New Hong Kong board to lure tech start-ups Markets Page 16
Wednesday, June 21 2017 Year VI Nr. 1322 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Gaming
Neptune grants HK$20 mln mortgage loan through subsidiary Page 6
Forecast
CAGR for APAC 7.3 pct until 2021, says study Page 6
www.macaubusinessdaily.com
Investigation
Wealth
Universal says Okada made US$2 mln in improper transfers of company funds Page 7
Number of rich Mainlanders rose nine-fold in the last decade Page 8
Never-ending Storey Housing
Housing units in the pipeline were up 7.7 pct in Q1. With 503 new units obtaining licences, a 304 pct y-o-y uptick. The Peninsula will continue to supply the most new-builds, 85 pct of which will be smaller than 75 sq. m. While Taipa and Coloane focus on larger units. For public housing, the gov’t promises to open a new tender this year for units currently in the pipeline - but with no promises on division between economic and social housing. Page 2 and 5
Trying to fit in
Leather jackets and cats
Bringing the vintage style to the MSAR. With hopes for larger high-class flea market-style vintage product events. Eddie Lam, owner of the Leather Motel clothing and vintage store has a plan. But revitalising old industrial buildings will be key to popularising such venues, their weathered exteriors hiding inner gems.
Greater Bay Playing a dynamic role in technical and professional training. Pushing the MSAR to the forefront of tourism training in Asia. Acting as a centre for exhibitions and conventions in the region. And engaging Portuguese-speaking countries. So say tourism and hospitality associations. With IFT set to play a core role, not only focused on the MSAR, but the whole Greater Bay Area. Page 3
PBOC head advocates open financial industry
Vintage Page 4
HK Hang Seng Index June 20, 2017
25,843.04 -81.51 (-0.31%) Worst Performers
Galaxy Entertainment Group
+1.57%
New World Development
+0.58%
Want Want China Holdings
-2.81%
Wharf Holdings Ltd/The
Hengan International Group
+1.21%
Tencent Holdings Ltd
+0.43%
China Resources Power
-2.76%
Geely Automobile Holdings
-1.09%
+0.20%
Link REIT
-2.15%
AAC Technologies Holdings
-1.03%
28° 31° 28° 31° 28° 31° 28° 31° 28° 31°
-1.18%
China Unicom Hong Kong
+1.06%
China Shenhua Energy Co
Kunlun Energy Co Ltd
+0.93%
CLP Holdings Ltd
+0.18%
Cathay Pacific Airways Ltd
-1.45%
China Life Insurance Co Ltd
-1.03%
Cheung Kong Property
+0.73%
Belle International Holdings
+0.16%
Sino Land Co Ltd
-1.35%
PetroChina Co Ltd
-1.01%
Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Economic stance People’s Bank of China Governor Zhou Xiaochuan said China should forge ahead. To further open the financial services industry, in a signal the country may allow foreign firms greater access to the market. Protecting domestic firms from outside competition makes them lazy, he said. Which weakens them and may lead to financial instability. Page 8
2 Business Daily Wednesday, June 21 2017
Macau
Housing
Housing for all, sometime A new application round for social housing will take place in the last quarter of the year, as legislators request the government for a permanent applications system for public housing Nelson Moura nelson.moura@macaubusinessdaily.com
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he government has announced that a new social housing application period will open during the last three months of the year, fours years after the last public housing application round was held. The announcement was made by Secretary for Transport and Public Works Raimundo Arrais do Rosário during a Legislative Assembly (AL) plenary session held yesterday. With 19,000 housing units expected
to be available by the end of the year in “three buildings in Ilha Verde and two in Taipa”, the number of housing units reserved for economic and social housing will only be provided once the application process is initiated, the Secretary announced. The plenary session was held for legislators to debate a request by legislator Ella Lei Cheng I that the government implement a permanent application system for public housing requests instead of holding separate application rounds, in order to improve the efficiency and speed of allotting housing to residents. advertisement
“Currently, the government only initiates the tenders after the houses are finished. Due to the large period of time inbetween tenders, when these open the number of applications is always really large,” the legislator said. The last public housing tender was held in 2013, with more than 42,000 applications for 1,900 housing units received at the time. Economic housing gives residents the possibility of purchasing housing at a cost lower than market price. Social housing is leased by the government to residents who meet the necessary conditions. According to the most recent data provided by the Statistics and Census Service (DSEC) a total of 22,096 households were living in economic housing with 12,223 living in social housing as of August 2016, with both amounts having increased by 34.2 per cent and 108.8 per cent, respectively, since 2011.
Long and winding road
According to legislator Ella Lei, the slow speed of processing the volume of applications by the Housing Bureau, lasting two to three years, has created various problems for residents and the government. The long waiting period also does not allow the government to register the exact data on the number and type of housing that is in greater demand, creating inconsistencies between the properties developed and the housing needed by residents, she added. According to statements by representatives from the Housing Bureau
during the session, the application procedure is a “long process” that takes three months, requiring the request and evaluation of several documents before a temporary list of applicants is provided, with delays in the process primarily caused by residents not submitting all the necessary paperwork. “In almost 80 per cent [of cases], for the applications received we have to request additional information from residents,” Housing Bureau President Arnaldo Ernesto dos Santos said at the session. However, several legislators believe this problem could be avoided if a permanent system was established for the housing applications. For legislator Zheng Anting, although the news of a new application period was a “great treat”, when the new application period takes place the “usual complaints” from the Housing Bureau of lack of manpower will appear. “Why can’t applications be done online? Maybe this way the work load wouldn’t be that large […] I hope a permanent application system can be created, with a large database that that can help define the number of housing units needed and future housing policies,” he added. Secretary Rosário announced that a proposal to revise the current Public Housing Law was submitted in December 2016, with the possibility of creating a permanent application up for debate when the proposal reaches the AL. The results of a study requested by the MSAR from a private company on the demand for public housing in Macau are also expected to be received in September, the Secretary added.
Real estate
Property industry: Transactions and prices to grow 5 pct The director of the Macau General Association of Real Estate (AGSIM), Ip Kin Wa, says transactions and prices of the real estate market this year will both experience slight increases of 5 per cent, local Chinese newspaper Macao Daily reported. Ip indicated that the slight growth in the real estate market is the result of the recent rebound of the city’s
gaming industry. The comment came after the banquet on Monday celebrating the 35th anniversary of AGSIM. Although the growth prediction for 2017 is smaller when compared to the 10 per cent growth seen in previous years, Ip said that the market needs time to recover, noting that gradual recovery signifies a healthy market. C.U.
Labour
Home alone The city’s general development environment, opportunities engendered by political policies, sense of belonging and family are the positive factors that could encourage local talent currently working overseas to return to the MSAR, local Chinese newspaper Macao Daily reported. Meanwhile, factors inhibiting their return, the Talent Development Committee (CDT) revealed, are difficulties
in finding suitable careers, the lack of professional qualification systems, shortage of land, limited approach in understanding Macau’s conditions as well as the inability to adapt to life in Macau. These conclusions were arrived at after CDT interviewed local talent currently working overseas. Suggestions were put forward during the second meeting of this year, held on Monday, with the CDT research team revealing that the team will further solidify and improve the plan for further action. C.U.
Business Daily Wednesday, June 21 2017 3
Macau Greater Bay Area
We’ve got the (soft)power Suggestions from tourism and hospitality associations to develop the Greater Bay Area point to diversification within integration, and the need to invest in qualified training. IFT claims it’s on the case Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he MSAR should have a more dynamic role in technical and professional training, in becoming a centre for tourism training in Asia and a centre for the training of talent from Portuguese-speaking countries in the exhibition and conventions industry. These were some of the ideas expressed by several associations engaged in the tourism and hospitality business, which had been invited to share their opinions with the Macau SAR Government in a meeting held early this week, according to official information. The initiative is linked to the recent call for public consultation on the ‘Planning and Construction of the Metropolitan Area of the Greater Bay Guangdong-Hong Kong-Macau,’ which the government launched last week (and runs until June 28). Directors and representatives from various associations of tourism, restaurant establishments and food businesses, exhibitions and conventions, and cultural and creative industries gathered at the Policy Research Office (GEP) to discuss ways of encouraging the integration of Macau within the Greater Bay Area.
One of the main topics raised by the associations during the event concerned the question of training, with the associations pointing out the need of investing more in the training of human resources, while calling attention to the lack of human capital in small and medium-sized enterprises, according to the official information.
Training
On the matter of education and training for tourism services, a spokesperson for the Institute for Tourism Studies (IFT) contacted by Business Daily said that the institution, “being a government [one],” is aware of the Greater Bay Area initiative and involved within the framework of developing Macau as a “tourism education centre.” Explaining that a reference to this aspect has already been made by the Chief Executive in his Policy Address this year, in which he “especially mentioned IFT,” the Institute’s spokesperson added that a proposal on their part is currently being developed. Overall, what could be advanced at this stage is that “IFT will focus not only on the training of [its] students but also on the training of Greater Bay Area-related people.”
IFT was not part of the group invited by the MSAR Government to take part in the meeting held on Tuesday since its focus was mainly on the associations operating within the sector, according to further information provided by the Macao Government Tourism Office (MGTO).
Focus on soft power
The official information indicates that among the various ideas offered by tourism professionals and representatives participating in the meeting with the government, the common thread underlying their suggestions was to ‘strengthen Macau’s soft power.’ The term was not further defined. On the one hand, associations have highlighted the importance of reflecting on ways of developing Macau’s maritime economy, cultural heritage
tourism, and taking advantage of it as a city of gastronomy. On the other, a focus on logistics and infrastructure was also voiced, in order to enable the transformation of the Greater Bay Area into an ‘important tourist destination,’ and to foster co-operation among different cities in the region in order to develop tourism itineraries on a format called ‘one trip, various destinations.’ Business Daily has contacted several of the associations invited by the government, such as the Macau Hotel Association, the Travel Industry Council of Macau, and the Macao Convention and Exhibition Association. Although their spokespersons have all confirmed each association’s participation in the event, none of the representatives involved was available for comment yesterday. advertisement
4 Business Daily Wednesday, June 21 2017
Macau
Culture
Bringing vintage back With a passion for vintage clothing, in particular leather jackets, Eddie Lam set up the Leather Motel store in an industrial building in a little visited part of town, confronting difficulties but forging ahead with a passion to expand the vintage scene in the MSAR Cecilia U cecilia.u@macaubusinessdaily.com
E
ddie Lam, the owner of Leather Motel, founded his store in an industrial building located in Areia Preta in the northern part of Macau, in 2014. Inside the shop visitors can find a variety of leather jackets for men and vintage furniture, as well as products for cat lovers. Although initially focusing solely on leather jackets and vintage furniture, “I also added products for cats which is one of my interests, too,” Mr. Lam said. A stark contrast between the clean and orderly interior of the shop and the facade of the industrial building, the shop is also in an area without much foot traffic, which Mr. Lam acknowledges is the greatest challenge for his business. But Lam points out that there are pros and cons as the real estate market continues to grow rapidly. “I need to put more effort into promotions and advertising, which also allows people to know that there are such places in industrial buildings,” said Mr. Lam, adding that Macau’s
progress in revitalising deserted industrial buildings is seriously lagging behind when compared to Hong Kong. “In Hong Kong, they’ve done a pretty good job in revitalising industrial buildings,” he commented. “I’ve visited several industrial buildings in Hong Kong and many of these deserted buildings were being completely refurbished, including the reception, lifts and corridors [...] everything is being renewed well.” For his building, Lam points out that no official work has been done on it since 2014. Fortunately, however, the store is owned by Lam’s family, eliminating the burden of potentially being evicted once the rental contract expires or the price drastically increases.
Keep deserting
Although the shop displays very high quality products, Lam conceded that the condition of the industrial building where his store resides is poor. The two lifts for customer use in the industrial building are both out of order, with no repairs made given that the majority of owners refuse to pay.
“The management office of the building said every one of the units just needs to pay some MOP300 (US$37.3) for repairs,” said Mr. Lam. “There is this paper posted but less than 3 per cent of people are willing to pay the amount.” He also found it problematic that it is not possible to anonymously lodge complaints about the matter with government departments. “The government should get to know that there are businesses like us that exist in other industrial buildings”, and by learning more about the businesses, begin to “pay some attention to the monitoring of the buildings’ owners committees,” he said. “The government has been advocating reviving industrial buildings but it seems that they are merely paying lip service.”
Let’s go vintage
Mr. Lam has been co-operating with two other partners, who are also in the business of selling vintage fashion products, to organise a Flea Market as an avenue for promoting the vintage culture. Given that the shop occupies some 3,000 square feet, the first three events were held in his own store although the shop owner says he would also rent out part of his store for other events, such as a venue for yoga classes or music shows. The Flea Market, explained Lam, seeks to gather local brands and people who are very interested in certain areas of vintage items, to spread the
idea and expose more people to the movement. The events have also invited brands from Hong Kong, Taiwan and Japan. “The reason for creating this Flea Market is a culture,” said Mr. Lam. “Even if any of these participants do not produce any of their own brands, they could be like me who really have great interest in leather jackets, or vintage fashion, anything that they are fond of, but not those things that you buy because most people are buying them.” Unlike the Tap Seac Art Fair, Lam said the average price of products sold in flea markets is not low. “Most people who go to the Flea Market know the average price of our products and so we attract customers who are well informed in this area,” said Mr. Lam. “Therefore, it’s sort of like a niche market.” The plan, reveals Mr. Lam, is to continue to grow the event. “We wish to make this a bigger event, like in Japan [where] they have these outdoor events in which there are vintage cars and vintage products being sold, with live performances.” Having branched out beyond the shop itself, holding one edition of the Flea Market in the Albergue SCM, in St. Lazarus district, Lam revealed that they are currently negotiating with an educational entity for a bigger venue for the event. “The discussion is still ongoing and we wish to have the decision within this year,” said Mr. Lam. Since the three organisers have already set up an association dedicated to the flea market concept, they are trying to obtain some support from the government for the events. “But for now, we still need to demonstrate the work that’s currently being done for the government to show that we deserve the support,” he remarked.
Business environment
Talking about the business environment in Macau, Mr. Lam commented that it is unilateral, in particular the promotions of the government. “Even now, many locals think there are more choices for shopping in Hong Kong than in Macau,” said Mr. Lam. On the flip side, when local businesses want to attract foreign clients, most of these foreigners only know of Macau as a place to gamble. Name: Leather Motel Address: 45 Estrada Marginal da Areia Preta Centro Polytex Building, 3rd Floor F, Macau Opening hours: 10:00am – 7:00pm
Business Daily Wednesday, June 21 2017    5
Macau Housing
Crowded Peninsula Coloane housing units tend to be small or large, with no inbetween, while those on the Peninsula are more numerous but smaller. Taipa housing units in planning were mostly T3 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
P
rivate housing units in the pipeline during the first quarter of the year hit 22,063 units, a 7.7 per cent uptick in the apartment units still at the project stage, according to the most recent data from the Transport and Public Works Bureau (DSSOPT). Meanwhile, the number of building units that obtained their licences during the first semester of this year rocketed to 513, a 304 per cent year-on-year increase. The units were divided between nine separate building projects, with the buildings in the project phase totalling 208. Buildings currently under construction or finished but not yet licensed amounted to 96, with a total of 11,531 units available, according to the data.
Macau
The Macau Peninsula continued to be the development
hub of the MSAR, with 7,423 units currently under construction in the first semester. These were primarily concentrated in units smaller than 75 square metres, making up 85 per cent of the units under construction, at 5,976. According to classification type, 85 per cent of the units under construction were T2 (two bedroom) or smaller, while only 15 per cent were classified as T3 or over. Of the competed units on the Peninsula during the first quarter, 95 per cent were classified as T2 or less, with 79.7 per cent of the units smaller than 75 square metres. No units over 150 square metres were completed during the quarter. Units with a licence for usage on the Peninsula reached 512 during the quarter, with 87 per cent of the units T2 or smaller. During the same period a total of 182 parking spaces for light vehicles and 164 spaces for motorcycles were finished, with 317 light vehicle and 205 motorcycle parking bays licensed for
use in the first quarter on the Peninsula. A further 13,015 parking spaces for light vehicles and 4,652 spaces for motorcycles were at the planning or construction stage in the period.
Taipa and Coloane
Taipa continued to be predominantly planned for larger apartment units in the first quarter, with 57.3 per cent of the units at the planning stage classified as T3 or larger, while 66 per cent of the units planned at between 75 and 150 square metres. There were no finished units with licences for use in Taipa in the first quarter, while one housing project with 125 units was finished but not licensed, with all of its units T2 or smaller and under 75 square metres. Coloane had a further 3,520 housing units at the planning stage during the period in question, with 51.4 per cent of the units larger than 150 square metres, and 53 per cent classified as T3 or larger. Only 516 units, or 14.7 per cent, were between 75 and 150 square metres in size, while 33.9 per cent were smaller than 75 square metres. One building was licensed for use in the first semester in Coloane, with a total of one unit, classified as a T2, while one was completed but not yet licensed and larger than 150 square metres.
In total for the two islands, zero parking spaces were completed and licensed during the period, while just 19 parking spaces for light vehicles and six for motorcycles were completed, all in Taipa. Those under construction totalled 1,891 for light vehicles in Taipa and 987 in Coloane,
with 448 for motorcycles in Taipa and 355 in Coloane. Light vehicle parking under planning during the period amounted to 12,319 spaces, with 61 per cent located in Taipa. Motorcycle units totalled 3,146 on both islands, with 50.9 per cent in Coloane. advertisement
6 Business Daily Wednesday, June 21 2017
Macau Opinion
José I. Duarte* Public complaints The Executive Council announced in a press conference the approval of new rules to deal with complaints made by public servants, concerning the actions of public services or other officials. This is inevitably a sensitive matter, dealing with critical aspects of the internal workings of any public administration. The media reports on the presentation raises interesting questions and suggest some clarification would be forthcoming. We will focus here not on the detailed provisions of the new legal document but on the way some aspects deserved (or not) a special reference during the presentation. In the first place, the new regulation objective is to ‘complement the existing systems’. However, there was no effort to explain why the existing regulations were not enough or appropriate, and why this this specific ‘bit’ of additional legislation was necessary. Unless the media disregarded such information, that is a significant omission. When new legal rules and obligations are introduced, a basic element of that presentation should be an explanation of their rationale. Why are they needed? What in the existing system was missing, performing badly or required improvement? How do the new rules specifically address the perceived weaknesses or difficulties raised by the extant situation? Second, it was strongly underlined that no anonymous complaints would be entertained. I’m largely sympathetic to that principle based upon general ethical terms, with the occasional exceptions due to very specific circumstances. However, the way it was justified in this particular case does not seem to outlast a commonsensical analysis. On the contrary, it may raise suspicions, regardless of the intentions, about its ulterior motives. ‘Complaints must not be anonymous because they may involve only two persons […] we need to know who those two persons are’. This argument does not seem to hold much water. If a complaint is specifically about two persons, whether it was made anonymously or not does not change the fact that, by definition, you know who the persons are. If and how it is justified to follow such complaint are separate matters. A corollary to the argument might be that whenever more than two persons are involved an anonymous nature of a complaint would cease to be problematic – and that would hardly be a reasonable proposition either. So the puzzle is: why invoke a pointless extreme or exceptional situation to justify a general rule to which it does not apply, and that might even justify the opposite? *Economist and permanent contributor to this newspaper.
Cinema
Macau and Shanghai buddy up for the silver screen A co-operation agreement has been signed between the Film Festival and Awards Macao Organising Committee and Shanghai International Film & TV Festivals Co., Ltd. in order to increase movie projects business opportunities between the MSAR and Shanghai Nelson Moura nelson.moura@macaubusinessdaily.com
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MSAR delegation has participated in the 20th Shanghai International Film Festival in order to promote the 2nd International Film Festival and Awards Macao (IFFAM) and ink an agreement for co-operation in movie production between the two cities, a release from the Macao Government Tourism Office (MGTO) has announced. The delegation comprised members of MGTO and of the IFFAM Organising Committee, with a promotion event held at the Crowne Plaza
Shanghai hotel promoting the local festival, slated for December 8-14. During the event a co-operation agreement was signed between the IFFAM Organising Committee and Shanghai International Film & TV Festivals Co., Ltd. to set up a co-operation system for exchange between the movie sectors of the two cities. MGTO Deputy Director Cecilia Tse stated that the agreement will take more movie investment projects from Macau to Mainland China, increasing business opportunities for the local movie industry. Mutual trips for film professionals will also be organised in order to incentivise the filming of movie
productions in the MSAR. “It is our intention to create a system that includes professionals, films and capital of the two regions, in order to provide opportunities for the young filmmakers of Macau to enter the Mainland market, while attracting promising Chinese filmmakers to share ideas in Macau,” Wang Ye, Deputy General Manager of Shanghai International Film & TV Festivals, said at the event.
Casinos Gambling market in the Asia Pacific region expected to increase
by a compound annual growth rate of 7.3 per cent until 2021
A casino kingdom Despite growth in the online sector, traditional casino sites will still represent the majority of the gaming market until 2021, a report indicates Nelson Moura nelson.moura@macaubusinessdaily.com
The gaming market in the Asia Pacific (APAC) region will increase by a compound annual growth rate (CAGR) of 7.31 per cent until 2021, a report conducted by market research company Technavio concludes. The study - ‘Report of Gambling Market in APAC 2017-2021’ - details the market landscape and its
growth prospects over the coming year by analysing major factors such as drivers, opportunities and industry-specific challenges. The research summary describes the APAC market as ‘highly competitive and fragmented due to the presence of several established vendors’, identifying MGM Resorts, Sands China, and SJM Holdings as the ‘key vendors’ in the region together with online gambling company 888 Holdings.
The report states that sports betting is currently ‘extremely’ popular among the younger segment and in countries where gambling is partially allowed due to the diversity of games the sector provides and its incentives, apart from cash prizes, attracting gamblers from a younger market. ‘Online gambling has enhanced the accessibility of the customers, and the governments in various parts of APAC are legalising portions of gambling due to its economic benefits,’ the study indicated. However, despite the growth in online gambling the study considers that the ‘increasing number of tourists visiting APAC for gambling is fuelling the growth of the market in the traditional gambling segment’. The report believes that although online gambling advantages such as allowing at-a-distance betting and its convenience, traditional gambling will still account for the majority of the market share up to 2021, with the lottery segment in particular set to grow more than 9 per cent in the next four years. With casinos considered ‘one of the favourite tourist destinations and the most popular recreational spots,’ and with an increase in the number of new properties with more diverse gaming equipment, the study authors opine that the casino segment will still account for the ‘major share’ of the gambling market in APAC until 2021.
Loans
Neptune consolidating lending business Neptune Group Limited, a junket operator in Macau, has entered into a mortgage loan agreement worth HK$20 million (US$2.56 million/ MOP20.6 million) with two individual borrowers via its subsidiary, the company indicated in a filing with the Hong Kong Stock Exchange on Monday after trading hours. The loan will be provided to the customers, who are independent third parties, by a wholly-owned subsidiary of the company, Top Vast, in two tranches of HK$10 million, to be drawn on June 19 and July 29, 2017. The first tranche should be repaid on or before June 19, 2019, and the second on or before July 29, 2019, at an interest rate of 15 per cent per
annum for a term of 24 months. The loan is collaterised against the estate provided by the customers – a residential property located on Hong Kong Island valued at HK$77 million. Since the end of 2016, Neptune
has started diversifying its portfolio by engaging in the money lending business. The company has recently seen terminated the operation of 14 VIP tables in The Venetian Macao – through subsidiary Hao Cai Sociedade Unipessoal Limitada – effective June 30, 2017. S.Z.
Business Daily Wednesday, June 21 2017 7
gaming Investigation
Japan’s Universal says chairman made two improper transfers Universal said in the statement that both transactions were carried out without the necessary internal procedures and may constitute a “serious violation of governance” Nathan Layne
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apan’s Universal Entertainment Corp said on Monday that an internal investigation uncovered US$2 million in improper transfers of company funds by Chairman Kazuo Okada, a disclosure that followed its claim earlier this month of an improper US$17 million loan that benefited Okada. Okada could not be reached for comment. David Krakoff, a lawyer for Okada in an unrelated legal case in the United States, did not respond to a request for comment. Universal previously disclosed that Okada, who founded the company five decades ago and built it into one of Japan’s largest makers of slot and pachinko gambling machines, would not be reappointed as a director when shareholders vote on board members later this month. Okada has played a leading role in developing, managing and promoting a US$2.4 billion casino resort that Universal opened in Manila this year. Universal has said it does not believe the investigation will impact its business. The statement issued on the
company’s website on Monday said that the company had found that a wholly owned subsidiary of Universal in South Korea, Universal Entertainment Korea Co., Ltd, had disbursed US$170,000 related to a US$80 million loan taken out by Okada Holdings Ltd for a land transaction in 2014. Okada Holdings, which is controlled by Okada and his relatives, is majority owner of Universal Entertainment. The amount disbursed was equal to interest owed on the loan that should have been paid by Okada Holdings rather than the Universal subsidiary in South Korea, Universal said.
Potential problems
The company also said on Monday that it found Okada had in March 2015 withdrawn HK$16 million (US$2.05 million) from a bank account of Tiger Resort Asia Limited (TRA), a Hong Kong subsidiary of Universal in which Okada was the sole director at the time. Universal said in the statement that both transactions were carried out without the necessary internal procedures and may constitute a “serious
violation of governance.” In a statement on its website on June 8, Universal said it had found potential problems related to a HK$135 million (US$17.31 million) loan from TRA in 2015 to an unnamed third party. Nearly all of that amount was subsequently transferred to Okada Holdings Ltd with the objective of personally benefiting Okada, the company said. Separate from the recent allegations, Okada and his companies have been under investigation by the Federal Bureau of Investigation over a US$40 million payment to a Manila-based consultant in 2010. The
FBI’s probe is focused on whether the payment was aimed at helping Universal gain tax and ownership concessions for the casino from the Philippine government, according to people with knowledge of the matter. Universal and Okada have denied any wrongdoing and filed a defamation lawsuit against Reuters in 2012 for its reporting on the payments. The Tokyo District Court ruled in 2015 that Universal’s case was without merit. Last year the Tokyo High Court upheld that ruling, dismissing Universal’s appeal. Universal has appealed to the Supreme Court of Japan. Reuters advertisement
8 Business Daily Wednesday, June 21 2017
Greater china Central bank
PBOC governor says protectionism hurts financial sector Zhou said some people keen to limit foreign participation in the financial sector were “focused on their own interests” and not doing Chinese financial institutions any favours Andrew Galbraith and Winni Zhou
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ealthy financial institutions are a prerequisite for preventing a financial crisis, and further opening will help build a strong and competitive financial sector, China’s central bank governor Zhou Xiaochuan said yesterday. Speaking at an annual forum in Shanghai, Zhou focused on broad reforms and competition, but did not discuss more immediately pressing policy challenges like managing the yuan exchange rate or balancing efforts to “de-leverage” the economy and encourage growth. Zhou said some people keen to limit foreign participation in the financial sector were “focused on their own interests” and not doing Chinese financial institutions any favours. “From the experience of
many countries, including our own, protections will lead to laziness and weakness... protectionism will lead to weak competitiveness and will hurt the industry’s development, and (make for) unhealthy and unstable
markets and institutions,” he said. The financial services industry had benefited from opening up, and must continue to do so, he said at the start of the Lujiazui Forum in China’s finance hub. While the government has opened parts of the financial sector to foreign participation, non-Chinese firms still face a range of restrictions on both investment and business. Analysts say the risks to China’s financial sector and
the broader economy have grown as debt has soared. Maintaining healthy financial institutions was key to defending against a financial sector crisis, Zhou said. As part of efforts to lift the yuan’s status as a globally significant currency, China’s long-planned international payment system for cross-border yuan settlement would “soon” be based in Shanghai, Zhou said. The China International Payments System, or CIPS, would replace a patchwork
of networks and allow hassle-free yuan payments. China has been keen to turn the yuan into a global currency, but its efforts have been stymied by a string of capital control measures aimed at easing depreciation pressure in recent months.
“From the experience of many countries, including our own, protections will lead to laziness and weakness” Zhou Xiaochuan, China’s central bank governor
The yuan lost about 6.5 per cent of its value against the dollar last year and economists had expected further depreciation this year, but capital controls, a weaker dollar and other steps by the authorities have bolstered the value of the Chinese currency. Reuters
Zhou Xiaochuan, China’s central bank governor
Financial markets
Funding scramble squeezes borrowers despite PBOC injections Rapid expansion of lending by mid-sized banks over the past several months has eaten up their liquidity cushions Andrew Galbraith and Samuel Shen
Generous money injections by China’s central bank are helping to maintain some calm in the country’s financial markets, but market rates are persistently high, reflecting worries that liquidity conditions remain unusually tight. Rates on 14-day repos climbed to 5.3 per cent on Monday, their highest late April, showing that a large gap remains between the supply of funding and demand from banks. Liquidity conditions are typically tight in China in June due to tax payments and as companies look to make their balance books look healthier at the end of the month and quarter. A rigorous quarterly inspection by the People’s Bank of China (PBOC) is also prompting banks to hoard cash. This year, a regulatory clampdown on riskier forms of financing, particularly between banks and non-financial institutions, has created additional strains on the system. “Liquidity is tight toward of the end of the month, and there’s high demand for borrowing that spans into next month, which is why you see the 14-day rates are pretty high,” said a trader at Xiuwu Rural Commercial Bank, a small lender in China’s central Henan province, who is borrowing RMB100 million (US$14.64 million) from the market for 1-14 days. But she said the PBOC’s recent money injections had helped to ease market stress. The PBOC injected a net RMB110 billion into money markets on Monday through a combination of
seven-day, 14-day and 28-day reverse repos, traders said, bringing net injections through regular open market operations since the end of May to RMB540 billion, according to Reuters calculations.
“I think the market may be relying on the authorities’ relaxation, or the PBOC’s liquidity injections, too much” David Qu, market economist at ANZ in Shanghai That is in addition to an injection of RMB498 billion into the financial system through the PBOC’s medium-term lending facility (MLF) loans earlier in June, more than offsetting the RMB431.3 billion of MLF loans maturing this month. The PBOC had been actively draining funds from the system earlier in the year and has been pressing banks to deleverage as part of a concerted campaign by Chinese authorities to contain risks in the financial system from a rapid build-up in debt. The closely watched three-month Shanghai Interbank Offered Rate
(SHIBOR) was at 4.74 per cent on Monday, just four basis points below a two-year peak last Wednesday. The three-month SHIBOR rate has risen more than 45 per cent since the beginning of 2017, eclipsing the PBOC’s benchmark lending rate of 4.35 per cent. “Because of the liquidity injections by the PBOC, we have seen the market sentiment improving over the past couple of weeks, but if the imbalance between assets and liabilities cannot be solved, we still see strong pressure on SHIBOR,” said David Qu, market economist at ANZ in Shanghai. Rapid expansion of lending by midsized banks over the past several months has eaten up their liquidity cushions, forcing them to turn to an increasingly expensive interbank market for funding, Qu said. The rise in SHIBOR rates this year has been accompanied by a rise in rates paid for Negotiable Certificates of Deposit (NCDs). These short-term debt instruments, favoured by smaller banks, are not yet included in the PBOC’s Macro Prudential Assessment (MPA), the quarterly inspection of banks’ books. The rate on three-month AAA-rated NCDs was at 4.8461 per cent on
Monday, according to data from the China Foreign Exchange Trading Service (CFETS), hovering near two-year highs of more than 5 per cent last week. Zheng Lianghai, an analyst and Dongxing Securities, said that higher NCD issuance despite high borrowing costs shows that “some banks are quite desperate for money.” Despite the squeeze on borrowers, market observers don’t fear a cash crunch like that in June 2013, as they expect the PBOC to continue to supply necessary liquidity to the market. Some China watchers believe the squeeze three years ago had been triggered at least in part by the PBOC’s efforts to encourage more de-risking at a time when conditions were already seasonally tight. The resulting spike in borrowing rates roiled domestic and global financial markets. But there is a risk in banking on continued PBOC support, said Qu. “I think the market may be relying on the authorities’ relaxation, or the PBOC’s liquidity injections, too much,” he said, noting that deleveraging remains a priority for regulators in the medium term. “Sooner or later they will start deleveraging again ... you cannot win a bet on relaxation.” Reuters
Business Daily Wednesday, June 21 2017 9
Greater China Survey
In Brief
Wealthy Mainlanders rise to 1.6 mln in past decade The growth rate of China’s private wealth market, however, is expected to decline to 14 per cent in 2017 to a total size of RMB188 trillion The number of high net worth individuals (HNWIs) in China has risen nearly 9 times since a decade ago, a private survey released yesterday showed, as strong growth in the world’s second-largest economy has spurred wealth creation. Chinese with at least RMB10 million (US$1.47 million) of investable assets hit 1.6 million in 2016, up from 180,000 in 2006, according to the 2017 China Private Wealth Report by Bain Consulting and China Merchants Bank. The overall value of the private wealth market increased to RMB165 trillion in 2016, growing at 21 per cent annually in 2014-2016.
But the growth rate of China’s private wealth market is expected to decline to 14 per cent in 2017 to a total size of RMB188 trillion. Around 120,000 HNWIs had at least RMB100 million worth of investable assets, up from less than 10,000 people in 2006. The percentage of HNWIs with overseas investment increased to 56 per cent in 2017, up from 19 per cent in 2011, but the overall percentage of assets invested overseas has stabilised since 2013. The top five destinations for overseas investment were Hong Kong, the United States, Australia
and Canada although Hong Kong’s popularity fell 18 per cent and the United States dropped 3 per cent from 2015 to 2017. Respondents said their top three reasons for investing overseas were to diversify investment risks, to capture market opportunities of overseas investments and to migrate.
‘Sixty-three per cent of rich Chinese rely on financial service providers to manage their domestic financial assets’ Sixty-three per cent of rich Chinese rely on financial service providers to manage their domestic financial assets and among them, around half use private banking services provided by commercial banks. China’s wealthy are concentrated in major cities and coastal areas, the survey found, but now 22 Chinese provinces have at least 20,000 HNWIs. Most respondents said their top priorities. were “wealth preservation” and “wealth inheritance”, in contrast to 2009 when nearly half of HNWIs surveyed said “wealth creation” or “quality of life” were their main goals. Reuters
Diplomacy
U.S. tries to use better Beijing ties to press North Korea While China has tightened controls on trade in North Korean coal, many experts say it is not ready to truly enforce any sanctions that might threaten the stability of its unpredictable neighbour Dave Clark
Washington will host two of China’s most senior officials today to deepen the dialogue between the world’s greatest powers and test Beijing’s willingness to turn the screw on North Korea. President Donald Trump’s administration has had mixed results in its efforts to shake up U.S. foreign policy, but officials feel they have made inroads with China that could prove productive. In April, Trump hosted China’s President Xi Jinping at his Mar-a-Lago resort, dropping his harsh campaign comments about Beijing and hailing the dawn of “a very, very great relationship.” Last month, Beijing and Washington signed a limited deal to open new markets for each other’s exports and a long-standing friend of the Chinese leadership, Iowa Governor Terry Branstad, was confirmed as ambassador. But tensions remain -- particularly over China’s building of artificial islands in disputed South China Sea waters -- and the White House dearly wants Beijing to rein in Kim JongUn’s isolated North Korean regime. Today, Secretary of State Rex Tillerson and Defense Secretary Jim Mattis will welcome State Councillor Yang Jiechi and General Fang Fenghui, chief of Chinese army staff, to the State Department. Susan Thornton, the U.S. acting assistant secretary of state for East Asian and Pacific affairs, said this first edition of the new “U.S.-China Diplomatic and Security Dialogue”
would focus on North Korea. “We continue to urge China to exert its unique leverage as North Korea’s largest trading partner, including by fully implementing all UN Security Council sanctions,” she said, referring to efforts to halt Pyongyang’s nuclear program. Despite international condemnation and sanctions, North Korea has built a small nuclear arsenal and is developing nuclear-capable ballistic missiles that could threaten Japan, South Korea and -- one-day -- even some U.S. cities. Washington has some 28,000 troops deployed in South Korea and has a naval armada in the region but has limited diplomatic or economic leverage over Kim.
Prisoner in a coma
Last week, what initially seemed a gesture of goodwill by Pyongyang -the release of a detained U.S. tourist -- turned sour when it was revealed that 22-year-old Otto Warmbier had been brain damaged and in a coma
for some time. Warmbier died on Monday after returning to his hometown in Ohio. Trump’s White House made halting the nuclear threat its number one foreign policy priority, putting aside concerns over China’s trade imbalance with the United States to seek Beijing’s help in facing down Kim. But while China has tightened controls on trade in North Korean coal, many experts say it is not ready to truly enforce any sanctions that might threaten the stability of its unpredictable neighbour. “We’re going to be focusing, as I said, on particularly on the urgent threat posed by North Korea, and we expect that that will take some time,” Thornton said. “We don’t expect that we’ll resolve that problem on Wednesday. But we hope that some of the other issues we’re tackling, like military-to-military confidence-building measures -– we might make some progress there.” The chairman of the U.S. Joint Chiefs of Staff, General Joseph Dunford, agreed that the few short weeks since the Mar-a-Lago summit was probably too short to be able to tell whether China is ready to isolate Kim.
If deterrence fails
He said the Pentagon would maintain lines of communication with the Chinese military to head off any escalation in the South China Sea -- but keep this separate from the diplomatic effort on North Korea. “Secretary Tillerson has said that a key element of any success we would have in de-nuclearizing the peninsula would be the cooperation of China,” he said. “The military dimension today is in support of the diplomatic and economic effort led by the State Department and at the same time we have an effective posture in the region to deter KJU (Kim) and also to respond in the event that deterrence fails.” AFP
CK Hutchison
Li Ka-shing will announce retirement “when he decides” Hong Kong conglomerate CK Hutchison Holdings Ltd, the ports-to-telecoms group, brushed off talk of an imminent retirement for chairman Li Ka-shing, saying yesterday that the tycoon was in “very good health”. Yet the company, whose assets include mobile phone company 3 Group, stopped short of denying a report in the Wall Street Journal that said Li had told associates he planned to step down as chairman by next year, when he turns 90. “Mr Li has from time to time talked about his retirement and his confidence in (deputy chairman) Victor (Li Tzar-kuoi) to lead the company,” a company spokesman said in an email. Property
Hailan says unable to reach chairman Chinese property developer Hailan Holdings Ltd said it has been unable to make contact with its chairman Yeung Man since last Friday but the company’s operations were “normal and stable”. It has appointed Chief Executive Zhou Li to act as chairman until further notice, it said in a filing to the Hong Kong bourse late on Monday. Hailan, a relatively small Chinese firm with a market capitalisation of US$167 million, is headquartered in Sanya, on the southern Chinese island of Hainan. It listed last July. Monetary policy
Taiwan c.bank to hold fire on rates Taiwan’s central bank is expected to leave its policy rate unchanged for the fourth straight quarter this week, as demand for the island’s tech exports keeps its economic engines firing. The government has raised Taiwan’s GDP outlook for 2017 to a three-year high on strong export momentum, while it expects inflationary pressures to remain mild. The central bank is expected to leave the discount rate at 1.375 per cent at its quarterly meeting on Thursday, all 14 analysts polled by Reuters predicted. It had cut the rate four times in a row from late 2015. C.bank survey
Business confidence index rises in Q2 Business confidence among entrepreneurs in China improved in the second quarter of 2017 from the first quarter, according to a survey by the People’s Bank of China published yesterday. Another central bank survey showed bankers’ confidence also rose in the second quarter, though 30.1 per cent of bankers believed monetary policy was “relatively tight” in the April-June period, up 9.8 percentage points from the first quarter.
10 Business Daily Wednesday, June 21 2017
Greater China Food
National pork demand hits a peak, shocking producers Chinese hog prices are down around 25 per cent since January Dominique Patton
C
hina’s frozen dumpling makers are finding there’s a quick route to winning new sales - increase the vegetable content, and cut down on the meat. This departure from traditional pork-rich dumplings is a hit with busy, young urbanites, trying to reduce the fat in diets often heavy on fast food. “They like to try to eat more healthy products once a week or fortnight. It’s a big trend for mainland China consumers, especially those aged 20 to 35,” said Ellis Wang, Shanghai-based marketing manager at U.S. food giant General Mills, which owns top dumpling brand Wanchai Ferry. For pig farmers in China and abroad, it is a difficult trend to stomach. The producers and other market experts had expected the growth to continue until at least 2026. Chinese hog farmers are on a building spree, constructing huge modern farms to capture a bigger share of the world’s biggest pork market, while leading producers overseas have been changing the way they raise their pigs to meet Chinese standards for imports. Some have, for example, stopped using growth hormones banned in China. China still consumes a lot more meat than any other country. People here will eat about 74 million tonnes of pork, beef and poultry this year,
around twice as much as the United States, according to U.S. agriculture department estimates. More than half of that is pork and for foreign producers it has been a big growth market, especially for Western-style packaged meats. But pork demand has hit a ceiling, well ahead of most official forecasts. Sales of pork have now fallen for the past three years, according to data from research firm Euromonitor. Last year they hit three-year lows of 40.85 million tonnes from 42.49 million tonnes in 2014, and Euromonitor predicts they will also fall slightly in 2017. Chinese hog prices are down around 25 per cent since January, even though official numbers suggest supply is lower compared with last year.
Rare luxury
Since China began opening up to the world in the late 1970s, pork demand expanded by an average 5.7 per cent every year, until 2014 as the booming economy allowed hundreds of millions of people to afford to eat meat more often. During Mao Zedong’s reign as Chinese leader from 194976 meat had, for many, been a rare luxury. Now, growing concerns about obesity and heart health shape shopping habits too, fuelling sales of everything from avocados to fruit juices and sportswear. “Market demand remains very
weak. I think one factor behind this is people believe less meat is healthier. This is a new trend,” said Pan Chenjun, executive director of food and agriculture research at Rabobank in Hong Kong. Sales of vegetable-only dumplings grew 30 per cent last year, compared with around 7 per cent for all frozen dumplings, Nielsen research also shows. “Demand for vegetable products keeps rising, giving us large room for growth,” said Zhou Wei, product manager at number two dumpling producer Synear Food.
Key Points Producers had expected pork demand to rise for some years Sales of vegetable-only dumplings grew 30 pct last year Catering company says it is serving less meat, more veg In April, government started new healthy lifestyle campaign China is by far the biggest market in the world for meat Guangzhou-based Harmony Catering says health is the key to reduced servings of meat to the roughly 1 million workers eating at its 300 canteens each day. Staff at the technology companies, banks and oil majors that are Harmony’s clients will consume about 10 per cent less meat today than they did five years ago, but around 10 per cent more green vegetables, according to Harmony vice president Li Huang. “It’s mainly because of media, the concept of health has entered popular consciousness,” he said. For now, it’s mostly urban and white-collar workers paying closer attention to their diets. There’s been, for example, a sharp rise in vegetarian food stations at university campuses. But the government wants a nationwide shift in eating habits. Childhood obesity in China is rocketing, and the country also faces an epidemic of heart disease, Harvard researchers warned last year. Among the problems, they blamed growing consumption of red meat and high salt intake. In April, the health ministry kicked
off its second 10-year healthy lifestyle campaign, urging citizens to consume less fat, salt and sugar, and aim for a ‘healthy diet, healthy weight and healthy bones’. By 2030, Beijing wants to see a marked increase in nutritional awareness, a 20 per cent cut in the per capita consumption of salt, and slower growth in the rate of obesity, it said in its recently published ‘Healthy China 2030’ pamphlet. Some companies have been urgently changing the mix of products they sell, going for higher-margin pork meats rather than volume. Sales of traditionally less popular lamb and beef have also been increasing. Li of Harmony Catering says although servings of pork are down, the firm is including more beef and lamb in meals. “People usually eat lean beef or lamb, like beef brisket, while with pork it’s both fatty and lean parts, like in ‘hong shao rou’,” said Beijing-based nutritionist Chen Zhikun, referring to the widely consumed braised pork dish. China’s top pork producer WH Group has been going up market, selling Western-style products in China, such as sausages and ham. A lot of this is imported from Smithfield, the largest U.S. pork producer, which was acquired by WH in 2013. Some producers say that the recent drop in pork consumption can be partly explained by sharply lower output. A prolonged period of losses during 2013 to 2015 forced farmers to cull millions of hogs, hitting supply and sending pork prices to record levels in 2016. But for a growing portion of Chinese consumers, price tags on food items are less and less important. A spate of safety scandals in recent years, many related to meat, have made urban Chinese highly sensitive to food quality. More than 80 per cent of people in China surveyed by Nielsen last year said they were willing to pay more for foods without undesirable ingredients, much higher than the global average of 68 per cent. “China is in a new stage where consumption of pork and other foods is no longer a simple matter of ‘more is better’,” said Fred Gale, senior economist at the United States agriculture department. Reuters
Markets
Guangzhou Rural Bank makes subdued HK debut after IPO Other lenders looking to go public this year include Zhongyuan Bank and Bank of Gansu, which plan to raise about US$1 billion and US$700 million respectively Shares in Guangzhou Rural Commercial Bank Co Ltd (GRCB) traded mostly flat in their debut yesterday as retail investors shied away from the largest IPO in Hong Kong so far this year, a sign of diminishing interest in financial sector listings. Banks, brokerages and other financial services firms typically account for the bulk of new listings in the city, but have only comprised 23 per cent of IPOs so far in 2017, weighed down by concerns over rising bad debt in China. The subdued first day of
trade contrasts with heavy interest in WuXi Biologics Cayman Inc, a rapidly growing contract drug researcher and development firm, that surged as much as much as 39 per cent in its debut earlier this month. China’s No.5 rural commercial bank by assets edged up to HK$5.12, compared with its IPO price of HK$5.10. The benchmark Hang Seng index was flat. GRCB priced its US$1 billion IPO slightly below the middle of its marketing range of HK$4.99 to HK$5.27 per share.
Demand from retail investors - who have a significant influence over first-day trading in Hong Kong share offerings - accounted for 0.45 times the number of shares on offer in the deal, the lender said in a securities filing on Monday, underscoring weak appetite for the deal. The institutional tranche was moderately oversubscribed. The deal is the second by a rural commercial bank in Hong Kong this year, following a $446 million listing by Jilin Jiutai Rural Commercial Bank Corp Ltd in January. Other lenders looking to go public this year include Zhongyuan Bank and Bank of Gansu, which plan to raise about US$1 billion and US$700 million respectively. Reuters
Business Daily Wednesday, June 21 2017 11
Asia Household debt
Australia’s central bank frets on financial stability Super-easy policy stance contrasts with global central banks in the mood to nudge interest rates higher
A
ustralia’s central bank ramped up its rhetoric on financial stability risks amid runaway property prices and soaring household debt, a threat that prompted ratings agency Moody’s to downgrade the country’s biggest banks this week. Fears over the effects of a sharp correction in the housing market mean interest rates in Australia are likely to stay at an all-time low of 1.50 per cent for a considerable time - even as some global central banks turn hawkish. The Reserve Bank of Australia (RBA) last cut interest rates in August 2016. It has since stood pat, juggling the risks of record household debt, tepid inflation and weak consumer spending. RBA board members spent considerable time at their June policy meeting discussing the relationship between financial stability and monetary policy. They even reviewed the academic literature and policy experience
in a number of countries, including Sweden and the United States. “This highlights the focus of monetary policy at present, with considerations around financial stability trumping almost everything else including sub-target inflation,” said Su-Lin Ong, head of economics at RBC. “This will keep housing, lending, and credit growth dynamics firmly in the spotlight and at top of the RBA’s list as it ponders the appropriate stance of policy.” Australia’s household sector is under severe strain with debt-to-income at a record high 189 per cent while wages are crawling at the slowest pace ever. The share of national income going to households has shrunk to its smallest since 1964 while the savings rate has fallen to a 10-year low. That is one reason the RBA is unlikely to hike official rates in coming months because to do so would push up mortgage costs for already indebted Australian families.
Yet it fears easing further might only encourage more borrowing by investors to speculate in the housing market. Australia’s super-easy policy stance contrasts with global central banks in the mood to nudge interest rates higher. Three of eight policymakers at the Bank of England voted last week to raise rates, while the Bank of Canada surprised by suddenly holding out the prospect of hiking rates to damp down Canada’s red-hot housing market. “The bank has responsibility
for promoting financial stability within its flexible medium-term inflation targeting framework,” the RBA said yesterday. “The board judged that holding the accommodative stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” Official government data yesterday pegged the value Australia’s housing stock at A$6.6 trillion, nearly four times annual gross domestic product of A$1.7 trillion.
House prices in Sydney and Melbourne - the two hottest markets - have broadly doubled since 2009. There are tentative signs of a cooling off since April following tighter regulation of lending to property investors. The RBA noted it would take time for the full effects of regulatory measures to show. Australian banks have also increased mortgage rates, out of cycle. The interest-only home loan rate for ANZ Banking Group, for example, is as high as 6.26 per cent. Reuters
Private survey
Japan business mood up, points to better Bank of Japan tankan A recent run of indicators and business activity surveys have pointed to solid exports and factory output, although wage growth and household spending remain stubbornly sluggish Tetsushi Kajimoto and Izumi Nakagawa
Confidence among Japanese manufacturers bounced in June to match a decade-high level recorded in April and is expected to rise for several months, a Reuters survey found, providing more evidence of economic recovery. Service-sector mood rose to a twoyear high, evidence of broadening confidence, although the Reuters Tankan also found that confidence was seen slipping over the next three months. The readings in the Reuters’ monthly poll - which tracks the Bank of Japan’s (BOJ) closely watched quarterly tankan - suggested a slight improvement in the central bank’s survey due July 3, which would support the BOJ’s upbeat economic outlook. The central bank kept monetary policy steady on Friday and upgraded its assessment of private consumption for the first time in six months, signalling its confidence in an export-driven economic recovery that
is gaining momentum. In the poll of 526 large- and midsized firms, conducted between June 2-15 in which 250 responded, the sentiment index for manufacturers rose to 26 from 24 in May, led by materials firms such as oil refinery/ ceramics and textiles/paper.
Key Points Manufacturers’ sentiment index +26 in June vs +24 in May June service-sector index +33 vs +30 in previous month Manufacturers’ mood seen up ahead, service sector down Reuters Tankan indicates slight improvement in BOJ tankan
The index matched April’s reading, which was the highest since August 2007, shortly before the global financial crisis. The index was up by one point from three months ago,
and it was seen rising further to 29 in September. “Machine tool makers, who are our main clients, are performing well for both external and domestic markets. The situation is good because currencies remain stable,” a manager of a nonferrous metal firm wrote in the survey. A recent run of indicators and business activity surveys have pointed to solid exports and factory output, although wage growth and household spending remain stubbornly sluggish despite a tightening job market. The Reuters Tankan service-sector index rose to 33 from 30 in May, led by gains in real estate/
construction firms and wholesalers. It was seen slipping to 28 in September. Compared with three months ago, the sentiment index was up seven points. The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists. The BOJ’s last tankan on April 3 showed big manufacturers’ business confidence improved for a second straight quarter to hit a one-and-ahalf year high, and service-sector sentiment improved for the first time in six quarters. Reuters
12 Business Daily Wednesday, June 21 2017
Asia Outflows
Thai firms bypass military rule to invest record amount abroad The top destinations were countries in Southeast Asia, particularly Cambodia, Laos, Myanmar and Vietnam Karl Lester M. Yap and Joyce Koh
B
ogged down by policy uncertainty under military rule, companies in Thailand are spreading
out. Thai businesses invested a record US$13 billion abroad in 2016, dwarfing inflows of US$1.6 billion, according to the United Nations Conference on Trade and Development. In contrast, companies in Singapore and Indonesia cut investment overseas last year, while deals by Malaysian firms slumped to the lowest in a decade. Three years after the military seized power in a coup, Thailand’s economy is losing its might with growth rates that are lagging peers in Southeast Asia. As consumers rein in spending, companies including Asia’s biggest cement maker, Siam Cement Pcl, are turning to overseas markets. Investment abroad totalled US$2.9 billion in January to April, according to the central bank. “With robust but moderating growth in the home market, Thai companies have been comparatively more ambitious in seeking to become regional or even global champions,” Eugene Gong, head of mergers and acquisitions for Southeast
Asia at Deutsche Bank AG, said in an email. Siam Cement, or SCG, the largest producer in Asia by market capitalization, bought a Vietnamese manufacturer of building materials in March in a deal valued at US$440 million, while BCPG Pcl, an owner of clean-energy projects, announced plans in April to pay as much as US$358 million for a stake in Singapore’s Star Energy Group Holdings. Overseas acquisitions announced by Thai companies totalled US$1.5 billion this year, compared with US$1.7 billion in the same period a year ago, according to data compiled by Bloomberg. That figure stands at almost US$48 billion in the past five years compared with US$19 billion in the previous period.
Weak sentiment
The biggest areas of investment from 2011 to 2016 were in finance, extraction of crude petroleum and natural gas, manufacturing of beverages and food, and wholesale trade, according to the central bank. The top destinations were countries in Southeast Asia, particularly Cambodia, Laos, Myanmar and Vietnam. In contrast, domestic conditions remain subdued. Consumer confidence has weakened, while private
investment has slumped this year. A stronger currency and rising cash pile are also helping to drive investors overseas. Thai companies hold about US$36 billion in cash, 44 per cent more than five years ago, according to data compiled by Bloomberg. Bangchak Petroleum Pcl, owner of BCPG, said the baht’s appreciation provides it with an opportunity to invest overseas at a cheaper cost. The downside is that revenue from abroad is lower when converted to the local currency, it said in an email. The baht, little changed yesterday, has gained more than 5 per cent against the dollar this year, the best performer in Southeast Asia. The currency was also among the few gainers in Asia in 2016.
In 2015, outward investment slid to US$1.7 billion at the same time that the currency lost almost 9 per cent. Thai companies benefit from factors like strong domestic cash flows and access to debt capital at highly attractive terms, David Aronovitch, Morgan Stanley’s cohead of investment banking for Southeast Asia, said in an email. “Business owners are increasingly confident to make significant forays overseas,” Aronovitch said. “This, of course, is due to attractive growth rates available in adjacent markets, with large populations characterized by high expected growth and attractive potential returns.” SCG sets aside about US$1.5 billion a year on capital spending for its overseas
projects in Southeast Asia, which includes a plant in Vietnam and a packaging business in Indonesia, the company said in an email. Cement plants in Myanmar and Laos started operating this year, it said. The surge in outflows is set to continue with significant investment in projects starting from scratch, said Astrit Sulstarova, an analyst at UNCTAD in Geneva. “Greenfield investment is a driving force of Thai companies’ international expansion,” Sulstarova said. “Total investment of announced greenfield projects amounted to US$15 billion in 2016, a historical high. The implementation of these projects will result in a large amount of outward FDI from Thailand.” Bloomberg News
Analysts
Moody’s downgrade of Australian banks won’t raise funding costs It also downgraded the New Zealand subsidiaries of the Australian banks in line with their parents Jamie Freed
A credit ratings downgrade of Australia’s biggest banks by Moody’s Investor Service is not expected to raise their funding costs because the new rating is in line with other ratings agencies, banking analysts said. Moody’s on Monday downgraded the four largest Australian banks to a long-term credit rating of Aa3 from Aa2, citing risks from high household debt levels after sharp property price rises. The new rating is in line with the long-term AA- credit rating that Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group Ltd and National Australia Bank Ltd (NAB) have from Standard & Poor’s and Fitch Ratings. “Given this downgrade merely brings the major banks’ credit ratings under Moody’s to the equivalent notches under S&P and Fitch, we expect no impact on funding costs,” Deutsche Bank analysts said in a note to clients published on Monday. However, the analysts said there
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was still a risk that S&P would downgrade the major banks due to a sovereign ratings downgrade or a reduction in government support, which could lift long-term funding costs by around 10 basis points. S&P revised its outlook on the major banks to negative last July but it did not downgrade them when it lowered ratings on 23 smaller lenders in May based on expectations the government would support the big
banks if needed. Bell Potter analyst TS Lim said the government’s introduction of a new 6 basis points tax on certain liabilities to help return the budget to a surplus made it appear even more likely that the banks would be bailed out in the event of a crisis. “Given that, the ratings look pretty safe for the time being,” he said. Both houses of Australian parliament on Monday voted in favour of a tax on four biggest banks and Macquarie Group Ltd designed to raise US$4.6 billion over the first four years.
The banks have criticised the tax as unfair and argued that foreign rivals should be included to level the playing field. A Senate committee on Monday recommended the bank tax should be reviewed in two years and possibly waived in times of financial distress, but Treasurer Scott Morrison yesterday rejected those arguments.
Key Points Moody’s rating now in line with S&P and Fitch No impact on funding costs expected -analysts Bank tax passes both houses of parliament “There’s no need to do any of those things,” he told the Australian Broadcasting Corp. Moody’s also downgraded the New Zealand subsidiaries of the Australian banks in line with their parents. The banks have acknowledged the ratings downgrade but have not commented any further. Bank shares opened flat on Tuesday in line with the broader market. Reuters
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Business Daily Wednesday, June 21 2017 13
Asia Energy
In Brief
India asks Qatar to invest in power plants as condition for LNG deals India is suffering from natural gas shortages that have required power plants to shut down or run at lower rates Neha Dasgupta
India yesterday said it would sign future long-term liquefied natural gas (LNG) purchase deals with Qatar if only Doha agrees to acquire stakes in the South Asian nation’s power plants, oil minister Dharmendra Pradhan said.
Key Points India seeks to revive ailing power plants with Qatar investment
India is suffering from natural gas shortages that have required power plants with capacity of as much as 25,000 megawatts to shut down or run at lower rates. Qatar’s RasGas is India’s biggest LNG supplier. “It won’t be quid pro quo but mutual interest...They can share the profit of those power plants,” said Pradhan, adding New Delhi wants to expand its ties with Doha beyond simply buyer and supplier. India wants to gradually move
to a gas-based economy and has plans to raise its annual LNG import capacity to 50 million tonnes in the next few years from 21 million tonnes now. India is also open to granting stakes to Qatar in local oil and gas companies and LNG terminals, should the Gulf emirate make such a proposal, said Pradhan. India’s biggest gas importer Petronet LNG annually buys 8.5 million tonnes under a long-term contract. It also buys additional volumes from Qatar under spot deals. Prabhat Singh, chief executive of Petronet, said the Gulf nation needed to decide quickly on the Indian proposal. He said India could be a stable outlet for Qatar’s LNG. Reuters
Noble Group Ltd yesterday confirmed it had extended a key debt deadline and was in “constructive” talks with potential investors, but the crisis-hit trader also pushed back payment of the coupon on a closely watched bond. The decision to defer payment of the coupon on its US$400 million perpetual securities, due June 26, worried investors, who said the failure to pay US$12 million sent a negative signal and suggested lenders may have asked the group to defer payment where possible. Shares slipped after a sharp rise on Monday.
M&A
Smartphones
Japan govt-led group tells Toshiba to fix chip spat with Western Digital
A Japanese government-led consortium has told Toshiba Corp it needs to resolve its legal dispute with Western Digital Corp before it will invest in the firm’s chip unit, sources briefed on the matter said. The consortium is seen as one of the strongest suitors for the unit - the world’s No. 2 producer of NAND chips - as it would automatically have the government’s stamp of approval, but it is worried about legal risks if the
Australia’s conservative government stepped up efforts to cut power prices yesterday by proposing to block network operators from appealing regulated rates. It also said that planned gas export curbs would be delayed until January 2018 at the earliest. The move to limit network price hikes is the latest of several steps announced to bolster power supply and cap soaring energy prices, following a string of blackouts due to the rise of wind and solar power and shutdown of coal- and gasfired plants.
Noble Group confirms bank loan relief
India is the latest major LNG buyer to seek concessions from Qatar, the world’s biggest LNG exporter, in order to re-sign long-term supply contracts. Amid a global glut of LNG and a slump in prices, other buyers have sought more flexible contracts, including clauses that would allow them to resell gas they do not consume. “Yesterday, we have given a firm proposal to Qatar. If they want to have a long-term off-take assurance, there is a window. They can deal with our stranded power plants, from end to end they can give some solution,” Pradhan told Reuters yesterday.
Taro Fuse and Se Young Lee
Australia pushes to cut power bills
Debt
India submits detailed investment proposal to Qatar
Western Digital said that Toshiba was violating contractual rights
Energy
spat is not settled, the sources said. The group includes a state-backed fund, the Innovation Network Corp of Japan (INCJ), the Development Bank of Japan (DBJ), as well as U.S. private equity firm Bain Capital and South Korean chipmaker SK Hynix Inc. Western Digital, which jointly operates Toshiba’s main chip plant, has sought a court injunction to prevent its partner from selling its chip business without the U.S. firm’s consent. Toshiba, which is seeking a minimum of US$18 billion for its chip business, wants to complete the deal as quickly as possible to help cover billions of dollars in cost overruns at its now-bankrupt Westinghouse nuclear unit and to dig itself out negative shareholders’ equity that could advertisement
lead to a delisting. The conglomerate had set its sights on choosing a preferred bidder at a board meeting today, separate sources familiar with the matter said. It wants to reach a definitive agreement by June 28, the day of its annual shareholders meeting. But the sources added that the condition set by the government-led group could prompt Toshiba to postpone the vote. The sources declined to be identified as discussions concerning the sale were confidential. INCJ, DBJ and SK Hynix declined to comment. A representative for Bain was not immediately available for comment.
‘Toshiba is seeking a minimum of US$18 billion for its chip business’ Toshiba said it would not comment on the auction process. Western Digital reiterated a June 15 statement by Chief Executive Steve Milligan in which he said that Toshiba was violating contractual rights and had left the U.S. firm no choice but to pursue legal action. The government-led consortium’s bid has been orchestrated in large part by the trade ministry which wants to keep the chip unit under domestic control. It has been seeking to counter a 2.2 trillion yen (US$19.7 billion) from U.S. chipmaker Broadcom and its partner, U.S. private equity firm Silver Lake. Foxconn, the world’s largest contract electronics maker, is also a suitor. Formally known as Hon Hai Precision Industry, the Taiwanese firm is leading a consortium that includes Apple Inc and computing giant Dell Inc. Reuters
Samsung plans Galaxy Note 8 launch event for August Tech giant Samsung Electronics Co Ltd plans to hold a launch event in New York City for its next Galaxy Note smartphone in the second half of August, a person familiar with the matter told Reuters yesterday. The person, who was not authorised to speak publicly on the matter and so declined to be identified, said the Galaxy Note 8 will sport a curved screen that is marginally larger than the 6.2-inch version of the Galaxy S8 smartphone and feature two rear cameras. The Note 7 was equipped with a 5.7-inch curved screen and one rear camera. Electronic payment
Hike rolls out India’s first payment wallet Indian instant messaging platform Hike rolled out an in-app electronic payments wallet yesterday in a bid to cash in on rising digital transactions, replicating similar services offered by its backer Tencent Holdings in China. E-payments have surged in India since a shock ban of high-value bank notes in November last year. Providers such as Paytm, backed by Alibaba and SoftBank Group, have rapidly increased their share of the market amid predictions it will jump nearly 10 times to US$500 billion by 2020. Hike’s wallet, however, is the first such service by a messaging platform in the country.
14 Business Daily Wednesday, June 21 2017
International In Brief Post-Brexit
UK’s Hammond says new UK-EU regulatory process needed A new system is needed for allowing British and European Union banks to do business with each other after Brexit to avoid splitting markets, Britain’s finance minister Philip Hammond said yesterday. Britain, the EU’s biggest financial market is leaving the bloc in 2019, raising the prospect of an abrupt cut in cross-border links without a new trade deal. “Fragmentation of financial services would result in poorer quality, higher priced products for everyone concerned,” Hammond told a financial audience in London. At present, banks and insurers in London serve the EU market from a single base. Funding
IMF to adopt new scheme to offer short-term dollar funds The International Monetary Fund will introduce a new facility to give countries swift access to short-term dollar funds to guard against a potential financial crisis, a Japanese government source with direct knowledge of the matter said yesterday. The move would come amid concern held by some analysts that the Federal Reserve’s monetary tightening path could trigger a withdrawal of funds from emerging Asian economies and disrupt financial markets. Under the new scheme, member countries that undergo a preliminary review can tap the IMF for shortterm dollar funds they can use to battle any speculative attack on their currencies, the source said.
Political crisis
South Africa adds central bank row to troubles South Africa’s banking industry lobby group urged the government to confirm the bank’s independence Tiisetso Motsoeneng and Mfuneko Toyana
A
major row in South Africa over the independence of its central bank escalated yesterday, with both sides trading barbs in a dispute over whether the bank should be more concerned about citizens and less about currency. The issue -- triggered by a public watchdog’s recommendation -comes just as South Africa’s economy has sunk into recession, its credit rating downgraded and politics is gripped by questions over President Jacob Zuma’s stewardship. Public Protector Busisiwe Mkhwebane, head of South Africa’s constitutionally-mandated anti-graft watchdog, called on Monday for the central bank’s mandate of maintaining currency and price stability be changed, saying the bank should act in the interests of empowering ordinary citizens. Speaking on 702 Talk Radio yesterday, Mkhwebane she said the central bank’s mandate was focused on a “few commercial interests”.
South Africa’s largest trade union and ally to the ruling African National Congress (ANC) Cosatu said yesterday that it backed Mkhwebane’s position. The Reserve Bank said in a statement that Mkhwebane’s office had no business in making recommendations about how it is run.
Key Points Watchdog wants to axe cbank’s mandate on currency, price Cenbank says plans to mount challenge watchdog in court Rand recovers after cenbank says to challenge watchdog “The Reserve Bank has consulted its legal team and has been advised that the remedial action prescribed by the Public Protector falls outside her powers and is unlawful,” it said in a statement. South Africa’s banking industry lobby group backed the central bank. It urged the government to confirm the bank’s independence.
South Africa is on the brink of prolonged economic downturn after data this month showed a second consecutive quarterly contraction to growth, with elevated political uncertainty sapping already weak business activity. The country’s credit rating was recently downgraded by all three major rating firms, with two of the top three agencies slashing Pretoria’s debt into junk territory, all citing the risk of abrupt fiscal policy shifts following the sudden axing of finance minister Pravin Gordhan in March. Gordhan, sacked by Zuma in what was seen as a political move, was a favourite among international investors. Investors were already expressing concern about the central bank row. “For a country grappling with political uncertainty and the medium-term need to reduce corruption and strengthen institutions, this is a worrisome development,” Head of Emerging Markets Strategy at Societe Generale Jason Daw said in a note. On Monday evening the bank’s governor Lesetja Kganyago defended the mandate to keep inflation low and protect the value of the currency, saying it was supportive of economic growth. Reuters
Forecast
Ifo institute raises growth forecast for German economy The Ifo economic institute raised its 2017 growth forecast for the German economy to 1.8 per cent from 1.5 per cent previously, with vibrant domestic demand and strong export growth propelling employment levels to historic highs. “We’re experiencing a first half which is so strong that the impetus will carry on into the coming year,” Timo Wollmershaeuser, head of economic research at Ifo, said in a statement yesterday. For 2018, the institute now predicts Germany’s gross domestic product (GDP) will expand by 2.0 per cent, up from the 1.8 per cent it had predicted previously.
Paul Ryan, U.S. House of Representatives Republican speaker
Tax
U.S. House speaker vows to complete reform in 2017 Republicans are under mounting pressure from U.S. businesses and voters to make progress on tax reform
Bank of England
Governor says now not the time to raise rates Now is not the time to raise interest rates, Bank of England Governor Mark Carney said yesterday, warning of weak wage growth and a likely hit to incomes as Britain prepares to leave the European Union. Carney, speaking to London’s banking community alongside finance minister Philip Hammond a day after Brexit talks started, said that depending on how the talks progress, businesses might soon need to activate contingency plans. “Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption,” he said.
David Morgan
The top Republican in the U.S. House of Representatives vowed yesterday to complete tax reform in 2017, saying that President Donald Trump and his fellow Republicans in Congress cannot allow the chance to overhaul the U.S. tax code to slip. In remarks for a speech to U.S. manufacturers released by his office, House Speaker Paul Ryan said that Congress and the Trump administration are moving “full speed ahead” to deliver fundamental tax reform for individuals, corporations and small businesses. Ryan and other Republicans are under mounting pressure from U.S. businesses and voters to make progress on tax reform, a top 2016 Republican campaign pledge that could determine whether Ryan’s
party retains control of the House and the Senate in the 2018 midterm elections. But it is not clear whether Republicans in Congress can overcome infighting over healthcare legislation and government spending to move forward on tax reform legislation. “We are going to get this done in 2017. We need to get this done in 2017. We cannot let this once-in-a-generation moment slip,” Ryan said in remarks prepared for yesterday afternoon speech to the National Association of Manufacturers, a powerful Washington lobby group. “Transformational tax reform can be done, and we are moving forward. Full speed ahead,” he added. Major stock indexes hit multiple record highs from Trump’s November election to the end of the first quarter, on bets that he would
improve economic growth by cutting taxes and boosting infrastructure spending. The tax reform debate has largely moved behind closed doors, where Ryan is trying to hammer out an agreement with Senate Republican leader Mitch McConnell, Treasury Secretary Steven Mnuchin, White House economic adviser Gary Cohn and the Republican chairmen of two congressional tax committees. The aim is to unveil tax reform legislation in September. Ryan will not delve into details about tax reform provisions on Tuesday but will describe major provisions of any major legislation including a “territorial” system that would no longer tax the foreign profits over U.S. corporations. Ryan will also emphasize the importance of permanent reforms, reject the notion that legislation should do little more than reduce tax rates and make a case for mechanisms to prevent U.S. corporations from moving income, assets and jobs overseas. Reuters
Business Daily Wednesday, June 21 2017 15
Opinion Business Wires
Viet Nam News Online retail is expected to continue increasing, as domestic and foreign retail companies are planning to invest heavily in this field. A study conducted by Nielsen, a market research and global information company, showed that Vietnam is one of the world’s most dynamic countries in hi-tech application and use, including online shopping. The differences between traditional and online shoppers will create opportunities for both producers and retailers. Up to 82 per cent of the traditional shoppers buy goods according to their plans, making it hard for companies to attract new consumers.
Bangkok Post The (Thai) Commerce Ministry is maintaining its 2017 export growth target of 5 per cent amid gripes from some quarters in export sector about the stronger baht. Commerce Vice-Minister Winichai Chaemchaeng said that while the baht continued to rise further against the U.S. dollar, the strengthening of the currency has so far had minimal impact on total Thai exports as other currencies in the region were also heading in the same direction. The impact of baht’s rise on export has been minimised since other countries in Asean region are also facing the same problem with all regional currencies rising against the U.S. dollar.
The Korea Herald South Korea’s current account surplus dropped slightly in 2016 from a year earlier due mainly to decreased exports, data by the central bank showed yesterday. The current account surplus came to Us$98.68 billion in 2016, compared with US$105.94 billion a year earlier, according to preliminary estimates released by the Bank of Korea. By country, South Korea’s current account surplus with the United States fell to US$31.15 billion in 2016 from US$33.03 billion a year earlier. The 2016 figure marked the lowest since 2012, when the corresponding figure came to US$19.04 billion.
Japan starts gaining ground on wasteful workaholics
F
irst, the good news: Japan has finally begun to wrestle with its endemic problem of long, unproductive working hours. Japanese companies are famous for forcing their employees to work unpaid overtime long into the night. Workers are afraid that if they leave early, they’ll be passed over for promotions and be ostracized by their colleagues. Companies are reluctant to let employees take work home with them, often citing data security concerns. As a result, in many Japanese families it has long been commonplace for men not to see their families on weeknights -- and now that Japanese women have entered the workforce in large numbers, the strain of long hours on family life is even more severe. Worse, those long hours are killing Japanese productivity -- research suggests that at about 60 hours a week, working more doesn’t result in getting more done. Those extra hours tire people out in body and mind, making every other hour of the day less productive. Japan has major productivity problems -- its output per hour worked is only about 60 percent of U.S. levels -- so eliminating overwork is an important priority. Fortunately, the government and large corporations are addressing the issue, using a mix of policy and new workplace norms. Some companies are letting employees do more work from home, while others are turning off their office lights at a certain time. Government agencies are doing the same, and leaders are taking some symbolic steps to spread the idea of work-life balance. Meanwhile, companies that overwork, underpay and otherwise exploit their workers are now often vilified in popular culture. The long-term impact of these efforts can’t be known yet, especially since unpaid overtime is by its nature hard to measure. But the problem is certainly being recognized and addressed, and that’s a very good thing for Japan. But now for the bad news about Japan’s labour market. Excess working hours may be falling, but wages aren’t yet rising. From looking at macro data, Japan ought to be experiencing rising pay, as the U.S. is. Japan’s unemployment rate has fallen to a two-decade low of 2.8 percent: And the labour force participation rate has increased, resulting in a record high prime-age employment-to-population ratio. The country’s demand shortage has ended, even as record numbers of women have entered the labour force. Given such a tight labour market, it’s a mystery
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The Phnom Penh Post The (Cambodian) government is preparing legislation aimed at ensuring tighter control over the nation’s pawnshops to ensure professionalism in a sector that has grown rapidly and lacks a supervisory framework. Mey Vann, director of the Department of Industry and Finance at the Ministry of Economy and Finance (MEF), said at the release of the government’s 10-year financial sector development strategy last week that there has been a proliferation of pawnshops in recent years and it was now time to establish clearer laws to regulate the sector.
Noah Smith a Bloomberg View columnist
why household incomes for workers aren’t going up: Interestingly, some people from the Bank of Japan have a theory that reduction of overwork is actually causing wage stagnation. The idea is that if unobserved work hours are being cut, employees might be producing less overall, even as they produce more per hour. That could cause wages to stagnate. It could also make companies hire more workers in order to maintain the same level of production, which would be consistent with rising employment rates. But this explanation seems unlikely to explain stagnant wages. Japanese employees are so overworked that cutting excess hours should probably leave them producing roughly the same amount each month. That means that falling unemployment should still be exerting upward pressure on wages. It could be that as Japan employs the very last few available workers in the country, aggregate productivity is being held back, because the last workers to get hired are also likely to be the least productive. They tend to have less experience, and perhaps other characteristics that prevented them from getting jobs before. Since these workers couldn’t demand wages as high as those who had been working for a long time, this would act to hold down pay. It could also be that Japan is suffering from a decline in labour’s share of national income. The U.S. has been experiencing this since at least the turn of the century, and there are many theories about the cause -- globalization, automation, increasing market concentration and a rise in land values. So far, economists haven’t solved the mystery. But all four of these factors may well be operating in Japan. So whatever has been holding down labour’s slice of the economic pie might also be causing Japanese wages to flat line. So while wage stagnation is a concern, it’s probably not being caused by the reduction in excessive working hours. Japan shouldn’t deviate from its course -- raising labour productivity and giving workers back their lives should remain the focus of policy. Bloomberg View
While wage stagnation is a concern, it’s probably not being caused by the reduction in excessive working hours
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16 Business Daily Wednesday, June 21 2017
Closing Aviation
Shortage of pilots could hinder airlines’ growth
The worldwide commercial aviation industry will need an extra 255,000 pilots by 2027 to sustain its rapid growth and is not moving fast enough to fill the positions, according to a 10year forecast published by training company CAE Inc. More than half of the required pilots have not yet begun training, the report adds, storing up potential problems as the industry braces for an increase in passenger air traffic that is expected to double the size of the commercial
air transport industry in the next 20 years. “Rapid fleet expansion and high pilot retirement rates create a further need to develop 180,000 first officers into new airline captains, more than in any previous decade,” said the report by CAE, which trains pilots for airlines around the world. “The shortage of pilots is a problem today. There’s demand today, so people need to start building a strategy with us or other professional academies to be able to build that pipeline,” Nick Leontidis, CAE’s Group President for civil aviation training solutions told journalists at the Paris Airshow yesterday. Reuters
Markets
HK’s new board seen a big draw for start-ups Some companies with little turnover or low valuations overseas might seek a secondary listing in Hong Kong to bolster their prospects Elzio Barreto
H
ong Kong stock exchange’s plans for a new board to allow sweeping changes to its listing rules could lure a slew of technology start-ups, though they are less likely to attract Chinese firms already listed overseas. Major Chinese firms including Alibaba Group Holding Ltd, search giant Baidu Inc and e-commerce platform JD.com Inc all picked New York over Hong Kong for initial public offerings (IPOs). So the new rules offer Hong Kong a chance to bring the tech titans closer to home with a secondary listing. But bankers say these companies are not likely to get a big pickup in valuation or trading activity to justify the cost and regulatory burden of a secondary listing. “The appeal for unlisted companies is more obvious than for already-listed companies, especially for the non-giants. If your market cap exceeds US$10 billion, your liquidity and valuation is global,” said Kai Fang, head of equity capital markets at boutique investment bank China Renaissance, which has advised on some of China’s top technology deals. Hong Kong Exchanges and Clearing (HKEX), which operates the stock exchange, unveiled a proposal on
Friday for a new board that would allow companies with share structures providing special voting rights, and those yet to make a profit, to list. They were the two key hurdles that prompted Chinese start-ups to choose New York instead of Hong Kong for IPOs. If approved, the changes could be implemented at the beginning of 2018, HKEX chief executive Charles Li said on Friday. Potential new business for the exchange could be significant.
Key Points New board could lure tech start-ups Less likely to attract Chinese firms already listed overseas New rules overcome hurdles that prevented big-name listings Chinese companies targeted by the new board raised IPO funds of US$49 billion in the past 10 years, including US$34 billion raised by mainland companies that listed in the United States with weighted voting rights structures, the HKEX said. Those included Alibaba, Baidu and JD.com. Another US$15 billion was raised by Chinese companies that had yet to make a profit.
Such a voting-rights structure is critical for many unlisted Chinese firms such as ride hailing company Didi Chuxing, Ant Financial and food delivery provider Meituan-Dianping. The three companies, with a combined valuation of about US$130 billion, have different classes of stock to give founders control of the companies. “They’re trying to attract some of the high profile companies that have dual class structures and wouldn’t list here otherwise,” said an investment banker who worked on recent Chinese technology listings in the United States and who declined to be identified. “Without those changes, these companies just won’t come to Hong Kong, full stop.” Still, some companies with little turnover or low valuations overseas
might seek a secondary listing in Hong Kong to bolster their prospects, including Chinese firms that had been considering a delisting from New York. Manchester United, which scrapped a Hong Kong IPO because of its dual share structure, could get a boost from Asian investors appetite for sports-related assets, the bankers said. “If you’re looking at some companies that have relatively low liquidity in the U.S., then the dual listing could make sense,” Fang added. “The Hong Kong stock exchange is trying to find a way to lure some companies that might originally achieve a premium valuation in Hong Kong, but due to the voting rights issue they choose to list somewhere else.” Reuters
Liquidity
Border trade
M&A
Beijing deploys bondbuying tool for first time
Beijing freezes bank accounts of over 100 Myanmar traders
Australian gambling giants get approval to form powerhouse
China used a new tool to boost liquidity in its government-bond market for the first time yesterday, purchasing one-year notes that had seen limited demand among investors. The operation is part of a broader initiative to generate a reliable yield curve for risk-free government debt that can serve as a benchmark for borrowing costs across the economy. While China has more than RMB22.9 trillion (US$3.4 trillion) of government securities outstanding -- one of the world’s largest -- it has less liquidity than many developed nations. Under a system unveiled last November, China’s Ministry of Finance confers with market participants and, after any agreement that government bonds have insufficient or excess demand, issues additional securities or purchases existing ones from the secondary market. Yesterday, the ministry bought RMB1.2 billion (US$176 million) of one-year notes. Yields on the notes dropped six basis points, the most in five months, to 3.51 per cent. Shorter-dated government securities have seen their yields climb in recent months amid an official clampdown on leverage that inverted the nation’s yield curve for only the second time in data going back to 2006. Bloomberg News
Chinese banks have frozen the accounts of more than 100 commodities traders in northeast Myanmar in a bid to clamp down on smuggling and illegal gambling, state media reported yesterday. Myanmar’s government has been negotiating with Chinese officials since the accounts were suspended last week by three banks based in China’s Yunnan province, according to the staterun Global New Light of Myanmar. Many of the accounts belonged to Myanmar merchants who trade foodstuffs, such as rice and pulses, which are often exported to China through the border town of Muse in eastern Shan state. “These accounts were frozen after their (China’s) crackdown on 27 illegal rice trading gangs in recent days,” Soe Tun, vice-chairman of the Myanmar Rice Federation, told AFP. He estimated that up to 1,000 accounts had been frozen -- a figure not immediately confirmed by the three Chinese banks affected: the Agricultural Bank of China, China Construction Bank and the Industrial and Commercial Bank of China. According to Myanmar state media, some of the accounts were also suspended over “possible links to illegal internet gambling.” AFP
Australian gambling giants Tabcorp and Tatts were yesterday given the green light by the competition tribunal to merge, paving the way for the creation of a betting powerhouse following months of uncertainty. The rival Australian-listed firms announced their plan to merge in October, but the proposal encountered several hurdles including questions raised by the Australian Competition and Consumer Commission about the impact on competition in Queensland state. The Australian Competition Tribunal -- which Tabcorp took the deal to in order to sidestep the watchdog -- gave it the go-ahead provided the firm sold its Queensland gaming business. “The tribunal is satisfied in all the circumstances that the proposed merger would result, or would be likely to result, in such a benefit to the public that the acquisition should be allowed to occur,” tribunal president Justice John Middleton said. Tatts and Tabcorp have pursued the idea of closer ties for years in a bid to cut costs and chase opportunities globally, and investors welcomed the decision, which would see the formation of a A$8.6 billion (US$6.5 billion) titan. AFP