Business Daily #1343 July 20, 2017

Americans distrust billionaires Wall Street Page 16

Thursday, July 20 2017 Year VI Nr. 1343 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Rising bets

Singapore to link up with Mainland in its Belt and Road initiative Page 2

In a period of time when people need to fully know the several issues of parking and rising rates, after a new parking concession was conceded to a different company, and when the infrastructure works and tens of other works are cutting hundreds of available parking spots creating a daily nightmare for the regular citizen, many other bottlenecks tell us again why public services should be awarded after an international tender.

It is nice to want to attribute to local businesses, but when concerned, the public welfare legitimacy can be called into question.

What is beginning to be worrying are the anomalies in the new machines of the parking meters. In addition, it seems the customers must alert the service company if a certain meter is not working.

Yesterday, as this paper could verify, the meter 4231 was inoperative. The users had to warn the concessionaire so that they did not run the risk of being fined and their vehicles blocked a couple of hours later.

The machine would eventually be arranged but by late afternoon it was only coin operated and not with the Macau Pass card, a more practical system. One of the users called back but not mastering the Chinese language was unable to alert who was on duty at the company. No one there spoke Portuguese or English -- as if Macau was a lost village in Qinghai province. A kind of Chengbeihou and villages like it at 9,000 feet up in the mountains.

With tens of thousands of foreigners residing in Macau - despite the international language being treated poorly - and a second official language, Portuguese, the result of treaties between two states and protected until 2049 by the Macau SAR mini-constitution – the government continues to award concessions to companies without ensuring that they respect at least common sense.

After all, it’s almost impossible to say that they are not respecting the contracts if these continue to be kept away from the public knowledge. Which allows speculations that might be but pleasing to the transparency of administrative procedures.

Some might argue that a newspaper editorial is a bit too strong for a simple parking meter case. But it is not the machine that is important to note. It is the example, one of many, hundreds, thousands, which shows how deficient the system still is. Though so much money changes hands. Or maybe because of exactly that…

M&A

Energy consolidation moves in the MSAR according to the plan Page 2

Money laundering

Hospitality

The Asia Pacific Group approves local structural improvements Page 4

Hotels occupancy in June increased Page 6

Better future Business sentiment

Restaurants and retail operators saw an increase in sales for the month of May, an official survey showed. However, the Statistics and Census Service said that retailers remained cautious about their business prospects.

The results were better than expected. Page 5

Higher bill

Subsidies The subsidies received by local companies under a scheme regulated by the Macau Economic Services increased quarter-to-quarter. Wholesale commerce tops the scheme. Page 2

Votes ratio almost set

Secretary for Transport and Public Works Raimundo Arrais do Rosário said yesterday that the next meeting of the Urban Renewal Committee will probably see the ratio of votes for approving the construction works finally set.

Urban Renewal Page 3

HK Hang Seng Index July 19, 2017

U.S.-China kicks off commerce talks Trade After riding a wave of anti-trade feeling to the White House, the Trump administration is taking a more traditional approach to resolving issues with China. Expectations among trade experts are restrained that the first round of on-going talks will produce results.

Page 10

26,672.16 +147.22 (+0.56%) Worst Performers

China Mengniu Dairy Co Ltd

+4.91%

Want Want China Holdings

+1.71%

China Overseas Land &

-0.78%

Cathay Pacific Airways Ltd

-0.64%

China Shenhua Energy Co

+4.12%

Kunlun Energy Co Ltd

+1.62%

AIA Group Ltd

-0.68%

HSBC Holdings PLC

-0.53%

Tencent Holdings Ltd

+3.91%

China Merchants Port Hold-

+1.29%

MTR Corp Ltd

-0.67%

Cheung Kong Property

-0.48%

Swire Pacific Ltd

+2.52%

Hengan International Group

+1.27%

Hong Kong & China Gas Co

-0.67%

Bank of East Asia Ltd/The

-0.45%

Geely Automobile Holdings

+1.98%

Galaxy Entertainment Group

+1.09%

Power Assets Holdings Ltd

-0.65%

BOC Hong Kong Holdings

-0.40%

26° 30° 27° 31° 25° 31° 25° 29° 26° 29° Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

SUN

MON

Source: AccuWeather

Rich deal, poor service

www.macaubusinessdaily.com

2 Business Daily Thursday, July 20 2017

Macau M&A

Shell LPG sale accelerated to Q4

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he acquisition of the local liquid petroleum gas (LPG) market leader in the MSAR by international sales, marketing and support services group DCC is ‘progressing according to plan,’ according to a company press release. Expectations are for the acquisition to be completed in the fourth quarter of this year, the company announced.

The purchase, announced in early April, is of Shell Gas (LPG) Holdings BV’s Hong Kong and Macau LPG business and was valued at the time at HK$1.165 billion.

Initial expectations were for the acquisition to be completed before March 31, 2018, the end of the group’s financial year, however, the new release pushes forward expectations.

Shell Hong Kong and Macau is ‘one of the leading LPG sales and marketing businesses in Hong Kong and Macau, where it has been selling LPG for almost sixty years. The business provides LPG in bulk, cylinder and autogas formats to domestic, commercial and industrial customers,’ notes the group’s annual report.

Under the new ownership, the company is expected to ‘deliver an annual operating profit of HK$145 million,’ notes the release, informing that the company will continue to operate under the Shell name in both SARs. The latest company release informs that ‘DCC’s profits are significantly weighted towards the second half of its financial year.

At what is still a very early stage in the financial year, the Group reiterates its belief that the year ending 31 March 2018 will be another year of profit growth and development.’ K.W.

Subsidies

Wholesale commerce still top subsidy scheme receiver in Q2 Th e a m o u n t di st ri b u ted in subsidies on interest payments to the city’s local companies under a scheme regulated by the Macau Economic Services (DSE) saw a 88.4 per cent uptick quarter-to-quarter in the second quarter of the year, according to the most recent data from the DSE. The total amount approved under the plan during the quarter hit MOP135.93 million, and was attributed to a total of 26 approved requests by local companies.

A total of 28 applied for the subsidy scheme during the quarter.

The utilization rate of the amount subsidized reached 22.66 per cent, given that the total amount allowed to be distributed under the

scheme per year is MOP600 million. The total utilization rate for the first half of the year reached 34.69 per cent, as a total of MOP208.1 million had been distributed.

In total, of the 56 requests for subsidization, 47 were approved during the first half of the year.

Of these approved amounts, the largest quantity went to the wholesale commerce sector, receiving 17.85 per cent of the total, with 7 approved requests, hitting MOP37.15 million in total. The construction and public works sector saw the second highest subsidized amount and the most approved requests for subsidization, at MOP30.27 million and 9 requests.

In between the plan’s

2003 implementation and the end of last year, the largest receiver of the subsidies has been the wholesale

commerce sector, with 107 approved requests resulting in MOP493.4 million subsidized, while the

construction and public works sector saw MOP395.2 million for 113 approved projects. K.W.

“(China’s) influence is growing, it will have to be accommodated in the global system,” stated Prime Minister Lee Hsien Lung, noting that a “stable, smooth way” for this to happen would be via “infrastructure projects, with connectivity, financial linkages, people linkages in a way which enables the region to benefit from China’s prosperity,” through One Belt, One Road.

Statements from China’s Ministry of Foreign Affairs

commended the cooperation.

‘Singapore, located at a unique geographic position, commands advantages in capital, management and services. China welcomes Singapore’s participation in the Belt and Road initiative,’ noted spokesperson Lu Kang, additionally pointing out ‘the two sides are undertaking the China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity to enhance regional connectivity.’

consecutive year as the top spending country of origin, according to Xinhua.

The territory’s Deputy Prime Minister Teo Cheen Hean, noted that the hub would contribute to the initiative through boosting connectivity between the regional hubs of the project, noting that “Singapore will continue to uphold this right of transit passage for ships and aircraft of all countries, and will not support any attempt to restrict transit passage to ships or aircraft from any country,” as quoted by the Straits Times.

The country, aside from welcoming ships and aircrafts, and their cargo and passengers, can contribute to the financing and human capital development, stated the deputy prime minister, pointing in particular to financial institutions in Singapore financing trade and investments between China and other Southeast Asian nations.

“While we have often focused on the physical infrastructure of the Belt and Road, other dimensions and layers are also important to realise the full potential of the initiative,” stated the official, cited by the publication. K.W.

Cooperation

Cozying up to Singapore One of Asia’s primary gaming hubs – Singapore - will be linking up with China for its Belt and Road initiative, further strengthening cooperation between the regions, according to statements by Singapore’s Prime Minister quoted by regional media.

As of the first quarter of this year, the Merlion city welcomed 264,684 visitors from

China and 2,805 from Hong Kong (Macau is not included in the figures), according to data from the Singapore Tourism Board. The visitors from China alone represent 60 per cent of all the visitors from North Asia during the quarter, 23.7 per cent of all visitors from Asia and 18 per cent of all visitors to the territory during the quarter.

Linking up

This total visitation to the city represents just 18.8 per cent of that to the MSAR during the same period, with the MSAR welcoming 7.87 million, however both cities saw a year-on-year uptick in visitation during the quarter, at 5.1 per cent for Singapore and 5.6 per cent for the MSAR. However, Singapore saw a 9.7 per cent year-on-year increase in its Chinese visitors (excluding Hong Kong and Macau), while Macau only saw a 7.6 per cent uptick.

Last year Chinese visitors to Singapore spent an estimated US$2.85 billion, marking a 39 per cent yearon-year uptick, the second

Business Daily Thursday, July 20 2017 3

Macau Urban renewal

Rosário: approval suggestions hopefully be ready next month Cecilia U cecilia.u@macaubusinessdaily.com

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he suggestion proposal of adjusting the approval ratio for reconstructing old buildings “should be readied by the next meeting [next month]”, said the Secretary for Transport and Public Works Raimundo Arrais do Rosário after the end of the Urban Renewal Committee meeting yesterday.

“The third task force is responsible for the approval ratio of reconstructing old buildings,” reported the Secretary. “Hopefully [the report] will be finished by next meeting and would later be sent to the Legislative Assembly for deliberation.”

After more than a year of discussions, the Committee reached a preliminary consensus in March that the approval percentage of flat owners needed to redevelop a building could be lowered to facilitate the

rejuvenation of old districts.

The plan was to readjust the percentage approval required for buildings of 30-40 years of age to 90 per cent, while it would be lowered to 85 per cent for buildings aged 40 years or more. In the event of major public interest or the buildings being demolished, the approval ratio could be changed to as low as 80 per cent, he said. Under the present legal framework, any redevelopment of a building must get the approval of all owners of a building.

The Secretary expressed the wish that the ratio will be further confirmed in next meeting, given that the plan has to be approved by the other members of the Committee.

The other two task forces working on the area, according to Rosário, “were simply still discussing and there is no significant information that can be shared”.

The first task force is responsible in revitalisation of industrial buildings, while the second task force

Secretary for Transport and Public Works Raimundo Arrais do Rosário

focuses on the setup of a government’s wholly owned company for supporting urban renewal in the city.

When asked about the progress of giving out permits to operate certain businesses for revitalising industrial building zones, the Secretary said

there have been disccussions on the matter while noting that “rejuvenating industrial buildings is not an easy task”.

“Related departments will look at the matter in detail”, said the Secretary.

from April to June also increased threefold, to 21 from seven, during the first quarter.

The largest amount attributed during the latest financial support, MOP1.64 million, was allocated to Hou Long Film Company (Macau) Ltd. to support a film production project, tentatively entitled ‘The Lost Man.’ The second largest subsidy,

amounting to a total of MOP1.23 million, has been allocated to Kingdom Entertainment & Production Company Limited for the financing of a broadcasting project, the ‘TV Otaku Plan.’

In addition to film production, other subsidies have been attributed to finance projects in the fields of fashion and design, handicrafts, music, and dance. S.Z.

Subsidy scheme

Funding for culture on the rise The Cultural Industry Fund disbursed a total of MOP9.70 million during the second quarter of 2017, according to a dispatch in yesterday’s Official Gazette.

The amount for the current period represents an increase of 47.65 per

cent compared to the first quarter of 2017, when the total amount of subsidies attributed reached some MOP5.80 million.

The number of associations and companies who used the subsidies

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4 Business Daily Thursday, July 20 2017

Macau Opinion

Ashley Sutherland-Winch* Uber Frustrated With Transportation It has been an incredible, inconvenient season for transportation in Macau, specifically for those that travel to the beaches of Coloane. First the Bus 25 route changed in Coloane this spring making it a challenge to reach Cheoc Van and Hac Sa beaches; and now Uber Technologies, Inc. is pausing services throughout the city as of July 22nd.

While Radio Taxi seemed like a great new option, residents often report that this option is difficult to obtain and the phone lines are often engaged.

Uber released a statement Tuesday stating that they “had not been able to unlock the full benefits of ride-sharing in the city,” and for the second time in its two-year tenure in town, the company has stopped operations.

I find it mind-blowing to consider the high fines that have been imposed on the drivers of Uber. As a resident of Coloane, my vehicle was stopped often if we have passengers in the back seat. The police were frequently looking for Uber drivers in the outlying areas of the city.

When traveling to cities all over the world, including mainland China, it has become almost second nature for people to request an Uber or Lyft. It is really unfortunate that Uber continues to fail in Macau.

There are still major issues traveling to Coloane on weekend days with nice weather from Taipa. The buses are still full often, and the current schedule of one large bus every 1015 minutes and two small buses every 30+ minutes is just not good enough for the demand of the city. It is time for DSAT to reconsider the Bus 25 route change, even if only on weekends during May-November when beach season is in full swing. It is such a challenge to catch a taxi at Hac Sa or Cheoc Van, and now with Uber unavailable and Radio Taxi difficult to reach, transportation woes will continue to frustrate residents and tourists alike.

“We welcome those who comply with the law, and we will act according to the law to those who don’t comply with the law,” said the DSAT spokesperson.

It would be ideal if DSAT would re-evaluate the public transport options to outlying areas in Macau so that residents and tourists could rely on a public method as opposed to seeking private or taxi alternatives that are variable based on their legality or availability. Until then, I am uber frustrated with transportation in Macau. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.

AML

Asia Pacific Group gives MSAR thumbs up The Mutual Evaluation Report notes that ‘licensing controls are robust in the Macau gaming sector for both concessionaires/sub-concessionaires and junket promoters’ Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he Asia Pacific Group (APG) has approved the Mutual Evaluation Report on the MSAR in its annual plenary session in Colombo, Sri Lanka, according to a release by the local Financial Intelligence Office (GIF). This comes after an audit by the group late last year to see if it had improved on suggestions provided in its last audit, in 2007, in order to enforce anti-money laundering (AML) and counter terrorist financing measures.

The release notes that the MSAR received two results indicating ‘low effectiveness’ of the 11 ‘immediate results’ areas under evaluation, as well as three ‘moderate effectiveness’ results, however the GIF did not specify in which areas. Business Daily contacted the GIF for details, but had not yet received a response by the time this went to print.

Contrasting these are the six areas in which the MSAR received ‘substantial effectiveness’ which, according to the GIF ‘places the MSAR on the highest ranking of compliance amongst the members of the APG’.

These results were in the areas of international cooperation, supervision, legal persons and associates, use of financial information, preventative measures and financial sanctions against the financing of terrorism and financial sanctions against the financing of the proliferation of weapons of mass destruction.

The group further notes that the group against money laundering and financing of terrorism has demonstrated ‘efficiency in the coordination of policy and elaboration of strategic plans’.

Of the technical compliance assessment, the GIF notes that the MSAR obtained ‘37 compliant and largely compliant ratings out of the 40 Financial Action Task Force Recommendations and only 2 partially compliant and 1 non-compliant rating’.

Gaming

‘According to the Mutual Evaluation Report 2017, licensing controls are robust in the Macau gaming sector for both concessionaires/sub-concessionaires and junket promoters,’ notes the GIF release, further noting that the local government ‘is taking a more stringent approach towards

licensing and the supervision of junket promoters which are also subject to enforceable AML/CFT requirements’.

‘AML/CFT obligations contained in the updated DICJ (Gaming Inspection and Coordination Bureau) AML/CFT Guideline and understanding of ML

(money laundering)/TF (terrorist financing) risks are well understood by the concessionaries and sub-concessionaries. Nevertheless, the Macao SAR Government acknowledges that the understanding of the updated AML/CFT obligations and ML/TF risks in the junket promoter sector could be further improved,’ notes the release.

The MER further notes that the DICJ’s AML/CFT team is ‘experienced and suitably qualified’ and that the quality of its audits reviewed during the evaluation ‘was robust’. advertisement

Business Daily Thursday, July 20 2017 5

Macau Restaurants | Retail

Summer satisfaction Restaurants and retailers are improving expectations for June sales after coming off of a better-than-expected May Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

B

oth restaurants and similar establishments and retail operators in the MSAR reported year-on-year increases in sales for the month of May, according to data from the Statistics and Census Service (DSEC). The data results from the business climate survey conducted of the sectors, interviewing 167 restaurants and similar enterprises – which make up 53 per cent of the industry’s receipts – and 135 retailers – which account for 70 per cent of the industry’s receipts.

Restaurants in the city saw a 6 percentage point drop from the previous month in the percentage of respondents recording year-onyear growth, while those recording a year-on-year decline in receipts went up 10 percentage points, to 33 per cent.

The results were better than expected, as the April survey indicated only 18 per cent of respondents

expected an increase in receipts. For June, expectations by the sector largely estimate a decrease in receipts, at 41 per cent, while only 22 per cent expect a year-on-year rise. Twenty-five per cent of Western restaurants, 27 per cent of Chinese restaurants and 18.8 per cent of Japanese and Korean restaurants predict increases. On the other hand, 60 per cent of Western restaurants predict a decrease, while in all categories those predicting decreases tally over 30 per cent.

Retail

‘Retailers remained cautious about their business prospects,’ notes the DSEC, pointing out that despite this 26 per cent of retailers expect a year-on-year increase in sales, a 3 percentage point uptick from May, while 38 per cent expect a sales decline.

For the month of May, 36 per cent of the retail respondents indicated that they had undergone a yearon-year sales decline during the month, a 2 percentage point drop from the previous

month. Motor vehicle retailers however saw a better market than expected, with only 33.3 per cent of the respondents registering yearon-year declines in sales, 45 percentage points below April predictions. Other respondent segments experiencing better-than-expected results were those of adults’ clothing retailers and supermarkets, which exceeded forecasts by 40 and 33 percentage points, respectively.

Looking forward towards the month of June, 80 per cent of the respondents in the leather goods area expected sales increases, coming off of 100 per cent of respondents in May registering sales increases year-on-year.

Wa tc h e s, c l o c ks a n d jewellery retailers saw a 24 percentage point rise in expectations for sales increases in June, hitting 50 per cent, while department store respondents saw a 22 percentage point increase, to 56 per cent.

Motor vehicle retailers also saw a rosier outlook for June, with those predicting declines down 11 percentage points, to 67 per cent, however 44 per cent of the respondents expect a sales decrease of 20 per cent or more. advertisement

6 Business Daily Thursday, July 20 2017

Macau Opinion

José I. Duarte*

Bay challenges As some would put it, the Greater Bay Area is the next big thing. It involves nothing less than integrating nine cities in the Guangdong province, including its capital and the two special economic areas (Shenzhen and Zhuhai), with the two special administrative regions (Macau and Hong Kong). It has been announced, promoted and supported at the highest level.

We should not doubt the political relevance of the plan. The area would integrate a territory that holds some 70 million people currently and represents more than 10 percent of China’s GDP. The issues such an objective entails regarding the practical challenges faced to articulate three different custom areas with (at least) three legal and administrative systems are less than trivial – but let us leave that aside for now.

Bear in mind that the terms of reference usually quoted are Tokyo, S. Francisco, and New York. Each one of those ‘bays’ is a special case with its distinctive features and treating them as similar and comparable entities is possibly a bit far-fetched.

However, invoking them as references sets the tone and the level of the projects’ ambition.

The exact contours of the project are not known, some blueprint is expected shortly. Some of the stated aims seem a bit over-ambitious. The general targets, recently publicized, include becoming a ‘world reference bay’ by 2020; and to have the highest GDP among those ‘bay areas’ and being an ‘important’ world area for advanced manufacturing, innovation, financial services, and trade, by 2030.

Becoming a ‘world reference’ can mean either that the region it will be on par with would be its ‘bay area’ peers or just that people will be talking a lot about it. The first is clearly unattainable; the second looks like a marketing stunt. Hopefully, the blueprint, when it comes out, will help to define a third plausible meaning for the expression and set viable operational targets.

The real significance of the 2030 aims is easy to overstate. A bigger GDP than the others must account for the fact that the population will also be the largest one of the mentioned ‘bay areas,’ more than 50 percent above the second biggest. In per capita terms, moving up from the last place in the ranking is difficult, to say the least; and reaching the top is unattainable. The real meaning of the other aims hinges on how we define ‘important.’

We must wait for the blueprint. *Economist and permanent contributor to this newspaper.

Consumer rights

Consumer Council swamped with complaints

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he city’s Consumer Council handled 2,451 cases in the first half of this year, with 761 related to complaints, 1,677 related to enquiries and 13 related to suggestions. According to the Council, 76 complaints involved the telecommunication services, while 63 were linked to telecommunication equipment and 59 were related to public transportation.

Regarding the complaints about the telecommunication services, about 40 per cent involved disputes on monthly plans or roaming data services, with 35 per cent regarding

the quality of services.

For complaints about telecommunication equipment, the major reason of lodging was the quality of mobile phones and after-sales services.

In terms of public transportation, many complained about the over-charging of taxi drivers and quality of services.

According to the Council, complaints lodged by MSAR residents in the first half of this year relating to the purchase of properties in mainland China had dropped by 90 per cent, given that the Council had strengthened the cooperation with Chinese

authorities which reduced disputes created from the misunderstanding of Chinese laws by Macau residents.

Hospitality

Hotel occupancy went up and price dropped in June Cecilia U cecilia.u@macaubusinessdaily.com

In the month of June, the city’s occupancy rate increased by 3.1 percentage points year-on-year to 88.5 per cent, according to the latest data gathered by the Macau Hotel Association (MHA) and revealed by the Macao Government Tourism Office (MGTO).

However, the occupancy rate dropped by 1.3 percentage points when compared to May’s rate.

The official data shows that more people were staying in 3-star hotels, which had a 91.5 per cent occupancy rate, but the rate had just slightly increased by 1.4 percentage points when compared to 90.1 per cent a year ago.

Rooms from 5-star hotels were, in fact, experiencing the biggest annual differences, with the rate at 88 per cent, up 6.2 percentage points year-on-year.

For 4-star hotels, the occupancy rate was 88.3 per cent, also increased

by 2.9 percentage points when compared to 85.4 per cent a year ago during the same month.

Meanwhile, average room price in June dropped by 5 per cent yearon-year, costing some MOP1,174.8 (US$146.1).

Specifically, the price for a 3-star hotel room was MOP730.9, down 7.5 per cent when compared to MOP789.9 in June 2016.

Among all the level of hotel ratings, 4-star hotel rooms were the only that registered a year-on-year increase in the price, at MOP704.4, increased slightly by 1.1 per cent.

As at June this year, the accumulative occupancy rate stood at 87.2 per cent, up 6.3 percentage points when compared to 80.9 per cent the previous year.

Regarding the accumulative prices, according to MGTO, the average price of room cost, around MOP1,249.6, decreased by 3.5 per cent year-on-year.

There are currently 41 hotel premises in the city, as quoted by MHA.

M&A

Amax goes AR and VR Casino investor Amax International Holdings is entering into an agreement to purchase an augmented reality, virtual reality, 3D modelling and animation company, according to a filing on the Hong Kong Stock Exchange.

The company, MostCore, as well as its subsidiary Inno Motion, are conditionally to be sold for HK$63.5 million, and purchased by a wholly-owned subsidiary of Amax.

MostCore is a limited liability company whose ‘principal activities […]

include the development of innovative intellectual properties and technological solutions, mobile apps development and the provision of IT solutions to clients and mobile users across the globe,’ according to the filing.

The sale is expected to be satisfied by the issuing of HK$49.5 million in Consideration Shares and HK$14 million in promissory notes.

Amax’s decision to purchase the property is based on ‘the growing popularity of virtual reality and augmented reality’ as well as the ‘future

business prospects of mobile and digital industries’. In addition the preliminary valuation of the group of HK$64.4 million. Once all conditions are fulfilled the completion is expected three business days later, ‘or such other date’ as the parties agree upon.

Amax International Holdings late last month reported that ‘a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern,’ in a stock exchange filing, having calculated the loss from its involvement in the Greek Mythology casino at HK$901.2 million for the financial year ended March 31. K.W.

Accounts

Macau Horse Racing Co. still in the red The Macau Horse Racing Company Ltd. has recorded losses of MOP4.07 billion for the financial year ended December 2016, according to information published in the Official Gazette yesterday.

Total liabilities of the company have amounted to some MOP1.31 billion over the period.

According to previous reports, the company operating the Macau Jockey Club (MJC) had failed to make an annual profit since 2005.

The MJC has generated total revenues from horserace betting of MOP141 million in 2016, a drop of 15 per cent from MOP166 million

in 2015, according to official data from the Gaming Inspection and Co-ordination Bureau (DICJ).

As at the end of 2015, the company operated by Angela Leong On Kei had recorded accumulative losses totaling some MOP3.96 billion over the past decade, according to the company’s 2015 annual report. S.Z.

Business Daily Thursday, July 20 2017 7

Gaming Monitoring

Philippines puts big casinos on money-laundering watch Funds proven in a court trial to be related to crime will be forfeited to the state

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he Philippines said yesterday it would monitor large transactions at casinos to curb money-laundering, after proceeds from an US$81 million theft were funnelled through several gambling establishments last year.

President Rodrigo Duterte signed a law this week adding the gaming sector to monitored institutions.

Casinos must now report to the central bank’s Anti-Money Laundering Council all transactions exceeding five million pesos (around US$99,000).

The law authorises the council to obtain court orders freezing these funds for up to six months if it is suspected they were “in any way related to an unlawful activity”.

Funds proven in a court trial to be related to crime will be forfeited to the state.

The Philippines passed its first anti-money laundering law in 2001 to avoid being blacklisted by the Financial Action Task Force, a group of countries dedicated to keeping the international financial system off-limits to criminals.

The task force had since been calling on Manila to

expand the institutions required to report suspicious transactions, in line with other task force members.

The original law only covered banks, trust entities, insurance companies, investment houses, securities dealers, moneychangers and money remittance firms.

Hackers stole US$81 million from a U.S. account of the Bangladesh central bank last year.

Most of the funds disappeared after being funnelled in February 2016 through a Philippine bank and several casinos.

The Philippines has in recent years emerged as a gaming hub aiming to rival Las Vegas and Macau, with 2015 gross gaming revenues

of about 133.3 billion pesos according to latest regulatory figures available.

Over the past four years three huge casinos costing at least a billion dollars

each have risen on government-owned reclaimed land on Manila Bay called Entertainment City, with a fourth scheduled to open in 2019. AFP

Investment

Betting on each other

Crown Resorts’ James Packer

An investment company in which Crown Resorts’ James Packer holds a 25 per cent stake has increased its holdings in Australia’s other large gaming operator The Star Entertainment, having pushed its holdings over the 5 per cent mark after

Malaysian gaming group Genting sold off its 5.6 per cent stake in the operator last week, according to The Age. The investment company, Ellerston Capital is run by Ashok Jacob, a former associate of both Packer and

his father and formerly on the board of Crown, notes the publication.

While Packer himself had sold his own 10 per cent holding in the rival gaming group, in 2013, Ellerston earlier this year noted that the long–term growth in tourism from China and Southeast Asia could be a potential boon for the company. advertisement

8 Business Daily Thursday, July 20 2017

Greater china Real estate

Guangzhou offers incentives to boost home rental market The city slashed and even eliminated value-added taxes in some cases for registered companies and individuals operating or involved in the residential rental business

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he s o u th e r n Ch i n es e boomtown of Guangzhou has announced a flurry of incentives to boost its home rental market as a year-long property boom makes new housing less affordable.

The move comes as China’s government spearheads a drive to support rental supply to help rein in hot property prices and satisfy housing demand.

While property prices have shot up, driven by speculation and demand from a growing middle class, China’s rental market has long been underdeveloped and largely remained unregulated, with rental yields easing to multi-year lows.

Guangzhou, one of the country’s biggest cities, is offering a host of sweeteners for renters including equal education access, tax cuts and monetary support.

Children of tenants, many of whom are migrants working in the mega-city of 14 million people, will be given the right to attend a school near the rented property.

Home ownership is a key requirement in China’s school allocation system, as policies dictate school enrolment to be largely determined by the location of the student’s home.

It has led to sky-high property prices in better school districts.

The city also slashed and even eliminated value-added taxes in some cases for registered companies and individuals operating or

involved in the residential rental business.

The details were released by the city government late on Monday.

The steps drew both praise and brickbats in online media, with some critics saying the measures would only fuel rental prices.

“This is a major policy bonus for property speculators,” commented one person who used the handle “Fighting” on China’s popular social media platform Wechat.

“In absence of a property tax, it still means property owners will get richer - they don’t have to worry about selling anymore, they can just rent for big profit,” another person named “Boe” commented.

Like many other big Chinese cities, Guangzhou has rolled out various property curbs since early last year to drive out speculators, including banning buyers from reselling newly bought properties before holding them for two years.

Still, Guangzhou’s new home prices in June rose 17.8 per cent from a year earlier.

Conversely, the rental yield in all of the country’s first-tier cities Beijing, Shanghai, Guangzhou and Shenzhen - has fallen below 2 per

cent, according to Shanghai-based E-house China R&D Institute.

In some cases, owners who are hoping to make big capital gains prefer to keep apartments empty, rather than taking the trouble to let them out, which further limits supply in the rental market.

Advertisements posted on Fang. com, China’s biggest real estate website, showed renting a bedroom in a typical two-bedroom home in Guangzhou would range between 2,000 yuan ($296) to 3,000 yuan per month.

A report by government-backed Southern Talent Market showed the average monthly salary in Guangzhou was 6,954 yuan ($1,029) in 2016. Reuters

Guangzhou panorama

Oil

Beijing drafts new rules for oil storage industry Companies must have a minimum storage tank capacity of 200,000 cubic metres to distribute and store crude oil Hallie Gu and Florence Tan

Beijing yesterday issued a draft of new regulations for China’s growing oil and fuel storage industry, helping loosen the state-owned oil majors’ grip on the sector as the nation pushes to reform its vast energy markets.

The government is looking to update storage policies issued in 2006, consolidating regulations for crude oil and rules for oil products under a single framework.

The main change in the draft is that it removes requirements for

distributors and storage companies to have secure and steady supplies of refined products, a condition that only state majors like Sinopec and China National Petroleum Corp could comply with. Although the clause will still exist for crude. “(The draft) has lowered the threshold for entry to the wholesale and storage industry,” said Dong Xiucheng, a professor at the China Petroleum University.

“The new draft emphasizes storage capacity first ... As long as you have enough storage capacity, you can apply to enter the industry.”

Under the draft proposals issued by the commerce ministry, companies must have a minimum storage tank capacity of 200,000 cubic metres to distribute and store crude oil and at least 20,000 cubic metres for refined products. Experts and traders said those requirements were in line with industry averages.

Another draft rule requires storage companies and wholesalers of crude oil or refined oil products to apply for a permit from the provincial

government, which will be subject to approval from Beijing.

Other regulations were largely in line with existing rules, such as the clause that stipulates Chinese companies must hold the majority stake in any firm with more than 30 retail outlets. BP and Shell operate gas stations in China through joint ventures with state-owned companies like Sinopec.

The document comes after the government said in May it would allow private companies to invest in its oil and gas storage.

Aug. 19 is the deadline for public feedback on the draft rules. Reuters advertisement

Business Daily Thursday, July 20 2017 9

Greater China Inc

In Brief

After curbs on Wanda, worries rise rivals could be ensnared The market jitters come amid a broader drive by Beijing to restrict Chinese conglomerates’ moving funds abroad Adam Jourdan

China’s curbs on property giant Dalian Wanda Group’s overseas deals are spreading a chill at home and abroad, raising fears that a campaign to root out risky overseas investments could draw in rival Chinese conglomerates and even Hollywood studios.

Giant Chinese retailer Suning Commerce Group Co Ltd, the owner of Italian soccer club Inter Milan, saw its shares tumble yesterday after China’s state broadcaster cited the firm’s 270 million euro deal for the club last year on a show about “irrational” investment overseas.

Wanda-owned cinema chain AMC Entertainment Holdings Inc and Hollywood studio Legendary Entertainment said late on Tuesday their businesses were insulated from curbs imposed by Chinese regulators on overseas spending by their parent.

AMC’s stock had slid on Monday on fears over the crackdown.

The market jitters come amid a broader drive by Beijing to restrict

Chinese conglomerates’ moving funds abroad. China is also cracking down on risky lending ahead of a key Communist Party congress in the second half of this year.

Wanda, led by one of China’s richest men, Wang Jianlin, is one of several acquisitive Chinese firms that have expanded aggressively overseas into areas beyond their original business.

Chinese banks have been told to stop providing funding for several of Wanda’s overseas acquisitions as Beijing looks to curb the conglomerate’s offshore buying spree, sources familiar with the matter said on Monday.

AMC, bought by Wanda for US$2.6 billion in 2012, said, however, that four deals for cinema chains completed between 2015 and earlier this year were fully paid for by its own funds and loans from U.S.-based banks.

“At no time was Wanda ever a source of funding for any of these acquisitions or individual theatre purchases,” AMC said in a statement on Tuesday.

Wanda’s founder Wang Jianlin

The cinema chain added it had “never received committed financing from any bank headquartered in mainland China for any purpose” and that Wanda does not actively participate in the day-to-day running of AMC beyond three seats on its board.

AMC shares rose 2 per cent on Tuesday after the statement. They had plunged 10 per cent on Monday on news of the curbs.

Legendary, which Wanda bought in January last year for around US$3.5 billion, said in an emailed statement that it was “well capitalized with liquidity to fund its film and TV slates and operate its business as usual”.

CCTV

The late-night show on CCTV pointed to Suning’s deal for Inter Milan as an example of risky overseas deals. It also named property developer Sunac China and a separate Chinese deal for AC Milan, which was completed earlier this year.

Suning’s vice chairman Sun Weimin told local media that Suning “strongly supported” Chinese policies regarding overseas investment and that the firm’s push overseas was to help bolster its market back home.

Suning declined to comment further.

China’s powerful state planner had said earlier on Tuesday that it would look to curb irrational overseas investments, underscoring a drive that started last year and which has zeroed in on deals in real estate, entertainment and sport.

The curbs on Wanda, announced at a meeting in June, focus on six overseas deals where lenders have been told not to provide finance or allow Wanda to use its offshore assets as collateral for financing, an internal bank document seen by Reuters showed.

Wanda, a major property developer, has been reining in some of its more ambitious undertakings.

It also scrapped a US$1 billion deal to buy Hollywood production company Dick Clark Productions Inc in March this year. Reuters

Markets

Evergrande has ally against shorts as Lau invests US$1 billion Short interest reached 21 per cent of the free float in May and has since fallen to 16 per cent Turns out China Evergrande Group, the indebted developer which earlier this year fought off short sellers, had a hidden ally.

Chinese Estates Holdings Ltd., the company controlled by Hong Kong billionaire Joseph Lau and his family, bought HK$8.1 billion (US$1 billion) worth of Evergrande shares since April, Lau’s firm revealed yesterday as it announced its interest had passed 5 per cent. The announcement came a day after Bloomberg reported that Lakewood Capital Management is betting against Evergrande stock.

Purchases by Chinese Estate and Evergrande’s own share buybacks helped billionaire founder Hui Ka Yan beat back bearish investors. Short interest reached 21 per cent of the free float in May and has since fallen to 16 per cent, according to Markit data. The stock price doubled in the same period.

Ties between Lau and Hui go back to at least 2009, when Chinese Estates invested in Evergrande’s initial public offering. Since then, the two companies have sold assets to each other on several occasions. Chinese Estates’ latest investment in Evergrande was an expensive foray: the developer’s stock trades at almost five times the average valuation of its peers by one measure.

“It’s unclear why Chinese Estates

bought the shares but it certainly helps lift investor confidence” in Evergrande, said Linus Yip, Hong Kong based strategist with First Shanghai Securities. “The developer’s share gains earlier had forced out many short sellers and prices had been relatively stable in the past month or so, suggesting there’s few shorts left.”

Evergrande traded at 4.2 times book value as of Tuesday’s close, up from 1.3 times at the end of last year. A Bloomberg Intelligence index of 22 leading Chinese developers shows an average ratio of 0.92 times. The shares reversed early declines after the statement to rise 1.5 per cent in Hong Kong. Chinese Estates gained 2.7 per cent.

After crossing the 5 per cent

threshold, Chinese Estates is the second-biggest shareholder in Evergrande, data compiled by Bloomberg show.

Debt load Evergrande became a magnet for short sellers -- investors who aim to profit from an expected slump in the stock -- after an acquisition spree that turned it into China’s most indebted developer. It’s since ceded that mantle to Sunac China Holdings Ltd., and CIMB Securities Ltd. estimated last week that Evergrande’s net gearing may have fallen to 200 per cent from 432 per cent last year.

Even after short interest fell in past months, the company still has its doubters. In a July 18 second-quarter letter obtained by Bloomberg, Lakewood Capital said a “large portion” of Evergrande’s earnings over the past few years were of “questionable” quality. Evergrande didn’t immediately respond to a request for comment.

Chinese Estates and Evergrande have a history of buying assets from each other. An Evergrande unit agreed in May last year to sell Shengjing Bank Co. shares to Chinese Estates for HK$6.9 billion to restore the lender’s public float. In 2015, Chinese Estates made three property sales to Evergrande, including the 26-story Mass Mutual Tower in Hong Kong’s Wan Chai district, which netted Lau’s company more than HK$20 billion.

Bloomberg News

Real estate

Hong Kong skyscrapers world’s most expensive Skyscrapers in Hong Kong are the world’s most expensive commercial real estate assets, according to Knight Frank LLP. Hong Kong skyscrapers are worth US$8,000 per square foot, about 60 per cent more than Tokyo’s tall towers, according to a Knight Frank report released yesterday. The analysis used rents and prime yields to value office towers as of the fourth quarter of 2016. Henderson Land Development Co.’s recent US$3 billion acquisition of a five-story car park in Hong Kong, where it plans to build an office tower, underscores the frenzied state of the city’s property market, Knight Frank said.

Institutions

Securities regulator pledges to follow supervisory body’s lead China’s securities regulator said late on Tuesday that it would follow the lead of a new financial oversight body personally mandated by President Xi Jinping and support its efforts to curb risks in capital markets. The China Securities Regulatory Commission (CSRC) said on its website that it would also promote stable growth and focus on enhancing the capital market’s financing of the real (non financial markets) economy. China is grappling with rising risks from misallocated investment that has built up since the global financial crisis and the government wants to improve supervision for what officials call “chaotic” financial markets.

Markets

Mainland stocks rise to 2015 high Chinese equities traded offshore and on the mainland closed at the highest levels since 2015, with financial shares leading gains in Hong Kong and materials companies driving large caps higher onshore. The Hang Seng China Enterprises Index rose 1 per cent in Hong Kong as Huatai Securities Co. and GF Securities Co. led financial companies higher. China Shenhua Energy Co. jumped the most since March as supplies tightened amid peak summer demand. The CSI 300 Index of mainland-traded large-cap stocks gained 1.7 per cent at the close, as investors switched out of smaller companies into commodity producers.

Auto industry

Microsoft cloud to help Baidu self-driving car effort Microsoft’s cloud computing platform will be used outside China for collaboration by members of a self-driving car alliance formed by Chinese internet search giant Baidu, the companies announced on Tuesday. The U.S. software giant is one of more than 50 entities that have joined an Apollo alliance created by Baidu in April. Microsoft will enable alliance members to collaborate, share information and tap into the analytic power of Azure cloud computing, according to the companies.

The companies did not say why the alliance would not use the Microsoft cloud computing platform inside China.

10 Business Daily Thursday, July 20 2017

Greater China Trade

U.S. talks seen offering small-scale market access deals Chinese Vice-Premier Wang Yang said that China has some concerns of its own to air at the talks, including “outdated” U.S. export controls for high-technology products David Lawder

U

.S. and Chinese officials will try to ease trade tensions and bridge differences in on-going annual economic talks that trade experts say will likely yield some small-scale agreements to grant U.S. firms more access to some of China’s markets.

But the talks are not expected to solve larger problems, such as U.S. complaints about China’s excess capacity in steel and aluminium and subsidies for state-owned enterprises, nor China’s complaints about U.S. refusals to sell Beijing advanced technology products.

“What I think we will see is an attempt by both sides to be able to

declare victory by coming up with a few very specific areas in which China agrees to open up its markets more and which the U.S. can claim as victories,” said Eswar Prasad, a professor of trade policy at Cornell University and a former China division chief at the International Monetary Fund.

U.S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross said on Tuesday they would be looking for China to agree to concrete steps with specific delivery dates to open markets, including more access for U.S. firms in the financial services sector.

The talks, rebranded by the Trump administration as the “U.S.-China Comprehensive Economic Dialogue,” come at the end of a 100-day effort

by the two countries to craft an economic plan aimed at reducing the U.S. goods trade deficit with China, a gap that reached US$347 billion last year and was up 5.3 per cent through May this year.

China agreed in May to resume purchases of U.S. beef for the first time in 14 years and made commitments to buy U.S. liquefied natural gas and allow U.S. card payment services companies to operate in China. But while U.S. beef is now available in Chinese shops, it has taken longer for the other promised steps to be implemented.

Chinese Vice-Premier Wang Yang said on Tuesday that China has some concerns of its own to air at the talks, including “outdated” U.S. export controls for high-technology products.

In remarks to a business lunch, he said such Chinese purchases would reduce the U.S. trade deficit, noting that China imported US$227 billion worth of integrated circuits last year, but only 4 per cent of that came from

the United States.

Prasad said the United States would be better served by focusing less on near-term steps but pushing China for bigger reforms such as opening major portions of its services sector to U.S. competition, relaxing corporate ownership rules, reducing subsidies for state-owned enterprises and clamping down on intellectual property theft.

Some U.S. officials said China was likely to push to turn the 100-day plan into a year-long effort, partly because China is viewed as unlikely to launch bolder economic reforms before its 19th Party Congress, a oncein-five-years event to set leadership, takes place this fall.

“What I think we will see is an attempt by both sides to be able to declare victory” Eswar Prasad, a professor of trade policy at Cornell University

U.S. Treasury Secretary Steven Mnuchin (pictured) and Commerce Secretary Wilbur Ross said on Tuesday they would be looking for China to agree to concrete steps with specific delivery dates to open markets. Lusa

The annual summer dialogues, first launched in 2006, have focused in the past on China’s currency practices and what was once viewed as an undervalued yuan. But that issue has faded after the U.S. Treasury declined to follow through on Trump’s campaign threats to name Beijing a currency manipulator.

David Dollar, a former Treasury attaché to Beijing who is now a senior fellow at the Brookings Institution, said that as in the past, the meeting is likely to focus more on process than substance, with the same complaints airing year after year.

“The cumulative effect of all these dialogues has to have been pretty minor,” he said. “We haven’t seen any significant opening up of the Chinese economy for years.” Reuters

Auto industry

Hyundai Motor to begin production at fifth Mainland factory in August Sales fell 64 per cent in June compared with the same month a year earlier Joyce Lee

South Korean automaker Hyundai Motor Co said yesterday it will begin production at its fifth factory in China in August, as it hopes to reverse a sales slump in the world’s biggest auto market where a diplomatic spat has hit Korean goods.

Key Points Chongqing plant to make SUVs, compacts tailored to Chinese Hyundai hopes to reverse sales slump amid diplomatic spat Under-utilised plants prompt oversupply concern -analysts The plant in Chongqing is part of efforts to strengthen competitiveness by making compact sedans and sport utility vehicles (SUV) tailored to Chinese tastes, the automaker said in a statement.

“The Chongqing factory will produce high-quality new models for

the Chinese consumer, and make Hyundai an automaker that encompasses eastern and western China,” Vice Chairman Chung Eui-sun said in the statement.

The announcement comes months after South Korea angered China by agreeing to deploy a U.S. missile defence system to counter threats from North Korea. China objected that the system’s radar would be capable of penetrating its territory, sparking a popular boycott of Korean goods and services.

Analysts said the impact has led to factories being under-utilised, prompting concerns of oversupply.

“Hyundai’s Chinese sales weakened quite a bit,” said analyst Lee Jaeil at Eugene Investment & Securities.

“There is concern of oversupply, but since the target market is different, Hyundai can be expected to minimise any overlap,” he said, noting the new factory was Hyundai’s first in mid-western China.

Hyundai’s China sales fell 64 per cent in June compared with the same month a year earlier, while those at

affiliate Kia Motors Corp dropped 58 per cent.

The impact of the diplomatic dispute added to the pair’s other problems in China. Weak brand perception and the lack of a line of SUVs - an in-vogue market segment - left

Hyundai-Kia’s market share at an eight-year low last year.

Hyundai’s new factory will add to one in Changzhou and three in Beijing. When completed in late August, its annual Chinese production capacity will be 1.65 million vehicles. Reuters

Chung Eui-sun (R), vice chairman of Hyundai Motor Co., and Chongqing Mayor Zhang Guoqing (C) viewing a compact car during a ceremony held to unveil a new plant in Chongqing yesterday. Lusa

Business Daily Thursday, July 20 2017 11

Asia Tankan survey

Japan business mood steady at high levels as economy recovers The BOJ’s last tankan out July 3 showed big manufacturers’ business confidence hit its highest level in more than three years Tetsushi Kajimoto and Izumi Nakagawa

J

apanese manufacturers’ and service providers’ business confidence held steady at high levels in July, a Reuters poll found yesterday, underlining the central bank’s upbeat view on the economy.

Manufacturers’ sentiment stood at a decade-high peak and service-sector mood maintained its two-year high, offering further evidence of broadening confidence.

Sentiment was likely to hold largely steady over the next three months.

The readings in the Reuters’ monthly poll - which tracks the Bank of Japan’s (BOJ) closely watched quarterly tankan - should be encouraging to the central bank, which is set to offer a more upbeat view of the economy this week than it did in June.

At a two-day rate review that ends Thursday, the BOJ is seen likely to keep monetary policy steady even as it cuts its inflation forecast, people familiar with the matter say, underscoring the challenge it faces in using monetary stimulus to lift prices.

The sentiment index for manufacturers stood at 26 in the poll of 549 large- and mid-sized firms, conducted between June 30 and July 13, in which 266 companies responded. The index matched the readings recorded

in April and June, which were the highest since August 2007, just before the global financial crisis. It was seen improving to 28 in October.

“Japan’s economy as a whole is on the upswing, and the local economy is not bad. In addition, we have built overseas bases in Southeast Asia over the last 15 years. Japanese-owned

businesses in our overseas markets are increasingly calling out to us now,” a manager of an electrical machinery maker wrote in the survey.

A textile maker wrote: “Sales in our businesses are solid as currencies, raw materials and fuel prices are moving as expected, and as the global economy centring on the United States and China remains in an expansionary trend.”

The Reuters Tankan service-sector index hovered at 33, unchanged from June’s reading, which was the highest level since mid-2015. It was

seen slipping to 31 in October.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.

The BOJ’s last tankan out July 3 showed big manufacturers’ business confidence hit its highest level in more than three years in the June quarter, providing further evidence that the recovery in the world’s third largest economy is gaining momentum. Reuters

Private poll

Australia’s economy to regain altitude after weather trouble Analysts were also cautiously optimistic, forecasting economic growth would accelerate to 2.8 per cent for both 2018 and 2019 Wayne Cole

Australia’s economy hit an air pocket early this year as bad weather took a toll on activity, but analysts polled

by Reuters believe growth will pick up for both 2018 and 2019 and extend the country’s amazing run without recession.

Economists estimated Australia’s A$1.7 trillion (US$1.35 trillion) of annual gross domestic product (GDP) would grow 2.3 per cent this year, compared to 2.6 per cent in the April poll.

The downgrade follows a disappointing first quarter when GDP eked out a rise of just 0.3 per cent as poor weather hit exports and home building.

The economy looks to have got back on track in the second quarter with exports recovering strongly, particularly for coal and liquefied natural gas, and consumers spending more freely at retailers and car dealers.

The country’s central bank saw much to be pleased about at its July policy meeting citing

higher household consumption, a pick up in public investment and rising employment.

“The data available for the June quarter had generally been positive,” minutes of the Reserve Bank of Australia’s (RBA) meeting showed. “The strength of recent labour market data had removed some of the downside risk in the Bank’s forecast of wage growth.”

Key Points Economy to grow 2.3 pct in 2017, 2.8 pct in 2018 and 2019 CPI inflation seen 2.2 pct in 2017 and 2018 Analysts were also cautiously optimistic, forecasting economic growth would accelerate to 2.8 per cent for both 2018 and 2019. If correct, that would be a notable achievement given the country has not had a technical recession since 1991.

One soft spot has been record high

levels of household debt which has threatened to crimp spending power in the face of subdued wages growth.

“The household sector remains a point of relative concern for the outlook,” said NAB’s chief economist Alan Oster.

“In stark contrast, improved profit outcomes have seen firms reporting the best conditions they have seen for years,” he added. “How the disparity will resolve itself is still unclear,

although recent indications have been encouraging.”

He tipped growth of 2.75 per cent for both 2018 and 2019.

One positive for the outlook was a lack of price pressures, with economists forecasting inflation of a benign 2.2 per cent all the way through 2018.

That should mean the RBA could take its time in lifting interest rates, which have been at a record low of 1.5 per cent for almost a year now. Reuters

12 Business Daily Thursday, July 20 2017

Asia Legislation

Big Australian banks told to boost capital but mortgage rules not imminent Australian banks survived the global financial crisis that began in 2008 relatively unscathed Swati Pandey and Jamie Freed

A

ustralia set new rules for higher capital on the country’s largest banks targets that imply a combined capital shortfall of as much as A$8 billion (US$6.3 billion) - but held off on immediate measures to shore up their burgeoning mortgage books.

The new capital requirement, the second in just two years, came in a tad above expectations. But shares in the Big Four banks jumped between 3-4 per cent on the absence of imminent rules for higher risk weights for mortgages and statements from each of the lenders that they were well positioned to cope.

Australia’s major banks are already among the most well-capitalised lenders in the world, although the new rules could dent what have been robust returns for shareholders from the sector.

Keen to make the sector impregnable to financial shocks, the Australian Prudential Regulation Authority (APRA) raised the target for major banks’ Tier 1 ratio by 150 basis points to at least 10.5 per cent, compared to expectations of 10 per cent. The banks are expected to meet the new benchmark by January 2020.

The Big Four - Commonwealth Bank, Westpac Banking Corp, ANZ Banking Group and National Australia

Bank Ltd - hold combined market share of more than 80 per cent and authorities are concerned that any failure could fatally weaken the broader economy.

“Capital levels that are unquestionably strong will undoubtedly equip the Australian banking sector to better handle adversity in the future and reduce the need for public sector support,” APRA Chairman Wayne Byres said in a statement.

The banking watchdog said it would look at mortgage risk weights when it releases a discussion paper later this year but It did not offer any details on what measures may be announced.

A potential increase in risk weights on mortgages to 30 per cent from 25 per cent now could expand the Big Four’s potential capital deficit to A$17.7 billion, according to a UBS

estimate. But the move is now expected to take some years before coming to pass and should also be digested comfortably, analysts said.

Analysts estimated the Big Four banks could need a combined A$5.7 billion to A$8 billion to meet the new requirement although each lender will differ somewhat in how much they need to raise.

“We estimate a capital shortfall of A$1-A$2 billion for CBA which they can generate internally. It’s not a large figure for a bank the size of CBA,” said Danial Moradi, Melbourne-based senior equity strategist at Lonsec.

“ANZ will be in a surplus position given its recent divestments.”

Together the Big Four raised A$20 billion in 2015, triggering a slowdown in dividend pay-outs as net interest margins slipped to record lows of about 2 per cent.

Frothy property market

The APRA level of 10.5 per cent for major banks is not directly

comparable on an international basis.

CBA has, for example, a Common Equity Tier 1 ratio of 15.2 per cent on an internationally comparable basis at end-March, above 14.5 per cent for Lloyds Banking Group and making it one of the most well capitalised banks in the world.

Non-major banks would be required to increase capital by about 50 basis points, APRA said.

Analysts said the main risk now was potential changes to mortgage risk weights amid persistent concerns about a frothy property market.

The discussion paper due by yearend would reveal measures to address the banks’ “structural concentration of exposures to residential mortgages”, the regulator said, adding that it will draft prudential standards in 2018 for a final release in 2019.

“The real question is how much will risk weights go up to. If it rises to 30 per cent it is probably okay, but any more than that would be significant,” said Omkar Joshi, portfolio manager at Regal Funds Management.

Australian banks survived the global financial crisis that began in 2008 relatively unscathed - backed by an explicit government guarantee - and have been highly profitable largely due to their mortgage businesses.

This year APRA asked banks to limit new interest-only loans to 30 per cent of total new mortgages, from 40 per cent now. It also demanded that banks cap annual growth in investor credit to “comfortably remain below” a previously set limit of 10 per cent. Reuters

Financing

Asia Inc perpetual bonds have bumper year as Softbank joins ranks Other jumbo deals included China Zheshang Bank’s US$2.175 billion transaction and Cheung Kong Property’s US$1.5 billion offering Umesh Desai

Asia Inc’s scramble to lock in low interest rates and investors’ thirst for a steady stream of income have boosted perpetual bond issuance in the region to a record this year, led by a clutch of jumbo deals from ChemChina to Japan’s SoftBank.

Asian corporates outside Japan issued US$18.2 billion of perpetual bonds so far this year, compared with US$16.7 billion for all of last year and 2014’s record of US$17.95 billion.

The bond market boom looks set to continue as more companies, including Malaysian oil services company Yinson Holdings and Singaporean healthcare provider Parkway Pantai, wait in the wings to take advantage of investor demand for yield and a narrowing price gap with senior debt.

“We believe that the current low interest market conditions increase the opportunity for prospective issuers to lock in their funding, including through perpetual

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bonds,” said Richard Fung at palm oil company Golden Agri-Resources Ltd. Golden Agri has tapped a variety of sources for funding its business but has yet to issue perpetual bonds.

A perpetual bond has no maturity date and issuers pay a coupon forever, though they do not have to redeem the principal. Some have features which address the concerns of investors who do not want to hold unlimited maturity bonds. These include issuers’ right to redeem the bonds on a fixed date and step-up features requiring them to pay a higher coupon if the call is not exercised both incentives for a fixed date redemption.

In accounting terms, the bonds are classified as equity - an attractive prospect for Asia’s more indebted companies.

SoftBank raised US$4.5 billion last week in the largest-ever junk perpetual bond deal. The telecoms and tech giant is both rare as a junk-rated, as well as, Japanese issuer. Investors

swarmed into the deals SoftBank attracted orders of US$11.7 billion and ChemChina’s orderbook was more than US$5 billion.

Other jumbo deals included China Zheshang Bank’s US$2.175 billion transaction and Cheung Kong Property’s US$1.5 billion offering, both enjoying healthy oversubscriptions.

Softbank’s 6 per cent notes, callable after six years, and the 6.875 per cent notes, callable after 10 years, are treated as equity under IFRS accounting standard and are treated as 50 per cent equity by ratings agency S&P - a source of comfort for current debt holders.

As a result of the bond’s treatment as equity, the offering will leave Softbank’s 14 trillion (US$126 billion) debt pile unchanged for accounting purposes.

“We would have to expect that some bondholders were beginning to get uncomfortable with having a

large amount of debt in line or ahead of them in the capital structure,” CreditSights analyst Jay Mayers said.

“By issuing these perpetuals, bondholders are reassured by more cash on the balance sheet to work with and a debt raise without significant threat of a ratings downgrade on their holdings.”

Many of the issuers are using perpetual bonds to finance acquisitions, or long-dated assets.

Chi n es e stat e- o w n e d chemicals conglomerate ChemChina raised US$20 billion in perpetual bonds and preferred shares in May to finance its acquisition of Swiss seeds maker Syngenta.

Last month, Singaporean telecoms service provider StarHub Ltd sold perpetual bonds in a S$200 million (US$146.30 million) issue that attracted S$1.5 billion in orders.

“Despite our low leverage and strong balance sheet,

we have opted for this route because the market conditions are robust and healthy for these instruments,” said Dennis Chia, chief financial officer StarHub. As for most issuers, Starhub’s perpetual bonds are equivalent to cheap equity rather than expensive debt.

The 3.95 per cent coupon on the StarHub bond is higher than any of the coupons the company is paying on its existing bonds - which is a big draw for retail investors who accounted for 47 per cent of the orders.

At the same time it is lower than the 6.9 per cent dividend yield the shares are returning.

“Demand for yield product is so strong in Asia that issuers are testing out new structures, and increasingly ones which are strongly in the issuers’ favour,” said Dhiraj Bajaj, Singapore-based fund manager at Lombard Odier.

In contrast to fixed maturity bonds, perpetual bond offerings in Asia are dominated by retail investors - another lure for corporate borrowers.

“This differing investor base tend to be sticky, buy and hold investors,” said Jamie Tadelis, Hong Kong based co-head of sales at SC Lowy. Reuters

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Business Daily Thursday, July 20 2017 13

Asia In Brief Outlook

Japan retains modestly optimist view on economy

South Korean President Moon Jae-in (C) shakes hands with members of the State Affairs Planning Advisory Committee during a meeting at the presidential office in Seoul yesterday. Lusa Korean peninsula

Moon seeks 2020 deal for peace with nuclear-free North Korea North Korea has signalled a willingness to consider Moon’s overtures, but has voiced scepticism about the prospects for a breakthrough Kanga Kong

South Korean President Moon Jae-in is seeking a deal with North Korea in 2020 to bring about the “complete denuclearization” of the isolated nation in return for a peace treaty that would guarantee the survival of Kim Jong Un’s regime.

Moon, an advocate of dialogue and exchange with North Korea, set out his ambitious goal yesterday in a special presidential Blue House report outlining his objectives for his five-year term. While the government this week proposed talks with Pyongyang, it’s the first time the new president has provided a timeline for his engagement policy.

“We will come up with a negotiation plan for comprehensive denuclearization that will lead a nuclear freeze to a complete dismantling,” of weapons, the Blue House said in the report, which stated Moon would propose a road map this year. “The treaty will be signed when denuclearization is complete and the peace regime will be maintained in a stable way.”

Moon, who took office May 10, is looking to ease tensions over Kim’s pursuit of a nuclear missile capable of striking the U.S. mainland. His Defence Ministry on Friday offered talks with Pyongyang, while the National Red Cross floated preparatory discussions for reunions of families advertisement

split by the 1950-53 Korean War. While his olive-branch approach doesn’t differ greatly from U.S. President Donald Trump’s policy of maximum pressure and engagement, the devil will be in the details, according to analyst Ralph Cossa.

“Moon apparently has Trump’s support in playing a lead role in dealing with the North,” Cossa, president of the Pacific Forum CSIS in Honolulu, said before the statement was released. “Both have agreed to a mix of pressure and dialogue but neither is an end in itself. The end is changing North Korea behaviour, and the prospects of that remain very slim.”

‘Sleep-talking sophistries’

Cossa added that Moon’s desire to take the lead on nuclear discussions is “a total non-starter” for Kim, who is seeking discussions with the U.S. as it is also a nuclear power. North Korea has signalled a willingness to consider Moon’s overtures, but has voiced scepticism about the prospects for a breakthrough.

On Saturday, North Korea’s official Rodong Sinmun newspaper criticized Moon’s approach as a “series of sleep-talking sophistries that create even greater hurdles” to talks.

Still, the paper expressed “relief” that Moon has signaled a departure from the policies of his conservative predecessors.

The reclusive state has yet to respond to Moon’s demilitarization timetable.

North Korea is likely to agree to military talks by suggesting an alternative date and “there are a few easy carrots for Moon to offer, such as an end to propaganda broadcasts and balloons,” said Cossa. The sticking point is that Kim will want more than Moon can promise, such as an end to the South Korea-U.S. joint military drills.

Trump has also signalled his frustration with the pace of efforts by China, North Korea’s long-time ally and top trading partner, to pressure Kim back to the bargaining table.

The stakes have risen for the U.S. president after North Korea’s first successful test July 4 of an intercontinental ballistic missile that analysts say could reach Alaska, if not continental America.

100 tasks

Yesterday report details 100 tasks that Moons plans to tackle during his single, five-year term. While they also cover areas such as the domestic economy and welfare policies, below are some of his objectives for relations on the Korean peninsula: Seek early return of wartime operational control to South Korea from the U.S. Connect the two Koreas by building an energy belt along the east coast to Russia, a logistics and transportation belt on the west coast, and a tourism belt around the demilitarized zone on the border.

Establishment of an inter-Korean joint market, if conditions allow, to boost private sector economic exchanges.

Reopen the joint industrial park on the northern side of the border and resume tourist visits to North Korea’s Mt. Geumgang -- again, if conditions improve. Bloomberg News

Government yesterday left unchanged its overall view that the economy is recovering gradually due to a pick up in consumer spending and exports. The government’s assessment comes one day before the conclusion of a Bank of Japan policy meeting, where the central bank is set to raise its economic growth forecasts but cut its rosy inflation outlook. “The economy is experiencing a moderate recovery,” the Cabinet Office said in its monthly economic report for July. Last month, the Cabinet Office upgraded its overall assessment for the first time since December due partly to improvements in consumer spending.

Inflation

Malaysia’s consumer prices rise Malaysian consumer prices in June rose 3.6 per cent from a year earlier, government data showed yesterday, slowing in pace for the third month in a row. Economists polled

by Reuters had expected annual inflation to remain unchanged from 3.9 per cent in May. Headline inflation reached an eight-year high of 5.1 per cent in March, but has since moderated. Inflation was driven by higher fuel and food prices with the transport index rising 10.5 per cent from a year earlier, according to data from the Statistics Department.

Regulation

RBNZ will not introduce more anti-cyber crime rules The Reserve Bank of New Zealand has considered more regulation aimed at fighting cyber crime, which poses a “significant threat” to the global financial system, but it will not introduce them at this stage, the head of prudential supervision said. “We doubt that prescriptive regulations would appreciably improve the outcome, when the technology and threat landscape are both changing so rapidly,” Toby Fiennes said in a speech yesterday. “We will, however, review this policy stance from time-to-time to ensure that it remains appropriate.”

M&A

Toshiba says it again is blocking Western Digital Toshiba Corp said it resumed blocking access by Western Digital Corp to data at their memory chip joint venture, intensifying its dispute with the U.S. firm over the Japanese company’s planned sale of the chip business. Toshiba is counting on the sale of the chip business to cover billions of dollars in cost overruns at its now bankrupt U.S. nuclear unit Westinghouse, while Western Digital says any deal would require its consent. Toshiba allowed Western Digital partial access to shared data servers after the Superior Court of California granted a temporary restraining order earlier this month.

14 Business Daily Thursday, July 20 2017

International In Brief Portugal

House prices in Q1 up House prices in Portugal were in the first quarter of this year up 7.9 per cent on a year earlier, well above the 4.0 per cent increase in the euro zone as a whole and 4.5 per cent increase in the European Union, Eurostat figures released on Wednesday show. The report from the EU’s statistics office shows only the Czech Republic, Lithuania and Latvia posting larger increases in house prices than Portugal, at 12.8 per cent, 10.2 per cent and 10.1 per cent respectively. In Croatia and Italy house prices were down on the year, by 0.4 per cent and 0.1 per cent respectively.

Angola

Public debt offering used to buy NPL Angola is going to issue €790 million worth of public debt in local currency to fund another purchase of non-performing loans (NPL) from banks, bring the total fore this operation to more than €2 billion since last December. The government is going to issue the debt to fund Recredit, a kind of bad bank whose purpose is to buy non-performing loans that weigh on banks’ balance sheets. The government debt has a maturity of 7 years paying and pays 7 per cent interest. Recredit was set up in 2016.

Markets

Deutsche Boerse cultivates local ties after LSE deal setback Public prosecutors asked this week Deutsche Boerse to pay fines of 10.5 million euros Tom Sims

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eutsche Boerse is planning to spruce up the Frankfurt stock exchange, a familiar backdrop for TV broadcasts on the German economy, as part of a push to try to attract more retail investors.

Deutsche Boerse is seeking to broaden its appeal and burnish its image following the collapse of a proposed merger with London Stock Exchange.

It is still dealing with the fallout from that deal.

Public prosecutors on Tuesday asked Deutsche Boerse to pay fines of 10.5 million euros (US$12.1 million) for failing to notify the public in a timely way about the LSE merger talks and for the design of its executive share-buying scheme. Deutsche Boerse said the allegations are “unfounded in all respects.”

Potential refurbishments under discussion by the German exchange operator are an enhanced viewing gallery for visitors and a modernised area to showcase new companies making their debut on the market via initial public offerings, three people with knowledge of the situation said.

The changes could bring a little of the New York Stock Exchange-style razzmatazz to Frankfurt which is seeking to rival London as a financial

centre after Brexit.

The plans also foresee the creation of a venue for events in vacant parts of the building such as the one formerly used for bond trading.

The exchange’s 19th century building on Boersenplatz in downtown Frankfurt is often used by TV crews when reporting on German financial news even though actual trading at the exchange, which has roots dating back to 1585, is now mostly done electronically.

Deutsche Boerse rents the trading floor areas in the building, which is owned by the Frankfurt am Main Chamber of Commerce and Industry.

The company hopes that investing in this landmark will help to spark greater interest among the German public in share trading, start-ups and IPOs, two of the people said.

Later this month, board members will debate details and costs of the investment, one of the people said.

Share ownership in Germany was at 14 per cent of the population in 2016, according to data from financial industry body Deutsches Aktieninstitut. That compares with 52 per cent in the United States, according to a Gallup poll.

IPO issuance in Germany also lags other major economies. Despite buoyant stock markets, IPOs in Germany so far this year total US$1.5 billion, compared with US$21 billion

in the United States, US$20 billion in China and US$3.2 billion in Britain, according to Thomson Reuters data.

Local pride

Following the collapse of the LSE deal, Chief Executive Carsten Kengeter has said that major mergers are off the table, with the focus instead on partnerships, small acquisitions and investment.

“It’s become clear to us, it’s become clear to me: Investment in the Frankfurt financial centre is well worth the money,” Kengeter told employees gathered at a town hall meeting at its glass suburban headquarters, The Cube, last month.

Deutsche Boerse has also agreed a 6 million euro three-year sponsorship deal with Frankfurt’s home soccer team, Eintracht.

Since July 1, Eintracht player jerseys bear the Deutsche Boerse’s blue squiggle logo and its name on the left sleeve.

Eintracht already have links with the city’s dominant financial services industry, playing their home matches in the Commerzbank-Arena.

The team has a patchy record in the Bundesliga and their last major trophy was when they won the German Cup back in 1988. This year it reached the cup final in Berlin but lost to Borussia Dortmund.

“Too bad,” Kengeter said after that game.

“We are already looking forward to when the guys start up again after the summer break.” Reuters

Favouritism

ECB taken to court over hiring of Draghi’s top aide A staff representative has taken the European Central Bank to court over the hiring of President Mario Draghi’s closest adviser, escalating a conflict over alleged favouritism at the top of the euro zone’s mightiest institution. In the complaint, seen exclusively by Reuters, staff representative Carlos Bowles said the ECB’s Executive Board had acted unlawfully by not advertising the job, denying others a chance to apply. The adviser, German economist Roland Straub, who was appointed in February, plays a key role in formulating policy proposals and also coordinates the aides to the ECB’s five other directors.

Internet

Reform

Brazil’s Temer eyes minor tax changes

Google redesigns mobile search app with personalized ‘feed’

The tax measure will be sent to Congress after the two-week recess that began on Tuesday

Google yesterday announced an overhaul of its search app on mobile phones to include a personalized feed of links about hobbies, travel, sports and other topics, a move that puts the search company into more direct competition with social networks such as Facebook. Google, the world’s largest search engine and a unit of Alphabet Inc, said the changes would begin rolling out in the United States on Wednesday and other countries in the coming weeks. Typical updates might include a link to a website with tips about an upcoming vacation spot, or a link to a page about cycling or another hobby, the company said.

Ricardo Brito

With corruption charges delaying his unpopular proposal for the overhaul of Brazil’s costly pension system, President Michel Temer is trying to quickly push through a mini tax reform, a presidential aide told Reuters.

The simplification of the PIS/Cofins federal social security contributions levied on gross receipts would face easier passage in Congress and allow Temer to show his wavering allies that his administration is still advancing on its promised reform agenda.

“There won’t be the political environment to approve pension reform until the issue of the charges is out of the way,” said the aide, who requested anonymity because he was not authorized to speak publicly on the matter.

Federal prosecutors charged Temer last month with taking bribes. Though

his government is confident it has the backing in Congress to stop a trial by the Supreme Court, that support could melt away if his administration is seen to be paralyzed.

“We know it is difficult to pass pension reform.

It is clear there is no climate for that now” Lucio Vieira Lima, deputy leader of the ruling PMDB party

In a video statement released on social media on Monday, Temer

said tax reform was a priority and a bill would be sent to Congress in “very little time.” He has held talks this week on the tax reform with his economic team and a series of lawmakers.

Temer pointed to approval last week of a measure modernizing Brazil’s labour laws as a sign his government is still working.

“We know it is difficult to pass pension reform. It is clear there is no climate for that now,” said Lucio Vieira Lima, the deputy leader of the ruling PMDB party in the lower chamber of Congress.

The tax measure will be sent to Congress after the two-week recess that began on Tuesday, the aide said.

It will not tackle the more complicated levies in Brazil’s burdensome tax system, the ICMS tax on circulation of goods and the ISS tax on services. These are vital sources of revenue for cash-strapped local governments and any attempt to change them could be political dynamite for Temer at this moment. Reuters

Business Daily Thursday, July 20 2017 15

Opinion

Ping An’s Singapore fling.

And yes, Xi knows about it

China’s financial stability focus is good reason to give wide berth

Andy Mukherjee a Bloomberg Gadfly columnist

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on’t be surprised if in 20 years, Singapore’s wealth-management industry starts resembling a miniUnited Nations, with bankers wearing their nationalities on their sleeves.

Last week, Gadfly commented on one such act of flag-waving. PT Bank Mandiri, Indonesia’s largest lender by assets, plans to set up a private banking outfit in the city-state to target offshore Indonesian wealth.

While that proposal awaits regulatory clearance, this week saw the launch of Ping An Insurance Group Co.’s Lufax online wealth management platform in Singapore.

The Chinese insurer said in its press release that it wants to “serve retail investors all over the world,” though as Bloomberg News noted, a key target group for Lufax, which manages some US$65 billion of clients’ assets on the mainland, may be Chinese nationals with offshore assets, rather than Singaporeans.

(In fact, the web interface will be entirely in Chinese initially -- an English-language version will come later.)

The timing of Ping An’s announcement is a little curious. Predicting which financial institutions’ global ambitions will be tolerated

by Beijing -- and who may be crushed -- has become tough since the crackdown last month on Anbang Insurance Group Co. and the ongoing scrutiny of Ultra-high-net-worth alleged breaches of individuals in China overseas investment restrictions in six deals by the highly acquisitive Dalian Wanda Group. As for Ping An, China’s largest nonstate controlled financial firm was the biggest short wager on Hong Kong’s stock exchange last month.

However, with the banking regulator asking lenders to cut interest rates on US$4 trillion of local wealth-management products, authorities may be prepared to let small savers take a part of their hunt for yield to assets overseas, albeit in a controlled manner.

Ping An’s assertion that Lufax’s entry into Singapore follows President Xi Jinping’s One Belt, One Road strategy is also meant perhaps to convey Beijing’s blessing for the enterprise, the insurer’s first foray into wealth and asset management outside Greater China.

While Hong Kong is relying on its growing equity and bond market links to the People’s Republic, rival Singapore is going down a different route. It’s looking to lure the mainland’s many fintech innovators to spice up the city’s competitiveness as a financial centre.

Singapore’s biggest lender, DBS Group Holdings Ltd., expects the Chinese tech trinity of Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. to completely alter the local banking landscape.

To that end, Ping An, which got about 22 per cent of its new customers last year from internet-based platforms, according to Bloomberg Intelligence, is also a prized catch. As long as Xi knows, and approves, of the dalliance. Bloomberg Gadfly

14,310

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hina’s all-powerful rulers are taking arguably needed steps to guard against financial risks which is exactly why investors should give the country a wide berth.

China shares on Tuesday extended a two-day selloff, with many shares falling by the 10 per cent limit, after news from a Communist Party meeting of a renewed focus on regulation and deleveraging.

The National Financial Work Conference, chaired

by President Xi Jinping himself, on Saturday created a special committee to preside over regulation and the reduction of financial system debt over the next five years.

This was followed shortly by the China Banking Regulatory Commission announcing it will take firmer control over issues like credit provision, liquidity and off-books “shadow banking”.

“To us, these announcements signal that lowering financial leverage and stabilizing corporate debt levels is a medium-term project that Chinese policymakers are keen to see through, but there is no rush to get it done this year,” Wei Yao, China economist at Societe Generale wrote in a note to clients.

“Therefore, the authorities will probably keep the pressure on shadow lending, but will be careful in terms of limiting the damage to the real economy at the same time.”

Careful the authorities may be, but damage they will do, and it will be felt keenly by equity investors, many of whom have been hoping to see higher prices driven by inflows of global capital after MSCI decided in late June to include China mainland shares in its benchmark indices.

China’s banks extended a record RMB12.65 trillion in loans in 2016, responding to a government push for economic growth but credit and money expansion have since slowed rapidly, with broad money growth slowing in June to a record low of 9.4 per cent.

Total social financing plus bonds, the broadest measure of credit, grew at 14.7 per cent in June compared to 15.3 per cent in May. A slowing of credit growth is wise. There is good evidence that the quality of investment in projects and assets financed by credit has declined markedly in recent years and ultimately the model which helped China grow has been too reliant on fixed investment.

Certainly an increased focus on stability and soundness beats the counterfactual alternative.

Had Chinese authorities announced they were prioritizing economic growth and financial innovation, stocks might have soared but only because investors were betting the new money would find its way, as it so often does, into the hands of bigger fools than existing owners.

“

James Saft a Reuters columnist

two excellent reasons why global investors should fight shy of China’s shares, MSCI inclusion or not.

The first is that a transition from credit-fueled growth of export-oriented production capacity to a more consumer-based economy will inevitably be bumpy.

China has the world’s largest credit-to-GDP gap at 30 per cent. Using this Bank for International Settlements measure, credit growth is too rapid credit and the efficiency of those projects and assets that the credit is funding is too low.

This implies distressed assets of more than $3 trillion, which, if credit is indeed rationed better, will have to be written off or marked down to more realistic prices.

Credit reckonings of that scale rarely, if ever, happen without very large collateral damage to investors, especially ones who are treated as capriciously as outsider capital often is in China. Even if China pulls of an immaculate deleveraging there will be pain for investors.

That brings us to the second issue.

If your technology stock index is selling off by 5 or 10 per cent because of something outwardly anodyne the government has said then you either have (a) too much speculation, (b) a too powerful government, or in China’s case both.

And this is not just small tech stocks.

Shares in property company Sunac China Holdings fell as much as 13.5 per cent on Tuesday after reports Chinese regulators told banks to stop providing funds for several overseas deals of Dalian Wanda including one in which Sunac plans to buy US$9.3 billon of tourism and hotel assets.

This is being interpreted as part of an attempt to crack down on capital flight which may have been disguised by overseas takeovers, but that is not the point.

Dalian Wanda is controlled by China’s second richest man. What is allowed today may not be tomorrow and no one is immune to changes in the prevailing winds.

The point is that an investor in China takes on the huge political risk that their particular holdings will fall foul of the state. This is a risk almost impossible for insiders to mitigate, and arguably not what outsiders like global fund managers are good at or should be paid to run.

The combination of deleveraging and political risk is too great. China is huge and ultimately most investors will be forced to hold substantial exposure to its US$8 trillion equity market.

One party power and risk isn’t going anywhere, but it may at least be wise to wait until the deleveraging has made more progress. Reuters

The point is that an investor in China takes on the huge political risk that their particular holdings will fall foul of the state

Wide berth

Still, the order of business, in which the Party sent a signal and speculative shares tumbled, provides

”

16 Business Daily Thursday, July 20 2017

Closing Portugal

Industrial production price inflation in June slows

The June slowdown “was determined above all by the development in the The rate of inflation in industrial production prices slowed in June to 2.7 per energy class [of prices], which went from cent, from an annual rate of 4.1 per cent in a [year-on-year] change of 16.3 per cent in May to 8.9 per cent in June,” the INE May, according to figures released by the explained.

National Statistics Office (INE) industry.

Excluding energy, industrial production The INE’s index of industrial production prices were up 0.2 per cent on the month. prices in June were up 1.3 per cent on the year, down 0.1 of a point from the May rate.

In the second quarter of 2017 as a whole, the average year-on-year rate of increase In manufacturing alone, factory-gate prices were up 1.8 per cent, down from a was 3.9 per cent, down from 4.5 per cent May rate of 3.1 per cent. Lusa in the first quarter.

Poll

Wall Street efforts to improve its image fail to sway Americans Just 31 per cent look favourably on corporate executives and Wall Street Tom Metcalf and John McCormick

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ad news for financial titans like JPMorgan Chase & Co.’s Jamie Dimon and Goldman Sachs Group Inc.’s Lloyd Blankfein: Most Americans hold unfavourable views of Wall Street banks and corporate executives, and distrust billionaires more than they admire them.

Despite efforts by Wall Street firms to regain trust since the 2008 financial crisis, fewer than a third of Americans view the industry positively -- unchanged from 2009, according to the latest Bloomberg National Poll.

Dimon, 61, and Blankfein, 62, each chief executive officers for more than a decade, have sought to influence the public policy debate on issues including infrastructure investment, regulation, education, immigration and corporate tax reform. Both were revealed as billionaires in 2015, according to the Bloomberg Billionaires Index.

Yet the poll shows that Americans are much more likely to distrust billionaires than admire them, 53 per cent to 31 per cent. And just 31 per cent look favourably on corporate executives and Wall Street.

Big banks “are still pushing for deregulation and they are going to get us right back to where we were with the financial crisis,” said poll participant Chad Boyd, 36, an independent voter and information technology worker who lives in Louisville, Colorado, about 10 miles east of Boulder.

Bankers, for their part, have been expressing their sympathy for Americans’ frustrations. Dimon unleashed a diatribe last week about the nation’s failure to address the opioid epidemic, economic growth and education, blaming dysfunctional politics and the media. Blankfein recently took to Twitter, calling for unity in Washington and for the U.S. to emulate China’s infrastructure programs.

The CEOs have sought to rehabilitate their banks’ brands in the wake of a crisis that left more than 8 million Americans out of work and cost shareholders tens of billions of dollars in fines and legal settlements.

Blankfein, for example, created a business standards committee and responded to public outrage over Goldman Sachs’s compensation practices by taking US$500 million from bonuses to provide money and advice to budding entrepreneurs through

the firm’s 10,000 Small Businesses program.

But two major events last year -Britain’s vote to leave the European Union and Donald Trump’s surprise election -- show the limits of the bankers’ sway over the public.

Both Dimon and Blankfein opposed Brexit and indicated their support for Trump’s Democratic opponent, Hillary Clinton.

Spokesmen for JPMorgan and Goldman Sachs declined to comment.

Republicans are much more likely to admire billionaires than Democrats, 53 per cent to 17 per cent. For some poll participants, the popularity of billionaires depends on the billionaire.

“Sometimes they do stuff against the little guy” and don’t always give back to help society, said Leigh Lamon, 36, a preschool teacher from Bothell, Washington, a suburb of Seattle. However, Lamon said she admires billionaires like Microsoft Corp. co-founder Bill Gates: “He has done a lot of good.”

Still, a distrust of billionaires didn’t

stop Americans from electing one as their president, or discourage him from hiring more of them to serve the public. President Donald Trump, the first billionaire to hold the office, has appointed two billionaires and at least a dozen millionaires with a combined net worth of about US$6 billion to his cabinet. They include Commerce Secretary Wilbur Ross and Small Business Administration chief Linda McMahon.

The world’s 500 richest people control US$5 trillion in wealth, more than the assets on the Federal Reserve’s balance sheet, and 161 of them are Americans. The poorest half of the world -- about 3.75 billion people -- collectively are worth less than 10 per cent of that, according to the charity Oxfam. Even as elaborate tax structures help the world’s richest avoid taxes, the well-endowed foundations of billionaire philanthropists are directing money to the pet projects of their owners.

The Fed, meanwhile, improved its standing as the economy strengthened in recent years. Fifty-two per cent of those surveyed view the central bank favourably, its highest score since the poll began tracking it in September 2009. Fed Chair Janet Yellen continues to toil in relative obscurity. More than half of respondents said they don’t know enough about her to form an opinion, while 28 per cent view her favourably and 15 per cent unfavourably.

The telephone poll of 1,001 American adults has a margin of error of plus or minus 3.1 per centage points, higher among subgroups. It was conducted July 8-12 by Iowa-based Selzer & Co. Bloomberg News

Barclay’s CEO

M&A

Corruption

Banks may face Kodak-style obsolescence in 5 years

Dalian Wanda to sell hotels to R&F

Ex-Caja Madrid chairman found dead with gunshot wound

Banks could face a “Kodak moment” where they approach obsolescence in five to 15 years at the hands of new financial-technology companies, according to former Barclays Plc Chief Executive Officer Antony Jenkins.

Traditional banks are already seeing the start of an “Uber moment,” whereby the industry is being transformed by technology such as smartphones and contactless cards, Jenkins said in an interview with Bloomberg Television yesterday.

“The Kodak moment is completely different -that’s where customers realize there’s a totally better and different way of doing what they want to do, and the incumbent becomes obsolete,” Jenkins said. “The Kodak moments are the ones that I think will come in that five-to-15 year period.”

Eastman Kodak Co., the photography pioneer that sold the first consumer cameras in the 19th century, struggled to adapt to an era where digitization usurped film and filed for bankruptcy in 2012.

Britain’s biggest lenders are closing branches and increasing their investment in technology as customers increasingly do their banking online or on their phones, while a wave of fintech start-ups have made their first inroads into the consumer market. Bloomberg News

Dalian Wanda Group will sell 77 hotels to developer R&F Properties instead of to Sunac China, Sunac’s chairman said yesterday, in a twist to the second-biggest real estate deal ever in China announced a week ago.

In the initial agreement announced last Monday, Chinese property giant Dalian Wanda said it planned to sell tourism projects and the entire set of hotels in the country to Sunac for US$9.3 billion.

The three companies confirmed the alterations to the deal in a joint announcement yesterday, and also said Wanda will now sell 91 per cent of 13 cultural projects to Sunac China for RMB43.8 billion, up from RMB 29.58 billion.

Sunac has now paid 15 billion yuan to Wanda Commercial for the tourism projects, Dalian Wanda chairman Wang Jianlin said, adding that Sunac would not borrow from Wanda to complete the deal as had been earlier announced.

Sunac Chairman Sun Hongbin said the firm had “ample” cash flow with RMB90 billion (US$13.32 billion) of cash on hand.

Wanda Commercial, the property unit of Dalian Wanda, has RMB100 billion of cash on hand, and will get RMB68 billion from the Sunac and R&F deals, Wanda’s Wang said. Reuters

Miguel Blesa, the former chairman of Caja Madrid who for many Spaniards came to represent the management excesses that helped cause the country’s banking crisis, was found dead with a gunshot wound, police said.

Blesa’s corpse was found at a hunting estate in the southern province of Cordoba with a shot from a firearm to his chest, a spokeswoman for the Guardia Civil said by phone. Police have opened an investigation into the death of the banker, who was 69.

As former Chairman of Caja Madrid for more than a decade to 2010, Blesa oversaw a savings bank whose financial woes forced it into a merger with six other lenders to form Bankia SA, which in turn took a 22 billion-euro government bailout. He was handed a six-year jail term in February for misusing his Caja Madrid corporate credit card and was appealing it at the time of his death.

Officials, including Blesa and former IMF chief Rodrigo Rato, ran up combined bills of more than 15 million euros on items including clothes, hotels and cash withdrawals, according to an itemized list of expenses obtained by Bloomberg when the case came to light in 2014. Blesa had charged 437,000 euros on his credit card between 2003 and 2010 with spending on items including a 2,350-euro jeweller’s bill. Bloomberg News