JP Morgan keeps crown among investment banks Global finances Page 14
Thursday, March 23 2017 Year V Nr. 1260 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Mobile payments
Apple Pay losing battle for Mainland with WeChat and Alipay Page 16
Business development
www.macaubusinessdaily.com
Banking
Gaming equipment supplier APE mulls listing Page 2
Dah Sing yearly profit down despite increase in local business Page 4
Economy
Casino operators shoot for ‘moderate’ diversification Page 6
Brazilian Meat Off the Menu Food safety
Brazil remains mired in a rotten beef scandal. With the food safety watchdog banning the importation of all meat from the S. American country since Tuesday. MSAR suppliers say the ban will hike prices in local restaurants. Because alternative meat supplies will cost more. Page 5
Fake welfare lottery sites mushroom
Business Daily has uncovered three online lottery scams. All claiming to be linked to the MSAR Gov’t. Or Gaming companies. The gaming regulator reiterates they’re all fake and unlawful. Stressing it has never greenlighted any online welfare lottery business in the territory
No timetable for casino privatisation Philippine gaming Philippines’ gaming regulator Pagcor is not anti-privatisation of all 46 gov’t-run casinos in the country. As proposed by the Philippine department of Finance. Pagcor chairperson Andrea Domingo declined to give further details. Meanwhile, the regulator has approved a new casino investment in Cebu. Page 7
Positive vibes Scams alert Page 3
HK Hang Seng Index March 22, 2017
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20° 23° 20° 22° 16° 23° 17° 17° 17° 19° Today
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Survey Top companies in Asia are optimistic. A private poll found positive signs in the economic engine of the two main global actors, China and the United States. Lifting the spirits of regional firms in the process. Page 11
2 Business Daily Thursday, March 23 2017
Macau Loan-sharking
Woman rescued from imprisonment
borrowed from a loan-sharking group. The woman had allegedly been imprisoned in the building A 43-year old Mainland Chinese and was trying to escape. Last woman was deterred from jumping off Edificio I Chan Kok in year, there were 441 cases related Rua de Pequim on Tuesday night, to loan-sharking, up 38.7 per cent from 318 cases in 2015, while the according to local broadcaster TDM Radio News. Police disclosed number of cases related to illegal detention hit 503, surging 37.4 that the woman claimed that per cent from 366 cases in 2015. she had failed to repay loans
Gaming
Iao Kun-linked promoter declared bankrupt
T
he city’s Court of First Instance has declared the bankruptcy of VIP promoter Sang Lung Gaming Promotion Ltd., which is linked to junket operator Iao Kun Group Holding Company Ltd. in the MSAR. According to a dispatch in yesterday’s Official Gazette, the bankruptcy declaration from the local court was per
the request of Galaxy Casino Company Ltd., a subsidiary of gaming operator Galaxy Entertainment Group (GEG). Sang Lung Gaming Promotion Ltd. was linked to VIP junket operator Iao Kun Group Holding Ltd. until November 2016, when Iao Kun discontinued its partnership agreement with Sang Lung. According to a filing by Iao Kun
with the Nasdaq Stock Market last December, Galaxy had issued a letter to Sang Lung, and to another promoter for Iao Kun - Sang Heng Gaming Promotion Company Limited - asking the two companies to repay lines of credit amounting to HK$312 million (US$38.8 million) to the local gaming concessionaire. Iao Kun said in the same filing that
it had engaged counsel in Macau to handle the matter and to defend the claim against the two promoters. In 2016, Iao Kun closed two VIP rooms in GEG properties - namely, the Galaxy Macau complex and StarWorld - as part of its ‘comprehensive strategic review of VIP gaming room operations in Macau.’ GEG said in a statement it had terminated promoter agreements with Iao Kun due to the junket’s alleged ‘breach of the agreements.’ Currently, Iao Kun only operates two VIP room operations in Macau, one in City of Dreams (Melco Crown Entertainment) and one in L’Arc Macau (SJM Holdings). S.Z.
Business
Asia Pioneer Entertainment mulls listing on GEM Local electronic gaming equipment supplier Asia Pioneer Entertainment Ltd. (APE) has applied to be listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. The company, however, redacted all information regarding the amount that it would like to incur, the size of the offering and proceeds after the fees in its application proof. The document reads that the supplier will use the proceeds to produce more trial products, procuring electronic gaming equipment for lease to gaming operators in Macau. Proceeds will also be utilised for ‘procuring and refurbishing of used Electronic Gaming Equipment for resale in Macau for use in South East Asia.’ For the year of 2016, the company
generated revenue of HK$52.6 million (US$6.6 million), which rose by 9.1 per cent year-on-year from HK$48.2 million in 2015, the document shows.
The firm said its revenue was primarily obtained from three segments: technical sales and distribution, consulting and technical services, and repair services, which accounted
for 79.6 per cent, 16.4 per cent and 4 per cent of the total, respectively. Claiming to be the largest gaming equipment distributor in the city in 2015, it claimed a market share of 32.2 per cent in the year, citing a commissioned report conducted by China Insights Consultancy Limited. C.U.
Politics
Aviation
Gov’t appoints members for ‘One Belt, One Road’ committee
More flights for Summer
The ‘One Belt, One Road’ initiative is strengthening local representation and global online connectivity Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The Macau SAR Government has appointed members for the Working Committee for the Construction of the ‘One Belt, One Road’ initiative, according to a dispatch published in yesterday’s Official Gazette. The Committee comprises ten m e m b e rs r e p r es e n t i n g e i g ht government offices. In addition to the five representatives for each of the five Secretariats, the Committee includes one member from the Macao Foundation, two members representing the Office of the
Chief Executive, and two members representing the Policy Research Office. Tenure of the members will last one year following yesterday’s dispatch.
China launches website
On Tuesday, China launched its ‘Belt and Road Portal’ – the website was launched concomitantly to its official Weibo and Wechat accounts. The Portal was established ‘with the aim of promoting information sharing, civilization exchanges and win-win co-operation,’ the description on the website reads.
According to the website, some of the Portal’s most important functions include providing scientific and legal explanations about the main ideas and regulations informing ‘One Belt, One Road’ as well as operating as a platform for the exchange and sharing of news, information, data, and relevant policies amongst ‘enterprises, social organizations, and citizens of countries along the Belt and Road routes.’ The website will also act as an online platform connecting participants in the Belt and Road Forum for International Co-operation (BRF) to be hosted by Beijing this May, according to information provided by China’s Foreign Ministry Spokesperson, Hua Chungying, in an interview on the same day.
With the arrival of the Spring season and the approach of Summer, airlines are ramping up their flight offerings to the city. Low-cost carrier Spring Airlines is introducing a Hangzhou-Macau route effective April 16. The flights are scheduled daily, according to online publication eturbonews. In addition, to take advantage of the holiday season Air Busan has announced that it will increase its Busan-Macau flight service during the Dummer by nearly double, according to the same publication. The airline currently operates five flights weekly to the MSAR and starting this Sunday, March 26, will increase the number to 11 weekly flights, notes the publication.
Business Daily Thursday, March 23 2017 3
Macau Scams
Online lottery scams proliferate in city Fake online lottery betting companies claim to be related to the MSAR Government and many other gaming operators Cecilia U cecilia.u@macaubusinessdaily.com
T
hree online lottery scams have been uncovered by Business Daily, which all claim to have been managed by or related to the MSAR Government and other local gaming-related operators. Claiming to be established in 2002, Macao Public lottery Co., Ltd. claims on its website that it is a welfare lottery operator in the city. Flaunting the MSAR emblem next to the company name on the website, it claims its operation is approved by the local government, with the co-operation of seven local gaming companies or hotels such as Galaxy Macau and The Venetian Macao. The fake website says its lottery drawings take place three times a week, with the expected pool prize for the upcoming drawing amounting to MOP802.7 million (US$100.3 million). Another online lottery website Aomlt135.com – claims to be a subsidiary of the Macau Jockey Club (MJC) providing betting in both Macau and Hong Kong. MJC, however, confirmed that the Club does not have any online lottery subsidiary. The website provides various betting methods including the use of Customer Input Terminal and Electronic Shroff Card, which are both payment methods in the Hong Kong Jockey Club. The last website, BOYINGHK, meanwhile, states it is managed by the local casino service firm Macau Legend Development Ltd. A bold caption declares: ‘Chief Executive Officer of BOYINGHK
David Chow Kam Fai puts forward the public welfare concept of ‘buy lottery tickets, support public welfare, accrue merits” in Chinese is placed above a photo of Mr. Chow, co-chairman and Chief Executive Officer of Macau Legend. The company said in its introduction that it was established in the ‘95th year of the Republic’ or 2006 in the Taiwanese Minguo calendar. The website also features a banner of the city’s gaming regulator, the Gaming Inspection and Co-ordination Bureau (DICJ). Business Daily sought to confirm whether BOYINGHK has any relation with Macau Legend from the latter, but had not received a response by the time this story went to press.
DICJ: ‘False and unlawful’ operations
Following Business Daily’s enquiry, the official gaming regulator issued a press release reiterating that ‘the MSAR Government has never allowed or appointed any online lottery companies to operate public welfare lottery business.’ ‘Any website claiming to operate lotteries for public and charitable interests on behalf of the MSAR Government is false and unlawful,’ wrote DICJ in its press release, adding that bets placed on these false websites will not be protected by MSAR law. Also, DICJ stated that its official website only provides information relating to the gaming industry, but never operates, promotes or accepts any sort of betting. The local gaming regulator also warns that it never sends mobile phone messages to promote activities related to gambling.
Three fake online lottery betting companies all claim they are related to local gaming entities or official regulator
4 Business Daily Thursday, March 23 2017
Macau Opinion
Ashley Sutherland-Winch*
Pinterest fails in China In February, Pinterest launched a new campaign presenting the social media platform as a ‘search engine’ to find everything from everyday to epic ideas. They even launched a video ad that stated: ‘When you search on Pinterest, all of your results are visual . . . You never know what you are going to find.’ This new campaign may have raised flags in China and it begs the question, did changing its brand from a social media platform to share or ‘pin’ items on a virtual board to a search engine lead to its demise in China? Last week, China’s Great Firewall cracked down on Pinterest. The blockade coincided with the celebration of the annual session of China’s legislature, the National People’s Congress and the Chinese People’s Political Consultative Conference, the biggest annual political event of the government. Pinterest is not known for political content and since 2012 was freely accessible in China. Loved by fashion and product industries, many designers used Pinterest to present new lines and product launches. Another popular activity on Pinterest is to attempt a recipe or DIY project and if it does not turn out as expected, it is referred to and tagged as a ‘Pinterest fail’ by users. Now, with its new search engine label it is quite possible that a user could search for more than just wedding gown ideas and recipes. With 150 million users worldwide, Pinterest most likely has some ‘pins’ that the Greater China censors could no longer ignore. Pinterest recently unveiled how it will compete with other popular social media platforms that generate revenue from ad sales. Pinterest launched the ability to promote pins and video ads and launched ‘search advertising’ via ‘Pinterest Lens’ whereby users have the option to search for ideas through images. Pinterest reports that it currently receives one billion searches per month and with numbers like that the platform will soon take its place among the giants like Facebook and Instagram for social media marketing, both of which are also blocked by the Great Firewall. Chinese users took to Weibo immediately following the block last week to express sadness that they could no longer access the site. It has yet to be seen how the PRC ban will affect Pinterest but with China’s estimated 721 million Internet users it is sure to be a major blow to the platform - or in other words, a major Pinterest fail. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Banking
Dah Sing annual profit down But the company’s local arm Banco Comercial de Macau registered a better performance than one year ago
H
ong Kong-listed Dah Sing Banking Group Ltd. saw its net profit attributable to shareholders of the company dip 2.5 per cent year-on-year to HK$2.14 billion for the year of 2016, while its business in the MSAR slightly improved, according to its annual results filed with the Hong Kong Stock Exchange yesterday. The parent company of local bank Banco Comercial de Macau, Dah Sing’s operating income generated
from the city totalled HK$425.3 million for the year, which represents an increase of 3.8 per cent. In addition, profit before taxation from the territory grew by 1.1 per cent year-on-year to some HK$220.1 million. ‘Our overseas banking business reported higher profit as a whole due to improved performance from our wholly owned subsidiaries, Banco Comercial de Macau and Dah Sing Bank (China), despite a reduction in the contribution from
our associate Bank of Chongqing,’ the group wrote. According to the filing, the group’s overseas banking contributed some HK$762.6 million profit after taxation, an increase of 6.5 per cent, while that from personal banking and commercial banking amounted to HK$450.8 million and HK$538.5 million, respectively, representing an increase of 3.8 per cent and a decrease of 13.5 per cent from 2015. The group’s total operating income increased by 2.9 per cent year-onyear to HK$4.72 billion, of which net interest income rose 9 per cent year-on-year to MOP3.63 billion, while net fee and commission income dropped 8.1 per cent year-on-year to MOP835.9 million. K.L.
Profit warning
Tsingtao expects net profit to plunge The company said ‘stringent market conditions’ is one reason driving down its earnings Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
The Tsingtao Brewery Company Limited has announced that it expects to see a drop in profit for its annual results, ended December 31 last year, of approximately 39 per cent year-on-year, according to the group’s filing with the Hong Kong Stock Exchange. The profit decline is described as ‘attributable to the supplemental income tax payment’ as well as ‘the decrease in operating profits of the Company due to stringent market conditions in 2016,’ notes the filing. Regarding the tax payment, the group notes that prior to 2007 the ‘tax authority had yet to reach a
conclusion on how to deal with the differences in income resulting from the application of the expired income tax rate in the years prior to 2007.’ The result of the application of the expired preferential income tax rate requires the company to pay ‘approximately RMB338.9 million (MOP393.1 million/US$49.1 million), reducing the net profit attributable to shareholders for the 2016 year by the same amount. The group owns a 60 per cent interest in the ‘Macau Company.’ According to the group’s most recent interim results, published on the Hong Kong Stock Exchange, the revenue from its Hong Kong, Macau ‘and other overseas’ segment in the six-month period ended June
2016 amounted to RMB274.64 million, whereas the net profit from the same region amounted to RMB34.84 million. The group’s revenue during the six-month period in the segment saw a 19.78 per cent increase, whereas the group’s profit from the same segment hit 175 per cent of the results from the same six-month period in 2015. Overall revenue fell 8.22 per cent during the period to RMB14.74 billion, while its net profit fell 73.63 per cent to RMB5.49 million despite an 11 per cent year-on-year reduction in the cost of sales and a 2.4 per cent reduction in selling and distribution expenses. This was counteracted by a 12.95 per cent increase in finance expenses and a 100 per cent increase in non-operating expenses, according to the filing.
Corporate
Grand Hyatt Macau launches new afternoon tea campaign
Grand Hyatt Macau has launched a new afternoon tea campaign – ‘Afternoon Tea and Me’ - in its Lobby Lounge, featuring various dessert stations that enable guests to choose which morsels they want to enjoy, personalize their own menus
and eat at their leisure, creating their own blend of Taste, Temperature, Chinaware and Service. Four Chinaware choices are offered to guests, including burnt orange, a subtle turquoise, pure white with an engraved floral pattern, or white with a bronze art deco pattern. The service is available from 2:00pm to 6:00pm daily.
Business Daily Thursday, March 23 2017 5
Macau Food safety
Brazilian barbecue on hold Local meat suppliers believe restaurant prices will increase if the city’s latest ban on Brazilian imported meat lasts for more than a month Nelson Moura nelson.moura@macaubusinessdaily.com
A
long-running ban on Brazilian meat may incur increases in the city’s restaurant prices as substitute meat from other countries is generally more expensive than that from the South American country, local meat suppliers have told Business Daily. “Brazilian meat represents around 40 per cent of the market share in Macau, the ban will have a large impact on restaurant business and even the public if the ban lasts more than one month,” said the Director of the Van Key Hong Group Limited, Vincent Ip Chio Fai. “Restaurants will have to raise prices since the cost of other substitute meat is generally higher; that’s why Brazil has such a large percentage of the market share.” On Tuesday, the Civic and Municipal Affairs Bureau (IACM) announced that the importation of all frozen or refrigerated meat from Brazil to the MSAR would be halted for the time being due to a recent scandal of tainted and rotten cow meat from Brazil. The ban comes after authorities in Brazil suspended 33 government officials for allegations that some of the country’s largest meat processors have been selling rotten beef and poultry for years.
“We had a meeting with meat suppliers and they told us that the meat they currently hold is of reliable quality that has already been supervised when entering the MSAR,” IACM President José Tavares told Business Daily yesterday. “However, for prevention motives we thought it was better to temporarily suspend all requests for imported meat from Brazil.” In 2016, the MSAR imported 3.2 million kilograms of frozen Brazilian bovine meat worth MOP291.5 million (US$36.4 million) while local meat suppliers told this newspaper that all of the city’s Brazilian meat arrives via Hong Kong. The neighbouring SAR was the third largest importer of Brazilian bovine meat in the world, having imported US$1.5 billion-worth (MOP12 billion) in 2016, according to the Brazilian Ministry of Industry, Foreign Trade and Services (MDIC). A similar ban on Brazilian meat has been imposed by authorities in South Korea, Mainland China and Hong Kong.
Price hikes
According to the President of the International Lusophone Markets Business Association (ACIML), Eduardo Ambrosio, public safety issues have made it essential for the government to implement a similar ban in Hong Kong, with the suspension
probably incurring losses to suppliers but beneficial to residents in terms of health. However, Mr. Ambrosio believes the ban will likely increase the price of meat products coming from other main markets to the MSAR; namely, the United States, Mainland China, Japan, South Korea and New Zealand. Steven Lee, Managing Director of New World Development Co. Ltd., told Business Daily that his company has noticed meat imports from the United States have increased “between 20 to 40 per cent” following the ban. The businessman added that his company had purchased batches of Brazilian meat prior to the ban which only arrived in the MSAR following the ban. The batches are not being withheld from sale until inspection. Food supplier Cheang Chong Kei Frozen Food Ltd. (CCK) told Business Daily it could not predict how the ban would affect its sales and that it was currently awaiting ‘further notice’ to resume sales of the meat imported after the ban.
Wait for it
According to meat suppliers, they are in negotiations with the government to try easing the ban from a prohibition on all frozen meat from Brazil to one that solely targets the beef meat involved in the scandal. However, IACM stated that the ban would be maintained until clear updated information provided by the Brazilian authorities was forthcoming and inspections conducted on all Brazilian meat exports.
“The ban will be maintained for as long as it is necessary,” the IACM President said. “When we receive a confirmation from inspectors in Brazil that the meat from the country is in certified good condition, we will again allow its importation.”
“Brazilian meat represents around 40 per cent of the market share in Macau; the ban will have a large impact on the restaurant business and even the public if the ban lasts more than one month” Vincent Ip Chio Fai, the Director of the Van Key Hong Group Limited
The Bureau head added that the MSAR Government would co-operate with Mainland China and Hong Kong authorities for “prevention purposes,” while the Bureau will also perform “extra work” to ensure that the condition of meat from Brazil by collecting and inspecting more samples.
6 Business Daily Thursday, March 23 2017
Macau AL elections
Promotional campaign starts next month
A series of campaigns aimed at informing Macau residents about the 2017 Legislative Assembly Election through online platforms, pamphlets and advertising campaigns on TV and radio will commence from April, the Electoral Commission announced yesterday. The Commission will
also organise talks for residents in co-operation with the Commission Against Corruption (CCAC) in order to introduce related information about the election that is to take place on September 17. The Commission added that a team of 15 members will be set up to oversee the election, the same number as that for the previous election which took place in 2013. N.M.
Diversification
Being “moderate” The city’s gaming operators aim to impress the Liaison Office of the PRC, pushing the diversification agenda and showing what they’ve got Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
T
he city’s gaming operators are aiming for a “moderate” diversification - such was the main message delivered by the six concessionaires and sub-concessionaires at yesterday’s Forum on Macao Integrated Tourism and Leisure Enterprises and Corporate Social Responsibility. All the operators underlined to the Deputy Director of the Liaison Office of the Central People’s Government, Yao Jian, that they were “patriotic” as well as continuing to “work together with the Macau government” to achieve the non-gaming goals underlined in the five-year plan of the local government. Melco Crown played host to the event, held at Studio City, with its chairman and CEO Lawrence Ho Yau Lung noting that the operator has been “trying to take the pioneer position” in the non-gaming offerings, although not commenting further to the press on how the MSAR would “occupy the first ranking in terms of the entertaining outlets in the world.” Unlike Melco Crown, which already has two properties on the Cotai Strip, operator MGM Macau is only expected to open its Cotai property in the second half of this year, with its CEO Grant Bowie noting that it is open to collaboration with the other operators. “I don’t think we all need to keep outbuilding each other,” said the CEO on the sidelines of the event referring in particular to exhibition and conference space. “I think what we need to do is work to drive Macau. We want to collaborate with our colleagues and our competitors
on Cotai. They have bigger venues, we have rooms, we have our own unique characteristics.”
Newcomers
While SJM’s Marketing Director, Bailey Sin, stated that regarding the group’s property in Cotai - slated to open next year and the last to arrive on the Strip - in the “first half of 2018 we will have different parts of Grand Lisboa Palace being opened . . . [which will] . . . create 10,000 opportunities for employment - more than half of which is non-gaming.” Regarding the opening date of the Grand Lisboa Palace, the group’s Managing Director, Angela Leong, commented that the date would not be affected by the fire which took
place at the property and that “work has already returned to normal.” When asked about what she thought about her ranking in the recent Forbes ‘The World’s Billionaires’ ranking, at number 427, with an estimated wealth of US$4.1 billion (MOP32.8 billion), Ms. Leong was grateful for the ranking but noted she doesn’t pay much attention to it. Regarding the next upcoming opening on the Strip, MGM Cotai, CEO Grant Bowie noted that the property is still expected to open on time, in the “second half of this year,” pointing out “we’ve already put our golden lion on the Strip, so most importantly MGM is coming to Cotai”. “It’s going well, but it’s very complicated,” commented Bowie regarding the construction, noting that “we’re going to work extremely hard and that’s obviously our target and we want to be open this year; that’s important for us and I think it’s important for Macau.”
However, the opening date isn’t everything, said Bowie. “The key issue is we need to build a facility that keeps evolving. It’s not about what you have on day one, it’s how you keep growing it,” commented the MGM head. At the end of the day, however, it’s not always in the hands of the operator, noted Bowie. “The customer will choose where they want to be in the end. If you make it hard for them, they’ll just choose not to go to you. And so hopefully we can all continue to collaborate: improve the transportation, improve the distribution opportunities around the Cotai area.” However, in the event of a downturn in the economy, Professor Zeng Zhonglu of the Gaming Teaching and Research Centre of Macao Polytechnic Institute points out that “we need to pay attention to what we are going to focus on in the future,” noting that “change is inevitable – but we need to learn from our lesson […] understand the spending pattern of our customers” and look “eight, nine years into the future” to predict how to act now.
Expansion
Debt securities
MGM hopes to expand to ‘new set of customers’ via Dubai
Imperial Pacific completes unsecured notes issuance
The announced expansion of MGM Resorts and its Bellagio brand to the Middle East through a deal with wasl Asset Management Group marks not only the group’s first step into the region but into the mega-city of Dubai. In response to Business Daily enquiries, the local subsidiary of the company and operator of MGM Macau
and soon-to-open MGM Cotai, explained the vision behind the project. ‘We have a strong desire to expand into the world’s key gateway cities,’ notes the group. ‘By opening up in the Middle East and Dubai with its 20 million annual visitors we hope to open up to an entirely new set of customers who will reach out and visit our existing properties throughout Asia and North America.’ In terms of the local arm of the worldwide gaming operator assisting in the development of the Dubai properties, the group notes that ‘it’s too early to say’ with regard to attracting clients to its local property through the Dubai arm. The group commented: ‘We are creating a network of optionality for our customers to visit and experience our properties no matter where they are in the world.’ K.W.
Imperial Pacific Holdings Limited has completed the issuance of the 7.8 per cent per annum unsecured notes due 2019 to Inventive Star Limited, its controlling shareholder, the company announced in a filing yesterday. The insurance, according to the filing, is worth some US$50
million (MOP399.98 million). Imperial Pacific, currently operating a temporary casino on the Island of Saipan, is likely to get another extension to the deadline for the completion of its Imperial Pacific Resorts project, reports Saipan Tribune. S.Z.
Business Daily Thursday, March 23 2017 7
Gaming Policy
Pagcor: No hurry to privatise government-owned casinos Move defended by the Department of Finance will probably be kept on ice By Paulo A. Azevedo in Manila
Y
ears ago, before the mega resorts and casinos took over the massive land reclamation a stone’s throw from Manila Bay, the Philippine and Gaming Corp. (Pagcor) mulled the idea of the privatisation of its casinos. It made sense then, since Pagcor is the regulator and it is hard to see a regulator managing its own casinos competing with private casinos that are also regulated by the same government body. Time passed, three Pagcor chairmen assumed the main job, and several Presidents of the Republic later the same card is again on the table. The once-dream called Pagcor City and now Aseane City is more than a sales pitch, with mega resorts fully operational - from Solaire to City of Dreams, and soon Okada – and plenty of condominiums, malls and flush hotels ready to rise up right in front of the sea, like Conrad with its gigantic windows offering sunset
New casino investment in Cebu approved
After Macau Resources Group Limited (MGR) - in partnership with Calata and Sino-American Gaming Investment Group LLC withdrew their investment plan to develop a casino resort in Cebu, in the Philippines, Pagcor announced yesterday that it has approved a new US$500 (MOP4 billion) integrated resort project for the island, local media reported.
160 billion pesos Estimated GGR of all 46 government-run casinos in 2017
views over the fishermen’s boats. The country’s Department of Finance (DOF) has proposed the privatisation of all 46 government-run casinos. Pagcor chairman and CEO Andrea Domingo says she is not against it. On the sidelines of the Asean Gaming Summit here, Ms. Domingo did
not elaborate upon the difficulties of privatisation, which, according to what gaming sources told Business Daily “will never be easy because such a move means the law must change and for that Congress must intervene.” She, cautiously, told reporters she is not against an old idea being openly
According to ABS-CNN News, Andrea Domingo said the new casino complex will be developed by a Filipino-owned company in the city of LapuLapu, located on a small island which is part of Cebu. Ms. Domingo also claimed that a Hong Kong-based company has applied for a licence to develop a US$300 million casino complex in Mandaue, a city adjacent to Cebu City.
The consortium of MGR and SinoAmerican Gaming is said to have withdrawn from the proposed US$1.4 billion casino project due to perceived political risks under Philippine President Rodrigo Duterte, Asia Gaming Brief reports. The joint venture, controlled by U.S.-based consultant RiskWise Group, was joined and headed by Philippine-listed agricultural products firm Calata in August 2016. S.Z.
defended by the Finance Secretary, Carlos Dominguez. She did not, however, say she is necessarily in favour of such a move. Ms. Domingo explains, however, that the topic was brought up for discussion in the presence of Philippines President Duterte, right after she was chosen to head up Pagcor, when several small properties were not making money. It seems they are all doing well now, according to the new regulator boss, who explained that government-run casinos raked in almost 10 billion pesos (1.54 billion patacas) in gross gaming revenue in the first two months of this year. For the whole year, Andrea Domingo anticipates a seven per cent increase, reaching 160 billion pesos (25.4 billion patacas). Which, in turn, might explain why she is not anxiously seeking to change the dual role of Pagcor.
Gaming
Billionaire developer rides Vietnam gambling trend with casino FLC Group is greenlighted to invest US$2 billion in a casino resort in the Van Don Special Economic Zone by Nguyen Kieu Giang
F
LC Group Joint-stock Co., co-founded by billionaire Trinh Van Quyet, has joined a growing number of foreign and local investors betting on cashing in on Vietnam’s decision to allow locals to roll the dice in casinos for the first time. FLC Faros Van Don, a unit of FLC Group, received permission from the northern provincial government of Quang Ninh to invest about US$2 billion (MOP16 billion) in a casino resort, the company said in an email statement. The project will include a 5-star hotel, convention centre and golf course in the Van Don Special Economic Zone on the islands of Ngoc Vung and Van Canh. The company hopes its complex, occupying some 4,000 hectares, will tap tourists and possibly domestic gamblers. FLC’s shares surged as much as 5.1 per cent during Tuesday’s trading after news of the casino project was released. Vietnam’s communist leaders, who are grappling with growing budget deficits, are hatching gambling initiatives to retain millions of dollars in the country that middle-class and wealthy Vietnamese would
otherwise spend in casinos abroad. Prime Minister Nguyen Xuan Phuc has issued two decrees this year to raise Vietnam’s game in the regional competition for gambling revenue. A pilot plan to take effect this month will allow Vietnamese to gamble in the country’s casinos for the first time. Another will allow bets nationwide on horse and dog races as well as international soccer matches. This follows what officials call an “American-style” lottery started last year by the finance ministry in partnership with Malaysia’s Berjaya Corp Bhd.
Overseas gaming companies have long eyed Vietnam for expansion. Las Vegas Sands Corp. has for years considered a resort in Ho Chi Minh City and Hanoi according to George Tanasijevich, the company’s managing director for global development. Hong Kong’s Chow Tai Fook Enterprises Ltd. and VinaCapital Investment Management Ltd. are investing in a US$4 billion project in the Prime Minister’s home province of Quang Nam along the central coast. In January, former hedge-fund manager Phil Falcone, the largest investor in the Grand Ho Tram Strip casino resort a two-hour drive from Ho Chi Minh City, met with the Prime Minister in Hanoi.
Vietnamese going abroad to such gambling locales as Macau, Singapore - and just across the border in Cambodia - spend an estimated US$800 million on gambling every year, according to Augustine Ha Ton Vinh, an advisor to the Van Don Special Economic Zone where a casino funded by local investor Sun Group is planned about 175 kilometres (110 miles) northeast of Hanoi. Shares of FLC have rallied 54 per cent this year, heading for the biggest yearly advance since 2012. Co-founder Quyet said late last year that the company is in talks with a consortium of investors for its first overseas bond sale, which may raise as much as US$200 million to fund projects. Bloomberg
8 Business Daily Thursday, March 23 2017
Greater china Interbank lending
PBOC to inject funds following missed payments Central bank game with lenders is part of the attempt to wean the country off years of easy money while avoiding a financial crisis
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hina’s central bank injected hundreds of billions of yuan into the financial system after some smaller lenders failed to make debt payments in the interbank market, according to people familiar with the matter. Tuesday’s injections followed missed interbank payments on Monday, the people said, asking not to be identified because the matter isn’t public. The institutions that missed payments included rural commercial banks, according to three traders who asked not to be identified. One said a borrower failed to repay an overnight repo of less than RMB50 million (US$7.3 million). China’s smaller lenders faced tighter liquidity this week as benchmark money market rates climbed to the highest level since April 2015, reflecting a mix of technical factors including cash hoarding for quarter-end regulatory checks. By letting borrowing costs rise, the People’s Bank of China may have been sending a warning to over-leveraged lenders, according to Banco Bilbao Vizcaya Argentaria SA. The central bank has been known to allow short-term jumps in money market rates to discourage excessive borrowing. “The PBOC wants to warn the smaller lenders not to play the leverage game excessively,” said Xia Le, chief economist at BBVA in Hong Kong. “It’s a tug of war between
the central bank and the financial institutions.” The PBOC declined to comment on the operations. The injections occurred separately from the central bank’s daily open-market operations, which added 30 billion yuan to the financial system on Tuesday morning. The PBOC had drained funds for 16 consecutive days through March 16, when it also increased interest rates in the operations for the second time this year. “The central bank is adopting a policy to boost costs while ensuring cash
supply,” said Qin Han, a fixed-income analyst at Guotai Junan Securities Co. “So even after the seasonal shock, it’d be difficult to see repo rates falling significantly.” At 3.09 per cent, the benchmark seven-day repurchase rate is still well below the record 12.45 per cent reached in June 2013. Back then, the PBOC refrained from adding funds amid tight conditions, with Shang Fulin, then-chairman of the China Banking Regulatory Commission, saying that the cash crunch had exposed deficiencies in commercial banks’ liquidity management and their business structures.
Financial fragility
China’s central bank has been driving up the cost of money since August last year, when it started injecting
longer-term funds that carry higher interest rates. The manager of the nation’s biggest money-market fund warned in January that the nation would face more frequent liquidity shocks this year, after surging interbank rates in December spurred the nation’s biggest bond rout in six years. The PBOC’s cat-and-mouse game with lenders is part of the central bank’s attempt to wean the country off years of easy money while avoiding a financial crisis. For Xia, it’s still too early to tell whether policy makers will succeed. “What’s happening this week exposed the fragility of the financial system,” he said. “While its techniques have become more sophisticated since June 2013, the policy effectiveness needs to be seen.” Bloomberg News
People’s Bank of China headquarters in Beijing
Monetary move
Taiwan central bank seeks to limit fund flows The action could ease upward pressure on the Taiwan dollar Roger Tung
Taiwan’s central bank is asking some custodian banks to stem the flow of fresh capital into its financial markets, two people with direct knowledge of the matter told Reuters yesterday, as the local dollar hovers at more than two-year highs. The sources said custodian banks - which handle cash and securities for foreign participants investing in a market - were told to advise their clients not to remit new funds. “I’m dumbfounded. The clients have already bought stocks and you don’t let them remit in. How do you settle the trade?” said one of the people with direct knowledge of the matter. The move could ease upward pressure on the Taiwan dollar, which has gained nearly 6 per cent against the U.S. dollar so far this year. Taiwan’s central bank, wary of being labelled a currency manipulator by U.S. President Donald Trump, has pulled back on intervention to weaken the currency. The central bank governor has also attributed the strong currency to massive fund inflows, with investors attracted by Taiwan companies’ stock dividends. When asked about the issue, a central bank official would only say Taiwan has liberalised its capital account so capital flows can freely move, including foreign funds investing in local shares.
Strong foreign fund flows have made the Taiwan dollar Asia’s second-best performing currency this year and boosted its stock market to nearly 10,000 points, a level it has not closed above in 17 years. The Taiwan dollar reached T$30.40 against the U.S. dollar on Tuesday, a level not seen since November 2014 and the benchmark stock index hit an intraday high of 9,976.61, but fell back to close down 0.5 per cent on Wednesday. “Foreign investors get annoyed at policy intervention,” said Leon Chu, an investment manager with Franklin
Templeton Securities Investment in Taipei. In the long term, such a move will hurt the domestic stock market, but in the short term, it could increase daily turnover. “Perhaps the central bank is hinting T$30.50 is its bottom line,” he said. A Taiwan central bank official told Reuters earlier the government was keen to avoid the ire of the United States over its currency policy. Trump has criticised China, Japan and Europe for policies he claims artificially weaken their currencies and make their exports more competitive. His administration has said it will analyse the currency practices of major trading partners, and the U.S. Treasury is required to publish a report on these practices in mid-April.
Being labelled a “currency manipulator” could result in punitive tariffs on that country’s goods. The Taiwan dollar’s strength has come as the economy appears to be recovering and the government is about to unleash long-term fiscal spending to ensure growth stays on track. But the effects have been particularly toxic for Taiwan’s insurers, which have been hit with millions of dollars in losses on the foreign exchange risk reserves they hold to contain currency volatility. Further gains in the local dollar would hurt the island’s exporters, who drive much of the economy.
Key Points C.bank asks custodian banks to help limit investor inflows Limiting inflows will ease upward pressure on Taiwan dollar Advisory comes after c.bank stays out of local FX market TWD around 2014 highs, main index testing key 10,000 points Central bank governor Perng Fainan will hold a news briefing Thursday after the bank’s quarterly policy meeting, where the policy rate is expected to remain unchanged. In March so far, net foreign inflows have reached around US$942 million, adding to the US$5.96 billion for January-February, and surpassing the US$5.56 billion recorded for all of 2016, according to data from the Financial Supervisory Commission. Reuters
Business Daily Thursday, March 23 2017 9
Greater China In Brief Legislation
Government regulates art market
Currency
Yuan float still a pipe dream for analysts seeing tortuous path Emerging market peers were effectively pushed into free floating their currencies when large currentaccount deficits and high levels of external debt made pegging unsustainable Those holding out for the yuan to join the free-float party are in for a wait -- a very long one, by Societe Generale SA’s best estimates. The first hurdle is to induce twoway risk in a currency market where the current widespread expectation is for the yuan to depreciate, according to the Paris-based bank. That’s a condition on the International Monetary Fund’s best-practices list for a successful transition to a fully flexible exchange rate. Also key: a clear monetary policy anchor for markets to focus on -- such as an inflation target -- once the yuan were floated. For now, capital controls give China the luxury of avoiding a float. But Societe Generale sees those having diminishing effect in time, pressuring officials by the end of 2019 into ending the current system that includes a trading band and peg against a basket of currencies. What could result is a “dirty” float, with
occasional interventions, according to the bank. “There is a real risk of a severely destabilizing scenario following a premature decision to float,” Yao Wei, Societe Generale’s chief China economist, and Jason Daw, head of emerging-market currency strategy, wrote in a note Tuesday. “The risk of a large devaluation triggering a debt crisis is not small enough to be reassuring. At the same time, a forced decision by market forces is also quite unlikely amid China’s relatively strong standing and effective capital controls, for now.” Some, including Pimco, see the chances for a yuan free float rising -- read more about that here. Emerging market peers including Indonesia and Russia were effectively pushed into free floating their currencies when large current-account deficits and high levels of external debt made pegging unsustainable. But China -- which enjoys surpluses
on its current account -- to some extent has scope to determine its own flexibility timeline, the analysts said. Officials have vowed to keep the yuan stable this year, amid risks ranging from tighter Federal Reserve policy to trade conflicts with the U.S. The IMF advises floating a currency during times of “relative calm or when there are appreciation pressures,” which doesn’t apply to China right now, according to Societe Generale. Two-way risk is essential for a yuan free float, given the country’s heavy domestic debt load, the analysts said. Any big, one-off devaluation could stoke tensions with the Trump administration. A big depreciation could also be the “final straw” for China’s credit bubble, fuelling an even greater crisis, said Yao and Daw. All told, it means the path toward full exchange-rate flexibility is likely to be “torturous” for the country, they wrote. A dirty float, with relatively low volatility -- much like the Taiwan dollar, Philippine peso or the Indian rupee -- is most likely for a period of years, according to the analysts. “Policy makers need to make simultaneous efforts to address the debt problem and improve economic efficiency so that Chinese savers will become less tempted to send money overseas,” Yao and Daw said. “China is not ready for a floating yuan just yet.” Bloomberg News
Construction
Developers post 2016 profit growth as bubble worries linger Property market picked up in February after price gains had slowed in the previous four months Developers China Overseas Land & Investment Ltd and Country Garden Holdings Company Ltd yesterday reported solid growth in 2016 core profit thanks to robust demand for homes in China’s red-hot market. The companies were the first major developers to report their 2016 results after Beijing stepped up moves to cool the market on concerns about a bubble, which could weigh on the developers’ margins this year. “The group is cautiously optimistic about China’s property market in 2017. It is expected that policy regulation by the central Chinese government will continue,” China Overseas Chairman Xiao Xiao said in a statement. “China’s property sales are expected to experience some resistance in the first half of 2017 as market consolidation accelerates, with the sector overall presenting both challenges and opportunities.” China’s No.3 developer Country Garden said core profit jumped 22.3 per cent to RMB12 billion (US$1.74 billion), beating analysts’ estimates as demand spilled into smaller cities where it focuses. China Overseas Land, the nation’s No.6 developer by sales, said its core profit rose 13.8 per cent to HK$31.37 billion, lagging expectations after its
acquisition of CITIC Ltd’s residential property business. Despite its cautious optimism, state-owned China Overseas set a modest sales target for 2017 of at least HK$210 billion, the same level it achieved last year. Country Garden, however, has said it plans to double its sales this year thanks to stronger growth in smaller cities and a bigger slate of projects due for completion. China’s property market, which accounts for about 15 per cent of the country’s gross domestic product, picked up in February after price gains had slowed in the previous four months. Average new home prices in 70
major cities edged 0.3 per cent higher from January despite a raft of government curbs aimed at tempering speculation. Some local authorities have imposed price limits on sales, for example by capping a developer’s selling price at a certain percentage increase over a neighbouring development. Even so, a Reuters survey showed that major companies plan to continue expanding their land investments in 2017 in order to grab market share. Deutsche Bank analyst Jeffrey Gao said in a report this week he expected listed developers would maintain more than 15 per cent sales growth this year, outperforming the overall sector’s decline of 5 per cent to 10 per cent, due to their sizeable saleable resources and better execution. After the results announcement, shares of China Overseas Land and Country Garden both extended losses, falling 3.8 per cent and 2.8 per cent respectively. The broader Hong Kong stock market dropped 1.4 per cent. Reuters
Eight enterprises have been punished for violating regulations in the art industry, said the Ministry of Culture yesterday. The misconduct included trade of forged art, forbidden content and using animals, plants, minerals, metals and fossils banned by law, the ministry said. Companies that sold unapproved imported art were also punished, said the ministry, adding that information and sales records of art should be filed and clearly labelled. The ministry urged all local culture administrative departments and law enforcement organs to tighten supervision of the art market. Property
HNA to buy New York office tower China’s HNA Holding Group Co Ltd has agreed to purchase a marquee Manhattan office building for US$2.21 billion in a deal that showcases the role of Chinese capital in New York’s heady commercial real estate market. The deal for 245 Park Avenue has not closed but HNA, a Chinese conglomerate that has been on an acquisition spree, signed a purchase and sale agreement, a source familiar with the transaction said on Tuesday. The acquisition from majority owner Brookfield Property Partners LP and New York State Teachers’ Retirement System, which has a 49-per cent stake, would mark one of the highest prices ever paid for a New York office building. Commodities
Mainland utilities urged to curb soaring coal prices China’s top power groups are lobbying the local government in the western region of Ningxia to require their main thermal coal supplier to cut prices as they are bleeding cash due to surging coal costs and falling power prices, two sources said. A glut of renewable and coalfired power capacity in the Ningxia Autonomous Region has pushed down electricity prices, forcing utilities to sell their power at a discount after the government liberalised its power market. Prices in the region are the lowest in the country. Conference
Financial co-operation with U.K. to be boosted Officials from China and Britain stressed the importance of enhancing bilateral financial cooperation. At a conference on China-UK financial cooperation, Guo Kai, deputy general director of the International Department of the People’s Bank of China (PBOC), said the cooperation of China-UK financial infrastructures will help provide better services for the two nations’ financial institutions and lay a solid foundation for further expanding the financial cooperation between the two countries. Guo said the British financial sector was “open..., sophisticated and visionary.”
10 Business Daily Thursday, March 23 2017
Greater China Results
Geely doubles earnings as Volvo tech boosts sales Company sales grew 50 per cent last year to 766,000 vehicles Jake Spring and Norihiko Shirouzu
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hina’s Geely Automobile Holdings Ltd posted its biggest profit growth in eight years yesterday, as improved product design and engineering following its 2010 purchase of Sweden’s Volvo helped propel it to record sales. Geely, which also owns the maker of London’s black cabs, has already forecast a 31 per cent jump in sales for the current year as affordable models introduced after the Volvo acquisition, such as its GC9 sedan and Boyue sport-utility vehicle, exceed initial estimates. Long seen as a no-frills brand, Geely has transformed itself into an automaker with up-market aspirations, using its Volvo research-and-development advantage to climb the sales table in the world’s largest auto market where it ranks around seventh. Come next year, Geely plans its next phase of expansion as it aims to become China’s first automaker to market its own brand - new Volvo collaboration Lynk & Co - in developed markets, beginning with Europe and the United States. Entering major markets with an unknown Chinese brand is an expensive risk, analysts say, but investors are unperturbed: Geely’s share price has trebled over the past 12 months.
“It’s a total turnaround story,” said a fund manager at a Taiwan-based investment firm that bought a significant amount of Geely stock last year. “Before it was just a normal domestic brand, but after several new product launches it successfully elevated its brand image,” said the person who was not authorised to speak publicly on the firm’s investments and so declined to be identified. Geely’s China sales grew 50 per cent last year to 766,000 vehicles, powered by the GC9 and Boyue, as well as small cars featuring Volvo technology. It aims to top 1 million this year, though could sell far more depending on market conditions, a Geely official with direct knowledge of the matter told Reuters. For 2016, net profit more than doubled to RMB5.1 billion (US$741
million), its strongest growth since 2008. The figure is set to rise 37 per cent to RMB7 billion in 2017, showed a Reuters poll of analyst estimates prior to Geely’s yesterday filing.
Overseas gamble
To be sure, growth has come at a cost. Geely and parent Zhejiang Geely Holding Group Co Ltd have spent RMB10 billion on R&D in each of the past three to four years, or about 15 per cent of current revenue, said spokesman Victor Yang. That compared with RMB2 billion in 2015 at domestic rival BYD Co Ltd, showed Thomson Reuters data. But Geely’s domestic growth spurts could lessen as expansion in China’s overall passenger car market slows following the reduction of subsidies for small-engine vehicles, adding impetus to any international push.
“The current focus of our work is firstly the pace of development in China and increasing our share of the Chinese auto market, then next we can focus our work abroad,” Geely Chairman Li Shufu told reporters in Beijing earlier this month. But entering markets where the brand is unknown is a gamble, and it could take years to gain traction, said James Chao, Asia-Pacific chief of consultancy IHS Markit Automotive. As there is plenty of room for growth in China, however, there is no need to be concerned about the move abroad, said fund managers at two investment firms that hold Geely stock. “If they do well abroad it’s a bonus, and if they don’t then it’s not a big reason to worry,” one of the managers said. Reuters
Tourism
Airbnb makes growth push in Mainland with plans to double investment The company is also bringing its latest product, Trips, to China Heather Somerville
Airbnb, the online marketplace for short-term lodging, is expanding its business in China, hoping to spur growth in the world’s most populous country and a major tourist destination. Fresh off a US$1 billion fundraising round, Airbnb announced plans on Tuesday to expand its services in China and increase its staff there. Airbnb said it would more than triple its local workforce this year and double its investment in the region. The company did not provide specific numbers. The company has an engineering centre in Beijing and about 60 employees in the country. Airbnb is also bringing its latest product, Trips, which was unveiled in November, to China. Trips is Airbnb’s effort to expand beyond home
and apartment rentals and offer travellers experiences that expose them to local music, art, food and traditions. Trips options in Shanghai include learning about 4,000-yearold Chinese folk art and attending a traditional opera.
‘Airbnb said there are roughly 80,000 Airbnb listings on the Mainland’ San Francisco-based Airbnb connects hosts, who want to rent their homes or a room in their houses or apartments, with short-term renters who may stay a night or a few weeks. The company has been locked in a
global battle with regulators who say the service takes affordable housing off the market and drives up rental prices. Airbnb has more than 3 million homes listed on its site in 191 countries. The service has become popular
in China, where there are roughly 80,000 Airbnb listings that have housed nearly 1.6 million travellers, the company said. Airbnb’s recent tranche of US$448 million in funding, which rounded out a US$1 billion financing this month, provides new resources for the company to expand its global footprint. Airbnb executives told Reuters this month they expected the number of guests using the home rental service in Africa to double this year to 1.5 million. Reuters
Business Daily Thursday, March 23 2017 11
Asia
Private poll
Asian firms’ confidence hits nearly 2-year high Sentiment in exportoriented Malaysia rebounded the most Yawen Chen and Ryan Woo
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usiness sentiment at Asia’s top companies rose to its highest in almost two years in the first quarter of 2017, buoyed by positive economic signs from the United States and China that underpinned improved global demand, a Thomson Reuters/INSEAD survey showed. The Thomson Reuters/INSEAD Asian Business Sentiment Index , representing the six-month outlook of 96 firms, rebounded to 70 for January-March from 63 three months prior. A reading over 50 indicates a positive view. During the quarter, the United States and China - two top destinations for Asian exporters - reported a slew of upbeat economic data that was far better than market expectations. “Optimism about the U.S. economy, lack of immediate crisis in China, lack of bad news in Europe ... have reduced some of the immediate risks,” said Singapore-based economics professor Antonio Fatas at global business school INSEAD. Sentiment in export-oriented Malaysia rebounded the most, with its sub-index jumping 20 points to a three-year high of 75, as most respondents reported an increase in business volume and a third said staffing had risen in the past three months. Sentiment also surged in the Philippines by 18 points, with a sub-index of 88 making the country the most optimistic in Asia. In other export-driven Asian
countries too, such as Taiwan, Singapore and Thailand, corporate sentiment improved significantly, while China and India recorded a slight decline from the previous quarter. “Stronger-than-expected export numbers have provided quite a relief for those economies, at least more than they have for China or India which are more domestically oriented,” said Santitarn Sathirathai, head of emerging Asia economics at Credit Suisse in Singapore. But for Chinese companies such as beauty app Meitu, strong domestic appetite for new services and goods in the country also points to a brighter business outlook that will see user traffic translate into profit.
Key Points Sentiment index at 70 in Q1 2017 vs 63 in Q4 2016 Uncertainty over Trump, USD rate, China demand seen as key risks Malaysia sentiment up most, S.Korea’s fell to negative Financial sector most upbeat, metals & chemicals least “The fact that Chinese consumers are demanding upgraded products and services for beauty and entertainment is the basis of our confidence in business outlook in the next six months,” a spokesman said. While the United States remains a powerful player in Asia, Asian economies have stepped up trade with China, whose growing presence was highlighted after the U.S. withdrawal earlier this year by President Donald Trump from the 12-nation Trans Pacific Partnership.
Fearing trade retaliation by China over the deployment of a new missile system, on top of a political crisis that led to the ouster of President Park Geun-hye, South Korean firms’ business sentiment - the weakest of 11 economies polled - tumbled 32 points to a subindex of 25, the lowest in almost five years. China is South Korea’s largest trading partner.
Overly optimistic?
Economists say the current high level of optimism may have been built on shaky ground as a series of risk events are expected to re-emerge soon. “There’s a lot of positive sentiment around but there’s a risk that people are simply extrapolating forward the recent better news,” said Capital Economics’ chief Asia economist Mark Williams. Despite the broader improvement in sentiment in the region, uncertainty over Trump’s policies, U.S dollar rate and demand from China were still seen as the biggest risks to Asian companies’ outlooks. “The same confidence in the U.S. is met by many respondents worried about Trump policies,” INSEAD’s Fatas noted, adding that Europe will be “back in the risk lists” as French elections, whose results could fuel growing global trade protectionism sentiments, are just around the corner. Credit Suisse’s Sathirathai said China’s focus on stability this year ahead of a major power reshuffle also means Beijing is less keen to splurge on stimulus, which could potentially impact trade-dependent Asian nations. China concluded its annual parliament meeting last week, at which policymakers set a more modest growth target in 2017 as it turns to tackling financial risks.
Thomson Reuters and INSEAD polled companies from March 3 to 17. Of 96 respondents, 48 per cent rated their six-month outlook as positive, 43 per cent were neutral and 8 per cent were negative. The Asia Pacific branch of British publishing company Taylor & Francis Group, part of Informa Plc, was cautious about its outlook. Barry Clarke, managing director of Asia Pacific at the group, said that was partly because last year was much better than expected. “We wouldn’t expect the same kind of growth.”
Financial firms most upbeat
By sector, companies engaged in financial services were the most upbeat with the sub-index rising to a near four-year high of 75 from 61 in the previous quarter, driven by optimism about a normalisation of monetary policy globally and a rollback in onerous regulations. The auto industry recorded the biggest jump in sentiment by increasing 27 points to 67 in the quarter. Sentiment was the lowest in the metals and chemical sector, falling to negative territory for the first time with a subindex at 40. The sector mentioned U.S dollar rate among its biggest concerns. Respondents included Australia’s Medibank, India’s Reliance Industries, Bank Rakyak Indonesia, Japan’s Suzuki Motor and SoftBank, Malaysia’s Kossan Rubber, Union Bank of the Philippines and Thailand’s Intouch Holdings. The index started in 2009 with a record low of 45, but has largely hovered between 60 and 70 since hitting a record high of 80 at the beginning of 2011. Note: Companies surveyed can change from quarter to quarter. Reuters
12 Business Daily Thursday, March 23 2017
Asia Trade
Japan surplus with U.S. raises fears of trade tensions Demand for auto parts from China and for electronics components from Hong Kong contributed to export growth in February Tetsushi Kajimoto
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apan’s exports grew the most in more than two years in February, rebounding from a Lunar New Year slowdown in January, as a widening trade surplus with the United States potentially raises tensions in the face of rising U.S. protectionism. Annual export growth of 11.3 per cent topped a 10.6 per cent increase expected by economists in a Reuters poll and followed a 1.3 per cent rise in January, marking the biggest gain since January 2015, Ministry of Finance data showed on Wednesday.
policymakers, given that U.S. President Donald Trump has singled out Japan, China and Germany for their high net exports into the U.S. market. “Japanese policymakers must be sensitive about trade surplus with the United States. The trade surplus is not at an alarming level, but is historically very low. However, such a logical argument may not get across to Trump,” said Tomoyuki Ota, head of the economic research department at Mizuho Research Institute. “The fact that the trade surplus with the United States has been
driven by rising car exports may cause Trump to pile pressure on Japanese carmakers to boost investment in America.” Japan and the United States will start a high-level economic dialogue in mid-April, with Tokyo seeking ways to avoid trade friction on issues such as car exports by proposing an agenda focused on investment in U.S. infrastructure. Japan’s trade surplus with the United States rose an annual 1.5 per cent to 611.3 billion yen (US$5.48 billion), posting the first increase since November although it had dropped a revised 26.5 per cent in January.
Export-led recovery
The trade data highlighted an economic recovery led by overseas demand although the rebound from a
Lunar New Year slowdown in China and other parts of Asia in January played a large part. Exports to China, Japan’s largest trading partner, rose 28.2 per cent year-on-year in February, accelerating from a 3.1 per cent gain in the previous month. Demand for auto parts from China and for electronics components from Hong Kong contributed to export growth in February. This performance helped Japan log a surplus of 111.8 billion yen with China - its first in five years. Analysts said February’s 8.3 per cent growth in the volume of exports, and average export volume growth of around 4 per cent in January and February, was a positive sign for Japan’s export-reliant economy in the current quarter. Reuters
Key Points Exports +11.3 pct yr/yr in Feb vs forecast +10.6 pct Feb imports +1.2 pct yr/yr vs forecast +0.6 pct Trade balance back in black at unadjusted 813.4 bln yen Seasonally-adjusted surplus nearly 7-yr high of 680.3 bln yen Trade surplus with United States widens Trump’s trade protectionism clouds outlook Exports to the United States rose 0.4 per cent in February from a year ago, largely from bigger shipments of cars and auto parts. Any rise in Japan’s trade surplus with the United States could be a cause of concern for Japanese
eCommerce
Lazada brings Alibaba’s biggest bazaar to Singaporean shoppers It’s another small step abroad for Alibaba, which has ambitions to expand beyond a slowing Chinese home market Yoolim Lee
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libaba’s bringing its teeming Taobao Internet marketplace to Singapore. Alibaba Group Holding Ltd. and Lazada Group SA are teaming up to sell select Taobao products direct to shoppers in the affluent island-state, striking their first partnership since the Chinese company took control of Southeast Asia’s largest e-commerce operator a year ago. Lazada is launching a dedicated website that links directly to Alibaba’s largest shopping platform, said Alexis Lanternier, chief executive officer of Lazada Singapore. To start with, the new site will add 400,000 Taobao products that aren’t available now to an existing line-up of about 5 million products, he said. It’s another small step abroad for Alibaba, which has ambitions to expand beyond a slowing Chinese home market. The company and Lazada
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are now preparing to deepen their operations in the fast-growing region, anticipating Amazon.com Inc.’s entry in 2017. The Southeast Asian company has been expanding its delivery network and exploring new areas such as online groceries.
In linking Taobao with Lazada, the two are trying to ease a process that’s gained momentum in recent years. Bargain hunters in Singapore already buy directly from Alibaba’s Chinese marketplace, an eBay-like online bazaar where small merchants and individuals hawk items from electronics to bed-sheets. Its items often go for a fraction of retail prices in Singapore, the world’s most expensive city according to the Economist Intelligence Unit.
Many people however buy through agents who help with English translations, payments and deliveries -for a fee. That’s led to problems with returns, Lanternier said. Scams may be another issue: Taobao re-joined the Notorious Markets list last year, a name-and-shame pool of global markets the U.S. Trade Representative considers rife with counterfeits. Taobao can be difficult to police because it’s an open marketplace, but Lazada will take swift action to protect consumers if it’s notified of fakes, Lanternier said.
‘The new site will add 400,000 Taobao products’ “We want to solve those difficulties, enabling an effortless way for them to shop,” Lanternier said, sharing the new initiative for the first time. “Now it’s all translated into English and you don’t have to worry about shipping options, payment method, returning. You are going to be able to track your order end-to-end.” Bloomberg News Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Thursday, March 23 2017 13
Asia In Brief Trade
Thai exports fall
Counsellors
Indians leave bankers in the cold in telecoms mega-deal In corporate landscape high-profile banker appointments have proliferated Sumeet Chatterjee and Devidutta Tripathy
Investment banking business in India should be enjoying bumper fees after a record year of deal making. It’s not, and big banks blame in-house teams of advisers that have proliferated as the country’s top family-owned conglomerates tighten their grip. This week’s US$23 billion tie-up between Idea Cellular, controlled by the Aditya Birla Group, and the Indian business of Vodafone Group, is the latest example of a trend that is squeezing major international investment banks. Many are struggling in a market that has long been difficult, thanks to messy deals, paltry fees and local challengers. Bankers had been circling both sides of the telecoms mega-merger since it was first mooted late last year, when competition in the sector accelerated dramatically. In India, deals worth more than US$1 billion are rare. In the event, Vodafone hired six advisers: Morgan Stanley, Robey Warshaw, Bank of America Merrill Lynch, Kotak Investment Banking, Rothschild and UBS. Idea hired none. Instead of tapping bankers, the Aditya Birla Group relied on their in-house team, which includes Saurabh Agrawal, a former South Asia head of corporate finance at Standard Chartered, whom it hired last year as head of corporate strategy, and former Morgan Stanley banker Ashish Adukia, who joined nearly three years ago. Earlier this year, it also hired Ankur Dalwani, a former managing director at Jefferies in India, according to a source familiar with the move. “Investment banking is monthly tracking of revenue that you’ve made, investment banking in corporate is
monthly tracking of ideas that you have generated. That’s the difference,” Adukia said in an emailed comment. The trend, say bankers, is about bringing back control for Indian tycoons behind some of its biggest companies. One source with direct knowledge of this deal said Birla took a direct role in the deal, assisted by Agrawal. “In some cases, the company in the middle of a transaction won’t even copy the bank advising on the deal when sending mails finalizing the details. It’s all about keeping control of each and every decision,” said one banker who has worked with big Indian conglomerates, including Birla. “Increasingly you will see the large companies roping in external advisers only in those cases where they can’t bridge the gap. It will mainly involve the markets where they have no presence or no knowledge.”
Doing it yourself
Birla and Idea did not immediately respond to requests for comment on the decision to leave out advisers, although one separate source familiar with the deal said the company felt its team to be “adequately equipped”. Elsewhere in India’s corporate landscape, high-profile banker appointments have proliferated. Bank of America dealmaker Ankur Verma joined Tata Group’s holding company last month. A Tata spokesman said Verma will have diverse responsibilities. Former RBS and CIMB banker Viral Gathani last year joined Vedanta Resources as head of corporate finance strategy. “The financial sector’s position in the global economy is being somewhat curtailed following the various financial crises that we have seen, and the resultant increased
regulations on the sector,” Gathani said, in response to a query on his move. Large Western companies also assemble in-house M&A experts, but they mostly continue to use external advisers while executing large takeovers, and in-house teams in the United States and Europe tend to be modest in size. Asia, led by China and increasingly India, is challenging that order. The pain of losing top talent and fees is acutely felt in markets like India, already one of the industry’s toughest regions, where many have pulled back or out altogether.
“The financial sector’s position in the global economy is being somewhat curtailed following the various financial crises that we have seen” Viral Gathani, former banker that last year joined Vedanta Resources as head of corporate finance strategy
Compliance demands are rising and competition for talent is increasing, but fees are going in the opposite direction. Indian companies struck a record US$72 billion in M&A deals last year, doubling from the previous year. However, total fees for investment banking, including M&A, debt and equity, declined to US$463 million last year from US$491 million a year ago, and was sharply lower than US$682 million in 2014. Bankers said many Indian companies no longer wanted deal-specific advisory services, but were looking for advice across due diligence, M&A, debt and equity raising, and did not want to deal with multiple banks for corporate finance services. “The corporates think they can have a much better control over a transaction if they keep it close to themselves, and can avoid any conflict situation that some of the foreign banks may have,” said one M&A banker with a U.S. bank. India Inc’s bet is not without risks, especially for more complex international deals, or where companies require considerable fundraising. But for many, that’s not yet. “Most of the top Indian corporates are very cash rich and they don’t need balance sheet support, so they would say why waste a few million dollars on purely advisory services?” said one of the bankers with a foreign bank in Mumbai. “They can get two, three bankers at a fraction of that cost,” he said, referring to their annual salary. Reuters
Thailand’s customs-cleared exports contracted in February after three months of increases, but the drop was smaller than expected and the government was still optimistic about the trade outlook. Exports were down 2.8 per cent in February from a year earlier after January’s 8.8 per cent rise, commerce ministry data showed yesterday. A Reuters poll predicted a 4.0 per cent fall for February, on an annual basis. February’s exports showed a decline because the year-earlier figures were high, driven by gold and helicopters, Pimchanok Vonkhorporn of the Commerce Ministry told a briefing. Commodities
Indonesian palm output dwindling Indonesia’s crude palm oil (CPO) output likely dropped in February, extending the decline into a third straight month, a Reuters survey showed. CPO production in the world’s top producer of the widely used oil likely slipped to 2.80 million tonnes in February from 2.95 million tonnes in January, according to the median estimate in a survey of two industry associations and a state palm research firm. Meanwhile, exports of Indonesian CPO were estimated to have risen last month to 2.41 million tonnes from 2.21 million tonnes in January. Labour market
SK pushes to get more young people working South Korea announced its latest measures to bolster youth employment yesterday, hoping that policies to curb delayed wage payments and unfair work practices would help young people struggling to find steady jobs. The country’s finance ministry said it would aim to amend employment laws to make it simpler to fine businesses if they failed to sign official employment contracts with their workers or if they paid inadequate wages. The unemployment rate for South Koreans aged from 15 to 29 stood at a seasonally adjusted 10.4 per cent in February. Minutes
Bank of Japan pushed back against rate hike idea Bank of Japan (BOJ) board members rejected the notion that the central bank will raise its 10-year government bond yield target in the future to match expected gains in Treasury yields, minutes of their January monetary policy meeting showed yesterday. These members said the BOJ should focus solely on meeting its 2 per cent inflation target, which remains a difficult task due to worries about overseas economies and inflation expectations, the minutes showed. At the Jan. 30-31 policy meeting, the BOJ raised its growth projections but warned that prospects for hitting its 2 per cent inflation target remained uncertain.
14 Business Daily Thursday, March 23 2017
International In Brief Bank of Canada
Weak business investment still a concern The Bank of Canada remains concerned about tepid business investment, a key official said, adding it is too early to assume the worst of underperformance is over despite stronger-than-expected economic growth recently. Deputy Governor Lawrence Schembri said sluggish business investment and a shift towards protectionist trade policies in the United States are the two biggest downside risks to the bank’s inflation outlook, reiterating that material slack remains in Canada. Budget
Brazil Senate leader forecasts spending freeze Brazil’s government plans to announce spending freezes of 30 billion to 35 billion reais (US$9.7 billion to US$11.3 billion) this week to help meet part of its 2017 budget deficit target, the Senate leader said. The rest of the shortfall will have to come from raised taxes and higher revenues from such sources as infrastructure concessions to private companies, Senator Romero Jucá said in an interview. Jucá said tax increases being studied include one on gasoline and another on financial operations called IOF, both of which would not require legislation. GDP
Argentina’s economy exiting recession Argentina’s economy exited a prolonged recession in the second half of last year, with government data showing a 0.5 per cent expansion in the fourth quarter of 2016 compared with the third quarter. The Indec statistics agency also revised its estimate for third-quarter GDP to a 0.1 per cent increase over the second quarter, up from a 0.2 per cent decline previously. Taken together, the data show Argentina’s economy grew in the second half after shrinking for three straight quarters. Centre-right President Mauricio Macri’s administration is hoping an economic recovery ahead of midterm elections in October can boost flagging approval ratings. Copy case
Disney stole ‘Zootopia,’ writer claims in U.S. lawsuit Walt Disney Co was sued by a longtime Hollywood screenwriter and producer who accused the studio of copying its blockbuster, Oscar-winning animated film “Zootopia” from his work without permission. Gary Goldman, whose credits include the Arnold Schwarzenegger film “Total Recall” and Tom Cruise film “Minority Report,” filed his copyright infringement lawsuit in the U.S. District Court in Los Angeles. He said Disney replicated, sometimes “virtually verbatim,” the themes, settings, plot, characters and dialogue, as well as the title, of his “Zootopia” concept, which he had pitched to the studio in 2000 and 2009.
Financial sector
U.S. investment banks strengthen global lead over Europe JP Morgan retained its crown in fixed income, currencies and commodities Jamie McGeever
J
P Morgan retained its place atop the global investment banking league table last year, with the top five places now firmly in the hands of U.S. banks, reflecting their domination over struggling European peers, data showed yesterday. JP Morgan’s revenues from trading, mergers and acquisitions and other investment banking activity rose 11 per cent to US$25.2 billion last year from US$22.7 billion in 2015, according to industry analytics firm Coalition. That strong increase was mirrored by U.S. peer Citi, which rose in the overall ranking to joint second from joint third, a performance that far exceeded the average 3 per cent decline across the 12 banks surveyed. JP Morgan retained its crown in fixed income, currencies and commodities (FICC) trading, its position solidified by dominance in G10 rates and foreign exchange trading. JP Morgan held the top two spots in all but one - municipal finance - of the seven FICC categories, Coalition said. Morgan Stanley secured fifth place in the ranking by consolidating its leadership position in equities, meaning all top five spots are held by U.S. banks. In 2015 Morgan Stanley shared fifth spot with Germany’s Deutsche Bank. U.S. banks now take in around a two-thirds share of the investment banking revenue pie, the gap widening
consistently since 2011 when the U.S.-European split was roughly 5050. But that may be about to reverse. “European banks had some significant trading underperformance last year, which we don’t see repeating,” said Amrit Shahani, research director at Coalition. “They should improve, albeit from a low base. We expect them to maintain and build on their market share this year.” Shahani said banks at the top and bottom ends of the ranking are taking market share from those in the middle.
H2 trumps H1
The world’s big banks had a tough start to last year as worries over China and plunging commodity prices threatened to send world markets into a tailspin. Revenue fell 15 per cent in the first six months, the worst first-half-year performance since the 2008 financial crisis. But trading surged in the second half of 2016 thanks to the twin shocks of Britain voting to leave the European Union and Donald Trump’s U.S. presidential election victory, and revenues followed suit as market volatility rose. U.S. banks’ total for the second half of last year jumped 37 per cent to US$24.6 billion. Deutsche Bank and Credit Suisse, still in the throes of restructuring programmes, were particularly hard hit, and both slipped in the overall rankings to 6th and 8th place, respectively.
As well as Morgan Stanley, the winners included Citi, Barclays and HSBC, which each rose a notch to 2nd, 7th and equal 9th, respectively. Most of JP Morgan’s revenue was accrued on its home turf, with the US$14.3 billion from its U.S. operations up 10 per cent from the year before. The bank also posted a 10 per cent revenue increase in its Europe, Middle East and Africa (EMEA) operations to US$7.7 billion, Coalition said.
‘U.S. banks now take in around a two-thirds share of the investment banking revenue pie’ Deutsche was forced to share its 2nd place in EMEA with Goldman Sachs, which edged up from 3rd the year before. The biggest shift at the top was in the Asia Pacific (APAC) region, where JP Morgan stormed up from joint 5th last year to take the top spot outright. Its revenue of US$3.3 billion was the same as Deutsche and Citi’s joint leadership total in 2015. Coalition tracks Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Societe Generale and UBS. Reuters
Survey
UK households most downbeat about outlook since 2013 A survey showed 58 per cent of households expect the Bank of England to raise interest rates over the next 12 months British households are more downbeat about the outlook for their finances than at any time since late 2013 as rising inflation squeezes their disposable income, a survey showed yesterday. Official figures on Tuesday showed inflation in February jumped to its highest level in over three years at 2.3 per cent, as sterling’s fall since Britain voted to leave the European Union last year pushed up the cost of imports. Financial data company Markit said yesterday its monthly Household Finance Index showed Britons’
expectations for their finances over the next 12 months dropped sharply to 45.3 from 48.1, its lowest level since November 2013. “A combination of rising inflation and subdued pay trends has forced households to recalibrate their expectations for the year ahead,” said Tim Moore, an economist at IHS Markit. Markit’s headline household finance index improved slightly from February but remained close to its weakest level in the past two years, rising to 43.2 from 42.5. The survey - conducted between March 15 and 19 - showed 58 per cent of households expect the Bank of England (BoE) to raise interest rates from a record low 0.25 per cent over the next 12 months, up slightly from February’s 56 per cent but below the one-year high of 62 per cent seen in January. On March 16, minutes of the BoE’s latest policy meeting showed a
split among Bank officials on rates with external policymaker Kristin Forbes calling for a 25 basis-point rate hike.
“A combination of rising inflation and subdued pay trends has forced households to recalibrate their expectations for the year ahead” Tim Moore, an economist at IHS Markit The Markit survey was based on an online poll of 1,500 Britons aged 1864, conducted by polling company Ipsos MORI. Reuters
Business Daily Thursday, March 23 2017 15
Opinion Business Wires
Taipei Times Property developers plan to launch NT$164.8 billion (US$5.41 billion) of new construction projects in the forthcoming spring sales season, down 22.6 per cent from last year, as some are more confident about a recovery, but many continue to digest inventory. While the figure represents the smallest volume in six years, a few major developers rejoined the market with luxury housing projects after policymakers lent measured support to the sector, the Chinese-language Housing Monthly said in its annual report. New construction projects in the capital are to total NT$43.1 billion, about half as much as those in New Taipei City at NT$84.3 billion, the report said.
America’s confidence economy Bangkok Post The cabinet on Tuesday approved the draft bill for the long-awaited land and buildings tax, intended to narrow economic disparity, after a review by the Council of State. Nathporn Chatusripitak, an adviser to Prime Minister’s Office Minister Suvit Maesincee, said the draft bill amended by the Council of State is slightly different from the version proposed earlier by the Finance Ministry, as the tax rate for unused or vacant land was tweaked to 2 per cent for the base tax year. That rate is subject to increase by 0.5 percentage points every three years until it is capped at 5 per cent.
The Star Just when the market has picked up steam with trading in stocks hitting high volumes, Bursa Malaysia has detected “pump and dump” activities circulating through the social media. In a circular to the heads of dealing and compliance of stockbroking companies, the stock exchange said it discovered certain groups of market participants using the social media and Internet trading to carry out manipulative activities, which included pump and dump schemes. The circular was exhaustive on how the manipulation was being carried out.
The Phnom Penh Post For the second straight year Cambodia has proven to be one of the world’s most dynamic markets for air freight shipments, with growth in cargo volume exceeding both global and regional averages. The volume of air freight shipments to and from Cambodia grew by 19 per cent last year to 45,000 tonnes, according to Khek Norinda, communications director for Cambodia Airports, the company that operates the Kingdom’s three international airports. He attributed the growth to both higher local demand for air cargo shipments, and increased availability of services as more cargo airlines expand into the Cambodian market.
F
inancial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in “hard” data, such as GDP growth, business investment, consumption, and wages. But economists and policymakers are not so sure. Whether their doubts are vindicated will matter for both the United States and the world economy. Donald Trump’s election as US president has triggered a surge in positive economic sentiment, because he pledged that his administration would aggressively pursue the policy trifecta of deregulation, tax cuts and reform, and infrastructure construction. Republican majorities in both houses of Congress reinforced the positive sentiment, as they signalled that Trump would not face the kind of paralyzing gridlock that Barack Obama confronted for most of his presidency. The surge in business and consumer sentiment reflects an assumption that is deeply rooted in the American psyche: that deregulation and tax cuts always unleash transformative pro-growth entrepreneurship. (To some outside the US, it is an assumption that sometimes looks a lot like blind faith.) Of course, sentiment can go in both directions. Just as a “pro-business” stance like Trump’s can boost confidence, perhaps even excessively, the perception that a leader is “anti-business” can cause confidence to fall. Because sentiment can influence actual behaviour, these shifts can have farreaching impacts. I n hi s g r o u n d-b r ea ki n g General Theory of Employment, Interest, and Money, John Maynard Keynes referred to “animal spirits” as “the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism, rather than mathematical expectations, whether moral or hedonistic or economic.” Jack Welch, who led General Electric for 20 years, is a case in point: he once stated that many of his own major business decisions had come “straight from the gut,” rather than from analytical models or detailed business forecasts. But sentiment is not always an accurate gauge of actual economic developments and prospects. As the Nobel laureate Robert J. Shiller has shown, optimism can evolve into “irrational exuberance,” whereby investors take asset valuations to levels that are divorced from economic fundamentals. They may be able to keep those valuations inflated for quite a while, but there is only so far that sentiment can take companies and economies. So far, the exuberant reaction of markets to Trump’s victory – all US stock indices have reached multiple record highs – has not been reflected in “hard data.” Moreover, economic forecasters have made only modest upward revisions to their growth projections. It is not surprising that equity investors have responded to the surge in animal spirits by attempting to run ahead of a possible uptick in
“
Mohamed A. El-Erian Chief Economic Adviser at Allianz, was Chairman of US President Barack Obama’s Global Development Council
economic performance. After all, they are in the business of anticipating developments in the real economy and the corporate sector. In any case, they believe that they can quickly reverse their portfolio positions should their expectations change. That is not the case for companies investing in new plants and equipment, which are less likely to change their behaviour until announcements begin to be translated into real policies. But the longer they wait, the weaker the stimulus to economic activity and income, and the more consumers must rely on dissaving to translate their positive sentiment into actual purchases of goods and services. It is in this context that the economy awaits a solid timeline for policy announcements to evolve into detailed design and durable implementation. While there is often some delay when political negotiations and trade-offs are involved, in this case, the sense of uncertainty may be heightened by policy-sequencing decisions. By deciding to begin with health-care reform – an inherently complicated and highly divisive issue in US politics – the Trump administration risks losing some of the political goodwill that could be needed to carry out the kinds of fiscal reform that markets are expecting. Even if a bump in the economic data does arrive, it may not last, unless the Trump administration advances policies that enhance longerterm productivity, through, f o r exa m p l e, e d u cati o n reform, apprenticeship programs, skills training, and labour retooling. The Trump administration would also have to refrain from pursuing protectionist trade measures that would disrupt the “spaghetti bowl” of cross-border value chains for both producers and consumers. If improved confidence in the US economy does not translate into stronger hard data, unmet expectations for economic growth and corporate earnings could cause financial-market sentiment to slump, fuelling market volatility and driving down asset prices. In such a scenario, the US engine could sputter, causing the entire global economy to suffer, especially if these economic challenges prompt the Trump administration to implement protectionist measures. The US is on relatively strong footing to achieve higher economic growth. Indeed, by animating the economy’s animal spirits, the Trump administration has laid the groundwork for the private sector to do a lot of the heavy lifting. But there is more to do. Unless the Trump administration can work well with a cooperative Congress to translate marketmotivating intentions into well-calibrated actions soon, the lagging hard data risks dragging down confidence, creating headwinds that extend well beyond financial volatility. Project Syndicate
Even if a bump in the economic data does arrive, it may not last, unless the Trump administration advances policies that enhance longer-term productivity
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16 Business Daily Thursday, March 23 2017
Closing Mobile-payments
Apple pay gets crushed in world’s biggest market A year after introducing its payments technology to China, Apple Inc. is struggling to win share
D
ong Ximiao was buying a meal at KFC in Hangzhou on a recent Sunday and pulled out his phone to pay, like everyone does in China, when the cashier asked: “Alipay or WeChat Pay?” The problem was, Dong wanted to use Apple Pay for the RMB36 (US$5.20) bill, but the cashier told him she had never handled transactions before and wasn’t sure whether it was accepted at the fried-chicken outlet. “I knew for sure KFC stores accept it,” said Dong, 39, a researcher at Renmin University. “So I ended up teaching her step-by-step how to complete the transaction, and she was surprised at how easy it was.” A year after introducing its payments technology to China, Apple Inc. is struggling to win share in the US$5.5 trillion market, even with the backing of the country’s biggest banks and clearing network. That’s partly because there are fewer iPhones, which made up just 9.6 per cent of smartphone sales last year. But mainly, consumers are far more accustomed to using Alibaba Group Holding Ltd.’s affiliate Alipay and Tencent Holdings Ltd.’s WeChat Pay, which have been available for several years and work on all mobile devices, including iPhones. “I don’t think Apple Pay can achieve the same market share as Alipay or WeChat Pay in the foreseeable future,” said Marie Sun, a Shenzhen-based analyst at Morningstar Investment Service. “The only chance I can think of is if there’s any big security breach happening to Chinese rivals so customers will seek for some alternative. Personally, I don’t see any benefits to switching myself.” Carolyn Wu, a spokeswoman for Apple, declined to comment by email. Chief Executive Officer Tim Cook said in October that he’s “very bullish” on China, even as revenue in Greater China declined 17 per cent in the latest fiscal year. Introduced in 2014, Apple Pay isn’t designed to bring in significant revenue by itself; instead, the feature is aimed at making iPhones a more attractive device compared with rival smartphones. If there’s a country where Apple Pay should have a decent chance of
succeeding, it would be China. According to TNS Global Ltd., 40 per cent of connected consumers pay with mobile devices on a weekly basis. That makes China the No. 1 market globally, followed by Hong Kong and South Korea. Asia also leads in mobile payments over the U.S. and Europe, the researcher said. When Apple Pay debuted in China in February 2016, it had lined up more than a dozen partners, including the Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. Even more importantly, users could register their bank or credit cards and make purchases through China UnionPay Co.’s dominant point-of-sales network, which includes more than 10 million machines capable of handling touchand-pay transactions. A UnionPay representative declined to comment. Alipay or WeChat Pay, however, work by scanning codes, directly online or other methods, making
Government
them an easier and cheaper option for merchants to set up. The machines required for Apple Pay and other devices using near-field communication are more expensive. Alipay and WeChat Pay were also designed so that people can send money to each other or split restaurant bills, making the apps more like cash wallets. “Alipay and WeChat Pay are early movers,” Sun said. “They are still doing a lot of promotions, like giving cash rebates to encourage Chinese customers to use their payments system.” At one major Chinese bank, just 1 per cent of 10 million-plus digital-banking customers have signed up for Apple Pay since it was rolled out, according to an executive at the bank. User activity has dropped to once every three months per user, on average, from once a month a year earlier, said the executive, who asked not to be identified because the matter is private. One key factor why Apple Pay is lagging behind WeChat and Alipay: iPhones are being squeezed out by Oppo, Huawei and other Chinese
smartphone brands, which have introduced high-end devices that are popular with consumers. IPhone shipments in China fell 23 per cent in 2016, according to IDC. Apple Pay is facing setbacks in other markets too. In Australia, Apple has stepped up its battle with the nation’s banks over the future of mobile payments, accusing an industry consortium of attempting to “delay or even block” its entry into the country. In Japan, Apple Pay had a rough start in October when some commuters had trouble registering their train passes onto iPhones. Even in its home market, Apple is facing stiffer competition as retailers and fast-food restaurants introduce their own mobile-payment services.
“I don’t think Apple Pay can achieve the same market share as Alipay or WeChat Pay in the foreseeable future” Marie Sun, analyst at Morningstar Investment Service While Apple struggles against entrenched rivals, mobile payments are booming in China, with total transaction value topping RMB38 trillion in 2016, triple the previous year, according to Beijing-based IResearch. Alipay and Tencent together cover about 90 per cent of mobile-payment users in China, the market-research firm said. By comparison, the U.S. mobile-payments market increased by 39 per cent to US$112 billion last year, according to Forrester Research. At a Wedome bakery shop in Beijing’s central business district, the cashier said Apple Pay is accepted at more than 280 of the stores across the city. “But I’m sorry, I don’t know how it works as I never got to use it,” she said, while scanning a WeChat payment on a customer’s iPhone. “It’s very hard to change the existing landscape -- not entirely impossible, but very hard,” Dong said. “Apple needs to fix two gaps --the last kilometre and the last centimetre. The last kilometre is about having more merchants accept it, especially in the smaller Chinese cities, while the last centimetre means having more consumers choose it. Both are costly and time-consuming.” Bloomberg News
Tourism
Insurance
Philippines complains drug Visitors from China and Russia Ping An annual profit war reports hurting tourism provide stimulus for Dubai meets estimates The Philippines tourism secretary urged the media yesterday to “tone down” coverage of President Rodrigo Duterte’s deadly drug war, complaining that reports on extrajudicial killings were scaring away foreigners. On a trip to Thailand accompanying Duterte, Tourism Secretary Wanda Teo insisted the Philippines was a safe destination but said journalists were making the country a hard sell because of their focus on the killings. “Help us because you know, it’s really difficult for me to sell the Philippines, especially when extrajudicial killings becomes the topic,” Teo told Filipino reporters following the Duterte entourage. Teo said tour operators abroad were “always” asking her about the issue, citing Asia and Europe as regions where people were particularly concerned. “I would always say it’s safe in the Philippines,” Teo added. “To the media, please tone down a little the extrajudicial killing (reports),” she said. Duterte was elected last year after promising during the campaign to eradicate drugs in society by killing tens of thousands of people. AFP
Dubai Tourism said yesterday that its hospitality sector saw a 12 per cent year-on-year growth in the first two months of 2017, mostly propelled by tourists from China and Russia. Dubai welcomed just over three million visitors, nearly four times the rate compared to the previous year, said the government-controlled Dubai Tourism authority. China and Russia in particular drove up the volumes, said Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism). This period, said Dubai Tourism, witnessed a 60 per cent growth in overnight tourists from China with January alone peaking at a dramatic 102 per cent, attracting a total of 157,000 Chinese visitors in just the first two months. The United Arab Emirates (UAE), to which Dubai belongs, exempted Chinese travellers in November 2016 from the visa-in-advance scheme. Since then, tourists from China who are particularly attracted to Dubai’s warm climate, its shopping malls and sightseeing spots, get a visa on arrival at Dubai International Airport and at Dubai’s second hub Al-Maktoum International Airport. Xinhua
Ping An Insurance Group Co of China Ltd, China’s second-largest insurer by market value, yesterday posted its biggest annual profit in more than a decade on strong sales. Robust growth in its life insurance business helped Ping An deliver strong results in a year when Beijing tightened its regulatory grip on the sector to reduce risks from aggressive insurers using short-term funds to invest in stocks and long-term assets. Ping An posted a 15 per cent rise in its annual net profit, in line with analysts’ expectations. The insurer made a net profit of RMB62.4 billion (US$9.06 billion) in the year ended December 2016, versus an average estimate of RMB62.3 billion from 18 analysts polled by Thomson Reuters. It was the company’s highest profit since 2003. Written premiums for life insurance jumped 25 per cent to RMB373.78 billion at Ping An, from RMB299.8 billion, while net investment yield for property and casualty insurance increased to 6.8 per cent last year from 6.3 per cent in 2015. Last year, Chinese insurers pulled in a total of RMB3 trillion of premiums, up about 28 per cent from 2015, according to data from China’s insurance regulator. Reuters