Economic co-operation with Mainland to be enhanced CEPA Page 2
Monday, July 17 2017 Year VI Nr. 1340 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Real estate
Mainland property investment slows down Page 9
Forex
Currency reserves increasing Page 2
Tourist price index
www.macaubusinessdaily.com
Operators
Local hotels and restaurants more expensive Page 2
Stimuli
Genting to build first Las Vegas casino in a decade Page 8
Chinese fiscal spending jumps in June Page 10
Fair appeal Ho Chio Meng verdict
Former Prosecutor-general Ho Chio Meng has been sentenced to 21 years behind bars. However, lawyers consulted by Business Daily highlight that the fact that he cannot appeal the verdict might be unfair. Legal circumstances are causing him to be imprisoned without the right to a review. Page 3
Speeding up protection
An almost-yes to smoking law
World Heritage The head of the Cultural Affairs Bureau committed to submit the Protection Management Plan to the World Heritage Committee by the end of next year, after local authorities attended a recent UNESCO meeting where some concerns were raised regarding the impact of development on protected monuments. Page 4
Legislators gave a green light to the Tobacco Prevention and Control Law on Friday. However, the vote regarding smoking zones in casinos was postponed, as legislators are still debating the options.
A step towards sustainability
Green houses Edmund Lei, Director General of China Green Building and Energy Saving (Macau) Association, discusses the situation of the implementation of green standards in the MSAR, and claims the city is gaining momentum towards environmental awareness and sustainability. Pages 6 & 7
PBOC beyond monetary policy Legislation Page 5
HK Hang Seng Index July 14, 2017
26,389.23 +43.06 (+0.16%) Worst Performers
China Overseas Land &
+6.95%
China Unicom Hong Kong
+1.09%
AAC Technologies Holdings
-2.01%
BOC Hong Kong Holdings
-0.54%
China Resources Land Ltd
+3.54%
PetroChina Co Ltd
+1.04%
Galaxy Entertainment Group
-1.16%
China Resources Power
-0.52%
China Mengniu Dairy Co Ltd
+2.87%
Link REIT
+0.83%
AIA Group Ltd
-1.02%
Power Assets Holdings Ltd
-0.51%
Kunlun Energy Co Ltd
+2.06%
China Shenhua Energy Co
+0.79%
Hengan International Group
-0.92%
Geely Automobile Holdings
-0.43%
Sino Land Co Ltd
+0.77%
CITIC Ltd
-0.67%
China Life Insurance Co Ltd
-0.40%
Ping An Insurance Group Co
+1.78%
25° 28° 26° 29° 26° 29° 26° 29° 27° 31° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Watchdog Chinese President Xi Jinping said the central bank will play a stronger role in defending against risks, calling for more work in safeguarding the financial system and modernizing its regulatory framework. Page 9
2 Business Daily Monday, July 17 2017
Macau Tourism
Hotel rooms and restaurants more expensive in Q2
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eversing the recent trend, the Tourist Price Index for the second quarter of the year increased 0.92 per cent year-onyear, largely due to increases in pricing for accommodation and restaurant services, according to the most recent data from the Statistics and Census Service (DSEC). The accommodation segment of the index saw a 9.21 percentage point increase year-on-year in the quarter, coming off of a 14.39 percentage point year-on-year drop in the first quarter. The restaurant services sector saw a 5.99 percentage point increase year-on-year in the quarter as well. However, overall the indexes for accommodation and transport and communications fell due to lower room rates and drops in airfares in the wake of the Lunar New Year holidays. Rising prices in food, alcoholic beverages and tobacco, whose index increased 3.49 percentage points year-on-year and 1.51 percentage points from the previous quarter, coincided with an increase
in accommodation and restaurant service pricing, coupled with a slight increase in the index for entertainment and cultural activities, which only increased 0.58 percentage points year-on-year in the quarter. In the first half of the year, the
Tourist Price Index underwent a 2.4 percentage point drop year-onyear, while over the four quarters ended June 30, the index fell 3.22 percentage points, with notable decreases in the cost of transport and communications and accommodation, according to the data.
Increased prices for handbags and the arrival of summer clothing drove up the price index of clothing and footwear by 3.65 percentage points quarter-to-quarter, despite the index still undergoing a 10.43 percentage point decrease yearon-year in the quarter. K.W.
Interpellation
DSF: Gov’t not publishing Chinese text of current Procurement Law Trade
DSE seeks feedback on CEPA upgrade The Macau Economic Services (DSE) has met with over 60 chambers of commerce and associations to collect opinions about the upgrade of the zero-tariff Closer Economic Partnership Agreement (CEPA). The MSAR Government and the Chinese Ministry of Commerce have already initiated works to “update” the CEPA agreement, which came into effect in 2004. The new agreement on the works will focus on economic and technical co-operation and on investment
protection, while prioritising the role of Macau in the One Belt, One Road policy as a gateway to Portuguese-speaking countries. As such, DSE paid visits to the Macao Chamber of Commerce and Industrial Association of Macau, as well as holding two industry advisory symposiums earlier this month to collect views and opinions. According to DSE, as of June 2017, the total value of exports under the CEPA agreement had reached MOP808.25 million (US$100.55 million).
Forex
City’s forex reserves increased 4.3 pct m-o-m in June The MSAR’s foreign exchange reserves amounted to MOP159.2 billion (US$19.80 billion) at the end of June, up 4.3 per cent month-on-month, according to the preliminary estimation made by the Monetary Authority of Macao (AMCM). The foreign exchange reserves in June represented 11 times the currency in circulation, or 91.8 per cent of pataca M2 at the end of May.
The pataca trade-weighted effective exchange rate index, according to AMCM data, dropped 1.17 points when compared to May, but the rate increased by 0.99 points year-onyear, to 106.5 in June. This suggests the exchange rate of the pataca weakened against the currencies of Macau’s major trading partners on a monthly basis, but grew on an annual basis.
The government has decided to revise the Procurement Law in one way through the adoption of a legal approach, and the Chinese text of the current decree will not be published in the current stage, the Financial Services Bureau (DSF) stated in response to legislator Chan Meng Kam’s interpellation. According to the legislator, the Procurement Law was implemented by the former Portuguese government and has been in use for over 30 years, with the absence of an official Chinese translation of the decrees. Initially, the Bureau previously stated that the government will revise the law in two stages with both administrative and legal approaches, but it was later advised by the legal department to address the revision in just the legal approach. The Bureau indicated that the
revision procedures are accelerating and the bill with both Chinese and Portuguese translations will be released on a yet-to-be-determined day for deliberation at the Legislative Assembly. Regarding the schedule, DSF is striving to carry out internal consultation in September and public consultation within the first quarter of next year, in order to proceed to the legislative procedure by the third quarter of 2018. Meanwhile, the Bureau replied to the legislator that currently there is no intention to revise the unofficial Chinese text of the decree at the Government Printing Bureau, stating that the translations do not present significant misunderstandings and issues. DSF pledged to pay attention to the quality of translations in future revisions.
Business Daily Monday, July 17 2017 3
Macau Ho Chio Meng Trial
Lawyers: No appeal is unfair With a similar situation occurring in the case of the former Secretary of Transport and Public Works over ten years ago, lawyers suggest the law should have been amended Cecilia U cecilia.u@macaubusinessdaily.com
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awyers have suggested that the current law that prevents appeals for trials involving high officials is unfair. Pronounced at the High Court on Friday, the city’s former Prosecutor-general, Ho Chio Meng, has been sentenced to 21 years in prison, after being found guilty on over 1,000 charges of illegal activities. The 62-year-old has demanded an appeal. But according to the organisational judiciary law, as explained by lawyer Chang San Chi, cases involving individuals in special positions, including the Chief Executive, Secretaries and other major officials, are heard at the Court of Final Appeal in the first instance, leaving no possibility of an appeal. A similar situation also happened in case of the former Secretary of Transport and Public Works, Ao Man Long over ten years ago. “For sometime that law should have been amended, as high officials cannot see their rights (including the right to appeal) restricted for that reason,” commented lawyer Pedro Cortés. A similar opinion is also held by lawyer Pedro Leal, who was also the defending lawyer of one of the nine other defendants in Ho’s case. He believes it is unfair that the law prevents high officials from enjoying basic rights that should be enjoyed by everyone. “The criminal law allows everyone to appeal,” said Mr Leal. “Even in a simple case of a traffic fine, people can appeal, and Mr. Ho Chio Meng cannot appeal because there is no a higher court beyond the Top Court.” In his opinion, Mr Leal believes that the trial of the ex-official should have been heard at the Court of Second Instance, and then it could have proceeded to the Final Court if an appeal were made. He also pointed out the sentence from the Top Court would “highly affect” the decision that is to be made at the Court of First Instance, where the other nine defendants of the case had their trials heard. “The other defendants are not the
Ho Chio Meng
Ho Chio Meng was born in Macau in 1955. He embarked upon his career as a public servant in 1983 as an assistant judge. He later served the then-Portuguese Government as a co-ordinator of the High Commission Against Corruption and Administrative Illegality, which was the forerunner of the Commission Against Corruption. In 1995, Ho was promoted to Deputy High Commissioner of the then anti-graft body and appointed several times as the acting leader of the department. In 1999, nominated by the city’s first Chief Executive, Edmund Ho Hau Wah, Ho was appointed the first Prosecutor-general of the Macao Special Administrative
defendants at the Top Court, but they are being referred to the decisions made [at the Top Court],” pointed out Leal. “[The defendants] could not have the opportunity to defend themselves at the Top Court.” Even if the defendants appealled and made it all the way to the Final Court, said Leal, “they will be judged by the same judges who made the decisions for Ho Chio Meng.” Ho’s lawyer, Oriana Pun told the press after the sentencing that further actions can only be determined after they have studied the judgement. “It is in accordance with the law that the Final Court of Appeal rules the case in the first instance,” said Pun. “But from our perspective, the ruling is not the final one until an appeal has been made.” She further explained that it is a basic right to appeal, as stated in the Basic Law as well as in the United Nation’s Human Rights Council. When asked if an appeal is impossible, Pun said they would seek out any possible mechanisms to assist Ho if he so requests. Regarding the prison sentence of 21 years, Pun expressed that the team was disappointed with the convictions. “It is another problem for the terms of imprisonment. We insist that some of the facts do not have strong support over the majority of charges,” said the lawyer.
The convictions
The charges against the ex-official included the crimes of embezzling public funds for sharing economic interests, huge and ordinary fraud, aggravated money laundering, and initiation and leading of criminal syndicates. The 62-year-old was originally charged with a total of 1,970 offences, but this number was later reduced to 1,536 with some of the charges being combined. Ho was arrested in February last year and his trial began last December. Representing the Court Panel, presiding judge Song Man Lei stated that the Court had ruled that the majority of charges in the indictments were true, saying that “the case is very serious and rare”. The Panel criticised the ex-official for knowingly breaking the law, and as such decided
Region. He led the Prosecutor’s Office until December 2014, when the incumbent CE Fernando Chui Sai On enacted a major reshuffle of his cabinet for his second term. Ho was once tipped as a possible challenger to incumbent Chief Executive Fernando Chui Sai On before Chui sought re-election in 2014. However, after stepping down from the Prosecutor’s Office, Ho did not leave the government. In February of 2015, the then 61-year old was appointed as co-ordinator of the Committee on Criminal and Legal Studies, with a tenure of two years. According to the Official Gazette, the Committee is under the supervision of incumbent Prosecutor-general Ip Son Sang.
to favour imprisonment over a fine. Moreover, the Top Court also ruled that Ho will have to compensate the Prosecution Office (MP) by paying a total of MOP75.92 million. According to the ruling, Ho himself needs to pay compensation of MOP18.37 million, while MOP43.23 million is to be paid together with another defendant of the case Wang Xiandi, and a further MOP3.32 million with other defendants including his older brother (Ho Chio Shun), brother-in-law (Lei Kuan Pun), Wong Kuok Wai and Mak Im Tai for the operation of a criminal group. Moreover, the ex-official will also need to further compensate the MP by paying another amount of MOP49.90 million, together with Antonio Lai Kin Ian and Chan Ka Fai who were also defendants in the case. The amounts that are to be paid together with the other defendants will be confirmed after their sentences are pronounced next month at the Court of First Appeal. In addition to the compensation that needs to be paid, another HK$1.18 million of illegal gains and assets of MOP12.10 million, which Ho and his wife Chao Sio Fu did not declare, will all be confiscated by the administration. “I will appeal [...] never [have I] received any [illegal] money [...] it is injustice!” howled the ex-official, while he was being pulled away by
officers after Judge Song pronounced the sentence. Meanwhile, Ho’s sister Lucia Ho, who came from Hong Kong to attend her younger brother’s sentencing, said she was appalled by the ruling. “God is watching what you are doing!” Ms. Ho stated when she came out of the Court. “The last judgement is made by God.” Ms. Ho said that the sentencing was unfair, given the weakness of the evidence presented and the arguments made by the defendant’s team. “I read the news and I can’t find one piece of evidence that proves he [Ho Chio Meng] obtained benefits from corruption,” remarked Ms. Ho, while saying that they would appeal to the central government if an appeal is possible.
“Sunshine is the best disinfectant”
After the Court’s ruling, the MP released a statement indicating that the MP would respect the Top Court’s fair judgement, while stating that “Sunshine is the best disinfectant”. The prosecution of the former MP head, stated the MP, was a duty that the MP had to carry out legally and objectively, with everyone being equal before the law. The MP pledged to continue to enhance internal management and strictly adhere to its duties as specified by the Basic Law.
4 Business Daily Monday, July 17 2017
Macau Opinion
Sheyla Zandonai* Connecting dots Chances are the Hong KongZhuhai-Macau Bridge will be completed and operational this year, in spite of safety claims regarding the concrete that has been used in parts of the superstructure. On the west side of the Delta, construction on the artificial island that will connect the bridge to Macau is progressing steadily, so that the checkpoint can be opened when the bridge opens. Most likely, the super bridge will create a new influx of visitors to Macau, in addition to the regular hordes. But mind that the only structure connecting the island to the city proper is a tiny bridge that links the new landfill to the peninsula, up north. Now, that might be problematic. It is well known that the Gongbei checkpoint – and by extension, the peninsula – is saturated. Not only does it receive the largest influx of tourists from the Mainland, but large numbers of workers also cross it on a daily basis. I have to agree that the Light Rail Transit (LRT) does make sense in that regard. But then it too is complicated. Yet, money is but lacking, and technology and experience are out there to assist in the task. Subject to public consultation, several problems were raised in regards to the LRT track. In truth, nobody wants a train passing by their window. But some things have to be done, regardless. At some point, the project posed a problem to the Border Gate monument. The authorities considered removing it – yes, as in physically changing places – and assigning it to another site in the city – an apparently surreal proposition which is foreseen by the Cultural Heritage Protection law (Saint Paul’s, watch out!). It is actually quite amazing that removing heritage property around the city, leaving free space to private developers, has not yet been done. In any case, dropping the LRT plan for the peninsula would make sense if there were already a connection between the artificial island and Cotai, given it is likely that the majority of visitors will come to gamble after all. And so the fourth bridge makes more sense, except that it is not out there yet, and it might take a long time to materialize – think the Pac-On ferry terminal, the LRT itself, the new hospital, the recycled water plant. Channelled to Cotai, visitors who would rather not wander around casino venues could always reach the peninsula by hopping on a shuttle bus, public transport, or cab. Maybe one day, they will even be able cross back and forth on a boat! *Journalist.
Heritage affairs
Sticking to the deadline and its recommendations The President of the Cultural Affairs Bureau, Leung Hio Ming, has pledged to submit the Protection Management Plan to UNESCO’s World Heritage Committee by December 2018, with or without a Master Plan for the MSAR in hand Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he President of the Cultural Affairs Bureau (IC), Leung Hio Ming, claimed that the bureau is committed to submitting two heritage-related plans to the World Heritage Committee (WHC) by December 1, 2018. “We promise that before the end of next year, we will deliver the Protection Management Plan [PMP] as well as the report on the state of heritage conservation in Macau to UNESCO,” the President stressed. Leung was speaking during a press conference organized by the IC to discuss details about Macau’s participation in the 41st session of the WHC, held in Krakow, Poland from July 2 to 12. During the WHC session, the draft report the Committee had published on May 22, in which it raised ‘serious’ concerns about the state of heritage conservation in the Macau SAR, was adopted without discussion. The acting head of the Division for Research and Planning of the cultural bureau, Sou Kin Meng, clarified that Macau’s case was considered during sub-session “B,” which he explained engages and rules on World Heritage sites of which the “situation is less serious.” On the list of remarks previously issued and subsequently adopted by WHC, the main concerns
include future construction work in the new urban zones – mainly in Zone B – and height restrictions for construction projects planned for Fisherman’s Wharf, namely, Macau Legend Development’s project for Hotel Legendale. Wong Iat Cheong, acting head of the Department of Cultural Heritage, added that the WHC is also expecting to receive details about the city’s Master Plan from MSAR authorities. He further explained that: “the Committee has not defined a fixed date for the delivery of projects for the Master Plan and the new urban zones,” but added that announcements on the Master Plan for Macau might yet take “another three to five years” to materialize.
Protection Management Plan
According to details provided by the IC President, preparation work for the Protection Management Plan (PMP) started in 2013, followed by a public consultation in 2014, which culminated in the ‘Framework for the Safeguard and Management Plan of Macau’s Historic Centre.’ Those steps were developed in view of the celebration of the 10th anniversary of the inscription of the Historic Centre of Macau as World Heritage in 2015, and precisely to function as the basis for the PMP, which WHC initially requested be submitted by February 1, 2015. Leung explained that delays have followed because the cultural bureau
“only concluded its report in July 2015, causing IC to miss [the WHC] deadline.” Leung further acknowledged that there was a “failure or lapse” on the part of the bureau “in not having completed the report in 2015.” While claiming they should improve their “working process,” he insisted the IC “is not holding back on efforts and work” to meet the deadlines and demands at its end.
The other end
According to Wong, Macau’s economic development requires the IC to pay close attention to urban planning matters. In some cases, as the city’s recent history shows, this has created pressure on heritage management and safeguarding, at times putting the IC and the Land, Public Works, and Transport Bureau (DSSOPT) at odds. Arguably, the most contentious case to date concerns a series of construction projects in the surrounding area of Guia hill, harking back to 2006, that had been approved under the previous Chief Executive, Edmund Ho Hau Wah. The plans for the construction of Hotel Legendale at Fisherman’s Wharf – of which the initial height proposed by the company, Macau Legend, is set at 90 metres – raises a similar problem. The President of the cultural bureau explained that the IC has already communicated its opinion to the DSSOPT on the matter, and reiterated its previous recommendation of keeping a 60-metre cap for the area. Addressing the question, the acting head of the Department of Cultural Heritage, claimed that because the “urban planning committee has not yet announced a decision in regards to the height limits [for the area], the bureau cannot talk about it.” According to the Cultural Heritage Preservation Law – finalized in 2013 and enacted in early 2014 – when construction work of considerable dimension risks jeopardizing the preservation of heritage sites, the IC should be consulted and its opinions and recommendations are binding (article 44). The principle also applies to the development of urban plans, stating that such plans, ‘regardless of their nature, should comply with the dispositions of the current law in regards to the safeguarding of heritage,’ the law reads (article 43).
Politics
MOU inked to enhance co-operation on aviation management In line with advancing the Greater Bay Area project, on Thursday, the aeronautical authorities of the Mainland, Hong Kong and Macau signed a memorandum of understanding (MOU) for co-operation between the three regions to strengthen the efficiency of Air Traffic Management. The agreement involves the establishment of a routine coordination mechanism for managing the volume of air traffic, a contingency plan for coordination in managing the volume of air traffic, and the enhancement of automation procedures in order to meet the flight clearance needs of the airports of Hong Kong and Macau. In addition, the three parties have agreed to construct a shared database to support research studies and planning work relating to increasing air space operations in the Guangdong-Hong Kong-Macau Greater
Bay Area. The MOU was signed by Chan Weng Hong, the president of the Civil Aviation Authority of Macau SAR, Che JinJun, the director-general of the Air
Traffic Management Bureau of the Civil Aviation Administration of China, and Simon Li, the director-general of the Civil Aviation Department of Hong Kong SAR.
Business Daily Monday, July 17 2017 5
Macau
Tobacco law
Waiting game Legislators discussed and passed the majority of alterations to the smoking law, leaving deliberations on smoking rooms in casinos for a later vote Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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egislators on Friday voted on the Tobacco Prevention and Control Law, approving the majority of the alterations to the law, but setting aside the vote on the articles involving smoking rooms inside casinos. As yet, the date has not been fixed for the next vote, however the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, during the Legislative Assembly plenary session which lasted five hours, expressed that: “today I am very happy that the majority of society supports the government’s work on the rules of the tobacco control”. The main debate among legislators, the majority of whom appear to support the implementation of smoking rooms inside the casinos, was as to whether to only designate outdoor, open-air areas as smoking zones, instead of creating smoking rooms inside the casinos. Primary arguments against smoking rooms involved the health of the casino workers, while those for such arrangements involved the city’s economic development. Secretary Tam, in response to legislator enquiries, pointed out that the MSAR is part of the World Health Organization’s Framework Convention on Tobacco Control, but that other member-countries which are also gaming jurisdictions, don’t have rules and measures in place as comprehensive as those currently in place in the MSAR. Secretary Tam, noting that opposing views existed, stated that: “we are in the middle. But we will work to present the best project for everyone”. Particular examples given by the Secretary of other jurisdictions with less-stringent rules included South Korea, the U.S., Australia and Singapore, for which measures such as the negative-pressure requirement currently applying to local smoking rooms in Macau, have yet to be applied. “Macau is doing it even better [than other gaming jurisdiction members]. We investigated all the casinos outside of Macau and saw their measures, and everyone should know we’re doing a good job in controlling,” stated the Secretary, noting that “the government is doing this progressively, our final objective is that in all enclosed spaces in Macau, smoking is prohibited”. Regarding a study on the acceptance of smoking by gaming employees, commissioned by the government and conducted by the University of Macau, the Secretary noted that: “over 14,000 [gaming] workers were consulted and, of those, 44 percent
agreed with creating smoking rooms in casinos. Eleven percent agreed to maintain the current rules. That is 55 percent of the workers who accept and support the creation of smoking rooms. After going over this material, the government made the necessary adjustments,” to the smoking law proposal voted on Thursday.
What about us?
A proposal by legislator Zheng Anting for smoking rooms to also be set up in the rest areas of casino employees sparked open laughter in the plenary session, however was supported by legislator, and managing director of local gaming group Sociedade de Jogos de Macau (SJM), Angela Leong On Kei. “[Macau has] tens of thousands of [gaming] workers, and how many smoke? If you want smokers to not smoke, prohibit smoking in Macau, no sale of tobacco in Macau once and for all,” opined the legislator, stating that gaming workers, once on the premises, were not allowed to go outside. “There are many casino workers now listening to our plenary – I will tell them that it was Secretary Alexis Tam that didn’t want this to happen, that said it’s not possible,” stated legislator Leong. “[Legislators] Angela Leong and Zheng Anting referred to creating smoking rooms in casino worker rest areas. We [the government] don’t agree,” reposted the Secretary. “Because currently, only the casinos can have smoking rooms, the other enclosed indoor locations - including restaurants, bars, saunas – in all of these locations it’s prohibited to smoke. Therefore we do not support that the workers in the casinos have a smoking room in their rest area,” stated the Secretary. The only other two spaces in which smoking would be allowed in the territory, exist because they are enclosed spaces from which visitors are not allowed to freely go outside: the airport and the prisons, but even smoking in prison will only be allowed in outdoor spaces, according to the law alterations. “According to our proposal, the prisons can have an internal norm, which permits those on the premises to smoke in open spaces – so they have the right to smoke, but this would be regulated by an internal mandate of the prison facility itself,” noted the Secretary. “Macau is not a pioneer in this area, we only apply the measures in which other countries have experience and are doing a good job,” stated Secretary Tam.
Consultation?
Pan-democrat Au Kam San questioned whether the six gaming
operators in the MSAR had been consulted as to the measures to be implemented, and also whether the regular review, to be conducted every three-years to evaluate the effects of the measures going into place, was readily accepted by the operators, given the potential need to continually update facilities. “In the future, when the next step is made, the operators will have to invest even more. Did the government listen to the operators?” questioned the legislator. “ Will they be able to maintain their current rooms, or is it that the government is trying to satisfy the needs of the operators to assuage these needs?” demanded the legislator. “Is it that this has to be so repetitive? Where did this political decision come from, what were the fundamentals to take this step?” asked the legislator.
Assuring that the government had consulted with gaming operators, both locally and abroad, as well as conducting public consultations, the Secretary noted that “we’ve always been open to hearing the opinions of everyone. If in the future, there are alterations, should this be for smoking rooms, it would have to have the support of the workers as well as the concessionaires, and the concessionaires have to provide statistics on the specifics of the smoking rooms”. The president of the Legislative Assembly, Ho Iat Seng, reminded legislators at the beginning of the session that if any alterations to the current law were not approved (or approved to be revoked), unless mandated to be later voted on individually – as is the case of the smoking rooms in casinos – the current law would remain in place. “If our law proposal isn’t passed, the VIP rooms will continue to be affected by passive smoking,” stated the Secretary, a position echoed by a large number of legislators. advertisement
6 Business Daily Monday, July 17 2017
Macau Interview | Sustainability
Green is a verb A handful of local public and private projects have already complied with green standards, ranging from water and material saving to energy efficient systems, says Edmund Lei, Director General of China Green Building and Energy Saving (Macau) Association. Lei talks to Business Daily about China’s leading role in environmental issues and its ambitious green goals for the next few years, claiming Macau is gaining momentum to be more environmentally and sustainability conscious
ou are the Macau chapter of the China Green Building Association. When was the association founded and what do you do? The formation of the association was in early 2014, registered in the Official Gazette at the end of 2014, with the formalization of the technical specifications of China Green Building [CGB] assessment standards for Macau. We are the portal or platform for the Macau developers and property owners who are interested in getting the CGB label. We assist them and facilitate the evaluation, also helping them to get the assessment panel to review the applications for the Green Building label.
environmental quality and operation control. Of course, the first four refer, in green buildings, to saving, be it energy, land, or water. These six technical aspects are similar to other certification systems in the world, such as the U.S. GBC [Green Building Council], or Singapore’s Green Mark, because all those labels have the same goals, which is achieving green building [sustainability]. These are key elements used worldwide. In CGB assessment standards, we are focusing on the Greater China region, because these were developed specifically for China, as the U.S. GBC would be rather based on U.S. conditions. So in different systems, they have different focuses. And CGB assessment standards are more tailored to suit the Chinese market and also the Macau and Hong Kong SARs.
What do the technical specifications or standards under the label comprise? There are six technical aspects in the CGB assessment standard: land, water, material, energy, indoor
What conditions would be specific to China? For China, the number one aspect would be water efficiency, because water resources are really scarce and limited in China. In the green building
Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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assessment standards, they are focusing on using reclaimed water, recycled or rainwater for building usage to minimize the impact on underground water and the ways it affects the environment. Here, we are talking about technical requirements based on national standards. China is the first country to use national standards on green buildings. The U.S. GBC is a voluntary professional specification, in Singapore, it is legislation, you must do it. But for other countries, in Europe, in Asia, even in Japan, it is a voluntary specification. In mainland China, it is a policy driven national standard, because they have set a target that, before 2030, at least 20 per cent of the buildings will be green buildings. From 2009 until 2014, each year, the quantity of new buildings [erected] in mainland China equaled the number of [existing] buildings in Canada. That means that each year the quantity of new buildings in China was equal to building up a new Canada. Nowadays in the Mainland, all the public buildings have to comply with
a minimum one-star [CGB] rating. It is a requirement. But a lot of private developers are already doing this on a voluntary basis. So the big players have already committed themselves that all the buildings [they] build will at least meet the one-star rating. What is the priority in Macau? Have some of the standards been implemented here? Let me go back to the assessment standards. There are three gradings for the green building assessment, one star, two stars, and three stars, with the three-star being the highest ranking. If you want to achieve the highest scores, you have first to do something for water, such as using a rainwater recycling system. Unfortunately, the government, even though they had a plan to build a reclaimed water plant, mentioned that this might not be a priority during this administration, so it hasn’t been done yet. If we have that, then we could use the government-provided reclaimed water to fulfil the assessment standard objective to be water efficient. The plan has not been dropped, but slowed down a little bit. Water is a critical resource. What about land? In that regard, reclaimed land is not encouraged as well, because it damages the water body. All elements are equally important. I am just saying water usage efficiency is one of the significant items. The principle here is mainly resource conservation water, land, energy - and also building materials, such as sand, stone, wood. So, green building is about the familiar and localization, the building being in harmonization with the environment. So resource conservation is the first priority of CGB. In a building, land, water, energy and materials are the first four technical aspects to consider. Another thing is that energy efficiency is equally important in regards to water. In the standards, they promote the use of energy through the reclaimed system to reduce energy consumption on the electricity system, like the air conditioning system. So, it is not only one single aspect, all are equally important. Just earlier I mentioned that for land we encourage the use of brownfields, which are previously maybe contaminated sites, to be treated and to build new developments on. What about existing buildings, are they following suit by adapting their structures to green building standards? For the time being, most of them are new buildings. Like I just mentioned, there has been a lot of new construction and new developments in China in the last ten years. For all the new buildings, it is easier to achieve the intent of being more sustainable. For the existing buildings, nowadays, there are more projects to bring them to comply with the green building assessment standards in order. Because another thing about the renovation of existing buildings to comply with the green standards, is material and land conservation. Structurally, those buildings are saved to re-use, so they hope to modernize them, and create new spaces for the general public to use them. This is another new direction of the CGB committee, which wants to promote the use of existing buildings as well, not only the new developments.
Edmund Lei, Director General of China Green Building and Energy Saving (Macau)
Which properties have implemented the standards in Macau? There are four certified projects under the CGB label in Macau now. The first one is the Student Activities Centre at the University of Macau, which is a three-star design label, MGM
Business Daily Monday, July 17 2017 7
Macau
Cotai, a two-star design label, the Macau Science Centre, also a threestar green building label, and a residential building near A-Ma temple. These are interesting projects because they have already been designed and built up operations for several years [as green buildings]. The University of Macau was the first one. MGM Cotai is the first in Macau and China as a multifunctional complex, combining hotel and gaming, to apply for a green building label. As we all know, gaming facilities are not allowed in China. Hong Kong does not have such types of properties either. So, how to measure the level of energy saving or water saving and land usage when there is no previous case? Even in the U.S., it is not very common for this type of property to get the green building label. In a way, this showcases that in Macau, public buildings, as well as bigger players, are committed to sustainability. MGM Cotai is an example, while other facilities such as hotels and mega-size resorts, have also expressed their interest in applying for the standards. So there are other properties interested in getting the label? So far, we see more interest from the mega-size resorts, due to the nature of the business. Because they are major energy consumers in Macau, they have lots of motivation and push to becoming sustainable. Each dollar saved in electricity converts into each dollar they paid [in construction]. But at the same time, we see more architects, designers, and engineers interested in being sustainable, because this is a worldwide trend, regardless of what happens in the U.S., China has already committed itself to reducing its carbon footprint emissions. In Macau, we are already starting to gain momentum to be environmentally conscious and sustainability conscious. So, we hope to provide the platform for developers to apply for the green building label (GBL), to demonstrate the level of ‘greenness’ they can achieve. This is our association’s role, to promote that, to serve different property owners and developers, to educate, hopefully, to get all Macau citizens and residents involved. We also hope the residential buildings and property developers devote themselves to being green. How do you promote the label and the standards? Right now, we are doing seminars and courses to introduce the standards and the requirements for sustainability to professionals such as architects and engineers. We have, for instance, organized a presentation for the Macau Architects Association. Yet, most of the information available is still in Chinese. It is rare to find materials in English. But given that some property owners are also interested, we are also conducting
courses to help them understand how to be green, as well as the green building label requirements, and how to achieve them. So that if they are interested, they can apply for the assessment to evaluate their properties. Do you feel that there is resistance on the part of the private sector to implement the green standards, because they think it might be expensive or that it would add extra costs to the construction or the renovation of properties? Yes, this is one of the concerns, even in China as well. During the application process, we also need to understand how much additional cost will be put into building a green building. Based on the statistics of mainland China, to comply with the one-star rating, the overall construction cost is increased by 25 per cent, so it is not that costly, because afterwards they will be saving costs, by consuming less electricity, for instance. So, in the long-run, actually, there is more saving. People may not be aware of the long-term savings. Overall, during the building lifecycle, nearly 70 per cent of the energy is consumed during the operation period. The construction period is only maybe two to three years or so, while the energy consumption, and the cost to improve the system efficiency and to save water, that is, the upfront cost is less significant than the overall operation cost. How is the government encouraging the initiative? The government has applied some measures to be sustainable, defining guidelines to promote energy-saving buildings, such as using LED lights, as well as in building design, to save energy using different types of materials. The marine bureau [DSAMA] is also promoting water saving, while the environmental department has issued a series of guidelines to the hotel industry, and the F&B [Food and beverage] segment. The environmental department has also sent us an invitation for consultation on legislation and some kinds of practices, like noise control, and it has initiated a green consultation paper and review on noise, dust, and practices on green construction. We have made ourselves available to the government. If they need our help or expertise, we will do our best to participate, and also offer our technical advice. So, we are seeing the government is doing different things, bit by bit, but we hope to offer our expertise to further promote sustainability in Macau. In the five-year development plan, published by the government, they also mentioned the intention to build a healthy city, a green city, a liveable city, and also a smart city. This is all related to the citizens’ well-being, and sustainability is one of the things to contribute
to Macau residents’ [well-being]. How does the application process for the CGB label work? The association itself does not provide consultation to private parties, it only acts as a platform for the certification process. We receive many enquiries from the government and property owners. Our general practice within the association is to refer them to green building consultants or introduce our green building consultants to architects so that they can work together. This is a self-evaluation process. The aim to achieve one, two, or three stars is based on the developer’s choice. So, once they prepare the application, they submit it to our association, and we formalize
a review panel to study the application. This review panel will consist of experts from the CGB council, and also local experts, that will review the application in terms of the six key elements, because we have different experts, as I said earlier, and different experts specialize in certain trades or aspects. In all, the evaluation process takes less than three months. The panel has seven members. After the evaluation, the applicant will have a chance to present the case to the review panel, to further explain or introduce the specialities in green design for the applied project. After that, if everybody agrees, the property will be entitled to the CGB label, to whichever grading they have applied for. advertisement
8 Business Daily Monday, July 17 2017
Gaming Expansion
Las Vegas, New York casinos fuel Asian gambling’s U.S. push Genting’s U.S. expansion plans come at a time of uncertainty for its casinos closer to home Bruce Einhorn, Christopher Palmeri and Sterling Wong
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as Vegas will be getting its first new casino on the Strip in a decade. And the only casino currently operating in New York City, at the Aqueduct Racetrack in Queens, is being upgraded to include a 400-room hotel with a celebrity-chef restaurant. They’re both part of the huge U.S. expansion plans of the Genting Group, a Malaysian conglomerate that’s seeking to move beyond its Asian roots -- not just in New York and Las Vegas, but in Miami and suburban Massachusetts as well. Genting announced Thursday it was breaking ground on the US$400 million project near New York’s John F. Kennedy International Airport. Genting’s affiliate, Empire Resorts Inc., also plans to open a US$1.2 billion casino resort in the Catskill mountains outside New York City early next year. “We want to diversify the portfolio, spread out the risk and be able to leverage international travel by having the right assets in the right cities,” said Edward Farrell, president of Genting Americas. The centrepiece of Genting’s U.S. expansion is the 3,000-room Resorts World Las Vegas, scheduled to open in 2020 on the northern end of the Las Vegas Strip. Construction on the US$4 billion project just recently started, Farrell said. Genting, which also owns the Star Cruises and Crystal Cruises lines, bought the property in early 2013 and said it spent the intervening years working on the design. The Strip hasn’t seen a major hotel open since 2009, and Genting’s timing could position it well, according to Brent Pirosch, director of gaming consulting at real estate brokerage CBRE Group Inc. in Las Vegas. The city is expanding its convention centre and preparing to build a US$1.7 billion stadium for the National Football League’s Raiders, who will be moving from Oakland.
Big proceeds
Genting’s Resorts World New York City generates plenty of proceeds. Last year it had gaming revenue of US$826.5 million, according to Bloomberg Intelligence, 13 per cent more than Atlantic City’s biggest casino, MGM Resorts International’s
Borgata Hotel Casino & Spa, and 26 per cent more than the casino revenue of Wynn Resorts Ltd.’s flagship Las Vegas property. Resorts World pays 70 per cent of the casino’s gross to New York State, according to the company, or a total of more than US$1.9 billion to New York’s Lottery Education Fund since opening in 2011. The casino offers electronic slots and other games but isn’t allowed to have live table games.
“We want to diversify the portfolio, spread out the risk and be able to leverage international travel by having the right assets in the right cities” Edward Farrell, president of Genting Americas Like other casino operators, Genting is trying to develop properties in densely populated areas and sees its frequent-player program ultimately sending players to the new Las Vegas resort, said Michael Pollock, managing director of Spectrum Gaming Group, a New Jersey-based consulting firm that has done work for the company.
“You encourage your higher spending, most profitable customers to stick with you,” Pollock said. “People in Queens will play more often if they can earn points redeemed in Las Vegas.” Resorts World Catskills is the next leg in that effort. The property will feature 2,150 slot machines and 130 table games in a 100,000-square-foot casino after its scheduled opening in March. It will include a hotel with 332 suites, an entertainment venue with 2,000 seats, as well as bars, restaurants, pools and a spa. Genting’s other U.S. projects face some daunting hurdles. A US$1 billion project with the Mashpee Wampanoag tribe for a resort with three hotels and a casino, about 60 kilometres south of Boston, is being delayed by a legal challenge. Genting has invested US$347.4 million in promissory notes issued by the tribe, the company said in a filing with the Malaysian stock exchange on July 7, noting that recovery depends on the case’s resolution. A plan for a casino at the site of the former Miami Herald building, which Genting purchased for US$236 million in 2011, is also in limbo, with state lawmakers balking at proposals to expand gaming in the city. Farrell said there’s little reason to expect the company will be able to move ahead. The downtown Miami site has attracted interest from would-be buyers, according to Farrell, but the company isn’t ready to sell yet. “We have had several opportunities to sell that we have not accepted,”
he said. “We are going to hold on to our property and see what happens.” Genting’s U.S. expansion plans come at a time of uncertainty for its casinos closer to home. Resorts World Manila, a joint venture with Philippine-based Alliance Global Group Inc., has the challenge of winning back customers after the casino was the site of an arson attack in June.
Lagged behind
In Singapore, the group’s Resorts World Sentosa has long lagged behind rival Las Vegas Sands Corp.’s Marina Bay Sands in revenue. The resort, which slumped along with Macau as high-stakes players stayed away amid China’s corruption crackdown, is focusing on attracting casual gamblers and families instead. “They’re trying to improve some of the theme parks and attractions that they have, enhancing their product in order to drive more of the masses,” said Margaret Huang, an analyst at Bloomberg Intelligence. In Malaysia, the group has spent three years upgrading its flagship Genting Highlands resort, adding additional gambling capacity, shopping malls, upscale eateries and a revamped theme park. The resulting upswing in visitors will likely contribute to higher revenue this year, said Kristine Wong, an analyst at CIMB Group Holdings Bhd. in Singapore. Shares of Genting Malaysia Bhd. rose almost 1 per cent Friday in Kuala Lumpur, and more than 25 per cent so far this year. “The prospects are good in the long term,” said Wong. Bloomberg News
New property
Melco Cyprus property to include 70,000 sq ft gaming space Melco Resorts and Entertainment’s newest property in Cyprus will feature 70,000 square feet of gaming space as well as a 6,000 square foot VIP ‘Casino in the Sky’, according to a press release by the financial firm which secured the deal. In total the first phase of the new property is set to house 1,200 slots and 130 gaming tables, as well as the previously announced 500 hotel rooms, set to be completed in 2020. The first phase will also include 42,000 square feet of meeting space and a ‘water park, pool, spa and beach club’. The four satellite casinos linked to the project are set to open two years prior to the first phase, and be located in Nicosia, Larnaca, Paphos and Ayia Napa.
Business Daily Monday, July 17 2017 9
Greater China Real estate
Property investment eases in May Developers continue to be squeezed as authorities tightened controls on their funding channels Yawen Chen and Kevin Yao
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nnual growth in China’s real estate investment slowed in May, the first fall-off in three months, as government curbs cooled an overheated market and undermined investment, taking a toll on new developments. Worries over the potential bursting of price bubbles in China’s biggest cities have led to a flurry of government cooling measures in recent months as buyer demand appeared to be more resilient than expected. The growth rate of new construction starts measured by floor area, a telling indicator of developer confidence and correspondingly volatile, almost halved to 5.2 per cent in May from April’s 10.1 per cent on a yearly basis, suggesting a sharp slowdown in the commencement of new projects, a Reuters calculation showed.
Meanwhile growth in property investment, which mainly focuses on residential real estate but also includes commercial and office space, eased to 7.3 per cent in May from a year earlier, versus 9.6 per cent in April, Reuters calculated from the National Bureau of Statistics’ data. Investors, banned from the hottest markets, are increasingly looking inland, driving up prices in more remote, smaller cities with fewer buying restrictions, leading to a surprise pick-up in May sales. The area of property sold grew 10.2 per cent in May, compared with a 7.7 per cent increase in April, reflecting a quickening in destocking of existing homes in smaller cities, a Reuters’ calculation showed. Inventory floor area in the first five months dropped at a quicker pace of 8.5 per cent, compared to a fall of 7.2 per cent in the January-to-April period.
“It’s been very obvious in the past two months that the buying demand has spilled over to the third- and fourth-tier cities,” said Joe Zhou, head of research for China at real-estate agent Jones Lang Lasalle (JLL). But such forces are unlikely to offset the fast-cooling market in bigger cities in the longer term, as regulators continued to intensify the crackdown on speculators with more measures to close loopholes. Sales in the top tier cities have dropped about 50 per cent from the same period a year ago, property analysts say. In May, China issued draft new rules for property sales and leasing, requiring developers to promptly publish accurate price information for new homes on sale, barring them from charging various additional fees, hoarding unsold homes or spreading false information about rising prices. Some cities have also announced more stringent measures such as introducing price caps on new units and setting a holding period before reselling a property is permitted.
Analysts say developers remain cautious about growth potential in those smaller cities and are still focusing largely on bigger cities as their core revenue driver. “This kind of spill-over demand is at its peak, and probably will only last for one or two quarters,” JLL’s Zhou said.
Key Points May Property investment +7.3 pct y/y (vs +9.6 pct in April) New construction starts +5.2 pct y/y (vs +10.1 pct in April) Sales by floor area +10.2 pct y/y (vs +7.7 pct in April) Govt curbs on more cities saw demand further spills over to smaller cities But smaller cities’ property boom peaking, unlikely to last-Analyst “Developers were too optimistic about third- and fourth-tier cities a few years back, and they wouldn’t increase new starts there even if sales are a bit better now.” Developers continue to be squeezed as authorities tightened controls on their funding channels. Bankers and developers told Reuters in May that China’s National Development and Reform Commission (NDRC), which approves corporate debt issuance, has virtually stopped granting new quotas for offshore bond sales this quarter. Chinese home-buyers also face rising borrowing costs. Media have reported that some banks in major Chinese cities have raised their mortgage rates. Nonetheless, chances that property prices would fall across the board in the future are slim because housing supply remains short in the big cities, a top state think-tank said on May 15. Reuters
Watchdog
PBOC to play bigger role managing financial risk Investors have long supported the idea of a unified body to oversee the regulators that oversee the different parts of China’s financial system China’s central bank will take on a beefed up role managing systemic risk in the country’s financial markets, state broadcaster China Central Television said on Saturday, citing President Xi Jinping. Speaking at the National Financial Work Conference, Xi said China would set up a financial stability committee under the State Council, boost the People’s Bank of China’s (PBOC) role managing financial risks and create more cohesive regulation. “We will strengthen the PBOC’s role in macro-prudential management and in averting systemic risk,” Xi said, adding the country would increase the accountability of regulators and the supervision over regulatory bodies. Ahead of the closed-door event, economists had widely expected the meeting to focus on how the central bank could better coordinate with the country’s three main financial regulators to manage risk in the financial system. China’s financial regulators are gathered in Beijing in a once-in-fiveyears huddle to discuss how better to tackle weakness in the financial system. The most recent meeting in 2012 yielded no significant policy change. The main regulators include the
China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission and the China Insurance Regulatory Commission. Ahead of a leadership reshuffle in the autumn, Beijing has zeroed in
People’s Bank of China’s headquarters
on the stability of the economy and financial system, cracking down on risky behaviour by insurers and lenders, as well as targeting high levels of corporate debt. Investors have long supported the idea of a unified body to oversee the regulators that oversee the different parts of China’s financial system, though there is little sign that a super-merger of the regulators is imminent. In 2015, a poorly coordinated
response to a stock market crash in China drew scrutiny on the government’s response. Premier Li Keqiang openly criticised the financial regulators as not responding sufficiently. In March this year, the new CBRC chief Guo Shuqing said the banking regulator was collaborating with other regulators to create a framework to close loopholes in rules for cross-market financial products. Reuters
10 Business Daily Monday, July 17 2017
Greater China Funding allocation
June fiscal spending growth quickens Government-led stimulus has been a major driver of economic growth over the past years
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hina’s fiscal spending jumped 19.1 per cent in June from a year earlier, quickening sharply from a 9.2 per cent rise in May and signalling government efforts to cushion a gradual slowdown in the world’s second-largest economy. Central government spending rose 10.2 per cent in June from a year earlier while local government spending soared 20.3 per cent, the finance ministry said on Friday. The pick-up in fiscal spending was mainly due to faster funding allocation to guarantee the key expenditure needs under a drive to make fiscal policy more “active and effective” this year, the ministry said in a statement on its website. Government spending in the first six months of the year rose 15.8 per cent from a year earlier, the ministry said. China’s economic growth is
expected to have cooled to 6.8 per cent in the second quarter as Beijing tightens the screws on financial risks, a Reuters poll showed, in a sign the world’s second-biggest economy is set for a further slowdown over the coming quarters. Government-led stimulus has been a major driver of economic growth over the past years, but the
pump-priming has also been accompanied by runaway credit growth and has created a mountain of debt. China has kept its budget deficit at 3 per cent of gross domestic product (GDP) for 2017, the same as last year, and pledged to clamp down on risks associated with local government debt. China’s fiscal revenues increased
8.9 per cent in June from a year earlier, also quickening from May’s 3.7 per cent rise, the ministry said. Fiscal revenue in the first half rose 9.8 per cent from a year earlier. Faster fiscal revenues reflected China’s steady economic growth, rising producer prices and improving corporate profits, the ministry said. Reuters
Markets
Trading bonds in China? You might want this chat app for millennials The scale of China’s bond market and its historic isolation from the rest of the world have led to the evolution of a unique chat group trading culture on the mainland Andrew Galbraith
A new scheme that connects China’s local bonds with Hong Kong promises to open the country’s US$9 trillion debt market to global investment - but investors venturing into the mainland are coming to terms with the massive community that does business not on trading platforms, but social chat apps. The “Bond Connect” programme launched this month allows international investors to buy and sell in China’s historically restricted interbank bond market through a Hong Kong trading gateway, and has been hailed as a milestone in the opening up of the country’s capital markets. On the mainland, however, much of the turnover in the bond market is generated from informal chat groups on QQ, a mainstream Chinese mobile chat app, where individual investors look to buy, sell, borrow and lend. In these social chat versions of old-fashioned open outcry sessions, the raw market emotions of fear and greed are played out with emojis and colourful language. “One QQ group that I belong to has trading volumes of RMB10 billion in one day,” said a trader at a
Shanghai-based asset management firm, referring to trades that originate in the chat groups. She asked not to be named because of relationships with data providers. This volume dwarfs the RMB7.05 billion traded through the entire Bond Connect on its first day of operation on July 3. While there is no data showing the aggregate trading volume on QQ, the Shanghai-based trader said it is one of the most popular platforms for mainland bond trading. While buyers and sellers meet in the chat rooms, the trades are not conducted within these groups. Instead, traders invite counter-parties to open private chats, usually still in QQ. Launched in 1999 by Tencent Holdings, QQ was once the country’s most popular chat platform. In recent years, it has been overtaken by WeChat, also owned by Tencent, but still boasted 861 million active users as of the end of March 2017. Users tend to be young: Tencent says more than 60 percent of active QQ users were born after 1990. And traders say it’s the key to participating in the world’s third-largest bond market.
A trader at an Asian bank in China, who asked not to be named, said that she uses QQ for more than 90 percent of her trades, even though the practice is officially discouraged by her bank for security reasons.
Local quirks
While messaging apps are used in other countries to set up trade orders, the scale of China’s bond market and its historic isolation from the rest of the world have led to the evolution of a unique chat group trading culture on the mainland. “Through the open platform and QQ groups, we enable our users to be connected to online content developers and a diverse range of interest
groups,” Tencent said in an emailed response to Reuters’ queries for this story. One such chat group seen by Reuters was filled with more than 1,700 traders, their messages interspersed with the emojis common to QQ group chats. An animated character being squeezed by an red-eyed snake accompanied a desperate message from a trader at a rural credit cooperative: “Need help! Large quantities of overnight money.” The highly informal nature of this part of the market and the exclusive use of Chinese language present barriers for many foreign investors trying access the bond market through QQ. However, these ad hoc methods also reflect the fact that price discovery in bond trading is still less efficient than it is on electronic stock trading platforms -- even in Western markets. Andy Seaman, chief investment officer of London-based Stratton Street Capital, says most bond trades at his firm are still done by phone. “The problem with bond trading in the West is that there’s very little appetite from the banks to take any risk, which usually makes it quite difficult to encourage trading,” Seaman said. “China’s probably not even as advanced as that, in a sense, because it’s not opened up to international investors so much, but I’m sure that will change.” Reuters
Business Daily Monday, July 17 2017 11
Greater China Rating
Fitch affirms A+ with stable outlook Large and rising debt levels across the non-financial sector remain the most significant risk factor for the sovereign rating Fitch Ratings on Friday maintained its A+ rating on China with a stable outlook, citing the strength of the country’s external finances and macroeconomic record. Short-term growth prospects remain favourable, and economic policies have been effective in responding to an array of domestic and external pressures in the past year, Fitch said. In a Reuters poll of 65 economists, China’s economic growth is expected to reach 6.6 per cent this year, topping the government’s target of around 6.5 per cent. But large and rising debt levels across the non-financial sector, combined with the low stand-alone credit quality of Fitch-rated banks in the financial system, remain the most significant risk factor for the sovereign rating, Fitch said. In May, Moody’s Investors Service cut its sovereign ratings on China by a notch, putting them on par with those of Fitch. That move put Standard & Poor’s one step above the two agencies. Moody’s had said it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount. Fitch said it expects official aggregate financing excluding equity to rise to 208 per cent of gross domestic
product this year versus 201 per cent in 2016 and 114 per cent in 2008. It estimates that a broader credit measure, which incorporates activity not directly captured in the official series, will rise to around 270 per cent at end-2017. Household debt remains moderate despite its rapid growth in recent years, but China’s corporate sector has become the most highly indebted among major economies, based on data from the Bank for International Settlements, Fitch said. Chinese banks extended RMB1.54 trillion (US$227 billion) in net new yuan loans in June, well above analysts’ expectations of RMB1.2 trillion,
and up from 1.11 trillion in May, official data shows. The stronger-than-expected loans suggest authorities are maintaining support for the real economy, even as they tighten regulations to force banks to deleverage. But household loans accounted for 48 per cent of total new loans in June, down from 55 per cent a month earlier. The effects of the government’s multi-pronged crackdown are also showing up in weakened off-balance sheet financing, or shadow banking activity. Combined trust loans, entrusted loans and undiscounted banker’s acceptances, which are common forms of shadow banking activity, dipped to RMB428.8 billion in the second quarter from RMB2.05 trillion in the first three months, according to Reuters calculations. Reuters
Boyaa says chairman charged in bribery probe Online game developer Boyaa Interactive International Ltd said its chairman has become a co-defendant in a bribery probe involving its indirect Chinese subsidiary in Shenzhen, after being under investigation for more than a year. The company, with a market capitalisation of HK$2.6 billion (US$333.2 million), first announced last May that its chairman has been detained and was being investigated by judicial authorities in China, although details of the probe were not known. Boyaa said in a statement late on Friday the subsidiary had received an indictment from the judicial authority as a defendant due to its alleged act of bribery.
Stocks regulator approves 9 IPOs
Mainland group wins US$11.6 bln bid to buy Global Logistic Properties The acquisition is not conditional on getting antitrust approvals or a green light from the Committee on Foreign Investment in the United States A leading Chinese private equity consortium backed by senior executives from Global Logistic Properties (GLP) won a bid to acquire GLP for S$16 billion (US$11.6 billion), marking Asia’s largest private equity buyout in a buoyant sector. GLP, which is Asia’s biggest warehouse operator and boasts a US$41 billion portfolio of assets spread across China, Japan, Brazil and the United States, is benefiting from rising demand logistics facilities driven by a boom in e-commerce from clients such as Amazon.com Inc and JD.com Inc. The winning bid of China’s Hopu Investment Management, Hillhouse Capital Group, real estate developer Vanke Group and the financial service investment arm of Bank of China was backed by GLP CEO Ming Mei, which trumped an offer by a Warburg Pincus-led consortium - the only other short-listed bidder. The group is offering S$3.38 in cash per share, representing an 81 per cent premium over its 12-month volume weighted average price and a 25 per cent premium over its last full trading day before the announcement. Surprisingly, the acquisition is not conditional on getting antitrust approvals or a green light from the Committee on Foreign Investment in the United States (CFIUS), among others, at a time when regulators are vetting takeovers more closely. Singapore sovereign wealth fund GIC, which owns 37 per cent of GLP and is its biggest shareholder, is supporting the transaction but is free to
Game developer
Watchdog
M&A
Anshuman Daga and Elzio Barreto
In Brief
accept an unmatched superior offer. “GIC played hard to get a decent offer,” said a person with direct knowledge of the deal. “There’s a good premium with very few strings attached.” Last year, GIC nudged GLP to start a strategic review of its business after its shares tumbled over a period of two years starting in 2015. GLP then hired JPMorgan as its financial adviser and Allen & Gledhill as its legal adviser to work on the review. The seven-month auction for GLP was marred by complaints from some potential bidders about a lack of transparency and the perceived advantages of the Chinese consortium through their business ties. GLP then formed a committee of independent directors and said it took measures to alleviate potential conflicts of interest. It said on Friday that it chose the Chinese consortium because it had more deal certainty and “limited conditionality”, reducing “execution risk”. GLP shares soared 22 per cent on Friday to a record high. Before
Friday’s jump, the shares had surged nearly 50 per cent since late last year when GIC requested the strategic review.
Booming sector
Investors including Carlyle Group LP, Canada Pension Plan Investment Board (CPPIB) and Warburg Pincus have splashed more than US$12 billion on the logistics sector in China since 2013, betting a surge in online shopping will spur demand for delivery and warehousing services. Analysts said GLP, which earns the majority of its revenue from China, was especially well positioned to benefit from the e-commerce boom. “Their substantial footprint in some of the largest global economies make them well positioned to leverage improving global industrial trade and services, including the rapidly rising share of e-commerce in global retail,” said Priyaranjan Kumar, regional executive director of Cushman & Wakefield’s Asia Pacific capital markets group. “To build a similar platform would take many years and present its own set of economic challenges,” he said. The bid for GLP stands out at a time when China’s outbound M&A volumes nearly halved in the first six months of 2017 following Beijing’s crackdown on capital outflows, data showed, and its new scrutiny of acquisitive groups is set to dampen Asian deal flow further. The proposed acquisition will be done by way of a scheme of arrangement and the Chinese group plans to delist and take the Singapore-listed firm private. Citigroup, Goldman Sachs and Morgan Stanley were the lead joint financial advisers for the consortium and are providing the financial resources confirmation related to the purchase. DBS Bank and China International Capital Corporation also advised the consortium. Goldman and Citi are putting up US$5 bln to help fund the deal, sources said. Goldman and Citi declined comment. Reuters
China’s securities regulator said it has approved nine initial public offerings (IPOs) that aim to raise a combined total of up to RMB4.2 billion (US$620 million). Four of the approved IPOs are on the Shanghai bourse, one on the Shenzhen small and medium enterprise (SME) board, and four on the start-up ChiNext board, the China Securities Regulatory Commission (CSRC) said in a statement on its official microblog late on Friday. Funding
Uber rival Grab raising US$2 bln from Didi, Softbank Grab, Uber Technologies Inc’s biggest rival in Southeast Asia, is raising as much as US$2 billion in funding from Japan’s SoftBank Group and China’s top ride-hailing firm Didi Chuxing, the Wall Street Journal reported on Friday. The deal, which could close in the next few weeks, would value Singaporebased Grab at more than US$5 billion, the Journal reported, citing people familiar with the matter. The reported funding comes amid efforts by Grab to transform into a consumer technology firm that also offers loans, electronic money transfer and money-market funds. M&A
Beijng concerned over German curbs on takeovers China expressed concern on Friday after Germany became the first European Union country to tighten its rules on foreign corporate takeovers, following a series of Chinese deals giving access to Western technology and expertise. The new regulations will allow the German government to block takeovers if there is a risk of critical technology being lost abroad. They will take effect shortly with no need for parliamentary approval in a bid to protect critical infrastructure, including power grids and hospitals.
12 Business Daily Monday, July 17 2017
Asia GDP
Singapore dodges recession as Q2 gets tech boost Revisions to first quarter data showed the economy contracted by 1.9 per cent in January-March Fathin Ungku
S
ingapore’ s ec o n o m y grew in the second quarter, dodging a recession thanks to solid global demand for its tech products, though some analysts caution that rising rates in the United States could lift local borrowing costs in a blow to household spending. The affluent city-state has been among a number of export-reliant Asian economies to benefit from a general uptick in global demand since late last year, enjoying strong sales of its semiconductors and semiconductor manufacturing equipment - a factor that has boosted manufacturing output over the past year.
poll’s median forecast of 1.1 per cent, but analysts said it was still in line with their overall growth forecast for the city-state. Besides weakness in construction, the services sector was also “soft,” analysts say, and partly the reason why GDP growth undershot expectations. “The miss in 2Q was due to weak services output, likely reflecting tepid private consumption and a deceleration in wage growth,” HSBC analysts said in a research note. Growth in electronics exports has been one of the highlights of Asia’s export recovery this year, boosting profits for companies tied into supply chains such as Apple Inc’s,
which is gearing up for the launch of the iPhone 8 later this year. While analysts voiced concern about Singapore’s dependence on its electronics industry, they said any moderation in growth could be offset by the service sector. “If you look at just the pace of manufacturing growth, that is probably not sustainable as it will ease, but I think it will be compensated by services sector- in banking, loans and property transactions,” Mizuho Bank economist, Vishnu Varathan, said.
Fed risks
Economists surveyed by Singapore’s central bank last month raised their 2017 Singapore growth forecasts, upgrading their views on manufacturing and bank lending. A majority of analysts believe that
the Monetary Authority of Singapore (MAS) will keep monetary policy steady when it holds its next policy meeting in October. The MAS runs a managed exchange rate regime that ties interest rates in Singapore closely to the Fed funds rate However, expectations that the U.S. Federal Reserve will increase interest rates has made the outlook more uncertain. “The outlook for the rest of the economy is less promising,” said Capital Economics’ analyst, Gareth Leather in a research note, adding that the risk of higher interest rates “could pose problems for Singapore’s highly indebted households. “Local interest rates have started to rise, and are likely to increase further if we are right that the U.S. Fed will hike rates fairly aggressively in the next couple of years.” Reuters
Key Points Singapore Q2 GDP gets tech boost, narrowly averts recession Q2 GDP +0.4 Q/Q seasonally adj annualised vs -1.9 pct Q1, f’cast +1.9 pct Q2 GDP +2.5 pct y/y, vs +2.5 Q1, f’cast +2.8 The economy expanded 0.4 per cent in the April-June period from the previous three months on an annualised and seasonally adjusted basis, the Ministry of Trade and Industry’s advance GDP estimate numbers showed on Friday. Revisions to first quarter data showed the economy contracted by 1.9 per cent in January-March, weaker than the 1.3 per cent contraction estimated earlier. The April-June quarter-on-quarter growth was lower than a Reuters
ADB
Asia at risk of deeper poverty due to climate change The findings underscore the need for the region to reduce greenhouse gas emissions along the lines of those agreed to by the global community under the Paris accord Asia and the Pacific, home to two thirds of the world’s poor, are at the highest risk of suffering deeper poverty and disaster due to unabated climate change, reversing current development gains, according to the Asian Development Bank. The Asian landmass will see a temperature increase of 6 degrees Celsius by the end of the century under a business-as-usual scenario, ADB said in a statement on Friday. The comment is based on findings included in a report from the bank and Potsdam Institute for Climate Impact Research that analyses climate risks in Asia and the Pacific. Some countries in the region could experience significantly hotter climates, with temperature increases in Tajikistan, Afghanistan, Pakistan, and northwest China projected to hit
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8 degrees Celsius, ADB said. Hotter climates would cause drastic changes in the region’s weather
system, agriculture and fisheries sectors, land and marine biodiversity, domestic and regional security, trade, urban development, migration, and health, and may even pose an existential threat to some countries, the ADB said. The findings underscore the need for the region to reduce greenhouse gas emissions along the lines of those
agreed to by the global community under the Paris accord -- which calls for warming to be limited to well below 2 degrees Celsius -- and to explore better strategies to mitigate the impact of climate change.
‘ADB approved a record US$3.7 billion in climate financing last year and has pledged to further boost its investments to US$6 billion by 2020’ ADB approved a record US$3.7 billion in climate financing last year and has pledged to further boost its investments to US$6 billion by 2020, it said. Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Monday, July 17 2017 13
Asia Official prediction
In Brief
Japan raises FY 2017 forecasts for consumption, capex, housing Consumer spending is forecast to rise 0.9 per cent in fiscal 2017 Japan’s government on Friday raised its growth forecasts for private consumption, capital expenditure, and housing investment for the current fiscal year as domestic demand gathers strength. The government left its overall forecast for gross domestic product growth unchanged in fiscal 2017, which started in April, due to an expected decline in inventories and slightly slower growth in fiscal spending. The government also expects consumer prices to rise 1.1 per cent this fiscal year and 1.3 per cent in fiscal 2018, highlighting a very slow build up in inflationary pressure. The forecasts, which Japanese Prime Minister Shinzo Abe’s cabinet will use to compile next fiscal year’s budget, show the economy is likely to continue expanding comfortably unless there is a sudden and large external shock. Consumer spending is forecast to rise 0.9 per cent in fiscal 2017, according to forecasts that the government’s top advisory panel approved after a meeting on Friday. That is more than the previous forecast for 0.8 per cent growth released in January. Housing investment is expected to
rise 0.8 per cent this fiscal year, well above the previous estimate of 0.1 per cent growth as the Bank of Japan’s (BOJ) quantitative easing sparks a revival in property development. The government expects capital expenditure to rise 3.6 per cent in fiscal 2017, more than its previous estimate for a 3.4 per cent increase. Gross domestic product is expected to expand by 1.4 per cent in fiscal 2018, but this does not take into account the size of fiscal spending because next fiscal year’s budget has yet to be decided. In fiscal 2017 overall consumer
prices are expected to rise 1.1 per cent, unchanged from the government’s previous forecast in January. In fiscal 2018 consumer prices are seen rising 1.3 per cent, underlying the difficult in achieving the BOJ’s 2 per cent inflation target. The BOJ is set to slash its consumer inflation forecast for the year ending in March 2018 to around 1.0 per cent at a policy meeting ending July 20 from its current 1.4 per cent estimate made in April, sources tell Reuters. The central bank is also seen cutting next fiscal year’s inflation forecast to 1.5 per cent or below, from the current projection of 1.7 per cent, they said. Depending on how big the cut in next year’s forecast will be, the BOJ may push back the timing for hitting its target from the current estimate of “around fiscal 2018,” the sources said. Reuters
South Korea’s foreign exchange deposits posted their largest ever decline in June, following a slight rise in May, central bank data showed on Friday, as businesses sold the dollar after its recent gains against the won. The Bank of Korea said total foreign exchange deposits fell by US$6.33 billion to US$63.61 billion as of end-June from US$69.94 billion in May. The dollar strengthened 2.2 per cent against the South Korean won in June. Dollar deposits declined by US$5.39 billion to US$54.19 billion, while deposits in the yen also inched down US$380 million to US$4 billion, the data showed.
Hyundai Motor union votes to strike
India is said to mull backing foreign investment in supermarkets The move is a partial reversal of Modi’s opposition to foreign retailers as he attempts to create jobs even at the expense of alienating his core support base -- traders India is considering a proposal to lift a cap on investment by foreign retailers in local supermarkets, according to people with the knowledge of the matter. A meeting led by Prime Minister Narendra Modi may decide on a proposal to allow 100 per cent investment by retailers such as Wal-Mart Stores Inc. and Carrefour SA if they agree to sell locally made products and invest at least US$100 million, the people said, asking not to be identified because the discussions are private. Others at the meeting, planned for as early as Friday, include Finance Minister Arun Jaitley and Commerce
S.Korea foreign currency deposits post decline
Labour
Retailers
Siddhartha Singh
Forex
Minister Nirmala Sitharaman, the people said. The move is a partial reversal of Modi’s opposition to foreign retailers as he attempts to create jobs even at the expense of alienating his core support base -- traders. After coming to power in 2014, his administration barred foreign investment in multi-brand retail, enacted by the previous government, to fulfil a key campaign pledge. The proposal to ease rules has other riders attached. Retailers will have to spend at least US$50 million on storage and logistics infrastructure and employ 1,000 people for every US$100 million of investment, apart from sourcing 30 per cent of their advertisement
products from small companies, the people said. Jagdish Thakkar, a spokesman in the Prime Minister’s Office, didn’t return calls seeking comment, while Ministry of Finance’s spokesman D.S. Malik didn’t answer two calls made to his mobile phone. Local traders are opposed to foreign retailers setting up stores India, saying the move will endanger their livelihood. The current foreign direct investment policy permits overseas companies to own a stake of up to 51 per cent in an Indian company for multi-brand retail even though the policy has never been implemented.
Food retailers
The food processing ministry has been pushing to partially ease rules for retailers that would allow them to sell soaps, shampoos and toothpastes along with food products. Food Processing Minister Harsimrat Kaur Badal in an interview in May said the move could lead to at least US$10 billion in the sector over the next two-to-three years. India’s food and grocery market is the world’s sixth largest, with retail contributing 70 per cent of sales. Food is one of the largest segments in India’s retail sector, valued about US$600 billion. India attracted US$935.74 million FDI in retail trading from April 2000 to December 2016. Some of the foreign retailers have either closed down or curtailed operations due to policy uncertainty. In 2013, Wal-Mart ended its India wholesale joint-venture after facing troubles in the country where it was investigated by the government as well an internal probe for violations of U.S. anti-corruption laws. Carrefour SA, France’s biggest retailer, closed its five Indian wholesale stores last year, ending its four-year presence in the South Asian nation. Groupe Auchan SA, another French supermarket operator, in August ended its franchise agreement with billionaire Micky Jagtiani’s Landmark Group. Bloomberg News
Hyundai Motor’s unionised workers in South Korea voted to go on strike for a sixth year in a row over stalled wage talks, adding to the automaker’s troubles as it struggles to reverse a decline in profits. Union spokesman Jang Changyeol said on Friday that 74 per cent of voters approved the strike action, adding that union negotiators would meet next week to decide on plans for walkouts. “We will continue to have sincere discussions with the labour union to reach a reasonable agreement,” Hyundai Motor said in a statement. Results
Infosys reports Q1 profit growth on client wins Bengaluru-headquartered Infosys posted a consolidated net profit of 34.83 billion rupees (US$540.38 million) for the three months ending June 30, up 1.4 per cent on the same time last year. Analysts on average had expected consolidated profit of 34.39 billion rupees, according to Thomson Reuters data. Infosys kept its full year ending March 2018 revenue growth guidance at between 6.5 per cent and 8.5 per cent on a constant currency basis. The company said it lost one client in its US$100 million category during the quarter from the previous quarter, but total active clients rose by a net of 2. Japan finmin
New farm spending should lift efficiency, not subsidies Any fresh government spending on Japan’s agriculture sector should be for finding ways to cut its production and shipping costs rather than on subsidies for farmers, Finance Minister Taro Aso said on Friday. His comments came after Japan and the European Union signed a free-trade pact that has displeased some parts of Japan’s agriculture sector. Aso told reporters it was too early to offer details on the size of any additional spending on the farm sector or how it would be funded.
14 Business Daily Monday, July 17 2017
International In Brief SPD leader
Euro zone needs joint budget, Germany must do more The euro zone needs a joint budget to increase investment and Germany should be prepared to do more in Europe, possibly by increasing its financial contribution to the bloc, SPD leader Martin Schulz said. “Germany is a great country. But Germany can do more,” Schulz, whose SPD is the junior party in Germany’s coalition government, said in the introduction of his ten-point-plan for a modern Germany and a better Europe. Schulz said EU countries outside the single currency bloc should not be able to veto further euro zone integration and that those ignoring solidarity on important issues must face financial sanctions. Theme parks
Disney teases ‘Star Wars’ hotel in flurry of park announcements Walt Disney Co. said it will build an immersive “Star Wars” hotel at its resort in Orlando, Florida, as part of a flurry of investments announced Saturday by the company’s theme-park division. Disney revealed the two “Star Wars” themed lands it is building will be called Star Wars: Galaxy’s Edge, with the one at Disneyland in Anaheim, California, set to open first in 2019 and the Orlando one opening later that same year. Disney parks and resorts division chairman Bob Chapek made the announcement Saturday at the company’s D23 Expo, a biennial event for fans. Minister
France must define possible scenarios to reduce nuclear France should define a clear roadmap to fulfil its pledge to cut the share of nuclear power in its electricity generation to 50 per cent by 2025, French ecology minister said in an interview in the Sunday edition of regional daily Ouest-France. A 2015 law requires France to reduce in eight years the share of atomic power generation to 50 per cent from over 75 per cent currently, and include more renewable wind and solar generation. Hulot said that for France to meet that target, it might have to shut down up to 17 of its 58 nuclear reactors operated by state-controlled utility EDF.
Prices
Weak U.S. inflation, retail sales data dim rate hike prospects The Fed has a 2 percent inflation target and tracks a measure which is currently at 1.4 percent Lucia Mutikani
U
.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year. Still, the economy likely regained speed in the second quarter after a sluggish performance at the start of the year. Other data on Friday showed industrial production picked up in June, driven by a surge in oil and gas drilling. “Today’s reports imply that the Fed will go very slowly normalizing rates, but it also means that businesses will have to really hustle to find ways to keep earnings growing strongly,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The Labor Department said the unchanged reading in its Consumer Price Index came as the cost of gasoline and mobile phone services declined further. The CPI dropped 0.1 percent in May and the lack of a rebound in June could trouble Fed officials who have largely viewed the recent moderation in price pressures as transitory. Policymakers are confronted with benign inflation and a tight labour market as they weigh a third rate hike and announcing plans to start reducing the central bank’s US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. In the 12 months through June, the CPI increased 1.6 percent - the smallest gain since October 2016 - after rising 1.9 percent in May. The year-on-year CPI has been retreating since February, when it hit 2.7 percent, which was the biggest increase in five years. The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent in June, rising by the same margin for three straight months. The core CPI increased 1.7 percent year-on-year after a similar gain in May. The Fed has a 2 percent inflation
M&A
Buffett, Malone explore investment in Sprint Warren Buffett’s Berkshire Hathaway Inc and John Malone’s Liberty Media Corp are exploring an investment of between US$10 billion and US$20 billion in U.S. wireless carrier Sprint Corp, people familiar with the matter said. Masayoshi Son, the chief executive of Japan’s SoftBank Group Corp, which controls Sprint, met Buffett and Malone separately last week at an annual gathering of business and media moguls in. Sprint CEO Marcelo Claure is also involved in the negotiations, the sources said. Berkshire Hathaway is considering an investment of up to US$20 billion in Sprint.
Federal Reserve headquarters
target and tracks a measure which is currently at 1.4 percent. Financial markets were pricing in a 47 percent chance of a 25 basis point rate hike in December, down from 55 percent before the data, according to CME Group’s FedWatch program. As a result, the dollar fell, briefly touching a 10-month low against a basket of currencies. Prices for U.S. government bonds rose and stocks on Wall Street edged higher.
Key Points Consumer price index unchanged in June CPI increases 1.6 percent year-on-year Core CPI rises 0.1 percent; up 1.7 percent year-on-year Retail sales fall 0.2 percent; core sales dip 0.1 percent Fed Chair Janet Yellen told lawmakers on Wednesday that the recent cool-off in inflation was partly the result of “a few unusual reductions in certain categories of prices” that would eventually drop out of the calculation. “We expect a little more cautious language from Fed officials on the inflation outlook going forward,” said Michael Hanson, chief economist at TD Securities in New York.
Broad weakness
In June, gasoline prices fell 2.8 percent, decreasing for a second straight month. Food prices were unchanged after rising for five consecutive months. The cost of cellular phone services fell 0.8 percent, extending their decline amid price competition among service providers. There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks. But rental costs rose, with owners’ equivalent rent of primary residence increasing 0.3 percent after advancing 0.2 percent in May. Americans also paid more for hospital visits and prescription
medication, as well as motor vehicle insurance. Low prices are hurting retailers. A second report from the Commerce Department showed retail sales fell 0.2 percent last month, weighed down by declines in receipts at service stations, clothing stores and supermarkets. Sales at restaurants and bars, as well as at sporting goods and hobby stores fell. May’s retail sales were revised to show a 0.1 percent dip instead of the previously reported 0.3 percent drop. Retail sales rose 2.8 percent year-on-year in June. Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 percent last month after being unchanged in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Despite two straight months of decreasing retail sales, consumer spending likely gained steam in the second quarter after a helping to restrict economic growth to a 1.4 percent annualized rate in the first quarter. However, that could negatively impact third-quarter GDP. “The weak trajectory of consumer spending at the end of second quarter adds some challenges to the third-quarter consumption outlook, which reinforces our view that growth will step down modestly in the current quarter,” said Michael Feroli, an economist at JPMorgan in New York. That was supported by a third report showing a measure of consumer sentiment fell to a reading of 93.1 in early July from 95.1 in June. It has declined from a high of 98.5 in January. The Atlanta Federal Reserve lowered its second-quarter growth estimate by two-tenths of a percentage point to a 2.4 percent rate following the inflation and retail sales data. Still, growth in the second quarter likely got a lift from the industrial sector of the economy. In a fourth report on Friday, the Fed said industrial production increased 0.4 percent in June amid robust gains in oil and gas drilling after nudging up 0.1 percent in May. Industrial production increased at a 4.7 percent rate in the second quarter. Reuters
Business Daily Monday, July 17 2017 15
Opinion Business Wires
The Korea Herald Uncertainty mounted over South Korea’s SK hynix’s bid in the on-going Toshiba sale yesterday with unverifiable claims swirling around that the Korean memory chipmaker has already given up on acquiring a stake in the Japanese firm’s flash memory unit. Since a global consortium of U.S. private equity firm Bain Capital, two state-backed Japanese financial institutions and SK hynix, the preferred bidder, failed to ink a US$18 billion deal on purchasing the NAND flash memory unit of Toshiba on June 28, suspicions have continuously been raised that the deal is going nowhere.
Viet Nam News Commercial banks have performed well in the first half of 2017 (H1), and business results show that many have already met more than half their annual profit targets. Vietcombank and Vietinbank were the first two state-owned banks to announce preliminary business results in H1. Vietcombank announced that its pre-tax profit in H1 had crossed VNĐ5 trillion (US$220 million), up 20 per cent year on year, and 53.2 per cent of its 2017 target. Vietcombank’s general director Phạm Quang Dũng said the result was supported by healthy growth in all sectors, following a three-year restructure.
The Times of India With inflation falling to record low levels and industrial growth slipping to below 2 per cent, bankers and economists feel the pressure has increased on the Reserve Bank to cut benchmark interest rate next month. The six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel will meet on August 1-2 for the third bi-monthly monetary policy review of 2017-18. The MPC in its previous review in June had retained the repo rate at 6.25 per cent for the fourth straight time citing risk to inflation.
Philstar Metrobank has lowered its inflation forecast (for Philippines) this year amid the sustained downtrend in domestic consumer prices. Pauline May Ann Revillas, research analyst at Metrobank, said the bank has revised downwards its inflation forecast to 3.1 per cent from 3.5 per cent for this year. Revillas said headline inflation came in lower than market expectations to hit a five-month low of 2.8 per cent, in June from 3.1 per cent in May bringing the average inflation to 3.1 per cent in the first half. The Bangko Sentral ng Pilipinas has set an inflation target of between two and four per cent for this year.
Japan could kill its casinos before they even open
W
hen Japan’s parliament legalized casino gambling last year, it created a wave of excitement among casino operators and institutional investors. But sensitivities about gambling addiction have now focused the policy discussion on a concept known as responsible gaming. This is industry terminology for programs designed to deter customers with known gambling problems from entering casinos. Although well-intentioned, lawmakers are risking a litany of unintended consequences with these policies. Casinos could be an economic boon for Japan. By one estimate, they could bring in US$25 billion a year in revenue. Yet lawmakers are now considering restrictions that could jeopardize those benefits. These include banning cash machines on casino floors, restricting credit card purchases of casino chips to foreign customers only, prohibiting casinos from extending credit to domestic customers, limiting how often domestic customers can visit gambling houses, and prohibiting Macau-style VIP junkets. The extent to which such measures could reduce problem gambling is debatable, especially since Japan’s gamblers already have plenty of other options, including horse racing and pachinko. But one thing is certain: They’d cripple Japan’s casino industry before it could get off the ground. One problem is that restricting casinos from lending to their own customers means that third-party creditors will fill the void. Japan has a long history of syndicated money-lending at pachinko parlours, and of organized criminal groups attempting to collect debts from insolvent gamblers. If casino patrons had to seek outside sources of credit, they’d be more likely to become targets for these groups. “The Japanese police have been using new organized crime exclusionary ordinances to clamp down on traditional sources of income for Yakuza groups,” said David Suzuki, of the private security firm Blackpeak Group, in an interview. “I believe they see the legalization of casino gambling as a massive, historic opportunity to resuscitate themselves.” Customers who borrow directly from a casino can also rest assured that any debt collection will be handled through the collections department or a relevant jurisdiction’s courts -- and not through intimidation or other illegal methods. But these best practices are in jeopardy if traditional casino credit functions are outsourced to third parties. More important, from a business perspective, is that implementing restrictive lending practices would significantly reduce casino revenue. Casinos function much like financial institutions. Both
“
David Bonnet a Bloomberg View columnist
handle customer accounts, extend credit and collect on unsettled debts. Gaming chips are company obligations -- much like bank notes. In that regard, casinos provide substantial financial liquidity, not only for gambling but also for related businesses, such as restaurants, bars and entertainment. Limiting cash in a casino is analogous to limiting beer in a bar -- it just doesn’t work. Combined with the proposed limits on domestic gambling and VIP junkets, the government would thus be inhibiting most of the casino industry’s key business segments. This will severely compromise the ability to generate cashflow, discourage institutional investors from committing the billions of dollars of capital needed to get major integrated resorts off the ground, and undermine the industry’s ability to create new jobs and boost economic activity. My company estimates that these measures would reduce potential gambling revenue by up to 50 per cent. In short, the government would be forfeiting most of the potential benefits that casinos could bring to Japan -- before anyone has even broken ground. A better approach is to try to address potential problems without needlessly scaring off investors and operators. For one thing, regulators should take a holistic view of the costs and benefits of casinos, and recognize that they can increase oversight at any time. Placing arbitrary stipulations on casino operations at the outset of the license application process will only discourage global gaming companies from investing in Japan in the first place. Macau -- which in recent years has rolled out increasingly sophisticated regulations, while remaining the world’s top gambling hub -offers an example of how a more flexible approach can work. Likewise, adopting a framework to address problem gambling similar to those that have worked in Las Vegas and Singapore -- through public education, funding for addiction treatment and prevention, training for casino workers, and other prudent measures -- could allow people to sensibly enjoy casinos in Japan without destroying the industry’s proven business model. To date, operators have expressed unbridled enthusiasm at the prospects for casino gambling in Japan. But that will quickly change if these proposed measures are put in place. Japan should be careful not to kill off its casino industry before it even has a chance. Bloomberg View
From a business perspective, is that implementing restrictive lending practices would significantly reduce casino revenue
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16 Business Daily Monday, July 17 2017
Closing Trade
U.S.-China talks sputtering at 100-day deadline The U.S. goods trade deficit with China reached US$347 billion last year Andrew Galbraith and Dominique Patton
B
ilateral talks aimed at reducing the U.S. trade deficit with China have yielded some initial deals, but U.S. firms say much more needs to be done as a deadline for a 100-day action plan expired yesterday. The negotiations, which began in April, have reopened China’s market to U.S. beef after 14 years and prompted Chinese pledges to buy U.S. liquefied natural gas. American firms have also been given access to some parts of China’s financial services sector. More details on the 100day plan are expected to be announced this week as senior U.S. and Chinese officials gather in Washington for annual bilateral economic talks, rebranded this year as the “U.S.-China Comprehensive
Economic Dialogue.” “We hope to report further progress on the 100-day deliverables next week,” a U.S. Commerce Department spokesman said on Saturday. “That will be the basis for judging the extent of progress.” The spokesman declined to discuss potential areas for new agreements since a May 11 announcement on beef, chicken, financial services and LNG. Earlier in April, when Chinese President Xi Jinping met U.S. President Donald Trump for the first time at his Florida resort, Xi agreed to a 100-day plan for trade talks aimed at boosting U.S. exports and trimming the U.S. trade deficit with China. The U.S. goods trade deficit with China reached US$347 billion last year. The gap in the first five months of 2017 widened about 5.3 per cent from a year earlier, according to U.S. Census Bureau data.
“It is an excellent momentum builder, but much more needs to be done for U.S.-China commercial negotiations to be considered a success,” said Jacob Parker, vice president of China operations at the U.S.-China Business Council (USCBC) in Beijing.
Key Points 100 days of U.S.-China trade talks end on July 16 U.S., Chinese officials to meet for annual economic talks Little sign of progress in biggest trade irritants so far There has been little sign of progress in soothing the biggest trade irritants, such as U.S. demands that China cut excess capacity in steel and aluminium production, lack of access for U.S. firms to China’s services market, and U.S. national security curbs on high-tech exports to China.
The Trump administration is considering broad tariffs or quotas on steel and aluminium on national security grounds, partly in response to what it views as a glut of Chinese production that is flooding international markets and driving down prices. North Korea has cast a long shadow over the relationship, after Pyongyang tested what some experts have described as an intercontinental ballistic missile on July 4. Trump has linked progress in trade to China’s ability to rein in North Korea, which counts on Beijing as its chief friend and ally. “Trade between China and North Korea grew almost 40 per cent in the first quarter. So much for China working with us - but we had to give it a try!” Trump said on Twitter after the North Korean missile test.
Trading meat
American beef is now available in Chinese shops for the first time since a 2003 U.S. case of “mad cow” disease, giving U.S. ranchers access to a rapidly growing market worth around US$2.6 billion last year. More beef deals were signed during an overseas buying mission by the Chinese last week. “There are hopes there will be even more concrete results,” Chinese Foreign Ministry spokesman Geng Shuang told a daily news briefing in Beijing on Friday. He did not elaborate. Critics of the 100-day process said China had already agreed to lift its ban on U.S. beef last September, with officials just needing to finalise details on quarantine requirements. China, meanwhile, has delivered its first batch of cooked chicken to U.S. ports after years of negotiating for
access to the market. But unlike the rush by Chinese consumers for a first taste of American beef, Chinese poultry processors have not had a flurry of orders for cooked chicken. Demand should improve once China is allowed to ship Chinese grown, processed and cooked chicken to the United States, said Li Wei, export manager at Qingdao Nine Alliance Group, China’s top exporter of processed poultry.
Biotech crops
Other sectors in China under U.S. pressure to open up have moved more slowly. Beijing had only approved two of the eight biotech crops waiting for import approval, despite gathering experts to review the crops on two occasions in a six-week period. U.S. industry officials had signalled they were expecting more approvals. U.S. executives say the review process still lacks transparency. Financial services is another area where little progress has been made, U.S. officials say. USCBC’s Parker said it is unclear how long it will take for foreign credit rating agencies to be approved, or whether U.S.-owned suppliers of electronic payment services will be able to secure licenses. The bilateral talks have also not addressed restrictions on foreign investment in life insurance and securities trading, or “the many challenges foreign companies face in China’s cybersecurity enforcement environment,” Parker said. In an annual report released Thursday, the American Chamber of Commerce in Shanghai said China remained a “difficult market”. Reuters
Diplomacy
Brexit
Commerce
Trump may seek solution on climate change, Macron says
Hammond says most top UK ministers back transition period
Malaysia, Indonesia may take EU palm oil curbs to WTO
French President Emmanuel Macron, who welcomed Donald Trump to Paris two days ago to participate in Bastille Day celebrations, said the U.S. president may seek a solution over the next months for the fight against global warming. “We’ve spoken in detail on what may allow him to return into the Paris accord,” Macron said in comments published yesterday in the newspaper Le Journal du Dimanche. “It’s important to maintain a dialogue” with the U.S. about its potential comeback in multilateral actions for climate, he said. In June, Trump announced that the U.S. would withdraw from the 2015 Paris deal and earlier this month Washington was the only member of the Group of 20 nations that didn’t agree that the accord on cutting harmful emissions was “irreversible.” Trump softened his position at a press conference on Thursday with Macron, saying, “something could happen with respect to the Paris accord. We’ll see what happens. We’ll talk about that over the coming period of time. If it happens, that’ll be wonderful, and if it doesn’t, that’ll be OK too.” Macron and Trump will speak soon about the fight against Islamic State in Syria and Iraq, the newspaper reported. Mentioning his relationship with Russian President Vladimir Putin, Macron told the outlet that removing Syrian President Bashar Al-Assad wasn’t a “prerequisite.” Bloomberg News
Senior British government ministers are becoming convinced of the need for transitional arrangements to reduce disruption as Britain leaves the European Union, finance minister Philip Hammond said yesterday. Hammond, who supported remaining in the EU at last year’s referendum, is seen as the voice of a so-called ‘soft Brexit’ within Prime Minister Theresa May’s cabinet, favouring prioritising trade ties with the EU over curbing immigration. He has repeatedly talked about the need for a transitional deal, saying such an arrangement would see Britain replicate as much as possible the existing arrangements in order to minimise the impact on business. “Five weeks ago the idea of a transition period was quite a new concept, I think now you would find that pretty much everybody around the cabinet table accepts that there will be some kind of transition,” Hammond told the BBC’s Andrew Marr show. “We’re into a real process now with the start of negotiations and I think you’ll find the cabinet rallying around a position that maximises our negotiating leverage and gets the best possible deal for Britain.” Brexit minister David Davis is due in Brussels today for a first full round of Brexit talks. Reuters
Malaysia and Indonesia plan to raise the prospect of European Union curbs on the imports of palm oil with the World Trade Organisation, both countries said in a joint statement yesterday. A resolution by the European Parliament in April called for the EU to phase out by 2020 the use of vegetable oils in biodiesel that are produced in an unsustainable way leading to deforestation. The resolution includes palm oil, an important commodity for Indonesia and Malaysia, which produce nearly 90 per cent of the world’s palm oil. The statement, following a meeting between Malaysia and Indonesia’s trade ministers, said that the two Southeast Asian countries would meet at end-July to “discuss and coordinate” palm oil issues, including organising a joint mission to Europe to “engage with relevant parties and stakeholders.” The two nations will coordinate plans via the Council of Palm Oil Producing Countries (CPOPC), a joint initiative by Malaysia and Indonesia to work together in managing stockpiles and supporting prices. “Malaysia and Indonesia will consider taking this issue to the World Trade Organisation (WTO) if the Resolution becomes an EU Directive and discriminatory in nature,” said the statement, issued by Malaysia’s Ministry of International Trade and Industry. Reuters