Queen's Birthday Celebration Poolside BBQ Lunch Sat, 10 June 2017 │ 11:00am - 2:00pm │ The St. Regis Macao Join us in this relaxing and lighthearted get-together at a poolside BBQ lunch. Bring your swimmers, and slip, slop & slap!
Travel the world in 30 steaks - and get to know KAWS! Consigliere Pages 8 & 9
Friday, June 2 2017 Year VI Nr. 1309 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Caixin PMI
Private index of Mainland manufacturing reveals shrinking tendency Page 10
Junkets
Former Iao Kun Group improves results Page 7
Trade
www.macaubusinessdaily.com
Local exports to Mainland under zero tariff scheme rocketing Page 2
Start-up
Cryptocurrency
Studio B has business all sewn up
Bitcoin exchanges in China resume activity Page 11
Page 6
Gaming revenue rebound rolls on Gaming results
Sweet music for local ears. Gaming revenues jumped in May. Consolidating a positive 10-month streak. Big betters are back at the tables, and longer than expected. With industry gurus convinced of more to come. Page 3
Development fund flags flexibility
The facilitator
Portuguese Secretary for Industry João Vasconcelos is in town. Announcing yesterday that Lisbon will open facilities oriented towards the Mainland and Portuguese firms that want to land in Europe.
Development fund Now officially relocated to the MSAR. The Fund for Development Co-operation between China and the Portuguese-speaking Countries has moved from Beijing. Yesterday, local authorities signalled greater flexibility in helping domestic firms conduct business with lusophone countries. Page 6
Bone of contention
Property The Legislative Assembly is discussing the proposed property management law. With new owners liable for historic debt on the acquired property a sticking point. Page 2
Yuan climbs under guidance Co-operation Page 5
HK Hang Seng Index June 1, 2017
25,809.22 +148.57 (+0.58%) Worst Performers
Geely Automobile Holdings
+2.79%
New World Development
+1.55%
Kunlun Energy Co Ltd
-2.01%
China Life Insurance Co Ltd
-0.78%
Henderson Land Develop-
+2.18%
Cheung Kong Infrastructure
+1.49%
China Merchants Port Hold-
-1.52%
Lenovo Group Ltd
-0.59%
+2.08%
Hang Lung Properties Ltd
+1.49%
Bank of Communications
-0.99%
Hengan International Group
-0.55%
Cathay Pacific Airways Ltd
+1.75%
China Construction Bank
+1.40%
Sands China Ltd
-0.86%
CK Hutchison Holdings Ltd
-0.39%
Industrial & Commercial
+1.73%
Power Assets Holdings Ltd
+1.36%
CITIC Ltd
-0.81%
PetroChina Co Ltd
-0.39%
Sun Hung Kai Properties Ltd
27° 31° 27° 30° 27° 31° 27° 30° 26° 30° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Forex The yuan jumped to a 7-month high yesterday. China has gradually given the yuan freer rein over the years. But still only allows it to rise or fall two pct daily on either side of the fixed reference point. Page 16
2 Business Daily Friday, June 2 2017
Macau Society
Government evaluating housing debt issue
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he government is going to “think about” what to do with a newly introduced element of the proposed property management law that would make it the obligation of property unit purchasers to pay off debts relating to the property, which has sparked recent debate. The news came after yesterday’s Legislative Assembly meeting with government representatives in which legislator Chan Chak Mo pointed out that the new measures would inspire purchasers of units to investigate as to whether the unit in question had associated debts, something many currently do not think to do. “I as the buyer don’t have that responsibility now. If nobody says anything now, if I buy one with debts, after buying it the one who has to pay the debts is the seller,” notes the legislator. “Under the new one, if the seller doesn’t want to pay the debts, it’s due to a reason, so the buyer can choose
not to buy,” he pointed out. In particular, the current legislation makes it particularly difficult if the seller has already left the MSAR. “So [under the new regime being discussed] if the unit has a debt, if it
was sold with debts, the new buyer will assume the debts from the past two years,” he notes, pointing out that in the meeting “someone asked if the seller had already left, how would they recover the debt,” as being of
particular note for progressing the new proposal. Currently, the law proposal is “still awaiting the government’s response to see if it will introduce amendments”. K.W.
CEPA
Zero tariff goods exports to Mainland surge 93 pct y-o-y Local exports to China under the zero tariff Close Economic Partnership Agreement (CEPA) surged by nearly 93 per cent year-on-year in May,
reaching MOP9.36 million, as well as posting a 61 per cent rise month-on-month, according to the most recent data from the Macau
Economic Services (DSE). The value of exports under the agreement hit MOP34.93 million during the first five months of the year, with May
marking the highest value exported, up from a previous high of MOP7.3 million in February. Since the agreement went into effect in January 2004 a total of MOP801.4 million in goods has been exported to the Mainland. Of the 622 total companies holding the Macau Service Supplier certificate, the overwhelming majority, or 48.5 per cent, were conducting activities in the transportation sector, including logistics, warehousing and freight forwarding, with 306 registered companies. The second largest holder of the certificates was the medical and dental sector, with a total of 147 certificates, as per the April figures shared by the DSE. The convention and
exposition sector had 41 certificate-holding companies, while that of real estate had 33. The first CEPA agreement was signed between Macau and the Mainland in October 2003, and implemented in January the following year, while the most recent iteration of the agreement was signed in November 2015. The agreement covers three areas: Trade in Goods, Trade in Services and Trade and Investment Facilitation. A full list of zero tariff goods is available on the website dedicated to the agreement, www.cepa.gov.mo, and includes items ranging from almonds and smoked fish to diapers and vacuum cleaners. The site is also searchable by product type per the agreement. K.W.
Land dispute
Education
Court rejects judicial appeal from developers over land dispute for second time
Training talent abroad
The Court of Second Instance has ruled against the judicial appeal lodged by property developer Sinca – Sociedade de Indústrias Cerâmicas, Limitada - whose land concession for a plot located in Pac On reclamation Zone D in Taipa was declared expired by the Chief Executive (CE) in 2015. According to the announcement released by the city’s court this week, the developer lodged the judicial appeal last year with the Court of Final Appeal after the Court of Second Instance decided against the appeal to revoke the declaration made by
the CE. The case subsequently went for retrial in the Court of Second Instance, in which the court refuted the group’s argument that the plot had not been utilised due to unfavourable economic conditions not allowing for its rental, noting it should have taken into account the social benefits of leasing the land. The court decision, according to the release, is that ‘like any other kind of business, the contractor is required to bear any risk on land concession contract’. The appellant, meanwhile, stated that the administrative department had not moved quickly enough in the revision of the plan for Pac On reclamation, since 2007. Regarding the stagnation of the progress by the administrative department, the court perceived that the justification was ineffective given that the condition happened after a decade had passed, when the land use expired in 1996. According to the court, the Administration had reminded the developer several times to make use of the land within the leasing period and requested explanation of its failure to complete the use of land. C.U.
The Talent Development Committee announced yesterday that it has launched three plans for the training of qualified personnel supported by scholarships that will be attributed to a total of five selected candidates. The three plans consist of graduate education level programmes in Coimbra, Lisbon (MBA), and Hong Kong (EMBA). Aimed at the training of qualified bilingual personnel in Chinese and Portuguese, Coimbra will be opened to a maximum of three candidates, with preference given to those
pursuing studies in the fields of education, law, medicine, and cultural and creative industries. One scholarship each will be granted to candidates selected to pursue the programme in Lisbon and in Hong Kong, in international business management, and in high-level management with strategic thinking and global vision, respectively. The Committee noted that registration for the competition will be open from June 1 to June 15 for the Coimbra Plan, and until June 30 for the other two. S.Z.
Business Daily Friday, June 2 2017 3
Macau
Gaming
The comeback kid is here to stay The growth rate of the city’s gross gaming revenue last month was the fastest since February 2014 Cecilia U cecilia.u@macaubusinessdaily.com
T
he MSAR saw a year-onyear increase of 23.7 per cent in its gross gaming revenue in May, standing at MOP22.74 billion (US$2.83 billion), the latest data released yesterday by the city’s Gaming Inspection and Co-ordination Bureau (DICJ) reveals. In cumulative terms, the city’s gross gaming revenue reached MOP106.38 billion, posting a growth of 15.8 per cent vis-a-vis MOP91.91 billion recorded a year ago. Casino operators in the MSAR have seen their stocks soar over the past 10 months, with Galaxy Entertainment up 77 per cent, Wynn Macau up 45 per cent and Sands China up 17 per cent. The resurgence of Macau will pose a threat to rival casino hubs as they claw for business from wealthy Chinese players who contribute the bulk of operators’ profits. According to Reuters, Macau’s revenues are more than 6 times Singapore’s and 9 times those of the Philippines.
The monthly result has outperformed the estimate made by the analysing group Union Gaming for the fourth straight month, with the group previously predicting an increase of 16.5 per cent. The result also surpassed the prediction of 14 per cent to 18 per cent growth made by brokerage firm Wells Fargo on Tuesday. Led by Grant Govertsen, Union Gaming initially anticipated last month’s revenue would be slightly affected by the visit to Macau of top Chinese official Zhang Dejiang, Chairman of the National People’s Congress, in early May, as well as one less Sunday on the calendar this year. According to Union Gaming, gross gaming revenue per day was MOP733 million last month, representing ‘a 9 per cent sequential increase relative to the seasonally slower April’. The growth of May’s revenue, as perceived by the analysts, has brought the mass market trajectory in the first quarter, with the quarter-to-quarter increase of 15 per cent, to the second quarter of this year, with the current performance
possibly ‘in the high teens’. In terms of the VIP segment, the rate is accelerating, with the trend in the first three months seeming to have been maintained into the second quarter. The positive trend in VIP business, in particular, can be seen most significantly in both Wynn properties, which ‘continue to outperform the market by a very wide margin’ as stated by the analyst group. The group, meanwhile, pointed out that the growing rate in the VIP segment can be explained by the ‘low water mark of the GGR (gross gaming revenue) downturn’ during the second quarter of last year.
Outlook
With the encouraging results from May, which was slightly lower than the amount generated in February when the Chinese New Year fell, Union Gaming believed that the city’s recovery is ‘in full tilt’. Given that last June’s revenue hit the low point, the group is expecting the growth rate for this June to remain at 20 per cent. In terms of the quarterly estimation for the six gaming operators in Macau, analysts are anticipating 22 per cent growth in revenue for the April to June period, with VIP to increase 24 per cent and mass
market to increase 20 per cent. However, the new flow-of-money control measures imposed by the authorities may affect future months’ revenue. Last week, Macau formed an alliance with the Mainland to tackle money laundering and terrorism financing, beefing up its anti-money laundering framework with a much wider scope and stricter compliance measures. New security measures including facial recognition at ATM machines are also being rolled out as well as the implementation of a Macau border currency declaration system, effective in November. Conversely, the newly opened Taipa Ferry Terminal should boost visitor numbers to the neon-lit Cotai casino strip. Union Gaming has also expressed a cautious outlook on the upcoming visit of Xi Jinping, Secretary General of the Communist Party of China’s Central Committee and Chairman of the Central Military Commission, to Hong Kong in early July, which might dampen VIP performance more than Zhang’s recent visit. As such, the group is forecasting market-wide gaming revenue growth to be 15 per cent in the third quarter and 7 per cent for the fourth quarter. With Reuters
HK-Zhuhai-Macau Bridge
GDI: Main bridge meets quality and safety requirements Following the arrest of 21 people for alleged corruption relating to falsified test results of concrete used on the superbridge connecting the MSAR and Zhuhai to Hong Kong, the city’s Infrastructure Development Office (GDI) has affirmed it had received confirmation from the Hong Kong-Zhuhai-Macau Bridge Authority that the construction of the Main Bridge meets quality and safety requirements, according to a press release from the Office. The construction project of the bridge, including payment, is shared
among the three regions’ authorities, with the Main Bridge construction falling under the authority of the Hong Kong-Zhuhai-Macau Bridge Authority. GDI revealed that the MSAR Government has already made the payment for the construction of the Main Bridge, for a total of RMB1.98 billion (MOP2.34 billion/US$291.12 million). According to GDI, 44.5 per cent is to be paid by the Chinese authority, 42.91 per cent by Hong Kong and 12.59 per cent by Macau. C.U.
4 Business Daily Friday, June 2 2017
Macau Opinion
Pedro Cortés*
Funding opportunities Since its creation in 2013, the Fund for Development Co-Operation between China and the Portuguesespeaking Countries has moved to its natural place: The Special Administrative Region of the People’s Republic of China. It is another strong sign – if more were needed – of the Central Government to the local authorities that the role of Macau must be, once and for all, the platform to create bridges with those countries. Not a nice speech for the stands but, otherwise, a national strategy which, sometimes, seems to be disregarded by local government departments in diverse ways, from minor decisions to top level decisions. We are entering decisive times for our beloved region. The next Chief Executive will be given this Fund tool to enhance the internationalism of the small and medium enterprises which, sometimes, face difficulties in all respects. Various and infinite opportunities abound in the Portuguese countries. Likewise, on the Mainland. It is now time to be hands-on and to substantiate these opportunities for a better future rather than to be over-dependent upon our gaming economy. Innovative industries must see in this a boost. Young generations may dream of a better future, expanding their horizons to South America, Africa, Europe and Southeast Asia. There are obstacles, of course, but it is expected that this initiative can smooth the hurdles. We all also expect that the funds will be democratically distributed. Not in a way that we will have universal suffrage before granting funding but in a way that these funds will not go to the same as before. In a small city, it is very difficult sometimes to reach escape velocity from the inner circles of the traditional businessmen. But there are plenty of entrepreneurs in our tiny dreamland where in three decades we have seen the number of millionaires proliferate like toadstools and the number of luxury cars and goods increase as probably in no other place in the world. There are rich people, of course, but not so rich. It is the latter that the government must consider in their policies. Middleclass families must see their lives improved. As, of course, must the working classes – not including the Deputy appointed by the Chief Executive who shamefully joked about his condition this week. Opportunities must be created to give a better future for their children, our children: Macau’s younger generations. *lawyer and frequent contributor to this newspaper.
One Belt, One Road
Bringing home the booty The US$1 billion Fund for Development Co-operation between China and the Portuguesespeaking Countries was officially moved to the MSAR yesterday, with government representatives vowing it will enable local companies to receive more than the usual US$20 million in support for projects in Portuguese-speaking countries Nelson Moura nelson.moura@macaubusinessdaily.com
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overnment representatives said that financial support granted by the Fund for Development Co-operation between China and the Portuguese-speaking Countries (CPD-Fund) generally does not exceed US$20 million, but that the Fund would be more “flexible” towards Macau companies in terms of the amount of investment and restrictions. The US$1 billion (MOP8 billion) fund was yesterday officially moved from Beijing to the MSAR, in an inauguration ceremony presided over by Chief Executive Fernando Chui Sai On on the first day of the 8th International Infrastructure Investment and Construction Forum (IIICF).
“Infrastructure development and interconnectivity is essential for the One Belt, One Road policy. We want Macau infrastructure development industries to collaborate with Guangdong and Hong Kong for the development of this initiative,” the CE stated in the opening ceremony. At the IIICF opening ceremony the Chairman of the China International Contractors Association, Fang Qiuchen, said the event held for the first time in the MSAR will involve 1,500 participants from more than 60 countries and financial institutions, including almost 600 company and supply chain representatives.
Bringing the money
The CPD-Fund is currently analysing the possibility of offering financial support totalling US$600 million to 20 projects in lusophone countries,
the Macau Trade and Investment Promotion Institute (IPIM), Jackson Chang, and the Macau Economic Services (DSE) Director, Tai Kin Ip, revealed yesterday. These 20 projects involve developments in lusophone countries such as East Timor, Portugal and Brazil, with the government representatives saying an effort will be made to “conclude the main investing projects” within the next three years. According to Mr. Chang, a possible US$20 million support for local businessman David Chow’s US$280 million integrated resort project in the African country of Cape Verde is still “under negotiation” with approval not yet confirmed. IPIM will also organise a delegation to promote the Fund in Cape Verde in July, having effected a similar initiative in Brazil in March. Created in 2013, the CPD-Fund capital is supplied by the China Development Bank (CDB) and the Macau Industrial and Commercial Development Fund, with the Fund’s management under the China-Africa Development Fund, a part of CBD. The Fund primarily focuses on investments in infrastructure development for transportation, telecommunications, energy and agriculture. Since its inception the Fund has granted financial support to an agricultural project in Mozambique, an electricity supply project in Angola, and support for a solar project in Brazil.
A Macau pass
When questioned how the Fund would help local SME’s, the IPIM President said any local company can make an application for financial support to request consultancy services at the Fund’s temporary office on the 19th floor of the China Plaza building. The CPD-Fund headquarters will operate initially from the IPIM Business Support Centre, and “after three years” will be moved to the future Complex of the Trade Co-operation Services Platform between China and the Portuguese-speaking Countries The same services are also provided by six connection centres set up in Mainland China in January of this year, with government representatives saying 21 consultancy requests and one application for financial support had been received as of May.
Investment
Nansha District rolls out foreign investment policies The authorities of the district of Nansha in Guangzhou announced on Wednesday that professional services businesses from the SARs, Taiwan and overseas could be rewarded a bonus of as much as RMB5 million (MOP5.91 million/US$729,138) to settle in Nansha. According to Chinese language
news outlet Chinanews, professional services specialists from the two SARs, Taiwan and overseas could also receive RMB100,000 once a year. With regard to managerial staff, those who receive RMB300,000 or more as wages per year and RMB200,000 for those who work for research institutions from the
SARs could be rewarded a certain ratio of special professional bonus or could choose to pay the lower tax rate applied in Hong Kong and Macau. Workers from the SARs and outside of Mainland China would also have priority listing for staying in the International Talent Community Zone in the district. The Nansha District authority has rolled out an industrial policy system covering a range of areas such as science and technology innovation, advanced manufacturing industries and construction. C.U.
Health
Lisbon hosts International Forum on Traditional Medicine Starting today, the III International Forum of Traditional and Complementary Medicine, taking place in Lisbon until June 4, will gather more than 300 public and private participants from Macau, Brazil, Mozambique, and European countries, including Portugal, the Netherlands, Spain, Germany, and France. The aim of the Forum, co-organised
by the Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development Co., Ltd. and the Institute of Traditional Medicine of the University of Lisbon, is to provide local and international institutes and experts from the sector with a platform for the exchange of knowledge on policies, legislation, techniques, research and
development in the field. The Forum is supported by the Chinese Embassy in Portugal, the Chinese State Administration of Traditional Medicine, the Economic and Commercial Delegation of Macau in Lisbon, the MSAR Health Services, the Zhejiang Chinese Medical University, and Luso-Chinese Chamber of Commerce and Industry. S.Z.
Business Daily Friday, June 2 2017 5
Macau Entrepreneurialism
Mr. Start-ups brings news The Portuguese Government will inaugurate a centre in Lisbon around November for 20 local and Mainland companies to establish offices and attempt to break into the European market Nelson Moura nelson.moura@macaubusinessdaily.com
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ocal and Mainland companies will be able to use a startup centre to be inaugurated in Lisbon this year as a gateway to the European market, the Portuguese Secretary for Industry, João Vasconcelos, said yesterday on the first day of the 8th International Infrastructure Investment and Construction Forum (IIICF). “The Macau Government, through its economic departments, will have a space in Lisbon for 20 local and Mainland companies who will able to use Lisbon as an entry point to Europe,” he added. According to the Secretary, the Portuguese Government is expecting to inaugurate the centre during this year’s technology conference Web Summit to take place in Lisbon from November 6 to 9. A Start-up and Innovation Centre will also be opened in Macau in order to create a space for Portuguese
entrepreneurs to obtain a “soft landing” for the Mainland market, but an exact opening date this year has not been advanced. “This partnership will make Portugal the first country in Europe to have such a collaboration with China,” he added. This centre would be based next to the University of Macau since “digital and technology start-ups can’t develop without close partnerships with academic and research centres,” the Secretary said. The establishment of the two start-up co-operation centres is part of an agreement signed with Secretary for Economy and Finance Lionel Leong Vai Tac during Portugal’s Prime Minister’s visit to the MSAR in October of last year.
Tech attraction
This is the third time the Portuguese Secretary for Industry has visited the MSAR, bringing for the first time a business delegation
Portuguese Secretary for Industry João Vasconcelos
of 20 entities from technology start-ups, investors, start-up incubators to accelerators. “We have a focus on technology and digital business since these areas don’t have a barrier of distance and logistics, which can sometimes inhibit traditional businesses from investing in Asia,” he said. This focus on technology led the delegation to visit technology centres of companies in Shenzhen - “the world tech capital” - and the Youth Entrepreneurship Valley in Hengqin, followed by the Entrepreneur Youth Centre and the Business Incubator Centre in Macau yesterday.
“We’re bringing a different Portugal, more modern and technologically advanced, that is unknown to Chinese authorities and businesses. For most of the delegation this is the first time in Macau and the first time to see this technologically sophisticated side of China, so we’re trying to connect these two worlds,” he said. The Secretary highlighted the already established presence of some Portuguese companies in Asia such as Aptoide, the third largest application store in the world after Google Play and Amazon. “Aptoide is a Portuguese start-up with 150 million users in the world and that
has established a centre in Shenzhen,” he said. When questioned about the advantages Macau possessed for developing startups, Secretary Vasconcelos said the city’s tourism sector and number of transport connections made the city a perfect base to contact target markets in Mainland China and the rest of Asia “The wellbeing of their human resources is very important for digital companies and Macau has all the conditions to be a great place to live (…) It also has the infrastructure and Shenzhen is just a one-hour boat ride away (…) Macau can be a hub for this new economy” the Secretary concluded. advertisement
6 Business Daily Friday, June 2 2017
Macau
Source: I heart You Photography
A stitch in time Startup name: Cocoberryeight and Studio B sewing school Industry: Fashion Elevator Pitch: Original, unique Cocoberryeight designer fashion brand based in Macau whose main focus is on bikinis, primarily tailored to international audiences. Studio B fashion and sewing school teaching the techniques and logistics of bringing your fashion ideas to life Interviewee: Barbara Barreto Ian Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
You don’t really need English to learn, just the basics.
Aside from your fashion brand Cocoberryeight, which you design, what is Studio B and how did it come about? I run a little sewing school called Studio B, where I teach people how to sew. Because I noticed that noone, basically, knows how to sew. And it’s such a big thing in Portugal, where we come from - having everything handmade, especially baby clothes, kids clothes. And now there’s this new revolution of, I guess, not buying fast fashion. So everyone’s starting to make their own stuff. That’s where the idea came from and it’s taken off pretty well!
How’d you find the space to hold the classes in? I actually hold them at Macau Design Centre, I have a space and I’m using it [for the classes].
Have you found that there’s a predominant demographic in the classes? No, there’s a bit of everything. As in Portugal a lot of the people that are most interested are, obviously, a younger crowd, like in their 20s and early 30s. But here I get a good spread from eight year-olds to 50s, 60s. So, it’s a good spread, and men and women, not just girls. Do you teach the classes only in English and Portuguese? At the moment, yes. Do people need to know the language in order to be able to learn the technique? No, not really. It’s not very technical.
How did you arrive at Macau Design Centre - tender, application . . . ? It was a bit of a process because a lot of the information was in Chinese, but I got there in the end. We had to basically send all our information in, what our company was about, and I made it in. It’s a rent controlled space, right? Yes, it is. It helps. I know from my colleagues that work in the building that it really helps having the rent lowered. For people in your area, do you find that there are more of these types of rent-controlled space popping up? A lot of people keep asking me about these new spaces that I have never heard about, about a new space opening up in Taipa, but I haven’t seen it anywhere. So, I don’t know why it’s so hush hush. Even this new space, that I think is like a sister space from the Macau Design Centre, the Arts Garden, it wasn’t widely publicised. Even for me – being at the Macau Design Centre – I didn’t really hear about it. I guess a lot of these places are very hush hush, I don’t know why.
A lot of people don’t know about Macau Design Centre when they come in to class. I don’t know if it’s because we’re hidden away or because we don’t publicise as much as we should, but the truth is I know very little about other spaces as well. In terms of being an entrepreneur in Macau, do you think that the incentives they have out there are enough to serve the needs of young entrepreneurs? Well, there’s a lot of financial help going around, that’s true, such as the FIC (Cultural Industries Fund) and a lot of government funding. But if when we apply for these types of funding and we need a certain amount to make things work and we’re only given about a tenth of that amount, it makes it hard, of course, because then things can’t move along as quickly as they could. Or some projects can’t even take off because it’s just too little. There is a lot of help, sometimes it might not be enough. But I guess there is a lot of little help going around. Just the space is help. Some of the key government words going around now are fashion and design . . .
They’re now very focused on fashion and design and I guess because University of St. Joseph (USJ) has now a fashion design degree. So I think that fashion might be taking off in Macau. For the fashion expos and integration of fashion events into very large expos, how do you go about participating? For the fashion expos, I don’t think it really applies to my niche. Because I’ve been there, I’ve done it, and it didn’t really do anything for me, didn’t give me any advantage. What platforms could help? The government is really, really good about taking local designers to international exhibitions. And they’re really good about these exchange programmes. In my case, it just really doesn’t work because it’s such a small market for bikinis, especially in Asia, it’s just not my thing. But I guess it might work for other designers who are wholesaling, just not for me. Are a lot of other designers wholesaling? I see a lot of designers who have their own shops popping up around
Business Daily Friday, June 2 2017 7
Macau Results
Former Iao Kun group receives US$1,410 in revenue in Q1
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unket operator turned agricultural industry trading platform operator LiNiu Technology Group (formerly Iao Kun Group Holding Company Limited) narrowed its losses in the first quarter of the year considerably, when compared to the same period last year, according to a release by the company. For the three months ended March 31, the group saw a loss of US$400,000, as compared to the US$3.5 million loss recorded in the first quarter of 2016. In addition, the company saw a reversal during the quarter of ‘bad debts’ of approximately US$200,000. The results have yet to include figures from the group’s launch of its new business to business, customer to customer and online to offline agricultural trading industry platform, after the acquisition was carried out in March of this year, with its subsequent
launch in April. The group notes that ‘the Guangzhou LiNiu generates revenue through commissions, advertising, management fees and guarantee deposits,’ pointing out that it ‘started generating revenue from commissions on transactions despite having yet to promote and advertise the site,’ without quantifying exact results. With regard to the group’s loss recorded in the quarter, it points out that it was ‘primarily due to a significant decrease in commission to junket agents as a result of minimal revenue in the first quarter of 2017’. This was coupled with a decrease in expenses, which it attributes as ‘primarily due to no longer paying management fees to Pak Si and lower salaries due to the closure of four VIP rooms in 2016’. The group contracted Pak Si Management and
Consultancy Limited to supply VIP gaming employees. ‘Since its launch, the site has logged daily traffic of over 50,000 visitors, with more than 130,000 users, more than 20,000 suppliers registered and over 80,000 products currently sold through the platform,’ informs the release regarding the group’s new line of business.
The group’s total revenues for the first three months of the year amounted to US$1,410, all from its VIP gaming operations, plummeting from the US$17.92 million seen in the same period of the previous year. In total, US$696,702 was recorded in general expenses, while the group paid out more in commission to gaming agents, at US$1,464, than it received in revenue during the period. In all, the group has US$54.08 million in markers receivable, a reduction from the US$74.65 million recorded in the same quarter of 2016. K.W.
VIP
Neptune partly terminating junket business Neptune Group Limited, a junket operator in Macau, announced a halt in the trading of shares in the company yesterday pending release of an announcement in relation to ‘the termination of business of one of the junket operators of the group,’ according to a filing with the Hong Kong Stock Exchange. Neptune further noted it was ‘inside information of the company.’ Business Daily contacted two
Macau, so I guess so. But no, I don’t see a lot. But stuff by local designers, not stuff bought in China, I know a few. Isabella Choi, she has a second shop now, and it’s her own designs, I guess. That’s a big thing. I don’t know exactly how other designers work, and if they wholesale, or if they just show. I’m really not sure. Where do e-commerce platforms come into the equation? I think that’s the way forward, for me that is. It’s just a whole new market, and a wider market. How about the Macau iterations of Taobao? Are those applicable to you? It’s very hard to compete in Macau because in Macau everyone’s used to paying not a lot of money for
different people at Neptune’s office in Hong Kong but could not get further clarifications from the company before this story went to press. We also reached out to another local junket operator which has recently opened VIP rooms in new Integrated Resorts in Cotai and has expressed plans to continue expanding its business internationally, but could not get any confirmation about whether or not an acquisition deal with Neptune
things, for shopping. So for us, as independent designers who produce a good product, not just a fast fashion product, it’s hard to compete in Macau. And it’s definitely hard to compete in China because the prices are so low. So, for us selling online to the rest of the world is a big plus. How does shipping fit in with that? Because I don’t sell big products, because my bikinis are pretty small and light, it’s very easy to ship. And it’s cheap, and it doesn’t weigh a lot. For that, do you have a company that you send it through or do you do it all yourself? No, I do it all myself. Is it sustainable? It can be a lot of hard work, but it’s
was in the pipeline. Macau’s junket business has suffered great loss for several consecutive months following the downturn in VIP revenue since the launch of Xi Jinping’s anti-graft campaign in Mainland China in 2014. According to Neptune’s 2016/2017 interim report, from the end of February the group’s underlying profit attributed to the company’s shareholders for the six months ended
sustainable for now, yes. What other initiatives do you see popping up this year? I’m doing a couple of shows, I’m not doing expos, I don’t think, this year, just because it’s a lot of hard work for very little return. What to expect from Cocoberryeight is a new collection and keeping the business model of selling online. How about the Portuguese-speaking countries connection with China, Macau as a platform? (laughs) Not for me. I’ve heard a lot about the programme, and I think it’s really interesting because then you get to find out about new designers and new things that are going on. But I don’t know if it’s been beneficial for anyone yet. But I think it’s very
December 31 2016 amounted to some HK$25.9 million versus a loss of HK$257 million in 2015. The group noted in the report that it has ‘seen a glimmer of hope as revenue rebounded in Macau’s gaming sector’ over the past six months. It also noted that ‘diversification’ into other business sectors such as the ‘money lending business’ was one of its strategies to reduce ‘dependence upon gaming, so as to minimise the impact of ongoing negativity in Macau’s gaming in a worst case scenario.’ S.Z.
interesting that cultures are mixed around and we get to meet each other, but I don’t know if business-wise it’s been profitable for anyone yet. For Studio B, how often do you have the classes? I have classes most days, especially after work, evening classes – because that’s when people can join, and at the weekend. We’re doing a lot of beginner classes at the moment, because everyone is just taking off. Although I have a lot of students that come in every week to work on different projects that they come up with, that they’ve designed. A lot of my students have bought sewing machines so I guess they enjoy sewing! How do you handle material; do you supply it all yourself? For the beginner’s class everything is included, I have all the equipment, that’s a plus because people don’t have to bring a sewing machine to class, they can just use our machines. With regard to materials, for some classes I include the material – like the beginners class, some people don’t actually know where to go and what to do, but when they’re a bit further down [the learning line], when they want to work on their own projects, they bring their own fabrics because they know what they want to do. When you’re finding your own fabrics, do you source most of them in Macau or do you go to China? I don’t go to China, I go to Hong Kong a lot, to Sham Shui Po, which has fabrics galore – a lot of fabric shops. And they’ve been closing down over the last few years. But we can still scramble for some good deals. We actually have a new class coming on, we’ve done one – it’s print designing. I teach students how to design prints for fabrics, surface design, and get them printed on the fabric. That’s a fun workshop!
8 Business Daily Friday, June 2 2017
Consigliere
Around the world in 30 steaks The best from Las Vegas to Tokyo
Where some of the biggest names in beef go for their favourit
R
estaurant food doesn’t get much simpler than a properly cooked chunk of beef—and rarely delivers so much pleasure. The smoky sweetness of the char, with its hint of crispness. The soft flesh releasing the
U.S. Bar Masa, New York
“I love the steak with garlic and soy,” says chef Jean-Georges Vongerichten, whose restaurants include Jean-Georges and Prime steakhouses in Las Vegas. “It’s wagyu beef wood-grilled, brushed with garlic and soy, cooked rare, sliced and served with white rice on the side.”
Richard Vines
deep and earthy flavours of the meat. It’s the stuff of meaty dreams and enjoyed worldwide. Yet it’s easy to ruin a steak. No amount of sauce or mustard can fix bad beef. Overcooked meat will be dry and chewy. Walk into a random steakhouse when traveling and you may suffer more
disappointm Help is at restaurateu from the cla meats of So steakhouse
Sparks, New York
“Sparks is a nostalgic and traditional favourite,” says Danny Meyer of Union Square Hospitality Group. “Amazing wine list. Standard order: crab and shrimp cocktail, prime sirloin steak, hashed browns, spinach, Basset’s double chocolate chip ice cream for dessert! I go there every time we close a deal with a landlord for a new restaurant, since I was taken there in 1985 when I bought the lease for the space that would become Union Square Cafe.”
Beatrice Inn, New York
This chophouse (and former speakeasy) in the West Village is the pick of chef Chris Cosentino of Cockscomb in San Francisco. “The best steak I ever had, hands down, is at the Beatrice Inn. It was a 137-day whisky-aged huge tomahawk. (Chef) Angie Mar learned the technique in France and brought it to the U.S. That steak blew my head off. It was insane.”
Alfred’s SF, San Francisco
Dry-aged steaks are cooked over a mesquite grill at Alfred’s, which traces its history to 1928 and is now owned by chef Daniel Patterson. “Daniel is bringing in great varieties of different styles of beef and different ages. with steamed spinach, baked potatoes—just really beautiful classic stuff,” says Cockscomb’s Cosentino. “That’s what makes Alfred’s so cool.”
Keens, New York
“It’s my favourite steakhouse,” says chef Daniel Boulud, whose New York restaurants include Daniel. “It’s the oldest in New York city, since 1885, and the most authentic and classic. Plus they have the most amazing collection of Scotch.” “There’s so much history there,” says Will Guidara, co-owner of Eleven Madison Park and NoMad, in New York. “It feels as New York as any restaurant in the city. Go for the mutton chop and stay for the prime rib hash.” Shake Shack CEO Randy Garutti is a fan. “I always love Keens: Mutton chop and a few steaks,” he says. Butcher-and-chef Richard H. Turner of Hawksmoor in London agrees: “I am not a fan of USDA (American beef) but I like Keens.” Minetta Tavern, New York
Keith McNally’s Greenwich Village brasserie is a winner for Garutti. “My favourite place for steak in New York City isn’t necessarily a steakhouse,” he says. “It’s Minetta Tavern.” He goes for the dry-aged cote de boeuf with bone marrow and recommends a burger as mid-course. “I would put Minetta Tavern up there for sure,” says chef John Cadieux of Goodman steakhouse in London, “Great steak and great atmosphere.” Palm, New York
“The idea of a steakhouse has been dandified by chefs who have complicated things,” Nobu co-owner Drew Nieporent says. “Customers like a steakhouse that is very straightforward. The Palm has always been my favourite. It’s very consistent, with excellent hospitality.” Peter Luger, New York
“My favourite steakhouse is a New York favourite: Peter Luger,” Vongerichten says. “The T-bone steak is aged perfectly in house, cooked rare, sliced then butter on top, under the broiler and finished medium-rare. Succulent and fantastic beef flavour.” Food writer Tom Parker Bowles keeps going back: “I love it just for those huge slabs of old school corn-fed beef. Plus crisp bacon as a snack and slightly grumpy waiters. “ Chef Albert Roux of Le Gavroche in London says: “The whole atmosphere was wonderful and the cuts of meat superb.”
Cockscomb, San Francisco
Chef Cosentino serves up a meaty menu that features pin-bone steak with a marrow dip. “It’s a good town and he’s the man you want,” says St. John’s Trevor Gulliver. “He knows that provenance and good butchery are a must and he’s as happy as the proverbial when cooking.” Canlis, Seattle
This fine-dining restaurant with views over Seattle is another of Garutti’s picks. “It’s not a steakhouse but it’s the best restaurant overall and steak in Seattle,” he says. CUT, Las Vegas
Wolfgang Puck’s steakhouse at the Venetian has great meat, chef Roux says. “I didn’t go for the wagyu—I’m a purist when it comes to beef,” he says. “I went for grain-fed USDA, typical American. People knock it but I thought it was bloody good. The steak of choice for me would be a big slice of rump char-grilled.”
Toturaku, Los Angeles
This is a secret restaurant, without a website or even a sign to identify it. You have to be known to the chef to get a table. Wolfgang Puck is a fan. “My chef at Spago, Tetsu Yahagi, told me about the restaurant,” Puck says. “What I love about it is that it is not a traditional steakhouse. Chef Kaz Oyama serves an eight-to-10-course menu of beef prepared in various ways, including yakiniku style where you grill the meat yourself at your table. It’s also BYOB and is the perfect place to bring your favourite bottle of red wine; just be sure to save a glass for the chef.”
U.K. Hawksmoor, London
John Thomas Steakhouse, Ithaca, New York
“This is a random one for you if you’re ever in Ithaca, New York, where I went to school,” Garutti says. This restaurant near Cornell is known for its dry-aged steaks. The specialty is a 40 ounce Porterhouse for two, at US$98. Pappas Bros., Houston
This privately owned chain first opened in 1976, founded by a family of immigrants from Greece. The steaks are dry-aged in house. “Excellent meat and an extraordinary wine list,” says chef Joan Roca, co-owner of El Celler de Can Roca, in Spain, which has twice won the title of World’s Best Restaurant. Prime, Las Vegas
Vongerichten’s Prime restaurant in the Bellagio Hotel is known for its classic dining room and its great meat. “Jean-Georges has elevated every side dish and salads, too,” Nieporent says. “It’s the quintessential Las Vegas restaurant.” Prime 112, Miami Beach
This restaurant in Browns Hotel traces its history to 2004 and bills itself as the first modern steakhouse in the U.S. “It’s an endless great scene, with massive portions and a solid steak,” Garutti says. Parker Bowles says it used to be one of the only decent restaurants in South Beach. There are “many more now, but it still holds nostalgic appeal,” he says.
Hawksmoor first opened in London in 2006 and is now preparing to open in New York. “I’m a Hawksmoor man,” says Shake Shack’s Garutti. “Porterhouse with beef-dripping fries and a Caesar salad.” Chef Michel Roux Jr of Le Gavroche in London is also a fan. “I had an amazing steak,” he says. “I was very, very impressed. It’s the quality of all the different cuts, from high-end fillet, which I am not a big fan of, to the tomahawk for two or three people. “ Trevor Gulliver, co-owner of St. John restaurant in London, credits chef Turner for Hawksmoor’s quality: “If he’s at the heat I’m there. He knows his animals as a butcher and the flames as a chef.”
Argentina
Dario Cecchini,
“This is a grea has an incred favourite is th selection fro
Japan Shima, Tokyo
This Nihonba king Domini to his bakery Tokyo was a says. “The ch tifully marbl have any lef you to take h
Peru Osso, Lima
This butcher ite of chef Ro converted hi meat,” he say
Spain
Bodega El Capr Don Julio, Buenos Aires
This unfussy steakhouse is one of the best in Latin America. “Don Julio is by far my favourite steakhouse,” says Peruvian chef Gaston Acurio, of Astrid & Gaston in Lima. “They use grass-fed beef from the pampas of Argentina, for sustainable quality and flavour.” “It’s a traditional family restaurant with extraordinary meats, especially entraña (skirt) cuts, says chef Roca.
France
Spago, Hawaii
Wolfgang Puck’s restaurant in Maui is the pick of chef Shane Osborn of Arcane, in Hong Kong. “The best steak I’ve had in recent years was there,” he says. “The bone-in ribeye was delicious.”
Italy
Bistrot Paul Bert, Paris
This bistro is among the best-known in Paris, with a reputation for simple cooking, without fuss. “The steak frites are definitive,” says Nobu’s Nieporent.
“The restaura the best steak
Business Daily Friday, June 2 2017 9
Consigliere
te cut.
ment than joy. t hand. We asked leading chefs and urs for their picks around the world, assics of New York through the quality outh America through to the upstart es of London and Tokyo.
, Panzano
at place,” chef Puck says. “The chef dible selection of Italian beef - my he Chianina - and a fantastic wine om Tuscany.”
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ashi restaurant is hard to find. Cronut ique Ansel discovered it on a visit y in Tokyo. “The best bite I had in a steak sandwich from Shima,” he hef perfectly sears the most beauled wagyu from Kyoto, and if you ft over, he makes a sandwich for home.”
r’s shop and restaurant is a favouroca. Owner “Renzo Garibaldi has is restaurant into a cult location for ys.
richo, Jiménez de Jamuz, León
ant came out on top in a film about ks in the world,” says Hawksmoor’s
Phenomenal KAWS Turner. “They do steak tasting menus that are stunning. (Owner) Jose Gordon rears his own cattle and hangs his own meat. He’s a butcher, farmer and chef. Everything is done on site. It’s very, very good.” Casa Julian, Tolosa
Tucked away in a mountain village in the Basque region, Casa Julian is owned by a father-andson team and is well worth the trip, says chef Elena Arzak of Arzak in San Sebastian. “There is only one main course option: txuleta (chops), fire-grilled rare,” she says. “Big handfuls of sea salt are spread across the meat as it crackles and crisps above the flames. It’s turned once, sprinkled again with salt, and then served still sizzling.” Laia, Hondarribia
“The meat is crispy, dark, and umami-rich on the outside, while the middle retains the fresh and flavourful bite of pure grass-fed beef,” in this restaurant close to the French border, Arzak says. “Next to the reception is the star of the show: a great glass case with enormous loins of beef under spotlights. There are cuts from cows and oxen, some young and bright, while others have the dark wisdom that can only be obtained by slow and steady dry-aging.” Lomo Alto, Barcelona
This steak restaurant specializes in older cattle from Iberian breeds. “The chef, Carles Tejedor, manages this new restaurant,” says chef Roca. “It has a very good location, and a casual and elegant atmosphere.” Trinkete Borda, Irún
This Basque restaurant sits in countryside near the coast, close by the French border. “They raise their own cows from 100 percent wagyu stock,” Arzak says. “Perfectly marbled steaks—buttery in flavour and in texture—are expertly grilled in this multi-generational farmhouse restaurant.”
Singapore Burnt Ends
This modern Australian barbecue restaurant is the pick of Australian chef Osborn. “Anything (chef-owner) Dave Pynt cooks in his bespoke built barbecue is awesome, especially the Mayura wagyu from Oz.”
Uruguay El Palenque, Montevideo
This restaurant is housed in the Mercado del Puerto. The old port market building is filled with restaurants and the smell of roasting beef. El Palenque has been open for more than 50 years and has a good wine cellar. “There’s an endless array of grilled meats perfectly cooked over low embers,” Nobu’s Nieporent says. Bloomberg News
A few days ago, a rare KAWS ‘Seated Companion’ sculpture sold for HK$3.2 million at British auction house Philips’ ‘20th Century and Contemporary Art and Design Auction’ in Hong Kong. Created in 2011, the ‘Seated Companion’ sculpture is work number 7 from an edition of 10. At its base, the artist’s signature, date and number ‘KAWS 11 7/10’ can be found engraved. If you are not familiar with KAWS, it must feel incomprehensible how such a big bizarre sculptu re could attract such a high price but after digging into the story of this artist you may also be fascinated by the charming artistic world he inhabits. Brian Donnelly - a.k.a. KAWS - is one of the most appreciated pop artists in the world at present. Born in New Jersey in the US, when he was 12 he was obsessed with graffiti, which he sprayed the streets with from 1991. Different from other artists who deface walls, subways and trains, KAWS creations found their way onto the billboards and posters of famous brands, such as DKNY and Calvin Klein. He brought the posters to his studio at night, added his iconic skull and crossbones (the ‘XX’ pattern) to them, then returned them to their original sites the next morning. His creations ‘re-birthed’ those boring images with a lively, funny style. After he came to fame, the situation changed, with brands actively inviting him to subvert their posters. The spoof and rebellious style of KAWS immediately made him popular. The iconic ‘XX’ eyes, skull ears - beloved by street culture fans - spoke especially to the younger generations. Now, KAWS also sculpts, with his works ranging in size from small to ten metres tall, and are made from various materials like fibreglass, aluminium, wood and bronze. All his sculptures are made in very small quantities; thus, collectors pay high prices to acquire KAWS’s works. Brands know how hip KAW’s works are, and enthusiastically court the favour of this talented artist. KAWS began to design and produce his first vinyl toy with the Japanese clothing brand Bounty Hunter in 1999. In 2017, Nike subsidiary Jordan Brand released a capsule collection in collaboration with KAWS – Air Jordan four sneakers customised by KAWS, and a number of apparel pieces. This special edition of Air Jordan won the notoriety of most expensive sneakers of this year. So – knowing something of the history of KAWS, do you want to own a KAWS work? In April, 2017 Japanese clothing brand UNIQLO collaborated with KAWS to release an array of T-shirts and goods at affordable prices. This is not the first crossover of the duo; last year, they launched a collection of products and quickly sold out as expected. What is new is this time they’ve teamed up with famous comic strip Peanuts. Iconic character Peanuts-Snoopy is subverted with KAWS’ Crossbones ‘XX’. The limited collection comprises 10 adult T-shirts, 3 children’s T-shirts and adorable KAWS x PEANUTS dolls. When this collection launched the first time, it generated great feedback and sold out in short order. In order to reciprocate the fans, this collection will restock in June. All the products will be available in Macau and Hong Kong stores – so, don’t miss this rare opportunity to own a slice of the precious works of Pop art master KAWS. Edwina Liu, Essential Macau editor
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10 Business Daily Friday, June 2 2017
Greater China Manufacturing
Caixin PMI dips below 50 for first time in 11 months The report adds to evidence that growth may have already peaked this year
A
private gauge of Chinese manufacturing fell back into contractionary territory in May, adding to recent evidence that the economy’s strong start to 2017 is levelling off.
“We should not underestimate the senior leadership’s desire to contain financial leverage and risk”
released Wednesday, which indicated manufacturing was steady last month. The official report also suggested China’s factory recovery was spreading to the smaller and nimbler private sector as price pressures on them abate. China’s policy makers are walking a tightrope as they seek to rein in excessive leverage in parts of the financial system while ensuring there’s enough credit flowing to the real
economy to keep growth humming. While economists project expansion will slow from 6.9 per cent in the first quarter, they also expect it to exceed the government’s 6.5 per cent goal. “We should not under-estimate the senior leadership’s desire to contain financial leverage and risk, efforts on which have only just begun, even if it may lead to slower credit and economic growth,” UBS Group AG economists, led by Hong Kongbased Wang Tao, wrote in a report. “However, given the need to meet other government priorities, most notably growth stability, we expect
the government to constantly adjust the pace and magnitude of its supervisory tightening to strike a delicate balance.” The decline signalled a “marginal deterioration in operating conditions” and coincided with slower increases in output and new orders, Caixin said in a statement. Staff numbers were cut at a quicker rate and subdued demand underpinned a drop in purchasing activity. The report adds to evidence that growth may have already peaked this year amid other signs of fading momentum from satellite images to metal prices, says Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing. “Input and output price gauges both fell below the 50 mark, adding to the evidence that China’s factory reflation story is over,” Orlik said in a note. Bloomberg News
Quote from a report written by UBS Group AG economists
Caixin Media and Markit Economics manufacturing purchasing managers’ index fell to 49.6 from 50.3 in April, the lowest reading since June 2016 and below the 50.1 median estimate Output fell to 50.2 vs 51 in April Numbers below 50 indicate deteriorating conditions The private measure -- with a smaller sample size -- contrasts with the government’s PMI reading
Currencies
Yuan to weaken over coming year The currency is forecast to weaken to 7.05 per dollar in 12 months Krishna Eluri
The Chinese yuan and Indian rupee are expected to shed some of this year’s gains and weaken slightly against the dollar over the coming 12 months if the U.S. Federal Reserve raises interest rates further as expected, a Reuters poll showed. China’s yuan has gained nearly 2 per cent so far this year, with half of that coming just in the last month. The move comes on the heels of faster-than-expected growth of 6.9 per cent in the Chinese economy in the first quarter of this year. But that was largely reliant on fiscal stimulus - the country’s total social financing reached a record RMB6.93 trillion (US$137 billion) for the same period. Another reason for concern is Moody’s Investors’ Service decision to cut China’s credit rating for the first time in nearly 30 years, with debt continuing to rise. The yuan is forecast to weaken to 7.05 per dollar in 12 months, according to the poll of over 50 foreign exchange analysts taken this week, even as market confusion reigns over China’s plans to tweak the currency’s
midpoint calculation for a second time this year. China said on Friday it was introducing an unspecified “counter-cyclical factor”, intended to discourage speculation and persistent depreciation pressure, though the currency had been largely stable earlier in the year as the dollar floundered. The latest poll predictions were similar to last month’s and based on similar Fed rate expectations for two more rate increases this year. While the Fed is widely expected to raise rates in June, which would be broadly supportive for the dollar, the currency has been whipsawed in recent weeks as hopes about the U.S.
administration’s economic growth plans have faded. “The top-down drivers for EM (emerging market) currencies suggest slightly stronger performance in spot for the near-term and depreciation over a 12-month horizon,” noted Dirk Willer, head of emerging market strategy at Citi. “This implies only moderate strengthening in the USD, contributing to stability in the CNY and, by extension, other emerging market currencies. This is assumed to take place against the backdrop of moderately higher U.S. rates.”
Rupee seen weakening more than 2 per cent
Separately, the Indian rupee is forecast to weaken to 66.00 per dollar over the next year, a more than 2 per
cent fall from where it was trading on Wednesday after gaining more than 5 per cent so far this year. Official data on Wednesday showed India’s economic growth unexpectedly slowed to its weakest in more than two years in the first three months of 2017, stripping the country of its status as the world’s fastest growing major economy.
“The top-down drivers for emerging market currencies suggest slightly stronger performance in spot for the near-term and depreciation over a 12-month horizon” Dirk Willer, head of emerging market strategy at Citi
Still, the Reserve Bank of India is expected to stand pat when it meets on June 7, but carrying a less hawkish tone according to Reuters poll published this week. Reuters
Business Daily Friday, June 2 2017 11
Greater China Legislation
In Brief
As Mainland ushers in new cyber law, misgivings remain
M&A
China’s top cyber authority said on Wednesday it was not targeting foreign firms with the new law China ushered in a tough new cyber security law yesterday, following years of fierce debate around the controversial legislation that many foreign business groups fear will hit their ability to operate in the country. The law, passed by China’s rubber-stamp parliament in November, requires local and overseas firms to submit to security checks and store user data within the country.
‘The law’s impact will depend on how Beijing enforces it’ China’s top cyber authority said on Wednesday it was not targeting foreign firms with the new law, after over 50 overseas companies and business groups lobbied against the legislation that includes stringent data storage and surveillance requirements. “The purpose is to safeguard (China’s) national cyberspace sovereignty and national security... rather than to restrict foreign enterprises,” the Cyberspace Administration of China (CAC) said in a statement on its website. The law has sparked fierce pushback by firms and lobby groups who say vague wording of the regulations leaves foreign firms vulnerable to abstract interpretations of the rules. Earlier this month Reuters reported the CAC met foreign business
groups in a closed-door meeting to try to allay these fears, including an 18-month phase-in period for aspects of the regulations, according to attendees. According to a revised draft of the rules, seen by Reuters, a phase-in period until the end of 2018 would relate to measures affecting cross-border data transfers, which has been one of the most contentious elements of the new law. The CAC notice on Wednesday made no mention of a phase-in period. It added the law is not designed to hinder international trade or the flow of data across the Chinese border.
Questions remain
Firms and lobby groups say the late changes to the law, while positive, leave most of the original legislation
intact and remain broad. The law’s impact will therefore depend on how Beijing enforces it. “Much will depend on how the measures are implemented,” the U.S.-China Business Council said in a note to members last month after the CAC meeting. On top of internationally common standards, such as requiring user consent before moving data beyond country borders, China’s new cyber law also mandates companies store all data within China and pass security reviews. This fits China’s ethos of “cyber sovereignty” - the idea that states should be permitted to govern and monitor their own cyberspace, controlling incoming and outgoing data flows. China maintains a strict censorship regime, banning access to foreign news outlets, search engines and social media including Google and Facebook. Reuters
Major Chinese bitcoin exchanges have started to resume allowing withdrawals of the cryptocurrency after nearly a four-month freeze that followed increased scrutiny from the central bank. Bobby Lee, chief executive of BTCChina, said in a statement on Thursday that his exchange had started “testing” withdrawals after upgrading its “know your customer” and anti-money laundering systems. Huobi, another exchange, said in a statement it would resume withdrawals yesterday. Two industry sources said OkCoin, China’s third major cryptocurrency
Infrastructure
Mainland companies express interest in Chile-Argentina tunnel
Real estate
National bitcoin exchanges resume withdrawals after freeze
John Ruwitch and Brenda Goh
A consortium of investors led by China’s Fosun International Ltd will buy a 10 per cent stake in Russia’s top gold producer Polyus for US$887 million, they said on Wednesday. Russia, the world’s third largest gold producer, has been looking for investments in Asia, mainly in China, since the West imposed sanctions on Moscow due to its role in the Ukraine crisis and the annexation of Ukraine’s Crimea peninsula in 2014. China is the world’s top consumer, producer and importer of gold and Chinese companies have been targeting gold mine acquisitions.
Ten consortiums including companies from China and Europe formally expressed interest on Wednesday in building a landmark US$1.5 billion tunnel under the Andes mountains to connect Argentina and Chile. Chinese companies Power China and the Chinese Communications Construction Company, Spain’s OHL and FCC, and Italy’s Astaldi and Salini Impregilo are among the interested parties, Chile’s minister of public works Alberto Undurraga said. The planned Agua Negra tunnel would be over 13 kilometres in length and would connect Chile’s Coquimbo region with the Argentine province of San Juan, both mining regions.
Cryptocurrency
Major exchanges halted withdrawals of bitcoins in early February
Fosun buys stake in Russia’s top gold miner
exchange, had resumed allowing withdrawals. A spokeswoman for OkCoin declined to comment but referred Reuters to an industry news outlet that reported on the resumption. As the popularity of bitcoin spread, China quickly evolved into the world’s leading venue for bitcoin trading. But volumes collapsed after the People’s Bank of China began looking into the market more closely and conducting checks of the exchanges at the start of this year. Major exchanges halted withdrawals of bitcoins in early February, introduced trading fees and stepped up scrutiny of clients amid discussions with authorities. While withdrawals were suspended, investors could buy and sell bitcoins on Chinese exchanges but were barred from transferring them or downloading and removing them. One of the industry sources said
the decision to resume withdrawals was made after the central bank had signalled that it was not forbidden. BTCChina and OkCoin were allowing customers to withdraw a maximum of 10 bitcoins a day, the source said. It remained unclear when more formal regulation of the industry would begin, the person added.
Key Points Resumption of withdrawals follows near-four month freeze BTCC, OkCoin allow withdrawals of up to 10 bitoins/day -source Huobi says to resume withdrawals yesterday The decision to resume withdrawals comes with the price of bitcoin near an all-time high. Prices on European exchange Bitstamp were around US$2,400 yesterday - up nearly 150 per cent from the start of the year. The intensified regulator interest in bitcoin coincided with a clampdown on capital outflows, as authorities sought to relieve downward pressure on the yuan currency and stop the depletion of China’s foreign exchange reserves. Bitcoin’s relative anonymity prompted some industry observers to say it had become an attractive, if niche, option for tech-savvy Chinese to hedge against the yuan and skirt rules limiting how much foreign exchange individuals could buy each year. The yuan has stymied forecasts it would continue to fall after losing about 6.5 per cent against the dollar last year. It is up more than 2 per cent since the start of the year. Reuters
Foshan city tightens rules on housing purchases China’s southeastern city of Foshan has cracked down on real estate purchases, the city’s housing bureau said on Wednesday, making it the latest to adopt the government’s flurry of cooling measures. Locals and non-residents will now face limits on property purchases in certain areas in order to “maintain the stable and healthy development of the city’s real estate market”, the Foshan Bureau of Housing and Urban-Rural Development said in a statement. Recently, many cities in China have put limits on purchases as Beijing ramped up measures to rein in house prices, which had surged over the last year. Construction
Cement maker says key shareholder offers to divest stake China Shanshui Cement Group Ltd, at the centre of a bitter boardroom battle involving investors and executives, said yesterday that a major shareholder had offered to divest its 25 per cent stake for around US$600 million. China Shanshui Investment has invited three other big shareholders to buy its holding for HK$5.50 per share, the Hong Kong-listed cement maker said in a filing, although it added that there was no certainty that a deal would be done. The stock has not traded since April 2015 after Tianrui Group raised its stake to become the company’s biggest shareholder.
12 Business Daily Friday, June 2 2017
Asia Trade
South Korean exports up for 7th month In May, exports to China and the European Union rose by 7.5 per cent and 21.9 per cent on-year, respectively Choonsik Yoo and Cynthia Kim
S
outh Korea’s exports grew at a double-digit pace in May, expanding for the seventh consecutive month on strong world demand and suggesting the trade-reliant economy is picking up momentum. South Korea, Asia’s fourth-largest economy and home to the world’s leading suppliers of smartphones, displays, cars and ships, is the first major exporting nation to publish May trade figures.
This resulted in a trade surplus of US$5.99 billion. Demand for South Korean products has proved resilient this year as the global outlook improves, a factor that on Wednesday saw Moody’s raise its growth forecast for G20 economies. “Exports will sustain the current pace of double-digit growth through June or July as demand holds up for such major items as semiconductors,
displays, oil products and cars,” said Stephen Lee, economist at Meritz Securities. He expects global conditions to remain favourable for South Korean exporters for the rest of the year, though oil prices pose uncertainty because they have a big impact on prices of a range of products. One potential downside was South Korea’s factory production, with data this week showing a 2.2 per cent in April from a month earlier, though anecdotal evidence suggests it could be a one-off. In May, exports to China and the European Union rose by 7.5 per cent and 21.9 per cent on-year, respectively,
while shipments to the United States slipped 1.9 per cent. Domestic factors are also lining up in favour of the South Korean economy, as the government of President Moon Jae-in, who took office in early May after his predecessor was impeached earlier this year, looks to deliver a multi-billion dollar fiscal stimulus package soon. Separate data yesterday showed South Korea’s annual inflation in May ticked up to 2.0 per cent from 1.9 per cent in April, while core inflation edged up to 1.4 per cent from 1.3 per cent - headline number was at the central bank’s target. Reuters
Key Points May exports up 13.4 pct, imports up 18.2 pct y/y May inflation 2.0 pct y/y (Reuters poll 1.95 pct) The data from the trade ministry yesterday indicated the economy is gathering momentum and should allow the Bank of Korea to go ahead with plans in July to upgrade the growth outlook for this year from the current 2.6 per cent. Exports in May rose 13.4 per cent from a year earlier to US$45.04 billion, the ministry said, largely in line with the median forecast of a 13.6 per cent increase from a Reuters survey. Imports soared a faster 18.2 per cent to US$39.05 billion, topping expectations for a 14.6 per cent gain.
Investment
Japanese firms’ capex up, suggests upward revision to Q1 GDP Excluding software, capital expenditure grew 1.3 per cent from the previous quarter Tetsushi Kajimoto
Japanese companies picked up the pace of their investment in plant and equipment in January-March, highlighting a nascent return to the level of business spending needed to drive economic recovery and put a decisive end to deflation. Ministry of Finance (MOF) data out yesterday showed companies raised capital expenditure in January-March by 4.5 per cent from the same period last year, led by spending for the production of new-model cars
and investment from real estate and construction firms. It marked a second straight quarter of annual growth in capital expenditure after posting 3.8 per cent growth in the previous quarter. Excluding software, capital expenditure grew 1.3 per cent from the previous quarter on a seasonally-adjusted basis, rising for three quarters in a row and following a 3.5 per cent gain in the previous period, the MOF data showed. The data will be used to calculate revised gross domestic product (GDP)
for the January-March period due on June 8 at 0850 JST (2350 GMT June 7). A preliminary estimate showed Japan’s economy grew an annualised 2.2 per cent in the first quarter on the back of rising global demand. “The capex component of GDP will likely be revised up to around plus 0.6-1.0 per cent on the quarter from the preliminary estimate of plus 0.2 per cent,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute, Overall GDP growth for the first quarter may also be revised up to an annualised rate of around 2.5 per cent, although the scale of the revision will depend on inventory levels, he added. “Companies are raising capital
expenditure in part to cope with labour shortages, instead of boosting wages. But wages need to grow as well in order to spur consumer spending and help the Bank of Japan achieve a 2 per cent inflation target.” A recent run of indicators points to continued economic expansion in the current quarter, with exports and factory output rising and a labour market tightening, although wage growth and household spending remain sluggish.
Key Points Q1 capex +4.5 pct yr/yr, seasonally-adjusted +1.3 pct m/m Suggests upward revision to revised Q1 GDP data out June 8 Recurring profits +26.6 pct yr/yr to record amount for Q1 The MOF capex data showed capital expenditure by manufacturers and non-manufacturers grew 1.0 per cent and 6.3 per cent respectively in the first quarter from a year earlier. Corporate profits rose 26.6 per cent in January-March from a year earlier, up for a third consecutive quarter. The amount of recurring profits, at 20.1 trillion yen (US$181.20 billion), was the biggest on record for a January-March quarter, driven by brisk demand for cars and smart phones, an MOF official said. Sales rose 5.6 per cent year-on-year in the first quarter, up for a second straight period, the data showed. Reuters
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Business Daily Friday, June 2 2017 13
Asia Capital
Australian business investment rises Economists believe April retail sales may have been distorted by the aftermath of a devastating cyclone Swati Pandey
Australian business investment rose modestly in January-March after four straight declining quarters while April’s retail sales rebounded vigorously from a tepid start to the year. Figures from the Australian Bureau of Statistics (ABS) out yesterday showed capital investment rose 0.3 per cent in the first quarter to nearly A$28 billion (US$20.7 billion) compared with expectations of a rise of 0.8 per cent. Spending by miners rose 0.5 per cent in the quarter, the first increase since June 2014. “We now know that the mining capex downturn is very close to done,” said Su-Lin Ong, senior economist at RBC Capital. “Non-mining plans are slightly positive so that’s heading in the right direction. We are still waiting for stronger signs that the services sector is picking up the slack from mining.” Importantly, spending on equipment,
plant and machinery surprisingly edged lower in the first quarter, anchoring expectations that the economy all but stalled in the period. The ABS said yesterday that real retail sales rebounded 1.0 per cent in April, topping expectations of a gain of 0.3 per cent and reversing a revised 0.2 per cent fall in March. The bounce-back will provide some comfort to the Reserve Bank of Australia (RBA) which has worried about the effect excessive borrowing in the red-hot property sector could have on spending elsewhere in the economy. It also coincides with a downturn in home prices in Australia’s capital cities. Prices fell 1.1 per cent in May as regulatory pressure on banks to curb riskier lending appeared to rein in demand. RBA Governor Philip Lowe has warned that high levels of household borrowing could curtail spending should consumers decide they have to put more aside to pay off debt. Indeed, retail sales have been subdued
over the past year or so, gaining 0.2 per cent on average this year, reflecting wage growth stuck at a record low 1.9 per cent and surging household debt. The retail sector accounts for about 17 per cent of Australia’s A$1.7 trillion annual economic output, and is the second-biggest employer after healthcare. Yesterday’s data showed a 3.6 per cent rise in liquor sales, a 1.1 per cent gain in eating out, and a 1.2 per cent rise in food retailing. Sales at department stores climbed 2.5 per cent. “We suspect these rises were partly from stronger Easter-related trading. We don’t look for a repeat in May though,” said Citi economist Josh Williamson. Economists believe April retail sales may have been distorted by the aftermath of a devastating cyclone that hit Queensland state at the end of March. Retail sales were up 2.4 per cent in Queensland after five consecutive months of falls as households replaced cyclone- and flood-damaged possessions. Retail sales in New South Wales, Australia’s most populous state and home to its most expensive housing, rose 0.1 per cent. Reuters
M&A
Malaysia’s RHB, AmBank in merger talks Trading in shares of RHB and AmBank were suspended, ahead of the announcement A. Ananthalakshmi
Malaysia’s RHB Bank Bhd and AMMB Holdings Bhd (AmBank) said they will
begin merger talks, in what could be the Southeast Asian nation’s biggest banking deal and create a group worth about US$9 billion at current prices. advertisement
The banks have received the nod from the Malaysian central bank to commence the merger negotiations, they said in a joint statement yesterday. The transaction is expected to be an all-share deal and the two banks have until Aug. 30 to exclusively discuss a deal, they said. The potential merger would reinforce RHB’s ranking as the fourth largest Malaysian bank by assets behind Maybank, CIMB Group Holdings and Public Bank. AmBank is currently the country’s sixth biggest bank. Source told Reuters on Wednesday that RHB would be the acquirer in the potential merger. AmBank has a market capitalisation of 15.7 billion ringgit (US$3.66 billion), while RHB has a market value of about US$5.0 billion. A full takeover at those price levels by RHB would put it above the 2006 acquisition of Southern Bank by Bumiputra-Commerce Holdings for US$1.74 billion, making it the biggest Malaysian banking deal, according to Thomson Reuters data. Bumiputra-Commerce eventually became the current CIMB Group after a series of mergers and a rebranding exercise. Trading in shares of RHB and AmBank were suspended, ahead of the announcement. In a research note ahead of the merger announcement, UOB Kay Hian analyst Keith Wee Teck Keong said RHB’s shares are likely to react negatively to the announcement as the revenue synergies between the two groups are not compelling. “We opine that such a merger would require a fair degree of cost rationalisation given the degree of operational and revenue duplication between AMMB and RHB,” he said. ANZ Banking Group, which owns a 24 per cent stake in AmBank, has been weighing a sale of its stake since early last year, partly due to AmBank’s involvement in a political scandal linked to state fund 1Malaysia Development Berhad and Prime Minister Najib Razak, sources have said. Najib has been buffeted by allegations of graft and financial mismanagement at 1MDB and in particular by revelations of the transfer of hundreds of millions of dollars into his AmBank accounts in 2013. Najib has denied any wrongdoing and said he did not take any money for personal gain. 1MDB is the subject of money laundering investigations in at least six countries, including the United States, Singapore and Switzerland. In 2015, AmBank was slapped with a 53.7 million ringgit fine by the Malaysian central bank for breaching certain financial regulations. Reuters
In Brief Growth
Finance minister looks to GST for lift India’s economy should get a lift from the launch of a new sales tax, Finance Minister Arun Jaitley said yesterday, putting a brave face on a slowdown in growth that followed a government crackdown on “black money”. Jaitley’s comments came a day after data showed that annual economic growth unexpectedly slipped to 6.1 per cent in the JanuaryMarch quarter, its lowest in more than two years. Prime Minister Narendra Modi’s shock decision last November to outlaw high value old banknotes took 86 per cent of currency out of circulation virtually overnight. Smoking
Indonesian tobacco bill would open tap for ads aimed at kids A proposed Indonesian tobacco law will roll back regulations to discourage smoking in a country that already has one of the highest smoking rates in the world and open the floodgates to advertising aimed at teenagers, a health ministry official said. If the bill initiated by the parliament is passed, companies will no longer have to put grim pictures on cigarette packs of lung cancer or other diseases linked to smoking, said Mohammad Subuh, director-general of disease prevention and control at the health ministry. Markets
Philippines rises on lower house nod for tax reform bill Philippine shares rose yesterday, heading for their first gain in three sessions and outperforming other Southeast Asian markets, after the lower house of Congress approved a much-anticipated tax reform bill on Wednesday. The bill, yet to be published and which still needs Senate approval, is critical to President Rodrigo Duterte’s economic programme, which focuses on infrastructure spending and fiscal efficiency to lift growth to as much as 8 per cent before his six-year term ends in 2022. The Philippine benchmark rose as much as 0.75 per cent, its biggest intraday per centage gain since May 16. Real estate
Australia’s biggest state taxes foreign property buyers Australia’s most populous state announced a doubling in property taxes for foreign buyers yesterday, a voter-friendly move set to discourage Chinese investment just as seemingly unstoppable markets in Sydney and Melbourne begin to show signs of strain. Chinese are the largest foreign property buyers in Australia, and ploughed A$32 billion (US$24 billion) into the real estate market in the 2016 financial year, according to government figures. “I think it will heavily discourage their investment,” Ted He, managing director at CLG Corporate, a firm that advises Chinese property investors, told Reuters.
14 Business Daily Friday, June 2 2017
International In Brief Growth
Brazil exits recession with fastest growth rate since 2013 Brazil’s economy emerged from its worst recession on record with its fastest growth rate in nearly four years, government data showed yesterday, in some good news for President Michel Temer as he battles a corruption scandal. Brazil’s gross domestic product grew by 1.0 per cent in the first quarter from the preceding one, statistics agency IBGE said, the fastest pace since the second quarter of 2013. The increase, the first after eight quarters of contraction, matched the median forecast of economists polled by Reuters. Governor comments
Fed marching on despite U.S. inflation slump The Federal Reserve sent a strong signal yesterday that it will raise interest rates this month and soon begin shedding some of its US$4.5 trillion in bond holdings, despite some weak recent U.S. inflation readings. Fed Governor Jerome Powell, an influential policymaker and among the last to speak publicly before a mid-June policy meeting, said the U.S. economy was “healthy” and the central bank should continue to edge toward a more normal footing after nearly a decade of crisis-era stimulus.
Employment
U.S. private payrolls surge in May In a separate report yesterday, the Labor Department said initial claims for state unemployment benefits jumped 13,000 to a seasonally adjusted 248,000 for the week ended May 27
U
.S. private employers stepped up hiring in May, signalling that the labour market was rapidly tightening amid a firming economy, which could encourage the Federal Reserve to raise interest rates later this month. While other data yesterday showed a jump in the number of Americans filing for unemployment benefits last week, the data was probably distorted by the Memorial Day holiday. Claims for eight states, including California, had to be estimated. According to the ADP National Employment Report, private payrolls increased by 253,000 jobs last month, beating economists’ expectations for a gain of 185,000 jobs. Private payrolls rose by 174,000 jobs in April. The ADP report is jointly developed with Moody’s Analytics and was released ahead of the Labour Department’s more comprehensive nonfarm payrolls report on Friday, which includes both public and private-sector employment. “The report suggests tomorrow’s jobs report will support a June rate hike,” said Chris Low, chief economist at FTN Financial in New York.
According to a Reuters survey of economists, payrolls likely increased by 185,000 jobs in May after a gain of 211,000 in April. The unemployment rate is forecast to be unchanged at a 10-year low of 4.4 per cent.
Worker shortages
In a separate report yesterday, the Labor Department said initial claims for state unemployment benefits jumped 13,000 to a seasonally adjusted 248,000 for the week ended May 27.
Key Points Private payrolls jump by 253,000 in May Weekly jobless claims increase by 13,000 Announced layoffs surge 41 per cent in May It was the 117th straight week that claims were below 300,000, a threshold associated with a healthy labour market. That is the longest such stretch since 1970, when the labour market was smaller.
A Labor Department official said claims for California, Hawaii, Kansas, Kentucky, Louisiana, North Dakota, Texas and Virginia were estimated because of the Memorial Day holiday. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose only 2,500 to 238,000 last week. The Fed said on Wednesday in its Beige Book report of anecdotal information on business activity collected from contacts nationwide that labour markets continued to tighten from early April through late May. The U.S. central bank said “most” districts had cited worker shortages across a broadening range of occupations and regions. Economists expect the Fed will raise interest rates by 25 basis points at its June 13-14 policy meeting. The claims report also showed the number of people still receiving benefits after an initial week of aid fell 9,000 to 1.92 million in the week ended May 20. The so-called continuing claims now have been below 2 million for seven straight weeks, pointing to shrinking labor market slack. A third report by global outplacement consultancy Challenger, Gray & Christmas showed layoffs announced by U.S.-based employers surged 41 per cent to 51,692 in May. Nearly 40 per cent of the job cuts were announced by Ford Motor Co , according to the report. Reuters
UK
Manufacturing data beat no comfort for sterling Sterling inched lower against the dollar and euro yesterday, with forecast-beating manufacturing data giving the currency only a minimal boost as traders eyed radically conflicting polls on next week’s British elections. A May survey of purchasing managers in the manufacturing sector beat forecasts in a Reuters poll of economists, but the pound’s reaction was small, temporarily trimming some losses against the dollar and the euro before again. Some recent polls have hinted that Prime Minister Theresa May and her Conservative Party could even lose parliamentary elections on June 8. Trade
German minster blames surplus on ECB stimulus The euro exchange rate is too low for the German economy’s competitiveness and Germany’s trade surplus would be only half as large without the European Central Bank’s loose monetary policy, the German Finance Minister said yesterday. “Moreover, our current account surplus, which is really the source of the international debate, has to do with an exchange rate which is too low for the competitiveness of the German economy,” Wolfgang Schaeuble said at a Europe conference. “For the overall competitiveness of the euro zone, it may be all right,” Schaeuble said, adding that the euro exchange rate was also on the rise.
Oil industry
Russia could boost oil output next year, to test new tax regime Rosneft, Russia’s biggest oil producer, has been lobbying for a lower tax at Samotlor oilfield Russia could increase oil production next year to as much as 551 million tonnes, or 11.07 million barrels per day (bpd), and will begin testing a new tax regime to support output growth, Alexei Texler, first deputy energy minister, told Reuters. The increase will depend on how smoothly a global output-cutting agreement is wound down, Texler said, adding that this year’s oil output was seen at 547 million tonnes. “My forecast for next year - 547551 million tonnes - depends on how smooth the exit from the agreement is,” Texler said in an interview. Russia and 10 other non-OPEC nations agreed last December to join OPEC output cuts for the first time in 15 years. Last week, the Organization of the Petroleum Exporting Countries and non-OPEC producers agreed to
extend the curbs by nine months to March 2018. Russia has cut production by 300,000 bpd under the deal. Texler said a new tax regime was expected to be introduced in 2018 for selected oilfields for up to five years as part of efforts to increase production. If successful, it could be expanded to the entire domestic oil sector, already the world’s largest by volumes produced. The bulk of Russia’s oil production comes from mature fields in western Siberia and is subject to two key taxes - the mineral extraction tax (MET) and the oil export duty. Some oilfields, both mature and new, receive tax breaks and Russia has long been considering the introduction of a new, unified, profit-based taxation system instead. The new tax regime will be tested at fields with combined production of 15 million tonnes a year (300,000 bpd). Five Russian oil firms have applied for the trial to be carried out at 21 fields, Texler said.
The proposed switch has prompted a debate with the finance ministry, which fears the new system would be harder to control. The finance ministry also opposes plans to apply both the new tax regime and existing tax breaks.
“Thanks to the profit-based tax, we expect that the fields covered will see an increase in production of up to 20 per cent over the next five years” Alexei Texler, first deputy energy minister
Rosneft, Russia’s biggest oil producer, has been lobbying for a lower MET at Samotlor oilfield, one of its largest and which is battling water inundation. The finance ministry has instead proposed testing the profit-based tax at Samotlor. Reuters
Business Daily Friday, June 2 2017 15
Opinion
Evergrande shorts find spectre of state is never too far
China’s monetary conundrum
Nisha Gopalan Bloomberg Gadfly
O
nce again, events have shown that if you’re shorting a Chinese company, governmentowned or not, you’d better be on guard. As investors in China Evergrande Group are finding out, the spectre of the state is never far away. The Guangzhou-based developer said on Thursday it had raised RMB39.5 billion (US$5.8 billion) from selling a stake in a residential property unit, part of a reorganization ahead of a planned backdoor listing on the mainland. Analysts said the figure exceeded expectations. Having already sold a 13.2 per cent interest in Hengda Real Estate earlier this year, that brings the total amount raised to 70 billion yuan. As Gadfly noted earlier, Evergrande, whose stake in billion US$ Hengda is now Hui Ka Yan net worth 7 3 . 8 8 p e r c e n t, can put the money to good use. The company has some pricey perpetual securities, sold to fund a land-buying binge, that can be redeemed. Some 60 per cent of Evergrande’s post-tax earnings last year were used to pay the interest on the notes. According to Bloomberg Intelligence, Evergrande had a net debtto-equity ratio of 777 per cent at the end of December. The company’s shares, which rallied 22.8 per cent on Monday, are up more than 200 per cent this year. Chairman Hui Ka Yan has seen his fortune rocket to US$19.3 billion, making him China’s fifth-richest person. But spare a thought for the short sellers. Fees to borrow stock in Hong Kong-listed Evergrande for shorting have soared to about 10 per cent since January and have doubled since Evergrande began buying back shares in late March, according to Simon Colvin, a London-based analyst at IHS Markit Ltd. That repurchase plan, aimed at boosting valuations ahead of a reverse merger in Shenzhen, coupled with initiation of coverage by Morgan Stanley last month, partly explains the equity surge. Of the 13 buyers that participated in Evergrande’s latest founding round, it’s worth noting who injected the most money. Maanshan Maowen Technology Industrial Park Co., a subsidiary controlled by Shum Yip Group Ltd. that is in turn wholly owned by the Shenzhen State Assets Supervision and Administration Commission, paid RMB5.5 billion for a 2.05 per cent stake in Hengda’s enlarged equity, making it the single biggest contributor. The size of its debt burden makes Evergrande a natural magnet for short sellers. But it would seem that large pile of leverage also means one of the nation’s biggest home builders can count on state support come crunch time. Bloomberg News
19.3
W
eak demand is dragging down China’s economic growth. The real problem isn’t a shortage of money: the broad money supply (M2) now exceeds RMB155 trillion (US$25 trillion), or 200 per cent of GDP, and continues to grow by 12-13 per cent annually. Rather, the current slowdown reflects financial constraints on the real economy – a problem that will be difficult to reverse in the near future. Ironically, these financial constraints have tightened against a background of strong financialsector growth. Indeed, it is the financial sector’s prosperity, driven partly by the success of marketoriented innovations, that has fuelled growth in China’s M2 and credit assets. This trend can be traced back at least to 2004, when a fast-growing trade surplus and massive capital inflows, as well as relentless exchange-rate appreciation, forced the People’s Bank of China (PBOC) to resort to monetary expansion as a hedge against the resultant risks. Since then, China’s unremitting investment in infrastructure and real estate has fuelled domestic demand, absorbing and reinforcing this credit growth. In 2009, China took things a step further, with a massive threeyear stimulus plan that expanded bank credit to more than RMB20 trillion. As the money supply and financial sector expanded, so did the shadow banking system, which operates beyond the reach of riskmitigating regulation. According to data from Moody’s Investors Service, by the end of last year, credit from China’s shadow banking system had nearly tripled relative to 2011, to RMB65 trillion. Since 2006, shadow banks’ share of total credit soared from 10 per cent to 33 per cent. But the trend toward riskier offbalance-sheet lending is visible within the official financial sector as well, largely owing to the use of innovative and weakly regulated wealth-management products that enable commercial banks to bypass regulation. Even interbank loans, traditionally included on balance sheets, have been turned into “interbank investment businesses,” which can exist off balance sheets. The PBOC’s 2014 Financial Stability Report showed that from the beginning of 2009 to the end of 2013, banking institutions’ interbank assets surged from RMB6.21 trillion to RMB21.47 trillion. That 246 per cent growth rate was 1.8 times that of total assets and 1.7 times that of total loans over the same period. Interbank liabilities, meanwhile, grew by 236 per cent – 1.7 times faster than total liabilities and 1.9 times faster than deposit liabilities. All of this fuelled rising risk across China’s financial sector, while intensifying pressure on the real economy. Indeed, the proliferation of interbank loans and non-standard assets left a lot of money spinning within the financial system, instead of being put to use in the real economy. Making matters worse, such funding accumulated interest with every transfer, adding to the costs of shadowbank borrowing. Of course, banks enjoyed the easy profits from their off-balance-sheet business. Indeed, those profits have encouraged them and their shadow-bank
“
Zhang Jun Professor of Economics and Director of the China Centre for Economic Studies at Fudan University
counterparts to channel deposits into high-risk, high-return financial and real-estate investments. This can fuel huge asset bubbles and market volatility. The stock-market crash of 2005 underscores these risks. At that time, the large amounts of capital that were suddenly pulled out of the stock market poured into real estate, with the increased leverage triggering a surge in urban housing prices. The massive influx of money into the Chinese economy has also been used to invest in technology start-ups. But, while China undoubtedly has an interest in supporting innovative enterprises, the risk of a tech bubble is grave. Last year, data from China’s Science and Technology Ministry showed that the number of Chinese “unicorns” (companies that are less than ten years old, yet have a valuation of over US$1 billion) has soared above 130 –at least 30 more than in the US. Given the rather low share of Chinese unicorns that fulfil their promise, there is little doubt that China has a valuation problem. The bike-sharing start-ups that have penetrated major cities over the last year, thanks to hundreds of millions of dollars in venture capital funds, amount to another example of China’s monetary conundrum. Such companies’ potential long-term profits simply do not justify the valuations they are receiving. Enabled by China’s shadow banks, these companies seem to be burning cash, say, by subsidizing customers in the hope of outlasting their competitors. The risks generated by these activities are not lost on the Chinese authorities. The newly appointed chair of the China Banking Regulatory Commission (CBRC), Guo Shuqing, has pledged to look more closely at banks’ offbalance-sheet activities and conduct a rigorous audit of their risk assets. In the meantime, China’s securities and insurance regulators have cracked down on activities like hostile takeovers. Such a crackdown will lead to short-term challenges. Already, regulatory tightening, combined with the PBOC’s macroprudential tools, has caused stock prices to slide. It has also rocked the bond market, causing interest rates to soar, with the default rate hitting unprecedented levels. Yet I believe that the Chinese authorities will plough ahead with their efforts to strengthen financial regulation. They know all too well that a bank-dominated financial system cannot weather a new and chaotic crisis. But the truth is that a regulatory crackdown, while necessary to mitigate financial risk, will not resolve China’s monetary conundrum, much less protect China’s economy from the consequences of a financial crisis in the long run. For that, China will need to identify and encourage those financial innovations that can support real economic activity. Unfortunately, on that front, not nearly enough progress has been made. Project Syndicate
The proliferation of interbank loans and non-standard assets left a lot of money spinning within the financial system, instead of being put to use in the real economy
”
16 Business Daily Friday, June 2 2017
Closing Currency
China stumps market, pushes yuan to 7-month highs Some traders believe the gains have been engineered as a show of strength by China Winni Zhou and John Ruwitch
C
hina’s yuan surged to a near seven-month high yesterday, reinforcing views that the central bank will no longer tolerate much depreciation against the dollar and is setting the currency on a firmer path. Spot yuan strengthened through 6.8 per dollar for the first time since Nov.11 in early trade before retreating and settled at 6.8061 by the close of trade in China. The 4:30 p.m. (0830 GMT) settlement price was still nearly 0.2 per cent firmer than the previous late session close.
Key Points C.bank sharply strengthens yuan’s midpoint rate Traders say big state-owned banks sold dollars to support yuan C.bank has ‘let the yuan bulls loose’ - analyst Offshore yuan gains 2 pct in last six sessions Early in the day, the central bank pushed the reference rate for the yuan up by 0.8 per cent, the midpoint’s second largest one-day appreciation since the currency was de-pegged from the dollar in 2005. After months of holding the yuan relatively stable against the dollar, China has suddenly allowed the currency to advance about 1.2 per cent since May 24, when Moody’s Investors Service downgraded its sovereign credit rating for the first time since 1989. Some traders believe the gains have been engineered as a show of strength by China to scare off short sellers after the downgrade, while others think the policy shift may have been in the works for some time to fix a flaw in the fixing mechanism which left the currency more susceptible to depreciation.
Authorities on last Friday confirmed they are adding a “counter-cyclical” factor to their calculations of the daily reference point to curb persistent depreciation expectations. But they did not elaborate, and markets are puzzling over what the new “X” factor is, if it is quantifiable at all. “The PBOC has let the yuan bulls loose in the China shop,” said Stephen Innes, senior trader at OANDA in Australia, referring to the People’s Bank of China. “Needless to say, the market is a tad shell-shocked this morning while searching for some policy clarity from the PBOC.” Traders said major state-owned banks were selling dollars, which helped keep the yuan strong. Many market participants believe dollar selling by the biggest state-owned banks in recent weeks has been a key part of government efforts to support the exchange rate. In the offshore market, the currency has strengthened by about 1.8 per cent since the rating downgrade. “The change (in the calculation method) gives the PBOC more leeway to ignore market moves when determining the fix – as such, it is a further sign of reluctance at senior levels to allow prices to be set by market forces,” Capital Economics said in a note. Earlier yesterday, the CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), the island’s
Fiscal support
overnight yuan borrowing rate, jumped to 42.81500 per cent, its highest in nearly five months. The Hong Kong Monetary Authority (HKMA) responded in an emailed statement saying that the interbank market on the whole was operating in an orderly manner after noting the tightness in CNH liquidity and that it had provided liquidity support to banks. “We will continue to closely monitor the CNH market,” HKMA said. Chinese stocks also have risen after Moody’s move, and some analysts believe the hand of the state is behind moves designed to dissuade bears. Stocks had been in retreat in recent weeks as regulators cracked down on riskier types of financing and borrowing costs increased.
Depreciation pressure
The yuan lost 6.5 per cent of its value against the surging dollar in 2016 and analysts polled by Reuters have repeatedly predicted it would shed another 3-5 per cent this year if the U.S. Federal Reserve continues to slowly raise interest rates, buoying the greenback’s appeal. But so far this year, it has gained about 2.3 per cent, and the appreciation of recent days has forced some analysts and investors to reconsider their outlook. “The sudden surge in the yuan caused some panic among bank clients. Unlike the previous rallies
Auto industry
in the yuan, this time, the one-way expectation of yuan depreciation has changed,” a Shanghai-based trader at a Chinese bank said. “Some clients were considering liquidating their dollar positions to stop losses. The next key level might be around 6.78 per dollar level,” the trader said. Indeed, investors in the last two weeks have increased their long positions on the yuan to the largest in almost two years, a Reuters poll showed yesterday.
‘Relatively fragile’
Financial News, a newspaper owned by the PBOC, said in a front page commentary yesterday that adopting measures to stabilise expectations for financial markets and boost confidence is a good idea at a time when investor confidence was “relatively fragile”. “And it is more important to let the market understand that the Chinese economy has showed good and stable momentum, which would provide a solid base for stabilising development in the future,” the paper said. Traders last week said major stateowned banks were selling dollars in the onshore market - a move sometimes interpreted as part of the government’s efforts to prop up the yuan. Yesterday, the yuan midpoint was fixed at 6.8090 per dollar, lifting it 543 pips from the previous day’s rate to its strongest level since Nov. 10. Reuters
Diplomacy
Bangladesh announces US$50 billion China makes concessions budget to spur economy to Germany on electric car quotas
Putin hosts Modi at Russia’s economic showcase
Bangladesh’s finance minister yesterday announced the budget for the next fiscal year would increase by a quarter to more than 4 trillion taka (US$50 billion) to help spur on economic growth. The budget, for the year July 2017 to June 2018, is crucial for the government as it looks towards the next national election, due before the end of 2018. “This is the last full budget of our current tenure as the general election is scheduled to be held next year,” Abul Mal Abdul Muhith told parliament as he announced the figure, a near 26 per cent rise on current financial year. He said the economy would grow at the rate of 7.4 per cent in the coming fiscal year, the highest in the past four decades, compared with 7.11 per cent during this fiscal year. “We will be able to achieve the target by increasing domestic and external demands by creating more jobs and increasing investment,” he said. “Domestic demand is the principal driving force of our GDP growth.” He said the rate of inflation would come down to 5.5 per cent from 6.10 per cent in the past year. The budget deficit in the next fiscal year will be 1,122.75 billion taka, which is 5 per cent of GDP.
Russian President Vladimir Putin hosted Indian premier Narendra Modi yesterday on the sidelines of the Kremlin’s annual economic forum, as Moscow looks to burnish a fragile recovery despite tensions with the West. Modi and Putin met on the third leg of the Indian leader’s four-nation tour of Europe with the pair looking to bolster declining trade between the once key partners. Modi is the guest of honour at this year’s threeday Saint Petersburg Economic Forum -- Russia’s answer to Davos -- that Putin wants to use to push the idea that Russia has turned the page on a brutal recession caused by low oil prices and sanctions over Ukraine. Speaking to journalists as the showcase kicked off, the combative Kremlin strongman insisted that measures against Moscow, including economic sanctions, had ended up having “zero effect”. Putin said he hoped “Russophobia” in the West would “not last for too long, not forever, if only because the understanding has to come that it is counterproductive and harms everyone.” For the Kremlin, India represents the sort of major emerging market it wants to do more business with. AFP
Reuters
Germany has persuaded China to make concessions on its proposed quotas to encourage the production of electric vehicles, Chinese Premier Li Keqiang and Chancellor Angela Merkel said after talks in Berlin yesterday. Li told a joint news conference he had discussed the issue at a dinner in Berlin on Wednesday and China had agreed to make concessions to automakers, without giving details. Merkel said Germany and China had similar goals when it came to promoting electric vehicles, but said she wanted to make sure there were good conditions for German automakers in China, saying she was optimistic for a positive solution. Germany has been lobbying hard since China released a draft policy in September to set a target for 8 per cent of automakers’ sales to be battery electric or plug-in hybrid vehicles by 2018, rising to 10 per cent in 2019 and 12 per cent in 2020. Reuters reported in March that China could consider pushing back the 8 per cent target to 2019 after the automotive industry criticised the scale and pace of the plans. New energy vehicles last year accounted for just 1.8 per cent of sales in the world’s biggest auto market, according to Reuters calculations based on official data. Reuters