The secret life of hotel butlers, guests and others Consigliere Pages 8 & 9
Friday, August 11 2017 Year VI Nr. 1359 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Outlook
Results
Dark omens for Future Bright results Page 6
Mortgages
BNU posts solid figures Page 4
Locals lead residential loans growth Page 6
www.macaubusiness.com
Demographics
Disaster
MSAR population growth slows down Page 2
Tourism also a victim of Sichuan earthquake Page 16
Not so smart
Smart city
The New Macau Association has raised doubts about the legitimacy of the deal Alibaba and the MSAR Gov’t inked last week. The Association claims private data management is opaque – while the public have yet to be consulted about the ‘Smart City’ plan. Page 4
Hello On Kei
New rental legislation passed
Following a strenuous session in the Legislative Assembly yesterday, most of the new rental legislation was approved. Notarisation and the coefficient mechanism were among the most debated Articles, with loose ends duly tied off.
Theme Park SJM Executive Director Angela Leong On Kei says the theme park project is finally getting the green light. Twelve years after the land concession was granted. Facing Wynn Palace and Grand Lisboa Palace, the site occupies 200,000 square metres. Page 3
Integration name of the game
Policies Hong Kong and Macau residents could get preferential policies on the Mainland, an official says. The central gov’t is studying 50 concerns of residents from both SARs who live, study and work on the Mainland. Page 3
Hoping to slot in nicely Rental law Page 2
HK Hang Seng Index August 10, 2017
27,444.00 -313.09 (-1.13%) Worst Performers
China Mobile Ltd
+2.78%
Want Want China Holdings
+0.38%
Wharf Holdings Ltd/The
-7.03%
New World Development
-2.25%
China Mengniu Dairy Co Ltd
+1.42%
CLP Holdings Ltd
+0.30%
Hong Kong Exchanges &
-4.30%
China Resources Land Ltd
-2.12%
Hang Seng Bank Ltd
+1.09%
Hong Kong & China Gas Co
+0.13%
Industrial & Commercial
-2.67%
Bank of China Ltd
-2.04%
Hengan International Group
+0.82%
CNOOC Ltd
+0.11%
Geely Automobile Holdings
-2.43%
China Life Insurance Co Ltd
-2.02%
MTR Corp Ltd
+0.54%
Swire Pacific Ltd
+0.00%
Ping An Insurance Group Co
-2.31%
China Overseas Land &
-1.90%
28° 32° 28° 31° 28° 32° 28° 32° 27° 31° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Gaming GameCo, a skill-based gaming company is eyeing up MSAR opportunities. Preparing to bring its arcade-style gaming slot machines to the local market. Macau is also key to its regional expansion plans. Page 5
2 Business Daily Friday, August 11 2017
Macau AL
Rental law: No worries, still a free market After more than seven hours of debate, the rental bill has been partially passed Cecilia U cecilia.u@macaubusinessdaily.com
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ne of the most controversial of bills, rental legislation was passed yesterday despite two of seven Articles being rejected during the continued plenary session in the Legislative Assembly. Government appointed legislator Tommy Lau Veng Seng questioned the second Article, asking whether there would be enough notary publics to support the many rental contracts in the city. “I know the Legal Affairs Bureau (DSAJ) has a number of notary publics, but only 20 to 30 are active and only a few know Chinese,” said Lau. Legislator Melina Chan Mei Yi also questioned how notaristation could effectively prevent deadbeat tenants, while lawmaker Vong Hin Fai asked about penalties for refusal of notarisation. In response, legislator Song Pek Kei said that the DSAJ had already been consulted regarding technical feasibility. “The government ensured enough support for running the procedures,” said Song. Indirectly elected legislator Leonel Alberto Alves added that 100 notary publics would be available in the future. “[If there are] 48,000 rental contracts next year, with 100 notary publics [...] so [each] notary would handle 480 each year and 1.4 contracts per day,” said Alves. “Therefore I believe the workload would not be [too much].” Alves further indicated that the bill would prevent landlords paying three times the stamp duty owing to the absence of notarisation of the contracts, while saying that the bill would raise the “alarm for people to pay taxes on time”. Lawyer Alves said fake rental contracts would also be prevented, improving the city’s development of the financial sector. Meanwhile, several legislators raised strong oppositions over the addition of another year for contracts of three years.
Source: GCS
With the bill’s intention to assist SMEs (small and medium-sized enterprises), legislator Chan Chak Mo commented that the bill would, in fact, shrink supply, making SMEs difficult to start or run a business as well as supporting deadbeat tenants. “It is rare for landlords to drive tenants away because it costs more to seek another tenant; otherwise only if he knows the price in the future will increase would they ask a tenant to leave,” said Chan. Nevertheless, 17 lawmakers voted for the Article while seven voted against.
Free market
Regarding the coefficient mechanism, government appointed lawmaker Ma Chi Seng questioned whether there was any scientific support for running the mechanism and legislator Mak Soi Kun also asked whether a specialised group could determine the coefficients. Song said property prices had increased significantly over the past decade, while emphasising that the
mechanism would not interfere with the operation of the free market. For lawyer Alves, moderate interferences are necessary for capitalism. “I totally support the free market and the government should not interfere,” remarked Alves. “But it is necessary for the government to correct certain situations within the capitalist system.” Lawmaker Kwan Tsui Hang pointed out that the rental market should not always consider investment. “My opinion [is that] rent is a solution for living not for investment, that’s why there are so many protections for tenants,” said Kwan. “If the market catches a fever in the future why not prepare paracetamol?” The third Article relating to the coefficient mechanism granting the Chief Executive the power to interject in the rental market for temporary and exceptional situations, nonetheless, was turned down, with only 15 lawmakers voting yes. As such, the fourth Article regarding the technical procedures of running the coefficient mechanism connected
to the third Article was also deemed invalid. Legislator Jose Coutinho said the government does not have a particular department to handle arbitration in the city. “I would advise the government to [...] encourage more arbitration,” he said, “because we can’t always depend on the courts.” The proposed bill suggested the setting up of an arbitration mechanism in order to simplify the process of resolving any disputes rather than involving the courts. The Article relating to setting up an arbitration centre passed with 22 lawmakers nodding approval. The sixth Article, meanwhile, was amended during the plenary session regarding the implementation of the second Article - including the third and fourth Articles once the bill is passed. The bill was passed by 25 legislators. The last Article, also passed, indicates the new rental law must be implemented 180 days after it is announced.
Population
City’s population growth slowing A decrease of 1,185 non-residents was registered between the first and second quarter, accounting for 178,694 of the 648,400 total population as at end-H1 Some 20,699 non-resident workers saw their work permits cancelled between April and June, 27.4 per cent more than in the previous quarter, while the number of emitted work permits grew by 5.6 per cent quarterly to 19,514. Of the total number of non-residents in the MSAR, 63.6 per cent were from Mainland China, with residents from the Philippines and Vietnam representing 15.4 per cent and 8.3 per cent, respectively, of the non-native population.
Nelson Moura nelson.moura@macaubusinessdaily.com
The total population of the MSAR reached 648,400 as at the end of June, just 100 individuals more than at the end of the previous quarter, according to the most recent data released by the Statistics and Census Service (DSEC). The city’s population decreased by 4,100 people when compared to the end of the first half of last year, when Macau had 652,500 registered residents. The number of non-resident workers decreased by 1,185 people at the end of the second quarter to 178,694, with the number of Chinese
immigrants authorised to stay in the city falling almost 36 per cent quarter-to-quarter to 776, and with the number
of resident permits granted between April and June also falling by 7.1 per cent quarter-to-quarter, to 382.
Life and death
Of the total registered population at the end of June of this
year, 52.8 per cent or 342,500 were female residents. A total of 1,596 live births occurred in the second quarter of 2017, 36 more than in the first three months of the year, with 52 per cent of newborns male. A total of 933 marriages were registered in the MSAR in the second quarter, 161 less than in the previous quarter. The population’s mortality increased by seven quarter-to-quarter, to 513, between April and June, with the DSEC citing neoplasms, diseases of the circulatory system and diseases of the respiratory system as the three main underlying causes of death.
Business Daily Friday, August 11 2017 3
Macau Cotai
Theme park acquires licence Between the concession of the land and the first licence 12 years have passed. Now work can finally begin João Paulo Meneses newsdesk@macaubusinessdaily.com
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he Land, Public Works and Transport Bureau (DSSOPT) has issued a licence for the foundation work of the theme park and resort proposed by legislator and executive director of local operator Sociedade de Jogos de Macau (SJM) Angela Leong
On Kei. It is to be located in Cotai, Business Daily has learned. A DSSOPT source explained that the licence for the foundation works followed the completion of the “preliminary planning for the architecture and project of the theme park located in Cotai”. The DSSOPT initiative follows recent complaints by Ms. Leong about the lack of government definition
regarding policy decisions. The legislator and executive director told Portuguese language newspaper Hoje Macau that “there have been many problems with the policy that the government wants to implement. Since we’re one of the concessionaires of the land, we’d like to develop more theme parks, but we’re still not allowed to continue the development of the land.”
The businesswoman, who intends to promote this business on an individual basis, also stated that “the problem is not ours, and I hope it helps us to find out what’s going on. Everything depends upon the government because it changed the plan.” The theme park will be situated on a plot in Cotai facing Wynn Palace and the Grand Lisboa Palace. In 2005, the government
handed over 200,000 square metres to the company known as Macau Theme Park and Resort, divided into two lots (106,000 square metres for a hotel complex and 95,000 square metres for a theme park). In 2014, the Eastweek magazine announced that the goal was to theme the park after Hello Kitty, created in 1974 by Japanese company Sanrio.
Policy
More preferential policies for SAR residents A slew of new preferential policies for Hong Kong and Macau residents is being considered by the central government, an official with the Hong Kong and Macao Affairs Office of the State Council to Chinese news outlet Xinhua has revealed. Some 50 concerns of residents from both SARs who live, study and work on the Mainland have been listed by the central government and range from social insurance applications to tourism services. The Chinese official said equal rights to housing provident funds will be granted
to SAR residents working in the Mainland for more convenient settlement. The aforementioned fund provides low-interest housing loans and is applicable to rent, renovations and major illnesses. Urban residents on the Mainland are required to pay part of their income for the dedication of the housing provident fund, according to current regulations. Meanwhile, the Chinese official revealed that deliberations are currently ongoing among authorities relating to human resources, offering access to social security
for Hong Kong and Macau residents who live, work or study on the Mainland. The unidentified official also disclosed that the central government encourages SAR residents to work in public institutions such as hospitals and universities. SAR residents who wish to travel in the Mainland can now purchase and collect tickets via self-service ticket machines in train stations in Beijing and Shanghai municipalities, as well as in the provinces of Guangdong, Hunan and Fujian. In addition, the Ministry of Education has announced
that the Mainland’s higher education institutions will standardise enrolment regulations and provide
guidelines for jobseekers, establishing student clubs and applying for medical insurance for SAR students. advertisement
4 Business Daily Friday, August 11 2017
Macau Opinion
Pedro Cortés*
Last wishes The last weeks have been fertile in terms of debate in the Legislative Assembly. It was, first, a discussion over internal rules of the chamber, then the common property management rules and, last but not least, the frame budget law. We have seen a cascade of criticism envelop them all. It seems that after four years the members have finally woken up and started to put in cause the government’s policies and proposals. In relation to internal rules, it seems that there is a more papist than the Pope attitude, with the sole goal of being in the good graces of the council of the gods who are up there or down here. The final result was different from what was expected and proposed. The same applies to the management of common properties law, which was not passed and sparked lots of discussion. And now the budget frame law. Well, with all due respect, it seems that instead of thinking in the long term of our city some Legislative Assembly members have embarked upon a hidden campaign for the September elections. Hopefully, the misdeed interpretation of the electoral law does not apply to them. Being part of the representation of the population, our Legislative Assembly reflects its sources. By the way, a recent study revealed that a great portion of the election candidates were not born in Macau. All of them must take this into consideration when in the future, laws restricting rights of nonresidents are passed. People tend to forget where they come from - their social origins and, especially, their territorial place of birth. It is human and natural, some say. However, in all our lives’ steps, one should consider the difficulties faced by our ancestors that shaped our personalities. The fact that we are in an elevated social position should not overshadow our views. In fact, one might say it is incumbent upon those who were born in a different region to respect the rights of newcomers looking for a better future for themselves and their families. *lawyer and frequent contributor to this newspaper.
Smart City
Data to the people The deal between the MSAR Government and Alibaba to develop a ‘Smart City’ should be halted until authorities reveal the plan’s details, and until residents are assured they can withdraw their consent to share their data and can make full use of data intelligence, the New Macau Association said yesterday Nelson Moura nelson.moura@macaubusinessdaily.com
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he New Macau Association (ANM) demanded the government halt the co-operation agreement with Alibaba for the development of Macau as a ‘Smart City,’ claiming the city’s population had not been consulted before the agreement was inked and due to doubts about the government’s proper use of the data collected. On August 4, the Alibaba Group signed an agreement with local authorities to develop the MSAR into a ‘Smart City’ in two phases by 2021 through the use of cloud data collection technology. With the group’s subsidiary Alibaba Cloud fronting the project, the agreement proposes establishing a cloud computing centre to promote Big Data usage in Macau in order increase efficiency and further improve the city’s tourism, transportation, healthcare, governance and talent development. According to social activist and former ANM Vice-President Jason Chao the Alibaba Group and the Macau Government “make two questionable partners,” alleging that the local government and the Chinese company have a “questionable record” in terms of respecting residents’ and users’ privacy. The Association has previously complained that the Judiciary Police attempted to seize citizens’ data collected during the 2014 Civil Referendum, stating the Office for Personal Data Protection (GPDP) had authorised such collection.
With regard to Alibaba, ANM mentioned a dispute Chinese courier service SF Express had this year with Cainiao Network Technology - the logistics unit of the Chinese e-commerce giant - with SF Express claiming it was removed as a delivery option by Alibaba for refusing to share data with the company. “The residents [of Macau] have legitimate reasons to express concerns over a ‘horizontal integration of data’ from all government data bodies using Alibaba’s services. The physical presence of data in Macau (local storage of data) is just a basic statutory requirement and is, in no way, an excuse for the government’s non-transparency,” the group’s release observed. According to the deal with Alibaba, a cloud computing centre would be set up in the city to sustain the new ‘Urban Brain,’ with the first phase to be concluded in June 2019 and the second by June 2021.
Democratising data
The Association also criticised the lack of a public tender process in granting the project of construction of a cloud infrastructure to Alibaba, considering that the Macau Government had “deviated” from its “self-proclaimed principle that public money should be spent worthwhile”. Consequently, ANM demanded the Macau Government rescind the agreement until the ‘Smart City’ plan is available for public scrutiny and citizens are assured they can withdraw their consent to data being processed by Alibaba. The Association also demanded the government make ‘Open Data’ a
priority for future government projects so that residents can make full use of the intelligence produced by data analysis. “Open Data is a new trend in developed democracies (…) The exclusive use of such data intelligence by the Macau Government would only benefit the authorities. Through Open Data, all citizens, especially those with technical capabilities, would have a chance to use the value of the data,” Mr. Chao said yesterday.
Most rigorous in Asia
Meanwhile, Secretary for Administration and Justice Sonia Chan Hoi Fan said in a release yesterday that “the MSAR had the most rigorous data protection legislation in Asia” because the city’s Personal Data Protection Law mirrored European Union regulations. According to Secretary Chan, any services or institutions responsible for development of the ‘Smart City’ and e-government concepts were “bound to secrecy,” and pledged no private information would be transferred to “separate institutions” She added that in order to develop the concept of e-government, authorities had already finalised the process of simplifying “dozens of inter-department procedures”. “The platforms for the dissemination of official information will be gradually unified, reinforcing the exchange of information at internal level, in order to create greater facilities for the population by reducing their travel and delivery of documents among the various public services,” the Secretary claimed.
Banking
Two sides of the coin As of June 30, Banco Nacional Ultramarino registered net profits of MOP320.9 million, a 15.2 per cent year-on-year increase, while Novo Banco Ásia registered losses of MOP5.5 million Banco Nacional Ultramarino S.A. (BNU) closed the first half of this year with MOP320.9 million (US$39.8 million) in net profit, a 15.2 per cent increase year-on-year, according to figures published in the Official Gazette. According to the balance sheet, as of June 30 this year BNU posted revenues of MOP879.6 million, with costs reaching MOP558.7 million. BNU closed out 2016 with profits amounting to some MOP560.5 million, a 9.8 per cent yearly increase. Meanwhile, Novo Banco Ásia, S.A.
closed the first half of 2017 posting losses of MOP5.5 million. According to the balance sheet, as of June 30 Novo Banco Asia recorded revenues of MOP13.6 million and expenses of MOP19 million. In May, it was announced that Portuguese bank Novo Banco, S.A. had completed the sale of 75 per cent of the share capital from its subsidiary in the MSAR to a group of investors led by Hong Kong-based Well Link Group for 145.8 million euros (MOP1.37 billion/US$171 million). N.M.
Business Daily Friday, August 11 2017 5
Macau eSports
Skilled betting Skill-based gaming company GameCo will soon apply for gaming and product licensing in the MSAR, in order to bring its arcade-style gaming slot machines to the local market, while using the city as a base to expand to other Asian markets and Australia Nelson Moura nelson.moura@macaubusinessdaily.com
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merican electronic gaming company GameCo Inc. will apply for an MSAR gaming license and product licensing in the coming months, the company’s CEO, Blaine Graboyes, told Business Daily. “We’ve been visiting Macau since 2016 and meeting with local operators, as well as with regulators at DICJ [the Gaming Inspection and Coordination Bureau]. We currently have two games on test beds with local operators. We’ve been updating our platform to meet the Macau 1.1 gaming standards, and working with our compliance team to prepare our licensing application,” Mr. Graboyes told Business Daily. The GameCo’s CEO announced to website Esports Insider last week that his company was looking to enter the Macau market, possibly bringing its skill-based Video Game Gambling Machines (VGM). “We will announce our local partners as we advance the licensing and compliance process. We’ve also filed for expanding our issued patents in China and worldwide,” he said to Business Daily. Mr. Graboyes also added that his company plans to use Macau as a base of operations to reach other Asian markets and Australia.
“Skill-based games can generate meaningful profits for casinos, with much of this being incremental revenue from new players or additional spend due to new product offerings” Blaine Graboyes, CEO of GameCo Inc.
“Demand in Macau and Asia has been tremendous for our product, well in excess of our expectations and plans, and we’re working hard to fast track development for the market […] we’re in discussions with operators and regulators throughout Asia,” he added. For Mr. Graboyes, working with local partners is “critical” in Macau and Asia, something he says GameCo has done in many jurisdictions in North America, particularly with Tribal casinos (casinos operated in Native-American Indian reservations). “These partnerships allow GameCo to leverage our distributors’ existing relationships and knowledge of local markets, while allowing GameCo to focus on developing,” he added.
Creating gaming history
According to Mr. Graboyes, GameCo was founded in 2014 around the concept of video game gambling, using the experience he gathered by producing video games for eSports flag companies such as Blizzard Entertainment, Ubisoft, and Wargaming. “We were bringing eSports events
to casinos and I was able to connect with senior casino executives who explained some of the challenges they were experiencing with the ageing player base for slot machines. After investigating the industry and opportunity, we dedicated ourselves to developing the vision and product for GameCo,” he stated. Prior to working in the gaming industry, Mr. Graboyes co-founded the first DVD production company in New York City. After selling the business in 2001, he worked as a digital producer for a talent agency in Los Angeles, shifting afterwards to producing games for entertainment companies such as DreamWorks, Sony and Warner Bros. “I’m fortunate to have contributed to games on nearly every platform and format, from console and PC to social and mobile to board games […] I have a passion for new technology and innovation and enjoy being ‘first’ in an industry,” he told Business Daily. This knack for innovation led GameCo to create the first skill-based gaming slot machine, the first to be approved by U.S. gaming regulators, with the machines introduced in casinos in Atlantic City in November of last year. According to Mr. Graboyes, the company’s core product offers arcade-style cabinets that balance player skill with patented game design, while maintaining the same return to players as traditional slot machines. GameCo also produces video game gambling offerings using sport and action elements, or including popular entertainment brands such as Star Trek into gaming offerings in casinos. Recently, the company announced its first partnership with Japanese video game publisher, Bandai Namco Entertainment Inc., to bring one of their games, Soulcalibur II, to casinos in the near future. “This will be the first time gamers can play the same game at the casino that they love on their console at home. Everything we do at GameCo is about uniting our passion for video games with the excitement of the casino,” he added.
Spreading worldwide
The company has currently deployed the machines throughout the state of Connecticut in the U.S., as well as in the Caribbean, with launches planned in August for properties in the states of Florida, North Carolina, Oklahoma and California, as well as on cruise ships, Mr. Graboyes informed Business Daily. “We use the term ‘video game gambling’ to differentiate from the previous skill games in casinos, particularly electronic poker and blackjack. These technologies have laid the groundwork for GameCo to be the first to launch the newest generation of casino games,” he said. The GameCo CEO also stated there’s been a strong and growing demand for innovative new products at casinos, with the company’s top games generating “solid” win per day (WPD), with US$650 in WPD having been generated on the company’s “best day”. “This shows that skill-based games can generate meaningful profits for casinos, with much of this being incremental revenue from new players or additional spend due to new product offerings. That’s a great response and very powerful as a marketing channel to bring new players to the casino,” he added.
Blaine Graboyes, CEO of GameCo Inc
According to Mr. Graboyes, GameCo’s products are approved by Gaming Laboratories International (GLI) under the GLI-11 standard, the same standard governing most slot machines along with electronic poker and blackjack. With skill-based gaming yet to be legislated in the MSAR, the GameCo CEO says the company will collaborate with regulators to bring new innovative products to the city.
The skill-based future
Mr. Graboyes believes the future of gaming will be composed of a diverse mix of traditional and innovative products that appeal to the widest possible range of gamers. “There is definitely a younger
demographic that is not engaged with slot machines or even table games. For these tech-savvy gamers, we believe that skill-based games and video game gambling will provide an experience that attracts the next generation to the casino,” he told Business Daily. However, Graboyes considers that traditional products such as slots and table games won’t disappear, but be complemented by the new offerings. Betting in eSports competitions will also be an important component of future casinos, from casual competitions, to professional tournaments, with eSports book betting being able to “greatly leverage the massive popularity of video games” in the casinos of the future, he points out. advertisement
6 Business Daily Friday, August 11 2017
Macau Real estate
Locals take lead in housing loans Residents account for nearly 98 pct of residential mortgage loans in June Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he number of residential loans to local residents during the month of June saw an 11.5 per cent uptick, while accounting for 97.8 per cent of all residential mortgage loans granted during the month, according to the most recent data from the Monetary Authority of Macao. Overall, the value of new residential mortgage loans decreased monthto-month in June, witnessing a 15.5 per cent drop to a value of MOP4.8 billion, with those to residents valued at MOP4.7 billion. The component of non-resident residential mortgage loans plummeted 92.7 per cent month-on-month, which the Authority attributes to a higher comparison base in the previous month of MOP108.3 million. New approvals of residential mortgage loans posted a 3 per cent uptick year-on-year. Outstanding balances of residential mortgage loans saw a 0.7 per cent uptick month-to-month and a 5.2 per cent rise from the same period last year, amounting to MOP185.6 billion. Outstanding balances for residents registered a 0.9 per cent drop, while those to non-residents fell 2.9 per cent month-to-month.
Commercial
Regarding commercial real estate loans, an 82.1 per cent increase was seen month-to-month, reaching MOP6.1 billion, with residents
comprising 98.1 per cent of the total. The value of the commercial real estate loans to residents surged 172.6 per cent month-to-month, reaching MOP6 billion ‘mainly driven by new loans granted to enterprises collateralised by commercial buildings and land,’ notes AMCM. Commercial real estate loans to non-residents saw an 89.9 per cent drop in value, reaching MOP116.2, a
fall also attributed to a higher comparison base in May. Outstanding balances of commercial real estate loans saw a 2.2 per cent uptick month-to-month and a 2.1 per cent rise year-on-year, reaching MOP172.7 billion. Residents accounted for 89.2 per cent of the loans, with a 2.7 per cent uptick in loan value from the previous month, while those to non-residents saw a
4.7 per cent month-to-month uptick. The delinquency ratio for residential mortgage loans dropped 0.02 percentage points, to 0.16 per cent month-to-month, but rose by 0.06 percentage points from the same period one year ago. Commercial real estate loans were up 0.12 percentage points year-on-year, and ‘virtually unchanged’ month-to-month at 0.14 per cent.
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Loss
Future Bright loses HK$16.9 mln in H1 The group is ‘actively looking for a tenant’ for the sixstorey ‘Yellow House’ near the Ruins of St. Paul’s Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Investment company Future Bright Holdings Limited has warned its shareholders that it expects a loss of HK$16.9 million (US$2.16 million) for the first six months of the year, according to a filing with the Hong Kong Stock Exchange. The loss is divided between a HK$8.7 million loss experienced in the second quarter of the year, coupled with the HK$8.2 million loss recorded in the first quarter and demonstrates a 7.6 per cent increase in loss for the first half-year when compared to the same period last year. In particular, the group points out that it suffered a loss of HK$4.5 million due to the ‘closure of a Western restaurant at the University of Macau in Hengqin Island’, as well as losses in the group’s food souvenir business. In addition, the ‘soft performance’ of newly opened restaurants of the group ‘in late 2016 which have been building up their sales volume’ – namely a restaurant in The Parisian and one in Lee Tung Avenue, and the lack of rental income from the group’s ‘Yellow House’ at the foot of the steps of
the Ruins of St. Paul’s that formerly housed fashion outlet Forever 21. During the first half-year the property yielded a loss of HK$7.9 million. The group saw reductions in the loss on its food souvenir business of 22.1 per cent, at HK$10.9 million, while its three restaurants in Zhuhai Huafa Mall saw a 27.9 per cent reduction in loss, to HK$6.2 million. The group’s Hengqin land saw a 1,016.7 per cent increase in net fair value gain, to HK$20.1 million. The group observed that the operating environment during the first half year ‘has been challenging’. ‘Management is actively looking for a tenant’ for the six-storey ‘yellow house’ property, notes the filing, adding it will commence interior renovation ‘soon’ on its central food and logistics processing centre, anticipating it will ‘become operational in early 2018’. Regarding the group’s Hengqin land, it notes it has ‘started its foundation works’, having obtained foundation permits in January. The group notes it has ‘submitted its application together with an initial proposal to seek the signing of a supplemental agreement for an extension of the development milestones’.
Business Daily Friday, August 11 2017 7
Gaming High-roller markets
Imperial Pacific International attracting Filipino high rollers The casino in Saipan has been increasingly attracting VIP customers from the Philippines helped by geographical proximity, while the company is seeking to raise money to pursue the development of its resort Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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n increased number of Filipino high rollers are choosing Saipan as their preferred gambling destination, according to several media outlets quoting the findings of Aviareps, a tourism marketing group. According to media reports citing Aviareps’ findings, more than 1,000 Filipinos have travelled to Saipan on a monthly basis this year. Saipan is the home of Imperial Pacific International (IPI) Holdings’ Best Sunshine casino. Last year, the casino reported revenues of US$32.40 billion from its VIP tables, higher than gaming venues such as The Venetian Macao, which generated US$28.90 billion over the same period, according to Business Mirror. The sole gaming operation in the island has made headlines and attracted the attention of U.S. financial authorities due to record VIP
Macau angle
Grant Govertsen, managing director and head of Asia Equity Research at Union Gaming Securities Asia, told Business Daily that he is “not aware” of the
gambling turnover numbers – US$5.6 billion (MOP45.08 billion) in January 2017. Saipan is part of the Northern Mariana Islands, a U.S. Commonwealth, which gives the U.S. Department of Justice (DOJ) authority over its legal mechanisms. Last June, IPI said that it would only announce monthly unaudited results for its VIP rolling chip for its casino in Saipan when amounts totalled less than US$2.5 billion, according to a filing by the company with the Hong Kong Stock Exchange. The tourism company claimed that Filipino high rollers are flying to Saipan because it offers a break from traditional destinations such as Macau and Las Vegas. The fact that there is a direct flight connection operated by Philippine Airlines linking the Philippines to the island is also a factor encouraging more Filipinos to go there, according to reports. In addition to being geographically close, Saipan is home to a large Filipino
Aviareps report, so he does not know whether Filipino high rollers preferring to travel to Saipan than Macau or Las Vegas is accurate or not. On the other hand, he said that “the
community, which currently accounts for 40 per cent of Saipan’s total population of 55,000.
IPI raising funds
Imperial Pacific International is seeking to raise some HK$400 million through two bond placements to use the net proceedings – commissions and expenses deducted – for the development of phase one of its Saipan project, the company announced in a filing with the Hong Kong Exchange on Wednesday after trading hours. The first phase started in January 2017. Estimates of IPI’s total investment for the resort – which opened in ‘permanent mode’ in early July – are now at US$7 billion, according to Business Mirror. The company has entered into placing agreements with Convoy Investment Services Limited to arrange places to subscribe for one aggregate of bonds up to a total amount of HK$350 million and another aggregate of up to an amount of HK$50 million.
The bonds will be placed at not less than six venues for independent professional, institutional or private investors, and those whose ultimate beneficial owners are independent third parties. The agreement requires the issue of bonds of an aggregate
principal amount of no less than HK$500,000 and subsequent integral multiples of HK$500,000. The company noted the bonds constitute direct, unconditional, unsubordinated and unsecured obligations of the company.
contribution to Macau’s GGR [gross gaming revenue] from Filipino high rollers is incredibly small, so should they stop coming to Macau it wouldn’t have an impact on GGR here.”
Business model
Junkets transitioning markets Seeking opportunities abroad to become casino owners rather than contractors only is an increasing trend among junket operators, says analyst Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The size of the gaming market in the Philippines is still “much bigger than Vietnam,” having been estimated at some US$2.9 billion, says Grant Govertsen, managing director and head of Asia Equity Research at Union
Gaming Securities Asia. Union Gaming estimates that gross gaming revenue in Vietnam currently stands at US$800 million to US$1.2 billion – the Vietnamese Government does not publish data on GGR – gaming news outlet GGRAsia reported this week. Until recently, Vietnam
was a foreign-only gaming jurisdiction. The first regulation enabling access to some of the country’s 30 casinos and electronic gaming parlours by Vietnamese citizens was enacted as a trial scheme in March of this year. Suncity Group Holdings Limited, a Macau-based and
Hong Kong-listed junket operator, is one of the latest companies to have announced new investment plans in the country. By the end-June, Suncity had entered into a memorandum of understanding to acquire Star Admiral Limited, a company which owns a 34 per cent equity
interest in an integrated resort (IR) in Hoi An, Vietnam. The company noted at the time that the project ‘represents a prime opportunity for the group to strengthen its presence and to further extend its business in Vietnam.’ In response to Business Daily enquiries, Govertsen said: “VIP junkets of all sizes are becoming increasingly interested in transitioning from an agency model to a principal model . . . In other words, they see greater economic opportunities for themselves as casino owners rather than as contractors within existing casinos.” According to him, the trend observed in Vietnam might also be replicated across multiple gaming jurisdictions over the coming years. “Given that there are limited opportunities within Macau to accomplish this transition, it makes sense that VIP junkets are exploring opportunities overseas,” he concluded.
8 Business Daily Friday, August 11 2017
Consigliere
Plaza Hotel
12 shocking things I learned by working as a butler at the Plaza Hotel
O
Brandon Presser
ld-school service is alive and well at the Plaza: High tea treats are served in brass birdcages, tuxedo-clad bellman whisk away luggage to gilded suites, and chefs bear toques that tower above their heads. But in the age of Amazon Prime—when we all want everything now—what is it really like blending vestigial aristocratic assistance with light-speed wish fulfilment? In order to properly find out, I accepted an offer from New York’s iconic Plaza Hotel to join its team of butlers, a coterie of 10 servicemen (and one woman!) who trot around the property’s 20 floors day and night, making sure 282 rooms’ worth of guests feel like royalty. For two hot days in July, I raced around with a team that, like the city itself, seemingly never sleeps—hearing tales of the trade from the department’s director, Emma, and serving guests alongside some of her most experienced staffers. This is an elite crew: It bears a combined 147 years of experience, and many have served as house managers for affluent families all over the world. Me? I got express credentials for my two-day residency—unprecedented for the Plaza. They included a detailed orientation of the property and a uniform fitting for my hotel-issued attire (gold-plated name tag and all). Over my short tenure, I delivered laundry to Middle Eastern princesses and fetched lobsters out of wishing wells—and listened to colleagues delight in the oddities of their jobs, from fielding requests for Viagra or comforting a weeping woman over spilled blueberries. Serving the world’s rich and famous, it turns out, plumbs the depths of an alternative universe that readily embraces the absurd without even batting an eye. And that was only the beginning of what I learned. Here, 12 secrets to keep in mind the next time you check into a fivestar hotel.
One VIP list you don’t want to be on Hundreds of butler requests roll in each shift—mostly to fill ice buckets, handle laundry, and shine shoes. Complimentary packing and unpacking
requests are also common, though they can turn into day-long affairs. A surprising number of international guests will purchase adjoining suites: one to sleep in and one for their luggage. By matter of corporate philosophy, every guest should feel like a VIP at the Plaza. But a hierarchy still exists among those who check-in at reception. At the top of the pyramid are kings, queens, and heads of state—or as butlers call them: V1s, and they are ever-present on the property.) Then come high-payers, long-stayers, guests booking a large block of rooms, and recognizable celebs. They’re called DVs, or distinguished visitors. On the bottom of the VIP totem pole is the SA group, known complainers or otherwise difficult and demanding guests who require “special assistance.”
Bath time can be awkward Another common request for the butler team is to draw baths with a signature blend of salt, oil, and roses—especially during the colder months of the year. But the butler’s duties aren’t necessarily complete once the tub is full. Bal, the Plaza’s resident bath-time specialist, said that 95 per cent of the time, he’s asked to remain within arm’s reach as bathers suds-up. Most of them, he said, want more hot water or scented oil, and are happy to keep him on hand while they relax in the nude. He is often left to pull the plug from the drain, elbow-deep in leftover water. It gets weirder. One of my butler colleagues at a previous job in London was asked to ship in and set up a guest’s order of fresh oysters in the bathtub. He diligently filled the tub with ice and laid the oysters out, only to discover that the guest wanted the oysters placed in the tub around his soaking body. Eventually, the client seemed satisfied: He purchased the room next door for his butler so he’d always be near.
Hotel guests are pretty predictable … The Plaza’s guest relations team researches everyone staying at the hotel on an individual basis, using a variety of social media tools. (The favourite is LinkedIn.com.) Butlers, on the other hand, often use past trends to size
Edible fashion
S
hopping - and eating delicious food - is indispensable to a woman’s life. No matter how upset she may be, shopping or eating, and combinations thereof, inevitably put things right. If she can enjoy both at the same time, then that’s just peachy! Renowned brands are aware of a woman’s demands; thus, they have started to partner restaurants and cafés to launch the brand themed afternoon tea. Delicious food plus beloved brand icons create a dynamic no woman can resist.
Guerlain x The Langham
Renowned French beauty brand Guerlain has accumulated almost two centuries of history. This Summer, they have teamed up with The Langham, Hong Kong hotel to present an exclusive Honey Afternoon Tea. Inspired by the icon of the brand - The Bee - Executive Pastry Chef Matthieu Godard is pioneering the extraordinary properties of honey in The Langham event.
The exclusive afternoon tea set embodies sweet styles of Hong Kong honey such as The Bee – a golden macaroon filled with dark chocolate and honey nectar; The Chocolate – a mini tartlet made with salty caramel, honey ganache and milk chocolate; and The Honeycomb – Earl Grey crémeux, honey and orange jelly, topped with chunks of homemade honeycomb and sprinkles of gold dusted white chocolate pearls.
Business Daily Friday, August 11 2017 9
Consigliere
people up on the spot. They send electric kettles to the rooms of arriving Asian guests, who often bring noodles from home to cook in their suite. They keep an eye on the minibar when tending to Americans in their thirties and forties—they’re considered the partiers of the hotel, likeliest to plough through the booze. Middle Eastern VIPs get what is called an “Arabic Amenity”—a tray of dates, dried fruit, and nuts; they tend to prefer these to chocolates, cakes, or other sweet desserts. And the butler staff knows to immediately ask Western businessmen if they have shirts or suits that needs servicing upon checking in; they’re always the ones who treble the quantity of laundry in the basement.
… except when they’re totally unpredictable Despite the overwhelming regularity of guest behaviours, travellers can mystify even the most experienced of butlers. During my shifts, lobster shells kept appearing in the fountains of the hotel’s interior courtyard. Every day, the staff would fish them out, only to find a new one a few hours later. It turned out that a Middle Eastern prince was ordering cooked lobster from room service for every meal and then throwing the empty shells out the window to land in a fountain below. (Emma asked him to stop—nicely—but pieced together the mystery only on the day of his departure.) Another time, a woman called Emma hysterically crying “as though her husband died and she just discovered the body.” When Emma finally calmed her down, she comprehended the real reason for the guest’s tears: There was no more Kleenex in her suite, and her young daughter had been forced to blow her nose on toilet paper.
Sex, drugs and … come again? As at any hotel, requests for drugs and prostitutes do happen—but not frequently. Bal has been asked for drugs only two or three times in his 10 years at the Plaza, and he is careful to stick within the boundaries of the law. Condom needs are another story: Mouhsine, one of the other butlers, always carries a pack with him, especially in the evenings. On being called to fulfil one such late-night request, no one answered the door after several knocks; he gently entered the room to find the two guests in the “go” position, waiting to be walked-in on. Far more interesting than sex and drugs are the more outlandish client requests. Recently, Emma fielded a service call from a woman searching for some missing chocolate-covered blueberries, which had fallen off a window ledge. Emma offered to obtain replacements from the same brand and store, but the guest was adamant about retrieving her exact snack. Emma and the security team trawled the hotel’s interior courtyard for hours, blueberry-hunting, to no avail. During my brief tenure, the weirdest request was for two litres of intravenous saline solution—meant for a doctor’s ailing wife, who was presumably on the wrong side of a stunning hangover. Some requests are even more bizarre. One butler told the story of how he was asked to replace all the furniture in a suite because the guest didn’t like the colour blue. Another was sent off to scout the city’s reliquaries for a justice of the peace trophy—a prize for a newly minted lawyer. Another arranged for a live tarantula flown in from Africa to be served as a meal. Of course, butlers always deliver with a straight face.
The likelihood that guests will not want to pay is almost guaranteed. This requires butlers to document everything with pocket cameras, whether it’s open booze bottles spread across the room, stains on laundry that existed before washing, or evidence of damaged furniture. Every ticket is verified on a computer and photos are attached, so when TripAdvisor. com lights up with a fiery review, the butlers are able to provide evidence to dispel any falsehoods.
The easiest way to get banned It’s a lot easier than you might think. The hotel has a strict anti-discrimination policy, and zero tolerance is given to guests who mistreat the staff because of race, gender, age, or creed. Even now, guests sometimes request that staff of a certain ethnic extraction not be allowed to service their rooms; others will ask service members if they are legal in America. Emma, the director of the butler team, cited several incidents of sexism, too, such as the time guests asked to speak with a manager but grew angrier when she showed up instead of a man. The refusal of services goes all the way up the ladder to DVs. At least two specific celebrities are permanently banned from the Plaza—one, a pop diva expelled for excessive drug and alcohol use and a belligerent attitude towards the staff, the other a sitcom star who took his anger issues out on a suite’s worth of furnishings.
Afternoon tea leftovers don’t go to waste Hidden within the Plaza’s secret back-of-house corridors and tunnels is a cafeteria reserved for the staff. Open during lunch, dinner, and late-night hours for (surprisingly good!) hot meal service, the canteen offers bagels and drinks for the peckish throughout the entirety of the day. But the savviest snackers know to visit the cafeteria at exactly 5:30 p.m., because that’s when the leftovers from high tea at the Palm Court upstairs are put out for the staff. (They serve only the food that was prepped but not plated.) Emma said she practically lives off mini cucumber sandwiches. I liked the tiny blueberry cheesecakes.
Mind the pillowcases
A good tip can make it worthwhile
Missing pillowcases can be a real issue at the Plaza. But it’s not the tourists that have sticky fingers. And it’s not hotel pillowcases that are getting stolen. At least once a week, a white pillowcase that was brought from a guest’s home gets mistaken for a hotel-issued version and is sent out for cleaning. Sometimes they’re never seen again, in which case Emma dispatches a bellman to purchase new coverings, drawing on the hotel’s coffers, no matter the price.
New York City’s hospitality workers are protected under a spectrum of different unions. While bellmen and room service are considered “tipping staff,” the butlers do not expect fiscal rewards for their work, beyond the Plaza’s pay check. But Bal and his colleagues still see a few ex-presidents from time to time. His biggest tip during the last 10 years? It came from a French model-actress keen on setting up a romantic weekend for her boyfriend, a well-known fashion magnate. Bal placed flowers on every flat surface throughout their suite, organized lunch in a helicopter over Central Park, and tracked down a very specific, very expensive bottle from a specialist store off-site. By the end of the weekend, she handed him US$8,000 in cash. Seven months later, the founder of the fashion label was back at the hotel with a different girlfriend.
Christmastime: Not so merry “Party season,” which spans October to December, feels like a constant carousel of functions, banquets, and events at the Plaza. Every evening, there are four or five requests for assistance at looping bow ties and zipping up cocktail dresses. And in the last few years, requests for holiday-themed decorations in the rooms have become so commonplace that the hotel now offers a standard Christmas package that includes a fresh, fully decorated tree, assembled by the butlers pre-check-in for US$500.
The customer is not always right Complaints follow regular patterns. Every day, a guest will complain about too-slow laundry service. Though forms clearly offer standard and expedited return times, they’re not fast enough for some. Minibar charges also lead to regular disputes. A full raid of your room’s bar runs US$600 at the Plaza—something that happens at least once a week.
In addition to the sweet treats, the savoury complements include Lavender-infused Honey Glazed Duck Breast, Cucumber and Cheddar Cheese Sandwiches and a Norwegian Smoked Salmon Dome Stuffed with Crab Salad on Corn Bread. What is most exciting is that all afternoon tea guests will receive an exclusive Guerlain Abeille Royale gift set that consists of Guerlain’s new Royal Bee product.
alice + olivia x Cha Bei
Edible Fashion crossovers have been a hit in Hong Kong. Now this phenomenon has already reached Macau. You don’t need to visit Hong Kong anymore; you can taste a one-of-akind stylish afternoon tea at lifestyle café Cha Bei. This afternoon tea - designed by whimsical New York-based brand
alice + olivia and café Cha Bei – is inspired by the brand’s prints from their Fall 2017 collection. The afternoon tea set will certainly satiate your palate, and being beautiful and fashionable presents endless photo opportunities to capture those stylish moments. The highlights of this menu are New York-inspired desserts Coconut Brownie, Oreo Ivoire Chocolate Biscuit, Blueberry Macaroon, Passion Fruit Cupcake and New York Cheesecake. At the same time, you can also enjoy delicious savouries such as Lobster Egg Benedict, Tea Smoked Salmon, Cucumber & Dill Cream; Truffle Mushroom Puff; and Iberico Ham Melon. These remarkable crossovers are paired until the end of September – so pick up your phone and make that reservation now! Edwina Lui, Essential Macau Editor
When to call it a night The Plaza maintains a Betsey Johnson-designed suite in honour of Eloise, the capricious six-year-old that fictionally lived on the property. It was here that Nimer, another member of the butler team, had his most bizarre service experience to date. A request was put in for someone to come up and read the beloved children’s book as a bedtime story, but when Nimer arrived there were no children to be found. Four thirtysomethings were neatly tucked into one, large bed. Concealing his shock, Nimer read to them for 90 minutes—then tracked down Eloise on video, in case they hadn’t had enough. Bloomberg
10 Business Daily Friday, August 11 2017
Greater China Commodities
Smog crackdown roils niche markets Central government is under pressure to clean up 28 cities by forcing steel, aluminium and cement plants to cut output by September to tackle winter smog
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hina’s push for blue skies is roiling supplies and boosting prices of key raw materials from soymeal to ferroalloys as the government ramps up smog checks and forces some factories in the world’s top commodities market to close or suspend operations. With soymeal and gasoline prices surging, Shandong, China’s industrial and agricultural heartland, offered a snapshot into the impact in the market as environmental inspectors started to crisscross the eastern province. Shandong is one of eight provinces and regions now facing a fourth round of inspections by China’s Ministry of Environmental Protection. Soymeal at Rizhao, in Shandong, has risen almost 3 per cent this week, hitting a three-week high of RMB2,840 (US$424.32) per tonne on Wednesday even as a domestic glut weighs on the market. Major soybean crushers there, accounting for about 10,000 tonnes of daily crushing capacity - or 2 per cent of China’s total daily capacity were expected to suspend operations this week ahead of environmental checks, according to traders and analysts who had spoken to the plants. Reuters could not confirm the moves.
“Commodities prices are rallying on the news of more environmental checks....We are expecting these tougher checks to continue until the air quality improves,” said Lin Boqiang, energy expert with Xiamen University. Central government is under pressure to clean up 28 cities by forcing steel, aluminium and cement plants to cut output by September to tackle winter smog. As well as Shandong, teams will head to Jilin, Zhejiang, Hainan, Sichuan, Tibet, Qinghai and Xinjiang over the next two weeks to check
for any industrial plants violating pollution rules. Wholesale gasoline prices in Shandong rallied amid concerns the latest crackdown may crimp refinery production, even as the market remains awash with product. Average prices of the most popular 92 grade were at RMB5,550 (US$831.06) per tonne this week, up from RMB5,440 last week, according to an assessment by Shandong-based oil consultancy Zibo Longzhong Information. “Many small blenders were shut because either they don’t have a
license or don’t meet basic emission standards,” said Li Yan, oil analyst at the consultancy. To the west, checks in Sichuan were upending ferroalloys and nonferrous markets. Prices of vanadium, used to strengthen steel and mainly produced in Sichuan, have more than doubled over the past month. Zinc and lead in Shanghai rallied over 3 per cent yesterday as 60 per cent of local lead-zinc mines underwent shutdowns for month-long maintenance during the inspections, Antaike analysts said. While the current disruption may only last a few weeks, sudden supply jolts and price swings in niche markets are likely to continue as regulatory scrutiny ramps up ahead of winter. Analysts also agree that the government’s years-long push to remove excess capacity in large bloated heavy industries are also starting to take hold, providing support in the long term for prices of aluminium and steel. Steelmakers in the smog-prone northern Chinese province of Hebei will be forced to halt operations next month if they fail to meet tough new pollution restrictions, the local government said in a notice on Wednesday. Reuters
IPO
HKEX chief says primary connect a key to winning Saudi Aramco Saudi Arabia aims to sell about 5 per cent of Aramco in an IPO next year Benjamin Robertson
Hong Kong Exchanges & Clearing Ltd.’s bid to win Saudi Arabian Oil Co.’s listing would get a boost from having a primary connect trading system with mainland China, according to its chief executive officer. HKEX has so far created three links with domestic Chinese markets, and CEO Charles Li has plans for several others. The primary connect, which would see shares in Hong Kong-based initial public offerings made available to mainland investors, would act as a lure to major companies, he said in an interview on Bloomberg Television yesterday. “For Saudi Aramco to consider listing in Hong Kong, just a pure Hong Kong listing would probably not be compelling,” Li said. To be able to list in the city and sell shares into major Chinese institutions would be the “perfect catalyst” for primary connect, he said. Saudi Arabia aims to sell about 5 per cent of Aramco in an IPO next year, and stock exchanges from the U.K. to Japan are vying for what may be the world’s richest public debut. The main contenders are bourses
in London, New York, Hong Kong, Tokyo, Singapore and Toronto. Primary connect is the “next big thing” said Li, though he added that it “will take a while.” HKEX posted second-quarter profits of HK$1.78 billion (US$230 million) Wednesday, a 14 per cent increase from HK$1.55 billion a year earlier. Revenue for the quarter was HK$2.76 billion, the company said in a statement, compared with HK$2.73 billion. Li said in an earnings conference Wednesday that there isn’t a timetable for new links between Hong Kong and the mainland. As well as primary connect, other suggested systems would include exchange-traded funds and derivatives.
Turning the corner
Li sounded a bullish note in his Bloomberg Television interview about London Metal Exchange, which HKEX bought in 2012 and replaced its CEO early this year. “We had a few tough quarters, largely to do with both the industry challenges and our own managing of the exchange,” he said. “But we have engaged the industry very deeply in
the recent discussion paper.” “This is the most comprehensive engagement with the industry and we are turning the corner,” said Li. Li also said yesterday that the consultation for a proposed third exchange targeting new economy companies and allowing dual-class share structures is close to finishing. HKEX was widely seen as having
missed out on Alibaba Group Holding Ltd.’s IPO in 2014 in part because it didn’t allow multiple classes of stock. “If there is a broader support for us to proceed we will proceed,” said Li. “If not, we may not proceed, that’s really basically the consultation. But I do believe the market has moved on from where we were a few years ago.” Bloomberg News
Business Daily Friday, August 11 2017 11
Greater China M&A
In Brief
SEC delays decision on buyout of Chicago exchange Chicago Stock Exchange handles less than 1 per cent of daily U.S. stock trading Ben Bain and Charlotte Chilton
The U.S. Securities and Exchange Commission has dodged a political hot potato -- for now -- by delaying a decision on whether to approve a Chinese-led group’s controversial takeover of the Chicago Stock Exchange. Facing a Wednesday deadline, the SEC, led by Chairman Jay Clayton, said its commissioners will review the proposed buyout, potentially setting up a vote at an unknown date on whether it should go through. The surprise announcement effectively overrode a recommendation from the regulator’s staff to give the deal the green light. Under the SEC’s byzantine structure, commissioner’s can overrule powers granted to staff attorneys to make decisions about the nation’s exchanges. The agency, which has five commissioners at full strength, didn’t say which of its three current officials requested a review of the sale. In a Wednesday letter to the Chicago Stock Exchange, the regulator said the staff’s decision to approve the transaction “is stayed” until further notice.
The move further stalls a takeover that has drawn opposition from members of Congress and even elicited criticism from President Donald Trump last year on the campaign trail. For months, the SEC has wrangled over whether to sign off on the buyout, which would put the 135-yearold exchange in the hands of a group of investors led by China’s Chongqing Casin Enterprise Group Co.
Small deal
The US$27 million takeover is small on paper -- the sleepy Chicago Stock Exchange handles less than 1 per cent of daily U.S. stock trading. But it poses political headaches for the SEC and Clayton, as some lawmakers have argued that the buyers could have ties to the Chinese government, something the exchange denies. SEC approval would be the final hurdle for the deal to clear after the Committee on Foreign Investment in the United States, which assesses the national security implications of takeovers by overseas companies, signed off on it in December. The Chicago Stock Exchange has said the buyout will remake its business, as the purchasers plan to turn
the exchange into a destination for small companies to list their shares, particularly Chinese-based firms. Clayton wants to boost U.S. initial public offerings, venting since he became chairman in May that the drop in stock sales was hurting the nation. Chongqing Casin wants to serve as a conduit to bring Chinese companies to the U.S. to raise money from investors. Hundreds of enterprises are waiting for IPO approval on exchanges in China, according to the China Securities Regulatory Commission. The Chicago Stock Exchange plans to leverage the 2012 Jumpstart Our Business Startups Act, which makes it easier for smaller companies to go public. In a statement, the exchange said, “We are confident that, upon further review by the Commissioners, they will also conclude that this transaction is consistent with the Exchange Act and will allow CHX to significantly add to Exchange staff, provide needed capital to the small and medium-sized businesses that create jobs, and bring international business back to the United States.” Bloomberg News
Lending
Hong Kong’s crowded currency trade enters perilous territory HKMA triggered a spike by announcing plans to sell additional debt instruments called Exchange Fund Bills Justina Lee
One of the world’s most reliable currency bets is suddenly looking like less of a sure thing. The Hong Kong dollar carry trade, which has produced steady returns for seven straight months, suffered a rare setback on Wednesday as the currency abruptly strengthened the most since February 2016. Its 0.1 per cent gain against the U.S. dollar may have been tiny by global standards, but it jolted investors who had positioned for declines by borrowing in Hong Kong to invest in higher-yielding American assets. The trade had been a consistent winner this year after interest rates in the U.S. rose and those in the former British colony held near rock-bottom levels. But now the tightly-managed exchange rate is turning more volatile as it approaches the weak end of a trading band imposed by the city’s de facto central bank. The Hong Kong Monetary Authority
triggered Wednesday’s spike by announcing plans to sell additional debt instruments called Exchange Fund Bills. While the HKMA said its decision had nothing to do with the currency, some traders speculated that the move was designed in part to drain cash from the financial system and guide local interest rates higher. That would help support the Hong Kong dollar before the HKMA is obliged to defend the currency at HK$7.85 versus the greenback -something it hasn’t had to do since the current trading band was implemented in 2005. “The long carry trade -- long U.S. dollar against Hong Kong dollar -has been one of the easiest trades this year and it’s probably a little crowded as well,” said Gary Yau, a strategist at Credit Agricole CIB in Hong Kong. “As the spot is near unprecedented territory, there is a lot of uncertainty and views by different parties in the market, which is why you get such sharp moves and more volatility than advertisement
usual.” The HKMA’s announcement moved currency forwards, popular contracts for betting on interest rate differences between Hong Kong and the U.S. Twelve-month Hong Kong dollar forward points jumped as much as 92 points on Wednesday, the most since December. The HKMA is probably selling more debt to banks because it wants to stagger increases in local rates, rather than see a sharp jump triggered by intervention if the currency falls to the weak end of its band, according to Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. The carry trade may have further to run despite the uptick in volatility. Because the HKMA’s HK$40 billion (US$5.1 billion) sale of EFBs is only a fraction of the city’s HK$260 billion aggregate balance (a gauge of interbank liquidity), the gap between Hong Kong and U.S. interest rates is likely to remain, according to Credit Agricole’s Yau. The Hong Kong dollar’s interbank rates showed limited increases yesterday, with the one- and threemonth rates rising less than half a basis point. Still, longer-term Hong Kong dollar rates are likely to show faster increases in the coming weeks, especially since the HKMA’s announcements suggests a “policy nudge in that direction,” Goldman Sachs Group Inc. economists MK Tang and Maggie Wei wrote in a note. The monetary authority could decide to sell more EFBs if rates fail to climb on their own, according to DBS’s Ong. In 2016, the HKMA announced additional EFB sales four times, contributing to a 34 per cent drop in the aggregate balance. “The carry trade might not be dead, but the peak is probably in the rearview mirror,” Jason Daw, a strategist at Societe Generale SA, wrote in a note. “The risks of further liquidity surprises by HKMA outweigh the benefits of earning modest carry.” Bloomberg News
Trade
EU slaps import duties on Mainland steel The European Union has slapped provisional import duties of as much as 28.5 per cent on certain Chinese corrosion resistant steels after an eight-month investigation found that the products enjoyed unfair subsidies. The Aug. 9 decision by the European Commission followed a complaint by European steel association Eurofer whose members include ArcelorMittal, ThyssenKrupp and Tata Steel Europe. The EU has hit China with anti-dumping duties on various products in recent years after EU companies cited illegal subsidies. The EU executive body said anti-dumping duties were necessary to help the bloc’s producers in at least 15 EU countries, according to the bloc’s Official Journal. Conspiracy
Former HK commodities exchange chief charged Prominent businessman Barry Cheung, who founded the now-defunct Hong Kong Mercantile Exchange, appeared in a Hong Kong court yesterday charged with conspiracy to defraud the securities regulator and fraud. Cheung, 59, who served under former Hong Kong leader Leung Chun-ying’s government, was charged with conspiring to conceal the true financial position of the exchange from the Securities and Futures Commission (SFC) and causing or permitting false information to be supplied to the commission. He is also charged with intent to defraud a company out of HK$30 million (US$3.8 million). Trade
Beijing urges U.S. to act ‘prudently’ in aluminium foil dispute China urged the U.S. government yesterday to act “prudently” to avoid damaging economic relations between the two countries, in a strongly worded response to Washington’s preliminary decision to slap anti-dumping duties on Chinese aluminium foil. In a statement posted on its Wechat account, the Ministry of Commerce said the United States had ignored offers of cooperation from the government and Chinese companies in making its ruling this week. The statement, attributed to Wang Hejun, head of the Commerce Ministry’s trade remedy and investigation bureau, was more strongly worded than typical responses to trade disputes with the United States. Results
China Mobile posts 3.5 pct rise China Mobile Ltd, the country’s top telecommunications operator, posted a 3.5 per cent rise in first-half net profit as it added 4G subscribers and said it would start field tests for 5G this year. China Mobile, together with rivals China Unicom and China Telecom, continues to benefit from mobile users’ upgrading to 4G and from demand for mobile data. The company said in March that a government call for telecom operators to lower prices was likely to reduce its 2017 operating profits and revenues by around 7 billion yuan. Profit for the six months to June reached RMB62.7 billion (US$9.40 billion), up from RMB60.6 billion a year ago.
12 Business Daily Friday, August 11 2017
Asia Industry
Japan’s June core machinery orders unexpectedly fall Data due on Monday is likely to show the economy grew for a sixth straight quarter in April-June Leika Kihara
J
apan’s core machinery orders unexpectedly fell for a third consecutive month in June, underscoring companies’ reluctance to boost spending and conflicting with recent signs that the economic recovery is gathering momentum. Core orders suffered a second straight quarter of declines in AprilJune, the first instance of consecutive quarterly falls since 2012. This casts doubt on policymakers’ optimism that brightening business sentiment will drive up capital expenditure ahead. While analysts warn against reading too much into the highly volatile series, the June fall offers a negative note ahead of Monday’s second-quarter gross domestic product (GDP) data that is expected to show a solid growth recovery, driven by robust domestic demand. Core orders, regarded as an indicator of capital spending in the coming six to nine months, decreased 1.9 per cent in June from the previous month, confounding a median market forecast for a 3.7 per cent increase, Cabinet Office data showed yesterday. It followed a 3.6 per cent tumble in May that prompted the government to cut its assessment on machinery orders. Companies surveyed by the Cabinet
Office forecast that core orders would rise 7.0 pct in the July-September quarter. “The third-quarter outlook for manufacturers’ orders isn’t bad,” said a government official who briefed reporters on the data. “Orders will likely be steady. But it’s hard to see a large increase.” Core orders fell 4.7 per cent in AprilJune from the previous quarter, the biggest quarterly decline in a year. The first quarter had a 1.4 per cent drop.
Key Points June core orders -1.9 pct vs f’cast +3.7 pct Firms expect core orders to rise 7.0 pct in Q3 Core orders down 4.7 pct in April-June qtr/qtr
Infrastructure demand
Some analysts say capital expenditure remains in an uptrend, citing infrastructure demand for the 2020 Tokyo Olympic Games and the need for companies to spend on equipment to streamline operations amid intensifying labour shortages. “Real interest rates are kept
negative by the BOJ’s monetary policy so funding constraints are small. There’s no change to our view capital expenditure will increase in the medium-term,” said Takeshi Minami, chief economist at Norinchukin Research Institute. Robust global demand has boosted Japanese business confidence to a three-year high in the there months to June, heightening policymakers’ hopes that cautious companies will finally increase spending on plant and equipment. A sustained economic recovery would help the Bank of Japan’s efforts to stamp out persistent deflation,
though wages and inflation remain stubbornly low despite recent signs of rebounding private consumption. Japan’s economy expanded an annualised 1.0 per cent in the first quarter on robust exports. Data due on Monday is likely to show the economy grew for a sixth straight quarter in April-June, a Reuters poll showed, buoyed by robust consumer spending and corporate capital investment. The machinery orders figures do not directly affect GDP data as the government uses other indicators to calculate the capital investment component of GDP. Reuters
Labour
Korean President acts to stop discrimination in hiring practices Moon pledged during his campaign to prohibit such practices as part of his fight against growing inequality, particularly in the job market When 28-year-old Joo Yerim applied for a job at an art distribution company in Seoul last year, she was required to provide her height and weight on the application. The experience left her angry and frustrated. “That has nothing to do with my ability to work,” said Joo, a university graduate who had interned at similar companies in the U.S. The questions faced by Joo, who eventually landed a position at an art magazine, would bring an avalanche of complaints and a consumer boycott in many countries. In others, the firm would be hauled before the courts. But in South Korea employers routinely demand such information, along with personal details like an applicant’s age, religion and even the occupations of their family members. It adds up to what President Moon Jae-in says is discrimination against people who are less affluent or deviate from the mainstream. Moon pledged during his campaign to prohibit such practices as part of his fight against growing inequality, particularly in the job market.
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As South Korea continues to move up the value chain from heavy industry to a more creative economy, diversity will become more important. While research and development spending and hightech manufacturing have helped the economy win accolades for innovation, a rigid two-tier labour market is the focus of widespread anger over stagnant wages and limited opportunity. Many young people, even those with college degrees, see themselves as largely excluded from careers, with little chance of being able to afford to get married and raise children. Sometimes the information
sought by companies veers into strange territory. Yang Changmo, 26, said he was once required to provide his blood type, and is frequently asked about his “drinking and smoking capacity” during interviews. Heavy drinking with colleagues is a core element of the country’s work culture.
‘Good drinker’
“I think they chose me over the female applicant with almost the same qualifications as mine because I said I was a good drinker,” said Yang, who worked in the hotel industry before quitting to find a new position. Moon’s administration is working to fulfil his pledges.
It will issue guidelines on questions private companies can ask later this month, before revising workplace laws to make those guidelines binding, the labour and finance ministries said in a recent joint statement. The government is already taking action in the public sector. By the end of August, 481 public offices and companies will be banned from asking job seekers for certain personal information, including family relations and physical details. Applicants will also no longer need to submit a photo of themselves. Because a civil service test must be taken, in many cases they also won’t be required to submit their educational background.
Old school
Some say South Korean companies put too much emphasis during hiring on the reputation of the universities applicants attended, feeding an unhealthy level of competition to get into those schools. Critics say the system favours rote learning and leaves talented, less wealthy students behind early in life, with few opportunities to
catch up. “Discrimination against those whose schools have a ‘bad’ name has long been a custom,” said An Sangjin, head of the non-profit group World Without Worries About Private Education, which was founded to address problems stemming from the intense focus on private education.
“Discrimination against those whose schools have a ‘bad’ name has long been a custom” An Sang-jin, head of the non-profit group World Without Worries About Private Education While new laws would mark a step in the right direction, the prejudices that underlie discriminatory practices also need to be rooted out in the long term, said Lee Sang Min, a professor of sociology at Hanyang University in Seoul. Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, August 11 2017 13
Asia Monetary meeting
In Brief
RBNZ less dovish on rates than expected The central bank expected growth to speed up, supported by low interest rates, strong population growth and fiscal stimulus in the 2017 budget Ana Nicolaci da Costa and Charlotte Greenfield
The Reserve Bank of New Zealand (RBNZ) stuck firmly to its neutral stance yesterday, saying there was no need to cut rates given a likely pick-up in inflation and appeared to be less worried about the country’s strong currency than some expected. RBNZ Governor Graeme Wheeler said yesterday that monetary policy would remain accommodative for a while yet, sticking to the language of recent statements after keeping interest rates at a record-low 1.75 percent - as expected. The central bank said capacity pressures would gradually push non-tradables inflation higher and reiterated the risk of house prices rising again. “We’re still very much in the neutral stage where for the foreseeable future we don’t see the OCR (official cash rate) increasing,” said Wheeler, addressing his last monetary policy news conference before his five-year term ends next month.
Key Points RBNZ keeps interest rates steady at 1.75 percent RBNZ still expects inflation to pick up gradually RBNZ says lower NZ dollar would help rebalance growth Foils expectations for a more dovish tone He stressed, however, that neither was there any need to reduce interest rates after keeping them at a record low for the fifth consecutive policy review. “At the moment we don’t feel that (a cut) is needed in order to get inflation back to the mid-point over time,” he said referring to the middle of the 1-3 percent inflation target. The RBNZ also said it favoured a lower New Zealand dollar, although it avoided bold language, prompting a brief jump in the local currency.
Poll
Economists say Japanese PM should focus on regulatory reforms Japan’s Prime Minister Shinzo Abe ought to prioritize regulatory reforms, according to economists in a monthly Reuters poll whose forecasts show they remain pessimistic on prospects for the pace of inflation to pick up in coming years. After reshuffling his cabinet last week in an effort to shore up sinking public support, Abe said the economy remains his top priority. He repeated that he will seek to engineer a positive cycle of higher corporate profits, prices and wages. The new cabinet line-up, announced after a series of gaffes and missteps by Abe’s government, gave a lift to his support. BP Woolworths
Australia’s antitrust regulator raises flags on petrol buyout RBNZ Governor Graeme Wheeler said yesterday that monetary policy would remain accommodative for a while yet
It later noted the central bank had the capability to intervene in the foreign exchange market, although historically the RBNZ has been very reluctant to do so. The RBNZ said in the statement that the trade-weighted exchange rate had risen since the last monetary policy statement in May partly in response to a weaker U.S. dollar and said that a lower dollar would help increase tradables inflation and achieve more balanced growth. “One thing that’s contrary to market expectations is that they weren’t very forceful on the language around the exchange rate,” said Ben Jarman, economist at JP Morgan in Sydney. “In the current environment, if a central bank is not very upset about currency appreciation, it’s a green light to go further.”
Growth outlook
All 21 economists in a Reuters poll expected the central bank to stay put yesterday, but some had expected it to strike a more dovish tone by acknowledging the recent run of softer data or adjusting its inflation and interest rate forecasts.
After posting some of the fastest growth among advanced economies in recent years, there are tentative signs the economy is losing momentum: it grew less than expected in the first quarter, inflation slowed more than forecast in the second quarter, and employment unexpectedly contracted. Despite this, the central bank sees inflation growth slowing this year by more than forecast in the May statement, although it expects inflation to reach 2.0 percent in the first quarter of 2020 - broadly in line with forecasts in the May statement. The bank made no changes to its official cash rate forecasts, which project rates will rise in early 2020. The central bank expected growth to speed up, supported by low interest rates, strong population growth and fiscal stimulus in the 2017 budget. “We were expecting a little bit more dovishness within the statement, but clearly it shows that it’s not going to take one or two data points to shift the RBNZ,” said Philip Borkin, senior economist at ANZ. “They’re very much in neutral and the hurdle for action in either direction is pretty high.” Reuters
Employment
200,000 protesters grind India’s financial capital to halt India reserves places for lower castes to try to bring victims of the country’s worst discrimination into the mainstream, but the policy causes resentment among other communities
Australia’s antitrust regulator said yesterday it was concerned BP Plc’s plan to buy the petrol stations of grocery giant Woolworths Ltd would hurt competition, a sign it may block the A$1.8 billion (US$1.4 billion) deal. The Australian Competition and Consumer Commission (ACCC) said the buyout would cut the number of major rivals selling petrol, reducing the incentive to keep retail prices low. “As a result, motorists may end up paying more at the pump,” ACCC Chairman Rod Sims said in a statement. Loans
S.Korea c.bank to increase support for SMEs South Korea’s central bank said yesterday it plans to shore up support for small and medium-sized businesses through its key loan facility as part of its efforts to prop up the economy. The Bank of Korea said in a statement that it would improve credit policies of the Bank Intermediated Lending Support Facility, the bank’s main tool to provide cheap loans to small businesses. The improvement includes additional support of 3.6 trillion won (US$3.16 billion) to companies that are actively creating jobs or those facing financial difficulties due to corporate restructuring undertaken by the conglomerates, the statement said. Results
An estimated 200,000 protesters brought India’s financial capital Mumbai to a halt Wednesday as they demanded set quotas for government jobs and colleges amid unemployment and reduced farm incomes. Many businesses in the southern part of Mumbai were closed and traffic was diverted as the protesters, largely from rural areas of western Maharashtra state, descended on the bustling capital in a sea of saffron flags and banners. A spokesperson from Mumbai police told AFP an estimated 200,000 people participated in the march, which brought rail and roads to a standstill as protesters from the Maratha community pressed their demands. “We want reservations for the Maratha community in government jobs, educational institutes, and better farm loan waivers,” Bhaiya Patil, one of the organisers told AFP. In June, the government in Maharashtra agreed to write off loans to
farmers estimated to be worth nearly US$5 billion after 11 days of protests that strangled supplies to Mumbai.
“We want reservations for the Maratha community in government jobs, educational institutes, and better farm loan waivers” Bhaiya Patil, one of the organisers of the protests
Maharashtra is one of several largely agricultural Indian states that have suffered disappointing rains and crop failures in recent years.
More than 1,417 farmers killed themselves in Maharashtra in 2016, according to official figures. Demands for quotas for highly sought-after government jobs and university places have escalated as unemployment has risen and conditions in rural areas worsened. India reserves places for lower castes to try to bring victims of the country’s worst discrimination into the mainstream, but the policy causes resentment among other communities, who say it freezes them out. Maharashtra’s Chief Minister Devendra Fadnavis responded Wednesday with a promise for “regular interaction” with the Maratha community through a committee. India has nearly 260 million farmers and farm labourers and over half the population lives in rural areas, but agriculture accounts for just 17 per cent of its gross domestic product. Farmers around the country have been pressing for more government assistance, often through protests. AFP
Virgin Australia posts narrower loss Virgin Australia Holdings, the country’s second-biggest airline, reported yesterday a smaller-than-expected annual loss and said its outlook had brightened with a surge in business confidence driving up corporate traffic. In positive signs not only for Virgin but also larger rival Qantas Airways Ltd, Virgin CEO John Borghetti said the corporate market had improved in the fourth quarter ended June and the momentum was continuing in the current quarter. A measure of Australian business conditions hit its highest since early 2008 in July as sales and profits stayed strong, while firms turned more confident the purple patch would last for some time yet.
14 Business Daily Friday, August 11 2017
International In Brief Oil industry
OPEC sees higher 2018 demand, but raises output again OPEC forecast higher demand for its oil in 2018 due to rising global consumption and slower supply growth from rivals, although another jump in the group’s output suggested the market will remain in surplus despite efforts to rein in production. In a monthly report yesterday, the Organization of the Petroleum Exporting Countries said the world would need 32.42 million barrels per day (bpd) of its crude next year, up 220,000 bpd from the previous forecast. The Organization of the Petroleum Exporting Countries was also upbeat about 2018 economic growth.
Employment
U.S. jobless claims rise; labour market still tightening The number of Americans filing for unemployment benefits unexpectedly rose last week, but the underlying trend remained consistent with a tightening labour market.
I
nitial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 244,000 for the week ended Aug. 5, the Labor Department said yesterday. Data for the prior week was revised to show 1,000 more applications received than previously reported. Economists polled by Reuters had forecast claims would be unchanged at 240,000 in the latest week. With the labour market near full employment, there is probably limited room for claims to continue declining. Claims have now been below 300,000, a threshold associated
with a healthy labour market, for 127 straight weeks. That is the longest such stretch since 1970, when the labour market was smaller. The unemployment rate is 4.3 per cent. Labour market tightness could encourage the Federal Reserve to announce a plan to start unwinding its US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its policy meeting next month. A Labor Department official said there were no special factors influencing the claims data and that no states had been estimated. The four-week moving average of
Portugal
Vehicle output down 13.5 per cent in July
claims, considered a better measure of labour market trends as it irons out week-to-week volatility, fell 1,000 to 241,000 last week, the lowest level since May.
‘Claims have now been below 300,000, a threshold associated with a healthy labour market, for 127 straight weeks’ The government reported last week that nonfarm payrolls increased by 209,000 jobs in July. The economy has added 1.29 million jobs this year. That has resulted in the unemployment rate dropping five-tenths of a per centage point. Yesterday’s claims report also showed the number of people still receiving benefits after an initial week of aid fell by 16,000 to 1.95 million in the week ended July 29. The so-called continuing claims have now been below the 2 million mark for 17 straight weeks, pointing to diminishing labour market slack. The four-week moving average of continuing claims edged up 500 to 1.97 million, still remaining below the 2 million mark for the 15th consecutive week. Reuters
Vehicle production in Portugal fell again in July with 13.5 per cent fewer than in the same month in 2016, with a total output of 12,314 units, 96.4 per cent of which were for the export market, the sector association ACAP said yesterday. The fall in output was due to a fall in the number of cars since commercial vehicles had a positive behaviour. Europe is still the main market, absorbing 84.2 per cent of the vehicles made in Portugal, with Germany taking 18.8 per cent, Spain 14.9 per cent, the UK 11.3 per cent and France 10.7 per cent. Inflation
U.S. producer prices record biggest drop in 11 months U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase. The Labor Department said yesterday its producer price index for final demand slipped 0.1 per cent last month, weighed down by decreasing costs for services and energy products. That was the largest decline since August 2016 and reversed June’s 0.1 per cent gain. In the 12 months through July the PPI increased 1.9 per cent after rising 2.0 per cent in the year through June. Angola
€300,000-worth of cheques bounce a day Angola’s banks received an average of €300,000 a day in cheques without cover in the first half of this year, the central bank said yesterday. The report said the banks received just over 2,500 cheques that ‘bounced’ in the first half of the year, an average of about 14 a day. In the first six months of 2017, account holders wrote almost 175,000 cheques worth a total of nearly 500 billion kwanzas (€2.57 billion). The number of cheques written by Angolan bank clients has been falling since a peak in 2014, when they were worth 1.365 trillion kwanzas (€7 billion).
Trade
UK exports disappoint as economy limps to end of weak first half The figures highlighted Britain’s reliance on EU markets, at a time when Brexit talks are bogged down on preliminary issues and have yet to discuss trade David Milliken and Andy Bruce
Britain’s economy put in a weak performance in June when declines in car manufacturing, construction and exports gave an uninspiring end to the weakest first half of any year since 2012. A year after Britain voted for Brexit, there is still little sign that exporters have gained much by way of competitiveness from the fall in the value of the pound after referendum. The Bank of England has said it is counting on a recovery in exports to help lift growth in the economy. “This is a disappointing set of data for a country that has recently seen an 18 per cent fall in the currency,” said HSBC economist Elizabeth Martins. Britain’s goods trade deficit jumped to a nine-month high of 12.7 billion pounds (US$16.5 billion) in June from 11.3 billion pounds in May, exceeding all forecasts in a Reuters poll, and the figures also showed the growing importance of exports to the European Union just as Britain is preparing to leave the bloc. The Office for National Statistics said nothing in yesterday’s data pointed to a material change in its earlier estimate that the economy grew 0.3 per cent in the three months to June after expanding just 0.2 per cent in the first quarter. Car production recorded its biggest quarterly fall since 2011 and construction declined by the most since 2012. Rising inflation has weighed on
consumer demand since the start of the year, and a separate survey yesterday showed property valuers reported the weakest growth in house prices in over four years.
Oil spike
A spike in oil production in June helped ensure the headline measure of industrial output exceeded forecasts, growing by 0.5 per cent after flat-lining in May. But this reflected a lack of production interruptions in North Sea oilfields from seasonal maintenance, which is likely later in 2017 instead.
Key Points Trade deficit exceeds all forecasts, exports -4.9 pct m/m Industrial output confirmed down 0.4 pct on quarter Car production suffers biggest quarterly fall since 2011 Delayed oilfield maintenance keeps GDP on track Industrial output contracted 0.4 per cent on the quarter - in line with previous estimates - while construction declined by more than previously thought, driven 1.3 per cent lower by less public sector, commercial and repair work. Forecasters at Britain’s National Institute of Economic and Social Research (NIESR) estimated that the
data showed GDP growth in the three months to July slowed to 0.2 per cent. Yesterday’s trade data continued the sharp divergence between private-sector business surveys, where exporters have reported big increases in demand since last year’s Brexit vote, and official figures which show much less of a pick-up. Goods export volumes dropped by 4.9 per cent on the month in June, their biggest fall in a year. Looking at the second quarter, exports were 5.0 per cent higher than last year, but this was almost matched by a 4.8 per cent rise in imports. The figures highlighted Britain’s reliance on EU markets, at a time when Brexit talks are bogged down on preliminary issues and have yet to discuss trade, less than two years before existing arrangements are due to end. The EU is the destination of more than half of Britain’s goods exports, and over the past year these exports to the EU have grown almost twice as fast as those heading elsewhere. “Safeguarding the favourable terms of trade that UK firms currently enjoy with partners and markets in Europe and beyond must be a key priority,” the British Chambers of Commerce’s head of economics, Suren Thiru, said. Much of the gain in exports reflected a stronger global economy, rather than a weaker currency which raised manufacturers’ costs for imported raw materials - and overall economic growth was likely to weaken, he added. Reuters
Business Daily Friday, August 11 2017 15
Opinion
Crisis, what crisis? Kospi has no fear of Kim Jong Un Shuli Ren a Bloomberg Gadfly
Financial system still has too much risk
A
re investors being too complacent? North Korea has been a big troublemaker this year, firing 18 missiles during 12 tests since February. Nonetheless, the Kospi Index has soared 16 per cent in 2017. The benchmark gauge didn’t move by more than 1 per cent on any of the days when Kim Jong Un’s regime conducted its tests. Yesterday, the Kosp i dropped 0.4 per cent, less than half the 1.1 per cent decline in Hong Kong’s Hang Seng Index, which was buffeted by the North Korean tensions. Granted, the Kospi is down almost 4 per cent from its late July high, while the Korean won has depreciated 1 per cent. But much of this decline reflects the recent weakening of the global economy. In July, manufacturing purchasing managers’ indexes for major economies from the U.S. and China to the Eurozone fell from their June levels. The South Korean president’s proposal to levy higher taxes on large firms also dented sentiment. So why the muted reaction? After all, a conflict with North Korea could well m ea n e c o n o m i c devastation. During the Korean War of 1950 to 1953, the South lost 1.2 million per cent South Korea’s share of lives and saw the global LCD production value of GDP fall by more than 80 per cent. World-weariness may be a factor: The standoff over North Korea’s weapons program has persisted for more than a decade, without any serious outbreak of hostilities yet. Still, there are other, fundamental reasons for the market’s resilience. One is that, even after this year’s rally, South Korea remains cheap. It’s now valued at 9.5 times forward earnings, below the 10-year average of 10 times. South Korea is such a growth story that investors simply don’t want to sell on a few soundbites from overheated politicians. Sell-side analysts have been revising up their earnings estimates for the first time since 2011, which partly explains why the Kospi’s valuation hasn’t risen despite the share-price rally. Much of those earnings aren’t dependent on the domestic economy: The country is about as export-oriented as it gets. Companies in the MSCI South Korea Index generate 41 per cent of their revenue overseas, HSBC Holdings Plc estimates. Samsung Electronics Co. gets only 10 per cent of its sales locally, while the figure for SK Hynix Inc. is 6 per cent and for LG Display Co. 7 per cent. To be sure, any conflict on the Korean peninsula could disrupt the technology supply chain and hurt global growth. South Korea has about a 17 per cent share of the semiconductor market and accounts for 40 per cent of liquid crystal display production. Still, such calculations may be academic, given the huge dislocations that would be caused by a war. That would be a problem for the entire world, not just South Korea.
40
Bloomberg Gadfly
I
ntervening 10 years ago to contain the damage from the banking system’s excessive risk-taking in mortgage-backed securities, the European Central Bank initiated what has proven to be an exceptional and prolonged involvement in markets by central banks. Much has changed since then, yet too much remains the same. The risk of unsettling financial instability, while lower, has morphed and migrated but has not disappeared. On Aug. 9, 2007, an announcement by BNP Paribas brought to life investors’ worst fear – that, regardless of price, they would not be able to redeem any of their holdings in three investment funds. Underlying this dramatic announcement was excessive exposure to inherently illiquid securities by investment funds that overpromised investors access to their funds. Realizing the threat to systemic financial stability, the ECB under the leadership of Jean-Claude Trichet did what central banks do best in these situation to avoid cascading market failures – it provided ample liquidity. But neither officials in Frankfurt nor at other major central banks, let alone at ministries of finance, realized that there was a much larger problem – that of excessive risk-taking by a banking system. Stretching afar for yields and comforted by implicit and explicit backstops provided by governments, banks had already exposed too much of their balance sheet to illiquid and hard-to-price securities. Problems were about to multiply over the next 13 months, putting in doubt the most critical element of the financial system – that is, confidence in settlement and payment -- with the resulting danger of a “sudden stop” for financial and economic interactions, both domestic and international. This all culminated in September, 2008 in a financial crisis that would take the global economy to the precipice of a depression. Having no alternatives, central banks engaged in a way that was once thought unimaginable, opening many new emergency funding windows, buying all sorts of securities and slashing interest rates. This was accompanied by government injections of trillions of dollars of taxpayers’ money to save banks around the world. The plan was to avoid a forced financial deleveraging, in the short term by replacing sources of private credit with public ones while significantly strengthening bank supervision and regulation, and in the longer term by promoting significant growth to allow for an orderly reduction in debt burden without sacrificing too much economic activity. Significant progress on the short-term measures was not accompanied by enough on the long-term ones. With that, the risk of financial instability has evolved and shifted to non-banks, still with negative possible consequences for the real economy. On the positive side, payments and settlement
“
Mohamed A. El-Erian a Bloomberg View columnist
systems have been strengthened in a manner that significantly reduces the likelihood of paralyzing sudden stops. Banks, especially in the U.S., have strengthened their capital cushions, improved their debt structures and made balance sheets more transparent. Many have also shut down their proprietary trading desks and significantly curtailed the risks that can be taken on their own balance sheets while trying to better align longterm incentives. All this has taken place in the context of better cross-border coordination among financial regulators, including under the auspices of the Financial Stability Board. But while the risks posed by the banking system have been reduced markedly, those assumed by financial players that aren’t banks have come roaring back, as traders and investors have been conditioned to rely on ample market funding. The strong “quest for yield” remains visible in non-banks, including what most deem to be a stretched market for highyield bonds. There has been a proliferation of products, including some exchangetraded funds, that over-promise liquidity access to investors, again particularly in the corporate space for both advanced and emerging market segments. Areas vacated by banks are being filled by other institutions that are subject to less regulatory scrutiny, and their reliability is yet to be tested in a full market cycle. Admittedly, there’s lower systemic risk overall. There is little, if any, explicit call on guarantees backed by taxpayer funding for non-banks. The counter-party risk involved is lower. And, most importantly, it is quite far from the payments and settlement system. As comforting as this sounds, the coast is far from clear. There is still too much debt in some of the more uncertain and slow-growing segments of the corporate and global economies. Should the ruling market paradigm shift suddenly, the “liquidity delusion” underwritten by the non-banking sector could result in asset class contagion that leads to sharply lower market prices. And should this persist in a disorderly fashion, in turn it could easily dampen both investment and consumption. The ECB’s emergency response 10 years ago was part of an impressive central bank effort to contain systemic risk and safeguard the global economy. It has worked remarkably for banks, especially in the U.S., but at the cost of shifting risks elsewhere. If central banks’ efforts are not accompanied by more determined government action to enhance current and future growth dynamics, the lessons learned may not be enough. Bloomberg View
Significant progress on the shortterm measures was not accompanied by enough on the long-term ones
”
16 Business Daily Friday, August 11 2017
Closing Internet
Baidu, JD in pact to send search users straight to the checkout
to turn information gathered on users into sales. That data helps build systems providing everything Baidu Inc., China’s largest search engine, has struck from personalized ads and product suggestions to a deal to funnel users looking for products to online news feeds that stream videos and articles based on individual tastes. retailer JD.com Inc. Under the arrangement, users browsing for product It wasn’t clear how many of the million-plus items information on Baidu’s mobile search app can now listed on JD’s site will be immediately available. But in the longer term, a deal with JD could help Baidu access a dedicated section to buy items directly get ad revenue growth back on track. Baidu has said from JD, China’s second-largest e-commerce its personalized news app is expected to generate a provider. By encouraging users to stay within its app and make purchases, the search giant can glean material amount of advertising revenue starting this year. Over 100 million people accessed that service valuable data on its customers’ preferences. The deal comes as technology companies compete at least once a day as of late July. Bloomberg News
Disaster
Tourism a major casualty of Sichuan quake More than 30,000 tourists were in a national park when the quake struck Becky Davis
T
ourism may prove one of the bigger casualties from a strong earthquake that struck a region of south-western China whose natural beauty and Tibetan heritage draw millions of visitors each year. Twenty people were killed by Tuesday’s 6.5-magnitude quake in Sichuan province, a comparatively low toll -thanks to the area’s remoteness -- for a country prone to some of the world’s deadliest quakes. But the disaster deals an economic blow to Jiuzhaigou, a national park and UNESCO World Heritage Site renowned in China and whose mostly ethnic Tibetan and Qiang people depend heavily on income from visitors. “There probably won’t be any more tourists the rest of the year. It may take two or three years for things to get back to normal,” Yang Siding, a Tibetan in his 30s, told AFP. “We pretty much depend entirely on tourism to make a living. We have nothing else,” Yang, who runs a guesthouse, said while checking on his apartment following an aftershock. Jiuzhaigou is prized as one of heavily polluted China’s few remaining areas of pristine beauty. More than 140 lakes, ranging from crystal-clear to turquoise, lie at the feet of forested mountains.
Despite its remoteness, the local government said the park hit its maximum daily capacity of 41,000 visitors just days before the quake, after luring 1.56 million tourists in 2017’s first half. More than 30,000 tourists were in the park when the quake struck, heavily damaging at least one hotel. At least six visitors and two Jiuzhaigou residents were among the quake dead. Most damage from the quake appeared caused by landslides, and harrowing reports emerged describing people being killed or injured by boulders smashing into buildings and cars. More than 30,000 tourists were evacuated by late Wednesday.
National tourism authorities have issued their highest safety warning for Jiuzhaigou, telling tourists to stay away and travel agencies to cease organising trips amid recurring aftershocks and landslides.
Ghost towns
Normally bustling Jiuzhaigou hamlets like Zhangzha now resemble ghost towns, according to AFP journalists who visited Thursday. Although quake damage appeared minimal, hotels and shops were boarded up or deserted along rubbish-strewn streets. Tourism had proved a local godsend as China’s growing middle class increasingly catches the travel bug.
Residents say many who grew up as poor farmers now have cars and some can even afford second homes in big cities. “After tourism came here (around 2000) our quality of life improved so much,” said Yang. “Now I suppose we’ll have to go out elsewhere and find jobs.” The tremor stirred memories of a devastating 8.0-magnitude earthquake in similarly mountainous areas of the same region in 2008 that left 87,000 people dead or missing. The 2008 quake cost Sichuan -- home to several of China’s famed panda sanctuaries and renowned Tibetan monasteries -- “tens
Medical staff work in the over-crowded hospital in Jiuzhaigou county, Sichuan province. Lusa
M&A
Antitrust
of billions of yuan” (several billion dollars) in tourism revenue, according to the official Xinhua news agency. “Now it’s in the government’s hands. They’ll have to assess whether the buildings are safe before letting tourists back here,” said hotel cook Zhou Quan, a member of China’s dominant Han ethnic group. Even after that, Jiuzhaigou will be scarred. Quake-triggered landslides ripped swathes of green forest from mountainsides, leaving huge gashes, in some places tumbling into the glassy waters and turning them brown, aerial footage by Chinese media showed. One of the park’s bestloved spots -- Sparkling Lake -- suffered “severe” damage, park authorities said, after one of its banks collapsed, draining a section of the lake nearly dry. The outlook is worsened by government policies, said Songpa Tsanduze, a Tibetan woman in her 40s who runs a Zhangzha shop. Wearing golden hoop ear-rings and elaborate hair braids, she said authorities had used traditional Tibetan land for a reforestation project. “There are trees on our land so we can’t farm it. We have no choice but to go into business. But now, after this earthquake, I don’t know how we’ll be able to feed ourselves,” she said. AFP
Investigation
Wanda Hotel shares soar on Developers file complaint US$1 bn acquisition deal against Apple in China
Sri Lanka’s foreign minister quits amid bond scam probe
Shares in Wanda Hotel, a Hong Kong-listed arm of troubled Chinese conglomerate Dalian Wanda, soared yesterday after it announced plans to buy more than US$1 billion in assets from firms controlled by group chairman Wang Jianlin. The major restructuring plan will see Wanda Hotel Development acquire Wanda Travel -- which is focused on theme parks -- for RMB6.3 billion (US$940 million), and Wanda Hotel Management for RMB750 million. The group has diversified rapidly in recent years from commercial property into entertainment, theme parks, sports and other sectors, and is now reportedly facing difficulty paying off debts run up in the wake of the series of massive, high-profile foreign acquisitions. Wanda Hotel stock was up more than 20 per cent yesterday morning at HK$1.41 (US$18 cents) following the restructuring announcement. The moves are the latest in a wider shake-up of Wang’s Dalian Wanda Group now under scrutiny by Chinese authorities. Last month, Dalian Wanda announced it was selling off 76 hotels and nearly of all its holdings in 13 other tourism-related projects to developer Sunac China Holdings for US$9.3 billion. AFP
Sri Lanka’s foreign minister resigned yesterday after being linked to a controversial financial trader under investigation for allegedly causing millions of dollars of losses to the island’s coffers. Ravi Karunanayake, 54, stepped down from the cabinet amid questioning over his connection to an insider trading scandal at Sri Lanka’s central bank after the new government was elected in January 2015. “I am not guilty of any of the allegations, but I am resigning my portfolio to ensure that opponents are not able to destabilise our unity government,” Karunanayake said. Karunanayake has testified before an investigation ordered by President Maithripala Sirisena into then-central bank governor Arjuna Mahendran, who was sacked last April. Mahendran was accused of misconduct surrounding alleged favours for his son-in-law, Arjun Aloysius, a bond dealer. At the inquiry proceedings last week, Karunanayake, who is also the deputy leader of the ruling United National Partner, admitted his family had dealings with the controversial bond dealer, but insisted he was not involved in bond dealings. Karunanayake, who was finance minister when the scandal broke, was given the foreign ministry in a cabinet reshuffle in May. AFP
A Chinese law firm has filed a complaint against Apple Inc on behalf of 28 local developers alleging the firm breached antitrust regulations. The complaint, lodged by Beijing-based Dare & Sure Law Firm, accuses Apple of charging excessive fees and removing apps from its local store without proper explanation, Lin Wei, an attorney at the firm told Reuters yesterday. “During its localisation process Apple has run into several antitrust issues ... after an initial investigation we consulted a number of enterprises and got a very strong response,” said Lin. The law firm invited developers to join the complaint in April and on Tuesday filed it to China’s State Administration for Industry and Commerce and the National Development and Reform Commission, which oversees antitrust matters in the country. An Apple spokeswoman told Reuters that guidelines for publishing apps on the App Store were consistent across all countries, and that it was in the process of expanding its local developer relations team. The law firm did not provide details of the developers involved in the complaint. Reuters