Challenging demolition of CEM chimney starts Engineering Page 5
Tuesday, August 15 2017 Year VI Nr. 1361 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Energy
Beijing steps up nuclear sector consolidation Page 10
Start-up focus
Local firm takes technology to realtor sector Page 4
www.macaubusiness.com
Election
Public media campaign broadcast times modified Page 6
Public Housing
Property
Marriage and housing waiting list compatible Page 2
Curbs take toll on China’s real estate market Page 8
Responsible buildings AL
During yesterday’s session, local legislators tackled urban inspections and renewal issues. Despite having clear legislation in place, the need to wait for requests from building users is making maintenance a sluggish matter. Page 3
Mass expectations
Government sets price for big data project
Official sources announced that the first phase of the project agreed to with Alibaba will cost MOP200 million. The initial phase includes developing the first section of a cloud computing and data storage facility, and is expected to be concluded by June of 2019.
MGM MGM Chief Executive Officer James Murren talks about strategy, figures and what to expect in the coming months. The head of the company bases his expectations on a strong mass market performance at its new property. Page 6
Japan debates casino games
Poker Authorities are holding discussions to come up with a list of games to be allowed in its casinos. Games based on skill and confrontation such as poker and mah jong are under consideration. Page 7
Mainland figures take a break
Smart city Page 2
HK Hang Seng Index August 14, 2017
27,250.23 +366.72 (+1.36%) Worst Performers
AAC Technologies Holdings
+6.94%
Hang Seng Bank Ltd
Hengan International Group
-0.89%
CLP Holdings Ltd
-0.54%
China Unicom Hong Kong
+5.62%
Industrial & Commercial
+1.89%
Cathay Pacific Airways Ltd
-0.85%
Lenovo Group Ltd
-0.42%
Tencent Holdings Ltd
+4.31%
China Construction Bank
+1.74%
CITIC Ltd
-0.68%
Want Want China Holdings
-0.36%
Geely Automobile Holdings
+4.23%
Bank of China Ltd
+1.59%
Hang Lung Properties Ltd
-0.61%
China Mobile Ltd
-0.29%
Ping An Insurance Group Co
+2.41%
China Mengniu Dairy Co Ltd
+1.54%
China Overseas Land &
-0.59%
CNOOC Ltd
-0.23%
+2.11%
27° 31° 27° 31° 27° 31° 27° 31° 27° 31° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Industrial output A key engine of growth slowed sharply in July in China. The figures come as authorities have sought to tighten regulations to tame debt as well as reduce excess capacity. Page 8
2 Business Daily Tuesday, August 15 2017
Macau Big Data
Setting the cloud price The first phase of the agreement with Alibaba for the development of the MSAR as a ‘Smart City’ will cost MOP200 million until 2019, with the cloud centre to be constructed on government premises Nelson Moura nelson.moura@macaubusinessdaily.com
I
mplementing the f i rst p has e o f th e ‘Smart City’ project agreed to with Alibaba will take up MOP200 million (US$24.8 million) of the MSAR budget over the next two years, the Government Spokesperson’s Office stated yesterday. The current MSAR government budget for IT technology development is set at MOP500 million. According to the agreement signed on August 4, the first phase of the project to be developed with the group’s subsidiary Alibaba Cloud, will be concluded by June of 2019. The first phase will involve developing the first section of a cloud computing and data storage centre, with the government assuring the data will be stored in Macau, with MSAR Government premises being ‘solely used’ for the centre. Through Big Data analysis, the centre is expected to improve the city’s tourism, transportation, healthcare, governance and talent development, with the second phase of the agreement expected to be finalised by June of 2021. “The establishment of a Government-only cloud computing centre means that the facilities, equipment, system, platform, computing method, in particular, data collected and stored by the system shall be owned by the Government
of the MSAR,” the release announced. The government also assured the Alibaba Group would ‘only’ provide support for the creation of the cloud computing centre, the configuration of the cloud computing system and the mega-platform, the design of the mega-computing
method, without having access to Macau data. In a release on Sunday, the Personal Data Protection (GPDP) stated ‘adequate protection of personal data is the essential element in the development of the Smart City’ with the department saying it would continue to oversee the
project’s development.
Our good partner
The government also defended the lack of a public tender for the Smart City agreement with Alibaba, mentioning that the MSAR law currently allows that certain services or construction with
special characteristics can be awarded directly. Therefore, due to the ‘complexity of building the cloud computing center and the mega-platform’ and the ‘need for integration and connectivity’ of the data, the government considered that the Alibaba Group was the most ‘indicated partner’.
Real estate
Housing
Condo cash subsidy reaches MOP342 mln
Legal courses for real estate agents
The MSAR Government disbursed some MOP342 million (US$42.47 million) for the maintenance of condominiums via the Building Maintenance Fund by the end of July. A total of 2,862 cases were approved for receipt of the subsidy, with the most (2,405) for the Provisional Subsidy Scheme for Common Parts Maintenance of Low-Rise Buildings. There were also some 265 cases relating to the Subsidy Scheme for Building Maintenance, with 164 benefiting from the Interest-free Loan Scheme. The government funding seeks to encourage condominium owners to maintain their buildings. Meanwhile, the government is
advising owners to make adequate use of the support, placing a limit of MOP50,000 for each flat applicant via the Interest-free Loan Scheme. For the Subsidy Scheme for Building Maintenance, the amount should be used for maintaining the structure and the inner and outer walls, as well as the common parts of buildings. The scheme covers a maximum of 30 per cent of a project’s costs, or an amount that does not exceed MOP5,000 per flat. The Provisional Subsidy Scheme for Common Parts Maintenance of Low-Rise Buildings can be utilised for buildings that have seven floors or less, or for common areas of buildings that were built 30 years or more ago.
The city’s Housing Bureau, in co-operation with the Macau Productivity and Technology Transfer Center, will roll out legal courses during September and November for local real estate agents. There are three elements for the courses, including: real estate law and implementation rules; Macau’s market in the law for real estate transactions; and rental and special stamp
duty, as well as other related laws and tax procedures. The Bureau reported that the courses are all already full, and it is considering adding more courses in the future. Also, the new online service that allows real estate companies and agents to update their information or to make declarations via an online account was launched yesterday.
Economic housing
Problems solved Applicants for economic housing who got married during the waiting period will be approved to sign the deeds, the Housing Bureau (IH) announced in response to an interpellation made by legislator Ella Lei Cheng I.
The Bureau claimed that it is following the advice given by the Commission Against Corruption (CCAC) and is currently evaluating each case. The local anti-graft body released a report in May slamming the IH, and urging it to
update the economic housing laws in order to improve the distribution of housing to those in need. The anti-graft body initiated an investigation after receiving 27 complaints from candidates for economic housing.
When asked about the progress of the 475 applicants who had submitted all documents but still have not received approval, IH wrote that it had sent out approvals to 5,437, with 4,335 applicants having completed the deed
notarisation as at July 14. The Bureau also pledged that information relating to the notarisation progress will be updated every week on the official website, as well as the official account on Wechat.
Business Daily Tuesday, August 15 2017 3
Macau
The Legislative Assembly holds a plenary session to discuss issues of public interest raised by Assembly members yesterday. Source: GCS
Maintenance
Better to prevent than to remediate The efficient maintenance of old buildings is bound to the law of common areas and dependent on the creation of a mechanism enabling the general assembly of building users to meet regularly, said the Secretary for Land, Public Works, and Transport during a plenary session at the AL Sheyla Zandonai sheyla.zandonai@macaubusiness.com
“
C
ompulsory inspections of old buildings every five years is already foreseen by the law. The problem is that it is not being done,” the Secretary of the Land, Public Works, and Transport Bureau (DSSOPT), Raimundo Arrais do Rosário said in a response during a debate in the Legislative Assembly (AL) yesterday. His answers were formulated in reply to Mak Soi Kun’s written interpellation on the deterioration of buildings that are more than 30 years old, by proposing that they be subject to compulsory inspections. The majority of the edifices in question concern low-rise buildings up to 25 metres, and usually lower than seven-storeys high, which the legislator claimed are in a “chaotic situation” and exist as a “time-bomb” ready to explode at any time. According to legislator Ng Kuok Cheong, there are currently some 4,600 buildings in Macau that are more than 30 years old. Of these, some 3,000 are low-rise buildings. One of the responses of the Secretary concerned the ways the government could enforce and apply measures, such as financial sanctions, to encourage property owners to abide by the law. “Resorting to the general regulation of urban construction would be one way of doing this,” the Secretary said in a response to legislator Au Kam San. “We have the financial resources, but we depend on the owners’ requests. In addition, we also have the problem of illegal constructions, which we cannot ignore,” the Secretary added. In line with the policy on the maintenance of old buildings, and the related fund created in 2007, the government provides up to 30 per cent of the total amount necessary to pursue renovation work. The remaining 70 per cent falls under the responsibility of property owners and property users. “In 2009 or 2010, we conceded
some MOP120 million through the [building maintenance] fund. But last year, we only allocated some MOP20 million, because we are waiting for the requests,” the Secretary said. Rosário added that the government is open to negotiating the percentage which it can make available from the fund, but said that it won’t pay the total maintenance costs. “The government won’t pay 100 per cent. Building owners and users have to co-participate. I already gave a clear response in that regard. For a private property, it is not correct that the government pays 100 per cent,” he claimed.
Whose responsibility?
“According to the current legislation, the owner can pursue renovation work in his or her own house, but in order to renovate the façade, they need to get the approval of two tiers of the general assembly of building users,” the Secretary recalled. The problem of responsibility as it relates to the regular inspection of old buildings boils down to two fronts, the management of common areas of condominiums and a lack of a centralized ‘voice’ to be channelled through the general assembly of building users. “The government has been encouraging meetings of general assemblies of building users, but if there is no definition about a compulsory rule in that regard, we should not advance with it. We should work for both the low and high-rise buildings to create their own assembly,” suggested legislator Ho Iong San. Essentially, several legislators agreed that the problem concerns the agents who should be held responsible for requesting the inspection, and that the matter could be smoothed out if the general assembly of building users was enacted on a compulsory basis. “It is important to encourage the association of building users to create a general assembly,” said Angela Leong On Kei, adding that “the government should also create conditions for enabling regular inspections of those buildings.” Ella Lei Cheng agreed that the
question in Macau “has to do with the common areas and the individual parts of a building,” suggesting that the government should “define complementary measures to advance the matter.” Following in that line, legislator Fong Chi Keong recalled that the law on the administration of the common areas of buildings will be enacted in less than a year from now, asking “if it could be used” for the purpose of facilitating the inspection work.
Raising awareness
Linked to the problem of creating efficient mechanisms for building maintenance, is the question of promoting the bill and raising awareness of the importance to pursue regular inspections in order to avoid hazardous situations to residents. “We all agree that it is necessary to enhance the work of raising awareness,” Rosário said. At the core of the question, illegal constructions, which are typically found in old districts of Macau, remain a problem, because they hinder people from seeking support,
technical or financial, from the government. “Currently, we send more than a 100 notifications per year and we act immediately when there is an immediate threat from illegal constructions to residents,” said the Director of DSSOPT.
‘According to legislator Ng Kuok Cheong, there are currently some 4,600 buildings in Macau that are more than 30 years old’ In reply to Ella Lei Cheng about the government’s capacity to comply with more regular requests for inspections, Rosário said that there is enough technical personnel, claiming that “all we need is a registered engineer.” advertisement
4 Business Daily Tuesday, August 15 2017
Macau
Local firm Cube unleashes power of technology for realtors Starting from zero, local company Cube Technology stepped into the complicated sector of real estate. Exploring a sector relatively void of technology ten years ago, they found a business model that is proving to be a success. We talk to Kaman Chan, manager and main shareholder of the company. Nelson Moura and Cecilia U
W
hen did Cube Technology start? Cube Technology was first established in 2005. During the early years, the company focused on receiving outsourced jobs to maintain business and save capital. We officially launched our own projects in 2008. Who started the company? In the beginning, the company was established by three shareholders, with one being responsible for marketing, one managing the finances and the other working on research and development. In 2007, two of the shareholders quit and a new shareholder joined. How much money or capital did you start the company with? We invested some MOP8 million in 2007 to make our own products. Was it the money from the founders? Yes. How many people does Cube employ at the moment? Around 10 staff. How does the program work? MaliMaliHome is a program for the real estate market, which includes an online platform. The program allows users to receive information about the real estate market, as well as real estate brokerages, to release the latest information. Another product is a management software, which is called GAEA, which provides brokerages with a platform to perform effective management of properties for sales and client information, allowing specifications for internal management. Prior to the introduction of our products, there were already several websites providing real estate information in Macau and software
systems (which were mostly created by IT firms from Hong Kong and Mainland) for brokerages’ internal management. However, there was very limited information circulating on those websites during the early days, and there was no effective approach for collecting real estate information. Hence, there were not many residents using these products. Meanwhile, very few real estate agencies were using software systems to manage their businesses, since there were not many staff in those agencies, plus profits were not created by using the systems. As such, we created the aforementioned products to connect buyers and brokerages, with the brokerages utilising GAEA to specify management and, at the same time, to provide a large amount of real estate information via MaliMaliHome. Potential buyers would then be able to approach brokerages via the program. Aside from creating convenience for buyers, the programs also increase chances for transactions and revenue. With that, more brokerages are attracted to use the programs and as such create a positive cycle. What is the company’s ‘elevator pitch’ or how would you describe the business model in one sentence? Through providing software and services to business clients, an online platform is created to serve clients of our business clients, which allows fast development of an online platform via the use of a large number of data resources from business clients. It creates a win-win situation, avoids wasting money, and focuses on foundations, utilising commerce to promote interconnection. Real estate is a very important issue in Macau. Is your goal to find solutions for it? Yes, we will continue to improve our program, to promote the
digitalisation of the city’s real estate market so as to allow more transparency of the market’s data. In terms of the brokerages, we will introduce a more advanced system, such as combining mobile applications and also further increase operational efficiency. Meanwhile, for buyers, we will add more services and enhance communication between buyers and brokerages in order to access information more easily. Have you partnered with any local real estate firms? We have established close connections with a number of real estate firms and we value opinions from users. We have been contacting these firms in order to further improve our programs. How many users does Cube Technology have now? There are almost 400 brokerages using GAEA, with some 2,000 real estate agents using the program. Meanwhile, there are some 1.1 million pages viewed and 120,000 views for MaliMaliHome per month. Did you receive any support from the Macau Government? Since our establishment, Macau New Technologies Incubator Centre (Manetic) has rented out a place for our operations at a price that is lower than the market price. Therefore, we did not have concerns about paying high rental during our early days when our business was still unstable. Manetic is an organisation responsible for leading, introducing and promoting ideas of innovative technologies. Tech applications are a large trend in the world now. Do you think Macau has the people and human resources to develop more tech applications? There are very limited personnel who are specialists in the area of inventing software since the market
in Macau is small. Also, there are no local firms that are prominent enough to lead the market. Nevertheless, given the promotion of diversifying the local economy, more attention is being placed on internet and intelligent technology, since more people are more aware of the successful IT firms in mainland China. The overall environment is improving. There are more people paying attention to technology invention, and the government is also paying more attention to the field. We can see that the supply of IT specialists will be growing. We believe that it is suitable for interested parties in Macau to focus on research and development and to use the Mainland to expand human resources.
‘There are almost 400 brokerages using GAEA, with some 2,000 real estate agents using the program. Meanwhile, there are some 1.1 million pages viewed and 120,000 views for MaliMaliHome per month.’ Have you thought of collaborating with casinos? We are open to any opportunities as long as there are good ideas. Resources from the gaming industry are relatively abundant in Macau. We are happy to collaborate [with gaming operators] if we can find a point to collaborate on.
Business Daily Tuesday, August 15 2017 5
Macau Tourism
GTEF announces 2017 theme
GTEF Beijing Roadshow Luncheon. Source: GTEF
‘Regional Collaboration Towards a Better Future’ is the theme for this year’s edition of the Global Tourism Economy Forum (GTEF), the organisers announced in a press release. In its 6th edition, the GTEF will be held from October 16 to 17 in Macau. A roadshow was held in Beijing last Friday, bringing together the collaborative partners of GTEF, leaders of outbound tour operators and travel agencies, travel and trade executives in Beijing, MICE operators from Macau and media. ‘This year, in support of the “16+1” cooperation initiative
between China and the 16 Central and Eastern European Countries, we will present these 16 countries as our Featured Partner Countries,’ said Pansy Ho, Vice Chairman and Secretary-General of GTEF, as quoted in the press release. The 16 countries include Albania, Bosnia & Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia. Ho also revealed that Guizhou Province will be the Featured Partner Province at this year’s GTEF.
Engineering
CEM starts demolition of iconic chimney The firm kicked off works for dismantling the over-100-metre high chimney of its power plant on Avenida de Venceslau de Morais, with the area expected to be decommissioned, de-contaminated and demolished by the third quarter of 2018 Nelson Moura nelson.moura@macaubusinessdaily.com
O
n August 11, sole local power distributor CEM – Companhia de Electricidade de Macau - started the demolition works on the chimney of its Macau Power Station located on Avenida de Venceslau de Morais, the company informed Business Daily. The demolition of the more than 100-metre high chimney - the highest in Macau - will use a ‘non-blasting method’, with the full removal expected to be concluded in three months. ‘With limited space on site, Oil Tanks and Main Buildings
facilities have been demolished first from May to July, prior to the demolition works of the Chimney,’ a CEM representative told Business Daily. According to CEM’s response, an ‘innovative’ demolition method with a 132-metre high crawler crane with a 600-ton capacity will be utilized. This method will involve using a remote electrical wire cutting machine and pre-fabricated steel fencing to prevent falling objects and to collect waste water, with the process considered to be more efficient and creating less noise and dust. Th e g o v e r n m e n t a n nounced last year that it was
planning to develop 1,000 public housing units together with social facilities and a government complex in the central building of the 18,540-square metre former power plant.
Old power plant
Initially developed in the early 1900s by Macau Electric Lighting Company, Limited, the Macau Power Plant operations were transferred to CEM in 1985. According to the company’s website, the power plant contains six generators, with five old diesel units commissioned between 1964 and 1971 being out of service but still remaining on site. The current Macau Daily
News building was also built on the site of a diesel oil gas turbine that was decommissioned and demolished. According to CEM, a feasibility study on the Decommissioning, Decontamination and Demolition (DDD)
of the power plant, including an environmental impact assessment, was conducted in mid-2016, with CEM having started the demolition works since May of this year. The company stated that the whole DDD process is expected to be concluded in the third quarter of 2018, assuring ‘strict safety measures’ such as training, on-site drilling, working by schedule, fencing off, risk assessment and remedial plans being used. ‘During these works, the air quality and noise levels around [the power plant] will be closely monitored to ensure no adverse impact to nearby local communities,’ CEM stated. advertisement
6 Business Daily Tuesday, August 15 2017
Macau Strategy
MGM resorts bets on wealthier masses to catch up in MSAR Last month the company posted weaker-than-expected profit for the second quarter is less experienced in capturing this volume-driven business, as it has been predominantly focused on highend at the Peninsula, its other Macau property. Shares of Macau unit MGM China Holdings Ltd. rose 1.2 per cent yesterday in Hong Kong trading, outperforming the 0.5 per cent gain in the benchmark Bloomberg Intelligence Macau casino index.
Daniela Wei
M
GM Resorts International is counting on a growing number of affluent Chinese customers to drive revenue at its new Macau property, as it strives to catch up with an industry rebound in the enclave. The Las Vegas-based company’s US$3.3 billion resort on the Cotai strip, its second property in Macau that is scheduled to open in the fourth quarter, aims to cater more to the recreational gambler than the exclusive high-rollers crowd, according to Chief Executive Officer James Murren. “Our business model is not predicated on the VIP business,” Murren said in an interview on Bloomberg TV with Rishaad Salamat yesterday. “Our strategic plan is built on catering to this tremendously emerging more-affluent Chinese customer, a customer that’s looking for more experimental experiences, not just a selfie moment or a gaming table.” MGM is playing catch-up in Macau, the world’s largest gambling market, after the former Portuguese colony began a rebound a year ago following China’s corruption crackdown in 2014. MGM’s rivals Las Vegas Sands Corp. and Wynn Resorts Ltd. have benefited more from the return of tourists and high-stakes gamblers, attracting customers with newer facilities in the last two years. MGM hasn’t done as well from Macau’s VIP rebound as it didn’t have an early entry in Cotai, Murren said in the interview. The new project was originally scheduled to open in 2016, but technology issues caused
Cutting-edge technology
delays that required more time and money, he said. MGM last month posted weaker-than-expected profit for the second quarter, with revenue in China sliding to US$449 million. It lost market share in both the high-roller business and the mass market, according to a note from Sanford C. Bernstein & Co.
“The new project will finally put MGM China on the map to compete with its peers on the Cotai strip,” said Bloomberg Intelligence analyst Margaret Huang yesterday. “Its focus on the mass market should help to boost margins, but there are still challenges in doing so because it is a late joiner.” Huang noted the casino operator
The Cotai resort plans to offer approximately 1,400 hotel rooms and suites, and will have a theatre with a 900-square-meter LED screen, the largest in the world. “We’re very adamant particularly because we’re not an early entrant to Cotai,” Murren said. “We have to wow people, and that takes time.” Murren said the market potential in Japan, where the country is hashing out casino regulations, is “tremendous,” but the opportunity is unclear at the moment as the government hasn’t nailed down specifics. Japan recently released a proposal outlining possible restrictions on the industry, including limits on the amount of gaming floor space and the number of times an individual may enter a casino. Lawmakers in the country are working on legislation to implement casinos after legalizing them in December. Murren said last year that he had high hopes for a US$10 billion casino resort project there. Ultimately, it will “boil down to the one guidance they have not given, which is the tax rate,” Murren said yesterday. If they adopt a Singapore-like model, “you’re going to see a very competitive bidding for Japan.” Bloomberg News
Elections
Election candidates allowed more but shorter broadcasting periods on TDM Each electoral list running for this year’s Legislative Assembly (AL) Elections through direct or indirect suffrage will be entitled to 12 broadcasts on local public broadcaster TDM Chinese TV, 33 broadcasts on TDM Chinese Radio, eight broadcasts on TDM Portuguese TV and 21 broadcasts on TDM Portuguese Radio, a release
in the Official Gazette announced yesterday. Although the number of TV and radio broadcasts allowed was increased when compared to the 2013 AL Elections, broadcasting times were reduced by one minute, with effective broadcasting time still remaining at 38 minutes of TV broadcasting and
54 broadcasting minutes for radio. The candidate lists will be able to use the broadcasting time from the start of the electoral campaign period on September 2 until two days before the September 17 election day. Candidates are not allowed to promote their campaigns between August 2 and September 2.
Each TV broadcast on TDM will have to run for a two-minute period, with the exception of one final transmission allowed on September 15, which will have to run for one minute. All electoral radio broadcasts on TDM will have to run for one minute. N.M.
E-commerce
Poll shows local choice for payment cards
A survey reveals that stored value cards are the preferred method for e-payments for 67 per cent of MSAR respondents Nelson Moura nelson.moura@macaubusinessdaily.com
MSAR resident’s favourite method of e-payments are stored value cards, according to a survey conducted by an affiliated branch of the Junior Chamber International Hong Kong, as reported by South China Morning Post. The poll showed that 67 per cent of respondents from Macau stated that they prefer using stored value cards, such as the ones issued by Macau Pass S.A. for their e-commerce payments. Macau Pass has been
Alipay’s authorised agent for the settlement of mobile payment transactions made by local consumers since 2015. The survey was conducted with 601 people between the ages of 15 and 45 from Hong Kong, Zhongshan, Macau, Kaohsiung, Osaka and Singapore, in regards to their opinions on preferred methods of e-payment. According to the survey, 73 per cent of people from Hong Kong used the city’s Octopus cards or other stored value cards as their main e-payment method, with 11 per cent preferring the use
of credit cards. Other preferred e-commerce payment methods included platforms such as PayPal, WeChat Pay, Alipay,
Apple Pay and bitcoin, however at least 80 per cent of Hong Kong residents considered that their government hadn’t made enough effort
to promote e-commerce in the city. Of the surveyed residents from the Chinese city of Zhongshan, 72 per cent indicated a preference for using WeChat Pay for mobile payments, with the Chinese service also being preferred by 67 per cent of Taiwanese respondents from Kaoshiung. In Singapore and the Japanese city of Osaka, WeChat Pay was also the preferred method of online payment for 48 per cent and 43 per cent of respondents respectively.
Business Daily Tuesday, August 15 2017 7
Macau Games of chance
No bluff, just poker
D
iscussionsabout whether or not to add poker to the list of games to be allowed in Integrated Resorts in Japan have emerged as a question during the deliberations of the Japanese Cabinet Office currently working on a second casino bill, several media reported during the weekend. The discussions come ahead of plans to submit the attendant IR bill for voting in an extraordinary session in the Diet, the upper house of Japan’s Parliament, in the coming fall. According to the draft of the IR regulations issued
on July 31 by a panel of experts acting on behalf of the Japanese government, the types of games to be allowed in future Integrated Resorts
in Japan comprise games in which outcomes depend essentially on chance, The Mainichi reported. Games such as roulette,
blackjack, and baccarat would comply with the suggested recommendations, thus, excluding poker and other strategy games such as
mah-jong and shogi, which is known as Japanese chess. Poker lobbyists argue the game’s global popularity could help promote the industry in Japan, both in its gaming and non-gaming segments. According to The Mainichi, some members of the government panel are also insisting that poker should be considered an exception to the regulations because it can attract many customers to IRs. The expert panel also intends to recommend that the government bans sports betting, including wagering on horses and bicycle races. S.Z.
Gaming
The steady rise Gaming revenues in August could reach as high as MOP23.5 billion, according to Bernstein The MSAR could see an increase in gross gaming revenues for August of between 22 per cent and 25 per cent yearly, possibly reaching as much as MOP23.5 billion (US$2.91 billion), a note from brokerage Sanford C. Bernstein Co. predicted yesterday. According to the firm, this growth would be expected if the average daily rate (ADR)
of revenues stays between MOP740 million and MOP770 million, with the first 13 days of August seeing an ADR of around MOP738 million. The average daily rate registered until August 13 was 23 per cent higher than in the same period last year, but only slightly higher than the average MOP741 million seen in July, with the previous
months seeing gross gaming revenues go up by 29 per cent year-on-year to reach MOP23 billion. “According to our channel checks, business volume saw a sequential month-tomonth increase into summer holidays, while the month to date VIP luck factor was slightly below normal range,” the Bernstein note stated. N.M. advertisement
8 Business Daily Tuesday, August 15 2017
Greater China Official data
July factory output, retail sales, investment miss forecasts Concerns about the outlook for domestic demand resurfaced last week after Beijing reported weaker-than-expected import and export data Elias Glenn and Ryan Woo
C
hina’s factory output slowed more than expected in July while investment and retail sales also disappointed, reinforcing views that the world’s second-largest economy is starting to lose some steam as lending costs rise and the property market cools. Factory output rose 6.4 per cent in July from a year earlier, the slowest pace since January this year, statistics bureau data showed yesterday. Analysts polled by Reuters had predicted factory output would grow 7.2 per cent in July, down from 7.6 per cent in the previous month. Fixed-asset investment grew 8.3 per cent in the first seven months of the year, cooling slightly from 8.6 per cent in the first half of the year. Analysts had expected the growth rate would remain steady. Despite the softer-than-expected reading, China’s manufacturing activity still appeared to be supported by a year-long construction boom. Beijing has poured money into infrastructure projects that have fuelled demand for products from
construction equipment to building materials from cement to steel. Relatively resilient economic growth is no doubt welcome news for President Xi Jinping ahead a major political leadership reshuffle in autumn, with authorities keen to ensure a smooth runup to the meeting.
Key Points China July activity indicators all grow less than expected Industrial output +6.4 pct vs poll +7.2 pct Retail sales +10.4 pct vs poll +10.8 pct Jan-July fixed asset investment +8.3 pct vs poll +8.6 pct Jan-July private investment +6.9 pct Any sharp drop in industrial activity, which appears to be a low-risk at this stage, would be a concern for policymakers as it risks rippling across the broader economy. Still, China’s surprising strength so far this year seems unlikely to last. A government crackdown
on riskier types of lending has driven a slowdown in credit growth and pushed up financing costs, which are expected to start weighing on the economy in coming months. Average lending rates edged up to 5.67 per cent in June from 5.53 per cent in March, China’s central bank said on Friday in its second-quarter policy report, adding it will continue working to fend off risks to the financial system. Concerns about the outlook for domestic demand resurfaced last week after Beijing reported weaker-than-expected import and export data. Though some economists chalked up softer imports to seasonal or one-off factors such as bad weather, others said it may be a sign that China’s trade growth peaked in the second quarter and is now on a downward trend. Retail sales rose 10.4 per cent in July from a year earlier, cooling from June’s 11 per cent pace and also failing to meet analysts’ expectations for a 10.8 per cent rise.
Slowdown
To be sure, China has surprised most pundits all year, with the economy growing a faster-than-expected 6.9
per cent in the first half, turbo-charged by heavy government spending, a hot housing market and record bank lending last year. Analysts still insist a modest slowdown will come eventually, but have repeatedly pushed back the timing in the face of resilient data. China’s factory gate inflation remained steady in July, a positive sign for industrial output and profits. Its insatiable thirst for resources has fueled higher prices for industrial commodities and a reflationary pulse for manufacturing that has been seen worldwide. The steel industry continues to feast on fat profit margins, cranking out products despite concerns that stockpiles are growing at a pace that is far outstripping demand.
Beijing’s plans to shut more inefficient and heavily polluting mines and mills this winter have triggered a fresh spike in prices for iron ore and steel reinforcing bars.
Private investment also cools
Growth of private investment slowed to 6.9 per cent in January-July from 7.2 per cent in the first half of the year, suggesting small and medium-sized private firms still face challenges in accessing financing. Private investment accounts for about 60 per cent of overall investment in China. China is targeting growth of around 9 per cent in fixed asset investment for 2017, and expects retail sales to increase about 10 per cent. Reuters
Real estate
Property investment, sales slow as curbs continue to bite Sales by floor area grew a mere 2 per cent in July versus a year ago Yawen Chen and Elias Glenn
China’s real estate investment growth slowed in July, as official curbs continued to cool an overheated property market, reinforcing expectations of further slowing in second-half 2017. New construction starts measured by floor area, a telling indicator of developers’ confidence, contracted for the first time since last September, falling 7 per cent in July from a year ago, compared to a 14 per cent increase in June. A rampant property boom that has spread since late 2015 from China’s biggest cities to smaller centres has prompted Chinese authorities to impose a range of measures to deflate the housing bubble as financial risks accumulated. But speculators have instead flocked to China’s less-restricted smaller cities and their massive overhang of unsold houses, which could worry policymakers who want to keep the property market stable ahead of a once-in-five-years Communist Party congress later this year. The National Bureau of Statistics (NBS) said at a briefing in Beijing that speculative property purchases have been effectively controlled as the overheated property market has cooled somewhat, adding that the housing market should be able to maintain stable growth. Property investment, which mainly focuses on residential real estate but also includes commercial and office space, saw growth ease to 4.8 per cent in July from a year earlier, versus 7.9 per cent in June, Reuters
calculated from National Bureau of Statistics data. This retreat appeared to vindicate experts from both the industry and the government who have said that new property investment will continue to slow as regulators rein in unscrupulous lending and speculative buying. Liu Shijin, a government advisor from a top think tank, said growth in the real estate sector was expected to slow to a new normal of about 2 per cent in second-half 2017, adding: “It should not be seen as abnormal if there is no growth or negative growth.” Real estate investment, which directly affects 40 other business sectors in China, is considered a crucial driver for the economy. “The residential sector is about to enter a contraction cycle, which is likely to soften investment growth
in the second half of the year,” said Tin Sun, head of research at the North China office of CBRE, a property consultancy. Sales by floor area grew a mere 2 per cent in July versus a year ago, the slowest growth since December 2015, and down sharply from a 21.4 per cent uptick in June. Policymakers have prioritised stabilising an overheated property market ahead of the party reshuffle this year, reiterating the need to avoid dramatic price fluctuations that could threaten the financial system and harm social stability. Some industry experts have said current government curbs are mostly short-term measures that do not address deep-rooted structural problems. “If those dynamics are not changed, even if home prices could be slowing in the short-term, they would
eventually rebound violently,” said Li Tie, director of China’s urban and small towns reform and development centre, a government think tank. But as soaring property prices have made housing affordability a growing problem for policy makers, Chinese officials have been pushing for more initiatives to increase supply in the hottest markets, even though their effectiveness still remains to be seen.
Key Points Housing starts fall as confidence slips Property sales by area slow to crawl “New normal” growth of 2 pct seen in second half - gov’t adviser But price slowdown may be shortterm, structural problems need to be addressed - gov’t adviser
Beijing pioneered the idea in early August that the government will share home-buyers’ ownership for cheaper personal-use only houses, in a bid to make housing more affordable and to further stabilize the real estate market. Inventory of finished homes which is usually smaller than private estimates - continued to fall. Inventory floor area in the first seven months shrunk by 11 per cent, compared to a fall of 9.6 per cent in the January-to-June period. Reuters
Business Daily Tuesday, August 15 2017 9
Greater China Oil industry
In Brief
Refinery runs at 10-mth low amid inventory glut Sinopec and state-owned rival PetroChina have been waging a retail price war against the independents known as “teapots” Chen Aizhu
Chinese oil refineries operated in July at their lowest daily rates since September 2016, official data showed yesterday, to ease brimming inventories as state-owned oil giants faced off independents in a retail petrol price war. China, the world’s second-largest oil consumer, processed 45.5 million tonnes of crude in July, or 10.71 million barrels per day (bpd), National Bureau of Statistics (NBS) data showed. This is 0.4 per cent higher than a year ago but down about 500,000 bpd from June. The drop in China’s refinery runs and further indications of ample fuel supplies raised concerns about its oil demand in months ahead, knocking back global crude benchmark Brent yesterday and holding it just over US$52 a barrel. “Runs were slightly below our expectation, as fuel demand growth remained tepid and stocks were brimming,” said Harry Liu, a downstream
consultant with IHS Markit. Faced with fierce competition from independent oil processors, who added to the product overhang, the biggest state refiner, Sinopec, lowered its runs in the third quarter after running at hefty rates in the first half of the year, Reuters has reported. Sinopec also reduced its third-party purchases from the independents from June, leading the smaller operators to scale back production as well, Liu said. Amid the glut of refined fuel products, Sinopec and state-owned rival PetroChina have been waging a retail price war against the independents known as “teapots” at the nation’s petrol stations. The competition for sales started in late March and by June had spread beyond the most heavily oversupplied provinces in the north. For the first seven months of the year, refinery output was up 2.9 per cent from the same period of 2016 at 320.7 million tonnes, or 11.04 million bpd, the NBS data showed. The data also showed domestic
crude oil output fell 2.9 per cent last month versus a year ago to 16.25 million tonnes, or 3.83 million bpd. That was down from June at 3.94 million bpd. Crude output during January-July was down 4.8 per cent from a year ago to 112.79 million tonnes, or 3.88 million bpd.
Key Points July run rates at 10.71 mln bpd, lowest since Sept 2016 July rates down 500,000 bpd from June Jan-July runs up 2.9 pct y/y at 11.04 mln bpd Natural gas production expanded 14.7 per cent in July from last year to 11.7 billion cubic metres (bcm). For the first seven months of 2017, natural gas output gained 8.8 per cent on year to 85.8 bcm, according to the NBS data. Reuters
Energy
Power output highest in monthly records China’s power generation in July rose 8.6 per cent from the same month a year earlier to 604.7 billion kilowatt hours (kWh), the highest in monthly records dating back to May 2014, fuelled by a jump in thermal power generation, data showed yesterday. Output of thermal power in the world’s top consumer of coal was the highest since December, the National Bureau of Statistics data showed yesterday. Overall output for the January-July period gained 6.8 per cent to 3.57 trillion kWh, the bureau said. Commodities
Coal futures prices ease from record highs China’s thermal coal prices fell yesterday, easing back from a record high despite data showing a drop in domestic coal output in July, as investors factored in likely weaker demand from power companies. On Friday, prices hit 613 RMB a tonne, the highest since the contract launched in May 2015. Open interest fell to 239,506 lots yesterday from 250,038 lots on Friday, indicating investors are closing out long positions and taking profits. “Utilities with high levels of stockpiles have been ordered to restrict purchases and lower their stockpile levels,” a coal futures trading manager with a major miner said. M&A
Top newspaper slams debt build-up at firms
Real estate
Even public housing isn’t immune to Hong Kong’s property frenzy Property agents say buyers for small public-housing units are mostly investors Shawna Kwan
A 126-square-foot apartment at the Fung Tak Estate in Hong Kong’s Kowloon district sold for HK$1.95 million (US$250,000) early last month, a record for a public-housing unit, Full Mark Property Agency said. The HK$15,476 per square foot price even topped some private flats in the district -- an apartment at Lions Rise, a private development a 15-minute walk from Fung Tak, recently sold for HK$14,638 per square foot, Centaline Property Agency figures show.
‘Home prices reached a record high earlier this month’ Public-housing flats aren’t the only properties breaking records in Hong Kong’s gravity-defying market. A car park in Central sold for HK$3 billion in May, a waterfront residential site fetched HK$2.2 billion in February and the city’s gauge of home prices reached a record high earlier this month.
Property agents say buyers for small public-housing units are mostly investors, as the rental yield can reach 4 per cent or more. The average rental yield for small units is 2.8 per cent, according to the Rating and Valuation Department. “Small single flats for rent are rare and popular in the area, they usually get rented out within a month after the transactions are done,” said Kim Chan, a branch manager at Full Mark
Property Agency. The public housing units are a holdover from a program that previously allowed tenants to buy apartments they were renting at subsidized costs. The homeowners who had bought properties under the now-discontinued Tenants Purchase Scheme are still allowed to resell their houses in the open market, provided they pay a premium to the government. Bloomberg News
Chinese firms will face further pressure to deleverage, which has become the “new normal”, and conglomerates LeEco and Dalian Wanda Group were now bearing the consequences of their high borrowings, the People’s Daily newspaper said yesterday. The mouthpiece of the ruling Communist Party said that recent leadership changes at LeEco and deals to sell Wanda’s hotels and tourism businesses showed that the era of relying on high debt to spur growth was over. “These may look like singular events, but there’s a red line that runs through them,” said the article, published in the People’s Daily’s economics pages. Trademarks
WeWork starts legal action against rival UrWork WeWork Cos. has started legal action against shared-office landlord UrWork in London, accusing its fast-growing Chinese rival of infringing on its trademarks. The world’s fifth-largest start-up filed a claim with the U.K.’s High Court of Justice’s Chancery Division using Londonbased law firm Mishcon de Reya LLP on July 26. The New York-based office sharing company said its rival was “passing off”, which can take place when one business misrepresents their services as being the product of another. The legal action sets up a clash between two shared office start-ups racing to open locations around the world.
10 Business Daily Tuesday, August 15 2017
Greater China Energy
Beijing approves plan to promote unified nuclear reactor brand Government told CNNC and CGN in 2011 to pool technology instead of competing for the same projects
C
hina has approved a plan from its two state nuclear developers to promote a single integrated nuclear reactor brand that will help speed up construction and strengthen their ability to compete in markets overseas. China is in the middle of an ambitious nuclear programme that could bring total capacity to as much as 200 GW by 2030, and it also aims to win more projects abroad. But approvals have been slow with a variety of new advanced reactors subject to repeated delays. The China National Nuclear Corporation (CNNC) and the China General Nuclear Project Corporation (CGN) have been jointly developing an advanced model known as the “Hualong One”, but despite government pressure, they have continued to work separately on their own designs. In a plan approved by regulators last week, the two companies agreed to use integrated technical standards when building Hualong reactors. They will also transfer intellectual property rights
to Hualong International, a joint venture launched by the firms last year, China’s Energy Observer reported, citing a CGN spokesman. The firms declined to comment when contacted by Reuters, but a Beijing-based industry consultant said the agreement, backed by the National Energy Administration, could put the bitter rivals under pressure to
cooperate more closely. “This is a sign that the mess is being considered at a high level, but the merger will remain window dressing and there are still in fact two Hualongs,” he said. With China aiming to become a dominant global nuclear player, the government told CNNC and CGN in 2011 to pool technology instead of competing for the same
projects. The aim is for the Hualong One to compete with advanced models such as the Westinghouse AP1000 or the European Pressurised Reactor designed by France’s Areva. But despite establishing a joint venture, CGN and CNNC have launched separate projects under the Hualong One banner.
CNNC is building its own version at Fuqing in the eastern coastal province of Fujian, with the first scheduled to launch in 2019. It expects to finish a Hualong unit at Pakistan’s Chashma nuclear complex by 2020, the first overseas, and start work on another in Argentina by 2020. Meanwhile, CGN is constructing its first Hualong One in Fangchenggang, a
‘CNNC and CGN have been jointly developing an advanced model known as the “Hualong One”’ city on the southwest coast. It will serve as a “reference” plant for a proposed project at Bradwell in England, with the technology currently being assessed by British regulators. Reuters
M&A
Fosun, Shanghai Pharma say bid for stake in U.S. drug maker Arbor A potential deal could value Arbor at around US$3 billion Kane Wu
A unit of China’s Fosun Group and Shanghai Pharmaceuticals Holding Co are among bidders for a stake in U.S. speciality drug maker Arbor Pharmaceuticals LLC, the companies said yesterday. The bids come as Chinese companies face tightening scrutiny on their overseas investments. Chinese regulators are reviewing deal agreements in minute details, and have cracked down on some large domestic conglomerates, including Fosun, for their debt-fuelled acquisitions abroad. Shanghai Fosun Pharmaceutical Group Co Ltd said in a stock exchange filing its Hong Kong unit submitted on July 19 a non-binding bid for a stake in Arbor, which is backed by private equity firm KKR & Co LP. In a separate filing, Shanghai Pharma also said it had submitted a non-binding bid for a stake in Arbor on the same day. Both companies did not disclose the quantum of stakes they had bid for nor the financial terms but said they have not entered exclusive talks with the seller. Fosun Pharma said its Hong Kong
unit will begin conducting due diligence to determine further steps. Arbor has appointed Bank of America Merrill Lynch to run the sale process, which has attracted around half a dozen preliminary bids, mostly from Chinese companies and private equity firms, according to people familiar with matter. The bank did not immediately respond to a Reuters request for comment.
Key Points Shanghai Pharma, Fosun unit submit non-binding bids for Arbor stake Bids for Arbor stake come amid Beijing crackdown on outbound M&A Potential deal could value Arbor at around US$3 bln Some of the bidders may seek to acquire control of the company, said two of the people, adding that discussions are at an early stage still. A potential deal could value Arbor at around US$3 billion, two of the people said.
Bloomberg, which first reported on the sale process, said the bidders were seeking to buy 20 per cent to 30 per cent of Arbor. Arbor did not immediately respond to a Reuters query for comment. The sources could not be named as the discussions are confidential. Atlanta-based Arbor produces
mainly branded prescription drugs for the paediatric, hospital and cardiovascular markets. New York-based KKR agreed to buy more than a quarter of shares in the company in December 2014, in a deal that valued privately held Arbor at over US$1 billion, Reuters reported at the time. Reuters
Business Daily Tuesday, August 15 2017 11
Asia GDP
Japan blows past expectations on robust domestic demand The economy grew for six straight quarters in April-June Stanley White and Leika Kihara
Japan’s economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up, highlighting a long-awaited bounce in domestic demand. The world’s third-largest economy expanded by a much stronger-than-expected annualised rate of 4.0 per cent in April-June, posting its longest uninterrupted run of growth in a decade, government data showed yesterday. Activity is expected to continue to improve in coming quarters, offering the Bank of Japan (BOJ) hope that a tight labour market is finally starting to boost wages and consumer spending, which in turn should make it easier to generate sustained inflation. The rosy data was also a vindication for Japanese Prime Minister Shinzo Abe’s government, which has faced criticism that its economic agenda has not done enough to revive the country’s fortunes. “The engines of consumer spending and capital expenditure both fired well in the second quarter, and that’s why domestic demand was so strong,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “The pace of growth may moderate slightly, but we are still in recovery mode. This is a positive development for inflation.” Gross domestic product expanded an annualised 4.0 per cent in AprilJune, government data showed, more than the median estimate for 2.5 per cent annualised growth and the biggest increase since January-March 2015.
Compared to the previous quarter, the economy expanded 1.0 per cent, versus the median estimate for 0.6 per cent growth. Japan’s growth had been largely reliant on robust exports earlier in the year, though there were signs private consumption was picking up. Annualised GDP for previous quarter was revised up to a 1.5 per cent increase, while quarterly real (inflation adjusted) GDP was revised up to 0.4 per cent growth from a 0.3 per cent increase. The economy grew for six straight quarters in April-June. The last time the economy had a run of six consecutive quarters of growth was January-March 2005 through April-June 2006. Private consumption, which accounts for about two-thirds of GDP, rose 0.9 per cent from the previous quarter, more than the median estimate of 0.5 per cent growth. That marked the fastest expansion
in more than three years as shoppers splashed out on durable goods such as cars and home appliances. Consumers also spent more money on dining out, the data showed. These are all encouraging signs that consumer spending is no longer the weak spot in Japan’s economic outlook. Employees’ wages rose 0.7 per cent in April-June from the previous quarter, which was the biggest increase since July-September last year and another sign of the economy’s vigour. “The fact that the economy was able to grow this much without gains in exports shows our fundamentals are solid,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “Consumption gains could slow a little in the following quarter, but the foundations for a recover in consumer spending are in place.” Capital expenditure jumped by 2.4 per cent in April-June from the previous quarter, doubling the median estimate for a 1.2 per cent
increase. That was the fastest growth in business investment since January-March 2014 as companies spent more on software and construction equipment. Japanese Economy Minister Toshimitsu Motegi was more cautious on the outlook for domestic demand and pledged to implement extra measures to strengthen the economy. “If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy,” Motegi told reporters. “We’ll make sure that the domestic demand-led recovery continues. What is needed is supply-side reform. We’ll focus our efforts on human resource investment, improvement in productivity, and new growth strategies.” While growth was faster than expected, it is not expected to nudge the Bank of Japan into dismantling its massive stimulus programme any time soon, as inflation remains stubbornly weak. External demand subtracted 0.3 per centage point from GDP growth in April-June in part due to an increase in imports. This is notable because Japan usually relies on exports to drive growth. Since launching quantitative easing in April 2013, the BOJ has pushed back the timing for reaching its 2 per cent inflation target six times due in part to weak consumer spending. The GDP data for April-June show private consumption is finally starting to move in the direction that the BOJ and other government ministers have long predicted. Reuters
Politics
Australian PM says confident government majority safe Despite questions over his deputy’s citizenship which could disqualify him from parliament Colin Packham
Deputy Prime Minister Barnaby Joyce said earlier yesterday that he may not be eligible for parliament after being told he may be a dual citizen of Australia and New Zealand. The New Zealand government later said Joyce held New Zealand citizenship by descent as his father was born in New Zealand. Australian politicians are not eligible to be elected to parliament if they hold dual or plural citizenship, a rule that has forced the resignation of two senators in recent weeks. Prime Minister Malcolm Turnbull’s one-seat majority would be eliminated if Joyce
was forced from office, likely triggering an election, political analysts said. Joyce said he has asked Australia’s High Court to decide the matter. “The government is the very confident the court will not find that the member for New England is to be disqualified from the Parliament. Very confident,” Turnbull told parliament. Opposition Labor MP Tony Burke told parliament Joyce should stand aside from the ministry and the government should not accept his vote. “We’ve never before in this parliament...had to go to the High Court and say: ‘Look, we’re not really sure if there’s a majority government in this country’,” he said.
Joyce said he would not resign or temporarily step down from office after being told by Australian Solicitor-General Stephen Donaghue that he would likely be cleared by the High Court. “Neither I nor my parents have ever had any reason to believe that I may be a citizen of any other country,” he said. Joyce’s mother was Australian and his father was born in New Zealand and came to Australia in 1947 as a British subject. If Joyce was disqualified, Turnbull would be forced to rely on the support of independents to prevent a successful no- confidence vote from the opposition Labor Party.
“I think if Joyce is forced out, Turnbull would call an election,” said Peter Chen, a senior lecturer in government at the University of Sydney. Recent polls suggest Turnbull would lose an early
Malcolm Turnbull, Australian Prime Minister. Source: Lusa.
election, with his government bleeding support to the populist far-right One Nation party, while moderates have flocked to Labor as Turnbull struggles to deliver on his progressive reputation. Reuters
12 Business Daily Tuesday, August 15 2017
Asia Companies
As Thailand’s corporate cash pile swells, investors grow restless Nation’s growth of 3.6 per cent is a laggard in Southeast Asia Chayut Setboonsarng
T
hai companies have accumulated a record US$34 billion in cash, prompting some investors to demand companies from oil producers to food suppliers consider deals to put the money to work - or hand it back to shareholders. Some of Thailand’s biggest corporate names, including energy giant PTT Group Pcl, the largest convenience store operator CP ALL Pcl and agribusiness CP Foods Pcl , are hoarding cash. With few investment opportunities at home, Thai companies are looking abroad, but a patchy track record of foreign acquisitions and growing competition in Southeast Asia has left managements risk averse. “Idle cash piles are dragging on investors’ returns and should be put to work,” said Patcharapa Mahatthanakul, fund manager at UOB Asset Management in Thailand. She said investment in increasing production capacity or for acquisitions “is preferable.” Companies listed on Thailand’s main stock index produced an average dividend yield of 3.1 per cent and a return on assets of between 2 per cent and 7 per cent so far in 2017, ratios that are slightly above regional peers. But with such large cash piles, investors are growing impatient for companies to do more.
“Thai companies have done well, but if they do not have aggressive plans, they should return more profits to investors,” Jalil Rasheed, chief executive of Invesco Southeast Asia, told Reuters. Thailand’s economic growth of 3.6 per cent is a laggard in Southeast Asia. Domestic investment is slowing down due to excess factory capacity and weak demand, while outbound M&A investment by Thai companies is falling sharply. Thomson Reuters data shows outbound M&A investment dropped 37 per cent to just US$1.2 billion in the first half of 2017, compared with the same period in 2016, the first decline in three years. “Thai companies have healthy balance sheets, but are very prudent and careful when going overseas,” Kesara Manchusree, president of the Stock Exchange of Thailand, told Reuters. The energy and power companies account for most of the cash with some US$20 billion in their coffers.
They have been searching for M&A targets abroad, but the only major expenditure has been a US$500 million investment in a liquefied natural gas project in Malaysia by a PTT venture. A dispute with the Indonesian government over an alleged oil spill has prompted PTTEP, the upstream arm of PTT, to put on hold further investment in Indonesia. PTT and PTTEP have combined cash pile of US$15 billion. “If there are no good opportunities, then cash should be returned to shareholders. Holding on to too much cash is risky,” Piyasvasti Amranand, chairman of PTT Group, told Reuters. CP ALL and CP Foods controlled by Thailand’s richest man, Dhanin Chearavanont, together had US$1.7 billion in cash as of March’s income statement. CP Group, the parent company, spent nearly US$90 million on acquisitions in Britain and Germany this year, but dropped out of a potential 1.5 billion euro deal (US$1.7 billion)
to buy Polish retailer Zabka. Efforts by its Indonesian arm to takeover the local 7-Eleven franchise collapsed in June. In response to a question about whether they would hand cash back to shareholders, a spokesman for CP ALL said the issue was a management matter and a spokesman for CP Foods said the company pays out about 50 per cent of its earnings to shareholders. “The global landscape is not conducive for M&As,” said Thirapong Chansiri, chief executive of Thai Union Group, which last year spent over US$600 million to buy American restaurant chain Red Lobster and German-based Rugen Fisch. Myanmar and Vietnam offer investment opportunities, Thai businessmen said, but other foreign bidders are keen as well. “Competition is intensifying in Southeast Asia with non-Thai multinationals and funds hunting for investment opportunities in these emerging markets,” Jalil said. Still, there have not been any major share repurchase programmes by Thai companies this year and historically they have not been keen on them either. “Traditionally, Thai firms only buy back shares to help stock prices, but not as part of a broader strategy,” said Paiboon Nalinthrangkurn of TISCO Securities. “These large cash piles means companies need to rethink capital allocation.” Reuters
Currency
Philippines says its economic strength will bolster weak peso For the first time in 15 years, the Philippines is expecting a current account deficit this year Neil Jerome Morales
The Philippine government, seeking to reduce concerns about a sliding peso, said yesterday that the country’s strong economy and attractiveness for investors will bolster the currency. Economists say global political uncertainties and import-driven demand for dollars have caused the peso’s recent fall.
Key Points Peso to recover on strong economy - presidential spokesman Infrastructure revamp, FX reserves seen countering peso fall N.Korea tension, U.S. monetary policy impact emerging markets
The peso, Asia’s worst performing currency this year, hovered slightly above Friday’s 11-year low against the U.S. dollar, weighed down by tension over North Korea and the Philippines’ current account deficit. “Short term volatility in the value of the peso is, at this point, simply market reactions to overseas developments to which currency traders and other players all over Asia are responding to day by day,” Ernesto
Business Daily is a product of De Ficção – Multimedia Projects
Abella, spokesman for President Rodrigo Duterte, told a briefing. On Friday, the peso hit an 11-year low of 51.08 to the dollar. ‘Abella predicted the peso would firm up due to the Philippines’ “solid fundamentals, massive foreign reserves and increasing attractiveness to foreign investments as our infrastructure upgrades and expands.”
Bangko Sentral ng Pilipinas Governor Nestor Espenilla on Sunday said he does not expect the peso “to do a free fall because our economic fundamentals now, unlike before, are solid and very strong.” Philippine shares have been largely unaffected by the currency
movement, with foreign investors still attracted to robust earnings growth of listed companies. Overseas investors accumulated stocks last week, with net foreign buying at 1.18 billion pesos (US$23.16 million), up from 436 million pesos a week ago. Reuters advertisement
Current account shift
Alice Fulwood, associate economist at UBS in Singapore, said the “idiosyncratic weakness” of the peso relative to its peers can be attributed to the Philippines’ shift to a current account deficit. UBS has forecast the peso will be 51 to the dollar by year-end, and could hit 55 pesos by end-2018. For the first time in 15 years, the Philippines is expecting a current account deficit this year. The government has forecast a deficit of US$600 million, compared with 2016’s US$601 million surplus. In 2017’s first half, imports of capital goods, mainly infrastructure-related, rose 5.5 per cent to US$14.44 billion. On the external front, the anticipation of higher U.S. interest rates eventually, and the tensions between the United States and North Korea are spurring some investors to flee from emerging markets to safer currencies, economists said. Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, August 15 2017 13
Asia Money-laundering
In Brief
CBO’s head departure date set
WPI
India July wholesale inflation rate picks up
Commonwealth Bank of Australia Chief Executive Officer, Ian Narev, will step down by the end of June 2018 as the nation’s largest lender seeks to mitigate the fallout from a money-laundering scandal. Emily Cadman
The exact timing of Narev’s departure will depend on the search for a successor, with the board looking at both internal and external candidates, Chairman Catherine Livingstone said in a statement yesterday. The board was detailing the succession plan to “provide certainty for the business,” she said. Pressure is building on Commonwealth Bank amid allegations by the nation’s financial crimes agency that drug syndicates used its network of deposit machines to launder cash, despite warnings from police. The nation’s securities regulator opened its own inquiry last week and the governor of the central bank called for accountability in the banking industry, which is beset by a string of scandals. Narev, 50, has presided over a market-topping stock price since he took the helm at the start of December 2011. Last week, he delivered the lender’s eighth consecutive record profit. Commonwealth Bank shares stock has fallen about 4 per cent since the money-laundering suit was lodged August 3. Yet his achievements have been overshadowed by the money-laundering allegations -- the third major public-relations scandal he has faced as CEO. The bank has paid A$29 million (US$23 million) in compensation to customers who were allegedly given poor financial advice, and has faced accusations it wrongly failed to honour insurance claims to sick clients.
Narev’s successor must move swiftly to restore trust, according Raymond Lee, a Sydney-based money manager at Kapstream Capital. “Step one is obviously to clamp down on the scandals so that reputationally the bank is held in good stead,” Lee said by phone. The financial crime agency, Austrac, alleges that Commonwealth Bank failed to report either on time or at all suspicious transactions through its network of automated cash deposit machines totalling more than A$624 million, and it failed to monitor the activities of drug syndicates even after being alerted by police. The bank has blamed most of the breaches on a software coding error which has since been fixed. The allegations are the latest in a series of scandals in Australia’s banking industry, ranging from giving poor advice to wealth-management customers to allegations the nation’s
three other biggest banks manipulated a benchmark swap rate. The opposition Labor party has jumped on the money laundering claims to bolster its calls for a far-reaching inquiry into the banks. Narev, whose short-term bonus for the past financial year was cut, said last week he didn’t intend to resign. Narev’s total pay was slashed by more than half to A$5.5 million in the 12 months ended June 30, from A$12.3 million the previous year. Livingstone said succession planning was an “ongoing process” and that following discussions with Narev it was agreed it was “important for the business that we deal with the speculation and questions about his tenure.” “Today’s statement provides that clarity and will ensure he can continue to focus, as CEO, on successfully managing the business,” she said. Bloomberg News
India’s wholesale price inflation rate picked up in July after easing for four straight months, with food prices back on the rise. The wholesale price index rose 1.88 per cent in July from a year earlier, compared with an increase of 0.63 per cent in July 2016, government data showed yesterday. The rise compares with a 1.3 per cent increase forecast by economists in a Reuters poll and a provisional 0.9 per cent rise in June - the slowest pace since July 2016. Wholesale food prices in July rose 2.12 per cent on year, compared with a 1.25 per cent fall a month earlier. Vehicles
Indonesia’s July motorbike sales rebound Motorcycle sales in Indonesia rose 76.4 per cent in July from a year earlier, rebounding from a fall the previous month and the strongest increase in many years, data from an industry association showed yesterday. Sales contracted 27 per cent in June from a year earlier, during the long Muslim Eid al-Fitr holiday. Seasonal factors were likely the reason for the bounce in July, as last year’s Eid al-Fitr holiday fell in the same month. Sales stood at 538,176 motorbikes in July, up from 305,153 sold in the year-ago period. It was also higher than the 379,467 bikes sold in June. Energy
Australia’s LNG megaproject boom enters final stretch
Stock exchange
Korean markets not fearing the fire and fury Seoul stocks may still be finding favour with investors seeking bargains globally, even as U.S. President Donald Trump and North Korea’s Kim Jong-un’s aggressive rhetoric drives the benchmark gauge down. Heejin Kim
Seven of top 10 gainers on the Kospi 200 Index since Trump’s “fire and fury” comment on Aug. 8 include the cosmetics maker Cosmax Inc., which soared 13 percent over four trading days through yesterday, Youngone Corp., a garments producer that rose 11 percent, and furniture maker Hyundai Livart Co., which rallied 5.1 percent. The index itself slid 2.6 percent. While South Korean stocks suffered their worst week since February 2016 as Trump dialed up his warning to North Korea on threats to U.S. allies, investors including Shinyoung Asset Management and Korea Investment Management said the sell off is an opportunity to snap up consumer companies as President Moon Jae-in takes steps to stoke demand. “The North Korean issue is a meaningless assumption, a short-term issue to be resolved,” said Jung Sang Jin, a fund manager at Korea Investment. “What’s really important is how the government’s policies impacts the market in the long run. The policies are aimed at stimulating consumer spending.” The MSCI Korea Consumer Discretionary Index of 18 companies is at a three-month low even as consumer confidence remains buoyant amid Moon’s pledge to boost spending, exposing a gap between the economy and investor sentiment on the sector.
Consumption improved in June and the momentum may continue in the second half, according to the Finance Ministry. Measures taken by Moon to boost household incomes include a hike in minimum wages, an increase in taxes for companies and high-paid workers, and an expansion in coverage of national health insurance.
“The North Korean issue is a meaningless assumption, a short-term issue to be resolved” Jung Sang Jin, a fund manager at Korea Investment “We’re buying some consumer stocks that have been oversold,” Huh Nam-Kwon, chief executive officer at Shinyoung Asset Management, said in a phone interview without naming any companies. “The government is focusing on domestic consumption.” Kospi index rose as much as 1 percent yesterday, set for its first gain after four days of losses and rebounding from a three-month low. U.S. national security officials sought to
calm fears of imminent nuclear war with North Korea, while General Joseph Dunford, chairman of the U.S. Joint Chiefs of Staff, visited Seoul yesterday to meet with South Korea’s President Moon Jae-in.
Exiting Samsung
Consumer stocks are also attracting investors rotating out of Korean technology shares, according to Korea Investment. Samsung Electronics Co. is down 6.6 percent so far this month after rallying to a record in July, while SK Hynix has slumped 13 percent from a 16-year high reached last month. Global funds sold net 848 billion won (MOP6 billion/US$745 million) of Samsung shares in the three days through Friday, the most on the Kospi Index, and pulled a net 219 billion won from SK Hynix. For stock pickers, South Korean equities are still cheap, Shinyoung’s Huh said.The Kospi trades at about 9.8 times of one-year forward earnings, compared with 14 times for the MSCI Asia Pacific Index. Per share earnings of the gauge’s members are projected to jump 77 percent over the next year, according to Bloomberg data. “South Korean equities fell not because they are expensive, but because of country risk,” said Huh, a 30-year veteran of the nation’s equities. “I’ve seen people betting against country risk always becoming winners in the market.” Bloomberg News
The last massive component of Australia’s US$180 billion liquefied natural gas construction boom arrived yesterday, stepping up a race between Anglo-Dutch giant Shell and Japan’s Inpex to start chilling gas for export in 2018. Company reputations are at stake, as well as first access to overlapping gas fields and Australia leapfrogging Qatar as the world’s largest exporter of LNG. The Ichthys Venturer, a floating production, storage and offloading facility, travelled 5,600 km from a South Korean shipyard and will be moored 220 km off Western Australia to handle condensate from the Ichthys field. Oil industry
Drilling ship leaves Vietnam oil block after China row The drilling ship at the centre of a row between Vietnam and China over oil prospecting in disputed waters in the South China Sea has arrived in waters off the Malaysian port of Labuan, shipping data in Thomson Reuters Eikon showed yesterday. Drilling by the Deepsea Metro I ship was suspended in Vietnam’s Block 136/3 last month after pressure from China, which says the concession operated by Spain’s Repsol overlaps the vast majority of the waterway that it claims as its own.
14 Business Daily Tuesday, August 15 2017
International In Brief GDP
Post-bailout Portugal grows on strong domestic demand Portugal’s economy grew 2.8 percent in the second quarter from the same period a year ago, maintaining its highest growth rate in a decade thanks to strong domestic demand and investment, official data showed yesterday. Growth has bounced back strongly this year after Portugal’s 2011-14 debt crisis, allowing the economy to expand at a faster rate than the euro zone as a whole after years of lagging behind. The recovery has led to unemployment falling strongly this year and has been fuelled by a jump in consumer confidence to its highest level since 1997. Booming tourism has also helped. Luxury Industry
Luxury stocks seen losing shine The euro’s strong run since the start of the year may dent a recovery in the European luxury industry, which has been led by a rebound in Chinese consumer spending, according to analysts at RBC Capital Markets and HSBC Holdings Plc. The single currency has gained about 12 per cent versus the dollar in 2017, a shift that brings uncertainty over tourist flows to Europe in coming quarters, said RBC analyst Rogerio Fujimori. The impact is partially offset by the resilience of the Yuan, which is crucial for Chinese tourists’ buying power overseas, Fujimori wrote in an Aug. 11 note.
Taxpayers
U.S. tax change proposals anger builders, realtors, charities Payers claim an estimated US$13 billion each year in charitable deductions Ginger Gibson
With U.S. Congress members focused during their August recess on finding ways to lower the corporate tax rate, industry groups and other sectors of society are gearing up to fight proposed changes to the personal income tax. While tax cuts for business have garnered the most headlines, lobbyists and lawmakers have conceded that rewriting the corporate tax code will be a long slog. Tackling personal tax rates will be easier, many argue. Looking for an easier legislative win ahead of the 2018 midterm elections, most lawmakers in the Republican majority want to cut individual incomes taxes. President Donald Trump has been pushing hard for tax changes this year. Still, proposed changes to the personal tax code have already stirred opposition from realtors, home builders, mortgage lenders and charities. These groups say proposed changes will hurt home sales and cut charitable contributions. The National Association of Realtors issued an “August Recess Talking Points” circular imploring members to remind lawmakers that “Homeowners must be treated fairly in tax reform” to avoid “another housing crash.”
The group cited a report it commissioned from PwC that estimated home values could quickly dive more than 10 per cent if the tax plan becomes law. To simplify the tax code, Republicans have proposed eliminating nearly all tax write-offs including those for state and local taxes, then doubling the standard deduction. This would eliminate the incentive to itemize and should drastically reduce the number of taxpayers who do so. Currently, many taxpayers use itemized deductions, claiming writeoffs for things like charitable contributions, interest paid on a mortgage and state and local taxes. If the standard deduction becomes larger, fewer taxpayers will need to itemize, reducing the incentive to hold a mortgage or contribute to charity. Currently, about 30 million taxpayers claim the mortgage interest deduction, with about US$70 billion in total claims, according to Robert Dietz, an economist with the National Association of Homebuilders. Estimates suggest more than half of taxpayers would stop itemizing under the proposed plan, Dietz said, warning that this would create a large ripple effect through the economy. He said people in early years of a mortgage would suffer most, along with prospective home buyers.
Election
Fernandez ties with rival in Argentina Senate primary Argentina’s former leader Cristina Fernandez was tied with President Mauricio Macri’s candidate as most results were in from a Senate primary seen as a gauge of Fernandez’ chances of staging a populist comeback and ending Macri’s reform agenda. With 95.58 per cent of votes in Buenos Aires province - home to nearly 40 per cent of Argentina’s electorate - counted, the coalition led by Macri’s former education minister Esteban Bullrich had 34.19 pe rcent while Fernandez’s list had 34.11 per cent. Oil Industry
Oil trades near US$49 a barrel as Libyan crude supply is disrupted Oil traded near US$49 a barrel as Libyan output and exports declined amid security threats and a labour dispute in the port of Zueitina. Futures fell 0.3 per cent in New York after Friday’s 0.5 per cent gain. Libya’s biggest oil field cut output by more than 30 per cent, a person familiar with the matter said Sunday, while the head of a union said loadings at Zueitina ceased after employees demanded better working conditions. In the U.S., drillers added three crude rigs last week, according to Baker Hughes Inc.
Home builders are also fighting the proposed tax code changes. “I don’t think I would call that a cakewalk,” said Jerry Howard, the head of the National Home Builders Association, saying the proposal will face fierce resistance from his group, which represents 130,000 builders. He noted that members operate in every congressional district and employ more than 7 million people.
“The pressure is just going to be relentless as we get later in the fall” Charles Boustany, a former Republican member of the tax-code writing House Ways and Means Committee
Charitable organizations are not arguing against increasing the standard deduction. But they are asking members of Congress to consider creating a “universal deduction,” so taxpayers taking the standard deduction can get additional credit for donations without itemizing. Taxpayers claim an estimated US$13 billion each year in charitable deductions. Charities fear giving would plummet if the standard deduction were doubled without creating a universal deduction. Gail McGovern, president and CEO of the American Red Cross, said reducing charitable deductions would be “devastating.” If lobbyists defeat the reform effort, Congress could try to cut rates without structural tax code changes, said Charles Boustany, a former Republican member of the tax-code writing House Ways and Means Committee who left Congress in January. “The path of least resistance becomes an old-fashioned tax cut on the individual side,” said Boustany. “The pressure is just going to be relentless as we get later in the fall.” Reuters
Report
Germany opens probe against Swiss spies An espionage case has created serious friction between the neighbours German prosecutors have opened a probe against three Swiss intelligence agents on suspicion of spying on German authorities hunting tax cheats in a case that has strained cross-border relations, local media reported yesterday. The new investigation by federal prosecutors is related to the arrest in April of a Swiss man, identified as Daniel M., 54, who is accused of carrying out espionage activities against German finance inspectors since 2012, German daily Sueddeutsche Zeitung reported in cooperation with public broadcasters NDR and WDR. The federal prosecutor’s office declined to comment when contacted by AFP. According to the report, the probe launched in early August is highly unusual between western allies and underlines how seriously Germany is taking the case of Daniel M., who has been charged with spying for Switzerland’s NDB intelligence service on German authorities hunting tax cheats. The three new suspects, who also
work for the NDB, have not been named.
‘According to German media, the alleged mission of an arrested Swiss citizen was to identify German tax investigators involved in purchasing stolen data on German residents who illegally stashed their money in Switzerland’ The case has created serious friction between the neighbours, with German Foreign Minister Sigmar Gabriel upbraiding Switzerland after
Daniel M.’s arrest, calling the case “incredible” and expressing hope it would not “wreck” the countries’ good relationship. He said he had discussed the affair with his Swiss counterpart Didier Burkhalter, who assured him that monitoring of German tax inspectors was not on-going, as it had stopped in 2014. According to German media, Daniel M.’s alleged mission was to identify German tax investigators involved in purchasing stolen data on German residents who illegally stashed their money in Switzerland. Since January 2006, several German states have bought CDs or USB sticks containing stolen data on German tax dodgers, which came from Switzerland or Liechtenstein. As a result, many of Germany’s rich, powerful and famous have had to issue public apologies and paid back taxes and fines. Switzerland, where secrecy has been a cornerstone of the banking industry, reacted with outrage to the theft. AFP
Business Daily Tuesday, August 15 2017 15
Opinion Business Wires
The Korea Herald Loans extended by savings banks, insurers and other nonbanking institutions hit a record high in the first six months of the year, South Korea’s central bank said yesterday. The data compiled by the Bank of Korea showed that outstanding loans extended by nonbanking financial companies reached 763.6 trillion won (US$671 billion) as of end-June, the highest since 1993 when the central bank began to compile related data. It marks a 5.4 per cent, or 39.1 trillion won, rise from the end of last year.
Modi is riding high. So why isn’t he doing more?
Global Times China Unicom, one of the country’s three state-owned telecommunications carriers, reported a surge in first-half profits due to its efforts in business transformation. In a brief statement to the Shanghai Stock Exchange, the telecom giant said its preliminary net profits for the first half of 2017 reached RMB780 million (about US$117.1 million), up 74.3 per cent year on year. The company attributed the huge rise to the initial success in the on-going transformation of its business pattern and improved profitability in the reporting period. Revenue from main business rose 3.2 per cent to 124.1 billion Yuan in the sixmonth period, it said.
Philstar Philippine economic growth may stay above six per cent in the second quarter, according to DBS Bank Ltd. of Singapore and Moody’s Analytics. Gundy Cahyadi, economist at DBS, said the country’s gross domestic product (GDP) likely grew 6.2 per cent in the second quarter. This is compared with the 6.4 per cent GDP growth in the first quarter, which was pulled down by weak private consumption, and the 6.6 per cent expansion in the fourth quarter of last year. However, economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) retained the GDP growth target at 6.5 per cent to 7.5 per cent this year.
Viet Nam News Agricultural products exported to China now account for 50 per cent of total border trade flow between the two countries, signifying greater approval from Chinese consumers, officials say. The surge in cross-border trade of agricultural produce was highlighted last Friday at a forum jointly held by the Ministry of Agriculture and Rural Development (MARD) and the Lạng Sơn People’s Committee. The forum discussed ways to further increase the flow of Vietnamese fruit and vegetables into Chinese markets via official border trade.
Mihir Sharma a Bloomberg View columnist
I
n just a few years, Narendra Modi and his Bharatiya Janata Party have managed to ensure that they have practically no political rivals of consequence left. Four years ago, the map of India was a patchwork, with the BJP, its national rival the Congress, and multiple regional parties vying for supremacy at the state and federal level. Today, the BJP has an unprecedented legislative majority in New Delhi, and it runs almost every state of consequence. One of the last opposition bastions in northern India, Bihar, recently fell to the BJP when a coalition of opposition parties collapsed. The state’s chief minister -- once discussed as a possible rival to Modi in the next general election -- said resignedly that nobody was strong enough to take on the prime minister. The BJP now controls 18 out of India’s 29 states, accounting for almost two-thirds of the country’s GDP. Modi’s authority is unchallenged. The question is, why isn’t he doing more with this power? For decades, the unwieldy coalitions that have dominated Indian politics have made it intensely difficult to carry out significant economic reforms. While Modi has a comfortable majority in New Delhi, many changes require state governments on board as well. So, the argument ran, perhaps it would be better for the states to experiment first. In theory, they could act more nimbly, testing various programs and competing with one another to come up with the most innovative and attractive package of reforms. Modi has called this idea “cooperative federalism.” So far, though, there’s little sign of states competing to reform. Some, like Rajasthan, have pushed the envelope by rationalizing labour and land regulations, but other measures have been small beer. To the contrary, even BJP-controlled states actively seem to be resisting change. Consider the new goods and services tax India just introduced. It’s a big step towards knitting diverse provinces into a single market. But state governments got every little political carve-out they demanded. Rather than competing to implement the GST more smoothly and effectively, they cooperated to preserve their own income-tax offices and many of their existing privileges. States seem to be competing only to see who can impose more populist measures, such as forgiving the debts of farmers and, in north India, imposing laws to “protect” cows, held holy by many Hindus. Though they belong to the same party, even the BJP states aren’t stepping up efforts to share policy
“
ideas or coordinate their approach to reforms. Those state leaders are responsible to Modi, the leader of the party. Modi’s advisers point out that he does talk to many states’ top bureaucrats regularly. But these discussions don’t seem to have resulted in any serious efforts at coordination. Modi’s experience in the business-friendly state of Gujarat, where he was chief minister for over a decade, may have led him to overestimate what Indian states can do on their own. Gujarat has a healthy exchequer, a long coastline and a functional bureaucracy -- a trinity of blessings that no other Indian state possesses. As a consequence, it can trade with the outside world and pretend the rest of India doesn’t really exist. That allowed Modi to craft an independent, outwardlooking economic base for Gujarat that leaders of others states, such as landlocked Madhya Pradesh, would struggle to replicate. For “cooperative federalism” to be more than a phrase, Modi has to realize that most states need constant hand-holding. State governments in India are short of policymakers as well as resources to conceptualize and implement ambitious reforms. The federal government occasionally comes out with “model laws” that the states could supposedly follow. But the states aren’t properly incentivized to implement them, and they receive little follow-up support. More importantly, Modi rarely makes such laws a political priority, which means they are generally ignored. Now that chief ministers in the entire north and west answer to Modi, here’s one idea he could be working with them on. The north is overpopulated and short of jobs; the west, along the Arabian Sea, is where jobs will be created. India’s previous government planned a corridor stretching from the north to the west along which goods could move easily, and which would be dotted with new, planned towns that could serve as magnets for migration. It was meant to be the “world’s largest infrastructure project.” India manages migration particularly badly; its cities are overcrowded already, even as most projections indicate that they will be the fastest-growing in Asia in coming years. The sort of migration that is frictionless, which helps people move to where the jobs are, requires cooperation between multiple states and a neutral arbiter in New Delhi to help provide the necessary infrastructure. There could and probably should be many other such examples. The point is that Modi needs to put some political muscle and federal resources behind such initiatives. He has political capital to spare; this is where he should use it. Bloomberg View
The Bharatiya Janata Party now controls 18 out of India’s 29 states, accounting for almost two-thirds of the country’s GDP
”
16 Business Daily Tuesday, August 15 2017
Closing Business environment
China a sweet spot for U.S. companies’ earnings in 2nd quarter China growth helped to offset problems elsewhere Adam Jourdan
T
rade tensions between Washington and Beijing may be running high but Corporate America is finding China to be a reliable source of profit growth this year. Whether they sell construction equipment, semiconductors or coffee, many major U.S. companies have reported stronger second-quarter earnings and revenue from their Chinese operations in recent weeks. They are benefiting from a Chinese economy that is growing at almost 7 per cent, several times the rate of U.S. expansion, a Chinese housing boom, and a slide in the U.S. dollar, which makes American exports more competitive and increases dollar earnings once they are translated from foreign currencies. Chinese President Xi Jinping’s ambitious plan to build a new Silk Road that will improve links between China and dozens of countries in Asia and Europe, and includes many billions of dollars of new roads, bridges, railways and power plants – is also helping American firms to sell heavy equipment and other products. Caterpillar Inc, a bellwether for industrial demand in China and beyond, reported its sales in Asia-Pacific rose 25 per cent in the second quarter - thanks to China. Shipments of large excavators to Chinese customers more than doubled in the first half of the year. “We now expect demand in China to remain strong through the rest of the year,” Brad Halverson, Caterpillar’s group president and chief financial officer, told investors. Caterpillar’s Japanese rivals Komatsu and Hitachi Construction Machinery Co reported similar strength in demand for heavy machinery. Komatsu’s China sales almost doubled in the firm’s April-June quarter. “China’s grown pretty well relative to the U.S. over this period and the currency’s relationship has changed in favour of the U.S. companies,” said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis.
Discrimination claims
Chinese companies are also benefiting from the robust domestic economy. For example, Chinese auto manufacturer Geely Automobile Holdings announcing last week that
its July sales climbed 89 per cent from the year-earlier-month. Geely and many other major Chinese companies report their results in the next few weeks. American companies in China have been collectively reporting better prospects even as they complain that the Chinese authorities are not allowing them enough access to parts of the Chinese market and discriminating against them as they seek to compete against Chinese rivals. The Trump administration has been considering punitive tariffs against a range of Chinese goods but it has held off on taking action after Beijing backed tougher United Nations Security Council sanctions against North Korea earlier this month. And despite some negatives in the Sino-U.S. relationship, a July report by the American Chamber of Commerce in Shanghai showed that 82 per cent of U.S. companies in China expect revenues to increase this year, up from 76 per cent a year ago.
“China’s grown pretty well relative to the U.S. over this period and the currency’s relationship has changed in favour of the U.S. companies” Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis
“In general China is still a growth market for lots of US goods and services... the Chinese consumer is driving more and more the growth in China itself - that’s a very positive shift in compositional growth for a lot of U.S. companies that do provide goods and services for consumers, as opposed to building skyscrapers,” said Joe Quinlan, head of thematic investing at Bank of America, U.S. Trust. In the chip industry, Skywork
Solutions, which according to Goldman Sachs gets about 85 per cent of its sales from China, reported its fiscal third-quarter revenue rose 20 per cent, thanks in part to demand from Chinese phone maker Huawei. And Qualcomm, which gets around two thirds of its revenue from China, said last month that China remained a strong growth story for the company. And many other foreign companies are also doing well. The European liquor industry is benefiting from a resurgence in Chinese consumer demand. Remy Cointreau, which battled a steep slowdown in China after Xi launched an anti-corruption drive in 2012 – hitting a lot of lavish wing and dining by businesses - said it saw a “clear improvement in consumption trends” this year. “We see the fast-growing upper middle class driving strong consumption growth for our upmarket cognac brands,” the company’s Chief Financial Officer Luca Marotta said last month. Closer to home, Kweichow Moutai, the Chinese maker of the liquor baijiu and the world’s largest alcohol firm by value, saw first half profits gain 27.8 per cent. Chinese stock market gains this year have in turn helped confidence among retail investors. “I feel the wider economy is improving,” said Ding Mingwei, 26, a manager at an education technology company in Shanghai. Ding, who says his own
investments are up this year, now plans to spend more on hotels, dining out and funding hobbies such as playing the guitar. For some companies, China growth helped to offset problems elsewhere. Starbucks U.S. growth cooled in the third quarter but same-store sales for the coffee chain in China surged 7 per cent. Among the Japanese companies to benefit, Sony’s sales in China were up just under 50 per cent in the three months to June, making it the electronic group’s fastest-growing geographic segment.
Competition intensifies
There are some sectors that are proving a tougher slog for foreign companies. Major international automakers, even those reporting increased revenues, have pointed to squeezed margins in one of the world’s most competitive markets. U.S. automaker General Motors, for example, saw a strong April-June quarter, but said it faced “pricing challenges”. And some economists warn that it is unclear how long the Chinese economy and the markets can keep their buzz. “The strong rebound is largely being driven by the property market and export growth, which both seem unsustainable,” said Nomura Chief China Economist Yang Zhao in Hong Kong. He said he expects China’s economic growth to cool by the fourth quarter. Reuters
Results
Sanctions
Results
Mainland banks report higher first-half profits
Beijing bans North Korean iron, seafood imports
JD.com says Q2 revenue above expectations
China’s commercial banks reported higher first-half profits than a year earlier, and the overall level of non-performing loans (NPLs) in June did not increase from March, the country’s banking regulator said yesterday. Total profits for commercial lenders reached RMB970.3 billion (US$145.5 billion) for the six months ended in June, up 7.92 per cent from the first half of 2016, China Banking Regulatory Commission (CBRC) data showed. While profits increased, profitability - measured by return on assets and return on equity - slightly decreased from a year earlier, the CBRC said. The NPL ratio for commercial lenders was at 1.74 per cent at end-June, unchanged from the end of the first quarter, according to the regulator. Commercial bank NPLs totalled RMB1.64 trillion, up from RMB1.58 trillion at end-March. According to the CBRC, the percentage of “special mention loans” - ones where borrowers are experiencing difficulties - eased slightly to 3.64 per cent by end-June from 3.77 per cent at end-March. Reuters
China will halt iron, iron ore and seafood imports from North Korea starting today, following through on new UN sanctions after U.S. pressure for Beijing to strongarm Pyongyang over its ally’s nuclear programme. The decision was announced yesterday after days of increasingly bellicose rhetoric between U.S. President Donald Trump and Kim Jong-Un’s regime, which has raised international alarm about where the crisis is headed. Beijing had pledged to fully enforce the latest sanctions after the United States accused China of not doing enough to rein in its neighbour, which relies heavily on the Asian giant for its economic survival. The Chinese commerce ministry said on its website that all imports of coal, iron, iron ore and seafood will be “completely prohibited” from today. Beijing had already announced a suspension of coal imports in February. The United Nations Security Council, including permanent member Beijing, approved tough sanctions against Pyongyang on August 6 that could cost the hermetic country US$1 billion a year. AFP
JD.com Inc, China’s second-largest e-commerce firm, said yesterday its second-quarter revenue grew 43.6 per cent from a year earlier, beating analyst expectations. JD.com said revenue for the three months ended June 30 was RMB93.2 billion (US$13.98 billion), compared with an average estimate of RMB89.3 billion, according to a survey of 18 analysts by Thomson Reuters. JD.com in May forecast second-quarter revenue of RMB88 billion to RMB90.5 billion. Net loss attributable to company’s shareholders for the quarter expanded to RMB496.4 million from a net loss of RMB252.3 million a year earlier. It projects third quarter revenue of RMB81.8 billion to RMB84.2 billion, which represents a growth rate of 36 to 40 per cent compared with the third quarter of 2016. JD.com made a net loss of RMB0.35 per American Depository Share in the second quarter, compared with a loss of RMB0.18 a year earlier. Reuters