Taiwan unveils huge stimulus plan Economic boost Page 10
Friday, March 24 2017 Year V Nr. 1261 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong AIIB
China’s infrastructure bank adds new members Page 11
Gaming
Chow Tai Fook snaps up Baha Mar Page 7
www.macaubusinessdaily.com
Energy
Benefits
Beijing sets 2025 target date for nuclear security control Page 6
Wynn Macau announces salary raise Page 5
Tourism
The MSAR recorded nearly 2.5 mln visitor arrivals in February. Down 5.6 pct y-o-y, or 13.2 pct m-o-m. This year’s Chinese New Year occurred in January, while last year’s was in February. Decreases were primarily evident in visitations from the Mainland and Hong Kong. While those from South Korea kept surging. Page 3
Local telecom operator CTM’s annual profits dipped 6.3 pct y-o-y for 2016. Thanks, it said, to its recent tariff reduction scheme. Claiming it will work with the gov’t to improve the quality of the Wifi Go service, CEO Vandy Poon said the company isn’t paying compensation for its incomplete installation of the service.
Results Page 2
HK Hang Seng Index March 23, 2017
Trade The bilateral trade value of the MSAR and Mainland China plunged 32.2 pct y-o-y in the first month of the year. Decreases were more apparent in Macau’s exports to the country. Nosediving 60.3 pct y-o-y, or 40.1 pct m-o-m. Page 5
No need to choose
Official visit Premier Li Keqiang has embarked upon a trade-focused visit to Australia. Amid growing fears of a U.S. slide towards protectionism. The country shouldn’t have to choose between China and the U.S., he said. The Mainland is Australia’s largest trading partner. With its economic importance growing apace in the Trump era. Page 16
24,327.70 +7.29 (+0.03%) Worst Performers
Wharf Holdings Ltd/The
+1.40%
China Mobile Ltd
-3.43%
China Resources Power
-0.55%
Cheung Kong Property
+1.79%
China Resources Land Ltd
+1.36%
China Overseas Land &
-1.64%
CNOOC Ltd
-0.45%
Henderson Land Develop-
+1.77%
Want Want China Holdings
+1.19%
Geely Automobile Holdings
-1.00%
CITIC Ltd
-0.35%
Kunlun Energy Co Ltd
+1.69%
Bank of East Asia Ltd/The
+1.10%
Tencent Holdings Ltd
-0.98%
China Mengniu Dairy Co Ltd
-0.26%
CK Hutchison Holdings Ltd
+1.40%
Sino Land Co Ltd
+1.01%
China Shenhua Energy Co
-0.96%
MTR Corp Ltd
-0.23%
+10.12%
19° 22° 14° 21° 15° 16° 18° 20° 19° 21° Today
Source: Bloomberg
Best Performers
AAC Technologies Holdings
Tumbling exchanges
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Sun
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TUE
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Tariff reduction drags down CTM earnings
2 Business Daily Friday, March 24 2017
Macau Telecoms
CTM’s annual profit falls Meanwhile, the company said it does not want the list of public concession assets it holds under its contract with the government to be released for strategic and commercial reasons Nelson Moura nelson.moura@macaubusinessdaily.com
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ocal telecom operator Companhia de Telecomunicações de Macau (CTM) said yesterday that it does not want the MSAR Government to make public the list of concession assets it holds for commercial reasons; the company recorded a decrease in its annual profit for last year. For the whole year of 2016, the telecom operator registered MOP1.08 billion (US$135 million) in profit after tax, a 6.3 per cent year-on-year dip from 2015’s MOP1.15billion. Revenue generated by CTM also decreased in the year, registering a 13 per cent year-on-year fall to MOP4.51 billion. According to the telecom operator, the decline in profits was caused by the tariff reduction implemented at the end of 2016 as CTM had predicted a possible MOP200 million reduction in profits following the tariff adjustment. Last October, the company announced reductions in its tariffs for Internet services of an average 24
to 34 per cent, and for local leased lines of from 37 to 50 per cent and international leased lines from 49 to 72 per cent. Recently, a statement from the telecommunication industry sent to Business Daily roasted CTM for unfair competition, saying competitor operators are required to pay CTM to lease its network service although CTM itself was able to use government concessions and the city’s line network free of charge. In the same statement, the operators said that the local leased line tariff reduction enforced by CTM were only effective for private enterprises such as hotels, with licensed operators only receiving an effective reduction
In good hands
CTM said yesterday that its newly launched e-commerce platform Macau GoodHands has registered 53 local merchants. Without providing an exact number of transactions through the platform, the company claimed the number has increased by 400 per cent since the service officially
of a ‘single digit percentage.’ When questioned on the issue at a company presentation of its 2016 results yesterday, CEO Vandy Poon Fuk Hei said that the reductions were very “favourable discounts” with rates being calculated differently depending upon each company’s characteristics.
Keep the list inside
Meanwhile, the telecom operator said it does not want the list of concession assets it holds to be made public by the local authorities. “Publishing or not the list is up to the government; we have our own issues with this release and not just for strategic and commercial motives,” said the company’s Executive Director, Aguinaldo Wahnon. “The list comprises almost 40,000 different items from small to core items so this is not something the general public would have any useful purpose to have access to,” he added.
launched on March 7. Planning to invest MOP5 million to develop the service, the company hopes to increase the number of merchants on the platform to at least 150. The platform was designed as an e-commerce ‘one-stop’ service for local SME’s, combining features of the cloud computing search engine and electronic payment.
Mr. Wahnon also said that the assets granted by the government will revert to the MSAR when the company’s contract with the government is terminated, as regulated in the agreement. The company’s concession contract was recently automatically renewed until the end of 2021.
No compensation
Meanwhile, the CTM CEO denied that the company will provide any compensation to Macao Post and the Telecommunications Bureau for its incomplete installation of the free access wireless broadband service Wifi-Go in the territory. Last month, Bureau Director Derby Lau told reporters that a “non-monetary” compensation would be sought from CTM for not installing 25 WifiGo access points that still cost the department MOP422,000. “We respected the contract requirements and promises, while following the government’s requests,” Mr. Poon said. Regarding criticism in a recent report by the Audit Commission on the quality and speed of the public Wifi service Poon responded that CTM would work closely with the government to “enhance” the service and make it more “user friendly.”
Broadband breakthrough
Acc o r di n g t o th e c o m p a n y ’ s Vice-President of Commercial Operations, Ebel Chan, increasing the scope of broadband reach was one of the ‘breakthroughs’ of CTM in 2016. She said that the company had invested MOP1.9 billion over the last four years to develop its network in the city. The annual report notes that the company’s 4G+ mobile customers grew six-fold annually to nearly 600,000, while fibre broadband customers went up slightly to 112,000. The penetration rate of high speed fibre Internet services at the end of 2016 was 60 per cent, with CTM aiming to connect all households in Macau by the end of this year. “We will work to improve the Internet speed, especially in low-rise buildings where connections tend to not be as good,” Ms. Chan said. CTM also announced in the report that the number of CTM Wifi Hotspots in 2016 had increased on an annual basis by more than 70 per cent to 2,100, covering 900 public buses.
Legislation
Hotels
AML amendment bills near final reading
The 13: “Delay due to incomplete decoration”
The chairman of the third standing committee of the Legislative Assembly, Cheang Chi Keong, said that the amendment bills for the anti-money laundering and counter-terrorist financing regulations will be ready for submission for a final reading in the second half of next month. The bills, which passed the first reading last November, propose expanding the city’s current law to cover suspects who have
unsuccessfully attempted to launder money. The amendments also seek to strengthen the review measures by gaming operators of their clients or contractors. According to the sub-committee president, the bills are conditional for submission if there is no other issue arising with the official documents provided by the government. Mr. Cheang added that the government insists separating the upstream crimes of money laundering from the crime of money laundering itself in order to avoid the city from being listed on negative lists by international associations. He also said that the city’s Prosecutor’s Office has received a number of reports on money-laundering but it is unable to open files for investigation if the sources of the money involved are unclear. Currently, the MSAR Government has inked memorandums of understanding with over 10 regions such as Israel and Mainland China to help in the prevention of money laundering and terrorist financing activities by facilitating the exchange of financial information between territories. C.U.
Stephen Hung, joint chairman of hotel developer The 13, said yesterday that the delay in the opening of the group’s luxury hotel project The 13 in Coloane is due to the incompletion of the property’s decoration works, local broadcaster TDM Radio reported. The businessman declined to say whether The 13 will provide gaming facilities in c o - o p e rati o n w i th Melco Crown Entertainment Ltd., only that the company will make a public announcement when there is any related news. Having announced in September of last year that the opening of the property was set to take place ‘in early 2017,’ the company recently told Business Daily that ‘an opening date will be announced later in the year.’ This is not the first
time that the company has postponed its expected opening date for the project. The hotel
was first slated to open ‘in late Summer 2016’ then ‘the fourth quarter of 2016.’
Business Daily Friday, March 24 2017 3
Macau
Tourism
Visitation drops 5.6 pct post-CNY February’s tourist numbers decreased by double digits from January in the wake of Chinese New Year Kam Leong kamleong@macaubusinessdaily.com
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otal visitor arrivals decreased by 5.6 per cent year-on-year to nearly 2.5 million for the month of February as tourists from Mainland China and Hong Kong both dropped, according to the official data released yesterday by the Statistics and Census Service (DSEC). The decline in visitor numbers came after the Chinese New Year that took place at the end of January this year, as compared to that of 2016, which fell in February. On a month-on-month comparison,
total visitation to the city dropped 13.2 per cent. In the month, visitors from Mainland China totalled some 1.67 million, down 7.5 per cent year-on-year. In particular, those travelling under the Individual Visit Scheme decreased by 11.9 per cent year-on-year to 889,353. Of the total visitors from the Mainland, those from Guangdong Province amounted to 780,099, followed by those from Hunan Province, reaching 55,269. In addition, visitor arrivals from neighbouring Hong Kong recorded a decline of 8.6 per cent year-on-year, at 501,141. Nevertheless, visitors from South
Korea continued increasing, up 31.3 per cent year-on-year, totalling 82,764, whilst those from Japan surged 29.5 per cent year-on-year to 27,100. In addition, Taiwan – the city’s third biggest source of visitors – registered a mild increase of 0.6 per cent in visitation to Macau, at 87,010. For long-haul visitors, only those from Australia increased, up 2.5 per cent year-on-year to 5,900, while visitors from the United States, Canada and the United Kingdom all posted decreases from one year ago, down by between 2.2 per cent and 9.5 per cent.
More overnight visitors
In terms of visitor type, those staying in the city overnight amounted to 1.23 million during the month, up by 3.6 per cent year-on-year. Their average stay was also prolonged by 0.1 days to 2.2 days.
Meanwhile, the number of sameday visitors - declining 13.2 per cent year-on-year to some 1.26 million - spent an average of 0.2 days, unchanged from one year ago. For the first two months of the year, the city recorded over 5.37 million visitor arrivals, which represents a growth of 5.5 per cent year-on-year. In particular, overnight visitors expanded by 11.1 per cent year-on-year to nearly 2.6 million while same-day visitors increased 0.8 per cent to 2.78 million. During the two months, visitors from South Korea registered the highest growth, up 24.2 per cent year-onyear to 164,212, followed by those from Mainland China, up by 5.9 per cent to 3.66 million. While tourists form Hong Kong rose by 3.2 per cent to some 1.03 million, those from Taiwan decreased 0.7 per cent year-on-year to 171,273 during the two months.
4 Business Daily Friday, March 24 2017
Macau Opinion
Pedro Cortés* The artificial intelligence robots Reading newspapers these days – more in digital format than in paper – is a venture that shows us the future. Artificial intelligence and robots are part of the specialised and non-specialised publications around the world. For the more conservative, it is a myth. For others, it is already a reality that we cannot hide from, run from or postpone. I tend to be one of those of the latter group. In my self-effacing view, the future is occurring as we see it and the coming years will be very challenging for all professions, including the one that I have chosen in my life: lawyer. We will be (we are already) entering the third industrial revolution where mankind will be replaced by intelligent machines created by man. It might be that those machines will be even more intelligent than us and we must urge governments to regulate them. Some of the gurus on this matter consider that it will soon be very difficult to find jobs for humankind. I tend to agree. Professions, as we see and still have nowadays, will have a completely different meaning in five to ten years. For those on the other side who are by now saying “this guy is crazy!” well, calm down, I am not yet at that stage, although I seldom practice that craziness, but what you shall expect is that this will (and is) really happening. It has been the dream of man forever: work less, get more. We can even envision a world where people will not work at all and receive support from the governments which, in turn, will support and be supported by those companies which will need to spread their products and services. There will be (well, there are already) robots and machines doing the jobs of lawyers, judges, clerks. And also in the case of Macau, there will be robots dealing cards, cleaning the gaming floors and escorting visitors and gamblers. There will be a government of robots stating the fate of the population and deciding mathematically what is best for humankind. Hybrid beings will be part human, part robot. Well, I am not reading or watching science fiction. It was never my favourite genre of books or movies. What we shall perceive, even for the education of our future generations, is that the world changes more in a year that it has changed in centuries. Be prepared for a challenging but very demanding future. Hopefully or not, when most of these tools and beings of the new world arrive in Macau the government will already be prepared for them. *lawyer and frequent contributor to this newspaper.
Property
Urbanisation ignites Country Garden sales But the developer may not repeat its outstanding performance of 2016 given tightening capital controls are in effect Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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ainland Chinese developer Country Garden posted a net profit of nearly RMB11.5 billion (MOP13.3 billion/ US$1.7 billion) for the year of 2016, a 24.2 per cent increase from 2015, according to a filing by the company with the Hong Kong Stock Exchange this week. The company noted that growth in profits for the year was mainly attributable to the increase of home sales in first and second-tier cities in China, which represented 59 per cent of the company’s total property sales, while those from third and fourth-tier cities accounted for some 41 per cent. Total contracted sales of the group surged 120 per cent to RMB308.84 billion for the year.
‘The adaptation to different markets and a more balanced land bank are the key to counteracting market fluctuations and enabling the Group to grow consistently,’ the company wrote in its annual results report. Country Garden’s total revenue was up by nearly 35.2 per cent from a year earlier, at RMB153.09 billion, with the company noting that revenue from its property development segment rose 35.4 per cent year-on-year to nearly RMB148.2 billion. In particular, revenue collected from property sales totalled RMB284.08 billion, representing a notable growth of 142.8 per cent year-on-year. ‘Revenue generated from property development maintained a growth as a result of the continuous growth of property contracted sales, strict construction management control and timely delivery of units in 2016,’
the company wrote. The company reported that as at the end of 2016, it managed a contracted area of 210 million square metres throughout 223 cities in China across 27 provinces for nearly 1 million households of owners in total.
Forest city
The Guangzhou-based developer is the company behind the development of Forest City, a 20 square kilometre site development in a joint venture with the government of Johor State in Malaysia. According to a report in South China Morning Post earlier this week, the company claimed it had recently shut down ‘dozens of sales offices across China for its mega Malaysian housing project Forest City’ due to the central government’s tightening of controls on capital outflow since the beginning of 2017. Yet, the company noted in its annual results that the Forest City project ‘has achieved positive net cash flow, and its own capital is sufficient to support its own development.’
Construction
Eagle Legend Asia’s local business tumbles Hong Kong-listed construction service firm Eagle Legend Asia Ltd. saw it net loss expand by 71.5 per cent year-on-year to HK$72.2 million for the year of 2016, with revenue in the MSAR dipping by 87.1 per cent,
according to a company filing with the Hong Kong Stock Exchange yesterday. For the year, the company’s revenue generated by the MSAR amounted to some HK$516,000, over three-quarters down compared to nearly HK$4
million one year ago. The company also posted a loss of HK$29,000 for its business in the territory. The total revenue of the company was HK$214.6 million, which is down 10.5 per cent vis-à-vis HK$239.8 million in 2015. The company explained in the filing that the drop in revenue was due to ‘the decrease of rental income from leasing of machinery and the related service income,’ adding that the sales of machinery and spare parts saw a modest growth of 9.2 per cent year-on-year. The company is primarily engaged in the trading of construction machinery and spare parts, leasing of construction machinery and provision of repair and maintenance services in respect to construction machinery in Hong Kong, Macau, Singapore and Vietnam. C.U.
Corporate
Galaxy Macau launches ‘A Beautiful Spring’ shopping campaign
The Promenade Shops at Galaxy Macau, collaborating with T Galleria Beauty by DSF, is to launch a new shopping campaign – ‘A Beautiful Spring’ - tomorrow, offering creative and personalised shopping opportunities featuring floral themed art, décor and F&B. Partnering local artists, shoppers can redeem their own personalised, painted DFS tote bag painted by the six featured local Macau artists after any purchase at The Promenade Shops’ T Galleria Beauty. Meanwhile, the Ritz-Carlton Café is presenting special F&B opportunities.
On April 1, the Promenade Shops will host a pop-up Kate Spade floral-themed booth with
camel photo props, celebrating the designer’s latest collection.
Business Daily Friday, March 24 2017 5
Macau Remuneration
Wynn Macau announces salary increment of up to 6.5 pct
Gaming operator Wynn Macau has raised the salaries of its employees by between 2.5 per cent and 6.5 per cent, effective March 1, the company announced yesterday. According to the statement, nearly 98 per cent of the company’s workers benefit from the increment, of whom those earning MOP16,000 (US$2,000) or below monthly enjoy a salary
increase of MOP500, equivalent to a growth of 3 per cent to 6.5 per cent, while those earning above MOP16,000 per month receive a raise of 2.5 per cent on average. The city’s major casino operators have all announced salary raises to their workers this year, except for SJM Holdings Ltd., whose executive director Angela Leong On Kei said on Wednesday that the company’s board of directors had not concluded a proposal for salary increases yet. K.L.
Trade
MSAR-China trade plummets in January In particular, the city’s exports to the Mainland plunged, both year-on-year and month-on-month Kam Leong kamleong@macaubusinessdaily.com
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he city’s bilateral trade with Mainland China plunged 32.2 per cent year-on-year to US$210 million (MOP1.68 billion) for the first month of the year as import and export activities between the two parties plunged in the month, the latest official data from the Department of Taiwan, Hong Kong and Macao Affairs of the Chinese Ministry of Commerce reveals. In the month, China’s exports to the city amounted to US$200 million, plummeting 31 per cent, whilst its imports from the territory nosedived 60.3 per cent year-on-year to US$10 million.
On a month-on-month comparison, total trade value between the two parties registered a decrease of 25 per cent. In particular, China’s imports from Macau dropped 40.1 per cent whilst its exports to the city dropped by 25.9 per cent. Mainland Chinese authorities approved a total of 60 projects invested by Macau firms in the country during the month, an increase of 130.8 per cent year-on-year. However, actual capital used on these projects plunged 73.6 per cent year-on-year to some
US$10 million. Accumulatively, a total of 15,134 projects invested in by local companies were approved to operate in the country as at the end of January, with actual capital used totalling US$13.61 million. Nevertheless, the amount only represents 0.8 per cent of the total foreign investment that the country had attracted. On the other hand, non-financial direct investment from the country to the MSAR amounted to US$4.39 million in the first month of the year
whilst accumulative investment from the Mainland totalled US$2.18 billion as at the end of January. Meanwhile, two Macau projects were contracted to Mainland companies in the same month, the Ministry said. The two contracts were worth a total of US$2.42 million, while the companies completed sales of some US$176 million. As at the end of the month, some 122,805 workers from Mainland China were working in the MSAR, the Ministry said.
6 Business Daily Friday, March 24 2017
Macau
Energy
Central gov’t: Nuclear safety key Nearby Taishan nuclear power plant has yet to sign a communication agreement with the MSAR; the central gov’t plan only sets nuclear security and pollution control targets for 2025 Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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he State Council of the central government announced yesterday that it had approved a 13-year plan as well as a 2025 target date for nuclear security and radioactive pollution control, as submitted by the Ministry of Environmental Protection. The goals of the plan are to set up ‘a co-ordinated and rational approach to nuclear security that places safety and quality first,’ according to information published on the Council’s official website. The plan: ‘centres on risk prevention, uses nuclear facilities in accordance with national nuclear safety law to ensure safe and efficient development of nuclear power, and utilisation of nuclear technology in China,’ it states. The announcement comes just weeks after the February 27 announcement by MSAR Secretary for Security, Wong Sio Chak, that a communication protocol between the MSAR and neighbouring Guangdong Province “should be signed soon.” The announcement relates particularly to the nearby Taishan nuclear power plant, operated jointly by China General Nuclear Power (CGN) and Electricité de France (EDF), which was expected to open in the first half of this year. The company’s annual results, published for the Hong Kong Stock Exchange on March 15 of this year, reiterated an earlier filing that pushed back the opening date of Unit 1 of the plant to the ‘second half of 2017’ and that of Unit 2 to the first half of next year. The results note that ‘Taishan Unit 1 is in the commissioning phase, and Unit 2 is in the equipment installation phase’ – however, during the
construction process the group pointed out that ‘Taishan Nuclear has to conduct more testing and verification of the design and equipment, requiring relatively longer construction time.’ The plant shares a design with a French nuclear plant in Flamanville, northern France, which two years ago the French Nuclear Safety Authority noted had safety issues.
Safety first
The new measures, set out by the State Council, says that ‘provincial governments should strengthen guidance over implementation of the plan and make clear their duty division,’ so that ‘by the end of the 13th five-year plan period the safety of the country’s nuclear facilities will be remarkably enhanced, with lower rate of nuclear and radiation accidents, and nuclear emergency response and supervision.’ These will be overseen by the Ministry of Environmental Protection, National Development and Reform Commission and the Ministry of Finance, notes the Council, which will inspect and oversee the plan’s implementation, among other departments. No new update is available regarding the communication protocol, a Secretariat for Security representative noted, in response t o B u si n ess Dai l y e n q u i ri es .
Baby steps
While safety is key, the MSAR’s reliance upon the Mainland for energy is tantamount to its operation. Local electricity provider CEM generated a total of 753 GWh in 2015, according to the company’s annual report, a 73 per cent year-on-year increase. Meanwhile, it imported 4,054 GWh from the Mainland that year, accounting for 81.6 per cent of the city’s electricity consumption.
Currently, China ranks 95th in the World Economic Forum’s Global Energy Architecture Performance Index Report for this year, which claims that the country ‘is showing signs of tackling the significant challenge to enable rapid growth of its energy sector . . . [although] . . . ‘sustainability remains the greatest challenge . . . [as it] . . . lags behind other global superpowers, with high levels of energy intensity and high carbon dioxide emissions from electricity production’. These are addressed in the 13th five-year plan in areas such as reducing air pollution and curbing climate change as well as a 60-65 per cent energy intensity reduction by 2030 as part of the Paris Agreement. However, nuclear still hangs on, with the central government promising to build 21 new nuclear reactors over the next decade, with five to be finished and the construction of eight more to begin within this year, according to the National Energy Administration’s Energy Work Guidance Opinion. Eight more will enter the planning stage in 2017. The central government’s plan is
‘also expected to push forward China’s nuclear facility security to international advanced levels, improve radioactive environment and modernise supervision in nuclear security and radioactive pollution control.’ Hopes are that the nearby US$8.7 billion (MOP69.6 billion) nuclear facility, as well as Shenzhen’s Guangdong Daya Bay Nuclear Power Station, will be heavily scrutinised in this procedure, as reassurances, such as that by the Taishan operator that it will ‘continue to maintain a proactive working attitude and effective working manner, co-ordinate resources and strengths of involved parties, strengthen the control and management over aspects such as safety quality, progress and investment of projects,’ are better backed up with inspections and oversight. CGN Power Co. Ltd, operator of the Taishan plant, saw a 22.7 per cent increase in profit year-on-year to RMB32.89 billion (US$4.78 billion/ MOP10.11 billion) and a 12 per cent increase in profit, year-on-year, to RMB7.54 million for 2016, according to the company filing.
Fraud
Con man falsely claimed son abducted in Macau An American con man who led along the mother of an abducted child, receiving thousands in payment to allegedly rescue the boy, has been sentenced to three years in prison in the United States, according to the New York Post. The man received an extra year on his sentence for telling the court that he himself had suffered from the kidnapping of his own son, allegedly rescuing the child from a cage in Macau after he had been abducted by a ring of sex traffickers, notes the publication. The con man, Senese, stole up to US$85,000 (MOP680,000) by preying on the parents of abducted children,
falsely claiming that he could recover them with the help of a team of retired Delta Force members, one of whom he claimed to be. “His efforts at justifying his actions by suggesting he was traumatised makes it even crueller,” announced the judge in the case following Senese’s MSAR-related claim. Regarding the fake rescue attempts, Senese justified lying to the mother stating: “I was trying to give you hope […] I didn’t want you to know that pain,” allegedly referring to his ‘kidnapped’ son. “We completely contest that any abduction occurred,” stated the prosecutor in the case to the judge.
Business Daily Friday, March 24 2017 7
Macau Expectations
Shine bright like a lion Although EBITDA expectations have been lowered by analysts for the group’s new Cotai property, MGM has not lost its stride as it heads towards opening day Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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s MGM Resorts moves into the Middle East market, with its recently announced plans to build properties under both its MGM and Bellagio brands in Dubai through agreements with Asset Management, analysts are looking at a ‘rational set of expectations’ for the remainder of 2017. ‘Our view is that the company has not lost its positive momentum,’ note analysts at Telsey Advisory Group. ‘MGM confronted the common occurrence of repeated successes breeding over-confidence,’ note the analysts led by David Katz. ‘In this instance, perhaps all interested parties became accustomed to the beat and raise from MGM,’ opines the group. Regarding the company’s results released in February, the group calls it
a ‘surprise downside for the first time in several years’ despite the company still evidencing a 17 per cent year-on-year increase in revenue to US$1.8 billion (MOP14.4 billion) in the fourth quarter and net income attributable to owners of US$25 million, according to the group’s fourth quarter earnings report. The major push to drive this year’s revenue increase will be its flagship MGM Cotai property opening on the Strip, still scheduled for the second half of this year. However, the push back from the first half to the second has also caused Telsey analysts to lower their previous expectations for the 2017 results. ‘We made an adjustment to our MGM Cotai estimate which had been for US$62.8 million EBITDA (earnings before interest, taxation, depreciation and amortization) after opening in the fourth quarter 2017
and is now US$29.8 million based on 45 days of operations,’ calculate the analysts. Speaking to Business Daily on Wednesday, the CEO of the group’s local arm MGM China, CEO Grant Bowie, noted that the opening is still on time and unaffected by the MGM National Harbour project’s opening last December, also headed by Executive Vice President for MGM Resorts Development Hunter Clayton, who previously sat down with Business Daily to discuss MGM Cotai. “This project is three times larger than National Harbour. This is MGM Resorts’ - MGM China’s - most significant event this year, the opening of Cotai. We’re a large corporation. By being able to blend the skills and take ideas and the talent that we have within our organisation I think we end up with a more robust product,” Bowie stated.
Polished
Regarding a preview of the new property, Bowie noted that this will happen after they “make sure that we’ve polished everything” and that internal components, both technical and organic, are ready.
CEO of MGM China, Grant Bowie
“There’s an awful lot of technology going into this property and that’s going to take some time to settle. And actually there’s an awful lot of nature in our property and that’s got to grow in so it looks good,” noted Bowie. In previous conversations with Business Daily, Hunter Clayton noted that regarding technical features each LED fixture “installed across the entire façade is individually controlled”, and that the “smaller scale” water features for the property using “reclaimed water” are in use in the building, which is set to withstand “very large typhoons.” Meanwhile, the “nature” that Bowie is referring to includes “500 square metres of vertical green-wall” in the Spectacle area of the property, whose plants need to be brought in “at the very end,” according to Clayton, who at the time had noted the group was at the “mid-60 per cent level” of completion from a “construction standpoint” in September of last year. Overall, the project, including parking, occupies “over four million square feet” and 16 acres, with a three-level basement, Clayton told Business Daily. Regarding ongoing expenses: ‘Assuming that MGM Cotai opens in 4Q17 as per our assumptions, the capital spending plans of the company are dramatically reduced going forward,’ said the analysts at Telsey, while CEO Grant Bowie points out how the group plans to concentrate revenue upon opening despite being slightly stepped back from the main segment of the Strip. “We may be small, we may not have as big a reach as others, but we work very, very, hard to attract the customers that we know we’re good at supporting and those customers are also very committed to us,” said Bowie. “We have to always remember, it’s the customers choice. Find the right customer. Get those customers to come try us and then get them to fall in love with us because it makes it a lot easier if they want to come back to you rather than constantly having to harvest new customers,” he opined, adding these are “very exciting times for us.”
Business climate
M&A
U.S. casino claims US$70 mln loss due to smoking ban
Chow Tai Fook snaps up Baha Mar
The ban came into effect in April 2015 As local authorities have given until January 2019 for local gaming operators to upgrade or install smoking rooms up to set standards within their facilities in a workaround of implementing a full smoking ban inside casinos, elsewhere the impact of smoking bans are being felt in casinos. Harrah’s Casino & Hotel, located in downtown New Orleans, Louisiana, has apparently lost about US$70 million in revenue over the two years since the implementation of a smoking ban, according to Nola media group. The casino, one of three operated by Caesar’s Entertainment in the state, is having difficulties competing with venues in the surrounding areas, given that the implemented ban affects only the zone that it is located in, Orleans Parish, according to Caesar’s CEO and president Mark Frissora. “It’s not fair because everyone else around us doesn’t have the smoking ban,” commented Frissora, as quoted
by the publication. The group’s president for the southern portion of the U.S., Dan Real, noted that the quarter before the ban hit was the best in the property’s history. The taskforce to whom the casino group presented its complaints noted that a flip effect had happened, where properties making money before the ban were now losing money and those not affected by the ban were increasing revenues. Taskforce chairman Ronnie Jones, as quoted by the publication, noted that: “There was an absolute correlation […] I think the smoking ban had an impact.” Ratings agencies have long foreseen a drop in revenues due to a partial or full-smoking ban, with the most recent estimates being unchanged revenues for 2018 for VIP and double digit growth in mass, while single-digit drops and continued double digit growth in mass are predicted for the first year of implementation, 2019.
The multi-billion Bahama casino-resort complex – Baha Mar Resort – has been handed over to Hong Kong conglomerate Chow Tai Fook Enterprises via its subsidiary Chow Tai Fook Holdings, according to Bahama news outlet The Bahama Journal. Last December, the Hong Kongbased group officially signed the US$3.5 billion purchase agreement for the project following its submission of proposal for the acquisition last November. Speaking at the official handover ceremony, Bahama’s Prime Minister Perry Christie disclosed that the
complex will have its official soft opening on April 21 this year, adding that over 600 workers will begin working 30 days prior to the soft opening, the news outlet reported. The casino hotel will include a convention centre and golf course, with CTFE stating in a press release last December that it plans to invest an additional US$200 million for pre-opening activities and for the redevelopment of the beachfront site of the former Crystal Palace Casino Hotel plus the ‘development of additional family friendly amenities, entertainment venues and offshore island facilities.’ C.U.
8 Business Daily Friday, March 24 2017
Consigliere Baselworld
Watch Swiss Troy Patterson
S
ince yesterday, the horlogical community convene in Basel, Switzerland, for Baselworld—perpetually the most important event on the global watch-fair calendar. Some of the timepieces making debuts are closely guarded secrets, and this can be the case even when the secret in question concerns a very minor tweak to a highly familiar watch.
Don’t get us wrong: We like subtle updates and spiffy modernizations; it’s not always necessary to reinvent the balance wheel. But nothing whets our appetite for Basel so much as examining eccentric visions and virtuosic innovations. Ergo, the preview below goes heavy on high complications and the razzle-dazzle of tourbillons. As far as what’s on the wrist, these watchmakers understand the importance of a strong first impression.
Arnold & Son Tourbillon Chronometer No. 36
Fabergé Visionnaire Chronograph
Graham Geo. Graham Orrery Tourbillon
This 46-millimeter showpiece commemorates a breakthrough pocket watch design by brand founder John Arnold, the 18th century watchmaker rivalled only by Abraham-Louis Breguet as inventor of the modern mechanical watch. The dial-side, one-minute tourbillon, held by a mirror-polished top bridge, is also visible from the back. We’re partial to the version with the 18-karat rose-gold case, but its stainless-steel sister is not too shabby.
The jewellery company notes that the inspiration for this timepiece is the “Constellation Egg”—the last such piece that Peter Carl Fabergé ever designed, its completion interrupted by the Russian Revolution. (There’s a nearly imperceptible laser-etching of that ovoid on its sapphire case back.) One hundred years later, the revolutionary movement we’d prefer to consider is the one powering this watch, developed by the Geneva workshop Agenhor, with its streamlined chronograph reset function.
Grandly celestial in its gestures, this is a 48-millimeter stunner from an independent brand with a long history, a fun sense of astronomy, and a minuscule client base. Graham produced an earlier version of this watch in a limited edition of 20. This new one, with its beautiful, blue-lacquered dial, includes one scale to indicate the year and a second to show the reigning zodiac sign. With rotating gems and rare metals, it depicts the orbital patterns of earth, the moon, and Mars.
Montblanc launched a smartwatch. Here’s why it matters Chris Rovzar
Last week, Montblanc became the first brand in the Richemont family of luxury companies to put out a smartwatch. The Montblanc Summit, based on Google’s Android Wear 2 platform, aims to compete with, among others, the Apple Watch and rival Swiss brand TAG Heuer’s Connected Watch (which was released last year and will get an upgrade likely to be announced this week). Like the TAG, which is also on the Android platform, the Montblanc watch is targeted to fans of the brand. By designing the case to look like a classic mechanical watch from its 1858 line, it hopes to attract a mix of loyalists and also millennials who aren’t necessarily accustomed to wearing anything on their wrists but who might try out a unique-looking smartwatch. “We hope that the Summit shows customers new and old that Montblanc is rooted in innovation and adapts to what the modern professional needs,” said Montblanc Chief Executive Officer Jérôme Lamberg. The differences between the TAG and Montblanc versions are not vast— they both offer an array of Android apps. While the TAG has GPS for sports apps and NFC for making mobile payments, the Montblanc watch has a heart-rate monitor embedded in the back of the case. They both come loaded with watch faces that look like their iconic models, which these companies swear is important, but to me slightly misses the point. Fans love mechanical watches for their ingenuity, beauty, and internal structural achievement—a dimly-lit 2D simulacrum on a screen, cased in something that looks like a mechanical watch, is hardly the same thing
The Greater Market
Smartwatches have become a large category but have still undersold compared with expectations. Market research firm IDC estimates that 19.8 million smartwatches were shipped in 2016, missing a 28.3-million projection by almost half. In the third quarter of last year, for example, Apple Watch sales were down more than 70 percent. A large part of the problem is that makers of this kind of wearable (as opposed to a simpler, more purpose-built Fitbit) haven’t yet really made a case for why its users need them, when a smartphone is almost always near at hand.
Think about it. If you own a smartwatch, and you accidentally leave it at home, what do you do when you get to work or school and you realize it’s not with you? Then think about what happens when you leave your phone at home.
Improving by Iteration
When Apple Inc. launched its series 2 watch in September 2016, it featured improvements based on feedback from communities that use the device. “A significant difference between the first and most recent versions of Apple Watch software is that a lot of what you want to do, from functional stuff to what’s just plain fun, lives at the top layer of the UI now,” explains Jack Forster, an industry expert and the editor-in-chief of the watch enthusiast website Hodinkee. “It’s often simple stuff, but it makes a huge difference in the experience. For instance, you can change the watch face now much more easily and without navigating submenus. There’s a familiar-to-Mac-users app dock now, and so on.” The Apple Watch 2 also featured built-in GPS, which meant that a runner or cyclist could hit the road without having to carry a phone—a huge difference for athletes.
Smaller Brands
While Apple owns more than 40 percent of the smartwatch market, according to IDC, you’ll find more community enthusiasm, in my experience, for such watches as Garmin’s sports offerings—which offer exactly what outdoor athletes want. “Dedicated fitness trackers still do a better job at filling specific needs, although there are other mission-specific smartwatches out there that show how much room there is left to innovate and clarify product identity,” explains Forster. “Casio makes trekking-oriented smartwatches, for instance.” The same IDC report that had smartwatches on the decline listed Garmin Ltd. as the industry’s one bright spot, increasing more than 300 percent year over year. (That report came out right as the Apple Watch 2 was hitting stores and does not reflect a bump that may have come from the new technology.)
Business Daily Friday, March 24 2017 9
Consigliere
Breguet Tradition Dame 7038
Hermès Cape Cod Shadow
Seiko Presage Automatic Chronograph
Angelus U22 Tourbillon
With 68 brilliant-cut diamonds on its bezel and a watch-movement jewel bedecking its crown, this women’s watch saucily walks the line between high jewellery and haute horlogerie. The offset dial is made of natural white mother of pearl; the signature open-tipped Breguet hands consist of rose gold.
A fresh take on a model that debuted as an instant classic in 1991, this version of the Cape Cod is far more suitable for a night in the city than for a day at the beaches of its namesake peninsula. The brushed-steel case, the matte-black dial, the black calfskin with its red-burnished edges—these combine to tell the time in timeless style.
Following last year’s limited-edition release of two Presage models, Seiko rolls into Basel with four non-limited models. All boast enamel dials with designs based on the company’s first wristwatch (1913’s Laurel) and made by master craftsman Mitsuru Yokozawa. Our favourite is this stainless-steel, crocodile-strapped, 42-millimeter chronograph—elegant and energetic in equal measure.
This model—like the U21, another new execution of the house’s skeleton tourbillon movement—is made with a carbon-fibre main plate that gives it the illusion of being part of the case and gives you the pleasure of gazing upon an architectural marvel. The structure of the movement, created for maximal three-dimensionality, is all the more impressive, considering that the watches weighs in at 54 grams—about the mass of 11 nickels. Bloomberg News
If Swiss watchmakers and Apple and Google want to make smart timepieces more essential, it’s good that brands with smaller, more specialized communities are having watches made just for them.
Montblanc’s Summit Watch
“Smartwatch makers are creating products with a clearer identity,” says Forster. For example, the Montblanc watch comes with a clever, intuitive world timer app that was built for the timepiece. Why? Montblanc users are travellers. “The Montblanc customer is a modern, on-thego professional that enjoys the luxury heritage lifestyle/status that Montblanc is known for,” explains Lambert, the CEO. “Today’s Montblanc customer is living in a digital world where connectivity is key to success.” At 46mm across, the watch is large, as well. That’s too big for my wrist, but it’s huge for a reason. “This large face, made with curved glass, allows for users to play in various apps and text or email with ease,” Lambert added. Future versions of the Summit may link with Montblanc’s Augmented Paper (paper notebooks that record your writing into the cloud) in a work/ play ecosystem that suits fans of the brand perfectly. Say you’re traveling business class on a flight from Dubai and you can’t bring on a laptop or tablet. Suddenly your phone, your watch, and such gadgets as Augmented Paper become much more important.
A Long Road
Analyst John Guy of Mainfirst Bank estimates that the Connected Watch has come to represent less than 10 percent of TAG Heuer total sales over the past year; in other words, it didn’t change TAG’s bottom line or its business model. And it likely won’t, at least for a while. (In pricing, the Swiss are
nowhere near competing with Apple. At roughly US$960 for the Montblanc and US$1,500 for the TAG, they way overshoot the US$369 Apple Watch 2.) But they are teaching the Swiss brands what their users want from a smartwatch—if anything. “I think it’s still not entirely clear to a lot of players in the traditional watch space why their fans would want a smartwatch version of their
watches,” says Forster. “Which isn’t very surprising, because I don’t think the tech world in general has figured that out either. “Manufacturers feed new designs into the marketplace, and consumers say to themselves, ‘Well, I didn’t know it, but I really do want one,’ and as various products are accepted or rejected, manufacturers refine their approach.” Bloomberg News
10 Business Daily Friday, March 24 2017
Greater China Investment
Beijing tells cornerstones to bring money home New rule comes as Hong Kong braces for a high number of potential IPOs spurred by a 10 per cent rise this year in its benchmark share index Sumeet Chatterjee and Julie Zhu
C
hina has made it mandatory for mainland cornerstone investors in Hong Kong IPOs to repatriate funds when they sell their shares, a rule likely to hit smaller, cornerstone-reliant listings, four people with knowledge of the matter told Reuters. The State Administration of Foreign Exchange (SAFE) has informed investment bankers and lawyers of the rule, borne out of government concern that cornerstone investment allowed large amounts of funds to leave the country and contribute to a decline in the value of the yuan, the people said. Prospective cornerstone investors in Hong Kong initial public offerings (IPOs) of mainland firms now have to inform Chinese regulators of their intentions and promise to return funds to the mainland whenever they sell holdings, the people said. “What the regulator is basically saying is that they won’t let the non-serious Chinese investors exploit the cornerstone route to take capital out of the country and park it offshore,” said one of the people. SAFE, part of the People’s Bank of China, did not respond to a faxed
request for comment. The four people were not authorised to discuss the matter with media and so declined to be identified.
Hong Kong hopefuls
Cornerstone investors are usually institutions that agree to buy a large proportion of shares sold through an IPO, which they are bound to hold for at least six months. Such investors dominate in Hong Kong to an extent unseen in other countries. China’s new cornerstone rule
comes as Hong Kong braces for a high number of potential IPOs spurred by a 10 per cent rise this year in its benchmark share index - the best-performer among major Asian stock markets. The rule could make IPOs more difficult for small and mid-sized listing hopefuls, as well as firms that would struggle to attract foreign investors, which often fall back on “friendly” funds and wealthy individuals in China, the people said. “Regulators are not outrightly restricting outbound capital flows per se, but they are certainly trying to clamp down on methods that are less visible and manageable,” said Jonathan Ha, chief executive of Shanghai-based markets researcher Red Pulse.
“The likely impact of this new policy is a moderation of demand for investment into these IPOs, without necessarily a bias based on smaller versus larger IPOs.”
Capital outflows
Last year, the 10 biggest listings of Chinese firms in Hong Kong saw cornerstone investors - nearly all mainland entities - buying 50 per cent to as much as 78 per cent of shares on offer, Reuters calculations showed. Some IPOs last year were subject to the new cornerstone rule which was informally implemented from the US$7.4 billion September listing of Postal Savings Bank of China Co Ltd, two other people familiar with the matter also said on condition of anonymity. The bank did not respond to a request for comment. SAFE started to enforce the rule more broadly at the beginning of this year, they said. Cornerstone investors bought about a third of shares in Chinese companies listing in Hong Kong in January, from 43 per cent in December, showed a Thomson Reuters calculation based on public data. The government has been trying to reduce the amount of money flowing out of the world’s second-largest economy to support a yuan that last year fell 6.5 per cent against the U.S. dollar. But it is likely to continue supporting Hong Kong IPOs of mainland firms and the participation of cornerstone investors, said Tiecheng Yang, partner at law firm Clifford Chance. “The special arrangement will be quite useful to open up a new channel for Chinese cornerstone investors to invest in overseas securities, especially under the current climate of tightened foreign exchange outflow control in general.” Reuters
Public spending
Taiwan unveils stimulus amid global uncertainty The stimulus package is subject to legislative approval Faith Hung and Jeanny Kao
Taiwan announced a T$882.4 billion (US$29 billion) stimulus package yesterday to boost its export-driven economy in the face of uncertainty from its two largest trading partners, the United States and China.
Key Points Stimulus to boost domestic demand amid heavy reliance on exports Gov’t says will contribute nearly T$1 trln to GDP over 8 years Taiwan faces challenges from U.S., China - cbank chief Taiwan’s trade-reliant economy is showing signs of recovery, but it is highly vulnerable to protectionist policies from U.S. President
Donald Trump and increasing competition from Chinese manufacturers, as well as political tensions with Beijing. In a bid to make the economy more balanced, Taiwan’s government is looking for domestic growth drivers that dovetail with President Tsai Ing-wen’s push to roll out green energy, improved utilities, better transport and telecommunications networks, and innovative technology. The stimulus plan, which had been well flagged, is expected to focus on infrastructure, but spending will be spread over eight years. Premier Lin Chuan told reporters the plan could add nearly T$1 trillion to the island’s gross domestic product (GDP), while conceding that growth will remain largely export driven. “But I must admit that when economic growth is not solid, it’s still necessary to take this action to bolster the economy. It’s better to do
this sooner rather than later,” the premier added. Taiwan’s GDP is about T$16 trillion. “We are happy to see the government is planning to implement this package. However, its contribution to Taiwan’s GDP would be limited,” said Hsu Kou-an, an analyst of Capital Securities in Taipei. “So it comes down to a question of whether the
government will actually persist in implementing the package through the entire eight years, and how much growth it can really generate,” Hsu said. Taiwan last month raised its 2017 economic growth target to a three-year high of 1.92 percent. Taiwan’s export orders grew at their fastest pace in six-and-a-half years in February on strong global
demand for electronics that’s bolstering makers of memory chips, flat panels and smartphones. “It would be appropriate to expand consumption at home,” central bank Governor Perng Fai-nan said in a statement earlier in the day, saying that would provide some cushion from external risks. “China has been upgrading its supply chains. President Trump is also asking for manufacturers to go back to the U.S.,” the governor said. Reuters
Business Daily Friday, March 24 2017 11
Asia Infrastructure bank
AIIB adds more members in status boost As new members join, existing ones will see a small downward adjustment to their voting powers The standing of the China-led Asian Infrastructure Investment Bank is set to receive another boost after 13 further applicants were granted membership. The accessions will bring the total roster of member countries to 70, and leave Japan and the U.S. as the only Group of Seven states without a stake in the lender. Memberships for Afghanistan, Armenia, Belgium, Canada, Ethiopia, Fiji, Hong Kong, Hungary, Ireland, Peru, Sudan, Timor Leste and Venezuela would be completed once they finish domestic processes and deposit the first payment of capital, the AIIB said in a statement yesterday. At a time when the Trump administration is signalling it will cut
foreign aid and more broadly disengage from multilateral organizations, additions to the ranks of the AIIB signal China’s increased role on the global stage. Shrugging off U.S. qualms about the lender, the U.K., Germany, France, Italy and other American allies such as Australia and South Korea already signed up last year. “I am very proud that AIIB now has members from almost every continent, and we anticipate further applications being considered by our board of governors later this year,” Jin Liqun, the bank’s president, said in a press release. About a dozen more nations are waiting for membership approval, bank spokesperson Laurel Ostfield
said at a media briefing in Beijing. The door is still open to the U.S. and Japan, but the bank hasn’t yet received any requests from the two countries, she said. As new members join, existing ones will see a small downward adjustment to their voting powers, according to Ostfield. China currently holds about 27.8 percent of votes in the bank, the AIIB’s website shows. The bank has begun lending activities, backing nine projects in seven countries in 2016 with a total lending of US$1.73 billion. Inaugural ventures ranged from a slum upgrade in Indonesia to a new pipeline linking gas fields in Azerbaijan to markets in Southern Europe, via Turkey. This year’s annual meeting will be held in Jeju Island, South Korea, from June 14 to 16, said Ostfield. Bloomberg News
In Brief Lender
CDB makes billionaire transport financing pledge China Development Bank (CDB) said yesterday it has agreed to provide China’s transport ministry with at least RMB2 trillion (US$290.38 billion) of financing support to aid the building of roads, bridges and tourism infrastructure through to 2020. The CDB signed a cooperation agreement with China’s Ministry of Transport for the investment, which will also support the building of transport infrastructure overseas, according to a statement on the bank’s website. The CDB pledge indicates that a government infrastructure spending spree that started last year is likely to continue. Stock index
MSCI seeks feedback on potential Mainland inclusion Global index provider MSCI Inc is seeking feedback from market participants on whether to add Chinese shares to a widely tracked index, a move which could trigger billions of dollars in capital inflows into mainland stocks and ease pressure on its yuan currency. MSCI did not add Chinese shares to its Emerging Markets Index, for a third year running in 2016, citing concerns over share suspension rules and monthly limits on repatriating capital. The emerging index is tracked by US$1.6 trillion in global assets. Environment
Property giants launch green index Attitudes in China are shifting as people become increasingly aware and concerned about toxic air, water, soil and food Sue-Lin Wong
China’s largest real estate developers launched a green index on Wednesday to manage their cement, steel and iron suppliers as the world’s second-largest economy steps up its fight against climate change. China’s real estate and construction sector accounts for 8 per cent of the world’s carbon emissions, according to some studies, and is therefore a major contributor to the country’s hazardous smog.
‘The index launch comes as China tries to cut excess capacity in heavy industries’ The Real Estate Green Supply Chain Initiative was launched by some of China’s largest property developers including Vanke and Landsea and business associations including the Society of Entrepreneurs and Ecology (SEE). Seventy-one real estate companies with sales revenue of RMB1.3 trillion (US$188.78 billion) - accounting for 15 per cent of sales revenue of the entire sector - have signed up, involving more than 2000 upstream suppliers. This is the first time an industry in China has worked together to improve supply chain environmental management, according to the
Institute for Public and Environmental Affairs (IPE), a non-government organisation campaigning for greater transparency. The United Nations Environment Program has called the undertaking a “global first”. Multinational corporations operating in China have tended to focus on green supply chains because of pressure exerted by global consumers, unlike China’s real estate developers who exclusively target Chinese clients. But attitudes in China are shifting as people become increasingly aware and concerned about toxic air, water, soil and food - even as the Trump administration in Washington is moving the United States away from environmental concerns. “We talk about the supply chain, we talk about global brands. Where are the Chinese brands? We continue
Food safety
to get this question from global brands. Today, we can say - Chinese brands have arrived,” Ma Jun, the director of IPE, said at the initiative’s launch. “To even figure out where the concrete and steel comes from is an enormous feat,” Ma said, adding that many international auto companies operating in China had given up trying to track their steel supply chains, claiming it was too difficult. The index launch comes as China tries to cut excess capacity in heavy industries. “We wouldn’t have been able to do this if China wasn’t tackling overcapacity in its steel and iron industries. So the timing is right,” said Qian Xiaohua, head of SEE and director of Sunac, one of China’s largest property developers. But challenges abound, he conceded, noting China’s real estate industry has grown rapidly amid a booming economy, lax oversight and a fast-changing market. The joke is that “if we succeed, we deserve to win the Nobel Peace Prize,” Qian said. “But it’s going to be extremely tough to really make this work.” Reuters
Beijing urges harsh punishments over Brazil meat scandal China urged Brazil to hand out harsh punishments to those involved in a tainted meat scandal yesterday, and offered no timeframe for lifting a ban on imports from the South American country. In its first official comment, China’s Commerce Ministry confirmed it had suspended all shipments from Brazil, the world’s top beef exporter, and said it was extremely concerned with quality issues in the country’s meat industry. Some of China’s largest food suppliers have pulled Brazilian beef and poultry from their shelves, while countries including Japan and Canada have also banned imports from Brazil. IP
Chery files trademark complaint against Mercedes Chinese automaker Chery Automobile Co Ltd has filed a complaint with the country’s trademark regulator over Mercedes-Benz’s use of the “EQ” name for a line of green-energy vehicles, throwing up a potential road block for the Daimler AG unit in the world’s largest electric car market. A Chery spokeswoman told Reuters yesterday that the automaker had filed a complaint with the Trademark Office of the State Administration for Industry and Commerce, which it hopes will bar Mercedes from using the name in China. She said Chery has used the name “eQ” for its two-door battery electric car for two years.
12 Business Daily Friday, March 24 2017
Asia Liquidity
Indian finmin calls banks to discuss new facility to drain cash By offering a rate below the repo rate, the regulator could also be trying to encourage banks to lower their lending rates Suvashree Choudhury and Devidutta Tripathy
I
ndia’s finance ministry has called bankers into a meeting on Friday to discuss setting up a new facility to absorb surplus cash in the banking system, according to a letter sent to heads of lenders seen by Reuters yesterday. The finance ministry wants to discuss implementing a new framework called a “standing deposit facility”,
the letter said, that would drain surplus cash at a rate lower than the repo rate without the need for any collateral. The cash would be deposited with the Reserve Bank of India, and revives a proposal issued by the central bank in 2014 as another way to drain funds. If implemented, the plan would resolve a major headache facing Indian regulators: how to reduce a surge in cash deposits since Prime Minister
Narendra Modi banned higher-value notes in November. Those cash deposits have resulted in liquidity rising to around 4 trillion rupees (US$61.13 billion) in March from 2 trillion in January. That amount of cash had raised concerns about inflation at a time when the RBI is seeking to prevent rising prices by changing its policy stance to “neutral” from “accommodative.” Bonds fell sharply after Reuters reported the plan, with the benchmark 10-year government bond yield up five basis points at 6.83 per cent, as it could tighten cash conditions in markets. The Finance Ministry said it was calling the meeting with bankers to
address “the absorption of surplus liquidity from the system, but without the need for providing collateral in exchange,” according to the letter. A Finance Ministry spokesman declined to comment. By offering a rate below the repo rate, the regulator could also be looking to encourage banks to lower their lending rates, which in India track short-term money market rates. In a potential boost to an economy struggling to revive private investments, banks have cut their lending rates by around 80 basis points since Modi’s shock move resulted in the surge in deposits, Banks would need to incorporate the rate offered by the RBI into calculating its lending rate under India’s complex rules, though lenders typically have leeway in how they arrive at a final borrowing cost. At the moment, the RBI removes funds through various facilities, including mandating banks to park excess certain types of cash and deposits with the central bank as well as through repos and reverse repos based on market rates. But using a “standing deposit facility” would differ by not requiring collateral and by determining a set rate. “If the RBI drains cash at a lower rate than the repo rate then effectively all (short-term market) rates will converge to that rate, and therefore, help banks to lower their lending rates as well,” said a senior bank treasury official. Reuters
Political scandal
Abe’s wife accused of giving cash-filled envelope The allegations have dented Abe’s popularity and may prompt him to delay calling an election due by the end of next year Isabel Reynolds and Takashi Hirokawa
The head of a Japanese educational foundation at the centre of a real estate scandal told parliament he received a donation from Prime Minister Shinzo Abe via his wife, prompting a fresh denial from the top government spokesman. Speaking under oath in the Diet for the first time yesterday, school principal Yasunori Kagoike said that Akie Abe personally handed him an envelope containing 1 million yen (US$9,000) in cash during her September 2015 visit to a kindergarten operated by the nationalist group. “She told me it was from Shinzo Abe,” Kagoike said. Afterward, Chief Cabinet Secretary Yoshihide Suga reiterated previous denials. “The prime minister did not make a donation himself,” he told reporters. “He did not donate through his wife Akie, nor through his office or a third party,” he said, adding that it was his understanding that Abe’s wife didn’t made a donation in a personal capacity either. The allegations have dented Abe’s popularity and may prompt him to delay calling an election due by the end of next year. Questions over how the foundation, known as Moritomo Gakuen, was able to purchase publicly owned land in Osaka for a fraction
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of its market value have dominated parliamentary discussions for weeks.
‘Bit surprised’
Kagoike said he had called Akie the month after her visit to seek help with buying land to build a new elementary school, but received a faxed refusal from her staff. He said he was “a bit surprised” later to find the foundation had been able to buy the tract for 134 million yen, which he said was a discount of about 800 million yen. When asked whether there was political involvement in the deal, he told lawmakers that he thought there was. Kagoike first made the allegations of the donation in a meeting with opposition lawmakers last week. Government spokesman Suga said at the time that he had “absolutely no idea” what Kagoike based his remarks on, and Abe’s denials prompted lawmakers to summon the school head to clarify the matter under sworn testimony. The prime minister has also said he’d step down if any link emerges between himself and the real estate transaction.
had been set to act as its honorary principal, but dropped the plan as the scandal came to light. A poll conducted by the Yomiuri newspaper on March 18-19 found that support for Abe’s cabinet had fallen to 56 per cent from 66 per cent the previous month, as news emerged of links between Moritomo and Defense Minister Tomomi Inada. Inada said this month that she acted for the foundation in a law case years ago, after retracting earlier remarks denying she represented the group. Inada also said Kagoike attended one of her political fundraising parties. Abe has already denied in parliament making a donation directly or through his wife.
The Tsukamoto kindergarten is known for making children bow to portraits of the emperor and recite a 19th century imperial decree on education -- practices dropped elsewhere after Japan’s World War II defeat. Last month, the kindergarten apologized for using expressions that “could cause misunderstanding among foreigners.” Kyodo news agency reported that the principal had been questioned over alleged slurs against Koreans and Chinese. Lawmakers summoned Kagoike to parliament under his real name, which is Yasuhiro Kagoike. The school operator told lawmakers he had been a “big fan” of Abe, but had decided to make his case public after the prime minister referred to him in parliament as “extremely pushy.” Bloomberg News
Used name
Kagoike told lawmakers he had at one point used Shinzo Abe’s name while fundraising for the school, without gaining his permission. Akie Abe Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Kam Leong; Nelson Moura; Annie Lao; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Friday, March 24 2017 13
Asia In Brief Consumption
Japan upgrades outlook for consumer spending Japan’s government raised its assessment of consumer spending in March, the first upgrade in three months, as rising wages and improving sentiment led to a pick-up in consumption. The government left unchanged its overall assessment that the economy is recovering gradually though pockets of weakness remain. Only last month, the government downgraded its consumer spending assessment, so a positive shift in assessment could offer hope that shoppers will continue to spend and boost economic growth. “On the whole, consumer spending is continuing to recover,” the Cabinet Office said. Monetary policy
Monetary policy
Philippines holds benchmark rate Policy makers lowered inflation forecasts, predicting 3.4 per cent for 2017 and 3 per cent for 2018 Siegfrid Alegado and Ditas Lopez
The Philippine central bank (headquarters pictured) left its benchmark interest rate at a record low, while cutting inflation forecasts as oil prices retreated. Bangko Sentral ng Pilipinas kept the overnight reverse repurchase rate at 3 per cent, it said in Manila yesterday, as predicted by 19 of 21
economists surveyed by Bloomberg. This is the first time in two years that economists weren’t unanimous in their forecasts, with two calling for an increase. Oil dipped below US$50 a barrel this month for the first time in 2017, helping ease price pressure in the Philippines which imports almost all its requirements. That’s giving Bangko Sentral some reprieve, allowing it
to preserve its firepower, with most economists predicting at least one rate increase by the third quarter. “Growth is robust, domestic demand is strong and the economy is reaching its full capacity,” said Michael Wan, an economist at Credit Suisse Group AG in Singapore. “It’s prudent for them to tighten policy in the next few months to contain risks.” Policy makers lowered inflation forecasts, predicting 3.4 per cent for 2017 and 3 per cent for 2018. The central bank targets inflation to average 2 per cent to 4 per cent this year and next. Consumer prices rose 3.3 per cent in February from a year earlier, the fastest pace since November 2014. Policy makers in Asia are also contending with the risks of capital outflows and weaker currencies as the U.S. tightens monetary policy. The peso has dropped 1.2 per cent against the dollar this year, the worst performing Asian currency tracked by Bloomberg.
“Growth is robust, domestic demand is strong and the economy is reaching its full capacity” Michael Wan, an economist at Credit Suisse Group AG in Singapore
“In terms of economic fundamentals, there is no reason why the peso should be as weak as it is now,” Deputy Governor Diwa Guinigundo said at a briefing in Manila after the decision. Bangko Sentral participates in the foreign-exchange market whenever it needs to curb extreme volatility even as the currency remains market-determined, he said.
Reserve requirement
While a cut in the banks’ reserve requirement ratio is a “live issue,” it’s something that policy makers are looking at “very carefully” given existing inflation pressures, he said. “Price pressure is mounting not just because of higher commodity prices but also because of strong domestic demand,” Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore, said before the decision. “We don’t see the need to commence tightening immediately. It may be optimal to do it in the third quarter.” Bloomberg News
Malaysia c.bank sees growth above 2016 pace Malaysia’s central bank yesterday projected that the economy will grow 4.3-4.8 per cent this year, more than the 4.2 per cent reported for 2016. The target, if achieved, would reverse two years of slowing growth and provides a boost for Prime Minister Najib Razak, who might call elections as early as the second half of this year. “With the gradual improvement in global growth, recovery in global commodity prices and the continued growth of domestic demand are expected to collectively support Malaysia’s growth performance,” Bank Negara Malaysia (BNM) said in its annual report. Industry
S.Korea’s Daewoo Shipbuilding to get bailout South Korean state banks are preparing a fresh US$2.6 billion bailout for floundering Daewoo Shipbuilding & Marine Engineering Co Ltd, which has built up huge losses from offshore projects and risks missing debt repayments. Without the infusion of funds, Daewoo is not expected to be able to redeem 940 billion won (US$840.49 million) in corporate bonds maturing this year - starting with 440 billion won due in April, the country’s financial regulator, the Financial Services Commission (FSC), said yesterday. Bondholders and other creditors, however, will have to agree to painful debt-for-equity swaps for the 2.9 trillion won bailout to go through. Bonds
Japan unveils measures to alleviate JGB shortage The Bank of Japan announced yesterday it would take extra measures to alleviate a likely shortage of Japanese Government Bonds among brokers during the period covering the end of the Japanese fiscal year at the end of this month. As a result of the BOJ’s aggressive bond buying, some JGB issues have become scarce in the market, making it hard for brokers to borrow them in the repo market. The conditions were likely to only get worse towards the end of this month as investors become more reluctant to trade.
14 Business Daily Friday, March 24 2017
International In Brief Regulations
EU considering lower requirements for fintech services The European Commission is considering lowering regulatory requirements for emerging financial technology services in a bid to spur innovation and cut costs, the EU executive’s vice president suggested yesterday. “Fintech” firms use modern technology to compete with traditional financial services providers, offering banking products such as payments or deposits more cheaply online. Lower legal or capital requirements would reduce costs for fintech companies, but are likely to increase pressure on banks that are already squeezed in Europe by low interest rates and stiff competition.
ECB
Euro zone survey data point to robust first quarter Global trade, a key contributor to growth, also seems to be picking up momentum
E
conomic recovery in the euro zone is gaining ground and some data point to robust momentum in the first quarter despite uncertainty over Brexit, China’s rebalancing and new U.S. policies clouding the outlook, the European Central Bank said yesterday. “Incoming data, notably survey results, have increased the Governing Council’s confidence that the on-going economic expansion will continue to firm and broaden,” the ECB said in its regular economic bulletin. “Surveys point to a robust
growth momentum in the first quarter of 2017.” Global trade, a key contributor to growth, also seems to be picking up momentum and despite increasingly protectionist rhetoric from Washington world trade is expected to expand broadly in line with global activity, the ECB added. The United States has recently backed away from a pledge for free and open trade, calling for a review of some trade agreements and proposing in import duty tax, arguing for “fair” trade. Indeed, the ECB said that uncertainty
Meat scandal
Brazil’s gov’t says meat industry may lose 10 pct share A police investigation into alleged unsanitary and corrupt practices has badly damaged the reputation of Brazil’s meatpacking industry and could wipe more than 10 per cent off its global market share, Agriculture Minister Blairo Maggi said on Wednesday. Maggi, a former state governor and a billionaire soy farmer, told a Senate Committee that his main concern was that China and Hong Kong have not yet taken a definitive stance on their bans of meat from Brazil, the world’s biggest producer of beef and poultry.
remains elevated, particularly due to the lack of clarity regarding the new U.S. administration’s “America First” policies and their impact on the rest of the world. But even as growth picks up, the ECB warned that the rise in inflation will be more subdued with oil futures implying a stable crude prices and suggesting only a “very limited” impact from energy prices on inflation.
‘The ECB remains concerned that the recent spike in price growth is only due to rising oil prices and thus temporary’ Having fought ultra low inflation for years, the ECB remains concerned that the recent spike in price growth is only due to rising oil prices and thus temporary, requiring continued stimulus. The bank noted that wage growth, a key condition for a rise in inflation, remains low by historic standards, suggesting ample slack in the economy and weak productivity growth. “In contrast to energy inflation, the expected pick-up in (headline) inflation excluding energy and food is likely to be much more gradual,” the ECB said. “There are only weak signs of upward pipeline price pressures.” Reuters
Online gaming Taxis
Canada seeks to end Uber’s tax advantage The new national budget unveiled Wednesday by Canadian Prime Minister Justin Trudeau’s Liberal government took aim at ride-sharing providers such as Uber Technologies Inc, looking to end a tax advantage they have over traditional taxi companies. The budget statement said Trudeau’s government plans to amend Canada’s Excise Tax Act to redefine ride-sharing firms as taxi companies. That would force them to collect the goods and services tax (GST) on every ride provided, just as taxi operators are required to do. Frontier tender
Britain awards 25 oil exploration licences Britain has awarded 25 licences for oil and gas exploration in previously untapped waters and announced a new licensing round for mature areas to be held in late May or June, the Oil and Gas Authority (OGA) said yesterday. Seventeen companies received exploration licences in a tender that closed in October. The tender attracted the lowest interest in 14 years as appetite for finding new oil in the North Sea has waned amid high costs and weak oil prices. In a bid to boost interest the OGA had cut rental fees by up to 90 per cent.
More industry deals on the cards as GVC eyes takeovers Both Bwin.party’s sports-betting business and its Party Poker unit have returned to growth after years of decline Paul Jarvis
A wave of online gaming takeovers is set to continue this year as companies are driven to deals by increased regulation and taxation, according to the head of one of the industry’s leading consolidators. “I wouldn’t rule out that we will participate in the next 12 months, and I certainly think there will be other deals by other people,” GVC Holdings Plc Chief Executive Officer Kenny Alexander said in an interview yesterday as he announced increased profits and dividends. GVC has been at the forefront of industry consolidation, buying Sportingbet Ltd. in 2013 and Bwin. party Digital Entertainment Plc last year, deals that have transformed the company into a European market leader. The pace of mergers & acquisitions has been accelerating, with about US$14 billion splurged on betting-company takeovers in 2016, according to data compiled by Bloomberg. That’s more than in the previous four years combined. “We’re always looking at M&A opportunities, and if the right opportunity comes along, then we will do it,” Alexander said. “We’ve got plenty of firepower.” The need for scale is being driven by increased regulation and taxation, the CEO said. The U.K. government
will start levying a consumption tax on online gaming products later this year, while Britain’s competition authority is reviewing industry advertising.
“We’re always looking at M&A opportunities, and if the right opportunity comes along, then we will do it” Kenny Alexander, GVC Holdings Plc Chief Executive Officer
Shares gain
GVC shares rose as much as 2.8 per cent in London after the company reported a stronger-than-expected increase in 2016 earnings and said it’s made a good start to 2017. It also announced a special dividend of 15.1 cents a share, taking the total for 2016 to 30 cents. Earnings before interest, tax, depreciation and amortization rose 26 per cent on a pro forma basis to 205.7
million euros (US$222 million) as the company removed costs following the takeover of Bwin.party. Alexander said GVC is on track to deliver 125 million euros of annual savings from the acquisition by the end of 2017 as it eliminates duplication in areas such as technology, customer service and marketing. Bringing together the sports trading teams also led to lower costs as some people left the business, he said.
Pricing errors
Both Bwin.party’s sports-betting business and its Party Poker unit have returned to growth after years of decline and the improvement is accelerating, the CEO said. Party Poker, where revenue declined about 60 per cent in the five years through 2015, is now showing double-digit growth, he said. On the sports side of the business -- mainly soccer, tennis and basketball -- the company has improved the win margin by about 2 per centage points since the acquisition. That’s been done by restricting bettors who were winning too much, and by tweaking odds-setting algorithms. “There were a lot of customers winning that shouldn’t have been winning,” he said. “Customers we consider to be sharp, who are doing it for a living and were winning off us, they are no longer allowed to bet with us, or not allowed the same sort of stakes.” The improved performance was illustrated by results for the opening months of this year that showed a 15 per cent increase in net gaming revenue. That was despite some big wins for customers on Champions League soccer games in late February and early March. Bloomberg News
Business Daily Friday, March 24 2017 15
Opinion Superman Li discovers boring comes with some headwinds Nisha Gopalan a Bloomberg Gadfly columnist
B
eing boring has put billionaire Li Ka-shing in a higher-risk position. Li, who earned the moniker Superman for his canny investing, has spent years building an empire that’s almost like a trust. CK Hutchison Holdings Ltd. and Cheung Kong Property Holdings Ltd., which reported full-year results Wednesday, get most of their earnings from staid but stable assets such as infrastructure, telecoms and utilities. But being dull is coming at a cost. While shares of both rallied yesterday, they’ve underperformed the broader market over the past 12 months. In his hunt for steady cash flows, Li is quite often locking horns with regulators, especially in Australia, where his bid to buy Duet Group is still pending approval from the Foreign Investment Review Board. And the political climate there doesn’t look great, considering the government in August blocked Cheung Kong Infrastructure Holdings Ltd. and State Grid Corp. of China from buying a majority stake in state-owned power network Ausgrid. In Europe, meanwhile, authorities in May stymied Li’s plans to buy U.K. carrier O2, while his Three business lags in its share of U.K. mobile subscriptions. Last June’s Brexit vote has also made Li vulnerable to a weaker pound. CK Hutchison, whose 2016 full-year net income came in at HK$33 billion (US$4.3 billion), slightly beating estimates, said the impact of Brexit negotiations, as well as new U.S. presidential policies plus upcoming elections across Europe, “remain unknown and could affect the economic environment of countries in which the group operates.” Thanks to a merger with one of its rivals, CK Hutchison’s telecoms business in Italy has been performing very well, but further upheaval could lead to a slowdown in European demand that would particularly hurt ports and retail. per cent All the while, other CK Hutchison shares, YTD opportunities aren’t being exploited as much as they might be. Those include real estate in Hong Kong -- since November, CK Property has been consistently outbid by China’s HNA Group Co. on land plots in Kowloon -- and a potential retail IPO in the city. Investors may take some small comfort in Li’s attitude toward dividends. Although CK Hutchison’s average pay-out ratio trails those of many other Hong Konglisted conglomerates, its final dividend per share of HK$1.95 was increased from HK$1.85 a year earlier, while CK Property agreed to raise the pay-out to HK$1.15 a share versus HK$1.05 12 months ago. Li also said there was a high chance the group could raise dividends in the future. More excitement, however, may be found elsewhere. Real estate in Hong Kong is hot and developers have benefited from a resurgent property market that has defied government cooling measures. Li said on Wednesday that Hong Kong housing prices have little chance to fall, although CK Property will have to work hard to ensure it snares a decent share of what is a shrinking land bank in one of the world’s least affordable cities. CK Property’s underlying profit, which excludes gains from real-estate revaluations and deferred taxes, increased to HK$18 billion, versus the average analyst estimate of HK$18.2 billion. Investors could also reap a nice cash pay-out if CK Hutchison were to spin off its retail business. A.S. Watson & Co. is that company’s biggest source of revenue, though not profit. A 25 percent stake was sold to Temasek Holdings Pte in 2014 and a plan to list the supermarkets-to-drugstores business since aborted. It’s true that retail has been tough in Hong Kong, and Li said the business got worse over the course of the year. But it makes up the largest single component of CK Hutchison’s revenue, and the health and beauty segment in particular is showing encouraging rates of growth. CK Hutchison said its retail division plans net openings of more than 1,000 stores in 2017, with 65 percent of those in health and beauty in mainland China and Asia. Li dismissed suggestions of any Watson spinoff on Wednesday but it might be time to consider reviving those sale blueprints. At any rate, it would divert some attention away from his other adventures in telecoms and utilities. Bloomberg Gadfly
+10.5
Steven Mnuchin is seen on a TV camera’s screen as he speaks during a Press Conference during the G20 Finance Ministers and Bank Governors meeting in Baden Baden, Germany, last week. Lusa
Mnuchin’s mission
U
S Treasury Secretary Steven Mnuchin is hemmed in on all sides. Domestically, he’s trapped between the promises he has made (such as the “Mnuchin rule” that taxes wouldn’t be cut for the rich), the actions of President Donald Trump (whose tax plan includes cuts for the rich), and simple arithmetic (which makes the administration’s conflicting pledges impossible to fulfil). But even on the international stage, where US treasury secretaries typically enjoy more latitude and esteem, Mnuchin is likely to have a hard time. After all, the Trump administration has made it clear that it does not intend to fulfil the global leadership commitments that Mnuchin’s predecessors have overseen. Given Trump’s belief that international negotiations are just a forum for making unilateral demands, how could Mnuchin – who, like his boss, lacks government experience – persuade other countries that adherence to common rules and norms, such as open trade, is in everyone’s interest? Trump’s entire administration is surely expected to adhere to his “America first” approach. As a senior Treasury official recently declared, Mnuchin will be “pushing hard” to ensure that the G20 plays “a helpful role in advancing US interests.” Fortunately, Mnuchin has so far avoided fulfilling one of T ru m p’s i rrati ona l promises: to label China a currency manipulator on his first day in office. The next opportunity to take that step comes in April, when the biannual Treasury report to Congress is due. Mnuchin should let it pass. Mnuchin has requested from the International Monetary Fund a “frank and candid analysis” of member countries’ exchange-rate policies, to determine whether China is deliberately keeping its currency undervalued. That’s a good thing; such surveillance is the IMF’s responsibility. But one hopes that Mnuchin recognizes what the answer will be. China no longer qualifies as a currency manipulator under any of the three internationally accepted criteria: exchange rate, trade balance, or foreign-exchange reserves. The renminbi was undervalued in 2004. But it appreciated 37 per cent in the subsequent decade. After China’s trade surplus peaked at 9 per cent of GDP in 2007, it adjusted to the receding price competitiveness: it has been less than half that level each year since 2010. In 2014, as the Chinese economy slowed relative to the US, capital flows reversed, sending China’s overall balance of payments into deficit. Reserves peaked in July of that year, and have been falling ever since. Far from devaluing the renminbi, the People’s Bank of China has spent US$1 trillion of its reserves over the last three years trying to support it (by far the largest such intervention in history). The Chinese authorities have reinforced this effort by tightening controls on capital outflows. Thanks to these measures, the renminbi remains one of the world’s more appreciated currencies. None of this information is new. It is true that it took a while for most American commentators and politicians to notice the sea change in China’s foreign-exchange market. But, three years after
“
Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University
it began, most observers have figured it out. Now someone needs to explain it to Trump. Mnuchin should be the one to do it – ideally, before Trump’s April 6-7 meeting with Chinese President Xi Jinping. Trump has already lost face with China, by challenging, with his trademark bluster, the “One China” policy, only to reverse course meekly in a February 9 phone call with Xi. The US will not benefit from another awkward climb-down by its leader. But China is not the only supposed currency manipulator on the Trump administration’s radar. Peter Navarro, director of Trump’s new National Trade Council, has accused Germany of exploiting its trading partners, with an “implicit Deutsche Mark” that is “grossly undervalued.” It is a uniquely foolish charge. True, Germany’s trade surplus is 8 per cent of GDP, and its current-account surplus is close to 9 per cent of GDP, which is excessive. But Germany has not had its own currency since 1999. Any intervention in currency markets would be carried out by the European Central Bank, not the Bundesbank. And, as it happens, the ECB has not intervened in the foreign-exchange market for many years. (When it did, it worked to support, not devalue, the euro.) Of course, a central bank can take steps to devalue its currency indirectly, by expanding the money supply. But central banks have every right to use monetary policy to respond to domestic economic conditions, and it may well require a mind reader to know whether monetary stimulus is aimed specifically at currency devaluation. Moreover, successful monetary stimulus would raise income through domestic channels, thereby boosting imports, so the net effect on the trade balance could go either way. Given all of this, the ECB was entirely justified in responding (belatedly) to the 2008-2009 global recession by lowering interest rates and undertaking quantitative easing, regardless of those efforts’ contribution to a depreciation of the euro. And, in this case, no mind-reading is needed to determine intentions: Germany opposed the ECB’s monetary stimulus. If Trump is wondering why so many currencies are weakening against the dollar, perhaps he should look at his own actions over the last five months. He has threatened to impose tariffs against Mexico, China, and other trading partners. He has talked of a border adjustment tax. And he has promised tax cuts that would imply a rapid accumulation of national debt, forcing up interest rates and thus the dollar’s value. “Alternative facts” apparently served Trump well during his campaign. But, at the G7’s meeting in Sicily in May and at the G20’s meeting in Hamburg in July, they will only get him – and the US – into trouble. Mnuchin’s unenviable task is to acquaint Trump with reality. Project Syndicate
Fortunately, Mnuchin has so far avoided fulfilling one of Trump’s irrational promises: to label China a currency manipulator on his first day in office
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16 Business Daily Friday, March 24 2017
Closing Results
China Mobile’s net profits up
China Mobile, China’s leading telecom services provider, announced yesterday that its profit attributable to equity shareholders rose 0.2 per cent to RMB108.7 billion (US$15.8 billion) last year. The company’s operating revenue also registered a yearly increase of 6 per cent, reaching RMB708.4 billion in 2016. The growth was mainly backed by revenue from wireless data traffic, which jumped 43.5 per cent from the previous year. This is also the first time in the company’s history wireless data
traffic has become the biggest revenue source, surpassing the combined revenue of voice, SMS and MMS, according to the company. The company’s mobile customers increased by more than 22 million to a total of 849 million in 2016. Meanwhile, the company had a net addition of 223 million 4G customers last year, bringing its total number of 4G customers to 535 million. With 0.4 million new 4G base stations set up in 2016, China Mobile now has the world’s largest 4G network, serving a population of more than 1.3 billion. Xinhua
Official visit
Premier Li says Australia shouldn’t pick between U.S. and China He said it was in China’s interests to promote peace and stability in the Asia-Pacific region to boost its economic growth prospects Jason Scott
A
ustralia doesn’t need to take sides between its biggest trading partner China, and its main ally the U.S., Chinese Premier Li Keqiang told lawmakers and business leaders in Canberra. “We respect your choices in your foreign policy,” Li said yesterday during his first speech in a five-day visit to Australia. “We don’t want to see taking sides as happened during the Cold War.”
responsible for 31 per cent of its merchandise exports in the 12 months to July last year. In the most senior visit by a Chinese official since President Xi Jinping in 2014, Li said it was in China’s interests to promote peace and stability in the Asia-Pacific region to boost its economic growth prospects. Australia has urged China to follow the rule of law and observe international protocols as unease mounts over its militarization of disputed rocks and
reefs in the South China Sea. “Even when China grows in the future, we will never seek dominance,” Li said. “We all are law-abiding people and we respect the rule of law.”
Next stage
The nations want to boost economic ties in the wake of a free-trade agreement that came into operation in December 2015. Li said the best way to reduce China’s trade deficit with Australia -- which his government had calculated at US$50 billion last year -- was to increase those ties, warning against the perils of global protectionism. “We don’t want to see that trade imbalance,” Li said, adding China will
seek to lower tariffs with Australia. “We believe that to resolve the trade imbalance we need to expand trade -- that is the solution. We cannot close our doors.” In a speech welcoming Li to Australia, Prime Minister Malcolm Turnbull said the “next stage” of Australia’s economic relationship with China would be announced during Li’s visit. “We intend to open up new opportunities in services and investment, and there is vast scope for us to work together on science and innovation, with a solid foundation on which to build,” Turnbull said, without providing details. He’s due to hold a press conference with Li after further talks today. Bloomberg News
“We don’t want to see taking sides as happened during the Cold War” Li Keqiang, Chinese Premier Li’s comments come a week after Foreign Minister Julie Bishop said democracy was crucial for nations to reach their economic potential, and called on China to be a responsible global player. That earned her a rebuke from the Communist Party-run Global Times. Australia, which has fought alongside the U.S. in every major conflict since World War I, has been careful not to offend China, which was
Environment
Chinese Premier Li Keqiang (L) and Australian Prime Minister Malcolm Turnbull (R) inspect the guard of honour during a welcoming ceremony outside the Parliament House in Canberra yesterday. Lusa
M&A
Results
Smog-hit Beijing plans “green American Airlines purportedly CNOOC reports worst result since necklace” to block pollution in talks to buy China Southern stake at least 2011, forecasts output rise Beijing and the surrounding province of Hebei will plant trees, establish green belts and make use of rivers and wetlands to create a “green necklace” to protect China’s smog-hit capital from pollution, the Hebei government said yesterday. Beijing’s reputation as a major world city has been tarnished by regular outbreaks of hazardous smog, especially during the winter, and poorly regulated heavy industry in neighbouring Hebei has been identified as one of the major culprits. The Hebei government said in a notice published on its website that it would raise forest coverage, expand ecological space and use the river systems, mountains, wetlands and farms to establish new green belts around Beijing. Policymakers are also trying to tackle the problem of overdevelopment and overpopulation in fast-growing Beijing itself, known as “big city syndrome”, and the new cross-regional plan will aim to restrict urban development on the capital’s borders. The plan, which also set out new unified public service and transportation rules for Beijing and surrounding border areas, is part of the government’s long-term “Jing-Jin-Ji” programme to integrate Beijing, Hebei and the port city of Tianjin. Reuters
American Airlines Group Inc. is in advanced talks over a deal in which the world’s largest carrier would acquire a stake in China Southern Airlines Co., according to people familiar with the matter. The negotiations focus on an investment of about US$200 million by Fort Worth, Texas-based American in China Southern’s Hong Kong-listed shares, said the people, asking not to be identified as talks are confidential. The sale likely would take place through a private placement, one of the people said. China Southern has a market value of about US$10 billion. An investment in China Southern would allow American to strengthen its presence in a market that the International Air Transport Association predicts will surpass the U.S. to become the world’s biggest in terms of passenger numbers by 2024. Delta Air Lines Inc. acquired a minority stake in China Eastern Airlines Corp. in 2015. Under the discussions, American would nominate an observer without voting rights to the Chinese company’s board, the people said. Details of a deal are subject to change and a transaction could still fall through. Bloomberg News
China’s offshore oil and gas producer CNOOC Ltd reported its worst annual result since at least 2011, with revenue from its core oil and gas business tumbling 17 per cent last year, but it expects to raise output 2017 as oil prices rebound. CNOOC reported a net profit of RMB637 million (US$92.5 million) in 2016, down nearly 97 per cent from RMB20.2 billion in profit in 2015. Total revenue from oil and gas fell to RMB121 billion from RMB147 billion in 2015. “CNOOC managed to eke out a tiny profit thanks to cost efficiencies and the oil price rebound during 4Q,” said analyst Gordon Kwan of Nomura Research. The poor showing for last year came as CNOOC slashed upstream investment, reduced production and saw a drop in both crude oil and natural gas prices. The state-owned firm reported a realized oil price of US$41.40 a barrel in 2016, 19 per cent lower than 2015. Natural gas prices fell 14.6 per cent from a year earlier. Total production of oil and gas fell 3.8 per cent year on year to 476.9 million barrels of oil equivalent, the first drop since 2012. Reuters