China & Portuguese-speaking countries trade up 34 pct y-o-y in Jan Trade Page 2
Monday, March 13 2017 Year V Nr. 1252 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Finance
CGD results show BNU provides largest contribution internationally Page 6
Gaming
Jack Lam charges from bribing officials to becoming target of extortion Page 6
www.macaubusinessdaily.com
PBOC
Chinese central bank governor says it will take time to rein in corporate debt Page 8
Auto industry
Car sales keep up good pace in Mainland despite end of tax assistance Page 9
Counting the units Construction
The number of hotel rooms under construction fell 41 pct y-o-y in Q4 of last year, with 49 hotels being planned or under construction. New rooms will occupy nearly 1 mln square metres, with the majority of new projects on the peninsula. Some 100 building projects were also completed or under construction in Q4, providing 11,267 more housing units, 60 pct of which are under 75 square metres in size. Page 2
We’re hiring (see criteria)
All the tools for success
Local construction firm Lai Si Construction & Engineering Ltd recently listed on the Hong Kong Stock Exchange, to better-than-expected results. The company’s chief executive, Harry Lai Meng San tells Business Daily about complications arising from the listing, new opportunities on the horizon – especially in the Mainland and how gaming operators are often more attractive clients given less competition and better remuneration.
Report Cultural Bureau (ICM) slammed by Commission Against Corruption for hiring practices. Use of “illegal recruitment” procedures, including nepotism and acquisition of services contracts that are ‘neither open nor transparent’ called out, while increases in expenses were also called into question. ICM pledges to clean itself up. Page 3
Good for nobody
Interview | Construction Pages 4 & 5
HK Hang Seng Index March 10, 2017
23,568.67 +67.11 (+0.29%) Worst Performers
Wharf Holdings Ltd/The
+8.67%
Tencent Holdings Ltd
+1.24%
China Shenhua Energy Co
-3.14%
Bank of Communications
-0.83%
Geely Automobile Holdings
+6.24%
Hang Seng Bank Ltd
+1.21%
China Petroleum & Chemical
-1.53%
Cathay Pacific Airways Ltd
-0.69%
Henderson Land Develop-
+1.45%
Galaxy Entertainment Group
+1.05%
PetroChina Co Ltd
-1.39%
CNOOC Ltd
-0.67%
AIA Group Ltd
+1.41%
Sun Hung Kai Properties Ltd
+0.80%
Kunlun Energy Co Ltd
-1.17%
Industrial & Commercial
Hang Lung Properties Ltd
+1.32%
Sino Land Co Ltd
+0.76%
Bank of East Asia Ltd/The
-0.94%
CLP Holdings Ltd
-0.41% +0.05%
18° 23° 16° 19° 18° 19° 18° 20° 19° 21° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Trade war A trade war between China and the U.S. would harm the world’s two largest economies and offer no benefits to either side, China Commerce Minister Zhong Shan said. “Many American and western friends think that China can’t live without the U.S., and they’re half right,” noted Zhong. Page 7
2 Business Daily Monday, March 13 2017
Macau Real estate
Hotel rooms under construction fell by 40.7 pct y-o-y in the last quarter of 2016
Construction continues A total of 49 hotels were under construction or in the planning phase in the last quarter of 2016 representing a total of 14,416 rooms, while three housing projects were granted residence licences, adding 100 housing units to the city Nelson Moura nelson.moura@macaubusinessdaily.com
T
he 49 hotels being built or in the planning phase during the last quarter of 2016 will add 14,146 rooms and 9,126 parking spaces for cars and motorcycles to the territory, according to data from the Bureau of Land, Public Works and Transport (DSSOPT). In total, the rooms represented by the 49 projects will occupy a gross floor area of almost 1 million square metres, while the area occupied by the planned parking spaces represents 389,805 square metres. The DSSOPT revealed that in the last three months of 2016, a total of 17 hotels were being constructed, offering an estimated 6,369 rooms and 4,307 parking spaces. The majority of the new projects were being constructed on the Macau Peninsula, where 11 hotels in the construction phase will add 1,324 rooms to the city’s supply upon completion. Meanwhile six hotels being
constructed in Taipa, Coloane and Cotai, are expected to add more 5,045 new rooms, the majority of which will be created in the Cotai area. The last quarter of 2016 also saw a total of 32 hotels at the project phase, expected to add a total of 7,777 rooms and 4,819 parking spaces, upon completion. Of the hotels being planned, 26 will be located on the Macau Peninsula, providing an extra 2,552 rooms, while four are being planned in Cotai, for an added 4,642 rooms. Only two hotels were being planned for Taipa and Coloane, to add 583 rooms to the supply. In the last quarter of 2016, the number of hotel rooms under construction decreased by 40.7 per cent year-on-year or by 4,369 rooms from the same quarter in the previous year, while the number of rooms in the planning phase went down by 12.4 per cent quarter-to-quarter, seeing a 1,105-room reduction.
100 more housing units
DSSOPT data also revealed that three housing projects were granted
licences in the last quarter of 2016, giving Macau 100 more residential units and 94 more parking spaces for cars and motorcycles. In the same period, a total of 100 projects were completed or under construction, estimated to provide the city with another 11,267 housing units - with 60 per cent of the total being units sized 75 square metres or less - and 10,336 parking spots. The majority of the projects under
construction or already completed were located on the Macau Peninsula, where 86 projects will provide 8,324 housing units. Some 206 building projects in the planning phase in the last quarter of 2016 will result in 21,693 housing units, plus 26,911 parking spaces for cars and motorcycles. Of these housing units, 10,544 will be constructed on the Macau Peninsula, 7,800 in Taipa and 3,349 in Coloane.
Land
Complying with the law AL head: Chairman of the National People’s Congress thinks the MSAR Land Law doesn’t “violate” the city’s Basic Law
Trade
Getting Sino-Luso trade back Chinese trade with Portuguese-speaking countries increased by 33.47 per cent year-on-year in the first month of 2017 to US$8.22 billion Nelson Moura nelson.moura@macaubusinessdaily.com
Trade between China and Portuguese-speaking countries rose by 33.47 per cent year-on-year in January of 2017, hitting almost US$8.22 billion (MOP65.47 billion), according to data released by the Chinese Customs Service and published by the Forum for Economic Trade Co-operation between China and Portuguese-speaking countries (Forum Macau). Exports from China to the eight countries in January reached US$2.96 billion dollars, a year-on-year increase of 25.71 per cent, with imports from Portuguese-speaking countries to China also increasing to US$5.26 billion, a 38.26 per cent year-onyear rise. After having registered decreases in 2016, China’s two largest trading partners in the Lusophone world, Brazil and Angola, both registered double-digit increases in the first month of the year, compared to the same month in 2016. As China’s largest Lusophone trading partner, Brazil registered a 26.69
per cent year-on-year increase in bilateral trade in January, to almost US$5.6 billion. Exports from China to Brazil reached US$2.4 billion in the first month of the year, a 42.12 per cent increase year-on-year, with imports from Brazil amounting to around US$3.2 billion, a 17.21 per cent yearly increase. Chinese trade with Angola was back on track in the first month of the year with a considerable 84.09 year-on-year increase in bilateral trade, reaching US$2 billion. In January, exports from Angola to China increased by almost 100 per cent, when compared to the previous January, to US$1.86 billion, while imports from China rose by 6.67 per cent year-on-year to US$167.3 million. On the other hand, bilateral trade with China’s third largest Portuguese-speaking trade partner, Portugal, registered a 17.69 per cent decrease to US$407.15 million, with exports from China decreasing 37.05 per cent year-on-year to almost US$260 million, but with imports from Portugal growing by 79.92 per cent yearly to US$147.3 million. N.M.
According to the head of Macau’s Legislative Assembly (AL), Ho Iat Seng, the chairman of the National People’s Congress (NPC), Zhang Dejiang, informed him that the current MSAR Land Law doesn’t go against the city’s Basic Law, reported local broadcaster TDM. The chairman of the NPC also allegedly told Macau delegates that “profound issues” regarding land and transport in the city should be addressed under the ‘One Country, Two Systems’ and the Basic Law frameworks. “This is a very important principle, since many disputes in Macau touched on Article 6 of the Basic Law, on individual property. And this time it’s very clear. We’re told that the Land Law doesn’t violate the Basic Law,” said Ho Iat Seng, as reported by TDM. The head of the legislative body further revealed that the AL would review the recordings of the 2013 committee meetings where the Land
Law was discussed, by the end of March, in order to analyse if any promises were made by the government stating that a solution would be found for land concessions made before the current law was enforced in March of 2014. N.M.
Travel
Flying back to Malaysia The head of the Macau Government Tourism Office (MGTO), Maria Helena de Senna Fernandes, said the government will work to restore direct flights between the MSAR and Sabah, a Malaysian state in the island of Borneo, according to The Borneo Post. In an event held by the Malaysian Chamber of Commerce in Hong Kong & Macau, the Malaysian Assistant Minister of Tourism, Culture and Environment, Datuk Pang Yuk Ming, requested the local government help
restore direct flights between Macau and the capital city of Sabah - Kota Kinabalu. “I believe by working together, we can offer attractive tourism packages that boost the tourism and economic developments of Sabah and Macau,” said the Malaysian representative. In response to the request, the MGTO Director Maria Helena de Senna Fernandes stated that her office would work at a governmental level towards restoring the direct connection. N.M.
Business Daily Monday, March 13 2017 3
Macau
Politics
CCAC slams culture bureau for “illegal recruitment” The latest investigation report by the anti-graft watchdog reveals workers in ICM were hired by acquisition of services practices and via nepotism Kam Leong kamleong@macaubusinessdaily.com
T
he Commission Against Corruption (CCAC) has slammed the Cultural Affairs Bureau (ICM), saying it has been using an illegal method to recruit a large number of its workers, some of whom are even relatives of leaders and department chiefs, according to its investigation report, released last Friday. The city’s anti-graft watchdog revealed that the Bureau has been avoiding launching open or central recruitment systems to hire its workers in a regulated way, instead doing so via acquisition of services - despite the fact that ‘most of the public departments have avoided hiring workers through acquisition of services in recent years’ following reports from the body or from the Commission of Audit. The watchdog explained that the reason it initiated the investigation into the Bureau was that: ‘of the reports or complaints concerning the ICM received by CCAC in the recent two years, quite many of them were related to the recruitment of workers or appointment of chiefs’. The period that the anti-graft body looked into covers 2010 to 2015. According to CCAC, the number of workers recruited by the Bureau via acquisition of services once reached one sixth of the department’s total in 2014, at 112, with the number dropping to 94 in 2016 when the body commenced its investigations into the Bureau. CCAC pointed out that ‘when the ICM recruited workers through acquisition of services, its recruitment procedures were neither open nor transparent. Also, the recruitment criteria were neither clear nor regulated. Moreover, there were circumstances that the relatives of some leaders and chiefs were able to be recruited by the ICM through acquisition of services,’ the report reads. The Commission also noted the Bureau’s expenses, including those of the Culture Fund, have increased significantly in the past years – from a total of MOP340 million (US$42.5 million) in 2010, to MOP749.6 million in 2015.
‘As to whether the increased rate of the number of workers and expenses of the ICM was justifiable, and whether the manpower and financial resources were utilised effectively, since they fell outside the jurisdiction of the CCAC and were not the direction of the investigation, CCAC did not have the conditions to make judgment,’ the anti-corruption body pointed out.
Nobody to blame
Advising the Bureau to ensure fairness in its recruitment procedures and to strictly implement the government’s policy of streamlining administration, the Commission, however, did not point out in the report whether any party or individuals should bear any responsibility for the “illegal” recruitment processes. The cultural bureau was headed by Guilherme Ung Vai Meng from March 2010 until the middle of last month, when he quit to “return to the world of arts”. Then-deputy president Leung Hio Ming has been promoted to become the president of the department. CCAC said the Bureau had explained that the reason it adopted the “illegal” methods was due to its “heavy workload”, “inadequate manpower” and the “time-consuming recruitment processes”. But the anti-graft body pointed out that this practice is ‘quite common, systematised and standardised’. ‘Not only did most subunits of the bureau recruit workers through the said method, the recruitment flowchart and the associated document templates were also uploaded to the intranet for reference,’ the
ICM: pays serious attention to the report
In a statement last Friday, the Cultural Affairs Bureau said it is paying serious attention to the CCAC report, claiming it would reorganise its human resources or other administrative issues following its comprehensive investigations into the problems. ‘[The Bureau] will obey CCAC’s advice, adopting measures meeting local regulations to improve the problems covered in
Commission wrote. ‘There were even special forms to record the attendance of such workers and for them to apply for annual leave’.
Five crimes
In the report, CCAC indicated the Bureau’s “illegal” method of hiring workers led to five problems: overstepping superior’s personnel management authority; evading the government’s recruitment systems; allowing workers employed via the method to enjoy certain advantages in the open recruitment; creating false fronts to cover up the actual employment relationship; and evading the legal regime of declaration of public servants’ assets and interests. According to CCAC, the Bureau did not get any approval for exemption from the Secretary for Social Affairs and Culture before adopting the “illegal” recruitment methods, nor had it been greenlighted by the Secretary to exempt the candidates from capacity examinations under these hiring schemes, thus violating local regulations. ‘The selection of candidates by the ICM was only based on resume analyses and interviews […] Without doubt, the ICM had overstepped the superior’s personnel management authority,’ CCAC wrote. Instead of announcing recruitment news to the public, the Commission found that the Bureau had instead passed the recruitment news to colleagues and friends or by word of mouth in specific areas. In addition, when the Bureau launched open recruitment, a considerable portion of those being recruited had once worked for the department via acquisitions of services, CCAC noted. ‘The ICM recruited 60 second grade officers in various areas in 2014 and 2015 through open recruitment.
the report,’ it wrote. Meanwhile, the Office of the Secretary for Social Affairs and Culture said in a separate statement that it has ordered the Bureau to submit a detailed report on the measures it has carried out or is planning to carry out, in order to remedy the situation. The Secretary also ordered relevant workers at the Bureau to declare their assets and interests as required by law.
Among the final 60 candidates that were recruited, 22 of them had worked in the ICM through acquisition of services,’ the anti-graft body pointed out. It added that the jury panel for the open recruitment procedure, set the questions for the capacities examination after knowing the resume and identity of the candidates.
“Service providers”
The Commission added that the Bureau has been trying to cover up its actual labour employment relationship with relevant workers via acquisitions of services, and to package the recruitment as procurement of services. ‘The ICM will require the person to be hired to submit a “quotation” for procurement of services, in which the information of the content of “service provided” and “service fee” is exactly the same as the content in the employment proposal,’ the report reads. Moreover, the Bureau would ask the workers employed by the “illegal” method to submit an application of commencement of work as a freelance worker to the Financial Services Bureau by filling in and submitting M1 salary tax forms. CCAC criticised that this gave a false impression that the workers were actually freelance workers providing services to the Bureau, rather than full-time staff members, although they ‘were in fact no different from the staff of the ICM’.
Door to corruption
No different from other formal staff, relevant workers recruited under the schemes were assigned to many subordinate departments of the Bureau, including those in charge of the management and financial and administrative operations, as well as those responsible for the planning and operation of building projects, performances and exhibitions, according to the Commission. ‘Therefore, they had access to, and even had the chance to take part in, the planning or administrative assessment procedures of the projects and events involving significant economic interests,’ the body pointed out in the report. ‘However, they did not fulfil the obligation to declare their assets and interests. This would not only open a loophole in the supervision of integrity of the public service but also bring about risks of corruption’ it added.
4 Business Daily Monday, March 13 2017
Macau Interview | Construction Local Newly-listed local construction veteran seeking expansion
Geared up for expansion Local construction veteran Lai Si Construction & Engineering Co. Ltd. has recently listed on the Hong Kong Stock Exchange. Given the market’s enthusiastic response, the company’s chief executive Harry Lai Meng San is optimistic about the future and reveals the company’s ambition to explore opportunities beyond the Macau Special Administrative Region but in the end they can’t meet the requirements. Others give up because of all the complicated and troublesome procedures and requirements.
Cecilia U cecilia.u@macaubusinessdaily.com Photo by Cheong Kam Ka
F
ew local companies are listed on the Hong Kong Stock Exchange, so why did your company decide to do so? For the company itself, there were a lot of restrictions after getting listed, and currently the projects that we are working on require the company to be more standardised. Becoming a listed company definitely helps. Moreover, entering the stock market has enlarged our platform, which leads us to more opportunities. We also have more ways or approaches to obtain capital. We now have more restrictions, but it also builds up confidence in our clients. How long did it take to get the company listed? From the preparation to the official listing, it took around a year and a half. The whole process was completed faster than I expected. For companies in Macau, many encounter a lot of difficulties during the listing process. Some fail [to list] and some spend a significant amount of money
What was the most challenging part of the listing? Companies may spend two to three years to go through the listing procedures, and this includes companies in Hong Kong. Every month, we paid for compliance consultants, legal support groups, auditors and sponsors [in order] to meet the listing requirements. Meanwhile, the tax systems between the two SARs are different, and Hong Kong’s system is stricter. It is fundamental for an approved company to pay all the taxes according to its profit earned and [that] has to be shown in the company’s annual audited report. Normally, the requirements for listing include providing the company’s records for the past three years, but we hired an agent - which required us to provide five year’s worth [of documents] and so we succeeded in passing the evaluation. Many of the listed companies from Macau are gaming operators. Lai Si Construction is one of the few
non-gaming listed companies. Why do you think more local construction companies aren’t listed? In terms of companies related to construction, our company is the first [to be listed on the Hong Kong Stock Exchange]. I know that there are other construction companies working on that, but they haven’t crossed the finish line yet. Aside from the issue of time, honestly speaking, many from the same [construction] field are veterans. They might not like the idea of disclosing information about the company to the public – this includes how much they earn every year or what kind of projects that they are working on. Many companies here are capable of listing on the stock market, but they are simply not interested in the idea of trading publicly. How do you feel about the results of the subscriptions? Investors in Hong Kong, in my opinion, are optimistic about the market in Macau. Hong Kong investors have a great demand for the stocks offered by local gaming operators. The prices of stocks from these companies are still rising. And after the Chinese New Year holiday, the environment
is even better and the Heng Seng Index reached 23 or 24 thousand. It is rare for companies from Macau to exceed the subscription; in short, the exceeded subscription revealed that Hong Kong investors are interested in the market in Macau. What is your opinion about the stock price doubling within a few weeks of being listed? I can see that there are days when transactions exceeded HK$100 to HK$200 million, which is comparable with the performance of Cheung Kong Property Holdings Limited! The circulation is definitely high. We issued 100 million stocks and there are 70 to 80 million stocks traded every day, meaning the stocks were not held by the investors and stocks were constantly being traded. The response is better than I had expected.
“Many companies here [in Macau] are capable of listing on the stock market, but they are simply not interested in the idea of trading publicly” What are the differences for the company since the listing? Prior to listing, a profit prediction was created and we had to reach the goal for the year. After the listing, there is a larger amount of capital that can be used to explore new projects of a larger scale, such as public construction projects. We are planning to make tenders for public projects with other companies, [including] with stateowned companies from Mainland China. And being a listed company definitely makes co-operation with national enterprises much easier. In terms of operation, more effort will be needed, such as preparing the report of interim results. But I would not say there are huge differences after being listed. The workload is heavier but we can handle it. With a few of the major gaming properties such as MGM Cotai completing their construction this year, how will the decrease in the number of projects available impact the local market? Many of our clients are gaming operators and we provide fitting-out projects for restaurants and shops in those resorts. Usually, gaming operators have a budget for renovations. In Macau, there are over 1,000 shops opened within those gaming venues. Our company took most of the fitting-out projects for shops in the city, and only one company from Hong Kong exceeds the amount of projects we have [in that area]. And as such, our company has a significant share of the local market. Like I said, renovation is constantly demanded, whereas constructional projects are over once the structure is built. So our work can be developed sustainably.
Harry Lai Meng San, chief executive of Lai Si Construction & Engineering Co. Ltd.
What major projects has the company recently completed? Not long ago we completed the podium construction at The Parisian Macao. We spent two years working on that and it cost MOP200 million (US$25 million). And we also finished the fitting-out project of a restaurant – Square Eight – in MGM Macau. Previously, the introduction of the policy to set up smoking lounges in casinos also led us to receive many
Business Daily Monday, March 13 2017 5
Macau
projects. The smoking lounge projects had very tight deadlines but casinos offered extra rewards. What are your other plans? Our business is primarily based in Macau, but the company’s prospectus also mentions our intention to expand our business to Hong Kong. In Hong Kong, the market is huge and our business in Macau has already stabilised. We had in fact already launched our branch in Hong Kong during the preparations for the company’s listing last year, and we are currently working on two projects in Hong Kong. Also, our management team is mostly composed of expats from Hong Kong and other foreign countries. With their established knowledge and experience in Hong Kong, we are able to arrange personnel to develop the market in Hong Kong. Moreover, we have also launched a branch in Singapore. The establishment of our Singaporean branch was due to an invitation made by a client and it is still in its preliminary stage; we have yet to arrange staff to manage the subsidiary. For business in Mainland China, we focus on the real estate business but it is not within the current listing scope. With the market in Macau reaching saturation point, we might reach out to the Southeast Asian markets when our business becomes more mature. Like in Vietnam and the Philippines, both of these places are developing their gaming industries and could provide a lot of opportunities. How do the construction markets in the SARs vary? The market in Hong Kong is huge, but it is also very competitive. The amount of labourers engaged in Hong Kong’s construction sector is not trivial, and the majority of construction workers in Hong Kong are locals. Frankly speaking, despite me being a local in Macau, when comparing the construction sectors in the two SARs, Macau’s output value is much lower. There are young people entering the construction industry and well-developed related training and
Lai Si Construction & Engineering Co. Ltd.
Lai Si was founded in 1980 in Macau, and registered under the Land, Public Works and Transport Bureau (DSSOPT) in 1989 as a professional contractor. The company engages in civil
education channels in Hong Kong. Meanwhile, it is a completely different scene in Macau, where young people find construction jobs unattractive. As a result, the only way to resolve the shortage of construction workers in Macau is to import non-resident workers. Generally, the construction industry often encounters difficulties in hiring workers. Has your company experienced similar challenges? Absolutely, we are no exception. But the MSAR government is supportive of local companies and we have been receiving quotas to hire non-resident workers, as long as we provide contracts with information about the projects and date of completion.
“Frankly speaking, despite me being a local in Macau, when comparing the construction sectors in the two SARs, Macau’s output value is much lower” Would you consider gaming operators as your major clients? The fact is, those gaming operators have expanded their businesses into other regions and they want our participation in their projects there as well. And we are open-minded about these invitations, thinking about trying to expand our business in other regions, as well as seeing if our management team can handle this scale of expansion. I would say they [gaming operators] have fostered our business growth. I remember the first gaming-related project that I participated in was Sands Macao in 2002. Our company
construction, retail fit-outs, interior design and renovation projects of all scales, with retail fit-outs serving as its major business. Over the past 30 years, Lai Si has expanded its business to encompass Macau, Hong Kong, Taiwan and Singapore.
during that time was small and we were only able to take part as subcontractors in many projects. It was upsetting because we were doing all the work when we were the subcontractor, and the main contractor would get the money first. Later, we had a direct contract with the developer for the construction of the Venetian Macao, and it was our first direct contract for a gaming project. If I had to choose between public
projects and jobs from gaming operators, honestly I would choose the latter. Work for gaming operators offers better remuneration and there are more competitors in public projects. But the gaming operators are stringent in contracting their projects, and so we have hired a number of foreign staff so as to better handle negotiations and get more chances to co-operate with the gaming operators.
6 Business Daily Monday, March 13 2017
Macau Opinion
Sheyla Zandonai*
Taobao taboo Last week, online purchasing platform Taobao announced it is enforcing a ban on the import of books and magazines published outside the mainland through its online platform. Taobao claims it is following China’s rules on the restriction of print and audio-visual material that may be both ‘dangerous’ to social stability and ‘illegal’ according to national political standards. Some music groups from Hong Kong, Taiwan, and Macau, too, were subject to a ban earlier this year. Prohibiting artistic expression and still allowing people to gamble in Macau is paradoxically consistent with Chinese governance. Although Communist China slayed traditional culture, popular Chinese television shows today harness the empire trope, while the government exalts the ancient crafts of a “glorious” civilization. Zhang Yimou, a Chinese movie director who has brilliantly put on screen the conflicting morals and modern class struggles of a revolutionary past, has captivated party rulers by pulling epic productions such as Hero and Curse of the Golden Flower. It can’t get more anti-establishment than that. And yet it is highly praised. What is illegal in China’s panoptic vision, though not always forward, does not take a wild guess either. For one, sassy books on out-of-wed-lock adventures of Chinese politicians are very likely part of the forbidden book list. Moreover, it is no secret that the party’s subjectivities have somewhat leaned lately to anti-foreign feelings. What is clear, in any case, is that, as Chinese people become more educated, they read more. As this newspaper reported, retail sales of books in China increased 12.3 per cent year-on-year in 2016, while online sales grew 30 per cent in the same period. Where does that leave the likes of Taobao? Access to foreign books may not change much. In fact, people seeking foreign published material would rather use other platforms, such as Amazon, to acquire them. But Taobao spreading its reach outside China, as happened when its parent company acquired the South China Morning Post (SCMP) last year, stirs other concerns. In a piece published by The Guardian, also last year, former SCMP editors, both foreign and Chinese, claimed the newspaper’s editorial line has gradually changed since Jack Ma, the CEO of Alibaba – which includes Taobao in its huge business portfolio – took control of the daily. Accordingly, some of SCMP’s recent Twitter posts have emulated Xinhua, the Chinese news mouthpiece, by basically posting distracting content, not news. Although these do not make the publication a less respectable one, taboo is ingraining.
*scholar and contributor to this newspaper.
Banking
Light at the end of the tunnel CGD faces historical negative net income in 2016, while BNU was the largest contributor to the group’s international operations last year Nelson Moura nelson.moura@macaubusinessdaily.com
O
f all the international operations of Portuguese state-owned bank Caixa Geral de Depósitos (CGD), those of Banco Nacional Ultramarino (BNU) provided the largest contribution in 2016, at a total of 63.1 million euros (MOP538.7 million/US$67.3 million), according
to the most recent financial report released by CGD. The contributions from the Macau bank in 2016 represented a 7.2 per cent yearly increase from the almost 51.8 million euros contributed in 2015. After BNU, the largest international contributors to CGD were its branch in France, with 40.1 million euros, and BCG Angola, with 26.3 million euros. Both operations in France and Angola saw their contributions
decrease yearly by 6.3 per cent and 22.2 per cent, respectively. In total, international contributions to CGD in 2016 decreased by 60.1 per cent year-on-year to reach 55.7 million euros.
Historically bad
In overall consolidated results, CGD registered more than a ten-fold increase in negative consolidated net income, from 171 million euros in 2015 to 1.86 billion euros in 2016, the sixth consecutive year the group has presented negative results and the largest registered by the bank so far. Portugal’s Prime Minister António Costa stated that the “historic losses” were not due to CGD’s operations, but due to “recognition of some of the impairments the group accumulated in recent years” that came to light during the group’s ongoing recapitalisation process. This increase in negative net income was also justified by the bank’s financial report on the 321 per cent yearly increase in provisions and impairments, which reached a total of 3.01 billion euros in 2016. The European Commission recently approved a proposal by the Portuguese government to raise its capital in CGD by 3.9 billion euros, in order to make the group profitable again. After the results were revealed, the group’s Executive President, Paulo Macedo predicted the group would register a profit again in 2018.
Automotive
FIA to separate FIA GT World Cup The International Automobile Federation (FIA) revealed its plan to separate the coming GT World Cup into two events, according to an official statement released by the racing body. The separate events will have “one dedicated to manufacturers – the FIA GT World Cup - and the second dedicated to a more traditional PRO/AM format,” namely matches for a mix of professional and amateur drivers. The FIA confirmed that the additional standalone event would be held in a different venue and at a different date to the FIA GT World Cup. “The Commission aims to launch an invitation to tender for a promoter
to propose the full concept of an FIA GT3 PRO/AM customer event,” added the FIA. However, further details about the
dates or venues for the events have yet to be announced, and the event’s return to the MSAR’s Guia circuit has yet to be confirmed. The statement was made after the second World Motor Sport Council took place in Geneva last Thursday. C.U.
Crime
Jack Lam cleared of bribery charges Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Local gaming mogul Jack Lam has been cleared of liability in the corruption scandal involving Bureau of Immigration (BI) officials in the Philippines, according to local media reports. The country’s Senate blue ribbon committee, presided over by Philippines Senator Richard Gordon, concluded that the incident amounted to ‘extortion’ by the Bureau of Immigration officials involved, and not the “bribery and economic sabotage” formerly ascribed to Lam. The case relates to Lam’s Fontana Leisure Park and Casino located at Clark Freeport Zone in Pampanga, which was raided by authorities for allegedly running an illegal online gaming operation. Given the ruling, the tycoon has no criminal liability, notes publication Rappler. Senator Gordon’s announcement contradicts the earlier statements by the National Police and President Rodrigo Duterte.
However, given that Lam, the CEO of the Jimei International Entertainment Group, was also accused of illegally employing some 1,300 Chinese nationals at his Fontana casino operation, the Senator suggested the Department of Labour and Employment look into the case, notes the publication. Justice Secretay Vitaliano Aguirre II and Lam’s aide, Wally Sombero, have also been cleared of charges. Senator Gordon said there was no proof that Aguirre was involved in the acts, but he would consider a case
for ‘negligence’ on Aguirre’s part. As for Sombero, he was just ‘a fixer,’ he was quoted saying. The Senator also pointed out that the two former BI associate commissioners, Al Argosino and Michael Robles, remain the most liable participants in the scam. The charges follow Senator Leila de Lima’s claims in early January that the Senate should investigate the probe into the reported P50 million (MOP8 million) extortion by the two dismissed BI officials, as previously reported by this newspaper. Senator Gordon is said to be willing to recommend filing criminal charges against the two dismissed officials, in addition to two other BI officials, Commissioner Jaime Morente and former BI Intelligence Chief Charles Calima Jr., according to Business Mirror. The Philippines Amusement and Gaming Corporation (Pagcor) shut down the Fontana operation in December 2016. The police raided the premises arresting over a thousand Chinese nationals lacking immigration papers, who were working for a call centre-like operation suspected of being a front for online gambling activities.
Business Daily Monday, March 13 2017 7
Macau Gaming
IGT mixed end-quarter results stir caution the whole year of 2015. The company’s decline in international revenues was led by lower product sales when compared to the previous year, with replacements down 21 per cent, notes McKnight.
Net income rose to 217.4 pct of its Q4 2015 results
G
aming machine manufacturer International Gaming Technology (IGT) saw its net income in the fourth quarter of last year hit 217.4 per cent of the value of the same quarter in 2015, according to the group’s filing with the United States Securities and Exchange Commission (SEC). Despite the group’s net income hitting US$233.3 million (MOPMOP1.87 billion/HK$1.81 billion) during the final quarter of the year, its whole year earnings only reached US$211.34 million, still a turnaround from the US$75.57 million loss seen in 2015. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the same period totalled US$1.75 billion, mainly attributable to strong market performance in North America, according to the company. The U.S.-listed company is engaged in the design, development and manufacture of gaming products and systems worldwide. Revenue for the group during the final quarter of last year amounted to US$1.32 billion, a 3.2 per cent drop compared to US$1.36 billion the previous year The group shipped nearly a third of the total machine units it moved throughout the year in the fourth quarter alone, at 10,320 units, out of 33,147 units total in 2017. This Q4 number reflected a 10.7 per cent drop in units shipped compared to the same period a year earlier, and a 5.7 per cent slow down in units for the
America in the lead
IGT at Global Gaming Expo (G2E) Asia, Macau
whole year, according to the filing. Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) reached US$422 million in the fourth quarter, a 6 per cent year-on-year drop, and also 5 per cent below consensus by brokerage Wells Fargo, despite, according to the group, reflecting ‘broad-based lottery growth and higher gaming product sales,’ according to IGT’s filing. According to Cameron Knight, a senior analyst at Wells Fargo Securities, IGT’s consensus miss was ‘related to International, Interactive and Italy operations’. According to IGT’s filing, its international revenue was
Gaming
Success Dragon signs MOU to buy Chinese energy companies Gaming service provider Success Dragon International Holdings Ltd announced last Friday that it has entered into a non-legally binding memorandum of understanding to acquire a group of companies engaged in the energy business in Mainland China. The company, however, did not reveal the name of the possible vendor, or those of the group of targeted companies in the filing, only saying that the vendor is an independent third party of the company and its connected persons. According to the filing, the targeted group of companies have entered into energy supply co-operation agreements with a number of Chinese enterprises, such as Changsha Guidao Traffic Group Company Ltd,
Tianjin CSR Wind Electricity Vane Engineering Co., Ltd. and Zhenjiang Chimei Chemical Co., Ltd. The MOU will last for a period of six months, while the company said the consideration for the proposed deal will ‘be satisfied by an issuance of new shares in the company at an issue price to be determined between the parties’. Success Dragon primarily operates electronic gaming equipment management in the MSAR, as well as providing management services for the greyhound racing business in Vietnam. For the first half of its fiscal year ended September 30, 2016, the company posted a net loss of HK$30.2 million (US$3.8 million), an improvement of 78.5 per cent from the HK$140.3 million loss for the same period of 2015. K.L.
Earnings
Imperial Pacific expects to out of the red Casino investor Imperial Pacific International Holdings Ltd expects the company’s annual profit for the full year of 2016 to turn around from a net loss a year earlier, driven by its gaming business on the island of Saipan, in the Northern Mariana islands. In a filing to the Hong Kong Stock Exchange last Friday, the company said ‘a substantial increase in profit’ is anticipated for the year, as compared to a loss of HK$84.4 million (US$10.5 million) recorded for 2015. At the moment, the gaming operator is only operating a “temporary casino” on the island, launched in November 2015. ‘The expected turnaround from loss to profit is mainly attributable to the
operating profits generated by the Temporary Casino, “Best Sunshine Live,”’ the company wrote. According to the company’s previous filing, it raked in a total of US$32.4 billion (HK$251.2 billion) in VIP table games rolling for the year. At the beginning of the year, the company said its integrated resort on the island, Imperial Pacific Resort, would commence its soft opening within this quarter. While the soft opening date has not yet been officially announced, last month Saipan media outlet Marianas Variety quoted the company’s vice president for operations Donnie Browne as saying that the soft opening date would be on March 31. K.L.
US$220 million, a 17 per cent yearon-year drop in the fourth quarter, whereas its Italy segment was ‘in line with the prior year’ at US$449 million in revenue for the quarter. North American gaming revenues were down in the interactive segment, representing a decrease of 26 per cent to US$62 million. However, ‘the installed base does seem to be stabilizing with strength from new titles like Wheel of Fortune 3D,’ notes the Wells Fargo analyst. Annual revenue for the year ended December 2016 totalled US$5.15 billion, a 10 per cent hike year-on-year from the US$4.68 billion reported for
The company’s results in the North America market also suffered from fewer games sold, with a 17.9 per cent year-on-year contraction in sales during the quarter, totalling 5,419 games sold. Meanwhile, analysts at Telsey Advisory Group note that IGT’s social casino business came in lower than its forecast of US$63.5 million, hitting US$61 million - a drop from the US$83.6 million seen the previous year. ‘Our view is that the story remains intact with gaming in North America positioned for recovery,’ note the analysts at Telsey, encouraged by a 6 per cent year-on-year uptick in lottery revenue from the segment, to US$284 million in the fourth quarter. Overall the group ‘expects to achieve adjusted EBITDA of US$1.68 – US$1.76 billion for the full year 2017 period,’ notes the group, as ‘operational growth compensates for the Powerball and late numbers benefits recorded in 2016, in addition to new Lotto concession impacts in 2017,’ according to the filing. IGT holding company headquarters are in the United Kingdom, with operating headquarters in Rome (Italy), Las Vegas (Nevada), and Providence (Rhode Island). Its local subsidiary, IGT Asia Macau Lta., provides gaming systems technology to a variety of local operators.
8 Business Daily Monday, March 13 2017
Greater China Commerce minister
Trade war with the U.S. would only cause pain Commerce Minister Zhong Shan said China’s foreign trade outlook faces lots of risk and uncertainty
A
trade war between China and the United States would only cause pain, China’s commerce minister said on Saturday, as analysts say the spectre of
deteriorating U.S.-China ties is likely to weigh on confidence of exporters and investors worldwide. “A trade war would not benefit either country or either country’s people, you could say it would have
no advantage whatsoever,” Chinese Commerce Minister Zhong Shan told reporters on the side-lines of the annual parliament session in Beijing. “Many American and western friends think that China can’t live without the United States but that’s only half true.” “At the same time, the United States can’t live without China,” Zhong said,
Chinese Minister of Commerce Zhong Shan gestures answering questions during a press conference on the side-lines of China’s National People’s Congress (NPC) in Beijing, China, 11 March 2017. Lusa
adding that in the past ten years, the growth of U.S. exports to China has outpaced the growth of Chinese exports to the United States. Zhong said that he looked forward to meeting his U.S. counterpart Wilbur Ross. Billionaire investor Ross was sworn in as U.S. commerce secretary in February after helping shape President Donald Trump’s opposition to multilateral trade deals. He is expected to start work on renegotiating trade relationships with China and Mexico. “I am aware that Mr. Ross is an outstanding businessman and an experienced negotiator, an excellent person,” Zhong told reporters on the side-lines of the annual meeting of the country’s parliament. “I am willing to deal with excellent people because excellent people play the long game and think strategically.” China’s foreign trade outlook faces lots of risk and uncertainty, Zhong added. China’s exports for January and February combined rose 4.0 percent from the same period last year, while imports surged 26.4 percent, suggesting solid improvement in demand domestically and abroad. But the export outlook for China and other trade-reliant economists is being clouded by fears of growing U.S. protectionism. Zhong also spoke about China’s growing outbound investment, noting that a small number of Chinese companies had invested overseas “blindly and irrationally” in ways China did not encourage. He said the government would step up regulation around such investments. reuters
PBOC governor
Corporate debt levels excessively high, no quick fix Governor Zhou said the central bank’s tilting towards a neutral stance would help with China’s supply-side reforms China’s corporate debt levels are too high but it will take time to bring them down to more manageable levels, the head of the central bank said on Friday, underlining an uphill battle to put the world’s second-largest economy on a more sustainable footing. Chinese leaders have pledged to contain debt and housing risks in 2017 after years of credit-fuelled expansion, which has been propelled by the need to meet official economic growth targets. But many analysts remain doubtful over the government’s commitment to follow through on potentially painful reforms, especially if growth falters. “Non-financial corporate leverage is too high,” People’s Bank of China Governor Zhou Xiaochuan told reporters at a news conference on the side-lines of the annual parliament session. Efforts will be made to contain debt levels, including restructuring of firms with heavy debt burdens, alongside a push to reduce excess industrial capacity, he said. Banks will withdraw support for financially unviable firms, he added, repeating pledges by other officials last year to drive such “zombie” firms out of the market. “I personally think this process is relatively medium-term. It won’t have very obvious results in the shortterm because the existing stock (of debt) is very large,” he said. Measures by local governments to cool rising house prices will slow mortgage growth to some degree, but housing loans will continue to grow at a relatively rapid pace, Zhou said.
Amicable engagement
Zhou, 69, took control of the PBOC in 2002 and is the architect of China’s financial reforms.
Throughout the news conference, the jocular governor smiled and amicably engaging with the deputy governors beside him as well as the journalists. Unlike many government officials, Zhou did not refer to prepared material when responding to questions. China’s corporate debt has soared to 169 per cent of gross domestic product (GDP), according to figures from the Bank for International Settlements. China needs to first stabilise its overall debt levels before gradually reducing them, deputy central bank governor Yi Gang said at the same briefing. China’s debt-to-GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit
being used to pay debt servicing costs, UBS analysts said in a note. China’s credit growth has been “very fast” by global standards, and without a comprehensive strategy to tackle the overhang, there is a growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund warned late last year.
Prudent, neutral monetary policy
The central bank’s tilting towards a neutral stance would help with China’s supply-side reforms, Zhou said, reiterating that it would be “prudent” while reminding markets that the central bank has many policy tools at its disposal. In recent months, the PBOC has cautiously moved to a modest tightening bias in a bid to cool explosive growth in debt and discourage speculative activity, though it is treading cautiously to avoid hurting economic growth.
It surprised financial markets by raising short-term interest rates in January and February by marginal amounts, and is expected to bump them higher in coming months, though an increase in its benchmark policy lending rate is seen as unlikely this year. Bank lending this January was the second highest on record and it did not slow as much as expected in February. “If there is too much money in the economy, in fact it is very harmful to the economy as it might lead to problems such as higher inflation and asset price bubbles,” Zhou said. Turning to the yuan currency, Zhou said market expectations of the yuan’s movements have shown “big changes” this year as China’s economy stabilises. Zhou said he expected the yuan to be basically stable this year, while conceding that some fluctuations are normal. Zhou also said that China will not deliberately seek to have its bonds included in global indexes used by investors. Reuters
Zhou Xiaochuan (C), Governor of the People’s Bank of China (PBC) flanked by Yi Gang (R), Deputy Governor of the PBC and Pan Gongsheng (L), Deputy Governor of PBC and Director of the State Administration of Foreign Exchange speaks to reporters during a press conference on the sideline of the fifth session of the 12th National People’s Congress (NPC) in Beijing, China, 10 March 2017. Lusa
Business Daily Monday, March 13 2017 9
Greater China Auto industry
In Brief
Car sales resilient despite tax incentive rollback Sales in the green energy vehicle segment jumped in February by around 30 per cent year-on-year Fang Cheng and Jake Spring
China’s auto market grew 8.8 per cent year-on-year in the first two months of 2017, its automakers association said on Friday, bucking expectations that consumer demand would suffer as a key tax incentive is rolled back. February sales rose 22.4 per cent from a year ago to 1.9 million vehicles, the China Association of Automobile Manufacturers (CAAM) told reporters. Combined figures for the first two months of the year are viewed as a more reliable indication of the
strength of the market as the timing of Lunar New Year holidays, which drag on sales, varies between January and February each year. “In January and February, Spring Festival and other factors mean the data should not be overinterpreted,” said Xu Haidong, CAAM assistant secretary general. “In March and April, the numbers will more clearly show relevant (market) conditions.” Sales growth in the world’s second-largest auto market is expected to slow this year, after China cut its GDP growth target and as a tax
incentive for vehicles with engines of 1.6 litres or below was reduced from Jan. 1. CAAM predicted in January that 2017 sales would rise 5 per cent this year, compared to 13.7 per cent in 2016.
Key Points Jan-Feb YTD sales +8.8 pct Tax cut on small-engine cars rolled back from Jan 1 Green energy car sales rebound around 30 pct
The purchase tax for small-engine cars climbed to 7.5 per cent this year from 5 per cent in 2016 after the government stepped in to stimulate slumping sales. The tax will rise to the normal 10 per cent rate next year. Executives at Volkswagen AG and other automakers had warned first quarter sales growth was set to be weak, after buyers late last year rushed to take advantage of the larger tax incentive before the Jan. 1 deadline. Sales in the green energy vehicle segment jumped in February by around 30 per cent year-on-year, rebounding from a 74 per cent decline in January when subsidies were reduced 20 per cent. Subsidy approvals, which automakers must reapply for this year, have also slowed amid stricter oversight. Reuters
Commercial expansion
Provinces fizz with fervour for Xi’s New Silk Road
Central bank
RMB390 billion of reverse repos to mature this week Altogether RMB390 billion (about US$56.4 billion) of reverse repo contracts are set to mature this week after China’s central bank continued to drain money from the market. No repos or central bank bills are set to mature from March 13 to March 17, according to Wind, an information service provider. For the central bank, a repo, or repurchase agreement, is the sale of securities to banks tied to an agreement to purchase the securities back in the future. A reverse repo is the purchase of a security to be sold back later. M&A
Wanda’s deal to buy Dick Clark scrapped Eldridge Industries, the U.S. owner of Dick Clark Productions Inc, said on Friday that one of its affiliates terminated an agreement to sell off the TV production company to Chinese conglomerate Dalian Wanda Group. Eldridge, which also owns magazines such as the Billboard and the Hollywood Reporter, said the affiliate terminated the agreement after Wanda failed to honour contractual obligations. In February, Reuters reported that Dalian Wanda’s proposed US$1 billion purchase of Dick Clark Productions was under pressure but not yet over, amid high U.S.-China tensions and tight scrutiny by Beijing on outbound deals. Regulator
Delegates from all attending provinces trumpeted their support for the initiative during parliament meetings Brenda Goh
China’s regional governments are falling over each other to curry favour with President Xi Jinping, jostling for roles in his New Silk Road plan to boost economic and cultural links through Asia to Europe. One says it wants to send its young people to be Silk Road “super connectors”, while a second is pitching to become a new home for foreign consulates. Another wants to build a folk museum to commemorate Beijing’s overseas push. The plan, officially the ‘One Belt, One Road’ (OBOR) project, has so far seen billions of dollars pledged overseas to countries such as Pakistan and Kazakhstan, in a drive to develop trade and build infrastructure along land and sea routes between the two continents. At home, it is stoking a frenzy of one-upmanship among provinces keen to catch Xi’s eye and find new drivers for growth in their patch as the economy slows. While official plans published in 2015 only list 18 provinces as areas key to the plan, over 30 of China’s territories now say they have an OBOR strategy. At the annual meeting of China’s rubber-stamp parliament in Beijing last week, delegates from all attending provinces trumpeted their support for the initiative during meetings. “Our party secretary, mayor, vice-mayor have all visited One Belt One Road countries like Poland and the Czech Republic, even parts of the Russian Federation like Tatarstan,” Tang Limin, secretary-general of central Sichuan province, told Reuters after addressing delegates at a meeting. It didn’t matter that the government
didn’t identify Sichuan as key to the plan two years ago, Tang said. “We have a lot of cooperation projects that come under One Belt One Road,” he said. Aligning such projects with Xi’s vision has been aided by the loose definition of OBOR. Beijing has provided some guidelines of where it wants the initiative to focus, such as heavy infrastructure investment, but has left much of it open to interpretation. Cultural exchanges with other countries, the formation of the Asian Investment Infrastructure Bank, and overseas acquisitions by Chinese firms have all been described by local media as part of the OBOR project. Delegates to the parliament have embraced that kind of flexibility. “We have people who can be ‘super-connectors and super partners’,” said Chan Yung, the Hong Kong deputy to the National People’s Congress, when asked how the autonomously governed city plans to contribute to the initiative.
“Hong Kong’s youth are very open ... As long as they’re willing to fork out 1-3 years to travel the One Belt One Road routes and stay in a country for 1-2 years, they can become experts.” Bai Hongzhan, a delegate from Henan in central China, proposed that the provincial capital Zhengzhou should be developed into a key node on the route where foreign consulates could be persuaded to set up a base. The province of Shaanxi, home to China’s historic Terracotta Army, is weighing up a proposal for a Silk Road Chinese Folk Culture corridor, with folk museums, memorial halls and gardens to pay tribute to the initiative, documents show. Plans for how to participate in “One Belt, One Road” have not just been drafted by the provincial government, but companies and other entities. In the coastal province of Jiangsu, the fervour is not restricted to the provincial authority but reaches down to lower tiers of government and corporate China, said Yan Lijuan, a delegate from the province and top executive at XCMG Construction Machinery. “One Belt, One Road is extremely important to every city in Jiangsu, every company and industry.” Reuters
Delegates in ethnic minority costumes leave the Great Hall of the People after the third plenary meeting of the fifth session of the 12th National People’s Congress (NPC) in Beijing. Lusa
Joint infrastructure projects get nod to issue securities China’s stock market regulator said on Friday that several infrastructure projects which use a public-private partnership (PPP) model have been approved to issue securities, letting them tap a new source of funding. Beijing has promoted the PPP model, which channels private money into public infrastructure projects, as local governments reel under heavy debt. But private investors have shown only lukewarm interest in such projects, which typically lock up capital for lengthy periods. The China Securities and Regulatory Commission said that the Shanghai and Shenzhen stock exchanges have approved the securitization schemes for multiple PPP infrastructure projects. Bicycles
Manufacturers’ output up slightly in 2016 China’s largest bicycle manufacturing base in north China’s Tianjin Municipality saw a slight increase in its output and export volume last year. According to statistics by the Tianjin municipal bicycle industry association, more than 42.25 million bicycles were manufactured in Tianjin in 2016, up 4.83 per cent year on year. The export figure was 21.26 million, up 5.3 per cent year on year, municipal customs statistics show. Chu Ning, deputy secretary-general of the association, said Tianjin’s bicycle industry has maintained stable output over the last few years.
10 Business Daily Monday, March 13 2017
Greater China Commodities
Steel mills race for profits as rally looks vulnerable The burst of activity and soaring prices are undermining the government’s years-long push to cut capacity
Tailwinds to headwinds
C
hina’s steel mills are churning out as much metal as possible, enjoying their best profits in years, even as they worry the monthslong rally in prices in the world’s top steelmaking market is running out of steam, executives said. The strategy to pump out more may threaten the bull market, dur-
Key Points Rising metal inventory reflects growing supplies Mills making RMB800 profit for every one they produce Execs worry market on verge of sharp drop ing which prices for steel rebar used in construction have skyrocketed to their highest since 2014 in recent weeks. As metal piles up in the country’s major cities, executives say the price surge has mainly been fuelled by another bout of speculative buying rather than underpinned by a pick
mainly targeted low-grade products like rebar. A week ago, the government announced plans to slash another 50 million tonnes of capacity this year, on top of the 65 million removed last year. However, many of the plants closed last year were already idled and output from the still-open plants actually rose 1.2 per cent to 808.4 million tonnes.
up in industrial demand. Speculators have splurged on futures for iron ore and steel, betting on higher prices after Beijing has pledged billions of dollars in construction and infrastructure projects as part of its stimulus programme. But Zhang Wuzong, president of Shiheng Special Steel Group in Shandong province, reckons the market is on the verge of dropping sharply. “I think the current rally in steel price is a mentality issue and it cannot last,” he said on the side-lines of the annual meeting this week of China’s parliament, the National People’s Congress. Last year, the majority of steel
companies were bleeding cash, said Zhang. Steel mills are currently making a profit of up to RMB 800 (US$115.74) a tonne producing rebar, the highest since 2011, spurring them to fire up furnaces, analysts said. On Feb. 27, steel rebar futures rocketed to RMB3,648 (US$527.41) per tonne, their highest in three years. That’s up 60 per cent since September. The burst of activity and soaring prices are undermining the government’s years-long push to cut capacity in its bloated steel sector to make the industry more efficient and tackle smog. Beijing’s crackdown has
The tailwinds are about to turn into headwinds as rising inventories point to oversupply. Last month, rebar stockpiles across 35 major cities hit 8.7 million tonnes, their highest in almost three years, data from consultants Mysteel showed. Dong Caiping, chairman of Zenith Steel in eastern Jiangsu province, said he is “worried” the market will be in oversupply by the second half as mills increase output due to bumper margins. Soaring stockpiles of iron ore, a key ingredient in steelmaking, also highlight the trend, analysts say. Inventories hit 127.9 million tonnes, their highest in at least a decade and equivalent to 1-1/2 months of imports, Custeel reported. Most of that is low-grade ore, sidelined while mills rush to use higher-quality feed to maximise product and offset higher coking coal prices, according to Wood Mackenzie. “Steel margins are quite healthy, so mills are trying to produce as much as possible. And using high grade ore will maximise steel production,” said Rohan Kendall, principal iron ore analyst at Wood Mackenzie. “We’re not seeing enough government stimulus to justify the surge in prices.” Reuters
M&A
HNA Group would like to hike Deutsche Bank stake The Chinese group has been on an acquisition spree that has seen it expand from its traditional business of aviation and logistics into financial services Julie Zhu
Chinese conglomerate HNA Group would like to increase its stake of 3 per cent in Germany’s Deutsche Bank, two sources with knowledge of the matter told Reuters. However, the Chinese company would have to resolve some issues before it could complete any deal,
said one of the sources, who has direct knowledge of the matter, without elaborating. Representatives of HNA and Deutsche Bank declined to comment. HNA purchased a 3.04 per cent stake in the German lender last month, making it the bank’s third-biggest shareholder after Qatar, which has close to 10 per cent of stock, and
BlackRock, which owns 6.1 per cent. Deutsche Bank’s top three investors are likely to back its latest capital hike, which will see the bank attempt to raise 8 billion euros (US$8.5 billion) to back another revamp, Reuters reported on Thursday. Although HNA said last month the investment in Deutsche Bank was passive, the desire to boost its holding suggests HNA may have strategic ambitions. The Chinese group has been on an acquisition spree that has seen it expand from its traditional business of aviation and logistics into financial
services, betting on asset managers and consumer finance for growth at home and overseas. With more than US$100 billion in assets, HNA’s other financial investments this year have included a hedge fund platform and a New Zealand lender. The group is also bidding for UK-listed insurer Old Mutual’s US$900 million controlling stake in its U.S. asset management business, sources have said.
Key Points HNA purchased 3 pct stake in Deutsche Bank last month Would like to raise stake, but needs to resolve issues -sources Chinese group has been on financial shopping spree The moves reflect a broader push by China into financial services globally as Beijing encourages its corporate sector to expand overseas, although it faces increased regulatory scrutiny in the United States and Europe. A person familiar with HNA strategy said the group saw financial services - particularly asset management - as an attractive strategic sector as the Chinese continue to grow in wealth and their demand for investment opportunities increases, Reuters reported on Friday. Reuters
Business Daily Monday, March 13 2017 11
Asia
Supporters of impeached South Korean President Park Geun-hye, clash with policemen as they attempt to pass the barricade of police buses towards the constitutional court in protest after the court’s ruling on the impeachment of South Korean President Park Geun-hye near the Constitutional Court in Seoul, South Korea, 10 March 2017. Lusa
Impeachment
Park’s ouster raises prospect of reset with China, Kim Jong Un Opinion polls show South Korea’s liberals are favoured to retake power after nine years of conservative rule Andy Sharp
T
he impeachment of Park Geun-hye opens the door for a reset in ties with North Korea and China. The leading candidates to replace Park, who was ousted as president by South Korea’s constitutional court on Friday, favour a softer touch with North Korean dictator Kim Jong Un. They’re also open to rethinking the deployment of the Thaad missile shield, which has spurred Chinese retaliation against South Korean companies.
“The impeachment has brought about an opportunity to reset ChinaKorea relations, which have sunk to rock bottom” Shen Shishun, a senior researcher at the China Institute of International Studies under China’s Foreign Ministry “The liberals believe that if you engage with North Korea, then they could get some kind of missile-test moratorium,” said John Delury, an associate professor of Chinese studies at Yonsei University in Seoul. “The Chinese strategy will be to push just hard enough so the South Korean public sees the cost of having Thaad, but not too hard that you unleash outrage.”
The election campaign -- a vote must be held within 60 days -- will spur fresh debate on how to stop Kim from acquiring more powerful nuclear weapons and missiles. Secretary of State Rex Tillerson plans to seek a new approach to dealing with North Korea in a trip to the region next week, though China’s calls for talks have been rebuffed by the U.S., Japan and South Korea. Earlier this week, the U.S. military unloaded two mobile missile launchers in South Korea to start deployment of Thaad. It came as North Korea launched four ballistic missiles that landed in waters near Japan.
Sunshine policy
The court upheld parliament’s vote to impeach Park amid a corruption probe. Opinion polls show South Korea’s liberals are favoured to retake power after nine years of conservative rule. That raises the prospect of a return to the so-called Sunshine Policy adopted from 1998 to 2008 that emphasized engagement with North Korea, an approach that Park’s predecessor dropped because it failed to stop Pyongyang’s weapons development. Moon Jae-in, the frontrunner in opinion polls to replace Park, has said the next government should review the decision to deploy Thaad. He has proposed economic exchanges and a plan for unification, in which the two Koreas come together economically before moving toward political integration. Ahn Cheol-soo, another contender, said he’d back the deployment of Thaad but is also open to its withdrawal if China cooperates with
sanctions on North Korea and ties with Pyongyang look like improving. Other candidates have called for dialogue, the resumption of tours north of the border and the reopening of a joint industrial complex that was closed in early 2016.
‘Very unstable’
Acting president Hwang Kyo-ahn has stuck to Park’s line on North Korea. “Alertness and immediate readiness should be strengthened for any North Korea provocation as the security condition is very unstable,” he said at a cabinet meeting after her ouster. The U.S. moved to ensure no major policy shifts were coming on the heels of Park’s removal. State Department spokesman Mark Toner said the alliance “will continue to be a linchpin of regional stability and security,” the Associated Press reported. John McCain, chairman of the U.S. Senate Armed Services Committee, called for continued cooperation in “defending against North Korea’s escalating nuclear and missile threats.” U.S. troops are stationed in both South Korea and Japan, which rely on the U.S. for a “nuclear umbrella” for protection in the region. China, which provides North Korea with most of its food and fuel, doesn’t want a unified Korea allied with the U.S. on its doorstep.
‘Breathing space’
China sees Thaad as a threat that would upset “the strategic equilibrium in the region” and has used its economic clout to punish Korean companies. Foreign ministry spokesman Geng Shuang said on Friday that Park’s decision to deploy Thaad hurt ties and reiterated the nation’s call for talks on North Korea. “Everyone is clear that the current difficulties are a result of Korea’s insistence on deploying the Thaad system,” Geng said. Regarding North Korea, he called for all sides to “break
free of old mind-sets and think out of the box, think rationally and pragmatically.” Moon has a “more sophisticated stance” than Park on Thaad, according to Shen Shishun, a senior researcher at the China Institute of International Studies under China’s Foreign Ministry. “The impeachment has brought about an opportunity to reset ChinaKorea relations, which have sunk to rock bottom,” Shen said. “It’ll serve Chinese interests best if we step back a bit and give the South a little breathing space to settle their domestic politics.”
Nuclear test
One complication is South Korea’s rocky relationship with Japan. In December 2015, the two nations signed a “final and irreversible” agreement over the issue of comfort women, who were coerced to serve in Japanese military brothels before and during World War II. Moon has said it’s hard to recognize the legitimacy of the deal without an official apology from Tokyo. Minister Fumio Kishida said Friday that Japan would urge South Korea to implement the agreement, Kyodo News reported. It may not be long before alliances are tested. 38 North, a website that analyzes North Korea run by the U.S.-Korea Institute at Johns Hopkins University, said commercial satellite imagery indicates Kim is preparing for a nuclear test. Still, Park’s departure is a chance to have a South Korean leader who can influence the policy debate, Delury said. “South Korea has been missing from the conversation,” he said. “When there is talk in the U.S. about military options for North Korea, the first and main objection would come from almost any South Korean president because Seoul bears the brunt of what happens next.” Reuters
12 Business Daily Monday, March 13 2017
Asia In Brief Politics
Labour party wins Western Australia state election The Liberal Party of Western Australia (WA) has been voted out of government in a landmark result for the state’s Australian Labour Party (ALP). The new Labor government, led by Premier-elect Mark McGowan, is expected to pick up as many as 41 of the 59 seats in the lower house of WA parliament. The election marks the end of eight and a half years in Opposition for the ALP in WA, traditionally one of Australia’s most conservative states. Among the casualties for the Liberals in the 16 per cent swing against the party were at least four government ministers with two others also facing the possibility of losing their seat. Trade
Philippines exports rise at fastest pace in 3 years Philippine exports rose at their quickest pace in three years in January on demand for technology goods and commodities, while continuing strong imports underlined a buoyant domestic economy. The Southeast Asian economy is one of the fastest growing in the world and strengthening global trade could complement robust domestic consumption as President Rodrigo Duterte’s government aims to sustain annual growth above 7 per cent during his sixyear term. Exports in January rose 22.5 per cent from a year earlier, gaining for a second month in a row, while imports jumped 9.1 per cent, data from the Philippine Statistics Authority showed on Friday. IPO
Vietnam state coffee firm plans stake sale Vietnam National Coffee Corporation (Vinacafe), the top state-owned coffee company, plans to sell a 35-per cent stake in an initial public offering (IPO) either later this year or early next year, its chairman said yesterday. Vinacafe’s privatisation plan and valuation process are expected to be completed by the end of June, and the timing of the IPO will depend how fast it obtains government approval, chairman Phan Xuan Thang told Reuters. The stake sale is part of the government’s drive to trim stakes in state-owned enterprises. Energy
Japan’s environment minister sees risk in new plant Chugoku Electric Power Co and JFE Steel may need to rethink plans for a new coal-fired power plant if they cannot present clear measures to address climate change concerns, Japan’s environment minister suggested on Friday. Minister Koichi Yamamoto, in an opinion statement over the companies’ plan for a 1.07 gigawatt coalfired power plant, flagged a business risk and suggested the companies should consider all options including scrapping the plan. JFE Steel is a unit of JFE Holdings Inc. Japan ratified the 2015 Paris agreement to curb to curb carbon dioxide emissions by 2030 and 2050.
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Indian Bharatiya Janata Party (BJP) supporters celebrate with party flags and Indian Prime Minister Narendra Modi’s poster. Lusa Election
Modi’s one-man show triumphs again in India’s battleground state The triumph vindicates Prime Minister’s decision to turn the campaign into a referendum on his own performance Rupam Jain and Tommy Wilkes
S
ensing his party’s drive for votes in India’s most politically prized state had stalled, Prime Minister Narendra Modi cleared his schedule and thrust himself into the heart of the battle. “Our election campaign has hit a roadblock,” Modi told campaign managers and two federal ministers in Delhi last month, a week before the sixth of seven phases of voting was to begin in the northern state of Uttar Pradesh. “I don’t want to feel that I could have pushed myself a little more,” Modi was quoted as saying by a close aide who attended the meeting. For three full days the leader of the world’s largest democracy camped out in the holy city of Varanasi, his parliamentary constituency, walking the ancient streets and stopping at Hindu temples to seek blessings, despite warnings from aides about his security and the risk to his reputation had his party come up short. On Saturday the gamble paid off: Modi’s Bharatiya Janata Party (BJP) scored a thumping victory in Uttar Pradesh, home to one in six Indians, winning the biggest majority in the state for any party since 1977. The triumph vindicates Modi’s decision to turn the campaign into a referendum on his own performance after his shock decision last November to abolish high-denomination banknotes, a move he framed as a fight for the poor against the corrupt rich. “We were always nervous that overexposing the prime minister in the final stages of the election could make us look desperate,” said Keshav Prasad Maurya, the BJP’s state leader in Uttar Pradesh. As it turned out, Modi’s victory confounded even the most bullish voter surveys. The BJP won 312 of the 403 seats in the state assembly and, with 39.7 per cent of the vote, almost
matched its showing in Uttar Pradesh in the 2014 general election, when it claimed the biggest parliamentary majority in three decades. “Modi’s magic has destroyed the opposition and silenced sceptics in the party,” Maurya told Reuters on Saturday, as the scale of the victory became clear.
Two-term Modi
The win clears a path to victory for Modi at a 2019 general election, and gives him a free hand to consolidate his grip over a state that sends the highest number of federal lawmakers to parliament. That has raised hopes among investors that the BJP will embark on a round of new reforms to boost growth in Asia’s third-largest economy, and try to tackle the corruption and red tape that has long undermined India’s potential.
Key Points PM turned election into referendum on his own leadership Success vindicates radical move to hit corruption Modi’s appeal stretches across castes, communities Pressure to deliver, especially more jobs, rises Triumph opens path to second term at next general election
Economists now expect Modi to launch initiatives aimed at flushing out ill-gotten gains from real estate, gold and campaign finance. But they caution that his biggest task remains transforming India’s economy into one that creates enough jobs for an emerging generation that is desperate to give up life on the farm for a more prosperous future. “Jobs is the biggest risk,” said Rajiv Kumar, an economist at the
Delhi-based Centre for Policy Research. “That’s where he has to focus very hard and it could mean reforms as radical as demonetisation.” Modi’s BJP now heads the government in states where more than half of Indians live, while the Congress party, which has ruled India for most of the 70 years since independence, leads in regions covering less than 8 per cent of the population. Success will increase the pressure on Modi to provide for an increasingly aspirational nation of 1.3 billion people, half of whom are aged 25 or under. “He has to do a very delicate tightrope walk between being reformist and populist,” said Nilanjan Mukhopadhyay, a journalist and biographer of Modi. “The problem in India is that people think reforms are pro-rich.”
Communal tone
Modi relied on his own charisma to clinch crucial votes in poor and agrarian Uttar Pradesh, but his campaign manager Amit Shah also takes credit for fielding the right candidates in a region where many people vote along caste and religious lines. Critics accuse Shah and Modi of “social engineering” and of switching to a more communally divisive tone to fire up their Hindu base as voting, staggered over the course of a month, progressed. Shah vowed to construct a Hindu temple on a razed mosque site and ban the slaughter of cows, worshipped by millions of Hindus. On the campaign trail, too, Modi played up religious divisions by asking why the state government ensured there were no power cuts in the Muslim holy month of Ramadan but not during the Hindu festival of Diwali. Still, the BJP likely collected minority votes, including Muslim women whom he courted by questioning an Islamic practice that allows men to divorce their wives with three simple words. “The results prove that Muslims and backward caste groups voted for the BJP,” said R.K. Mishra, a political analyst in Lucknow, the state capital of Uttar Pradesh. Reuters
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 Monday, March 13 2017 13
Asia Real estate
Singapore eases property curbs slightly as economy struggles The city has adopted several rounds of property cooling measures since 2009 Singapore is cutting stamp duties sellers are required to pay on residential properties and easing some rules on borrowing thresholds, as part of a slight relaxation of property curbs imposed since 2009 to rein in the market. Volumes of transactions in the private residential property market were healthy, with firm demand for private housing, the government said, however, so it would retain the current rates of additional buyer’s stamp duty and loan-to-value limits. “The current set of property market measures remain necessary to promote a sustainable residential property market and financial prudence among households,” Singapore’s ministry of national development, finance ministry and the central bank said in a joint statement on Friday. The measures took effect from Saturday. Shares of Singapore real estate developers, including City Developments Ltd and CapitaLand Ltd, rose on the news.
Stamp duty is a tax on documents relating to property, which has to be paid by both buyers and sellers. Singapore said it would cut by 4 percentage points across each category the stamp duty now imposed on sales of residential property within 4 years of purchase. It will also cut
the holding period to 3 years. Rules on the total debt servicing ratio (TDSR) framework will also be relaxed, the authorities added, reflecting feedback from some borrowers that the measure limited flexibility to borrow against the value of their properties and raise cash. “It shouldn’t be viewed as a broadbased easing, but it should help support the property market a bit,” said
Michael Wan, an economist at Credit Suisse. Singapore has adopted several rounds of property cooling measures since 2009, including higher stamp duties and tougher mortgage conditions, to clamp down on speculative buying. The measures helped drive down private residential property prices by 3.1 per cent last year, after a drop of 3.7 per cent in 2015. Reuters
A Singapore panorama. Lusa
Negotiations
EU and ASEAN agree to put free trade pact back on agenda A trade deal with ASEAN would connect the EU to the world’s seventhlargest market Neil Jerome Morales
The European Union and the Association of Southeast Asian Nations said on Friday the two blocs would try to revive plans for a Free Trade Agreement (FTA) between them, as European countries look to tap the region’s strong growth. The EU and 10-nation ASEAN launched talks towards a pact in 2007 but abandoned the process two years later, with the EU opting instead to conduct bilateral negotiations with individual states. Those talks have had mixed success, with deals so far agreed only with Singapore and most recently, Vietnam, but yet to be implemented. EU Trade Commissioner Cecilia Malmstrom said it was decided among the EU and senior ASEAN officials on Friday to establish a framework for talks to restart, but there was no so far no targeted time-frame. “We believe it is important to connect two growing markets and to take away as many obstacles to trade,” she told reporters in Manila. “Having a region-to-region agreement between EU and ASEAN is a
long-term goal we’ve been discussing for many years. We are now taking steps towards this.” A trade deal with ASEAN would connect the EU to the world’s seventh-largest market, and one with strong consumer and middle-class expansion, particularly in Vietnam and the Philippines, which are among the world’s best-performing economies. The ASEAN region has a combined 622 million people and economy of US$2.6 trillion and is driven largely by consumption, exports and manufacturing, with Europe a key importer of goods.
‘The ASEAN region has a combined 622 million people and economy of US$2.6 trillion’ The initial EU-ASEAN negotiations were halted in large part due to the complexities of setting common standards among 10 Southeast Asian countries with various political systems and stark differences in the size of their economies and populations. Human rights problems have been
Vietnamese Trade minister Tran Tuan Anh, Filipino Trade secretary Ramon Lopez, European Union (EU) Trade Commissioner Cecilia Malmstrom and ASEAN Secretary-General Le Luong Minh link arms during the 15th ASEAN Economic Ministers - European Union Trade Summit in Manila, Philippines, on Friday. Lusa
an issue for many ASEAN states, such as Vietnam, Thailand, Malaysia, Cambodia and Laos, creating an obstacle for the EU given its requirement to consider human rights in its trade
policies. ASEAN is loosely modelled on the European Union, though it has yet to establish common standards like free movement of goods, capital and labour. Unlike in Brussels, there is no one authority with the power to enforce agreements. Reuters
14 Business Daily Monday, March 13 2017
International In Brief Poll
Wall Street unanimous on U.S. rate hike Wall Street’s top banks were unanimous on the view the Federal Reserve will increase interest rates at its policy meeting this week following a stronger-than-forecast February U.S. payrolls report, a Reuters poll showed on Friday. Employers added 235,000 jobs last month, more than the 190,000 forecast among economists polled by Reuters. A drop in unemployment, more people seeking jobs and a rebound in wage growth were other upbeat aspects of the report that economists at these top banks reckoned give the Fed a green light to raise rates by a quarter point, to 0.75-1.00 per cent. Budget
Germany to lift spending Germany plans to boost government spending by a total of more than 38 billion euros (US$40 billion) by 2021 without straying from its goal of keeping a balanced budget, according to a draft finance ministry document. The arrival of more than 1 million migrants to the country over the past two years has raised questions over whether Berlin can stick to its cherished “schwarze Null”, or balanced budget, despite the costs of accommodating and integrating the refugees. Spending will rise to 355.6 billion euros in 2021, under the plan, from 317.4 billion euros last year - an increase of 38.2 billion euros. Fiscal plan
Puerto Rico governor ups revenue forecast Puerto Rico’s governor said on Saturday he has delivered a revised fiscal turnaround plan to the U.S. territory’s financial oversight board that includes US$262 million in additional revenue and changes to healthcare funding. Governor Ricardo Rossello’s initial plan, presented on Feb. 28, was rejected by the board, which said it relied on overly optimistic baseline revenue and economic growth forecasts. The board must approve a turnaround blueprint for the island under the federal Puerto Rico rescue law known as PROMESA. It has said it plans to do by March 15. Negotiations
U.S. hopes to launch NAFTA talks in just over 90 days U.S. Commerce Secretary Wilbur Ross said on Friday that he hopes to launch formal talks to renegotiate the North American Free Trade Agreement with Canada and Mexico in a little over three months, setting in motion a campaign promise made by President Donald Trump. During his election campaign, Trump threatened to pull out of NAFTA, which he views as damaging to U.S. workers, unless it was renegotiated to his liking and reduced the U.S. trade deficit with Mexico. Ross told reporters that “sometime in the next couple of weeks” he hopes to send a letter notifying Congress that the Trump administration intends to launch NAFTA negotiations in 90 days.
Cryptocurrency
U.S. regulators reject Bitcoin ETF The regulators have questions and concerns about how the funds would work and whether they could be priced and trade effectively Trevor Hunnicutt and Gertrude Chavez-Dreyfuss
T
he U.S. Securities and Exchange Commission on Friday denied a request to list what would have been the first U.S. exchange-traded fund built to track bitcoin, the digital currency. Investors Cameron and Tyler Winklevoss have been trying for more than three years to convince the SEC to let it bring the Bitcoin ETF to market. CBOE Holdings Inc’s Bats exchange had applied to list the ETF.
“The commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop”
anonymity, without the need for a central authority, such as a bank or government. Yet bitcoin presents a new set of risks to investors given its limited adoption, a number of massive cybersecurity breaches affecting bitcoin owners and the lack of consistent treatment of the assets by governments. “Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated,” the SEC said in a statement. “The commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop.” The regulators have questions and concerns about how the funds would work and whether they could be priced and trade effectively, according to a financial industry source familiar with the SEC’s thinking. “We began this journey almost four years ago, and are determined to see it through,” said Tyler Winklevoss, CFO of Digital Asset Services LLC. “We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.” The Winklevoss twins are best known for their feud with Facebook Inc founder Mark Zuckerberg over
whether he stole the idea for what became the world’s most popular social networking website from them. The former Olympic rowers ultimately settled their legal dispute, which was dramatized in the 2010 film “The Social Network.” Since then they have become major investors in the digital currency, which relies on “mining” computers that validate blocks of transactions by competing to solve mathematical puzzles. The first to solve the puzzle and clear the transaction is rewarded with new bitcoins. Solutions to the puzzle come roughly every 10 minutes. Advocates of the currency and the technology it relies on to document transactions, blockchain, were dismayed by the ruling. “How do we develop well-capitalized and regulated markets in the U.S. and Europe if financial innovators aren’t allowed to bring products to market that grow domestic demand for digital currencies like bitcoin?” asked Jerry Brito, executive director of Coin Centre, an advocacy group. Spencer Bogart, head of research at Blockchain Capital, said bitcoin’s price could fall as much as 20 per cent but that its long-term adoption will continue. A Bats spokeswoman said the exchange is reviewing the SEC’s statement and would have no further comment. There are two other bitcoin ETF applications awaiting a verdict from the SEC. Grayscale Investments LLC’s Bitcoin Investment Trust, backed by early bitcoin advocate Barry Silbert and his Digital Currency Group, filed an application last year. SolidX Partners Inc, a U.S. technology company that provides blockchain services, also filed its ETF application last year. Reuters
U.S. Securities and Exchange Commission statement The digital currency’s price plunged, falling as much as 18 per cent in trading immediately after the decision before rebounding slightly. It last traded down 7.8 per cent to US$1,098. Bitcoin had scaled to a record of nearly US$1,300 this month, higher than the price of an ounce of gold, as investors speculated that an ETF holding the digital currency could woo more people into buying the asset. Bitcoin is a virtual currency that can be used to move money around the world quickly and with relative
Portugal
CGD bank seeks to sell Spanish, S.African operations Burdened by massive bad loans, the bank is being recapitalised to the tune of 4 billion euros Portugal’s largest bank, the stateowned Caixa Geral de Depositos, plans to slash its foreign assets by half by 2020 as part of an ongoing restructuring and will prioritise selling its Spanish and South African businesses, the lender said. In a statement issued late on Friday, the bank, which posted a record 2016 loss of 1.86 billion euros, said it expects to cut its international assets to no more than 12 billion euros by 2020 from 23 billion last year, while targeting a rise in return on equity from the operations to more than 15 per cent from 13 per cent. CGD’s total net assets at the end of last year stood at 93.5 billion euros, down from some 101 billion in 2015. The lender said it planned to maintain operations “in markets with Portuguese affinity”, which include
Portuguese-speaking Angola, Mozambique and the Macau region in China, while selling or shutting down the remaining non-core international business.
‘The lender said it planned to maintain operations “in markets with Portuguese affinity”’ “We will give priority to operations (to sell) in South Africa and Spain,” CEO Paulo Macedo told reporters, adding that the bank’s French unit
was also likely to be sold. Banco Caixa Geral in Spain has 110 branches across the country and employs about 500 people. CGD’s Mercantile Bank has a network of branches mainly in the Johannesburg region. Most of CGD’s businesses abroad made a positive contribution to last year’s results, if smaller than in 2015, led by its Macau subsidiary, the French unit, which serves thousands of Portuguese emigrants, and Angola. Burdened by massive bad loans, which now have largely been provisioned for leading to last year’s huge loss, CGD is being recapitalised to the tune of 4 billion euros. The European Commission on Friday cleared the recapitalisation as it was carried out on market terms and therefore involved no new state aid. It said the plan presented by Portugal to ensure the bank’s profitability meant the state would receive a market-based return on its investment. Reuters
Business Daily Monday, March 13 2017 15
Opinion Business Wires
The Times of India The government has collected 6.4 tonnes of gold under the scheme for monetising the metal, Parliament was informed on Friday. Launched in November 2015, the scheme intends to mobilise idle gold held by households and institutions so that the wealth can be put to productive use. The scheme also intends to reduce the current account deficit by lowering the country’s reliance on gold imports to meet the domestic demand, Minister of State for Finance Arun Ram Meghwal said in a written reply in the Lok Sabha.
By exclusion, or by aging, inflation from emerging markets is coming
Taipei Times More than 1,000 people participated on Saturday in Taipei’s annual march against nuclear power, demanding that President Tsai Ing-wen’s administration outline a timeline and concrete steps to realize its promise of a “nuclear-free homeland.” Protesters wearing yellow armbands and headbands rallied in front of the Presidential Office Building along Ketagalan Boulevard before marching through central Taipei, winding their way past the Legislative Yuan before returning to Ketagalan for an evening of speeches and performances. The demonstrators shouted slogans calling for the abolition of nuclear power in favour of alternative forms of low-carbon footprint and alternative energy sources.
The Korea Herald Creditors of Daewoo Shipbuilding & Marine Engineering Co. are in a dilemma over whether to provide additional assistance to the cash-strapped shipbuilder as the company is facing a liquidity shortage amid a sharp fall in new orders, industry sources said yesterday. The creditors, led by the state-run Korea Development Bank, announced a rescue package worth 4.2 trillion won (US$3.63 billion) in October 2015 for Daewoo Shipbuilding, on expectations that the shipbuilder would clinch up to US$12 billion worth of orders last year, and the delivery of newly built ships would go smoothly.
Philstar The Bangko Sentral ng Pilipinas (BSP) said monetary and fiscal authorities have ample policy space to respond to external shocks brought about by the growing trend of populism and protectionism in the U.S. and in Europe as well as the divergence of monetary policy. BSP Governor Amando Tetangco Jr. said the gross domestic product growth target of 6.5 to 7.5 per cent this year is achievable despite the continuing external headwinds. “Our thrust over the years has been to focus on ensuring sound macroeconomic fundamentals and building these as sole growth of resilience. Such focus has yielded considerable gains for us,” he said.
E
merging markets may soon become a source of global inflation rather than deflation. The main question is if this happens through the fire of trade barriers or the ice of demographics. The integration of China, India and the former Soviet bloc into the global economy since the 1980s has provided a profound deflationary shock, effectively doubling the global labour pool. China’s integration into a complex web of global supply chains notably happened at the same time as tariffs were minimized or eliminated, allowing Western consumer goods to be manufactured using lessexpensive Chinese and other Asian labour. Yet China, its aging population the result of the now-rescinded one-child policy, is well past the point at which its supply of new labour exceeds demand, with new urban workers falling short of demand continuously since 2011. The movement of production out of China into less-expensive Asian and Indian locales has been widespread, but the impact of any price rises globally has perhaps been masked by falls in commodities costs in recent years. “A shrinking labour force and population aging in China will bring inflationary pressures,” Christophe Donay, head of asset allocation and macro research at asset manager Pictet, wrote in a note to clients. “As labour costs continue to rise and commodity prices are lifted from their previously depressed levels, higher inflation will eventually come.” A 2015 study by Mikael Juselius and Előd Takáts of the Bank for International Settlements found that having a larger working-age population in a given country tended to suppress inflation, while having more aged and young dependents tended to drive it higher. Demographics alone may increase Chinese domestic headline inflation by 25 per cent in 2025 compared with its average in the 2002-2015 period, according to Pictet estimates. Although Chinese inflation might be only 3 per cent domestically in 2025, the impact on global inflation could be considerable and sustained, as there are few obvious pools of labour that could easily and cheaply be substituted to play the role China has over the past 25 years. That’s not a bad thing for China itself, which needs to drive domestic wages higher to allow for the consumption share of its economy to grow and leave it less dependent on manufacturing and exports. While demographics may well be destiny, and U.S. and global inflation thus destined to be pressured higher, the great thing about an aging population
“
James Saft a Reuters columnist
is that it happens slowly, giving policymakers and businesses time to adapt.
The fire this time?
The more urgent and potentially destructive danger is not that emerging markets push prices higher slowly over time, but that a new trade war cuts them out partially from globally integrated supply chains, boosting prices rapidly. Donald Trump won the presidency on a platform that accused China, and others, of manipulating the global trade system to its own advantage, hollowing out the U.S. economy and manufacturing employment. Peter Navarro, his head of the White House National Trade Council - and the author of a book called “Death by China” - has evidently launched the administration’s trade campaign, taking aim this week at the “liberal trading order” under which we’ve lived since the end of World War Two. Focusing, to the distress of economists, on trade deficits, Navarro said the United States should aim to “reclaim all supply-chain and manufacturing capabilities that would otherwise exist if the playing field were levelled.” At this point he is asking other countries to voluntarily buy American to drive that unlikely transformation. But if he and his president are actually serious about it, tariffs and trade barriers will be involved. Remember, average world tariff rates were 30 per cent in the early 1980s, spiking as high as 40 per cent in the early 1990s and then steadily declining to roughly 6 per cent by 2010, according to World Bank-derived data. Global inflation traced a similar path, from as high as 30 per cent in the 1990s to about 3.3 per cent today. What happened slowly on the way down may reverse rapidly on the way back up, as the U.S. imposition of tariffs or a border tax or other barrier leads to a tit-for-tat response by trade partners. That could produce an inflation shock. Already analysts are forecasting that a border tax would add US$2,000 to US$2,500 to the average U.S. auto price, an increase of 6 per cent to 7 per cent. The Federal Reserve might “look through” that kind of thing as a one-off increase in prices, but it is highly unlikely not to contribute to a wage spiral, prompting sharp increases in interest rates. But investors, on the other hand, will be lucky if the ice of demographics-caused inflation is their worst problem. Reuters
The great thing about an aging population is that it happens slowly, giving policymakers and businesses time to adapt
”
16 Business Daily Monday, March 13 2017
Closing Statesman
Sun Yat-sen remembered 92 years after death
vice chairman of the Revolutionary Committee of the Chinese Kuomintang Central Committee. Also yesterday, local officials and residents of Ceremonies were held yesterday to east China’s Jiangsu Province marked the day commemorate the 92nd anniversary of at Sun’s mausoleum in Nanjing, the province’s the death of Dr. Sun Yat-sen, a renowned capital city, honouring his achievements and statesman who led the revolution that ended role in the revolution. imperial rule in China. Representatives from all walks of life attended a Sun was born in 1866 and is known to the ceremony in Zhongshan Park, named after Sun, Chinese people as a “great revolutionary and statesman” for his leading role during the 1911 in Beijing. A moment of silence was observed Revolution, which ended more than 2,000 before attendees showed their respect to Sun by bowing three times in front a statue of Sun. years of feudal rule in China. Sun died on March 12, 1925, in Beijing. Xinhua The ceremony was presided over by Liu Fan,
Labour
Kim killing sheds light on murky world of women migrants Many migrants travel to Malaysia through formal labour contracts, but thousands more take advantage of being allowed to work in Singapore and Malaysia for 30 days at a time M Jegathesan / Elizabeth Law
L
i Nang, a young migrant worker wearing hot pants and high heels, stood before the statue of a gilt goddess garlanded with marigolds and fairy lights in Kuala Lumpur as she prayed for good business -- and her own safety. Malaysia’s underground community of undocumented female workers was thrust into the spotlight when news emerged that Kim Jong-Nam was assassinated by two women migrants using lethal nerve agent VX on February 13 at Kuala Lumpur International Airport. Since then, a Malaysian police crackdown on undocumented workers like Li has escalated -- making their already vulnerable existence even more precarious. Airport CCTV footage shows two women approaching the half-brother of North Korean leader Kim JongUn and apparently rubbing his face with a cloth. Indonesian Siti Aisyah, 25, and Doan Thi Huong, 28, from Vietnam, have since been charged with the murder and face the death penalty if found guilty. South Korea says Jong-Un ordered the killing of his estranged sibling, who had lived overseas for years but had voiced criticism of the regime, and engaged two outsiders to carry it out. Both women have told diplomats
from their countries they were duped into believing that they were taking part in a TV prank show but Malaysian police have rejected their claims. Little is known about them, with police saying that Huong worked at an “entertainment outlet” while Aisyah was a masseuse at a spa, but immigration experts say the secrecy surrounding their lives illustrates the clandestine existence led by thousands of undocumented Southeast Asian women migrants. Many migrants travel to Malaysia through formal labour contracts, but thousands more take advantage of being allowed to work in Singapore and Malaysia for 30 days at a time, travelling back and forth between two or three countries and trying to earn as much as possible before their luck runs out. Taking up jobs as cleaners, waitresses, masseuses and prostitutes,
they live in the grip of a murky system, vulnerable to exploitation and harassment by police looking to shake them down for bribes. As she prepared for work, Li, a 25-year-old Vietnamese prostitute, kept up a steady exchange of messages with her sister in Ho Chi Minh City, in an attempt to reassure relatives even as she herself feared for her safety. “I texted her saying ‘I have to take the risk. What choice do I have? I need the money’,” Li told AFP inside a dimly lit bar. The arrests of her compatriot Huong and Indonesian Siti have brought unwelcome attention to a community which already has much to fear from Malaysian authorities.
‘Constant fear’
At a pub in the Petaling Jaya suburb, Filipina waitress Mika (not her real name) told AFP that police had intensified their efforts to hunt down illegal workers like her following Kim’s assassination. Three of her friends working in the same bar were recently arrested by police.
“Fortunately I was off on that day. I think God saved me,” the single mother said. “I am now living in constant fear. I do not want to be caught.” The 35-year-old previously paid 3,600 ringgit (US$800) to an employment agent to secure a long-term work visa, but he stole the money. “Now I have a monthly visa. Before it expires I head to Thailand where I spend three nights. I give an agent a fee of 1,000 ringgit and he gets a new visa for another month,” she said. “Life goes on like this every month.” Malaysia, Southeast Asia’s third largest economy, is highly dependent on foreign labour. According to a World Bank report in 2015, the country hosts some 2.1 million registered migrants and likely more than one million others who are undocumented. Women are especially vulnerable, with agents or employers forcing some of them to live together in the same house under constant surveillance, leaving them isolated and with little to no contact with the outside world, migrant rights’ activist Aegile Fernandez told AFP. Often, their passports are withheld so they have no means of running away, leaving them open to abuse and exploitation, said Fernandez, co-director of Tenaganita, a Malaysian non-profit focusing on migrant worker protection. “Some are even threatened by their employers that they will be handed to immigration, or even threatened with rape,” she said. “If you were in that situation, you would be in fear. You know there’s no way out, you just continue working.” AFP
Private report
Demography
NDRC vice chairman
China leads potential for tech breakthroughs
Mainland’s senior population to reach 255 mln by 2020
Industrial output in 2017 grew more than 6 pct in China
China and the United States have the greatest potential to lead advances in disruptive technology, according to a recent report by international accounting firm KPMG. The annual report, “The Changing Landscape of Disruptive Technologies,” is based on a survey of over 800 global technology leaders including start-up entrepreneurs and Fortune 500 executives. This year’s poll reflected a slight uptick for China, with 25 per cent of respondents saying they believe China could be a leader in disruptive technology, compared with 23 per cent last year. Those endorsing the United States declined slightly from 29 per cent a year ago to 26 per cent. China continues to make rapid gains as the country moves from a reliance on manufacturing to an innovation powerhouse, the report read. “China’s economic transformation is spurring the creation of new drivers of growth, new industries, new institutions, and new opportunities in the technology and innovation space,” Egidio Zarrella, clients and innovation partner at KPMG China, was quoted as saying. Xinhua
China’s senior population -- those aged 60 and above -- is expected to reach 255 million by 2020, according to a State Council plan. By 2020, senior citizens will account for 17.8 per cent of the total population, and the number of people aged 80 or older will reach 29 million, said the plan on the development of the elderly during the 13th Five-Year Plan (2016-2020) period. According to the plan, China will provide better senior care services by improving the social security system and enabling both the government and market to function. “The plan aims to deal with challenges brought by an aging society in the next 30 years, and has set top-level policy for the country’s eldercare development,” said Lu Jiehua, a professor at Peking University. Lu stressed problems such as unbalanced regional development, as eldercare service in rural areas faces great challenges. Jiang Hongwei, secretary-general of the China Health and Senior Care Industry Alliance, said that although the country had accomplished the 2010-2015 goal of adding nursing home beds for the elderly, half of them remain empty. Xinhua
China’s industrial output grew more than 6 per cent in January and February, a vice chairman of the state economic planner said yesterday, adding that the survey-based unemployment rate in 31 major cities was about 5 per cent for the two-month period. National Development and Reform Commission (NDRC) Vice Chairman Ning Jizhe gave the approximations, which were in line with expectations for official data set to be issued on Tuesday, on the side-lines of China’s annual parliament session. Fixed asset investment growth kept pace with the final few months of last year, Ning said. “China’s economic growth still mainly relies in domestic demand,” he said. January and February data will be released together in a bid to smooth out seasonal factors caused by the timing of the long Lunar New Year holidays, which began in late January this year but fell in February last year. China unexpectedly posted its first trade gap in three years in February as a construction boom pushed imports much higher than expected. That upbeat import reading reinforced the growing view that economic activity in China picked up in the first two months of the year. Reuters