Follow our proposal to leave the city for a while Consigliere Pages 8 & 9
Friday, July 28 2017 Year VI Nr. 1349 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Negotiations
Paradise might manage Hotel Lan Kwai Fong in November Page 6
Lawsuit
www.macaubusinessdaily.com
Money controls
Sentence involving Suncity Group results in huge freezing Page 7
MSAR intensively reviewed 17 departments before anti moneylaundering audit Page 5
Sharing economy
Start-up WeWork sets up unit in Mainland Page 11
Mind the rental law Property
The Macao Association of Building Contractors and Developers arouse yesterday its concerns regarding the proposed rental legislation. The Association was specially worried about the articles related to rental price setting. Page 3
Banks in need of staff
A report commissioned by the Talents Development Committee showed that local financial sector in the city will need to hire between 749 and 1,488 workers to 2023. Official figures also indicated that unemployment increased 3.5 per cent quarter-toquarter.
Beyond paperwork
The 13 MSAR Tourism Department head said yesterday that the institutions are waiting for request to inspect The 13 as a last step prior to start activity. Maria Helena de Senna Fernandes said that all the documents were already approved. Page 2
Mainland keeping robust pace
Employment Page 4
HK Hang Seng Index July 27, 2017
27,131.17 +190.15 (+0.71%)
China Resources Land Ltd
Worst Performers
New World Development
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China Resources Power
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China Petroleum & Chemical
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Link REIT
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AIA Group Ltd
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Hengan International Group
-1.87%
CLP Holdings Ltd
-0.48%
Tencent Holdings Ltd
+2.46%
Galaxy Entertainment Group
+1.28%
China Merchants Port Hold-
-1.03%
Lenovo Group Ltd
-0.41%
China Overseas Land &
+2.30%
Sun Hung Kai Properties Ltd
+1.27%
Kunlun Energy Co Ltd
-0.52%
Swire Pacific Ltd
-0.38%
Sino Land Co Ltd
+1.26%
CITIC Ltd
-0.50%
China Mengniu Dairy Co Ltd
-0.38%
Hong Kong Exchanges &
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27° 32° 28° 33° 28° 32° 27° 31° 28° 31° Today
Source: Bloomberg
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Industry Industrial firms in China speed up gaining momentum and showing the nation economic situation remains solid. Steel, auto and electronics sectors helped to boost overall earnings. Page 10
2 Business Daily Friday, July 28 2017
Macau Tourism
The long wait With all documents already having been approved, the Macau Government Tourism Office has still to receive the request by The 13 to inspect the property, with the management allowed to wait until 2018 to make the request Nelson Moura nelson.moura@macaubusinessdaily.com
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he Macau Government Tourism Office (MGTO) is still awaiting the request by The 13 Holdings Limited to inspect the Cotai property and kickstart its licensing process, the department’s Director Maria Helena de Senna Fernandes told Business Daily. “All documents are already approved but we’re still awaiting the request to inspect the property. Without the request we can initiate the process to grant a license,” Ms. Fernandes said. In a previous Hong Kong Stock Exchange filing in June, The 13 Holdings stated it had received the occupation permit for the premises of the hotel on March 29 of this year, and was currently ‘in the process of obtaining necessary licences and approvals for operation of the Hotel and related activities.’ According to Ms. Fernandes, the MGTO has been waiting for the request to initiate the 14-days inspection process for some months with the deadline to request the inspection
being around one year. Therefore the property management could still delay the request until 2018, with The 13 Holdings indicating in a filing in June it expected to open The 13 Hotel in the second half of 2017. In a note at the beginning of July, brokerage firm Union Gaming stated it believed the property opening was ‘dependent on the company being able to access financing in order to finish construction’ adding it would not be surprising if the opening were to slip into early 2018 given the time-consuming process of restarting what has become a stalled project’. The 13 Holdings reported revenue of HK$6.12 billion (US$783,6 million) for the year ended 31 March 2017, down 10.1 per cent year-on-year, with a net loss of HK$44.6 million attributable to shareholders of the company
Preparing the fire
The MGTO statements were made after presentation yesterday of the 29th Macau International Fireworks Display Contest, to take place in the sea area in front of the Macau Tower on September 2, 9, 16 and October 1.
The 13 hotel model
This year’s budget for the fireworks festival went down by 10 per cent yearly to MOP27 million, with Ms. Fernandes saying the MGTO managed to make a cheaper contract for the transport of the pyrotechnic materials. “We estimated the transport cost
The MGTO head told Business Daily, the MGTO was leaning to support the request by the owner of a clubhouse complex in Cheoc Van into a budget hotel. The request to change the purpose of the 2,001 square meter complex in Rua Três dos Jardins de Cheoc Van from commercial use to hotel use is currently under evaluation of the Land, Public Works and
will be around MOP6 million or more. When we opened the public tender there were three applicants, with the winner proposing the transport for less than MOP4 million. Since transport is a large part of the general budget, the overall budget decreased,” she added.
Transport Bureau (DSSOPT). “Normally when the DSSOPT receives this kind of request they will ask the opinion of the MGTO. We will analyse it taking into account the location and other factors. However if there’s no other mixups we will support this idea. We won’t say no to hotels that can increase [budget hotel] offerings,” she added.
Court
Greyhound breeding building concession appeal denied An appeal by greyhound track operator Companhia de Corridas de Galgos Macau (Yat Yuen) has been denied by the Court of Second Instance, according to a release by the court. The case regards a concession originally granted to the greyhound track operator in 1989 for a twostorey building for dog breeding, with a 25-year concession contract and an implementation period of 24 months. The original contract expired November 30, 1990, while in 1993 the company was informed by the then-deputy secretary of Transport and Public Works the
land use would be changed from industrial to residential, with Yat Yuen agreeing with the changes the same month. Until a request to approve the architectural project and the concession contract was presented by the company in 2015, the local administration did not contact the company, notes the release. The request was denied, with the company submitting an appeal to the Court of Second Instance, which, upon further examination of the facts of the case, did not find the company to have sufficient reasoning to overturn the decision.
Politics
Greater Bay Area
480 applicants for Macau NPC deputies Macau and Zhuhai ink agreements A total of 480 are being qualified to take part in the election of becoming Macau’s deputies of the 13th National People’s Congress (NPC), Xinhua reported. The number of eligible candidates increased by 100 people vis-a-vis 380 in the12th election. 12 deputies will be chosen and approved by the NPC, and the selected deputies will be taking the seats for five years.
The Secretary for Economy and Finance, Lionel Leong, who was one of the 12 deputies, decided not to run in the coming NPC deputies election congress. Other deputies include the chairman of the Legislative Assembly, Ho Iat Seng, legislators Jose Chui Sai Peng and Kou Hoi In, Lei Pui Lam, Chio Ngan Ieng, Paula Ling Hsiao Yun, Io Hong Meng, Leong Iok Wa, Lok Po, Lau Cheok Va and Lao Ngai Leong.
to strengthen Greater Bay Area development Authorities from Macau and Zhuhai signed four agreements on Wednesday which aim to strengthen the cooperation between the two regions in the aspects of tourism, sports, cultural exchanges and statistical services. Lionel Leong Vai Tac, Secretary for Economy and Finance, attended the annual Zhuhai-Macau Cooperation Conference and witnessed the signing of the agreements, together with Li Zezhong, Mayor of Zhuhai. Speaking during the annual meeting, Leong said the MSAR government would continue to suggest local firms start up projects at the Guangdong-Macau Cooperation Industrial Park, Hengqin in Zhuhai Prefecture. The Secretary further disclosed that Portugal and Mozambique would host pilot schemes regarding international registration of traditional Chinese medicine products for promoting commercial activities of the Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park in Hengqin.
The Macau official claimed that the SAR will continue to assist Zhuhai to explore opportunities in Portuguese-speaking countries.
Lionel Leong Vai Tac, Secretary for Economy and Finance, witnessed the signing of the agreements
Business Daily Friday, July 28 2017 3
Macau
Real estate
MABCD: new rental bill could pose issues Local construction and real estate group points out that problems might arise from the revised bill despite the group agreeing on the intention of the rental regime Cecilia U cecilia.u@macaubusinessdaily.com
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he Macao Association of Building Contractors and Developers (MABCD) yesterday urged the Legislative Assembly (AL) to consider in more depth the revision of the rental bill before sending it to the plenary session of the AL for voting. “I fully endorse the idea of trying to bring stability to the rental market,” said the President of MABCD, Paul Tse See Fan. “However, I must point out certain countries that have practiced rent control have run into some severe problems.” The article of the rental bill that suggests the allowance of control by the government over the rental price poses the most concern to the association. Mak Tong Cheng, director of MABCD, argued that the coefficients that would be used to adjust the rental price have no correlation to actual market situations, citing from the data of the past decade that coefficients such as consumer price index and income medium index continued to increase despite the rental price dropping substantially due to the adjustment of gaming revenue starting in 2014. “[From the data] we see that the use of coefficients for adjusting the rental market price would be more suitable for markets with high transparency,” remarked Mak. “According to some international consulting companies’ evaluation of Macau’s real estate market transparency, the rating is very low, it is in fact lower than in Vietnam,” stated the director. Mak noted that Hong Kong had also implemented a similar mechanism but had confined it to the residential market, furthering that the revised regime would reduce the supply of units for rent as well as the willingness to pay for the maintenance of buildings. The revision of the rental regime
suggested by nine legislators proposes a mechanism which allows the Chief Executive (CE) to cap rental prices for all types of real estate properties, temporarily and as a last-ditch case, basing caps on coefficients. The legal adviser of the association, Iau Teng Pio, said the restrictions on rent show good intentions but restrictions would also create unfairness for landlords when they subsidise extra improvements on their properties, in particular for commercial usage. “There are many landlords wholly dependant on the income from rental or for paying the mortgage,” said Iau. “Isn’t it more reasonable for the government to build more public residential buildings for those who can’t afford renting flats? With the government to bear the responsibility?” Iau added that it is reasonable for the public to bear some responsibility when there are not enough public residential units.
Long queue for notary
Another important issue of the proposed bill is the mandatory notary mechanism. Iau pointed out that the performance of a notary is convenient for local citizens, but it would be a different scenario for company’s or associations. “For regulations of companies that do not allow the manager to represent the company to have their contract notarised, then the company will have to hold a meeting for a record and a letter of authorisation,” explained the solicitor. He noted that more inconveniences will appear, or extra payments will be required, to account for companies outside of Macau. According to the data provided by MABCD, only 10 per cent of 180,000 tenants were local citizens as at the end of August 2016. Meanwhile, Iau pointed out that some parking spaces and stores do not have recognised deeds.
Tse explained that parking space rental regulations in the past were vague, with “no ID, no specifying number of your car park”. “If you go to the public notary and you can’t prove you have a car park, how do you have your contract notarized?” remarked the president of the association. The executive director of MABCD, Gregory Ku Ka Ho, revealed that individuals might need to wait 28 days for doing the notary at the Public Notary, as they usually only work on weekdays.
Three year contracts
The rental bill revision also suggests the extension of the current minimum two-year contract to three years, with Ku opining that it would result in unfairness for tenants, stating they would have to compensate with contract termiantions with two to three months rent. He indicated that tenants that are foreign students would have to bear a cost that would be a significant burden for them. In addition, the rental control would lead to landlords who own commercial properties to preferentially rent out to chain stores rather than to local SMEs (small
and medium sized enterprises), commented Ku.
Supply matters the most
In response to press enquiries about whether there is a suitable rental control measure for the city, Tse said any rental control depends a lot on the supply on the market. “If you don’t have enough supply and rental control is still being imposed, then [...] the supply would be reduced if the price is being controlled,” said Tse. “If there is enough supply the price would not increase unreasonably.” Iau also noted that the implementation of rental control depends on the structure of the region’s market. Given that legislator Tommy Lau Veng Seng is the chairman of MABCD as well as members of the three standing committees at the Legislative Assembly, Tse noted that a research report was being submitted to the AL in 2016, adding that MABCD had also exchanged ideas with the legislative body on different unofficial occasions. “[All parties] should voice their concern within these two weeks to allow for adjustments to be made by the nine legislators,” said Tse. advertisement
4 Business Daily Friday, July 28 2017
Macau Opinion
Employment Average monthly earnings for employed employees in the gaming sector
went down by MOP1,000 quarterly to MOP19,000 between April and June
Filling up finance jobs Pedro Cortés*
Capital delayed wings Yesterday, the first flight of Beijing Capital Airlines from Lisbon to Beijing landed at the Capital Airport. This week there was a ceremony in the Macau Airport to announce the beginning of operations of Beijing Capital Airlines connection flight from our Special Administrative Region to the Capital of our country which will allow the Macau residents to fly from Macau to Lisbon with a stopover in Beijing. All of this is good news, in a general and abstract view. However, the first flight from Lisbon to Beijing was delayed and, consequently, the passengers who were supposed to catch the flight to Macau had to buy a new flight in order to arrive at Macau on the same day. Otherwise, they would need to wait until Saturday. Worse than that, is that no one was waiting for those passengers to inform them of what to do. Even worse, is that the flight from Beijing to Macau was created specially to connect passengers from the Lisbon flight and, according to the schedules, the plane had landed in the platform of the Macau International Airport 5 hours ago. Wouldn’t it be easier to wait for the passengers instead of leaving them at their own expenses in the capital airport? It is not a good start and it seems, for the time being, that it will not be an option for those Macau residents or tourists who are willing to make this journey. In addition, it seems curious that all seems to not be ready and set to make this a feasible solution. We all know that the People’s Republic of China airspace is most of the time congested and that it is not easy to foresee how long it will take a trip from Macau to the mainland. That’s why, in the present time, when the discussion over the future of aviation post exclusive rights of Air Macau started, all these matters shall be taken into account by the regulator. I have written in this space some years ago an experience of delays with our flagship carrier which I do not desire toward any of my enemies. As in many other transportation areas, it seems that the status quo farms of certain persons must be preserved for the good of the harmony of the people. What people? Well not the population, for sure. *lawyer and frequent contributor to this newspaper.
In the period until 2023 the MSAR finance and banking sector will require between 749 to 1,488 professionals according to Macau University of Science and Technology Nelson Moura nelson.moura@macaubusinessdaily.com
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he banking sector in Macau is currently lacking 231 professionals, with that number expected to increase to a figure between 749 and 1,488 in the period to 2023, according to a study commissioned by the Talents Development Committee. According to the study, the banking positions with the highest demand of talent are mainly in cashier’s offices, credit business, customer service for non-monetary transactions, and in system program development and accounting. There was also a high demand for positions in private and electronic banking. The same study revealed the insurance sector in the Macau will require 67 to 95 professionals in the next three to six years, mainly for positions such as administrative employees, business and agent representatives, human resources or training supervisors, market and customer service affairs managers, underwriters and policy or compensation service managers. The insurance sector was described as being composed mainly of small companies, with insurance companies having less than 30 employees representing a 75 per cent share. The study conducted by Macau University of Science and Technology sent 52 surveys to all bank and insurance companies in the city described as the ‘pillars of the Macau financial sector’ - receiving 38 responses. According to the survey, the Macau financial sector has ‘excellent development perspectives’, with recommendations for a better exploration of the opportunities granted by the
‘One Belt, One Road’ policy and the city’s potential to connect mainland China with Portuguese-speaking countries.
Smaller average wages
The average monthly employment earnings between April and June for employed Macau residents went down by MOP1,000 (US$124) to MOP18,000 from the previous quarter, an employment survey by the Statistics and Census Service (DSEC) revealed. According to the study the drop in resident workers average monthly earnings was due to the receding of seasonal effects of double pay and bonuses. However the average monthly earnings for workers in the MSAR remained stable between April and June at MOP15,000. The gaming and junket activities sector continued to represent the majority of the labour force in the MSAR, employing 80,800 people 21.1 per cent of the total employed work force - in the period between April and June of this year. Nevertheless, this sector still lost a total of 1,100 workers when
compared to the 81,900 employees registered in the first three months of this year. The average monthly earnings in the gaming sector went down by MOP1,000 quarterly to MOP19,000 between April and June. The hotels, restaurants and similar activities sector held the second position in term of workers, employing 55,300 people or 14.5 per cent of the total workforce; followed by the wholesale and retail trade sector with 46,900 workers. While the hotels, restaurants and similar activities sector went down by almost 8,200 workers quarter-to-quarter, the wholesale and retail trade sector saw a quarterly increase of around 400 workers.
Unemployment rate
In the period between April and June, the MSAR had a total labour force of 390,200, with almost 98 per cent being composed of people in total employment and 72 per cent being local residents. The number of unemployed population went up by 3.5 per cent quarter-to-quarter to reach 7,900 people in the second quarter of this year, but the general unemployment rate stayed unchanged at 2 per cent. Around 10.8 per cent of the unemployed population was composed of fresh labour force entrants searching for their first job, the DSEC revealed.
Results
MGM H1 revenue increases 3 per cent but VIP shrinks The company said that around 80 per cent of profit was provided by the mass segment MGM China announced yesterday financial data for the quarter and half year ended June 30. The company indicated that ‘during the six-month period, MGM China recorded total revenue of HK$7.4 billion, an increase of 3 per cent year-on-year.’ ‘Adjusted EBITDA was HK$2.2
billion, an increase of 11 per cent from last year, the firm said.’ ‘Main floor table games win during the six-month period increased 7 per cent year-on-year and slot win increased 4 per cent. VIP table games win was down 5 per cent,’ the company said in a press release yesterday. The company informed that ‘hotel
rooms at MGM Macau achieved an occupancy rate of 95.4 per cent during the period with revenue per available room (REVPAR) of HK$2,004.’ MGM said that around 80 per cent of profit was provided by the mass segment.
“We are highly focused on the launch of MGM COTAI during the fourth quarter of this year” Grant Bowie, Chief Executive Officer and Executive Director of MGM China
The firm also said that they ‘remain on track for a fourth quarter opening’ of MGM Cotai resort. Grant Bowie, Chief Executive Officer and Executive Director of MGM China said that the “HK$26 billion integrated resort will bring the future of entertainment to Macau today. With innovation throughout every customer offering, we are certain that MGM COTAI supports Macau as a global tourism destination.” AL
Business Daily Friday, July 28 2017 5
Macau AML/ CFT
Still some room for improvement: APG Full report to be released end-August or early-September, MSAR has no cases of financing of terrorism and low rating in money laundering convictions due to difficulty in finding sufficient evidence of the crimes Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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n preparing to undergo the anti-money laundering and counter financing of terrorism audit by the Asia Pacific Group, the MSAR had to go through 17 government departments and ‘over 1,000 private entities,’ according to information provided yesterday by the Financial Intelligence Office (GIF). The results of the Mutual Evaluation Report produced by the group after its audit, partly announced to the public earlier this month, note that the MSAR was ‘compliant’ or ‘largely compliant’ in 37 out of 40 recommendations made after the last audit, and in six of 11 other areas under review showed ‘substantial effectiveness’. The director of the GIF, Ms. Ng Man Seong, noted that the full report will come out “at the end of August or beginning of September,” noting that the results “have already been approved but it still has to receive another evaluation” verifying that the methodology used in other regions under audit during the same round is consistent. Regarding one case of non-compliance of the 40 items reviewed, the GIF head notes that “we will fix
this soon, still this year,” noting that overall “Macau obtained very positive results”. Regarding the next ‘progress review’, in five years, in response to Business Daily enquiries as to what the consequences are for non-compliance, the director assured that “we will work our hardest […] no one knows in five years what the criteria will be”. In preparation for the audit, the group, starting in 2013 “did a risk framework and created questionnaires and sent them out to the six operators, the junkets, financial institutions, the real estate sector, pawn shops, automobile sales points, notaries, accountants,” and more, using the information - which included “data” - from the entities to help “identify which cases present more risk”. This data was used to compile a report, after which “we supplied all the information to the evaluation team,” noted the director.
Some room for improvement
The MSAR received a ‘moderate efficiency’ rating in the ‘Understanding of risk and measures of mitigating risk,’ an area which evaluates “the threat of crime in the region, what are the methods and what are the points where they can happen”. The
results, points out the director, state that “there is still a margin for reinforcement,” noting that the APG team itself went to speak with the casino operators and junket operators to “see if the junkets did the sufficient work to mitigate the risk” and didn’t only rely on government provided information. Another area in which the MSAR received a less-than-perfect rating was in the ‘Investigation, accusation and judgement of the crime of money laundering as well as the recovery of the capital produced by these crimes’. Information from the GIF notes that ‘it’s extremely difficult to achieve the proof necessary that the detected funds in Macau originate
from crimes taking place outside of the MSAR’, while the director noted that “the accusations are difficult to follow through with, there was no success, therefore it’s not very easy to accuse someone of the crime of money laundering”. Regarding the financing of terrorism segment under review, the director noted that: “on this part, we don’t have any cases,” and as such received a high efficiency rating. Of the eight countries or territories under review during this round of audits, the MSAR was the only one to pass on to a ‘performance review’, while the others will need to undergo a more rigorous evaluation during the next round. advertisement
6 Business Daily Friday, July 28 2017
Macau Gaming
Bringing Paradise The chairman of Paradise Entertainment believes that if deal to purchase Hotel Lan Kwai Fong Macau pulls through, his company could start managing the property’s gaming operations in November of this year Nelson Moura nelson.moura@macaubusinessdaily.com
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f the HKD2.38 billion (US$304.9 million) purchase deal for Hotel Lan Kwai Fong Macau goes through, Paradise Entertainment Ltd believes it could start managing the property as soon as November of this year, the company’s chairman, Jay Chun (pictured), told Business Daily. “If we can complete the transaction smoothly it could happen. [The deal] is still in negotiations,” the Paradise Entertainment chairman said. In June of this year, the Hong Kong listed company entered into a letter of intent to acquire three companies from China Star Entertainment and its subsidiary. According to Mr. Chu, the company is using “internal resources and bank financing” to back the deal for the 209-room hotel. Hotel Lan Kwai Fong has 84 gaming tables and 70 slot
machines in casinos located on three floors of the property, under the license of Sociedade de Jogos de Macau, S.A. (SJM), with China Star Entertainment being responsible for marketing. In case the purchase deal is completed, Paradise Entertainment will include more of its electronic gaming machines on the property, especially “slot machines and e-tables”, with the company reducing the property’s focus on VIP gaming and looking more to mass market offerings, Mr. Chu told Business Daily. Paradise Entertainment’s specialises in casino management services and providing electronic gaming machines. In 2016 the company posted a revenue increase of 6.5 per cent year-on-year to reach HKD1.63 billion, with the majority coming from providing gaming services in the MSAR, the group’s annual report indicated. In Macau the company provides gaming management to two stand-alone satellite casino properties - Kam
Pek Paradise and Waldo through agreements with SJM and Galaxy Entertainment Group Ltd. Paradise Entertainment’s electronic machines business is managed through two
subsidiaries, LT (Macau) Limited and LT Game Limited. As of the end of 2016 the company had a total of 893 live multi-game (LMG) terminals at six casinos in Macau, namely: Wynn Palace,
The Parisian Macau, Galaxy Macau, Casino Diamond at Holiday Inn, Casino Babylon at the Macau Fisherman’s Wharf and at Casino StarWorld on the Macau peninsula.
Transportation
Greater Bay
Capital Airlines Lisbon-Beijing-Macau flight may require layover time increase
Embracing the creative industry
A number of passengers on one of the inaugural flights of Beijing Capital Airlines between Lisbon and Beijing, to link to Macau, were unable to arrive on time to their connecting flight in the Mainland capital, having to resort to buying tickets on an alternate airline, according to passenger statements to Business Daily. The passengers on flight, JD460, were not allowed to check their baggage through to the final destination – Macau, undergoing immigration, baggage claim and check-in procedures in Beijing upon arrival, with only a 1 hour and 55 minute layover period in which to make their connecting flight, a period described to Business Daily as inadequate given the necessary procedures. The passengers then searched for the company’s help desk in order to inform them of the impossibility of making the flight, but were unable to encounter any company desk, repeatedly calling the listed number
of the company without anyone picking up, they told Business Daily. Given the day-on, day-off nature of the flights from the capital city to the MSAR, they resorted to buying a ticket on an Air Macau flight, they said. Business Daily attempted to contact the airline to verify the conditions of the flights and passengers through their listed number, checking if the complaints and refunds segment worked. The phone call went unattended by Capital Airlines staff, being forwarded after four minutes of ringing to Hainan Airlines, whose staff pledged Capital would call back. No call or email had been received by the time this went to print. Business Daily contacted the parent company of Beijing Capital Airlines, HNA, requesting information on the case, but had not received any response by the time this went to print.
The Macau SAR will be participating in the first Creative City Expo organized by the Foshan municipality, in Guangdong, from November 16 to 19, 2017, according to NewsGD.com. In addition to Macau, other member cities of the UNESCO Creative Cities Network, such as Shanghai and Hong Kong, are to be invited to join the event, which will be held at the Guangdong (Tanzhou) International Convention and Exhibition Center. The coming expo aims to provide opportunities for business partnering in the creative and manufacturing industries, notes the publication. It was also reported that the government of Foshan aims to encourage the development of technology segments to foster change in the city’s
manufacturing profile. It considers the Expo to be an important platform in that direction. Five main sectors of activity will feature in the expo: creative city, life style, culture and tourism, design and food. Last April, the Macau SAR submitted an application to become a member of the Network under the “City of Gastronomy” category. A total of 116 members from 54 countries currently form the UNESCO Creative Cities Network, covering seven creative fields, including crafts and folk art, design, film, gastronomy, literature, music and media arts. Wanda Group and the Beijing government figure amongst the Network’s supporters. S.Z. advertisement
Business Daily Friday, July 28 2017 7
Macau Litigation
Expensive bill for Suncity Suncity Group is seeking legal advice in respect to a decision by a court in Shenzhen that has ordered the freezing of assets worth nearly MOP1 billion of subsidiaries of the company and other defendants in a case of loan payment default Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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entence on a litigation case involving Suncity Group Holdings Limited has resulted in the freezing of assets up to RMB807.13 million (MOP963.45 million/US$119.79 million) from two indirect wholly owned subsidiaries of the company, a borrower from mainland
China, and a handful of defendants, according to a filing of the company with the Hong Kong Stock Exchange yesterday. The ruling, issued by the Guangdong Province Shenzhen City Intermediate People’s Court, responds to the enforcement of a bank claim relating to a loan of RMB120 million granted to a company established in the Mainland, owned 40 per cent
by a former director of the company. Sun Century Property Group Company Limited and Shenzhen Zirui Real Estate Development Limited, the two Mainland-based indirect wholly owned subsidiaries of the company, acting as guarantors for the bank loan deal, have been sentenced together with the borrower and four other defendants in the bank claim. As at the day of the announcement, the frozen assets comprised bank balances amounting to a total of nearly RMB321,000 and inventories totalling RMB164.62 million, including properties disposed of by Shenzhen Zirui but for which the transfer was not yet completed. The properties disposed of by Shenzhen Zirui, valued
at some RMB209 million, were ordered to be tendered in another enforcement notice from the same court in relation to a civil claim. The civil claim concerns an individual’s request for payment of consultancy fees for services provided to the borrower, for which Sun Century Property, Shenzhen Zirui, and another defendant in the case were also guarantors.
The group noted that it is ‘seeking legal advices in respect of the claims, the judgment, and the enforcement notice,’ adding the company is also currently ‘assessing the impact of the claims to the group.’ Suncity’s involvement in the litigation proceedings was previously disclosed in the annual report of the company for the year ended December 31, 2016.
Results
LVS results upheld by MSAR and Singapore A ‘seeming resurgence in Singapore’ and ‘strong market gross gaming revenue trends’ in the MSAR helped push Las Vegas Sands, parent company of Sands China, to an adjusted property EBITDA of US$1.2 billion, up 26.5 per cent year-on-year, according to analysts at Telsey Advisory Group. “This was a great quarter and I am very pleased with our results,” noted
Chairman and CEO, Sheldon G. Adelson, in the earnings call, stating: “I remain as confident as I have ever been in our company’s prospects”. Across the five local properties, overall revenue was 2 per cent above Telsey expectations, ‘with EBITDA of US$593 million 1.0 percent below our estimates,’ note the analysts. “Mass gaming table revenue growth
rate [in Macau] further accelerated from 18 per cent in the first quarter to 23 per cent in the second quarter,” the chairman pointed out. In addition, the group’s premium mass segment saw a 40 per cent acceleration yearon-year and non-gaming revenues were also up 22 per cent year-onyear during the quarter. Sands China’s total net revenues
saw a 23 per cent uptick year-onyear during the quarter, reaching US$1.82 billion, while net income rose 37.6 per cent year-on-year to US$326 million. ‘In Singapore, Marina Bay Sands revenue of US$836.0 million was 21.7 per cent above our expectations, while EBITDA of US$492 million was 44.7 per cent above our estimates, in part due to US$106 million in EBITDA from higher than expected VIP and mass market hold,’ the Telsey analysts point out. K.W. advertisement
8 Business Daily Friday, July 28 2017
Consigliere
Here is the best language learning app for you Nikki Ekstein
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f you’re not careful about your pronunciation, it’s pretty easy to tell someone in France that you’re pregnant instead of saying you’re full. In Israel, you might ask someone to buy their daughter instead of buying a slice of bread. Saying you’re cold in German? It sounds a lot like saying you’re dead. Even those poor conjugation skills make all the difference between trying to say “Let’s get on with it” and “Let’s get it on!” Living like a local is all the rage for travellers, but speaking the local language is not always so easy. Even having a few basic phrases can go a long way, depending on where you are. Last winter, when I found myself in rural Thailand, I had few words in my repertoire than hello (“sa-wadee-kah”) and thank you (“kap koon kah”). Despite that paltry showing, I was surprised at how genuinely locals seemed to appreciate the effort. On a solo trip in Brazil, I managed a half-hour conversation with a cab driver using nothing more than my fluent Spanish. With middling Hebrew (which has much in common with Arabic), I was able to learn about on-going Eid Al-Adha traditions when I arrived in Morocco last September. Thanks to a rise in Rosetta Stone-style mobile apps, it’s easier than ever to pick up a new language—or at least get a grasp on the basics before your next trip. And thanks to push notifications that keep you coming back, gamified motivational techniques, and bots that help you practice without imposing judgment, they’re likely to get you speaking conversationally—and gaffe free—before you hop on the plane. Here, the best ones to consider, depending on your personal learning style and on-going goals.
To sound like a local: Busuu
For a quick fix: Memrise
Why we like it: Busuu offers the language-learning equivalent of pen pals—if you’re studying French, you can have your speaking exercises evaluated by Busuu students in France, so long as you return the favor and grade someone else’s homework in your native tongue. (With 70 million users around the world, it’s not a stretch to find a study partner you’ll love.) To extend the theme, lessons in 12 languages include insightful tips on local usage: For instance, this is the only app I tried that told me that French natives are more likely to use the plural “ons” instead of “nous” when conjugating “we” verbs. The caveat: Most of the app’s best features, including unlimited exchanges with foreign students, are behind a paywall. But the plans are highly affordable: one month costs US$8 and a year goes for US$45, less than a dollar per week.
For a long-term commitment: Duolingo
For short attention spans: Drops
Why we like it: Beneath a kitschy narrative concept about unlocking the outer cosmos, Memrise shows a real concern for both fun and practicality. A highly customizable format lets you decide how many words you can absorb in a single lesson and positive reinforcement abounds; as you progress in your learning, you earn points for correct answers, graduate through a silly rank system, collect badges, and watch your skills grow from seedlings to flowers. Plus, the app favours everyday conversational skills over technical exercises—my very first lesson in French covered the phrase “bottoms up!” Also fun: Lessons in 18 languages include endearing video clips from native speakers so you can hear different voices and attune your ear to the way real people (not overly articulate teachers) speak on a day-today basis. The caveat: The app offers little opportunity to practice your pronunciation, and it constantly nags you to upgrade to the “pro” version, which includes “speed review” games and extended lessons—at a cost of US$60 per year.
The closest thing to a classroom education: Mondly
Why we like it: No reading. No typing. Just five minutes a day. That’s how Drops promises to get you to learn one of 19 languages—spanning from French and Spanish to Korean and Arabic. (Esperanto, comically, is also included.) Lessons walk you through 120 word buckets covering food, drinks, numbers, and hotel terms. And instead of showing you flash cards with cheesy stock photos, the app focuses on clean illustrations, all in white, set against solid-coloured backdrops. Whether you’re matching pictures to their translations, unscrambling letters to practice spelling, or swiping across a grid of letters to unearth the word that matches the picture, the exercises feel like quick games rather than classroom worksheets.
Why we like it: While all of these apps are free to download, Duolingo is the only one without a premium subscription model, which means you’re free to learn 23 languages at your own pace—even if that means spending several hours a day on your Italian. It’s also holistic in its teaching style: You learn vocabulary, grammar, and usage simultaneously, with illustrated flashcards and fill-in-the-blank exercises that really make you think. A new feature are chat bots, which stretch your skills. They might walk you through a conversation with a chef who’s deciding what to eat, or a model who wants help picking an outfit. Whether you need to refer to word cues at the bottom of the screen or not, they force you to use contextual clues to learn new words. Elsewhere in the app, game-like elements are a valuable motivator. You lose points for wrong answers and gain them back by practicing your rustiest words. And sliding scales indicate whether you’ve fully mastered a lesson or are due for a refresh.
The caveat: Drops places a heavy emphasis on building vocabulary through nouns, which means you won’t get much in the way of grammar, usage, and conjugations. You won’t be quizzed on speaking or pronunciation, either. And though you can purchase unlimited time for as little as US$48 per year, five-minute blocks mean that you learn at a relatively slow pace. That’s great if that’s all the time you have to spare, anyway—not so great if you’re actively trying to cram before a trip.
The caveat: If learning to speak is your priority, you’ll find the spelling exercises tedious. (They’re especially frustrating with romance languages that require lots of accent marks.) Pronunciation exercises are also too forgiving—you can be marked correct even if you completely botch your answers. And for travellers, vocabulary doesn’t skew towards the practical—you’re likely to learn how to conjugate “I read, you read, she reads” or “the cat is black” before learning to say “please” and “thank you.”
Why we like it: It’s not beautifully designed. And it’s not gamified. But what Mondly lacks in charm, it makes up for in comprehensiveness and rigor. Basic lessons walk you through the nuts and bolts of conversational language (“How are you?” and “My name is …”); they get progressively difficult and more involved, spending roughly two hours of instruction on each of 20 topics (animals, travel, shopping, for instance). As in school, you get as much out of Mondly as you’re willing to put into it: New words come with conjugation charts you can study, and daily lessons cover bonus materials and unlock weekly quizzes. It adds up to the most fulsome app-learning experience, if not the most riveting one. The caveat: Like some other apps, Mondly keeps the majority of its lessons behind a paywall. (Plans start from US$3.99 per month.) And its uninspired interface can sometimes feel like a chore. But with 32 languages to choose among—including such hard-to-find options as Persian and Afrikaans—it may be worth it.
Business Daily Friday, July 28 2017 9
Consigliere
These historic Portuguese palaces can be rented for a regal vacation It may cost a pretty penny, but taking over one of these for a week could be the romantic getaway of a lifetime. Chadner Navarro
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o when you travel, you like to sleep in royal style. You’ve done the châteaus in France, the villas in Tuscany, and maybe even a manor in Ireland. What’s next on your list for an extraordinary and historic stay?
effect? Visually stunning interiors that cleverly nod to Portugal’s imperial past. Rate: US$25,300 for three nights for 24 people.
Casa das Torres de Oliveira, Douro Valley
The palaces of Portugal.
Because the country had a recognized nobility from its founding as a kingdom in 1139 until 1910—when Portugal finally became a republic—extravagant palacios or paços owned by noblemen can be found all over. And lucky for you, some have been transformed into bookable accommodations that boast incredible architectural and decorative treasures, from Neoclassical, to Baroque, to Manueline (Portuguese Gothic featuring lots of maritime motifs) architecture styles, original frescoes, walls and walls of azulejo tiles, and age-old antique furniture. These properties might not have a gym, but most sit on large plots of land where you can run through fragrant gardens or do laps on outdoor pools with stunning views. The villa rental concept is still quite new in Portugal, meaning figuring out how to book your own palace is not always intuitive, especially because there isn’t a website dedicated to the category (although Center specializes on unique, countryside accommodations in Portugal). So we did the legwork to showcase our five favourite palaces to book in Portugal now. A lot of these properties still operate as typical hotels instead of rentals, but if you can gather a big enough group, securing them for a private stay isn’t difficult to do. But unlike booking a villa in Tuscany or a château in France, there is a lot of flexibility in renting a palace in Portugal. The owners rarely require a full week’s commitment—which means you can hop from royal abode to royal abode over the course of your vacation, sampling the best of the Portuguese countryside from its most glamorous residences.
Paço da Ega, Centro
Source: Center, Portugal
A seven-bed palace is only the latest in a string of dramatic architectural structures that filled this 215,000-squarefoot plot of land. It was a 12th-century Templar castle, which stood over an old Moorish fortress, and according to local lore, there are some Roman traces here, too. (Some say the Templar castle was built over Roman ruins.) Owing to the building’s rich heritage, the interiors are understandably swathed in historic, almost monastic style—brick walls decorated with coat-of-arms banners, oversize wood doors, spartan bedrooms with simple, four-poster beds, and stone fireplaces. You could spend a week roaming its olive groves and pine forests, taking bike rides through the leafy surroundings, and doing wine tastings. But Centro region’s fascinating sights— including the university town of Coimbra, the towering monastery of Tomar, or the surf swells of Nazaré—are typically within an hour’s drive. Closer, you can find Roman ruins in Conímbriga and roast lamb dinners in the Condeixa, which is only 10 minutes away. Bonus: The owners live on the property, ensuring exceptional service throughout your stay, from advising on your on-property meals to planning your excursions. Rate: Roughly US$4,000/night for 14 people.
Source: Center, Portugal
Getting to this property from Porto, the nearest major city, requires a scenic 90-minute drive through the Douro Valley’s winding roads. When the red-tiled roofs of its two towers come into view, you’ll know you’ve arrived. The six rooms are sparsely decorated, keeping the focus on antique carved-wood beds, solemn-looking portraits, and elaborately patterned area rugs. The house dates to the 15th century, when King Alfonso V granted the house to a noble Galician lord, so there are lot of historic details to discover, including the Baroque chapel. The real wow factor, though, is just outside: The pool overlooks the region’s terraced vineyards (the owners make their own red and port wines), and the gardens are just perfect for cool evening strolls. When you’re ready to explore, ask owner and winemaker Antonio Girão to lead you through his port vineyards or request to have a Douro River boat ride organized for an unforgettable sunset cruise. Rate: US$5,700/night for 12 people.
Palacio de Seteais, Sintra
This 18th century neoclassical palace in the woods of Sintra (a detail of the village pictured), originally built for a Dutch consul and eventually the home of a marquis, is grand in every sense of the word. The property’s manicured lawns have rose gardens, hedge mazes, and roaming peacocks—and that’s before you even step in the front door. Inside, revel in the opulence of frescoed walls, gala-ready chandeliers, silk tapestries, and other over-the-top antiques, which fill seven sitting rooms and entertaining parlours. The 30 bedrooms—yes, 30—stylishly toe the line between old world and modern with a lovely combination of heavy tapestries, hardwood floors, and claw-foot bathtubs. From the house’s high perch, you can survey the surrounding Sintra Mountains, dotted with the fairytale castles (previously homes of Portuguese royalty) for which the town is famous. This expansive palace is usually a fully functioning hotel, but if you can get the party together to book it out, the staff is ready to attend to every whim—whether it’s a simple horse carriage ride around the grounds or an elaborate themed dinner in which servers come dressed as though they’ve just stepped out of an 18th-century dressing room. Rate: approximately US$34,200/day for 60 people.
Palacio Belmonte, Lisbon
Casa do Terreiro do Poço, Alentejo
Source: Center, Portugal
The Alentejo, Portugal’s largest region, is known for its exceptional regional cuisine, historic monuments (including Roman ruins), and some of the country’s best vinho production. It’s where you’ll find the famous Porco à Alentejana (cured pork with clams) and the wines of Esporão, one of the country’s premier labels. If that all sounds enticing, book yourself into this charming property with 12 bedrooms in the marble-producing town of Borba—it’s actually made up of three stitched-together manor houses, the oldest of which is from the 17th century. When they restored these homes in 2012, Casa do Terreiro do Poço’s owners combined historic details (frescoes, four-poster beds, intricately carved wood door frames) with contemporary accents from around the world (graphic geometric-pattern tiles from Portugal, zebra-hide rugs from Africa). The net
Renting out a Portuguese palace isn’t limited to the countryside. Located next to Lisbon’s famous St. George castle, this luxury hotel (which counts designer Christian Louboutin among its high-profile fans) only has 10 suites, which means privately booking the whole property is manageable for a big family or group of friends. You’ll get the full run of one of Portugal’s most spectacular hotels, including daily breakfasts on your suite’s balcony, cleaning and butler service, and chauffeured transportation for 12 hours a day. (The latter is an especially great perk if you want to take day trips.) But that’s if you can be bothered to leave the palace at all: Belmonte is a treasure trove of details to discover, including nearly 4,000 pieces of azulejo tiles, centuries-old period furniture, contemporary art made by a number of rising Portuguese talent (namely, Fernando Marante and Maria Pia Oliveira), and a pool that’s so serene, you can almost forget you’re in the middle of Europe’s trendiest tourist hub. Rate: approximately US$180,000/week for 26 people. Bloomberg
Make your Statement with the Suitcase
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owadays everyone strives for their unique personality. For them and especially for celebrities, it’s nothing worse than wearing the same outfits or using the same thing with others. However, there is an aluminium suitcase with grooves that is the exception. Whether it be the super models Cara Delevingne, Liu Wen, western actress Jessica Alba, actor Cory Monteit or Chinese actress Angelababy, they are all fans of this simple plain RIMOWA suitcase. You may also have the same question as me, what‘s the reason for that? And, are these high-end suitcases worth the money? Rimowa was founded in 1898 in Germany. The suitcases were not made of metal at first. However, during World War II, the factory was destroyed by fire. All things apart from the aluminium sheets were incinerated. Inspired by this, the founder of the brandRichard Morszeck- started to create a suitcase made of this sturdy material. Subsequently, he found that the grooves on the aircraft JU52 can strengthen its design. With these inspirations, he successfully created the first aluminium suitcase with grooves. In order to lighten the weight of the suitcase, the brand combined magnesium with aluminium, and the iconic suitcase was born. For people who need to fly all the time, this stability, low weight and stylish suitcase is perfect for them. Accompanied by the exposure on social media and the celebrity effect, Rimowa suitcase has been the representative of luxury suitcase and stylish gear. Meanwhile, the suitcase is the status symbol that denotes a man or a woman of the world who may still be interested in changing fashions but does not let him or herself be seduced so rapidly. And this high-quality suitcase can also put forth that its owner is able to afford “true values” and surround themselves with valuable things in everyday life.
Macau Limited Edition
Rimova opened the first Macau store in 2007. Today, they already have five selling locations in this city. In celebration of the 10th anniversary, the brand launches a limited edition of Classic Flight Cabin Multiwheel. Based on the iconic shimmering silver aluminium-magnesium shells with the distinctive RIMOWA groove structure, the limited suitcase is combined with fine, durable leather handles. This Macau exclusive suitcase uses various Macau landmarks on the suitcase, including Ruins of St. Paul, Senado Square, Macau Tower, Ponte Governor Nobre de Carvalho and Ponte de Sai Van. The limited edition will be available in August at RIMOWA stores in Macau and Hong Kong . With a limited availability of 888 pieces in total, each of the suitcases has a dedicated number printed on the suitcase tag and inside the label. If you are looking for a suitcase for summer vacation and you want to show your fashion statement at the same time, this limited Rimowa suitcase no doubt is your best choice.
10 Business Daily Friday, July 28 2017
Greater China Sectorial results
Industrial profits jump most in three months The robust industrial earnings in June was in part driven by continued appetite for iron ore and other commodities
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arnings for China’s industrial firms in June rose at the fastest pace in three months in the latest sign economic momentum in the country remains solid, though analysts expect growth to slow later this year as tighter policies begin to bite. Profits surged 19.1 per cent in June from a year earlier to RMB727.78 billion (US$107.83 billion), the National Bureau of Statistics (NBS) said yesterday, accelerating from May even as rising borrowing costs have raised concerns about pressure on margins. Statistics bureau official He Ping said in a statement that accelerated profits growth in steel, auto and electronics sectors helped to boost overall earnings. A year-long construction boom in China has lifted earnings for both domestic companies like oil refiner PetroChina to multinational construction equipment maker Caterpillar Inc. Moreover, solid global demand for Chinese goods have helped underpin growth as authorities tighten financial conditions in an attempt to tackle debt risks and reduce the world’s second-largest economy’s dependence on years of cheap credit.
“At this stage, companies are still doing well because their sales are still pretty good; they haven’t felt the liquidity issue,” said Nomura’s chief China economist Yang Zhao in Hong Kong. For the first half of the year, the firms notched up profits of RMB3.63 trillion, a 22.0 per cent jump from the same period of last year and just a touch slower from the 22.7 per cent annual growth in the January-May period. The robust industrial earnings in June was in part driven by continued appetite for iron ore and other commodities, whose prices have recovered modestly after taking a hit since March. Chinese policymakers have leaned on property investment and infrastructure spending, including their plan to build a modern “Silk Road” trading route, helping fuel a building boom that has boosted demand and prices for materials from steel to cement.
Pressure on margins, growth?
Analysts expect economic growth to moderate in the year ahead after a solid first half, pressured by a flurry of regulatory measures launched early
this year to tackle financial risks from a rapid build-up in debt and defuse a property market bubble. The measures have raised borrowing rates, a headwind for businesses, particularly those struggling to reduce their debt servicing costs. Indeed, NBS’s He said “rising financing costs for companies” needed to be monitored closely - a point emphasised by Nomura’s Zhao. “If demand, particularly fixed asset investment demand, slows down due to a cooling property market... then the tightening liquidity will be more felt by companies”, said Zhao. Industrial companies’ liabilities rose 6.4 per cent year-on-year as of end-June, the statistics bureau said, versus 6.5 per cent year-onyear through May. Profits at China’s state-owned firms were up 45.8 per cent at 805.5 billion yuan in January-June, compared with a 53.3 per cent rise in the first five months. C h i n a’ s e c o n o m y g r e w a
faster-than-expected 6.9 per cent in the second quarter, matching the first quarter’s pace, thanks to solid exports, industrial production and consumption. The relatively solid economic growth is no doubt welcome news for President Xi Jinping ahead the major political leadership reshuffle in autumn, with authorities keen to ensure a smooth run-up to the meeting. Any sharp drop in industrial profits, a low-risk at this stage, will be a concern for policymakers as it risks rippling across the broader economy. One sign of the growing pressure on margins is the peaking of factory gate inflation, suggesting profitability and new investment could taper off later this year. “Looking ahead we still downside risks to profit growth, given the outlook for moderating producer price inflation, financial deleveraging and a cooling property market,” Zhao said. Reuters
Currencies
Bullish bets on yuan rise to highest since December Investors were estimated to have lifted their bullish bets on most emerging Asian currencies Christina Martin
Investors raised their long positions in most Asian currencies compared with two weeks ago, with bullish bets on the Chinese yuan at their highest since December, a Reuters poll showed yesterday, as the dollar languished near multimonth lows on political woes in Washington. The poll was conducted between Tuesday and Wednesday, with all responses received before the U.S. Federal Reserve concluded its twoday meeting on Wednesday. The Fed maintained its benchmark lending rate and said it was continuing the slow path of monetary tightening, but it noted that both overall inflation and a measure of underlying price gains had declined. The perceived dovish tone on inflation sent the dollar to a 13-month low against a basket of currencies. The dollar was already under pressure this week as the Trump administration, dogged by investigations into alleged Russian meddling in the U.S. election, took a fresh hit after White House spokesman Sean Spicer resigned.
The disarray at the White House has stoked concerns about the administration’s ability to pass its tax reform and stimulus agenda. Investors were estimated to have lifted their bullish bets on most emerging Asian currencies, according to the poll of 12 analysts, traders and fund managers. Long positions in the Chinese yuan rose to their largest since December, while the Korean won notched up the
most bullish bets since May. Traders have shifted from holding an entrenched bearish view on the yuan following concerted efforts by Beijing to stabilise the currency since the second quarter. The move has also been aided by the dollar facing political headwinds as well as on expectations for a slower pace of Fed rate increases. Bullish bets on the Thai baht increased to their largest since October 2015, even as Thailand’s central bank deputy governor highlighted the baht’s rapid rise and said the central bank will closely monitor
market activity. Investors turned bullish on the Taiwan dollar again after being sellers of the currency two weeks ago for the first time since January. Bearish positions in the Philippine peso increased to their largest since November, as rising imports and a widening current account deficit fuelled its weakening streak. The Philippine government posted a budget deficit of 154.5 billion pesos (US$3.05 billion) in the first half of the year, exceeding the ceiling for the period as it missed its revenue and spending targets, the country’s budget minister said on Monday. The Asian currency positioning poll focuses on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht. The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars. The figures include positions held through non-deliverable forwards (NDFs). Reuters
Business Daily Friday, July 28 2017 11
greater China Payment systems
In Brief
Baidu enters strategic partnership with Paypal to tap Mainland tourists PayPal, which reported better-than-expected results yesterday, entered into new partnerships with Apple Inc and Bank of America this month Baidu Inc said that it has entered a strategic agreement with PayPal Holdings Inc to tap overseas merchants as Chinese tech companies ramp up the fight for overseas payment partnerships. Under the agreement, Baidu’s payment platform, Baidu Wallet, will be accepted by roughly 17 million PayPal merchants globally, the Chinese firm said in a statement yesterday.
“Partnering with PayPal on technology and product innovation will provide Baidu users with the ultimate crossborder consumer experience”
payment firms, Alibaba Group Holding Ltd affiliate Ant Financial and Tencent Holdings Ltd, are making aggressive moves to expand their payment networks overseas. This year Ant Financial entered a US$1.2 billion bid for U.S. remittance firm MoneyGram International Inc, a deal that has attracted scrutiny from U.S. lawmakers who say it could threaten national security. Ant has also purchased stakes in half a dozen payment firms across Asia as part of a plan to expand its finance business outside of China.
Tencent’s WeChat Pay has also inked a series of partnerships with global payment firms and earlier this month said it has applied directly for a Malaysian payments license. PayPal, which reported better-than-expected results yesterday, entered into new partnerships with Apple Inc and Bank of America this month. It has also targeted Southeast Asian markets recently through local partnerships, but earlier attempts to enter the Chinese market directly have been unsuccessful due to tight regulation and strong local players. PayPal will work with Baidu’s financial services group under the new agreement to target cross-border payments between Chinese consumers and online businesses based outside of China. Baidu Wallet has roughly 100 million users, and still trails behind Tencent’s WeChat and Ant Financial’s Alipay in terms of users and global reach. Reuters
Moody’s Investors Service changed its outlook for China’s banking system to stable from negative yesterday, the first revision in two years. As non-performing loans (NPLs) rose at China’s lenders amid slowing growth and a rise in struggling borrowers, Beijing has adopted measures, from debt-to-equity swaps to encouraging NPL transfers, to help its flailing banks. The improved outlook reflects the stabilization of soured debt after successive quarters of fast rising NPLs and the latest crackdown on shadow banking, said Moody’s in a statement. Efforts to counter high corporate leverage and check the growth of shadow banking have started to work, said Moody’s.
Beijing says willing to work with U.S. on aluminium issues
“Partnering with PayPal on technology and product innovation will provide Baidu users with the ultimate cross-border consumer experience,” said Baidu senior vice president Guang Zhu. The deal comes as China’s top
Start-up
WeWork launches Mainland unit with funding from Hony, SoftBank The announcement follows a similar move unveiled earlier this month by WeWork to enter Japan’s market
Co-working space start-up WeWork has set up a Chinese unit, with the help of a US$500 million investment from China’s Hony Capital and Japan’s SoftBank Group Corp, to tap into a booming demand for shared office space in the world’s No.2 economy. The funds will be used to expand beyond WeWork’s current locations in Beijing and Shanghai to at least five more large cities in the next six to 12 months, the New York-based firm’s co-founder and CEO Adam Neumann said. State-owned real estate developer Greenland Group and hospitality firm Jin Jiang International (Holdings) Co Ltd - parent of Shanghai Jin Jiang International Hotels Group - are also investing in the local unit, he said. “By creating local entities we allow ourselves to take local management, give them local equity, incentivize
Moody’s upgrades banking system outlook
Trade
Guang Zhu, Baidu senior vice president
Julie Zhu and Elzio Barreto
Ratings
them locally, operate the company under local law, respecting all the different cultures and the different rules that exist,” Neumann told Reuters in an interview yesterday. The announcement follows a similar move unveiled earlier this month by WeWork to enter Japan’s market with a 50:50 venture with SoftBank. The company will launch its first location in Tokyo in 2018. WeWork, which provides shared office space for users such as entrepreneurs, freelancers and large corporations, operates more than 155 properties in 16 markets including the United States, its biggest market, Canada, Germany and China. It is generating US$1 billion a year in revenue at current rates and will launch an IPO in the future, Neuman has said. Its members pay on average US$650 a month. WeWork was valued at about US$16.7 billion in a funding round last year, making it, according to
Hony Capital, among the world’s most valuable startups. This year, in March, SoftBank invested US$300 million in WeWork, the first tranche of a funding round that could total up to US$3 billion, a source has told Reuters. WeWork could unveil more units soon, CEO Neumann said, with SoftBank seen taking a stake in those businesses too. Having separate local entities in different countries gives WeWork the flexibility to take some of those units public, while keeping others under the parent, he added. “We’re not going to do too much, only in markets that are tremendously large, but in one or two more markets you’re going to see us doing it, probably quite soon.”
Key Points WeWork to expand into at least 5 Chinese cities in 6-12 months Raises US$500 mln from Hony, SoftBank, Greenland, Jin Jiang WeWork to launch more local units soon with SoftBank backing:CEO WeWork opened its first office in China in Shanghai in July 2016, expanding to four properties now, while in Beijing it has two spaces now. It also has two locations in Hong Kong. It is targeting more than ten properties in Greater China by end-2017. “In Shanghai, Beijing and Hong Kong, where WeWork opens an office, it will be filled up right away with high-quality membership and that gives us the confidence to accelerate the Chinese market development,” John Zhao, Hony Capital’s founder and CEO, told Reuters. Reuters
Ministry of Commerce yesterday called for a global approach to tackling problems in the aluminium market as it noted the findings of a probe by the United States into the sector. The U.S. International Trade Commission released a report in June that examined China’s aluminium market from 2011 to 2015. The report said the country encouraged aluminium production “through low tariffs on imports of raw materials, as well as a variety of programs that provide direct support to aluminium smelters”. China is the world’s biggest aluminium producer and has been threatened by U.S. President Donald Trump with anti-dumping tariffs on its exports. Yuan
Currency swaps with Switzerland extended The People’s Bank of China (PBOC) and the Swiss National Bank have extended their currency swap arrangement for another three years, China’s central bank said yesterday. The deal aims to provide liquidity support for bilateral trade and investment and to maintain stability of the financial markets, the PBOC said in a statement on its website. The swap arrangement will continue to have a size of RMB150 billion (US$22.27 billion), equivalent to around 21 billion Swiss franc. Results
Huawei says H1 revenue climbs 15 pct China’s Huawei Technologies Co Ltd, one of the world’s largest telecom equipment makers, posted yesterday a 15 per cent rise in half-year revenue, the slowest growth for that period in four years. Revenue grew to RMB283.1 billion (US$42.03 billion) in the first six months of 2017 from RMB245.5 billion a year earlier, Huawei, which vies with Sweden’s Ericsson for the top spot globally, said in a statement. The company’s operating margin fell to 11 per cent from 12 per cent a year ago. Huawei does not release half-year profits.
12 Business Daily Friday, July 28 2017
Asia GDP
South Korea Q2 growth almost halves as exports slip The central bank expects the economy to expand 2.8 per cent this year Cynthia Kim
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rapid fall in building activity and declining export volumes slashed South Korea’s economic growth by almost half in the second quarter, but consumption gave output a surprise boost - suggesting domestic demand may shine in the second half. Gross domestic product grew a seasonally adjusted 0.6 per cent in the second quarter, the Bank of Korea (BOK) said yesterday, slowing from 1.1 per cent growth over January to March as expected. Year-on-year growth was unchanged at 2.7 per cent, in line with expectations. Consumption boosted growth by 1.5 per cent point in the second quarter, while negative net exports was a 0.9 per cent point drag, resulting in a quarterly expansion of 0.6 per cent in the April-June period. Construction declined 0.3 per cent on-quarter in seasonally adjusted terms, its sharpest fall in two and a half-years, harshly reversing 5.3 per cent on-quarter growth over January-March. Exports, which account for about 40 per cent of GDP, fell 3 per cent on-quarter, as shipments of petrochemical goods declined after surging earlier in the year. “Exports, which surged every month this year, are announced in value terms, while the GDP is output in terms of volume. It shows surging prices of memory chips have been making headline exports growth look rosy,” said Lee Sang-jae, an economist for Eugene Investment & Securities Co. “Recovering consumer sentiment is finally lifting up spending, and it will continue to boost growth in the second half,” Lee said. Private consumption growth more than doubled to 0.9 per cent in the second quarter from 0.4 per cent in
Bank of Korea headquarters
the first as consumer sentiment hit a high not seen in six years, sparking a jump in sales of home appliances and clothes. “Private consumption will continue to recover throughout the second half,” said Chung Kyu-il, a director general at the BOK, adding that the release of new-model smartphones in August could also drive up retail sales.
Construction’s “soft landing”
Kim Doo-un, an economist at Hana Financial Investment, said the construction sector was seeing a “soft landing” following a boom in building activity. The BOK said public infrastructure projects, which hire more workers than residential building does, declined in the April-June period, sapping overall output. “Civil engineering is a high value-added sector that shrank in the second quarter, leading to a decline in construction output,” the BOK’s Chung said at a news conference.
Nonetheless, capital investment jumped 5.1 per cent on-quarter, which ANZ analysts said was at odds with South Korea’s sub-trend levels of capacity utilization, and reflected tightly-focused spending on new facilities.
Key Points Q2 GDP +0.6 pct s/adj q/q (Reuters poll +0.6 pct) Q2 GDP +2.7 pct y/y (Reuters poll +2.7 pct) Construction output -0.3 pct q/q Exports -3.0 pct q/q, capex investment +5.1 pct q/q
“We believe that (this investment) is narrowly confined to a select set of products, most likely select sub-sectors of the electronics industry,” ANZ said in a commentary after the GDP report was issued. South Korea’s average factory
utilization rate fell for two months in a row to 71.4 per cent in May, as manufacturers saw weaker orders. News orders in South Korea’s manufacturing sector decreased every month this year before a mild upturn in June, highlighting sluggish demand in broad terms. Although surging prices of memory chips had favoured headline export figures, exports of car parts and electronics components for mobile phones and internet devices declined in June, data from the Korea Customs Service showed. The central bank expects the economy to expand 2.8 per cent this year, a little shy of the government’s 3 per cent forecast, as global demand for South Korea’s memory chips, cars and petrochemical goods remains strong. The government is counting on an 11 trillion won (US$9.90 billion) extra budget approved this month to create jobs and provide subsidies for the elderly to boost household income and spending. Reuters
Infrastructure
Indonesia president seeks to tap pilgrims’ fund to help fix bottlenecks Traditionally, the Haj fund has put most of the money it receives from Indonesian Muslims, who pay deposits to get a place for a pilgrimage, into banks Indonesia’s president wants a national fund that arranges Haj pilgrimages to make investments in infrastructure projects that the country needs and the government itself cannot afford to build. The World Bank estimated this week there’s a funding gap of about US$500 billion between what Indonesia spends and what’s needed to deal with shortcomings. Infrastructure bottlenecks have hurt economic growth in Southeast Asia’s largest economy for years and President Joko Widodo has made it his administration’s top priority to fix the situation. On Wednesday, Widodo inaugurated the board of managers for a new independent Haj fund agency. It
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takes over management of the fund from the religious affairs ministry. Traditionally, the Haj fund has put most of the money it receives from Indonesian Muslims, who pay deposits to get a place for a pilgrimage, into banks. Widodo told the new board that rather than leave funds “idle”, it is better to invest them in places that are “safe but with big profits”. The president said the fund should get the first offer to invest in the government’s “brown field infrastructure projects” such as toll roads or ports, promising such investment would be profitable. As of the end of 2016, the ministry managed 95.2 trillion rupiah (US$7.14
billion) of pilgrims’ money. The new board estimated the amount will top 100 trillion rupiah this year. Pilgrims from Indonesia, home to the world’s biggest Muslim population, often wait almost a decade before making their trips.
“It is possible under the law for us to invest in banking instruments, in portfolio or directly” Anggito Abimanyu, Haj fund manager Saudi Arabia sets a quota for pilgrims from every country to visit the Islamic holy city of Mecca.
Indonesia’s Haj quota for 2017 is 211,000 people. One of the new Haj fund managers, Anggito Abimanyu, said the newly-founded agency will focus on mapping out its programme, including its investment choices. “It is possible under the law for us to invest in banking instruments, in portfolio or directly,” he said. Separately, Darmin Nasution, coordinating minister for economics, said on Wednesday that visiting World Bank President Jim Yong Kim offered to Widodo to help Indonesia get more international funding for priority infrastructure projects. No details were disclosed. Without mentioning the offer, Kim said the bank and the government of Indonesia, the World Bank Group’s third biggest client, “are going to demonstrate just how quickly a developing country can go from low to middle to high income status” by working together. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, July 28 2017 13
Asia Investment
In Brief
Australia’s biggest pension fund flags equities, local property risks The fund has more than doubled its cash holdings over the 12 months to June 30 Jonathan Barrett and Tom Westbrook
Australia’s largest pension fund, AustralianSuper, is preparing for the end of the global equities run and looking to infrastructure opportunities in the United States where it believes foreign firms will in time gain greater access. AustralianSuper is a A$120 billion (US$96.6 billion) fund that seeks out major positions, chief executive Ian Silk said at a Reuters Newsmaker event yesterday in Sydney, that can affect its burgeoning book. Silk said an equities rally - Australia’s benchmark has gained 43 per cent since 2012 and the MSCI World Index has risen 67 per cent over the same period - and recent strong Australian property price rises were being monitored and managed.
“The risks are principally in equity markets and for Australian super funds equity markets really determine the bulk of the absolute returns,” Silk told Reuters in an interview after the event. Just over half of AustralianSuper’s most popular ‘balanced’ fund is invested in Australian and global equities, according to the fund’s website. It has more than doubled its cash holdings over the 12 months to June 30, from 3.8 per cent to 8.8 per cent, with cuts to property, private equity and international equity exposure. “We are not finding too many asset classes great value at the moment,” Silk said at the event. While AustralianSuper recently purchased the country’s biggest electricity grid with partner IFM Investors, the fund believes there
are few suitable-sized local infrastructure investment plays left for a manager fuelled by net cash inflows of around A$500 million per month from members. Silk said that U.S. President Donald Trump’s $1 trillion infrastructure plan represented an opportunity even if it was unclear if and how the plan would operate. He felt that any concerns against foreign investment in the United States would be overcome by its immense need to improve its infrastructure. “When push comes to shove, they’ll balance the parochialism with the party who is prepared to write the biggest cheque,” said Silk.
“Dog’s breakfast” energy policy
In a quest to reduce fees and improve returns, AustralianSuper is building its internal management capability, as opposed to only awarding mandates to external managers. Silk said the fund currently managed about 23 per cent of its A$120 billion-odd assets internally. “We are budgeting for a reduction in our investment costs,” said Silk, referring to fee savings by hiring inhouse teams. The internalisation model has had mixed results in other markets, with sceptics citing onerous risk and compliance systems which, combined with staff retention incentives, dent the expected net returns. The fund’s internal managers won’t, however, likely invest in Australian energy assets until there was a coherent energy policy, Silk said. Australia has been subject to a decade of political fights over climate policy, where the future contribution of coal-fired power generation and renewable energy is unclear. “The energy market at the moment, to use a colloquial term, is a dog’s breakfast,” said Silk. “It’s not a regime that is inviting for investors.” Reuters
Politics
Japan’s main opposition leader resigns amid turmoil in her party Given the opposition vacuum, populist Tokyo Governor Yuriko Koike may seek to build on her city assembly victory and take her local party into the national arena Isabel Reynolds
The leader of Japan’s struggling main opposition party said yesterday she would resign after less than a year in the job. Renho (pictured), who generally goes by only one name, became the first woman in two decades to lead a major political party in Japan when she took the helm of the Democratic Party last September. But high expectations were not fulfilled. She failed to smooth over intra-party clashes and oversaw a heavy defeat in the Tokyo local assembly election earlier this month.
‘The resignation looks like another step toward the collapse of Japan’s twoparty system’ The resignation looks like another step toward the collapse of Japan’s two-party system. A previous incarnation of the DP swept to a landslide election victory in 2009, but lost to Prime Minister Shinzo Abe’s Liberal Democratic Party in 2012 and has since failed to offer a coherent alternative. While in the short term opposition
turmoil is likely to distract attention from Abe’s problems, it remains unclear whether the party will be able to regroup under a new leader. Renho didn’t give a clear reason for stepping down. The former newscaster said she hadn’t shown sufficient ability to lead, and that the loss in Tokyo was a factor. The DP has focused its energies on pursuing scandals surrounding Abe and his cabinet in recent months. While this strategy has been successful in undermining his support, it has left the party even less popular than before. It only received 5 per cent support from respondents to a
Mainichi newspaper poll published Monday, compared with 25 per cent for the LDP. A revelation that Renho, whose father was from Taiwan, had dual nationality, almost scuppered her run for party leader last year. Criticism over what she said was an oversight has continued to hamper her leadership. She published documents related to her nationality a week ago. Former Prime Minister Yoshihiko Noda, who served as Democrat Party secretary general, said earlier this week he planned to resign to take responsibility for the Tokyo election defeat, the Asahi newspaper reported. Given the opposition vacuum, populist Tokyo Governor Yuriko Koike may seek to build on her city assembly victory and take her local party into the national arena, providing a fresh opponent for the LDP. Bloomberg News
Data
Indonesia passes law giving tax office access to financial data Indonesia’s parliament yesterday passed into law a government regulation that gives tax authorities access to information on accounts held at financial institutions, including banks, deputy speaker Agus Hermanto said. President Joko Widodo signed the regulation in May but parliamentary approval was needed to turn it into law. The law requires banks, insurance companies and other financial institutions to report client information to Indonesia’s tax office. The tax office then has to share the information with authorities in other countries as part of an international initiative of Automatic Exchange of Information led by the Organization for Economic Cooperation and Development. Industry
Japanese companies plan hydrogen supply chain project A consortium of Japanese companies plans to launch what it says is world’s first hydrogen supply chain demonstration project, part of the country’s goal of becoming a “hydrogen society”. The relatively smallscale project aims to import the super-clean energy source from 2020, the consortium companies said in a statement yesterday. Japan is betting heavily on hydrogen as an energy source despite the high costs and technical difficulties which have generally slowed its adoption as a carbon-free fuel. Prime Minister Shinzo Abe is pushing his vision of vehicles, houses and power stations using hydrogen to end Japan’s energy crisis. Environment
Australia to build superhighway for electric vehicles Australia is building a superhighway offering free charging stations in a bid to boost use of electric vehicles, the north-eastern state of Queensland said yesterday, most of its route fringed by the Great Barrier Reef tourist attraction. The move comes as governments around the world regulate to cut emissions by boosting the use of electric vehicles. Britain this week said it would ban the sale of new petrol and diesel cars from 2040, following France. The mayors of Paris, Madrid, Mexico City and Athens have said they plan to ban diesel vehicles from city centres by 2025. Energy
Thailand’s PTTEP takes stake in Malaysia LNG project PTTEP, the exploration and production arm of Thailand’s oil and gas giant PTT Group, said yesterday it had taken a US$500 million stake in a liquefied natural gas (LNG) project with Malaysia’s Petronas. Announcing second-quarter results - which were roughly in line with analysts’ expectations - PTTEP said it was looking to expand further in Southeast Asia and was awaiting the results of a few bid proposals for exploration projects in the region. It said a joint venture with its parent company - PTT Global LNG Company - had bought a 10 per cent stake in liquefaction plant MLNG Train 9 in Malaysia.
14 Business Daily Friday, July 28 2017
International In Brief ECB
Eurozone lending growth falls back in June Lending to businesses and households by eurozone banks rose in June, but at a slower rate, monthly figures from the European Central Bank showed yesterday. Loans to the private sector grew 2.5 per cent last month, adjusting for some strictly financial operations, the central bank said in a statement. That was a slight fall from the pace of 2.7 per cent in May, which the ECB revised up from the 2.6 per cent reported last month. Borrowing by households held steady in June, growing at 2.6 per cent -- the same level as the previous month. Mozambique
World Bank offers census aid The World Bank has offered 131 cars, 750 motorbikes and 10,000 bicycles to Mozambique’s National Statistics Institute (INE) to help in the 4th census that is going to be conducted between 1 and 15 August. A press release said the cars, motorbikes and bicycles were exclusively for use in the operations to collect statistics in the country. The INE expects to register 27 million inhabitants in the two-week period, some 30 per cent more than 10 years ago. Graft
Brazil police arrest former Petrobras CEO
Brazilian federal police yesterday arrested former Petrobras Chief Executive Officer Aldemir Bendine on suspicion he received large bribes from construction conglomerate Odebrecht. In a statement, the prosecutorgeneral’s office said police served three arrest warrants and executed 11 search and seizure orders as part of the so-called Car Wash investigation, which has ensnared senior executives and high-ranking politicians in Latin America’s largest economy. Legal representatives for Bendine were not immediately available to comment. Bendine served as CEO of Petróleo Brasileiro SA, as the state-controlled oil company is formally known, between 2015 and 2016.
Bank benchmark
Libor to end in 2021 as FCA says it is untenable The London interbank offered rate, or Libor, is behind securities including student loans and mortgages Suzi Ring
L
ibor, the benchmark underpinning more than US$350 trillion of financial products, will be phased out by the end of 2021, as U.K. regulators and banks look to replace the scandal-tarred indicator with a more reliable system. Andrew Bailey, the head of the Financial Conduct Authority, said yesterday that the rate isn’t sustainable because of a lack of transactions providing data. Libor became a byword for corruption after traders were caught manipulating the benchmark, leading to about US$9 billion in fines and the conviction of several bankers. “We do not think we will complete the journey to transaction-based benchmarks if markets continue to rely on Libor in its current form,” Bailey said in a speech at Bloomberg’s London headquarters. The London interbank offered rate, or Libor, is behind securities including student loans and mortgages. The benchmark is the average rate a group of 20 banks estimate they’d be able to borrow funds from each other in five different currencies across seven time periods, submitted by a panel of lenders every morning. Its administration was overhauled in the wake of the scandal, with Intercontinental Exchange Inc. taking over from the then-named British Bankers’ Association with the aim of making the rate more transaction-based. But the 58-year-old Bailey said the market supporting Libor -- where banks provide each other with unsecured lending -- was no longer “sufficiently active” to determine a reliable rate and alternatives must be
Brexit
EU’s top negotiator warns of possible delays to talks EU officials said progress was difficult not because Britain had unacceptable demands, but because it had no position at all on many issues Jan Strupczewski and Gabriela Baczynska
Sentiment poll
German consumer morale reaches 16-year high Already-buoyant German consumer sentiment continued to rise further heading into August, the GfK market research group said yesterday. The GfK consumer sentiment indicator, based on a survey of 2,000 Germans, rose to 10.8 going into August from 10.6 recorded in July. The 10.8 reading was the highest level since 11.0 in October 2001. A Reuters poll had forecast an unchanged reading of 10.6 from last month. “In the opinion of consumers, the German economy is now firing on all cylinders,” Rolf Buerkl, a researcher for Nuremberg-based GfK, said in a statement. He noted that economic expectations and income expectations continued to rise.
found. For one currency and lending period there were only 15 transactions in 2016, he said. “The absence of active underlying markets raises a serious question about the sustainability of the Libor benchmarks,” said Bailey, who is widely seen as a candidate to be the next governor of the Bank of England. “If an active market does not exist, how can even the best run benchmark measure it?” The FCA only started regulating Libor in 2013, the same year new legislation was passed making it a criminal offense to take any misleading action in relation to financial benchmarks. The FCA chief said the regulator has spent a lot of time persuading banks to continue submitting rates, something the agency has the power to enforce, but the lack of liquidity makes this impossible to maintain and leaves it open to manipulation. The FCA has spoken to the panel banks over recent months about ending the use of Libor and how much
time it would take to wind-down, Bailey said. While it would be tough, most said it could be done in four or five years, and the FCA has asked banks to continue submitting rates until the end of 2021. The development comes as a number of groups have been considering alternatives to Libor in recent months. The Bank of England said in April a swaps-industry working group had proposed replacing the use of Libor in contracts with the Sterling Overnight Index Average, or Sonia, a near risk-free alternative derivatives reference rate that reflects bank and building societies’ overnight funding rates in the sterling unsecured market. In June, a U.S. government body, the Alternative Reference Rates Committee, recommended replacing Libor with a new, broad Treasuries repo rate, linked to the cost of borrowing cash secured against U.S. government debt. Switzerland is replacing its own key swaps rate, TOIS, with a new benchmark on Dec. 29. “We do not think markets can rely on Libor continuing to be available indefinitely,” Bailey said. “The planning and the transition must now begin.” Bloomberg News
Talks between Britain an the European Union on their future relationship are now less likely to start in October, the EU’s top negotiator has said, because of lack of progress on Brexit divorce issues so far, EU officials said. The EU’s top Brexit negotiator Michel Barnier on Wednesday briefed ambassadors from the 27 countries that will remain in the EU after Britain leaves in March 2019 on the outcome of the July round of the monthly divorce talks with London last week. “He said the likelihood of starting the future relationship talks in October appeared to be decreasing,” one EU official involved in the Brexit talks said. Barnier had earlier hoped that sufficient progress on the key divorce issues -- a financial settlement, citizens rights and a solution for a non-physical border between Northern Ireland and Ireland -- could be made by October. This would allow EU leaders to give their consent to starting talks with London on the main aspects of the relationship after Brexit -- a
discussion Britain is keen to start as soon as possible to provide more clarity to businesses. But with no progress on the financial settlement except Britain’s general admission that it would owe the EU an unspecified amount, and little to no real progress on other issues, the odds of a future trade relationship discussion starting in two months are declining.
‘The next round of talks is scheduled for late August’ EU officials said progress was difficult not because Britain had unacceptable demands, but because it had no position at all on many issues. “Barnier expressed concerns that sufficient progress in October looked difficult now. Mainly because Britain has no position on finances, but also because they don’t have positions on other issues as well,” a second EU official said.
“The more they drag on, the less time is left for second phase and special relationship they want,” the second official said. The EU’s rough estimate is that Britain may owe it around 60 billion euros after it leaves in various legal commitments London has made as a member of the bloc, but talks are to focus on the methodology of calculation rather than the sum itself. “There has still been no kick-off on money, Britain still refuses to accept anything – either the methodology, or the sum. This blocs everything else, there won’t be any real progress over the next two months, clearly that won’t create grounds for opening phase two on trade,” a third EU diplomat said. “On citizens’ acquired rights, it’s a mixed picture. We have a list of things we agree on, disagree on and are some way in between. But that at least allows us to negotiate,” the third official added. Diplomats said that on Ireland, talks have not moved beyond restating positions that have already been presented in public. “They have actually not discussed the Irish border in any detail, there were no technical talks at all,” a fourth official said. The next round of talks is scheduled for late August. Reuters
Business Daily Friday, July 28 2017 15
Opinion
Fed reinforces its aim for normalization
People’s Bank of China headquarters in Beijing
There’s one place the U.S. still dominates in Asia
Mohamed A. El-Erian a Bloomberg View columnist
A
t the end of its two-day policy meeting, the Federal Reserve on Wednesday delivered a rath e r m i l q u et o ast stat e m e n t -purposely and understandably so. In the process, the central bank is achieving two goals: keeping its options open as it continue to navigate an unusually fluid economic, financial, institutional and political landscape; and reinforcing the markets’ comfort with the notion that the Fed will be able to provide, to borrow a phrase from Ray Dalio, a “beautiful normalization” after a prolonged period of heavy reliance on unconventional monetary policy. As expected, the Fed left interest rates unchanged and stated that it would start reducing its balance sheets “relatively soon.” It made the announcement in the context of continued solid job gains, a somewhat more dovish view of inflation, an unchanged outlook, and as it focused on what it sees as a “roughly balanced” balance of risk. The immediate reaction of markets was supportive of this steady-as-it-goes approach. The VIX, the widely followed measure of stock market volatility known as the “fear index,” dipped momentarily to a record low, while market yields eased somewhat, equities remained strong and the dollar weakened a little. More generally, the statement serves to reinforce, at least for now, the markets’ notion that the Fed is on course to deliver a normalization that keeps volatility low and contains disruptions to both the fixedincome and equity markets, as well as to the economy. It is consistent with the view that the next rate hike would come in December at the very earliest, and that the balance-sheet reduction process, which many predict will start this fall, would be cautiously measured and orderly. For the next few weeks, the focus of markets and analysts will shift overseas, and to the European Central Bank in particular. Beyond that, it will also come back to a Fed that, after all, is with many others in seeking to solve and model analytical uncertainties for the nation’s productivity, wage dynamics and inflation determination -- and to do so in a context of fluid politics and periodic threats to its operational independence. Bloomberg View
“The next rate hike would come in December at the very earliest”
Daniel Moss a Bloomberg View columnist
F
or all the talk of America’s decline and China’s rise, Asians still seem obsessed with events in one corner of Washington, D.C.: the Federal Reserve. This week’s meeting of the Federal Open Market Committee was the first I’d observed from Asia in 15 years. During that period, China’s economy has grown from about the size of Italy’s to surpass Germany and Japan and is now easily the world’s second-largest. Popular commentary and weighty tomes from academia, business, government and think-tank land are replete with data and anecdotes describing China’s growing economic clout in Asia and the U.S.’s receding influence. Yet this week, it was like I’d never been away. Television, print and online media offered saturation coverage of the Fed’s statement with the subtlest changes in sentence structure pored over at length. Talking heads opined and analyst notes proliferated. And that’s when the Fed didn’t do anything. Just imagine if its meeting had featured projections, a press conference and the famous dots. By contrast, policy choices by the People’s Bank of China barely rated a mention. There may be a couple of explanations for this. While far from perfect, the Fed is radically transparent compared with the PBOC. We’ve known since last year that a meeting was scheduled this week. The U.S. is still the world’s largest economy, plus the size and influence of its capital markets -- and foreign participation in them -- dwarf any other. Asian economies in particular are more immediately and dramatically affected by changes in U.S. monetary policy than most. Several important players maintain either real or de facto pegs to the dollar. The bulk of the region’s currency reserves are in dollars and quite a few central banks intervene periodically to manage their exchange rates versus the greenback. Globally, almost 90 per cent of currency trading has the dollar on one side of the trade. And it’s probably fair to say investors and economists are starting to sense some sort of inflection point approaching on inflation in the U.S. It’s been receding since hitting the Fed’s 2 per cent target in February, even as the central bank is still committed to a gradual tightening of policy. Some Fed officials are starting to question the
“
model that links low unemployment to higher wages and inflation. So people are on the hunt for small changes in language that could convey something big; Fed statements and speeches are scrutinized in microscopic detail. While it’s become more open over the years, the PBOC doesn’t offer anywhere near the same degree of public material to examine. That said, investors may be displaying a bit of a blind spot here. After all, when China’s markets gyrated in 2015, it was enough to give the Fed some pause in its campaign to slowly remove the accommodation of the crisis years. Today, China’s bond market is the third-largest in the world and is growing fast. Michael Spencer, chief Asia economist at Deutsche Bank AG, notes that many -- mistakenly -- still see China’s capital markets as closed and of little relevance to foreign markets. That’s at odds with China’s growing influence over capital flows and growth generally. Many observers may also be misjudging the central bank’s policy stance. “Investors are not particularly focused on the PBOC because they assume it has a strong bias towards an easy policy stance and there’s little risk of policy tightening,” says Spencer. “But monetary conditions have been getting tighter in China and with core inflation rising steadily over the past year, and at a five-year high -– albeit only about 2.2 per cent -- the outlook for domestic liquidity and therefore capital flows in and out of China is not so straightforward.” Certainly, other Asian nations recognize the many ways, big and small, in which the U.S. is losing ground to China. The country is throwing its weight around in the South China Sea again, not to mention the border with India. Many nations -- not just in Asia -- ignored U.S. opposition to join the Asian Infrastructure and Investment Bank. And Chinese tourists are an increasingly valuable driver of consumption when they travel abroad. Few economists doubt China will ultimately become the world’s biggest economy, at least in terms of gross domestic product. But, as China’s financial markets open further and grow more sophisticated, they will also inevitably have to command more attention in the region. In another 15 years, China’s dots are likely to be just as fascinating as the Fed’s. Bloomberg View
When China’s markets gyrated in 2015, it was enough to give the Fed some pause in its campaign to slowly remove the accommodation of the crisis years
”
16 Business Daily Friday, July 28 2017
Closing Environment
Shell CEO Van Beurden says his next car will be electric
When the boss of Europe’s biggest listed oil company says his next car will be electric, it says a lot about the future of fossil fuels. Royal Dutch Shell Plc responded to the worst oil-price crash in a generation with its US$54 billion takeover of BG Group Ltd. last year, betting that demand for natural gas will rise as the world shifts to cleaner-burning fuels. Now Chief Executive Officer Ben Van Beurden says
the next thing he’ll buy is a car that doesn’t need either oil or gas to run. “The whole move to electrify the economy, electrify mobility in places like northwest Europe, in the U.S., even in China, is a good thing,” Van Beurden said in an interview on Bloomberg TV Tuesday as the company reported quarterly results that beat expectations. “We need to be at a much higher degree of electric vehicle penetration -- or hydrogen vehicles or gas vehicles -- if we want to stay within the 2-degrees Celsius outcome.” Bloomberg News
Senior official
China willing to sacrifice growth to manage systemic risks But the official also said the nation could achieve both goals of maintaining steady growth while containing debt levels
A
senior Chinese economic official yesterday indicated that policymakers would be willing to sacrifice some short-term economic growth in order to deal with systemic risks. Beijing is trying to contain rising debt and defuse property bubbles amid fears such risks could derail the world’s second-largest economy if not handled well, but policymakers will be treading warily ahead of a key party meeting later this year. “(China can’t let smaller risks) eventually lead to large systemic risks that would cause serious harm to China’s economy,” Yang Weimin, vice minister of Office of the Central Leading Group on Financial and Economic Affairs, told reporters. “We would rather sacrifice in some other areas, but also deal with the relationship between stable growth and risk prevention”, Yang said. But Yang also said China could achieve both goals of maintaining steady growth while containing debt levels. China’s total private and public debt has exceeded 250 per cent of GDP, up from 150 per cent before the global financial crisis, according to the Organisation for Economic Co-operation and Development (OECD). Chinese regulators have already launched a crackdown on riskier types of financing, but the drive has
pushed up short-term borrowing costs. The government’s efforts to lower debt levels in the economy will be a long-term process and the key is to push state-owned firms to deleverage, Yang said. “We cannot allow the leverage ratio to continue to rise in order to safeguard economic growth,” he said. China’s economy grew a faster-than-expected 6.9 per cent in the second quarter, matching the first quarter’s pace, supported by solid exports, industrial production and consumption.
Key Points Systemic risks may cause serious harm to China economy-official Can’t allow debt levels rise in order to safeguard growth-Yang Says China won’t fall into middle income trap But analysts expect growth to slow in the second half as the property sector cools and borrowing costs for firms climb. Chinese leaders have pledged to keep the economy steady as they prepare for a five-yearly transition later this year. Government officials have said steady growth in the first half could help hit the full-year target of around
Property
6.5 per cent and achieve even better results. Yang also said that China’s economic outlook is bright and the country will not fall into the middle-income trap. China will fine-tune monetary policy to offset the impact of changes in market interest rates, said Wang Zhijun, another party official.
Currency
Higher market interest rates have started to trickle down to the real economy. The weighted average lending rate of China’s non-financial firms rose by 26 basis points in the first quarter to 5.53 per cent, according to data from the central bank. Data for the second quarter is due in early August. Reuters
Results
HK firm beats Brexit blues Beijing may change reserve requirement Mastercard beats profit with record City skycraper deal on yuan forward settlement estimates A Hong Kong firm struck a record deal for a London skyscraper yesterday amid a rise in foreign investment in property since the Brexit vote, but a slump in domestic demand hit the profits of real estate agent Foxtons. Condiment-maker Lee Kum Kee, a family business that is best known for its oyster sauce, is buying up the building nicknamed the “Walkie Talkie” for £1.3 billion (US$1.7 billion), the highest price ever for an office building in Britain. The iconic 34-storey skyscraper in London’s insurance district, with three-tiered sky garden and restaurant on top, hit the headlines just after being built when it was blamed for damaging a car by reflecting the sun’s rays. “This is the UK’s largest ever office deal,” Cushman & Wakefield, a commercial property giant which advised on the deal, said in a statement. “Since the vote to leave the EU, capital targeting London from the Asia-Pacific region has increased to record levels,” said James Beckham, head of London capital markets at the property company. The deal comes months after Chinese property magnate Cheung Chung Kiu bought another London landmark -- the “Cheesegrater” building -- for £1.15 billion. AFP
China’s foreign exchange regulator is considering adjusting or scrapping reserve requirements for financial institutions settling foreign exchange forward yuan positions, two sources with direct knowledge of the matter said yesterday. Under current rules, financial institutions must set aside 20 per cent of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves. The State Administration of Foreign Exchange (SAFE) has consulted with several commercial banks on the plan, the sources said. “Market expectations have changed, expectations for a strong dollar is no longer so strong now. So it’s a good timing (to make changes to the current policy), and it might be hard to have such a weak dollar again,” one of the sources said. Another source said the impact on the foreign exchange market was likely to be limited even if the authorities planned to scrap the reserve requirement, adding that the plan is not finalised. The central bank and SAFE have yet to respond to Reuters’ requests for comment. China’s cross-border capital flows stabilised in the first half of 2017 as market expectations for yuan depreciation eased due to broad weakness in the U.S. dollar. Reuters
MasterCard Inc, the world’s second-biggest payments processor, yesterday reported a better-than-expected 20 per cent jump in quarterly profit as people spent more using credit and debit cards. Consumer spending in the United States, which accounts for more than two-thirds of nationwide economic activity, has been on an upswing, supported by a tightening labour market and cooling inflation. Purchase, New York-based Mastercard, like its bigger rival Visa Inc, generates revenue by facilitating credit- and debit-card transactions and both their revenue streams are closely linked to consumer spending power. Mastercard also benefited from consumer spending outside the United States, with its cross-border volumes — the value of transactions made by overseas card-holders — rising 14 per cent on a local currency basis in the second quarter ended June 30. The company’s net income rose to US$1.18 billion, or US$1.10 per share in the quarter, from US$983 million, or 89 cents per share, a year earlier. Last week, Visa reported a better-than-expected quarterly profit and raised its annual earnings forecast, as more people across the U.S. and Europe used its payments network. Reuters