Wines and tea to refresh – and invigorate! – deserving you Consigliere Pages 8 & 9
Friday, June 30 2017 Year VI Nr. 1329 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro ATMs
Face recognition technology slowly deploying Page 6
Trade
Sino-Luso commerce increasing sharply in 2017 Page 2
Hospitality
www.macaubusinessdaily.com
Roosevelt Hotel tests the waters in soft unofficial opening Page 4
Tourism
Package tours skyrocket in May Page 5
M&A
Merkel calls for EU to close ranks to fend off Chinese expansion Page 16
Polytex Gaining Ground Real estate
Polytex has won this round. With the MSAR Government obliged to explain its position in court. Regarding the failed development of the Pearl Horizon site. Parent company Polytec Asset Holdings claims the development failed to be completed due to delays by the local gov’t in granting requisite approvals and permits. Page 2
Culture of suspicion taking root
Unlucky number
The 13 keeps trying. This time its doors are set to open by year-end. The hotel company has executed share sales in order to accumulate funds to complete requirements necessary to opening its purported luxury facilities.
Law enforcement The Financial Intelligence Office has a lot on its plate. Sifting through 2,000-plus suspicious transactions of money laundering or terrorism financing last year. Some 28.5 pct more than the previous year. Most fingers were pointed at the gaming sector. Page 2
Greek Mythology tragedy unfolding
Court The legal confrontation is gathering steam. Between Amax International and Greek Mythology. With ‘nine to twelve months’ cited before any legal result. Amax has requested local authorities appoint its Chairman and CEO as administrator of Greek Mythology in order to gain access to the books. Page 3
Coming out with handbags swinging
Resort Page 5
HK Hang Seng Index June 29, 2017
25,965.42 +281.92 (+1.10%) Worst Performers
HSBC Holdings PLC
+6.28%
Kunlun Energy Co Ltd
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Want Want China Holdings
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Henderson Land Develop-
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Geely Automobile Holdings
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China Resources Power
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CK Infrastructure Holdings
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China Overseas Land &
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Hang Lung Properties Ltd
+3.85%
China Mengniu Dairy Co Ltd
+2.26%
Power Assets Holdings Ltd
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PetroChina Co Ltd
-0.21%
+3.18%
China Resources Land Ltd
+2.02%
CLP Holdings Ltd
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Lenovo Group Ltd
-0.20%
AAC Technologies Holdings
+1.64%
CK Hutchison Holdings Ltd
-0.35%
China Shenhua Energy Co
+4.46%
BOC Hong Kong Holdings Hang Seng Bank Ltd
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28° 31° 28° 30° 28° 30° 28° 31° 28° 31° Today
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Copyright ‘Irresponsible’. Mainland authorities condemn Europol report. Which accuses China of being the primary source of counterfeit goods arriving in the European Union. The report named Hong Kong as an important transit point. Page 10
2 Business Daily Friday, June 30 2017
Macau Sino-Luso trade
Sino-Luso trade posts encouraging growth Sino-Luso trade rocketed 40.41 per cent year-on-year in the first four months of this year to reach US$34.17 billion, with the African country of Angola registering the largest increase Nelson Moura nelson.moura@macaubusinessdaily.com
Lusophone countries went up 13.67 per cent monthly to US$7.52 billion.
rade between China and Portuguese-speaking countries amounted to US$34.17 billion (MOP274.68 billion) between January and April of this year, representing a 40.41 per cent yearly increase from the same period of last year, according to data released by the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao). The increase in the first four months of the year was primarily driven by Chinese imports from Portuguese-speaking countries, which grew by 50.93 per cent year-on-year to US$24.41 billion, with exports from China increasing 19.56 per cent to US$9.75 billion. On a monthly comparison, Sino-Luso trade in April reached US$10.19 billion, a 11.69 per cent uptick from the previous month, with exports from China rising 6.47 per cent month-to-month to US$2.68 billion, while exports from
Usual suspects
T
From January to April of this year, trade between China and its largest Portuguese-speaking trading partner, Brazil, grew by 40.50 per cent yearly to US$24.32 billion. Total trade between Brazil and China represented more than 70 per cent of all Sino-Luso trade in the first four months of 2017. Exports from the South American country rose by 46.19 per cent yearon-year to US$16.64 billion while exports from China to Brazil went up 29.57 per cent yearly to US$7.68 billion. China’s second largest Lusophone trading partner, Angola, registered the largest yearly increase in trade in the first four months of this year, a 61.83 per cent jump to US$7.60 billion. The increase resulted from a 65.6 per cent year-on-year rise in China imports from the Portuguese-speaking African country to US$7 billion, with imports from China representing 92.1 per cent of the total trade volume
between the two countries. Meanwhile, exports from China to Angola between January and April of this year went up by 27.71 per cent yearly to reach US$597 million. Of China’s three largest trading partners, Portugal was the only one to register a yearly decrease in trade in the first four months of 2017, dropping 5.11 per cent to US$1.62 billion.
Exports from China to the European country reached US$1.03 billion between January and April of this year, a 20.34 per cent year-on-year drop. Portugal’s exports to China, however, increased considerably in the first four months of 2017, going up 43.61 per cent yearly to US$583.7 million.
Crime
Culture of suspicion cultivated Suspicions about money laundering or terrorism financing transactions grew 28.5 per cent yearly to 2,321 in 2016, with more than half registered in the gaming sector
Court
Forced into solidarity A request by Polytex Corporation Ltd. to involve the MSAR Government in a court case involving a Pearl Horizon buyer was allowed by the Court of Second Instance Nelson Moura nelson.moura@macaubusinessdaily.com
The Court of Second Instance has ruled in favour of Pearl Horizon developer Polytex Corporation Ltd’s request that the MSAR Government be called in a trial initiated by the buyer of a housing unit in the contentious residential project. According to a release by the court, the owner of a pre-developed housing unit in Pearl Horizon filed a complaint requesting compensation for losing the investment after the MSAR Government reclaimed the land plot after the company failed to develop the property before the end of its 25-year concession agreement. In its defence, Polytex requested that the Macau Government be called to take part in the trial, with the company considering that the failure to abide by the contract with the plaintiff was due to an illegal application of the
Basic Law, with the local government not allowing the company to extend its concession contract. Polytex’s parent company - Hong Kong-listed developer Polytec Asset Holdings - claims that the development failed to be completed due to delays by the local government in granting requisite approvals and permits for the project’s development. In 2016, Polytex’s request was refused on the grounds that the private plaintiff was not seeking to accuse the MSAR Government of breach of contract, while not presenting evidence that the company had any ‘solidarity’ connection with the local government that justified the request. Polytex later appealed to the Court of Final Appeal, with the court considering that the request was intended to assist the defence of the company, and could thus be allowed.
The Macau authorities registered some 2,321 notifications regarding suspicious transactions of money laundering or terrorism financing last year, a 28.4 per cent increase from the year prior. Data provided by the Financial Intelligence Office indicate that of the total 2,321 notifications, 240 were sent to the Public Prosecutor’s Office for investigation. The largest number of notifications of suspicious transactions related to the gaming sector, a total of 1,546 complaints or 66.6 per cent of the total. Banking and insurance companies represented 30 per cent of notifications at 696, while other financial institutions generated 79 notifications, or 3.4 per cent of the total. The identified sectors, including casinos, are mandated to communicate to authorities any transaction equal or superior to MOP500,000 (US$62,200). The U.S. State Department recently proposed in reports about the MSAR that the minimum amount casinos should be forced to report should be reduced 20-fold to US$3,000 (MOP24,116) in line with international standards.
In order to follow international standards, the Macau Government revised the 2006 laws against money laundering and prevention of terrorism crimes, with the new versions effective Maythis year. As an example, the range of crimes covered by the anti-money laundering law - which could involve a possible sentence of eight years in prison - was extended to electoral corruption, while auctioneers were included in the list of entities forced to report suspicious transactions. The number of covered crimes relating to the financing of terrorism activities was also extended in order to cover all designated activities of United Nations resolutions, being extended to cover economic resources or assets, as well as any assets that can be transformed into funds. In addition to revising those two laws, the MSAR Government made further progress last year in creating an asset freezing system, which came into force last August. The necessity of such a system came to light in recognising the ‘inadequacy’ of any current mechanism which could allow an effective execution of the freezing of assets decreed by the UN Security Council. Lusa
Land
Court rules against Pac On appeal The Court of Second Instance has denied an appeal by Belo Horizonte regarding the expiration of a concession on a land plot in Pac On. The case is linked to former Secretary Ao Man Long and businessman Ho Meng Fai and relates to lot PO5d, located next to the Pearl On the Lough residences, originally slated to be three storeys, or 11 metres tall, with a maximum
usable space of 900 square metres. The court noted that Ho Meng Fai had ‘made illegal offerings to Ao Man Long’ in order to swap the land in question for a more valuable plot on which he could ‘construct hundreds of housing units’. The court ruled against the appeal and maintained its initial declaration of expiration of the plot concession.
Business Daily Friday, June 30 2017 3
Macau Greek Mythology
Unsure whether to continue A HK$988 mln loss for the 2016 financial year, with HK$901 mln due to Greek Mythology, puts into question Amax’s ‘ability to continue’, while litigation to gain access to the associate’s financial information could take up to a year Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com
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he court proceedings filed for by Amax International in relation to Greek Mythology - operator of the Greek Mythology casino (pictured), in Imperial Beijing Palace - are estimated to take ‘nine to twelve months’ before they could result in a ‘court order from the Macau Court’, according to a filing from the company with the Hong Kong Stock Exchange. This comes after a Monday filing with the stock exchange in which the company disclosed it had submitted an application ‘to the Court of Macau, SAR for a court order to appoint Mr. Ng Man Sun, the Chairman and Chief Executive Officer of the Company (Amax), as the administrator of the Associate (Greek Mythology)’. ‘If the court order is granted, the company would have access to the financial information of Greek Mythology and participate in the management of Greek Mythology,’ notes the most recent filing. Having discussed this with the auditors, the company notes that ‘if sufficient documents were revealed, the audit issues of the company’s interest in Greek Mythology and share
of results of Greek Mythology; and recoverability of amount due from Greek Mythology and valuation of intangible assets could possibly be resolved’. Amax International has been unable to accurately calculate its financials ‘due to Greek Mythology’s refusal to provide the Company with its valid financial information since 2012,’ the Monday filing reiterated. The board notes that in light of the auditors’ view the company has recognised impairment losses from Greek Mythology for the financial year ended March 31 2017 of HK$901.2 million – ‘comprising HK$837.6 million impairment loss of interest in Greek Mythology and HK$63.6 million impairment loss of the amount due from Greek Mythology’. The group notes that it ‘is unable to estimate the timeframe as to when the company could get direct access to the financial information of Greek Mythology,’ but that it is ‘continuing to consider taking all steps appropriate to resolve the Greek Mythology issues’. The company’s finances for the financial year in question demonstrate a HK$988.52 million loss, with HK$983.87 million of this attributable to owners of the company. This compares to HK$48.97 million last
year, before Greek Mythology’s losses were included. Revenue for the year was just HK$11.4 million albeit an uptick from the MOP10.48 million see last year. Given the loss, and the fact that the group’s ‘current liabilities exceeded its current assets by HK$177,796,000’ the group notes that ‘a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern’. The group’s newly commenced Vanuatu gaming operation was largely responsible for Amax’s revenue, it points out, although imposing upon
it an impairment loss of HK39.6 million for its gaming licence for the financial year. The group in March acquired mobile game applications via a subsidiary, with the recent filing noting that it ‘is yet to commence the operation of the mobile game applications,’ as they ‘were still under development and testing stage as at March 31’. The games are ‘specifically built for mobile devices users for playing gambling and on-line/off-line players,’ with a ‘useful life’ of 10 years and in the financial year results amounted to a HK$2.3 million impairment. advertisement
4 Business Daily Friday, June 30 2017
Macau Opinion
Pedro Cortés* Farewell According to the latest news, some Portuguese judges are soon to leave the Macau Special Administrative Region. The construction of our second system is, in good part, due to them. Not only those who are leaving but also all the judges and prosecutors who have left their homeland to bring quality to our court decisions and to what was foreseen by Deng Xiaoping’s ‘One Country, Two Systems’. From this pulpit, I urge the responsible authorities that these judges be replaced by others of the same quality and experience. Justice Gil Oliveira, for instance, has served our Region for more than two decades with accuracy, rigour, and seriousness. In a nutshell, with all that is needed of a judge. In my view, judges should only be judges after a certain period of time serving in other judicial professions. Judging human behaviour should not be done by decree or after two years on a course. With all due respect, more is needed. Common sense, of course, but also a real acquaintance with life. A good number of judges do not interact with society, living instead in a glass case which prevents them from deciding in the best manner. Engaged in one of the most honoured professions which cannot be undertaken by all human beings, a judge needs experience, technical knowledge and a liberal dose of the aforementioned common sense. I believe that all the actors of the justice system will be the poorer for the departure of those now leaving their office. We may disagree with some of their decisions, of course - especially when they run counter to our clients’ interests - but of one thing I am sure: when a decision is well founded with seriousness, it is easier for all of us to accept it. Macau is such a small place that we need to consider that there are, sometimes, better professionals outside the Region, unblemished by past biases. If we can have a better Region with foreign judges, engineers, lawyers and journalists, then the idea should be to hire them and not put obstacles in the process of recruitment. We will all surely have a better future and a healthier second system. All that is left to say to those who are leaving is: thank you very much for your efforts and excellent work - and contribution to Macau’s development as a Rule of Law system. *lawyer and frequent contributor to this newspaper.
Openings
Macau Roosevelt holds very soft opening Macau Roosevelt - the latest addition to the hospitality offerings near Cotai - unofficially opened yesterday, bringing 368 more rooms to the city’s supply and calling itself ‘Macau’s first true party palace and chic retreat’. The hotel, soon to house the Macau Jockey Club Casino pending government approval, looks out over the Macau Jockey Club’s horserace track and across to neighbouring Hengqin Island, positioning itself as ‘the only 5-star lifestyle hotel in Macau’. This opening comes the same year as the US$1 billion-plus The 13 is also set to open its doors albeit without a casino element announced so far. While the hotel’s
promotional materials don’t yet mention the Macau Jockey Club, they note that ‘when lady luck calls your name, Macau’s top casinos are all within a few minutes’ drive’. Originally set to open in the second quarter of this year, the hotel is aiming for an official opening by end-July, with the casino pencilling in a mid-July opening, according to information provided to Business Daily. Offerings include a pool and deck area facing the Macau Jockey Club and Cotai Strip, located off the Casa Roosevelt restaurant, currently operating a buffet. The new property is run by the GCP Hospitality group, which falls under Gaw Capital, founded by
Goodwin and Kenneth Gaw. In 1995, Goodwin bought and revamped the original iconic Hollywood Roosevelt Hotel, while in 1994 Kenneth joined Pioneer Global Group Limited, where he is currently Managing Director. Pioneer invests in Macau properties, including the acquisition and repositioning of the AIA building, announcing
on Monday HK$805.19 million in profit for the 2016 financial year ended March 31. Business Daily contacted the Gaming Inspection and Co-ordination Bureau for comment on the current status of the Macau Jockey Club Casino but had not received comment by the time this went to print. K.W.
Tourism
Regional attraction boosts inbound visitation Visitors on package tours from India and Korea posted double-digit increases in May and the first five months of the year Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
During the month of May tourists to the city on package tours increased 20.7 per cent year-on-year, hitting 681,000, according to the most recent data from the Statistics and Census Service (DSEC). Those coming from the Mainland posted an 18.9 per cent year-on-year increase during the month, while in the first five months of the year visitors from China on package tours increased 6 per cent yearly. Visitors from Hong Kong and Korea recorded sizeable increases in May of 41.3 per cent and 56.4 per cent, year-on-year, respectively, while India and Korea recorded the largest cumulative increases in the January-May period of 59.3 per cent and 45.3 per cent, respectively. The number of visitors on package tours in May from India skyrocketed 125.5 per cent, hitting 23,500, the fourth largest visitor market after the Mainland, South Korea (41,900) and Taiwan (34,800). The number of visitors staying in
hotels and guesthouses posted a 21 per cent year-on-year increase, to 718,700 during the month, while reaching 3.4 million in the first five months, a 16.7 per cent increase year-on-year. Visitors from Korea staying in hotels and guesthouses went up 107.9 per cent in May and 70.1 per cent in the first five months, respectively, while those from Malaysia rose 19.8 per cent in May and 18.3 per cent in the January-May period, when compared to the relative period the year before, respectively. Macao Government Tourism Office has been stepping up promotions in the country, in April holding the
‘Experience Macao – Malaysia’ promotional event in Kuala Lumpur. The vast majority of guests of hotels and guesthouses continued to be from the Mainland, at 63.9 per cent, while Hong Kong visitors made up 12.3 per cent, followed by Taiwan and Korea, at 3.9 per cent, and India and Japan at 1.8 per cent and 1.7 per cent, respectively. Outbound residents increased visits primarily to Thailand, Singapore and Korea during the month of May and in the first five months of the year, with notable upticks of 54.9 per cent, 41.8 per cent and 40.9 per cent while cumulatively increasing 73.1 per cent, 21.9 per cent and 45.1 per cent, respectively. Outbound travellers to Mainland China increased 27.3 per cent yearon-year in May and 21.5 per cent in the first five months, reaching 62,600 and 316,200, respectively.
Airlines
Six degrees of Ho separation Chief Supervisor of HNA Group (International) Company Limited and University of Macau alumni, Neng Li, was appointed as a possible member of the Administrative Board of Portuguese airline TAP Nelson Moura nelson.moura@macaubusinessdaily.com
The Atlantic Gateway consortium has appointed Neng Li, a finance graduate from the University of Macau (UM), as a future member of the Administration Board of Portuguese airline TAP, Portuguese newspaper Publico reported. Having joined the HNA Group Co., Ltd. (HNA) in 2003, Mr. Li occupied several positions the group, serving
currently as Chief Supervisor of HNA Group (International) Company Limited. Since 2016, Mr. Li also became an Independent Director at Azul Brazilian Airlines, an airline founded by Brazilian-American businessman David Neelan, one of the members of joint venture Atlantic Gateways. Atlantic Gateways currently holds half of TAP, with six of the 12 members of the Administration Council
being comprised by the group, and the other half by the Portuguese government. The HNA Group also holds 22 per cent economic interest in TAP, through its subsidiary Hainan Airlines, which owns a similar share in Azul, allowing the Chinese group to appoint one member with voting power to the board. The Portuguese government also appointed lawyer Diogo Lacerda Machado for the Administration Council, a former administrator of venture capital firm Geocapital, founded by local tycoon Stanley Ho Hung Sun. Mr. Machado was an administrator of Geocapital during a deal where TAP purchased 20 per cent of VEM, a Brazilian maintenance company owned by Geocapital, in a deal that cost the Portuguese airline considerable losses.
Business Daily Friday, June 30 2017 5
Macau Luxury hotels
The 13 still expected in 2017 A very substantial disposal to back the completion of its super luxury hotel is the latest attempt from The 13 Holdings to get its Macau property open before the end of the year, after several delays already announced Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he 13 Holdings Limited has disposed of 51.76 per cent of the total issued shares of Paul Y. Engineering Group Limited, a subsidiary of the company responsible for the construction of its flagship hotel in Cotai, The 13, according to an announcement by the company with the Hong Kong Stock Exchange on Wednesday after trading hours. The 13 Holdings claims the sale, struck for a total consideration of HK$300 million (US$38.42 million/ MOP309 million), ‘provides funding to finance the completion of the facilities and amenities of The 13 Hotel as well as pre-opening costs.’ The company also estimated that it would record a loss on the disposal of Paul Y. Engineering of nearly HK$388 million. The sale constitutes a connected
transaction of the company involving two purchasers, both subsidiaries of ITC Properties Group Limited (ITCP). Pursuant to the deal, Precious Year, a direct wholly owned subsidiary of ITCP, has acquired 45.76 per cent of the issued share capital of Paul Y. Engineering for HK$265.2 million. Tycoon Bliss, a company wholly owned by Mr. Chan Fut Yan, an executive director of Paul Y. Engineering and of ITCP, has acquired another 6 per cent of The 13’s constructor for a total consideration of HK$34.8 million. The 13 Holdings further noted that the sale constitutes a timely transaction ‘so that the management team can focus more […] on the hotel management business of the group and … resources can be effectively utilized for the hotel management business after the opening of The 13 Hotel.’
Opening delay confirmed
In a separate filing with the Hong
A model of the hotel during The 13 special private preview at Monaco Grand Prix. Source: The 13
Kong Stock Exchange on the same day the company signalled that it expected to open The 13 Hotel in the second half of 2017 – while noting in the earlier filing that the ‘senior management of The 13 Hotel is in place while hiring of functional staff is in process.’ It further reiterated that the occupation permit for the premises of the hotel had been issued on March 29, 2017 and that they were ‘in the process of obtaining necessary licences and approvals for operation of the Hotel and related activities.’ In previous filings, the group announced it was planning to open the hotel at the end of July 2017. In the same filing, The 13 reported a
net loss of roughly HK$45 million for the year ended 31 March 2017, mainly attributable to ‘the absence of one-off pre-opening expenses in relation to hotel under development segment as recorded in last year and decrease in legal and professional fees.’ The amount represents a decrease of nearly 77 per cent from the HK$197-million loss recorded in 2016. The group recorded revenue of HK$6.12 billion for the period, down 10.1 per cent year-on-year. The company also recorded an increase in gross profit amounting of some HK$247 million, compared to HK$198 million collected in 2016.
Events
MSAR to host IAGA gaming summit in 2018 The next International Gaming Summit by the International Association of Gaming Advisors (IAGA) is slated to take place in Macau next year, according to an IAGA announcement. On June 1,
the group finalised its 36th annual international summit, announcing that next year’s edition will be held at the Four Seasons between May 14 and 16, to take place ‘in conjunction with the annual Global
Gaming Expo Asia trade show and conferences’. The summit ‘will include one-day workshops on responsible gaming, financial crime, as well as a workshop specifically focused on global
regulatory issues and initiatives,’ notes the release. Group President-Elect, Laura McAllister Cox, noted that “This is our Association’s first Summit in Macau; we are confident that our international delegates will appreciate the opportunity to visit this critical jurisdiction and see firsthand how its operators support their clientele”.
Bookmaking
Foreign trade
Success Dragon folds on Vietnam
External merchandise trade on a positive note
The service provider of outsourced management solutions and information technology to the gaming industry sees no profitable outcomes under tightened Vietnamese regulations on greyhound and horseracing betting Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Success Dragon International Holdings Limited has pulled out of various racing businesses in Vietnam, a filing by the company with the Hong Kong Stock Exchange announced on Wednesday after trading hours. The gaming service and IT solutions provider has terminated four agreements in that country related to greyhound and horseracing services provision due to the ‘adverse regulatory climate,’ following a decree issued by the Vietnamese Government this month reducing the scope and development of wagering on races. Success Dragon has pointed out three elements that would likely lessen the company and its subsidiaries’ capacity ‘of ramping up business volume and revenue to reach a satisfactory level to recover operating […] and repay start-up cost and expenses’ within the framework of the decree. In addition to the restriction of betting per player - which is set at VND1 million (HK340) per day - disallowance of international simulcast of greyhound and thoroughbred racing, and the limitation on opening new off-track betting outlets have prompted the company to exit the
deals. In the filing, Success Dragon estimates an operating loss incurred of roughly HK$40 million and a HK$70 million impairment loss on the property, plant, and equipment for the financial year ended 31 March 2017, arising from the recent regulatory changes and the termination of the agreements. The company noted, however, that the termination ‘will not have any material adverse impact on the financial position and operation of the group,’ claiming further that it allows it ‘to focus and channel its resources on developing other existing business and new potential business.’ Success Dragon also provides electronic gaming equipment to casinos in Macau, including Pharaoh’s Palace Casino, Casino Casa Real, and Casino Grandview, according to the company.
In particular, handbags and travel goods sold like candy in May 2017 Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The total amount of merchandise exported from Macau in May of this year reached MOP894 million, marking an increase of 7.4 per cent year-on-year, according to the latest information released by the Statistics and Census Service (DSEC). The increase of nearly 93 per cent in the re-exporting of travel goods, handbags, and related products was particularly noteworthy, totaling MOP78 million in trade during the period, or roughly 10 per cent of the total amount of re-exported goods, which reached MOP752 million in the month. Overall, domestic exports dropped 7.9 per cent, with exports tobacco falling 47.5 per cent year-on-year to MOP24 million.
Five-month thermometer
External merchandise trade in the first five months of the year amounted to MOP33.81 billion, up 5.8 per cent, whereas the deficit widened to MOP24.46 billion. During the period, merchandise exports amounted to MOP4.67 billion, signaling an increased of 8.9 yearon-year, of which value of re-exports (MOP3.94 billion) and domestic exports (MOP733.8 million) rose by 9.5 per cent and 5.7 per cent, respectively. Imports also grew, reaching
a total of MOP29.13, up 5.3 per cent year-on-year.
Destination and origin
Export to Portuguese-countries, which does not constitute a significant portion of Macau’s exports, also dropped drastically, down 70.7 per cent to MOP600,000 year-on-year. Exports to neighbouring destinations only rose for Hong Kong, with merchandise sold to the other SAR up 15.7 per cent to MOP2.96 billion from a year earlier, while exports to Mainland China (MOP712 million) and to the nine provinces of the Pan Pearl River Delta (MOP673 million) were down 0.8 per cent and 1.4 per cent, respectively. In addition imports from Mainland China (MOP9.57 billion) and from Portuguese-speaking Countries (MOP250 million) fell, dropping 7.1 per cent and 1.4 per cent, respectively, on yearly basis. In turn, imports from the EU (MOP7.55 billion) increased 17.1 per cent.
6 Business Daily Friday, June 30 2017
Macau Anti-laundering
Domestic ATMs need face time before pay-out to follow the money The rollout in Macau comes as casino revenue posted its largest gain last month in more than three years
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hinese bettors withdrawing money from some ATMs in Macau need to do more than punch in their PIN code. They also have to stare into a camera for six seconds so facial-recognition software can verify their identity and help monitor transactions. Regulators in the world’s most lucrative gaming hub are deploying machines with “Minority Report”-style technology to keep tabs on capital outflows from China and watch for potential money laundering schemes. China UnionPay Co.’s network is the first to use the software, which will be installed in all the city’s 1,200 cash dispensers. President Xi Jinping’s government is trying to curtail the overseas shifting of currency that helps suppress the value of the yuan and drain capital reserves. The People’s Bank of China imposed controls as the amount of money leaving China last year topped US$816 billion, according to data compiled by Bloomberg, with Macau considered a primary exit used by private citizens and corrupt government officials alike. “This is aimed at illicit outflows of capital from China,” said Sean Norris, Asia Pacific managing director at Accuity in Singapore. “It’s aimed at people drawing out money in Macau, going to the casino, betting very little, getting forex from there and moving it.”
Privacy concerns
The new ATMs represent the first widespread consumer application of facial-recognition security programs in Greater China, where privacy concerns aren’t debated as vigorously as in the U.S. or Europe. Government censors scrub the internet of content they deem harmful to the populace or the authority of the Communist Party, and Chinese consumers regularly fork over personal information to mobile payment, e-commerce and food-delivery apps on their smartphones. “They’re not well-educated about how privacy should be important to them,” said Simic Chan, a senior analyst at Fung Global Retail & Technology in Hong Kong. “They feel it’s a norm to have their data collected.” The rollout in Macau comes as casino revenue posted its largest gain last month
in more than three years. Gross gaming receipts in May rose almost 24 per cent from a year earlier to MOP22.7 billion (US$2.8 billion), according to the Gaming Inspection and Coordination Bureau. Identifying the firehouses flooding Macau with money is one reason China’s State Administration of Foreign Exchange issued a June 2 notice requiring banks and China UnionPay to report every overseas cash withdrawal and card transaction of more than RMB1,000, starting in September. The campaign to halt capital outflows through gambling-related channels has also ensnared foreign casinos who market too aggressively in China where gaming is banned. Earlier this week, more than a dozen employees of Melbourne-based Crown Resorts Ltd. were sentenced to up to ten months jail by a Shanghai court for illegally promoting gambling.
“It’s aimed at people drawing out money in Macau, going to the casino, betting very little, getting forex from there and moving it” Sean Norris, Asia Pacific managing director at Accuity in Singapore “Although there has been no major policy change in the past six months, we have seen signs of heightened enforcement, particularly on anti-money laundering issues,” said Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo in a June 22 note. “It seems reasonable to expect a further heightening of enforcement.”
Customer identification
Already, the government in December limited withd ra w a l s t o M O P 5 , 0 0 0 for each transaction from MOP10,000. It’s common in Macau to see people using multiple bank cards to withdraw cash from multiple accounts, or
As of June 28 a total of 680 ATM’s had already installed the facial recognition technology ‘Know Your Client’, according to a release by the Office of the Secretary for Economy and Finance. This system only allows facial recognition of people holding UnionPay bank cards issued by banks in mainland China,
for relatives or friends of the account holder to withdraw money without them being present. “This initiative is less about innovation than it is about customer identification and management,” said James Lloyd, Asia-Pacific FinTech Leader at Ernst & Young in Hong Kong. “It seeks to better identify who is involved in the money flow.” Most of the ATMs in Macau are made by Duluth, Georgia-based NCR Corp., and the facial-recognition technology would be installed inside existing boxes. Customers first insert a bank card and enter their PIN, and then the machine asks to scan their ID card and take a photo. The world’s largest ATM manufacturer, with about 1,000 machines currently in the Chinese territory, declined to comment on the software, citing a non-disclosure agreement with the Macau government and related parties. The monetary authority wouldn’t elaborate, and the China Banking
excluding bank cards issued in Macau or other regions. In the notice, the Monetary Authority of Macau (AMCM) says it ‘urges’ local banks to accelerate the works introducing this technology in all ATM machines installed in the MSAR, including in casinos and surrounding areas.
Regulatory Commission and Finance Ministry both declined to comment.
manager at LexisNexis Risk Solutions, a provider of identity management solutions.
Scanning faces
Biometric tehnologies
The Macau Monetary Authority is starting with China UnionPay ATMs because that’s the biggest network in Macau and has the largest transaction amounts. Other payment providers, including Visa Inc. and Mastercard Inc., will be required to support the technology in the future, it said without providing a timetable. The costs of retrofitting ATMs will be borne by banks, it said. The global biometrics business is poised for exponential expansion, according to market researcher Tractica. Revenue generated by hardware and software that scan faces, fingerprints, voices and irises is expected to reach US$15.1 billion by 2025, compared with US$2.4 billion last year. Apple Inc., Samsung Electronics Co. and Xiaomi Corp. install biometric features on their smartphones. Facebook Inc. has developed a technology that can identify people even when their faces aren’t clearly shown in pictures. Chinese ID cards are valid for as long as 20 years. The recognition software typically can see through the aging process and even plastic surgery, said Chris Foye, a London-based market planning
The facial-recognition system at Macau’s new ATMs involves a relatively basic version of the technology, Chan said. Alibaba Group Holding Ltd. and Baidu Inc. are investing in biometric technologies to secure mobile payment services and smooth e-commerce flows that have reached RMB5 trillion (US$734 billion) annually. Megvii Inc., a Beijing-based developer of such technology, raised at least US$100 million from investors such as Foxconn Technology Group in December. The company doesn’t supply its technology for ATMs, though it provides face-scanning systems to Ant Financial, the financial services affiliate of Alibaba, said Xie Yinan, a spokesman. It would be difficult for hackers to steal banking information through the software because the ATMs use multiple means -- including PIN numbers -- to verify identities, Xie said. “The region is looking at this development with interest, and if successful in Macau, there is no reason why it would not be adopted more widely,” Foye said. Bloomberg News
Business Daily Friday, June 30 2017 7
Gaming
Boardroom coup
Universal president says founder Okada ‘unfit’ for board in private letter In the letter, Fujimoto said an investigation into Okada would look at transactions going back five years Emi Emoto and Nathan Layne
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he president of Japan’s Universal Entertainment Corp said the company’s founder Kazuo Okada (pictured) is “unfit” to be the director of a public company, in a private letter to a shareholder seen by Reuters. The June 21 letter was written by Jun Fujimoto ahead of an annual meeting of Universal shareholders yesterday at which Okada lost his position as board chairman. Shareholders approved a slate of directors that did not include Okada, a company spokesman confirmed. The meeting was not open to the media. The board shake-up comes three weeks after Universal announced that it had established an internal investigative panel to probe Okada’s use of company money. Universal said it had found three cases in which Okada misappropriated a total of US$20 million in funds.
“I’ve been barred from the meeting in the name of this investigative panel and allegations that are a bunch of nonsense” Kazuo Okada, Universal Entertainment Corp’s founder
Okada addressed those allegations for the first time yesterday on the side-lines of the meeting in a Tokyo hotel. Okada made the comments after being told he could not attend the meeting because his stake in Universal is held indirectly by a holding company. “I’ve done nothing wrong,” Okada told reporters. “I’ve been barred from the meeting in the name of this investigative panel and allegations that are a bunch of nonsense.” Universal said it could not comment on letters to or from Fujimoto
as an individual and declined to make him available for an interview. Peppered with criticism of Okada, the letter offers a glimpse into the mind-set of Fujimoto, 59, as he pushes ahead with an attempt to side-line Okada, 74, in a rare Japanese boardroom coup. “I think Chairman Okada is unfit to be in management of a public company,” Fujimoto said in the letter, which was written in Japanese. “I’m confident that I can prove that with irrefutable physical evidence.” He did not say what that evidence was. The approved slate of directors included Okada’s wife, Takako. Universal also brought back a former finance executive and added an external director to the board. Those changes were made possible by the resignation of Okada in May as director of Okada Holdings Ltd, a company based in Hong Kong that owns 69 per cent of Universal’s stock and therefore holds sway over appointments to Universal’s board. Okada stepped down as the result of a rift with family members, who control a majority of Okada Holdings’ stock, Reuters reported on Wednesday. Fujimoto was responding to a letter from shareholder Tsuyoshi Hosoba, who had unsuccessfully sued Universal directors in 2015 alleging they breached their fiduciary duties on a series of matters, including in relation to US$40 million in payments from affiliates of Universal in 2010 to a Philippine consultant, who was working on the company’s US$2.4 billion casino on Manila Bay. Okada, Fujimoto and Universal have denied any wrongdoing related to the payments, which have been the subject of regulatory scrutiny in the U.S. and the Philippines. Hosoba declined to comment. In his letter, Hosoba said he wanted to work with Fujimoto to “clean up” the company and offered to cease further legal action if Fujimoto “told the truth” about the payments and took steps to bolster corporate governance. In response, Fujimoto rejected Hosoba’s request to cooperate but urged him to consider the steps he was taking to improve the company’s compliance and the risks directors and executives were taking in investigating
the “extremely powerful” Okada. Fujimoto criticized Hosoba’s threat of legal action as misguided. In the letter, Fujimoto said the investigation into Okada would look at transactions going back five years. That means the review would not include the US$40 million paid to the Manila-based consultant in 2010. The U.S. Federal Bureau of Investigation has been probing the US$40 million to determine if it was aimed at helping Universal gain tax and
ownership concessions for its casino in the Philippines, according to the people with knowledge of the probe. Universal and Okada filed a defamation lawsuit against Reuters in 2012 for its reporting on the payments. The Tokyo District Court ruled in 2015 that Universal’s case was without merit. Last year the Tokyo High Court upheld that ruling, dismissing Universal’s appeal. Universal has appealed to the Supreme Court of Japan. Reuters advertisement
8 Business Daily Friday, June 30 2017
Consigliere
Five wines and a vodka you need to get your hands on now Among 2,300 exhibitors from 40 countries at VinExpo 2017, these bottles took our critic’s breath away. Elin McCoy
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ursts of fireworks illuminated the night sky at Château Mouton Rothschild. Speakers in the vineyard boomed out arias from Mozart’s The Magic Flute as attendees streamed into a large white tent for dinner. That was just one of the parties kicking off VinExpo 2017, the world’s largest wine and spirits trade fair, which was held last week at a giant exhibition space on a manmade lake north of the city of Bordeaux. Don’t assume the biannual event is only about partying hard until dawn at grand wine estates, glass of something fabulous in hand. The wine and spirits’ industry’s four-day schmoozefest is actually serious international business—a place to do deals, discuss politics (Brexit, for example), trade gossip, and bone up on important issues such as shipping logistics and how climate change is affecting wine. On the first day, VinExpo signed a memorandum of understanding with the Alibaba Group’s T-Mall Marketplace to participate in various marketing activities, including promoting the trade expo online, for the next four years. At the final party, rumours were flying that the billionaire Bouygues brothers, owners of Château Montrose, were buying cult Loire Valley estate Clos Rougeard. (It’s true—but no word yet on how much they paid.) And, of course, the tradeshow is a primo spot to launch new products. I spent my days tracking down the newest of the new among the 2,300 exhibitors from 40 countries, looking for highlights. The 45,000 buyers who flew in from 150 countries were advised in advance to wear comfortable shoes as the exhibition hall is a kilometre long. New products ranged from the silly to the sublime. Rosés were ubiquitous, as was new, unusual packaging. Provence estate Domaines Bunan combined the two with a special version of its salty, juicy Moulin des Costes rosé in a bottle covered with a dark blue geometric design created by famous tattoo artist Bob Le Blobb. The 1,000 bottle-edition will be released in
Provence in August. The pink wine would look great in Riedel’s new Fatto a Mano line of wine glasses with jazzy colored stems. Here are my picks for the most exciting new offerings:
Taiga Shtof Vodka (US$80)
In a round white booth shaped like a traditional Siberian yurt, photos of the region’s wildly beautiful landscape were streamed on walls as I sampled this new super premium vodka from Siberia alongside heaping spoonfuls of briny caviar. The taste actually lived up to its story. The two major ingredients are what make it special. The founders, a former chief executive officer of Baron Philippe de Rothschild S.A., his former Russian export director, and two other well-connected wealthy Russians, combed Siberia to select the purest H2O from three pristine areas—Lake Baikal, deep below the permafrost of Yakutia, above the Arctic Circle, and in the mountains of Altai between Mongolia and Kazakhstan. The second key, they say, is using super pure Alpha grade spirit distilled from Siberian winter rye and resilient wheat actually grown under the snow. The taste is softer, smoother, and more delicate than most vodkas, very pure and elegant, like biting snowflakes on your tongue. The name Taiga refers to the forest and vast region in Siberia where the water is sourced, while shtof is an ancient Russian term for the traditional bottle from which Russians used to drink vodka.
Veuve Clicquot Extra Brut Extra Old (US$90)
Powerhouse champagne brand Veuve Clicquot was pouring its bubblies at a pop-up bar by the lake, including this new cuvée that combines two current champagne trends—bubbly made from older reserve wines and a boom in very, very dry cuvées. The six vintages of reserve wines (Extra Old, get it?) in Veuve Clicquot’s new blend are mostly pinot noir, with the youngest from 2010 and the oldest from 1988, a truly great year for classically structured, concentrated wines. Of the several all-reserve champagnes making
No, these don’t compete yet with cru classé Bordeaux, but they do show China’s serious wine potential.
2016 Métissage Blanc (US$15)
their debuts at the fair, it was the best—complex and harmonious, with a subtle richness and softer, less effervescent bubbles. It’s also the champagne house’s first super dry—Extra Brut—fizz, so it’s very good as an aperitif to sip and sip some more.
parts. You have to understand where the filets are.” The wine won’t be made every year, so consider snapping up one of the 8,888 bottles or 1,000 magnums.
2015 Bodega Garzon Balasto (US$80 to US$90)
Few premium Chinese wines have been exported, so I was excited to see that 20 boutique producers in the country’s most prestigious growing area, Ningxia, were splashing out their wares. Several are set to be introduced in the U.S. and elsewhere later this year. Ningxia, the remote arid region nicknamed China’s Bordeaux, is in north-central China, south of Inner Mongolia, where it’s so cold in winter, producers have to bury their vines. The flagship wines of two of them were from the Helan Mountains area, a hotbed of vineyard development, and were very impressive. Silver Heights’ cab-merlot blend is all about soft, dark, ripe fruit and spice, while the plush Legacy Peak is a smooth, savoury cabernet sauvignon with soft, appealing tannins. (Only 1,800 bottles of the latter were made.)
At the Bodega Garzon stand, the Uruguayan winery’s first “icon wine” (the nickname for a flagship cuvée in South America) was displayed alongside rocks from the vineyard in a glass-fronted niche, as if it were a sacred statue. But the red also made an appearance at a dinner where open-fire cooking wizard Francis Mallmann dazzled the French with juicy fire-seared meat. The silky-textured red, a spicy, savory blend of four grapes—tannat, cabernet franc, petit verdot, and marselan—is the latest release from the huge pioneering winery owned by billionaire Alejandro Bulgheroni. It’s a selection of the best of the 1,150 plots in the 500-acre vineyard, explained winemaker Antonio Antonini, who said, “A good vineyard is like a cow. It has many
2013 Silver Heights the Summit (US$45) and 2013 Legacy Peak Family Heritage (US$160)
Climate change and global warming and their effects on the wines we drink were big topics this year. One major takeaway: Regions such as Bordeaux may eventually be too hot for the grapes that now flourish there, so vineyards may have to plant alternatives that can withstand heat and disease. The Ducourt family in Bordeaux’s Entre-Deux-Mers area introduced wines from new hybrid grapes that may be a part of that future. The most promising was white grape Cal-04, a proprietary, experimental, natural crossbreed of sauvignon blanc, riesling, and secret “wild vines.” The grape hangs on to the high acidity needed to make bright fresh whites even in extended heat waves (such as the 100 degrees Fahrenheit temperatures in Bordeaux during VinExpo). The Ducourt’s inexpensive bottle is crisp and tart, like a soft version of sauvignon blanc with citrus overtones and floral aromas. Legally, growers in Bordeaux can plant only a short list of grapes. The Ducourts obtained a special waiver for this one and won’t be able to put the name Bordeaux on the label unless it becomes an officially permitted variety. This inexpensive white is hardly going to satisfy those who crave Bordeaux’s great château reds and whites at 10 times the price. But Métissage Blanc is everything you want in a summer quaffer. Be prepared to see this grape taken seriously. Bloomberg
Business Daily Friday, June 30 2017 9
Consigliere
Meet the US$130,000 love child between a supercar and a station wagon The 2018 Callaway Corvette AeroWagen is the highest-powered wagon money can buy. Hannah Elliott
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es, there is such a thing as a Corvette wagon. Made in Temecula, Calif., the Callaway Corvette Aerowagen combines the best of a lot of worlds in a strikingly unusual frame. The hatchback rear will fit three large golf bags, and a 757-horsepower V8 engine is under the hood. It can hit 60 mph in 2.7 seconds. It also costs a fraction of the price of the multiple six-figure supercars from Lamborghini, Ferrari, and McLaren with similar power. A base 2016 Z06 Coupe costs just under US$110,000, but most Callaway Corvettes cost anywhere between US$120,000 and US$150,000. With the flip of a few latches and levers, its carbon-fibre roof shell will lift off to become a T-bar convertible. And, not for nothing, the Callaway Aerowagen is the fastest street-legal Corvette made today as well as the most powerful car designed and assembled wholly in the U.S. (Dodge’s 840-hp Challenger Demon was designed in Michigan, true, but it is built in Canada.) With a mpg rating of 27 miles on the highway, it has about twice the fuel efficiency as its main competitors.
The high-performance line
If you’re wondering if Callaway Cars has any relation to Callaway Golf, yes, it does; the same family started both companies. “For me, it has always been about cars,” Reeves Callaway said last week in Brooklyn. Reeves founded Callaway Cars in 1977, although he had been making cars for years prior; Reeves’ father, Ely Callaway Jr., founded Callaway Golf in 1982. “I had initially tried to be a racing driver and had done that for a while before I ran out of money.” In Corvette circles, Callaway the younger is regarded much as Carroll Shelby is among Ford Mustangs. He started modifying cars in the early 1970s while working for the famous Ferrari and Shelby car racer, Bob Bondurant. At the time, Bondurant’s eponymous driving school was running BMW 320i on the track, but students kept needing more power. So Callaway implemented an innovative turbocharging system on a spare 320i and earned wide acclaim in track and BMW enthusiast circles. General Motors took note as well and requested his expertise in 1985, so
now Callaway supercharges Camaros, Silverado trucks, and even Suburbans. What AMG is to MercedesBenz, Callaway is to Corvette.
A true supercar
Callaway’s vision for the wagon-Corvette hybrid was to channel the coach-built, shooting-brake cars that have dotted automotive history since the early 19th century. The term “shooting brake” is literal, referring to when hunting parties would stop midday to picnic—they needed vehicles with extra space in the rear to hold food and rifles. Think of the long 2+2 Ferrari GTC4Lusso for a modern semi-equivalent.
The version I tested was the first of Callaway’s new line: a SC757 Z06 fit with the Aerowagen option. The hatch is made from carbon fiber coated in UV protectant and comes fitted with rear windows of tempered safety glass and a defogging mechanism. It comes with upper and rear spoilers, a halo bar, and Aerowagen badging throughout the exterior and interior of the car. Driving the car itself feels as exceptional as it does for any good Corvette—big and precise, long yet willing and coachable. Steering resistance is perfectly calibrated; braking is alert and honest. Driving it will feel more natural than you’ll care to admit, if a Corvette isn’t on your automotive wish list. It doesn’t feel heavy or clunky, as you might expect with a cover on the end. The only perceivable change for this wagon, or the most immediate, at least, is the new long rear cuts the minimal visibility to nil. Do you already own a modern Corvette C7, SC627 Stingray, or Grand Sport? You can convert it to Aerowagen form, too (as if they aren’t distinct enough). Callaway will do the modification for you for US$15,000. But for the real experience—all the extra power and performance—buy the whole car. Bloomberg
Going green
M
ost people mistakenly believe that Matcha is the same thing as green tea. Even many dishonest stores use green tea masquerading as Matcha and sell it at a higher price. They are, however, very different. Matcha and green tea use a different planting method; the leaves of Matcha trees should be covered 30 days before plucking to reduce the effect of sunshine. This step substantially differentiates Matcha leaves from normal green tea, allowing them to retain more fragrance. After plucking, the Matcha should be steam blanched at 200 degree Celsius to create the unique flavour of Matcha, which is a bit like the flavour of seaweed. Green Tea, by contrast, is blanched at 100 degree Celsius, resulting in ‘wasting’ the fragrance of the tea. Another difference is the grinding method. Green tea powder is ground by machines, while an authentic Matcha involves an extra step; namely, grinding by stone grinder having been ground by machine. That’s the reason Matcha powder can float on the water but green tea powder cannot. Given the complex processes involved in producing Matcha, the price of Matcha is much higher than green tea. In recent years, Matcha has become the hippest element in Macau and Hong Kong. All stores say they are selling Matcha products; thus, it will be popular very soon. Follow us as we dive into fantastic Matcha tea.
Nakamura Tokichi Tea House
Matcha lovers should be very familiar with the renowned Nakamura Tokichi Tea House. The original Nakamura Tokichi began cultivating tea in 1854 in Uji, a city famous for its tea in Japan; his family has been producing teas ever since, winning commendations for excellent yields and, on notable occasions, serving teas to the Japanese Emperors. From now until 31st December 2017, Nakamura Tokichi opens its first ever Macau pop-up store in Galaxy Macau. This pop-up store maintains the originality and authenticity of its first wooden teahouse in Uji. You can enjoy the signature products like Matcha tea jelly with Matcha ice-cream and Hojicha tea jelly with Hojicha ice-cream. The tea jellies are made fresh with the house recipe and flown in daily from Uji, Kyoto. The gift corner in the store is stocked with exciting goods to delight tea aficionados.
Royal-Place
Located on the third floor of new Macau destination Village Mall, Royal-Place is a small store which also provides high quality Matcha products. Just a few months ago, a cup of Matcha accounted for much social media commentary in Macau. That is the signature Uji Matcha Latte from Royal-Place. In order to bring more creative and authentic Matcha products to Macau people, Royal-Place uses imported ingredients from Japan, including the Marukyu-koyamaen Matcha which is one of the best Matcha brands in Japan. Apart from the popular Uji Matcha Latte, ice-cream and cheese tart, they recently launched Aoatashi Matcha roll. The Matcha roll is made of Aoatashi Matcha powder from Marukyu-koyamaen and smooth Matcha cream, offering you a double Matcha enjoyment with rich tea fragrance. More to the point, all the products are handmade daily by the owner.
Cafe Time After Time
Cafe Time After Time is not a Matcha specialty store. It is a restaurant selling bread, dessert, drinks and light meals. But the store also sells good quality Matcha products. The Japanese baker uses Uji Matcha to create a lot of bread and pastries. In the hot Summer, the store offers seasonal Matcha Choux. Choux is a French-style puff, a crispy pastry normally filled with custard cream, but this Matcha Choux is filled with Matcha Spumoni (Italian ice cream) which is made of high quality Uji Match powder. The crispy crust and the cool Spumoni provide a special contrast with Matcha fragrance to satiate the palate. In addition to this, the Kyto Uji Matcha Honey Toast, Matcha waffle and Matcha pineapple buns are worth a try. Edwina Liu, Essential Macau Editor
10 Business Daily Friday, June 30 2017
Greater China Europol report
Mainland denounces accusations it is main source of fake goods in EU Counterfeit goods were estimated to have amounted to approximately 12.5 per cent of China’s total exports
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hina denounced a Europol report yesterday that accused China of being the main source of counterfeit goods in the European Union, calling it “irresponsible” while vowing to continue the crackdown on intellectual property right violations. China remained by far the main country of provenance for counterfeit products in the EU, with Hong Kong acting as a transit point for goods originally manufactured in China, Europol, the European Union’s law enforcement agency said. The report is jointly issued by the European Union Intellectual Property office. “The report’s accusations are irresponsible,” Commerce Ministry spokesman Sun Jiwen told reporters in Beijing. “The authenticity and
objectivity of the statistics presented by the report should be further studied.” The report cited statistics from a U.S. Chamber of Commerce study which estimated that 72 per cent of counterfeit goods in circulation in three of the world’s largest markets for such products, namely the European Union, Japan and the United States, were exported from China in 2016. Counterfeit goods were estimated to have amounted to approximately 12.5 per cent of China’s total exports and over 1.5 per cent of its gross domestic product in 2016, it said. Sun said China would continue its “intense crackdown” on intellectual property right violations, in particular exports of health-related consumer goods and materials for large-scale infrastructure investment.
The report also highlighted the growing use of cargo train transport between China and Europe as a concern. There are 39 lines connecting Europe with 16 Chinese cities, all offering freight services. China’s ambitious Belt and Road project, which would
involve heavy investment transport infrastructure from China overseas in coming years, is also likely to increase the number of IPR-infringing consignments arriving at the eastern EU external borders by train, the report noted. China has touted the Belt
and Road initiative as a new way to boost global development since Xi unveiled the plan in 2013, aiming to expand links between Asia, Africa, Europe and beyond underpinned by billions of dollars in infrastructure investment. Reuters
Vice fin min
Global coordination important as world economy changes The Chinese central bank guided market interest rates higher in the first quarter Global coordination is important as the world economy undergoes changes, including the latest increase in U.S. interest rates earlier this month, China’s Vice Finance Minister Zhu Guangyao said ahead of a G20 summit of leaders in July. As the global economy stabilises, major countries need to normalise their interest rates, although this is happening at a very slow pace, Zhu told reporters in Beijing yesterday.
“We need to closely monitor how the normalisation of interest rates in major economies will impact global capital markets” Zhu Guangyao, China’s Vice Finance Minister
“We need to closely monitor how the normalisation of interest rates in major economies will impact global capital markets,” said Zhu. The U.S. Federal Reserve has raised interest rates four times as part of a
normalization of monetary policy that began in December 2015. The central bank had pushed rates to near zero in response to the financial crisis a decade ago. Zhu said the new global macroeconomic environment makes it even more important for global coordination through channels like the G20, which will convene in Hamburg next month. Earlier this week, the Bank for International Settlements (BIS), an umbrella body for leading central banks, said in one of its most upbeat annual reports for years that major central
banks should press ahead with interest rate increases. Policymakers should take advantage of the improving economic outlook and its surprisingly negligible effect on inflation to accelerate the “great unwinding” of quantitative easing programmes and record low interest rates, the BIS said. The Chinese central bank guided market interest rates higher in the first quarter, including immediately after a Fed rate hike in March. The move was partly an effort to counter pressure on the yuan from capital outflows, analysts say. The People’s Bank of China last adjusted its policy rates in October 2015. Efforts to rein in North Korea’s nuclear and missile programmes are
likely to be a focus in bilateral meetings President Xi Jinping might hold during the G20. Asked if Xi would meet U.S. President Donald Trump, South Korean President Moon Jae-in, or Japan’s Prime Minister Shinzo Abe at the summit, Vice Foreign Minister Li Baodong said schedules were still being arranged. Li reiterated that China wants to resolve the situation on the Korean peninsula through dialogue. Trump is growing increasingly frustrated with China over its inaction on North Korea, according to senior U.S. administration officials, though Beijing has repeatedly said its influence over Pyongyang is limited and that it is doing all it can. Bloomberg News
Business Daily Friday, June 30 2017 11
Greater China Commodities
In Brief
Beijing said to plan coal import ban at some ports from July 1 The ban is the latest attempt by the government to manage the nation’s coal supply and prices China plans to ban coal imports starting July 1 at ports that were set up through approvals by provincial authorities, according to people with knowledge of the situation, the latest move by President Xi Jinping’s government to exert stricter control on the market. Ports in the world’s largest consumer of the fuel that were approved under the authority of the State Council will still be able to receive overseas shipments, said the people, who asked not to be identified as the information isn’t public. China’s largest ports are typically approved by the central government’s State Council when they are developed, while smaller ports usually only received provincial or local approvals. The duration and impact on imports of the ban are unclear, said the people. The country’s General Administration of Customs didn’t respond to faxed questions, while a Beijing-based spokesman didn’t answer two calls to his office seeking comment.
The ban is the latest attempt by the government to manage the nation’s coal supply and prices, which have swung in the last year amid a series of regulations aimed at keeping prices high enough to support miners while not letting them rise to a level that hurts power producers. The National Development and Reform Commission, the top economic planner, last month was considering stricter quality restrictions on imports of thermal and coking coal, Bloomberg reported. While the impact on China’s overall coal supply may be minimal given its domestic overcapacity, regional sellers in countries like Australia and Indonesia may feel a hit.
‘Huge blow’
“This will be a huge blow to imports,” Winston Han, an analyst at China Coal Transport & Distribution Association, said by phone. “We will see imports dive from July.” Imports make up only a fraction of total supply for the world’s largest coal miner. The country produced
about 3.4 billion metric tons of coal last year, while importing 255 million tons. Shipments last year rebounded from the lowest in four years amid domestic mining restrictions, and are up almost 30 per cent during the first five months of this year. “The ban may add upward pressure on China’s coal prices in the short term, but domestic output will quickly fill the void,” said Laban Yu, head of Asia oil and gas equity research at Jefferies Group LLC in Hong Kong. For domestic supply “the impact will be negligible, as China can easily meet its own demand by allowing qualified coal mines to produce a little more.”
“This will be a huge blow to imports... We will see imports dive from July” Winston Han, an analyst at China Coal Transport & Distribution Association
Newcastle coal, an Asian benchmark, has risen 42 per cent in the past year, according to contracts traded on ICE Futures Europe exchange. Prices rose 0.6 per cent to US$78.30 a ton on Tuesday. Prices at Qinhuangdao, China’s biggest port for delivering the fuel, have risen for the past two weeks to RMB579 (US$85.19) a ton, data from China Coal Transport and Distribution Association show. Prices typically start increasing in May or June on higher power demand for air conditioning as temperatures rise. The ports that may be impacted by such a ban include Kemen, Ningde and Dongwu in Fujian province and Ledong in Hainan province, Shanghai Securities News reported, citing an investigation from Mysteel. The combined annual import capacity of the affected ports is about 15 million tons, according to the report. Bloomberg News
Real estate
Surging home prices rankle Hong Kong’s first leader under Mainland A limited supply of new homes has triggered debates over using reclaimed land or parts of country parks for housing Ting Shi and Betty Liu
Tung Chee-hwa, Hong Kong’s first leader after the city’s return to Chinese rule, blamed soaring property prices on a lack of land supply and highlighted the social divisions caused by rising housing costs. The 80-year-old veteran of Hong Kong and Chinese politics, who himself struggled with a housing boom that turned to bust, indicated his concern in a Bloomberg TV interview, as the city marks the 20th anniversary of its handover from Britain to China. In the past eight to 10 years, “we didn’t provide enough land for housing, so the property prices went up very, very rapidly,” said Tung, who was chief executive from 1997 to 2005. “All these things create a divide, much deeper divide between the rich and the poor. The shrinkage of the middle class appeared. These are the real challenges we in Hong Kong are facing.” As housing prices keep surging to new records despite government measures to cool the market, Financial Secretary Paul Chan has warned that the city is in a “dangerous situation,” adding his voice to analysts and officials cautioning that a price
slump may be on the way. A limited supply of new homes has triggered debates over using reclaimed land or parts of country parks for housing, with incoming Chief Executive Carrie Lam planning a task force on how to free up more land. Back in 1997, Tung had his own plan to provide 85,000 housing units annually and reach 70 per cent home ownership in the 10 years after the handover. But that initiative was
aborted after the Asian financial crisis kicked off a 70 per cent collapse in Hong Kong’s home prices, driving an estimated 100,000 home owners into negative equity. Critics alleged that Tung’s plan had only exacerbated the slump. Tung resigned in March 2005, citing his health, after mass protests in 2003 against planned anti-subversion legislation, and he is now vice chairman of the Chinese People’s Political Consultative Conference. Looking at Hong Kong, Tung is concerned at limited job prospects for the young, as some mainland cities like Shenzhen and Shanghai surge ahead. While the city’s unemployment rate is “unbelievably” low, not enough jobs are “high-end,” he said. “So, how do you try to overcome this? Build the economic pie bigger and more attractive for high-end jobs for our young people.” Bloomberg News
Ratings
Moody’s gives AIIB a triple-A credit mark Moody’s Investors Service gave the Asian Infrastructure Investment Bank (AIIB) its highest possible rating yesterday, with a stable outlook. The triple-A rating was given because of “the strength of AIIB’s governance frameworks, including its policies on risk management, capital adequacy and liquidity,” Moody’s said in a statement. The AIIB, which has 80 member countries, was established to help meet the estimated US$26 trillion need for infrastructure spending in Asia through 2030. Moody’s said it expected the AIIB’s liquidity position would be as strong as other highly rated multilateral development banks (MDBs). IMF
Beijing needs to strike balance China needs to strike a balance between deleveraging and maintaining adequate support for some sectors of the economy, a senior International Monetary Fund official said yesterday. On the global economy, the outlook has been optimistic, Zhang Tao, deputy managing director at the IMF, told the World Economic Forum in the north-eastern Chinese city of Dalian. “There is increasing room for cautious optimistic views for the global economic outlook at this moment, but there are risks,” Zhang said. Anniversary
President Xi arrives in Hong Kong to mark handover China’s President Xi Jinping arrived in Hong Kong yesterday to mark its 20th anniversary of Chinese rule as the city went into lockdown with a massive security blanket ahead of celebrations and protests on July 1. Britain returned Hong Kong to Chinese rule in 1997 under a “one country, two systems” formula which guarantees wide-ranging autonomy and judicial independence not seen in mainland China. Tensions between Hong Kong and China have intensified amid concern and resentment over Beijing’s growing interference in the former British colony. Costs
Government eyes healthcare payment shake-up China will push to diversify how it pays the healthcare costs for its nearly 1.4 billion people in a bid to stem “irrational growth” of medical costs, the finance ministry said in a statement yesterday. The Ministry of Finance said in a statement it would develop and trial payment methods including those that set fees according to initial patient diagnoses, standard fees linked to set diseases, as well as per capita or bedlinked fees. China has been cracking down on high drug prices, looking to expand the role of private insurers and reforming funding structures for hospitals.
12 Business Daily Friday, June 30 2017
Asia Monetary Authority
Singapore, global economy can adjust to Fed hikes Turning to China, Singapore’s biggest trading partner, MAS managing director said the Asian giant is on a steady growth path Masayuki Kitano and Miyoung Kim
T
he global economy should be able to adjust to rising U.S. interest rates but vigilance will be required as financial markets and households have become accustomed to ultra-loose monetary conditions, Singapore central bank’s managing director said yesterday. “The rise in rates is itself a response to strengthening economic activity. But vigilance is still called for. Economies and markets ... could be thrown
off balance if rates rise faster than expected,” Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) told reporters. Rising interest rates in the United States have been a major focus for financial markets this year, especially with wobbles in China’s economy raising worries that global growth could falter if the Federal Reserve tightens policy too fast. The bigger concern in the event U.S. interest rates rise faster than what markets expect is the risk globally to households and companies that
have grown accustomed to easy conditions, Menon said. “That is more worrisome because... when they get into trouble, that will have a more lasting economic impact than markets going through a few weeks of gyrations.” Besides the Fed, other advanced economies have also begun to switch gears. Bank of England Governor Mark Carney surprised many on Wednesday by conceding a hike was likely to be needed as the economy came closer to running at full capacity. The Bank of Canada went further, with two top policymakers suggesting they might tighten as early as July. That followed hawkish comments earlier in the week from European Central Bank President Mario Draghi.
Turning to China, Singapore’s biggest trading partner, Menon said the Asian giant is on a steady growth path. China has considerable buffers to deal with problems related to the high debt-to-GDP ratio in the country, he said, though addressing that issue will take time. “It takes many years for corporates, for governments, for households to unwind leverage, bring down debt levels relative to income, without tipping into serious problems.” Speaking after the release of the MAS’s annual report, Menon said the current neutral stance of monetary policy - in place since April last year remains appropriate for an extended period given the stable inflation and growth prospects. He reiterated that Singapore’s export-reliant economy was forecast to grow by 1-3 per cent this year, with a “strong likelihood” that growth would exceed last year’s 2 per cent. But Menon warned that authorities would not ease property market cooling measures as the market has shown some signs of recovery in recent months. “The property market has substantially stabilised over the last three years. It is, however, not time yet to ease the cooling measures,” Menon said. “Regional property markets have been buoyant and their respective authorities have... introduced further property cooling measures. Easing the measures now will send a wrong signal.” Private residential property prices in Singapore have fallen nearly 12 per cent over the last 14 quarters, as the market cooled after the government implemented a series of property curbs since 2009. Reuters
Markets
Australian shares to make only modest gains in second-half 2017 Aussie shares have generally been tracking developments in U.S. markets Rushil Dutta
Australian shares are expected to creep up over the remainder of the year and remain short of the 6,000-point mark, a Reuters poll found, as investors fret over an economy hobbled by massive household debt and stagnant wage growth. The benchmark S&P/ASX 200 index will rise about 2.5 per cent from Wednesday’s close of 5,755.7, reaching 5,900 by end-2017, according to the median forecast of 16 strategists surveyed by Reuters. That forecast is a little weaker than in a March poll, but mid-2018 expectations for the benchmark are unchanged at 6,050. The index is expected to reach 6,117 by end-2018. Moody’s Investors Service downgraded 12 Australian banks last week, citing elevated risks. The Australian financials index is now on track for its first annual loss in six years. The federal government imposed a levy on Australia’s five biggest lenders in its last budget, seeking to arrest a decade-long run of deficits, and sparking intense lobbying against the measure by the major banks.
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But further pressure was then heaped on the big banks when one state decided to adopt a levy of its own and another expressed an interest in following suit. “The intense debate over the bank levy is not surprising given the impact on bank earnings, and the risk of future increases in the levy once in place,” Citi analysts said in a note. Last week Australia’s central bank ramped up its rhetoric over the
financial stability risks presented by the overheated property market, household debt and record low wage growth. Some poll respondents said domestic stocks face significant risks from their U.S. peers, which have been on an upward trend because of optimism over U.S. President Donald Trump’s economic plans - a phenomenon nicknamed the “Trump bump”. Australian shares have generally been tracking developments in U.S. markets. Some poll respondents cited worries about Trump being unable to deliver on his policies as a likely
cause for a 10 per cent correction in the market in the next six months. Half the respondents thought the chance of a correction by year-end was minimal given how well investors had absorbed shocks without panicking, referring to major political events such as Brexit and Trump’s election as U.S. President.
“The intense debate over the bank levy is not surprising given the impact on bank earnings, and the risk of future increases in the levy once in place” Citi analysts “If there were to be a trigger it would likely be a geopolitical event such as military action involving North Korea or a significant terrorist event,” said Craig James, chief equities economist at Commonwealth Securities. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, June 30 2017 13
Asia GST
In Brief
Modi set to launch India’s biggest tax reform amid protests Thousands of textile mills and retailers across the country went on strike this week to protest the tax Manoj Kumar
At midnight on Friday, India will introduce nationwide goods and sales tax with Prime Minister Narendra Modi taking centre-stage in parliament for what will be the country’s biggest tax reform in the 70 years since independence from British colonial rule. The GST will replace about 20 federal and state taxes such as factory-gate duties, service and local taxes while unifying US$2 trillion economy and 1.3 billion people into a single market. Modi, a Hindu nationalist politician who swept to power in 2014 promising reforms to get India’s lumbering economy moving, will use the occasion to make a landmark speech. Somewhat predictably, not everyone in the world’s largest democracy is happy. Even though the Congress Party first proposed the tax reform before it fell from power three years ago, it has been left wringing its hands over whether to join the parliamentary applause for a tax that should make India a far easier place to do business. Mamata Banerjee, the firebrand
leader of All India Trinamool Congress, certainly won’t be clapping. The firebrand leader of the regional party governing West Bengal intends to boycott the event, saying the illplanned launch will hurt small enterprises across the country.
‘Finance Minister Arun Jaitley has given businesses two months leeway to file late returns during the switch to GST’ “A chaotic situation may arise in our vast economy,” Banerjee told reporters in Kolkata, adding millions of small businesses were not yet ready to file multiple tax returns, and it could take up to six months to smoothly implement the legislation. Thousands of textile mills and retailers across the country went on
strike this week to protest the tax. Small businesses in particular are unhappy at the extra demands made of them to be tax compliant during the change-over. Finance Minister Arun Jaitley has given businesses two months leeway to file late returns during the switch to GST. A massive media campaign has been launched by the government to create awareness, with telephone help lines opened to address public concerns. So far, more than three-quarters of the 8.1 million firms registered with the federal and state tax departments have enrolled with the GST Network, a massive IT back-end that will process up to 5 billion invoices a month. Millions of small businesses, outside the tax net earlier, still have to join the network, and an umbrella organisation pleaded for them to be given more time. “For a seamless implementation of the law, the government should relax rules against traders for procedural lapses for six to nine months,” Praveen Khandelwal, secretary general of the Confederation of All India Traders, said. About a third of association’s 60 million members lack a computer to register under the new tax regime. Reuters
Production
Samsung announces new U.S. plant Samsung Electronics Co Ltd said it will open its first U.S. appliances plant in more than three decades, a politically pleasing investment ahead of South Korean leader Moon Jae-in’s two-day summit with U.S. President Donald Trump. The US$380 million plant in Newberry County, South Carolina, will produce washing machines and other appliances from early next year and create nearly 1,000 jobs by 2020, the South Korean tech giant said. The move has prompted expressions of goodwill between the two nations ahead of the visit. GDP
Vietnam’s Q2 economic growth quickens Vietnam’s annual economic growth rate quickened to 6.17 per cent in the second quarter, government data showed yesterday, as strong manufacturing growth offset a continuing slump in mining production. In January-March, the growth rate was 5.15 per cent, the lowest in three years. Vietnam’s target for fullyear 2017 growth is 6.7 per cent. To achieve that, there needs to be 7.4 per cent expansion in the second half, according to Ha Quang Tuyen, head of the General Statistics Office’s National Accounts Department. Consumption
S. Korean discount store sales rise again
Monetary official
Bank of Japan could cut ETF buying if inflation nears 2 pct Harada, a vocal advocate of aggressive money printing, said the BOJ’s stimulus programme was “already sufficiently bold” Leika Kihara
Bank of Japan (BOJ) board member Yutaka Harada said yesterday the central bank could reduce or end purchases of exchange-traded funds (ETF) if inflation approaches its 2 per cent target.
Key Points Too early to say when BOJ could reduce ETF buying - Harada
reduce or stop ETF purchases,” he said. But Harada said it was too early to say when the BOJ could reduce ETF purchases as inflation remains distant from the bank’s target. Under a massive stimulus programme dubbed “quantitative and qualitative easing” (QQE), the BOJ has been aggressively buying assets such as government bonds, ETFs and trust funds investing in property. But inflation has failed to reach 2
BOJ’s stimulus programme ‘already sufficiently bold’ Hope to avoid abrupt yield spike whenever BOJ can tighten
He also said the BOJ’s current ultra-loose monetary policy is already bold enough, signalling that no additional stimulus was forthcoming in the near future. “The BOJ is buying ETFs to stimulate the economy and achieve its 2 per cent inflation target,” Harada told a seminar. “If achievement of the target comes into sight, the BOJ could of course
Bank of Japan headquarters
per cent, forcing the BOJ to add yield curve control to QQE last year and shift its policy target to interest rates from the pace of money printing. Harada, a vocal advocate of aggressive money printing, said the BOJ’s stimulus programme was “already sufficiently bold”. “By continuing this programme, we can expect inflation to gradually approach 2 per cent,” he said. Harada also said it was premature to debate when the BOJ could withdraw stimulus. But he said the BOJ will seek to avoid any spike in bond yields through close dialogue with financial markets, when the time comes to tighten policy. “We don’t know when it will happen but at some point, the BOJ will undoubtedly need to tighten monetary policy,” Harada said. Reuters
South Korea’s discount store sales rose for a third month in May, trade ministry data showed yesterday. Demand for electronics and clothes boosted overall sales at discount stores, while sales of grocery items fell slightly, the Ministry of Trade, Industry and Energy said. Combined sales at discount stores run by Lotte Shopping, and E-mart and Homeplus rose 1.6 per cent from a year earlier. Sales increased 2.3 per cent in April on-year, after a 2.5 per cent gain in March. South Korea’s consumer confidence soared to a six and a half-year high in June. M&A
IndiGo, other airlines show interest in buying stake in Air India India’s InterGlobe Aviation, owner of IndiGo airline, has shown unsolicited interest in buying a stake in stateowned carrier Air India, television channel CNBCTV18 reported. Several other airlines, domestic and international, have also expressed interest in buying a stake in Air India, CNBC-TV18 reported, quoting civil aviation ministry officials. The report did not name the other airlines. India on Wednesday gave approval to privatise debt-laden Air India, the first step of a process that could see the government offload an airline struggling to turn a profit in the face of growing competition from low-cost rivals.
14 Business Daily Friday, June 30 2017
International In Brief Oil industry
UAE energy minister says no talk about further OPEC supply cuts There is no talk of further oil output cuts by the Organization of the Petroleum Exporting Countries and its allies despite only a slow drawdown in inventories, the United Arab Emirates’ energy minister said yesterday. “I think OPEC countries and non-OPEC countries who joined us have done their part. We are looking at the others to do their part as well. We are not worried about the market recovery,” Suhail bin Mohammed al-Mazroui told journalists on the sidelines of a conference in Paris. OPEC and allied non-OPEC producers agreed on May 25 to extend an existing supply curb into 2018. Prices
German inflation picks up unexpectedly German inflation probably accelerated in June, regional data suggested yesterday, suggesting a solid upswing in the economy is pushing up price pressures as euro zone inflation moves closer to the European Central Bank’s target. The data comes only days after ECB head Mario Draghi hinted that the bank’s asset-purchase programme would become less accommodative going into 2018 as regional growth gains pace and inflation trends return following a period of falling prices. In another sign of rising price pressures in the 19-member single currency bloc, Spanish consumer prices rose more than expected in June, preliminary figures showed yesterday. Private poll
Russian stock market to recoup losses by year-end Russian stocks are expected to rise 15 per cent in the second half of the year, erasing losses from the first half as oil prices recover and foreign investors take advantage of beaten-down asset prices, a Reuters poll showed. Russia’s stock market has been volatile in recent years because of wild swings in commodity prices and political tensions between Russia and the West. The dollar-denominated RTS index rose 52 per cent in 2016, rallying on hopes U.S. President Donald Trump could relax sanctions imposed on Russia over the Ukraine conflict, but has fallen 13 per cent in 2017 as those hopes have faded. Portugal
Brits and Saudis investing €100M in Porto project Saudi investment fund MEFIC Capital and British real-estate asset manager Round Hill Capital are going to invest €100 million in a development project in Paranhos, Porto, that includes student residences, flats, a hotel, shops and offices. The project leaders told Lusa that the works would start in the third quarter of the year on a 7.8 hectare parcel of land they had recently bought beside the Porto University campus in Paranhos. The project, which is expected to take about four and a half years to complete, includes 1,200 student flats and 200 residential apartments, apart from a hotel, office space, a market, a supermarket, parking and a garden.
Environment
Global companies pledge transparency on climate risk Royal Dutch Shell is, so far, the only oil and gas company to tender its support Marlowe Hood
Multinationals worth US$3.5 trillion and financial institutions managing US$25 trillion in assets pledged yesterday to follow new guidelines for disclosing exposure to climate change risk in both operations and investments. Spearheaded by former New York mayor Michael Bloomberg, recommendations by the Task Force on Climate-related Financial Disclosures should help shareholders determine if businesses are aligned with the global shift toward a low-carbon economy, and not unduly burdened with assets that could be stranded during that transition. “Climate change present global markets with risks and opportunities that cannot be ignored, which is why a framework around climate-related disclosures is so important,” Bloomberg said in a statement. “The Task Force brings that framework to the table.” Financial and insurance companies whose CEOs have endorsed the recommendations, laid out in a 75-page report, include Bank of America, Barclays, AXA Group, Allianz SE, and Industrial and Commercial Bank of China. Industrial powerhouses such as Unilever, Dow Chemical Company, Tata Steel and PepsiCo have also backed the move towards climate transparency, along with the “Big Four” professional services giants, and ratings agencies Moody’s and S&P Global. Royal Dutch Shell is, so far, the only oil and gas company to tender its support. The fossil fuel industry is especially vulnerable to questions about climate risk as the race to decarbonise the world economy gathers pace. A report released earlier this week found that, on average, 30 percent of investments planned by 69 oil and gas majors over the next decade -- worth more than US$2 trillion -- could be wasted if the world economy retools to cap global warming at two
degrees Celsius, researchers warned Wednesday. The 2C target is the cornerstone of the 196-nation Paris Agreement, inked in 2015.
G20 endorsement in doubt
Major energy companies are already under growing pressure from investors to explain how global warming -- and the shift to a low-carbon economy -- will affect their bottom lines. Last month, three-fifths of ExxonMobil shareholders defied the board and voted for the company to report annually on how new technology and 2C policies will affect business and investment plans. Weeks earlier, a majority of Occidental Petroleum shareholders called for similar measures. The climate Task Force was set up in December 2015 by the Financial Stability Board (FSB), itself an advisory body established after the 2009 G20 summit to oversee the global financial system. “The Task Force’s recommendations have been developed by the market for the market,” said FSB Chair and Bank of England Governor
Mark Carney, whose September 2015 speech outlining the risks posed by climate change rattled the financial industry. The 32-member climate task force spent 18 months consulting, looking at both how climate-relevant data could be gathered and used by business. Homogenising existing standards was a challenge, said Christian Thimann, Group Head of Regulation, Sustainability and Insurance Foresight at AXA Group, and one of four vice chairs of the Task Force. “We counted up to 400 different reporting frameworks” already in existence, he told AFP. “If we are successful, in a few years you will see that every large corporation in G20 countries -- in its annual financial report -- will have a section that say, ‘This is how we deal with climate risks and opportunities’.” The Task Force recommendations were on track to be adopted by the July 7-8 G20 summit in Hamburg, Germany until real estate mogul Donald Trump was elected president of the United States. But after Trump’s decision to withdraw from the Paris Agreement, and his refusal to join a climate consensus at a G7 summit in late May, such an outcome seems doubtful. AFP
Retirement
EU proposes new pension product to boost private savings Providers will need authorisation from the pension regulator Francesco Guarascio
The European Commission proposed yesterday establishing a new pan-European pension product to increase private savings for old age and boost the growth of an EU industry currently worth some 700 billion euros (US$800 billion). The measure is part of policy efforts to defuse a demographic time bomb that could hit the ageing continent over the next 50 years when the ratio of retirees to working-age people is estimated to double. As EU states’ stretched public finances are already struggling to cover the current levels of pensions, the European Commission is trying to encourage personal savings to make up for lower pensions. The proposed Pan-European Personal Pension Product (PEPP), if
approved by EU states and the EU parliament, will give consumers a new savings option and is expected to increase the number of people subscribing to a personal pension, the Commission said. Currently only 27 per cent of working-age EU citizens have bought personal pensions, which complement occupational and state-funded pensions, setting aside 700 billion euros managed by banks, pension funds or insurances.
Key Points EU Commission tries to defuse demographic time bomb Only a quarter of Europeans have personal pension products Proposal estimated to double growth of sector by 2030 The industry is expected to double its size in the EU by 2030, but the Commission said that, with PEPP,
assets under management could reach 2.1 trillion euros. This is expected to benefit countries where there is virtually no market for personal pension products, particularly in eastern Europe. The Commission said that only in Germany, Austria, Slovenia, Spain and Sweden 15 per cent or more of eligible consumers made such investments. Mobile workers, who build their pension in several EU states, could also show interest, although they may face costs for merging the capital accumulated in different countries. EU countries will remain free to set their tax treatment of PEPP, although the Commission urged them to grant PEPP the same tax relief applied to national products. PEPP providers will need authorisation from the EU pension regulator, the European Insurance and Occupational Pensions Authority (EIOPA). Managers of PEPP assets will be free to invest in all assets, including derivatives, as long as they respect consumers’ choices when they opt for prudent investment. Reuters
Business Daily Friday, June 30 2017 15
Opinion
Alibaba should prepare for prime time after Lazada deal Tim Culpan a Bloomberg Gadfly columnist
A
libaba Group Holding Ltd. upping its stake in Lazada Group SA looks like a great deal for sellers of the latest 32 per cent interest. Parties including Rocket Internet SE and Investment AB Kinnevik are among the winners, managing to wring a 59 per cent increase in price since Alibaba took its first 51 per cent shareholding in the Southeast Asian e-commerce player in April last year. This second phase was always on the cards. Alibaba agreed to a call-put option when the deal was first struck, but that didn’t make it inevitable. Rocket, for example, might have chosen to hold on and reap the benefits of a growing Lazada under Jack Ma’s stewardship. Both sides believed in the many spoils from tackling e-commerce in the region. In the end, it made sense for them to cash out, and pump the proceeds into the next startup. Rocket and Kinnevik have also escaped the dark clouds of an expected entry by Amazon.com Inc. After making inroads in India, it would be reasonable for the U.S. firm to want some share of a geography that’s home to 650 million people with an e-commerce penetration as low as 3 per cent. With Lazada, Alibaba is working on tackling warehousing, delivery and payments systems -- all of which help consumers get into the habit of shopping online. But growing smartphone usage and faster internet speeds are playing a crucial part also. I t’ s th i s s e c o n d factor that may trip up Alibaba. While per cent having a competitor Alibaba’s Lazada stake educate customers on the how-to of e-commerce does make Amazon’s job easier, it’s a smartphone in every hand and ever-speedier networks that will be the real competitive advantage when Jeff Bezos decides to dive in. The reason: Amazon Prime. Once little more than a members’ club for cheaper and faster home delivery, Prime has grown to become one of the world’s most potent forces in streaming video. Southeast Asia is perhaps more hungry for content than it is for toothpaste-to-your-doorstep. Bundling the two allows Amazon to offer what consumers already want -entertainment -- and sell them something they didn’t yet know they need -- home delivery. As always in emerging markets, cost will be key, but Amazon has never been shy about slashing prices to win business. While Alibaba could follow suit, it doesn’t have the content library to neutralize Amazon Prime’s advantage. Fresh from handing over his second US$1 billion, Ma needs to think seriously about opening the check book again -- this time for content. Bloomberg Gadfly
83
Investors have lost sight of the purpose of indexes
T
he construction of financial market indexes has never been a very hot topic, but now: MSCI adds some China A shares to its benchmark emerging-market index, though giving them a smaller weighting than would be justified by their sizes. Some investors are upset. An institutional investor group asks S&P and MSCI to bar companies with unequal voting shares -- such as Snap Inc., Facebook Inc., Ford Motor Co., Google parent Alphabet Inc. and News Corp. -- from stock indexes. Street protests erupt outside Goldman Sachs Group Inc.’s headquarters after it buys Venezuelan “hunger bonds.” The firm’s asset management unit bought them for its emergingmarket funds that are benchmarked to indexes that include Venezuela. This all seems absurd. Investors are free to hold whatever securities they please, and index providers are not in the business of arbitrating disputes about transparency in China, U.S. corporate governance or Venezuelan politics. How did we get here? Six decades ago, researchers began asking how capital assets were priced. Something called the “efficient market portfolio” kept popping up. The theory was, if you could find one efficient portfolio then you could use it to price all assets. This grew into the idea that the best thing for investors was to hold the market, rather than try to own a selection of carefully picked stocks that would beat the market. It wasn’t long until a related group of researchers began questioning the value of professional investment managers. That led John McQuown, working with those researchers, to design a fund without human judgment. He toiled for six years without success until he ran into Fischer Black. Black told McQuown that you don’t earn money buying stocks, you earn money holding stocks. The way to run a fund was to pick an inventory and hold it. That led to the first index fund at Wells Fargo. Later, John Bogle took the idea to the masses with Vanguard’s public mutual funds. Once investors had the alternative of low-cost index funds, the idea took hold that the job of an active manager was to outperform those funds after costs. The investor would allocate funds among different indexes, then pick either index funds or active managers benchmarked to indexes to manage each slice. Three distinct ideas had become entangled: 1) the index is efficient, 2) the index gets the average return of all active managers before costs, and 3) the index is cheapest to hold. None of these is precisely true of any real index, and the ideas can conflict.
“
Aaron Brown a Bloomberg columnist
Beginning with the last one, Lasse Pedersen, a principal at the firm where I work, has recently shown how rapidly a fixed inventory of assets becomes undiversified due to things such as mergers, bond repayments, the reinvestment of cash flows and stock issuance. Any index fund requires trading even if there are no subscriptions and redemptions, often substantial trading. The first idea, that the market portfolio is efficient, has been debunked. One of the first to do so convincingly was Black, who long before he advised McQuown to buy a fixed inventory had shown that low-beta stocks have better riskadjusted returns than high-beta stocks. And, since index fund trading is predictable, active managers as a group earn money trading against index funds, so the second idea is not exactly true. This leaves index providers with three conflicting goals: build an efficient index that benchmarks active managers fairly and is cheap to run. Keeping Venezuela, Snap and China out of indexes works against the first goal by reducing diversification, however it could help if it excludes bad investments. Decisions made on case-bycase bases or frequently changed transform the index into active management. But all indexes have rules for construction, and adding rules for government quality, corporate governance or market transparency is not against the index spirit. Exclusion makes the index easier to beat by active managers, who are able to select from a broader universe of securities, securities that have higher expected returns due to being excluded from indexes. On the other hand, at least in the cases of Venezuela and China, exclusion could lower costs as these securities are less liquid and more volatile than other index constituents. This suggests a natural division of labour. To the extent exclusions are meant to improve the index, either on financial or ethical grounds, the decision should be left to investors. Rating agencies have no expertise here. If investors disagree, split into two sub-indexes. To the extent exclusions are meant to benchmark active managers or to reduce index costs, index providers should dictate. Ceding control to investor polls makes indexes just a new form of active management by committee. If people don’t define clearly what an index is, these disputes are intractable. But when you forget the tangled history and just consider how an index is used today, it’s not hard to see the answers. Bloomberg News
But all indexes have rules for construction, and adding rules for government quality, corporate governance or market transparency is not against the index spirit
”
16 Business Daily Friday, June 30 2017
Closing FX regulator
Beijing posts Q1 capital and financial account surplus
investment became rational and foreign investors continued to increase investment in China,” SAFE China recorded a surplus in its capital and financial said in an accompanying statement. China also recorded a final current account surplus account in the first quarter, the foreign exchange of US$18.4 billion in the first three months of regulator said yesterday, indicating net capital this year. It had reported a preliminary surplus of inflows as policymakers tightened supervision of US$19 billion. outflows. The current account surplus stayed in a reasonable For the quarter, China posted a US$39.3 billion surplus in its capital and financial account, versus range and cross-border capital flows improved a preliminary deficit of US$19 billion, data from the significantly in the first quarter, SAFE said. Sate Administration of Foreign Exchange (SAFE) The forex regulator said earlier this month that cross-border capital flows are stabilising and showed. continued the good momentum from May. Reuters “In the first quarter, domestic investors’ overseas
M&A
Merkel open to EU veto power on China investments The Chancellor welcomes leaders of industrialised and emerging economies to the northern port city of Hamburg next week for a G20 summit
G
erman Chancellor Angela Merkel said yesterday that she was considering how to protect “strategic” EU industries from Chinese investment, drawing closer to the position of French President Emmanuel Macron. “Europe must work hard to defend its influence and above all to speak with one voice to China,” Merkel told business weekly WirtschaftsWoche. “Seen from Beijing, Europe is more like an Asian peninsula. Obviously, we see things differently,” she added. While the Chinese and European economies were increasingly intertwined, Merkel said, there remain points of contention about strategic industries and government procurement. Citing the example of recent German investment in microchip manufacturing, Merkel argued that “if countries like China then want to buy up what has been built with large subsidies, we have to react,” possibly by defining some industrial branches as having strategic significance for Europe. Equally, “we are willing to allow the Chinese to take part [in bids for government contracts] in Europe, but then we want access in the other direction to their procurement,” she said. “We have to deal with China’s claims and demands in such a way that there is a harmonious development to everyone’s advantage.” At an EU summit last week, leaders
failed to agree on handing more power to Brussels to control foreign investments in strategic European industries, despite a charm offensive by the recently-elected French leader. But Merkel, who has closed ranks with Macron in a bid to revive the
traditional Franco-German “motor” of the EU following Britain’s decision to quit the bloc, noted that heads of government would soon discuss the idea again. The chancellor welcomes leaders of industrialised and emerging economies to the northern port city Hamburg next week for a G20 summit. She has been straining to unite European neighbours around freetrade and climate-friendly policies
as a counterweight to United States President Donald Trump. Chinese President Xi Jinping has sought to champion both topics since Trump took office, aiming to align more closely with Europe. But Merkel’s comments yesterday suggest there could be more frost than expected ahead of the G20 next week, when Xi joins the chancellor to unveil two pandas loaned by Beijing to Berlin zoo in a sign of friendly ties. AFP
“We have to deal with China’s claims and demands in such a way that there is a harmonious development to everyone’s advantage” Angela Merkel, German Chancellor
German Chancellor Angela Merkel delivers a speech to the German Bundestag in Berlin, Germany, yesterday. Lusa
Mozambique
Forecast
Real estate
Banks try to win over Chinese clients
Mainland factory activity seen cooling in June
China land sale controls threaten developers’ profits
The Economist Intelligence Unit (EIU) has said that the readjustments to the financial sector and restrictions on Chinese monetary policy are going to influence the activity of companies in Mozambique, despite the efforts by Mozambican banks to attract these companies. With internal demand for financial services in Mozambique limited by financial illiteracy and the informal nature of the economy, directing the efforts towards Chinese companies may enable the domestic banks to expand”, the EIU wrote yesterday. It added, however, that it doubted whether the Chinese companies would really trust the domestic banks in Mozambique, mainly because they can generally get better deals and services in China. The trend in the banking sector to improve its services to Chinese companies reflects the fact that their presence is growing, the EIU said, recalling the US$6 billion (€5.2 billion) deals in the liquefied natural gas projects, where the Chinese state oil company has a 20 per cent stake and the US$1.4 billion being spent on the railways, an undertaking where China National Complete Engineering has a 50 per cent stake. Lusa
Factory activity in China is expected to have cooled slightly in June from the previous month, a Reuters poll showed, as manufacturers are pressured by government efforts to reduce high levels of debt across the world’s second-biggest economy. Most analysts agree that Beijing’s crackdown on debt risks and tightening financial conditions will slow China’s momentum after a strong start to the year when first quarter growth came in at 6.9 per cent. Corporates are already facing higher financing costs, which could ripple through to decisions on investment, hiring, and wages over the next year. “We believe that deleveraging has continued in June and it had some cooling impact on the economy,” said Kelvin Lau, senior economist for Greater China at Standard Chartered. The official manufacturing Purchasing Managers’ Index (PMI) is expected to come in at 51.0, which would be the lowest reading since September though capping the eleventh straight month of growth, according to a median forecast of 34 economists polled by Reuters. Reuters
Real estate developers say a slew of new regulations governing many land auctions in China is threatening the business model most of them use, and is likely to speed up the consolidation of the industry through more joint ventures and takeovers. The measures, which are widely seen in the industry as representing the most stringent tightening in controls ever, have been introduced by authorities running major cities as they seek to stop home prices from surging further out of control. It means that an increasing number of land sales by the authorities carry major restrictions, including effectively creating price caps for the initial sales of homes that are built, and a requirement to build homes to rent rather than sell. That can make the developments much less lucrative and higher risk for the developers, which in turn can force them to do more joint ventures to share the exposure and for the strongest to buy cheaper unrestricted land banks built up by the weakest. It is also prompting many developers to eye land auctions in secondary cities where prices have not climbed as much and the controls aren’t as onerous. Reuters