, while another source who had spoken to people at the meeting said it also touched on environmental policy. Officials from the Ministry of Industry and Information Technology (MIIT), China Securities Regulatory Commission (CSRC), CISA, Shanghai Futures Exchange (SHFE) and some leading companies have been called
to attend the NDRC meeting today, the CISA official said. A second industry insider confirmed he would be at the meeting, but declined to be identified or provide more details. Sources said the gathering suggests the government is concerned that the rally in prices has been overdone, fuelled by speculative buying, and is not justified by fundamentals. The NDRC and the bodies invited to the gathering did not respond to requests for comment on the meeting,
referred to by ANZ Research analysts in a note to client issued yesterday. This week, the Ministry of Environmental Protection (MEP) has embarked on its fourth round of environmental inspections across eight provinces and regions, including Shandong, to check on factories’ progress in curbing pollution. Eight teams will be sent to carry out inspections at Jilin, Zhejiang, Shandong, Hainan, Sichuan, Tibet, Qinghai and Xinjiang from Aug. 7-15, the ministry said on Monday. Reuters
Key Points CISA holds meeting in Beijing to discuss steel prices Wed NDRC to hold second meeting on Thursday
The moves come after steel rebar futures prices soared by two-thirds since the start of the year, with investors betting supply will tighten as Beijing forces outdated, polluting factories to close ahead of winter. The closures are part of its war on smog and a drive to make industry more efficient. The most-active futures were near their highest in 4-1/2 years yesterday. Steelmakers in the smog-prone northern province of Hebei will be forced to halt operations next month if they fail to meet tough new pollution restrictions, the local government
Labour
Belt and Road
Cyberattack
Hundreds of Cambodian maids China helps launch US$13 to work in Hong Kong bln rail project in Malaysia
Greater China cyber insurance demand set to soar
Cambodia is recruiting hundreds of maids to work in Hong Kong, an official said yesterday, as the wealthy city scrambles to meet growing demand for domestic helpers and fend off concerns about exploitation. Hong Kong is home to more than 300,000 foreign maids, mostly from the Philippines and Indonesia. But a series of high-profile abuse cases have seized global headlines in recent years and threatened to stem the tide of migrant helpers. Hong Kong has now turned to Cambodia, one of Asia’s poorest countries, to ward off a potential maid shortage exacerbated by its rapidly ageing population. Under the pilot project, six agencies are authorised to recruit the first batch of Cambodian domestic workers for arrival in Hong Kong later this year. “This is a new opportunity for our people,” said Cambodian labour minister Ith Samheng, adding the minimum monthly wage for maids in Hong Kong was US$550. He said roughly 1,000 domestic helpers would receive training in English and Cantonese and other skills before their departure, which is slated for September. AFP
Demand for cyber insurance from firms in Greater China and elsewhere in Asia is poised to soar, based on enquiries received after the “WannaCry ransomware” attack earlier this year, executives at American International Group Inc said. The American insurer saw an 87 per cent jump in enquiries for cyber insurance policies in May compared to April for Greater China including Hong Kong as a direct result of the WannaCry attack, while the global increase was 38 per cent, they said. “The big increase means the organizations are aware they really need protection,” Cynthia Sze, head of an AIG business in Greater China that provides solutions to companies dealing with cyber breaches, told reporters. AIG executives declined to give details on numbers or say how many of the enquiries actually resulted in policy sales. The self-replicating WannaCry malware in May infected over 200,000 computers in 150 countries. A typical cyber insurance policy can protect companies against extortion like ransomware attacks. It could also cover the investigation costs and pay the ransom. Reuters
China and Malaysia broke ground yesterday on a US$13 billion rail project linking peninsular Malaysia’s east and west, the largest such project in the country and a major part of Beijing’s Belt and Road infrastructure push. The planned 688-km East Coast Rail Link (ECRL) will connect the South China Sea, large parts of which are claimed by China, at the Thai border in the east with the strategic shipping routes of the Straits of Malacca in the west. It is among the most prominent projects in China’s controversial Belt and Road Initiative, which aims to build a modern-day “Silk Road” connecting the world’s second-largest economy by land corridors to Southeast Asia, Pakistan and Central Asia and maritime routes opening up trade with the Middle East and Europe. “The ECRL is indeed yet another ‘game changer’ and a ‘mind-set changer’ for Malaysia as it will significantly cut travel time to and from the east coast of the peninsula,” Malaysian Prime Minister Najib Razak said at the ceremony half way along the route in Kuantan, which faces the South China Sea. Najib said the project would be financed with an 85 per cent loan from China Exim Bank. Reuters