Local entrepreneur reboots laundry biz New economy Page 2
Thursday, June 29 2017 Year VI Nr. 1328 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Forecast
Mainland economy report points to encouraging Q2 Page 8
Canidrome
Dog races to go digital Page 6
e-payments
IACM and DSE moving forward on cashless payment Page 2
www.macaubusinessdaily.com Election
Power fight
Nomination committees approved reach 25 Page 2
Family helps oust Okada from board of directors Page 7
Grand Designs For An Icon Icon
Even with its windowless, rusting facade it remains an icon of headier times in the city. Located at the end of San Ma Lo, and first opening its doors in 1941, new life is to be breathed into the Grand Hotel. When - gov’t licences willing, and two years later – it should blossom into a boutique hotel. Page 3
No smoke without fire
MGM back on track
Legislation Evaluation of the new proposal of the smoking law is expected to be completed next week. So says committee chairman Chan Chak Mo. The proposal will allow casinos to install smoking lounges in VIP rooms and upgrade existing smoking lounges. Despite the opposition of various holdout legislators. Page 2
MGM China CEO and Executive Director Grant Bowie says the MGM Cotai opening is just around the corner. “It seems an appropriate time to put a stake in the ground and say we’re coming.” Referring to the Macau Eco TrailHiker event which MGM takes up the major sponsorship for this year.
Food services reloaded
Start-up focus Aomi is a local app for ordering food. Used by half the population. It also provides ticket coupons and the ability to book restaurants. Its Marketing Director shared insights into company strategy with Business Daily. Page 4
Putting a hex on shares
Sponsorship Page 5
HK Hang Seng Index June 28, 2017
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CNOOC Ltd
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China Merchants Port Hold-
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PetroChina Co Ltd
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Hang Lung Properties Ltd
Bank of East Asia Ltd/The
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Belle International Holdings
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Tencent Holdings Ltd
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Kunlun Energy Co Ltd
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CK Hutchison Holdings Ltd
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27° 31° 27° 31° 28° 30° 28° 30° 28° 31° Today
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Markets The HKSAR’s second board has tanked again. After losing more than 8 pct on Tuesday, yesterday was another chaotic day. Shares leading the declines had been included in a report by activist shareholder David Webb six weeks ago. Page 16
2 Business Daily Thursday, June 29 2017
Macau Smoking
Close to a smoking break The work of the committee evaluating the new smoking law proposal is expected to be wrapped up next week Nelson Moura nelson.moura@macaubusinessdaily.com
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he law proposal for the new smoking law will be signed by the second standing committee by the end of next week, committee chairman Chan Chak Mo said yesterday. “It will be up to the President of the Legislative Assembly (AL) to decide when the law proposal will be debated at the Legislative Assembly,” he added. In March, the committee revealed the new law proposal - in the event of approval - will allow casinos to install smoking lounges in VIP rooms and upgrade existing smoking lounges to demanded requirements one year after the law is enforced. In case of approval, the new smoking law would start being enforced in January 2018.
The committee chairman stated that currently legislators Ng Kuok Cheng and Leong Veng Chai still oppose the implementation of smoking lounges in casinos. “Legislator Ng Kuok Cheng is against smoking lounges because he says workers in casinos will absorb the toxic elements during the cleaning of the smoking lounges, and that airport lounges are very different from the ones in casinos. While in airports people are confined to the airport space; in casinos there is the possibility to smoke outside,” legislator Chan said.
Bad example
It was also revealed that legislator Mak Soi Kun believes that the next smoking law revision should mandate that a total smoking ban for education institutions should be imposed.
According to the original smoking law of 2011, higher education institutions and professional schools for students over 18 can have a designated area outside enclosed areas that can be used
Elections
for smoking. “The legislator thinks smoking should be prohibited in general, in order to not give a bad example of the teachers to students. The government has already
talked about this. If someone can’t even smoke in a square outside, then what? He has to get out of the University of Macau campus and go to Macau to smoke?” he asked.
Paperless government
Repeat signatures mount up IACM and DSE speed up The number of signatures repeated on more than one candidacy list has jumped to 118 this week from a total of 92 repeat signatures reported by the Electoral Affairs Commission for the 2017 Legislative Assembly (AL) nearly ten days ago, the Chairman of the Commission, Tong Hio Fong, said yesterday after a meeting. The Secretariat of the Commission claimed to have so far met 33 of those identified individuals, and found one case in which a nominee’s signature had been acquired by someone allegedly providing the person with misleading or false information. According to Mr. Tong, the information presented to the Commission suggests the case – which was transferred to the Public Security Police Force for investigation – might have
violated the Legislative Assembly Election Law. The law specifies that only political associations and nomination committees have the right to nominate candidate lists for the Legislative Assembly election. If any wrongdoing is proved, the person or persons involved could face from one to five years in prison. In addition, the Commission has confirmed the legal status of four additional nomination committees regarding the direct election process. Overall, a total of 25 nomination committees have been approved for the coming Legislative Assembly Election, with the legal status of six nomination committees for the indirect election process being previously confirmed.
payments and applications The departments of the city are moving forward on cashless payment and online applications, with both the Macao Economic Services (DSE) and the Civic and Municipal Affairs Bureau (IACM) announcing yesterday new measures aimed at improving paperless interactions. The DSE’s new measures include applications for intellectual property, namely the Applications for Identity Modification for Industrial Properties, as well as the Modification of the Headquarters of a Industrial Property. These are both accessible through the groups’ main website: www.economia. gov.mo For IACM, the new measures are ‘electronic payment systems’ encompassing UnionPay and MacauPass for ‘various items of service charges’ at
the Bureau’s Integrated Service Centre, Northern District Public Services Centre, Central District Public Services Centre and Islands District Public Services Centre. Payments using the cashless system can be made for ‘administrative licences and permits, cemetery and burial services,’ notes the group in a release, while also informing it can be used for ‘services of other entities’ which are processed through IACM such as: ‘application for written report on property registration, application for authenticated construction project documents (with issued licence for use), sale of government publications and printed materials, collection of fines for traffic offences (administrative offences), travel agency licence and tour guide card,’ among others. K.W.
to any specific suitable location. “City people are very busy in their daily life and work; when it comes to doing their own laundry it’s a very time consuming process. That’s why we created Pandawash laundry service where we will handle the never-ending struggle with dirty clothing,” Mr. Lei told Business Daily. According to the service’s founder, the reason behind opening the service in Manchester was because of his familiarity with the city, having previously studied there, as well as a local investor contributing some MOP9 million to the project
“In Macau, I’m supporting it with my own capital. We currently have plans to expand the service to Hong Kong and Bangkok. We’re getting familiar with the household market at the early stage when Pandawash launches, and at the later stage we will take on the corporate market,” Lei told Business Daily. According to Mr. Lei the service is currently only available from the Apple iOS store but will be available for Android devices in two weeks. The entrepreneur is also the founder of local food delivery app Food4U, which he launched in 2016.
Meeting of the Electoral Affairs Commission for the Legislative Assembly Election. Source: GCS
Entrepreneurialism
Washing pandas and clothes Pandawash, a laundry app service created by a local entrepreneur, has launched in the MSAR and the United Kingdom. Local entrepreneur Dwain Lei has launched new laundry app service Pandawash, which will operate in the MSAR but also in Manchester in England and in Belfast, Northern Ireland, with further Asian expansion
in the hopper, the entrepreneur tells Business Daily. Customers can request Pandawash laundry services through the app, with the team from Pandawash collecting and delivering the laundry from and
Business Daily Thursday, June 29 2017 3
Macau
Joy Choi Tin Tin, principal architect of Joy Choi Arquitecta
Hotels
Grand hotel, grand again Renovation works have started on the former Grand Hotel building. The architect in charge of the project, Joy Choi, told Business Daily that the duration for the whole project might take approximately two years Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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f everything goes according to plan, the building of the former Grand Hotel is likely to open as a boutique hotel in mid-2019, following proper reinforcement, repair and fitting out works are conducted on the site, the architect in charge of the project, Joy Choi Tin Tin, told Business Daily. Ms. Choi explained that the whole renovation process will be conducted in three phases. The first phase of the renovation consists of the work of reinforcement of the building’s foundations, which started on April 20, and for which Ms. Choi’s company hired subcontractor C. H. Construção Civil, Limitada. The licence was issued for one
year, but the preliminary work may take “approximately eight to nine months” to be completed, the architect explained. “Any engineer would have to do that before starting the renovation work proper on the so-called superstructure of the building. It’s a priority,” Ms. Choi told Business Daily. The architect commented that work of such scope would cost close to MOP20 million, but she preferred not to disclose the exact amount of the contract because it is a matter that directly concerns the client. She also confirmed previous reports from Business Daily that the owner of the building is International Weng Fu Investment Company Limited. It is the first time Ms. Choi’s office – Joy Choi Architecta – has worked with C. H. Construção Civil, a local
company established in 2015. But she claimed it is a reputable firm in the construction field, in addition to which it enjoys the advantage of having reinforced the foundations of a nearby building. “That means that they have experience of similar soil conditions, and that’s actually quite important,” she claimed. According to the architect, the “original building is very advanced . . . The foundations run 20 metres deep, which is not common for that period in time, or for that area of Macau. Mind you, we are talking about the time of the Japanese war in the Pacific.”
Work in progress
Grand Hotel is completing 80 years of existence this year. Although an architect working with the Cultural Heritage Department of the Macau Cultural Affairs Bureau (IC) explained in previous comments to Macau Business that the building was left in relatively “good condition” following initial renovation work, many years passed with much to be done, said Ms. Choi. “The building has so many problems with the structure. Some are broken, the steel part is rusty, and some of the concrete inside is falling down. There’s a lot of damage and a lot of gaps from incomplete work done before,” she pointed out. The second phase of the renovation, which consists of the reinforcement and repair of “the whole structure of the building” might take another half year to nine months time, according to the architect. She also said that they still do not have an estimated budget yet because the cost will only be known when they confirm the contract for that phase. She volunteered, however, that “the rate of renovation for hotels is usually higher than a normal, residential building. Hotels would often ask for a certain grade of quality. It also means [constructing] a lot if
City icon
The Grand Hotel was built in 1937, opening its doors for business in 1941. It remained in the hands of the Fok family – under a progressively more complex system of multiple ownership reaching over 50 owners in the 2000s – until it was acquired by its current owner. International Weng Fu started purchasing shares of the building Grand Hotel building pictured on the left side of the image
infrastructure.” Central air conditioning system, and low voltage intelligence system for Internet and CCTV, for example are modern mandatories. The architect added that the total construction area of the hotel approximates 50,000 square feet (about 4,645 square metres). While they might engage a subcontractor for the second phase, Ms. Choi’s office has also been appointed by the client as consultant for the fitting out phase, which is the third and final phase before the hotel can start operating. The hotel operator also has an “inhouse design team,” the architect explained, adding that her office will be working with them. Ms. Choi anticipates that it may take approximately a year for the fitting out work to be accomplished. In the end, there is the hotel operation licence, which should be requested from Macao Government Tourism Office (MGTO). “[Getting] the licence from the tourism [office] usually takes a long time, so it’s something we will help the client to apply for, and should be done in parallel with the construction,” Ms. Choi highlighted.
Boutique hotel
Ms. Choi explained that the owner of the building is planning to open a boutique hotel although according to her it will be issued a “two-star business licence . . . [because] . . . the hotel is too small, but [the rate] is not quality related.” The original ten-storey hotel structure accommodates 101 rooms. According to Ms. Choi, the current idea is to reduce the number of rooms in order to comply with the hotel owner’s requirements as well as current regulations related to safety and equipment use such as air conditioning, fan room, fire tank and generator. The façade will be maintained, following previous recommendations from the Cultural Affairs Bureau.
in 2014 and completed the acquisition in 2015, according to previous reports from Macau Business. Nearly a decade ago, when the building was still owned by the Fok family, the building had been subject to some minor strengthening of the structure in a previous renovation project conducted under the supervision of architect Carlos Couto.
4 Business Daily Thursday, June 29 2017
Macau
Food delivered the electronic way ingredients and maybe you didn’t speak clearly, there was a misunderstanding. You reserve the food to be delivered at a specific time or location.
Startup name: Aomi Industry: Business-to-client food app Elevator Pitch: Providing restaurants with a way to inform customers of deals, meals and delivery, while receiving data on customers Interviewee: Cherry Ho, Take Away Department and Marketing Director Nelson Moura nelson.moura@macaubusinessdaily.com
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ho founded the company? The founder is Acen Jiang Hai Tao, who worked previously in a Macau bank. He saw that these kinds of service are very popular in Mainland China, where clients will use their app to order food - half of the populations uses them. These services also provide ticket coupons or the ability to book restaurants, knowing when seats will be available and the cheapest prices. Macau is quite slow in getting into Internet communications. For example, if I want to know which restaurant is having a promotion I’m just told by my friend or I just walk into the restaurant and see they’re having a promotion. How many people are in the company? We have 11, one team for the group and another for the delivery. In the beginning it was just three or four. What systems do you use for the app? We got the operating system from Meituan & Dazhongdianping - a site from Mainland China that gathers groupons, and where everyone can rate and comment upon businesses. When did Aomi start and how has it evolved? Just one year ago, the beginning of June was our anniversary. Although from June of last year to October we were in the preparation phase and conducting a constant update of the app. From November on we
started looking for restaurants. Now we have more than 400 restaurants online and receiving orders. We also have 100,000 registered users. It was a rapid growth. Especially after placing advertisements in buses, the first advertisement we did. After that, every day we started getting 400 to 500 more users. We aim to have 300,000 users and 1,000 restaurants in the future. Macau is a small place, so if one restaurant is making money with Aomi they will tell other restaurants. What capital was used? Our founder used his own capital. This industry burns money. We have people in Shanghai, Hangzhou, Zhuhai and Macau all collaborating for the app and needing salaries. Honestly, at the moment we’re not making a lot of money. We need to give free trial periods to the restaurants and nurture the habit of using the Internet. So what services are provided? We have a page for groupons, vouchers from different hotels, cafes, exhibitions with 50 per cent discount. The customer can now see the best deals and decide to go with their friends and pay more than the offered price. Restaurants are fond of this model. You can also see the number of vouchers that were already sold. We even have deals for US$1 sushi, which are all sold out. We’ll also have buffet reservations later. If you don’t want to get out you can press the delivery option to buy food online. The restaurants you can order from are listed from nearest to further away. Right now we deliver in Taipa,
Company founder Acen Jiang Hai Tao
Coloane and the Macau Peninsula, or restaurants can deliver themselves and decide what area they deliver to or the rate for different areas. The restaurant and clients can interact with each other; clients can ask why the rice is not cooked or the food is too oily and the restaurant can respond. We also provide a machine that allows the restaurant to receive the order, it’s handy and allows coupon codes to be scanned, and it can scan debit cards and print receipts. We provide a free trial of the machine, with the restaurants deciding if they buy it. It costs MOP2,000 - it’s user friendly and it’s our own system. We also allow access to the restaurants of Big Data, they can see what kind of food has been ordered more, and where the customers are located. If I know more clients are ordering beef I can cut down on pork dishes. Can people use a credit card in the machine? For the time being we’re still applying for the licence for that kind of payment, but you can register your card number with the service for online payment. UnionPay, Alipay and WeChat Pay can be used. Why would customers choose your service instead of just calling the restaurant? With the app you can order the food and choose the ingredients. If you choose noodles, you can ask for it to be less spicy, or no onions, or larger. A lot of restaurants have quarrels about missing
Why should restaurants partner with you? We provide this service so they can operate better. A lot of restaurant owners we meet are extremely busy. They deliver and also need to spend time doing promotions, answer WeChat messages from customers and operate the store. At least with the service you don’t need to listen to the telephone. The restaurants can request the delivery be made by us, and the customers also pay instantly. We have a service commitment that after the order we will deliver the food to you in 50 minutes, 40 on the Macau Peninsula. Are you seeking investors? We’re in talks to collaborate with ICBC Macau to promote the app. We have four investors wanting to collaborate with us. Vitasoy is also our partner.
“We also allow access to the restaurants of Big Data; they can see what kind of food has been ordered more, and where the customers are located” What were the main obstacles for the business? People in Macau are not used to using online methods; they’re used to calling directly to order food. Some might reject technology, saying it’s not reliable. We’re pretty sure after the first trial you’ll love it. It’s very convenient. You can see where the driver is, if he’s almost arriving. There are many food delivery apps in Macau, so what makes Aomi different? It’s very user friendly - and we have more restaurants!
Business Daily Thursday, June 29 2017 5
Macau
MGM China CEO Grant Bowie (C) at Eco TrailHiker Press Conference.
MGM
Walking the walk MGM China taking on the title sponsorship of the Eco TrailHiker event, one previously carrying Sands China’s name, is a way of marking its ground in Cotai, says its CEO, sending out a “challenge” to all corporates and the public to participate in the event set to begin, and end, at the group’s new property on November 8 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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s progress on the most recent project on the Strip - MGM Cotai - continues, getting to the “coming together quickly” stage, according to MGM China CEO and Executive Director Grant Bowie, the operator is staking its claim to Cotai, aiming to send 2,200 people down its avenues to nearby Coloane and back, as it assumes the title sponsorship of the Macau Eco TrailHiker event. Announced yesterday, Bowie stated that as “MGM is soon to open in Cotai, it seems an appropriate time to put a stake in the ground and say that we’re coming”. Additionally, the CEO sent out a “challenge” for other “corporates” and the community at large to “come together for a little bit of good spirited competition”. Last year’s sign-up period to fill the 550 team slots lasted only 18 hours
MGM Macau Eco TrailHiker
This year’s event will feature the co-operation of the Civic and Municipal Affairs Bureau (IACM) as well as the Macao Government Tourism Office (MGTO), and will be televised by local broadcaster TDM, also a sponsor. So far, the proceeds from the events have amounted to contributions of MOP2.2 million to local charities, with MOP400,000 going to the Fu Hong Society and the Macau Autism Association last year. Speaking at the event, the representative of one of this year’s charity recipients, the Good Shepherd Sisters, Ms. Juliana Devoy, noted her thanks for selecting the mission she leads, declaring: “We’re not interested in statistics, we’re interested in people”. The charity - which helps women in need, from human trafficking victims to victims of abuse and abandonment – is joined by the Rotary Club of Macau (which celebrates its 70th anniversary this year) as this year’s charity recipients.
before being “sold out,” according to event director Robert Kirby. The event seeks to promote environmental awareness through two events: a 10-kilometre fun and family course and a 30-kilometre corporate challenge, both set to begin on the morning of Saturday, November 8. This year marks the 8th year of the event, previously sponsored by Sands China. “I think one of the good things about gaming concessions in Macau is that we always want to contribute. And when one leaves there’s always someone to pick up the baton,” Bowie commented.
Forward thinking
Whether the property will actually be open by the event date is something the company is “working towards; however, “irrespective of what happens, the event will certainly be starting and ending in MGM Cotai,” opines the CEO and Executive Director. In line with this, Bowie admits that there are “lots of little details to resolve,” but overall the group is “pretty happy with the progress”. Next to resolve are the “necessity to get through all the approvals processes,” he notes. One approval process that both MGM and Sociedade de Jogos de Macau eagerly await is the granting of new table licences, a topic Bowie notes the operator has “been discussing […] with the government for some time now, and those negotiations and discussions are ongoing.” Although at the end of the day, the government will make the decision, Bowie says “we’re looking forward to a successful outcome and we are obviously committed to ensuring that we contribute to the diversification and development of Macau,” without divulging how many tables the operator will be requesting to be granted by the local government.
Facilities
As part of the group’s diversification efforts, the new property will feature a convertible theatre, able to reconfigure according to event type. “The critical point for us is to create a venue that allows us to provide many different activities,” notes Bowie.
“We’re looking for headliner acts, we’re looking for MICE, we’re looking for product launches, we’re looking for production shows, we’re looking for cabaret entertainment [and] potential uses in education development as part of our MICE incentive and convention business,” he notes of the purpose. With a recent Bernstein report opining that the MSAR’s non-gaming would grow at a compound average growth rate of ‘over 11 per cent’ from 2016 to 2020, and ‘represent over 10 per cent of the revenue contribution
by 2020,’ Bowie notes he is confident this can take place. “I don’t think 10 per cent is unrealistic and I think we would expect it to go somewhat higher than that over time,” he notes, while pointing out that “we obviously all want to do that because we’re investing an awful lot of money in that process. In terms of our commitment to that, we’re always wanting to actively participate, not just in the creation of venues, but more importantly the creation of content.” Currently, the group is focused on creating content that’s “actually new, it’s actually originating from Macau and in a lot of ways is about Macau and our life in Macau,” said Bowie. advertisement
6 Business Daily Thursday, June 29 2017
Macau Greyhounds
Do electric greyhounds dream of freedom? The company operating the Macau Yat Yuen Canidrome will change its operations to live broadcasting of overseas greyhound races and implement a ‘virtual races’ system Nelson Moura nelson.moura@macaubusinessdaily.com
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acau (Yat Yuen) Canidrome Co., the company that operates greyhound racing operations at the Macau Yat Yuen Canidrome, pulled in MOP5 million (US$622,082) in profits in 2016, according to the company’s financial statement released yesterday in the Official Gazette. Last year’s results represent a slight increase from the MOP4.8 million posted in 2015, when the Canidrome registered a considerable 82 per cent yearly fall from the MOP26.7 million in profits seen in 2014. Macau (Yat Yuen) Canidrome Co. is part of Stanley Ho’s gaming group Sociedade de Turismo e Diversões de Macau (STDM) and is managed by Angela Leong On Kei,
the Executive Director of SJM Holdings. With the government having requested the company to give back the land plot where the Canidrome is located for reclassification before July 21, 2018, the company announced it will ‘reposition’ the space.
In its financial report, Macau (Yat Yuen) Canidrome Co. announced it will create a live greyhound racing broadcast system to allow Macau residents and visitors to follow international greyhound racing, while implementing a system of ‘virtual races’. “They want what everyone here wants, betting. If the government allows it or not is another question (…) If they allow the broadcasting of greyhound races from Australia, the United Kingdom or United
States, if there’s government control I don’t see how they won’t allow them to continue their business, since it won’t involve real greyhounds anymore,” the President of the Society for the Protection of Animals (Anima), Albano Martins, told Business Daily. According to Mr. Martins there have been many reports of illegal betting on greyhound races and the government would have trouble controlling online betting on the activity. “I don’t think the Chinese Government would be happy with this diversification of gaming,” he added.
A new home
Last year, the MSAR Government ordered Macau (Yat Yuen) Canidrome Co. to relocate its greyhound racing track within the next two years, and to decide whether greyhound racing activity would be continued, For Mr. Martins this was a “smart” move by the government to “not just say they would have to close down in July . . . [since] . . . in Chinese costume you always give an option to save face”. “The company has no more
land for the races so [closing the racing activities] is all they could do. The space is completely in decay, no investment is being placed there. They couldn’t go and create another space now with accommodation for 650 greyhounds,” he told Business Daily.
“I don’t think the Chinese Government would be happy with this diversification of gaming” Albano Martins, President of the Society for the Protection of Animals The Anima President said the Association is pondering two option to re-locate the greyhounds, gradually relocating the dogs in small groups to Europe, with Anima already having 200 potential adopters, or as a last resort relocating them all to a retreat in Portugal. advertisement
Business Daily Thursday, June 29 2017 7
Gaming Opinion
Ashley Sutherland-Winch* Social media giants unite
Japanese tycoon Kazuo Okada
Power fight
Family help oust Japan casino mogul Okada in boardroom coup Okada is set to lose his post as chairman of Universal after the company recently announced a slate of directors that omitted him Nathan Layne and Emi Emoto
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elatives of Japanese tycoon Kazuo Okada helped remove him as director of a Hong Kong investment company at the centre of a sprawling gambling empire, according to corporate filings and people with knowledge of the matter. Three sources said it was a rift with family members over money and control of the Hong Kong company that played the decisive role in Okada’s May 12 resignation as director of Okada Holdings Ltd. Okada Holdings owns 69 per cent of Tokyo-listed Universal Entertainment Corp, a maker of Japanese-style slot machines and operator of a US$2.4 billion casino in the Philippines. The people spoke on condition of anonymity because the rift has not been made public. One of those people, who was briefed by senior executives on the matter, said Okada’s son Tomohiro was upset with how his father was using Universal dividends allocated to Okada Holdings. That included, the son believed, purchasing pieces for Okada’s art museum in Hakone, a resort town near Tokyo. Universal said it was not in a position to comment on the changes at its top shareholder. Attempts to reach Okada at his address in Hong Kong were unsuccessful. David Krakoff, his lawyer in an unrelated U.S. lawsuit, did not respond to emails and calls seeking comment. The sources did not provide details of how Okada’s family helped oust him as director of Okada Holdings. His resignation was confirmed in a corporate filing in Hong Kong. Okada’s son Tomohiro holds 43.5 per cent of Okada Holdings and his daughter Hiromi holds just under 10
per cent - together enough to have the majority of shares needed to remove him under the terms of the company’s founding documents. Reuters was unable to determine if Okada’s wife Takako, who owns a stake of less than 1 per cent, played any role in the changes. Tomohiro, Hiromi and Takako did not respond to letters sent to addresses listed in public documents.
‘Universal announced this month it was probing an alleged misappropriation of US$20 million by Okada and another director’ Okada is set to lose his post as chairman of Universal after the company recently announced a slate of directors that omitted him - a move Universal said had the blessing of Okada Holdings. Shareholders will vote on that list of directors, which includes the reappointment of Takako, at Universal’s annual meeting today. Okada was also recently dropped from the board of the company running Universal’s casino on Manila Bay. The boardroom shake-up was orchestrated in part by Universal President Jun Fujimoto, a company veteran whose relationship with Okada has grown increasingly strained over the years, according to people with knowledge of the recent changes and the relationship between the
two men. Fujimoto, who is in charge of Universal’s profitable business of developing pachinko and pachi-slot gambling machines for the Japanese market, has at times questioned the wisdom of Okada’s costly push into the Philippine casino market, the people said. Universal denied there was such tension between Fujimoto and Okada. In response to other questions it referred to a recently launched internal investigation into Okada’s alleged misuse of company funds and noted that it had added an outside director in an effort to bolster oversight. “We are taking steps to further strengthen corporate governance,” Universal said in an emailed response. Universal announced this month it was probing an alleged misappropriation of US$20 million by Okada and another director. Okada has not commented on the allegations. While out as director of Okada Holdings, Okada still owns a 46.4 per cent stake in the company and retains a grip over other parts of his empire, including a 100 per cent stake in Aruze Gaming America, which manufacturers slot machines and is licensed in several U.S. states. Separate from the recent allegations, Okada and his companies have been under investigation by the Federal Bureau of Investigation over a US$40 million payment to a Manila-based consultant in 2010. The FBI’s probe is focused on whether the payment was aimed at helping Universal gain tax and ownership concessions for the casino from the Philippine government, according to people with knowledge of the matter. Universal and Okada have denied any wrongdoing and filed a defamation lawsuit against Reuters in 2012 for its reporting on the payments. The Tokyo District Court ruled in 2015 that Universal’s case was without merit. Last year the Tokyo High Court upheld that ruling, dismissing Universal’s appeal. Universal has appealed to the Supreme Court of Japan. Reuters
‘Today, Facebook, Microsoft, Twitter and YouTube are announcing the formation of the Global Internet Forum to Counter Terrorism, which will help us continue to make our hosted consumer services hostile to terrorists and violent extremists,’ trumpeted Twitter on its blog on Monday. Recently, governments in the United States and Europe have been applying pressure to the platforms to remove or reduce extremist content. Following the terror attacks in Europe several weeks ago, British Prime Minister Theresa May spoke out against social media platforms, saying: “We cannot allow this ideology the safe space it needs to breed. Yet, that is precisely what the Internet and the big companies that provide Internet-based services provide.” The Global Internet Forum to Counter Terrorism ‘will formalise and structure existing and future areas of collaboration between our companies and foster co-operation with smaller tech companies, civil society groups and academics, governments and supra-national bodies such as the EU and the UN,’ the companies said in a statement. In an incredible twist of fate, the once tough competitors of the social media world have joined together to create a social alliance to benefit the entire world. Whether it was the political pressure or fear of large potential fines - up to 50 million euros in Germany, if the platforms failed to remove hateful postings quickly - the companies have created a worldwide solution to combating online terror. It’s truly fascinating to consider the vast amounts of brilliant minds that are creating complicated algorithms to identify extremist content on the platforms. Each platform receives such an enormous amount of new content every minute that reviewing it all would be impossible by a human alone. To think that each platform is allocating potentially genius level brainpower to combat extremism online is encouraging. Recently, Facebook announced that ‘it now has more than 150 employees dedicated to fighting terrorism, alongside automated efforts to detect extremist content.’ If the other platforms have devoted a similar amount of staff to this global counter-terrorism taskforce, we may actually see a significant decrease in extremism content online. In December, the companies created a database to share unique digital fingerprints they automatically assign to videos or photos of extremist content and now, just six months later, they have all joined forces again. The creators of extremist content will surely continue with haste and zeal to spread their hate, but I hope that the platforms can stay ahead of the curve. For now; however, the efforts made by the platforms is a solid start. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
8 Business Daily Thursday, June 29 2017
Greater china Private survey
National economy improves in Q2 but deleveraging poses risks The CBB survey showed the corporate sector started to feel the effect of tighter credit conditions
C
hina’s economy continued to improve in the second quarter, with corporate profits rising and hiring up, a private survey showed, but it suggested the Asian giant may have to brace for tougher times ahead even though firms have been able to weather a tighter financing environment. The quarterly survey of thousands of Chinese firms by China Beige Book International (CBB) showed that while the property sector slowed, manufacturing improved further and the retail and services industries bounced back after a difficult first quarter. That reinforced a flurry of recent data and policy makers’ comments that indicated authorities were working to curb financial risks and keep the economy on an even keel heading into a key political meeting this year. The survey showed surprisingly strong performance in the commodities sector despite some price weakness in the second quarter, with the aluminium sector particularly strong. The improving economy, especially the healthy labour market, is
no doubt welcome news ahead of a leadership revamp at an autumn congress of the ruling Communist Party of China. Yet signs of stress in the corporate sector pointed to a bumpy ride for businesses. CBB said cash flow was negative for many companies and inventory levels in the second quarter was at the highest in the history of the survey.
Key Points Chinese firms say revenue, hiring improved in Q2 - survey But inventories hit highest level on record Companies still borrowing despite higher rates But there are signs of tougher times ahead for businesses That is in line with official data showing growth in industrial inventories picked up to over 10 per cent in April, sparking worries of weak demand. CBB said there are signs tougher
times could be ahead for Chinese companies during a period of deleveraging and rising interest rates. “It remains true that either rates have to come plunging back down, as the (state planner) recently called for, or the present level of corporate activity is headed for a cliff,” CBB said in its report. As the government stepped up its campaign to curb debt risks and stabilise the financial sector, growth of China’s broad money supply came in at the slowest in at least two decades in May, though bank lending remained solid. The CBB survey showed the corporate sector started to feel the effect of
tighter credit conditions in the second quarter after escaping relatively unscathed in the first three months of the year, with the cost to take a bank loan the highest since 2014. But borrowing was not impacted much, CBB said, likely due to firms’ positive business outlook for the next six months, though CBB said that this may not last if tightening persists. “Companies assume deleveraging is transient, likely because they are sceptical the Party will allow economic pain in 2017. It will not be until 2018 when we find out whether deleveraging is genuine—because it won’t be until 2018 that it will actually hurt”, CBB said. Reuters
Oil industry
CNPC suspends fuel sales to North Korea as risks mount A source said the North Korean agents who mostly buy the diesel and gasoline have been unable recently to pay for the supplies Chen Aizhu
C
hina National Petroleum Corp has suspended sales of fuel to North Korea over concerns the state-owned oil company won’t get paid, as pressure mounts on Pyongyang to rein in its nuclear and missile programmes, three sources told Reuters. It’s unclear how long the suspension will last. A prolonged cut would threaten critical supplies of fuel and force North Korea to find alternatives to its main supplier of diesel and gasoline, as scrutiny of China’s close commercial ties with its increasingly isolated neighbour intensifies. CNPC and the Ministry of Commerce did not respond to requests for comment. China’s Foreign Ministry declined immediate comment. North Korea’s embassy in Beijing declined to comment. Chinese foreign ministry spokesman Lu Kang, asked about the sale suspension and whether the Chinese government put pressure on CNPC to make this decision, said: “I do not understand this situation you are talking about” and declined to elaborate. A source with direct knowledge of the matter said CNPC decided to put fuel sales on hold “over the last month or two” and described it as a “commercial decision”. “It’s no longer worth the risks,” said the source. Chinese and international banks are stepping up compliance checks on companies dealing with countries on the U.S. sanctions list, such as North Korea, he said. The North Korean agents who mostly buy the diesel and gasoline have been unable recently to pay for the supplies -- CNPC normally requires upfront payments, the source said.
Reuters was unable to determine if the agents have started facing credit problems with Chinese and international banks worried about sanctions compliance issues. Two other sources briefed about CNPC’s decision confirmed the suspension of diesel sales, but did not know directly about the gasoline move. The three people declined to be named due to the sensitivity of the matter and are not authorised to speak to the media.
Prices surge in north
Last year, China shipped just over 96,000 tonnes of gasoline and almost 45,000 tonnes of diesel worth a combined $64 million to North Korea, where it is used across the economy from fishermen and farmers to truckers and the military. Most of that was sold by CNPC,
which has grown over the past two decades to dominate China’s energy trade with Pyongyang. Data for May released on Friday showed China supplied significantly lower volumes of diesel and gasoline compared with a month earlier, although monthly tonnages can vary widely. June data will be released in late July.
Key Points CNPC main supplier of diesel and gasoline to North Korea CNPC halted sales “over the last month or two”-source Sales suspended because buyers couldn’t pay Move comes amid banks taking compliance steps on sanctions Fuel prices in North Korea, meanwhile, have sharply risen in recent months, suggesting a tightening in supply.
A Reuters analysis of data collected by Daily NK showed the price of gasoline sold by private dealers in Pyongyang and the northern border cities of Sinuiju and Hyesan had hit US$1.46 per kg on June 21, up almost 50 per cent from April 21. Until then, they had remained relatively stable since late last year. Diesel prices averaged US$1.20 per kg as of June 21, more than double over the same period, according to Daily NK, a website run by defectors who collect prices via phone calls with North Korean fuel traders.
U.S. scrutiny
North Korea’s unprecedented pace of nuclear and ballistic missile tests has prompted China, which handles 90 per cent of North Korea’s trade, to start squeezing Pyongyang. In February, Beijing suspended coal purchases until the end of the year, cutting off North Korea’s main export revenue source. In 2016, North Korea sold 22.5 million tonnes of coal to China, worth about US$1.9 billion, according to Chinese customs. The United States has pressed China to exert more economic and diplomatic pressure on North Korea, but Beijing has said its influence on North Korea is limited and it is doing all it can. President Donald Trump, frustrated over Beijing’s inaction on North Korea and bilateral trade issues, is now considering possible trade actions against China, three senior administration officials told Reuters on Tuesday. The sources in China saw no sign yet that Beijing is cutting crude oil to Pyongyang. China has not disclosed its crude exports to North Korea for several years, but industry sources say it supplies via an aging pipeline about 520,000 tonnes of crude a year to North Korea, worth about US$170 million at current market prices. North Korea imports all its oil needs, mostly from China and a much smaller amount from Russia. Reuters
Business Daily Thursday, June 29 2017 9
Greater China Officials comments
In Brief
Trump growing frustrated with Beijing, weighs trade steps Chinese steel already is subject to dozens of anti-dumping and anti-subsidy orders Steve Holland
President Donald Trump is growing increasingly frustrated with China over its inaction on North Korea and bilateral trade issues and is now considering possible trade actions against Beijing, three senior administration officials told Reuters. The officials said Trump was looking at options including tariffs on steel imports, which Commerce Secretary Wilbur Ross already has said he is considering as part of a national security study of the U.S. steel industry. Whether Trump would take any steps against China remains unclear. In April, he backed off from a threat to withdraw from NAFTA after he said Canadian and Mexican leaders telephoned him asking him to halt a planned executive order in favour of opening discussions. The officials said there was no consensus on the way forward with China and they did not say what other options were being studied. No decision was expected this week, a senior official said. Chinese steel already is subject to dozens of anti-dumping and anti-subsidy orders. As a result it has only a small share of the U.S. market. “What’s guiding this is he ran to protect American industry and American workers,” one of the U.S. officials said, referring to Trump’s 2016 election promise to take a hard line on trade with China. On North Korea, Trump “feels like he gave China a chance to make a difference” but has not seen enough results, the official said. The United States has pressed China to exert more economic and
diplomatic pressure on North Korea to help rein in its nuclear and missile programs. Beijing has repeatedly said its influence on North Korea is limited and that it is doing all it can. “They did a little, not a lot,” the official said. “And if he’s not going to get what he needs on that, he needs to move ahead on his broader agenda on trade and on North Korea.” U.S. Ambassador to China Terry Branstad, who arrived in Beijing on Tuesday, spoke to dozens of reporters outside his residence on Wednesday and said the U.S. hopes to collaborate with China. “We need to work together to deal with some of the pressing, difficult issues, such as the threat from North Korea. We want to work together to denuclearize the Korean Peninsula,” he said. The death of American university student Otto Warmbier last week, after his release from 17 months of imprisonment in Pyongyang, has further complicated Trump’s approach to North Korea, his top national security challenge. Trump signalled his disappointment with China’s efforts in a tweet
last week: “While I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out. At least I know China tried!” Trump had made a grand gesture of his desire for warm ties with Chinese President Xi Jinping when he played host to Xi in April at his Mar-a-Lago retreat in Palm Beach, Florida. “I think China will be stepping up,” Trump said at the time. Since then, however, North Korea’s tests of long-range missiles have continued unabated and there have been reports Pyongyang is preparing for another underground nuclear test. Trump dropped by last Thursday as White House national security adviser H.R. McMaster and Trump senior adviser Jared Kushner were meeting with Chinese State Councillor Yang Jiechi, an official said. China’s inability to make headway on North Korea was one of the topics that was discussed, according to two people familiar with the meeting. Officials in Beijing did not respond to a request for comment on the meeting. Trump met Indian Prime Minister Narendra Modi on Monday at the White House and made a point of noting that the United States, India and Japan would be joining together in naval exercises soon in the Indian Ocean, a point that seemed aimed at India rival Beijing. Trump also thanked India for joining the United States in imposing new sanctions against North Korea. Reuters
M&A
Watchdog to examine deals gone awry to gauge banking risks Among the deals that the CBRC is looking at is HNA’s purchase of San Francisco-based online travel agent Travana China’s banking regulator, which has asked local lenders to provide loan information on the country’s top deal-making companies, is examining examples of acquisitions gone awry by those firms to assess potential risks to the financial sector, people familiar with the matter said. The China Banking Regulatory Commission (CBRC) is seeking to gauge how much risk Chinese banks face by lending funds to Anbang Insurance Group Co., Dalian Wanda Group Co., Fosun International Ltd., HNA Group Co., and the Chinese buyer of the AC Milan soccer club, the people said, asking not to be identified because the matter is private. Specifically, the regulator is seeking to assess the likelihood of litigation costs, potential losses to banks if the deals sour and whether enough due diligence was conducted, the people said. Among the deals that the CBRC is looking at is HNA’s purchase of San Francisco-based online travel agent Travana Inc., which the Chinese group is seeking to liquidate less than two years after buying it, according to the people, who didn’t provide other examples. HNA, which had pledged to invest as much as US$200 million into Travana, only pumped in US$27.5 million before abruptly deciding to liquidate the company, according to a complaint filed with
a bankruptcy court in San Francisco. Representatives at the CBRC and HNA didn’t immediately respond to requests for comment. Travana officials weren’t reachable. The Travana case provides a glimpse of what regulators are searching for as they examine the risks associated with China’s record global acquisition spree last year, a trend that’s been reversed in 2017 amid mounting scrutiny from the government. After a record US$247 billion in overseas acquisitions in 2016, Chinese companies have only announced US$65.6 billion in such deals this year, according to data compiled by Bloomberg. Anbang, Fosun, HNA and Wanda have been at the forefront of the
buying binge in recent years, gobbling up stakes in everything from “Kong: Skull Island” producer Legendary Entertainment to New York’s landmark Waldorf Astoria hotel, Deutsche Bank AG and Cirque du Soleil Inc. Combined, the four groups have announced more than US$60 billion in deals since the start of 2016, according to data compiled by Bloomberg. Investors have been jittery about government scrutiny. On last Thursday, as news of the CBRC’s request spread through China’s financial markets, shares of companies linked to Wanda, Fosun and HNA 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. Bloomberg News
China Banking Regulatory Commission headquarters pictured. Source: Bloomberg
Markets
Policy bank announces bond for offshore investors China’s state-owned Agricultural Development Bank of China plans to issue yuan bonds to both onshore and offshore investors on July 3, coinciding with the country’s launch of a “Bond Connect” scheme to link its nearly US$10 trillion bond market with overseas investors. The Agricultural Development Bank of China (ADBC), one of China’s major policy lenders, announced the plan to issue 16 billion yuan (US$2.35 billion) worth of fixedrate bonds in Beijing late Tuesday on the website of the state-owned clearing house. These bonds would mark the country’s first round of policy bank bonds issued specifically for offshore investors. GMO
U.S. says hopes Mainland will approve more corn for import The United States hopes that more varieties of its genetically modified corn will be approved for import by Beijing, the U.S. ambassador to China said yesterday. The comments came after the world’s top grains buyer this month approved two new strains of U.S. genetically modified (GMO) crops for import, from Dow AgroSciences and Monsanto. “We are hopeful that other ... corn traits can also be approved,” said Terry Branstad, who arrived in Beijing on Tuesday to take up his post. China does not permit the planting of genetically modified food crops, but does allow some GMO imports for use in animal feed. Human rights
U.S. downgrades Mainland on human trafficking list The U.S. State Department on Tuesday placed China on its global list of the worst offenders in human trafficking and forced labour, a step that could aggravate tensions with Beijing that had eased under President Donald Trump. “China was downgraded to Tier 3 status in this year’s report in part because it has not taken serious steps to end its own complicity in trafficking, including forced labourers from North Korea that are located in China,” Secretary of State Rex Tillerson said as he presented the report. Strategy
Hony Capital targets food outlets expansion PizzaExpress owner Hony Capital, one of China’s biggest private equity firms, said it aims to boost its global network of retail food outlets to more than 10,000 over the next decade from about 850 now in a bid to be a top world food and beverages player. Operating through its Hong Kong catering and retail arm Best Food Holding, Hony Capital will kick-off its hospitality expansion by launching one of its Chinese cuisine outlet brands in London by year end, managing director Bruce Wang told Reuters in an interview.
10 Business Daily Thursday, June 29 2017
Greater China
Consumption
Hong Kong’s allure fading in Mainland Shoppers who once flocked to luxury flagship stores along Hong Kong’s glittering Canton Road are now also heading to cities such as Paris and New York Joanna CHIU
W
hen Naomi Wu was a teenager, she and her friends would ride the train from Mainland China to Hong Kong several times a year to shop for clothes and designer handbags. But the 23-year-old computer programmer, who lives across the border in Shenzhen, now shuns a city that two decades after the handover from Britain has lost its allure for many mainlanders. “Chinese gadgets are as good or better than foreign,” said Wu, who prefers to shop online from her home in Shenzhen, which has transformed from a shabby backwater into an industrial powerhouse. “There’s lots of new malls that are well-designed, and new buildings everyplace else. There are new subway lines and lots of parks. Shenzhen built more skyscrapers last year than US and Australia combined,” she said. As Hong Kong readies to mark the July 1 anniversary of the handover, it is increasingly eclipsed by China, which has become a global superpower with a vibrant consumer and cultural scene of its own. Beijing and Shanghai boast a sophisticated array of bars and restaurants as well as sprawling shopping centres and arts districts that put space-starved Hong Kong to shame.
China has leapfrogged from seventh to second place among top economies since 1997 and become a vital engine of global growth, while Hong Kong has fallen from 24th to 33rd. Import taxes on foreign goods are still much higher in China, but shoppers who once flocked to luxury flagship stores along Hong Kong’s glittering Canton Road are now also heading to cities such as Paris and New York.
“Hong Kong’s attractiveness to the mainland Chinese is in decline, but many people still want to go to Hong Kong for education because they feel it is safe there” Qiao Mu, a media studies scholar in Beijing
The changing fortunes have seen the number of tourist visits from the mainland to Hong Kong steadily
decrease, dropping nearly seven percent in 2016 compared to the previous year. Disneyland even opened in Shanghai last year, attracting millions as visitor numbers sag at its older sister theme park in Hong Kong. And Hong Kong’s waning cultural clout has also seen it disappear from Mainland screens which it dominated during the “golden age” of Hong Kong cinema in the 1990s. “Hong Kong films and Hong Kong music have faded from our lives, and there is a variety of mainland-produced music and shows,” said Li, a trading manager at a state-owned enterprise who declined to give his full name. “China’s rapid economic development has greatly reduced the gap between the mainland and Hong Kong.”
‘Full of hostility’
As the scales tip, there is growing resentment in Hong Kong over the perceived “mainlandisation” of the city as China extends its influence in a range of areas, from business to politics, education and media. Some see this as a way for Beijing to tighten its grip on Hong Kong and erode the city’s identity and cherished freedoms -- fears reflected in mass student-led rallies calling for democratic reform in 2014. One of the results is that the mainland tourists who continue to visit Hong Kong don’t always feel welcome. Wu was shocked to hear open criticism aired on the subway during a recent visit. “Mainlanders go to Hong Kong and spend lots of money, but then get
sneered at for our trouble. I speak Cantonese, and they are still rude to me,” she said, referring to the variant of Chinese spoken in the city. Manners have long been a source of tension, with Hong Kongers complaining about what they see as the unrefined social habits of their “nouveau riche” mainland counterparts. The growing tension is a hot topic on China’s internet forums. On Zhihua, a question-and-answer site, nearly 1,400 people posted responses to the question: “Fewer and fewer people go to Hong Kong to shop. Why?” “I loved the shops and restaurants, the public transport was so convenient... and people were very friendly,” wrote Jennifer Liu. “But the last time I went there was a very different atmosphere... on the streets, young people would glare at me,” she added. “Since then, the news I see from Hong Kong is very strange to me, full of hostility.”
Free society
But mainland Chinese still lack the personal freedoms enjoyed in Hong Kong, which remains semi-autonomous under the “one country, two systems” deal agreed before the handover. Thousands make the move to Hong Kong each year to pursue higher education and work opportunities, and the city’s red-hot property market is fuelled by Chinese seeking a bolthole or a place to park their cash. That is part of an exodus of those with the means to secure property and passports abroad, in search of cleaner air, safer food, and better opportunities. “Hong Kong’s attractiveness to the mainland Chinese is in decline, but many people still want to go to Hong Kong for education because they feel it is safe there,” Qiao Mu, a media studies scholar in Beijing, told AFP. “They still long to live in a society that is free.” AFP
Business Daily Thursday, June 29 2017 11
Asia Commerce
Japan, EU press ahead on free trade pact to counter U.S. protectionism An agreement would put American companies at a disadvantage in Japan Kaori Kaneko and Stanley White
J
apanese and European Union negotiators meeting in Tokyo aim to reach a free trade deal that would stand against a protectionist tide threatening the global economy, and make the United States think twice over pursuing inward-looking policies. Japan and the EU have been negotiating since 2013, but talks have intensified since last week, with almost daily meetings to overcome key hurdles, including tariffs on Japanese automobiles and car parts and European wine, cheese, pasta and other foods. A Japan-EU deal could leave U.S. firms at a disadvantage, especially after President Donald Trump’s withdrawal of the United States from the Trans-Pacific Partnership, or TPP, earlier this year. “There is an atmosphere among negotiators that Japan and the EU need to stop protectionism that is prevailing in the world,” said a source familiar with the issue who declined to be identified because talks are ongoing. “The momentum is building for Japan and the EU to take leadership in promoting and executing free trade.” In a sign of optimism, EU trade chief Cecilia Malmstrom said on Monday she could sign a provisional deal with Japan as early as next week.
An agreement between the EU and Japan would “send a strong message to the United States that free trade is important and that you shouldn’t be too inward looking,” said another source, who declined to be named while negotiations were underway. Trump favours bilateral trade deals over multilateral accords and his decision to walk away the TPP, left the other 11 members of the Pacific Rim trading bloc, including Japan, in limbo. Although, together Japan and the
EU account for about a third of global GDP, their trade relationship has a lot of room to grow - EU forecasts reckon by as much as a third. Their bilateral trade totalled US$144 billion last year, whereas Japan-China trade was US$262 billion and Japan-US trade was US$192 billion. After unsuccessful attempts to conclude a deal with Tokyo the past two years, there is a sense in the EU camp that people will start to lose faith if they cannot wrap it up this year, an EU official familiar with the talks said. Japan wants to phase out the EU’s 10 per cent tariff on Japanese passenger cars over the next five to 10 years and scrap a 4 per cent tariff on many car
parts. The Europeans, meanwhile, would like Japan to reduce its 15 per cent tariff on wine and up to 30 per cent on cheese. For now, the Japanese side is digging in on dairy. “Our number of dairy farmers is in decline, but we have a plan to strengthen our dairy industry, so I would like to ask for understanding,” Agriculture Minister Yuji Yamamoto told reporters on Tuesday. “I don’t think there is room to compromise any further.”
Key Points EU officials in Tokyo for marathon talks on trade Free trade pact could help resist tide of protectionism Japan could use trade pact to thwart U.S. negotiations An agreement would put American companies at a disadvantage in Japan because they compete against European businesses in many of the same markets, said Junichi Sugawara, senior research officer at Mizuho Research Institute. It could even be used by Tokyo to convince Washington to rejoin the TPP, he said. “The U.S. side is likely to come at Japan with strong requests for better market access, but Japan can use a deal with the EU as leverage to lure the United States back to TPP,” he said. Reuters
Financial rules
Singapore to let banks invest in e-commerce, other business Proposals come as financial technology and e-commerce giants including Alibaba Group Holding Ltd. are expanding financial services Chanyaporn Chanjaroen
Singapore regulators have proposed rules that will make it easier for banks to conduct or invest in non-financial businesses such as e-commerce and digital-payment platforms, helping them to better compete with non-bank firms in these areas, Finance Minister Heng Swee Keat said Tuesday. Under the proposals, lenders will no longer need regulatory approval to invest in such businesses, Heng told the annual bankers’ dinner. The Monetary Authority of Singapore will cap the investment to 10 per cent of the bank’s capital funds, the regulator said in a statement accompanying Heng’s speech. “Banks are facing increasing competition from online and non-financial players that have leveraged their large user base to provide digital wallets, payments and remittance services,” Heng said. How the city state navigates the urgency for innovation, while maintaining the safety and soundness of its financial sector
“will be crucial to our future,” he said. Singapore’s proposals come as financial technology and e-commerce giants including Alibaba Group Holding Ltd. are expanding financial services including digital payments in Southeast Asia as part of their global strategy. Such companies “are in effect no different from banks,” DBS Group Holdings Ltd. Chief Executive Officer Piyush Gupta said at the same event. “The logic is compelling,” Gupta said. “With the ubiquity of the smartphone, customers increasingly want banking to be seamlessly integrated into their daily lives. There are a number of areas where a banking service can be nicely integrated into e-commerce, and we welcome the opportunity to do so.”
Payments network
As part of the banking industry’s drive for digital payments, consumers at seven major banks in the city state will be able to transfer Singapore dollars to one another almost immediately, using mobile phone
numbers and national identification numbers and without knowing recipients’ account details, the Association of Banks in Singapore said Tuesday. Banks will continue to be prohibited from entering certain businesses including property development and provision of hotel and resort facilities, MAS said. The regulator will provide details of the policy changes in a consultation paper to be released by the
end of September. “Existing financial services players have a huge opportunity now to provide avenues to spend and purchase goods and services from their platforms since they already have payment capabilities and customer relationships in place,” said Varun Mittal, who leads the Southeast Asia financial technology team for Southeast Asia at the consultancy EY. Bloomberg News
12 Business Daily Thursday, June 29 2017
Asia Levies
Ready or not, Indian businesses brace for biggest-ever tax reform The structure will encourage companies to buy from suppliers that are GST-compliant Douglas Busvine and Manoj Kumar
Businessman Pankaj Jain is so worried about the impending launch of a new sales tax in India that he is thinking of shutting down his tiny textile factory for a month to give himself time to adjust. Jain is one of millions of small business owners who face wrenching change from India’s biggest tax reform since independence that will unify the country’s US$2 trillion economy and 1.3 billion people into a common market. But he is simply not ready for a regime that from July 1 will for the first time tax the bed linen his 10 workers make, and require him to file his taxes every month online. On the desk in his tiny office in Meerut, two hours drive northeast of New Delhi, lay two calculators. Turning to open a metal cabinet, he pulled out a hand-written ledger to show how he keeps his books. “We will have to hire an accountant - and get a computer,” the thickset
52-year-old told Reuters, as a dozen ancient power looms clattered away in the ramshackle workshop next door. Prime Minister Narendra Modi’s government says that by replacing several federal and state taxes, the new Goods and Services Tax (GST) will make life simpler for business. To drive home the point, Bollywood superstar Amitabh Bachchan has appeared in a promotional video in which he weaves a cat’s cradle between the fingers of his hands symbolising India’s thicket of old taxes. With a flourish, the tangle is gone and Bachchan proclaims: “One nation, one tax, one market!”
Not so simple
By tearing down barriers between India’s 29 states, the GST should deliver efficiency gains to larger businesses. HSBC estimates the reform could add 0.4 per cent to economic growth. Yet at the local chapter of the Indian Industries Association, which groups
6,500 smaller enterprises nationwide, the talk is about how to cope in the aftermath of the GST rollout. “In the initial months, there may be utter confusion,” said chairman Ashok Malhotra, who runs one firm that manufactures voltage stabilisers and a second that makes timing equipment for boxing contests. A big concern is the Indian GST’s sheer complexity - with rates of 5, 12, 18 and 28 per cent, and myriad exceptions, it contrasts with simpler, flatter and broader sales taxes in other countries. The official schedule of GST rates runs to 213 pages and has undergone repeated last-minute changes. “Rubber goods are taxed at 12 per cent; sporting goods at 18 per cent. I make rubber sporting goods – so what tax am I supposed to pay?” asks Anurag Agarwal, the local IIA secretary.
Grace period?
The top government official responsible for coordinating the GST rollout rebuts complaints from bosses that the tax is too complex, adding that the IT back-end that will drive it crunching up to 5 billion invoices a month - is robust. “It is a technological marvel, as well as a fiscal marvel,” Revenue Secretary Hasmukh Adhia told Reuters in an interview. The government will, however, allow firms to file simplified returns for July and August. From September they must file a total of 37 online returns annually - three each month and one at the year’s end - for each state they operate in. One particular concern is how a new feature of the GST, the input tax credit, will work. This allows a company to claim refunds on its inputs and means it should only pay tax on the value it adds. The structure will encourage companies to buy from suppliers that are GST-compliant, so that tax credits can flow down a supply chain.
That spells bad news for small firms hesitating to shift into the formal economy. The government estimates smaller companies account for 45 per cent of manufacturing and employ more than 117 million people. Adhia played down the risk of job losses, however, saying this would be offset by new service sector jobs.
Demonetisation 2.0
The prospect of disruption is drawing comparisons with Modi’s decision last November to scrap high-value bank notes that made up 86 per cent of the cash in circulation, in a bid to purge illicit “black money” from the system. The note ban caused severe disruption to India’s cash-driven economy and slammed the brakes on growth, which slowed to a two-year low in the quarter to March. “It could throw the business out of gear - it can affect your volumes by
Key Points India launches Goods and Services Tax on July 1 Companies must file three monthly returns online Small businesses say not ready, tax too complicated After demonetisation blow, businesses fear another hit at least 30 per cent,” said the head of one large cement company in the Delhi region. Back in Meerut, Pankaj Jain worries that hiring an accountant and charging 5 per cent GST on his bedsheets could eat up to two-thirds of his annual profits of 400,000-500,000 rupees (US$6,210-US$7,760). “I know my costs will go up, but I don’t know about my income,” he said. “I might even have to shut up shop completely and go into trading.” Reuters
Private poll
S. Korean exports rise for eighth month South Korea’s consumer sentiment improved for a fifth straight month in June Cynthia Kim
South Korea’s exports were expected to rise for an eighth straight month in June, a Reuters poll showed yesterday, as global demand for memory chips and shipbuilding continued to support foreign trade. The median forecast of the 10 analysts polled was for exports to rise 17.1 per cent from a year earlier, versus 13.3 per cent growth in May. Imports were seen growing 19.5 per cent after jumping 19.1 per cent a month earlier. “June may be the peak of the export surge this year, in terms of monthly expansion and average shipments per working day,” said Lee Sang-jae, chief economist at Eugene Investment and Securities. “The economy is in a stable recovery cycle thanks to robust exports and improving sentiment at households and businesses. Problem is, sliding global oil prices and commodities
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could slow export growth in the second half,” Lee said. Exports of semiconductors and petrochemical products in May soared 56.2 per cent and 30.2 per cent respectively from a year earlier, as demand
especially from China, Australia and Taiwan remained strong, data from the Korea Customs Service showed. An eight-month stretch of export growth should give the Bank of Korea confidence that its five-year easing cycle is over, especially as consumer sentiment at more than six-year highs also points to a stronger private consumption. South Korea’s consumer sentiment
improved for a fifth straight month in June, reaching a six and a half-year high, a central bank survey showed on Tuesday, as respondents became more optimistic about the economy. The same poll showed that June annual inflation was expected to be 2 per cent, on par with May.
Key Points June exports seen +17.1 pct y/y, imports +19.5 pct y/y June CPI rise seen +2.0 pct y/y May industrial output seen +1.5 pct m/m s/adj
“With the on-going drought, gains in agricultural product prices probably were offset by declining energy prices,” Park Ok-hee, economist at IBK Securities said in Seoul. May factory output was forecast to increase 1.5 per cent from a month earlier after falling 2.2 per cent in April. Industrial output data is due on Friday, and trade data will be published on Saturday. Inflation indicators will be released on July 4. Reuters Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, June 29 2017 13
Asia In Brief Oil industry
Japanese regulator ends contract restrictions on reselling LNG
Monetary policy
Australian central bank could raise rates 8 times in 2 years, ex-board member says John Edwards noted the risks of rate increases alongside high household debt, with most Australian mortgages on variable interest rates closely tied to the RBA’s cash rate Michael Heath
Australia’s central bank could increase interest rates eight times in the next two years, former board member John Edwards said. The Reserve Bank of Australia (RBA) is probably already considering a program of rate increases given its forecasts for inflation returning to target and economic growth to accelerate to 3 per cent against a stronger global backdrop, Edwards said in a
column on the website of the Lowy Institute for International Policy, where he is a non-resident fellow. Theorizing that the long-term cash rate is about 3.5 per cent -- lower than the 5.2 per cent average over the past two decades -- and the RBA wants to start tightening in 2018 and reach its goal within two years, that would require four quarter-point increases each year, he said. Rates have been on hold at 1.5 per cent since last August. “It seems to me that something advertisement
like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct,” said Edwards, who was on the bank’s board until July last year. “It’s possible the tightening could start earlier, or if not the tightening itself, at least the signalling which should precede it. We may be seeing a little of that now.”
Small steps
The RBA traditionally makes small steps and typically doesn’t commit itself to subsequent moves, making the market wary of predicting where the bank will be in a few years, Edwards said. In the current circumstances, he said we can reasonably assume: the RBA considers its current rate to be exceptionally low if the economy improves as it predicts, the next move will be up if the economy was operating, as the RBA predicts, at 3 per cent output growth and 2.5 per cent inflation, it would think of a sustainable or natural policy rate of at least 3.5 per cent most importantly, it will want the policy rate increase to match the forecast improvement in Australia’s economic performance, so rising to at least 3.5 per cent by the end of 2019 Edwards noted the risks of rate increases alongside high household debt, with most Australian mortgages on variable interest rates closely tied to the RBA’s cash rate. “The bigger the household debt, the more impact a quarter percentage point increase in the policy rate will have on household spending,” he said. “In the Australian case, it is certainly possible that high household home mortgage debt will crimp consumer spending if the policy rate returned to what was once considered a relatively low long-term rate.” Still, Edwards noted that interest paid on Australian mortgages is much less than it was six years ago: while debt has increased, interest rates have fallen a lot. Payments are now 7 per cent of disposable income compared with 9.5 per cent in 2011, and 11 per cent at the peak of the RBA tightening cycle before the 2008 financial crisis, he said. Moreover, if the standard variable mortgage rate peaked at around 7 per cent, that would still be nearly one percentage point below the 2011 level, and two-and-a-half percentage points below the 2008 peak, he said. “The pace of tightening will anyway be governed by the strength of the economy,” Edwards said. “If household spending weakness, if the long expected firming of non-mining business investment is further delayed, if the Australian dollar strengthens, if employment growth is persistently weak, then the trajectory of rate rises will be less steep and the pace less rapid.” Bloomberg News
Japan’s anti-monopoly regulator said yesterday that all new contracts for liquefied natural gas (LNG) must not contain restrictions on the resale of cargoes of the fuel, ending a practice the country’s buyers say is unfair. The ruling is likely to result in more trading of LNG cargoes by buyers in Japan, the world’s biggest importer of the fuel, and could lead to a challenge to similar restrictions elsewhere in Asia. Asian LNG buyers have long complained that the long-established practice of placing destination clauses in LNG contracts unfairly restricts trading of the fuel when it would make more economic sense to on-sell supplies into other markets. Monetary policy
RBNZ sees global uncertainty, housing as risks New Zealand’s central bank saw the country’s economic growth outlook as positive, but international uncertainties remained and the strong housing market was still a risk, it said in a statement to the government. “The outlook for New Zealand’s economic growth remains positive, albeit with considerable uncertainty remaining, especially internationally,” Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said in a copy of the statement published on the bank’s website yesterday. The statement sets the bank’s priorities for the next three years and was signed by the governor on June 16. U.S. lobby comments
Scrapping SK pact would be rash mistake Scrapping the U.S.-South Korean trade agreement would be a rash mistake, the U.S. Chamber of Commerce said on Tuesday, ahead of a first meeting this week between U.S. President Donald Trump and new South Korean President Moon Jae-in. In an interview with Reuters in April, Trump called the five-year-old KORUS trade pact “horrible” and “unacceptable” and said he would either renegotiate or terminate it. U.S. Chamber of Commerce executive vice president Myron Brilliant said U.S. exports to South Korea had not risen as much as expected and the U.S. trade deficit had grown, but these we not reasons to end the agreement. Smokeless tobacco
Japan Tobacco tries to catch up with rival Japan Tobacco Inc said yesterday it hoped to catch up with Philip Morris International Inc in smokeless tobacco by expanding the number of smokefree restaurants and public places that allow its vaping product. Tobacco firms see Japan as a test ground for vaping products, as e-cigarettes using nicotine-laced liquid are not allowed under the country’s pharmaceutical regulations. While Marlboro maker Philip Morris’s heat-not-burn “IQOS” tobacco device is already enjoying strong demand in Japan, Japan Tobacco’s launch of its “Ploom Tech” product has run into delays due to production shortages.
14 Business Daily Thursday, June 29 2017
International In Brief Official data
French consumer confidence rises to 10-year high French consumer confidence rose in June to reach 108 points from 103 points in May, marking its highest level in 10 years, the official INSEE statistics agency said yesterday. A Reuters poll of economists had given an average forecast of 103 points for the June consumer confidence level, while the May figure had been revised up from its original level of 102 points. INSEE said French households were growing more confident over their personal financial situations, with INSEE having revised its French first quarter economic growth forecast up to 0.5 per cent from 0.4 per cent earlier this month. Portugal
Central bank says banking sector ‘has improved’ A Bank of Portugal board director said on Tuesday that there have been improvements in the Portuguese financial system, but there were still some unresolved questions such as the sale of Novo Banco and its effect on the Resolution Fund. On the other hand, Mr Máximo dos Santos stressed that despite the improvements the European banking industry was still unstable, as shown by the resolution of Spanish Banco Popular, the Single Resolution Board decided recently. He also said Portugal’s central bank had managed to completely safeguard the stability of its branch in the country.
IIF
Emerging market borrowing spree lifts global debt to record US$217 trillion China accounted for US$2 trillion of this rise, with its debt now at almost US$33 trillion
G
lobal debt levels have surged to a record US$217 trillion, driven by a US$3 trillion borrowing spree in the developing world, the Institute of International Finance said, warning of risks to emerging markets from short-term debt repayments. The IIF, one of the most authoritative trackers of capital flows, said in a note late on Tuesday that global debt amounted to 327 per cent of the world’s annual economic output (GDP) by the first quarter of 2017 and the rise was driven principally by emerging market borrowing. While advanced economies continued to deleverage, cutting total public and private debt by over US$2 trillion in the past year, the report found total debt in developing countries had risen by US$3 trillion to US$56 trillion. This amounted to 218 per cent of their combined GDP, five per centage points above the first 2016 quarter. China accounted for US$2 trillion of this rise, with its debt now at almost US$33 trillion, led by households but
also company borrowing the IIF said. “Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability,” the report said. “In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada.” High debt levels may soon come into greater focus if central banks from the U.S. Federal Reserve to the European Central Bank start unwinding some of the stimulus they have pumped into world markets. U.S. interest rates are already on the rise, potentially boosting the dollar and global borrowing costs. Recent ECB comments have also fuelled expectations it will announce a reduction in stimulus as soon as September. The Bank of International Settlements (BIS) this week urged policymakers to press on with rate rises notwithstanding financial market turbulence. Higher global borrowing costs could weigh most heavily on those who took out dollar debt and will
need to repay it or roll over in coming years. The IIF report found that emerging markets had over US$1.9 trillion of emerging bonds and loans falling due by end-2018, and 15 per cent of this was denominated in dollars. The biggest redemptions were in China, Russia, Korea and Turkey, it said.
‘Global debt amounted to 327 per cent of the world’s annual economic output according to the Institute of International Finance’ Emerging hard currency-denominated debt rose by US$200 billion in the past year - growing at its fastest pace since 2014 - and 70 per cent of this has been in dollars, the report found. “Rollover risk is high,” the IIF added. Reuters
Oversight board
Puerto Rico rejects debt restructuring deal The federal board overseeing Puerto Rico’s finances disapproved a US$9 billion debt restructuring deal covering the bankrupt U.S. territory’s public power monopoly, The Wall Street Journal reported on Tuesday, citing people familiar with the matter. The proposal was rejected in a 4-3 vote, the Journal said. Insurers of billions of dollars of Puerto Rican bonds had sued the island’s financial oversight board on Monday, saying that the board should be forced to approve the debt restructuring deal at Puerto Rico power utility PREPA and allow a final vote of the bondholders.
Federal Reserve Chair Janet Yellen
Risks
Fed’s Yellen warns against short memories of global crisis
Mozambique
Kroll’s debt audit is “flawed” and “deceptive” Financial consultancy Palomar believes that the audit report on Mozambique’s hidden debt drawn up by Kroll, is incomplete, and contains a number of deceptive and incorrect statements. Despite Palomar’s offer to meet with Kroll, at no time until the report was published did Kroll ask for any information or look to work with Palomar to understand the transactions involved, Palomar noted in a statement sent to Lusa. The result, it said, was that the report has flaws and is incomplete, and contains a number of deceptive statements and material errors, specifically related to Palomar, which manages assets with a strong presence in Africa.
She said that from the 1980s to the outbreak of the crisis, central bankers “were patting themselves on the back” because of the stable economic and financial conditions Federal Reserve Chair Janet Yellen on Tuesday said it is important not to forget the devastation caused by the global financial crisis, and warned against undoing regulations put in place to prevent a repeat. “We’re now about a decade after the crisis first hit and memories tend to fade,” Yellen said in a conversation on the economy in London. “I hope that won’t be the case, and those of us who lived through it remind the public that it’s very important to have a safer, sounder financial system and it’s essential to sustainable growth.” Because of regulations and processes put in place in the years since the start of the crisis, banks have much stronger capital and are able to withstand “enormous shocks” in
the stress tests they are subjected to by the Fed, she said. But Yellen’s comments come at a time when President Donald Trump’s administration is pushing for massive deregulation across the economy, including for banks whose lending they say has been curtailed by the post-crisis regulatory burden. She said that from the 1980s to the outbreak of the crisis, central bankers “were patting themselves on the back” because of the stable economic and financial conditions. But problems that were building and ignored or overlooked “did come home to roost and almost took down the financial system,” Yellen said. Though it is “going too far” to say
there will never be another crisis, with the sturdier oversight of the financial system, “I do think we’re much safer, and I hope it will not be in our lifetimes and I don’t believe it will be.” Yellen also acknowledged the impact on workers of globalization and the changing economy, including China’s growing trade, which studies show has negatively impacted US workers and wages, and even having a “devastating impact” in some communities.
“We’re now about a decade after the crisis first hit and memories tend to fade” Janet Yellen, Federal Reserve Chair
It is important to have programs in place “to help the losers” from globalization, and help them get the skills to succeed in new jobs, she said. AFP
Business Daily Thursday, June 29 2017 15
Opinion
Private equity should ease up on the stimulants
China’s natural gas output, imports surge, beating target
Gillian Tan a Bloomberg Gadfly columnist
P
rivate equity firms, arguably the masters of financial engineering, put billions to work on behalf of their investors while of course clipping some of the profit for their efforts. By all accounts, transparency about how they go about doing this has improved in recent years, but it still could be better. On Tuesday, a group representing pension plans, endowments and other investors in the industry raised concerns about private equity’s use of so-called subscription credit lines and their effect on how and when firms can pay themselves. To recap, these lines are a type of borrowing that firms have been increasingly turning to that conveniently boost a key performance measure known as an internal rate of return. Because these interim loans effectively shorten the overall duration that such capital is deployed (they’re meant to act as a placeholder until investors deliver their capital), funds can more quickly hit the pre-agreed return hurdles above which firms begin earning lucrative performance fees known as carried interest. As I’ve written, the practice is perfectly legal: Firms using such loans (some stretching as long as two years) are obeying the letter of the law. But to the extent that this financing allows them to compensate themselves earlier, it’s no wonder the investor organization, the Institutional Limited Partners Association (ILPA), has some thoughts on the issue. It’s calling for increased transparency, such as quarterly updates regarding the length and purpose of the credit lines’ use, as well as capping their duration to 180 days, limiting their size and including the start date of borrowings in the calculation of IRRs. Firms aren’t under any pressure to adopt the recommendations because the ILPA isn’t a regulator -- and indeed past efforts by the group to increase disclosure have met with mixed results. But these suggestions are all valid and firms should consider following these guidelines, if only to build goodwill with investors. While it’s true that in the current fundraising environment, private equity firms hold the cards, the tide will eventually turn. They won’t be able to dictate terms forever. Apollo Global Management LLC, Blackstone Group LP, KKR & Co. and Oaktree Capital Group LLC -- among the publicly traded firms using subscription credit lines -- can set the standard by leading the way. If they’re not willing to forego the practice entirely for fear it will put them at a disadvantage, one potential solution is that firms give investors a choice. It’s the least they can do. Bloomberg Gadfly
‘While it’s true that in the current fundraising environment, private equity firms hold the cards, the tide will eventually turn’
C
hina is ramping up both imports and domestic production of natural gas, with the combined rate of growth running well ahead of the government’s target for boosting the use of the cleaner-burning fuel. Official data for domestic production, imports via pipelines and imports of liquefied natural gas (LNG) show the total amount of natural gas available in China in the first five months of the year was the equivalent of 72.01 million tonnes of LNG. This was up nine per cent, or 5.94 million tonnes, on the 66.07 million tonnes that were either pumped domestically or imported in the first five months of 2016. China has set a target of increasing the share of natural gas in energy consumption from 5.9 per cent in 2015 to 10 per cent in 2020, an average annual increase of 4.1 per cent. So far this year, China’s output and imports of the fuel are running at more than double the annual rate needed to reach the official target. The biggest gainer has been imports of LNG, which are up 38.4 per cent in the first five months of 2017 to 12.86 million tonnes, while pipeline imports have dropped 4.4 per cent to 12.65 million tonnes. Domestic natural gas production has been a strong gainer, rising almost 7 per cent in the January to May period to 62.88 billion cubic metres, equivalent to 46.5 million tonnes of LNG. The rise in natural gas output stands in sharp contrast to the decline in crude oil production, which fell to the lowest on record in May as output declines from older fields. Natural gas has also outperformed coal, with domestic output of the polluting fuel up 4.3 per cent to 1.4 billion tonnes in the first five months of the year. The jump in imports of LNG shows how the superchilled fuel is becoming more competitive with pipeline imports from central Asia. Customs data from May shows that the average landed cost of LNG was US$7.28 per million British thermal units (mmBtu). This is higher than the US$5.25 per mmBtu of pipeline imports, however, the customs price excludes the cost of internal pipeline and distribution, meaning imports from central Asia still have to pay to get from the border to demand centres. In contrast, much of the LNG is consumed near to where it is offloaded and re-gasified, meaning it doesn’t suffer from the additional costs associated with the pipeline imports.
“
Clyde Russell a Reuters columnist
five months to 5.39 million tonnes, almost double that of second-placed Qatar at 2.84 million tonnes. Malaysia is the third-biggest supplier to China, with 1.82 million tonnes in the first five months, up 90 per cent from the same period in 2016. The price being paid by China for LNG tells part of the story, with cargoes from Australia landing at US$6.80 per mmBtu in May, well below the US$8.95 for Qatar and slightly ahead of the US$6.49 for Malaysia. Australia’s price advantage is still largely tied to the 25-year supply deal from the North West Shelf venture, signed in 2002 at a fixed price of US$3.80 per mmBtu. At the time it was Australia’s biggest export deal and hailed as a breakthrough in accessing China’s markets, with former prime minister John Howard calling deal a “gold medal performance.” Since then, as spot LNG prices first rose dramatically to peak at over US$20 per mmBtu in 2014, the deal was seen as too generous to the Chinese, given it lacked any mechanism for re-negotiation or linking the price to crude oil, as is common in most long-term LNG contracts. The spot price of Asian LNG was US$5.40 per mmBtu in the week to June 23, down from the northern winter peak this year of US$9.40 in early January. This means China is still paying more for its LNG than the spot price, but not so much as to make LNG imports uncompetitive against pipeline supplies. LNG imports in June appear set to remain robust, with vessel-tracking and port data compiled by Thomson Reuters Supply Chain and Commodity Forecasts showing 2.7 million tonnes has already been discharged, or is discharging, at Chinese ports as of Tuesday. With three days still remaining in the month, the data suggests that an additional eight vessels carrying 560,000 tonnes may discharge before the end of June, taking total imports for the month to around 3.26 million tonnes. While natural gas has policy support boosting its use in China, it remains more expensive than coal when used to generate electricity. The best chance for natural gas to continue to make inroads is not only for LNG prices to remain relatively low, but also for the authorities in Beijing to push for natural gas to be used more in areas like residential heating and smaller factories, many of which still use coal. Reuters
The jump in imports of LNG shows how the superchilled fuel is becoming more competitive with pipeline imports from central Asia
LNG from Australia surges
Among China’s LNG suppliers Australia has fared best, with imports rising 42.7 per cent in the first
”
16 Business Daily Thursday, June 29 2017
Closing Investors
Mainland regulator issues rules to shore up protection
China’s securities regulator has stepped up efforts to protect investors’ interests, publishing a set of know your customer rules yesterday that restrict financial institutions from selling risky products to inexperienced investors. The investor suitability rules, which apply to securities and futures products, were published at a time when China’s hedge fund industry has boomed, while the government is promoting wealth management investment in commodities. The China Securities Regulatory Commission (CSRC),
which published the rules on its website, said putting more burden on financial institutions to sell the right products to the right investors was in line with international practices after the 2008 global financial crisis, citing the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules “will have positive and far-reaching impact on the healthy development of China’s capital markets, and the interests of small investors”, the CSRC said. According to the rules, investors will be classified into two types - ordinary and professional. Financial institutions are barred from promoting “high risk” products to ordinary investors. Reuters
Markets
Hong Kong’s second board plumbs record lows amid market jitters Some market watchers have called for a change to Hong Kong’s margin lending rules, which have been blamed for dramatic sell-offs in stocks Donny Kwok and Michelle Price
H
ong Kong’s second board plumbed record lows yesterday, having lost more than 8 per cent of its market value the previous day as investors raced to reduce exposure to plunging penny stocks. Shares leading the declines on Hong Kong’s Growth Enterprise Market (GEM) had been included in a report by activist shareholder David Webb six weeks ago titled “The Enigma Network: 50 stocks not to own”. Hao Wen Holdings was the biggest loser yesterday, with its shares down 56 per cent. The second-biggest loser was WLS Holdings, off 41 per cent, while Greaterchina Professional Services Ltd plunged a further 34 per cent after its 93 per cent plummet on Tuesday. Nearly all of the 50 stocks in Webb’s report fell yesterday. GEM’s benchmark index dropped 0.8 per cent, after losing nearly 10 per cent on Tuesday in a sell-off that wiped HK$24 billion ($3.08 billion) off market value, leaving it at HK$268 billion. Yesterday, a Securities and Futures Commission (SFC) spokesman declined to comment on whether the regulator was investigating any of the companies in what Webb called a network. “The stocks which have experienced large price declines yesterday occupy a market segment characterized by thin turnover, small public floats, high shareholding
concentrations, and multiple relationships between different companies and listed brokerage firms,” the SFC said in a statement. “These characteristics can be especially conducive to extreme volatility and also to market misconduct.” Yesterday, Webb told Reuters it was unclear what caused the sell-off in “Enigma Network” stocks. “I can only speculate, but it’s possible margin calls have been triggering the sell-off – it’s possible the brokers involved have been told to stop lending against those shares,” he said. “Maybe the people operating the network have decided to dump and run.”
Active umbrella-maker
Another stock on Webb’s list was umbrella maker China Jicheng Holdings Ltd, whose shares plunged more than 90 per cent on Tuesday and gained 6 per cent yesterday. Financial services firm Lerado Financial Group Co Ltd , which had trading of its shares suspended this month and is also on Webb’s list, said yesterday it sold HK$24.96 million (US$3.20 million) of shares in China Jicheng. The securities regulator on June 6 halted trading in Lerado, alleging the company had issued misleading statements. Lerado has said it is seeking legal advice. China National Culture Group Ltd (CNCG) said yesterday it offloaded 1.63 billion shares in China Jicheng on Tuesday to raise HK$34.85 million, while QPL International Holdings,
another stock on Webb’s list, said it sold HK$1.99 million worth of the umbrella-maker’s shares. All three firms said they sold China Jicheng at a loss because its stockprice was “extremely volatile”. Amco United, another stock on Webb’s list, plunged nearly 50 per cent yesterday.
Widespread concerns
Hong Kong’s second board has seen high levels of volatility due to very concentrated shareholdings, and concerns have grown over the quality of companies listed there. Authorities have issued several warnings over concentrated shareholdings and this month launched a consultation to address this problem which would include raising the minimum market capitalization by 50 per cent to HK$150 million and increasing the cashflow requirement for initial listings. The market jitters come nearly two
weeks after the Hong Kong Exchanges and Clearing (HKEx) proposed adding a third board for pre-profit companies, and firms with dual class share structures. Corporate governance activists, including Webb and the Asian Corporate Governance Association, have criticized the plan, saying it will further lower standards. Some market watchers have called for a change to Hong Kong’s margin lending rules, which have been blamed for dramatic sell-offs in stocks. Other have warned that the second board’s slide could impact the broader market. “We have to watch out for any spillover effect in the next few days,” said Linus Yip, chief strategist at First Shanghai Securities. The HKEX said yesterday it would closely monitor activities and take appropriate action when necessary. Reuters
M&A
Reform
Cybersecurity
ChemChina completes takeover of Syngenta
Beijing to further relax Second major cyber attack in two months curbs on foreign investment disrupts businesses around world
ChemChina has completed its US$43 billion takeover of Swiss pesticide and seed giant Syngenta, the companies said, in the biggest overseas acquisition so far by a Chinese firm. The deal combines Syngenta, a global leader in seeds and crop protection, with ChemChina which controls Adama, the largest supplier of generic crop protection products in Europe. It is part of a broader wave of consolidation in the agro-chemicals sector that has worried environmental activists and farmers. ChemChina -- also known as China National Chemical Corp -- made its offer for Syngenta in February 2016, but the takeover had to await the green light from regulators. US and European Union authorities approved the deal in April despite growing resistance on both sides of the Atlantic to blockbuster takeovers by Chinese companies. China itself has sought to rein in the foreign buying spree by its firms over concerns about capital flight and bad loans, reversing course after previously encouraging such ventures abroad. ChemChina pledged to sell part of Adama’s pesticide business and take other steps, to gain regulatory approval. Syngenta will remain a standalone company and the existing management team will continue to run it. AFP
China yesterday removed the number of restricted items for foreign investment by about a third, allowing more access into its services, manufacturing and mining sectors. In new guidelines jointly issued by the National Development and Reform Commission and Ministry of Commerce, the government removed 30 restricted items compared with the 2015 version, leaving 63 on the list. Restrictions lifted in the manufacturing sector include those for rail transportation equipment, motorcycles, edible fats and oils, and fuel ethanol, according to the statement. China will also lift restrictions on foreign investment in unconventional oil and gas development, including shale oil, oil sands and shale gas. The new guidelines will take effect from July 28. Since the end of last year, the government has promised to take steps to further open the world’s second-largest economy to foreign investment, offering increased access to its services manufacturing and mining sectors. Reuters
A major cyber attack, believed to have first struck Ukraine, caused havoc around the world yesterday, crippling computers or halting operations at port operator Maersk, a Cadbury chocolate plant in Australia and the property arm of French bank BNP Paribas. Russia’s biggest oil company, Ukrainian banks and multinational firms were among those hit on Tuesday by the cyber extortion campaign, which has underscored growing concerns that businesses have failed to secure their networks from increasingly aggressive hackers. The rapidly spreading computer worm appeared to be a variant of an existing ransomware family known as Petya which also has borrowed key features from last month’s ransomware attack, named “WannaCry”. ESET, an anti-virus vendor based in Bratislava, said 80 per cent of all infections from the new attack detected among its global customer base were in Ukraine, with Italy second hardest hit at around 10 per cent. Several of the international firms hit had operations in Ukraine. Shipping giant A.P. Moller-Maersk was not able to process new orders after being hit by the attack on Tuesday, it told Reuters. Reuters