Business Daily #1338 July 13, 2017

Arson-related crimes up 500 pct y-o-y in first five months Crime Page 6

Thursday, July 13 2017 Year VI Nr. 1338 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm UNESCO

Heritage conservation situation critical enough to make UNESCO World Heritage ‘Danger List’ Page 6

Stocks

Mainland hedge funds bounce back from losses to rank near top Page 10

www.macaubusinessdaily.com

Investment

Toyota invests US$100 million in AI, robotic start-up fund Page 12

Energy

OPEC’s first 2018 outlook shows it’s pumping too much oil Page 16

Rental Bill Progressing Real estate

New measures proposed in the rental bill. To increase rental contracts to a three-year minimum. Unfair to landlords of commercial properties, says real estate head. Citing similar measures cancelled in other territories due to decreases in supply and increase in price. Suggestions include adding binding terms for land leasing including public youth apartments. Page 4

Reduce, reuse… sometime

Recycling water ‘an emergency matter’. But also ‘temporarily suspended’ to prioritise other public works. Despite the University of Macau and operators in Cotai set up to link with the stalled water recycling plant there are ‘no further plans in the short run’ to get the project flowing.

Residential up, commercial down Mortgage Residential mortgage loans approved in May were up 71 pct to MOP5.7 bln. With 74 pct for residents – a 30 pct increase m-o-m. Off-plan units were down 79 pct y-o-y due to a lower comparison base. Loans for commercial units plummeted 44 pct m-o-m. New approvals for both types of units increased 17 pct. Page 3

Apple sets up data centre in Shanghai

Water Page 2

HK Hang Seng Index July 12, 2017

26,043.64 +166.00 (+0.64%) Worst Performers

Industrial & Commercial

+3.39%

Bank of Communications

+1.61%

China Mengniu Dairy Co Ltd

-2.82%

BOC Hong Kong Holdings

-0.80%

China Construction Bank

+2.59%

AIA Group Ltd

+1.39%

Hang Lung Properties Ltd

-1.52%

HSBC Holdings PLC

-0.47%

Bank of China Ltd

+2.46%

China Resources Power

+1.19%

Sands China Ltd

-1.15%

Wharf Holdings Ltd/The

-0.46%

AAC Technologies Holdings

+2.14%

Tencent Holdings Ltd

+1.01%

China Resources Land Ltd

-1.10%

CK Infrastructure Holdings

-0.46%

Kunlun Energy Co Ltd

+1.86%

Hong Kong & China Gas Co

+0.82%

Want Want China Holdings

-0.95%

Ping An Insurance Group Co

-0.45%

27° 31° 27° 31° 27° 31° 26° 29° 26° 29° Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

SUN

MON

Source: AccuWeather

Data Apple Inc. is setting up its first data centre in China, in Shanghai, in partnership with a local Internet services company. To comply with tougher cyber security laws introduced last month. The centre is part of a planned US$1 bln investment in the area. Page 8

2 Business Daily Thursday, July 13 2017

Macau Water conservation

Sponging troubles away Expanding recycled water usage is urgent but not really a priority, according to the government. While China is enhancing its rainwater recycling system, a local specialist claims implementing rainwater collection and water re-usage does not necessarily imply a large investment Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he Macau SAR Government recycled water project - which includes the construction of a water recycling plant in Coloane, announced in 2015 - continues in pause mode.

Contacted by Business Daily, the Marine and Water Bureau (DSAMA) explained that the project –reference d in the Recycled Water Development Plan 2013-2022 – is ‘temporarily suspended.’

‘The government has a large number of public works which need to be attended to and the priorities of several development plans have to be taken into account,’ the marine authority wrote in reply to Business Daily enquiries.

DSAMA added that there are no ‘further plans in the short run’ in

that regard.

In its development plan for water conservation, the government claimed that ‘exploring new alternative waters has become an emergency matter in Macau.’

Still according to the report, water consumption has increased at an average rate of 3.89 per cent over the last ten years, creating demand pressure and increasing Macau’s dependency upon water resources from China.

Suspense

While claiming in its development plan that increasing tourist visitation to Macau has pushed up water consumption levels in commercial facilities, the government argued that ‘it is urgent to foster a plan to reduce advertisement

the pressure ensuing from accrued water demand as a result of regional development.’

Speaking to Business Daily, the Director General of China Green Building and Energy Saving (Macau) Association, Edmund Lei, pointed out, however, that the project for the water recycling plant is being “postponed,” such provision has been cut short in other public facilities and energy-intensive consumption sites, such as Cotai and the University of Macau.

China Green Building is one of the local advisory and consulting agencies that advocate measures for improving energy efficiency, following China’s standards and recommendations on green energy.

Lei recalled that the amount of investment required to build the central water production facility totals more than MOP10 million.

Yet, DSAMA confirmed on the phone that rather than a matter of budget capacity, the postponing of plans for the plant is a matter of priorities defined within the current political agenda.

While the plant project continues in limbo, Lei suggested other measures can be developed and implemented at comparatively lower cost.

“Rainwater collection and recycling is a more feasible approach since the upfront investment is less significant and the treatment technology is less complicated,” he said.

Sponge city

Last week, the city of Guangzhou, the capital of Guangdong Province, announced plans to ensure that 80 per cent of its built-up areas contain vegetation capable of absorbing rainwater to minimise soil erosion and create alternative sources for water re-use, NewsGD.com reported.

Some of the measures highlighted include trapping and purifying rainwater and flood drainage.

The project is inscribed in the national ‘sponge city’ framework, of which the pilot project - in Guangzhou - was launched nearly a year ago (see box).

The idea of sponge city is based upon measures to ensure greater permeable surfaces and infrastructure so that more rainwater can be absorbed and re-used.

On Wednesday, the China Railway Construction Corporation announced it was launching a new type

Water absorption

According to China Daily, the first pilot site for a ‘sponge city’ project in Guangzhou started on July 2, 2016. The project, located in the Tianhe district, entailed transforming a lake into a wetland park, with the aim of reducing the volume of storm water by

of permeable concrete in a bid to address urban flooding, according to China Daily.

DSAMA said the Bureau ‘had no relevant information’ on the use or adoption of such a concept.

The Director General of China Green Building explained that they “adopt the use of permeable finishes at outdoor areas to encourage reducing rainwater run-off and improving the storm drainage capacity against flash storm(s).”

Among its usages, Lei claimed “reclaimed water is designed to provide for toilet flushing and irrigation.”

“Currently, the Seac Pai Van Social Housing and University of Macau are built with reclaimed water pipe systems for connecting to the yet-tobe-built reclaimed water production plant,” he said.

He added that the expansion project of the São Januário Public Hospital Complex was “designed with rainwater collection and recycling system” in mind.

Still according to Lei, local hotel facilities have also incorporated dual pipe systems (domestic and reclaimed water), while others have their own rainwater recycling system to provide on-site treatment.

Breathing the air

The Guangzhou sponge city programme foresees short-term goals that include the retention of 10.5 per cent water coverage in urban areas as well as 42.5 per cent forest coverage in built-up areas, according to NewsGD.com.

The programme also details plans to build 73 sponge parks in the city: green areas created to absorb water during the rainy season in order to reduce disruption caused by flooding.

In response to Business Daily enquiries, the Macao Environmental Protection Bureau claimed it has no ‘relevant information’ to provide on the sponge city concept.

According to the latest report on the state of environmental conservation in Macau, dating from 2015, the surface of green zones per capita ‘has been decreasing since 2010, with a 3.6 per cent drop recorded in 2015 comparatively to 2014.’

The Bureau attributed such reduction to the construction project of the Light Rail Train (LRT), as well as demographic growth in relation to ‘little significant increase in Macau’s territorial area.’

some 180,000 cubic metres during heavy storm periods.

China’s recent efforts to tackle the problem of water conservation by promoting and implementing the sponge city programme has already yielded the development of 30 official sponge cities in the country, NewsGD.com reported.

Business Daily Thursday, July 13 2017 3

Macau Mortgage

Residential mortgages up, commercial mortgages down Cecilia U cecilia.u@macaubusinessdaily.com

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n the month of May, the number of residential mortgage loans approved by local banks increased 70.7 per cent month-on-month to MOP5.7 billion (US$708.38 million), according to the latest data released by the Macao Monetary Authority (AMCM).

Of total residential mortgage loans, 74.1 per cent were loans approved for residents, up 29.9 per cent to MOP4.2 billion, from the month before.

For non-residents, approved loans grew to MOP1.5 billion ‘mainly attributed to the approval of enterprise loans with residential properties as collaterals,’ stated AMCM. In comparison to the number of loans approved in the same period a year ago, the number recorded in May posted an increase of 6.3 per cent.

Regarding mortgages approved for off-plan units, the total amount of loans reached MOP443.1 million, up 17.6 per cent month-on-month.

AMCM showed that more off-plan unit mortgage loans were approved in May for

Source: AMCM

local residents, up 18.5 per cent, while the number registered a significant decline of 78.7 per cent year-on-year, given ‘a higher comparison base in the same period in 2016.’

In contrast to the numbers for residential units, commercial unit mortgage loans dropped 15.5 per cent monthon-month to MOP3.3 billion

in May. Commercial real estate loans to residents, which accounted for 65.5 per cent of total approved commercial unit mortgage loans, plummeted , h44 per cent month-on-month.

Loans for non-residents, however, increased to MOP1.2 billion, mainly due to new loans granted to

enterprises collateralised by retail premises.

On an annual comparison, the new approvals of loans for commercial units increased by 16.8 per cent.

According to AMCM, the outstanding value of residential mortgage loans was MOP184.5 billion as at the end of May, up 0.7 per cent month-on-month and 5.2 per cent year-on-year.

Specifically, the outstanding value of residential mortgage loans for residents and non-residents increased by 0.1 per cent and 9.5 per cent, respectively.

The outstanding value of commercial mortgage loans amounted to some MOP168.9 billion in May, registering

an increase of 0.4 per cent month-on-month but a decrease of 1.7 per cent year-on-year.

The outstanding value of commercial mortgage loans for residents dipped 0.8 per cent while increasing 3.4 per cent for non-residents, month-on-month.

The delinquency ratio for residential mortgage was 0.18 per cent in May, up 0.02 percentage points month-onmonth or 0.07 percentage points year-on-year.

The ratio for commercial mortgages was 0.14 per cent, experiencing an uptick of 0.01 percentage points when compared to April and 0.12 percentage points when compared to May 2016. advertisement

4 Business Daily Thursday, July 13 2017

Macau Opinion

Ashley Sutherland-Winch*

Smoking ban under review Is the Macau Government considering amendments to or revoking the smoking ban in casinos? The Macau Legislative Assembly is holding a second reading of proposed legislation on Friday with the smoking ban in casinos under review. If passed, the ban that prevents smoking in any area of a casino that offers gambling or restricts the activity to ‘smoking lounges’ may get even more stringent.

One of the great things about Macau, in my opinion, is the smoking ban. Unlike Las Vegas, where you walk through a casino for mere minutes and come out completely covered with the smell of cigarette, cigar, or pipe smoke, Macau casinos are free of this air pollution.

The ban creates a clean air quality that is quite appealing for patrons, especially non-smokers who want to enjoy a cocktail, dinner, or gambling without immediately feeling the need to remove the smell of smoke upon returning home.

I may be a minority in these beliefs when many of our annual 20 million Mainland China tourists are smokers but the smoking ban in Macau creates a welcoming atmosphere that shouldn’t be ignored. The ban on smoking of tobacco on mass market casino floors with the exception of the fully enclosed and games-free ‘smoking lounges’ began in October 2014, but this law did not include VIP gaming areas, where it is still legal to have a puff.

Around 328 people have been fined since January for breaking the ban, representing an increase of 18.4 per cent yearon-year, with 83.5 per cent of these offenders tourists. If the law is approved on Friday, the new legislation would purportedly come into effect on January 1, 2018. All gaming establishments, until the first day of 2019, will have to build any future ‘smoking lounges’ in their establishments complying with enhanced technical standards, as set out by the revised draft of the legislature.

Casinos are continually looking for ways to stand out from their competition, especially with high-level VIP gamblers to attract.

I’m confident that all of our casinos will quickly jump at the chance of creating smoking lounges for their special clientele. If the increased standards pass into law, some VIPs may be slightly inconvenienced but at least they will still be able to smoke indoors.

As I mentioned before, our smoking ban sets Macau apart in a positive way in the gaming world, and I hope it continues. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.

Property

JLL: New rental bill would pose problems The real estate agency also revealed that transactions had dwindled after the government had adjusted mortgage ratios in May Cecilia U cecilia.u@macaubusinessdaily.com

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t would be unfair to the remaining landlords when the government rolls out measures for controlling the rental price [of commercial stores],” remarked Oliver Tong, local director and Head of Retail of Jones Lang Lasalle (JLL) Macau, during a press conference reviewing the market in the first half year yesterday.

Unveiled on Monday in the Legislative Assembly, the new rental bill proposes a mechanism allowing the Chief Executive to cap rental prices by taking into account the city’s economic indicators.

“Many street stores are operated by SMEs (small and medium sized enterprises) and the number of landlords for commercial properties decreased significantly when the market for the retail industry was in a dismal state,” said Tong.

Tong stated that many countries cancelled similar measures due to potential decreases in supply and increases in the price of real estate units.

Meanwhile, the real estate agents pointed out the problems that might arise in the commercial rental market

because of the new bill, given that landlords cannot unilaterally terminate a tenancy before the expiration of the three-year period.

Tong explained that there are cases in which landlords are advised to invest in the properties – such as adding extra facilities for the operation of tenants’ business – but in which the contract is later terminated prior to its expiry by the tenant.

In addition, the shortage of notary practitioners is an issue, stated Tong, given that the new bill suggests the mandatory signing of contracts by notaries.

Jeff Wong, Head of Residential, disclosed that the number of transactions, in particular in regard to high-end properties, had decreased after the government adjusted the mortgage ratio in May. The ratio of mortgage loans for real estate acquisition has been readjusted in four housing price categories, with the largest cut applying to the purchase of residential units costing up to MOP3.3 million, down to 70 per cent from 90 per cent.

Wong stated that the measure only affects transactions but that the price remains more or less unaffected.

Wong said that the best way to cope with the high price of real estate in Macau is to supply more units to the

market, with the government regularly leasing out land.

“The government may explore the possibility of adding additional binding terms and conditions to the public auction,” said Wong, “such as requiring successful bidders to reserve part of the floor area for building community facilities like public youth apartments.”

The Head of Residential suggested that building youth apartments would be a preferable way to cope with the issue of young people being unable to purchase residential units, as well as attracting investments and supplying more choices to the market.

Optimistic future performance

He perceived that the real estate market in the second half of the year will remain “healthy and stable”, given the positive growth in the city’s gaming revenue, as well as the establishment of many large scale gaming facilities and the completion of the Hong Kong-Zhuhai-Macau Bridge.

Despite the rebound in the market, Wong said the price of residential units will further increase because of “the demand-supply imbalance and the lack of government land scale or housing supply information for the public’s reference”.

According to JLL, capital values for high-end residential properties had increased 8.8 per cent year-on-year, while those of mass-and-medium residential properties rose 6.0 per cent.

Apropos the office market, Alison Yip, Associate Director of Office Leasing, said the relocation of the Court of First Instance from Macau Square to its new location would result in more vacancies in the Nam Van district in the second quarter of 2017.

Data gathered by JLL revealed that the rental value for the office market had dropped 1.7 per cent year-on-year.

In the first half of 2017, the performance of retail “had gone back to 2015’s growth,” Tong said. According to JLL data, the overall indices for retail rental and capital value decreased 6.4 per cent and 1.4 per cent, respectively, year-on-year.

Politics

Sino-Luso platform creating opportunities Cecilia U cecilia.u@macaubusinessdaily.com

More business opportunities have been created in the city in the wake of the implementation of the MSAR as the platform between Mainland China and the Portuguese speaking countries, according to the Vice-chairman of the Macau Importers and Exporters Association, Edmund Wong.

Speaking on local radio programme Macao Forum, Wong said that Portuguese wine, for instance, had become an essential wine in many local restaurants and noted that both the quality and quantity of Portuguese imported products have improved.

Owing to the significant growth in demand for Portuguese food products and wine on the Mainland, Wong said there has also been an increase in the number of local businessmen interested in promoting Portuguese products on the Mainland.

“Aside from the support from the MSAR Government, our Association has set up Portuguese exhibition centres in Jiangmen and Tianjin,”

revealed the vice-chairman, adding that many local enterprises have also set up similar services in other parts of the country.

Although business on the Mainland is positive Wong noted that there is competition with other imported goods.

“We entered the market a bit later than others,” said Wong. “Take wine as an example: most people are more

familiar with wine imported from France and Italy, so they would question why Portuguese wine could be as good as the others.”

Meanwhile, ASEAN (Association of South East Asian Nations) and Spain subsidise their own products when entering the Mainland, posing challenges for Portuguese products competing with the pricing of imported products from those areas.

Regarding the cultivation of bilingual talent, Sandy Chan Ham Si, Executive Director of Perfeição Lda - which specialises in finance and law consultancy as well as translation services - pinpointed the current issue: a lack of Chinese and Portuguese bilingual talent is not only confined to translation but also in areas such as law, politics, economics, finance and bookkeeping.

Ms. Chan also expressed her disagreement with the government’s intention of recruiting some 200 bilingual talent, saying that the MSAR Government should consider the demand of the whole country rather than just the city.

Business Daily Thursday, July 13 2017 5

Macau Hengqin

Financial enterprises dig in, in Hengqin

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s at the end of June, some 5,189 financial enterprises had established themselves in neighbouring Hengqin, with registered capital reaching RMB639 billion (MOP757.20 billion/ US$94.10 billion) – of which 5,122 were emerging financial companies, with 3,809 investment-related companies, 873 asset management enterprises, 185 financial

leasing companies and 110 companies providing financial services, according to official data gathered by the Asset Management Association of China. Moreover, 24 institutions were engaged in banking and payment systems, 11 in securities and financial futures institutions, and 32 were insurance companies. In June, 286 financial enterprises set up shop in Hengqin, 220 of which were engaged in investment.

Greater Bay Area

Subsidy

Smarting up

DSAL support local associations with MOP20 mln in 2016

The city of Zhuhai has announced it is enhancing its Smart City Programme following a recent ‘expert acceptance check’ on its Smart Zhuhai Cloud Computing Centre, according to information provided by Guangdong Chengzi Technology published in the portal of the City of Zhuhai.

According to the portal, the Centre is being developed to provide integrated planning and information technology infrastructure services for government offices and non-profit organisations, aimed at reducing overlapping expenditure in IT infrastructure.

It was also reported that some 14 government departments have signed up for 18 systems already in operation within the Centre, which is being planned to also serve other cities on the west bank of the Pearl

River Delta over the next decade.

Guangdong Chengzi Technology - a state-owned enterprise established in 2014, dedicated to financing, constructing and operating the Smart Zhuhai project - is a subsidiary of Zhuhai Urban Construction Group Co. Ltd. S.Z.

Last year, The city’s Labour Affairs Bureau (DSAL) disbursed some MOP20 million (US$2.5 million) in support of local associations, mostly in operations and for holding events, according to a dispatch posted in the Official Gazette yesterday.

The amount increased by 11.4 per cent when compared to the MOP18.1 million disbursed in 2015.

Of the 32 beneficiaries, the Macau Federation of Trade Unions (FOAM) received the largest amount of support from DSAL – at MOP8.15 million.

Meanwhile, in subsidising the Script Road - Macau Literary Festival founded in 2012 by local newspaper Ponto Final, the Secretariat for Social Affairs and Culture offered MOP500,000 in the second quarter of this year. The Festival was

also funded by the Macao Foundation, which contributed another MOP500,000.

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6 Business Daily Thursday, July 13 2017

Macau Heritage

Saving face Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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he state of heritage conservation in Macau is “not that critical, but it is critical enough to be considered for listing on the World Heritage ‘in Danger List’,” Sharif Shams Imon, a member of ICOMOS [International Council on Monuments and Sites] UNESCO’s advisory body on cultural matters - told Business Daily.

Imon, who is also the incumbent head of the Heritage

Candidate evaluation

The 41st session of the WHC has inscribed 21 new sites on UNESCO’s World Heritage List, 18 of which are cultural sites and three of which are natural sites.

Management Programme at the Institute for Tourism Studies (IFT), expressed his views as the 41st session of the World Heritage Committee (WHC) drew to an end yesterday.

During the session, the Committee adopted a report highlighting poor heritage management and the inability of the Macau SAR Government to fulfil previous recommendations by the State Party (China) and the Committee itself.

As a result, the government has now to submit its Protection and Management

Plan (PMP) by December 1, 2018, after missing its February 1, 2015 deadline.

The ICOMOS member said that putting a site on the in-danger list “may be seen as a punishment.”

“The main purpose of such listing is to highlight

the issue and draw extra attention to it. The option is not off the table and the committee may consider it next year if there is no real progress [on the part of Macau],” he pointed out.

In the advent of a less favourable position, he claimed that “prestige, pride, a sense of identity, good reputation, and tourism” would be put at stake.

“To understand what the

city and the population will lose if the World Heritage status is taken away, one needs to understand what Macau gained when the site was inscribed on the World Heritage List,” he emphasised.

At this stage, he opined that “it’s hard to say how much one will be affected. But it’ll definitely affect many things. No-one wants to lose face.”

A total of 33 proposals were evaluated by the Committee during the meeting in Krakow, Poland – with six relating to natural sites, 26 to cultural, and one mixed.

Green finance

Pilot zone for green financing in Guangzhou Cecilia U cecilia.u@macaubusinessdaily.com

Guangzhou is building up its pilot zone for green financing to create a core financial circle led by Hong Kong and supported by Guangzhou

and Macau, according to China News Guangdong.

The pilot zone will be sited in Huadu District, Guangzhou City.

Last month, the central bank announced that five pilot zones for green financing would be advertisement

established in the country in order to improve current environmental conditions as well as handle climate change and the adequate use of resources.

The five zones will be set up in the provinces of Guangdong, Guizhou, Jiangxi and Zhejiang as well as the western region of Xinjiang Province.

Green financing provides financial support in investment relating to clean energy, green transportation and related fields.

The pilot zone in Guangzhou welcomes eligible financing institutions from both SARs to set up joint ventures in the fields of securities, funding, futures and insurance in order to expand green financing channels.

Investors from Hong Kong and Macau are also welcome to partner approved overseas enterprises in the pilot zone to invest in the

national Green Private Equity Fund and Green Venture Capital Fund.

Moreover, the zone supports overseas enterprises issuing Chinese Renminbi Bonds with banks in Mainland China.

According to China News Guangdong, Huadu District invests at least RMB1 billion (MOP1.19 billion/US$143.31 million) every year in supporting the development of green financing.

In addition, the Chinese city also placed no less than RMB10 billion in green financing funding to attract investors and provide support.

The pilot zone in Guangzhou, as stated by Chen Yun – a member of the Party of People’s Government of Guangdong Province - will facilitate a strong bond with Hong Kong and Macau, as well as building the Greater Bay Area into an internationally recognised city-cluster.

Fraud

PJ investigator arrested for fraud A criminal investigator with the Judiciary Police, allegedly involved in an illegal recruitment system involving over 320 workers from the Mainland searching for employment in the MSAR, has been fired and will face charges of fraud, according to local broadcaster TDM. The fraud scheme involved receiving commissions to procure work for the individuals in the hotel industry, jobs

which never materialised despite commissions paid of up to RMB1.5 million.

The investigator was not suspended from his job until last Friday, after a year and a half-long investigation.

Secretary for Security Wong Sio Chak declared that “The departments under the Secretariat for Security are very serious about discipline and will not tolerate any violations”.

Business Daily Thursday, July 13 2017 7

Macau Crime

Arson-related crimes up 500 pct

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n the first five months of the year, a total of 189 kidnappings took place related to gaming, according to data provided by Judiciary Police, representing an 11.8 per cent increase year-on-year and an 89 per cent increase compared to two years ago.

Cases of loan sharking, at 151, however, saw a 15.6 per cent fall year-on-year, while the number of cases of theft – 34 – increased by one year-on-year.

The number of cases of arson, however, skyrocketed 500 per cent, reaching 24 cases, the only type of crime to see a three-digit increase from the same period one year ago.

Criminal association crimes doubled to 16 during the period, year-on-year, while no homicides or cases of organised crime were committed during the fivemonth period.

In total, crimes related to gaming reached 734 during the

five-month period, an 11.2 per cent increase year-on-year, of which 673 were investigations and 61 were reports.

In addition, phone scams totalled 85, up 347 per cent year-on-year.

One human trafficking-related crime was recorded during the period, down from two cases in the same period the previous year. In total, six cases of domestic violence and 450 cases of theft were recorded during the period. K.W.

Court

China releases first Crown Resorts staff jailed for gambling crimes China released 10 employees of Australian casino operator Crown Resorts Ltd on Wednesday, the first of 16 who were detained in October and sentenced in June for illegally promoting gambling.

Nineteen employees were detained as Crown was trying to attract high-spending Chinese to its casinos outside of China, where gambling is illegal except in the territory of Macau. A court jailed 16 of the employees including three Australians for nine to 10 months, back-dated to their October detention.

The incident prompted Crown to shift focus to its home market. It had been

Another six were released from a second facility in the city, said a man who identified himself as a lawyer for the families and who declined to give his name.

Key Points Chinese court jailed 16 Crown employees last month a shareholder of Macau-focused Melco Resorts & Entertainment Ltd but sold its remaining stake for US$1.16 billion in May. On Wednesday, four employees, including Australian nationals Jerry Xuan and

Jane Pan Dan, emerged from a Shanghai detention facility accompanied by family members and security officials, according to a Reuters reporter at the scene. They left immediately in cars without speaking to media.

Two Australian nationals among those released on Wednesday Head of international VIP gambling to be released Aug. 12 -source

A relative of one defendant who was released told Reuters on condition of anonymity that “everything went OK.” “We want to see what the company does next ... and how it treats those involved,” the relative said.

Crown’s head of international VIP gambling, Jason O’Connor, would be released on Aug. 12 along with three other employees, the relative said citing a court copy of the verdict.

Australia’s Department of Foreign Affairs and Trade confirmed that two Australians were released on Wednesday. Reuters advertisement

8 Business Daily Thursday, July 13 2017

Greater china Data

Apple sets up China data centre to meet new cyber-security rules The new laws come as Chinese cloud firms are expanding rapidly in foreign markets

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ppl e I n c o n Wednesday said it is setting up its first data centre in China, in partnership with a local internet services company, to comply with tougher cyber-security laws introduced last month.

The U.S. technology company said it will build the centre in the southern province of Guizhou with data management firm GuizhouCloud Big Data Industry Co Ltd (GCBD).

An Apple spokesman in Shanghai told Reuters the centre is part of a planned US$1 billion investment into the province.

“The addition of this data centre will allow us to improve the speed and reliability of our products and services while also complying with newly passed regulations,” Apple said in a statement to Reuters.

“These regulations require cloud services be operated by Chinese companies so we’re partnering with GCBD to offer iCloud,” it said, referring to its

online data storage service.

Apple is the first foreign firm to announce amendments to its data storage for China following the implementation of a new cyber-security law on June 1 that requires foreign firms to store data within the country.

Overseas business groups said the law’s strict data surveillance and storage requirements are overly vague, burdening the firms with excessive compliance risks and threatening proprietary data.

Authorities say the law is not designed to put foreign firms at a disadvantage and was drafted in reaction to the threat of cyber attacks and terrorism.

Apple also said it had strong data privacy and security protections in place.

“No backdoors will be created into any of our systems,” it said.

In April, China also announced a law requiring businesses transferring over 1,000 gigabytes of data outside China to undergo yearly security reviews, with

potential blocks on exporting economic, technological and scientific data.

Earlier this week, Apple said it planned to open a new data centre in Denmark. An earlier centre in the country, announced in 2015, will come online this year, it said.

“The addition of this data centre will allow us to improve the speed and reliability of our products and services while also complying with newly passed regulations” Apple The new laws come as Chinese cloud firms are expanding rapidly in foreign

markets. Alibaba Group Holding Ltd has 17 data centres across China, the United States, Europe, Australia, Southeast Asia and the Middle East.

Other foreign firms that oversee cloud businesses, including Amazon.com Inc and Microsoft Corp, already have data centres in China.

Reuters

Strategy

Beijing to mull lead role for PBOC in financial oversight In its 2017 financial stability report released earlier this month, the central bank floated a “joint force” approach to strengthen the coordination of financial supervision China is considering handing the nation’s central bank a key role in coordinating financial oversight, in order to focus efforts on reining in risk in the sector, people familiar with the discussions said.

The move, to be debated as part of the fifth National Financial Work Conference due to start on July 14, would create a new office for coordinating the nation’s three main regulatory bodies at the People’s Bank of China to be led by the institution’s governor, currently Zhou Xiaochuan, the people said, who asked not to be named as the matter isn’t public.

China’s ruling Communist Party is homing in on the threats to stability posed by rapid credit growth, a dynamic shadow banking sector and an overheating property market as it heads toward a leadership

transition later this year. While the move would fall short of creating a long-mooted “super-regulator,” corralling the three separate agencies overseeing banks, stock markets and insurance companies is key priority for President Xi Jinping.

Under the PBOC’s leadership, the heads of the three regulators may be joined in the new coordination office by officials from the finance ministry and the National Development and Reform Commission, China’s main economic planning agency. Although no decisions on the matter have yet been taken, an option to be discussed is if the PBOC should take more direct oversight of some major institutions, two of the people said.

The PBOC, the China Banking Regulatory Commission, the China Securities Regulatory Commission

People’s Bank of China t governor Zhou Xiaochuan

and the China Insurance Regulatory Commission did not immediately reply to faxes seeking comment on the matter. The Wall Street Journal reported on July 4 the date of the meeting and that the PBOC may be given more say on coordinating regulators.

“It looks like an incremental reform, not a sweeping one, as policy makers try to avoid creating any kind of regulatory gap during a year when the Party congress will be convened”, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “Agency consolidation will cause personnel changes, which may lead to a temporary situation in which areas that used to be well covered are left uncovered now.”

Joint approach

The idea of consolidation -- or at least greater cooperation -- among the institutions has been around for at least a decade and regained traction after China’s stock market turmoil in 2015. The country’s financial markets are currently governed by the CBRC, CSRC and CIRC, in conjunction with the central bank, a structure that has encouraged regulatory arbitrage and helped fuel the growth of trillions of dollars of risky financial products.

In its 2017 financial stability report released earlier this month, the central bank floated a “joint force” approach to strengthen the coordination of financial supervision and to prevents gaps in regulation.

Cross-sector risks should be closely monitored, the PBOC said in that report, reiterating an objective often repeated by regulators and government officials.

In a move that signalled a shift toward a more unified approach, regulators earlier this year began working together on drafting new

rules for asset-management products, which include investments in bonds and risky off-balance-sheet lending by banks.

Andrew Polk, co-founder of research firm Trivium China in Beijing, is among analysts expecting this weekend’s financial work conference to unveil the establishment of a regulatory coordination agency overseen by the PBOC.

“Agency consolidation will cause personnel changes, which may lead to a temporary situation in which areas that used to be well covered are left uncovered now” Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong

Still, he said any “serious adjustments” to the financial regulatory structure won’t be made until after the 19th Communist Party Congress this fall, at which officials will reveal details of the party’s twice-a-decade leadership transition.

“Improving financial regulation and coordination will be a long-term positive,” Polk wrote in a report. “But when regulators start to implement those changes late in the year, the possibility for a financial misstep will be nerve-wracking.” Bloomberg News

Business Daily Thursday, July 13 2017 9

Greater China Liquidity

In Brief

The US$68 billion reason why Beijing may start adding cash again An onslaught of maturing funds may see China’s central bank reaching for the fire hose Liquidity has been flush in Asia’s largest economy -- the result of a combination of curbs on loan issuance, a stronger yuan and seasonality factors. That’s seen the People’s Bank of China hold off on conducting open-market operations, until now.

Policy makers added liquidity via OMOs for the first time in 13 days on Tuesday, and while the net effect was neutral, it could be a sign they’re ready to start pumping cash into the system again.

“Pressure for liquidity to tighten is building, and the money market rates have reached a floor”

billion of bonds by Friday. And then there’s tax payments, which may see companies hoard cash into the end of July.

The looming maturity wall has also coincided with a shift in the PBOC’s rhetoric.

The bank comments whenever it refrains from conducting open-market operations, or OMOs, and Monday’s statement referred to a “moderate” level of liquidity in the banking system, a change from the previous 11 trading days when it was described as “relatively high.” Policy makers inject funds to maintain stability in the financial system and to relieve pressure on economic growth as they push on with a much-publicized deleveraging campaign.

“Pressure for liquidity to tighten is building, and the money market rates have reached a floor,” David Qu, a markets economist in Shanghai at Australia & New Zealand Banking

Group Ltd. said in an interview on Monday. The PBOC is likely to roll over the medium-term lending facility funds due this week as a lot of cash has already been drained, he said. “In the future, long-term bond yields will continue to climb as the deleveraging drive continues.”

Not stingy

China Merchants Securities Co. goes a step further, with analysts led

by Chief Bond Analyst Xu Hanfei predicting a resumption of OMOs as well. The authorities “won’t be stingy” when it comes to injecting funds should China’s economy start to slow in the third quarter, said Pan Jie, chief fixed-income analyst at Orient Securities Co. Right now, money-market rates reflect a system still pretty flush with liquidity.

The central bank doesn’t want liquidity to be too tight because it could hit economic growth and financial stability, says Yulia Wan, a banking analyst at Moody’s Investors Service in Shanghai.

“Policy makers will use a combination of tools to maintain neutral and slightly tight liquidity conditions for the rest of this year,” she said.

Bloomberg News

David Qu, a markets economist in Shanghai at Australia & New Zealand Banking Group Ltd

Luxury brand Burberry reported a better-than-expected increase in like-for-like sales in its first quarterly report under new CEO Marco Gobbetti, helped by stronger demand in China and a continuing good performance in its home British market. Like-for-like sales increased by 4 percent, double the rate of growth expected by analysts, led by its newest ranges and leather goods. It reported 3 percent underlying revenue growth.

Gobbetti took over from Christopher Bailey as chief executive this month, charged with strengthening the brand while improving efficiency and boosting the performance of its stores, where its space delivers lower sales than rivals. He said on Wednesday he was pleased with the group’s performance in the first quarter, while he was mindful of the work still to do. The company reported retail revenue of 478 million pounds ($612.7 million) for the three months to end-June.

PBOC newspaper outlines steps needed for currency market reform

Payments

Tencent’s WeChat Pay seeks licence for local payment services in Malaysia Alipay introduced a separate app for the Hong Kong market in May Tencent Holdings Ltd has applied for a licence in Malaysia to offer local payment services via its WeChat Pay, in what would be a first for the platform beyond mainland China and Hong Kong, the director of WeChat Pay’s global operation told Reuters.

If approved, users in Malaysia will be able to link their local bank accounts to WeChat Pay and pay for goods and services in ringgit.

“Malaysia has a large Chinese community,” Grace Yin said on the sidelines of a Hong Kong technology conference, explaining Tencent’s choice of test bed.

WeChat Pay and Alibaba Group Holding Ltd’s affiliate Alipay are turning China cashless by enabling payments or money transfers at the convenience of a code scan.

The pair are also expanding internationally in tandem with outbound tourism, getting more businesses to

Burberry reports betterthan-expected Q1 sales

Forex

And this may be why: a total of RMB459.5 billion (US$67.6 billion) of funds issued via reverse-repurchase agreements and the PBOC’s medium-term lending facility comes due this week, the most since the week ending June 5. Further pressuring liquidity, government issuers and policy banks will sell at least RMB483

Sijia Jiang

Luxury

accept their services which allow users to make payments using bank accounts in China without complications posed by currency exchange.

Licences for such cross-border payments differ from those required for local payment services. Hong Kong is currently the only location outside mainland China where WeChat Pay and Alipay offer payment services executed entirely in the local currency.

Alipay introduced a separate app for the Hong Kong market in May, its first non-yuan payment app.

Global expansion

Tencent is China’s biggest gaming and social media firm by revenue.

It said there are over 600 million monthly active users of its QQ Wallet and WeChat Pay, the latter of which is embedded in WeChat, China’s most popular social media app with 938 million active users.

Alipay said it has over 450 million

active users.

WeChat Pay and Alipay dominate China’s mobile banking market, which totalled RMB18.8 trillion (US$2.76 trillion) worth of transactions in the first three months of 2017, according to consultancy Analysys.

On Monday, Silicon Valley startup Stripe said it had partnered the pair to allow merchants worldwide using Stripe to accept payments from Chinese consumers via WeChat Pay and Alipay.

Key Points Tencent’s payment platforms have over 600 million users Offers cross-border payment service for Chinese users Local payment service currently only available in Hong Kong At present, WeChat Pay can be used at over 130,000 shops in 13 foreign markets - including in the United States, Europe and Japan - and supports 10 currencies, Tencent said.

Yin, who declined to give target growth figures, said expanding WeChat Pay overseas required additional layers of regulatory approval, as well as efforts to explain the system to local businesses.

“We have a large user base in China.

It is often the users compelling the vendors or financial institutions to adopt WeChat Pay, so that happens very fast,” she said.

Yin said there is no timeline to offer local payment services to more overseas countries, but said “nothing is impossible”.

“The short-term target is still Chinese tourists,” she said. “The priority is nearby countries most frequented by them, such as those in Southeast Asia.” Reuters

A newspaper run by China’s central bank laid out the steps needed for further reforms of its foreign-exchange market, including widening the yuan’s trading band and reducing state intervention. In an article titled “Exchange Rate Continues Toward Stability at Equilibrium Level,” the Financial News said an improved currency market requires more players, additional trading tools and diversified transaction methods. The front-page story, which cited expert opinion, is part of a series of reports that are typically seen before the Communist Party’s congress held every five years. Since China’s currency was added to the International Monetary Fund’s reserves basket last year, little progress has been made to liberalize the currency. Tweaks to the daily fixing have made the reference rate less transparent, while the central bank has been speculated to intervene on a number of occasions to slow losses. The authorities have also taken steps such as tightening capital controls and offshore yuan liquidity in order to stem depreciation IPO

Chinese lender Zhongyuan Bank prices $1 bln HK IPO near bottom-IFR Chinese city commercial lender Zhongyuan Bank Co Ltd priced its Hong Kong initial public offering (IPO) near the bottom of expectations, raising $1 billion to bolster its capital base, IFR reported. The IPO of about 3.3 billion shares was priced at HK$2.45 per share, near the bottom of an indicative range of HK$2.42 to HK$2.53, IFR, a Thomson Reuters publication, said on Wednesday, citing people close to the deal. That would put the total deal at HK$8.09 billion ($1.04 billion). It is among several smaller Chinese banks that have gone public in Hong Kong over the past several months to strengthen their balance sheets amid a boom in lending in the world’s second largest economy.

10 Business Daily Thursday, July 13 2017

Greater China Markets

Mainland hedge funds bounce back from losses to rank near top China funds’ average performance in the first half was twice the 6.3 per cent gain in an HFR index tracking equity-focused funds globally Taylor Hall, Bei Hu and Klaus Wille

C

hina-focused hedge funds bounced back from their worst performance in five years and trounced global counterparts.

After an annual loss last year, Greater China hedge funds added more than 13 per cent on average in the first half of 2017 to rank among the top-performing strategies in the world, according to preliminary data from Eurekahedge. Hedge funds from Greenwoods Asset Management, Springs Capital and SPQ Asia Capital were among standout performers with gains of 20 per cent or more.

Hedge funds worldwide are struggling with investor redemptions after central bank intervention suppressed volatility and sapped returns. China funds were a rare pocket of outperformance as global hedge funds on average gained about 2.4 per cent in the first half, according to Hedge Fund Research Inc. data Monday.

Investors are taking notice: the majority of China-focused hedge funds saw inflows in May for the first time since 2015, according to a report by research firm eVestment.

While Greater China equity funds overall benefited from surging Hong Kong-listed shares and large-cap stocks on the mainland, well-timed bets on technology, Internet and consumer companies drove returns at some of the top performers. In recent years, China-focused hedge funds have helped shield investors from losses in falling markets and have roughly kept pace with benchmarks in volatile conditions, said Peter Laurelli, global head of research at

eVestment.

China funds’ average performance in the first half was twice the 6.3 per cent gain in a HFR index tracking equity-focused funds globally, benefiting from investments in healthcare and emerging markets.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong touched post-October 2015 highs in the first half. The MSCI China Index added about 24 per cent through June 30. China’s initiation into MSCI Inc.’s indexes has further boosted the outlook for the nation’s largest stocks.

Greenwoods’ US$1.6 billion Golden China Fund made nearly 27 per cent in the first half, according to an estimate sent to investors. Performance was boosted by bullish bets on consumer stocks listed in Hong Kong and China, and Internet-related companies traded in the U.S., as well as service companies on the Hong Kong stock exchange, Joseph Zeng, chief executive officer of Greenwoods’ Hong Kong company, said.

‘The MSCI China Index added about 24 per cent through June 30’ The SPQ Asia Opportunities Fund, which gained 22 per cent in the first half, was helped by profitable investments in technology and consumer discretionary stocks, and companies that run after-school education programs for young students in China,

according to Gregoire Dechy, chief operating officer of Hong Kongbased SPQ. One of the fund’s picks was Momo Inc., the mobile social networking platform whose shares have more than doubled this year.

The fund makes three-fourths of its investments in stocks with a market value of more than US$5 billion dollars, Dechy said.

Other managers found opportunities in overlooked areas. Springs Capital’s China Opportunities Fund added more than 7.5 per cent in June, with 2017 gains topping 24 per cent, according to a person with knowledge of the matter.

Profit at the fund, one of the rare offshore stock hedge funds that focuses on yuan-denominated shares traded in China, was driven by gains in chemical materials, high-end manufacturing and healthcare stocks, said the person. It avoided large-cap stocks most popular with foreign investors in the yuan shares market, the person said.

And while analysts’ forecasts compiled by Bloomberg show expectations for a muted performance for China’s broader stock market heading into the second half, managers see some gains set to continue in the medium- and longer-term.

Greater China’s large companies,

including blue-chips and leaders of small industries, may outperform small- and mid-cap stocks over the next three years as large companies gain share when China’s slowing economy spurs industry consolidation, according to a Pinpoint Asset Management letter to investors seen

by Bloomberg.

The firm’s US$883 million Pinpoint China Fund added about 16 per cent through June, driven by gains in holdings of technology, media, telecommunications and consumer stocks, according to Jennifer Wong, the firm’s managing director of investor relations.

APS Asset Management expects MSCI’s decision to include A-shares in its indexes will have “enormous” implications over time, and November’s Communist Party congress may provide a catalyst for stocks associated with China’s new economy, according to chief investment officer Wong Kok Hoi. The firm’s US$2 billion A-share strategy benefited from bets on consumer and tech stocks including Gree Electric Appliances Inc. of Zhuhai and Hangzhou Hikvision Digital Technology Co., he said.

Spokespeople for the firms either confirmed or declined to comment on the numbers. Bloomberg News

Electric vehicles

China could field nearly half of new electric car models by 2020 - study Chinese automakers are on track to produce 49 of the 103 new electric car models that will be launched globally by 2020, as part of China’s push to accelerate the switch to battery power from oil, according to a new forecast released on Wednesday.

U.S. consulting firm AlixPartners also said China is aiming to have nearly two-thirds of the world’s manufacturing capacity for lithium-ion batteries by 2021, and is investing to support current sales of domestic-brand electric vehicles in the world’s largest car market.

Already, Chinese automakers account for 96 per cent of the electric vehicles sold in the country, AlixPartners said. Automakers sold about 350,000 electric vehicles in China in 2016 - still less than 2 per cent of total vehicle sales.

By 2025, electric vehicle batteries should be close to even with internal combustion engines in terms of production costs, AlixPartners forecast.

Lower battery costs could help boost consumer acceptance.

John Hoffecker, the firm’s global vice chairman, told reporters at the Automotive Press Association in Detroit on Tuesday that other factors, such as a significant reduction of the time it takes to recharge electric car batteries, will be critical to efforts to win over reluctant consumers.

AlixPartners also cautioned that many of the roughly 50 companies it counts as contestants in the race to develop self-driving cars won’t go the distance. “It’s impossible to believe there will be 50 successful autonomous vehicle companies,” Hoffecker said.

In the United States, AlixPartners said automakers will have to contend with funding investments in new technology against deep-pocketed technology industry players such as Apple Inc and Alphabet Inc, even as sales of cars and light trucks slide into a cyclical trough.

AlixPartners is forecasting that U.S. car and light truck sales will fall to 15.2 million vehicles in 2019, down 13 per cent from the 2016

peak. Other U.S. analysts also predict a slowdown in vehicle sales during the next two to three years.

Reuters

Business Daily Thursday, July 13 2017 11

Asia IPO

Razer is said to target an IPO at up to US$5 billion valuation The company, co-founded in 2005

by Singapore-born Tan Min-Liang, considered a U.S. IPO as far back as 2014 Lulu Yilun Chen and Crystal Tse

R

azer Inc. is shooting for a Hong Kong initial public offering that could value the gaming gear maker at as much as US$5 billion and help fund development of its own mobile phone, people familiar with the matter said.

The company -- which makes accessories from mice to laptops that bear a green tri-headed snake -- is developing a mobile device tailored for its consumer base of hardcore gamers, according to the people. Razer’s share sale, which will give it ample ammunition to develop new gadgets, will seek to value

the company at US$3 billion to US$5 billion, the people said, asking not to be identified talking about internal plans. It aims to list around October, the people said.

Razer, which sells products online and in chains like Best Buy across the U.S., has said it wants to use Hong Kong as a beachhead from which to accelerate its expansion into China’s US$25 billion gaming market. The company now sells its product there via e-commerce giants JD.com Inc. and Alibaba Group Holding Ltd., co-founder Tan MinLiang said in an interview in June. It’s sold US$1 billion worth of product globally in the past three years, Tan added.

Razer’s IPO would be one of the largest tech debuts in the Asian financial center in years. The company, co-founded in 2005 by Singapore-born Tan, considered a U.S. IPO as far back as 2014, people with knowledge of the matter said at the time.

In October the same year, the company was valued at US$1.5 billion, according to data from researcher CB Insights. The company declined to comment on its IPO plans in an email on Wednesday.

The company, whose backers include Intel Corp. and a unit of Temasek Holdings Pte, counts gaming hardware as its main source of revenue but is also developing a virtual currency called zGold and building up its community. Razer, which sponsors more than 300 eSports athletes, is building a software platform that connects and launches games for some 35

million users.

The global video games industry is expected to grow by about 25 per cent to US$146 billion in 2020 from an estimated US$117 billion this year, according to data from Euromonitor International. The Asia-Pacific market,

however, is slated to expand by a much faster 39 per cent to US$65.3 billion over the same period, driven by 40 per cent growth in gaming software alone, the data show.

The comparable hardware market is expected to expand 22 per cent. Bloomberg

Markets

Swiss Singapore to start naphtha trading in Singapore Swiss Singapore is also planning to hire one derivatives trader to add to its over 70 trading and operations staff in its Dubai office Jessica Jaganathan

C

ommodity trader Swiss Singapore Overseas Enterprises is expanding its trading operations in Singapore and may start an office in the United States by the end of the year, said three industry sources on Tuesday.

The company, which is part of the Indian multinational conglomerate Aditya Birla Group, is starting a naphtha trading desk at its Singapore office, one of the sources familiar with the matter said.

Swiss Singapore has hired a trader from South Korea, previously employed by South Korean petrochemical firm Daelim Corp, as its first dedicated naphtha trader but the trader has not started work yet, the source added, declining to be named as he was not authorised to speak with the media.

Aditya Birla did not immediately

respond to Reuters’ request for comment.

“Petrochemical demand is strong, so (the company) is hoping to capture that,” the source said.

He also anticipates increased demand from Saudi Arabia once new petrochemical projects come onstream which could prompt imports

into the country.

Consulting firm FGE said that Saudi Arabia’s naphtha demand will likely rise by about 65,000 barrels per day year-on-year once Sadara Chemical Co’s 1.5 million tonnes-per-year cracker ramps up production and PetroRabigh-2 starts operations later this year.

Still, declining naphtha margins are making it difficult for companies to be profitable, limiting expansion in the sector to just a few companies, a South Korean naphtha trader said.

Swiss Singapore is also planning

to hire one derivatives trader to add to its over 70 trading and operations staff in its Dubai office and could start a new office in the United States by end of the year, the first source said.

Key Points To set up naphtha trading desk, hired 1 trader so far Aims to set up office in the US by year-end Plans to hire a derivatives trader in Dubai Swiss Singapore was incorporated in Singapore in 1978 but is headquartered in Dubai. It has a turnover of US$4 billion and trading volumes of over 15 million tonnes per year, according to the company website.

It trades in coal and oil products such as gasoil and jet fuel.

The company has been expanding its trading presence in Asia in recent years, winning contracts to supply oil products into Sri Lanka and Pakistan and purchasing term barrels from Middle East refiners. Reuters

M&A

Toshiba talking with Western Digital, Foxconn about chip unit sale Taro Fuse

Toshiba Corp told its creditor banks it is in talks with Western Digital Corp and Taiwan’s Foxconn over the US$18 billion sale of its prized chip unit in addition to its preferred bidder, banking sources familiar with the matter said on Tuesday.

The crisis-wracked conglomerate later confirmed it was in talks with other suitors as it had not been able to reach an agreement by its self-imposed deadline of June 28. It did not name the suitors.

Toshiba’s preferred bidder group includes the statebacked fund Innovation

Network Corp of Japan, the Development Bank of Japan, U.S. private equity firm Bain Capital and South Korean chipmaker SK Hynix Inc.

Key Points Toshiba confirms it is in talks with other suitors Preferred bidder talks struggling due to SK Hynix role -sources But talks have struggled to progress due to what sources say are proposals by SK Hynix that its financing be done via convertible bonds

- a step that would provide it with a path towards an equity interest in the world’s No.2 NAND chip maker.

Toshiba is keen for its South Korean rival to have no equity or management influence in the chip unit - a stance it has taken to satisfy a government that wants the business to remain under domestic control and for key technology to be kept out of the hands of foreign rivals.

The banking sources on Tuesday declined to be identified as they were not authorised to speak on the matter.

A representative for Western Digital, Toshiba’s chip business partner but which

has been at loggerheads with the Japanese firm over the sale, declined to comment.

A representative for Foxconn, the world’s largest

contract electronics maker formally known as Hon Hai Precision Industry, was not immediately available for comment. Reuters

12 Business Daily Thursday, July 13 2017

Asia Tech

Toyota invests US$100 million in fund for AI, robotic startups The company is following through on President Akio Toyoda’s call “to be attacking and defending at the same time” John Lippert, Gabrielle Coppola and Dana Hull

T

oyota Motor Corp. wants to smooth the oft-bumpy ride for startup companies and maybe find a few gems to acquire by forming a new venture capital business.

Armed with an initial US$100 million to invest, Toyota AI Ventures will seek companies that are taking on challenging research also being pursued by Toyota Research Institute, the carmaker’s artificial intelligence and robotics R&D unit. The first three companies to receive financing are a maker of cameras that monitor drivers and roads, a creator of autonomous car-mapping algorithms and a developer of robotic companions for the elderly.

In starting the venture fund, Toyota is following through on President Akio Toyoda’s call “to be attacking and defending at the same time” in an age where automakers known for metal-bending now contend with the likes of Google and Tesla Inc. in

programming cars capable of driving themselves. Toyoda told shareholders last month that the almost 80-year-old company would consider options including partnerships, mergers and acquisitions to improve its competitiveness.

“Can TRI and Toyota do this alone? The answer is no,” Gill Pratt, the chief executive officer of the automaker’s research institute, said Tuesday at an automated vehicles conference in San Francisco. “The number of startups in this field is incredible. No matter how hard I try to hire people, we are still missing out on a lot of the innovation.”

TRI is interested in startups working on power efficiency, sensor technology, machine learning field and simulation, Pratt said.

The first three investments placed by Toyota AI Ventures include Intuition Robotics, an Israeli developer of AI in machines that serve as the eyes and ears of aging people otherwise isolated in their homes. With help from Toyota, Intuition Robotics plans to commercialize its home-assistant robot ElliQ,

Chief Executive Officer Dor Skuler said in a phone interview.

Robots, dashcams

ElliQ tries to anticipate the needs of elderly people by simulating how their brains work, Skuler said. One early advantage of the relationship with Toyota has been working with the company on manufacturing, he said.

“We had issues with our motors to get them to be quiet and elegant in their movements,” Skuler said. “Toyota helped us a lot.”

Bloomberg Beta, the venture capital arm of Bloomberg LP, also invested in the Series A financing round Intuition

Robotics completed in May. Toyota provided seed financing in March to London-based SlamCore, which enables cars to build maps with the vehicle positioned in them in real time. Before that, the automaker contributed funding to Palo Alto, California-based Nauto, which makes an advanced dashcam for vehicle fleet managers to help prevent crashes.

Jim Adler, vice president of data and business development at TRI and managing director of the new venture arm, said he’s looking to invest in companies that Toyota could buy later. The typical “exit” for a startup is to be acquired by a larger company

or go public.

“We’re looking for winners,” Adler told reporters Tuesday. “John Chambers at Cisco had a good philosophy of R&D: we invest in a bunch of companies and buy the winners.”

In addition to investments, Toyota AI Ventures will offer selected startups mentoring and on-site support at the Silicon Valley headquarters of Toyota Research Institute.

Toyota formed the research institute with an initial US$1 billion investment in 2015 and hired Pratt, the former top robotics engineer for the U.S. military’s Defense Advanced Research Projects Agency, to run it. Bloomberg

Eco-responsibility

Thai seafood giant commits to major fishing reforms Thai Union has committed to cutting the number of fish aggregating devices Thai Union, one of the world’s largest seafood conglomerates, said Tuesday it will overhaul its fishing practices to protect against labour abuses and unsustainable trawling, a move hailed

by Greenpeace as “huge progress”.

The Thai food giant -- which owns major global brands such as Chicken of the Sea, John West and Petit Navire -- has long been a bete noire to those campaigning against overfishing and abusive working conditions on boats.

But on Tuesday it released a joint statement with Greenpeace announcing a series of reforms that both said should encourage other seafood behemoths to follow suit.

“This marks huge progress for our oceans and marine life and for the rights of people working in the seafood industry,” Greenpeace International Executive Director Bunny McDiarmid said in the statement.

“Now is the time for other companies to step up, and show similar leadership.”

Among the commitments Thai Union has made is to cut the number of fish aggregating devices (FADs) it uses by 50 per cent by 2020 and reduce longline fishing.

FADs, which float on the surface to attract fish, and longlines are effective ways of catching large hauls of lucrative fish like tuna.

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But they often result in reams of other animals being caught, including endangered sharks and turtles.

The reforms will also target working conditions on board Thai Union boats and those of its suppliers including an extended moratorium on “transshipping”.

Transshipping is a method many fishing giants use to keep trawlers at sea as long as possible, often for years at a time.

Catches are transferred to refrigerated transport vessels at sea, saving the time and fuel costs of returning to port.

While economically efficient, environmental groups have long warned that transshipping allows trawlers to hide illegal catches and often leads to slavery-like conditions for many of the low-paid fishermen who spend years onboard their boats.

Thai Union have also agreed to allow independent observers or digital tracking devices onto all their longline boats and will meet with Greenpeace every six months to assess implementation.

In the joint statement, CEO Thiraphong Chansiri said his company “has fully embraced its role as a leader for positive change as one of the largest seafood companies in the world.”

Thai Union posted worldwide

sales of US$3.8 billion in 2016 and is targeting US$8 billion revenue by 2020.

Thailand is the world’s third largest seafood exporter but the industry has been dogged by allegations of rights abuses and cheap labour in its fishing fleets and many food processing factories.

“This marks huge progress for our oceans and marine life and for the rights of people working in the seafood industry” Bunny McDiarmid, Greenpeace International Executive Director

The sector is mainly staffed by poor migrant workers from Myanmar, Laos and Cambodia.

The European Union has threatened to ban all its seafood products unless the military government tackles rampant illegal fishing among its fleets. AFP 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 Thursday, July 13 2017 13

Asia Taxes

In Brief

Indonesia seeks meeting with Freeport CEO to end copper mine dispute The conflict comes as Freeport pushes back against parts of new government rules that require miners to adopt a special licence, pay new taxes and royalties, divest a 51 per cent stake in their operations and relinquish arbitration rights Wilda Asmarini and Fergus Jensen

Indonesia says it will invite the head of mining giant Freeport McMoRan Inc to Jakarta this month to try to settle a festering dispute over a new deal to operate the world’s second-largest copper mine.

The Arizona-based company resumed copper concentrate exports from the mammoth Grasberg mine in April after a 15-week outage related to the argument over mining rights, but a permanent solution to the row

is yet to be found.

Uncertainty over output from the mine buoyed international copper prices earlier in the year, with Indonesia a key supplier of the metal to top consumer China.

Any meeting with Freeport CEO Richard Adkerson would be attended by mineral resources minister Ignasius Jonan and finance minister Sri Mulyani Indrawati, mining ministry secretary general Teguh Pamuji said late on Monday.

A U.S.-based Freeport spokesman

declined to confirm whether Adkerson would attend the planned meeting, but said both sides continued “to work toward reaching a mutually positive resolution to support our long-term investment plans”.

The conflict comes as Freeport pushes back against parts of new government rules that require miners to adopt a special licence, pay new taxes and royalties, divest a 51-per cent stake in their operations and relinquish arbitration rights. The company is one of Indonesia’s biggest taxpayers.

Freeport has maintained its request for a so-called ‘investment stability agreement’ to help replicate the legal and fiscal certainty it had under its existing agreement with the government, said Pamuji.

“Perhaps that will be decided on at the high level meeting at the end of this month,” he said referring to the stability agreement, adding that minerals minister Jonan was “optimistic” negotiations would conclude in July.

Finance minister Indrawati is known for her no-nonsense approach to negotiations and knack for slicing through red tape.

Freeport has also asked for a guarantee on rights to mine Grasberg up to 2041 before committing to billions of dollars of planned underground mine investments and a second Indonesian copper smelter. But Pamuji said the government were only willing to extend the company’s permit by 10 years to begin with, to 2031 from 2021. Reuters

Governance drive

Japan MUFG may disclose information on advisors A trade ministry report published in March noted there were concerns that advisors at Japanese firms can exert undue influence over management without being held accountable to shareholders Taiga Uranaka and Taro Fuse

Mitsubishi UFJ Financial Group (MUFG) may disclose information on so-called special advisors - all former top executives - and clarify the work they do, as part of its efforts to improve corporate governance, sources at the bank with direct knowledge of the matter said.

The step would put the lender among the first of major Japanese firms to review the role of advisors after the government this year called on firms to clarify the status of former executives who stay on company payrolls as consultants.

Prime Minister Shinzo Abe’s administration has made corporate governance a key policy plank, keen to shake up a business culture that has often been criticised for putting the interests of executives over shareholders.

A trade ministry report published in March noted there were concerns that advisors at Japanese firms can exert undue influence over management without being held accountable to shareholders, and it urged companies to shed light on their roles.

MUFG, Japan’s largest lender by assets, has “less than 10” special advisors at its core banking unit, all of them either a former chairman or president, said one of the sources.

“Given heightened public interest in corporate governance, we have to clarify the role of these advisors and make rules for their compensation schemes. And we plan to make public what they do,” the person said, adding that the board plans to

reach a conclusion by the end of the financial year ending in March.

The sources declined to be identified as they were not authorised to discuss the matter publicly.

An MUFG spokesman declined to comment.

Waseda University Professor Hideaki Miyajima, an expert on coporate governance, said that while it was difficult to pin down whether special advisors at Japanese companies do tend to exert undue influence over management, it was important that traditional companies like MUFG address these concerns.

“I think the move is likely to followed by companies that have overseas operations or a higher percentage of institutional investors as shareholders,” he added.

Other Japanese companies that have acted on the issue of advisors include department store operator J.Front Retailing Co Ltd, which abolished

the title of corporate counsel in May. Others have sought to justify the rationale behind the practice. Takeda Pharmaceutical CEO Christophe Weber wrote to shareholders in June, making a case for appointing retiring chairman Yasuchika Hasegawa as corporate counsel.

The MUFG review is not seeking to do away with advisors, the sources said, adding that they played an important role as they serve on boards of various foundations and attend social functions as well as funerals on behalf of current management.

In Japan, it is customary for senior executives to attend funerals of other executives at client companies.

“Top executives are too busy to deal with all this. Advisors are shouldering this burden for us,” said an MUFG senior executive.

“We cannot just send anybody. Clients want people with some weight and hence the title of special advisor,” he said.

Other corporate governance reforms introduced in Japan over the past two years include guidance from the Tokyo bourse for boards to boost numbers of outside directors and to unwind cross-shareholdings. Reuters

Economy

S.Korea’s Moon says GDP growth could surpass 3 pct with extra budget -official South Korea’s President Moon Jae-in said on Wednesday the country’s economic growth could top 3 per cent this year if parliament approves an extra budget currently under discussion, a senior presidential official told reporters. “If the extra budget is passed and we do well, we might see (growth) over 3 per cent,” the official said, citing comments made by the president at a meeting with key state institution heads earlier in the day. The official asked not to be named due to the sensitivity of the matter. The country’s parliament is currently debating a US$10 billion fiscal package aimed at creating new jobs, a key policy goal for Moon. Despite repeated pleas by the government for the extra budget to be approved, the ruling Democratic Party faces an uphill to get the nod task as it doesn’t have a majority in parliament nor the full backing of opposition parties. South Korea’s economy grew 2.8 per cent in 2015 and 2016 each. Growth last topped 3 per cent in 2014, when gross domestic product expanded 3.3 per cent.

M&A

Toshiba’s Landis+Gyr seen fetching up to US$2.5 bln in IPO Toshiba’s Landis+Gyr smart meters unit aims to raise up to 2.4 billion Swiss francs (US$2.5 billion) in an initial sale of shares, as the Japanese company unloads the business to help cover losses at its bankrupt U.S. nuclear unit Westinghouse. The price range for the initial public offering was set at 70 francs to 82 francs per share, Landis+Gyr said on Wednesday, which implies a market capitalisation of between 2.1 billion francs and 2.4 billion francs. Toshiba and minority owner INCJ are selling 100 per cent of their stakes. Shares are due to begin trading on July 21 on the SIX Swiss Exchange.

The transaction looks set to value Landis+Gyr at less than U.S.based rival Itron. Itron, which like Landis+Gyr makes smart metering equipment to help consumers and utilities track and manage their consumption of electricity, gas or water, is valued at nearly US$2.7 billion on Nasdaq, according to Thomson Reuters data.

Tax change

Gold imports by India said to more than double ahead of new tax Gold imports by India, the world’s second-biggest user, more than doubled in June from a year earlier amid a rush by jewellers to build up inventories ahead of a tax change. Inbound shipments surged to 72 metric tons last month from 31.8 tons a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the figures aren’t public.

Finance Ministry spokesman D. S. Malik declined to comment on the numbers. India’s government has embarked on the most radical tax overhaul in decades, ushering in a new nationwide goods and services tax to replace dozens of local levies. Speculation that the new tariff may be as much as 5 per cent for bullion traded locally, including for manufacturers buying from importers, prompted a jump in imports to 126 tons in May. The gold rate was eventually set at 3 per cent, and implemented from July 1.

14 Business Daily Thursday, July 13 2017

International In Brief M&A

Shell to sell stake in Corrib gas field in Ireland for US$1.23 bln Royal Dutch Shell Plc said it would sell its 45 per cent stake in the Corrib gas venture to a unit of Canada Pension Plan Investment Board (CPPIB) for up to US$1.23 billion, marking the oil company’s exit from the upstream business in Ireland. The deal includes an initial consideration of US$947 million and additional payments of up to US$285 million between 2018-2025, subject to gas price and production, Shell said on Wednesday. The Anglo-Dutch company is on track to sell assets of about US$30 billion by 2018 to cut debt following its US$54 billion acquisition of BG Group.

Shell has also been working to mitigate climate change risks that have upset some investors. The development of the Corrib gas field, discovered in 1996, has faced protests since 2005 by residents concerned that the laying of a high-pressure pipeline to bring gas onshore could pollute their water supply. CPPIB, Canada’s biggest public pension fund, and Vermilion Energy Inc will become the new operator of the gas field off the northwest coast of Ireland.

Interest rate

Yellen sees inflation as key uncertainty, amid moderate growth Craig Torres and Christopher Condon

F

ederal Reserve Chair Janet Yellen said the U.S. economy should continue to expand over the next few years, allowing the central bank to keep raising interest rates, while also stressing the Fed is monitoring too-low inflation.

“Considerable uncertainty always attends the economic outlook,” Yellen said Wednesday in remarks prepared for delivery to the U.S House Financial Services Committee. “There is, for example, uncertainty about when -- and how much -- inflation will respond to tightening resource utilization.”

Yellen is scheduled to begin her remarks at 10 a.m., followed by a question-and-answer session with lawmakers. She repeats the performance Thursday before the Senate Banking Committee, wrapping up her final testimony to Congress as Fed chair, unless she is re-nominated

by President Donald Trump. Yellen’s current term expires on Feb. 3.

Yellen emphasized in her remarks that the central bank is on alert about prices remaining below the central bank’s 2 per cent target. Other members of the Federal Open Market Committee have mentioned similar

concerns in recent days.

“The committee will be monitoring inflation developments closely in the months ahead,” she said.

Solid Outlook

Nevertheless, the Fed chair said, the baseline outlook is for levels of interest rates to continue to support job gains and income growth and therefore consumer spending.

A faster pace of global growth should support U.S. exports, she said, and a recovery in drilling activity should support business investment.

“These developments should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases,” she said.

Yellen said the central bank’s policy rate “would not have to rise all that much further” to get to a rate that keeps supply and demand in balance in the economy. Eventually, “factors,” which she did not specify, holding down the so-called neutral rate will diminish over time, she said, which supports the Fed’s case for continued rate hikes over the next couple of years.

She also mentioned that the Fed anticipates it will start reducing its balance sheet “this year.” The size of the balance sheet once this process

has been completed is uncertain, she said, partly because the banking system’s demand for reserves is not yet known.

Yellen said low readings on inflation are partly the result of “a few unusual reductions” in certain price categories which will hold 12-month inflation down until they drop out of the calculation. However, she also said there is uncertainty about inflation’s response to tightening resource use.

She noted that the FOMC said in June it will “carefully monitor actual and expected progress” toward its inflation goal.

Inflation has been below the central bank’s 2 per cent target for most of the past five years.

With U.S. economy growing at a steady pace, Yellen’s Fed is gradually pulling back from crisis-era stimulus.

It raised interest rates in June for a second time this year and forecast another hike in 2017.

The U.S. expansion is in its ninth year and continues to create jobs without much inflation. Unemployment was 4.4 per cent in June and employers have added 187,000 jobs a month on average over the past 12 months. But stronger demand for labour hasn’t fed into higher wages.

Bloomberg

Tax

Swiss, French to resume tax data exchange after resolving concerns Switzerland and France have smoothed over concerns which had blocked the exchange of tax data between the two countries, a boost to French efforts to pursue cash hidden from the taxman.

The way in which data sent over by Switzerland was used in a French legal case involving UBS, Switzerland’s biggest bank, had raised concerns for the Swiss that the two countries had different understandings of their double taxation agreement (DTA).

DTAs are in place to try to prevent double taxation and also set the ground rules for administrative assistance in tax matters.

Switzerland was waiting to clarify the situation before exchanging further information. The relevant Swiss and French authorities have now resolved these concerns, the Swiss Federal Tax Administration (FTA) said on Wednesday, without disclosing what issues had been clarified.

Deficit

EU Commission says Greece public finances back in order Greece’s fiscal position has improved and the European Union should end disciplinary procedures against it over its excessive deficit, the EU commission said on Wednesday, paving the way for the country to return to international bond markets. EU fiscal rules oblige member states to keep their budget deficits below 3 per cent of their economic output or face sanctions that could entail hefty fines, although so far no country has received a financial penalty.

Greece recorded a 0.7 per cent surplus last year and is expected to have a deficit of only 1.2 per cent in 2017.

Economic stresses

IMF sees trouble ahead for emerging Europe The IMF estimates that 20 million people have left central and eastern Europe in the past decades Igor Ilic and Balazs Koranyi

Emerging Europe is facing increasing economic stresses that threaten to unwind some of the political progress made over the of past decades, a top International Monetary Fund official said on Tuesday.

Poul Thomsen, the head of the IMF European Department said central and eastern Europe’s economic growth potential has halved in the past decade and the rapid outflow of skilled workers is an increasing drag.

He noted at a conference in Dubrovnik that some governments in the region are even questioning the benefits of European integration.

With Europe struggling through a decade of crisis and economic malaise, convergence between the core Western countries and the Eastern periphery has slowed or stopped. This has raised domestic questions about the validity of painful economic and political reform.

“This is a timely reminder to all of us not to fool ourselves into believing that governance and institutional progress are inevitable; not to believe that such progress is an unstoppable outcome, a steady evolution. It is not,” Thomsen said.

“Going forward, headwinds will grow stronger,” the Danish economist said.

Thomsen, who has led IMF programmes with countries such as Greece and Portugal, also noted that the exceptional support from a benign global growth environment that benefitted the region when it is initially emerged from

“There is clearly one area where we at the Fund are concerned: central bank independence” Poul Thomsen, the head of the IMF European Department

Communism, was unlikely to be replicated.

Meanwhile, the outflow of skilled workers to Western Europe is a top issue for the region. The IMF estimates that 20 million people have left central and eastern Europe in the past decades -- roughly 5-6 percent

of the population.

Half of Hungarian and a quarter of Polish manufacturing firms now claim that a shortage of workers is limiting production and inhibiting investment, surveys showed.

EU tensions

On a political note, Thomsen pointed to increased tensions between some of the EU’s eastern members and the European Commission as a key concern.

The EU is at loggerheads with Poland about rule-of-law issues and has clashed with Hungary over refugees, among other issues.

The turmoil of the past decade has also put into doubt the value of EU membership for countries still outside the bloc.

He added that another concern is that given the disappointments of the past decade, some countries may reverse the political and institutional reforms that were meant to solidify democracy and support long term growth.

“Some of the threats of (governance) reversal... are evident in some of the most advanced countries of the region,” Thomsen said.

“There is clearly one area where we at the Fund are concerned: central bank independence,” Thomsen said.

“In a number of countries central bank independence is under threat.”

Reuters

Business Daily Thursday, July 13 2017 15

Opinion

Three simple innovations for air travellers Mohamed A. El-Erian a Bloomberg View columnist

I

spend a lot of time on planes and h av e b e c o m e u l t ra-s e n s i t i v e t o changes that can materially improve the travel experience. I am not talking about large innovations, including the bigger, more stable, comfortable and less environmentally-damaging aircraft that both Airbus and Boeing have introduced in the last few years. Rather, my focus is on changes that are so tiny and simple -like putting grids on the back of wrapping paper to help you cut straight -- that you wonder why they haven’t been around for years.

Here are my current top three: Winglets on seats: By providing head support, this little alteration to the top of the seat -- which is already available on several airlines, including United -helps you rest your neck and get some sleep. You no longer have to slouch over a germ-filled tray table or bend your body in some strange and painful way. Just decide which side you wish to tilt your head and pull out the winglet for support.

Toilet Pedal: Having been warned about the germ-filled bathrooms on airplanes, I have gotten quite good about using paper towels to open the doors and, more generally, avoid contact with surfaces.

But before a recent flight on Singapore Airlines I had yet to find an easy touchless way to dispose of the towel in that small bin with the rigid snapback cover. The airline, often at the forefront of customer comfort, came up with an astonishingly simple solution: a pedal to open and close the bin. No longer are you required to experiment with different ways of getting rid of your towel without touching dirty surfaces and/or exposing your fingers to the dangers of biting lids.

Pop socket: Affixed to the back of your phone, this extremely simple plastic contraption is a beneficial revolution for those using the “personal device entertainment” option now available on United and some other airlines. Rather than having to hold your phone or trying to balance it precariously on your leg, just pull out the pop socket and place it on your tray table! You can even adjust the angle as you use the winglet!

So, if you are traveling this summer on those filled-to-capacity planes, these three tiny and simple innovations may be helpful. They won’t stop your seat being kicked or calm that crying baby, but they can make your trip a lot better.

Bloomberg View

U.S. Federal Reserve headquarters

The unintended market consequences of new Fed mandate

C

entral bankers are spending a lot of time talking about financial stability. So much so that many economists, strategists and investors are saying financial stability has become a de facto third mandate for policy makers along with price stability and full employment.

This development, however, has the potential to bring about some unintended consequences such as central banks adopting a much shallower tightening path than they currently envision.

It’s important to understand two things. First, in highly levered economies, like those we currently see in developed nations around the world, interest rates and financial stability are closely linked.

That was evident in the recent “synchronized” global sell-off in the rates markets triggered by central banks signalling concern about relatively high asset prices brought on by artificially low borrowing costs, and their potential to foster financial instability.

Second, central banks have, perhaps paradoxically, contributed to financial instability by employing so-called forward guidance that provided investors with a sense of how long they would be keeping rates at recordlow levels. So, with economies g ra d u a l l y r e c o v e r i n g a n d employment generally robust, it’s understandable that investors would behave in a manner that suggests they expect favorable financial conditions to seemingly last in perpetuity.

“

Financial conditions and financial stress

Ben Emons a Bloomberg Prophets columnist

to talk about pulling back from unprecedented monetary easing measures.

Dollar FX borrowing costs have fallen, except in South Korea

Another risk is the rising correlations between the U.S. rates markets and others around the world. Unlike the 2013 “taper tantrum,” when correlations between Group of Seven rates rose sharply, today’s rising correlations with the U.S. are in areas such as South Korea, China and Italy where geopolitical risk is elevated. This can work against the wishes of central banks. For example, in Europe, where the ECB is looking to remove excess accommodation because of concerns about financial stability, rising bond yields can push up those in the United States. And because of rising correlations, higher U.S. yields are driving up those in China, Korea and Italy, tightening financial conditions via higher local borrowing costs.

Second, central banks have, perhaps paradoxically, contributed to financial instability by employing so-called forward guidance

Consider the dollar. Its weakness against both developed and emerging-market currencies this year occurred even though expectations for stronger economic growth and fiscal stimulus rose.

The decline in the value of the dollar value means the cost to borrow in the currency has dropped despite the Federal Reserve’s three interest-rate increases since mid-December. It also means hedging costs in currencies ranging from the euro to the South Korean won are rising at a less-thanideal time.

That can be seen in cross-currency basis swap rates, which are essentially the cost to exchange a fixed-rate obligation for a floating-rate obligation.

In the case of the won, the swap rate has turned more negative, suggesting a possible “shortage” of the currency to borrow in the interbank market as geopolitical tensions in the region reach levels not seen in years. And, the almost 8 per cent appreciation in the euro in both nominal and real effective exchange rate terms has driven the cost to borrow in the shared currency higher as European Central Bank officials surprise markets by starting

Correlations on the rise

Finally, there are “technicals” to consider. During most market sell-offs, trading patterns and so-called risk parity funds can take over as the main driver of momentum in stocks and bonds. According to research

by JPMorgan, the regression beta to bonds and stocks with risk parity funds had risen until only recently. This elevated beta tends to cause positions to be unwound when key technical levels on stock and bond futures break. And when combined with the impact of momentum funds, or “CTAs,” markets moves can become exaggerated.

”

Risk parity and CTA Index effect

What all this means for central banks is they face a bigger than normal challenge. They can opt for keeping inflation stable by tightening rates gradually, but that could add to financial stability risks. Or they can opt to tighten at a faster pace, which could cause an economic slowdown and also lead to financial instability.

The answer for central bankers is to communicate their concerns in a way that gives market participants plenty of time to determine what the appropriate valuations should be based on current fundamentals. Given the delicate balance between financial stability and economic conditions, central banks may be forced to adopt a much shallower tightening path than what they currently envision.

Bloomberg Prophets

16 Business Daily Thursday, July 13 2017

Closing M&A

DDMC grabs China EPL soccer rights in US$500 mln deal for Super Sports

However, last year, it was outbid by PPTV, a unit of retail giant Suning Commerce Group Co, in a US$700 million deal for three-year EPL content rights from Chinese sports and entertainment firm Wuhan DDMC 2019 onwards.

Culture Co has agreed to buy Super Sports Media for DDMC, which has business in marketing and agent services US$500 million, it said on Wednesday, giving it the TV and other sports investments, set up a joint venture last rights to the English Premier League (EPL) in China.

Super Sports Media Inc, a Cayman Islands-based company, month with Suning to manage foreign soccer rights in China. is the current holder of broadcasting rights to England’s The consolidation means Suning, the owner of Italian top soccer league in China, which it owns up until the end club Inter Milan, and DDMC will have most European of the 2018/2019 season.

DDMC said in a filing to the Shanghai stock exchange that soccer rights under their control, including Spain’s La Liga, it would be making the acquisition via its Hong Kong unit. German Bundesliga and the Premier League.

“The deal means we will have an integrated platform for Trading in DDMC’s shares, which has been halted since content managing and operation, and strengthen our mid-February, will remain suspended.

The latest deal signals a consolidation of power over soccer bargaining power against foreign content providers,” said a source close to the deal. rights in the world’s second largest economy as Chinese Prices for high-quality sports content have shot up companies spend heavily to capture sports viewers. in China with increasing competition between local rivals Super Sports has been streaming the English game in China for the past seven years and has been ambitiously including Suning, Super Sports, LeSports, Sina Sports and others. Reuters pushing for a pay-per-view model.

Energy

OPEC’s first 2018 outlook shows it’s pumping too much oil Despite delivering on its commitment to reduce output, the organization was still oversupplying world markets by about 700,000 barrels a day in the first half of this year Grant Smith

O

PEC’s first assessment of world oil markets in 2018 showed that, despite cutting output, the group is still pumping too much

crude.

Even though the Organization of Petroleum Exporting Countries delivered on pledges to reduce supply, its output exceeded demand in the first half of this year, according to a report from the group. Its production was 32.6 million barrels a day in June. With U.S. oil producers leading a pick-up in rival supply, that’s also higher than the 32.2 million a day OPEC expects will be needed in 2018.

Oil prices have slumped into a bear market on concern that production cuts implemented by OPEC and Russia since the start of the year aren’t deep enough to clear a global glut, while U.S. shale-oil producers are gearing up to fill in any shortfall. Producers will meet later this month in St. Petersburg to review their progress, although deeper cuts aren’t on the agenda.

The report from OPEC’s Vienna-based research department

indicates that the accord didn’t go far enough, which could go some way to explain the lack of a sustainable price rally following the cuts.

Despite delivering on its commitment to reduce output, the organization was still oversupplying world markets by about 700,000 barrels a day in the first half of this year, its data show.

Still, the report also contained evidence that the cutbacks are having some effect. Oil stockpiles in developed nations fell in May, reducing their surplus over the five-year average to 234 million barrels. By keeping production at June levels, the organization would reduce the global surplus by about 70 million barrels in the second half, falling short of the group’s goal of eliminating the excess, according to Bloomberg calculations using OPEC data.

will oversupply world markets by about 900,000 barrels a day in the first quarter of next year.

Growth in global oil consumption will be stable next year, at 1.26 million barrels a day, or 1.3 per cent.

However, the increase in supplies from outside OPEC will accelerate, to 1.1 million barrels a day, or about 2 per cent, with most of the expansion coming from the U.S. OPEC’s outlook is more pessimistic than that of the International Energy Agency, the Paris-based institution that advises most of the world’s major economies. Last month the IEA predicted that global oil demand growth will pick up next year to 1.4 million barrels a day, allowing OPEC to reverse some of the cuts it has made and still keep markets balanced.

Deepening the cuts would ultimately prove self-defeating, Fatih

Birol, the IEA’s executive director, said in an interview in Istanbul.

“Even if OPEC countries cut their production further and even if this causes prices to go up for a while, U.S. production will come to pressure the prices once again,” Birol said.

OPEC’s production climbed by 393,500 barrels a day to 32.6 million in June as Libya and Nigeria -- both exempt from the agreement to cut -restored output lost to political unrest and conflict, according to external sources compiled by the organization. Iraq, which has lagged behind other members in implementing its cutbacks, also increased output.

Saudi Arabia, the group’s largest producer, which implemented the biggest cut, told OPEC it pumped 10.07 million barrels a day last month, exceeding its cap for the first time.

Bloomberg

Deeper Cuts

While the organization and its partners have agreed to persevere with their cuts until the end of March, figures in the report suggest they would need to make deeper reductions to balance the market in 2018. If current output were sustained, OPEC

Energy

Brexit

Inflation

Congo to double capacity of Inga 3 hydro project in bid to cut costs

UK Plc Rebukes Pub Boss India’s June inflation slowest for `Put a Sock in It’ Brexit Jibe in more than 5 years

Democratic Republic of Congo has decided to more than double the size of its planned Inga 3 hydroelectric plant to make it more economical, after the US$14 billion project was hit by financing problems.

Inga 3 is part of a US$50 billion-US$80 billion project to expand hydroelectric dams along the Congo River, but the project has repeatedly been delayed by red tape and disagreements between Congo and its partners on the project.

A consortium led by China Three Gorges Corporation and another consortium that includes Spain’s ACS (Actividades de Construccion y Servicios SA) have been vying to develop the project. They will now submit a joint bid on the expanded project in September, the project’s director said on Wednesday.

Bruno Kapandji, director of the Agency for the Development and Promotion of the Grand Inga Project, said the plant would be built to produce between 10,000 and 12,000 megawatts of power, more than double the originally planned capacity of 4,800 MW. Increased capacity would help meet rising power demand and bring down costs, he said, although he did not say how much the expanded project would cost. Bloomberg

JD Wetherspoon Plc boss Tim Martin, one of corporate Britain’s most outspoken supporters of the UK’s exit from the European Union, earned a rebuke from the Confederation of British Industry after telling the organization’s head to “put a sock in it” over Brexit negotiations.

The business lobby group hit out over comments by the 62-year-old pub company founder, who said that “gloomsters” such as CBI Director General Carolyn Fairbairn shouldn’t interfere with the government’s negotiations.

“Rather than slinging mud, Mr. Martin should know that all the major UK business groups have made clear the risks to the economy of leaving the EU without a deal,” a CBI spokesperson said in an emailed statement citing “cliff edges” in tariffs and regulation that the group believes are already clouding investment decisions.

Martin earlier made public his view that demands from institutions such as the Financial Conduct Authority over the need for certainty on Brexit arrangements increase pressure on the UK government to agree to a deal on unfavorable terms.

The UK economy can thrive even if no trade deal is reached with the EU, he said. Bloomberg

India’s annual retail inflation eased in June to its slowest pace in more than five years, as food prices fell, building pressure on the central bank to cut interest rate when it meets for a monetary policy review on Aug 2.

The consumer price index rose 1.54 per cent in the 12 months through June, down from an increase of 2.18 per cent in the previous month and slower than the forecast of economists in a Reuters poll, data released by the Ministry of Statistics showed on Wednesday.

Economists in a Reuters poll had predicted inflation to ease to 1.7 per cent last month.

This is the lowest inflation rate since India started releasing retail inflation data in January 2012 based on a combined CPI index for rural and urban consumers.

Elsewhere in Asia, China’s annual consumer prices remained subdued at 1.5 per cent in June.

With headline inflation remaining below the Reserve Bank of India’s mid-term target of 4 per cent for the past eight months, industry participants and the government have sought a cut in interest rates to support economic expansion. Reuters