Business Daily #1293 May 11, 2017

Local firm eNovation takes sustainable solutions to city biz STARTUP FOCUS Page 6

Thursday, May 11 2017 Year VI Nr. 1293 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro

www.macaubusinessdaily.com

One Belt, One Road

Diplomacy

MSAR to attend Belt and Road Forum Page 7

Penalties

Output

Authorities reinforce inspections of smoking-free venues Page 2

Economic evolution

Global gaming supplier industry maintains upward trend Page 8

Pansy Ho: MSAR needs to find own diversification model Page 3

Moon’s victory in S. Korean election to shift relations with North neighbour Pages 12 & 15

Brave New World Japan Gaming Congress

Casino operators are circling Tokyo.

Using the Japan Gaming Congress to network and position their brands. And all this prior to the market opening. According to local observations, one thing’s for sure: the Japanese are unlikely to replicate the Macau model. Pages 4 & 5

Schooling the city

The last day of his flying visit to the city. Chairman of the National People’s Congress Zhang Dejiang hosted a meeting with local influencers. Reinforcing the message that the future of the territory must be linked to improving its inhabitants’ education.

Macau means home to Mainlanders

Demography Official data confirms an uptick in local pop­ ulation numbers. Due mainly to Mainland Chinese putting roots down in the MSAR. Figures also reveal a decrease in babies born in the city in Q1. Page 2

Quantifying graft

Corruption A report by Hong Kong University of Science and Technology and Princeton University was presented yesterday at Macau University. Linking political influence to real estate corruption. The study tackles a subject of global interest. With the ‘revolving doors’ issue one of the most controversial topics debated. Page 5

Moderating influence

Official visit Page 3

HK Hang Seng Index May 10, 2017

25,015.42 +126.39 (+0.51%) Worst Performers

Ping An Insurance Group Co

+3.76%

Hang Lung Properties Ltd

+1.45%

Cathay Pacific Airways Ltd

-2.33%

China Shenhua Energy Co

-0.66%

China Unicom Hong Kong

+3.39%

Bank of China Ltd

+1.34%

China Resources Power

-2.10%

Sun Hung Kai Properties Ltd

-0.60%

CK Hutchison Holdings Ltd

+2.29%

Cheung Kong Infrastructure

+1.32%

Galaxy Entertainment Group

-1.82%

PetroChina Co Ltd

-0.56%

Industrial & Commercial

+1.19%

Sands China Ltd

-1.00%

Swire Pacific Ltd

-0.54%

AAC Technologies Holdings

+1.19%

Link REIT

-0.71%

CLP Holdings Ltd

-0.36%

China Life Insurance Co Ltd

+2.11%

China Mengniu Dairy Co Ltd

+1.66%

THE MARKETPLACE FOR THE ASIAN GAMING INDUSTRY 亞洲博彩業的年度盛會

Market Trends. Quality Products. Networking. 市場趨勢、優質產品、建立聯繫 G2E Asia: Informs smart business decisions. 亞洲國際博彩娛樂展會：助您作出明智的商業決策

25° 28° 24° 29° 24° 28° 22° 28° 21° 26° Today

Source: Bloomberg

Best Performers

FRI

SAT

I SSN 2226-8294

MAY 16-18, 2017 | 2017年5月16-18日 THE VENETIAN MACAO | 澳門威尼斯人 A G2E EVENT G2E 系列展會

PRESENTED BY 承辦方

www.G2EAsia.com

ORGANIZED BY 主辦方

SUN

MON

Source: AccuWeather

China’s PPI Mainland producer prices slowed in April.

Strengthening signs of a potential easing of global reflation.

Moderate inflation also means stronger industrial profits may be harder to sustain. Page 9

2 Business Daily Thursday, May 11 2017

Macau Information access

Services under Finance Secretary to declare results of services acquisitions

Although still in an ‘experimental’ phase, all ‘services’ under the Secretary of Economy and Finance have started publishing online the results of acquisitions made by the services. The information, published since May 1, pertains to any acquisition

exceeding MOP750,000 when applied to goods or services, whereas any amount of MOP2.5 million related to public construction contracts must be declared on the services’ websites.

The information supplied must include three main parts: the tender documents, the results of the proposals supplied or price consultations done as well as the result of the tender.

DSEC

Chinese immigrants boost population The growth of Macau’s population during the first quarter has been attributed to the increasing number of Chinese immigrants Cecilia U cecilia.u@macaubusinessdaily.com

T

here were a total of 648,300 residents in the MSAR in the first three months of 2017, an increase of 3,400 residents when compared to the fourth quarter of last year, the latest official data from the Statistics and Census Service reveals.

Of the total population in the first quarter, females accounted for 341,600 or 52.7 per cent of the total.

The increase in the population has

resulted in the significant increase in Chinese immigrants, up 53.7 per cent quarter-to-quarter to 1,211.

Both the number of male and female populations slightly increased, up 0.4 and 0.6 per cent quarter-to-quarter, respectively.

DSEC data shows that fewer babies were born in Macau during the first quarter, down 397 babies to 1,560 when compared to 1,957 during the months of October to December 2016.

In particular, the number of male babies born in Macau has dropped from 1,009 to 787.

The sex ratio at birth stood at 101.8, corresponding to 101.8 male babies per 100 female babies, revealed the DSEC. Meanwhile, the city’s mortality numbers decreased by 39 to 499 when compared to 538 during the fourth quarter a year ago.

The number of males who passed away increased 4.2 per cent whilst the number of females registered a drop of 20.5 per cent, reads official data.

According to DSEC, neoplasms, diseases of the circulatory system and respiratory system are the top three underlying causes of death, at 159, 146 and 103, respectively.

Of the top three underlying causes of death, neoplasm was the only cause to drop during the January-March period, down 24.3 per cent.

Meanwhile, individuals granted right of abode amounted to 411, a quarterly increase of 15, while the number of individuals who had their right of abode annulled increased notably by 254 quarter-to-quarter to 426.

The number of non-resident work­ ers increased by 2,241, amounting to 179,879 as at the end of the first quarter.

Mainland Chinese workers took up the biggest part or 63.9 per cent of the total of non-resident workers, fol­ lowed by Filipino (15.1 per cent) and Vietnamese workers (8.3 per cent).

DSEC data also revealed that a growing number of couples married in the first quarter of this year, for 1,094 registrations, up 11.7 per cent quarter-to-quarter.

per cent, were detected in parks, gardens and leisure areas, with 13.2 per cent of the cases happening at public transport stops, while stores and shopping centres registered 11.0 per cent of cases.

In the first four months of this year the city’s authorities conduct­ ed 109,493 inspections of establish­ ments, for a daily average of 912 in­ spections per day.

The city’s current tobacco control

policy bans smoking on the mass gaming floors of casinos as well as other indoor venues such as restau­ rants, bars, karaoke parlours, discos and saunas.

According to the Health Bureau, since the Tobacco Prevention and Control Law was introduced in 2012, it has registered 40,722 complaints from a total of 1,400,031 inspections of establishments, with an average of 719 inspections per day.

Smoking

No smoke without fire A total of 2.774 cases of smoking infractions were detected in the MSAR in the first four months of this year, with 216 cases registered in casinos Nelson Moura nelson.moura@macaubusinessdaily.com

The Health Bureau says it has pros­ ecuted 216 cases of illegal smoking inside local casinos for the first four months of the year, of which al­most 83 per cent of infractions were com­ mitted by tourists.

The Bureau said it had conducted 210 joint inspections in local casi­ nos with the Gaming Inspection and Co-ordination Bureau (DICJ) for the past four months.

Of the total 2.774 detected cases in all establishments between Jan­ uary and April, violations by tour­ ists amounted to 1,134, accounting for 41 per cent, while 1,640 were by local residents and 155 by non-resi­ dent workers, representing 53.5 per cent and 5.6 per cent of the total, respectively.

Of the total violators detected, 83.3 per cent paid the respective fines and almost 94 per cent of all detected cas­ es in that period were propertied by males. In 68 cases the support of se­ curity forces officers was necessary.

Concerning the type of establish­ ment with the highest number of infringement cases, 506 cases or 18.2

Business Daily Thursday, May 11 2017 3

Macau Politics

Grooming young talent for the future The NPC Chairman advised educators and also raised expectations of the city’s younger generation Cecilia U cecilia.u@macaubusinessdaily.com

C

hairman of the National People’s Congress (NPC) Zhang Dejiang expressed four wishes to young local people during yesterday’s meeting with the city’s tertiary ed­ ucation sector at the University of Macau (UMAC) on the last day of his visit to Macau.

Zhang encouraged young people in his first wish to aim high, indicat­ ing that young people should align their personal growth with the city’s prospects.

He also stressed the importance of having a patriotic mind as well as the determination to serve the city.

Secondly, the NPC Chairman hopes youngsters can be more exposed to national history, in particular the years following the inauguration of New China in 1949.

The third wish made by Zhang for the city’s young people is to become the successors and contributors to ‘One country, two system’.

He also urged the young generation to treasure the efforts made by their predecessors.

Zhang hopes young people can learn from Sun Yat-sen, the found­ ing Father of the Republic of China, while lamenting the many difficulties

China has had to overcome to achieve its current success, advocating that one should be proud to be part of the Chinese nation.

During yesterday’s forum, the chairman said that the central government takes great interest in the city’s education development as well as the growth of its young population.

He encouraged the MSAR to grasp available resources in order to con­ solidate and develop the city’s con­ dition of good governance, peaceful community and prosperity.

“The important mission is to cul­ tivate and reserve a large number of young people who possess virtue and knowledge to rule and make the city prosper,” he said.

Educators have important duties and responsibilities, as pointed out

by Zhang, noting they do not mere­ ly spread knowledge but guide and direct students.

Economy

Pansy Ho: MSAR should adopt own methodology for diversification Shun Tak Managing Director Pansy Ho says the MSAR as a whole will need to “to address our own meth­ odology” with regard to diversifying away from gaming, following the same route as Singapore, she told The Australian.

A primary component so far ex­ pressed by both the government and the concessionaires and sub-con­ cessionaires has been the hospital­ ity component of each integrated resorts’ offerings in the ranking of its successful diversification attempts.

However, Shun Tak, which runs the Grand Lapa, Mandarin Oriental Ma­ cau (pictured) and Grand Coloane Resort, pointed out in its annual re­ port for 2016 that it was faced with ‘serious challenges’ in the group’s Macau hospitality operations and that ‘in 2016, the hospitality division registered a loss of HK$263 million’ (MOP270.9 million). That year, the group’s Mandarin Oriental property registered an occupancy rate of 45 per cent, according to the filing.

‘The Group’s hospitality division

is dependent upon the general per­ formance of the economies of Hong Kong, Macau, Greater China and re­ gionally,’ notes the filing, leading Ms. Ho to broaden her sights with regard to diversification – beyond the MSAR. “From my perspective — which is to operate some of the non-gaming components of the family businesses — we are interested in hotel man­ agement and ownership, and we are starting to look at Australia,” she told the publication.

The additional new facilities - with the opening of new integrated resorts Wynn Palace and The Parisian Ma­ cao last year pressuring the group to compete - prompted Ms. Ho to say: “In the long run, even for us in Macau, we are now having to be­ gin to diversify; that’s why with all the concessions in Macau we are all building new facilities,” as cited by the publication. “That actually puts a greater emphasis on entertainment and attractions beyond gaming.”

How, exactly, the group plans to do that, Ms. Ho did not disclose. K.W.

The NPC Chairman reiterated the success of ‘One country, two sys­ tem’, and in comparing the city’s data over the years noted that local GDP has increased from MOP50.27 billion (US$6.27 billion) in 1999 to MOP358.2 billion in 2016.

Report and suggestions

Prior to the speech made by Chairman Zhang, six attendees representing the city’s education sector and students reported and made suggestions to the NPC Chairman.

The President of Macao Polytech­ nic Institute, Professor Lei Heong Iok, stressed the importance of strengthening the cultivation of young talent in order to improve local competitiveness.

The Principal of Keang Peng School, Lai Sai Kei, took the opportunity to express the importance of strength­ ening the education of Chinese his­ tory and culture so as to ensure the

value of ‘love the country and Macau’ is successfully transmitted to future generations.

On the other hand, Professor U Seng Pan from UMAC discussed the stimulation of local scientific devel­ opment to assist in diversifying the local economy.

Loi I Weng, a teacher from Hou Kong Middle School, perceived that self-cultivation of educators and teachers can improve the city’s ed­ ucation level, while students’ repre­ sentative Darren Leong, President of the General Assembly of the UMAC Students Association, advocated that university students focus on their specialties, monitor society and grow while practising.

Joe Lei Sio Chou, President of the executive committee of the General Association of Chinese Students of Macao, suggested strengthening the exchange between students from Macau and Mainland China.

4 Business Daily Thursday, May 11 2017

Macau

Gaming bids

Increasing the Nippon stakes Local and international casino operators flex their muscles, courting Japanese officials for the gaming bid of the century Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he Japan Gaming Congress (JgC) started yesterday in Tokyo (pictured) and will last until May 12. It is one of the key events taking place since the Integrated Resort Promotion Bill was approved by the Diet, the upper House of Japan’s Parliament, on December 14, 2016.

Business Daily asked local and American-based casino operators, as well as analysts, about the con­ tenders’ strategies and expectations of the Congress that may shape one of the strongest lobbying moments to bid for the Japan market.

Speaking to Business Daily from the site of the Congress yesterday, Chris Weiners, Managing Partner at Hogo Digital, a marketing company, provided his firsthand insights into the attendance strategy of local casino operators.

“The Macau companies are [in Tokyo] to showcase their existing profiles and their ability to localise concepts based upon the location.

They are here to present their unique plans and how those integrate with the overall community; for exam­ ple, how they may tackle issues like problem gaming and how they plan to work with local firms in the pro­ curement process to involve the local business community.”

In particular, Galaxy Entertainment Group (GEG), which established an office in Tokyo more than two years ago, according to previous reports by Macau Business, is visiting the Con­ gress with a small but select delega­ tion, which includes GEG’s President Michael Mecca and Vice-President Jeremy Walker, in addition to two members of their Japan office.

Speaking to Business Daily, Jeremy Walker explained that GEG is playing the card of a “strategic” partnership with Monte Carlo-based Société des Bains de Mer (SBM).

“Our unique offering of the Best of Asia combined with the Best of Europe is a compelling offering,” he enthused.

MGM Resorts International, which seems to have taken the lead by

establishing an office in Japan more than three years ago - MGM Japan, Ltd. - is commanding the show from its office in the U.S. Alan M. Feldman, Executive Vice President of Global Industry Affairs of MGM Resorts International, told Business Daily that Ed Bowers, head of the company’s Global Gaming De­ velopment efforts, who is also serving as CEO and Representative Officer for MGM Japan, Ltd., is attending the Congress with six colleagues, amongst staff of MGM Japan and consultants.

“I doubt that anyone from [MGM] Macau will be in attendance,” he clarified in reply to Business Daily’s questions.

Neither Feldman nor PR represent­ atives for MGM Macau replied to our further questions as to why nobody from Macau is attending the Congress.

Melco Resorts and Entertainment has also confirmed that the com­ pany has entertained a long-term “keen interest” in Japan. “We have been carefully considering this mar­ ket for more than a decade,” said Chimmy Leung, Director of Corporate Communications.

In its reply to Business Daily’s en­ quiries by day’s end yesterday, Leung had not confirmed, however, if Law­ rence Ho, the company’s CEO, was attending the Congress but did say that Geoffrey Stuart Davis, Executive Vice President and Chief Financial Officer, and Ross Dunwoody, Head of Development, both attended the event yesterday.

Wynn Macau was unable to reply to Business Daily’s questions by the time this story went to print.

Local commitment and partnerships

One of the strategies pointed out ear­ lier by Chris Weiners - that casino operators would be eager to show their local commitment and social responsibility toward the ‘commu­ nity’ - have been raised in comments

by GEG, MGM and Melco alike.

In the aftermath of its announce­ ment that it is pursuing the Japanese gaming market alone, with the termi­ nation of its partnership with Crown effective May 15, Melco claims that

their “commitment to Japan is for the long term.”

“The ideal setup for us is to form a consortium with domestic corpo­ rations and parties while holding a majority stake in the project. We hope to work closely with local partners and engage local communities to sup­ port the government’s aspirations, enhance the tourism landscape and deliver long-term benefits for Japan,” the company stated.

As for MGM Resorts, Feldman be­ lieves that “enormous benefits can be derived from a well regulated and entertainment-focused integrated resort.”

Meanwhile, GEG VP Jeremy Walk­ er claimed that in order for IRs to be successful in Japan they “believe they must be developed and operated responsibly in conjunction with local partners and the local community,” with the VP further highlighting the group’s work with the GEG Founda­ tion and local Small and Medium En­ terprises (SME) at Broadway Macau.

In terms of overall business strate­ gies, Walker commented that the GEG delegation in Tokyo will be joined by a number of local partners with whom they have been collaborating.

Since the establishment of the GEG office in Japan, he said, “we have been quietly but systematically building relationships with many of the key decision makers and interested busi­ ness and community groups all over the country.”

Walker did not, however, identify the agents of these relationships, de­ spite our additional questions.

Likewise, Alan M. Feldman of MGM explained that the company sees the Congress as another opportunity to “interact with leaders in both the public and private sectors.” In ad­ dition, he claimed they have been meeting with several potential part­ ners throughout their time in Japan.

“These companies span a wide range of industry sectors including real estate development, hospitality, fi­ nance, technology, transportation, media and construction,” he said.

Gambling meets politics

Chris Weiners, who is giving a talk today about marketing strategy and current opportunities for PR and gov­ ernment relations, said that most of the government officials present at the event today are from the Liberal Democratic Party (LDP), including the House of Representatives and

the House of Councillors.

“Most of [the regional government officials] will be arriving tomorrow for their individual sessions,” Wein­ ers clarified.

Toru Mihara, a long-term advisor to Japan’s government on the liber­ alisation of gambling, told Business Daily that while local government officials are present not many state officials would attend. Moreover, he explained, “local government [offi­ cials] are being invited free of charge; some are confirmed to be present but maybe not all of them will come.”

Mihara had not replied to our ques­ tions about who is covering the costs for inviting local government officials by the time this story went to print.

Please advise

On the question of regulatory stand­ ards, analysts still believe that Ma­ cau’s model is not the way to go for Japan’s Integrated Resorts.

Reaffirming his early position from previous reports, Mihara said that “legally speaking, Macau has past legacy and we don’t believe this will be of any use to Japan. Macau is a totally Chinese market, difficult to compare with other cultures.”

In a similar vein, Wang Changbin, Professor of Gaming Teaching and Research Centre at Macau Polytech­ nic Institute, gave strong reasons why the Macau gambling system and law could never be a model upon which the Japanese Government would draw upon to design its own bill.

“First, no other jurisdiction restrains the number of licensees while al­ lowing the licensee to develop an unlimited number of casinos. Sec­ ond, a VIP room which is run by a third-party other than the licensee is rarely allowed in other jurisdictions as it can generate serious regulatory problems.”

The academic concluded his re­ marks by pointing out other weak­ nesses emanating from the local system that would barely appeal to Japanese officials, who have been under intense public pressure since the preliminary IR bill was approved by the Diet.

“The so-called satellite casinos in Macau can hardly be found in other jurisdictions, especially in a well-regulated jurisdiction. In addi­ tion, an effective regulatory system should be pursued in a new gaming jurisdiction while in this respect Ma­ cau itself is learning from others.”

Business Daily Thursday, May 11 2017 5

Macau Crime

Calculating corruption A study by the Hong Kong University of Science and Technology and Princeton University reveals politically connected firms in the Chinese real estate sector managed to obtain considerable land price discounts Nelson Moura nelson.moura@macaubusinessdaily.com

Y

esterday, the results of a five-year long inves­ tigation into corruption in China named ‘Trading Favours: Untangling the Web of Corruption between Officials and Firms in China’s Land Market’ were unveiled in an event at Macau University.

The study, developed in co-oper­ ation with academics from the Hong Kong University of Science and Tech­ nology (HKUST) and Princeton Uni­ versity, analysed quarterly data from 2,555 listed companies in Mainland China which purchased 32,155 land parcels for a total value of RMB1.66 billion between 2000 and 2012.

The study was presented by HKUST Assistant Professor of Social Sciences Li Han, who showed how the report intended to quantify and calculate the amount of discount provided per square metre purchased in Mainland China, depending upon the amount and type of political connections pos­ sessed by real estate firms.

The study sought to connect land transactions data with employees registered for listed firms and cal­ culate if the value of political con­ nections was caused by information sharing, experience and ability, or related to corruption.

China’s land market was also con­ sidered ideal for the occurrence of corruption due to prefectural gov­ ernment being the sole seller; being

a market of licences monopolised by the government; and the dispropor­ tionate amount of bureaucrats hired by the real estate sector.

According to the research more than 10 per cent of company direc­ tors in the real estate and leasing and business services at provincial level were retired bureaucrats, such as pre­ fecture party secretaries or mayors.

Going local

Enquiring about a similar impact in the MSAR, an academic who chose to remain unidentified told Business Daily that the territory needs more institutional checks to prevent cor­ ruption in the real estate sector.

“In Mainland China government audits are conducted to prevent cor­ ruption [between real estate firms and government officials] but the effects tend to be temporary, so it’s necessary to develop good institu­ tions to perform the checks,” the expert added.

“The Chinese government has imposed measures whereby gov­ ernment officials can’t act as board members during their tenure. I be­ lieve the right direction to go is the U.S. model with retired officials hav­ ing to wait a certain time period be­ fore being able to be hired by private entities,” he concluded.

Who you know

In the research the level and type of political connections was divided into three fields: general political connections, local experience, and

local-specific political connections.

The study showed that almost 70 per cent of board members and senior members possessed general po­ litical connections, with 27.46 per cent having local-specific political connections.

“Our literature shows that many politicians have received gifts and benefits from their connections to businesses but it’s hard to connect private company gains with their connections,” Professor Li stated during the presentation.

During the research several varia­ bles of real estate were also taken into account such as size of land parcels, methods of transaction, officials sub­ jective evaluation of land plots; while firm variables such as total assets and number of employees were taken into consideration.

The results indicated that the re­ duction on the average price of square metre in transactions that involved general political connections could be as high as 2.2 per cent, with the reduction for local-specific political connections as high as 2.9 per cent.

When the cat’s away

The study also tried to assess the efficiency of Chinese government audits on the real estate market, as the country launched a series of 10 to 18 months audit campaigns start­ ing from 2005 and involving 585 counties.

It revealed that the difference in set real estate prices for companies with political connections would be as much as 5 per cent lower in the period right before and after an audit, becoming almost 5 per cent more expensive for those companies during the audit period.

In conclusion, the report indicated that the ‘politician-revolving door’ was one of the main channels for corruption.

Professor Li Han during the presentation

Diversification

Forum Macau head defining challenges The visit of Premier Li Keqiang to the city last year shook the funda­ mentals of the local economy, with the Premier highlighting a key word: diversification. This should be an inspiration and a starting point for authorities to escape the risks of depending upon just one model. In the heart of this evolution resides an institution, the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries, that hosted its 5th Ministe­ rial Conference last October, making it possible to bring together Mr. Li with Prime Ministers and Officials of its country-members.

The head of the institution - Xu Yingzhen, officially known as Sec­ retary-General of the Supporting Office to the Permanent Secretariat to the Forum - has served in the post since last August, facing the chal­ lenge of organising the ministerial

meeting, and later undertaking the task of progressing the goals marked after the encounter.

“The biggest challenge, I think, is that after the Ministerial Conference our workload is much greater,” she said in an exclusive interview with Business Daily. In our meeting we

questioned her about what we can expect of the Forum for the year, her impression of the city upon her arriv­ al, co-operation with local authorities plus challenges and risks the territory is facing and more.

Watch the full interview on MB.tv Óscar Guijarro

Opinion

Ashley Sutherland-Winch* DSAT nightmare in Coloane Hac Sa and Cheoc Van Beach visitors from Macau and abroad will now have a much more complicated journey from Club Militar, Lou Lim Iok Garden, Senado Square, the Red Market and the Border Gate from Zhuhai.

As of last Saturday, DSAT, the transportation bureau in Macau made a change to the Bus 25 route and many residents are furious!

Prior to Saturday, Bus 25 was the only direct route from Macau to Cheoc Van and Hac Sa Beach. The new change will now have Bus 25 fin­ ishing its route in Coloane Village, leaving any tour­ ists, visitors, and residents stranded as they wait for another bus to pick them up to complete their journey to the beach and for end-ofthe-line Coloane residents to home. This change is not only sudden and inconven­ ient, but adds unnecessary delay to travel, in some cases up to 18-35 minutes, costing passengers an additional bus fare.

This change, while most certainly backed by DSAT data is a very odd decision.

I would wager more tour­ ists visit Hac Sa Beach than Coloane Village on a regu­ lar basis, especially in the Spring and Summer. Visitors take public transport be­ cause parking at the beach is limited. In addition to this, the volume of passengers to Hac Sa is at capacity from Taipa. Most Coloane dwellers can attest that it is almost impossible to catch any bus to Cheoc Van or Hac Sa Beach from Taipa to Hac Sa, Friday through Sunday and on public holidays. On these days, buses are often packed to capacity with passengers.

During these high-volume days, it is not uncommon to experience four to five buses unable stop at bus stops because they cannot fit any additional passengers on board.

Since Bus 25 is the only bus with a direct route from the Border Gate to Macau’s beautiful beaches, it is not a surprise that bus­ es are full before reaching Taipa. Residents of Hellene Gardens, the large mul­ ti-tower community in Hac Sa Beach with hundreds of residents, children, and staff, will now see the effects of the DSAT decision in full force, perhaps more than any other community. With the loss of Bus 25 to Hac Sa, this leaves only three main options - routes 21A, 26A and 15. Unfortunately, two of the alternatives are very small buses (21A and 15) and after 18:45, both decrease their frequency.

Message to DSAT: This change has created a night­ mare in Coloane – please reconsider. *Marketing and Public Relations Consultant and frequent contributor to this newspaper.

6 Business Daily Thursday, May 11 2017

Macau

Startup Focus

Electrifying sustainable solutions Startup name:

eNovation Technologies Ltd.

Industry:

IT + Green

Elevator Pitch: A high-tech company focused on developing environmental friendly technology solutions for local hotels, casinos and offices Interviewee:

CEO Sam Liu

Nelson Moura nelson.moura@macaubusinessdaily.com

W

hen was eNovation Technologies created and by whom? eNovation Technologies was founded in 2013 by a group of investors from two separate Macau companies, an environmen­ tally friendly solutions company and an investment holding company.

What was the main idea behind creating the company?

The main purpose was to integrate information technology with envi­ ronmental technology to create more integrated solutions - what we call IT + Green - for the Macau market. Our solutions are created mainly for casinos, hotels and the government in Macau.

Although we don’t create the tech­ nology per se, we integrate different existing technologies to create envi­ ronmentally sustainable solutions for the Macau market.

Are these technologies developed in Macau?

Most of the technologies come from Singapore.

Are there many other local companies in the same field?

You can find many IT companies and many environmental companies, but not so many IT+ Green companies.

What was your occupation before founding eNovation Technologies?

I have an IT background of more than 20 years in Hong Kong and Macau and I was part of the initial group of in­ vestors. My expertise is in networking systems management, programming development, etc.

What were the first years of the company like?

I would say the first two years were focused on the investment rounds.

After the development stage we got some projects and reputable clients.

How many employees do you have at the moment?

Right now we have 12 people in Macau, and another two in a remote office in Hong Kong.

Have you received any local government support?

We received a subsidy from the SME Aid Scheme, which really helped us during the development stage.

The amount was not very large but it helped us develop our market and our solutions.

[The SME Aid Scheme grants loans of up to MOP600,000 (US$74,834) per applicant for different financial purposes, with a repayment period of up to eight years] What’s an example of the solutions your company created?

One of the examples would be our cloud-based energy/water/indoor air quality (IAQ) monitoring systems.

Monitoring systems are already im­ plemented in many hotels, offices and casinos in Hong Kong and Macau but we found that they were mostly implementing standalone systems.

Cloud Computing and Big Data ana­ lytics are hot topics in the technology world at the moment, so we looked at introducing these kinds of tech­ nology to these systems in Macau, making it possible for companies to monitor how efficient their utilities are in terms of energy or water usage.

Another example of our solutions

is smart lamp management. As you know, the light-emitting diode (LED) is one of most used energy saving technologies for outdoor lighting due to its durability.

We created a solution to self-control and monitor any problems a group of streetlamp LEDs might be having, in order to save energy and improve efficiency of maintenance calls.

It helps reduce the amount of man­ power required to perform the main­ tenance of these lamps.

Do you see the market as a niche?

The concept of IoT is booming world­ wide, representing a market valued at many billions of US Dollars. Together with Big Data and Cloud Computing they represent an extremely trendy sector at the moment.

How is the IoT field in Macau at the moment?

At the moment there are many de­ velopers and many competitive companies in the IoT field in Macau, presenting different technology solu­ tions for the casino and hotel indus­ tries as a way of cutting costs.

Is the Macau Government adequately promoting this field?

To a certain extent yes; especially in sustainable development. For exam­ ple, the Office for the Development of the Energy Sector (GDSE) launched a new regulation where CEM – Companhia de Electricidade de Macau (the local electricity provider) - would conduct buy-backs of elec­ tricity produced by local enterprises through solar panels, for a good fee and tariff.

Has the company found suitable investors?

Yes, we have. We’ve been searching for investors all around and we’re planning another investor round soon.

What are the main problems affecting startups in Macau?

Human resources - or better, the lack of them - is an issue that affects all

industries in the MSAR, with the city having a low number of qualified people in all sectors. This is an issue the government should address a little bit, allowing the hiring of more external expertise.

Our company has been affected by this problem, of course, but we need to face the challenges and power through. Some of our employees are local residents and others are from Mainland China.

How would you compare the startup ecosystem of Macau and Hong Kong?

Different governments have different policies and strategies for allowing startup development. The funding policies in Hong Kong, I believe, are better than the ones in Macau. The city also has more mature startup and science platforms.

Your company attended the 2017 Macao International Environmental Co-operation Forum and Exhibition (MIECF) . . .

It has definitely been very helpful.

We’ve been attending it for the last eight years and every year we can connect with new people and indus­ tries. It’s a very helpful forum and I can also see it has become more and more popular internationally.

What are the main business objectives for eNovation technologies in 2017?

We hope we can deploy one or two new environmentally friendly tech­ nological solutions and hopefully persuade our clients to adopt them.

What are the most important traits an entrepreneur should possess?

Anyone considering starting a com­ pany should seriously consider if he or she is really interested in being a business owner since it’s quite dif­ ferent from being an employee. That person should also make sure their business really makes good com­ mercial sense. Having a startup is not simply a dream; it has to be innova­ tive and realistic at the same time - mixed with a lot of hard work!

Other solutions provided by eNovation Technologies

Energy-saving motors for fan coil units (FCU) Handheld portable Indoor Air Quality (IAQ) kits that allow data sharing with any WiFi enabled device Energy audits to reduce buildings’ energy expenses and carbon footprint

Business Daily Thursday, May 11 2017 7

Gaming Gaming

Crown going solo in Japan The company will allegedly use dividends from its Melco Resorts & Entertainment Limited share sale to invest in the Japanese market

A

ustralian casino de­ veloper Crown Resorts Ltd. is said to be plan­ ning to use the funds gained from removing its remaining 11.2 per cent stake in Melco Resorts & Entertainment

Limited to invest in the Japanese market, according to a report in The Australian newspaper.

Citing a source from Crown Re­ sorts, the report states the com­ pany owned by James Packer is focusing on looking for corporate

partnerships in Japan, while seek­ ing business opportunities in the Japanese city of Yokohama.

Having previously stated the pro­ ceeds from the sale would be used to reduce the company’s bet, this would represent a solo venture by Crown Resorts into the Japanese market after a previous expected collaboration with Melco Resorts was terminated following the share buy-back by Lawrence Ho’s com­ pany this week. N.M.

Politics

N. Korea to attend Belt and Road Forum, MSAR as well The Chief Executive will be joined by both the Secretary for Economy and Finance, Lionel Leong, and the Secretary for Social Affairs and Culture, Alexis Tam Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

With the recent attention from prominent Mainland officials, and National People’s Congress Chairman Zhang Dejiang departing the MSAR early yesterday, the local government has finally announced that it will attend the Belt and Road Forum for International Cooperation, slated for May 14 and 15 in Beijing.

In an interesting twist, North Korea has been invited to attend the forum, less than three months after its leader allegedly had his half-brother Kim

Jong-nam murdered en route to the MSAR. In statements made during the Foreign Ministry’s Press Conference on Tuesday, the Chinese authority’s spokesperson Geng Shuang, first stated: “As far as I know the DPRK (Democratic People’s Republic of Korea) will send an official delegation”. This later changed to: “The DPRK will send an official delegation to attend the Belt and Road Forum for International Co-operation.”

Despite sanctions including banning the import of coal from the country, the ministry spokesperson

noted that “the Belt and Road initiative is open to any country sharing a common goal . . . I don’t think the Belt and Road initiative is membership-based.”

“By enhancing complementarities between one’s own development st ra t e g y a n d t h a t o f o t h e r s, countries can benefit from this kind of international co-operation while contributing to the regional and world economy,” stated the spokesperson.

Despite prior answers to Business Daily enquiries stating that no officials were planned to attend, the new information, released yesterday, notes that a delegation led by the Chief Executive will participate in the main event as well as parallel meetings ‘of diverse themes’.

The Chief Executive will be joined by both the Secretary for Economy and Finance, Lionel

Leong, and the Secretary for Social Affairs and Culture, Alexis Tam. A number of local legislators and other government officials are also slated to attend.

The release notes that the local representatives had been ‘invited’ but did not explain whether the invitation was extended before or after the presence of the Chairman of the NPC in the MSAR. Thi s n e w s p a p e r p r evi o u s l y c o m m e n t e d o n t h e c r ea t i o n of a Work Commission for the Construction of ‘One Belt, One Road’. Statements by the Chief Executive’s chief of office, O Lam, point to work to be conducted by the group on the initiative this year ‘name­ly the organisation and supervision of the implementation of diverse priority works’ – without offering any details as to what these will comprise.

8 Business Daily Thursday, May 11 2017

Gaming Money laundering

MSAR inks anti-money laundering pact with Cambodia

Macau and Cambodia are co-operating to fight money laundering, according to an announcement published yesterday in the Official Gazette.

The announcement specifies that the MSAR Government and the

Unity of Financial Information of the Kingdom of Cambodia have signed a memorandum of understanding aimed at exchanging financial information regarding the prevention and combat of crimes linked to money laundering and the financing of terrorist activities. S.Z.

Sectorial Results

Get in the game!

Gaming supplier industry sees 6 pct y-o-y uptick Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

T

he global gaming supplier industry generated a total of US$18 billion in economic output directly last year, a figure that expanded to nearly US$48 billion when taking into account ripple effects, according to the 2017 Industry Impact Analysis by the Association of Gaming Equipment Manufacturers (AGEM).

When compared to the previous year this marks a 6.2 per cent yearon-year increase. Growth was also seen in the areas of employment and salaries, as the industry directly employed about 55,000 during the year and saw a 5.6 per cent increase year-on-year in the 212,000 plus employees after taking into account the ‘multiplier effect’. This worked out to ‘nearly US$5 billion’ (MOP40.1

billion) in direct wages to employees and ‘over US$14 billion in total earn­ ings within the economy in 2016’.

‘The economic impacts sourced to the industry demonstrate the mean­ ingful contributions businesses op­ erating in this market space make in the communities in which they do business,’ notes the report.

According to information from the local Gaming Co-ordination and Inspection Bureau (DICJ), in the first quarter of this year the to­ tal number of slot machines in the MSAR amounted to 16,018. The sum of revenue from both slot machines (MOP3.24 billion) and Live Multi Game (LMG) machines (MOP580 million), amounted to MOP3.82 billion.

Of the total worldwide global gam­ ing supplier industry, the report notes that revenue to the industry reached US$17.9 billion, a 6.3 per cent yearon-year increase, while indirect out­ put was US$14.9 billion.

When queried, the members of the AGEM noted that with regards to sales one third of respondents not­ ed that less than 10 per cent of their

purchases had been made locally, while 44.4 per cent of respondents had made 26 per cent to 75 per cent of their sales locally. This dropped to 14.8 per cent of respondents for sales of 75 per cent or more.

With regard to the coming sixth months, the report notes that expec­ tations from respondents fall mostly into the ‘improve slightly’ category, at 57.1 per cent, with a further 10.7 per cent expressing their prediction for conditions to ‘improve significantly’.

Overall, 28.6 per cent of respondents believe the economic conditions will ‘stay about the same’, with only 3.6 per cent worried that conditions will

worsen.

About 93 per cent expect demand for their products or services to im­ prove over the next 12 months, with 57.1 per cent expecting it to ‘improve slightly’. Only 3.6 per cent expect the demand to worsen.

Gross revenues for the respond­ ent companies last year saw 87 per cent making over US$1 million and 34.8 per cent seeing revenues above US$100 million, with 13 per cent making over US$500 million.

In total 77.3 per cent of the com­ panies saw gross revenue increase during the year, while 9 per cent saw a decrease.

Business Daily Thursday, May 11 2017 9

Greater China PPI

Factory prices slow further as manufacturing, commodities cool The soft April inflation data reinforces analysts’ views that China’s economic expansion remains solid but is starting to moderate Elias Glenn

C

hina’s April producer price inflation cooled more than expected in a sign manu­ facturing activity may be losing momentum along with other sectors of the economy as domestic demand remains muted and the government cracks down on financial risks.

Prices for raw materials fell in April from the previous month, pressured by fears that domestic demand will not be strong enough to absorb surg­ ing factory output that rose the most in more than two years in March.

A renaissance in China’s steel in­ dustry has been a major driver of the world’s second-largest economy in recent quarters, helping generate the strongest profit growth in years and adding to a reflationary pulse across the global manufacturing sector.

But China’s reflation cycle in pro­ ducer prices has probably peaked, and will trend down further, which could drag on China’s econom­ ic growth in the second half of the year, said Betty Wang, senior China economist for ANZ in Hong Kong.

“The recovery momentum in the economy that emerged in the second half of last year was mainly driven by producer price inflation rather than any changes from a fundamental perspective,” Wang said.

The soft April inflation data, com­ bined with slightly slower growth in manufacturing activity, reinforces analysts’ views that China’s economic expansion remains solid but is start­ ing to moderate after a surprisingly

strong start to the year.

First-quarter economic growth came in at a faster-than-expected 6.9 per cent, which could give the economy enough of a tailwind to hit Beijing’s full-year target even if growth starts to fade in coming quarters as many analysts expect.

With growth comfortably above this year’s target of around 6.5 per cent, Chinese policymakers have shifted focus to reining in financial risks, which ANZ’s Wang said will not change based on trends in producer and consumer prices.

Key Points Producer price inflation +6.4 pct y/y PPI negative m/m for first time since June Consumer price inflation +1.2 y/y “Deleveraging remains the policy focus, regardless of the PPI or CPI trend. We don’t think PPI or CPI will have any significant impact on the current policy direction,” said Wang.

The producer price index (PPI) in April rose 6.4 per cent from a year earlier, the National Bureau of Sta­ tistics said on Wednesday - cooling for the second month in a row. It was slower than economists’ expectations for a 6.9 per cent rise and easing fur­ ther from the previous month’s gain of 7.6 per cent.

Analysts said the rally in producer prices may have peaked as a torrid rally in China’s commodities markets

showed signs of correcting. Iron ore and steel hit multi-month lows on China’s future markets in April amid concern over rising inventories.

Capital Economics said in a report that producer prices were set to fall again in May given that the rout in industrial commodity prices had deepened.

“Further ahead, producer price inflation should continue to wane as policy tightening weighs on eco­ nomic activity...hopes for a sustained reflation in China are fading.”

On a month-on-month basis, pro­ ducer prices fell 0.4 per cent in April, the first drop since June, led by de­ clines in iron and steel smelting and processing.

Iron and steel processing prices fell 3.1 per cent month-on-month in April, compared with a 2.3 per cent rise in March, while oil and natural gas prices also fell after rising the previous months.

In March, China’s PPI cooled for the first time in seven months as com­ modities prices tumbled, pressured by fears that Chinese steel production is outweighing demand and threaten­ ing a glut of the metal later this year.

Factory gate prices had only turned positive on a year-on-year basis last September, after falling for nearly

five years, leaving many industrial firms saddled with idle capacity and less cash flow to service their debts.

The consumer price index (CPI) in April rose 1.2 per cent from a year earlier, the statistics bureau said, up from a 0.9 per cent rise in March and slightly above analysts’ forecasts.

Food prices, the biggest component of the consumer price index (CPI), fell 3.5 per cent.

Core inflation inched up to 2.1 per cent, with costs for health care rising 5.7 per cent.

Analysts polled by Reuters had predicted April consumer price in­ flation would edge up to 1.1 per cent but remain well within the central bank’s comfort zone, giving it room to continue with a gradual pace of monetary policy tightening without hurting economic growth.

China’s annual inflation is to aver­ age 2.1 per cent in 2017 and 2.3 per cent in 2018, according to a Reuters poll of over 75 economists.

Beijing is targeting consumer infla­ tion of 3 per cent this year, unchanged from 2016.

Chinese President Xi Jinping called last month for increased efforts to ward off systemic risks to help main­ tain financial security, the official Xinhua news agency reported. Reuters

Environment

Coal mines forced to plant trees, seal facilities in new green rules The land ministry said raw coal washing rates would be raised to 100 per cent at new mines China will force collieries to plant trees, boost efficiency, cut down noise and seal off facilities from the outside world as part of a new “green mining” plan aimed at curbing pollu­ tion, according to a policy document published yesterday.

In a comprehensive list of new rules covering coal, metals and chemicals, as well as oil and gas, the Ministry of Land and Resources said all newly built mines would be forced to meet green requirements immediately, while existing mines will also have to “upgrade” facilities.

The documents, published in con­ junction with the environment and finance ministries as well as Chi­ na’s securities and product quality watchdogs, said coal firms would be forced to construct “garden-style” mines with trees planted wherever possible in mining areas.

“A completely closed management

system covering the production, transportation and storage of coal will be implemented so that ‘coal is extracted but not seen’,” the docu­ ment added.

The ambitious plans contrast with past practice in China where high prices and soaring demand encour­ aged coal miners to build thousands of mines with little heed to safety or the surrounding environment.

Regulators are now aiming to bring more order to the sector, which ac­ counts for around two thirds of total primary energy use and three quar­ ters of all power generation, curbing overcapacity and illegal production and tackling air and water pollution.

China’s smog-prone capital Bei­ jing has already shut down all its coal-fired power stations, while the surrounding province of Hebei has promised to shut 51 million tonnes of annual coal production over the

2016-2020 period.

The land ministry said raw coal washing rates would be raised to 100 per cent at new mines, while wastewater recovery rates would be brought above 85 per cent.

Coal mines would be forced to set up dedicated research and develop­ ment platforms funded with no less

than 1 per cent of the mine’s income in the previous year, and will have to address training for workers and work-related illnesses.

The rules will also compel metal­ lurgical miners to set up specialist storage sites for tailings to prevent them from contaminating local land and water supplies. Reuters

10 Business Daily Thursday, May 11 2017

Greater China Financial system

As banks swap corporates for retail borrowers, risks rise Mortgage growth is set to slow this year, credit analysts say Engen Tham

C

hina’s lenders are swap­ ping struggling corporates for more promising retail borrowers - restructuring branches, teams and even overhauling bankers’ commissions in an unprecedented push that is fuelling a record jump in home loans.

Yet the speed of the switch, the pressure to pull in more borrowers and soaring house prices are also worrying loan officers, analysts and regulators, with the central bank gov­ ernor among those sounding a note of caution.

Corporate lending has long made up the bulk of many Chinese banks’ loan books: the deals are larger and loans have more attractive rates. But with firms faltering, economic growth slowing for key sectors and banks under pressure to deleverage, lenders are eyeing other options.

Key Points Mortgage lending jumps as banks shun struggling corporates Banks restructure branches, teams, commissions in mortgage push Growth set to slow as regulators seek to cool property surge While retail lending also includes credit cards and consumer loans, mortgage lending has been a focus for China’s big five banks since the push began in earnest last year.

Mortgage lending was up around 30 per cent for the big five in 2016, the fastest growth in five years, while property lending in China accounted for 40.4 per cent of new loans in the first quarter, data from the People’s Bank of China (PBOC) showed.

Mortgages in China are among the

safest loans - they are secured, of course, and conservative borrowing also means loan-to-value ratios (LTV) as low as under 40 per cent.

However, bankers, investors and analysts say the latest retail push has seen unprecedented pressure, tough targets and hard-hitting sales tactics - with some drawing comparisons to the pre-financial crisis years in the United States.

“There was quite a lot of (skirt­ ing mortgage rules) last year,” said Chen Shujin, a banking analyst from Huatai Securities. “We do think this will have an impact on the quality of mortgages and bank assets.”

Mortgage growth is also set to slow this year, credit analysts say. Many cities have introduced a raft of meas­ ures to cool property prices that have surged beyond the reach of many Chinese, posing growing financial risks.

China’s central bank did not re­ spond to requests for comment, though governor Zhou Xiaochuan has cautioned on the need for “bal­ ance” as mortgages jump, according to local media.

The China Banking Regulatory Commission also did not respond to requests for comment.

More loans, more trouble?

Among the concerns is the pressure on bankers to radically accelerate the number of loans they push through.

“It doesn’t matter whether you were from the corporate team, or SME team, now 50 per cent of your targets are retail borrowing targets,” said one banker at Ping An Bank.

Ping An increased its retail assets under management by 13.6 per cent in the first quarter alone as part of a major strategic shift in focus from corporate to retail.

At one branch, many bankers now have to open 60 retail accounts a year, two Ping An bankers said. Bankers

with retail experience have been pro­ moted to head many of the lender’s sub-branches, they added.

To incentivise bankers, Ping An is providing higher commissions for re­ tail wins. Bankers who don’t hit their targets for the sale of an unpopular product face penalties, according to the Ping An bankers.

There was no suggestion bank­ ers at Ping An had skirted mortgage rules. Ping An said it disputed some elements of the bankers’ account, without clarifying which parts.

But similar accounts emerge across the sector.

Rival lender CITIC Bank has changed its sub-branches from handling both corporate and retail lending to just focusing on one or the other, with more in some areas focused on retail, according to the website and two bankers.

“We’re slowly moving towards re­ tail by hiring more bankers with retail experience,” said one vice-president of a CITIC Bank sub-branch.

CITIC Bank did not respond to re­ quests for comment. Again, there

was no evidence its bankers were side-stepping loan rules.

While the high pressure practices have drawn some comparisons to the U.S. property bubble, analysts noted Beijing can exert far more control on its banking system, much of which is state owned.

Mortgage-backed securities and other financial instruments that helped aggravate the U.S. problems are also less developed in China, although volumes are growing steadily.

Residential mortgage-backed se­ curities in 2016 tripled from a year earlier to RMB138.2 billion (US$20 billion), according to China Central Depository & Clearing Co Ltd. With average property deposits last year of close to 50 per cent, risks are manageable, said Huatai’s Chen.

Still, a report by Moody’s Investors Services this month noted that while Chinese mortgages have historically shown very low risk, “the latest loan originations are likely to entail a high level of risk, because of the sharp rise in property prices in 2016.” Reuters

Production

Premier Li visits Apple supplier Foxconn Li’s visit comes weeks after Gou and other senior Foxconn executives discussed significant investments in the United States Jess Macy Yu and Jeanny Kao

China is the best place for expanding manufacturing and investment, the country’s premier told the world’s largest contract electronics maker Foxconn less than two weeks after its chief executive Terry Gou went to the White House to discuss increasing investment in the United States.

“We will continue to expand our development, and optimise the busi­ ness environment. China has a huge market and lots of talent, it is the best investment place for expanding man­ ufacturing,” Li Keqiang was reported as saying on the State Council’s offi­ cial website, which carried pictures of Li’s visit on Tuesday to Foxconn’s sprawling manufacturing facility in Zhengzhou, Henan province.

The pictures showed Li being es­ corted by Gou around the facilities.

The State Council statement said Li had encouraged Gou to further invest in high-end research and develop­ ment as well as in supply chain pro­ duction in China.

Despite the recent rapproche­ ment between U.S. President Donald

Trump and China President Xi Jin­ ping over North Korea issues, China remains a competitor to the United States under Trump’s “America first” agenda.

Li’s visit comes weeks after Gou and other senior Foxconn executives discussed significant investments in

the United States at the White House.

At the time, Gou told Reuters that Foxconn was planning “capital-in­ tensive” investments in America.

On Wednesday, a person familiar with the matter told Reuters Foxconn plans to begin construction on a U.S. plant in the second half of this year.

No other details were provided.

When contacted about the U.S. in­ vestment, Foxconn, formally known as Hon Hai Precision Industry Co, declined to comment. In a statement issued after Li’s visit, the company

said it was committed to investing in China.

Analysts have said that Gou treads a fine line in balancing his business empire that straddles both the United States and China.

Foxconn is a major supplier to Apple Inc. China is the base for its assembly of Apple’s iconic iPhones, and where Foxconn employs about a million people.

Key Points China Premier tells Foxconn China is best for investment China’s State Council posts photos of Li, Gou Foxconn to begin construction on US plant in H2 –source Foxconn says Li-Gou meeting private

Foxconn is also in the running as a suitor for Toshiba Corp’s chip busi­ ness. People familiar with the deal have told Reuters that Foxconn is considered a U.S. security risk due to ties with China.

Reuters earlier reported that Japa­ nese display maker Sharp Corp may start building a US$7 billion plant in the United States in the first half of 2017, taking the lead on a project initially outlined by its Taiwanese parent Foxconn. Reuters

Business Daily Thursday, May 11 2017 11

Asia Investment

Mainland opening up its bond markets, but currency seen as major barrier Saikat Chatterjee and Umesh Desai

China’s policymakers plan to open the doors wider than ever to foreign investment in the country’s US$3 trillion bond market, in part to help shore up the struggling yuan. But the currency is also proving to be a major barrier to the success of their plan.

Foreigners own less than 2 per cent of China’s US$3.3 trillion in outstand­ ing bonds and say getting their cash out of China and recent weakness of the closely controlled currency are obstacles to investment.

Foreign investors are also scepti­ cal they can assess risk accurately when most of the US$2.1 trillion in corporate bonds are rated investment grade by domestic rating agencies.

Chinese bonds offer their highest yields in two years and, on the basis of 10-year sovereign debt, the biggest interest rate gap with equivalent U.S. Treasuries in eight months, high­ lighting the dilemma of a market that is appealing on the one hand but on the other considered to carry too many risks.

“If investors wanted to have more exposure to Chinese bonds, we can do it tomorrow,” said Andy Seaman, a partner and chief investment of­ ficer of London-based fund manager Stratton Street.

“But unfortunately, they don’t. It’s very difficult to persuade people be­ cause of the currency. They don’t want renminbi,” he said.

While China’s measures to clamp down on capital outflows to reduce pressure on the yuan have captured the headlines since late last year, the country has also been opening up

its bond market and liberalising its financial derivatives, aiming to draw money into the country.

Premier Li Keqiang said in March that China was considering setting up a trading link with Hong Kong this year, similar to one already used to trade stocks, which would give foreign investors much easier access to the world’s third-biggest bond market.

Index providers

Chinese bonds have been included in some more narrowly focused index­ es run by Citigroup and Bloomberg and before opening up its bond mar­ ket China had allowed quota-based foreign investment. China Central Bank Governor Zhou Xiaochuan has said officials would work to open the market further.

“We don’t intentionally seek the inclusion of yuan bonds into any particular bond index, but will push forward in this direction on a steady basis,” he said in March.

A senior Hong Kong central bank official, familiar with mainland thinking, said the trading link plan and other reforms are aimed at ad­ dressing concerns by bond index providers about investors’ ability to access Chinese bond markets.

“China knows that quota-based allocations to foreign investors are not very attractive to bond investors and these steps will allow foreign institutions to buy onshore debt sit­ ting comfortably from their offices in Hong Kong or Singapore,” the official said. He declined to be identified be­ cause he was not authorised to talk to the media.

While these measures might pro­ vide easier access for foreign inves­ tors to China’s bond market, the yuan is no longer a one-way appreciation bet. It fell almost 7 per cent in 2016, its biggest decline since a revaluation against the dollar in 2005.

Introducing more currency vola­ tility has helped Chinese authorities shake off speculators, but it has also pushed other investors away too.

Stratton Street’s Renminbi Bond Fund, which enables clients to profit from potential yuan appreciation and Asian bond yields, has shrunk by around 80 per cent to US$70 million since its peak of US$380 million in 2012.

An analysis of offshore yuan-de­ nominated bond funds compiled by Morningstar shows total assets under management shrank by nearly half in the last year to about US$11.6 billion.

The yuan’s outlook against the dol­ lar “remains a hurdle for significant inflows into China’s bond markets,” said Rohit Arora, a UBS strategist in Singapore.

A Reuters poll conducted in the past week found the yuan is forecast to weaken to 7.07 against the dollar in a year. It was changing hands at 6.91 per dollar on Tuesday.

Analysts and China state media hailed the inclusion of Chinese bonds in three Citigroup government bond indexes as a milestone. But the invest­ ment bank stopped short of including them in its widely followed World Government Bond Index (WGBI), which tracks assets of between US$2 trillion and US$4 trillion.

Inclusion could draw capital in­ flows into China of hundreds of bil­ lions of dollars, HSBC analysts say.

But that may be some time in com­ ing, said Lewis Emmons, principal at Mercer Investment Solutions in Singapore.

“The recent creation of new ‘half­ way house indices’ potentially pro­ longs the horizon for full inclusion of China bonds in the most common indices,” he said.

“Investors still need assurances about their ability to move cash in and out of China.” Reuters

M&A

Germany welcomes Mainland investment in financial firms HNA’s investment in Deutsche Bank, which it revealed last week had risen to just below 10 per cent China is welcome to invest in Ger­ man financial firms, Germany’s top market watchdog said after Chinese conglomerate HNA Group raised its stake in Deutsche Bank.

An acquisition spree by HNA re­ flects a broader Chinese push into financial services as Beijing encour­ ages its corporate sector to expand overseas, although such moves have faced increased regulatory scrutiny in the United States and Europe.

“We believe it is fundamentally positive that capital is being invested in German banks. This of course in­ cludes foreign capital and of course Chinese capital,” BaFin President Felix Hufeld said on Tuesday.

“There is no black list of countries that are not allowed to invest with us. In this regard, this is a welcome development,” he said at the reg­ ulator’s annual press conference.

Last year, BaFin gave a green light to China’s Fosun to take over the small private bank Hauck & Aufhäuser.

HNA’s investment in Deutsche Bank, which it revealed last week had risen to just below 10 per cent, comes at a time of heightened

uncertainty for the bank.

Germany’s largest lender is grap­ pling with a strategic turnaround, an uncertain global economy and the impact of Britain’s departure from the European Union. The disclosure in a U.S. regulatory filing showed that HNA had become Deutsche Bank’s biggest direct shareholder, slightly ahead of funds controlled

by Qatar’s former Prime Minister Sheikh Hamad bin Jassim al-Thani who last year increased their stake, including options, to just under 10 per cent.

Deutsche Bank sees the HNA and Qatari stakes as a vote of confidence that should encourage other inves­ tors, big and small.

Chinese investors are also said to have shown some interest in buying a stake in the troubled HSH Nord­ bank. HNA and Chinese insurer An­ bang have both made inquiries about Nordbank, two financial sources have told Reuters. Reuters

In Brief Cross-strait

Mainland increases job opportunities for Taiwan residents Taiwanese residents are now eligible to work in public institutions in six more provincial regions, An Fengshan, spokesper­ son for the Taiwan Affairs Office of the State Council announced yesterday. As of today, Taiwanese resi­ dents can be employed in public institutions such as hospitals and universities in Beijing and the prov­ inces of Hainan, Hebei, Guangdong and Shandong as well as Guangxi auton­ omous region. Prior to the announcement, Taiwanese residents could only work for public institutions in Shanghai, Tianjin, and the provinces of Fujian, Hubei, Jiangsu and Zhejiang.

NPL

Domestic commercial banks’ NPL ratio stable Chinese commercial banks’ non-performing loan (NPL) ratio stood at 1.74 per cent at the end of March, unchanged from the end of 2016, the country’s banking regulator said yesterday. Total com­ mercial bank NPLs amount­ ed to RMB1.58 trillion (US$228.9 billion), up from RMB1.51 trillion at end-2016, China Banking Regulatory Commission (CBRC) data showed. Banks’ core Tier 1 capital adequacy ratio was 10.79 per cent at the end of March, up from 10.75 a quar­ ter earlier.

Commodities

Corn planting area to drop 2.5 pct Chinese farmers are ex­ pected to sow 35.84 million hectares of corn this year, down 2.5 per cent from last year, the agriculture ministry said yesterday, as Beijing looks to boost alternative crops to reduce its corn glut. In its first estimate for the 2017 crop, the ministry said China is expected to produce 213.19 million tonnes of corn, down 2.9 per cent from a year ago. The planting fore­ cast in the monthly report on Chinese Agricultural Supply and Demand Estimates (CASDE) shows a smaller per centage decline than predicted by China’s National Bureau of Statistics last month.

Army

Beijing issues regulation on military legislation President Xi Jinping, who is also chairman of the Central Military Commission, has signed a decree that will release a regulation on mil­ itary legislation. The reg­ ulation, which took effect Monday, defines the rules for establishing military laws and regulations as well as the drafting of standard documents. The regulation standardizes the formulation of military laws and regula­ tions, spanning the drafting, submission, modification and issuance stages. In addi­ tion, it regulates the review and compilation of records, and suggests measures to improve the management system for documents.

12 Business Daily Thursday, May 11 2017

Asia In Brief Retail

Indonesian retail sales growth picks up Indonesia’s retail sales in March grew 4.2 per cent from a year earlier, a faster pace than in February, a survey by Bank Indonesia (BI) showed yes­ terday. February annual retail sales grew 3.7 per cent. The growth rate in March was sup­ ported mainly by the increased buying of food items, the cen­ tral bank said. The survey of 700 retailers in 10 major cities predicted that April’s annual retail sales growth would be 5.4 per cent, still supported by sales of food. Survey respond­ ents felt that price pressures were expected to increase in the next three months.

Oil industry

Saudi signals first cut in crude supplies to Asian customers Saudi Arabia, the world’s big­ gest oil exporter, has notified at least two Asian refiners of its first cuts in crude allocations for regional buyers since an OPEC output reduction took effect in January, two refining sources told Reuters yesterday.

State-owned Saudi Aramco has told Asian buyers it is curtailing supplies for June to meet its commitments for the output cut, one of the sources at a refiner in South Korea said.

“Saudi is adjusting supplies because it has somewhat supplied full volumes or even more in the previous months,” the source said, declining to give specific details on the cuts.

Monetary policy

Malaysia’s c. bank standing pat Malaysia’s central bank is seen keeping its benchmark rate steady on Friday, taking com­ fort from a stabilising economy and ringgit currency even as headline inflation hit an eightyear high in March. Improving demand for crude oil and commodities has sparked much needed momentum in Southeast Asia’s third-largest economy, while measures to clamp down on offshore trade of the ringgit has helped stabilise the currency after a sharp slide against the dollar in early January. All 10 economists polled by Reuters forecast that Bank Negara Malaysia (BNM) will hold its overnight rate steady at 3.00 per cent on Friday.

Agriculture

India facing higher monsoon rains than forecast India looks likely to receive higher monsoon rainfall than previously forecast as concern over the El Niño weather con­ dition has eased, the chief of the weather office said on Tuesday, raising prospects of higher farm and economic growth. The state-run India Meteorological Department on April 18 forecast this year’s monsoon rains at 96 per cent of the 50-year average of 89 cm. The monsoon deliv­ ers about 70 per cent of India’s annual rainfall, critical for crops such as rice, cane, corn, cotton and soybeans because nearly half of the country’s farmland lacks irrigation.

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South Korean President Moon Jae-in waves as en route to the presidential Cheong Wa Dae (Blue House) following his inauguration ceremony at the National Assembly in Seoul yesterday. Lusa

Election

Moon vows to seek peace with North Korea, take on companies In his speech, Moon pledged to address unemployment that’s been hampering an export-driven recovery Kanga Kong and Hooyeon Kim

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oon Jae-in pledged to push for peace with North Korea and get tough on South Korea’s biggest companies in his first remarks as president after a resounding election win.

Moon, 64, was officially sworn in yesterday after an easy victory in a vote called after his predeces­ sor Park Geun-hye was ousted on corruption charges in March. The left-leaning candidate has promised a shift in direction after about a dec­ ade of conservative rule ended with South Korea’s biggest street protests since the 1980s and an acceleration of North Korea’s nuclear program.

Moon repeated a campaign pledge to visit North Korea under the right conditions, mirroring U.S. President Donald Trump’s recent comment that he’d be open to meeting dictator Kim Jong Un. Moon also said he’d fly to the U.S., China and Japan to help broker a breakthrough.

“I will do whatever I can to bring peace to the Korean Peninsula,” Moon said. Among key appoint­ ments made yesterday, Moon chose two figures who were involved in inter-Korea events under past pro­ gressive governments to improve affairs between the nations.

Moon also pledged to be a “clean” president and end the close ties be­ tween politicians and family-run conglomerates known as chaebol. He offered to share presidential powers during his five-year term, a key criticism of Park, who is in jail while on trial for corruption charges. She has denied wrongdoing.

“I come in with empty hands and will leave with empty hands,” Moon said. “Today we open a new era for the Republic of Korea.”

Moon faces challenges to achieve his goals at home and abroad. Lack­ ing a majority in the National Assem­ bly, he’ll have to work with other parties to gain traction on key eco­ nomic initiatives such as chaebol reform. On North Korea, his desire for engagement is at odds with the Trump administration’s openness to use force against Kim’s regime, which hasn’t shown any intention to

stop conducting nuclear and ballistic missile tests.

‘Clear limit’

“There’s a clear limit for him to achieve his policy goals because actually North Korea has changed substantially” in the past nine years, Choi Kang, vice president for re­ search at the Asan Institute for Policy Studies in Seoul, told Bloomberg Television’s Shery Ahn. “It’s not going to cooperate with South Korea, doesn’t want dialogue with South Korea.”

Underscoring Moon’s challenge, Sky News on Tuesday reported North Korea’s U.K. ambassador Choe Il as saying the country will proceed with a further nuclear test at a time of Kim’s choosing -- repeating a common threat from the country’s diplomats.

Moon will also need to address po­ tential conflicts stemming from the U.S. missile shield that was installed on South Korean soil days before the election, after saying during the campaign that it was a matter for the new president to review. China has opposed the deployment of the Terminal High Altitude Area Defense system known as Thaad.

Thaad issue

“I’ll sincerely negotiate with the U.S. and China to solve the Thaad issue,” Moon said in his speech.

The White House congratulated Moon, with spokesman Sean Spicer saying the Trump administration looks forward to strengthening the alliance between the U.S. and South Korea. Japanese Prime Minister Shinzo Abe wants to meet Moon as soon as possible, his office said in a statement.

Coordination is crucial among the U.S., Japan and South Korea to stop Kim from developing more powerful nuclear weapons and missiles that threaten all three countries, accord­ ing to Duyeon Kim, a visiting senior fellow at the Seoul-based Korean Peninsula Future Forum.

“The Washington-Seoul alliance may get dicey because of their fun­ damentally divergent approach­ es toward North Korea, but it will depend heavily on the two leaders’

initial contact and how they man­ age their differences,” Kim said. “It is imperative that Washington and Seoul coordinate their North Korea policy so that there is no daylight for Pyongyang to exploit.”

Spy chief

Moon nominated Suh Hoon, who once coordinated two summits with North Korea, as his spy agency chief.

Suh will seek to tackle Pyongyang’s nuclear threats and bring stability and peace on the peninsula, accord­ ing to the presidential Blue House.

Lim Jong-seok, who was named chief of staff for the presidential of­ fice, once introduced legislation to support an industrial park jointly operated by the two Koreas. The conservative Liberty Korea Party issued a statement expressing regret over the appointment of Lim, who was imprisoned in the 1980s after his involvement with pro-North Korea university students who sent a colleague to Pyongyang in violation of national security laws.

Moon also chose Lee Nak-yon, the governor of South Jeolla province, as prime minister. Lee, a former jour­ nalist who has been a lawmaker for 14 years, will focus on job creation.

“I will do whatever I can to bring peace to the Korean Peninsula” Moon Jae-in, president of South Korea

In his speech, Moon pledged to address unemployment that’s been hampering an export-driven recov­ ery. Asia’s fourth-largest economy is forecast to expand this year at the slowest pace since 2012.

South Korea’s Kospi index of shares retreated from a record, falling 1 per cent at the close of trading yesterday, the most in two months. The won slid 0.3 per cent against the dollar.

Moon is planning to stimulate the economy with fiscal spending and create hundreds of thousands of public-sector jobs. His first or­ der to administration staff was to convene a meeting to discuss the establishment and operation of a job-creation committee. Bloomberg News

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Business Daily Thursday, May 11 2017 13

Asia National budget

Australian banks lick wounds after tax hit Treasurer Scott Morrison justified the tax as necessary to get the budget back into the black Jamie Freed and Jonathan Barrett

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ustralia’s big banks will likely swallow a sur­ prise new A$6.2 billion (US$4.56 billion) federal tax, industry and political sources said yesterday, given a lack of public support for an oligopoly that has reaped years of record profits.

The tax on liabilities unveiled in Tuesday’s federal budget caught banks, which had previously en­ joyed the support of the ruling cen­ tre-right government, unawares and was strongly criticised by bank executives.

“We didn’t get a chance to engage; it was a snatch and grab and that’s that,” one senior source at a major bank told Reuters.

The announcement was seen by political analysts as payback for the government’s efforts to block opposition calls for a wide-rang­ ing inquiry into misconduct in the banking sector.

Treasurer Scott Morrison justi­ fied the tax as necessary to get the budget back into the black and also tapped into popular opinion, saying the charge was just a small portion of the banks’ profits.

He cautioned the so-called Big Five - Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group

Ltd, National Australia Bank Ltd and Macquarie Group Ltd - against pass­ ing the costs on to consumers.

The tax resembles a charge im­ posed on big mining companies in 2010 that was ultimately re-designed after an industry advertising cam­ paign which helped unseat the then Labor prime minister, Kevin Rudd.

Banking sources said they had little leverage to mount a similar cam­ paign due to modest support within parliament.

“It is a done deal, I don’t think you can put a wedge in that,” said another representative of the Big Five.

Bank chiefs received a phone call roughly one hour before Morrison revealed the budget measure on Tuesday evening, four sources said, catching them unawares. The sourc­ es, from banks and political offices, declined to be identified because they were not authorised to speak publicly.

The tax is designed to prevent the banks from passing the cost on to lending customers, targeting liabil­ ities such as corporate bonds, com­ mercial paper, certificates of deposit and tier-2 capital instruments, rather than mortgage books.

Commonwealth Bank Chief Exec­ utive Ian Narev indicated the bulk of

the cost could be passed to customers, likely through interest rate changes, and to shareholders through lower dividends. The alternative, accord­ ing to Morgan Stanley analysts, is an estimated 4.5 per cent cut to the banks’ annual earnings.

“As every business owner or em­ ployee knows, every extra cost needs to be borne by customers or share­ holders, or a combination of both,” Narev said in a statement.

NAB Chief Executive Andrew Thorburn said the tax would affect 10 million customers as well as share­ holders. ANZ and Macquarie said the impact was unclear.

The tax lifted stock prices of small­ er lenders as investors bet it would crimp the big banks’ competitiveness.

Shares in Bendigo and Adelaide Bank Ltd rose as much as 4.8 per cent, their sharpest daily gain in three years, while Bank of Queensland Ltd added four per cent. Reuters

No ‘magic pudding’

The affected banks all came under immediate share price pressure late on Tuesday and again yester­ day morning, before some of their losses were pared.

Westpac Chief Executive Brian Hartzer said yesterday the govern­ ment’s reforms ran counter to the prudential regulator’s objective of making bank balance sheets “un­ questionably strong”.

“Higher taxes reduce the banks’ ability to generate capital that sup­ ports lending and stability in times of stress,” Hartzer said in a statement.

“There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors and employees.”

Australian Treasurer Scott Morrison

Bank of Japan

Governor may release stimulus withdrawal impact on central bank financial health Kuroda said he was not currently thinking about any specific ways to change the present policy mix Sumio Ito and Minami Funakoshi

Bank of Japan (BOJ) Governor Ha­ ruhiko Kuroda said yesterday the central bank will consider publicising calculations on how a future with­ drawal of massive monetary stimulus could affect its financial health.

The remark was the first time that Kuroda, who until now had shrugged off as premature any debate over an exit strategy for the BOJ’s radical stimulus programme, has signalled the chance of offering such informa­ tion to the public.

“It is very important to explain in easy-to-understand terms how mon­ etary policy could affect the BOJ’s financial health,” Kuroda told par­ liament yesterday.

“We will consider it as a future possibility,” he said, when asked about the chance of releasing calcu­ lations on the effect a withdrawing of stimulus could have on the BOJ’s balance sheet.

Kuroda said he was not currently thinking about any specific ways to change the BOJ’s present policy mix, stressing that yield curve control re­ mained the main focus of monetary policy.

“In theory, it is possible to combine the different elements of monetary policy in several ways,” Kuroda said.

“However, I’m not thinking about changing the policy mix right now.”

He also said the amount of govern­ ment debt purchases and the mone­ tary base level included in its policy statement were merely guidelines.

“The amount of our bond purchases may vary depending on financial market conditions at the time. But this has no implications for mone­ tary policy going forward,” Kuroda said in a speech he delivered later in the day.

Debt bankrolling “unnecessary”

Kuroda said economic recovery in Japan was taking hold more firmly

Bank of Japan headquarters

but warned that overseas develop­ ments, such as uncertainty over U.S. economic policies, remained the big­ gest risks to its outlook.

“While global economic growth is gaining momentum, various uncer­ tainties remain” that could weigh on Japanese consumer and corporate sentiment, he said in the speech.

The government and the BOJ must work together to seek an appropriate mix of fiscal and monetary policy measures to ensure the recovery is sustained, Kuroda said.

But he added it was “unnecessary and inappropriate” for the BOJ to bankroll government debt and di­ rectly finance fiscal spending, an

idea proposed by some academics who call for more radical measures to reflate Japan’s economy.

At its most recent meeting on April 26-27, the BOJ maintained its shortterm interest rate target at minus 0.1 per cent and a pledge to guide 10-year government bond yields around zero per cent.

It also maintained a loose pledge at the meeting to buy government bonds at a rate that would increase its holdings by 80 trillion yen a year.

Since then, the BOJ has said it will reduce its monthly government debt purchases in May, showing the cen­ tral bank is stepping back from the 80 trillion yen (US$704 billion) target.

Prior to the meeting, some econo­ mists speculated that the BOJ could remove the 80 trillion yen figure from its statements because it was no longer the main lever of its pol­ icies. Reuters

14 Business Daily Thursday, May 11 2017

International In Brief Portugal

Jobless numbers down to 10.1 per cent in Q1 The unemployment rate in Portugal went down 0.4 per­ centage points to 10.1 per cent in the first quarter of 2017, compared with the last quar­ ter of 2016 and 2.3 percent­ age points compared with the same period last year.

The employment numbers released by the Portuguese National Statistics Institute (INE) on Wednesday show there is an estimated 523,900 people out of work (19,300 fewer) than at the end of last year and a 18.2 per cent re­ duction (116,300 fewer) that a year earlier, the biggest fall in unemployment since the third quarter of 2013.

Trade

U.S. import prices increase for fifth straight month U.S. import prices increased more than expected in April amid rising costs for petro­ leum products and a range of other goods, which could help boost domestic infla­ tion. The Labor Department said yesterday that import prices jumped 0.5 per cent last month after an upward­ ly revised 0.1 per cent gain in March. Import prices have now increased for five straight months. Economists polled by Reuters had fore­ cast import prices increasing 0.2 per cent in April after a previously reported 0.2 per cent drop in March. In the 12 months through April, im­ port prices rose 4.1 per cent, slowing from March’s 4.3 per cent increase.

Trading

U.S. watchdog urges EU to think through euro clearing changes CFTC chairman also called for changes to the “supplemental” leverage ratio that the world’s top banks must comply with Huw Jones

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he European Union should think carefully before forc­ ing through any changes to where clearing of eu­ ro-denominated securities like derivatives and bonds is located after Brexit, the top U.S. derivatives regulator said yesterday.

Brussels is looking at whether euro-denominated clearing, an ac­ tivity dominated by London, should be moved to the single currency area after Britain leaves the bloc in 2019.

Christopher Giancarlo, acting chairman of the U.S. Commodity Futures Trading Commission (CFTC), told the annual conference of global derivatives industry body ISDA that he was respectful of the fact that “this is an important regulatory policy decision that needs to be made with care by European officials.”

The issue is politically sensitive at a time when Britain and the EU embark on divorce talks, with leg­ islative proposals on clearing due from Brussels next month.

Giancarlo also drew attention to

the European Commission’s con­ sideration of a less radical option than moving clearing from London, which would involve tighter super­ vision of foreign clearing houses that handle large amounts of euro clearing.

Key Points Giancarlo says supervision works for foreign clearers Giancarlo wants changes to global leverage ratio add-on Says add-on ratio is damaging markets A clearing house or central coun­ terparty (CCP) stands between two sides of a trade, ensuring its com­ pletion even if one side goes bust.

The CFTC has a lot of experience in the supervision of clearing houses both in the United States and abroad, Giancarlo said.

“We welcome the opportunity to discuss the CFTC’s experience with officials in Europe.”

“To date, the US has not deemed a

body of water – even as large as the Atlantic Ocean – as an impediment to effective CCP supervision and examination,” he said.

He also said that given the close­ ness of the U.S. and European de­ rivatives markets, what Europe de­ cided “undoubtedly will inform the evolution of U.S. regulatory policy for cross-border swaps clearing.”

Giancarlo called for changes to the “supplemental” leverage ratio, or SLR, that the world’s top banks must comply with.

The SLR, designed by global reg­ ulators, is based on a “flawed un­ derstanding” of how clearing works and harmed market liquidity, he said. A leverage ratio is a measure of capital to a bank’s assets on a non-risk weighted basis.

Giancarlo said the SLR should not include cash posted by bank’s cus­ tomers to back trades, and changes could contribute to a big saving in capital costs for banks, and poten­ tially a three-fold increase in trad­ ing activity.

It was critical that global regula­ tors check if rules introduced since the 2007-09 financial crisis have made the financial system effective in supporting growth, he said.

“Flourishing capital markets are the answer to global economic woes, not diminished trading and risk transfer.” Reuters

Oil industry

Shell proposes adding Russian crude to Brent Royal Dutch Shell yesterday urged oil pricing agency S&P Global Platts to protect the dated Brent crude bench­ mark from declining North Sea supply by including other grades, such as Russian Urals, in its price-setting process. The suggestion marks a shift from two years ago when Shell said adding Urals would not be “worth the trouble”. The bench­ mark, based on light North Sea crude grades, is used to price about two-thirds of the world’s oil but a decline in North Sea output has led to concerns that physical volumes could become too thin and prone to large price swings.

Trump’s goal

Ross says GDP goal not achievable this year The U.S. economy will fall short of the Trump admin­ istration’s goal of 3 per cent growth this year and will only achieve that when its regulatory, tax, trade and energy policies are fully in place, Commerce Secretary Wilbur Ross said on Tuesday. The GDP target “is certainly not achievable this year,” Ross told Reuters in an interview. But Ross said it ultimately could be achieved in the year after all of Republican President Donald Trump’s busi­ ness-friendly policies are implemented. He noted that delays were possible if the push for tax cuts was slowed down in Congress.

Ebusiness

EU to tackle complaints over tech companies’ unfair trading practices The Commission wants to establish fair practice criteria, measures to improve transparency and a system to help resolve disputes Julia Fioretti

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he European Union exec­ utive is planning a law to deal with complaints about unfair practices by leading online players such as Ap­ ple and Google.

The European Commission said yesterday in a mid-term review of its digital strategy it would pre­ pare an initiative by the end of the year to address unfair contractual clauses and trading practices in relations between platforms and businesses.

This follows proposals to remove barriers in online services to improve European companies’ chances of competing against U.S. tech giants like Google, Apple and Facebook.

European companies such as Spot­ ify, Rocket Internet and Deezer have complained that online platforms - such as search engines and app stores - abuse their position as gate­ ways to customers to promote their own services or impose imbalanced terms and conditions.

The Commission said that initial

findings of an investigation launched last year showed platforms were del­ isting products or services without due notice, restricting access to data or not making search result rankings transparent enough.

The Commission wants to establish fair practice criteria, measures to improve transparency and a system to help resolve disputes.

Spotify hit out at Apple last year after it rejected an updated app for the Swedish music streaming service on iPhones, saying it diminished its competitiveness on iOS.

Hate speech

The Commission’s mid-term re­ view also looked at the issue of hate speech on social media. It said it would coordinate more effective­ ly on existing initiatives - such as a code of conduct with the main social media companies - and pro­ vide guidance on dealing with ille­ gal content to avoid overly zealous removals.

An earlier draft of the Commis­ sion’s mid-term review of its digital single market strategy showed it

was considering legislation on how companies should take down hate speech and incitement to violence, but that idea has been scrapped.

The German parliament is dis­ cussing a law to fine social media networks up to 50 million euros (US$54.4 million) if they fail to re­ move hate speech postings quickly.

Key Points EU presents mid-term review of digital strategy EU identified some unfair business practices by online platforms Will propose dispute resolution mechanisms, more transparency To encourage social media com­ panies to be more proactive, the Commission said it would provide guidance on a “good Samaritan” principle whereby companies would not be held liable for illegal content posted on their websites or platforms if they actively hunted it down.

The EU executive will also pro­ pose a law to reduce national re­ strictions on where some types of commercial and health data can be stored, saying unnecessary data localisation rules hamper techno­ logical innovation. Reuters

Business Daily Thursday, May 11 2017 15

Opinion

Think home prices in China can’t topple?

Think again Nisha Gopalan Bloomberg Gadfly

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he squeeze is on.

A tightening of leverage, coupled with soaring land costs, looks set to end the home price windfall that China’s developers have enjoyed this year.

Prices of new dwellings, excluding government-subsidized housing, gained in March in 62 of the 70 cities tracked by the government, compared with 56 in February, the National Bureau of Statistics said last month. On Monday, Longfor Properties Co. said contracted sales between January and April jumped 200 per cent year-on-year to RMB60 billion (US$8.7 billion), while Credit Suisse Group AG noted that the 20 Hong Kong publicly traded Chinese real estate firms it tracks posted an 87 per cent rise in first-quarter sales.

There are several reasons why those sorts of figures can’t last.

Property market curbs imposed by authorities are getting stricter, even in smaller, regional cities. Buying a s ec o n d h o m e is harder than ever: Down-payment rat es a r e r i si n g and the nation’s billion US$ banking regulator China Evergrande has instructed trust total debt companies to rein in funding.

Mortgage rates are also increasing from record-low levels, as those banks not flush with deposits face higher funding costs following the People’s Bank of China’s recent round of short-term interest rate rises.

Transaction volumes are already being hit: Home sales in square-meter terms dropped by about 30 per cent in the final week of April from the same period a year ago, according to data for 26 major cities tracked by research institute CREIS. What’s more, land prices are becoming exorbitant, limiting just how much real estate firms can add to their development banks.

Even if companies do purchase more land, it’s questionable how much of those higher costs can be passed on to home buyers.

According to Bloomberg Intelligence analyst Patrick Wong, China Jinmao Holdings Group Ltd. saw the cost of new land triple to an average RMB19,400 per square meter in 2016 from 2015, while real estate expenses at Guangzhou-based KWG Property Holding Ltd. surged by 130 per cent.

Replenishing land banks will hurt the profitability of some developers, particularly the highly indebted ones like China Evergrande Group and Guangzhou R&F Properties Co., both of which are counting on relisting in China as a way of tapping higher valuations.

Sunac China Holdings Ltd., which had total debt of US$16.3 billion in fiscal 2016 and a market capitalization of US$5.2 billion, is increasing its stake in Jinke Properties Group Co. most likely for that very purpose, announcing Tuesday that units will buy at least 20 million shares over the coming 12 months.

So while property curbs may not have had much of an impact in the past, this time it’s different. You can already see it in the prices of Chinese property stocks in Hong Kong: Investors be warned, this could be just the start. Bloomberg Gadfly

77.1

South Korean President Moon Jae-in speaks during a press conference at the presidential house in Seoul. Lusa

Moon’s South Korean Ostpolitik

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oon Jae-in of the Democratic Party of Korea has just been elected South Korea’s new president. This is the second conservative-to-liberal transition of power in the country’s democratic history. It began unexpectedly last October, with the eruption of a corruption scandal involving then-President Park Geun-hye, culminating in her impeachment and removal from office earlier this year. Although Park’s ouster was painful, it also demonstrated the resilience of South Korea’s democracy.

Moon will take office at a time of heightened tensions with North Korea. To understand what kind of policy he will pursue requires familiarity with liberal foreign-policy thinking in South Korea since the 1998-2003 presidency of Kim Dae-jung.

Kim had watched the Cold War come to a peaceful end in Europe, and he wanted to bring his own country’s on-going confrontation with the communist North to a similarly nonviolent conclusion. So he pursued direct engagement with North Korea, and his “Sunshine Policy” was taken up by his successor, Roh Moo-hyun. Before he died in 2009, Roh (under whom I served as Foreign Minister) was a political mentor and close friend to Moon.

German reunification, preceded by West Germany’s policy of direct engagement, or Ostpolitik, with East Germany in the last decades of the Cold War, was a source of profound inspiration for Kim. Former German Chancellor Willy Brandt began pursuing Ostpolitik in earnest in the 1970s, and Helmut Kohl maintained the policy after he came to power in 1982. Although Ostpolitik could not change the East German regime’s nature, it did make East Germany heavily dependent on West Germany, and gave Kohl significant political leverage during the reunification process.

Of course, most Korean liberals recognize that North Korea is not East Germany, which never threatened West Germany or the United States with nuclear weapons. But Moon and his supporters nonetheless find it regrettable that conservative South Korean presidents since Lee Myung-bak did not maintain the Sunshine Policy, as Kohl had done with Ostpolitik. If they had, North Korea might have become more dependent on South Korea than on China, in which case U.S. and South Korean leaders would not have to plead constantly with China to rein in the North Korean regime.

South Korea’s liberals also recognize that the strategic situation has changed significantly since the Kim and early Roh eras, when North Korea had not yet become a de facto nuclear state. To realize his liberal dream of national unification, Moon will have to confront a much larger challenge than anything his predecessors faced.

Moon will still pursue his dream, but he will do so prudently, and with an eye toward geopolitical realities. In a recent interview with the Washington Post, he made it clear that he sees South Korea’s alliance with the U.S. as the bedrock of its diplomacy, and promised not to begin talks with North Korea without first consulting the U.S. But, beyond formal talks, he could also try to engage with the North by reviving inter-Korean cooperation on health or environmental issues, which fall outside the

“

Yoon Young-kwan former Minister of Foreign Affairs of the Republic of Korea, is Professor Emeritus of International Relations at Seoul National University

scope of international sanctions.

Over the last nine years, conservative presidents – especially Park – cut all contacts with North Korea to try to push it toward denuclearization. South Korean liberals argue that this policy compromised the national goal of peaceful reunification, by turning it into an empty slogan. They believe that maintaining inter-Korean relations will lay the groundwork for reunifying the Peninsula, just as Ostpolitik did in Germany. Thus, Moon will most likely pursue a two-pronged strategy that pairs denuclearization with engagement and preparations for eventual reunification.

Moon has acknowledged that strong sanctions will be necessary to bring North Korea to the negotiating table. So his government will have no fundamental disagreement with the U.S., especially now that Secretary of State Rex Tillerson has said that the U.S. is not seeking regime change in North Korea.

Moon will also have more flexibility than his conservative predecessors to accommodate a U.S.-led Iran-style deal aimed at freezing North Korea’s nuclear and missile activities. But if U.S. President Donald Trump tries to make South Korea pay for America’s recently deployed Terminal High Altitude Area Defense (THAAD) anti-missile system, Moon will have to refuse.

Otherwise, he would face a serious domestic backlash from both the left and the right.

A final but crucial issue is China, with which Korea has had a bitter history. China has intervened whenever it has viewed the Korean Peninsula as a potential beachhead for an invading maritime power. China intervened in 1592, when Japan prepared to attack the Ming Dynasty by first subduing Chosŏn Dynasty Korea.

It happened again during the Sino-Japanese War of 1894, and then during the Korean War in the early 1950’s.

Despite this history, Korean liberals recognize that Chinese cooperation will be necessary for achieving reunification. Accordingly, Moon’s government will have to maintain a rock-solid alliance with the U.S. while trying to improve relations with China, which have cooled since South Korea decided to host the THAAD system. Moon might try to soothe Chinese concerns by suggesting that the system is temporary, and could be removed, pending North Korean denuclearization.

Those who predict that a Moon presidency will disrupt South Korean relations with the U.S. and Japan are surely mistaken. After all, it was during the liberal Roh presidency that South Korea concluded the South Korea-U.S. Free Trade Agreement, allowed for U.S. troops to be redeployed within its borders, and dispatched its own troops to fight alongside the U.S. in Iraq.

Moon will affirm that legacy and attempt to revive another, an updated and renewed version of the Sunshine Policy, which embodies South Korea’s most fundamental long-term aspiration. Project Syndicate

To realize his liberal dream of national unification, Moon will have to confront a much larger challenge than anything his predecessors faced

”

16 Business Daily Thursday, May 11 2017

Closing Banks

Mainland lenders’ profits rise in Q1 assets of Chinese banks which reached Chinese commercial lenders brought in more profits in the first quarter of this year, while the quality of their assets remained stable, China’s top banking regulator said yesterday.

Net profits of all Chinese lenders stood at RMB493.3 billion (US$71.4 billion) in Q1, representing growth of 4.61 per cent year on year, said China Banking Regulatory Commission (CBRC).

However, the pace was slower than the 14.3-per cent growth year on year in total

RMB238.5 trillion, showing the profitability of commercial lenders was waning.

Chinese lenders’ bad loan ratio remained almost flat at 1.74 per cent at the end of March 2017, said CBRC. The banks’ loan loss provisions, funds set aside to cover potential loan losses, reached RMB2.82 trillion, RMB156 billion higher than the end of 2016.

The average capital adequacy ratio, the ratio of a bank’s capital to its risk-weighted assets, stood at 13.26 per cent. Xinhua

Belt and Road

China says Silk Road plan is not tied to presidency Authorities have repeatedly rebuffed concern that the plan is part of a grand strategy to expand its economic interests for selfish gain and to seek global dominance

C

hina’s President Xi Jin­ ping initiated the ambitious “Belt and Road” develop­ ment plan but it has become a world plan not tied to his presidency, the Commerce Ministry said yesterday, days before Xi hosts a global forum on the initiative.

The forum in Beijing next week will draw heads of state to discuss Xi’s plan to expand trade links between Asia, Africa and Europe through billions of dollars in infrastructure investment.

Gentiloni, is set to join.

China says between 2014 and 2016, its businesses signed projects worth US$304.9 billion along inland and maritime corridors of the plan, also known as the New Silk Road. But some of the projects could be in de­ velopment for years.

Judging by recent precedent in China’s political system, Xi is slated to step down from the presidency in early 2023 at the end of his second five-year term.

Asked what guarantee the world

had that the initiative would go on after Xi’s second term, Vice Minister of Commerce Qian Keming told a news briefing that its vitality lay in countries’ hopes for development and not in the idea of “who pro­ posed it or what term in office there is later”.

“The Belt and Road initiative was proposed by President Xi in 2013, but this initiative is not an individual proposal, or merely left at a proposal level. Rather it is an initiative that has been widely received by the whole world. It is jointly owned by every­ one,” Qian said.

China has repeatedly rebuffed con­ cern that the plan is part of a grand strategy to expand its economic in­ terests for selfish gain and to seek global dominance, saying that anyone

can join the plan to boost common prosperity.

Xi has used the initiative to help portray China as an open economy, distinct from a rising wave of global protectionism.

However, the government has faced criticism from foreign business groups and governments alike, who say it has done little to remove dis­ criminatory policies and market bar­ riers that favour Chinese companies.

Foreign business groups have questioned whether multinational companies would be able to compete with Chinese firms through the plan in transparent bidding processes.

Zhang Xingfu, an official from the Commerce Ministry’s cooperation department, played down such concerns.

“Chinese enterprises conducting investment and cooperative business in countries along the Belt and Road initiative will ... actively participate in project bidding, and cooperate and compete with international enter­ prises in the same industries on the same platform,” Zhang said. Reuters

“The Belt and Road initiative was proposed

by President Xi in 2013, but this initiative is not an individual proposal, or merely left at a proposal level” Qian Keming, China’s Vice Minister of Commerce Representatives from more than 100 countries will attend China’s big­ gest diplomatic event of the year, though only one leader from the Group of Seven (G7) industrialised nations, Italian Prime Minister Paolo

President Xi has used the initiative to help portray China as an open economy, distinct from a rising wave of global protectionism

Labour condition

Results

Ethics

Portuguese doctors launch two-day strike

SoftBank net profit triples thanks to Alibaba sale

Trump’s newest Wall Street watchdog sidesteps scrutiny

Portuguese doctors launched a 48-hour strike yesterday to protest at working conditions and budget cuts, with only minimum healthcare being offered at public hospitals nationwide.

“All signs show strong turnout for the strike,” Diana Povoas, a leader of the National Federation of Doctors told AFP, without providing figures.

“Most non-emergency surgeries and appointments are not taking place, but the atmosphere is calm in hospitals. Patients understand the reasons for the strike because they also feel a decline in services.”

The public health system employs 26,000 doctors across the country.

Minimum healthcare services will be ensured during the strike, which has been organised by the federation and another doctors’ union known as SIM. Doctors are seeking a reduction in work hours for emergency workers from 200 hours a year to 150. They are also calling for the withdrawal of budget cuts decided by the former centre-right government. AFP

Japanese mobile giant SoftBank yesterday said its fullyear net profit tripled largely thanks to one-off gains from the sale of a stake in Chinese e-commerce titan Alibaba.

The company said net profit for the year ended in March came in at 1.43 trillion yen (US$12.6 billion), compared with 474.17 billion yen the previous year. Operating profit rose 12.9 per cent.

SoftBank said it booked 238.10 billion yen in gains from share sales in other companies, mostly resulting from the sale of a partial stake in Alibaba, China’s equivalent of eBay. The firm said last year that it planned to reduce its stake in Alibaba from 32.2 per cent to about 28 per cent.

In June it also sold Finnish game-maker Supercell Oy, creator of “Clash of Clans”, to Chinese internet behemoth Tencent for $8.6 billion.

SoftBank also highlighted improvements in its US subsid­ iary Sprint -- though a strong Japanese yen offset much of the positive impact -- as well as profits booked from the acquisition last year of British iPhone chip designer ARM Holdings.

It also noted improved domestic telecom operations in Japan. AFP

The Trump administration used a highly unusual personnel move to skirt Senate confirmation and standard ethics requirements when it installed a financial services lawyer atop a powerful banking regulator.

Keith Noreika’s transition from representing banks to overseeing them came courtesy of a quick twostep. He was made “first deputy” at the Office of the Comptroller of the Currency, a designation that en­ sured he would ascend to the top job once it opened.

Then the administration ousted Thomas Curry, an OCC head picked by Barack Obama who had imposed tough rules and record fines on lenders. Just like that, Noreika became acting comptroller.

While the OCC says Noreika has mitigated potential conflicts, there’s been no public disclosure of an ethics agreement or his former clients. He represented Wall Street firms and an online brokerage that needs the OCC’s sign-off to complete a merger, according to legal filings and a biography that was posted on the website of his previous employer, law firm Simpson Thacher & Bartlett. Bloomberg News