Summertime means a big break, the beach, barbeques and a book Consigliere Pages 8 & 9
Friday, June 23 2017 Year VI Nr. 1324 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro New index
Mainland implements gauge to measure services performance in shopping malls Page 10
Free Trade Zone
Hengqin proves very attractive to Mainlanders Page 4
Corruption
MSAR goes digital for transparent recruitment of civil servants Page 2
www.macaubusinessdaily.com Laundering
Horse races
Online scheme to process gambling money unveiled Page 7
HK Jockey Club impacted by change in entertainment habits Page 12
MGTO presents the bill Paper work
The SOHO food district in City of Dreams. Now depleted of several F&B venues, closed down by Macao Government Tourism Office. The businesses, operating without appropriate licences for years, have been heavily penalised by local authorities. Page 3
Brainstorming the fourth bridge
The truth is out there
Some of the top voices in the gov’t are analysing the feasibility of a ‘4th zone’. Lawmakers and specialists are mulling the options. The object of which is to give birth to a New Macau by overcoming its natural limitations.
Infrastructure Several infrastructure concepts are under consideration. Regarding linking Taipa and Zone A in Macau. The project is still at a very early stage. But several technical solutions are in the mix to reinforce communications between both sides. Page 2
Ex-Emperor employee jailed
Chips theft Emperor Entertainment Hotel said yesterday that a former employee had stolen US$1.65 million in chips. The thief - now imprisoned - returned just HK$100,000 of the funds. Page 3
Beijing gets serious about overseas acquisitions Reclamation Page 5
HK Hang Seng Index June 22, 2017
25,674.53 -20.05 (-0.08%) Worst Performers
China Resources Power
+4.81%
AIA Group Ltd
+1.41%
Geely Automobile Holdings
-0.54%
Link REIT
-0.41%
Hengan International Group
+4.29%
Want Want China Holdings
+1.36%
MTR Corp Ltd
-0.46%
New World Development
-0.39%
China Life Insurance Co Ltd
+1.89%
China Unicom Hong Kong
+0.88%
Hang Seng Bank Ltd
-0.43%
HSBC Holdings PLC
-0.37%
China Mengniu Dairy Co Ltd
+1.57%
Tencent Holdings Ltd
+0.86%
Hang Lung Properties Ltd
-0.41%
CNOOC Ltd
-0.35%
Bank of Communications
+1.56%
Hong Kong & China Gas Co
+0.82%
PetroChina Co Ltd
-0.41%
China Construction Bank
+0.29%
28° 31° 28° 31° 28° 31° 28° 31° 28° 31° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Banking regulator China’s banking regulator has ordered lenders to assess their exposure to offshore acquisitions by a handful of companies on overseas buying sprees. HNA Group, Dalian Wanda, Anbang Insurance and Fosun International number among them. Page 16
2 Business Daily Friday, June 23 2017
Macau Politics
New Head of Taiwan’s Bureau of Macao Affairs
of the Bureau, Lu Chang-Shui, will act as counsellor as well as Director of the Secretary’s office. The Taiwanese Government has appointed Chen Sheue-Hwai as the new Currently, Chen heads the Budget, Accounting and Statistics department head of the Bureau of Macao Affairs of the government office. Lu, for the Mainland Affairs Council and meanwhile, has been acting as Taipei Economic and Cultural Office, Director General since February 2013, according to Taiwan news outlet CNA. and will return to Taiwan when his Chen will take up the position on July term expires. C.U. 7, while the current Director General
Infrastructure
Fourth bridge still up in the air The project for the fourth bridge to connect new reclaimed zones in Macau and Taipa is still being evaluated by Beijing Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he Office for the Development of Infrastructure (GDI) said that a study on the feasibility of constructing a fourth bridge between Macau (Zone A) and Taipa (Zone E1) is currently being evaluated by the central government. In reply to Business Daily enquiries about the construction of the bridge proper, the Office said ‘a public tender will be launched after the conclusion of the works and proceedings [referred to above].’ As for the Land, Public Works and Transport Bureau (DSSOPT), it said that all matters ‘related to the fourth bridge Macau-Taipa should be addressed to GDI.’ In September 2016, the Macau SAR Government announced that it had
inked a contract to CCCC Highway Consultants Co., Ltd. for the initial design of the fourth Macau-Taipa connection project. The project involves a 3.5 kilometre bridge linking the eastern side of the new artificial island of the Hong Kong-Zhuhai-Macau Bridge reclaimed on the outer shore of the Macau Peninsula (Zone A) to land reclaimed near the Macau International Airport in Taipa (Zone E1), with a total cross-sea section of 2.87 kilometres, per the Infrastructure Development Office (GDI).
the Bridge Nobre de Carvalho, according to previous reports. The underwater tunnels would be constructed either on the west side or east side of the old Macau-Taipa bridge, or a tunnel on either side of the bridge. According to GDI’s spokesperson – who claimed to have first referred to DSSOPT – “it is expected that the research unity [in charge of the study] will present the report about the project’s feasibility in the third quarter of the current year, followed by the collection of opinions from other departments.” According to previous reports, the study in question was ordered by the Macau SAR Government in July 2016,
to be completed within 260 days. DSSOPT explained that the study is being conducted in two phases, saying: “Given that the first phase of the study was completed within 100 days, the investigation unity will present its preliminary report. The works for the second phase are to be held within the limit of 160 days, once [the first] is approved by the Administration. The period of 260 days for the study does not include the period of evaluation and approval.” Estimated at MOP7.2 million, the study will include “hydrological analysis and geotechnical survey,” according to the Bureau. Public works also announced that the estimated cost for the study remains the same and that the date for construction plans and work contracts “will depend upon the final results of the study.”
Undersea tunnels
CCCC Highway Consultants, a Mainland China-based infrastructure design company, was also hired by DSSOPT in ‘mid-2016’ to conduct a feasibility study related to the development of two tunnels between Macau and Taipa to be placed within advertisement
Politics
SAFP: Information on public servants to be collected in digital form The government will digitise the information collected and verify the numbers of public servants in order to better monitor departments, the Public Administration and Civil Service (SAFP) stated in its reply document of the interpellation submitted by legislator Chan Meng Kam. According to data provided by SAFP, there are currently fewer than 10 cases of workers hired through the acquisition of services in public departments, excluding the Cultural Affairs Bureau (IC). The Bureau affirmed that cases were either resolved by either not renewing contracts or through official recruitment procedures. Cited from the regulations, SAFP wrote that all departments are
required to report to the SAFP within 15 days regarding any manpower arrangement. After the Commission Against Corruption (CCAC) slammed the IC in its report about the illegal method of recruiting a large number of its workers in March, the SAFP stated that the IC has taken into account possible measures to improve the situation including setting up a taskforce to evaluate every worker as well as declaring property owned by all workers, as advised by the CCAC. SAFP indicated that the IC will set up an internal monitoring group, in addition to providing special training to workers in order to improve awareness of the specifics of the law and its enforcement. C.U.
Greater Bay
Macau funded clinic opens in Zhuhai A Macau funded clinic, Mediland Polyclinic, has opened in Zhuhai as the first medical agency wholly funded by local resources under the framework of the Closer Economic Partnership Arrangement (CEPA), according to information published in the Hengqin New Area official online portal. The clinic, funded by Macao Minkang Medical Group Co. Ltd., opened in the Zhuhai College of Jilin University (Jida) on June 17. Focusing on paediatric medical services, Mediland occupies a 500-square metre area, and claims to also arrange overseas treatment for local patients and offer medical services by house call. Citing a counsellor to the clinic based in Macau, the portal reported
that the clinic will seek to expand its offer in tandem with the construction of the Greater Bay Area by providing services in other medical fields such as gynaecology, dentistry, and traditional Chinese medicine. Mediland Polyclinic was also referred to as having plans to open more outpatient departments in the future in other places in Zhuhai and likely in other cities in Guangdong Province. S.Z.
Business Daily Friday, June 23 2017 3
Macau Business
Paperwork betrays restaurants at CoD Six restaurants and bars in the City of Dreams’ SOHO have been forcibly closed by MGTO after operating without a licence. Others may follow in the coming weeks
S
ix food and beverage outlets in the SOHO food district, City of Dreams (CoD) have been closed down. The news, released by a Chinese newspaper in Hong Kong was confirmed to Business Daily by the Macao Government Tourism Office (MGTO). Sources close to CoD explained to
Business Daily that the restaurants now closed are Shelter Café, Starz Kitchen, Asia Kitchen and Chan Kee, all related to Shelter Group plus Gold Coast Oyster and Seafood, which belongs to Seapower, and Taiwanese franchise Din tai Fung. “MGTO gave the restaurants two years to deliver the appropriate
documents, but that didn’t happen”, this newspaper was told by the source. Ergo, the government department has started to close down the restaurants and cafés, one by one. “And more might close in the coming weeks”, the same source reveals. Meanwhile, MGTO’s director Maria Helena de Senna Fernandes told TDM Chinese Radio that eight restaurants were penalised and 13 more are undergoing evaluation. MGTO told Business Daily that licence applications for restaurants and bars in the SOHO zone of the City of Dreams will depend upon the
Source: Expedia
outcome of applications made by the hotel operator for the re-arrangement of its hotels’ facilities. According to MGTO, the SOHO zone is within the plan of re-arrangement, which also involves the 5-star Crown Towers, 4-star Hard Rock Hotel as well as casinos in City of Dreams. ‘The applicant is still following up on the relative re-arrangement of facilities,’ said MGTO in an email to Business Daily. MGTO revealed that several restaurants and bars in the SOHO zone were operating despite the related licence not being obtained prior operation, a practice that “is not new”, says an F&B veteran. “Some other restaurants have been operating without a licence, outside and inside entertainment resorts without being closed down”, confides the source. According to Hong Kong news outlet Apple Daily, these businesses have been operating without a licence since 2014. Apple Daily reported that until recently the licence application of these businesses had been turned down and hence the closedown ordered by MGTO. Pursuant to the law, MGTO has had to forcibly close down these businesses and penalise with a fine of MOP600,000. The tourism office added that necessary procedures including hearings will also be performed once penalisation procedures have been completed. ‘Currently, some [businesses] are still undergoing penalisation procedures’, stated MGTO. Meanwhile, in response to Business Daily enquiries, Melco Resorts & Entertainment would ‘not comment publicly on government licensing processes and procedures; however, the Company and our restaurant operators are closely working with the relevant authorities on these matters.# *With Alex Lee
Results
Theft by Emperor ex-employee causes HK$12.9 mln loss The employee has since pleaded guilty and is in prison Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
The theft of chips by a former employee of Emperor Entertainment Hotel Ltd. has cost the company HK$12.9 million (US$1.65 million), according to a release by the company with the Hong Kong Stock Exchange. The group ‘was aware that an ex-senior casino cashier of a subsidiary of the Company in Macau had embezzled some of the chips on hand of the group’, subsequently reporting the matter to the local Judiciary Police (PJ), resulting in the arrest and criminal investigation of the employee, who ‘pleaded guilty and is now in prison,’ the group’s filing announces. While the employee returned HK$100,000 of the funds, the group notes, the filing does not clarify whether the chips were cashed in, resulting in the loss. Despite the loss from the theft the group still recorded HK$3.69 million in profit for the year, reversing the HK$2.23 million loss recorded during the previous fiscal year, ended March 31, 2016. Total revenue for the group during the period saw a 27.4 per cent
downturn, reaching HK$4.07 billion, with that from hotel operations and related services - which includes the group’s Hong Kong and Macau mass market, VIP room and slot machine operations – seeing a 5.6 per cent contraction to HK$1.69 billion. Construction work on the group’s development project - the Emperor Nam Van Centre, on Avenida Infante Dom Henrique located across the intersection from Banco Nacional Ultramarino on the Peninsula – ‘was in progress’, according to the filing. The project is a ‘multi-storey premium retail complex’, with gross floor area of 30,000 square feet ‘scheduled for completion in mid-2017’. The group claims that ‘this corner site will be upgraded and become a signature, prime city-centre shopping locale in Macau’. The group believes that the property ‘will generate significant additional rental income starting from the financial year of 2017/2018’. The group’s Inn Hotel operation, the 17-storey hotel located on Rotunda Ouvidor Arriaga near the Kingsville residences ‘enables the Group to fully capture the potential of Macau’s hospitality market’.
4 Business Daily Friday, June 23 2017
Macau Opinion
Pedro Cortés*
Heritage delay In my life, I work with deadlines every single day. If I fail, which sometimes occurs, I am penalised for such behaviour. The fact that deadlines exist is to ensure security and trust in the system; in my case, security in the law dictates and in the fact that unfortunately we have rules to fulfill. The above comes to these lines due to the delay of the Macau Government in delivering to UNESCO the Safeguard and Management Plan of Macau’s Historic Centre. The excuse is, well, what we call in Portuguese a desculpa esfarrapada or in English a ‘lame excuse’. The law entered into force in July 2014. Macau has a few international obligations, which is a consequence of the Basic Law and the Joint Declaration between the People’s Republic of China and Portugal. If these international obligations are not fulfilled, then the security and the trust in our Special Administrative Region will be compromised. There’s no doubt that there are responsibilities that must be assumed. The fact that ‘Macau is full of business, full of people’ cannot be accepted as an excuse. We must have in all government departments a culture of high exigencies. Since I was a kid I have heard the following words: “The best way to solve a problem is to prevent a problem”. It seems that the Macau Government has not addressed this issue properly: it has not prevented the problem from happening. UNESCO has been, since the elevation of Macau Historic Centre to World Heritage status, chivvying Macau to meet its obligations. Three or four issues have been serious vis-à-vis the standards UNESCO expects. Sometimes, it seems a cocktail of incompetence is mixed with ignorance on how to do things. Once again, as in many areas, the fact that the Macau Government is not keen to hire specialised non-residents puts all of us, our heritage, in danger. Well, in the words of our Secretary, it is “impossible” for Macau to lose such status. I agree with him. But, sincerely, I would rather have a situation where UNESCO did not find it increasingly necessary to rap the knuckles of our Government. *lawyer and frequent contributor to this newspaper.
Hengqin
Mountain island, mounting business
S
ome 120 top Mainland Chinese companies are to set up branches in the Hengqin New Area of Zhuhai, according to Li Weihui, Deputy Secretary of Hengqin New Area Committee, NewsGD.com reported on Wednesday. Speaking during the World Free Trade Zone (Hengqin) Summit 2017, which took place on June 19 and 20, the official further claimed that some 97 of the ‘world’s top 500 corporations’ have also been attracted to the area.
Mr. Li said that there are currently 89 on-hand projects in Hengqin amounting to a total investment of RMB340 billion (US$49.76 billion/ MOP399.83 billion). Hengqin has been developed as a hub to foster co-operation between Macau, Hong Kong, and the Mainland by harnessing institutional advantages, digital information technology, and infrastructure connection, with the same news media outlet referring to the lift of control on Macau-registered vehicles entering Guangdong from
Macau as an important development for the site. It was also reported that there are attempts to explore ways to build a market regulatory system for the area with credit management the key. There are 35 enterprises in Hengqin with cross-border RMB loans, and Hengqin is said to have processed more than RMB230 billion-worth of cross-border RMB settlements. Currently, more than 32,800 enterprises are registered on the island, with a total registration capital of RMB1.75 trillion. S.Z.
Greater Bay
The better side of the bay Neighbouring SAR aims to become event hub in Greater Bay area, while developing multidestination tourism offerings for both short-haul and long-haul visitors The governments of Macau, Hong Kong and Guangdong Province on the Mainland are co-ordinating the development of the Greater Bay Area under the National Development and Reform Commission, according to statements made by the Hong Kong Secretary for Commerce and Economic Development, Gregory So, as noted by 7thSpace. While the MSAR’s contribution will be its “entertainment and leisure and resources”, the
neighbouring SAR will “highlight and play to the strength of our city’s culture, charm as an international metropolis, the appeal of Eastmeets-West, as well as our vibrancy and diversity”, said the Secretary. With this in mind, the government’s plan is to develop “one-trip multi-destination” tourism products and conduct joint promotions overseas, notes the Secretary. As part of the medium-term strategy for the neighbouring SAR, the
government has been “developing cultural and creative tourism, including revitalising historical buildings into creative and cultural landmarks”, points out the Secretary, promoting the city, in addition, as an “events capital” through activities such as “the introduction of the brand new FIA Formula E Hong Kong ePrix and the first e-Sports and Music Festival Hong Kong”. The Secretary said the group has been in close communication with the Macao Government Tourism Office “in the past three years” to create multi-destination tourism products for both short-haul and long-haul markets “including Singapore, Malaysia, Indonesia, Thailand, Japan, Korea, India, Russia, the United Kingdom, France, Germany, the United States, Canada, Australia and New Zealand, etc.” K.W.
Maritime
Average of five ships sink per year in past five years in MSAR territorial waters Shipping losses have undergone a 50 per cent decline worldwide in the past decade, according to a report by insurance group Allianz. Meanwhile, Macau has seen an average of five ships sink per year during the past five years, according to information provided by the Marine and Water Bureau (DSAMA) to Business Daily.
The Allianz report points out that the South China and Southeast Asian waters were recorded as the top loss location worldwide, with primary reasons for loss resulting from crew negligence and inadequate vessel maintenance, while the 50 per cent reduction in losses is primarily due to ‘a more robust safety environment
by shipowners’. In total last year four ships sank in Macau’s territorial waters ‘which included a fishing boat, an engineering boat, a sand carrier and a cargo vessel,’ DSAMA said. The reasons for the vessels sinking were not disclosed in the response. In addition to the four ships that sank a total of 14 cases ‘involving rescue’ occurred in 2016, while this year, as at yesterday, some four incidents had occurred, according to the information provided. K.W.
Business Daily Friday, June 23 2017 5
Macau
Urban planning
The mysterious ‘fourth zone’ Legislator and Urban Planning Committee members in general agree that more land should be reclaimed to meet current demand and for Macau’s future development Cecilia U cecilia.u@macaubusinessdaily.com
“
O
ur future develop ment for the city is limited by the short age of land,” com mented legislator Si Ka Lon during a telephone interview with Business Daily, saying that the attempt to diversify the city’s econo my could not happen if the area of land remained the same, and observing: “Currently, there are 21,400 people per square kilometre and the city is heavily packed.” Walter Wan Iat Meng - senior in structor of the University of Macau in the field of Civil and Environmental Engineering as well as a member of the Urban Planning Committee held similar views to Legislator Si. “More land means the expansion of Macau’s development opportunities,” said Wan. Si queried updates on the plan for the ‘fourth zone’ for his interpellation during the plenary session at the Legislative Assembly last Friday, suggesting reclaiming land occupying some 30 square kilometres within the 85 square kilometres of territorial waters demarcated by the central government in 2015. However, Wan said the ‘fourth zone’ is merely a concept, indicating that “the concept relates to a plan of reclaiming land but it can also be referred to a usage of the water or sea.” According to legislator Si, a Chinese authority from the Chinese Liaison Office advocated creating a second Macau; legislator Si perceived that the ‘fourth zone’ is for the purpose of creating a second Macau. The MSAR Government also proposed the Urban Development Strategy Plan (2016-2030) to the city’s Urban Planning Committee
in December last year, suggesting the construction of the ‘fourth zone’ in order to develop Macau into a ‘beautiful home’. When asked about the use of the retrieved land plots, legislator Si said the plots are spread out in different parts of the city, saying that “these retrieved bits and pieces of land don’t provide a big piece of land for development.” Meanwhile, unlike New Zones A, B, C, D and E currently under development, the ‘fourth zone’ is distinctive since the New Zones are just small plots of land. “The new zones are for the development of residential buildings, but land is not only to be used for residential buildings,” said Wan. Even given the close relations with the neighbouring Chinese city of Hengqin in economic and business development, legislator Si explained that the law and system in Hengqin is completely different from that of Macau; as such, Macau cannot depend upon Hengqin in developing its economy. Chief Advisor to the Governmental Policy Research Office Professor Mi Jian said on Tuesday that there will be difficulties in creating the ‘fourth zone’ given that the creation of land would exceed the 85 square kilometres territorial water, adding the central government has stressed that the land cannot exceed the approved area, reported TDM Radio. Mi emphasised that the central government has not expressed disapproval of the plan as long as the plan has support from the perspectives of science, rationality and farsightedness. For legislator Si, the existence of challenges to construct the ‘fourth zone’ does not mean it is impossible. “The [important] thing is whether to consider the city’s overall
benefits,” remarked Si. “I believe the central government will understand if you stick to the facts.” Regarding the location of the ‘fourth zone’, the government had recommended constructing the zone off Hac Sa Beach. When asked about environmental concerns, legislator Si indicated that the construction of the massive land would obviously require the support of environmental and maritime evaluations, adding that “there is no other suitable place apart from the area near Hac Sa Beach”.
Still obscure
For Leong Chong In, chairman of the Architects Association of Macau and another member of the Urban Planning Committee, said he cannot express any stance when the plan itself is not concrete enough. “As far as I am concerned, it is a plan to reclaim land, like an artificial island, to connect the city,” said Leong. Like legislator Si, Leong, he agreed
that “it is reasonable to reclaim more land given the state of the city”, while saying that important information such as the location and general planning are still lacking information. When asked what to build on the new land, Leong said it depends upon the future need for the city’s development. When attending the Urban Planning Committee meeting last December, Leong had opposed the idea of locating the ‘fourth zone’ near Ha Sac Beach. “But if it is located some distance from the beach, and obviously supported by an in-depth study of the environment, if it is technically workable then I won’t object to the plan,” Leong told Business Daily. For the architect, it is more preferable for the government to focus on the development of the New Zones. “I think society can discuss the ‘fourth zone’ when there is more information about the plan in the future,” remarked Leong. advertisement
6 Business Daily Friday, June 23 2017
Macau Appointments
New CEO, top management for Hard Rock International
company as ‘a new face to the brand and industry veteran’ in the role of Senior Vice Hard Rock International has appointed three new President of Casino Development. “As we continue to grow the Hard Rock brand key executives: the CEO, Senior Vice President of Hotel Operations Development and the Senior beyond our existing footprint, we look to Lucas, Vice President of Casino Development, according Hipsh and Caffery to lead the expansion process with exciting new projects in the hard Rock to a company release. Hotels and Casinos pipeline, such as Atlantic City, Stepping into the CEO position is Jon Lucas, New York City, Shenzhen and London,” said Allen. reporting directly to Hard Rock Chairman Jim The company notes that ‘these appointments Allen. come as Hard Rock Hotel and Casino portfolio Dale Hipsh has been promoted to Senior Vice actively expands in China, Europe and key President of Hard Rock International’s hotel gateway cities around the world’. operations, while Sean Caffery is joining the
VIP gaming
Jimei junket-less Former Jack Lam’s Jimei International terminates negotiations for VIP operations with local junket promoter New International Club Ltd. Sheyla Zandonai sheyla.zandonai@macaubusiness.com
J
imei International Entertainment Group Limited has terminated negotiations to indirectly participate in a profit sharing deal with a Macau VIP gaming promoter, according to a filing by the company with the Hong Kong Stock Exchange on Wednesday after trading hours. The termination temporarily closes Jimei’s plans to expand operations in the VIP business sector in Macau, with the company noting that as at the date of the announcement ‘no agreement could be reached with the concessionaire upon such prolonged period of negotiation.’ Although the latest Jimei filing does
not identify the Macau VIP junket promoter, previous filings by the company have identified it to be New International Club Ltd. Disclosure of Jimei’s negotiations with Macau-incorporated New International Club goes back to early February 2015, when the company first indicated it was planning to partner the junket promoter, solely owned by Carlos José Lok, according to previous reports. The Macau Gaming Inspection and Co-Ordination Bureau (DICJ) had then just issued a licence to New International Club to operate VIP rooms dated December 2014. Still according to previous reports, the unwound deal refers to Jimei and New International’s agreement to operate various VIP rooms in Wynn Macau.
In the inception of the deal, the company, formerly owned a majority stake by Jack Lam Yin Lok, said it expected to get no less than 30 gaming tables in the casino and earn no less than 40 per cent of revenues generated at such tables in exchange for taking all the risks. On April 20, 2017, Lam announced he was selling his controlling stake in the company to Cosmic Leader Holdings Limited for a total consideration
of HK$443.17 million (US$56.81 million/MOP456.46). According to previous reports, the company, which runs an eponymous casino in Macau, was said to have nine high-roller rooms in various casinos in the city, such as 5n Wynn (three rooms), City of Dreams, Altira, and Sands (three). Neither Jimei nor DICJ were able to confirm this by the time this story went to print. advertisement
Business Daily Friday, June 23 2017 7
Gaming Gambling
Fake online stores reveal gamblers’ shadow banking system A multinational system disguises payments for the US$40 billion global online gambling industry Alasdair Pal
A
network of dummy online stores offering household goods has been used as a front for Internet gambling payments, a Reuters examination has found. The seven sites, operated out of Europe, purport to sell items including fabric, DVD cases, maps, gift wrap, mechanical tape, pin badges and flags. In fact, they are fake outlets, part of a multinational system to disguise payments for the US$40 billion global online gambling industry, which is illegal in many countries and some U.S. states. The findings raise questions about how e-commerce is policed worldwide. They also underline a strategy which fraud specialists say regulators, card issuers and banks have yet to tackle head-on. That strategy is “transaction laundering” - when one online merchant processes payment card transactions on behalf of another, which can help disguise the true nature of payments. Credit card companies including Visa and Mastercard require all online purchases to be coded so they can see what type of purchase is being processed and block it if it is illegal in a particular country. The codes are known as Merchant Category Codes. Gambling transactions, for example, are given the code of 7995 and subject to extra scrutiny. The scheme found by Reuters involved websites which accepted payments for household items from a reporter but did not deliver any products. Instead, staff who answered helpdesk numbers on the sites said the outlets did not sell the product advertised, but that they were used to help process gambling payments, mostly for Americans. Categorising a gambling transaction as a purchase of something else is against the rules of card issuers including Visa and Mastercard, the card companies said in response to Reuters’ findings. “Transaction laundering is serious misconduct - often criminal,” said Dan Frechtling, head of product at G2 Web Services, a financial compliance company which works with leading banks and card issuers. “It violates the merchant’s agreement with its acquirer, allows prohibited goods and services to enter the payment system, and may flout anti-money laundering laws.” Three other fraud experts consulted by Reuters said transaction laundering helps online merchants trade in areas that credit card issuers and banks may otherwise bar as “high risk,” such as gaming, pornography or drugs. Some of them say thousands of online merchants may be using similar techniques to move billions of dollars that card companies would otherwise block. “It is the digital evolution of money laundering,” said Ron Teicher, CEO of Evercompliant, a cyber-intelligence firm that works with banks to identify suspect sites. “The only thing is it is much easier to do, and much harder to get caught.”
Gateway for gamblers
The dummy stores came to Reuters’ attention in late 2016, when an anonymous document posted on the
internet pointed to three online outlets that advertised products but did not actually deliver any. In December, a reporter placed an order for a yard of burlap cloth on one of the sites, myfabricfactory.com, a website run by a UK company called Sarphone Ltd. The fabric, advertised in U.S. dollars at US$6.48 per yard, has “many uses including lightweight drapes,” the website says. Sarphone did not respond to requests for comment. This order went unmet. After a few weeks an email from My Fabric Factory arrived saying the product was out of stock. The payment was refunded.
‘A scheme found by Reuters involved websites which accepted payments for household items from a reporter but did not deliver any products’ When a reporter called the helpline number given on the site, the call was answered by someone who gave her name as Anna Richardson. She said she was employed by Agora Online Services, a payment services provider. Payment services providers (PSPs) verify, process and code card transactions. Richardson said Agora processes payments for poker and works with “hundreds” of online gambling sites. Asked which references on the reporter’s card statement would be for online gambling, Richardson said, “If you have been using a betting site of any sort ... they are normally processed by us.” It was not possible to verify Richardson’s identity. The My Fabric Factory email came from Agora’s email address, info@agrsupport.net. Agora, headquartered in Iceland and linked to companies from the UK to Germany, is owned by a Mauritius-based company, DueXX Ltd, according to Orbis, a company database. Andrej Brandt, one of two directors of Agora and listed as the sole point of contact on DueXX’s website, declined to comment. “Thank you very much for your interest but I don’t like to share my views and insights,” he said via text message after Reuters presented its findings. “I presume you understand.”
The other director of Agora, Joerg Henning, could not be reached. Reuters placed orders for household products on six other websites, all owned by companies in the UK. All the orders went unfilled and payment was refunded without comment. The sites used the same mail server as one of Agora’s web addresses, agrsupport.net, according to domain name records. The site helplines were answered by three individuals who all said they worked for Agora, a company that specialised in processing gambling payments. One was the woman who identified herself as Anna Richardson. Another gave her name as Lucy, and the third, who did not give his name, told the reporter, “Most of the people who gamble and end up having our charges on their accounts are Americans. Gambling is illegal in America.” The staff said they were based in Germany. When Reuters made payments on the seven sites, in each case the reporter’s credit details were processed by Deutsche Payment, a payment processor headquartered in Berlin. Its website says it is certified by the PCI Security Standards Council, a global payment card security body. It was included in Visa Europe’s May 2017 list of approved agents. Deutsche Payment did not respond to requests for comment. The PCI Security Standards Council said it was up to the card companies to regulate payment processors. Presented with Reuters’ findings, a spokesperson for Visa said, “We require all gaming sites to be processed under the relevant Merchant Category Code. Our rules are always subject to local law and we do not tolerate criminal activity.” A spokesperson for Mastercard said: “When we are alerted to activities that may be against our rules or against the law, we work with the merchant’s bank to confirm or investigate the allegation.” After Reuters approached the payment processing companies, all seven online stores stopped accepting payments, although they remain visible online.
Ecosystem
Illicit gaming is hard to detect, partly because those involved cooperate to hide what they are doing, said Scott Talbot, head of government relations at the Electronic Transactions Association, a trade organisation for the payment processing industry that counts some of the world’s largest banks as members. Also, sites like those found by Reuters are small cogs in a complex global infrastructure. “Illicit finance is incredibly
creative,” said Gregory Lisa, a partner at law firm Hogan Lovells who has worked for the U.S. Treasury Department’s Financial Crimes Enforcement Network and as a trial attorney for the U.S. Department of Justice prosecuting money-laundering and fraud cases. “It is a very difficult arms race between the government and illicit actors and their financiers.” Fraud specialists say dummy stores like those found by Reuters are not meant to be visited by the normal public. They are designed to be hard to spot, and their role is simply as a shop front to back up the bogus description. Gambling sites that operate in countries where online gaming is illegal will take payment through their own sites, but then simply program the sites to give a reference to sites like the dummy stores in payment records, the consultancy Evercompliant says. As far as the gambler is concerned, their payment has gone to the gambling site. Only when they see their card statement do they find a reference to the bogus store. If they visit the store and call the helpline number, the people who answer explain that the transaction actually corresponds to gambling – as Agora staff told the Reuters reporter. Evercompliant, which has developed proprietary technology to help large banks and finance firms check sites they deal with, analysed the seven dummy stores at Reuters’ request. It found they were part of what it called an “ecosystem” of nearly 50 interlinked websites, owned by companies in countries ranging from Georgia to Latvia. It analysed these sites and said if it had found such a network in a bank’s portfolio of customers, it would suspect transaction laundering, CEO Teicher said.
Loopholes
Such sites get around checks by credit card companies by using loopholes in the system, according to Frechtling at G2. Some banks rely on payment processors to vet online merchants. While most PSP firms are legitimate, their due diligence can be perfunctory, he said. “Some PSPs will make a basic anti-money laundering check - for example, using sanctions lists,” he said. “But they may not do a full vetting of you until you start transacting. That is a weak link. “Transaction laundering directly through a bank doing thorough due diligence would be relatively difficult, but at a PSP that is sponsored by a bank it is often easier.” It was not possible for Reuters to determine which bank or banks work with Deutsche Payment or Agora. The UK firms that own the seven dummy online stores were set up by Simon Dowson, whose company formation agency closed down in 2015 after businesses it set up were involved in global scams including money-laundering. Reuters revealed last year how Dowson used residents of the English town of Consett as part of the scheme. Dowson’s wife, Tanaporn Thompson, also known as Tanaporn Dowson, was named as director of Sarphone Ltd, the owner of My Fabric Factory, for a week in January 2017. She could not be reached. The person named in the UK company register as having ultimate control of Sarphone is another Consett resident, Emma Chambers. Chambers and Dowson did not respond to requests for comment for this story. Reuters
8 Business Daily Friday, June 23 2017
Consigliere
Summer Time
When bad things happen to rich people: Juicy books for summer Grant Ginder’s “The People We Hate at the Wedding” is a saucy beach read suited to this age of Trump. Troy Patterson
I
t’s that time of year when talk turns to beach reads, those narratives appropriate for a vacationer’s seaside repose. The greatest such book is Tender Is the Night, F. Scott Fitzgerald’s fourth and (no arguing) best novel. It’s set on a beach, first of all, deploying the French Riviera as a stage on which we witness, with sympathy and delight, the misfortunes of the very fortunate. Its excellence resides in Fitzgerald’s eye for trampled glamour, his ear for voices full of money, and his penetrating wit, as when he describes a woman’s shadowy social position “as the wife of an arriviste who had not arrived.” The glitziest exemplars from this season’s mailbag include Rich People Problems, the latest instalment of Kevin Kwan’s franchise exploring the shopaholic progeny of East Asian tycoons, and The Destroyers, Christopher Bollen’s thriller about a disinherited New Yorker joining spoiled brats and sundry freeloaders on the Greek island of Patmos. But I prefer The People We Hate at the Wedding (Flatiron Books, US$25.99), the third novel by Grant Ginder. The summer’s most compelling fictional exploration of affluence and envy, it skilfully mingles the introspective ways of a domestic novel with the juicy stratagems of a page turner. The bride is Eloise, a wealthy woman with an American mother, an aristocratic French father, and a job in public relations at what the Daily Mail calls one of England’s “top 5 most shallow charities.” Wedding guests include Eloise’s two half-siblings, Paul and Alice, the children from
her mother’s second marriage, to an accountant in suburban Chicago. And, of course, the mother, Donna, who’s now both a divorcée and a widow. She’s also a stoner. And can’t find a thing to wear. The book’s sensitivity about the ways in which wealth informs personal relationships is matched by its examination of how it deforms them. The resentment of Eloise’s half- siblings—on account of her privileges and their sense that their “mother always treated Eloise a little differently”—runs deep. The first chapter finds Paul and Alice marshalling their resources of math, logic, and internet access to estimate that Eloise spent US$4,500 on invitations. Their passionate analysis of paper stock recalls the intensity of American Psycho’s Patrick Bateman, seeming to foreshadow sororicidal mayhem. The bloodshed here, however, is contained to a paper cut Alice sustains when ripping open the invitation.
Sucking on the wounded finger, she cringes “at the metallic taste: her blood … was nothing but a fistful of pennies.” The author is capable of describing more nuanced psychological knots, as when Alice, who works at a company called Think Big Data, reflects on the wealth of her boss, who’s also her illicit lover: “Typically, confronting unchecked privilege sends her into a rage, a downward spiral that begins with frustration over the moral wrongness of global inequality and ends with (and she knows this is bad) a sort of s olipsistic meditation on all the nice things she can’t afford, but others (read: her sister) can.” It is Ginder’s nature to lay things on thick, though in a pleasant way, as if spreading herbed ricotta on artisanal bread. There’s a bravura set piece in which Alice, in England for the wedding, books a room at the deluxe London hotel Claridge’s to impress Eloise, never mind the US$6,000 of further credit card debt she’ll accrue. At check-in, she learns that Eloise has paid not only for the room but also for an upgrade and all incidentals. Alice’s reaction to this masterpiece of p assive aggression—an act of showing off
masquerading as one of g enerosity—is to binge on minibar booze, Klonopin, and room service: “I’d like five English breakfasts please.” Her desperate self-defilement makes for a great, grotesque scene. Money is a comprehensive subject of inquiry here, on every level—sociological, emotional, and literary. Paul’s boyfriend, Mark, is a behavioural economist with an unbecoming obsession with the currency of prestige. Perhaps you can guess where things are heading when Mark arranges for him and Paul to stay with a colleague whose research involves “the risk-reward analysis of remaining faithful in monogamous relationships.” Alice’s boss, meanwhile, is an upto-the-minute incarnation of techguy vanity. She, for her part, selects the spots for their clandestine dinners by looking at the restaurants’ websites and waiting to feel “the strange arousal she often experienced while flipping through catalogues from Room & Board and travel brochures from American Express.” The People We Hate at the Wedding leaves the reader feeling both compassion for and condescension toward the unrich siblings, for whom the category of “people we hate” clearly includes “ourselves.” The book is, in this way, especially well-suited to this summer of our discontent. The first sunny season of the Trump era is sure to inspire chaise-longue jitters about the ascent of moneyed vulgarity and whether one’s own back—ramrod straight with anti-Trumpism though it might be—could be among the first against the wall when the revolution comes. The laughter the novel inspires, at Alice’s screwball adventures in status anxiety and at Eloise’s demented quest for 3,000 unscented white 10-hour votive candles, is cathartic. Like all the best beach reads, it eats the rich like so many frozen grapes. Bloomberg
Business Daily Friday, June 23 2017 9
Consigliere
Seven things you should never cook on the grill Top chefs crush your summer dreams, from shish kebab to salmon and beyond. Kate Krader
F
ew things conjure up the feeling of summer like a fully loaded grill. Steak and burgers, a couple salmon fillets, charring over fire while someone in an ironic apron flips and turns, beer in hand. We interrupt this idyllic scene to report a problem here. You’re grilling the wrong things. That burger there? If you want the best, juiciest, well-seared beef, take that patty off the grates, argues chef Daniel Herget, of Little Octopus in Nashville, Tennessee. And that salmon? Take it back inside. Because it’s the season when food magazines are out there trying to get you to grill everything from chickpeas to scallops, we spoke with top chefs around the country to find out which foods you absolutely should not put over the coals. They came back with a whole roster of no-nos, from pizza to flaky fish. They’re best cooked in other ways. The following list is simply a guide. Feel free to grill anything and everything you want to—grilling is all about freedom, after all. But don’t say we didn’t warn you.
The do not grill list Filet mignon Who says? Craig Koketsu, Quality Meats, New York Why: “Filet is a lean cut, so it doesn’t get the same, nice caramelization over the grill as a more fatty cut like a ribeye, where the fat from the steak itself essentially fries the outside as it cooks over the flame. For that reason, I like to sear filet in a cast-iron pan so that I can get that nice Maillard [browning] reaction all around the steak. It adds more flavour to what it a pretty mild cut of meat. Also, because filet tends to be cut more thickly, it’s much easier to get an even rosé colour throughout the steak by cooking it in the pan. The same is true for leaner cuts of meat in general.”
Pizza Who says? Michael Friedman, chef and co-owner of the outstanding All-Purpose in Washington. Why: “Grilling pizza is just a bad idea. Home grills, as a rule, heat very unevenly. Also, because of outdoor elements, the minute the grill is opened, it loses heat. The best pizza doughs out there have very high hydration, meaning the doughs are very wet. To try and lay down a wet dough on a somewhat hot surface will most likely result in a very disappointing experience. If you reduce hydration and are able to roll out a decent piece of dough, you’re still going to have major issues removing the dough from the grill itself, especially after you add toppings. [If you use a pizza stone, you still face the issue of the toppings.] I just don’t think the grill can retain enough heat to cook the toppings as much as one would like. In the end, of course you can try to grill pizza. Whether it will be to your liking or not is another story.”
Salmon Who says? Edward Lee, of 610 Magnolia in Louisville, Kentucky, and star of Mind of a Chef. Why: “I don’t understand why so many folks grill salmon. The best part
is the fatty oils, which render out on a hot grill—leaving a dry, overcooked piece of fish that was once succulent and fragrant. Salmon needs low-andslow heat to just cook the flesh.”
More . . . with less
Shish kebab Who says? Sang Yoon, whose empire includes Father’s Office and Lukshon, in Los Angeles, and Two Birds One Stone, in St. Helena, California Why: “Shish kabab needs to stop. I have no issue with grilled meat on a stick, or grilled veg on a stick. Just not on the same stick. Proteins and produce cook very differently and require very different timing. It is physically impossible to cook everything correctly on one skewer. The worst offense is when I see cherry tomatoes sharing a stick with some chicken. When making kabobs, you should separate your ingredients on their own sticks so they can be cooked properly to their own timing. This way you can also season each ingredient independently. Sometimes together is not better.”
Flaky fish Who says? Josh Capon, Bowery Meat Co., New York Why: “Stay away from grilling white flakey fish like Cod. Stick with meatier, firm-flesh, steak-ier cuts if you will, like swordfish or tuna.”
Who else says? Giuseppe Tentori of GT Fish & Oyster and GT Prime, Chicago Why: “I never put halibut, cod, or any other delicate, flaky fish on the grill, because the fire and smoke will completely take over the flavour.” Bloomberg
The new generation - Generation Y or Millennial - are always considered avid users of social media yet very committed, fans of raw food yet addicted to luxury labels. In my opinion, they’re just braver than previous generations in terms of seeking meaning, freedom and values in everything, in expressing themselves and trying new things. These free spirits have in common a ‘more with less’ philosophy, of consumption. This spirit, however, is not exclusive to the new generation but common characteristics of most modern-day humans. The woman of today eat healthily be more beautiful. She lightens her beauty rituals to reveal fresh, vibrant skin that is so sexy, needing no makeup. Having grown up in the era of nude beauty, she has been raised in the cult of perfect skin. For her, Dior created the Dior Life collection in June, the best of nature, for skin that breathes and is full of life. This collection is committed to offering products that are gentler on the skin and more eco-friendly, to purifying all its products of preservatives and minimising the presence of silicone and petrochemical derivatives, while ensuring their exquisitely sensorial qualities. Dior Life offers a programme that is delightful from morning to night. Cleansing is always the priority for skincare. Every morning, in just one step, the Lotion to Foam Fresh Cleanser provides you with a clean, alluring and energised skin, while helping refresh your mind before meeting all the challenges of the day. Apart from the traditional cleanser, Dior Life has innovated a new texture cleaning product Time to Glow Ultra Fine Exfoliating Powder. The powder creates a huge amount of form to provide a super-exfoliate enabling the skin to regain its inner balance, magnifying its radiance. Upon returning home after a hard day’s work, removing makeup is mandatory. Thorough makeup removal really enhances the efficacy of the skincare process afterwards. No matter daily makeup or heavy makeup, Micellar Water – No Rinse Cleanser and Oil to Milk – Makeup Removing Cleanser offers you the unique experience of an intense cleanse that is gentle on skin flora in just a few minutes. After cleaning, place one to two drops of Sorbet Water Essence then apply Sorbet Crème for maximum hydration, making your skin instantly plumped, supple and radiant. Appealing to modern women pursuing speed and quality, Dior Life introduces three delightful masks offering three sensational experiences and three results in three minutes flat. The citrus-coloured Fresh Jelly Mask energises skin via a gentle peel with fruit acids and a mechanical scrub. For those requiring a deep cleanse, the creamy Pink Clay Mask contains natural minerals and Jojoba extract to help rebalance the skin - purifying and leaving the face feeling ultra fresh. In the hot weather, your skin can enjoy a cool cocktail by using Smooth Balm Mask. The peach-coloured whipped texture envelops the face, infusing it with a unique plumpness, leaving the skin intensely nourished. Edwina Liu, Editor of Essential Macau
10 Business Daily Friday, June 23 2017
Greater China Gauge
Mainland goes shopping to better take pulse of consumer economy A new mall index covers 58 cities in 26 provinces China is turning to shopping malls and convenience stores to better gauge spending in the world’s largest consumer market, the latest step toward upgrading its economic indicators. The gauges measure operations for those businesses on a scale of 0 to 100, in which 50 is the dividing line between improving and deteriorating conditions, with sub-gauges that include manager expectations and the overall business environment, the Ministry of Commerce said in a statement yesterday. It will publish the data in the first month of each quarter to reflect activity in the prior three-month period. “As China’s retail sales keep expanding, innovating and updating at a faster pace, shopping malls and convenience stores stand out as the most rapidly developing brick-andmortar models,” Sun Jiwen, a ministry spokesman, said at a briefing in Beijing. The new readings show the government pushing ahead with efforts to track to consumption, which is increasingly replacing smokestack industries as the dominant economic driver. Consumption contributed
77.2 per cent to economic expansion in the first quarter, up from 64.6 per cent the prior year, according to data from the National Bureau of Statistics.
National scope
The mall index covers 58 cities in 26 provinces, while the convenience store indicator is compiled from surveys conducted in more than 30 cities, the ministry said in its statement. The ministry has contracted with the China Chain Store and Franchise
Association, a Beijing-based industry group, to compile the index, Sun said. The organization has more than 1,000 members with 300,000 outlets, according to its website. Sun said the convenience store index indicated rapid expansion with a 72.2 reading for the last quarter, though he didn’t provide any historical comparisons. Cities such as Shenzhen, Taiyuan and Changsha showed the fastest growth in the small shops, he said.
The ministry didn’t release first quarter data for malls. It said it will publish that reading and both second-quarter indicators next month. “The gauges will provide more information and help us understand the economy better,” said Zhao Hongyan, Hong Kong-based China economist at Huatai Financial Holdings Ltd. “Consumption has been a new growth driver, and it has been steady. We hope that it can be a more important pillar of the economy. “ Bloomberg News
M&A
EU to resist Macron’s call to curb Mainland takeovers Chinese direct investment in the European Union jumped by 77 per cent last year while EU acquisitions in China fell for the second consecutive year Robin Emmott and Gabriela Baczynska
European leaders will resist French President Emmanuel Macron’s call to curb foreign takeovers in strategic industries, agreeing only to scrutinise investments but not consider a new EU law against them, four senior diplomats said yesterday. While state-owned ChemChina’s US$43 billion purchase of Swiss farm company Syngenta deepened concerns that Europe was ceding control of its advanced technology, many EU governments are too reliant on Chinese investment to limit Beijing’s reach, the diplomats said. “I don’t think blocking Chinese investments is on the cards,” one senior EU official said of the two-day summit in Brussels from yesterday, where leaders are set to discuss Macron’s ideas for a so-called protective Europe that limits what many French
see as damaging aspects of globalisation. Macron, at his first EU summit since winning power in May, wants to make good on his election call for an EU mechanism to control foreign takeovers of important industries. He has found support from Germany and Italy. Berlin, Paris and Rome are upset that the European Commission, the bloc’s competition regulator, approved China’s purchase of Syngenta, Beijing’s biggest overseas sale to date, at a time when China maintains restrictions on foreign investment. Chinese direct investment in the European Union jumped by 77 per cent last year to more than 35 billion euros ($38 billion), compared to 2015, while EU acquisitions in China fell for the second consecutive year, according to the Rhodium Group. “Europeans must understand that their mission is to
regulate globalisation, being open but also very firm when competition is unfair,” said a French presidency official. But smaller European countries dependent on Chinese investment such as Hungary and Greece, where China has a majority stake in the country’s main port, reject any steps against Beijing, going as far as to block EU statements criticising China’s human rights record. The French official acknowledged that some EU states were not prepared to let an EU institution take decisions for them. “About half of member states already have their own domestic legislation on foreign investment. We’re not
ready for a European system yet,” the French official said. Fre e-trade advocates such as Sweden also want to avoid any measures that might contradict the bloc’s rejection of the protectionism promoted by U.S. President Donald Trump. In a compromise, EU leaders will agree to “examine ways to identify and screen investments from third countries in strategic sectors” according to a draft summit statement, which the French official said was already progress. They will also stress the need for “respecting member states competences”, EU code for limiting the power of the Commission.
French President Emmanuel Macron
One EU diplomat said that the summit declaration would essentially mean agreeing only to ask the Commission to provide guidelines on foreign takeovers. “We don’t expect any legislative proposals,” the diplomat said.
Key Points New French president made limits part of election campaign Chinese investment in EU surged in 2016; flows to China fell The issue highlights broader tensions with China, the EU’s second-largest trade partner. Beijing is seen as an ally in the fight against climate change and Brussels welcomed President Xi Jinping’s call for free trade at a speech in Davos in January. But an EU-China summit in Brussels this month failed to agree a joint statement for the second year running, a diplomatic embarrassment as both sides disagreed over China’s global trading status and whether Beijing should face harsh EU duties against low-cost exports. Reuters
Business Daily Friday, June 23 2017 11
Greater Asia PBOC adviser
Mainland not facing same pressure as Fed to shrink balance sheet While the PBOC’s policy stance has also been seen as super loose since the financial crisis, China’s economic stimulus has been more direct China’s central bank will not take action to shrink its balance sheet like the U.S. Federal Reserve as it does not face the same pressures due to its use of different policy tools, an adviser to the People’s Bank of China (PBOC) said yesterday. The Fed is looking to start reducing its massive US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities beginning later this year. Most of the assets were purchased in the wake of the 2007-2009 financial crisis and recession.
portfolio of securities assets that need to be dealt with and foreign exchange accounts are impacted by capital flows, which can be hedged by adjusted other subjects,” he said. The PBOC also held a neutral monetary policy, he added, while the Fed is aiming to gradually normalise ultra-loose conditions. Sheng also said that while the Fed’s balance sheet expanded rapidly during the financial crisis, from less than US$900 billion before 2007 to US$4.5 trillion in 2014, the PBOC’s balance sheet less than doubled in size during
that period. The Federal Reserve raised interest rates last week for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year in a bid to shrink its balance sheet. While the PBOC’s policy stance has also been seen as super loose since the financial crisis, China’s economic stimulus has been more direct - largely coming in the form of credit extended by big state-controlled banks and increased government spending on items like big infrastructure projects. Aggregate financing in China, which includes bank loans as well as off-balance sheet lending, surged in March and was a record in the first quarter. Reuters
“The balance sheet structures of China and the United States’ are very different” Sheng Songcheng, former director-general of statistics and research at the China’s central bank
However, the PBOC’s assets are mainly foreign exchange-based, Sheng Songcheng, former director-general of statistics and research at the central bank, wrote in the Shanghai Securities News. “The balance sheet structures of China and the United States’ are very different,” he wrote in the newspaper. “The PBOC does not have the huge
Stats bureau
Producer inflation perceived to be basically stable China’s producer price inflation (PPI) is expected to be basically stable in the coming months, Liu Aihua, a spokeswoman for China’s National Bureau of Statistics, told reporters yesterday. China’s producer price inflation eased for the third straight month in May on tumbling prices of raw materials, signalling a broader cooling in economic activity as profits are squeezed by slackening domestic demand and rising financing costs. e-commerce
JD.com to invest in UK fashion retailer Farfetch JD.com Inc, China’s No.2 e-commerce firm, said it would invest US$397 million in fashion retailer Farfetch UK Ltd to expand its luxury offerings, amid fierce competition with Alibaba Group for China’s high-end retail market. JD will become a major shareholder in the UK firm following the transaction and its CEO Richard Liu will join Farfetch’s board, it said in a statement. Farfetch will be integrated into JD’s existing logistics and marketing systems and the former will also employ JD’s online finance tools, including payment service JD Pay and microcredit feature Baitiao, the statement added. Markets
Top regulator pledges reforms after MSCI decision
Government
Mainland needs patience to fight costly war against soil pollution Analysts say China’s soil clean-up will provide lucrative business opportunities China must show patience in its “long war” against widespread soil pollution, the environment ministry said this week, with the country facing a clean-up bill that could reach as high as RMB1 trillion (US$146.39 billion). Beijing has promised to draw up new policies and set up a dedicated fund to deal with large stretches of polluted soil caused by over mining, industrial wastewater runoffs or excessive pesticide and fertiliser use. But it said in an action plan published last year that it would aim to “stabilise” worsening soil pollution by the end of this decade and only start to make improvements by 2030. Speaking at a press briefing
In Brief
yesterday, Qiu Qiwen, head of the soil environment department of the Ministry of Environmental Protection (MEP), said the cost of cleaning up one mu (0.066 hectares) of polluted farmland in China could reach as much as 20,000 yuan (US$2,928.86). According to the last nationwide survey published in 2013, about 50 million mu (3.33 million hectares) of China’s farmland - an area the size of Belgium - was too polluted to grow crops. That would put total clean-up costs at RMB1 trillion. “Soil pollution does not form overnight and the problem cannot be solved overnight,” said Qiu, adding that China “must have patience to
fight the long war ahead”. Analysts say China’s soil clean-up will provide lucrative business opportunities for a growing number of specialist environmental firms, but it is still unclear who will foot the bill, especially in the countryside. Qiu said Beijing has already allocated a budget of 14.6 billion yuan to cover nationwide soil remediation projects from last year until the end of the first half of 2017. One firm already benefiting from that fund is Beijing Geoenviron Engineering & Technology, which said last month that a 121.9 million yuan project in southwest China to remediate soil contaminated by heavy metals would be financed by the government.
‘The cost of cleaning up one 0.066 hectares of polluted farmland in China could reach as much as US$2,928.86’ “Treating and recovering polluted soil is very difficult and costly, and requires a long cycle,” Qiu said. He said China would publish the results of its latest survey on soil pollution after 2020. It will also identify polluted farmland and assess its impact on the quality of agricultural products by the end of next year. Some of the measures being considered to clean up China’s soil include rotating crops and turning farmland into forest, Qiu said. Reuters
China’s top regulator will work to improve the systems and rules for foreigners investing in the country’s “A” shares, after 222 Chinese blue-chip companies were accepted for inclusion in a leading emerging markets benchmark, state media reported. Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), told state broadcaster CCTV late on Wednesday that the regulator would implement reforms to internationalise the market, improve investors’ access to the market, and encourage the development of products such as derivatives. Energy
Government to cut thermal power surcharges China’s state planner will reduce surcharges paid by coal-fired power producers, paving the way for the first increases in wholesale power prices since 2011, according to a document sent to regional officials and power producers and seen by Reuters. The change will take effect from July 1, said the document sent by the National Development and Reform Commission, and will help utilities manage rising coal prices. “Power generators have been complaining about losses since last year as coal prices increase, so a tariff decrease is much expected,” said Li Rong, power analyst with consultancy SIA Energy.
12 Business Daily Friday, June 23 2017
Greater China
Horse racing
Hong Kong Jockey Club looks overseas as bets decline Gambling on horse racing has grown an anaemic 1 per cent a year on average for two decades Bruce Einhorn and Daniela Wei
B
eforeHong Kong’s return to Chinese rule, Communist leader Deng Xiaoping had a reassuring message for those worried about the departure of the British from the capitalist enclave. Don’t fret, the architect of the handover said: “Horses will still run, stocks will still sizzle, dancers will still dance.” The dancing has continued, the stock market isn’t far off its record high, and the horses indeed still run. Yet 20 years after the handover to China, one of the city’s most-venerable institutions, the Hong Kong Jockey Club, which has been called an “ATM for the government” for its huge contributions to the city’s tax coffers and charity efforts, is facing trouble. Disinterest among many young people and an upcoming bridge link to the glittering casinos of Macau threaten the future of the m o n e y -s p i n n i n g ga m bling monopoly. Already the amount bet on racing fell 1.7 per cent in the latest season for which numbers are available, ending mid-July 2016, from the previous year. While it’s still a lot of money — that HK$106.1 billion (US$13.6 billion) was almost 30 per cent more than the total of the most-common type of betting on thoroughbreds in all of the U.S . — gambling on horse racing has grown an anaemic 1 per cent a year on average for two decades. “The pressure is on them to remain relevant,” said David Dodwell, chief executive officer of Strategic Access Ltd., a Hong Kong-based public policy consultancy. “An awful lot of the welfare infrastructure that has been built
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over the decades in Hong Kong is attributable to it.” Finding new sources of cash from allowing simultaneous betting in places like London and New York, as well as increasing the appeal to younger people at home, are critical to keeping a major funding engine of the Hong Kong government racing ahead. The Jockey Club is also expanding into China, a move that could position it well should betting on horses, halted after the 1949 revolution, someday return. The Jockey Club accounted for about 7 per cent of Hong Kong tax revenue last year — equivalent to a third of the city’s education budget and 35 per cent of its social welfare spending. It donated HK$3.9 billion to schools, hospitals and other charities, making it the largest donor in Asia and the sixth largest worldwide, according to the World Charity Index. The government is also relying on the club rather than the legislature to fund a controversial museum project. “It has become a kind of ATM for the government,” said Tanya Chan, a Legislative Council member and government critic. “The government knows very well where to go if they want a substantial sum of money.” The Club’s voting members and stewards read like a Who’s Who List of Hong Kong’s richest and most powerful, including billionaires who control virtually all of the city’s significant property, retail, entertainment, utilities and infrastructure building, along with other business luminaries: Li Ka-shing, Lee Shau Kee, Henry Cheng, Stanley Ho, Allan Zeman and Canning Fok. Major powerhouses of politics are there, too: Former
Chief Justice Andrew Li; former Finance Secretary and Chief Secretary Henry Tang; former head of the Hong Kong Monetary Authority, Joseph Yam, who on Thursday was appointed to the city’s Executive Council, or cabinet; and former Legislative Council President Rita Fan. “For a long time, it has been a place where entrepreneurs and officials can mix together and have the same status,” said Eddie Chu, another LegCo member and government critic. “The Jockey Club maintains its power not by horse racing but by its network of powerful people gathering together.”
‘The Jockey Club accounted for about 7 per cent of Hong Kong tax revenue last year’ With two race tracks, more than 100 off-track betting outlets, soccer-wagering services and a lottery, the club can be generous because generations of Hong Kongers grew up spending their money and time at the track. “My friends and I were crazy about horse gambling 20 years ago,” said Tony Yu, 40, a construction company manager who used to spend several hundred Hong Kong dollars on tickets and beers at the track, especially on payday. Those days are long past. “Who do you see reading the horse-racing page in the newspaper and going to the Jockey Club to buy tickets? Old-timers!” The club also faces competition from across the Pearl River Delta, where Macau’s casinos “are now aggressively targeting Hong Kong,”
Jockey Club CEO Winfried Engelbrecht-Bresges wrote in the most recent annual report. With the expected completion later this year of a bridge linking the two cities for the first time, traveling to Sands China Ltd.’s Venetian and Melco Resorts & Entertainment Ltd.’s City of Dreams will be even easier. The bridge “will undoubtedly exacerbate the problem” already facing the club, Engelbrecht-Bresges wrote. The Jockey Club has found ways to keep the money flowing. One solution has been to expand the number of races per season. Back in the mid-1990s, there were 75 days in a season, with 595 races; now there are 88 in the season, with 807 races. The club also moved into soccer in 2003. Such wagering accounted for HK$86.8 billion in bets in the most recent fiscal year, up 11 per cent from the previous year. While mainland China doesn’t yet allow betting on horses, the Jockey Club is establishing a foothold there. It plans to open a new training facility across the border in Guangdong province next year. Twice the size of the Jockey Club’s facility in Hong Kong’s New Territories, the site will be able to host about 660 horses. Worldwide, the club has broadened its reach through what’s known as commingling, or allowing people overseas to bet on Hong Kong’s horses. In the 201314 season, the Jockey Club began taking bets from Australia, New Zealand, Singapore and Macau. It has also expanded its reach to South Africa, Ireland, Canada and parts of the U.S., where Hong Kong’s Happy Valley races are available via simulcast on Wednesdays at 8 a.m. New York time through TVG Network’s online betting site and cable channel, one of several operators in the U.S. with Jockey Club deals. Last November, the Jockey Club announced an
expansion to the U.K. that enables customers of Ladbrokes Coral Group Plc. and another betting shop operator to bet on Hong Kong races. The Jockey Club announced a similar agreement last year with Canadian racetrack owner and online betting services provider Woodbine Entertainment Group. Hong Kong is attractive for global gamblers, according to Ken Kirchner, former executive director of the Pennsylvania Racing Commission and president of consulting firm FalKirk International. Bettors can wager on unusual options such as a triple trio, three consecutive trifectas, and get huge pay-outs because Hong Kong’s gambling pool is large, he said. “They’re run under strict regulation and authority, so you feel like you’re betting into a very honest product,” Kirchner said. Hong Kong offers more data on horses than other venues, including the only consistent publishing of veterinary reports, said Ron Luniewski, president of Xpressbet, a Washington, Pa.-based company that provides online betting. “That’s a big deal. I give them a lot of credit for that,” he said. “In a lot of ways, Hong Kong racing is the gold standard globally.” Commingling now accounts for about 6 per cent of the Jockey Club’s betting income, according to Richard Cheung, head of marketing, and is forecast to top 10 per cent by the end of the decade. “Hong Kong is a very small place,” Cheung said. “To seek growth we must go elsewhere.” As it expands globally, the Jockey Club will still have a challenge winning back people like Yu, the construction manager. “Now I seldom bet because there are so many other options,” he said. “I earn more money than before, so I can afford to invest money in the stock market.” Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, June 23 2017 13
Asia Financial sector
In Brief
Australian banks furious after hit by new state tax The banks called the measure unfair and double-taxation Jamie Freed
An Australian state imposed a surprise tax on the country’s five biggest banks, a move that comes on top of a new US$4.6 billion federal levy - prompting predictions that other states could follow suit and howls of outrage from the sector. South Australia, the country’s fifth-largest state by population, announced a tax worth a combined A$370 million (US$280 million) over the first four years, saying it would use the proceeds to fund job-creation initiatives.
Key Points New state tax comes on top of a surprise federal levy Other states could impose similar tax - analyst Banking industry says tax “an outrageous cash grab” The head of the Australian Bankers Association Anna Bligh called the tax “an outrageous cash grab without policy substance”. Westpac Banking Corp and Australia and New Zealand Banking Group (ANZ) said the move could provoke a backlash from banks as they could decide to curtail investment in the state. The focus now turns to whether
any of the country’s other five states will follow suit and how far the banks will go to oppose the state tax. Unpopular with the public and politicians after a series of scandals, they accepted the federal tax without mounting a major marketing campaign because the measure had bipartisan support. “I would say it is definitely on the cards for other states,” said Morningstar analyst David Ellis said. “For any cash-strapped state it looks like it is just an easy option.” However, he said it was unlikely that the country’s largest state, New South Wales, would impose a similar tax because it had a strong budget surplus and would want to maintain Sydney’s reputation as an Asia-Pacific financial services hub. The banks called the measure unfair and double-taxation. “All businesses will rightly question the political risk associated with
investing in a State with a Government prepared to unfairly target an industry that has played a significant role in supporting its lagging economy,” ANZ Chief Executive Shayne Elliott said in a statement. Macquarie Group declined to comment. Representatives for Commonwealth Bank of Australia and National Australia Bank were not immediately available for comment. South Australian Treasurer Tom Koutsantonis said the five banks, which collectively reported profits of about A$30 billion last year, should contribute more to economic growth and job creation in his state. The state has the nation’s highest unemployment rate. It will impose a 6 basis point tax on 6 percent of the assets being taxed by the federal government, adding that it had derived that percentage as the state accounts for 6 percent of the national economy. Reuters
S&P
Malaysia’s 1MDB scandal, upcoming polls a challenge to sovereign rating Government sources have told Reuters that Najib could call elections in the second half of this year The corruption scandal at 1Malaysia Development Berhad (1MDB) and upcoming elections pose potential challenges for Malaysia’s sovereign rating in the short term, Standard and Poor’s said yesterday. The rating agency maintained its A-/A-2 foreign currency and A/A-1 local currency ratings on Malaysia, saying the challenges will not materially impede policy flexibility and responsiveness. It also said Malaysia’s outlook was “stable.” “On-going political challenges in relation to the corruption allegations of 1MDB, combined with the approaching elections, pose potential challenges to the sovereign rating over the near-to-medium term,” S&P said in a statement. “Those challenges could manifest themselves via a rise in the cost of refinancing Malaysia’s sizable gross external financing needs, or via non-resident outflows from Malaysia’s deep local-currency government bond market,” it said. State investment fund 1MDB is the subject of money laundering investigations in at least six countries. The U.S. Justice Department alleged in civil lawsuits filed last week that about US$4.5 billion of funds were misappropriated from 1MDB. Prime Minister Najib Razak has denied taking money from 1MDB for personal gain, after it was reported that investigators traced nearly US$700 million to his bank accounts. Najib has consistently denied any wrongdoing and local authorities have
also cleared him of any wrongdoing. Government sources have told Reuters that Najib could call elections in the second half of this year. General elections have to be held by mid-2018. S&P also flagged a few credit risks: high share of foreign ownership of Malaysia’s ringgit-denominated government bonds, and the central bank’s record-high forward position on its foreign-exchange reserves. Foreigners, who had held about half of the outstanding Malaysian government bonds, fled the market between November 2016 and March this year after the central bank said they could no longer trade in ringgit
non-deliverable forwards. Some investors started to return since April. “A continued sell-down of foreign-owned securities could undermine Malaysia’s external buffers. At the same time, we maintain that risks of external outflows are attenuated by our expectations of continued sound policymaking,” S&P said. The central bank’s short forward position hit an all-time high of US$19.1 billion in April. While Malaysia’s headline reserves have remained stable over recent months, its dollar borrowings in the form of currency swap deals have risen steadily from around US$2.8 billion in October. S&P said its forecast assumes that pressure on reserve coverage will level off over the next one to two years. Reuters
Bonds
Japan to shorten period between JGB auction, issuance sources Japan’s Ministry of Finance is to shorten the period between the auction and issuance of some Japanese government bonds, to reduce the risk for brokers who hold the bonds, sources with knowledge of the matter said yesterday. Reuters reported in March the ministry was considering the move. The MOF plans to implement the changes in May 2018, when the Japanese government bond market will move to settlement one business day after trading, compared to two business days in force now. JGB trades are settled digitally via a Bank of Japan book-entry system. Duties
India farm protests push for rise in edible oils import tax India’s government is facing mounting pressure to raise import duties on edible oils after farmers staged mass protests in key farm states amid a slump in oilseed prices to below government support levels. Local oilseed crushers are struggling to compete with cheaper edible oil imports from Indonesia, Malaysia, Brazil and Argentina, reducing demand for local rapeseed and soybeans, even after prices tumbled by a third over the past 14 months due to bumper global production. Politically powerful farm groups want the government to raise import duties, boosting margins for local oilseed crushers. Recall impact
Takata to file for bankruptcy on Monday Takata Corp will seek bankruptcy protection from creditors on Monday, two sources said, as the Japanese company faces billions of dollars in liabilities stemming from the biggest recall in automotive history. The firm, whose defective air-bag inflators have been blamed for at least 16 deaths and more than 150 injuries worldwide, will file for protection in Tokyo District Court under the Civil Rehabilitation Act, Japan’s version of U.S. Chapter 11 bankruptcy, said the sources, one of whom has direct knowledge of the matter and one who was briefed on the process. Monetary policy
RBNZ plays down currency rise New Zealand’s central bank yesterday played down the recent rise in the New Zealand dollar and shrugged off weaker economic growth at the start of the year, as it kept interest rates steady at record lows for a fourth consecutive rate review. Reserve Bank Governor Graeme Wheeler said a 3 per cent rise in the currency since May was partly due to higher export prices and that a lower currency would help rebalance the growth outlook. Growth prospects were “positive” thanks to low interest rates and changes in the 2017 Budget that would boost family income and infrastructure spending.
14 Business Daily Friday, June 23 2017
International In Brief Survey
UK factories have best month for orders since 1988 British factory orders have hit their highest level in nearly 30 years, according to a monthly Confederation of British Industry survey which might encourage Bank of England policymakers who favour an interest rate hike. The CBI said its factory order book balance jumped to +16 in June, its highest level since 1988. Economists taking part in a Reuters poll had expected a weaker reading of +7 compared with +9 in May. Export order growth was its strongest in 22 years, the CBI said, helped by the fall in the value of the pound that was triggered by last year’s Brexit vote. Portugal
Bank BIC forced to change name Portuguese bank BIC has had to change its name to EuroBic as of 27 July it said on Wednesday after a court decision said it could not keep its current name. The bank’s new name was announced by its chairman, Teixeira dos Santos, at a press conference in Lisbon following the closure of a court case filed by Banco BIG complaining that the name and image of BIC was too similar to BIG and the court found in its favour. Teixeira dos Santos acknowledged that the changeover would not be easy as 200 branches would have to change name and image in little over a month. Airshow
Airbus concedes defeat to Boeing in Paris order race Airbus conceded defeat to rival Boeing in the race for new business at the Paris Airshow yesterday, as a late haul of almost 100 aircraft failed to close a gap opened up by the launch of the American firm’s new 737 model. The European plane maker said it won 326 net new orders and commitments against its estimate of a comparable Boeing tally of 443, excluding conversions from other models to support the launch of the Boeing 737 MAX 10. Airbus yesterday signed deals with AirAsia, and privately-owned Iranian carriers Zagros Airlines and Iran Airtour. Funding
Abu Dhabi fund raises stake in Noble Goldilocks Investment Co, an equity fund which is part of Abu Dhabi Financial Group, said yesterday it had increased its stake in embattled commodity trader Noble Group to 5 per cent. The increase came as the crisis-hit trader extended a key debt deadline earlier this week and continued talks with potential investors to boost liquidity. The Singapore-listed firm has been buffeted by a collapsing share price, credit downgrades, management upheavals and a series of write-downs and asset sales. Goldilocks, which previously owned 1.18 per cent of Noble shares, said it purchased an additional 50.546 million shares on Tuesday to take its take to 5.0 per cent.
Markets
Falling inflation expectations keep euro zone yields near multi-month lows Oil turned lower yesterday after posting gains earlier in the session Abhinav Ramnarayan
M
any euro zone government bond yields were close to multi-month lows yesterday as falling oil prices added to concerns about inflation and whether the European Central Bank would be able to tighten policy any time soon. Triggered by Wednesday’s sharp fall in oil prices, a key gauge of longterm euro zone inflation expectations closed in on 1.50 per cent for the first time this year, well off its February peak of 1.80 per cent. This raises further doubts about the ECB’s ability to meet its inflation target of just below 2 per cent, analysts said. “It’s not good news for the ECB and it maybe reinforces expectations that Draghi can’t get inflation back on target, a problem in the U.S. as well at the moment,” said ING strategist Martin van Vliet. “At the end of the day, if inflation is not reviving, the ECB needs to keep a loose policy stance, which helps the periphery in particular.” Lower-rated southern European government bonds are seen as the biggest beneficiaries of the ECB’s bond buying scheme. Italian and Spanish 10-year borrowing costs were both down 2 basis points yesterday, both close to multi-month lows.
These bonds have also benefited from a reduction of political risk in Italy, after the possibility of a snap election faded and anti-establishment party 5-Star Movement suffered a beating in local votes. But many higher-rated euro zone government bond yields are not far off recent lows either. Germany’s 10-year yield , the benchmark for the region, shed a basis point yesterday to trade at 0.25 per cent, not far from a one-month low of 0.225 per cent hit last week.
French and Belgian 10-year borrowing costs are also close to their lowest levels of 2017. “Central bankers would have thought that after a year weakness in oil would have been washed away but you can see in the market that market-based inflation expectations move closely with oil prices, for instance the five-year, five-year forward in Europe,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. Oil turned lower yesterday after posting gains earlier in the session as traders looked ready to test new lows for crude prices with worries persisting over a global glut. Reuters
Aviation
Inflight Internet ready to take off Euroconsult estimates that revenues to suppliers for providing inflight Internet connectivity topped US$1 billion in 2016 and should reach US$6.5 billion by 2026 Inflight Internet access, a nascent market still hobbled by slow speeds, is set to take off as dedicated satellites make surfing in the skies a reality, experts say. Even bans on bringing laptops and tablets on board imposed by Britain and the United States on flights departing from certain airports won’t halt it, industry players and analysts gathered at the Paris Air Show believe. “It is undeniably a trend. The main thing is to jump on the wave at the right moment,” said Marc Rochet, chief executive of the low-cost airline French Blue, about the technology which is rapidly evolving but comes with a high price tag. By 2021 more than 17,000 airliners -- or nearly half the global fleet of commercial aircraft -- will be equipped for inflight Internet, according to a recent study by the Euroconsult firm. That is close to triple the 6,500 planes equipped in 2016. The increase is being driven by a new generation of satellites that allow the use of smaller and lighter antennae on aircraft, as well as greater coverage by land-based systems. This allows for higher data transmission speeds making the experience for users much as they get at home, and not the slow and spotty connections available so far. It is a far cry from the early systems that began to be introduced around five years ago that allowed users to consult emails.
‘Game changer’
The United States was the pioneer in developing a network of ground
antennae for inflight Internet. There, some 4,000 planes are equipped for inflight Internet compared with just hundreds in Europe. In 2016 new satellites capable of supporting video and television streaming, games and social media began to be deployed. “The ability to support video streaming on a large scale shall be a game changer,” said Euroconsult.
“The ability to support video streaming on a large scale shall be a game changer” Ethan Edwards, Euroconsult
According to William Huot-Marchand, sales director at the inflight entertainment division at the aerospace firm Thales, there is also a generational change underway in airline passengers. If previously most passengers accepted flights as a time to disconnect, younger generations, particularly millennials, don’t appreciate the forced withdrawal from social media and online access. Euroconsult estimates that revenues to suppliers for providing inflight Internet connectivity topped US$1 billion in 2016 and should reach US$6.5 billion by 2026. But the investment isn’t negligible,
with the cost of equipping each plane running up to half a million euros.
Captive audience
The airlines which have taken the plunge are using different pricing models. Some offer inflight Internet as a free perk. Others charge by the hour, flight, or even offer longer subscriptions as a way to recoup their costs and avoid overloading the available bandwidth. With passengers being in effect being a captive audience, some airlines are considering how to use it as a means to boost on-board sales. It can also help reduce losses, helping airlines to recoup their investments. “Today there are fraudulent transactions onboard” as card transactions for inflight sales are not verified, said Sebastien Maire, an aeronautics expert at the Olivier Wyman consultancy. He put the annual losses at 90 million euros (US$100 million). Security is another worry for airlines and equipment manufacturers who want to make sure inflight Internet access isn’t used as a means to mount a cyber attack on an aircraft. “The issue of cybersecurity is at the centre of our preoccupations. Every day there are new threats and every day you have to anticipate them,” Huot-Marchand at Thales, one of the leading global firms in cybersecurity, said. Even if the United States and other nations broaden a ban to bringing laptops and tablets, the widespread use of smartphones by consumers to watch videos, write emails and use social networks mean that there will still be growing demand for Internet connectivity. “And while the recent U.S. and UK bans of personal electronic devices on certain flights might impact dynamics if extended, we believe that aero connectivity is poised for structural growth,” Euroconsult chief executive Pacome Revillon said recently. AFP
Business Daily Friday, June 23 2017 15
Opinion China gets in the MSCI. Now comes the hard part David Millhouse a Bloomberg columnist
T
he China Securities Regulatory Commission stated that MSCI Inc.’s decision to include the nation’s stocks in its benchmark equity indexes for the first time reflected global investors’ confidence in China’s economy and capital markets. The naysayers were quick to point out that just 222 large-cap shares will be included, accounting for a 0.73 per cent weighting in the MSCI Emerging Markets Index. That’s tiny considering China is the world’s second-largest stock market. I believe that it’s strategically important for China for several reasons, and officials need to use this as an opportunity to advance reforms in the nation’s capital markets. At its core, MSCI’s decision is an acknowledgement of the significant progress China has made on reforms in the past year. Accessibility of the A-share market for global investors has been the key reason for previous rejections from MSCI, and the development of the Shanghai and Shenzhen stock connects have been important developments to overcome this hurdle. MSCI noted that “Institutional investors viewed the Stock Connect as a more flexible access framework compared to the QFII and RQFII regimes.” CSRC Chairman Liu Shiyu has also taken steps to create a more robust regulatory regime, which has made the equity market more suitable for international institutional investors. Plus, this is more recognition of China’s growing influence in the world economy and financial markets, similar to the yuan’s inclusion in the International Monetary Fund’s Special Drawing Rights program last year. After the announcement, the Shanghai Stock Exchange said in a statement that the “Exchange will actively explore new models and mechanisms for internationalization, and plans to keep building the blue chip market and ‘smoothly’ develop derivatives and funds markets.” MSCI noted that p o t e n ti a l n ext steps include a bigger so-called inclusion factor, which would increase the weighting of Chinese shares in the index over time, if China continued to progress on their reform agenda. Fewer restrictions on capital flows and the development of index futures for international investors are two important hurdles that have been identified by global investors. Additionally, reform of the IPO mechanism is important for China as a way of improving the allocation of capital and reducing corporate reliance on bank loans. In the first quarter, only 4.25 per cent of non-financial total social financing came from the stock market, at a time when corporate debt exceeds 150 per cent of gross domestic product. Another benefit is that China’s stock markets should become more institutional and grow over time. At present, China’s stock markets are dominated by retail investors, with domestic and foreign institutional investors accounting for a smaller proportion of turnover compared with major developed stock markets elsewhere. MSCI stated that the initial inclusion plan will mean more than US$17 billion of international inflows to the Chinese market, with the amount increase over time to an estimated US$30 billion to US$35 billion once MSCI boosts the universe to 450 shares from 222. More institutional capital has the potential to help reduce volatility in the market. I expect the progress on the equity market to be extended to the domestic corporate bond market. The Hong Kong Exchange recently confirmed that the bond connect program from the mainland and Hong Kong is in the final stages of preparation. China is the world’s third-largest bond market, however trading is relatively illiquid, and foreign participation is less than 2 per cent of the market. Implementation of the bond connect program could lead to inclusion in the JPMorgan GBI EM index, the Bloomberg Barclays Global Aggregate index and the Citi World Government Bond Index. Like in the equity market, the introduction of foreign capital could boost liquidity and the size of the bond market. Finally, there will be greater scrutiny of Chinese companies as global investors now have more of an incentive to spend more time and resources on China. Bloomberg News
“Reform of the IPO mechanism is important for China as a way of improving the allocation of capital”
As psychopath CEOs destroy value, nice ones create it
S
ome enterprising manager ought to look into a Long Nice CEOs/Short Jerks hedge fund. A new UK study find that companies with leaders who show “psychopathic characteristics” destroy shareholder value, tending to have poor future returns on equity. This, coming just a year after a study finding better operating results at companies with nice leaders, suggests there may be a viable investment strategy in buying the one and betting against the other. Let’s talk about the bad apples first; they are always so much more interesting. Psychopathy is a disorder characterized by antisocial actions, excessive risk taking, egotism and a lack of empathy and remorse. Sound like any successful CEOs you know? The UK study doesn’t seek to identify psychopaths per se, but, examining senior management and company characteristics as a whole, uses a series of markers which the authors believe are highly correlated with there being psychopaths in control. “For 4 out of the 5 proxies (for psychopathy) considered the relationship with returns is statistically significant. Such results imply that managerial psychopathic behaviour is an ominous sign of shareholder wealth destruction,” Tomasz Wisniewski of the University of Leicester, and Liafisu Yekini and Ayman Omar of Coventry University write. The study measures the extent to which company annual reports use words which are aggressive, use self-absorbed language or show a tendency to blame others, all traits they theorize reveal psychopathic tendencies. As psychopaths break rules, they also measure how often companies are caught out in accounting troubles. As they are thrill seekers, the study looks at a measure of idiosyncratic company risk, and as psychopaths lack empathy, the study looks at corporate charitable donations. The upshot is though psychopaths may have some advantage in climbing the corporate ladder, once at the top they do shareholders no favours. Having psychopaths in the executive suite now points to poor returns in a year’s time, according to the study. Psychopathic behaviour in the executive suite may not be a small or isolated problem. A 2011 study of Australian white-collar managers found that 5.76 per cent could be classed psychopathic and another 10.42 per cent dysfunctional with psychopathic characteristics. “Overall, the reading of the literature reveals that the concentration of psychopaths tends to be particularly high in prisons and boardrooms,” the authors write.
“
James Saft a Reuters columnist
from academics at Harvard, the University of Chicago and Stanford, which found that CEOs who score well for “agreeableness” are associated with companies which show better operating results. Nice people, it seems, have a hard time getting ahead but do good work for those who employ them when they do. That study looked at the language executives used in conference calls with analysts, which being unscripted are perhaps more revealing, and then mapped them to the five major personality traits of agreeableness, neuroticism, conscientiousness, extraversion and openness. In terms of who gets to be a CEO it is not surprising that the group showed low levels of neuroticism, which is associated with e m o t i o n a l i n stab i l i t y , anxiety and hostility. While the mean scores for the other four traits were all more than three times higher than for neuroticism, it is striking that agreeableness was the fourth highest, with conscientiousness t h e h i g h e st . I n o t h e r words, among personality trait holders only fretful neurotics are less likely to find themselves in the C-suite than nice people. “There is a robust negative association between extraversion and return on assets and cash flow. Similarly, openness is negatively associated with profitability,” Ian Gow of Harvard University, Steven Kaplan and Anastasia Zakolyukina of the University of Chicago and David Larcker of Stanford University write. As for agreeable CEOs, they tend to spend less on R&D but have far and away the strongest positive correlation to return on assets, both in current and future terms. Earlier research has posited that agreeable CEOs do well by encouraging cooperation and less hierarchical structures and cultures. While that might make a company less “resultsorientated” it also might make it better able to make good medium- and long-term investment decisions. Less agreeable CEOs are more likely to be found at firms which are innovative and take on more risk via the use of borrowed money. In part, we may be seeing an illustration of the truism that a small growing company needs a different kind of leader than an established one. A remorseless psychopath is no-one’s idea of a good leader, while having nice people in charge is not simply a matter of preference. Investors, and companies, should work harder to weed out the one and promote the other. Reuters
A remorseless psychopath is no-one’s idea of a good leader, while having nice people in charge is not simply a matter of preference
Nice people do finish first
All of this accords well with the study last year
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16 Business Daily Friday, June 23 2017
Closing M&A
China’s dealmaking tycoons scrutinized by banking regulator The China Banking Regulatory Commission required banks to provide information on loans related to five companies’ overseas investments
C
hinese regulators stepped up scrutiny of the country’s most prolific overseas acquirers, asking banks to report their exposures to the companies after last year’s unprecedented outbound takeover spree. The China Banking Regulatory Commission asked some lenders to provide information on overseas loans made to Dalian Wanda Group Co., Anbang Insurance Group Co., HNA Group Co., Fosun International Inc. and the owner of Italian soccer team AC Milan, according to people familiar with the matter. The checks, which come a week after reports of an investigation into Anbang’s chairman, are likely to put a further chill on China’s outbound takeovers after tighter capital controls cut deal activity this year by 56 per cent from the same period in 2016. By targeting some of the country’s most powerful tycoons, Xi Jinping’s government may be sending a signal of its commitment to cleaning up the financial system before a key Communist Party leadership reshuffle later this year. “We are now in an environment where preventing financial risks is lifted as the top priority, so I think the regulators are trying to gauge the total exposure,” said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein. “Regulators must have seen some red flags.” As news of the CBRC’s request spread through China’s financial markets yesterday, shares of companies linked to Wanda and Fosun tumbled and the Shanghai Composite Index erased an early gain. The turbulence came less than 36 hours after MSCI Inc. said China’s domestic equities would join its benchmark indexes, a stark reminder for international money managers of the risks in a market where opaque regulatory decisions are commonplace. Zhiqing Liu, a deputy director at the CBRC, declined to comment specifically on the companies at a briefing in Beijing yesterday, while saying that the regulator is concerned with systemic risks posed by big firms. Fosun spokesman Chen Bo said “all
is normal” at the company. Representatives at Anbang and Wanda declined to comment, while HNA didn’t immediately comment. A representative for AC Milan’s owner didn’t return calls seeking comment. The CBRC required banks to provide information on loans related to the five companies’ overseas investments, especially in property, cinemas, hotels, entertainment businesses and sports clubs, people familiar with the matter said. Banks need to submit their assessment of potential risks for such investments and any measures they have in place to deal with risks, the people said. HNA has announced more than US$30 billion of asset purchases since last year, according to data compiled by Bloomberg, ranging from stakes in hotel operator Hilton Worldwide Holdings Inc. to asset manager SkyBridge Capital and Deutsche Bank AG. Wanda has spent more than US$10 billion, including the purchase of Hollywood film producer Legendary Entertainment, since 2016. Fosun, which owns stakes in Club Med and Cirque du Soleil Inc., has also been pursuing billions of dollars of assets overseas. Anbang’s international holdings include New York’s Waldorf Astoria hotel.
“The regulator might be reining in leveraged buyouts as the companies have been very aggressive,” said Yin Ming, vice president of Shanghai-based investment firm Baptized Capital.
Deals sputter
Chinese policy makers have already made it more difficult for acquirers to move money overseas as the government tries to stem capital outflows and prop up the yuan. The curbs have contributed to a spate of cancelled deals, including the US$1 billion purchase of Dick Clark Productions Inc. by billionaire Wang Jianlin’s Wanda. This year’s drop in announced deals is the biggest for a comparable period since the depths of the global financial crisis in 2009, according to data compiled by Bloomberg. The focus on banks’ exposures to foreign acquisitions comes against a backdrop of tightening financial conditions in China and a regulatory crackdown on risky behaviour by banks, shadow-lending institutions and insurers. Anbang’s Chairman Wu Xiaohui faces questions in a probe that includes looking into the sources of funding for Anbang’s overseas acquisitions, possible market manipulation, and “economic crimes,” people familiar with the matter have said. The investigation doesn’t mean Wu is accused of any crime or will face charges, the people said. Anbang said last week that Wu was unable
to perform his duties for personal reasons. “The CBRC investigation on overseas loans is part of the banking regulator’s recent moves to control the overall risks in the financial markets,” said Shujin Chen, chief financial analyst at Hua Tai Securities Co. Ltd. in Hong Kong. “Regulators seem to be worried about the the pace and quality of some overseas acquisitions. The investigation is a signal that China may tighten the overseas loan issuance going forward.” Shares of billionaire Guo Guangchang’s Fosun and related companies tumbled in Hong Kong, mirroring a similar rout at units of Wanda. Fosun International fell as much as 9.6 per cent, while Shanghai Fosun Pharmaceutical Group Co.’s dropped as much as 7.8 per cent. Wanda Film Holding Co. tumbled as much as 10 per cent in Shenzhen, its biggest loss since January 2016, before its shares were suspended from trading. Wanda Properties International Co.’s 2024 notes plunged as much as 10.7 cents on the dollar to 101 cents in morning trading in Hong Kong, the biggest drop on record, according to Bloomberg-compiled data. “I don’t think it’s the right time to invest or buy into these companies,” said Alex Wong, a director of asset management at Ample Capital Ltd. in Hong Kong. “Sometimes this kind of event can accelerate very quickly.” Bloomberg News
China Banking Regulatory Commission headquarters
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Surge in Thailand’s exports Foxconn plans U.S. display brightens economic outlook making plant for over US$10 bln
EU’s Tusk says Brexit can be reversed
Thailand’s customs-cleared exports rose for a third straight month in May, handily beating expectations, as global demand improved, suggesting the trade-dependent economy was gaining momentum. Exports climbed 13.2 per cent in May from a year earlier, the fastest pace in 52 months, after April’s 8.5 per cent increase, commerce ministry data showed yesterday. A Reuters poll expected a 6.3 per cent growth in May. “A global economic recovery helped lift our exports to all key markets. Shipments of capital goods and agricultural products continued to grow,” said Pimchanok Vonkhorporn, an official at the commerce ministry. In January-May, exports rose 7.2 per cent from a year earlier, the highest pace in six years. Shipments are worth about two-thirds of Southeast Asia’s second-largest economy and are just recovering after years of weakness. The ministry is confident of achieving its 2017 export growth target of 5 per cent and sees a strong baht as a short-term factor, Pimchanok said. The export growth in May was led by stronger shipments of capital goods. Reuters
EU president Donald Tusk yesterday said Brexit could be reversed as leaders gathered for a Brussels summit amid growing confidence in a future without Britain. Embattled Prime Minister Theresa May will make EU leaders an offer on the rights of expats after Britain’s withdrawal as she tries to convince them she still has a grip after her election meltdown. But Tusk, who has repeatedly said Brexit benefits no one, especially not Britain, channelled former Beatle John Lennon as he became the latest in a series of EU leaders to suggest it was not too late to change tack. “Some of my British friends have asked me whether Brexit could be reversed, and whether I could imagine an outcome where the UK stays part of the European Union,” Tusk told reporters. “I told them that in fact the European Union was built on dreams that seemed impossible to achieve, so who knows?” the former Polish premier said. “You may say I am a dreamer, but I am not the only one,” he added with a broad smile, quoting Lennon’s iconic song “Imagine.” Newly-elected French President Emmanuel Macron and German Finance Minister Wolfgang Schaeuble both said last week that the “door was open” for Britain to remain in the EU. AFP
Foxconn, the world’s largest contract electronics maker and a major Apple Inc supplier, plans to invest more than US$10 billion in a display-making factory in the United States and will decide on the location of the plant next month. The Taiwan-based firm has been eyeing U.S. investments for some time and its CEO, Terry Gou, had previously said the company hoped to spend over US$7 billion to set up a display-making plant in the country - which has no panel-making industry but is the No.2 market for televisions. Foxconn, formally known as Hon Hai Precision Industry Co, is currently considering Wisconsin, Ohio, Michigan, Pennsylvania and North Carolina as possible locations, Gou told reporters after the company’s annual shareholders meeting yesterday. “In July we will make a conclusion,” Gou said, adding the company would invest the money over five years. Foxconn operates vast factories in China, where it employs a million people and makes most of Apple’s iPhones, but so far it has not invested heavily in manufacturing in the United States. “This time we go to America, it’s not just to build a factory, but to move our entire supply chain there,” Gou told shareholders. Reuters