Fitch notes MSAR yet to implement Basel III measures Banking Page 4
Wednesday, May 10 2017 Year VI Nr. 1292 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Politics | Business
Macron’s advocacy of free trade and globalisation to benefit French businesses in MSAR Page 4
Graft
Ng Lap Seng’s lawyers say gifts prove “propensity to use his wealth to help people” Page 7
www.macaubusinessdaily.com
Estate firms
Economic outlook
Chinese energy IMF: Protectionism firms surge after fiercest risk for super merger option Asian countries Page 11 consolidation Page 10
No Free Ride Politics
The MSAR and neighbouring HKSAR have VIP access and reserved seats on the “economic express train”. Of the Mainland’s development, that is. While propagating ‘One country, two systems,’ says NPC Chairman Zhang Dejiang. Advising the MSAR to stabilise its social situation and proactively integrate national development, among other considerations. Page 2 Photo courtesy of GCS
All for yuan and yuan for all
Chinese investment in the U.S. spiked last year. With job growth, little downsizing and high-value activities the benefits of some huge acquisitions and investments. Courtesy of 178 individual investments last year, Chinese-owned establishments in America hit 3,200, with Macau a gateway for both parties.
Clampdown on abuse of UnionPay Finance No target date. But facial recognition and ID card checks for UnionPay cardholders withdrawing money will be extended to other bank cards, says AMCM. The new measures shouldn’t affect the VIP market, says an expert, given their use of junkets. Page 3
Hong Kong trade shines
Investment | Trade Page 5
HK Hang Seng Index May 9, 2017
24,889.03 +311.12 (+1.27%) Worst Performers
China Resources Power
+5.46%
China Petroleum & Chemical
+2.47%
Want Want China Holdings
Galaxy Entertainment Group
+2.88%
Tencent Holdings Ltd
+2.45%
Hang Seng Bank Ltd
Hengan International Group
+0.35%
+0.06%
Cathay Pacific Airways Ltd
+0.36%
China Life Insurance Co Ltd
+2.60%
Geely Automobile Holdings
+2.24%
Cheung Kong Property
+0.18%
China Mengniu Dairy Co Ltd
+0.42%
Hong Kong Exchanges &
+2.53%
New World Development
China Resources Land Ltd
+2.48%
CITIC Ltd
+1.89%
Bank of East Asia Ltd/The
+0.31%
BOC Hong Kong Holdings
+0.46%
+1.81%
Hang Lung Properties Ltd
+0.31%
China Merchants Port Hold-
+0.46%
-1.49%
24° 29° 25° 28° 25° 29° 25° 29° 25° 28° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Markets Hong Kong stocks closed yesterday at their highest level in 21 months. Aided by a sharp rebound in resource shares. Plus continuous money inflows from Mainland China. Sentiment was also buoyed by signs of stabilisation in China stocks following recent sharp falls. Page 8
2 Business Daily Wednesday, May 10 2017
Macau
Photo courtesy of GCS Politics
NPC Chairman proffers advice to MSAR Following Zhang Dejiang’s advice to the MSAR, six representatives of the city voiced suggestions to the central government on supporting the city’s economic development Cecilia U cecilia.u@macaubusinessdaily.com
D
uring yesterday’s meeting with various city representatives in the Macau East Asian Games Dome, Chairman of the National People’s Congress Zhang Dejiang proffered three pieces of advice to the city - cherish experiences, build the foundation, and facilitate development. The NPC Chairman cryptically commented that the city should conclude past experiences in order to nurture further successes, commenting that the implementation of ‘One country, two systems’ in the MSAR has been a great success and noting that prospects continue to be positive. The chairman analysed that the success of ‘One country, two systems’ in the MSAR was based upon adherence to the Basic Law, the support provided by the Macau community to central governance, the continuous effort in developing the city’s economy and improving residents’ livelihood, as well as the strong value of ‘love the country and Macau’ among Macau’s communities. Zhang specifically praised Macau on its implementation of Article 23 of the Basic Law (in which the SAR must adopt national security laws). In terms of building foundations for the future, Zhang remarked that the practice of the policy is currently at the stage of ‘climbing up a slope’. “The success of ‘One country, two systems’ is merely a success at a particular stage,” commented Zhang.
Nationalism
He pointed out that advancements can be made through three approaches, the first of which is to continue to promote the concept of ‘love the country and Macau,’ in particular in the education of the young population. The second approach is to enlarge the efforts towards ‘love the country and Macau,’ and thirdly to cultivate young talent to govern and
build Macau. This third approach - facilitating development - involves three approaches: The first approach is to strengthen the unity and to support the Administration of the Chief Executive (CE) and the MSAR Government in order to stabilise the social situation and political ecology. The second approach requires the MSAR to be proactive in integrating national development. “There are a lot of nations that wish to get on the economic express train of China,” said Zhang at the forum. “[The central government] has already reserved seats for the SARs [...] with the privileges of the VIP channel free of charge.” Zhang expressed the hope that Macau could achieve its goal while serving the nation. The third approach involves Macau fully performing its special advantages. The NPC Chairman affirmed that the central government would support the city in utilising the beneficial measures offered by the central government, hoping Macau could extend its development opportunities in order to promote economic diversification and sustainable development. In addition to the three pieces of advice, Zhang said the central government fully supports the MSAR utilising the 85 kilometres of territorial waters it has been granted for the exploitation of marine economic development as well as the improvement of policies for Mainland residents entering the MSAR. Recent forums in the MSAR have discussed opening up visa access between the Pearl River Delta region to facilitate tourism and trade. Meanwhile, the NPC Chairman noted that Macau should not allow chaos and conflict to occur in the city, given that it would not be ideal for a small city with a small population. He urged the city to consider overall interests, pay attention to and review the demands of the general public, as well as assisting the MSAR
Government in preventing and resolving conflicts. Zhang added that conflicts will always exist but said it was important to correctly understand, grasp, and properly handle issues leading to social contradictions and conflicts.
Suggestions to central government
Some 120 representatives attended yesterday’s forum, at which six attendees expressed their wishes and suggestions to the NPC Chairman. The President of the Board of Directors of the Macao Chamber of Commerce and indirectly elected legislator Kou Hoi In suggested the central government support the MSAR in practising the ‘Sino-Luso Forum’ in order to expedite the construction of the ‘one platform’, as mentioned during last year’s 5th Ministerial Conference which welcomed Portuguese-speaking country members as well as Premier Li Keqiang. Mr. Kou also expressed the wish that the central government assist Macau in getting involved in the plans and strategies of the Guangdong-Hong Kong-Macau Greater Bay Area and in helping build a more diversified financial environment in the city via such measures as introducing the Renminbi Clearing Centre. Meanwhile, the Chairman of the Macao Convention and Exhibition Association, Ms. Lou I Va, expressed the wish that the central government support strategies on co-operation between Macau and the Mainland including the setting up of a tourism
training station in the Greater Bay Area, as mentioned recently by the CE, and the improvement of policies on border crossings in order to build a unified tourism market between the MSAR and Hengqin. Ms. Lou also expressed the hope that the central government would support the construction of the economic zone for MICE (meetings, incentives, conferences and exhibitions) for Guangdong, Hong Kong and Macau. Legislator Si Ka Lon proposed the promotion of the Basic Law as well as the Constitutional Law, the continuation and improvement of governance in accordance with the law, and the training of civil servants who have a strong sense of rule pursuant to the law. For legislators Ella Lei Cheung I and Wong Kit Cheng, the functions and future development of associations which ‘love the country and Macau’, and opinions on the future cultivation of local talent, were discussed during the forum, respectively. Leong Heng Kao, President of the General Union of Neighbourhood Associations of Macau, pointed out the impact made by associations which follow the principle of ‘love the country and Macau’ on the consistent governance of the city. Following the forum at the Macau East Asian Games Dome, the NPC Chairman paid visits to the Legislative Assembly and the Court of Final Appeal. Today is the final day of Zhang’s visit to Macau.
Photo courtesy of GCS
Business Daily Wednesday, May 10 2017 3
Macau Surveillance
New ATM policy: Premium market out of reach The new measure announced to control UnionPay cardholders from Mainland China will curb misconduct by honing identification but is unlikely to pin down VIPs Sheyla Zandonai sheyla.zandonai@macaubusiness.com
L
ast Sunday, the Macau SAR Government launched a new policy to control the identity of Mainland Chinese using UnionPay cards to withdraw money from the city’s ATMs. Its objectives, according to the official announcement, are to curb money laundering practices and the financing of terrorist activities. The new ATM policy, however, will not affect the VIP market as much, according to comments by Davis Fong, Associate Professor of Hospitality and Gaming Management at the University of Macau. “When we look at gambling behaviour, we cannot only look at the mass market. We also have to look at premium mass or VIP. And VIP guests rely heavily upon the junket to provide credit. So the credit they get is not from using UnionPay,” he explained. According to the official announcement, the measure
plans to gradually implement technology for facial recognition and identification card checks in all ATMs in town –labelled ‘Know Your Customer’ (KYC) – in particular, machines installed within casino premises and surrounding areas. The initial step will only target UnionPay cards issued by Mainland Chinese banks, whose holders will have to present their ID card and have their identity verified by a facial recognition system installed in the machine. Speaking to Business Daily, the Monetary Authority of Macau (AMCM) explained that the reason for starting the process with UnionPay relates to “the comparatively high turnover incurred, [while] the exercise will be extended to other bank cards such as Visa and Master at a later stage.” MMA had not specified the target date to launch the KYC system prior to this story going to press. The new measure was created because “some people had abused the system; for
instance, by using someone else’s card,” Fong notes. But, in practice, the new policy will still allow Mainland Chinese visitors to use several cards while in Macau as long as they can prove to be the cardholders. “There is no [local] restriction on how many cards you can carry outside China, and then withdraw money [here]. So, for those people who want to withdraw more money in Macau, they can open more accounts in
China, then carry the Union[Pay] card, and shop in Macau, and just withdraw the money as much as they can,” Fong explained.
UnionPay
According to the company, 95 per cent of local Points of Sale (POS) terminals accept UnionPay cards, “basically covering the major tourist destinations and shopping spots in Macau.” UnionPay launched its network of merchant POS
and ATM withdrawal points for Chinese UnionPay cards in Macau in September 2004, the same year Sands Macau - the first casino after the liberalisation of gambling opened in the city. Today, UnionPay claims its transactions are accepted by more than 6,000 merchant POS machines and more than 600 ATMs in the city. UnionPay General Manager for Hong Kong and Macau Liu Heng was unreachable for comment yesterday.
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4 Business Daily Wednesday, May 10 2017
Macau Opinion
José I. Duarte* Just speculating The government has once again changed the mortgage rules for the acquisition of housing units, convening a press conference and issuing a press release on the matter. The press release starts with the not uncommon verbose style that so many of these communications adopt. The first paragraph states that the purpose of the new measures is to ‘control the excess of investment activities’; ‘to promote the stable development of the housing market’; and ‘to help banks manage their risk levels’. What is meant by ‘excess’, ‘stable’ or ‘help’ is not clear. The reference is not explicitly made in the document, but it appears the official presenting the measures added, as is customary, a reference to speculation. That possibly accounts for the ‘excess of investment activities’. It is always good policy to blame speculators. We would have welcomed reliable evidence that previous measures, following broadly similar lines, have been successful. Or, if they weren’t, on which grounds we might expect the new ones to be. No such reasoning was forthcoming. So we have to console ourselves with the idea that the government is doing ‘something’ and, hopefully, something good will come of it. Based upon previous market trends, such belief is likely to require increasing amounts of goodwill. In a nutshell, the current changes will make it more difficult for people who already own a house to buy another one, if they need credit. In a manner of explanation, the press release notes prices are going up again and mentions a few figures for 2016. Last year’s figures reveal non-residents and organizations conducted only 1.1 per cent of the total number of transactions. Residents made up the remaining 98.9 per cent, of which more than half were people who already owned a house. These figures seem, implicitly, to underpin the rationale for the new measures. The effort to put forward an explanation of sorts is welcome. It goes a bit further than usual in trying to justify the new measures. But still falls short of a convincing explanation; it is less than persuasive – but more on that at a later occasion. For now, let us point out that the figures undercut a popular argument. The ‘speculators’, if they are to blame, are not some malicious Mainlanders or foreigners bent on exploiting the mismatches of our local market. No, they are among us. Will the government be willing to let us know what their typical profile is? *economist and permanent contributor to this newspaper.
Banking
The road to Basel III Fitch notes that the MSAR has yet to implement a series of measures to comply with Basel III Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
O
f 10 requirement parameters to be implemented by end-2016 relating to the international banking regulatory framework of Basel III, a recent report by Fitch Ratings highlights that the MSAR has yet to implement procedures in any of the categories. The Basel III framework has been put in place to stabilise the international banking system by reducing banks’ ability to take on excessive risk - thus sheltering economies from that risk. The implementation timetable for the framework is divided into two tranches, one from 2013-2016 and one from 2017-2019. According to the current status of the capital requirements of banks, as noted by the report, local banks hold 8 per cent total capital ratio as their requirement, except for ICBC Limited, which applies 13 per cent given its 2009 acquisition of Seng Heng Bank. With regard to this measure, the local banks show historical strength in assets and liquidity although some measures could require updates to avoid eventual weighting on the system. ‘We expect the authorities to re-define banks’ regulatory capital as per Basel III standards and conduct related-impact studies in 2017,’ notes the group in its report. However, certain aspects are not currently in the framework - such as the leverage ratio and the net stable funding ratio (NSFR), which the group notes the local Monetary Authority of Macau
(AMCM) ‘does not have any plans to implement’. The first (leverage ratio) is arrived at by dividing the value of the bank’s strength (tier 1 capital) by the bank’s average total consolidated assets (a sum of the exposures of all assets and non-balance sheet items) and set at 3 per cent up until the beginning of this year. The second (NSFR) is the net stable funding structure, which ‘require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities,’ according to the Basel Committee on Supervisory Banking. The measures are intended to oblige banks to have a diversified portfolio and ‘sustainable funding structure’ to reduce risk, with the amount of available stable funding relative to the amount of required stable funding equalling at least 100 per cent ‘on an ongoing basis’. In addition to the lack of implementation noted by the ratings agency, that for the banks’ total loss-absorbing
capacity (TLAC) is also not expected to have requirements set on it ‘nor to establish a resolution regime,’ notes the report. Overall, the ratings group does not expect the local monetary authority to ‘specifically designate any banks as systemically important in the near term,’ noting that ‘the banking system is dominated by Chinese entities, the largest being Bank of China’s Macau branch (42 per cent market share), and the regulator has only a limited incentive to apply tighter regulations to foreign owned banks.’ With regard to the local monetary authority being able to provide liquidity support to banks in case of crisis, the group notes that it ‘would provide’ support but that ‘we consider their capital support as unreliable – given the relatively large size of the banking system compared with the economy’. This publication is currently awaiting responses from the AMCM and the Office of the Secretary for Economy and Finance and will further announce upcoming measures for local compliance with the standards, in comparison with the ratings agency findings, in forthcoming editions.
French business
Sino-French co-operation in business Sheyla Zandonai sheyla.zandonai@macaubusiness.com
Having secured the French Presidency last Sunday, Emmanuel Macron has busy days ahead. According to previous reports, French companies abroad would have more to rejoice from Macron’s favourable stance on international trade and him embracing ‘core’ European Union values than a far right platform condemning globalisation would allow. Rutger Verschuren, Chairman of the France Macau Business Association (FMBA) and Area Vice President for the Macau Operations of Artyzen
Hospitality Group Ltd. – a subsidiary of Shun Tak Holdings Ltd. – shared his opinions with Business Daily in the aftermath of the elections. “Macron positioned himself as an economic and social liberal, as well as an advocate of free trade and European integration,” he commented. “Macron is an advocate of free trade and globalisation who wants to strengthen links with the European Union and believes in the power and future of Europe.” With regard to the general business outlook, Verschuren trusts there is a good reason to look ahead. “I believe that many French
businesses and expatriates in our region welcome the results, which should bring us a generally business-friendly and internationally acceptable ruling,” he commented.
“I believe that many French businesses and expatriates in our region welcome the results, which should bring us a generally businessfriendly and internationally acceptable ruling.” Rutger Verschuren, Chairman of the France Macau Business Association (FMBA) and Area Vice President of Macau Operations for Artyzen Hospitality Group Ltd.
French President-elect Emmanual Macron
Verschuren closed his remarks with a note on French business prospects in Asia, observing that “Chinese President Xi Jinping said China was willing to help push Sino-French ties to a higher level, a wonderful welcome message that sounds like Berlioz’ fantastic music to my ears. So I have confidence and my expectations are high.”
Business Daily Wednesday, May 10 2017 5
Macau
Investment
RMB, white and blue Chinese investment in the United States skyrocketed last year, growing jobs and undergoing few downsizings, while keeping high-value activities within the country, says report Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
J
ust last November a governor from the state of Nebraska, in the U.S., led a trade delegation of 80 members to Macau, Hong Kong and China. The mission was twofold: push Nebraska products to an expanding middle-class market in China, and procure Chinese investment in the state. As Governor Pete Ricketts told Business Daily at the time, for “Chinese companies that are looking to come to the market to help expand their presence to the United States, we’re a wonderful opportunity for them”. This trend of foreign direct investment is not new, with the report by the National Committee on U.S.-China Relations - entitled ‘New Neighbours’ - pointing out that from 2000 to end-2016 the state has seen US$480 million in Chinese investment, a ‘modest’ amount compared to its neighbours given that the state has ‘not been a significant historical target for FDI (foreign direct investment)’. Just as Governor Ricketts pointed out at the time that “our largest in dustry is agriculture and our second is manufacturing,” the report notes that the ‘most promising areas for future Chinese investment’ in the state ‘are agriculture and energy,’ adding ‘Nebraska has a particularly strong reputation as a national leader in agricultural biofuels, which could draw future Chinese FDI’. One of the deals comprising much of the FDI into the state so far was the acquisition of Smithfield Foods by meat processing company Shuanghui (since renamed the WH Group), with the report pointing out that ‘almost 4 per cent of Nebraska’s manufacturing employment’ - or 2,700 jobs - result from operations linked to the company. The Governor pointed out that although FDI to the state from China is still lagging Japan, which has “really helped us grow jobs in Nebraska . . . I think there’s the same opportunity for Chinese investors to find that opportunity as well”.
Come one, come all
The Governor is not the only one as the report points out that 178 individual Chinese investments over the course of last year ‘included more than 1,300 new U.S. operations, bringing the total number of Chinese-owned establishments in the U.S. to 3,200 from just 1,900 at the end of 2015’. The largest of these deals were the US$6 billion purchase by HNA group
of Ingram Micro, General Electric’s purchase for US$5.6 billion by Haier, an investment by Angang in Strategic Hotels’ real estate portfolio worth US$5.5 billion, and the purchase of Lexmark printer company for US$3.6 billion, which closed just a week after Governor Ricketts’ trip to the MSAR. The U.S., in fact, ‘became one of the top destinations for Chinese outbound investment in 2016,’ while mergers and acquisitions were the main avenue used to do so. The state which clocked the most Chinese FDI during the year was California, receiving investments in ‘entertainment, (Legendary Pictures) transport and infrastructure (Ingram Micro), information and communications technology (OmniVision), and real estate and hospitality (the Montage Laguna Beach, the Ritz Carlton in San Francisco, and the Four Seasons in Palo Alto’. Aside from California, one of the major points of focus for FDI was New York, primarily in ‘commercial real estate and hospitality, with the US$1.03 billion acquisition of a 45 per cent stake in 1221 Sixth Avenue by China Investment Corporation attracting the attention of regulators worried about capital outflows from the Mainland. The state also saw the purchase of a 13.5 per cent stake in auction house Sotheby’s by a company led by the grandson-in-law of Mao Zedong the same year. Cumulatively, district NY-12 of the state of New York received the most investment during the year, at US$8.66 billion, while IL-07 of Chicago, Illinois in the Midwest received the second highest, at US$3.88 billion. Chinese companies over the course of the year ‘added about 50,000 U.S. employees to their payrolls’ during the year. ‘The total number of Americans directly employed by Chinese-owned U.S. companies reached 141,000 at the end of the year, a 46 per cent increase from 2015 and more than nine times higher than 2009,’ points out the report. The highest concentration of these jobs during the year was in district KY-03 of Louisville, Kentucky in the Midwest, with 6,020 jobs provided by Chinese companies that year. In fact, the report says that ‘there were few cases in which Chinese companies downsized U.S. operations and employment in 2016,’ while noting that ‘Chinese investors do not have a greater propensity than other foreign investors for moving research and development and other high value-added activities back to their home country post-acquisition,’
pointing out in particular that ‘the great majority of Chinese investors continued to add local staff in the U.S. during the year’.
Keeping the door open
Yet, despite the data, political pressures built up over the course of President Trump’s campaign, since slightly tamed by ongoing dialogue between Chinese President Xi Jinping during and since his visit to Mar-aLago (as evidenced by the u-turn in calling China a currency manipulator) and ongoing changes in policy both in China and the U.S. contribute to uncertainty for investors. ‘After a booming 2016, the prospects for 2017 are more complicated,’ notes the report. ‘The commercial
rationale for further Chinese expansion in the U.S. economy remains strong, but Chinese capital controls, likely changes to U.S. FDI policy, and an uncertain trajectory for broader U.S.-China economic relations are headwinds,’ notes the report. On the China side, administrative measures to stop capital outflows have dropped Chinese global outbound investment ‘to 2015 levels, which suggest a substantial decline in 2017 investment levels’ compared to last year, notes the report. Meanwhile, FDI policy changes in the U.S., under a President who ‘has promised a tougher stance toward economic interactions with China, including FDI,’ via an expanded use of the Committee on Foreign Investment in the United States and more intense scrutiny of Chinese investment, could still come into place this year, the report concludes.
6 Business Daily Wednesday, May 10 2017
Macau Debt
Huishan Dairy under pressure as Bank of China calls in loan Bank of China Ltd’s Macau branch had asked it to repay the outstanding principal on a US$50 million loan, with interest of US$937,363 by May 16 Sumeet Chatterjee
C
hina Huishan Dairy Holdings Co Ltd, wrestling with debt, battered shares and an empty boardroom, could come under more pressure from its banks after one creditor demanded it repay a US$50 million loan, people familiar with the matter said. Huishan, whose shares are suspended indefinitely on the Hong Kong exchange, said late on Monday that Bank of China Ltd’s Macau branch had asked it to repay the outstanding principal on a US$50 million loan, with interest of US$937,363 by May 16. It gave no further details. The crisis at Huishan has highlighted the complexities of resolving corporate debt problems in the world’s second-biggest economy. Most of the firm’s board has resigned, a key finance executive is missing and almost all of the shares owned by its controlling shareholder has been pledged as collateral. The demand for repayment from state-owned Bank of China could prompt other creditors to take similar action, bankers and analysts said. Two people with knowledge of the
matter said other creditors, which include HSBC, China CITIC Bank International and Hang Seng Bank, are now keeping a close watch on the situation. So far, none have taken action to recall their loans, the people said. Huishan, which has been heavily dependent on short term loans, entered into the loan agreement with Bank of China’s Macau branch on April 28, 2014, with a maturity period of three years, according to official filings.
Key Points Bank of China calls in US$50 mln loan, asks for payment by May 16 Other creditors monitoring situation closely -sources Some banks sent letter in April about broken covenants Bank of China did not immediately respond to requests for comment. Huishan declined to comment. Last month, Huishan said Shanghai courts had ruled to freeze some of Huishan’s assets following an application by Gopher Asset Management Co Ltd, one of the company’s
creditors. Meng Shen, director of Chanson & Co, a boutique investment bank based in Beijing, said that if Huishan did not come up with a plan to restructure its debt, more lenders would seek legal action such as freezing Huishan assets. “There is a distinct possibility that Huishan will not be able to restructure,” he said. Huishan’s stock has been suspended at the company’s request since March 24, after it plunged 85 per cent in a single day. On Monday, Hong Kong’s securities regulator also ordered trade in its shares be halted.
Hong Kong’s banking watchdog is separately questioning banks over a US$200 million syndicated loan raised by Huishan from lenders including China CITIC, Hang Seng, and HSBC, sources told Reuters last month. The banks sent a letter to Huishan in April stating that there had been “non-compliance with certain of the covenants” of the three-year loan agreed in 2015, although the letter did not necessarily mean that creditors were seeking accelerated repayment. Representatives for HSBC, Hang Seng and China CITIC Bank declined to comment. Reuters
Business Daily Wednesday, May 10 2017 7
Macau Crime
A helpful friend A court filing made by Ng Lap Seng’s lawyers alleges that the real estate developer offered cash and several gifts to a former U.S. Congressman Nelson Moura nelson.moura@macaubusinessdaily.com
C
ourt recordings from the ongoing corruption trial of local real estate mogul Ng Lap Seng mention that the businessman allegedly offered several gifts and cash to former U.S. Congressman Jesse Jackson Jr. in exchange for networking services, The Chicago Sun Times reported. According to the report, Mr. Ng’s
lawyers claimed in a filing that prosecutors were planning to submit evidence noting that starting from 2009 the businessman provided several gifts - including a watch, theatre tickets, hotel rooms, and meals - to the former Congressman in exchange for introductions to U.S. officials and businessmen. The former Illinois Congressman resigned in 2012, pleading guilty to charges against him and his wife of embezzling US$750,00 (MOP6
million) from his campaign funds. According to the filing by Mr. Ng’s lawyers, the financial difficulties suffered by Mr. Jackson Jr. after his conviction led him to repeatedly solicit money from the Macau businessman, the report stated. However, according to Mr.Ng’s lawyers, any offerings to the former Congressman were “irrelevant” and didn’t prove the Macau businessman was involved in corruption,
demonstrating instead his “propensity to use his wealth to help people who ask for it”. The Macau real estate developer is currently on trial for allegedly bribing John Ashe, a former ambassador of Antigua and Barbuda to the United Nations General Assembly, with over US$500,000 to support a UN-backed conference centre in the MSAR developed by one of his companies.
Retreat
Australia’s Crown Resorts quits Macau, trains sights on home Byron Kaye and Farah Master
Australia’s Crown Resorts Ltd quit its remaining stake in Macau-focused Melco Resorts and Entertainment Ltd for US$1.16 billion, ending a fraught offshore expansion and freeing up cash for new projects at home. The biggest listed casino firm outside China has been retreating from a decade-long foray into the global gaming hub since 18 staff were arrested for “gambling crimes” in China last October amid a broader crackdown on corruption. Its final exit from the one-third stake it held in Melco a year ago allowed the company to focus on new
projects in Sydney and Perth. Crown has booked a loss on joint ventures including Melco every year since 2010, according to Thomson Reuters data. “The issue of the arrests has ... been a major factor in terms of considering what’s best for the future,” said Angus Gluskie, a portfolio manager at White Funds Management, which owns Crown shares. “I think they just wanted to step completely clear of anything to do with that market.” Melco said in a statement it would buy the Crown shares for a total US$1.16 billion. Crown shares were up 1 percent
HZMB
Contractor’s Super Bridge server hacked The computer system of an engineering and design firm commissioned to work on part of the Hong Kong-Zhuhai-Macau Bridge was hacked on March 2, the South China Morning Post reported yesterday. The firm, Ove Arup & Partners Hong Kong, was contracted to design and build the Hong Kong Link Road project in partnership with Dragages-China Harbour-VSL Joint Venture, estimated at a total amount of HK$12.9 billion (MOP13.28 billion/ US$1.65 billion).
The cyber attack targeted a server in Ove Arup & Partners’ office through ‘ransomware’ software with some of the files encrypted for ransom from staff, the news media outlet quoted a staff member of the department as saying. The company claimed the incident has not compromised private personnel information – stored on another server – or affected the progress of the contract, with the incident immediately reported to the police. Lam Cheuk-ting, a Hong Kong Democratic Party lawmaker, said that the government should have immediately informed the public about the attack which happened nearly two months ago since the project “involves a tremendous amount of public interest.” No-one has yet been arrested in connection with the attack, SCMP noted. S.Z.
Corporate
MGS Entertainment Show gets full UFI Certification
The MGS Entertainment Show, set to host its fifth edition this year at The Venetian Macao, has been awarded the status of a UFI Approved Event. The group also welcomed the Macau Gaming Equipment and Manufacturers Association (MGEMA), owner and organiser of the event, into full membership of UFI. “It is encouraging to break [into a] new group which supports our expansion and our UFI certification definitely fits into that
[category],” commented MGEMA chairman Mr. Jay Chun. Speaking about this year’s show, to be held November 14-16, Mr. Chun notes that: “MGS always aims to deliver something new with each edition of the show, and 2017 will see a focus on technology, AI (artificial intelligence) and the innovation that not only drives the gaming industry forward but helps develop a more diversified leisure and entertainment offering to the market.” The theme of this year’s edition is ‘The Belt & Road – Smart City’.
on Tuesday while the broader Australian sharemarket fell 0.5 percent. After plunging 14 percent the day the company disclosed the arrests in October, the shares only returned to their pre-arrest level last month. Crown did not immediately respond to requests for comment about whether the arrests had anything to do with its Melco exit. In a statement to the stock exchange it said it would use the sale proceeds - totalling US$987 million after unwinding equity swaps associated with the joint venture - to cut debt. “I don’t think there’s an urgency in terms of cutting down their debt ratios, but they do have some pretty
significant capex in the pipeline, particularly with Crown Sydney,” said Vicky Melbourne, a senior director at Fitch Australia, which has Crown with a “BBB” credit rating with a stable outlook. Crown’s departure from Macau comes after gambling revenues in the southern Chinese territory grew in the first half of fiscal 2017, reversing three years of declines. Visitor numbers are up as new resorts helped draw high rollers and casual gamblers to China’s only legal casino hub, following an easing of President Xi Jinping’s campaign against shows of wealth by public officials.
8 Business Daily Wednesday, May 10 2017
Greater china Markets
Hong Kong stocks rise to 21-month high Neighbouring equity markets have been faring better than the mainland’s this year Jeanny Yu
H
ong Kong shares rose to the highest close since July 2015 as commodities gained, while shares in China snapped a five-day losing streak after technical indicators signalled that the slide may have been overdone. The Hang Seng Index climbed 1.3 per cent to 24,889.03 at the close. China Resources Power Holdings Co. led the advance, climbing the most in 14 months after China was
said to be considering plans to create three energy giants through mergers of eight companies. China Petroleum & Chemical Corp. rose 2.5 per cent after crude oil gained. The Shanghai Composite Index pared early losses to close 0.1 per cent higher. Hong Kong’s equity markets have been faring better than the mainland’s this year as an intensifying deleveraging campaign onshore has made the city’s shares more attractive. The Hang Seng Index has climbed 13 per cent this year and is among
the world’s top performers, whereas the Shanghai benchmark gauge has fallen 0.7 per cent. “After A-share markets closed, money started flowing into Hong Kong to speculate,” said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong. Shanghai stocks rose yesterday after losing 2.4 per cent in the five days through Monday. The declines drove the gauge’s relative strength index to below 30, a level that suggests to some traders that an asset is oversold. China is stepping up scrutiny of stock traders as the government prepares to host the Belt and Road Forum in Beijing, people with direct knowledge of
the matter said yesterday, while the nation’s banking regulator said Monday that lenders should carry out collateral pressure tests at least once a year. “Some stocks appeared to be very cheap at current levels, and this triggered some bargain hunting,” said Banny Lam, head of research at CEB International Investment Corp. in Hong Kong.
“After A-share markets closed, money started flowing into Hong Kong to speculate” Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong
State-owned enterprises that dominate old growth industries, such as banks and commodity producers, have been among the hardest-hit by the deleveraging drive, while new-economy shares remain in favour among overseas investors. That’s led to a wide gap between the nation’s two main offshore gauges: the Hang Seng China Enterprises Index and the MSCI China Index. The ChiNext measure of mostly small-cap stocks added 0.8 per cent, while the Shenzhen Composite Index halted a five-day drop to climb 0.7 per cent. The Hang Seng China Enterprises Index gained 1.5 per cent. Bloomberg News
Liquidity
As Beijing tightens cash conditions, yuan bond yields rise Yields at government bond auctions have consistently exceeded market expectations Winni Zhou and John Ruwitch
China’s renewed efforts this month to curb the volume of cash in its banking system do not so far appear to have caused much stress in money markets, although the steady rise in yuan bond yields suggests market participants are bracing for tighter and more expensive funding conditions. Yesterday was the third straight day that the People’s Bank of China (PBOC) refrained from injecting cash into markets via its open market operations. Last week, it didn’t roll over RMB230 billion (US$33.3 billion) of maturing six-month funding through a medium-term lending facility (MLF). Money market participants were not surprised at this, however. Chinese authorities have been avidly tightening cash supplies in the economy as they seek to rein in speculation and curb risks from excessive borrowing. The PBOC abstained from open market operations for 13 consecutive sessions in April. Unlike in March, when interbank repo rates spiked to 9.5 percent, more than three times their normal range, markets remained calm this time. The seven-day interbank repo rate was around 2.98 percent on Tuesday, and has since April 28 been consistently higher than the PBOC’s 2.45
percent repo rate. “The central bank’s control over liquidity has become tighter and tighter,” said a trader at a Chinese bank in Shanghai. The PBOC said in a statement that yuan liquidity in the banking system was “appropriate”, as it has done each time it skipped open market operations in May. That is a change from before, when it would describe liquidity as “relatively high”, and traders would reckon it meant the PBOC had adjusted
the threshold at which it would inject cash. Bond yields have risen as traders brace for tighter cash conditions as the authorities crack down harder on shadow banking and risky financial practices. “There is no more cheap money in the market. The central bank only provides the amount of cash that just meets the market demand,” said a senior strategist at a foreign bank in Shanghai. “The authorities are trying to stabilise market expectations for funding, but that does not change people’s views that market rates will rise further.”
Still, most traders also reckon the odds of another official rise in shortterm money market rates are low. The PBOC has already raised rates three times this year, most recently in mid-March. Yields on the benchmark 10-year government bond hit their highest in nearly two years on Monday, and at 3.63 percent have already climbed more than 60 basis points this year. Two-year yields at 3.5 percent have risen 75 basis points so far in 2017, leaving the yield curve extremely flat.
‘The PBOC abstained from open market operations for 13 consecutive sessions in April’ Yields at government bond auctions have consistently exceeded market expectations. “The loosening or tightening of funds in the market is mainly dependent on the wishes of the central bank,” TF Securities said in a note. Meanwhile, RMB179.5 billion worth of six-month MLF loans are due to mature on May 16. While it is not known whether the PBOC will renew those loans, a trader at a Chinese bank in Shanghai said she would not expect cash conditions to become as tight as they did in April. Reuters
Business Daily Wednesday, May 10 2017 9
Greater China Tourism
In Brief
Fosun targets 10 times more Mainland victors to Greece Greece, which has lost more than a quarter of its economic output during a crisis that began in 2010, desperately needs investments Eleni Chrepa and Sotiris Nikas
Fosun International Ltd., the Chinese conglomerate that’s part of a venture to transform the former Athens airport site into one of the biggest real-estate projects in Europe, is now turning its attention to Greek tourism. Fosun wants to use its stake in tour operator Thomas Cook Group Plc to start building vacation packages specifically for the vast Chinese market, Senior Vice President Jim Jiannong Qian said in a May 4 interview in Athens. The Chinese government predicts 1.5 million of its citizens will start vacationing in Greece in the medium term. Tourism accounted for over one-quarter of Greece’s gross domestic product in 2016, according to the Greek Tourism Confederation. Visitor numbers in 2016 reached 28.1 million, up 7.6 per cent from 2015. Tourists generated 13.2 billion euros (US$14.5 billion) in travel receipts, according to the Bank of Greece. Of these travellers, 150,000 came from China, Beijing says. “Greece is a very safe place for visitors,” said Qian who is also president of Fosun’s Tourism and Commercial Group. There are also good opportunities for tourism investments in Greece, he said. Fosun is in discussions to buy
existing hotels and resorts, or for the construction of new ones, in Greece by its fully owned portfolio company Club Med SAS. An increase in Chinese visitors to Greece would eventually lead to direct flights from Beijing and Shanghai to Athens, Qian said. The 54 year-old Qian said the situation in Greece has changed since the company first invested in Athens-based luxury goods retailer Folli Follie Group in 2011. “Greece’s economy is recovering now and can also deliver very good opportunities for foreign investors,” he said. “We look at the figures from retail sales and of the tourism sector,” and see the improvement.
Banking investment
Shanghai-based Fosun, which manages 64.3 billion euros in total assets globally, has invested more than 200 million euros in Greece through its direct holding in Folli Follie and indirectly through Thomas Cook and Club Med, Qian said. “If you can help the economy grow, for example if we have the package product for Greece, then we create more jobs for restaurants, for retail stores, for taxi drivers.” The company, the biggest private Chinese company that invests in Europe, owns German lender Hauck & Aufhaeuser Privatbankiers KGaA and Portuguese insurance company
Fidelidade Cia de Seguros SA, and doesn’t rule out an investment in the Greek banking sector if an opportunity arises in the future, Qian said, refuting reports that the group has already made a bid to acquire shares in Greek banks. Fosun has already placed a bid for the acquisition of National Bank of Greece’s insurance unit National Insurance, and according to Qian, has no money ceiling when it comes to investments, as long as the opportunity is worth it.
Coastal resort
Fosun is also participating in a joint venture led by Lamda Development SA that will turn Hellenikon, the former Athens airport site twice the size of New York’s Central Park, into a luxury coastal resort. “We are very confident about this investment,” Qian said about the 2 billion-euros project that is currently stalled due to objections concerning the effects on the environment, local communities and ancient artefacts found in the area. Greece, which has lost more than a quarter of its economic output during a crisis that began in 2010, desperately needs investments. The country is currently struggling to return to growth, while it remains under a third bailout program by its international creditors. Greece’s Prime Minister Alexis Tsipras will participate in the Belt and Road Business Forum which begins in Beijing on May 14 to meet with investors and promote Greek-Chinese partnership. Bloomberg News
Property deal
Malaysia woos Wanda after Bandar Malaysia deal collapses Sources say Malaysia wants to build a tourism and entertainment hub in Bandar to compete with neighbouring Singapore Malaysia is trying to rope in China’s Dalian Wanda Group Co Ltd to develop a US$1.7 billion Kuala Lumpur property project, barely a week after it dumped its original partners in disputed circumstances, sources aware of the discussions said yesterday. The collapse of the deal to sell Bandar Malaysia, previously owned by troubled state fund 1Malaysia Development Berhad, resurrected the 1MDB financial scandal at an awkward time for Prime Minister Najib Razak, who is expected to call a general election later this year. Just late last month, 1MDB agreed to pay US$1.2 billion to settle a debt dispute with Abu Dhabi, in a deal that was slammed by Najib’s opponents for exposing Malaysian taxpayers to more debts racked up by 1MDB. An investment by Dalian Wanda - owned by China’s richest man Wang Jianlin - would be a big boost for Najib, who will be in Beijing for the Belt and Road Forum for International Cooperation on May 14-15. Discussions are still underway and nothing has been finalised yet, two Malaysian industry sources aware of the talks said. If agreed upon, Najib, will announce the agreement during his Beijing trip, they added. Bandar Malaysia, a former 1MDB asset before being transferred to the finance ministry last year, is one of the biggest development projects in the country and is expected to house a terminal for the high speed rail connecting Kuala Lumpur and Singapore. Sources said Malaysia wants to build a tourism and entertainment hub at Bandar, to compete with neighbouring Singapore. Wanda Group’s business includes
property development, shopping malls, cinema chains and theme parks. It owns Legendary Entertainment, co-producer of film hits such as “Jurassic World”, and U.S. cinema chain AMC Entertainment Holdings Inc . News of the deal was reported earlier by Singapore’s Straits Times newspaper. The report said talks are at an advanced stage to make the Wanda the master developer, and this is awaiting approval from China’s financial regulators. Quoting unnamed financial executives, it said that Wanda has proposed to use half of the development for tourism and entertainment-related ventures valued at roughly US$8 billion. Any big ticket investment would require regulatory approval due to China’s curb on cross-border capital outflows.
How committed?
Malaysia said last Wednesday the initial US$1.7 billion property deal for Bandar Malaysia, collapsed as the buyers, Iskandar Waterfront Holdings and China Railway Engineering Corp (CREC), failed to make payments. Iskandar and CREC refuted the claims, saying they had fulfilled all the payment obligations. Money raised from the deal was expected to ease the debt burden of 1MDB, which is at the centre of several international money laundering probes. 1MDB had racked up more than US$11 billion in debt before beginning a restructuring programme in 2015. The announcement shook Malaysia’s stock market on Thursday, as
Dalian Wanda is owned by China’s richest man Wang Jianlin (pictured)
traders feared the deal’s collapse was a sign that Chinese investors were pulling funds from Malaysia. Though markets recovered a day later, the doubts over whether Chinese investors would stand by Malaysia linger on. “This potential u-turn in sentiment could halt or reverse the strong yearto-date foreign equity inflow into Malaysia...,” Investment firm UOB Kay Hian said in a note last week. Beijing was seen coming to Najib’s rescue when China General Nuclear Corp (CGN) agreed to buy 1MDB’s power assets for US$2.3 billion in Dec. 2015. In November last year, Najib signed agreements totalling US$34.4 billion during his visit to China. Najib faced the biggest challenge to his leadership in 2015 after allegations that hundreds of millions of dollars was misappropriated from 1MDB. Lawsuits filed by the U.S. Justice Department in July said more than US$700 million of misappropriated funds flowed into the accounts of “Malaysian Official 1”, who U.S. and Malaysian officials have identified as Najib. Reuters
Financing
Local gov’t slows debt issuance Local governments have issued less debt this year following measures to ease the country’s mounting debt burden, data showed yesterday. In the first four months of 2017, local governments raised RMB799.4 billion (US$116 billion) through 178 instances of debt issuance, down from the RMB2.02 trillion raised in 296 issuances a year ago, according to data compiled by Wind, a financial information provider. China’s authorities have stepped up efforts to rein in financial risks, promising to correct irregular fundraising behaviour by local governments. Development
No concrete jungle in Xiongan China will ban large-scale property development including towering skyscrapers in an ambitious new economic zone near Beijing, the leading local Communist Party official wrote in an editorial in the People’s Daily yesterday. “Every inch of land” in the Xiongan New Area will be carefully and deliberately planned, wrote Zhao Kezhi, party chief of Hebei province, where Xiongan is located. The zone will house some of Beijing’s relocated “non-capital functions”, though few other details have been announced, and most work appears to still be in the planning stages. Property
Mainland buyers lead foreign investors in Australia Australia approved foreign investments worth almost a third more in fiscal 2016 than the previous year, as more Chinese buyers piled into the already red-hot residential property market, government data published yesterday showed. The figures in the Foreign Investment Review Board’s 2016 annual report highlight the huge Chinese appetite for Australian property even as economists expect the housing market to ease in 2017 amid rising lending rates. The total value of foreign investment approvals in Australia reached A$247.9 billion (US$182 billion) in the year to June 30, 2016, up 29 per cent on the previous year and nearly double the A$135.7 billion total of the prior three years. ODI
Financial institutions see investment outflow Overseas direct investment to China’s financial institutions, including banks, insurers and securities firms, saw a net outflow of US$1.29 billion in the first quarter of 2017, the nation’s foreign exchange regulator revealed yesterday. The figure saw an increase from a net outflow of US$1.1 billion in the fourth quarter of 2016, or was equivalent to roughly half of the net outflow of overseas investment to the industry registered for the whole of 2016, according to data from the State Administration of Foreign Exchange.
10 Business Daily Wednesday, May 10 2017
Greater China
State firms
Coal-power firms surge as mega-merger purportedly planned An industry-wide regroup would build on Xi’s efforts to cut industrial overcapacity
S
hares of Chinese coal-fired power generators surged yesterday as the country was said to be considering plans to create three energy giants through mergers of eight companies with combined assets of almost RMB5.9 trillion (US$855 billion). The proposal, which is only one option being considered as the government of President Xi Jinping seeks to restructure the state-run power sector, hasn’t been finalized and is subject to change, according to people with knowledge of the plan. The mergers are proposed for the unlisted parent companies, not the units traded in Hong Kong and Shanghai, said the people said, who asked not to be identified as the information isn’t public.
“These potential mergers, if confirmed, would be more positive for and possibly lead to re-ratings for the coal-fired IPPs, which are currently having a difficult time breaking even” Dennis Ip, an analyst at Daiwa Securities Group Inc. Datang International Power Generation Co., the listed unit of China Datang Corp., jumped as much as 17 per cent in Hong Kong to HK$2.63, the biggest intraday increase since July 2014. Shares in Shanghai rose 10 per cent, hitting the daily limit. China Huadian Corp.’s listed unit, Huadian Power International Corp., rose as much as 8.9 per cent, while China Huaneng Group’s Huaneng Power International Inc. added as much as 6.7 per cent. Gains on the benchmark Hang Seng Index were capped at 0.6 per cent. The three planned power giants would be created through the following combinations: China Huadian and China Guodian Corp., two of the biggest coalfired power generators, may merge with China National Nuclear Corp., the second-biggest nuclear power
operator in China. The combined company would have 297 gigawatts of capacity and RMB2.04 trillion in assets, according to data published on company and regulator websites, as well as annual reports. China Datang, one of the five biggest coal-fired generators, may merge with China General Nuclear Power Corp., the largest nuclear power operator, and Shenhua Group Corp., the country’s biggest coal miner, as well as a major rail operator and power producer. The combined company would have 241 gigawatts of capacity and RMB2.09 trillion in assets. China Huaneng, the country’s biggest coal-fired power producer, may merge with State Power Investment Corp., a coal-fired power company that also owns State Nuclear Power Technology Corp., the unit building the country’s Westinghouse-designed AP1000 third-generation nuclear reactors. The combined company would have about 262 gigawatts of capacity and assets of RMB1.75 trillion. “The central government is trying to create some even bigger giants in the industry, with more efficiency through consolidation of coal-fired assets, and compensate the loss of coal-fired assets with nuclear and coal assets that offer better profitability,” Dennis Ip, an analyst at Daiwa Securities Group Inc., wrote in a client note. “These potential mergers, if confirmed, would be more positive for and possibly lead to re-ratings for the coal-fired IPPs, which are currently having a difficult time breaking even.”
Overcapacity, debt
China Huadian declined to comment when contacted on Monday, while a spokesman for China Shenhua wasn’t able to respond. The remaining companies didn’t respond to requests for comment sent by phone, fax and email. Nobody responded to faxed requests for comment sent to the State-owned Assets Supervision and Administration Commission, which regulates state-owned companies; the National Development and Reform Commission, the country’s chief economic planner; and the National Energy Administration. “The newly created companies could become ‘too big to fail’ almost overnight, and how to effectively prevent them from becoming new market monopolies will be a hard task to deal with,” said Shi Yan, a Shanghai-based utilities analyst at UOB Kay Hian Holdings Ltd. An industry-wide regroup would build on Xi’s efforts to cut industrial
overcapacity, accelerate the overhaul of the bloated state-owned sector and reduce the country’s reliance on coal. Utilization at China’s power generation facilities last year averaged 3,785 hours, the lowest since 1964, according to the National Energy Administration. Reforming the state-owned sector is also key to Xi and Premier Li Keqiang’s goal of rebalancing the US$11 trillion economy away from an over-reliance on debt-fuelled infrastructure investment and exports to one powered more by services and consumer spending. The country will deepen consolidation
of state-owned enterprises this year, Xiao Yaqing, chairman of Sasac said in March. “The driver for this idea is probably not just overcapacity, but levels of debt in the parent companies,” said Simon Powell, head of Asian utilities research at UBS Group AG in Hong Kong. “By merging good cash flow companies with not-sogood, then perhaps the debt burden gets eased. Given that the proposed changes are at the parent company level and the listed companies remain as are for now, then not much changes for shareholders in the short term.” Bloomberg News
Business Daily Wednesday, May 10 2017 11
Asia Outlook
IMF says Asia facing risks from rise in protectionism Continued tightening of global financial conditions could trigger volatility in capital flows Masayuki Kitano
T
he International Monetary Fund said Asia’s economic outlook faces “significant” uncertainty and downside growth risks from any sudden tightening in global financial conditions or rise in protectionist trade policies. The IMF, which in April raised its 2017 Asia-Pacific growth forecast to 5.5 per cent from its previous October forecast of 5.4 per cent, said loose monetary and fiscal policies across most of the region would underpin domestic demand. “However, the near-term outlook is clouded with significant uncertainty, and risks, on balance, remain slanted to the downside,” the IMF said in its Asia-Pacific regional economic outlook released yesterday. In April, the IMF kept the region’s 2018 growth forecast unchanged at 5.4 per cent. Asia-Pacific recorded 5.3 per cent growth in 2016. The report comes at a time when policymakers around the region are wrestling with the challenge of how to navigate rising risks of protectionism under U.S. President Donald Trump, and a potential increase in funding costs as the Federal Reserve steps up the pace of rate hikes.
“A possible shift toward protectionism in major trading partners also represents a substantial risk to the region. Asia is particularly vulnerable to a decline in global trade because the region has a high trade openness ratio, with significant participation in global supply chains,” the IMF said. Centrist Emmanuel Macron’s victory in France’s presidential election is “good news” for open trade and globalisation, Changyong Rhee, director of the IMF’s Asia and Pacific Department told a news conference.
Rhee added that he hoped a recent agreement between Trump and China’s President Xi Jinping on a 100day plan for trade talks would lead to expanded global trade rather than a reduction. “So at this moment, I’m cautiously optimistic.” Continued tightening of global financial conditions could trigger volatility in capital flows, and the region could see large spillovers if China’s shift to a more consumption-driven economy proves bumpier than expected, the IMF said. Rhee reiterated that the IMF may need to upgrade its 2017 China growth forecast from 6.6 per cent after the economy expanded more
than expected in the first quarter, though he also said there are concerns about whether strong credit growth is being allocated efficiently. The IMF emphasised that foreign exchange intervention should not be used to resist currency moves that reflect changes in fundamentals including in the global trade environment or as a substitute for macroeconomic policy adjustments. It added, however, that “judicious” foreign exchange intervention might be called for in certain cases, such as when disorderly market conditions or rapid exchange rate movements threaten financial or corporate stability. Reuters
Salaries
Japan’s real wages growth slowest in nearly 2 years The data underscores the fragile and patchy nature of Japan’s economic recovery Japan’s March real wages fell at the fastest pace in almost two years, pressured by meagre nominal pay hikes and a slight rise in consumer prices, posing a setback for Prime Minister Shinzo Abe’s attempts to revitalise the economy. The wages figures back recent data showing household spending fell more than expected and core consumer prices rose at a slower-than-expected pace in March, suggesting an exit from the central bank’s radical quantitative easing programme remains distant. Inflation-adjusted real wages dropped 0.8 per cent in March from a year earlier to mark their biggest rate of decline since June 2015, labour ministry data showed yesterday. In nominal terms, wage earners’ cash earnings fell 0.4 per cent yearon-year in March, also notching the biggest rate of decrease since June 2015. The data underscores the fragile and patchy nature of Japan’s economic recovery. It also bodes ill for Abe, who has repeatedly urged companies to lift worker compensation to foster sustainable growth in the world’s
third-largest economy through a virtuous cycle of increased household spending, higher business investment and production.
‘A Reuters poll found an overwhelming majority of Japanese companies said they will raise wages at a slower pace than they did last year’ The drop in March nominal cash earnings and real wages partly reflected a pullback from the same period a year earlier, when wage growth was solid, a labour ministry official said. In March 2016, nominal cash earnings rose 1.5 per cent on-year and real wages increased 1.6 per cent.
“We need to look at the data for April onward. We can’t say by looking at just this month that the trend (in wage growth) has shifted,” the official said. Businesses have been reluctant to raise wages despite a tight labour market. An overwhelming majority of Japanese companies said they will raise wages at a slower pace than they did last year, a Reuters poll found. Regular pay, which determines base salaries, dipped an annual 0.1
per cent, falling for the first time since May last year. Overtime pay, a barometer of strength in corporate activity, fell 1.7 per cent in March from a year earlier. Special payments, such as bonuses, fell 3.6 per cent in March on-year, also marking the largest drop since June 2015. Special payments are generally small, so even a slight change in the amount can cause big per centage changes. Reuters
12 Business Daily Wednesday, May 10 2017
Asia C.bank governor
Philippines’ incoming monetary head: Expect policy and reform continuity Analysts have largely praised the appointment of 58-year-old Espenilla
I
ncoming Philippine central bank governor Nestor Espenilla said yesterday markets should expect a lot of continuity in terms of monetary policy and reforms when he takes over in July. Espenilla was named on Monday as the country’s next central bank governor to take over from Amando Tetangco when he steps down in July after 12 years, having served a maximum two terms.
Key Points Nestor Espenilla to take over from Amando Tetangco in July
policy and reforms kept the Philippines’ banks sound, the peso and inflation stable and sustained the country’s strong economic growth. Analysts have largely praised the appointment of 58-year-old Espenilla whose many years with the central bank they say would help him to hit the ground running when he starts work on July 2. Espenilla is currently deputy governor in charge of banking supervision. Espenilla has driven many of the country’s recent banking reforms, including raising minimum capital requirements, improving financial
transparency, and overhauling mismanaged banks. He also told ANC that he would continue the central bank’s advocacy for relaxing the bank secrecy law and said he was committed to promoting financial inclusion and competition in the financial system. “To me, the plus element really is to find innovative ways to make our financial system even more responsive to the broader Philippine community,” he said. Espenilla’s appointment came just days before the central bank holds its next policy meeting on Thursday. The central bank is widely expected to leave its benchmark interest rate unchanged at 3.0 per cent. It has not tweaked policy settings since it raised
the main rate by 25 basis points in September 2014. Asked on his outlook for monetary policy, Espenilla said he does not “really like to characterise things in terms of dovishness and hawkishness.” “We rely a lot on data and we will continue to sharpen our analysis and react accordingly,” he added. Monday’s announcement of his appointment at the presidential palace apparently came as a surprise to Espenilla, who said there was “very tough competition” for the job. “I basically was asked to go to Malacanang yesterday and after that it went very quickly already and then before I knew it, I was being announced,” he said. Reuters
Describes next phase of policy as a continuity ‘plus plus’ To find innovative ways to make financial system more responsive To continue c.bank’s advocacy for relaxing bank secrecy law “I’m very fortunate that we are really building on very strong foundations and excellent organisation that was created by Governor Tetangco,” Espenilla told news channel ANC. “You should expect a lot of continuity in what we have been doing in the way we manage our monetary policy, the way we supervise the financial system. But at the same time I’d like to look at it as a continuity ‘plus plus’.” Overseen by Tetangco, monetary
(L-R) Finance Secretary Carlos Dominguez III, newly-appointed Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. and Presidential Spokesperson Ernesto Abella. Lusa
Results
Australia’s Big Four banks look to cut costs as challenges rise Domestic lenders have relatively low cost-to-earnings ratios in part because they rely less on higher cost investment banking Jamie Freed
Australia’s ‘Big Four’ banks say they are working hard to cut costs to maintain earnings momentum as they combat rising challenges from regulatory action, a fresh government inquiry and a possible new levy on their institutional businesses.
Key Points 1H bank profits rise 6.2 pct with revenue flat: KPMG Regulatory action to lower mortgage growth rate Banks could face new levy on institutional lending: media In the first half of the financial year, the cash earnings of Commonwealth Bank of Australia (CBA), Westpac Banking Corp, National Australia Bank Ltd (NAB) and Australia and New Zealand Banking Group Ltd (ANZ) rose by an average of 6.2 per cent to a combined A$15.6 billion (US$11.53 billion) on flat revenue, according to a KPMG report. With the exception of ANZ, which is shrinking as it sells low-returning
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assets, analysts forecast the banks will report record cash profits this financial year and all are expected to report further rises next year. CBA’s financial year ends on June 30, but the others use a Sept. 30 year-end. As revenue stagnates and the mortgage business struggles with regulations designed to cool redhot housing markets in Sydney and Melbourne, the banks’ profit growth increasingly depends on cost-cutting and boosting margins.
During the latest round of financial results ending yesterday with CBA’s A$2.4 billion third-quarter profit, bank executives told analysts they were cutting jobs, closing branches and investing in technology to keep a lid on costs. The four major banks’ average cost to income ratio on a cash basis fell 160 basis points to 43.41 per cent in the first half, which is very low compared with an industry median of 66 per cent in the United States and 75 per cent in Britain. Australian lenders have relatively low cost-to-earnings ratios in part because they rely less on higher cost investment banking. Still, ANZ Chief Executive Shayne
Elliott believes there is more fat to trim. “I believe we are entering a lower-growth environment and our response to that is to be really, really tight with the way that we allocate capital and then the same with costs,” Elliott said last week.
Test of strength
The headwinds faced by the banks are many. The Australian Prudential Regulation Authority has indicated they will need to hold additional capital to be considered “unquestionably strong”, although the exact amount has yet to be revealed. As compliance costs rise, there also has been political pressure for a far-reaching judicial inquiry into financial sector malpractice following a series of scandals. While fending off those calls, the government has announced a number of measures since last year aimed at alleviating public concerns about the power of the big banks. On Monday it promised a probe into competition in the industry, which is widely expected to target the banks’ wealth divisions. There has also been unconfirmed media speculation that the government intends to impose a transactions tax on institutional lending to raise $6 billion over four years. Treasurer Scott Morrison was not immediately available for comment. Reuters
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Business Daily Wednesday, May 10 2017 13
Asia Bank of Japan
In Brief
Governor expects to meet price target with current monetary easing The Bank of Japan has said it will reduce its monthly government debt purchases in May Stanley White
Bank of Japan (BOJ) Governor Haruhiko Kuroda said yesterday he expects to meet the central bank’s 2 per cent inflation target around next fiscal year if the BOJ continues with its current monetary easing. Speaking in the lower house fiscal and monetary policy committee, Kuroda said that the BOJ would adjust policy if needed, but that the central
bank had recently upgraded Japan’s economic outlook and the global economy was growing stronger. “Japan’s output gap is improving rapidly and the labour market is tight,” Kuroda said. “If we continue our current aggressive monetary easing I think inflation will reach 2 per cent around fiscal 2018. However, we have delayed the target, so I want to watch inflation expectations and respond quickly
Bank of Japan Governor Haruhiko Kuroda. Lusa
if needed.” The BOJ offered its most optimistic assessment of the economy in nine years at its policy meeting last month, but Kuroda said inflation expectations remain subdued, suggesting the central bank’s quantitative easing will remain in place for some time. The BOJ maintained its short-term interest rate target at minus 0.1 per cent and a pledge to guide 10-year government bond yields around zero per cent at the meeting. It also kept intact a loose pledge to buy government bonds so its holdings increase at an annual pace of 80 trillion yen at the meeting. Since then, the BOJ has said it will reduce its monthly government debt purchases in May, showing the central bank is stepping back from the 80 trillion yen target. Prior to the meeting, a Reuters poll showed economists expected the BOJ’s next move would be to tighten monetary policy, though many do not expect it to happen until next year at the earliest. However, some economists argue that this will be difficult because consumer prices are currently around zero and this is to distant from the BOJ’s 2 per cent price target to make monetary policy less accommodative. Reuters
Notes and coins
India finding it hard to end love affair with cash The government followed up a bank note cancellation by banning all cash transactions above 200,000 rupees in March Megha Bahree
Fat wads of bank notes move across counters in Old Delhi’s gold and diamond district in one of many challenges to six months of Indian government efforts to suffocate the black market. Cash has been king in the musty narrow streets of Chandni Chowk since the jewellery market was set up by Emperor Shah Jahan in the 17th century. The owners now largely shrug off “demonetisation” by modern day ruler Prime Minister Narendra Modi. In a shock move on November 8 last year, Modi cancelled all 1,000 (US$15) and 500 rupee notes in circulation, rendering about 86 per cent of India’s currency void.
‘Government has promoted e-wallets and offered incentives for businesses that adopt digital payments’ Amid street protests, the decision triggered massive queues outside banks as the authorities struggled to print enough new notes. Chandni Chowk is not alone in resisting the digital economy. At least 80 per cent of business in India is estimated to be conducted in cash, much of it avoiding tax as well as fuelling corruption. “I’m sticking to cash,” one gold and diamond dealer, Kapil, who declined to give his last name, told AFP at his store in the backstreets. “There have been many raids on the shops here so I don’t keep as much stock of ready jewellery as I used
to, but I don’t take any cheques or cards,” he said. “Only cash.” Most of the gold, silver and diamond dealers approached in Chandni Chowk told AFP that while a per centage of their transactions had switched to digital cards, cash still dominates. Last year Kapil sold jewellery worth nearly 10 million rupees (US$155,000) but declared sales of just 500,000 rupees (US$7,770). But it is not just the sellers who prefer the tax-friendly cash system. “Customers still want to pay in cash to save paying tax,” Ranjeev Panjali, whose family has been in the jewellery business for the past 60 years. The government followed up the bank note action by banning all cash transactions above 200,000 rupees in March. It has promoted e-wallets and offered incentives for businesses that adopt digital payments. The government said that the amount of tax collected in February was 10 per cent higher than for the same month last year. It insists it is looking for long-term change.
Cash piles
But the action so far has not deterred wily and wary Indians. All sales witnessed by an AFP reporter during a visit to the gold market on a recent afternoon were in cash. “Demonetisation has had no impact at all,” said the proprietor of a store who declined to give his name.
“You can never remove cash from our system.” Cash withdrawals from bank machines are rising. In March the figure stood at 2.2 billion rupees, up 0.6 per cent from the same month last year. And the government action hit the economy, at least temporarily. India’s impressive growth fell to 7.0 per cent in the final quarter of 2016 from 7.3 per cent in the previous three months. That could yet be revised down as the full picture emerges. Agriculture and real estate are as sensitive to the cash economy as Old Delhi gold dealers. “Property sales have slowed in Delhi, but not just because of demonetisation,” said a real estate agent in the capital, who asked that his name not be revealed. “Cash is more difficult, but more often than not there are big piles of notes on the table,” he added. Ironically, jewellers made money in the initial days of the government cash ban as stunned consumers swapped suddenly worthless notes for gold, a traditional safe haven. “There is not a single shop in this entire market that didn’t make money during demonetisation,” one shop owner, who declined to be named, said with a laugh. The owner said he doubled sales last year to 20 million rupees owing to the government action. The government’s “longer-term success will depend on whether Indians return to cash in large numbers,” the Stratfor consultancy said in a recent report. It predicted that Modi will not give up attempts to “steer India’s economy away from cash.” AFP
Japan
Regulator warns of over-reliance on monetary policy Policymakers must seek ways to put the wall of money printed by central banks to better use to foster growth, such as prompting financial institutions to lend more to innovative industries with potential, Japan’s top financial regulator said yesterday. Nobuchika Mori, commissioner of Japan’s Financial Services Agency, also warned against over-reliance on regulation in mitigating the risk of another financial crisis, saying that policymakers must now focus more on bank supervision. Mori said years of aggressive monetary stimulus by central banks have failed to revitalise advanced economies. Results
OCBC profit rises driven by wealth management Singapore’s Oversea-Chinese Banking Corp Ltd reported a nearly 14 per cent rise in quarterly profit, largely led by sustained growth in its wealth management business and robust results from insurance operations. The city-state’s second-biggest lender said net profit came in at S$973 million (US$692 million) in the three months ended March 31 versus S$856 million a year ago. Net interest margin however contracted 13 basis points to 1.62 per cent. “We achieved broad-based loan growth, grew our private banking assets under management (AUM), and reported significantly higher fee income,” CEO Samuel Tsien said in a statement yesterday. Oil insutry
Thailand’s PTTEP suspends Indonesia investment Thailand’s PTT Exploration and Production said yesterday it was suspending investment in Indonesia after the Indonesian government filed a US$2 billion lawsuit against it for alleged damage from an oil spill eight years ago. “Due to the current lawsuit, PTTEP has decided to suspend its investment decision in potential projects until further conclusion of the lawsuit,” a company statement said. PTTEP said Indonesia was one of its strategic priorities for investment. Monetary policy
Sri Lanka cenbank keeps rates unchanged Sri Lanka’s central bank kept its benchmark interest rates unchanged yesterday, as expected, and said current monetary policy is appropriate with inflation projected to decelerate gradually this year after March’s rate hikes. The central bank kept the standing deposit facility rate (SDFR) at a four-year peak of 7.25 per cent and standing lending facility rate (SLFR) at 8.75 per cent, its highest since July 2013. It said inflation is expected to slow gradually to “desired mid-single digit levels” by 2017, although there could be some monthly fluctuations due to shortterm supply-side disruptions and base effects of 2016 tax revisions.
14 Business Daily Wednesday, May 10 2017
International In Brief Employment
German job vacancies hit record high in first quarter Job vacancies in Germany hit an all-time high in the first three months of 2017, data showed yesterday, climbing above one million as Europe’s biggest economy expands faster than its workforce. Vacancies jumped by about 75,000 on the year and 9,000 on the quarter to 1.064 million, a survey by the IAB labour office research institute found. “That’s something of a surprise. Normally, the number of job vacancies goes down in the winter months,” IAB researcher Alexander Kubis said. Among the sectors consistently looking for more staff are logistics, healthcare and construction, he added. Fed
U.S. banks tightening commercial real estate loan standards Loan officers at U.S. banks reported tightening their lending standards for commercial real estate loans over the last year, the Federal Reserve said on Monday in a report that could heighten concerns about the outlook for commercial real estate. Officials at the U.S. central bank, including Boston Fed President Eric Rosengren, have warned that a run-up in commercial real estate prices could amplify any future economic downturn. U.S. banks, in describing why they were tightening standards, cited “a less favourable or more uncertain outlook for CRE property prices, capitalization rates and vacancy rates,” the Fed said in its report.
Financial hub
European banks warn of London exodus if told to convert branches to subsidiaries A report from Boston Consulting has estimated the switch to a full subsidiary structure could cost European banks around 40 billion euros in extra capital
E
uropean banks are privately warning they will have to shift thousands of people out of Britain if Brexit negotiations push the Bank of England to demand that they reinforce London operations with fresh capital, executives have told Reuters. These capital demands, which could amount to an estimated 40 billion euros (US$43.73 billion), threaten to accelerate an exodus of bankers from the City of London that has been triggered by Britain’s vote to leave the European Union. Three big European banks - Deustche Bank, BNP Paribas and Societe Generale - currently operate some of their sizeable activities in Britain through a branch structure, which requires lower capital requirements. British regulators have been comfortable with this situation with Britain as part of the EU, but once Britain leaves they will want these banks have enough capital to support their business and ensure that British taxpayers are not left footing the bill in a crisis. The regulators have said European banks should be ready to set up fullblown subsidiaries in Britain and submit to Bank of England regulation if Britain and the EU cannot reach a
Brexit deal. Several European banks base the bulk of their investment banking activities, such as sales and trading, in London, which Bank of England Governor Mark Carney has dubbed the “investment banker of Europe.” Deutsche Bank has 9,000 staff based in Britain, BNP Paribas has around 6,500 staff in the country, where it bases the bulk of its investment banking business and Societe Generale has some 4,000 staff in Britain.
Key Points Capital demands for EU branches could top 40 bln euros Big EU banks currently operate as branches in London Some European banks have bulk of investment banking in London U.S. banks have until now been at the centre of speculation about the impact of Brexit. Many of them have already warned of the need to potentially move thousands of staff out of London to maintain EU access after Britain leaves the EU. But attention has shifted to the European banks following comments
Portugal
PM wants to attract Arab investors Portugal’s Prime Minister, António Costa said on Monday in Qatar that diversifying creditors for Portuguese debt was essential to reduce interest charges and he put Arab investors on the list of priorities for “active management” of sovereign debt. Costa was speaking to journalists in Doha during an official 24-hour visit to Qatar, after a lunch hosted by his counterpart, Abdullah bin Nasser bin Khalifa Al Thani. The Prime Minister said the Portuguese government “is focusing strongly on reducing the cost of debt,” and one of the ways was to seek out new investors. Bank of France
Central bank estimates growth at 0.5 percent The Bank of France yesterday estimated French second quarter gross domestic product (GDP) growth to come in at 0.5 percent, adding there were signs of a pick-up in industrial production last month. The Bank of France’s business climate survey for the industrial sector stood at 104 points in April, up from 103 points in March. Its business climate indicator for the services sector dipped to 100 points in April from 101 points in March.
in April by British regulators that European banks which operate in London using EU “passports”, which give EU-wide market access, should set up separately capitalised subsidiaries in Britain if Britain and the EU cannot reach a deal on financial services. EU passports enable banks to operate throughout the bloc but be regulated mainly by just one member country. But passporting between the rest of the EU and Britain may be lost once Britain leaves EU in two years’ time. Germany’s flagship bank Deutsche Bank has already said it is considering whether it needs to move thousands of staff from London to Frankfurt following Britain’s decision to leave the European Union, if it can no longer access the single market from London.
Branch versus subsidiary
Investment banking activities in particular carry a lot of risk and large balance sheets, meaning regulators will want to supervise the banks’ trading models closely. Deutsche Bank’s London operations, for example, would rank among the world’s top banks in their own right, but Britain’s PRA has little say over them, a senior banking official said. This is because Deutsche Bank’s main regulator is BaFin in Germany. Carney has called for Britain and the EU to reach a deal to recognise each others’ bank rules after Brexit, or risk a potentially damaging hit to financial services across Europe. But such recognition of financial rules across borders has not been tried before on the scale envisaged by Carney, which could make negotiations tricky. The EU may also be reluctant to forgo the jurisdiction of the bloc’s highest court in policing rule breaches. Also in the mix are EU plans to force foreign banks in the bloc to convert themselves into holding companies. This would potentially require tougher capital and liquidity requirements which could bump up costs for British banks wanting to do business across Europe after Brexit. Britain is lobbying to stop this measure while it is still an EU member. Reuters
StanChart report
Global default risks mostly receded in past year Venezuela, Greece and Ukraine are still perceived as the sovereigns most at risk of default Risk perception for most of the world’s countries have improved in the past year, according to a Standard Chartered analysis of credit default swaps (CDS), contrasting with deterioration in France, Italy, the United States and Germany. CDS are derivatives used by investors to hedge against a default or restructuring of debt. The higher the risk of default, the higher the CDS spread. StanChart said in a report yesterday that the CDS spreads of 35 countries showed Venezuela, Greece and Ukraine are still perceived as the sovereigns most at risk of default, with Venezuela trading with spreads of more than 3,000 basis points. But 31 of the countries, including the above, saw spreads tighten since March 2016, it said, attributing the gains to oil’s price rise and
improving economic growth across the developing world. “The main message – of an improving global picture – is in line with our own global GDP forecast: we see real GDP growth edging up markedly by 0.5 percentage point to 3.6 per cent in 2017 ... This would be the strongest acceleration of global output since 2010,” the bank told clients. But it said a packed election calendar had driven a sharp rise in French and Italian CDS, with the former having widened as much as 65 per cent on fears that the right-wing Marine le Pen could win presidential elections held in April-May 2017. That possibility was done away last weekend as centrist Emmanuel Macron scored a decisive second-round win over Le Pen. French CDS have since fallen to around 30 bps, according to IHS Markit, after surging above 60 bps in February. CDS for Italy, which goes to the polls early next year with a plethora of Eurosceptic parties in the running, rose by 42 per cent in the past year, according to StanChart. U.S. CDS meanwhile widened by 13 per cent over a year marked by
the election of Donald Trump as President on a anti-globalisation, anti-immigration platform.
“The main message – of an improving global picture – is in line with our own global GDP forecast: we see real GDP growth edging up markedly by 0.5 percentage point to 3.6 per cent in 2017” Standard Chartered report on CDS German CDS widened five per cent, which StanChart attributed to “perceived contagion effects for the country, reflecting its role as the engine of the euro area” Reuters
Business Daily Wednesday, May 10 2017 15
Opinion
Alipay’s latest U.S. foray might just be good for Apple
Tim Culpan a Bloomberg Gadfly
N
ews that Alipay hooked up with First Data Corp. in the U.S. may end up being more significant for both the Chinese fintech player and for Apple Inc. than Jack Ma’s US$1.2 billion bid for an old-school payments provider, MoneyGram International Inc. In one swoop, the payments affiliate of Ma’s Alibaba Group Holding Ltd. gets access to 4 million U.S. merchants, not far behind the 4.5 million that Apple says are in its Apple Pay network. With two major financial-processing deals for Ma’s empire in the U.S. this year, it’s natural to look for a link between them. They’re actually mirror images of one another. The MoneyGram acquisition is designed to bring more U.S. sellers into the Alibaba ecosystem by making it easier to offer goods and settle transactions. With First Data, Alipay is also encouraging Chinese consumers to shop in the U.S., where the uptake of mobile payments lags the progress made at home. Clearly this pits Alipay against Apple Pay in the world’s largest economy. But I am going to go out on a limb and say this is a good thing for Apple. That’s because the i Ph o n e m a k e r’ s biggest challenge in million U.S. merchants accessed payments isn’t its Chinese counterpart, by Alipay’s latest deal but U.S. consumers’ comparative indifference to mobile payments. Getting retailers to offer tap-and-go transactions to shoppers, be they Chinese tourists or U.S. residents, gets them into a habit that will also benefit Apple and make users more addicted to their iPhones. The downside to Apple is limited because it’s unlikely Alipay will see a surge in U.S. customers as a result of the deal. Announcing the tie-up now certainly helps Ma make the case that he’s all in on the U.S., a PR exercise that may aid his effort to get the MoneyGram purchase past local regulators. But the deals stand alone. And rather than wrest share from Apple Pay, the First Data move is more about regaining momentum after losing ground in China to Tencent Holdings Ltd., which has leveraged the popularity of WeChat to roll out WeChat Pay. In February, both internet companies announced a tie-up with Citcon, a Chinesefunded Silicon Valley-based payments provider, but Alipay’s First Data deal now dwarfs that move and leaves Tencent to play catchup. Anything that hurts WeChat helps Apple. That’s because the chat app’s ubiquity and deep bench of in-product offerings threatens the iPhone platform’s relevance in China. But Tencent’s overseas ambitions are conspicuous by their absence and Jack Ma is seizing this moment. Though it’s counterintuitive, success for Alipay could be of great help to Apple.
4
Bloomberg Gadfly
Development beyond aid
D
espite the apparent tranquillity of this year’s spring meetings of the International Monetary Fund and World Bank, there are reasons to be concerned about the global economy. The United Kingdom’s impending “hard” Brexit from the European Union and US President Donald Trump’s anti-globalization agenda are creating economic uncertainty, and will continue to do so for some time. In contrast to Trump, Chinese President Xi Jinping has come to the defence of globalization, and made new capital available for creating global pubic goods, enhancing connectivity, and creating jobs in developing countries. More than 60 countries have welcomed Xi’s “One Belt, One Road” (OBOR) initiative, and 28 heads of state will attend an OBOR summit in Beijing on May 14. So, what is China’s rationale for pursuing this grandiose vision – one that so many countries, especially in the developing world, have embraced? In our new book, Going Beyond Aid: Development Cooperation for Structural Transformation, we argue that official development aid (ODA) need not always be concessional, and make the case for going “beyond aid,” toward a broader approach – like that taken by China – that includes trade and investment. Right now, the OECD’s definition of ODA does not even include some of the more effective instruments for facilitating structural transformation in recipient countries, such as equity investment and large non-concessional loans for infrastructure. By combining aid with trade and investment, donor and recipient countries alike can benefit. For example, the South-South development cooperation (SSDC) uses all three activities to capitalize on recipient countries’ economic strengths. This allows the SSDC to avoid the bottlenecks in partner countries that one sees under the standard ODA model, which separates aid from trade and private investment – and thus impedes countries from exploiting their comparative advantages. In our book, we look at this topic through the lens of New Structural Economics (NSE). NSE treats modern economic development as a process of continuous structural change in technologies, industries, and hard and soft infrastructure – all of which increases labour productivity, and thus per capita income. According to NSE, the most effective and sustainable approach for a low-income country to jumpstart dynamic growth and development is to develop those sectors in which it has latent comparative advantages: where production costs are low, but transaction costs are high due to inadequate hard and soft infrastructure. Governments can help to reduce transaction costs by creating special economic zones or industrial parks, improving infrastructure, and making the overall business environment more attractive in those enclaves. With this approach, a developing country can grow dynamically, and create a virtuous circle of job creation and poverty reduction, even if its overall infrastructure and business environment are still lacking. Moreover, large emerging-market economies such as China, Brazil, and India can use their comparative advantages in infrastructure and light manufacturing to help others. For China, this is in keeping with a Confucian dictum: “One who wishes himself to be successful must also help others to be successful; one who wishes to develop himself must also help others to develop.” China has a clear comparative advantage in infrastructure construction, owing to its lower labour costs (the cost of a project site foreman in China is one-eighth that of OECD countries) and vast domestic market, which have enabled it to achieve economies of scale that other countries simply
“
Justin Yifu Lin a former chief economist at the World Bank, Director of the Centre for New Structural Economics, Dean of South-South Cooperation and Development, and Honorary Dean of the National School of Development, Peking University Yan Wang a Senior Fellow at the Centre for New Structural Economics, Peking University
cannot. Consequently, the overall construction cost for high-speed rail in China is two-thirds of what it is in industrial countries. But China’s comparative advantages in 46 of 97 subsectors – particularly in manufacturing – benefit other developing countries, too. As labour costs in China rise, labour-intensive industries are relocating to lower-wage developing countries, providing millions of job opportunities. For example, the Huajian Shoemaking Company, C&H Garments, and China JD Group (an apparel maker), are now operating in special economic zones in, respectively, Ethiopia, Rwanda, and Tanzania. In addition to exporting its comparative advantages, China also deploys “patient capital,” which has a maturity of ten years or more. In a recently published paper, we conceptualize patient capital as an investment in a “relationship,” whereby an investor has a long-term stake in a country’s development. Patient-capital owners are like equity investors, but they are willing to “sink” money in the real sector for an extended period of time. Patient-capital owners are also more willing, and better able, to take risks... Patient capital plays an important role in infrastructure financing, because it is often accompanied by technological and administrative know-how, which helps to improve global connectivity and accelerate development. So far, China’s large reserve of patient capital has been used to finance its own domestic projects. But it will increasingly be exported as more Chinese enterprises and banks “go global.” In fact, China could soon become the world’s largest net creditor, and a portion of its net foreign assets will take the form of patient capital that is suitable for improving infrastructure, developing manufacturing sectors, and creating jobs around the world. Since 2015, development finance has started to come less from traditional aid, and more from development-finance institutions, development banks, and sovereign wealth funds in emerging economies. China, for example, has committed US$60 billion in development financing to Africa for the 2016-2018 period – much of it patient capital. China and other emerging economies are also shifting from bilateralism to multilateralism, by working with partners from the global North and South. As new South-led institutions such as the Asian Infrastructure Investment Bank and the New Development Bank work with established multilateral development banks, they are learning to be better partners, and adding momentum to global development efforts. China, moreover, is trying to learn from its partners so that it can improve its own governance, labour, and environmental standards. And this two-way process is giving rise to new ideas, theories, and concepts – our book being one of them. China’s embrace of a global role should be welcomed. We are cautiously optimistic that the North and South can work together to ensure peace and prosperity for all. Project Syndicate
Patient-capital owners are also more willing, and better able, to take risks
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16 Business Daily Wednesday, May 10 2017
Closing Property
Real-estate agency reportedly shutters 87 outlets in Beijing
as they seek to rein in home prices. Beijing’s municipal government imposed additional restrictions on home buyers this year in an One of China’s biggest real estate agencies, attempt to cool the market, giving China’s capital Beijing Homelink Real Estate Brokerage Co., closed 87 outlets in Beijing, according to a report the strictest mortgage rules among the nation’s cities. in local media. Homelink shut the outlets to “proactively abide by Property company China Vanke Co. is among compliance requirements,” the agency was quoted investors in Homelink. as saying in the 21st Century Business Herald. The In March, Beijing raised down-payments for people buying a second home 10 percentage company’s public relations department didn’t points to between 60 per cent and 80 per cent. respond to two calls seeking comment. The closures come as China’s leaders are cracking The maximum length of a mortgage was cut to 25 years from 30 years. Bloomberg News down on irregularities in the real estate market
Markets
Hong Kong should up its fintech game to remain relevant The Financial Services Development Council proposed the creation of a government office to oversee fintech policy and regulation Elzio Barreto
H
ong Kong should focus on developing cybersecurity and payments technology to close the gap with international rivals in fintech and remain relevant as a global financial hub, a government advisory panel said yesterday. The financial services industry makes up about a fifth of Hong Kong’s economy and employs six per cent of its workforce, making
it critical for the city to keep up with fintech. The Financial Services Development Council (FSDC), which was set up by the government and comprises members from the financial industry, consultancies and law firms among others, also urged the government to bolster local companies offering tech solutions in the spheres of wealth management, insurance and regulatory compliance. “These are specific areas where we think Hong Kong has natural
opportunities and also opportunities in attracting overseas investment into fintech, but also in developing local start-ups and entrepreneurs,” James Lloyd, Asia-Pacific fintech leader at consultancy EY and an FSDC member, told reporters. The FSDC proposed the creation of a government office to oversee fintech policy and regulation, as well as a “major government-funded” cybersecurity centre. The creation of a digital ID for individuals and corporations should help slash costs on anti-money laundering and “know your customer” (KYC) requirements for financial firms at first, but later also be used to increase transparency on trade and manufacturing, it added.
The council also urged changes to Hong Kong’s regulations to make the city more open to “digital solutions” such as allowing customers to open accounts online. In a separate report the FSDC also proposed developing distributed ledger technology (DLT), including the creation of a publicly funded research centre.
‘The Financial Services Development Council urged changes to Hong Kong’s regulations to make the city more open to “digital solutions” such as allowing customers to open accounts online’ Hong Kong should also change regulations to recognise digital currencies and consider issuing its own digital currency, it added. Set up in 2013, the FSDC has issued recommendations to bolster Hong Kong’s position as an international centre for the trade of China’s currency, lure more initial public offerings and real estate investment trusts (REITs), among others. Reuters
Oil industry
Probe
Legislation
Trafigura-backed oil firm opens Myanmar terminal
China’s regulator launches inspection Mainland rule specifies penalties of brokerages’ fund business for personal info encroachment
An oil company backed by global commodities giant Trafigura has opened a US$92 million oil and gas terminal in Myanmar to cash in on growing energy demand from the fast-expanding economy. The terminal is expected to increase energy imports after a disappointing decline in foreign investment under the new democratic government that took office in March last year. Built by Puma Energy and its local partner Asia Sun, the terminal officially opened for business over the weekend at the port of Thilwa outside Yangon, Myanmar’s commercial capital. Puma Energy Asia Sun general manager David Holden said it would cut import costs on products ranging from jet fuel to petrol and bitumen, used to make roads. “Myanmar is where the need is and Myanmar is what drove the investment,” he told AFP on Monday, estimating fuel demand may grow around five per cent annually in coming years. Foreign investment in Myanmar initially surged as the country began overhauling its economy after almost half a century of military rule ended in 2011. But a lack of clarity on the new government’s economic policies and a backlog of approvals contributed to a 30 per cent slump in investment in the financial year through March. AFP
Securities watchdog has launched a nation-wide inspection on brokerages’ asset management business, sources said yesterday, the latest move in China’s regulatory crackdown of risky investments and shadow banking. Brokerages, along with trust firms and fund houses, have been used by banks as a channel to guide deposits into risky investments and skirt capital rules, helping boost the size of China’s shadow banking to nearly US$10 trillion, according to Moody’s estimate. The China Securities Regulatory Commission (CSRC) on Monday held meetings with executives in charge of brokerages’ asset management business, urging them to take corrective action if products were launched in violations of rules, according to sources. Separately, CSRC’s Shenzhen branch recently issued notices urging brokerages to strictly control the size and investment scope of their asset management business. The CSRC’s move comes as China’s banking and insurance regulators have also launched crackdown on risky investments, as Beijing steps up efforts to ward off risks and reduce leverage in the financial system ahead of a key Communist Party congress in the second half of the year. Reuters
China’s top court and procuratorate yesterday jointly issued a judicial interpretation, stipulating that those who illegally obtain, sell or provide 500 pieces of data related to personal credit or property information could face a prison term of up to seven years. The interpretation, by the Supreme People’s Court and the Supreme People’s Procuratorate, was the first document of its kind to ensure data protection for citizens personal information. The Criminal Law states that those convicted of selling or providing personal information to others could face a maximum sentence of three years if “the circumstances are serious,” while if “the circumstances are especially serious,” violators could face up to seven years in prison. The interpretation clearly defines situations considered “especially serious,” including illegally obtaining, selling or providing 500 items of data about a person’s location, communication content or their credit or property information; 5,000 items of communication record, accommodation, health or transaction information; or 50,000 items of personal information other than the aforementioned types. Xinhua