Tai Fung Bank opens branch in Shanghai Banking Page 6
Tuesday, June 20 2017 Year VI Nr. 1321 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Tests
Health Bureau finds three samples over the limit for Legionnaires in latest batch of testing Page 6
Gaming
Lower comparison base makes for 30-32 pct revenue increase in June, say analysts Page 6
www.macaubusinessdaily.com
Monetary stance
HK monetary authority head says to continue with U.S. dollar peg Page 8
Social media
Chinese Internet stardom gets to university Page 16
Calling for more inspectors Road work
More road works needed on the weekends and holidays, say legislators. Not enough inspectors, says IACM head, given an increase of nearly 2,000 excavations per year and only four more inspectors between 1999 and last year. The current public “pressure” on the gov’t could lead to more inspectors, but in the meantime, work approvals will first be decided by the transit bureau, before going to IACM. Page 2
Invest, please?
Drunk smuggling
Increased efforts should be put in place to fight the impact of wine smuggling from the MSAR to the Mainland, says local expert. With 490 tonnes of red wine seized last week in a sting, and 231 litres of noninspected wine found in Q1 by the local customs, smugglers go for either very high or very low quality, avoiding high taxes, inspections and product stamp costs.
Investment vehicles Trying to attract SMEs to the non-mandatory central provident fund scheme could prove difficult, says expert, with increased burdens unless the gov’t creates a more ‘standardized scheme’. While large companies mostly have their own schemes in place, and the gov’t looks to attract ‘members of the public’ and incentivize through tax breaks, the scheme set to launch next January might work best only for data collection on what actually hinders SME development. Page 4
Smaller cities drive property prices in China
Wine Page 5
HK Hang Seng Index June 19, 2017
25,924.55 +298.06 (+1.16%) Worst Performers
Hengan International Group
+4.80%
Tencent Holdings Ltd
+2.27%
Lenovo Group Ltd
-0.59%
China Mobile Ltd
Ping An Insurance Group Co
+3.99%
AIA Group Ltd
+2.06%
China Merchants Port Hold-
-0.47%
Sun Hung Kai Properties Ltd
+0.00%
Geely Automobile Holdings
+3.68%
Galaxy Entertainment Group
+1.70%
Kunlun Energy Co Ltd
-0.46%
PetroChina Co Ltd
+0.00%
China Resources Power
+2.77%
CITIC Ltd
+1.64%
Belle International Holdings
-0.33%
Wharf Holdings Ltd/The
+0.07%
Hong Kong Exchanges &
+2.73%
Want Want China Holdings
+1.52%
Swire Pacific Ltd
-0.32%
MTR Corp Ltd
28° 31° 28° 31° 28° 31° 28° 31° 28° 31°
-0.12%
+0.11%
Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Real estate Mainland home prices increased in fewer cities last month. Official data showed the fastest price gains were across smaller cities. Prices were almost unchanged on average across the big cities of Beijing, Shanghai, Shenzhen and Guangzhou. Page 8
2 Business Daily Tuesday, June 20 2017
Macau Construction Legislators ask government to authorize more road works on weekends and public holidays
No hands, more computers IACM considers that the lack of coordination on road works revealed by the Commission of Audit was due to a lack of resources in the department, with the number of excavation works every year going from 671 before 1999 to more than 2,500 in 2016, but with the number of IACM inspectors only going from six to 10 in that same period Nelson Moura nelson.moura@macaubusinessdaily.com
L
egislators requested that the government authorise more construction works on weekends and holidays, and improve road works coordination to avoid repeat constructions in the same locations. “Currently in order to conduct road works at night, on weekends or public holidays, they need to be authorised by the Chief Executive (CE) with only two or three works having been authorised (…) We asked the government whether, if it wasn’t considered too much of a disturbance or impact on the population, more works during these periods should be authorised to shorten construction time,” the chairman of the Public Administration Affairs Committee, Chan Meng Kam said yesterday. The committee yesterday met with the representatives from the Civic and Municipal Affairs Bureau (IACM) to enquire of the department what measures have been taken to improve some of the issues revealed in a recent report by the Commission
of Audit (CA). Last month, the CA report criticised the Road Construction Co-ordination Group, as well as IACM, for ineffectiveness and lack of supervision of road construction work between 2014 and 2015. This lack of coordination led to several of the 3,458 road construction projects during the two-year period involving re-excavation of the same location, the report revealed. In his response, the IACM President, José Tavares, said the number of works the department had to follow up on had increased considerably since 1999, while the number of inspectors hadn’t. “Before 1999 there were 671 excavation works per year, and now that number went up four-fold to more than 2,500 last year. That’s a lot more holes being dug. At that time we had six inspectors and now we have 10,” Mr. Tavares told the press after the meeting. The IACM President stated that during the period covered by the report, the department’s budget was “restricted”, with the department hoping the current “pressure” on the advertisement
government will lead to an increase in the number of inspectors. Mr. Tavares also informed that the IACM internal investigation into employees hired through illicit service contracts was still ongoing, without an increase from the four employees found to have been hired through illicit practices.
Updating the system
The IACM President stated that since the two-year period evaluated by the CA, several improvements have been enacted, such as improvements to the online registration system of authorised road works. “The updated GIS (Geographic Information System) technology allows us to see what locations have had works done or not, in order for us to be able to make a decision and help the inspectors on site,” Mr. Tavares said. The head of the IACM stated that in 2014 the online system wasn’t “mature” yet, with one of the CA report critiques being that the GIS system didn’t have fully updated information of road works. “Nowadays, GPS also allows us to see where the inspectors are, and they can use their tablets to take a photo and register the works in the main system every day,” he added.
No permission required
According to legislator Chan Meng Kam, the government also announced it has changed its system that required works approved by IACM to also get approval from the Transport Bureau (DSAT) afterwards. “The previous model was a bit strange, with almost 3,000 works not being approved because the DSAT didn’t give them the green light. Macau is a small city, how can the involved services not be able to coordinate?” he stated. After an intervention by the Secretary for Transport and Public Works, Raimundo Arrais do Rosário, DSAT
has now been required to pre-approve any request for road works before the project can go for approval by IACM. The government also told the legislators that the fees for applying for construction work on public road sites was increased at the beginning of this year, in order to improve the road works situation. In January of this year, the fee for applying for construction projects that affected the city’s roads was changed, with the fee requested for every day of construction going from MOP250 (US$31) for every 10 days or less, to MOP300 for every five days or less of construction.
“Before 1999 there were 671 excavation works per year, and now that number went up four fold to more than 2,500 last year. That’s a lot more holes being dug” José Tavares, Civic and Municipal Affairs Bureau (IACM)
The fee for the number of metres of road involved was also changed from MOP350 for 10 metres or less, to the same amount but for five metres or less. In case of requests to extend the construction period, instead of 30 per cent of the total application fee being requested for five days or less of extension, 50 per cent of the total would be requested for three days or less.
Business Daily Tuesday, June 20 2017 3
Macau
Investment vehicles
Provident Fund taking stock Tax deductions to encourage corporate contributions to the 2018 NonMandatory Central Provident Fund System may fail to achieve their goal, as small and medium-sized enterprises (SMEs) may find the scheme only slightly attractive Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he Non-Mandatory Central Provident Fund System announced yesterday, to be enforced on January 1, 2018 (Law no.7/2017), may not be effective in encouraging the participation of small and medium-sized enterprises (SMEs), according to Mr. Kin Sun Chan, an Assistant Professor at the Department of Government and Public Administration at the University of Macau. The new law foresees incentives to attract contributions to the fund from the private sector through deductions on income tax assessments or the taxable income of Group II salary taxpayers, which includes professional practitioners and self-employed individuals. In addition, during the first three years of the law’s enforcement, employers who sign up to the scheme can enjoy additional tax concessions of twice as much as the contribution, according to official information released yesterday, referring to Article 54 of the law. “Incentives may not work for SMEs because they do not pay much tax, or pay none,” explained Chan. The Social Security Fund (FSS) confirmed to Business Daily that “there is an exemption allowance of MOP600,000 for the profits tax assessment in 2016, while the tax rate is imposed at 12 per cent for taxable profits over MOP600,000, according to the Law no. 11/2016, the Government Budget of Financial Year 2017.” Since companies that reach the “bottom line of MOP600,000” are not taxable, therein lies one of the largest challenges the government will have to deal with in the next few years, in order to yield adherence
from SMEs, Mr. Chan points out. “The majority of companies in Macau are SMEs and I think only a very low portion of them have their own provident schemes. So the new system is very new or even a bit odd for [them]. My guess right now is that SMEs are not willing to participate in [it]. It will increase their burden, unless the government creates a more standardized scheme,” the scholar explained. On the other side of the spectrum, large companies may already have their own schemes, Mr. Chan added. Accounting for the fact that SMEs are not particularly familiar with, or interested in, such schemes, and that big corporations may run their own, the specialist opines that current participation by companies, in general, is not very large. As for individuals, to whom the soon-to-be-enacted non-compulsory provident fund was first opened in 2010, according to official information, their participation also seems to be countered by resorting to private provident funds, Mr. Chan suggested. The non-compulsory provident fund is a subsystem of the FSS, aimed at strengthening the protection of senior Macau residents. The new law foresees a 10 per cent minimum requirement contribution, with 5 per cent from the employee’s basic salary and 5 per cent from the employer. With the implementation of the scheme to start in early 2018, the original individual account scheme will be replaced by a government-management sub-account, which will continue to be managed by FSS.
Investment vehicles
In yesterday’s official release, the government further claimed that residents or ‘members of the public’ can make contributions to the new fund system as a way to ‘accumulate wealth through investment appreciation, thus creating conditions for a more comfortable retirement for their own future.’ The system is, therefore, set to act as an investment vehicle option for residents, says Mr. Chan. “While the government’s role is to create a more reliable fund, the fund itself can give residents more choices in investment portfolios to plan for the future,” he explained. It is an addition to investment options offered through another subsystem, also managed by the FSS, the pension income fund, which is more
“focused on basic living standards,” being the closest version of “social assistance the Macau way,” according to the scholar. Regarding the fact that the government is now approving the scheme on a non-mandatory basis, the professor explained that it is a way for the relevant authorities to collect data on SMEs, their current needs and the reasons discouraging them
from contributing. “Implementing a mandatory scheme within time is an important objective for the government. And I think that the government would like to follow the World Bank standards on this,” Mr. Chan commented, further mentioning the Hong Kong Mandatory Providence Fund (MPF), established in 2000, as a comparative basis for Macau. advertisement
4 Business Daily Tuesday, June 20 2017
Macau Opinion
Albano Martins*
Integration 1. Let me remind that those who create diversification are not the government but the entrepreneurs. For sure, the government can, and should, foster and facilitate the diversification of the economy by regulating and supporting sustainable initiatives. But since the 1980s, the Macau Government has included industrial diversification in all LAGs (Governance Policies), and the result has been zero! It was an attempt to persuade the industry to protect itself against a possible textile disaster if the quotas disappeared. And it happened, soon after the MSAR handover. Textiles were more than 80 percent of our exports at the time. Now they are practically worth zero! Diversification of the economy is an option for those who really think it will generate business opportunities. Macau invests, unfortunately, only in short term and safe businesses! And who decides this is the businessman, not government officials! 2. Hong Kong joined the AIIB, an initiative of China that increasingly wants to take up more space in the globalized world of economy, now that the Americans have started shooting their own feet. And Macau? Please, it is time to allocate some of our reserves, which are likely smelling of mould, to increase our returns! 3-6. OBOR is still a long way away, like the beginning of the integration of Macau and Hong Kong into the Greater Bay Area. If little things involving coordination with the first system do not work, who believes that the larger ones will run faster? Like, for example, the full integration of Macau and Hong Kong into China’s first proposed system? We must begin to work and think deeper about this, as it will take two decades at least! Morality will come again with the integration of Macau with China, I believe. Do you want an example of lost morality in this second system? Please see our rental market. When the market was up, nothing was done. When the market fell, it was no longer necessary. But now that it has gone up again, nothing is going to happen as those who define policies are not the ones who live in rented apartments! The Statistics Department does not even think it is necessary to have a quarterly publication of rental costs of housing and commercial spaces! There are dozens of inquiries that are published, but regarding rents, zero! As expected, Macau will be absorbed by mainland China. For me, I would only hope that the colour of freedom in China could be similar to ours!
* an economist and contributor to this newspaper
Retail and food
Slightly improved business and cautious outlook Restaurants and retailers post mixed results and expectations for business results and prospects as at April 2017 Sheyla Zandonai sheyla.zandonai@macaubusiness.com
O
verall, an improvement in business for restaurants and similar establishments was recorded, on a year-on-year basis, in April, while the retail trade business performed in a less satisfactory manner, data released by the Statistics and Census Services (DSEC) yesterday revealed. The percentage of restaurants and similar establishments seeing annual growth in receipts hit 52 per cent – up 5 percentage points from March
- with the proportion of Western and Chinese restaurants with increased receipts up 15 percentage points and 10 percentage points, respectively. Accordingly, the proportion of establishments recording a year-onyear decline in receipts fell by 12 percentage points to 23 per cent. On the other hand, the proportion of retail trade businesses interviewed for the survey recording a year-on-year increase in sales in April, dropped slightly to 49 per cent, down from 51 per cent in March. Sixty-eight per cent of retailers of Watches, Clocks and Jewellery recorded an increase in annual sales
during the month. Retailers posting a year-on-year decrease in sales increased by 11 percentage points, to 38 per cent in April, while 77.8 per cent of surveyed motor vehicle retailers saw a slowdown in sales, year-onyear, during the month.
Looking ahead
While roughly half of the interviewed restaurants and similar establishments expect their receipts to remain stable year-on-year in May, 30 per cent predicted a year-on-year decline in receipts, still a 9 percentage point drop month-on-month. Among the various types of establishments, 27 per cent of Chinese Restaurants and 19 per cent of Japanese and Korean Restaurants anticipated a year-on-year rise in receipts in May. The number of retailers expecting a year-on-year decline in sales was higher than those expecting an increase in sales, at 38 per cent (up 5 percentage points) and 23 per cent (down 2 percentage points), respectively. Among the various types of retailers, 80 per cent of those dealing with Leather Goods anticipated a year-on-year growth in sales. The sample for the DSEC’s survey was selected based on the value of receipts of the establishments. It comprised 167 restaurants and similar establishments, accounting for 53 per cent of the industry’s receipts, and 135 retailers, accounting for 70 per cent of the industry’s receipts.
Housing
No obstructions for social housing tender mechanism Accepting applications for social housing units on a permanently open basis is both feasible and important, according to legislators contacted by Business Daily. The Legislative Assembly meets today to discuss whether the government should open up tenders, and a permanent mechanism for social housing. Pan-democratic Legislator Au Kam San said that the law does not limit the government from rolling out a regular application mechanism, noting that for economic housing, the law states that new applications
can only be made if new supply is created, which is not the case for social housing. “There are a lot of social housing units that are vacant [due to circumstances] such as residents of some social housing unit already having another property,” explained the legislator. Given that several sites are currently constructing public housing, the legislator said a regular application process is possible, noting that procedures would be complex if applications are only accepted when new units are supplied.
For legislator Song Pek Kei, a regular applications mechanism is more important than the re-opening of applications for social housing, stressing that “regular applications for social housing is an important right for Macau residents”. C.U.
Interpellation
SAFP: no repercussions for complaints from civil servants under new mechanism Civil servants submitting complaints through the new complaint mechanism are not at risk of receiving repercussions, despite the new measures prohibiting complaints from being made anonymously. The Public Administration and Civil Service Bureau (SAFP) stated that the original intention of setting up the complaint mechanism for civil servants was to ensure the rights of any individuals who lodged a complaint. In response to the interpellation made by the legislator Kwan Tsui Hang, the SAFP indicated that the mechanism also aims to improve the working relationships between civil servants, to optimise the organisation and operations of public departments. The Bureau assured that civil servants could choose to lodge complaints to the related departments
or directly to the complaint management council. The council can intervene with the related public departments, to coordinate with cases in which complaint outcomes do not satisfy the complainant.
According to a dispatch posted yesterday in the Official Gazette, the mechanism will apply to public workers of all public departments except the Commission Against Corruption, the Commission of Audit, the legislative support departments, Court of Final Appeal and the Public Prosecution Office. The mechanism will come into effect 90 days after the release of the dispatch. C.U.
Business Daily Tuesday, June 20 2017 5
Macau Crime
Sneaky wine The black market for smuggling wine from the MSAR to mainland China has an impact on the local wine trade market and authorities should increase their fight against wine smuggling, a cross-border trade specialist believes Nelson Moura nelson.moura@macaubusinessdaily.com
W
ine smuggling from t h e M S AR to mainland China has an impact on the local wine supply market and local authorities should make an increased effort to fight wine smuggling between Macau and mainland China, the Executive Vice-President of the Sino-Portuguese E-Commerce Chamber, Johnny Ma, told Business Daily. Last week, customs authorities from Guangdong province announced that a large police operation had arrested 29 people, suspected of being part of a red wine smuggling ring that operated in Zhuhai, Dongguan, Guangzhou and Shenzhen, according to news agency Xinhua. During the operation, a total of 490 tonnes of smuggled wine were seized, with authorities saying that around 2,000 tonnes of red wine had
been smuggled from Macau and other regions since 2011, with the merchandise being valued at an estimated RMB230 million (MOP271.1 million/US$33.7 million). “Off course this wine smuggling black market has an impact on the wine trade between Macau and mainland China, with businessmen using illegal means to save money in cross-border taxes,” Mr. Ma told Business Daily. While the MSAR and Hong Kong removed taxes on imported wines in 2008, in mainland China import tariffs, value added taxes (VAT) and consumption taxes can
Pork and codfish
According to Mr. Ma, the most commonly smuggled food products from Macau to mainland China, after wine, were pork meat from Portugal - with the Chinese government yet to enforce an approval and
represent almost half of the wine value, which creates an incentive for smuggling between the special administrative regions and the Mainland, Mr. Ma believes. However, the cross-border trade expert believes the smuggling wasn’t done on a “considerable scale”, with the distribution sector still preferring formal suppliers that can provide the needed legal paperwork. According to Mr. Ma, wine smuggling normally involves small quantities of lower grade or high-end wines, given that high wine taxes, inspections, and product stamp costs discourage the legal trade of smaller volumes of wine products. In the first three months of this year, the Macau Customs Service apprehended a total of 231 litres of non-inspected wine, however the data does not specify at which border
point the apprehensions were made or what type of wine was seized. Regarding the amount of wine apprehensions made at the Gongbei Border Gate, the Macao Customs Service had not responded to Business
license system for the entry of pork meat from the European country - and small quantities of codfish, which are ordered by smaller restaurants, but are not profitable for wholesale suppliers. A total of 11,400 kilos of
non-inspected pork meat were apprehended by the Macau customs in the first three months of this year, with 46,477 kilos being seized in 2016. No information on apprehended fish was provided by the customs service.
A flow of illegal wine
Daily’s enquiries by the time this newspaper went to print. In the same period, a total 10,076 litres of red wine were legally exported from Macau to mainland China, at a total value of MOP447,444 (US$55,694), with no white wine being exported to mainland China in that period. In the whole year of 2016, a total of 1,615 litres of wine were apprehended by the local customs service. Meanwhile, 45,865 litres of red and white wine was legally exported from the MSAR to mainland China in that same year at a total value of MOP1.7 million. advertisement
Interpellation
IACM to consider terminating contracts in advance for unqualified suppliers of wholesale market Cecilia U cecilia.u@macaubusinessdaily.com
As the wholesale market shifts location to its new home, IACM is studying how to create a review mechanism to shift out older renters who don’t meet qualifications, in order to open up more spaces for new arrivals. Responding to an interpellation by unionist and legislator Ella Lei Cheng I, IACM informed that it will prioritize suppliers from the old market in moving to the new location at the Cross Border Industrial Zone in Ilha Verde. Old suppliers will be arranged to the same corresponding floors as at the old market, but given that store numbers are different per floor in the new location, locations of stores for old suppliers would be determined by negotiations between the market’s contracted operator and suppliers, taking into consideration factors relating to business modes
as well as the interactions between suppliers. For negotiations that fail to reach a consensus, operators will consider drawing lots to determine store arrangements. The Bureau pledged in its response that it will perform stringent monitoring to ensure fairness. Meanwhile, new suppliers already on waiting lists will enter the new market to fill up all the stores. Earlier this month, the head of IACM, José Tavares, assured that related parties will try to finish the relocation to the new wholesale market by September of this year. The new market has already attracted some 105 applicants, according to the contractor of the project - Guangdong Nam Yue Group. IACM stated that it will discuss the improvements of the market’s operations and monitoring mechanism with the operator, prior to the expiry of the operation contract in 2022.
6 Business Daily Tuesday, June 20 2017
Macau Gaming
Analysts predict a bullish month for June viewed as doing little to move the needle from a tourism perspective’ and the new ferry terminal, although ‘a considerably better experience’ than the old one, doesn’t increase visitor volume until the ‘ferry schedule capacity is increased’.
Cecilia U cecilia.u@macaubusinessdaily.com
G
ross gaming revenues for this month could see an increase of between 30 and 32 per cent year-on-year, reaching from MOP20.7 billion (US$2.58 billion) to MOP20.9 billion, according to brokerage firm Sanford C. Bernstein. According to the analysts, the revenues up to June 18 had reached MOP13 billion at an average daily rate (ADR) of MOP722 million, which represented a ‘stronger’ performance than predicted, despite the impact of tropical typhoon Merbok. The ADR during the period in question saw a 2 per cent dip when compared to the same period of May, but a 36 per cent surge over a similar period a year ago. The analysts note that the VIP segment will ‘continue to face structural headwinds from a tightening regulatory environment in Macau and continued focus on capital outflows in mainland China’, despite being likely to demonstrate strength over the next few months. The mass market will be the ‘key driver of sustainable growth in 2017 and through the rest of the decade’, wrote the brokerage, highlighting the improving transportation infrastructure and the upcoming new resorts and casinos.
The six key themes:
-Mass June is generally expected to be the peak of year-on-year gaming revenue growth, with analysts from Deutsche Bank pointing out ‘the most likely trajectory’ will be a year-onyear deceleration afterwards. The analysts at Deutsche bank noted that ‘most we spoke to were pleased with the trajectory of mass gaming trends’, while pointing out that ‘premium mass […] continues to lead the growth’, despite being ‘sticky’ on the peninsula, given that it is the ‘preferred venue of VIP customers’. Overall market gross gaming
-Concessions Regarding concession renewals, ‘the uniform view’ is a pushback of SJM and MGM’s concessions until 2022 to match with the other deadlines – expected to be ‘the only act performed by the current administration’ under Chief Executive Chui Sai On. After this, ‘opinions vary’ between ‘a series of five one-year extensions’ being granted, but with ‘prevailing sentiment’ being the ‘new administration passes new legislation to avoid a messy tender process’, involving current licenses being renewed but with ‘heavy capital commitments […] potentially including development of non-gaming amenities on Hengqin’.
revenue shouldn’t be affected by the new tightening of policies. -VIP Liquidity in VIP, ‘spurred perhaps by the RMB devaluation, and new openings, specifically Wynn Palace’ were pointed out as the ‘key drivers of the VIP resurgence’, with the analysts opining that the Philippines crackdown and the Crown employee charges in the Mainland ‘have benefited the Macau VIP environment’. A potential termination of video streaming betting in the Philippines ‘should it occur, could also redirect high end play to Macau’. The top three junkets made up ‘more than 60 per cent of roll in the market’, note the analysts, with Suncity taking up ‘approximately 45 per cent’, pointing out that the month ‘has been an exceptionally strong comparison month for the junkets’,
with rolling chip up ‘approximately 30 to 50 per cent given the easy comparison’. However ‘direct VIP lending has also remained somewhat subdued,’ as ‘operators are providing less credit’ to the junkets. -Infrastructure Infrastructure improvements - based around the Light Rail Transit (LRT), Hong Kong-Zhuhai-Macau Bridge and Pac On Ferry Terminal – have caused ‘largely non-existent’ fan fare, amongst operators, who ‘continue to point to expansion of the high-speed rail in mainland China as the single biggest infrastructure related driver of Macau growth’. For the LRT ‘logistical issues’ relating to train carriage sizes versus ferry size ‘makes for complications’, while ‘the lack of links to the key population centres […] is unlikely to ease congestion meaningfully’. The HKZM bridge ‘is
-Supply and table allocation Predictions for MGM Cotai’s opening to be in the fourth quarter, and SJM’s Grand Lisboa Palace to open in the second half of next year are ‘realistic’ according to the Deutsche Bank analysts. For both properties, table allocation will be ‘mass only’, and the two operators ‘will likely transfer VIP tables from existing Peninsula assets to Cotai post opening’. This could be a ‘positive’ for Wynn and StarWorld’s peninsula operations, the analyst opine. -Smoking Expectations for an implementation of the smoking ban run for January 1 of 2019, point out the analysts. Given that several properties are already using smoking lounges on mass floors, the analysts perceived that ‘some operators are pushing for an earlier implementation of the smoking regulations, believing that despite a full ban on smoking in gaming areas, a balanced playing field offers a better opportunity than the current situation’.
Legionnaires
Parisian cleared by Health Services After conducting 153 tests across various water sources in The Parisian, the Health Services has confirmed that, despite three samples taken still having values over the limit, the exterior of the hotel and interior fountains were allowed to be re-opened, given that no samples of the bacteria were found at the two locations. The suspension of activities at the two zones was lifted June 2 and 6, respectively. Two of the samples showing bacteria levels over the limit were in the bathrooms of the shopping area, while one was in a faucet of a hotel room.
Given that Sands China ‘invited water specialists from Singapore for a complete evaluation of the water supply system’ and that the ‘hotel is taking a variety of cleaning measures of the water system’ the Health Services now only request that the ‘hotel take the necessary precautions of cleaning and disinfection and continue to accompany the case, conducting new tests’. Business Daily contacted Sands China but no response had been received by the time this went to press.
Banking
Tai Fung Bank going to China Macau-based Tai Fung Bank Limited is opening a branch in Shenzhen, according to a dispatch from the Secretary for Economy and Finance published in the Official
Gazette yesterday. The authorization for setting up shop in the Mainland came into effect on June 8. Tai Fung was founded in 1942 by Mr. Ho Yin, Beijing’s
local front man following the ascension of the Communist Party to power in 1949, and father of the city’s first Chief Executive, Edmund Ho Hau Wah. Tai Fung operated as a money exchange service provider until 1972, when it became the first local
commercial bank, according to information provided by the company. It currently operates as a subsidiary of Bank of China Limited, which holds a majority stake in the company. As at the end of December 2015, the total assets of Tai Fung were estimated at
MOP121.7 billion, according to the bank. Tai Fung claims that it currently has 25 branches in Macau and has established business relations with more than 300 financial institutions worldwide, according to company information. S.Z.
Business Daily Tuesday, June 20 2017 7
Macau
8 Business Daily Tuesday, June 20 2017
Greater China Housing
Month-on-month home price growth remains robust in May Average new home prices in China’s 70 major cities rose 0.7 per cent Yawen Chen and Ryan Woo
H
ome prices levelled off in China’s biggest cities in May but continued to climb nationwide, indicating demand remains resilient despite a series of government measures to keep the market from overheating. Firm price gains highlight the challenge Chinese authorities face in calming a frothy market without disrupting the economy, in which real estate is a major driver of growth. Economists say the pace of price growth across different market tiers clearly shows a passing of the baton from the centre to the regions. They also fret over still-rising prices against an already high base, saying upward price pressure remains. “While a moderation in price growth in first- and second-tier cities shows the curbs had some effects, we must note that prices are still rising with new unit prices at record high levels,” said Sam Xie, head of research at property services provider CBRE China. “We expect more cities to impose curbs in the future.” Average new home prices in China’s 70 major cities rose 0.7 per cent in May from the previous month, in line with April and remaining the quickest gain since October, Reuters calculated from an official survey out yesterday. Compared with a year ago, new home prices rose 10.4 per cent in May, easing from a 10.7 per cent gain in April, Reuters calculated from National Bureau of Statistics (NBS) data. Policymakers have prioritised stabilising an overheated market ahead of a Communist Party reshuffle later this year, reiterating the need to avoid
dramatic price volatility that could threaten the financial system and harm social stability. The housing bureau in Guangdong province’s Qingyuan city said last week prices for pre-sold new units must be sold at no more than 5 per cent higher or no more than 15 per cent lower than in similar projects in the area in the past month, effectively setting a price cap and floor to stabilise the market. The NBS said price growth for new homes in China’s 15 most overheated cities - mainly provincial capitals with the most stringent curbs - has remained “basically stable” from the previous month as city-based control measures continued to take effect. Prices for new homes in China’s biggest cities such as Beijing and Shanghai stopped climbing in May on a monthly basis, while prices fell 0.6 per cent in Shenzhen, the fastest seen in three months. Compared to a year ago, Beijing, Shanghai and Shenzhen prices still grew 13.5 per cent, 11 per cent and 5.4 per cent, respectively.
The actions of authorities, who also stressed the need to actively push for inventory destocking in smaller cities experiencing a housing glut, have spread investor activity more broadly rather than halting it outright. Investors, banned from the hottest markets, are increasingly looking inland, driving up prices in more remote, smaller cities with fewer buying restrictions, leading to a surprise pick-up in May sales.
Key Points May new home prices +0.7 pct m/m vs +0.7 pct in April Yearly growth in May +10.4 pct, while April was +10.7 pct Hottest property markets “basically stable” in May - NBS Unrestricted smaller markets help fuel price growth - Analysts For example, Bengbu, a mid-sized city in central China’s Anhui province, topped the list in May, with prices of new units rising 3.4 per cent on-month, compared to a 2.2 per cent gain in April.
Price growth in smaller third-tier cities rose to 0.9 per cent in May from April’s 0.8 per cent, CBRE’s Xie said. The Statistics Bureau does not release price index data by market tiers. Central bank data published last Wednesday showed Chinese banks extended more credit than expected in May, with home loans expanding even as policymakers struggled to rein in riskier borrowing without impeding economic growth. Household loans, mostly mortgages, rose to RMB610.6 billion in May from RMB571 billion in April, accounting for 55 per cent of total new loans last month, up from 52 per cent in April, the data showed. But analysts say new tightening measures introduced since midMarch have started taking some heat out of the market, and property investment is likely to have peaked following a sharp drop in sales because of such curbs. Indeed, annual growth in China’s real estate investment slowed in May, the first fall-off in three months, taking a toll on new developments. New construction starts almost halved from the previous month, official data showed last Wednesday. Reuters
Monetary stance
HKMA’s head says Hong Kong will continue with currency peg The peg has shown resilience since the change of sovereignty in 1997 Fion Li
Hong Kong’s pegged exchange rate should stay as it has served the city well through financial crises for more than 30 years, the chief of its de facto central bank said. “Hong Kong is a small and open economy,” Hong Kong Monetary Authority Chief Executive Norman Chan said in a statement as the city approaches the 20th anniversary of Chinese rule. “Keeping a stable exchange rate between the Hong Kong dollar and the U.S. dollar is the most suitable arrangement. We have no need and no intention to change such an effective system.” The city linked its currency to the greenback in 1983, when negotiations between China and the UK over Hong Kong’s return to Chinese rule spurred a capital exodus. The Hong Kong dollar has come under pressure this year amid a widening interest-rate gap with the U.S., with the local exchange rate touching the lowest level since January 2016 on Friday. Hong Kong’s dollar trades between the permitted range of HK$7.75 and HK$7.85 per greenback. The peg has shown resilience since the change of sovereignty in 1997,
surviving a 1998 attack by speculators during financial turmoil in Asia, the 2008-2009 global financial crisis, as well as pro-democracy protests in late 2014. There has been talk that Hong Kong should switch its peg to the Chinese yuan amid closer economic links. Chan listed four “essential conditions” for such consideration: • A fully convertible yuan • Open capital account with no capital controls
• A financial market with sufficient depth and width that allows Hong Kong’s Exchange Fund to hold assets to support the city’s monetary base • Synchronized economic cycles between Hong Kong and China Hong Kong’s role as a global financial hub is seen as less consequential to China amid the boom of the world’s second-largest economy. In 1997, China’s gross domestic product was five times the size of the former British colony. Today, it’s about 30 times bigger. The city won’t be marginalized even when China’s capital account is fully open, HKMA’s Chan said. It
remains “an important springboard” for the Mainland to the international community, he said.
“Keeping a stable exchange rate between the Hong Kong dollar and the U.S. dollar is the most suitable arrangement. We have no need and no intention to change such an effective system” Norman Chan, Hong Kong Monetary Authority Chief Executive
“Hong Kong has been part of the global financial markets for so many years,” Chan said. “With such an advantage, as long as we aren’t complacent and keep working on our soft skills, there’s still a bright future ahead of us.” Bloomberg News
Business Daily Tuesday, June 20 2017 9
Greater China Probe
Head of major Taiwan bank held over ‘illegal loans’ Taiwan last year toughened its anti-money laundering laws following the Mega bank scandal The head of a major Taiwanese bank has been detained on suspicion of granting illegal loans, just months after another banking scandal rocked the island’s financial sector. SinoPac Holdings chairman Ho Shou-chuan and two others are being probed over an alleged T$5 billion (US$164.8 million) of loans made to an “offshore company with no real operations”. It is not yet clear what relationship they have with the firm that received the money. The case comes after the ex-chairman of Mega International Commercial Bank was indicted in December on charges including insider trading. That followed a massive US$180 million fine slapped on Mega by American authorities after they said they found “suspicious transactions” between its New York and Panama branches. Taipei District Court approved on Sunday a request by prosecutors to take Sinopac’s Ho and the other two suspects into custody, saying there was a risk of evidence tampering or
collusion. Local prosecutors investigating the case searched Ho’s residence and office last week.
‘The case revolves around alleged illegal lending to a company called J&R Trading Co. by a SinoPac subsidiary since 2009’ “(Ho) and the others are suspected of jointly violating laws including the Securities and Exchange Act and breach of trust,” prosecutors said. No formal charges have been made yet. The case revolves around alleged
illegal lending to a company called J&R Trading Co. by a SinoPac subsidiary since 2009. Local media said the funds were routed to finance an investment into a commercial building in Shanghai. According to the court statement, Ho insisted at most he is accountable for “administrative negligence” and did not cause the company any damage. SinoPac held an emergency board meeting Saturday and appointed an acting chairman following Ho’s arrest. The bank said it will cooperate with the investigation and that its operations are continuing as normal. Two other people critical in the
probe have not been questioned yet as they are out of the country, the court said Sunday. Taiwan last year toughened its anti-money laundering laws following the Mega bank scandal. That case also led to the resignation of the island’s top financial regulator, who was criticised over the handling of the fallout. Mega bank was found to have links with a Panamanian law firm at the centre of a huge data dump known as the Panama Papers scandal. The trove of leaked papers revealed murky offshore financial dealings that used shell companies to help politicians, celebrities and sports stars to skirt taxes. AFP
Banking
AIIB pledges to do more by itself as regional influence expands Of the 16 projects approved by the AIIB since it started in January 2016, around three quarters have been co-financed with other development lenders The Asian Infrastructure Investment Bank pledged to embark on more projects as the sole lender, as it boosts its membership and manages an investment pipeline of up to US$7 billion. The fledgling development bank, now in its second year, has already taken on projects by itself and it will do more going forward, AIIB President Jin Liqun said on Saturday in Jeju, South Korea, following the institution’s second annual conference. Still, working together with other lenders is better particularly on large infrastructure deals, he said. Of the 16 projects approved by the AIIB since it started in January 2016, around three quarters have been co-financed with other development lenders including the World Bank, Asian Development Bank, and the European Bank for Reconstruction and Development. The China-led lender is now stepping up efforts to strengthen its credibility as a partner and alternative to
Jin Liqun, president of the Asian Infrastructure Investment Bank (AIIB), delivers a keynote speech at the opening ceremony of the second annual AIIB meeting at a convention centre on South Korea’s Jeju Island on Friday. Lusa
the Japan-led ADB and the Washington-based World Bank. China is increasingly presenting itself as a responsible stakeholder of the global financial system, with President Xi Jinping stepping into the void created by a more inward-looking U.S. The AIIB welcomed Argentina, Madagascar and Tonga to its club on Friday, expanding its roster to 80 from 57 inaugural members. On Thursday the bank approved US$324 million in loans and investment in projects in India, Georgia and Tajikistan.
‘The AIIB welcomed Argentina, Madagascar and Tonga’ The AIIB aims to more than double its lending in the next five years, and has US$6 billion to US$7 billion of projects in the pipeline, Chief Investment Officer D. J. Pandian said in an interview.
Other key points
AIIB can raise funds from the global market and will receive a credit rating by the end of the year, Jin said. The bank has discussed the matter with three major rating companies and two Chinese companies. • The “bank will remain open, door is always open,” Jin said in response to a question on the prospect of the U.S. and Japan joining AIIB • The decision to invest in a non-member country is up to the board of governors, he said, when asked on whether the bank plans to invest in North Korea • There are no plans for coal projects and proposals that are potentially harmful to the environment will not be considered, Jin said. The bank will prioritize investment in renewable energy projects and those that enhance energy efficiency to reduce air pollution South Korean President Moon Jaein hailed the AIIB’s achievements and pledged to beef up support for the bank, signalling goodwill after a period of diplomatic tensions with China over the Thaad missile shield
deployment. Moon suspended the deployment of the American missile shield this month. China and South Korea’s finance
chiefs also met for the first time in a year on the side-lines of the AIIB meeting and agreed to continue economic cooperation. Bloomberg News advertisement
10 Business Daily Tuesday, June 20 2017
Greater China
Oil industry
State giants take petrol price battle to the pumps Price battles were rare before 2013 as rigid government price controls capped margins Chen Aizhu
C
hinese state oil giants Sinopec and PetroChina are waging war at the nation’s gas pumps, slashing prices at unprecedented rates in an effort to reclaim sales lost to private local and foreign rivals in the US$440 billion retail fuel market. The rare price war kicked off in late March as Sinopec reported first quarter retail sales had slid to a three-year low. Spurred by a glut of fuel, Sinopec started offering hefty discounts in response to ad-hoc but frequent promotions by independent petrol station operators. PetroChina swiftly joined in, triggering a ferocious battle against independents and international firms including Shell and BP, said three state oil sources involved in retail fuel marketing.
Key Points Price wars concentrated in over-supplied northern provinces Deep discounts at 20-30 pct of pump prices Rise of teapot refineries floods market with cheap fuel
The heavy discounting is now spreading from the most heavily oversupplied provinces in China’s north, squeezing fat retail profit margins in the world’s No. 2 fuel market. The battle is proving a boon for China’s drivers. In the gritty northern coal town of Luliang, taxi and delivery drivers were queued up at a Sinopec outlet after it slashed pump prices by RMB1.4 (US$0.21) per litre, or nearly a quarter, one recent weekend. “We all know Sinopec has higher gas quality but it was so expensive, so before I went to independent stations to fill my vehicle,” one driver surnamed Zhang told Reuters as he waited to gas up his dusty, grey 7-seat van. “Now I switch to Sinopec and will keep visiting here as long as
Sinopec offers discounts like this.” Nearby gas stations run by PetroChina and local private operator Taihua each offered the same discount, promoting the bargain prices with eye-catching red banners, free car washes, and credits in pre-paid petrol cards. Sinopec spokesman Lu Dapeng said price cutting was “the most common approach in market competition”. He didn’t elaborate.
Rare discounts
Such basement prices are rare for Sinopec, officially known as China Petroleum & Chemical Corp, and PetroChina, the listed subsidiary of China National Petroleum Corporation. In late March, both were selling high grade fuel at a discount of just RMB0.20-0.40 per litre. “As the independents deepened discounts to unbearable levels, Sinopec responded by launching targeted attacks to reclaim lost sales,” said a state oil marketing official. Price battles were rare before 2013 as rigid government price controls capped margins. As recently as 2010,
gas stations rationed diesel fuel as shortage hit. But the plunge in global oil prices since 2014 and the sudden rise of independent refineries known as teapots transformed the market by flooding the country’s 90,000 petrol stations with cheaper fuels. Short of retail infrastructure and barred from exports, teapots sell oil mostly to the country’s 40,000-plus private petrol stations, many run by families or independent fuel dealers “The huge surplus the teapot oil plants have created is eroding the 80-per cent market share the two oil giants used to hold several years ago,” said Yan Kefeng, veteran oil researcher with IHS Markit. Sinopec and PetroChina now control around two-thirds of retail sales and independents about a quarter, according to Yu Chang, a former retail director with Shell China and the founder of AutoGo, a fuel retailing e-platform. The battle has also drawn in global players such as BP, Shell, Total and Exxon. Foreign firms now own and operate nearly 4,000 stations accounting for about 8 per cent of sales, mostly in joint-ventures with Sinopec or PetroChina. “There has been price volatility in
the fuel retailing market with seasonal demand and supply changes,” Shell wrote in an email. Shell has rapidly boosted its retail network in China and now has a total of 1,200 sites.
Margin hit
While margins have taken a hit, Sinopec and PetroChina are far from losing money in their retail businesses, thanks to their market dominance in key consuming regions in the south and east where there is little need for discounts and wealthier motorists are less sensitive to price cuts. Compared to RMB5.24 a litre in Luliang, Beijing motorists pay around RMB6.66 for 95-octane, euro-5 quality gasoline. Beijing prices are some 12 per cent above the premium gasoline in California, but about half that of Singapore prices. Sources at rivals say Sinopec may also be leading the charge as it aims to stem falling retail fuel sales and bolster its retail business ahead of a planned multi-billion-dollar IPO. Even with the hit in sales, Sinopec’s network of 30,000 fuel stations and more than 23,000 convenience stores is considered a jewel in the crown. The division is estimated by analysts to be worth as much as US$58 billion. Reuters
Business Daily Tuesday, June 20 2017 11
Asia Mortgages
South Korea tightens rules on housing The government is trying a targeted approach aimed at cities with the most heated property prices to reduce the impact on the construction sector Cynthia Kim
S
outh Korea said yesterday it will tighten mortgage restrictions and curb speculative resales of homes in Seoul (pictured) and parts of Busan to stabilise hot housing markets amid soaring household debt. Effective July 3, the government will tighten loan limits for home buyers to 60 per cent of a property’s value from the current 70 per cent in regions showing signs of overheating including Seoul, the finance ministry and financial regulator said in a statement.
those regions, it said. Rather than nationwide measures, the government is trying a targeted approach aimed at cities with the most heated property prices to reduce the impact on the construction sector, which grew almost five times faster than the gross domestic product in the first quarter. “This is in line with what the market had expected for weeks,” Kim Doo-un, an economist at Hana Financial Investment said.
“Although mortgage rules are being tightened, it may not be enough to cool the property market demand as some regions had supply shortage problems,” Kim said. In a briefing, vice finance minister Ko Hyoung-kwon said warned of more if overheating continues in the targeted regions. “If we see and confirm overheating widening, we will be firm in adopting more measures, including designating some regions as ‘overheated speculation zone,’” Ko said. The central bank’s eight rate cuts since 2012 helped send home prices and household debt to record levels. The average price of a Seoul
apartment in March exceeded 600 million won (US$529,918.30) for the first time, an increase of more than 20 per cent from four years earlier. Apartment prices in Seoul rose 0.3 per cent in the week of June 12 from a week earlier, the fastest clip since 2009, according to Kookmin Bank data. “Curbing the property market speculation would limit overall household debt growth. I don’t see debt growth worsening under such policy direction,” Kim at Hana said. At 92.8 per cent of the GDP, South Korea’s household debt even exceeds that of the U.S. and Japan, Bank for International Settlement data shows. Reuters
Key Points S.Korea to tighten Loan-to-Value ratio to 60 pct in Seoul S.Korea to tighten Debt-toIncome ratio to 50 pct in Seoul More curbs could be on the way if overheating widens -vice fin min Debt repayments will be limited to 50 per cent of home buyers’ annual income in those selected regions, down from the current 60 per cent, it said. The government will also restrict the resale of newly built apartments in Seoul and some parts of Busan until registration of property ownership is complete, to cool speculation in
Government
Japan PM to reshuffle cabinet as ratings slump-media Non-support for Abe rose to 44 per cent, the first time it surpassed the percentage of backers since October 2015 Japanese Prime Minister Shinzo Abe will likely reshuffle his cabinet to try to bolster ratings battered by suspicions that he helped a friend get favoured treatment for his business, media reported yesterday. The Nikkei business daily, citing government and ruling party sources, said Abe would rejig his cabinet in August or September. Abe will probably retain Finance Minister Taro Aso and close ally Chief Cabinet Secretary Yoshihide Suga, but it was not clear if he would replace Defence Minister Tomomi Inada, Foreign Minister Fumio Kishida or Economy Minister Nobuteru Ishihara. A slew of fresh public opinion polls showed support for Abe’s cabinet slumping sharply, with Mainichi newspaper reporting that his ratings had fallen 10 points to 36 per cent, the biggest drop since he took office in December 2012. Non-support for Abe rose to 44 per cent, the first time it surpassed the percentage of backers since October 2015, after parliament enacted controversial security laws expanding
the scope for military activities overseas, the Mainichi said. Last week, the education ministry unearthed documents that the opposition said suggested Abe wanted a new veterinary school run by a friend to be approved in a state-run special economic zone. The ministry had said it could not find the documents but reopened the probe under public pressure.
Educational Institution, which wants to open a veterinary department. The government has not approved new veterinary schools for decades because of concern about a glut of veterinarians. Almost three-quarters of voters in the Mainichi survey said they were not persuaded by the government’s insistence there was nothing wrong with the approval process. The institution has said it had acted appropriately Voters were split over last week’s enactment by parliament of a controversial law that will penalise
‘Abe will probably retain Finance Minister Taro Aso and close ally Chief Cabinet Secretary Yoshihide Suga’ Abe has repeatedly denied abusing his authority to benefit his friend. Opposition politicians and the media have identified Abe’s friend as Kotaro Kake, the director of the Kake
Japanese Prime Minister Shinzo Abe
conspiracies to commit terrorism and other serious crimes. But many expressed distaste for the ruling coalition’s tactics in rushing the bill through parliament. The ruling bloc took the rare step of skipping a vote in committee and going directly to a full session of parliament’s upper house. Almost 70 per cent of voters said the bill had not been sufficiently debated, according to the Mainichi survey. Ruling Liberal Democratic Party support still far outstripped that of the opposition Democratic Party, the polls showed. Reuters
12 Business Daily Tuesday, June 20 2017
Asia Trade
Japan’s May exports rise at fastest in 2 years Exports to China increased 23.9 per cent year-on-year in May Stanley White
J
apan’s exports surged in May by the fastest in more than two years on higher shipments of cars and steel, an encouraging sign that robust global demand will help keep the country’s modest economic recovery on track. The 14.9 per cent annual increase in exports in May was the biggest rise since January 2015 and nearly twice the pace seen in April, though it was below analysts’ expectations of 16.1 per cent. Japan’s imports rose more than expected in May, partly due to increasing demand for intermediate goods companies need to manufacture their products. Exports are likely to continue rising at a steady clip as overseas economies show increasing signs of strength, which should help Japan’s economy extend its recent run of expansion. “The main scenario is Japan’s exports will continue to recover,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “However, the pace of growth could slow somewhat as inventories of certain goods, like electronics, start to build up overseas.” Exports of cars and car parts rose
partly because an earthquake in Kumamoto last year in May temporarily shut down production of these goods, Tonouchi noted.
Trade surplus with U.S. surges
Japan’s exports to the United States rose 11.6 per cent in May from a year ago, the fastest increase since July 2015, due to an increase of shipments of autos and auto parts. The trade surplus with the United States was 411.1 billion yen (US$3.71 billion) in May, up 19.0 per cent from the same period a year ago. In April, Japan’s trade surplus with the United States fell an annual 4.2 per cent. A large trade surplus could draw criticism from the Trump administration, which has repeatedly indicated that it prefers protectionist policies to reduce the U.S. trade deficit and increase exports. Exports to China increased 23.9 per cent year-on-year in May, following
a 14.8 per cent annual increase in April. Larger shipments of flat panels and semiconductor manufacturing equipment drove the gains in China-bound exports. Exports to Asia, which includes China, rose 16.8 per cent in May from a year ago, the fastest increase in three months, due to increased shipments of electronics to Hong Kong and steel to Indonesia, the data showed. In terms of volume, Japan’s exports rose 7.5 per cent in May from a year ago, the fastest gain in three months, another indication that overseas demand is firm.
Import growth at more than 3-year high
Japan’s imports rose 17.8 per cent in the year to May, the strongest gain since early 2014, versus the median estimate for a 14.8 per cent annual increase, as a rise in the price of oil
from a year ago pushed up the value of imports. Excluding oil imports, the data showed increasing demand for chemicals, electronic parts and raw materials used in Japanese factories. In terms of volume, imports rose 5.4 per cent in May from a year ago, the third consecutive month of gains in a sign of growing demand. The trade balance came to a deficit of 203.4 billion yen, versus the median estimate for a 76.0 billion yen surplus. “You can say domestic demand is doing well, but this is being driven more by the manufacturing sector,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. “There are some gains in durable goods, which are related to consumer spending, but rising factory output is the bigger factor behind imports.” Policymakers and economists have become more optimistic about Japan’s prospects this year as an increase in factory output and a tightening labour market show the economy is poised to extend its recent growth. The Bank of Japan kept monetary policy steady on Friday and upgraded its assessment of private consumption for the first time in six months. Consumption has been a soft spot in Japan’s otherwise strengthening economy, with its weakness blamed for keeping inflation subdued by discouraging companies from raising prices, leaving growth heavily reliant on exports. Reuters
Outlook
RBA’s Lowe says Aussie economy is capable of stronger growth But he warned that average per capita income in the next couple of decades was likely to be lower than in the past quarter-century Michael Heath and Jason Scott
Australian central bank Governor Philip Lowe said his economy is capable of faster growth if lawmakers can overcome political gridlock, while warning weak wage gains are likely to keep plaguing developed nations. “It is important that we have a sharp focus on the reforms that can make a real difference to our living standards,” Lowe said in a speech delivered in Canberra yesterday. “If we don’t do this, we will fall behind.” Since the 2008 global financial crisis, Australian politics has become increasingly polarized as parties exploited those losing out from proposed reforms to gain electoral advantage. This has resulted in risk-aversion increasing among government and limited action, meaning Australia hasn’t cemented a significant economic reform since a goods and services tax was introduced in 2000. “The positive news is that there is no shortage of good ideas here,” Lowe
Business Daily is a product of De Ficção – Multimedia Projects
said. “The not-so-positive news is that there is a shortage of good ideas that can successfully navigate the political process.” The governor reiterated the RBA’s forecast that growth will accelerate over the next couple of years amid a synchronized upswing in the global economy.
Income warning
But he warned that average per capita income in the next couple of decades was likely to be lower than in the past quarter-century, a period when Australia’s economy managed to avoid a slump. The RBA chief said while 26 years without a technical recession -- or two consecutive quarters of economic contraction -- “is a significant achievement,” strong population growth has “flattered” Australia’s gross domestic product data. During a panel discussion at the Crawford Australian Leadership Forum, Lowe also addressed the theme of weak wage growth that’s bedeviled western nations including Australia -- and causing discontent among workers -- particularly when nations like Germany, the UK, the U.S. and Japan are at or close to full employment. Lowe cited three major reasons for the weakness: • Productivity growth has slowed despite advances in technology. Lowe said the slowdown is probably temporary as productivity gains tend to
Australian central bank Governor Philip Lowe
“come in waves” and another is likely not too far down the track; • Workers feel like there is more competition: “they worry about foreigners and robots.” The RBA chief said when anyone senses greater competition they’re less inclined to increase their price demands • People value employment security in an uncertain world and feel they can increase it by not asking for a bigger wage rise “I don’t think any of these things are going to change quickly,” he said. “We’ll have to get used to it unfortunately.”
Pay demands
Returning to the fact that job markets in some countries are pretty tight, the RBA chief theorized that “at some
point one imagines that’s going to lead to workers being prepared to ask for larger wage rises. If that were to happen that would be a good thing.” Lowe took issue with comments that a decline in hours worked in the labour market is “terrible,” saying a lot of people actually just want to work part-time in the modern economy. He also noted the changing drivers of growth in the country as Australians increasingly work in service industries, even as natural resources remain the key export earner. “Right across the spectrum, competitive advantage is increasingly built on technology and management capability,” Lowe said. “This trend is not going to go away and we need to capitalize on it. There is no magic solution.” Bloomberg News
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, June 20 2017 13
Asia Energy
In Brief
S.Korea’s President Moon says plans to exit nuclear power The nation has 25 nuclear reactors, supplying about a third of the country’s total electricity South Korea’s new President Moon Jae-in said yesterday the country will halt plans to build new nuclear power plants and will not extend the lifespan of existing plants, in a bid to phase out nuclear power. Moon campaigned on a program of cutting South Korea’s traditional reliance on coal and nuclear for the bulk of its power, but has not previously commented on the commitment to end nuclear power since being elected in early May.
“We will withdraw existing plans to build new nuclear power plants and not extend the lifespan of nuclear power plants”
“We will withdraw existing plans to build new nuclear power plants and not extend the lifespan of nuclear power plants.” South Korea’s oldest nuclear reactor Kori No.1 was permanently shut down at midnight on Sunday after reaching the end of its 40-yearlifespan, the first South Korean nuclear power plants to be closed permanently. South Korea has 25 nuclear reactors, supplying about a third of the country’s total electricity. During his campaign, Moon vowed to review plans to add new eight nuclear reactors, including the part-completed Shin Kori No.5 and Kori No.6. Moon said he will soon reach a consensus on the Shin Kori No.5 and
Shin Kori No.6 reactors after fully considering their construction costs, safety and the potential costs of paying compensation. He also said the government will seek to shut down the country’s second-oldest nuclear reactor, the Wolsong No.1, as soon as possible depending on the country’s power supply conditions. Public support for nuclear power has been undermined by a local scandal in 2010 over forged certificates for spare parts and the 2011 Fukushima meltdown in neighbouring Japan. South Korea is seeking to scale back reliance on nuclear, and Moon has said he will support renewables and liquefied natural gas sectors in a bid to boost clean and safe energy. The new government plans to increase the use of renewables to 20 per cent of the country’s total power generation by 2030. Reuters
Indonesia palm oil stockpiles likely fell in May Indonesia’s palm oil stockpiles likely fell in May as exports increased because of higher consumer demand ahead of the start of the Islamic holy month of Ramadan, a Reuters survey showed. Crude palm oil (CPO) production in Indonesia, the world’s top producer of the vegetable oil, likely rose in May to 3.38 million tonnes from 2.9 million tonnes in April, according to the median estimate in a survey of three industry associations and a state palm research firm. Exports of Indonesian CPO were estimated to have increased last month to 2.38 million tonnes, from 2.16 million tonnes in April. Funding
Malaysian carrier Maxis plans share offering
Moon Jae-in, President of South Korea
“We will end the nuclear-oriented power generation plan and pave the way for a nuclear-free era,” Moon said at an event marking the closure of the Kori No.1 nuclear reactor in Busan, some 300 kilometres southeast of Seoul.
Survey
South Korean President Moon Jae-in gives a speech in Busan, southeast of Seoul yesterday, at a ceremony on the closure of the Kori-1 nuclear reactor. Lusa
Finance minister
India to allow late filing in first two months of GST
Malaysian wireless carrier Maxis Bhd plans to raise up to US$406 million in a share offering to pay down debt and finance the potential acquisition of mobile phone waves, IFR reported yesterday, citing a term sheet of the transaction. The company is offering 300 million new shares in the primary offering in an indicative range of 5.52–5.75 ringgit each, putting the total deal at up to 1.73 billion ringgit (US$406 million), added IFR, a Thomson Reuters publication. The company earlier requested trading of its shares to be halted, pending a material announcement. It did not disclose further information. Auto industry
The GST marks a technological leap forward for India - it will be driven by an IT back end that can process up to 5 billion invoices a month India will launch a new national Goods and Services Tax (GST) as planned on July 1, Finance Minister Arun Jaitley said on Sunday, but will let companies file late returns for the first two months so that they can adapt to a new online filing system. The GST, the biggest tax reform in India’s 70-year history, will require firms to file three online returns each month. Some business lobby groups have urged a delay to the rollout to
India’s Finance Minister Arun Jaitley
allow more time to get ready. Jaitley, speaking after a meeting of a GST coordination panel, said there would be “a slight relaxation of time” covering July and August before the strict GST filing timetable would apply from September. Companies would be able to file simplified, aggregate returns in July and August, with a deadline of the 20th of the following month, said Hasmukh Adhia, a finance ministry
official steering the launch of the tax. Once fully up and running, the GST would require companies to file a complete return of their sales invoices by the 10th of the following month, with a second of their purchase invoices by the 15th. A third return would calculate their tax bill. “Relaxation for filing transaction-wise returns in July, August ... will provide relief to the industry,” said Harishanker Subramaniam, head of indirect tax at EY India.
‘More than 6.5 million businesses have already signed up for the GST according to Finance Minister Arun Jaitley’ The GST marks a technological leap forward for India - it will be driven by an IT back end that can process up to 5 billion invoices a month. It also poses a huge challenge for larger companies to remodel their business process, while many small-time traders lack the technological knowhow to cope. More than 6.5 million businesses have already signed up for the GST, Jaitley said, more than four-fifths of those already registered to pay India’s old business taxes. At Sunday’s meeting, officials also agreed on several sets of GST rules, including anti-profiteering guidelines intended to prevent traders exploiting the reform to ramp up prices. The GST Council will meet again on June 30, the eve of the launch, Jaitley said. Reuters
Australia new vehicle sales jump to record Australian sales of new vehicles rose by the most in 11 months in May to hit the highest on record, a promising sign for a pick up in consumer spending in the second quarter. Yesterday’s data from the Australian Bureau of Statistics showed national sales rose a seasonally adjusted 2.9 per cent in May, from April when they edged up 0.3 per cent. Sales of 100,476 vehicles were up 4.9 per cent on May last year, and the highest since the series began in 1994. Sales of sports utilities rebounded by 4.1 per cent after a dip in April, while passenger vehicle sales rose a solid 3.8 per cent. Manufacturing
Tokyo Steel to keep product prices unchanged Tokyo Steel Manufacturing Co Ltd Japan’s top electric-arc furnace steelmaker, said yesterday it will hold its product prices steady for a fifth straight month in July to reflect flat spot prices in the local market. “We are sticking to the current prices as the domestic market remains at a standstill,” Tokyo Steel’s managing director Kiyoshi Imamura told a news conference yesterday. “But we expect the market will gradually strengthen as we are headed for a slow output period in summer and we see an increase in construction demand,” he said.
14 Business Daily Tuesday, June 20 2017
International In Brief Election
Macron’s fledgling party sweeps French parliament French President Emmanuel Macron’s trailblazing centrist party yesterday savoured an election victory that gave it a strong majority in parliament, redrawing the country’s political map and giving the young leader a strong hand to implement reforms. Although it fell short of a predicted landslide, Macron’s Republique en Marche (Republic on the Move, REM) and its allies won 350 seats in the 577-seat National Assembly after the second round of an election that eliminated many high-profile figures. The party Macron founded just 14 months ago has caused a political earthquake even if the winning score was considerably lower than the 470 seats predicted by some pre-vote surveys. Aviation
EU clears French, German aid to Airbus X6 The European Commission yesterday approved 377 million euros of French and German support to Airbus Group to develop its new X6 heavy helicopter model, saying it would contribute to research and development in the bloc. “The French and German support will stimulate considerable private investment in this project,” European Commissioner Margrethe Vestager, in charge of competition policy, said in a statement. “The support will help bring a new generation of innovative heavy helicopters to the market, without causing undue distortions of competition.” Real estate
UK property asking prices see first June fall since 2009 Asking prices for British houses and apartments fell in June, the first decline in the month since 2009, led by drops in the London area as wage growth slowed and political uncertainty rose, property website Rightmove said yesterday. The figures are based on property advertised between May 14 and June 10, covering mostly the final weeks before a June 8 national election which saw Prime Minister Theresa May unexpectedly lose her parliamentary majority. Rightmove said average asking prices for property sold on its website dropped 0.4 per cent in June, normally a month which sees a seasonal price rise, after rising 1.2 per cent in May. Diplomacy
Kuwait’s ruler calls for Gulf unity to heal Qatar rift Kuwait’s ruler called for Gulf Arab states to overcome a diplomatic dispute with Qatar that has led to the worst regional split in years, saying all parties had a duty to preserve regional unity. Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, who is leading mediation efforts after Saudi Arabia, the United Arab Emirates and Bahrain severed ties with Qatar two weeks ago, said he hoped the crisis could be solved through dialogue. In a speech marking Ramadan, Sheikh Sabah said he hoped the remaining days of the Muslim holy month would create “the atmosphere for resolving unfortunate differences and ending the rift through dialogue and communication” in the Gulf.
Divestment
Sovereign investors tweak portfolios for environmental risk A 2016 study by the London School of Economics and others put value at risk at US$2.5 trillion in a ‘business as usual’ emissions scenario of 2.5 degrees Celsius of warming by 2100 Claire Milhench
S
ome sovereign investors are reducing their exposure to fossil fuels or seeking clean alternatives to protect their portfolios from rising environmental risk. Norway’s US$900 billion sovereign wealth fund (SWF) -- itself financed by oil sales -- and the New Zealand Super Fund (NZSF) are among those adjusting investments in anticipation of tougher environmental rules or damage from the impact of global warming. Rising temperatures could lead to more violent storms and flooding, posing a threat to infrastructure and prime real estate, both favoured by sovereign investors. UN scientists say greenhouse gases are the main cause of warming and while the U.S. administration has questioned the science, many countries are introducing rules to cut emissions. Norway’s SWF, the world’s largest, is divesting from companies that derive more than 30 per cent of their turnover or activity from coal, a major source of greenhouse gases. It is also investing in alternative fuel companies such as NextEra Energy, a U.S. wind farm developer. By July the fund’s ethics watchdog is likely to recommend the fund excludes or puts on a watch list the first of several firms in the oil, cement and steel industries. The fund is also pushing companies to disclose carbon emissions and plans to handle climate change risk. “In terms of greenhouse gas emissions, we are actually expecting companies to increase reporting on it,” the fund’s chief executive Yngve Slyngstad told Reuters. “We want to have more transparency on investment plans and how they are affected.” The NZSF said last year it would set a target by the end of June to reduce its carbon footprint. “We should be able to increase our returns for the same risk, or get the same returns with less risk,” Adrian Orr, chief executive of NZSF, said in November. In an update, an NZSF spokeswoman said the fund was looking
at its passive portfolio rules and this would lead to a reduction in fossil fuel holdings. More details would be given when the changes have been made, she said. It has already invested in energy efficient glass manufacturer View and waste gas-to-fuel firm LanzaTech. France’s SWF Caisse des Depots (CDC) is also aiming to reduce the carbon footprint of its equity portfolio by 20 per cent by 2020, and is exiting companies that derive more than 20 per cent of revenue from coal. “Coal is a 19th century energy, it is not the energy of the future,” said Joel Prohin, head of portfolio management at CDC.
Counting the cost
Investors have committed to divesting some US$5 trillion from fossil fuel companies, according to Arabella Advisors, with pension funds leading the way. In June, Swedish pension fund, AP7 sold its investments in six energy-related companies it says violate the 2015 Paris Agreement, which aims to limit global warming to below 2 degrees Celsius and has pushed environmental risk up the agenda.
Key Points Norway, NZ, France SWFs leading the way on divestment Others looking to increase renewables exposure Paris climate agreement adds to pressure on investors That is despite U.S. President Donald Trump’s decision last month to take the United States out of the agreement, which attracted international condemnation. A 2016 study by the London School of Economics and others put value at risk at US$2.5 trillion in a ‘business as usual’ emissions scenario of 2.5 degrees Celsius of warming by 2100. “If you believe climate change is happening and there’s going to be a cost to that, do you pay that cost upfront as a preventative measure, or wait for the impacts to happen and then pay the bills?” said Alex Millar,
head of EMEA sovereigns at Invesco. One SWF official, speaking on condition of anonymity, said it was steering clear of Miami real estate given the risk of rising sea levels in the low lying area. “It’s very likely that in 10 years’ time the parking is going to be flooded,” he said. A 2017 Invesco study of sovereign investors found climate change was the most important environmental, social and governance (ESG) issue for those that had already incorporated ESG factors into their investment process. Seventy per cent of ESG adopters perceived an increase in long-term returns. But it also noted adoption of ESG practices was patchy, with some investors in the United States and emerging markets reluctant to commit without harder data on risks and returns.
Energy for free
The International Forum of Sovereign Wealth Funds (IFSWF) is exploring the investment implications of the global commitment to curb greenhouse gas emissions and will report back to its members in September. “Funds that are primarily funded through fossil fuel production will feel an accelerated demand to diversify as quickly as possible,” said NZSF’s Orr, who also chairs the IFSWF. Even where fossil fuel divestment is not a priority, more investors want to capture the upside in the green economy. The Abu Dhabi Investment Authority has invested in renewable energy firms Greenko and ReNew Power while Singapore’s GIC has targeted investments in electric vehicles. Ithmar Capital, Morocco’s strategic investment fund, wants to raise US$1-2 billion from infrastructure specialists and other SWFs for its Africa-focused green infrastructure fund. “Africa is contributing the least to climate change, but it is suffering the most so it needs a specific action plan,” Tarik Senhaji, chief executive of Ithmar Capital, said. Mahmood Alkooheji, chief executive of Bahrain’s SWF Mumtalakat, also described renewables as “the way forward”. “We can’t not be thinking of the environment,” he told Reuters. “For Bahrain it’s a very promising area, we have sunshine 366 days in a year ... so that’s a lot of energy being wasted. It’s energy for free so why not invest in it?” Reuters
Business Daily Tuesday, June 20 2017 15
Opinion
Credit hedge funds are missing out on wider resurgence Lisa Abramowicz a Bloomberg Gadfly columnist
T
he hedge fund industry is starting to recover from a bruising stretch. More traders are launching hedge funds, as Bloomberg’s Nishant Kumar noted Friday. Total assets have stabilized, with some strategies even experiencing marked inflows. This is a notable change from 2016, when the industry suffered its biggest withdrawals since the crisis. But one area has been notably left out of the resurgence: credit hedge funds, which have continued to lose investor money. In the first three months of 2017, relative-value funds reported US$5.4 billion of withdrawals, the most of any category, according to Hedge Fund Research Inc. data. The strategy is poised for an even bigger year of outflows than it experienced in 2016, when there was broader hedge fund carnage. This is remarkable because the category performed significantly better than broad indexes of debt last year, with a 7.7 per cent compared with just more than 2 per cent for the Bloomberg Barclays Global Aggregate Index, HFR data show. Why would investors want to withdraw now? Here’s one thesis: Institutions are less enamoured of go-anywhere, do-anything debt funds because they’re less worried about benchmark borrowing costs increasing soon. They’ve lived through a period billion US$ Withdrawals of historically low from relative-value volatility. They’ve hedge funds in Q1 become used to the idea of rates staying low for a long time and the economy continuing to chug along. In that type of period, some riskier debt will keep doing well. So instead of opting for relative-value funds that seek to provide returns that are less correlated to broad public markets, institutions are gravitating toward longerterm debt funds that invest in private debt and often hold it until it comes due. According to a recent Preqin survey, some 57 per cent of institutional investors plan to increase their investments in private-debt funds in the coming 12 months, compared with only 20 per cent who are looking to boost hedge fund allocations. These investors are also funnelling more of their cash to privateequity funds, with a similar idea of locking up their money for longer to achieve bigger returns. Investors often feel they’re getting a better deal with these private debt funds; their fees go toward traders who can seek out specific investments unknown by and inaccessible to others. This is a rarefied proposition in a world democratized by exchange-traded funds. It will take more than just lower fees to lure institutional investors back to some of these relative-value hedge fund strategies en masse. There needs to be a new pitch or a drastic shift in the macroeconomic landscape leading to more volatility and less certainty about rates. Until then, it’s easy to see how relative-value funds could miss out in a hedge fund recovery. Bloomberg Gadfly
5.4
Alibaba may have met its match in America
A
libaba Group Holding Ltd., already the largest Chinese company by market capitalization, is nothing if not ambitious. Its chief financial officer, Maggie Wu, recently told investors she expects revenue to increase by up to 49 per cent next year, a staggering prospect. But perhaps more staggering is how Alibaba hopes to get there: In part, by tapping the U.S. market. By any measure, Alibaba dominates online retail in China. Through its subsidiary TMall, it commands more than twice the market share of its largest competitor, JD.com, with 56 per cent of all Chinese e-commerce. In splashing out on more than US$21 billion in strategic asset acquisitions, Chief Executive Officer Jack Ma has humbly declared Alibaba no longer a company but an “economy.” Having branched out into cloud computing, electronic payments, news media and films, he may have a point. Yet expanding to the U.S. -- much less creating 1 million jobs there, as Ma has pledged -- will present some daunting challenges. In fact, the effort seems quite likely to fail. One problem is the company’s business model. Alibaba is often referred to as the “Amazon of China,” but this ignores some important differences. Where Amazon.com Inc. has built world-class logistics operations to speed and standardize delivery, Alibaba has opted for an asset-light approach, in which customers ship directly to other customers through third-party logistics operators with warehouses throughout China. Alibaba just provides the platform. If Ma wants to open the Chinese market to small U.S. businesses, he’ll need to expand this operation, while surmounting some serious legal and practical hurdles. Most large American companies already have operations in China, or established routes to ship goods there. Small ones won’t have the skills necessary to navigate Chinese paperwork, and shipping individual products will likely prove too costly to be worth the effort. Alibaba’s hands-off approach won’t cut it if it wants to lure new sellers on a large scale. Another problem is that Alibaba makes much of its revenue from charging sellers for traffic. Just as Google operates auctions for companies to place ads in search results, Alibaba charges sellers to direct traffic to their e-shop. But as MySpace and Yahoo! Inc. (among others) have learned, survival in the traffic-generation business requires having
“
Christopher Balding a Bloomberg View columnist
a competitive edge, and it isn’t clear that Alibaba has one with American customers. That’s because the biggest barrier for U.S. firms trying to sell in China isn’t a lack of e-commerce platforms. It’s protectionism. China’s government uses a variety of sophisticated methods to inhibit foreign competition, including requiring business and customs licenses to sell to Chinese consumers and restricting how much yuan or dollars can leave the country. Ma wouldn’t be the first ambitious businessman to attempt to open that market; they’ve been trying and failing for hundreds of years. Finally, attracting a critical mass of U.S. users will require reining in counterfeiters, who are notoriously common on Alibaba. Even if Ma were to make a more serious effort in this regard, cracking down on small Chinese manufacturers to the benefit of foreign competitors would carry political risks of its own, especially in what amounts to an election year in China. What about th e million American jobs that Ma promised to create? To put this ambition in perspective, WalMart Stores Inc. -- the largest private employer in the U.S. -- has 1.5 million workers. If Alibaba produced the same revenue per employee as Wal-Mart, that would mean exporting US$245 billion annually to China. Considering that total U.S. exports to China amounted to US$170 billion last year, it seems quite likely that the Alibaba public relations team is getting ahead of the bean counters. The unfortunate thing is that China’s demand for small-scale imports of authenticated goods really is booming, with everyone from smugglers to college students rushing to fill a surge in online orders. If Alibaba were able to link small American businesses to that expanding consumer market, it could well unlock substantial new opportunities for growth, to everyone’s benefit. But doing so will require making major changes to its business model, offering many more services, and growing more ambitious still. In other words, Jack Ma may have met his match. Bloomberg View
The biggest barrier for U.S. firms trying to sell in China isn’t a lack of e-commerce platforms. It’s protectionism
”
16 Business Daily Tuesday, June 20 2017
Closing Rating
Moody’s downgrades Australia’s top banks Australian banks,” it said. Moody’s Investors Service yesterday downgraded 12 Australian banks, including the four biggest lenders, reflecting what it called elevated risks in the household sector. Such risk was heightening the sensitivity of the banks’ credit profiles to an adverse shock, according to the ratings agency. “While Moody’s does not anticipate a sharp housing downturn as a core scenario, the tail risk represented by increased household sector indebtedness becomes a material consideration in the context of the very high ratings assigned to
Moody’s said the long-term credit ratings for Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank an Westpac Banking Corp were downgraded to Aa3 from Aa2. It reaffirmed their short-term ratings. The Australian government has taken steps in recent months to cool the red-hot property market amid concerns that speculation in housing could ultimately hurt consumers, banks and the economy. House prices in Sydney and Melbourne have more than doubled since 2009. Reuters
Social media
In China, universities teach how to go viral online “Wanghong” -- literally hot on the web -- represent an industry worth billions and so big it even has its own university curriculum Albee Zhang
A
21-year-old student walked around her campus in China using invaluable skills she learned in class: Holding a selfie stick aloft, she live streamed her random thoughts and blew kisses at her phone. Jiang Mengna is majoring in “modelling and etiquette” at Yiwu Industrial & Commercial College near Shanghai, aspiring to join the growing ranks of young Chinese cashing in on internet stardom. Hordes of Chinese millennials are speaking directly to the country’s 700 million smartphone users, streaming their lives to lucrative effect, fronting brands and launching businesses. They are known as “wanghong” -literally hot on the web -- and they now represent an industry worth billions and so big it even has its own university curriculum. At Yiwu Industrial & Commercial College, the classrooms for Jiang and the other 33 mostly female students are typically dance studios, catwalks strafed by flashing lights, and bustling makeup rooms. The skills taught include dressing fashionably, applying make-up, performing on camera, and knowing various luxury brands. “I like dressing myself up really pretty and take pictures. I feel like this major really suits me,” Jiang said. She spent 30 minutes at lunch
musing about her day to her internet audience. She was rewarded with a quick RMB60 in “virtual gifts” -- emoticons with small digital values that comprise the main income for many aspiring wanghong, at least until they go viral. “The requests and demands for our major are rising because the e-commerce industry is developing rapidly,” said Hou Xiaonan, a dance teacher. Wang Xin, 20, switched from accounting to a major in wanghong. “I have always had an idea, a dream to be on stage with the lights on me and the crowd watching me,” Wang said.
Nobodies behind US$7.7bn industry
The students are trying to follow in the footsteps of people like Wang Houhou, a self-described shopaholic, and her friend Wang Ruhan. When they began posting tips on China’s social media about good fashion and where to find it last year, the pair had no idea that their new hobby would make them money. But soon enough, the Shanghai-based duo’s posts and videos won hundreds of thousands of viewers, and retailers followed, vying for their endorsements. Like other wanghong, they are now leveraging their cyber-fame with an e-commerce fashion business which they launched earlier this month.
“I would just find a very interesting item that I would wear, and I would take weird photos of it and post it on the blog, and people really go and buy this stuff,” Wang Houhou said, almost in disbelief. Internet consultancy Analysys International estimated China’s wanghong industry was worth RMB53 billion (US$7.7 billion) last year and would double by 2018. “A nobody can suddenly become prominent and average people can become celebrities,” said Yuan Guobao, author of “The Wanghong Economy.”
A wanghong is born
The patron saint of wanghong is Shanghai’s Jiang Yilei, 30, a graduate of a top China drama academy whose low-budget comedic video rants on everything from urban life to relationships went viral last year. “Papi Jiang”, as she is known, now has 23 million followers and product endorsements including New Balance footwear and luxury watchmaker Jaeger-LeCoultre. Wanghong content is typically bland day-in-the-life livestreaming that earns small digital monetary gifts from fans.
But many wanghong are profoundly impacting China’s bustling e-commerce as retail “influencers”, said Zhang Yi, head of mobile-internet consultancy iiMedia Research Group. The phenomenon provides businesses with a powerful new, highly visual, promotional alternative and is eating into the business of Chinese internet goliath Baidu, which dominates online advertising. “Now someone will wear (the product), try it, use it, and persuade you to buy it,” said Zhang, who estimates wanghong now influence up to 20 per cent of online purchases. “It’s a booming business. Wanghong have their own followers who can easily be made consumers of the brands they recommend.” New incubator companies, formed to find and groom wanghong, are cashing in, such as Ruhan Holdings, which last year drew RMB300 million in investment from e-commerce leader Alibaba. Wang Houhou returned from studying English literature at a U.S. university last year to discover that attractive fashions she saw overseas were hard to find at home. Young Chinese women lapped up her playful posts about navigating Taobao, China’s Amazon, and other e-commerce platforms, and clothing brands began paying her and Wang Ruhan to showcase their items. “If we hadn’t started the blog, I would probably be in investment or finance,” said Wang Ruhan, 24, who never expected to be an entrepreneur so early in her life. “We have to do this without much experience and just figure out the right way to do it.” She spoke as they prepared for the launch in Wang Ruhan’s Shanghai apartment, with Ruhan dressing amateur models in various outfits and Houhou snapping pictures as music played and mist from a clothes steamer filled the air. AFP
Monetary stance
Brexit talks
Conglomerates
IMF says Japan needs to stick with stimulus
Businesses warn UK S.Korea’s antitrust chief to urge over freedom of movement change in talks with chaebol execs
The International Monetary Fund urged Japan to avoid withdrawing fiscal policy stimulus and said monetary policy should be loosened further if risks to the economy materialise, warning of weak consumption that remains vulnerable to external shocks. While the Bank of Japan (BOJ) should maintain its ultra-loose policy, it should do so by focusing on capping long-term interest rates under its yield curve control policy, the IMF said. To clarify that stance and enhance communication of its policy, the central bank should “phase out” a loose pledge to keep increasing its government bond holdings at an annual pace of 80 trillion yen (US$721 billion), it said. “The BOJ should carefully calibrate its yield curve policy, if downside risks materialise, to provide additional monetary easing,” the IMF said in its annual Article 4 evaluation of Japan’s economy. IMF Deputy Managing Director David Lipton told reporters that the BOJ’s new monetary policy framework was already showing some success by bringing down market volatility and stabilising the bond yield curve. “We’re comfortable with the stance of (BOJ) monetary policy. Recent changes to the monetary policy ... (are) the right, useful approach,” Lipton told a news conference. Reuters
Britain should ensure that employers retain access to both skilled and unskilled workers from the European Union as it begins talks to leave the bloc or there is a risk of damaging UK businesses, a research report by two think tanks said yesterday. With Britain’s negotiations on the terms of its departure from the EU beginning yesterday, the country risks skills shortages and losing business if it ends freedom of movement without a new plan for attracting workers, the report by the National Institute of Economic and Social Research and the Chartered Institute of Personnel and Development said. “If the Government does not provide a user-friendly, flexible and affordable immigration system for EU nationals post Brexit... significant numbers of employers will be forced to relocate or focus future growth outside the UK,” said Gerwyn Davies, CIPD labour market adviser. “With the Brexit negotiations starting this week, there is still little clarity on the immigration system that the UK will adopt after Brexit.” The report found that a quarter of organisations would be negatively impacted by a restriction on EU migrants to only those who have job offers. Reuters
South Korea’s antitrust chief said yesterday that he will urge powerful family-run business empires including Samsung and Hyundai to “voluntarily” reform themselves when he meets executives in the wake of a bruising political bribery scandal. Korea Fair Trade Commission Chairman Kim Sangjo said he would begin a round of meetings with top executives from the so-called chaebols as soon as this week, amid calls for better corporate governance and greater transparency. “I will pursue chaebol reforms through a positive campaign where companies voluntarily create exemplary cases,” he told reporters after his appointment last week by President Moon Jae-in to oversee the anti-trust watchdog. “I will urge them to change if they continue practices that go against the hopes of the government, the society and the market.” The government would take “appropriate action” if the conglomerates which dominate Asia’s fourth-biggest economy continued business as usual, Kim added without elaborating. Transactions among group affiliates - long claimed by critics to favour the owning families and disrupt fair competition - would be closely analysed and investigations could ensue if any wrongdoing was suspected, he said. Reuters