Shadow lending activity booms in HK Property Page 11
Monday, July 10 2017 Year VI Nr. 1335 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Tourism
High hotel room rates and a limited number of flights reduces tourism, say experts at MITE Page 2
Study
Perception of prostitution should not serve as a deterrent for managing sex tourism development, says study Page 7
www.macaubusinessdaily.com Trial
Former UN diplomat tells jury he received US$1 mln in bribes from Ng Lap Seng Page 7
Shares rout
Negative week in markets takes its toll on banks Page 9
Brick by brick Construction
Supporting the development of the local construction sector through funds, training and work groups is the way forward, according to legislator and incumbent chairman of the Macao Association of Building Contractors and Developers, Tommy Lau Veng Seng. After a ten-year period of stagnation ended in 2003, the real estate market should now auto-regulate, he states. Pages 4 & 5
Impacting global climate change
Given the MSAR is a service-based economy, authorities and entrepreneurs should strive to tackle energy saving in transportation and buildings, says former Portuguese Secretary of State for the Environment, José Eduardo Rego Mendes Martins. Mandatory targets for energy efficiency and raising environmental awareness will help Macau evolve, contrary to places set to “regress” such as the U.S.
Reserves expanding in Mainland
25,340.85 -124.37 (-0.49%) Worst Performers
+3.39%
Cathay Pacific Airways Ltd
+0.49%
Want Want China Holdings
-3.00%
China Petroleum & Chemical
-1.31%
+1.16%
CK Infrastructure Holdings
+0.46%
Bank of China Ltd
-1.90%
Industrial & Commercial
-1.21%
-1.76%
Hang Lung Properties Ltd
-1.14%
Cheung Kong Property
+1.09%
CLP Holdings Ltd
+0.37%
China Resources Land Ltd
China Mobile Ltd
+0.75%
China Merchants Port Hold-
+0.23%
China Unicom Hong Kong
-1.51%
China Overseas Land &
-1.07%
Bank of East Asia Ltd/The
+0.61%
Belle International Holdings
+0.16%
Hengan International Group
-1.42%
Tencent Holdings Ltd
-1.03%
27° 31° 27° 30° 27° 30° 27° 30° 27° 31° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
HK Hang Seng Index July 7, 2017
Geely Automobile Holdings
Tourism Operators from Zhuhai to Jeju Island are honing in on the growing Chinese middle-class, facing increasing regional competition, but working to their strengths. As Zhuhai looks to attract more international branded hotels and develop nearby islands, a project in Jeju aims to be the largest resort and theme park in South Korea. Page 3
FX Beijing continued to grow its reserves for a fifth consecutive month in June. Relaxed capital outflows and a pause in the dollar’s rally helped. FX is now at its highest level in eight months. Page 8
Energy Page 6
Kunlun Energy Co Ltd
Looking for growth
2 Business Daily Monday, July 10 2017
Macau
MITE
A Forum and an Expo The Director of MGTO announced that the next edition of MITE will be held in April, complementing the Global Tourism Economy Forum Cecilia U cecilia.u@macaubusinessdaily.com
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n the coming years, the Macao International Travel (Industry) Expo (MITE) will be held every April, Maria Helena de Senna Fernandes, the Director of the Macao Government Tourism Office (MGTO) announced on the sidelines of the opening ceremony of MITE last Friday. The new arrangement will complement the Global Tourism Economy Forum (GTEF), to be held during the second half of next year and in coming years. The MGTO director revealed that one of the reasons for this decision was that the tourism office had received advice from relevant parties in the tourism industry that April is an ideal time to offer sales for summer holiday packages during July and August. Regarding the 5th edition of MITE, Ms. Senna Fernandes disclosed that MGTO spent some MOP8 million (US$994,275) to cover half of the exhibition’s expenses, increasing by some MOP1 million when compared to last year. “The entire expo required some MOP16 million [...] and the rest was supported by sponsors and business
partners with the co-organizer,” said the director. This year’s edition had 20 exhibitor units comprised of tourism departments from various Mainland provinces or cities. “In future editions we hope to attract more exhibitors outside of the country to take part in MITE,” the director said, while also expressing hope that exhibitor units from the ‘Belt and Road’ would have a more significant presence in booths in future editions of MITE. Meanwhile, Ms. Senna Fernandes disclosed that the China National Tourism Administration has pledged to support Macau in extending the tourism market outside of the country, and to help Macau become a city with significant international influence in the tourism industry.
High prices driving away tourists
Travel Department Assistant General Manager for state-owned travel agency China Travel Service (Macao) Ltd. (CTS), Patrick Puk opined that high hotel room rates in the city are driving away some groups of tourists. “I know some tourists from Hong Kong, and for two people they would spend about MOP5,000 to MOP6,000 for a weekend, staying in, let’s say, Wynn Palace and also
taking into consideration the ferry tickets,” shared Puk. In comparison, according to Puk, there are packages to Taiwan that only cost a few thousand for a trip of three days and two nights. “Hotel rooms in Macau are grand but the price is high, and the city is small. What would you do here aside from gambling if you stay for two nights?” he enquired. Because of the higher costs, the manager remarked that developing Macau as a stopover destination would thus pose difficulties. Furthermore, according to Puk, the limited number of flights to Macau is also a major obstacle for the city in developing itself as a stopover point. He explained that many of the direct flights to Southeast Asian countries from Macau are also available from many Chinese cities. “Before the government proposed to subsidise tourists who stayed in Macau for one to two days for transit, but in the end the plan wasn’t carried out,” disclosed Puk, while noting that the government cannot control the price of hotel rooms. He also explained that the high costs have resulted in a decline in the number of foreign tourists visiting Macau. Meanwhile, Puk said that the number of package tours coming to Macau is getting smaller. “Package tours are more for those who have never visited Macau before [...] they will travel on their own after they have visited the city once,” Puk opines.
Less foreign exhibitors
Having participated in past editions of the event, Puk noticed that this year’s MITE had fewer participants from certain territories, in particular
Open public tender in September for renovating Grand Prix Museum
Maria Helena de Senna Fernandes, the Director of the Macao Government Tourism Office (MGTO) said last Friday that the Grand Prix Museum is currently closed and the public tender for renovating it will be opened in September. The budget for the renovations, as stated previously by the Secretary for Social and Cultural Affairs, Alexis Tam Chon Weng, will remain unchanged, at MOP300 million, while the MGTO director pointed out that the final cost
Taiwan and Japan, compared to last year. “Unlike the tourism expo in Hong Kong and Taiwan, the one in Macau lacks foreign exhibitors from outside of the country,” the manager pointed out. He stated that more new companies had appeared, and also acknowledged that companies this year were focused more on practicality, holding creative activities to attract customers such as lucky draws, “instead of just setting up a booth like last year”. When asked about sales at last year’s MITE, Puk revealed that their performance was “just okay” since they were testing the waters. “This year our sales seem to have increased and we are learning from other travel agents [to roll out creative activities],” said Puk. For Multinational Travel Group, the sales at last year’s edition exceeded expectations, and this year’s sales were expected to outperform last year’s, according to the group’s Director & Assistant General Manager, Candy Leng. Meanwhile, Andy Chan, the Operation Director of Astro Travel Company Limited (ATC) told Business Daily that this year’s MITE held specific sessions for exhibitors to have business exchanges and networking. “It was just surface networking because other [companies which took part in the session] didn’t have much information, but at least we got to know each other,” said Chan. Chan also disclosed that the number of their booked tours was fewer than last year, saying that local residents are perhaps targeting destinations outside of the country, given that ATC mainly focuses on tours to the Mainland.
would depend on the supplier selected. Regarding the Wine Museum, located next to the Grand Prix Museum inside of the Tourism Centre (Centro de Actividades Turísticas) adjacent to Golden Lotus Square, Ms. Senna Fernandes said given that it will be relocated to Coloane, it will be smaller in scale compared to the Grand Prix Museum, and therefore the two museums will be handled in different ways. The renovated Grand Prix Museum will take up the entire building of the former Tourism Centre.
Business Daily Monday, July 10 2017 3
Macau Tourism
Let’s hit the road! With the tourism industry growing more rapidly in the past decade, parties from Zhuhai to Jeju are working to get their piece of the pie, taking part in the 5th edition of MITE Cecilia U cecilia.u@macaubusinessdaily.com
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n the coming three years, with the completion of the super bridge [Hong K o n g-Z h u h a i -M a c a u Bridge], we are expecting a 10 per cent growth every year in the number of tourists visiting Zhuhai,” said Zhong Guohuai, Director of the Zhuhai Tourism Development Centre, under the Culture Sports and Tourism Bureau. Since the collaboration with the SARs a decade ago on developing multi-destination tourism, Zhong said Zhuhai has been given many more opportunities, such as the cooperation memorandum signed last Friday, under which the Macau-based travel agency Multinational Travel Group is planning to invest in the numerous islands off the coast of Zhuhai. In addition, Zhong claimed that there will be 30 international-branded hotels to invest in Zhuhai in the coming three years, with 10 currently in the Chinese city. According to the official data posted on the Zhuhai government’s website, a total of 637,000 foreign visitors visited Zhuhai in 2016, an increase of 6.2 per cent year-on-year, with the total amount of foreign exchange income from foreign tourists hitting US$1.05 billion (MOP8.41 billion), up 8.5 per
cent from 2015. In comparison to Macau and Hong Kong, Zhuhai is home to an assortment of islands, some 217 in total, according to the official Zhuhai government website. Together with the Chimelong International Ocean Tourist Resort with the world largest aquarium, these are features which make Zhuhai stand out regionally, said Zhong. With their main focus on developing leisure tourism, Zhong indicated that “what we develop will match with the tourism products and services in Macau and Hong Kong”. The Zhuhai official also revealed that the current development plans include MICE [Meetings, Incentives, Conventions and Exhibitions], as well
as the free yacht scheme, recently launched in three ports in Zhuhai, with one port in Hengqin. In order to attract more foreign tourists, Zhong said they have proposed to the national tourism bureau to further simplify procedures for foreign tourists to travel to Zhuhai.
Competition would pose no threat
Further abroad, the large-scale Jeju Shinhwa World, in Jeju, South Korea, is expected to open its doors in 2019, according to Tan Bee Ling, Vice President of Marketing of Landing Jeju Development Co., Ltd. The marketing VP noted that the development of gaming properties in nearby regions would not pose serious competition to their own casino. “Competition is definitely there, but we are not withheld [by the situation] because if you look at tourism in Asia, especially for China, the number of the outbound market keeps growing and actually there is demand,” said Ms. Tan, while adding that the new project is created as a one-stop destination, where visitors can enjoy various services and entertainment.
Tan Bee Ling, Vice President of Marketing of Landing Jeju Development Co., Ltd, explains the project
Zhong Guohuai, Director of the Zhuhai Tourism Development Centre
Jeju Shinhwa World, set to be the biggest resort and theme park in South Korea, will feature 2,000 hotel rooms and venues for MICE, as well as a casino that will accommodate some 150 tables and 180 slot machines. Despite political pressure for Chinese tourists not to visit South Korea, due to the installation of the THAAD missile defence system last year, Ms. Tan believes that “the situation is getting better” since the new president Moon Jae-in took on his role. In addition, the marketing VP of the project said they are also aiming at both the domestic and international markets. “To be very frank, Chinese tourists are one of our markets, but not all of our market because the domestic market is also important to us,” said Ms. Tan. “[The project] is actually something quite unique compared to other competitors, so we find ourselves not only attracting Chinese visitors but also those from around the world.” advertisement
4 Business Daily Monday, July 10 2017
Macau Interview
Building up the city Since its establishment in 1947, the Macao Association of Building Contractors and Developers (MABCD) has been supporting the development of the city’s construction industry, as well as the city’s adherence to the ‘one country, two system’ principle. The incumbent chairman of the MABCD, and legislator, Tommy Lau Veng Seng, talks to Business Daily about the changes he’s seen in the city’s construction industry and real estate development in the past decades, as well as other social issues Cecilia U cecilia.u@macaubusinssdaily.com Photographer: Cheong Kam Ka
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ow did the MABCD come about? The association was created based on our antecedents - some of them who were engaged in the fitting out business and some in construction - and gathered other people who were also involved in the same industries to collect opinions in order to voice demands to the former Portuguese government. The association also aimed to build a more approachable communication mechanism with the Portuguese government. We kept on inviting related groups or individuals to join the association and to connect with each other. After the end of the Second World War, Macau’s economy improved and more people were concerned with the improvement of society as a whole and the demand for residential housing. This resulted in the appearance of more people engaged in the real estate industry, many of whom joined our association. Owing to these changes, the name of the association hence became MABCD, whereas before it was called the Macau Building Contractors Association. What are the objectives of the MABCD? After the establishment, we have
stuck to our objectives, which include connecting other contractors and developers, and to further strengthening the solidarity of the industries which also support the city’s development. Ever since the establishment of the association, we have been promoting the idea of ‘loving the country and Macau’ and having close cooperation with the MSAR Government to push forward the governance. We are very concerned with the city’s development. As you can see, the economy in Macau has been growing rapidly since its return to China. This has brought many impacts to the city’s construction industry, like the many complex projects along the Cotai Strip. Therefore, we hope to encourage members to cooperate with foreign companies and, as such, to improve ourselves. And I am glad that there are some of our members who have improved their construction standards and management through cooperation with companies from outside the city. It has brought a lot of good opportunities for our members to improve. How has the real estate market in Macau been over the past decades? Regarding the real estate market, an economic depression happened in 1993, after which the development of real estate remained stagnant for almost a decade. In 1993, there were many residential buildings being built in the NAPE
Tommy Lau Veng Seng, Chairman of the Macao Association of Building Contractors and Developers, and a legislator
region, but which were mostly vacant. This is what we refer to as the darkest 10 years. By the time we reached 2003, when SARS [severe acute respiratory syndrome] happened, the economy hit its worst. But after SARS ended, the overall economy, owing to the city opening its doors to the gaming industry, attracted a significant amount of foreign investment, which led to the development of the city. Because of the economic improvement, people’s purchasing power has improved. With local residents’ purchasing power improved, their demand for residential property or to improve their living standards became stronger, a consequence of which was the rapid growth of the real estate market. Does the MABCD provide a fund for professional training? We have a professional certification system for the construction field and the law is already implemented. As a result, the requirement for professionals in the field is getting stricter. And so, aside from the need to improve oneself in terms of skills, things like professional knowledge and business development, for example improvements in construction techniques etc. also need to be improved. We thought we should give something back to the society as well as to make use of our resources, and also with the support from some leaders and members, we set up a
training fund. By using this fund, we will continuously hold training courses. The fund was officially rolled out on July 6, when Master Lu Ban’s (an ancient Chinese carpenter and engineer) birthday happens. Currently, we require members to have at least 20 hours of training. Courses cover 13 areas like architecture, engineering and others, basically areas that are involved in building construction and contractors. We also wish to pay a visit to the Macau Federation of Trade Unions (FOAM) to expand our fund to involve anyone engaged in construction, including construction workers. The courses are not only for members of the association, but for all. The fees for the courses are not high, since we wish to allow more people to have the opportunity to improve.
“We hope to encourage members to cooperate with foreign companies and, as such, to improve ourselves” How will the MABCD celebrate its upcoming 70th anniversary? This year we will hold a banquet at Macau Tower and invite the Chief Executive Fernando Chui Sai On, and Edmund Ho Hau Wah, the vice-chairman of the Chinese People’s Political Consultative Conference, as well as Ho Iat Seng, the president of the Legislative Assembly to attend the event. The banquet is a traditional
Business Daily Monday, July 10 2017 5
Macau
celebration, and we wish to invite prominent community members, leaders from the industrial and commercial sectors and also related government officials to celebrate. And also to invite all members to attend. We hope to make it a celebratory event every year, but this year is special because it is our 70th anniversary. This coming September we will also be holding a discussion forum, one of the celebration activities for this year. We have invited an expert from Singapore to share his knowledge and experience with us on urban planning, as well as urban renewal topics. The reason we chose the two aforementioned topics is that the city has been having discussions about the planning and renewal of the urban areas, but no concrete conclusions have yet been reached. So we thought we might learn something from others who have succeeded. The architect we invited has been specially appointed by the former Prime Minister of Singapore, Lee Kuan Yew, and has been involved in many projects in Singapore and mainland China. We hope that we can do something to help build the city and to become an internationally recognised city.
“We think that it is the middle management sector that should have more attention on training, so as to allow more local residents to take part in this” Labour shortages in many industries and in particular the construction sector have been a common theme. How can the government or related parties help deal with the issue? I think there are not many young people engaging in the construction industry as construction workers, therefore, we might still need to depend on non-resident workers for any big projects in the future to fill the inadequacies. Actually, we think that it is the middle management sector that should have more attention on training, in order to allow more
local residents to take part in this. I think, no matter whether organising or managing, the improvement of construction skills and the retention of high quality skills have to do with the middle management sector. Even if we have resources for training people specifically in construction skills, the outcome will not be successful because there won’t be people attending the courses. Recently there have been some fatal accidents on construction sites. How can this be prevented? We can see that the gaming operators have brought many companies from outside the city to work on the projects, and they have significantly improved the management of the construction sites, especially improvements in safety on construction sites, like the tools for safety, everyone wearing a reflective coat, a safety helmet and shoes. Guidelines are delivered to anyone who is about to perform works at height, like putting on safety belts. Also, the Labour Affairs Bureau regularly inspects the sites, but sometimes accidents happen and it is sad. Accidents can happen, but we wish to reduce the number of them, but workers should also have the awareness of protecting themselves. Workers should not underrate every little step. Many workers worry about losing face, resulting in accidents. For us, the construction company and the association, we should manage the sites well, making sure there are protective barriers on the platforms for works at height or checking whether the machines are working well. I have been working with DSAT in promoting the importance of construction safety since I came back, and we will continue. Also the construction industry safety card has been launched for quite some time. As far as I know, there are training courses held at centres in Zhuhai for non-resident workers before they start working in Macau, and so they must have acknowledged related safety awareness. Even if they don’t have the card, many employers would have asked them to take the course. I think construction workers are our valuable assets. As the employer and the association, we don’t want to see any injuries happen. With many large scale projects by gaming operators coming to an end, will this affect future development in the construction industry? What I can see is that the construction sector will continue to grow in the coming 20 years, it is only a matter of having different types of projects. With the completion of the many projects by the gaming operators,
projects from the government will be prevailing. As you can see, the reclamation of Zone A is going on well and, as previously announced by the government, there will be public housing projects of 28,000 units and 4,000 private units as well as other facilities. In addition, the Hong KongZhuhai-Macau Bridge will be ready soon, and there will be a need to build infrastructure to connect the Macau side to the bridge. Also, with the high demand for housing, the development of real estate will allow more projects to come. The central government wishes for Macau to become a World Tourism and Leisure Centre, and related facilities are also needed. Therefore, I think there might be some breaks in the market, but the next wave of development will eventually come. What will the objectives of the MABCD be in the coming year? In the coming year, we will continue to focus on the policies for the city. For the Board of Directors, we have four groups, each of whom focus on private and public constructions, social-related and labour-related affairs, urban planning and also the real estate development, respectively. The Board of Directors proposes different topics to focus on and follow up on time, in order to correlate with the policies proposed by the government. Whenever the government asks for advice on particular matters from us, our attention groups will carry out research and give suggestions to the government. Regarding the real estate market, prices for residential units have been growing rapidly in the past decade in Macau and creating difficulties for young people in purchasing their first homes. What is your opinion on this matter? In my opinion, in a free market, it is preferable to let the market set its equilibrium, and so increasing the supply would be a way to resolve the problem. After the return to the Mainland, since the government had been putting more attention on developing the city’s economy, which meant putting more resources into building large-scale projects, the building of social housing lagged behind. With the sudden increased demand for residential units, there are already projects to cope with the demand, but since the real estate market remained stagnant for over a decade, the demand cannot be met in an instant. I think young people should not only demand new units - things will get better later on after you own your
first house - I think it would be best to save enough money for the first instalment on flats that are 20 to 30 years old. It is more important to resolve the problem of living, and later on save more money to buy a better house. I wish that the government would also provide more land, to simplify the procedures of evaluation and allow more projects to be rolled out, whether public or private properties, and this would definitely lead to healthy development in the city.
“The improvement of the economy and residents’ demands to follow every procedure and ensure transparency leads to increasing costs” But there is one thing that we should be aware of, the improvement of the economy and residents’ demands to follow every procedure and ensure transparency leads to increasing costs. From my experience, every stage and every launch of systems will make the cost increase, and there is never a drop in cost as far as I’m concerned. If you want to buy a house, you don’t have to target for the best. If manageable, it would be best to purchase as soon as possible. There is nothing we can do, like the noise law is prohibiting to work overtime, land returned back to the government once the land concession expires. With so many of these pressures the cost will inevitably grow. Given that you are also a legislator on the Legislative Assembly, what is your view of the Pearl Horizon case? It is very limited what a legislator can do [in this case]. It will depend on the decision made by the MSAR Government. I believe a solution will be produced by the Court’s judgement in the near future. For the Land Law, usually there will be problems when transiting from the old law to the new one, but the government is the law executor and they will consider all parts of the case. For now, there is little we can do, but I will pay attention to the issue if I continue in my job as a legislator in the next legislative session.
6 Business Daily Monday, July 10 2017
Macau Opinion
Sheyla Zandonai* Metropolis calling The Greater Bay is moving ahead. One small step for China, one giant leap for Macau. Last week, the local government signed an agreement that seals the strengthening of co-operation intent with Hong Kong and Guangdong – called the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area. Not much was reported on the Macau side, perhaps because there is little to be said at this stage. The agreement remains a protocol of intentions. The Chinese entity behind it is the National Development and Reform Commission (NDRC), which is an administrative and management agency with a broad scope over the planning of the Chinese economy. The Commission’s attributions cover the fields of development, planning, and investment programmes. The Greater Bay Area inherits a tradition of co-operation within the South of China. Macau, Hong Kong, and Guangdong are historically distinct and yet closely linked through the sharing of Cantonese culture, found, for instance, in language and a tradition of diaspora. By assembling such links via infrastructure connections and deeper market integration, China is drawing on a regional pre-disposition for co-operation to validate a national strategy. By deepening Macau and Hong Kong’s integration within its national plan, China is also soothing political divergence through economic co-optation - a VIP ticket to the train of Chinese development, as a high-ranking Party official said recently. Amongst the few guidelines appointed by Macau’s Chief Executive during the signing of the agreement was the aim to ‘proactively enhance communication’ with the central government. That’s only expected. What is vague, assuming the infrastructure and the logistics bits are more plausible, is the goal of creating an ‘ideal place for living, working, and travelling.’ If the completion of the Hong Kong-Zhuhai-Macau Bridge means more people coming to Macau, would that be ideal for living? Clearly, the new Taipa Ferry Terminal – aka Pac-On – was designed with the goal of travelling, and perhaps working, in mind. Otherwise, it is just money down the drain. The new reclaimed land zones have also been planned with the purpose of furthering integration. The Light Rail Transit (LRT), the fourth bridge, the Lotus Bridge, the new Integrated Resorts - all have the word ‘expansion’ written on them. So it seems the old town is saying goodbye to embrace the metropolis. A farewell to arms, essentially.
* Journalist.
Energy efficiency
Opportunities in green business Using his legal background and administrative experience in environmental issues, the former Secretary of State for the Environment of Portugal, José Eduardo Rego Mendes Martins, claims there is a lot of room for improvement in Macau. The good news is that opportunities for investment follow Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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ndustry, transport and buildings are the three domains that have the most impact on global climate change as combined players, according to former Secretary of State for the Environment of Portugal, José Eduardo Rego Mendes Martins. As Macau is a service-based economy, authorities and entrepreneurs should strive to tackle the latter two in regards to energy saving initiatives, Martins told Business Daily. The lawyer, and also former Secretary of State of Regional Development, came to Macau on his fifth visit to speak at a seminar on climate change and the environment within the framework of the Paris Agreement. “Coming from abroad and looking at Macau, my first thought [would be that] there is a lot to be done in the context of energy efficiency,” he stated. Yet Martins conceded that the reason there is room for improvement owes much to the fact that there was also “a lot of room for growth in the past.” “All I bring here is the knowledge of our mistakes. We have made so many mistakes in our development process that [we hope] Macau can avoid some by overlapping some of the stages,” he commented.
Green buildings
Martins argued that buildings “are the essence of energy saving.” While explaining to Business Daily that the rules on energy efficiency in regards to buildings would be the “first thing to tackle” in the city, the
specialist advocated that it is possible to spend much less energy without losing quality of life. “One of the things we are discussing here is that a mandatory target for energy efficiency needs to be acquired via green buildings as well. We can save a lot of energy by not spending it and having the same kind of comfort. I think it would be a great improvement at little cost [in Macau],” he suggested. The former Secretary of State assented that raising environmental awareness and changing patterns in politics are rather slow-moving processes, but added that he perceives there is a “will to evolve” in Macau, whereas other places, namely the U.S., show a “will to regress.” On the other hand, because “renewables require conditions and mature technologies,” he asserted that a starting point is to foster knowledge production in the field. “You need to develop research, you need to promote new technologies, but before new technologies become mature and usable at the scale that we need, it takes time,” he said.
Volvo, Tesla, and the future
Because political responses are usually “slow,” Martins claimed private initiatives have a role to play by putting “pressure on politicians,” while the government acts
China is currently the world’s largest electric vehicle market with 352,000 new electric vehicles in 2016, compared with only 159,000 in the U.S. over the same period, MIT Technology Review reported.
as a regulator. “There is a pressure for profit, but there is also a pressure for long-term sustainability and the maintenance of business,” he suggested. The specialist cited the example of Volvo, a Swedish carmaker, which announced last week that it was going to transition away from selling internal combustion vehicles to producing only electric and hybrid cars starting in 2019, according to MIT Technology Review. “Why does Volvo evolve to the electric car? Because they want to sell cars in the future. An option to go adamantly back to fossil fuels is an option condemned by time,” Martins said. While such types of corporate public commitments make room for the likes of Tesla Inc. to gain market ground, Martins opined that for such companies to “grow into monopolies,” is to be avoided. “Tesla is still very much for the rich. If expanding production coming over to [China], will mean cheaper Teslas all over the world, splendid,” he said. At this stage, he claimed further, it is necessary to have more companies in the sector, for “the future is not a brand, the future is a technology.”
China leading the way
“China has a huge opportunity to lead the way, and it can lead the way with a commercial intent,” Martins explained. According to MIT Technology Review, Volvo’s decision to concentrate auto production on electric vehicles is linked to its acquisition in 2010 by Geely, a Chinese automaker. Geely already produces electric cars such as Emgrand. Bloomberg also reported in late June that Tesla’s CEO Elon Musk is said to currently be in negotiations with the Shanghai government to set up manufacturing in that city. “If China wants to be at the leadership of industrial activity, the electric car will have to be massively produced in China. In ten year’s time, you could have half the cars of Macau running on electricity instead of gas,” Martins commented.
Business Daily Monday, July 10 2017 7
Macau Prostitution
The oldest trade in the world
T
he sex trade in Macau is overall regarded as a ‘permanent part’ of the local community, with respondents to a survey regarding ‘the idea of eliminating prostitution through legislation as being infeasible’. The results come from a study on the subject conducted by professors Libo Yan, Jing Xu and Yong Zhou of the Macau University of Science and Technology and the Hong Kong Polytechnic University. In general, however, ‘the overall attitude towards sex tourism could be described as generally negative,’ point out
the researchers, noting that respondents ‘had a slightly negative perception of the role of prostitution in local economic development’. This however, was contrasted by the responses being ‘likely influenced by a moral perspective, thus underestimating the contribution of sex tourism to the local economy’. The researchers point out that ‘regardless of Macau residents’ moderate acceptance of casino gambling, they did not show a similar attitude toward sex tourism’ and that men were ‘more likely to accept prostitution than females’. ‘Residents who had a
more normative perception of prostitution tended to support sex tourism’ and vice versa, while ‘the two different value orientations towards prostitution suggest that Chinese values are changeable over time,’ the research notes. ‘In contrast to the moral evaluations of prostitution, residents appear to be more concerned about the related social problems,’ point out the academics, opining that ‘the government must face the dilemma of implementing measures to administrate the problematic area of the sex trade’. ‘The public’s perception of prostitution cannot serve
as deterrents for initiating measures to manage sex tourism development,’ the academics’ research opines, noting that ‘with appropriate regulations, sex tourism can
be developed in a beneficial manner by eliminating human trafficking and forced sex, preventing threats to public health, and satisfying various stakeholders’. K.W.
Trial
Ex-diplomat tells jurors he got US$1 million bribe from developer Ng Lap Seng is accused of funnelling hundreds of thousands of dollars to former UN General Assembly President John Ashe and other officials Bob Van Voris
A former United Nations diplomat testified that he got more than US$1 million from a Chinese developer who was seeking backing for a UN conference centre that he hoped to build in Macau. The developer, billionaire Ng Lap Seng, is on trial charged with conspiracy and bribery in the biggest UN corruption scandal since the oilfor-food program in the early 2000s. He’s accused of funnelling hundreds of thousands of dollars to former UN
General Assembly President John Ashe and other officials. Francis Lorenzo, 50, one of the UN diplomats who took the bribes, told jurors in Manhattan Thursday that Ng hoped to build a permanent home for an annual UN conference on economic cooperation among developing countries. Lorenzo, the former Deputy Ambassador to the UN from the Dominican Republic, said the scheme ran for five years beginning in 2010. He referred to the developer as N.G. in his testimony. “Why did you do what N.G. was asking you to do?” Assistant U.S. Attorney Douglas Zolkind asked Lorenzo. “Because I was getting paid,” the former ambassador answered. Ng’s lawyer, Tai Park, told the jury in his opening statement that the payments weren’t bribes. Instead, Ng’s intention was to support the project, which he saw as a public-private partnership between himself and the UN. Ng’s plan was to build the centre for free to boost the value of a related complex of apartments, offices, a casino and hotel he also planned to develop. Ng and others involved were arrested before the centre was
Litigation
Imperial Pacific sued for alleged fraud Imperial Pacific International Holdings Limited is being sued for alleged fraud and breach-of-contract by Pacific Rim International, a brokerage company, according to publication Marianas Variety. Tim Goodwin, the sole owner and broker of Pacific Rim, has filed the lawsuit against Imperial Pacific’s executive director, Lingli Cai, and three subsidiaries of the company, namely, Imperial Pacific Properties LLC, Ever Harvest Ventures (CNMI) Ltd., and Harvest Ventures Properties LLC. Goodwin is accusing the defendants of failing to pay him US$100,000 (MOP804,610) in broker’s fees, demanding a jury trial and damages. According to the complaint, Pacific Rim claims that Imperial Pacific representatives contacted the brokerage firm to assist them in securing properties to support its hotel and casino projects in Garapan, a city on the
Pacific Island of Saipan. The Marianas Variety quoted Imperial Pacific as saying that it “strongly believes that Mr. Goodwin did not earn the commission he claims and the company will vigorously defend this case and expects to prevail.” Last week, Imperial Pacific opened its new casino facility, Imperial Pacific Resort, in Garapan. S.Z.
built, Lorenzo testified. The UN officials used their positions to advance Ng’s efforts to win formal support for the conference centre development, including issuing a contract and agreement letters naming Ng’s company as the exclusive developer, he told jurors. Six people were originally charged, including Ashe, who died in a weightlifting accident last year. In addition to serving as president of the general assembly, Ashe was the ambassador to the UN from Antigua and Barbuda.
The remaining defendants have pleaded guilty, with some agreeing to cooperate with the prosecution. Lorenzo told jurors he’s cooperating with the hope he will get a reduced sentence. Lorenzo was accused of funnelling some of the bribe money to Ashe. In his guilty plea, he admitted that he helped get a US$200,000 payment into a foreign bank account belonging to Ashe, saying “the purpose was to influence John Ashe to the benefit of Ng Lap Seng and others.” Bloomberg advertisement
8 Business Daily Monday, July 10 2017
Greater China Currency
FX reserves rise to 8-month high as outflows ease The value of gold reserves fell to US$73.585 billion at the end of June Yawen Chen and Kevin Yao
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hina’s foreign exchange reserves edged up in June for a fifth consecutive month, in line with market expectations, as capital outflows eased in the face of tighter regulations and the dollar’s rally paused. Reserves rose US$3.2 billion during June to US$3.057 trillion, in line with economists’ forecast in a Reuters poll. The reserves rose by US$24 billion in May to US$3.054 trillion. It was the first time that reserves had climbed for five months in a row since June 2014, and marked its highest level in eight months.
Key Points
Administration of Foreign Exchange (SAFE) said in a statement following the data release. China burned through nearly US$320 billion of reserves last year but the yuan still fell about 6.5 per cent against the dollar, its biggest annual drop since 1994. Faced with an entrenched bearish yuan view, Beijing moved swiftly over the past few months to flush out speculators, quash expectations of a further steep depreciation and safeguard its reserves. That strategy to head off risks to the economy from capital outflows seems to have worked so far, with the yuan up about 2 per cent against the dollar this year. In May, net foreign exchange sales
by the People’s Bank of China (PBOC) fell to the lowest in nearly two years as the yuan stabilised. China also recorded a surplus in its capital and financial account in the first quarter, data from the foreign exchange regulator showed, indicating net capital inflows as policymakers tightened supervision of outflows. However, French investment bank Natixis said in a report that its capital flow tracker for China showed outflows for the second quarter will rise to US$144.1 billion, reversing the trend in the first quarter. The tighter grip on capital flows has also become a setback for China as it has been aspiring to turn the yuan into a global currency. In an effort to reassure global investors worried about the stepped up capital control measures, China’s premier Li Keqiang told the World
Economic Forum last month that Beijing will not restrict cross-border movement of foreign firms’ earnings. Traders said some major stateowned banks were spotted selling dollars in the market this week, a trend seen over the past few months in what analysts believe is part of official efforts to stabilise the yuan. Still, the yuan is forecast to weaken to 7.05 per dollar in 12 months, according to a Reuters poll of more than 50 foreign exchange analysts taken in June. The yuan is predicted to trade at 6.95 per dollar by the end of this year, compared with 7.2 per dollar forecast at the beginning of the year. The value of gold reserves fell to US$73.585 billion at the end of June, from US$75.004 billion at end-May, data published on the People’s Bank of China website also showed. Reuters
China FX reserves $3.057 bln by end-June vs $3.054 bln end-May Outflow pressures may have eased in June - analyst China FX reserves to remain stable - regulator “China’s foreign exchange reserves suggest that outflow pressures may have eased last month,” wrote Julian Evans-Pritchard, China economist at Capital Economics, adding that June could mark the first month since October 2015 in which the PBOC was a net buyer of foreign exchange. He estimated that China’s capital outflows dropped to roughly US$10 billion in June from US$29 billion in May. The country’s foreign exchange regulator said that the slight increase in reserves in June was driven by stronger non-dollar currencies against the greenback. China’s foreign reserves will remain stable as cross-border capital flows become more balanced, the State
Investment
Hillhouse Capital plans new yuan fund Investment managers have raised RMB59.6 billion in funds denominated in the Chinese currency so far in 2017 Julie Zhu and Elzio Barreto
Hillhouse Capital Group, an early investor in top Chinese technology firms including Tencent, Baidu and JD.com, plans to raise a new yuan-denominated fund and is currently pitching it to prospective investors, sources familiar with the plans said. Hillhouse is targeting to raise about RMB8 billion (US$1.2 billion) in the fund, said one of the sources. Venture capital and private equity funds are lining up to raise funds in yuan, tapping into the appetite of investors eager to grab opportunities in domestic Chinese businesses that are typically restricted to overseas buyers and as start-up founders prepare to take their companies public in local markets. Fund managers are also looking to benefit from growing sources of capital at insurance firms and other large domestic institutional investors, as well as wealthy individuals looking to boost returns in alternative assets, analysts and investors said.
“It’s a very sizeable pool of capital that is looking for investment opportunities and the channels to raise funds have improved,” said an investor in several China-focused funds who was not authorized to speak publicly about the industry.
“If you have enough of a local investment program, you can find opportunities to invest locally in yuan as well, so it makes sense to raise those funds.” Investment managers have raised RMB59.6 billion in funds denominated in the Chinese currency so far in 2017, compared with RMB64.4 billion in all of 2016, according to data provider Preqin. That would put this year on pace to be the biggest since 2012, when RMB145.8
billion in aggregate capital was raised. Hillhouse declined to comment. The sources did not want to be named because the capital raising plans are not public. The investment firm, founded in 2005 by Zhang Lei with seed funds from Yale University’s endowment, has raised yuan-denominated funds before and is among several China-focused investment managers such as Qiming Venture Partners and Sequoia Capital China that have funds in both U.S. and Chinese currencies.
Key Points Investment firm seeking to raise RMB8 bln - source New fund comes amid surge in yuan-denominated capital raising But increasingly companies that previously only targeted U.S. dollar fundraising are also launching yuan funds. Lightspeed China Partners and Morningside Venture Capital closed their debut yuan funds earlier this year. And GGV Capital, an early backer of Chinese e-commerce giant Alibaba Group Holding, ride hailing firm Didi Chuxing and phone maker Xiaomi Inc, was also looking to launch its first fund in yuan. Reuters
Business Daily Monday, July 10 2017 9
Greater China In Brief
Regulator
Beijing has no intention of devaluing yuan
Trade
Taiwan exports fuel hope for robust H2 gadget demand
China has no intention of devaluing its currency, the yuan, to boost its competitiveness, said the head of the country’s foreign exchange regulator. There is also no necessity for China to devalue its currency, Pan Gongsheng, head of the State Administration of Foreign Exchange, wrote in state magazine Qiu Shi. The yuan slumped about 6.5 per cent against the dollar last year in its biggest annual drop since 1994. But since then, the yuan has regained its vigour, rising 2.4 per cent against the dollar in the first half of 2017. Globalization
Shipments were led by double-digit gains in electronic components Jeanny Kao and J.R. Wu
Taiwan’s exports in June surged more than expected, underpinned by robust shipments into China, as the tech supply chain for gadgets that make up smartphones and ultra-thin laptops enters its seasonally-busy second half. June exports rose 13 per cent from a year ago, increasing for a ninth straight month and beating the 8.7 per cent forecast in a Reuters poll. Imports rose a smaller 3.7 per cent for the same time period, easing back after solid gains in recent months, finance ministry data showed. “The peak in imports is slowly passing, but exports’ growth is just starting,” said Aidan Wang, an analyst at Cathay Securities Investment Trust in Taipei. Although a high base from last year’s second half may result in “ordinary” gains in the months ahead, “the export momentum is still quite strong,” he said. 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. Last month’s jump was boosted by a 21 per cent on-year advance in shipments to China, the island’s largest export destination and where many Taiwanese tech firms have production plants. In May, exports to China rose only 6.4 per cent.
Gains for components
Shipments were led by double-digit gains in electronic components, up 19.5 per cent in June from a year ago, and parts related to information, communication and visual gadgets category for smartphones - up 17.2 per cent. For 2017’s first half, exports grew 12.5 per cent from a year earlier. The government has forecast shipments for the full year will rise 8.57 per cent compared with 2016, when they contracted 1.8 per cent. Hopes for a strong second half stem from anticipation of a new,
10th anniversary iPhone by Apple Inc and other product launches that should fuel year-end holiday demand. A private barometer of Taiwan’s manufacturing activity in June indicated bright prospects with a sharp rise in new export orders, a leading indicator of shipments in the following two-three months. Taiwan’s trade with the United States in June produced a surplus of US$920 million, wider than May’s US$628 million, ministry data showed. The trade gap remains below one of the thresholds that could trigger punitive moves by the U.S. Treasury. Taiwan, as part of a public comment process on its trade with the United States, said in May that arms sales narrow the bilateral trade gap. In June, President Donald Trump’s administration notified Congress of US$1.42 billion in arms sales to Taiwan. Beatrice Tsai, a Taiwan finance ministry official, told reporters that arms sales have in the past been included in the trade figures and would contribute to a narrower trade gap. Reuters
Bilateral issues
Economic meeting with U.S. scheduled for July 19 Trump pledged repeatedly during his election campaign to take a tough stance on Chinese trade practices Senior U.S. and Chinese officials will meet to discuss bilateral economic issues this month after threats by U.S. President Donald Trump to use trade to pressure Beijing to do more to rein in North Korea’s weapons programs, a U.S. official with knowledge of the decision said. The meeting of the U.S.-China Comprehensive Economic Dialogue will take place in Washington on July 19, and will be the first covering economic and trade issues in a new format for U.S.-China dialogue agreed after a summit between Trump and his Chinese counterpart, Xi Jinping, in April. Trump pledged repeatedly during his election campaign to take a tough stance on Chinese trade practices deemed unfair to the United States, but his rhetoric softened after a friendlier-than-expected summit with Xi. Shortly after their meeting, Trump said he had told Xi that China would get a better trade deal if it worked to rein in North Korea, whose nuclear and missile programs have become an increasing threat to the United States. Lately though, Trump has appeared increasingly frustrated that
China - North Korea’s neighbour and main trading partner - has not taken stronger action. North Korea said it tested its first intercontinental ballistic missile (ICBM) on Tuesday and experts said it appeared to be of a type capable of hitting all of Alaska, prompting renewed U.S. calls for global diplomatic
action. The United States has said it will propose new United Nations sanctions in response to the test, but it is unclear whether China and Russia will support these. Unlike Washington, neither Moscow nor Beijing have described the missile used in the test as an ICBM. Trump vowed on Thursday to confront North Korea “very strongly” after the latest missile test and urged nations to show Pyongyang that there would be consequences for its weapons programs Reuters
Xi urges open world economy at G20 summit Chinese President Xi Jinping on Friday called on members of the Group of 20 (G20) nations to champion an open world economy, strengthen macroeconomic policy coordination and forestall risks in financial markets, state news agency Xinhua reported. Speaking at the G20 summit in the German city of Hamburg, Xi also urged member states to follow a “multilateral trade regime” as global growth remains unsteady despite recovery signs, Xinhua added, amid concerns over growing protectionist pressures, including from U.S. President Donald Trump’s administration. PBOC adviser
Bitcoin can be an asset but not currency Virtual currencies like bitcoin are assets but bitcoin in itself does not have the fundamental attributes needed to be a currency that could meet modern economic development needs, a Chinese central bank adviser said. Sheng Songcheng, adviser to the People’s Bank of China (PBOC), made the comments in an interview with financial magazine Yicai published last week. “Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms...But I do not deny that virtual currencies have technical value and are a type of asset,” he said. Expansion
Tencent to launch mega-hit game in U.S., EU Chinese gaming giant Tencent Holdings Ltd will launch its mega-hit smartphone game “Honour of Kings” in the EU and United States this year, a person familiar with the plans said, amid a backlash in China over its addictive features. The game has roughly 55 million daily active users and analysts estimate its monthly revenue is more than RMB1 billion (US$147.09 million), making it the firm’s top-grossing game.
10 Business Daily Monday, July 10 2017
Greater China Share rout
Bank giants lose US$15 billion in a week The losses are a turnaround for the Big Four lenders, which rallied along with the Hong Kong market earlier this year Justina Lee
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nvestors couldn’t sell Chinese banking giants fast enough last week. Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and Bank of China Ltd. posted their worst weeks since at least June 2016, while China Construction Bank Corp. fell for a fifth consecutive week. The lenders were among the biggest decliners on a gauge of Chinese shares traded in Hong Kong, losing a combined US$15 billion in value. The losses are a turnaround for the Big Four lenders, which rallied along with the Hong Kong market earlier this year as concerns over bad debt gave way to optimism over improving economic growth and corporate profits. While analysts say little has changed for the Chinese banks, they are also especially vulnerable to a correction after going ex-dividend recently. “Their fundamentals haven’t gotten worse; they’re still improving,” said Castor Pang, head of research
at Core-Pacific Yamaichi HK. “But in the short term, the focus isn’t on Chinese banks.”
“Their fundamentals haven’t gotten worse; they’re still improving... But in the short term, the focus isn’t on Chinese banks” Castor Pang, head of research at Core-Pacific Yamaichi HK In contrast, Ping An Insurance Group Co. is among the top performers last week, while PICC Property & Casualty Co. had its best week since November 2016. Funds may have rotated into these shares because insurers will benefit from rising global bond yields, said Peter So, co-head of research at CCB International Securities in
ICBC bore the brunt of the selling, sinking 7.4 per cent for the week
Hong Kong. European and U.S. banks also gained last week amid expectations for monetary tightening in both regions. ICBC bore the brunt of the selling, sinking 7.4 per cent for the week. The stock has fallen to its lowest level versus the benchmark Hang Seng Index since January 2008, while its Hong Kong shares are now the cheapest in a year compared to its A shares. Agricultural Bank is down 6.2 per cent,
while Bank of China has lost 5.7 per cent. Investors should see the selloff as a good time to add banks’ Hong Kong-listed shares, So said. “Corporate earnings are improving and the economy is stable,” he said. “At these levels, these shares not expensive, but attractive.” Exchange filings in April showed that China’s big banks mostly lowered their bad-loan ratios and steadied
their interest margins in the first quarter, thanks to the country’s economic rebound. ICBC reported its biggest profit increase in two years for the period. Since then, ICBC’s asset quality had improved, while its net interest margin had showed signs of widening, Chairman Yi Huiman and President Gu Shu said at the bank’s annual shareholder meeting last month. Bloomberg News
Infrastructure
Paris and Beijing eye Gambian port upgrade to rival Dakar Chinese interest in the project follows China’s resumption of diplomatic ties with former Taiwan ally Gambia last year Emma Farge
Chinese and French companies are bidding to help Gambia build up its Atlantic port Banjul to be what industry sources say could be a rival to neighbouring Senegal’s Dakar. It would be one of the first major structural changes in Gambia following the end of President Yahya Jammeh’s more than 20-year rule in January. State-owned China Communications Construction Company (CCCC) says one of its subsidiaries has made a bid for a 140 million euro (US$159.91 million) contract Gambia has launched to redevelop the port. France’s Bollore Group has also submitted an offer to develop the port for hundreds of millions of dollars, sources told Reuters, and was part of a recent delegation of French investors to the country. The port was run by a state agency during Jammeh’s rule. It is considered to have strategic potential thanks to its easy access to Atlantic shipping lanes.
Abdoulie Tambedou, managing director of the Gambia Ports Authority said there had already been several offers. “The Chinese are interested in investing in the infrastructure for an overall envelope of 140 million euros,” he told Reuters in an interview. “We hope to agree the financing in the next six months.”
An official at CCCC confirmed that one of its subsidiaries was bidding for the contract, without specifying which. In a sign of their interest, a witness saw a Chinese delegation visiting the port last week. Tambedou confirmed Bollore’s offer, without giving the price, and said this included both infrastructure costs and the rental concession. Chinese interest in the project follows China’s resumption of diplomatic ties with former Taiwan ally Gambia last year under the “one China” policy, which states that self-ruled Taiwan is part of China. President
Adama Barrow’s new government reaffirmed that position in February. China is also a major market for Gambia’s exports, which globally are mainly peanuts, wood, cashews, fish and fruit. Upgrading the port will take 30-36 months to complete, Tambedou said.
Struggling
Gambia is poor. It ranks 173 out of 189 countries on the U.N. Human Development Index, below Haiti. It is badly in need of key infrastructure development. There is not a single bridge across its eponymous 1,120 km-long river that wiggles up the length of the country, for example. People and goods have to be shipped across on ferries - or go around. Gambia is nonetheless seen as a key transit country for reaching remote areas of Guinea, Mali and Senegal that are easier to access from Banjul than from the countries’ own ports and capitals. Space constraints at the port, however, mean that arriving cargo ships often have to wait at anchorage before entering. Since the departure of Jammeh, Tambedou said that trade was picking up, with shippers sending imports such as sugar in bigger volumes than before. Reuters
Business Daily Monday, July 10 2017 11
Greater China
Property
Hong Kong’s mortgage lenders doing booming business in the shadows The Hong Kong police said it did not have any data on buyer complaints against non-bank financing companies Sumeet Chatterjee
When Horan Fu decided to buy a 500-sq-foot apartment for HK$7.4 million last year, the biggest draw was the developer’s offer of 85 per cent financing with an option to defer interest payments for the first three years. “The interest rate could be a lot higher after three years, but there’s also a chance that the interest would still be cheap because finance companies are competing fiercely,” said Fu, who works in Hong Kong’s financial services industry. “There’s risk but there’s also an upside. It’s a good investment opportunity.” With traditional financing drying up in Hong Kong at a time when property prices are at a record high, home buyers like Fu are looking to non-bank lenders, many of them the financing arms of developers, to get in on the boom. Under Hong Kong law, these “shadow banks” can loan legally as long as interest rates do not exceed 60 per cent per annum, according to industry officials and an official document seen by Reuters. The system is a life-saver for those who have found it harder to secure loans, particularly mortgages, due to curbs imposed by the central bank to dampen home prices, which are up 137 per cent since the start of the financial crisis in 2008. But it also puts the broader system at risk if property prices turn around or borrowers start to default, because many of these lenders have themselves raised financing by borrowing from big banks or selling bonds. Because they are not banks -- they do not take deposits -- shadow lenders in Hong Kong are monitored by the police, and not financial regulators. The manager of one such lender said his firm, founded by a mainland
Chinese entrepreneur, lends on average HK$8 million to HK$10 million for a first mortgage and up to HK$300 million for a villa, with down payments much smaller than a regular bank. “I can lend you 90 per cent for a property, for example, no problem,” he told Reuters from his office in the Central business district, asking not to be named because he was not authorised to speak to the media. The share of shadow banks in Hong Kong’s mortgage business is still small - in the low single digits - but industry officials say it is growing fast, up at least 30 to 40 per cent a year over the last couple of years. That’s no surprise given that mainstream lenders like HSBC and Standard Chartered have capped mortgages at just 51 per cent at the end of last year, according to Standard & Poor’s. That was after the Hong Kong Monetary Authority (HKMA) gradually lowered the property financing ratio, raised interest rates, hiked the risk capital buffer for new loans and discouraged banks from making large loans to developers with big mortgage lending operations. “Regulators have got us to this situation,” said Richard Wong, a professor in the Hong Kong University’s school of economics and finance. “The money lenders are not deposit-taking companies ... but that doesn’t mean there is no risk because the (property) market could correct.”
Monitoring closely
While non-bank financing companies play a major role in mortgage lending in many developed economies, regulators have been tightening their scrutiny of these lenders, especially after the subprime mortgage crisis in the United States. The Hong Kong regulator, the
HKMA, told Reuters it had given guidance to banks to ensure they boost their “credit risk management” when it comes lending to property developers. “The HKMA will continue to monitor the property and mortgage markets closely, and will introduce appropriate measures to safeguard the stability of the banking system as necessary,” it said in a statement. In addition to the financing units of developers, another 1,800 entities have a license to operate in Hong Kong as money lenders, the bulk of them in mortgages, double the number five years ago, according to the official Companies Registry data.
Key Points Bank curbs force HK buyers to tap shadow lenders as prices rise Shadow lenders thriving in absence of fin regulator overview Shadow mortgage lending growing by at least 30-40 pct a year Central bank says will continue to monitor mortgage market Another 100 firms had applied for a money lender’s license as of endMay this year, according to a review of data at the Hong Kong Companies Registry. Mortgage loans granted by the dozen or so financing units of Sino-Land Company Ltd more than doubled in 2016 from the year before to HK$1.02 billion, according to its annual report, in a year when turnover nearly halved and profit dived by nearly 25 per cent. Other top developers, including Cheung Kong Property Holdings Ltd, controlled by Hong Kong’s richest man Li Ka-shing, Sun Hung Kai Properties Ltd and Henderson Land Development Co Ltd also have financing units. Loans from one of Sun Hung Kai financing arms for its latest development in the New Territories started at 80 per cent of the property price and
went up to 120 per cent for people who already had a home and wanted to upgrade, according to its price list. About 5,000 people applied to buy the 234 units put on sale on July 1 in the first phase of the development, where a 721-sq-feet unit costs as much as HK$10 million. Interest rates from shadow lenders vary widely, but typically start at around 5 per cent and go up to 20 per cent or higher, versus 2-3 per cent at regular banks, which also lend for longer terms of 25-30 years, industry sources said. Sun Hung Kai told Reuters it was always “prudent”: “While the package helps our buyers, it does not affect the company’s financial position as the loan exposure is very small and well-secured.” Sino-Land, Cheung Kong and Henderson did not respond to requests for comment. The Hong Kong police, the de-facto regulator, said it did not have any data on buyer complaints against non-bank financing companies, but added that it maintained a “close liaison” with the financial industry. “Enforcement action will be taken by the police if there is evidence implicating any money lender engaged in illegal practices,” it said in a statement. Some bankers and analysts say the growth of shadow banking in the mortgage sector could be a ticking time bomb, especially if there’s a correction in the market, as is widely expected. The potential for defaults was also a concern although the delinquency ratio in the main banking sector, at least, remains low at just 0.03 per cent in May, unchanged from April, according to the HKMA’s latest available data. Brokerage Nomura expects prices to peak in the first half of this year, and said that local economic fundamentals do not support further price rises. “(The property market) is very expensive ... it goes up very fast, (but) it actually corrects also very fast,” said David Chiu, chair of realtor Far East Consortium International. Reuters
12 Business Daily Monday, July 10 2017
Asia Markets
Bank of Japan offers to buy unlimited amount of bonds The BOJ’s announcement followed a spike in 10-year Japanese government bond yields to 0.105 per cent Hideyuki Sano
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he Bank of Japan (BOJ) offered to buy an unlimited amount of JGBs on Friday, as it sought to put a lid on domestic interest rates pushed higher by the broad sell-off in developed market bonds. Its aggressive bond buying operations sent most Japanese government bond yields lower and weakened the yen. It also marked a reversal in the recent slow and stealth tapering of the bond buying operation central to its easy monetary policy. “The BOJ has sent a very strong signal that they are committed to the yield curve control policy and they are not coming to the global tightening party. The reward has been a lower currency,” said Ray Attrill, head of FX strategy at NAB in Sydney. The BOJ’s announcement followed
a spike in 10-year Japanese government bond yields to 0.105 per cent, its highest since early February and significantly higher than the zero per cent it targets for that maturity under its yield-curve-control policy. The spike was in parallel to the steep rise in German, U.S. and other European bond yields over the past week and a half, spurred by concerns global central banks are moving toward reducing stimulus. It had its origins in a string of hawkish messages from the European Central Bank, the Bank of England and the Bank of Canada, furthered on Thursday by minutes from the European Central Bank’s latest meeting showing it could be open to scrapping its bond-buying pledge. The Federal Reserve’s policy meeting minutes this week suggested it may also soon begin paring back its large bond holdings in the coming
months. But BOJ Governor Haruhiko Kuroda had said in March that it was possible the central bank won’t increase its bond yield targets even as overseas long-term interest rates rise.
Powerful weapon
To ensure it had a stronger shield in case increased buying was not enough, the BOJ employed its most powerful weapon -- of unconditional buying at specific yield -- only for a third time after it started its yield curve control policy in September. In a special market operation on Friday, the BOJ offered to buy an unlimited amount of 10-year JGBs at a yield of 0.110 per cent. This came on top of an increase in the size of its regular auction-based purchase of five to 10-year maturities to 500 billion yen from the previous 450 billion yen. “The BOJ showed its strong determination to keep the 10-year yield around zero per cent and not to let it rise above 0.10 per cent,” said Koichi Sugisaki, strategist at Morgan Stanley MUFG Securities. Following the BOJ’s operation announcement the 10-year yield fell to 0.085 per cent while expectations of widening in yield differentials with other countries sent the yen down to 113.835 to the dollar, its lowest in a month and a half. The BOJ’s offer of unlimited buying drew no selling because the market quickly recovered on the announcement, enabling any sellers to offload JGBs at better prices in the market, rather than to the BOJ. But Friday’s increase in bond buying went against the central bank’s attempts in recent months to reduce its massive debt purchases. The BOJ has been slowing the pace of its bond buys as its holdings of JGBs
have already topped 40 per cent of the entire market, threatening the smooth functioning of the bond market. To avoid running out of JGBs to buy and for its stimulus policy to be sustainable, many analysts say the BOJ will need to further reduce the pace of its bond buying in future. Former BOJ board member Sayuri Shirai told Reuters on Friday the Bank of Japan should steadily proceed with an “implicit tapering” of its bond purchases as any rise in yields would be temporary. Shirai said the central bank may temporarily accelerate purchases of JGBs to contain rises in bond yields, but won’t have to buy huge amounts to cap yields around its zero per cent target. The BOJ has said it is aiming to increase its bond holdings by about 80 trillion yen a year. But in reality, the pace has been slowing substantially already to below 70 trillion yen by June. If the current pace of buying continues, the annual increase in its bond portfolio is expected to fall below 60 trillion yen this year. But Marcel Thieliant, senior Japan economist at Capital Economics in Singapore, said: “We expect U.S. 10-year yields to climb further to 3.0 per cent by year-end so chances are that the BOJ will have to conduct additional fixed purchase operations in coming months.” Takuji Okubo, principal and chief economist at Japan Macro Advisors, thinks the impact of Friday’s operation may not last long. “If the global bond market continues to sell off, there will come a time when the BOJ starts to feel it alone cannot hold off the tide any more and it could cause a nasty turbulence,” he said. Reuters
Infrastructure
Indonesian state firms lure foreign funds with share in future revenue Indonesia is hoping to attract the likes of Canada Pension Plan, Japan’s Government Pension Investment Fund and other institutional investors Cindy Silviana and Eveline Danubrata
Indonesian state firms are courting foreign pension funds by offering a share in future revenue from toll roads, power stations and other infrastructure projects, as part of a presidential drive to secure US$10 billion in additional inflows. The state budget is not enough to fund President Joko Widodo’s ambitious plan to expand infrastructure in Southeast Asia’s biggest economy, a sprawling archipelago where the costs of moving goods around are among Asia’s highest. Widodo told Reuters this week that he had instructed ministers to market the country aggressively to investors, capitalising on Standard & Poor’s May 19 upgrade of its credit rating to investment grade. Indonesia is hoping to attract the likes of Canada Pension Plan, Japan’s Government Pension Investment Fund (GPIF) and other institutional investors, Thomas Lembong, chairman of Indonesia’s investment coordinating board, told Reuters.
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“We can’t just sit back and wait for people to come because competition to attract capital flows is ferocious,” Lembong said. “Everything from toll roads to power plants to airports to ports should be securitised to capital markets.” Indonesian Finance Minister Sri Mulyani Indrawati told Reuters ahead of the G20 summit in Hamburg on Thursday that the government plans to securitise projects that are “already active and revenue-generating”. That way, pension funds will not be involved in “the nitty-gritty of the new project or a project already being built so they can see the risk in a much better way,” she said. Under a securitisation model, a company typically issues a trust-like investment structure that is backed by future revenue from a project or an asset, with investors earning a certain rate of return.
4 trillion rupiah (US$298.4 million) in revenue expected over five years from a road linking Jakarta to cities in West Java province. The securities - expected to offer annual returns of 8-9 per cent over five years - have received a positive initial response from potential investors including pension funds, said Donny Arsal, Jasa Marga’s finance director. State-controlled electricity firm Perusahaan Listrik Negara (PLN) is
Positive initial response
Indonesia’s biggest toll road operator, PT Jasa Marga Tbk , has begun working to securitise about half of the
Indonesian President Joko Widodo
issuing securities backed by the projected five-year income of 10 trillion rupiah from a power plant operated by its unit. PLN decided on this new investment structure as it had already raised funds from bonds, bank loans and other sources, finance director Sarwono Sudarto said. “There is already a limit to the existing models of funding,” Sudarto said, adding that under asset securitisation, there is no transfer of ownership of its physical asset. There’s no guarantee the securitisation plans will succeed. Andre Varian, a portfolio manager at BNI Asset Management, said the securities issued by state firms are relatively new in Indonesia and their returns are not much higher than those offered by other fixed-income assets. The lack of liquidity in the domestic market may also deter foreign investors, Varian said. “Foreign demand would be very limited since there is no liquidity.” Varian added, however, that liquidity may be boosted over time partly because domestic pension funds and insurance firms are required to have a certain portion of investments in government bonds or infrastructure-linked securities. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, July 10 2017 13
Asia In Brief Monetary policy
Vietnam c.bank cuts rates
M&A
Air India break-up an option as Modi pushes for quick sale
Lohani declined to comment on the sale process. The prime minister’s office and the civil aviation ministry also declined to comment.
A committee of five senior federal ministers, led by Finance Minister Arun Jaitley, is expected to meet this month and begin ironing out the finer details of the plan Rupam Jain and Tommy Wilkes
India is considering selling stateowned Air India in parts to make it attractive to potential buyers, as it reviews options to divest the loss-making flagship carrier, several government officials familiar with the situation said. Prime Minister Narendra Modi’s cabinet gave the go-ahead last month for the government to try to sell the airline, after successive governments spent billions of dollars in recent years to keep the airline going. Air India - founded in the 1930s and known to generations of Indians for its Maharajah mascot - is saddled with a debt burden of US$8.5 billion and a bloated cost structure. The government has injected US$3.6 billion since 2012 to bail out the airline. Once the nation’s largest carrier, its market share in the booming domestic market has slumped to 13 per cent as private carriers such as InterGlobe Aviation’s IndiGo and Jet Airways have grown. Previous attempts to offload the airline have been unsuccessful. If Modi can pull this off, it will buttress his credentials as a reformer brave enough to wade into some of the country’s most intractable problems. His office has set a deadline of early next year to get the sale process underway, the officials said, declining to be named as they were not authorized to speak publicly about the plans.
The timeline is ambitious and the process fraught, with opinion divided on the best way forward: should the government retain a stake or exit completely, and should it risk being left with the unprofitable pieces while buyers pick off the better businesses, officials said. Already, a labour union that represents 2,500 of the airline’s 40,000 employees has opposed the idea of a sale even though it is ideologically aligned to Modi’s Bharatiya Janata Party. Officials who have to make it happen are grappling with the sheer scale of the exercise. Air India has six subsidiaries – three of which are loss-making – with assets worth about US$4.6 billion. It has an estimated US$1.24 billion worth of real estate, including two hotels, where ownership is split among various government entities. No one has properly valued the company’s various businesses and assets before, two officials with direct knowledge of the process said. Earlier this month, about US$30 million worth of art, including paintings by artist M. F. Husain, went missing from its Mumbai offices, chairman Ashwani Lohani said. “The exercise is complex and there is no easy way out,” said Jitendra Bhargava, operational head of Air India in 1997-2010. “At this juncture, selling even part of Air India is far from certain.” advertisement
Back to Tata?
A committee of five senior federal ministers, led by Finance Minister Arun Jaitley, is expected to meet this month and begin ironing out the finer details of the plan. Besides deciding about the size of the stake sale, the panel will set the bidding norms. It will also take a call on the carrier’s debt, demerger and divestment of its three profit-making subsidiaries. Modi’s office has said the government has no business being in hospitality and travel, suggesting the prime minister wants to sell as much of Air India as possible, the officials said. Analysts say the government may prefer to keep the airline in Indian hands. At least two potential Indian suitors – the Tata Sons conglomerate and IndiGo - have shown early interest.
Key Points Modi wants sale process to start by early 2018 - officials Air India has US$8.5 bln debt; Govt injected US$3.6 bln since 2012 Ministerial panel to meet this month to kick off process
In recent weeks, officials in Modi’s office and from the civil aviation ministry met Ratan Tata, the patriarch of the US$100 billion-a-year Tata Sons, to gauge the company’s interest in a deal, a close aide to Modi said. Tata would be an attractive buyer for the government. The company founded and operated Air India before it was nationalised in 1953. “Seems like Tata will come forward and make the best offer,” the aide said, adding the government would be keen to see that jobs are not lost. Tata, however, already has two other airline joint ventures in India, and it’s not clear what parts of Air India it would be interested in. A Tata spokeswoman declined to comment. IndiGo said on Thursday it was interested in the international operations and in Air India Express, a low-cost carrier. Modi’s office has told officials to work out exactly how much each of Air India’s subsidiaries are worth to make it easier to break up the carrier if needed, two of the officials said. The government is expected to appoint outside consultants to help with the exercise. Anshuman Deb, aviation analyst at ICICI Securities, said splitting the airline will maximize value for the government. “Let us be realistic. It’s very clear that a single buyer cannot buy an entire state-owned company,” said a senior aviation ministry official involved in the process. Reuters
The State Bank of Vietnam (SBV), the central bank, said on Friday it would cut several interest rates to support economic growth and control inflation. The annual refinancing rate, rediscount rate, overnight electronic interbank rate and rate of loans to offset capital shortage in clearance between the SBV and domestic banks would be cut by 0.25 percentage points each from July 10, the central bank said in a statement. The annual maximum short-term interest rate for loans in the dong currency by financial situations in some sectors would also be cut by 0.5 percentage points from July 10, SBV said without elaborating which sector. Commerce
Philippines complains again to WTO over Thai cigarette trade The Philippines has made a new complaint to the World Trade Organization in a nine-year-old dispute over Thailand’s treatment of cigarette imports, alleging Thailand was failing to comply with a 2011 judgment against it, the WTO said on Friday. The Philippines originally went to the WTO in 2008 to complain that Thailand was illegally discriminating against imports to protect its state-controlled Thailand Tobacco Monopoly. It brought the latest complaint after the Thai public prosecutor filed criminal charges on Jan 26 against Philip Morris Thailand and one of its former employees over 780 entries of cigarettes that cleared Thai customs between January 2002 and August 2003. Corruption
S.Korea police raid Korean Air headquarters Police raided the headquarters of Korean Air Lines Co Ltd on Friday as part of an investigation into allegations that company funds were used to pay for construction work at the home of Chairman Cho Yang-ho. The firm is suspected of masking interior decoration costs at Cho’s private home as expenses associated with the construction of a new hotel between May 2013 and August 2014, police said in a statement. No suspects had been named, a police official told Reuters. A Korean Air spokesman said the airline was cooperating with police. Cho could not be reached for comment. Crude
Venezuela offers India’s ONGC oil stake Cash-hungry Venezuela has offered Indian oil company ONGC Videsh an increased stake in an oil field, according to two sources close to the proposal, as the country seeks to shore up its bruised energy industry and strengthen ties with New Delhi. State oil firm Petroleos de Venezuela SA (PDVSA) has proposed selling a 9 per cent stake in the San Cristobal field to ONGC Videsh (OVL), a subsidiary of India’s state-owned top explorer Oil and Natural Gas Corp, the sources said this week.
14 Business Daily Monday, July 10 2017
International In Brief Outlook
IMF raises growth forecast for Germany The International Monetary Fund on Friday raised its growth forecast for Germany, citing soaring domestic demand and rebounding exports, and it repeated its call for Berlin to increase investment and reduce its current account surplus. The IMF now expects Europe’s largest economy to grow by 1.8 per cent in 2017 in real terms, compared with its April forecast of 1.6 per cent, and by 1.6 per cent in 2018, up from 1.5 per cent. “Germany’s growth momentum has remained solid, underpinned by robust domestic demand,” the IMF said, pointing to rising employment, increased state spending and the European Central Bank’s (ECB) continued monetary stimulus. Steel trade
EU says it will respond if U.S. imposes punitive measures The European Union will respond if the United States imposes punitive tariffs on steel, European Commission President Jean-Claude Juncker said on Friday at the G20 summit in Hamburg. “Should the U.S. introduce tariffs on European steel imports, Europe is ready to react immediately and adequately,” Juncker told reporters. In a dig at U.S. President Donald Trump, he said that a new EU-Japan trade deal signed on Thursday showed that Europeans were not putting up “protectionist walls”. Juncker and Commission officials declined to give details on how the EU executive would respond. U.S. appeals court
Petrobras corruption class actions need changes A U.S. judge must redefine which groups of investors can sue Brazilian state-controlled oil firm Petroleo Brasileiro SA in their bid to recoup billions of dollars of alleged losses tied to its corruption scandal, a U.S. appeals court said on Friday. But the 2nd U.S. Circuit Court of Appeals in Manhattan also rejected Petrobras’ request that it impose a tougher standard for investors to meet before showing they were defrauded. Jeremy Lieberman, a lawyer for the investors, in a statement said he was “very pleased” with the decision, and that it cleared the way for his clients to seek a trial date.
G20
U.S. isolated on climate at summit of world leaders Trump met Russian President Vladimir Putin for the first time in Hamburg Paul Carrel and Noah Barkin
L
eaders from the world’s leading economies broke with U.S. President Donald Trump on climate policy at a G20 summit on Saturday, in a rare public admission of disagreement and blow to multilateral cooperation. German Chancellor Angela Merkel, keen to show off her skills as a mediator two months before a German election, achieved her primary goal at the meeting in Hamburg, convincing her fellow leaders to support a single communiqué with pledges on trade, finance, energy and Africa. But the divide between Trump, elected on a pledge to put “America First”, and the 19 other members of the club, including countries as diverse as Japan, Saudi Arabia and Argentina, was stark. Last month Trump announced he was pulling the United States out of a landmark international climate accord clinched two years ago in Paris. “In the end, the negotiations on climate reflect dissent – all against the United States of America,” Merkel told reporters at the end of the meeting. “And the fact that negotiations on trade were extraordinarily difficult is due to specific positions that the United States has taken.” The summit, marred by violent protests that left the streets of Hamburg littered with burning cars and broken shop windows, brought together a volatile mix of leaders at a time of major change in the global geo-political landscape. Trump’s shift to a more unilateral, transactional diplomacy has left a void in global leadership, unsettling traditional allies in Europe and opening the door to rising powers like China to assume a bigger role. Tensions between Washington and Beijing dominated the run-up to the meeting, with the Trump administration ratcheting up pressure on President Xi Jinping to rein in North Korea and threatening punitive trade measures on steel.
Trump-Putin
Trump met Russian President Vladimir Putin for the first time in Hamburg, a hotly anticipated encounter after the former real estate mogul promised a rapprochement with Moscow during his campaign, only to be thwarted by accusations of Russian meddling in the vote and investigations into the Russia ties of Trump associates. Putin said at the conclusion of the summit on Saturday that Trump had quizzed him on the alleged meddling in a meeting that lasted over two hours but seemed to have been satisfied with the Kremlin leader’s denials of interference. Trump had accused Russia of destabilising behaviour in Ukraine and Syria before the summit. But in Hamburg he struck a conciliatory tone, describing it as an honour to meet Putin and signalling, through Secretary of State Rex Tillerson, that he preferred to focus on future ties and not dwell on the past.
Key Points Leaders set out differences with Trump on climate Trade section includes commitment to fight protectionism Trump and Putin held first face-to-face meeting Friday Clashes between police, protesters cloud meeting “It was an extraordinarily important meeting,” Tillerson said, describing a “very clear positive chemistry” between Trump and the former KGB agent. In the final communiqué, the 19 other leaders took note of the U.S. decision to withdraw from the Paris climate accord and declared it “irreversible”. For its part, the United States injected a contentious line saying that it would “endeavour to work closely
with other countries to help them access and use fossil fuels more cleanly and efficiently.” French President Emmanuel Macron led a push to soften the U.S. language. “There is a clear consensus absent the United States,” said Thomas Bernes, a distinguished fellow at the Centre for International Governance Innovation. “But that is a problem. Without the largest economy in the world how far can you go?” Jennifer Morgan, executive director at Greenpeace, said the G19 had “held the line” against Trump’s “backward decision” to withdraw from Paris. On trade, another sticking point, the leaders agreed they would “fight protectionism including all unfair trade practices and recognise the role of legitimate trade defence instruments in this regard.” The leaders also pledged to work together to foster economic development in Africa, a priority project for Merkel.
Violent protests
Merkel chose to host the summit in Hamburg, the port city where she was born, to send a signal about Germany’s openness to the world, including its tolerance of peaceful protests. It was held only a few hundred metres from one of Germany’s most potent symbols of left-wing resistance, a former theatre called the “Rote Flora” which was taken over by anti-capitalist squatters nearly three decades ago. Over the three days of the summit, radicals looted shops, torched cars and lorries. More than 200 police were injured and some 143 people have been arrested and 122 taken into custody. Some of the worst damage was done as Merkel hosted other leaders for a concert and lavish dinner at the Elbphilharmonie, a modernist glass concert hall overlooking the Elbe River. Merkel met police and security force after the summit to thank them, and condemned the “unbridled brutality” of some of the protestors, but she was forced to answer tough questions about hosting the summit in Hamburg during her closing press conference. Reuters
M&A
Buffett bets big on power Warren Buffett’s Berkshire Hathaway Inc said on Friday it agreed to pay US$9 billion to buy the parent of Texas power transmission company Oncor Electric Delivery Co, stepping up its pursuit of steady profits from utilities and infrastructure deals. If the all-cash purchase wins approval from federal and state regulators and a bankruptcy judge, Buffett’s Berkshire Hathaway Energy unit will assume control of one of the largest U.S. electricity transmission companies. The acquisition also highlights the growing prominence of Greg Abel, 55, Berkshire Hathaway Energy’s chief executive.
Russian President Vladimir Putin (L) and U.S. President Donald J. Trump (R) shake hands during their meeting on the sidelines of the G20 summit in Hamburg, Germany, 07 July 2017. Lusa
Business Daily Monday, July 10 2017 15
Opinion Business Wires
The Korea Herald South Korea’s financial regulator said yesterday it is considering adopting a system to supervise banks when they raise service charges. The move is part of President Moon Jae-in’s pledges to help relieve the financial burden of consumers and strengthen transparency at banks when they raise fees and charges. In a report made to the ruling Minjoo Party, the Financial Supervisory Service (FSS) said banks, insurers and card companies have charged a combined 27.7 trillion won (US$24 billion) in service fees since 2013, with numbers for banks accounting for 98 per cent, or 27.2 trillion won.
Philstar The country’s foreign exchange buffer narrowed to US$81.41 billion in June but remains enough to cover close to nine months worth of imports, the Bangko Sentral ng Pilipinas (BSP) said. BSP Governor Nestor Espenilla Jr. said last month’s gross international reserve (GIR) was US$764 million lower than the US$82.17 billion booked in May. This was also the lowest since March when the GIR level stood at US$80.89 billion. The GIR is the sum of all foreign exchange flowing into the country.
America is struggling with long-term economic rot
T
The Times of India The Reserve Bank of India (RBI) has amended its directive asking banks to initiate bankruptcy proceedings against 12 companies which have failed to repay loans over Rs 5,000 crore as on March 2016. The amendment follows a Gujarat high court order pulling up the central bank for stating that cases identified by the RBI would be granted priority at the National Company Law Tribunal. In a statement issued late on Saturday, RBI said that in its June 13 release, the sentence “such cases will be accorded priority by the NCLT” stands deleted.
Viet Nam News (Vietnamese) Credit institutions have received some VNĐ200 trillion (US$8.9 billion) yearly from interest rates of bank loans, according to the Ministry of Finance’s estimates. According to the ministry, the amount is higher than the country’s total corporate income tax of some VNĐ188 trillion yearly, noting that a 0.5-1 per cent reduction in lending interest rate would result in a more positive impact on firms’ business and production than a reduction in corporate income tax. Finance minister Đinh Tiến Dũng said it meant most input costs of domestic firms were paid for lending interest rates as they had to mainly base them on bank loans.
he Great Recession, and the financial crisis that preceded it, were such enormous and terrible events that they occupied most of our economic thinking for a decade. But now that the smoke has cleared and the economy has returned to a semblance of normality, we’re starting to think more about long-term trends. And evidence is mounting that the Great Recession may have drawn attention away from a slow rot that has been eating the U.S. economy since the turn of the century. Some of the top macroeconomists in the business have a new paper that reaches this conclusion. In “The Disappointing Recovery of Output after 2009,” John G. Fernald, Robert E. Hall, James H. Stock and Mark W. Watson break down the declines in growth and employment into a structural, longterm component and a short-term part related to the crash. That’s an inherently hard thing to do, since there’s no universally accepted theory of how recessions work. But Fernald et al. use two accounting methods, and find basically the same thing -- although the recession hurt the economy a lot, it happened to coincide with two trends that were slowly eroding the U.S.’s fundamentals. Those two trends are slowing productivity and reduced labour-force participation. Slow productivity growth is hardly news -- Bloomberg View recently ran a whole series of articles about the phenomenon. This unhappy trend appears to have begun th r e e y ea rs b ef o r e th e financial crisis: A s f o r l a b o u r- f o r c e participation, this has been falling since the turn of the century, though the last two years have seen a small uptick: Both of these trends might have been exacerbated by the Great Recession. That economic disaster caused businesses to stop investing, which may have deprived them of the technology needed to increase productivity. Workers thrown out of employment by the recession might have seen their skills, connections and work ethic degrade, preventing them from going back to work even after the economy recovered. But neither of these effects explains the 2000s, when these negative trends were getting started despite a healthy economy. The years before the recession also saw other disturbing developments. For example, the rate of high-growth start-up formation fell during that period. As economists Ryan Decker, John Haltiwanger, Ron Jarmin and Javier Miranda point out:
“
Noah Smith a Bloomberg View coumnist
The evidence suggests that in High Tech, highgrowth young firms play an especially critical role in job creation and productivity growth... However, since 2000 the High Tech sector and publicly traded firms have exhibited a decline in dynamism. The number of IPOs has fallen in the post-2000 period, and those that have entered have not exhibited the same rapid growth as earlier cohorts. The bursting of the tech bubble in 2000 undoubtedly had a lot to do with this. But the worry is that the tech sector, which boomed in the 1990s and drove strong productivity gains through the middle of the 2000s, is now on the same path of falling dynamism displayed by U.S. industry in general: The U.S. manufacturing sector also slowed markedly after 2000. Industrial production in manufacturing grew robustly in the 1980s and 1990s, despite competition from the likes of Japan, Germany and Southeast Asia. But since the turn of the century, the sector’s growth has been almost nil: Manufacturing has tended to be the driver of U.S. productivity growth, so its stagnation could also be a sign of something wrong with the economy. Taken together, this evidence hints that some sort of longterm rot is afflicting the U.S. economy. What could it be? One candidate is the increase in industrial concentration -- greater monopoly power might be holding back productivity and reducing employment. Other hypotheses abound -- creeping regulation, a slowdown in scientific progress, Chinese competition, or the ephemeral nature of the internet economy. Some have even blamed video games for luring young men out of the labour force. But whatever the cause, the implication is clear -- the U.S. needs to put the Great Recession behind it. During the downturn, it made a certain amount of sense to ignore those who called for structural reform of the U.S. economy -- after all, there were more pressing, immediate issues to deal with. But now that the recession is long over and slow growth seems to be here to stay, economists and policy makers should put much greater focus on raising productivity growth and getting more Americans into the workforce. Rooting out Amerisclerosis won’t be easy, but it has to be done. Bloomberg View
Manufacturing has tended to be the driver of U.S. productivity growth, so its stagnation could also be a sign of something wrong with the economy
”
16 Business Daily Monday, July 10 2017
Closing Infrastructure
In China’s murky waters, global sewage firms seek rewards Authorities have pledged to lay 126,000 kilometres of new sewage pipes by 2020 David Stanway
G
lobal sewage and water treatment firms are eyeing opportunities in a n u n s av o u r y place: a growing pile of waste in China, the world’s most populous nation. The country has been for years battling contamination from fertilizer run-offs, heavy metals and untreated sewage. A survey in 2015 showed nearly two thirds of China’s underground water and a third of its surface water was unfit for human contact. To reverse this, China has pledged to lay 126,000 kilometres of new sewage pipes by 2020, enough to circle the globe three times, and raise urban wastewater treatment by 50 million cubic metres a day, equal to 20,000 Olympic-size pools. This has opened the floodgates to sewage specialists, like Israel’s Emefcy, RWL Water - controlled by Ron Lauder from Estee Lauder and France’s Veolia, who want to grab a share of the market with China’s annual environmental spend estimated at RMB3 trillion (US$441 billion) over the next five years.
“Right now the problem of wastewater from agriculture and the countryside is very serious and wastewater treatment work is a weak link,” said Tong Weidong, vice-chairman of the legal work commission of China’s parliament. Recently, there were reports of villages dumping sewage into the reservoir of the Three Gorges Dam, the
world’s biggest power station spanning the Yangtze River in central Hubei province. But change is afoot, Tong said. Local officials will be forced to improve sewage capacity under new legislation that make them directly responsible for water quality. Cities need to hike treatment rates to 95 per cent by 2020 from 92 per cent in 2015, while rural regions in central and western China need to reach 50 per cent. “The market is massive,”
said Wong-Jin Yong, China CEO for Emefcy, which estimates the potential market opportunity in Beijing and nearby provinces at over US$1 billion. Foreign players have been in China for a while, such as Veolia that has water projects across the country, but the focus on a large-scale clean-up has gained impetus recently. China’s latest five-year plan released in 2016 emphasises tackling pollution, while in an action plan published in 2015 the government vowed to improve water quality nationwide by 2030, pledging to spend billions of dollars. Local authorities, meanwhile, have struggled to fund their plans, opening the door for more private sector involvement.
Firms rush in
Emefcy plans to put eight small-scale sewage treatment units into operation in China by the end of this year and is currently building a local factory. It has installed a mobile plant around the size of a van at a school in southern Changzhou and runs another at a sewage works in Wuxi. Emefcy says its small-scale units can treat 20,000 litres a day, take two months to install and have significantly lower energy costs, making them ideal for the rural
market. RWL Water venture is set to merge with Emefcy in July to “accelerate penetration” in China’s rural wastewater sector. They will be competing with local players such as state-run Beijing Enterprises Water Group and China Water Investment, and others like Beijing Sound Environment and Kangda International. Stricter environmental standards are drawing in companies of all sizes, but big state-owned firms still dominate major projects, said Xue Xiaohu, general manager at Jiangsu Greenway that sells water treatment technology to the textiles industry. China has promised to give environmentally friendly projects a leg up by providing banks more incentives to lend and encouraging green financing. Offshore players have the added hurdle of navigating local rules and typically also need to team up with local partners. “There are challenges in dealing with local governments and that’s why our partners kick in,” said Yong from Emefcy, which has a number of Chinese partners including Zhejiang Provincial Energy Group and Jiangsu Jinzi. “Technology is our core skill and we will focus on that.” Reuters
Cryptocurrency
MtGox CEO heads to trial in Japan over missing Bitcoins Tokyo-based firm filed for bankruptcy protection soon after the cyber-money went missing Miwa Suzuki
The former CEO of collapsed Bitcoin exchange MtGox heads to trial in Tokyo this week on charges stemming from the disappearance of hundreds of millions of dollars worth of the virtual currency from its digital vaults. Frenchman Mark Karpeles -- once the high-flying head of the world’s busiest Bitcoin trading platform, who reportedly lived in an US$11,000-amonth penthouse and spent money lavishly, including on prostitutes -- is facing embezzlement and data manipulation charges. “He is keeping calm as the trial gets underway,” his lawyer Kiichi Iino told AFP, adding that Karpeles plans to plead his innocence. The 32-year-old was first arrested in August 2015 and released on bail nearly a year later over allegations he fraudulently manipulated data and pocketed millions worth of Bitcoins. MtGox, which claimed it once hosted around 80 per cent of global Bitcoin trading, shuttered in 2014 after admitting that 850,000 coins -- worth around US$480 million at the time -- had disappeared from its vaults. The company initially said there was a bug in the software underpinning Bitcoins that allowed hackers to pilfer them. Karpeles later claimed he had found some 200,000 of the lost coins in a “cold wallet” -- a storage device, such as a memory stick, that is not
connected to other computers. Tokyo-based MtGox filed for bankruptcy protection soon after the cyber-money went missing, leaving a trail of angry investors calling for answers and denting the virtual currency’s reputation.
Still missing
Karpeles, who said he is working as an IT consultant, is active on social media and has commented on issues concerning Bitcoin but not on details of his criminal case.
‘Bitcoin has suffered hacking incidents including one last year in which a major Hong Kongbased exchange Bitfinex suspended trading after US$65 million in the virtual unit was stolen’ “The charges (against Karpeles) only cover a subset of the issues which were happening at MtGox, so I don’t expect that we will find out most of
the information we want to know,” said Kolin Burges, a British investor who said he lost several hundred Bitcoins in the MtGox collapse. “I’ve not had any back yet but hopefully, eventually all the creditors will get a small percentage of their money back from the bankruptcy distribution,” he told AFP. Around the time of his 2015 arrest, Karpeles’ mother told Japan’s top-selling Yomiuri newspaper that her son was a “genius” who learned computer languages at age three and started making simple programmes by the time he was five. In 2006, Karpeles wrote on his blog that computer crime was “totally contrary to my ethical principles”. But four years later, a Paris court sentenced him in absentia to a year in prison for hacking. He had come to Japan to work for a web development company around 2009 and later got involved with the Bitcoin exchange. In the wake of the MtGox scandal, Japan passed a bill stipulating that all virtual currency exchanges must be regulated by its Financial Services Agency. Virtual currencies are generated by complex chains of interactions among a huge network of computers around the world, and are not backed by any government or central bank, unlike traditional currencies.
Soaring popularity
Despite the demise of MtGox and concerns about security, Bitcoin and hundreds of rival digital currencies are becoming increasingly popular and accepted by merchants worldwide.
Bitcoin remains the most popular. Its market value has ballooned to more than US$42.9 billion, according to the website coinmarketcap.com. The unit has seen wild volatility during its short life, soaring from just a few U.S. cents to around US$2,500 now, more than double its value just a few months ago. Backers say virtual currencies offer an efficient and anonymous way to store and transfer funds online. Critics argue the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous. Bitcoin’s reputation was damaged when U.S. authorities seized funds as part of an investigation into the online black market Silk Road. AFP