Business Daily #1319 June 16, 2017 by Business Daily

Our weekly recommendations: Sashimi in Tokyo, wines for the fridge - and keep dad happy! Consigliere Pages 8 & 9

Friday, June 16 2017 Year VI Nr. 1319 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Crime

Joint police operation Thunderbolt 17 uncovers 1,293 crimes Page 5

Fintech

Director of Palybetr. com summarises the challenges and risks of Bitcoin Pages 6 & 7

www.macaubusinessdaily.com

OBOR

Transportation

Culture and education domestic flagship offer to Belt and Road strategy Page 4

Increased parking charges rolled out downtown Page 2

Consumers

Small cities in Mainland to lead consumption in the next decade Page 11

Buyer Beware Real estate

It’s a thorny issue. Property legislation currently being debated in the Legislative Assembly proposes buyers assume management arrears pending property acquisition. Potentially fuelling unfair situations. Various scenarios were debated during the second standing committee yesterday. Caveat emptor. Page 3

Local industry problems persist

SARs follow the (currency) leader

The monetary authority of neighbouring HK has shadowed the Fed. And boosted interest rates for a third time since December. The MSAR has adjusted the base rate by 25 basis points.

Official figures Waiting times, lack of skilled workers and salaries. Some of the hurdles the industrial sector faces in the MSAR. Data released by the Macao Economic Services points to continuity in sector performance. Page 3

Property transactions roar back

Property An uptick in property transactions in May. Official figures chart a jump in off-plan unit transactions of 335 pct m-o-m and 552.4 pct when compared to last year. According to the Financial Services Bureau, the price for off-plan units in May slightly increased. Page 5

RMB keeps calm Monetary policy Pages 2, 11 & 14

HK Hang Seng Index June 15, 2017

25,565.34 -310.56 (-1.20%)

Hengan International Group

Worst Performers

+1.39%

AAC Technologies Holdings

-0.10%

China Life Insurance Co Ltd

-3.23%

China Petroleum & Chemical

-2.01%

CLP Holdings Ltd

+0.48%

CK Hutchison Holdings Ltd

-0.15%

Geely Automobile Holdings

-3.21%

Kunlun Energy Co Ltd

-1.97%

Belle International Holdings

+0.00%

Cathay Pacific Airways Ltd

-0.16%

New World Development

-2.27%

Galaxy Entertainment Group

-1.96%

Power Assets Holdings Ltd

+0.00%

CK Infrastructure Holdings

-0.23%

Want Want China Holdings

-2.19%

Hang Lung Properties Ltd

Hang Seng Bank Ltd

-0.06%

MTR Corp Ltd

-0.23%

Ping An Insurance Group Co

-2.15%

CITIC Ltd

-1.96% -0.90%

26° 31° 25° 30° 27° 29° 27° 29° 29° 31° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

Yuan The Governor of the People’s Bank of China has refrained from following the Fed’s rise in borrowing costs. Suggesting the central bank sees more autonomy to address domestic challenges. With the yuan holding stable, and tighter capital controls keeping outflows at bay Page 10

2 Business Daily Friday, June 16 2017

Macau Cash reserves

Money in the bank The MSAR’s foreign cash reserves continue to increase, reaching MOP152.7 billion as at the end of May, while the Monetary Authority of Macau has increased the base rate by 25 basis points to 1.5 per cent

he city’s foreign exchange reserves totalled MOP152.7 billion (US$19.02 billion) as at the end of May, a slight year-on-year increase of 1.4 per cent compared to MOP150.5 billion one year ago, a preliminary estimate of the Monetary Authority of Macau (AMCM) reveals. In addition, on a monthon-month comparison, the amount of local foreign exchange reserves represents a slight growth of 0.9 per cent, compared to MOP154.1 billion in April. As at the end of the month, the city’s foreign exchange reserves represented 11 times the currency in circulation, or 87.9 per cent, of Pataca M2. ’M2’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits and money held in cheque accounts plus all time-related

deposits, savings deposits, and non-institutional money market funds. Meanwhile, the trade-weighted effective exchange rate index for the Pataca (MOP) went down 0.89 points month-to-month but hiked by 2.31 points yearon-year to 107.7 in May of this year. The data suggests the city’s official currency has grown against the currencies of the city’s major trading partners on a monthly basis, while dropping on an annual basis.

Base rate going up

AMCM also announced yesterday it had raised the base rate up by 25 basis points to 1.5 per cent after Hong Kong’s rate went up to match U.S. rates ordered by the Federal Reserve. The base rate is the discount window rate charged to commercial banks to get funding from the AMCM, with the Macau Pataca pegged indirectly to the U.S. dollar via the Hong Kong dollar.

This is the fourth time since December 2015 that AMCM has raised the base rate. ‘Macau’s loan and deposit rates remain relatively stable at the current stage. Nevertheless, if the uptrend of

interest rates persists, uplifting loan and deposit interest rates by Macau banks cannot be ruled out in the foreseeable future,’ the department stated. The department advised

local residents to ‘be alerted to the potentially enlarging volatility of the real estate market’ and assess the ‘extra burden on their mortgage payments due to rising interest rates’. N.M.

Parking

Security

Operation parking meter price hike

Reinforcing casino safety shuffles to prominence

The Sé District will be the first area to see the operation of new parking meters - and parking fees - on June 17 Nelson Moura nelson.moura@macaubusinessdaily.com

The parking meter tariffs for the Macau Peninsula Sé District will be increased from June 17, the Transport Bureau (DSAT) announced yesterday. The fees for one hour parking for motorbikes will double from MOP1 (US$0.12) to MOP2, and more than triple from MOP3 to MOP10 for light vehicles, with the maxim allowed parking period for all the categories four hours. The maximum parking period will be defined by the parking meter colour, with red for one hour, green for four and yellow for two hours. According to the DSAT the changes were made after ‘inflation data and market demand and offer of parking spaces were analysed’ and after considering the opinions presented by the Traffic Consultative Committee and local members.

‘This is a necessary increase for the sake of reasonable management of the use of parking meters by drivers by promoting a higher turnover of [bays] as well as a fairer use of the limited public parking resources,’ the department stated. According to the release, the new parking meters will allow payment by Macau Pass and Quick Pass. These changes are the first phase of a plan by the DSAT to progressively update street parking fees in the city up to March 2018, and is the first change of tariffs in 30 years. The next areas to be subject to the update will be the São Lázaro, São Lourenço and Santo António districts on October 7, November 4 and December 2, respectively. Next year, parking fees will be updated on the Nossa Senhora de Fátima District on January 6 and Nossa Senhora do Carmo District on February 3.

The DICJ is said to have already received security reports from all gaming operators and is currently analysing how to strengthen safety in casinos The Gaming Inspection and Co-ordination Bureau (DICJ) told Business Daily that ‘gaming operators have already submitted the report on the security situation’ recently requested. Following a deadly attack on the Resorts World Manila resort in the Philippines on June 2 a meeting was held between the DICJ, police authorities and representatives of Macau’s gaming operators. During the meeting gaming operators were requested to each send a report on their property’s current security situation, with the Judiciary Police (PJ) suggesting that the

security equipment and inspections communication between casinos and authorities should be reinforced. ‘The DICJ and PJ will conduct studies and analysis on the reports and will continue to maintain close communication and contact with the industry to strengthen security measures in casinos, ensuring the safety of local residents, casino employees and visitors,’ the DICJ told Business Daily. The PJ told Business Daily yesterday that the reports were sent to its gaming division, without providing an answer on when the reports’ analysis conclusion will be provided. N.M.

Business Daily Friday, June 16 2017 3

Macau Property

Sonia Chan: Buyers responsible for two years’ building management fees as last resort The chairman of the AL sub-committee says buyers can chase back payment through the courts Cecilia U cecilia.u@macaubusinessdaily.com

ECRETARY for Adminis tration and Justice Sonia Chan Hoi Fan said potential property buyers have the responsibility of paying two years’ management arrears of the previous owner in the last resort. Speaking after the meeting with the second standing committee of

the Legislative Assembly (AL), the Secretary said the bill suggests that the agent and notary have to inform potential buyers of information about management arrears by the previous property owner. In addition, the Secretary revealed that a certain amount of deposit would be requested to be paid by the seller of the property in order to cover future payments for previous arrears.

The deposit, as indicated by the Secretary, would be determined based upon the average amount of arrears. “If no consensus is reached between the buyer and the seller over the management payment, the seller would be the first person to bear the responsibility,” said the Secretary. The amendment of the law for the administration and management of the common parts of condominiums is to resolve the issue of delayed management payments. Meanwhile, the chairman of the second standing committee of the

Legislative Assembly, Chan Chak Mo, affirmed that the amended bill added an Article which stated clearly that any management payments that were due prior to the transfer of property ownership would be the responsibility of the previous owner. Chan indicated that the revised bill requests both property seller and real estate agent to provide a copy of a document to prove the arrears of management fees of the past two years. However, the government will reframe the part of the bill for cases where properties have been transacted without any agents such as through friends or family members, indicated Chan. On the other hand, companies or individuals who provide building management services are requested to provide related documents when demanded by a buyer. With the government insisting on putting the liability on buyers, Chan explained on behalf of the government that the liability is to ensure fairness and protect the interests of the rest of the building owners. Regarding the responsibility borne by the notary, the new bill suggests the notary include the attached liability on the contracts to the buyer. According to Chan, the majority of members agreed to the changes of the bill. The bill will be discussed at the next meeting on June 22, while the chairman of the sub-committee expressed the hope that the bill will be sent for deliberation at the plenary session of the AL by the end of July.

Trade

Local industrial orders’ waiting time increases Shortage of workers remains the biggest problem, while local exporters remain cautious about future market performance despite apparent recovery of international economy Cecilia U cecilia.u@macaubusinessdaily.com

During the first quarter of 2017 the average waiting times of industrial orders by local exporters stood at 2.4 months, posting an increase of 14.3 per cent when compared to 2.1 months recorded in the previous quarter. According to the latest data released by the Macao Economic Services (DSE), the average waiting months in the first three months of this year is lower than the same period last year (3.1 months), down 22.6 per cent. Regarding types of product, the waiting time for pharmaceutical products and garment manufacturing have the longest months, at 4.9 and 4.2 months, respectively. The waiting times of orders for pharmaceutical products has increased by 48.5 per cent quarter-to-quarter but dropped by 16.9 per cent year-on-year. Meanwhile, the waiting time for garment manufacturing has both increased quarterly and annually, up 44.8 per cent and 40 per cent, respectively.

Cautious prospects

When asked about the estimation of market performance in the coming six months, some 7.7 per cent of respondents expressed a positive outlook, posting a drop of 18.4 percentage points when compared to 26.1 per cent registered in the previous quarter.

The percentage also declined by 2.4 percentage points when compared to 10.1 per cent in the same quarter a year ago. The majority - 89 per cent of respondents - perceived future performance would be more or less the same, up 24.5 percentage points quarter-to-quarter. In terms of the usage frequency of production machines, 93.4 per cent of exporters said frequency remained unchanged.

Shortage of professionals

The issue of limited supply of professionals remained the biggest issue in the fourth quarter of 2017, as revealed by the DSE report.

In particular, companies that produce pharmaceutical products had the biggest demand for personnel, accounting for 82.1 per cent of the total number of respondents. Overall, the employment for industrial exports dropped 19.4 per cent quarter-to-quarter and 17.3 per cent year-on-year. The DSE data also revealed that 14.6 per cent of respondents said workers’ salaries had risen in the first quarter, indicating an increase of 11.8 per cent when compared to the final three months of 2016. The salary rate represented 0.6 per cent, higher than the previous quarter’s 0.05 per cent. For the outlook of the second quarter, some 26.9 per cent of factories were concerned about rising salaries, while 21.8 per cent and 20.7 per cent worried about the increased price of resources and shortage of personnel, respectively. The DSE also asked 41 exporters

whether any non-tariff related issues had arisen while exporting goods. Some 98 per cent said they had not encountered any non-tariff related issues although some engaged in producing pharmaceutical products reflected that their exported goods encountered “complex procedures for clearance”, “complex measures of health and quarantine inspections” and “stringent measures for product standards and testing” when reaching Sri Lanka and Nigeria.

Biggest customer: Mainland China

According to DSE data, Mainland China remained the biggest customer of Macau’s industrial exports, standing at the index rate of 23.9 in April 2017. Following Mainland China, the United States, as evidenced by the data, positioned as the second biggest customer, registering on the index at 15.8. Japan, which had previously registered a negative 14.3 index rate in the first month of this year, achieved 10.7 for April.

4 Business Daily Friday, June 16 2017

Macau Opinion

Pedro Cortés*

Sidestepping the rules Many associations have been presenting more than one list for the upcoming elections. It is one more specificity of our city. With that, they may be able to get more representatives in the Legislative Assembly during the next term. It is a legitimate option, considering the current laws and regulations in force. In my view, it is an attempt to go around the rules and laws and to deceive the public. Furthermore, it seems that voters can be manipulated in a way that some of them, even without knowing the agenda, will go for List A1 and others for List A2. I’m under the impression that I have already quoted Mr. Winston Churchill in this column. But here it is again: “Democracy is the worst form of government, except for all the others.” What we assist in our city seems to be, sometimes, elections to be the representative of students in college elections. The speech, the content, everything is poor and, I would say, most of the times childish. Enforcement on the way that the elections will take place is more important than ever in order to understand exactly to what extent we have ‘clean elections.’ There have been many cases in the past in which this same process was not clear with courts doing (well) their job despite the ultimate beneficiaries seeming to be exempted from all rules. Well, my hope is that the younger generation is capable of changing the system and making this process transparent for the good of the population. We all know that the government is, in the end, the most powerful institution in Macau and, according to the Basic Law, it will continue to be. Notwithstanding this, the more the Legislative Assembly has representatives prepared to fight for the people the better Macau will be. New blood is needed in our institutions. New ideas and progressive views of what Macau can be. Hopefully, those ideas will not include past dinosaurs who are toxic for our semi-democratic second system. To the good wealth and mental health of our Macau residents, non-residents and tourists. *lawyer and frequent contributor to this newspaper.

OBOR

Unbuckling the Belt and Road Macau Government plans for the integration of Macau in the One Belt, One Road initiative are still incipient if not unclear. Apart from the Social Affairs and Culture Bureau, very little has been advanced by the authorities on their current strategies Sheyla Zandonai sheyla.zandonai@macaubusiness.com

The Social Affairs and Culture Bureau said that their participation in the One Belt, One Road initiative as it regards the Macau concerns two main areas of action; namely, education and culture. Speaking to Business Daily, the spokesperson for the Bureau said that “in addition to the huge investment announced . . . [those are] . . . two very important aspects” in its current strategy. “The cultural dimension has here a main and not secondary role.” Insofar as the national strategy is “conducive to the rapprochement between peoples,” the Bureau, part of Alexis Tam Chong Veng’s portfolio, stressed the role of Macau in bridging Sino-Luso relations. “We have a good idea of what we can do and of the opportunities we have and the mission entrusted to us during the last visit of Prime Minister Li [Keqiang] to assert ourselves as a cultural platform between China and the Portuguese-speaking countries,” the Bureau informed. Focus on Macau’s “advantages” in articulating the business, cultural, and political connections between the Chinese and Portuguese-speaking worlds was also highlighted earlier this week by an Advisor to the Office of the Chief Executive, Kou Chiu Hung. In a press conference held to present the launch of the public consultation for the ‘Planning and Construction of the Metropolitan Area of the Greater Bay Guangdong-Hong Kong-Macau,’ Mr. Kou said: “Macau’s biggest advantage is the relationship with the Portuguese-speaking countries, and then its connections with the Chinese diaspora.” Building on the Portuguese-language link that Macau entertains with the Road, the second aspect explored by the Social Affairs and

Culture Bureau – education – implies investment in training qualified personnel, in particular in the domain of languages, justifying “public investment in the creation of highly qualified staff and also in multilingualism.”

More particular, the Portuguese language

“We are in Asia, the best place to learn Portuguese, but we are also a place with unique facilities for speakers of Portuguese to learn the Chinese language. Therefore, the internationalisation of our higher education is of particular importance here,” the Bureau said. According to further information provided by the same Bureau, the connection between China and the rest of the world represents for the Secretary “an opportunity in the countries with which we have privileged co-operation relations such as those of Portuguese language.” It is within the idea of building on internationalisation that the Macau Foundation launched a scholarship programme at the end of May as part of the OBOR initiative. The Macau Foundation is one of the members of the Working Committee for the Construction of the One Belt, One Road created by the Macau SAR Government in February 2017, counting one member, its President, Wu Zhiliang. The programme is open to students from Macau, and from Guangdong and Fujian regularly enrolled in a local higher education institution,

Scope of Belt and Road

According to information provided by the Belt and Road platform in Hong Kong, the ‘routes’ within the One Belt, One Road initiative cover more than 60 countries and regions from Asia to Europe via Southeast

for the 2017-2018 academic year. It seeks to send students to Brazil, Malaysia, Indonesia, and the Philippines (Macau residents) in addition to Portugal (students from Guangdong and Fujian).

Other members of the Committee

In addition to the five representatives for each one of the five Secretariats within the MSAR Government, and the member of the Macao Foundation, the Working Committee for the One Belt, One Road includes two members representing the Office of the Chief Executive, and two members representing the Policy Research Office. Business Daily also contacted the Office of the Secretary for Administration and Justice to enquire about the initiatives they are planning within the OBOR framework, to which it replied that it ‘will work within its jurisdiction in line with the overall deployment of the Macao SAR Government.’ A reply from the Land, Public Works, and Transport Bureau (DSSOPT) followed a similar line, with the spokesperson from the Bureau claiming that “it will be committed to the scope of relevant work to promote the Macau Special Administrative Region.” Speaking to us, the Government Information Bureau (GSC) added that their role is to ‘provide information to the media and the public, to help them have a better understanding of Macao’s strategies and deployment of resources for participation in the country’s Belt and Road initiative.’ The Committee held its first meeting on May 2, 2017. Contacted by Business Daily, the Office of the Spokesperson for the Office of the Chief Executive said that they did not have information to provide about the next meeting of the Committee.

Asia, South Asia, Central Asia, West Asia and the Middle East. They currently account for over 62 per cent of the world’s population, some 30 per cent of global GDP and more than 35 per cent of the world’s merchandise trade.

Business Daily Friday, June 16 2017 5

Macau Property

More off-plan units moved in May The price of housing units grew both m-o-m and y-o-y Cecilia U cecilia.u@macaubusinessdaily.com

n the month of May, a total of 535 transactions of off-plan units were made, registering a jump of 335 per cent month-on-month and 552.4 per cent when compared to 82 transactions in the same month a year ago. According to the latest data released by the Financial Services Bureau (DSF), the price for off-plan units in May slightly increased by 2.7 per cent when compared to the previous month, and surged by 34.7 per cent year-on-year, standing at MOP139,886 (US$17,411) per square metre. In particular, some 393 offplan units were sold in the Taipa District alone, compared to only one a month ago and three recorded in the same month last year. The price in Taipa for units still under construction was the highest at MOP145,363 per square metre. Jane Liu, Manager Director of real estate agent Ricacorp (Macau) Properties Limited, said the notable increase in transactions of off-plan units mainly resulted from the

sales of Nova Grand, which is being developed by Shun Tak Holdings. The new property’s construction is scheduled to be completed by the fourth quarter of 2018, according to the information posted on Shun Tak’s official website. In general terms, a total of 1,610 units were sold in May, a rise of 48.4 per cent when compared to the previous month and 55.4 per cent vis-a-vis 1,036 in the same month of 2016. The average housing price in May hit MOP114,463 per

square metre, as revealed by DSF data, increasing by 19.5 per cent month-on-month, with a notable growth of 48.3 per cent year-on-year. In geographical terms, Coloane is the only district where fewer units were sold in May, with only 26 transactions compared to 56 in April and 33 during the same month last year. As such, the price dropped from MOP145,208 in April to MOP107,468 in May this year, while the price indicated a year-on-year increase of 6.1 per cent. For the sales performance of second-hand flat units, a total of 1,075 units were transacted at an average price of MOP101,361.

The number of transactions for completed units registered both month-on-month and year-on-year increases of 11.7 per cent and 12.7 per cent, respectively. The prices for second-hand units also experienced growth, posting increases of 13.4 per cent when compared to April’s price (MOP89,366) and 35.2 per cent vis-a-vis MOP74,962 in May 2016. On the other hand, the DSF recorded one case of a residential transaction that paid the special stamp duty (SSD) of MOP150,000. There was also one case of a transaction for a commercial building unit and an office, with SSD attracting

MOP41,844 and MOP35,407, respectively. In total, the SSD amount paid in the month of May reached MOP227,251 to post a drop of 96.8 per cent when compared to April. Under the additional 10 per cent levy on property transact ions made by non-residents of the MSAR, some MOP56.84 million was paid for 48 residential properties, bringing the total amount this year to MOP231.38 million for 282 total transactions.

Prospects

In the wake of the implementation of the latest adjustment of mortgage ratios in early May, Ms. Liu said the impact would only be visible in July although she affirmed that transactions are significantly down. “Many buyers can pay the mortgages but they can borrow less now,” said Ms. Liu. The ratio of mortgage loans for real estate acquisition has been readjusted in four housing price categories, with the biggest cut applying to the purchase of residential units costing up to MOP3.3 million, down to 70 per cent from 90 per cent. The cut of mortgage is only affecting buyers purchasing second houses, with firsttime buyers unaffected.

Crime

‘Thunderbolt 17’ nets hundreds of criminals Mega anti-crime operation ‘Thunderbolt 17’ has resulted in the prosecution of 1,782 people involved in some 1,293 crimes in the MSAR, with the number of prosecutions and crimes more than doubling since last year Nelson Moura nelson.moura@macaubusinessdaily.com

‘Thunderbolt 17’, a joint operation between police authorities from the MSAR, Guangdong and Hong Kong, has led to the prosecution of 1,782 people in Macau involved in a total of 1,293 crimes. The large police operation took place throughout a 97-day period between March 5 and June 10 of this year, combining the efforts of the Public Security Police Force (PSP) and the Judiciary Police (PJ), co-ordinated by the Unitary Police Service (SPU). The joint operation this year saw an increase of 65 per cent and a 57 per cent in prosecutions and crime cases detected, respectively, when

compared to the same operation held last year. “The increase was due to the larger amount of mobilised police officers and searches conducted, with this year’s operation taking three months, while last year’s operation took two months. It doesn’t mean the security situation is worse,” according to the SPU Assistant to the Commissioner General, João Augusto da Rosa. Authorities performed 816 inspections in casinos, saunas, massage parlours, bars, karaoke venues and other entertainment and gaming establishments, searching 30,205 people and taking 5,097 to police premises for investigation. A total of HK$8.7 million (US$1.1 million), RMB1.6 million (MOP1.9 million/US$235,233) and

The Unitary Police Service holds a press conference to announce results of the anti-triad operation codenamed Thunderbolt 17. Source: IBS

MOP470,000 (US$58,491) in cold cash was confiscated during the operation, together with HK$9.2 million in casino gambling chips. Some 218 loan sharking gaming crime cases were discovered during ‘Thunderbolt 17’ with more than half of the cases involving kidnapping; the majority of the 428 people involved were from Mainland China. The operation also uncovered an illegal football betting ring, leading to the arrest of eight MSAR residents and 51 Chinese nationals. “Gaming related crimes have increased, and new strategies to fight this type of crime have been enforced by the PJ and the PSP,” Mr. Rosa said.

Drugs and prostitution

Police authorities also confiscated

1,100 grams of narcotics, with almost half of the amount being methamphetamines, known as ‘Ice’. A total of 1,712 people were expelled from the MSAR, with 1,274 deported for diverse crimes. Some 162 women were deported for pretending to be tourist visitors but later found to be involved in crimes of prostitution, illegal immigration or drug consumption. In May, a 14-year-old girl was also found to be engaged in prostitution solicitation, with one person arrested for bringing the minor to the MSAR. A man suspected of involvement in a homicide in the MSAR last year was also delivered by Mainland authorities to local police during the operation. advertisement

6 Business Daily Friday, June 16 2017

Macau Luxury THE SALE OF ORIENTAL WATCH ASSETS IN THE MSAR IS INTENDED

TO ‘ACHIEVE BETTER RESOURCES ALLOCATION’, SAYS THE COMPANY

Shifting resources

Luxury watch manufacturer Oriental Watch Holdings Ltd. has sold its local business in order to ‘achieve better resources allocation’, a filing with the Hong Kong Stock Exchange has announced. In September 2016, the watch company sold its 45 per cent share of capital interest in Hei Tung Watches Company Ltd. to Smart Group Limited for a total consideration of HK$83.2 million (US$10.4 million) According to the company’s final results for the year

ended March 31, 2017, as of that period the company possessed one store in Macau - Oriental Watch (Macau) Company Ltd. in Macau Square - with the group and its subsidiaries having stated that in the previous financial year they operated three stores in the MSAR. In the 2016/2017 financial year, Oriental Watch registered a nine per cent yearly increase in revenues in its Macau, Taiwan and Mainland China segment to HK$858 million, posting losses of HK$4.9 million. N.M.

Bitcoin

Capitalising on cryptocurrency Being ahead of the curve has its advantages, explains Marvin Jones, Director of Palybetr,com – a social gaming and Bitcoin payment API (application programming interface) and casino software programme. Breaking free from the confines of government, and the ability to change the world are just some of the potential benefits, with China bound to come on board Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

dollars when I started really getting into it.

f I’d met you five years ago what would you have told me? I would have told you that cryptocurrency and Bitcoin is out of the bag and that you should take US$10,000 […] and put it in Bitcoin [which was] was trading at US$10 per coin. That would have bought you 1,000 coins. And then from there I would have said Bitcoin is going to hit US$100 per Bitcoin, so 10 times a multiple on your investment. Little did I know that about a year and a half later it would hit US$1,000 per coin. So I would have also told you that Bitcoin, cryptopcurrency has a potential to go to zero. But any time you can transfer value to somebody anywhere, instantly, with little to no fee - I could send you a million dollars -worth of Bitcoin right now just like I could to a villager in Kenya, instantly - there’s inherent value in that. When I got in, it was about US$2

What are some of the disadvantages of using a cryptocurrency?

The advantages far outweigh the disadvantages. You have global payments; anybody, anywhere in the world can send you Bitcoin because it’s like a peer-to-peer transaction online. Never before has that been possible. You have to go through Visa, Mastercard, some countries don’t allow it, some countries do. Some countries don’t allow online gaming. But with Bitcoin, it’s peer-to-peer, so somebody in Iran can send you Bitcoin. From that aspect it’s fantastic. Another benefit is instant transactions. Thinking about this gaming experience online, you log in, create an account, you fund it with Bitcoin, it’s instantly credited to your account. Then you can play and you can withdraw in an hour’s time period, or however short a time you want.

In an online gaming space that’s never been done before. It’s like bringing the traditional land-based experience online. From an operator’s standpoint, there’s no fraud or chargebacks. Ten to 20 per cent of the bottom line of these online gaming companies can go to fighting chargebacks or fraud, because Bitcoin transactions are irreversible, and peer-to-peer. No fraud, no chargebacks. Both the operator and the customer have a much better gaming experience using cryptocurrency. The one potential disadvantage to using cryptocurrency is with regards to fluctuation. You can deposit and literally in the same day it could fluctuate up or down. Now this affects both the player and the operator. For the operator, we’ve developed methods to completely alleviate and mitigate that. So you are an operator, a player comes and deposits 10 Bitcoins, 10 Bitcoins is worth US$10,000. Instead of taking the Bitcoins, you just get the cash. So the player deposits Bitcoins, it comes through our payment processing system, we send you US$10,000-worth of cash. You never even experience Bitcoin at all. We don’t recommend that and in fact to most of our clients we say: keep 50 per cent of your Bitcoin deposits in reserve. And some of those that started with us back in 2012, 2013 did that and they’ve got many thousands of Bitcoins now that they bought in at US$20, US$30, US$40 per coin that are worth a thousand.

So, that really is the one negative.

How much do fluctuations affect your business?

We’re also in a position where we can mitigate it, or alleviate it, in its entirety. We have exceptional relationships with all, or almost all, of the top exchanges. So, as the coin comes in to us, we can also exchange it for Australian Dollars, U.S. Dollars, Euro, the Pound, whatever we need. In real time. […] So it’s a risk; it’s a risk that we’re willing to take as a business. But we take what we need for operations and some savings in different fiat currencies to ensure that the business can perpetuate for many years. But we also save a percentage in cryptocurrency: Bitcoin, Etherium are the two that we’re really focused on now.

What are some of the wider potential effects of Bitcoin?

It’s fascinating and it has the ability to change the world. I always told people before even I was in Bitcoin, I said ‘I really want to do something that’s gonna change the world’. And I found Bitcoin and cryptocurrency, and I’ve done seminars in Botswana, Africa where I’ve taught people how to exchange their Botswana pula, which nobody will take outside of Botswana, it’s worthless outside of Botswana. So then they’re able to participate in worldwide financial marketplace, they’re able to buy things online, plane tickets, things that they’ve never done. So as they finally start to move

Business Daily Friday, June 16 2017 7

Macau towards this, it can lift people out of poverty worldwide. Because governments use their currency to control people. Anyways, that’s a different topic.

After five years in Bitcoin, what would you say have been the major upswings and downswings?

I’ll start with the down. The downswings are with regard to the media and people not fully understanding Bitcion. Because the media will be quick to say, for example with Mt. Gox (biggest Bitcoin exchange from which 800,000 Bitcoins, or around US$500 mln, went missing), that Bitcoin has been hacked and that it’s going to die. Bitcoin has never been hacked. People creating companies around Bitcoin have been hacked. So it’s really not a downside to Bitcoin directly, but indirectly it is. Because of course that affects the value of Bitcoin.

‘I think China will be the second highest country using Bitcoin within the next year and a half to two years’ We see this with a wide variety of companies; people are fallible, people are the problem. And people find ways to exploit them. And when they do, Bitcoin is affected. The upsides really have been tremendous, and I believe in people, I believe that people want overall the best for their fellow man, but if governments could, they would

stop Bitcoin completely. But they’re realising they can’t, and there is no better upside than governments realising ‘hey, we’re going to have to adapt to this. We can’t stop it.’ And seeing the proliferation of it worldwide, seeing the market cap and value of it go up, everybody really focuses on the actual value per Bitcoin, I don’t, I look at the use. And that amount of transactions per day is going up, the amount of transactions in different transactions in different countries is going up, the amount of transactions in countries that don’t even have quality Internet is going up. Pretty soon we’re going to be in a world where we can travel to different countries and have full access to our coins, make payments, do a wide variety of things, transfer to another country, and not have to go

and exchange these silly paper dollars, and lose money in the process.

that region that only accepts their currency.

Looking at its prevalence so far, where are the main markets emerging now?

Where does China fit in?

The best places for it are going to be in countries that have high inflation or controls on their capital, their monetary supply. Or countries also that have a monetary supply that is completely useless outside of that country. Because countries, governments use that currency to control people. And to make themselves rich, they print up. So as Bitcoin starts to infiltrate these countries and people have the option now to use a different currency that is accepted on a worldwide basis, it can help lift them out of poverty. Because they’re not controlled by

China, as a very quickly emerging economy in the worldwide IT and tech scene, I think China has an enormous ability to really uplift and sort of showcase Bitcoin on the worldwide financial scene. Because there’s a very sharp class of people here that are making significant money. Now the question is will there be an exchange that allows them to diversify their money into Bitcoin. And what will the government do? Because what governments can do is criminalise its use. It’ll still be very difficult to find out who has what, but I think China will be the second highest country using Bitcoin within the next year and a half to two years. advertisement

8 Business Daily Friday, June 16 2017

Consigliere

A matter of taste The three wines that should always be in your fridge Anticipate almost any wine-related situation with these three perfect bottles

Elin McCoy

ulia Child always kept a half bottle of Champagne in the refrigerator so she had something to sip on (and keep herself enthused) while cooking. Me too—but I’ve expanded her advice. I always have three bottles of wine on my fridge door shelves. So should you. Picture it: The moment you arrive home on a hot summer night, you’ve got something refreshing to open even if you didn’t have time to swing by your local retailer. When friends drop by, you have a bottle to pour without hauling out ice and a bucket or putting it in the freezer and waiting 30 minutes for the wine to cool. Immediate gratification is the way we live now, which is why most wine shops have a graband-go selection in a cooler. And if merely savouring a glass while you chop vegetables fresh from the farmers market is what you need, no problem.

The rationale for having a stash of already chilled bottles isn’t all that different from having the basic essentials to make a meal (tomato sauce, pasta, etc.) on hand. The important question is what those wines should be. We’re talking about white, rosé, and sparkling wines, of course. Yes, I’m a fan of serving Beaujolais and other light reds slightly cool, but some people, like actress Diane Keaton, claim to love them super-chilled. Sad! (Refrigerator-cold reds taste metallic.) Fridge wines have to be versatile enough to go with just about every food and occasion and should be high on fruity deliciousness but not too serious or complex. Whenever possible, I favor whites with screw caps so I don’t even have to retrieve a corkscrew from the kitchen junk drawer to get at what’s inside.

A crisp, aromatic white As I write this, the temperature on my deck is 94 degrees and a light, crisp, refreshing white to beat the heat will be what I crave most at the end of the day (and even before). But trust me, this style of wine is appealing at any time of the year. My go-to bottles? Zingy sauvignon blancs, especially those from New Zealand because just about every one of them packs a lot of flavor and aroma for the price. In my fridge right now is 2016 Dog Point Sauvignon Blanc (US$20). Like so many sauv blancs from that country, it has bright floral-herbal aromas and juicy, citrusy, tangy notes that make it easy to sip without food, yet also pair well with goat cheese, cold takeout salads, grilled fish, Thai curry, and much more. A surprising number of other whites fit this style profile. Think Portugal’s light, fresh vinho verdes, pinot blancs from Alsace, and Italian pinot grigio and friulano.

An easy-drinking sparkling wine There’s always a reason to toast something—a sudden bonus, a friend’s promotion, a new beach house, leaving (or returning) from a trip—which is why one of my three bottles is always, always a bubbly. A glass of fizz makes just about everything better, even the latest political crisis. Bright, fruity examples also happen to be fantastic with salty fried chicken, Chinese takeout, and Sunday morning brunch when you’re still lazing about in that bathrobe you stole from a fancy hotel. I pick wallet-friendly sparklers, like the fresh, lively nonvintage Roederer Estate Brut (US$23), made in California’s cool, fog-bound Anderson Valley at the outpost of French Champagne house Louis Roederer. Another mainstay in my house is 2014 Raventos i Blanc L’Hereu Blanc de Blancs brut (US$20), a cava I never get tired of drinking. A good prosecco or creamy crémant de Bourgogne is also a good choice. And if you only drink Champagne, my favourite for the refrigerator is the vibrant, spicy, ever-reliable nonvintage Louis Roederer Brut Premier (US$45).

A bright, savory-fruity provençal rosé Hey, it’s summer, so a chilled pink wine is a must to have on hand—for me and also for friends, who, not surprisingly, lap it up. Let’s face it, drinking rosé from Provence is a way to fantasize you’re on a yacht in Saint-Tropez. Demand for examples has reached insatiable thirst levels, with imports in 2016 up almost 50 percent over 2015. These are wines you can day-drink, pour with tapas, grilled vegetables, fish stews and salads, and barbecued chicken, and sip on a rooftop or deck as the stars come out. I rotate my picks among several producers. Right now, it’s the dry, silky-textured, elegant-for-the-price 2016 Caves d’Esclans Whispering Angel (US$22). Ubiquitous in the Hamptons and on the Côte d’Azur, this wine is always delicious; the blend of grenache, cinsault, and rolle grapes gives it a tangy, mineral, strawberry-and-spice taste you don’t get tired of. There are dozens of other great examples in the same mold: Mas de Cadenet (US$20), Château Gassier (US$19), Domaine de la Mordorée (US$20), and Commanderie de Peyrassol (US$24). A slightly cheaper alternative to Whispering Angel that will impress your friends and satisfy your cravings is the certified organic 2016 Mas de Gourgonnier Les Baux de Provence (US$18), a lush-textured, spicy mix of grenache, cinsault, mourvedre, syrah, carignan, and, surprisingly, cabernet sauvignon grapes, which gives the wine more oomph than many rosés from the region. Bloomberg

Business Daily Friday, June 16 2017 9

Consigliere

Visit Tsukiji, a ‘great wonder of the world,’ while you still can Some 480 different kinds of seafood, with US$14.6 million worth sold daily. Japan’s iconic fish market is still booming after 82-years—for now. Shoko Oda

f you’re visiting Tokyo and looking forward to eating well, chances are you’ve been told not to miss Tsukiji, the oldest and biggest fish market in the world. From being the focus of such popular movies as Jiro Dreams of Sushi to being the backdrop of pop music videos (remember Clean Bandit?), the iconic market has become synonymous with Japan’s world famous food culture. Tripadvisor. com ranks it among the top five things to do in the Chuo Ward, the heart of the city that includes the booming Ginza district. It’s here that a single Bluefin tuna sold for US$632,000 in January. Yet its fate remains in waters as muddy as Tokyo Bay. Back in 2001, citing safety and sanitary concerns about the dilapidated structures, the Tokyo metropolitan government decided to relocate the market to some reclaimed land in the Toyosu district, about 4 kilometres away. The move would also allow construction of a major road to connect Olympic venues for 2020, the Asahi Shimbun reported. But with an “astonishing” US$5.7 billion price tag and a series of safety investigations into contaminated soil at the proposed site, Tokyo’s new governor, Yuriko Koike, postponed the move indefinitely in August 2016; it had been scheduled for November. The debate remains hot for the Tokyo government, which recently started mulling a restructuring of the current site from scratch. (To complicate matters further, recent investigations found that the current market site at Tsukiji also tested positive for higher-than-legal levels of pollutants such as arsenic, reported the Asahi Shimbun. Tokyo Governor Koike has said that the levels are not high enough to raise public alarm.) However it shakes out, Tsukiji will certainly change. So there is no time like the present to join the throngs of people exploring the nooks and crannies of the market, gawking at sea creatures seldom seen whole. “Tsukiji is one of the great wonders of the world,” said celebrated American chef David Chang, founder of the Momofuku restaurant group. “There are fish markets all over the world and throughout Japan, but there’s nothing like Tsukiji. The freshness is staggering, and so is the variety. Everyone is a specialist: You have the clam guy, the uni guy, the mackerel guy.” According to last year’s government pamphlet (PDF), the market handles about 480 types of seafood and about 270 types of produce, both domestic and imported. A day at Tsukiji see about 1,628 tonnes and 1.6 billion yen (US$14.6 million) worth of seafood move through on average. That US$250-a-tray Shakotan uni makes a pit stop here after being plucked from the cold waters around Hokkaido; a top sushi master in New York crafts his nightly omakase based on the day’s catch. Outside the wholesale market lies an additional dimension of restaurants and shops, serving everything from kitchenware, dried seafood goods, Japanese knives, and sweets. Up to 42,000 people pass through in a day. Tsukiji dates back to 1935, after a massive earthquake in 1923 eventually forced the fish market to be relocated to the current location, next to posh Ginza. The rusty, old structures, some more than 80 years old, contrast starkly against neighbouring skyscrapers. From the

end of World War II through the first Tokyo Olympics and up to the 1980s, when the country enjoyed its economic bubble, Tsukiji has been there. “It’s its own city, its own culture, its own everything,” said Chang. “You might not see anything new there, but Tsukiji isn’t about new, it’s about craftsmanship and excellence and tradition.”

Seeing the tuna auction

If you’re feeling ambitious and ready to take advantage of your jet lag, consider visiting in the wee hours of the morning to observe the famous tuna auction. The market is typically closed on Sundays and Wednesdays, as well as on national holidays. Because tickets are restricted, you’ll have to head before 5 a.m. to sign up at the Fish Information Centre near the Kachidoki Bridge (PDF: Tsukiji market map) to win one of 120 available spots. If a lot of applicants turn up early, registration might open and reach capacity well before 5 a.m., so many recommend getting there as early as 3 a.m. or 4 a.m.

Visiting the main market

It might be early in the morning, but it’s serious business time for experts seeking the best catch, so be careful not to interfere with any transactions. The official market website warns that flash photography is prohibited in the auction area as it’s heavily trafficked by forklifts and trucks. In the main market, use your judgement. Most of the shops close up by 3 p.m. No reservations are required to wander around the hundreds of fishmongers outside the auctions. But as much as a tourist attraction it may be, remember that this is an active commercial site. Parents are advised to leave babies, small children, and strollers behind.

Guided tours

It’s fun to wander around the market on your own, but if you’re someone that wants a bit of guidance on the market’s rich history and background (and all the food your eyes will be bombarded with), consider a guided tour group. Tsukiji Sushi Insider Workshop offers tours of the fish market and can clinch you a spot at the tuna auction, too.

Where to eat, what to eat

Whether you’re a newly arrived tourist or a local with some sake running through your veins, a late-night, early-morning sushi session can be an experience that stays with you for life. Park Hyatt Tokyo concierge Rena Kawakami said that sushi restaurants within and outside the fish market are all very good. But one that’s widely discussed by travellers and locals is Sushi Dai. As with the tuna auction, visitors line up as early as 5 a.m. to have a bite of sushi; wait times have been known to stretch four hours. The menu has omakase sets—the chef gives you his selection of the sushi—ranging from 2,600 yen to 4,000 yen. Go ahead and treat yourself to some beer; after all, it is lunchtime for the workers in the market. If you’re not feeling up for sushi, walk over to Chosei-an for some hearty soba noodles with tempura. And for those with a sweet tooth, there’s Mosuke Dango, a local’s favourite amongst our own Tokyo bureau. It’s been serving sweet rice-flour dumplings on a stick smothered in red adzuki beans since it was founded 119 years ago. Bloomberg

Spoil him

f you’re stuck for how to express your care for the man in your family this weekend then don’t worry. We have some great ideas for Father’s Day. If your big man is a food lover, a delicious feast is always the best choice. This Sunday, crustacean bar and bistro The Manor at St. Regis offers a lavish brunch buffet featuring an extensive spread of the freshest seafood, prime meat and gourmet delicacies to satiate his palate. There’s a huge selection of delicacies for him to choose from, including Boston lobster, fresh oysters, Alaskan crab legs, Robata-grilled halibut and Hokkaido scallop, not to mention fine cheeses and cold cuts as well as mouwatering desserts. To enhance the celebration experience, guests can enjoy unlimited wine, punches and sangrias, juices and soft drinks. For those seeking a special activity for their dad to celebrate the festival, don’t hesitate to take him to the Marcel Khalife World Music Concert at Macau Cultural Centre this Saturday. Dubbed one of the most prolific contemporary Arabic musicians, the Lebanese singer and oud (a musical instrument similar to a lute played mainly in Arab countries) master Marcel Khalife will combine the oud tradition with classical, jazz and folk idioms to create a memorable night for music lovers to grasp and enjoy a reinvented musical universe, merging the best of Middle Eastern and Western sounds. In this excellent concert, you and your dad can briefly travel back to the origins and influences of his native Lebanon. Father always deserves pampering, no matter what job he does and no matter how old. With Lush products, dads are invited to enjoy deep relaxation from head to toe. After a week of toil, there’s nothing better than luxuriating in a nice warm bath. You just need a tub and a ‘Super dad’ bath bomb specially designed for this day: the guaiac wood and sandalwood plus sweet, woody, smoky scent and olibanum oil calms the spirits so that every man of steel can find time to relax. Your man may always be too busy to take care of his daily grooming, thus the ‘Dirty’ gift box comprises a dose of herbaceous freshness that’s just the thing for a man on the move - this refreshing package has all the tools to help him wash, shave, spray, style and feel fresh enough to take on the world! Edwina Liu, Essential Macau Editor

10 Business Daily Friday, June 16 2017

Greater China Currencies

Beijing stands pat on rates this time despite Fed hike Earlier yesterday the PBOC injected a net RMB90 billion into the financial system John Ruwitch and Winni Zhou

hina’s central bank left interest rates for open market operations unchanged yesterday, shrugging off an overnight increase in the U.S. Federal Reserve’s key policy rate. The People’s Bank of China (PBOC) did not explain its rationale for keeping rates unchanged, after it followed a Fed hike within hours in March. But the yuan is on steadier footing now, while domestic liquidity conditions are similarly tight. Markets had been divided over whether the PBOC would raise shortterm rates again in lockstep with the Fed, with those in the “hold” camp noting that China’s short-term money rates and bond yields have already been trending higher. Traders pointed out that liquidity is traditionally tight in June, and memories are still fresh of a cash crunch in late June 2013 that sent money rates soaring and spooked global markets. Earlier yesterday, the PBOC injected a net RMB90 billion (US$13.25 billion) into the financial system, saying it wanted to counter “liquidity stress” from seasonal tax payments and maturing reverse repurchase agreements. Banks are also hoarding cash ahead of a rigorous quarterly inspection of their books by the central bank. The PBOC later said it was keeping the rate for seven-day reverse repos

at 2.45 per cent, the 14-day tenor at 2.60 per cent and the 28-day tenor at 2.75 per cent. Encouraged by improving economic growth, China had already nudged up short-term rates several times earlier this year as part of a broader push to reduce risks and leverage in the financial system after years of debt-fuelled stimulus. Those rate moves, while modest, were accompanied by regulatory crackdowns on riskier forms of financing and shadow banking, which have tightened credit conditions and led to China’s bond curve inverting in recent months. There have been no signs the PBOC is contemplating a bolder move in policy such as the Fed’s, for fear it could hit economic growth. China’s benchmark one-year lending and deposit rates have remained unchanged since October 2015. To be sure, a slew of data over the past week showed the economy has been largely resilient to tightening so far, with solid industrial output, retail sales and exports cushioning the impact of cooling investment. Still, if sustained, rising funding costs are expected to translate into higher borrowing costs eventually, dragging on business activity. Some companies are already reporting higher financing costs while banks are raising mortgage rates. Economists at BofA Merrill Lynch said in a note that they believe

policymakers are unlikely to reverse their tightening bias as long as growth is likely to be stronger than the official full-year target of around 6.5 per cent.

Game changer?

One key game changer for China may have been a sharp reversal in market expectations for further depreciation in the yuan and capital outflows, after the PBOC moved aggressively in May to flush out speculative bets against the currency and allowed it to jump sharply against the dollar. “There’ve been a lot of pre-emptive moves by the PBOC and regulators to kind of more balance exchange rate expectations in recent months, and so I think really China had done a lot of preparation ahead of the FOMC rate hike that was widely anticipated anyway,” said Nomura economist Rob Subbaraman. The yuan is now up 2.3 per cent so far in 2017, after tumbling 6.5 per cent last year.

Capital flight also under control?

China’s efforts to clamp down on

capital outflows - a pressing concern earlier in the year - also appear to be holding up, with foreign exchange reserves rising more than expected in May. A more sluggish dollar has also helped take pressure off the yuan and outflows this year. One currency trader believed that China also refrained from raising rates yesterday because it did not want to establish a pattern of following the Fed. But Deng Haiqing, chief economist at JZ Securities, said the decision was “debatable”. “It was a good chance to fix the gap between the interest rates on the OMO and market rates,” Deng said. The one-year Shanghai Interbank Offered Rate (SHIBOR) has climbed to two-year highs and is currently at 4.42 per cent, above the PBOC’s official lending rate of 4.35 per cent. Some traders said earlier in the week that a short-term rate rise was still possible in July if liquidity tightness eased. Reuters

Rules

Regulator tightens registration rules for Hong Kong-focused funds Under the new rules, Chinese mutual funds without “Hong Kong” in their names must not invest over 50 per cent of their equity assets in Hong Kong stocks Samuel Shen and Lee Chyen Yee

China’s securities regulator has tightened registration rules for Hong Kong-focused mutual funds, requiring equity funds with “Hong Kong” in their names to invest at least 80 per cent of their non-cash assets in the Chinese territory’s stocks. The guidelines came after complaints by investors earlier this year that some funds with “Hong Kong” in their product names actually had little exposure to the stocks there. In a document obtained by Reuters on Wednesday, the guidelines also require fund managers with substantial Hong Kong experience to manage the Hong Kong-labelled products. The guidelines, which the China Securities Regulatory Commission issued to domestic fund houses, could accelerate mainland money flows into Hong Kong as fund houses rush to launch funds that invest in one of

the world’s best-performing markets so far this year. Li Kai, vice head of product development at First Seafront Fund Management Co, which received the guidelines, said that although the rules apply to new funds, regulators may also ask existing funds to renew their registration and meet new asset allocation requirements.

‘The guidelines could accelerate mainland money flows into Hong Kong’ Currently, over 100 mutual funds in China have “Hong Kong” in their names. China’s institutional and retail investors can now invest in Hong Kong stocks via the cross-border

Stock Connect schemes. The new schemes have channelled steady inflows of mainland money, which helped push Hong Kong’s benchmark Hang Seng Index to the highest level in nearly two years. The guidelines also require that Hong Kong-focused funds have at least two employees, one of whom

has to be a fund manager, who have at least two years of investment management experience in Hong Kong. Under the new rules, Chinese mutual funds without “Hong Kong” in their names must not invest over 50 per cent of their equity assets in Hong Kong stocks, the documents showed. Reuters

Business Daily Friday, June 16 2017 11

Greater China Monetary policy

In Brief

Hong Kong c.bank raises base rate 25 bps after Fed hike, banks not following HKMA chief executive Norman Chan warned residents to tread cautiously in the property market The Hong Kong Monetary Authority (HKMA) yesterday raised the base rate charged through its overnight discount window by 25 basis points to 1.50 per cent, and the central bank chief said he expected the city’s banks to gradually increase mortgage rates. The move by Hong Kong’s de facto central bank followed the Federal Reserve’s decision to raise interest rates on Wednesday for the second time in three months, signalling confidence in a growing U.S. economy and a strengthening job market. However, HSBC and Standard Chartered later said they would leave the city’s best lending rate unchanged. HKMA chief executive Norman Chan warned residents to tread cautiously in the property market, where

prices have scaled record highs, as mortgage repayments were likely to increase. “This time round, we may see a downward property cycle coinciding with an upward cycle of mortgage interest rate. We would like to remind everybody that they should remain vigilant and manage the risk prudently,” Chan said. “We expect that when the Hong Kong interest rate is tightening and rising, banks will gradually revise up their mortgage rates.” Hong Kong tracks U.S. rate moves as its currency is pegged to the U.S. dollar. Last month, Hong Kong imposed tougher curbs on bank lending to developers, warning of a need to

review credit risks posed by property companies in one of the world’s most expensive real estate markets. Chan also said if the interest rate differential widened further, there would be more arbitrage activities involving fund flows from the Hong Kong dollar to the U.S. dollar, which would spur capital outflows.

Key Points HKMA expects HK dollar to weaken if rate differential widens Expects banks to raise mortgage rate as liquidity tightens HSBC, StanChart leave interest rates unchanged in Hong Kong The Hong Kong dollar had weakened to 7.8009 against the U.S. dollar on Wednesday ahead of the Federal Reserve’s decision, the second time it broke through the 7.8 level since February 2016, on concern over capital outflow on a widening interest spread. The monetary authority sets its base rate through a formula that is 50 basis points above the prevailing Fed funds target or the average of the five-day moving averages of the overnight and one-month HIBORs (Hong Kong Inter-bank Offered Rate). Hong Kong stocks fell 1.2 per cent yesterday with the property sub-index sliding 1.2 per cent to its lowest close in two weeks. Shares of New World Development slid 2.3 per cent and Sun Hung Kai Properties fell 1.7 per cent. Reuters

Smaller cities fuelling a US$9.7 trillion consumer market

China’s smaller cities will fuel a US$9.7 trillion consumption market by 2030, according to Morgan Stanley. That excludes megacities such as Beijing, Shanghai, Guangzhou and Shenzhen as well as 26 so-called tier-2 cities such as Tianjin and Xian. To put that spending power in perspective, it’s more than double the current size of Japan’s economy and not far behind China’s annual output.

‘That power is bolstered by rising income as smaller cities catch up with larger ones’ The lower-tier cities, as Morgan Stanley defines them, make up 59 per cent of the nation’s nominal gross domestic product and 70 per cent of total urban population by place of registration, according to the report. Still, those aren’t remote villages. The bank defines Lanzhou, the largest city and capital of Northwest China’s Gansu province, as lower-tier city even though its 3.7 million population is almost the size of the City of Los Angeles. Businesses making strides in tapping that market of more than 1 billion people in smaller cities will excel, according to the report by Morgan Stanley analysts. Government and household consumption drove more than two thirds economic growth in the first quarter, highlighting the shift toward depending on services

and away from smokestack sectors. That power is bolstered by rising income as smaller cities catch up with larger ones. Per capita disposable income for urban households in small cities should almost double to US$8,261 in 2030, which would be 64 per cent of big city levels, from US$4,482 today, the analysts wrote. That’s up from 55 per cent last year and 45 per cent in 2006. Better infrastructure and transportation, government-led redistribution of revenue and more affordable housing in smaller cities will also help support spending, according to the report. That has implications for various business sectors ranging from food, automobiles, and internet. In 2020, box office sales in China will reach RMB80 billion (US$12 billion) in a base case. Overseas travel will also

Authorities censure Emirates airline China’s civil aviation authority has fined the world’s largest long-haul carrier, Dubaibased Emirates, and barred it from adding new destinations and aircraft in China for six months, following two incidents of “unsafe operations.” Airline crew were responsible for an April 17 incident in which an aircraft flew at the wrong height and another on May 18, when a plane temporarily lost contact with air traffic control, the Civil Aviation Administration of China (CAAC) said. The regulator fined Emirates RMB29,000 (US$4,270) over the incidents. Markets

Consumption

Spending power in the world’s most populous nation may just be revving up

Safety

see a fresh boom if the huge market in smaller cities are tapped given that, right now, outbound travellers mainly come from Shanghai, Guangdong, Beijing and coastal provinces like Jiangsu, Zhejiang, and Shandong. The report also evaluated the potential for consumption at the smaller cities by measures including their income growth, saving rate, highway density. Xuzhou in Jiangsu province topped the list, followed by Taian and Weifang in Shandong. Here’s another statistic that captures China’s potential. The nation’s urbanization rate is still low at 57.35 per cent compared to about 80 per cent for developed peers, Liu Aihua, a spokeswoman at the National Bureau of Statistics said at a press conference Wednesday. “We still have a long way to go,” she said. “There is a huge potential for boosting domestic demand, and it is key to find the right driver. “ Bloomberg News

Mainland to sell first dollar bonds since 2004 China will sell its first U.S. dollar denominated sovereign bonds since 2004 in coming months along with yuan bonds, in its first overseas issuance of national debt since Moody’s downgraded its sovereign credit rating in May. The finance ministry said on Tuesday it will issue RMB14 billion (US$2.06 billion) of treasury bonds denominated in yuan, and US$2 billion in dollar-denominated sovereign bonds. IFR said it would be China’s first dollar bond offering since October 2004. The ministry said the treasury bonds will be issued in Hong Kong in two separate tranches of RMB7 billion each. Expansion

Mattel plays with digital toys to triple Mainland business Mattel Inc expects to grow three to four times in the more than US$31 billion toys and games market in China by 2020 through digitally connected toys, as it intensifies its efforts to take on LEGO Group and Hasbro Inc in the country. Mattel — which cut its dividend by more than half to fund the new efforts — said its emphasis on e-commerce and repackaging its core brands as educational toys and connecting them to the internet would propel its position in the fragmented market. The toymaker has about 2 per cent market share in China. Commodities

Freeport, China Moly agree to end talks on cobalt assets Freeport-McMoRan Inc, the world’s biggest publicly traded copper miner, and China Molybdenum Co Ltd (CMOC) have agreed to terminate discussions on CMOC’s acquisition of Freeport’s cobalt assets, Freeport said. China Moly had an exclusive right to negotiate for the assets, which includes the Kokkola Cobalt Refinery in Finland and the Kisanfu exploration project in the Democratic Republic of Congo, but that exclusivity period expired Feb. 28, said a Freeport spokesman. In May, China Moly agreed to pay US$2.65 billion for Freeport’s stake in the Tenke Fungurume mine in the southern Congolese copper belt.

12 Business Daily Friday, June 16 2017

Asia Labour market

Australian jobs surge drives unemployment rate to 4-year low In just the last three months, full-time jobs have climbed 112,800 and far outstripped part-time work Wayne Cole

ustralia’s jobless rate fell to four-year lows in May as hiring blew past all expectations for a third straight month, the most emphatic sign yet that the labour market was hitting its stride after an alarmingly long dormant period. Data out yesterday showed the unemployment rate slipped to 5.5 per cent, compared with analysts’ expectations for a steady 5.7 per cent. That was the lowest reading since February 2013 and down from 5.9 per cent just two months ago. Employment jumped a seasonally adjusted 42,000 in May, again handily topping forecasts for a 10,000 gain, while annual jobs growth accelerated to a brisk 2.0 per cent. That took jobs gains for the year so far to a rousing 153,700 and brought the official data more in line with past strength in leading indicators such as vacancies. “One strong economic result is viewed with suspicion. Two strong results are viewed with cautious optimism. Three strong job results are viewed as confirmation of a very positive trend,” said James Craig, chief economist at CommSec. “More jobs and more hours worked means more spending and more momentum for the economy.”

The upside surprise lifted the Australian dollar a third of a U.S. cent to US$0.7622 and led investors to further scale back to probability of another cut in interest rates. Interbank futures now imply only an 8 per cent chance of an easing by year end. The data should offer welcome reassurance for the Reserve Bank of Australia (RBA) which held rates at 1.50 per cent for a tenth straight month in June as it balanced weak

domestic demand and inflation against escalating household debt. Policy makers have been fretting over a “mixed” jobs market was strength in measures of labour demand were not matched by the official numbers, while underemployment climbed to record levels amid an increased casualisation of work. Yet underemployment ticked down a touch in May and full-time work surged by 52,100. In just the last three months, full-time jobs have climbed 112,800 and far outstripped part-time work. That should be a positive for

household incomes, which have struggled badly in the face of record-low wages growth. The economy as a whole grew just 0.3 per cent in the first quarter of the year in large part because of weak household consumption. “Full-time jobs are typically paid more so it should counteract weaknesses from low wage growth,” said CBA chief economist Michael Blythe. “One of the big fears of consumers is about job security. So that should recede and become a positive for consumer spending,” he added. “We have the RBA on hold and a rate hike at the end of 2018.” Reuters

Technology

Google tax deal to shake up how tech firms operate in Indonesia Indonesian tax officials have alleged that most of Google’s revenue generated in the country is booked at its Asia Pacific headquarters in Singapore Cindy Silviana and Eveline Danubrata

Alphabet Inc’s Google Asia Pacific headquarters has agreed on future tax payments in Indonesia, the communications minister said, paving the way for a shake up in how technology firms operate in Southeast Asia’s biggest economy. Google has been locked in a months-long dispute over allegations by Indonesia’s government that the search giant had not made enough annual payments. Finance Minister Sri Mulyani Indrawati said on Tuesday that Indonesia had now reached a tax deal with Google for 2016. She declined to disclose the settlement sum. The search giant’s dispute with Indonesia has been seen as a bellwether of how the government of the country with the world’s fourth-largest population may pursue other technology companies such as Facebook Inc and Twitter Inc for taxes. “On the solution for future taxes, they (Google Asia Pacific) have agreed with the government,” said Rudiantara, Indonesian Minister of Communications and Information, who has oversight on internet-based companies operating in the country. This may be subject to a change in Indonesia’s regulation for the

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advertising business, which has been proposed by the communications ministry, said Rudiantara, who goes by one name. The ministry will work with Indonesia’s investment coordinating board on the regulation, he added. Rudiantara declined to comment on whether Google had reached an agreement with Indonesia on its taxes for previous years. Indonesian tax officials have alleged that most of Google’s revenue generated in the country is booked at its Asia Pacific headquarters in Singapore and its local entity, PT Google Indonesia, simply acts as a sales service provider. Under a new agreement, Google’s Indonesian entity will receive the revenue and pay expenses for its

business in the country, said a senior government source, who declined to be identified as the information was not public. It is unclear if Google will set up a new domestic unit that is separate from PT Google Indonesia. Google did not respond to requests for comment. A spokesman for Indonesia’s tax office declined to comment.

Smaller than mooted

A senior tax official had said in September that Indonesia planned to pursue Google for five years of back taxes and the company could face a bill of more than US$400 million for 2015 alone if it were found to have avoided payments. Indonesian tax officials had estimated that the total advertising revenue for the industry in Indonesia was around US$830 million, with Google and Facebook accounting for around 70 per cent of that. But Google had pointed to a joint study by the firm and Singapore

state investor Temasek that estimated the size of Indonesia’s digital advertising market at US$300 million for 2015. The overall tax settlement amount will reflect the fact that Google’s Indonesia revenues are “much smaller than the bombastic figures that Ministry of Finance officials have been mooting”, the senior government source said.

Key Points Future tax may be subject to change in ad regulation minister Google’s onshore entity to get revenue, pay expenses source Google, Indonesia locked in tax dispute for months Indonesia may pursue other tech companies for taxes Indonesia is eager to ramp up tax collection to narrow its budget deficit and fund an ambitious infrastructure programme. Other governments around the world are also seeking to clamp down on what they see as corporate tax avoidance. Last year, Google agreed to pay 130 million pounds (US$165.7 million) in back taxes to settle a probe by Britain’s tax authority, while Thailand is studying plans to toughen tax collection rules for internet and technology firms. Reuters

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Business Daily Friday, June 16 2017 13

Asia Outlook

In Brief

OECD warns New Zealand on low labour productivity The OECD is projecting slightly weaker growth than the New Zealand government The Organisation for Economic Co-operation and Development (OECD) warned New Zealand yesterday that low labour productivity poses long-term challenges for the country despite its solid growth prospects. The Paris-based OECD, a rich-country think tank, also backed the Reserve Bank New of Zealand’s proposal to add debt-to-income limits on home loans to its policy toolkit amid concerns over high household borrowing and rising house prices. OECD Chief Economist Catherine Mann said New Zealand’s robust economic growth was “enviable”, but stressed the need to tackle labour productivity that lagged its OECD peers. “Improving productivity growth is a major long-term challenge for improving inclusiveness and living standards,” Mann said in a report. The OECD is projecting slightly weaker growth than the New Zealand

government, allowing for differences in the forecast periods. The OECD saw growth at 3.1 per cent for both 2017 and 2018 calendar years, while the New Zealand government has forecast growth of 3.7 per cent for 2017/18 and 3.5 per cent for 2018/19. New Zealand’s statistics agency said yesterday the economy grew by 0.5 per cent in the three months to March. The number was lower than the 0.7 per cent growth forecast in a Reuters poll of economists and well under the central bank’s forecast for 0.9 per cent growth. The OECD said the New Zealand government should reduce barriers to foreign investment, lower the corporate tax rate and introduce research and development tax credits to tackle low productivity. Mann told reporters at a briefing in Wellington that debt-to-income limits on home loans would need to be deployed carefully, but could help ease pressures in New Zealand’s strong housing market

that pose systemic risks. “House price-to-income ratios being at this highly elevated level warrant some concern,” she said. The Reserve Bank of New Zealand (RBNZ) said earlier this month said there would be “significant net benefits” in adopting DTI limits. It is seeking feedback on DTI limits by Aug. 18. New Zealand’s housing market has soared more than 50 per cent in value over the last decade, raising concerns that high mortgage debt could pose a systemic risk in the event of a sharp downturn in property prices. The RBNZ already requires investors to make a 40 per cent downpayment on investment properties, after ramping up loan-to-value restrictions (LVR) in 2016. The measures have helped slow the rate of house price growth in recent months, but the central bank has said any resurgence in prices could be a worry. New Zealand’s national household debt-to-income ratio stands at 168 per cent, above most other OECD member countries, the IMF said in a report last month. Reuters

Technology

ZMP partners with Tokyo taxi firm for 2020 self-driving car plans The firm is developing automated driving hardware and software based on laser and stereo cameras Japanese robotics maker ZMP Inc has partnered with a taxi operator in Tokyo, as part of its plans to launch a self-driving taxi in the city in time

for the 2020 Olympics, CEO Hisashi Taniguchi said yesterday. Japan’s taxi industry, faced with a labour crunch due to an ageing advertisement

population, has been looking at new technologies to drive growth. The sector may also have to deal with more competition in the future if the government allows ride-sharing services such as Uber to operate across the country. “Autonomous taxis and the taxi industry can grow and prosper together,” Taniguchi told reporters, after announcing ZMP’s partnership with Hinomaru Kotsu. Hinomaru said it had 607 cars and that it was one of the top ten Tokyo taxi firms by fleet size. “We have been trying to improve diversity by hiring more new graduates, women and foreigners, but this will not be enough to ease labour shortages,” Hinomaru President Kazutaka Tomita said. “We will have to compensate for the lack of supply by using autonomous driving technology.” ZMP is developing automated driving hardware and software based on laser and stereo cameras, which it hopes to sell to transportation companies and automakers. In a country famous as much for its auto industry as its fascination with robots, ZMP is one of a few startups developing self-driving cars to compete with foreign firms including U.S.’ nuTonomy and China’s Future Mobility. ZMP has been testing self-driving vehicles that also have someone in the driving seat on Tokyo roads since 2016, and is planning to set up a fleet of such taxis to ferry athletes and guests around the city for the 2020 Tokyo Olympics. It hopes to test autonomous cars without a driver this year. Taniguchi declined to comment on ZMP’s IPO plans. He had said in February that ZMP hoped to list in Tokyo in the coming months, after a delay last year due to client information being leaked on to the internet. The company recently raised 1.5 billion yen (US$13.68 million) through a third-party allocation of shares to seven companies. ZMP will need more funds, Taniguchi said. ZMP’s self-driving taxi plans hit a bump earlier this year when it lost its partnership with gaming software developer DeNA Co, which paired up instead with Nissan Motor to develop services for autonomous driving cars. A handful of taxi operators have partnered with Toyota Motor Corp to share data on traffic and driving logs as the automaker considers developing self-driving taxi services. Reuters

Trade

Indonesia’s May exports, imports surge more than expected Indonesia’s exports and imports surged more than expected in May, while the trade balance was smaller than expected, the country’s statistics bureau said yesterday. Exports grew 24.08 per cent on a yearly basis in May to US$14.29 billion, the bureau said. A Reuters poll had forecast a growth of 15.32 per cent. Shipments of mining products jumped nearly 60 per cent in May compared with a year ago, while exports of oil and gas and agriculture products also rose, based on the bureau’s data. Meanwhile, imports rose 24.03 per cent in May, higher than the 9.90 per cent expected in the poll, to US$13.82 billion. Energy

Australia faces potential summer power crunch Eastern Australia’s power grid will be stretched again if fierce heat waves hit over the next two summers, despite recent government steps to beef up supply, the nation’s electricity market operator said yesterday. The latest outlook from the Australian Energy Market Operator (AEMO) comes three months after it warned that Australia’s most populous states face a gas shortfall from the end of 2018 that could spark power or gas cuts to homes and businesses. That warning, a string of blackouts and soaring energy prices led the Australian government and states to step in to shore up supply. Auto industry

India antitrust watchdog imposes fine on Hyundai India’s antitrust watchdog on Wednesday imposed a fine of 870 million rupees (US$13.6 million) on South Korean automaker Hyundai Motor Co’s local unit, accusing the company of anti-competitive behaviour. The Competition Commission of India in its order alleged that Hyundai Motor India Limited (HMIL) contravened competitive practices by imposing certain arrangements upon its dealers including monitoring the maximum permissible discount level and mandating the use of recommended lubricants and oils. The penalty has been levied at 0.3 per cent of Hyundai Motor India’s average relevant turnover of the preceding three years, the anti-competition watchdog said. Real estate

Singapore private home sales in May fall Sales in Singapore of private homes by developers fell in May from a year earlier, government data showed yesterday. Developers sold 1,024 units in May, down 34.3 per cent from the revised 1,558 units in April and 3.2 per cent from the 1,058 units sold in May 2016, the Urban Redevelopment Authority said. This comes after April sales of private homes by developers in Singapore more than doubled from a year earlier.

14 Business Daily Friday, June 16 2017

International In Brief Consumption

UK retail sales fall more than expected in May British retail sales fell by more than expected in May as consumers were hit in the pocket by high inflation, official data showed yesterday. Sales by volume dropped by 1.2 per cent last month after jumping by an upwardly-revised 2.5 per cent in April, the Office for National Statistics said in a statement. Analysts’ consensus forecast had been for a fall of 0.8 per cent in May after warm weather had boosted sales the previous month. “Increased retail prices across all sectors seem to be a significant factor in slowing growth” during May, ONS senior statistician Ole Black said in yesterday’s release. Portugal

Building boom continues The number of buildings granted planning permission was in the first quarter up 11.9 per cent on the quarter and 28.1 per cent from the same period last year, at 4,900, while the number of construction projects completed in the quarter was up 8.9 per cent on the quarter and 15.9 per cent on the year, at 2,900, the National Statistics Institute said on Wednesday. According to the preliminary figures, planning permissions for new builds were up 35.3 per cent on the year and permissions for rehabilitation projects up 17.3 per cent.

Telcos

EU pulls plug on mobile roaming charges It remains to be seen whether Britons will continue to enjoy samecost mobile calls and data downloads in Europe after Brexit

he European Union rang in the end of cross-border roaming charges for mobile phone users in the 28-nation bloc yesterday, hailing it as “one of (its) greatest and most tangible successes”. The move, more than a decade in the making, comes in time for the summer holidays when millions of Europeans will be on the move, and is a public relations success at a time when the EU is under pressure from Brexit and other problems. The EU “is about bringing people together and making their lives easier. The end of roaming charges is a true European success story,” said European Commission chief JeanClaude Juncker. “From now on, citizens who travel within the EU will be able to call, text

and connect on their mobile devices at the same price as they pay at home. Eliminating roaming charges is one of the greatest and most tangible successes of the EU.” It remains to be seen whether Britons will continue to enjoy same-cost mobile calls and data downloads in Europe after Britain’s departure from the EU, negotiations for which are due to start next week. But the existence of roaming charges -- an important source of revenue for telecoms companies -was long seen as a “market failure” by Brussels. “Each time a European citizen crossed an EU border, be it for holidays, work, studies or just for a day, they had to worry about using their mobile phones and a high phone bill from the roaming charges when they came home,” Juncker said. “Roaming charges will now be a thing of the past.” Juncker noted the abolition of the practice had “been a long time coming, with many actors involved”. Nevertheless, “by working closely together, the European Union has delivered a concrete, positive result for European citizens”.

Brussels estimates the end of roaming fees will cost European telecom operators 1.2 billion euros (US$1.3 billion).

“From now on, citizens who travel within the EU will be able to call, text and connect on their mobile devices at the same price as they pay at home” Jean-Claude Juncker, European Commission chief

But the share of revenues from roaming charges already significantly declined in recent years as charges for calls and text messages dropped 90 percent since 2007 and data charges declined 96 percent since 2012 under EU regulations. AFP

Mozambique

U.S. agency calls on president to work with IMF The U.S. Agency for International Development, known as USAID, on Wednesday called on the president of Mozambique, Filipe Nyusi, to collaborate with the International Monetary Fund (IMF) to reform his country. USAID Counselor Thomas Staal, “encouraged Mozambique to continue to work with the IMF on economic reform,” the agency said in a statement released after a meeting between the two men in Washington on Tuesday. “The two officials also discussed the need for increased domestic financing for Mozambique’s health system,” it added. Guinea-Bissau

Fisheries deal with EU still out of reach Guinea-Bissau and the European Union failed to reach agreement on a fishing accord at their third round of negotiations on the subject, the West African country’s minister of fisheries, Orlando Viegas, announced on Wednesday. “The big question of the impasse remains in the Bissau-Guinean proposal and in the amount of financial compensation that the European Union should pay Guinea-Bissau in return for access rights to fishing resources,” Viegas said at a news conference. According to the minister, the “European side estimates that the Bissau-Guinean proposal ... is premature and requested a two-year moratorium...”

Monetary policy

Wall Street sees Fed putting balance sheet over rate hike in Sept A number of Fed officials have spoken of the likelihood of the central bank scaling back its bond holdings Richard Leong

Wall Street’s top banks brought forward their expectations for when they think the Federal Reserve will begin reducing its US$4.5 trillion bond portfolio to as early September, and see balance sheet reduction as more of a priority than another interest rate rise, a Reuters poll showed. They see Fed policymakers raising the bank’s key overnight borrowing rate one more time by the end of 2017 and three times in 2018 despite growing concerns that inflation would fall short of their 2.0 per cent goal in the foreseeable future, according to the poll. “The balance sheet plan seems more aggressive than previously thought,” said James Sweeney, chief economist at Credit Suisse, one of the 23 firms that do business directly with the Federal Reserve. Fourteen of the 21 primary dealers surveyed said the Fed would announce the start of its balance sheet normalization at its Sept. 19-20 policy meeting. The rest of them said it would make such a move at its Dec.

12-13 meeting. In a June 2 Reuters poll, six of 17 primary dealers thought an announcement would come in September, while the rest forecast it would occur at the last policy meeting of 2017.

“The balance sheet plan seems more aggressive than previously thought” James Sweeney, chief economist at Credit Suisse Earlier Wednesday, the Federal Reserve’s policy-setting group, the Federal Open Market Committee, offered more details on its plan to start reducing its monthly reinvestments of maturing Treasuries and mortgage-backed securities. The Fed also raised its benchmark overnight rates by a quarter point to 1.00-1.25 per cent as expected. Primary dealers had forecast the

Fed would start gradually unwinding its US$2.46 trillion worth of government debt and US$1.77 trillion of mortgage bonds. A number of Fed officials have spoken of the likelihood of the central bank scaling back its bond holdings which the Fed amassed after the 2008 financial crisis in order to keep longterm interest rates low to support economic growth. “We could put this into effect relatively soon,” Fed Chair Janet Yellen said at a news conference after the FOMC meeting on Wednesday about paring the Fed’s bond holdings. The Fed’s conviction that it was ready to back away from its unconventional monetary policy caught some traders off guard as bond yields recovered slightly after falling sharply earlier in the day on a weaker-than-forecast report on Consumer Price Index in May. This focus on balance sheet reduction led economists at Wall Street’s top firms to push out their outlook on the next rate hike to December from September. In Wednesday’s poll, only six of 21 primary dealers expected a rate hike in September, compared with 10 of 18 dealers in the June 2 poll. Fourteen of 21 now forecast a rate increase in December, compared with seven of 18 in the previous poll. Reuters

Business Daily Friday, June 16 2017 15

Opinion

This cryptocurrency boom is getting a little absurd Tim Culpan a Bloomberg Gadfly columnist

here are now four times as many cryptocurrencies in circulation as fiat currencies. That’s amazing. And encouraging. According to the Swiss Association for Standardization, which maintains the International Standards Organization database, there are 177 national currencies currently in use. That list generously includes four precious-metals and four bond-market units (codes XBA to XBD, for the curious). The CoinMarketCap website lists 753 cryptocurrencies, all the way from Bitcoin and Ethereum down to StrongHands and Paccoin (current value: US$0.00000014). With a retired basketball star promoting one such incarnation -- tied to marijuana -- on a recent trip to a repressive Asian nation lying to the north of South Korea, I’m tempted to call Peak Crypto. But let’s not kid ourselves: The madness is far from over. Bitcoin sceptics have been eating their words ever since the leading digital currency reached US$1,000. January seems like such a long time ago now that Bitcoin is trading above Number of digital US$2,700. currencies Although Bitcoin has climbed 300 per cent in the past 12 months, giving its “coins” in circulation a value of US$45 billion, Satoshi Nakamoto’s brainchild is actually declining in relative importance. From more than 95 per cent in late 2013, Bitcoin now accounts for 39 per cent of the value of all cryptocurrency in circulation. Ethereum has caught up fast, from 3.9 per cent at the start of the year to 31 per cent of the total now, according to CoinMarketCap. Ripple is in third place at around 8.8 per cent after briefly overtaking Ethereum last month. The other 20 per cent of cryptocurrency value is unevenly distributed among the 750 wannabes along a very long tail. It’s possible some will rise to a level of legitimacy that will make them viable in the long term. Many are betting not on mass uptake but on niche acceptance -- one pitches itself as the payments platform for online games; another limits the amount of coins to the number of kilometres between Earth and its moon; one seeks to be the official currency of a fictitious nation. Yet Bitcoin itself remains so niche that the WannaCry hackers reaped a minuscule harvest after infecting more than 200,000 computers, because they insisted on being paid in the cryptocurrency. Just because the boom is ridiculous doesn’t mean it lacks momentum -- it just tells you that consolidation also is inevitable. Not in the traditional M&A sense, but in the way that messenger apps like AIM, ICQ, Yahoo and MSN quietly gave way to WhatsApp and WeChat, which then led to the ubiquity of instant-messaging technology. Morgan Stanley posited last week that government acceptance will be key to Bitcoin’s continued rise, with the flipside being some kind of regulation of the currency. That’s probably right, and if proponents of cryptocurrencies think they’ll achieve widespread uptake without a nod from the authorities, they’re probably smoking something. Bloomberg Gadfly

753

China’s credit problems reflect confusion on GDP

hina’s regulators, it seems, are on the attack. Guo Shuqing, chairman of the China Banking Regulatory Commission, announced recently that he’d resign if he wasn’t able to discipline the banking system. Under his leadership, the CBRC is stepping up scrutiny of the role of trust companies and other financial institutions in helping China’s banks circumvent lending restrictions. The People’s Bank of China has also been on the offensive. It has recently raised the cost of liquidity, attacked riskier funding structures among smaller banks, and discontinued a program that effectively monetized one-fifth of last year’s increase in lending. Are the regulators finally getting serious about reining in credit creation? The answer is an easy one: Yes if they’re willing to allow economic growth to slow substantially, probably to 3 per cent or less, and no if they aren’t. This is because there’s a big difference between China’s sustainable growth rate, based on rising demand driven by household consumption and productive investment, and its actual GDP growth rate, which is boosted by massive lending to fund investment projects that are driven by the need to generate economic activity and employment. Economists find it very difficult to formally acknowledge the difference between the two rates, and many don’t even seem to recognize that it exists. Yet this only shows how confused economists are about gross domestic product more generally. The confusion arises because a country’s GDP is not a measure of the value of goods and services it creates but rather a measure of economic activity. In a market economy, investment must create enough additional productive capacity to justify the expenditure. If it doesn’t, it must be written down to its true economic value. This is why GDP is a reasonable proxy in a market economy for the value of goods and services produced. But in a command economy, investment can be driven by factors other than the need to increase productivity, such as boosting employment or local tax revenue. What’s more, loss-making investments can be carried for decades before they’re amortized, and insolvency can be ignored. This means that GDP growth can overstate value creation for decades. That’s what has happened in China. In the first quarter of 2017, China added debt equal to more than 40 percentage points of GDP -- an amount that has been growing year after year. In 2011, the World Economic Forum predicted that China’s

“

Michael Pettis a Bloomberg View columnist

debt would increase by a worrying US$20 trillion by 2020. By 2016, it had already increased by US$22 trillion, according to the most conservative estimates, and at current rates it will increase by as much as US$50 trillion by 2020. These numbers probably understate the reality. If all this debt hasn’t boosted China’s GDP growth to substantially more than its potential growth rate, then what was the point? And why has it proven so difficult for the government to rein it in? It has promised to do so since 2012, yet credit growth has only accelerated, reaching some of the highest levels ever seen for a developing country. The answer is that credit creation had to accelerate to boost GDP growth above the growth rate of productive capacity. Much, if not most, of China’s 6.5 per cent GDP growth is simply an artificial boost in economic activity with no commensurate increase in the capacity to create goods and services. It must be fully reversed once credit stops growing. To make matters worse, if high debt levels generate financial distress costs for the economy -- as already seems to be happening -- the amount that must be reversed will substantially exceed the original boost. Once credit is under control, China will have lower but healthier GDP growth rates. If the economy rebalances, most Chinese might not even notice: It would require that household income -- which has grown much more slowly than GDP for nearly three decades -- now grow faster, so that the sharp slowdown in economic growth won’t be matched by an equivalent slowdown in wage growth. But to manage this rebalancing requires substantial transfers of wealth from local governments to ordinary households to boost consumption. This is why China hasn’t been able to control credit growth in the past. The central government has had to fight off provincial “vested interests,” who oppose any substantial transfer of wealth. Without these transfers, slower GDP growth would mean higher unemployment. Whether regulators can succeed in reining in credit creation this time is ultimately a political question, and depends on the central government’s ability to force through necessary reforms. Until then, as long as China has the debt capacity, GDP growth rates will remain high. But to see that as healthy is to miss the point completely. Bloomberg View

In a command economy, investment can be driven by factors other than the need to increase productivity, such as boosting employment or local tax revenue

”

16 Business Daily Friday, June 16 2017

Closing Demonstration

Large anti-government protests held at Taiwan parliament

Thousands of anti-government protesters thronged Taiwan’s parliament yesterday, as public sector workers led demonstrations against an assortment of policies including a measure that would slash their pensions. Holding placards reading “incompetent rule” and “(President) Tsai Ing-wen steps down,” protesters rallied outside the legislature in heavy rain as lawmakers began an extraordinary summer session to review bills. Tsai has seen her popularity falling rapidly since

Tsai Ing-wen, Taiwan’s President. Lusa

taking office in May last year, as her government tackles a string of controversial domestic issues from gay marriage to pension and judicial reforms. “In the past year Tsai’s failed to listen to the people and acted stubbornly to promote these controversial policies,” said retired policeman Chuang Cheng-ho. Last year public sector employees staged a huge street protest with a turnout of more than 100,000. Organisers of yesterday’s rally claimed a turnout of 30,000. Police estimate was not immediately available. AFP

Property

Homebuyers face squeeze as Shanghai curbs office-to-flats market Shanghai’s housing authority said buyers of commercial-turned-residential properties could take delivery of them if they had already signed purchase contracts Clare Jim and Elias Glenn

crackdown in Shanghai on commercial office projects converted into residential apartments will squeeze speculators, but could also hurt bona fide homebuyers already struggling with high prices and buying restrictions. Some property developers in the city bought land zoned for commercial use as a cheaper alternative to plots meant for homes. Apartment blocks put up on these sites were consequently cheaper, and weren’t regulated under home-purchase rules brought in to curb speculation and soaring prices. The properties proved popular with investors and homebuyers shut out of the market by the buying restrictions. But Shanghai last month rolled out a “clean up and rectify” campaign for commercial-turned-residential developments, following similar moves in the capital, Beijing. While this may deter some speculation, it is likely also to further squeeze the mainstream housing market and push up prices. “These types of apartments were quite popular in the past few years because of home purchase restrictions,” said Clement Luk, CEO of East China at realtor Centaline. “Clients like those who haven’t lived in Shanghai for the required

amount of years or buy-for-investment purposes go for these apartments. But with the new measures, demand from both real users and investors will be wiped out all at once.” In Beijing, sales of these so-called serviced apartments nearly tripled last year to more than 4 million square meters, according to data from E-House China R&D Institute, accounting for a third of all residential

A panorama of Pudong from the Bund in Shanghai

sales, up from just 13 per cent in 2015. But sales there collapsed in April, down more than 98 per cent yearon-year, while unit prices fell 31 per cent in May, the E-House data shows. The crackdown by Shanghai’s housing authority - ordering developers and buyers to rip out fixtures such as toilets and kitchens before properties could be sold on - prompted a protest by hundreds of people last weekend after the market effectively froze. A similar protest is planned in Beijing this weekend. The Shanghai measures have already dented buyer sentiment for similar developments in other Chinese cities in anticipation of a broader nationwide clampdown, said Centaline’s Luk. Developers in Shanghai have suspended sales of all related developments, including Hong Kong developer Sun Hung Kai Properties’ luxury serviced apartment project on the Huangpu River in Pudong, property agents said. “Some cities over-planned their office supply; by converting some of this into apartments would have helped ease the glut,” said Stanley Ching, head of Citic Capital’s real estate group. “But the new measures seem to contradict the policy intention to clear office inventory, and removing this extra supply of serviced apartments may further drive up home prices.”

Still unclear

Following the protest, Shanghai’s housing authority said buyers of commercial-turned-residential properties could take delivery of

them if they had already signed purchase contracts, while developers were told to accommodate buyers seeking to cancel contracts. Some buy-and-hold investors, who want to rent out their apartments or live in them, welcomed this week’s shift. “It’s OK for those of us who are holding on to them for the long term,” said Ms. Ye, who said she was waiting to take delivery of a 50 square metre loft she bought two years ago that is still being built. Others, though, say they still don’t know if they’ll be allowed to re-sell these properties or if they’ll be compensated if they cancel the purchase now. Developers and anyone looking to sell one of these properties soon are likely to be hit as they will be required first to restore residential apartments back to commercial use, and office space is worth up to a fifth less than apartments. Some funds, too, are now reviewing their investments. “(The measures) will have an impact on investment firms’ strategy because many involve these developments, and the policy is likely to be introduced in other cities,” said Ching at Citic Capital. “We’re stalling some deal talks until we have a clearer sense of the policy direction.” Greenland Holdings, whose Beijing unit was punished by local authorities last month for promoting apartments built on land designated for commercial use, said it has a few developments in Shanghai that fall into the “clean up” category, and it will adjust its marketing strategy accordingly. Reuters

Diplomacy

Investment

Funding

Aussie Prime Minister lampoons Trump in speech

AIIB approves US$324 mln in infrastructure projects

Jack Ma to explore joining Grab fundraising

Australian Prime Minister Malcolm Turnbull risks a fresh rift with Donald Trump after leaked footage showed him parodying the president and alluding to a U.S. probe into election campaign links with Russia. In a closed-door speech Wednesday night to journalists and lawmakers at Australia’s equivalent of the White House correspondents dinner, Turnbull imitated Trump speaking about online opinion polls: “They are so easy to win. I have this Russian guy...believe me, it’s true, it’s true.” While journalists were told the speech was not for reporting, a local television network broadcast audio portions yesterday of Turnbull’s comments to the backdrop of audience laughter. Trump has faced scrutiny over allegations his campaign colluded with Russia to influence the last U.S. election. A special counsel plans to interview top U.S. intelligence officials about whether Trump sought their help to get the FBI to back off a probe into former national security adviser Michael Flynn, according to three people familiar with the inquiry. Turnbull yesterday played down his Trump impression, calling it “affectionately light-hearted.”

The China-backed Asian Infrastructure Investment Bank (AIIB) said yesterday it has approved two loans and one equity investment worth US$324 million across Georgia, Tajikistan and India. The bank’s first ever equity investment of US$150 million aims to help attract private capital for infrastructure projects in India, the AIIB said in an emailed statement. “Approving our first equity investment is another milestone for the Bank and will enhance our potential to source and fund high quality, private sector projects,” said D.J. Pandian, AIIB Vice President, in the statement. The equity investment goes towards the India Infrastructure Investment Fund which focuses on investing in mid-cap infrastructure companies in India in sectors including energy and utilities, transportation and logistics and telecommunications, according to a project summary on the AIIB’s website. A US$114 million loan will help fund the Georgia Batumi Bypass Road Project and a US$60 million loan will go towards the first phase of the Tajikistan Nurek Hydropower Rehabilitation Project, according to the emailed statement. The 2017 AIIB annual meeting will be held from Friday to Sunday this week on Jeju Island in South Korea. Reuters

Alibaba co-founder Jack Ma may team up with SoftBank Group Corp.’s Masayoshi Son in a US$1.5 billion investment in ride-hailing start-up Grab, according to people familiar with the matter. The investment would be part of Grab’s previously reported US$1.5 billion fundraising, led by SoftBank and aimed at giving the Singaporean start-up cash to battle Uber Technologies Inc. in Southeast Asia, said the people, asking not to be named because the matter is private. Didi Chuxing, the largest ride-hailing company in China and a Grab backer already, is also considering participating in the round, they said. The Ma investment, which may come from either Alibaba Group Holding Ltd. or payments affiliate Ant Financial, would bring his competition with arch rival Tencent Holdings Ltd. to Southeast Asia. An alliance with Grab would let Ma market Ant Financial’s digital payment service, Alipay, to millions of riders in the region, where Tencent has already partnered with Grab’s biggest competitor to promote its own payment service. China’s two internet giants are shifting their gaze abroad as growth in their home market slows and they seek to justify market valuations that are now among the highest in the world. Bloomberg News

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