Ant financial invests in Korean payment system Strategic move Page 9
Wednesday, February 22 2017 Year V Nr. 1239 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Monetary policy
China’s central bank could relax banks’ reserves Page 8
Tourism
Investment
Page 2
Page 6
Insurers planning new products for alert scheme
www.macaubusinessdaily.com
Ho’s family reportedly investing in Malaysian healthcare start-up
Gaming
LVS boss estimates Japan casino could cost up to US$10 bln Page 7
Fitch Forecasts Uninspiring Banking
The outlook for Macau’s banking sector ‘remains negative’ for this year. Fitch ratings agency made the assessment in its Financial Institutions 2017 Outlooks Compendium. Citing the city’s lack of diversification. Plus vulnerability to shifting Mainland policy and consumers’ volatile sentiment. Page 5
Hoteliers report mixed fortunes
Average occupancy rate at local hotels slid 10.5 percentage points m-on-m for January. Despite CNY. But the performance is better vis-a-vis one year ago. Jumping 5 percentage points. Meanwhile, room rates were higher in terms of both monthly and yearly comparisons.
Inflation up a tad
Consumer prices Local consumer prices increased 1.76 pct y-o-y last month. A higher growth than December’s 1.44 pct put down to Chinese New Year. Driving up seasonal charges for outbound package tours, airfares and hairdressing services. Page 2
Easing spirits
Hotels Page 3
HK Hang Seng Index February 21, 2017
23,963.63 -182.45 (-0.76%) Worst Performers
Belle International Holdings
+8.63%
Cheung Kong Property
+0.86%
HSBC Holdings PLC
Lenovo Group Ltd
-1.26%
Sun Hung Kai Properties Ltd
+2.95%
New World Development
+0.85%
Galaxy Entertainment Group
-2.19%
China Merchants Port
-1.15%
Li & Fung Ltd
+1.75%
Link REIT
+0.85%
Bank of China Ltd
-1.50%
Want Want China Holdings
-1.12%
Henderson Land Develop
+1.36%
China Life Insurance Co
+0.82%
Tencent Holdings Ltd
-1.40%
Sands China Ltd
-1.09%
Cathay Pacific Airways
+1.25%
Power Assets Holdings Ltd
+0.72%
Hengan International Group
-1.27%
China Resources Power
-0.97%
-5.00%
17° 22° 13° 19° 12° 15° 12° 14° 13° 16° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Commerce Foreign investment in the country is still performing adequately. So says Gao Hucheng, Chinese Minister of Commerce. This despite the latest receding figures. Gao discarded talk of a commercial war with Uncle Sam as an option. Page 8
2 Business Daily Wednesday, February 22 2017
Macau
Tourism
Insurers planning new products under travel alert scheme The tourism office head explained that the reason for not immediately implementing the new travel alert scheme following its dispatch is to allow relative parties to prepare Cecilia U cecilia.u@macaubusinessdaily.com
T
he city’s insurance industry is preparing new travel insurance products for the upcoming implementation of the travel alert scheme, said the Director of the Macau Government Tourism Office (MGTO). “We have been keeping in touch with the Monetary Authority of Macau and we have received information that around six to seven companies are applying for the introduction of new insurance products [for the scheme],” the MGTO head said yesterday on the sidelines of a Spring luncheon hosted by the Social
Welfares Bureau. On Monday, the Official Gazette announced the launch of the city’s first-ever travel alert scheme, categorising threats into three different levels: Alert Level 1, Alert Level 2 and Alert Level 3, respectively referring to an ‘imminent threat’, an ‘elevated threat’ and an ‘extreme threat.’ The same dispatch regulates the scheme will only come into effect in 15 days following the announcement. The MGTO head explained yesterday that the implementation date was set in consideration of the fact that both the insurance industry and the tourism sector will need time to adapt to the scheme. The scheme, designated for
outbound residents, covers a total of 77 destinations although Mainland China, Hong Kong and Taiwan are not included in the list. According to the official, the scheme is currently evaluating the scope it covers, considering listing some destinations to Alert Level 1 or 2 once the evaluations are complete. She also explained that the scope for the scheme is set based upon the concept of countries, claiming other countries also do not include the aforementioned regions to their travel alert scheme. “It doesn’t mean we don’t pay attention to these places,” said Ms. Fernandes. “We will continue the ways that we have been doing – learning the situations of places and informing residents via press releases.” The Director added that there would be more countries or destinations added to the scheme in the future. “The implementation of the scheme does not mean that
no improvement can be made,” she said.
Warning only
Asked whether the scheme would include penalties, Ms. Fernandes said all travel alert systems in the world act merely as advice and a warning, adding that one’s personal freedom cannot be restricted and thus the scheme includes no penalties or regulations to force the halt of tours. Meanwhile, the MGTO Director stressed and advised residents purchase travel insurance to ensure compensation should an accident happen. She also revealed that there are some divergent opinions between the tourism office and the industry regarding tour retreats under threat. She indicated that travel agents in other regions would handle crises on their own since it is difficult to make uniform arrangements given the large number of agents. “We are still awaiting the final decisions of the travel agencies,” said Ms. Fernandes.
Consumer prices
January inflation hits 1.76 pct The month’s consumer price increase was primarily driven by the Chinese New Year Kam Leong kamleong@macaubusinessdaily.com
The local inflation rate reached 1.76 per cent for the first month of
the year, up 0.32 percentage points from 1.44 per cent for the month of December, the latest official data released yesterday by the Statistics and Census Service (DSEC) reveals.
According to DSEC, the hike in charges for package tours for Chinese New Year during the month was one of the major factors driving the price increases, as this year’s Chinese New Year fell in January rather than in February as one year ago. In addition, dearer charges for eating out, rising rentals for parking spaces and higher prices of motor cars and gasoline boosted the city’s
fell 0.88 per cent from one year ago. Meanwhile, monthly inflation was 0.36 per cent, again boosted by soaring charges for package tours for the Chinese New Year, in addition to rising airfares and gasoline prices. The price index of recreational & cultural activities and transport thus recorded respective increases of 7.49 per cent and 1.1 per cent month-on-month, while charges for miscellaneous goods & services
consumer prices, said DSEC. For the month, the composite consumer price index (CPI) reached 109.25. By sector, the price index of recreation & culture activities increased 9.03 per cent year-onyear for January, while that of transport and education increased year-on-year by 8.12 per cent and 7.38 per cent, respectively. However, costs for housing & fuel and communications both recorded decreases from one year ago, down 1.79 per cent and 1.73 per cent, respectively. In addition, the average price of clothing & footwear
grew 0.56 per cent month-onmonth owing to higher charges for hairdressing services prior to Lunar New Year. By contrast, the seasonal sale of winter clothing caused the price index of clothing & footwear to fall by 4.71 per cent from one month ago. For the 12 months ended January 2017, the average composite CPI went up by 2.20 per cent from the previous period. Major price increases were apparent in alcoholic beverages & tobacco, education and transport, up 19.1 per cent, 8.26 per cent and 7.2 per cent period-toperiod, respectively.
Business Daily Wednesday, February 22 2017 3
Macau
Hospitality
Plumping up the pillows Room rates for 5-star hotels increased 18.6 per cent from December to January Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he MSAR’s hotels saw a decrease of 10.5 percentage points in their occupancy rate between the month of December of last year and January, according to the most recent data from the Macau Hotels Association, published by the Macao
Government Tourism Office. Taking into account that the first half of the Chinese New Year holiday fell in January this year, the average occupancy seen throughout the month was 82.6 per cent in the city’s 5, 4 and 3-star hotels, a year-on-year increase of five percentage points. This compares to the same month of last year, which saw a 4.5 per cent year-on-year drop in room rates.
Across the board, the city’s 3 to 5-star hotels saw year-on-year increases in their occupancy rate, with the most marked increase apparent in 5-star hotels, with a growth of 5.5 points year-on-year, to 82 per cent occupancy for January. This was closely followed by the 5.4 percentage point increase in occupancy for 3-star hotels, which saw total occupancy hit 89 per cent, while 4-star hotels saw an increase of 3.9 percentage points in occupancy. Compared to the previous month,
all the categories posted reductions, with 3-star hotels the least affected, seeing a decline of 8.1 percentage points month-on-month in occupancy. Meanwhile, 4-star hotels took the largest month-on-month hit, with a drop of 12.1 percentage points in occupancy rates, from the 93.6 per cent peak seen in December, beating 5-star hotels’ 92.1 per cent occupancy that month; 5-star hotels’ occupancy decrease was closer to the average, with a decrease of 10.1 percentage points in occupancy.
4 Business Daily Wednesday, February 22 2017
Macau Opinion
Ho Chio Meng Trial
Overcharging for benefits José I. Duarte* Core issue Sometimes while reading (or watching, or listening to) the news, we may be forgiven for vacillating between two opposing states of mind. Either we conclude the news cannot mean what it says, something must be amiss; or to decide, possibly with a dash of disparagement, we can only understand it too well. A few days ago, the television’s English channel posted a news piece stating boldly: “Beijing green-lights Guia Hill highrise.” For those less acquainted with the issue, the text recapped that the building had raised some controversy, as the government had “approved the project (…), set at 80-metres high, against Macau’s own regulations which set the cap at 52.5 metres.” We were also told that UNESCO had “relayed” concerns to [the Chinese] heritage authorities, with a “formal reply still pending.” And the president of Macau’s Cultural Institute was quoted as saying that “members of the Mainland cultural department (…) have seen the building and found no issue with it”. Other media also picked up the topic briefly, along the same lines, with some minor (but not necessarily inconsequent) changes of wording. One cannot avoid some perplexity. First, what does “found no issue” mean? What was the problem they were supposed to define or assess, or about which they had to make up their minds? If that is much less than clear, in what sense could they “green-light” the project? It may be a formulation designed to accommodate particular interests or opinions. We don’t know, but it is conceivable. It is not a warranted conclusion. Second, until there is a final report by the Mainland authorities to UNESCO, the actual contents and conclusions can only be speculative. Speculation, even when well informed, is not news. It is just speculation, no matter how well intentioned or disinterested. Thirdly, in the absence of such report, it seems somewhat inappropriate to anticipate its conclusions. That may be construed as interference, if not disrespect, for those responsible for producing it. Finally, first and foremost, this seems to be a matter of open contempt for the regions’ regulations. It is not the role of UNESCO, or the heritage authorities on the mainland, to certify that the Administration complies with the laws of Macau. It is much less within their mandate to authorise or validate their violation. It is for the government to abide by them, and to the judicial authorities to enforce them. All the rest is secondary, a distraction from what matters. *economist and permanent contributor to this newspaper.
A witness testified yesterday that the alleged associates of former Prosecutor-general Ho Chio Meng were involved in operations that overcharged the department for multiple services Nelson Moura nelson.moura@macaubusinessdaily.com
A
s the trial of the bribery case of former Prosecutor-general Ho Chio Meng continued at the Court of Final Appeal yesterday, a former employee of the front companies involved in the case testified that the relatives and alleged associates of the former top official were involved in the operations. Rosita Chan said she had worked for the companies located on the 16th floor of the Hotline Building between 2004 and 2012. She claimed that the defendants in the case, Wong Kuok Wai and Mak Im Tai, constituted the management of the companies with Ho’s brother-in-law Lei Kuan Pun and brother Ho Chiu Sun. The former Prosecutor-general is accused of colluding with relatives and associates to indirectly profit from some 1,300 contracts granted by the Public Prosecutor’s Office to front companies run by his relatives and alleged business associates.
According to Ms. Chan, the Public Prosecutor’s Office was the only client of these companies, while the companies provided the majority of the services to the Office via subcontracts. Responsible for drafting the companies’ invoices to the Office, Ms. Chan claimed Lei Kuan Pun and Wong Kuok Wai would always provide receipts and invoices from the subcontractors and increase the prices by between 3 per cent and 50 per cent.
Multitasking for MOP6,000
The witness said that the only services that the companies had provided to the Prosecutor’s Office themselves were cleaning services for the 16th floor and Mr. Ho’s official residence, apart from the purchase of LED and bulletproof glass and micro-film services. She added that these services were usually performed by one employee although it stated in the companies’ contracts with the Office that they required a number of employees.
According to Ms. Chan, she was paid a monthly salary of MOP6,000 (US$750) between 2004 and 2008 when she was in charge of providing microfilming services as well as scanning and archiving around 200 cases for the Office. However, the official contracts for these services read that the Office would need to pay a total of MOP37,666 per month for three employees. The witness added that her father was also paid MOP6,000 per month for guarding and cleaning services in two warehouses of the Office, for which the contracts stated the services should be provided by six employees. Yesterday’s trial also heard another employee in the companies, Pou Sau Kei, who had worked between 2008 until the companies ceased operation. Ms. Pou, besides taking over the micro-film duties, had also provided cleaning and administrative duties for the companies for a monthly wage of MOP6,000. Having cleaned the resting room of the 16th floor that the former top official is accused of using for personal use, Ms. Pou confirmed she had seen a sauna and two bedrooms in the area, while she had cleaned the beds after they were used. The trial continues today.
Infrastructure
Shifting seawall will not delay Delta bridge Hong Kong’s Highways Department has confirmed the shifting of two seawalls on one artificial island for the Hong Kong-Zhuhai-Macau-Bridge Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
Authorities from Hong Kong’s Highway Department have been called out for not notifying the public about the shifting of two seawalls located on one of the artificially constructed islands created to link the neighbouring SAR to Macau via the Hong Kong-Zhuhai-Macau Bridge. As quoted by the South China Morning Post, the Director of the Highways Department, Daniel Chung Kum-wah, admitted that the two walls in question had shifted up to 10 metres beyond their original intended position. H o w e v e r, g i v e n t h a t t h e department had “resolved” the issue, the Director justified the lack of communication by the fact that it had not caused “any impact to nearby residents” and did not constitute a “safety issue” as well as not resulting in “any environmental impact”. Director Chung further opined that: “the public might not be concerned about it,” as quoted by the publication. A media report published two days ago focused attention on the
HKSAR department, with lawmaker Tanya Chan Suk-chong noting that the incident “may involve a coverup and illegal land reclamation to the detriment of public interests,” calling the matter, “really serious” and noting that the city’s Legislative Council hopes that “all the involved officials will give us a full account,” the publication quotes.
Sandy bottom
In response to the statements, the Director of the Highways Department justified the lack of communication about the incident by its alleged lack of impact; however, he nearly guaranteed a further lack of transparency in the future on such matters by stating: “we have resolved all those problems; we don’t think there is a need to tell the public about it . . . If we do so, maybe every day we have to say something about the project to the public,” the publication quotes. The matter relates to two seawalls - one 300 metres in length and another 250 metres in length - for which the former had extended 10 metres beyond its end point and the latter five metres beyond. The two walls relate to an area of 5,500 square
metres, notes the publication; the incident happened in 2014, without any mention officially made by the authorities until yesterday. The contractor responsible for the section of the bridge in question China State Construction Engineering (Hong Kong) - submitted two reports to the department in the wake of the incident and by end-2015 had completed repair works on the seawalls, at the contractor’s cost. The Director of the Highways Department noted that the incident would not affect the schedule of the project and noted that “since the end of 2015” the authorities hadn’t “found any irregular movements of seawalls”. Earlier this month the HKSAR’s Secretary for Transport and Housing, Anthony Cheung Bing-Leung, commented that the budget for the bridge would exceed the original expected cost, with the overruns to be shared between the three linked cities. Director Chung reiterated the Secretary’s pledge that the Hong Kong segment of the bridge would be completed by year-end. In terms of other infrastructure linking the regions of the Pearl River Delta, the authorities today posted a video on its official website publicizing the “long term opportunities” for the HKSAR economy, “cultural development and tourism” due to its link between West Kowloon and Guangzhou, and the high-speed network of the Mainland, via high-speed train. ‘Moving forward with Mainland China – the Express Rail Link’ was the slogan coined by the authority.
Business Daily Wednesday, February 22 2017 5
Macau
Finance
Full pockets Ratings agency Fitch believes the city’s lack of diversification beyond ‘gaming-related tourism and consumption sectors’ makes it ‘vulnerable to policy changes in China and shifts in consumer sentiment’ Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
I
n a global growth environment which ratings agency Fitch predicts is ‘likely to pick up’ this year despite a ‘long’ list of variables, the outlook for the banking sector of the MSAR ‘remains negative’ for 2017, according to the group’s Financial Institutions 2017 Outlooks Compendium. The ratings agency notes that the region’s outlook carries a rating of ‘stable,’ the same as at the end of 2015, whereas the sector outlook for the banking industry is ‘negative,’ given the city is seeing an ‘enduring impact from a slow recovery in the gaming sector, the effect of a China slowdown and property-price corrections on banks’ credit profiles.’ In particular, the group calls the current framework in place for the MSAR as ‘weaker-than-peer’ opining that this ‘leaves banks underprepared to withstand risks.’ Late last year the MSAR underwent an audit by the Asia/Pacific Group on Money Laundering, which examined its financial and business sectors, their vulnerabilities and possible points of exploitation, with particular attention to regulatory framework; audit results are currently being prepared. One of the heads of the local banking institutions has described the audit to Business Daily as “a challenge to all of us.” An overall expansion to the MSAR’s ‘volatile’ Gross Domestic Product, coming on the back of consecutive contractions of 3 per cent (2016 estimate) and 20.5 per cent (2015), is expected to ‘add stability’ to the operating environment of the financial sector.
Diversify, man
The group points out that the city’s lack of diversification beyond gaming-related tourism and consumption sectors makes it vulnerable to policy changes in China and shifting
consumer sentiment, and points out that the system has a high risk of systemic stress. However, the gaming exposure the group classifies as ‘manageable’ - noting that the ‘quality of gaming-associated exposure including restaurants and retail sectors will be supported by a rebound in gaming-sector revenue.’ This leads the group to forecast mid-single-digit growth for gaming revenue in 2017 ‘due to new casino openings and mass-market visitors.’ With regard to banks’ exposure to the Mainland, classified as MCE, the group sees it ‘continuing to expand, driven by cross-border financing needs of Chinese and foreign institutions and banks’ deepened business integration with these Chinese bank parents.’ In particular, two of the banks ranked by Fitch with a ‘stable’ outlook are due to the fact that ‘parental support drives ratings,’ notes the agency. Domestic loans by local banks are expected to pick up this year in the domestic retail, hotel and property sectors, according to the report. ‘We think banks’ profitability will hold up, but a reliance on interest income may constrain the upside as loan spreads could narrow on low aggregate loan demand,’ notes the report. ‘The steadily growing share of higher-yielding securities will support earnings but also adds market risk,’ says Fitch, believing that liquidity will be backed by the ‘large deposit base, moderate loan growth and access to liquidity support from parents.’ The group calls for the MSAR to ‘diversify and stabilise its economy through building up non-gaming sectors’ in order to limit its exposure to the Chinese economy and policy changes.
Working forward
A recent consultation by the International Monetary Fund of the
MSAR resulted in a commendation by the institute for a ‘sound financial sector’ as well as ‘strong macroeconomic resilience’ noting a liquid and well-capitalised banking sector, prudent fiscal policy and flexible labour markets, pointing out its support for the MSAR to diversify in three main areas: VIP-focused gaming to mass market, gaming to non-gaming tourism and tourism to financial services. These reflect the position taken in the MSAR’s five-year plan. A recent ranking by the Heritage Foundation placed the MSAR 8th in Asia in terms of economic freedom, scoring 90 (out of 100) for trade freedom, 85 for investment freedom, and 70 for financial freedom, noting that ‘the small financial system functions without undue government influence’ and that ‘relatively sound regulation assures free flows of financial resources.’ A recent statement by the local monetary authority assures that ‘with Macau SAR’s sound public finance, stable balance of payments, credible linked exchange rate system and healthy financial system, the Government and local financial system are able to cope with volatilities in financial markets.’
Neighbours
Neighbouring Hong Kong received the same rating as the MSAR, with a stable overall outlook and a negative sector outlook, given the similar exposure to the Mainland ‘as Hong Kong banks become more sophisticated in their China-related activities – which should lead to a pick-up in the onshore activities of Hong Kong banks.’ Overall, the SAR has ‘sound intrinsic strength’ with Fitch opining the banks will ‘continue to maintain solid fundamentals amid tight regulatory oversight and macro-prudential measures.’ For China, the ratings reflect those of the two SARs, with the negative sector outlook due to ‘reliance on credit to support growth’, ‘increasing regulatory scrutiny’ and ‘rising interconnectivity with non-bank financial institutions.’ The group points out that China’s ‘credit problem’ is set to intensify this year due to, in addition to the previous points, ‘rapid growth in new mortgage loans’ and the ‘rise in system leverage.’
‘Household lending, in particular mortgages, should remain a key loan growth driver for 2017, in spite of further home purchase restrictions in the higher-tier cities being introduced to cool market prices,’ notes the report. Regarding the increased regulatory scrutiny predicted for this year, the agency points out that ‘whether tighter regulations successfully contain systemic risks will depend on the implementation, as previous rules sometimes had the unintended consequences of reducing bank transparency.’
Wide world
Overall, Fitch points out a list of 10 main themes to keep an eye on in the coming year for the banking sector, led by macroeconomic drivers including fiscal easing, monetary tightening, investment and productivity levels’ influence on GDP and emerging market growth (which it notes should rebound somewhat from recent lows). Other issues include political risks, mostly concerning Brexit and U.S. President Donald Trump but also encompassing ‘populist momentum’ and its effect on upcoming European elections (‘expect greater levels of economic nationalism and pressure on established norms and alliances’). ‘(De)regulation’ was also a major factor, with the report stating ‘expect a push to repeal or rework many parts of Dodd-Frank’ and ‘ongoing debates’ regarding Basel and its ‘continued role in the harmonisation of bank regulation globally.’ Among the top ten issues, the group’s Global Group Head of Global Financial Institutions, David Weinfurter, dedicates one each to Brexit, Italy and China, while pointing out further shifts will depend upon emerging markets (with negative outlooks for their banks increasing) and technology and FinTech competition (referring to interest in ‘disruptive technologies like blockchain’). In addition, a ‘profits challenge’, in particular given that ‘equity remains under some pressure’ and the sluggish growth in over-banked territories, as well as an ‘investor appetite for loss-absorbing paper’, based on debt instruments, (noting that ‘additional issuance is forthcoming’), are pointed out as key themes the group will monitor this year.
6 Business Daily Wednesday, February 22 2017
Macau Investment
Ho’s family to invest in Malaysian healthcare start-up A member of the Stanley Ho family has purportedly invested millions of U.S. dollars in an online healthcare platform - BookDoc - headquartered in Malaysia, local media reported. The investment by the Macau tycoon’s family has been reported as another vote of confidence in the young company after other strategic foreign investors poured money into the healthcare technology startup, including Prince Abdul Qawi, a member of the Brunei Royal family, according to Deal Street Asia. Although the identity of the family member and the total investment amount are not disclosed, BookDoc
founder and CEO Dato’ Chevy Beh said the investment would amount to a double-digit million sum, according to local reports. BookDoc is an online platform that seeks to improve the timeliness of diagnosis and appropriate care by connecting patients to healthcare professionals anytime anywhere, according to the company website. Launched in October 2015, the online platform is established in Malaysia, Singapore, Thailand, and Hong Kong, where it is said to handle services for more than 50 per cent of private clinics, reported Malaysia Digest. S.Z.
Property
Le Saunda buys office property from boss Hong Kong-listed footwear manufacturer and retailer Le Saunda Holdings Ltd. has acquired a 456-square metre property at Guangzhou Metro Plaza in Guangzhou for a consideration of RMB10.8 million (MOP12.5 million/US$1.6 million). According to a company filing with the Hong Kong Stock Exchange, the target property is owned by the company’s controlling shareholder and non-executive director, Marces Lee Tze Bun. The retailer notes the reasons for the acquisition is due to it having leased the property for office use since 2009. ‘In view of the fact that the group has practical needs to continue the occupancy for its operational needs in the foreseeable future, the Board
believes that it is in the long term benefit for the Group to take ownership of the property rather than continue to lease the Property,’ the company wrote, believing the deal will help the company ‘save rental costs and avoid the potential risk of forfeiting occupancy of the property.’ According to Le Saunda, its current lease agreement for the property will expire at the end of this month, while the completion of the acquisition is expected to take place on or before March 1. La Saunda, headquartered in Hong Kong, was founded in 1977 and operates in Macau, Hong Kong, and China. Its brands include Le Saunda, Le Saunda MEN, Linea Rosa, and CNE. It had a market cap evaluated of HK$1.2 billion as of February 2017. S.Z.
Profit warning
Chinese Estates’ annual profit to narrow Chinese Estates Holdings Ltd. expects its annual net profit to decline as much as 23 per cent year-on-year for the year of 2016 although it estimates annual revenue will surge by at least 138 per cent year-on-year at that same time. In a filing with Hong Kong Stock Exchange on Monday evening, the company noted that ‘the group may record an increase in revenue ranging from 138 per cent to 148 per cent [with] a decline in profit ranging from 13 per cent to 13 for the year.’ For 2015, the company’s net profit attributable to owners of the company amounted to HK$7.7 billion (US$962 million), raking in some HK$1.54 billion in revenue. According to the company, the
estimated decrease in annual net profit is due to the decline in fair value gain on investment properties as well as the drop in share of results of associates, while disposals of subsidiaries, increase in sales of trading properties and other factors have boosted the year’s revenue. Earlier this month, the company named Kimbee Chan Hoi Wan, the wife of its controlling shareholder Joseph Lau Luen Hung, as an executive director. Former chairman and CEO of the company Mr. Lao stepped down from his positions in 2014 after Macau’s courts convicted him of bribery and money laundering in the corruption case of disgraced former Secretary Ao Man Long. K.L.
Business
Rich neighbour Guangdong Province leads list of nine provinces with 2016 GDP exceeding RMB3 trillion The neighbouring province of Guangdong leads the list of nine Chinese regions in terms of highest Gross Domestic Product, according to a report by the 21st Century Business Herald. The list only ranks provinces that have generated a GDP exceeding RMB3 trillion (MOP3.5 billion/US$437.5 million) through the whole of 2016. The province generated RMB7.95 trillion during the year, posting a growth rate of 7.5 per cent, according to the report. Seven of the nine provinces within the grouping had higher growth rates, while the province of Zhejiang saw the same
growth rate as Guangdong and that of Hebei saw a 6.8 per cent growth rate. Although not ranked on the listing as it only saw a GDP of RMB2.85 trillion, the province of Fujian saw the highest growth, at 8.4 per cent if compared in terms of growth rate, while both Hubei Province and the Henan Province saw growth rates of over 8 per cent, both with 8.1 per cent growth. ‘The economy of Guangdong in southern China has remained the biggest for the 28th consecutive year,’ said the China National Tourism Administration. The province leads the list, followed by Jiangsu Province – with a GDP of RMB7.6 trillion; Shandong Province – with a GDP of RMB6.7 trillion; Zhejiang Province – at RMB4.65 trillion; Henan Province – at RMB4.02 trillion; Sichuan Province – at RMB3.27 trillion; Hubei Province – t aRMB3.23 trillion; Hebei Province – at RMB3.18 trillion, and lastly Hunan Province – with a GDP of RMB3.12 trillion. K.W.
Business Daily Wednesday, February 22 2017 7
Gaming Dividend
MGM China recommends final dividend
Local gaming operator MGM China said the distribution of final dividend would represent 20 per cent of its total profit attributable to owners of the Company for the year ended December 31. For the year, the company has proposed a final dividend of US$0.160 per
share, totalling some HK$607 million, according to the company’s filing with the Hong Kong Stock Exchange on Monday evening. MGM China recorded a net profit of HK$3 billion (US$374.3 billion) for the year with adjusted EBITDA totalling HK$4.5 billion, a drop of 3.2 per cent and 4.3 per cent yearon-year, respectively.
Gaming
M&A
Adelson: Japan casino could cost up to US$10 bln
OTPP confirms The 13 share sales
Thomas Wilson
A resort hosting casinos in Japan could cost up to US$10 billion (MOP1.25 billion) to build, Las Vegas Sands Corp.'s chief said, as the casino operator looks to win operating rights in what is widely expected to become the world's second-biggest casino market. "It would be at least what we paid in Singapore, US$6 billion including the land, but it could be as much as US$10 billion," Chairman and Chief Executive Officer Sheldon Adelson said on Tuesday at an investor conference in Tokyo, referring to the Marina Bay Sands property in Singapore. Japan legalised casinos late last year and is now drafting rules, due by December, on how to regulate the industry and pick operators and locations of so-called "integrated
resorts" - large-scale complexes combining casinos, hotels and shopping. Although estimates of the potential size of the Japanese market vary, brokerage CLSA said just two resorts in major cities could generate US$10 billion in annual revenue, growing to US$25 billion with more locations. Major U.S. operators including MGM Resorts International and Wynn Resorts Ltd. are also among the runners for the first licence, while Galaxy Entertainment Corp. Ltd. and Australia's Melco Crown Entertainment Ltd. have also expressed interest. Political sources previously told Reuters that Japan is likely to pick casino operators and locations by 2019, with the first casinos opening by 2023. Reuters
The Canadian-based Ontario Teachers' Pension Plan (OTPP) has confirmed it has sold the entity’s all convertible bond shares in local hotel developer The 13. “Ontario Teachers' Pension Plan can confirm it has sold its entire convertible bond stake in The 13 Holdings Limited. A disclosure of interest filing has been made to the Hong Kong Stock Exchange,” a spokesperson for the
body told Business Daily in an e-mailed statement. A recent filing by The 13 to the Hong Kong Stock Exchange said U.S. based investment advisory firm Evolution Capital Management has acquired 338,628,459 shares of the company. The same filing also reads that OTPP ‘has come to have a short position of 338,628,459 underlying shares of the company’. Nevertheless, the Canadian-based entity declined to comment in detail about the deal following Business Daily’s enquiries. This newspaper had also enquired of The 13 and Evolution Capital on the stake acquisition with no response from either firm by the time this story went to press. OTPP had been a longstanding investor in The 13. In 2013, the Canadian entity invested HK$299.9 million (US$38.7 million) in the company through a zero-coupon convertible bond issue. The 13 is currently developing a luxury hotel project in the city, which is slated to open its doors this quarter, according to the company’s interim report released last December. K.L.
8    Business Daily Wednesday, February 22 2017
Greater china Channelling funds
PBOC offers banks lure of lower reserves to get more money to ailing sectors Many Chinese banks are reluctant to lend to small, private firms, which are considered riskier than state-owned companies Elias Glenn
C
hina's central bank said yesterday that it will extend a preferential scheme for some banks that will free up additional funds for lending, as long as they channel money to weaker, cash-starved sectors of the economy. But it also warned that some banks will no longer enjoy such preferential treatment after a recent review found they had failed to adhere to "standards" intended to channel
loans more directly to rural areas and small companies. The statement confirmed a Reuters report on Monday that the central bank is extending a programme that allows financial institutions that support rural finance and small enterprises to apply for a lower required level of cash reserves. Many Chinese banks are reluctant to lend to small, private firms, which are considered riskier than stateowned companies, and to farmers who have little collateral, though the government has launched a
pilot scheme to allow farmers to use their land and property to help secure loans. The People's Bank of China (PBOC) launched a programme in 2014 that allows banks to apply for a lower reserve requirement ratio (RRR) if they meet certain criteria for lending to more vulnerable areas of the economy. RRR is the amount of cash as a percentage of deposits that banks must park at the central bank as reserves. The PBOC said yesterday it had recently completed an assessment of banks' compliance with the scheme, and noted that most had met the requirements. While some banks that failed to meet the official standards will no
longer qualify for lower RRR rates this year, others that previously did not enjoy preferential RRR rates will be allowed to join the scheme, the PBOC said. "The results of the assessment will be both upwards and downwards (adjustments to reserve rates), which is conductive to the establishment of positive incentive mechanism," it said. The adjustments will take effect on Feb. 27. As part of efforts to support the slowing economy, the PBOC made five system-wide cuts in reserve ratios between February 2015 and February 2016, bringing down the level for major banks to 17 per cent On top of that, it has cut reserve ratios more sharply for some banks
Key Points Cbank looks to get money more quickly to weakest sectors Most banks under scheme enjoy lower reserve requirements Some banks to no longer get breaks after failing to meet terms Standards based on lending to rural sector, small firms
to encourage more lending to struggling sectors. While China's bank lending hit a record high last year, many small businesses and farmers remain in desperate need of funds. Recent central bank moves to raise short-term interest rates to help rein in debt risks could add to banks' reluctance to increase their exposure to smaller borrowers. Reuters
Central bank headquarters
Commerce Minister
Foreign investment is not leaving Mainland Direct investment to China fell 9.2 per cent in January China's Commerce Minister, Gao Hucheng, yesterday sought to assuage concerns that foreign investment is leaving the country, saying claims to that effect were "biased." In comments made to reporters, Gao didn't elaborate on the ministry's views though data over the past few months have shown a pick up in fund outflows. "In recent years some products have indeed moved offshore but at the same time many high-end industries have moved to China," Gao told reporters.
Foreign direct investment to China fell 9.2 per cent in January to RMB80.1 billion. An annual survey from the American Chamber of Commerce in China released last month showed that more than 80 per cent of its members felt less welcome in China than before and most had little confidence in China's vows to open its markets. Since late last year, authorities have also been tightening restrictions on capital outflows, reining in what officials have called "irrational" outbound investment.
Commerce Minister Gao Hucheng said consumption will continue to grow rapidly this year The curbs probably explained a fall in outbound direct investment, which plummeted 35.7 per cent in January to RMB53.27 billion, the weakest in over a year. Gao added that consumption will continue to grow rapidly this year,
while the foreign trade environment will remain complex. Cooperation is the only option for the U.S.-China trade relations as a healthy relationship is beneficial for both sides, he said. Although there have been disagreements between the two countries in the past, they were solved through negotiation, Gao added. Tensions between China and the United States have heightened since the start of the year after U.S. President Donald Trump criticized Beijing for harming American companies and consumers by devaluing its yuan currency. Throughout his election campaign, Trump threatened to levy punitive tariffs against China in order to bring down the U.S. trade deficit, keeping global markets on edge. Reuters
Business Daily Wednesday, February 22 2017    9
Greater China Strategic step
Ant to invest US$200 mln in Korea's Kakao Pay Alibaba's financial arm dominates the online payments industry in China with its Alipay platform Adam Jourdan
China's Ant Financial will invest US$200 million in Kakao Pay, the mobile payment subsidiary of South Korean messaging platform giant Kakao Corp, extending a major push by the Chinese firm to create a global network of financial assets. The two firms said in a joint statement yesterday that the investment was part of a larger strategic partnership to help connect Ant's 450 million global users with Kakao Pay, which currently has over 14 million members on its platform. Ant, valued at US$60 billion during a US$4.5 billion fund raising round
last April, has been using its financial firepower to expand at home and overseas as it prepares for an initial public offering that could be later this year. The firm, the payment affiliate of Chinese e-commerce giant Alibaba Group Holding Ltd, announced an US$880 million deal for U.S. money-transfer firm MoneyGram International last month. Ant also has investments in Indian mobile payment and e-commerce website Paytm and Thai financial technology firm Ascend Money. It plans to expand in the Philippines with a stake in Globe Telecom Inc's fintech firm Mynt.
"South Korea is an important market for Ant Financial in its global expansion, and we see many opportunities in the market for innovative services and growth in mobile payments," said Douglas Feagin, president of Ant Financial International. Ant, the world's most valuable on-
Key Points Kakao operates messaging platform, payment system Ant valued at US$60 bln, planning IPO line finance company, dominates the online payments industry in China with its Alipay platform, but has been facing growing competition from
domestic rival Tencent Holdings Ltd's Wechat Pay. Ant is currently looking to raise as much as US$3 billion in debt to fund acquisitions and further foreign investments, a person with direct knowledge of the matter told Reuters earlier this month. "Ant's ultimate goal is to become a global payments monster - the biggest, broadest option for consumers," said Ben Cavender, Shanghai-based principle for China Market Research. "The challenge is facing strong local players around the world, so it's cheaper to buy into these companies rather than burning money to steal market share from them." Kakao, best known for its online messaging platform Kakao Talk, has in total over 48 million users. Its Kakao Pay unit is a financial services platform which offers services such as bill payment and remittance. Reuters
M&S
Sinochem may sell 40 pct stake in Brazil's Peregrino oilfield The process to sell the Brazilian stake is still at an early stage and a final decision would depend on how the negotiations progress Anshuman Daga, Nidhi Verma and Chen Aizhu
China's Sinochem is exploring the sale of its 40 percent stake in Brazil's Peregrino offshore oilfield, four people familiar with the matter told Reuters, a deal that could see the
state-owned conglomerate walk away what was once touted as a key overseas asset because of historically low oil prices. The oil and chemicals firm agreed to buy the stake from Norway's Statoil for US$3.07 billion in 2010 - beating out a raft of Chinese rivals chasing high-quality assets. The Norwegian giant owns the other 60 percent of Peregrino, the largest heavy oilfield it operates outside its home patch. But two of the people with knowledge of the matter said Sinochem is moving to sell its largest overseas upstream stake - with capacity to pump 100,000 barrels a day - as it reshapes its assets to reflect oil prices having halved in the last two and a half years. With that in mind, one person said, Sinochem was pitching the sale at a big discount to its purchase price. Earlier this month, Reuters reported Sinochem was in early talks to buy a stake in Singapore-listed commodity trader Noble Group, a move that would further its ambitions to become more active in global energy trade and also develop China's gas industry. The process to sell the Brazilian stake is still at an early stage and a final decision would depend on how the negotiations progress, the people familiar with the matter said. They spoke on condition of anonymity because they were not authorised to discuss it publicly. Statoil declined to comment and Sinochem did not respond to requests
for comment from Reuters. Two sources said Sinochem's intent to sell the stake has been shared with India's Oil and Natural Gas Corporation. ONGC did not respond to requests for comments. One person said the stake is also likely to be pitched to other interna-
Key Points Sinochem looks to rejig energy assets amid low oil price Beat Chinese rivals to buy stake for US$3.07 bln in 2010 Peregrino is 60 pct-owned by Norway heavyweight Statoil Potential buyers to be tapped in India, Japan, Middle East tional buyers, including some Japanese firms and Kuwait Foreign Petroleum Exploration Company, which snapped up Royal Dutch Shell's stake in Thailand's Bongkot gas field for $900 million last month.
Sinochem - asset manager?
The potential sale of the stake in Peregrino - located 85 km off Brazil in the Campos basin below about 100 metres of water - comes as oil prices hover in a mid-US$50s per barrel range, well below the highs of recent years. That trend has also prompted other industry players to consider selling once-prized assets. Earlier this week, Reuters reported Malaysian state-owned oil and gas firm Petronas is aiming to sell a large minority stake in a local gas project for up to US$1 billion as it seeks to raise cash and cut development costs. For its part, Sinochem has seen growth in its key oil trading business stagnate, with increasing domestic competition from the likes of
state oil traders Unipec and Chinaoil, while overseas oil and gas assets have struggled amid the prolonged low oil prices. "Sinochem is readjusting its energy asset structure," said a Beijing-based industry veteran familiar with the company's strategy. "As a medium- to small-sized oil producer, exposure to higher cost assets like deep water has become over-challenging." "The company sees itself more as an asset manager. This becomes a clearer
direction under the new management," the industry executive said, referring to Sinochem chairman Ning Gaoning who took over the helm last year. The potential sale of the Peregrino stake also comes ahead of the second phase of the project's development, expected to cost about US$3.5 billion with production from the new phase set to start by the end of the decade. The second phase is designed to add about 250 million barrels in recoverable reserves to Peregrino, which currently contains an estimated reserve of between 300 million and 600 million barrels of recoverable oil. Reuters
10 Business Daily Wednesday, February 22 2017
Greater China
Capital outflow
Investors find their cash is losing its cachet Chinese companies raised a record US$111 billion in offshore dollar bonds in 2016 John Ruwitch and Dasha Afanasieva
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or years, cash-rich Chinese investors have been highly sought after the world over. Now, their cash is losing its cachet. China's increasing efforts to prevent capital from leaving the country are eroding the confidence of domestic and foreign investors about getting deals done inside and outside of the world's second-biggest economy. Chinese bidders had become ubiquitous in deals in the past two years and were welcomed, said Severin Brizay, head of Europe, the Middle East and Africa mergers and acquisitions for the investment bank UBS. "Clients were asking if it would be possible to make sure they are involved. Now, we are seeing the reverse: some clients are asking if we can do it without Chinese bidders because of the domestic challenges they face," he said. Dealmakers said many Chinese firms are unable to close deals because they can not secure official permission to transfer yuan into foreign exchange. This follows a series of measures by authorities since late last year to tighten restrictions on capital outflows and rein in what officials have called "irrational" outbound investment. The Institute of International Finance estimated capital outflows surged to a record US$725 billion last year and it expects even higher outflows this year. The yuan fell more than 6.5 per cent last year against the dollar, its steepest decline since 1994, prompting
the central bank to spend hundreds of billions of dollars in reserves to prevent the slide from turning into a slump. China's foreign exchange regulator, the State Administration of Foreign Exchange, did not respond to requests for comment.
Impact
The measures by authorities have had a dramatic impact. Overseas direct investment (ODI) by Chinese in December fell almost 40 per cent from a year earlier to US$8.41 billion, the lowest monthly level in 2016. In January, overseas property purchases by Chinese corporations plunged. Global stock index provider MSCI expressed concern about the capital outflow measures and China shelved plans for a new crude futures contract because potential foreign participants were worried they would not be able to take yuan profits out of the country. Chinese conglomerate and cinema chain operator Dalian Wanda's proposed US$1 billion purchase of U.S. entertainment group Dick Clark Productions Inc collapsed over problems getting currency out of China and regulatory approval, online website The Wrap said on Monday. In another case, a Chinese investor was unable to get permission from authorities to exchange yuan into US$30 million to close a U.S. deal, a consultant involved in the project said. The planned US$100 million investment in a U.S. residential property portfolio fell through. "Sellers nowadays will request
certain proof," said Jeffrey Sun, a Shanghai-based partner at the legal practice of Orrick, Herrington and Sutcliffe. “From the sellers’ side, the worry is justified.” Still, while Chinese regulators are
Key Points Tight capital controls, deal scrutiny hurt investor confidence Chinese firms struggle to close deals owing to lack of FX Overseas direct investment dropping sharply Sellers want Chinese buyers to provide proof of funds Regulators will approve deals that make economic sense putting proposed deals under greater scrutiny, it does not mean they are shutting the door on outbound investment, lawyers said. Regulators will approve deals if they make economic sense, Sun said. For example, a steel manufacturer buying a soccer club "is unlikely" to be approved, he said.
"Freaked out"
Fund managers that help Chinese invest abroad, such as China Orient Summit Capital, are changing tack. The firm had been raising money in China for funds to target U.S. and European real estate. It is now looking to raise money in offshore markets, an executive at the company said. China Orient Summit Capital declined a request for a formal interview. Companies are also looking to avoid the approval process for buying foreign exchange if they have access to
funds outside of China, lawyers and bankers said. "Every deal at this point is looking for some way to identify offshore funds rather than deal with the capital controls," said an M&A lawyer in Shanghai, who declined to be identified. Chinese companies raised a record US$111 billion in offshore dollar bonds in 2016, according to data from Dealogic, up from US$88 billion in 2015. Some of those funds would have been earmarked for overseas investments, said Ivan Chung, associate managing director at Moody’s ratings service. Chinese conglomerate HNA Group announced about US$20 billion in outbound deals last year. Thomson Reuters data shows it raised at least US$17.05 billion in loans abroad in 2016. Overall, China's outbound investment hit a record last year but could have been much higher, said the Rhodium Group, a consultancy that tracks direct investment from China. It said a record 30 deals worth US$74 billion and involving Chinese companies were cancelled in the United States and Europe in 2016. "Right now everybody is thoroughly freaked out by capital controls," Daniel Rosen, a Rhodium partner and adjunct professor at Columbia University, said. Still, on Vancouver's upscale West Side, a neighbourhood popular with foreign buyers where the price of homes runs in the millions of dollars, realtor Tom Gradecak was less worried about Chinese demand. In the past, Chinese investors have tended to find ways around capital controls, he said. "It won't take them long," he said. "The people that really want to come here, I don't think it's going to stop them." Reuters
Business Daily Wednesday, February 22 2017    11
Asia
Petrochemical industry in Jurong Island, Singapore. Environment
Singapore says carbon tax likely to include oil refineries Refineries in the city-state currently pay no taxes on carbon emissions Jessica Jaganathan and Henning Gloystein
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tax proposed by Singapore on emissions of greenhouse gases will likely cover the city-state's oil refineries, a government official said yesterday, driving up costs in one of the region's key energy hubs. Singapore said in budget proposals announced on Monday that a carbon tax on direct emitters was set to be introduced from 2019. "The proposed threshold that we are looking at is 25,000 tonnes of carbon
dioxide equivalent of greenhouse gas emissions annually (and) the refineries exceed this threshold," the government official told Reuters in an email, declining to be identified. The government is looking at a carbon tax rate of S$10-20 (US$14.08) per tonne of greenhouse gas emissions, it said on Monday. The government estimated that would add around US$3.50 to US$7 to the cost of processing a barrel of crude into refined oil products such as diesel or gasoline. Benchmark crude prices stood at around US$56 per
barrel yesterday. Refineries in Singapore currently pay no taxes on carbon emissions, so such a tax would weigh heavily on the industry's profit margins, which are already under pressure from rising competition in China, India and the Middle East. Power futures on the Singapore Exchange for delivery in the first quarter of 2019 rose almost 1 per cent yesterday, indicating that markets expect operational costs to increase for power intensive industries, including oil refiners. A carbon tax, taken out of every
Key Points Singapore plans carbon tax from 2019 Says likely to include oil refiners Will push up costs in key regional energy hub tonne of CO2 equivalent pumped out in emissions by industries, would be a particular blow to older and lessefficient refineries. The tax would also hit whole sale electricity prices as utilities pass on higher costs to their customers. Reuters
Private poll
Prospects for more Bank of Japan stimulus fading A poll projected that Japan will grow 1.2 per cent in the fiscal year starting April The likelihood of more monetary stimulus in Japan is diminishing, according to a Reuters poll of economists who were largely split on the central bank's next policy move, signalling a possible turning point in expectations for its easing cycle. The latest Reuters survey of economists conducted Feb. 13-17 showed the outlook for growth and inflation for the world's third-largest economy broadly in line with the January poll. However, economists have pared back their expectations for the Bank of Japan (BOJ) to ease its already ultra-accommodative monetary policy, as the outlook for global growth improves and the yen weakens. While the analysts don't expect any change soon, 15 of those surveyed said it will pull back from its ultra-easy monetary policy when the BOJ does decide to alter its policy, while 17 said its next move will be to ease. That compares with 12 to 18 in the January poll and 10 to 21 in December.
Bank of Japan headquarters in Tokyo
The BOJ will likely stay the course this year, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, though he expects inflation to pick up and wages to improve in 2018. "So the BOJ could raise the 10-year government bond yield target in the middle of next year," he said. "But that would be too early to raise negative interest rates." The central bank has lowered shortterm interest rates to minus 0.1 per cent and bought billions of yen worth of bonds and other assets in a campaign to boost inflation and growth. In September, it adopted the unusual tactic of
trying to keep the 10-year bond yield around zero per cent. Some analysts expect the BOJ will likely cut the pace of its annual increase in Japanese government bond (JGB) holdings from the current 80 trillion yen sometime this year. "The BOJ has shifted its policy targets to interests rates, so we expect the central bank will drop the target of the amount of an increase in JGB holdings eventually," said Takeshi Minami, chief economist at Norinchukin Research Institute. The poll showed the BOJ will maintain its interest rates at minus 0.1 per cent imposed on some excess ba nk reserves at least until the second quarter of 2018.
Easing would mean lowering the short- and long-term rate targets, while tightening would mean raising them or cutting back on its massive asset-buying, a measure market participants call "tapering." Analysts who forecast a possibility for further easing say that would happen in the case of sudden spikes in the yen, which hurts exporters by eroding their overseas earned income. The government will tolerate the yen strengthening to about 100 against the dollar, according to 16 of the 27 economists who responded to the question on the currency. Three economists pegged it between 110 to 105 yen. The remaining eight economists said beyond 100 yen, and to as far as 80 yen was acceptable. In a separate Reuters survey, FX analysts maintained their view for a weaker yen outlook, with the Japanese currency forecast to weaken about 7 per cent to around 120.0 in a year from the poll date. The poll projected that Japan, the world's third-largest economy, will grow 1.2 per cent in the fiscal year starting April and 1.0 per cent for fiscal 2018, according to the poll. Last month, they forecast 1.1 per cent and 1.0 per cent growth, respectively. Reuters
12 Business Daily Wednesday, February 22 2017
Asia Security
Australia to vet infrastructure investment for geopolitical risks The government said telecommunications, electricity, water and ports assets were the most sensitive to national security risks Jamie Freed
A
ustralia will weigh longterm geopolitical considerations when it vets proposals by foreigners to buy critical infrastructure assets such as power grids and ports, the government said yesterday. Foreign investment in Australian infrastructure assets has become an increasingly contentious issue since the 2015 sale of the Port of Darwin to Chinese government-affiliated interests sparked a backlash over the security implications and even a rebuke from U.S. government officials. Last month, the Australia announced the creation of a new critical infrastructure centre to oversee sensitive assets. In a discussion paper on the new body, the government said it was concerned a hostile foreign actor could deliberately disrupt supply or destroy services for strategic or economic gain, or use its leverage to influence government decision-making or policy. "While the more extreme examples of risk are unlikely outside a significant shift in regional or global strategic relationships or imminent armed conflict, we need to account for the full range of national security risks in a way that provides flexibility to address changes in the
Ports are included among the most sensitive infrastructures to national security risks. Pictured Sidney port.
Australia last year rejected bids from stateowned State Grid Corp of China and publicly listed Hong Kong group Cheung Kong Infrastructure geopolitical landscape as it evolves over time," the paper said. The government said telecommunications, electricity, water and
ports assets were the most sensitive to national security risks. Trade, Tourism and Investment Minister Steven Ciobo told China’s top economic planner yesterday that the new centre would provide "a high level of commercial certainty" for Chinese investors, The Australian newspaper reported. Australia last year rejected bids from state-owned State Grid Corp of China and publicly listed Hong Kong group Cheung Kong Infrastructure Holdings Ltd (CKI) for a large power grid, Ausgrid, citing unspecified national security concerns. The government is now considering whether to approve a separate US$5.5 billion bid from a consortium led by CKI for listed power
grid and gas pipeline owner DUET Group. DUET shares were trading 11.3 per cent below the offer price yesterday, reflecting investor concerns over whether the transaction will be approved. Last year, federal oversight of infrastructure deals was increased after The Landbridge Group, owned by Chinese billionaire Ye Cheng, was chosen by the Northern Territory government to operate the Port of Darwin in a 99-year deal worth A$506 million. Australia, a steadfast U.S. ally, hosts 1,250 U.S. Marines at a military base near Darwin, bolstering the American military presence close to the disputed South China Sea. Reuters
Monetary forecast
S.Korea c.bank seen on hold as political crisis outweighs upswing In the last three months of 2016 private consumption expanded just 0.2 per cent South Korea's central bank is expected to leave interest rates on hold at its meeting on Thursday as an upswing in inflation and exports fails to offset declining consumer sentiment in the face of an influence-peddling scandal involving President Park Geun-hye. All 20 economists surveyed by Reuters predicted the Bank of Korea (BOK) will leave its key policy rate at a record-low 1.25 per cent for an eighth straight month. Five of them foresaw a rate cut later this year, while four others said the next move will be a hike in 2018. South Korea's consumer inflation reached its fastest in more than four years in January while exports surged for a third consecutive month, adding to perceptions that business activity is building momentum. Even so, consumer sentiment for January dropped to the worst level since the 2009 financial crisis as the political upheaval following the impeachment of President Park weighed on domestic demand. In the last three months of 2016 private consumption expanded just 0.2 per cent, slumping from a 0.5 per cent rise in the September quarter.
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"The pace of economic recovery remains very slow currently, due to lingering manufacturing overcapacity and weakness in consumer sentiment," said Ma Tieying, an economist at DBS Bank. "We expect the BOK to keep rates at 1.25 per cent for the full year of 2017." Several of the five economists who saw a rate cut this year said growth will be fragile throughout the year and predicted the government would
Key Points All 20 economists surveyed see base rate kept at record low of 1.25 pct on Feb. 23 BOK to stand pat on political risks as president impeached by parliament
implement a supplementary budget, with the central bank working in concert by easing interest rates. Last week special prosecutors
arrested Samsung group heirapparent Jay Y. Lee on bribery charges linked to the influencepeddling scandal that led to President Park' impeachment. The prosecutors' office said it may probe other conglomerates, which could derail major investment and business decisions at leading exporters. The Constitutional Court is reviewing Park's impeachment, and a decision on whether to unseat or reinstate her could be announced soon. Faster-than-expected interest rate hikes by the U.S. Federal Reserve may also narrow the BOK's policy options as Fed hikes could send money flowing out of the country and place a greater debt burden on households. The eight cuts in interest rates since 2012 to spur domestic demand and investing have prompted a renewed borrowing binge that has sent household debt to a record high. "The BOK's focus is on maintaining financial stability. A cut isn't likely unless risks related to household debt and the Fed's normalising of interest rates diminishes significantly," said Shin Dong-soo, a fixed-income analyst at Eugene Investment & Securities. Reuters
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Business Daily Wednesday, February 22 2017 13
Asia Stock exchange
In Brief
India widens market for foreigners easing derivatives limits Foreign investors have been net sellers of Indian stocks for the past four months amid uncertainty over implementation of tax measures Santanu Chakraborty
A recent change to India’s trading rules has opened the door for fund managers to increase their holdings of derivatives in the country, loosening restrictions that had stifled trading. The Securities and Exchange Board of India (SEBI) last month increased the combined futures and options trading limit by removing some caps on contracts and on the market value of positions held. The changes mean an average increase in allowed holdings of 550 per cent on futures contracts traded at venues operated by the National Stock Exchange of India Ltd., according to an analysis by Citigroup Inc. The move may boost foreign investor sentiment toward India, which has recently been soured by uncertainties over the tax rules facing offshore firms. Derivatives are the only means to effectively short Indian stocks, and an important way for foreign firms to invest in a market that still offers restricted access. Foreign banks, which previously had to open multiple entities in India to get around restrictions, should now be able to trade through a single entity, according to ICICI Securities Ltd. “The change will enable global investors to raise exposure to Indian
derivatives manifold as they won’t get stuck due to smaller limits,” Akash Dharia, head of derivatives at ICICI Securities, said in a phone interview. “We expect futures volume to go up in the long run.”
“The change will enable global investors to raise exposure to Indian derivatives manifold as they won’t get stuck due to smaller limits” Akash Dharia, head of derivatives at ICICI Securities
SEBI on Monday waived the requirement for mutual funds that don’t mention derivatives investments in their information documents to obtain consent from the majority of unit holders before buying contracts.
Tax Disputes
Foreign investors have been net sellers of Indian stocks for the past four months amid uncertainty over implementation of tax measures including the General Anti Avoidance Rule. The Rule, set to come into force on April 1, seeks to prevent companies from routing transactions through other countries to avoid tax. A circular issued in December was put on hold in January after foreign investors aired their concerns about the regulation, which may see them face multiple taxation on the same income -- in India and in their home markets. Foreign-owned companies are involved in a number of tax disputes in India. Cairn Energy Plc is contesting a US$3.3 billion claim on share transfer pricing gains made on its Cairn India business, while a case involving Vodafone Group Plc’s 2007 acquisition of the Indian unit of Hutchison Whampoa, now part of CK Hutchison Holdings Ltd., is in international arbitration. Institutions from outside India have a bigger influence in equity derivatives trading compared to the nation’s debt markets, and foreigners can’t trade Indian commodities. Offshore investors hold a long or a short position in an average 52 per cent of contracts, according to exchange data. “A higher derivatives cap helps in better management of portfolio risk and so it can raise trading volumes,” said Vaibhav Sanghavi, who will manage a long-short equity hedge fund as co-chief executive officer at Avendus Capital Alternate Strategies Pvt. “Foreign investors will watch out for the effect of taxation changes like GAAR in April before deploying big money.” Bloomberg News
S.Korean households
Credit grows most in over a decade South Korea's household credit grew at its fastest pace in over a decade in the fourth quarter of 2016 as borrowers continued to take advantage of record-low interest rates, central bank data showed yesterday. Household debt, including loans and other debt owed by South Korean households, soared 11.7 per cent in the October to December period from a year earlier, to 1,344.3 trillion won (US$1.17 trillion), up from a revised 11.3 per cent growth in the third quarter. Household borrowing in the fourth quarter was the fastest since a record 11.8 per cent jump in the fourth quarter of 2006. Biz exploration
U.S. business executives visit Cambodia A delegation of 14 leading U.S. companies visited Cambodia to engage with government officials and other stakeholders on expanding U.S.Cambodia trade and investment ties, said a U.S.-ASEAN Business Council press release yesterday. Led by Michael Michalak, regional managing director of the U.S.-ASEAN Business Council, the delegation is comprised of representatives of U.S. companies such as 3M, Chevron, Citi, Coca-Cola, ConocoPhillips, Dow, Ford, GE (General Electric), Herbalife, Elanco, MasterCard, Microsoft, RMA Group, and Visa, the press release said. It added that the delegation met with several ministers and high level officials. Corporate
Toshiba seeking fund for majority stake in chip unit Toshiba Corp wants to raise at least 1 trillion yen (US$8.8 billion) from the sale of a majority stake in its flash memory chip business as a buffer against any fresh financial problems, a source with direct knowledge of the matter said. After flagging a US$6.3 billion write-down on its U.S. nuclear unit earlier this month, the conglomerate says it is now prepared to sell a majority stake or even all of the NAND memory unit, which makes chips for mobiles and tablets and is its most valuable business. Previously it had planned to sell 19.9 per cent.
Commerce negotiation
EU pushes for 2017 conclusion to Japan free trade talks For Japan, the deal would show it can still do deals despite the apparent demise of the TPP The European Union should be able to conclude a free trade agreement with Japan this year after failing to hit an end-2016 deadline, a European Commission source close to the negotiations said on Monday. A trade deal between the two has taken on added significance after U.S. President Donald Trump's withdrawal from a planned Trans-Pacific Partnership (TPP) trade alliance including Japan and as the EU looks beyond America for trade partnerships. "We don't intend to slip into next year. In fact, we'd like to do this much faster than that. I have no idea whether it's March, June, September," said the Commission source. The key issue is to balance Europe's
Expansion
Vietnam lures more foreign convenience stores EU Trade Commissioner Cecilia Malmstrom
wish to sell more food and drinks in Japan and gain access to Japanese public tenders, with Tokyo's demand for tariff-free access for its auto industry, including car parts. "I don't see any reason in the negotiations as they are why it shouldn't be done this year. And if it's not done this year, we will have to ask ourselves the serious question of whether it can be done at all," the Commission source said. Trade Commissioner Cecilia Malmstrom and Japanese Foreign Minister Fumio Kishida agreed at a meeting last week on a commitment to secure
a deal soon. For Europe, a deal with Japan would represent not only an economic boost but a further symbolic success for its trade agenda, with the EU-Canada trade pact set to go into force in the coming months after fierce opposition. For Japan, the deal would show it can still do deals despite the apparent demise of the TPP, once a pillar of Washington's Asia policy. Japan, the world's third-largest economy, is the EU's sixth-biggest export market. For Japan, the EU ranks as the third-largest destination for its goods. Reuters
Vietnam, one of the world's 30 most attractive emerging retail markets since 2008, is lure more and more domestic and foreign convenience stores, local media reported yesterday. 7-Eleven, an international chain of convenience stores with headquarters in the United States and its parent company in Japan, is recruiting extensively in Vietnam's Ho Chi Minh City to prepare to enter the Vietnamese market, daily newspaper Thanh Nien (Young People) reported. 7-Eleven will open its first store in Ho Chi Minh City in early 2018, and have 300 stores after three years.
14 Business Daily Wednesday, February 22 2017
International In Brief Manufacturing gains
German growth near 3-year high
Output in Germany, Europe’s largest economy, accelerated in February as goods production and services activity gained momentum. A composite Purchasing Managers’ Index climbed to 56.1 from 54.8 in January, the strongest reading in almost three years, IHS Markit said yesterday. Economists predicted the gauge would remain unchanged. Gains in manufacturing were the highest in almost six years, while services “rose solidly.” The German economy expanded 0.4 per cent in the final three months of 2016, but a flurry of data have pointed to stronger overall momentum. Angola
Banks receive 28 pct more foreign currency last week The sale of foreign currency by the National Bank of Angola to the country’s commercial banks last week rose by almost 28 per cent to €182.3 million, covering food imports and the needs of the oil and industrial sectors. In the previous week the central bank’s foreign cash injections totalled €142.6 million and two weeks ago they totalled €326.1 million. According to the report from the central bank, to which Lusa had access, the foreign currency provided the equivalent of US$203.7 million, was used to cover imports of food, and operations in the industrial sector and the oil sector. Private poll
Britons say economy their top concern Britons are now more concerned about the economy than they are about terrorism or immigration, a survey showed yesterday, another sign that consumers are feeling increasingly worried about Britain's decision to leave the European Union. The survey by data and information group Nielsen found that 28 per cent of Britons named the economy as one of their top two concerns at the end of 2016, up 12 percentage points from a year ago. That compared with 20 per cent of people who named terrorism or immigration in their top two concerns, representing falls of 12 points and 2 points respectively since the end of 2015. M&A
Portugal to flesh out terms of Novo Banco sale The Bank of Portugal will hold a final round of exclusive negotiations with U.S. private equity firm Lone Star as it seeks to flesh out the terms of the potential sale of state-rescued lender Novo Banco, the central bank said on Monday. The start of exclusive talks with Lone Star, which reaffirmed its commitment to reaching a deal, comes as Portugal faces an August 2017 deadline to sell the bank that was carved out of Banco Espirito Santo after its 2014 collapse.
Results
Rising protectionism, Brexit fears spark HSBC profit fall The profit plunge comes after the bank in 2015 unveiled a radical overhaul aimed at cutting annual costs by US$5 billion over two years Republican Party says have hampered Wall Street's ability to make money. Observers worry that any such rotectionist fears under Donald Trump and uncertain- move to loosen controls could leave ties caused by Brexit sparked European and Asian-based banks at a huge plunge in 2016 profits, a disadvantage compared to their US global banking giant HSBC said counterparts. HSBC said net profits for 2016 fell to yesterday. Unveiling an 82 per cent fall in its net US$2.48 billion, down from US$13.52 profit, the bank said on-going volatility billion in 2015. That included a US$3.45 billion preand surging populism around the world tax loss in the final quarter would continue to hit its of the year, with reported bottom line. profit before tax falling 62 "We highlight the per cent to US$7.1 billion th r eat o f p o p u l i s m for 2016. impacting policy choices Dickie Wong, director in upcoming European per cent e l e c t i o n s, p o s s i b l e HSBC net profit decrease of research at Kingston Securities, said the results protectionist measures reflected the changing from the new US administration impacting global trade, geopolitical environment in the wake uncertainties facing the UK and the of Trump's insurgent campaign to EU as they enter Brexit negotiations," capture the White House and Britain's group chairman Douglas Flint said in vote to leave the European Union. In regards to "the interest rate a statement filed to the Hong Kong environment and Donald Trump's stock exchange. Flint said the bank was looking for policies -- no one knows what will worldwide agreement on financial happen", Wong said. rules to avoid possible "fragmentation in the global regulatory architecture as 'Still on track' the new US administration reconsiders In the regulatory statement, Flint said its participation in international the political sea-changes that had regulatory forums". rocked the world in 2016 had conTrump wants to dismantle some of tributed to "volatile financial market the restrictions on banks put in place conditions". after the 2008 financial crisis, rules his On the impact of Brexit, Flint
Elaine Yu
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reaffirmed earlier reports that "current contingency planning suggests we may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop". The bank also said the process to find a successor to Flint in 2017 "remains on track". Like most global banks, HSBC has been struggling to boost profits as it grapples with the uncertainty thrown up by Britain's looming exit from the EU. British Prime Minister Theresa May has indicated a willingness to give up access to the European single market as the price for getting control over immigration. Companies like HSBC that have large operations in London are worried that such a settlement would present them with difficulties accessing the huge market of the EU. The profit plunge comes after HSBC in 2015 unveiled a radical overhaul aimed at cutting annual costs by US$5 billion over two years by shedding 50,000 jobs worldwide, exiting unprofitable businesses and focusing more on Asia. "I do think their cost savings is still on track," financial analyst Jackson Wong of Huarong International Securities told AFP. "That's one thing that will be a little bit encouraging," Wong said. The bank's chief executive Stuart Gulliver in yesterday filing announced a share buy-back of up to US$1 billion for the first half of 2017, adding to the total of US$2.5 billion in repurchases made last year. AFP
M&A
Collapse of Kraft-Unilever tie-up extends run of failed mega-deals Kraft had pursued Unilever as part of its strategy to become a global consumer goods giant, but it received a hostile reception Dasha Afanasieva
Kraft Heinz's dropped bid to buy Unilever is the third-largest M&A deal to collapse, according to Thomson Reuters data, adding to a recent run of failures that highlights the appetite for the pursuit of audacious mega-mergers. The abrupt U-turn by U.S. foods giant Kraft at the weekend pushed the value of deals withdrawn this year to US$205.2 billion, compared with US$53.6 billion at the same point in 2016. The effect of proposed big deals on those numbers is clear, with the 87 deals to have collapsed this year significantly lower than the 111 that fell through in the corresponding period last year. The value of failed deals is likely to continue, bankers say, with companies still likely to seek ambitious acquisitions. "There has been no punishment by the market or investors if a deal does not close. The overall context has been shareholder support for trying to get deals done and that has been an engine of growth in the M&A market," said
Severin Brizay, head of M&A for Europe, Middle East and Africa at Swiss bank UBS Kraft had pursued Unilever as part of its strategy to become a global consumer goods giant, but it received a hostile reception from the Anglo-Dutch company and cited a lack of "strategic" merit for its withdrawal from a deal that would have had a value of US$162.2 billion based on the offer price plus Unilever's debt. Yet the complexity of such huge deals can throw up multiple obstacles. The biggest withdrawn deal came last April when U.S. drug maker Pfizer's attempt to buy Ireland-based Allergan for US$160 billion floundered on the introduction of U.S. Treasury rules to curb tax-cutting inversion deals. Honeywell International's attempt to buy United Technologies for US$90.7 billion ended in failure last February after United Tech rejected the deal on expectations that it would be blocked by antitrust regulators. Those helped to lift the value of withdrawn deals last year to an
eight-year high, with transactions worth US$808 billion withdrawn or rejected, compared with US$538 billion in 2015.
"There has been no punishment by the market or investors if a deal does not close" Akash Dharia, head of derivatives at ICICI Securities
Another to fall by the wayside on competition concerns was the proposed US$6.3 billion merger of office supply chain Staples with smaller rival Office Depot. "When you are No.1 and No.2 in your sector it's difficult for the regulator to approve," said Raj Karia, of global corporate and financial law firm Norton Rose Fulbright. Thomson Reuters classifies a deal as withdrawn if there is a public announcement by the buyer that the offer is withdrawn or financial and legal advisers agree that it has been withdrawn. Bloomberg News
Business Daily Wednesday, February 22 2017 15
Opinion
Australian banks pick a number to present earnings David Fickling a Bloomberg Gadfly columnist
D
id you hear about Australia & New Zealand Banking Group Ltd.'s latest result? Profit was up 31 per cent. Actually, scratch that, it was up 8.1 per cent. Sorry: unchanged. Though from a certain angle, you could say the past two results are the worst the bank has posted in four years. All of the above statements are true, in a way -- though ANZ is only pushing you toward the flattering first interpretation. Welcome to the rubbery world of financial reporting by Australian banks. A few years ago, it was all quite straightforward. First-quarter results were compared to first-quarter results, first-half to first-half, nine-months to nine-months and annual to annual. Then last year, things got more interesting: ANZ now compares its December quarter results not to those of the previous year's December quarter or even the September quarter immediately preceding, but to the average of the previous two quarters. (The other three periods are still written up the traditional way.) That explains the remarkable 31 per cent jump in the first line of the latest results statement. On an underlying basis, ANZ's fourth quarter ended Sept. 30, 2016, was its worst result in at least five years. As a result, the average of that quarter and the preceding one presented a low baseline for the latest numbers. ANZ isn't the chief culprit here. National Australia Bank Ltd. started it, adopting the practice in first-quarter reporting five years earlier, in 2011. And Westpac Banking Corp. doesn't do quarterly updates at all -- Australian companies are only obliged to report every six months. Of course, bank profitability in general is based on many judgment calls about asset quality and risk weighting that are more art than science. There's a reason that Lehman Brothers' US$26.3 billion in shareholder equity in May 2008 was able to vanish in just over three months, in a way that would be almost impossible for any nonfinancial company. And you might argue that the practice helps investors, smoothing out the inevitable choppiness of quarterly bank results in a way that provides a clearer picture of the underlying business. There's a decent argument for that in the case of ANZ: It's been radically restructuring through divestments in the past year or so, potentially making the quite different company 12 months earlier a poor basis for comparison. They should avoid making it a habit of it, though. Although the primary audience for earnings releases is often assumed to be equity analysts who won't make assumptions until they've run the numbers through a spreadsheets, about half of shareholders in Australian banks are direct retail investors, who have an outsized impact on stock prices, to the frequent dismay of short sellers. Any journalist knows the value of a striking headline, and ANZ certainly got plenty of attention for its 31 per cent figure when it reported first-quarter results Friday. But headlines become a problem when they serve more to obfuscate than clarify. ANZ needs to get back to plainer numbers as soon as the current restructuring storm has passed -- and NAB should have stopped years ago. Commonwealth Bank of Australia dispenses with prior-year comparisons altogether in its trading updates. Far from being punished, it has the best valuation of any of Australia's big four banks. By all means let PRs, reporters and, um, columnists put their spin on the numbers. Shareholders, however, deserve just the facts. Bloomberg Gadfly
America is not the stock market and neither are you
H
ere is a complete list of all the things we can definitely infer from higher stock market prices: 1 - People who own stocks would have more cash if they sold today. That’s it. Almost every other claim citing rising stock prices as evidence of the health of the nation, economy or people is a partisan confection of conflation and misdirection. The rest are unintentionally wrong. It is no more true to say today that the new heights of the stock market are a verdict in support of Donald Trump, as he argues, than it was several months ago to imply they confirm the policies of Barack Obama, as he did in his exit apologias. Let me break the news to you. Stocks are going up now under Trump because he proposes a transfer of wealth from the public purse, via tax cuts and deficit spending, to corporate balance sheets. Oh yes, and also a transfer from consumers to companies via deregulation. Stocks went up under Obama in part because he made bank creditors whole, “foamed the runways” for banks to recover their private speculations, and was aided by exceptionally helpful Federal Reserve policy. We may debate the wisdom of these various policies but their point should not be to drive the stock market higher and that is not the basis on which they, or their authors, should be judged. What’s even more confounding is that when either Trump or, back in the day, Obama, is criticized for invoking the support of the stock market the basis was not that this was the wrong measure of health and success, but that it is a dangerous tack to take because stocks may go down as well as up. That’s simply not the point. That the U.S. becomes an economy in which everyone magically becomes wealthy via the stock market is a bad idea analogous to the British fantasy of a decade ago that everyone will wax prosperous by living in houses, or renting them to one another. The cult of equity in the United States as a national barometer of wellbeing took hold about 1980, shortly after legislation was passed making possible tax-advantaged retirement savings in accounts which usually hold stocks. That did much to democratize the benefits of higher equity prices, but a look at broader indicators show that middleincome Americans have seen their share diminish on a variety of measures since then.
“
James Saft a Reuters columnist
Gimme candy
Let’s be fair: studies have found a weak, if statistically meaningful relationship between current stock market movements and future economic growth, so we must not declare them completely irrelevant. Remember too though that 'studies' (carried out by me when my own were young) also find a strong relationship between giving kids candy and having them fall blessedly silent for a bit. And just as giving kids candy makes them quiet but can damage their health and impulse control so too can we say that the things that make stocks go up aren’t everywhere and always good for the health of the companies they represent, much less the economy and the people living in it. . The most recent, by which I mean the rally which began at the lows in 2008 and continues until today, is distinguished by the fact that it has created jobs but not much by way of productivity gains or even wage growth. It has been, in many ways, a rally based on financial engineering, with companies borrowing cheaply to buy back their own shares in preference to investing in their businesses. The rally which preceded the great financial crisis was also built on financial alchemy, though it was turning houses into cash via leverage and the imprudent re-designation of high-risk mortgages into very low-risk mortgage securities. As for the dotcom rally which ended with a bust in 2000, that too was built on unrealistic expectations, not about the transformative power of technology, but that it would create new wealth without destroying existing streams of income. Go to a mall and see the empty storefronts if you want to understand this. True, a sudden crash in stocks can cause a selfreinforcing spiral downward in the economy, just as rising prices can fuel growth, but both are temporary in nature. The stock market isn’t a leading indicator of economic health; it is at best a coincident indicator about optimism about stocks. Reuters
We need only look at the last several stock market booms to see that they were not, as a rule, or ever, built on firm foundations of broadbased economic health
”
16 Business Daily Wednesday, February 22 2017
Closing Antiterrorism campaign
Police in Xinjiang to track cars by GPS
A prefecture in China's restive Xinjiang region has ordered all vehicles to be equipped with GPS-like tracking software, police and media reports said yesterday, as authorities step up an "anti-terrorism" campaign. All drivers in the Bayingol Mongolian Autonomous Prefecture must install a China-developed satellite navigation system called Beidou "to prevent theft, but also primarily to maintain stability", an officer at the prefectural police headquarters told AFP by phone.
China's Global Times newspaper quoted a police official as saying the policy was needed so that drivers "can be tracked wherever they go" and residents had until June 30 to comply. Drivers must pay an annual RMB90 (US$13) fee for the system, a statement posted to the official social media account of the Bayingol traffic police said earlier this month. Thirty-five per cent of Bayingol's more than 1.2 million people are Uighur, according to official 2015 figures. There were no indications yet that the new policy would be adopted more widely across Xinjiang. Reuters
Auto industry
Chinese Tesla wannabe pushes ahead on SUV The Chinese government has made electric-car development a priority Elisabeth Behrmann
F
uture Mobility Corp., the Chinese electric-car maker founded by former BMW AG and Nissan Motor Co. executives, is sticking to a plan to sell its first model by late 2019, even as it faces a long bureaucratic wait to begin production. It’ll probably take two years to get a manufacturing license to start making cars at a US$1.7 billion factory in Nanjing, FMC Chief Executive Officer Carsten Breitfeld said in an interview in Munich. If necessary, the company will outsource production of its first sport utility vehicle. “Even if the timeframe for the permit slips, there’s the option to use excess capacity at plants of other carmakers or use contract manufacturing,” said Breitfeld, who left BMW last year after leading the development of its plug-in hybrid i8 sports car. The Chinese government has made electric-car development a priority in an effort to clean up polluted cities and set the pace in an emerging industry. While automotive start-ups have raised billions of dollars to meet the anticipated demand -- with funding from entrepreneurs including Jack Ma and Jia Yueting -- it remains to be seen how many of them will overcome the typical obstacles that precede large-scale production. Ten auto start-ups have received production permits so far, including
Chongqing Sokon Industry Group Co., which is advised by Tesla Inc. co-founder and former Chief Executive Officer Martin Eberhard.
Intuitive interior
Future Mobility’s line-up will start with the SUV, to be followed by a sedan and a minivan built on the same platform, Breitfeld said. The vehicles, priced between US$40,000 and US$50,000, will compete with mid-range models from Chinese competitors including BYD Co. The
brand names for Future Mobility’s upcoming models and other details will be announced by mid-year, he said. “What’ll set our cars apart will be the interior,” said Breitfeld. “We want our cars to have a user experience akin to the iPhone,” he said, referring to smartphones’ intuitive functionality and touchscreens. The company is opting for a battery with a relatively modest driving range of around 300 kilometres in order to keep the brand “affordable.” Once it gains the permits, Future Mobility’s Nanjing factory in eastern China will have an initial capacity of 150,000 units a year
and subsequently double in output, the company said in January. Other electric-car start-ups being financed by Chinese companies include LeEco-backed Faraday Future, which is working on a battery-powered SUV with a 600-kilometer driving range. Breitfeld said he’s confident Future Mobility will succeed because of the government’s support for greener vehicles. China’s leaders are targeting electric-car sales of 2 million units a year in 2020, up from 507,000 vehicles last year, an increase of 53 percent compared with 2015. The jump made China the biggest market for electrified car sales for a second year. Bloomberg
Regulation
Gambling-related crimes
Results
Beijing to said to draft rules to rein in asset management risks
Beijing rules, says Turnbull, as Crown detentions pass 4 months
World's biggest miner BHP posts soaring second half profit
China’s financial regulators are working together to draft sweeping new rules for the country’s rapidly-expanding asset-management products that aim to make it clear there’s no government guarantees on such investments, according to people familiar with the matter. The draft rules would apply to products issued by banks, insurers, brokerages and other financial institutions, said the people, who asked not to be identified because the discussions are private. New rules will be phased in after existing products mature, and would only apply to new issues, they added. Households and companies have poured into asset management products, seeking higher returns than bank deposits can offer, all the while assuming the government would prevent failures should investments sour. Changing that mind-set is seen as key to reining in financial risks and curbing credit growth. The new rules are being drafted by the central bank and the CSRC, together with the regulators for the banking and insurance sectors, the people said. The draft is still being discussed and is subject to changes, the people said. Bloomberg News
Australia’s Prime Minister Malcolm Turnbull said he respects China’s legal system even as a group of Crown Resorts Ltd. employees remain in detention more than four months after being accused of gambling-related crimes. The government is giving consular assistance to three Australians among the 17 Crown staff held on the mainland, but they’re governed by local law, Turnbull said in an interview yesterday with Bloomberg Television in Sydney. Crown, controlled by billionaire James Packer, is based in Melbourne. “We respect China’s judicial system, their legal system and we’ll always seek to support Australians,” said Turnbull, when he was asked if he was concerned about due process in the case. “When you’re in China you have to obey the laws of China.’’ The detentions highlight the delicate nature of working in China for an overseas casino operator. Not only is it illegal to gamble in the nation, anyone who entices Chinese citizens overseas to bet or who forces them to repay gambling debts faces jail. It’s also a challenge for Australia, whose largest trading partner is China, as it attempts to support the group. Chinese authorities have held the Crown staff since October. Bloomberg News
Mining giant BHP Billiton reported yesterday a dramatic rebound in half-yearly profits on the back of soaring iron ore prices and improved productivity. The underlying profit of US$3.2 billion and earnings before tax of US$9.9 billion for the last six months of 2016 exceeded expectations. "This is a strong result that follows several years of a considered and deliberate approach to improve productivity and redesign our portfolio and operating model," chief executive Andrew Mackenzie said. In January the company reported record Australian iron ore production in the last six months of 2016 after a 28 per cent surge in the price of the commodity, compared to the corresponding period in 2015. The latest results show a 157 per cent increase in underlying profit from a year ago and a 65 per cent year-on-year jump in earnings before tax, marking a significant turnaround in the company's fortunes. BHP's posted an annual net loss of US$6.39 billion, its worst ever result, for the year to June 30 2016. AFP