Business Daily #1287 May 3, 2017

Gross gaming revenue exceeds analysts’ expectations Gaming Page 6

Wednesday, May 3 2017 Year VI Nr. 1287 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Alimentation

Food safety priority as MSAR signs agreements with Portugal for training and testing Page 5

The Government of Macau, through Secretary Alexis Tam and now with the intervention of the Chief Executive, is quite right to want to get to the bottom of the matter regarding illegal methods of recruitment by the Cultural Affairs Bureau.

It is finally a sign that an investigation by the Commission Against Corruption (CCAC) will not be lost, filtered by political circumstances, and promises to do it correctly, maybe one day. Apart from that it is also a signal to all other departments and institutes that may have been doing the same. And we are assured that yes, that has been a current practice.

Sometimes, it is really necessary to bang the table and reintroduce transparency and correction into the administrative apparatus. Over the decades we have heard of outrages, in addition to the usual criticism of para-union organisations in the civil service. But little or nothing has been done and the guilt - if it exists - continues to die alone.

In the specific case of the Cultural Affairs Bureau, during the time of Ung Vai Meng’s presidency, there were other clear signs that all was not well. And this newspaper recounts at least one episode.

After six months of meeting requests, always denied by “impossibility of agenda,” an appointment was scheduled between the department head and the media team to which this newspaper belongs.

At the meeting, the head of department failed to attend and was instead represented by two underlings, one of whom had just entered the Bureau.

No apologies, no explanations.

Four months, and the silence remains. No results as well, only the deep sense of disrespect that so many other individuals and companies have had to endure when they need to deal with certain government departments.

It is therefore necessary to end this type of despotism, of disregard - not to mention the possible illegalities that are raging in the administrative apparatus - because there are no mechanisms of accountability for decision makers.

Thus, Alexis Tam and Chui Sai On do well in wanting to get to the bottom of this issue and to make this case a warning to others.

Junket

Former Iao Kun Group posts 62 pct drop in rolling chip for 2016 Page 7

Deals

Chinese investment in Australia surges Page 9

Construction

Construction workers’ wages are heating up on The Strip. Increasing nearly 2 pct q-to-q on average, with non-residents pocketing 4 pct extra. Concrete formwork and fire service workers enjoyed the largest increases at 19 pct and 15 pct. While unskilled workers saw a 6 pct pay hike. Page 3

Eye on Japan

Operators circling Japan will need to be electronic gamingcentric, according to a new report.

Candidates will also need to address ‘problem gambling and organised crime’ preconceptions, As well as catering to women who could gamble as much or more than Japanese men.

Study, study

Education The number of students from the MSAR and HKSAR studying in Taiwan is about equal. A Taiwan official says more ‘academic freedom’ in higher education institutions on the island is attracting more local students. Despite a lack of promotion

by Taiwan universities and frosty China-Taiwan relations. The area of study is also a factor. Page 4

Mainland manufacturing losing steam Caixin PMI The PMI index for April registers a slowdown in Chinese manufacturing. Suggesting Mainland industry is losing steam for a second month. Caixin data also points to an easing of cost pressure. Page 8

Gaming Page 6

24,696.13 +81.00 (+0.33%) Worst Performers

Belle International Holdings

+15.18%

CK Hutchison Holdings Ltd

+0.62%

China Mengniu Dairy Co Ltd

-1.99%

Bank of Communications

-1.00%

Geely Automobile Holdings

+2.29%

Sun Hung Kai Properties Ltd

+0.60%

Kunlun Energy Co Ltd

-1.99%

China Petroleum & Chemical

-0.95%

Tencent Holdings Ltd

+2.05%

Wharf Holdings Ltd/The

+0.45%

China Resources Land Ltd

-1.62%

Want Want China Holdings

-0.89%

+1.67%

Cheung Kong Property

+0.45%

New World Development

-1.14%

China Resources Power

MTR Corp Ltd

+0.45%

CNOOC Ltd

-1.10%

Hang Lung Properties Ltd

+0.63%

-0.71% -0.40%

24° 27° 22° 26° 23° 26° 23° 26° 22° 26° Today

Source: Bloomberg

Best Performers

BOC Hong Kong Holdings

Fitch says capital controls hurting internationalization of Yuan Page 16

Wage Structures

HK Hang Seng Index May 2, 2017

AIA Group Ltd

Currencies

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Right decision

www.macaubusinessdaily.com

2 Business Daily Wednesday, May 3 2017

Macau Trade

CEPA experiences 48 pct y-o-y drop in April

L

ocal exports of zero tariff goods to Mainland China under the Closer Economic Partnership Agreement (CEPA) fell 48 per cent year-on-year, but underwent an 8.1 per cent increase month-onmonth, reaching MOP5.81 million during the month of April, according to the most recent data from the Macao Economics Services (DSE).

So far this year the agreement has seen the export of MOP25.56 million-worth

under the agreement, while since the implementation of the agreement in Janu a r y o f 2004 , M O P 792 million-worth of goods has been exported to the

Mainland.

As at the end of last month some 616 local firms were holding Macau Service Supplier certificates, allowing local companies and

enterprises to operate on the Mainland and enjoy zero tariff treatment.

According to official data, 49 per cent of the certificates issued were granted

to local firms in the transport industry, such as those operating freight forwarding agencies, and for businesses related to logistics, storage and warehousing as well as transportation.

Some 147 of the certificates were provided to companies offering medical and dental services, accounting for 24 per cent of the total.

Other local firms awarded the certificates are primarily engaged in real estate services, MICE business and travel agency services.

Government

Getting the ball rolling The Chief Executive will appoint an investigator to conduct disciplinary procedures against the Cultural Affairs Bureau The Chief Executive (CE) is appointing an investigator to begin disciplinary procedures against the Cultural Affairs Bureau (ICM) after an internal report conducted by the department was sent to the authorities, a government release has announced.

An investigation report will then be sent to the Commission Against Corruption (CCAC) with the results to be divulged to the public at an ‘appropriate time’ the release notes.

The government also announced legal procedures will be initiated

should any infractions be uncovered during the investigations and that it will ‘closely follow’ the application of the suggestions made by the reports conducted by oversight departments.

A report conducted by the CCAC has revealed that ICM avoided using open or central recruitment systems to hire its workers in a regulated way; doing so, instead, via acquisition of services, with the number of workers recruited this way reaching 94 in 2016. N.M.

Water treatment

Planning the new urban zones The Macau Laboratory of Civil Engineering (LECM) was granted MOP23.89 million to conduct research on the soil conditions of the new urban zones for the development of a residual water treatment station, according to a dispatch in Official Gazette from yesterday.

The amount will be paid in two tranches. The first tranche, due in 2017, amounts to MOP14.33 million.

The second, to be disbursed in 2018, amounts to MOP9.55 million.

The new urban zones comprise the landfills being developed on the outer western shore of the Macau Peninsula (Zone A and B), and on the north coast of Taipa (Zones C, D, and E1), as well as north of the Macau International Airport (Zone E2).

LECM was established in 1988 as a non-profit technical and scientific organisation of public interest, with technical, budgetary, and patrimonial autonomy, according to the organisation. S.Z.

Social housing

Back on track The University of Macau will receive approximately MOP14.54 million to oversee quality control on the construction of Mong Ha Social Housing Phase II, as well as Mong Ha Sports Pavilion, according to a dispatch in the Official Gazette made public yesterday.

The total amount is to be disbursed in six annual installments, from 2017 to 2022, with the first amount paid out this year equalling MOP1.29 million, rising to MOP3.12 million between 2018 and 2021 and falling

to MOP779,205 in its final year.

The Mong Ha social housing project has generated controversy when the government decided to terminate the original contract it had granted to Hobbs Construction Company Limited in 2011 for MOP685 million, Business Daily reported.

Expected to be completed in 2014, the project was, however, halted for some four years due to a legal dispute between the government and the original contractor, and never completed.

The government has not disclosed the compensation amount paid to Hobbs Construction for terminating the contract. S.Z.

Crime

PSP nab 135 illegal workers in Q1 In the first three months of this year, authorities detained 135 illegal workers in the MSAR, 29 more than in the same period of last year, after inspections were conducted at 1,415 locations, according to the most recent data released by the city’s Public Security Police Force (PSP).

Some 67 illegal workers were discovered in the city in the month of

March, an increase of 20 workers when compared to the 47 illegal workers identified in February.

In co-operation with the Labour Affairs Bureau (DSAL) and other departments, the PSP conducted inspections at 472 locations in March, including construction sites, private properties, commercial and industrial buildings. N.M.

Business Daily Wednesday, May 3 2017 3

Macau Labour

Wages for construction workers up 1.8 pct in Q1 Cecilia U cecilia.u@macaubusinessdaily.com

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he average daily wage of construction workers in the MSAR increased by 1.8 per cent quarter-to-quarter to MOP830 (US$104) for the first three months this year, according to the latest data released

yesterday by the Statistics and Census Service (DSEC). The average includes that of both local and non-resident workers.

The city’s construction industry saw a growth of 4 per cent in the wages of non-resident construction workers, to MOP750 per day, when compared to the same period last year, while that of local construction

workers registered a slight increase of 0.4 per cent quarter-to-quarter, to MOP1,045 daily.

In terms of the daily wage for skilled and semi-skilled workers, the average amount per worker increased by 1.8 per cent quarter-to-quarter to MOP834, attributable to a rise of 3.9 per cent in the average wage of skilled and semi-skilled

non-resident construction workers.

DSEC data reveals notable increases in wages for some occupations, especially with occupations relating to concrete formwork carpenters and fire service mechanics demonstrating the highest increases - at 18.7 per cent (MOP985) and 15.1 per cent (MOP1,075), respectively.

Meanwhile, carpenters, electrician and electrical workers and plumbers experienced decreases in their daily wages, down 13.6 per cent, 11.6 per cent and 6.1 per cent quarter-on-quarter, respectively.

For unskilled workers’ average wage increased 6.1 per cent to MOP433, quarter-to-quarter.

During the first three months of 2017, after discounting the effect of inflation, the wage index of construction workers stood at 107.5, posting an increase of 3.6 percentage points quarter-to-quarter in real terms.

In particular, the index of local construction workers rose 1.2 percentage points to 133.2.

Price of construction materials down

Regarding the price of construction materials during the quarter, concrete fell 5 per cent quarter-to-quarter, to MOP783 per cubic metre.

Meanwhile, the price for sand increased 2.8 per cent quarter-to-quarter, hitting 220 per cubic metre, while that of spiral and round reinforcing steel bars increased 1.9 per cent to MOP4,590 per tonne.

The price of ordinary clear sheet glass rose 2.7 per cent quarter-to-quarter, reaching MOP91.9 per square metre.

Construction materials for residential buildings’ price index was 133.2 in the three-month period, down 0.5 per cent quarter-to-quarter.

Protest

Thousands hit the streets on Labour Day Over 2,500 protesters took to the streets on Labour Day (Monday), of which affected homebuyers of Pearl Horizon made up the largest group of protesters.

The number of participants is nearly five times the 580 participants who joined protests a year ago, according to data from the Public Security Police (PSP).

Pearl Horizon, a residential project

sitting on land lot-P in the Areia Preta district on the Macau Peninsula, was designed to house a total of 5,000-plus residential units.

However, the government declared the land granted to the plot’s developer, Polytex Corporation Ltd., invalid, and stated its intention to reclaim the land plot, following the latter’s failure to complete the project by the expiry date of its concession term – despite

Aviation

Connecting Manila and Guangzhou The Philippines unit of low-cost carrier Air Asia has announced it will operate four weekly flights between Manila and Guangzhou, according to Philippines website BusinessWorld.

The new lines opened by Philippines AirAsia, Inc. will connect the two cities every Monday, Wednesday,

Thursday and Saturday starting from April 27.

According to the report, the lifting

by Chinese authorities of travel restrictions on Philippine nationals in October of last year was an important factor for the increase in flight frequency. N.M.

the fact that over 3,000 of the units had been sold off-plan.

Chief Executive Fernando Chui Sai On previously reiterated in the Legislative Assembly last month that the government must wait for a court ruling before proceeding with any potential remuneration.

The Macao Family Reunion Association was the second largest group of protesters on Labour Day.

The Association voiced their demands for their adult children, born in the Mainland, to receive residence permits for Macau to be reunited with their parents, while the Force Federation of Trade Unions also took to the streets demanding restrictions on the import of non-resident workers and greater protection of employment for locals.

In total, five demonstrations occurred on Labour Day, with petitions delivered to Government Headquarters and the Chinese Liaison Office.

C.U. with Lusa

4 Business Daily Wednesday, May 3 2017

Macau Opinion

José I. Duarte*

Trivial matters?

A member of the Portuguese Government was recently in Macau. The purpose of the trip included the review of the existing bilateral agreement on double taxation and the signature of an agreement concerning the exchange of financial information. The latter is a type of agreement Portugal signed with various jurisdictions such as Andorra, Bermuda, the Cayman Islands and the like. Other reasons may have concurred, but the Macau side was not prepared to do so. (If and why Macau deserves to be in such company would be an interesting subject. In the end, no signature took place.)

The immediate motive was the fact that related legislation was (and still remains) under discussion in the Legislative Assembly. That was enough to frustrate the purported aim of the trip.

Indeed, it would be inappropriate to sign a specific agreement with a particular country while legislators discuss the general principles of such type of exchange.

That being the case, if no other urgent matters justified the trip, it is a bit puzzling that it happened at all at this time in the terms made public. It suggests something did not go according to plan. For the record, that member of the government also visited Hong Kong, with a comparable purpose, but did not meet a similar fate. But these are, finally, somewhat marginal aspects.

More surprising, perhaps, is how little discussion took place publicly on the subject, and how little of it percolated to the media. It is a topic that has been on the international agenda for quite a while.

It has obvious relevance on multiple levels, spanning from those concerning the protection of privacy and economic freedom to those relating to the prevention of terrorism and money laundering.

Moreover, the new regulation is not of interest to Portugal alone, far from it. For instance, the OECD website on matters of fiscal co-operation and transparence reported, in March this year, the signature of such type of agreements between Hong Kong and six other countries.

Therefore, it is arguable that the merits or difficulties of such legislation, and the international processes and trends where the discussion of this type of regulation fits in, deserved a broader coverage and wider public clarification. The matter is not receiving an attention commensurate with its importance. It is dealt with a certain lightness of approach.

It may seem we are dealing with a minor administrative matter, but that is arguably not the case. *economist and permanent contributor to this newspaper.

Foreign Education

Taiwan calling Macau and Hong Kong are sending the same number of students to Taiwan each year. Some are allegedly being driven there because of freedom of speech Sheyla Zandonai sheyla.zandonai@macaubusiness.com

S

tudents from both Macau and Hong Kong are reportedly attracted by the environment of ‘academic freedom’ that characterises higher education institutions in Taiwan, according to a claim by Hsu Juihung, a Ministry of Education official stationed in Hong Kong, cited in a report by the Taipei Times yesterday.

The official was quoted as saying that some 8,000 students from Macau and Hong Kong go to Taiwan every year to pursue a tertiary education programme, mentioning a talk with a parent met during an education fair in the MSAR who explained his son chose Taiwan over Mainland China because of ‘fewer academic restrictions.’

According to the latest data compiled in the Yearbook of the Tertiary Education Services Office (GAES), the number of students from Macau who left the city to study in one of the universities in Taiwan during the

2014/2015 academic year (the most recent report) reached 4,408.

Speaking to Business Daily, Professor Melody Lu, from the Department of Sociology at the University of Macau, explained that the question of academic freedom is of more importance for those students who opt to pursue programmes in the field of social sciences.

“It should matter less to those students enrolled in maths or hard sciences,” she notes.

Professor Lu, a native of Taiwan who has conducted research on migration and mobility, said she believed the number of students in higher education applying to go to Taiwan seems to have stabilised recently.

According to GAES, the number of higher education students who went to Taiwan totalled 4,027 students in 2013/2014, and 4,404 in 2012/2013.

Professor Lu suggests that among the reasons for the lack of increase in the numbers is the choice of parents of the destination of their offspring as well as the Taiwan Government’s

Subsidies

According to the latest data available from the Education and Youth Affairs Bureau (DSEJ), the number of local students who have travelled to Taiwan to enrol in tertiary education under some kind of financial support from the government during the academic year of 2014/2015 totalled 2,045.

Among those, 1,798 benefited from ‘tertiary education grants,’ while 247 crossed the straight on ‘interest subsidy scheme loans.’

This would correspond to roughly half of the students who went to Taiwan that same year, considering a similar increase in students for the year, in line with the data published

by GAES. A spokesperson from DSEJ explained that the other half might be under different, minor financial support schemes, such as the economic subsidy or the MOP3,000 per year for eligible students registered in higher education.

Corporate

Competition

UM team wins ‘elevator pitch’ A team of Master’s students from the University of Macau have won the regional final of the Bank of China Trophy One Million Dollar Macao Regional Entrepreneurship Competition, according to a university release.

The event, hosted by the University of Macau and sponsored by the Bank of China Macau branch, brought together 12 teams of students from Macau comprised of tertiary students of higher education institutes and

educational promotion policy.

“For one, I don’t think that Taiwan is on the top of the list [for locals], given that China and Taiwan are not on a friendly basis. On the other hand, it seems that the Taiwan Government does not prioritise the Macau market much, as institutions from Mainland China would do, by often coming here to promote universities, and offer orientation,” she explained.

local residents studying in higher education institutes overseas to present their business proposals and make an ‘elevator pitch’.

The winning group - Golden Wound Dressing Co. Ltd. - won the championship as well as Best Exhibition Award in the competition, and will go on to the national final in August for start-up fund prize money.

The final will be held in Nansha, Guangzhou.

CTM donating to Caritas on Mother’s Day

Local telecom operator Companhia de Telecomunicaçōes (CTM) will be introducing a donation campaign entitled ‘That little more’ for Mother’s Day, with the accumulated money to go to charity group Caritas Macau in a ceremony on May 13. The donation will be accompanied by a tea party welcoming over 200 benefiting families to Pousada Marina Infante Hotel.

Donations will be derived from a MOP50 donation from the purchase of each iPhone 7, with the cheque to be presented at the ceremony, while the telecom operator notes will ‘constantly support local welfare organizations and their work’ as well as ‘organizing diversified charitable activities to express the loving spirit of a caring community’.

Business Daily Wednesday, May 3 2017 5

Macau Food

Safe to eat MSAR seeks to improve food safety through IACM co-operation programmes with Portugal’s ASAE Cecilia U cecilia.u@macaubusinessdaily.com

T

he C ivic and Municipal Affairs Bureau (IACM) and Food and Economic Safety Authority (ASAE) of Portugal are establishing a number of co-operative programmes to strengthen the food safety of the two regions revolving around conducting technical and operational exchanges in areas of research and study as well as laboratory tests.

Speaking on the sidelines of yesterday’s meeting, the first working meeting between IACM and ASAE, the chairman of the administration committee of IACM - José Tavares - said food testing in laboratories would be the initial programmes to run, given that Portugal has more experience in the field.

This includes reinforcing the exchange of testing technique of both sides in order to allow Macau to learn methodology and use of standard equipment for testing food imported from Portugal, to achieve consistency in the testing standards of the two territories.

The chairman also revealed that some 53 staff from MSAR Government bodies will go to Portugal for three weeks of training by the ASAE. The training will cover law, tests and inspection, and food safety.

The MSAR Government signed a co-operation agreement on the oversight and monitoring of food activities

with Portugal last October.

The agreement includes establishing a notification method for food safety information and designating contact persons to facilitate instant notification of food safety issues in both places. In addition, it outlines more opportunities for Macau to participate in food safety workshops and meetings in the European Union with Portugal serving as Macau’s channel into the EU. The IACM head also disclosed that issues encountered in the MSAR are also being encountered by the Portuguese authorities relating to online food purchasing. The department head noted that both authorities agreed on an IACM suggestion to place approved food suppliers on the government’s website for reference, prior to a law supporting the initiative, noting that the bill is still in draft form. The department head commented that the timetable for the

IACM Head: Local poultry supplier may co-operate with Chinese slaughterhouse for frozen poultry imports to city

Chairman of the Civic and Municipal Affairs Bureau (IACM) José Tavares said yesterday that local poultry suppliers may have to seek out and rent slaughterhouses in Mainland China if they wish to import frozen poultry to the MSAR.

bill to enter legislative procedures will depend upon IACM’s working schedule.

The bill will require online food suppliers to apply for licences prior to conducting business.

When asked if the co-operation agreements between the two regions would strengthen food safety in local restaurants, the IACM head said policies to improve food safety in local

restaurants were introduced in 2015.

“We believe there will be more cases [of restaurants who fail to pass the inspections] appearing but most importantly our goal is to improve food safety [in the city],” said Tavares. “We wish to alter the operations of restaurants in order to improve their quality,” he stated, adding that inspections will be held twice for all restaurants on a regular basis.

He had also previously suggested that local suppliers co-operate with Nam Yue (Group) Company Limited in handling poultry, saying that the company has lengthy experience in the field.

IACM banned the import of live poultry starting May 1.

Meanwhile, the IACM head also claimed that IACM can discuss with the Chinese quarantine bureau on allowing the import

of frozen poultry from farms in Mainland China. However, he stressed that whether the policy would be approved would depend upon ‘busine ss decisions’.

According to official data provided

by IACM, some 550 tonnes of frozen poultry were imported to the city in March, an increase of 55 per cent compared to the 354 tonnes recorded the same month a year ago.

6 Business Daily Wednesday, May 3 2017

Macau Gaming

Pouring gains in April Gross gaming revenues in April amounted to MOP20.16 billion, posting a 16.3 per cent year-on-year increase exceeding analysts’ expectations Nelson Moura nelson.moura@macaubusinessdaily.com

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ross gaming revenues in Macau reached MOP20.16 billion (US$2.51 billion) in April, a 16.3 per cent yearon-year increase from the same month of last year, marking the ninth consecutive month of year-onyear gaming increases, according to data from the Gaming Inspection and Co-ordination Bureau (DICJ).

In cumulative terms gross gaming revenues in the city amounted to MOP83.64 billion in the first four months of this year, a 13.8 per cent rise from the same period of last year.

The results surpassed analysts’ estimates, with analyst firm Wells Fargo having predicted a yearly growth of between 10 per cent and 15 per cent in April, while analysts from Deutsche Bank had predicted a 14.7 per cent year-on-year rise.

According to Wells Fargo senior analyst Cameron McKnight, the average daily revenue’s (ADR) 16 per cent year-on-year increase to MOP672 million in April was mainly caused by an ‘easy comparison’ with the same month of last year when a 10 per cent year-on-year decrease was registered.

Despite the average daily revenue yearly increase, analysts from both firms noted that win per day dropped 1.9 per cent month-tomonth in April.

The Wells Fargo analyst considered that the gaming market in Macau has registered ‘recent stabilisation’ with some market growth being ‘driven by Chinese monetary stimulus and the re-inflation of the Chinese housing bubble’.

However Mr. McKnight pointed

out these two factors ‘won’t drive prolonged, above trend growth’.

Ready for May

Deutsche Bank analysts estimate a 15 per cent year-on-year increase in revenues will be registered in May with gaming revenues reaching around US$2.64 billion.

Wells Fargo predicted May will register a yearly increase in gross gaming revenues between 14 per cent and 18 per cent, with average daily revenues expected to reach between MOP675 million and MOP700 million.

With regard to the second quarter of this year, Deutsche Bank analysts predicted growth will undergo an acceleration from the first three months of this year, and after taking into

account the better-than-expected April results they believe gaming revenues could grow more than 18.2 per cent year-on-year between April and June.

This expected improved growth in the second quarter of this year was mainly based upon the ‘sequential acceleration and double digit’ yearon-year growth registered in the VIP sector between January and March and the ‘non-intimidating’ results seen in the second quarter of last year, the Deutsche Bank analysts indicated.

In statements to news agency Bloomberg, analyst Grant Govertsen from Union Gaming Group LLC stated the firm had “become incrementally more bullish with the sustainability of ongoing VIP trends over recent weeks” and that “in the short term, VIP is going to be the biggest driver” of gaming revenues in Macau.

Japan

Conquering the Japanese gaming market Study advises that future gaming operators in Japan focus on developing electronic gaming machine offerings, regain a more positive image through responsible gaming initiatives and develop a more female-friendly gaming environment Nelson Moura nelson.moura@macaubusinessdaily.com

Future gaming operators in Japan should take into consideration local preferences in gaming, since Japanese gamblers tend to prefer electronic machine games as opposed to the preference given table games in Macau, according to a report by market research group Global Market Advisors (GMA).

Changing public perceptions of casino gambling in the country - especially for the female market - was also described as an essential task for future gaming operators in Japan.

The study also predicts the first integrated resort in Japan will only open in 2023, estimating that if gaming was to be developed in at least six regions in Japan, the country could become one of the largest gaming markets in the world, with an estimated revenue of US$24.2 billion (MOP193.74 billion) by 2030.

Addicted to machines

The report - entitled ‘White Paper: Japan Integrated Resorts’ - was released in its entirety on May 1, and notes that ‘the single greatest misconception a casino operator can make is to assume that Japanese gamers will play the same games as those players that frequent Macau’.

‘The Chinese have a table game centric gaming culture and have long embraced Baccarat and Sic Bo. While the Japanese enjoy Oicho-Kabu, they have a long-established history as a machine-centric gaming culture, as they are enthusiastic Pachinko players,’ points out the white paper.

Thus, future gaming operators

should develop their electronic gaming machine offerings to cater to the Japanese preference for Pachinkostyle machines, it opines.

The study expects that the first integrated resorts in the country will allocate 45 per cent of their gaming floors to slot machine gaming, 5 per cent to electronic table games and 50 per cent to table games, with the percentage of room floor awarded to

slot machines expected to increase afterwards ‘at the expense of table games’.

‘One can expect that slot manufacturers including Aruze, Konami, and Sega Sammy will research and develop slot machines that will appeal to the adult population,’ the study believes.

Responsible gaming

According to the study, a task force of experts has been assembled by the country’s Prime Minister, Shinzo Abe, to improve the approved first draft of the integrated resort bill, with a final version expected to be debated by the country’s National Diet at the end of this year.

However, the study cites recent

polls showing more than half of the Japanese public is against the integrated resort bill, with integrated casinos associated with ‘problem gambling and organised crime’.

The study suggests gaming operators partner with the Japanese Government to introduce proposals in the bill’s final version that ‘address problem gambling’ and create an environment for responsible gaming.

‘More than any other, responsible gaming is one of the key issues that can help sway public opinion,’ states the report.

The study also presents some of responsible gaming policies introduced by casinos in Macau as a possible example for future measures to be implemented in Japan.

Some of the policies mentioned involve collaboration between the Gaming Inspection and Co-ordination Bureau (DICJ) with the University of Macau (UM) and Macau Polytechnic Institute to create a Responsible Gaming Work Preparation Unit focused on responsible gaming initiatives.

The installation of responsible gaming kiosks in the city was also one of the initiatives highlighted, with 42 individuals having registered for self-exclusion from casino floors in the city through the kiosks in 2016.

Female-friendly gaming

The study said that Japanese women tend to have a more negative view of gambling, since Pachinko parlours in Japan have long been unappealing to the female market due to their ‘noisy, crowded, smoky’ and male-dominated environments.

Thus, future integrated resorts in the country should attempt to make their gaming areas female-friendly to cater to female Japanese gamblers, suggests the report.

The study considered that ‘if an appropriate gaming environment were provided for women’ then ‘Japanese female gaming participation will quickly rise to match that of Japanese male gamblers and may ultimately match rates seen in Western casinos, where females often make up to 58 per cent of the gaming population’.

Business Daily Wednesday, May 3 2017 7

Macau Results

Melco’s billionaire Ho sees MSAR gaming returning to 2013 peak Sterling Wong

T

he world’s largest gaming centre, Macau, will return to its peak within the next five years, said Melco Resorts & Entertainment Ltd.’s billionaire Chairman Lawrence Ho. Ho, who is also vying for a casino license in Japan, is “extremely bullish” on Macau, he said in an interview on Bloomberg Television with Haslinda Amin.

“Definitely within the next five years, it will grow back to the US$45 billion gaming market,” said Ho, who also serves as chief executive officer. “And that’s just the gaming alone, because the non-gaming part

is significant.”

Ho’s projection is one of the most upbeat for Macau’s gaming industry, which reached its highest annual peak in 2013. The industry then struggled as high-stakes players stayed away from China’s sole gaming hub amid Beijing’s corruption crackdown.

The industry’s recovery is now gaining traction, with gaming receipts in April rising for a ninth consecutive month.

Macau’s April casino receipts rose 16.3 per cent to MOP20.2 billion (US$2.52 billion), beating the median analysts’ estimate of a 15 per cent rise. April’s gain was the third consecutive month of double-digit growth for the industry. Casinos

including Melco and Las Vegas Sands Corp. have shifted focus to attract casual gamblers and families, while high rollers have also returned to the tables in recent months.

Ho was also optimistic about the prospects of entering the Japanese market. Ho forecast it could “easily” be a US$20 billion market if cities such as Osaka or Yokohama had one or two casino resorts.

To watch Bloomberg TV’s interview with Lawrence Ho, click here.

“If it’s US$20 billion divided by two or three or four operators, that would be very significant,” he said.

Given Japan’s potential, Ho said Melco “will do whatever it takes” to get a Japan casino license. Earlier this

year, Ho pledged to spend “whatever it takes” to win a casino license in the country.

“We don’t want to put a dollar figure on it because ultimately, the opportunity is priceless,” he said.

Bloomberg

Results

Former Iao Kun Group posts rolling chip drop of 62 pct in 2016 Cites DICJ banning proxy betting as one reason for decrease Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

Junket operator turned agricultural trading platform operator LiNiu Technology Group (formerly Iao Kun Group Holding), saw a 62 per cent decrease in its rolling chip turnover for full-2016, according to the group’s most recently announced results. Rolling chip reached just US$2.4 billion for the whole year, contributing to the group’s net loss of US$215 million

for the year.

The group notes in the filing that it closed four VIP rooms last year - in Sands Cotai, Galaxy, StarWrold and L’Arc - while also terminating its gaming representative agreements with King’s Gaming Promotion Ltd., Sang Heng and Sang Lung Gaming Promotion Ltd., as well as terminating its agreement with a Mr. Lam Chou ‘in relating to those facilities,’ attributable to the fact that ‘the current Rolling Chip Turnover volume did not warrant the

operation of any VIP gaming rooms’.

The group continues to operate a VIP gaming operation in the Altira building in Taipa.

The group also points to ‘lower demand due to the ongoing anti-corruption campaign in Mainland China, […] the Company continuing to tighten gaming credit as a result of lengthened collection period in certain markets,’ and ‘the DICJ (Gaming Inspection and Co-ordination Bureau) banning proxy betting’.

The group recently rebranded itself LiNiu Technology Group following the. March acquisition of a majority interest in Jai-Heng Industrial Ltd,

parent company of the Guangzhou LiNiu Network Technology – a software development company.

Last month the group launched its business to client (B2C), client to client (C2C) and online to offline (O2O) trading platform ‘focused on the Chinese agricultural industry’. The group claims traffic of ‘over 50,000 visitors on a daily basis […] more than 130,000 users, more than 20,000 suppliers registered and over 80,000 products currently sold through the platform’.

The group notes that it gains revenue through the platform by ‘commissions, advertising, management fees and guarantee deposits’.

8 Business Daily Wednesday, May 3 2017

Greater china Caixin PMI

April factory growth slows to weakest in 7 months The pace of job shedding also intensified in April to a three-month high Yawen Chen and Nicholas Heath

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hina’s factory sector lost momentum in April, with growth slowing to its weakest pace in seven months as domestic and export demand faltered and commodity prices fell, a private survey showed yesterday.

The findings echoed those in official manufacturing and service sector data on Sunday, reinforcing views that China’s economic growth remains solid but is starting to moderate after a surprisingly strong start to the year.

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 50.3 in April, missing economist forecasts’ of 51.0 and a significant decline from March’s 51.2.

The index remained above the 50.0 mark which separates expansion from contraction on a monthly basis, but only just, and grew at its slowest pace since September 2016.

The private factory survey suggested growth faded at a shaper pace than the official reading, but economists largely attributed the softening in both cases to a pullback in global commodity prices and signs of moderating in China’s red-hot housing market after a flurry of government cooling measures.

Betty Wang, senior China economist at ANZ, said many companies had “too strong” a bullish view when global commodity prices began rallying late last year, but that trend is now changing, making firms more cautious about spending.

Coupled with more property tightening measures hitting the real estate

sector -- a major driver for China’s economy -- since March, market expectations may have started to reverse, she add.

The private survey showed production growth and total new orders rose at the slowest pace since last September, with both showing only slight improvement from the previous month.

Sharp falls in prices of iron ore, steel and other raw materials led to a sharp cooling in producer price inflation, which has helped some firms’ such as steel mills and smelters post their strongest profits in years.

The official manufacturing PMI fell less sharply but still slid to a six-month low of 51.2 in April from March’s near five-year high of 51.8, according to data at the weekend.

Analysts had expected a reading of 51.6.

Growth in China’s services sector slowed to 54.0 in April, from the previous month’s 55.1, but remained robust.

Slow moderation expected, not sharp cool-down

China’s economy expanded 6.9 per cent in the first quarter, fuelled by a construction boom. That is likely to give it enough of a tailwind to hit Beijing’s full-year target of around 6.5 per cent even if growth slowly fades in coming months as many analysts predict.

ANZ’s Wang said the loss of momentum in the monthly activity surveys does not portend a growing risk of a hard landing at least in the short-term, noting the government in general still remain supportive of credit conditions for the real economy despite a crackdown in certain sectors such as real estate and interbank lending.

But analysts do expect growth to slow in the next quarters, estimating

the softening seen in the surveys will eventually emerge in hard data such as investment.

Julian Evans-Pritchard, Singapore-based economist at Capital Economics, said in a note that the Caixin PMI fits with his view that underlying investment demand has weakened recently despite faster nominal growth in capital spending.

Those concerns, along with a tightening regulatory crackdown on riskier forms of lending and speculation, saw Chinese stocks post their worst month of the year in April.

Indeed, the degree of business confidence in April was the lowest so far this year, the survey noted, although companies generally expect output to increase over the next year.

Worries about operating costs and economic conditions weighed on confidence, though other survey respondents pointed to positives such as new product launches and

a moderation in soaring input prices that have been squeezing profit margins for companies in the middle of supply chains.

Growth in total new orders slowed sharply to 50.9 from 52.7 in March, with the rate of expansion in new export orders also easing.

“The Chinese economy may be starting to embrace a downward trend in the near term as prices of industrial products decline and active restocking comes to an end,” Zhong said.

The pace of job shedding also intensified in April to a three-month high as a result of cost-reduction efforts and the non-replacement of voluntary leavers and retirees.

Compared with the official PMI, the Caixin/Markit survey tends to focus more on small- and mid-sized manufacturers. Both reports, however, suggested that smaller firms are under more pressure than their larger, state-backed peers. Reuters

Risks

Central bank official says leverage rising at “alarming pace” The Bank for International Settlements warned last year of excessive credit growth in China China’s level of leverage is rising at an “alarming pace”, particularly in the finance sector, a senior central bank official said in a commentary, amid growing concern by the country’s senior leaders over financial security.

The official Xinhua news agency on Monday cited Xu Zhong, head of the People’s Bank of China’s (PBOC) research bureau, as saying the country needed to deleverage at a “proper pace” to reduce financial sector debt and avoid systemic financial risk.

“China’s overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector,” Xu said. The original commentary was published in business journal Caijing Magazine.

Xu said high levels of stimulus spending from government paired with poor corporate management and financial supervision were key factors causing rising levels of leverage, Xinhua said.

He added the government should stick to “prudent and neutral” monetary policy, reduce emphasis on economic growth targets, and improve corporate governance so authorities did not have to step in so frequently to help companies out.

“Financial security is achieved via reforms, not bail-outs,” Xinhua

reported Xu as saying.

Last week President Xi Jinping called for increased efforts to ward off systemic risks and help maintain financial security. Analysts say financial risk and asset bubbles pose a threat to the world’s second-largest economy if not handed well.

Former Chinese finance minister Lou Jiwei also said last month that high leverage was the biggest risk

facing China’s economy because debt has piled up despite government efforts to deleverage.

The Bank for International Settlements warned last year that excessive credit growth in China is signalling an increasing risk of a banking crisis in the next three years.

China watchers have generally expected another modest increase in short-term interest rates by the central bank around June, following similar moves earlier this year, but see no aggressive or politically sensitive tightening moves ahead of a major

leadership transition in the country later in the year.

Still, the People’s Bank of China (PBOC) and other regulators have ramped up the pressure on a number of fronts as they look to contain financial risks after years of debtfuelled stimulus.

“China’s overall leverage level is reasonable but is rising at an alarming pace, especially in the financial sector” Xu Zhong, head of the People’s Bank of China’s research bureau

People’s Bank of China’s headquarters

In particular, regulators are targeting riskier forms of financing which often interconnect the official and shadow banking sectors and other financial firms such as brokerages and trust companies.

Local governments have also rolled out a series of measures to cool heated housing markets, with mixed results so far. But again, tapping the brakes too hard risks a blow to economic growth. Reuters

Business Daily Wednesday, May 3 2017 9

Greater China Capital

In Brief

Mainland investment in Australia surges as deals hit record Commercial real estate remained the largest sector, attracting 36 per cent of Chinese investment Jason Scott

Chinese investment in Australia surged 11.7 per cent last year to A$15.4 billion (US$11.5 billion) amid booming demand for agricultural assets and infrastructure, according to a report released Monday.

A record 103 deals were signed with Chinese companies in 2016, with 76 per cent of those reached with private firms, KPMG and the University of Sydney said in the report “Demystifying Chinese Investment in Australia.”

Australia, with a population of 24 million people and a land mass larger than India, relies on foreign investment to spur growth. While Prime Minister Malcolm Turnbull’s government blocked two key purchases by Chinese companies last year, citing national security, the report shows that the vast majority of deals are approved.

“There are signs of a growing maturity by Chinese investors in the Australian market,” the report said in its key findings. “The number of joint ventures is increasing with more repeat investments by established Chinese companies. This has set a foundation for growth in future investment.”

Commercial real estate remained the largest sector, attracting 36 per cent of Chinese investment, followed by infrastructure with a record 28 per

cent including the purchases of Asciano Ltd. and the Port of Melbourne, according to the report. Agribusiness rose threefold from 2015 to more than A$1.2 billion.

While Australia remained second only to the U.S. as the biggest recipient of Chinese capital since 2007, the growth in investment was last year dwarfed by the increase of flows into the European Union and Brazil.

Turnbull’s government faces growing calls from fringe populist parties to restrict foreign deals and opinion polls show there is public unease

about Chinese investment, particularly from state-run companies, in farmland and other key assets. In 2015, the government tightened scrutiny for selling farmland to Chinese, Japanese and Korean buyers by requiring purchases of land worth A$15 million and over to be screened for approval.

The government vetoed a Chinese-led group’s bid for the iconic S.Kidman & Co. cattle ranches that span 1.3 per cent of the country’s land mass. Last year, the government barred State Grid Corp. of China and Hong Kong billionaire Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd. from buying a majority stake in power network Ausgrid on security concerns.

Since 2007, Australia has attracted a total of US$90 billion in new Chinese investment -- second only to the U.S. with more than US$100 billion, the report found. Bloomberg News

China saw a tourism boom during the three-day May Day holiday, a sign of the country’s booming tourism industry, official data showed on Monday. The country’s tourism industry raked in RMB79.1 billion (US$11.5 billion) in revenue during the holiday, up 16.2 per cent from a year earlier, according to data from the National Tourism Administration.

During the holiday that ended on Monday, tourist destinations across China received a total of 134 million tourists, a year-on-year increase of 14.4 per cent. China tries to wean its economy off over-reliance on exports and heavy industries, and shift to a growth model that draws strength from consumption, innovation and service sector.

Guangzhou rural bank to seek approval for IPO

Last year, the Aussie Government barred State Grid Corp. of China and Hong Kong billionaire Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd. from buying a majority stake in power network Ausgrid on security concerns. Bloomberg

Baidu Capital to lead funding for truck app Despite the country’s reliance on trucking, China’s trucks stand empty for about 40 per cent of the time Truck Alliance Inc., an Uber-type service for trucks in China known as Huochebang, is near an agreement to raise about US$156 million, people familiar with the matter said.

The investment will be led by Baidu Capital, the investment arm of China’s largest search engine, and could be announced as soon as this week, said the people, who asked not to be identified because the matter is private. The infusion comes on the heels of a US$115 million fundraising in December, which pushed Huochebang’s valuation to about US$1 billion.

The investments are both part of the start-up’s B round of funding and it is close to raising a third tranche, the people said.

Huochebang, also backed by internet giant Tencent Holdings Ltd. and Hong Kong’s All-Stars Investment Ltd., is competing with 200 services to revamp the country’s inefficient long-haul trucking system. More than

Mainland visitor boom during May Day holiday

Markets

New economy

Lulu Yilun Chen

Tourism

80 per cent of goods are still ferried by road, accounting for the bulk of China’s US$1.6 trillion logistics sector, Deloitte has estimated.

A representative for Huochebang declined to comment. Representatives for Baidu Capital didn’t respond to a request for comment during non-working hours.

The deal comes amid a surge in the China venture capital market. The value of investments in greater China reached a record US$49.1 billion last year, according to research firm Preqin, and Uber rival Didi Chuxing said on Friday it had closed a US$5.5 billion fundraising, the largest venture investment on record.

Despite the country’s reliance on trucking, China’s trucks stand empty for about 40 per cent of the time, according to a report by the Industrial Securities Co. The inefficiency is partly due to the fact that 90 per cent of trucks are owned by individuals, the report said. Guiyang-based Huochebang works with 2.6 million

trucks, and an average US$120 million worth of delivery transactions are conducted through its platform daily, the company said in March.

The company brokers deliveries of everything from seeds and farming tools to bulkier items such as cement and coal.

Unlike Uber, which takes a cut from every ride, Huochebang makes money primarily from selling toll cards, taking a cut from the card top-ups, and helping truckers with financing.

It’s building up service centres to provide backup support for drivers, with about 1,000 such operations spread across China as of March.

‘The value of investments in greater China reached a record US$49.1 billion last year’ Baidu Capital manages RMB20 billion (US$2.9 billion) of funds and has invested into Nio, the electric car start-up formerly known as NextEV Inc. Baidu is leveraging its search and mapping data to develop artificial intelligence used in driverless technology. It formed a self-driving car team in Silicon Valley last year, partnering with chipmaker Nvidia Corp. to test autonomous vehicles in China and California.

Jennifer Li, chief financial officer of Baidu Inc., is taking over as head of the investment business.

Huochebang’s largest competitor Yunmanman has said it is also in the process of raising funds, and already counts Sequoia Capital, Yunfeng Capital and Wang Gang -- Didi Chuxing’s angel investor -- among its backers. Reuters

Guangzhou Rural Commercial Bank Co. plans to seek approval from the Hong Kong stock exchange this week for an initial public offering, according to people with knowledge of the matter. The share sale could raise about US$1 billion, said the people, who asked not to be identified because the information is private. An IPO of that size would be the largest from a lender in Hong Kong since Postal Savings Bank of China Co.’s US$7.6 billion offering in September, according to data compiled by Bloomberg.

Investment

Jack Ma-backed fund invests in genomics business A fund backed by Chinese billionaire Jack Ma and Singapore’s state-owned investment firm Temasek Holdings Pte made new investments in contract genomics organization WuXi NextCODE, which is expanding in China as the country pushes into the emerging field of precision medicine. Yunfeng Capital and Temasek co-led a US$75 million Series B round of financing into the company, WuXi NextCODE said in a statement. Other investors included Amgen Ventures, a fund founded by Amgen Inc., and private-equity firm 3W Partners. WuXi NextCODE has offices in Shanghai, Reykjavik, Iceland, and U.S. Tourism

World Expo Museum opens to public in Shanghai The World Expo Museum opened to the public in Shanghai on Monday. The museum is located on the former site of the 2010 Shanghai World Expo. It is the only official museum and documentation centre in the world entirely dedicated to Expos and authorized by the Paris-based Bureau International des Expositions (BIE). The museum, jointly built by Shanghai Municipal Government and BIE, is also the first museum in the world to showcase the history of the World Expos’ development.

With eight permanent exhibition halls, the museum covers a total of 9,000 square meters, exhibiting more than 3,000 collections from around the world.

10 Business Daily Wednesday, May 3 2017

Greater China

Financial sector

Mainland’s US$11 trillion economy and markets are in a tug of war The latest push to contain financial risks is focused more on speculative bets than on curtailing credit to the “real” economy Enda Curran and Eric Lam

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hina’s run of solid economic indicators proved little consolation for its shaky financial markets in April. The dichotomy stems from a shift in the leadership’s focus toward reducing leverage -one that’s set to determine whether growth joins asset prices in heading down.

Economists are practically unanimous in saying that reduced debt loads would be good for China’s longer-term health. The big unknown is whether officials can manage that without a dose of short-term pain. As UBS Group AG analysts put it in a note last week: if authorities’ initiatives are “not managed well, it could lead to a rise in credit events, excessive liquidity tightening, faster-than-intended slowdown of credit growth, and greater market volatility.”

What started in the fall of 2016 as a tightening in money-market liquidity has intensified to a broader attack by policy makers on the shadow-banking system, where patchy regulation has allowed investors to make leveraged bets. When President Xi Jinping last week warned top officials to crack down on financial risks, the benchmark equities index at one point gave up gains for the year, while bonds suffered their biggest tumble of 2017.

While past regulatory shifts -- especially pricking a stock bubble and letting the yuan depreciate in 2015

-- have sometimes spooked international investors, this time around the reaction has been muted. The positive economic backdrop has helped, along with the conviction that Xi and his lieutenants won’t allow turmoil to disrupt a key, once-in-five-years Communist Party leadership gathering this autumn.

The imperative of heading off disorderly moves in financial markets is a backdrop to the slew of regulatory initiatives over the past two months.

Besides broad increases in money-market rates, the list includes:

“China’s current economic recovery is likely to be in its early days, and has more legs to run” Liang Hong, China International Capital Corp. economist The People’s Bank of China incorporated off-balance-sheet wealth-management products in its macroprudential assessment of banks’ risks, putting lenders on notice that shadow banking is facing deeper scrutiny The China Banking Regulatory Commission, under new leadership since February, stepped up scrutiny of entrusted investments

-- funds that banks farm out to external managers The CBRC issued guidelines to enhance liquidity risks at banks, including all of lenders’ interbank and WMP business in their monitoring Authorities stepped up inquiries about wholesale funding after smaller banks sold a record amount of negotiable certificates of deposit For now at least, the economy isn’t expected to take a major hit. For one thing, growth accelerated last quarter to 6.9 per cent according to official figures, and the debt hangover is getting easier to service as factory prices snap years of deflation.

Some indicators suggest the expansion may be coming off the boil.

Caixin Media and Markit Economics’ manufacturing purchasing managers’ index slipped to 50.3 in April -- the lowest since September. But while trends in the property market signal a slowdown ahead, China has plenty of infrastructure needs in central and western parts of the nation, and urbanization remains a long-term engine.

Track record

In the most recent tussle between market sentiment and economic fundamentals, it was the latter that won out. The economy weathered the 2015 market turmoil, first stabilizing and then perking up as the housing market took off again and the government stepped in with massive doses of infrastructure investment.

The latest push to contain financial risks is focused more on speculative bets than on curtailing credit to the “real” economy. The PBOC has kept benchmark lending rates at a record low and the government continues to spend on pipes, rail and bridges.

“China’s current economic recovery

is likely to be in its early days, and has more legs to run,” said China International Capital Corp. economist Liang Hong. Better policy coordination and on-going liquidity injections by the PBOC make a credit crunch seem unlikely, she said.

Crucially, the increase in yields on Chinese government bonds (CGBs) has coincided with the emergence of inflation that’s reflected the economy’s quicker growth. Nominal GDP rose 11.8 per cent in the first quarter from a year before, according to Bloomberg Intelligence economist Tom Orlik. That helps fuel corporate profits, government revenue and household income, along with making debt easier to service.

Wringing out leverage may make economic sense, but it may not be pretty for equities and higher-yield bonds.

“We could see more forced redemptions from high-yield bonds and a flight to quality back to highgrade bonds like CGBs,” Nomura Holdings Inc. analysts including Hong Kong-based Albert Leung wrote in an April 26 note. Any further sell-off in central government bonds offers “an opportunity for long-term investors,” they wrote.

But overshadowing all: the 19th Communist party Congress slated for later this year, when Xi will preside over a reshuffle of leadership positions below him. It’s unlikely that the government will allow the economy to veer off script, said Minyuan Zhao, an associate professor of management at the University of Pennsylvania’s Wharton School.

“This is not unlike injecting strong medicine into a patient -- make sure you kill the disease before killing the body,” she said of the deleveraging push. Reuters

Business Daily Wednesday, May 3 2017 11

Asia Financing

Japan’s central bank governor welcomes expansion of AIIB Kuroda said the establishment of AIIB and the fact it attracted many members were a “good” thing as they help meet rapidly increasing infrastructure-funding needs in the region Leika Kihara

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ank of Japan Governor Haruhiko Kuroda welcomed the expansion of China-led Asian Infrastructure Investment Bank as positive for the regional economy and urged multinational lenders to cooperate in meeting fast-growing infrastructure needs in Asia.

He said healthy competition from Chinese, Indian and Japanese initiatives could be positive for improving infrastructure and boosting economic growth and social inclusiveness.

Kuroda’s remarks are the strongest endorsement to date by a Japanese policymaker over the growing presence of AIIB, which some in Tokyo

see as a vehicle to boost China’s regional clout.

The AIIB has been viewed as a rival to the Western-dominated World Bank and the ADB, which is jointly led by the United States and Japan.

The United States initially opposed the AIIB’s creation and is not a member, but many U.S. allies, including Canada, Britain, Germany, Australia and South Korea have joined.

Japan, following Washington’s lead under then-U.S. President Barack Obama, did not join the AIIB as well, partly from concern it would conflict with the ADB, the Manila-based institution dominated by Japan and the United States.

But Kuroda said the establishment of AIIB and the fact it attracted many members were a “good” thing as they help meet rapidly increasing infrastructure-funding needs in the region.

“The ADB has promoted regional cooperation in Asia. It also tried to link regional initiatives with each other. That is the way we should go forward, rather than making a single Asia programme or an Asia initiative,” he said.

“The realistic way is to promote regional initiatives and linking them with each other.”

Kuroda also urged politicians to contain geopolitical conflicts which is “not good for anyone.” Reuters

Key Points ADB, World Bank alone cannot meet infrastructure needs-Kuroda Former ADB head calls for “healthy competition” among lenders Geopolitical conflict “not good for anyone” - Kuroda

“Infrastructure needs are huge and it’s simply not possible for the Asian Development Bank and the World Bank to fill the -gap completely,” Kuroda, who was formerly head of the ADB, told a seminar hosted by an ADB-affiliated think tank on Tuesday.

Bank of Japan Governor Haruhiko Kuroda

Real estate

Australian home prices show slowest gain in 16 months The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers Swati Pandey

Home prices in Australia’s major cities skidded to a halt in April, a welcome respite for policymakers although economists say it is too early to call a peak in the red-hot housing market.

Property consultant CoreLogic said its index of home prices for the combined capital cities rose 0.1 per cent in April, the weakest month-on-month rise since December 2015, compared with 1.4 per cent in March.

Annual growth in overall prices slowed to 11.2 per cent, from 12.9 per cent.

The results come after dramatic gains in two of the country’s hottest markets - Sydney and Melbourne - over the second half of 2016 and early 2017.

“We’d be a little bit cautious calling it a top of the market,” said Craig James, chief economist at CommSec, echoing CoreLogic’s in-house views.

“We are seeing a bit more shifting of demand to regional centres from capital cities as interest rates remain

low and demand is strong.”

If the softening trend can be sustained, it would vindicate steps taken by regulators in recent months to cool the heat in the property market amid concerns that speculation in housing could ultimately hurt consumers, banks and the economy.

Banks themselves have been raising mortgage rates out of cycle in response to the tightening regulations.

The Reserve Bank of Australia (RBA) is worried cutting rates deeper

into record territory would only encourage more borrowing by already heavily indebted households.

The CoreLogic data showed home prices in Sydney were flat in April but the annual pace of growth was still a blistering 16.0 per cent.

Melbourne grew 0.5 per cent in the month with annual growth at 15.3 per cent. Canberra, another hot market, suffered a fall of 2.8 per cent.

Hobart was the strongest housing market, growing at 1 per cent, with an annual gain at 13.6 per cent.

Since January 2009, home values in Sydney have more than doubled while Melbourne has increased by 93 per cent.

The inexorable price rise in the

major cities has taken homes out of the reach of many first-time buyers and become a political hot potato.

The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem and is likely to announce some measures in its budget next week.

Key Points Home prices in capital cities up 0.1 pct in April Slowest month-on-month rise in 16 months Too early to call a peak in the market - economists Sydney up 16.0 pct annually, Melbourne racing at 15.3 pct Hobart strongest housing market in April

“It’s incredibly frustrating, particularly for younger families trying to buy their first house,” Treasurer Scott Morrison told reporters in Canberra on Monday.

“If you don’t have a roof over your head that you can rely on, every single other problem that you have in life gets harder.” Reuters

12 Business Daily Wednesday, May 3 2017

Asia

Prices

South Korea’s April inflation slows, but still near target A majority of analysts expect the central bank to keep its base interest rate at 1.25 per cent this year Christine Kim and Cynthia Kim

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outh Korea’s annual inflation eased slightly in April as utility and fresh food costs fell, data showed yesterday, with prices still reflecting improving consumption and the economy’s on-going recovery.

The finance ministry said chances of inflation picking up were limited in the near term due to recent changes in global oil prices and improved supply of farm products. Economists also expect no change to near-term monetary policy with annual inflation lingering near the central bank’s 2 per cent target.

Asia’s fourth-largest economy expanded faster than expected in

the first quarter boosted by a surge in exports that have gained from a broad recovery in the global economy, lending a positive outlook for the coming months.

The consumer price index in April rose 1.9 per cent from a year earlier, Statistics Korea data showed, slowing from a 2.2 per cent increase in March and lagging the 2.0 per cent forecast in a Reuters poll.

Prices eased 0.1 per cent from March, slightly below the median forecast of no change.

The index for fresh vegetables and utilities such as gas, electricity and tap water fell in April, leading to softer inflation. A finance ministry official said global oil prices were having greater sway on the index

than consumption.

“The further we go into the year, we’ll see inflation capped, and the year on a whole may not see inflation over 2 per cent. We might have to wait until next year to see real demand-led inflation,” said Stephen Lee, chief economist at Meritz Securities in Seoul.

Key Points April CPI +1.9 pct y/y (Reuters poll +2.0 pct) April CPI -0.1 pct m/m (Reuters poll 0.0 pct) Utilities, fresh vegetables prices lead to softer inflation Lee said he sees the central bank raising interest rates some time next year.

Services inflation in April stood at 2.2 per cent from a year earlier, stepping up from 2.1 per cent in March and marking the fastest growth since January this year.

Annual core inflation, which strips out volatile food and fuel prices, stood at 1.3 per cent, versus a 1.4 per cent rise in March.

The Bank of Korea said recently it plans to keep monetary policy accommodative as demand-side pressures were not expected to spike anytime soon.

The finance ministry has also been managing inflation expectations, with minister Yoo Il-ho saying on Monday consumption is not yet as strong as the government would like it to be.

A majority of analysts expect the central bank to keep its base interest rate at 1.25 per cent this year and start raising them next year. The next central bank review is on May 25. Reuters

Monetary meeting

Australian central bank keeps rates unchanged The RBA reiterated its expectation of economic growth of just above 3 per cent over the next couple of years Australia’s central bank held rates steady for a ninth straight month yesterday in a widely expected decision as it balances the risk of rising household debt against subdued inflation and wages growth.

The Reserve Bank of Australia (RBA) kept rates at a record low 1.5 per cent, following easings in August and May last year. All 71 economists in a Reuters poll expected a steady outcome this week.

The RBA sounded optimistic about the economy but retained its concerns about a “mixed” labour market.

It added a new line in its statement, warning wages growth was expected to remain slow “for a while yet”.

“That’s the most pessimistic view on wages that we’ve seen from the RBA in a while,” said Michael Blythe, an economist at Commonwealth Bank of Australia. “It seems like they are confident that inflation is expected to remain low for sometime.”

Australia’s consumer price inflation tiptoed atop 2 per cent last quarter for the first time since 2015 but the

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RBA’s favoured measures of underlying inflation stayed below its target band of 2-3 per cent.

RBA Governor Philip Lowe has on many occasions argued against the need for further stimulus, insisting any further cuts would be against the “national interest” as record-low cash rates have pushed households into a debt binge.

The RBA yesterday reiterated its

expectation of economic growth of just above 3 per cent over the next couple of years. Australia’s A$1.7 trillion economy expanded at 2.4 per cent through the year to December 2016 - ahead of most of its rich world peers.

Housing risks

Lowe is worried about ballooning housing debt at a time when wages are growing at a record low pace.

On the flip side, Lowe painted a rosy picture of the global economy, which has helped lift commodity prices and in turn boosted Australia’s national income.

He also said the forward-looking indicators on labour market pointed to growing employment.

Data released last month showed Australia’s jobless rate steadied at a 5.9 per cent in March as employment surged the most in 1-1/2 years, far exceeding expectations.

Key Points RBA holds rates at 1.50 per cent for a ninth month Central bank optimistic about economic growth Wages growth expected to remain slow Futures market sees little chance of change in rates However, a rate hike remains unlikely for now.

“It’s too early for the RBA to think about raising rates given continuing low underlying inflation pressure, very high underemployment, record low wages growth and a still too high Australian dollar,” said Shane Oliver, chief economist at AMP. “Signs that Sydney and Melbourne property markets may be starting to cool...add to the RBA’s flexibility on rates.”

Futures market imply scant chance of a change to interest rates this year.

Reuters

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Business Daily Wednesday, May 3 2017 13

Asia Trade

In Brief

TPP nations meet in Canada to discuss fate of pact without U.S. Josh Wingrove

Canada is hosting a round of exploratory negotiations on the future of the Trans Pacific Partnership after the U.S. bowed out.

Senior trade officials from every remaining signatory country will convene the so-called TPP-minusone talks in Toronto until today.

While ministers won’t attend, the event is expected to set the stage for an upcoming Asia-Pacific Economic Cooperation summit of trade ministers in Vietnam.

This week’s talks are also the latest sign of Canada looking to pivot in part away from its biggest trading partner -- coming amid escalating disputes with President Donald Trump’s administration over the North American Free Trade Agreement, softwood lumber and the dairy sector. Prime Minister Justin Trudeau’s government responded to U.S. lumber duties last week by saying it would in turn try to sell more of its product to Asia.

Canada bills itself as “the bridge between the Pacific and the Atlantic, and we’re happy to host them,” International Trade Minister Francois-Philippe Champagne told

reporters in Ottawa on Monday.

“It shows that Canada is front and centre when it comes to trade in the Asia-Pacific region.”

The government has left the door open to pursuing a bilateral trade deal with Japan -- the biggest economy remaining in the TPP -- and Trudeau said in a Bloomberg interview last

month that Canada seems to be in a “post-TPP world.”

Champagne said he spoke recently with his Japanese counterpart, declining to detail the talks. He added he was “very happy that talks are progressing” on what’s next for TPP nations, but remained noncommittal on whether the pact can be salvaged.

“We’re going to see. That’s why we’re meeting next in Vietnam,” he said. “What’s important now is to look at all options.” Bloomberg News

The International Monetary Fund (IMF) has postponed a US$5.5 billion bailout for Mongolia because of a measure included in the 2017 budget that forces foreign firms to bank with domestic institutions, the IMF’s country representative said. Mongolia’s economy has slid into a crisis caused by heavy foreign debt, a collapse in its currency and a slowdown in growth in its biggest trading partner, China. The IMF board had been expected to approve a rescue package at a meeting on April 28.

Bangladeshi reserves up

Infosys plans to hire 10,000 U.S. workers The IT service firms rely heavily on the H1-B visa program India-based IT services firm Infosys Ltd said it plans to hire 10,000 U.S. workers in the next two years and open four technology centres in the United States, starting with a centre this August in Indiana, the home state of U.S. Vice President Mike Pence.

The move comes at a time when Infosys and some of its Indian peers such as Tata Consultancy Services and Wipro Ltd have become political targets in the United States for allegedly displacing U.S. workers’ jobs by flying in foreigners on temporary visas to service their clients in the country.

The IT service firms rely heavily on the H1-B visa program, which U.S. President Donald Trump has ordered federal agencies to review.

In a telephone interview with Reuters from Indiana, Infosys Chief Executive Vishal Sikka said his company plans to hire U.S. workers in fields such as artificial intelligence.

“When you think about it from a

IMF delays Mongolia bailout

Forex

Political targets

Stephen Nellis and Sankalp Phartiyal

Budget issue

U.S. point of view, obviously creating more American jobs and opportunities is a good thing,” Sikka said.

While Indian outsourcing firms have recruited in the United States, Infosys is the first to come out with concrete hiring numbers and provide a timeline in the wake of Trump’s visa review.

Last month, two industry sources told Reuters that Infosys was applying for just under 1,000 H-1B visas this year. One of the sources said that was down from about 6,500 applications in 2016 and some 9,000 in 2015.

Indian IT service firms, which typically flood the lottery system each year with thousands of applications, have been among the largest H1-B recipients annually.

Indian politicians and IT industry heads have been lobbying U.S. lawmakers and officials from the Trump administration to not make drastic changes to visa rules, as this could hurt India’s $150 billion IT service sector.

The 10,000 new U.S. jobs would

be a small part of Infosys’ overall workforce of more than 200,000.

Sikka said Infosys has already hired 2,000 U.S. workers as part of a previous effort started in 2014.

“We started small at first and have been growing since then,” Sikka said.

“The reality is, bringing in local talent and mixing that with the best of global talent in the times we are living in and the times we’re entering is the right thing to do. It is independent of the regulations and the visas.”

The four hubs being set up will not only have technology and innovation focus areas, but will also closely serve clients in sectors such as financial services, manufacturing, healthcare, retail and energy, said Infosys.

The first hub, which will open in Indiana in August 2017, is expected to create 2,000 jobs by 2021, the company said.

Unsustainable model

Infosys did not disclose the financial impact of its plans. It declined to comment on whether the planned U.S. jobs would account for a large percentage of overall hiring in the coming two years.

Based on Infosys’ recent hiring trends, however, the planned hiring in the U.S. could account for a substantial portion of the company’s net workforce additions over the period.

Infosys, which added nearly 18,000 jobs in 2015, slowed its hiring pace considerably, creating just about 6,000 jobs in 2016 amid market uncertainty caused by Brexit and heightened clamour for tougher U.S. immigration laws that led some U.S. clients to hold-off on new projects.

“Hiring locally is a compulsion and it’s not just because of what’s happening in the U.S.,” said Harit Shah, research analyst at Reliance Securities. “The model itself is not sustainable.”

The company cautioned last month that it would struggle to reach its ambitious US$20 billion revenue target by 2020, as the Indian software service sector has been hit by cautious client spending due to a rising protectionist wave globally.

The United States is the largest market for Indian software service companies, but other countries like Australia have also begun to target Indian IT service companies that use temporary visa programs. Reuters

Bangladesh’s foreign exchange reserves rose to US$32.52 billion at the end of April, the central bank said yesterday, up nearly US$300 million from the previous month. The reserves are sufficient to cover imports for about nine months and are US$4.25 billion higher than a year ago. Garment exports and remittances from Bangladeshis working overseas, the key drivers of the country’s more than US$200 billion economy, have helped build reserves in recent years.

Results

DBS reports steady Q1 net profit DBS Group Holdings, Singapore’s biggest lender, beat market expectations by reporting stable quarterly profit yesterday, underpinned by a record performance in its wealth management business.

Chief Executive Piyush Gupta has rapidly expanded wealth management operations, helped by medium-sized acquisitions, while the broader outlook for Singapore banks remains cautious as lenders struggle with their exposure to the stressed oil and gas services sector. DBS reported net profit of S$1.21 billion (US$867 million) in January-March versus S$1.20 billion a year earlier and compared with an average forecast of S$1.09 billion from four estimates compiled by Reuters. Total income was up 1 per cent.

Aviation

Australian government to develop new Sydney airport Australia’s national government said yesterday it will step in to build a A$5 billion (US$3.76 billion) second international airport for Sydney after the operator of the existing hub declined to take on the project. The decision follows years of unfulfilled plans and promises from successive governments while capacity at the city’s only international airport became increasingly stretched. Prime Minister Malcolm Turnbull said it was a vitally important project for the country and is expected to inject more than A$1.9 billion into the economy during the construction phase alone. It is expected to open in late 2026.

14 Business Daily Wednesday, May 3 2017

International In Brief Monetary meeting

Fed set to leave interest rates unchanged The U.S. Federal Reserve is expected to hold interest rates steady at its meeting this week as it pauses to parse more economic data but may hint it is on track for an increase in June. The central bank is scheduled to release its policy decision at 2 p.m. EDT (1800 GMT) today at the conclusion of its two-day meeting. Fed Chair Janet Yellen is not due to hold a press conference.

Most policymakers have already made plain that in contrast to previous years, the Fed feels more confident in its forecast of two more rate increases this year.

Industry

Euro-area manufacturing expands faster Euro-area factories expanded output at the fastest pace since 2011 as the currency bloc’s economy continued to gather momentum. A gauge of manufacturing activity rose to 56.7 in April from 56.2 the previous month, IHS Markit reported yesterday. An April 21 preliminary estimate was for an increase to 56.8. With the European Central Bank showing little hurry to end extraordinary stimulus, global trade strengthening and political risk receding as centrist Emmanuel Macron looks poised to become the next French president, the currency bloc’s recovery is set to broaden.

Finance sector

Trump says actively considering breaking up big banks U.S. President Donald Trump said he was actively considering breaking up big banks, Bloomberg Television reported on Monday. Trump’s comments could give a push to efforts to revive the Depression-era GlassSteagall law that separated commercial lending from investment banking.

Reviving such a law would require an act by Congress.

“I’m looking at that right now,” Trump said on Monday in an interview with Bloomberg News in the Oval Office. “There’s some people that want to go back to the old system, right? So we’re going to look at that.”

Results

BP’s profit triples on higher oil prices and output BP’s profit nearly tripled in the first quarter of 2017 from a year earlier, buoyed by rising oil prices and production that hit a five-year high, while debt piled up in order to pay for acquisitions and costs for the 2010 Gulf of Mexico spill. The British oil and gas company joined oil major rivals including Exxon Mobil, Chevron and Total in posting stronger-than-expected quarterly earnings, mostly thanks to higher oil and gas prices. Oil prices rose by 50 per cent in the past year to around US$54 a barrel in the first quarter.

Reform

IMF says fiscal reform moving Gulf in ‘right direction’ The Fund has lowered its forecast for economic growth in Arab oil-exporting countries in the wake of the oil output cuts Ali Khalil

O

il-exportingArabstates of the Gulf are heading “in the right direction” to plug budgetary gaps thanks to fiscal reforms, but more change is still necessary, the International Monetary Fund said yesterday.

“If they continue on this path in the next three to five years, the level of deficit will be less than 2 per cent” of gross domestic product, IMF regional chief Jihad Azour told AFP in an interview.

“This is going in the right direction,” said Azour, who was in Dubai yesterday to launch the IMF update for its regional Economic Outlook for the Middle East and central Asia.

Revenues in the oil-dependent economies of the six Gulf Cooperation Council states have nosedived since the price of crude plummeted from its mid-2014 peak, forcing the monarchies to cut expenditure.

Such cuts have included energy subsidies in nations that have traditionally subsidised main services both for their own citizens and also for large populations of expatriate workers.

“Fiscal adjustment is still needed.

Additional reforms are still needed, especially on the structural side,” Azour said.

This would be “in order to diversify the economy and to allow the economy to grow outside the oil sector, to create additional jobs as well as to be less dependent on the volatility in the oil market”, he added.

The GCC groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Saudi Arabia unexpectedly announced last week it would reinstate

some allowances for civil servants that were cut last year as part of a reduction in expenditure.

Although this could be interpreted as a step backwards in the kingdom’s programme to cut spending, the IMF regional chief called the measure “minor compared to the overall trend”.

Stronger non-oil growth

“Whenever you have a large programme of adjustment, you still need to adjust or tweak some measures here and there,” Azour said, referring to the kingdom’s “Vision 2030” strategy to diversify its economy and reduce public spending.

“The Saudi government made strong fiscal adjustments over the past two years and were able to reduce expenditure,” he said, adding that Riyadh has renewed its commitment to achieving a fiscal balance in 2020.

“Given the level of buffers that Saudi has, they can phase in a more progressive way their fiscal adjustment

and they can space it over time,” Azour added.

GCC states have agreed to introduce value-added tax in 2018.

Azour said imposing VAT is an “important move” that will help diversify revenues outside oil and help strengthen tax institutions.

The GCC countries have established a reputation for being tax havens.

In an attempt to prop up prices, members of the OPEC oil-exporting cartel and non-member exporters -- notably Russia -- agreed last year to cut production for six months, a decision that could be renewed in late May. The IMF has lowered its forecast for economic growth in Arab oil-exporting countries in the wake of the output cuts.

But Azour pointed out that the nonoil sector has been gathering pace.

“In the GCC, the oil sector was affected by the cut in production.

However the non-oil sector grew,” he said, adding that the “2017 outcome is showing in fact that the non-oil sector is gaining more growth potential and recovering faster than the oil sector”.

The regional report shows that nonoil growth in the GCC is projected to strengthen from almost two per cent in 2016 to three per cent this year. AFP

Debt relief

Greece reaches preliminary deal with creditors Under pressure from its creditors the government agreed earlier this month to adopt another US$3.8 billion in cuts in 2019 and 2020 John Hadoulis

Greece has reached a preliminary deal with its creditors that should pave the way for long-awaited debt relief talks, the Greek finance minister said yesterday.

“The negotiations are concluded,” Euclid Tsakalotos told reporters, according to state agency ANA. After overnight talks, Tsakalotos said a “preliminary technical agreement” had been achieved ahead of a May 22 meeting of eurozone finance ministers, which is required to approve the deal.

Tsakalotos added he was certain that the agreement would enable Greece to secure debt relief measures from its creditors, which he has said is vital to spearhead recovery in the country’s struggling economy.

“There is no excuse of lack of agreement” in the talks, he said.

A compromise is required to unblock a tranche of loans Greece needs for debt repayments of seven billion euros (US$7.6 billion) in July.

Under pressure from its creditors -- the European Union, European Central Bank and the International

Monetary Fund -- the government agreed earlier this month to adopt another 3.6 billion euros (US$3.8 billion) in cuts in 2019 and 2020.

Athens conceded fresh pension and tax break cuts in return for permission to spend an equivalent sum on poverty relief measures.

A government source on Tuesday said pensions are to be cut by 9 per cent on average, ANA said.

The measures are to be approved by parliament by mid-May. However, Prime Minister Alexis Tsipras has said he will not apply these cuts without a clear pledge later this month on debt-easing measures for Greece.

General strike

The nation’s debt in 2016 stood at nearly 315 billion euros or 179 per cent of output, up from 177.4 per cent in 2015.

“Debt relief will be needed to find a solution,” Eurogroup head Jeroen Dijsselbloem said last week.

Athens also hopes to be finally allowed access to the European Central Bank’s asset purchase programme, known as quantitative

easing, or QE, to help its return to bond markets.

According to reports, Greece also agreed to slash tax breaks by 3,000 euros from 2020 and sell up to 40 per cent of state electricity provider PPC’s coal mines.

Over 10,000 people demonstrated against the cuts on Monday, and a general strike is to be held on May 17.

Greece and its creditors agreed a third, 86-billion-euro (US$94-billion) bailout deal in July 2015.

“Debt relief will be needed to find a solution” Jeroen Dijsselbloem, Eurogroup head But the IMF has so far refused to take part after two prior programmes on the grounds that the targets were unrealistic and Athens’ debt mountain unsustainable.

Additional debt relief for Greece has proved a contentious point for many of its European creditors including Germany, where additional concessions are unpopular with a general election looming in September. AFP

Business Daily Wednesday, May 3 2017 15

Opinion Evergrande needs the China referee’s whistle, and soon Nisha Gopalan a Bloomberg Gadfly columnist

T

ime is running out on China Evergrande Group’s plan to buy its way back home at a much higher valuation. After spending HK$6.29 billion (US$808 million) repurchasing shares on nine occasions since March 29, the world’s most indebted developer has almost reached the threshold at which it can do no more.

Hong Kong stock exchange rules require a minimum proportion of shares, usually 25 per cent, to be freely available to trade and not held by a company’s controlling interests. For Evergrande, that floor is 22.04 per cent. As of the developer’s most recent disclosed buyback on April 26, the so-called free float stood at 22.09 per cent, a hair’s breadth away from the limit, according to the estimate of Bloomberg Intelligence analyst Kristy Hung.

The free-float restriction could have a significant bearing on Guangzhou-based Evergrande’s goal of moving its listing from Hong Kong to an exchange in Mainland China. The developer, with US$48 billion of net debt as of Dec. 31, has been one of Asia’s best-performing large-company stocks this year, rising 72 per cent as home sales rebounded in China.

Gains accelerated after the buybacks started on March 29, with the shares rising about a third between that date and their peak on April 25. The latest transaction and the nearing of the constraint on further repurchases coincided with an 11 per cent, two-day slump that was the stock’s biggest reversal in 15 months.

Ev e rg ra n d e h a s a strong interest in maintaining a buoyant valuation.

The developer plans to gain a so-called Evergrande’s P/E backdoor listing in China, where stocks trade at higher multiples of earnings, by injecting almost all of its property assets into a Shenzhen-traded company. The potential catch is that Chinese regulators require companies transferring from Hong Kong to relist at a similar valuation, according to Bloomberg Intelligence’s Hung.

A year ago, Evergrande shares traded at a multiple of less than 7 times reported earnings. As of Friday’s close, they were on a ratio of 19.8, a valuation expansion driven by a combination of lower profit and this year’s share rally. Its price-to-book ratio has climbed to 2.3 from as low as 1.09 in June. The Shenzhen Composite Index, meanwhile, trades on a P/E of 28, with the real estate sub-index on a multiple of 17.

Now would be an opportune moment for Evergrande to make the switch to China.

The difficulty is that the company must wait for approval from mainland regulators, and there’s no indication of when that will be forthcoming. As Gadfly noted last month, it’s not alone in seeking to list over the border, and may find itself behind rivals such as Dalian Wanda Commercial Properties Co. and Guangzhou R&F Properties Co. in the queue.

Time is of the essence. Evergrande shares soared this year even as the company was targeted by short-sellers. The stock was the second-most shorted in the MSCI China Index as of last week after Fullshare Holdings Ltd., the Chinese developer that’s the subject of an attack by Glaucus Research Group.

There’s little doubt that the buybacks have helped support the stock. With that prop removed, Evergrande looks vulnerable.

As the owner of China’s top football club, Evergrande’s billionaire founder Hui Ka Yan knows that winning for almost the entire game means nothing if the contest is lost in the final minutes: It’s the score at the final whistle that counts. That whistle can’t come soon enough. Bloomberg Gadfly

19.8

It doesn’t get any better than this (it gets worse)

F

or the global economy it doesn’t get any better than this, which is a different way of saying it gets worse.

While the International Monetary Fund is calling for a gentle pickup in growth next year, up one tenth of a percentage point to 3.6 per cent, consensus among private-sector economists shows most leading economies peaking early this year.

Forecasts show the U.S. peaking in the second quarter and China, the euro zone, Japan, Britain and South Korea all having already topped out in the first quarter. Only India, Brazil and Russia will accelerate into 2018.

This will be a slowing of growth, not a downturn, but one which will come, given the very parsimonious management of capacity by industry, along with some pickup in inflation and thus interest rates.

Not a disaster, but slowing growth and rising inflation and interest rates are not a classic recipe for a bull market in risk assets.

“To see upside surprises to the consensus growth outlook outlined above would to our minds require a significant expansion of credit – this could come from households, nonfinancial corporations and/ or governments,” Michala Marcussen, global head of economics at Societe Generale, wrote in a note to clients.

“With growth most likely at the peak and central banks set to tighten, that to our minds entails that the peak sweet spot of firm growth and ample liquidity is essentially peaking this spring.”

Looking at the surveys of loan officers by central banks in Japan, the euro zone and the U.S. shows no real reason to expect an uptick in either demand or availability of credit.

And while consumers have still added to loan balances at a healthy pace in the U.S., there are signs that some banks are becoming increasingly cautious, particularly in auto lending.

In the U.S. there is a possibility that a loosening of regulation by the Trump administration might also prime the credit pump, but, as with all things in this administration, this is a matter of speculation. Nor is it clear that tax cuts or a foreign cash repatriation holiday would actually lead to capacity expansion

by U.S. firms.

The last time the U.S. adjusted the tax system to put more cash in corporate coffers, it went more towards financial engineering, in the form of share buybacks, than investment in plants or people.

“

James Saft a Reuters columnist

Fruits of parsimony

As for a fiscal expansion - probably not coming in the euro zone or, in a meaningful way, in Japan. Trump on Monday told Bloomberg he would consider a rise in the gasoline tax to fund infrastructure spending, but Tuesday and Wednesday may bring a different story. The Trump tax plan, such as it is, would increase the deficit and place more cash in the hands of the wealthiest, but this seems more likely to drive prices in art and vacation homes than do much for overall output. That is if you expect the plan, as it is, to come to reality.

It is hard, in sum, to bet that the U.S. gets a boost from a fiscal expansion.

And don’t look to China for a credit-driven further expansion.

China is not only tightening monetary conditions subtly, it appears to be getting serious about loose lending. The China Banking Regulatory Commission has been making pointed checks into bank risks and exposures from offbalance sheet lending, which has accounted for much of the credit growth there. Regulators are also applying pressure in China to real estate lending, another area which had driven growth, both in credit and economic output.

A look at IMF estimates of capacity utilization in the main economies shows that most are running reasonably high, in historical terms. This is the fruit of a much more aggressive attitude towards capital expenditure and corporate management, one which, again, favours balance-sheet alchemy over investment in research or a company’s core franchise.

So, a bit of inflation will be added to the mix, though certainly not too much, especially as the Fed tries to both boost interest rates towards ‘normal’ and begin to manage its own balance sheet of acquired assets downward.

The upshot for markets is that risk assets will face headwinds, with a best-case scenario perhaps being a set of tax cuts in the U.S. and a surge in share buybacks.

Look around, and enjoy it; a gentle slope it may be, but it is all downhill from here. Reuters

China is not only tightening monetary conditions subtly, it appears to be getting serious about loose lending

”

16 Business Daily Wednesday, May 3 2017

Closing Stock market

Beijing, HK eye July handover anniversary to unveil ‘Bond Connect’

percolating since Beijing launched a scheme allowing two-way trading between the Hong Kong and Shanghai stock markets in 2014, but the authorities have Hong Kong and Chinese regulators are set to formally unveil a long-awaited scheme to connect China’s US$8 provided few details on the mechanics or the timeline.

Historically, the Chinese government has announced trillion bond market with overseas investors in July, major projects with Hong Kong around the time of the with the launch expected in the Autumn, sources told July 1 anniversary, as a means of reinforcing the former Reuters.

British Colony’s close relationship with the mainland.

The announcement is planned to coincide with the 20th anniversary of the handover of the former British Market participants in Hong Kong said they were Colony from British to Chinese rule, which is considered preparing for the scheme to go-live around November, which would coincide with the third anniversary of by the Chinese authorities to be an auspicious date, the launch of the Hong Kong-Shanghai Stock Connect two people briefed on the matter said. share trading scheme. Reuters Plans for a “Bond Connect” programme have been

Fitch report

China’s capital controls to hamper yuan internationalisation The proportion of international currency payments denominated in yuan fell to 1.8 per cent in March 2017 from 2 per cent a year earlier

M

oves to control capital outflows and concerns over a potential further depreciation of the yuan are likely to impede the internationalisation of Chinese currency, Fitch credit rating agency said.

Beijing has announced a string of measures since November to tighten controls on money moving out of the country, including closer scrutiny of outbound investments, large overseas money transfers and individual foreign exchange purchases.

“Policies to contain capital outflows and on-going concerns over currency depreciation are likely to hold back internationalisation in the

short-term,” Fitch Ratings said in a report published on Monday.

“Progress toward the Chinese renminbi becoming a more important global currency has lost momentum over the last two years, notwithstanding its landmark inclusion in the IMF’s Special Drawing Rights (SDR) currency basket in late 2016,” it said.

But a gradual increase in holdings of yuan, also known as the renminbi, by reserve managers could still support China’s rating profile over time, it added.

The proportion of international currency payments denominated in yuan fell to 1.8 per cent in March

2017 from 2 per cent a year earlier, Fitch said, citing data from SWIFT. Still, highlighting data from the China Central Depository & Clearing Co., the agency noted that the share of external holdings of Chinese government bonds during the same period increased to 3.9 per cent from 3 per cent.

About 17 per cent of China’s trade deals were settled in the yuan in 2016, off a peak of 26 per cent hit in 2015 and 22 per cent in 2014, according to Reuters’ calculations based on official data.

Yuan settlements were close to zero in 2009, when internationalisation was seen as a way for firms to reduce currency risks and also to challenge the U.S. dollar’s role as the world’s major reserve currency.

The yuan could be used as a reserve currency over the long term given the global importance and

inter-connectedness of China’s economy, Fitch said.

Data released by the International Monetary Fund in March showed China’s share of allocated currency reserves, reported by the IMF for the first time, totalled just over 1 per cent, or US$84.51 billion.

Key Points Capital curbs, yuan depreciation fears to dent yuan clout-Fitch Rises in global yuan holdings to help China’s rating profile Expects capital controls to be lifted over next couple of years

Policy stimulus has stabilised the economy, but leverage and financial risks continue to build, Fitch said, adding that investor concerns about medium-term financial stability are likely to dent the yuan’s attractiveness.

The yuan has stabilised this year, due to curbs on capital outflows and a reversal of the dollar rally, following a fall of 6.5 per cent in 2016. Still, it is widely expected to weaken further versus the dollar this year.

The Chinese authorities are unlikely to pursue significant capital account liberalisation if it poses risks to domestic financial stability, Fitch said.

“We therefore expect capital controls to be lifted in an asymmetric way over the next couple of years, with restrictions on inflows relaxed steadily and those on outflows mostly kept in place,” it said. Reuters

Ecommerce

Monetary move

Trade

JD.com said in talks to invest in Indonesia’s Tokopedia

PBOC reduce liquidity injections

Thai’s top industry grouping raises 2017 export forecast

JD.com Inc., Alibaba’s fiercest rival in Chinese e-commerce, is in talks to make a major investment in Indonesia’s PT Tokopedia to speed its expansion into Southeast Asia’s largest economy, people familiar with the matter said.

JD is in early-stage negotiations to invest hundreds of millions of dollars in one of Indonesia’s largest online marketplaces, one of the people said, asking not to be identified because the deal is private. JD’s potential investment may propel Jakarta-based Tokopedia past US$1 billion in valuation, another person familiar with the deal said.

A successful deal with Tokopedia will take JD’s competition with Alibaba Group Holding Ltd. to Indonesia, an oil-rich country of 260 million that’s experiencing a surge in smartphone usage and middle class affluence. It would be buying into a local ally ahead of a potential push into the region by Amazon.com Inc. China’s two biggest e-commerce players have both poured major sums into Southeast Asia, capped by Alibaba’s acquisition of a controlling stake in Lazada Group SA last year.

Unlike Alibaba and fellow Chinese internet giant Tencent Holdings Ltd., JD has tended to grow its business organically. Bloomberg News

China’s central bank injected RMB506.39 billion (US$73.43 billion) into the financial system via short- and medium-term liquidity tools in April, down 18 per cent from the previous month, signalling a bid to rein in rapid credit growth.

The fall followed a 50 per cent month-on-month jump in injections in March and a 35 per cent drop in February.

Under its new “prudent and neutral” policy, the People’s Bank of China (PBOC) has adopted a modest tightening bias in a bid to cool explosive growth in debt, though it is treading cautiously to avoid hurting economic growth.

The PBOC lent RMB495.5 billion to financial institutions via its medium-term lending facility (MLF) in April, the bank said in a statement yesterday.

The outstanding MLF was RMB4.108 trillion at the end of April compared with RMB4.064 trillion at the end of March, it said, implying a net injection of RMB44 billion.

The bank lent RMB128 billion for six months and RMB367.5 billion for one year.

Meanwhile, the central bank extended RMB10.89 billion of loans to financial institutions in April via its standing lending facility, it said. Reuters

A grouping of Thailand’s top industry bodies yesterday raised its 2017 export forecast to 2-3.5 per cent from 1-3 per cent on stronger-than-expected first-quarter and improved global demand.

Exports, a key factor for the country’s economic growth, rose 4.9 per cent in the January-March period from a year earlier after it climbed slightly in 2016, the first annual increase in four years.

This grouping comprises the Federation of Thai Industries, Thai Bankers’ Association and the Thai Chamber of Commerce.

Shipments of electronics, autos, rubber products and chemicals should continue to increase, Predee Daochai, group chairman and president of the Thai Bankers’ Association, told a news conference.

“Any impact of change in the U.S. trade polices on Thailand should be minimal because 40 per cent of Thai exports to the United States come from the U.S. firms, mainly electronics, with the remaining 60 per cent mainly consumer goods that the United States does not produce,” said Kalin Sarasin, chairman of the Thai Chamber of Commerce and the Board of Trade of Thailand.

Thailand runs a trade surplus with the United States, and U.S. President Donald Trump in March ordered a study of the causes of U.S. trade deficits. Reuters