Business Daily #1331 July 4, 2017

Experts analyse yuan factor performance Currency Page 16

Tuesday, July 4 2017 Year VI Nr. 1331 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Trade

CEPA exports drop 27 pct m-o-m in June, but rise 42 pct y-o-y Page 3

Gaming

Okada sues family in bid to regain control of empire Page 7

www.macaubusinessdaily.com

Telecom

CTM pays MOP104,000 fine for April internet outage Page 3

Survey

Caixin’s data confirms Mainland’s manufacturing health Page 8

Room with a view

Hospitality

The newcomer to Cotai, Macau Roosevelt, although not directly on the Strip, is warming itself up for its grand opening at the end of this month, says its General Manager Roberto Simone.

Without ignoring the mass market, the property aims to focus on travellers hoping to experience something different, helped by the newly-opened Macau Jockey Club Casino on the property and taking advantage of one of its primary assets: the view. Pages 4 & 5

Stuck at sea

A quagmire of incorrect advice, lack of available information and unclear circumstances led a small sailing boat making its way around the world to be stuck in MSAR territorial waters with no chance of legally docking.

Although eventually resolved after a day at sea and a hefty fine, the sailors tell Business Daily why difficult proceedings mire friendly waters.

Blurring the lines

Cross-border Cross-border company disputes, cashless transactions, and copyright woes all hinder the MSAR’s integration with its neighbouring province.

Such issues were put forth for discussion by legislators, and while a response from the Hong Kong and Macau Affairs Office attempts to address some of these points, some logistical matters will hinder their speedy resolution, say experts. Page 2

Connection established

Maritime waters Page 6

HK Hang Seng Index July 3, 2017

25,784.17 +19.59 (+0.08%) Worst Performers

Geely Automobile Holdings

+4.04%

Want Want China Holdings

+1.33%

Galaxy Entertainment Group

-2.22%

China Resources Power

Ping An Insurance Group Co

+2.33%

China Resources Land Ltd

+1.32%

China Mengniu Dairy Co Ltd

-1.70%

Power Assets Holdings Ltd

-1.09%

Kunlun Energy Co Ltd

+2.27%

HSBC Holdings PLC

+1.24%

AIA Group Ltd

-1.40%

Bank of East Asia Ltd/The

-0.89%

China Overseas Land &

+2.19%

China Life Insurance Co Ltd

+1.05%

Sands China Ltd

-1.26%

China Unicom Hong Kong

-0.69%

BOC Hong Kong Holdings

+1.47%

Bank of China Ltd

+1.04%

Hong Kong & China Gas Co

-1.23%

Industrial & Commercial

+0.60%

28° 31° 27° 31° 28° 31° 27° 31° 28° 31°

-1.17%

Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Markets Global investors purchased RMB4.9 billion of China bonds yesterday, on the first day of a long-awaited “Bond Connect” scheme that links China’s US$9 trillion bond market with overseas investors. Page 8

2 Business Daily Tuesday, July 4 2017

Macau

Cross border relations

Living up to the standards Lawmaker and scholars hope MSAR residents can enjoy more opportunities in mainland China under the OCTS Cecilia U cecilia.u@macaubusinessdaily.com

“[

T

he MSAR Government] should think of the ways to ensure the ‘one country, two systems’ (OCTS) but at the same time to bring more conveniences to local residents and Mainlanders,” legislator Au Kam San told Business Daily. The comments come in response to enquiries after a proposal by legislator Chan Meng Kam during the annual plenary sessions of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) earlier this year, prompted a response from the Hong Kong and Macau Affairs Office (HKMAO).

Setting up office to handle disputes

One of the issues also raised in Chan’s proposal was that of resolving disputes arising when MSAR residents purchase properties or run businesses in the Mainland.

In his proposal, Chan cited Consumer Council data stating that 184 complaints were lodged last year by Macau buyers regarding Chinese real estate investment, an increase of 20 per cent year-on-year.

Legislator Au told Business Daily that an increase in lawsuits by local residents against Chinese real estate agents was also due to an increase in the number of buyers from Macau.

An alternative to litigation, Au revealed, could be to set up an NPC office in Macau to assist in resolving

disputes. He explained that this hadn’t been done in the Mainland since NPC members are prohibited from setting up offices there.

Meanwhile, according to the HKMAO, the arbitration committee in Zhuhai has collaborated with entities of both SARs in setting up a joint arbitration centre aimed at resolving commercial disputes between Zhuhai, Hong Kong and Macau.

No luck with shopping

Another point brought up in the proposal was that restrictions faced by local residents relating to local bank accounts are restricting online purchases from Chinese online stores.

Currently, local bank accounts are not able to link with Chinese third party payment methods such as Alipay.

This has resulted in Macau residents going to the Mainland to open Chinese bank accounts solely to make purchases on the shopping sites.

According to legislator Au, this will likely remain the case, as related people who work in the banking sector in Macau are not in favour of linking local bank accounts to Chinese payment methods.

“Their opinion is that the price is high for developing this [linkage].

They consider that it will not make much profit in Macau after analysing the market,” revealed Au. Legislator Au remarked that the inconvenience of online shopping for Macau residents in the Mainland is a problem for Macau itself, rather than a problem for the Mainland.

Professor Hao Zhidong, from the University of Macau, points out that

Infrastructure

Re-designing the Barra LRT station The Macau SAR Government announced via official dispatch yesterday that it has granted a contract to Companhia de Telecomunicações de Macau (CTM) for communication pipes at the Barra segment C240R1 of the Light Rail Transit (LRT).

The contract amounts to a total consideration of roughly MOP5.34 million, to be paid out of the Macau SAR’s 2018 budget.

The contract awarded to the local telecommunications company follows the granting of a public contract (by consultation) last week to PAL Asia Consult Ltd, also in connection with the Barra LRT section.

The engineering company was awarded a MOP27.28 million contract to proceed with changes to the project.

In response to Business Daily’s enquiries, the Infrastructure Transport Office (GTI) said that they have ‘appointed [the] technical consultant team to carry out the design modification work of the LRT Barra Station for extending the LRT service from Taipa to Barra as soon as possible to meet the current social development needs.’

The Office added that ‘the design modification is expected to be completed within this year.’ S.Z.

policies or mechanisms can be introduced for the level of small trading - such as online shopping or ticket purchasing - but not in terms of significant investment, such as the buying of residential units or stocks.

Professor Hao said the system for online shopping in the Mainland only considers accommodating Chinese residents, pointing out that the populations in Macau and Hong Kong are much smaller, thus leading to the exclusion of the two regions.

“It is important to balance the convenience between small trade, like online purchases of products and services, and more significant investment,” said the professor, while adding that for the level of cross-border capital flows, the Chinese government would only consider the safety of finance as an approach in rolling out regulations.

He also pointed out that policies to allow more convenience for cross-border investment would be difficult given that the currencies used by the two regions are different.

In response to the proposal made by legislator Chan, the Hong Kong and Macau Affairs Office (HKMAO) stated that the People’s Bank of China Guangzhou branch has collaborated with financial departments of the two SARs and launched a multiple currencies UnionPay card in Zhuhai to provide convenience for residents of the three regions.

The office further revealed that related departments are striving to establish cashless payment systems or Smart Cards with multiple currencies for use in the three regions.

“Not available in your region”

Additionally, streaming content, such as that available on platforms such as Youku and Tudou, originating in the Mainland, is often not accessible in the MSAR.

Legislator Au says that this issue is mainly attributable to the purchase or acquisition of copyright.

“If we are under the OCTS, when Macau and Hong Kong don’t have the same system as the Mainland does, [the two SARs for sure] cannot enjoy the same copyright preferences as Mainlanders do, since MSAR and HKSAR are not considered within the Mainland,” the legislator indicated.

He said that one of the ways would be for the SAR governments to purchase copyrights from the Mainland, however noted that in Macau there is no specific department or entity to handle this issue.

“The MSAR Government could ask the central government to include Macau as well when purchasing the copyright,” suggested Au, adding that “apparently the problem won’t be solved over a short period of time.”

In terms of access to information, the HKMAO did not address this matter in its response.

In general terms, legislator Au perceives that “inevitably there will be pros and cons” under the OCTS, commenting that “you can’t have all the good things while others have the bad things”.

By comparison, Au believes that MSAR residents enjoy more preferences in the Mainland for residing and working than Mainlanders do in Macau.

But he explained that the city’s Basic Law requires such an arrangement so as to protect MSAR residents from being affected by the larger population size in mainland China.

“I mean, under the OCTS there will be things that we need to tolerate, but others which can be improved should have some policies to be invented as [to improve the situation],” concluded the legislator.

Business Daily Tuesday, July 4 2017 3

Macau Trade

CEPA drops 26.9 pct m-o-m in June

T

he value of local exports of zero-tariff goods to mainland China under the Closer Economic Partnership Arrangement (CEPA) dropped 26.9 per cent month-onmonth to MOP6.85 million (US$851,531) in June, but increased by 41.6 per cent year-on-year, according to the latest data released by the Macao Economic Services (DSE).

For the first six months of this year, the total value of exported local goods

to mainland China reached MOP41.78 million. Between the time of the policy’s implementation in 2004 and end-June this year, the total value of goods exported hit MOP808.25 million.

As at the end of last month, some 622 local firms were holding Macau Service Supplier certificates, compared to 616 local firms recorded in May of this year.

The certificate allows local companies and enterprises to operate on the Mainland and enjoy zero tariff treatment.

The official data shows that

the majority of certificate holders - 306 or 49 per cent of the total – were engaged in the transport industry, such as those operating freight

Fine

forwarding agencies, and businesses related to logistics, storage and warehousing as well as transportation.

Following these firms, were

those engaged in medical and dental services, accounting for 147 companies, or 24 per cent of the total certificate holders. C.U.

Flights

AACM approves 142 flights CTM fined by gov’t for internet blackout in April to handle July/August rush Local telecommunications provider Companhia de Telecommunicaçōes de Macau (CTM), has been levelled with a fine of MOP104,000 due to the internet network blackout that took place in April, local media reported.

The company notes that it ‘respects Government’s decision’ regarding the fine, although noting that the ‘software bug of equipment […] was the first case identified globally and was unpredictable’. The company points out that it has ‘taken the initiative for replacement,’ ‘despite the fact that the affected servers are still the world’s mainstream equipment’.

The fine comes after CTM had already

offered a ‘one-off discount’ on monthly internet services for the affected customers for bills in the month of June.

Some 30,000 residents were affected, losing internet access for up to four hours. Local broadcaster TDM noted that the June-bill refund would involve total payment of MOP2 million.

To cope with increased demand during the summer holiday season, the Civil Aviation Authority (AACM) has announced that the Macau International Airport has approved ‘142 extra and charter flights’, set to run between July 4 and August 31, according to a press release.

The flight destinations encompass the Mainland, Taiwan, Thailand, South Korea and Japan, and consist of: ‘57 flights to Taipei, 26 to Kaohsiung, 30 to Bangkok, 17 to Jeju, 8 to Ninbo and 4 to Okinawa,’ the release notes.

AACM points out it ‘will approve the flights in a timely manner to cope with the market demand’.

Aside from the additional flights,

the group notes that it has ‘approved the applications for the capacity increase submitted by Air Macau and Tiger Taiwan respectively for their Taiyuan flights and Taiwan flights’.

According to the Statistics and Census Service (DSEC), last year’s visitor numbers in July increased 5.5 per cent year-on-year and 18.5 per cent month-on-month to 2.79 million.

Accumulatively in July and August, 5.67 million visited the MSAR. Visitors by air in July increased 20.5 per cent year-on-year, while those in August increased 15 per cent year-onyear. Total visitors by air in the two months reached 434,428, according to DSEC data. advertisement

4 Business Daily Tuesday, July 4 2017

Macau Interview | Hotel opening

All the glamour of Hollywood With a soft opening under its belt, about 250 rooms open, and with four casino tables already open in the Macau Jockey Club’s newly relocated casino within the property, the Macau Roosevelt is positioning itself to hit the premium mass of customers, with a sense of adventure, Macau Roosevelt’s General Manager Roberto Simone tells Business Daily.

Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com Photo by: Cheong Kam Ka

H

ow did the Macau Roosevelt come about?

The Macau Roosevelt is a project finalized by a vision of the Yoho Group, the owner, and GCP hospitality, which is the operator.

GCP Hospitality is owned by Gaw Capital, which is the co-owner of Hollywood Roosevelt in Los Angeles, this iconic property which is famous because it was the first venue of the Oscar awards.

On that philosophy, on that soul, has been created this project.

The idea is to have on the third floor the heart of the hotel life.

“What we want is to be a hotel with a soul, with a specific ambience and experience” The ground floor will have a lobby area, then you have gaming activities and whatever is around the gaming activities – even the F&B outlets, the shops - they all relate to that daily life and hands-on, let’s say, trade.

While on the third floor there is the hotel life, let’s say the idea of Hollywood moved here.

How is the opening coming so far?

In terms of opening, we are already at the final stage. In reality, we already have 250 rooms open to the guests, but all the rest of the inventory will be open in the next two or three weeks.

The idea is to go per phases, try to test

out how the equipment is responding, the water, all these things which are very important for the guest care.

The F&B outlets are not open fully; we have the Chinese restaurant on the second floor, a high-end Japanese food venue will come on the second floor – like a Japanese convenience store but with specific food - and the third floor we are defining what is the food concept.

In the lobby will be the arcade, a lot of food shops to satisfy the 24-hour needs of people who gravitate around the casino.

What type of clientele are you targeting?

In terms of demographic, we are not trapped, but we are driven by the forces of the current demand, which is 82 per cent Chinese, 8 per cent Hong Kong people and another 10 per cent from the rest of Southeast Asia, and I think less than 1 per cent from Westerners/ the rest of the world.

We’re not going to invent anything new. We’re going to use this of course.

How, within this macro demand, are we going to retrieve our niche? This is the focus. For sure this place is not a huge place, it’s not a huge hotel.

When I talk with my friends I used to say ‘in another country around the world I would be in the paper for the biggest hotel in town, here I’m one of the smallest’. But it’s a standalone property. What does it mean? In reality it is gaming related, with the Jockey Club next door of course, which is an additional point.

But it has the characteristic of a city resort, because it is private, with a pool, with a good gym, with a pool where we will limit the number of members to allow our guests to enjoy as much as possible.

Of course we’re going to target dynamic people.

So this hotel targets millennials of course, when we look at Hong Kong

Roberto Simone, General Manager of Macau Roosevelt Hotel

people, in China [we] look at people who want to have a different feeling.

If somebody asked me what would be your upselling point, I can respond: our personalized one-to-one service, but many other hotels do it. What I think we aim to have is a hotel with a soul, which is what is missing in Macau today. There are very few hotels with a soul, one is Ritz Carlton, for example, my favourite place when I’m free. Because I go to Galaxy to enjoy the food, but if I want to cut off the casino, it’s the only hotel in Galaxy that when you cross the threshold you feel separate.

They’ve been able to do that.

So what we want is to be a hotel with a soul, with a specific ambience and experience, which is the fact of being in Macau – the worldwide gaming capital – but you are in this hotel today, but you don’t feel it.

How does being physically separated from the Cotai Strip influence that?

We are in Cotai, with the advantage of having a view of the Jockey Club, so it gives you the idea of being in Cotai, but – if you want to have a place to relax, to have a pool, but don’t feel surrounded by buildings of 50/60/70/80 floors but still swimming and having in front of you a view looking at the sky, the Jockey Club – this is the place. If I go in some other hotel here, they’re nicely done but – leisure needs to have natural material around.

Will you be targeting package tour groups also?

Let’s be realistic, an inventory of the hotel needs to be filled 365 days a year. So you have to bear in mind that it has to be economically viable.

The operating costs in Macau are not small, some are very high – the energy cost is very high. So you have to be able to make a fusion.

We will position transversally

according to the season and according to the weekday. We cannot think: I don’t want a group, I don’t want this or this.

What we don’t do, we will try always to have a clientele which – the design of the hotel will select the client itself.

When the people go on the website and see how the rooms are designed, how the closet is designed, what is the style of the bathroom, automatically it will select the people.

How will the Hong Kong-ZhuhaiMacau bridge influence the potential clientele coming in?

The willingness of any customer to purchase is correlated to their ease of booking what they want. The digital economy has been a game changer because from your smartphone you can do things which before required a travel agency. Of course people which have a beautiful car and with a beautiful girl and normally going around in Hong Kong like this, now he can take a ride of 45 minutes, crossing the sea – which is a beautiful, scenic trip – and come for a weekend here.

“In terms of opening, we are already at the final stage.

In reality we already have 250 rooms open to the guests, but all the rest of the inventory will be open in the next two or three weeks” It will impact a lot on Macau, not vice-versa.

In terms of demographics, it’s interesting because we have a scarcely-million location [less than a million residents], which is connected to a 10-million location, supposedly high-income. That is very good.

From Hong Kong we will get the benefits.

That can be a game changer, because at that point Macau can explore more the resort segment, develop new products in the hospitality field, more resort-oriented with all the facilities, villas with pools, all those things.

For high net-worth people to come two-three days a year.

How much it will increase the

Business Daily Tuesday, July 4 2017 5

Macau

gaming? I don’t know. Because the people who would come for gaming from Hong Kong, they’re already coming. There I don’t think there will be very many changes.

Is the casino currently open now?

There are four tables open of the Macau Jockey Club [Casino], there’s the signage outside also.

You mentioned bringing the first 200-some rooms online first. Do you already know the staging for the next parts?

The other rooms are ready, week by week we put out a floor. In reality we can go out with 347 rooms right now. We are not doing that because we want to understand if we have any issues, and in this way we can respond in a timely manner. From the 4th floor to the 11th floor all the rooms are ready.

“Let’s be realistic, an inventory of the hotel needs to be filled 365 days a year.

So you have to bear in mind that it has to be economically viable. The operating costs in Macau are not small” What is the price range and the positioning that you’re going for?

In Macau you have first-tier, second-tier and third-tier. The first-tier are the international brands, internationally-established five-star brands.

We are in the second-tier. We position ourselves as competing with the hotels of Cotai, but not challenging the five-star – we’re not challenging Four Seasons of course, we’re not challenging St. Regis. We are where the Sheraton, Holiday Inn [are positioned].

How is the development of Hengqin, with a recent report noting its financial sector contributed 9 pct of its 2016 economy, going to affect this area?

Under normal circumstances, the aggregation of efforts in a relatively small area, builds a destination.

This is automatic everywhere in the world. Macro, gigantic, wherever

you go – Lyon in France, everyone goes there because you stay three days and visit the top-20 restaurants in France. You go for the technology in Shenzhen because half of the technology in the world is up in Shenzhen, it’s a cluster.

Under normal circumstances.

The question is the current visa regulations in place.

With the current visa regulations, there will be a spillage effect, of course. If there is a financial sector here and there is a strong gaming sector here, of course this one has a potential account for Zhuhai, for the financial sector. So they will come here to use hotels, to use these kinds of things. But, it’s early to be said how much this can be developed further with the current visa regulations.

One Belt, One Road, Greater Bay – many concepts are being used, but without a lot of specifics.

Trade agreements, whether worldwide or regional, or micro-regional, take time.

Because they involve a series of aspects and sectors, not only from the legal point of view, but for agreeing on the pact: someone has to give up something to allow somebody else to gain, which one day will make you gain from another source. You don’t put these things together in one day.

What’s your background?

My background is from hospitality, since day one. In 30 years, I’ve been 15 in purely operations – F&B, events, catering – and another 15 years in management. I hold a degree in finance from Durham Business School in the UK. I did a summer Masters in Cornell University in America. I’ve worked in 10 or 11 countries: Africa, Portugal, India. I worked for a sixstar cruise line Silversea and then I ended up here in Macau. I’ve done six or seven openings, I’ve worked for international groups like Marriott […]

How long have you been in Macau?

One year. When I arrived there wasn’t this building.

After the official opening, where will you be concentrating your marketing efforts?

We are going to diversify the efforts in all the areas, irrespective of how much the potential magnitude of the market is. Why? Because you have to distribute your product as widely as possible. Number two, we will do an online strategy – pay per click strategy of course – we have invested a lot of money there. We will do activities bringing a key writer or key blogger

from Shanghai here, or key travel agents to make them experience the products. Because in the long term, we want to really have our niche market, to little bit run away from the guaranteed allotment provided by the mass market.

It can’t be a niche market with 33 million. It has to be mass, in one way or in another. So we have to be realistic about that. But you can be niche market within the mass market, you have your niche profile, you don’t need to charge US$500, can charge

MOP1,000, MOP800 and you have your client.

Does the hotel management and ownership structure have any relation to any other hospitality operators in Macau?

No. GCP is owned by Gaw Capital Hong Kong, a hedge-fund firm – linked to the Hollywood Roosevelt because they own Hollywood Roosevelt – and Yoho Group, which is the owner of the hotel, they invest – a pool of investors. advertisement

6 Business Daily Tuesday, July 4 2017

Macau Opinion

Albano Martins* The closing of the Canidrome!

When, about six years ago, I was confronted with the situation of the greyhounds at the Canidrome, I decided that Anima should help to find a humane solution for the animals.

At the time, none of them left the Canidrome alive!

The Canidrome began its activities in 1932, started by an American. Afterwards, its operations were interrupted in 1938 by the Sino-Japanese war, until it was later reopened in 1963.

In 2018, the Canidrome will end.

Anima asked for an opportunity for an adoption program for the inactive animals instead of all of them being euthanized.

However, after two meetings in 2012, under the umbrella of the DICJ, no serious adoption program was considered.

So, Anima began to ask for the closure of the Canidrome.

At the end of 2012, Anima’s campaign intensified. At the AFA (Asia for Animals) Conference in Singapore, a letter to the Chief Executive was prepared and signed by AFA, representing ten international organizations, and supported by 131 organizations around the world!

Anima’s petition received more than 370,000 supporters!

An international roundtable in Macau was organized, bringing together 10 international animal protection organizations, from all over the world, including China!

Twenty-four cities around the world organized a vigil for the greyhounds of Macau.

The Macau Government finally reacted, extending the Canidrome’s operation for another year, in order to study the matter!

At the end of 2015, after the release of a video produced

by Animals Australia, the Canidrome ceased receiving animals from Australia.

In 2016, the company decided to buy dogs from Ireland, the largest producer of these animals in Europe, but this was blocked in the UK. With no more dogs, the government announced that it would give the Canidrome two options: change its location (and if it did, be obliged to pay more attention to animal welfare), or close in July 2018.

Now it is clear, the Canidrome will close in July 2018!

This year, Anima made an appeal to the Chairman of the Canidrome: Let’s work together to save all those animals!

Anima also asked the Macau Government to work in the same direction.

Internationally, a new petition has been launched by the Italians (Italy banned greyhounds racing in 2002), alerting to the damage to Macau’s image as an International Tourism Centre if the greyhounds are sent to China, Vietnam, or to any other countries where no laws protect them.

Macau only has to gain if we can find a nice and clever way out.

May common sense and a sense of humanity win! * an economist and contributor to this newspaper

Maritime affairs

Docking mess Two international sailors who got a taste of the difficulties in docking in the MSAR since the city took control of its territorial waters, say the marine bureau staff were supportive, but it took them a while to sort out the procedures to dock Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

wo sailors coming from Hong Kong learned of the changes to Macau’s territorial waters rules the hard way, after spending over 24 hours without being allowed to dock at a berth in the MSAR. Marküs Pükonen and David Dosanjh are two Canadians who have been sailing together and separately for the last two years. Pükonen has set a tall order mission for himself: circumnavigating the planet for five years without using a motor, under a project he calls “Routes of Change.”

One of the legs of the journey, coming to Macau, was made difficult by a lack of available information on procedures and outdated information supplied by other navigators in Hong Kong, the sailors told Business Daily.

“The information we got in Hong Kong was contrary, because I think the system [in Macau] has changed recently. So people had sailed here and had no problems, but obviously now we had a problem. Part of our issue was also that when we got here, we were unable to contact anybody on the radio,” Pükonen explained to Business Daily.

They first arrived at the old Cheoc Van dock at just past midnight on the evening of Saturday, July 1, to Sunday, July 2.

“We radio[d] but for whatever reason we were not able to hail anyone on the radio. We tried again in the morning, and after a while, I just kayaked to shore, and asked a local if they could give me directions to the right building,” Dosanjh explained.

Talking to someone ashore, he managed to establish contact with the authorities.

“After half a day of waiting for word from, I suppose, customs officials, who initially greeted us on a boat, I think they weren’t certain exactly what the procedure was at that point, and they were waiting for the word from a superior, and eventually instructed us to follow them to [Lam Mau marina],” Dosanjh added.

The Canadians explained that they realized they had to deal with three different departments to be allowed to anchor: the Marine and Water Bureau (DSAMA), Customs, and Immigration Police.

“In Hong Kong, the formalities are really smooth compared to other places. You simply walk with your paper work within 24 hours of landing and contact the immigration and the marina department, and in a couple of hours it is sorted out,” Dosanjh explained.

Sorting it out

Speaking to Business Daily, DSAMA said that they ‘received a notification from the Macao Customs Service at noon of July 2, 2017, stating that a boat which did not apply for entry into Macao was stopped and asking [their] bureau to follow up.’

DSAMA further explained that after verifying the case on site, they confirmed the boat owner had not made any application prior to arrival and therefore he was fined MOP1,000, ‘according to related regulations.’

The marine bureau added that, since the boat owner ‘had failed to arrange with the Macau Yacht Club about the berthing of the boat,’ the bureau offered ‘a berth for the boat at Ilha Verde Dockyard for temporary berthing.’

According to the new regulations on territorial waters, boats wanting to anchor in one of the city’s ports should request berthing permission prior to reaching a marina.

After that, the marina should forward the request to the marine authority. Once they receive the request, authorization to berth is usually issued ‘within 48 hours, if documentation is ready,’ a marine bureau spokesperson told Business Daily on the phone.

There are two types of applications.

The Individual Travel Scheme for Yachts, for boats coming from Guangdong province and mainland China in general, and the application for Port Call for Non-Macao Registered Pleasure Boats.

For the Yacht scheme, applications can be made through an electronic system.

For non-Macau registered boats, under which Pükonen and Dosanjh’s boat falls, permission can be applied for ‘in person or by fax,’ according to information available on DSAMA’s website.

The main problem Pükonen and Dosanjh claimed they encountered was getting clear information about the procedures to follow.

Pükonen acknowledges that they only reached out to the Macau Yacht Club “sort of last minute,” but claimed “it was actually hard to find what that process was online.”

His perception was supported by Dosanjh who noted that: “out of all the places I have visited, [Macau] has been the hardest to gather information, because it is a small country, and I don’t think a large number of yachts come visiting, and those who do, I think they are associated with Clubs in Hong Kong and they sail here as part of races and regattas,” he opined.

DSAMA is our hero, but the system is not

All things said, the sailors claimed the marine bureau’s personnel were supportive and generous towards them.

“They were nice. Considering there was a bit of a bureaucratic mess that we had to deal with, they were really accommodating in trying to help us out. They made sure that we were taken care of, they gave us water, and food, and [a] shower,” Pükonen recounts.

The President of the Macau Sailing Association, Brian Sou, met Pükonen and Dosanjh on Sunday afternoon when they were still being processed.

He explained to Business Daily that at that point they were still awaiting permission to berth.

According to Sou, the type of problem that affected the international sailors ensues from the way the current system for the new territorial waters has been designed, claiming that it “is unfriendly when compared to [the one] before, after our government got our own waters.”

“What I don’t understand is the law here. Why if some boat wants to visit Macau, it has to apply for so many things? They need to have insurance.

How can a boat buy insurance before getting to Macau? We have less visiting boats from everywhere, even from Hong Kong. They don’t like to come to Macau anymore, because they have to apply days before for so many things,” he claimed.

Business Daily Tuesday, July 4 2017 7

Gaming

Kazuo Okada has filed a lawsuit against his son, daughter and wife

Empire control

Okada sues family in bid to regain control of gambling empire The tycoon said he hasn’t seen his son Tomohiro in two years and does not know his daughter Hiromi’s current whereabouts Nathan Layne and Emi Emoto

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apanese casino and slot machine tycoon Kazuo Okada has filed a lawsuit against his son, daughter and wife in Hong Kong in an attempt to regain control of his sprawling business empire, according to a court filing and Okada.

Okada, 74, told Reuters in an interview that he saw a lawsuit as the only way to get his son and daughter to the negotiating table after they took control of the board of a Hong Kong company at the centre of his business holdings in May. Okada Holdings Ltd, the Hong Kong company that is majority owner of Tokyo-listed gambling machine maker Universal Entertainment Corp, is also a defendant in the suit, according to the Hong Kong High Court online database, though Okada himself didn’t confirm that. It was unclear on what grounds the suit was brought and no other details were available from the court.

Okada declined to respond to questions about the details of the suit, which Reuters was unable to view, but said he believed he had been wronged by the move to push him out as director of Okada Holdings, a change that was registered on May 12, according to a public filing.

Okada said he hasn’t seen his son Tomohiro in two years and does not know his daughter Hiromi’s current whereabouts. Reuters was unable

to reach either of them at addresses in public records. Both are Okada’s children from a previous marriage.

Okada said he hoped a lawsuit would prompt a judge to order them to negotiate a settlement that would restore his position at Okada Holdings.

“Unless I sue there will be no opportunity to talk. The reality is I am in a losing position in terms of voting rights,” Okada said, referring to his 46.4 per cent stake in Okada Holdings, versus Tomohiro and Hiromi’s combined 53 per cent.

“Unless I sue there will be no opportunity to talk. The reality is I am in a losing position in terms of voting rights” Kazuo Okada, Japanese casino and slot machine tycoon Okada said he did not find out he was dropped as Okada Holdings’ director until May 18. He said Universal’s board told him on May 23 that he was being investigated for alleged misuse of company funds.

That was followed by Universal’s

Spain

Melco leaves bid for Spain casino As the company focuses on ‘other committed developments in the pipeline,’ Melco International Development announced that it ‘has decided not to participate in the current bidding process,’ for developing an integrated resort in Catalonia, it announced in a press release.

Melco notes that it ‘considers the project at the Center for Recreation and Tourism (“CRT”) to be an exciting tourist opportunity in Europe,’ and in the future looks to ‘keep working with the Catalan Government, the

local authorities and local partners for exploring future opportunities at the CRT’.

Previous statements to Business Daily by Melco’s Chairman and CEO Lawrence Ho Yau Lung indicate that the group is focusing its efforts on Japan, the Philippines and the MSAR. The company also recently announced it would be taking over Hard Rock’s interest in a Cyprus casino project that has been granted an exclusive 15-year gaming monopoly.

announcement on May 31 that he would not be reappointed to its board.

“I was totally blindsided,” Okada said.

The interview took place last Thursday in the restaurant of a Tokyo hotel where Universal was holding its annual shareholders’ meeting.

Okada had been denied entry on the grounds he is not a direct shareholder since the Hong Kong holding firm holds his stake.

Universal declined to respond to Okada’s assertions. It said it would make additional disclosures once an internal investigation it recently launched to probe Okada’s alleged improper use of company funds had submitted its findings.

Cannot forgive

Okada said Tomohiro turned against him because his son believed he was not being paid dividends from Universal commensurate with his 43.5 per cent stake in Okada Holdings.

Okada said he planned to investigate the matter.

Okada said he was confident he could convince Hiromi to support him as long as he could get her brother to work towards a settlement.

As for his wife Takako, Okada said he could not forgive her for agreeing to be reappointed to Universal’s board. The company said Thursday that Takako would take on responsibility for Okada’s art museum and advise the company on its overseas business.

Takako, 43, did not respond to letters left at her home, an email sent to her company address, or a request to speak relayed through her mother.

Last month, Universal issued a

press release accusing Okada and another director of misappropriating some US$20 million in company funds in three transactions during 2015. It convened an investigative panel composed of three attorneys that is now looking for other alleged irregularities.

Okada described the company’s allegations as “nonsense”. For example, he said one of the transactions in question was a loan not due until November that had been used for a legitimate purpose: to expand junket operations aimed at attracting high-rollers to Universal’s casino in the Philippines.

“That contract is still active. There is no problem.”

Okada said he could not provide a copy of the contract for Reuters to review because it was located at a company office to which he no longer has access.

Okada said he viewed the investigation as an attempt by Universal President Jun Fujimoto to seize control. Okada noted that he had handpicked Fujimoto to help lead the company founded five decades ago.

“I made Fujimoto president. Now he wants to take over.”

Fujimoto called Okada “unfit” to be the director of a public company and vowed to prove that with “irrefutable physical evidence” in a private letter to a shareholder on June 21, Reuters reported last week.

Universal declined to make Fujimoto available for comment. Universal said it was not in a position to comment about Okada’s allegations against Fujimoto. Two new directors at Okada Holdings did not respond to emails seeking comment. Reuters

8 Business Daily Tuesday, July 4 2017

Greater China Markets

Brisk trade marks launch of bond connect scheme A giant screen at the launch ceremony showed RMB2.15 billion worth of bonds were purchased in the first 22 minutes of trade Umesh Desai and Andrew Galbraith

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hina and Hong Kong launched a long-awaited “Bond Connect” scheme yesterday that links China’s US$9 trillion bond market with overseas investors, the latest step in Beijing’s efforts to liberalise and strengthen the country’s capital markets.

The early signs bode well for building an active debt market, with more than RMB2 billion (US$295 million) of bonds purchased in the first 22 minutes of brisk trade.

HSBC Holdings and an asset management unit of Bank of China were among the first to complete trades using the scheme.

The launch of the connection was timed to coincide with the 20th anniversary of Hong Kong’s handover to Chinese rule and trading will initially commence “northbound”, meaning

foreign investors will be able to buy and sell Chinese bonds.

No launch date has been set for the southbound channel.

“We continue to hold the view that there could be more than US$1 trillion of additional global fixed income investments to be allocated to China domestic bonds over the coming decade,” a note from Goldman Sachs said yesterday.

In line with broader foreign access rules, overseas investors including pension funds, central banks and sovereign wealth funds will be eligible to trade sovereign and local government bonds, policy bank bonds and corporate debt on the Bond Connect.

The connection will increase the supply of yuan-denominated assets that can be held by global investors as Beijing steps up the internationalisation of its currency.

“Bond Connect will clearly make it easier for investors to access the

Chinese bond market, which in turn makes it easier for investors to hold renminbi,” Andy Seaman, chief investment officer of London-based Stratton Street, said in a note.

A giant screen at the launch ceremony showed RMB2.15 billion worth of bonds were purchased in the first 22 minutes of trade.

Chinese regulators formally approved the bond connect scheme in May. International investors have been allowed direct access to the China interbank bond market since last year and some market participants have questioned the need for an additional trading scheme.

Overseas investors have been reluctant to enter the market amid fears over the stability of the Chinese yuan, and over potential delays to Beijing’s reforms of the capital markets.

China has been keen to increase foreign participation in its bond market, the world’s’ third-largest, where overseas holdings were less than 2 per cent. This is below the international norm of about 10 per cent, BNP Paribas said.

BOCHK Asset Management said it had bought Chinese government and

corporate bonds, conducted yuan spot trades related to these deals, and subscribed to a primary bond market issuance by Agricultural Development Bank of China. HSBC said it had completed its first deal as a market maker through the link but did not give additional details.

Media reports said 20 market makers for the bond connect scheme had been approved, including 14 Chinese and six overseas institutions.

Key Points More than RMB2 bln of bonds purchased in first 22 minutes No launch date set for southbound bond trading Move is latest by Beijing to open country’s capital markets BNP Paribas said it had received approval as a market maker and had also executed its first trade under the scheme.

The scheme will also see deals coming through the primary market. China Development Bank said it planned to issue up to RMB20 billion (US$2.95 billion) of one-year, threeyear and 10-year fixed-rate bonds for tender yesterday. HSBC said it is one of the underwriters.

Hong Kong’s new leader, Carrie Lam, attended the debut ceremony and said the connect scheme marked “another new chapter in the development of mutual capital markets access between the mainland and Hong Kong.”

HKEx chief executive Charles Li said demand for a southbound channel was limited, meaning the bond connect scheme will only allow investors to initially trade northwards.

The bond programme follows the launch of the Hong Kong and Shanghai stock connect scheme in November 2014 and the Hong Kong and Shenzhen stock programme in December 2016. Those two schemes allow both northbound and southbound trade. Reuters

Caixin

Factory activity rebounds in June But relatively subdued customer demand weighed on business confidence China’s manufacturing activity rebounded last month as new orders and production gathered pace, independent figures showed yesterday, but an analyst warned the pick up was likely to be temporary.

The indicator tallies with the government’s purchasing managers’ index (PMI) that also showed an improvement in factory conditions in June compared with the previous month.

But there are growing concerns that the world’s second-largest economy is losing momentum as policymakers rein in lending and curb property purchases after years of debt-fuelled investment.

The private Caixin survey of purchasing managers at hundreds of manufacturing companies showed a reading of 50.4 last month, compared with 49.6 in May. A PMI figure above 50 indicates growth while anything below points to contraction. May’s data showed the first contraction in almost a year.

New orders expanded at the fastest

pace in three months, boosting production and helping lift the PMI, Caixin said in a joint statement with data compiler IHS Markit.

But relatively subdued customer demand weighed on business confidence, which fell to the lowest

level this year.

“The manufacturing sector recovered slightly in June, but based on the inventory trends and confidence around future output, the June reading was more like a temporary rebound, with an economic downtrend likely to be confirmed later,” said Zhengsheng Zhong, director of macroeconomic analysis at research firm CEBM Group, which

is part of Caixin.

Manufacturers seeking to cut costs and improve efficiency further reduced staff numbers in June, straining their operating capacity and leading to an increase in work backlogs, the survey showed.

“Based on the inventory trends and confidence around future output, the June reading was more like a temporary rebound” Zhengsheng Zhong, director of macroeconomic analysis at research firm CEBM Group Beijing is wrestling with huge debt and excess capacity left over from massive government-backed infrastructure spending at the height of the global financial crisis, which has led to a slowdown in economic growth. AFP

Business Daily Tuesday, July 4 2017 9

Greater China Pay-outs

Mainland Inc.’s US$7.8 billion of dividends to stress yuan The yuan’s rebound may be undermined by a seasonal hunt for dollars as Chinese companies prepare to pay dividends to shareholders overseas Demand for the greenback and other currencies will peak at US$7.8 billion in July, a substantial sum considering that local lenders settled an average of US$11.8 billion in foreign-exchange for clients in the first five months of 2017.

China’s currency reserves have shrunk every July in the last three years, with former regulator Guan Tao saying last week that demand for foreign-exchange surges in this period.

China’s exchange rate has turned more volatile in the past two months, climbing the most in more than a year in May and then declining in June before suspected central bank intervention spurred a rally. Goldman Sachs Group Inc. warned capital outflows have picked up, while recent data suggest the economy is showing signs of slowing as an official deleveraging drive crimps spending.

“The need for dividend pay-outs will pressure the yuan and may pressure a recent increase in China’s foreign reserves,” said Xia Le, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. “The yuan’s advance in the past few days is not sustainable -- short-term factors such as dividend payments and longterm ones like capital outflows will work together to push the currency weaker in the coming months.”

Offshore-listed Chinese firms need to pay a combined US$16 billion of dividends in foreign exchange in the three months through August, according to data compiled by Bloomberg. That includes US$2.4 billion in June and US$5.9 billion for August.

Hong Kong-listed China Construction Bank Corp will need to pay the equivalent of US$3.8 billion of dividends on July 20, according to a stock

In Brief exchange filing. Bank of China Ltd. will pay US$1.9 billion and China Shenhua Energy Co. will shell out US$1.2 billion, both in August.

The yuan started June at a 2017 high, and then lost 0.6 per cent to the dollar over two weeks as bearish bets returned on concern China’s economic growth may have peaked. The currency then surged amid speculation of central bank intervention, erasing its losses for the month to rise 0.6 per cent in Asia’s best performance for June.

“We are heading back to a test of 7 per dollar soon, because fundamentals are bad,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong.

“China has structural outflows and it always will, as long as people want to diversify and it keeps credit growing so fast.” Bloomberg News

Central bank lends RMB498 bln via MLF China’s central bank lent RMB498 billion (US$73.35 billion) for one year to financial institutions via its medium-term lending facility (MLF) in June, it said yesterday. Outstanding MLF was RMB4,224.5 billion at the end of June compared with RMB4,157.80 billion at the end of May, it said in a statement on its website. The People’s Bank of China uses the MLF and the standing lending facility as tools for managing shortand medium-term liquidity in the country’s banking system.

Anti-graft body

Government removes deputy head of state asset regulator

Financial sector

MYbank deepens push for business big banks won’t touch Formally known as Zhejiang E-Commerce Bank Co., MYbank was able to more than quadruple its lending through 2016 MYbank, the two-year-old Chinese online lender that already has 3.5 million small-business customers, plans to push deeper into a segment that’s long been shunned by the country’s largest banks.

MYbank wants to capitalize on its links to billionaire Jack Ma’s Alibaba Group Holding Ltd. by offering loans to the more than 10 million smaller merchants that use the company’s e-commerce platforms, MYbank President Huang Hao said in a June 29 interview. Ant Financial, Alibaba’s financial affiliate, owns 30 per cent of the online lender.

Huang is looking to win “as many as possible” of China’s 70 million to 80 million small businesses as customers, most of which have no access to bank loans because they lack collateral. MYbank was one of the first Chinese lenders -- along with Tencent Holdings Ltd.’s WeBank

Liquidity

-- to be established completely with private investment under a trial program unveiled in 2014.

“We are in a different stratum from the traditional banks,” said Huang, 43, who was previously head of electronic banking at China Construction Bank Corp. “We are like capillaries reaching every part of the society. It could be a small restaurant, a breakfast stand, no other financial institution would have served them before.”

Formally known as Zhejiang E-Commerce Bank Co., MYbank was able to more than quadruple its lending through 2016, taking its outstanding loans to RMB33 billion (US$4.9 billion). Interest generated from those loans helped MYbank report a profit of RMB316 million last year, rebounding from the RMB69 million loss it had in the final seven months of 2015 after it started operations, according to an earnings

MYbank wants to capitalize on its links to billionaire Jack Ma’s Alibaba Group Holding Ltd. by offering loans to the more than 10 million smaller merchants that use the company’s e-commerce platforms

statement posted on June 28.

Risk control

Its nonperforming-loan ratio was around 1 per cent, Huang said, lower than the national average of 1.74 per cent. The bank’s technology, which runs loan applications through more than 3,000 computerized risk-control strategies, has kept delinquencies in check, he said.

Still, last year’s lending explosion came at a cost, dragging its capital adequacy ratio down to 11.07 per cent

by December from 18.51 per cent a year earlier. While the bank has no immediate plan to boost its buffers, it will consider measures including issuing asset-backed securities to keep capital at an appropriate level, Huang said.

MYbank charges its small-business customers lending rates between 5 per cent and 14 per cent annually, with many paying 7 per cent to 8 per cent, Huang said. That level is lower than the rates paid by similar clientele in some Chinese cities.

For example, small businesses in the eastern city of Wenzhou paid an average of 15 per cent for loans from underground banks, according to a private lending network in the city that tracks the data.

Huang’s firm has also tried to shelter itself from funding volatility and surging interbank borrowing costs -- a by-product of China’s campaign against financial leverage -- by attracting more deposits. By encouraging remote account openings, MYbank lured RMB23 billion of deposits from its customers at the end of December, up from almost zero a year earlier, he said.

MYbank and Tencent’s WeBank are among eight private lenders that had started operations by the end of last year, according to the China Banking Regulatory Commission, with assets totalling RMB180 billion and loans amounting to more than RMB80 billion. Bloomberg News

China has removed the deputy head of its state asset regulator over serious disciplinary violations, but stopped short of expelling him from the ruling Communist Party, the government’s anti-graft watchdog said yesterday.

Zhang Xiwu abused his positions for personal and family gain, and illegally engaged in profiting activities, the Central Commission for Discipline Inspection (CCDI) said in a statement on its website. Although stripped of other ministerial-level roles, Zhang retains a non-leadership position in the government and is still part of the Communist Party, the watchdog said.

Trade

Taiwan June exports seen up Taiwan’s exports likely rose for the ninth month in a row in June, as global demand for components that are widely used in technology gadgets stayed solid in a seasonally-low second quarter. Exports last month likely grew 8.7 per cent from a year earlier, close to the 8.4 per cent pace in May, according to the median of forecasts from 15 analysts polled

by Reuters. Taiwan is one of Asia’s major exporters, especially of technology goods, and its export trend is an important gauge of global demand for technology gadgets worldwide.

The trade figures are due on Friday.

Game addiction

Tencent to limit play time for children Tencent Holdings Ltd, China’s biggest gaming and social media firm by revenue, said it would limit play time for some young users of “Honour of Kings” from today, amid claims that children were getting addicted to the popular mobile game.

Parents and teachers have complained that children were becoming addicted to the multiplayer online battle game, which, according to the company, has more than 200 million users, making it the world’s most popular game of its kind. Users below 12 years of age will be limited to one hour of play time each day.

10 Business Daily Tuesday, July 4 2017

Greater China

U.S. President Donald J. Trump participates in the Celebrate Freedom Rally at the John F. Kennedy Centre for the Performing Arts in Washington last Saturday. Lusa

North Korea

Xi, Abe get phone calls from Trump as Asian tensions rise Trump and Abe agreed on the need for China to be firmer with North Korea, Japan’s Chief Cabinet Secretary Yoshihide Suga told reporters Andy Sharp

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orth Korea’s nuclear ambitions dominated phone ca l l s b et w e e n Donald Trump and the leaders of Japan and China, as the U.S. president’s tougher stance on Kim Jong Un and pressure on nations in North Asia over trade sparks renewed tensions.

The separate chats with Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping preceded Trump’s expected meetings with the leaders of Asia’s two biggest economies at the Group of 20 nations summit in Germany this week. They came against the backdrop of a freshly strident tone from the Trump administration about China’s need to rein in Pyongyang, and on Japan and South Korea over trade imbalances with America.

“The recent actions show Trump is not happy with China and other Asian countries,” said Song Guoyou, an international relations professor at Fudan University in Shanghai. “The businessman wants better deals. Now everyone just has to return to the negotiating table.”

Trump and Abe agreed on the need for China to be firmer with North Korea, Japan’s Chief Cabinet Secretary Yoshihide Suga told reporters

yesterday. Kyodo News said the chat was a prelude to a planned meeting in Germany between the leaders of the U.S., Japan and South Korea.

In his call with Xi, Trump also repeated his desire for more balanced ties with America’s trading partners, according to a White House statement.

After Trump enlisted Xi’s help in April to press Kim to curtail his nuclear weapons and missile programs, the U.S. president dialled back his public criticisms of China. That tone has changed in recent weeks: Trump now says China isn’t doing enough to help on North Korea and the U.S. slapped sanctions on Chinese companies for doing business with the isolated regime. The administration also announced a US$1.3 billion arms sale to Taiwan.

‘Negative elements’

The U.S. Navy conducted another “freedom of navigation operation” in the South China Sea on Sunday, a U.S. official said. The U.S. has previously sailed warships close to reclaimed reefs China classes as its territory in the disputed waters, as well as features claimed by the likes of Vietnam and Taiwan.

China’s Foreign Ministry protested the “trespassing” by the U.S. Navy and said it had dispatched military vessels and planes in response.

On the call, Xi told Trump that the “relationship had been affected by some negative elements,” state broadcaster China Central Television said. He urged his U.S. counterpart to uphold the “consensus we reached at Mar-a-Lago,” in a reference to the warm first encounter between the two leaders at Trump’s Florida resort in April.

“The recent actions show Trump is not happy with China and other Asian countries” Song Guoyou, an international relations professor at Fudan University in Shanghai The biggest danger if Trump runs out of patience with China is that his threats to take unilateral action against North Korea escalate. North Asian nations have warned a military strike on the regime could be disastrous for the region given Kim’s ability to hit Japan and South Korea with missiles.

Giving ‘gifts’

“Right now, U.S.-China relations are not as good as China thinks they are, nor as bad as they could be with a president as volatile as Trump,” said Susan Shirk, a former

deputy assistant Secretary of State for East Asia. “The common threat of a nuclear North Korea has brought the two leaders together, but the honeymoon period is likely to be short, as it becomes clear that the Chinese government doesn’t want to cut off Kim Jong Un.” Trump has also adopted a more strident tone on trade. In his first meeting with new South Korean President Moon Jae-in last week, he demanded a “fair shake” for U.S. automakers in the country and called for a halt to exports of “dumped steel.” Meanwhile, U.S. Trade Representative Robert Lighthizer stressed concern in a meeting with Japanese Trade Minister Hiroshige Seko over a decades-old trade deficit with Japan.

Shirk and other analysts said the best way for leaders to manage their ties with Trump is to provide him with small “gifts” that enable him to claim victories that appeal to his domestic audience.

Japan trade

Ralph Cossa, president of the Pacific Forum CSIS in Honolulu, said there was some fear before Moon’s meeting with Trump that the U.S. president would threaten to walk away from the U.S.-South Korea free-trade agreement.

“Instead, all they talked about was correcting a few ‘unfair’ practices at the margins,” Cossa said. “I did not hear any reference to ‘renegotiate’ or ‘scrap’ the agreement, but only to small potential side deals

that would allow Trump to declare a ‘win’ without undoing an important agreement that has benefited both sides.”

So far, the attacks on South Korea over trade have been harsher than on Japan. But Trump has singled out Japan before: When he pulled the U.S. out of a Pacific trade pact in January he criticized Japan for failing to buy American-made vehicles. The U.S.’s trade shortfall with Japan was almost US$69 billion last year, more than double the US$27.6 billion deficit with South Korea, according to U.S. Census Bureau data.

Abe responded by launching a charm offensive with Trump, spending five hours on the golf course with him during a two-day visit to the U.S. in February. But their relationship could be tested if Trump attacks the country over trade or the weakness of the yen against the dollar.

The Pacific Forum CSIS’s Cossa said that “flattery goes a long way” in dealing with Trump.

“Contrast the way our Asian friends and allies, especially Prime Minister Abe but also President Xi and now Moon, have approached Trump with the way many European leaders have approached him,” he said. “Moon expertly set the stage for the meeting by stressing all the areas of agreement with Trump and using Trump’s words to make his own points.”

Bloomberg News

Business Daily Tuesday, July 4 2017 11

Asia Official survey

Japan firms most upbeat in 3 years but labour shortages weigh Both big manufacturers and non-manufacturers expect business conditions to worsen slightly three months ahead Leika Kihara and Tetsushi Kajimoto

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onfidence among Japan’s big manufacturers hit its highest level in more than three years in the June quarter, a closely-watched central bank survey showed, adding to signs the recovery in the world’s third largest economy is gaining pace.

Big firms also saw the job market at its tightest in 25 years, offering policymakers some hope that companies may finally raise wages, helping broaden an economic recovery.

The survey underscores the Bank of Japan’s (BOJ) view that the economy is heading for a moderate expansion, though sources say weak price and wage pressures are likely to force it to slash its inflation forecasts later this month.

The headline diffusion index (DI) measuring big manufacturers’ sentiment stood at plus 17 in June, the BOJ’s quarterly “tankan” survey showed yesterday, its third straight quarter of improvement and up from plus 12 in the previous survey in March.

This exceeded a median market forecast of plus 15 and was the highest since March 2014, as automakers and machinery firms benefitted from robust demand in Asia.

“Taken together, the survey backs

up the BOJ’s optimism on the economy,” said Yuichiro Nagai, an economist at Barclays Securities.

“But a gap remains between a strong economy and tepid inflation. If the BOJ revises down its price forecasts at the upcoming meeting, investors will recognise that an exit from ultra-loose monetary policy will be some time away.”

Big non-manufacturers’ sentiment index stood at plus 23, up from plus 20 in March and matching a median market, the tankan showed. It was the second straight quarter of improvement and the highest level since December 2015.

Both big manufacturers and

non-manufacturers expect business conditions to worsen slightly three months ahead, the survey showed, underscoring their concern on overseas economic uncertainties.

The tankan will be among factors the BOJ’s nine-member board will scrutinise when it meets July 1920 to review monetary policy and its quarterly growth and inflation estimates.

A separate survey showed Japanese manufacturing activity expanded at a slightly slower pace in June, though an upward revision to export orders suggests the factory sector remains on a firm footing.

Shortage of employees, capacity

Japan’s economy expanded at an annualised rate of 1.0 per cent in the first quarter on robust exports and a boost from private consumption, prompting the BOJ to upgrade its

economic assessment in April.

But consumer inflation remains subdued as companies remain wary of raising prices for fear of scaring away cost-sensitive households, underscoring the scale of the challenge the BOJ faces in achieving its ambitious 2 per cent target.

While companies remain wary of boosting wages or capital expenditure, there are signs of change as they face capacity shortages.

An index measuring big manufacturers’ production capacity showed more of them now feel they face a shortage, rather than an excess, of facilities to produce goods.

Big firms plan to raise their capital spending by 8.0 per cent in the current fiscal year to March 2018, exceeding market forecasts for a 7.4 per cent rise, the survey showed.

An index measuring job conditions showed big firms saw the labour market at the tightest since 1992, the tankan showed, reinforcing views a shortage of employees was among the key concerns for many companies.

Japanese companies plan to increase hiring of new graduates by 8.1 per cent in the next fiscal year beginning in April 2018, which would be the eighth straight year of gains, the tankan showed.

The tankan’s sentiment diffusion indexes are derived by subtracting the number of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists. Reuters

Real estate

Singapore home prices extend longest losing streak on curbs The government in March rolled back some property-market restrictions for the first time in eight years Pooja Thakur

Singapore home prices fell in the quarter ended June, extending the drop in property values to a record 15th quarter as most measures to cool the market remain in place despite a slight easing in March.

An index tracking private residential prices fell 0.3 per cent in the three months ended June 30 from the previous quarter, according to preliminary data from the Urban Redevelopment Authority released Monday. The almost four-year decline in prices is the longest since the data was first published in 1975.

Singapore’s leaders, determined to keep a lid on home prices in the city-state, have unleashed a series of measures to cool the market since 2009. The government in March rolled back some property-market restrictions for the first time in eight years, although has cautioned that those adjustments don’t signal an unwinding of the measures.

“We don’t expect a recovery in prices this year -- even though we

have seen some improvement in market sentiment -- as the central bank has indicated it won’t be easing curbs anytime soon,” said Nicholas Mak, head of research at SLP International Property Consultants in Singapore. “We will continue to see a small gradual decline in prices for the rest of the year.”

“We will continue to see a small gradual decline in prices for the rest of the year” Nicholas Mak, head of research at SLP International Property Consultants in Singapore

Prices in prime areas declined 0.9 per cent in the quarter, while suburban homes were 0.4 per cent lower

in the three months ended June, the data showed.

In March, the government reduced stamp duty imposed on sellers and some mortgage restrictions. That helped stoke optimism that Singapore’s property market is rebounding, with home sales jumping and developers making more aggressive bids at land auctions. Home sales in the first five months this year have risen about 75 per cent from the same period a year ago, data showed.

While the property market has stabilized, it is “not time yet to ease the cooling measures. They remain necessary,” Ravi Menon, managing director of the Monetary Authority of Singapore, told reporters on June

29 at the release of the bank’s annual report. Mortgage rates are very low and “the risk of a renewed unsustainable surge in property prices is not trivial,” he said last week.

“Demand was already on the upswing before the easing of the measures in March 2017, driven by more attractive prices and a perception that the market is closer to the bottom,” said Ong Teck Hui, national director of research and consultancy at Jones Lang LaSalle Inc. The announcement from the central bank “would, however, temper unrealistic expectations of some buyers so that they will not be carried away by exuberance and be more measured in their purchasing decisions.” Bloomberg News

12 Business Daily Tuesday, July 4 2017

Asia Politics

Japan PM seeks to regain public’s trust after Tokyo poll setback Abe’s party won a mere 23 seats, less than half its pre-election total Linda Sieg and Kaori Kaneko

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apanese Prime Minister Shinzo Abe said yesterday he will work to regain public trust after his party suffered an historic defeat in an election in the nation’s capital, signalling trouble ahead for the premier amid tumbling support rates.

The dismal showing for Abe’s Liberal Democratic Party (LDP) in Sunday’s Tokyo Metropolitan assembly election was a stinging rebuke for his 4-1/2-year-old administration, although on the surface it was a referendum on popular Governor Yuriko Koike’s year in office.

Koike’s novice Tokyo Citizens First party and its allies, including the LDP’s national-level coalition partner, the Komeito, took 79 seats in the 127-member chamber.

The LDP won a mere 23 seats, less than half its pre-election total and its worst-ever result in a Tokyo poll.

“I want to regain the people’s trust by unifying the party and ... showing results,” Abe told reporters.

“It was a severe judgment suggesting (voters) thought the Abe administration was getting slack,” Abe said. “We must accept this firmly and seriously and make every

effort to return to our original aspirations of when we regained power.”

Past Tokyo elections have been bellwethers for national trends. A 2009 Tokyo poll in which the LDP won just 38 seats was followed by its defeat in a general election that year, although this time no lower house poll need be held until late 2018.

Koike, a media-savvy ex-defence minister and former LDP member, took office a year ago as the first female governor in the capital, defying the local LDP chapter to run and promising to reform governance of a megacity with a population of 13.7 million and an economy bigger than the Netherlands’.

The LDP has been hit by a scandal over suspicions denied by the premier - that Abe helped a friend’s business get favoured treatment.

It has also been hurt by cabinet minister gaffes, and by a perception among many voters that Abe’s administration has grown arrogant after more than four years in power.

Black eye for Abe

The huge victory for Koike’s party and its allies has sparked fresh speculation that she will take her party national, but any bid by Koike herself for the country’s top job looks

Tokyo Governor Yuriko Koike puts a green rose mark on the name of the victorious candidate for the Tomin First no Kai regional political party led by Koike in the Tokyo Metropolitan Assembly election, in Tokyo, Japan, 02 July 2017. Lusa

unlikely until after the Tokyo 2020 Olympics - if her popularity remains high and her party proves it is able to govern.

“This was less a vote for ‘Tomin First’ (Tokyo Citizens First) than a repudiation of Abe,” said Jeffrey Kingston, director of Asia studies at Temple University’s Japan campus. “It was not a grass roots firestorm.”

Abe’s support rate, which tumbled in surveys last month, slipped again to 38 per cent from 41 per cent in an Asahi newspaper poll conducted at the weekend.

That was lower than the 42 per cent who did not back his cabinet.

Abe will likely reshuffle his Cabinet to try to repair

his battered image, although the tactic has backfired in the past when new ministers became involved in scandals or committed gaffes.

“The good scenario for the economy and markets is that the Tokyo Assembly election result triggers a pro-reform Cabinet reshuffle, and returns focus to economic issues,” wrote Morgan Stanley MUFG Securities’ economist Robert Feldman.

“The bad scenario is the LDP becomes paralysed, and few reform actions are taken,” he said.

The LDP’s poor result could also boost Abe’s inclination to delay yet again an unpopular rise in the national sales tax to 10 per cent scheduled for 2019. A decision needs to be

made around the middle of next year.

It could also affect his push to revise the pacifist Article 9 of the post-war, U.S.-drafted constitution, a politically divisive goal that Abe said in May he wanted to achieve by 2020. “I don’t think that will go as planned,” said Atsuo Ito, an independent political analyst and author.

Abe had been considered on track for a third three-year term when his tenure as LDP president ends in September 2018, but his sliding ratings and the election loss have clouded that outlook.

“A lot can happen between now and 2018. Two months ago, it looked like he’d waltz to a third term. Now it’s uncertain,” Kingston said. Reuters

Monetary meeting

Australia’s central bank in sweet spot as jobs, home prices please The Reserve Bank of Australia (RBA) holds its July policy meeting today Wayne Cole

Australia’s jobs market looks healthier than it has in months while house prices are cooling in the face of tighter lending rules, all arguments for steering a steady course on interest rates this week.

All eyes will be on the post-meeting statement for any hint of hawkishness given central banks in Europe and Canada had surprised recently by talking of the need for tighter policies.

That change in tune led the futures market to abandon any thought of another easing in Australia and instead imply a one-in-ten chance of a hike in rates by Christmas.

Economists, though, remain much more circumspect and dovish. A Reuters poll of 50 analysts found all but one expected rates to stay steady this week and most saw no move until late 2018.

“In our view the RBA is unlikely to be hawkish given still elevated labour market slack and subdued inflation,” said Tapas Strickland, an economist at NAB.

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“Nevertheless, the Statement could well read more positively given May’s stellar labour figures and the market might well infer a hawkish tilt even if it isn’t,” he added.

Employment blew past forecasts to jump 42,000 in May, a third straight month of upbeat outcomes that drove the jobless rate to a four-year trough of 5.5 per cent.

Leading indicators of labour demand are also healthy with ANZ’s measure of job advertisements climbing 2.7 per cent in June to its highest since 2011. “ W e th i n k th e st r e n g th o f

employment will be a key factor in stabilising, and possibly lifting, consumer sentiment,” said David Plank, ANZ’s head of Australian economics.

“This will be important in ensuring downside risks to the economy don’t materialise.”

The upbeat tone was echoed by an inaugural series of surveys from CBA and Markit which showed robust activity in both manufacturing and services during June.

The run of improving numbers could lead the RBA to upgrade its view of the labour market, which it has been characterising as no better than “mixed”.

Yet too cheerful a message could lift the local dollar, which is already at heights considered unhelpful for exports.

“It’s a conundrum for the RBA which wants to avoid a stronger currency,” said NAB’s Strickland.

There have been some calls for the RBA to tighten policy to head off a debt-driven bubble in the housing market. Instead, regulators chose to crack down on bank lending to investors, pushing up mortgage rates for a range of products.

Key Points Job ads jump 2.7 pct, affirm improvement in official data Home price growth slows in June qtr amid lending crackdown Factory, service surveys point to stronger activity RBA seen content with steady rates at July 4 policy meeting The tactic seems to be working.

Figures from property consultant CoreLogic showed home prices rose only 0.8 per cent in the June quarter, the smallest increase since late 2015, with Sydney recording a notable slowdown. Reuters

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Business Daily Tuesday, July 4 2017 13

Asia Labour

Thailand’s new rules send thousands of migrant workers fleeing The country has more than 3 million migrant workers, the International Organization for Migration says Amy Sawitta Lefevre

Tens of thousands of workers have fled Thailand, most of them for homes in neighbouring Myanmar, immigration officials said yesterday, after new labour regulations adopted by the military government sparked fear and panic among the migrant community.

Millions of workers from poor neighbours, such as Cambodia and Myanmar, form the backbone of Thailand’s manual labour force, with industries such as the multi-billion-dollar seafood business heavily reliant on foreign workers.

Since taking power in a 2014 coup, Thailand’s ruling junta has attained varying degrees of success in campaigns to regulate the foreign workforce, spurred partly by media reports that unregulated workers faced exploitation by employers.

About 60,000 workers left between June 23 and 28, and the number has risen since, an Immigration Bureau official said.

“They were of all nationalities, but the biggest group was from Myanmar,” Deputy Commissioner Pornchai Kuntee told Reuters. “They are probably very scared.”

Following news of the exodus, Thailand on Friday promised a 120day delay in enforcing parts of the decree, including fines that can range up to 800,000 baht (US$23,557) for

employers who hire unregistered foreign workers without permits.

Geta Devi, 28, a Myanmar worker based in Bangkok, said some of her friends panicked over the decree, adding, “They went back to Myanmar.”

Thai government trucks have been taking workers to the Myanmar town of Myawaddy, 246 km (153 miles) east of Yangon, and located opposite the Thai town of Mae Sot, to be handed to Myanmar authorities, a Myanmar official said.

It was unclear if they were leaving Thailand voluntarily.

Since June 29, more than 16,000 people have returned home, Aung Htay Win, a labour ministry official who is coordinating Myanmar’s response, told Reuters.

The figure included both legal and undocumented migrants fearing a crackdown, as well as some ordered home by employers, he said.

“Most of them stay for one night or so, then they continue to their home towns,” he said, adding the workers were being temporarily housed in government buildings.

Since last week, up to 500 Cambodian migrant workers have returned home, said Chin Piseth, deputy chief of the Thai-Cambodia border relations office of the Cambodian army.

“According to reports I received, between 400 and 500 were deported,” he told Reuters.

Such mass movement leaves undocumented workers vulnerable, said Andy Hall, a migrant workers’ rights expert who has monitored such migration in Thailand for over a decade.

“It’s clear to me tens of thousands of migrants only move like this after instigation,” Hall told Reuters.

Despite the threat of punishment, “corrupt officials” would try to seek bribes, he said, adding, “Mass profit is to be made in a short time from the panic and commotion.”

Key Points New regulations spark fear and panic among migrant community Most of the workers fleeing are from Myanmar Upto 60,000 left between June 23 and 28, Thai official says Police trying to extort money from employers or migrant workers will be punished, Thai police chief Chaktip Chaijinda warned on Friday.

Last month, the United States kept Thailand on a trafficking watch list, saying it fell short of the minimum standards to end human trafficking.

Thailand defended its anti-trafficking efforts, urging U.S. officials to visit and assess them.

Thailand has more than 3 million migrant workers, the International Organization for Migration says, but rights groups put the figure higher.

Reuters

New economy

Indonesia sets tariff ranges for online car-hailing services

In Brief Property

Japan’s 2016 land prices up Land prices in major Japanese cities such as Tokyo and Osaka rose in 2016 by more than 10 per cent, lifting nationwide prices for a second year in a row, a government survey showed yesterday.

Japan’s average land price increased 0.4 per cent in 2016, a bigger rise than 0.2 per cent in 2015, the National Tax Agency said.

The rise was helped by demand for land to build hotels and retail space as the number of overseas visitors to Japan in 2016 hit a record 24 million. The tax agency data showed the biggest price rise was in Tokyo’s Ginza shopping district.

M&A

SK Hynix proposes financing Toshiba deal via convertible bonds SK Hynix Inc has proposed that its financing for a Japan government-led group bidding for Toshiba Corp’s chip unit be done through convertible bonds, two sources familiar with the matter said, potentially allowing it to have an equity interest in the world’s No. 2 NAND chip maker. Such an arrangement would likely hurt the consortium’s efforts to clinch a deal, despite being named the preferred bidder last month with an offer of around 2 trillion yen (US$18 billion). Japan’s government is keen to keep the chip business under domestic control and has been wary of allowing foreign firms to access Toshiba’s memory technology.

Tourism

The regulation kicked in on July 1 and will be evaluated in the next six months Agustinus Beo Da Costa and Eveline Danubrata

Indonesia set minimum and maximum tariffs for online car-hailing services in a bid to ensure comparable pricing with conventional transport providers and address complaints of undercutting, sending shares of the nation’s top two taxi firms soaring.

Ride-hailing services such as U.S. group Uber Technologies Inc, Southeast Asia’s Grab and Indonesia’s GOJEK have heavily subsidised their drivers in Indonesia in order to gain market share in the country of 250 million people, analysts say.

Key Points Transport ministry regulation kicked in on July 1 Uber, Grab say will work with the government Shares of taxi firms Blue Bird, Express surge Taxi drivers had protested against online apps The transport ministry said in a statement on Sunday that it had set a tariff range for online car-hailing services of 3,500-6,000 rupiah (US$0.26-US$0.45) per kilometre for the islands of Java, Bali and Sumatra.

For Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Papua, the range is 3,700-6,500 rupiah per kilometre.

The regulation kicked in on July 1 and will be evaluated in the next six

months, the ministry said.

“There has to be a balance between conventional and online transport, so that has to be regulated,” Pudji Hartanto Iskandar, director-general of land transport at the ministry, told Reuters by phone.

The news sent shares of Indonesia’s two biggest taxi operators, PT Blue Bird Tbk and PT Express Transindo Utama Tbk, surging yesterday.

Drivers of Blue Bird and Express have called for a ban on ride-hailing services, claiming they were subject to less stringent requirements than conventional taxis.

Uber said in an emailed statement it had yet to receive a copy of

Indonesia’s regulations.

“However, we remain committed to working with the government to find a path forward that accommodates the interests of riders and driver partners and supports innovation, competition and customer choice,” Uber said.

Grab said it is ready to cooperate with the transport ministry and to comply with regulations.

“After receiving direction from the government, we will review the policy and make the necessary adjustments to ensure that our driver-partners will still earn the best incomes when using the Grab platform,” it said in an email.

GO-JEK did not provide an immediate comment. Blue Bird and Express did not immediately respond to requests for comment. Reuters

Indonesia’s May foreign visitors arrivals rise A total of 938,623 foreign tourists visited Indonesia in May, up 11.5 per cent from a year earlier, the statistics bureau said yesterday. That was a slower pace than April’s 19.2 per cent annual rise. May’s total number of foreign visitors, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, was 1.16 million, up 26.7 per cent from the same month of 2016.

IPO

Lotte Chemical Titan cuts shares on offer Malaysia’s Lotte Chemical Titan Holding Sdn Bhd said yesterday it has reduced the number of shares on offer in its initial public offering by a fifth. The integrated petrochemical producer, part of South Korean conglomerate Lotte Group, will now offer 580 million shares compared to its earlier plan to offer 740.5 million shares, it said in a filing to the national stock exchange. It did not give a reason for the move.

Reuters reported on Friday that Lotte Chemical Titan would relaunch its IPO at a lower price than initially targeted due to weak investor appetite, citing three sources familiar with the deal.

14 Business Daily Tuesday, July 4 2017

International In Brief Strategy

Airbus unveils leaner structure Airbus on Monday formally kicked off a leaner corporate structure under Chief Executive Tom Enders, following a recent merger between its parent company and its dominant plane making arm, and confirmed a reorganisation of its commercial sales. Confirming changes first announced last year, the reorganisation involves a single corporate headquarters in Toulouse, France, with Fabrice Bregier as group-wide chief operating officer and president of commercial aircraft. “Airbus will benefit from a simpler structure that enables faster decision-making, less bureaucracy, greater collaboration and increased efficiency,” it said in a statement.

Energy

UK regulator proposes price cap for poorest customers Britain’s energy regulator Ofgem could cap bills for some of the most vulnerable customers and make it easier to switch supplier in response to a government request to set out plans to help customers on the poorest-value tariffs.

Ofgem would consult with consumer groups over the potential changes and vulnerable customers could cover around 2 million consumers already on discounts to help them heat their homes, a spokeswoman for the regulator said yesterday. The proposals are likely to have a limited impact on Britain’s dominant big six energy suppliers who have around 85 per cent of the market.

Diplomacy

Saudi Arabia, allies give Qatar two more days to accept demands Commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar Noah Browning and Tom Finn

F

our Arab states which accuse Qatar of supporting terrorism agreed to extend until late today a deadline for Doha to comply with a list of demands, as U.S. President Donald Trump voiced concern to both sides about the dispute.

Qatar has called the charges baseless and says the demands - including closing Qatar-based al Jazeera TV and ejecting Turkish troops based there - are so severe that they seem intended to be rejected.

Saudi Arabia, Bahrain, Egypt and the United Arab Emirates (UAE) have raised the possibility of further sanctions against Qatar if it does not comply with the 13 demands presented to Doha through Kuwait, which is acting as a mediator.

According to a joint statement on Saudi state news agency SPA, the four countries agreed to a request

by Kuwait to extend by 48 hours Sunday’s deadline for compliance.

They have not specified what further sanctions they could impose on Doha, but commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar.

Foreign ministers from the four countries will meet in Cairo on Wednesday to discuss Qatar, Egypt said, while Arab media reported that Qatari foreign minister Sheikh Mohammed bin Abdulrahman al-Thani arrived in Kuwait yesterday to deliver

Doha’s formal response to the Arab demands.

The four states cut diplomatic and commercial ties with Qatar on June 5, accusing it of supporting terrorism, meddling in their internal affairs and advancing the agenda of regional foe Iran, all of which Qatar denies.

Mediation efforts, including by the U.S., have been fruitless.

Trump spoke separately to the leaders of Saudi Arabia, Qatar and the Crown Prince of Abu Dhabi in the UAE to discuss his “concerns about the on-going dispute”, the White House said.

Key Points Trump calls Gulf Arab leaders, voices concern Terrorist financing is “overriding” issue-Trump Qatar says can discuss “legitimate” concerns But Doha says four states target its sovereignty

“He reiterated the importance of stopping terrorist financing and discrediting extremist ideology. The president also underscored that unity in the region is critical to accomplishing the Riyadh Summit’s goals of defeating terrorism and promoting regional stability,” the White House said.

“President Trump, nevertheless, believes that the overriding objective

of his initiative is the cessation of funding for terrorism,” it said.

Urging restraint

A State Department official said on Sunday that the United States encourages “all parties to exercise restraint to allow for productive diplomatic discussions.”

Qatari officials say the demands are so strict that the four countries never seriously intended them as a negotiating position and see them as being aimed at hobbling Doha’s sovereignty.

Qatar says it is interested in negotiating a fair and just solution to “any legitimate issues” of concern to fellow member states of the Gulf Cooperation Council, which groups Saudi Arabia, Kuwait, Oman, Qatar, Bahrain and the UAE. Qatar’s Gulf critics accuse Al Jazeera of being a platform for extremists and an agent of interference in their affairs. The network has rejected the accusations and said it will maintain its editorial independence.

Gulf countries have insisted the demands were non- negotiable.

The UAE’s minister of state for foreign affairs, Anwar Gargash, has played down the chances of an escalation, saying “the alternative is not escalation but parting ways”, suggesting Qatar may be forced out of the GCC. The Western-backed body was formed in 1981 in the wake of Iran’s Islamic Revolution and the outbreak of the Iran-Iraq war.

Speaking in Washington last week, the Qatari foreign minister said the GCC was set up to guard against external threats. “When the threat is coming from inside the GCC, there is a suspicion about the sustainability of the organization,” Sheikh Mohammed told reporters. Reuters

Aviation

U.S. lifts laptop restriction for flights from Abu Dhabi The United States has lifted a ban on laptops in cabins on flights from Abu Dhabi to the United States, saying Etihad Airways had put in place required tighter security measures. Etihad welcomed the decision on Sunday and credited a facility at Abu Dhabi International Airport where passengers clear U.S. immigration before they land in the United States for “superior security advantages” that had allowed it to satisfy U.S. requirements. Transportation Security Administration officials have checked that the measures had been implemented correctly, according to the Department of Homeland Security (DHS).

Cyber attack

Maersk brings all major IT systems back online Danish shipping giant A.P. Moller-Maersk said it has restored its major applications, as it brings its IT systems back online after being hit by a major cyber attack last week. “Today we can finally reopen our key applications,” Maersk said in a statement yesterday. The company, which handles one in seven containers shipped globally, said it expects to have all its 1500 applications fully functional within a week. Maersk said on Friday it expected client-facing operations to return to normal yesterday and was resuming container deliveries at its major ports.

PMI

Euro-area manufacturing accelerates as orders fuel optimism The figures underline rising confidence among policy makers that the recovery in the 19-nation economy is strengthening Carolynn Look

Euro-area manufacturing expanded at the strongest pace in over six years as factories across the region took on more workers to deal with surging orders.

A Purchasing Managers’ Index climbed to 57.4 in June, up from 57.0 in May and above a June 23 flash estimate, IHS Markit said yesterday.

Growth rates improved in most of the surveyed countries, including France and Italy, while a gauge for Greece signalled expansion for the first time since last August.

“There’s no sign of the impressive performance ending any time soon,”

said Chris Williamson, chief business economist at IHS Markit. “Optimism about the year ahead has risen to the highest for at least five years, backlogs of orders are building up at the fastest rate for over seven years and factories are reporting near-record hiring as they struggle to deal with the upturn in demand.”

The figures underline rising confidence among policy makers that the recovery in the 19-nation economy is strengthening after years of subdued activity and muted inflation. With factory output rounding off the best quarter since 2011, overall economic growth in the three months through June is likely to have received a strong

boost from goods production, IHS Markit said.

Improvements can also be seen on the inflation front. While input costs have fallen since the start of the year, manufacturers increased selling prices sharply, Williamson said.

“Increasingly widespread supply-chain shortages mean pricing power is being regained, hinting at some upward pressures to core inflation.”

Data on Friday showed euro-area price growth slowed less than economists predicted in June as a measure of underlying pressures that strips out volatile components such as energy and food exceeded estimates. European Central Bank President Mario Draghi has insisted that he wants to see proof that inflation momentum is sustainable before withdrawing monetary support. Bloomberg News

Business Daily Tuesday, July 4 2017 15

Opinion Business Wires

Bangkok Post The (Thai) Revenue Department has set a withholding tax rate for online purchases in a range with a maximum of 15 per cent, a change from a flat rate of 5 per cent proposed previously. The e-business tax will have several rates depending on the type of business, said Prasong Poontaneat, director-general of the Revenue Department. Different tax rates for varying types of online transactions will be clearly stated in the draft bill, he said. The department will apply Revenue Code Section 70, which permits it to impose a withholding tax on revenue incurred in Thailand for operators that do not have a presence in the country, including online transactions.

Hong Kong needs to crack the enigma code, and quickly The Star Despite weaker oil prices, higher expenses and drop in revenue collection in the first quarter of the year, the (Malaysian) Government is unlikely to revise the budget deficit upwards. The Government had set the budget deficit to gross domestic product at 3 per cent for this year, from a deficit of 3.1 per cent of GDP last year. Economists at RHB Research Inst Sdn Bhd said in a report that even if oil prices continue to stay at an average of US$40 a barrel in the second-half of the year, prices for the full year would average around US$46.40, which would still be above Budget 2017’s assumption.

The Phnom Penh Post A proposal for a massive warehouse and silo that has attracted two Chinese investors aims to fill the Kingdom’s (Cambodia) conspicuous gap in paddy rice storage capacity, which still falls 60 per cent short of the level needed for the country to achieve its goal of 1 million tonnes of annual rice exports. Private Chinese firms Jilin Province Investment Group Co Ltd and Jilin Tianzhong Agriculture Development Co Ltd signed a memorandum of understanding on Thursday with local conglomerate Soma Group to build a “huge” storage facility to serve Cambodia’s rice producers.

Asahi Shimbun Aiwa was given the coup de grace in 2008, but the popular producer of Japan’s first radio-cassette recorder back in the 1960s is about to be heard from again. The brand name was owned by Sony Corp., which discontinued its production nine years ago. Recently, however, Towada Audio Co., an electronics manufacturing service company located in Kosaka, Akita Prefecture, bought the brand name and set up in April this year a new company called aiwa, book-ended with the small letter “a” and headquartered in Tokyo’s Shinagawa Ward.

T

hrill-seekers in Hong Kong who want to gamble in casinos usually have to take a bumpy, hour-long ferry ride to Macau.

Those who crave excitement without leaving the city might do just as well punting on Hong Kong’s small-cap stocks.

Structural weaknesses and a reluctance by regulators to delist miscreant companies has turned Hong Kong’s US$4.6 trillion stock market into fertile ground for individual speculators and short sellers, exemplified by last week’s sudden plunge in a series of small-cap shares.

China Jicheng Holdings Ltd., an umbrella maker, started the week with a market value of US$2.7 billion; by the end it was worth about US$125 million. Like many of the other stocks that collapsed, Jicheng was a member of the so-called Enigma Network, a complex web of companies with cross-shareholdings identified by investor activist David Webb in May. Jicheng shows how regulators have allowed penny stocks to flourish in Hong Kong. The Jinjiang City-based company listed on the stock exchange’s main board in February 2015, raising about HK$165 million (US$21 million) and pricing its shares at HK$1.10 each. They rocketed to as high as HK$35 on June 9 of that year. One day later, Jicheng conducted a 25-for-1 stock split, and followed that with a 5-for-1 split 10 months later.

Jicheng has been trading as a penny stock -- defined as a price of less than HK$1 -since last April.

Major exchanges in the U.S. have clear rules on penny stocks, which are typically considered high risk because of their lack of liquidity and small capitalization. They often trade over the counter rather than on the exchange’s main board. Companies on the New York Stock Exchange, for example, face delisting if their shares drop below US$1 for 30 consecutive days.

Hong Kong has no such safeguards. About 40 percent of the 2,000 common stocks listed in the city trade at less than HK$1, commanding an aggregate US$145 billion of market value.

Penny stocks often carry financial health warnings because of their small size; if their shareholder base is limited they may be even more vulnerable to potential manipulation.

Jicheng founder Huang Wenji holds a 74.48 percent stake, according to data compiled by Bloomberg.

That means the number of shares in other hands and available to be freely traded -- the public float -- is barely above the 25 percent minimum required by the Hong Kong exchange.

But how many shares are really available for retail investors? On last Tuesday, Lerado Financial Group

“

Shuli Ren a Bloomberg Gadfly columnist

Co. and China National Culture Group Ltd. sold 3.1 billion Jicheng shares between them, or 4.1 percent of the number outstanding. Both companies also feature in Webb’s Enigma Network.

When companies apply to hold an initial public offering in Hong Kong, the exchange requires them to have at least 300 shareholders to list on the main board, or 100 to join the Growth Enterprise Market. Those rules are aimed at ensuring there’s sufficient depth in the market for their shares.

Once listed, though, scrutiny is less strict.

Jicheng has been on the Securities and Futures Commission’s radar ever since its IPO. In May 2015, the SFC issued a so-called concentration warning, alerting investors that a small number of shareholders held a high proportion of the shares and urging “extreme caution.”

Seventeen shareholders, including Huang, owned 99.02 percent of Jicheng’s stock, the regulator said. But nothing more has been done since.

On Dec. 30, Jicheng changed its mind on how it planned to use the money raised through the 2015 IPO. Instead of spending 71.5 percent of the net proceeds to build a new factory in China, it decided to divert most of that into “buying new brand names” and marketing. The shares barely budged that day. The company traded at 42 times book value before last week’s crash and, like most penny stocks, isn’t covered by any equity analyst tracked by Bloomberg.

Sudden slumps wiping out billions in shareholder wealth have been happening too frequently in Hong Kong, from Hanergy Thin Film Power Group Ltd. in 2015 to China Huishan Dairy Holdings Co. earlier this year. The fact that Webb could write: “The SFC should be taking a close look at this network,” six weeks before the collapse is an indictment of the policing of the Hong Kong market.

Civilized warning letters are no longer enough.

Hong Kong urgently needs to consider borrowing from the U.S. playbook, delisting the most illiquid of its 800 penny stocks, asking more questions about frequent and suspicious stock splits, and looking more closely at cross-shareholdings and unusually low floats.

As Macau knows, running a casino can attract well-heeled and shady types who fancy their chances of beating the house. That’s not the kind of customer a global financial centre should be catering to. Bloomberg Gadfly

Hong Kong urgently needs to consider borrowing from the U.S. playbook, delisting the most illiquid of its 800 penny stocks, asking more questions about frequent and suspicious stock splits, and looking more closely at crossshareholdings and unusually low floats

”

16 Business Daily Tuesday, July 4 2017

Closing Labour

Eurozone unemployment unchanged in May 19.3 million people looking for work in April 2013.

Unemployment in the eurozone remained stable in May as a hiring spree remained on course amid a strengthening economic recovery in Europe, EU figures showed yesterday.

The Eurostat statistics agency said the jobless rate in the 19-nation eurozone remained at 9.3 per cent in May. This kept the unemployment rate at its lowest level since March 2009, though the rate rose slightly in trouble spots Italy and France.

During the worst of the debt crisis, unemployment in the single currency bloc peaked at 12.1 per cent with

The number of unemployed in May stood at just over 15 million, according to Eurostat.

The rate was again lowest in Germany, the eurozone’s biggest economy, with 3.9 per cent in May, while the second economy, France, saw joblessness edge up to 9.6 per cent.

Greece remained the country with the most unemployed at 22.5 per cent (according to March figures), followed by Spain with 17.7 per cent.

Italy, with its economy shaken by recent banking failures, saw unemployment up from 11.2 per cent to 11.3 per cent. AFP

Currency

New yuan factor comes into play when currency weakens The “counter-cyclical factor” worked well to alter bearish perceptions of the yuan in the first two weeks after the change as the currency was kept largely stable Winni Zhou and Andrew Galbraith

I

n the month since China changed how it calculates the yuan’s guidance rate, market participants have discovered that this factor is lopsided and operates mainly to thwart yuan depreciation.

The undisclosed factor put in place by the People’s Bank of China (PBOC) to reduce price swings has been at play only on days when the yuan’s previous session close was weaker than intended.

The central bank introduced the “counter-cyclical factor” into its formula that determines the mid-point reference rate for the yuan in late May saying it would allow the currency’s value to better reflect supply and demand.

That secretive factor has made it almost impossible for the market to estimate each day’s mid-point, around which the yuan is allowed to trade.

Investors suspect the new formula is aimed at keeping the yuan stable, in particular to prevent it weakening excessively and to change market expectations around its depreciation.

Mid-point fixings in June appear to support their theory.

“The counter-cyclical factor was triggered to support the midpoint, when the previous day’s close was weaker than the fixing, suggesting

that the depreciation pressure was building up in the market,” said Ken Cheung, Asian FX strategist at Mizuho Bank in Hong Kong.

Market watchers who have built models to mimic the PBOC’s formula suspect the factor was not included in daily midpoint fixings between Wednesday and Friday last week, when the dollar was weak across currencies and the yuan ended the local session each day stronger than the fixing the previous day.

“The introduction of the counter-cyclical factor has allowed the central bank to regain its price right on the midpoint,” said Cheung, noting

the authorities now have more power to use the midpoint to guide the same day’s yuan movement.

Analysts say yuan policy is less transparent but the change was probably implemented to remove deeply entrenched expectations the currency is a one-way bet down. The renminbi fell 6.5 per cent against the dollar last year and domestic outflows remain heavy despite capital controls.

June swings

The “counter-cyclical factor” worked well to alter bearish perceptions of the yuan in the first two weeks after the change as the currency was kept largely stable. A slew of investors who had bet on losses in the yuan liquidated their short positions.

“The adoption of the counter-cyclical factor has strengthened the idea that the yuan would start to strengthen,” said a senior trader at

a Chinese bank in Shanghai.

The yuan fixing strengthened 1 per cent against the dollar between May 31 and June 9, helping nudge the currency up 0.8 per cent even though the dollar was largely flat in the same period.

June has traditionally been a period of high corporate dollar demand in China, and rising dollar purchases subsequently forced the yuan to give back more than half of the gains it made in late May and early June. The yuan’s local close was persistently weaker than its fixing between June 15 and June 26.

The old model for the fixing was based on the yuan’s local close, along with moves of the U.S. dollar against currencies of China’s main trading partners. That meant that during periods of yuan weakness, the PBOC was forced to fix a weaker guidance the following day, traders said.

The “counter-cyclical factor” has changed that. On average, every 1 pip intraday weakening in the onshore yuan spot rate would lead to about a 0.7 pip strengthening in the fixing relative to what is implied by CFETS model, Goldman Sachs said in a note this week.

“While the counter-cyclical factor can be used to transmit policy guidance, for credibility it may need to be coupled with occasional meaningful yuan moves driven by actual FX intervention,” economists at Goldman Sachs said.

That too has been taking place. Multiple traders told Reuters last week that they saw Chinese state-owned banks selling dollars in the market, in an apparent attempt to keep the yuan from declining. Reuters

M&A

Crude price

Energy

Richemont sells Shanghai Tang to Italian entrepreneur in revamp

Oil stages longest rally since 2012

Delays, £1.5-bn costs overrun at UK’s nuclear project

Richemont has sold Shanghai Tang, a Hong Kong-based fashion maker that was one of the first Chinese luxury labels to seek a global presence, to Italian entrepreneur Alessandro Bastagli.

The Swiss company is ending 19 years’ ownership of Shanghai Tang, which makes men’s and women’s clothing combining western and Chinese design influences. It’s Richemont’s first sale of a luxury brand since it disposed of Italian pen maker Montegrappa in 2007.

“The disposal of Shanghai Tang is a logical step,” Rene Weber, an analyst at Vontobel, said in a note. “The brand was neither material in terms of sales nor of profit.”

Shanghai Tang, known for form-fitting qipao dresses worn in Wong Kar-Wai’s 2000 film “In the Mood for Love,” was begun by Sir David Tang as a bespoke tailor shop in 1994, and now has about 48 stores. While the brand benefited from turn-of-the-millennium buzz about China expanding its global cultural influence to match its prowess in manufacturing, it never caught on in a big way in Europe or the U.S. and consumers in the faster-growing Chinese market have preferred western luxury brands.

Richemont acquired a controlling stake in the brand in 1998, a year after sovereignty over Hong Kong was transferred from the U.K. to China, and bought the rest in 2008. Bloomberg News

Oil prices rose for an eighth day yesterday, their longest rally in over five years after data pointed to moderating U.S. output, but analysts said news of rising OPEC production could temper gains.

The eight-day climb is the longest unbroken rally since February 2012.

Drilling activity for new oil production in the United States fell for the first time since January, dropping by two rigs, while U.S. government data showed crude output fell in April for the first time this year.

“Sentiment has turned and I think we should be going up (in price). I don’t think it’s going to last, but the momentum at the moment is with the bulls,” PVM Oil Associates strategist Tamas Varga said.

The drop in U.S. rig count and U.S. Energy Information Administration figures showing output fell by 24,000 barrels per day (bpd) on a monthly basis “sent out a short-term bullish message,” he said.

The oil price is still down 14 per cent so far this year, as strong global demand has not been enough to absorb rising output from the United States, Nigeria, Libya and other locations, such as the Brazil and the North Sea. Reuters

A project to build a nuclear plant at Hinkley Point in Britain will overrun by £1.5 billion (US$1.95 billion), France’s EDF power supplier said yesterday, warning also of delays of up to 15 months.

EDF is part of a French-Chinese consortium that was awarded the two-reactor project last year despite criticism from green groups and cost warnings from experts.

“The final project costs are now estimated at £19.6 billion at 2015 rates, an increase of £1.5 billion,” EDF said in a communiqué.

It also warned of a possible delay of 15 months in delivering the first reactor, and nine months for the second.

The announcement came after EDF on June 26 said it was carrying out a “full review” of Hinkley Point’s costs and schedule.

Named Hinkley Point C, the project, built in the south-western English county of Somerset, will provide seven per cent of Britain’s power needs, according to the British government.

Critics have focused on the proposed design, which uses a novel EPR reactor that has run into huge problems of cost overruns and delays at sites in France and Finland.

They also question an electricity price guarantee to EDF of £92.5 for every megawatt hour of power produced

by Hinkley over the following 35 years, rising with inflation, despite falling prices. AFP