Beijing and Singapore strengthen trade links Regional cooperation Page 10
Tuesday, June 13 2017 Year VI Nr. 1316 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Transportation
Land
MSAR should follow Singapore in cycling and pedestrian ways, and a “light touch” for ride hailing services, says expert Page 2
Legislators submit debate request for articles of Land Law, hoping for revisions Page 5
www.macaubusinessdaily.com
Gaming
Amax expecting HK$900 mln losses from Greek Mythology for 2017 financial year Page 7
Private poll
Traders think China’s central bank to follow FED move Page 10
Deus ex machina Innovation
The One Belt, One Road initiative could lead to the MSAR developing a fully automated harbour, in line with Rotterdam, due to heavy use of autonomous trucks and ships along the route, says expert. Supply chains will see a “dramatic” decrease in expenses, as humans are switched out for robots, with the need for a “universal basic income” provided by gov’ts just over the horizon. Page 2
Taking flight
With a management restructure under its belt, Melco Resorts & Entertainment’s Chairman and CEO Lawrence Ho explains how the group is looking to increase its aviation offerings, drawing in more VIPs, particularly to Manila. The local gaming icon opens up about the Crown split, noting it came at “a crucial time”.
The more the merrier
Logistics Menzies has secured a fifth warehouse in the Mainland, in Foshan, helping to boost the cargo volumes possible at the Macau International Airport. As HKIA reaches saturation, the new HKZM bridge comes in, and the Greater Bay Area gets developed, the new facilities, with increased cold storage and live goods storage capacity, come at an ideal time. Page 4
Car sales in China slow
Melco Page 7
HK Hang Seng Index June 12, 2017
25,708.04 -322.25 (-1.24%) Worst Performers
Galaxy Entertainment Group
+0.53%
CK Infrastructure Holdings
-0.30%
Geely Automobile Holdings
-4.13%
New World Development
-2.24%
Sands China Ltd
+0.14%
Cheung Kong Property
-0.41%
AAC Technologies Holdings
-3.77%
Wharf Holdings Ltd/The
-2.08%
CNOOC Ltd
-0.12%
Belle International Holdings
-0.49%
Hong Kong Exchanges &
-2.78%
Sun Hung Kai Properties Ltd
-1.89%
HSBC Holdings PLC
-0.22%
China Shenhua Energy Co
-0.51%
Tencent Holdings Ltd
-2.45%
Hong Kong & China Gas Co
-1.87%
CK Hutchison Holdings Ltd
-0.25%
Lenovo Group Ltd
-0.58%
China Life Insurance Co Ltd
-2.36%
Cathay Pacific Airways Ltd
-1.74%
28° 30° 28° 31° 27° 31° 26° 30° 26° 30° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Auto industry Auto sales in the Mainland decreased last month on a yearly basis. Behind the slow figures lays the rollback of a tax incentive that pushed up consumption significantly last year. The China Association of Automobile Manufacturers said the downturn could extend through July or August. Page 8
2 Business Daily Tuesday, June 13 2017
Macau Innovation
Rise of the machine The One Belt, One Road policy will be based on the automation of the involved countries’ shipping harbours and supply chains Nelson Moura nelson.moura@macaubusinessdaily.com
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he automation of supply chains will be a core component of the One Belt, One Road policy, according to author and business transformation expert, Sean Culey. According to the researcher, it would be “perfectly possible” for Macau to develop its harbour into a fully automated one, since the “Chinese government has already realised that robotics is the future”. According to Mr. Culey, “some ports in Australia, the Netherlands, India, the United States and even Nigeria” are already almost completely automated, and any planned ports to be developed in the future will have to follow the same model. “Otherwise people won’t use them, since they won’t be able to operate at the same level of safety or efficiency,” he added. As an example, Mr. Culey presented the Port of Rotterdam in the Netherlands, the largest seaport in Europe and one of the first ports in the world to be automated. With the capacity to handle around
461 million tonnes of cargo, the majority of container loading and stacking at the Dutch port is handled by autonomous robotic cranes and computer controlled chariots. “I truly believe the One Belt, One Road Policy will heavily use automation, and we will see the heavy use of autonomous trucks and ships. It will be an initiative based in 21st century ports not 12th century ports, with very few people needed to manage all port operations,” Mr. Culey said.
A work-free world
The expected full automation of the supply chains will lead to a “dramatic” decrease in supply and manufacturing expenses since “humans are the most expensive component” in any business sector, the researcher told Business Daily.
“For many years, Western companies shifted manufacturing to China for cheap labour, a situation that now changes as companies relentlessly pursue lower costs of production. They are now realising human labour is the most expensive part of manufacturing,” he added. However Mr. Culey believes there are a variety of new jobs that will still be created for human workers, although they will mainly be qualified skilled positions instead of physical work. “At the moment almost 1 billion people use the chat app WhatsApp, but the company only has 55 employees (…) We’re walking into an era where labour and data will be virtually free,” he said. According to Mr. Culey, the predicted decrease in manufacturing
costs caused by automation will lead to a “dramatic” drop in the cost of commodities. “Less money will be required to have a good quality of life, but money will still be needed or the whole Capitalist system would collapse. I believe in the future all people will have to receive some kind of government support to survive, a universal basic income,” Mr. Culey told Business Daily. Mr. Culey, also the Vice-President of Research and Advisory Services at manufacturing company Manucore, made the statements after his talk ‘A new Era of Creative Destruction and Exhilarating Innovation is Upon Us,’ held yesterday at the Chartered Institute of Logistics and Transport (CILT) International Convention 2017.
to a report by the Asia Development Bank. “The city also demands that all public buses have to be Euro 6, the highest standard for vehicle carbon emissions,” he added. The system, together with strict
parking fees, which Mr. Chow said are lower than “Hong Kong, Tokyo or New York”. Although Singapore also offers tax incentives for purchasing electric vehicles, the urban mobility expert says the city is focused on reducing any kind of traffic congestion even “green congestion”.
Urban mobility
Moving the Singapore way A Singapore urban mobility expert suggests the MSAR could improve its traffic situation by developing more pedestrian and cycling ways, while taxing vehicle ownership and allowing ride-sharing services Nelson Moura nelson.moura@macaubusinessdaily.com
Improving pedestrian and cycling tracks, increasing taxation for vehicle use and ownership, and a “light touch” for ride-hailing services are some of the suggestions Chow Kuang Loh, President of Singapore Urban Transport International, says could help improve the MSAR’s urban mobility standards. “I think the city is moving in the right direction by implementing a light-rail system, developing walking and cycling tracks, upgrading bus services and implementing new technologies to solve traffic congestion problems,” Mr. Chow told Business Daily. According to the urban mobility expert, due to its small size the MSAR is in an “advantageous position” to promote alternative transportation methods aside from private vehicles. “Asian cities have long had this image of being congested, polluted and having poor infrastructure and a low level of public transport services. This perception is changing rapidly,” he said. According to Mr. Chow, nowadays some of the major Asian cities have completely transformed their urban transport ecosystem and are leading the world in certain aspects. He stated that these changes are taking place due to innovative and widespread modern transport systems for trains, trams and buses,
together with the promotion of sustainable transportation such as cycling and walking. “We can see many Asian cities nowadays have extensively pedestrianized networks and installed bicycle tracks. In Singapore, we’re building 700 kilometres of cycling lanes and 200 kilometres of covered walkways, while covering light-rail and bus stations,” he added.
The Singapore example
As a city that also has a small land area of around 700 square kilometres and a population density of 7,987 people per square kilometre, Singapore enforced a “stringent control of the number of private vehicles” making the use of personal vehicles in the city “probably one of the most expensive in the world”, with 60 per cent of its population preferring to use public transport. “Singapore implements a congestion charge where people driving into the city along expressways during rush hours have to pay a fee, which helps minimise traffic and optimise traffic flow. In city areas, the traffic speed has an average of more than 28km/h, while other major Asian cities will have maybe less than 20km/h on average,” Mr. Chow added. The system implemented in Singapore in 1998 - named the Electronic Road Pricing (ERP) program - also allowed the city to reduce carbon dioxide emissions by 103 kilotons between 1998 and 2008, according
“The Singapore government operates a light touch in regulating ridesharing services, because these mobility applications have a role in reducing the level of private transportation” Chow Kuang Loh, President of Singapore Urban Transport International
policies to control vehicle ownership, also allowed the city to improve its parking situation without raising
Uber-like
The urban mobility expert also stated that Singapore enforces a “light touch” on ride-hailing services such as Uber, with the city’s most popular application being Grab, a Singapore-based ride sharing service popular in Southeast Asia. “The Singapore government operates a light touch in regulating ride-sharing services, because these mobility applications have a role in reducing the level of private transportation,” he stated. Mr. Chow stated the city’s regulations for ride-sharing apps were lower than for taxi services, while still demanding drivers carry a special labour certificate if they pass examinations and register the vehicles being used. “The authorities impose certain guidelines to ensure the safety of commuters, while promoting these innovative transport services,” Mr. Chow told Business Daily.
Business Daily Tuesday, June 13 2017 3
Macau Crime
Fake plans and no returns A woman impersonating a high ranking IPIM official scammed 400 people from mainland China and Hong Kong suffering from disabilities out of about RMB2.7 million Nelson Moura nelson.moura@macaubusinessdaily.com
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woman impersonating a Macau Trade and Investment Promotion Institute (IPIM) official allegedly
scammed 400 people suffering from disabilities from mainland China and Hong Kong, out of about RMB2.7 million (MOP3.2 million/ US$397,156), the Judiciary Police told Business Daily. According to the release, the involved victims suffered
from hearing and speaking impairments, with one of the victims from mainland China telling the PJ on February he had been contacted by a mainland Chinese woman claiming to be a high ranking IPIM official. The woman informed him of a (nonexistent) IPIM special investment plan for disabled people that would supposedly allow a return on investment of up to 300 per cent. After the contact, the victim informed his acquaintances, persuading almost 400
people to contribute money to the prospective investment, with the amount being transferred online to the IPIM impersonator. In May, the woman allegedly informed the victims that an event and trip for people with disabilities would be held by IPIM in Macau on June 10, with 20 of the people involved coming to the MSAR on that date only to find the IPIM building closed. After failing to contact the woman, six Mainland residents and one Hong Kong resident reported the case to the PJ, claiming each one of them had been scammed out of RMB60,000. As of now, the case is still
under investigation, with the PJ not divulging whether any arrests have been made. In a release sent to Business Daily, IPIM stated it had informed MSAR residents that the department doesn’t offer any support plans that include an investment return, and warned locals to be vigilant against similar fraud schemes.
Accident
Typhoon
Fatal work accident on new MP building
Arrangements for the first typhoon of 2017
An accident yesterday morning at the construction site of the new facilities for the Public Prosecutions Office (MP) has resulted in the death of one worker and the injury of three others. The government has ordered the cessation of the works, and that the contractor submit a detailed report of its investigation into the incident. During the suspension period, the contractor ‘cannot execute any work projects’, according to a release from the Labour Affairs Bureau (DSAL).
The fatally injured worker was about 40 years old and came from the Mainland, local broadcaster TDM news reported. The accident occurred on Avenida Rodrigo Rodrigues nearby the Macao Polytechnic Institute at about 10 o’clock yesterday morning. The workers were hit by a piece of steel weighing approximately 6 tonnes and measuring 6 metres in length, resulting primarily in head injuries, the broadcaster reports.
The arrival of Typhoon Merbok caused two two-way flights last night between Macau, Da Nang and Hongqiao, Shanghai, to be cancelled by 9pm yesterday. The flight numbers were NX875, NX876, MU2055 and MU2056. Meanwhile, the Marine and Water Bureau (DSAMA) announced that all ferry connections were being cancelled, given that the typhoon signal number eight was hoisted in Hong Kong at 17:20. For TurboJET, ferry connections will partially resume when the signal switches
back to number three or lower. DSAMA advised passengers to obtain the latest arrangements and information from the mobile application - Macao Sailings - or make enquiries to related ferry operators.
Meanwhile, the Cultural Affairs Bureau has advised responsible parties to take precautions to protect historical heritage sites threatened by the typhoon. According to information from Macao Meteorological and Geophysical Bureau (DSPA), typhoon signal number one was hoisted on Sunday at 21:30 and number three was hoisted on Monday at 16:30. The DSPA also advised motorcyclists travelling between the Macau Peninsula and Taipa Island to exercise caution when using the motorcycle lane on Sai Van Bridge. C.U.
4 Business Daily Tuesday, June 13 2017
Macau Opinion
Albano Martins*
The world warms up! The election of Trump is a lesson that serves to humiliate the U.S. itself. But the American people did not understand it and allowed the aberration in which the candidate with the most votes did not emerge the winner. It happened in recent times with Al Gore, and now again with Clinton. The Americans must solve their own problem! Unfortunately, this big problem is going to affect all of us. Our great concern, as citizens of the world, has to do with this unprecedented aggressiveness, circulating all over the world, against civilization and human values. The fight against Daesh cannot be used as a weapon for disrespecting the values that shape our civilization and make us different from the terrorists who entertain themselves by killing innocents around the world! No cause or reason justifies these two types of aberrations! I do not know this America. It is not great, it is small; it is too small for what it deserves. Globalization and the mediocrity of political leaders have led to a few people accumulating a fortune of more than 90 percent of the world’s wealth! The world is sick, severely unbalanced and unstable. And those who could medicate it remain committed to keeping it in this state of collective madness! Environmentally, politically and economically! And the Paris Agreement needs America. Economics commands politics, it has always been so. The political class lives on favours from the great predators of the economy, and money continues to buy almost everything fortunately not all, but almost all, unfortunately. Trump used the intelligence of the most backward, and a lot of lies along the way, in the face of a problem that belongs to all of us and must be addressed in a global and perfectly coordinated way: terrorism that kills indiscriminately and globalization without social precepts conceived merely for productive and economic efficiency. We must be able to find an outlet, with values and for the values. We need new leaders and new politics capable of addressing simple questions of solidarity, fraternity and freedom, the only things that can make civilization move towards progress, which means greater equality and respect! We don’t all need to be entrepreneurs and political leaders, but we need clean entrepreneurs capable of assuming the leadership of a social economy, far away from practices facilitating the surge of corrupted leaders. At the end of the day, everybody has to eat, breed and enjoy life! Non-human animals included, sorry for the reminder. * an economist and contributor to this newspaper
The cargo terminal manager of Menzies, said the new warehouse would help boost the cargo volume for the Macau International Airport (MIA)
Trade
New warehouse to boost freight volume Menzies has connected with their fifth warehouse in mainland China, offering shorter transportation times and technologically advanced facilities Cecilia U cecilia.u@macaubusinessdaily.com
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he international aviation ground service provider, Menzies Macau Airport Services Company Limited, has a new connection with a warehouse located in Shunde in Foshan, China, establishing its fifth linked location in mainland China. Currently operated by Guangdong Guotong Logistics Cheng Limited Company (GGLC), Menzies inked the co-operation agreement with the warehouse operator on Thursday, according to a press release posted by Foshan Guotong Bonded Logistics Centre, which supports the operation of the warehouse. Bill Pat, the cargo terminal manager of Menzies, said the new warehouse would help boost the cargo volume for the Macau International Airport (MIA). According to the press release, the MIA cargo volume previously reached some 200,000 tonnes per year. “At that time, the three links (the opening of postal, transportation and trade links between mainland China and Taiwan) hadn’t been implemented yet,” recalled the manager. “Also, the many restrictions to flights in Hong Kong and very limited flights in mainland China that fly to Europe and the U.S., led to the [amount of tonnage],” he noted. Currently, without the aforementioned circumstances, the volume remains at only 30,000 tonnes. With the cargo volume at the Hong Kong International Airport (HKIA) reaching saturation (3 to 4 million tonnes), a new warehouse spot for MIA will be used to cope with the transferred cargo volume from Hong Kong.
“If they [HKIA] transfer 1 per cent to Macau, that would make 40,000 tonnes and our current facilities would face great challenge with this increase [...] our saturation point is 80,000 tonnes,” said Pat. In addition, the manager said the linking to a new warehouse is to create more opportunities to prepare for the operation of the Hong Kong-Zhuhai-Macau Bridge, as well as incorporating in the Greater Bay Area Scheme. The other four warehouses the company uses in mainland China are located in Guangzhou, Zhongshan and Shenzhen. The agreement, on the other hand, includes Menzies paying processing fees to GGLC when products are sent to the warehouse. “We didn’t do anything like setting up a joint venture to operate this,” points out Pat.
Features
One of the features that makes the warehouse at Shunde stand out is its advanced technology for storing live goods, such as ultra-low temperature cold storage. “The place provides facilities for temporary feeding of live animals and frozen services,” revealed Pat, saying however, that the customs services between regions should roll out ‘green clearance’ - clearance procedures by customs of two regions - to allow more efficient clearance processes for live products. “If the ‘green clearance’ is not implemented, the risk would be higher because the [live] products would be affected by the Hengqin customs, so they need to deliberate on the matters themselves,” said Pat. The manager also disclosed that the planning for the Shunde site involves constructing another building, which could include an upgraded seafood storage area.
In the meantime, customs from involved regions, including the customs body in Hengqin, are deliberating on the clearance policy. The green clearance policy has already been implemented between Hong Kong and the Mainland. Meanwhile, the location of the new warehouse, situated near the highway, brings some perks. “The location is advantageous because it takes about two hours to drive on the highway to the Macau Airport,” remarked Pat. With trucks transporting goods back and forth between the new warehouse and MIA, the production cost of the goods is significantly reduced. According to Pat, the procedure for bringing in cargo from the new facility involves clients or flight companies using a one-stop service, namely for products that will be received at the warehouse, which will then be transported via truck and arrive at customs in Hengqin to undergo clearance. After clearance at Hengqin, goods will be carried to the MIA, and the Macao Customs will perform a very simple clearance prior to exporting the goods to MIA. The warehouse in Shunde can link to cities near Guangzhou, Dongguan and Zhongshan, he noted. Pat indicated that other companies engaging in cargo handling and warehousing have been working with other warehouses in mainland China for a long time. “It is not a difficult task,” said the manager. “The thing is how to improve one’s service on importing goods to make the link [be] more maturely operated.” Menzies has a sub-concession license for handling support services including aircraft and passengers, aviation cargo warehouses and operations, as well as aircraft maintenance. It started operations at MIA in 1995, and is part of the international aviation group Menzies Aviation that currently operates over 200 stations around the globe.
Business Daily Tuesday, June 13 2017 5
Macau Land
Changing the bill Legislators request a revision of the Land Law by the CE, in order to solve existing issues pertaining to expirations of land concessions and the rights of landowners Nelson Moura nelson.moura@macaubusinessdaily.com
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egislators Zheng Anting and Lionel Alves have sent a request to Chief Executive (CE) Fernando Chui Sai On for permission to debate certain articles of the current Land Law at the Legislative Assembly (AL), in order to solve current disputes arising from the expiration of land concessions and the regulation of construction works on properties in Taipa and Coloane that lack official land registry documentation. “These two issues composed the two main points of our request,” legislator Lionel Alves told Business Daily. The proposal was submitted on
June 9, with the legislator saying he wouldn’t be able to indicate when a response would be provided by the CE. Mr. Alves said the drafted request asks that a full assessment of the cause of development delays would have to be made, in order to allow the extension of any 25-year land concession where the responsibility of the delay lies with the government. In April, a petition signed by 19 legislators was sent to the government, requesting a resolution of the current Pearl Horizon development standoff, but the legislator told Business Daily he “wasn’t sure the petition would be considered a legal request by the government” and that the current proposal would help to solve similar issues.
“The current law states that the re-evaluation of current legislation can only be initiated by the government and requires the authorisation of the CE. Therefore we made the proposal to him in the hope that some articles of the Land Law can be revised,” legislator Lionel Alves told Business Daily. The request also asks for a resolution of the current issue of landowners in Coloane and Taipa, who, due to the age of their property, lack any official land registry
documents. “This is a problem that existed even before the handover, with old local land owners who are unable to get government permission to do work on their properties,” the legislator told Business Daily. The law revision proposal suggests temporary land permits should be provided to the landowners so that they can make an official request to the government when they need to conduct maintenance work on their properties.
Public contracts
Contracts extended and cross-border transport law effective The Macau SAR Government announced that it is extending the expected duration of the Transportation Infrastructure Office (GIT) for another three years, starting November 1, 2017, according to a dispatch published yesterday in the Official Gazette. Spending
resulting from GIT’s operations is to be supported by the Macau SAR budget. The government also announced in the official dispatch yesterday that it is extending the concession contract for the provision of public water supply services,
signed with the Macao Water Supply Company. Also coming into effect yesterday, as announced in the Official Gazette, was the law establishing the system of control of cross-border transport of cash and negotiable instruments. S.Z.
6 Business Daily Tuesday, June 13 2017
Macau Gaming
Wells Fargo: Ups and downs ahead Third quarter gross gaming revenue expected to rise 16 to 22 pct Cecilia U cecilia.u@macaubusinessdaily.com
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rokerage firm Wells Fargo predicts Macau’s gross gaming revenue in June will grow by 16 to 22 per cent, implying daily revenues of between MOP615 million (US$76.58 million) and MOP645 million. Last month, the city saw a 23.7 per cent year-on-year increase in gross gaming revenue, the highest year-onyear increase since February 2014. Recent monthly revenue trends and data point to positive growth, say analysts. The brokerage firm perceives that ‘this recovery
could stall once the stimulus from loose credit and the Chinese housing bubble wears off’, while also pointing out that ‘a number of policy overhangs and license renewals’ will happen in the near future. Meanwhile, according to the group’s survey, room rates in July will drop 5 per cent year-on-year, with ‘August tracking down in the low-single digits’. The analyst group points out that this is an ‘improvement from the second quarter’ noting that same store rates in the market were ‘down about 7 to 8 per cent, which followed an 11 per cent decline in first quarter’. Regarding hotel occupancy
rates, Wells Fargo believes they will remain at 86 per cent during the third quarter. With the new Taipa Ferry Terminal having commenced operations on the first day of June, the analysts received mixed commentary over the new infrastructure, with some complaining about the long walks from the bus station to the pier, and others pointing out ‘the lack of stores and restaurants’. Nevertheless, the brokerage is optimistic about the improvement to transportation once the infrastructure is fully completed. ‘In particular, we think improved transport links to the Cotai Strip will be a huge positive - as they are expected to divert passengers and traffic away from the crowded and congested Gongbei Gate and narrow backstreets
of the Macau Peninsula, and send customers straight to the Cotai Strip,’ stated Wells Fargo in its weekly report. On the other hand, the analysts also noted the requested report to be submitted by the gaming operators to the MSAR Government,
regarding the status of security in the wake of the attack at Resorts World in the Philippines. The brokerage predicts that incident could lead to local casinos focusing more attention on their security measures.
than a year ago, in July of 2016. According to a recent filing with the Hong Kong Stock Exchange, the group expects to record ‘an obvious increase in loss’ for the group’s financial year, ended March 31, when compared with the previous financial year, when a loss of HK$43.1 million was recorded. The group notes that this is mainly due to the
‘provision for impairment loss on amount due from an associate of the company, namely Greek Mythology (Macau) Entertainment Group Corporation Limited’. The amount in question is HK$63.6 million. In addition to this, the impairment loss on fair value of Greek Mythology amounting to HK$837.6 million is singled out, although together with a
HK$39.6 million impairment loss on the group’s gaming license in the South Pacific island of Vanuatu, given that the provisions are ‘non-cash in nature’ they ‘do not have any impact on the cash flow of the group. The group will publish its full annual results for its 2017 financial year ‘before the end of June,’ it points out in the filing. K.W.
Results
Melancholy Mythology Amax International expecting HK$900 mln in losses from Greek Mythology for 2017 financial year Casino services company Amax International continues to be dragged down by its association with the
Greek Mythology complex, whose doors were closed by the Macau Government Tourism Office (MGTO) less
Business Daily Tuesday, June 13 2017 7
Gaming Interview | Lawrence Ho Yau Lung
Keeping the throne without Crown Melco Resorts & Entertainment is expanding its aviation business to increase its influence in the Southeast Asian market. As gaming revenues pick up steam in Macau and with growing trends in the Philippines, Lawrence Ho is confident the termination of his partnership with Crown Resorts came at the right time, along with the company’s restructuring efforts for more efficient management Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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s part of his latest bid to increase business influence over global markets, Lawrence Ho Yau Lung, Chairman and CEO of Melco Resorts & Entertainment, tells Business Daily that an expansion of the group’s aviation business is on the cards. “Managing the customer experience is probably the most important experience in the casino and hospitality business, and it is only going to get more competitive over time in the Philippines or in Macau, or in any gaming jurisdiction,” says the chairman.
‘Managing the customer experience is probably the most important experience in the casino and hospitality business, and it is only going to get more competitive over time in the Philippines or in Macau, or in any gaming jurisdiction’ Mr. Ho, who already owns and operates an airplane and helicopter, said that he is considering increasing the size of his fleet and focusing more on routes to connect Southeast Asian countries. Several of these countries, which host casino jurisdictions, including Cambodia, Vietnam, Laos, Singapore, and the Philippines, are still considered to be untapped markets. Melco Resorts has established businesses both in Cambodia, in a partnership venture with Naga Corp., and in the Philippines, where its casino, City of Dreams Manila has been the “number one property” over the last couple of months, according to Mr. Ho. He claims that expanding the fleet is a decision mainly attributable to the fact that Melco’s business is performing strongly in the Philippines. “We’ve been very fortunate that our Philippines business is doing very, very well, and the fact that more and more tourists are going to the Philippines and also high-spending, high-roller VIPs are deciding to choose the Philippines as one of their destinations. I think that is why it has prompted us to potentially increase our fleet,” he notes, specifying that one focused on the ASEAN (Association of South East Asian Nations). According to the mogul, the “cautious approach” they crafted for entering the Filipino market was
a strategy devised for tapping an entirely “new jurisdiction” for the company. “We wanted to grow into the market rather than flooding it,” he explains. And that’s also the reason why Melco chose to “start off with very little VIP” business there, Mr. Ho adds. Overall, he expresses, “we are very happy to be in the fastest growing gaming market in the world, and have the fastest growing property in the fastest growing gaming market in the world. So, it is an exciting time, and I think that, even internally, when we first did the Philippines, a lot of people were uncertain about that opportunity, and I think that it has worked out very well.”
Losing a crown, gaining ground
While seeking to strengthen Melco’s connections between gaming jurisdictions spanning Southeast Asia, Mr. Ho’s business has profited from another change that came Melco’s way about a year ago. The separation of Crown Resorts from the Melco-Crown partnership happened at a time when Mr. Ho said he “sensed [the market] coming back.” “I think it came at a critical time, because the unwinding of the partnership really started twelve months ago, in May 2016, [when] the market was still in a year-on-year decline basis. But even after two years of decline, I said ‘the market is coming back,’ in terms of some of the data that I followed. Global luxury goods sales were improving and the Chinese population now accounts for 30 per cent of the entire world’s purchase of luxury goods. So, I saw the data turning around,” points out the chairman. Mr. Ho claims that whereas he was “bullish” at that point in time, Crown Resorts’ CEO James Packer, was not as confident about the recovering potential of Macau’s gaming market. Ultimately, though, Mr. Ho agrees that the relationship with Mr. Packer was an important step in the consolidation and ripening of Melco and Mr. Ho’s early experience in business, in gaming, and in Macau.
Although the son of the local casino legend, Stanley Ho, grew up around the business, he only effectively entered the gaming world following the industry’s liberalization in Macau in 2002, when then-Melco PBL Entertainment was granted a sub-concession from Wynn Resorts in 2006. Mr. Ho was not yet 30 years old. “Crown and James [Packer] felt it was time, after ten years of being in the market, to make a great return for their shareholders. They had some domestic Australian assets that they are committed to building out and we had a great, adult conversation and decided to start unwinding,” says Mr. Ho. As Melco’s CEO further notes, “[Packer] was very strategic at the board level, but he wasn’t living it every day like I am. I’m here every day, kind of living and breathing this, going to China, talking to people. But he needed to do what he needed to do and it was a great opportunity for me and for the company”. At last tally, though, the separation turned out to be strategic for the company, in view of encouraging prospects from VIP rolling and revenue quickly picking up steam in Macau, and with the expansion of the gaming market in the Philippines – although the latest developments following a deadly attack at Resorts Worlds Manila have prompted a call for structural changes, with members of the House of Representatives calling for divesting PAGCOR (the
Philippines gaming regulation authority) from its licensing functions, which might still shake things up a little there.
Entrusting for better governing
In addition to the termination of the Melco-Crown partnership, which was followed by some share buybacks from Melco Resorts, and the cashing in of other Melco subsidiaries – Melco International sold its lottery business, MelcoLot, in mainland China earlier this month – Mr. Ho says he was kept busy by restructuring plans within the company. “Last year was a very busy year for us. In addition to the conclusion of the Crown partnership, was a massive management organisational restructuring. I wanted to put more emphasis on each of the properties because I felt that Studio City and Altira were not really getting the attention they deserved,” states the Melco chairman. “In any market, they are great stand-alone properties; but within how we used to do it, with everything centralised, it was like, well, if something didn’t work at CoD [City of Dreams], it passed to Studio City, and if that didn’t work, then it was passed to Altira,” he notes. Altira, points out Mr. Ho, caters to “a totally different customer base,” and since the property’s opening he says he has “learned a lot,” explaining that the restructuring at the management level was done to maximize decision-making and efficiency in business. “Now the focus with Andy [Choy] at Altira and David Sisk at Studio City, and Gabe Hunterton at CoD is that they need to decide. They are all part of my Executive Committee team, but they are driving the properties. If there is something wrong with it, they need to fix it right away, rather than constantly saying ‘give me ideas, give me ideas.’ And that’s why our organisational structure has improved, and it is a lot more high-powered now,” he points out. Looking back at his early hits and misses in his time in the gaming and entertainment business, Mr. Ho admits that this aspect of business is much of what his company is made of. “We always have a mindset that we want to continuously improve. And that theory is all around the whole company. We don’t just want to be one of the boats that when the tide is rising everybody benefits. We always look at relative performance,” explains the Melco chairman and CEO.
8 Business Daily Tuesday, June 13 2017
Greater China In Brief State sector
SOEs to dump ‘social functions’ in bid to streamline China’s government-owned firms will transfer parks, transport infrastructure and other “social functions” to local authorities by the end of this year, regulators said yesterday, part of the country’s on-going efforts to slim down the state sector. The State-Owned Assets Supervision and Administration Commission (SASAC) said in a notice state-owned enterprises (SOEs) must transfer functions that “do not match the main direction of their business development” to local authorities. The country’s heavily indebted stateowned firms have been under pressure to ditch schools, hospitals, retirement homes, firefighting services and other “social functions” in order to cut costs. Graft
Two provinces falsified economic data China’s graft watchdog said it identified cases of fake economic data in two north-eastern provinces, the second announcement this year about unreliable figures. Some areas and companies in Jilin and certain places in Inner Mongolia falsified reports, the Communist Party’s Central Commission for Discipline Inspection said in statements late Sunday, without saying what figures were manipulated, how widespread the practice was, or the timeframe. CCDI also said it found violations in the use of funding for poverty relief. The accuracy of China’s statistics has been questioned in the past. Logistics
COSCO Shipping suspends services to Qatar amid row China’s COSCO Shipping Lines Co Ltd has suspended shipping services to Qatar, citing “uncertainties” after Arab countries severed diplomatic ties with the Gulf state and imposed port restrictions. The world’s fourth-largest shipping line joins Taiwan’s Evergreen and Hong Kong’s OOCL in suspending services after Saudi Arabia, Egypt and other Arab nations cut ties with Qatar over its alleged support for terrorism, an accusation the country denies. COSCO told customers about the suspension of services to and from Qatar’s Hamad Port in a notice issued on June 7, a spokeswoman for COSCO’s parent company said yesterday. Public bill
Fiscal spending growth quickens Government spending in China increased 9.2 per cent in May from a year earlier, while revenue rose 3.7 per cent, the Ministry of Finance said yesterday. Growth in spending quickened from 3.8 per cent in April, while revenue growth declined from 7.8 per cent in April. Government spending in the first five months of the year rose 14.7 per cent from a year earlier, while revenues increased 10 per cent.
Markets
Bond-rating champ unfazed by foreign competitor threat China Chengxin is now the top dog locally, with a market share of about 37 per cent
T
he world’s second-largest corporate bond market is opening up to foreign ratings companies, but that’s not fazing China’s local champion, which sees another case of overseas players foundering in a competitive mainland market. After years of U.S. lobbying to open up financial services to Chinese competition, China agreed last month to allow foreign-owned firms to provide credit ratings in the country by July 16. That gives opportunities to S&P Global Ratings, Moody’s Investors Service and Fitch Ratings, which all welcomed the move. Up to now, they were limited to joint ventures. China Chengxin International Credit Rating Co., in which Moody’s has a 30 per cent stake, has the largest market share for rating securities in China’s US$9 trillion bond market, and doesn’t see full overseas participation as a threat. “We aren’t worried about the impact from the potential entrance of international rating companies,” Yan Yan, chairman of China Chengxin, said in an interview. “In the early days, the market may pay more attention to a more advanced methodology of international rating agencies, but after eight or 10 years, domestic firms will prove to have an edge.” While some services companies have successfully planted themselves in China, including hotel operators such as Intercontinental Hotels Group Plc and Marriott International Inc., history is littered with examples of failure, from Amazon.com Inc. and eBay Inc. to Uber
Technologies Inc. Timing also could have been better for the foreign rating players, who will be given entry in the midst of a clampdown by Chinese regulators on leverage that’s roiled the bond market and scaled back issuance. Still, the big three overseas companies have expressed keenness to build business in the world’s second-largest economy. And global investors seeking to buy domestic Chinese bonds that have become increasingly easier to purchase might be more comfortable with ratings from names with which they’re familiar. S&P Global Ratings said last month it welcomes the commitment to open further China’s domestic market to international credit rating agencies. Moody’s Investors Service said it is pleased with the direction while Fitch Ratings said it’s “excited” by China’s move to allow foreign-owned companies to provide credit ratings. Among the advantages for local operators in the rating industry, Yan listed: Domestic operators have a different rating scale for companies that typically give them higher ratings for similar issuers than under foreign rivals’ practices. Most domestic assessors give ratings between AA and AAA, whereas their overseas counterparts typically rate similar issuers six to seven levels lower, according to a working paper from the People’s Bank of China. Local providers charge lower fees. Domestic firms typically charge around RMB250,000 (US$37,000) for the initial grade and RMB50,000 to RMB100,000 for follow-up ratings, which Yan anticipates will be hard for global rating firms to compete against. Funding costs have increased in China’s corporate bond market, making loans more attractive.
There are six major rating firms in China, including China Lianhe Credit Rating Co., in which Fitch has a 49 per cent stake, and Shanghai Brilliance Credit Rating & Investors Service Co., which is a domestic partner of S&P. That competition holds down prices, according to Yan. S&P, Moody’s and Fitch declined to disclose fees they charge for their service. S&P believes markets are best served by a diversity of credit views, according to Michelle Lei, spokesperson for S&P in Beijing. “Ultimately, it will be investors and other users of ratings who determine which ratings are credible and useful and which are not,” she said.
“We aren’t worried about the impact from the potential entrance of international rating companies” Yan Yan, chairman of China Chengxin China Chengxin is now the top dog locally, with a market share of about 37 per cent in China’s interbank bond market and about 33 per cent in the exchange bond market, according to Yan. The firm now has more than 400 analysts, compared with 20 to 30 back in 2005, he said. With their generally lower ratings for Chinese companies, “if China’s local market is dominated by foreign-owned agencies, it will have a big impact on Chinese issuers” in terms of cost, Yan said. Bloomberg News
Business Daily Tuesday, June 13 2017 9
Greater China Markets
State papers urge regulators to stick to reforms as pace of IPOs slows Over the past few weeks, the regulator has approved an average of RMB2.1 billion of IPOs each week, down from a weekly average of over RMB5 billion earlier in the year Approvals of initial share offerings are slowing in China once again as local share prices slide, but major state-controlled newspapers are urging the stock market regulator not to “balk or backtrack” on reforms. The China Securities Regulatory Commission (CSRC) has slowed approvals for initial public offerings (IPOs) in recent weeks, a period which has seen major stock indexes retreat. The media’s calls come at a time that international investors are watching Beijing’s commitment to free-market reforms more closely than ever. Global index provider MSCI will decide on June 20 whether to add Chinese shares to its key equity benchmarks used by asset managers, which could trigger a flood of foreign buying. China’s on-again, off-again pattern of IPO approvals has been typical for years when authorities see the need to shore up markets, and their penchant for interventions has been cited as one of the key concerns holding back global investors. Such support measures are often welcomed at home, but in a rare chorus of caution, China’s three major state-controlled securities newspapers all published editorials yesterday urging the regulator to “hang on” in the face of public criticism that a flood of new supply is depressing share prices. Over the past few weeks, the CSRC has approved an average of RMB2.1 billion (US$309 million) of IPOs each week, down from a weekly average of over RMB5 billion earlier in the year. That has led to speculation that IPOs
would be suspended altogether if the market falls much farther. “If IPOs are suspended, it is far from certain whether the market can be rescued, but the harm to market-oriented reforms and the real economy is predictable,” the China Securities Journal said in an editorial yesterday, calling on regulators to be “adamant” toward reforms. Echoing that view, the Shanghai Securities News said IPOs are not the determinant factor of stock market trends, and regulators should not “balk, or even backtrack” on reforms. The newspaper noted that the CSRC had suspended IPOs nine times in history, but each time the move failed to reverse the bearish trend and heightened investor uncertainty. Another official newspaper, the
Securities Times, said regulators should not bow to pressure from critics. Regulators should “dare to touch the cheese of interested groups, and be consistent, and serious in policies,” the editorial said. “Generally speaking, China’s securities market regulation is not too harsh, but too lenient.” The editorials highlight the dilemma faced by CSRC Chairman Liu Shiyu, who needs to balance reforms and market stability. Liu, who took over as head of the CSRC in the aftermath of the 2015 market crash, has been criticized by some academics and investors for causing renewed market sluggishness, by flooding the market with IPOs and cracking down on stock speculation. However, the Financial News, a journal run by the People’s Bank of China, carried a different tone on the IPO issue in a commentary which also ran yesterday. Fewer IPO approvals won’t
necessarily affect the stock market’s performance but show a change in the regulator’s stance, which will improve investor sentiment and stabilize the stock market, the commentary said. After a solid start to the year, China’s benchmark CSI300 index started skidding in April on worries that the economy was losing steam and in response to a regulatory clampdown on riskier types of lending which has prompted some companies to hoard cash.
“If IPOs are suspended, it is far from certain whether the market can be rescued, but the harm to marketoriented reforms and the real economy is predictable” China Securities Journal editorial In recent weeks, authorities have stepped in with a slew of measures to stabilise the country’s financial markets ahead of a major political leadership reshuffle later this year. The central bank has been stepping up injections of funds into the financial system to ease fears of a potential cash crunch like that which sent lending rates soaring in June 2013. It has also engineered a sharp rise in the yuan currency against the dollar to ward off speculators betting on further declines. Bloomberg News
M&A
Coal giant awaits Rio response to Glencore’s rival offer The Rio coal operations are adjacent to existing Glencore mines in Australia’s Hunter Valley Ben Sharples and Aibing Guo
China’s Yanzhou Coal Mining Co. is holding fire on a counter offer for Rio Tinto Group’s Australian coal assets as it waits to hear whether Glencore Plc has succeeded in trumping the deal it struck six months ago. Glencore Chief Executive Officer Ivan Glasenberg has submitted a proposal to buy Rio’s Coal & Allied unit in New South Wales for at least US$2.55 billion, the Baar, Switzerland-based producer and trader said Friday in a statement. Yanzhou’s Yancoal Australia unit in January offered US$2.45 billion for the business, including an initial US$1.95 billion cash payment and US$500 million in annual instalments of US$100 million following completion. “If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal,” Yanzhou said in a Hong Kong exchange filing Sunday. A further announcement will be made by the company “if it receives notification from Rio Tinto in relation to whether the Glencore proposal constitutes a superior proposal,” it said. Rio’s board and management will give the Glencore proposal “appropriate consideration and respond in due course,” the company said in a statement Friday. A Rio spokesman yesterday declined to comment further. Yanzhou has received outbound investment approval from China’s
National Development and Reform Commission and the Ministry of Commerce as well as merger clearance from the nation’s Anti-Monopoly Bureau, it said. The company expects to receive any outstanding approvals by the end of June, according to the statement.
“If Rio Tinto determines that the Glencore proposal is a superior proposal, Yancoal will have a right to match or better that proposal” Yanzhou Coal Mining filing “The Glencore decision puts Rio Tinto in a very difficult situation,” said Helen Lau, a Hong Kong-based analyst with Argonaut Securities (Asia) Ltd. “It’s hard for the board to reject a higher offer, with better terms, but at the same time, it could be even more difficult to reject Yanzhou Coal, which has got almost all government clearance for the deal.” If Glencore’s bid succeeds, it would also seek to buy Mitsubishi Corp.’s stakes in two coal ventures in the same area for US$920 million.
Glencore would sell at least US$1.5 billion in assets to mitigate the cost, it said in Friday’s statement.
Hunter Valley
The Rio coal operations are adjacent to existing Glencore mines in Australia’s Hunter Valley, and would take Glencore’s production capacity there to 81 million metric tons a year. In 2014, Glencore and Rio considered merging their coal businesses. “Yancoal has to wait and watch, but also has to carefully calculate whether a higher bid could justify the purchase to its own shareholders,” Lau said. “A good asset at the current price may not be a good one with another 10 per cent premium. They have to make sure state investment is spent carefully and soundly on high-quality assets.” Glencore’s bid for the coal assets
comes just weeks after it expressed interest in a combination with grain trader Bunge Ltd. as Glasenberg steps up expansion efforts following a painful commodities downturn in which it was forced to sell assets and cut costs. The trader has already returned to deal making. In December, it teamed up with shareholder Qatar Investment Authority to buy almost 20 per cent of Russian oil producer Rosneft PJSC. Glencore also agreed to a US$960 million Congo mining deal in February. There is no certainty that any transaction will be concluded, Glencore said Friday, adding that the deal would be funded from existing cash and committed facilities. Glencore will only be bound once a binding share purchase agreement is concluded with Rio Tinto. The proposal expires if a binding purchase agreement hasn’t been executed by June 26. Bloomberg News
10 Business Daily Tuesday, June 13 2017
Greater China Monetary policy
Traders survey finds Beijing likely to follow FED hike They did not expect a hike in China’s benchmark lending rate, which has been unchanged for nearly two years Winni Zhou and Andrew Galbraith
A small majority of traders in China’s financial markets think its central bank will likely raise short-term interest rates this week if the U.S. Federal Reserve hikes its key policy rate, as widely expected, according to a Reuters poll. The People’s Bank of China (PBOC) surprised markets in mid-March by raising short- and medium-term interbank rates hours after the Fed raised overnight borrowing costs. The move prompted some analysts to speculate the PBOC had decided to “synch” its moves with those of the U.S. central bank in a bid to reduce persistent depreciation pressure on the yuan currency against the dollar and discourage capital outflows. It also dovetailed with China’s pledges to tackle risks from an explosive rise in debt. Six out of 10 traders in China’s money, forex and bond markets asked by Reuters said they believed China would move rates up if the Fed did so. But the size of the move would be more modest, and it would likely be confined to rates on open market operations (OMOs), the traders said. They did not expect a hike in China’s benchmark lending rate, which has been unchanged for nearly two years. The Fed is expected to increase interest rates by another 25 basis points at its June 13-14 meeting. Several increases by the PBOC
earlier this year were mainly of 10 basis points, and traders expected any move this week to be of a similar magnitude. Chinese stocks rose modestly after the Fed’s March rate increase, which was seen as increasing investors’ risk appetite. There was little reaction in Chinese forex and money markets. “There are huge discrepancies between the benchmark OMO rates and market rates. A slight upward movement would be quite normal,” said a Shenzhen-based trader at a Chinese bank. She said any impact from higher market rates would not quickly filter through into the real economy, though most analysts believe slowly tightening credit and higher financing costs will begin to drag on broader activity in coming months. However, four of the 10 traders said they did not think a PBOC rate rise was on the cards this week. They argued monetary policy is already tightening as Beijing presses ahead with its “deleveraging” campaign to contain and reduce risks in the financial system, and as banks grow more cautious about lending as they prepare for a rigorous quarterly inspection of their books by the PBOC. The one-month Shanghai Interbank Offered Rate (SHIBOR) has risen to its highest since April 2015. “This mid-year timeframe is already relatively sensitive, and add to that short-term rates are already
not low. To raise rates further would put a lot of pressure on the market,” said a trader at a regional bank. “If they really insist on following (the Fed funds rate) higher, the timeframe will probably be pushed back.” Uncertainty over policy has also increased after sharp, sudden gains in the yuan in recent weeks, which some analysts believe were engineered by the PBOC as a pre-emptive buffer to flush out short sellers ahead of the expected Fed hike and dampen any resulting depreciation pressure. Market players were split on whether the central bank would raise rates on its medium-term lending facility (MLF). The PBOC has been lending at longer maturities, which has increased borrowing costs for banks. One trader at a major Chinese bank said if the central bank decided to raise the OMO rate, it would likely
wait to increase the MLF until July when it is likely to renew maturing MLF loans. June is traditionally a tense month for liquidity in the financial system, as companies pay taxes and banks scramble for funds to meet a quarterly health check. Analysts say while the PBOC has taken some steps to clarify its intentions, it remains vague in telegraphing rate moves. “Banks want to know what their cost of funding is going to be, so that volatility isn’t great in terms of managing their business and liquidity,” said Julian Evans-Pritchard, China economist at Capital Economics. Central bank governor Zhou Xiaochuan has been historically reluctant to reveal too much about the PBOC’s strategies, even likening the bank in an interview with Caixin last year to a chess player unwilling to reveal tricks to an opponent. Reuters
Car industry
Vehicle sales post first back-to-back drop since 2015 China’s auto market recorded a 13.7 per cent rise in sales last year Stella Qiu and Jake Spring
Chinese auto sales slipped in May from a year ago, registering two straight months of declines for the first time since 2015, with the automakers’ association saying the weakness may drag on as the rollback of a tax incentive continues to hurt. The world’s biggest auto market got a shot in the arm in 2016, growing at its fastest pace in three years, after Beijing halved the purchase tax on smaller-engined vehicles. But buyers have shied away since taxes climbed to 7.5 per cent, from 5 per cent, at the start of this year. Auto sales in China fell 0.1 per cent in May from a year ago to 2.1 million vehicles, China Association of Automobile Manufacturers (CAAM) said yesterday. In April, sales recorded their steepest fall in 20 months. The current downturn in China’s
auto market could extend through July or August, said Xu Haidong, a CAAM spokesman. “Last year was just too strong and now the policy impact is fading away,” said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight. “The
growth (last year) overdrew some of the demand.” In the first five months of 2017, sales grew 3.7 per cent from year-ago levels, CAAM said at a briefing in Beijing. This was smaller than the 7 per cent growth seen over January-May 2016 and trails CAAM’s forecast for 5 per
cent growth this year. China’s auto market recorded a 13.7 per cent rise in sales last year, helped by the tax incentive. The purchase tax on vehicles with engines of 1.6 litres or below will rise to the normal 10 per cent next year. The latest CAAM data shows sedan sales in China fell 9.3 per cent yearon-year in May, with sport-utility vehicles proving to be the lone bright spot for passenger vehicles, growing by 13.5 per cent as Chinese continue to trade up to larger vehicles. Foreign brands that are strong in the small sedan segment have seen sales slow this year. General Motors Co, Ford Motor Co and Volkswagen AG all recorded declining sales in the first five months of the year. Meanwhile, commercial vehicles posted rapid growth, led by lorry sales that grew 18.3 per cent, indicating the strength of the overall economy. Sales of electric and plug-in hybrid vehicles flipped to a year-to-date rise, versus a drop over the first four months, as China accelerated subsidy approvals after a slow start to the year. Reuters
Business Daily Tuesday, June 13 2017 11
Asia Capex
Japan core machinery orders fall more than forecast The reading follows a surprisingly sharp downward revision to first-quarter economic growth Tetsushi Kajimoto
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apan’s core machinery orders fell more than expected in April, casting doubt on the strength of companies’ capital spending and adding to concerns about the country’s fragile economic recovery. The 3.1 per cent fall in the core orders from a month earlier was much bigger than the 1.3 per cent decline expected by economists in a Reuters poll, potentially dragging on economic growth in the current quarter. It also marked the first drop in three months, following a 1.4 per cent increase in March, the Cabinet Office data showed. Though the machinery order data, which excludes ships and orders from the electric power utilities, is highly volatile, it is regarded as an indicator of capital spending in the coming six to nine months. The reading follows a surprisingly sharp downward revision to first-quarter economic growth, as a reduction in inventories put annualised growth at 1.0 per cent, much slower than the initially estimated 2.2 per cent. More recently, a run of indicators and business activity surveys have pointed to still solid exports and factory output, although wage growth and household spending remain stubbornly sluggish despite a
tightening job market. Policymakers are hoping that Japanese firms will tap their hefty profits to spur investment and boost wages to stoke a sustainable growth cycle. “Capital expenditure will likely remain lacklustre in the current quarter,” said Koya Miyamae, senior economist at SMBC Nikko Securities. “Exports and factory output are performing well on the back of global economic recovery and a weak yen, but uncertainty over U.S. President (Donald) Trump’s trade policy makes
Japanese firms hesitant about domestic investment.” By sector, core orders from manufacturers rose 2.5 per cent in April, up for a third straight month. The gains were led by orders from electrical machinery companies for semiconductor production equipment and computers, and all-purpose industrial machinery firms. Orders from the services sector fell 5.0 per cent, dragged down by orders from financial and insurance firms for computer systems, down for a second consecutive month. “The 3.1 per cent may appear a big drop, but overall core orders held firm, centring on manufacturers,”
said a senior Cabinet Office official. Orders from manufacturers would have logged a double-digit gain if a one-off pullback in orders from nonferrous metal firms for nuclear-powered motors was excluded. Orders from abroad, which were not counted as core orders, jumped 17.4 per cent in April, up for the first time in three months. The Cabinet Office stuck to its assessment of machinery orders, saying the pick-up was stalling, using the same assessment for an eighth straight month.
Key Points April core orders -3.1 pct m/m vs forecast -1.3 pct Core orders +2.7 pct yr/yr in April vs forecast +6.3 pct Capex in gradual pick-up, crucial for virtuous growth Machinery orders hold firm, centring on manufacturers -govt Still, the Bank of Japan is set to upgrade its economic assessment as early as this week to signal its growing conviction the recovery is gathering momentum, people familiar with its thinking told Reuters last week. Such an upgrade would reinforce expectations that the BOJ’s next move would be to tighten monetary policy, though analysts do not expect it will begin to do so anytime soon. Reuters
Financial rules
European reach across oceans to overwhelm firms in Asia Asian institutions have been overwhelmed by the breadth and scope of sweeping changes to Europe’s financial rules due in January, according to an industry group Benjamin Robertson and Viren Vaghela
The law, known as MiFID II, threatens to upend everything from trading to research distribution, jolting firms in the region that are already burdened by a recent focus on other cross-border rules, said Keith Noyes, Asia Pacific director at the International Swaps and Derivatives Association. Their reaction? “Wow,” said Noyes, who said some of the Asian members among the ISDA’s 850 firms from 69 countries only recently learned details about the rules for the first time. “They had no idea there was something this complicated coming down the pipe imminently,” he said. One example of how the rules will affect operations, Noyes said at a media briefing Friday, is a requirement that firms wanting to trade with an EU-based counterparty will need a code, known as a legal entity identifier. A reporting rule that will need synchronization with European central time has meant Hong Kong landlords
are being asked to position rooftop satellites to get timing accuracy down to the second, Noyes said an ISDA member recently told him.
“There are a number of unresolved issues especially around the trade reporting and transparency requirements” Kishore Ramakrishnan, a director in financial services consulting at Pricewaterhouse Coopers LLP in Hong Kong
With hopes of a delay dashed this week, firms in Asia are hiring lawyers and consultants to help with MiFID
compliance in a seven-month time crunch, said Kishore Ramakrishnan, a director in financial services consulting at PricewaterhouseCoopers LLP in Hong Kong. “The industry is unprepared,” Ramakrishnan said by phone. “There are a number of unresolved issues especially around the trade reporting and transparency requirements.” Another issue is regulatory equivalence, negotiated between national regulators and ESMA. Among pitfalls to not being
equivalent, a trader at an EU-based firm would be unable to buy the Hong Kong listing of a dual-listed stock such as Standard Chartered Plc if the former British colony fails to gain equivalence status before the deadline. PwC clients have established anywhere between 18 to 25 teams each with individuals from front office, risk, operations, legal and technology functions to deal with each obligation under MiFID II, said Ramakrishnan. Bloomberg News
12 Business Daily Tuesday, June 13 2017
Asia Fiscal boost
S.Korea President Moon asks lawmakers for swift approval of extra budget Moon’s parliamentary address is the first ever on an extra budget by a president, underscoring his commitment to his job-creation agenda Cynthia Kim and Christine Kim
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outh Korean President Moon Jae-in said yesterday unemployment was “very serious” and it could turn into a national catastrophe unless addressed, and urged parliament to pass a proposed extra budget to put more people to work. Moon made a lengthy speech at the National Assembly to explain why the economy needed a boost in fiscal spending of 11.2 trillion won
(US$9.95 billion) in the second half of this year, which is aimed at creating 71,000 public sector jobs and 15,000 private sector jobs. “If we leave our current jobless situation as is, there are concerns it may later return to us as an economic crisis equaling a national catastrophe,” said Moon in an unprecedented call for an extra budget. His parliamentary address is the first ever on an extra budget by a president, underscoring his commitment to his job-creation agenda.
Moon, who won a May election, promised to create 810,000 public sector jobs within his single fiveyear term, hoping to resolve soaring youth unemployment hovering near a record high of 11.2 per cent as of April this year. Both parties in the conservative opposition - the Liberty Korea Party and the Bareun Party - have opposed the proposed extra budget, posing a challenge to Moon’s ruling Democratic Party in passing the bill as it needs the support of more than 30 opposition lawmakers. Moon’s party only holds 40 per cent of the 299 seats in the National Assembly. In his speech, Moon also said income inequality was worsening in
South Korean President Moon Jae-in calls for ruling and opposition parties to cooperate in drawing up an 11.2 trillion-won (US$9.9 billion) extra budget to create jobs for the youth in Seoul, South Korea, 12 June 2017, during his speech for the first time at the National Assembly since his inauguration. Lusa
Asia’s fourth largest economy, and the government can help to resolve it if the National Assembly approved the extra budget designed to boost jobs and household income. About 8.8 trillion won of the extra budget will be financed by excess tax revenue expected this year, while the remaining 2.4 trillion will come from government revenue left over from 2016 and public funds managed by state-owned companies. The supplementary budget will add to the 400.5 trillion won budget for 2017 that was approved by the National Assembly late last year. Separately, the central bank said monetary policy needed to stay accommodative to support the economy, but adjustments should be reviewed if growth remained strong. “For now, the accommodative stance in monetary policy needs to be maintained,” Bank of Korea Governor Lee Ju-yeol said in a speech celebrating the bank’s 67th anniversary. “Having said that, if economic recovery continues and shows clear signs of improvement, we may need to adjust the pace of monetary policy easing so we will need to thoroughly review such cases.” Lee said he saw upside risks to the bank’s economic growth estimate of 2.6 per cent for this year, thanks to improving exports and the supplementary budget proposed. But for now, uncertainty remained high and inflationary pressure was not strong, which meant the bank should maintain its current record-low interest rate of 1.25 per cent for the time being, he said. South Korea’s economy grew 1.1 per cent in January to March on a seasonally adjusted basis, its strongest in six quarters. Most analysts believe the central bank will keep borrowing costs unchanged for the rest of this year, before it considers starting to normalize rates next year. Reuters
Inflation
Indonesia launches website in bid to contain food prices In the past, volatile food prices have frequently pushed Indonesia’s headline inflation rate higher than the central bank’s target Indonesia’s central bank and government have gone online in a bid to help keep volatile food prices and inflation in-line with official targets. Yesterday, they launched a website for the Centre for Strategic Food Prices Information (PIHPS), which will show prices of 10 main food commodities that impact food inflation the most. The site - http://hargapangan.id/ - shows prices of items including rice, shallots, garlic, chilli, meat and cooking oil in 164 markets in 82 cities across the sprawling archipelago. Bank Indonesia (BI) Governor Agus Martowardojo said PIHPS data will be used for BI policymaking to “increase our accuracy in inflation expectations in the future”. He said that improving data accuracy could help BI achieve its 2.5-4.5 per cent annual inflation target range in 2018. Its target for this year is 3.05.0 per cent. In the past, volatile food prices
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have frequently pushed Indonesia’s headline inflation rate higher than the central bank’s target, especially during the Muslim fasting month
of Ramadan and when supplies are low. The government has blamed food hoarding and speculators for this trend. This year, Ramadan began in late May. Food prices have been relatively manageable, BI has said, although the headline rate was 4.33 per cent in May, the highest in 14 months. May’s annual food inflation rate was
3.26 per cent. Next year, BI plans to expand data coverage to include the wholesale prices farmers get when they sell their produce. Providing such data to farmers could “avoid layers and layers of intermediary (sellers) that could distort prices,” Martowardojo said.
‘May’s annual food inflation rate was 3.26 per cent’ Finance Minister Sri Mulyani Indrawati said yesterday the government plans to propose a law to manage food prices. She did not elaborate, but slammed any one involved in causing food price distortions hurting the economy as “very evil” and guilty of a serious crime. Last year, the trade ministry issued a decree on the reference prices for seven commodities for farmers and consumers to manage price fluctuations. Reuters Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, June 13 2017 13
Asia Monetary leadership
In Brief
India central bank’s freedom gets crucial test after rate decision Ahead of a two-day RBI meeting that started on June 6, Finance Minister Arun Jaitley telegraphed the government’s desire for monetary easing
Consumption
Singapore April retail sales rise Singapore’s retail sales in April rose from a year earlier, buoyed by increased sales at petrol service stations, and of watches and jewellery, data showed yesterday. Total retail sales rose 2.6 per cent from a year earlier, after increasing by a revised 2 per cent in the previous month, according to data from the Singapore Department of Statistics. Compared with a year ago, retail sales of watches and jewellery edged up 14.3 per cent, while retail sales at petrol service stations climbed 13 per cent in April.
Anirban Nag
Clashes between central banks and governments happen the world over. India is no different, yet the recent friction between the Reserve Bank of India (RBI) and Prime Minister Narendra Modi’s government over a controversial rate call offers up a test case of central bank independence in this US$2 trillion economy.
Tourism
‘All monetary policy committee members had declined requests from the finance ministry to meet officials before the rate decision, according to the Governor of the RBI’ Last October, the RBI led by Governor Urjit Patel adopted its biggest reform measure in its 80-year history
Thailand’s May arrivals up
with the establishment of a six-member monetary policy committee that makes interest rate calls based mainly on consumer price inflation targets. In the past, that power was vested exclusively with the RBI governor, a government appointee who operates independently but is open to heavy political pressure. The interest-rate decision making body of monetary experts would create a more arms-length relationship between the central bank and government and avoid the fractious relationship that in the past has caused political dramas in New Delhi. Or that’s the theory at least. However, ahead of a two-day RBI meeting advertisement
that started on June 6, Finance Minister Arun Jaitley telegraphed the government’s desire for monetary easing, citing the need to improve growth and investment. Any finance minister under these circumstances, said Jaitley, “would like a rate cut.” Hours after the RBI ignored that call in a 5-1 vote and kept a benchmark rate unchanged at 6.25 per cent, Modi’s chief economic adviser, Arvind Subramanian, criticized the RBI for overstating concerns about prices. That barb came after Patel told a media conference that all monetary policy committee members had declined requests from the finance ministry to meet officials before the rate decision.
Government pressure
Modi’s government has reason to worry. The Indian economy, which expanded by 6.1 per cent in the January to March quarter, is growing at its slowest pace in two years in part due to a drag on growth from the government’s decision to ban high-denomination notes in November in a bid to curtail corruption. For the whole year to March, the economy grew 7.1 per cent, down from 8 per cent in the previous year. “The government is trying to pressure the MPC and it risks undermining the credibility of the RBI,” said Shilan Shah, India economist at Capital Economics, Singapore. “It is ill-advised to have the MPC meet the finance ministry officials before the rate decision, but the concept of an independent MPC is still relatively new to India. We may have some teething problems as the committee tries to establish itself.” The move towards a MPC last year freed the governor from facing the brunt of criticism from the government, which has historically demanded both low borrowing costs and low inflation. Patel’s predecessor Raghuram Rajan -- who had spearheaded the RBI’s overhaul along with the present governor -- was accused by members of Modi’s government of keeping borrowing costs too high. The criticism came despite the fact that India was home to some of Asia’s steepest price pressures. “There is some level of divergence of views on interest rates between the government and the RBI,” said Sujan Hajra, chief economist at Anand Rathi Securities Ltd. in Mumbai and a former central banker himself, adding this was common. The RBI slashed its inflation projections, a big departure from April when Patel said growing price pressures needed “close vigilance.” And that may have opened the door to more easing. What’s clear is that India’s central bank will make that decision in its own time. Reuters
International tourist arrivals in Thailand rose 4.6 per cent in May from a year earlier, with revenues up 6.9 per cent, but a strong baht could impact the lucrative industry, the tourism and sports ministry said yesterday. The number of foreign tourists stood at 2.59 million in May, led by visitors from China, Malaysia, India, Russia and the United States, generating revenue of 125 billion baht (US$3.67 billion), Pongpanu Svetarundra, the ministry’s permanent-secretary, said in a statement. In the January-May period, tourist numbers rose 3.2 per cent to 14.61 million, with revenue up 5.1 per cent to 747 billion baht, the ministry said. Results
Fujifilm flags bigger loss from improper accounting Japan’s Fujifilm Holdings Corp said yesterday it now estimates the impact of improper accounting at its overseas units at a 37.5 billion yen (US$340 million) loss for the past few years, up from the 22 billion yen loss it had flagged in April. A third-party panel has been looking into accounting practices used in some lease transactions at Fuji Xerox New Zealand Ltd for periods before the 2015 financial year. Fujifilm said the panel also found improper accounting at Fuji Xerox Australia Pty Ltd, in addition to the New Zealand unit, resulting in the bigger loss. Cbank chief
S.Korea policy to remain accommodative South Korea’s central bank chief said yesterday that monetary policy needs to stay accommodative to support the economy, but adjustments should be reviewed if growth remains strong. In a speech prepared for the Bank of Korea’s 67th anniversary, Governor Lee Ju-yeol said uncertainties remain high and inflationary pressure isn’t strong, which merits the bank to maintain its current record-low interest rate of 1.25 per cent for the time being. The pace of economic growth is accelerating, Lee said, with sharp improvement in exports and investment.
14 Business Daily Tuesday, June 13 2017
International In Brief Visa report
UK consumer spending falls for first time in nearly 4 years British consumers cut their spending for the first time in nearly four years last month, figures from credit card firm Visa showed, as households turned more cautious even before last week’s shock election result. Consumer spending in May was 0.8 per cent lower than in the same month in 2016 after adjusting for inflation, the first yearon-year fall since September 2013, Visa said yesterday. Sales fell by a hefty 1.9 per cent in monthly terms. “Our index clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze,” Visa managing director said. GDP
Exports surge pushes Turkey first quarter growth Turkey’s economy grew a stronger-than-expected 5.0 per cent in the first quarter of 2017, official data showed yesterday, driven by a surge in export growth. The robust data surprised markets, who had been expecting a consensus of 3.8 per cent, and indicated the economy is managing to turn the corner following a slump in the wake of a failed coup last July. The Turkish economy grew 4.5 per cent in the first quarter of 2016, but only 2.9 per cent overall in 2016. The growth rate in the last quarter of 2016 stood at 3.5 per cent.
Referendum
Puerto Rico votes in favour of U.S. statehood amid low turnout Those in favour of statehood hope the new status would put the territory on equal standing with the 50 U.S. states Tracy Rucinski
T
he economically struggling U.S. island territory of Puerto Rico voted overwhelmingly on Sunday in favour of becoming the 51st state, although turnout was low and adding another star to the U.S. flag likely faces an uphill battle in Congress. A government website for the non-binding referendum, Puerto Rico’s fifth such plebiscite since 1967, showed 97 per cent supported statehood. Only 23 per cent of the 2.2 million eligible voters participated in the vote. Puerto Rico Governor Ricardo Rossello campaigned for statehood as the best avenue to boost future growth for the island, which has US$70 billion in debt, a 45 per cent poverty rate, woefully underperforming schools and near-insolvent pension and health systems.
“From today going forward, the Federal government will no longer be able to ignore the voice of the majority of the American citizens in Puerto Rico,” Rossello said in a statement. “It would be highly contradictory for Washington to demand democracy in other parts of the world, and NOT respond to the legitimate right to self-determination that was exercised today in the American territory of Puerto Rico,” he added. Puerto Rico’s hazy political status, dating back to its 1898 acquisition by the United States from Spain, has contributed to the economic crisis that pushed it last month into the biggest municipal bankruptcy in U.S. history. “I voted for statehood,” Armando Abreu, a 74-year-old retiree, said after voting. “Even if it’s still a long way off in the distance, it’s our only hope.” Those in favour of statehood for the mainly Spanish-speaking Caribbean
Markets
Spain imposes short-selling ban on Liberbank Spanish regulators imposed a short-selling ban on Liberbank yesterday in order to stem what European authorities described as a potential ‘domino effect’ that could have damaged the country’s entire banking system. Last week, European authorities orchestrated a rescue of Spain’s Banco Popular, a move that resulted in heavy losses for shareholders and some bond investors. That in turn prompted a steep fall in the share price of a small Spanish lender, Liberbank, wiping almost half of the bank’s market value. Yesterday morning, Spanish stock market regulator CNMV said it would ban short selling in Liberbank stock for one month. M&A
KCB seeks majority stake in Kenya’s state-owned peer Kenya’s biggest bank by assets offered to buy a state-owned lender as the industry struggles to cope with interest-rate caps that have cut profits and curbed lending. KCB Group Ltd. provided an expression of interest to the Treasury to acquire a controlling stake in National Bank of Kenya Ltd., Judith Odhiambo, a spokeswoman for Nairobi-based KCB, said in an emailed response to questions on Monday. “Further details will, however, be provided in due course in line with the guiding regulatory requirements,” she said.
Puerto Rico’s governor Ricardo Rossello (R) and the Commissioner Resident in Washington Jennifer Gonzalez (L) celebrate the plebiscite’s result at the headquarters of the New Progressive Party in San Juan, Puerto Rico, 11 June 2017. Lusa
island hope the new status would put the territory on equal standing with the 50 U.S. states, giving them more access to federal funds and the right to vote for U.S. president. Under the current system, Puerto Rico’s 3.5 million American citizens do not pay federal taxes, vote in presidential elections or receive proportionate federal funding on programs like the Medicaid health insurance system for the poor. The U.S. government oversees policy and financial areas such as infrastructure, defense and trade. Rossello will ask Congress to respect the result, but Puerto Rico is seen as a low priority in Washington.
‘Bogus plebiscite’
The island’s two main opposition parties boycotted the vote, which gave Puerto Ricans three options: becoming a U.S. state; remaining a territory; or becoming an independent nation, with or without some continuing political association with the United States. Puerto Rico’s former governor, Rafael Hernandez Colon, said in a statement: “A contrived plebiscite fabricated an artificial majority for statehood by disenfranchising hundreds of thousands of Commonwealth supporters.” Rather than heading to the polls, some 500 Puerto Ricans marched on the streets of San Juan, waving Puerto Rico’s flag and burning the American flag while chanting in support of independence. “This is a bogus plebiscite. Our future is independence. We need to be able to decide our own fate,” said Liliana Laboy, one of the organizers of the protest. Boycotters were also angry about the costly referendum at a time when over 400 schools have closed and many Puerto Ricans are struggling to make ends meet. Schools where voting took place were in poor condition, with cracked paint and barebones playgrounds. Puerto Rico spent an estimated US$8 million on the campaign and election process, according to a government spokesman. Reuters
Diplomacy row
Finance minister says Qatar can defend economy and currency Sanctions have disrupted flows of imports and other materials into Qatar Qatar can easily defend its economy and currency against sanctions by other Arab states, Qatari finance minister Ali Sherif al-Emadi told CNBC television in an interview broadcast yesterday. He added that the countries which had imposed sanctions would also lose money because of the damage to business in the region. “A lot of people think we’re the only ones to lose in this... If we’re going to lose a dollar, they will lose a dollar also.” Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic and transport ties a week ago, accusing Doha of backing terrorism. The sanctions have disrupted flows of imports and other materials into Qatar and caused many foreign banks to scale back their business with the country. But Emadi said the energy sector
and economy of the world’s top liquefied natural gas exporter were essentially operating as normal and that there had not been a serious impact on supplies of food or other goods. Qatar can import goods from Turkey, the Far East or Europe and it will respond to the crisis by diversifying its economy even more, he told CNBC. The Qatari riyal has come under pressure in the spot and forward foreign exchange markets, but Emadi said neither this nor a near 10 per cent plunge in the local stock market was cause for concern. “Our reserves and investment funds are more than 250 per cent of gross domestic product, so I don’t think there is any reason that people need to be concerned about what’s happening or any speculation on the Qatari riyal.”
Asked whether Qatar might need to raise money by selling off stakes in large Western companies held by its sovereign wealth fund, Emadi indicated this was not on the cards at present. “We are extremely comfortable with our positions, our investments and liquidity in our systems,” he said.
“Our reserves and investment funds are more than 250 per cent of gross domestic product” Ali Sherif al-Emadi, Qatari finance minister Prices of Qatar’s international bonds have dropped sharply, but in answer to another question, Emadi said he saw no need for the government to step into the market and buy those bonds to support prices. Reuters
Business Daily Tuesday, June 13 2017 15
Opinion
Hong Kong shorts, meet your new nemesis. Upbeat analysts
Nisha Gopalan a Bloomberg Gadfly columnist
H
ong Kong short sellers, you have a new challenge -- banks and bullish analysts. Two days after Muddy Waters LLC’s Carson Block unveiled Man Wah Holdings Ltd. as a target, its shares were headed back toward their HK$7.89 record. Same with AAC Technologies Holdings Inc., a supplier of components to Apple Inc. that was earlier this year in the cross-hairs of Gotham City Research. Its stock rose as much as 4.7 per cent Friday. Issuing a strenuous denial is one way to win back fans. Man Wah said in a statement that Muddy Waters’ allegations were “groundless” and contained “obvious factual errors.” In an oblique reference to two other companies that have recently been the target of short sellers -- China Huishan Dairy Holdings Co. and Fullshare Holdings Ltd. -- Man Wah said its controlling shareholder hasn’t pledged any stock to third parties. But brokerage analysts also play a part. Daiwa Capital Markets reiterated its buy rating on Man Wah Thursday, noting the sofa maker pays generous dividends. Macquarie Research upgraded its recommendation to outperform from neutral, and by the end of the week, Man Wah had 12 buy calls, four holds and zero sell. AAC Technologies has 25 buy recommendations, per cent 10 holds and two Man Wah stock, YTD sells. The day Gotham City Research released its report into the company on May 11, 26 analysts thought the stock was a buy. If firms can’t rely on analyst support, there’s always state lenders. China Citic Bank Corp. offered a RMB10 billion (US$1.5 billion) line of credit to AAC Technologies last week, having extended a similar lifeline to Fullshare in May. Fullshare, the subject of a Glaucus Research Group report in April, is down 13 per cent yearto-date and has a single analyst that likes it. Such support from various corners adds uncertainty for short sellers, even as they reap large gains. CIMB Group Holdings Bhd. regards a short seller attack as successful if it leads to one or more of the following; delisting; long-term trade suspension; or a notable drop in share price. By that definition, shorts have been victorious about 80 per cent of the time when the 31 Hong Kong publicly traded firms that have come under fire since 2011 are considered. It’s becoming increasingly imperative that short sellers have watertight cases, as Andrew Left of Citron Research discovered when he was banned for five years and fined after a Hong Kong tribunal found he published false and/or misleading information about China Evergrande Group. The developer’s shares have risen 213 per cent over the past 12 months and touched a record HK$16.66 last week. Meanwhile, stock detractors can add optimistic analysts and benevolent state banks to their list of challenges. Bloomberg Gadfly
+25
China’s insurers don’t know their own risks
I
n most countries, insurers are among the most staid and conservative companies in financial markets. In China, they’re becoming some of the riskiest. On the surface, China’s insurers seem to be enjoying a golden age. Over the past two years, premium revenue has risen by 88 per cent and total assets by 49 per cent, while claims are up only 43 per cent. The industry now manages some US$2.4 trillion in assets. In a country with an aging population and high savings rate, it’s a good business. The continual inflow of premium income along with predictable claims appeal to China’s many aspiring investment moguls. It’s no coincidence that the face of Warren Buffett -- who of course made his fortune in insurance -- adorns Cherry Coke cans in China. Look beneath the surface, though, and dangers are lurking everywhere. In a business where risk management is fundamental, China’s insurers lack the basic actuarial manpower and data tools necessary to make informed decisions. A recent survey found that 47 per cent of Chinese insurance firms “haven’t developed any methods at all” to conduct risk and solvency a n a l y si s . M a n y l ac k ev e n rudimentary internal controls. One regulator recently sought to reassure the public by declaring the industry “solvent” -- a term that doesn’t exactly inspire confidence. Another problem is that China’s modern insurance industry doesn’t have much to do with insurance. Firms typically view it as a capitalraising exercise, not a way to protect companies and individuals against risk. They often offer highyielding investment products “that include a small insurance component,” as Bloomberg Gadfly’s Nisha Gopalan put it recently. Consumers view such products as multi-year investment vehicles that offer a higher rate of return than banks but are safer than the stock market. For executives bent on becoming the Chinese Buffett, insurance has become the go-to way of generating investment capital. Such an environment is bound to lead to excesses. Take Anbang Insurance Group Co. At the end of last year, its Chinese stock holdings had risen to a staggering RMB203 billion, up from RMB27 billion at the end of 2014. Anbang’s domestic holdings grew so fast that it soon counted itself as a top-10 shareholder in each of the four major state banks. It also became one of China’s largest outbound
“
Christopher Balding a Bloomberg View columnist
investors, buying up everything from the Waldorf Astoria to Japanese real estate. It started to look more like a too-big-to-fail wealth manager than an insurance company. One product Anbang offered was a type of highyielding investment known universal insurance, which offers buyers a guaranteed redemption value upon maturity and included a death benefit to qualify as “insurance.” Regulators have started to get wise to this kind of thing: Last month, they said one product Anbang wanted to offer “deviates from the fundamental origin of insurance” and imposed a temporary sales ban on the company for causing what they called “market havoc.” Yet cracking down on insurers more broadly won’t be easy. When Foresea Life Insurance Co. was barred from selling new products last month, the company threatened to block customer redemptions unless it was allowed to gear up again. It issued something close to a threat, urging regulators to avoid “inciting mass incidents by clients and localized and systemic risks.” The message was pretty clear. As with tightening money markets, authorities can’t clamp down too hard on insurers or they risk triggering collapses -- and the resulting “mass incidents.” Even so, the China Insurance Regulatory Commission could continue to tighten standards on what products qualify as insurance. It should also start demanding improved risk analytics from insurers. The world-class credit analytics developed by WeChat -- China’s ubiquitous social media and payment app -- offers a useful model. Then there are the basics: Hiring more actuaries, prudently pricing risk, and matching assets with liabilities may not be the most exciting way to make a living, but it’s all fundamental to any insurance company. Aspiring Chinese Buffetts also ought to pay closer attention to the Oracle of Omaha’s investment philosophy. Buffett is famously detail-oriented -- and happy to walk away from deals he doesn’t understand. One wonders if even he could comprehend what China’s insurance companies are up to. Bloomberg View
A recent survey found that 47 per cent of Chinese insurance firms ‘haven’t developed any methods at all’ to conduct risk and solvency analysis
”
16 Business Daily Tuesday, June 13 2017
Closing Markets
Mainland regulators release draft rules on planned ‘Bond Connect’
Chinese regulators yesterday published draft rules and solicited public feedback for a long-awaited “Bond Connect” programme intended to link China’s huge domestic bond market with overseas investors. Under the draft rules published on the website of the China Foreign Exchange Trade System (CFETS), foreign investors targeting China’s bond market under the connection would be required to submit quotation requests of a minimum RMB1 million (US$147,100).
CFETS said it would have the right to investigate investors whose trading or information disclosure violate its rules or the rules of China’s interbank bond market. “Abnormal” trading activities by investors, including insider trading, market manipulation and frequently sending quotations not reflecting “true trading intentions” could result in investors’ trading rights being suspended or revoked, the draft rules said. China’s bond market was worth RMB66.9 trillion, or about US$9.8 trillion, at the end of April, according to the People’s Bank of China (PBOC). Reuters
Survey
Public sector investors favour real estate, renewables Some 15.4 per cent of the survey respondents cited low returns as one of their biggest concerns Claire Milhench
P
ublic sector investors plan to raise exposure to real estate, infrastructure, green bonds and renewables over the coming year, while cutting holdings of low-yielding government bonds, an annual survey showed yesterday. The Official Monetary and Financial Institutions Forum (OMFIF) polled chief investment officers and reserve managers at 31 public sector institutions with combined assets under management of US$4.21 trillion. With low or even negative returns from fixed income, and volatility in equity markets, there is growing appetite for illiquid assets that deliver steady, predictable returns. Some 24 per cent of respondents plan to increase their real estate holdings in the next 12 months, and 37 per cent want to boost infrastructure, the survey showed. Private equity also remains in favour, with 23 per cent wanting to raise allocations. Meanwhile 26 per cent plan to cut their developed market government bond allocation, while higher yielding corporate credit and emerging market bonds are growing in popularity. Some 15.4 per cent of the survey respondents cited low returns as one of their biggest concerns, just behind geopolitical risk, cited by 16.2 per cent of respondents. Worries over a new crisis in the European Union and Brexit, and concerns about Donald Trump’s
presidency and a backlash against trade liberalisation also featured prominently. The survey noted a growing interest in the green economy, with 38 per cent planning to buy more green bonds, and 35 per cent wanting to boost their exposure to renewables. “The most enthusiastic investors in these assets are central banks and pension funds from North America and Europe,” OMFIF said, adding this was one way for investors to achieve adequate returns while meeting low carbon requirements. The survey was published as part of OMFIF’s annual report and ranking,
which covers 750 public investors such as central banks, sovereign funds and public pension funds. Total assets under management rose to US$33.5 trillion at end-2016, up 1.4 per cent from 2015, helped by the improving global economy. Pressures facing commodity exporters also abated after oil prices rose off January 2016 lows. Asset growth was driven by pension funds, up US$435 billion, and sovereign funds, up US$143 billion. Central bank assets declined by US$103 billion. The People’s Bank of China remained the world’s biggest asset holder, despite a year-on-year decline of 9 per cent, or US$307 billion, to US$3.097 trillion. The Saudi Arabian Monetary
Authority was dislodged from the top 10, falling to 11th place after using US$76.3 billion in foreign reserves in 2016, leaving it with US$539 billion. It was replaced in the top 10 by the Federal Employees Retirement System of the United States, which has almost US$558 million.
‘The People’s Bank of China remained the world’s biggest asset holder’ The Swiss National Bank, ranked seventh, managed a US$76 billion rise in assets, caused by intervention to hold down the Swiss franc and strong equity returns. Conversely, the Revenue Regulation Fund of Algeria suffered the largest fall of any sovereign fund, drawing down US$42.4 billion, or 85 per cent of assets, to fill large holes in the national budget. OMFIF said the fall in the price of oil and gas, which make up around 95 per cent of the country’s export receipts, had resulted in a 90 per cent fall in assets since end-2014. Total official gold holdings rose by 377 tonnes to an estimated 31,500 tonnes at end-2016, the highest level since 1999, OMFIF said. The central banks of Russia, China and Kazakhstan led the buying, whilst Turkey, Venezuela and Azerbaijan saw the biggest declines. Germany remains the second largest holder of gold after the United States. Reuters
Environment
M&A
Moody’s rating
Beijing to clamp down on new car plants
Foxconn says Apple, Dell part of its bid for Toshiba chip business
China Development Bank says cut has “limited impact”
China’s top state planner said it would tighten regulations for building new factories for traditional petrol-burning vehicles, as the country cracks down on “zombie” firms and pushes automakers to convert to non-polluting electric vehicles. China’s central government sees electric vehicles as a way for its industry to leapfrog ahead of international competitors, that have decades more experience in making petrol cars, while also reducing intense urban smog. The policy, issued by the National Development and Reform Commission (NDRC) on its website, extends to the automotive sector Beijing’s fight against overcapacity and “zombie” firms that is already underway in the coal and steel sector. Zombie firms are economically unviable enterprises that often survive with the support of local governments and banks. China has vowed to use tougher environmental, efficiency, quality and safety standards to drive them out of the market. Automakers seeking to build new petrol car factories should have operated above the national average production capacity utilization rate for the previous two years, the NDRC said. Reuters
Apple Inc, computing giant Dell Inc and Kingston Technology Co are members of a Foxconn-led consortium bidding for Toshiba Corp’s chip unit, the CEO of the world’s largest electronics manufacturer told Reuters yesterday. Terry Gou, Foxconn’s founder and chief executive, also said Amazon.com Inc was close to joining and that the Taiwanese firm was also in discussions with Google, Microsoft Corp and Cisco Systems Inc about their participation in the bid. He declined to comment on the total size of the offer or say how much Apple and other U.S. firms planned to invest in the bid. “I can tell you Apple is in for sure,” Gou said in an interview, adding that its participation had been approved by the Chief Executive Tim Cook and Apple’s board of directors. Foxconn, formally known as Hon Hai Precision Industry Co, and its Japanese unit Sharp Corp would have a combined stake of not more than 40 per cent, he added. Representatives for Apple and the other U.S. firms named by Gou could not be immediately reached for comment outside of regular business hours. Sharp declined to comment. Reuters
China Development Bank Corp (CDB), one of the country’s largest bond issuers, said Moody’s Investors Service’s downgrade of China’s credit ratings has had “limited impact” on fundraising by Chinese companies overseas. “Funds are relatively abundant in the international market and the supply of high-quality bonds falls short of demand,” the state-owned bank said in a statement to Reuters. Moody’s last month downgraded China’s credit ratings for the first time in nearly 30 years, to A1 from Aa3, reflecting its growing concern that China’s financial strength is fading amid a ballooning debt pile CDB, the biggest policy bank in the country, said that China’s government has “effectively lowered debt risks” by implementing local government debt swaps, a de-leveraging campaign, and disposing non-performing loans in the banking sector. The one-notch downgrade in long-term local and foreign currency issuer ratings “lacked sufficient estimates about China’s supply-side reforms and the impact of stabilising economic growth”, CDB said in the statement. Reuters