China’s banks grant record loans, beating forecasts Lenders Page 9
Wednesday, February 15 2017 Year V Nr. 1234 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Private report
Ho Chio Meng Trial
Morgan Stanley upbeat about Mainland economy Page 8
Top court adds new element to indictment Page 4
www.macaubusinessdaily.com
Music
MACA grossly misreports royalty collection results Page 2
Gaming revenue
Analysts anticipate double-digit growth in February Page 6
A Fog Of ‘Facts’ Gaming
Workers still prefer a fullsmoking ban. Plus smoking-free environment in casinos. So say local labour unions. Despite recent survey results claiming over half of respondents support smoking lounges. A union legislator urges the gov’t to put the health of workers front and centre, not numbers. Page 3
The price is right
BNU annual profit grows
Banco Nacional Ultramarino (BNU) saw its annual profit for 2016 jump 9.8 pct y-o-y, reaching MOP560.6 mln. Describing the increase in customer funds a ‘highlight’ of the performance, the banking group, however, noted increased competition.
Inflation Chinese factory-gate prices climbed for a fifth straight month in January. The surge, plus pick-up in consumer inflation, is the latest sign a slowdown in the Asian giant could be coming to an end. Page 8
Kim Jong Nam purportedly murdered
Banking Page 5
HK Hang Seng Index February 14, 2017
23,703.01 -7.97 (-0.03%) Worst Performers
Galaxy Entertainment Group
+6.92%
AAC Technologies Holdings
+1.23%
China Mengniu Dairy Co Ltd
-2.19%
China Unicom Hong Kong
-1.37%
Sands China Ltd
+4.91%
Hang Seng Bank Ltd
+0.99%
Hengan International Group
-1.99%
China Petroleum & Chemical
-1.29%
Li & Fung Ltd
+2.40%
Want Want China Holdings
+0.92%
CITIC Ltd
-1.69%
China Mobile Ltd
CK Hutchison Holdings Ltd
+1.58%
Cheung Kong Infrastructure
+0.79%
Power Assets Holdings Ltd
-1.60%
China Merchants Port Hold-
-0.67%
China Resources Power
+1.29%
China Resources Land Ltd
+0.70%
CNOOC Ltd
-1.55%
AIA Group Ltd
-0.63%
-0.85%
15° 19° 16° 20° 17° 22° 17° 22° 18° 20° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
International politics The oldest half-brother of North Korean leader Kim Jong Un was purportedly murdered in Malaysia yesterday. An unidentified S. Korean Gov’t official claimed the hit involved poison. No official confirmation had been made before this newspaper went to print. Page 16
2 Business Daily Wednesday, February 15 2017
Macau Music
A right royal mess Macau Association of Composers, Authors & Publishers grossly misreports royalties collected – stating it collected MOP80,000 more than it did Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
T
he local publishing body - meant to accurately pursue royalties on behalf of its members - has completely misreported its royalty collection results for local members, publishing the erroneous information in a press release to media. In responses to Business Daily enquiries yesterday, the group reiterated the incorrect information, stating that MOP200,000 (US$25,000) had been collected ‘from different affiliated societies […] and will be distributed to its members’. The group also commented that it was an increase on the previous year, despite the fact that it did not have the relevant data on hand to provide. The amount in question relates to the activities for 2015, despite the press release stating it related to ‘the operating situation of the past year’. The press release states that the MOP200,000 ‘will be distributed to its members’ but the group does not mention the 30 per cent management fee it places on the royalties collected which, if subtracted from the total, amounts to MOP140,000 and is still higher than the actual amount the
group collected during the year: a total of MOP120,071. In fact, the amounts collected relating to three years of operations and provided to Business Daily (2013,
2014 and 2015) - collectively do not equal the amount announced in the group’s press release. The total collected ‘from different affiliated societies’ amounted to MOP12,240 in 2013 and MOP30,793 in 2014, according to the group’s emailed response. The total for the three years’ collections amounts to MOP163,104, only 81.5 per cent of the reported total of MOP200,000
Intellectual property
Labour
Puma savages Lingbao in court
Open the door?
Top court rules in favour of Puma, against Lingbao, on trade disputes
Opinions are polarised on whether the city should be more open to non-resident workers
Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The Court of Final Appeal has ruled on a case of trademark dispute in favour of Puma, the German manufacturer of shoes, garment and sportswear, according to the verdict published last week by the Court. The top court’s decision puts an end to a five-year imbroglio which pit Puma against Lingbao, a Chinese manufacturer of shoes, which was using a brand logo that Puma has claimed was too similar to its own logo: a slender leopard jumping to the left. Lingbao’s logo also features a leopard, leaping to the right. According to the verdict, although both logos constituted what the law designates as ‘mixed logos’ (combining an image with a name) the top court understands that the name in the Lingbao logo, accompanying the preponderant image, is not big enough to clearly state the differences between the two logos. The court thus ruled that there are risks of confusion for customers facing a choice of the two similar brands on similar goods. The decision of the top court
revoked previous understandings of the Macao Economic Services (DSE) and that of the city’s two lower courts. The roots of the litigation hark back to January 30 2012, when Lingbao filed an application with DSE to register a brand under DSE’s category 18 – which includes leather and leather-like goods, luggage, handbags, and umbrellas. DSE accepted the application and the attendant dispatch was published in August of that year in the Official Gazette. Puma later filed a formal complaint with DSE, claiming the visual similarities between the two logos had hurt Puma’s brand but the complaint was rejected by the director of the Intellectual Property Department of the Bureau in 2013. The German manufacturer decided to challenge DSE’s stance in the Court of First Appeal, which rejected the plaintiff’s claims on July 8 2015, ruling in favour of the contested party, Lingbao. Puma then took the case to the Court of Second Appeal, which ruled again against the pursuer on June 2 2016, finding that there was no basis for the plea.
Attending a ceremony recently organised by the Macau Federation of Trade Unions, Yao Jian, Deputy Director of the Chinese Liaison Office, said Macau should be more open-minded about non-resident worker policies, which the city’s largest labour group found hard to swallow. Addressing the recent discussions on allowing non-resident workers to work as professional drivers in the territory, the high-level representative of the Chinese Government said that by end-December it was important to ensure the employment rights and career development of local workers. “[But we] must allow more people to compete for the future of Macau because competition facilitates development,” he added. “For the future of Macau, [we] must make an appropriate opening and compromises [in labour policies]; otherwise, there is no future for Macau.” All industries in the city are basically open to non-local workers, who make up nearly 30 per cent of the employed population, excluding those jobs reserved exclusively for
(for 2015). Despite the ‘mistake on the data provided in the press release’ - for which the group told Business Daily ‘we apologise’ - the group had not issued an official correction by the time this story went to print. Within the response to Business Daily’s enquiries, the group defends its existence by saying: ‘It is necessary for us to protect the material interests of music creators and publishers. MACA is established to defend the public performance rights of the musical works’.
casino croupiers, pit supervisors and commercial drivers. Amid highly vocal opposition from local workers, the business community has proposed for some time that such restrictions be lifted for professional drivers to ease the labour shortage. Lee In Leong, president of the Association of Direct Cargo and Passenger Transportation for China, Hong Kong and Macau, said there was a “severe shortage” of commercial drivers in the city, as not many locals were wiling to become drivers, especially in the logistics sector. “There are now 350 trucks catering cross-border logistics services in Macau but [we have] only about 100 drivers,” said Mr. Lee, whose Association represents a group of logistics companies. Tong Chak Sam, chairman of the Macau Federation of Transportation, an affiliate of the city’s largest labour group, said that some companies could not recruit or attract local workers with high pay cheques given the harsh nature of the job, namely long working hours and a below-average remuneration package. “Albeit offering an average salary level, some big companies here don’t have difficulty in recruiting drivers because they have a comprehensive remuneration package to entice local drivers,” he said. The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com
Business Daily Wednesday, February 15 2017 3
Macau Smoking lounges
Smoke and mirrors The latest survey released by the gaming operators says over half of their workers support the establishment of smoking lounges. But union groups believe employees prefer a smoking-free environment, while Angela La stresses the survey does not intend to pressure the government Cecilia U cecilia.u@macaubusinessdaily.com
A
s unionist legislator Ella Lei Cheng I condemned the government’s softened stance on the establishment of smoking lounges for the full-smoking ban bill, local labour union group representatives said most workers still prefer working in a smoking-free environment. On Monday, the city’s major six gaming operator released the results of a survey conducted by the University of Macau on employees’ sentiments regarding the implementation of a full-smoking ban and the establishment of smoking lounges, which states that 60 per cent of the 14,301 surveyed employees of the operators ‘support solutions that allow smoking lounges.’ The legislator, also vice president of The Macau Federation of Trade Unions, urged yesterday that the government does not simply consider the number of supporters to determine its stance of such set-ups, stressing that those who hold opposite opinions should not be ignored. She was speaking to reporters on the sidelines of the media Spring luncheon of the Legislative Assembly.
Ho Iat Seng interested in reelection
The current president of the Legislative Assembly (AL), Ho Iat Seng, has expressed his interest in re-running for the upcoming Legislative Assembly election in Summer. An indirectly elected member of the Assembly since
Pousada De Sao Tiago Hotel to suspend operations
Pousada de São Tiago Hotel, located near Sai Van Lake on the Peninsula, will temporarily suspend operations from March due to the construction of the nearby LRT project, said Angela Leong On Kei yesterday. The businesswoman stressed that the
Following the release of survey results, the city’s Health Bureau announced in a press release on Monday evening that it would cautiously consider the decision of whether to allow smoking lounges in casinos based upon the survey results, stressing that this move was not a compromise with the local gaming corporations. But this statement is described as paradoxical by the unionist legislator, who also criticised the ignorance of the operators regarding the research results. She opined that the government should make a decision in consideration of workers’ health rather than solely looking at a survey number. “The World Health Organization (WHO) has already revealed that smoking lounges cannot guarantee the health of employees,” said Ms. Lei. “[The operators] say they are introducing a high standard smoking lounge but what is exactly meant by that?” The full-smoking ban bill is currently under discussion by a standing committee of the AL, having passed its first reading in 2015. Smoking is currently prohibited on the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms. The
2009, Mr. Ho has headed the legislature since 2003. Mr. Ho told reporters yesterday that the business industry has not yet nominated candidates for this year’s election, but he said he would continue serving the legislature if the industry recommends him again. hotel would not be permanently closed, saying employees would be welcome to work in other SJM properties according to their preference. Claiming the business of the hotel has never been outstanding, Ms. Leong stressed that she would not consider shutting down the property given its historical value.
Angela Leong On Kai, legislator and executive director of casino operator SJM Holdings Ltd.
government-backed bill, meanwhile, proposes to ban smoking in all indoor areas of gaming venues, as well as eliminating current smoking lounges.
Doubtful proposal
Cloee Chao, president of the New Macau Gaming Professionals Association (NMGPA), expressed doubts about the survey results. “According to my knowledge, most of the members support a universal smoking ban in casinos,” she told Business Daily in a phone interview yesterday, adding that her Association is conducting another survey asking gaming workers’ about their stance on the issue, the results of which will be submitted to the Legislative Assembly at a later date. In addition, Choi Kam Fu, the director-general of the Macau Gaming Enterprises Staff Association under the same union of the legislator said that based upon a similar survey conducted by his group the majority of workers wish to work in a smoking-free environment. Saying he does not have any particular comments on the latest survey of the six gaming operators, Mr. Choi, however, perceives that the proposed standards of the smoking lounges are unclear. The general-director reiterated that gaming workers deserve to work in an environment without the impact of second-hand smoke, as other industries do.
Not a waste
Meanwhile, the president of the Legislative Assembly, Ho Iat Seng, said that the bill proposing a full smoking ban will not be abandoned even if the
establishment of smoking lounges is permitted. “It will only revise the bill [for the full smoking ban],” the AL head explained to reporters on the sidelines of yesterday’s event. According to the president, documents related to the bill have been completed and sent back to the government for revision while the AL sub-committee is still waiting for the return of the documents from the government. “Once they send us back the related documents, we will enter the procedure of deliberation,” he said. Asked whether the government is being active in making the smoking ban law come into effect, the AL head commented that the “reply is active but the document has yet to be received”. Questioned whether the introduction of the smoking lounges would counter the original intention of the bill, Mr. Ho remarked that the notion would only be determined by the government.
Angela Leong: “Not pressuring government”
Meanwhile, Angela Leong On Kai, legislator and executive director of casino operator SJM Holdings Ltd., said that gaming operators do not intend to pressure the MSAR Government by conducting the survey. Stressing her absence in participating in the discussion of the smoking ban in the Assembly, Ms. Leong said she has always advocated “ensuring the health of her employees.” The discussion between the two parties on the smoking matter, according to Ms. Leong, is positive. The setting up of the smoking lounges, said Ms. Leong, will “definitely meet the standard made by the Health Bureau as well as international requirements”, adding that the main purpose of the proposal is to protect employees’ “body and mind.” Asked if the introduction of smoking lounges would counter the initial intention of the bill the gaming boss said, “a smoking lounge and full smoking ban is consistent”. “The most important thing is that no-one would smoke at gaming tables and no-one is affected by second-hand smoke,” remarked Ms. Leong. “But of course one has to look at the standards of the lounges.” If the establishment of smoking lounges is not adopted, the SJM executive director believes that the gaming business would be affected. “Smoking is still part of the freedom,” Ms. Leong told reporters. “Unless the government is prohibiting the import of tobacco - and I totally support this.” She also claimed that “the city is harmonious” and as such she believes there is no act of pressure being performed by the operators, opining that “the Health Bureau needs to consider the government’s coffers.”
4 Business Daily Wednesday, February 15 2017
Macau Opinion
José I. Duarte* Policy matters There is a reason why policy-setting studies are associated with political science and not a branch of the exact sciences. Humans and human societies are complex entities, driven by multiple and often conflicting factors. They are frequently and ‘naturally’ difficult to predict. Policies that deliberately and directly try to affect particular kinds of behaviour need to deal with that inherent uncertainty. One of the toughest tasks of policymakers is to anticipate what we could call second order effects. Direct effects and connections between a certain policy measure and its immediate and visible effects are often quite discernible – or even obvious. That does not mean that policy success is assured. As people adapt to new circumstances and incentives, their behaviour may change – and often will. And the linkages upon which the policy measure hinged may weaken – or vanish. Let me give an example. Health authorities go to great lengths to repress smoking. Among the many measures taken was a steep rise in tobacco taxes. The linkage is obvious, and no-one will contest it: more expensive cigarettes mean, so economics tells us, less demand and consumption. Success assured? Not so fast. Certainly, the amount of cigarettes bought locally will go down proving economics – and, at first sight, the government – right. There are other alternatives. People may procure alternative sources of supply, may direct their addiction to other harmful types of consumption, and so on. The number of changes that may occur depends naturally upon the precise nature of the issues. As some doors close, some windows will open. New business opportunities may arise, as people react and adapt to the new rules. As a result, sometimes the outcome will be detrimental to the intended one – if not the opposite. The success of the policy may be much less than expected; in some cases, the outcome may be worse than the original problem. Related problems may be aggravated; new issues may pop up unexpectedly. The real effects of the policy must be monitored and corrective measures – subject to the same uncertainty – may be required. These are well known issues in policy studies. You may ask now, why all this talk? Well, when challenged (never too much) on their policy measures, our public officers often seem eerily unaware of these matters. Somehow, they appear to believe the expected result is ‘scientifically’ assured. It isn’t! At best, it looks more like an act of faith. *economist and permanent contributor to this newspaper.
Ho Chio Meng Trial
Top court adds to indictment The Court of Final Appeal includes involvement of the former official in a case of agar wood appropriation to the indictment Nelson Moura nelson.moura@macaubusinessdaily.com
A
s the trial of the corruption case of former Prosecutorgeneral Ho Chio Meng continued in the Court of Final Appeal yesterday, the top court added a new element regarding the former official’s involvement in a case relating to the appropriation of confiscated agar wood in the indictment following days of hearing the testimony of witnesses. Mr. Ho is accused of appropriation of parts of the agar wood confiscated by Macau Customs between 2013 and 2014 by allegedly requesting his subordinates move the wood to the Prosecutor’s Office and requesting parts of the wood for personal use. The addition was read out at yesterday’s trial by Presiding Judge Justice Sam Hou Fai, indicating that there was no existing written
Ip Son Sang to provide written testimony
Speaking to reporters outside the court, the lawyer of Mr. Ho, Leong Weng Pun, said that the incumbent Prosecutor-general Ip Son Sang had already prepared a written testimony for the top court without
document or dispatch proving the ex-Prosecutor-general had used his position to interfere in the investigation regarding the confiscated agar wood. But the addition contradicts the statements previously made by the witnesses and Mr. Ho himself that he had requested to see the agar wood personally for “inspection purposes”.
Witnesses
Yesterday morning’s trial session was interrupted when the court realised that one of the witnesses providing testimony was a relative of one of the defendants in the case. The witness, Lou Siu La, an assistant in the Prosecutor’s Office since 1999 and a secretary of Mr. Ho, was discovered to be the younger sister of the spouse of Mak Im Tai - an alleged associate of the former Prosecutorgeneral who is said to be responsible for many companies involved in the case.
revealing if it had already been delivered. The Prosecutorgeneral was requested as a witness by the defence. He is allowed to respond to questions through a written statement, while the court can decide if it will or will not be read aloud during the trial
When offered the opportunity of not responding to questions regarding Mr. Mak, the witness nevertheless confirmed that she had organised bookings and approved expenses for several trips of the ex-official representing the Office, including the trip to a Public Prosecutors Conference in Denmark in 2005, for which the former top official is accused of taking his wife and nephew with travel expenses paid out of the public coffers. Assistant Prosecutor-general Chan Tsz King questioned if the witness had not considered it strange as she was asked to prepare the trip even though an official department should be responsible for those tasks. Ms. Lou, however, claimed it was common for the former top prosecutor to give her direct contacts of travel agencies and PR companies to prepare official trips. The court also heard that an employee in the Prosecutor’s Office surnamed Lai had worked in the Office’s Integrated Management Team (IMT) since 2003. This witness confirmed several irregularities repeated by many witnesses so far: namely, the Office directly awarding service contracts to the same companies without opening public tenders and expenses being paid without conducting checks. According to Ms. Lai, she had suspected that the companies receiving such contracts were linked, saying it was the same person picking up the phone when she called the fixed lines of at least three of the involved companies in the case.
Sales
BAIC Motor predicts profits up 90 pct in 2016 Automobile manufacturer and distributor BAIC Motor Corporation Ltd. anticipates a 90 per cent increase in net profit for its 2016 fiscal year when compared to the previous year,
according to a filing with the Hong Kong Stock Exchange yesterday. The group, which through joint ventures manufacturers for both Hyundai and Mercedes Benz, noted
that the increase was ‘due to the increase in the results of the Beijing Benz and Beijing Brand in 2016.’ The group has been converting its traditional vehicles by using the same factories used to produce them into ‘new energy vehicles’ and launched the ‘first pure electric car in China,’ the EV line, in the first half of last year, according to its interim report. Also under the Beijing brand, the group manufacturers the Senova, BJ and Wevan sports utility vehicle (SUV). Overall, the group’s first half 2016 results saw a 14.1 per cent year-onyear increase, with 869,168 units sold, mostly under the Hyundai brand. The group saw gross profit for the first half of the year hit RMB10.75 billion (MOP12.5 billion/US$1.6 billion) with revenue of RMB49.04 billion, according to the group’s filing. K.W.
Business Daily Wednesday, February 15 2017 5
Macau Finance
BNU net profit up 9.8 pct y-o-y in 2016 The bank sees the ‘highlight’ of its growth in a 2.1 pct customer funds increase Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
L
ocal banking group Banco Nacional Ultramarino (BNU) describes the ‘highlight’ of its 2016 financial year growth as a 2.1 per cent increase in customer funds, according to its announced results provided to Business Daily. The results show positive growth in many of the bank’s metrics despite an environment in which the ‘banking business continues to be more competitive,’ notes the group. Aside from the growth in clients’ funds, in comparison with the group’s 2015 results it registered a 5.2 per cent increase in the number of customers it serves, amounting to 224,398 as at end-2016. According to the most recent data from the Statistics and Census Service (DSEC) for the third quarter of 2016, the estimated population of the MSAR is 647,700 meaning BNU clients comprise over one-third of the MSAR’s population, at about 34.64 per cent. Customers also saw an increase in the number of products each uses with the bank, with a 2.3 per cent year-on-year uptick, to 3.49 products per active customer. The group also points to an increase in the revenues from its China UnionPay card network, which increased 23.5 per cent year-on-year. ‘As a result of the increase in customer loyalty and the increase in cross-selling of products, and despite
the strong negative impact resulting from the contraction of the tourism and gambling sectors, card revenues increased by 3.3 per cent,’ notes the group.
Profits up
Of particular note, the group announced that its net profit had increased by 9.8 per cent year-on-year, reaching MOP560.55 million for 2016, as compared to MOP510.33 million the previous year. This was countered by a 3.2 per cent increase in expenses, which hit MOP302.56 million, which the group notes as due to increases in personnel costs – up 2.5 per cent year-on-year, and employee numbers increasing ‘by about’ 2 per cent. Overall administrative costs increased 4.9 per cent ‘due to the strong containment in the procurement area, despite the existing inflationary pressures in the Territory and the opening of two new branches.’ Regarding the group’s net interest margin, it ‘performed well’ during the year, with a 11.1 per cent yearon-year increase ‘mainly as a result of better optimisation of liquidity management.’
Challenges
The group points out that despite its strong customer loyalty the number of customers increased just 10.1 per cent between December 2012 and the same month of 2016, a consequence of ‘the large Chinese banks seeking to gain market share.’ With 29 other
banks in the MSAR to compete with, the group notes that ‘there has been a decline in the profitability of operations and rates practiced in the local market.’ Other challenges in the market, leading to the 3.5 per cent predicted contraction in the gross domestic product (GDP), the group points that ‘at least in part’ the corruption crackdown by the Mainland and ‘the containment of the movement of capital put into China’ as well as the slowing in growth of its economy ‘has indirectly affected Macau as the territory is the gaming capital of the world.’ The company also notes the MICE
and retail sectors are ‘gaining importance’ in the local economy but ‘highly dependent on the exterior’ such as tourists from the Mainland Businesses in Macau are facing ‘greater difficulties […] to obtain human resources and to maintain a stability of their permanence.’ Overall net profit for the group has grown 71.4 per cent between end2012 and end-2016, accompanied by a 23.7 per cent growth in expenses during the same period. Net interest income increased 80.8 per cent in the same period. Group CEO Pedro Cardoso notes it plans to open a new branch in Taipa in 2017.
6 Business Daily Wednesday, February 15 2017
Macau Appointment
Joseph Lau appoints wife as executive director
Hong Kong business tycoon Joseph Lau Luen Hung has named his wife Kimbee Chan Hoi Wan as an executive director of Chinese Estates Holdings Ltd., effective from Monday. According to a company filing, Ms. Chan will hold office until the next following annual general meeting of the company and will be entitled to an annual
remuneration of HK$100,000 (US$12,450). The couple married last November after the businessman announced that his relationship with ex-girlfriend Yvonne Lui Lai Kwan had ended in 2014. A major shareholder of the company, Mr. Lao stepped down as chairman and CEO of Chinese Estates in 2014 after Macau’s courts convicted him of bribery and money laundering in the corruption case of disgraced former Secretary Ao Man Long.
Luxury
Prada paints negatives as positives Reductions in losses, back to ‘positive results’, says luxury retailer Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
S
ales for luxury giant Prada S.p.A. have ‘returned to growth’ in China, according to the group’s preliminary sales figures for financial year 2016 with the Hong Kong Stock Exchange. The company said in the filing that the country had ‘resumed rapid growth in the third quarter,’ and continued with ‘higher sales in the
last quarter of the year.’ Results in the Hong Kong and Macau regions, however, saw a ‘reduced level of sales contractions versus past years,’ the company said, which is a bonus compared to the group’s previous announcement in its interim report, published in September of last year, which saw the SARs ‘weigh heavily on the region’s contraction.’ Individual sales breakdowns for the company’s fiscal year ended January 31 2017 were not yet available in the latest filing. The Greater China
region, in the first half of the fiscal year, saw a 24.4 per cent drop in sales year-on-year, to 278.7 million euros. But the group notes in the filing that it saw an ‘improving trend evident in [the] last months,’ finding that the fiscal year had ended ‘back to positive results.’ Consolidated revenues were reported as 3.18 billion euros (MOP27 billion/US$3.38 billion) which is a 9 per cent drop year-on-year and was ‘in line with expectations,’ notes the group. Regarding the Asia Pacific region, the group saw a ‘very dynamic second half of year,’ although still posting a 12 per cent year-on-year decrease
in total sales. “This past year we implemented a profound phase of business process rationalisation – still underway – and identified important strategies to secure the Group’s future growth,” commented Prada S.p.A. Chief Operating Officer Patrizion Bertelli.
Falling markets
These efforts, including ‘product and marketing initiatives,’ produced ‘clear and satisfactory results,’ according to the filing. Despite the satisfaction, results in all of the group’s main markets declined. Sales in Europe fell the least, at a 5 per cent year-on-year drop due to the ‘reduction of tourist flows, especially in Italy and France,’ despite ‘clear signs of recovery in the fourth quarter’ in France. Russia shone ‘with double-digit growth’ and the UK saw ‘strong growth’ at the end of the year, reversing its decline in the first half. America saw a 12 per cent drop in total sales year-on-year, with ‘falling tourist flows […] as well as generally soft spending patterns since the first part of the year.’ Mexico and Brazil both experienced ‘positive growth.’ The appreciation of the yen in Japan was ‘essentially’ the driver behind reduced tourist flow from China, driving a 13 per cent year-on-year drop in sales in the region. The Middle East underwent a 10 per cent decline in total sales. The CEO pointed out that the group is “revising our digital strategy” and “strengthening the retail management structure,” seeking to integrate online and traditional channels ‘in a truly innovative dimension.” Audited results are expected in the first half of April.
Gaming revenue
Analysts predict double digit growth for this month Gaming revenue growth for this month is anticipated to jump from the three per cent yearon-year increase in January Kam Leong kamleong@macaubusinessdaily.com
Analysts are now projecting solid growth for the city’s gaming revenue for this month, with Telsey Group and Wells Fargo Securities predicting a low double-digit increase. According to their latest research notes on Monday, analysts at Wells Fargo have increased their estimated year-on-year growth to between 8 per cent and 12 per cent from the previous 5 per cent to 9 per cent, while those at Telsey Group expect the month’s revenue to climb by between 9 per cent and 11.5 per cent year-on-year. “We estimate average daily revenues were around [MOP1 billion] (US$125 million) through the first 12 days of the month,” Wells Fargo analysts led by Cameron McKnight wrote. “The past week was higher than our prior [MOP700 million] estimate.” Meanwhile, Telsey Group analyst
David Katz perceives total revenue for this month should remain ‘meaningfully ahead of the prior year,’ although the volumes have
slowed as expected with the Chinese New Year holiday over. “As we have noted in the past, there are significant calendar shifts that limit the insight from short term comparisons and thus we suggest a look at January and February in total should provide a more meaningful y-o-y [comparison],” he wrote. For the first month of the year,
the local gaming industry reported MOP19.3 billion in revenue, which represents a year-on-year growth of 3.1 per cent, according to official data from the Gaming Inspection and Co-ordination Bureau. Nevertheless, Aegis Capital Corp. is projecting a lower estimate than the other two firms, forecasting February growth range of around 3 per cent to 7 per cent although the group’s analyst David Bain notes they “anticipate the higher-end of our range as the more likely outcome.” ‘According to checks and estimates, February 1 to February 12 Macau table-only gross gaming revenue w a s a p p r o x i m at e l y b e t w e e n MOP10.3 billion and MOP10.8 billion. We expect to see play levels continue to subside from the peak of the Chinese New Year holiday,’ the group wrote. On the other hand, Wells Fargo cited their contacts saying that VIP hold was about normal during the month, while VIP growth is outperforming mass growth year-on-year. Analysts at Telsey Group also added there is no report of meaningful hold percentage impact on results so far. ‘Overall, the consensus by operators appears to be that CNY was good but not spectacular, which should measure up with the solid growth reflected in our forecast,’ the note reads.
Business Daily Wednesday, February 15 2017 7
Gaming Gaming
Scientific Games appoints new second-in-command
Games, Tjon served two years as Chief Financial Officer and Executive Vice President of Epiq Systems, Scientific Games Corporation appointed Karin-Joyce a global provider of integrated technology and legal services. The new COO holds an MBA in finance Tjon as its new Chief Operating Officer (COO) and from Columbia University and a Bachelor’s degree in President, effective February 13, according to a company press release. Tjon, reporting directly to CEO organisational behaviour and management from Ohio University. Scientific Games is a company trading Keven Sheehan, will oversee the company’s gaming and lottery operations and spearhead the company’s in the lottery and regulated gaming sectors, which develops game content, technology, and customised organisational strategy, business development and fiscal discipline. Prior to her appointment at Scientific programmes and services. S.Z.
Losses
A losing hand Australia has the most gaming losses per adult, while the United States leads in losses ranked by country Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
W
hen it comes to gambling, the United States still leads the list in terms of the largest amounts lost on gaming activities by country, according to research by the H2 Gambling Capital group (H2G) published in The Economist magazine. However, right behind it lies China which, including Hong Kong and Macau, still sees a US$62.4 billion (MOP499 billion) loss per year on gaming activities. This is still dwarfed by the US$116.9 billion the United States blew on the activity last year, according to the data, but much higher than that of neighbouring gaming centre Singapore, which placed ten spots on the list after China, at 12th, due to an estimated US$5.9 billion
spent on the activity in the city state over the course of the year. In an unsurprising third comes Pachinko hotspot Japan, which saw a total of US$24.1 billion lost on the activity during the year. However, given the recent changes in legislation and moves to set up integrated resorts within the country, Japan’s ranking on the list within the next ten years could undergo changes. Other Asian countries making the hit list of top losers were South Korea, coming ahead of Singapore, at US$7.4 billion lost to the activity last year, while Asia Pacific neighbour Australia came in fifth, just behind Italy, at US$18.3 billion lost in 2016. The remainder of the list was dominated by European countries, with Britain coming in 6th, Germany in 8th, and France and Spain in 9th and 10th, respectively. Last on the list of the ‘biggest losers’ were Sweden and
the Netherlands in 14th and 15th, at US$2.4 billion and US$2.3 billion spent on the activity, respectively. Other ranked countries were Canada at US$12.4 billion (7th place) and Brazil at US$3.1 billion (13th place).
Individual loss
In a separate ranking, which estimates the loss per adult, nearby Australia ranked highest, with an estimated US$999 in betting losses per resident adult per year. The country’s resident adults loss is about 40 per cent more on the activity than second-ranked Singapore, and about double that of what other Western countries’ averages show, notes the publication. Overall, new technology has been working its way into the market as evidenced by the predominant use of electronic poker machines in Australia – on which, the magazine points out, users can lose up to US$1,150 per
hour – with an 11 per cent growth in the segment last year. Total gaming profits posted in 2016, notes the publication, amounted to US$385 billion. For the United States, which houses many of Macau’s gaming operators’ parent companies, the ‘untapped potential is enormous,’ notes the publication pointing out that ‘Americans wagered US$150 billion illegally on sports alone last year.’ However, ‘the country’s Puritan tendencies have kept the industry’s growth in check,’ it maintains, with spending per person ‘static for a decade.’ While China, including Macau and Hong Kong, was expected to surpass the United States as the biggest gaming market by 2020, according to H2G predictions three years ago, the crackdown put an end to that, with ‘industry profits [falling] by 20 per cent’ . . . [which] . . . ‘have barely recovered.’ The crackdown caused the first drop in overall global winnings in the history of H2G’s data collection on gaming (since 2003) in 2015. Regarding up and coming Japan, H2G estimates, cited by the publication, show that foreign operators setting up integrated resorts in the country could ‘swell winnings by 50 per cent in the first year of opening.’
8 Business Daily Wednesday, February 15 2017
Greater china Prices
Inflation picks up to multi-year highs Food prices, the biggest component of CPI, rose 2.7 per cent in January, led by a 7.1 per cent increase in the price of pork Elias Glenn
C
hina’s producer price inflation picked up more than expected in January to near six-year highs as prices of steel and other raw materials extended a torrid rally, adding to views that global manufacturing activity is building momentum. China consumer inflation also rose more than expected, nearing a three-year high as fuel and food prices jumped, data showed yesterday. Much of the pick up in consumer prices was likely due to higher food and travel costs heading into the long Lunar New Year holiday, the National Bureau of Statistics (NBS) said. But mounting price pressures in China and many other countries have sparked talk of tighter monetary policy this year, after years of super-loose settings aimed at reviving economic growth. China’s central bank raised
short-term interest rates in recent weeks as it looks to contain risks from an explosive growth in debt, while India’s central bank last week unexpectedly signalled an end to its longest easing cycle since the global financial crisis, citing inflation risks. Some analysts, however, believe the ramp up in price pressures in China may be short-lived, noting that a jump in January food prices was likely seasonal and that producer price gains slowed by half on a month-on-month basis. “We don’t expect such high rates of inflation to last,” Capital Economics China economist Julian Evans-Pritchard said in a note. “Tighter monetary policy, slowing income growth and cooling property prices should keep broader price pressure contained over the medium-term,” he added, noting that weak prices early last year may have exaggerated the strength of a reflationary trend seen in recent months.
Consumer inflation quickened to 2.5 per cent in January from a year earlier, the highest since May 2014. But it is still well within the government’s comfort zone of 3 per cent, and is showing few signs yet that the jump in producer prices is filtering through to the broader economy, analysts say. Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 2.4 per cent, after a 2.1 per cent gain in December. Food prices, the biggest component of CPI, rose 2.7 per cent in January, led by a 7.1 per cent increase in the price of pork. Fuel costs surged 16.5 per cent onyear, the biggest increase among CPI components, likely due to a low comparison in the year-ago period when fuel prices fell. Capital Economics expects consumer prices to rise only 2.0 per cent this year. Producer price inflation accelerated to 6.9 per cent -- the fastest since August 2011 -- from December’s rise of 5.5 per cent. Gains in the producer price index (PPI) were driven by a 31.0 per cent increase in mining costs as coal prices
rise, the biggest jump in that category since early 2010. The market had expected producer prices to rise 6.3 per cent on an annual basis. But on a monthly basis, they only rose 0.8 per cent, down from December’s 1.6 per cent gain. China’s massive imports of coal, crude oil, iron ore and industrial materials have helped fuel a sharp rebound in global resources prices in recent months, boosting profits for producers and processors. Iron ore futures in China rose for a sixth session in a row on Tuesday, hitting their highest in more than three years, while London copper futures have climbed to around 20-month highs. Price gains in China have been further amplified by government efforts to reduce industrial overcapacity. Investors are cashing in on the global reflationary trade. Shares of Jiangxi Copper Co Ltd , China’s biggest integrated copper producer, have surged over 60 per cent in the past year in Shanghai and 85 per cent in Hong Kong. But heady increases in China’s commodity futures market, especially for iron ore, metal reinforcing bars and coking coal used in steel production, have added to policymakers’ worries about speculative price bubbles. Worries about speculation and debt risks led the central bank to move to a tightening bias in recent months, not inflation, analysts say. “Inflation is not the main driver of monetary policy at the moment...I do think they are going to tighten more this year, but the main driver is credit risk and concerns of leverage and what’s going on in the property market,” said Capital Economics’ Evans-Pritchard. Banks in some big Chinese cities have started to reduce discounts on mortgage rates for first-time home buyers, newspapers have reported, joining recent steps to curb financial risks stemming from years of loose credit conditions. Reuters
Financial sector
Morgan Stanley says Beijing to avoid bank shock A report sees growth at an average of 4.6 per cent in 2021-2025 Enda Curran
China will likely avoid a financial crisis and is on track to reach high income status by 2027, according to a new Morgan Stanley report on the nation’s longer-term prospects titled “Why we are bullish on China.” The sweeping outlook comes amid growing concern over China’s surging debt levels, slow pace of reforms and the impact of a potential trade spat with the U.S. While acknowledging those concerns as legitimate, the analysts point to the country’s increasing shift into high value-added manufacturing and services that will play a central role in boosting per capita incomes to US$12,900 over the next decade from US$8,100 now. If China manages to pull off that feat, it will join South Korea and Poland as the only large economies with a population of over 20 million to achieve that over the past three decades, Morgan Stanley said. The World Bank defines high-income economies as those with a gross national income of at least US$12,476 per person. There are other positives, too. Consumption and services are increasingly powering growth and proposed structural reforms such as the closure
of uncompetitive state-owned enterprises will clear the way for new, high-value added industries in areas such as health care, education and environmental services, according to Morgan Stanley. That would spur the creation of a new generation of Chinese multinational corporations with significant presences both at home and abroad.
Low risk
At the same time, the risk of a financial shock remains low even though overall debt soared to 279 per cent of the economy last year from 147 per cent in 2007. That’s because borrowing has been funded by China’s own savings and been used for investment. Strong net asset positions provide a buffer along with an on-going current account surplus, high foreign reserves and the absence of significant inflationary pressures that would destabilize the financial system, according to the report. A one-off devaluation of the yuan is also unlikely though the currency will likely weaken further, according to Morgan Stanley. Indications that China’s leadership are shifting their focus from stimulating the economy to reining in financial risk bolsters their upbeat
case, the analysts said. “The most significant development on the policy front is that policy makers are now signalling a willingness to accept slower rates of growth, and place more focus on preventing financial risks and asset bubbles, indicating that they would not protect growth at all costs, often with the use of investment of a low return nature,” the analysts wrote.
Debt pile
Still, there are risks. Much will depend on the commitment to tackling the debt pile and reshape state-owned enterprises.
It’s likely that China’s debt management will follow a path similar to Japan’s, although economic growth will compound at a much higher rate over coming years. Morgan Stanley sees growth at an average of 4.6 per cent in 2021-2025. That’s less than half the 9.6 per cent average growth rate over the past three decades. “With a starting point of lower debt, (China’s debt to GDP today is where Japan’s was in 1980) and per capita levels (China’s per capita GDP (PPP) today is where Japan’s was in the mid-80s),” the analysts wrote. “By not allowing for a sharp appreciation of its currency as Japan did after the Plaza Accord, China today is arguably better positioned to still achieve growth rates that can outpace global growth.” Bloomberg News
Business Daily Wednesday, February 15 2017 9
Greater China In Brief Industry
Slower growth forecast for domestic machinery sector
Lenders
Nation’s banks extend second most loans on record A breakdown of the overall financing numbers appeared to indicate a surge in less-regulated shadow banking activity Chinese banks extended RMB2.03 trillion (US$295.74 billion) in net new yuan loans in January, the second-highest monthly tally on record, even as the central bank tries to contain the risk from years of explosive growth in debt. While less than analysts had expected, new lending last month was nearly double the RMB1.04 trillion seen in December, indicating credit growth in the world’s second-largest economy remains robust after last year’s record pace. New total social financing, a broader measure of credit to the economy, totalled RMB3.74 trillion in January, also up sharply from December and higher than the same period last year. Outstanding yuan loans grew at 12.6 per cent by month-end on an annual basis, the slowest growth rate since May 2005. Analysts polled by Reuters had expected a rise of 13.4 per cent. Chinese banks usually “front load” loans early in the year after the government renews their credit quotas,
competing fiercely to maintain market share and to lock in higher-quality borrowers as soon as possible. But lending in December also was much stronger than expected, which some analysts attributed to corporate worries that authorities may pressure banks to slow credit growth this year while gradually raising borrowing costs. The People’s Bank of China raised key short-term money rates in late January and early February, surprising markets and reinforcing a signal to borrowers that it is intent on reducing credit risks by moving to a tightening policy bias this year. The rate increases followed media reports that the PBOC had advised banks to slow down or curtail lending amid speculation that January loans were unusually heavy. Broad M2 money supply (M2) in January grew 11.3 per cent from a year earlier, central bank data showed yesterday, meeting forecasts and unchanged from the previous month. But a breakdown of the overall
financing numbers appeared to indicate a surge in less-regulated shadow banking activity, possibly in response to the central bank’s tougher stance. New trust loans nearly doubled to RMB317.5 billion as companies turned to alternative sources of financing amid a downturn in the corporate bond market.
Key Points New loans 2nd highest ever at RMB2.03 trln, nearly twice Dec Total social financing rises to RMB3.74 trln Outstanding loan growth slowest since May 2005 Central bank has signalled move to gradual policy tightening Tightening moves may be driving surge in shadow banking
Tough balancing act
China’s debt to GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a recent note. China has pledged reasonable credit growth this year after last year’s record RMB12.65 trillion lending binge, but it could be a tough balancing act for a government that has for decades prioritised strong economic growth. Higher interest rates could prod debt-laden firms into deleveraging, though at the risk of stunting economic activity. Similarly, overly aggressive moves to curtail asset bubbles and speculation could spark price slumps in housing and financial markets and fuel a spike in bad loans. Analysts agree the central bank will move cautiously as it monitors the impact of each measure on growth, while sending a clear signal to lenders that it is intent on containing financial risks. For now, market watchers do not expect more aggressive tightening, such as a hike in the benchmark policy lending rate. “We think the PBoC has gradually shifted to a tightening bias and policy rates (such as the 7-day repo rate) are likely to gradually move higher this year,” economists at ANZ said in a research note after stronger-than-expected inflation data earlier in the day. “However, we do not think the economy is solid enough to counter any broad tightening and policy makers should be careful in directing market expectations.” ANZ senior China economist Betty Wang said that she expects the PBOC to raise the 7-day repo rate by another 15 basis points by the end of June as policymakers remain cautious. To help cool the heated housing market, banks in some big Chinese cities already have started to lower discounts on lending rates for firsttime home buyers, the China Securities Journal reported earlier this month. Even as the central bank raised short-term rates in recent weeks, the increases were modest and it injected massive amounts of money into the financial system to ensure markets remained calm. Reuters
China’s machinery industry is likely to see stable but slower growth in 2017 due to weak demand amid downward economic pressure, an industry group forecast yesterday. Annual growth of the sector’s value-added industrial output may slow to 7 per cent in 2017 from 9.6 per cent in 2016, while the business revenue increase would slow to 6 per cent from 7.44 per cent in 2016, according to data released by China Machinery Industry Federation. Growth of fixed-asset investment in the machinery industry fell sharply to 1.7 per cent in 2016, down from 9.7 per cent in 2015 and the fifth consecutive year of decline Trade
Regulator surveying Shanghai firms about US tariffs China’s foreign exchange regulator began surveying firms in Shanghai in early February about the impact on cross-border trade of possible protectionist measures by the United States, two sources said yesterday. The State Administration of Foreign Exchange (SAFE) is asking firms with large trading operations and cross-border payments with the United States whether they have U.S. production facilities, their tolerance for higher tariffs, and how they would deal with the higher tariffs, said one of the sources. U.S. President Donald Trump has repeatedly threatened to slap higher tariffs on Chinese imports. M&A
Hong Kong’s TVB lifts offer price Hong Kong’s Television Broadcasts Ltd (TVB) said it was cutting the size of a planned share buyback although it will lift the offer price, as it wants to ensure that at least 25 per cent of its shares are held by the public. It now plans to buy back 120 million shares, instead of 138 million shares, but will raise its offer price to HK$35.075 per share from HK$30.50. The total value of the deal remains the same at HK$4.21 billion (US$543 million). Last week, TVB said it has received a proposed conditional offer from privately owned TLG Movie and Entertainment Group Ltd for about 30 per cent stake of the company. Motor industry
BMW to recall 41,685 vehicles in Mainland BMW will recall 41,685 vehicles in China due to defective airbags, the country’s quality watchdog has said. The recall, set to begin on Oct. 9, 2017, affects a batch of 3,926 cars made between Jan. 2, 2012 and Dec. 26, 2012, as well as a further 37,759 vehicles, different models to the first batch, manufactured between Jan. 2, 2012 and Dec. 22, 2012, according to an online statement by the General Administration of Quality Supervision, Inspection and Quarantine. BMW has promised to replace the defective parts free of charge.
10 Business Daily Wednesday, February 15 2017
Greater China
Textile industry
Mainland’s pain, Italy’s gain: high costs push buyers west The labour cost gap between Italian and Chinese yarn narrowed by around 30 per cent between 2008 and 2016 Venus Wu and Giulia Segreti
I
nternational textiles buyers are increasingly switching away from China, and back to Western suppliers, as rising labour, raw material and energy costs make the world’s dominant producer more expensive. In Biella, a small town in the foothills of the Alps at the heart of northern Italy’s wool industry, factory owners say a narrowing price difference with China and demands for nimbler production nearer home are winning back higher-end customers. In the office of his family business, Alessandro Barberis Canonico recounts how one high-profile European client called him recently to say he was giving up on China because of rising costs there and the increased demand for quality - and would need help from Biella for a big collection. “He had tried his luck going abroad; things did not go well, so he’s now back,” Barberis Canonico said. For sure, China remains a world leader in textiles: employing over 4.6 million people, contributing a tenth of GDP and with exports, including apparel, USof $284 billion in 2015, according to data from China’s National Bureau of Statistics, the Ministry of Industry and Information Technology, and the China Chamber of Commerce for Import and Export of Textile and Apparel. But wages there have been rising at an annual compound growth rate of more than 12 per cent, outpacing the economy, and are simply no longer cheap enough to compete just on price. At the same time, China’s textiles
sector faces rising costs of inputs such as cotton and wool, hefty import taxes for basic manufacturing equipment, and costlier environmental rules. The government’s five-year plan for textiles, released in September, acknowledged that higher costs are weakening its international advantage, and it faces a ‘double whammy’ from developed countries - like Italy - with better technology and developing countries with lower wages.
“Less attractive”
The labour cost gap between Italian and Chinese yarn narrowed by around 30 per cent between 2008 and 2016, to US$0.57 per kg from US$0.82/kg, according to International Textile Manufacturers Federation (ITMF) data. The hourly wage for a Chinese weaver last year was US$3.52, according to the ITMF, up 25 per cent since 2014, though still a fraction of the more than US$27.25 paid in Italy, an increase of 9 per cent over the same period. “When China’s wages are not that low, the process of shipping materials so far to China and then shipping products back to Europe becomes a lot less attractive,” said Shiu Lo Mo-ching, Chairman of Hong Kong General Chamber of Textiles Ltd and CEO of textile manufacturer Wah Fung Group. “They’d rather take the production back to Europe. This trend has been very obvious.” That proximity is also an advantage at a time when Western clothing brands are under pressure to offer more collections, and customers increasingly want customised looks.
Their suppliers need to be closer, and faster. “In China ... their supply chain is not close, and is scattered, giving (Italy) a competitive advantage,” said Ercole Botto Poala, CEO of Italian textile producer Reda. Italy’s textile imports from China fell 8.7 per cent in the first 10 months of last year, to 347 million euros (US$370 million), according to SMI, Italy’s textile and fashion association. Its exports to China rose 2.8 per cent to 165 million euros in the same period, though total textile exports last year dipped 2 per cent to 4.3 billion euros.
Key Points Buyers leaving China as costs make it more expensive China remains global leader in textiles; worth 10 pct of GDP Italian producers say winning back some higher-end customers Brands seek supplier proximity, speed of delivery For buyers, quality and transparency are also key. “Before, given (brands) were paying much less, they turned a blind eye to quality,” said Giovanni Germanetti, director general of Italian yarn and textile producer Tollegno 1900, one of several producers who told Reuters that clients were returning for what he described was better value for money. Alessandro Brun, professor at the MIP Milan Politecnico, said brands are also motivated by concerns over product traceability, and want to avoid potential reputational risk. While suppliers were reluctant to name specific brands they sell to, so as to protect business confidentiality,
several international apparel firms are switching to Italian wool fabrics so they can name the mill they source from on labels to differentiate from rivals, producers said. Italian high-street brand Benetton said it used yarn from Tollegno 1900 in a newly-launched Made-in-Italy line of limited edition seamless wool jumpers.
Moving away
More than 9,000 kms from Biella, in the bustle of the biennial Canton Trade Fair, some buyers said they were moving away from China. “We already buy 60 per cent less from China compared to two years ago,” said Olesia Pryimak, who attended the trade fair late last year to source material for her plus-sized fashion firm Opri in Ukraine. She said her company is turning increasingly to Turkey for fabrics, because of quality, price and proximity to Europe. Many of the producers and buyers interviewed said it was too soon for data to show the flow out of China. China’s textile exports to the European Union grew a modest 1.4 per cent in the first ten months of last year, but dropped 4.1 per cent in October, according to Chinese data. In Zhuhai in China’s industrial southern belt, middle-aged workers load bundles of white wool for washing and dyeing at a spacious, well-lit factory owned by Hong Kong-based Novetex Holdings, a supplier of wool and cashmere yarn to international brands including Burberry and Max Mara. The company employs about 1,100 workers during peak season, but rising wages mean it is now investing in more automation, and will cut twothirds of its workforce in two years. “The overall cake is smaller. Many agents and smaller factories have shut down,” said director and CEO Milton Chan. Reuters
Business Daily Wednesday, February 15 2017 11
Asia M&A
Singapore to allow foreign acquisitions of finance companies Finance companies will also be allowed to offer current accounts, fund transfers and chequing services to business customers David Roman and Andrea Tan
S
ingapore’s central bank said it will allow foreign takeovers of the country’s three finance companies, as part of wider industry changes that seek to boost lending to small and medium-sized enterprises. The Monetary Authority of Singapore (MAS) is prepared to consider applications for mergers or acquisitions if any prospective partner “commits to maintaining SME financing as a core business” of the
finance company being targeted, it said in a statement yesterday. “This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models that can strengthen their SME financing business,” MAS said. It also unveiled plans to relax lending limits for the firms. Shares of Singapore finance companies rose after the announcements. The MAS issued a statement on Monday outlining a series of plans to support and implement recommendations made by an economic panel last
week. The Committee on the Future Economy presented strategies aiming to support growth at an average rate of 2 per cent to 3 per cent annually in coming years. Finance companies in Singapore are licensed to take deposits and grant loans to individuals and businesses, with a focus on the SME sector. Hong Leong Finance Ltd., Sing Investments & Finance Ltd. and Singapura Finance Ltd., which are listed in the nation’s stock market, currently hold around S$7 billion (US$4.9 billion) of outstanding loans to SMEs, or just under 9 per cent of the total. They also have S$16 billion in combined assets. After the announced changes, which will be implemented in several stages starting this year, the limit on the companies’ aggregate
uncollateralized business loans will be raised to as much as 25 per cent of its capital funds, from the current 10 per cent, MAS said. The cap on such loans to a single borrower will be raised to as much as 0.5 per cent of capital funds, from the current S$5,000.
“This will accord finance companies greater flexibility to explore strategic partnerships and innovative business models” Monetary Authority of Singapore statement
Finance companies will also be allowed to offer current accounts, f u n d t ra n sf e rs a n d ch e q u i n g services to business customers. At the same time, MAS said it will require companies to enhance their corporate governance and risk management, with stricter rules on transactions involving shareholders and limits on exposure to the property sector. Profits at Singapore’s three publicly traded banks, which account for most credit to SMEs, have come under strain from a weakening domestic economy and increased charges for loan losses tied to the oil and gas industry. Asian currencies have also faced pressure as investors raised bets for U.S. interest-rate increases this year, adding to debt costs. Bloomberg News
Car industry
South Korea sues Nissan over mileage claims, probes BMW, Porsche Makers of imported cars have been facing growing scrutiny following Volkswagen’s emissions-test cheating scandal Hyunjoo Jin
South Korea has sued Nissan Motor’s South Korean unit alleging that the Japanese car maker manipulated the fuel economy test results of its Infiniti Q50 sedan, a government official said yesterday. The ministry is also investigating BMW and Porsche on a similar matter, the official, Koh Sung-woo, told Reuters. The Seoul Central District Prosecutors’ Office has launched a probe into Nissan after a criminal compliant was filed by the transport ministry, a spokesman at the office said. Makers of imported cars, which have surged in popularity in recent years in South Korea, have been facing growing scrutiny following Volkswagen’s emissions-test cheating scandal. Last month, the environment
ministry banned the sale of 10 models of Nissan, BMW and Porsche after the car makers were found to have fabricated documents on emissions and noise-level tests. The models banned include BMW’s X5M and Porsche’s Cayenne and Macan models. The transport ministry has been expanding the probe into whether the three car makers have falsified documents on fuel economy tests of the 10 models as well, Koh said. Koh said Nissan overstated the fuel economy of the Q50 so that it is 3.4 per cent higher than the actual test result. “They manipulated the test results of the car to make the fuel economy look better,” he said. Nissan Korea said it reported “some inappropriate problems” in certification documents to authorities last year, saying the errors were caused by the misconduct of a manager at
the company. “We express sincere regret over those issues,” a spokeswoman said. A BMW spokesman in Seoul said the company has not been notified of the probe, while a Porsche spokesman in Seoul did not have immediate comments. The complaint adds to the troubles in South Korea for Nissan, which
is already accused of cheating on emissions of its Qashqai diesel model. Last week, a South Korean court sided with the government which had said the Japanese automaker used a so-called defeat device in its Qashqai sport utility vehicle to turn off its emissions reduction device during regular driving. Reuters
12 Business Daily Wednesday, February 15 2017
Asia Biz survey
Australian business conditions near decade highs Cost price measures in the survey also lifted notably, suggesting a build up in wage pressures
A
ustralian business conditions jumped to their highest in nearly a decade in January as firms reported a pick up in sales while profits steadied, pointing to solid economic growth after a soft patch late last year. The data is among the latest in a string of surveys that show the A$1.6 trillion economy is humming along, cementing views the central bank will stand pat on interest rates after easing twice last year. National Australia Bank’s monthly survey of more than 400 firms showed its index of business conditions jumped 6 points to +16 in January. That took it back to the highs seen in mid-2007 and well above the long run average of +5. The survey’s measure of business confidence also climbed 4 points to +10 in January. Its index of sales doubled to +22 for the month, while the measure of profits was steady at +12. A healthy 5 point rise in employment to its highest since 2011 seemed to bode well for
the generally tardy labour market. Cost price measures in the survey also lifted notably, suggesting a build up in wage pressures, although retail price inflation remained very subdued.
“A confluence of seasonal factors suggests it is unwise to get too carried away with the result just yet” Alan Oster, National Australia Bank Chief Economist New South Wales enjoyed the bulk of the improvement in conditions, while other states were relatively stable. NAB Chief Economist Alan Oster
was circumspect about reading too much into the survey, reflecting in part the bank’s view that a slowdown in the economy will force two more cuts in interest rates later in 2017. “Recent strength in the NAB Business Survey is consistent with an anticipated rebound in economic activity. With that said, a confluence of seasonal factors suggests it is unwise to get too carried away with the result just yet, especially as some
key industries remain fairly weak.” “The trend for retail is still very soft, which suggests the outlook for consumption remains cloudy,” Oster added. The Reserve Bank of Australia (RBA) held rates steady this month and painted an optimistic picture for the next couple of years, predicting solid economic growth, further expansion in resource exports and a welcome pick-up in inflation. Reuters
Commodities
Malaysia’s shooting-star bauxite industry faces flame out A host of mining operations sprang up along Malaysia’s bauxite-rich east coast to fill a supply gap after Indonesia barred exports of mineral ores in 2014 Emily Chow
Already under fire for widespread environmental damage, Malaysia’s once lucrative bauxite mining industry is facing a likely death knell from neighbouring Indonesia’s move to allow a resumption of exports. This time last year, Malaysia was the world’s biggest supplier of the aluminium-making raw material to top buyer China, but its exports tumbled after government action aimed at reining in the little regulated industry. The latest move could spell the end for a sector that only sprang to life in late 2014 after Indonesia banned ore exports, and illustrates the risks facing miners across Southeast Asia from increasingly uncertain government policy. Copper giant Freeport-McMoRan Inc warned last week it could slash output from Indonesia amid a longrunning dispute with the government, while the Philippines has ordered the closure of more than half the country’s mines on environmental grounds. “Policy risk is huge in mining right now,” said Daniel Morgan, mining analyst at UBS in Sydney. “In supplier policy, you’ve got changes to Indonesia’s mining policy, the Philippines and Malaysia.” A host of mining operations sprang up along Malaysia’s bauxite-rich east coast to fill a supply gap after Indonesia in 2014 barred exports of mineral ores in a bid to push miners to build smelters. In 2015, Malaysia shipped more than 20 million tonnes to China, well
Business Daily is a product of De Ficção – Multimedia Projects
ahead of nearest rival Australia and up nearly 700 per cent on the previous year. In 2013, it shipped just 162,000 tonnes. But the dramatic rise came at a cost as largely unregulated miners failed to secure stockpiles of bauxite. The run-off from monsoon rains turned rivers and coastal seas red, contaminating water sources and leading to a public outcry. The government imposed a mining moratorium in early 2016, and shipments to China from existing stockpiles fell to 165,587 tonnes in December, with little indication the government is set to change its mind.
Mining ban
Malaysia’s natural resources and environment ministry said any decision to lift the moratorium would be based on how well miners follow regulations to preserve the environment rather than economic gain.
Recent rains in Kuantan have caused some bauxite runoffs from existing stockpiles, minister Wan Junaidi Tuanku Jaafar told Reuters. “The heavy rains proved that the mitigation was not adequate. Now by having this before me, I am not yet prepared to allow them to start the operations,” he said, declining further comment on the topic.
‘Malaysian miners expect China to switch to Indonesia’s better quality and cheaper ore when exports start again’ Indonesia introduced new rules last month that will allow exports of nickel ore and bauxite and concentrates of other minerals in a sweeping policy shift, but did not specify when it would resume exports. The announcement could be the
final nail in the coffin for Malaysia’s industry, as its miners expect China to switch to Indonesia’s better quality and cheaper ore, due to lower production costs. “Indonesian bauxite miners kept a lot of stockpiles ... They can sell cheap,” said a miner from local company based in Kuantan, a key bauxite mining area in the state of Pahang. “If the volume coming out of Indonesia is over 10 million tonnes, Malaysia has to say goodbye.” Unlike recent ructions in nickel supply from Indonesia and the Philippines that pushed up prices, Malaysia’s near exit from bauxite has had little impact on the supply chain as new suppliers emerged, particularly in Guinea in West Africa. “Some of these commodities are pretty plentiful, like bauxite for instance,” noted UBS’s Morgan. “When we talk to aluminium companies in China, we haven’t detected that they’re worried about a bauxite shortage.” The greater effect may be on Malaysia’s export-based economy where bauxite surged to become a key mineral shipped to China, its largest trading partner. At a bauxite price of $50 a tonne, Malaysia’s 2015 exports were worth over US$1 billion. The scandal-tainted Prime Minister Najib Razak’s government is pushing to boost revenue as he prepares for a tough election that has to be called by end-2018. “There will be less export income,” said Ooi Kee Beng, deputy director of Singapore based research centre I S EAS-Y u s o f I sha k I n sti t u t e . “The loss of jobs at a time when common people are facing economic difficulties will have political impact that is unwelcomed by the government.” 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 Wednesday, February 15 2017 13
Asia Graft probe
In Brief
S. Korean prosecution to decide on Samsung chief warrant today The office will decide at the same time on whether to seek arrest warrants for four other executives Se Young Lee and Ju-min Park
South Korean special prosecutor’s office will decide no later than today whether to request an arrest warrant for Samsung Group chief Jay Y. Lee, a suspect in a graft investigation that may topple President Park Geun-hye. Lee, third-generation leader of the country’s top conglomerate, was questioned for more than 15 hours after being summoned by the special prosecution on Monday. He is accused of pledging payments to a company and organisations backed by Park’s confidant, Choi Soon-sil, to win support for a 2015 merger of two Samsung affiliates. “There will be a decision on whether to make another arrest warrant request for him between today and tomorrow,” special prosecutor’s office spokesman Lee Kyu-chul told reporters yesterday in a briefing. The office will decide at the same time on whether to seek arrest warrants for four other Samsung Group executives identified as suspects in
its investigation. A Samsung Group spokeswoman declined to comment. Park was impeached by parliament in December after accusations that she colluded with her long-time friend, Choi, to pressure big businesses to donate to two foundations set up to back the president’s policy initiatives.
Key Points Special prosecutor mulls second warrant request for Jay Y. Lee A January arrest warrant request rejected by Seoul court Lee a suspect in graft investigation involving president Both women deny wrongdoing. Park, 65, and the daughter of a former military ruler, remains in office but has been stripped of her powers while the Constitutional Court decides whether to uphold
the impeachment. If the court rules to uphold the impeachment vote, Park would be South Korea’s first elected leader to be forced from office and a presidential election would be held. The special prosecutor has focused on Samsung Group’s relationship with Park, accusing Lee in his capacity as Samsung chief of pledging 43 billion won to win support for the 2015 merger of Samsung C&T Corp and Cheil Industries Inc. Lee, 48, has denied wrongdoing. Last month, a court rejected the prosecution’s first request for an arrest warrant for the Samsung chief. The office on Tuesday declined to comment on whether it had any new evidence against him or other Samsung executives. Proving illicit dealings between Park, or those linked to her, and the Samsung Group is critical for the special prosecutor’s case that ultimately targets Park, analysts have said. Prosecution spokesman Lee said the office had told parliament it needed to extend the investigation period. The office can seek a 30-day extension to its current deadline of Feb. 28. The office of acting president Hwang Kyo-ahn, who must sign off on any such extension, could not be immediately reached for comment. Reuters
Trade
S.Korea Jan import prices rise South Korea’s import prices rose at their fastest pace in more than five years in January, driven by a surge in oil prices, central bank data showed, with inflationary pressures probably giving one more reason for policy makers to hold off on any fresh easing. Import prices jumped 13.2 per cent in January from a year ago, the Bank of Korea said yesterday, marking the third straight month of gains. It was also the biggest rise since a 14.5 per cent increase in October 2011, and was up from a 9.2 per cent gain in December. Results
Singapore’s OCBC profit slumps Oversea-Chinese Banking Corp, Singapore’s second-biggest lender, reported a bigger-than-expected 18 per cent drop in quarterly net profit to the lowest level in three years, dragged down by a 57 per cent jump in bad debt charges. Singapore banks’ exposure to the stressed oil services sector and slowing loan growth due to slack regional trade are clouding prospects for the country’s lenders. OCBC CEO Samuel Tsien said the bank’s overall portfolio quality remained sound, but there “continued to be stresses ... particularly within the oil and gas support services sector which drove increases in non-performing loans and allowances.” Motorcycles
Indonesia motorbike sales up
Tourism
Singapore arrivals slow down after record 2016 Tourism has been one of the bright spots in an economy hit by a slump in global trade Melissa Cheok
Singapore forecasts slower growth in tourist arrivals this year, citing global economic and political uncertainties and stiffer competition from neighbours in the region. Visitors may increase zero per cent to 2 per cent in 2017, according to the Singapore Tourism Board. Growth was 7.7 per cent last year with a record 16.4 million tourists led by visitors from China, India and Indonesia.
‘Tourism receipts rose 13.9 per cent to a record US$17.4 billion in 2016’ “We want to temper our expectations because we are fully cognizant of the fact that there are political and economic uncertainties which may have an impact on outbound travel,” Lionel Yeo, chief executive officer at Singapore Tourism Board, said at a briefing Tuesday. The board is still negotiating to keep the Formula 1 race in the city, he said in an interview
with Bloomberg TV. Singapore plans to remake Orchard Road, its main shopping district, develop more family-friendly attractions and boost marketing, the tourism board said in a statement. Tourism has been one of the bright spots in an economy hit by a slump in global trade. The industry makes up about 4 per cent of gross domestic product and has grown since the city-state opened its first two casino
resorts in 2010. Tourism receipts rose 13.9 per cent to a record S$24.8 billion (US$17.4 billion) in 2016. The introduction of the Michelin Guide Singapore as well as events which Singapore hosted, including the inaugural HSBC World Rugby Sevens Series and music festival Ultra Singapore, helped boost spending. Singapore forecast tourism receipts may rise 1 per cent to 4 per cent this year to as much as S$25.8 billion. The government last week unveiled a slew of strategies aimed at driving growth in the next decade. Bloomberg News
Motorcycle sales in Indonesia rose 13.8 per cent in January from a year earlier, and was the highest annual sales growth since August 2014, data from an industry association showed yesterday. Sales stood at 473,879 motorbikes in January, up from 416,263 sold in the same month last year. It was also higher than the 437,879 bikes sold in December. Motorbikes are hugely popular in Southeast Asia’s biggest economy and their sales are a key indicator of consumption. Sales in January were led by Honda Motor Co Ltd, Yamaha Motor Co Ltd and Kawasaki, data showed. Bank of Japan
Central bank lends record amount of JGBs The Bank of Japan’s lent a record amount of fiveyear Japanese government bonds at a regular operation yesterday, having induced a severe shortage that has crimped activity in the debt market. The central bank lent a record 936 billion yen (US$8.25 billion), the largest on record, of so-called current issues of five-year JGBs on Tuesday through a repurchase agreement. The BOJ regularly lends JGBs of various maturities through these operations, in order to keep the market liquid and stable. Recently, however, liquidity has dried up due to the BOJ’s massive debt-buying operations, which are part of its extensive easing scheme.
14 Business Daily Wednesday, February 15 2017
International In Brief Official data
German economy rebounds in final quarter The German economy grew by 0.4 per cent in the final quarter of 2016, data showed yesterday, as increased state spending, higher private consumption and construction in Europe’s biggest economy more than offset a drag from foreign trade. The growth figure for the final three months of 2016 came in slightly weaker than the consensus forecast in a Reuters poll of 0.5 per cent. Still, it marked a sharp rebound after the German economy barely expanded over the summer months. The overall growth rate for 2016 was confirmed at 1.9 per cent, which was the strongest rate in half a decade. Inflation
Egyptian prices hit highest level in a decade Egypt’s core inflation has soared to its highest level in more than a decade, hitting 30.86 per cent in January as the effects of a currency float and IMF-endorsed austerity measures ripple through an economy undergoing painful reforms. Prices have risen sharply since Egypt abandoned its currency peg to the U.S. dollar on Nov. 3. The pound has roughly halved in value and urban consumer price inflation, released on Saturday, reached 28.1 per cent in January year-onyear from 13.6 per cent in October. It was the highest since at least January 2005, the oldest available on the central bank’s website.
Economic drift
Ex-Goldman banker Mnuchin installed as U.S. Treasury Secretary At a White House swearing-in ceremony, Trump said Mnuchin would be a “great champion” for U.S. citizens
P
resident Donald Trump swore in former Goldman Sachs banker and Hollywood financier Steven Mnuchin as Treasury secretary on Monday, putting him to work on tax reform, financial de-regulation and economic diplomacy efforts. The U.S. Senate voted to confirm Mnuchin 53-47, with all but one Democrat opposing him over his handling of thousands of foreclosures as head of OneWest Bank after the 2007-2009 housing collapse. “He will fight for middle-class tax reductions, financial reforms that open up lending and create millions of new jobs, and fiercely defend the American tax dollar and your financial security,” Trump said. “And he will also defend our manufacturing jobs from those who cheat and steal and rob us blind.” Lawmakers, lobbyists and business groups have been nervously waiting for Mnuchin to take office and fill in the many blanks on how he will pursue tax reform and handle delicate economic cooperation efforts with China, Mexico and other trading partners worried that Trump’s
“America First” strategy will upend decades-old trade rules and currency practices. Mnuchin, 54, provided no details of his plans as he was sworn in. “I am committed to using the full powers of this office to create more jobs, to combat terrorist activities and financing, and to make America great again,” Mnuchin said. Trump has pledged to roll back the stricter financial regulation under the Dodd-Frank reform law enacted after the financial crisis, pursue tougher trade policies on China and Mexico to reduce U.S. trade deficits, and reduce business tax rates.
Challenges coming up fast
Mnuchin faces immediate challenges with the March 15 expiration of a U.S. debt ceiling suspension, ushering in the threat of a new default showdown, and a March 17 meeting of finance ministers from the Group of 20 major economies, where he will face tough questions about Trump’s plans to increase trade protections. In April, Mnuchin will have to determine whether to declare China a currency manipulator as part of
Crude industry
OPEC reports big Saudi oil cut Top OPEC oil producer Saudi Arabia made a large cut in its crude output in January to support prices and lessen a glut, helping boost compliance with the group’s supply-reduction deal to a record high of more than 90 per cent. The Organization of the Petroleum Exporting Countries is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1, the first cut in eight years. Russia and 10 other non-OPEC producers agreed to cut half as much. Supply from the 11 OPEC members with production targets under the deal fell to 29.888 million bpd last month. Debt negotiation
Lagarde says IMF can’t cut special deal for Greece The International Monetary Fund is doing the best it can to agree on bailout loans for Greece but cannot compromise its principles and cut a sweetheart deal for the country, IMF Managing Director Christine Lagarde said on Monday. She said, however, that a reduction in Greece’s debt load could occur without international lenders having to take write-downs of their loans - an issue of specific concern to European Union creditors. Greece, the IMF and official European creditors are locked in a review of the country’s bailout programme.
US Vice President Mike Pence (R), swears in Steven Mnuchin (2-L) as Secretary of Treasury while accompanied by US President Donald J. Trump (L) and Mnuchin’s fiancee Louise Linton (2-R). Lusa
Treasury’s semi-annual currency report. Among Mnuchin’s biggest jobs is managing a sprawling congressional tax reform effort that seeks to slash business tax rates and enact a new border tax adjustment system aimed at boosting U.S. exports. Mnuchin will quickly need to build a core management team to handle such challenges. Treasury an d White House representatives did not respond to requests for comment on Monday on reports that Trump would soon nominate David Malpass, a former economist at failed Wall Street bank Bear Stearns, as Treasury undersecretary for international affairs, the agency’s top economic diplomacy job. Malpass, a Trump campaign adviser who had been leading Treasury transition efforts, was seen as a leading candidate for the job, with experience from international economic posts in the Ronald Reagan and George H.W. Bush administrations. Other names that have been floated for senior posts include Goldman Sachs banker Jim Donovan for deputy Treasury secretary and Justin Muzinich, a former Morgan Stanley banker, for undersecretary of domestic finance.
“Foreclosure machine”
Mnuchin, a second-generation Goldman Sachs banker who led the firm’s mortgage bond trading but left the bank in 2002, came under fire from Democrats over his investor group’s 2009 acquisition of another failed lender, IndyMac Bank, from the Federal Deposit Insurance Corp. The bank, rebranded as OneWest, subsequently foreclosed on more than 36,000 homeowners, drawing charges from housing advocates that it was a “foreclosure machine.” Mnuchin grew OneWest into Southern California’s largest lender and sold it for US$3.4 billion in 2015. He has also helped finance Hollywood blockbusters such as “Avatar,” “American Sniper” and this past weekend’s box office champion, “The Lego Batman Movie,” which took in US$55.6 million. Reuters
CPI
U.K. inflation accelerates less than expected Crude oil surged 88 per cent, the biggest jump since the turn of the century Fergal O’Brien
U.K. inflation picked up less than economists forecast in January as clothing-store discounts kept the rate from reaching the Bank of England’s (BOE) target. Consumer prices increased 1.8 per cent from a year earlier compared with 1.6 per cent in December, the Office for National Statistics said yesterday. Economists had estimated 1.9 per cent. Core inflation held steady at 1.6 per cent. Rising fuel costs coupled with a weaker pound are set to push the rate above the BOE’s 2 per cent goal soon, with some economists forecasting it will hit 3 per cent by the end of the year. In a sign of the upward pressure, annual growth in factory input costs surged to the fastest since 2008. Clothing prices fell 4.2 per cent on the month in January, the ONS said. The biggest upward effect on headline inflation came from motor fuels. Food prices fell the least in more than two years. The BOE sees inflation accelerating
through this year and peaking at 2.8 per cent in early 2018 after the U.K.’s vote to leave the European Union slashed the value of the pound. The central bank kept interest rates unchanged this month as policy makers said they could look through a period of faster price gains as long as they don’t get out of hand.
Oil costs
Import costs rose more than 20 per cent year-on-year, the most since 2008. Crude oil has surged 88 per cent, the biggest jump since the turn of the century. Higher inflation rates will mean a reduction in households’ spending power if wage growth -- currently running at 2.7 per cent -- doesn’t also pick up. Wireless-speaker maker Sonos said on Monday it will raise the cost of its products in the U.K. by as much as 25 per cent, becoming the latest in a string of companies to blame the weaker pound for a price hike. Based on CPIH, which includes some housing costs, inflation was 2
per cent in January. It will become the headline measure next month, though the BOE will continue to target the CPI figure.
‘The central bank sees inflation accelerating through this year and peaking at 2.8 per cent in early 2018 after the U.K.’s vote to leave the European Union slashed the value of the pound’ While the BOE has a “neutral” stance on interest rates, some policy makers have begun to raise concern about the pickup in price growth after the economy performed better than expected in the second half of 2016. Bloomberg News
Business Daily Wednesday, February 15 2017 15
Opinion Business Wires
Bangkok Post PTT Plc, the (Thailand) national oil and gas conglomerate, has revised up its five-year capital spending plan for the entire group by 78 per cent to 1.6 trillion baht as global oil prices rise. “It is time for our subsidiaries to start investing again in light of the rising trend in oil prices,” said president and chief executive Tevin Vongvanich. The newly announced figure is well above the 900 billion baht in capital expenditure (capex) for 201721 announced last February, when PTT said global oil prices would likely remain below US$35 a barrel.
The Korea Herald South Korea and Southeast Asian countries agreed to speed up negotiations to upgrade their free trade agreement (FTA), Seoul’s trade ministry said yesterday, amid rising fears over trade protectionism. Seoul has been in talks with the 10 Association of Southeast Asian Nations to improve the FTA, which took effect in 2007, with Singapore becoming the chair country of the Korea-ASEAN FTA implementation committee. Thanks to the FTA, trade between South Korea and ASEAN nearly doubled over the past decade to US$119 billion in 2016 from US$62 billion in 2006.
Managing Big Data’s big risks
I The Phnom Penh Post The majority of the Kingdom’s six mobile operators have agreed to stop running deep-discounted mobile voice and data deals after admitting they had deliberately engaged in predatory pricing, the telecom industry regulator said yesterday. The tentative truce comes after weeks of escalation in competitive pricing, with rival operators rolling out increasingly grand call and data promotional offers. Fearing an allout price war, the Telecommunication Regulator of Cambodia (TRC) pushed forward a scheduled meeting with the six operators, calling them in yesterday to defend their pricing platforms.
Jakarta Globe Grab is likely to announce a deal to buy Indonesian online payment startup Kudo for over US$100 million, a source close to the matter said, in a move that will help the Southeast Asian ride-hailing firm roll out its services to more customers. This deal will be funded from the US$700 million Grab has promised to invest in Indonesia, its largest market, over the next four years, a person who declined to be identified as the information was not public said. Founded in 2014, Kudo facilitates online transactions for Indonesian consumers, according to its website.
n the last 15 years, we have witnessed an explosion in the amount of digital data available – from the Internet, social media, scientific equipment, smart phones, surveillance cameras, and many other sources – and in the computer technologies used to process it. “Big Data,” as it is known, will undoubtedly deliver important scientific, technological, and medical advances. But Big Data also poses serious risks if it is misused or abused. Already, major innovations such as Internet search engines, machine translation, and image labelling have relied on applying machine-learning techniques to vast data sets. And, in the near-future, Big Data could significantly improve government policymaking, social-welfare programs, and scholarship. But having more data is no substitute for having high-quality data. For example, a recent article in Nature reports that election pollsters in the United States are struggling to obtain representative samples of the population, because they are legally permitted to call only landline telephones, whereas Americans increasingly rely on cell phones. And while one can find countless political opinions on social media, these aren’t reliably representative of voters, either. In fact, a substantial share of tweets and Facebook posts about politics are computer-generated. In recent years, automated programs based on biased data sets have caused numerous scandals. For example, last June, when a college student searched Google images for “unprofessional hairstyles for work,” the results showed mostly pictures of black people; when the student changed the first search term to “professional,” Google returned mostly pictures of white people. But this was not the result of bias on the part of Google’s programmers; rather, it reflected how people had labelled pictures on the Internet. A Big Data program that used this search result to evaluate hiring and promotion decisions might penalize black candidates who resembled the pictures in the results for “unprofessional hairstyles,” thereby perpetuating traditional social biases. And this isn’t just a hypothetical possibility. Last year, a ProPublica investigation of “recidivism risk models” demonstrated that a widely used methodology to determine sentences for convicted criminals systematically overestimates the likelihood that black defendants will commit crimes in the future, and underestimates the risk that white defendants will do so. Another hazard of Big Data is that it can be gamed. When people know that a data set is being used to make important decisions that will affect them, they have an incentive to tip the scales in their favour. For example, teachers who are judged according to their students’ test scores may be more likely to “teach to the test,” or even to cheat.
“
Ernest Davis Professor of Computer Science at the Courant Institute of Mathematical Sciences, New York University
Similarly, college administrators who want to move their institutions up in the US News and World Reports rankings have made unwise decisions, such as investing in extravagant gyms at the expense of academics. Worse, they have made grotesquely unethical decisions, such as the effort by Mount Saint Mary’s University to boost its “retention rate” by identifying and expelling weaker students in the first few weeks of school. Even Google’s search engine is not immune. Despite being driven by an enormous amount of data overseen by some of the world’s top data scientists, its results are susceptible to “search-engine optimization” and manipulation, such as “Google bombing,” “spamdexing,” and other methods serving parochial interests. A third hazard is privacy violations, because so much of the data now available contains personal information. In recent years, enormous collections of confidential data have been stolen from commercial and government sites; and researchers have shown how people’s political opinions or even sexual preferences can be accurately gleaned from seemingly innocuous online postings, such as movie reviews – even when they are published pseudonymously. Finally, Big Data poses a challenge for accountability. Someone who feels that he or she has been treated unfairly by an algorithm’s decision often has no way to appeal it, either because specific results cannot be interpreted, or because the people who have written the algorithm refuse to provide details about how it works. And while governments or corporations might intimidate anyone who objects by describing their algorithms as “mathematical” or “scientific,” they, too, are often awed by their creations’ behaviour. The European Union recently adopted a measure guaranteeing people affected by algorithms a “right to an explanation”; but only time will tell how this will work in practice. When people who are harmed by Big Data have no avenues for recourse, the results can be toxic and far-reaching, as data scientist Cathy O’Neil demonstrates in her recent book Weapons of Math Destruction. The good news is that the hazards of Big Data can be largely avoided. But they won’t be unless we zealously protect people’s privacy, detect and correct unfairness, use algorithmic recommendations prudently, and maintain a rigorous understanding of algorithms’ inner workings and the data that informs their decisions.
When people who are harmed by Big Data have no avenues for recourse, the results can be toxic and farreaching
”
Project Syndicate
16 Business Daily Wednesday, February 15 2017
Closing Pilot programme
Beijing picks 11 companies for foreign Kicking off the scheme for 2017, NDRC said it selected seven state banks, three noncurrency bond sales scheme China’s state planning agency said yesterday it had selected the first batch of 11 companies in a pilot scheme for 2017 that will allow them to issue foreign-currency bonds more flexibly, and efficiently. Last year, the National Development and Reform Commission (NDRC) picked 21 companies for the scheme, as the government encouraged state firms to issue dollar bonds, and convert the proceeds into yuan to bolster the Chinese currency.
banking financial institutions, and Huawei Technologies Co, giving them freedom to choose the timing and frequency of forex bond issuance, as long as they do not exceed the annual cap for foreign debt. Previously, companies needed NDRC approval before they could sell bonds overseas. The companies selected include China’s top five state lenders, China Life Insurance Co and China Huarong Asset Management Co. Reuters
Politics
Kim Jong Un’s estranged brother purportedly murdered in Malaysia A source says two unidentified women killed Kim Jong Nam at Kuala Lumpur’s airport with a poison needle before fleeing in a taxi Sam Kim and Kanga Kong
T
he oldest half-brother of North Korean dictator Kim Jong Un was murdered in Malaysia on Monday, according to a South Korean government official. Kim Jong Nam, the eldest son of former leader Kim Jong Il, had lived outside the country for years. The official, who asked not to be identified, citing government policy, said poison was involved in his death, but provided no other details. Two unidentified women killed Kim Jong Nam at Kuala Lumpur’s airport with a poison needle before fleeing in a taxi, YTN television station reported, citing a government source. Malaysia’s police didn’t immediately respond to a request for comment. Kim Jong Nam, aged in his mid 40s, fell out of favor with his father after he was caught trying to enter Japan using a fake Dominican Republic passport in 2001, according to Japanese reporter Yoji Gomi, who wrote a book about him in 2012. Kim Jong Nam had been critical of Kim Jong Un, reportedly saying in 2012 that he “ won’t last long” because of his youth and inexperience. The two brothers have different mothers. News of the murder comes two days after Kim Jong Un test-fired a ballistic missile as part of efforts to develop North Korea’s nuclear-weapons capability. The provocation drew a rebuke from the United Nations
Security Council, with U.S. President Donald Trump vowing to deal with the threat “ very strongly.”
Kim Paranoia
North Korea remains largely cut off from the world, with information tightly controlled by the government. Kim has carried out a series of executions since taking power in 2011, the most high profile of which was the 2013 killing of his uncle and
Resignation
one-time deputy Jang Song Thaek. If Kim Jong Nam was killed by a North Korean spy, it indicates that Kim Jong Un felt a sense of paranoia about his own future and wanted to remove any potential successors, according to Namkoong Young, who has been teaching inter-Korean politics at Hankuk University of Foreign Studies for more than 25 years. “Jong Nam has been in exile for years away from North’s politics for a long time but he is still the eldest son of Kim Jong Il,” Namkoong said. “And if there was any move or plan by some elite there to have him replace Jong Un, he probably should be removed.”
Teapots
A spokesperson for South Korea’s unification ministry declined to comment. Malaysia’s foreign ministry is still waiting for information from the police on the identity of the deceased man, a spokeswoman said via text message. The death is under the purview of the home affairs ministry, she said. Kim Jong Un had about 50 officials executed in 2014 on charges ranging from graft to watching South Korean soap operas. Two senior officials were executed with an anti-aircraft gun in August last year on Kim’s orders, South Korea’s JoongAng Ilbo newspaper reported, citing people it did not identify. Bloomberg
GDP
Flynn departure leaves Trump Mainland steps up national security team in turmoil Russian oil imports
Eurozone growth hits 0.4 per cent in 2016 Q4
White House National Security Adviser Michael Flynn resigned amid a snowballing controversy over whether he lied about his contacts with a Russian official, throwing President Donald Trump’s security team into turmoil just weeks into his term. Flynn’s resignation came as Trump struggles to cement his national security apparatus as the president and his cabinet officials are preparing for a series of meetings and summits with foreign leaders in the coming months, starting this week in Europe. Retired Army Lieutenant General Keith Kellogg, who had been Flynn’s chief of staff, was named acting national security adviser, White House Press Secretary Sean Spicer said in a statement announcing the resignation. Along with Kellogg, the White House is considering retired Vice Admiral Robert Harward and former CIA director David Petraeus as permanent replacements for Flynn. None of the three has a history with the president like Flynn’s, who was an early supporter and ardent campaigner during Trump’s improbable campaign for the White House. Amid the disruption, the U.S. is confronting serious challenges on two strategic fronts: the Middle East and Asia. Bloomberg News
Growth in eurozone remained resilient in the fourth quarter of 2016, but slightly less than an earlier estimate, data showed yesterday. The EU’s Eurostat statistics agency said growth in the eurozone landed at 0.4 per cent in the fourth quarter of 2016, revising down the 0.5 per cent estimated on January 31. The figures show that recovery in Europe remains on pace despite the significant unknowns of Brexit and the policies of the new Trump administration in the US. The data still meant that the eurozone economy grew by 1.7 per cent in 2016, exceeding the United States which gained 1.6 per cent last year. The 28-member EU as a whole grew by 1.8 per cent, Eurostat said. Faster growth came on a spike in consumer demand in France and Spain while Germany’s export-driven economy remained on a solid course. The economy in Spain grew by 3.0 per cent in 2016, while Germany grew by 1.8 per cent, Eurostat said. Greece, which is once again in the headlines over debt troubles, last year slipped out of recession, growing by 0.3 per cent. The growth spurt will put pressure on the European Central Bank to scale back its controversial stimulus measures. AFP
Russian crude imports to China have risen in early 2017 as the country’s independent, or teapot, refiners have expanded their diet to include the Urals grade, trade sources said yesterday. Russia could expand its market share in China, the second-largest oil consumer, this year after a drop in Brent prices relative to Middle East crude benchmark Dubai opened the arbitrage for Russian Urals to head east. Russia topped Saudi Arabia as the biggest crude seller to China in 2016. Shandong Wonfull Petrochemical Group bought about 2 million barrels of Urals crude for delivery in February and May, two sources with knowledge of the matter told Reuters. Of these, Mercuria will deliver 1.2 million barrels of Urals this month from the supertanker Atromitos that is anchored off Qingdao port, one of the sources said. The ship is also carrying 600,000 barrels of North Sea Forties, the source said. “The (crude’s) quality is good and is very similar to Oman,” one of the sources said, adding that Urals also has better refining economics. Urals is priced against the Brent benchmark, which last month narrowed to its lowest in more than a year against Dubai. Reuters