Bankers quit jobs for pursuing new ‘bitcoins’ Fintech Page 16
Thursday, July 27 2017 Year VI Nr. 1348 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Arts&Biz
Film investment fair wraps up amid optimism Page 7
Education
First batch of local students participate in internship in Nansha Page 3
www.macaubusiness.com
Results
Wynn Palace results impacted by surrounding construction works Page 6
Tracking money
Taiwan improves its controls against money laundering Page 8
Master plan on the way Tourism
Government Tourism Office Director said yesterday that the much-awaited Master Plan will not be ready this month but definitely will be this year. The head of the Office highlighted that they are already working on the first draft of the document. Page 5
New projects debated
Fame and fortune Prosecutors said that the Macau businessman was looking for “fame and more fortune” when he bribed United Nations officials. Allegations from both sides used sentimental arguments to justify the actions of the entrepreneur.
Urban development Urban Planning Committee discussed yesterday the transformation of a clubhouse and restaurant complex in Cheoc Van into a hotel. A new deposit of liquified gas was also debated. Page 3
Franchise takes the stage
Fairs The ninth edition of the Macao Franchise Expo, together with the Guangdong & Macao Branded Products Fair 2017, was presented yesterday. The event will be held at the Venetian on July 28 to 30. This edition will have 155 enterprises from local and other regions including mainland China and Portugal, among other participants. Page 4
Mainland state enterprises to become corporations
Ng Lap Seng case Page 2
HK Hang Seng Index July 26, 2017
26,941.02 +88.97 (+0.33%) Worst Performers
PetroChina Co Ltd
+3.06%
China Resources Land Ltd
+1.67%
AAC Technologies Holdings
-2.82%
Sands China Ltd
-0.96%
CNOOC Ltd
+2.33%
Bank of China Ltd
+1.60%
China Shenhua Energy Co
-2.17%
Swire Pacific Ltd
-0.95%
China Resources Power
+2.28%
China Construction Bank
+1.40%
Galaxy Entertainment Group
-1.98%
Link REIT
-0.81%
China Overseas Land &
+1.76%
Industrial & Commercial
+1.30%
Geely Automobile Holdings
-1.41%
Wharf Holdings Ltd/The
-0.75%
China Petroleum & Chemical
+1.69%
AIA Group Ltd
Hong Kong & China Gas Co
-0.67%
+1.19%
China Unicom Hong Kong
-1.04%
27° 32° 27° 32° 27° 32° 28° 33° 28° 32° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Reform Beijing said yesterday it would move to transform all stateowned companies into corporations by the end of this year. China has pledged for years that it would take steps to reform the centrally-run businesses, which dominate crucial industries ranging from power and steel to aviation. Page 8
2 Business Daily Thursday, July 27 2017
Macau Crime
Cementing his legacy During the final arguments of the corruption case against local businessman Ng Lap Seng, the prosecution stated that the real estate developer was looking for fame and fortune when he looked to influence UN officials into creating a multibilliondollar conference centre in the MSAR Nelson Moura with Reuters nelson.moura@macaubusinessdaily.com
A
s the corruption case against Ng Lap Seng continued, prosecutors argued the Macau businessman was looking for “fame and more fortune” when he bribed United Nations officials in exchange for support for a multibillion-dollar conference centre he wanted to see developed in the MSAR. According to Assistant U.S. Attorney, Janis Echenberg, in her final statement at the court trial held in New York City, Mr. Ng wanted to create the “Geneva of Asia” by bypassing rules of diplomacy in order to “cement his legacy”.
According to the Prosecutors, the Macau real estate developer wanted the city to hold regular events for developing countries, which would contribute to the expansion of his real estate businesses through the possible development of luxury housing, hotels, a shopping mall, marinas and an airport. Mr. Ng’s lawyer on the other hand said that the businessman was only looking to collaborate with the UN by using public-private partnerships, but was a victim of corrupt officials. “There is nothing wrong with what he did (…) You had a public-private partnership where the UN said, ‘Please send us money’,”
Mr. Ng’s defence lawyer said in court. Currently Mr. Ng is facing charges of money laundering and bribery, with accusations of having paid more than US$1 million (MOP8 million) of bribes during a five-year scheme to Francis Lorenzo, a former deputy ambassador of the Dominican Republic to the UN, and to former UN
General Assembly president, John Ashe. The trial started on June 29, with Mr. Lorenzo having become the main witness against Mr. Ng after pleading guilty to the charges of bribery and money laundering, while Mr. Ashe - who was also a defendant - died last year in an accident during exercise at his home.
The trial’s closing arguments were expected to finish late yesterday, with the prosecution arguing the testimony from the suspended ambassador from the Dominican Republic, together with email and bank record evidence were enough to convict Mr. Ng, according to news agency Associated Press.
Funding
Handing away The Macao Foundation has disbursed a total of MOP453.5 million in the first half of this year Politics
Police clarified online rumours on personnel shortage The Judiciary Police claimed that new staff had already been arranged to work in the Gaming-related and Economic Crimes Investigation Department, including 12 new investigators and a group of interned investigators to join the department in the coming September. There were rumours circulating online that a self-proclaimed incumbent investigator of the department revealed to legislators that staff would
have to handle 50 cases maximum per day and there was a case that staff had fainted while on duty. The Police clarified that staff might need to deal with 30 cases instead of 50 maximum and declared that the case of staff fainting was false. Meanwhile, the Police pledged to improve the communications between staff and to proactively collect opinions from staff.
The Macao Foundation has disbursed a total of MOP178.7 million (US$22.2 million) between April and June of this year, with the organisation distributing a total of MOP453.5 million in the first six months of this year - a release in the Official Gazette revealed yesterday. This represented a six per cent yearly decrease from the MOP482.8 million awarded by the Foundation in the first half of 2016. Like last year, the largest amount granted between April and June was awarded to the Kiang Wu Hospital Charitable Association, with an amount of MOP37 million for purchasing a total of 15 items of medical equipment. The second largest support was granted to the City University of Macau, which received MOP15.2 million
for maintenance of electric equipment in the Tai Fung building and improving elevators and escalators in the university. The Women’s General Association received the third largest support in the three months, a total of MOP12 million for its 2017 plan of activities expenses. N.M.
Transportation
Crime
DSAT expedite procedures of taxi adjustment fee
Galaxy doesn’t confirm if its Cotai property was the target of fake chip scam
The Transportation Bureau (DSAT) is accelerating the procedures of updating the taxi‘s metre by adding 10 more quotas per day for taxis which have not undergone the calibration of the metres of the adjusted fee. Last Sunday, the base fee for the city’s black taxis was raised from MOP17 to MOP19. Aside from the increase in the base fee, the subsequent metre-count had been reduced from 260 metres to 240 metres, with every 240 metres after the flag costing MOP2. In addition to the 10 extra quotas per day, DSAT arranged four Sundays within July 30 to August 20 for 224 quotas of taxis to perform the test.
Taxis that have not updated the metres would have a table of updated charges for temporary reference.
Gaming operator Galaxy Entertainment Group Ltd. did not confirm if a recent fake casino chips scam affected its Cotai property, after footage from local news broadcaster TDM showed apprehended fake chips with the name of Galaxy Macau printed on them. According to the PJ, two Mainlanders were arrested on July 22 after having been found to have defrauded a casino in Cotai for around HKD320,000 (US$40,964) by using fake casino chips valued at HKD10,000. The two arrested men were found in possession of HKD820,000 in fake chips, with the PJ admitting another accomplice is still being chased. The PJ also informed that since July
17 the same casino in Cotai had been targeted seven times by a group using the same method. In a response to a Business Daily inquiry Galaxy Entertainment states that “as this incident is under police investigation, we have no further information to provide at this moment”. N.M.
Business Daily Thursday, July 27 2017 3
Macau Construction A deposit for liquefied gas will be created in public owned land plot near the Airport but under private management
New city decisions Urban Planning Committee members requested the government to allow the owner of a clubhouse complex in Cheoc Van to turn the property into a budget hotel in order to improve affordable tourism options in the city Nelson Moura nelson.moura@macaubusinessdaily.com
A
request to turn a clubhouse complex in Cheoc Van into a two or three star hotel is being considered by the Land, Public Works and Transport Bureau (DSSOPT), it was revealed at the 5th Urban Planning Committee held yesterday. During the meeting it was revealed that in 2016 the owner of the 2,001 square meters complex in Rua Três dos Jardins de Cheoc Van, requested the government to change the current property use from its current use set since 1992 for commercial purposes, as a restaurant and as a clubhouse; into a budget hotel. The committee members urged the DSSOPT to approve the change, due to the current lack of offerings in Macau for affordable and budget hotel rooms. “The change of use for this land plot makes a lot of sense
and should be allowed. It has access to water, the marina and it has infrastructure below that requires some attention. If during these almost 30 years the project didn’t work it was because it wasn’t viable,” local architect, and one of the committee members, Rui Leão, said during the meeting. According to several committee members if the complex failed to gather use by the neighbourhood residents for more than 20 years then its functions should be changed to something that can suit it better. “Macau needs more 2 to 3 star hotels. I asked the MGTO what they plan to do there and they told me we need to promote the tourism area outside casino areas (…) We need more quality tourists instead of tourists just spending on gaming,” committee member Wu Chou Kit stated. For Paul Tse, the initial project was made in a time where “people considered Coloane difficult to access”, but better access now makes
the area more viable for hotel projects. “Returns from exploiting a hotel come slower than exploiting a restaurant, but if the owner believes it would be a profitable project it should be allowed. I believe changing into a hotel would be better for Macau,” he added. In its response the DSSOPT stated that the request would need to be analysed taking into account if the location is ideal for the hotel and overall planning for the area, while inquiring local residents and the public on the issue. “We don’t want too many cars or buses to enter that area (…) We’re not saying it can’t be altered but local residents currently don’t know
about the request, we want to hear the public”
The gas depot
Another project that led to more intense discussion by the committee members was the development of a privately managed liquefied gas depot in a 7,500 square meters government owned land plot near the Macau International Airport. Committee member Chan Ken Fang questioned why a private concession would be made in public land, the DSSOPT answered the MSAR Basic Law allowed concessions to be made to private companies on public issues such as water or energy. “This type of concession
won’t be a 25 year concession. It all depends on the concession contract yet to be made,” said the DSSOPT representative. Members of the committee asked if the project had been analysed by the city Fire Department, the future use for the land adjacent to the land plot and if the current temporary liquefied depot in Ilha Verde would be moved to that location. The Committee President which also holds functions as the DSSOPT Director - stated that since the depot would be managed by a private company he couldn’t assure the gas stored in Ilha Verde would be moved there. “There is a problem in Macau of finding where to deposit gas until its distributed to other places with deposits normally made near water, but this location in an industrial area is good,” he added.
The 5th plenary meeting in 2017 of the Urban Planning Committee. Source: GCS advertisement
Greater Bay
Training students in the Mainland Macau students are getting trained in Nansha district, following the launching of an internship programme tailored for the youth from the SARs Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A total of seven students from the University of Macau have participated in the first batch of an internship programme established for Macau and Hong Kong students in Nansha district in Guangdong, according to information provided by the University of Macau (UM) to Business Daily. Although the first batch was concluded on July 14, the internship programme was only officially launched this week, on July 25, NewsGD.com reported. More than 200 students have participated in the first batch of fourto-six weeks internship in Nansha’s enterprises and organizations, according to the news portal. According to information provided by the University of Macau to Business Daily, four students are
participating in the second batch, which will run until August 25 – it started on July 14. Students from UM participating in the programme enrolled in courses such as Economics, Marketing, Accounting and Human Resources, as well as History, Communication, and Law, according to information provided by UM’s spokesperson. Currently, UM is the only local institution participating in the programme.
Opportunities
Regarding job market prospects in Nansha, UM’s spokesperson said that “certainly it will be a job market for Macau students. I think Mainland employers are willing to hire Macau students if they want to develop their career in Mainland China.” According to UM’s spokesperson, although the internships are not paid, “the organizer covers all of the expenses during the internship, for example, transportation, accommodation, visiting tourist points, etc.” The executive head of Nansha, Dong Ke, was quoted as saying that Nansha “is receiving huge opportunities as the cooperation with Hong Kong, Macao, and countries along the Belt and Road are increasingly tightened,” adding that he expected co-operation between Nansha and the two Special Administrative Regions to “be enhanced.” In addition to the internship positions, the programme includes various activities such as tours in enterprises and volunteer work in major cities of the Pearl River Delta.
4 Business Daily Thursday, July 27 2017
Macau Opinion
Ashley Sutherland-Winch*
Hac Sa Beach Unmasked To millions of tourists, Hac Sa Beach is a beautiful and exotic destination, but for those that visit the beach in the early hours of the morning the sights are very different. Each morning beach clean-up crews walk the length of Hac Sa with a large bulldozer vacuum to remove all of the trash that washes up on the sand. Massive amounts of Styrofoam, plastic, clothing, and shoes accumulate at Hac Sa at an unsettling rate. As I watch tourists swimming in the water in the afternoon, I have a growing concern for the level of pollution that they might ingest. In the two years that I have lived in Coloane, I cannot tell if the amount of trash on the shores of Hac Sa has increased, but it collects at a consistent rate that is alarming. After storms, the trash levels are noticeably higher which makes sense due to the churning ocean, but perhaps the daily accumulation should not be ignored. Is the trash coming from the Pearl River Delta of the Guangdong Province in mainland China or is it possible that the trash is coming from inside Macau? Last year, concerned citizens and activists in Macau participated in the global initiative, “Plastic Free July”. Since 2011, people all over the world have joined the movement created by the Earth Carers Waste Education team at the Western Metropolitan Regional Council in Western Australia choosing to refuse to use single-use plastic during the month of July. It doesn’t seem like the campaign has been publicized in Macau this year, but perhaps it might be a good idea to consider some advocacy to decrease the pollution at our beaches in the future. Plastic is used in excessive and extraneous rates here in Macau. Bananas are wrapped in cling-film, take-away drinks are placed in a bag, and all carry-out containers are made of plastic material. Even if trash is disposed of properly, what are we doing to decrease our carbon footprint in our country? The Macau authorities do a great job with trash removal once it hits Hac Sa Beach, but I wonder if there is a viable method of catching the garbage before it hits our shores and if alternatives are cost effective? The effect of storms is much greater than just inclement weather and the long-term cost to our beautiful beaches is something to consider. In the meantime, we should consider Hac Sa Beach unmasked. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
MFE presentation event yesterday
Expo
Two Expos to boost local, regional and international brands Organiser of MFE reported that more brands from Portuguese-speaking countries are taking part in the Expo Cecilia U cecilia.u@macaubusinessdaily.com
“
U
p until today, we have three exhibitors from Brazil, six from Mozambique and five from Portugal [for 2017 Macao Franchise Expo (MFE)],” Irene Va Kuan Lau, executive director of Macao Trade and Investment Promotion Institute (IPIM) said. In response to the press during yesterday’s conference, Lau also reported that only two brands from Portugal participated in 2014 and one in 2015, one from Brazil, three from Democratic Republic of Timor-Leste, two from Mozambique and nine from Portugal for last year’s edition. “Our staffs who are responsible to contact firms from Portuguese-speaking countries have been putting a lot of effort in promoting the Expo these years,” said the IPIM executive director. The ninth edition of MFE, together with the Guangdong & Macao Branded Products Fair 2017, will be held at the Venetian on July 28 to 30. MFE is a premier annual event to allow international brands to seek cooperation opportunities, and this year’s edition attracted some 155 enterprises from local and other regions including mainland China, Brazil, Finland, Japan, South Korea,
Malaysia, Mozambique, Portugal, Singapore, the United Kingdom, Vietnam, Taiwan and Hong Kong. Participating enterprises of this year’s MFE cover industries relating to fashion, food and beverage, retail, education, entertainment, finance, brand agencies and consulting services. The organiser of MFE had invited Chinese entrepreneur Li Ning, a retired Chinese gymnast and founder of athletic shoes and sporting goods company Li-Ning Company Limited, as one of the Expo’s ambassadors and to speak and share his entrepreneurship experiences. Continuing from last year’s edition, this year the Expo will set up a ‘Rebranding Zone’ to provide consulting services and support entrepreneurs who are intending to expand their businesses. In addition, the first day of the Expo would hold a forum to discuss the use of Big Data to expand business, with experts from franchise brands to share their experiences. 2017 MFE is jointly organised by IPIM, Macau International Brand Enterprise Commercial Association, Macau Chain Stores & Franchise Association, Brazilian Franchising Association, the Association of Chain and Franchise Promotion, Taiwan and the Licensing & Franchising Association of Hong Kong.
This year’s MFE will take up a total of 6,000 square metres.
Guangdong & Macao Branded Products Fair
The IPIM executive director noted that the two expos - MFE and Guangdong & Macao Branded Products Fair - to be held simultaneously at the same venue would boost visitors, allow the sharing of resources and also create a more “cohesive atmosphere”. Lau reported that there are 107 local enterprises attending the Fair, with also 194 from other parts of Guangdong province, 30 from Myanmar and 14 from Indonesia, adding that it is the first time to include a zone for Myanmarese firms in the Fair. The Myanmarese zone will exhibit indigenous jade, clothing, handmade and food products. Also speaking during yesterday’s press conference, representative of Department of Commerce of Guangdong Province, Mainland China Business Consultant (Guangdong), Huang Yongguang reported that trade between Macau and Guangdong had reached US$2.06 billion (MOP16.57 billion) during 2016, with Macau investing in 589 projects from Guangdong. Huang further revealed that the contract of foreign investment reached US$3.21 billion and the actual foreign investment hit US$640 million, with 12 enterprises approved to operate in Macau. A total of US$100 million was recorded for the additional investment amount of Chinese agreement; the actual Chinese investment hit US$40 million.
Nuclear security
Condemning North Korea again By order of the central Chinese government, the Chief Executive has issued the Resolution 2356 (2017) adopted by the United Nations Security Council on June 2, 2017 on the Non-Proliferation of nuclear, chemical and biological weapons, as well as their means of delivery, by the Democratic People’s Republic of Korea (DPRK), according to a dispatch published yesterday in the Official Gazette. Among others, the Resolution
condemns nuclear weapons and ballistic missile development activities conducted by DPRK, and reaffirms previous decisions that DPRK should abandon all nuclear weapons and existing attendant programmes. The Resolution also issued travel bans and asset freezing sanctions to 14 members of DPRK’s government, currently residing in the country or abroad in places such as Cuba and Vietnam. S.Z.
Business Daily Thursday, July 27 2017 5
Macau Tourism
Master plan maybe not this month, but this year: MGTO director The HKZM bridge can also serve as its own tourist attraction and MGTO will continue to work on long-haul markets, in particular through partnerships with Portugal, says director Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily. com
T
he MSAR “needs always to continue to innovate and transform itself and have different products to offer our clients,” says Macau Government Tourism Office director Maria Helena de Senna Fernandes. The director’s comments came on the sidelines of the official opening of the most recent hospitality and gaming offering in the city, the Macau Roosevelt. The director pointed out that, regarding the hotel itself “they really put in the effort to create a different brand in Macau and also, in terms of the details, they worked very hard”. In attracting more clientele to Macau to try out its offerings, the director notes the MGTO is “also continuing to work on some markets which traditionally have
supplied tourists to Macau,” giving the examples of the United States and Europe. In particular, commenting on the new Capital Airlines link between Portugal and Beijing, the director noted that: “for the future we can also work more closely with the tourism authorities of Portugal.” For more close-facing markets, the director notes that “we will soon have a new route to Jakarta and this will also help open up more possibilities to attracting tourists from this market”. Ten years prior, the MGTO had partnered with the now-closed Viva Macau airline on a similar, three-weekly, flight plan between the MSAR and the capital of Indonesia.
Master Plan: draft 1
Closer to home, the much awaited Tourism Master Plan is yet to be released to the public, with the director noting that “maybe not this month but definitely this year
we will launch officially this document.” Having received already the first draft of the document, the director notes that: “at this point we are analysing if there are some points that we still want to finalise”. Although announced to be finished this year, the Hong Kong-Zhuhai-Macau bridge is being promoted already between the regional authorities, notes the director, and that MGTO on its missions abroad has “for some time been advertising this structure.”
“But not having a fixed date [for its completion] it’s difficult to say for sure,” when and how much to promote, notes the director, pointing out additionally that aside from drawing tourists in, the “the bridge itself should be a touristic point,” which could “attract people to Macau, just to see the bridge”. The Greater Bay Area and facilitating easier tourist movement between the nine cities comprising the region is already in motion, notes the director, pointing out the ‘144-hour’ visa allowing
those from the Mainland access to the SARs for the aforementioned period, however the director would not opine on the timetable for an open visa policy. “This type of [144 hour] visa already exists, so because of this I think we really have to advertise that more and at the same time maybe – together with travel agencies – utilize better this measure that already exists. For the future, as new measures are introduced, we can continue to advertise them,” adds the director. advertisement
6 Business Daily Thursday, July 27 2017
Macau Gaming market
Not wynning the game Strong recovery is under way in Macau, where industry revenue increased 22 per cent in Q2 2017, but construction work nearby Wynn Palace is keeping traffic, and chances for profit, away
W
ynn Resorts Ltd.’s new Macau resort came up short last quarter, failing to fully capitalize on the recovery in the world’s biggest casino market as construction nearby kept some guests away. The US$4.2 billion Wynn Palace, opened last August, helped Las Vegas-based Wynn Resorts deliver second-quarter sales that topped analysts’ estimates, according to a statement Tuesday. But earnings fell short, sending the stock lower in extended trading.
A strong recovery is under way in Macau, where industry revenue rose 22 percent in the second quarter. After three years of decline, the market began growing last year, in part thanks to new resorts. The outlook has been clouded by Chinese government efforts to prevent money laundering. The steps include facial recognition technology installed at automated teller machines. Wynn Resorts, led by billionaire Steve Wynn, said profit excluding some items rose to US$1.18 a share, missing the US$1.19-a-share average of analysts estimates. Revenue soared
to US$1.53 billion, beating projections of US$1.45 billion. The new Wynn Palace generated property earnings of US$87.4 million. That was below the average estimate of US$115.5 million from Consensus Metrix. On a conference call with investors, Wynn executives said that business continues to be hurt by construction on all sides of the resort that may not end until next year. That’s cut walk-in traffic. “We’ve dealt with a severe handicap,” Wynn, the company’s chief executive officer, said on the call. The company is in the midst of a construction boom, building a new casino in Boston and a lake-themed resort behind its flagship property in Las Vegas. The company’s Macau unit Wynn Macau Ltd. reported US$298 million in property earnings, growing about 56 percent from last year, above the consensus, as the beat in its Peninsula
project offset the shortfall at the Palace. While the operator’s Peninsula property Wynn Macau rebounded as business from high rollers was a bright spot, the Palace was below expectations due to disappointing mass market revenue growth, JPMorgan Chase & Co. analyst DS Kim said in a note yesterday. “While management’s tone remained upbeat as ever, we think the initial stock reaction may be negative given the significance of Palace to the future profits and cash flow,” Kim said. Shares of Wynn Resorts, which generated 64 percent of its revenue in Macau last year, fell as much as 4.3 percent to US$133 in extended trading after the results were announced. Wynn Macau dropped almost 3 percent yesterday after the market opened in Hong Kong, while Bloomberg Intelligence’s Macau stock index fell 0.4 percent. Bloomberg News
Gaming market
Want to Wynn Macau? Try putting people over property Customers have spent more at Wynn’s casinos in Macau, while room occupancy rose 6.6 per cent from the prior year, the largest increase in that metric since September 2011 Shelly Banjo a Bloomberg Gadfly columnist
It turns out that even for companies, there are a handful of things more important than profits. For Wynn Resorts Limited, attracting gamblers to spend money at its Macau casinos and grabbing market share from competitors are among them. That’s why the 3.5 per cent drop recorded yesterday in shares of Hong Kong-listed Wynn Macau Ltd., on the back of a one-penny earnings miss, seems a bit overdone. Especially when considering the casino and hotel operator’s US$1.5 billion (MOP12.06 billion) in
second-quarter revenue handily beat analyst estimates and was up 44 per cent from a year ago. Not only did customers spend more at Wynn’s Macau casinos, room occupancy jumped by 6.6 per cent from the prior year, the largest increase in that metric since September 2011, when Beijing’s consumption crackdown let the air out of the world’s largest gambling hub.
Wynn Resorts second-quarter revenue +44%
The profit and revenue mismatch raises an important question before a slew of earnings in the coming weeks from gaming operators including
Melco Resorts & Entertainment Ltd. and Sands China Ltd.: Should shortterm profit shortfalls matter at a time when casino operators need to spend big on advertising and promotions to gain from the resurgence of VIP players and to lure mainland Chinese gamblers to their newly built casinos? In other words, if Macau’s tables are finally turning, fighting for market share should be the game of choice. Wynn must be doing something right if it’s managed to book such a steep increase in Macau customers, especially considering the 35 per cent jump in total wagers among VIP clients in the second quarter from a year ago. It’s important to remember that high rollers are less profitable than mass-market guests, because casinos must pay commissions to the junket operators that ferry wealthy patrons to the casinos and help fund their betting.
But cementing market share from both VIP and mass-customer segments now is crucial for Wynn to make its recent investments in Macau worthwhile – especially the newly opened Wynn Palace. Wynn said Tuesday that mass-market traffic was hurt by construction work butting up against the new casino, including a light-rail station and other casinos scheduled to open later this year. Wynn will also have to give away some profits in the short term to win back VIP customers, reaping longerterm benefits if the high-roller rebound sticks. Investors might want to brace for lower margins ahead from this group. Overall revenue and guest count will determine which operators secure the winning hand. This column does not necessarily reflect the opinion of Bloomberg LP and its owners. Bloomberg Gadfly
Business Daily Thursday, July 27 2017 7
Macau Cinema
Economics of film Local filmmakers who participated in a local investment fair point out the potential for the MSAR’s film sector and possibilities for its growth Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
I
ncluding the Macao Economic Services (DSE) and/or the Macao Investment and Promotion Institute (IPIM) could help push forward the 2017 Guangdong–Hong Kong–Macao Film Production Investment and Trade Fair, ended yesterday, according to local filmmaker and participant in the fair Fernando Manuel Nunes dos Santos Eloy.
Mr. Eloy’s project was one of nine local projects selected to participate in this year’s edition of the fair, now in its fourth edition. The filmmaker notes that the project being chosen for the film is “always good” and that “being present at these events is always good”. However, the creative notes that the organization being conducted, on the Macau side, only by the Cultural Affairs Bureau (IC) could help motivate potential investors, as well as
filmmakers alike, as “at the end of the day we are talking about business.” “Probably many people don’t know how to invest in cinema, because it’s not just what people usually know, they invest in what they traditionally know: stock exchange, real estate,” states the filmmaker, opining that bringing in “people with experience of investing in films” to explain to local filmmakers, especially young filmmakers, could help their development and reach. “If the economic department (DSE) is involved I believe that people will start to look at this as ‘well, this is business, people are making money, people put some money into that film and they
got this [amount] back’. And I think that is the element that is missing,” notes the filmmaker. While noting that it’s impossible to place a price tag on a feature-length film, given the variables of cast, location, visual effects and more - the filmmaker set a minimum price for making a feature film at HK$5 million, and even investors supplying a portion of that funding can help kick-start a project to attract more investment.
The winner of the Film Project—Grand Award at the fair was local filmmaker Harriet Wong, with her film project ‘My Dreamer Daddy’.
Ms. Wong noted that this is the first time she has joined the fair, as she had been asked to join the first edition but was working in the United States at the time and “would prefer to stay in the U.S. to work on my script, rather than joining in the event.” She points out she later regretted that decision, “because I found it’s very important to meet investors”. Ms. Wong notes that Macau’s film history stretches back many decades, even with a Hollywood production named ‘Macau’ in the 1950s and that, regarding the government trying to bring back local talent from abroad, “I think it’s me! I went to Beijing for 10 years, but I was sponsored by the government to study my masters degree”. Ms. Wong notes that: “the technique and all the fundamentals I learned [abroad] help me to find the topics [of films] in Macau,” pointing out a large talent pool and potential for growth. Ms. Wong teaches a scriptwriting course at the University of Macau, for which she praises the talents of her students, noting that: “I found that they’re very talented but they have to have more chances, and maybe have more environments for them to growth,” as currently, topics, while developed, are very close to the writers’ personal story. Regarding the other two awards attributed, the film Just Run! from Hong Kong received the “Film Project—Award of Excellence” while the film Coarse Tea, Plain Rice from Hong Kong received the “Film Project— Award of Merit”.
direct connection will be extended to four times a week by the end of the next year. The new routes are being promoted by Portuguese airline TAP - of which HNA
holds a 20 per cent share through Brazilian company Azul - as a way to complement flights from mainland China with flights to Africa and Brazil. N.M.
Putting it out there
“I think it’s great that they do that, that they say ‘look this is happening’, which is what this event is,” points out CEO of Box Productions, from Hong Kong, Patrice Poujol, also involved in the two-day fair. “And they’re trying to tie it up to Hong Kong which is a production hub and Guangdong which has the money also, so it’s really good. But I think it has to be also supported by the real thing, which is essentially training new talent and making sure they can strive and thrive eventually into filmmaking,” points out the CEO. This could be in all areas linked to film, given that “It would be very difficult to attract a lot of films in Macau because it’s a small place. But why not? You could do post-production sound for example,” he notes, pointing out that “you don’t need a lot of investment”.
Winners
Aviation
Expanding the net The recently inaugurated Beijing Capital Airlines flight connections linking the MSAR with Lisbon through Beijing might be extended to Portugal’s second largest city of Porto next year The airport authority of Portugal, ANA Aeroportos de Portugal, is already in discussion with Beijing Capital Airlines to add a direct connection between Beijing and Portugal’s second largest city of Porto in 2018, according to newspaper Expresso. “It would be very important for us that Chinese aside from Lisbon would also be interested in Porto, making
the city’s airport more dynamic through new routes,” a source from ANA told the newspaper. Beijing Capital Airlines is a subsidiary of the Hainan Airlines Group (HNA), and inaugurated the first direct connection between mainland and Portugal yesterday. At the time the airline also launched a flight between Macau and the Chinese
capital to coincide with the connection to Lisbon. The flight connection now connects the capitals of both countries three times a week, and according to HNA the
Politics
Joint clearance for XRL in Hong Kong The authority from Hong Kong announced that joint clearance of both the SAR and the Mainland would be performed in West Kowloon Station for the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL). Hong Kong’s Secretary for Justice Rimsky Yuen said during the press conference held on Tuesday that the joint clearance by two
regions must be approved by the National People’s Congress Standing Committee before legislation could be formulated and implemented in Hong Kong. The Secretary said related authorities from both regions will ensure the joint clearance to comply with the Basic Law and ‘one country, two systems’. The XRL, together with other projects such as the
upcoming Hong Kong-Zhuhai-Macau Bridge, are instruments under the central government’s plan to link the Pearl River Delta into a ‘Bay Area’. The Secretary for Transport and Housing in Hong Kong, Frank Chan noted that the XRL project would ‘bring social and economic benefits, boost connectivity with the Mainland and create employment’.
8 Business Daily Thursday, July 27 2017
Greater china SOE
Beijing to convert all giant state companies into joint-stock firms The cabinet said efforts will be made to strengthen the party’s leadership at big state firms and to prevent the loss of state assets during restructuring
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ll big Chinese companies owned by the central government will be registered as limited liability companies or joint-stock firms by the end of the year, as Beijing moves to make its state-owned giants more nimble, efficient and modern. About 90 per cent of firms owned by the central government and local governments have already completed the process, which has helped improve their governance structures and management, the cabinet said in a statement on its website yesterday. It did not say whether private capital will be allowed to invest in the state giants or whether they will list shares. Through reforms, the central government hopes to revive China’s bloated and debt-ridden stateowned sector and create “bigger and stronger” conglomerates capable of competing on the global stage. Part of the reforms will involve shutting the most uncompetitive firms. The ownership structure of some SOEs will also be modernised. One of the biggest problems facing China, particularly the lumbering state-owned giants, is a spike in debt since the 2008 global financial crisis. Authorities have stepped up efforts to contain debt risks over the past year, and part of those steps have involved the restructuring of state firms. Earlier this year, People’s Bank of China Governor Zhou Xiaochuan said banks will withdraw support for financially unviable firms, repeating pledges by other officials to drive “zombie” firms out of the market. China is also pushing mixed ownership to allow private capital to invest in firms while retaining the government’s presence in the companies.
The state-owned asset regulator has said “erroneous” notions like “privatisation” and “de-nationalisation” should be avoided.
Party’s leadership
Efforts will be made to strengthen the party’s leadership at big state firms and to prevent the loss of state assets during restructuring, the cabinet said yesterday. The party’s leadership will also help protect employees’ legal rights and ensure the stability of corporate reforms, the cabinet said. One focus will also be on the formation of the board of directors at state-owned companies, the cabinet said, as part of efforts to bring it in line with present day corporate governance practices.
The board will have a say in major corporate decisions, hiring and salary distribution. Salary corridors linked to corporate profits and productivity will also be set up, according to the cabinet. Last month, the state asset regulator said China’s centrally administered SOEs will be divided into three types - industrial groups, investment firms and operating companies. While details were sparse, the move will similarly change the way SOEs are organised. The central government now owns and administers 101 enterprises in sectors ranging from nuclear technology to medicine. The state asset regulator has told the enterprises and their subsidiaries to hand in their restructuring plans by end-September, the official Xinhua news agency said yesterday. Xinhua reported that 69 of the enterprises, with assets totalling RMB7.97 trillion (US$1.2 trillion), have not registered themselves as
either joint-stock companies or limited liability firms. The subsidiaries of the 69 enterprises hold RMB5.66 trillion of assets, Xinhua said. The SOE reforms come as the Communist Party prepares for a once-infive-years congress in the fall.
Key Points 90 pct of state firms already completed registration process Board of directors to be set up at firms - cabinet Party’s leadership at firms to be strengthened - cabinet Ahead of the congress, one of the government’s priorities has been to ensure stability in the country’s financial system. Further opening China’s economy and markets is another focus. Reuters
Controls
Taiwan taken off Asia-Pacific money-laundering watch list Growing concern that Taiwan was an easy target for money laundering schemes drove efforts to revise legislation Faith Hung
Taiwan has been dropped from a watch list of Asia-Pacific jurisdictions deemed to have inadequate anti-money laundering controls, a senior official said yesterday, adding that the move reflects the island’s determination to tighten its laws. Removal from the Asia Pacific Group on Money Laundering (APG) watch list is a victory for Taiwan, known as a supply chain hub for Apple Inc and other global companies, but which has also earned a reputation as a haven for money laundering. Taiwan was the only jurisdiction removed from the 10-member watch list after a meeting of the group in Sri Lanka last week, Deputy Justice Minister Tsai Pi-chung told Reuters. “We have revised anti-money laundering regulations that were just implemented last month and we have established a cyber security protocol,” said Tsai. “All of our revised legal standards have demonstrated our determination to fight money laundering and
carry out reforms.” The others on the watch list are Afghanistan, Brunei, Laos, the Maldives, Nepal, Pakistan, Papua New Guinea, the Philippines, and Vietnam. Financial firms and professionals such as accountants and lawyers
must report suspicious or high-value transactions under the revised regulations, Tsai added. The APG did not immediately respond to a request from Reuters seeking comment. The APG’s decisions are closely followed by the 37 members of the broader Financial Action Task Force (FATF), including the United States and China, Tsai added. The APG, an associate member of the FATF, has direct access to its
policy-making and standards-setting process. Members are committed to adopting FATF recommendations to battle money laundering, the APG says on its website. Growing concern that Taiwan was an easy target for money laundering schemes drove efforts to revise the law and adopt national cyber security protocols this year, with a cyber security bill awaiting approval in the next legislative session set to begin in September.
Key Points Only jurisdiction removed from 10-strong watch list Decision seen reflecting island’s reform push to fight crime Decision closely followed by members of the FATF grouping
A panorama of Taipei
APG refers to the watch list from which Taiwan was removed as a “transitional follow-up list,” covering jurisdictions that need to improve defences against money-laundering. But Taiwan still has a lot of work ahead before it meets international standards against money laundering and cyber crime, said Ko Yi-fen, an official of its Anti-Money Laundering Office. Reuters
Business Daily Thursday, July 27 2017 9
Greater China Commodities
In Brief
Government reviewing copper scrap imports China is the world’s biggest user and producer of refined copper, accounting for about 45 per cent of global demand China may ban imports of some scrap metal, including copper, from the end of 2018, according to an industry association notice, which may lead to higher refined copper imports into the world’s largest consumer of the metal. London copper surged to its highest in two years on Wednesday in reaction to the news and Chinese futures climbed to their highest in more than five months.
“The market is reacting to the news about China banning scrap cables, scrap motor and other scrap metals from the end of next year, which could block a lot of copper supply into China”
received a notice that at the end of 2018 imports of scrap metal including wire, motors and bulk scrap metal will be prohibited, according to a copy of an informal Association message sent to members of its WeChat group reviewed by Reuters. “The market is reacting to the news about China banning scrap cables, scrap motor and other scrap metals from the end of next year, which could block a lot of copper supply into China,” said analyst Li Chunlan at consultancy CRU in Beijing. China is the world’s biggest user and producer of refined copper, accounting for about 45 per cent of global demand, but must import any additional needs from mines or scrap merchants. A ban on scrap could mean that it must import more refined copper. Antaike, a metals research institute
under the Association, said that the ban would likely affect less than 1 million tonnes of imports that market participants are speculating could be impacted. That is because the type of scrap affected by the ban only accounted for about 300,000 tonnes of China’s total 3.35 million tonnes of scrap copper imports in 2016, it said in a report. China’s overall copper scrap imports were 1.85 million tonnes in the first half of 2017 versus refined copper imports of 1.54 million tonnes, customs data showed. LME copper prices yesterday rose as much 2.8 per cent to US$6,400 a tonne, the highest since May 2015. Prices have risen 4.5 per cent in the past two days and are up 14 per cent this year. In China, copper prices on the Shanghai Futures Exchange rallied as much as 5.2 per cent to the highest in more than five months and closed at RMB50,050 (US$7,406) per tonne. China’s Ministry of Environmental Protection did not reply to a faxed request for comment. Reuters
Li Chunlan, analyst at consultancy CRU in Beijing The review of copper scrap imports is part of a broader crackdown by China authorities on imports of foreign waste as it looks to cut pollution from heavy industries to clear its skies. The recycling branch of the China NonFerrous Metals Industry Association said on Tuesday that it had
Earliest indicators show that China’s economic engine is humming this summer
Standard Chartered Plc’s Small and Medium Enterprise Confidence Index snapped a three-month streak of declines and rose to 56, according to the monthly survey of more than 500 companies. Pickups in sub-indexes indicate a broad-based improvement, and a majority of smaller businesses expect the yuan to remain stable, economists Ding Shuang and Hunter Chan wrote in a note. Still, smaller firms find it tough to get loans, according to the survey. “Deleveraging has moved up the policy agenda, as the annual growth target appears within reach,” Ding and Chan wrote.
China will extend its push to cut power distribution pricing to include transmission lines used to send electricity between regions, the state planner said yesterday. The country has since 2014 reformed the cost of using its 32 provincial grids, which the government says has saved a total of RMB48 billion (US$7.11 billion). It is now turning its attention to the power lines that connect those networks, Zhang Manying, an inspector in the pricing department of the National Development and Reform Commission, said in a press conference. Regulator
Authorities say to steadily expand opening of capital markets China’s securities regulator pledged yesterday to expand access to capital markets for all types of investors, while encouraging more long-term institutional participation in the financial domain. In a brief report on its website, the China Securities Regulatory Commission (CSRC) also said it would maintain “normalisation” of initial public offerings, improve the mechanism for delisting shares from stock markets and steadily expand the opening of China’s capital markets. It did not provide details. The report on the CSRC’s broad plans follows a once-in-fiveyears meeting of financial regulators.
Panama opens embassy in Mainland
Early data show resilient economy as market investors wary
Smaller businesses
Beijing to extend power market reform
Diplomacy
Growth
Confidence of small- and medium-sized companies rebounded in July, satellites are picking up increasing activity on the ground, sentiment of steel traders and producers has improved, while that of sales managers is at the highest level in more than two years. This buoyancy helps offset concern from wary financial investors. The signals point to resilience in the world’s second-largest economy, which grew a faster-than-expected 6.9 per cent last quarter. Strong expansion allows policy makers to focus on cutting excessive and speculative borrowing, which may eventually hurt growth later this year. Here’s what July’s early data show:
Energy
Satellite view
Manufacturing picked up in July, according to the China Satellite Manufacturing Index, which rose to 50.5 this month from 49.5 in June. The gauge published by San Francisco-based SpaceKnow Inc. uses commercial satellite imagery to monitor activity across thousands of industrial sites. Readings above 50 signal improving conditions, while those below indicate deterioration.
Sales managers
Another survey from London-based World Economics Ltd. shows sentiment among sales managers rose to a 26-month high of 52.8 in July. A sub-index for the non-manufacturing
sector hit a 30-month high. “The recent trend in strong growth for the economy has come from consistent increases in service sector business activity,” Chief Executive Officer Ed Jones wrote in a note. “Sales managers are expressing increased optimism that conditions will improve over the next few months.”
Steel mills
The S&P Global Platts China Steel Sentiment Index jumped to 55.3 in July, the first time this year it has breached 50, which separates increase and decrease. The gauge is based on a survey of about 75 to 90 China-based market participants including traders and steel mills.
Financial experts
The exuberance, however, is tempered by a drop in the confidence of international financial professionals. A survey of the China Economic Panel -- a joint project of the Centre for European Economic Research (ZEW) in Mannheim, Germany, and Fudan University in Shanghai -- showed expectations for the next 12 months slumped to minus 4.1 from 9.7 in June. The projection is below the longterm average of 5.1 and analysts predict a decline in real estate prices. “These frequent fluctuations seen within a relatively short period of time are a clear indication of uncertainty among the experts in terms of their assessment of future growth in China,” Michael Schröder, a senior researcher at ZEW, wrote in the statement. Bloomberg News
Panama announced Tuesday it has opened an embassy in China after cutting diplomatic ties with Taiwan in June. “The opening of the Republic of Panama’s embassy in the People’s Republic of China was done in accordance with the principles that frame the diplomatic relations between both countries,” the foreign ministry said in a statement. The announcement was made as a delegation of Chinese business chiefs was on a visit to Panama to explore investment opportunities. Panamanian President Juan Carlos Varela on June 12 declared his country had opened diplomatic relations with China. Shipbuilding
Shanghai plans to spend cruise ship park A Shanghai district government plans to spend about RMB5 billion (US$739.97 million) to develop a cruise ship industrial park to house foreign firms that it hopes will help build China’s first luxury passenger vessels, a local official said. China’s government has earmarked cruise shipbuilding as a major objective in its “Made in China 2025” programme. Firms who set up shop in the new zone could expect financing support from banks and recently established government funds, Lei Shuguang, director on the administrative committee of Shanghai Baoshan Industrial Zone, told Reuters yesterday.
10 Business Daily Thursday, July 27 2017
Greater China M&A
HNA’s Global Eagle investment deal collapses U.S. officials are said to be reviewing HNA’s purchase of SkyBridge Capital
H
NA Group Co.’s proposed US$416 million investment in an in-flight entertainment and Internet-services provider collapsed after the two companies failed to get regulatory approval from the U.S., in the latest setback for the acquisitive Chinese group. The plan, in which HNA’s Beijing Shareco Technologies Co. would invest in Los Angeles-based Global Eagle Entertainment Inc., was terminated after failing to obtain the goahead from the Committee on Foreign Investment in the United States, Global Eagle said in a U.S. regulatory filing late Tuesday. The investment was announced in November.
director Anthony Scaramucci, while the European Central Bank is considering a review of the company’s stake in Deutsche Bank and Chinese regulators are assessing the risks posed by HNA and other active acquirers to the nation’s financial system. Some of the biggest U.S. and Chinese banks have distanced themselves from the company, people familiar with the matter have said, though HNA denies that is the case. HNA has announced more than US$40 billion of deals since the beginning of 2016, according to data compiled by Bloomberg. Its pending transactions include the planned takeovers of Singapore-based
logistics firm CWT Ltd., Glencore Plc’s oil storage business, a majority stake in Brazilian airport operator Rio de Janeiro Aeroportos SA and Australia & New Zealand Banking Group Ltd.’s UDC Finance. Shareco representatives couldn’t immediately comment. On Monday, Shareco filed a statement on China’s National Equities Exchange and Quotations that it decided to terminate a “material asset restructuring” transaction, without naming Global Eagle. Shareco and Global Eagle will continue to cooperate under an existing commercial agreement for the U.S. company’s provision of equipment and services for in-flight entertainment and connectivity to Hainan Airlines, Beijing Capital Airlines and Yangtze River Airlines, according to the filing.
HNA has been under pressure lately. The group was among several prolific Chinese acquirers of foreign assets -- the others being Fosun International Ltd., Dalian Wanda Group Co., Anbang Insurance Group Co. and the buyer of the AC Milan soccer club -- whose loans have been under the scrutiny of the nation’s banking regulator. HNA’s ownership has also been under attack from Guo Wengui, a fugitive Chinese tycoon who’s been alleging HNA has secret ties to powerful Communist Party officials -claims denied by the company. Guo is facing defamation lawsuits from HNA and others over his various claims. To dispel concerns about its ownership, HNA earlier this week revealed it’s controlled by two company-related charities. Bloomberg News
‘HNA has announced more than US$40 billion of deals since the beginning of 2016’ The group, which started with a regional airline in the southern Chinese island of Hainan, has been on a buying spree, taking on at least US$73 billion of debt as it transformed from a small regional carrier into a global conglomerate with holdings including stakes in Hilton Worldwide Holdings Inc. and Deutsche Bank AG. More recently, the company has been under mounting scrutiny in China, the U.S. and Europe over some of its purchases. U.S. officials are said to be reviewing HNA’s purchase of SkyBridge Capital, the hedge-fund firm founded by White House communications
The group, which started with a regional airline in the southern Chinese island of Hainan, has been on a buying spree
Investors
BlackRock says ‘absolutely critical’ to look at mainland bonds Trading on China’s new bond link to the rest of the world started this month Denise Wee
BlackRock Inc., the world’s largest money manager, said that investors cannot ignore China’s onshore bond market, which has reached the US$10 trillion mark. “It’s absolutely critical if you’re a fixed-income investor to have a closer look at the Chinese bond market and then figure out the access as well as the positioning,” Neeraj
Seth, head of Asian credit at the asset manager, said at a briefing on Wednesday. Foreign investors own only about 3 per cent of China onshore notes, a significantly lower proportion than in other markets. The country’s regulators have been opening the world’s third-largest bond market to foreign investors. Trading on China’s new bond link to the rest of the world started this month and the People’s
Bank of China opened interbank bond trading to most types of investors last year. However, the process of raising foreign participation in onshore bonds will be gradual and China’s notes need to be included in major indexes to drive flows, said Seth. Citigroup Index LLC said in March that Chinese onshore sovereign bonds are set to join some of its gauges but omitted them from its key World Government Bond Index. Bloomberg Barclays Indexes, owned by Bloomberg, overhauled its China fixed-income gauges and
started a Global Aggregate + China index in March, while stopping short of adding the nation to major benchmark indexes. Inclusion in the major indexes will likely be in a 12 to 18 month horizon, according to Seth. BlackRock is long on the Chinese yuan, which has advanced 2.8 per cent against the dollar this year. Seth said in an interview in March that BlackRock had a “small long” position in the yuan, as they added positions in January when the market was bearish.
‘Foreign investors own only about 3 per cent of China onshore notes’ The firm is also long on the Indonesian rupiah and the Indian rupee. Within the Chinese onshore bond market, the firm likes higher-quality government bonds and policy banks as well as quasi sovereign names but is cautious on selective credits based on valuations, Seth said at the briefing yesterday. Bloomberg News
Business Daily Thursday, July 27 2017 11
Asia Monetary policy
Australia’s c.bank chief “very comfortable” with low policy rates Data showed underlying inflation rose 0.5 per cent in the second quarter from the first Swati Pandey and Wayne Cole
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ustralia’s top central banker said yesterday he was “very comfortable” with keeping interest rates at record lows as inflation fell short of expectations yet again. The Reserve Bank of Australia (RBA) has held policy rates at 1.50 per cent after last easing in August 2016, as it balances lukewarm consumer prices with household debt at a daunting 190 per cent of disposable income. “I am very comfortable with the current setting of policy because it creates jobs,” RBA Governor Philip Lowe said at a lunch event in Sydney. Data out yesterday showed the core inflation rate - which policymakers focus on - remained below target for a sixth straight quarter in the AprilJune period. Such tepid figures combined with Lowe’s comments may well put to rest speculation over domestic interest rate hikes which flared up after the Bank of Canada increased its policy rate to 0.75 per cent this month. “There is no smoking gun to justify a change of interest rates in any direction,” said Craig James, chief economist at CommSec in Sydney. “Inflation isn’t rapidly moving below the target band, nor is it rapidly lifting back into the target band. So
the Reserve Bank can stay on the interest rate sidelines.” Yesterday’s data showed underlying inflation rose 0.5 per cent in the second quarter from the first, matching forecasts. The annual rate of 1.8 per cent was below the RBA’s long-term target band of 2 per cent to 3 per cent, where it has been since the start of 2016. The listless data took the wind out of the Australian dollar’s sails. It was last down 0.4 per cent at US$0.7903 versus last week’s peak of US$0.7992 - a level not seen since May 2015. Lowe said the numbers were in line
with the RBA’s expectations, pointing to Australia’s subdued wages growth as the key factor keeping inflation below target.
Snail-paced wages
The RBA expects only a gradual pickup in incomes as spare capacity in the labour market remains high. Wage growth at 1.9 per cent is crawling at the slowest pace ever and the underemployment rate, which measures people wanting to work more hours, is near record highs. That is despite recent strength in the labour market. Full-time jobs made a remarkable comeback in June, gaining for a fourth month while the unemployment rate steadied at 5.6 per cent.
Other indicators of the economy’s health have also been generally positive, with a measure of business conditions jumping in the June quarter to its highest level since early 2008. But the RBA seems to be in no rush to move the dial on interest rates. “We have not sought to stimulate a rapid lift in inflation. The fact that the labour market has been generating sufficient jobs to keep the unemployment rate broadly steady has allowed us to be patient,” he said. “We are intent on delivering Australians an average rate of inflation over time of between 2 and 3 per cent. We are seeking to do this in a way that supports sustainable growth in the economy and that best serves the public interest.” Reuters
Credit-card
Thailand tightens rules to battle high household debt At the end of March, Thailand’s household debts were 78.6 per cent of gross domestic product Orathai Sriring and Kitiphong Thaichareon
Thailand’s central bank yesterday tightened controls on credit cards and unsecured personal loans, a move that should contain high household debt levels and could cut domestic consumption. The measures, effective Sept. 1, come at a time of concern about overspending by citizens and rising bad loans. The rule-changes mean credit-card holders can no longer automatically get credit limits of five times their monthly incomes. From Sept. 1, only individuals earning at least 50,000 baht (US$1,492) a month can get a maximum spending limit of five times their monthly salary for credit cards. At the end of March, Thailand’s household debts were 78.6 per cent of gross domestic product, among the highest in Asia, although that eased slightly from 79.8 per cent at end-2016. “Thailand’s household debt has been high and may affect households and the economy in the long term,”
Bank of Thailand Deputy Governor Ruchukorn Siriyodhin told a news conference. High debt levels have already had an economic impact. They are one reason the central bank has not cut its benchmark interest rate for more than two years to try to lift Thailand’s sluggish growth pace, as such a move could raise household debt levels.
Key Points Curbs credit line limits for credit cards, personal loans Cuts maximum credit card interest rate to 18 pct from 20 pct High household debt ‘may affect the economy’ - c.bank deputy gov Credit card loans that became bad credits stood at 3.8 per cent of all such loans at end-March, while those of personal loans were 2.9 per cent.
Asset quality pressure
Yesterday, Fitch Ratings said Thai banks continued to face asset quality pressure stemming from
vulnerabilities in small-and medium-sized enterprise and unsecured retail loan sectors. Currently, there are 6.7 million people holding 19.8 million credit cards, Ruchukorn said. The new rules cut the maximum credit card interest rate to 18 per cent from 20 per cent, she said. New credit card applicants with a monthly salary below 30,000 baht can have a credit line of up to 1.5 times their income, and those with less than 50,000 baht income will get up to three times. The credit line for new unsecured personal loan applicants with
monthly income below 30,000 baht will be limited to 1.5 times their income, and they will be limited to three accounts. Shares in market leader Krungthai Card, Thailand’s biggest credit-card issuer and a unit of Krung Thai Bank fell 5 per cent on the credit-card changes. The banking index was off 0.11 per cent. Thai people started accumulating debts from a younger age, over a longer period, and of a larger amount, BOT Governor Veerathai Santiprabhob said last month, adding the high debt levels were a challenge for households and policymakers. Reuters
12 Business Daily Thursday, July 27 2017
Asia Central bank deputy
Japanese firms avoiding price hikes now but sentiment is changing The Bank of Japan has postponed its inflation target timeframe six times since Governor Haruhiko Kuroda launched his huge asset-buying programme in 2013 Stanley White
B
ank of Japan (BOJ) Deputy Governor Hiroshi Nakaso said the services sector has streamlined operations to avoid passing labour costs on to consumers, but there are signs that companies will raise prices in the future. Nakaso, in a speech to business leaders in Hiroshima, western Japan, also expressed confidence that inflation will reach the BOJ’s 2 per cent price target around fiscal 2019 and said the BOJ should stick with its quantitative easing programme. A pickup in consumer spending, rising exports and an improving output gap are all reasons to be positive about the outlook, but many economists still argue that the BOJ’s inflation forecasts are overly optimistic. Nakaso later said the central bank needs to continue buying exchange-traded funds (ETFs) to lower risk premiums, but the policy is coming under increasing criticism for artificially pushing up stock prices. The BOJ last week kept monetary policy steady but once again pushed back the timing for achieving its elusive inflation target, reinforcing views it will lag well behind other major central banks in scaling back its massive stimulus programme. “Companies are trying to absorb higher labour costs by revising their
business processes,” Nakaso said on Wednesday. “The BOJ doesn’t expect this to continue for ever. The output gap is clearly improving, so companies will become more aggressive in setting wages and prices.” Nakaso added that he saw no need to ease policy further because there is still upward momentum in consumer prices.
Key Points Nakaso: firms avoiding passing on costs to consumers Tankan shows services firms leaning toward price hikes BOJ has delayed price target for six times Nakaso: ETF purchases still needed for price target Nakaso gave a few examples of corporate streamlining: some companies in retail and dining have responded to a labour shortage by shortening their business hours instead of raising wages to attract workers. Some companies are also investing in labour-saving technology, such as self-checkout tills, which allows companies to maintain their current level of service with less workers. Such behaviour has allowed companies to avoid passing higher costs
Bank of Japan Governor Haruhiko Kuroda
on to consumers, but there are signs that sentiment is turning, Nakaso said. The BOJ’s tankan survey for June shows shipping, wholesale, retail, and hospitality firms are considering raising prices in the future. Business leaders from Hiroshima, which is home to automaker Mazda Motor Corp, expressed concerns about labour shortages and interest in capital expenditure to deal with this problem, according to Nakaso. Despite the short-term negative impact on wages and prices, investment in labour-saving technology should be welcomed because it raises productivity in the long term, Nakaso said. It also important to put structural policies in place to make the labour market more fluid, Nakaso said. The BOJ has a negative 0.1 per cent
short-term interest rate and buys government debt to keep 10-year yields near zero. The central bank also buys ETFs so its holdings increase at an annual pace of 6 trillion yen ($53.62 billion), and some analysts say this has exaggerated gains in the underlying share prices of many companies. “I think ETF purchases are still necessary, but this is something that we debate and decide on at each policy meeting,” Nakaso said. “Right now I think the benefits outweigh the costs.” The BOJ has now postponed its inflation target timeframe six times since Governor Haruhiko Kuroda launched his huge asset-buying programme in 2013. Japan’s core consumer prices rose just 0.4 per cent in May from a year earlier. Reuters
FDI
Indonesia attracts more foreign investment in Q2 Singapore was the biggest source of investment, followed by Japan and China Nilufar Rizki and Hidayat Setiaji
Indonesia yesterday reported higher levels of foreign direct investment (FDI) in the second quarter than the first, but the head of the agency seeking to win investors said there remains “a lot to improve”. In April-June, FDI increased 10.6 per cent on an annual basis in rupiah terms to 109.9 trillion rupiah and by 15.5 per cent in dollar terms to US$8.2 billion, the investment board said. In the first quarter, actual investment increased only 1 per cent in rupiah terms from a year earlier and 6 per cent in dollar terms. Statistics from the agency do not include investment in banking or the oil and gas sectors. Improving the investment climate is a focus for President Joko Widodo, who is trying to get the annual economic growth rate up to 7 per cent, from 5 per cent at present. Last year, Widodo opened up dozens of business sectors to foreign investors in what investment board chairman Thomas Lembong called the country’s boldest move in 10 years. Early this month, the president told Reuters the government will
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ease foreign ownership restrictions on certain industry sectors again in August. No details have emerged. Lembong told reporters that Widodo at a cabinet meeting on Monday “uttered his disappointment about many ministerial decrees that hurt the business climate. This we have to improve.” But he said investment has grown “quite well”, with the total boosted by factory completions by Mitsubishi Corp , SAIC General Motors Wuling
and Krakatau Osaka Steel, a joint venture of Japan’s Osaka Steel Co. Ltd and Indonesia’s PT Krakatau Steel.
Second half slowdown?
“Investment is growing, but there are still more opportunities... We have a lot to improve,” Lembong said. In the second quarter, Singapore was the biggest source of investment, followed by Japan and China. Base metal, mining and utility sectors attracted the most FDI. Lembong said he was worried investment would slow in the second half as global commodity prices are seen softening. Indonesia
relies heavily on commodities for its exports. “I’m also worried about the structure of investment, especially the balance between capital-intensive and labour-intensive ones.. An increase in nominal investment does not mean an increase in the income or welfare of the people,” he said. In May, rating agency Standard & Poor’s upgraded Indonesia’s sovereign ratings to investment grade
Key Points Q2 actual FDI +15.5 pct y/y in dollar terms - investment agency Investment chief says there remains ‘a lot to improve’ Concern expressed that investment could slow in second half in May. S&P said the government had taken effective measures to stabilise public finances, but said Indonesia continued to trail other nations on some governance issues such as control of corruption. Reuters
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Business Daily Thursday, July 27 2017 13
Asia Trade poll
In Brief
S.Korea exports seen posting double-digit growth on tech boom Economists expect exports growth to be sustained through the end of this year Cynthia Kim
Robust demand for South Korea’s memory chips and ships are expected to have boosted exports for a ninth month in a row in July, a Reuters poll showed yesterday, underscoring strengthening momentum in Asia’s fourth-largest economy. The median forecast of the 10 analysts polled was for exports to soar 17.4 per cent from a year earlier, accelerating from 13.6 per cent growth in June. Imports were seen growing 15.6 per cent after jumping 19.8 per cent a month earlier. “Demand for memory chips and shipbuilding are still roaring, and sales of South Korean cars are also in good shape,” Park Sang-hyun, chief economist at HI Investment &
Securities said. “Shipment growth to the U.S., Europe and China will continue to grow in the second half of the year,” Park said. Overseas sales of semiconductors surged 55.3 per cent in June from a year earlier while that for shipbuilding gained 44.3 per cent, data from the Korea Customs Service showed.
Key Points July exports seen +17.4 pct y/y, imports +15.6 pct y/y July CPI rise seen +2.1 pct y/y June industrial output seen +1.0 pct m/m s/adj The robust numbers mirrored a brightening outlook for global growth and external demand, helping lift Asia’s export-led economies, particularly the prominent tech manufacturing countries such as Japan, South Korea and Taiwan.
Minister
Indonesia open to rejoining OPEC By destinations, exports growth to Japan and China rose 10.4 per cent and 5.1 per cent on-year respectively in June, while that to the U.S. declined 1.1 per cent. E c o n o m i st s ex p e c t ex p o r t s growth to be sustained through the end of this year, albeit at a slower pace, as recovering economies in the U.S. and China will support shipments. The nation’s finance ministry on July 25 upgraded this year’s growth outlook to 3 per cent for 2017, the highest in three years, as exports growth exceeded expectations. The same poll showed that July annual inflation was expected to be 2.1 per cent, accelerating slightly from 1.9 per cent in June. June factory output was forecast to increase 1 per cent from a month earlier after gaining 0.2 per cent in May. Industrial output data is due on Friday, and trade data as well as inflation indicators will be published on August 1. Reuters
Indonesia is open to rejoining the Organization of the Petroleum Exporting Countries as long as it is not forced to curb its own crude oil production, the nation’s energy and mineral resources minister said. “We would have to have a concession for not following cuts from time to time,” the minister, Ignasius Jonan, said. Indonesia said two months ago that it was considering rejoining OPEC after it had left and rejoined several times over the years. The country, which pumps about 800,000 barrels of crude per day, would become the group’s 15th member. Results
Nintendo swings to operating profit Japan’s Nintendo Co Ltd yesterday said it swung to a profit in the first quarter, beating analyst estimates, due to strong demand for its Switch console. High hopes for the console has driven up Nintendo’s stock price around 60 per cent since its March debut. The firm has said it expects Switch to help more than double its annual operating profit and end an eight-year sales decline that dogged its previous offering Wii U. The company swung to an operating profit of 16.21 billion yen (US$144.95 million) for the three months through June, from a year-ago loss of 5.13 billion yen. Auto industry
Hyundai Motor profit slumps M&A
India e-tailer Snapdeal’s board accepts Flipkart’s buyout Indian private-sector lender Axis Bank is the frontrunner to acquire Snapdeal’s digital payments unit FreeCharge Sankalp Phartiyal
Indian online marketplace Snapdeal has accepted Flipkart’s revised takeover offer of up to US$950 million, two sources said yesterday, providing heft to its bigger rival in a high-stakes battle with Amazon.com Inc .
Key Points Deal is pending approval by Snapdeal shareholders Snapdeal considered Infibeam’s US$700 mln offer – source
cheap phones and data plans. Japan’s solar-to-tech conglomerate SoftBank, Snapdeal’s biggest investor, is keen to consummate the deal and take an equity stake in Flipkart to profit from India’s booming online retail market. A 2016 report from accounting firm EY noted that e-commerce has grown at a compound annual growth rate of over 50 per cent in the last five years in India and the pace of growth is expected to continue, with e-commerce sales topping US$35 billion by 2020.
Bengaluru-headquartered Flipkart had revised its initial offer for Snapdeal to up to US$950 million, Reuters reported last week. The board also considered a US$700 million share-swap offer by listed e-commerce firm Infibeam but rejected it as too low, one of the sources said. Infibeam declined to comment. Separately, Indian private-sector lender Axis Bank is the frontrunner to acquire Snapdeal’s digital payments unit FreeCharge for US$60 million, the sources said. Axis Bank did not immediately respond to a request for comment. All sources spoke on condition of anonymity as the discussions are not public. Reuters
Axis Bank offering US$60 million for FreeCharge – sources The board of Jasper Infotech, which runs Snapdeal, approved Flipkart’s bid of US$900 million-US$950 million last week, the sources who were familiar with the matter said. A deal is now pending the approval of Snapdeal shareholders, they said. Snapdeal declined to comment, while Flipkart was not immediately available for comment. India’s fledgling e-commerce sector is in the midst of a fierce war for supremacy between U.S. online retail giant Amazon and leading homegrown player Flipkart at a time more and more Indians shop on the web, helped by a spurt in availability of
Japan’s solar-to-tech conglomerate SoftBank, Snapdeal’s biggest investor, is keen to consummate the deal and take an equity stake in Flipkart to profit from India’s booming online retail market
Hyundai Motor posted its smallest quarterly net profit in five years, falling dismally short of estimates, and warned the second half of 2017 would be challenging as political headwinds hit sales in China and slow U.S. demand continues. The South Korean firm - which together with affiliate Kia Motors is the world’s No.5 automaker - has been betting earnings will recover gradually, but its plans have ground to a halt with China’s backlash over Seoul’s decision to deploy an anti-missile system, the U.S. Terminal High Altitude Area Defence (THAAD), showing no signs of abating. Energy
Petronas scraps US$29 bln western Canada LNG project Malaysian oil company Petronas scrapped a proposed C$36 billion (US$29 billion) liquefied natural gas (LNG) project in western Canada due to weak prices, in a blow to both its global ambitions and Canada’s hopes of becoming a major LNG player. Pacific NorthWest LNG in British Columbia was meant to produce 12 megatonnes per year and spur further development of Canada’s largest shale play, but industry observers said the move was widely expected given years of delay. Analysts had been sceptical about the project’s prospects given current low gas prices.
14 Business Daily Thursday, July 27 2017
International In Brief Portugal
Renewable energy company more than doubles its profit Portuguese renewable energy company EDP Renováveis more than doubled (128 per cent) its profits in the first half of the year compared with the same period last year to €134 million it said on Wednesday. It told the Portuguese Stock Exchange Commission (CMVM) that EBITDA was up 11 per cent at €719 million, “as a result of greater output despite the increase in other operating costs, mainly related with increased operating capacity”. At the end of June, EDP Renováveis had total debt of €3.13 billion, €375 million more than at the end of last year because of investments and the consolidation of the Mexican debt. Markets
Nasdaq’s Q2 profit more than doubles Exchange operator Nasdaq Inc’s second-quarter profit more than doubled, helped by a jump in revenue in its market services business that oversees transactions, clearing and settlement services. Nasdaq’s net income rose to US$147 million, or US$87 cents per share in the second quarter ended June 30, from US$70 million, or US$42 cents per share, a year earlier. Revenue, net of transaction-based expenses, rose 7.7 per cent to US$602 million, Nasdaq said yesterday. Top EU court
Canada passenger data deal must be revised A deal between the European Union and Canada to share airline passenger data must be revised as parts of it violate privacy and data protection laws beyond what could be justified for fighting terrorism, the EU’s top court said. The European Court of Justice (ECJ) said that while transfer, retention and use of passenger data was allowed in general, the envisaged rules for handling sensitive personal data “are not limited to what is strictly necessary”. The EU’s 28 states and Canada negotiated the deal in 2014 but the European Parliament asked for the ECJ stance. Growth
British economy holds up against headwinds Britain’s economy advanced slightly in the second quarter, pulled higher by the key services sector despite high inflation and uncertainty over Brexit, official data showed yesterday. Gross domestic product grew by 0.3 per cent between April and June, a slight increase compared with the first quarter of the year, the Office for National Statistics said in a statement. GDP had stood at 0.2 per cent growth between January and March, the ONS confirmed, while the improved second-quarter reading matched analysts’ consensus forecast. The data comes shortly after the International Monetary Fund downgraded its 2017 growth estimate for Britain on Brexit’s clouded outlook.
Brexit
Banks dealing EU sovereign debt may be dragged out of London Industry executives say as much as 70 per cent of sovereign debt in Europe is arranged by London-based firms Abhinav Ramnarayan and Anjuli Davies
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anks at the heart of EU government borrowing could be forced to move some operations out of London if they want to hold on to that business after Brexit, according to three senior bankers with knowledge of the matter. A large part of European national borrowing is managed by London-based investment banks, which currently rely on “passporting” to offer services across the European Union but could lose this right after Britain leaves. EU officials are considering imposing rules to require these primary dealers - the banks appointed by national debt agencies to help them borrow from investors - to have significant operations in the bloc post-Brexit, said the bankers. The three London-based banking sources all work in the business of selling European government debt and have frequent discussions with European government officials. They declined to be named as those discussions are confidential. The bankers said EU authorities were looking at imposing similar rules to those the United States which require primary dealers in U.S. Treasuries to have operations in the country. They said it was too early to say how much of banks’ operations would be required to move, but that it could involve all primary dealing jobs as well as some jobs in associated services, such as fixed-income sales and distribution, and money-market trading. The European Commission, the EU executive body, declined to comment. The German, French and Italian finance ministries either declined to comment or did not respond to requests for comment. The European Central Bank, which is responsible for supervision of European banks, said it was monitoring developments around the issue of primary dealers. Barclays, Citi, Goldman Sachs, HSBC and JPMorgan are among the leading investment banks arranging euro sovereign bond deals. Others
such as Nomura and Morgan Stanley are also active. All those banks either declined to comment or did not immediately respond to requests for comment.
Banks may exit primary dealing
Industry executives say as much as 70 per cent of sovereign debt in Europe is arranged by London-based firms, either acting as market makers in government bond auctions or selling debt directly to investors through “syndicated” deals. Several billion euros of European government bonds are sold every week to primary dealers through auctions, which they then sell on. In addition, Thomson Reuters data shows 148 billion euros of bonds were sold via syndication last year. Some banks are already making preparations to move some primary dealer positions from London to other European centres, according to two of the bankers with knowledge of the matter.
Key Points London-based banks manage much of European national borrowing EU may force dealers to move operations post-Brexit - sources Some banks already shifting jobs to continent - sources Others may exit primary dealing business altogether - source Other banks may exit the primary dealing business altogether, said the third source. A fourth senior banker said his company was considering quitting its primary dealership business in some EU countries if it was required to shift some operations out of London, because of the costs this would incur. Another senior industry source said big banks’ European government bond desks tended to comprise about 15-20 people, but that the number of jobs moving could be much higher. “It is very hard to look at the
primary dealership debate in isolation because it has a knock on effect on so many other parts of the business,” he said. “Overall, I expect many banks to move hundreds of jobs to Europe and the primary dealership issue will be part of the reason for that.” The possible requirements provide a further incentive to move operations out of London for investment banks, which have started to enact contingency plans for when Britain leaves the EU and potentially loses passporting rights. Global banks have already indicated thousands of jobs could move from London in the next two years. “Because of the continuing uncertainty people have to assume the worst-case scenario, and they have to take action now,” said Matthew Hartley, Debt Capital Markets Partner at law firm Allen & Overy, which has also worked on bond documentation for several European countries. “So inevitably you are getting people setting up in different European centres and building up a proper bank in the relevant jurisdiction,” he said.
Higher borrowing costs?
For European government debt agencies already dealing with a shrinking pool of banks to partner with, institutions exiting the business could lead to higher borrowing costs. But some debt agency officials believe it will not come to that. Anne Leclerq, head of Belgium’s debt agency, said she believed some primary dealers would move if the regulations changed. “We have primary dealers in common with Italy and France and so on, so those institutions would not be able to serve any of their clients in the euro zone if they don’t move operations,” she told Reuters. “And they only would have to move somewhere in the euro zone, not to each individual country. It’s more an issue for the banks than for us.” But some smaller countries, who arguably could be the worst hit if more primary dealers drop out, favour compromise. Portuguese debt agency chief Cristina Casalinho, for example, told Reuters on the side-lines of a conference in June: “We have to consider a two-way value proposition for it to work. We are in close contact with our primary dealers and we try to listen to their concerns.” Reuters
Business Daily Thursday, July 27 2017 15
Opinion Business Wires
Taipei Times The Taiwan Institute of Economic Research (TIER) slightly raised its forecast for the nation’s GDP growth this year to 2.08 per cent, from a previous projection of 2.04 per cent, as exports regain growth momentum after slowing in the second quarter. The planned launches of nextgeneration devices by global technology brands are expected to ramp up business for local firms in their supply chains, with the benefit likely more evident next quarter, the Taipei-based think tank said. “Despite the upward revision, the nation’s economy continues to have difficulty casting off weak growth as domestic demand flounders and global uncertainty lingers,” TIER economist Gordon Sun said.
The Starits Times Global e-commerce giant Amazon is set to launch its services in Singapore, marking its entry into South-east Asia. According to popular tech site Techcrunch, the launch could happen as early as this week, based on the teasers posted on social media by the influencer community in the island republic. Among the influencers include Jaime Teo, theramengirl, Charmaine Seah-Ong and lifestyle portal superadrianme.com with the hashtag #dontsaybojio. While there is no official Amazon branding present in the teasers, keen-eyed users managed to spot the distinctive blue tick, which is used by Amazon Prime Now.
China did its economic stimulus the wrong way Noah Smith a Bloomberg View columnist
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Inquirer.net Metropolitan Bank and Trust Co. could be sanctioned by the Bangko Sentral ng Pilipinas (BSP) if management is found to have breached internal controls following the BSP’s probe into a massive internal fraud incident that involved anywhere from P900 million to P2.5 billion. Chuchi Fonacier, BSP deputy governor for bank supervision and examination, said there might be penalties in this case, acknowledged as the biggest incident of its kind to hit the banking sector. “There is that possibility,” said Fonacier, adding that the BSP was currently conducting its own parallel probe.
Bangkok Post An increase in the number of Chinese tourists in recent years has tremendously benefited Thai retailers, especially those offering uniquely Thai and value products. Tourist arrivals to Thailand have continued to set records due to the country’s ability to effectively spur growth in the tourism sector. Additionally, the baht is relatively cheap compared to the currencies of developed countries, which makes it more affordable for tourists. Thailand has long been renowned as a major shopping destination. Bangkok’s dense shopping district is comprised of an array of malls within short travel distances of each other and offer easy access to public transportation, making it convenient for shoppers.
hen the Great Recession hit, China didn’t hesitate to open up the fiscal taps. But the fast-developing country also embraced another form of stimulus that was a bit different from what John Maynard Keynes had recommended -- it encouraged its banks to start lending a lot more. They lent money to corporations, local governments and a variety of private actors. Much of this lending was financed by the issuance of so-called wealth management products (WMPs) -- basically, high-interest loans made by Chinese households to a variety of bankaffiliated lenders. A new paper by economists Viral Acharya, Jun Qian, and Zhishu Yang provides a lot of detail about what happened. In China, there are four really big banks owned by the central government -Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China. When the aftershocks of the Great Recession threatened the economy in 2009-10, the Chinese government told its banks to lend more money, and they did so -the increase in lending from the Big Four banks during those two years totalled about RMB7 trillion, or US$1 trillion. But that put China’s smaller banks in a bind. In order to maintain regulatory loan-to-deposit ratios, the big banks had to take more deposits from Chinese households, and they did this by offering better deposit rates and various other incentives. This created stiffer competition for smaller banks, forcing them to find some other source of financing. They couldn’t just offer higher deposit rates, since deposit rates are capped by the government. Their answer was WMPs, which they issued indirectly by creating a large system of so-called shadow banks, or lenders that operate outside of the regulated financial regime. As Acharya et al. document, the more local competition there was from the Big Four banks, the more WMPs the smaller banks issued. China watchers, including my Bloomberg View colleague Chris Balding, have long been worried about the risks posed by the WMPs and the shadow banking system that supports them. As the U.S. experience in 2008 and many other episodes around the world have shown, large amounts of high-interest loans created by complex networks of shadowy, unregulated lenders can be the tinder that sparks a financial crisis. Acharya, et al. give some new evidence to justify this worry. They show that when WMPs mature, interbank lending rates go up -- a scary indicator for anyone who remembers the American interbank freeze-up in 2008. Higher interbank lending rates in turn cause Chinese bank stocks to fall, with banks that issued more WMPs falling by more. WMPs are thus creating risks for the entire Chinese
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financial system. But that’s not the only way China’s odd, unique form of stimulus created new risks. There’s also the issue of who received those loans. Another new paper, by economists Lin Cong and Jacopo Ponticelli, shows that the stimulus funneled money to low-productivity state-owned companies. From 2000 to 2008, everything seemed to be going right in Chinese industry. Lending kept shifting from less productive companies to more productive ones, and from state-owned enterprises to the private sector. That’s a sign of a healthy economy. After 2008, though, that positive trend went into reverse. Cong and Ponticelli document how state-owned companies started taking a larger share of lending, and that businesses with lower rates of return on capital before 2008 borrowed more. Money flowing to less productive companies is always bad news. But when combined with the increase in high-interest loans and interbank lending risk documented by Acharya et al., it’s a recipe for a financial crisis. Low-productivity borrowers are less likely to repay their loans. So the quality of loans has gone down at precisely the same moment that systemic risk has risen. Even more worrying, the lending binge didn’t stop after the Great Recession ended. A figure from Cong and Ponticelli’s paper shows how the money has continued to flow, supported by more shadow banking and corporate bond issuance: This seemingly permanent increase in lending since 2008 has coincided with a reduction in real economic growth: More borrowing, lower-productivity borrowers, slowing growth, and greater systemic risk are all consistent with the story that China’s economy has become too dependent on cheap, plentiful often wasteful financing. Naturally, the Chinese government is aware of the risks, and is taking some steps to reduce them. For example, the authorities are pushing lenders to lower the rates of return they offer on WMPs, which promises to reduce risky lending. But these measures may be too little, too late. A huge stock of high-interest debt has been accumulated by low-productivity borrowers. It will take years to unwind. Those years will probably bring slower growth for China, even as the risk of a general Chinese financial crisis continues to be elevated. There’s a lesson here for future policy makers. When recession threatens, forcing banks to lend money cheaply is a very dangerous form of fiscal stimulus. Countries would be well-advised to stick with Keynes’ original idea, and simply have the government spend a bunch of money on infrastructure when the economy falters. Bloomberg View
When recession threatens, forcing banks to lend money cheaply is a very dangerous form of fiscal stimulus
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16 Business Daily Thursday, July 27 2017
Closing Initial coin offerings
Bankers ditch fat salaries to chase digital currency riches ICOs have raised millions from investors hoping to get in early on the next bitcoin or ether Lulu Yilun Chen and Camila Russo
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ichard Liu gave up a seven-figure salary this month to get into one of the hottest financial instruments around right now: initial coin offerings (ICO). The former China Renaissance deal-maker has since backed a clutch of cryptocoin sales that have raised millions -- sometimes in seconds -- often without a single product. From Hong Kong and Beijing to London, accomplished financiers are abandoning lucrative careers to plunge into the murky world of ICOs, a way to amass quick money by selling digital tokens to investors sans banks or regulators. Cut out of the action, a growing cohort of banking professionals are instead applying their talents toward buying or hawking cryptocurrency. They’re going in with eyes wide open. For Liu, who put together some of China’s biggest tech deals in his old job, the chance to shape the nascent arena outweighs the dangers of a market crash or crackdown. Loosely akin to IPOs, ICOs have raised millions from investors hoping to get in early on the next bitcoin or ether, and their unchecked growth over the past year is such that they’ve drawn comparisons to the first ill-fated dot-com boom. Yet with stratospheric bonuses largely a thing of the past, the allure of an incandescent new arena far from financial red-tape has proven irresistible to some. “Traditional investment banks and VCs need to monitor this space closely, it could become very big,” said the 30-year-old partner at US$50 million hedge fund FBG Capital, which has backed about 20 ICOs. He’s off to a quick start, getting in on this year’s largest sale: Tezos, a smart contracts platform that raised US$200 million to outstrip the average Hong Kong IPO size this year of around US$31 million. “Unlike the traditional financial sector, there are no ceilings or barriers. There’s so much to imagine,” he said. Critics say many ICOs are built on little more than hyperactive imaginations. A cross between crowdfunding and an initial public offering, they involve the sale of virtual coins mostly based on the ethereum blockchain, similar to
the technology that underpins bitcoin. But unlike a traditional IPO in which buyers get shares, getting behind a startup’s ICO nets you virtual tokens -- like mini-cryptocurrencies -- unique to the issuing company or its network. That means they grow in value only if the start-up’s business or network proves viable, attracting more people and boosting liquidity. That’s a big if, and the sheer profusion of untested concepts has spurred talk of a bubble. The U.S. Securities and Exchange Commission signalled greater scrutiny of the red-hot sector when it warned on Tuesday that ICOs may be considered securities, though it stopped short of suggesting a broader clampdown. The regulator however did reaffirm its focus on protecting investors: part of the appeal of ICOs lies in the fact that -- for now -- anyone with a bold idea can raise money from anybody. At least 90 ICOs have taken place this year, raising more than US$1 billion based on proposals from free wi-fi sharing to trading software without a single line of code. It’s already exceeded early-stage venture capital financing. With little more than an explanation of the ad-lite browser it envisioned, Brendan Eich’s Brave Software scored US$35 million for its Basic Attention Token sale in under a minute in May. “These ICOs are not selling shares, which means their investors will have to count on the promise and reliability of the founders,” said Beijing-based Chandler Guo, a bitcoin miner and angel investor who’s helped more than 20 ICOs list on cryptocurrency exchanges. So “I don’t invest in any projects unless I know where they live and their mother lives.”
Justin Short, who created electronic trading algorithms for Bank of America Corp. before launching trading-related start-up Nous, is preparing to launch his own sale of digital tokens to bankroll what he calls cryptoasset portfolio management. A former Wall Street floor trader, he likens the advent of ICOs to an episode half a billion years ago when many of the planet’s life forms came into existence. “It’s a Cambrian explosion of ideas. But that means you have to put in your work to figure out which one is even likely to work,” he said. Cryptocoins bypass middlemen such as fee-absorbing banks and venture capital firms, and offer access to fast money. But that also means traditional checks and balances are absent. The key may be to recognize which tokens serve an essential purpose to the selling startup’s network, and thus will appreciate in value alongside rising adoption. Former HSBC forex-trading architect Hugh Madden, currently Chief Technology Officer of Hong Kong-based ANX International, this month helped raise about US$18.7 million for cryptocurrency exchange OAX. He likens ICO-token ownership to a football club membership. You don’t get special access but as the team gets better, more people become fans and the price goes up. When a football club “builds more relationships with other clubs, gets more matches, and generally enjoys wider adoption, then more people want to be a part of it,” the 40-year-old said. “There is no limit to participants, but there is a limit to memberships that allow members to exert influence on the future direction of the club.” With ICOs however, the true price of membership can be impossible to gauge. Prominent bitcoin developers including Peter Todd have pointed to coding flaws in projects. Trading platform CoinDash
said hackers made off with US$7 million during its ICO just this month. Hackers made off with nearly US$40 million last week, stealing ICO funds from CoinDash, Swarm City, æternity, and others. And a significant number of ICOs have been underpinned by mere protocols -- operational frameworks with standard processes minus a business model. “It’s very hard to value a protocol,” said Gavin Yeung, a former Hong Kongbased trader at Deutsche Bank AG who’s weighing an ICO for his cryptocurrency index trading platform Cryptomover. “The protocol only becomes valuable if the number of users increase exponentially on the network, so unless these protocols have substantial users or awareness, these projects could end up with zero value.” The rush of speculators and get-richquick schemes in the space has both Yeung and Madden expecting more regulatory scrutiny. But the challenge is ICOs aren’t confined by geography. For example, OAX’s token attracted 4,400 backers across a dozen jurisdictions from China to Russia and the U.S. “It’s very hard for regulators to have an isolated policy response that’s happening on a global cross-border basis,” Madden said. Interest in ICOs remains sky-high. Ron Chernesky started his career as a trader on Wall Street 10 years ago, first on a trading floor and then running trading platform InvestFeed Inc. He’s now in the process of replacing U.S. equities trading on his platform with digital currency trading, and planned to conduct his own ICO to raise 28,000 ether -- worth roughly US$6 million at current prices. “We’re completely ditching the model that we’ve been doing for the past three years and now we’re looking at cryptocurrency,” the 38-year-old said. “This is long term for us, we see this as the new gateway to the millennial way of investing and where everything is going from here.” Perhaps. Liu, the ex-China Renaissance executive, compares the ICO market to the first internet boom and bust, when start-ups from Webvan to Pets. com imploded and investors’ money went up in smoke. Yet it’s in part the opportunity to carve out a niche away from monolithic banking bureaucracy that’s lured him to this space. “You want to be on a rocket ship,” Liu said. “If you join early, then every day you’re making history.” Bloomberg News
Energy
Ecommerce
Angola
EU raises ‘concerns’ over US sanction vote against Russia
Meituan-Dianping plans aggressive investment in offline retail
World heritage site forces airport move
The European Union yesterday said it held deep reservations over a vote by the US House of Representatives to impose tough new sanctions on Russia that may affect energy flows to Europe. European commissioners, the EU executive’s top officials, “expressed their concerns notably because of the draft bill’s possible impact on EU energy independence,” the bloc said in a statement following talks in Brussels on the matter. The commission added that it remained “ready to act to protect European interests” if the concerns were not addressed by US lawmakers, repeating a threat made in May by European Commission head Jean-Claude Juncker. The sanctions package, which also targets North Korea and Iran, passed overwhelmingly on Tuesday in Washington and now heads for expected passage by the Senate. The legislation is aimed at punishing the Kremlin for meddling in the 2016 US presidential election, and Russia’s annexation of Crimea. In an apparent concession, the House modified a provision so the bill only targets pipelines originating in Russia, sparing those that merely pass through, such as the Caspian pipeline that carries oil from Kazakhstan to Europe. AFP
China’s largest provider of on-demand services Meituan-Dianping, backed by Tencent Holdings Group Ltd, said it planned to invest heavily in offline retail services in a strategy that will pitch it directly against China’s top e-commerce firms. Meituan-Dianping has more than US$3 billion remaining from a US$3.3 billion funding round in early 2016, and has no plans for an initial public offering before completing setting up infrastructure for services including offline retail, VP of strategy Shaohui Chen told Reuters yesterday. “We foresee we will be the most aggressive investor in the offline retail space...traditional software players do not have the competence in China because this is new infrastructure.” E-commerce giants Alibaba Group Holding Ltd and JD.com Inc are already channelling substantial resources into big data, artificial intelligence and logistics to tap new consumers in China’s vast offline retail market - brick-and-mortar stores - that still make up over 80 per cent of total retail sales in the country. Alibaba, which coined the term “new retail” to describe a strategic integration of data and payment tools for offline partners, has invested upwards of US$9.3 billion in brick-and-mortar stores since 2015. Reuters
The enrolment of the Angolan city of Mbanza Congo, the former capital of the Kingdom of Congo, as world heritage will mean building a new airport by 2020 as the current airport is too close to the historical sites UNESCO has now classified. The news was announced at a ceremony to present the declaration of world heritage to the ruins in the historical centre of the city, the first classification of its kind UNESCO has attributed to Angola. Zaire provincial governor, José Joanes André, said the new Mbanza Congo airport would be built in Nkiende, 20 kilometres from the current location to ensure the 800-year-old ruins of the old capital would keep its classification. The current runway is beside Kulumbimbi, the ruins of Mbanza Congo cathedral from the 16th century, the first catholic temple built south of the equator following the Portuguese contact with the Kingdom of Congo and beside the cemetery of the kings, remains of which are in the area that was classified by UNESCO. Angola’s candidacy stressed that the Kingdom of Congo was perfectly organised when the Portuguese arrived in the 15th century and was one of the most advanced in Africa at that time. Lusa