Business Daily #1289 May 5, 2017 by Business Daily

Fashion and food experiences to nurture the senses Consigliere Pages 8 & 9

Friday, May 5 2017 Year VI Nr. 1289 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro

www.macaubusinessdaily.com

Melco

Industry

All fronts post positive results; change in the air for City of Dreams Page 4

Results

Galaxy mass market growing as VIP recedes Page 4

Hospitality

Taobao selling hotel rooms junkets cannot move Page 4

SJM results fuelled by growth of satellite casinos Page 5

Mortgage Ratios Reduced Real estate

Reduced ratios for granting mortgages have been announced. Buyers intending to acquire second residences will get less credit. The pricier the home, the lower the percentage extended. Allegedly to reduce speculation and favour local buyers. Page 3

Uptick in residential housing prices

Devil in the detail

Local authorities developing legislation for fighting money laundering and terrorist activities require clarification. Particularly with regard to what disciplinary measures should be adopted under certain circumstances.

Real estate Residential housing prices are headed north. Data released by the Statistics and Census Service showed the index of 2017 Q1 posted a 4.7 pct rise q-to-q. Page 2

Get Smart

Smart City The Smart City Seminar 2017 says it’s doable. But the gov’t must lead the charge. Hosted by the Science and Technology Development Fund, experts analysed what Smart means in the MSAR. Page 16

Chinese whispers HK Hang Seng Index May 4, 2017

24,683.88 -12.25 (-0.05%) Worst Performers

HSBC Holdings PLC

+2.95%

Kunlun Energy Co Ltd

+1.02%

Geely Automobile Holdings

-4.84%

Galaxy Entertainment Group

-1.96%

Hang Seng Bank Ltd

+2.66%

MTR Corp Ltd

+1.00%

AAC Technologies Holdings

-3.09%

Tencent Holdings Ltd

-1.85%

China Shenhua Energy Co

+1.54%

Bank of East Asia Ltd/The

+0.93%

Want Want China Holdings

-2.52%

PetroChina Co Ltd

-1.47%

BOC Hong Kong Holdings

+1.24%

Power Assets Holdings Ltd

+0.86%

China Resources Land Ltd

-2.35%

Lenovo Group Ltd

-1.20%

China Mobile Ltd

+1.03%

Sino Land Co Ltd

+0.76%

China Merchants Port Hold-

-2.02%

Hang Lung Properties Ltd

-1.11%

23° 26° 23° 27° 23° 26° 23° 26° 23° 27° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

PMI The latest private services report paints a gloomy picture of China. Despite a good start to the year, the Mainland economy appears to be misfiring. Page 10

Money laundering Page 2

2 Business Daily Friday, May 5 2017

Macau HZM Bridge

Still waters run deep

reporting in its investigation the ‘true story’ about the fatal The construction platform of the Hong Kong-Zhuhai-Macau accident. While the inspection report produced by the Labour Bridge which collapsed last March 29 killing two Nepali Department claimed that two cables of the work platform workers had ‘design flaws,’ claimed the Confederation of Trade Unions in Hong Kong, The Standard paper reported. ‘suddenly broke,’ the Confederation of Trade Unions argued the crane lifting the platform had ‘design flaws.’ The two workers were killed because their safety belts Moreover, the representative of the Nepali workers killed were connected to the flawed platform which collapsed, in the accident pointed out that the authorities have only plunging into the sea. spoken to the contractors’ side and not to the workers who A group of lawmakers and activists for labour rights in Hong Kong have condemned the SAR Government for not witnessed the death of their colleagues. S.Z.

Money laundering

Ask and respond Committee currently discussing new law proposal for countering money laundering and terrorist activities demands clarifications by the government on what sanctions and disciplinary action would be imposed upon employees deemed guilty by virtue of negligence Nelson Moura nelson.moura@macaubusinessdaily.com

embers of the second standing committee currently discussing the new law proposal for countering money laundering and terrorist activities financing disagree with the government in terms of the penalties and responsibility employees should bear in the event of negligence related to money laundering. The statements were made by the Legislative Assembly’s (AL) second standing committee chairman, Chan Chak Mo, following a meeting yesterday on the law to update the original legislation enacted in 2006. According to the legislator the original law change proposal that

was voted on favourably in the AL in November of last year comprised 31 Articles, with the committee having proposed a version with 73 Articles, to which the government countered with 52 Articles in April. The committee members claim the Articles defining the responsibility for collective entities found guilty of money laundering crimes do not specify what disciplinary measures would be taken in the event employees of companies are found guilty of negligence in their duties. The law proposal states that entities have the responsibility to identify and verify the identity of their clients; conduct measures to detect operations of money laundering; refuse to provide operations that refuse to provide information and inform the authorities of the activities.

The law proposal states that members of an organisation or an unincorporated association could be considered guilty if an action of money laundering was made possible by their negligence. The committee states the government announces seven penalties, including administrative penalties such as fines and disciplinary responsibility for how employees should be penalised although their application and the criteria to assess the employee’s responsibility is not clear. “If the employee works for the government does it still make sense for the government to fine him? It feels like the money just changes hands between the government. What disciplinary sanctions would public employee suffer? We need to clarify this with the government,” the chairman added.

The second committee chairman also stated that the government was asked for the law to specify the MSAR budget be sent for debate by the AL at least 45 days before the Chief Executive’s annual Governance Action Lines (LAG) address in order to allow more time for its

He also said clarifications were needed on the line where the infractions would pass from disciplinary action to criminal investigation. Despite that issue Mr. Chan said there were few disagreements with the government, with the majority of the two-hour meeting being for the presentation of many of the law proposal Articles. “We will collect the government’s opinions and come out with another proposal (…) If the government hears our suggestions [I] believe after three or four more meetings we can finish the preparations and submit a proposal to the Legislative Assembly. We have to finish our work before October 15,” he added. The legislator said that the second standing committee is currently evaluating four law proposals but that the work could be finalised “around August”.

evaluation. “The government normally presents the budget to us on November 30 (…) We understand the difficulties of the government setting a date but we hope there is more time to give the AL more time to evaluate the budget,” Mr. Chan said.

Housing

Residential housing goes up further Cecilia U cecilia.u@macaubusinessdaily.com

During the first three months of 2017, prices of residential housing in the city further grew having gained momentum in the first quarter of last year, with the overall residential price index reaching 244, according to the latest data released by the Statistics and Census Service (DSEC). In terms of quarterly comparison, the index of the first quarter this year posted a 4.7 per cent increase quarter-to-quarter.

With regard to geographical distributions, DSEC data reveals that the price indices for housing on the Macau Peninsula and Taipa & Coloane stood at 245 and 239.5, indicating quarter-to-quarter increases of 4.8 per cent and 4.1 per cent, respectively. More specifically, the overall index of existing residential units stood at 248.7, up 5.1 per cent, with the indices for both the Macau Peninsula (236) and Taipa & Coloane (305.9) growing 4.6 per cent and 6.5 per cent quarter-to-quarter, respectively.

Meanwhile, the increase in presales prices of residential units appeared to have slowed down in the first quarter compared to the last quarter of 2016 (10.7 per cent increase), with the index of the first quarter posting 233.3, up 1.7 per cent quarter-to-quarter. On the other hand, the DSEC stated that the indices for all groups of existing residential units in terms of year of completion also posted growth during the three-month period. In particular, indices for residential units built for more than 20 years

old experienced a higher quarterly increase than those that were six and 10 years old, up 6.6 per cent and 3.7 per cent, respectively. For indices categorised in terms of usable floor area, the latest official data shows that usable floor area between 75 to 99.9 square metres registered the highest quarterly increase at 7.4 per cent at 224.4, followed by usable floor area of over 100 square metres, up 6.5 per cent quarter-to-quarter. The local census body notes that the residential price index is calculated based upon the records of application for payment of stamp duty related to residential transactions, with 2011 the base year.

Business Daily Friday, May 5 2017 3

Macau Mortgage

Lending ratio changed to protect locals, allegedly The government is enacting measures to control real estate speculation starting today. It claims they are aimed at protecting locals. But it is not that simple Sheyla Zandonai sheyla.zandonai@macaubusiness.com

esidents wishing to acquire a second house in Macau will see mortgages covering less ratio of the property starting today, the government announced during a press conference held at its headquarters yesterday. The ratio of mortgage loans for real estate acquisition has been readjusted in four housing price categories, with the biggest cut applying to the purchase of residential units costing up to MOP3.3 million, down to 70 per cent Mortgage loans for residential property

from 90 per cent (see box 1). Potential buyers seeking to acquire a second residential property valued over MOP8 million will have access to a 40 per cent credit line instead of 50 per cent. The credit line for residents planning to acquire their first residential property will remain unchanged. Again, the higher the price of the property, the lower the mortgage ratio that can be procured by the potential buyer (see box 1). Lau Hang Kun, Assistant-director of the Department of Bank Supervision of the Macao Monetary Authority (MMA), said the measures are being enacted to

control real estate speculation, given that “the development pace continues to accelerate,” and to assist banks to improve risk management. Questioned by Business Daily about the timing of these measures, economist José Isaac Duart says it “suggests the government fears that real estate prices may be on the rise again.” He added that the current policy seems to be very much in line with previous measures adopted by the government. “In sum, these are measures to limit demand pressure for real estate. But it does not seem that they will have much of an impact over external demand, say, from Mainland China, while it will continue to be particularly difficult for young people to acquire a home.”

Non-residents

The loan cap applying to the acquisition

of a first residential unit by non-residents has also been adjusted to lower ratios. Acquisition of housing worth more than MOP8 million entitles buyers to up to 30 per cent in bank credit. Property worth no more than MOP3.3 million will enable buyers to borrow up to 60 per cent, with the loan cap established at MOP1.65 million, equivalent to 50 per cent of MOP 3.3 million.

Projects under construction

Regarding real estate under construction, similar readjustments will follow for the acquisition of a second housing unit by Macau residents as well as the acquisition of a first property by non-residents (see box 2). Loans for the acquisition of property worth more than MOP8 million by residents will be capped at 40 per cent, while credit for the purchase of property worth the same amount by non-residents will be limited to 30 per cent. The current mortgage scheme for the acquisition of a first housing unit by Macau residents will not be affected by the new readjustments.

Mortgage loans for acquisition of residential property under construction

4 Business Daily Friday, May 5 2017

Macau Opinion

Pedro Cortés*

Results

Galaxy: Mass up, VIP down Adjusted EBITDA was up 31 pct y-o-y, while VIP revenue fell 5 pct as mass increased 15 pct Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

Stamp doubts In recent weeks we have seen important personages of Macau advocate that the Macau Government reimburse stamp duty to the promissory buyers of units of a building on which the concession contract of its site has expired. It is wonderful sometimes to read these and other news tidbits as it seems that the law that I have studied is not the same to everyone. All of us, even without knowing, pay stamp duty for different acts. Let’s imagine that we have paid stamp duty levied for the acquisition of a movie ticket in one of the great cinema complexes we have in Macau. Suddenly, for some reason, we have decided that we won’t go to the movies as there are other interesting things to do. At that moment, we go to the Macau Finance Bureau and claim the stamp duty of 10 per cent as per the Stamp Duty Ordinance. Or, even, we decide to buy a ferry ticket to Hong Kong. But due to a typhoon signal we can’t go to Hong Kong. In the view of the aforementioned important persons we would have the right to be reimbursed. Well, stamp duty is levied for the act (acquisition of the ticket, promissory contract, etc.) most of the time irrespective of future events. In this context, I regret to announce that the fact that the concession has expired without the construction being completed is not one of those cases that will entitle future buyers to get back the stamp duty paid. Of course, those promissory buyers may go to the developer and claim back the stamp duty even though as at the time they bought the properties it would already be unlikely that the development would be completed on time. It is, fortunately or unfortunately, the law that we have and skewed interpretations are always possible, but not with prejudice of the fiscal powers of the state, executed by the government. I kind of understand the position of the promissory buyers. But if the government makes an exception for this case, it will be opening a Pandora’s Box with serious consequences regarding what we call legal certainty, a basic principle and goal of the rule of law in any state, or in our case Region. *lawyer and frequent contributor to this newspaper.

alaxy Entertainment Group (GEG) saw a 15 per cent year-on-year uptick in its total mass table games revenue, while its VIP revenue declined 5 per cent in the first quarter of the year compared to the same period last year, according to the group’s results published with the Hong Kong Stock Exchange. Mass revenue amounted to HK$5.8 billion, while VIP amounted to HK$6.8 billion, with total gaming revenue in the quarter reaching HK$13.1 billion, a 4 per cent year-on-year increase. The group’s adjusted EBITDA

(earnings before interest, taxation, depreciation and amortization) saw a 31 per cent year-onyear increase during the quarter, hitting HK$3.2 billion, a 7 per cent quarter-to-quarter increase. The group notes that ‘these results were achieved despite additional capacity entering the market in the later part of 2016’. For the group’s properties, its flagship Galaxy Macau ‘is the primary contributor to Group revenue and earnings,’ notes the release, with the property’s overall revenue going up 5 per cent year-on-year, ‘the best revenue quarter in over two years,’ notes the filing. The property also saw a 27 per cent uptick in adjusted EBITDA, to HK$2.6 billion.

VIP gaming revenues saw a 6 per cent fall year-on-year to HK$5.1 billion, with rolling chip for the first quarter down 1 per cent yearon-year at HK$131.8 billion. Mass gaming saw a 21 per cent uptick at the property, hitting HK$4 billion, while electronic gaming revenue jumped 19 per cent year-on-year, reaching HK$454 million. Non-gaming was up 6 per cent compared to the same period last year, reaching HK$707 million. ‘The combined five hotels registered strong occupancy of 97 per cent in the first quarter 2017,’ notes the filing. In addition net rental revenue from The Promenade, the group’s shopping area, was up 13 per cent year-on-year, reaching HK$222 million. The group’s StarWorld property, on the Peninsula, ‘had bad luck in its gaming operations,’ leading to a HK$25 million drop in its EBITDA. VIP revenue on the property was up 3 per cent year-on-year to HK$1.7 billion, while mass was up 10 per cent year-on-year, to HK$1.3 billion. The group’s slot handle at the property was up 290 per cent year-on-year in the first quarter, to HK1.59 billion. The group’s Broadway property saw a 43 per cent drop in mass gaming revenue, contributing to a 25 per cent year-on-year drop in its overall revenue, at HK$135 million. The property boasted ‘virtually 100 per cent’ occupancy during the quarter, notes the filing.

Tourism

Hotel rooms a grey area in Taobao Local hotel room bookings can be made via Taobao without guests’ personal ID Cecilia U cecilia.u@macaubusinessdaily.com

Some 5-star hotel room bookings in MSAR are available on Chinese online shopping platform Taobao, with the price generally 20 per cent cheaper than the rack rate, Hong Kong news outlet Apple Daily has reported. The news outlet revealed that bookings made via Taobao do not require any personal identification documents (ID), and that keys for the rooms are provided by travel agent staff on Taobao. Staff explained the reason for not needing the guest’s ID is that the room was originally offered by the hotel to junket operators as an offer for gamblers, but later transferred to the travel agent for sale. Travel agent staff also claimed

that it is a safe and legal way to reserve hotel rooms in Macau, as reported by Apple Daily. Legislator Au Kam San told Business Daily that this method of reservation is rumoured to have happened for a long period of time. Although accessing a hotel room in Macau like this is not common, the legislator said that the MSAR Government has yet to pay any attention to the matter. “When no-one is staying in the rooms, then the junkets would give the rooms to travel agencies to sell on Taobao and such practice is technically considered in a grey area,” commented legislator Au, adding that the practice offers no assurance of guests’ safety and interests. Given that the current law is unable to monitor the practice, Mr. Au

remarked that the MSAR Government should research regulating the issue, saying the practice would attract lawbreakers. Meanwhile, in response to Business Daily’s enquiry, the Macao Government Tourism Office (MGTO) cited a decree that ‘clients must register at hotel establishments’ while stating that if any hotel establishment is found to have violated the decree “will be liable to the penalty concerned”. Also hotel operators are required to ‘keep records of the registration information of guests provided with accommodation at the hotel establishment in accord with the provisions of the decree’, read the response made by the tourism office. Business Daily also asked Sociedade de Jogos de Macau, S.A. and Galaxy Entertainment Group about the matter but had received no reply by the time the story had gone to press.

Results

City of Dreams loses Hard Rock Local gaming operator Melco Resorts & Entertainment is to replace the Hard Rock brand at its City of Dreams property in Cotai with a ‘temporary hotel brand’ called The Countdown, according to a company release yesterday. ‘The Countdown Hotel will operate until March 31, 2018, at which time we will open Morpheus,’ the group’s newest hotel tower, notes the release. The local operator saw a 16 per cent year-on-year increase in net revenue, reaching US$1.22 billion, in the first quarter of the year, ‘the increase in net revenue was primarily attributable to improved group-wide

rolling chip and mass market table games revenues,’ added the filing. The group saw a 141 per cent

increase in operating income yearon-year, with the group’s Studio City property generating a 39 per cent year-on-year increase in mass table games revenue, and a ‘ramp up’ of its VIP operations.

Business Daily Friday, May 5 2017 5

Macau Investment

MICE gets lion’s share of IPIM funding

by far the largest beneficiary, with the Macao Convention & Exhibition Association netting 74.7 per cent of The Macao Trade and Investment the total subsidies distributed by IPIM, Promotion Institute (IPIM) allocated a which corresponded to an amount total of MOP103.24 million in financial of MOP77.20 million during the three support during the fourth quarter of 2017, according to information published months ended December 2016. The smallest subsidy was allotted to the yesterday in the Official Gazette. Macau Ski Association, which received The meetings, incentives, conferences MOP1,525 over the same period. S.Z. and exhibitions (MICE) industry was

Results

Waiting on the Palace SJM’s 15 satellite casinos brought in more gaming revenue during the first quarter than its Grand Lisboa property Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

ocal casino operator SJM Holdings Limited, operator of the Grand Lisboa and Hotel Lisboa, and soon-to-be Grand Lisboa Palace in Cotai, raked in more revenue through its satellite casinos during the first quarter of the year than it did through its own Casino Grand Lisboa, according to the group’s first quarter results published with the Hong Kong Stock Exchange. In total, the group made HK$5.17 billion in revenue through its 15 satellite third party-promoted casinos as compared to HK$3.68 billion from its Casino Grand Lisboa operation. However, the group’s adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) amounted to roughly three times that of the satellite casinos, as HK$474 million, as compared to HK$170 million. The group’s other self-promoted casinos, including

Jai Alai and Casino Taipa, generated HK$1.53 billion in revenue, with HK$150 million in adjusted EBITDA. The gaming revenue of the group underwent a 5.3 per cent drop in the first quarter, year-on-year, reaching HK$10.39 billion, contributing to the 5.2 per cent drop in the group’s overall revenue, at HK$10.53 billion. Profit attributable to owners of the

company, however, still saw a 3.3 per cent increase, reaching HK$580 million during the period. Overall, the group’s adjusted EBITDA saw a 0.7 per cent increase to HK$843 million during the quarter. ‘The Group’s gaming revenue accounted for 16.9 per cent of Macau’s casino gaming revenues during the first quarter of 2017, as compared with 20.2 per cent in the first quarter of 2016,’ notes the group in the filing. VIP gaming revenue saw a 12 per cent decrease year-on-year during the first three months of the year,

reaching HK$4.93 billion, although the group was propped up by a 1.9 per cent year-on-year increase in mass market gaming revenue, which hit HK$5.19 billion. VIP rolling chip reached HK$157.7 during the quarter, in which it operated 315 VIP gaming tables, 1,357 mass market gaming tables and 2,549 slot machines ‘During the first quarter of 2017, the Grand Lisboa Hotel achieved an average occupancy rate of 93.5 per cent and average room rate of HK$1,585 per night,’ notes the filing. Revenue from the group’s hotel, catering and related services amounted to HK$139 million during the period. Capital expenditure of the group during the first quarter of the year reached HK$1.43 billion ‘which was primarily for construction in progress,’ alluding mostly to the Grand Lisboa Palace, for which it notes in the filing the group ‘continued to make progress on construction’ in the quarter. The company points out the HK$25 billion loan it arranged on April 6 was to be ‘primarily used to finance the construction of the Grand Lisboa Palace’. The group also notes that it maintained a ‘strong and liquid financial position,’ with HK$12.66 billion in cash, bank balances and pledged bank deposits, with HK$503 of debt as at the end of the quarter.

Technology

Top university official: MSAR left behind in Smart City infrastructure Local university urges MSAR Government to expedite construction of infrastructure for Smart City development Cecilia U cecilia.u@macaubusinessdaily.com

Vice president Pang Chuan of Macau University of Science and Technology (MUST) remarked yesterday on the sidelines of a seminar about Smart Tourism held at MUST that the infrastructure in the city for the development of Smart Tourism lags neighbouring regions. “Macau has to make things fast because we’re a bit left behind as we all can see,” said the vice president. “There are always malfunctions happening to our Internet and the speed for the WiFi GO services is slow, based on my own personal experiences.” The government-backed free access wireless broadband service WiFi Go is somewhat ‘useless’ as the city’s telecommunication regulator has failed to clearly orientate the service and its target users, as well as being slack in its supervision of the service’s operation and quality, a report from the Audit Commission revealed last February. Mr. Pang perceives that it is not difficult for Macau to have complete WiFi coverage in the city, saying that it depends wholly upon the government’s determination. In the MSAR Government’s Fiveyear Plan announced earlier, establishing Macau as a Smart City is one of the government’s important goals, with the development of Smart

Tourism one of the four areas to start with. Meanwhile, Mr. Pang disclosed that a group inside MUST has been established to conduct research for the development of Smart City Macau. “We wish we could push the government to work more on it [Smart Tourism], such as detecting when tourists arrive [in Macau] and which routes they take and how long they stay [...] like travel habits and consuming patterns,” he said, adding that the provision of such data could help both the government and shops in obtaining the latest information. However, when asked about suggestions to the government regarding monitoring the city’s telecommunication service providers, the vice president said the university can only provide technical support to the government but added that MUST has scholars to study the matter.

Package tourism spots

Li Long, chief marketing officer of 12301, the national public platform for Smart Tourism in Mainland China, said that aside from the use of technology to inform tourists about whether a tourism spot is crowded or not, the MSAR Government should consider packaging new spots to allow more choices for tourists. Attending yesterday’s seminar at MUST to share experiences on Smart Tourism on the Mainland, Mr. Li said

that the mobile application most widely used in Mainland - Wechat - provides services similar to a traffic map for tourists to acquire immediate information about a site, with different colours used to indicate whether a site is packed or not. He also revealed that 12301 is currently introducing a programme – Strolling in Macau for three days and three nights – by inviting Chinese

photographers to shoot pictures of non-significant sites in the city in order to attract more tourists to explore alternative sides of the city. “In most cases tourists don’t like to go to crowded places and they just don’t know,” commented Mr. Li. “Like what I experienced in St. Paul’s Ruins; if I knew there were so many people then I might have chosen to visit other places.”

6 Business Daily Friday, May 5 2017

Gaming

Philippine casinos such as City of Dreams Manila and Solaire Resort and Casino don’t run proxy betting operations themselves and instead rely on so-called junket operators

Proxy bets

Phone betting increases money laundering risk at Manila casinos Phone betting, also known as betting by proxy, has grown to account for as much as 85 per cent of the business at some VIP rooms Daniela Wei and Bruce Einhorn

n a VIP room reserved for high-spending gamblers at City of Dreams Manila casino in the Philippine capital, many of the players are nowhere to be seen. They’re not even in the country. Instead, they’re placing bets by telephone, a practice banned in other gaming centres such as Singapore, Australia and Macau, but legal in the Philippines. Young men and women sitting at tables at the casino, many from China and dressed in smart black uniforms, chat in Chinese over mobile-phone headsets, placing wagers on behalf of their long-distance clients. Video cameras on the ceiling broadcast the action on the tables for gamblers who are watching, mostly from China. Philippine casinos reported as much as 110 per cent increases in VIP revenue from high-rollers -from US$27 billion in bets placed last year, and possibly far more if off-books betting were tallied. Phone betting, also known as betting by proxy, has grown to account for as much as 85 per cent of the business at some VIP rooms used by big spenders, according to people familiar with the operations who asked not to be identified as they’re not authorized to speak publicly. “There’s been a huge upswing in players using proxy betting,” said Shaun McCamley, Bangkok-based partner at gaming consultancy Global Market Advisors, who said it’s especially popular among gamblers in China. “A customer can sit in an office in downtown Shanghai, call associates of a casino, tell them to place bets and watch it in real time.” The casinos’ operations are raising the risks of money laundering, according to a U.S. government report in March. And Philippines gambling operations are causing concern in China, where authorities have sought to halt billions of dollars worth of outflows that have pushed down the value of the currency and drained capital reserves. Philippine authorities in late April arrested 55 Chinese nationals wanted in Beijing for alleged involvement in an online gambling syndicate north of Manila. “Proxy betting has always been a huge risk because you can’t possibly know your customer, and you can’t perform any normal due diligence,” said David Green, a principal with Newpage Consulting and a former gaming regulator in Australia. “If there are tainted funds, they can be

cleaned and issued back to the proxy or the player.” Criminal groups already take advantage of Philippine casinos to transfer “illicit proceeds from the Philippines to offshore accounts,” the U.S. State Department said in its International Narcotics Control Strategy Report in March, citing the country’s gaming palaces “high risk for money laundering.” Last year, in one of the largest bank thefts in history, a ring of hackers stole US$81 million from Bangladesh’s foreign reserves that were routed through a Philippine casino, a junket operator and a gaming-room promoter. Subsequently, a Senate Blue Ribbon Committee recommended that casinos be included among institutions monitored for money laundering and that regulators be empowered to look into bank accounts of casino operators suspected of unlawful activity. While the Philippine Amusement and Gaming Corp., the casino regulator also known as Pagcor, permits phone betting, many other gambling centres ban it because of money-laundering concerns. Macau eliminated betting by proxy last year citing the risk. Not all Philippine casinos engage in proxy betting.

“A customer can sit in an office in downtown Shanghai, call associates of a casino, tell them to place bets and watch it in real time” Shaun McCamley, Bangkok-based partner at gaming consultancy Global Market Advisors Unlike banks, insurance companies and other finance-related firms that must comply with the Philippines’ anti-money laundering law, casinos are exempt from such reporting requirements -- an issue the U.S. State Department called “an especially critical concern.” Philippine casinos such as City of Dreams Manila and Solaire Resort and Casino don’t run proxy betting operations themselves and instead

rely on so-called junket operators -companies that offer credit to players in China and other countries, as well as employ staff who communicate with them by phone. When gamblers in other countries place bets by phone with junket operators in the Philippines, their identities are hidden to the casino operators that allow proxy betting, said Global Market Advisors’ McCamley. While Philippine law requires proxies to submit to the regulator the passport information of the people placing bets, there’s no verification process nor information about where the money they’re betting originated, he said. “There’s no vetting, there’s no know-your-customer requirements,” he said. “It’s very high risk.”

VIP bets

Bets in VIP rooms accounted for almost half of total 2016 gaming revenue for Bloomberry Resorts Corp., which operates the largest casino resort in the Philippines, Solaire in Manila, according to its annual statement. The contribution of VIP bets will exceed 50 per cent this year, Morgan Stanley forecasts. Phone gamblers from China, Korea and beyond are contributing to the company’s increased revenue, along with growing numbers of Chinese tourists to the Philippines, Bloomberry Resorts Chairman Enrique Razon said in an interview on April 20. Bloomberry didn’t otherwise respond to questions about its anti-money-laundering and know-your-customer practices. At City of Dreams Manila, operated by the local unit of Melco Resorts & Entertainment Ltd., the volume of bets by high-stakes players more than doubled last year to 327 billion pesos (US$6.6 billion), compared with 31 per cent growth for mass tables that attract casual gamblers. Melco said in an emailed statement that it complies with the country’s anti-money-laundering rules and works closely with the regulator, Pagcor, as well as the local government on matters that affect the Philippine gaming industry.

Even higher

The actual amount of bets placed using proxies is even higher than the official data from casino operators, according to several people familiar with the Philippine industry. That’s because proxy betting makes it easier for gamblers to place side bets with junket operators and agents that are unrecorded. The total amount of side bets may be five or six times the size of reported proxy bets, according to the people. “The agent and the player may agree that while play against the

house is denominated and recorded in Hong Kong dollars, they will side bet as if that play had been in U.S. dollars,” according to a Global Market Advisors report published in August. “The agent assumes the operational risk or expense of the house in case the player wins, and collects the money in case he or she loses.” Phone betting isn’t the only way the Philippines is trying to attract long-distance gamblers. The regulator issued 35 licenses for online betting operations restricted to foreigners outside the country, Andrea Domingo, chairman and chief executive officer of Pagcor, told a Senate hearing in February. The government expects to “ make a lot of money” from these licenses, Domingo said. After taking office last June, President Rodrigo Duterte launched a campaign against operators of illegal online gambling to deter Filipinos from betting. In the past, China’s long-distance VIPs would have placed their bets closer to home, in Macau. Now that proxy betting is illegal in the world’s largest casino hub, the Philippines has become the new destination, according to Alex Poon, an analyst in Hong Kong with Morgan Stanley. “Proxy betting keeps gaining popularity after Macau’s ban of phone usage,” he said. The Okada Manila, a US$2.4 billion new resort that opened in late March, finds the Macau ban “gives us additional opportunities,” Steve Wolstenholme, managing director of the casino resort’s operator, said in an interview. “We diligently adhere to nationally and internationally established practices to ensure that we meet or exceed the required financial monitoring practices in all areas of our business,” said the company, which has just started operating a VIP room. The Philippine government is aware of the money-laundering risk posed by proxy betting, according to Pagcor’s Domingo. It approves licenses to proxies who can legally help customers bet by phone, and junket operators also need to get licenses to operate legitimately in the country. “Our people are there. They are watching. We have our monitors, the closed-circuit TVs,” said Domingo. Players “are being watched 24 hours a day.” Back at the City of Dreams casino, several VIP-room staff said they’re eager to field the phone calls, as well as go online, to facilitate the betting. One employee summarizes the philosophy: The casino provides whatever betting method the client wants. Bloomberg News

Business Daily Friday, May 5 2017 7

Gaming Development

Philippine firm Udenna to build resort outside capital The casino, retail complex and hotels are scheduled to open as early as 2019

he Philippines’ Udenna Corp said yesterday it will build a US$300 million integrated casino-resort in central Philippines, the first such outside capital Manila. The Southeast Asian nation’s gaming regulator is inviting investors to build casino-resorts outside the capital to accelerate growth in the gambling and tourism sectors despite a crackdown by China, a big source of high rollers, on wealthy punters.

“We see this integrated development taking a major role in bringing the Philippines on par with the region’s premier destinations” Dennis Uy, Udenna President

Unlisted Udenna, a holding firm owned by one of the top campaign

Andrea Domingo, Chairman of the Philippine Amusement and Gaming Corp (Pagcor), said in March that the regulator had approved a US$500 million project for an integrated casino-resort in Cebu

contributors of President Rodrigo Duterte, plans to start construction of the Lapu-Lapu Leisure Mactan in Cebu city in three months, the company said in a statement. “We see this integrated development taking a major role in bringing the Philippines on par with the region’s premier destinations for leisure, gaming and meetings as well as for commercial and residential investments,” said Udenna President Dennis Uy. Andrea Domingo, chairman of

the Philippine Amusement and Gaming Corp (Pagcor), had said in March the regulator had approved a US$500 million project for an integrated casino-resort in Cebu. Domingo did not name the project builder then. Pagcor was not immediately available for comment yesterday. Udenna’s integrated casino-resort will be built on a 12-hectare beachfront property six kilometers from an international airport. The casino, retail complex and

hotels are scheduled to open as early as 2019. Udenna bagged on Wednesday a provisional license from Pagcor. The Philippines, which has one of Asia’s most freewheeling gaming industries, targets gross gaming revenue of 155 billion Philippine pesos to 160 billion pesos (US$3.1 billion to US$3.2 billion) this year, up 4 per cent to 7 per cent from last year, government data showed. Growth will be driven by warmer ties with China and increasing foreign visitors. Reuters

8 Business Daily Friday, May 5 2017

Consigliere

PETITE FASHION The faker’s guide to talking about Comme des Garçons Calling all angels

fter a long week of work, there’s nothing better than enjoying shopping therapy over the weekend. In past years, the words fashion and Macau would rarely be seen in the same sentence. But after a few years of development, today the city tells a totally different story. As the new Entertainment Capital, Macau attracts countless tourists here every day. Its popularity makes brands take a fancy to opening stores here one after the other. Now, Macau boasts a retail sense to rival even the most established fashion capitals with a creative mix of brands from luxury to fashion forward to fast fashion. There is an ‘evangelical’ movement for women, and U.S. lingerie brand Victoria’s Secret has also jumped on the bandwagon. In 2017, Victoria’s Secret announced it would develop the market in China. Following the Shanghai flagship store opening, Victoria’s Secret debuted its full assortment store in Macau at The Shoppes at Venetian Macao on 27 April. The brand fascinates women worldwide by its sexy, feminine and comfortable lingerie. What is even more charismatic is the annual Victoria’s Secret Fashion Show, one of the most anticipated shows in the world. Every year, gorgeous supermodels strive for the opportunity to participate in this amazing show and to fasten the exclusive angel wings. Featuring popular singers, spectacular stage effects, the brand’s stunning priceless outfits, music and beautiful angels, the show immerses the audience in its glamorous wonderland. For most Chinese people the first impression of Victoria’s Secret must be its beautiful angels. To celebrate the grand opening in Macau, fans can witness the original fashion show outfits and wings worn by five of the hottest Victoria’s Secret Angels - Adriana Lima, Behati Prinsloo, Karmen Pedaru, Joan Small and Ming Xi – right up until 31 May. The 15,000 square foot store is decorated with the brand’s iconic pink, oversized custom chandeliers and lingerie-inspired detailing, exuding an alluring feminine atmosphere. The store also offers an intimate and glamorous fitting experience – including seating areas with custom furniture, flocked pink and velvet finishes and signature fragrance testers, some even located in the fitting rooms. In the past, Macau people could only buy beauty products in the Macau store. Now, the store features a wide assortment of the brand’s signature bras, panties and sleepwear. All of the beautiful and feminine lingerie collections that Victoria’s Secret is known for are available, including Body by Victoria, Very Sexy, Dream Angels, Bombshell and Cotton lingerie. Working out is a trend for modern women, so selecting sportswear from the brand’s athletic line Victoria Sport is also an option in the store, with the confident Angel’s sporty look within easy reach. Beauty products such as fragrances, accessories, and small leather goods and bags are also available in the store. In order to satisfy women of all ages, the store in Macau also features Victoria’s Secret PINK - a collection of flirty and colourful bras, panties and loungewear for younger fans. Editorial by Essential Macau

Opening at the Met Museum this month is a retrospective of the fashion crowd’s favourite Japanese label. Here’s how to bluff your way through it. Troy Patterson

hen the Metropolitan Museum of Art opens its retrospective on Japanese label Comme des Garçons this week, it will award one of the highest honours in style to designer Rei Kawakubo. The annual exhibition at the Costume Institute is a regular blockbuster. This year’s show, entitled “Rei Kawakubo/ Comme des Garçons: Art of the In-Between,” is also an excuse for Vogue editor Anna Wintour to invite 600 of her closest friends for dinner. But what does the regular guy need to know about this cultural event? First, the basics: Kawakubo was born in 1942, began her enterprise in 1969, and blew up in the ’80s selling arty ladies an anti-yuppie option for dressing powerfully. You could name-check the dark and brooding Goth collection that earned her, with peer Yohji Yamamoto, a breakthrough spread in Vogue in 1983. More ambitiously, you could ad lib your way through an analysis of the “lumps and bumps” collection in the spring of ’97, feigning expertise on what a shock it was to see dresses reconfigured into science-fiction costumes with tumour-like bulges of fabric. “Directional,” “experimental,” “deconstructed,” “severe,” and “surreal” are all correct adjectives to use in describing Kawakubo’s work, which often features unfinished seams, asymmetrical intricacies, and none-more-black fabrications. “Objects for the body”—shaped and sewn to interact with ideas of human physicality—is how she described it. Definitely do not say “zany.” When it comes to menswear, CDG generally exists at a comfortable remove from pragmatism. The most famous of them are clothes for your young cousin with the master of fine arts and a trust fund: A deliberately wrinkled CDG Homme pinstripe suit made of a fancy polyester may be intended as a provocative commentary on shape, but people looking at you may assume that you’ve got a lawsuit pending against an inept dry cleaner. What this means is that a man needs a certain independence, in both the spiritual and financial senses, to wear CDG’s most celebrated designs without looking like a clown. Nonetheless, the famously press-shy designer with her husband as chief financial officer now controls a sprawling empire of sub-brands— Comme Des Garçons Homme, Homme Plus, Man, Shirt—that reportedly earn about US$280 million a year. The most accessible points of entry to the CDG universe come from Play, a line of well-made, casual-wear basics that can range from T-shirts, polos, cardigans, and a US$125 pair of Converse sneakers. The logo, if you can call it that, is a naively drawn,

sharp-eyed heart that is assumed to be Kawakubo’s self-portrait. “Accessible,” in this case, also means that stuff from the Play line is easy to get, which is no small feat. For instance, it is impossible to find an attractive Comme Des Garçons Homme Deux belt, available in select stores, online right now. This belt is just a normal, good-looking cowhide number, fairly priced at US$195, with a subtly interesting curve to its buckle, and the people who sell it don’t even have a photo of it. Nor am I able to show you another of CDG’s most wearable items, a rugged, rumpled khaki-coloured jacket designed by Kawakubo protégé Junya Watanabe and priced at US$1,030. It exists nowhere on the internet. This aura of exclusivity shrouds a hard core of actual exclusivity, which strikes me as an excellent business move, preventing overexposure. Such instances of obscurity allow the brand to undertake partnerships with the biggest brands in the industry—H&M, Levi’s, Converse—while retaining its underground cred. Comme des Garçons also operates Dover Street Market, one each in Tokyo, New York, London, Beijing, and Singapore. It sells its own wares, such as a US$330 poplin dress shirt in a powerfully tranquil blue, as well as Gucci sneakers, Supreme skateboard decks, Raf Simons jackets, and more from edgy upstarts, all with the vibe of a gallery installation curated to delight the bohemian eye. Most guys will have more luck fitting CDG into their lives by way of its accessories. The sturdy bags, the slick wallets, the sober socks—all of them basics essential to business success—are proudly made with humble craft. They exhibit a stellar understanding of first principles, amounting to firm proof that CDG knows better than anyone exactly which rules its high-design stuff is breaking. This season, as part of an on-going collaboration with NikeLab, CDG is selling see-through high-tops. The sneakers tie in with a larger project riffing on fashion’s favourite Hans Christian Andersen fairy tale, The Emperor’s New Clothes. Now the modern man can buy a US$200 T-shirt proclaiming that “the king is naked.” Even more enthusiastic CDG adopters can buy a US$1,930 translucent polyurethane overcoat. Though I can’t say that the coat is going on my Father’s Day wish list, I admire both the craft of its fabrication and the art with which the theme of the collection pre-empts jeers from the balcony. It is more than merely cheeky to implicate yourself, the reigning avant-garde design house, as the beneficiary of a mass pretence. It is high-level trolling. Which is an art in itself. Bloomberg News

Business Daily Friday, May 5 2017 9

Consigliere

Eight of the world’s best tiny restaurants At these eight restaurants, an intimate dining experience is what’s on the menu. Candice Chung , Kate Krader and Richard Vines

he hottest commodity in restaurants right now is not purple asparagus or black sesame tahini. It’s space. The combination of rising real estate prices and an environment that favours a nimble pop-up philosophy has created a glut of very tiny, very intimate dining experiences all around the globe. Even Wolfgang Puck, the original celebrity chef with a US$400 million empire, made his newest restaurant a 10-seat tasting menu this month, which is

The supper club

Mr. Donahue’s, New York (9 seats)

Manhattan is a city with limited space, and one of the tiniest dining rooms in town is Mr. Donahue’s, a nine-seat storefront café in Soho. Chefs Matt Danzer and Ann Redding celebrate old-school Midwestern supper clubs, where you can choose a main course, a sauce, and two sides for US$20. That could be realized as a fillet of seared steelhead trout with cowboy butter, or over-the-top chicken fried pork cheeks with pepper gravy and asparagus almandine. There are no reservations, and they don’t take cash.

The experimental bar

Minibar by José Andres, Washington D.C. (12 seats)

either the chef’s clever way to get back in the kitchen or a ploy to capture some of-the-moment street cred. For foodies, these snug spaces also allow for bragging rights once you’ve scored a seat at a place that has so few. Whether your idea of a good time is starched linen and the finest of dining or a laid-back encounter slurping down a bowl of ramen, here are eight small-scale restaurants, all with 14 seats or fewer, to reserve now. As long as you’re not claustrophobic.

The Michelinstarred bargain Tsuta, Tokyo (9 seats)

How much would you pay for a Michelin-starred meal? At Tokyo’s 9-seat Tsuta, you can treat yourself to a bowl of critically-acclaimed buckwheat ramen for little more than what you might spend at Burger King. If the long queues outside don’t put you off, you’ll have four important decisions to make: hot or cold, soba or tsuke soba, salt or soy sauce soup base. And then add your trimmings. Seventy tickets are sold outside the restaurant from 8am each day.

The dinner party night out Marianne, London (14 seats)

Chef José Andres helped put Washington D.C. on the U.S. culinary map with a series of notable restaurants like the Mexican Oyamel and the Spanish-inflected Jaleo. His flagship, though, is still the 12-seat counter Minibar, where Andres and his team concoct wildly avant-garde dishes: Golden squares of ham consommé croquettes, coated in tapioca, might be presented in a white sculpture of a hand. Tickets are not easy to get.

The namesake restaurant of Marianne Lumb, the former contestant on TV’s Masterchef, has a small dining room and an open kitchen from which Lumb serves European dishes with a modern edge— think cannelloni of Anjou quail with endive. The atmosphere inside, though, is more like a posh dinner party filled with all your favourite people. Prices are reasonable for Notting Hill, and there’s a separate menu for vegetarians.

The long sit-down

The far-flung farm

Don’t try to squeeze dinner at Naoe into a busy evening. The average meal lasts two-and-a-half hours, with seatings twice a night, at 6 p.m. and 9:30 p.m., for the eight people who have reserved ahead. The restaurant specializes in deluxe Japanese cuisine from chef Kevin Cory. His bento box might contain silky chawanmushi, or egg custard, with poached cobia and shiitake, plus outstanding pieces of nigiri sushi like sake-infused abalone. One thing that makes Cory’s food so good: The flavour of the soy sauce he adds, from his family’s shoyu brewery in Japan.

Just a dozen seats, in a 100-year-old farmhouse on an island. In Nova Scotia. The Bite House is not the sort of place you stumble into after a few drinks on a Friday night, but that’s just as well. The restaurant, which serves a five-course set dinner that changes each month, is currently booked until October. If you do score a reservation, you can look forward to ingredients freshly grown, foraged or sourced from local independent farmers.

Naoe, Miami (8 Seats)

The Bite House, Nova Scotia, Canada (12 seats)

The cabinet of curiosities

The restaurant for two

Accessed through a hidden door within another restaurant, Histoires boasts two Michelin stars and a price tag you would expect from a fine dining Parisian eatery. Mathieu Pacaud, chef of three-Michelin star L’Ambroisie and son of cook Bernard Pacaud, spent many months testing out hundreds of menu combinations. The spacious, elegantly decorated 12-seater serves dishes “inspired by the canonical masters who shaped [Pacaud’s] appreciation for the arts,” including Beethoven, Brahms, Chopin, Dante, and Matisse.

Choose your dining companion very carefully. Solo Per Due, in the countryside north of Rome, bills itself as the world’s smallest restaurant—two seats. It is housed in a historic building surrounded by gardens and a candle- the driveway is lit by candles. It helps if you’re feeling romantic. The restaurant is happy to supply a heartshaped cake and flowers and, with no fellow diners to annoy, you can even choose the background music. Champagne and engagement rings cost extra.

Histoires by Mathieu Pacaud, Paris (12 seats)

Solo Per Due, Italy (2 seats)

Let’s go local Which are the smallest restaurants in Macau? Post your choices in our Facebook

10 Business Daily Friday, May 5 2017

Greater China PMI

Service activity moderates amid slowing economy On the bright side, Chinese service providers saw a slower increase in overall cost burdens in April

rowth in Chinese service sector business activity continued to soften in April as a private survey showed yesterday that an index for the sector fell to the lowest in 11 months. The Caixin General Services Purchasing Managers’ Index (PMI), which tracks over 400 service sector companies in China, slipped to 51.5 in April from 52.2 in March, according to the survey sponsored by Caixin Media Co. Ltd. A reading above 50 indicates expansion, while a reading below 50 represents contraction. The decline follows a drop in the Caixin Manufacturing PMI to 50.3 last month from 51.2 in March. As a result, the Caixin China Composite Output Index, which covers both manufacturing and services, fell to 51.2 in April from 52.1 in the previous month, the lowest in the past 10 months. “Growth in both manufacturing and services decelerated in April, reflecting a clear slowdown in the expansion of the Chinese economy,”

said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group. In breakdown, the business activity index posted only a modest expansion. Growth in new orders picked up and stayed solid. The rate of job creation was the slowest seen in 2017 so far and modest overall. On the bright side, Chinese service providers saw a slower increase in overall cost burdens in April, with the rate of input price inflation easing to a six-month low. Service companies remained generally optimistic that business activity will increase over the next year in April. However, the degree of positive sentiment slipped to a five-month low, according to the survey. The weakening trend is in line with the official service sector PMI, which came in at 54 in April, down from 55.1 in March, according to the National Bureau of Statistics (NBS). The service sector has played an increasingly important role in the Chinese economy, as it creates nearly half of the country’s jobs, and is

critical to rebalance the economy from labour-intensive manufacturing to service economy and consumer spending. 0In the first quarter, the service sector accounted for 56.5 per cent of the overall economy. In terms of growth, it has left agriculture and the secondary industry far behind. However, service activity growth has softened in each month of 2017 so far, as tepid growth in the manufacturing sector weighed on

manufacturing-related service industries. The Chinese government has rolled out a slew of policies to support service sector companies. In 2016, it introduced value-added (VAT) reform, the most significant tax overhaul for two decades, to reduce the burden on service industries, which have historically paid a disproportionate share. In 2016, the number of newly established businesses in the service sector increased by a brisk 25 per cent, hiring 43.5 per cent of the labour force, compared with 36 per cent in 2012. China has had a strong start this year, with GDP expanding 6.9 per cent in the first quarter, well above the annual growth target of around 6.5 per cent. Xinhua

Finance

ADB chief seeks to cooperate, not compete, with alternative entities The ADB is coming off a record year for lending and is the region’s major financier for development Tetsushi Kajimoto

The Japanese-led Asian Development Bank is willing to cooperate, rather than compete, with China’s development finance and infrastructure plans under its “One Belt, One Road” (OBOR) initiative, the bank’s head said yesterday. ADB President Takehiko Nakao’s comments were made at the start of the bank’s four-day annual meeting in Yokohama, eastern Japan, where China’s rising influence is expected to be among key topics of discussion. His public comments align with those of policymakers seeking to dispel the view Japan and China are competing for influence through development finance. However, Nakao warned creditors about the costs of projects in economies that are targeted by China’s high-profile OBOR initiatives. “It’s a good idea to connect countries and to promote activities in this region,” Nakao told reporters yesterday, when asked about how the ADB should deal with the OBOR.

“We can cooperate because we have similar ideas,” he said at a news conference kicking off the annual meeting. He added that he discussed areas of cooperation with Chinese Finance Minister Xiao Jie, who will be in Tokyo for a meeting with his counterparts from Japan, South Korea and Southeast Asian nations on Friday. Bank of Japan Governor Haruhiko Kuroda, who before Nakao headed the ADB, said there was ample room for AIIB to cooperate with other development banks

ADB President Takehiko Nakao

like the ADB and the World Bank. “There are huge infrastructure needs so it’s great to have more institutions keen to support this,” he told reporters yesterday, adding that he did not think the AIIB would conflict with the roles played by the ADB and the World Bank.

More competition?

The ADB is coming off a record year for lending and is the region’s major financier for development, but its meeting could quickly fade as attention turns to the OBOR summit on May 14-15. Many OBOR projects are supported by China’s stateowned banks and its fledgling regional lender, the Asia

Infrastructure Investment Bank (AIIB), which could become a potential rival of the Manila-based ADB but for now is much smaller. Nakao said the vast need of infrastructure finance in Asia meant that the ADB and the AIIB could cooperate and complement each other, instead of considering each other as rivals. “Because we have different objectives and different kind of ideas about management, I think we can complement each other,” he said. “There are many things in common so we can cooperate.” The ADB and the AIIB have agreed to co-finance three projects - two last year and one this year, Nakao said. The two lenders have discussed how they can use local currencies for financing instead of dollars, how they can enhance expertise by their staff and how they can secure environmental and social safeguards, Nakao said. The ADB was established as a Japanese initiative in 1966 to offer development assistance in Asia. All of the ADB heads up until now have been Japanese, including Nakao. The AIIB is viewed by some as a challenger to both the Western-dominated World Bank and the ADB, which is primarily funded by Japan and the United States.

Partly to differentiate itself, the ADB has broadened its activities beyond infrastructure such as financing of steps for poverty reduction, healthcare and education. The growing prominence of China in Asian development finance, reflected by the creation of AIIB, has alarmed Japan’s government, enough to promote “quality” infrastructure finance as its key initiative in aiding developing Asian economies. However, he warned the ADB needed to pay attention to the “economic feasibility” of some OBOR-linked projects, particularly in sparsely-populated Central Asian nations. And despite signs of co-operation, some analysts say China’s muscle-flexing is making business harder for Japanese companies. “Both China and Japan are active in development financing and infrastructure financing in the region. We’ve seen some competition in the region over projects,” said Fitch Ratings director Mervyn Tang. “For a while, Japan really was the core financier. When you bring in a competitor, it means the likelihood of competition for pricing ... There’s more a danger of overpaying for a project or getting lower returns for a project.” Reuters

Business Daily Friday, May 5 2017 11

Greater China Investment

In Brief

Belt-Road plan may top US$500 billion, Credit Suisse says Most funds may flow into India, Russia, Indonesia, Iran, Egypt, the Philippines and Pakistan, according to an analyst China could pour more than half a trillion dollars into its Belt and Road Initiative, and the push for greater global influence looks even more promising with U.S. President Donald Trump pulling back from engagement, according to Credit Suisse Group AG. The plan could funnel investments worth US$313 billion to US$502 billion into 62 Belt-Road countries over the next five years, Hong Kong-based analyst Shen Hu wrote in a report Tuesday. In Africa, China may make additional investments of as much as US$79 billion in 13 countries, she said. Most funds may flow into India, Russia, Indonesia, Iran, Egypt, the Philippines and Pakistan, Shen and other analysts said. They added that the biggest beneficiaries could be mid-size Chinese construction and

machinery companies and Asian infrastructure firms with close ties to the country’s investment. “Its future seems even more promising” as the White House pullback creates opportunities, Shen wrote. “China’s overseas investment can be more significant for the world, with its growing influence and the U.S. administration potentially taking a more isolationist turn.” Chinese President Xi Jinping, who will convene a Belt and Road summit with 28 world leaders May 14-15 in Beijing, has embraced a new role as an advocate for free trade after Trump’s election, working to boost China’s role in global governance. Xi defended trade before the World Economic Forum in Davos this year, and Premier Li Keqiang echoed the theme in an essay for Bloomberg

Businessweek, saying China will champion economic openness and trade. The analysts estimated the size of the initiative, which they expect will last at least five years but likely as long as a decade, by scoring demand and supply factors, focusing on infrastructure. China may give certain countries preferential treatment to serve its own interests, such as bilateral relations, resources demand and the soundness of investment, they said. The analysts included a caveat, adding that due to the uncertainties of the initiative, “there’s not much meaningful discussion about how large the initiative could really be.”

“China’s overseas investment can be more significant for the world, with its growing influence and the U.S. administration potentially taking a more isolationist turn” Shen Hu, analyst Chinese shares that could benefit include construction machinery producer Sany Heavy Industry Co., Sinotruk Hong Kong Ltd., a unit of China’s first maker of heavy trucks, China Communications Construction Co., and Zoomlion Heavy Industry Science and Technology Co., the analysts said. They also cited Malaysian civil engineering company Gamuda Bhd, Indonesian state construction company PT Wijaya Karya, and Pakistan’s Lucky Cement Ltd. Bloomberg News

M&A

Ant set to ink loan to help fund MoneyGram bid The firm hiked its bid by 36 per cent to US$18 per share in cash Carol Zhong and Prakash Chakravarti

China’s Ant Financial, an affiliate of online shopping giant Alibaba Group, is close to signing a US$3.5 billion loan a part of which will help fund its purchase of U.S. money transfer company MoneyGram International, Thomson Reuters Basis Point reported. Fourteen banks, including Australia and New Zealand Banking Group, Citigroup, Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley and JPMorgan, have committed to the loan, Basis Point reported.

Key Points Fourteen banks including ANZ, Citi, JPMorgan committed to deal Loan agreement signing likely in next few days Loan size being increased from US$3 bln after sweetened M&A bid The three-year syndicated term loan will replace a bridge facility that backed Ant Financial’s bid for MoneyGram, it reported on Thursday, adding documentation of the loan is in progress, with signing expected within the next few days. Ant, valued at about US$60 billion after a US$4.5-billion funding round in April 2016, is set for an initial public offering (IPO), though it has not specified a timeframe or listing venue.

Ant Financial declined to comment. Representatives for ANZ, Citi, JPMorgan and HSBC also declined to comment, while Goldman Sachs, Credit Suisse and Morgan Stanley did not immediately respond to an emailed request for comment. For global banks, the loan is an opportunity to jostle for position ahead of the IPO, a strategy that has paid off for banks such as HSBC which was appointed a book runner on the bumper Aramco IPO after gaining an advisory role on the Saudi oil company’s first ever sukuk issuance. Reuters reported in February that Ant Financial, China’s most valuable online finance company, is in early stage talks with banks to raise

between US$2 billion to US$3 billion in debt to fund acquisitions and foreign investments. The loan size is being increased from US$3 billion after the Chinese online finance firm sweetened its bid for MoneyGram by over a third, beating a rival offer from U.S.-based Euronet Worldwide to gain approval from MoneyGram’s board. Ant hiked its bid for MoneyGram by 36 per cent to US$18 per share in cash, valuing the target at around US$1.2 billion and beating Euronet’s offer last month of US$15.20 per share. MoneyGram’s global remittance channels for sending money overseas would help Ant build a cross-border network after a string of recent investments in Asia. But the deal must first obtain approval from the Committee on Foreign Investment in the United States. Reuters

Financing

Big banks asked to launch ‘inclusive finance’ units China’s State Council has asked the country’s big commercial banks to set up “inclusive finance” departments by the end of the year to support small businesses, entrepreneurs and farmers, and help alleviate poverty, state news agency Xinhua reported yesterday. Growth in lending to small and micro businesses should at least match overall loan growth while the number of borrowers in that category should not shrink on a year-on-year basis, the Xinhua report said, citing a statement following an executive meeting of the State Council, or cabinet. U.S. negotiation

Vice premier talks economy with Ross, Mnuchin Chinese Vice Premier Wang Yang discussed China-U.S. economic ties on the phone with U.S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross on Wednesday, the state-run Xinhua news agency reported. The three “exchanged ideas on enhancing the comprehensive economic cooperation between the two countries,” Xinhua said in a report late on Wednesday. It described Wang as the Chinese official in charge of the China-U.S. comprehensive economic dialogue, but gave no further details. Despite harsh rhetoric about China on the campaign trail, U.S. President Donald Trump has recently had warm words for his Chinese counterpart Xi Jinping. Investment

Beijing promotes bonds issuance to support PPP projects China will encourage bond issuance to facilitate public-private-partnership (PPP) projects, the country’s top economic planner announced Wednesday. The government will accelerate approvals for bonds issuance in PPP projects and issue favourable policies to firms with high credence ratings, according to a guideline released by the National Development and Reform Commission (NDRC). The guideline aims to make more financing options available for PPP projects in the areas of infrastructure and public service, said NDRC. NDRC requires bond issuers to disclose information including possible risks, and protection mechanisms to investors before trading. Environment

Half of new urban buildings to meet green standards by 2020 About half of China’s new urban buildings will meet green construction standards by 2020, the country’s construction watchdog said. All new urban residential and public buildings should meet energy conservation requirements by 2020, with energy efficiency levels 20 per cent higher than 2015, according to a development plan for the construction sector released yesterday by the Ministry of Housing and Urban-Rural Development. About 40 per cent of new urban construction projects should use environmentally friendly and energy-saving construction materials. The output value of construction industry is expected to grow seven per cent annually from 2016 to 2020, according to the plan.

12 Business Daily Friday, May 5 2017

Greater china Macro measures

Risk control, restructuring keynote of Mainland’s macro regulations Liang forecast that urban fixed-asset investment would rise 9 per cent year on year from January to April

he keynote of China’s macroeconomic regulations will be risk control and restructuring in the coming months as major macro data for April point in that direction. Mild inflation, fast-growing investment in infrastructure, falling new loans and reduced factory gate prices all point to the need for improved risk control and continued restructuring, according to analysts.

New loans fall

Given seasonal factors, new loans in April are likely to decline from March, said Lian Ping, chief economist at Bank of Communications, quoted by China Securities Journal. “The ratio of medium and long-term credit for residents may gradually drop due to tightened real estate regulation.”

Zhu Jianfang, chief economist with Citic Securities, noted the amount of growth in April mortgages might reduce significantly. He said the country’s credit expansion may slow down this year due to prudent monetary policies, and the growth of outstanding loans is under downward pressure. “The monetary policy mix of quantitative control and low interest rates will remain unchanged as economic stability tops the government agenda,” said Hu Yuexiao, chief economist of Shanghai Securities. While some worried intensive financial regulation would affect the country’s economic growth, the April monetary and credit figures would show improving policy coordination among regulators, said Liang Hong, chief economist with China

International Capital Corporation Limited. Liang predicted that the adjusted growth of social financing would remain around 15.6 per cent in April.

Inflationary pressure low

Pork prices are expected to report a sharp decline of above 7 per cent year on year in April due to a high base last year, and prices of fresh vegetables might continue a seasonal fall, said Zhu, adding prices of aquatic products and grains might rise slightly to pull inflation. Lian made a preliminary prediction that the April Consumer Price Index (CPI) might increase about 1 to 1.2 per cent from the same period of last year, slightly higher compared to March. He said the CPI might drop in the second half of this year due to prudent monetary policies and weak demand. “There is no obvious inflationary pressure in 2017,” Lian said, predicting that the full-year CPI may drop to around 2 per cent. As for growth of the Producer Price Index (PPI), which measures costs of goods at the factory gate, Zhu predicted a month-on-month drop of 1.3 per centage points to 6.3 per cent in April and a near-zero growth rate at the end of the year due to the high base effect.

Investment growth flat

Lu Zhengwei, chief economist with the Industrial Bank, predicted 9.3per cent year-on-year growth of fixed-asset investment for the first four months of 2017, up 0.1 per centage point from the January-March period. Property investment might rise in April as the growth of commercial

house sales is still faster than that of real estate investment, which will contribute to boost the country’s fixed asset investment, Lu said. Liang forecast that urban fixed-asset investment would rise 9 per cent year on year from January to April, flat with the first quarter. Investment in the manufacturing and private sectors may keep rising as profits of industrial enterprises recovered substantially, Liang said.

“The monetary policy mix of quantitative control and low interest rates will remain unchanged as economic stability tops the government agenda” Hu Yuexiao, chief economist of Shanghai Securities Thanks to efficient risk control and economic restructuring, China’s economy has shown signs of firming, reinforced by an expanding manufacturing sector, rising corporate profits, increased rail freight volume, and higher machinery sales. The country has lowered its 2017 growth target to around 6.5 per cent, the lowest target in a quarter of a century, as the government leaves room for economic rebalancing. Xinhua

Expansion

Ping An to launch first overseas fintech and healthcare fund Its main subsidiary Lufax, China’s biggest peer-to-peer lending and wealth management platform, is also looking to expand into Hong Kong or Singapore Julie Zhu

Ping An Insurance Group Co of China Ltd, the country’s largest insurer by market value, is launching its first overseas fund to primarily invest in financial and healthcare technology worldwide, underscoring its push beyond its home market. The initial size of the so-called Ping An Global Voyager Fund will be US$1 billion, the insurer said in a statement yesterday. It will be managed from Hong Kong and led by Jonathan Larsen, an 18-year stalwart of Citigroup who joined Ping An as its chief innovation officer. Ping An’s overseas ambitions mirror those of other Chinese firms, including Anbang Insurance Group and Fosun International Ltd, which are spending billions on overseas acquisitions in a bid to reduce their dependence on the slowing Chinese economy and weakening yuan currency. The Shenzhen-based financial group plans to fully invest the Global Voyager Fund in the next three to four years with a focus on early-stage start-ups.

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Ping An in recent years has been building up its expertise in the fintech and healthcare-related areas, but mostly in mainland China. Its main subsidiary Lufax, China’s biggest peer-to-peer lending and wealth management platform, is also looking to expand into Hong Kong or Singapore, Lufax’s chief executive officer Gregory Gibb told Reuters in an interview.

Valued at US$18.5 billion when it raised US$1.2 billion from a group of investors in January 2016, it is looking to list in Hong Kong to secure more funds to finance its expansion at home and abroad. Ping An Good Doctor, a medical service app backed by the insurer, raised about US$500 million in its maiden financing round last year, valuing the fast-growing start-up at US$3 billion. Ping An had about 5 per cent of its total insurance assets abroad as of December 2016, its chief financial officer, Jason Yao, told Reuters at the time. That was well below the 15 per cent

cap imposed by China’s insurance regulator, giving it ample room to splurge. It plans to gradually increase its overseas investments to 10 per cent over the next three to five years. Before the Global Voyager Fund comes on the scene, the insurer has venture capital firm Ping An Ventures to make early-stage investments mostly in China.

Key Points Ping An to fully invest the fund in the next 3-4 years The fund to focus on early-stage investments Fund to be led by Jonathan Larsen, ex-Citigroup Larsen joins Ping An as its chief innovation officer Ping An’s overseas push also comes as the country’s insurance regulator was considering relaxing rules to boost the biggest and most solvent firms’ expansion abroad, while smaller, riskier insurers would come under tighter scrutiny, Reuters reported in March. Last year Ping An made its biggest annual profit in more than a decade thanks to growth in its life insurance business. Reuters

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Friday, May 5 2017 13

Asia Trade

South Korea current account surplus halves Data also showed the services account sustained its biggest-ever deficit in March Christine Kim

outh Korea’s seasonally-adjusted current account surplus halved in March to US$5.07 billion from a US$10.01 billion surplus in February, central bank data showed yesterday, to mark the smallest surplus since November 2013. The result was largely due to a reduced goods surplus as imports surged 7.6 per cent to US$40.71 billion while exports fell 2.2 per cent to US$49.53 billion, the Bank of Korea said. The resulting goods surplus in March was US$8.82 billion, down from a surplus of US$12.84 billion. The current account surplus in non-adjusted terms in March stood

at US$5.93 billion, compared to an US$8.40 billion surplus in February. South Korea has been aiming to reduce its massive current account surplus by encouraging local investors move money overseas in order to avoid possible accusations from the United States that it is a currency manipulator. A U.S. trade and customs enforcement law enacted last year set out three criteria for identifying manipulation among major trading partners: a “material” global current account surplus, a “significant” bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets. Yesterday’s data also showed the services account sustained its

biggest-ever deficit in March at a seasonally adjusted US$3.81 billion because of a record US$1.66 billion deficit in the travel balance. The services account has been in deficit since January 2015. The central bank said March’s services account deficit was created by reduced inward tourism because China had banned group tours to South Korea in retaliation against the deployment of the U.S. Terminal High Altitude Area Defence (THAAD) anti-missile system.

Key Points March adjusted current account surplus smallest since Nov 2013 Services account deficit largest on record as Chinese tourists avoid South Korea China has officially denied its actions are related to the THAAD deployment but strongly criticises the system’s deployment in South Korea, believing its powerful radar can penetrate Chinese territory. South Korea and the United States have repeatedly said THAAD is aimed solely at curbing North Korea. The Hyundai Research Institute said South Korea’s economy could sustain up to 8.5 trillion won (US$7.50 billion) in economic losses because of China’s measures against THAAD this year, with losses focused on tourism and cultural industries. Reuters

Ratings

Fitch says tax hike delay alone won’t trigger Japan rating downgrade Prime Minister Shinzo Abe has said he will proceed with the tax hike in October 2019 Leika Kihara

A third delay in Japan’s scheduled sales tax hike alone won’t trigger a downgrade of the country’s sovereign debt rating as long as the government forms a credible fiscal consolidation plan, Fitch Ratings director Mervyn Tang said yesterday. Tang also said the Bank of Japan’s (BOJ) next move will likely be to tighten monetary policy, though it will not come for at least another two years given subdued inflation and wage growth.

Key Points Sales tax hike is among many steps on fiscal reform - Fitch BOJ’s next move will be tightening, won’t come for 2 years Self-sustained recovery key to Japan’s rating outlook “Consumption tax is one measure for tightening fiscal policy, but there are also social security expenditures to be managed. There are a number of other measures the government can take,” Tang told Reuters on the side-lines of the Asian Development Bank’s annual meeting in Yokohoma, eastern Japan. “What we care about ultimately is that the fiscal consolidation strategy Japan comes up with is credible.” Japan’s government has twice delayed a plan to raise the sales tax to 10 per cent from 8 per cent, after an earlier hike from 5 per cent hurt

consumption and growth. Prime Minister Shinzo Abe has said he will proceed with the tax hike in October 2019, though some analysts say he may scrap the plan to prioritise growth over fiscal discipline. Tax hikes and spending cuts are considered crucial to curb Japan’s huge public debt which, at twice the size of its economy, is the worst among advanced economies. Tang said the government faces a difficult balancing act of achieving long-term fiscal consolidation while spurring economic growth and eradicating Japan’s deflationary mind-set. The key to Fitch’s rating for Japanese sovereign debt was whether the economy can shift to a self-sustained recovery cycle after support from fiscal stimulus dissipates. “One of the argument the government has for fiscal stimulus is that it wants growth to become self-sustaining and lead to increases in wages, consumption and business

confidence. That’s what we need to see,” he said. “The risk is that there is no inherent self-sustained recovery,” he said, adding that Fitch may review its ratings outlook if growth in wages, inflation expectations and consumption turn out to be weaker than expected. Fitch last month revised its outlook on Japan’s single A sovereign debt rating to stable from negative, citing an improving economic outlook driven by robust exports, a tightening labour market and higher public investment. The revision also reflected the diminishing risk of the BOJ being forced to deploy extreme monetary easing steps, such as direct bank-rolling of government debt, it said. Tang said Japanese policymakers are making some progress in boosting public confidence in the economy and generating a tight labour market that should eventually feed through to wages. “The problem with confidence is it’s inherently quite fragile, and it gets more fragile the longer the economy remains weak,” Tang said. Reuters

In Brief Infrastructure

India’s cabinet makes local steel mandatory in govt projects India’s cabinet on Wednesday approved a proposal to make the use of local steel mandatory for government’s infrastructure projects, Finance Minister Arun Jaitley said, aimed at boosting the sales of local companies. The ministry’s flagship National Steel Policy, which seeks to outline a roadmap to increase the country’s annual steel production to 300 million tonnes by 2025, was also passed by the cabinet, Jaitley said. An official with direct knowledge of the matter told Reuters earlier that Prime Minister Narendra Modi’s cabinet might clear the proposals. Aussie central bank

Governor says rates will not always be this low The governor of Australia’s central bank warned borrowers yesterday that interest rates would not remain at current record lows forever, as household debt escalates alongside skyrocketing property prices. Households burdened by heavy mortgage debt have a reduced appetite for consumption, making the transmission of monetary policy weaker, Reserve Bank of Australia (RBA) Governor Philip Lowe told a lunch in Brisbane. The central bank is worried about the possibility of future sharp cuts in household spending if there were to be a deep correction in Australia’s sky-high property prices. Bank

Myanmar authorities deny bankruptcy rumours Myanmar banking authorities have denied that one of the country’s private banks faces bankruptcy as the bank failed to issue cash money to depositors. Rumours spread on Wednesday on social media about the bank’s alleged bankruptcy. “The Central Bank of Myanmar (CBM) is always ready to issue cash unlimitedly when a bank encounters difficulties of not having sufficient cash flow,” the bank’s director-general U Win Thaw told Xinhua in an interview yesterday. The private bank’s failure to issue money belongs to rumour, he said, urging people not to worry about it. Forecast

Indonesia’s Q1 GDP growth seen edging up Indonesia’s economy is expected to have picked up modest speed in the first quarter thanks to improving exports, though the resource-rich nation remains stuck in low recovery mode partly as lending and consumption have failed to grow strongly. Growth in Southeast Asia’s largest economy had been slowing in each of the past five years up to 2015, due to falling exports, weak investment, infrastructure bottlenecks and waning consumption. Analysts in a Reuters poll expect the sluggish recovery to continue, picking a median forecast for 2017’s first quarter at 5.00 per cent, just a touch stronger than the previous quarter’s 4.94 per cent. Reuters

14 Business Daily Friday, May 5 2017

International In Brief Brexit

EU mulls relocation of UK clearing The European Commission is considering as a possible option the relocation of a big chunk of derivative clearing from London to the European Union after Britain leaves the bloc, but no decision has been taken yet, a top official said yesterday. “At this stage we are not jumping to conclusions,” Valdis Dombrovskis told a news conference. “What we are saying is we are doing an impact assessment to assess those different options, including enhanced powers of EU supervisory authorities outside the EU and including location policy,” he said. FAO

World food prices fall for third straight month in April World food prices fell for the third month in a row in April as values declined for all agricultural commodities except meat, the United Nations food agency said yesterday. The Food and Agriculture Organization’s (FAO) food price index has been falling for five years due to ample supply, a slowing global economy and a strong U.S. dollar. Food on international markets was still 10 per cent more expensive than in April last year, the FAO said, after rising cereals prices drove it to a two-year high in February.

Official data

U.S. private hiring slows The U.S. central bank’s Federal Open Market Committee as expected left interest rates unchanged at the current range Richard Leong

.S. companies hired workers at a slower but still-solid pace in April while the services sector grew more than expected, supporting the notion the economic expansion remains on track despite a weak first quarter, private reports released on Wednesday showed. An improving labour market and faster activity in services industries last month also buttressed traders’ expectations the Federal Reserve would raise interest rates further in the coming months. “In short, more evidence that the underlying trend in growth is not suddenly slowing, as suggested by the GDP data. If anything, the trend appears to be up, not down,” High Frequency Economics Chief U.S. Economist Jim O’Sullivan wrote in a research note. Last week, the government said gross domestic product increased 0.7 per cent in the first quarter, the weakest pace in three years. Payrolls processor ADP said on Wednesday private employers added

177,000 jobs last month. It was the smallest gain since the 62,000 increase last October but slightly above the 175,000 median forecast among economists polled by Reuters. Private payroll gains for March were revised down to 255,000 from an originally reported 263,000 increase.

Key Points U.S. private jobs growth slowest since October - ADP New orders in services sector highest since 2005 - ISM ADP, which jointly developed its employment report with Moody’s Analytics, said private employers face increasing difficulty finding qualified workers in a tightening labor market. The U.S. central bank’s Federal Open Market Committee as expected left interest rates unchanged at the current range of 0.75-1.00 per cent at its policy meeting, downplaying the sluggish first-quarter GDP as “transitory.”

Traders expect the Fed’s policy-setting group will likely hike rates by a quarter point at its next meeting on June 13-14 . Financial markets largely brushed off Wednesday’s data. U.S. stocks were lower, while the dollar was stronger and Treasury bond yields were mostly higher in mid-afternoon trading.

Demand pick-up lifts services sector

The Institute for Supply Management (ISM) said on Wednesday its index of non-manufacturing activity rose to 57.5 in April from March’s 55.2, which was above analysts’ expectations of 55.8. A reading above 50 indicates expansion in the services sector, which accounts for nearly 80 per cent of the U.S. economy. The business activity index rose to 62.4 from 58.9 the month before. That was above a median forecast of 58.4. “Following a run with some softer indicators lately, the firming in the survey data is an encouraging sign for the economy,” J.P. Morgan Economist Daniel Silver said. The survey’s new orders index climbed to 63.2, the strongest since August 2005, from 58.9 in March. However, the employment index fell to 51.4, its lowest since August, from March’s 51.6. Reuters

Mozambique

Tax revenues up on back of savings tax and coal prices Mozambique’s tax revenues rose by 16.5 per cent on year in the first quarter to 40 billion meticais due to an increase in tax rates on long term deposits and higher coal prices. According to financial news agency Bloomberg, which cited a Tax official, the amount of tax collected in the period if 21 per cent of the 186 billion meticais the government expects to collect over the whole year. According to the same official, the increase in taxes was mainly due to an increase in the rate of tax on long term bank deposits and the higher price of coal in the market, as well as gaming revenues.

PMI

UK services firms surprise with bounce The BoE is widely expected to keep interest rates at their record low throughout this year and possibly until 2019

Portugal

March retail sales see biggest drop in EU Portugal’s retail sales in March saw the biggest on month drop (-2.3 per cent) in the whole of the European Union, Eurostat said yesterday. In the Euro Zone retail sales in March rose by an average 0.3 per cent and fell across the European Union (EU) by 0.2 per cent, according to Eurostat figures. Year on year retails sales rose by 2.3 per cent in the Euro Zone and by 2.5 per cent in the EU, according to the figures. In Portugal, retail sales rose by 3.2 per cent on year in March.

Britain’s economy picked up some steam in April after slowing in early 2017, a closely-watched survey suggested yesterday, welcome news for Prime Minister Theresa May ahead of a national election in just over a month’s time. But separate figures from the Bank of England showed caution on the part of house-buyers in March, adding to signs of a slowdown in the housing market as rising inflation squeezes consumers. The Markit/CIPS Purchasing Managers’ Index (PMI) of Britain’s giant services industry unexpectedly rose to a four-month high of 55.8 in April, above all the forecasts in a Reuters poll of economists. The reading was the second strongest since mid-2015, a good backdrop for May and her Conservative Party

who are trying to convince voters that the opposition Labour Party cannot be trusted to run the economy after the June 8 election.

Key Points Price growth and waning optimism are warning signs Mortgage approvals fall to 6-month low - BoE At the same time, the survey included some warning signs for the economy, which has so far coped with the shock of last June’s Brexit vote much better than expected by the Bank of England and private-sector economists before the referendum.

Prices charged by service firms rose at the fastest pace since July 2008 and company executives reined in their optimism about the year ahead for a third month in a row. Taken with PMIs for manufacturing and construction published this week, the April survey suggested the economy was growing at a quarterly pace of 0.6 per cent at the start of the second quarter, Markit said, double the pace of the first quarter. The BoE data painted a mixed picture of how consumers are coping with the rise in inflation triggered by the fall in the value of the pound since the Brexit vote and by rising global oil prices. Consumer credit in the 12 months to March grew by 10.2 per cent, the weakest increase since July of last year. But on the month it picked up a bit up of speed to rise by 1.624 billion pounds (US$2.09 billion), more than the increase of 1.3 billion pounds expected by analysts in a Reuters poll. Reuters

Business Daily Friday, May 5 2017 15

Opinion Business Wires

Viet Nam News The country’s total coal export volume in the year’s first four months posted a seven times surge compared with the same period last year to reach 504,663 tonnes. The General Department of Customs said Việt Nam earned US$79.4 million from coal exports in the JanuaryApril period or a 13 times increase in comparison with the corresponding period last year. Average coal export price in the four months also increased to US$157 per tonne, much higher than the US$79 per tonne in the first four months of 2016. Notably, Việt Nam’s coal export markets have witnessed changes, with China no longer the country’s largest importer.

The Star Bank Negara Malaysia takes illegal financial schemes very seriously and will not hesitate to enforce the law against the perpetrators and promoters of such schemes. In a statement yesterday, the central bank said the wrongdoers would face the full brunt of the law, including laws administered by Bank Negara, the Penal Code, the Interest Schemes Act 2016, the Direct Sales and Anti-Pyramid Scheme Act 1993 as well as the AntiMoney Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. Under the law, action can also be taken against investors who knowingly promote and participate in the illegal schemes.

Jakarta Globe The Indonesia Stock Exchange, or IDX, is currently drafting a regulation to ease start-up companies’ transitions from private to public enterprises, president director Tito Sulistio said. However, Tito acknowledged two main obstacles preventing many start-ups from going public; a dubious legal certainty over the rights of digital economy companies and unclear accounting standards for technology start-ups. Tito said the IDX is conducting a series discussions with Indonesia Chartered Accountants (IAI), a consultancy firm specializing in national accounting regulations, to hash out new procedures that ease private-to-public transitions for start-ups.

The Phnom Penh Post Two new life insurance companies will launch operations in Cambodia by the end of this week, aiming to grab hold of a market that has seen rapid expansion in recent years while also creating stronger competition in the emerging industry. Bangkok Life Assurance (Cambodia) Plc launched operations on Tuesday with Hong Kong-based pan-Asian insurer AIA scheduled to debut on Friday. They join a market already populated by four other life insurance providers. Life insurance is a relatively new product in Cambodia, first entering the market 2012.

A false spring at the spring meetings?

very spring, international bureaucrats flock to Washington, DC, as reliably as swallows to Capistrano, for the annual meetings of the International Monetary Fund and the World Bank, where they exchange information about their local economies and policy prospects. Because these officials attend multiple events over the course of the week, an echo chamber develops, from which a general perception of the state of the global economy emerges. Policymaking around the world is then influenced by that perception. This time round, the sense was positive. According to IMF staff, as reported in their World Economic Outlook, real GDP should expand by about 2 per cent in advanced economies this year and next. This will pull the unemployment rate below 6 per cent, not much different from its level before the 2008 financial crisis. Deflation or unwelcome disinflation is now seen only in the rear-view mirror, as consumer price inflation settles around 2 per cent, the goal of most major central banks. But, as any resident of New England knows, April showers do not always bring May flowers; sometimes they bring only more and colder showers. Not to rain on officials’ parade, but we fear that they are taking too much comfort in the stabilization of economic conditions. Beneath the headline numbers, there is little evidence that underlying problems have been resolved. It wouldn’t be the first time. The post-1945 record includes two prior “lost decades” in which economies struggling to recover from severe financial crises – including about a dozen countries in Latin America from 1982 to 1992, and Japan from 1992 to 2007 – underperformed their own trend growth and that of their peers. As bleak as this history seems, annual real GDP growth per capita was positive in 60 per cent and 75 per cent of those years, respectively, in Latin America and Japan. Indeed, real GDP per capita expanded by more than 2 per cent in at least a quarter of those years. That is, these countries glimpsed rays of sunshine through what turned out in retrospect to be a mostly solid cloud cover. Acceleration in economic activity may stir hope in officialdom, but levels matter, too. In Europe, real growth GDP has been only barely positive, on average, since the financial crisis, and its level in 2016 was about 20 per cent below that predicted by the trend over the ten years up to 2007. This ranks as the slowest recovery from a severe financial crisis in two centuries. And aggregation hides a multitude of problems: Greece and Italy, for example, will not regain their pre-crisis level of real GDP per capita within the World Economic Outlook’s forecast period, which stretches to 2022. Yes, post-crisis spending headwinds are an important impediment to growth, partly owing to their persistence. But central to economic performance over this period is stagnating growth

“

Carmen Reinhart a Professor of the International Financial System at Harvard University’s Kennedy School of Government

Vincent Reinhart a Chief Economist for Standish Mellon Asset Management

in potential output. According to the IMF, growth in the advanced economies’ real potential GDP – think of this as the underlying trend for aggregate supply – has fallen by half this century, from 2.71 per cent in 2001 to as low as 1.28 per cent just a few years ago. The picture is bleaker in the U.S., where, according to the Congressional Budget Office the amplitude of the swing is double, from about 4 per cent to 1.5 per cent. But all of the G7 economies share this phenomenon, because their aging populations are growing more slowly, withdrawing from the labour market, and adding little extra output per additional hour worked. Whether productivity, or output per hour, will continue to languish is hard to predict. But data are data, and they show quite clearly that productivity growth has been languid for some time. The growth of potential output is not just an economist’s abstraction. If, as seems to be the case, the expected path of income turns south, we will have fewer future resources to meet our needs. To the extent that we have consumed and borrowed now in anticipation of higher income, disappointment is in store. There certainly is scope for disappointment in advanced economies, considering that gross general government debt is hovering around 106 per cent of nominal GDP and fiscal deficits are stretching beyond the forecast horizon. The budget math only gets harder as central banks normalize monetary policy, even if interest rates do not return completely to their pre-crisis levels. In economies with a recent record of fiscal restraint, including Australia, Canada, and New Zealand, the private sector has been borrowing hand over fist. In times of distress, private-sector mistakes often become public-sector obligations. The machinery of representative government works best when it is used to apportion a growing economic pie. For example, when the U.S. economy was experiencing 4 per cent trend growth, real GDP could be expected to double in 18 years, comforting parents about their children’s economic future. At the current trend of 1.5 per cent growth, the period needed to double GDP stretches to 48 years, darkening the economic prospects of the grandchildren. In those circumstances, will elected officials make the hard decisions needed to get from economic stabilization to sustained recovery? Project Syndicate

In times of distress, private-sector mistakes often become public-sector obligations

”

16 Business Daily Friday, May 5 2017

Closing Smart city

Brain games for the MSAR Experts leading the two main studies for the FDCT on the ‘Smart City’ concept agree that the government needs to take the initiative, creating a platform based upon data sharing and the needs of stakeholders and citizens - while creating and maintaining talent in the city Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

ey elements in the city achieving an actionable Smart City involve talented personnel, branding and marketing, enabling access to Big Data, considering longterm sustainability, improving mobility through increased transport options and the government serving as the impetus, with the support of the private sector and society stakeholders carrying out a holistic programme focused on improving the lives of the city’s citizens, according to experts at yesterday’s Smart City Seminar 2017, hosted by the Science and Technology Development Fund (FDCT). The seminar welcomed two teams of academics and engineers conducting two studies: ‘Study on the Direction and Strategy of Macau’s Smart City Development’ and a ‘Feasibility Study of Smart Mobility in Macau’s Smart City Development’. Vice-rector of the University of Macau, Professor Lionel Ni Mingshuan, said of the direction and strategy study that investments in both ‘capital and talent’ must be made, asking “if you don’t have people how can you build a smart city in Macau?” The professor identified three policies the government can pursue to accelerate the Smart City concept: establishing a data centre that can gather big data on the city’s citizens and visitors, collecting the data and publishing it on the common domain for use by both the public and private sectors, and assuming responsibility to “train more scientists” – talent in the field in order to maintain and evolve the system.

a “financial guarantee” to companies from the private sector supporting the plan, and a “profitable business mode for its development,” given that a “smart city cannot live on subsidies,” noted the vice-rector. In the initial phases, however, the government “should have a profound understanding of the concept of the smart city and quantifiable measurements,” for the execution of the programme, he said. With regard to communicating how it’s going about the execution, the government “needs openness; in an open democracy citizens have the right to know where their tax money goes,” concluded the academic.

Facing needs

The professor’s opinion is mirrored by engineer Edmund Lei, President

of the China Green Building and Energy Saving (Macau) Association, who also worked on the study. Lei pointed out the need to construct the city “to face the needs of an ageing society”. As part of this, Lei said mobility aids the daily lives of citizens, a topic touched on by Professor Kou Kun Pang, who noted that the city needs to provide more transport solutions and that “more buses and parking spaces is not a very effective solution”. Solutions that the group is studying include the implementation of an electric tolling system and placing restrictions on certain areas so the transport is not so heavy on holidays, coupled with ‘smart parking’ and following in the footsteps of China visa-vis a “bike or electric bike sharing system” as well as a ‘smart car rent system’ or something (not UBER) like a “smart car rental system”. Engineer Chan Man Kit, of the Macao Association of Promotion Science and Technology, endorsed Pang’s suggestions, additionally proposing a traffic congestion notification system similar to that used in Hong Kong’s tunnels, notifying length of time needed to pass based upon

congestion. “If applied to Macau it could be used on the bridges,” said Chan. The engineer also proposed linking data sharing from all major car parks in Macau to centrally display all information on availability or apps as in Singapore which tells citizens how many seats are left on a bus before it arrives at a stop. Additionally, creating four main bus terminuses in Macau’s “four main neighbourhoods – North, South, East and West” could help avert congestion and improve transit points. Maria Galindo, manager of innovation, smart & international business for Doxa, invited by the FDCT to share her experience in Barcelona’s smart city building process, noted that “talent is the base for the economies of the future,” while the main challenges of kick-starting the smart city concept are in getting stakeholders to agree on a common vision and action points. “Power is concentrated in different economic activities that make up most of the wealth in Macau,” said Galindo. “They should lead the transformation, should be aligned in the goal to make the smart city happen, in bringing talent in,” she opined, noting that they also have the responsibility of “then maintaining it [the talent] in the city for the future”.

Policy

“We need continuity of policies,” observed the professor, noting that “people have talked about a smart city for a long time in Macau but there is no holistic systematic and strategic study. We do not want to see policy changes when the Chief Executive changes”. There should be

Results

Public funding

Diplomacy

HSBC posts surprise capital boost Priority in education but rules out dividend hike a MUST

Duterte discusses North Korea with Xi ‘at the behest’ of Trump

HSBC Holdings Plc reported a better than expected first-quarter profit and capital position yesterday, benefiting from an improved performance from its core operations and the return of cash from its U.S. unit. The bank’s common equity tier 1 ratio -- a key measure of its financial strength -- was 14.3 per cent at the end of the March quarter, up from 11.9 per cent in the same period last year and better than the 13.7 per cent expected by analysts. HSBC is still Europe’s biggest bank despite slimming down in recent years. Along with U.S. rivals such as JPMorgan and Citi, it remains one of a handful of players to offer retail and investment banking services across the globe. HSBC Chief Financial Officer Iain Mackay ruled out a fresh share buyback in the short term as a means of using some of its excess capital, after the bank said it completed a previously announced US$1 billion share buy-back in April. “We’ve just finished one, we need to catch our breath a little bit,” Mackay told Reuters yesterday. Mackay also reiterated the bank’s stance that it will hold its dividend steady for now, quashing shareholders’ hopes that the lender’s robust capital levels would see it boost pay-outs. Reuters

Philippine President Rodrigo Duterte said he called his Chinese counterpart Xi Jinping on Wednesday “at the behest” of U.S. President Donald Trump to discuss China’s role in promoting peace on the Korean peninsula. In a televised speech from Davao City yesterday, Duterte said Trump, in a call at the weekend, asked whether Xi “could do something about the situation regarding Kim Jong Un,” the North Korean leader. “I am calling you at the behest of the president of the United States, President Trump,” Duterte claimed to have told Xi on May 3. “We all agreed in Asean and even President Trump that you can do something,” Duterte said, recalling his conversation with the Chinese leader, whose intervention on the Korean peninsula he believes could make a difference. The Pentagon will attempt a new test by the end of this month of whether it can intercept an intercontinental ballistic missile like the ones North Korea is seeking to develop, Rear Admiral Jon Hill, deputy director of the U.S. Missile Defence Agency, has said. The attempt to intercept a dummy target will take on symbolic importance whether it succeeds or fails, as North Korea ramps up its ballistic missile development and Trump vows to block Kim’s regime from developing a nuclear weapon that could reach the U.S. Bloomberg News

The Macau University of Science and Technology (MUST) Foundation collected roughly 61 per cent of the total financial support allocated by the Macau Foundation during the first quarter of 2017, receiving MOP106.94 million in subsidies. According to the information published in the Official Gazette yesterday, the Macau Foundation disbursed MOP274.72 million in subsidies during the first three months of the current year. The two amounts received by the MUST Foundation were attributed to financing construction of the second phase of the International School of Macau (MOP56.94 million), and the annual planning of the University, the University Hospital, the International School, and MUST’s Faculty of Health Sciences (MOP50 million). In the previous quarter ended December 2016, subsidies paid to MUST by the public foundation amounted to MOP427 million, corresponding to approximately 59 per cent of the total subsidies the government agency granted during the period (MOP727.53 million). Following the MUST Foundation, the second largest beneficiary during the first quarter of 2017 was the Macau Federation of Trade Unions, which received MOP25.74 million distributed via three different grants. S.Z.