Business Daily #1344 July 21, 2017

See how Japanese millionaires spend their money Consigliere Pages 8 & 9

Friday, July 21 2017 Year VI Nr. 1344 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Trade talks

Sino-U.S. commerce meeting fails to achieve results Page 10

Technology

Tax payments go online Page 2

Interview

Local design company CRAXH unveils its history Pages 4 & 5

www.macaubusinessdaily.com Territorial waters

Synergy Macao supporting maritime development Page 5

Capital move

China says outflows stabilised Page 10

Mind the patents

Intellectual Property

The Macao Trade and Investment Promotion Institute promoted yesterday a session with experts debating the state of the intellectual property in the territory. Experts compared the situation with the Mainland and insisted that new business should secure its intellectual property before starting operations. Page 3

Outlook improving

Secretary for Transport and Public Works announced that works on treatment plant will result in the dumping of wastewater into the local coastal water. The Secretary explained that in the dumping locations a water quality control system would be in place.

Health Page 2

HK Hang Seng Index July 20, 2017

U.S. credit cards moment in Mainland arriving Payments system Global operators of credit cards are trying to get licenses from China to access the massive market. After years trying to operate in the Mainland, central bank issued in June guidelines marking the procedures to follow. page 14

26,740.21 +68.05 (+0.26%) Worst Performers

AAC Technologies Holdings

+5.82%

AIA Group Ltd

Hong Kong Exchanges &

+4.04%

China Mengniu Dairy Co Ltd

+1.63%

Want Want China Holdings

-1.68%

Galaxy Entertainment Group

-0.97%

+1.11%

Henderson Land Develop-

-1.63%

China Life Insurance Co Ltd

-0.97%

China Merchants Port Hold-

+3.60%

Industrial & Commercial

+0.75%

CITIC Ltd

-1.36%

Link REIT

-0.65%

China Overseas Land &

+2.75%

Kunlun Energy Co Ltd

+2.39%

Cathay Pacific Airways Ltd

+0.64%

Hengan International Group

-1.26%

Cheung Kong Property

-0.65%

Hang Seng Bank Ltd

+0.55%

Sino Land Co Ltd

-1.08%

Sun Hung Kai Properties Ltd

-0.59%

27° 31° 26° 30° 26° 30° 27° 30° 27° 31° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

Unavoidable waste

Ratings Ratings agency Fitch changed positively its outlook for both the Macau and Hong Kong SARS. A global improvement in economic conditions has helped to adopt a better stance on the territory.

Page 6

2 Business Daily Friday, July 21 2017

Macau Hengqin

Cross-border online tax payment platform introduced in Hengqin

T

axpayers from Hong Kong and Macau can now pay their taxes via a new online tax payment platform introduced yesterday in Hengqin, according to the press release

by the Zhuhai Hengqin New Area Local Taxation Bureau.

The new tax payment system allows non-resident taxpayers to pay tax through video chat at home and to receive tax receipts either to be printed or receive it through mail.

Hengqin is the first district equipped with the new tax payment method.

Prior to the introduction of the new system, taxpayers are requested to approach the tax bureau for the tax payment, which would spend

almost an afternoon, according to a taxpayer from Macau surnamed Su, as revealed in the press release.

There are currently 1,500 taxpayers from Hong Kong and Macau, according to the Bureau.

The Chinese Bureau also disclosed that some 860 firms from Macau have registered in Hengqin and 628 are companies from Hong Kong.

As such, some 60 per cent of property buyers in Hengqin are from both SARs.

Pollution

Work on wastewater plant results in dumping of wastewater along coastline “Unavoidable work” on the water treatment plant is going to result in the dumping of “many cubic metres” of wastewater into the waters off Macau’s coast, starting from Monday, according to the Secretary for Transport and Public Works.

“The waste water treatment plant is already 20 or 30 years old and the [waste] collector is completely broken and has to be substituted. This project has to be done, this collector – if not substituted today, would be substituted next year.

It’s undesirable, but it has to happen,” stated Secretary Raimundo do Rosário.

The Secretary explained that in these dumping locations a water quality control system would be in place, and if a certain limit was surpassed, the dumping would be diverted to other points. “It’s dividing the bad stuff between the villages, as much as we minimize it, it’s still bad,” he stated.

When asked about the possibility of storing the wastewater during the time-period necessary to complete the project, the Secretary indicated that this wasn’t possible given the large quantity of wastewater in question.

“We don’t have reservoirs for this. It’s

many cubic metres, it’s just not possible to store even an hour, or two hours, it’s a large quantity,” he stated.

Though initially planed to take three days, the work on the plant should be completed in less time, given the request to the Chief Executive for the substitution works to be continuous, being exempted from the noise law, which limits construction works to a fixed period.

Even so, the Secretary didn’t know how long it would take to substitute the part. “Whoever lives in the zone will [have to ] sacrifice,” stated the Secretary, noting that his department would

try and conduct the most noisy parts of the reconstruction work during the day.

The Secretary also reaffirmed that, except for this exception, the wastewater of Macau is always treated, but admitted “specific” incidents and some “less adequate” treatment.

“I don’t rule out the possibility that, on one occasion or other, there could have been a malfunction. But in a normal plant this can’t happen. What can happen is the draining of water that was more or less adequately treated, but not directly to the sea,” stated the Secretary Lusa

Territorial water

Fishing culture as first step to maritime activity development Local group suggests the use of the 85 kilometres of territorial water should start with plans allowing more exposure to maritime culture Cecilia U cecilia.u@macaubusinessdaily.com

It is very important that the government should produce an overall plan, but the use of the city’s territorial waters can be kicked off by promoting the city’s fishing culture, suggested Ron Lam U Tou, the director of local association Synergy Macao.

The association was established last February to address the city’s current issues and both Lam and Johnson Ian Heng Ut, the vice-director of the association, are taking part in the upcoming elections for the legislative assembly.

“You can provide sort of a ship tour to allow residents and tourists to get in touch with the city’s maritime space,” Lam told Business Daily. “And by starting this basic activity you can eventually develop others,” he opned.

One such event was organized by Fishermen’s Mutual Help Association, Macau, with the support of the Macao Government Tourism Office (MGTO) and the Marine and Water Bureau (DSAMA), taking place througout June and July and allowing residents

to experience fishermen’s day-today life, with the event receiving much praise from participants.

The director noted that currently, since Macau shares the sea with China, those wishing to go on fishing boats cannot do so without authorization, as it’s considered as crossing the border.

“Unlike in Hong Kong, where many people rent a yacht to travel on the sea, this cannot happen in Macau,” said Lam, adding that anything related to maritime activities - such as the docking facilities - are slow to be developed and implemented.

“Many people would choose to rather dock their yachts in Hong Kong than in Macau,” said Lam. Currently, there are some 50 buoys at the Coloane dock, 57 other berths off the Lam Mau Pier on the Macau Peninsula, managed by the Macau Yacht Club, and 22 other berths at Macau Fisherman’s Wharf.

Taking the example from the Zhongshan-Macau Free Yacht Scheme, launched last year, Lam notes that “yacht travellers have to dock their yacht at the buoys and take another

Synergy Macao respresentatives during the event yesterday

boat to get onshore.”

The association director reiterated that it is more important to build up a culture of connecting to the maritime environment.

“Eight-five kilometres of territorial water isn’t really big,” commented Lam. “I personally think that we shouldn’t always plan to build something big, because our culture, for the time being, might not be able to support the plans.”

However, he suggested that, at the early stages, having a boat on a fixed itinerary, between two points, could be set up.

The group yesterday brought

attention to the issues of the city in providing leisure spaces for local residents, urging the MSAR government to initiate the work on the southern coast of the Macau peninsula, from the Barra area connecting Macau Tower, and the coastline of reclaimed land Zone B and the Macau Science Center.

The association is also planning to submit an interpellation to question related public departments on the possibility of creating a large scale wastewater treatment plan on the artificial island which will be connected to the Hong Kong-Zhuhai Macau Bridge.

Telecom

Grand Prix

Cheaper telecom tariffs possible, says Secretary

WTCC back to MGP

The government believes that there is still room for improvement in the telecommunications sector, however Secretary for Transport and Public Works, Raimundo do Rosário notes that customers are paying less for their services provided by Companhia de Telecomunicaçōes de Macau (CTM) and it’s possible that tariffs could be “lowered even more,” notes broadcaster TDM Radio.

The Secretary reiterated that the government had followed through on its promises regarding the telecommunications sector and that, in regard to potential future internet

blackouts, they’re always possible, but less probable.

The 64th edition of the Macau Grand Prix is going to welcome back the World Touring Car Championship, after its absence in both 2015 and 2016, according to local broadcaster TDM Radio. The confirmation was made by the president of the Sports Institute, Pun Weng Kun, who stated that “various races want to take part in this event. As the organizing committee, we have to see which bring us the most advantages for the event […] during the negotiations [with the WTCF] we achieved a consensus and that’s how the WTFF is returning

again to the Macau Grand Prix,” he stated. In total six races will comprise this year’s Grand Prix.

Business Daily Friday, July 21 2017 3

Macau Intellectual Property

Patent expert: get the patent first Experts discovered the large gap in the number of patent registration between Macau and mainland China Cecilia U cecilia.u@macaubusinessdaily.com

“

I

would advise Macau firms to estab l i sh th ei r patents first then b u i l d u p th ei r businesses,” suggested Ma Yongli, manager of the patent application department of China Patent Agent (HK) Ltd. Yesterday, the Macao Trade and Investment Promotion Institute (IPIM) invited three specialists in patent application in mainland China to hold a seminar at the IPIM to strengthen the awareness of the importance of applying patents for businesses.

Being one of the presenters, Ma said to the press that Macau’s registrations of patents is 15 times fewer than the numbers in Mainland.

“Currently, there are three types of patent available in Mainland: invention patents, utility model patents, and design patents,” explained Ma. “In Macau, we discovered that the number of design patents registered has almost reached the standard of mainland China, but the number of utility model and invention patents in Macau -- the difference is about 15 times.”

According to the data provided by Ma, there were a total of 2.44 million patents registered in 2015, with 1.05 million applied for utility model patent, 513,865 for design patents and 873,140 for invention patents.

Meanwhile, in Macau, there were only 33 patents for utility model, 150 for design patents and 26 for invention patents, amounting to a total of 209 in the year of 2015.

With the consideration of the population between the two regions, Macau’s number of design patents is the only type that is closest to the standard (243).

According to Ma, more firms would be in favour of applying utility model patent in Mainland over invention patent, explaining that it is easier and required less time to apply for the former.

However, utility model patent covers only the product, whereas the invention patent would cover both product and method.

Ma wished that enterprises in Macau would pay notice to their new ideas and be proactive to make use of the rights and protections provided by the patents, instead of applying for patents when

Panellists during the data protection seminar yesterday

ideas become important in the market -- because “otherwise it will be late”.

“Our aim to hold this seminar today [yesterday] is to cultivate the awareness of Macau enterprises on applying patents, letting them know that applying for patents is always the first thing to do,” said Ma, while noting that local SMEs (small and medium sized enterprises) in particular suffer significant low awareness of the importance of patents.

When asked about the current situation of many well-known brands such as New Balance had already been taken by other firms in the Mainland, the patent expert said recently the Trademark Law in Mainland has been revised in particular to

combat against the malicious intent of using trademarks of Macau enterprises as long as there is strong evidence to be shown.

“But I would advise Macau firms to establish their patents first then build up their businesses,” reiterated Ma. “Because it is not illegal for anyone to take your trademark and apply for a patent before you do even if it shows malicious intent.”

Ma brought up an example that the Chinese show, initially called ‘The Voice of China’, had later changed the name to ‘Sing! China’ because of the patent dispute, they had to change their show’s name despite their show being very popular under the previous name.

“If the service or product

is accepted by the market, I don’t think it would be a big problem to use another trademark to start building the reputation again, like the herbal tea from Wong Lo Kat to Jiaduobao,” said Ma. Meanwhile, CCPIT Patent and Trademark Law Office revealed patent filings were 67 patent applications from Brazilian enterprises, 12 applications from Portuguese enterprises and Macau had 179 of applications in the year 2016.

In terms of the most applied technical fields, the Office disclosed that Macau firms applied patents mainly for digital data processing, Portuguese firms for medical preparations and Brazilian firms for liquid variable capacity machinery. advertisement

4 Business Daily Friday, July 21 2017

Macau

Interview

Dare to be different Founded by four young designers, local design company CRAXH has now rooted in the city’s design industry and is currently striving to expand its performance stage, which is outside of the city.

One of the founders and also creative and managing director of the company, Wallace Chan, shared with Business Daily his views about the industry as well as how the company steadied itself in the past six years Cecilia U cecilia.u@macaubusinessdaily.com

H

ow did the company come about?

The company was set up in 2011. We mainly focus on two areas: one is image or videos such as animations and video production, and the second is web design. I myself concentrate mainly on the design of web page. Our main customers are clients in Macau from different social sectors, there are clients from the government, hotels, and SMEs [small and medium sized enterprises], and the ratios of them are equally shared. Currently we are starting to expand our business to theMainland and places outside of Macau.

There are four of us mainly and now we have hired some people so there are six people working now. My major in university is design and I graduated from Macao Polytechnic Institute.

After I graduated, my classmates and I had worked for other companies quite some time and we decided to open our own company after that.

We simply think that it was enough for us to work at others’ companies

and we would really like to do stuff ourselves, plus there wasn’t that many companies doing the things that we thought of, so we set up our company.

Any difficulties that you and your partners encountered when working for your own business?

We did encounter difficulties when we were setting up the company, but those problems were not too difficult to overcome.

For example, the renting part, we had moved several times, the price has been increasing in the past years and we had been forced to move out. A few years ago we discovered here [Macau Design Center] and we stayed. Now it is our third year here.

For me, it [rental] wasn’t something that cannot be solved, given that we have reached our sixth year.

Probably, the one problem is that we still haven’t had a place that belongs to us and I wish that we could overcome this in the future.

Another thing is, many would experience difficulty when they just started their business, because you still hadn’t got enough work to do, but gradually you will get jobs.

Also, there is this problem, but this

depends on your own perspective.

Like in the old days we spent so many more hours to work, although now there are times once in awhile that we need to work overtime. Since we are working for our own business we don’t have choices. We needed to work more or receive less than expected, but once we build up our reputation, we receive better jobs. Like in the early days we didn’t choose jobs because we hadn’t had much and I think everyone is like that.

We didn’t need a lot of capital to set up our business, it is very easy for us to set up a company in this field but it is definitely difficult to manage the business because it is really exhausting. The problem of the business environment in general is the inflation, everything is more expensive like the renting and labour, and this is because of the improvement of the city’s economy.

When the gaming revenue dropped in the past years, jobs from hotels and casinos also dropped, but this wasn’t a huge impact when it is shared by jobs from other sectors.

What are the difference(s) that your company had gone through after six

years of operation?

The main difference, I would say, is the new staff we hired. For my own experience, this is a very meaningful difference. In terms of what we do, we haven’t changed much, we have been sticking to our guns, like we continue to do digital and multimedia without changing much. The difference would be the jobs that we take now tend to be in larger scale, but I would say that there are more jobs related to filmmaking, as you know there wasn’t much about this area before. By that, we mostly do post production and special effects and we also make films ourselves.

Usually we made animation video therefore we don’t often film a video, but there are also times when other filmmaking companies ask us for help and we will participate in part of the making.

What was your largest scale job to note?

Some examples of large scale jobs include Hisence, a brand from Mainland specialises in electronic appliances, and we made promotional and introductory videos for the brand.

What is the difference in terms of the market in Macau and in mainland China?

The biggest difference between Macau and the Mainland is that Macau doesn’t have any big brands, aside from the gaming operators. So the biggest clients would usually be government and gaming operators, and what they need are more or less

Business Daily Friday, July 21 2017 5

Macau many of the projects separate the two areas.

Initially, I was hoping that the [aforementioned] combinations would happen but the limited market in the city does not make this available.

I think it is a good thing that more companies appeared in the market and together we do our best to make the market improve.

For our strengths, aside from the number of clients that we accumulated, our quality of works also attracted first time clients to enquire.

We do not particularly sell our services, we simply upload our works on our website. We use our works to do the talks.

What else can be improved in the market and what can you do as part of the industry?

I think maybe the city’s atmosphere and cultural cultivation. In my opinion, the funding provided by the government or other institutions is not important.

It is about both parties, the designer and the client, and I think both parties can have their realm constantly upgraded.

But now, I feel like the level of acceptance for both parties is quite confined, because the works are mostly the same, like we care too much on following standards and rules. And of course, since we focus on commercial designing, we have to be down to earth because we need to communicate with our clients, but I feel like we should seek out or be more flexible on other ways that could also be workable.

For us, I would say it has to be doing our best. There is one thing that we could do and it is to share out information. I would say it is not quite appropriate to consider it as education, but more like to expose this information to others, and this could indirectly help us.

It is kind of also sharing my own experiences to clients and maybe clients would learn something from things that they never encountered before.

the same and the things that we can explore are very limited. Unlike the neighbouring city Hong Kong, they have a lot of international brands.

The good thing is, since we established in 2011, we have accumulated certain amount of experience and customers and so we know what we want to develop and explore, but there are times when we want to try something new and be a bit more creative; clients at this point might not accept it. However, since there are more young people setting up their own businesses, I can see that many of them now would start applying designs in their businesses.

Are there a lot of competitions in the design field?

Yes, I would say more companies are providing design services nowadays, but in terms of competitors, as far as I’m concerned, I don’t know any companies for the time being that are doing the same as we do. For us, we focus in two areas, and companies now tend to focus on only one or they might work on some filmmaking.

For us, we wish to combine the two areas that we are working in better ways. Web making is a prevailing market internationally but I think in terms of web page design there isn’t much out there, there are more people working on technical parts instead. I refer to ourselves as web page designers but obviously we also need to work on the technical parts, but we put the focus on the design part and so we refer to ourselves as designers.

And so we hope that we could see some good achievements in the coming ten years, I wish that we could combine the two and make something new and that new creation would also be accepted by the majority, because

Any difficulties encountered when hiring staff?

Since we don’t need to hire a lot of people, it won’t be a big problem to us.

Generally speaking, I think it wasn’t that bad in hiring people. In my field, there are many people who have a degree in design but most of them have zero experience. And it is best for us not to hire someone who is completely fresh to the business, it is fine if we hire these people as interns or part-timers but definitely not full time.

Does the Macau Design Centre help your business?

I wouldn’t say they would directly help us, but definitely we were benefitted indirectly, like they would ask us if we are interested in certain project once in awhile. Also, all related people working in the same design centre and I think the image is good and we also know other designers and we could cooperate together.

In fact, in direct terms, they provide a place for us to operate which requires a cheaper rental as well as other hardware support.

We knew about this place from our designer word of month and during that time we were also finding a place to move.

How is your plan to expand your business, such as in the Mainland?

It is not necessary for us to expand only in the Mainland as long as we can expand our business outside of Macau.

There are definitely more opportunities outside of Macau but it is a matter of how to grab those opportunities effectively. Definitely there is more competition out there but we still need to go out and compete with others, if we don’t compete with them we don’t know whether we are capable or not.

It is definitely difficult to find new

opportunities out there all of sudden, and strategies are needed for that, unless you know some people, I mean usually there won’t be people approaching you suddenly. I would say it is more reasonable to know people outside when expanding businesses.

In Hong Kong, we have jobs only once in awhile, we had discussed with clients there before, and the competition is huge in Hong Kong but we do have intention to take part in the market there.

What is your plan in the coming year?

Well, we don’t really have a solid plan because we are too busy, we would be more likely to see how the situation is and then plan our next action. But expanding our business would be things that we need to work on. In terms of my area in web page making, we might explore something that I want to do rather than doing for clients, like inventing things that could help people but at the same time make profits, such as Uber.

How do you see the market in the future?

I think it will be good, but honestly this field is something that is not a commodity for people, and the industry would be highly affected by the condition of the city’s economy.

How could the government help in cultural creative industry?

I personally don’t really agree on the concept of cultural creative industry because it is too vague. I don’t think the government needs to do anything on the matter, but funding for particular areas could be workable like subsidising people to make long films, but most importantly they have to find the most suitable judges or evaluators or to ensure the mechanism of this funding is suitable for the city. Nevertheless, I’m not quite

sure on the government supporting companies’ business.

There is one thing that, the government a lot of the times needs the help from designers, and I wouldn’t particularly favour taking government’s jobs. For instance, they would ask us to make free pitching for partaking public tender, but it is always a waste of time and effort for companies to make a proposal which at the end of the day got rejected by them.

I think it is more fair and reasonable to pay for the pitching, like a deposit, and this has been widely discussed among the design industry.

Also, many also think that the government puts more attention on the price. Sometimes it is not only the price but it is worth considering whether the price is worth the service.

For the government, I feel like they need to know in details about the projects so they invite a bunch of designers to take part in the public tender, but obviously this depends on different government departments.

I know it is rather sensitive and controversial if the government is to choose a particular company to do the job [rather through a public tender], but I feel like, since Macau is a small place, people would think that finding some particular person or company to do a job is only because they know each other, and this norm also applies to works from public institutions and big companies, but of course they need to tell the public why they choose a particular company, it could be probably this particular company is capable of doing something that is not common. However, the fact is that the government sometimes is using the norm by granting projects to someone they are familiar with, and I think this shouldn’t be this way. advertisement

6 Business Daily Friday, July 21 2017

Macau Opinion

Pedro Cortés*

The prosecuted Even without knowing the details of the process, on a general and abstract view, the decision of the Last Instance Court on the former Prosecutor Office case seems to be excessive. It was heard from some years – even before his indictment that there were illegal practices in his office, which should have been above all suspicion or distrust.

For more than a decade this person – yes, it is a person that we are talking about – has been an example for everyone and only after leaving the office he, suddenly, became a criminal, even worse, part of a rogues’ association.

Without any doubt, we can say today that Mr. Ho was somehow trapped by the trap he had constructed. The former prosecutor has spout his poison as he has tried hard to cut rights that are in the Basic Law in many situations, making the criminal process a feud of the Public Prosecutor and lessening rights to those that were and are suspects of practicing a crime.

What makes more confusion is that in a Rule of Law system, there’s nothing he can do to challenge the decision in an appeal. It seems that law should have been amended long ago, as the high officials cannot see their rights (including the right to appeal) restricted.

It is a basic right under the Basic Law. What happens, shall make all of us think, even those who have investigated Mr. Ho’s practices or had a final view on them.

The rights of the accused persons are stated in the Basic Law, in the Criminal Procedure Code and in various other pieces of legislation. Those basic rights must be protected by the people of Macau, as they are precious and make a difference when compared with other jurisdictions. Yes, together with the world heritage sites, Macau is different also on the rights it says it concedes to their citizens.

Last Friday was not a happy day for the judicial system as a whole. There are many areas that need to be reformed in order to have a fair and just due process to everyone. Hopefully, our governors will take this into consideration, as our second system must be strongly preserved. *lawyer and frequent contributor to this newspaper.

Banking

Improved outlook for banking sector in SARs and Mainland

R

atings agency Fitch has removed its negative sector outlook for both the Macau and Hong Kong SARS, as a ‘strong start to the year in China’ and an uptick in global trade are relieving some of the pressure on Asia-Pacific financial systems, as noted by CFO Innovation.

The sector outlook, however, for 10 out of the 17 rated banking systems in the Asia-Pacific region is still negative, which is still a drop of three from the beginning of the year – two of which were the SARs. The results of the recent National Financial Works Conference, recently held on July 14 and 15 on the Mainland, allow for a coordinated committee to oversee the four main financial regulators, breaking ‘the current fragmented framework which makes it more difficult for regulators to monitor banks and nonbank financial institutions, and to fully address the contagion risks from increased cross-holding of complex financial products,’ notes the agency.

The result is more ‘positive for the long-term stability of China’s financial system and economy’ and goes in line with new guidelines enhancing bank supervision ‘and the facilitation

of higher market interest rates by the People’s Bank of China (PBOC) to squeeze out speculative activity in the shadow banking sector’.

‘The build-up in private-sector debt and the rise in property prices over the last decade of ultra-loose global monetary policy have created financial risks that could still be tested by U.S. rate hikes,’ cites the publication, pointing out risks such as rising corporate debt in Hong Kong and China.

An unpredicted slowdown in the economy of the Mainland would have an immediate effect on Asia Pacific banks, notes the publication. “Tighter, more-centralized regulatory powers

- if that’s what this will really mean - under the PBOC are welcome,” stated APAC strategist Michel Every of Rabobank to Bloomberg.

‘The authorities’ belief that economic conditions remain resilient has provided them with the confidence to address financial risks,’ points out Fitch, noting the recently announced second quarter data showing a 6.9 per cent year-on-year increase in GDP for the Mainland. ‘That confidence could be tested in the second half of the year, as tighter credit conditions feed through the economy, particularly in the housing market,’ notes the rating agency. K.W.

Luxury

Back on the rise Retailer Luk Fook’s SAR stores saw same store sales growth of 3 per cent year-on-year, as compared to 23 per cent overall growth in the Mainland Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

Gold and gem-set jewellery made a comeback in the first quarter of the year, reversing the trend from the previous quarter, according to the sales performance results published by luxury jewellery retailer Luk Fook, published on the Hong Kong Stock Exchange.

Across the board increases were seen overall and specifically in the group’s Mainland China segment, with double digit increases in both gold and jewellery for the Mainland.

The Macau and Hong Kong segment followed the trend, levelling negative same store sales growth in the fourth quarter of last year into 0 per cent growth in gold and gold (by weight) sales. Overall for the SARs an increase was seen in gem-set jewellery, at a 9 per cent year-on-year uptick, however still 3 per cent lower than the growth seen in the sales of the luxury good in the previous quarter. The SARs saw a 3 per cent

year-on-year rise in same store sales growth, as compared to 23 per cent overall growth in the Mainland – with a 32 per cent increase in gold, 26 per cent in gold (by weight) and 10 per cent in gem-set jewellery. Across the board results for the sales saw an overall of 5 per cent in sales, with 5 per cent rises in both gold and gold (by weight) sales, and a 9 per cent uptick in gem-set jewellery sales (however, a 2 per cent drop from the previous semester).

During the quarter in question the group closed two of its stores in Hong Kong, however for the rest of the year ‘the number of shops in Hong Kong and Macau […] is expected to be around the same’.

Luk Fook as at end-June operated 10 locations in the MSAR, and 45 in the HKSAR, with 142 self-operated in the Mainland. In total, through licencing agreements the group totalled 1,508 shops as at end-June, a 12-shop increase from the previous quarter.

The value of gold imported into

the MSAR during the first quarter of the year reached MOP1.59 billion, a 22.2 per cent increase from the same quarter of 2016, however a 7 per cent slowdown when compared to the previous quarter, corresponding with the holiday period, in which MOP1.71 billion in gold was imported into the MSAR, according to data from the Statistics and Census Service. In addition retail sales of watches, clocks and jewellery during the period saw a 23 per cent uptick year-on-year during the quarter and a 14.95 per cent uptick quarter-to-quarter in sales, reaching MOP3.84 billion.

Transportation

Airport sees 3 pct uptick in passengers y-o-y in H1 The Macau International Airport saw a 3 per cent increase in the amount of passengers it handled during the first half of the year, at 3.35 million passengers, according to a press release. In addition the cargo flow increased 14.7 per cent year-on-year in the first half year, at over 17,000 tons. During the period two new routes and two new airline companies were launched at the airport, totalling 43 routes operated by 27

airlines. In addition the group notes that the North Extension project is still expected to be completed and come online in the second half of the year.

The airport has set whole year targets for 60,500 flight movements, ‘including 2,900 general aviation aircraft movements, 34,000 tonnes of cargo and 6.85 million of passenger traffic’. The expansion is expected to bring the airports’ traffic capacity to 7.5 million passengers.

Business Daily Friday, July 21 2017 7

Macau Politics

MSAR casinos can tilt the odds back in their favour The most recent purge is coming before the congress this time and there are just a few months to go before the fall confab Shelly Banjo

I

t’s natural to be scared of betting big just after losing a great hand.

But savvy gamblers know that just because the first game played out one way, the next won’t necessarily follow.

That’s the case in Macau, where a junket operator’s recent warning of large-scale money-laundering investigations has sparked a sense of deja vu among investors fearful a renewed crackdown on Macau’s high rollers could deal another blow just as the gambling hub was starting to feel steady again.

The Bloomberg Intelligence Macau Gaming Index has dropped 4 per cent this month, compared to a 6 per cent rise in the MSCI China Index, on reports of Mainland police investigating questionable money transfers and freezing accounts of junket operators who find and ferry in wealthy players to gamble large sums, mostly on credit.

The worries are understandable: Memories of President Xi Jinping’s anti-corruption drive, which began after the last twicea-decade Communist Party Congress in 2012, have only recently faded with year-onyear revenue growth among VIP customers rising by double digits for three straight quarters.

As officials try to manicure the country’s finances ahead of the 2017 congress, investors might fear casino operators will again bear the brunt of Beijing’s political manoeuvring.

But this time around, things could be different. And investors who look past the politics could benefit by scooping up some bargains.

For one, there’s an end game in sight. The most recent Macau purge is coming before the congress this time and there are just a few months to go before the fall confab.

Meanwhile, the very public investigations into financial heavyweights like Anbang

Insurance Group Co. and overseas dealmakers such as HNA Group Co. and Dalian Wanda Group suggest officials will spend more time going after entities whose ballooning debt levels and off-balance-sheet investing pose the largest systemic risks to the country’s financial sector, rather than showy casino patrons who flaunt their wealth.

Alternative streams

While Beijing’s tightening grip on VIP gambling in Macau reflects real concerns over capital flight, this need not choke the life out of the city’s leisure business -- particularly as casino operators develop alternative revenue streams that are less dependent on money flows from the mega rich.

Companies including MGM China Holdings Ltd. and SJM Holdings Ltd. are already much less reliant on high rollers than they used to be, with the VIP share of casino revenue slipping below 50 per cent.

They’re also running tighter businesses, with return on capital, profit margins and return on assets rising in recent quarters.

Tourists are visiting to do

more than gamble, too: Macau’s retail sales and spending in the first quarter rose by 12 per cent and 16.6 per cent respectively from the year before, according to the Macau Statistics and Census Service.

Meanwhile, companies including MGM, Sands China Ltd., SJM and Wynn Macau Ltd. are opening new resorts.

Diverse attractions such as concert halls and gourmet restaurants should help boost takings, as mass-market guests from mainland China embrace the lower prices ushered in by additional competition.

As casino operators rely less on junkets, they will have to spend more on other kinds of marketing to appeal to lower-income customers who can provide a more dependable source of revenue. That

will also help fend off other destinations trying to make inroads in gambling, such as Japan and Vietnam.

A share sell-off might even usher in some good news in the form of contracting valuations. The enterprise value to EBITDA multiple for the BI gaming index is expected to drop to 13.6 in the third quarter of this year, from a second-quarter multiple of 17.4, Bloomberg estimates show.

Ignoring politics is almost impossible when doing any kind of business in China.

But if casino operators continue to focus on what they can control, they might be able to tilt the odds back in their favour.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Bloomberg Gadfly advertisement

8 Business Daily Friday, July 21 2017

Consigliere

This is what elderly millionaires spend their cash on in Japan Chris Cooper and Keiko Ujikane

T

he president of Kyushu’s biggest railway had a problem: too few people were riding his trains. The population was getting older, and since retirees don’t commute to work, the trick was getting people to want something they didn’t necessarily need. One answer: ultra-luxury trains.

It was such a hit that two of Japan’s top rail companies copied it. In May East Japan Railway Co. debuted its version, a 10-carriage sleeper that whisks its 34 passengers around in absolute splendour. A modern re-imagining of the old Orient Express, it has walls and ceilings that look like a glass honeycomb, a lounge pianist and menus by Michelin-starred chefs. Despite ticket prices as high as US$8,400 for a three-night trip, it’s fully booked through March.

After seven recessions in two decades, it’s easy to forget Japan still has a lot of money. The country has more millionaires than anywhere outside the U.S. and, according to Bain & Company, its luxury market was the only one in the world that grew last year. European-made status symbols like Hermes handbags and Rolex watches are still splurges of choice, but now legions of Japanese retirees are spending on first-class travel.

“Japan is a terrific luxury market,” said Greg Schulze, an executive at online travel agent Expedia Inc. “And the travel market is just catching up.”

The country is in vogue among overseas travellers, record numbers of whom are visiting. But people like Fujio Umemoto, an older Japanese man who owns a yacht with friends, are the main clients for high-end tourism.

After decades of saving and a retirement package, the well-tanned

67-year-old says he now has ample time and money to spend. He won’t say how much he received, but last year the average person retiring from a lifetime of work at the same firm got a one-time parting bonus worth US$210,000, according to a Japan Business Federation survey.

“My mortgage is paid, I’ve finished raising my kids, now I’m just focusing on having fun,” Umemoto said. “I don’t need any more stuff. I want to spend my money on memories and experiences.”

Japan’s economy doesn’t produce many of the super-rich — only six Japanese make Bloomberg’s list of the world’s 500 wealthiest people, compared with 164 Americans — but it is cranking out millions of millionaires.

In fact, Japan has more people with liquid assets worth US$1 million — 2.7 million of them — than Germany and China combined, according to the World Wealth Report from consulting firm Capgemini.

‘Retirees last year received one-time bonuses worth US$210,000’ In a country with a shrinking population, the elderly and the wealthy are two overlapping demographics that are growing. A stock market rally helped swell the ranks of Japanese millionaires by 11 percent in 2015, the most recent year for which Capgemini has data.

“The way Japanese society is set up, it creates people who are a little bit rich,” said Hiroyuki Miyamoto, a consultant at Nomura Research Institute Ltd. in Tokyo.

To be sure, the divide between rich

and poor is widening and many Japanese are doing less-well. Wages and benefits have dropped an average of about 10 percent since a 1997 peak, according to the National Tax Agency.

It’s a tangible manifestation of the country’s deflationary malaise and also the reason so much of the consumer market has shifted towards discounters like furniture retailer Nitori Holdings Co. and Fast Retailing Co.’s Uniqlo.

In the luxury business, though, that part of the macro picture may not matter. Expedia says Japanese bookings for premium-class airline tickets grew more than twice as fast as economy class tickets last year.

JTB Corp., the country’s biggest travel agent, says the number of clients at its high-end vacation planner, Royal Road Ginza, has jumped 10-fold since the first year in 2003.

Perhaps nowhere is increased spending by older people more evident than in the cruise ship industry, where the number of Japanese passengers rose 12 percent last year

to a record 248,000, according to the transport ministry. Shipping company Nippon Yusen K.K. says it’s most luxurious trip — a three-and-a-half month voyage around the world — almost sold out within the first day.

The most expensive ticket costs about US$230,000.

‘Japan has more millionaires than China and Germany combined’ Demand is drawing overseas competitors. U.S.-based Princess Cruises will start offering voyages year-round from Japanese ports next April. Another operator, Genting Hong Kong dispatched one of its biggest ocean liners to Japan this month. Italy’s MSC Cruises will offer its first Japan cruise next year and is considering as many as four in 2019.

Hoshino Resort Co., which has built six major luxury properties since 2005, last year opened a traditional Japanese-style hot spring hotel in the middle of Tokyo’s financial district.

An oasis that’s literally in the shadow of the surrounding office towers, it’s a place with no readily accessible thermal springs, so to make the spa work they had to drill almost a mile into the earth.

The 18-story hotel, which is clad in a metal lattice designed to look like the patterns on a kimono, offers 84 tatami-mat rooms with western-style mattresses, instead of futons.

Most people don’t think of bus travel as a luxury option, but Japanese businesses are inventing upscale versions of that, too. A few years ago, department store operator Isetan Mitsukoshi Holdings Ltd. (pictured) started offering luxury sightseeing tours from the comfort of a specially designed coach made to approximate the feel of first-class air travel. The buses seat just 10 passengers spread out over a space that would normally fit 40 or more.

JTB started its own copy-cat tours in April. A ticket for the most expensive trip, a 12-day ride through the forests and mountains of eastern Japan, runs US$13,000.

JR Kyushu Railway Co., the company that pioneered Japan’s ultra-luxury rail boom, had experimented for years with all sorts of trains — adding flourishes like bars, sofas and rosewood viewing cabins — to capture the imagination of vacationers, former president and current chairman Koji Karaike explained in an interview last year. In 2013, they hit on a magic formula with their super-high-end sleeper, the Seven Stars.

“We’re very proud of all our tourist trains,” he said. “We made something that no other Japan railway company had.”

Soon they may all have them.

Bloomberg

Business Daily Friday, July 21 2017 9

Consigliere

How to outsmart the slump in the classic car market Recent auctions of vintage automobiles have shown a softening of prices in the blue chip category. But there are still some chances to make a buck on a beautiful car.

Elisabeth Behrmann and Benjamin D Katz

Bernie Ecclestone, the flamboyant former owner of the Formula One racing franchise, has simple advice for those who want to make money in classic cars: “Buy cheap.”

Historically, that hasn’t been easy; big-ticket vintage cars such as Ferraris and Bentleys have surged in value over the past five years, in part because of an ultra loose monetary policy that’s encouraged speculators to look into niche asset classes. But this year the market shows signs of slipping. Lacklustre demand was evident in June at an auction held at the Goodwood Festival of Speed, the annual celebration of chrome and Castrol held at a sprawling British estate.

A highlight of the weekend—which features races, gourmet food stands, and presentations by brands such as Aston Martin and Lamborghini—is a classic-car auction by Bonhams. This year the house faced a tough audience. Even the day’s top sale didn’t crack a million pounds, a barrier Bonhams used to cross easily. The crowd favourite was a 1962 MercedesBenz 300 SL Roadster, which went for £897,500 (US$1.2 million). Bonhams sold another of the same model year in January 2016 for US$1.5 million.

Many of the sleek collectibles at the fancy fest didn’t sell at all: not a 1989 Ferrari Testarossa Coupe, which ushered in the reign of gill slits, not a 1959 Bentley S-Type Continental Sports Saloon (the fastest sedan of its time), not even a rare 1993 Porsche 911 Turbo with a red-black interior.

Some blame nervousness over interest hikes in the U.S. and U.K., which might discourage loan-happy speculators and push more timid buyers back into traditional assets such as bonds. Others say that after years of cars changing hands at ever-rising prices, there are few star autos left to go around—like the 1966 Ferrari 275 GTB that sold for £2 million at Goodwood last year.

The Hagerty Collector Car Indices measuring North American sale prices have more than doubled in value over the past decade, with Ferraris alone surging more than fivefold in that time. But the aggregate indexes peaked last year and have since stalled—leading some to fear that this is the beginning of a slump. Only about 70 per cent of the cars on offer sold at the Goodwood auction this year, vs. about 90 per cent in a good year.

Carl Hartley is a 29-year-old classic-car reseller (he dropped out of

school at 12 to join the family business) who bought the £2 million Ferrari last year. This time around, he abstained—sellers have become too ambitious, he says, plus the cars weren’t good enough. “There has been a glut of less-than-perfect cars, after high prices prompted lots of people to bring their vehicles to market to capitalize,” says John Mayhead, a U.K.-based analyst with Hagerty Group LLC. “To get a really good price on something now, you’ve got to have incredible provenance,” says Jane Weitzmann, a collector who owns about 40 cars, some of which she rents for films. “Peter Sellers owning it is not enough; you need to have something much more special.” Weitzmann knows a bit about making money off famous classics: A Lamborghini Miura she bought in 2000 for £85,000, which previously belonged to the supermodel Twiggy and Ecclestone, too, is now worth as much as £1 million.

Dealers have been hurting, admits Richard Biddulph, a dealer and managing director of Vintage & Prestige Classic Cars Ltd. Only top-of-the-line classic cars have stayed immune to the downturn: For example, 1960s DB5 convertibles from Aston Martin, long James Bond’s favourite brand, still regularly sell for more than £1 million.

And there are still some pockets of sterling opportunity. Ferraris and other high-end sports cars from the ’80s and early ’90s are gaining momentum as the darlings of newly rich millennials. These so-called modern classics have yet to reach peak prices, which means diligent buyers can find relative deals on such models as a Ferrari 308 or Lamborghini Diablo.

According to Hagerty Group, Ferrari 308s and 328s, Lamborghini Countachs and Diablos, and Ford GTs are the most popular cars with members of this younger demographic, who grew up with posters of them on their walls. If that interest is borne out into sales, the cars will likely go up in value.

“The big question is where does that money come from and does it have better things to do,” says Simon Empson, managing director of U.K.based car broker Broadspeed Ltd. Yet there’s hope among sellers that billionaires like Ecclestone can keep the market thriving. At this year’s festival, he splashed out £320,700 on a black 2010 Porsche 911 GT2 RS Coupe. When asked why, he simply responded, “I was in the mood to buy something.” Bloomberg

Cook Up a Thai Feast Macau is a vibrant, culturally diverse city. Here gathers people from different countries. In the old towns, such as Avenida do Conselheiro Ferreira de Almeida (the street near Tap Seac Square) and Rotunda de Carlos da Maia (the area near the Red Market), a lot of people come from Southeast Asia to settle there and those areas have become Thai Street and Myanmar Street where you can find the traditional products and authentic food from their countries. Because of widespread immigrants, Thai, Myanmar and Southeast Asian restaurants are in bloom in Macau. Among the Southeast Asian cuisines, Thai food is one of the most popular. This unique cuisine fascinates people worldwide because of its sweet, sour and spicy flavors. Thai cuisine places emphasis on lightly prepared dishes, so it is suitable for hot summer when you have little appetite to eat.

Macau does not lack Thai restaurants, however, there are not that many restaurants that not only provide authentic Thai food but also the good environment and service. If you are a Thai food lover looking for a comfortable dining experience, NAAM Thai Restaurant at Grand Lapa, Macau is the one you have to try. The restaurant is surrounded by beautifully landscaped swimming pool and lush tropical gardens.

You can choose to enjoy the tranquil alfresco Thai dining in the garden or sit in the indoor area which is decorated with contemporary setting. The menu here features varieties of authentic Thai food, from the savory appetizers, such as Pho Pia Thod Jay (Deep Fried Vegetable Spring Rolls), fresh salad to the delicious main dishes and soups including the Tom Kha Kai (Siamese-herbed coconut soup with chicken) and Tom Yam. In consideration of office workers, they also offer the lunch set from Tuesday to Friday.

Thai cuisine needs various herbs to showcase its complex flavors. If we are not familiar with the ingredients it seems very difficult for us to cook. That’s why when we want to eat the Thai food we have to go to the restaurants. In order to let more people indulge in Thai cuisine and also cook Thai food in their daily life, NAAM Thai Restaurant announced the “Cook & Taste” series that invites Thai food enthusiasts to learn how to cook authentic Thai food from their renowned chef Pairoj Kaoropwongchai. From now till the end of August, every Sunday, the chef hosts a Thai cooking class for a minimum of two persons and a maximum of six persons in the garden.

You don’t need to prepare anything before you go to the class. The restaurant will prepare the cookers, apron, ingredients and recipe of three dishes for you. As soon as the class starts, you will be served with a welcome drink. During the three-hour class, chef will show you how to cook the traditional dishes step by step, then, he will come to your side to teach you one on one when you start cooking.

He will also give you some cooking tips that would really help your daily cooking at home. What is even more exciting is that you will be awarded a certificate from the restaurant after finishing this interesting class. Edwina Liu, Essential Macau Editor

10 Business Daily Friday, July 21 2017

Greater China Commerce

Sino-U.S. negotiations fail to agree on trade issues Despite the Chinese embassy in Washington cast the talks in a positive light David Lawder and Lesley Wroughton

T

he United States and China failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China, casting doubt over President Donald Trump’s economic and security relations with Beijing.

The annual economic dialogue session in Washington ended with cancelled news conferences, no joint statement and no new announcements on U.S. market access to China.

The two sides had a “frank exchange” but failed to agree on most major bilateral trade and economic issues that were important to the United States, a senior U.S. official said on condition of anonymity because he was not authorized to speak publicly.

These included U.S. demands for access to China’s financial services markets, reducing excess Chinese steel capacity, reductions in auto tariffs, cutting subsidies for stateowned enterprises, ending Chinese requirements for data localization and lifting ownership caps for foreign firms in China, the official said.

“China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve,” U.S. Treasury Secretary Steven Mnuchin and U.S. Commerce Secretary Wilbur Ross said in a brief statement, highlighting a rare point of consensus.

The Chinese embassy in Washington cast the talks in a positive light, saying in a statement that both sides had acknowledged “significant progress” on the 100-day talks and

would to work together to reduce the trade deficit.

“The two sides will expand areas of cooperation in services and increase trade in services; expand mutual investment, and create a more open, equitable, transparent and convenient investment environment,” the embassy said.

Both sides agreed that one of the solutions to address the trade imbalance is for the United States to expand exports to China, instead of reducing imports from China, said Chinese Vice Finance Minister Zhu Guangyao after the conclusion of the talks.

To address the imbalance, China has been urging the United States to remove regulations on export control and increase the exports of high-tech products to China, the official Xinhua news agency cited Zhu as saying.

China will push for this in a oneyear action plan for economic cooperation which both sides discussed, Zhu said.

Far from Mar-A-Lago

The session had been billed as a follow-up to Trump’s first meeting with Chinese President Xi Jinping at his Mar-A-Lago, Florida, estate in April when Trump hailed Xi’s cooperation in curbing the threat from North Korea. Trump said that this would lead to better trade terms for China.

The two leaders launched a 100day economic plan that has produced some industry-specific announcements, including the resumption of American beef sales in China and pledged to grant limited U.S. access to some financial services sectors.

But there have been no new

initiatives since, and Trump has grown increasingly frustrated with China’s lack of pressure on North Korea. His administration has threatened new sanctions on small Chinese banks and other firms doing business with Pyongyang.

Ross and Mnuchin said the U.S. position on the China trade relationship would be guided by “the principles of balance, fairness, and reciprocity on matters of trade will continue to guide the American position so we can give American workers and businesses an opportunity to compete on a level playing field.”

China’s delegation leader, Vice Premier Wang Yang, left the Treasury building without speaking to reporters. Earlier, he had warned that confrontation between the two countries would be damaging.

Steel rally

Investors interpreted the negative signals from the talks and lack of new trade announcements as making it more likely that Trump would forge ahead with broad steel tariffs or quotas based on a national security review, sending steelmakers’ shares soaring.

Trump, asked by a reporter at the White House after the stock market closed whether he would impose steel tariffs, said: “Could happen.”

Potential steel tariffs, which could be announced in the coming weeks, were expected to be a difficult topic in the U.S.-China talks. Ross has blamed massive Chinese excess capacity for a global steel glut that is hurting U.S. producers.

Wednesday’s deadlock was unsettling for U.S. business groups that had hoped to put more cracks in Beijing’s market access barriers and obviate more aggressive measures from the White House that could destabilize

trade ties.

“We are disappointed the Comprehensive Economic Dialogue ended at an apparent impasse. It is important for governments to take tangible steps to address long-standing issues and ensure the commercial relationship remains a source of stability in the overall relationship,” said Jacob Parker, vice president of China operations at the U.S.-China Business Council.

Key Points No new major steps to reduce U.S. trade deficit with China China, U.S. say still share lower trade deficit goal China says will expand cooperation in services, trade U.S. business disappointed with trade talk deadlock Fears U.S. may impose steel tariffs, quotas on China Even if the U.S. and Chinese governments fail to agree on more substantive trade terms, corporate chief executive officers from the two countries pledged to deepen their cooperation and joint investment efforts.

Led by Blackstone Group CEO Stephen Schwarzman and Alibaba Group CEO Jack Ma, a group of 20 executives said they were committing to increase bilateral trade, including the export of U.S. agricultural goods, liquefied natural gas and consumer products to China.

“A stable, growing economic relationship between the United States and China is mutually beneficial to the people of our two countries and for the world,” Ma and Schwarzman said in a statement. Reuters

Outflows

FX regulator says cross-border capital flows stabilised in H1 New information disclosure requirements on personal foreign exchange purchases this year have curbed fraudulent purchases China’s foreign exchange regulator said yesterday it expects cross-border capital flows to remain stable going forward as the domestic economy improves, an indication authorities’ efforts to control aggressive outflows are working.

State Administration of Foreign Exchange spokeswoman Wang Chunying told a regular briefing China’s foreign exchange supply and demand in the market remained stable in the first half of 2017.

“The balance (in the foreign exchange market) in the first half was the best in three years,” said Wang.

In the first half of the year, Chinese commercial banks sold a net US$93.8 billion of foreign exchange, down 46 per cent from US$173.85 billion over the same period last year.

Wang said she expects cross-border flows to remain stable due to China’s own strong economic

performance and more benign conditions externally.

Chinese authorities are currently seeking to reduce the chance of a financial crisis by steering the economy away from liquidity-fuelled growth and deflating asset bubbles.

Key Points China cross-border capital flows improved in first half - FX regulator Expects capital flows to be stable going forward China banks’ H1 net fx sales fell 46 pct y/y Those efforts include reducing disruptive capital outflows and intervening in foreign exchange markets to keep the yuan trade stable.

The Chinese currency has appreciated about 2.6 per cent against the dollar so far this year, having fallen about 6.5 per cent last year.

Fitch Ratings said yesterday China’s renewed commitment to contain financial risks signals a possible shift away from high economic growth targets, though policymakers were unlikely to tighten too aggressively.

President Xi Jinping said at the conference a new Financial Stability and Development Committee would be

set up under the State Council, or cabinet, with the central bank assuming a bigger role in managing financial market risks.

C o m m e r c i a l b a n k s’ US$20.9 billion in foreign exchange sales in June was the highest monthly figure this year but still less than half the volume seen in December.

Despite the moderation this

year, there has been no public indication from regulators that tighter rules on funds leaving the country would be relaxed.

Reuters reported on Monday that China’s regulators have told banks to stop providing funding for several of Dalian Wanda Group’s overseas acquisitions as Beijing looks to curb the conglomerate’s offshore buying spree.

SAFE’s Wang reiterated that the regulator supports legitimate overseas investment by Chinese firms but will continue to monitor risks.

New information disclosure requirements on personal foreign exchange purchases this year have curbed fraudulent purchases, Wang said, adding that the amount of foreign exchange purchased by individuals fell 4 per cent in the first half of the year.

She also said that the regulator expects the risks of large-scale capital outflows from China to significantly ease in the future, while the impact of U.S. Federal Reserve’s rate hikes on China’s cross-border capital flows have diminished. Reuters

Business Daily Friday, July 21 2017 11

Asia M&A

Fast and furious: Wanda restructures US$9 bln deal under pressure Prospects for relisting its commercial property unit in Shanghai by September next year are also cloudy as regulators have tightened policies related to IPOs Clare Jim and Shu Zhang

Dalian Wanda Group’s abrupt reworking of a US$9 billion property sale was messy until minutes before a high-profile announcement, as all sides scrambled to simplify payment - underscoring Beijing’s concerns over creative lending and ambitious deals.

Wanda, led by one of China’s richest men, Wang Jianlin, announced on July 10 it would sell hotel and theme park assets to rival Sunac China.

But shortly after, it approached Guangzhou R&F Properties about taking on some of the assets to reduce the complexity of the deal and speed up full payment, two sources familiar with the matter said.

It got what it wanted - although talks were so frenetic ahead of Wednesday’s news conference that it was touch-and-go about whether a deal would be done, said one of the sources who had direct knowledge of the deliberations.

Disagreements were such that the R&F name was temporarily taken off a board at the venue for the news conference which was also delayed by an hour, said the source, who declined to be identified due to the sensitivity of the matter.

Wang told reporters the delay was due to printer problem and that concerns about “terrible quarrels” were just rumours.

Representatives for Wanda declined to comment on the details of the talks.

The deal, which represents a sharp scaling back of Wang’s theme park ambitions, comes amid difficult times for Wanda.

Key Points New deal comes less than 10 days after first announcement Talks went down to the wire ahead of briefing -source Restructured deal expected to benefit all parties R&F shares jump as much as 13 pct, Sunac up as much as 18 pct China regulators have told banks to stop providing funding for several of Dalian Wanda Group’s overseas acquisitions as Beijing looks to curb the conglomerate’s offshore buying spree, sources familiar with the matter said on Monday.

Prospects for relisting its

commercial property unit in Shanghai by September next year are also cloudy as regulators have tightened policies related to IPOs and refinancing by property firms.

Sunac too had seen its banks look into credit risks after the first deal was announced, its chairman told local media.

Under the new deal, which will see proceeds to Wanda largely unchanged, R&F will purchase 77 hotels at a 40 per cent discount to what Sunac originally would have paid.

Sunac will pay more for the theme park assets, but will be free of the hotels that analyst say it was not really that keen on in the first place.

Importantly for Wanda, it removes a RMB30 billion (US$4.4 billion) loan the conglomerate had planned to extend to Sunac to finance the deal and will see Wanda pocket funds from the sale by end-January at the latest, rather than waiting three years for the loan to be repaid.

“The main difference in the revised deal is that Wanda no longer needs to loan money to Sunac which is beneficial to its cashflow,” said Franco Leung, an analyst at Moody’s Investors Service.

Investors in R&F and Sunac also cheered the new deal, sending their stocks to record highs.

And at Wednesday’s new conference, Wang was also quick to stress how much stronger Wanda’s commercial property unit would be

China’s richest men, Wang Jianlin

once the deal was completed, saying “we have decided to pay off most of our bank loans”.

By the end of the year, Wanda Commercial will own 33 million square meters of commercial properties with rent surpassing RMB33

billion in 2018, he said, adding that the unit will have an annual rent growth rate of about 20 per cent for the coming five years.

“Is Wanda Commercial running a good business? You can make your own judgment,” he said. Reuters

CEO comments

Lenovo’s PC business to return to positive growth this year The firm’s PC shipments for the fiscal year to March 31, dropped 1 per cent year-on-year Lenovo Group Ltd’s personal computer (PC) business will return to positive growth in its fiscal 2017/18 year, the firm’s chief executive Yang Yuanqing told Reuters yesterday, after a drop in shipments last year.

Yang, in an interview on the side-lines of a Lenovo artificial intelligence (AI) event in Shanghai, said that the wider PC market was also expected to see “stable” growth.

Lenovo, which vies with HP as the world’s largest PC maker, saw a return to profit in the year to March, but has seen losses in its smartphone business mount amid rising component costs and swelling marketing spend for new products.

The firm’s PC shipments

for the fiscal year to March 31, dropped 1 per cent yearon-year to 55.7 million units, though it bettered a wider market decline of 3 per cent, Lenovo said in its full-year filing in May.

Key Points Wider PC market also expected to see stable growth - Yang Lenovo mobile phone business to focus on growth in developed mkts Yang added the firm would look to focus on growing its troubled mobile phone business in developed markets such as the United States and

Europe.

He added that talks with Japan’s Fujitsu Ltd to integrate the firms’ personal computer businesses were on-going

and he hoped for progress in the near future.

Fujitsu President Tatsuya Tanaka said in June he expected to reach an

agreement on the matter “soon”. The firms originally had aimed to finalize an agreement by the end of March. Reuters

12 Business Daily Friday, July 21 2017

Asia ADB

Asia growth outlook brightens on strong exports Inflation across the region is expected to remain under control

T

he Asian Development Bank raised its 2017 and 2018 growth forecasts for the region, reflecting rising exports as manufacturers of smartphones to cars to other consumer goods benefited from improving global demand.

Developing Asia - made up of 45 countries in the Asia-Pacific region - is expected to grow 5.9 per cent and 5.8 per cent this year and next, the Manila-based ADB said in the update of its Asian Development Outlook yesterday.

They are a step up from April forecasts of 5.7 per cent for both years.

An upturn in global demand since late last year has given trade-dependent Asian economies much needed momentum, with the United States and Europe also showing improving

growth.

The update of the Development Outlook raised China’s 2017 and 2018 growth forecasts to 6.7 per cent and 6.4 per cent, respectively, from 6.5 per cent and 6.2 per cent, driven by strong consumption and improving shipments.

Key Points China 2017, 2018 growth revised upwards Asia seen to grow faster than previously thought Inflation across the region to stay under control China’s economy beat expectations with 6.9 per cent growth in the second quarter, in part driven by firmer exports and production, which could heighten trade tensions as the United States

and Beijing begin economic talks on Wednesday.

“Despite lingering uncertainties surrounding the strength of the global recovery, we feel that the region’s economies are well-placed to

face potential shocks to the outlook,” Yasuyuki Sawada, ADB’s chief economist, said in a statement.

Inflation across the region is expected to remain under control, helped by

well-behaved food and fuel prices, the ADB said. It cut this year’s inflation projection to 2.6 per cent from 3.0 per cent, and next year’s forecast to 3.0 per cent from 3.2 per cent. Reuters

Monetary meeting

BOJ pushes back inflation target for 6th time, keeps policy steady The central bank also kept intact guidance that it would keep buying government bonds Leika Kihara and Tetsushi Kajimoto

The Bank of Japan (BOJ) kept monetary policy steady yesterday but once again pushed back the timing for achieving its ambitious inflation target, reinforcing views that it will lag well behind other major central banks in scaling back its massive stimulus programme.

With robust exports and private consumption pointing to a steady though modest recovery, the Japanese central bank slightly raised its growth forecasts and offered a more upbeat view of the world’s third-largest economy than last month.

But stubbornly weak price growth forced the BOJ to cut its inflation forecasts, underscoring the challenges the central bank faces as it tries to reflate the economy and coax consumers to spend more.

“Recent price developments have been relatively weak, as companies remained cautious in raising wages and prices,” the BOJ said in a quarterly report on its long-term growth and inflation projections.

“Risks to the economy and price outlook are skewed to the downside,” it said, conceding it has proved harder than expected to change public perceptions that deflation will persist.

The BOJ pushed back by a year the timing for hitting its 2 per cent inflation target, in a fresh blow to Governor Haruhiko Kuroda’s radical monetary experiment aimed at sustainably ending deflation.

It now expects inflation will not reach that level until sometime in the fiscal year ending in March 2020.

The BOJ has postponed the price

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target timeframe six times since Kuroda launched his huge asset-buying programme in 2013.

“The BOJ’s hands are tied. Central banks in the United States and Europe are headed toward higher rates and balance sheet reduction, but the BOJ is headed in the opposite direction,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.

“The message seems to be the BOJ is prepared to maintain easy policy indefinitely...”

As widely expected, the BOJ maintained its short-term interest rate target of minus 0.1 per cent and its 10-year government bond yield target of around zero per cent.

The central bank also kept intact guidance that it would keep buying government bonds so its holdings increase at an annual pace of 80 trillion yen (US$714 billion).

While companies were facing rising labour costs from a tight job market, many of them were making ends meet by hiring more temporary workers and streamlining operations, the BOJ said.

Such efforts are weighing on wages and prices, creating a disconnect between stronger economic activity and low inflation, it said.

“No need to ease policy further now”

At his post-meeting news conference, Kuroda said he saw no need to ramp up monetary stimulus now or conduct another thorough assessment on why his inflation target remains elusive.

“The current policy framework is a very flexible one that can respond to economic, price and financial developments at the time,” he said.

“It’s not as if we have run out of policy tools. We think the momentum for hitting our price target remains intact and can be sustained under the current policy framework.”

Still, low inflation would put the BOJ far behind the U.S. Federal Reserve, which has been gently raising rates and is expected to announce detailed plans in September to start shrinking its more than US$4 trillion balance sheet.

The European Central Bank (ECB) is also expected to announce plans in coming months to taper its asset purchases as growth picks up on the

continent, according to a Reuters poll.

Both the Fed and the ECB are also facing stubbornly low inflation that is puzzling policymakers and economists, though levels are not as tepid as Japan’s.

In a testament to the improving economy, the BOJ raised its growth projections for the current fiscal year to 1.8 per cent from 1.6 per cent forecast three months ago, and to 1.4 per cent from 1.3 per cent for the following year.

Key Points BOJ keeps interest rate targets steady as expected Offers brighter economic view than in June but inflation tepid BOJ cuts FY2017/18 inflation f’cast to +1.1 pct BOJ delays price target for 6th time to 2019/20 “Japan’s economy is expanding moderately,” the BOJ said, a brighter assessment than last month when it said it was turning toward a moderate expansion.

But it slashed its consumer inflation forecasts for the year ending in March 2018 and the following year, to 1.1 per cent from 1.4 per cent, and to 1.5 per cent from 1.7 per cent.

Japan’s economy grew at an annualised 1.0 per cent in the first quarter thanks to robust global demand and a pick-up in private consumption.

Data earlier yesterday showed its exports rose for a seventh straight month in June.

But core consumer prices in May rose just 0.4 per cent from a year earlier, well below the BOJ’s target.

Reuters

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Business Daily Friday, July 21 2017 13

Asia In Brief Trade

Thai June exports up beat forecast

Employment

Australia economy back in the groove as full-time work rebounds Labour data coincided with a measure of business conditions jumping to its highest level since early 2008 in the June quarter Swati Pandey

Australia’s labour market strengthened for a fourth month in June led by a remarkable comeback in fulltime jobs - an upbeat outcome that could bring nearer the day when the country’s central bank starts considering a rate hike.

The data will offer much-needed relief to the Reserve Bank of Australia (RBA) which has been fretting over

a “mixed” jobs performance while leaving interest rates at a record-low 1.50 per cent since last August.

Yesterday’s data from the Australia Bureau of Statistics (ABS) showed the unemployment rate steadied at 5.6 per cent as 14,000 new jobs were added.

The gain in employment was led solely by a jump in full-time work, which has risen by 115,400 positions in the past two months – the strongest

back-to-back increase in 29 years, and a dramatic turnaround on 2016 when full-time jobs actually fell by 23,100.

“That’s a sign of strength in the labour market,” said AMP Capital Chief Economist Shane Oliver. “For those looking for an imminent rate hike by year end, it supports their case.”

Yesterday’s labour data coincided with a measure of business conditions jumping to its highest level since early 2008 in the June quarter. Firms also reported an increase in labour costs and hiring intentions.

Key Points

advertisement

Australia jobless rate steady at 5.6 pct in June Employment up 14,000 vs 15,000 consensus Full-time work jumps 115,400 in two months Data lifts A$ briefly to a high of $0.7992 AMP’s Oliver and some other economists are not convinced the time is ripe for a rate increase because they see plenty of spare capacity in the labour market.

The underemployment rate, which measures people wanting to work more hours, was still near record highs while the participation rate edged up in June as more people went looking for jobs.

That is likely to keep a lid on wages growth which is languishing at an all-time low, and put downward pressure on inflation which remains below the RBA’s 2-3 per cent target band.

Still, the RBA was confident of a turnaround in the economy with the labour market showing signs of life together with a pick up in business investment, minutes of its July policy meeting showed earlier this week.

The minutes also revealed that board members discussed the estimated neutral policy interest rate - which neither stimulates the economy nor retards it - pegging it at 3.5 per cent.

Overall, that was interpreted by some in the market as a hawkish message.

Asked on radio about the prospect of rates rising to 3.5 per cent, Prime Minister Malcolm Turnbull implied a message was being sent.

“They’re not saying that they’re going to do that tomorrow but I think they’re sending a signal which is probably prudent, which is to say: ‘Ladies and gentlemen just be aware rates are more likely to go up than go down.’” Reuters

Thailand’s customs-cleared exports rose for a fourth straight month in June, beating expectations, due to stronger demand from major markets, suggesting the trade-dependent economy was gaining momentum.

Exports rose 11.7 per cent in June from a year earlier after May’s 12.7 per cent rise, commerce ministry data showed on Thursday. A Reuters poll expected an annual rise of 7.85 per cent in May. Exports of computers and parts rose 18.9 per cent in June from a year earlier, while shipments of cars, car parts and accessories declined 2.5 per cent.

Energy

Total in talks with Myanmar to build plant Total SA is in talks with Myanmar to supply the country’s most populous city, Yangon, with liquefied natural gas. The French energy giant may also build a power plant, according to Xavier Preel, general manager of Total E&P Myanmar.

Total, which sold about 11 million tons of LNG last year, is seeking to expand its footprint in downstream activities like regasification terminals, pipelines and power plants to help create new gas demand as it refocuses away from oil. “We are quite confident that Myanmar will develop in a big way,” Preel said in an interview this month in Yangon.

Insurance

Foreign insurers plan US$2 billion of Malaysia deals Overseas insurers including Prudential Plc are pursuing plans to sell stakes in their Malaysian units, in deals that could raise at least a combined US$2 billion and help them comply with foreign ownership limits, people with knowledge of the matter said. Prudential has asked banks to pitch for a role advising on a domestic initial public offering of its Malaysian unit, an option it is considering alongside a potential stake sale to an investor, according to the people. Singapore’s Great Eastern Holdings Ltd. is also exploring cutting its local holding to 70 per cent through a sale or IPO, the people said.

Shipbuilding

Nam Cheong to restructure Nam Cheong Ltd. is set to renege on some of its borrowings, in the latest blow to Singapore’s bond market as the shipbuilding and offshore oilfield services industry struggles to rebound from a slump in oil.

The Kuala Lumpur-based group has decided to temporarily cease repayment on all borrowings, including a semi-annual coupon due July 23 on S$75 million (US$55 million) of notes, it said in a Singapore exchange filing yesterday. The group, which had 1.84 billion ringgit (US$429 million) of bank loans and bonds on March 31, is seeking a moratorium on principal repayments.

14 Business Daily Friday, July 21 2017

International In Brief Public accounts

Euro zone Q1 deficit falls to decade low The euro zone’s public deficit dropped in the first quarter of the year to its lowest level in nearly a decade, driven by a widening surplus in Germany and despite France’s increasing fiscal gap, data released yesterday showed.

The figures, published by the European Union’s statistics office Eurostat, confirmed the improving state of the bloc’s public finances, although public debt increased in the first quarter driven by a further expansion of Italy’s debt, the second largest in the 19-country currency bloc.

Consumption

U.K. retail sales rebound U.K. retailers received a summer boost last month as sweltering temperatures spurred sales of clothing.

The quantity of goods sold in stores and online rose 0.6 per cent, more than economists forecast, following a 1.1 per cent decline in May, figures from the Office for National Statistics showed yesterday. Sales excluding auto fuel jumped 0.9 per cent. It means stores made a contribution to growth in the second quarter, with sales rising 1.5 per cent from the previous three months.

That adds almost 0.1 per cent to GDP, the ONS said.

Industry mood

German chemical industry confident as growth swells German chemicals manufacturers expressed confidence yesterday with regard to the outlook for the sector, raising their full-year forecasts for sales and output after a strong performance during the first six months.

Industry federation VCI said that sector-wide output increased by 1.5 per cent in the period from January to June. And manufacturers were able to increase their selling prices as prices rose for oil, an important raw material, and capacity utilisation increased. The combination of increased output and higher prices enabled VCI members to boost sales by around 5.0 per cent to 96.9 billion euros (US$111.5 billion) in the January-June period.

Luxury

Swiss watch exports regain momentum Swiss watch exports gained for a third time in four months as Chinese demand strengthened and the U.K. attracted buyers with its weak currency. Shipments climbed 5.3 per cent to 1.7 billion francs (US$1.8 billion) in June, the Federation of the Swiss Watch Industry said in a statement yesterday that underpinned signs of a rebound from the longest slump on record. Exports to China increased 12 per cent.

Hong Kong, the industry’s biggest market, rose 4.6 per cent for the second consecutive month of gains. “The situation remains fragile locally,” the federation said in a statement.

Expansion

U.S. bank card companies to seek licenses to operate in China Operators have been waiting for more than a decade to get access to China Sumeet Chatterjee

U

.S.-based payment card companies, including American Express, MasterCard and Visa, are preparing to submit license requests to operate in China within months, according to three people with direct knowledge of the matter.

The long wait for the U.S. companies is, though, unlikely to end soon. It may take as long as two years or more for the companies to clear all official scrutiny, including from banking regulators, and for them to pass a security review, as well as meeting other conditions, the sources said.

The move comes against a backdrop of growing economic friction between China and the United States, after the two countries failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China.

U.S. payment network operators have been waiting for more than a decade to get access to China. It is set to become the world’s largest bank card market by 2020, when the number of cards in circulation is forecast to rise to 9 billion from 6 billion in 2016, according to research firm GlobalData Plc. China first agreed in 2015 to open the card market to local and foreign businesses, a move triggered by a 2012 World Trade Organization ruling. However, foreign card companies have been unable to set up local operations in the absence of a clear roadmap from Chinese authorities.

In May, Beijing and Washington agreed to a July 16 deadline for China to issue “necessary guidelines” for the launch of local operations by U.S. payment network operators, leading to “full and prompt market access”.

The People’s Bank of China (PBOC), the central bank, issued the guidelines on June 30, according to three

people familiar with the matter and a copy of the document reviewed

by Reuters.

The expected entry of foreign card companies will challenge the dominance of state-backed China UnionPay Co Ltd, which currently is the sole operator in a yuan bank card payment network worth more than US$8 trillion in China.

“It’s exciting that the uncertainty is finally over and they have finally come out with the rule book, but it’s not going to be a fast and smooth journey,” said one of the people with knowledge of some of the U.S. payment companies’ plans.

The people said the applicants would be subject to intense scrutiny by the banking regulator as well as security agencies. The companies will also have to set up extensive local infrastructure.

Key Points Applications for licenses likely to be submitted within months Central bank issued guidelines for foreign operators on June 30 Start up of operations may take at least 2 years China set to become world’s largest card market by 2020 An American Express spokesman said it will apply for a license as soon as possible. “The PBOC’s guidelines clearly set forth the process ... and we’re continuing to work with different regulators as we move through this process,” he said.

A spokeswoman for Visa declined to comment, citing the quiet period ahead of the announcement of the company’s quarterly results. MasterCard did not immediately respond to request for comment.

The PBOC declined to comment in

response to questions faxed to them

by Reuters.

Onshore data

Under the conditions laid out by the central bank, all payment companies would have to set up technology and data infrastructure and a back-up data system within China.

This is a concern for the foreign payment network operators, which fear this could result in internal systems being put under surveillance and could make it difficult to maintain the confidentiality of proprietary data, according to industry insiders familiar with the situation.

“There was some expectation that this requirement would be eased a bit but that has not happened, so all the companies will have to build business plans keeping this mind,” said one of the people. “That’s the biggest challenge.”

Some industry insiders have privately expressed concerns about whether China would provide a level-playing field for foreign companies, which could significantly impact the market share of UnionPay, set up in 2002 by China’s central bank and China’s top government body, the State Council.

UnionPay also has been expanding its operations overseas and has a presence in over 160 countries including the United States, while the likes of MasterCard and Visa have been waiting to offer yuan-denominated cards for years.

UnionPay’s share of the global credit card market rose to 25 per cent in 2015 from 13 per cent in 2010, drawing level with MasterCard but lagging Visa’s more than one-third market share, according to Euromonitor International.

The plans by the major global card companies to enter China also comes at a time when Chinese consumers are increasingly turning to mobile and online payments and money transfers using services such as Tencent Holdings’ WeChat Pay and Alibaba Group Holding’s affiliate Alipay.

Reuters

Business Daily Friday, July 21 2017 15

Opinion Business Wires

The Korea Herald “The company’s revenue weakened across steel, construction and energy segments, so its second quarter performance declined compared to the first quarter,” said Posco during its second quarter earnings conference call.

Posco, South Korea’s leading steelmaker, reported that its second quarter earnings dropped from the previous quarter on weakened revenue of steel, construction and energy segments, the company said yesterday. The company posted 14.9 trillion won (US$13.2 billion) in revenue and an operating profit of 979.1 billion won between April and June this year, which dropped by 0.88 per cent and 28 per cent, respectively, from the first quarter.

The Straits Times Artificial intelligence (AI) could nearly double Singapore’s annual economic growth rates by 2035, according to research by global professional services firm Accenture. The research also found that Singapore is at the forefront to integrate innovation and technologies into the wider economy, ahead of the largest economies in the world such as the United States, Germany, United Kingdom and Japan. Accenture Research, in collaboration with Frontier Economics, modelled the impact of AI in 33 economies that together generate more than 80 per cent of the world’s economic output.

Viet Nam News Việt Nam has great tourism potential but the country needs appropriate policies to create breakthroughs to develop tourism into a spearhead industry and affirm its position on the global tourism map, experts have said. At a recent conference, experts discussed measures to remove difficulties to unlock the US$35 billion industry in preparation for the second Việt Nam Private Sector Forum (VPSF), which will take place in Hà Nội at the end of this month. Trần Trọng Kiên, head of the working group on tourism of VPSF, said promotion was critical to boost tourism but had not been paid adequate attention.

Taipei Times Public confidence in the (Taiwanese) economy has weakened further after the government’s business monitoring system was “yellow-blue” for the second straight month, fuelling concerns over an economic slowdown in the second half of this year, a Cathay Financial Holding Co survey released this week showed.

Nearly 40 per cent of respondents said they expect the economy to soften in the next six months, while 21.5 per cent said it would improve and the remainder expected it to remain unchanged, the survey found. The cautious sentiment came after the nation’s leading and coincident index series pointed slightly downward over the past two months.

Why China’s acquisition spree ended badly

C

hina’s overseas acquisition streak seems to be coming to an unhappy end.

Outward direct investment fell by 46 percent in the first half of the year, due partly to tightened capital controls and partly to new restrictions on “irrational investments.” But the authorities should be asking a more fundamental question: Why do China’s companies struggle so much overseas?

Typically, companies that expand abroad -through either trade or investment -- are the best and most productive in their industry at home.

They offer better or cheaper products, make more money than their competitors, and have capital to spare expanding into new markets.

In China, this pattern doesn’t hold.

Productivity and profitability often matter less than politics.

The government regularly publishes a list of industries it wants companies to invest in, and multiple regulators must approve every aspect of a proposed deal, from the purchase price to whether firms can obtain foreign currency. Reliably, companies planning to invest in preferred industries get the most approvals.

And when state-owned banks determine which deals get financing, they tend to favour those that will advance government objectives.

This process creates a range of problems. One is that the overseas targets often don’t make a lot of sense. In recent years, there has been a rush by Chinese firms to buy foreign football clubs -- not because they’re particularly good investments, but because President Xi Jinping has expressed hopes that China would become a soccer powerhouse.

Another problem is that the acquiring companies tend to be uncompetitive. At home, they benefit from a wide range of goodies, such as preferential access to capital and near-impenetrable protectionism.

Overseas, they often find that the competition is much tougher, and that business practices that are commonly accepted in China -- such as a relaxed approach to health and safety standards -- simply don’t fly.

Similarly, companies that don’t compete for capital on the merits see little reason to offer shareholders and debt holders a reasonable rate of return. One recent study of China’s outbound mergers and acquisitions found that although state-owned

“

Christopher Balding a Bloomberg View columnist

companies enjoy higher financing capacity, their stocks significantly underperform those of privately owned competitors.

The most pernicious problem with this system is that it encourages companies to overextend themselves. Sometimes, this means simply paying too much for foreign assets, as when a troubled Chinese company recently bought an Australian port for more than twice what analysts said it was worth.

But a bigger concern is debt.

China’s companies have amassed a staggering US$162 billion of total debt while expanding overseas, sometimes in seriously questionable deals. HNA Group Co., once a small airline, has turned itself into a giant global conglomerate by pledging shares to fund huge overseas purchases, including a US$6.5 billion deal to buy a stake in Hilton Worldwide Holdings Inc. As its stock price declines, regulators are growing increasingly nervous.

Or consider Dalian Wanda Group Co., which has also come under official scrutiny of late. It recently sold a US$9 billion piece of its empire to Sunac China Holdings Ltd. to pay down debt after an ambitious acquisition spree. But the deal had an unusual twist: It was funded with a loan from Wanda-the-seller to Wanda-the-buyer. Wanda is actually securing a loan to Sunac to buy the assets from Wanda.

This kind of thing doesn’t usually end well, and China’s regulators are rightly concerned. But the best way to discourage dubious deals and bad debt is to try to remove politics from the process of expanding overseas in the first place. As long as access to foreign investment is seen as a way of advancing political goals rather than financial ones, companies will keep incurring moral hazard -- and sometimes on a huge scale.

Simply reducing foreign investment, as regulators are now doing, will in all likelihood alleviate short-term pressure on China’s currency and debt levels. But it won’t address the more fundamental reasons that Chinese companies struggle overseas.

Unfortunately, curtailing political influence is likely to prove a much taller order than minting billionaires. Bloomberg View

The best way to discourage dubious deals and bad debt is to try to remove politics from the process of expanding overseas in the first place

”

16 Business Daily Friday, July 21 2017

Closing Technology

China unveils plan to become a world leader in AI by 2025

China unveiled a national artificial intelligence (AI) development plan yesterday, laying out its ambitions to build world-leading technology amid heightened international friction over applications of AI in military technology.

The value of the country’s core AI industries will exceed RMB150 billion (US$22.15 billion) by 2020 and RMB400 billion (US$59.07 billion) by 2025, the State Council said in a notice yesterday.

“The situation with China on national security and international competition is complex... we must take

initiative to firmly grasp this new stage of development for artificial intelligence and create a new competitive edge,” it said.

The plan comes as the United States is poised to bolster its scrutiny of investments, including artificial intelligence, over fears that countries including China could access technology of strategic military importance.

It follows a similar national AI development plan released by the U.S. in October last year.

The report says China aims to catch up to global leaders by rectifying existing issues including a lack of high-end computer chips and equipment, software and trained personnel. Reuters

Trade

Taiwan’s solid June export orders point to H2 momentum Orders from China and the United States - its two biggest markets - rose 17.3 and 13.1 per cent

T

aiwan’s export orders rose faster than expected in June helped by strong global growth and robust demand for electronic components, a positive sign for high-tech manufacturers heading into the traditionally busier second half of the year.

The island’s export orders rose for the 11th successive month in June and returned to double-digits, with strong exports of chips and other tech devices setting the export-economy up for a strong second half, analysts said.

“The momentum for future export orders will be driven by the electronics industry entering its peak season, and along with good economic activity. The forecast is that the orders will maintain a good degree of growth,” said analyst Kevin Wang of Taishin investment advisory company.

“We expect that third quarter export orders may reach double-digit

figures on average compared to a year ago,” he added.

Orders from China and the United States - its two biggest markets - rose 17.3 and 13.1 per cent. In May, they climbed 14.5 per cent and 10.2 per cent, respectively.

Europe orders jumped 13.8 per cent and from Japan, 19.7 per cent.

The ministry said July export orders were expected to reach US$38 billion to US$39 billion, and grow between 8.5 per cent and 11.3 per cent from a year earlier.

Some companies in Taiwan expect

their own orders to pick up in the next quarter.

Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker and a key Apple supplier, posted an 8.6 per cent fall in second-quarter net profit but sees revenue in the third quarter rising from the second quarter.

New gadget launches in the second half, particularly smartphones, will help boost revenue for the third quarter by at least 15 per cent versus the second quarter that ended in June, TSMC said. Reuters

Key Points June export orders +13.0 pct vs 7.55 pct Reuters poll f’cast Orders from China +17.3 pct y/y, from U.S. +13.1 pct y/y Ministry sees July order value decreasing from June June orders rose 13.0 per cent from a year earlier, widely beating the median growth forecast of 7.55 per cent in a Reuters poll and better than the most optimistic forecast. Orders rose 9.1 per cent in May and 7.4 per cent in April.

The data is an indication of the strength of Asian exports and of global demand for technology.

June’s export order growth was driven more by a rise in supply chain component orders than smartphone-related orders, Taiwan’s economics ministry said.

Taiwan Semiconductor Manufacturing Co (headquarters pictured), the world’s largest contract chipmaker and a key Apple supplier, sees revenue in the third quarter rising from the second quarter

Funding

Portugal

Marketing

Blackstone raising at least US$3 bln in first Asia PE fund

BES victim law passed

Audi pulls ‘sexist’ China ad after public outcry

Blackstone Group LP is seeking to raise up to US$3 billion in its first Pan-Asia buyout fund for investments in sectors including high-end manufacturing and healthcare, people familiar with the plan told Reuters.

The New York-based firm has informed its limited partners about the plan and it aims to lock in the first tranche of investment for the fund by the end of 2017, according to the people.

The size of the fund has not been finalised and could be bigger than US$3 billion, one of the people said.

The fund will focus on buying controlling or significant minority stakes in sectors such as healthcare, high-end manufacturing and services, and the so-called consumer upgrade sector - goods and services geared to consumers who want to upgrade their lifestyles, another person familiar with the plan said.

“The fund will mainly look at China, India, Southeast Asia, Australia and Korea, and could be planning to invest in Japan as well,” this person said, adding that Blackstone’s global private equity fund will also contribute around 40 per cent to the investments that the Asia fund makes.

Blackstone declined to comment. Reuters

Portuguese MPs have approved the creation of credit recovery funds, meaning progress can be made on compensating customers who suffered damages after buying BES commercial paper.

The Left Bloc also managed to push through its proposal that in the future, emigrants can also benefit from the compensation mechanism the law creates.

The approval of the law terminates the legislative process needed to pay compensation to more than 2,000 clients who lost €400 million after buying GES and Rio Forte commercial paper at branches of BES and who practically lost everything with the collapse of the group in the summer of 2014.

Prime minister António Costa had made the solution to this problem one of his promises after a year of negotiations by a work group comprised of the victims, the Portuguese Stock Exchange Commission (CMVM), the Bank of Portugal, the BES ‘bad bank’ and the government.

The solution proposes that the victims recover 75 per cent of their investment up to a maximum of €250,000 if they had invested up to €500,000.

If they had invested more, they would get 50 per cent back. Lusa

German automaker Audi apologised yesterday over an advertisement it aired in China that was slammed as sexist for showing a bride-to-be being roughly examined like a piece of livestock.

The Chinese-language spot for Audi’s usedcar division, which appeared online and also reportedly in movie theatres, was criticised on social media for depicting an anxious mother-in-law crashing the wedding to pull and prod the bride, even prying her month open to check her teeth.

Separate statements by Audi AG and the used-car division apologised and said the ad had been pulled.

“The lack of consideration ... caused the public to view the advertisement as disrespectful to women.

We hereby extend our most sincere apology,” the used-car unit said.

Audi AG’s statement said it “deeply regrets” any offence caused by the ad, which it said “does not correspond to the values of our company in any way”.

Audi is a member of the Volkswagen group and its brand is operated in China -- the world’s biggest car market -- by VW’s joint venture with its Chinese partner FAW Group. AFP