Hong Kong event points to way to follow for eSports New entertainment Page 6
Thursday, June 15 2017 Year VI Nr. 1318 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Diplomacy
U.S. Consul General for the region states position regarding SARs Page 2
Economic model
Hong Kong considered the epitome of inequality Page 9
Logistics
South China and Southeast Asia lead shipping losses Page 6
www.macaubusinessdaily.com Rentals
Energy
Local real estate association rejects rental restrictions Page 2
New Chinese mini nuclear reactors to change power panorama Page 10
Ink Inc. 2017 Election
A sharp increase in the number of signatures repeated on more than one candidacy list. Prompting the Chairman of the Electoral Affairs Commission to announce that steps will be taken to ascertain the reason. Legal consequences have not been ruled out. Page 4
Searching for plots
The Urban Renewal Committee has convened its fifth plenary meeting. With temporary housing on a short or medium term basis for people whose apartments are under renewal a pressing issue.
Ferry not alone anymore
Taipa Terminal The government has signed a contract with CSI Group. To exploit commercial areas in the new Taipa Ferry Terminal. Facilitating the installation of vending machines, travel agency offices, hotel reception stands, currency exchange offices and bakeries in Phase I. With instructions to act with all speed. Page 2
Sweet decline in Chinese figures Housing Page 3
HK Hang Seng Index June 14, 2017
25,875.90 +23.80 (+0.09%) Worst Performers
Tencent Holdings Ltd
+1.84%
China Construction Bank
+0.62%
Want Want China Holdings
-3.36%
Henderson Land Develop-
-1.19%
China Petroleum & Chemical
+1.41%
China Unicom Hong Kong
+0.54%
Geely Automobile Holdings
-1.58%
Bank of East Asia Ltd/The
-1.18%
China Merchants Port Hold-
+0.70%
CK Infrastructure Holdings
+0.53%
Hang Lung Properties Ltd
-1.45%
Sino Land Co Ltd
-1.18%
CNOOC Ltd
+0.69%
Hengan International Group
+0.47%
China Resources Land Ltd
-1.35%
Ping An Insurance Group Co
-0.97%
Cathay Pacific Airways Ltd
+0.65%
China Mobile Ltd
+0.42%
Hong Kong & China Gas Co
-1.22%
Swire Pacific Ltd
-0.95%
28° 31° 28° 31° 28° 32° 28° 32° 28° 32° Today
Source: Bloomberg
Best Performers
FRI
SAT
I SSN 2226-8294
SUN
MON
Source: AccuWeather
Official data China’s retail sales and industrial output remained resilient in May. While signs emerge that measures to cool the property market are having some effect. Page 8
2 Business Daily Thursday, June 15 2017
Macau SJM Board
Keeping it in the family
from the board the same day Ms. Ho stepped in. Daisy Ho Chiu Fung has been appointed The filing noted that Dr. Cunha ‘did not seek Executive Director of Sociedade de Jogos re-election for the reason of change of his de Macau (SJM) effective June 13, 2017, responsibility focus as a result of business according to a filing of the company with growth and diversification of the company the Hong Kong Stock Exchange yesterday. and its subsidiaries.’ As suggested in previous filings of the Ms. Ho, aged 52, is one of the daughters of company, Ms. Ho replaces Dr. Rui José casino tycoon Stanley Ho with his second Cunha, who ceased to act as Executive Director of the company upon his retirement wife, Lucina.
SJM logo
Taipa Ferry Terminal
All starting for the Terminal DSAMA signs contracts for commercial management and exploration of commercial areas at the newly developed Taipa Ferry Terminal, requesting the awarded company be ‘as fast as possible’ in attracting businesses to the Terminal Nelson Moura nelson.moura@macaubusinessdaily.com
T
he MSAR Government has officially signed a contract with local company CSI Group Ltd. for the management and explotation of commercial areas at the newly developed Taipa Ferry Terminal, a release from the Marine and Water Bureau (DSAMA) yesterday
revealed. The concession will take effect from July 1, with a duration period of 36 months. According to the release, the contract signing will allow the gradual installation of food and beverage vending machines, travel agency offices, hotel reception stands, currency exchange offices and bakeries in the first phase, with food and beverage establishments
and duty-free stores opening afterwards. The new Taipa ferry Terminal officially started operations on June 1 after 10 years of development and a cost of MOP3.8 billion (US$475 million) but without currently functioning commercial areas.
In the release, DSAMA states that in August of last year it opened a public tender for the Terminal’s four main services, with contracts for cleaning, security and maintenance already in effect. Due to the commercial area requiring an exclusive contract, however, and with
one of the candidates ‘giving up on the tender’ during the process ‘administrative procedures took longer’. Now the department has requested that CSI Group Ltd. ‘prepare correctly . . . [and] . . . as fast as possible’ its plan for attracting businesses to the Terminal. N.M.
Property
Real estate industry: Fewer restrictions on rental market best Cecilia U cecilia.u@macaubusinessdaily.com
If a mechanism is put in place to artificially restrict the rental market a significant impact upon the market may occur, according to Kun Sio Lap, vice chairman of the Macau Real Estate Development Association (ACFPM) while attending the TDM Radio programme Macao Forum yesterday. Currently, the MSAR Government is revising the Rent Law, suggesting the setup of a mechanism on rental adjustments to cap rising rentals and control speculation in the market. There are also grassroots complaints that the rental for certain private properties is too high, leading to occupants constantly having to shift apartments. “It [the rental cap] would also post a negative effect on the development of the real estate market” said Kun, saying rental in the current market has dropped a little due to the slight recession in the city’s real estate market. “I think it is more acceptable to let the market decide the price,” remarked Kun.
The ACFPM vice chairman said that the ratio of local residents renting houses is low . . . [thus] . . . the case where local residents suffer high rental and end up with no fixed home is rare.” Solicitor Ho Kam Meng also agreed that the market should decide the rental price.
“I personally doubt the necessity of imposing such an administrative restriction,” said Ho, while indicating that the imposition of rental restrictions will impact the freedom of the real estate market to a certain extent . Listeners of the programme expressed opinions that the high rental price of commercial shops has led to
the growth of inflation, commenting that the city’s development would be negatively affected. In response, Kun questioned the fairness to investors if the rental rate is lower than the value of the real estate, adding that different cases should have different approaches when being dealt with.
Politics
U.S. Consul General: Don’t become “just another Chinese city” The U.S. Consul General for Hong Kong and Macau, Kurt Tong, stands behind the ‘one country, two systems’ policy, observing that the citizens of the neighbouring SAR ‘continue to benefit’ from the arrangement. The statements came at a keynote address in Washington, D.C. at the Centre for Strategic and International Studies. The Consul General opined that “Hong Kong is not in crisis,” however, noting that “issues surrounding the status of Hong Kong get less attention these days in Washington than other,
more pressing matters”. With regard to Hong Kong’s positioning within the region, he points out that “Hong Kong continues to be – sometimes quietly, sometimes more visibly – an essential element of the overall Asia Pacific region writ large, including by serving as a positive example to the rest of the Chinese-speaking world about how much can be achieved by an open and fair society, which cherishes both economic freedom and freedom of expression”.
The two SARs differ in their legal frameworks, in particular in relation to Article 23 of the Basic Law, which mandates the MSAR adopt national security laws, a measure that Chairman of the National People’s Congress (NPC) Zhang Dejiang praised Macau on during a visit in early May, cryptically saying the MSAR should conclude past experiences in order to nurture further successes. The Consul General pointed out that, in the wake of a State Department document on recent developments,
despite the ‘one country, two systems’ policy “generally working reasonably well”, it also points out that “certain recent actions and statements by the Chinese Central Government are inconsistent with China’s important commitment, as reflected in the Basic Law, to allow Hong Kong to exercise a high degree of autonomy.” Consul General Tong further stated that “maintaining Hong Kong’s high degree of autonomy, as enshrined in the Basic Law, is the lifeblood of the city,” opining that “Hong Kongers know better than anyone that becoming ‘just another Chinese city’ is a recipe for irrelevancy.” K.W.
Business Daily Thursday, June 15 2017 3
Macau Urban renewal
Gov’t to seek land for temporary housing The government has objected to the Urban Renewal Committee’s suggested arrangement of social and economic housing for residents awaiting renewed accommodation
The Urban Renewal Committee at its fifth plenary meeting yesterday. Source: IBS
Cecilia U cecilia.u@macaubusinessdaily.com
“
W
e have to wait for the government to designate plots of lands for construction of temporary housing,” said Paul Tse See Fan, co-ordinator of the first taskforce of the Urban Renewal Committee following its fifth plenary meeting yesterday. Tse reported that the government, mainly the Housing Bureau, and several committee members objected to the suggestion of taking certain flats out of the planned social and economic housing sphere as temporary accommodation. “The main reason for their non-agreement is not to lengthen the waiting period of Macau residents who have been waiting for social and economic housing,” said Tse. The idea of providing temporary housing is to facilitate accommodation on a short or medium term basis to residents of properties being demolished to give way to new buildings in the process of urban renewal. Meanwhile, the first taskforce
has suggested measures to subsidise residents leaving their current accommodation. According to the co-ordinator, subsidies might be in cash or rental as well as other forms of subsidy. “Now this has been agreed in principal as well by the Urban Renewal Committee and will then be submitted to the MSAR Government for their further consideration,” said Tse.
Government wholly-owned company
Meanwhile, Wong Seng Fat, Deputy Co-ordinator of the second taskforce, revealed that the preliminary administrative framework of the government’s wholly-owned company was discussed during yesterday’s meeting. Wong disclosed that the second taskforce suggested the name of the company as Macau Urban Renewal Company Limited. In terms of company operation, the Deputy Co-ordinator said: “Apart from the promotion of urban renewal, we wish to improve the facilities of
the communities and the livelihood of residents as the major aims.” He added that co-ordination with government departments is necessary, in particular in areas of cultural heritage protection and the building of social facilities. The meeting yesterday also discussed the shareholders of the company. “Apart from being owned by the government, we suggested the company be shared by odd digit numbers of shareholders, which means at least three shareholders,” said Wong. He explained that the majority of other government-owned companies usually comprise companies partly owned by the government as well as public entities that are responsible for funding. He added that “odd numbers are easier to [arrive at] a result when decisions need to be made through voting. Regarding hiring employees for the company, Wong said private recruitment will be undertaken pursuant to the Labour Law, while personnel appointed by the government
will perform a regular appointment approach. Wong affirmed that a more detailed proposal about the company will be available in the future. “Many [Committee members] expressed their opinions and we collected many suggestions to solidify and detail the framework,” said Wong. Secretary for Transport and Public Works Raimundo Arrais do Rosário, meanwhile, reported that partial consensus was reached on the necessity of approval made by owners of old buildings that are in need of reconstruction. The consensus was that buildings under 30 years that are in need of demolition or renewal will have to acquire approval from all owners. For buildings that are 30 to 40 years old, demolition can only be achieved when 90 per cent of the property owners approve, with 85 per cent required for buildings that are more than 40 years old. The Secretary said total consensus would probably be reached in the next meeting. advertisement
4 Business Daily Thursday, June 15 2017
Macau Opinion
Ashley Sutherland-Winch*
Can censorship fight terror? Platforms like Google, Facebook and YouTube are public forums for free expression and speech for the positive but in today’s Internet world the threat of terror is igniting strong discussions involving censorship through the companies. British Prime Minister Theresa May is advocating Internet companies regulate their users’ speech. In the wake of the recent London attacks, Mrs. May called platforms like Google and Facebook breeding grounds for terrorism stating: “We cannot allow this ideology (evil ideology of Islamist extremism that preaches hatred, sows division, and promotes sectarianism) the safe space it needs to breed. Yet, that is precisely what the Internet – and the big companies that provide Internet-based services – provide. We need to work with allied, democratic governments to reach international agreements that regulate cyberspace to prevent the spread of extremism and terrorist planning. And we need to do everything we can at home to reduce the risks of extremism online.” Mrs. May, along with leaders of other countries, demands that platforms build tools to identify and quickly remove extremist content. Germany is prepared to fine platforms up to 50 million euros if they do not remove illegal content swiftly and a law is currently being drafted by the European Union to make YouTube and other video hosts responsible for ensuring that users never share violent speech. It is understandable that country leaders are fearful and frustrated but making private companies actively curtail user expression on public forums like Twitter and Facebook is dangerous. This level of censorship would harm free expression and information access for regular users especially for journalists merely reporting on extremism. It may be impossible to censor extremist content without also censoring important legal speech as well. The sheer volume of uploads to YouTube alone, around 300 hours of video, are made every minute. It would be almost impossible to review all of the footage. Courts including the European Union Court of Justice and European Court of Human Rights, recognise that users’ speech and privacy rights will suffer if platforms vet every word posted. Algorithms are being tweaked daily to review and remove content but sometimes they might remove too much silencing disputed speech rather than risk liability. I believe that the major platforms are working to find a marriage of review versus censorship of content - but it’s a long way to the perfect solution. Unfortunately, even full censorship will not eliminate extremism and terror but I hope a new solution is on the horizon.
*Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Elections
Multiple affiliations The number of repeat signatures on lists for the coming elections for the Legislative Assembly soared this week Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he number of signatures repeated on more than one candidacy list has jumped to 92 this week from a total of 16 repeat signatures reported by the Electoral Affairs Commission for the 2017 Legislative Assembly (AL) last week, according to information provided yesterday by the Chairman of the Commission, Tong Hio Fong. The Chairman, also a judge of the Court of Second Instance, said that the next step on the part of the Commission is “to get in contact with the people involved in order to verify under what circumstances they have signed more than one candidacy list, and also to verify what is their final goal or intention [by doing this].” Mr. Tong further claimed that they have been in contact with more than ten people at this stage. Responding to enquiries as to whether the repeat signatures constitute infractions, the Commission Chairman replied that they “have to analyse the circumstances under which they have occurred, on a caseby-case basis, in order to verify if these cases constitute irregularities or infractions.” Mr. Tong added that the Commission cannot yet disclose its findings. “When the time comes, we will analyse and publish the results,” he said. As at the day of the announcement, the Chairman also said that the Commission had received 21 applications for lists by direct vote and two applications for lists by indirect vote. Of the 23, the Commission has already proceeded to accept six – up by five from last week. One of the candidate lists was ruled out by the Commission, according to Mr. Tong.
The Commission Chairman further noted that the number of venues hosting polling stations for this year’s election will be increased to 19 from 17 last year, with the two new venues located at Sai Van lake and Feira do Carmo. In terms of distribution, 13 venues will be in Macau, five in Taipa, and one in Coloane. Candidates will be allowed to campaign in those sites during the period of electoral activities.
Irregularities?
The Chairman of the Electoral Commission also said yesterday that they have “received a total of 16 complaints, all related to our Commission, and they have been transferred to the CCAC [Commission Against Corruption].” Mr. Tong added that another concern recently raised by Macau citizens is the fact that some participants “have been anticipating their electoral propaganda, or that there have been irregularities in this regard, while claiming that the Commission has knowledge about this, but does not disclose the information [in its possession].” The Chairman explained that those concerns were one of the main points discussed by the Commission during the meeting held yesterday, arguing in response to public disquiet that they have previously been forward about the question of electoral propaganda. “According to our current law, after the publication of the list of the
Candidacy Commission, it is for us to regulate and monitor electoral propaganda. And according to the provisions of the Electoral Law we still have not detected any irregularities or conflicts with the law,” he commented.
Liaison Office dinner
Regarding the accusations raised on Monday by legislator José Pereira Coutinho of not being invited to a dinner promoted by the Central Government’s Liaison Office for the Macanese and Portuguese communities at which Jorge Neto Valente, another candidate for the upcoming elections spoke, Mr. Tong said that the Commission only “learned about such information through the newspaper.” In a report by Ponto Final, the legislator and cChairman of the Macao Civil Servants Association claimed that the local Beijing representation has favoured Valente’s candidacy as Melinda Chan’s number two. “From the Commission’s point of view, we cannot forbid people from participating in these types of activities, gatherings or dinners. We have first to verify if such activities are directly related to the elections, and, until now, there are no indications or information pointing to a direct relationship,” he explained. Mr. Tong further said that in case “there is a chance that it may constitute a crime or an infraction, there must be a complaint of a concrete fact” for the Commission to be able to investigate.
Payments
DSE greenlights Macau Pass cards for intellectual property fees MSAR residents may now use Macau Pass cards to pay fees related to intellectual property requests made to the Macau Economic Services (DSE) to a value of up to MOP1,000 (US$124), according to a release in the Official Gazette yesterday.
Debts
Homes for debts Two junket promoters are pursuing debtors in the Court of First Instance for monies owed, calling in a housing unit and a commercial unit put up as collateral, according to court announcements. Junket group Tak Chun is seeking the sale of a MOP2.53 million apartment in Macau, while junket promoter Kam Kuok is pursuing the sale of half of a commercial unit, valued at MOP584,000. Additionally in court, The Venetian Macao (pictured) is pursuing the repayment of debts amounting to MOP18.85 million, as well as legal fees, or relevant collateral, from a resident of Guangzhou.
In May the department received a total of 1,272 applications for intellectual property registration in the MSAR, a 38.7 per cent month-tomonth rise from April. The majority of applications in May were related to trademark registration. N.M.
Business Daily Thursday, June 15 2017 5
Macau Water
Doing the sums on precious water Macao Water reaches an agreement to develop new MOP1 billion Seac Pai Van Water Treatment Plant by the end of 2019, with the government to increase the service tax it pays the company for each cubic metre of water supplied to users in order to assist the project Nelson Moura nelson.moura@macaubusinessdaily.com
M
acao Water Supply Co. Ltd. has reached an agreement with the government to develop Seac Pai Van Water Treatment Plant for MOP1 billion (US$124.4 million) until the end of 2019, the Marine and Water Bureau (DSAMA) announced yesterday. According to statements made to Business Daily, Macao Water said its initial proposal involved a two-phase development of the Seac Pai Van Water Treatment Plant that would require a MOP2 billion investment. However, the two parties agreed upon a one-phase
development requiring a MOP1 billion investment by Macao Water. Macao Water said the new water treatment plant will start development ‘shortly’ and is expected to be concluded by the end of 2019. In order to assist with the plant development, the company requested the government to increase service tax by an average of 6.2 per cent annually until 2019, with the government agreeing to a 5.9 per cent average increase. The rates will then be changed to MOP5.45 when the new agreement is enforced this year, to MOP5.77 in January of 2018, and then MOP6.08 in 2019. The increase in service tax will not affect the water price paid by local
Seac Pai Van Water Treatment Plan. Source: Macao Water
users, Macao Water told Business Daily. The DSAMA release states that the Coloane water treatment facility currently has a capacity of less than 30,000 cubic metres per year, with around 90 per cent of the water supply to Taipa and Coloane coming from the Macau Peninsula. DSAMA predicts water consumption
in the areas will reach a maximum of 150,000 cubic metres in 2019, with the new water treatment centre expected to provide 130,000 cubic meters of water. After its development the city’s daily water supply will increase from the current 390,000 cubic metres to 520,000 cubic metres.
Recycling
Gov’t: Striving to complete Recycling Facilities Support Scheme this year Cecilia U cecilia.u@macaubusinessdaily.com
The Environmental Protection Bureau (DSPA) hopes to complete the draft for the bill of the Recycling Facilities Support Scheme within this year to support the recycling industry’s purchase of necessary equipment, thus reducing operational costs and boosting efficiency. With the cost of environmentally friendly materials declining in recent years, many businesses related to the recycling industry have
suffered from the growing cost of labour and rental, as stated in legislator Chan Meng Kam’s interpellation. The legislator asked about
the result of the research on the recycling industry recently completed by the MSAR Government. The Bureau replied that
the research results are for internal reference, noting that respondents of the research wished that related interviews and questionnaire information be kept confidential. Apart from the possible implementation of the aforementioned support scheme, DSPA also suggested the recycling industry apply to the SME (small and medium sized enterprises) Aid Scheme and SME Credit Guarantee Scheme in order to reduce the pressure of high operational costs. The MSAR Government
proposed in its management planning of the city to reduce solid waste by 30 per cent in a decade’s time. In response to the legislator’s enquiry about policies achieving the aforementioned target the Bureau has already commenced a study about waste charging policy in the city, and drafted bills on construction waste management and restrictions on plastic bags. Meanwhile, the Bureau is planning to roll out a recycling computer and electronic gadgets plan by the second half of this year.
Beef
Trade
Cattle drive
New schedule on rules of origin for Macau goods enjoying zero tariff
A little over six months since an 80-strong delegation of businessmen led by the governor of the state of Nebraska came to the MSAR pitching beef as part of its mission to China the United States Department of Agriculture has announced that it has reached agreements with Chinese officials on the final details of a protocol to start exporting beef to China. “Today is a great day for the United States and in particular for our cattle producers, who will be regaining access to an enormous market with an ever-expanding middle class,” stated the United States Secretary of Agriculture, Sonny Perdue. The Secretary’s comments are in
line with those made by Governor Pete Ricketts of Nebraska, who commented that “Hong Kong is the largest importer of Nebraska beef in Asia”. Apart from focusing on beef products, the delegation brought with it other companies set to take advantage of the growing middle-class, bringing companies like Paypal (payment solutions), Behlen (farm and ranch equipment), and Lindsay (irrigation, transportation, industrial solutions). While the role for Macau to play in the beef imports remains to be seen, Ricketts notes that: “While Hong Kong doesn’t bring in a lot of raw commodities beef is a good fit, as it is in Macau.” K.W.
Cecilia U cecilia.u@macaubusinessdaily.com
Chinese Customs announced yesterday the new schedule on rules of origin for products from Macau and Hong Kong enjoying free tariffs under the Closer Economic Partnership Agreement (CEPA) with Mainland China. The new schedule includes a total of 27 types of product enjoying additional origin criteria, with products such as ground spices, sparkling wine and unworked jewellery identified. The origin criteria of 10 products covering different types of nuts and bakeries were also revised. The new arrangement will be effective July 1 this year. Currently, 1,500 different types of product from the MSAR benefit from zero tariffs when traded to Mainland China under CEPA. The CEPA agreement was inked between the MSAR Government and the Mainland during 2003 and fully implemented in 2004, with the aim of promoting joint economic prosperity and development of the Mainland and Macau in order to enhance the level of economic and trade co-operation between the two places. Earlier this month, the Office of the Secretary for Economy and Finance announced the renegotiation
between the MSAR and Mainland China over CEPA by the end of the year. The announcement revealed that works have already been initiated to ‘update’ the CEPA agreement by both parties, with economic and technical co-operation and nvestment protection the main focus. According to the Macao Economic Services (DSE), as of May 2017 the total value of exports under the CEPA agreement reached MOP801.4 million (US$99.7 million).
6 Business Daily Thursday, June 15 2017
Macau Shipping
Treacherous waters Twenty-three of the world’s shipping losses occurred in the South China and Southeast waters last year Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
M
ore than a quarter of the shipping losses of last year occurred in the waters of South China and Southeast Asia, according to a recent report by insurance and financial services company Allianz Global Corporate and Specialty. This comes despite a 50 per cent
reduction over ten years in the total ships lost worldwide in 2016, coming in at 85, a 16 per cent reduction from the previous year, according to Safety & Shipping Review 2017. The number of casualties from the incidents also saw a 4 per cent decline, coming in at 2,611. Twenty-three of the shipping losses worldwide occurred in the South China, Indochina, Indonesia and Philippines region, which
the report notes is ‘the top hotspot for the last decade’. Despite the fact that loss activity ‘remained stable’ it was almost double the 12 losses that occurred in the East Mediterranean that year. During 2016, some 30 cargo vessels were lost, nearly one third of the total, with eight passenger ferries lost. The most common cause ‘remains foundering (sinking)’ points out the report, accounting for more than half of all losses during the year, ‘with bad weather often a factor’. In addition ‘over a third of shipping casualties during 2016 were caused by machinery damage,’ notes the report.
Last month, Macau saw one fishing boat sink on May 21 and a barge carrying sand nearly sink near the airport, causing the local Marine and Water Bureau (DSAMA) to issue alerts about vessel maintenance. Business Daily requested information on the number of sunken vessels in territorial waters but had yet to receive a response by the time this story had gone to print.
Accidents
Neighbouring Hong Kong reported a total of 319 marine accidents in Hong Kong territorial waters just last year, according to statistics from the Marine Department of the HKSAR. Of these, 112 cases were due to collisions, resulting in the death of one person and 17 injuries. In total, two deaths were registered in Hong Kong territorial waters last year whilst outside Hong Kong waters nine deaths were registered despite only 49 cases of collisions occurring (resulting in eight deaths). The shipping report points out that structural integrity was one of the main risks identified in the number of breaches in recent years ‘particularly concerning vessels that have been converted’, while fires at sea on container ships ‘have raised questions about whether safety systems have kept pace with vessel size,’ additionally pointing out that ‘inaccurately labelled cargo can exacerbate the issue’. A total of 16 cases of ‘fire/explosion’ occurred in Hong Kong waters, while nine occurred outside, according to the statistics, resulting in eight injuries and one death. Accidents involving ‘contact’ amounted to 72 for both territorial waters, while those of ‘grounding/stranding’ reached 38. The report observes that the main dangers facing shipping currently are ‘crew negligence, inadequate vessel maintenance and cyber increasing areas of concern, as economic pressures challenge budgets’.
eSports
Hong Kong’s enthusiasm the e-gamer carrot for Macau The recent increase in interest by the Hong Kong Government in the development of eSports events could lead the MSAR to realise the sector’s potential for its tourism industry Nelson Moura nelson.moura@macaubusinessdaily.com
Representatives from the local eSports community hope Hong Kong’s increased efforts to organise eSports events will help the MSAR realise the potential of the sector in attracting a growing young consumer segment to its tourism industry. “These events attract young consumers with money to spend. People that take part in eSports tend to have good education and a good job so they make a good target profile,” the Chairman of the Grow uP eSports Association, Frederico Alexandre dos Santos Rosario, told Business Daily. Recently, the Hong Kong Tourism Board (HKTB) announced that as part of the 20th Anniversary of the establishment of the HKSAR it would launch the ICBC (Asia) eSports & Music Festival Hong Kong, an eSports event to be held from 4-6 August on the city’s Central Harbourfront. The event will bring together music, gourmet offerings and an eSports showcase tournament between online professional players of popular game League of Legends from the United States, Europe and China. Owned by Chinese company Tencent Holdings Ltd., League of Legends is a multiplayer online battle arena video ranked first globally among all PC client games in terms of revenue
in 2016, with US$1.7 billion (MOP13.6 billion) in generated revenue. “This Hong Kong bet on eSports underscores the importance and impact that this new form of youth entertainment can have on the region’s tourism,” the President of Grow uP eSports, Fernando Pereira, told Business Daily.
The event seems to be part of an increase of awareness by the Hong Kong Government of its possible economic benefits, with the city’s Financial Secretary, Paul Chan Mopo, having described eSports as a sector with great potential during the presentation of the city’s 2017/2018 HK$10 billion (US$1.28 billion) budget for developing information technology. In his speech, the Secretary declared video game competitions could increase the city’s gaming industry and the application of relevant technologies such as virtual reality.
“Macau often follows Hong Kong trends, and I believe that the government is giving due attention to this global phenomenon,” Pereira added. Grow uP eSports is currently planning a large scale event for September in the MSAR and hopes the recent increase in interest in the neighbouring SAR could lend momentum to the eSports scene in Macau. “The Macau Government has helped us a lot already and we’ve received support from the [Macao] Government Tourism Office (MGTO). We hope that help can continue,” said Mr. Pereira.
Business Daily Thursday, June 15 2017 7
Macau
Trial
Mainland casino marketing scrutinized as Crown court date set It’s illegal to gamble or promote gambling anywhere in China, other than in Macau
C
rown Resorts Ltd. staff detained in China since October are due in court this month in a case that may determine how casino operators drum up business in the world’s biggest gambling market. The Crown workers have been charged with offenses related to the promotion of gambling, Australia’s largest casino operator said Tuesday. Among the 19 scheduled to appear in a Shanghai district court on June 26 is the company’s head of international high-roller operations, Australian Jason O’Connor. It’s illegal to gamble or promote gambling anywhere in China, other than in Macau, and the detentions eight months ago raised concerns of a renewed clampdown on overseas casino operators that woo Chinese citizens offshore to gamble. The charges come as Chinese authorities seek to halt hundreds of billions of dollars worth of outflows, some of which exit the mainland via gambling operations. With a judgment now closer, the case might explain why the Crown staff were targeted and make it clearer to foreign casino operators such as Las Vegas Sands Corp. and Wynn Resorts Ltd. where to draw the line in attracting mainland clients without selling themselves as a gambling destination. “It’s a matter of how you strategically market yourself and what you’re emphasizing,” said Bloomberg Intelligence analyst Margaret Huang. “You can’t be just like ‘Hey come to our casino here.”’ Crown’s stock has increased 12 per cent this year as the company pulled out of Macau in the wake of the detentions, announced a special dividend and pushed on with a share buyback.
Tighter measures
Macau is the only Chinese city where casinos are legal. Elsewhere in the nation, it’s illegal to organize people to gamble. If convicted, the defendants could face up to three years in jail. For operating a casino and for serious cases, the penalty can stretch to 10 years. The charges against the Crown workers, the most significant development in the case since the employees were rounded up by mainland
authorities, follow tighter measures by Chinese authorities to curb capital outflows from the mainland that have drained capital reserves and driven down the value of the currency. In May, Macau’s government announced plans to require facial recognition and identification card checks at ATMs before cash can be withdrawn by mainland users of China UnionPay Co. It’s common to see people using multiple cards to withdraw cash from Macau ATMs, with some possibly using other peoples’ accounts or cards, according to JPMorgan Chase & Co. analyst DS Kim.
“It’s a matter of how you strategically market yourself and what you’re emphasizing” Margaret Huang, Bloomberg Intelligence analyst “Overseas gambling is a key way of money laundering and sending capital overseas,” said Wang Guoqiang, a lawyer at Shanghai-based law firm Trend. “The government is very serious about stopping illegal capital outflows, so there’s a renewed emphasis on cracking down on related activities.”
‘Chilling effect’
While casino and junket operators are monitoring the Crown case for clues, the news didn’t dampen the rally in Macau casino shares. Bloomberg Intelligence’s index of Macau gaming stocks rose as much as 1.5 per cent yesterday, extending gains that reached a two-year high. Shares soared after a Credit Suisse Group AG note forecast the territory’s gaming revenue in June will grow 30 per cent from a year ago -- an eleventh month of gains. “The detention has had a chilling effect on most if not all casinos previously marketing into China,” said Ben Lee, Macau-based managing partner at Asian gaming consultancy IGamiX. “The casino companies have modified their behaviour but they have a certain level of amnesia.”
Melbourne-based Crown declined to comment beyond its statement Tuesday that said the cases have been referred to the Baoshan District Court. Legal representatives for some of the Crown employees declined to comment and asked not to be identified because of the sensitivity of the case. While the proceedings are notionally open to the public, there’s no guarantee that will happen, said Shanghai-based lawyer Si Weijiang, a lawyer at Debund Law Offices.
who’s the biggest shareholder, returned to the board, replaced the chief executive officer, and made resolving the situation in China his top priority. The case is key not only because it might shed light on why Crown staff were targeted, said IGamiX’s Lee. Gaming authorities in Australia are also likely to assess the outcome to determine whether Crown is allowed to continue holding casino licenses at home, he said.
‘Gray area’
“The real bite would be the punishment at home,” he said. “This case will have far-reaching repercussions for all and any casinos marketing in any foreign jurisdictions. Crown’s high-roller gaming in Australia cratered as the crackdown deterred VIP gamblers from visiting its casinos. Packer scrapped a spinoff of overseas assets and sold Crown’s stake in Macau casino operator, formerly known as Melco Crown Entertainment Ltd. Also binned: a proposed initial public offering of a trust holding Crown’s Australian hotels. Under John Alexander, who replaced Rowen Craigie as CEO in February, Crown is focusing on its hotels and casinos in Australia, including a new A$2 billion (US$1.5 billion) luxury resort on Sydney’s waterfront. Bloomberg News
“This is a gray area,” Si said. “Family is allowed to attend, and there is nothing forbidding observers to attend. However, the court officials may choose to deny admission to anyone.” The case is Australia’s highest profile corporate clash with Chinese authorities since 2010. Stern Hu, the Australian who led Rio Tinto Group’s iron-ore unit in China, was found guilty in March of that year of bribery and stealing commercial secrets and sentenced to 10 years in prison by a Shanghai court. For Crown, the charges may mark the beginning of a resolution after the crackdown triggered a slump in high-roller gambling at the company’s Australian resorts and upended the company’s international operations. Billionaire James Packer,
‘Far-reaching repercussions’
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8 Business Daily Thursday, June 15 2017
Greater china Growth
Economy holds up in May but slowing investment points to cooling Industrial output grew at a steady 6.5 per cent pace in May from a year earlier Kevin Yao and Elias Glenn
C
hina’s economy generally remained on solid footing in May, but tighter monetary policy, a cooling housing market and slowing investment reinforced views that it will gradually lose momentum in coming months. Still, with half a year left to go, Beijing is expected to handily meet its annual 6.5 percent economic growth target without too many bumps, good news for President Xi Jinping ahead of a major political leadership reshuffle later this year. Slower fixed asset investment growth in May and a sharp deceleration in housing starts seen in data on Wednesday point to some of the cooling economists have been expecting, though stable growth in factory output and retail sales, along with a pickup in exports, are cushioning the impact so far. But a rise in inventories in the industrial sector and weaker producer price inflation will drag on growth ahead, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “The first half of this year was a very happy period for China in the sense that we had that wonderful increase in output prices,” said Kuijs, referring in part to a construction boom which boosted demand and profits of structurally unhealthy sectors such as steel. The extent to which China’s growth slows may depend on how much
more monetary tightening the central bank and regulators want to impose in the second half of the year, Kuijs said. After rolling out a slew of measures early in 2017 ranging from short-term interest rate increases to a clampdown on riskier forms of lending and shadow banking, authorities have appeared to pause in recent weeks as the government looks to ensure political and financial market stability heading into the Communist Party Congress in autumn. With slower nominal growth going into next year, “the willingness to tighten significantly (further) on the monetary side will be pretty low”, Kuijs said.
Manufacturing still solid, property cooling
Industrial output grew at a steady 6.5 percent pace in May from a year earlier, defying expectations for a slight softening, as a government infrastructure spree continues to boost
demand for building materials from cement to steel. But rising inventories are a risk. In April, growth in industrial inventories picked up to over 10 percent. Weaker growth in fixed asset investment -- at 8.6 percent for January through May -- was led by a slowdown in the property sector. While housing sales rose by an unexpectedly solid 10 percent, growth in new construction starts almost halved to 5.2 percent in May, according to Reuters calculations. Analysts expect the housing market to continue to slow, as the government remains wary of still-rising home prices and has maintained strict controls on home purchases and property financing. But recent protests over a property crackdown in Shanghai indicate the sensitivity of the sector, with policymakers careful to try to avoid a broad-based downturn that would lead to a significant drop in home prices that could stress the banking system and stir social unrest. Infrastructure spending, typically a key lever for the government to stabilise growth in the face of any slowdown, slowed to 20.9 percent growth over the first five months of the year, with analysts at ANZ saying “we need to keep a close eye on the near-term trend”. Growth of private investment slowed slightly to 6.8 percent in January-May, suggesting a slight weakening of the private sector’s appetite to invest as small- and medium-sized private firms still face challenges in accessing financing and now rising funding costs. Private investment accounts for about 60 percent of overall
investment in China. Retail spending was more upbeat, rising 10.7 percent in May from a year earlier, unchanged from April and beating analysts’ expectations for a decline despite the first back-to-back drop in auto sales since 2015.
Focused on the target
Economists at Nomura forecast China’s economy will grow 6.8 percent in the second quarter, only marginally less than the 6.9 percent expansion in the first quarter and providing enough momentum to coast to the government’s full-year target even if there is some softening in the second half. Fund managers surveyed by BofA Merrill Lynch said China’s credit tightening ranked as the top tail risk for financial markets for the second month in a row in June, with nearly two-thirds of respondents saying it will slow business activity in the country but have little impact on global growth. Sources told Reuters yesterday that China’s central bank was checking with lenders in Shanghai to see if tighter rules were having an impact on lending or credit quality. Funding costs are rising slowly and banks have been raising mortgage rates. Still, many analysts say concerns over tighter policy are overblown as measures so far this year have been on the edges and only target financial speculation, not activity in the real economy. Despite some tightening, “broader liquidity conditions such as M2 growth, loan growth or the growth of outstanding financing are still largely stable,” said Nomura chief China economist Yang Zhao. “Looking ahead, further tightening should be very limited. I don’t see the People’s Bank of China (PBOC) easing liquidity or monetary policy anytime soon, but the PBOC probably would not further tighten.” Reuters
Corporate shift
Anbang says chairman steps aside, after report of his arrest Magazine Caijing reported the chairman had been taken away for investigation, though the article was removed shortly after it was posted online Matthew Miller and Koh Gui Qing
Anbang Insurance Group, one of China’s most aggressive buyers of overseas assets, said yesterday its chairman was temporarily unable to fulfil his duties, just over a week after denying reports he had been barred from leaving the country. The brief statement, citing only unspecified personal reasons for moving Wu Xiaohui aside, came hours after Chinese magazine Caijing reported the chairman had been taken away for investigation. The article, citing unnamed sources, was removed shortly after it was posted online. Anbang said Wu’s duties would be managed by other senior executives, and that its business was operating normally. No other details were provided. Best known overseas for its 2015 purchase of New York’s landmark Waldorf Astoria hotel, Beijing-based Anbang has pursued a string of high-profile foreign acquisitions under Wu. After a spate of successful deal-making worth over US$30 billion, Anbang ran into recent roadblocks, failing to close on a handful of investments, and facing criticism over its opaque shareholding structure. Anbang’s vertiginous rise has also brought unwanted attention.
One of Anbang’s units was censured by China’s insurance regulator in May for designing products to skirt a regulation aimed at curtailing risk. As a result, the unit was barred from issuing new products for three months. That move came amid a widespread regulatory crackdown on what was seen as excessive use of universal life products by some insurers, and as China’s leadership moves to curb risk in the financial system. A handful of insurers, led by Anbang, have issued higher-yielding products to raise funds to acquire stakes in listed companies. Earlier this year, the country’s chief insurance regulator, who had overseen a doubling of the size of the
industry in three years, was removed from his post after being placed under investigation. Outside of China, Anbang’s deal-making has faltered as well. Its planned US$1.6 billion takeover of U.S. annuities and life insurer Fidelity & Guaranty Life collapsed in April after failing to get the required U.S. regulatory approval. Attempts by the Chinese insurer to invest in a real estate project affiliated with the family of U.S. President Donald Trump’s son-in-law floundered earlier this year. When asked if Wu was within China or if he could be reached, a spokesperson for Anbang - which employs more than 30,000 people and manages RMB1.97 trillion (US$290 billion) in assets - said the company had nothing to add. Anbang earlier this month denied a Financial Times report that Wu had been prevented from leaving the country, citing four sources who had business dealings with him. That statement fuelled speculation about Wu’s well-being, at a time when Chinese business circles were already spooked by the mysterious disappearance of a China-born billionaire from Hong Kong early this
The firm is best known overseas for its 2015 purchase of New York’s landmark Waldorf Astoria hotel
year. Calls to Wu’s mobile phone went unanswered yesterday. China’s insurance regulator did not immediately respond to a faxed request for comment or phone calls.
Rise to prominence
Anbang’s recent difficulties come during a highly sensitive year in China, with the ruling Communist Party set to hold its five-yearly party congress later this year, and amid a broader crackdown on corruption led by President Xi Jinping. Established in 2004 by Wu as an automotive and property insurer, Anbang has stormed to prominence in recent years, buying Dutch insurer Vivat, South Korea’s Tong Yang Life Insurance and Strategic Hotels & Resorts in the United States. It has also taken significant stakes in a handful of listed domestic banks and property firms, including China Mingsheng Banking Corp, Agricultural Bank of China and China Vanke. Anbang also became embroiled in an unusually public war of words with a leading Chinese business magazine, Caixin, about the insurer’s ownership structure. In an article published in April, the magazine had described Anbang’s structure as “opaque” and said its funding was a “maze” of capital flow involving more than 100 firms. Anbang, in response, called the descriptions “malicious” and “inaccurate” and later said it filed a lawsuit in Canada against the author of the article. Described by those who know him as smart and passionate, Wu is politically connected - he married the grand-daughter of former leader Deng Xiaoping - and has cultivated relationships on Wall Street with the likes of private equity giant Blackstone Group LP, despite speaking little English. Reuters
Business Daily Thursday, June 15 2017 9
Greater China Inequality
In Brief
Unless you’re a tycoon, Hong Kong life is harder than ever The city has become perhaps the epitome of income inequality in the developed world Prudence Ho and Matthew Campbell
Mrs. Lau can’t help but glance nervously at the calendar. Her next pay check isn’t for a week, and she doesn’t have enough money to feed her family of four crammed into her small, government-subsidized Hong Kong apartment. Her husband can’t work, and the kids don’t understand why their mother keeps buying stale food. “We’ll eat rice soup for all three meals,” said the 42-year-old, a cashier at the Wellcome supermarket chain controlled by the Jardine Matheson group. Lau, who asked that only her surname be used, has been the sole provider for her 7-year-old daughter and 15-year-old son since her husband injured his back. She makes the equivalent of US$5.40 an hour, nowhere near the US$15-an-hour minimum wage in cities like Seattle, where the cost of living is cheaper. It’s an increasingly familiar tale in Hong Kong, a city of soaring skyscrapers and glittering luxury boutiques that’s become perhaps the epitome of income inequality in the developed world. Two decades after Britain handed the former colony over to China, its richest citizens -billionaires such as Li Ka-shing and Lee Shau Kee -- are thriving, thanks to surging real estate prices and their oligopolistic control over the city’s retail outlets, utilities, telecommunications and ports. But not people like Lau. “Hong Kong is an incredibly extreme case of unmitigated inequality, with very little in place to stop it,” said Richard Florida, author of “The New Urban Crisis” and a director at the Martin Prosperity Institute in Toronto. “I don’t see it as being sustainable. It’s not the economics, it’s the political backlash. It generates a backlash, and people just get angry eventually.” Hong Kong’s struggle to help its citizens improve their lives may represent the greatest challenge to its unique economic model. The city has been lionized for decades by some economists as the closest thing to a free economy, with few regulations of any kind, and no retail sales or capital gains taxes. More than half of Hong Kong’s working population, including Lau, live below the level at which they must pay income tax -- and for the minority who do, the standard rate is a low 15 per cent. But wages have failed to keep up with costs, leaving hundreds of thousands of Hong Kong people barely able to get by. A common measure of inequality, the Gini coefficient, in which 0 is absolute equality and 1 is all money in a single person’s hands, illustrates the problem: The latest figure out last week puts Hong Kong at a record 0.539, the highest since data started being kept in the 1970s. It’s the biggest disparity in Asia, greater than places like Papua New Guinea and Brazil. “Hong Kong is a very interesting case study, where profits are sheltered from competition while labour cannot easily organize,” said Emmanuel Saez, an economics professor at the University of California, Berkeley, who often collaborates with Thomas Piketty, the French economist who wrote “Capital in the Twenty-First Century.” “This leads to very high inequality.” In some respects, Hong Kong is experiencing a turbo-charged version of the growing divide evident elsewhere. Formerly remunerative manufacturing jobs -- Hong Kong used to be the world’s toy-making capital -- have vanished, replaced at one end of the spectrum by highly
IMF raises Mainland’s 2017 economic outlook The International Monetary Fund yesterday raised its forecast for China’s economic growth this year to 6.7 per cent, citing “policy support, especially expansionary credit and public investment”. The forecast was an increase from its already-raised April forecast of 6.6 per cent. China’s economy grew a faster-than-expected 6.9 per cent in the first quarter, well above the government’s target of around 6.5 per cent for the full year. The IMF said it now expects China’s growth to average 6.4 per cent from 2018-2020. In April, the fund said it expected 2018 growth to be 6.2 per cent.
paid bankers and at the other by lowwage waiters and floor sweepers.
Perverse effect
Originally intended to stimulate entrepreneurial dynamism, the handsoff approach may have ended up having a perverse effect, allowing a few large companies to entrench their positions and ultimately stifle competition. Charges of collusion between business and government have felled several officials and led to public discontent. “The earlier generations have managed to entrench themselves so effectively, it becomes much more difficult for a new upstart,” said Steve Tsang, director of the China Institute at London’s School of Oriental and African Studies. Even deep-pocketed foreign companies have trouble breaking in. French supermarket giant Carrefour SA spent four years trying to build a Hong Kong footprint before abandoning the city in 2000, citing the difficulty of obtaining store locations. That’s not a problem for the two dominant supermarket chains, Wellcome and ParknShop, which are backed by their parent companies: Jardines and CK Hutchison Holdings Ltd. Debates about Hong Kong’s rich and poor tend to come back to one word: land. Housing is the least affordable in the world, according to housing-policy think tank Demographia, with median prices relative to incomes far outstripping those of Sydney, London and San Francisco. Home prices have risen nearly 400 per cent since a real estate slump ended 14 years ago. That’s created an unpleasant lexicon for living conditions unknown in other cities. “Cage homes,” as the name suggests, are compartments of wire mesh barely large enough to hold a single bed, often stacked on open-plan tenement floors. “Coffin home” berths are slightly larger and offer a modicum of privacy thanks to walls made of wood or plaster. For the middle class, developers have been building an increasing number of micro-apartments, the smallest just 128 square feet, with price tags of more than US$400,000. Almost all the city’s richest people largely owe their fortunes to real estate development. The wealthiest is Li, whose Cheung Kong Property Holdings Ltd. posted HK$18 billion in underlying profit last year. The runner-up is Lee, whose Henderson Land Development Co. made HK$14.2 billion. The assets of the 10 wealthiest people now equal 48 per cent of Hong Kong’s economy, according to the Bloomberg Billionaires Index. They’ve thrived within a peculiar system in which the Hong Kong government, which technically owns all available land, auctions off longterm leases to developers, some of whom are indirectly on both sides of the exchange. Hong Kong’s political leader is selected by a 1,200-member committee of notables, including Li and Lee, and others made wealthy by the system. This is part of why tycoons have an advantage, said Mathew Wong, an assistant professor at the University of Hong Kong who studies inequality and democracy. “The housing market is a huge struggle,” said Fred McMahon, a resident fellow at Canada’s free-market Fraser Institute. The think tank’s annual economic freedom index gives top honors to Hong Kong, a status that “highly correlates with economic well-being, but not exactly,” he said. Hong Kong’s leaders have taken some steps to help. They introduced a minimum wage for the first time in
Forecast
Commodities
2011. It’s now HK$34.50 an hour, or US$4.43 -- a level the U.S. exceeded in 1996. In 2015, the first-ever broad antitrust law was passed; previously, no formal competition rules existed, apart from in telecommunications and broadcasting. Incoming Chief Executive Carrie Lam has pledged to step up construction of affordable apartments and improve education to help workers get higher-paid jobs. Hong Kong certainly has economic successes to boast about. Gross domestic product per head is US$45,000, greater than in Germany, Japan or France, according to the International Monetary Fund. Life expectancy compares favourably against western Europe, and Hong Kong’s citizens benefit from some of the best rail, road and airport infrastructure in the world. “You won’t see people dying of hunger or cold,” said Michael Tien, a lawmaker who also owns local clothing chain G2000. He tried living the life of a poor Hong Konger for a 2010 TV show, sleeping in a cage home and working as a street sweeper for two days, and found it untenable. Hong Kong continues to construct subsidized apartments. More than 2 million people out of 7 million-plus live in public rental housing paying an average US$220 a month. Typically in outlying areas, they feature rows of identical towers of 50 stories or more -- hardly luxurious, but modern and relatively affordable. Still, waiting times can stretch nearly five years. With living standards lagging behind rising costs, some Hong Kong citizens have begun to wonder what was once unthinkable: whether folks across the border in mainland China might be better off. Take Yu Wen-mei, 61. She started working in a garment factory in the 1970s and recalls ferrying food and appliances to grateful relatives in Guangdong province in the 1980s. As low-end manufacturing disappeared, she took a job in a Motorola plant, which closed in 2000. She’s a mall security guard now, earning minimum wage. “Now, they have everything,” she said of her mainland relatives. For Lau, the supermarket cashier, little is likely to change. Living paycheck to paycheck is actually an improvement. Before qualifying for a subsidized apartment two years ago, she had to work three jobs to make the rent on a HK$5,000-a-month apartment in Sham Shui Po, Hong Kong’s poorest neighbourhood, that was half the size. “I almost went crazy,” said Lau, fighting back tears. She still has no savings and hasn’t taken time off since 2010. “I just hope my kids have higher educational qualifications and don’t repeat my path. I don’t see hope in my future.” Reuters
Coal output grows fastest in years China’s coal production rose 12 per cent in May from a year ago, its fastest pace of growth in years, as miners ramped up output ahead of an expected summer pick-up in demand, official data showed yesterday. Coal output rose to 297.8 million tonnes in May, the National Bureau of Statistics data showed, slightly above April’s 295 million tonnes. For the year to date, coal production has risen 4.3 per cent to 1.4 billion tonnes. Unusually hot weather at the start of summer has helped spur demand for coal, while miners have enjoyed more relaxed regulations on production. Banks
PBOC asks Shanghai lenders about credit quality The Shanghai branch of China’s central bank is asking city lenders for information on asset quality, credit needs and potential risks on top of what all Chinese banks are preparing for a routine assessment, two people with direct knowledge of the matter said yesterday. Banks in Shanghai recently received a notice from the People’s Bank of China (PBOC) asking them to provide the current size and industry distribution of their loan portfolio and report on how new loans in 2017’s first half compared to a year earlier, the two people said. Commodities
Oil output lowest on record; refiners churn out more China’s crude oil production fell to its lowest on record in May, even as refineries in the world’s top buyer of crude churned out product at their fastest pace in nearly two years, data showed yesterday. Crude output fell 3.7 per cent in May from a year earlier to 16.26 million tonnes, or 3.83 million barrels per day, data from the National Bureau of Statistics showed yesterday. The drop in China’s crude oil output has slowed as major oil producers raised spending to boost production as oil prices have stabilized in a range between US$48 to US$55 per barrel.
10 Business Daily Thursday, June 15 2017
Greater China
Energy
Enter the Nimble Dragon: Beijing looks to small reactors for nuclear edge Beijing is now racing the likes of Russia, Argentina and the United States to commercialise them David Stanway
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hina is betting on new, small-scale nuclear reactor designs that could be used in isolated regions, on ships and even aircraft as part of an ambitious plan to wrest control of the global nuclear market. Within weeks, state-owned China National Nuclear Corporation (CNNC) is set to launch a small modular reactor (SMR) dubbed the “Nimble Dragon” with a pilot plant on the island province of Hainan, according to company officials. Unlike new large scale reactors that cost upward of US$10 billion per unit and need large safety zones, SMRs create less toxic waste and can be built in a single factory. A little bigger than a bus and able to be transported by truck, SMRs could eventually cost less than a tenth the price of conventional reactors, developers predict. The global nuclear industry will require around US$80 billion in annual investment over the coming decade as countries strive to meet climate and clean energy goals, the International Atomic Energy Agency (IAEA) forecasts, and China is keen to get its hands on a substantial chunk of any new business. “Small-scale reactors are a new trend in the international development of nuclear power - they are safer and they can be used more flexibly,” said Chen Hua, vice-president of the China Nuclear New Energy Corporation, a subsidiary of CNNC. Beijing is now racing the likes of
Russia, Argentina and the United States to commercialise SMRs, which include passive cooling features to improve safety.
Fukushima fallout
Following the meltdown at Japan’s Fukushima reactor complex in 2011, the beleaguered nuclear industry has been focused on rolling out safer, large-scale reactors in China and elsewhere. But these so-called “third-generation” reactors have been mired in financing problems and building delays, deterring all but the most enthusiastically pro-nuclear nations. The challenges of financing and building large, expensive reactors contributed to the bankruptcy of Toshiba Inc’s nuclear unit, Westinghouse, and to the financial problems that forced France’s Areva to restructure. SMRs have capacity of less than 300 megawatts (MW) - enough to power around 200,000 homes - compared to at least 1 gigawatt (GW) for standard reactors. China is aiming to lift domestic nuclear capacity to 200 GW by 2030, up from 35 GW at the end of March, but its ambitions are global. CNNC designed the Linglong, or “Nimble Dragon” to complement its larger Hualong or “China Dragon” reactor and has been in discussions with Pakistan, Iran, Britain, Indonesia, Mongolia, Brazil, Egypt and Canada as potential partners. “The big reactor is the Hualong One, the small reactor is the Linglong One - many countries intend to cooperate
with CNNC’s ‘two dragons going out to sea’,” Yu Peigen, vice-president of CNNC, told a briefing in May.
Crowded field
Others are also pursuing the technology, with around 50 different SMR designs worldwide according to the IAEA. Russia leads the way on floating plants suitable for its remote Arctic regions, and construction underway on the world’s biggest icebreaker. U.S. firms including Westinghouse and Babcock & Wilcox have been developing their own SMRs, along with smaller start-ups like the Bill Gates-backed Terrapower.
Key Points China’s pilot small reactor to launch soon - official State nuclear firm plans to sell “Nimble Dragon” model overseas New generation modules eyed for islands, ships, even aircraft CNNC is now working on offshore floating nuclear plants it plans to use on islands in the South China Sea, as well as mini-reactors capable of replacing coal-fired heating systems in northern China. Company scientists are even looking at designs that could be installed on aircraft. Elsewhere in China, Tsinghua University is building a version using a “pebblebed” of ceramic-coated fuel units that form the reactor core, improving efficiency. Shanghai scientists are also planning to build a pilot “molten salt” reactor, a potentially cheaper and safer technology where waste comes out in salt form.
The success of new small-scale reactors hinges on investors seeing new large-scale plants coming online and building on those successes, said Christopher Levesque, Terrapower’s president. “We’re not competing with those folks, we’re rooting for them,” he told an industry forum in Shanghai last month. China has had some overseas success already with its Hualong reactor, with Pakistan currently building a plant using the technology. The Hualong is also expected to gain regulatory approval in Britain after China helped finance the US$24 billion Hinkley Point nuclear project there.
Costs key
Officials acknowledge nuclear still struggles to compete with cheaper coal- or gas-fired power. The OECD Nuclear Energy Agency estimates developers will need to build at least five SMRs at a time to keep costs down. Taking into account much lower safety, environmental and processing costs, however, the agency said SMRs could be competitive with new, large-scale reactors - particularly in remote regions where the alternative is a costly extension of power grids. “Given the delays and cost overruns associated with large-scale nuclear reactors around the world currently, the smaller size, reduced capital costs and shorter construction times associated with SMRs make them an attractive alternative,” said Georgina Hayden, head of power and renewables at BMI Research. Some developers believe basic SMR construction costs could eventually be cut to US$2,000-US$3,000 per kilowatt, making it competitive with large third-generation plants and new, low-emission, coal-fired power. “The cost of small reactors is a little higher than big reactors right now,” CNNEC’s Chen told Reuters on the side-lines of an industry expo in Beijing. “But we believe that alongside the further development and bulk production of this technology, costs will decline further.” Reuters
Business Daily Thursday, June 15 2017 11
Asia M&A
Japan gov’t-led bid for Toshiba chip unit to include SK Hynix The CEO of Foxconn told Reuters on Monday the Taiwanese firm was leading a group including Apple Inc, computing giant Dell Inc and Kingston Technology Co Taiga Uranaka and Se Young Lee
A
Japanese g o v e r n ment-led consortium bidding for Toshiba Corp’s chip business will include South Korean chipmaker SK Hynix Inc, sources familiar with the matter said – a move likely to add firepower to the group’s bid in the hotly contested auction. The sale has seen much tense last-minute jockeying by suitors, leaving the conglomerate little time to come to a decision by its shareholders meeting at the end of this month. Toshiba is seeking a minimum of US$18 billion for the world’s second-biggest producer of NAND chips and wants to get the deal done as quickly as possible to help it cover billions of dollars in cost overruns at now-bankrupt nuclear unit Westinghouse. A state-backed fund, the Innovation Network Corp of Japan (INCJ), has been at the centre of trade ministry efforts to forge a successful bid that will keep the highly prized unit under domestic control. But the nature of its partnerships appears to be going through drastic changes compared to just last week. INCJ was part of a proposed bid tabled by U.S. chipmaker Western Digital last week that also included U.S. private equity firm KKR & Co LP, sources familiar with the matter have said.
But separate sources have also said INCJ is in talks with Bain Capital about bidding for the unit, as the U.S. private equity firm appears willing to put in more money than rivals. The Asahi newspaper reported on Wednesday that INCJ was now in a consortium that included Bain, KKR, SK Hynix as well as the Development Bank of Japan (DBJ). Western Digital, which jointly operates Toshiba’s main chip plant but is now in a bitter dispute with the conglomerate over whether the auction can proceed without its consent, was not included. The INCJ bid would also exceed 2 trillion yen (US$18 billion), the newspaper said. A person familiar with the matter told Reuters yesterday that SK Hynix would be providing a loan to help finance the bid although it would not be taking a direct stake. Another person briefed on the matter said the Asahi report was correct on the participants in the consortium. The sources declined to be identified as they were not authorised to talk to the media on the matter. The flurry of jockeying has made it likely that Toshiba will not be able to select a preferred bidder by today as it had hoped, another person familiar with the matter told Reuters. Mana Nakazora, chief credit analyst at BNP Paribas, said the complexity of the situation now meant that the auction could only be settled with
the government’s intervention. “While the makeup of the Japan-U.S. consortium may well change, it’s increasingly unlikely that there are other options,” she said.
Fierce battle
Other suitors are also making last-minute pitches. One source familiar with the matter said on Wednesday that Western Digital is still in talks with the trade ministry over their consortium. The California-based firm has decided to raise its offer to at least 2 trillion yen, a separate source said on the weekend. The CEO of Foxconn told Reuters on Monday the Taiwanese firm was leading a group including Apple Inc, computing giant Dell Inc and Kingston Technology Co. The highest known bid so far is one from U.S. chipmaker Broadcom and its partner, U.S. private equity firm Silver Lake. They have offered 2.2
trillion yen, sources have said. According to the Asahi report, INCJ, DBJ and Bain would each invest 300 billion yen in a special-purpose company to buy the unit, Toshiba Memory Corp. Toshiba itself would contribute up to 100 billion yen and other Japanese firms a combined 140 billion yen, while KKR is considering putting in 100 billion yen, the Asahi said. It added that SK Hynix would lend 300 billion yen to the project and Bank of Tokyo Mitsubishi UFJ 400 billion yen. Toshiba, SK Hynix, INCJ, Bain, KKR and a spokesman for the core unit of Mitsubishi UFJ Financial Group Inc declined to comment. The trade ministry and DBJ did not immediately respond to requests for comment. Shares in Toshiba ended down 4 per cent yesterday, hurt by a newspaper report that the conglomerate would not be able to file its annual report by the end of this month. Reuters
Trade
Mongolian coal export earnings surge after N. Korean ban Cash-strapped Mongolia was forced to turn to the International Monetary Fund for support this year following a collapse in foreign investment Mongolia’s coal export earnings surged nearly fivefold in the first five months of the year, according to official data, with the country taking advantage of sanctions on North Korea to boost deliveries to China, its major customer. Cash-strapped Mongolia was forced to turn to the International Monetary Fund for support this year following a collapse in foreign investment, declining commodity prices and a downturn in coal demand. But it is now reaping the benefits of a ban on exports from North Korea, which has forced China to find alternative coal suppliers. The value of Mongolia’s coal exports rose to US$1.01 billion in the first five months of 2017, 4.6-times higher than the same period last year. The rise in exports contributed to a 69.5-per cent increase in Mongolia’s foreign trade surplus, which hit US$1
billion, the country’s statistics office said yesterday. According to the latest data from China’s customs authority, Mongolia became China’s second biggest supplier of non-lignite coal in the first four months of this year, with deliveries reaching a total of 11.7 million tonnes, more than double the same period of 2016. The average price of Mongolian coal delivered to China in April stood at US$66 a tonne, double the value in April last year, though still much cheaper than the average US$122 per tonne for Australian shipments. Mongolia’s base metal exports, including copper, also jumped 58.8 year-on-year to US$41.3 million over the first five months of 2017. Total exports grew 42 per cent to US$2.5 billion. Rising fuel costs contributed to a
27.8-per cent climb in the value of total imports, with the value of diesel imports growing 2.4 times to US$141.5 million and gasoline up 49 per cent at US$97.9 million. Mongolia’s largest copper mine,
Oyu Tolgoi, run by Anglo-Australian miner Rio Tinto, saw its revenues rise 5.7 per cent year-on-year in the first quarter of the year, citing higher prices and copper concentrate sales. Reuters
Mongolia’s largest copper mine, Oyu Tolgoi, run by Anglo-Australian miner Rio Tinto, saw its revenues rise 5.7 per cent year-on-year in the first quarter of the year
12 Business Daily Thursday, June 15 2017
Asia MAS survey
Economists raise 2017 Singapore growth forecast The central bank’s core inflation gauge was expected to rise 1.5 per cent for the whole of 2017
E
conomists raised their forecasts for Singapore’s growth this year, compared to three months ago, as they upgraded their views on manufacturing and bank lending, a central bank survey showed yesterday.
The median forecast of 21 economists surveyed by the Monetary Authority of Singapore (MAS) was for gross domestic product (GDP) to grow 2.5 per cent in 2017, up from the 2.3 per cent estimated in the previous survey, published in March. That would mark a pick-up from
2.0 per cent growth in 2016, and would be at the upper end of the government’s forecast range. The Ministry of Trade and Industry said in May that full-year 2017 GDP growth is likely to come in higher than 2.0 per cent “barring the materialisation of downside risks”, but kept its official GDP growth forecast unchanged at a range of 1-3 per cent. Economists now expect the manufacturing sector to expand 5.0 per cent in 2017, up from 4.5 per cent seen in the March survey.
They also upgraded their view on bank loans, which are seen increasing 6.2 per cent in 2017. The previous median forecast was 3.2 per cent growth. Non-oil domestic exports are expected to grow 5.6 per cent in 2017, down from the previous median forecast of 6.1 per cent. Other forecasts that were trimmed include construction, now expected to grow 0.2 per cent compared to 0.3 per cent previously. The survey’s median forecast for year-on-year GDP growth in the second quarter was 2.7 per cent, up from the previous median of 2.5 per cent. Singapore’s GDP expanded 2.7 per cent in the first quarter from a year earlier, but contracted 1.3 per cent from the previous three months on an annualised and seasonally adjusted basis. The central bank’s core inflation gauge was expected to rise 1.5 per cent for the whole of 2017, unchanged from the previous survey. According to the latest MAS survey, economists’ median forecast for all-items CPI inflation in 2017 was trimmed to 0.9 per cent from 1.0 per cent. Economists estimated that the Singapore dollar will trade at 1.4100 against the U.S. dollar by end-2017. It was trading near 1.3820 yesterday. Singapore’s advance estimate of second quarter GDP is due to be released in the first half of July. Reuters
Bankruptcy
India says banks must start proceedings against 12 major defaulters The RBI also said lenders have six months to finalise resolution plans for other non-performing accounts Devidutta Tripathy
India’s central bank has identified 12 of the country’s biggest loan defaulters and said creditors must pursue bankruptcy proceedings against them, as it begins to cut the US$150 billion in stressed debt hobbling Asia’s third-largest economy. The move comes about a month after the government gave the Reserve Bank of India (RBI) greater power to deal with unpaid loans, including the authority to direct lenders to initiate the insolvency resolution process in the event of default. A bankruptcy filing would result in recovering some funds owed or liquidation. Such action means banks can no longer leave bad debt on their books and could force them to put more money aside to cover losses - at a time when funds are already short as banks seek to comply with international capital standards. “This year’s bet was that provisioning requirements would come down,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance. “But if this step is taken then perhaps this year again could be another year of delay in banking sector profit recovery.” In a statement late on Tuesday, the RBI said it identified the 12 defaulters by focusing on accounts owing more than 50 billion rupees (US$778 million), and where 60 per cent or
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more of the account holder’s loans were classified as non-performing as of March 2016. The RBI said those accounts constituted about 25 per cent of overall gross non-performing assets. It did not identify the defaulters or banks, though most bad debt is at state-run banks with infrastructure, power and metals firms accounting for most. Credit Suisse estimated the amount at the 12 defaulters at 2 trillion rupees, made up of loans mainly of steel, textile and construction firms.
The RBI also said lenders have six months to finalise resolution plans for other non-performing accounts, and that insolvency proceedings must be pursued for unresolved accounts. It did not specify criteria for those other accounts. India’s stressed debt has reached its highest-ever level, with about 80 per cent made up of non-performing loans (NPLs) and the remainder restructured loans. Stressed debt leaves less funds available for new loans and so slows economic growth. The government has therefore attempted to reduce the amount in recent years through measures such as debt-for-equity
swaps. Under the latest directive, banks must individually or jointly start proceedings against the 12 defaulters under a bankruptcy code passed last year - a process that could take up to nine months. The central bank said it would separately issue directions on provisioning for debt subject to bankruptcy proceedings. Sapan Gupta, a banking lawyer at Shardul Amarchand Mangaldas, called the RBI’s move “a positive and bold step.” He said nine months runs to March 31 indicating a desire to deal with the issue by the end of the current financial year. 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 Thursday, June 15 2017 13
Asia In Brief Banks
Indonesian c. bank official hopes for loan growth Indonesia’s central bank deputy governor Mirza Adityaswara said yesterday he hopes bank loans will grow between 11 per cent to 13 per cent next year. “Non performing loan levels have come down and banks are more confident to channel bigger credits now,” Adityaswara told reporters. Loans extended by Indonesian banks grew 9.2 per cent in March, while NPLs fell to 3.00 per cent of outstanding loans, Bank Indonesia (BI) said last month. BI’s outlook for 2017 loan growth is between 10 per cent to 12 per cent. Lenders
S. Korean May household borrowing jumps
Real estate
Australia risks housing correction with foreign buyer tax hike Chinese property investors are turning their backs on Australia as a series of measures designed to cool one of the world’s hottest real estate markets targets foreign buyers Jonathan Barrett and Tom Westbrook
Soon after Australia’s New South Wales state announced it was doubling the tax for foreigner home buyers earlier this month, calls started flooding in to Sydney-based real estate agent Shan Lin. “My phone never stopped, I charged my phone three times, no kidding - overseas clients, overseas agents, my channels in China,” said Lin, who deals mostly with Chinese-based investors. “They definitely feel the pressure. They say, ‘Shan, look, I will not consider investing in Australia or investing in Sydney’.” Chinese property investors are turning their backs on Australia as a series of measures designed to cool one of the world’s hottest real estate markets targets foreign buyers, raising the risk of a damaging correction in house prices. Australia’s latest move follows similar measures imposed in other favoured destinations for mainland Chinese including Vancouver, Singapore and Hong Kong. But there are fears the Australian measures have been introduced into a frothy market already showing signs of stress. Sutono Pratiknya, a Sydney-based sales consultant, said the changes sent a clear signal to his overseas investors they were not welcome. “We used to do five property tours a month, picking up a dozen investors from the airport and showing them our latest offering,” Pratiknya said. “Now, there’s nothing.” With Australian banks heavily reliant on mortgages, economic growth slowing, and the Reserve Bank warning about households groaning under record amounts of debt, any sharp fall in house prices risks derailing Australia’s record 26 year recession-free run. New South Wales’ new tax arrangements will see duties from home sales to foreigners rising to 8 per cent of the purchase price, taking total taxes on overseas buyers to more than 13 per cent.
Speed of change While Australia is not alone in introducing foreign property taxes, the number and speed at which new policies are being imposed is spooking foreign buyers. In just over a year, all major east coast cities have introduced and, in the case of Sydney, expanded foreign duties; the country’s biggest banks have stopped lending to overseas buyers; and the federal government has introduced punitive measures for foreigners who leave properties vacant. Foreigners will also lose a capital gains tax exemption for their primary residence in changes unveiled in last month’s national budget.
Key Points Foreign buyers to pay 8 pct surcharge on Sydney purchases Chinese investors alienated as cracks appear in property market New apartment developments seen most at risk Developers say market can withstand any investor pull-back Big apartment developments are most at risk, given foreigners are restricted to buying “off-the-plan” and newly-built homes under Australian law. Foreigners account for a quarter of new housing sales in New South Wales, according to a Credit Suisse report, with Chinese investors by far the biggest buying group. “The fact is that a lot of developments hinge on foreign investment,” said David Bare, the NSW executive director at the Housing Industry Association. “Applying these measures when the market is starting to cool is going to have a much greater effect than it might’ve 12 or 18 months ago.” Sydney home prices, after doubling since 2009 to top A$872,000 (US$658,000), recorded a rare fall
in May, according to property consultant CoreLogic. Auction clearance rates - a key indicator of demand have also been slipping as an abundance of new homes hit the market. Meriton Group, Australia’s largest apartment developer, is expected to be impacted given it has a cluster of new Sydney developments targeting Chinese buyers. “Its connections into China are deep, but trying to sell to foreigners in this market is like swimming up a waterfall,” said one property investor close to the company who declined to be named. Janice Jiang, a Meriton sales consultant in Sydney, said the company made about half its sales to foreigners, and that the extra taxes would have little impact in the long run. Meriton’s founder, billionaire Harry Triguboff, declined to comment on the impact of the tax hike.
Bust or robust?
At development sites scattered throughout Sydney’s tony northern suburbs and sprawling west, showrooms have signs in Mandarin and offer Asian sweets, in addition to coolers full of Australian wines, seeking to tempt both foreign and local buyers. At one showroom for a 38-apartment development called Emerald Epping, sales agent Henry Wong said most customers might appear Asian, but were often from families who migrated a generation or more ago. Some developers say such domestic sales are robust enough to fill any gap left by foreigners, especially given extra government help for first-time home buyers. “We are OK with this, our business model isn’t relying on massive investment from overseas purchasers and for first home buyers, it’s the right decision,” said Jay Carter, sales and marketing director at Poly Australia, a subsidiary of Chinese state-controlled Poly Real Estate Group Co. Art Yang, chairman of Gasheng Overseas Investment Group based in China’s Guangzhou, said the new taxes would not impact very wealthy Chinese buyers, but would hurt investors borrowing to buy property. Many are being advised to look elsewhere. “It seems like the tax increases are never-ending,” said Esther Yong, a director of Chinese property agencies Sodichan and ACproperty. “I have buyers who were looking at Australian property and agents in China convinced them to buy in the U.K. instead.” Reuters
Bank lending to South Korean households rose 6.3 trillion won (US$5.60 billion) in May, central bank data showed yesterday, the fastest rise in six months. The Bank of Korea said the robust growth was mainly due to persistent demand for mortgages, which saw a net 3.8 trillion won increase in May. Total household borrowing at banks stood at 724.8 trillion won as of May this year. In April, households borrowed a net 4.7 trillion won from banks, of which mortgages made up 3.3 trillion won. Survey
Australian consumer sentiment slips again A measure of Australian consumer sentiment fell for a third straight month in May as disappointing news clouded the outlook for the economy, a survey showed yesterday. The survey of 1,200 people by the Melbourne Institute and Westpac Bank found consumer sentiment fell 1.8 per cent in June, from May when it dipped 1.1 per cent. Economic conditions, the government’s budget, taxes and interest rates were the top news topics recalled by consumers, and developments in all were judged as “unfavourable”. The survey was taken in a week when official data showed the Australian economy grew a slim 0.3 per cent in the first quarter. Deficit
New Zealand’s annual current account deficit widens New Zealand’s current account deficit widened to its most in a year as a proportion of gross domestic product in the March quarter, official data showed yesterday. The annual deficit to March came in at NZ$8.132 billion (US$5.86 billion), equal to 3.1 per cent of gross domestic product, Statisics New Zealand said, the most since the same quarter in 2016. The result was largely due to a fall in dairy exports, while spending on imports like cars and machinery increased. Foreign investment also dropped as profits at international subsidiaries declined.
14 Business Daily Thursday, June 15 2017
International IEA
Oil output to expand faster than demand in 2018 Dynamic growth in output in the U.S., particularly by shale producers, seems to be slowing down the rebalancing process Simon Morgan
G
lobal oil output will expand faster than worldwide demand for oil next year, primarily as U.S. producers rack up production, and that could hamper exporters’ efforts to prop up prices, the IEA said yesterday. A day after OPEC complained that increased output in the U.S. was slowing efforts to rebalance supply and demand in the oil market, the IEA also suggested that the dynamism of U.S. producers could prove a headache for exporters.
“Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply,” the IEA said. Originally, OPEC members had agreed to cut production for six months beginning from the start of the year in a bid to reduce the glut of oil supplies on the shore up prices. Non-cartel producers led by Russia partially matched the cuts. The measures helped stabilise oil
prices at the beginning of the year, with the international benchmark Brent crude sticking above US$50 per barrel. And at a meeting at the end of May, both OPEC and non-OPEC countries decided to roll over the output cuts for a further nine months. Nevertheless, dynamic growth in output in the U.S., particularly by shale producers, seems to be slowing down the rebalancing process. And Brent has dropped back below $50 since the OPEC meeting and was trading at US$48.17 yesterday. American producers have benefitted from the OPEC and non-OPEC efforts to push prices higher. Shale producers, in particular, can
react quickly to market developments, because they are less capital intensive than other ventures. And they have racked up production as prices rise. The IEA forecast an increase in nonOPEC output of 1.5 million barrels per day to 59.7 million bpd in 2018, with U.S. output to reach more than 14.1 million bpd. It did not provide a forecast for OPEC output next year, but calculated that it rose to 32.08 million bpd in May, taking the overall global supply to 96.69 million bpd last month. At the same time, overall global demand is expected to pick up by 1.4 million bpd to 99.3 million bpd next year, the IEA predicted. AFP
“Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply” IEA “In 2018, we expect non-OPEC production to grow ... slightly more than the expected increase in global demand,” the International Energy Agency wrote in its latest monthly report. “Our first look at 2018 suggests that U.S. crude production will grow yearon-year ... but such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,” the report said.
Wages
UK earnings after inflation shrink at fastest pace since 2014 Inflation hit an almost four-year high of 2.9 per cent in May Andy Bruce and William Schomberg
British workers’ earnings after inflation are shrinking at the fastest pace since 2014, underscoring the economic challenge facing a weakened Prime Minister Theresa May as the squeeze on consumers tightens faster than expected, data showed. While a joint record-high proportion of Britons are in work, the fall in real-terms wage growth pointed to tougher times ahead for consumers, the main drivers of economic growth. Inflation hit an almost four-year high of 2.9 per cent in May, fuelled by the fall in the pound since last year’s Brexit vote and adding to the strain on household budgets, according to data published on Tuesday. Yesterday’s wage figures suggest there will no let-up soon. Workers’ total earnings including bonuses after taking inflation into account fell by an annual 0.4 per cent in the three months to April after edging up 0.1 per cent in the first quarter. That marked the biggest real-terms
drop since the three months to September 2014, potentially adding to speculation that the government might loosen its grip on public spending to help steer Britain’s economy away from a slowdown. The squeeze on earnings is also likely to add to the view among the majority of Bank of England officials to leave interest rates on hold when they announce their latest policy statement on Thursday.
Key Points Falling real-terms wages show challenge for PM May Jobs growth still strong, unemployment at 4-decade low But poor wage growth figures will be cause for BoE worry Sterling hit a day’s low against the dollar after the data, while British government bond prices rallied. “Unless the government gets its act together, we’ll soon be in the middle of another cost of living crisis,” said
Frances O’Grady, general secretary of the Trades Union Congress. May is still trying to strike a deal with a small Northern Irish party that will give her enough votes in parliament to allow her government to pass legislation, after losing her majority in a botched national election last week.
Mixed signals from jobs market
Britain’s economy has been resilient to political uncertainty since last June’s Brexit vote. But growth slowed sharply at the start of this year as the rise in inflation driven by the post-referendum fall in the pound began to bite. The Office for National Statistics said the unemployment rate in the period between February and April held steady at a more than four-decade low of 4.6 per cent, in line with the median forecast in a Reuters poll of economists. In nominal terms, wages grew at the slowest pace since February 2016, rising an annual 2.1 per cent in the three months to April and slowing from 2.3 per cent in the first quarter. Economists taking part in a Reuters poll had expected wage growth of 2.4 per cent.
“The wage figures are astonishingly weak,” said Samuel Tombs, economist at consultancy Pantheon Macroeconomics. The wage numbers jarred with the picture of strong jobs growth but appeared consistent with signs of rising underemployment, Tombs said. The ONS revised its data for wages to improve methodology for earnings from small businesses, resulting in lower estimates for wage levels but little change overall to growth rates. Excluding bonuses, nominal earnings rose by 1.7 per cent year-on-year, the weakest increase since January 2015 and against expectations for a 2.0 per cent rise. The Bank of England is watching wage growth closely as it gauges whether the increase in inflation is creating longer-lasting pressure on prices. It expects wages to rise by 2 per cent this year before picking up in 2018 and 2019. The central bank is widely expected to keep interest rates at their record low of 0.25 per cent on Thursday. The number of people in work increased by 109,000 in the three months to April, taking the employment rate to 74.8 per cent, a joint record high, the ONS said. Reuters
Business Daily Thursday, June 15 2017 15
Opinion
Trump can’t blame China for the fall of American steel David Fickling a Bloomberg Gadfly columnist
T
here’s a simple argument behind President Donald Trump’s complaints that China’s steel mills are killing their American rivals. Since 2000, China’s output of steel has risen more than 560 per cent, from just over 100 million metric tons a year to 690 million tons in the past 12 months. During the same period, U.S. employment in manufacturing primary metals like steel, aluminium and copper has dropped 38 per cent, from 625,000 to 385,000 jobs. With Department of Commerce officials set to brief Congress Friday on an investigation into whether steel imports threaten U.S. national security, and Commerce Secretary Wilbur Ross weighing anti-dumping measures, it’s worth asking whether that relationship is as straightforward as it seems. After all, about the closest thing the global steel industry has to a fundamental law of nature is the steel intensity curve. Poor countries use very little steel per unit of gross domestic product. As they industrialize, this steel intensity increases rapidly, to the point where the country starts to transition toward consumerled growth. At that point, steel intensity starts to slip again, as spending shifts from industrial products like machinery and buildings, to less metal-intensive categories, such as yoga mats and degustation menus: Considered in the context of the evolution of steel intensity, it’s clear that U.S. metal output isn’t declining because of overseas competition, but because as America gets richer, it’s buying different stuff. Employment is also suffering because the steel the U.S. does still produce is being made more efficiently: Labour productivity in the U.S. primary metal sector has risen from 54 in 1987 to 115 in 2016, according to the Bureau of Labor Statistics. You have to squint quite hard to even see Chinese steel imports to the U.S., when compared to the size of the domestic trade. The country’s mills produced about 79 million tons over the past 12 months, versus about 742,000 tons of imports from China, which only just makes it into the top 10 exporters. In every subcategory of traded steel, China is little more than a footnote in terms of U.S. imports: Ross is on slightly firmer footing in his claim that China’s domestic steel glut is contributing to the recent weakness in prices -- but only slightly. While China is certainly a big exporter of steel, the vast majority goes to other countries in Asia, most of them emerging economies that lack the domestic capacity to meet their own demand. To the extent that prices of U.S. and Chinese steel tend to go hand-in-hand, it’s more because both industries use raw materials -- iron ore, coking coal, scrap, and natural gas -- that really are traded on a busy global market. Isn’t there at least a case for whacking Chinese steel producers as a message to Trump’s base that he’s standing up for their jobs? That’s a pretty lame argument, and unfortunately it doesn’t even make sense on its own terms. The U.S. manufacturing sector doesn’t just contain steelmakers -- it contains steel-users too. While primary steelmaking employs 385,000 Americans, transforming that metal into fabricated parts, machinery and vehicles accounts for about 4.1 million jobs. All things being equal, those industries have most to lose from a U.S. steel industry that can use protection from overseas competition to raise prices. The U.S. has everything to gain and little to lose from open global markets. In trying to hurt China, Washington risks shooting itself in the foot.
‘While China is certainly a big exporter of steel, the vast majority goes to other countries in Asia’
Bloomberg Gadfly
Can U.S. states right Trump’s wrongs?
U
.S. President Donald Trump, with the help of a Republican-controlled Congress, is undermining many of the fundamental values that Americans hold dear. He is jeopardizing their access to health care by seeking to repeal the 2010 Affordable Care Act (“Obamacare”). His budget proposes massive cuts in everything from early childhood education to food stamps and medical research. His tax reform plan, and especially its much lower top rate for “pass-through” business income, implies significant further redistribution of income to the wealthy. Most recently, his misguided decision to withdraw from the Paris climate agreement jeopardizes America’s global standing. Worse, it puts the health and welfare of the planet at risk. This is a good time to remember that the United States is a federal system, not a unitary state with an all-powerful central government (think France). Its system is enshrined in the Tenth Amendment of the U.S. Constitution, which stipulates that all powers not expressly assigned to the federal government are “reserved to the states.” Traditionally, states’ rights were invoked by southern states to defend slavery, and then nearly a century of Jim Crow (the legal framework for racial segregation), from federal interference, thereby preserving southern business owners’ and farmers’ control of their black labour force. More recently, socially conservative states have appealed to the Tenth Amendment to oppose progressive legislation and the expansion of federal powers more generally. Now the tables have turned. Can Americans who oppose the contraction of social programs and revocation of progressive federal legislation use states’ rights to counter these trends? Consider environmental policy. California already has its own relatively stringent standards for vehicle emissions. Fourteen other states have adopted those standards, which therefore cover 40 per cent of the U.S. population. Auto companies can’t afford to produce two different sets of cars for states with strict and lenient emission rules. So California could well dictate emissions standards for the country. Moreover, one can imagine California signing voluntary climate deals with China and other countries in an effort to restore the culture of oversight and accountability of the Paris accord. Indeed, the state’s cap-and-trade carbon program is the model for the carbon-trading scheme that Chinese officials are currently considering. It is worth recalling that California is the world’s sixth largest economy, a fact that makes it a plausible interlocutor for environmentally conscious countries. After that, however, it gets harder. The California State Senate just passed a bill to create a singlepayer health plan without specifying how to pay for it. One possibility is a 15 per cent payroll tax.
“
Barry Eichengreen a professor at the University of California, Berkeley, and the University of Cambridge
Another is to plough Medicare dollars provided by the federal government into the plan. But it is unclear whether either approach is politically viable. Like the residents of other “blue” (Democratic) states, Californians clearly prefer more spending on education and social services. The problem is that they are already subject to some of the highest personal income and business taxes in the country. Groups like the Howard Jarvis Taxpayers Association warn that further increases could lead to a massive exodus of businesses and jobs. Two of my Berkeley colleagues, Emmanuel Saez and Gabriel Zucman, have come up with a twopart solution to this problem. First, they would tax the global profits of companies on the basis of the share of their sales occurring in California. Second, they would levy a modest 1 per cent wealth tax on residents with assets of more than US$20 million. Critics will warn of a brain drain, but do we really think that a 1 per cent tax would convince, say, the venture capitalist Peter Thiel to pack up and move to New Zealand? There are two scenarios – one benign, the other vindictive – for what another of my Berkeley colleagues, Laura Tyson, has called “progressive federalism.” In the benign scenario, people will club together in different states on the basis of their preferences for big or small government, public or private provision of services, and international cooperation or isolationism. Mick Mulvaney, Trump’s budget director, has himself made the case. “If you live in a state that wants to mandate maternity coverage for everybody, including 60-year-old women, that’s fine,” And if you don’t, “then you can figure out a way to change the state that you live in” or alter “state legislatures and state laws,” in Mulvaney’s words. “Why do we look to the federal government to try and fix our local problems?” In the vindictive scenario, by contrast, Trump and the Congress could seek to limit progressive states’ rights. They could prohibit use of Medicare funds for single-payer health plans. They could refuse to renew the waiver of Environmental Protection Agency regulations that allows California to impose its more stringent emissions standards. They could invoke the Commerce Clause of the Constitution as part of an effort to prevent states from signing climate accords with foreign countries. They could eliminate the federal deductibility of state taxes to increase the cost of funding state programs. They could curtail federal support for public services in sanctuary cities and states with immigrant-friendly policies. We Americans are about to find out in which U.S., benign or vindictive, we now live. Project Syndicate
This is a good time to remember that the United States is a federal system, not a unitary state with an all-powerful central government
”
16 Business Daily Thursday, June 15 2017
Closing M&A
Fosun joins bid battle for Faberge owner Gemfields
China’s Fosun International Ltd joined the race for Fabergé owner Gemfields Plc with an approach that valued the London-listed company at 225 million pounds (US$288 million). Gemfields, which mines for emeralds and amethysts in Zambia and for crimson and pinkish-red coloured ruby and corundum in Mozambique has already received a buyout offer from leading shareholder Pallinghurst Resources Ltd.
“Gemfields represents a compelling opportunity to continue to develop a leading gemstone producer with a dominant position in both global emerald and ruby production and a strong consumer brand,” Fosun said. Fosun Gold, part of acquisitive conglomerate Fosun International, said it had proposed buying Gemfields at a price of 40.85 pence per share, a premium of 15.1 percent to Gemfield’s closing price of 35.5 pence on Tuesday. Mining group Pallinghurst had offered 38.5 pence per share to buy the remaining 52.91 percent it does not already own. Reuters
M&A
Inter Milan’s Chinese owner in talks to expand its soccer empire
T
he company that paid a record RMB8 billion (US$1.2 billion) for broadcast and streaming rights to China’s top soccer league said its controlling shareholder is in talks to sell part or all of its stake to retail giant Suning Holdings Group Co. China Sports Media (CSM) Ltd. Chairman Li Yidong said in an interview last week that Suning is negotiating to buy as much as 56 per cent of the company, a stake that could be valued at about RMB2.8 billion. Closely held China Media Capital, led by media mogul Li Ruigang, owns the stake under discussion, he said. China Media Capital, also known as CMC, will continue to enrich and expand investments in sports, especially soccer, it said in an emailed response to a request for comments about the talks. Suning didn’t immediately respond to requests for comment. For Suning’s billionaire Chairman Zhang Jindong, who amassed his fortune in retail, buying control of China Sports Media would build on his ambitions to create a soccer giant after acquiring Italian club Inter Milan and local team Jiangsu Suning. He’s among the growing number of Chinese tycoons embracing a government push to transform soccer with the goal of building a 5 trillion yuan sports market in the country by 2025. “Without the development of football, you can’t imagine the sports industry in China can develop,” said Li, who’s not related to CMC’s chief. He said the valuation of CMC’s stake was based on a recent transaction that valued China Sports Media, or
CSM, at RMB5 billion. The sale discussions grew out of previous talks between CSM and Suning’s streaming unit PPTV over media rights, CSM’s Li said. The fouryear streaming deal the two companies agreed to will generate enough revenue to cover the RMB8 billion investment in rights by the company, which had net income of RMB160 million last year, Li said. PPTV last year agreed to pay as much as RMB$650 million for rights to England’s Premier League, and in March this year took over the rights to the Chinese Super League for an initial RMB1.3 billion. Betting on soccer rights may not be a sure thing. LeSports, a unit of the struggling LeEco group, previously owned Super League rights, and took in revenue that came to about 10 per cent of its investment, according to a person familiar with its operations. The streamed matches would typically
attract 5 million viewers in a market that would require multiples of that to become profitable, said the person who was not authorized to speak publicly.
“Without the development of football, you can’t imagine the sports industry in China can develop” Li Yidong, China Sports Media Ltd. Chairman The value of CSM’s soccer rights may depend on shifting rules for the league.
CSM’s Li has sought talks with Chinese soccer authorities over new rules requiring teams to use younger players, while limiting participation of non-Chinese players on each squad, he said. “This affects our commercial valuation,” Li said in Beijing, likening the government’s younger-player policy to forcing theater audiences to watch understudies perform at Broadway musicals. “Those policies are unfair to the investors and us.” CSM, the company Li founded in 2003, outbid three rivals for the soccer rights in 2015, offering a 20-fold increase over the amount paid by previous holder China Central Television. Soccer isn’t the only game for CSM. CSM is preparing a bid this month for rights to China’s top basketball league, Li said. The amount the company will be prepared to pay for those rights may be reduced should the league push through proposed changes that would limit the number of expensive foreign recruits and force teams to field younger players. The value of a five-year contract for the China Basketball Association rights could be RMB4 billion to RMB6 billion, though those figures could halve because of the uncertainty around the rules on players, Li said. The rights are currently held by Dalian Wanda Group Co.’s Infront Sports & Media AG. Li, who has an ambition to turn CSM into China’s version of global sports titan WME-IMG, said he has no plans to sell his stake. “I am the founder just like the captain on a ship. I have to stand there and make everyone comfortable,” he said. Bloomberg News
Markets
Credit
Lenders
EXIM Bank plans more dollar, euro-denominated bonds
New yuan loans stronger than forecast
Incoming Philippines c.bank chief concerned about rapid credit growth
The Export-Import Bank of China (EXIM) plans to issue up to another US$4 billion in euro- and dollar-denominated bonds this year, on top of US$4 billion issued so far, as Beijing’s Belt and Road initiative drives demand for foreign currency funds. In a rare interview, Wang Kai, general manager of the policy lender’s treasury department, said EXIM expects to issue US$2-US$4 billion in dollar- and euro-denominated bonds in the second half of the year. It issued US$5.1 billion of euro and dollar bonds last year. “Our need for foreign currency funds is diversifying by the day, and the amount will steadily grow,” Wang told Reuters. EXIM, owned by the finance ministry and central bank, plays a critical role in providing export financing and government-directed lending to other countries. China’s President Xi Jinping last month pledged more than US$100 billion for the Beijing-led Belt and Road initiative that aims to boost infrastructure and trade links between Asia, Africa, Europe and beyond. EXIM has agreed to support more than 1,200 Belt and Road programmes worth more than RMB700 billion (US$103 billion) - equivalent to 30 per cent of the bank’s total end-2016 loan volume. Reuters
Chinese banks extended more credit than expected in May as home loans expanded even as policymakers struggled to rein in riskier borrowings without dealing a sharp blow to economic growth. As credit conditions tighten in the world’s second-largest economy, borrowing costs for companies are rising. Banks are raising lending rates, including mortgage rates, and are wary of taking on more exposure to overheated sectors such as property. That trend will set the stage for a gradual slowdown in economic activity in coming months, analysts believe, though no one foresees a sharp decline as stability is the watchword ahead of a major political leadership reshuffle later this year. China’s banks extended RMB1.11 trillion (US$163.4 billion) in net new yuan loans in May, central bank data showed yesterday, slightly up from RMB1.1 trillion in April, and above the RMB900 billion forecast in a Reuters poll. The People’s Bank of China (PBOC) has kept cash conditions relatively tight in recent months to support the government’s de-leveraging efforts, but authorities have been careful not to squeeze conditions too much for fear that a spike in rates could hurt the economy. Reuters
The Philippines central bank is closely watching the rapid pace of domestic credit growth, its incoming governor said on Wednesday, even though he said it was being driven by legitimate demand. “We’re not being complacent about it,” Nestor Espenilla said in an interview. Espenilla, who now heads banking supervision, will take the helm at the central bank next month. Bank lending in the Southeast Asian nation has been rising at a double-digit pace for at least nearly two years now. In April, it grew an annual 19.2 per cent, with the bulk of loans going to real estate, manufacturing and information and communication. “We are closely monitoring these developments,” Espenilla said. “These can lead to problems if credit is supporting businesses that may be more vulnerable to cyclical turns.” Espenilla also said the Philippines economy, one of Asia’s fastest growing, was in “good shape” and inflation was “under control.” Amid a robust economy and tame inflation, the central bank is likely to keep benchmark interest rates steady when it holds its next policy meeting on June 22. The Philippines is pinning growth plans on higher infrastructure spending to create jobs, stimulate the economy and attract foreign investors put off by high power prices and poor roads and ports. Reuters