NagaCorp CEO aims to take full command Gaming Page 7
Wednesday, March 29 2017 Year V Nr. 1264 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kam Leong Chinese services
Change of lifestyle to drive services expansion Page 8
Executives
Xiaomi CEO sees China’s Internet Plus model applicable abroad Page 8
Hotels
Macau Roosevelt postpones opening to next month Page 4
www.macaubusinessdaily.com Culture
E-commerce
Cultural Affairs Bureau requests pause in shipyard demolition Page 2
Sino-Luso chamber hopes to facilitate cross-border trade with Mainland Page 5
Gov’t to enhance tax info exchange Finance
The MSAR government has proposed to expand its current scope on tax information exchange as in accordance with a new standard composed by the Global Forum on Transparency and Exchange of Information for Tax Purposes. That is expected to better combat tax fraud and tax evasion, said the Financial Services Bureau, as the proposal will allow the authorities to conduct automatic and spontaneous exchange with allied jurisdictions. Page 3
MACA expects royalties up
Imperial Pacific books surging profits
Culture The Macau Association of Composers, Authors, and Publishers expects the amount of royalties it collected in 2016 is higher than that in 2015, although the exact figure is not yet available, said its CEO Yan Ung Kuoc Iang. Speaking to Business Daily, the CEO said the association hopes to put local broadcaster TDM and local Karaoke stations on its target list, as these two potential clients, probably biggest in the city, are still not paying their due. Page 2
The gaming investor enjoyed a very notable increase in its casino revenue for the whole year of 2016. The credit goes to its “temporary casino” on the Island of Saipan, which saw revenue from the VIP sector jump over 11 times from 2015, contributing 95 per cent of its total gaming revenue. The strong performance also helped the firm to turn around from its loss for 2015, posting a net profit of nearly HK$1 billion.
HK’s CE-elected: housing first
Gaming Page 7
HK Hang Seng Index March 28, 2017
24,345.87 +152.17 (+0.63%) Worst Performers
Lenovo Group Ltd
+4.10%
Want Want China Holdings
+1.54%
Cheung Kong Property
-0.93%
BOC Hong Kong Holdings
-0.16%
Sands China Ltd
+4.02%
Link REIT
+1.41%
China Merchants Port Hold-
-0.67%
Hang Lung Properties Ltd
+0.00%
Galaxy Entertainment Group
+3.52%
Belle International Holdings
+1.39%
China Unicom Hong Kong
-0.38%
Henderson Land Develop-
+0.00%
Geely Automobile Holdings
+3.32%
China Shenhua Energy Co
+1.20%
China Overseas Land &
-0.22%
AIA Group Ltd
+0.00%
China Mengniu Dairy Co Ltd
+1.72%
China Petroleum & Chemical
Cheung Kong Infrastructure
-0.16%
Wharf Holdings Ltd/The
+1.13%
+1.31%
21° 23° 21° 23° 16° 23° 17° 22° 17° 21° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Politics Carrie Lam, the elected-leader of Hong Kong said she was determined to tackle housing problems in the city. The price of the apartments in neighbouring Hong Kong is one of her biggest social issues. Page 9
2 Business Daily Wednesday, March 29 2017
Macau Music industry
Pump up the amount MACA’s CEO said the amount of royalties collected since the association was founded in 2009 has steadily increased. But some big companies, including TDM and Karaoke stations, are still not paying their due Sheyla Zandonai sheyla.zandonai@macaubusiness.com
T
he Macau Association of Composers, Authors, and Publishers (MACA)’s biggest potential clients should be the local broadcaster and
local Karaoke stations, according to its CEO, Yan Ung Kuoc Iang. However, the association’s head pointed out the problem is that these entities are not paying their royalties yet. Speaking to Business Daily on the sidelines of a press conference of the
association yesterday, Mr. Ung said they are pushing the relevant bodies on various fronts. “Actually, we have been negotiating (since 2011) with TDM, which has 12 TV channels, 2 radio stations, and 2 apps. They never paid royalties,” claimed the CEO. Neway, a Hong Kong-based Karaoke distributor (to Hong Kong, Malaysia, Taiwan) and music production company is also another target on MACA’s list, said Mr. Ung. According to information provided to Business Daily, the association collected US$1 million (MOP8 million) in royalties for the whole year of 2015.
In terms of distribution, around MOP4.3 million (US$537,48) was paid to international members while some other MOP560,000 was distributed to local members. According to the association, 30 per cent of its collected royalties was used to cover administration costs, while 10 per cent was allocated to its Music Funds. Enquired about the amount of collected royalties for the whole year of 2016, MACA’s CEO, however, said the figure is not yet available, only claiming the amount has been steadily increasing every year since 2009, while 2016’s figure is “a little bit of increase” from 2015. “We are doing the audit work with Deloitte, which will be finished before June. We expect to release the results in July [2017],” said Mr. Ung.
Macau’s got talent
The association announced to launch the MACA Song Writers Quest 2017 during yesterday’s press briefing. According to the group’s information, a total of MOP350,000 has been allocated to host the fifth edition of this competition. Mr. Ung explained that the budget is subsidized by different government bodies, of which about MOP24,000 will come from the Municipal and Civic Affairs Bureau (IACM) and around MOP50,000 from the Macao Foundation. “The rest [of the budget] will come from MACA itself, while the venue and the facilities are sponsored by the Sands,” he added. The contest will be held on July 8 at The Sands Theatre.
Culture heritage
Culture bureau requests shipyard demolition to pause The Cultural Affairs Bureau has requested the Land, Public Works and Transport Bureau (DSSOPT) to halt its demolition of the shipyards in Lai Chi Vun Village in Coloane, while it is initiating assessment procedures to determine whether the site should be listed as part of the city’s cultural heritage. Speaking at a press briefing yesterday, the president of the Bureau, Leung Hio Ming, said the initiative of the evaluation is based on a public petition from the society that gathered over 670 signatures. Nevertheless, the official added that the assessment can only be officially kicked off when new members of the city’s Cultural Heritage Committee are appointed next month, expecting the whole procedure will be completed in one year. The public works department has planned with the Marine and Water Bureau to demolish 11 shipyards in Coloane in order to turn the village into a leisure and tourist area.
With two of the shipyards having been demolished at the beginning of these months, the cultural bureau head admitted yesterday that would affect the department’s
Interpellation
Health Bureau hopes to decrease young smokers The Health Bureau is carrying out several policies and measures to prevent the number of people smoking, including imposing a smoking ban in major areas where young populations often visit, said the Bureau’s director, Lei Chin Ion, in his reply to the interpellation of unionist legislator, Ella Lei Cheng I. According to the data provided by the Bureau, the tobacco consumption rate by teenagers aged 13 to 15 recorded a decrease of 3.4 percentage points to 6.1 per cent for 2015, compared to 9.5 per cent registered in 2010.
The health department claimed it has been emphasizing harmfulness of smoking in local education entities in co-operation with the Education and Youth Affairs Bureau. In addition, it has set up a Tobacco Control Resource Centre at the Health Centre in Areia Preta. The Health Bureau also quoted the data gathered by the Statistics and Census Bureau, saying the tobacco consumption rate of population aged 15 to 29 was 10.7 per cent for 2015, which dropped by 1.8 percentage points when compared to the rate in 2011. C.U.
evaluation of the site. However, he believes that the Bureau would be able to rebuild the shipyards if needed in the future, due to its possession of the
drawings for the establishments. The official notes that the halt request of the demolition will not affect DSSOPT’s development plan in Coloane village. K.L.
Business Daily Wednesday, March 29 2017 3
Macau
Tax
Gov’t proposes additions to tax info exchange forms in order to combat tax fraud and tax evasion, the MSAR government has proposed to expand the current scope of tax information exchange in accordance with globally agreed standards Cecilia U cecilia.u@macaubusinessdaily.com
T
he MSAR government has proposed to expand its current scope on tax information exchange with other jurisdictions, enabling two more forms of information exchange, namely, automatic and spontaneous exchange of information from the current exchange per request. Director of Financial Services Bureau (DSF), Stephen Iong Kong Leong, said yesterday at a press briefing that the proposed amendments to the laws
aim to meet the new global standard composed via the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), which hopes to implement the new standard at the latest by the end of 2018. The DSF director expects that the bill will soon be sent to the Legislative Assembly for legislative procedures.
Three forms of exchange
Currently, the local laws only allow the exchange of information on request - as suggested by the term, exchanges only take place when an allied country makes a request and
the request is approved by the MSAR Chief Executive. Information currently allowed for exchange includes tax information from DSF, information of legally specified entities or institutions from the insurance and finance industries, and offshore businesses as well as publicly owned associations. Information will automatically exchange between allied countries on an agreed schedule. The city’s newly proposed bill suggests local financial entities should keep their documents, statements and information for five years, while they should also submit records from a previous year to DSF no later than June 30 every year. According to the bill, the automatic exchange of information will only be applicable for information gathered after July 1 this year and the measure is only relevant to overseas
tax-payers who also own a financial account issued in the MSAR. Meanwhile, spontaneous exchange of information takes place when the local government doubts allied jurisdictions may suffer from tax losses, or the tax deduction or exemption tax-payers enjoy in the MSAR results in tax increases of other regions. The type of information exchange can also be executed when the MSAR authorities notice tax evasion or fraud activities and an approval is obtained from the CE.
Other regulations
The bill will also cover administrative penalty procedures, responsibilities abided by a legal person, principle for personal information protection and confidentiality. DSF is suggested to be the only entity in charge of the management of tax information, and the supervision of financial entities in providing requested information for automatic information exchange. The bill also proposes to scrap the current law that was implemented in 2009 once the new proposal is legislated.
4 Business Daily Wednesday, March 29 2017
Macau Opinion
Ashley Sutherland-Winch*
Advertising on Google? Beware. When watching YouTube, do you ever notice the types of ads that pop up on videos? Often you may see advertising from the Macau casinos that has been placed targeting the local market geographically. If you are watching a make-up tutorial, you may see L’Oreal ads and when watching a funny video, Coke ads may populate. This is how brands expect their ads to be placed on YouTube, matching ads with like content. A few weeks ago in the United Kingdom, however, large brands discovered that their ads were appearing next to offensive content, including videos posted by terrorism-affiliated groups on YouTube. Brands like Johnson & Johnson, PepsiCo, McDonald’s, Verizon Communications Inc., L’Oréal and Coca-Cola discovered that their ads placement was undesirable, and they immediately began pulling their ads from Google, who owns YouTube. Some investment houses are stating that Google could take a 7.5 per cent hit to its revenue due to this loss of advertising. Google ads are automated, meaning they are placed automatically using algorithms. It is unclear if Google changed its algorithm recently or if people are just now noticing the errors. This week, Google said it is “changing the default settings for ads so that they show on content that meets a higher level of brand safety and exchanges potentially objectionable content.” Many brand advertisers also want to be more involved in placing the ads themselves, but it is yet to be seen if Google will allow this new activity. Brand awareness is a key reason to place advertising on Google. The powerhouse search engine has excellent targeting abilities allowing companies to focus ads on their key demographics with ease. In YouTube world, accounts that receive revenue, earn money when consumers click on ads that accompany videos. Unfortunately, when advertising populates on objectionable content, it does mean that the offensive account could be making income from the ads. Google is not able or willing to give information to brands as to where their ads are specifically placed on YouTube videos, but as they scramble to alter their algorithm to appease customers, now is the time to review your Google ad accounts. Macau’s restaurants, hotels and casinos buying Google ads do so with the expectation that their ads are being placed in front of potential customers. Is it possible that their ads are being placed with undesirable videos? While Google is sorting out their issues, it may be a good time to pause or pull and review your April advertising campaigns to ensure that your ads are being placed correctly. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.
Hotels
Macau Roosevelt postpones opening to April
T
he Macau Roosevelt Hotel is only opening its doors next month, latest information on the company’s social web page shows. The company uploaded a new photo on its Facebook Page on Monday afternoon, on which the text reads ‘Opening April 2017’.
In February, the property’s General Manager, Roberto Simone, said in an interview with local Chinese-language newspaper Macao Daily that the opening of the new property is expected to be in the middle of this month. The new hotel, providing a total of 368 rooms with the style originated from the Hollywood Roosevelt, is
located near the Macau Jockey Club in Taipa. The hotel was initially planned to open in 2015. The opening date was later postponed to the first half of 2016 then the first quarter of this year. A company representative, Arron Iu, said in July 2015 that the property will not provide any gaming venue. K.L.
Retail
Crocodile falls into the red for fiscal H1 The men’s wear retailer recorded a net loss for the six months ended January as both garment retail and property investment business dropped Kam Leong kamleong@macaubusinessdaily.com
Clothing retailer Crocodile Garments Ltd posted a net loss of HK$3.2 million (US$400,299) for the first half of its fiscal year ended January 31, compared to a profit of HK$15.5 million one year ago, due to operating loss registered in both -the company’s garment business and property investment letting business. For the six months, the company’s total revenue amounted to HK$135.8 million, a decrease of 19.3 per cent year-on-year from HK$168 million for the same period of last year.
In particular, the company experienced a tumble in its retail of garment and related accessories, from which revenue fell by 24 per cent year-on-year to HK$108.2 million, resulting in a segmental loss of HK$18.8 million. Moreover, its property investment business registered a revaluation loss of HK$149,000, as compared to gains of HK$41.6 million one year ago, despite the segment recording a stable rental income of HK$27.6 million for the six months. The company was operating 20 shops under the brand Crocodile and 6 under the brand of Lacoste
in Hong Kong and Macau at the end of January. Noting its garment operations in the two SARs ‘hobbled under festering business conditions’ in the reporting period, it claimed that it will ‘keep a close watch and launch popular merchandise to fit market needs given the shifting of proportion of inbound tourists from the Mainland to other regions. Apart from the two SARs, the retailer remarked that its business operation in the Mainland was ‘tough’ during the same period as well. ‘The devaluation of Renminbi and the fall in foreign exchange reserves have clobbered the market sentiment,’ the company wrote. ‘The recent tightening of monetary policies for deleveraging has hampered the people’s willingness to spend as having their liquidity reduced.’
Results
Xiao Nan Guo’s local revenue plummets Shanghai-based caterer Xiao Nan Guo Restaurants Holdings Ltd saw a tumble of 55.2 per cent in its revenue generated from the MSAR region for the year of 2016, which amounted to RMB18.6 million (MOP21.6 million/ US$2.7 million). The company operated POKKA Café, Shanghai Min and the dining room in the MSAR but the latter
two were disposed of in the end of February, 2016. It noted in the filing that the disposals caused a decrease of revenue of RMB22.4 million for the year. Meanwhile, the company’s performance in the neighboring city Hong Kong was optimistic, with revenue derived from the region amounting to RMB608 million,
which represents an increase of 9.5 per cent year-on-year. For the whole year of 2016, the company registered a net profit of RMB34.2 million, a turnaround from a loss of RMB98.4 million for 2015. As at the end of 2016, the company was operating a total of 127 restaurants, vis-à-vis 139 in 2015. C.U.
Markets
Jacobson Pharma seeking cash flow Jacobson Pharma Corporation Ltd has entered in a transfer agreement with its indirect wholly-owned subsidiary, Jean-Marie Pharmacal Company Limited, in order to improve its cash flow position. According to a filing of the company with the Hong Kong Stock Exchange yesterday, the subsidiary of the company is to transfer its whole interests in Key Man
Insurance Policy to the chairman and CEO of Jacobson, Sum Kwong Yip Derek, for a total consideration of HK$20.49 million (US$2.6 million). Mr. Sum is the (life) insured under the Key Man Insurance Policy provided by the HSBC Life (International) Limited, with an insured sum of US$10 million, the filing reads. ‘It is estimated that the company
will realize a gain from the transaction of approximately HK$3.69 million,’ the company noted. Upon completion of the agreement, Mr. Sum will be the sole beneficiary under the Key Man Insurance Policy. Jacobson Pharma, which is principally engaged in manufacturing, marketing and sale of generic drugs and proprietary medicines, has recently acquired two Macau companies, Victor Luck Limited and Happy Echo Limited. S.Z.
Business Daily Wednesday, March 29 2017 5
Macau
E-commerce
“Made in Macau” key to the Mainland door Starting from April, a new ‘One-Stop’ platform created by the DSE and Sino-Portuguese E-Commerce Chamber will assist local suppliers in e-commerce trade with Mainland China Nelson Moura nelson.moura@macaubusinessdaily.com
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he city’s e-commerce trade can generate a large number of sales at rapid speed if the MSAR capitalizes on the uniqueness of its “Made in Macau” products and its language connection with Portuguese-speaking countries, perceives the Executive Vice-President of the Sino-Portuguese E-Commerce Chamber (SPECC), Johnny Ma. The statements were made on the sidelines of a conference jointly
organized by the Chamber and the Macau Economic Services (DSE) yesterday, which introduced information to local suppliers and businessmen about cross-border logistics with Mainland China and the ‘One-Stop’ e-commerce platform to be launched in April by the two parties. Seeing cross-border trade between the MSAR and the Mainland is “in early stages” and “close to zero,” the executive vice president of the Chamber pointed out this aspect is crucial for the city’s economic diversification despite the fact that the market is now facing two
major obstacles - namely, payment methods and cross-border logistics. “The [One-Stop] service will not just be an online platform providing information on cross border e-commerce but will also help local suppliers to set up their own website and e-commerce shops, besides providing them support for logistics and online promotion,” Mr. Ma told Business Daily. According to the Chamber vice president, the new platform would also support local suppliers in other matters such as customs good clearance and tax information for specific products.
Using the handicaps
According to Mr. Ma, the MSAR is disadvantageous in terms of cross-border logistics as compared to its neighbouring SAR Hong Kong. “You can just see the difference in
the amount and frequency of flight connections, while the quality and capacity of the goods warehouses in Hong Kong is also better,” he said. “The low depth of the Macau harbour also doesn’t allow the same kind of shipping trade as Hong Kong, which is an advantage for trade of large quantities of products such as raw materials.” However, Mr. Ma added that Macau still has its own advantages as compared to the other SAR, which is its distinct characteristics of its products, such as souvenirs and food products, the language connection with Lusophone countries, the short distance from Zhuhai and the levels of government support. The Chamber’s vice president also suggests the MSAR should better explore the advantages provided by the Close Economic Arrangement (CEPA) with the Mainland.
6 Business Daily Wednesday, March 29 2017
Macau
Tax haven
Report: European banks rake in 67 mln euros via MSAR
T
he 20 largest European banks booked a total of some 67 million euros (MOP582.5 million/US$72.8 million) in profits via the MSAR in 2015, according to a latest report released on Monday by Oxfam.
The report - ‘Opening the vaults: The use of tax havens by Europe’s biggest banks’ - revealed the 20 largest banks in Europe funneled around a quarter of their total profits through different tax havens in the world, of which the
related value is estimated at 25 billion euros. The report indicated Hong Kong was the number one tax haven for the European bankers in terms of the amount of profits derived, which is expected to total 10.55 billion euros
for 2015, followed by Luxembourg with 4.94 billion euros and Belgium with 3.16 billion euros. The profits generated by the European banks in these three jurisdictions also represent 72 per cent of their total during the year. N.M.
Business
Success Dragon ends another Vietnam slot club deal Gaming service firm Success Dragon International Holdings Ltd has terminated its agreement with a slot club in Vietnam for the provision of electronic gaming machine management, a company filing announced on Monday after trading hours. ‘The Group and Le Meridien failed to reach an agreement on a new approach of cooperation and decided to terminate the Le Meridien Business Cooperation Contract by mutual consent on 27 March 2017,” the company wrote. The company, according to its agreement with the Vietnamese company, provided investment, management and operations of the electronic gaming machines for the latter. In January, a filing of the firm revealed that the slot club, located in
the Le Meridien Hotel in Ho Chi Minh City, and another club in the One Opera Hotel in Danang both ‘encountered unexpected difficulties in obtaining the requisite business
certificates for operation of electronic gaming machine business’. Having terminated its cooperation agreement with the One Opera club in the same month, the company said
then it ‘is in the process of discussing and negotiating with the Le Meridien slot club for a new co-operation approach’. Currently, the company also provides management services greyhound racing business in Vietnam, apart from the MSAR. Earlier this month, the gaming service firm said it had entered a non-legally binding memorandum of understanding to acquire a group of companies engaged in energy business in Mainland China, without revealing the name of the possible vendor. For the first half of its fiscal year ended September 30, 2016, the company posted a net loss of HK$30.2 million (US$3.8 million), an improvement of 78.5 per cent from HK$140.3 million for the same period of 2015. K.L.
Director for Portugal and Macau based Virtualmente. “I think social is the most important experience of VR,” notes Periera, “where you can play against other people at a table but each is in their own house doing it”. When applied towards casino environments, the co-founder of Neomancer LLC and Spawn Point, Hai Ng, notes that the advantage provided is more on the experience side. “It’s something that you can install in the casinos,” notes the expert, “it’s a higher experience – equivalent to more of a full-service experience that you can only have on-location”. Questioned about regulators working more towards activity-based game-play, the chairman of the Singapore Cybersports & Online Gaming
Association, Nicholas Aaron Khoo, notes that “all regulators should be concerned about screen-time, in particular for millennials”. However, notes Khoo, the solutions are already out there. Hai notes that “VR can be room-based […] You can walk around a room and in your view it looks like you’re somewhere else.” The limitations to this, points out Periera, are primarily comfort.
“From all that I’ve tried, they still suffer from a very big problem – it’s still necessary for you to wear a helmet – it’s not comfortable – it’s really not a good experience”. By switching to more of an eyeglass or even contact lens type experience, points out Pereira, the limits can be circumvented and more comfort applied to the experience, allowing for wider potential. K.W.
Virtual reality
Going virtual Keys to developing virtual reality for a gaming environment lie in continued social interaction, rather than engaging only with a constructed, artificial intelligence interaction, according to experts. Speaking at the iGaming Congress, held at the City of Dreams yesterday and running through today, a panel of virtual reality experts pointed out the advantages of VR, yet the necessity to not completely ‘plug in’ players. “I think the most interesting VR poker is where you actually sit down and it’s a social experience,” points out Fernando Periera, Operations
Corporate
Special Olympics golfers back in town
The world’s biggest golf tournament for people with intellectual disabilities will see golfers from 25 delegations hitting the greens at Caesars Golf Macau from April 19 to 22. For the sixth edition athletes and coaches from as far away as South Africa and as near as Hong Kong joining the event, Canada is this year’s enthusiastic newcomer. Support is not only being extended by longtime host Caesars Golf Macau but this year sees the Tak Chun Group stepping in and becoming the official title sponsor of this meaningful event. Furthermore, the local business fraternity of MGM Macau, Melco Crown Entertainment and Wynn Macau are consolidating their positions as main partners. With continuous growth the event enjoys tremendous positive response from the Special Olympics community, as well as family members and people connected with them.
Bringing together the business world and the local society of Macau with international Special Olympics athletes through this competition is key to the ultimate objective of enhancing inclusion through sport. “This year, 20 countries and regions will attend the tournament that is putting again the name of Macau firmly on the sports map,” said Paulo A. Azevedo, President of the Charity Association of Macau Business Readers. “We just hope that we will continue to enjoy the support of both private and public institutions so that this major event will continue to demonstrate in no uncertain manner how Macau cares about everyone, not just some of its citizens.”
Business Daily Wednesday, March 29 2017 7
Gaming Results
Imperial Pacific turns loss to profit Net revenue of the company grew more than ten-fold for 2016, attributable to its gaming operations on the Island of Saipan Kam Leong kamleong@macaubusinessdaily.com
C
asino investor Imperial Pacific International Holdings Ltd climbed out of the red for the year of 2016, registering HK$935.6 million (US$116.5 million) in net profit from a net loss of HK$18 million for the previous year, driven by its gaming operation on the Island of Saipan. According to its filing with the Hong Kong Stock Exchange on Monday after trading hours, the company’s gaming revenue derived from its “temporary casino” on the Pacific Island reached HK$7.49 billion for the year, which was more than ten fold of its HK$714.5 million for 2015. In particular, some 95 per cent of the company’s casino revenue was derived from the VIP sector, which amounted to HK$7.13 billion, surging over 11 times from HK$623 million one year ago. In addition, its revenue from mass tables jumped by nearly four times to HK$261.9 million, while that from slot machines and ETG gaming also grew by three times to HK$57.3 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of the company reached HK$1.77 billion for the year, which soared by 833 per cent year-on-year. At the end of the year, the company was operating 16 VIP tables, 32 mass gaming tables and 141 slot machines inside its temporary casino. ‘As casino operations on the Island of Saipan are relatively new, a significant portion of our VIP casino customers is sourced through the Group’s own marketing avenue,’ the casino operator noted in the filing.
‘Such high-spending VIP players generally receive commission and allowances based on a percentage of the rolling chip turnover.’ According to the filing, the company paid a total of HK$3.42 million in commissions during the year, which accounted for 45.6 per cent of its total gross revenue for the period, resulting in HK$4.07 billion in net revenue. The company said most of their direct VIP patrons were from China, Hong Kong, Macau, Korea and Saipan, adding it will re-examine its mass gaming areas as well as slot
machines and EGT names to ‘maximize table utilization’ and ‘maximize casino profitability,’ respectively. The company did not propose any dividend for the fiscal year.
New casino completion tomorrow
The company also announced that its casino-resort project on the Island of Saipan, the Imperial Pacific Resort, should complete tomorrow, without disclosing when exactly the property will open for operation. ‘It is expected that the site construction of the casino of the Imperial Pacific Resort will be completed on 31 March 2017 and will be opened to the public, while the hotel of the Imperial Pacific Resort will be opened in the second half of 2017,’ it notes in the filing.
The new casino property is expected to house 193 gaming tables and 365 slot machines, the filing reads. It adds that the company’s current temporary casino will cease operations once the official casino is launched. ‘The Board is pleased with the results at Best Sunshine Live [the temporary casino], particularly the VIP program where significant monthly rolling numbers were achieved,’ the company wrote. ‘After opening the new casino, to help expand client base and attract new players and clients, we expect to commence collaboration with gaming promoters after they are granted licenses to operate on the Island.’ According to the firm, 18 gaming promoters had applied for junket licenses with the Island’s authorities as at the end of last year.
Imperial Pacific currently operates a “temporary casino” on the Island of Saipan
Company structure
Management
NagaCorp CEO plans for full control
MGM Resorts appoints Chief Strategy Officer
Chief Executive Officer of Cambodian gaming operator NagaCorp Ltd, Chen Lip Keong, is mulling to take full control of the company by exercising conversion rights of a group of convertible bonds, according to a filing of the company yesterday. The announcement reads that Mr. Chan intends to ‘exercise the conversion rights in respect of the TSCLK Complex Convertible Bonds in full - in the outstanding aggregate principal amount of US$275 [million] (MOP2.2 billion).’ The group of bonds is part of the consideration payable of US$369 million for the company’s previous purchase of the entire issued share capital of two companies owned by Mr. Chen - TSC Inc. and City Walk Inc. that respectively owned the TSCLK Complex Project (also known as Naga2) and the NagaCity Walk Project.
Mr. Chen’s stake in the company is expected to increase to 61.13 per cent from the current 31.98 per cent following the conversion of the TSCLK convertible bonds. The same announcement reads that the businessman, however, did not intend to convert the other group of convertible bonds for the time being, which could further expand his stake in the company to 69.83 per cent. The TSCLK Complex, the company’s new integrated resort that is undergoing fit-out, is next to the company’s current casino property NagaWorld in Phnom Penh of Cambodia. The two casino resorts will be connected by NagaCity Walk, that has been opened since last August. According to the company’s annual report earlier this month, the TSCLK Complex is expected to be operational within this year. K.L.
Casino operator MGM Resorts International has appointed Aaron Fischer as its Chief Strategy Officer, according to a company announcement yesterday. Mr. Fischer, who is presently based in Hong Kong and serving as Senior Vice President of corporate development for the operator, will relocate to the MGM’s corporate headquarters in Las Vegas, the release reads. The company said the new Chief Strategy Officer will be responsible for leading MGM Resorts’ enterprise-wide strategic planning process to include both a focus on operations and the global development of its suite of hospitality and entertainment resort brands.
Mr. Fischer served as the head of consumer and gaming research at Hong Kong-based brokerage and investment group CLSA before he joined the casino operator last year. The announcement reads that Mr. Fischer specialized in Macau, Japan, other emerging gaming markets and the global luxury goods industry during his 17 years as an equity analyst. “The addition of a Chief Strategy Officer will further our ability to deliver strong financial results, drive disciplined growth, and accelerate the achievement of our ongoing performance improvement objectives,” said Corey Sanders, Chief Operating Officer of MGM Resorts. K.L.
8 Business Daily Wednesday, March 29 2017
Greater china Survey
Mainland to see robust consumer spending driven by lifestyle upgrades About 40 per cent of Chinese consumers intend to increase the time spent on playing sports
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hina is expected to see robust consumer spending driven by lifestyle changes this year, according to a report released yesterday. China leads emerging countries in expectations for robust real wage growth in the next six months, while average consumer confidence scores 64 per cent, compared with only 49 per cent in the last survey, according to Credit Suisse Research Institute’s (CSRI) seventh annual Emerging Consumer Survey.
aged 65 or older in China is projected to be similar to that in countries such as the U.K. and the U.S., resulting in increased demand for healthcare services. About 40 per cent of Chinese consumers intend to increase the time spent on playing sports, while almost 80 per cent agree that they have started to eat more healthily, the survey showed.
As they become wealthier, Chinese consumers will continue to improve their lifestyles. Growth in spending on large-ticket items continues to outstrip that on more staple items. Meanwhile, entertainment spending among Chinese respondents has risen by more than 50 per cent since 2010 and now represents over 10 per cent of monthly household income, the highest among the surveyed countries. The relaxation of the family planning policy will benefit sportswear, children’s clothing, home
improvement, appliance manufacturers, education and healthcare. When asked how consumers intend to spend incremental disposable income, 41 per cent expect to spend it on their children and 40 per cent on their parents. As the emerging market consumer has developed, local brands are increasingly gaining leading market share in lucrative consumer segments previously the preserve of large global brands owned by Western multinational companies, the survey pointed out. Xinhua
‘Entertainment spending among Chinese respondents has risen by more than 50 per cent since 2010’ The CSRI survey provides an analysis of the profile, mood and behaviour of consumers across eight major emerging economies -- Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey. The survey highlighted some developing consumption patterns including more “conscious spending” among emerging market consumers with a focus on healthier, more environmentally-friendly choices. This means greater outlay on skin care, quality foods and sportswear and greater willingness to use car-sharing services than to own a vehicle. By 2035, the share of the population
By 2035, the share of the population aged 65 or older in China is projected to be similar to that in countries such as the U.K. and the U.S., resulting in increased demand for healthcare services
Xiaomi CEO
National “Internet Plus” model applicable in emerging markets He said his company will create 20,000 jobs in India within three years China’s “Internet Plus” model could help enterprises in emerging countries stand out in market competition, according to head of China’s tech giant Xiaomi. Companies able to offer the best products at the most affordable prices will emerge as market leaders, Lei Jun, founder and CEO of Xiaomi, said at the Global Business Summit in New Delhi on Monday, according to the company’s press release. China’s “Internet Plus” action plan was unveiled in 2015. It proposed a new economic development model based on the integration of the Internet with traditional sectors to improve products, service quality and efficiency. Xiaomi was one of the earliest companies to apply the Internet Plus approach to improve its business model with innovative technologies, cutting edge products and efficient operations, according to Lei. The smart device manufacturer started with organic, word-of-mouth marketing to accumulate a customer base and improved their products based on user feedback, while the Internet, e-commerce in particular, helped remove the middlemen to price products close to cost. “I believe that the power and unstoppable influence of the Internet
means information asymmetry will sooner or later come to an end,” Lei said. Xiaomi’s presence in India is testament to the success of the Internet Plus model. In India, Xiaomi is now the top selling smartphone brand online and the second largest smartphone brand in India in Q4 2016, with annual revenue of over one billion U.S. dollars for 2016. Xiaomi opened its first overseas factory in India in 2015 and another
one followed this year. More than 95 per cent of Xiaomi’s smartphones sold in India are now manufactured locally, creating over 7,500 jobs in India. Lei said his company will create 20,000 jobs in India within three years. To apply the Internet Plus model, Lei suggested enterprises in emerging markets should remain committed to innovation, focus on user experience and never sacrifice quality or efficiency. “I believe that in the next decade or so products that enable lifestyle changes and offer more choices will
rule the marketplace,” Lei said. Xiaomi launched its own chip, the Surge S1, last month, the fourth company in the world capable of producing both smartphones and chips, after Apple, Samsung, and Huawei.
“I believe that the power and unstoppable influence of the Internet means information asymmetry will sooner or later come to an end” Lei Jun, founder and CEO of Xiaomi
The tech firm set up an “Explorer’s Lab” last year to research artificial intelligence and will release an “exciting AI product” in the next six months, according to Lei. “Companies in emerging markets need to offer their consumers a compelling vision so that they not only solve problems today, but even address problems on the horizon,” Lei added. Xinhua
Business Daily Wednesday, March 29 2017 9
Greater China Property
In Brief
Hong Kong leader-elect says she’s determined to tackle high cost of housing Lam also pledged during her campaign to tackle the problem by increasing land supply Venus Wu
Hong Kong-leader elect Carrie Lam said yesterday she was “very determined” to tackle the high cost of housing in the densely populated city, among the top concerns of foreign business people working there. Lam, the Chinese-controlled financial hub’s former chief secretary, was chosen on Sunday by a 1,200-person committee to lead the city, pledging in her victory speech to unite political divisions, illustrated by huge pro-democracy protests in 2014, that have hindered policy-making and legislative work. Speaking at a Credit Suisse investment conference in Hong Kong, Beijing-backed Lam also said the former British colony faced tough competition from the region and also from mainland Chinese cities which are “becoming very powerful”.
‘She also said the city also had a lot of catching up to do in terms of comprehensive double tax agreements’ The cost of housing is one of Hong Kong’s biggest social issues and making homes more affordable was among outgoing leader Leung Chunying’s top priorities, something he failed to achieve.
Hong Kong Chief Executive-designate Carrie Lam looks on during a press conference at the Central Government Offices in Hong Kong. Lusa
Lam said land and labour were two “major bottlenecks” for Hong Kong’s development. “On the land issue, I am very determined to tackle that in the next term of government in a big way,” she told an audience of 200 financial and business professionals. “It’s not just looking at the annual land sale programme but really, the long-term supply of land, or better still, a land bank for Hong Kong.” Lam also pledged during her campaign to tackle the problem by increasing land supply. Lam’s call to mend social divisions suffered a setback a day after she was elected when police on Monday charged nine organisers of the 2014 demonstrations, provoking anger among protesters. In perhaps her strongest admission to date on China’s perceived behind-the-scenes interference in Hong Kong politics, she told a radio programme she knew the Central Liaison Office, China’s top representative office in Hong Kong, had been involved in lobbying legislators in the past. “We do not need our friends at the
Central Liaison Office to worry,” she told reporters after the programme, saying she wouldn’t welcome its involvement in Hong Kong affairs under her administration. Since the 2014 protests, there have also been some calls for independence in the city which operates under a “one country, two systems” formula, allowing it freedoms not enjoyed on the Communist Party-ruled mainland. Lam said if the city started to argue about whether it should become independent, then “we have no common basis to start this common journey to give Hong Kong a better future”. The next few months will be critical for Leung and Lam, with Chinese President Xi Jinping expected to pay a visit on July 1 to celebrate the 20th anniversary of Hong Kong’s handover from British rule, with large protests expected. The city also had a lot of catching up to do in terms of comprehensive double tax agreements, Lam said. In her victory speech on Sunday, Lam pledged to follow through on her promise to introduce a two-tier profits tax. Reuters
Cybersecurity
Taiwan company says name used in email fraud Quanta, with a market capitalization of US$8.4 billion, is a supplier of servers and other hardware to major technology companies Andrius Sytas and J.R. Wu
Taiwan-based electronics manufacturer Quanta Computer Inc has acknowledged that its name was used as part of an email fraud scheme that bilked two U.S.-based internet companies out of more than US$100 million. U.S. prosecutors last week indicted a Lithuanian man, Evaldas Rimasauskas, for the fraud. He was arrested this month in Lithuania at the request of U.S. authorities and is currently in jail there. Rimasauskas’ alleged scheme involved sending emails to employees of the two unnamed companies asking them to wire money that they actually owed to the Asian hardware vendor to the accounts of companies in Latvia and Cyprus that carried the name Quanta. In order to conceal his fraud from banks that handled the transfers, Rimasaukas forged invoices, contracts and letters purportedly signed by executives of the two victim companies, according to prosecutors. In a statement on Monday to Reuters, Quanta spokeswoman Carol Hu said the company had been “impersonated” as part of the fraud. “Quanta did not suffer from any financial harm from this incident,”
she added, calling the matter “unfortunate.” Quanta, with a market capitalization of US$8.4 billion, is a supplier of servers and other hardware to major technology companies. It is part of the Open Compute Project, an initiative launched by Facebook Inc to share server design technology. In 2011 Amazon.com Inc outsourced the assembly of its Kindle Fire tablet to Quanta. It is not known who the two victims of the alleged US$100 million fraud were. U.S. prosecutors referred to them in a statement as a “multinational technology company” and a “multinational online social media company.” Representatives of Amazon and Facebook have had no comment on whether they were possible victims of the scheme. Rimasauskas, through his lawyer, confirmed he was the owner of a Latvian company with the same name as Quanta from 2013 to 2016, the time frame in which the fraud occurred, according to the indictment. “Rimasauskas did buy the Latvian company, because he was going to develop a business,” the lawyer, Linas Kuprusevicius, told Reuters in an email. Rimasauskas strongly contests the
Results
BoCom profit almost flat Bank of Communications Co Ltd (BoCom), China’s fifth-largest listed commercial bank by assets, reported almost flat profits and its lowest net interest margins in at least five years after successive rate cuts. Beijing’s move to lower benchmark interest rates six times in 2014-2015 in a bid to revive a slowing economy has dragged down net interest margins - a key gauge of profitability - for lenders in China. BoCom, the first of China’s Big Five state-owned banks to report 2016 results, yesterday posted a net profit of RMB14.63 billion (US$2.12 billion) for the quarter ended December. Funding
Tsinghua Unigroup signs financing deals Tsinghua Unigroup Ltd, China’s top state chip manufacturer, said yesterday it had signed deals that would provide it with financing of up to RMB150 billion (US$21.8 billion). China Development Bank agreed to provide financing of up to RMB100 billion for the five-year period of 20162020, and China’s Integrated Circuit Industry Investment Fund, a RMB140-billion fund set up in 2014, would invest up to RMB50 billion in the semiconductor giant, Tsinghua Unigroup said in a statement. A spokeswoman for Tsinghua Unigroup said it did not have any immediate comment on how the funds would be used. Enforcement
Beijing to punish firms for fake trade data China will punish companies if they are found to be reporting fraudulent trade data, the customs administration said yesterday, as it published details on enforcement of a credit system for foreign trade firms. Companies considered “discredited” may be subject to more stringent inspections when applying for government tax rebates, or see an impact on their import or export quotas, while company representatives may be restricted from traveling abroad. “Only when discredited firms pay a high economic price can measures create the effect where firms ‘dare not to be dishonest and cannot be dishonest’,” said a statement from the General Administration of Customs. Overcapacity
charges presented by U.S. authorities, the lawyer said. He has a construction engineering degree and was working at a construction business in Lithuania prior to his arrest, he said. The U.S. Federal Bureau of Investigation said last year that U.S. and foreign victims had made 22,143 complaints since October 2013 about so-called business email compromise scams involving requests for more than US$3 billion in transfers. A U.S. extradition request for Rimasauskas is expected by late May, Lithuanian prosecutors told Reuters. He is charged with wire fraud and money laundering, which each carry a maximum prison sentence of 20 years, and identity theft, which carries a mandatory minimum sentence of two years. Reuters
Liaoning pledges more closures by June The province has promised to close more than 10 million tonnes of low-grade steel capacity by the end of June this year as part of its efforts to clean up the sector, the official Liaoning Daily reported yesterday. Heavy industrial Liaoning, home to struggling state steel mills like the Anshan Group and the Benxi Iron and Steel Group, is a key part of China’s strategy to tackle price-sapping overcapacity in the coal and steel sectors. However, the province has struggled to find alternative sources of growth.
10 Business Daily Wednesday, March 29 2017
Greater China Debt
Huishan Dairy admits late payments, frets over creditor support The company also said it had not been able to reach one of its executive directors in charge of the firm’s finances and cash since March 21 Adam Jourdan and Elzio Barreto
C
hina Huishan Dairy Holdings Co Ltd said yesterday it had fallen behind with some loan repayments, was unable to contact a key finance executive and expressed concern about the strength of creditor support after its stock price plummeted. But the country’s largest integrated dairy firm, which has been on the back foot since a December attack by U.S.-based short-seller Muddy Waters, denied media reports on Friday that funds had been misappropriated. Its shares fell 85 per cent the same day, wiping US$4 billion off its market value. Underscoring the depth of its unfolding crisis, Huishan’s filings also showed that most of the shares owned by its controlling shareholder had been pledged as collateral and that the board was seeking clarity on its financial situation. After finding it had been “late in some bank payments”, Huishan’s Chairman Yang Kai asked the regional Liaoning government for support and met with 23 creditor banks last week to ask for loans to be rolled over. While creditors had shown support then, the sudden share drop had raised concerns they may no longer be willing to roll over loans and that banks holding its shares as collateral had sold or could sell the stock because of the price decline.
“Given the significant decrease in share price of the Company and the recent media reports, there is no assurance that such banks’ (supportive) views would remain unchanged,” it said. Huishan’s controlling shareholder, a firm called Champ Harvest which owns 70.8 per cent of its stock and is majority held by Yang, has pledged nearly all of the shares to secure loans. These include a HK$2.14 billion (US$275 million) loan with Ping An Bank last year backed by 3.4 billion Huishan Dairy shares while a further 6 billion shares were used to secure loans and margin financing for Champ Harvest and other firms controlled by Yang. “Anybody holding those shares as collateral will be concerned given the drop in share price because it has a direct impact on the loan recoverability if the underlying business is not sound,” said Ted Osborn, a Hong Kong-based partner at PwC who specialises in debt recovery.
Action plan
Huishan said the Liaoning government had proposed an action plan to solve any overdue interest payments within two weeks and to help bolster the group’s liquidity within a month amid an increasingly challenging environment. The company also said it had not been able to reach one of its executive directors in charge of the firm’s
finances and cash since March 21, when she indicated work stress and said she would take a leave of absence. The executive had overseen the group’s treasury and cash operations and had managed its relationships with the company’s main bankers.
Key Points Says unable to contact finance executive Denies media reports that funds were misappropriated Most of controlling shareholder’s shares pledged as collateral Statement follows 85 pct stock price plunge on Friday The firm refuted media reports that Bank of China had conducted an audit of the firm and found a large number of forged invoices and that the firm’s controlling shareholder had misappropriated up to US$3 billion. “The Company categorically denies having approved the issue of any
forged invoices and does not believe there to be any misappropriation,” it said in the statement. It added Bank of China had assured the firm no such audit had been carried out. A Shanghai-based spokesman for Bank of China said he was unable to immediately comment on the matter. In December, short-seller Muddy Waters questioned Huishan’s profits and said it had inflated spending on its cattle farms to artificially raise capital expenditure figures - an attack that also led to a trading suspension. Analysts said Huishan’s financial woes were spooking investors, who have seen big potential returns in China’s massive demand for dairy. “The latest financial issues surrounding Huishan, and along with the quality issue in the sector, are driving investors away from those smaller operators in the dairy products segment,” said Steven Leung, sales director at UOB Kay Hian in Hong Kong. Huishan’s shares, halted since March 24, will continue to be suspended until the board can get more clarity on the firm’s financial position. Reuters
M&A
Southern Airlines to sell US$200 mln shares to American Airlines The airline is China’s biggest in terms of passenger numbers China Southern Airlines Co Ltd said yesterday it would issue HK$1.55 billion (US$199.6 million) worth of shares to a subsidiary of American Airlines Group Inc, giving the U.S. airline a stake in China’s largest carrier. The deal would make American Airlines the second U.S. carrier to own part of a Chinese airline after Delta Air Lines Inc bought 3.55 per cent of China Eastern Airlines Corp for US$450 million in 2015. In a filing to the Hong Kong stock exchange, China Southern said it would issue 270.61 million Hong Kong-listed H-shares, representing 2.68 per cent of the enlarged share capital of the airline. The shares would be issued at HK$5.74 apiece, or at a 4.6 per cent premium to the previous close. Among other things, the deal would help China Southern improve its governance, strengthen management, boost its competitiveness and help “achieve the strategic goal of building a world-class aviation industry
group”, the filing said. It said the two airlines may also increase cooperation in code-sharing and other areas, including staffing, sales, passenger loyalty programmes and airport facilities sharing.
‘For American Airlines, the deal could widen access to China, one of the biggest sources of tourists to the United States’ The airline is China’s biggest in terms of passenger numbers. It is a member of the SkyTeam airline alliance and is based in the southern
city of Guangzhou. The tie-up comes as Beijing has vowed to shake up Chinese airlines by implementing mixed-ownership reforms and introducing private capital and strategic investment into its state-owned enterprises in a bid to improve efficiency and competitiveness. Chinese airlines have been aggressively expanding their fleet and increasing the number of their
international routes as they seek to capitalise on strong growth in outbound Chinese travel that has far outpaced tourism at home. For American Airlines, the deal could widen access to China, one of the biggest sources of tourists to the United States, and will help it compete with rival Delta, which has invested in foreign carriers in Mexico, Brazil and Britain in recent years. Reuters
Business Daily Wednesday, March 29 2017 11
Asia Regional influence
India set to pledge billions to Bangladesh New Delhi’s financial fire power still pales in comparison to the funds available to Chinese President Xi Jinping Arun Devnath and Iain Marlow
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ndia is likely to give Bangladesh a credit line of at least US$3.5 billion for infrastructure projects during Prime Minister Sheikh Hasina’s state visit in April, as Beijing and New Delhi jostle for geopolitical influence in South Asia. The credit line, which would be India’s third to its neighbour, would go toward a variety of projects ranging from nuclear and liquefied natural gas power plants to ports, railways and the establishment of special economic zones, according to a Bangladesh government document seen by Bloomberg. New Delhi and Dhaka will also sign a defence cooperation agreement and various memorandums of understanding relating to hydro projects in Bhutan, shipbuilding and upgrading border posts, according to a separate document. India is trying to strengthen relationships with neighbouring states such as Bangladesh and Sri Lanka as China continues to court South Asian nations by pledging large sums of money for port and infrastructure projects that New Delhi views with suspicion. In a sign of its deepening ties with Beijing, Bangladesh bought two submarines from China last year. The government of Indian Prime Minister Narendra Modi, who announced a second US$2 billion line of credit when he visited Bangladesh in 2015 after an earlier US$800 million
credit line, has tried to integrate the region’s economies with road, rail and shipping routes. But even as India seeks to unite its neighbours against its arch-rival Pakistan, New Delhi’s financial fire power still pales in comparison to the funds available to Chinese President Xi Jinping, who last year pledged US$20 billion in low-cost loans for infrastructure projects, in addition to existing large investments in Pakistan and Sri Lanka. “Ideally, they would like to counter that, but the Chinese offer is such a huge amount, they can’t possibly match that,” said Harsh Pant, an international relations professor at King’s College London.
Credit line
Hasina’s visit, starting April 7, is her first in seven years, according to India’s foreign ministry, and comes against the backdrop of a fresh surge in Islamic State-linked attacks across the country. Bangladesh’s growth is expected to increase to 7.2 per cent this fiscal year from 7.1 per cent last fiscal year according to government estimates. “India will give Bangladesh as much as US$5 billion, which is a new development,” Mashiur Rahman, economic affairs adviser to Hasina, said by phone. “There are many areas to look at, but economic cooperation is the most substantive. Joint investments and joint entrepreneurship will open
Bangladesh’s Prime Minister Sheikh Hasina
up the new directions of cooperation.” A spokesman for India’s Ministry for External Affairs, Gopal Baglay, said he could not comment on the issue. Oil minister Dharmendra Pradhan said he expects some agreements to be signed after the meeting between the two leaders. “We are discussing several energy projects with Bangladesh, such as LNG and supply of petroleum products.” The credit line would include US$940 million for the development of a component of the Rooppur nuclear power plant, US$350 million for a multipurpose terminal at Bangladesh’s Payra port and US$177 million for a power transmission line between India’s Jharkhand and Bangladesh’s Bogra. It would also include US$500 million for a new railway line from Bogra to Sirajganj and US$157 million for a solar power project. It would also see India provide US$550 million for special economic zones, including at Bangladesh’s Mirsorai and Payra. The two countries would agree
to upgrade some customs posts, as well as establish border markets for vendors, along their 4,096-kilometer boundary, and will sign memorandums of understanding relating to shipping routes and the operation of satellites, according to the documents. The US$3.57 billion figure listed in the documents does not include funds related to upgrading the border posts. India and Bangladesh were also expected to sign MoUs relating to shipbuilding and a joint investment in a hydro power project in Bhutan. Seeking to make India a global power, Modi has made progress in boosting ties with Sri Lanka and Bangladesh, said Pant, the professor. Both countries joined India in boycotting a meeting of the South Asian Association for Regional Cooperation last year, which was set to be held in Pakistan. And on March 23, Bangladesh signed a deal to join a South Asian satellite project being launched by India -- a project that includes all South Asian nations except Pakistan. Reuters
Energy
Japan court rules in favour of restart of nuclear reactors The case is one of many going through the courts after the Japanese public turned away from nuclear power following the Fukushima meltdowns Aaron Sheldrick and Osamu Tsukimori
A Japanese high court yesterday overturned a lower court’s order to shut two reactors operated by Kansai Electric Power, a company spokesman said, potentially ending a drawn-out legal battle and helping the utility to cut fuel costs. The decision, while positive for Kansai Electric, is unlikely to help speed the broader process of getting reactors back online nationally after the Fukushima nuclear disaster six years, said a former advisor to the government and others. “The future of nuclear power is still uncertain. The decision does not mean that the courts will give a “yes” to other legal cases. Political uncertainty remains strong, too,” said Tatsujiro Suzuki, a former vice chairman of the Japan Atomic
Energy Commission, a government body. The Osaka High Court overturned the first court-ordered shutdown of an operating nuclear plant in Japan. The lower court had decided last year in favour of residents living near the Takahama atomic station west of Tokyo who had petitioned for the reactors at the plant to be shut. The case is one of many going through the courts after the Japanese public turned away from nuclear power following the Fukushima meltdowns in 2011, the world’s worst nuclear calamity since Chernobyl in 1986. Three out of Japan’s 42 operable reactors are running and the pace of restarts has been protracted despite strong support from Prime Minister Shinzo Abe’s government, which is
keen to restore a power source that provided about a third of electricity supply before the Fukushima disaster. Residents have lodged injunctions against nuclear plants across Japan and lower courts have been
increasingly siding with them on safety concerns. Contentious verdicts are usually overturned by higher courts, where judges tend to be more attuned to government policy, judicial experts say. Reuters
Fukushima nuclear power station (pictured) meltdowns were the world’s worst nuclear calamity since Chernobyl in 1986
12 Business Daily Wednesday, March 29 2017
Asia Energy
Market operator says Australia can manage risks of shift to renewables Soaring electricity and gas prices have become a hot political issue
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ustralia can manage the risks of its rapid shift toward renewable energy by managing demand and taking better control over rooftop solar output, the new head of the country’s electricity market operator said yesterday. Audrey Zibelman, who oversaw a rebuild of New York’s ageing grid following widespread blackouts during Hurricane Sandy, said Australia was at the forefront of efforts to integrate renewable energy into an existing electricity network.
have led to power outages. Declaring the nation is facing an “energy crisis”, Prime Minister Malcolm Turnbull has criticised the rapid shift to renewable energy and taken steps to expand hydro storage, boost gas supplies and launched a probe into electricity prices. Zibelman, formerly chairwoman of the New York Public Service Commission, said Australia could “show the rest of the world that this new technology is not threatening.” Her comments came as the market operator released its final report on
a state-wide blackout that hit wind power-dependent South Australia last September. Zibelman plans to focus her efforts first on ensuring the national grid is secure and reliable ahead of next summer, following a blazing summer when there were six power cuts across various parts of eastern Australia. She then plans to look at how market rules should be changed to deal with rapidly evolving technology and the growth of renewable energy. “If we compensate people who invest in batteries or distributed generation on their side of the meter and we really create a two-way system
... we don’t necessarily have to invest in generation we’re only going to use a few hours a year,” she said. Other industry executives at the forum, however, warned that electricity prices are unlikely to drop anytime soon, due to tight gas supplies. “I don’t see electricity prices coming down fast, soon,” Steve Masters, chief executive of South Australian transmission operator ElectraNet, told the business forum. The main factor driving up power prices was rocketing gas prices, because under the current bidding system in the electricity market, the most expensive source of power, which is gas-fired generation, sets the half-hourly prices. Reuters
Key Points New market boss says Australia paving way for renewables Market chief calls for two-way use of rooftop solar Better demand management can limit need for new generation Industry warns electricity prices to stay high Managing peak demand and improving data to tap energy from rooftop solar and batteries, should limit the need for new generation and keep prices from rising, Zibelman, who started last week as chief executive of the Australian Energy Market Operator, told an industry forum. Soaring electricity and gas prices have become a hot political issue in Australia amid a shift to wind and solar power and the closure of coaland gas-fired power stations, which
Prices
Malaysia central bank sees inflation exceeding 8-year high Bank Negara Malaysia said in its annual report released last week that inflation will probably average 3 per cent to 4 per cent this year Liau Y-Sing
Higher fuel costs probably pushed up Malaysia’s inflation rate this month to above the 4.5 per cent rate posted in February, though there’s no evidence that price pressures are spreading more broadly in the economy, an official from the central bank said. Last month’s inflation rate -- which was the highest in more than eight years and exceeded the median estimate of 3.9 per cent in a Bloomberg survey -- wasn’t a surprise to the central bank, Fraziali Ismail, director of the economics department at Bank Negara Malaysia, said in an interview in Kuala Lumpur. If oil prices stay where they are, it’s a “question of arithmetic” that inflation would accelerate, he said. “Typically in the past, there could be second-round effects if the economy is above potential” and there are demand pressures, he said on March 24. “Yes, the economy is on the up, but we don’t see those pressures emanating at the moment.” Bank Negara Malaysia said in its annual report released last week that
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inflation will probably average 3 per cent to 4 per cent this year, up from 2.1 per cent in 2016. The spike in inflation is complicating Bank Negara’s job as it seeks to keep interest rates low enough to support the economy. The bank has left its benchmark rate unchanged at 3 per cent since a surprise cut in July, and economists surveyed by Bloomberg are divided in their views
on whether it will raise, reduce or keep rates unchanged this year. While economic growth has picked up speed, it’s not exceeding the pace of potential output yet, which is estimated to be about 4.7 per cent this year, Fraziali said. The economy grew 4.2 per cent last year and is forecast by the central bank to expand 4.3 per cent to 4.8 per cent in 2017. “We are operating close to potential, but we don’t see signs that we are exceeding,” he said. “Unless the economy is jolted to an accelerated growth, then there’s a higher potential for second-round effects.” The central bank will monitor signs of
slack in the economy, such as unemployment and capacity utilization, to give it “better clues on how the economy is faring against potential,” he said. Julia Goh, an economist at United Overseas Bank Ltd. in Kuala Lumpur, said Bank Negara will probably maintain its currency policy stance for the rest of the year.
“We are operating close to potential, but we don’t see signs that we are exceeding” Fraziali Ismail, director of the economics department at Bank Negara Malaysia
“Despite higher inflation pressures which are cost-push, we expect the overnight policy rate to stay unchanged at 3 per cent this year given lingering growth risks, the absence of strong demand conditions, and abating financial imbalance risks,” she said in a research note yesterday. Bloomberg News
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Business Daily Wednesday, March 29 2017 13
Asia In Brief GDP
S.Korea growth revised up to
(L-R) Sohn Kyung-shik, chairman of CJ Group, Koo Bon-moo, chairman of LG Group, Kim Seung-yeon, CEO of Hanhwa Group, Chey Tae-won, chairman of SK Corporation, Lee Jae-yong, vice chairman of Samsung, Shin Dong-bin, chairman of Lotte Group, Cho Yang-ho, chairman of Hanjin Group and Chung Mong-koo, chairman of Hyundai Motor Group, take oath during a parliamentary hearing on the Choi Soon-sil gate probe at the National Assembly in Seoul, on December 2016. Lusa
Election
Chaebol reform at forefront of S.Korea presidential campaign - again The front-runner for the May 9 presidential election, Moon Jae-in has promised to end the practice of pardoning convicted corporate criminals Hyunjoo Jin, Se Young Lee and Nichola Saminather
South Korea’s family-run conglomerates are facing calls for a shakeup in their governance from a leading candidate in May’s presidential election, following the ouster of former President Park Geun-hye in a burgeoning influence-peddling scandal. The conglomerates known as chaebol have come under the reform buzz saw before, only to emerge bigger and stronger than ever. The country’s four biggest chaebol groups account for around half the stock market’s value, according to the Korea Stock Exchange. The question after the May 9 election is how deep will the reform drive go this time? And would a new president tackle what critics say is at the heart of chaebol corporate governance conundrum - the spider web of cross-shareholdings among group companies held by their founding families? “...I do think there has been a sea change in attitudes among the Korean population at large so there is an increased chance of chaebol reform succeeding,” said Mark Mobius, the executive chairman of Templeton Emerging Markets Group. “But we can’t expect fast results simply because the importance of the chaebols in the economy is still so great,” he added in an email interview.
Pardoning corporate chiefs
The ouster of Park Geun-hye as president on March 10, following months of mass demonstrations, once again exposed the cosy ties between politicians and big business. Park herself had come into office promising to reform the conglomerates. The front-runner for the May 9 presidential election, Moon Jae-in has promised to end the practice of pardoning convicted corporate criminals,
and to break up the nexus between big business and the government in the world’s 11th-largest economy. Moon is targeting the top four groups -- Samsung, Hyundai Motor, SK and LG -- according to his economic advisor, Kim Sang-jo, nicknamed “chaebol sniper” for his shareholder activist campaign in the past two decades. “It will be difficult or almost impossible for chaebol to do things in the ways they used to do,” Kim told Reuters. The key to Moon’s chaebol reform policy is to get minority shareholders and board members to drive the pressure for better corporate governance in the family conglomerates, Kim said.
Familiar refrain
The scandals and calls for reform have a familiar refrain. Twenty years ago, South Korea began sliding into its rendition of the Asian financial crisis, starkly illustrating the pitfalls in the government-business symbiosis that was the basis of South Korea’s remarkable economic take-off. The government was forced to take a nearly US$60 billion bailout from the International Monetary Fund to stave off national bankruptcy. The terms of the bailout required the chaebol to adopt international standards of accounting and corporate governance and to restructure by shedding noncore units. They could no longer go to extreme levels of leverage for loans, the problem that precipitated the crisis. In the ensuing years, chaebol chiefs in prison garb were paraded before TV cameras and presidents left office in disgrace over corruption scandals. Yet the family conglomerates thrived with their pardoned leaders back at the helm. Prosecutors routinely say they have to weigh the economic consequences of indicting chaebol chieftains - they thought about charging the top echelon of Samsung Group’s leaders in the
latest scandal, before deciding just to arrest Lee. While the series of reforms following the 1997-98 financial crisis wrought major change to the chaebol’s accounting and corporate governance, it did little to sever the nexus with government, critics say. Nor did it do anything to disentangle the interlocking shares that define a structure of top chaebols like Samsung and Hyundai Motor Group. The Samsung family, for instance, runs the giant conglomerate with just over 1 per cent of its total shares while Hyundai Motor Group family owns 3.35 per cent of its total stocks, according to data from the Fair Trade Commission. “It’s impossible to break up the chaebol like what MacArthur did in Japan,” said Chang Sea-jin, business professor at Korea Advanced Institute of Science & Technology, referring to Gen. Douglas MacArthur’s dismantling of Japan’s zaibatsu conglomerates following World War Two. “What the next president will do is strengthen the role of the board of directors and the shareholders’ ability to exercise their rights…”
Modest reform?
One potential model for restructuring would be to create a vertical ownership structure with a holding company at the top, replacing the current spider web of interlocking shareholdings. Four out of the top 10 conglomerates including LG and SK have streamlined their corporate structures using holding companies, according to the FTC. Samsung Electronics said on Friday, however, it would be difficult to adopt a holding company structure for now. Moon is proposing a more modest goal: legislation that would give minority shareholders more power to nominate board members. Chaebol leaders are girding for the coming battle. “We are deeply concerned about politicians riding on populism to push for changes without having a close look at the consequences, which would be unbearable,” a source at one of the top conglomerates told Reuters. “They are denying the basic principle of a market economy.” An official at South Korea’s business lobby group, Korea Chamber of Commerce and Industry, said the move “infringes on the rights of large shareholders for the sake of other shareholders.”
Chaebol’s self-reforms
Samsung Electronics and Hyundai Motor say they are trying to enhance shareholder value, through dividend payments, share buybacks and governance committees under their boards. Investors say the moves both by the chaebol themselves and from the government could reduce the “Korea discounts” stemming from an opaque governance structure and underwhelming shareholder returns. Last week, shares of Samsung Electronics hit record highs and Hyundai Motor also gained the most in over five years on expectations for restructuring. Reuters
South Korea’s economy grew a seasonally adjusted 0.5 per cent during the final three months of last year from the previous quarter, revised central bank data showed yesterday, slightly above an earlier estimate of 0.4 per cent. The upward revision owed mostly to the construction sector, which grew by 1.3 per cent from a quarter earlier, faster than a 0.5 per cent expansion estimated before. From a year earlier, South Korea’s gross domestic product expanded by 2.4 per cent in the final quarter of 2016, the Bank of Korea data showed, slightly above the advanced estimate of 2.3 per cent released on Jan. 25. Commodities
Malaysia extends bauxite mining ban Malaysia yesterday extended a moratorium on bauxite mining by a further three months to June 30, looking to clear remaining stockpiles of the aluminium raw material as it presses the industry to halt damage to the environment. Natural Resources and Environment Minister said 2.15 million tonnes of bauxite still remained around Kuantan, the port capital of key bauxite producing state Pahang, from a total of 5.4 million tonnes before the moratorium was first imposed. Malaysia’s largely unregulated bauxite industry ramped up output in 2014 to fill a supply gap after Indonesia banned exports. Smartphones
Samsung Elec says to sell refurbished Galaxy Note 7s Tech giant Samsung Electronics Co Ltd said that it plans to sell refurbished versions of the Galaxy Note 7 smartphones, the model pulled from markets last year due to fire-prone batteries. Samsung’s Note 7s were permanently scrapped in October following a global recall, roughly two months from the launch of the nearUS$900 devices, after some phones self-combusted. A subsequent probe found manufacturing problems in batteries supplied by two different companies - Samsung SDI Co Ltd and Amperex Technology Ltd. Analysis from Samsung and independent researchers found no other problems in the Note 7 devices except the batteries. Military spending
Malaysia mulls buying Rafale fighter jets Visiting French President Francois Hollande pitched the sale of French-made fighter jets to Malaysia during his brief stay in Malaysia yesterday, but Malaysian Prime Minister Najib Razak said they are “not ready to make a decision.” In a joint press conference after a one-hour bilateral meeting, Najib acknowledged that Malaysia is a big procurer of French equipment, adding Malaysia is aware of Frenchmade aircraft Rafale’s success in several countries. At the press conference, Najib said defence and security cooperation with France is “the mainstay” and “the most significant part” of their bilateral relations.
14 Business Daily Wednesday, March 29 2017
International In Brief Markets
IPOs in Britain hit 5-year low ahead of Brexit Initial public offerings (IPOs) by companies based in Britain have raised US$1.53 billion so far in 2017, a 28 per cent decline on last year and the lowest year-to-date total since 2012 as Britain prepares to leave the EU, Thomson Reuters data shows. With London set to begin the process of leaving the European Union yesterday, and elections in France and Germany later this year, the number of suitable windows to launch IPOs in Britain and Europe is expected to be limited. South Africa’s Brait SE suspended plans to list on the LSE on March 24, citing uncertainty over Brexit. Strategy
Sberbank says sells Ukrainian subsidiary Russia’s biggest bank Sberbank is selling its subsidiary in Ukraine to a consortium of investors, which include Norvik Bank (Latvia) and a Belarussian private company, Sberbank said in a statement on Monday. Ukraine recently imposed sanctions on Sberbank and other Russian state-owned banks operating in Ukraine as part of a broader flare-up in tensions linked to separatist regions of eastern Ukraine. Sberbank’s Ukrainian offices were also the target of vandalism. Norvik Bank said in a separate statement that it and its main shareholder Grigory Guselnikov had signed an agreement on taking part in the investment consortium.
Currency
Venezuela to launch new exchange rate next week Government critics say Venezuela’s complex set of currency controls are at the heart of its worsening economic mess Girish Gupta
V
enezuela next week will launch a new currency exchange mechanism to replace the DICOM rate, also known as SIMADI, President Nicolas Maduro said late on Monday in a televised speech as the OPEC nation suffers a deep economic crisis. The oil-rich country currently has two official exchange rates, DIPRO at 10 and SIMADI at 709 bolivars per dollar. On the black market, however, a dollar can fetch more than 3,000 bolivars because official mechanisms do not satiate demand. “In a process of perfecting the system of collecting, administering and
stabilizing the flow of hard currency in Venezuela, we have decided to activate from next week a new model of DICOM,” said Maduro, speaking at the close of an exhibit to showcase Venezuela’s economy called “Expo Venezuela Powerhouse.” Maduro did not provide the new rate. Currency auctions will be held twice a week, he said. Previous new exchange mechanisms have failed to curb the weakening of the bolivar on the black market and economists widely say Maduro should be overhauling the creaking socialist model instead of tweaking it. “So far, what Maduro has said about this ‘new forex scheme’ is more of the same,” said local economist Asdrubal
EU nations vote against GM crops
Official data
Mexico trade deficit narrows The third increase in factory exports in four months helped narrow Mexico’s trade deficit with the rest of the world in February, according to official data, in a fresh sign the economy was weathering the initial shock of Donald Trump’s U.S. presidential win. Adjusted for seasonal swings, Mexico posted a trade deficit of US$398 million, down from US$736 million in January, the national statistics agency said on Monday. Manufactured exports rose by 3.6 per cent from the previous month in adjusted terms after dipping in January.
‘In the four years since Maduro came to power, Venezuela’s currency has fallen 99.3 per cent against the dollar on the black market’ Maduro blames the problems on an “economic war” waged against his government by the opposition with the help of Washington. Previous attempts to curb the spread between official and black market exchange rates have failed. The various acronyms for new official rates - SITME, SICAD, SICAD II, SIMADI, DIPRO and DICOM have become a joke among critics as the currency falls on the black market. In the four years since Maduro came to power, Venezuela’s currency has fallen 99.3 per cent against the dollar on the black market. This means that the equivalent of US$1,000 in bolivar savings then is now worth just US$7. Reuters
Agribusiness
A majority of EU countries voted on Monday against allowing two new genetically modified crops to be grown in Europe, batting the contentious decision on GM cultivation in Europe back to the EU executive. EU governments were asked to vote on the future of two grades of GM maize, Pioneer’s 1507 and Syngenta’s Bt11, which kill insects by producing their own pesticide and are also resistant to a particular herbicide. However, the votes against were not decisive in blocking their introduction because the opposition did not represent a “qualified majority” - also including countries that make up at least 65 per cent of the EU population.
Oliveros on Twitter. “This new DICOM kicks off in a context where the shortfall of hard currency is between US$10-US$12 billion. There’s no capacity to increase the supply of dollars.” Government critics say Venezuela’s complex set of currency controls are at the heart of its worsening economic mess. Millions of Venezuelans are not eating enough due to soaring inflation and shortages.
Food scandal
Brazil suspends more meat plants The top EU food safety official began a visit saying he wanted to help Brazil overcome the scandal and recover the confidence of European consumers Edson Ribeiro
Brazil ordered three more food processing plants to suspend production on Monday amid an investigation into alleged corruption in its meat industry as the world’s biggest beef exporter sought to regain the trust of consumers. Brazil’s centre-right government is hoping countries that imposed bans on Brazilian meat products because of the scandal will soon follow China’s lead in lifting them, and that others such as the European Union will not impose tougher restrictions. The top EU food safety official began a visit saying he wanted to help Brazil overcome the scandal and recover the confidence of European consumers, following the police investigation alleging the payment of bribes to inspectors and unsanitary conditions at meat plants. The investigation has hit hard at one of the few strong sectors in Brazil’s economy, which is experiencing its worst recession on record. “It’s not about bans. It’s about restoring trust,” EU Commissioner for Health and Food Safety Vytenis Andriukaitis told Reuters. “It’s about people’s health. It’s about trust in trade.” The European Union has maintained a partial ban on products from the 21 meatpacking plants under
investigation, which are currently barred from exporting. European farm groups have called for tougher action against Brazilian meat. Andriukaitis declined to say what measures the EU might take in coming days, but said he would discuss an “effective official controls system” with Brazilian Agriculture Minister Blairo Maggi in Brasilia.
“It’s not about bans. It’s about restoring trust... It’s about people’s health. It’s about trust in trade” Vytenis Andriukaitis, EU Commissioner for Health and Food Safety
“People need to perceive food is safe,” he said in an interview. Brazil has so far ordered the temporary closure of six of the 21 food processing plants under investigation by the police and health authorities. The other 15 plants are not allowed
to export, although they may still produce for the domestic market. All three plants ordered closed on Monday are in Parana state, where the scandal has been centred. They include units of Souza Ramos, Industria de Laticinios SSPMA and Fabrica de Farinha de Carnes Castro. Several major meat importers issued bans after Brazilian federal police unveiled their investigation on March 17, code-named “Operation Weak Flesh.”
Confidence undermined
Maggi said investigators had not found any products that could harm the health of consumers. He acknowledged at a news conference that Brazil faced an uphill battle to recover its market share after confidence in its meat was undermined by the scandal. On Saturday, China, the biggest buyer of Brazilian meats, lifted import suspensions, a move accompanied by Egypt and Chile, bringing hope of an end to the crisis. Maggi said he hoped to convince Hong Kong, Brazil’s No. 2 market, to follow China and lift its full ban on Brazilian meat imports. Meat is Brazil’s third biggest export after soy and iron ore, with foreign sales of almost US$14 billion last year in beef, chicken, pork and other products. The meat scandal has fuelled pressure from farm groups in the United States to block imports of Brazilian raw beef, a market that Brazil only gained access to last year for its fresh meat, an important seal of approval that is now at risk. The United States has already started testing all beef from Brazil for pathogens. Reuters
Business Daily Wednesday, March 29 2017 15
Opinion Hey, You! Get Ofo, MoBike - a China Bubble Refrain Tim Culpan Bloomberg Gadfly
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alk about FOMO. As much as we may think venture capitalists are crazy to keep pouring kerosene on the global ride-hailing wars, a quick look at the shenanigans on China’s bike-share battlefield makes you wonder where the insanity stops. Matrix Partners, Citic Private Equity Funds Management Co., Macrolink Group, Warburg Pincus LLC, Sequoia Capital Operations LLC, Didi Chuxing and even Temasek Holdings Pte all now seem to be suffering bouts of fear of missing out, and have decided to throw money at companies that don’t actually seem to have business models. They’ve even given birth to a unicorn, after Ofo convinced investors to fork out US$450 million. Convinced is the verb Bloomberg News reporter Lulu Chen used, and it seems entirely appropriate. I’d love to see the slide decks that Ofo and rivals including MoBike have been showing investors to charm them out of more than US$1 billion. In their debut album, the Rolling Stones sang “You Can Make It If You Try.” More famously though, they also warned that “You Can’t Always Get What you Want.” “Uber for Bikes” seems to explain the notion that you can make it if you try. This overlooks the fact that Uber is not profitable. Not only that, there’s little likelihood we’ll see a profitable Uber Technologies Inc. anytime soon. Worse for the bike-sharing companies is that their business is not like Uber and Lyft Inc. Those companies’ massive advantage over taxi operators is that they don’t own inventory or hire drivers: they’re just agents matching drivers and riders, taking a cut in the process. The bike companies, though, are spending buckets of money to buy and distribute inventory in addition to the kind of back-end systems Uber and Lyft have built to track supply, demand, usage and payments. Their decision to forgo docking stations means riders can leave the bike anywhere they please, compounding the problem. It’s a rental business where customers don’t have to return the product or keep it in good condition; they’re merely required to stop using it at a random place and time of their choosing. This characteristic should worry U.S. municipal chiefs, because these startups are expanding overseas. And since it’s rental, the inventory needs are higher because the companies must have enough bikes on hand to meet peak demand - they can’t just recruit new inventory like the ride-share operators. Then they must spend again to retrieve and repair dumped bikes. Finally, let’s talk about revenue. At as little as RMB0.5 per half-hour - or free, sometimes - it’s going to take an extraordinary amount of time to recoup costs, especially when maintenance and replacement are included. And don’t believe the companies are building scale or loyalty: On the contrary, they’re demonstrating that bikes are a commodity and command no loyalty. VCs, fresh from ride-hailing victories, may be disinclined to heed such warnings. After the Rolling Stones had a hit complaining they couldn’t get no satisfaction, the band followed up by telling people to leave them alone. “Get off of my cloud,” Mick Jagger sang. Investors may be singing that tune for a while. Bloomberg Gadfly
‘Uber for Bikes seems to explain the notion that you can make it if you try. This overlooks the fact that Uber is not profitable’
Li Keqiang, China’s Premier. Lusa
The temptations of a resilient China
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nother growth scare has come and gone for the Chinese economy. This, of course, is very much at odds with Western conventional wisdom, which has long expected a hard landing in China. Once again, the Western perspective missed the Chinese context – a resilient system that places a high premium on stability. Premier Li Keqiang said it all in his final comments at the recent China Development Forum. I have attended this gathering for 17 consecutive years and have learned to read between the lines of premierspeak. Most of the time, senior Chinese leaders stay on message with rather boring statements about accomplishments, targets, and reforms, toeing the official line of the annual “Work Report” on the economy that is delivered to the National People’s Congress two weeks earlier. This year was different. Initially, Li seemed subdued in his ponderous responses to questions from an audience of global luminaries that focused on weighty issues such as trade frictions, globalization, digitization, and automation. But he came alive in his closing remarks – offering an unprompted declaration about the Chinese economy’s underlying strength: “There will be no hard landing,” he exclaimed. The all-clear sign from Li was in sync with official data in the first two months of 2017: solid strength in retail sales, industrial output, electricity consumption, steel production, fixed investment, and service sector activity (the latter signalled by a new monthly indicator developed by China’s National Bureau of Statistics). Meanwhile, foreign-exchange reserves rebounded in February for the first time in eight months, pointing to an easing of capital outflows. At the same time, the People’s Bank of China took its cue from the U.S. Federal Reserve’s rate hike this month, boosting Chinese policy rates by about ten basis points. The PBOC would not have taken that step had it been overly concerned about the underlying state of the Chinese economy. But the icing on the cake came from the trade data – namely, annual export growth of 4 per cent in January and February, following a 5.2 per cent contraction in the fourth quarter of 2016. This underscores a key contrast between the latest and previous Chinese growth scares. Call it the Trump effect: the revival of the global economy’s “animal spirits” in recent months has provided important relief for a Chinese economy that is still heavily dependent on exports. Whereas earlier growth scares were exacerbated by chronic downward pressures from sputtering post-crisis global demand, this time external headwinds have given way to tailwinds. But while the near-term prognosis for the Chinese economy is far more encouraging than most had expected, an eerie sense of denial, bordering on hubris, appears to be creeping into China’s strategic groupthink. With the United States looking inward, Chinese decision-makers seem to be pondering the opportunity that might arise from a seismic shift in global leadership. I was repeatedly asked about the possibility of a China-centric globalization – reinforced by Chinese leadership in multilateral trade (the 16-nation Regional Comprehensive Economic
“
Stephen S. Roach a faculty member at Yale University and former Chairman of Morgan Stanley Asia
Partnership, or RCEP), pan-regional investment (China’s One Belt, One Road initiative), and a new institutional architecture (the Chinese-dominated Asian Infrastructure Investment Bank and the New Development Bank). It’s as if China had been preparing to fill the void being left by Donald Trump’s “America first” U.S.. The Chinese are keen students of history. They know that shifts in global leadership and economic power are glacial, not abrupt. Yet I get the sense that they view the current circumstances in a very different light: Trump, the great disruptor, has changed the rules of engagement for what had long been a U.S.-centric globalization. Many in China are now wondering whether this may be an opportunity to seize the reins of global power. Anything is possible – especially in a world where uncertainty is the only certainty. But there is another lesson of history that the Chinese must bear in mind. As Yale historian Paul Kennedy has long maintained, the rise and fall of great powers invariably occurs under conditions of “geostrategic overreach” – when a state’s global power projection is undermined by weakness in its domestic economic fundamentals. Global leadership starts with strength at home, and China still faces a long road of rebalancing and restructuring before it reaches the Promised Land of what its leadership calls the “new normal.” But here there is another important disconnect between the view inside China and perceptions in the West. The view from outside is that Chinese reforms, the means to rebalancing, have stalled over the past five years under President Xi Jinping. The same view prevailed under the prior ten-year leadership of Hu Jintao. But is this really the correct way to assess what is happening in China? Results matter more than grand pronouncements. Since 2007, when former Chinese Premier Wen Jiabao laid down the rebalancing gauntlet for a Chinese economy that had become “unstable, unbalanced, uncoordinated, and unsustainable,” China’s economic structure has, in fact, undergone a dramatic transformation. The GDP share of the so-called secondary sector (manufacturing and construction) fell from 47 per cent in 2007 to 40 per cent in 2016, whereas the share of the tertiary sector (services) increased from 43 per cent to nearly 52 per cent. Structural shifts of this magnitude are a big deal. The key point missed by reform deniers is that China is actually making rapid progress on the road to rebalancing. All of which brings us back to the questions raised at this year’s China Development Forum. The combination of near-term resilience and an inward-looking U.S. appears to offer a tantalizing opportunity for China. But China should resist the temptations of global power projection and stay focused on executing its domestic strategy. The challenge now is to realize the “tremendous opportunity” that Li touted in ruling out a hard landing. Project Syndicate
With the United States looking inward, Chinese decision-makers seem to be pondering the opportunity that might arise from a seismic shift in global leadership
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16 Business Daily Wednesday, March 29 2017
Closing Financial sector
Mainland banking sector onshore assets up
“big five” lenders -- the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Chinese banks held RMB230 trillion Bank, and Bank of Communications -- came (US$33.4 trillion) in onshore assets as of in at RMB83.1 trillion by the end of last the end of February, according to data month, accounting for 36.1 per cent of the released by the China Banking Regulatory total assets in the industry. Commission yesterday. China’s more than 130 city commercial The volume marked an increase of 14.6 per cent year on year, the banking regulator said. banks, which were founded in 1995 through shareholding reform of urban credit By the end of February, lenders’ onshore cooperatives, recorded RMB28.9 trillion in liabilities rose 14.7 per cent to reach total assets, accounting for 12.6 per cent of RMB212.3 trillion, the data showed. the industry’s total. Xinhua The combined onshore assets of China’s
Natural disaster
Cyclone Debbie rips into Australia The Insurance Council of Australia declared a catastrophe, with insurers anticipating thousands of claims Matthew Burgess and Michael Sin
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powerful c y c l o n e tore into Australia’s north-eastern coast yesterday, forcing thousands of people to flee, shuttering coal to gold mines and prompting insurers to declare a catastrophe. Cyclone Debbie made landfall near Airlie Beach, a tourist resort and gateway to the Great Barrier Reef, at midday with wind gusts up to 260 kilometres per hour, according to the
Bureau of Meteorology. Airlines cancelled flights, as emergency services braced for flooding and destruction. “We are going to get lots of reports of damage,” Queensland Police Commissioner Ian Stewart told reporters. “Sadly, I think that we will also receive more reports of injuries, if not death.” It’s the worst storm to hit Queensland since Cyclone Yasi -- the most severe at category five -- badly damaged sugar- and banana-producing regions in 2011. Debbie, which made landfall as a category four cyclone, was downgraded one step as the weather system moved inland, bringing heavy rainfall that’s expected to cause flash flooding. The Insurance Council of Australia declared a catastrophe, with insurers anticipating thousands of claims. As many as 25,000 residents evacuated
low-lying areas due to an expected storm surge. One man was taken to hospital yesterday after being badly injured by a collapsing wall, police said. The cyclone’s wind speeds have peaked, though the storm will continue to deliver gusts of up to 165 kilometres per hour and heavy rainfall through today that’s likely to cause major river flooding, the bureau said in a statement posted to its website yesterday.
Bowling club
In the town of Bowen, close to where Debbie made landfall, the bowling club was turned into an emergency shelter for nursing home residents. The storm has been “blowing its head off,” said club vice chairman Ron McGree, who was sanguine about the disruption. “We only get one or
two cyclones every now and again. We pay a lot more in our insurance of course,” he said by telephone. Australian Army Brigadier Christopher Field will coordinate recovery efforts, Queensland Premier Annastacia Palaszczuk said in an emailed statement. Field served as chief of operations following Yasi six
“We are going to get lots of reports of damage” Ian Stewart, Queensland Police Commissioner
years ago, she said. More than 45,000 properties had power outages, according to Ergon Energy. Vodafone Australia said customers may be experiencing little or no mobile service due to the outages.
Coal operations
BHP Billiton Ltd., the world’s biggest miner, said it was suspending operations at five coal mines due to the storm. Glencore Plc. and gold miners Evolution Mining Ltd. and Resolute Mining Ltd. were among other firms impacted. Rail freight operations and shipping were also affected, while industry group Canegrowers said sugar-cane crops could be damaged. There should be “minimal impact on broader economic growth” as the storm is hitting late in the March quarter, Craig James, a senior economist at the securities unit of Commonwealth Bank of Australia, said in a note. “Any delays to production should be caught up over the June quarter. Any repairs to damaged buildings and infrastructure will boost economic activity over coming quarters.” Bloomberg News
A photo issued by the Bureau of Meterology yesterday (07.30am CEST) showing the cloud rotation (R) and eye of severe Cyclone Debbie (category 4) that has made landfall near Airlie Beach in Queensland. Lusa
Transparency International
Reform
Results
ECB must face closer democratic scrutiny
Beijing promises better financial support for manufacturing upgrade
Evergrande 2016 core profit jumps
Democratic oversight and accountability must be overhauled at the European Central Bank, which has taken on an increasingly political role since the financial crisis, NGO Transparency International (TI) charged yesterday. “The ECB emerged as the decisive actor in the euro crisis, with an extraordinary degree of latitude,” the report argues, but “faces a significant decline in public trust” even as politicians have loaded more responsibility onto it, such as bank supervision. TI grants that the Frankfurt institution has notched up numerous achievements in the years since the crisis, becoming banks’ lender of last resort, shutting down financial market speculation against member states, and heading off risks of deflation. But “each of these achievements has its flip side,” the report finds, with the ECB influencing policy in crisis-hit countries like Greece, Spain, Italy and Ireland by making monetary support conditional on economic reforms. And the bank’s “quantitative easing” programme, under which it buys tens of billions of euros in government and corporate bonds per month in a bid to drive up inflation, is “a monetary policy experiment, the distributive, financial and macroeconomic consequences of which vastly exceed conventional monetary policy,” TI says. AFP
Chinese authorities yesterday promised “multi-pronged financial support” for the manufacturing sector as the government looks to shift the country away from lowend manufacturing to more value-added production. In a guideline jointly released by several regulators including the central bank and the Ministry of Industry and Information Technology, China pledged it would improve its support of the “Made in China 2025” strategy. More financial support should be given to technology and manufacturing sector upgrades, the guideline said, underscoring the key fields and tasks in the Made in China 2025 blueprint. China will allow banks and institutions to play differentiated roles in serving the manufacturing sector, and agencies will be set up to offer more professional services to the industry. The regulators also pledged to foster a multi-layered capital market and speed up the listings of high-tech manufacturing firms. Innovative bond and insurance products will cater to the financing needs of the advanced manufacturing industry, the guideline specified. In 2015, China announced its Made in China 2025 plan would elevate the manufacturing sector up the value chain. Xinhua
China Evergrande Group yesterday reported an 89 per cent jump in 2016 core profit thanks to a booming real estate market that saw a strong increase in sales prices and volumes. The homebuilder also said its total borrowings rose 80 per cent to RMB535.1 billion (US$77.7 billion), while perpetual capital instruments - high-interest debt “disguised” as equity - rose 49 per cent to RMB112.9 billion. The size of Evergrande’s debt, spurred by corporate mergers and land acquisitions, has captured investor attention. However, the developer’s fast growth in contract sales - which made it China’s biggest property developer by sales value for the first time last year - means income is secured. The company said core profit, which excludes revaluation gains, was RMB20.81 billion. Net profit rose 1.6 per cent to RMB17.62 billion. Evergrande said in a statement that it aimed to acquire high-quality projects in 2017 and secure a leading position in terms of land reserves. Last week, Evergrande added to its debt pile with a US$1 billion seven-year bond that sold briskly due to its high yield of 9.5 per cent. Reuters