Meet the luxury cars reigning at the Geneva Motor Show CONSIGLIERE Pages 8 & 9
Friday, March 10 2017 Year V Nr. 1251 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Control measures
Chinese banks to face stricter assessment of capital Page 10
Interview
Winemaker founder confident CARM will thrive in Mainland Pages 6 & 7
www.macaubusinessdaily.com
Trade
Development
Beer suffers a setback in January as import figures disappoint Page 4
Chinese Estates says La Scala project appeal ongoing Page 2
Macau, The Comeback Kid Wealth
Global Finance publication salutes Macau. Factoring in various metrics to rank the MSAR third richest territory in the world. Thanks to the bounce-back in gaming revenues. Just after Qatar and Luxembourg. GDP and purchasing power were the primary considerations. Page 3
Also a parent
Time ticking for Ho
Lawyers consulted by Business Daily were unanimous. Regarding, essentially, the latest twist to the Ho Chio Meng corruption case. With the former Prosecutor-general’s lawyer abandoning his client, experts say time is against Ho finding a competent lawyer within the 5-day deadline.
Labour Law Legislator Ella Lei Cheng I proposes including paid paternity leave in the city’s legislation. Claiming society is demanding such a measure. With 20,000 signatures backing up her argument. Page 2
Operation Thunderbolt
Official visit Security bodies from Macau, Hong Kong, and Guangdong Province. Immersed in a joint operation against crime. The objective is to reduce crime substantially ahead of China’s President Xi Jinping’s visit to Hong Kong. Page 2
Prices up and down
Court Page 5
HK Hang Seng Index March 9, 2017
23,501.56 -280.71 (-1.18%)
Sands China Ltd AAC Technologies Holdings
Worst Performers
+0.59% -0.18%
China Unicom Hong Kong
-0.42%
China Shenhua Energy Co
-3.51%
Belle International Holdings
-2.47%
HSBC Holdings PLC
-0.48%
China Petroleum & Chemical
-3.44%
China Merchants Port Hold-
-2.31%
-0.48%
China Resources Land Ltd
-3.04%
PetroChina Co Ltd
-2.21%
AIA Group Ltd
-0.20%
Wharf Holdings Ltd/The
MTR Corp Ltd
-0.24%
Bank of East Asia Ltd/The
-0.62%
Geely Automobile Holdings
-2.94%
China Construction Bank
-2.10%
Sun Hung Kai Properties Ltd
-0.35%
Lenovo Group Ltd
-0.64%
China Mengniu Dairy Co Ltd
-2.57%
China Life Insurance Co Ltd
-2.09%
18° 21° 18° 21° 19° 21° 20° 22° 17° 22° Today
Source: Bloomberg
Best Performers
Sat
Sun
I SSN 2226-8294
Mon
TUE
Source: AccuWeather
Inflation China’s producer prices have surged at the fastest pace since 2008. Fuelling hopes the country may export inflation to the global economy. Although consumer prices are disappointing, with slowest growth posted for two years. Page 10
2 Business Daily Friday, March 10 2017
Macau Security
Joint police efforts anticipate Xi’s visit to Hong Kong Although the visit of China’s President has not yet been officially confirmed, police in Macau, Hong Kong and Guangdong are gearing up Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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olice forces in Macau, Hong Kong, and Guangdong Province have embarked upon a long joint operation to curb criminal activity ahead of the intended visit of Xi Jinping and State heads to Hong Kong later this year, South China Morning Post reported. D u bb e d ‘Th u n d e rb o l t, ’ th e cross-border operation launched on Monday between police forces from the three jurisdictions seeks to carry out a security clampdown ahead of China’s President’s trip to the neighbouring SAR. According to The Guardian, Xi’s visit has not yet been officially confirmed by Beijing, ‘but it is an open secret among Hong Kong delegates to China’s National People’s Congress,’ which started on Sunday. The Chinese leader is expected to visit Hong Kong in July to mark the 20th anniversary of the city’s return to China, to swear in the city’s new
Chief Executive, who will be elected on March 26, and review the local garrison of the People’s Liberation Army, SCMP reported. In Macau, the Unitary Police Service (SPU) is in charge of co-ordinating the Thunderbolt operation, according to information provided by the Judiciary Police (PJ). SPU leads the Judiciary Police and the Public Security Police Force. Speaking to Business Daily, SPU said Thunderbolt is ‘the annual largescale joint police operation,’ focusing on ‘the prevention and fighting against crimes, especially for combating cross-border crimes, so as to deter criminals.’
The police body clarified that several actions are conducted every year, constituting regular enforcement actions in response to the overall security situation. ‘Our objectives are to get rid of the vices of the security environment and to ensure the continuous safety and stability of the region,’ the statement announced. SPU did not specify, however, the types of crimes that local security forces would be fighting and preventing here despite our queries. According to SCMP, in addition to combating triad activity and organised crime, Thunderbolt is aimed at potential terrorist ‘hideouts.’ According to an officer with the Hong Kong
police quoted by the same newspaper, Hong Kong officers plan to raid locations such as guesthouses being allegedly used as refuge in the three jurisdictions. The Hong Kong officer added that police forces there would also be guarding against possible threats ensuing from individuals from the Xinjiang region, which has been an unsettling source of conflicted politics on the basis of ethnic and separatist violence. Still according to SCMP, past joint operations have been conducted annually, typically initiated before National Day in October, and lasting for one to three months.
Workers’ rights
Ella Lei proposes paternity, compensatory leave bill The legislator hopes the bill can be discussed in the legislature this year Cecilia U cecilia.u@macaubusinessdaily.com
Unionist legislator Ella Lei Cheng I submitted a bill to the Chief Executive on Wednesday, proposing the addition of paid paternity leave in the city’s Labour Law, as well as that of compensatory leave for employees when their weekly rest days overlap with mandatory holidays. In a press briefing yesterday, the legislator expressed her hope that she can obtain approval from the CE to propose the amendment bill in the Legislative Assembly (AL). In Macau, workers are eligible to enjoy a minimum of 52 days of weekly rest days, 10 days mandatory holiday and 6 days annual leave per year, while civil servants can also enjoy five days of paid paternity leave as well as compensatory leave for overlapping days off. Ms. Lei claimed the two aforementioned systems are much demanded by society, citing a petition from the labour sector last year that gathered over 20,000 signatures for the initiatives. “In many service industries including the gaming sector […] there are cases where workers’ weekly rest days are allocated on a mandatory holiday, even if the company can arrange to avoid the situation under a roster system,” said the legislator. She added that the bill is fundamental, urging companies should
not consider compensating leave to workers as additional cost.
Five-day paid paternity leave
On the other hand, the legislator is proposing a five-day paid paternity leave for employees in the bill. “International associations relating to labour affairs do not have mandatory rules for the days of paid paternity leave,” said the legislator. “But compared to other Asian regions many companies set the period at around three days to one week.” She pointed out that the proposal is based upon the current holiday system enjoyed by civil servants. Questioned whether the proposal of the bills would be able to go through the Assembly’s discussion within the current tenure that ends in August, Ms. Lei believes the two proposals should not be too difficult to discuss. “We know that this is a busy year but we need to progress the bill for [legislative] discussion this year,” she said, stressing the discussion should not be delayed again. Asked whether the bill would upset employers, Ms. Lei said there is already a consensus among different sectors on the launch of paid paternity leave. In the 2016 Policy Address, the government stated that it would ‘continue to review and improve the Labour Relations Law, including amending the law for paid paternity leave and compensatory leave.’ During a policy debate session in the AL last November the Labour Affairs Bureau (DSAL) said it would consider implementing a three to seven day paid paternity leave in the territory. Nevertheless, the authorities have not yet announced any timetable regarding the proposal.
Land
The company saw its annual profit drop 17.7 pct y-o-y
Chinese Estates: La Scala appeal continues Hong Kong-listed developer Chinese Estates Holdings Ltd. said Macau’s courts are still hearing an appeal filed by Moon Ocean Ltd. regarding the now-scrapped La Scala project. According to the company’s annual results on the Hong Kong Stock Exchange, Moon Ocean’s appeal against a notice from the Land, Public Works and Transport Bureau (DSSOPT) ‘is still in progress’ as of the announcement. The notice from the DSSOPT stated that the Chief Executive had declared the previous act of approval of the increase of residential gross floor area of the related plots as well as an exchange of land in March 2011 invalid. In 2006, Moon Ocean was approved by the SAR Government to acquire the five plots opposite Macau International Airport for MOP1.37 billion for the La Scala project. But the acquisition was invalidated by the authorities in 2012 once linked to the corruption case of ex-Secretary Ao Man Long. Moon Ocean filed an appeal against
the government’s decision but was turned down by the Court of Final Appeal in June last year. For the year of 2016, Chinese Estates posted a net profit of HK$6.36 billion (US$791.9 million), a decrease of 17.7 per cent year-on-year from HK$7.72 billion one year prior, even though total revenue surged 142.9 per cent year-on-year to HK$3.75 billion. The company explained that the decline in net profit was due to the decreases in net rental income, fair value gain on investment properties and share of results of associates. Earlier this month, the company announced a restructuring as its previous controlling shareholder Joseph Lau Luen Hung was said to be in ‘very unstable health condition.’ The businessman’s interests in the company have been transferred to his eldest son Lau Ming Wai and his wife Kimbee Chan Hoi Wan - as trustee for the couple’s minor children, who now hold 24.97 per cent and 50.02 per cent of the company’s total shares, respectively. K.L.
Business Daily Friday, March 10 2017 3
Macau
Rankings
MSAR third richest society in the globe The ranking conducted by Global Finance takes purchasing power parity into account as well as GDP per capita numbers Kam Leong kamleong@macaubusinessdaily.com
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inancial magazine Global Finance has ranked the MSAR the third richest territory in the world, following only Qatar and Luxembourg, but being the richest on the Asian continent. The publication’s recent top 100 list of ‘The Richest Countries in the World’ for 2016 is not only based upon a country or jurisdiction’s per capita - Gross Domestic Product - but also its purchasing power parity (PPP) ‘which factors in differing costs of living and relative inflation rates that impact upon the real buying power of residents.’
According to the report, the city’s GDP-PPP per capita value is estimated at 96,147 international dollars for last year, while that of Qatar and Luxembourg reached 129,726 and 101,936 international dollars, respectively. ‘Macau has rebounded on the back of a revival of its casinos and associated tourism,’ the publication notes. Saying the city is ‘now back on the up’ following a slump of 26 months in the gaming industry, the publication believes the sector would expand following the recent opening of Wynn Palace and The Parisian Macao. According to official data, Macau’s GDP per capita fell 2.78 per cent yearon-year to MOP554,619 (US$69,327)
for 2016, a significant improvement from the decline of 23.9 per cent for 2015. That followed the recovery of the city’s gaming industry from July 2016, which wrapped up the year with total gaming revenue of MOP223.2 billion, a decrease of 3.3 per cent year-on-year, as compared to that of 34.3 per cent in 2015. ‘In this very particular economy, GDP per capita remains one of the highest in the world,’ the publication concluded.
Rest on the list
Meanwhile, neighbouring SAR Hong Kong is ranked 12th richest with a GDP-PPP per capita value of 58,094 international dollars; Taiwan comes in 22nd with 47,790 international dollars; while China ranks 81st with 15,423 international dollars; Singapore is the only other member from Asia on the top 10 richest list, with a GDP-PPP value of 87,082
international dollars, the fourth richest in the world. The remaining top 10 list entrants are, by order, Brunei Darussalam, Kuwait, Ireland, Norway, United Arab Emirates (UAE) and San Marino. Noting the richness of gas puts Qatar at the richest position in the world - as with Norway and the UAE - the publication indicated ‘lower oil prices have meant that Qataris’ average income decreased by some $15,000 compared to what it had been in 2015,’ which is ‘in contrast to Norway and the UAE whose more diversified economies helped cushion them from international commodity price-swings.’ On the other hand, the report commented that Luxembourg and Singapore both benefit from having highly developed financial services sectors and relatively low tax rates, helping the countries attract global wealth flows.
4 Business Daily Friday, March 10 2017
Macau Opinion
Pedro Cortés*
Bad signs Respect for our legal system – the Second System – our cultural values as a Special Administrative Region, and the way of living consecrated in the Macau Basic Law seems to be at its lower level since the handover. Macau’s respectful personalities are putting in cause the Second System and such condition must be stopped before it is too late. The freedom of speech, on one hand, may be in jeopardy. An Electoral Commission dispensing guidance to free speech media is a very bad signal. Macau is a place of free speech and, therefore, no entity of whatever nature can proffer guidance to the newspapers, television, radio and/or, these days, social media. Should these media channels violate the law then it is for the courts to decide whether the violators shall be make accountable. This is a Rule of Law system, dear officials. Do you need some lessons from that? On the other hand, we have a respectful lawyer resigning his defence of the former Public Prosecutor. This is very serious, my dear friends. Irrespective of the causes of such resignation, what we have experienced is that the Basic Law, its rights and the rights stated in the Macau Criminal Procedure Code, seem to be violated on a daily basis. Those who must respect such two fundamental pieces of legislation are probably the first to violate them. Respect for lawyers and for journalists is what divides a free country, state or Special Administrative Region from other places where such respect seems not to exist. In the end, it is the citizens that both professions defend that will be in cause and, whenever officials who think that no critical mass exists in Macau that has knowledge, it might be too late. Today’s public opinion is very different from 10 years ago. We have kids who have studied and who understand what is better for them. Those kids will soon be politicians in Macau and we need to prepare society for a better future. Macau cannot be in the hands of those who do not respect the mini-constitution and, especially, the Macau Criminal Procedure Code. As my teacher on that matter once said: all of us are defended by that Code. It is of outmost importance that those who have high responsibilities in terms of justice respect, always, in every single decision, the dictates of that law. Otherwise, we will not have, surely, a special place or region. *lawyer and frequent contributor to this newspaper.
F&B
Beer imports feel a draft Largest year-on-year increase in imports seen during the month was from the Philippines, which posted a 4,127.5 per cent increase in value imported Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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eer imports during the month of January saw a sharp 15.8 per cent drop year-on-year in terms of value imported and a 15 per cent drop in quantity, according to data from the Statistics and Census Service (DSEC). The imports are of the alcoholic type, sized under two litres. In total during the first month of the year the territory imported MOP9.53 million-worth of beer, equating to 993,145 litres of the beverage. Of the countries importing to the MSAR, the Mainland continued to be the primary source, contributing 46.37 per cent of the total value and accounting for 67 per cent of the total weight imported during the month. This amounted to a 19.3 per cent year-on-year slowdown in the value of imports from the neighbouring superpower, and also demonstrated an 18 per cent drop in weight year-on-year. Nearby Hong Kong saw a significant double-digit slowdown in the import of the beverage, with a 32 per cent
year-on-year drop in value and a 40.5 per cent drop in the amount imported, although the neighbouring SAR only contributed 1.8 per cent of the overall imports during the month.
Main suppliers
Apart from China, imports were led by South Korea (Republic of Korea), which dominated other importers by providing MOP1.69 million-worth of the beverage during the month and only seeing a 3 per cent year-onyear drop in its imports, the second lowest decrease amongst comparable import territories, only worse than Germany which saw a 0.86 per cent value decrease year-on-year for the month. South Korea imported 117,692 litres of beer to the territory, a 4.8 per cent increase compared to January 2016. The star importer - the Netherlands - imported nearly 9 per cent of the total value in January, and underwent an 18 per cent drop compared to January 2016, bringing in MOP841,789 worth in bottles or cans. The largest year-on-year increase in imports seen during the month was from the Philippines, which
saw a 4,127.5 per cent increase in value imported and a 4,965 per cent increase in quantity. This overshadowed even Ireland’s 613 per cent increase, importing nearly MOP100,000 worth during the period. Other strong increases were seen from Japan, with a 203.8 per cent increase in value year-on-year in imports, and Portugal – a 202.5 per cent increase. However, on a yearly comparison, 15 of the import markets comparable in the data were down, with only three of them undergoing single digitdrops, while the rest fell doubledigits. And only four of the import markets improved compared to the previous year. This comes a month after the data show a 5.3 per cent drop in the employed population in the construction sector period-to-period (October-December 2016) and an 8.3 per cent decrease in those working in the restaurants and similar activities sector, according to DSEC data. In addition, overall imports from the Mainland in January fell 13 per cent year-on-year for January and overall imports to the territory saw a 3 per cent drop in value year-on-year, hitting MOP6.56 billion. In an environment with better gaming revenues compared to last year, it appears that fewer individuals are choosing to drown their worries in a beer.
Retail Sales in Macau and Hong Kong drop 5 per cent
Giordano Int’l net profit slightly up Clothing retailer Giordano International Ltd. saw its net profit increase by 2 per cent year-on-year for the whole year of 2016 despite a decrease of 4 per cent in total sales. According to its filing with Hong Kong Stock Exchange yesterday, the company raked in HK$434 million (US$54 million) in annual net profit for 2016, while total sales reached HK$5.14 billion. The retailer explained in the filing that the decline in sales was due to ‘closure of non-performing stores in Greater China and weakened Renminbi reducing the translated sales from Mainland China.’ The company’s retail sales in Macau and Hong Kong fell by 5 per cent year-on-year to HK$927 million from HK$971 million, while comparable stores sales in the two SARs remained flat. In addition, gross profit from the two markets slipped 1 per cent yearon-year to HK$640 million although gross profit margin rose slightly by 2.5 percentage points to 69 per cent compared to one year ago. ‘This was the result of better product mix from higher margin products and successful marketing campaigns,
which increased store footfall,’ it wrote. Meanwhile, the company’s sales in Mainland China fell 7 per cent yearon-year to RMB1.1 billion (HK$1.2 billion) during the period, while gross profit declined by 5 per cent year-onyear to RMB599 million. Comparable store sales in the Mainland dropped 2 per cent. ‘The likely ongoing, but gradual depreciation of the Renminbi will
continue to benefit the Group insofar as average product cost is concerned,’ the company noted in its outlook. As at the end of the year, the retailer was operating a total of 2,397 stores, of which 73 were in Hong Kong and Macau, a decrease of two compared to one year ago. The board has proposed a final dividend of 15.0 HK cents per share for the year, compared to 14.5 HK cents per share for the year of 2015. K.L.
Business Daily Friday, March 10 2017 5
Macau
Legal perspective
Catching a falling knife Juridical experts believe it will be difficult for the former Prosecutor-general to find another legal representative in the five-day period granted by the court Nelson Moura nelson.moura@macaubusinessdaily.com
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fter his defence counsel excused itself, it will be difficult for former Prosecutor-general Ho Chio Meng to appoint a lawyer in the five-day period provided due to the complexity of the case, various lawyers have told Business Daily.
“The Prosecutor is under detention so it will be hard to contact lawyers, and any lawyer that accepts the case will find a very complicated situation. How can he enter such a moving bus at such an advanced period of the trial, study all the documents and get to know all the statements made in court so far?” Pedro Leal, lawyer On Wednesday, the former top official’s main defence lawyer, Leong Weng Pun, presented the Court of Final Appeal with documents for giving up his job, claiming the court’s judges had treated the defence and the prosecution differently. According to the defence, that difference in treatment occurred when the presiding judges allowed the prosecution to confront witnesses
with documents not included in the accusations, something he claimed wasn’t allowed for the defence. Fourth months since its beginning the corruption case against the former top official has been suspended for an undefined period of time by the Court of Final Appeal, with Mr. Ho having to find a new representative within a five-day period. For lawyer Pedro Leal, although Mr. Leong didn’t specifically say the court was being “partial” towards one side, the reason he gave for his decision basically implies that the case is not a “level playing field.” According to lawyer Miguel Senna Fernandes the imbalance between the “means and guns” available in cases against the Public Prosecutor’s Office is something that has been systemic in the Macau judicial system for a long time and that lawyers that deal with criminal law in the territory are aware of it. “It is certain that in the judicial system in Macau there is a clear preponderance of the Public Prosecutor’s Office towards defence lawyers - it’s an old issue. On the one side you have the whole machine of the Prosecutor’s Office with all means at its disposal to deduct an accusation, while the defence doesn’t have the same means to oppose it. I’m not questioning the following of the law, just addressing this difference of means,” Mr. Fernandes told Business Daily. However, the lawyers contacted told Business Daily that while it sometimes happens that lawyers excuse themselves from court cases, they have never seen a case of a lawyer excusing himself claiming different treatment by the court. “It happens once in a while that the defence excuses itself because there was a break in confidence between the lawyer and his client but it is unusual for the reasons claimed. For this reason I don’t remember any other case in Macau or in Portugal,” lawyer Filipe Figueiredo told Business Daily.
Five days to find help
With the former Prosecutor being accused of almost 1,500 crimes and with the case involving thousands of documents, most lawyers consider it will be hard for Mr. Ho to find a law yer willing to “jump onto a moving bus” in the five-day period.
If the former top official doesn’t find a lawyer, the court will appoint one for him, with the law not allowing Mr. Ho to represent himself. “The Prosecutor is under detention so it will be hard to contact lawyers, and any lawyer that accepts the case will find a very complicated situation. How can he enter such a moving bus at such an advanced period of the trial, study all the documents and get to know all the statements made in court so far?” Mr. Leal remarked to Business Daily. For Mr. Fernandes losing an appointed lawyer will “always be harmful for the client” since an appointed lawyer “has double the
responsibility” of a government appointed lawyer. “I’m not criticising my colleague or profession, but I think before making this decision the lawyer needs to think very carefully if this decision will be prejudicial to his client. I’ve seen similar situations happen twice - the lawyer starts getting fed up with a conflict situation with the judge or more judges and makes a rash decision, but they have to [consider] if their client’s situation will be better after,” he added. No date for the resumption of court proceedings has yet been announced with the maximum period of suspension being 30 days.
Tourism
Connecting the dots With direct flights between China and Portugal to start in June, Macau is a “good choice” of city to host this year’s Portuguese Association of Tourism and Travel Agencies (APAVT) Congress, according to Duarte Correia, the President of the Administrative Council of Spanish travel company W2M World2Meet. In statements made to travel news website Turisver, Mr. Correia said that with Beijing Capital Airlines, a regional subsidiary of the HNA Group, having announced the first direct air link between the two countries - direct connections between Hangzhou and Beijing to Lisbon running
three to four times a week starting in June - hosting the Congress in Macau will contribute to a boost in tourism between the countries. W2M is owned by Spanish hotel group Grupo Iberostar and mainly provides travel services to travel agencies and tour operators, with a presence in more than 175 countries. In partnership with the Macao Government Tourism Office (MGTO) the 43rd APAVT National Congress will take place in the MSAR between November 23 and 27 this year, bringing to the city 500 tourism professionals from Portugal. N.M.
6 Business Daily Friday, March 10 2017
Macau
Interview Renowned Portuguese winemaker eyes the local market
Grapes and olive deals Portuguese winemaker and oil producer CARM believes the city will help the company to succeed in the Mainland Chinese market. In an interview with Business Daily, company founder Filipe De Albuquerque Madeira said the MSAR will be one of its priority investment markets for this year. Nelson Moura nelson.moura@macaubusinessdaily.com
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he history and the quality of Portuguese wines will allow the products to secure a successful position in the growing Mainland Chinese market, with Macau an entry point, founder of Portuguese wine and olive oil company CARM Filipe De Albuquerque Madeira believes. Having turned a family heritage of six farms in the Superior Region of the Douro River in Portugal into one of the country’s most renowned award-winning wine and olive oil producers, Mr. Madeira considers Chinese consumers’ choice of wine is usually dependent upon their recognition of a brand or its awards received, rather than the quality.
Owning 180 hectares of vineyards, CARM went from a small family company producing 2,000 bottles of wine in 2004 to a current two million. And this number is growing at a pace of around 10 per cent to 20 per cent each year, according to the company founder. The company’s largest export markets comprise “usual wine-loving countries,” such as the United States, Canada and Japan, while the domestic Portuguese market accounts for 50 per cent of the company’s sales. However, the Chinese market currently only represents 4 per cent of CARM’s sales due to its different characteristics from other markets, which make Portuguese products difficult to bring in, said the olive oil and wine producer. “Japanese buyers are not influenced
by international awards, rankings or what country the wine comes from. If they like it, they’ll buy it as opposed to the Chinese buyer who care more about grades,” Mr. Madeira told Business Daily in an interview. As an example, the producer noted that the company’s sales have started to grow in the Chinese market following its wines receiving more than 91 points from renowned wine publication Robert Parker Wine Advocate. “We’re also lucky that we have a mini entry point in the country called Macau,” he said. “The city has a Portuguese tradition that has helped boost the culture of Portuguese wines.” In addition, Madeira remarked that the MSAR’s zero-tax policies on wine imports makes the city an even more favourable place for the business.
Entry point
Currently, sales in the MSAR only account for a 4 per cent market share for CARM – the same as that of the Mainland Chinese market – but the company founder explained that is because it had not paid too much attention to the city in the past. Eyeing the territory, he now
believes sales in the local market can make up 10 per cent of the company’s total in coming years.
“Japanese buyers are not influenced by international awards, rankings or what country the wine comes from. If they like it they’ll buy it as opposed to the Chinese buyer who cares more about grades” Filipe De Albuquerque Madeira, founder of CARM “This year, Macau will be CARM’s prioritised investment market. We’ve presented all our wines given more than 91 points by Robert Parker [in
Business Daily Friday, March 10 2017 7
Macau Portuguese wines before. “I never drank Portuguese wines. I thought they were too rustic so I only drank French or Italian wines and my palate was used to them. People are tired of drinking Chardonnay [wines] and Portugal now has different offers with quality; we just need to do the marketing and see the eyes of people tasting it shine for the first time,” he told Business Daily. For him, consumers want authen tic quality products that are made by uncomplicated processes so that they can “smell the earth they grew in, in the glass,” he says.
“This year, Macau will be CARM’s priority investment market” Filipe De Albuquerque Madeira, founder of CARM
Olives galore
a local event] and we will set up a tasting dinner for the city’s [most famous] personalities in June,” said Mr. Madeira. In the whole year of 2016, imports of red wines and white wines to the MSAR from Portugal reached 85,679 litres, valued at MOP4.2 million (US$525,028). The numbers represent some 20.4 per cent of the total import volume of 419,030 litres, and only 4.3 per cent of the total import value of MOP97.4 million in the same period. This suggests Portuguese wines are much less popular that those from France, whose red and white wines accounted for over half of the total imports of the city, at 213,750 litres and valued at MOP81.1 million, accounting for 83.2 per cent of the total value of red and white wine imports. In Madeira’s opinion, this situation is quite normal since the average price for a litre of French wine in
The olives of time
The history of CARM intertwines with Mr. Madeira’s coming of age. Families from his mother’s side had owned farms in the Upper Region of the Douro River since the 17th Century, which were primarily used for hunting and vacations, in addition to the occasional port wine production for personal consumption. “We already had vineyards and olive trees at that time, but the grapes and olives from the trees would be sold to larger wine and olive oil co-operatives in Porto,” he said. Mr. Madeira’s connection to that production was always tenuous, he said, as he studied medicine in Italy and had worked in the finance, besides having managed model agencies worldwide. “When my father retired, we decided to start producing our own olive oils. So we went to Italy and asked [how] to create a quality product from the best expert in olive oil, Professor Fontanaza from Perugia,” Mr. Madeira said. “He gave us the whole system to create an olive oil press, which we developed further when I was in my 6th year of medicine school,” he added. Since the press was too advanced for Portugal at that time and nobody knew how to operate it, Madeira started operating it himself - and the first olive oil production came out in 1998 with an unexpected reaction. “The first year we produced
China is around US$5, while that of Portuguese wines is only around $3, a consequence of the history and brand recognition of the wines. In fact, the same situation was also apparent in the Mainland Chinese market in 2016. According to data released by the Chinese Customs Department, the country’s wine imports grew by 15 per cent year-on-year to 638 million litres in 2016, while total import value jumped by 16.3 per cent year-on-year to US$2.36 billion. France, again, topped the chart with 191 million litres of wine imported to the country, worth US$954.4 million, while the volume of Portuguese wines ranked 10th with 6.8 million litres of wine imported by the country, worth US$19 million. “Our wines are not old enough; we can only get to the same prices [as French wines] in 50 years through constant quality and branding,” said.
olive oil we went to international competitions and won the [award] of best worldwide product, it was like just getting my driving licence and suddenly doing the best racing times,” he said. “However, we won not because I was an expert but the land and the olives we had were excellent. I only had to make sure I didn’t ruin it. The interesting part was not even one bottle of that olive oil was sold back in Portugal as people thought the quality had gone bad,” he said. According to Mr. Madeira, the country was too used to low quality olive oils and thus did not accept CARM’s fresher and purer taste. “Generally, the country had good olives but people would ruin them. However, 19 years after, it is now possible to find excellent olive oils in Portugal,” he told Business Daily. After its initial year, CARM olive oil was considered the best in the world 12 times. Mr. Madeira believes the product’s stable ability comes from the company’s mix of traditional and modern methods during production. “The planting system is very traditional. [We only use] natural blends with olives planted many years ago. The secret to top olive oil is to treat it like wine; we use very defined segmentations that change the olive picking days and sunlight periods, with the blends made by me and three Italian friends,” he added.
Mr. Madeira “In terms of wine history, France, Italy and Spain take the lead. But now it’s our turn, since we have excellent grapes and land, while Bulgaria and Romania are probably following us. After all, Baroness Rothschild has said that one of the biggest problems in the wine business is the first 200 years - after that you can sell them for any price,” he said. The businessman added he himself has also preferred foreign wines than
Branching into wine
CARM’s wine production also underwent a similar trajectory - from a passionate hobby to a business. And everything was started in 2000 when Mr. Madeira rented a wine cave by using the money he made with oil production and later created a production unit in 2004. “In three years, we reached the top 10 of world wines ranked by lifestyle magazine Wine Spectator and our ranking has been going up, using the same method of producing our olive oil advised by Italian and French consultants. CARM started with producing olive oil but it is now more famous for its wines,” he said. The company’s best seller is its CARM Reserve – made with Portuguese traditional wine Touriga Nacional and costing around US$24 per bottle in the United States.
CARM also owns nearly 250 hectares of olive tree fields that produce almost 250,000 bottles per year. In terms of the olive oil business, Mr. Madeira says the company’s nearly 20-year history in the filed has helped its products gain popularity in Japan, where the company can sell 37,000 bottles in one day. In 2016, the MSAR imported 42,428 kilograms of olive oil, worth some MOP1.6 million, according to DSEC. This time, Portugal was the largest provider, both in value and in volume, from which a total of 41,399 kilograms was imported to the MSAR, worth nearly the total.
“In bad years no wine [whose quality] above the Reserve is made, so all the best grapes go to [the Reserve]. You can open a Reserve from any year and it will always be excellent. It’s a shame to make a US$24 wine with 100-year old grapes but it’s what keeps the quality and consistency,” Mr. Madeira added. The secret to that consistency and quality, he believes, is the use of the best land and grapes from the outstanding Douro River region, coupled with an organic approach adapted to its production. “We’re the only company in Portugal and one of the few in the world doing wine without adding sulphur, a product used to delay the oxidation and ageing of wine. This makes for a completely natural, healthy and organic product. If [the process] is done well it makes the wines last even longer,” he says.
8 Business Daily Friday, March 10 2017
Consigliere
Hear me roar
E
Photos by Lusa
urope’s biggest annual car show kicked off in Geneva on Tuesday with luxury and crossover vehicles in the limelight, but with the emissions scandal still hanging over the industry. Automakers are celebrating the end of the sector’s crisis as European sales have returned to levels last seen in 2008 before a global financial meltdown inflicted deep dents on their business. It is a far cry from last year’s show where the industry was under a cloud after Volkswagen admitted in 2015 to having installed software in 11 million diesel engines worldwide to circumvent emissions tests, a scandal that will cost it billions in fines and compensation to car owners. With electric vehicles still only accounting for a sliver of European car sales, that means gasoline-powered cars have to take up the slack, requiring the industry to squeeze more efficiency out of engines and to reduce vehicles’ weight.
Lamborghini
Bentley
Ferrari
Huracán Performante is the most powerful V10 ever
First-ever electric concept car is a luxury fever dream
Flagship sells out amid push beyond sports cars
Monday night, prior to its official debut at the Geneva Motor Show, Lamborghini unveiled the latest in its line of Huracán variants, the Lamborghini Huracán Performante. The Huracán Performante comes with more power, better Pirelli P Zero Corsa tires, a re-engineered suspension, and upgraded traction control over its predecessors. It has 640 horsepower on a naturally aspirated V10 engine and a more stabilized, lightening-fast, seven-speed, dual-clutch transmission. At 1,382 kilograms it’s also 88 pounds lighter than the standard-issue Huracán, thanks to even more of that special forged carbon fibre Lamborghini loves to use on its monster cars. “This new car represents the powerhouse of Lamborghini DNA and innovation, and a 360-degree approach to creating class-leading super sports cars,” said Stefano Domenicali, the head of Lamborghini. “It illustrates the pinnacle of Lamborghini V10 production car performance to date.” As for its looks, the Huracán Performante keeps the same overall body line and physique as its standard-issue sibling, though it plenty of new alcantara and forged carbon accents along the edges and interior. It also has a new driver display that communicates aerodynamic changes over the body of the car. More importantly, from an engineering standpoint anyway, in the Huracán Performante is a new system called ALA, which electronically opens and closes air intake vents at various points on the car to reduce drag and increase down force. The idea is that this new technology makes the car significantly more precise in its ability to navigate super-high speeds. The improvements are more than working. Last week, news reports surfaced that the Huracán Performante had set a new record on the Nürburgring track in Germany, beating the previous production car record holder, the Porsche 918 Spyder, by five seconds and outpacing Lambo’s flagship Aventador SV by seven seconds. Lamborghini confirmed the reports in Geneva on Monday evening. Bloomberg News
Although most of the notable debuts at the Geneva Motor Show are teased months ahead of time, Bentley came out swinging on Tuesday with a surprise showing of the marque’s first-ever, pure-electric concept. The Bentley EXP 12 Speed 6e Concept is meant to explore the possibility of Bentley producing a true all-electric vehicle for production; it’s a separate endeavour from the recently promised plug-in hybrid Bentayga SUV, which is due out in 2018. If it is received well by VIP guests and analysts at future car circuit stops in Shanghai and Pebble Beach, Calif., said execs, the convertible could lead to an electric vehicle from Bentley by 2021. (The car, while drivable, is one of one, so in order to prevent damage it will not be available for prospective buyers to drive.) “This will give us a very good indication of where we are,” Wolfgang Dürheimer, the chairman and chief executive officer of Bentley Motors, said during an interview in Geneva. “Do we need it? Or are we okay to still have combustion engines and hybrids, that’s it? This is what we want to find out. “We want to send a clear message: ‘If we do it, this is what it would look like.’ EVs don’t necessarily need to look like a refrigerator. They can appeal. They can be sexy. They can be emotional.” And sexy emotion they have provided in spades. Most notable, at first glance, is the open-pore leather that covers the cabin and rear bank of the car. The oxblood patina looks so juicy and rare, it might as well be tartare; it contrasts beautifully with the stark white exterior. The front hood is split into two air vents and has “crystal cut” round LED headlights and a massive lattice-style Bentley front grille done in silver and rubbed copper. When the car starts, a white “6e” symbol illuminates beneath the mesh of the grille. Bloomberg News
Ferrari NV unveiled the speediest production car in its history, underscoring its reputation for uncompromising performance even as the Italian manufacturer pushes the limit of how many autos it can sell without losing its allure. The 812 Superfast debuted at the Geneva International Motor Show on Tuesday with a 12-cylinder, 800-horsepower engine that accelerates to 100 kilometres per hour in as little as 2.9 seconds, making it Ferrari’s most powerful production model ever. Priced at 292,000 euros (US$308,000) in Italy, the new flagship is already sold out for 2017, Ferrari Chief Executive Officer Sergio Marchionne said in an interview with Bloomberg TV. “We have to make sure the demand is there, and we always have to supply less than the demand,” he said. Having promised its shareholders a boost in sales and profit following its 2015 initial public offering, Ferrari faces the challenge of selling more cars without diluting its air of exclusivity. Marchionne, likely to reach his target of selling 9,000 cars annually by 2019, is pushing high-performers like the 812 Superfast to maintain earnings momentum, even as he widens the lineup. Keeping supply capped by model is the key to protecting Ferrari’s reputation. “We need a much wider range of products than we’ve got today,” in order to increase volumes beyond 9,000 vehicles, the CEO said. There’s still a “phenomenal amount of space” to expand Ferrari’s range without massive investment in new technology and platforms, Marchionne has said in the past. Such low-risk expansion is critical for the boutique manufacturer as it seeks to compete without the backing of a bigger industry player. In an effort to reach a wider audience, Ferrari unveiled a four-seater GTC4Lusso “family car” in Geneva last year and may consider a five-door version to draw buyers seeking more practicality and comfort, said Ian Fletcher, an analyst at IHS Automotive in London. Bloomberg News
New breed
One-off supercars: when rare just isn’t exclusive enough Edward Taylor
The New Scuderia Cameron Glickenhaus - Manifattura Automobili Torino, SCG003S is presented during the press day at the 87th Geneva International Motor Show in Geneva, Switzerland, 08 March 2017.
Supercars are famed for their exclusivity, but they don’t get much rarer than the 800 horsepower SCG 0003S being shown off by American Ferrari collector Jim Glickenhaus at the Geneva car show this year. Only 10 will be built. The 66 year-old is one of a new breed of automotive entrepreneurs to take advantage of advances in software and computing power to start his own car brand, using virtual engineering and testing techniques. And he is addressing a growing market, with members of the super-rich from industrialists and financiers to rock stars increasingly looking for customised designs that give their cars the ultimate individual touch. “Software allows me to indulge in ideas, like the shape of the headlight, or an air conditioning vent. In the past the manufacturing costs of making just one or two components would have been prohibitive,” Glickenhaus said, pointing
Business Daily Friday, March 10 2017 9
Consigliere
Research and development costs “have practically doubled in the past decade” said Remi Cornubert at AT Kearney, a consulting firm, and if carmakers fail to succeed, the bill will be high.
New models
Despite the greater emphasis on fuel economy, the Geneva car show is unlikely to disappoint in terms of its usual glitz and glamour. The legendary Ferrari, Lamborghini, Pagani, McLaren and Bentley have all picked Lake Geneva’s shores to present new models. Renault will showcase the final version of its Alpine A110 sports car. “Geneva has always been the show of beautiful automobiles and prestigious racing cars,” said Ferdinand Dudenhoeffer at the CAR institute. But the greatest buzz may come from so-called “crossover” vehicles (CUVs), which combine features taken from sports utility vehicles (SUVs) with those of passenger cars. Some 180 companies will be present at the 10-day show which opened to the public yesterday after two press days during which most major corporate announcements were relased. Last year’s show attracted 687,000 visitors. AFP
Renault
Mercedes-Benz
McLaren
French take on Porsche with revival of Alpine sports car
The brand taps rugged luxury trend with world’s priciest SUV
New supercar sets bar in industry of extremes
Renault SA is hoping to shed its utilitarian mass-market image by taking on Porsche with a new low-slung, high-end sports car. The limited-edition Alpine 110 two-seater with a four-cylinder turbo engine -- a revival of a once-popular model shuttered 20 years ago -- was unveiled at the Geneva auto show on Wednesday. Priced at 58,500 euros (US$62,000), it’ll be the French carmaker’s most expensive passenger auto and can hit 100 kilometres per hour in 4.5 seconds -- about as quickly as a Porsche 911 Carrera. Renault, which last year overtook French rival PSA Group as Europe’s second-biggest carmaker, is seeking to add panache to its range by selling more expensive models. While Renault been gaining market share with a fresher, more upscale line-up including the new Megane hatchback, its effort to lure wealthier buyers comes at a risky time as the region’s demand for autos cools after three years of growth. “The sports car market is a little bit in decline and Porsche is a key competitor in that space,” said Ian Fletcher, an analyst at forecaster IHS Automotive. The French manufacturer isn’t alone in reaching higher. PSA launched its premium car brand DS two years ago, and Porsche parent Volkswagen AG this week unveiled a new upscale Arteon fastback from its namesake VW brand to compete with Mercedes coupes at a lower price. Carmakers are pushing more expensive models in order to raise the funding needed to pay for costly investments in electric and self-driving technologies. Renault’s quest for cash is also tied to its unique ownership structure. Chief Executive Officer Carlos Ghosn is under pressure to balance out Renault’s partnership with its more profitable Japanese partner Nissan Motor Co., where he serves as chairman. While Nissan contributes most of the income to the alliance, it has less sway because it only has a 15 percent stake in Renault and no voting rights, while the French carmaker holds 44 percent of its Japanese counterpart. Narrowing the margin gap between the two companies would help reduce friction that’s built up in recent years. Bloomberg News
Mercedes-Benz is tapping into the popularity of ultra-luxurious all-terrain vehicles, with a new Maybach SUV that can ferry passengers over desert dunes with an open top and thermal cup holders. The Mercedes-Maybach G-Class 650, shown at the Geneva auto show, will be the world’s most expensive sport utility vehicle with a price of about US$500,000. It’s Daimler AG’s latest extension of the top-of-the-line Maybach marque that it resurrected amid surging demand for higher-end models. Limited to a run of 99, the SUV will have a V12 engine and a landaulet style, with a front row that’s covered and a retractable fabric roof in the back. “This car meets the highest demands for luxury and yet still has all the elements that make the G-Class a real off-roader,” said Gunner Guethenke, who heads Mercedes’s SUV business. Customers who buy the marque’s G-Class -- the segment is named for Gelaendewagen, the German term for all-terrain vehicles -- are looking for something “unique,” he said. Under pressure to foot the soaring bill of developing electric cars, autonomous-driving features and ride-sharing platforms, Daimler is more aggressively targeting ultra-wealthy customers with high-margin models on the one hand, while also adding more affordable cars that sell in large volumes. That strategy helped Mercedes unseat rival BMW AG as the world’s best-selling luxury marque last year and allowed Daimler to boost its research and development budget by almost a quarter. After struggling for years to sustain a niche for Maybach, Mercedes revived the 1930’s-era sub-brand in 2014 and has since expanded it with more opulent and spacious adaptations of popular models, such as convertible and three-row stretch limousine versions of the Mercedes S-Class sedan. The Maybach G650, which will test customers’ appetite for a full-production SUV from that marque, will have an electric -- and dimmable -- glass partition to separate passengers from the driver, retractable footrests and folding tables stashed in the middle console. To master truly rugged terrains, the vehicle is positioned almost half a meter (1.6 feet) above the ground. It’ll be available for sale after September. Bloomberg News
British automaker McLaren unveiled the 720S, the successor to the 650S Coupé and second generation in its successful Super Series line, creating a supercar even more extreme than its predecessor. McLaren’s latest mid-engine, rear-wheel-drive two-seater unveiled Tuesday at the Geneva Motor Show is lighter and faster than the 650S, with a twin-turbocharged 4.0-liter V8 engine and a weight of 2,828 pounds. Company executives say it can hit 60 miles per hour in 2.8 seconds and reach 124 mph in 7.8 seconds. Top speed is 212 mph. List price in the U.S. will approach US$290,000, about 5 per cent more than previous models. The quicksilver speed is amplified by a new hyper-light carbon-fibre chassis and intense engineering to afford improvements like faster steering and 45 per cent faster gear changes than even the high performance McLaren 675LT. What’s more, the car’s aluminium bodywork is literally shrink-wrapped around the carbon fibre chassis. This revolutionary method enhances the aerodynamics and cutting-edge appearance. It’s notable that the 720S lacks side-radiator intakes along its flank. Instead, the so-called double-skin shape of the butterfly doors channels air through hidden radiators to the engine. The effect looks like an insect alighting from space. Also notable are adaptive headlights: a special system allows better visibility at high speeds by raising the beam pattern of the 17 LEDs (in each light) half a degree after the car hits 68 mph. Along the rear of the car, a hydraulic wing acts as an air brake and a rear diffuser helps increase down force and keep the car grounded. Twin exhausts and a row of engine air intakes atop the fender also enhance aerodynamics when the wing fully deploys. This car is progressive even for McLaren, known for its technological prowess, and creates a new normal for the Super Series. Bloomberg News
to the front of his white carbon-fibre car on display in Hall 1 of Geneva’s exhibition centre. His company, Scuderia Cameron Glickenhaus, works with Maniffatura Automobili Torino (MAT), a boutique engineering and design company set up in 2013 to design, develop and manufacture one-off racing and luxury cars. “Some of the race cars today, they look like robots. I wondered if you could make a car which was aerodynamic and beautiful. So we built this,” Glickenhaus said. MAT has its stand next to other boutique car design companies including Pininfarina, Touring Superleggera, and David Brown Automotive in what amounts to a renaissance for so-called custom coachbuilding, spurred by software and new manufacturing techniques. The SCG 0003S was made for Glickenhaus to race, but customers who want one of the few being built can get it for US$1.8 million. “I’m not making a profit on the cars, but the money helps fund the evolution of the next version,” Glickenhaus explained. Using a fortune amassed from running the family Wall Street firm, he worked with Paolo Garella, the chief executive of MAT to build his car from scratch.
The tailor-made car industry took off in 2006 after Pininfarina built a one-off Ferrari, the P4/5, for Glickenhaus. Garella worked at Pininfarina at the time, before starting up MAT. Other examples followed, including a modern version of the Lancia Stratos which Pininfarina made for Michael Stoschek, chairman of German auto supplier Brose Group, and the Ferrari SP12 EC, which was made for rock guitarist Eric Clapton. Since then, Glickenhaus has become more ambitious. Rather than focusing on unique design, he wants his SCG 0003S race car to set lap records on the northern loop of Germany’s Nuerburgring, a holy grail among speed freaks. “It’s a different emotional experience if you are standing in the rain watching a car that you built compete against Mercedes and Porsche,” Glickenhaus said. Computers allow designers and engineers to develop a project virtually with only a handful of experts. Pre-digital age, car design often entailed hundreds of workers involved in sculpting clay, making components out of metal and then testing the parts for rigidity and reliability. “There was often a fight between designers and the workshop that built the car. The life-sized drawings rarely translated
into something engineers were able to reproduce,” Garella said. Designers would have to wait for the workshop to come up with something that was feasible from a manufacturing point of view, before pursuing further development – and often had to take a step backwards because the vehicle body was now interfering with something it should not. “Today’s design and engineering software work in harmony, allowing us to design and engineer simultaneously,” Garella said. Custom coachbuilding has experienced a revival in the past decade, revolutionising an industry which traces its roots to an era when owners of horse-drawn coaches commissioned a body to go on top of an undercarriage. In the 1980s and 1990s, the market suffered as mainstream carmakers started to make niche models in-house, and after new safety regulations all but ruled out extensive modifications without requiring new crash testing. Software has changed that. “You can show a regulator via software that the car meets minimum crash test requirements. That helped to make my car road legal in New York,” Glickenhaus said with a smile. Reuters
10 Business Daily Friday, March 10 2017
Greater China Prices
Producer inflation fastest in nearly 9 years Gains were mainly seen in mining and heavy industry Sue-Lin Wong
C
hina’s producer price inflation accelerated to its fastest pace in nearly nine years in February and by more than expected as prices of steel and other raw materials extended a torrid rally, boosting profits for industrial companies worldwide. Consumer inflation, however, cooled more than expected to its mildest pace since January 2015 as food prices fell, remaining well below the government’s 3 per cent target. China’s iron ore and steel prices have been rallying for a year, fuelled by a construction boom, though worries are growing over rapidly rising stockpiles at Chinese ports. The country’s insatiable demand for resources has helped spur an inflationary pulse in commodities markets and the manufacturing sector worldwide. The producer price index (PPI) jumped 7.8 per cent in February from a year earlier, slightly more than economists had expected and compared with a 6.9 per cent increase in January, the National Statistics Bureau (NSB) said yesterday. But many analysts believe China’s producer inflation may peak soon, and do not expect much of a flowthrough into China’s consumer inflation data, which unlike some other large economies is mainly driven by
prices of food and services. In recent months, the People’s Bank of China (PBOC) has cautiously shifted to a tightening bias, inching up short-term money market rates, as authorities turn their focus to containing the risk from a rapid build-up in debt. Cooling inflationary pressures could reduce the risk that the central bank would have to respond more forcefully. “We expect any tightening of policy to be driven by concerns about credit risks rather than efforts to contain inflation,” Julian Evans-Pritchard from Capital Economics in Singapore wrote in a note. “Given the lack of any meaningful feed through to consumer prices, policymakers aren’t likely to be too
concerned about the high producer price inflation,” he said. Evans-Pritchard expects producer inflation to peak within a month or two, as year-on-year price comparisons start to moderate. Prices of many building materials such as steel reinforcing bars began to take off in spring last year.
Prices of steel, minerals, energy remain strong
Similar to previous months, producer price gains were mainly seen in mining and heavy industry, with a 36.1 per cent leap in mining, the biggest jump in that category since early 2010. Raw materials increased 15.5 per cent, while oil refiners and chemical producers also saw solid increases.
Cooling inflationary pressures could reduce the risk that the Chinese central bank (headquarters in Beijing pictured) would have to respond more forcefully
That has been good news for some producers after years of losses which severely restricted their ability to service their debts. Coal and chemical products firm Yunnan Yunwei said on Tuesday it had returned to profit in 2016. Its shares have gained 25 per cent in the last three months. However, while factory surveys show manufacturers have been able to pass on some of the higher input costs by raising prices of their goods, there has been scant evidence of it filtering down to consumers yet.
Key Points China producer inflation quickens to fastest since Sept 2008 Minerals, steel, energy continue to see rapid price rises PPI inflation expected to start easing soon Consumer inflation cools more than expected as food prices fall Central bank seen maintaining cautious policy tightening bias
China’s consumer inflation rate slowed to 0.8 per cent in February from a year earlier as food prices fell following the long Lunar New Year celebrations. The CPI for January and February combined rose 1.7 per cent. “Although February’s CPI slowdown was relatively large, CPI is still relatively steady when food and energy prices are taken out of the equation,” statistician Sheng Guoqing said. The stats bureau attributed the slowdown in consumer inflation to the Lunar New Year and cold weather. Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 1.7 per cent, versus a 2.5 per cent acceleration in January. Reuters
Risk control
Beijing said to plan stricter bank capital rules China has put a new priority on containing financial-sector risks China’s central bank plans to apply a stricter method for assessing banks’ capital as part of efforts to contain financial-sector risks, people with knowledge of the matter said. Under the proposed change to the so-called Macro Prudential Assessment (MPA) framework, the People’s Bank of China will remove an intermediary category in its evaluation of banks’ capital adequacy, the people said, asking not to be identified because the matter is private. That means banks would either get a full score if they meet capital requirements, or a zero score if they fall short, according to the people. Banks in danger of falling into the bottom category will be encouraged to take steps to contain risks, such as raising capital or slowing asset growth, the people said. The PBOC penalizes banks with low scores on its MPA scale, for example by paying lower interest rates on reserves they hold with the central bank. A
higher score leads to higher rates for reserves. The People’s Bank of China declined to comment. China has put a new priority on containing financial-sector risks, including steps to control its rapidly expanding shadow banking sector. Regulators are drawing up measures to curb the nation’s US$8.7 trillion of asset-management products, which include investments in bonds and
risky off-balance-sheet lending by banks. Earlier this year, the central bank ordered the nation’s lenders to strictly control loans during the first quarter, especially their mortgage lending, people familiar with the matter said. The latest central bank move is likely to put pressure on China’s smaller banks to strengthen their capital ratios, including with new preference share issues, said Wei
Hou, a Hong Kong-based analyst at Sanford C. Bernstein. Many smaller banks “have been boosting their balance sheet by increasing investments and lending over the past few years, and at the same time they are not as strong as those major banks in terms of capital adequacy,” he added. Rising bad loans, falling profitability and tighter Basel III financial regulations are straining capital ratios at Chinese banks. Outstanding credit swelled to 264 per cent of gross domestic product in 2016, Bloomberg Intelligence estimates. Moody’s Investors Service and S&P Global Ratings said higher leverage is amplifying credit risk, while Fitch Ratings Ltd. said poorer loan quality and shadow banking curbs will increase fundraising pressures. Capital adequacy is one of several risk measures used by the PBOC in its MPA. Banks need to get at least 90 points in each of the seven categories to get the highest “A” rating, which entitles them to the higher rates on reserves and other privileges. A zero score for capital adequacy would make it impossible for a bank to be rated “A” overall. Banks can score a maximum 80 points for capital adequacy. The category also includes a measure of banks’ leverage, for which they can get a maximum of 20 points. Bloomberg News
Business Daily Friday, March 10 2017 11
Greater China In Brief Banks
New yuan loans shrink in February Chinese banks extended RMB1.17 trillion (about US$169.2 billion) of new yuan loans in February, down from RMB2.03 trillion a month ago, central bank data showed yesterday. The M2, a broad measure of the money supply that covers cash in circulation and all deposits, grew 11.1 per cent from a year earlier to about RMB158.29 trillion, according to an online People’s Bank of China statement. The M1, a narrow measure of the money supply which covers cash in circulation plus demand deposits, rose 21.4 per cent year on year to RMB47.65 trillion. ZTE
MOFCOM says opposes U.S. sanctions
IP
Government gives green light to dozens of Trump trademarks Some U.S. law makers have raised questions about whether Trump’s position as President could prompt preferential treatment of his businesses Adam Jourdan and Eric Walsh
C
hina has granted preliminary approval for 38 trademarks linked to Donald Trump, documents on China’s state trademark office show, giving the U.S. President and his family protection were they to develop the “Trump” brand in the market. The trademarks - which in theory cover a wide sweep of businesses from hotels to mobile libraries and escorts - underline the complexities and potential concerns over conflicts of interest facing President Trump, who has a sprawling business empire using the Trump name around the world. Trump, a wealthy real estate developer, has previously said he has handed over his business interests to a trust overseen by one of his sons and a Trump Organization executive. He can, however, revoke the trust at will and, as its sole beneficiary, remains linked to it financially. The trademarks - mostly variations in English and Chinese on the name “Donald Trump” - were given preliminary approval in two lists published on the Trademark Office of the State Administration for Industry and Commerce on Feb. 27 and Monday. Trump’s lawyers applied for the trademarks in April last year, mostly registered to “Donald J. Trump” and listing to the address of Trump Tower on Fifth Avenue in New York. Some U.S. law makers have raised questions about whether Trump’s position as President could prompt preferential treatment of his businesses. Trademark lawyers, however, said that the approval process did not
seem that unusual. “If they were filed in April last year and just now approved, it’s fairly normal,” said Yong Heng Wu, Shanghai-based counsel for MWE China focused on intellectual property, adding the general timeframe for preliminary approvals was 6-9 months. “I think the reason why people are paying so much attention to Donald Trump trademarks now is because he became the President of the most powerful country in the world.” The trademarks cover business areas including branded spas, massage parlours, golf clubs, hotels, insurance, finance and real estate companies, retail shops, restaurants, bars, bodyguards and escort services. Intellectual property lawyers said trademark applications were often very broad to give the applicant the most comprehensive protection for their brand. Three of them, related to hotel brand Scion that Trump’s sons want to expand in the United States, are not directly registered in the President’s name but via DTTM Operations LLC. The three are also listed to the Trump Tower address.
Politics and business
The preliminary approvals are open to be challenged for around a 90-day period. Barring objections they will be formally registered in late May and early June respectively. Trump and his family, like many business owners, hold trademarks around the world, from business sectors such as apparel in the Philippines to golf clubs in Australia and property in Japan and South Korea. These ties between politics and business have, however, prompted
concern from politicians and rights groups who say the President could face potential conflicts of interest related to the extensive business affairs of his family. Alan Garten, general counsel for the Trump Organization, said in a statement the group had been actively enforcing its intellectual property rights in China for over a decade. “The latest registrations are a natural result of those long-standing, diligent efforts, and any suggestion to the contrary demonstrates a complete disregard of the facts as well as a lack of understanding of international trademark law.” Democratic Senator Ben Cardin, the ranking member on the U.S. Senate Foreign Relations Committee, called for formal briefings about the Chinese trademark approvals and on “the potential constitutional dangers that they present.”
Key Points China approves 38 Trump-related trademark applications Applications raise potential conflict of interest concerns Approvals result of prolonged IP protection efforts - Trump Org Lawyers say timing of approvals within normal range Cardin has previously introduced a resolution demanding Trump cut his ties with the Trump Organization or risk violating the Emoluments Clause of the Constitution, which bars public servants from accepting anything of value from foreign governments unless approved by Congress. Chang Tsi & Partners, listed as acting on behalf of Trump’s team for the China trademark applications, did not immediately respond to Reuters’ request for comment on the approvals. Trump received a single trademark approval last month in China for Trump-branded construction services, following a 10-year legal battle. The Associated Press earlier reported the approvals. Reuters
China’s Ministry of Commerce (MOFCOM) said yesterday it is opposed to the United States sanctioning Chinese firms under its domestic laws, and that it hoped that country would handle ZTE Corp’s US$892 million settlement case “appropriately”. The comment comes after Chinese telecom equipment maker ZTE earlier this week agreed to plead guilty and pay the record fine to settle charges that it violated U.S. export restrictions to Iran and North Korea. Mainland link
Foxconn not favoured bidder for Toshiba’s unit Taiwan’s Foxconn, the world’s largest contract electronics maker, is not a favoured bidder for Toshiba Corp’s memory chip business due to its close ties with China, sources with direct knowledge of the deal said. The Japanese government is worried that selling to bidders close to China may lead to the transference of key technology, the sources said. Toshiba is aware of the government’s wishes and “will take into account how close bidders are to China in the selection,” one of the sources said, adding that Foxconn has production lines in China. Environment
Right path for addressing air pollution: minister China is heading into the right direction for tackling air pollution, as proved by the improvement of air quality over the past few years, Minister of Environmental Protection Chen Jining said yesterday. In the past three years, days of good air quality increased in the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta, Chen said at a press conference on the side-lines of the annual parliamentary session. The PM2.5 density in the three regions all dropped by more than 30 per cent in 2016 from 2013, he said.
12 Business Daily Friday, March 10 2017
Asia In Brief Salaries
Japan real wages flat Japanese wages were flat in January on an annual inflation-adjusted basis, government data showed yesterday, with rising prices of fresh vegetables offsetting gains in nominal pay, probably hurting households’ purchasing power. The labour ministry data showed the annual change in inflation-adjusted real wages stood at 0.0 per cent in January, following a revised 0.1 per cent increase in December. In nominal terms, wage earners’ cash earnings rose 0.5 per cent in January on the year, maintaining the same pace of gains as the two previous months. Special payments, which include winter bonus, fell 3.7 per cent. Consumption
Indonesia retail sales grow 6.3 pct
Ratings
Moody’s urges Australia to stick to budget repair A cut in the country’s prized rating would likely push up borrowing costs on over a trillion dollars of federal, state and bank debt
R
atings agency Moody’s Investor Service says Australia might lose its AAA sovereign credit rating should the country’s conservative government give up on deficit repair, raising the stakes ahead of the annual budget in May. “If we saw the government’s priorities shifting away from a fiscal consolidation, it would be a trigger for a ratings downgrade, but it’s not our baseline assumption,” Marie Diron, associate managing director at Moody’s, told Reuters yesterday. Lower wage and profit growth are
overshadowing a rally in coal and iron ore prices and the government has failed to get so-called “zombie” savings measures through a hostile senate, threatening attempts to rein in a A$37 billion (US$27.87 billion) budget deficit. Diron emphasised that Australia’s robust institutional framework and stronger fiscal metrics than many of its similarly rated peers justified a triple A rating and the outlook remained stable. “The rating is not tied to certain thresholds in terms of fiscal debt or deficit measures, it’s more tied to
the capacity of the government to support its economy without endangering public finances,” Diron said. Australia is one of only a dozen countries still rated triple-A by all three major credit agencies, but S&P Global Ratings has repeatedly warned it might downgrade should there be any slippage in the surplus deadline. “We remain pessimistic about the government’s ability to close existing budget deficits and return a balanced budget by the year ending June 30, 2021,” it said in December. A ratings cut would be a political nightmare for the Liberal National government of Prime Minister Malcolm Turnbull, which has long sold itself as a competent economic manager that can be trusted to balance the books. A cut in the country’s prized rating would likely also push up borrowing costs on over a trillion dollars of federal, state and bank debt. Reuters
Indonesia’s retail sales in January grew 6.3 per cent from a year earlier, a much slower pace than in December, a survey by Bank Indonesia (BI) showed yesterday. The central bank said decreased buying of food and non-food items weakened the growth rate in January. The survey of 700 retailers in 10 major cities predicted that February annual retail sales growth would be at the same pace of 6.3 per cent from a year earlier, maintained by sales of food items. Respondents in the survey felt that price pressures were expected to increase in May. Airlines
ANZ airlines band together to combat airport fees The biggest airlines in Australia and New Zealand yesterday said they had formed a new industry advocacy group to combat rising airport fees charged by regional monopolies. Major airports in the two countries are owned by commercial entities such as Sydney Airport Holdings Ltd and Auckland International Airport Ltd, rather than being government-owned as in the United States and parts of Europe. The Australia and New Zealand governments do not have the ability to regulate fees. A report this week by the Australian Competition and Consumer Commission said price rises by Australia’s major airports had generated A$1.57 billion (US$1.18 billion) in increased revenue from airlines over the last decade. Rice
Vietnam urges China to permit more exporters Vietnam’s Ministry of Agriculture and Rural Development (MARD) will soon contact Chinese authorities, asking them to send an expert delegation to Vietnam to assess more businesses which could be eligible for exporting rice to China, according to Tran Thanh Nam, MARD deputy minister yesterday. Nam made the remarks after China decided to authorize 22 Vietnamese businesses to export rice into the country, reported local Vietnam News online newspaper yesterday. Specifically, any businesses not listed by China’s General Administration of Quality Supervision, Inspection and Quarantine were banned from exporting to the Chinese market from January 1, 2017.
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Commerce
Japan asks WTO to set up settlement panel in Indian steel dispute India imposed duties of up to 20 per cent on some hot-rolled flat steel products in September 2015 Japan yesterday asked the World Trade Organization (WTO) to set up a dispute settlement panel to examine India’s safeguard duties on steel imports which it says may be violating the WTO rules.
“We are taking these actions also to avoid other countries from easily imposing these emergency measures”
India imposed duties of up to 20 per cent on some hot-rolled flat steel products in September 2015, and set a floor price in February 2016 for steel product imports to deter countries such as China, Japan and South Korea from undercutting local mills. India ended the minimum import price last month, but it kept safeguard duties even after the two sides held talks in early February. Tokyo claims India’s safeguard duties are inconsistent with WTO rules and contributed to the plunge
in its hot-rolled coil exports to India, which dropped to 8th-largest on Japan’s buyer list in 2016, down from 3rd-largest in 2015. “Indian government determined that local industry has been damaged even though their output and sales have not deteriorated,” Osamu Nishiwaki, director of trade policy bureau at the Ministry of Economy, Trade and Industry (METI) told a news conference. “We are taking these actions also to avoid other countries from easily imposing these emergency measures,” said Takanari Yamashita, director of the METI’s metal industries division. Reuters
Takanari Yamashita, director of the METI’s metal industries division Japan, the world’s second-biggest steel producer, usually tries to deal with trade disputes through bilateral talks, but with global trade friction increasing, Japan’s defence of an industry that sells nearly half of its products overseas is getting more vigorous. Japan in December asked for WTO dispute consultations with India over steel safeguard duties and a minimum import price for iron and steel products. Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; 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, March 10 2017 13
Asia Corruption scandal
Samsung Group chief denies all charges as “trial of the century” begins The courtroom was packed with press and spectators with some who had waited in line since morning to get a seat Suyeong Lee
The head of South Korea’s Samsung Group, Jay Y. Lee, denies all charges against him, his lawyer said yesterday, at the start of what the special prosecutor said could be the “trial of the century” amid a political scandal that has rocked the country. Lee has been charged with bribery, embezzlement and other offences in a corruption scandal that has already led to the impeachment of President Park Geun-hye. Lee, who is being detained at Seoul Detention Centre, did not attend court. A defendant does not have to turn up during a preparatory hearing, held to organise evidence and set dates for witness testimony. The date of the next hearing will be decided next week. Lee’s defence denied all charges against him on his behalf, saying that the special prosecution’s indictment cites conversations, evidence or witnesses the prosecution did not actually hear, investigate or interview according to the rules - or states opinions that are not facts. “It is unclear what kind of order Lee Jae-yong is supposed to have given,” Song Wu-cheol, defending Lee, told the court, using his Korean name. “The indictment cannot have
South Korean policemen stand guard in front of the Constitutional Court in Seoul, South Korea, 09 March 2017. South Korea’s Constitutional Court will announce its ruling on the impeachment of South Korean President Park Geun-hye on 10 March. Lusa
statements that can create prejudices in the court about the case,” Song told reporters as he left court. The Samsung Group has repeatedly denied wrongdoing. Among the charges against Lee, 48, are pledging bribes to a company and organisations linked to a friend of President Park, Choi Soonsil, the woman at the centre of the scandal, to cement his control of the smartphones-to-biopharmaceuticals business empire. Lawyers for defendants being tried with Lee - former Samsung Group Vice Chairman Choi Gee-sung, former Samsung Group President Chang
Choong-ki and former Samsung Electronics President Park Sang-jin - also denied all charges. The courtroom, seating more than 150, was packed with press and spectators with some who had waited in line since morning to get a seat. At one point during the hearing, which lasted about an hour, an elderly woman in the audience began yelling and was dragged out by court officers. It was unclear what she was saying. Legislation appointing the special prosecutor states that the current lower court trial should be finished within three months of the indictment on Feb. 28.
“We are preparing hard, thinking that the upcoming Samsung trial ... could be the trial of the century that the entire world will be watching,” special prosecutor Park Young-soo told reporters last week. President Park, daughter of a former military strongman, has had her powers suspended since her impeachment by parliament in December. Should the Constitutional Court uphold the impeachment, she would become the country’s first democratically elected president to be thrown out of office. A decision is due on Friday. Reuters
14 Business Daily Friday, March 10 2017
International In Brief Energy
Exxon to buy stake in Mozambique block from Eni Exxon Mobil Corp. said it will buy a 25 per cent stake in a project off Mozambique from Italy’s Eni SpA for about US$2.8 billion as the U.S. oil giant expands in natural gas. Eni will continue to lead the Coral floating liquefied natural gas project and all upstream operations in Area 4 while ExxonMobil will lead the construction and operation of gas liquefaction facilities onshore, Exxon said in a statement yesterday. The purchase will be completed after a number of conditions are passed, notably clearance from the authorities in Mozambique. Portugal
Ex-minister echoes criticism of ‘unsustainable’ cuts Eduardo Catroga, a former minister of finance of Portugal, said that while the public sector budget deficit for 2016 was narrowed to within the limit set by European Union officials this was not in a sustainable way, warning that extraordinary measures such as a “fiscal pardon” do not provide a firm basis for health public finances. “The budgetary objective was achieved, but not in a sustainable way, because the one-off measures do not guarantee the long-term sustainability of the public accounts,” Catroga told journalists after a meeting of the International Club of Portugal in Lisbon, which he addressed.
Rate hike
Fed not waiting for jobs report as these indicators say go Chair Yellen said the current neutral rate might be around zero after adjusting for inflation, and it could rise to 1 per cent in the longer run Craig Torres
I
t was like watching a Federal Open Market Committee meeting play out in public view, said economist Neil Dutta, as Chair Janet Yellen (pictured), New York Fed President William Dudley, Vice Chairman Stanley Fischer and Governor Lael Brainard all jolted market rate hike expectations to near certainty last week through a series of speeches and comments. What’s remarkable is that Fed officials don’t see a need to guard their options and wait for the February employment report, which will be out today. That means they have probably seen enough evidence to convince them it’s time to go. Here are few indicators that emphatically say the central bank needs to move soon. One guide for Chair Yellen is the setting of rates now based on estimates of something called the “neutral rate,” a policy setting that neither speeds nor slows the economy. The current neutral rate might be around zero after adjusting for inflation, and it could rise to 1 per cent in the longer run, Yellen said in her March 3 remarks, referencing Fed estimates which she admits are
rough. Right now, the real federal funds rate is negative, so policy is stimulative. The committee’s strategy is to gradually lift the real federal funds rate to around zero by 2018, and then up to 1 per cent by 2019, according to their December forecasts. The chart above shows that just by standing still, they are in fact going in the opposite direction of their goal as inflation continues its gradual crawl upward. Watching negative real rates go even lower at a time when inflation and unemployment are at goal is a powerful motivation for any central banker to get moving, especially at a time when sentiment and GDP forecasts are moving up. Another unusual fact the FOMC now faces is that financial conditions eased further after their December rate hikes in 2015 and 2016. When policy makers raise the short-term rate, they expect the cost of money to rise across markets, from mortgages to corporate bonds. Granted, we are talking about a very small move in the Fed’s dial. Still, to see markets ignore it means the moves had little bite on overall financing costs, and are adding little friction to an economy that seems to be building momentum.
GDP
Iceland’s economy grows at fastest pace since crash Iceland’s GDP jumped 11.3 per cent in the final quarter of 2016 from the same period a year before, the fastest pace of growth since before the financial crisis and raising concerns that the economy may be overheating. After an economic crash and the collapse of its banking system in 2008, gross domestic product has surged in the last two years, helped by the floods of tourists visiting Reykjavik’s trendy bars and the country’s stunning geysers. Preliminary data from the Icelandic statistics office yesterday showed GDP was 11.3 per cent higher in October-December than in the same quarter of 2015. Bourse
Nigeria’s stock exchange to seek approval for public listing The Nigerian Stock Exchange plans to seek approval from its members on March 30 to proceed with the process of becoming a publicly listed company, it said. Nigeria’s bourse, the second-biggest in sub-Saharan Africa after Johannesburg and one of the main entry points to invest in Africa, is currently owned by stockbrokers and some institutional investors. It has around 200 listed companies, all included in its benchmark share index. The equities market in Africa’s largest economy, was until 2013 one of the world’s best performing frontier markets but low liquidity levels and currency restrictions have now deterred foreign investors.
“We have had a sustained easing of financial conditions and it has been going on for a while,’’ said Dutta, head of U.S. economics at Renaissance Macro Research in New York. “That is going to grease the wheels of the recovery beyond what they have pencilled in.’’ Finally, there is the labour market, Yellen’s first reference point for policy since her chairmanship began in 2014. Improvement has been slow, but indicators now suggest there is little slack left. The chart below shows that people stuck in part-time work are now around the lowest levels since mid-2008. It took two years to drop this measure by one million to 5.8 million in January, and that slow progress explains Yellen’s patient policy. In December, however, this pool dipped to the lowest levels since June 2008.
“We have had a sustained easing of financial conditions and it has been going on for a while... That is going to grease the wheels of the recovery beyond what they have pencilled in” Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York The actual tightness may even be understated. JP Morgan Chase & Co. estimated in 2015 that about a half-million people were stuck in part-time work by employers who want to avoid offering health care benefits. The Affordable Care Act defined full-time workers who are required to be given benefits as 30 hours or more. “We are a lot closer to the Fed’s objectives,” said Roberto Perli, a partner at Cornerstone Macro LLC in Washington. “It is really hard to deny that this is not the time to be raising rates.” Bloomberg News
Political threat
Poland could sabotage EU summit to oust compatriot Tusk On Saturday it named EU lawmaker and former diplomat Jacek Saryusz-Wolski as its candidate for the post of EU president Wojciech Moskwa
Poland may not sign off on the European Union summit’s decisions if its candidate for the bloc’s president, who hasn’t been publicly supported by any of the other 27 EU members, isn’t allowed to present his views, Foreign Minister Witold Waszczykowski said. The results of the summit, due to start later on Friday in Brussels and widely expected to pick former Polish Prime Minister Donald Tusk for a second term as EU president, would be “in danger” if the government refused
to sign the protocol, Waszczykowski said. Poland is kicking up a fuss over Tusk, the former leader of the current opposition Civic Platform party, because it feels he’s part of a Brussels establishment that has unfairly accused the government of eroding democratic standards. “We have a better candidate, and he should be guaranteed the possibility to present himself,” Waszczykowski told TVN24 hours before the summit. “There’s no need to pick in a hurry. We will do everything so that there’s no vote. We will be making clear that the summit is in danger.”
The EU’s executive has launched unprecedented procedures to try to force the government in Warsaw to adhere to the bloc’s democratic standards after Poland failed to publish the rulings of the country’s Constitutional Tribunal it didn’t agree with. The Law & Justice party won a general election in 2015 after promising to stand up for national interests and ditch the “European mainstream” policies pursued by its predecessor, Tusk’s former party. Poland on Saturday named EU lawmaker and former diplomat Jacek Saryusz-Wolski as its candidate for the post of EU president, but so far hasn’t been able to convince anyone else to back him. Tusk, whose term runs out in May, is actively supported by the bloc’s pay master Germany and Chancellor Angela Merkel. Waszczykowski said SaryuszWolski hasn’t been summoned to the summit, which means that he won’t be able to present Poland’s view point. Bloomberg News
Business Daily Friday, March 10 2017 15
Opinion Hong Kong watchdog’s silence on Yingde mess is deafening Nisha Gopalan a Bloomberg Gadfly columnist
Bullish China commodity imports narrative showing some cracks
I
n what may turn out to be the biggest acquisition of a Chinese company by an American one in more than a decade, it seems everyone is talking but Hong Kong’s market watchdog. The city’s Securities and Futures Commission has been strangely silent as the battle for control of Yingde Gases Group Co. gets ever more contorted. On Wednesday, investors voted to oust Chairman Zhao Xiangti from Yingde’s board while rejecting a proposal to remove two co-founders, former Chief Executive Officer Sun Zhongguo and former Chief Operating Officer Trevor Strutt. Ultimately, management control doesn’t really matter because all three men have committed to sell their combined 42 per cent stake for HK$6 (US$0.77) a share to buyout firm PAG Asia Capital, and that essentially thwarts a HK$5.50 non-binding bid from U.S.-based Air Products & Chemicals Inc., the world’s largest producer of hydrogen. There are only two ways PAG’s tilt, which will trigger a general offer, can collapse. It may not get to 50 per cent, although that’s unlikely considering it’s only got another 8 per cent to go. Or Air Products might come in with a revised unconditional bid of at least HK$6.30 a share, 5 per cent higher than PAG’s offer. The Allentown, Pennsylvaniabased firm has said it’s still interested in pursuing Yingde and earlier this year said it may consider raising its offer to HK$6 after completion of due diligence. But for Air Products to put in a binding bid that’s unconditional is improbable. PAG’s deal isn’t conditional on approval from per cent China’s Ministry of Yindge shares, YTD Commerce, and a strategic buyer is more likely to raise antitrust concerns, especially considering Yingde counts state-owned steel companies among its many mainland customers and has such a large share of the market in China. Yet even as the likelihood of Air Products acquiring Yingde fades, the Chinese firm’s Hong Kong-listed shares keep rising, closing on Wednesday at HK$6.38 and gaining as much as 2.35 per cent in early trading yesterday. In the midst of all this, shareholders have been entertained by a slew of insults between the Sun-Strutt camp and Zhao. At one point, proxy adviser Institutional Shareholder Services Inc. concluded that neither of the brawling factions should be running Yingde, and the company needed a “fully independent board that could evaluate bids.” Meanwhile, where’s the SFC? The regulator may, for example, want to look into statements made last month by Zhao, who took over from Sun in November. He described Air Products’ offer as being cheap and reiterated that the board was focused on maximizing shareholder value. Why then did he agree in the next breath agreed to sell his 12.4 per cent stake to PAG for HK$6? According to the Financial Times, some Yingde shareholders have asked the SFC to intervene and block the sale by Sun, Strutt and Zhao to PAG. Sun and Strutt said in an email Tuesday that they had asked the Hong Kong police’s commercial crime bureau to investigate Zhao for making possible false statements. Zhao said later that day those allegations were baseless and nothing more than a diversionary tactic. Even Wednesday’s investor meetings took a farcical turn when the venue was changed at the last minute from Yingde’s factory complex to a hotel in the southern city of Zhuhai. Investors are right to be asking questions and following these twists and turns closely. Shareholder activism in China is still in its infancy and could do with some fostering. But the SFC’s silence is becoming deafening.
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Bloomberg Gadfly
C
hina’s imports of major commodities remained robust in February, underlining the recent positive trend, but also masking a few areas of emerging concern. Imports of crude oil, coal, iron ore and copper were all lower in February than in January, but once adjusted to a daily basis, the picture remained one of strength. Crude oil imports were 31.78 million tonnes in February, equivalent to 8.286 million barrels per day (bpd), up from January’s 8.01 million and second only to December’s record 8.57 million. Iron ore imports were 83.49 million tonnes in February, down from January’s 92 million, but actually slightly higher on a daily basis at 2.98 million tonnes compared with 2.96 million. Coal offered a weaker picture, with imports at 17.68 million tonnes in February, down from January’s 24.91 million. On a daily basis, February coal imports were 631,428 tonnes, well below January’s 803,548 tonnes. However, January was exceptionally strong and imports of coal in the first two months of 2017 are up a massive 48.5 per cent on the same period last year. Unwrought copper imports were 340,000 tonnes in February, down from January’s 380,000 tonnes, but not vastly different on a daily basis, with February’s 12,143 tonnes only just shy of the previous month’s 12,258 tonnes. Overall, the big picture is that China’s commodity imports are remaining at robust levels, even if they are not growing strongly. This is a reasonable conclusion, but scratch a little deeper and there are areas of concern, which by themselves aren’t enough to outweigh the current trend, but do highlight some risks.
“
Crude imports outdone by product exports
Clyde Russell a Reuters columnist
million tonnes in February, down 22.5 per cent from January’s 7.42 million tonnes. For the first two months of 2017, steel product exports are 25.7-per cent lower, a trend that if continued for the rest of the year would result in total exports of around 80 million tonnes, well below 2016’s 108.5 million. While a potential drop of close to 30 million tonnes of steel exports is far from a death blow for an industry producing around 800 million tonnes a year, it does highlight that the risks to China’s steel production this year appear mainly to the downside. This means that the risk for iron ore imports is also biased toward weakness, with much depending on whether the domestic mines can restart, or whether costs and anti-pollution measures will keep them idled.
Coal, copper concerns
For coal, much of the weakness in February’s imports is seasonal as winter heating demand eases, a trend that will likely continue until the summer demand peak. But just as last year’s strong growth in imports was largely a result of Chinese political policy decisions, so too is 2017 shaping up as a year where decisions by the authorities will drive coal imports. There are two competing factors at work, the first being the desire of the authorities to ensure a stable price and supply from domestic mines, and the second a gathering impetus on the part of Beijing to limit coal use as part of the fight against pollution. The first factor should be mildly positive for coal imports as keeping supply somewhat constrained and domestic prices relatively high will boost the competitiveness of imports. The second factor will depend on how quickly the Chinese authorities can get rid of coal-fired systems for heating buildings and powering factories. Unwrought copper imports are down 15.8 per cent in the first two months of 2017 compared to the same period last year, hardly an encouraging sign of manufacturing and construction health in China. While there have been some supply issues that may have impacted imports, the fact that copper inventories have also been rising in China adds to the concern. Copper stocks monitored by the Shanghai Futures Exchange <CU-STX-SGH> have surged by 221 per cent to 313,873 tonnes in the week ended March 3 from the recent low of 97,839 tonnes on Nov. 4 last year. Overall, it appears that there are some cracks in the prevailing market narrative of strong Chinese commodity imports, and while these aren’t yet enough to start hoisting red flags, they are certainly worth monitoring. Reuters
... scratch a little deeper and there are areas of concern, which by themselves aren’t enough to outweigh the current trend, but do highlight some risks
The strength in crude oil imports is largely being driven by increased demand from smaller, private refiners that were previously prevented by regulations from directly importing crude. Now that they can buy crude, instead of relying on fuel oil as a feedstock, these refineries are increasing their runs, but also adding to a surplus of refined products in the Chinese market. This can be seen by the sharp increase in exports of refined fuels, with 4.26 million tonnes being shipped out in February, up 40.1 per cent from January’s 3.04 million. On a barrels per day basis, February’s performance is even more impressive, as it amounts to around 1.22 million bpd, up 55 per cent from about 784,516 bpd in January. Put in context, February’s imports of crude oil were 276,000 bpd more than in January, but the product exports were about 436,000 bpd more. In other words, the increase in crude oil imports in February was nowhere near enough to compensate for the jump in exports, something that may be sign of softer demand growth in the domestic market or a drawdown of product inventories. Turning to the steel market, and the main news here was that exports of steel products were 5.75
”
16 Business Daily Friday, March 10 2017
Closing Regulator
China’s central state firms deliver strong performance
China’s centrally administered state-owned enterprises (SOEs) performed well in the first two months of 2017 thanks to a stabilizing economy and better management, the state assets regulator said yesterday. Combined profits of China’s centrallyadministered SOEs surged 29.1 per cent yearon-year to RMB168.6 billion (about US$24.37 billion) in the first two months, Xiao Yaqing, head of State-owned Assets Supervision and Administration Commission (SASAC), told a
press conference on the side-lines of the annual parliamentary session. The country’s 102 central SOEs saw revenues up 15.2 per cent to RMB3.7 trillion in the two months from the same period last year, according to Xiao. Xiao said the strong growth was a result of reductions in cost and management expenses, which also reflects the stabilization of the national economy. Total profits of China’s central SOEs climbed 0.5 per cent year on year to more than RMB1.23 trillion in 2016, while revenues rose 2.6 per cent to RMB23.4 trillion, SASAC data showed. Xinhua
AI
Apple’s Siri learns Shanghainese as voice assistants race to cover languages The artificial intelligence of Apple speaks 21 languages localized for 36 countries Stephen Nellis
W
ith the broad release of Google Assistant last week, the voice-assistant wars are in full swing, with Apple Inc, Amazon.com Inc, Microsoft Corp and now Alphabet Inc’s Google all offering electronic assistants to take your commands. Siri is the oldest of the bunch, and researchers including Oren Etzioni, chief executive officer of the Allen Institute for Artificial Intelligence in Seattle, said Apple has squandered its lead when it comes to understanding speech and answering questions. But there is at least one thing Siri can do that the other assistants cannot: speak 21 languages localized for 36 countries, a very important capability in a smartphone market where most sales are outside the United States. Microsoft Cortana, by contrast, has eight languages tailored for 13 countries. Google’s Assistant, which began in its Pixel phone but has moved to other Android devices, speaks four languages. Amazon’s Alexa features only English and German. Siri will even soon start to learn Shanghainese, a special dialect of Wu Chinese spoken only around Shanghai. The language issue shows the type of hurdle that digital assistants still need to clear if they are to become ubiquitous tools for operating smartphones and other devices. Speaking languages natively is complicated for any assistant. If someone asks for a football score in
Britain, for example, even though the language is English, the assistant must know to say “two-nil” instead of “two-nothing.” At Microsoft, an editorial team of 29 people works to customize Cortana for local markets. In Mexico, for example, a published children’s book author writes Cortana’s lines to stand out from other Spanish-speaking countries. “They really pride themselves on what’s truly Mexican. (Cortana) has a lot of answers that are clever and funny and have to do with what it means to be Mexican,” said Jonathan Foster, who heads the team of writers at Microsoft. Google and Amazon said they plan to bring more languages to their assistants but declined to comment further.
At Apple, the company starts working on a new language by bringing in humans to read passages in a range of accents and dialects, which are then transcribed by hand so the computer has an exact representation of the spoken text to learn from, said Alex Acero, head of the speech team at Apple. Apple also captures a range of sounds in a variety of voices. From there, a language model is built that tries to predict words sequences. Then Apple deploys “dictation mode,” its text-to-speech translator, in the new language, Acero said. When customers use dictation mode, Apple captures a small percentage of the audio recordings and makes them anonymous. The recordings, complete with background noise and mumbled words, are transcribed by humans, a process that helps cut the speech recognition error rate in half. After enough data has been gathered and a voice actor has been recorded to play Siri in a new language,
Siri is released with answers to what Apple estimates will be the most common questions, Acero said. Once released, Siri learns more about what real-world users ask and is updated every two weeks with more tweaks. But script-writing does not scale, said Charles Jolley, creator of an intelligent assistant named Ozlo. “You can’t hire enough writers to come up with the system you’d need in every language. You have to synthesize the answers,” he said. That is years off, he said.
‘The language issue shows the type of hurdle that digital assistants still need to clear if they are to become ubiquitous tools for operating smartphones and other devices’ The founders of Viv, a start-up founded by Siri’s original creators that Samsung acquired last year, is working on just that. “Viv was built to specifically address the scaling issue for intelligent assistants,” said Dag Kittlaus, the CEO and co-founder of Viv. “The only way to leapfrog today’s limited functionality versions is to open the system up and let the world teach them.” Reuters
Internet
Public Administration
Real estate
Mainland search engines fined for false ads
DSSOPT Secretary stepping China’s housing minister “fully down from consultative bodies confident” of market outlook
China’s two leading search engine operators, Baidu and Sogou, were fined yesterday for their negligence in publishing unchecked advertising for unlicensed medical services and private companies. The fines were issued by the Shanghai Industrial and Commercial Bureau on charges of publishing false and illegal advertisements. Baidu was fined RMB28,000 (about US$4,000) as it linked commercial ads of private hospital groups with certain key word searches, which pointed to medical services that the hospitals are not qualified for. The hospitals were also given fines of up to RMB46,000. Sogou was fined RMB10,300 for carrying an advertisement containing false messages and for a company whose business license had been revoked. The regulator said the fines were issued in line with a provisional regulation on Internet advertisements that took effect on September 1, 2016. The regulation holds search engines responsible for censoring online ads they publish. Ying Jun, advertisement supervision official with the bureau, said the administrative fines can negatively affect the credit of the advertisers. Xinhua
The Secretary for Land, Public Works and Transport Bureau (DSSOPT) will no longer preside over consultative bodies linked to traffic and urban affairs, with the exception of the Urban Renewal Committee. The change follows the decision by the Macau SAR Government’s Executive Council to amend two administrative regulations - regulation no. 12/2011 with the Traffic Affairs Consultative Committee, and Road Traffic Law no. 3/2014 with the Urban Planning Council. During a press conference held yesterday at Government Headquarters, Leong Heng Teng, the Executive Council’s spokesperson, explained that the amendment to Road Traffic Law proposes that the DSSOPT Director perform the role of President of the Urban Planning Committee, and that the Director of the Traffic Bureau assume the function of President of the Traffic Committee. Amendments to administrative regulation no. 12/2011 propose that the Director of the Traffic Affairs Bureau act as President of the Traffic Affairs Consultative Committee and that the Deputy President be appointed by Chief Executive order. Following the revisions, the Urban Renewal Committee will be presided over and co-ordinated by DSSOPT Secretary Raimundo Arrais do Rosário. S.Z.
China’s housing minister Chen Zhenggao said he was “fully confident” of the outlook for the property market, amid strong economic fundamentals and continuing urbanization, financial magazine Caixin said yesterday. China’s home price growth slowed in January for a fourth straight month, after curbs by authorities last year on the property sector, as a concentration of price surges in the wealthiest cities stoked fears of a nasty crash. “China’s urbanization process still has a long way to go, so the property market still has vast potential to develop further,” the magazine quoted Chen as saying. “As long as China’s economic fundamentals still remain strong, the real estate market will not change.” The government still has many policy tools in reserve to regulate the property market which are sufficient for the purpose, Chen added, without giving details. Home prices rose 12.2 per cent in January from a year earlier. Last month, Chen said home prices would remain stable in the first quarter and the government had the capacity and methods to stabilise the market. Reuters