Apple removes VPN from its China app store Internet Page 8
Monday, July 31 2017 Year VI Nr. 1350 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Entrepreneur
Olympic medallist and founder of Li-Ning sportswear company tells residents to take their salary and launch a startup Page 3
Results
Wynn Palace loses US$10 mln to Baccarat clients through Suncity in Q2 Page 7
www.macaubusiness.com MFE
Attendees rated Macao Franchising Expo as more ‘professional’ this year Page 6
Real estate
Construction boom in small Mainland cities Page 16
Waterworld Maritime
The results of a public consultation on maritime territory management will lead to more studies and uncertainties in elaborating the law. Zoning of the 85 sq kms granted to the MSAR, as well as environmental conditions and natural resources, rests on a previous 20-year plan, announced last year, but only now ‘beginning’. Mechanisms for individual and commercial use of the waters are to be ‘pondered’. Meanwhile creating an environmental protection law for the zone will depend on the ‘level of urgency and importance’. Page 2
Creating the connection
Providing opportunities for SMEs in Hengqin, and linking SMEs dealing with products and services from Portuguese-speaking countries. Such is the goal of Frederick Ma Chi Nga, Permanent President of the Macao Youth Association and Vice President of the China Youth Entrepreneurs Association. With a RMB1.7 bln project in Hengqin, one of the 33 shortlisted for the area, the businessman describes the plans for SinoPortuguese trade, links to Lisbon, OBOR and Greater Bay development.
Numbers keep going up
Tourism Package tours brought 669,600 tourists to the city in June, an 18.1 pct increase y-o-y. Visitors from India saw the largest y-o-y uptick, at 167.1 pct, while those from S. Korea were up 31 pct and those from the Mainland were up 16 pct y-o-y. The first six months of the year saw 3.78 mln tourists arrive on package tours. Hotels received 6.35 mln guests in Jan-June, up 16 pct, with the average length of stay at 1.4 nights. Page 3
Chinese cities know the job
Interview | Entrepreneurs Pages 4 & 5
HK Hang Seng Index July 28, 2017
26,979.39 -151.78 (-0.56%) Worst Performers
CK Infrastructure Holdings
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Cathay Pacific Airways Ltd
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Kunlun Energy Co Ltd
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China Life Insurance Co Ltd
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Sun Hung Kai Properties Ltd
+1.76%
China Resources Power
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China Resources Land Ltd
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Tencent Holdings Ltd
Hang Lung Properties Ltd
+1.14%
Henderson Land Develop-
+0.67%
Hong Kong Exchanges &
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Industrial & Commercial
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Want Want China Holdings
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Hang Seng Bank Ltd
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China Shenhua Energy Co
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Bank of China Ltd
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28° 31° 28° 31° 28° 31° 27° 31° 27° 31° Today
Source: Bloomberg
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Tue
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Labour Urban unemployment in mainland China remained under 4 per cent in the second quarter of the year, showing persistent good performance in line with the domestic economy's pace. Page 8
2 Business Daily Monday, July 31 2017
Macau Maritime
Murky waters A public consultation document on maritime territory management will lead to more, and repeated, studies Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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hile the central government has ‘defined the maritime area under the jurisdiction of the MSAR’, the local government, although admittedly having ‘the responsibility to elaborate its functional maritime zoning’, will only be able to do so following the elaboration of its 20-year plan for the maritime zoning (2016-2036). While the 20-year plan was announced last year, no set date for its results, or implementation has been announced, with the document noting that the government ‘is beginning the study’ only now. This means that ‘in relation to how to proceed concretely regarding the effective zoning, as well as the natural resources, environmental conditions, among others, referred to in the consultation document, these will be factors to ponder,’ notes the report summarizing the results of the public consultation on the Law of Maritime Management, released by the Legal Affairs Bureau. Until then, whether to follow the zoning used by the Mainland before granting the 85 square kilometres to the MSAR, is undecided. In addition, the results of the public opinions raise questions as to division between what is considered land and sea, for which the Work Group on Legislative Work will ‘make another, more in-depth, study’, it notes.
obtaining the right of use of maritime areas, determining whether an individual or an entity can use the maritime areas has to be previously authorised by the government of the MSAR, should be clarified,’ notes the report. The work group set to do so will ‘ponder the introduction of corresponding norms’ during the legislative process. No fixed dates are mentioned. Some of the opinions ‘believe the
consultation document should include more measures for environmental protection of the maritime areas,’ points out the report, as well as questioning which group will be responsible for it and predicting costs. The report notes that whether to create an environmental protection law, ‘or not’, will depend on the ‘level of urgency and importance’ and depend on the application and current other judicial measures in place. Regarding economic benefits, opinions received demonstrated that ‘intensifying the collaboration and exchange with other cities and coastal countries can assist in the construction of the international centre of
tourism and leisure of the MSAR’. To ensure that this doesn’t interfere with the 20-year plan being elaborated, the report notes that the work group will ‘establish active communication with the competent services who study and participate’ in the 20 year plan, ‘in order to avoid disharmonious or conflictive situations between the politics and the law’. Currently the group set up last year, the Commission of Coordination and Management of the Development of the Maritime Areas, will continue to function, tasked with the ‘uniform management, from the top, of issues relating to the management and development of the maritime areas, and, in accordance with the distributed works to other competent services, permit them to participate, in the management work of the maritime areas’.
Who gets to use them when and who manages?
Regarding the use of the maritime waters, ‘the mechanism for
Telecom
Land plot
Pac On Land Appeal denied by court CTT to improve telecom service Cecilia U cecilia.u@macaubusinessdaily.com
The Court of Second Instance ruled against an appeal lodged by property developer Interbloc-Materiais de Construção (Macau), S.A.R.L. regarding the declaration of expiration of a land plot concession. The plot is located in Pac On reclamation Zone G in Taipa, with the Chief Executive (CE) having declared the expiration of the land concession last June. The Second Court ruled that the land concession expiration was due to the contract having expired, instead of the claim by the developer that the decision was punitive. The plot was undeveloped at the time of the concession’s expiration, with the developer claiming in the appeal that it had not been utilised due to an unstable economic environment, citing the Asian financial crisis in 1997, SARS (Severe acute
respiratory syndrome) in 2003 and social instabilities during the term of the Portuguese government. However, the Court stated that there were terms in the contract obliging the developer to inform the administration when issues arose that were beyond their control, and the appellant had failed to do so. Meanwhile, the Court pointed out that the original concession had expired in December 1995, before the financial crisis in 1997, ruling the reasoning unsubstantial. The appellant, on the other hand, also accused the administration of having double standards, for accepting the reasons made in other similar cases, but rejecting the arguments made by the appellant of the case in question. In response, the Court explained that similar cases still have time before the expiration of their 25-year concessions, while the case in question had already seen its concession expire.
for Smart City development The Macao Post and Telecommunications Bureau (CTT) is reviewing its contracts and licenses with the city’s telecommunication service providers and planning for the procedures of renewing telecom and television contracts, according to CTT director Lau Wai Meng. In response to an interpellation by legislator Ella Lei Cheng I, Lau said the local government is currently studying the licensing mechanism of technological convergence, pledging that the government is to remain in close contact with related industries to collect opinions from operators and to roll out more efficient policies for the development of the Smart City concept in Macau. With the attempt to develop convergent services, CTT stated that the government is intending to improve related legal regulations,
including to address the interim notary contract review of the public telecom service concession contract, soon to expire, in order to have an overall review of future telecom policies and the direction of their development. On the other hand, CTT also responded to an enquiry by legislator Kuan Tsui Hang about the mutual interconnection of networks between Companhia de Telecommunicaçōes de Macau (CTM) and Mtel Telecommunication Company Ltd, stating that the Bureau had been assisting the two telecom providers to deliberate the interconnection. CTT claimed that the arrangement in question would not affect any future business deliberations of the two operators regarding faster interconnections, as well as operations of other internet connections.
Typhoon
Flights to Taiwan affected due to typhoon The arrival of Typhoon Nesat affected a number of flights heading to Taiwan, according to a release by the Macau International Airport. In total, three flights by Eva Air from Macau to Taipei and Kaohsiung were cancelled at 9am yesterday. The flight numbers were BR808, BR830 and BR802.
Five flights arriving to Macau from Kaohsiung, Taipei and Jinjiang were also cancelled, and the flight numbers were BR829, BR807, NX619, BR801 and MF8659. The airport advised the passengers to consult their respective airlines for further updates and to check their flight status before beginning their trips.
Business Daily Monday, July 31 2017 3
Macau DSEC
Package tours dropped m-o-m in June, but up y-o-y Both the number of guest rooms and the number of overnight visitors increased y-o-y Cecilia U cecilia.u@macaubusinessdaily.com
I
n June, the city welcomed 669,600 tourists visiting on package tours, a decrease of 4.5 per cent month-on-month, but an 18.1 per cent year-onyear increase, according to the latest data from the Statistics and Census Service (DSEC). In terms of the visitor origins, tourists from India on package tours saw the largest increase, up 167.1 per cent year-on-year to 23,700. Visitors on package tours from South Korea increased 30.7 per cent year-on-year to 39,500. Tourists from mainland China on package tours increased 15.8 per cent year-on-year to 509,800 during the month, while a 9.5 per cent increase in Taiwanese tourists was also seen, reaching 35,100 visitors. DSEC revealed that the city attracted a total of 3.78 million visitors on package tours in the first half-year, up 10.3 per cent year-on-year. Local residents engaging travel agencies to travel outside of the city increased by 12.4 per cent year-onyear in June, reaching 108,000. In particular, a total of 29,000 MSAR residents travelled to mainland China on package tours, up 12 per cent year-on-year, while total outbound
travel to the Mainland hit 58,700, a 22.1 per cent yearly increase. For the first half of the year, a total of 665,000 local residents travelled using travel agencies, an increase of 10.9 per cent year-on-year. As at end-2016 the local population had reached 644,900 residents, according to DSEC data.
Hotels and guesthouses
As at the end of June, there were a total of 107 hotels and guesthouses operating in the city, with the number of guest rooms increasing 13.9 per cent year-on-year, to 37,000. The number of visitors staying in hotels in June also increased by 15.9 per cent to 1.09 million, with visitor
numbers from South Korea showing the largest increase, up 102.1 per cent year-on-year to 41,300. Visitors from South Korea made up just 3.8 per cent of the city’s June hotel occupants, with mainland Chinese guests occupying the largest part, at 63.1 per cent. A total of 688,400 Chinese visitors stayed in hotels in June, up 17.3 per cent year-on-year. The number of Taiwanese and Indian tourists who stayed in the city’s hotels and guesthouses fell 5.4 per cent and 1.7 per cent, respectively year-on-year, despite the substantial increase in the number of Indian tourists on package tours during the month.
The average length of stay held stable at 1.4 nights in June, while average occupancy rates rose 2.4 percentage points year-on-year to 85.1 per cent. That of four-star hotels was up 2.4 percentage points (88.1 per cent), while that of three-star hotels rose 0.9 percentage points (84.7 per cent) and that of five-star hotels rose 2.5 percentage points (85.4 per cent) For the first six months of this year, DSEC revealed that a total of 6.35 million guests stayed in the city’s hotels and guesthouses, a 15.8 per cent increase year-on-year, while the occupancy rate was up 4.9 percentage points to 84.2 per cent. The average length of stay during the first half-year stood at 1.4 nights.
MFE
Choose the risky life: Olympic medallist Li Ning Having a comfortable job in the hotel and gaming sector shouldn’t stop MSAR residents from taking a risk and starting their own businesses, says Olympic medallist and founder of Chinese sportswear Li-Ning Company Limited, Li Ning Nelson Moura nelson.moura@macaubusinessdaily.com
Local residents need to risk more and start their own businesses instead of relying on safe jobs in the gaming or hotel industry, the founder of Chinese sportswear Li-Ning Company Limited, Li Ning, said on Friday. The former gymnastics Olympic medallist was the main speaker at the Macao Franchise Expo 2017 ‘Forum on Chain and Franchise Business Opportunities of International Brands’. “Macau is a nice city with good benefits and living environment. People like to work from 9 [am] to 5 [pm] but a very diversified city needs people willing to pursue and take the challenge, which should be more encouraged […] Take your salary and start a startup,” Mr. Li stated. The chairman of Li-Ning Company - which Li started 27 years ago considered that, even with a “good idea”, business endeavours always have high possibilities of failure, but the whole process of starting a company itself provides “a great deal of pleasure and experience”. “Start it as a hobby, but you have to firmly believe what you’re doing is significant and interesting […] Don’t expect to be comfortable later, you will always continue learning as the process continues. I was 37 when I started my company and I’m still
learning in my early 50’s,” Mr. Li told the audience. A sports clothing brand mainly supplying the Chinese market, LiNing Company registered a total of RMB643.2 million (MOP768 million/ US$95.4 million) in profit attributable to equity holders in 2016, with total revenues going up 15 per cent yearly to RMB8.01 billion last year. Mr. Li was also appointed by the MSAR Government as an ambassador for the city’s Meetings, Incentives, Conferences, and Events (MICE) industry, stating that Macau had “great infrastructure” for MICE events in its hospitality sector. “There’s a lot of room for development with the One Belt, One Road policy and through cooperation with Portuguese-speaking countries. I’m honoured to be a brand ambassador of Macau,” he added.
a panel discussion prior to Mr. Li’s talk, involving experts including the General Manager of Baidu International, Frankie Ho, and franchise representatives such as the Committee Member of Franchising and Licensing Association (Singapore), Albert Kong. According to Mr. Kong, in 2011 alone 1.8 zettabytes of data were created "equivalent to 28 million 64 gigabyte smartphones”, with the total amount of data expected to increase 50- fold by 2020. “However, 80 per cent of all existing data is still unstructured, but is a valuable resource to uncover business insights, offer fresh perspectives and increase productivity,” Mr. Kong added. According to the Chairman of the Franchise Committee of the Japan Small and Medium Enterprise Management Consultants Association, Kyo Ito, convenience store chain
7-11 made the employees of its almost 20,000 stores in the country record not just the price paid by its customers, but their age and sex. “It allows the gathering of information on what type of customer buys what product. Big Data is then used to develop the product brand, removing slow-selling products and replacing them with fast-selling products very quickly,” Mr. Ito stated. Macau resident and CEO of female fashion store chain Azona (HK) Ltd., Dicgo Chan, stated that the retail sector was expected to undergo large changes, with increased use of Big Data changing how to approach clients. “In this business, you can either look for more customers, wait for customers to come or retain old customers. Gathering valuable information on customers will allow tailor-made marketing solutions,” Mr. Chan stated.
The Big Data advantage
In terms of how he used Big Data to expand his company’s sportswear business, Mr. Li said client data is not the “target itself” but the “applications that data can have for your business”. “Two years ago, we worked with Xiaomi for jogging shoes with chip sets to connect jogger running data with apps and social media. It all helps to know the customers’ needs and plan our products,” Mr. Li said. The topic was also addressed during
Li Ning, founder of Chinese sportswear Li-Ning Company Limited and Olympic medallist
4 Business Daily Monday, July 31 2017
Macau Hengqin development
Hengqin-Lisbon connection via Macau The latest project of Frederick Ma Chi Ngai, Permanent President of the Macao Youth Association and Vice President of China Youth Entrepreneurs Association, seeks to provide space and opportunities in Hengqin for small and medium-sized enterprises dealing with products and services from Portuguese-speaking countries. The investor and developer spoke to Business Daily about the project, its integration within the Greater Bay, and connections to the Belt and Road office he established in Lisbon Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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hen did the plans come about for developing the Sino-Portuguese Trade Centre in Hengqin, of which construction kicked off mid-July of this year? That was quite a while ago. You first have to get in contact with IPIM [Macao Trade and Investment Promotion Institute]. I think it was in 2014 or 2015, when they shortlisted 33 companies to introduce them to the Hengqin government. Some of the projects are already under construction. There is one sport-related, one about culture, another one about Macau food. Our project is mainly
focused on the China and Portuguesespeaking countries’ trading. We are one of the 33 companies introduced by IPIM to the Hengqin government. We set up the proposals, which were submitted to the evaluation committee, and so we passed for the first batch of 33 companies. I think that, in the end, only 17 companies have chosen to use the spot or the land location to build their projects. What about the other 16 companies? Will they have to submit projects for tender again? No, there is no need for tender, but they have to agree with the deal cost of the land. They are still negotiating it. From what I heard from the government, they have already
appreciated the cost of the land. What is the price for the whole development you are leading in Hengqin and does it include the land cost? The land was about MOP300 million and the price for the whole investment is RMB1.7 billion, including the land. There are bigger projects though. There is one initiated by Ng Lap Seng, and it is much bigger. They are collaborating with China Resources, listed in Hong Kong. What are the benefits for Macau SAR developers willing to invest in Hengqin? There is a business cost for the land price. For the Macau projects, every piece of land in China [Hengqin] is
granted through auction. One of the auction’s criteria is that for you to get the land to build on in China, you have to request an official introduction letter from IPIM [representing the local government], saying that the relevant project will be developed for a specific kind of activity. Once we get the letter, we show it to the land developers, and then we can bid. Other people who want to bid should also get this kind of letter and follow a similar procedure. That’s one of the criteria, in what relates to us, to make sure that that one piece of land is for the Sino-Portuguese trading. That’s why the cost of the land is lower than in a public auction. That’s one of the benefits given to the Macau community. Are there any other benefits for investors from the Macau SAR? At this moment, we have a joint meeting every month with all the 17 companies [granted rights to develop in Hengqin], together with the Hengqin government. It is what we call the government-enterprise face-to-face meeting. It is very good for us because, as for most of the 17 companies, it is the first time we have developed a real estate project in Hengqin or in China. Every month we meet and talk about other property details, such as the utilities, how to connect the buildings, about the location areas, and other settlements. IPIM also sends people to join the meeting, so if we have some kind of problem, they can represent the Macau government to have it resolved. It is very good, because if you just go there alone, sometimes you have to knock on the door of every department. What does your project for the SinoPortuguese Trade Centre consist of? The project developed by our company, San Pak Ka [Investment Company Limited], is a mixed-use project. We have about one-third for retail, onethird is a hotel, and one-third of the space is for office use. The area of our land plot is about 13,000 square metres. The whole building is about 160-metres in height and we have a total gross floor area of some 110,000 square metres for the whole building, including the basement, which is a three-floor basement. What will the office and retail space be dedicated to? For the retail space, we have already set up with a brand called Liberdade, based on the main street of Lisbon. We divided it into four sectors, which represent the four continents for the Portuguese-speaking countries: Europe, Latin America, Asia, and Africa. That’s the design concept we have for the moment. On the top of the retail space, we have an open section to give some Portuguesetrading companies the opportunity to show their products, such as wine, food, etc. It is just a showcase, a sort of showroom, for what we call online cross-border trading. You go there to visit, and choose the products online later, so that they can go directly to your home. Online merchandise showcasing is now very popular in China.
Frederick Ma Chi Ngai, Permanent President of the Macao Youth Association and Vice President of China Youth Entrepreneurs Association
Will products only be exhibited there, and not sold? Exhibited, but of course you can sell some, in small quantities. But most people just go there to actually see the product but will buy it online, because it is much cheaper. We can arrange for some tax-free scheme and direct transfer to [the client],
Business Daily Monday, July 31 2017 5
Macau
because they have a special tax for the online companies if the company is registered in Hengqin. Do you already have prospective clients for the office space? No, we are still working with a consultant, which is advising us. JLL [Jones Lang LaSalle], the international company, is the one working for us. For the office part, some of the office space will be sold out to cover the costs. But we have reserved at least two floors for the SinoPortuguese offices. At this moment, we have signed three agreements with three different associations from Macau. In the future, they will help us to find tenants. Those offices are only dedicated for China and Portuguese-speaking countries’ business services. So, we have signed an agreement with the Macanese Youth Association, one agreement with the International Lusophone Markets Business Association, and one with the Association for the Promotion of Economic, Commercial, and Cultural Exchange between China and the Portuguese-speaking countries. Will the floors dedicated to the Sino-Portuguese offices also cover or include products, or only business services? No, products will be available in the retail part. We don’t have the final design yet, but one of the top floors of the offices will be set up to be dedicated to the Sino-Portuguese business service centre. We have translators, we already have some agreements with lawyers. Maybe in the future they will implement Chinese and Portuguese law services there. There are not yet plans for banking services. As for the hotel part of the project, have you already signed an agreement with a company? Yes, we have signed an agreement with the company, but we cannot announce which brand it is yet. We have a non-disclosure agreement for the time being. I can only say it is a top international brand, which has business in Macau. Will it be easier for Macau residents to work there? If you work there and live there, you can get tax exemption, for instance. You first pay the China tax, which is about 25 per cent or more, and at the end of the year you get the rebate when you apply. But for that, I think that you have to stay over there for a certain period of time, maybe a year or so. But the problem is, if you travel back and forth on a daily
basis, I don’t think you are eligible [for such a scheme]. How are you raising the RMB1.7 billion to invest in the project and is it somehow connected to funding from the Belt and Road initiative? The investment is a cross-border loan from Bank of China, Macau branch. It has no connection to other funding. In the business service centre, in the future, we plan to set up a direct Internet cable from Hengqin to connect with Lisbon. We have a two-floor office in Lisbon, the Belt and Road business service centre, at Marques de Pombal, which was also established with only private funding. Now we are refurbishing it. In the future, this office in Hengqin will be connected digitally to Portugal. When the companies [in Hengqin] have some clients, we can invite them to the Belt and Road Office in Lisbon. So, they can talk directly there. Maybe in the future we will have to transit in Macau first, from Hengqin to Macau, and then we have a cable to Portugal. We are still thinking about how the infrastructure will be built. But our effort is to connect the offices. Considering that the Forum for Economic and Trade Co-operation between China and the Portuguesespeaking countries [Forum Macao] promotes similar activities, such as exhibiting products from such countries and selling them online, isn’t there somewhat of an overlap
between your project and the Forum? There is no connection with the government, only with the associations. We don’t have a direct relationship with the Forum Macau, but of course we hope in the future, not only through the associations, but also through the platform, to introduce our services. The big difference is that they are in Macau, and we are in China. Is the Sino-Portuguese Trade Centre going to be ready in 2019? I think it is beyond that, because it is a much bigger project than [we first planned], because of the 160-metre height and the three floor levels underground. So it might take as much as four years from now to get it built. The underground will be connected to the light railway in the future, from Guangzhou. Now, there is the one from Guangzhou to Gongbei, and in Gongbei they have an extension line to Hengqin. The end of the station just leads to our basement floor. Once people get off the light railway, they will already be connected to the building in the basement. So the place is perfect. Will the centre provide opportunities for small and medium-sized enterprises (SMEs)? It’s been mainly created for SMEs. We will offer them a bargain price [to rent out the facilities]. The office spaces we are going to provide are going to be a kind of open-office space, so the space for each company is not very big. We can decide on the rent;
maybe we can think about offering people to pay less in the first three years. Overall, what we are thinking about is to provide a big discount on the market price to benefit any SMEs, as long as they are doing Portuguese trade. It is one of the promises we made, and one of the benefits we give to the Macau community. Are the centre in Hengqin and the office in Lisbon operated by the same company, or do you have different companies to carry out these projects? The New Star [Company Limited] is the one that operates the Belt and Road Centre in Portugal. New Star is mainly for the Portugal side. We set up the company there a long time ago, more than ten years ago, as an investment company. San Pak Ka is also an old company. Both San Pak Ka and New Star are Special Purpose Vehicles (SPV). We do business by project. In Hengqin, we are investing under San Pak Ka. But in the future, if we have more real estate projects, we want to use the San Pak Ka brand name more. What projects do you currently have in Macau? There are currently none in Macau. We have finished most of the projects in Macau for the time being. The Green Island residential complex, which is a group of a few tall residential buildings in Green Island. Another one is the Bayview [residential complex]. So, recently, just these two [were completed].
6 Business Daily Monday, July 31 2017
Macau Opinion
Sheyla Zandonai*
Urban equipment Public transportation is a wonder of big cities. We live in an urbanized world in which people move often and increasingly more. Transport solutions should be constantly revisited and improved, for cities to continue to operate efficiently, if possible. If everybody going to work, school, shopping or out dining, only commuted using his or her own car or motorbike, congested urban centres would be much more of a hassle than they actually are. And Macau is already not far from that. We know that if all existing cars in the city were put on the streets at the same time, there wouldn’t be enough space for all of them to circulate. Efficient cities run multiple integrated transportation systems. Subways, buses, bicycles and shuttles are connected in a way that people can reach any destination without having to use a private car. This would imply some walking along the way, but then we all have to compromise a little for the sake of the public good. Mind you. But Macau is still in need of an efficient integrated transportation system, as well as good service provision. Overall, this would mean good equipment and welltrained staff. In particular, smart planning of routes and the ways different types of transport could be connected, would be helpful. Extremely helpful. Creating alternatives, for instance, by regulating other types of transport, such as electric bikes, wouldn’t hurt. But to tackle something that is concrete, consider the buses running here. Although there has been some improvement recently, the service continues to be poor. Maybe you are one of those lucky people that don’t have to take a bus to move around the city, and to deal with elated tourists and racing drivers every day. Lucky you. Bus drivers continue to be ruthless, departing brusquely, and breaking abruptly at every stop. I use a generalization to make a point. Of course, there are drivers who are professionals and well-trained. But they don’t seem to be that numerous. I am always stunned when I see a video that is broadcasted on TV sets on some of the lines running here, promoting the safe and courteous driving manners of Macau’s bus drivers, when the actual driver at the wheel is in sharp contrast to that image. Where did they pull that from? It is actually a wonder that accidents do not happen more often. In any case, it is still a pain. * Journalist.
Macao Franchise Expo 2017
The Franchise Factor With Big Data the main theme of this past weekend’s Macao Franchise Expo 2017, several representatives from franchise associations told Business Daily the event seems to be more “professional” and continues to be a strong opportunity for franchise promotion Nelson Moura nelson.moura@macaubusinessdaily.com
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he Macao Franchise Expo 2017, held from July 28 to 30, has greatly expanded since its first edition in 2009, stated the President of the Macau Trade and Investment Promotion Institute (IPIM), Jackson Chang. “This year the exhibition area was increased to 6,000 square metres, three times the size of the first edition. Around 800 business matching sessions were held in 2009, while last year there were 1,400,” Mr. Chang added. In total, 155 enterprises were spread across 200 exhibition booths, from 15 different countries and regions representing businesses from the retail, education, leisure, entertainment, consultancy and branding sectors at the event. According to the IPIM head, a total of 144 agreements were signed in all previous eight editions of the MFE, with 80 per cent coming to fruition. This year’s edition saw Big Data and its potential uses for franchises as the main theme. “We invited experts from mainland China, Japan, Singapore, Hong Kong and the MSAR to share with visitors the latest trends on Big Data development and possible changes it can create on how companies explore their businesses, especially opportunities for franchise businesses,” added the IPIM head.
Promoting local
As one of the main partners of the MFE, the Macau Chain Stores and Franchise Association joined to fulfil four main purposes: exhibition, key speeches, business matching and promotion, according to the association General Director, Shirley Wu. According to Ms. Wu, the Macau Chain Stores and Franchise Association saw 20 members take part in the expo, mainly from the food and beverage sector, with some retail businesses as well. “We have businessmen from all over the world looking for business matching. We want the MFE to be a platform for businesses to establish partnerships worldwide, especially Macau businesses,” she added. In order to better promote the best-performing local franchises, the association also hosted the 2017 Macau Excellent Franchisee & Chain Store Award Ceremony. In regards to the current situation for franchise businesses in the MSAR, Ms. Wu told Business Daily that the two main problems are those “common problems for the Macau society”, namely high commercial rent prices and a lack of human resources.
Franchise matchmaker
Having initially come two years ago as a visitor, the CEO for Southeast Asia of global franchise service World Franchise Associates, Troy Franklin, joined in order to increase exposure for the group’s clients. “We’re a company registered in the UK that specialises in helping the brands we represent in finding investors. We’re like a matchmaker. We promote our clients, find them investors, help them meet and know each other, and hopefully have marriages and a long-term relationships,” he told Business Daily. With over 200 international
franchise brands as clients and a database of over 20,000 registered companies and individuals, the company is one of the world’s largest franchise advisory marketing companies in the world. Although choosing only to bring three companies it represents to the MFE - from mainland China, Hong Kong and Finland - Mr. Franklin said the whole portfolio was represented indirectly at the expo. “The MFE is a good opportunity for the companies to present themselves to the visitors and learn more about the Macau and the greater China market. Macau is a dynamic thriving metropolis getting more and more international attention,” he added. The World Franchise Associates CEO said his company would “love” to represent Macau companies, and that despite the city having challenges, such as a reduced market with lower commercial opportunities, having a strong partner here could allow partnerships with other companies for expansion in to Northern and Eastern China. With 30 years experience in Southeast Asia, Mr. Franklin has seen the region’s economies develop constantly, with ups and downs, as populations become more wealthy, younger, more educated and moving to larger urban centres, he pointed out. “What I see emerging in China nowadays are service franchises. Before it was mainly food: starting with KFC, McDonalds or Starbucks. Husbands and wives are now both working, they don’t have time to do things the older generation did, they need services to make their life easier in terms of saving time,” Mr. Franklin said.
Shirley Wu
Troy Franklin
Portuguese-speaking franchising
With three exhibitors from Brazil, six from Mozambique and five from Portugal, the MFE also aimed to promote franchises from Portuguese-speaking countries via Macau. “This year, we looked to bring companies that actually could have the capacity to reach the Asian market, companies already with an international presence,” the International Brazilian Franchising Association (ABF), Bruno Amado, told Business Daily. Despite Brazil being the largest Lusophone trading partner with mainland China, Mr. Amado thinks Brazilian companies still don’t make the most of the business opportunities in the Chinese market. “We’re the largest partner because we import a lot from China, but we export mainly commodities. We need to diversify our partnership, however Brazilian companies are still very afraid of the Asian market, due to the cultural differences and distance. I took 40 hours to get here,” he added. That gap, he believes, could be filled through Macau, with its strategic positioning and language capacities, not just for Lusophone countries, but South American countries in general. As for Portugal - the third largest Lusophone trading partner of mainland China – it had a business presence not just at the MFE, but also at the Guangdong & Macao Branded Products Fair 2017, held at the same time. “It’s important to mark our position in the region […] We brought two companies related to fitness, one company with a new concept for re-selling used electronic material […] and of course, wines, since it’s what’s Portugal is more famous for,” the General Director of the Portuguese Franchising Association (APF), Cristina Matos, told Business Daily. Having taken part in last year’s edition, the Portuguese representative believes this year seems “better and more evolved”, with more booths, better presentation and “looking more professional”.
Business Daily Monday, July 31 2017 7
Macau Gaming markets
Rosy skies Melco Resorts & Entertainment Limited delivers strong results in the second quarter Sheyla Zandonai sheyla.zandonai@macaubusiness.com
I
mproved group-wide rolling chip revenues pushed net revenues of Melco Resorts & Entertainment Limited up 21 per cent year-on-year during the second quarter, according to a company release. Net revenues of the company rose 17.54 per cent during the quarter to US$1.29 billion (MOP10.44 billion) up from US$1.07 billion registered in the same period in 2016. Net income attributable to the company was US$36.47 million. Operating income rose 76 per cent in the three months from April to June 2017, reaching US$127.4 million. The adjusted property
EBITDA (earnings before interest, taxes, depreciation and amortization) reached US$329.5 million, an increase of 34 per cent. The Nasdaq-listed company also announced net loss attributable to non-controlling interests worth US$8 million during the second quarter of the current year, mainly related to performance in Studio City and City of Dreams Manila. In a conference call published at Seeking Alpha, Melco Resorts’ chairman and CEO, Lawrence Ho, said the company has “experienced some meaningful hold great issues in premium asset City of Dreams Macau during the quarter. However, our mass drop expanded sequentially
in the second quarter of 2017 despite the quarter’s typical week seasonality”. Total cash and bank balances amounted to US$1.5 billion as at quarter-end, while total debt reached US$3.7 billion. Capital expenditure in the quarter was US$121.3 million, mostly related to various projects at City of Dreams, including the Morpheus hotel, noted the group.
Property breakdown
Net revenue at City of
Dreams Macau for the quarter ended June 30, 2017 totalled US$644.6 million, posting a slight year-onyear increase. Rolling chip volume totalled US$12.2 billion during the period, against US$9.9 billion a year earlier. City of Dreams Macau, which Lawrence Ho referred to in the call as the “leading premium focus integrated resort,” is currently undergoing a phase of development (Phase 3), with opening expected to
take place in less than 12 months. Melco Resort’s chairman and CEO also said that Studio City has delivered “a strong quarter of results (…) despite the ongoing construction issues that are evident at the Lotus Bridge immigration border.” The property’s net revenue rose nearly 44.6 per cent to US$332.1 million, up from US$183.8 million in the second quarter of 2016, with rolling chip volume totalling US$4.7 billion.
Results
How casino mogul Steve Wynn lost US$10 million on Baccarat
and with baccarat the swings can be extreme. The game attracts the biggest bettors in the world and offers among the best odds for players, with the house advantage averaging 1.2 per cent. That means a player can expect to lose US$1.20 for every US$100 bet over time. In slot machines it’s as much as US$12. Given the high volume of players and betting, being unprofitable for a whole month is unusual, said Robert Hannum, a professor of risk and gaming at the University of Denver. “The odds are astronomically high,”
he said in an e-mail. “Of course, black swans do occur and some might say that anything can happen in the casino business.” The Wynn Palace, which opened in August of last year, has disappointed in other ways. Construction on all sides of the new property has hampered access, Wynn said. The shortfall there contributed to a second-quarter earnings miss at Wynn Resorts. The volatility of the business has prompted some casino operators to report their results on a hold-adjusted basis, meaning they also tell investors what revenue would have been had winnings been more in line with historical norms. In January, Las Vegas Sands Corp. blamed one lucky gambler for contributing in part to a US$15 million to US$20 million shortfall at its new Parisian resort in Macau. On Wednesday, the company said the volatile high-end baccarat play contributed to a US$100 million revenue bump at its Marina Bay Sands in Singapore. “Let’s be clear, we had a lot of luck this quarter,” President Rob Goldstein said on an earnings call. “I think it bears repeating that this is a highly concentrated segment that a couple of dozen players can make a difference in a quarter.” Bloomberg
that its arrival to Cotai ‘will give the company a major competitive advantage in the mass segment once the property ramps up’, watching out for the company’s peninsula property to potentially ‘face pressure and share loss’ prior to the opening and ramp up. Mass during the quarter accounted
for 52 per cent of total gross gaming revenue, flat from the same quarter last year and a 3 per cent downtick from the first quarter. The analysts note that the operator’s hotel occupancy grew to 96.5 per cent during the quarter, up both quarterly and yearly.
The loss occurred at baccarat tables at the Wynn Palace Christopher Palmeri and Daniela Wei
In the casino business, it’s a cliché that the house always wins. But at Wynn Resorts Ltd. last quarter, the tables turned. On Tuesday, casino billionaire Steve Wynn revealed that a junket operator in his Macau casinos -- essentially a subcontractor -- brought in clients whose winnings cost the casino more than US$10 million in April, an astonishing swing for a business that can generate profit of as much as US$50 million. “We had probably the most unique statistical anomaly in my 50 years of doing this,” the founder and chief executive officer of Wynn Resorts told analysts on a conference call. “And that is with enormous volume, one of our leading outlets lost money for the entire month.” The contractor was Suncity Group, one of Macau’s largest junket operators, according to people familiar with the matter. Contacted by Bloomberg, Suncity said it didn’t have any information to disclose about the matter.
Photo by: Barbara Kraft
The loss occurred at baccarat tables at the Wynn Palace, the new US$4.2 billion resort on Macau’s Cotai Strip. In a system prevalent in that market, junket operators bring high rollers to the casinos, front them cash and set them up in private rooms. The casinos pay the operators a commission based on the amount their clients bet, and are on the hook for the gamblers’ winnings. “The bottom fell out and all of the players won millions of dollars,” said the 75-year-old casino mogul. Gambling is a matter of probabilities,
Results
Waiting on Cotai MGM China Q2 results ‘disappointing’: Bernstein Analysts at Bernstein called the second quarter ‘disappointing’ for local operator MGM China, with ‘share loss in both VIP and mass and increased costs’. Net revenue reached HK$3.49 billion for the quarter, which was flat yearon-year, and a 10 per cent drop quarter-to-quarter, the analysts note. Mass gross gaming revenue for table and slots fell 14 per cent quarter-to-quarter and 1 per cent year-on-year, reaching HK$2.14 billion. Gross gaming revenue came in at HK4.1 billion, note the analysts. ‘VIP gross gaming revenue showed weakness at MGM Macau on lower
hold rate (through rolling chip was up 3 per cent year-on-year and 9 per cent quarter-to-quarter),’ note the analysts. VIP gross gaming revenue was HK$1.96 billion, down 2 per cent year-on-year and 5 per cent quarter-to-quarter. Bernstein analysts ‘remain concerned about the company’s ability to fully defend its position […] until the opening of MGM Cotai in the fourth quarter,’ pointing out information that places the opening in ‘late October or November,’ depending partly on government approvals. Despite the slight reduction in the second quarter, the analysts note
8 Business Daily Monday, July 31 2017
Greater China Labour
Urban unemployment rate keeps performance Premier Li Keqiang said China added 13.14 million urban jobs in 2016 and aims to add another 11 million this year
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hina’s registered urban unemployment rate stayed below 4 per cent for the second consecutive quarter as the world’s No. 2 economy maintained a robust growth trajectory in 2017’s first half. China’s urban registered unemployment rate was 3.95 per cent at end-June, compared with 3.97 per cent at end-March and 4.05 per cent a year earlier, the Ministry of Human Resources and Social Security said on Friday. On an annual basis, the official unemployment rate was last below 4 per cent in 2001, when it was 3.6 per cent. The rate ended last year at 4.02 per cent after not budging from 4.1 per cent from 2010 through 2015.
Key Points Urban jobless rate 3.95 pct endJune vs 3.97 pct end-March 7.35 million new jobs created in January-June Ministry: Structural problems in labour market remain Labour market likely to deteriorate in next year economist The registered urban jobless rate excludes China’s 280 million migrant workers. Julian Evans-Pritchard, China economist at Capital Economics, said the registered urban jobless rate “does
not capture migrant unemployment and tends to be too stable to tell us much about economic conditions”. “But other data such as jobs-to-vacancies ratios and income growth suggest the labour market has been strong lately,” he said. The economy expanded a faster-than-expected 6.9 per cent in the second quarter on the back of firmer exports and manufacturing, setting China on course to meet the government’s 2017 growth target. But analysts broadly expect economic growth to slow in the second half of 2017 as China’s red-hot property sector cools and borrowing costs for firms climb. Short-term borrowing costs have
risen after regulators launched a crackdown on riskier types of financing. “The labour market will likely deteriorate in the coming year as the economy slows with the withdrawal of policy stimulus,” Evans-Pritchard said.
Structural problems
In March, Premier Li Keqiang said China added 13.14 million urban jobs in 2016 and aims to add another 11 million this year while keeping the registered unemployment rate below 4.5 per cent. The ministry said on Friday that 7.35 million new jobs were created in the first six months of 2017.
However, China still faces structural problems in the labour market, ministry spokesman Lu Aihong told a media briefing in Beijing, adding that there is demand for about 15 million new urban jobs each year. China’s cabinet said in April that risks of mass unemployment in some regions and sectors have increased. The government plans to further cut excess and inefficient capacity in its mining sector and “smokestack” industries this year as part of efforts to upgrade its economy and reduce pollution. Resettlement of workers who lose jobs in the coal and steel sectors has been stable and orderly, the ministry said. Reuters
Forex
Beijing says will persist with crackdown on irregularities Non-financial outbound direct investment (ODI) nearly halved in the first half of 2017 China will maintain a crack down on foreign exchange irregularities to ensure stability in the currency market and the broader economy, the country’s forex regulator said on Friday, in a sign Beijing will continue to keep a tight leash on capital outflows. Authorities will “severely crack down on underground banks and other foreign exchange violations
to prevent and resolve risks from cross-border capital flows”, the State Administration of Foreign Exchange (SAFE) said, after an internal meeting. The move will keep foreign exchange market stable and ensure the national financial stability and economic safety, it said. Over the past few months Chinese authorities have tightened controls
on capital outflows in a bid to support the yuan and protect the country’s foreign exchange reserves. And there is little sign Beijing will relax the restrictions despite the yuan’s recent rebound. Policy stimulus has stabilised the economy, but leverage and financial risks have raised concerns about the outlook, and analysts say the authorities will be keen to avoid instability ahead of a key leadership transition in the autumn. China’s non-financial outbound direct investment (ODI) nearly halved
in the first half of 2017 as curbs over capital outflows took effect, commerce ministry’s data showed. The yuan has gained 3 per cent against a broadly weaker dollar, following a 6.5 per cent drop in 2016 the biggest decline since 1994. The SAFE reiterated that it will actively back legitimate overseas investments by domestic firms and support the country’s “Belt and Road” initiative - a programme to bolster China’s global leadership ambitions by building infrastructure and trade links between Asia, Africa, Europe and beyond.
Key Points Regulator: will crack down on underground banks, fx violations Reiterates support for real, legitimate outbound investment It also pledged to pursue the opening of China’s financial markets and capital account in a steady and orderly fashion, and create a more transparent business environment for foreign firms. China will also safeguard and increase the value of the country’s forex reserves in the second half of this year, the SAFE said. Reuters
Business Daily Monday, July 31 2017 9
Greater China GDP
In Brief
Taiwan posts solid Q2 growth ahead of tech peak season Statistics agency officials told a news conference that domestic demand picked up in the second quarter Jeanny Kao and Jess Macy Yu
Taiwan recorded solid economic growth in the second quarter, with global demand for its key tech exports expected to help the economy sustain momentum in the second half of the year. The island’s tech manufacturers have rushed to meet orders for smartphones and other new gadgets in the April to June quarter, with exports and export orders performing better than forecast and adding to signs of continuing economic strength. Gross domestic product (GDP) rose 2.10 per cent in the April-June period
from a year earlier, data showed on Friday, matching economists’ median forecast in a Reuters poll, but the pace slowed from 2.6 per cent growth in the previous quarter. On a seasonally adjusted and annualised basis, the economy grew 0.59 per cent in the second quarter, slowing from 3.82 per cent in the first quarter. Some analysts, however, warned that recently strong export and order figures may look more positive than the underlying situation. “Headline numbers of exports and export orders are in USD terms. And the Taiwan dollar appreciated a lot
The island’s tech manufacturers have rushed to meet orders for smartphones and other new gadgets in the April to June quarter
this year. If we exclude exchange rate effects, growth of exports and orders is less impressive in the second quarter,” Claire Huang, a Greater China economist at Societe Generale, said ahead of the data. Uneven growth in industrial production, which appears to be lagging the recovery in exports, could be due to inventory destocking, analysts said. “It seems that the non-electronics manufacturers have postponed their production plans in the second quarter, as confidence was weighed down by the correction in the global commodities market,” Ma Tieying, an economist at DBS Bank, said.
Momentum but risks ahead
Statistics agency officials told a news conference that domestic demand picked up in the second quarter, as seen in the growth of the food and beverage industry. Capital expenditure slowed but semiconductor companies did not reduce their investments. Analyst said that while leading indicators point to sustained momentum heading into the traditionally stronger year-end festive season, global trade protectionism and China’s economy could affect Taiwan’s prospects. “In the second half of the year we will need to observe U.S. President Donald Trump’s policy implementation as well as the impact of China’s economic changes on its growth,” said Carl Liu, an analyst at KGI Investment Advisory. Liu and other analysts, however, expect full-year 2017 growth to come in around the government’s estimate of 2.05 per cent, a three-year high, underpinned by solid exports. Strong exports and subdued inflation have given the central bank room to keep interest rates unchanged, though it has said it is keeping an eye on U.S. policy and the Federal Reserve’s tightening cycle. Reuters
Internet
China users with billing addresses in other countries will still be able to access VPN apps from other branches of the App Store
Apple Inc says it is removing virtual private network (VPN) services from its app store in China, drawing criticism from VPN service providers, who accuse the U.S. tech giant of bowing to pressure from Beijing cyber regulators. VPNs allow users to bypass China’s so-called “Great Firewall” aimed at restricting access to overseas sites. In January, Beijing passed laws seeking to ban all VPNs that are not approved by state regulators. Approved VPNs must use state network infrastructure. In a statement yesterday, an Apple spokeswoman confirmed it will remove apps that don’t comply with the law from its China App Store, including services based outside the country. Beijing has shut down dozens of China-based providers and it has been targeting overseas services as it bids to tighten its control over the internet, especially ahead of the Communist Party congress in August. While personal VPN providers have been the subject of state-led attacks in the past, this marks the first time Apple has complied with requests to scrub overseas providers from its store, a move that VPN providers say is unnecessarily supportive of China’s heightened censorship regime. VPN provider ExpressVPN said on Saturday that it had received a notice
Government shuts 42.4 mln T of steel capacity China shut 42.39 million tonnes of crude steel capacity in the first half of 2017, equal to 84 per cent of its target for the whole year, a government official said at a meeting of the country’s steel industry body on Friday. The country has essentially completed its five-year target, set last year, to cut between 100 million and 150 million tonnes of excess steel capacity within less than two years, said Xia Nong, an inspector with the National Development and Reform Commission, at the China Iron and Steel Association’s annual meeting. Energy
Mainland produces gas from “flammable ice” China has successfully produced natural gas from methane hydrate, also known as “flammable ice”, in an experimental project in the South China Sea, the land and resources ministry said on Saturday. A drilling platform deployed off the coast of the south-eastern Chinese city of Zhuhai for 60 days produced a total of 309,000 cubic metres of natural gas, a record extraction volume from gas hydrate, the Ministry of Land and Resources said in a notice on its website. “After nearly 20 years of unremitting efforts, China has achieved theoretical, technological, engineering and equipment innovations and has made a historical breakthrough,” the ministry said. Shopping
Apple says it is removing VPN services from Mainland App Store
Cate Cadell
Commodities
from Apple that its software would be removed from the China App Store “because it includes content that is illegal in China”. “We’re disappointed in this development, as it represents the most drastic measure the Chinese government has taken to block the use of VPNs to date, and we are troubled to see Apple aiding China’s censorship efforts,” ExpressVPN said in a statement. Other major providers, including VyprVPN and StarVPN, confirmed they also received the notice on Saturday from Apple. “We view access to Internet in China as a human rights issue and I would expect Apple to value human rights over profit,” Sunday Yokubaitis, president of Golden Frog, which oversees VyprVPN told Reuters
yesterday. Yokubaitis said Golden Frog will file an appeal to Apple over the ban. China users with billing addresses in other countries will still be able to access VPN apps from other branches of the App Store. A number of VPN apps were still accessible on the China App store on Saturday. Apple is in the middle of a localisation drive in China, and named a new managing director for the region - a new role - this month. It is also establishing a data centre with a local partner in the south-western province of Guizhou to comply with new Chinese cloud storage regulations. VPN providers say that while the apps are not available on the store, users are still able to manually install them using VPN support built into Apple’s operating system. “We are extremely disappointed that Apple has bowed to pressure,” said Yokubaitis. “(It’s been a) disappointing morning but we will fight on.” Reuters
Mall offers “man pod” havens for husbands At a Shanghai mall, rows of “man pods” equipped with video games are proving a big hit, providing a refuge for hundreds of weary husbands and boyfriends as their other halves shop until they drop. The first pods were launched at the Global Harbor shopping mall in Shanghai in June, and since then over 1,000 men have used the facilities, according to Ruwo Smart Technology, the company behind the scheme. “Man pod” users can recline in a chair with a large screen and play video games while enclosed behind clear glass walls that shut out the bustle of other shoppers. Results
Shenhua expects big jump in first-half profit China’s biggest coal producer China Shenhua Energy Co Ltd said on Friday it expected its first-half net profit to jump by almost 150 per cent. In profit alerts filed with the Shanghai and Hong Kong stock exchanges, Shenhua said earnings had been boosted by the satisfactory outcome of supply-side reforms in China’s coal sector which had boosted the market price of coal significantly. In its Shanghai filing, the company said net profit in the first six months of 2017 was expected to be RMB24.3 billion (US$3.6 billion), a rise of about 147 per cent from a year earlier.
10 Business Daily Monday, July 31 2017
Greater China Financing
Beijing vows to curb rise in local debt via ‘disguised channels’ Overall government debt was equivalent to 36.7 per cent of gross domestic product in 2016
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hina will resolutely curb the rise in hidden local government debt via “disguised channels”, although risks posed by the overall government debt load are generally under control, finance ministry officials said on Friday. In recent years, the government has tightened controls on new local government debt to help ward off risks following a borrowing binge since the global financial crisis.
Key Points China to prevent ‘disguised’ local financing via LGFVs -official Will prevent local govts from using PPP as debt raising channel China’s govt debt risks generally under control -vice minister Local governments will be prevented from obtaining “disguised financing” via local government financing vehicles (LGFVs), Wang Kebing, deputy director general of the ministry’s budget department, told a news conference. Authorities will also prevent local governments from using the
public-private partnership (PPP), government investment funds and government procurement services as “disguised channels” for raising debt, Wang said. Local governments can only issue bonds within the annual quota set by the parliament, although their “reasonable” financing demand will be met, Wang added. LGFVs will be transformed into state-owned companies responsible for their own profits and losses, Wang said, reaffirming a ban on local governments providing guarantees for debt issued by such vehicles. Authorities must strictly regulate local government debt-raising
activities and halt illegal debt guarantees, the cabinet said after a regular meeting. Resolving local debt risks was important to ensure China’s economic and fiscal sustainability and financial safety, the cabinet said. Chinese vice finance minister Liu Wei told the same news conference that risks posed by local and central government debt combined were generally under control. Overall government debt was equivalent to 36.7 per cent of gross domestic product in 2016, which was lower than that of major economies and most emerging market economies, he said.
In May, Moody’s Investors Service downgraded China’s credit ratings for the first time in nearly 30 years, saying it expected the financial strength of the economy to erode in coming years as growth slows and debt continues to rise. 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). China’s tax cuts and reduction in various fees would lower the burden for companies by more than RMB1 trillion. Reuters
Infrastructure
Sri Lanka completes controversial port deal with Mainland The Chinese firm will invest another US$600 million to develop the port Amal Jayasinghe
Sri Lanka on Saturday sealed a billion-dollar deal to let a Chinese state firm take over a loss-making port in a move that worries many, including its giant neighbour India. The long-delayed US$1.1 billion sale of a 70 per cent stake in Hambantota port, which straddles the world’s busiest east-west shipping route, was confirmed by Sri Lanka’s Ports Minister Mahinda Samarasinghe. The government used tough laws against industrial action to stop workers going on strike this week to oppose the sale to China Merchants Port Holdings. India is nervous about China’s infrastructure moves into its traditional sphere of influence. “We have addressed geo-political concerns,” the minister said at a signing ceremony in Colombo. “China has accepted that everything in this agreement will operate under Sri Lankan law.” Negotiations over the deal were held up for months amid opposition from trade unions and political parties. The minister said this week that several countries had raised fears about the sale. India and the United States are known to be concerned that China getting a foothold at the deep-sea port could give it a military naval advantage in the Indian Ocean. Samarasinghe said that Hambantota, 240 kilometres south of Colombo, will not be a military base for any country. China Merchants built and operates Sri Lanka’s only major deepsea terminal in Colombo, which can
accommodate the world’s largest container carriers.
Strategic partner
Executive vice president Hu Jianhua said the company wanted to make Hambantota the gateway to expanding economies in South Asia and Africa where it has similar port operations. “(The) business of Hambantota port will be cross border, across the Indian ocean, stretching to the Far East, to Europe and to the globe,” Hu said. “Sri Lanka will be well positioned to play a strategic role in the one–beltone-road initiative of the government
of the People’s Republic of China,” Hu said. Sri Lanka has signed up to President Xi Jinping’s signature foreign policy initiative, which aims to strengthen China’s land and sea trade routes. India has snubbed Xi’s plan and skipped a May summit in Beijing that was attended by world leaders. Samarasinghe said Hambantota will be purely a commercial port, but any routine port calls by foreign navies will be regulated by Sri Lanka as in the case with the Colombo port. Two Chinese submarines called at Colombo in 2014 during the final year of former president Mahinda Rajapakse’s tenure, angering New Delhi. The new government of President
Maithripala Sirisena turned down a Chinese request in May for another submarine call at Colombo shortly after Indian Prime Minister Narendra Modi visited the island. Sirisena came to power in January 2015 promising to loosen ties with China after a decade of hefty funding by Beijing under his predecessor. He suspended all big ticket Chinese funded projects amid allegations of corruption. These have resumed after modifications to the contracts with the previous government.
“Sri Lanka will be well positioned to play a strategic role in the one– belt-one-road initiative of the government of the People’s Republic of China” Hu Jianhua, executive vice president at China Merchants
Sri Lanka’s President Maithripala Sirisena
Apart from the US$1.12 billion sale price, the Chinese firm will invest another US$600 million to develop Hambantota, Samarasinghe said. The port has racked up losses of US$300 million in the last six years, according to official figures. In addition, the government pays more than US$60 million annually to service the port’s debt. AFP
Business Daily Monday, July 31 2017 11
Asia Consumption
Japan household spending jumps but weak inflation weighs on central bank Firmer consumption data suggests the tightening job market is gradually helping to raise wages and household incomes Tetsushi Kajimoto and Stanley White
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apanese household spending hit its highest for two years in June as unemployment fell and job availability reached a 43-year peak, official figures showed, but inflation gave little sign of getting much closer to the Bank of Japan’s price target. Indicating that the tightening labour market has yet to fuel inflation, core consumer price gains held steady in June, government data showed on Friday, undermining the BOJ’s arguments that tightness in labour markets will force companies to raise wages and prices soon. The data also reinforced convictions that the Bank of Japan (BOJ) will lag behind other major central banks in pulling back its massive stimulus. A summary of opinions from the BOJ’s July 19-20 meeting, also published on Friday, stated it saw the main reason inflation had been slow to pick up was low commodity prices and weak consumer spending - a factor Friday’s data suggests may be changing. At that meeting, the central bank left monetary policy steady but once again delayed the timing for hitting its price goal, as stagnant wages and disappointing private consumption have hindered hoped-for price gains since it launched a massive stimulus
drive in 2013. Given Friday’s data, optimism on consumption and consumer prices could start to spread, but many economists would argue that the BOJ’s revised timing of around fiscal 2019 for meeting its 2 per cent inflation target remains unrealistic. “The key point is that inflation is set to remain well below the Bank of Japan’s lofty forecasts even after it lowered them in its latest outlook report,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a report. “Policy tightening remains a long way off.”
Steady growth, weak inflation
Japan’s economy expanded at an annualised 1.0 per cent at the start of this year, posting a fifth straight quarter of growth on robust exports and a pick-up in private consumption. News that household spending rose annual 2.3 per cent in the year to June was an encouraging sign for private consumption, which comprises some 60 per cent of the economy. It handily beat economists’ median forecast for a 0.6 per cent gain, posting the first annual increase in 16 months and the biggest year-onyear gain since August 2015. Retail sales also grew 2.1 per cent in the year to June, separate data showed.
Firmer consumption data suggests the tightening job market is gradually helping to raise wages and household incomes, which in turn would stimulate consumer spending. The jobless rate fell to 2.8 per cent in June, and job availability rose to very tight 1.51 jobs available per applicant, up for the fourth straight month and the highest reading since February 1974. Still, Japan’s consumer price growth remains stubbornly weak because of companies’ wariness about raising prices for fear of losing cost-sensitive customers, accentuating the challenge facing the BOJ in accelerating inflation towards its 2 per cent target. “Strengthening of both external and domestic demand helps tighten the labour market, which will push up wages and prices,” said Takeshi
Minami, chief economist at Norinchukin Research Institute. “I think wages and prices are set to rise when companies’ efforts to streamline operations run their course, and it could be possible that the 2 per cent inflation can be met around 2020.” Domestic demand holds the key to sustained expansion as net exports - or exports minus imports - likely trimmed gross domestic product growth in the April-June period, analysts say. “The economy likely grew at an annualised rate above 2 per cent in the April-June quarter backed by domestic demand - private consumption, capex, inventory and public investment - even though net exports probably shaved off growth somewhat,” Minami said. Reuters
Monetary policy
Low inflation to encourage India to cut rates this week Inflation eased to its slowest pace in more than five years in June Vivek Mishra and Anu Bararia
The Reserve Bank of India is expected to cut interest rates when it meets on Aug. 2, responding to an inflation rate running well below target, but an improving economy is likely to keep it on the sidelines for a long time thereafter, a Reuters poll showed. A significant moderation in retail inflation over the past three months has reinforced calls for further monetary policy easing from the central bank, which changed its stance to neutral from accommodative at the start of the year. Weak consumer spending following the government’s ban on high-value currency notes late last year as well as lower food prices have kept inflation below the RBI’s 4 per cent mid-term target for the past eight months. “The recent sharp decline in inflation has clearly caught the RBI by surprise. Clearly, the stage is set for another rate cut,” wrote Kunal Kumar Kundu of Societe Generale. Forty of 56 economists polled July
24-27 predicted the RBI cutting its repo rate by a quarter percentage point to 6.00 per cent on Wednesday. Two respondents said the central bank would cut the rate by 50 basis points. Only 14 respondents predicted no change. The RBI is also expected to trim the reverse repo rate by an equal measure to 5.75 per cent. The central bank last cut its key interest rate in October 2016.
“The recent sharp decline in inflation has clearly caught the RBI by surprise. Clearly, the stage is set for another rate cut” Kunal Kumar Kundu of Societe Generale After the expected reduction on Aug. 2, however, the RBI is forecast to stand pat on policy at least until 2019 because economic growth is set to accelerate. Indian stocks are
trading at a record high, partly in anticipation of that. A separate Reuters poll taken last week showed the Indian economy will expand 7.3 per cent this fiscal year, reclaiming its position as the fastest growing major global economy, partly propelled by benefits from a new tax system. A few also said the new goods and services tax - which replaces multiple taxes levied by central and state governments in order to facilitate collection and ease of doing business - might lead to an increase in
services prices. That could push up core inflation, which has remained above 4 per cent for years, and has been a key concern for the RBI. “This could be the final rate cut in the current fiscal (year) as inflation seems to bottom out ... the inflation trajectory may witness (an) upward trend from July 2017,” said Himanshu Varshney, research analyst at AK Capital. Inflation is forecast to rise to 4.7 per cent next year, according to the latest Reuters poll. Reuters
12 Business Daily Monday, July 31 2017
Macau ASIA OFFICIAL DATA
South Korea’s industrial output limps in June Service sector gains momentum
S
OUTH Korea’s industrial production declined unexpectedly in June even as exports soared, but manufacturers saw a rebound in domestic demand suggesting growth could be driven by private consumption rather than exports in the second half of the year. Industrial output fell 0.2 per cent in June from May in seasonally adjusted terms, data from Statistics Korea showed on Friday, missing the 1.0 per cent rise expected by economists in a Reuters survey.
Key Points
past year, declined 3.9 per cent in June on-month, while production of petrochemical products also declined 7.4 per cent. “It seems output of semiconductors slipped on base effect, following a boom in memory chip production,” Lee said. A sub-gauge measuring overall inventory levels among manufacturers declined 2.1 per cent in June after gaining 1.2 per cent in May, suggesting expectations of waning demand ahead. But service sector output gained 0.5 per cent and retail sales gained 1.1 per cent on-month, considerably brightening the outlook for domestic demand. Rebounding retail sales overlap nicely with President Moon Jae-in’s
five-year policy plans announced earlier in July, in which he pledged to add jobs and raise welfare spending so that more corporate income flows back into households. Exports have been posting a double-digit growth for six months in a row through June this year while private consumption took its time to recover from months of downturn amid political uncertainty. South Korea’s consumer sentiment improved for a sixth straight month in July and reached a six and a half-year high, while sentiment among manufacturers held steady for August. “There are more upside factors to growth outlook, and growth will continue to be solid in the months ahead. Recovering exports and improving
consumer sentiment, along with the prominent IT sector and upbeat stock markets, are also lifting growth,” a Statistics Korea official after the data was released. On Thursday, the central bank said economic expansion almost halved in the second quarter as export growth in volume terms shrank while building activity slowed. Gross domestic product grew a seasonally adjusted 0.6 per cent in the second quarter, slowing from 1.1 per cent growth in the first quarter. The finance ministry upgraded this year’s growth outlook on July 25 to 3 per cent for this year, the highest in three years, as it counts on an 11 trillion won supplementary budget to sustain growth momentum in the second half. REUTERS
June factory output -0.2 pct m/m s/adj (Reuters poll +1.0 pct) June factory output -0.3 pct y/y (Reuters poll +0.9 pct) Service sector output +0.5 pct m/m Output of memory chips -3.9 pct m/m, petrochemical goods -7.4 pct m/m
“The overall manufacturing sector remains weak. Exports by manufacturers seem weaker than the overall shipments growth announced by the customs agency, meaning the actual volume growth of exports could be smaller than shipments announced in value terms,” said Lee Sang-jae, an economist at Eugene Investment & Securities. Output of semiconductors, which saw soaring overseas demand in the
Rebounding retail sales overlap nicely with President Moon Jae-in’s five-year policy plans announced earlier in July
TRADE
U.S. secretary says Japan beef tariff hike threatens relations Among the countries not affected by the tariff increase are Australia and Mexico Theopolis Waters
Japan’s decision to hike tariffs on frozen beef imports from the United States could disrupt sales and harm trade relations between the two countries, U.S. Agriculture Secretary Sonny Perdue said on Friday. Japan will raise tariffs from August on imports of frozen beef, popular in beef bowl dishes, from the United States and some other countries to 50 per cent from 38.5 per cent, until next March, the Ministry of Finance said on Friday. “I am concerned that an increase in Japan’s tariff on frozen beef imports will impede U.S. beef sales and is likely to increase the United States’ overall trade deficit with Japan,” Perdue said in a statement. The tariff hike is a “safeguard” mechanism to protect domestic farmers, Japan’s ministry said. It is the first time it has been used since 2003. Japan is the top destination for U.S. chilled and frozen beef, with
trade valued at US$581 million this year through May. Exports of chilled beef from the United States to Japan totalled 57,970 tonnes during that period and frozen beef exports were 44,760 tonnes - valued at US$414.4 million and US$166.7 million, respectively, according to U.S. Meat Export Federation data. Tyson Foods Inc, the largest meat processor in the United States, said on Friday it supported U.S. government efforts to address the issue with Japan. The tariff hike comes as the U.S. beef industry is expecting an increase in
supplies, according to two recent U.S. Department of Agriculture reports. “U.S. beef needs all the demand it can get,” said John Nalivka, president of industry research firm Sterling Marketing. The expected ample U.S. beef supplies could mean export prices fall to compensate for the increased tariffs or demand could switch to chilled beef imports. Among the countries not affected by the tariff increase are Australia and Mexico because they have economic partnership agreements with Japan.
Australia could still struggle to win market share as its prices remain high because of a drought that has cut cattle numbers, said Nalivka, who added that a weaker U.S. dollar could help offset the tariff increase. Mexico sends about 2.7 per cent of its total exports to Japan, mostly frozen beef, and could take advantage of the tariffs to boost that.
“This would harm our important bilateral trade relationship with Japan on agricultural products” Sonny Perdue, U.S. Agriculture Secretary
“This does present an opportunity for Mexico,” said Rogelio Perez, the top trade official with Mexican cattle growers association AMEG. Any new beef exports to Japan from Mexico, however, would not occur until at least September. 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 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 PHOTOGRAPHY
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Business Daily Monday, July 31 2017 2017 13
Macau ASIA TOURISM
IN BRIEF
Forget casinos, Singapore’s Indian are cruising Singapore is expected to register a 59 per cent jump in arrivals from India Krystal Chia
When Indian architect Rahul Maini and his parents embarked on their first trip abroad in May, Singapore was their destination of choice. But the trio wasn’t going for the hawker food or even the city-state’s casinos -- they were there to get on a ship. The equatorial island has become a flourishing entry point for Indian cruise-ship passengers, bolstering sales for operators, including Royal Caribbean Cruises Ltd. and Genting Hong Kong Ltd. About 100,000 Indians sailed from Singapore last year, 29 per cent more than in 2015, making India the biggest market for cruises departing from the Southeast Asian nation, according to the Singapore Tourism Board. “We chose to go on a cruise because we could visit three countries in one short trip,” said Maini, 26, whose four-day cruise on Royal Caribbean’s Voyager of the Seas took in the Malaysian city of Penang and the Thai island of Phuket. The family spent about US$7,700, which Maini said was “expensive, but worth it.” The expenditure is part of the 777.3 billion rupees (US$12 billion) that Euromonitor International predicts middle-class Indians will shell out on overseas leisure travel this year. The market is expanding about 10 per cent annually and will eclipse 1 trillion rupees by 2020, the research
company says. While the Middle East and France are the most-popular overseas destinations for Indians, Singapore is expected to register a 59 per cent jump in arrivals from the world’s second most-populous country from 2015 to 2020, according to Euromonitor. Among the city-state’s top 10 inbound passenger markets, India is the fastest-growing, according to Changi Airport Group, which manages Singapore’s international airport. The number of arrivals from India increased 15 per cent in the first five months of this year, compared with a year earlier -- outperforming China by 3 percentage points. Many of the tourists are like the Mainis, who come mainly to join a cruise.
Fly-cruise tourism
“Fly-cruise tourism has really taken off among Indian tourists,” said Chayadi Karim, a research associate ADVERTISEMENT
with Euromonitor. To help, the Singapore government created the Cruise Development Fund, which supports travel agents and event organizers trying to get people to sail from Singapore, said Annie Chang, a director at the tourism board. The number of Indian passengers on Royal Caribbean ships jumped 149 per cent so far this year, compared with the same period last year. This includes the peak summer school holiday period that runs in India from May to June, said Sean Treacy, the company’s Asia Pacific director. “Singapore is a regional-hub port which is near many attractive Southeast Asian cruise destinations in Malaysia, Thailand and Vietnam,” Treacy said. Voyages from Singapore offer Indian tourists the convenience of visiting multiple destinations across different countries on a single trip while unpacking only once, he said. The number of cruise passengers from India leaving via Singapore has been increasing by least 10 per cent a year annually, said Michael Goh, senior vice president of international sales for Genting Cruise Lines, and the company is “optimistic” about continued growth. “Perceptions of cruising among Indian travellers are fast-changing,” Goh said, adding that the unit of Genting Hong Kong counts among its cruising clientele first-timers, singles, couples, senior citizens, multigeneration families and Indians with a higher disposable income.
Local touches
Princess Cruises, a unit of Carnival Corp., also sees “positive growth from the Indian market,” including honeymooners, said Farriek Tawfik, the company’s Southeast Asia director. There’s also a tendency among Indian expatriates living in Singapore to invite relatives to join them on a cruise, he said. Royal Caribbean is adding more cruises for India’s summer school holidays, Treacy said. Voyager of the Seas will go on 18 cruises during the holidays next year, 14 more than in 2016. The number of cruises for Mariner of the Seas will almost double to 56 during the upcoming winter-spring season from 29 in 2014-2015, he said. To better accommodate guests from India, the cruise operators offer vegetarian meals, local cuisine and culture, and special events that appeal to South Asian guests. “More Bollywood music may be played at the pool or disco parties, and more jewellery gift sets, which are popular with Indians, may be procured for sailings that host a higher number of them on board,” Royal Caribbean’s Treacy said. As for Maini, he said his inaugural overseas holiday has given him the travel bug. “Singapore was good, but the cruise was better,” the New Delhi resident said. He’s now saving for a cruise from Barcelona, he said. BLOOMBERG NEWS
CONSUMPTION
S.Korea discount store sales rise South Korea’s discount store sales rose from a year earlier for a fourth straight month in June, trade ministry data showed yesterday, as consumer sentiment was buoyant. Demand for home appliances and clothes boosted overall sales at discount stores, while sales of grocery items fell slightly, the Ministry of Trade, Industry and Energy said. Combined June sales at discount stores run by Lotte Shopping, and E-mart and Homeplus rose 2.3 per cent from a year earlier, after gaining 1.6 per cent in May. ENERGY
Vietnam’s July crude oil output falls Vietnam’s crude oil output in July is estimated at 1.17 million tonnes (277,000 barrels per day), down 6.4 per cent from a year earlier, the government said on Saturday. Crude oil output in June was revised to 1.14 million tonnes, higher than the earlier estimate of 1.13 million tonnes, the General Statistics Office said in its monthly report. Vietnam’s January to July crude oil exports rose 12.3 per cent year-on-year to an estimated 4.6 million tonnes. The following table updates production figures for Vietnam’s key energy products this month. M&A
Toshiba to give Western Digital notice on sale Toshiba Corp has agreed to give Western Digital Corp two weeks’ notice before closing any sale of a memory chip unit that would involve transferring joint venture shares that Western Digital claims give it a say in the US$18 billion sale of the unit. San Francisco Superior Court Judge Harold Kahn on Friday approved an agreement between the two. Notice from Toshiba to Western Digital will give Western Digital the opportunity to come back to the court or an arbitration panel to argue for a chance to stop the deal. POLL
Australia c.bank seen keeping rates steady Australia’s central bank is seen as all but certain to keep its cash rate at a record low of 1.5 per cent at its monthly policy meeting next week, a Reuters poll of economists found. Out of 47 economists polled by Reuters, 46 forecast the Reserve Bank of Australia (RBA) would stand pat at its policy meeting on August 1. The RBA eased twice last year but has since held steady as it balances the risk of fuelling further borrowing in the country’s red-hot property market against tepid inflation.
14 Business Daily Monday, July 31 2017
International In Brief Growth
U.S. economy speeds up in second quarter The U.S. economy accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, but persistent sluggish wage gains cast a dark shadow over the growth outlook. Gross domestic product increased at a 2.6 per cent annual rate in the April-June period, which included a boost from trade, the Commerce Department said in its advance estimate on Friday. That was more than double the first quarter’s downwardly revised 1.2 per cent growth pace. Wage growth, however, decelerated despite an unemployment rate that averaged 4.4 per cent in the second quarter. Venezuela
Money supply surges 10 per cent in one week In a portend of steepening inflation in crisis-stricken Venezuela, money supply surged 10 per cent in just one week earlier this month, its largest single-week rise in a quarter of a century. Venezuela is undergoing a major economic crisis, with millions suffering food shortages, monthly wages worth only the tens of U.S. dollars, and soaring inflation -- though no official data is available. The central bank said late on Friday the total amount of local currency in circulation -- known as M2 by economists - as of July 21 was 27.3 trillion bolivars, up 9.66 per cent from the previous week.
Obamacare
Trump threatens to end insurance payments if no healthcare bill Hundreds of U.S. counties are at risk of losing access to private health coverage in 2018 Joel Schectman
U
.S. President Donald Trump threatened to end government payments to health insurers if Congress does not pass a new healthcare bill and goaded them to not abandon their seven-year quest to replace the Obamacare law. In a Twitter message on Saturday, Trump said “if a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!” The tweet came a day after Senate Republicans failed to muster enough votes to repeal parts of the Affordable Care Act, President Barack Obama’s signature healthcare bill commonly known as Obamacare. The first part of Trump’s tweet appeared to be referring to the approximately US$8 billion in cost-sharing reduction subsidies the federal government pays to insurers to lower the price of health coverage for low-income Americans. The second part appeared to be a threat to end the employer contribution for Congress members and their staffs, who were moved from the normal federal employee healthcare benefits program onto the Obamacare insurance exchanges as part of the 2010 healthcare law.
Trump has previously threatened to suspend the payments to insurers, which are determined by the Department of Health and Human Services. In April, he threatened to end the payments if Democrats refused to negotiate over the healthcare bill. Responding to Saturday’s tweet, Senate Democratic leader Chuck Schumer said that if the president carried out that threat, “every expert agrees that (insurance) premiums will go up and health care will be more expensive for millions of Americans.” “The president ought to stop playing politics with people’s lives and health care, start leading and finally begin acting presidential,” Schumer said in a statement. Trump later urged Senate Republicans to try again on a healthcare vote. The Senate is in session for another week before it is scheduled to begin an August recess. “Unless the Republican Senators are total quitters, Repeal & Replace is not dead! Demand another vote before voting on any other bill!” Trump said in a subsequent tweet. Many insurers have been waiting for an answer from Trump or lawmakers on whether they will continue to fund the annual government subsidies. Without assurances, many plan to raise rates an additional 20 per cent by an Aug. 16 deadline for
Trial
Morgan Stanley, RBC, others settle rigging lawsuit Morgan Stanley, Royal Bank of Canada and three other banks agreed to pay a combined US$111.2 million to settle U.S. litigation accusing them of rigging prices in the roughly US$5 trillion-a-day foreign exchange market. The preliminary settlements were detailed in filings late Friday in the U.S. District Court in Manhattan, and require a judge’s approval. Fourteen of the 16 banks that were sued have settled, for a total pay-out of US$2.12 billion, court papers show. Friday’s settlements include US$50 million for Morgan Stanley, US$15.5 million for RBC, US$18 million for Societe Generale, US$17.2 million for Standard Chartered Plc and US$10.5 million for Bank of Tokyo-Mitsubishi UFJ. Currencies
IMF says dollar overvalued; euro, yen, yuan broadly in line The International Monetary Fund on Friday said that the U.S. dollar was overvalued by 10 per cent to 20 per cent, based on U.S. near-term economic fundamentals, while it viewed valuations of the euro, Japan’s yen, and China’s yuan as broadly in line with fundamentals. The IMF’s External Sector Report - an annual assessment of currencies and external surpluses and deficits of major economies - showed that external current account deficits were becoming more concentrated in certain advanced economies such as the United States and Britain, while surpluses remained persistent in China and Germany.
premium prices. With Republican efforts to dismantle Obamacare in disarray, hundreds of U.S. counties are at risk of losing access to private health coverage in 2018 as insurers consider pulling out of those markets. In response, Trump on Friday again suggested his administration would let the Obamacare program “implode.” He has weakened enforcement of the law’s requirement for individuals to buy insurance, threatened to cut off funding and sought to change plan benefits through regulations. Meanwhile, some congressional Republicans were still trying to find a way forward on healthcare. Senator Lindsey Graham said in a statement issued late on Friday that he and two other Republican senators, Dean Heller and Bill Cassidy, had met with Trump after the defeat to discuss Graham’s proposal to take tax money raised by Obamacare and send it back to the states in the form of healthcare block grants. Graham said the move would end Democrats’ drive for a national single-payer healthcare system by putting states in charge. “President Trump was optimistic about the Graham-Cassidy-Heller proposal,” Graham added. “I will continue to work with President Trump and his team to move the idea forward.” However, a majority of Americans are ready to move on from healthcare at this point. According to a Reuters/ Ipsos poll released on Saturday, 64 per cent of 1,136 people surveyed on Friday and Saturday said they wanted to keep Obamacare, either “entirely as is” or after fixing “problem areas”. When asked what they think Congress should do next, most picked other priorities such as tax reform, foreign relations and infrastructure. Only 29 per cent said they wanted Republicans in Congress to “continue working on a new healthcare bill.” Asked what they think Congress should do next, most respondents picked other priorities such as tax reform, foreign relations and infrastructure. Only 29 per cent said they wanted Republicans in Congress to “continue working on a new healthcare bill.” Reuters
Legislation
EU starts action against Poland over judiciary reforms Polish President Andrzej Duda on Tuesday signed into law the bill on ordinary courts, but, in a move welcomed by Brussels, blocked two other bills The European Commission launched legal action on Saturday against what it sees as Polish government attempts to undermine the independence of judges. It has given Warsaw a month to respond. EU commissioners decided to launch the “infringement procedure” for violating European Union law at a meeting on Wednesday, the first step in a legal process that may end at the bloc’s top court, pending publication of Poland’s new law. A Polish deputy foreign minister said on Saturday the Commission’s decision was “unjustified” because the organisation of the legal systems in EU members was up to member states and not EU institutions. The Commission is concerned about discretionary power given to Poland’s minister of justice to prolong the mandates of judges who reach retirement age, as well
as to dismiss and appoint court presidents. “The new rules allow the minister of justice to exert influence on individual ordinary judges through, in particular, the vague criteria for the prolongation of their mandates thereby undermining the principle of irremovability of judges,” the European Commission said in a statement on Saturday. It said a key legal concern was the introduction of different retirement ages - for female judges at 60 and male judges at 65. Polish Deputy Foreign Minister Konrad Szymanski told state news agency PAP that court presidents in Poland performed mostly administrative functions. He also said the new regulation on the retirement of judges was aimed at bringing it into line with a reduction in the retirement age that enters into force in October.
Polish President Andrzej Duda on Tuesday signed into law the bill on ordinary courts, but, in a move welcomed by Brussels, blocked two other bills that would have empowered the government and parliament to replace Supreme Court judges. Poland’s eurosceptic, nationalist government has rejected Brussels’ objections as “blackmail” and as unjustified criticism, but has said Warsaw is open to talks to resolve the dispute. Commission First Vice President Frans Timmermans sent a letter on Friday to Poland’s foreign minister reiterating an invitation to him and the justice minister to meet in Brussels to relaunch dialogue. He had said on Wednesday that the Commission could trigger Article 7, a legal process of suspending Poland’s EU voting rights, if Warsaw went ahead with plans to undermine the independence of the judiciary and the rule of law. The European Commission has given Poland a month to respond to concerns for the rule of law raised by the EU executive in an unprecedented process launched last year.
Business Daily Monday, July 31 2017 15
Opinion Business Wires
Taipei Times The Executive Yuan announced the (Taiwan) budget and annual expenditure estimate for fiscal 2018, with a slight increase in national expenditure — up 0.6 per cent compared with fiscal 2017 — to NT$1.9 trillion (US$62.7 billion). The Executive Yuan plans large-scale increases in public construction and technological development expenditures, with the former given 16.3 per cent more than this year and the latter increasing by 10 per cent. Both budgets included funds from the Forward-looking Infrastructure Development Program. Social welfare received NT$489 billion, the greatest source of expenditure in the budget, with the Ministry of National Defence budget estimated at NT$330 billion, the Executive Yuan said.
The Times of India New registrations under the goods & services tax (GST) crossed the 10 lakh (1 lakh = a hundred thousand) mark on Saturday, a milestone that bring’s cheer to policymakers who have been hoping for an increase in the tax base after the rollout of the new tax measure. “The figure of new registrations approved in GST crosses 10 lakhs today. About 2 lakh applications pending in process,” revenue secretary Hasmukh Adhia tweeted on Saturday. Increase in the tax base was one of key GST promises. About 2 lakh applications pending in process.
A world of lagging investors
I
The Korea Herald Air traffic in South Korea jumped 6.6 per cent in the first half helped by increased demand on non-Chinese routes, government data showed Sunday. The number of passengers on Korean and international routes run by domestic airline carriers rose to 53.08 million in the January-June period from 49.80 million a year earlier, the Ministry of Land, Infrastructure and Transport said in a statement. “An increase in travel demand on routes to Europe, Japan and Southeast Asian countries helped offset sharp declines in demand on Chinese routes,” the ministry said.
Philstar Barcelona-based think tank FocusEconomics has slashed the gross domestic product growth forecast for the Philippines to 6.4 per cent instead of 6.5 per cent this year due to the impact of the terrorist attacks in Mindanao. The think tank said the main downside risks stem from possible capacity constraints and the spillover effects of a possible worsening of the Islamist insurgency in Mindanao. Weak private consumption due to the absence of election-related spending pulled down the GDP growth of the country to 6.4 per cent in the first quarter.
f you invest in mutual funds, no matter where you live in the world, you are probably doing it wrong. That’s the upshot of the first-ever Morningstar study looking globally at how investors in openended mutual funds actually perform, taking into account when they enter and exit a fund. There is hope, however, and it comes from plans that limit the amount of unwise market timing by mutual fund investors. In most places, and in most types of funds, savers are suffering an “investor returns gap.” Over 10 years the average investor in a U.S. fund earned 3.96 per cent annualized, below the 4.33 per cent of the average fund or the 5.0 per cent they would have earned had they simply left their portfolios untouched throughout the period. For Luxembourg-based funds, a proxy for European investors, the average saver made just 2.24 per cent annually over 10 years, well below the 2.98 per cent of the average fund. Fiveyear average investor returns lagged in Singapore, Taiwan, Hong Kong and Canada as well, though UK investors just about kept pace with the returns generated by the underlying investment vehicles. The study measures moneyweighted returns, rather tha n th e m o r e t y p i ca l time-weighted. The former i l l u st rat es th e f l o w o f money in and out of funds, measuring how and when investors actually put their money to work or take it off the table. This gives a read not, as a time-weighted return, of how the fund is doing compared with the market, but how typical investors’ money will actually compound based on their own behaviour and the performance of the fund. As investors try to time the market, or to ride the hot hand of a given fund manager, they tend to shoot themselves in the foot, missing out on periods of better returns and piling on at times just before returns turn sub-par. The results showed a general trend toward an investor gap in most markets and most fund types around the world. The data also suggest that fees matter, and not just in the traditional way of limiting costs. “When sorted on fees, investor returns declined as funds rose in cost, often by more than the difference in costs, suggesting that behaviour of investor and manager alike in high-cost funds was poor, while low cost-funds represented a meeting of smarter investors and managers,” Russel Kinnel of Morningstar wrote in the report. It also seems likely that higher-cost mutual funds take on bigger risks in an effort to justify their fees.
“
James Saft a Reuters columnist
A disciplined approach
Earlier research has also shown that funds with lower inflow tend to generate better returns in the following month. A Research Affiliates study showed funds in the top quintile of flows generate next month returns of less than a third of those in the bottom quintile. Chasing alpha, or outperformance, is a losing game. “Ironically, the pursuit of positive alpha, which leads to the regular switching of investment strategies and managers, is the very reason why mutual fund investors and pensions have earned negative alpha. Investors should realize that the widely followed selection practice is technically an attempt to time manager alpha,” Jason Hsu of Research Affiliates wrote in 2015. “As manager styles come in and out of favour, the hiring and firing of managers is akin to timing the returns of style factors. That pro-cyclical timers, such as mutual fund investors and pensions, do poorly is the very reason why countercyclical factor returns persist.” The Morningstar study showed very encouraging data for automated investment plans, under which asset allocation decisions are not based on a hunch or research by the asset owner but according to a pre-set plan. Australian superannuation plans actually show positive investor gaps. U.S. target-date funds have also “consistently” generated positive investor gaps, while South Korean “general savings plans” guard against market timing by featuring automatic monthly investment. “These relatively simple plans work wonders at keeping investors on track and preventing them from unwise market-timing moves. Seeing this work in three different investment cultures is a strong endorsement for the practice worldwide. The evidence suggests the idea has merit for its ability to help investors realize the potential of retirement plans. In a sense, it combines some of the strengths of defined-benefit plans and definedcontribution plans by making low-cost diversified investments the default option,” according to the study. A bit of outside discipline is exactly what the average investor needs to avoid the eternal errors created by greed and fear. Reuters
The Morningstar study showed very encouraging data for automated investment plans, under which asset allocation decisions are not based on a hunch or research by the asset owner but according to a pre-set plan
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16 Business Daily Monday, July 31 2017
Closing Property
Real estate booms in China’s small cities, but construction outpaces demand Nearly 50 million square metres of real estate, or about 550,000 homes, were sold in 27 tier-3 cities in January-May this year Yawen Chen and Ryan Woo
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uxury lakeside homes and high-rise condominiums are coming up fast in China’s sleepy inland town of Bengbu, a clear sign that a home-buying frenzy sweeping across the country’s major metropolises and provincial capitals has reached even its smaller cities. The increase in demand is welcome news for smaller cities that have a massive overhang of unsold houses left from the last real estate downturn three years ago. However, the surge in construction threatens to outpace or match the increased demand for housing, leaving housing inventories untouched. That will be a worry for China’s policymakers, who want to keep the real estate market stable ahead of a once-every-five-years Communist Party congress in the autumn that will see a reshuffle of senior leaders. The property market in Bengbu, once a fishing village on the banks of the Huai River and Lake Longzi, has been among the top three fastest-growing in China’s 70 main cities in recent months although the local economy is soft - the region’s main glass-making industry has been hit by the general growth slowdown. Property analysts say property demand in such smaller cities has surged because local governments offer cheap credit and impose next to no restrictions, unlike in the bigger cities, where defences are in place to fend off speculation and prevent formation of property bubbles. Real estate in tier-3 and tier-4 cities, ranked below the major metropolises and the provincial capitals, is where the growth is now, analysts say, but the frenzied construction means the stock of unsold homes has remained stubbornly high. Nearly 50 million square metres of real estate, or about 550,000 homes, were sold in 27 tier-3 cities in January-May this year, which should have reduced inventories by 45 per cent, according to Reuters calculations based on a private estimate of inventories in China’s main small cities. In reality, inventories only dropped 7.1 per cent to 102 million sq m,
equivalent to 1.1 million homes, data by Shanghai-based E-house China R&D Institute showed, because of new construction. Prices for new homes in Bengbu surged 3.4 per cent on-month in May, the highest among all 70 major cities, data from the Statistics Bureau showed. Bengbu ranked second-highest in April and third-highest in June. “We think the market will continue to be good even though we don’t expect a drastic rise in prices anymore,” said a manager surnamed Huang at Bengbu Jinhui Real Estate, a private developer that has actively bought land rights in Bengbu. A unit of Kingyard Real Estate, the firm successfully bid RMB1.39 billion (US$205.4 million) for a nearly 12,000 sq m parcel of land in Bengbu in May, more than double the starting price, where it plans to build residential housing.
Bengbu’s glut
In Bengbu, housing inventories hit a high of 4.84 million sq m in January 2016, which at the time would have taken more than 40 months to clear. But despite sales jumping almost 70 per cent to about 1.47 million sq m in the first half, the excess stock only decreased about 4 per cent to 4.39 million sq m as of May, E-house’s latest estimates showed, due to new supplies entering the market. Developers obtained pre-sale permits to sell 1.12 million sq m of new projects in the first half, with permits in June up more than 400 per cent from a year earlier, according to Reuters calculations based on Bengbu housing bureau data. The propaganda office of the Bengbu government declined to comment, and phone calls to the city’s housing bureau went unanswered. There are already signs demand is slowing in Bengbu. Property prices have jumped almost 50 per cent since the start of the year for some new units to around RMB7,500 (US$1,108) per sq m, according to local agents. While that is about one-tenth of prices in big cities like Beijing and Shanghai, the price is high for a city
like Bengbu. At those prices, a two-bedroom apartment of 90 sq m would cost about RMB675,000 (US$99,956) before tax, equivalent to 12 years of average pay in the city. Many recent buyers are locals originally from Bengbu and its neighbouring counties but have gone to more affluent cities for work, said Shen Zhichao, sales manager for Amber New World, a housing project under Hefei Urban Construction.
Key Points
has already been front-loaded to the first half of the year,” Shen said. Bengbu’s government capped prices of new projects at RMB5,800 (US$859.45) per sq m on May 15, as the city became the fastest-growing market in China that month. The new rule does not affect housing projects that have been granted a selling permit. Some developers have also sought to offer cheaper units on lower floors so the average selling price for the entire project doesn’t exceed the cap.
Data ‘myths’
Home-buying demand spills over from bigger cities like Shanghai Small cities such as Bengbu have fewer purchase restrictions Local developers boost construction to meet rising demand Signs of slowing sales momentum as growth considered unsustainable Having seen the rapid price gains in bigger cities, they are rushing back to secure apartments before even those get too exorbitant. “I feel too much potential demand
The hidden danger, analysts say, is that real estate inventories are often higher than indicated by official figures. Official inventory data only counts completed homes, while private estimates include homes that are being built but not completed yet. Official data showed nationwide inventories stood at 646 million sq m as of end-June. Private estimates, which tend to lag official data, can be several times bigger than that. A Bank of China estimate that includes not-yet-built projects shows China’s real estate inventories stood at 8.28 billion sq m at end-2016, most of which - 5.8 billion - in tier-three and four cities. Reuters
Terrorism
Military
Negotiations
Australia foils ‘terror plot’ to bring down airplane
Xi calls for strong army, tells China troops ‘world isn’t safe’
S.Korea names new trade minister
Australia has foiled an Islamist-inspired “terrorist plot” to bring down an airplane with an improvised explosive, authorities said yesterday, after four people were arrested in raids across Sydney. Prime Minister Malcolm Turnbull said the plot appeared to be “elaborate” rather than planned by a lone wolf, as security was beefed up at major domestic and international airports across the nation. “I can report last night that there has been a major joint counter-terrorism operation to disrupt a terrorist plot to bring down an airplane,” Turnbull told reporters. “The threat of terrorism is very real. The disruption operation, the efforts overnight have been very effective but there’s more work to do.” Officials did not specify if the alleged plot involved a domestic or international flight, but Sydney’s Daily Telegraph reported that a local route had been the objective. Australian Federal Police Commissioner Andrew Colvin described the plot as “Islamic-inspired”, saying four men had been arrested in a series of raids across Sydney on Saturday. AFP
President Xi Jinping said China needs to speed up the modernization of its military to fend off threats in increasingly dangerous times. “The world isn’t safe at this moment” Xi, wearing a camouflage military uniform, said yesterday after riding in an open jeep at an army parade in Inner Mongolia. “A strong army is needed now more than ever.” The speech came just hours after U.S. President Donald Trump lambasted China for failing to do more to stop North Korea’s nuclear program, saying “we will no longer allow this to continue.” North Korea, which relies on ally China for food and fuel, testfired a second intercontinental ballistic missile late on Friday night. Over the past two years, Xi has overseen the most sweeping changes to China’s military since the 1950s in an effort to create a fighting force that can win modern wars. The modernization drive, which has focused on expanding China’s air and naval reach, is challenging more than 70 years of U.S. military dominance in the Western Pacific. The parade at Zhurihe Training Base yesterday marked the 90th anniversary of the creation of the People’s Liberation Army. Bloomberg News
South Korean President Moon Jae-in yesterday appointed a former top envoy who had negotiated a free trade agreement with the United States as his new minister for trade, at a time when Washington is seeking to amend the deal. Kim Hyun-chong, a U.S.-trained lawyer, was instrumental in framing South Korea’s negotiating position on the deal for then president Roh Moohyun, who surprised the country by choosing to initiate talks for the trade agreement. U.S. President Donald Trump has called the free trade agreement (FTA) “a horrible deal”, saying he might even scrap it. Kim, who also served in the World Trade Organization (WTO)’s legal division, has been an advocate of an open trade policy and free trade deals for South Korea. He will be Moon’s first trade minister after the liberal leader took office in May. The United States notified South Korea earlier this month that it plans to start negotiating amendments to the deal and called a joint committee meeting under the agreement to kick off the talks next month. Reuters