SME loans jump 37 pct period-to-period in H2 2016 Lending Page 3
Tuesday, February 14 2017 Year V Nr. 1233 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Transport
Public consultation on LRT laws begin, while publiclyfunded, private company is to run operations Page 2
Land
Group of local land awardees contest ‘idle land’ policy by gov’t Page 4
www.macaubusinessdaily.com
Property
Chinese developers to keep expanding land purchases Page 10
GDP
Japan grows more than expected thanks to healthy trade Page 11
A cough for help Smoking lounges
‘Solutions that allow smoking lounges’ are supported by 60 pct of employees according to a survey commissioned by gaming operators and conducted by the University of Macau. 13 pct say smoking should only be allowed in VIP rooms, while 87 pct of surveyed employees in gaming areas saw an improvement in air quality since the introduction of smoking lounges on mass floors. Operators continue to oppose a full ban, saying it could drive down the economic performance of the MSAR. Page 7
Groomed
Pay up!
MOP200,000 in royalties. That was the yearly total collected by the Macau Association of Composers, Authors and Publishers, subject to a 30 per cent collection fee, for 81 members and six publishers. Local artists urge for further promotion of copyright awareness to help build up the industry by motivating artists to pursue creative careers.
Heir A leadership transition in one of the region’s richest dynasties will test paradigms. Adrian Cheng, poised to take up the reigns of Chow Tai Fook Jewellery Group and New World Development Co, will step into a four-listed-company, US$25 bln family dynasty, facing declining margins in property development and slumping demand for high-end jewellery. Time will tell if he succeeds. Page 6
Mainland steel unstoppable
Royalties Page 5
HK Hang Seng Index February 13, 2017
23,710.98 +136.00 (+0.58%) Worst Performers
China Life Insurance Co Ltd
+3.16%
Belle International Holdings
+1.55%
Li & Fung Ltd
-2.34%
China Resources Land Ltd
-0.70%
AAC Technologies Holdings
+3.02%
Hong Kong Exchanges &
+1.48%
Sands China Ltd
-1.25%
China Mengniu Dairy Co Ltd
-0.51%
China Resources Power
+2.05%
Hengan International Group
+1.48%
Link REIT
Cheung Kong Property
-0.47%
Industrial & Commercial
+1.65%
Ping An Insurance Group Co
+1.44%
Sino Land Co Ltd
-0.93%
Cathay Pacific Airways Ltd
-0.36%
Bank of China Ltd
+1.60%
China Mobile Ltd
+1.14%
Hong Kong & China Gas Co
-0.80%
Galaxy Entertainment Group
-0.28%
-1.11%
15° 19° 15° 19° 16° 20° 17° 22° 17° 23° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Greenpeace report China increased its steelmaking capacity last year by more than twice Britain’s annual output, a report said yesterday, despite repeated pledges to cut huge excess in the sector. While some steel capacity was cut, this was more than offset by China’s opening of new factories and the restarting of idle plants. Page 8
2 Business Daily Tuesday, February 14 2017
Macau Transportation
Gov't to set up private, outside entity to operate LRT A private operator will be set up by the gov’t to run the city’s LRT when it is launched in 2019. Meanwhile, consultation on the legal framework for the LRT commenced yesterday and will last 60 days Cecilia U cecilia.u@macaubusinessdaily.com
G
overnment representatives announced the commencement of a public consultation in order to establish laws relating to the city’s Light Rail Transit System (LRT), also revealing that the government would be setting up a private company to operate the city’s LRT when the Taipa section is completed in 2019. The information was shared at a press conference held yesterday. The Assistant Coordinator of the Transport Infrastructure Office (GIT), Ng Keng Chung said that the private operator would replace the GIT in its oversight of current tasks, as well as being responsible for the future operations of the LRT. The private operator, according to Mr. Ng, will be set up under the public service granting system. The GIT coordinator noted that it will be necessary to differentiate between the government itself and the operator, in regards to the management of the LRT’s operations, prior to the establishment of the company. Admitting a lack of professionals in
the sector in the city, Mr. Ng added that the government “hopes to invite specialists outside Macau that have related experience so as to provide advice and support.” He noted that the establishment of the company is still at the initial stages, saying that further announcements will be made once concrete information is available. Regarding the operation method, the government will take a leading role in making policies, while the assigned company will be in charge of daily operations. “For the regulatory unit, the government will have a specific arrangement for that,” Mr. Ng told reporters. “More information will be released in the future.” When asked the reason for setting up a private company instead of outsourcing to an experienced private company, Mr. Ng explained that an outside company might not be able to perform well enough, given that it is self-financed. He added that the current drafted bill has “learnt from previous experiences, as well as taken into account other regions’ metro operations,” stressing that they are currently offering “framed suggestions”.
Transportation
The 60 days of public consultation, initiated yesterday, are meant to collect suggestions regarding the contents of the bill’s articles. The GIT Assistant Coordinator expressed confidence that the consultation, as well as the drafted bill, will be completed within this year.
Framed suggestions
GIT Senior technician, Cheang Im Ha introduced the proposed legal details for the LRT. The drafted bill suggests that the operator of the LRT, a company fully funded by public coffers, will be
responsible for all acts relating to the LRT itself, its infrastructure and equipment which causes damage or harm to passengers or to third parties. As such, the suggested amount of compulsory insurance for handling civil liability is MOP200 million (US$25 million). According to the information posted on the consultation website, the LRT fare system will be determined by the government, who notes that “it is necessary to take into account the benefits of the social and economic balance” as well as the consideration of fairness.
Crime Penal Code changes are intended to increase
Gov’t charging ahead The gov’t will attempt to install a total of 200 electric vehicle chargers by 2019 Cecilia U cecilia.u@macaubusinessdaily.com
be applied for at CEM’s customer contact centre.
The government has pledged, via the Energy Sector Development Office (GDSE), to install a total of 200 charging stations for electric vehicles in public car parks by 2019. In 2016, some 60 chargers were installed in 10 different public car parks in the city and the government is attempting to install 50 more this year. Local electricity supplier Companhia de Electricidade de Macau S.A. (CEM) is in charge of the installation and operation of the electric chargers. According to GDSE figures, a total of 171 electric vehicles were on the road as of last month, of which 88 were light vehicles, two were heavy motor vehicles and 81 were light motorcycles. In order to encourage the use of electric vehicles, owners will be able to use the public chargers free of charge in 2017 and 2018. The use of the chargers requires a user card issued by CEM, which can
Truck protection required
Meanwhile, the Transport Bureau (DSAT) announced last Sunday that it will be compulsory for light and heavy trucks, as well as semi-trailer trucks in the city, to be equipped with lateral protectors by October 11 this year, when the amended transport regulation guidelines come into effect. Vehicles which have completed the installation of protectors before October 11 will be exempt from the inspection fee, DSAT stated. The installation of the protectors is to prevent passers-by, scooters and bicycles from being drawn into the vehicles’ open areas. The newly amended law also requires light scooters, on the other hand, to install two inverted mirrors. Those who fail to pass the inspection will be required to have their vehicles re-inspected and pay the related fee.
protection of minors between 14 and 18 years of age
Protecting minors Legislators agree on the introduction of two new crimes in the Penal Code: the solicitation of underage prostitution, and the production and use of child pornography Soliciting prostitution services from minors under 18 years of age and any use or production of child pornography will be considered a crime under the MSAR law, according to the third standing committee currently discussing revisions to the Penal Law. The changes are intended mainly to eliminate a legal void for the protection of minors between the age of 14 and 18, since any sexual acts with minors under 14 are already considered a crime under the Penal Code. “The client will now have to assume his responsibility, in situations not involving threat but a service transaction (…) in which child prostitution exists and according to recommendations from international organisations criminalising solicitation is a way to prevent the issue,” said the committee president, Legislator Cheang Chi Keong. Currently only exploitation of prostitution services (organizing and promoting the activities) in the MSAR is considered a crime, with a prison sentence between one and three years, and until now the law only penalised the exploitation of underage prostitution but not the solicitation of the said services. Legislators agreed with the government that the offence should be considered a public crime - able to be investigated by the Public Prosecutor’s Office - and have a maximum prison penalty of four years. The use of minors in producing pornographic materials, and the distribution or use of the materials will
also be considered a public crime, with a prison sentence of between one and five years. This offence will be included in the list of penalised crimes committed by criminal organisations for profit. Further details on the changes will be debated by the committee on Thursday. N.M.
Business Daily Tuesday, February 14 2017    3
Macau
Companies engaged in construction and public works were the biggest beneficiaries Banking
SME lending surges in H2 The majority of the bank loans went to the construction industry and companies in the wholesale and retail trade Kam Leong kamleong@macaubusinessdaily.com
T
he city’s SMEs saw their new approved lending by local banks increase in the second half of 2016 compared to the first half, with those companies engaged in construction and public works being the biggest beneficiaries, according to the latest official data released yesterday by the Monetary Authority of Macau (AMCM). In the six-month period, total new SME credit limit granted by the banking sector totalled MOP13.6 billion
(US$1.7 billion), soaring by 36.8 per cent period-to-period, compared to MOP9.95 billion in the first half of the year. However, when compared to the same period in 2015, the amount dropped by 34.1 per cent. The collateralised ratio, which indicates the proportion of credit limit with tangible assets pledged, reached 83.9 per cent as at the end of period, representing an increase of 2.34 percentage points period-to-period, or 0.21 percentage points month-on-month. In terms of economic sectors, new lending approved to companies engaged in construction and
public works accounted for 29.6 per cent of the total, rising by 3 per cent compared to the end of the first half of 2016, according to official data. In addition, SMEs running restaurants, hotels and similar establishments also saw their lending approved by the banking sector increase by 8.3 per cent period-to-period, accounting for 3 per cent of the total. However, new credit limit granted by banks to companies in the wholesale and retail trade went down by 2.1 per cent period-to-period to 16.8 per cent of the total, while that granted to the manufacturing industry also decreased by 16.1 per cent period-to-period, totalling 4.7 per cent of all new lending.
Credit utilisation
As at the end of the year, the outstanding value of total SME loans amounted
to MOP69.8 billion, an increase of 3 per cent period-to-period, or 4.5 per cent year-on-year. The utilisation rate thus jumped by 5.1 percentage points period-to-period to 66.8 per cent. The rate, defined as the proportion of outstanding credit balance to the credit limit granted, also represents an increase of 5.58 percentage points compared to one year ago. Meanwhile, the outstanding balance of delinquent SME loans reached MOP578.1 million, surging by 88.7 per cent from six months earlier, according to the data. Compared to the same period in 2015, the balance also grew 57.9 per cent. On the other hand, the delinquency ratio, a ratio of the outstanding balance of delinquent loans to total outstanding SME loans, reached 0.83 per cent as at the end of the period, increasing by 0.38 percentage points from the first half of 2016, or 0.28 percentage points from one year ago.
4 Business Daily Tuesday, February 14 2017
Macau Opinion
Albano Martins*
This way we will not go far! Before Raimundo do Rosário was Secretary for Transport and Public Works, his predecessor, Lao Si Io left a trail of lack-of-productivity worthy of note, freezing decisions for half a dozen years. The confusion that Lao left behind can’t be waded through from one day to the next. The chaos that he left requires a larger, reinforced team to fix, but here in the Macau SAR, its Government works in a catechism of saving, even during a period of contraction of the economy. These inherited issues cannot be resolved from one day to the next. Look at the issue of the Land Law. It is my opinion that the application of this law has created many injustices for many people and many investors who waited for years and years for a decision by Lao Si Io in order to go ahead with their projects! Everyone knows that the Land Law could simply have been changed before the damage it did and will do, such as the new rise in prices of real estate! But there was a lack of courage in the Legislative Assembly, perhaps because the signal should have come from above and did not come. And it is not clear why it did not come, except to assume that we are all prisoners of populists, who would take advantage of this action to say that one is protecting the interests of the businessmen against the population. Instead of giving more capacity to government departments to face the enormous challenges they have inherited, the Government believes - and the legislators clap their hands - that the secretariats’ budgets should be cut, in this city without public debt or deficit, when there are mountains of problems to be solved, which all require a more reinforced team that can deliver faster and higher quality decisions! There are fundamental issues that require more investment in a team capable of preparing the future local intervention on the ground, earlier. Look at the numbers. The office of the Secretary of Public Works had a budget of MOP51 million in 2015. For 2016 it fell to MOP31.7 million and in 2017 it has fallen to MOP28.7 million! And that applies to other Secretariats as well! In other words, contrary to what the rules advise - and don’t forget that money loses value every year - the Secretary of Public Works today has a budget amounting to little more than half of what his office had in 2015! Do you want omelettes, my lords? Buy eggs, do not be mean!
* an economist and contributor to this newspaper
Land
Whose fault is it?
‘Macau has experienced major changes in development in the past more than 20 years, to which not
only land concessionaires have been adapting, but also the government. For example, the city’s LRT project has not had its proposal for the Peninsula routes confirmed after over 10 years,’ slammed the group. ‘This suggests the government has been making adjustments to its plans based on the changes in the city’s development. It thus should also allow concessionaires to make adjustments based on the environment,’ they added. In 2009, the MSAR government identified 113 plots of land in the territory left undeveloped by their land grantees, of which 48 were designated to be reclaimed, as the land-lease holders were deemed liable for the delays in the development. Since the government has started taking action to declare the related plots invalid, local land awardees have published statements defending their concession rights in the Chinese-language press from time to time. This statement is the third one this year, following two published and signed by: “a group of land concessions in Seac Pai Van” last month. The Secretary for Transport and Public Works, Raimundo do Rosário said in the Legislative Assembly last month that the authorities had initiated procedures to reclaim 49 land plots since he took over the office in December 2014.
and fostering high aggregate value industries, such as pharmaceuticals, jewellery, gaming machines, and electronic entertainment devices. Aimed at promoting Macau as “One Centre, One Platform,” the government is fostering its programme based on fives principles: “consolidating the main industries”; “renewing
traditional industries”; “cultivating emergent industries”; “promoting industrial renovation”; and “fostering regional cooperation”. DSE and AIM also expressed their intention to strengthen the “Made in Macau” brand, combining the cultural and creative sectors with that of manufacturing. S.Z.
Another statement by the city’s land awardees as they argue that they are not responsible for the non-development of their awarded plots Kam Leong kamleong@macaubusinessdaily.com
A
group of local land awardees have complained that the government’s policies to take back “idle plots” upon the expiry of land use terms, conflict with the city’s Basic Law. ‘The government’s repossession of an undeveloped land plot upon the expiry of concession terms clashes with the articles of the Basic Law that protect private property rights, which is also deepening conflicts in the city,’ reads a full-page Chinese-language statement signed by “a group of land concessionaries” posted in yesterday’s Macao Daily newspaper. The group said in the statement that the non-development of many idle plots was due to: the lack of infrastructure facilities that did not allow conditions for the development; the government’s changes in urban planning that have frozen or halted
the plans of the developers; and land awardees ceding their plots to the government for public use. ‘For example, the land plots accommodating the Golden Lotus Square, the provisional fuel bunker in Ilha Verde and the parking lot for casino buses in the Border Gate were ceded to the government for these public purposes, but the awardees are facing repossession by the government over these plots after 25 years,’ they claimed. Following the implementation of the city’s new land law, no extension is allowed for a temporary or conditional land concession valid for 25 years, if developers fail to complete their projects on the site. In such cases, the sites will be reclaimed by the government. But the group of concessionaires perceives this policy as unfair.
Growing city
Industry
Made in Macau The Macau Economic Services (DSE) and the Industrial Association of Macau (AIM) are joining forces to elaborate a study about the current status of the city’s industry, in tandem with guidelines outlined in the Macau SAR Five Year Development Plan (20162020). According to a note released by DSE, the economic bureau aims to formulate concrete policies in order to ‘attain industrial retraining and appreciation’. The DSE Director, Tai Kin Ip believes that intensifying regional cooperation and increasing tax-exempted good flow under the terms of CEPA (Close Economic Partnership Agreement) will generate opportunities for Macau, making up for the lack of land and human resources faced by the local industrial sector. Some of the suggestions from the DSE study include promoting industrial re-training in the food and high-quality garment businesses,
Business Daily Tuesday, February 14 2017 5
Macau Royalties
Art profits Local artists believe increasing copyright awareness will help the local industry improve its revenues and sustainability Nelson Moura nelson.moura@macaubusinessdaily.com
L
ocal musicians and artists told Business Daily that more promotion of copyright information by the Macau Association of Composers, Authors and Publishers (MACA) and cooperation on the issue, could help to improve the local music and arts industry and incentivise more industry participants. During its general assembly meeting held on February 10, MACA announced that it had collected MOP200,000 (US$25,026) in royalties in 2015 from different affiliated societies, to be distributed to local members, with the association retaining 30 per cent of royalties for administration expenses. The association currently represents 81 local members and six local publishers, and collects royalties from international associations in locations such as Hong Kong, Taiwan, Malaysia and Japan. When questioned by Business Daily, the association said values for 2016 were “still being calculated” and would be presented next year, but that the total amount of royalties “was believed to have increased last year (2016)”. The group also stated that last year, music performance license agreements had been reached with six entertainment groups, and that
activities to raise public awareness of copyright issues in 2017 would be held. In statements to Business Daily, Vincent Cheang, musician and owner of concert venue Live Music Association (LMA), said that royalties have improved as more companies gain better awareness of copyright issues, something that can “motivate” local artists to see music as a viable professional career and “not just a hobby”. The total amount of royalties collected by MACA in years prior (2014 and before) was also requested, but no results had been provided when this newspaper went to print.
A balancing act
For singer and composer Josephine Ho Chiu-yi, also known as Josie Ho, it takes a lot of work for a “small association like MACA” to record and mark the total amount of royalties earned by songs played in specific shows, and more cooperation between the industry members is needed to improve this situation. “It takes a lot of coordination, event organisers have to be very disciplined and submit the full set lists of songs in advance and report it afterwards. The record label afterwards has to submit their info. Our record label is very small, but we do try to record the song lists of all our performers and then submit them to MACA regularly. If we really want to make it a better
Transportation
30 SMEs took part in Taobao e-commerce training course Some 30 SMEs (small and medium enterprises) were selected from 109 a p p l i ca n ts t o att e n d th e Ta o ba o e-c o m m e rc e t rai n i n g course, launched last Saturday and running over the coming two weekends. Co-organised by the Alibaba Entrepreneurs Fund and Macau Productivity and Technology Transfer Centre and the Macau Economic Services (DSE), the course
provides professional training in e-commerce, operations and design to local SMEs. Course trainees will also receive information from local specialists about Macau’s e-commerce laws, intellectual property, and cross-border freight logistics. Qualifications will be awarded to trainees who achieve 80 per cent attendance and pass the examination. C.U.
Security
Airport security seizes 8 pct more contraband y-o-y The security subsidiary of the Macau International Airport Company Limited (CAM), which operates the local Macau International Airport (MIA), recorded an 8 per cent increase in the amount of ‘contraband, dangerous goods and liquids’ seized throughout 2016, when compared to the previous year, according to a release by the group.
The security arm – Macau Security Co Ltd (SEMAC) - noted that due to the ‘obvious increase’ in passenger volumes and aircraft movements throughout the year ‘security work in MIA was full of challenges’. The group noted that it also recorded a 15 per cent year-on-year increase in inspections of cargo and mail volume during 2016.
scene, everyone has to play their part,” Ms. Ho told Business Daily. The singer and actress believes that awareness of copyright issues is still something new in Macau “as residents and large companies have only realised the importance of respecting copyright” in the last two years. “In Macau, it is really hard to be a full-time artist and composer. It doesn’t necessarily give you a good living, and - considering the popularity of Macau music - copyright is not a large sum, but it’s a part of it. So by creating more awareness about copyright, having more associations or companies willing to pay for it, it helps the income of all artists,” Ms. Ho told Business Daily. The singer considers that although there’s been a trend for residents to listen to more local artists, instead of just “Hong Kong, South Korean and Taiwan” artists, the ready accessibility of music online is still a great “challenge”. “Music can be downloaded online, it’s too accessible and people don’t realise that it has a price. Accessibility is needed and Macau composers
need exposure, but we can’t sacrifice our chance to make our music valuable. The industry is still building up, and after building some exposure and fame you have some bargaining power, which is what we’re trying to do by promoting the Macau image and artists outside,” Ms. Ho told Business Daily.
Free for all
For Fortes Pakeong Sequeira, founder and lead vocalist of local rock band Blademark, it’s important for the local music industry to have someone to “curate and sell” the local artists’ material, but he believes that due to the size of the local scene, it is more important to “create the base and a strong platform first” by promoting local artists outside Macau and then focusing on copyright. “I personally prefer someone copies my music or uses my songs, even if they don’t pay me anything, because it shows me someone likes my product. If someone is singing my song on another stage, I just don’t care, because I’m not a superstar,” Sequeira told Business Daily.
6 Business Daily Tuesday, February 14 2017
Macau
Adrian Cheng, heir apparent to the property development and jewellery empire Legacy
With patriarch ill, spotlight turns to Cheng family’s next king The family controls four listed companies with a total market value of more than US$25 billion Prudence Ho and Daniela Wei
O
ne of Hong Kong’s four richest dynasties is preparing for a leadership transition that may test the adage that family fortunes don’t last beyond three generations. Adrian Cheng, the Harvard-educated heir apparent of New World Development Co. and Chow Tai Fook Jewellery Group Ltd., is in focus after his 69-year-old father, Henry, recently went on leave because of an unspecified illness. The companies declined to comment on media reports that the senior Cheng had a stroke. When the 36-year-old scion ultimately takes over from his father, he will be in charge of a conglomerate that controls one of the city’s biggest property developers, runs the Carlyle Hotel in New York City and operates a chain of jewellery stores that generates about 80 per cent more revenue than Tiffany & Co. globally. Today, the family controls four listed companies with a total market value of more than US$25 billion, as well as some that are closely held. Yet challenges abound for Cheng. If he were to take over now, he would be facing declining margins in the family’s main property-development business and slumping demand for high-end jewellery. He’d also face the challenges of retaining decades of connections his elders built up and rebuilding investor trust after past family missteps raised concerns about corporate governance. “He needs to prove himself,” said Joseph P.H. Fan, a professor at the Chinese University of Hong Kong who has researched family-run businesses for two decades. “He doesn’t need to be a know-it-all in business operations because the professional teams will do it for him, but he needs to prove he’s capable of bringing everyone together.” Despite his youth, the grandson of
the late magnate Cheng Yu-tung has been groomed for years and already juggles more than a dozen titles, including vice chairman of New World Development and executive director at Chow Tai Fook. The Cheng clan isn’t alone in preparing for succession, which is increasingly looming large at some of the biggest businesses in Hong Kong, where the landscape is dominated by a handful of tycoons. That’s as those moguls, many of whom were Chinese refugees who fled Japanese invaders in the 1940s, approach retirement age. Henderson Land Development Co.’s billionaire chairman Lee Shau Kee turned 89 last month, an anniversary that Hong Kong’s richest man, CK Hutchison Holdings Ltd.’s Li Ka-shing, will hit in July. As to the Cheng family’s next leader, below are some of the biggest challenges he faces:
1. Property, Jewellery Downturns
Hong Kong may boast the world’s most-expensive housing market, but that’s not necessarily benefiting New World. Higher land costs are likely to squeeze developers’ profit margins, according to JPMorgan Chase & Co. The brokerage estimates
projects using land bought last year will probably yield margins of 22 per cent when they are completed, versus returns of 32 per cent on real estate bought in 2011. To cope with the tougher environment in Hong Kong, New World in recent years has been looking to increase its proportion of property in China’s first-tier cities by disposing of projects in smaller cities - a move that Macquarie Group Ltd. analyst Raymond Liu in December applauded as likely to “unlock value.” At Chow Tai Fook, profits have fallen for two and a half years to their lowest levels since 2011 as an anti-corruption drive in China sapped demand for luxury products and as tourism in Hong Kong waned. In December, retail sales in the city dropped for their 22nd straight month, dragged down by a slump in demand for jewellery, watches and valuable gifts. Though Cheng declined to comment for this story, he said in an interview last year that he would step up Chow Tai Fook’s focus on attracting millennials by introducing more fashionable jewellery designs and pushing his brands globally. “In the next 10 years, Chinese brands, Chinese originality, Chinese creativity will be part of the world’s realm,” Cheng said in November. “People will be going back and talking about what’s cool in China, instead of what’s cool in the U.S.” Cheng, who is an art enthusiast and
has a bachelor’s degree from Harvard University, has opened shopping centers merged with galleries and a mall targeting children.
2. Dwindling Connections
At his grandfather’s funeral last year, pallbearers included current and former heads of Hong Kong and Macau, as well as the only two people in the city richer than the deceased: Li Kashing and Lee Shau Kee. The proceeding helped illustrate how connected his grandfather was. For Adrian Cheng to succeed, it will be crucial for him to retain relationships within the family and stakeholders because “Hong Kong has barely known this guy,” said Chinese University’s Fan. Family firms lose almost 60 per cent of their value each time leadership is transferred from one generation to the next, as they fail to pass on intangible assets such as relationships and trust, according to Fan.
3. Corporate Governance
Shares of the Cheng family’s New World Development have, on average, traded at 45 per cent of the company’s book value in the past five years, the worst performer based on that measure in Hong Kong’s benchmark Hang Seng Index, according to data compiled by Bloomberg. Behind the discount are governance concerns. When Henry Cheng first took over the family business in the late ’80s, he kicked off a series of acquisitions, including the purchase of the Ramada hotel chain and Wing On (Holdings) Ltd. That drove up the family empire’s debts so high that the founder stepped back in and sold some assets. Though past stumbles have soured investors’ perceptions about the group, the younger Cheng is in a position to reverse those perceptions, according to Raymond Cheng, Hong Kong-based analyst at CIMB Securities Ltd., who isn’t related to the family behind New World. “Even if Henry were to take a long leave, I don’t see a problem elevating Adrian’s role,” the analyst said. “It wouldn’t be bad news for him to fully take over.” Bloomberg
Business Daily Tuesday, February 14 2017 7
Macau Smoking
Raising the bets Sixty per cent of casino employees agree with having smoking areas inside casinos, according to studies. This is the last card the six casino operators, who commissioned the study, have to play Sheyla Zandonai sheyla.zandonai@macaubusiness.com
S
peaking on behalf of the six local gaming corporations, Ambrose So, CEO and Executive Director of operator Sociedade de Jogos de Macau (SJM), stated that 60 per cent of the 14,301 surveyed employees of the operators “support solutions that allow smoking lounges.” The announcement came at a press conference organized by the concessionaires and sub-concessionaires, who commissioned the University of Macau (UM) to conduct an ‘independent survey on employees’ sentiment on a full smoking ban and on smoking lounges’. The results, according to the gaming CEO, noted that 73 per cent of interviewed employees worked in gaming, while the rest worked in non-gaming. A second wing of the research
commissioned by the operators involved a professional service arm of the Hong Kong Polytechnic University, which ‘performed indoor air quality tests of non-smoking areas two and five metres from the doors of existing smoking lounges’. According to the research conducted by UM, of the 60 per cent in favour of maintaining designated smoking areas inside casinos, over two-thirds supported having only smoking lounges, while about onethird preferred banning smoking lounges in mass gaming areas and only allowing smoking in VIP rooms. The number of supporters of smoking lounge solutions was slightly lower among employees exclusively working in gaming areas, at 55 per cent.
The practice and the law
Drawing on the research findings, the SJM CEO further pointed out that 87 per cent of the gaming employees
interviewed for the survey, “recognize that the air quality in their work environment has improved since the introduction of smoking lounges in mass gaming areas,” adding that this was a result of casino operators’ efforts “to respond positively to the government’s call for building high performance smoking lounges since the smoking ban was implemented in October 2014.” So also claimed that the six operators believe that “a full smoking ban without careful consideration of the city’s long-term sustainable development would hamper the regional competitiveness of the Macau gaming industry.” Speaking on the sidelines of the press conference, So said the operators expect the government to grant them a 12 to 18 month grace period in order to implement the refined specifications and enhanced procedures in the smoking lounges presented at the end of 2016. Questioned about the amount paid to conduct the two studies, he explained it was a commercial arrangement that they were not allowed to disclose the details of.
The studies
According to Professor Desmond Lam, Associate Professor in Hospitality
and Gaming Management at UM, in charge of one of the surveys, the study was initially requested by MGM China. The computer-assisted survey was conducted between October 28 and 29 last year, from 10 am to midnight, in 33 different locations across various properties of the six casino operators. Sands China had the biggest participation share, with some 3,000 employees surveyed. SJM had the second largest group sampled, with over 2,000 employees participating in the survey. According to Professor Lam, the sample size (14,301 employees) represents 13.4 per cent of the total gaming and non-gaming employees currently working for the six gaming operators. A “gaming employee” is someone working in any one of the gaming areas of a casino. The average age of respondents ranged between 31 and 40 years old. Of the total number surveyed, 56 per cent were female. Speaking to Business Daily on the sidelines of the press conference, Professor Lam said the study took them one to two months to develop, and that no tobacco lobby had approached them or the casino operators to conduct the research. “We just wanted to make sure there was no scam, to make sure that the respondents were really the respondents on the survey. Basically, the integrity to us is very important,” said Lam.
Clean air
The professional service arm of Hong Kong Polytechnic University, PolyU Technology and Consultancy Co. Limited (PTeC), chose one casino of each gaming operator to conduct air quality tests outside smoking lounges. Professor Lee Shun Cheng, in charge of the PTeC survey, explained that they were approached by the gaming operators “to come up with a total or a sustainable solution, as well as a better design for the future implementation of smoking lounges in the casinos.” The study concluded that the six casinos tested “fully complied with air quality standards,” as defined by the Macau Health Services Bureau.
Gaming
Insurance
Wells Fargo: MGM earnings to be ‘below the consensus’
Manulife’s profit hikes in 2016
Brokerage Wells Fargo Securities believes that the fourth quarter earnings of MGM China will be below the consensus of US$133 million (MOP1.06 billion), amounting to some US$125 million in property earnings before interest, taxes, depreciation and amortization (EBITDA). ‘Our estimate is based on 10 per cent Macau market growth in 4Q, MGM’s market share remains relatively flattish, and flat operating expenses [quarter-to-quarter],’ the firm’s analysts led by Cameron McKnight wrote in a note last week. The parent company of MGM China, MGM Resorts, is slated to release its fourth quarter results on Thursday. For the fourth quarter of the year, the city’s gaming market saw its total
gross revenue jump by some 9.8 per cent quarter-to-quarter to MOP60.4 billion. ‘We don’t think investors will be that focused on a slight beat or miss in EBITDA given MGM is largely a Las Vegas story. We estimate that Macau is just under 10 per cent of adjusted 4Q EBITDA,’ the analysts added. Meanwhile, they expect the parent company’s gaming business on the Las Vegas Strip will report some US$400 million in property EBITDA, which is also ‘below the current consensus [of US$405 million],’ they wrote. But the brokerage projects that the Las Vegas property will meet or exceed its revenue per available room (RevPAR) expectation of 3 per cent growth. K.L.
Hong Kong-listed Manufacturers Life Insurance Company (MLI), the Canadian insurance company subsidiary of Manulife Financial Corporation, posted a 55 per cent increase year-on-year for its 2016 revenue, according to the company’s annual results released on the Hong Kong Stock Exchange. The company recorded a profit of CAD$53.3 billion (MOP324.3 billion/US$40.5 billion) compared to CAD$34.4 billion in 2015. Meanwhile, MLI saw an increase of 37 per cent year-on-year in its net income last year, totalling CAD$3.1 billion compared to CAD$2.3 billion in 2015. The company has a branch in the city, however the breakdown of
the MSAR’s results has not yet been announced. Manulife (International) Ltd, a member of the Manulife Financial group of companies, provides individual and group insurance products and services. The company offers life and health insurance, life protection and investment, critical illness protection, medical care, accident and disability protection, senior care and mortgage protection products. The Canadian company was founded in 1984 and is primarily based in Hong Kong. Aside from branches in the neighbouring region, Manulife (International) Ltd also has branches in Mainland China, Japan and the United States. C.U.
8 Business Daily Tuesday, February 14 2017
Greater China Greenpeace
Steel capacity rises in 2016, despite closures Hebei aims to cut total capacity to less than 200 million tonnes by the end of the decade
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hinese steel capacity in operation actually rose in 2016 after a high-profile closure programme concentrated on shutting idled plants, environment group Greenpeace said on Monday. China - the world’s top producer and consumer of steel - said early last year it would shut as much as 150 million tonnes of annual crude steel capacity over the next five years to tackle a supply glut that had encouraged a surge in cheap exports, exposing the nation to anti-dumping complaints. The campaign to curtail steel capacity overlapped with the country’s war on pollution, with hundreds of poorly regulated mills blamed for much of the hazardous smog drifting across northern China. “We believe that it’s above all in China’s self-interest to tackle the overcapacity problem, because of the tremendous health and environmental costs as well as associated financial risks,” said Greenpeace campaigner Lauri Myllyvirta. In research conducted with Custeel, a consultancy affiliated with the China Iron and Steel Association (CISA), Greenpeace estimated that China’s operating capacity saw a net
increase of 36.5 million tonnes in 2016, more than the entire annual production of Brazil. While a total of 85 million tonnes of annual capacity was shut in 2016, exceeding a national target, the majority had already been idled. Only 23 million tonnes of the yearly capacity that was cut had been in operation. Also, even though last year’s plan banned all new projects, Greenpeace said 12 million tonnes of new capacity went into operation during 2016. Greenpeace estimated another 49 million tonnes of steel production was restarted over 2016 in response to a recovery in prices. China’s industry ministry did not
immediately respond to a request for comment. The National Development and Reform Commission (NDRC), which has driven the country’s overcapacity policies, also did not respond. CISA had warned last year that capacity could increase further in
2016 as previously approved projects continued to come on stream. Greenpeace said 80 per cent of the net increase in capacity took place in the heavily-polluted regions surrounding Beijing, including Hebei province. Hebei, China’s biggest steel producing region, aims to cut total capacity to less than 200 million tonnes by the end of the decade, down from 286 million tonnes in 2013. The province has promised to close 60 million tonnes of capacity from 2014 to the end of this year to improve air quality. China’s total steel capacity stood at 1.1 billion tonnes at the end of 2015, according to official figures, a surplus of around 300 million tonnes. Greenpeace’s Myllyvirta said that while gross capacity was likely to have fallen last year, operating capacity was estimated to have risen to 1 billion tonnes, from about 965 million tonnes. “We hope that the worsening air pollution in north China ... and the government’s recent toughened stance on asset bubbles in heavy industry and construction will help align policies and bring local governments in line,” he said. Xu Shaoshi, the head of the National Development and Reform Commission, China’s economic planner, told reporters last month that China would aim to shut another 45 million tonnes of annual steel capacity in 2017. Reuters
Markets
Regulator approves first trust IPO in more than two decades The industry has gone through the ups and downs of six periods of industry overhaul since the 1979 establishment of China International Trust & Investment China’s securities regulator approved the nation’s first initial public offering by a trust company in more than two decades. Shandong International Trust Co. won approval from the China Securities Regulatory Commission to sell as many as 676.5 million shares in a Hong Kong IPO, one of its shareholders, Luxin Venture Capital, said in a filing on Friday. Shandong International Trust plans to seek about US$300 million from the sale, people with knowledge of the matter said early last year. Chinese trust companies, with RMB18 trillion (US$2.6 trillion) of assets under management as of September, pool money from wealthy investors to buy assets from stocks and bonds to art and wine as well as finance projects such as real estate and coal mines. The industry’s expansion has been fuelled by demand from corporate borrowers that have difficulty getting loans from banks, as well as investors eager for products with higher returns, putting it among the fastest-growing segments of China’s shadow-banking system.
The most recent listings from a Chinese trust company were in 1994, when Shaanxi International Trust Co. and Anxin Trust Co. sold shares in the domestic market, according to data compiled by Bloomberg. The industry has gone through the ups and downs of six periods of industry overhaul since the 1979 establishment of China International Trust & Investment Co. by the late Vice President Rong Yiren. Their functions have evolved from central and local governments’ borrowing arms to loan issuers and asset managers. Shandong International Trust, established in 1987, had RMB241 billion of assets under management by the end of May, ranking it 20th among China’s 68 trust firms, according to its pre-listing documents. State-owned Shandong Lucion Investment Holdings Group Co. is the controlling shareholder with a 69 per cent stake. CCB International Holdings Ltd., Bocom International Holdings Co. and Haitong International Holdings Ltd. are joint sponsors for the sale, the documents showed. Bloomberg News
Hong Kong Stock Exchange trading lobby
Business Daily Tuesday, February 14 2017 9
Greater China Monetary action
Central bank resumes reverse repo Some RMB900 billion of the contracts are set to mature this week China’s central bank restarted the use of an instrument that adds cash to the financial system, helping ease liquidity concerns before US$153 billion of funds come due this week. The monetary authority sold a total RMB100 billion (US$14.5 billion) of reverse-repurchase agreements, the first auction after a six-day pause, a statement posted on its website showed. While the openmarket operations resulted in a net withdrawal of RMB90 billion because
of maturing contracts, the resumption signals that policy makers don’t want a sudden tightening of money supply, according to Bank of TokyoMitsubishi UFJ (China) Ltd. The People’s Bank of China last week allowed RMB625 billion of reverse repos to mature, mopping up cash after adding record funds in the days before the week-long Lunar New Year holidays. Some RMB900 billion of the contracts are set to mature this week, as well as RMB151.5 billion of loans under the Medium-term Lending Facility, data compiled by Bloomberg show. That adds up to RMB1.05 trillion, or RMB$153 billion. “The PBOC restarted the use of reverse repos to stabilize market
sentiment because large maturities are on the way,” said Li Liuyang, a Shanghai-based market analyst at Bank of Tokyo-Mitsubishi UFJ (China). “The net result will probably continue to be a withdrawal this week, but the pace will be controlled to avoid any crunch. We also expect it to conduct MLF, given the maturities.” The PBOC sold RMB20 billion of seven-day reverse repos, RMB30 billion of 14-day contracts and RMB50 billion of 28-day loans. The rates were unchanged from the previous sale at 2.35 per cent, 2.50 per cent and 2.65 per cent, respectively. This is the first auction after the PBOC increased the costs of such funds by 10 basis points on Feb. 3, following the Lunar New Year holidays. Bloomberg News
In Brief Technical problem
Trade stops in yuan-Singapore dlr Currency dealers refrained from trading the Chinese yuan against the Singapore dollar yesterday morning due to an incorrect midpoint fix before the market opened. The People’s Bank of China later adjusted the midpoint, but as of midday there had been no trades in the two currencies on China’s interbank market. The yuan’s midpoint was initially set at 4.9929 per Singapore dollar, far weaker than Friday’s closing rate of 4.8418. The PBOC later amended the daily midpoint on the official foreign exchange trading platform website, re-setting it at 4.8391. Suspicions arose at yesterday’s fixing that some banks submitted incorrect rates. Tourism
Record number of Mainlanders visited Australia A record 1.2 million Chinese tourists visited Australia in 2016, according to statistics released by the Australian Bureau of Statistics (ABS) yesterday. Jessica Noack from the ABS Migration Analysis and Reporting Team said there had been “phenomenal growth” in the number of visitor arrivals from China over the past 40 years, explaining that in 1976, just 500 Chinese tourists visited Australia. “China has almost caught up to New Zealand as the most popular source country for visitors to Australia,” Noack said in a statement released yesterday. Safety
Mainland to tighten regulation on food, drugs
PBOC headquarters
M&A
Li’s PCCW to sell stake in HKT telecom unit PCCW’s 63 per cent stake in HKT Trust & HKT will fall to 52 per cent after the stock sale Angus Whitley
Billionaire Richard Li’s PCCW Ltd. plans to sell a HK$8.53 billion (US$1.1 billion) stake in telecommunications unit HKT Trust & HKT Ltd., amassing cash as the Hong Kong tycoon shifts into greater media investments. The shares of both companies fell.
“The company is also going to be more active in mergers and acquisitions in its media and solutions businesses” Analysts at Morgan Stanley in a note to clients PCCW will sell 840.7 million shares of Hong Kong’s largest phone company for HK$10.15 apiece, it said in a statement yesterday. That’s about 8.4 per cent less than the last closing price. It’s the second sale in less than a week for the youngest son of Hong Kong’s richest man, who is seeking to build on PCCW’s media assets that include pay television, music
streaming and movie distribution. PCCW relied on telecom services for about 82 per cent of revenue last year. Selling down its HKT stake will mean it’s entitled to less in dividends from the company as it shifts businesses with potential for faster growth like television and movie content. “PCCW will repay its debts and continue to invest in its core media and solutions businesses,” Gary Yu, Yang Lsiu and Ansel Lin, analysts at Morgan Stanley, wrote in a note to clients yesterday. The company is also going to be more active in mergers and acquisitions in its media and solutions businesses, they wrote. HKT’s dividend contribution to
PCCW will be reduced by more than 17 per cent to HK$2.4 billion in 2017 from HK$2.9 billion, the Morgan Stanley analysts estimate. PCCW’s 63 per cent stake in HKT Trust & HKT will fall to 52 per cent after the stock sale, which is being arranged by Goldman Sachs Group Inc. Beyond media, PCCW will use the proceeds for debt repayments and other general purposes, it said. Last year, PCCW took part in an investment round in STX Entertainment, the distributor of the feature films “Bad Moms” and “The Gift.” Last week, Li agreed to sell a U.K. business to his father’s CK Hutchison Holdings Ltd. for 300 million pounds (US$375 million). PCCW expects to post a gain of about HK$1.3 billion from that deal. Bloomberg News
China will tighten regulation and revise standards on an extensive range of food and drugs, according to the national food and drug watchdog yesterday. The State Council has recently issued national safety plans on food and drug safety for the 13th Five-year Plan period (20162020), calling for improved supervision and safety net, said the China Food and Drug Administration (CFDA). The plans require whole-process control and whole chain regulation on food and drugs, especially on source control and risk prevention. Food tests meeting quality standards should be up to 97 per cent. Expert comments
Yuan to stabilize around current level While fluctuations will continue, China’s yuan will stabilize around current level as China’s economy improves, and the country’s relations with the U.S. advance, said a foreign exchange expert. “China’s improving economy will certainly help the yuan as fundamentals are always the most important factor in currency movements however they take time to take effect,” said Stephen Simonis Sr., Chief Currency Consultant at FXDD Global. According to International Monetary Fund’s latest forecast, China’s GDP growth will stand at 6.5 per cent on expectations of continued policy support.
10 Business Daily Tuesday, February 14 2017
Greater China
Private survey
Top developers plan to invest more in land this year Mainland's property market contributes around 15 per cent of the country’s economic growth Clare Jim
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hinese r e a l e s t a t e d ev e l o p e r s s u r v e y e d by Reuters mostly plan to increase their land investments in 2017 as they shrug off record prices and government tightening measures while seeking to expand their market share. The 10 companies contacted by phone and messaging represent half of the top 20 Chinese developers and together have close to US$300 billion in annual sales, mainly of apartments. Eight of them said they were increasing their budgets, by between 10-50 per cent, and the other two said they would sustain their spending at 2016 levels. Company officials responding to the survey asked for anonymity, many citing corporate quiet periods ahead of quarterly results. The developers are buying land in Tier 1 cities, which are Beijing, Shanghai, Guangzhou, and Shenzhen, or in Tier 2 cities, such as Suzhou, Wuhan and Hefei, but most are shunning smaller Tier 3 and Tier 4 cities. That could increase the price differential between the major cities, where demand is robust and land is in short supply, and the rest. A sharp run-up in prices in major cities last year raised official alarm in Beijing about the potential for a boom and bust cycle, and led to a series of measures at local level to reduce property speculation. “Because of the tightening, home
sales will not be as crazy as in 2016, but it’s a good time for us to buy more land because we sold most of the inventory last year,” said a company official at one developer based in the southern city of Shenzhen, where home prices are among the most expensive in China. “Developers need to keep the growth momentum and so we need to keep buying aggressively ... The theme for this year is land investment.”
‘The Chinese Academy of Social Sciences forecasts China’s property investment will rise 5.4 per cent in 2017’ Increasing market share helps the big players to gain more economies of scale, putting them in a better position to control labour, materials and marketing costs. Companies are snatching up land amid intensifying competition that is expected to squeeze out some of the country’s smaller players. Citi estimates China’s top 20 developers will control 45 per cent of new home sales before 2020, up from 26 per cent in 2016.
The plans for more land buying contrast with expectations for a slowdown in the growth in overall national real estate investment in 2017, compared with a 6.9 per cent rise last year. The Chinese Academy of Social Sciences forecasts China’s property investment will rise 5.4 per cent in 2017. Increasing competition for land in major cities will not only pose a challenge to authorities who want to avoid property prices from soaring out of control, but also put pressure on companies’ profit margins due to caps imposed on home prices in some cities. The developer that plans to invest 50 per cent more in land this year said it was making up for failing to buy enough in the past two years. The two developers surveyed who said they would keep investment levels similar to 2016 said they believed land prices were already too high.
Shopping spree
China’s property market, which contributes around 15 per cent of the country’s economic growth, has become increasingly unbalanced, with higher tier cities recording record prices while smaller ones struggle to reduce inventories. China Vanke, the country’s No.2 homebuilder with 88 per cent growth in sales value in January from a year earlier, said it had bought 19 new projects last month, two of which were in Beijing. “In cities where tightening measures are in place, sales may see pressure, but this pressure may also bring opportunities for us to acquire land. Even though the absolute prices
of land haven’t dropped significantly, the premiums have narrowed,” Vanke securities affairs representative Liang Jie told an analysts’ conference last week. Explaining why the lesser cities weren’t a focus, the chief financial officer of a large developer said that “prices there are not good and demand is not good.” Two developers, Evergrande and Country Garden, are bucking the trend by developing around half of their projects in third and fourth-tier cities as they have in the past. Country Garden has the most aggressive sales target for this year, with a plan to double sales to close to RMB600 billion. There are no price caps in these cities, and by keeping land prices and construction costs low, there is less pressure on margins, Country Garden’s Chief Financial Officer Bijun Wu told reporters last month. If China’s property prices continue to rally, the developers’ aggressive buying strategy could prove right. “Evergrande’s active land acquisition in 2013-15 via auction/M&A turned out be a successful move given the sharp appreciation on the land price and the much higher competition in the land market now,” Citi analyst Oscar Choi said in a report early this month. Still, there are concerns that some of the developers are overstretching. “Land prices will continue to increase if local governments keep lowering supply; but once monetary policy starts to tighten, those developers that have invested excessively will face (liquidity) problems,” said Nomura’s chief China economist Zhao Yang. Reuters
Business Daily Tuesday, February 14 2017 11
Asia Trade
Exports prop up Japan Q4 GDP growth Private consumption, which accounts for roughly 60 per cent of GDP, showed no growth Tetsushi Kajimoto and Stanley White
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apan’s economy grew for a fourth straight quarter in the final three months of last year as a weaker yen supported exports, but tepid private consumption and the risks of rising U.S. protectionism cast doubts over a sustainable recovery. Data yesterday showed the world’s third-largest economy grew an annualised 1.0 per cent in October-December, roughly in line with the 1.1 per cent increase markets had expected, following a revised 1.4 per cent expansion in July-September. Japan’s export-driven growth over the quarter has helped fill the economic shortfall left by anaemic domestic demand, but accompanying this tailwind are concerns Japan’s persistent trade surplus with the U.S may make it a target of U.S. President Donald Trump’s criticism. During a weekend meeting with Prime Minister Shinzo Abe, Trump held off from his previous rhetoric against Japan for using its monetary stimulus to weaken the yen and gain an unfair trade advantage. But analysts doubt a honeymoon would last long. Economy Minister Nobuteru Ishihara said Japan remained in a moderate recovery trend and expected the positive momentum to be maintained, but he sounded a cautious note on the outlook. “Attention should be paid to uncertainty over global economy and fluctuations in financial markets,” he told reporters after the GDP data release. Analysts were equally cautious
about the outlook even as a weak yen has provided exports a lift. “The fact that the economy grew a fourth straight quarter on the back of exports should be considered a passing mark for policymakers,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “Still, the corporate sector strength has not spread to households who are facing higher costs of living and future uncertainty. The key is how price-adjusted real wages grow to support private consumption from now on.” The preliminary reading for fourth-quarter gross domestic product (GDP) figure translated into 0.2 per cent growth on a quarter-on-quarter basis, versus a 0.3 per cent gain expected by analysts. External demand - or exports minus imports - contributed 0.2 per
centage point to GDP, with exports rising 2.6 per cent, the fastest growth in two years, on shipments of cars to China and the United States, and those of electronics parts to Asia. Private consumption, which accounts for roughly 60 per cent of GDP, showed no growth, largely in line with a flat reading forecast by economists. Rising prices of fresh food and vegetables are likely to have dented households’ purchasing power.
Protectionist risks
Underlining a struggle to accelerate inflation to the Bank of Japan’s 2 per cent target, the GDP deflator, a broad gauge of prices, fell 0.1 per cent in October-December from the same period a year earlier, down for a second straight quarter of declines. Housing investment, a bright spot in the economy thanks to the central bank’s aggressive monetary easing, rose 0.2 per cent, the slowest expansion in four quarters. On the upside, capital expenditure
- a key component of GDP - rose 0.9 per cent, reversing from a 0.3 per cent decline in the third quarter. Just the same, some economists saw risks stemming from weak domestic demand as well as trade protectionism. During the October-December period, the dollar rebounded to as high as above 118 yen following Trump’s election, after hitting lows around 101 yen in October. A weaker yen helped Japan’s exports mark the first annual growth in 15 months in December. Despite the positive diplomatic overture, the Trump-Abe meeting on the weekend has done little to allay deeper concerns about growing U.S. protectionism. “I don’t think this summit was any indication of change in Trump’s stance of negotiating with its trading partners based on recognition that a U.S. trade deficit is bad,” Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, wrote in a note to clients. Reuters
A panorama of Tokyo
Monetary head
Philippines’ ruling party backs policy advisor to head central bank Finance Secretary has said potential candidates for the next central bank governor will undergo a selection process Karen Lema
The political party of Philippine leader Rodrigo Duterte has backed Antonio Moncupa, the president of mid-sized lender East West Bank and head of the party’s policy think tank, to become the next governor of the country’s central bank. Support for Moncupa was announced by Senator Aquilino Pimentel, president of the ruling PDP-Laban party, in a statement issued on the Senate website on Sunday. The current governor of Bangko Sentral ng Pilipinas (BSP), Amando Tetangco is due to step down in July having completed a maximum two terms. Tetangco is a career central banker widely praised for his stewardship of one of the world’s fastest growing economies. It was not immediately clear
whether the PDP-Laban party’s choice of Moncupa also had the blessing of Duterte. Finance Secretary Carlos Dominguez has said potential candidates for the next central bank governor will undergo a selection process. Moncupa, who holds a double degree in economics and accounting from De La Salle University in Manila and a masters in business administration from the University of Chicago, has served as president of East West Bank since 2007. “I am humbled and greatly honoured by the endorsement. I believe he (Pimentel) sees a responsive and independent BSP as consistent with PDP-Laban’s advocacies towards inclusive growth and the fight against criminality,” Moncupa said in a text message to Reuters. The BSP has been one of the cornerstones of economic stability
in the country, helping to deliver strong growth while keeping inflation in check. Speculation has been rife on who will succeed Tetangco, with several other names floating around, including BSP deputy governors Diwa Guinigundo and Nestor Espenilla,
former trade secretary and monetary board member Peter Favila, and Foreign Affairs Minister Perfecto Yasay. Tetangco, in an interview with Reuters last month, said the best candidate to succeed him should be someone with a central banking background. Reuters
Bangko Sentral ng Pilipinas, Amando Tetangco
12 Business Daily Tuesday, February 14 2017
Asia e-Payments
Australian banks narrow focus of Apple Pay collective bargaining request Apple charges card providers for transactions made using Apple Pay and does not allow companies to develop their own mobile wallets Jamie Freed
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ustralian banks seeking permission from the country’s competition regulator to bargain collectively with Apple Inc over its mobile payment system said yesterday they will focus on gaining access to the U.S. tech company’s contactless payment function, removing the fees Apple charges as a bone of contention. Commonwealth Bank of Australia, Westpac Banking Corp, National Australia Bank Ltd and Bendigo & Adelaide Bank Ltd command two-thirds of Australia’s credit card market but have yet to allow use of their cards with Apple Pay which was introduced to the country last year. Under Australian law, bargaining cartels can be formed with the approval of authorities. A cartel would strengthen the banks in negotiating the ability to offer their own digital wallets for Apple’s iPhones - the first major challenge to Apple Pay of its
kind globally. Apple Pay allows users to register credit cards on iPhones, and pay for goods and services by swiping the devices over contactless payment terminals. Apple charges card providers for transactions made using Apple Pay and does not allow companies to develop their own mobile wallets, which would allow banks to circumvent transaction fees and get customers to engage more frequently with their own apps. In the banks’ initial application lodged in July, they sought to negotiate with Apple over fees as well as access to the contactless payments function. In a draft decision issued in November, which it described as “finely balanced”, the Australian Competition and Consumer Commission (ACCC) proposed to deny the collective bargaining application. At the time, ACCC Chairman Rod Sims told Reuters that if fees were at the heart of the banks’ application,
then it would be difficult for them to win approval. But if the issue was more about access to Apple’s contactless payment technology, then the banks had a stronger case, he said. In a statement ahead of a final decision from the regulator, the banks yesterday said they had narrowed the application to focus on contactless payments and halved the collective bargaining authorisation term to 18 months. “It is about the consumer having the choice of multiple wallets,” said Lance Blockley, a spokesman for
the banks. In a submission to the competition regulator on Jan. 31, Apple said there were no public benefits to providing the banks access to its contactless payment system, and that doing so would give them a “free-ride” on Apple’s investment in technology. Among other banks, Australia and New Zealand Banking Group Ltd has offered Apple Pay to customers since April, while Macquarie Group Ltd and ING Groep NV’s ING Direct on Friday said they would introduce Apple Pay this month. Reuters
M&A
Population trends deliver boost for Japan’s micro M&A boutiques Small firms are the backbone of Japan’s economy, accounting for 99.7 per cent of its 3.8 million companies and employing about 70 per cent of the workforce Junko Fujita
Boutique advisers specialising in micro-M&A for mostly family-run firms are enjoying a boom in Japan, as an ageing, shrinking population brings in the boundaries on the country’s small business landscape. There are no industry-wide figures for deals between 500 million and 1 billion yen (US$4.4-US$8.8 million), but boutique advisers say they are benefiting as owners look to merge their businesses to cope with dwindling demand or as they reach retirement without a successor. Japan’s population, already the oldest among developed economies, is projected to shrink by a third by 2060. Nihon M&A Center Inc, the largest of the three publicly listed boutique advisors, said on Jan. 30 nine-month profit to end-December had risen 34 per cent to a record 5.3 billion yen on sales of 15 billion yen. “Japan’s population is shrinking ... Ultimately none of the small companies will be able survive by itself,” said Yasuhiro Wakebayashi, chairman and founder of the company. “They have to be part of larger firms to grow. That is going to be a trend in this country, so the M&A market will only become bigger.” Nihon M&A brokered 406 deals in the first nine months of the financial year ending in March, comfortably on the way to beating the previous year’s 420 total. Smaller rivals Strike Co and M&A Capital Partners are also capitalising on the trend, brokering a combined 106 deals in the last financial year, up 23 per cent on the previous year and 74 per cent on the year before that.
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Reuters has previously reported that private equity firms in Japan have had a similar boost to business after a long period of torpor, based on the same demographic imperatives. “We are in a niche overlooked by big institutions,” said Kunihiko Arai, president of Strike. M&A activity among bigger businesses, arranged by financial heavyweights such as conducted has been Nomura Holdings, Daiwa Securities Group Inc and Mitsubishi UFJ Financial Group Inc, grew only 4.3 per cent to 2,137 last year, while deal value fell 10 per cent to 6.2 trillion yen, Thomson Reuters data show.
Share gains
Investors in the advisors have also benefited.
Shares in Nihon M&A Center gained 56 per cent in the past year and M&A Capital Partners shares almost tripled, outperforming a 48 per cent gain in the Tokyo Stock Exchange’s Topix Securities Index. Strike shares have more than doubled since listing in June. Nobuko Inui, 59, who owned four dispensing pharmacies in Osaka, western Japan, was among those helped by Nihon M&A. Last year Inui sold the business she set up in 1994 to Tokyo-based, privately held Kraft Inc, which operates 630 pharmacies nationwide. Inui found it hard to stay competitive as the government cut drug prices to reduce mounting healthcare costs. “Drugs stores are under pressure to improve and diversify our services, but a small company like mine could not afford to hire more pharmacists, so I decided to sell my business,” said Inui, who runs the pharmacies for their new owner. Strike says more consolidation is likely in the 7.8 trillion yen
dispensing pharmacy market, where a big player like Ain Holdings Inc, with about 1,100 outlets, controls just 3 per cent. Small firms are the backbone of Japan’s economy, accounting for 99.7 per cent of its 3.8 million companies and employing about 70 per cent of the workforce, according to government data, but many are closing their doors as owners age. Last year a record 29,583 companies closed, up 8.2 per cent on the previous year, according to Tokyo Shoko Research Ltd. The boutiques largely get deals through referrals from regional banks and local accountants. “There are cases where companies can keep their operations by conducting M&As. That means jobs are protected, which is good for revitalising local economies,” said Tomoharu Sato, assistant manager in the corporate banking department for Toho Bank Ltd in Fukushima city. “We rely on the small boutiques’ networks to respond to the needs of clients seeking merger partners from further afield and in a limited time.” Such deals also provide a fillip to larger companies struggling to find organic growth. Tokyo-based construction materials maker S E Corp is predicting a decline in net profit for the year ending March on rising labor costs, but one bright spot is a steel-frame construction firm it bought for 230 million yen in 2015 from Hiroshi Morita. Morita, 47, still runs the firm, based in Yonago city in western Japan, under its new name S E Tekken. The unit’s sales have grown about 40 per cent to around 850 million yen since the acquisition. “Small companies play a vital role for bigger firms by for example supplying key product parts,” said Masashi Seki, manager for Tokyo Shoko Research. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; 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, February 14 2017 13
Asia In Brief Political crisis
S.Korea’s ruling party changes name South Korea’s ruling Saenuri Party officially changed its name yesterday into Liberty Korea Party as part of efforts to renovate its image tainted by the impeachment of President Park Geun-hye. The name change was made five years after its predecessor Grand National Party altered its name into Saenuri Party in 2012. In Myung-jin, the party’s head, said the party must re-establish the conservative value and prepare for new South Korea by achieving a conservative reform. Public support for the governing party tumbled to the lower range of 10 per cent following the corruption scandal involving President Park. Commerce
Vietnam posts US$1.15 bln trade surplus
Ride-hailing services
Drivers’ strike paralyses Uber, Ola services in Indian capital Taxi drivers and private “driver partners” often use both platforms to solicit rides Rupam Jain and Douglas Busvine
A strike in the Indian capital by thousands of Uber and Ola drivers demanding better pay has paralysed the ride-hailing services that have grabbed business from traditional taxi and rickshaw operators with their cheaper fares. Commuters faced delays for a fourth day even as the city-state’s government laid on extra buses to help them get to work, after drivers stopped taking bookings via the smartphone apps that connect them to nearby passengers. Some drivers reverted to only taking passengers from taxi stands or off the street. It was the first big confrontation between the trade unions representing
taxi drivers in the Delhi region of 25 million people and the two ride-hailing players, which have been ramping up services in India’s US$12 billion taxi market. Strike leaders said they were demanding an increase in incentives, provision of adequate insurance policies and shorter working hours. “These companies are cheating us. They do not pay us on time and expect us to work like slaves,” said Jatindra Singh, a senior member of the New Delhi Taxi Union. Singh said 35 unions representing nearly 4,000 drivers were backing the strike. Both Uber and Ola faced disruptions, with their apps showing ‘No Cars Available’ when attempts were made to book a ride near Connaught
Place, in Delhi’s city centre, around midday yesterday. “We’re sorry that our service has been disrupted and for any inconvenience this has caused,” an Uber spokesperson said in a statement. “Serving riders, drivers and cities is core to our mission and we are working hard to ensure that drivers are able to get back behind the wheel and riders can get from A to B conveniently, reliably and safely.” Ola did not respond to requests for comment. San Francisco-based Uber has focused on India as its most promising market outside the United States since it merged its Chinese operation into market leader Didi last year. It operates in 28 Indian cities and has 200,000 active drivers.
‘Delhi’s Transport Minister Satyendar Jain ordered an increase in the frequency of bus services to help commuters get to work’ Home-grown rival Ola calls itself India’s most popular mobile app for transportation. It is present in 102 cities and offers rides in 450,000 vehicles. The ride-hailing players face resistance from traditional, unionised taxi services and three-wheeler auto rickshaws, whose standard fares they are undercutting. Both taxi drivers and private “driver partners” often use both platforms to solicit rides. D e l h i ’ s T ra n s p o r t M i n i st e r Satyendar Jain ordered an increase in the frequency of bus services to help commuters get to work, and planned to meet the striking drivers today in a bid to end the dispute. “I am going to hear all the sides and then we will set new rules soon,” he told Reuters. Reuters
Vietnam posted a trade surplus of US$1.15 billion in January, the government said on Sunday, up from a US$881 million surplus in the same month a year earlier. Exports rose 5.7 per cent to US$14.34 billion compared with the same period last year, while imports edged up 3.9 per cent to US$13.19 billion, the government website cited data from customs department as showing. China, South Korea and the United States are Vietnam’s biggest trading partners so far this year. Vietnam, the world’s top robusta producer, exported 140,300 tonnes of coffee in January, down 20.5 per cent from a year earlier. TPP
NZ-Australia to discuss trade agenda Political leaders from both sides of the Tasman will gather in New Zealand this week to discuss regional trade in the era of United States President Donald Trump. New Zealand Prime Minister Bill English said yesterday that Australian Prime Minister Malcolm Turnbull would make an official visit and senior government leaders would gather in the South Island mountain resort of Queenstown Friday for talks. Both countries have been looking at the possibilities of reviving the Trans-Pacific Partnership (TPP) since Trump announced the U.S. was withdrawing from the controversial trade pact after taking office last month. Infrastructure
Singapore, Thailand to exchange views on transport Singapore’s Coordinating Minister for Infrastructure and Minister for Transport Khaw Boon Wan will make a working visit to Bangkok from Wednesday, said Ministry of Transport (MOT) in a press release yesterday. Minister Khaw will meet Thailand’s Deputy Prime Minister Somkid Jatusripitak and Minister of Transport Arkhom Termpittayapaisith during his visit to exchange views on transport developments and bilateral cooperation, said the MOT. Khaw will be accompanied by officials from the Ministry of Transport, Ministry of Foreign Affairs, Civil Aviation Authority of Singapore, and Land Transport Authority of Singapore.
14 Business Daily Tuesday, February 14 2017
International In Brief Kuwait
OPEC delivering on agreed oil output cuts The OPEC oil cartel has implemented more than 90 per cent of its agreed output cuts aimed at curbing a glut on world markets, Kuwait’s oil minister said yesterday. OPEC and non-OPEC producers including Russia agreed late last year to reduce output by about 1.8 million barrels per day in a landmark deal that followed a sharp drop in oil prices. “OPEC compliance with the output cuts is excellent ... Compliance has reached 92 per cent,” said Kuwaiti oil minister Essam al-Marzouk, who chairs a committee tasked with monitoring the agreement. Euro
French finmin says ECB never tries to manipulate rate The European Central Bank never tries to manipulate the euro exchange rate for trade or competitive policy reasons, French Finance Minister Michel Sapin said in an interview published yesterday, echoing other politicians rejection of U.S. claims. U.S. President Donald Trump’s top trade adviser, Peter Navarro, this month said Germany was exploiting the exchange rate for trade purposes. German Chancellor Angela Merkel was among those who said the comments were off the mark. Sapin said he hoped that Trump would understand quickly how advantageous and important ties with the European Union were for the well-being of the United States. M&A
Heineken takes battle to AB InBev with Kirin deal Heineken, the world’s second-largest brewer, agreed yesterday to buy the loss-making Brazilian breweries of Japan’s Kirin Holdings to boost its presence in the world’s third-biggest beer market. The Dutch brewer will become the number two brewer in Brazil, with a share of some 19 per cent, behind clear market leader AnheuserBusch InBev. Including debt, Heineken said it would pay 1.025 billion euros (US$1.09 billion). For Kirin it marks a departure from the Brazilian market, having paid some US$3.9 billion in 2011 for 12 breweries, a business which has subsequently lost market share and seen raw materials costs rise due to a weak currency. Credit cards
UK consumer spending growth slows British households kept a tighter grip on their credit cards last month as spending grew at one of the slowest annual rates of the past three years, data from Visa showed yesterday, adding to signs that consumer spending is starting to lose momentum. Robust consumer spending helped Britain’s economy to outpace its peers last year, even after June’s Brexit vote, but most economists think rising inflation as a result of sterling’s hefty slide will eat into growth in 2017. Consumer spending, adjusted for inflation, rose just 0.4 per cent on the year in January, down sharply from 2.5 per cent in December.
Growth forecast
Eurozone outlook raised despite ‘exceptional risks’ The commission said that inflation was creeping higher in the eurozone as energy prices lifted from historic lows Alex Pigman
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urope’s economic recovery remains on track but vulnerable to the “exceptional risks” of Brexit and the new Donald Trump administration, the EU said yesterday. Brussels raised its growth forecasts for the eurozone through to 2018 but warned that the European Union as a whole was navigating “choppy waters”. “The European economy has proven resilient to the numerous shocks it has experienced over the past year,” EU economic affairs commissioner Pierre Moscovici said. “Yet with uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth.” The 19-country eurozone will grow by 1.6 per cent in 2017 followed by 1.8 per cent in 2018, the European Commission said in its winter economic forecast. That is compared with predictions made in autumn of 1.5 per cent in 2017 and 1.7 per cent in 2018. Bailed out Greece, which swung out of recession last year but is now at the centre of fresh fears for the eurozone, was forecast to grow by 2.7 per cent in 2017 and 3.1 per cent in 2018. The 28-nation bloc as a whole would grow by 1.8 per cent in both 2017 and 2018, the commission said. But the forecast warned darkly of
the “exceptional risks” from Britain’s vote to leave the EU and uncertainty over Trump’s policies. “The particularly high uncertainty surrounding this winter forecast is due to the still-to-be-clarified intentions of the new administration of the United States in key policy areas,” it said.
‘Tilted to the downside’
The report also cited “the numerous elections to be held in Europe this year and the upcoming ‘Article 50’ negotiations with the UK.” “And although both upside and downside risks have increased, the overall balance remains tilted to the downside.” Expected next month, the triggering of Article 50 of the European Union’s
Lisbon Treaty begins two years of potentially acrimonious talks with Britain on how it will leave the EU. Elections are meanwhile due in the Netherlands, France and Germany. Britain would grow by 1.5 per cent this year, instead of a far lower 1.0 per cent forecast earlier on fears that Brexit would destabilise the economy. But this remained far lower than the 2.0 per cent growth forecast by the Bank of England last week. The commission also said that inflation was creeping higher in the eurozone as energy prices lifted from historic lows. The EU warned that this could lead the European Central Bank to end its massive stimulus programme that has strengthened the economic recovery in Europe. Overall, the commission said inflation in the eurozone would increase from a low 0.2 per cent in 2016 to 1.7 per cent in 2017 and 1.4 per cent in 2018. AFP
Poll
Swiss voters soundly reject corporate tax overhaul Switzerland has been in the firing line of the European Union and OECD club of rich countries for years over the special tax status Michael Shields
Swiss voters clearly rejected plans to overhaul the corporate tax system, sending the government back to the drawing board as it tries to abolish ultra-low tax rates for thousands of multinational companies without triggering a mass exodus. Most Swiss recognised the country needs reform to avoid being blacklisted as a low-tax pariah. But new measures proposed to help companies offset the loss of their special status breaks had created deep divisions. Just over 59 per cent of voters - who have the last word under the Swiss system of direct democracy - opposed the plans, which the country’s political and business elite embraced under international pressure, provisional results on Sunday showed. Finance Minister Ueli Maurer said the government now needed time to analyse and address with cantons the situation that business leaders called a dangerous legal limbo. “It will not be possible to find a solution overnight,” Maurer told a news conference in Bern, adding it could take a year to come up with a new plan and years more to implement it. In the meantime, companies might stop investing in or even quit Switzerland, he said. He played down the risks of blacklists, saying the more
immediate danger was that individual countries would start double taxation of Swiss-based companies. Switzerland has been in the firing line of the European Union and OECD club of rich countries for years over the special tax status that cantons give foreign companies. Some pay virtually no tax above an effective federal tax of 7.8 per cent. Switzerland agreed with the OECD in 2014 to abolish by 2019 the special status, which has been an attractive perk for around 24,000 multinationals looking to lower their tax bills. That provision will now remain in place past the original deadline. The government says such special-status companies employ 150,000 people and contribute half of federal corporate taxes.
Arrogance and haughtiness
To offset the blow, the government had proposed tax breaks on research and development in Switzerland, profits from patents developed there and deductions for excess company equity. In addition, many cantons say they would reduce corporate tax rates for all companies to reduce the fiscal burden and dissuade multinationals from leaving. After parliament approved the measures last year, critics gathered the 50,000 signatures needed to trigger Sunday’s referendum,
which overturns the parliamentary vote. The No campaign was led by a coalition including the Social Democrats, Greens, trade unions and churches, who feared the public would bear the brunt of reduced company tax revenue through cuts in public services or higher personal taxes. “The conservative parties wanted to push through tax reform with arrogance and haughtiness against the interests of the people. The Greens demand a new proposal with a sense of proportion,” the opposition leftist party said of the vote.
Key Points Around 59 per cent of voters reject government-backed proposals Swiss face international pressure to phase out low tax rates Government needs to come up with new approach The stakes are high for Switzerland, already coming to terms with the end its long-cherished tradition of banking secrecy. If multinationals pull out, the economy could suffer. The changes come at a time U.S. President Donald Trump is considering slashing corporate taxes and Britain has hinted it could cut its rates when it leaves the EU. “It is extremely important that we find a solution within the coming two years,” Heinz Karrer, head of Swiss business lobby Economiesuisse, told Reuters. Reuters
Business Daily Tuesday, February 14 2017 15
Opinion
Bitcoin is starting to behave like a grown-up market Christopher Langner a Bloomberg Gadfly columnist
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itcoin is showing signs of becoming a serious asset class. Last week’s price swings hardly back up that assertion. The cryptocurrency dropped 7.8 per cent on Thursday after news that the People’s Bank of China threatened to shut exchanges that violate moneylaundering rules. The announcement also prompted some of the biggest websites operating bitcoin in the country to halt withdrawals, limiting them to converting the digital coin to yuan and depositing it in local banks. For all the volatility, though, there are indications that bitcoin is acting more grown up. Go back to December 2013, when the PBOC intervened after the cryptocurrency reached a record high of US$1,137. It then dropped 51.4 per cent in a week, only to bounce back about 70 per cent in the next two days and fall below US$600 in another week. Bitcoin then settled into a slow descent to US$183 by January 2015. per cent The latest swings Potential shortfall followed a similar Two-day bounce pattern. As soon as in late 2013 bitcoin breached US$1,000, the Chinese authorities got involved and the price plunged. Last week, once again, that level was pierced, and once more the central bank entered the fray. Yesterday, the price was little changed at US$1,003. The difference now is the magnitude of the moves. While the currency did fluctuate by double digits some days, these were nothing like the gyrations the PBOC prompted back in 2013. Movements deriving from black swan events for the currency are therefore much smaller and shorter-lived than they once were. There are some technical reasons for that: There’s greater volume, circulation is broader, and the overall market is deeper. The relative stability of bitcoin is probably also a result of the variety of instruments associated with it available to investors. People wanting to hedge their positions or even short the asset, for example, can use futures contracts traded through Bitmex. com, a marketplace that specializes in them. Investors can even use the platform to check whether the direction of the currency is changing. The quarterly contract sold at Bitmex entered backwardation -- the future price fell below the spot price -- in January, shortly after the PBOC started cracking down on the exchanges. In a market with limited supply, the fact that most of the big traders are betting prices will go down must be bad news. So it proved, but this time hedging may have limited the downside. Bitfinex, another site, has created an active marketplace for lending bitcoin to people who want to sell it short. The exchange even publishes an average daily rate for borrowing the currency, which has been going up in the past two weeks. Bitcoin is still a small market, prone to dislocations, but as the variety of instruments around the currency grows, it’s starting to look more like the real thing. Bloomberg Gadfly
70
Greening digital finance
D
igital finance has turned out to be an unexpected revolutionary, simply by enabling low-cost financial inclusion. Thanks to new financial technologies (fintech), consumers can shop seamlessly, migrants can send hard-earned money to their families cheaply, small businesses can access credit in minutes through Big Data-driven profiling, and savers can shape their own investment destinies. But if fintech is to reach its potential to advance the global public good, another factor must be accounted for: the environment. The United Nations Environment Programme (UNEP) recently published a report, “Fintech and Sustainable Development: Assessing the Implications,” exploring how digital finance can be leveraged for environmental gains. As the report points out, by reducing costs and boosting efficiency, fintech is already mobilizing green finance, enabling poorer people to access clean energy through innovative payment systems and facilitating green savings for rich and poor alike. The Swedish start-up Trine, for example, enables savers in downtown Stockholm to fund distributed solar-energy systems in rural areas thousands of kilometres away. Kenya’s M-KOPA is leveraging the hugely successful domestic mobile payments platform, M-PESA, to make clean energy available to poorer communities. Other experiments highlight the green potential of blockchain and cryptocurrencies. The rewards of such initiatives could be substantial – for households, financial-services providers, economies, and the environment. With this in mind, a coalition of digital-finance companies, the Green Digital Finance Alliance, was launched at this year’s World Economic Forum Annual Meeting in Davos, Switzerland. One of the alliance’s founders, ANT Financial Services, has a mobile-payments platform with 450 million users in China alone. The organization is now working with UNEP to offer an experimental “green energy” app that rewards users for reduced carbon use. Fintech is part of a broader digital revolution, which also includes Big Data, the Internet of Things, blockchain, and artificial intelligence. Such technologies enable us to record and trace the lifecycle of products – even money itself – thereby determining precisely how they were used, how they were financed, and what impact they had on the environment. So ANT’s new green energy app translates financial-transaction data into implied carbon emissions. This approach, if extended across more payments platforms, could engage hundreds of millions of individuals in factoring
“
Simon Zadek a co-director of the UNEP Inquiry into Design Options for a Sustainable Financial System
carbon-savings into their daily lifestyle choices. All revolutions carry unintended costs, and are susceptible to diversion, if not outright corruption. The fintech revolution is no different. Loss of privacy is the most obvious risk; indeed, despite efforts to create safeguards, it is all but inevitable. But there are also less visible risks, stemming from the disruption of existing markets. As the journalist and author Michael Lewis emphasized in his bestseller Flash Boys, the risks created by high-frequency trading on the financial returns of our lumbering, twentiethcentury pension funds are far-reaching. A n o th e r c a s u a l t y w i l l b e regulation, at least for a while, as policymakers struggle to figure out how to manage an increasingly complex, dynamic, and virtual financial system. There is also a risk that the commoditization effects brought by speed and Big Data will undermine the conditions for sustainable development. Though these risks cannot be eliminated, they can be mitigated. Regulators, in particular, will need to work fast to keep up, as best they can, in a fast-changing financial milieu. But their goal should not be only to protect against fintech’s risks; they should also aim to guide it, so that it can reach its full potential. For example, fintech should be aligned with the Sustainable Development Goals – an effort that demands new standards, market innovation, and collaboration. Countries worldwide should integrate digital finance into their sustainable-development financing plans. Coalitions like the Green Digital Finance Alliance can support these efforts, by mobilizing collective action on the part of financial institutions and their stakeholders. Multilateral measures will also be important. This year, the G20, under Germany’s leadership, will focus on building resilience, improving sustainability, and assuming responsibility for climate change – all areas where digitization must be part of the solution. Likewise, the G7, under Italy’s leadership, will explore how to finance “green” small and medium-size enterprises, taking advantage of fintech-powered innovations. With the right approach, fintech can be harnessed to strengthen economies and societies, while helping to preserve the environment. Fortunately, this could well be the year that green digital finance comes of age. Project Syndicate
Countries worldwide should integrate digital finance into their sustainabledevelopment financing plans
”
16 Business Daily Tuesday, February 14 2017
Closing Expansion
Wanda Group said to be considering based conglomerate is also looking at securities firms, another person said. purchase of financial firms Billionaire Wang Jianlin’s (pictured) Dalian Wanda Group Co. is examining opportunities to make purchases in the financial industry as the Chinese conglomerate seeks to bolster that business, people familiar with the matter said. Wanda is looking at possible purchases among European banks, one of the people said yesterday, asking not to be identified because the matter is private. The Beijing-
Wanda declined to comment. The Financial Times reported earlier Wanda is weighing the purchase of Deutsche Postbank, prompting the Chinese group to issue a statement that media reports about it buying the German lender are inaccurate and the companies haven’t held any such discussions. The FT report also said Wanda was actively looking a several European financial firms. Bloomberg News
M&A
Sinochem in early talks to buy stake in Noble Group The size of the planned stake or the amount to be invested by Sinochem has not yet been finalised Anshuman Daga and Sumeet Chatterjee
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hina’ s s t a t e - o w n e d Sinochem is in early talks with Noble Group to buy an equity stake in the embattled trader, three sources familiar with the matter said, in a move that would help it gain access to the commodity trader’s global supply chain. Taking a stake in an internationally active trading house like Noble would help Sinochem, a big oil, gas and petrochemical company, in its ambitions to become a more globally active energy trader, and also develop China’s gas industry. The discussions are taking place as Noble looks to rejig its business units, cut debt and boost liquidity to fight a long-term downtrend in commodity prices. I n N o v e m b e r, H o n g K o n gheadquartered Noble said it had met its capital raising target of US$2 billion as it sold assets, completed a rights issue and restructured its operations. The sources said the talks have not been completed and there is no assurance that a deal will be finalised. They said senior Noble executives visited China in recent months to hold talks with Sinochem’s management, and both sides also met at Noble’s U.S. regional hub in Stamford, Connecticut. The sources declined to be identified as they were not authorised to speak to the media.
Sinochem did not immediately return a request for comment, and an external spokeswoman for Noble declined comment. Noble already has the backing of Chinese sovereign wealth fund China Investment Corp. (CIC), which participated in the company’s rights issue last year. The capital raising followed a slump in investor confidence as Noble’s accounting practices were questioned by Iceberg Research. CIC has a 9.6 per cent stake in Noble, while Noble Chairman Richard Elman holds a stake of about 18 per cent. The size of the planned stake or the amount to be invested by Sinochem
Pit closures
has not yet been finalised, and any deal could face scrutiny in China as authorities there try to control capital outflows, sources said. The appeal of Noble for Sinochem is likely to be access to its global supply chain.
‘Noble already has the backing of Chinese sovereign wealth fund China Investment Corp’ A Sinochem source said the company was still conducting due
Forex
diligence on Noble, which typically takes six months to a year. He said the company was looking at Noble’s North America energy trading, which could complement Sinochem’s existing portfolio. Noble specialises in shipping and storage logistics, rather than owning large production assets or refineries, and is also a major player in gasoline blending in the United States. Noble is also targeting Asia’s emerging liquefied natural gas (LNG) market as a core growth area, while Sinochem is likely to play a key role in China’s plans to expand its natural gas sector to reduce the share of polluting coal in its energy mix. Access to Noble’s LNG trading network could help with the Chinese plans. Reuters
Cybersecurity
Philippine miners seek to block Beijing says no return minister’s appointment to old capital controls
Australia, Malaysia, Singapore on love scam alert
A group of miners yesterday opposed the appointment of the Philippine environment minister saying her ordered closure of more than half of the country’s mines showed an “undeniable bias” against the sector. Regina Lopez, a former environmental activist appointed by President Rodrigo Duterte last June, is among a few cabinet members who have yet to be confirmed by Congress. Duterte re-appointed her in November after the commission on appointments - made up of lawmakers bypassed her confirmation. Lopez’s recent moves show “antagonism towards largescale mining, rendering her unfit and incapable of a responsible, fair, just and balanced implementation of the Constitution, the Philippine Mining Act and related laws,” the Chamber of Mines of the Philippines said in a letter to lawmakers. She “does not have the administrative experience and competence to lead the Department of Environment and Natural Resources” and has a “poor track record in leading and managing environmental and eco-tourism projects,” the letter said. Lopez angered the mining sector after ordering the closure of 23 of the Philippines’ 41 mines for causing damage to watersheds. Reuters
Love may be in the air on Saint Valentine’s Day but authorities in Australia, Malaysia and Singapore warned yesterday of a growth in online scams cheating lonely people out of their savings. Romance scams cost Australians more money than any other form of cheating, with those aged over 45 more likely to be stung, the Australian Competition and Consumer Commission said. Victims are lured with promises of love and companionship into giving strangers money. In Kuala Lumpur, Malaysian and Singapore police said 27 suspects -- including 11 Nigerians, whose country is notorious for offshore financial swindles -- were arrested in a joint operation against a syndicate preying on people seeking partners. They cheated 108 people in the neighbouring countries out of about 21.6 million ringgit (US$4.9 million) in 2016, authorities said. Evidence seized in the operation -- including computers, mobile phones and automatic teller cards -- was presented at a press conference in Kuala Lumpur. David Chew, director of Singapore’s Commercial Affairs Department, said online scams are increasingly complex and transnational in nature. AFP
China will not return to its old path of capital controls or go backwards on its foreign exchange management policies, according to a leading foreign exchange official. Pan Gongsheng, head of State Administration of Foreign Exchange, was quoted in China Business News yesterday, saying that China’s forex management policies will balance efforts between guarding against risks of cross-border capital flows and facilitating trade and investment. Pan said China would enhance the scrutiny of forex transactions’ authenticity and regularity, intensify the crackdown on irregularities, and ensure the healthy development of forex markets. Warning that there was blindness in outbound investment, Pan said that China would encourage domestic firms, especially those with the right abilities and conditions, to invest overseas in areas such as the Belt and Road Initiative and in international industrial cooperation. Pan said that the country would continue to open up its financial markets based on “a strategic perspective” so as to balance short-term and longterm benefits Xinhua