Ctrip: MSAR second stage of concentration Company strategy Page 6
Wednesday, March 15 2017 Year V Nr. 1254 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Property
Mainland real estate performs better than expected Page 9
Statistics
China introduces new index to measure service sector Page 10
Tourism
MSAR ranked 5th in N. Asia for visa-free access Page 2
www.macaubusinessdaily.com Insurance
A.M. Best rates China Taiping Macau ‘stable’ Page 4
Gaming
Cambodia’s gaming taxes surged 40 pct last year Page 7
The non-universal smoking ban Gaming
The universal smoking ban bill for casinos is no longer universal. A legislative sub-committee has accepted the authorities’ proposed inclusion of ‘high-standard’ smoking lounges. Effective next year if the legislature gives it the final green light. Operators will be given another one year to meet the new standards. Page 3
More in the pocket
Average monthly earnings of workers in the retail & wholesale industry increased 2.6 pct y-o-y for December 2016. Statistics and Census Service data also shows that transport, storage & communications plus security and public sewage workers ended the year on a high.
Mortgage loans plunge
Property Newly approved home mortgages dipped 16 pct m-o-m in January. Driven by those collateralised by uncompleted units being cut almost in half. Meanwhile, new commercial real estate loans posted a notable drop of 42.2 pct m-o-m, says the Monetary Authority of Macau. Page 5
Keeping the world ticking over
Retail Luxury spending by Mainland Chinese is expected to be a key component of global growth this year. So finds a report jointly conducted by Exane BNP Paribas and Contactlab. Indicating that those benefiting from the market are usually those with good exposure. Page 6
Beijing maintains the pace Manpower Page 3
HK Hang Seng Index March 14, 2017
23,827.95 -1.72 (-0.01%) Worst Performers
Galaxy Entertainment Group
+2.07%
China Shenhua Energy Co
+1.40%
Geely Automobile Holdings
-1.61%
Hang Lung Properties Ltd
Kunlun Energy Co Ltd
+2.06%
Lenovo Group Ltd
+1.28%
New World Development
-1.61%
China Resources Power
Sands China Ltd
+1.92%
China Resources Land Ltd
+1.17%
AAC Technologies Holdings
-1.59%
Sun Hung Kai Properties Ltd
China Construction Bank
+1.60%
China Merchants Port Hold-
+0.94%
Want Want China Holdings
-1.36%
Sino Land Co Ltd
-1.06%
Belle International Holdings
+1.52%
Cheung Kong Property
+0.88%
HSBC Holdings PLC
-1.32%
AIA Group Ltd
-0.72%
18° 19° 18° 21° 19° 21° 20° 21° 20° 22°
-1.23%
Today
-1.11% -1.06%
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Official data China’s industrial output growth held steady in January and February. Retail sales, a key indicator of consumer spending, disappointed. But fixed asset investment, a gauge of infrastructure spending, rose. Page 8
2 Business Daily Wednesday, March 15 2017
Macau Public tender
Seac Pai Van commercial units leased at MOP800/m2
The Housing Bureau concluded the public tender for the concession of 18 commercial spaces in the Ip Heng Building located in Seac Pai Van in Coloane yesterday to rent out all the units at an average price of some MOP800 (US$100) per square metre, according to local broadcaster TDM Radio. Occupying between 50 square metres and 134 square metres, the 18 commercial units will be leased for a monthly
rent of MOP25,000 to MOP190,500, based upon the highest bidding prices submitted by the contenders yesterday. According to an official announcement by the Bureau, it received 77 applications for the tender. The spaces, located on the ground level and first floor of the building, comprise one unit for sale, installation, and repairing of kitchen stoves equipped with natural gas and attendant complementary equipment, five units for food and beverage business, and 12 commercial spaces for retail and services. S.Z.
Workers’ rights
Public consultation for labour law amendments this year The city’s Secretary for Economy and Finance said the government hopes to conduct public consultations to revise the city’s current labour law this year Cecilia U cecilia.u@macuabusinessdialy.com
The city’s Secretary for Economy and Finance, Lionel Leong Vai Tac, affirmed related amendments to the city’s Labour Law regarding the addition of paternity leave and compensatory leave for overlapping holidays will be opened for public consultation by the end of this year, local broadcaster TDM Radio News reported. Speaking to reporters in Beijing, the Secretary said there are seven revisions for the current law that the government will prioritise, including overlapping holidays and paternity leave. The official also expressed his hope that the consultation can be completed by the first quarter of next year, in order to proceed to the legislation
for the bill. Unionist legislator Ella Lei Cheng I held a press conference last week to bring attention to the incorporation of paid paternity leave in the city’s Labour Law, as well as that of compensatory leave for employees whose weekly rest days fall on mandatory holidays. Ms. Lei submitted a bill to the Chief Executive (CE) last Wednesday in the hope of obtaining approval from the CE to propose the amendment bill in the Legislative Assembly. In Macau, workers are eligible to enjoy a minimum of 52 days of weekly rest days, 10 days mandatory holiday and 6 days annual leave per year, while civil servants can enjoy five days paid paternity leave as well as compensatory leave for overlapping days off. Ms. Lei is proposing a five-day
paid paternity leave for employees in the bill.
Upgrading CEPA to highlight Macau’s role
The Secretary, meanwhile, also disclosed that the Ministry of Commerce of the People’s Republic of China is planning to improve the Closer Economic Partnership Arrangement (CEPA) between the Mainland and the MSAR. The improvement of the scheme will highlight Macau’s role as the platform for Sino-Luso co-operation.
For instance, food products from Lusophone countries can be processed in Macau and later traded with tariff concessions to Mainland China in accordance with the terms of CEPA, the Secretary said. He also noted that the content of the protocol for the CEPA scheme should be varied for the city and Hong Kong, in order to accommodate the needs of China, as well as make good use of Macau’s role as a Sino-Luso platform. The Secretary hopes the revised protocol can be inked this year.
Tourism
MOP5 mln to promote MSAR in Portugal Local tourism body sees investment in promoting the territory overseas is paying off Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The budget allocated to the Macau Tourism Promotion and Information Centre in Portugal to promote the city is at MOP5 million (US$625,000) for this year, according to information provided to Business Daily yesterday by the Macao Government Tourism Office (MGTO). On Monday, the Official Gazette announced the tenure of this Portuguese arm of MGTO had been extended to June 15, 2019. “The Centre plays a proactive role in promoting Macau tourism in Portugal and nearby region,” MGTO’s spokesperson explained in an e-mailed reply. “Over the years, the number of visitor arrivals as well as overnight stays have shown an upward momentum and we believe the efforts of the representative offices have contributed to this achievement.”
Currently, MGTO has three delegations in Lisbon, Beijing and Taipei, as well as 12 other MGTO representatives across three continents. Asked whether it would establish new representative offices in the future, the Office said it “will follow closely with the trend and development of the source markets and evaluate the need to set up more representative offices in order to attract more diverse visitor sources for Macau.” Business Daily also enquired into how much the Office disbursed to the Portuguese arm for its activities in the year of 2016 and 2015 but we had not received any reply from the Office before this story went to press. According to MGTO, the tourism centre is currently co-ordinated by Rodolfo Manuel Baptista Faustino and operates with eight staff members. Questioned about the centre’s role in the preparation for the upcoming 43rd National Congress of the
Portuguese Association of Tourism and Travel Agencies (APAVT) - taking place in Macau from November 23 to November 27 this year - the Office spokesperson said that MGTO and the centre are working closely with the organisers. “The preparation includes communication and logistics work to ensure a successful APAVT congress in Macau,” the spokesperson said.
According to MGTO, the organisers anticipate that some five hundred tourism operators and travel agents will attend the event. “The Congress will serve not only as a great opportunity to update the participants about Macau’s new tourism products but also to promote Macao as a multi-destination [site], together with other cities in Mainland China,” the Office representative wrote. This November will be the fifth time that the MSAR has hosted the event, with the previous one taking place in 2008.
Tourism
Macau ranked 5th in N. Asia for visa-free access The MSAR has been ranked 5th in the North Asian region for its visa-free access outside the territory, according to the 2017 Visa Restriction Index by global residence and citizenship advisory firm Henley & Partners. Data shows that Macau has had the biggest climb within the region, with visa-free access to a total of 127 places, an addition of four places from one year ago. The neighbouring city, Hong Kong, remained the third in North Asia, but dropped from 20th last year to 22nd globally, with visa-free access to 152 countries. Meanwhile, Japan (free-access to 172 countries) and South Korea (170 countries) took first and second places in the North Asian region, respectively. Mainland China, on the other hand, stood at 6th place in North Asia, while ranking 85th when compared to the
rest of the world, with visa-free access to 51 countries. In terms of worldwide ranking, Germany topped the list, with visa-free access to a total of 176 countries. The firm’s Visa Restrictions Index is an annual travel freedom ranking produced in collaboration with the International Air Transport Association. C.U.
Business Daily Wednesday, March 15 2017 3
Macau Smoking ban
Smoking lounges officially proposed in bill The new addition to the full smoking ban bill will allow operators one year after the implementation to set up new smoking lounges or update old ones Nelson Moura nelson.moura@macaubusinessdaily.com
G
aming operators will have until January 1, 2019 to install new smoking lounges or update their current ones to meet new standards set by the authorities if the smoking ban bill passes in the local legislature, according to the second standing committee of the Legislative Assembly (AL). Last month, the Health Bureau proposed amending the drafted bill proposing a full smoking ban inside gaming revenues, allowing gaming operators to set up smoking lounges that can meet a series of standards. Discussing the amendments for the bill yesterday, the chairman of the AL sub-committee, Chan Chak Mo, said the new bill will be enforced on January 1 next year if it is approved by the legislature, while new requirements for smoking lounges have to be met within the following year after implementation. The committee chairman said a meeting with the government would be scheduled next week to inform the latter of the opinions and suggestions collected by the sub-committee, of which two members - Ng Kuok Cheong and Leong Veng Chai – still oppose the establishment of smoking lounges and have questions about the standards. Nevertheless, the sub-committee chairman expects the bill can be sent for a final reading at a plenary session next month, adding he believes the bill can be approved by the end of this legislative term in August.
“We currently have five law proposals under discussion. But with extra hours and more meetings, I believe we will be able to conclude all of them by August 15,” said the committee chairman.
Standards not confirmed
The government’s proposed amendments to the bill follow a survey commissioned by the six local gaming operators that concluded that 60 per cent of 14,301 interviewed
employees agree with ‘solutions that allow smoking lounges’ in casinos. However, Mr. Chan stated that new standards for the new smoking lounges are still under discussion between the government and gaming operators, adding that the standards would be dispatched by the Chief Executive once the parties define the list. Over the weekend, the Deputy Director of the Health Bureau, Cheang Seng Ip, said that all six local gaming operators have agreed with the proposed specifications for smoking lounges in casinos made by the Bureau. The Health Bureau currently requires that smoking lounges in casinos generate a negative pressure of at least
-5 pascal (Pa), which is similar to operating rooms in hospitals and medical centres, for the prevention of cross-contamination from room to room. While smoking is currently only allowed in the smoking lounges of mass gaming floors and VIP rooms, the new bill, once passed, implies gaming operators would have to install smoking lounges in their VIP areas as well. Questioned how new integrated resorts that are still under construction can set up smoking lounges that meet future standards, the chairman of the sub-committee said that these gaming operators will “have to install them and possibly update them later.” The sub-committee also accepted changes to the bill proposed by the government; namely, including electronic cigarettes in the legal framework and probating the showcase of tobacco products in non-specialised places of sale, such as street stands.
Manpower
Education
Retail & wholesale workers enjoy salary increase in December
IFT ranked 2nd in Asia for hospitality and leisure management
Those in transport, security and public sewage fields saw their monthly earning go up, too Cecilia U cecilia.u@macaubusinessdaily.com
Workers engaged in the wholesale and retail trade enjoyed an increase of 2.6 per cent year-on-year in average earnings to MOP12,800 (US$1,599) for the last month of 2016, the latest survey on manpower needs and wages by the Statistics and Census Services (DSEC) has revealed. For selected occupations, DSEC data shows that the average monthly earnings of retail shop salespersons or stock keepers, in particular, enjoyed an increase of 8 per cent, amounting to MOP12,530 for the month. Sales representatives, however, saw their monthly earnings decline by 6.5 per cent year-on-year to MOP14,000 in the same month. Apart from the trade sector, other
industries covered in the report namely, transport, storage & communications, security activities and public sewage & refuse disposal activities - saw the average earnings of their workers rise in the same month compared to one year ago. In particular, the monthly average earnings of those in public sewage & refuse disposal activities jumped 8.4 per cent year-on-year to MOP17,730 in December, while those in security activities, and transport, storage & communications saw their monthly salary increase 1.8 per cent and 4.5 per cent year-on-year, amounting to MOP13,030 and MOP20,970, respectively. In terms of job vacancies, the sector of wholesale & trade had 4,108 job vacancies during the fourth quarter of 2016, the highest number among other sectors and an increase of 328 positions year-on-year. The industry’s recruitment rate rose by 1.2 percentage points year-onyear to 5.9 per cent for the quarter, while turnover went up 0.4 percentage points to 5.6 per cent. Meanwhile, job openings in transport, storage & communications decreased by 161 year-on-year in the quarter for 734. In addition, vacancies in security activities fell by 199 yearon-year to 1,051.
The Institute for Tourism Studies (IFT) has been ranked second in Asia in the field of hospitality and leisure management by the QS World University Rankings by Subject 2017. The institution is also ranked 18th in the same field when compared to the rest of the world. Within the hospitality and leisure management field, IFT was the only tertiary education institution from Macau ranked by the QS World University Rankings. Meanwhile, Hong Kong Polytechnic University topped the list for the Asian region and was third
for worldwide. The University of Nevada in Las Vegas ranked best in the world for hospitality and leisure management. QS World University Rankings is composed by Quacqarelli Symonds Ltd (QS), which is published on an annual basis. QS has been compiling rankings by subject since 2011. For the 2017 edition, it assessed more than 1,100 institutions in 74 countries. The ranking by subject is produced using four sources of information: surveys of academics and employers, as well as research impact assessments.
4 Business Daily Wednesday, March 15 2017
Macau Opinion
José I. Duarte* Financial musings The recent IMF report on Macau touched, as it was inevitable, on the issue of diversification. One of the highlights is the government’s intention to develop financial services. The report quotes the region’s fiveyear plan on the subject, and the issue was undoubtedly touched upon during contacts with the local authorities. The document’s comments are, however, somewhat guarded. It is an area to ‘explore,’ they concur; but ‘further work would be useful to establish both Macao SAR’s comparative advantage and the potential cost-benefit’ of doing so. In other words, it is not clear what we are talking about. The close cause for this focus on financial ‘diversification’ is not difficult to pin. Indeed, the Chinese Premier gave a robust and positive sign on the subject in his recent visit. But after that strong signal, it is for others to clarify the details; namely, which services the local financial sector can provide, and how they will develop the opportunities identified there. Here the details are wanting. What are, in practice, the new or extended services that local banks may offer in renminbi? Will all the local banks be allowed (let alone be able) to provide those services? Which profiles, if any, need those banks (or their customers) fit? What might be the required changes to legal and administrative procedures? At some point, these issues will need clarification. Then, questions pop up regarding the labour and economic impacts. Unless someone has figured out how Macau can become a major financial centre at short notice – in which case we would expect more details to be forthcoming without much delay – those impacts are likely to be modest. Let us assume that the ‘new’ set of authorised operations requires sophisticated labour skills. For all the talk about local talent, Macau is unlikely to provide the necessary workforce. Even leaving aside the current sensitive levels about labour imports, where will those experts come from? When and at what cost? Contrariwise, if the skill pool is available in Macau, the ‘new’ services are likely to be limited in size, or technically undemanding, or both. Their contribution to the local economy cannot be too great. The provision of international financial services is a sensitive area in economic, political and diplomatic terms. Once we try to peer beyond the declarations of intent, unanswered questions abound. Unless some bold roadmap is drawn up, the diversification outcomes might turn out to be quite limited. *economist and permanent contributor to this newspaper.
Insurance
China Taiping Macau rated ‘stable’
U
.S. based rating agency A.M. Best expects the outlook of China Taiping Insurance (Macau) Co., Ltd. to be stable, assigning an ‘A (Excellent)’ rating to the company’s financial strength and an ‘a’ for its long-term issuer credit. The rating agency claimed in a press release that the ratings reflect that the local insurer’s risk-adjusted capitalisation is strong, in addition to its ‘consistently favourable operating performance and position’ as the leader of the local non-life insurance market. ‘CTIM’s risk-adjusted capitalization level, as reflected by Best’s Capital Adequacy Ratio (BCAR), remains
strong and supportive of its ratings,’ the agency wrote. ‘Capital and surplus was strengthened primarily through retention of operating profits, which have been consistently strong due to favourable underwriting performance and profitable investment results,’ it explained. The firm pointed out, however, that the insurer’s investment results due to market value fluctuations in fixed income securities and the anticipated slowdown in the market’s premium growth may offset rating factors. ‘Negative rating actions could occur if [China Taiping Macau] risk-adjusted capitalization weakens due to,
for example, a larger than expected dividend payout or if the company’s operating results deteriorate materially due to investment impairments or other negative factors,’ the firm noted. According to the official data of the Monetary Authority of Macau, China Taiping Macau led the city’s non-life insurance market, with total gross premiums accounting for 28.2 per cent of the market total as at the end of the third quarter of 2016. At MOP494.8 million (US$61.9 million), the company’s total gross premiums for the first three quarters of 2016 only represent a growth of 1.2 per cent from MOP488.96 million during the same period of 2015. K.L.
Retail
Le Saunda expects annual profit slump Footwear and accessories retailer Le Saunda Holdings Ltd. announced an expected decrease of between 35 per cent and 40 per cent in consolidated profit for the financial year of 2016/2017, according to a filing with the Hong Kong Stock Exchange. According to the company, the expected decrease in annual profit was due to the decline in sales in its last financial quarter ended February 28 - a ‘traditional peak period of the retail market’ and ‘a main revenue and profit making season.’ In the same filing, the company announced that its total retail sales had registered a 17.2 per cent year-on-year decrease for the three months ended February 28, while its e-commerce business saw a decline of 41.3 per cent year-on-year during the same period. ‘The significant decrease of retail sales was a result of the substantial increase in off-season product sales ratio compared with the last year, as it was the Group’s objective to clear up off-season inventory in order to minimise the potential inventory pressure as well as to maintain a strong and healthy cash and bank position in this uncertain sluggish retail market,’ the Hong Kong listed
company stated in its filing. The release also said that the total number of outlets the company operated in Mainland China, Hong Kong and Macau had decreased year-onyear by 100 to 796 outlets as at the end of February this year.
Le Saunda is engaged in the design, development, manufacturing and retailing of ladies’ and men’s footwear, handbags and accessories in Mainland China, as well as in both SARs using a vertically integrated business model. N.M.
Banking
Real estate
On the right track
Country Garden hits RMB87.26 bln in sales
Millennium BCP Macau general manager agrees with investor’s direction to expand operations
Property developer Country Garden Holdings Ltd. achieved a total of RMB87.26 billion (MOP100.7 billion) in contracted sales for the first two months of the year, according to the group’s filing with the Hong Kong Stock Exchange. The company operates primarily in the real estate market on the Mainland, attracting a number of buyers from the SARs interested in property in neighbouring Guangdong and beyond. The group’s results reveal that the gross floor area contracted in sales during the first two months of the year reached 9.99 million square metres, of which that directly attributable to the company was 7.45 million metres, for a total value of RMB63.81. The results come after the group’s announcement regarding its January results, in which it noted that it had achieved a sales value of RMB48.6 billion, including that of subsidiaries, reaching a total gross floor area of 5.49 million square metres. Of this, that attributable to owners of the company amounted to RMB35.3 billion, with a total floor area of 4.06 million square metres.
Triangular operations between Mainland China, Macau and Portuguese-speaking countries is the most strategic sector at the moment, the Millennium BCP Macau branch General Manager, José Pãosinho, told Business Daily. The statement is a response to our enquiry on the recent announcement by the Chairman of Chinese investment group Fosun Industrial Holdings Ltd., Guo Guangchang, who says his company will promote the development of Banco Comercial Português SA (Millennium BCP) operations in Macau and Mainland China. The Chinese group currently owns 24 per cent of the Portuguese bank that controls Millennium BCP Macau. “The statements by Mr. Guo match our main strategy in the past years. The most strategic sector at the moment is triangular operations between Mainland China, Macau and
Portuguese-speaking countries, especially the import and export operations with Angola,” Mr. Pãosinho told Business Daily. However, neither the Fosun Chairman nor Mr. Pãosinho offered precise details on how that development might proceed. The general manager of Millennium BCP Macau General also said the bank still maintained good “return on equity” and a good ranking position in the local banking sector although it finished 2016 with a 17.6 per cent year-on-year decline in profits of MOP165.7 million (US$27 million). “In 2015, we were in 8th and now we’re in 10th. We’ve had a defensive attitude in our credit portfolio and we’ve slowed down [our] activities (…) We still plan to expand our trade financing activities and slow down our syndicated loans; it’s just how we read the economy at the moment,” he added. N.M.
Business Daily Wednesday, March 15 2017 5
Macau Property
Home mortgage grants drop in January In particular, those for uncompleted units nearly halved from December 2016 Kam Leong kamleong@macaubusinessdaily.com
T
he city’s banking sector approved some MOP3.5 billion-worth (US$437.5 million) of new residential mortgage loans for the month of January, a decrease of 16 per cent month-on-month, as new approvals of equitable mortgages plunged by nearly half from one month ago. According to the latest official data of the Monetary Authority of Macau (AMCM), those to residents accounted for 96.7 per cent, amounting to MOP3.4 billion, down 13.1 per cent month-on-month, while those to non-resident plunged 57.5 per cent month-on-month to MOP114.2 million. The month’s newly approved mortgage loans from local banks represent an increase of 9.2 per cent compared to the first month of 2016. Meanwhile, newly approved mortgage loans collateralised by uncompleted units posted a decrease of 47.6 per cent from one month ago, amounting to some MOP162.2 million. On a year-on-year comparison, the amount dropped even further by 80.1 per cent. According to AMCM data, these equitable mortgages approved for residents accounted for 92.5 per cent
of the total, at around MOP150.4 million, a decrease of 50.2 per cent month-on-month.
Commercial loans plunge
M ea n w h i l e, n e w l y a p p r o v e d commercial real estate loans from local banks decreased from a month ago in January, down 42.2 per cent month-on-month to MOP2.7 billion. In particular, those to residents fell 97.3 per cent to MOP9.5 million. AMCM explained the notable decline as due to a higher comparison base in the pervious month.
In addition, new commercial real estate loans to residents registered a significant decline of 37.5 per cent, to MOP2.65 billion. Compared to the same month of 2016, total new approvals of commercial real estate loans decreased by 49.9 per cent. As at the end of January, the outstanding value of residential mortgage loans had reached MOP181.6 billion, a slight decrease of 0.2 per cent month-on-month, although an increase of 4.3 per cent compared to one year ago. Meanwhile, that of commercial real
estate loans amounted to MOP169.3 billion, a marginal decline of 0.1 per cent, or a growth of 2.9 per cent year-on-year, of which residents accounted for 90.1 per cent. On the other hand, the delinquency ratio for residential mortgage loans was 0.18 per cent as at the end of the month, up 0.01 percentage points month-on-month, or 0.1 percentage points year-on-year. The ratio for commercial loans went up by 0.01 percentage points monthon-month. Compared to one year ago, the ratio grew by 0.12 percentage points.
6 Business Daily Wednesday, March 15 2017
Macau Travel
A traveller’s market Ctrip saw its profits multiply 6.5 fold year-on-year in the fourth quarter. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he MSAR is part of the second stage of concentration for travel service provider Ctrip in its continual expansion and diversification drive, said group CEO Jane Jie Sun. According to the her, the first stage of the expansion lies in the company’s core market and main focus, Mainland China, while the last of the three steps will be a further opening up of new markets in Asia including Japan, Korea and others in Southeast Asia. The news comes from the Ctrip C E O ’ s i n t e rvi e w w i th t rav e l publication Skift. The CEO took up the position in November, replacing Gao Xiang but continues in the same vein as her predecessor, who had previously
expressed the group’s intention to target travel products and services. These include those in the MSAR, where the travel services company estimated that it had made MOP10 million (US$1.3 million) in sales last year. The group’s local efforts focus on linking up with e-commerce operators to provide one-stop package offerings, linking local features to tourism consumption. The most recent data from the Statistics and Census Service (DSEC) show that visitation to hotels and guesthouses by Mainland Chinese visitors to the MSAR in January went up 17.1 per cent year-on-year, hitting 679,000. Meanwhile, visitation by Mainland Chinese to the MSAR on package tours fell by 9 per cent yearon-year in the same month, to 402,000.
Customer base
According to data from the China Tourism Academy, the total number of outbound Chinese tourists from the Mainland last year hit 122 million, while their aggregate spending amounted to US$109.8 billion overseas. It’s no surprise, then, that Ctrip,
unlike rival travel services companies like Expedia, chooses to focus on its core customer group – Chinese travellers – in a two-tier strategy. Fi rst, a f t e r th e c o m p a n y ’ s acquisition of travel fare aggregator Skyscanner for US$1.74 billion, the company will focus on full-service packages for Chinese tourists abroad, something encouraged by a recent global opening up. “Lots of countries have lifted their visa restrictions for Chinese customers so that’s why it’s a wonderful opportunity for us to explore the opportunity along with our customers,” said Sun, as cited by the publication. “Our goal is that wherever our customer goes we will be able to help them by supplying them with the best inventory, the best price, best services,” she continues, explaining that “we want to make sure we start with China and Chinese customers because they have a language problem,” facilitating the pitching of service packages, from hotel to transportation and sightseeing. According to the group’s fourth quarter financial results, the strategy
seems to be working, with a 76 per cent year-on-year increase in net revenue to RMB5.1 billion (MOP5.9 billion/US$737.5 million), a 56 per cent increase in accommodation reservation revenues (to RMB1.8 billion) and transportation ticketing revenues for the same period up 97 per cent year-on-year. Additionally the group saw its profits multiply 6.5 times year-onyear in the fourth quarter. “I think the Ctrip brand is probably very well known within China,” notes the CEO, adding “hopefully, we’ll build a good brand in Asia […] Skyscanner is well known for their air products in Europe, so it’s two regions, different products.” In the earnings call for the report, the CEO noted that “right now the contribution of international is about 10 to 20 per cent; going forward, we would like to grow it to anywhere from one-third, to 40 per cent or even mor.” While this first wave of international expansion develops, the group will focus on second-tier and third-tier cities in the Mainland, of which it increased inventory by 80 per cent last year, notes the publication. The move seeks to win over potential customers who would otherwise go to Alibaba or Airbnb in cities that formerly provided too-low margins to make them worthwhile.
Luxury
Exposure and e-commerce key to luxury market Chinese clients will continue to be main focus of retailers in 2017 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
E-commerce companies on the Mainland have yet to achieve the digital penetration in the luxury category that they have in online apparel and footwear, yet Chinese luxury purchases drove nearly two-thirds of the market in the last half of 2016, according to a joint-authored Exane BNP Paribas and Contactlab report. The report says ‘Chinese luxury demand has continued to improve on a quarter-by-quarter basis ’ over the course of last year, both on the Mainland itself and abroad. January figures - slightly distorted given the falling of Chinese New Year during the last week - ‘also pointed to a positive trend’ with the report noting that ‘Chinese officials are likely going to be supportive of the economy and demand.’ The most recent data from the Statistics and Census Service (DSEC) shows that the imports of gold and jewellery in January of this year posted a 33 per cent increase yearon-year, while that of handbags and wallets increased 19.3 per cent. Watches saw a 27.2 per cent year-onyear increase in the value of imports during the month. Regarding brands most likely to attract that luxury spending, of which China is expected to ‘make a good contribution to global growth in 2017,’ those best positioned, according to
the report, all come in with sales exposure to Greater China equal to or above 20 per cent. Leading the pack is Swatch, with a 47 per cent sales exposure ‘to Chinese’ and a 34 per cent exposure to Greater China, followed by Burberry, with 40 per cent exposure to Chinese customers and 21 per cent to Greater China. With higher Greater China exposure but lower overall exposure comes Richemont, with 36 per cent to 24 per cent, respectively. Prada sits at the bottom of the list, with 35 per cent exposure to Chinese and 20 per cent exposure to Greater China. All four luxury retailers have a presence in the MSAR. ‘Risks for the sector in full year 2017 seem political in nature,’ posits the report, noting that the ‘most
important risk is by far an outright falling out of the Sino-American relationship.’ This will be put to the test as Chinese President Xi Jinping meets with U.S. President Donald Trump in early April at Trump’s Florida resort. Fallout could also ‘puncture’ the ‘Chinese consumer feel-good factor,’ notes the report, pointing in particular to options like the U.S. border adjustment tax as ‘a negative.’ Luxury demand to date has grown both in Greater China and abroad, at a 25 per cent year-on-year increase in the fourth quarter of last year and a 15 per cent increase year-onyear, respectively, notes the data. This came after negative consumer sentiment outside the Mainland, exacerbated by the devaluing yuan in the first half of the year, resulting in negative growth. One of the opportunities awaiting luxury brands is in their online
sales as ‘Luxury brands with direct ecommerce operations in China reached a similar 7 to 8 per cent penetration of digital sales to total sales,’ which the group points out is ‘in line with the global average and somewhat underwhelming,’ when compared to that of online apparel and footwear penetration which is ‘almost three times higher than the world average.’ In particular, internationally recognised companies with little exposure to Greater China such as Hugo Boss with only 8 per cent exposure, and a 16 per cent exposure to Chinese nationals, or Luxottica, with a 3 per cent exposure in both categories, according to the data, could benefit from a revamped online marketing effort to drive exposure and sales in Macau, the Mainland and internationally, but always focused on a Mainland Chinese audience.
Hong Kong and Taiwan, while only about 16 per cent are located in the Mainland’s Tier 1 cities, with Tier-2 cities accounting for 25 per cent of users, Tier-3 for 26 per cent and Tier-4 for 30 per cent. The majority of users of the platform demonstrated a university-level or higher education level, at 77.8 per cent, while only 15.7 per
cent of users had a high school education and just 6.5 per cent had only reached elementary school-level education, notes research group eMarketer. The group also estimates that the 89 per cent predominance of users accessing the micro-blogging platform via mobile would seize on the estimated 593.4 million smartphone users in the country predicted by year-end. Those using the platform for
marketing purposes should also high-target their audience’s demographic, as 55.5 per cent of users are male, while the viewers of videos on the platform primarily comprise 23 to 30 year-olds, at 39.1 per cent, followed by 18 to 22 year-olds, at 34.3 per cent. Only 15.8 per cent of the audience comprised 11 to 17 year-olds, notes the report, while 31 or older viewers made up just 10.7 per cent of video viewers. K.W.
Risk, reward
Social
Who’s on Weibo? As social media apps and websites continue to multiply, one that dropped off the radar has returned, with Chinese micro-blogging site Sina Weibo seeing a 33 per cent yearly increase in its monthly active users in 2016, according to the group’s earnings statement. Of the total users of the platform, about 2 per cent are located in Macau,
Business Daily Wednesday, March 15 2017 7
Macau Gaming
JP Morgan pencils in solid revenue growth for March
T
he local gaming industry is sticking with the rebounding trend for this month so far, analysts at JP. Morgan Securities (Asia Pacific) Ltd. believe, anticipating the month’s revenue growth to be between 10 per cent and 15 per cent year-on-year. In its latest research note released yesterday the firm’s analysts, led by DS Kim, pointed out that the mass and VIP segments are both performing solidly on ma month to date basis, and expect the VIP sector to grow to the high teens while mass
is also increasing from low to mid teens. The analysts’ projected growth rate for the month
suggests a daily run rate of between MOP640 million (US$80 million) and MOP670 million.
“This would make 1Q17E [gross gaming revenue] grow 11 per cent to 12 per cent year-on-year and 3 per
cent to 4 per cent quarterto-quarter, to the highest level in eight quarters; the sector’s sequential profit expansion story remains intact, in our view,” the analysts concluded. Citing their checks, the firm projected that the city’s gross gaming revenue stands at MOP7.9 billion for the first 12 days of the month, implying average daily revenue of some MOP660 million. ‘We stay broadly constructive on the sector, as the industry has entered genuine upturns in demand, profits and cash flows for 2017 and onward,’ they added. K.L.
Public finance
Cambodia’s casino taxes rise by 40 pct in 2016 The Cambodian government collected a total of US$48 million (MOP384 million) in taxes from the casino industry last year, a rise of about 40 per cent compared with 2015, the Khmer Times reported Tuesday, citing a finance official. Ros Phearun, a deputy director-general of the Finance Ministry’s financial industry department, said that along with an effort by the government to improve tax revenue,
the casino industry also has been contributing to extra revenue. He said the government and NagaWorld casino in Phnom Penh had agreed on additional payments for non-gaming activities. This led to a big increase in tax revenue from the industry. “Now, we have got more from NagaWorld since they complied with our requirement to pay on non-gaming revenue,” he was quoted as saying
澳門文學節 F E S T I VA L L I T E R Á R I O D E M A C A U M A C A U L I T E R A R Y F E S T I VA L
by the newspaper. NagaWorld recorded a modest 4 per cent increase in gross gaming revenue (GGR) last year, bringing the figure up to US$500.8 million. The company’s net profit rose by 7 per cent in 2016 to US$184.2 million. According to the Finance Ministry, some 65 casinos are in operation in Cambodia. Many of them are near the borders of Thailand and Vietnam. The Southeast Asian country grants
licenses to casinos in a bid to help attract foreign tourists. Under the kingdom’s law, only foreigners are allowed to gamble in casinos. Xinhua
4-19
三月 | M A R Ç O | M A R C H
OLD COURT BUILDING | MACAU
8 Business Daily Wednesday, March 15 2017
Greater china In Brief Internet services
eLong sued for misleading hotel ads A Beijing court has ordered eLong.com, a digital service company, to pay RMB105,660 yuan (US$15,278) to a customer who booked fake five-star hotels via the site. Beijing Chaoyang District People’s Court upheld its first instance judgement to order the Internet firm to pay three times the customer’s booking fee. The customer, who has only been identified by his surname Li, filed the lawsuit after he found the three hotels that he booked via eLong.com in January 2016 were not five-star hotels as advertised by the site. Previously, eLong.com had refused to pay a fine of RMB150,000 issued by the city’s industry and commerce department in June 2016 for misleading advertising. Holiday destination
S.Korea spat could boost Thai tourism Thailand’s pivotal Chinese tourism sector is on the rise and may get an additional boost due to tensions between China and South Korea and the banning of Chinese tour groups to South Korea this month, the head of a Thai travel group said yesterday. Overall tourism accounts for 12 percent of Southeast Asia’s second-largest economy but Chinese tourism, the biggest foreign group, slumped in the final quarter of 2016 after a Thai crackdown on cheap Chinese tour packages. “Chinese tourist numbers have recently increased by 15-20 percent to about 80 percent of last year’s levels,” president of the ThaiChinese Tourism Alliance Association, said.
Official data
Factory and investment beat forecasts China’s first-quarter economic growth could accelerate to 7 per cent year-on-year
C Agriculture
ADM to expand in Mainland Archer Daniels Midland Co, one of the world’s largest agricultural traders, will widen its operations in China to produce fish feed, the company said yesterday, amid increasing global demand for fish from health-conscious consumers. Expansion in high-growth regions like China is part of ADM’s strategy to improve returns and reduce the volatility of earnings due to swings in crop markets. The Chicago-based company said it will build a new plant in Xiangtan, in central China, with capacity to produce 120,000 metric tons of animal and fish feeds annually. It will be ADM’s fifth animal feed plant in the country.
hina’s factory output and fixed-asset investment grew more strongly than expected in the first two months of the year, but retail sales disappointed after the government reduced a tax break on small cars. Industrial output rose 6.3 per cent in January-February from the same period a year earlier, fixed-asset investment 8.9 per cent and retail sales 9.5 per cent. The overall readings are likely to reinforce views that the world’s second-largest economy is on a steady growth path, despite worries about the risks of slightly tighter credit policy this year and a surge in U.S. trade protectionism. China combines January and February activity data in a bid to smooth out seasonal distortions caused by the timing of the long Lunar New Year holidays, which began in late January this year but fell in February last year. Analysts polled by Reuters had predicted factory output would growth 6.2 per cent in the first two months this year, picking up from December’s 6.0 per cent as demand for manufactured goods improves at home and abroad. China’s steel mills are churning out as much metal as possible, enjoying their best profits in years, even as
they worry that a year-long rally in prices in the world’s top steelmaking market is running out of steam, executives said. Analysts had expected fixed-asset investment growth of 8.2 per cent, quickening from 8.1 per cent in the whole of 2016.
6.3 per cent January-February industrial output increase
In welcome news for policymakers, growth in private investment quickened to 6.7 per cent from 3.2 per cent last year, the National Bureau of Statistics said yesterday, suggesting private firms are growing more optimistic about the business outlook after a sharp loss of momentum in the last few years. Private investment accounts for about 60 per cent of overall investment in China. But many small- and medium-sized private firms still face tough access to financing, tight profit margins and a crowding out by big state companies. Chinese policymakers have been trying to lure private investors into
big infrastructure projects through public-private partnerships, but many lucrative sectors are still dominated by state firms. Auto sales dipped in the first two months of the year, according to government data. While that contrasted with industry estimates of 8.8 per cent growth, auto makers in China expect full-year growth to slow as the government rolls back incentives on small-engine cars. Other economic readings in recent weeks, including a surge in imports and rising producer prices, have added to signs of resilience in the economy. China’s first-quarter economic growth could accelerate to 7 per cent year-on-year, from 6.8 per cent in the last quarter, economists at OCBC wrote in a note last week, while adding the pace may ease beginning in spring. China is targeting growth of around 9 per cent in fixed asset investment for 2017, while retail sales were expected to increase about 10 per cent, the state planner said during the nation’s annual parliamentary session this month. The central bank has inched up short-term interest rates twice so far this year to encourage companies to deleverage and markets expect further modest increases in coming months. But the head of the central bank last week conceded it will take some time to bring debt levels down to more manageable levels. Reuters
Business Daily Wednesday, March 15 2017 9
Greater China Real estate
Property sales surge despite gov’t efforts to cool market Investment in the sector grew 8.9 per cent in the first two months of 2017 Yawen Chen and Elias Glenn
China’s property sales surged in the first two months of the year despite government measures to cool the market, though growth in real estate investment showed signs of easing, according to official data yesterday. Property sales by area rose 25.1 per cent year-on-year in January and February. That was above the 22.5 per cent annual gain in 2016, which was the strongest annual growth in seven years thanks to a property boom in top-tier cities. It was also a marked surge from December, when property sales by area rose 11.8 per cent from a year earlier, according to Reuters’ calculations. After sharp home price rises last year, China’s policymakers have started to worry about overheating in the property market and the risk of a sudden and sharp correction that would knock the economy. Many local governments in cities which have seen the sharpest price rises have rolled out a series of restrictions in the past few months on buying and ownership. Real estate investment grew 8.9 per cent in the first two months of 2017 from the same period a year earlier, according to the National Bureau of Statistics. That compares with 11.1 per cent in December alone, according to Reuters’ calculations, and 6.9 per cent in all of 2016. Real estate investment directly affects about 40 other business sectors in China, and is considered to be a crucial driver for the world’s second-largest economy. Central bank data last week showed household loans, mostly mortgages, accounted for 25.7 per cent of new
loans in February, down from 37 per cent in January and 50 per cent in 2016, adding to signs of cooling in the housing sector. China’s banking regulator and central bank have told banks to curtail new mortgage lending, state-owned newspaper Economic Information Daily reported on Monday, citing unnamed banking sources.
Govt curbs
A Reuters poll in February showed that China’s housing price growth is expected to slow significantly this year due to continuing government curbs and tighter credit conditions, dampening land sales and dragging property investment growth to a median 3 per cent in 2017.
Key Points Jan-Feb property investment up 8.9 pct y/y, pace cools from Dec Property sales by area up 25.1 pct y/y, strong pick-up New construction starts up 10.4 pct y/y Commercial housing inventory galls 4.6 pct by end Feb China is looking to keep the property market stable this year after prices of new homes soared 12.4 per cent last year, the most since 2011. Analysts believe authorities will continue to tighten restrictions introduced last year to cool the hottest property markets. But property speculators are betting the government will relent and ease curbs if economic growth begins to falter, as many analysts expect. New construction starts, a telling
figure of property developers’ confidence in the market, were up 10.4 per cent in January-February from a year ago, compared with the 8.1 per cent annual gain in 2016, the NBS data showed. But the pace of new starts did moderate slightly from a jump 12.5 per cent in December, Reuters calculations showed. China is aiming for economic growth of around 6.5 per cent in 2017, a more modest target than seen in the previous year, Premier Li Keqiang said at the opening of the annual meeting of parliament last week. That should give policymakers more room to tackle financial risks and prevent asset bubbles.
Li also said that China will continue to implement city-based policy to reduce real estate inventories, mainly in smaller third- and fourth-tier cities where a huge overhang of unsold homes has kept prices far more subdued. Growth in inventory floor area over the two months period was 4.6 per cent lower than one year earlier. The inventory floor area of commercial housing fell 3.2 per cent last year. Housing minister Chen Zhenggao said on the side-lines of the parliament meeting that he was “fully confident” of the outlook for the property market, amid strong economic fundamentals and continuing urbanization. Reuters
HKEx
Hong Kong analysts’ hated stocks are 2017’s biggest gainers Strength in manufacturing to producer prices has added to the picture of Chinese economic health in 2017 Kana Nishizawa
When it comes to this year’s surge in Hong Kong stocks, it paid to root for the underdog. Equities with the lowest ratings from analysts have driven the market’s Asia-leading gains in 2017, streaking ahead of shares showered with buy recommendations, data compiled by Bloomberg show. While this is frustrating for stock strategists -- and the investors who follow their advice -- it reflects a pivot in the market’s focus as China’s economic recovery solidifies. Bloomberg assigns analysts’ recommendations a value from one, a sell, to five, a buy. These are then averaged to create a consensus rating. Hong Kong-listed stocks covered by at least five analysts with a consensus rating of less than three have climbed 11 per cent this year, based on an average that’s weighted for market value, versus the 7.2 per cent advance in equities with unanimous buy ratings, the data show. Take Cathay Pacific Airways Ltd. Hong Kong’s marquee airline has 15 sell recommendations and zero buys as increased competition on Asian routes crimps earnings, but it’s climbed 15 per cent in 2017, well ahead of the Hang Seng Index, which is up 8.5 per cent. Likewise, Tsingtao Brewery Co. The
beer maker has struggled as China’s slowdown in the wake of the global financial crisis priced out lower income drinkers -- it has 10 sells to one buy. Still, Tsingtao’s Hong Kong stock has soared 24 per cent in 2017 after posting its biggest advance since September last month. In 2016, the reverse was true, with lower-rated Hong Kong stocks falling as those with perfect buy credentials climbed.
Catch up
Strength in manufacturing to producer prices has added to the picture of Chinese economic health in 2017. That’s helped last year’s market laggards catch up, said Vincent Chan,
head of China macro research at Credit Suisse Group AG in Hong Kong. “Usually companies that get all the buy ratings are companies that enjoy structural growth -- that means irrespective of the economic dynamics their earnings are growing,” he said. “When the economic cycle starts to turn, like this year, growth no longer becomes a scarce commodity. These companies that nobody is holding, all of the sudden they deliver growth.” Analyst love hasn’t been able to staunch the losses in shares of WH Group Ltd. in 2017. The Hong Kongbased company, owner of the world’s largest pork producer, has fallen 4.2 per cent this year, even with all 12 analysts covering the stock rating it a buy. Universal Medical Financial & Technical Advisory Services Co. is also a unanimous buy, and has gained 7.8 per cent this year, just under half Cathay’s climb. “People are just looking for
opportunities,” said Brett McGonegal, chairman and chief executive officer at Capital Link International Holdings Ltd. in Hong Kong. Investors who came too late to the Hong Kong rally are searching for “other things and some of these are household names -- Cathay, Tsingtao are very well known brands,” he said.
“When the economic cycle starts to turn, like this year, growth no longer becomes a scarce commodity. These companies that nobody is holding, all of a sudden they deliver growth” Vincent Chan, head of China macro research at Credit Suisse Group AG in Hong Kong
Cathay has rebounded 17 per cent from last year’s low, even with analysts expecting the air carrier to report a 92 per cent plunge in 2016 operating profit today. Tsingtao has benefited after Bloomberg News reported Danish beer maker Carlsberg A/S may purchase a stake. Bloomberg News
10 Business Daily Wednesday, March 15 2017
Greater China Statistics
Beijing introduces new services index to reflect changing economy The index is crafted to reflect short-term changes in the service sector
C
hina introduced a new indicator for the services sector to better track the vast range of activity from movies to restaurants that now account for more than half of the economy. The services output index rose 8.2 per cent in January and February from a year earlier on growth in technology, transportation, and deliveries, the National Bureau of the Statistics (NBS) said yesterday in the first release of the index. It plans to update the measure each month. The NBS said the index tracks the output of services, also known as the tertiary sector, without deducting the input costs, which means it’s different to a quarterly report released with the government’s data on gross domestic product. The increased focus on services underscores the sector’s increasing importance as China transitions away from old smokestack industry drivers and export-led growth. Services accounted for more than half of output last year for the first time in 2015, and increased to 51.6 per cent last year. The category’s 8.3 per cent growth in the fourth quarter helped offset slower expansions in manufacturing and agriculture and
contributed to the world’s secondlargest economy posting its first acceleration in two years. The index is crafted to reflect short-term changes in the service sector, said Sheng Laiyun, a National Bureau of Statistics spokesman at a press conference in Beijing yesterday. China’s economy is rapidly restructuring from over-reliance on industry to services, and the days of “reading the face of industries” to make decisions have been replaced by services, he said. The NBS didn’t specify whether it
is tracking output by nominal value, whether the gauge is adjusted with seasonality or prices, nor did it detail components of the gauge. “It’s a change made to adapt to the evolving structure of the economy,” said Gao Yuwei, a researcher at the Bank of China Ltd.’s Institute of International Finance in Beijing. He said that with a comprehensive indicator, the government can better gauge the growth of services output and improve policy making. Gao said the new index still needs improvement because it doesn’t
account for input costs and that it’s difficult to collect data from service companies because they’re more scattered and fast-changing. Th e st a t i st i c s b u r ea u sa y s compilation of the new gauge is “a process of exploration and continuous improvement” as technically it’s difficult to gather, Sheng said. Only a handful of countries such as Britain, Sweden and South Korea publish such indexes, and even the U.S., with a developed statistics system, doesn’t release a monthly indicator, Sheng said. Bloomberg News
Oil industry
Daily refinery runs at second-highest on record Combined inventories of diesel, gasoline and kerosene rose more than 10 per cent to a six-month high by the end of January Chen Aizhu
China’s refinery throughput during the first two months of 2017 rose 4.3 per cent from same time a year ago to the second-highest level on record on a daily basis, while crude output fell 8 per cent from a year earlier, official data showed yesterday. Chinese refineries processed 90.76 million tonnes of crude oil during January and February, the National Bureau of Statisics (NBS) reported. That is equivalent to about 11.23 million barrels per day (bpd), second only to December’s all-time high of 11.26 million bpd. The NBS provided information for the two months together to smooth the impact of the Lunar New Year holiday, and did not give a separate monthly breakdown. The increase followed a rise in the number of independent oil plants winning quotas to import crude oil, while state refiners stepped up processing to build stocks ahead of the holiday that started in late January, contributing to a strong increase in total throughput.
Crude output in the same period fell 8 per cent over the same period a year earlier to 31.44 million tonnes, or about 3.89 million bpd, the data showed. Combined inventories of diesel, gasoline and kerosene rose more than 10 per cent to a six-month high by the end of January over the previous month, according to data from the official Xinhua News Agency.
Key Points Jan-Feb refinery run +4.3 pct yr/yr; 11.23 mln bpd Jan-Feb crude output -8 ptc yr/yr at 3.89 mln bpd Jan-Feb natgas output unchanged on yr The swelling stocks reflected weakening demand, especially for diesel as mining activities waned ahead of the holiday period. A recent draft government plan to start banning trucks moving coal in northern China in favour of railway
transport is also poised to deal a blow to diesel demand in the coming months. The fall in oil output comes amid near decade-low prices. Sinopec Corp, the country’s second-largest oil producer, posted about a 15 per cent fall in domestic crude oil production last year at 253 million barrels, the company said in late January. China’s top oilfield Daqing recorded a 4.8 per cent drop in crude oil output in 2016 versus a year ago. The NBS data yesterday also showed
China’s natural gas production was unchanged from a year ago at 25.1 billion cubic metres. Jenny Yang, a Beijing-based analyst at IHS Markit, said the flat production might have been an effort by the national oil companies to adjust available supplies from multiple sources including imports of liquefied natural gas (LNG). “China’s LNG imports surged over 50 per cent year-on-year during November 2016 to January 2017 owing to the concern of a potentially cold winter. However, the winter has turned out to be a mild one, and much of the imported fuel still remains in storage,” said Yang. Reuters
Business Daily Wednesday, March 15 2017 11
Greater China Investment
Kushners set to get US$400 million from Angbang Anbang will be business partners with in-laws of the First Family David Kocieniewski and Caleb Melby
A
company owned by the family of Jared Kushner, President Donald Trump’s son-in-law and senior adviser, stands to receive more than US$400 million from a prominent Chinese company that is investing in the Kushners’ marquee Manhattan office tower at 666 Fifth Ave. The planned US$4-billion transaction includes terms that some real estate experts consider unusually favourable for the Kushners. It provides them with both a sizable cash pay-out from Anbang Insurance Group for a property that has struggled financially and an equity stake in a new partnership. The details of the agreement, which is being circulated to attract additional investors, were shared with Bloomberg. It would make business partners of Kushner Cos. and Anbang, whose murky links to the Chinese power structure have raised national security concerns over its U.S. investments. In the process, an existing mortgage owed by the Kushners will be slashed to about a fifth of its current amount. The document offers a rare look at a major deal by a close Trump associate and family member. It’s unclear whether the deal could prompt federal review, as occurred when Anbang bought other properties, like the Waldorf Astoria Hotel in Manhattan. Anbang could also face review by the Chinese government, which has been clamping down on overseas investments and which has a range of pending issues with the Trump administration.
Controversial visa program
The proposed partnership is seeking additional participants through a controversial federal program known as EB-5, which is intended for economically distressed neighbourhoods and provides residency permits to major foreign investors. The deal would value the 41-story tower at US$2.85 billion, the most ever for a single Manhattan building: US$1.6 billion for the office section and US$1.25 billion for the retail section. The new partnership will refinance US$1.15 billion in existing mortgage debt. “This is a huge, huge exit strategy for an office building,” said Joshua Stein, a New York real estate lawyer. “It does sound like a home run of a transaction for Kushner and his group.” Scott A. Singer, president of the Singer & Bassuk Organization, said the terms struck him as “aggressive but not absurd,” based on the net income and square footage metrics he was shown by Bloomberg. He said they were along the lines of what might be expected for a trophy asset at a prime location.
Conflict of interest?
Kushner Cos. declined to discuss details of the plan or name the potential lenders or investors it is courting, saying the deal is not finalized. A
company spokesman, James Yolles, said that Jared Kushner sold his ownership stake in 666 Fifth to family members so the transaction poses no conflict of interest with his White House role. “Kushner Companies has taken significant steps to avoid potential conflicts and will continue to do so,” Yolles said in a written statement. Asked for comment, a White House spokeswoman said Kushner will recuse himself from any matter where his impartiality could be reasonably questioned, including an examination of the EB-5 program. Some government ethics experts argue that the Kushner family and business are so close-knit that the steps Jared Kushner has taken do not go far enough. Also at issue: asof-yet undisclosed lenders who are financing the project and the forgiveness of a portion of a US$250 million loan which will allow the debt to be cleared for one-fifth of its value.
‘Sweetheart deal’
“At the very least, this raises serious questions about the appearance of a conflict that arises from the possibility that the Kushners are getting a sweetheart deal,” said Larry Noble, general counsel at the Campaign Legal Center. “A classic way you influence people is by financially helping their family.” The transaction would allow the Kushner Cos.’ investment in the tower to be salvaged by lenders and businesses that could have extensive dealings with the federal government, while also permitting the Kushners to buy back into the building’s more lucrative retail spaces and maintain a 20 per cent stake. The deal would allow Vornado Realty Trust -- which is partnered with Trump in his two most valuable properties -- to exit a troubled asset with a 10-fold pay-out on its stake in the building’s offices and a doubling of its investment in its stores. It declined to discuss the deal. Steven Roth, chairman of Vornado, co-chairs a committee dedicated to one of the new administration’s signature campaign pledges: infrastructure investment. Vornado is the biggest property owner in the area surrounding Manhattan’s Pennsylvania Station and could benefit from increased infrastructure spending.
Fears of espionage
Anbang would pay a hefty price for both sections of the 666 Fifth Ave. project but score its first U.S. real estate investment of the year. The company’s ties to the Chinese government are sufficiently unclear that former President Barack Obama declined to stay at the Waldorf after Anbang bought it because of fears of espionage. Now Anbang will be business partners with in-laws of the First Family. An outside spokesman for Anbang, Tim Ragones, declined to comment on the deal terms but denied that the company’s ownership structure is unclear. “Anbang is a highly transparent company that operates in accordance to the standards of
Office tower at 666 Fifth Avenue, New York. Bloomberg
public companies and strictly abides by applicable regulatory requirements,” he said. Kushner, who is married to Trump’s daughter Ivanka, has become something of a de facto envoy for the administration, and was present for a meeting between Yang Jiechi, China’s top diplomat, and his father-in-law at the end of February. As one of the president’s closest advisers, he could have input on a wide range of issues affecting China, from national security concerns and territorial disputes to trade matters and allegations of currency manipulation. There are discussions under way between China and the U.S. on a potential summit between Trump and Chinese President Xi Jinping to take place as early as next month. The refinancing agreement is the latest twist in the history of a building that was Jared Kushner’s grandest conquest and nearly proved his downfall. In 2007, he purchased the tower for a then-record US$1.8 billion. It was a move that signalled the company’s intention to expand beyond its extensive holdings in suburban garden apartments to more prestigious urban properties. Then the financial crisis hit. Four years later, with the investment teetering near insolvency, Vornado swooped in, getting a 49.5 per cent stake in exchange for an US$80 million capital injection. It then took on more of the tower in 2012, purchasing the retail spaces at the building’s base from Kushner and others for US$707 million.
‘Hope note’
An unusual consideration in the refinancing plan is the proposal to pay off a part of the mortgage known as a “hope note,” which was for US$115 million when Kushner Cos refinanced its debt in 2011. The loan, which was made by Barclays Plc and has since been sold off to investors, is now valued at more than US$250 million because of compounded interest. But according to the deal documents, the Kushners will settle the debt for just US$50 million. The Kushners declined to discuss the agreement. LNR Partners LLC,
which currently oversees the debt, declined to comment. Anbang will pay for most of the building and take out a construction loan of more than US$4 billion to convert the property’s higher floors into luxury residential units. The Kushners have agreed to invest US$750 million in the retail portion of the building and will end up with a one-fifth stake in a project that the deal document says would be valued at US$7.2 billion when completed. In addition to the US$400 million from Anbang, the Kushners will receive another US$100 million from other investors. The plan also relies on the government program known as EB-5, which grants two-year visas and a path to permanent residency to foreigners who invest a minimum of US$500,000 in projects that create jobs in economically distressed areas.
Lax vetting?
Supporters argue that the program, which is overwhelmingly used on deals involving Chinese investors, attracts foreign capital and creates jobs at no U.S. taxpayer cost. But some Homeland Security officials and the General Accounting Office have warned that lax vetting has threatened to turn the program into a mechanism for the government to sell visas to wealthy foreigners with no proven skills, paving the way for money laundering and compromising national security. It has been used to finance high-profile developments in wealthy enclaves, however, including Brooklyn’s Barclays Centre and Hudson Yards. The deal for 666 Fifth Avenue, on one of the world’s most expensive shopping strips, blocks from Trump Tower, would arguably be the toniest location for an EB-5 project yet. The US$850 million in EB-5 funding sought in the refinancing plan for 666 Fifth Avenue would be the largest to date. Congress is now considering whether to renew the program and adopt new restrictions to deter the misuse of the program. The White House will ultimately be involved in that decision. Bloomberg News
12 Business Daily Wednesday, March 15 2017
Asia Private index
Singapore tops Tokyo as Asia’s city with best quality of living The global ranking was dominated by Western European cities David Roman
S
ingapore tops the ranks in Asia as the city with the best quality of living, well ahead of Tokyo and Hong Kong because of its efficient infrastructure. The city-state gained one spot from last year and came in at No. 25 on a global ranking of 231 cities by consulting firm, Mercer, a unit of Marsh & McLennan Cos. In Asia, Tokyo was at 47 and Hong Kong at 71, with both declining slightly in the index. Singapore was top of the list on quality of city infrastructure, which includes supply of electricity, drinking water and phone services. Mercer also assesses public transportation, traffic congestion and the availability of international flights in this category. “Cities that rank high in the city infrastructure list provide a combination of top-notch local and international airport facilities, varied and extended coverage through their local transportation networks, and innovative solutions such as smart
technology and alternative energy,” said Slagin Parakatil, a principal at Mercer who is responsible for its quality of living research. Singapore also scored high because of “internal stability, wide availability of consumer goods, availability and quality of housing and low incidence of natural disasters,” Mercer said.
The global ranking -- based on data compiled between September and November last year -- was dominated by Western European cities, with Vienna and Zurich topping the list. The only non-European cities in the top 10 were Auckland in third spot, Vancouver in fifth, and Sydney in 10th. In Asia, great disparities in the quality of living remain, Mercer said. Beijing was ranked at 119, with Shanghai at 102 and Guangzhou at 121. Bangkok
dropped two spots to 131, and Manila climbed one spot to 135. The next-best Asian ranking in infrastructure was for Hong Kong at sixth place, while Sydney was at eighth. “By and large, cities across the Pacific enjoy good quality of living, though criteria such as airport connectivity and traffic congestion are among the factors that see them ranked lower in terms of city infrastructure,” Mercer said. Bloomberg News
TPP
Malaysia reacts coolly to prospect of trade pact minus U.S. Trade minister said officials are concerned Trump may not favour Asean as much as former U.S. President Barack Obama Karl Lester M. Yap and Clarissa Batino
Efforts to salvage a blockbuster Pacific trade deal are struggling against waning enthusiasm from participants such as Malaysia before a meeting of officials this week in Chile. With President Donald Trump nixing the U.S.’s involvement in the 12-nation Trans-Pacific Partnership, some countries are turning their focus to bilateral pacts, or to a separate Asian deal being championed by China. The rival 16-nation Regional Comprehensive Economic Partnership is focused on expanding Southeast Asian trade ties and doesn’t include the U.S. “The biggest attraction for us was America,” Malaysian Trade Minister Mustapa Mohamed said of the TPP in an interview last week in Manila. “We are open, but ‘minus one’ would be tough for us. That’s why RCEP is
important to us.” Australia is pushing for a TPP pact without the U.S., arguing that countries spent too many years negotiating the deal and got too close to completion to let it fail. Some of the TPP countries will attend a two-day summit ending today in Chile, where the future of the pact -- which covers 40 per cent of the global economy -- will be discussed.
Sending ambassador
While Australia and New Zealand are sending their trade ministers to the Chile meeting, Malaysia will just be represented by its ambassador, according to the trade and industry ministry. China is sending Yin Hengmin, its special representative for Latin American affairs, to the talks, though it’s not a party to the TPP. Still, Australian Foreign Minister Julie Bishop
Southeast Asian nations are concerned about the rise of protectionism in the U.S. under Trump (pictured), Malaysian trade minister said. Lusa
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downplayed the prospects of China potentially replacing the U.S. in the pact. “We shouldn’t assume that China is able or ready to do so,” she said Monday in a speech in Singapore. “The TPP set a very high standard in terms of a free trade agreement and I don’t think we should expect that China is currently in a position to meet that standard.” China is continuing to push meanwhile for the RCEP, which would cover 30 per cent of the global economy and almost half the world’s population. Even so, doubts remain about how fast the RCEP negotiations can advance, with the next round of talks expected in May in the Philippines. “I don’t think RCEP will see much progress,” said Rahul Bajoria, a senior economist at Barclays Plc in Singapore. “It is difficult to get everyone to agree and it will take time. Trade deals are going to be at the back burner.” The TPP was a high-value agreement that included provisions for things such as intellectual property, state-owned enterprises and environmental and labour standards. While the RCEP covers matters like intellectual property, it’s more of a traditional pact with a heavy focus on tariffs. Malaysia will also push for freetrade deals with other countries, said Mustapa, who attended a meeting of the 10-member Association of Southeast Asian Nations in the Philippines last week. As a trade bloc, Asean is working on removing non-tariff barriers to boost trade within the region, he said. More broadly, Southeast Asian nations are concerned about the rise of protectionism in the U.S. under Trump, Mustapa said. “We have been on this path of
opening up economies and now we have some countries getting more protectionist,” he said. “We don’t agree with that. We believe in openness. Asean has benefited from openness. When people appear to be more inward-looking, we get worried because we have benefited from this open regime.” The minister said officials are concerned Trump may not favour Asean as much as former U.S. President Barack Obama, who undertook an economic and security rebalance to Asia. The initiative was designed in part as a counterpoint to China.
“We are open, but ‘minus one’ would be tough for us. That’s why RCEP is important to us” Mustapa Mohamed, Malaysian Trade Minister
“There are some worries that under Trump, Asean will not receive the kind of attention it used to,” Mustapa said. “Obama was close to Asean.” Philippine Trade Secretary Ramon Lopez echoed Mustapa, saying there were sideline concerns during the Asean meeting about the U.S. approach to trade. “Hopefully the U.S. will realize that it should take a lead role in globalization efforts as it is one of the biggest economies and has always been a leading proponent,” Lopez told Bloomberg. Protectionist steps will only backfire, Lopez added, “as experienced by countries which have tried such a move.” Bloomberg News
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Business Daily Wednesday, March 15 2017 13
Asia Survey
In Brief
Australia business conditions fall from highs The main pullback in a NAB survey for February came in its index of sales which retreated 10 points A measure of Australian business conditions fell from decade highs in February as sales unwound some surprisingly strong gains the month before, though activity remained above average across most sectors.
“Employment conditions are notably higher so far this year, despite pulling back a little in February, and suggest better labour market conditions than the official labour force survey” Alan Oster, National Australia Bank’s chief economist National Australia Bank’s monthly survey of more than 400 firms showed its index of business conditions dropped 7 points to +9 in
February, but stayed above the longrun average of +5. All sectors except retail reported positive conditions in February. The survey’s measure of business confidence dipped 3 points to +7, but again was high historically. “Business conditions are still at quite lofty levels, consistent with our expectation for the economy to enjoy solid rates of growth in the near-term,” said NAB’s chief economist, Alan Oster. Th e ec o n o m y g r e w a faster-than-expected 1.1 per cent in the fourth quarter of last year, underpinned by strength in consumer and government spending and home building. That performance has encouraged the Reserve Bank of Australia (RBA) to keep interest rates steady, while keeping a wary eye on the risk of overheating in housing markets in Sydney and Melbourne. The main pullback in the NAB survey for February came in its index of sales which retreated 10 points to +13, having doubled in January. Its measure of employment dipped 2 points to a still solid +5. “Employment conditions are notably higher so far this year, despite pulling back a little in February, and suggest better labour market
Labour
conditions than the official labour force survey,” said Oster. The index was consistent with job growth of around 18,000 per month, he said, which was enough to nudge the unemployment rate lower over time. The jobless rate stood at 5.7 per cent in January, and has not strayed far from there in the past year. Reuters
Indian main share index hits record after big Modi win in key state
India’s NSE index rose as much as 2.1 per cent to a record high yesterday as investors saw Prime Minister Narendra Modi’s landslide victory in the northern state of Uttar Pradesh as endorsing his economic reform agenda. Modi’s win, announced on Saturday, strengthened his claim to a second term in national elections in 2019, and investors are betting it will embolden the ruling Bharatiya Janata Party (BJP) to embark on more reforms including launching a national sales tax. The broader NSE index rose as much as 2.1 per cent to a record high of 9,122.75 points in the first trading session since the election results were announced, surpassing its previous peak of 9,119.20 on March 4, 2015.
But the index then pared some gains and was up 1.5 per cent at 0410 GMT, while the benchmark BSE index was
Indonesia, S.Korea team up to promote investments Indonesian and South Korean investment agencies signed yesterday a Memorandum of Understanding (MoU) aimed at jointly promoting investment. The document was signed by heads of Indonesian Investment agency (BKPM) and Korea Trade-Investment Promotion Agency (KOTRA) during the Indonesia-Korea Business Summit held here. The joint investment promotion was highly expected to boost investments in sectors identified to be vibrant in both countries, including manufacture, infrastructure, tourism, connectivity, information technology, e-commerce and creative economy. Besides joint promotion, the MoU also covers exchange agreement on information, publication materials, market research and cultural understanding between the two countries.
Markets
Expensive valuations and caution due to an anticipated rate hike by the U.S. Federal Reserve this week could temper gains
MoU
up 1.6 per cent. Indian markets were closed on Monday for a holiday. The benchmark 10-year bond yield fell 3 basis points to 6.87 per cent from its previous close, while the Indian rupee strengthened to 66.2400/66.2425 from its 66.60/66.61 close on Friday.
Key Points India’s NSE gains as much as 2.1 pct to new peak Bonds, rupee strengthen; RBI intervenes to cap INR gains Modi win in Uttar Pradesh seen endorsing reform agenda But share gains may be limited by valuation worries The gains in the rupee prompted the Reserve Bank of India to intervene once it strengthened to around 66.16 per dollar, traders said. Modi’s victory “is a huge confidence boost for reform and is another step on the way to a story that could place him as one of the most successful reformers in history,” said Simon Quijano-Evans, investment strategist at Legal & General Investment Management in London. The prime minister’s win should bode well for foreign portfolio investment in India. Foreign investors have already started returning to the country, having bought a net US$1.5 billion in equities and US$887.3 million in debt in February, following four consecutive months of net sales. They have remained net buyers in March. But expensive valuations and caution due to an anticipated rate hike by the U.S. Federal Reserve this week could temper gains. Indian shares are trading at a priceto-earnings ratio of 19.85 over the next 12 months, compared with their five-year historic average of 17.8, according to Thomson Reuters data. Reuters
Philippine unemployment rate rises The Philippine unemployment rate rose to 6.6 per cent in January from 5.7 per cent of the same period last year, the Philippine Statistics Authority (PSA) said in its quarterly labour force survey released Tuesday. The latest unemployment rate is equivalent to 2.761 million Filipinos who were jobless during the period. “We mainly observe the employment losses in the agriculture sector, which has been greatly affected by typhoons Nina and Auring that hit our country last December and January,” said Socioeconomic Planning Secretary and National Economic and Development Authority (NEDA) Director General Ernesto M. Pernia. Real estate
Australian regulators ready to act on risks A top Australian central banker said yesterday said the calming effect of tighter rules on housing lending might be fading and regulators stood ready to impose more restrictions if necessary to head off risks in the market. Reserve Bank of Australia (RBA) Assistant Governor Michele Bullock was referring to stricter rules on lending imposed by the Australian Prudential Regulation Authority over the past couple of years when rapid lending for home investment was pushing up prices. “The regulators judged that more targeted action was needed to address the risks – to put a bit of sand in the gears,” said Bullock. M&A
SBI, others invest in Germany’s solarisBank Japanese financial conglomerate SBI Holdings Inc and a subsidiary of German media company Bertelsmann SE & Co KGaA have backed Berlin-based solarisBank AG, a fully licensed start-up bank that enables businesses to offer digital financial services to their customers, solarisBank executives said on Monday. They said the bank has raised 26.3 million euros (US$28 million) from investors including SBI Holdings, the former investment arm of Japan’s e-commerce company SoftBank Group Corp, and Arvato Financial Solutions, Bertelsmann’s financial services group. Existing investors including German technology company builder FinLeap and venture firm yabeo Capital also participated in the new round.
14 Business Daily Wednesday, March 15 2017
International In Brief Navigation safety
Somali pirates hijack first commercial ship since 2012 Pirates have hijacked a Sri Lankan-flagged oil tanker, a Somali official said yesterday, the first time they have successfully taken a commercial ship since 2012. The Aris 13 sent a distress call on Monday, turned off its tracking system and altered course for the Somali port town of Alula, said John Steed of the aid group Oceans Beyond Piracy. “The pirates hijacked the oil tanker and they brought it near Alula,” Mohamud Ahmed Eynab, the district commissioner for Alula, told Reuters yesterday by phone. Pirates in the town confirmed they were expecting the ship. Study
U.S. Republican Obamacare repeal benefits wealthiest A Republican plan to repeal taxes set under Obamacare would benefit the wealthiest U.S. households at more than five times the rate for middle-income families, according to the nonpartisan Tax Policy Centre. “The effects are really very dramatic. We found that a typical middle-income family would get a tax cut averaging about US$300, while people in the top 0.1 per cent would get a tax cut of about US$207,000,” Howard Gleckman, a senior fellow at the nonprofit research group, said. M&A
Intel’s purchase of Mobileye shakes up driverless car sector Intel Corp agreed to buy Israeli autonomous vehicle technology firm Mobileye for US$15.3 billion on Monday in a deal that could thrust the U.S. chipmaker into direct competition with rivals Nvidia Corp and Qualcomm Inc to develop driverless systems for global automakers. The pricey acquisition of Mobileye could propel the world’s largest computer chipmaker into the front ranks of automotive suppliers at a time when Intel has been reaching for market beyond its core computer semiconductor business. It also promises to escalate the arms race among the world’s carmakers and suppliers to acquire autonomous vehicle technology. Survey
French expect Macron to bring down unemployment A Harris Interactive survey released on Monday showed French voters thought that presidential frontrunner Emmanuel Macron was more credible than his rivals to lower unemployment rate, currently at 9.7 per cent. According to the poll, 38 per cent of 1,014 respondents had good opinion on Macron’s presidential credentials to fight joblessness against conservative candidate Francois Fillon’s 30 per cent. Only 27 per cent of French voters trust far-right contender Marine Le Pen to devote on her pledge to trim the number of people without work, it added.
Conflicts of interest
Fund managers seen cutting research budgets The MiFID II regulations seek to police conflicts of interest between managers and brokers and to keep managers from passing on the costs of research to their clients. Silla Brush
A
sset-managers in Europe and the U.S. will probably cut more than US$300 million from research budgets in anticipation of regulations aimed at rooting out conflicts of interest in the market for investment information. That’s according to a survey of 99 fund managers and traders conducted by consulting firm Greenwich Associates, which assessed the shake-up coming to the multi billion-dollar market for investment research over the next year. The European Union’s MiFID II regulations, which require asset managers to separate trading commissions from investment-research payments, will have a “clearly negative” impact on the amount of commission money that is spent on research and advisory services, according to the Stamford, Connecticut-based firm’s findings released yesterday. While the budget cuts will be “relatively modest” at individual asset-managers, research providers across the board fear the new law will prompt “a substantial decrease” in buy-side spending. The findings equate to a 7 per cent drop in overall commission spend for European institutions and a 5 per cent drop for U.S. ones. Those reductions would contribute to a nearly US$200 million decrease in U.S. research commission spend and a decrease of more than 100 million euros (US$106 million) in Europe. The MiFID II regulations, which take effect in January, seek to police conflicts of interest between managers and brokers and to keep managers from passing on the costs of research
to their clients. “The rationale behind the MiFID II directive acknowledges that when an asset manager uses their clients’ money to pay for research, they might not be a responsible buyer,” Greenwich said in the report. “Furthermore, the trading desk’s pursuit of best execution should not be influenced by the procurement of research.” While the rules apply to the 28-nation bloc, U.S. asset managers with substantial business in the U.K. and Europe are also preparing for the changes and are choosing to adopt global standards. About 43 per cent of U.S. respondents to the Greenwich survey plan to make global changes to their research practices, while the rest will wait to determine the effect of the EU regulations. “Many are working to ensure the ripple effect from across the pond
doesn’t turn into a tidal wave,” the report said. More than half of U.S. survey participants and almost three quarters in Europe expect the rules to result in a slimming of their counterparty list for research and advisory services. And 40 per cent of U.S. respondents and more than 50 per cent of European ones expect to limit the number of brokers they trade with. The survey also found that firms will be slow to switch how they pay for research. The law allows asset managers to pay for research either by hard payments from their own profits or losses, or through separate client research payment accounts, according to Greenwich. Most European managers said they expect over five years to pay for research primarily with hard payments, which would be a significant shift from current practice. “This suggests that although MiFID II will allow managers to continue use of client commissions, European firms are hoping to move in the direction of hard payments,” Greenwich said. Bloomberg News
Regulation
Big banks should split off riskiest activities The idea is an alternative to the regulatory regime which has existed since the Dodd-Frank financial legislation Patrick Rucker
Leading Wall Street firms should segment their riskiest businesses into holding companies that better shield taxpayers from a future bailout, a leading U.S. bank regulator said on Monday. Tom Hoenig, vice-chair of the Federal Deposit Insurance Corporation (FDIC), pitched his idea to bankers attending an industry conference as a more palatable alternative to the regulatory regime which has existed since the Dodd-Frank financial legislation was enacted after the 20072008 financial crisis. Hoenig said that law has proved burdensome for all banks and has given those that are too big to fail a competitive advantage. Individual holding companies standing behind big bets on companies, infrastructure or other riskier projects would have higher capital requirements than consumer banks, under the proposal. Hoenig, a political independent,
has been rumoured to be a contender for vice chair for supervision at the Federal Reserve Board - a role that writes fine-print in banking rules. On Monday, Hoenig declined to comment on such speculation. “I stay away from that one,” he told reporters. “That’s someone else’s choice.” Hoenig’s proposal would “require large, complex, universal banks to separately capitalize and manage their traditional commercial banking activities,” he told a conference of the Institute of International Bankers in Washington. “Each intermediate holding company that houses non-traditional banking activities would become a separate affiliate, separately capitalized and separately managed from the insured bank,” Hoenig said in prepared remarks. It is likely that Hoenig’s proposal would require an act of Congress to institutionalize and could not be done by bank regulators such as the Fed and the FDIC, even if those regulators acted in concert and banks agreed to breaking themselves up as he outlined. It is not clear whether the Hoenig approach would find favour on Capitol Hill or on Wall Street. The Dodd Frank reform legislation conceived after the 2008 financial crisis demands that Wall Street set aside more wealth, or capital, to
shield taxpayers from a bailout. But Wall Street still relies on taxpayers to stand behind riskier investments rather than everyday lending, Hoenig said.
“Each intermediate holding company that houses non-traditional banking activities would become a separate affiliate, separately capitalized and separately managed from the insured bank” Tom Hoenig, vice-chair of the Federal Deposit Insurance Corporation Banks that do more to protect riskier investments could win relief from costly supervision, Hoenig said. The FDIC’s principal role is to insure bank deposits when a lender fails. Reuters
Business Daily Wednesday, March 15 2017 15
Opinion
Asia’s lack of cyber defences is a missed opportunity Tim Culpan a Bloomberg Gadfly columnist
Family picture of the latest G20 summit. Lusa
Germany, the G20, and inclusive globalization
I
t’s not often that we hear updates from Asia’s cybersecurity companies. That’s because there aren’t very many of them. NEC Corp. announced on Monday it will set up a security operations centre in California under its Infosec Corp. affiliate. The initiative adds to teams in Japan and Europe, allowing NEC to run a “follow the sun” operation, similar to that deployed by others in the field. Importantly, it makes the Japanese company just that little bit more global, and helps to add Asia to the conversation on IT security providers. If asked to name an Asian cybersecurity company, chances are Trend Micro Inc. would be the first to come to mind, and most would draw a blank at a second. Despite playing host to a hotbed of internet breaches, hacks and espionage, Asia Pacific has just 21 firms among the Cybersecurity 500, a ranking o f t h e w o r l d’ s best companies in the industry. The list, compiled by researcher Asian companies Cybersecurity in the Cybersecurity 500 V e n t u r e s, i s n ’ t based on size or growth, but on a qualitative assessment of the hottest and most innovative. Bessemer Venture Partners, a Silicon Valley investor with skin in the cyber game, takes a more quantitative approach and lists 29 companies in its BVP Cyber Index of publicly traded companies whose principal business is information-technology security. Even then, only two Asian companies make the gauge: Trend and NQ Mobile Inc. But NEC isn’t just dipping its toes in the water. It bought Infosec in 2013 and started ramping up its emphasis on IT security about a year later as part of a company reorganization, listing the subject as a key focus for the coming years. Among its successes, NEC supplies biometrics technology for India’s Aadhaar citizen-identification program and a facial recognition system for South Australia’s police force. Dig deep enough and you’ll find more examples of IT security businesses buried inside other Asian companies. There’s also a plethora of small, independent infosec teams -- notably in Taiwan -- that are chasing down breaches and selling consulting services to corporate and government clients that have been hacked. Yet the lack of size, scale and specialized focus in Asia is surprising. It took a long time for Western companies to treat seriously the defensive need for cybersecurity, but once they did the business opportunities were also quickly recognized. In Israel (population: 8.3 million), the nation’s on-going security threats have been turned into a burgeoning industry that birthed 36 of the Cybersecurity 500 companies. Many Asian boards still have their heads buried in the sand when it comes to the attacks they face, not just from hacks but from fraud, intellectual property leakage, and physical and supply chain breaches. When they do start to face up to reality we can expect a rush of new, specialist companies to meet that need. Bloomberg Gadfly
21
G
lobalization is getting increasingly bad press in the West nowadays. Populist movements allege that it does not benefit the average citizen very much, if at all. Instead, they tout protectionism and unilateralism. National policies, whether with respect to trade or financial regulation, are seen as the surest way to restore national greatness. But this populist agenda is based on the deeply flawed premise that international cooperation and international trade are zero-sum games, producing only winners and losers. In fact, cooperation and trade can deliver benefits to all countries. For many years now, they have increased global security and certainly global prosperity, with hundreds of millions of people lifted out of poverty, both in the developed and the developing world. To be sure, globalization needs rules and a recognized framework to ensure that it benefits everybody, delivering sustained and inclusive economic growth. As with national legislation, it is a framework that requires constant adjustments. But to abandon it altogether and retreat from globalization is the wrong answer. On the contrary, we should be seeking ways to deepen and broaden international economic cooperation. In my view, the G20 is the best forum for increased and inclusive cooperation. Of course, the G20 is not perfect, but it is the best institution we now have for achieving a form of globalization that works for everyone. Through it, the world’s main industrialized and emerging countries have worked together toward constructing a shared global order that can deliver increasing prosperity. Indeed, the G20 is the political backbone of the global financial architecture that secures open markets, orderly capital flows, and a safety net for countries in difficulty. The G20 has achieved much in recent years, including better coordination on financial regulation and international taxation. And, as the country that holds the G20 presidency this year, Germany is committed to continuing the important work begun under our most recent predecessors in China and Turkey. For example, more needs to be done to strengthen the global economy’s resilience against sudden shocks. So one of the G20’s top priorities this year will be our work to prevent a recurrence of a global financial and economic crisis like that of 2008-2009, which stemmed from a myopic, debt-based growth model. But, in order to tackle the gulf between the richest and the poorest countries, we need to go beyond the G20. In particular, the G20 – indeed the entire world – must reach out to Africa at this critical moment in the continent’s development. Beyond the moral question of raising Africans’ living standards, the continent’s development
“
Wolfgang Schäuble Germany’s Federal Minister of Finance
is crucial to reducing geopolitical risks. But investment in Africa is still low, depriving people in African countries of opportunities to improve their lives. For these reasons, the G20 during the German presidency is working to intensify its partnership with Africa. A central pillar of this effort is the “Compact with Africa,” which provides a framework for supporting private investment, including in infrastructure. We propose that, with the G20’s political backing, African governments, international organizations, and bilateral partners prepare comprehensive, country-specific investment compacts to encourage privatesector investment. Each country is to implement a bespoke package of measures to decrease its investment risks. Essentially, the Compact with Africa is a contribution to implementing the African Union’s Agenda 2063 blueprint for economic development. That AU agenda provides g u i d a n c e f o r i m p r o vi n g macroeconomic, business, and financial frameworks across the continent. While the Compact with Africa is open to all African countries, five have already committed to pioneering this new approach: the finance ministers of Côte d’Ivoire, Morocco, Rwanda, Senegal, and Tunisia want to work on compacts and have expressed this in writing. I have invited them to attend the G20 Finance Ministers and Central Bank Governors meeting on March 17-18 in Baden-Baden. At that meeting, my G20 peers and I will offer these countries an international platform to present their plans. We want to discuss with them, and the heads of the African Development Bank, the World Bank, and the International Monetary Fund, what the elements of country-specific investment compacts could be. Afterwards, these five countries, together with international organizations and bilateral partners, will select the specific measures and instruments to be included in each individual investment compact. The G20 will provide high political visibility, helping to raise investors’ awareness of these changes. I am confident that significant progress can be achieved when all partners involved work together closely and on an equal footing. International cooperation is the only way to achieve strong, sustainable, balanced, and inclusive global growth. Germany is committed to do its best as an honest broker within the G20 and beyond to ensure that globalization truly does benefit all. Project Syndicate
The G20 during the German presidency is working to intensify its partnership with Africa
”
16 Business Daily Wednesday, March 15 2017
Closing Investigation
Ex-Taiwan president Ma indicted for alleged leak of probe detail
said by text message. He has been facing several investigations into official decisions made before his eight-year tenure as president ended in May. Ex-Taiwanese President Ma Ying-jeou was indicted Ma was questioned while still in office over the over the alleged leaks of judicial secrets during his disclosure of details of an investigation involving time in office, according to an official with the Taipei members of the legislature in 2013. prosecutor’s office. The former leader was accused of improperly disclosing In June, current President Tsai Ing-wen of the rival details about an investigation and violating protections Democratic Progressive Party denied Ma’s request to of personal information, Chang Chieh-chin, the capital’s visit Hong Kong under a state secrets law that restricts deputy chief prosecutor, said by phone yesterday. Each trips by former top officials for up to three years after violation carries a possible sentence of as many as three they leave office. Tsai’s office said it rejected Ma’s request because Hong Kong was a “highly sensitive years in prison, Chang said. region.” Bloomberg News Ma, 66, is confident in his innocence, a spokeswoman
Real estate
Realtors investigated for Hong Kong overseas property sales Complaints against overseas developments rose to their highest on record last year Benjamin Robertson
H
ong Kong’s securities regulator is investigating whether realtors selling overseas properties are illegally marketing investment plans, according to a lawmaker helping investors who lost money on such deals. Buyers argued that developments promoting guaranteed rental income are so-called collective investment schemes, which need approval from the Securities and Futures Commission (SFC), said James To Kun-sun, a member of the city’s legislature. Individuals who lost money on at least 15 uncompleted U.K. developments have complained, said To, who met with the agency on March 7. In a property-obsessed city ranked among the world’s priciest for home purchases, investors have taken advantage of a currency tied to a strong dollar and low borrowing rates to snap up overseas offerings, while developers tout incentives such as fixed returns to lure Asian money. But there can be misunderstanding among people not familiar with Hong Kong securities law about what approval is needed, said Rolfe Hayden, a partner at law firm Simmons & Simmons LLP. “It is not so surprising that real estate agencies in Hong Kong would not see any difference between selling a flat in Wan Chai and a resort in Thailand that is centrally managed and offers a guaranteed return,” he said, referring to a district in Hong Kong. To said after his meeting with the
regulator that the agency will soon make an announcement on the cases. Ernest Kong, an SFC spokesman, declined to comment. Existing home prices in the city reached an all-time high in the week ended March 5, according to the Centaline Property Centa-City Leading Index, which tracks sales of secondary homes. It’s not just the SFC that is looking into the issue. From 2014 to 2017, 276 people filed complaints with the police after they suspected they were deceived while investing in overseas property, a police spokeswoman said in an emailed response to queries. The cases are being investigated by the Commercial Crime Bureau and no arrests have been made, she said.
Wooing buyers
Income guarantees help woo buyers in Hong Kong, many of whom spend their weekends visiting hotel ballrooms filled with salespeople and models of yet-to-be built properties. The U.K., Canada, and Australia are among the most popular choices for Hong Kong investors buying overseas, according to consultancy Savills Plc, which said it doesn’t sell income-guaranteed properties. The regulator did not say which companies it was investigating, To said. Complaints made to the SFC include at least one about a unit of Century 21 Hong Kong Ltd., a franchisee of U.S.-based Century 21 Real Estate LLC, according to investors who asked not to be named because the matter isn’t public. They said they bought U.K. student accommodation
with a guaranteed six per cent return through Century 21 after seeing newspaper advertisements promoting the project. Deposits were lost after the development went into liquidation, the investors said. Century 21 Hong Kong did not respond to emails and phone calls seeking comment. Realogy Holdings Corp., the U.S. owner of Century 21, directed questions to the Hong Kong franchisees. At least one complaint was also made about Sino Gateway Ltd., and a second firm run by the same directors called Hong Kong Homes Ltd., after projects marketed by the firms failed, To said. Representatives for Sino Gateway and Hong Kong Homes could not be reached for comment. Sino Gateway was a former franchisee partner of Sotheby’s International Realty Affiliates LLC, though its relationship with the U.S.-based firm was terminated in August.
Investment schemes
Projects where sale-and-leaseback options are wrapped into the deal, as well as the guaranteed rental yields,
risk being considered collective investment schemes, said Jeremy Lam, a Hong Kong-based partner and head of the investment funds practice at the law firm Deacons. Complaints against overseas developments rose to their highest on record last year, according to data from the Estate Agents Authority (EAA), prompting the agency to review its oversight of the sector. The EAA plans to introduce rules covering agents selling offshore projects, said spokeswoman Iris Li. Last month the group, together with the SFC, held a workshop on collective investment schemes in property that was attended by about 200 licensed agents, said Li. Guidance issued by the SFC in June 2016 about which deals might qualify as a collective investment scheme has put the real estate industry on notice, said Lam, who advises on investment product structuring. Shopping malls, student accommodation, holiday resorts and serviced apartments are more likely to be collective investment schemes, according to the SFC statement. Bloomberg News
China’s new loans
Quality exam
Currencies
Individual mortgages to drop below 30 pct
Consumer complaints in Mainland hit record high
PBOC net FX sales lowest in 9 months
China’s mortgages by individuals should account for less than 30 per cent of total new loans in 2017 as housing curbs are expected to slow mortgage growth, state newspaper China Securities Journal quoted a central bank official as saying yesterday. That would be a “clear drop” from the high ratio last year, the newspaper quoted Zhou Xuedong, director of the business management department in the People’s Bank of China, as saying. In 2016, China’s RMB5.68 trillion (US$820.9 billion) in new medium- and long-term household loans made up 44.9 per cent of total new loans in the year, boosted by a furious property market boom, central bank data showed. Zhou’s estimates echoed central bank governor Zhou Xiaochuan’s remarks last week, who said measures by local governments to cool rising house prices would slow mortgage growth to some degree, but housing loans would continue to grow at a relatively rapid pace. Central bank data last week showed medium- and long-term household loans accounted for 32.5 per cent of new loans in February, marginally higher than January but the absolute figure dropped almost in half, adding to signs of cooling in the housing sector. Reuters
China’s nationwide industry and administrative units received more than 8.08 million consumer complaints, reports and inquiries in 2016, representing year-on-year growth of 3.9 per cent, local authorities said yesterday. Of these cases, the number of consumer complaints increased by 29.1 per cent year on year to 1.667 million in 2016, hitting a record high, according to figures released by China’s State Administration for Industry & Commerce (SAIC). Consumer inquiries accounted for more than 6.08 million cases and consumer reports reached 326,300 cases, the administration said, adding that 8.08 million cases helped consumers avoid RMB1.8 billion (US$260 million) in economic losses. Product quality, contract problems and after-sales services were the top three complaints, though down from previous years. Complaints about daily necessities, vehicles and home appliances accounted for 49.9 per cent of product-related complaints, while complaints about telecom, personal and hospitality services and online shopping services made up 51.6 per cent of the service-related complaints during the reporting period. Complaints related to product advertisements soared over 198 per cent from the same period of 2015 after China’s new advertisement law enhanced punishment for false advertising. Xinhua
China’s central bank in February sold the smallest amount of foreign exchange in nine months, supporting the government’s assertions that capital outflows are easing amid tighter scrutiny of cross-border flows. Net foreign exchange sales by the People’s Bank of China (PBOC) amounted to RMB58.1 billion (US$8.40 billion) last month, according to Reuters calculations based on central bank data released yesterday. That compared with net sales of RMB208.8 billion in January and RMB227.9 billion in February 2016. China’s yuan has steadied this year after falling 6.5 per cent last year. PBOC Governor Zhou Xiaochuan said last week 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. But the yuan faces another test with the U.S. Fed Reserve expected to raise rates this week, as many analysts say the yuan is likely to fall again if the dollar strengthens on the back of higher U.S. interest rates. Reuters