Business Daily #1305 May 29, 2017 by Business Daily

Gaming activists run for legislative assembly Election Page 6

Monday, May 29 2017 Year VI Nr. 1305 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Labour

Unemployment rate remains stable at 2 pct in first four months of 2017 Page 3

WTCC participation in 64th Macau Grand Prix still unclear Page 6

www.macaubusinessdaily.com

Currency

Beijing plans to change the formula for determining the yuan-U.S. dollar central parity rate Page 8

Summit

Climate accord divides G7 members Page 14

Breeding MICE Events

The MSAR’s MICE events saw a surge in participants, up 62 pct y-o-y in the first three months of the year. The total number of events, 366, also rose by 18 pct y-o-y, with 66 pct of events corporate meetings and 22 pct association meetings. Only 7 pct of events were conferences, exhibitions and incentive activities. Of the seven exhibitions held, average duration was three days, with a near 49 pct increase in participants in Q1. Page 2

The evolving Mainland customer and how different generations see hospitality offerings are shaping the way that the industry acts. More sophisticated, well-travelled customers, increased competition, and a more diverse crowd keeps Banyan Tree Macau on its toes, says the property’s General Manager, Fabrice Collot, sharing some of his entrepreneurial insights and experiences in the MSAR. Interview | Hospitality Pages 4 & 5

HK Hang Seng Index May 26, 2017

Reporting on reports

AL No legal violations have been found in the wake of a CCAC report on economic housing applications, while the related departments are working to fix the 61 affected households whose applications were invalidated by the Housing Bureau, says the Secretary for Transport and Public Works. In addition, Shun Tak is in the clear over its land swap resulting from the Iec Long Firecracker Factory, having handled procedures appropriately, states the Secretary. Page 2

Chinese industry profits rise

Manufacturing Mainland industrial profits rose in April as global trade increased. Output in the world’s largest manufacturing nation is booming on the back of stronger global trade and investment, handing producers better pricing power. China’s exporters are capitalizing on the improved demand amid concern that the global economy may slow in the longer term. Page 8 25,639.27 +8.49 (+0.03%)

Worst Performers

Geely Automobile Holdings

+1.20%

CITIC Ltd

+0.66%

Lenovo Group Ltd

-3.37%

BOC Hong Kong Holdings

-0.86%

Sands China Ltd

+1.01%

China Construction Bank

+0.62%

Cathay Pacific Airways Ltd

-1.84%

China Shenhua Energy Co

-0.83%

Bank of East Asia Ltd/The

+0.94%

Industrial & Commercial

+0.58%

MTR Corp Ltd

-1.03%

China Mobile Ltd

-0.81%

China Petroleum & Chemical

+0.79%

Hang Seng Bank Ltd

+0.55%

PetroChina Co Ltd

-0.94%

CLP Holdings Ltd

-0.71%

Want Want China Holdings

+0.73%

China Mengniu Dairy Co Ltd

+0.51%

CNOOC Ltd

-0.87%

China Life Insurance Co Ltd

-0.59%

24° 28° 25° 28° 26° 28° 26° 30° 25° 29° Today

Source: Bloomberg

Best Performers

Tue

Wed

I SSN 2226-8294

Thu

Fri

Source: AccuWeather

Service with a smile

2 Business Daily Monday, May 29 2017

Macau Customs

Big Data to simplify clearance carried out, local broadcaster TDM Deputy director of General Administration of the Customs Guangdong Branch and Commissioner of Gongbei Customs, Zhao Ming, said on Friday that research into utilising Big Data for the simplification of clearance procedures between Guangdong and Macau is currently being

Radio News reported. The research will include studying the differences in standards for product inspection between the two regions. The Chinese authority also revealed that integration of the national clearance system will be rolled out by the second half of this year. C.U.

Secretary Rosário: no indication of violation from CCAC report Legislators pointed out the lengthy procedures for completion of deeds for housing applicants and urged the gov’t to expedite the process Cecilia U cecilia.u@macaubusinessdaily.com

he Secretary for Transport and Public Works, Raimundo do Rosário, believes that there was no indication of legal violations arising from the findings of a CCAC (Commission Against Corruption) report on economic housing applications. “The Housing Bureau had different opinions between then and now,” said the Secretary during a plenary session at the Legislative Assembly on Friday, noting that the report made by the anti-graft watchdog only points out the deficiency of the economic housing law. Taking into account the suggestions made by CCAC, the Secretary pledged to review the law, eliminate its ambiguities and prevent future misinterpretations. The Secretary expects the revision of the law to be completed in a few months, given that the scale of the revision is not significant. However, he was not able to provide an exact date for the review’s completion.

Earlier this month, CCAC slammed the Housing Bureau’s practices, reporting that it had altered the instructions given to the public, as well as its practices over the years, resulting in situations in which applicants who followed the instructions could lose their economic housing units. In particular, the Bureau had turned down applications for those who had altered their marital status while waiting for the acquisition of the deed. However, the Bureau worked to alter this by sending out official letters to the 61 affected housing applicants, announcing the invalidity of the previous application denials. Following the response by the Secretary, legislator Ho Ion Sang, as well as other lawmakers, expressed their views that the lengthy procedures for creating the deeds was one of the most important reasons for the situation. In response, Arnaldo Ernesto dos Santos, the president of the Housing Bureau, affirmed that approval documents have successfully been sent out to affected applicants, but

that re-examinations will still need to be performed to check whether the applicants and related family members have owned any properties. “We need to wait for information from the Financial Services Bureau and the property registration board [in order to work on the deeds],” said the Bureau president. According to the Bureau head, on average the Bureau completes 4,000 approval documents a year, adding that over 400 applicants had failed to submit documents last year.

Current progress for Iec Long Firecracker Factory

In the wake of the report released by CCAC almost a year ago, Secretary Rosário said on the sidelines after the

plenary session, that the government has started procedures to reclaim the part of the Iec Long Firecracker Factory that belongs to the government. A CCAC investigation last year revealed that a 1,655 square-metre plot of private land in the Iec Long Firecracker Factory was exchanged for 152,073 square metres of land in Baía da Nossa Senhora da Esperança, via a series of transactions and land swaps through various companies. One of the involved companies, Shun Tak Limited, has leased an area measuring 18,344 square metres in the NAPE area - where One Central is currently situated - via a land swap with the government, swapping part of the plot in Baía da Nossa Senhora da Esperança which Shun Tak had obtained in 2002. The Secretary said on Friday that the leasing contract of the NAPE plot to Shun Tak was made under appropriate procedures, noting that “other matters will be handled by other departments”. Meanwhile, following the arrest of 21 people for alleged corruption relating to falsified test results of concrete used on the Hong Kong-Zhuhai-Macau Bridge, Secretary Rosário affirmed that similar practices were not carried out for the areas of the project that Macau was responsible for.

Events Satisfaction with exhibition promotions and staff professionalism drops

Bipolar MICE The number of MICE events held in the city went up 18 per cent year-on-year in the first three months of 2017, to 366, with the number of participants and attendees surging by 61.8 per cent, to 222,000 Nelson Moura nelson.moura@macaubusinessdaily.com

The number of participants and attendees at MICE [Meetings, Incentives, Conventions and Exhibitions] events in the MSAR increased by 61.8 per cent year-on-year to 222,000 in the first three months of this year, according to information from the Statistics and Census Service (DSEC). DSEC data also indicates that a total of 366 MICE events were held in the first quarter of 2017, up by 18 per cent year-on-year. Of the total number of events, 65.6 per cent were corporate meetings and 21.6 per cent were association meetings, with only 7.1 per cent being composed of conferences, exhibitions and incentive events (See Graph 1) In total, 344 meetings and conferences were held in the first quarter, up by 17 per cent year-on-year, with the number of participants surging by 111.9 per cent yearly to 54,000.

three more than in the same period last year. The average duration of these exhibitions was 3.0 days, with the number of attendees rising by 48.9 per cent year-on-year to 163,000 in the first three months of this year. According to information collected from the organizers of the seven exhibitions, receipts of these exhibitions amounted to MOP5.5 million, with 78.9 per cent coming from rental of exhibition booths. Financial support

for the seven exhibitions provided by the government or other organizations accounted for 21.1 per cent of total financing of the exhibitions. Expenditure on the exhibitions totalled MOP5.6 million, mainly incurred by publicity and public relations activities, at 33.6 per cent, while production, construction and decoration represented 31.1 per cent

(See Graph 2). The level of satisfaction of the 160 interviewed exhibitors regarding the promotions of the exhibitions fell 13.9 percentage points quarter-to-quarter, to 42.8 per cent, in the first quarter of the year. Meanwhile, the satisfaction with the professionalism of the venue staff also fell 16.6 percentage points quarterly to 63.9 per cent.

Exhibition growth

Between January and March of this year, seven exhibitions were held,

Graph 1, Source: Statistics and Census Service (DSEC)

Graph 2, Source: Statistics and Census Service (DSEC)

Business Daily Monday, May 29 2017 3

Macau Employment

Unemployment rate remains stable

he city’s unemployment rate held stable at 2 per cent during the first four months of the year, according to the most recent information from the Statistics and Census Service (DSEC). Regarding local residents, the unemployment rate dropped by 0.1 percentage point, to 2.7 per cent, while the underemployment rate remained stable when compared to the January – March period, at 0.5 per cent. During the February-April period, there were a total of 389,200 individuals in the labour force, with the labour force participation rate undergoing a slight increase of 0.1 per cent from the previous period, to 71.1 per cent. Total employment hit 381,500, of

which 280,000 were local residents, up by 2,000 and 1,900 individuals, respectively, from the previous period. By principal industries, the wholesale and retail trade saw its employment decrease by 2 percentage points

during the three-month period, with the employment rate at 46.5 per cent at the end of the period. In contrast, the employment rates for construction as well as restaurants and similar activities experienced

increases of 3.8 and 3.2 percentage points, ending up at 36.5 per cent and 23.6 per cent, respectively. The city, as shown by the DSEC data, had a total of 7,700 unemployed during the February to April period, 200 fewer when compared to the January to March period. Fresh labour force entrants searching for their first job made up 9.7 per cent of the total unemployed, the same proportion as in the previous period. When compared to the same period a year ago, the unemployment rate increased by 0.1 percentage point and the city’s labour force participation rate dropped by 1.1 per cent. Meanwhile, the underemployment rate hovered at the same position when compared to the same period of last year. C.U.

Election

Gaming activists run for legislative election Cloee Chao, president of the New Macau Gaming Professionals Association, has pledged to run in the upcoming legislative election, submitting her nomination list on Friday, according to TDM Radio news. The gaming activist claims her participation in this year’s Legislative Assembly (AL) election is to strive for a Union Law and for benefits for gaming workers. The group proposed eight

individuals to run in this year’s election, with the order of nominees to be determined at a later stage. In response to recent reports revealing that ‘red packets’ were being given out in a group chat by the association on Wechat in order to ask for nominations, Chao stated that the quantities in the packets was low, MOP1 or less being given out in each case. The president argued that

the report misrepresented the facts in order to give a false impression of bribery, claiming the group will lodge a complaint with the Electoral Commission. Meanwhile, speaking to Business Daily, Angela Leong On Kei, legislator and executive director of Macau casino operator SJM Holdings Ltd., commented that “everyone has the right to get involved in politics and the election”. Legislator Melinda Chan

Mei Yi, with her spouse David Chow Kam Fai, the co-chairman and chief executive officer of Macau Legend Development, said she is in fact hoping that more people will take part in this election.

“[With more people to run in the election], the sense of democracy is getting more significant and more people supporting the election is a good thing,” said legislator Chan. C.U.

4 Business Daily Monday, May 29 2017

Macau Interview | F&B

Ready for the increase Having worked in the hotel and F&B industry in over 13 countries, Fabrice Collot took on the role of General Manager for Banyan Tree Macau in June of 2016. After one year in the city Mr. Collot tells Business Daily about his entrepreneurial experiences, his view on the changing needs of Chinese clients and how to maintain the high standard Banyan Tree has developed in the MSAR Nelson Moura nelson.moura@macaubusinessdaily.com

ow did you become involved in the hospitality industry? I was a chef before, working for the French government for 10 years and travelling extensively. When my daughter was a child I decided to slow down and settled in Cincinnati in the United States where I opened a pastry shop and then a restaurant. What did you gain from your experience as an entrepreneur? It was very enlightening for me to be my own boss. I learned that you have to rely on yourself, if you

want something done you have to do it yourself. Of course you have employees, but the last word is still yours. Whatever you decide to do, if it’s right or wrong, you need to bear the consequences. When you see a business 10 years down the road and it’s successful, people tend to forget that the road was very difficult. You have to make decisions that are sometimes very painful with the people that you’re working with, and for your family too, since you’re working countless hours. I made the decision to leave America for personal reasons. I had a great time there, but it’s a bit like China in the sense that you’re a bit isolated; if you want to go to other countries you’ll have to be four to five hours on

a plane. In Europe you’re not used to that, everything is very close. I was missing that, since my first love was travelling and not anything else, so I resumed my travels and decided to go to Russia, which at the time was a good place to be, and to reinvent myself and re-launch my career. How different was your experience in Mainland China compared to the other countries where you had worked? China is a very different world. Everything is different. The first challenge was the language, since not that many people in China speak English, so being understood for me was the main challenge. Even if you have someone to translate, you can’t

really assess if the translator is really saying what you want, since the facial expressions and the gestures are also very different. It’s very surprising in the beginning - you make a oneword sentence that is translated for 15 minutes. It makes you think: ‘did I really say that much’? How would you describe the main traits of the typical Chinese consumer? I think it’s evolving extremely fast. I would compare them to how Japan was 25 years ago in terms of tourism, in terms of this mass of tourists that are moving all together on buses that are chartered from one point to another. There’re very few independent tourists, but what I’m describing was three years ago. Now the changes that would have occurred in 15 years can occur in just three years, the pace is much faster. You can now see many Chinese youngsters going to many strange locations that the older generations maybe didn’t dare to go to. You’ll see travellers alone or in couples, I wouldn’t exactly say backpackers but more independent travellers, now more than ever and in a very short time. It’s quite an accomplishment. The expectations younger and older generations have for ideal hotel service are very different, because when they go back home they’ll say ‘okay this is a bad hotel and this is a good hotel’, which probably wasn’t the case five years ago.

“To date I’m going to say that we didn’t really decline, on the contrary, our occupation rate is higher than in last year” D o y o u b e l i ev e th e av e rag e Chinese traveller is becoming more sophisticated? Well, more sophisticated and also more aware of their surroundings. I think before they were travelling mainly in China or in Asian countries. Now you see Chinese travellers all around the world and they know what is a good and a bad hotel. They know what’s good food and what their personal taste is. When hotel chains were opening in China 15 years ago, they were doing it a bit cowboy style: you take it or leave it, which is an approach that doesn’t exist anymore. So what brought you to Macau? I’ve been in Macau for almost a year. I was working in Mainland China, for a Chinese company named Wanda. I worked for Banyan Tree five or six years ago and always kept it in my heart. We split amicably and when I heard about this position, in one of the flagships of the company, I proposed myself to come back, and since they liked my previous work they rehired me.

Fabrice Collot, General Manager for Banyan Tree Macau

You arrived in a period where the Macau gaming economy was starting to rebound. In what ways have you seen change? I’ve definitely seen a change, the pace is picking up. We were a bit afraid of the opening of two large units [Wynn Palace and The Parisian] and with the new MGM coming, and we didn’t know what to expect to be honest. Wynn has a very high quality product as well, so we were expecting competition to be fierce. However to date I’m going to say that we didn’t

Business Daily Monday, May 29 2017 5

Macau

really decline. On the contrary, our occupation rate is higher than in last year. So far so good, and I think the excess inventory has been absorbed by this extra flux of people. So you haven’t seen any signs of cannibalisation of the market? We are a 260-room hotel, not a 1,000 or 3,000 property, so we don’t see it as much as other hotels. We’re also in the top tier of hotels, so the market is even smaller. This month we’re running at a 98.8 per cent occupancy rate and our budget is at 97 per cent so we’re almost at 100 per cent every day. Last year was good, this year will be even better. How does Banyan Tree Macau distinguish itself from other hotels? It’s a very different product. Your rate also determines the kind of clientele you’re going to have, just like buying a car. If you buy a Porsche it won’t be the same as a Volkswagen. Our clientele is the top tier and are people that can afford to be here. Our product is also very different since our smallest room is 100 square meters. Banyan Tree is also all about spa, so it’s a different kind of clientele we’re catering to. Of course we are imbedded in Galaxy, so the lion share of the clients are coming from the casino.

“Our clientele on the weekends is willing to pay more to stay with us, so I think we’re on the right side” Do you think the typical clientele that comes to Macau has changed in the last year? We see a more diverse crowd now than when I started. The people are not coming to Macau only for gaming, which will be one of the components of what they want to experience, but not the only component. We get a lot of foodies coming from Hong Kong as the Macau food scene is becoming more high-end. You have three- or two-star Michelin rated restaurants, you have small local restaurants, Portuguese restaurants. It’s extremely diverse and people are coming for the cultural heritage aspect, mixing it with a bit of gaming. Of course you’ll have the hard-core gamers and gamblers that will come and stay only in the casino, but I think the proportions are shifting with more

and more people coming for more than gaming. In terms of nationality, lately we’ve seen an increase in visitors from Thailand and Taiwan, but 95 per cent and more are coming from Mainland China. What portion of the hotel’s services are dedicated to event organizing? For us it’s very important, we have a large ballroom and a few function rooms so we need to drive revenues through that. Of course we’re catering to MICE (meetings, incentives, conferences and exhibitions) as much as we can, since we have a high level of occupancy so there’s not a lot of room left. Local events are the key for us. Weddings and other events we try to generate ourselves, such as the White Party in partnership with Moet & Chandon. They are our main supplier of champagne to the hotel and we are one of the only ones in Macau that carry the Ice Imperial bottles, which are made especially for outdoor venues. We’re going to move in the direction of creating our own events. In size terms, we’re not MGM or The Venetian so we don’t have the capacity to host these kinds of events, but in our scale we’ll try to have more and more events that interest the local population. We want to bring new things to revamp and give a little bit more dynamic to our F&B offering. How important is the MICE sector for Banyan Tree? Our inventory is limited so we also partner with Hotel Okura, which has more room than us. Either we split the group: management stays with us with lower management staying with Okura. We are in the same building, with the same lift for the banquet area, so it’s very convenient and more economical for the companies. We excel in smaller groups. How would you say the VIP market is faring in Macau at the moment? Honestly for us it is getting better. We see high rollers are coming back. Our clientele on the weekends is willing to pay more to stay with us, so I think we’re on the right side. Mainland Chinese are coming back also, and the mix of people from different countries is larger than it used to be. We see more clients from far away countries, a lit bit further than Mainland China or Hong Kong. What policies would you like to see the MSAR Government implementing? On my side, I guess I would like to see an extension of the airport or an

open sky policy since we only see local or regional planes landing in Macau. If larger international planes could land here it would be ideal, since if you want to come to Macau from international destinations you have to go to Hong Kong. We are losing a portion of people I think that stay in Hong Kong and come to Macau for only one day or one night. Having a large international hub like Dubai, where the airport and airline company Emirates Airlines is used to drive tourism in the destination, would be very helpful. I don’t know to what extent this would be possible, but Macau should be promoted as a destination not just for gaming, and use all means at our disposal to bring people here, not to Hong Kong.

“The expectations younger and older generations have for ideal hotel service are very different” The Taipa Ferry terminal has just opened and other projects such as the Hong Kong-Zhuhai-Macau Bridge are under construction. How do you think these projects will impact visitation to the Cotai area? The projects are all great. To have a new ferry terminal driving more people here through sea, it all goes in the right direction of driving people straight to Macau. Do you think the city is ready for more than 30 million visitors a year? I believe so. We’ve seen an increase in foot traffic in hotels and Galaxy in general. Cotai is on the right side for that because it’s easier to be transported and go around here than on the Macau peninsula. The new terminal will help. Do you consider that Macau has all the elements to be a World Centre of Tourism and Leisure? I would say not yet, but aiming towards that. Does Banyan Tree Macau usually hire local companies through its procurement? Yes, for services I would say 90 per cent is done locally. For all procurement needs we go through Galaxy, centralising everything. We have a

very limited impact on that. There are five hotels in the property so you need to have synergies and lower your costs. How about in terms of employees, what is the percentage of local residents? I believe about 35 per cent are residents. Of course we’re always looking for more but, like everybody else, we have some problems. I understand the need for the government to cater to its own citizens, but some speciality work is not easy to find locally and we’re competing with many more casinos. It takes time to train the right people for the right position, and maybe they won’t stay with you. When I was working in Bahrain, we had to have 40 per cent of locals and it was very difficult as well to find local qualified workers willing to work in the hotel business. What kind of sustainable policies has Banyan Tree implemented? Banyan Tree was a pioneer in corporate social responsibility (CSR), when it opened 25 years ago. These policies became larger and larger. The CSR department is headed by Ms. Ho, wife of our chairman, who puts a huge emphasis on sustainability. We don’t just talk the talk, but we also walk the walk. We have many policies to reduce our carbon footprint and we look to reduce our waste year after year. The same thing for electricity and water consumption, which we try to reduce at least by 5 per cent every year. We’ve also almost finished changing all our lightbulbs to LED’s. What are Banyan Tree Macau’s objectives for this year? This year we’re planning to renovate part of the hotel, starting from the villa - our key differentiation product. The mock-up has already been done and we’ll proceed forward when everybody is happy with it. Then we will continue with the tower building, with a two-year plan to renovate the entire hotel. We will not extend its room capacity, this one is the largest hotel the group has now. There are 11 projects being developed in Mainland China, with some being larger, and 10 already functioning in the country. How about the Japanese market? In that market, we’re opening a hotel in Okinawa towards the end of the year. Banyan Tree is very Asiancentric and we always try to develop with local partners, which is the best solution nowadays, as hotels are becoming more and more expensive as clients demand more and more amenities. You have to have a partnership.

6 Business Daily Monday, May 29 2017

Macau Opinion

Sheyla Zandonai* Expanding West Figuring out the scope of the One Belt, One Road (OBOR) initiative is not hard. It is massive, to say the least. China’s new expansionism is driving west by covering the territorial basis of Central and West Asia, up to the Middle East and Europe, connecting localities from the historical Silk Road. As for the initiative’s maritime chapter, stretching from China to Southeast and South Asia, we still have not heard much about it. But given that virtually anything seems to fit the plan first promoted by China’s President Xi Jinping by the end of 2013, it may start taking shape soon. Strangely, but not surprisingly, hence, the initiative is stretching further to the Portuguesespeaking countries, owing to the Macau ‘link.’ I suppose it makes sense that this part of the plan is harnessed to its maritime chapter. And so this leads us to the part that’s difficult to grasp about the OBOR initiative: how does it translate into concrete actions, strategies, and policy? Let’s try to straighten a few things out. Although colossal in purpose, the OBOR is basic in principle. Through investment in the development of infrastructure, private and public, it seeks to strengthen the links between China and some dozens of countries and localities, mainly those extending along the landbased road. China realized that underinvestment in transportation infrastructure in Asia was a huge opportunity for securing the basis to export its production excess – amidst slower economic growth and weaker consumer demand at home – and selling infrastructural equipment to developing countries along the way. So, it is betting on expansionism old style by providing opportunities for development and industrialization, while grounding partnerships with economically-striving countries which would be happy to oblige. Connecting Asia through infrastructure-driven economic growth. Smart move China. In the meantime, the motherland is stocking on its hegemonic plans by striving to “re-Orient”** the world’s economic centre toward itself, echoing its leading role in the tributary system it commanded before European maritime hegemony, which extended as far as the Levant. Now, what? With the hype building up again after the OBOR Forum that took place in Beijing in mid-May, expectations are renewing and Macau is caught in the loop. Let’s hope the reconstruction of the Super Bridge linking Macau, Hong Kong, and Zhuhai is not one of the infrastructure plans in the pipeline.

** I borrowed this expression from Andre Gunder Frank’s eponymous book

*scholar and contributor to this newspaper.

Grand Prix

FIA not forward about WTCC in Macau No confirmation yet on the part of FIA regarding the World Touring Car Championship (WTCC) participation in the 2017 Macau Grand Prix Sheyla Zandonai sheyla.zandonai@macaubusiness.com

here are still no updates about the participation of the World Touring Car Championship (WTCC) in the 64th edition of the Macau Grand Prix (Macau GP), to be held from November 16 to 19 this year. A spokesperson for the local Sports Bureau told Business Daily on the phone last Friday that the current status of the WTCC race for the Guia circuit was still “not confirmed”, corroborating the comments made by the President of the same bureau, Pun Weng Kun, towards the end of last week. Last Thursday, contradictory positions emerged about the whether the WTCC would be part of the Macau GP this year, on the sidelines of the event held to announce this year’s rundown. Whereas Pun said that the participation of the World Touring Car Championship was not yet a final deal, it appeared as scheduled on the

website of the International Federation of Automobiles (FIA) WTCC. While reinforcing previous declarations by Pun to Business Daily on Friday, the Sports Bureau spokesperson added that the WTCC and the [Macau Grand Prix] Organizing Committee had held “preliminary discussions only” at this point. “They are in a very early stage of contact, although I don’t know by which means the contact was made. I can only say that WTCC showed interest,” the bureau representative explained. Business Daily contacted the office of WTCC in the U.K. however the group’s response on the issue is still pending. On the other hand, the spokesperson for the local sports bureau further said that there is no deadline currently set as to when a decision regarding the matter would be reached.

Puzzling

As of Sunday May 28, the return of the WTCC to the Guia circuit was still posted online on the FIA’s official

website, reading that ‘after two years away, the world’s fastest international touring car series returns to the [Macau] Special Administrative Region of the People’s Republic of China, restoring the famous Guia Race to its former glory in the process.’ The return of the Guia Race of Macau to the WTCC 2017 season was also news in November 2016, as one of ‘the most significant changes’ of the season, ‘with the calendar confirmed at the World Motor Sport Council (WMSC) in Vienna,’ motorsport.com reported. The WTCC raced on the Macau Guia circuit for ten years, from 2005 to 2014, with 2014 marking the first year of TC1 (Touring Car 1), WTCC’s main category. According to statements by FIA’s WMSC, which bears responsibility for all aspects of international motor sport, the WTCC TC2 category ‘has been deleted for the 2017 season,’ following an extraordinary meeting of the Council held in Geneva January 18 of this year. According to further information by FIA published online, regarding the WTCC 2017 season, it is stated that ‘Macau will now host the penultimate weekend of the campaign,’ different from previous years when the city closed the event.

Gambling addiction

Repeat gamblers According to the Social Welfare Bureau around 14,000 people were suffering from gambling addictions in the MSAR in 2016 Nelson Moura nelson.moura@macaubusinessdaily.com

A total of 14,000 people in Macau were suffering from severe problem gambling in 2016, the Social Welfare Bureau (IAS) told local broadcaster TDM.

The results were revealed in a study commissioned to the University of Macau (UM) last year, with the number contrasting with the fewer-than 900 people the IAS is said to have assisted since 2011. Of the people treated by the IAS, 30 per cent involved casino workers,

with the total number of cases increasing by as much as 150 people per year. According to statements made by the head of the IAS Problem Gambling Prevention and Treatment Division, Wu I Mui, to TDM, there is high probability of recidivism by gambling addicts, with people suffering from the addiction tending to relapse “when they come under stress”. “Even though some patients we saw may have quit gambling for half a year, they are still receiving our counselling services. In many cases we handled, there was a high possibility that our patients returned to gambling, [although] not necessarily in a short time,” Ms. Wu told TDM. However, the IAS representative said gambling addicts can contact the department’s online services and 24-hour hotline. According to the ‘Diagnostic and Statistical Manual of Mental Disorders’ (DSM-5) from the American Psychiatric Association, gambling disorders involve persistent and recurrent problematic gambling behaviours for a period of 12 months. Some of these behaviours involve being restless or irritable when attempting to reduce or stop gambling, gambling when feeling distressed, or making repeated unsuccessful efforts to control the addiction.

Business Daily Monday, May 29 2017 7

Macau Debt securities

Melco Resorts Finance’s US$650 million offering to recover bonds

elco Resorts Finance Limited, formerly known as MCE Finance Limited, announced on the Nasdaq on Friday that it is listing an offering of US$650 million (MOP5.21 billion/HK$5.06 billion) in senior notes. The Nasdaq-listed company, chaired by Lawrence Yau Lung Ho, said the bonds consist of 4.875 per cent of the senior notes of the company due 2025.

Melco Resorts Finance noted it aims to use the net proceeds from the offering to partly fund the recovery of ‘all of its outstanding 5 per cent senior notes due 2021,’ notes a release. The remainder will be funded by US$350 million in proceeds from a drawdown of the revolving credit facility under the amended and restated credit facilities entered into by Melco Crown (Macau) Limited in 2015, as well as cash on hand.

Melco said that will not be a guarantor of the new notes, proposed to be senior obligations of Melco Resorts Finance, ranking equally with all of Melco Resorts Finance’s existing and future senior indebtedness. Melco Resorts Finance Limited announced unaudited consolidated earnings results of US$1.13 billion for the first quarter ended March 31, 2017, slightly up from US$1.01 billion reported in the previous year. S.Z.

Lawrence Yau Lung Ho, the chairman and CEO of Melco Resorts Finance Limited

Sale

Fosun International cashing out subsidiaries in Mainland China In its latest move to cash out of its business, Fosun International Limited, China’s largest privately-owned corporation controlled by Shanghai billionaire Guo Guangchang, announced in a disclosure with the Hong Kong Stock Exchange that it is disposing of several of its indirectly-owned subsidiaries for a total consideration of RMB24.16 billion (US$3.52 billion/MOP28.29 billion). Fosun, which owns a 24-per cent stake in Banco Comercial Português (BCP),

which has a branch in Macau, is selling a total of 17 firms, primarily engaged in industrial investment, investment management, and real estate development, to Yuyuan – a retailer, catering and tourism

group listed on the Shanghai Stock Exchange. Fosun holds a 26.45-per cent stake in Yuyuan through Fosun Industrial and Fosun High Technology. The company further noted

in the filing that all the target companies, apart from two incorporated in the British Virgin Islands, are established in Mainland China. The presence in Macau of BCP, the largest private bank in Portugal, harks back to 1993, although the local branch only expanded its activities in 2010, through the attribution of an onshore full banking licence. In 2005, BCP sold Banco Comercial de Macau (BCM) and Companhia de Seguros de Macau to Dah Sing Bank, a subsidiary of Dah Sing

Banking Group, a Hong Kong-based financial group. Fosun, which is considered to be one of China’s most aggressively acquisitive conglomerates, disclosed in November 2016 the selling of its casualty insurance unit Ironshore to U.S.-based Liberty Mutual Group for nearly US$3 billion, in an effort to lower debts, South China Morning Post reported. Last March, Fosun’s CEO and vice president stepped down, raising further concerns about the group’s strategy. S.Z.

8 Business Daily Monday, May 29 2017

Greater China Industry

Profits up but slowing pace stokes economy worries The slowdown in industrial profits can be attributed to falling prices of finished products and raw material costs

rofits earned by Chinese industrial firms rose 14.0 per cent in April from a year earlier, official data showed on Saturday, slowing from March’s pace and adding to concerns that the world’s second-largest economy may be losing steam. Profits in April rose to RMB572.78 billion (US$83.59 billion), the National Bureau of Statistics (NBS) said on its website.

heated housing market, has boosted demand and prices for materials from steel to cement, giving China’s long ailing “smokestack” industries more cashflow to chip away at a mountain of debt. “Slowing growth of China’s industrial profits is reasonable considering the fast growth experienced earlier this year,” stats bureau official He Ping said in a statement accompanying the data, adding that profits remained strong. The slowdown in industrial profits can be attributed to falling prices of finished products and raw material costs, as well as slower profit growth in industries like steel, autos and chemicals, He said.

If raw material purchasing prices outpace the price of finished factory goods, this will cause industrial costs to rise, particularly for downstream industries, He said, adding that another issue that requires close monitoring is whether financing costs increase for companies. “We are now less pessimistic about short-term growth than we were just two months ago,” economists at Nomura said in a note on May 25. Nomura, which is maintaining its forecast of 6.7 per cent GDP growth for 2017 and 6.2 per cent for 2018, still believes property investment will slow as authorities take steps to cool heated prices, but now believes the decline will be more moderate

and take longer than it originally expected. In addition, the government is expected to keep economic and financial conditions largely stable heading into a key political leadership reshuffle later this year. Liabilities of industrial firms rose 6.7 per cent year-on-year as of endApril, according to the statistics bureau. Profits at China’s state-owned firms rose 58.7 per cent to RMB514.86 billion for Jan-April, compared with a 70.5 per cent rise in the first quarter. The data includes companies with annual revenues of more than RMB20 million from their main operations. Reuters

Key Points Industrial firms’ profits in April up at RMB572.8 bln Jan-April profits up 24.4 pct y-o-y; Jan-March up 28.3 pct Profits had surged 23.8 per cent in March over the same month of last year. For the first fourth months of the year, profits reached RMB2.28 trillion, up 24.4 per cent from the same period last year and compared with a growth of 28.3 per cent in the first quarter. After a roaring start to the year, industrial earnings had been expected to soften in April as prices of iron ore, steel and other commodities fell sharply, and as growth in factory output, investment and retail sales tapered off. A building boom, fuelled by a government infrastructure spree and a

Currency

Beijing considers “X” factor in yuan formula to curb volatility A revised methodology may make the fixing less predictable Winni Zhou and John Ruwitch

China is changing how it calculates the yuan’s guidance rate for the second time this year as it steps up efforts to stabilise the currency and reduce price swings, but some analysts and traders say they are not certain how the process will work. The China Foreign Exchange Trade System (CFETS) trading platform, overseen by the central bank, said a “counter-cyclical factor” would be introduced into the way it calculates the yuan’s reference rate each day allowing it to better reflect supply and demand. The yuan is allowed to trade in a band of two per cent above or below the daily midpoint rate. The People’s Bank of China’s current formula factors in the yuan settlement rate against the U.S. dollar at 4:30 p.m. as well as changes to a trade-weighted basket to determine the next day’s midpoint fixing. Some market traders speculate that the formula has already been applied with a degree of flexibility, allowing the authorities to move the exchange rate up or down as they see fit depending on external factors. The revised methodology may make the fixing less predictable and that could affect the ability of

participants in offshore yuan markets to speculate on the next day’s fixing. “This introduces non-market forces into the yuan midpoint mechanism,” said one senior trader at a Chinese bank in Shanghai. “When there’s huge depreciation expectation for the yuan, the ‘factor’ would allow them to fix the midpoint at a stronger level...It makes it harder to speculate,” he said. CFETS said in a statement on Friday

the change would lessen possible market “herd effects” and help guide the market to focus more on macroeconomic fundamentals. It did not give details about what counter-cyclical factor or factors would be considered, or how they would be applied. “This new factor could filter out the impact of excessive volatility in the spot market by reducing the closing price’s role in the next day’s fixing,” HSBC said in a note. The latest move is the second time this year that the PBOC has adjusted its yuan midpoint mechanism. Unless traders can gain clarity about

the new mechanism soon, China risks fresh criticism about a lack of transparency in its foreign exchange policy. The International Monetary Fund and others have urged Beijing to improve transparency after the yuan was added to the IMF’s currency basket last October. In February, CFETS shortened the reference period of yuan trading against its trade-weighted basket to 15 hours, between 4:30 p.m from the previous trading day to 7:30 a.m, compared with the previous 24 hours, banking sources had told Reuters.

Key Points New yuan fixing calculation will better reflect market demand New method will lessen possible “herd effects” in FX market While the yuan has been largely flat against the dollar in recent months, other currencies have been more volatile. The dollar has been whipsawed by uncertainties over how many times the U.S. will raise rates this year and questions over President Donald Trump’s proposed tax reforms and spending plans. The yuan lost around 6.5 per cent of its value against the surging dollar last year. It rose around 0.14 per cent on Friday, taking gains so far this year to 1.25 per cent to the dollar. Reuters

Business Daily Monday, May 29 2017 9

Greater China In Brief Big shareholders

Securities regulator tightens up on selling China’s securities markets regulator published rules on Saturday aimed at preventing major shareholders of listed companies from reducing their holdings in an “intensive, massive and disorderly” manner that “disturbed market order and dented investor confidence,” according to a statement on its website. The China Securities Regulatory Commission (CSRC) started controlling share disposals by major shareholders during the stock market crash in 2015. According to the revised rules, major shareholders are barred from transferring shares to a third party via block trades and then using that institution to sell into the market.

Property

Major Hong Kong banks raise mortgage rates following HKMA measures HKSAR has one of the most expensive property markets in the world and private home prices keep breaking record highs Some of Hong Kong’s largest commercial banks in the mortgage loans market said they would raise interest rates following the latest round of mortgage tightening measures by the city’s de facto central bank. Banks have to set aside more capital when they lend after the Hong Kong Monetary Authority (HKMA) raised the risk-weighted floor by 10 per centage points to 25 per cent for new residential mortgage loans last Friday. The HKMA also restricted the amount of loans some property buyers can get when it lowered the loan to value ratio by 10 per centage points,

and trimmed the debt servicing ratio. Standard Chartered PLC said the new measures raised their business costs. “The new requirement on risk management of new residential mortgage loans has increased the cost of doing business,” it said in a statement. Standard Chartered and HSBC Holdings PLC will both increase the interest rate on their mortgages linked to the Hong Kong interbank offered rates, or HIBOR, by 10 basis points to HIBOR + 1.4 per cent, effective today. “We will continue to work within

the enhanced regulatory guidelines to ensure that our mortgage lending continues to be prudently managed,” HSBC said in a statement. Bank of China Hong Kong will also raise its HIBOR-linked mortgage interest rate by the same degree to HIBOR + 1.4 per cent, and increase interest rate on mortgages linked to the prime rate, effective June 5, according to the Hong Kong Economic Journal. Bank of China Hong Kong did not immediately respond to a Reuters request for comment. Hong Kong has one of the most expensive property markets in the world and private home prices keep breaking record highs despite the HKMA’s eight rounds of mortgage tightening measures since 2009 and the government’s series of tax and regulatory policies. Reuters

Forecast

Taiwan raises 2017 economic outlook to 3-year high Among major concerns has been a sharp rise in the local dollar Jeanny Kao and J.R. Wu

Trade-reliant Taiwan raised its 2017 economic growth outlook to a threeyear high on Friday as exports improve, driven by strong global demand for smartphones and other hi-tech electronic gadgets. The island’s gross domestic product (GDP) is now expected to expand 2.05 per cent this year, up from the last estimate of 1.92 per cent, the Directorate General of Budget, Accounting and Statistics said, raising its view for the second time since November. If achieved, that would be the best showing since the economy expanded 4.02 per cent in 2014. But the statistics agency also warned of risks to its fresh forecasts such as currency volatility, China’s economic adjustments and the global impact of policy changes under U.S. President Donald Trump. Those risks and expectations for even milder inflation this year suggest the central bank will keep interest rates unchanged when it meets next month, analysts said. “One of the catalysts (for GDP) is the upcoming smartphone releases,” said Xiaojia Zhi, Greater China economist with Bank of America Merrill Lynch in Hong Kong. Among new product launches, Apple Inc is widely expected to debut

its new iPhone 8 later this year, helping to boost demand for companies plugged into global electronics supply chains. Exports are expected to rise 8.57 per cent this year, the statistics agency said, a bump up from the 8.5 per cent estimated in February. However, BAML’s Zhi said a higher comparison base for the second half and a potential weakening in Chinese demand could weigh on export growth. The government said first-quarter GDP rose a revised 2.60 per cent compared with the same period a year earlier, largely in line with an initial reading released last month. At the same time, it trimmed its second-quarter growth forecast but raised third- and fourth-quarter estimates. Softer export order growth and a

slight contraction in industrial output, the first in nine months, in April “still means that the 2Q growth would fall short of expectations, which also has negative implications for the wholeyear forecast numbers,” said DBS in a note this week. “The situation going forward may not be as good as expected, so the central bank’s monetary policy will not change,” said Lucas Lee, an analyst at Mega International Investment Services in Taipei. Among major concerns has been a sharp rise in the Taiwan dollar, which could hurt exporters’ competitiveness. It has appreciated more than 7 per cent against the U.S. dollar so far this year as Taiwan’s central bank scaled back its foreign exchange interventions to get off a U.S. watch list for currency manipulation. Reuters

Capital curbs

Outbound investment plummets China’s non-financial outbound direct investment (ODI) in January-April slumped 56.1 per cent from the same period of last year to US$26.37 billion, the commerce ministry (MOFCOM) said, underscoring the impact of the nation’s capital curbs. Outbound investment in April plummeted 70.8 per cent from a year earlier to US$5.83 billion, MOFCOM said on Saturday in a statement on its website. It did not provide any explanation for the ODI plunge. China tightened its grip on moving funds out of the country late last year as the yuan fell to eight-year lows. Aviation

Airbus Helicopters starts construction of assembly line in Mainland Airbus Helicopters, the world’s largest supplier of commercial helicopters, has started building an assembly line in China in what Europe’s largest aerospace group said was a key step in its plans to tap into the Chinese market. The company’s final assembly line will be located in Qingdao, eastern China, with construction expected to be completed by 2018. An Airbus framework agreement signed in 2016 called for 100 H135 helicopters to be assembled over the next 10 years, and the first aircraft roll-out from Qingdao is planned for mid-2019. Liquidity

PBOC plans to inject funds via MLF in early June China’s central bank plans to inject funds into the money market through its medium-term lending facility loans in early June, the Financial News said on Friday. The Financial News, a publication under the People’s Bank of China, quoted the central bank as saying that there would be many factors weighing on the liquidity in June. In order to “keep liquidity basically stable and stabilise the market expectations”, the PBOC would also resume injecting funds into the market through 28-day tenor of its reverse bond repurchase agreement (reverse repos) operations at an appropriate time, it added.

10 Business Daily Monday, May 29 2017

Greater China

Moody’s

Reforms not enough to arrest mounting debt The ratings agency expects China’s growth to slow to around 5 per cent in coming years Yawen Chen and Ryan Woo

hina’s structural reforms will slow the pace of its debt build-up but will not be enough to arrest it, and another credit rating cut for the country is possible down the road unless it gets its ballooning credit in check, officials at Moody’s said. The comments came two days after Moody’s downgraded China’s sovereign ratings by one notch to A1, saying it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount.

Key Points Moody’s encouraged by China’s “vast reform agenda” But says reforms not enough to keep debt from rising China facing dilemma of deleveraging without hurting growth Beijing likely to keep relying on stimulus to hit growth targets China could lose A1 rating if debt growth exceeds expectations In announcing the downgrade, Moody’s Investors Service also changed its outlook on China from “negative” to “stable”, suggesting no further ratings changes for some time. China has strongly criticized the downgrade, asserting it was based on “inappropriate methodology”, exaggerating difficulties facing the economy and underestimating the government’s reform efforts. In response, senior Moody’s official Marie Diron said on Friday that the

ratings agency has been encouraged by the “vast reform agenda” undertaken by the Chinese authorities to contain risks from the rapid rise in debt. However, while Moody’s believes the reforms may slow the pace at which debt is rising, they will not be enough to arrest the trend and levels will not drop dramatically, Diron said. Diron said China’s economic recovery since late last year was mainly thanks to policy stimulus, and expects Beijing will continue to rely on pump-priming to meet its official economic growth targets, adding to the debt overhang.

Waiting for implementation

Moody’s also is waiting to see how some of the announced measures, such as reining in local government finances, are actually implemented, Diron, associate managing director of Moody’s Sovereign Risk Group, told reporters in a webcast. China may no longer get an A1 rating if there are signs that debt is growing at a pace that exceeds Moody’s expectations, Li Xiujun, vice president of credit strategy and standards at the ratings agency, said in the same webcast “If in the future China’s structural reforms can prevent its leverage from rising more effectively without increasing risks in the banking and shadow banking sector, then it will have a positive impact on China’s rating,” Li said. But Li added: “If there are signs that China’s debt will keep rising and the rate of growth is beyond our expectations, leading to serious capital misallocation, then it will continue to weigh on economic growth in the medium term and impact the

sovereign rating negatively.” “China may no longer suit the requirement of A1 rating.” Li did not give a specific target for debt levels nor a timeframe for further assessments. Moody’s expects China’s growth to slow to around 5 per cent in coming years, from 6.7 per cent last year, compounding the difficulty of reducing debt. But Diron said the economy will remain robust, and the likelihood of a hard landing is slim. After Moody’s downgrade, its rating for China is on the same level as that on Fitch Ratings, with Standard & Poor’s still one notch above, with a negative outlook. On Friday, Fitch said it is maintaining its A+ rating. Andrew Fennel, its direct of sovereign ratings, noted China’s “strong macroeconomic track record”, but said that its growth “has been accompanied by a build-up of imbalances and vulnerabilities that poses risks to its basic economic and financial stability”.

Stimulus spree

Government-led stimulus has been a major driver of China’s economic growth over recent years, but has also been accompanied by runaway credit growth that has created a mountain of debt - now at nearly 300 per cent of gross domestic product (GDP). Some analysts are more worried about the speed at which the debt has accumulated than its absolute level, noting much of the debt and the banking system is controlled by the central government. UBS estimates that government debt, including explicit and quasi-government debt, rose to 68 per cent of GDP in 2016 from 62 per cent in 2015, while corporate debt climbed to 164 per cent of GDP in 2016 from 153 per cent the previous year. A growing number of economists believe that a massive bank bailout may be inevitable in China as bad

loans mount. Last September, the Bank for International Settlements (BIS) warned that excessive credit growth in China signalled an increasing risk of a banking crisis within three years.

Is Beijing making progress?

The Moody’s downgrade was seen as largely symbolic because China has relatively little foreign debt and local markets are influenced more by domestic factors, with many companies enjoying stronger credit ratings from home-grown agencies than they would in the West. Still, the rating demotion highlighted investor worries over whether China has the will and ability to contain rising risks stemming from years of credit-fuelled stimulus, without triggering financial shocks or dampening economic growth. China has vowed to lower debt levels by rolling out measures such as debt-to-equity swaps, reforming state-owned enterprises (SOEs) and reducing excess industrial capacity. In recent months, regulators have issued a flurry of measures to clamp down on the shadow banking sector while the central bank has gingerly raised short-term interest rates. But moves so far have been cautious, especially heading into a key political leadership reshuffle later this year. The autumn’s Communist Party Congress is President Xi Jinping’s most important event of the year, where a new generation of up and coming leaders will be ushered into the Standing Committee, China’s elite ruling inner core. But party congresses are always tricky affairs, as different power bases compete for influence, so the government will be keen to ensure there are no distractions like financial or economic problems or diplomatic confrontations. Reuters

Business Daily Monday, May 29 2017 11

Asia Inflation

Japan consumer prices rise in April Many analysts now expect the BOJ’s next move to be a reduction of its monetary stimulus Leika Kihara

apan’s core consumer prices rose 0.3 per cent in April from a year earlier to mark a fourth straight month of increases, offering policymakers some hope a steady economic recovery will convince consumers to start spending again. But the increase was due largely to the fading effect of last year’s energy price falls, underscoring the challenges the Bank of Japan (BOJ) still faces after years of heavy monetary stimulus to reach its ambitious 2 per cent inflation target.

Key Points

economist at Norinchukin Research Institute. “The positive economic cycle isn’t kicking in yet,” he said, adding that the BOJ will likely maintain its ultra-loose monetary policy for the time being. With the economy showing signs of life, many analysts now expect the BOJ’s next move to be a reduction - rather than an expansion - of its monetary stimulus. But BOJ officials have stressed that any reduction in stimulus would be some time away, pointing to the fact inflation remains distant from their target. The rise in the core consumer price index (CPI), which includes oil products but excludes fresh

food prices, followed a 0.2 per cent increase in March, data from the Internal Affairs Ministry showed on Friday. It was smaller than a median market forecast for a 0.4 per cent gain. Core consumer prices in Tokyo, available a month before the nationwide data, rose 0.1 per cent in May from a year earlier against flat growth projected by analysts in a Reuters poll. It was the first annual increase in the index since December 2015, thanks to the boost from rising energy prices. “The main inflation gauges all edged up in April and should climb a bit further in coming months,” said Marcel Thieliant, senior Japan economist at Capital Economics. “But with the boost from higher energy prices set to fizzle out in the second half of the year, inflation will

settle at levels well below the BOJ’s 2 per cent target.” Thieliant added that the prices of imported consumer goods had fallen by an annual 2.43 per cent in April, so even if the yen weakened to 120 versus the dollar import prices would not be severely affected. “The upshot is that headline inflation is unlikely to rise much further from now on,” he said. Japan’s economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful boost from private consumption. Nonetheless, weak household spending and poor corporate pricing power have kept inflation around zero for almost two years, forcing the BOJ to revamp its policy framework to one better suited for a long-term battle against deflation. Reuters

Nationwide April core CPI up 0.3 pct vs f’cast +0.4 pct Tokyo May core CPI up 0.1 pct vs f’cast flat growth BOJ seen keeping stimulus with price target elusive When stripping away the effect of volatile fresh food and energy costs, consumer prices were unchanged in April from a year ago in a sign many companies remain wary of hiking prices for fear of scaring away cost-sensitive households. “Retailers are struggling to raise prices because wages and household income aren’t increasing much. They thus try to trim costs by keeping wages low,” said Takeshi Minami, chief

Sentiment index

South Korean consumer confidence soars on Moon election victory The amount of improvement was especially high for the sub-index on job opportunity prospects and economic outlook Jiyeun Lee

South Korea’s consumer confidence jumped to the highest level in more than three years as the new president took office pledging more government spending to create jobs. The Bank of Korea’s monthly consumer sentiment index rose to 108 in May from 101.2 the previous month, indicating rising optimism, data released Friday show. The jump of almost seven points was the biggest increase since August 2009. The sharp improvement came as President Moon Jae-in was elected on May 9, ending months of political turmoil from a bribery scandal that put his predecessor Park Geun-hye and a Samsung group heir in jail. Sentiment was also supported by positive economic data including a double-digit expansion in exports. Moon calls himself the “jobs president” and has promised to increase fiscal spending and create hundreds of thousands of jobs during his fiveyear term. He also seeks to promote income-led expansion, and sees

higher wage growth as key to achieve this goal. Bank of Korea Governor Lee Ju-yeol said on Thursday that the pace of economic growth looks to be better than the central bank’s April forecast for 2.6 per cent this year.

outlook. A reading above 100 indicates people are more optimistic about the economy than the average seen from 2003 to 2016. The amount of improvement was especially high for the sub-index on job opportunity prospects and economic outlook, the statement

showed. The sub-index for the outlook on private spending was unchanged. Households’ inflation expectations over the next 12 months declined to 2.5 per cent from 2.6 per cent the previous month, the statement shows. Bloomberg News

‘Households’ inflation expectations over the next 12 months declined to 2.5 per cent from 2.6 per cent the previous month’ The consumer sentiment index was determined by surveying 2,042 households from May 12 to 19 on their views about subjects including income, spending and the economic

South Korean President Moon Jae-in (2-R) speaks during a meeting with his top aides at the presidential office of Cheong Wa Dae (The Blue House) in Seoul last week. Lusa

12 Business Daily Monday, May 29 2017

Asia Cryptocurrency

Japan, South Korea drive global bitcoin prices Last month, the Japanese government recognised bitcoin as legal tender

apanese and South Korean buying helped drive the price of bitcoin to an all-time high last week, with the digital currency more than doubling its value since the start of the year, analysts and market practitioners said on Friday. Frenzied buying as the price peaked at US$2,760.10 on Thursday caused website outages on Coinbase, the global bitcoin company that allows consumers to buy and sell bitcoins. The price has since fallen back to US$2,632.74. In Japan and South Korea, among the largest markets for bitcoin globally, bitcoin traded at a premium of more than US$300 higher above the global average, according to CryptoCompare.com. The rally appeared to have been driven by new buying from smaller retail investors, suggesting bitcoins are increasingly viewed among the general investing public as an alternative asset class much like gold, analysts said. “There were some people that made a big profit in a short time and it got

more media attention. Then even people that hadn’t known about virtual currencies began coming in, thinking it can be a way to make big money in a short time,” said Kim Jin-hyeong, an official at Coinone, a South Korean cryptocurrency services provider. Bobby Lee, CEO of BTCC in Shanghai, one of the world’s largest bitcoin exchanges, said the global macroeconomic environment, which has seen sustained low interest rates, was conducive to investments in

alternative assets like gold, silver and bitcoin. Investor sentiment has been boosted by recent regulatory developments in the region, with governments in both Japan and Korea introducing frameworks paving the way for bitcoin to be used on a par with national currencies. Last month, the Japanese government recognised bitcoin as legal tender, in a key development that has spawned a number of new bitcoin exchanges in the country, making it more attractive to traditional retail investors. “In the past, bitcoin was traded only by the people who have been

dealing with crypto-currencies. This year, regular people are starting to join, making trading so volatile,” said one Japan analyst. Price spikes are also being driven by the scarcity that is built into the global bitcoin market. Bitcoins are created through a computing process known as “mining” but the total number of bitcoins that can ever be created is capped at 21 million globally meaning an inflow of new investors is able to dramatically inflate prices. The average person can easily purchase and trade bitcoins through an online trading platform such as Coinbase using their normal debit or credit card, meaning real money can flood into the currency very quickly. “Retail investors who might otherwise have traded stocks or an exchange traded fund are now trading bitcoins,” said Leonhard Weese, president of the Bitcoin Association Hong Kong and a bitcoin investor. “Suddenly everyone is realising that there will only ever be 21 million bitcoins and that this might be there last chance to get into the market and that is what is leading to these huge price spikes.” Reuters

Beijing bling

Hyundai plots China branding reboot after missile row The brand sold 74 Genesis sedans in China last year, down from 1,016 in 2015 Hyunjoo Jin and Jake Spring

Bruised by anti-Korean sentiment in its biggest market and losing ground to local automakers, Hyundai Motor will open its first Chinese brand store, and may locally assemble its premium Genesis cars and accelerate the launch of a sport-utility vehicle (SUV), people familiar with the plans said. The measures are aimed at rebooting the South Korean firm’s branding in China, where many see Hyundai as a lower-end maker of city taxis. Hyundai and its affiliate Kia Motors were not long ago ranked third among foreign car brands in China, but recent sales have been hit by a consumer backlash over South Korea’s deployment of a U.S. anti-missile defence system which Beijing opposes. Analysts say the diplomatic row masks broader problems for Hyundai/Kia in China: poor brand recognition and a model line-up struggling against local brands’ cheaper SUVs. “Hyundai has an in-between brand that doesn’t have a clear identity in China, and there’s the backdrop of poor China-Korea relations,” said James Chao, Shanghai-based Asia-Pacific chief of consulting firm IHS Markit Automotive. “Newly introduced SUVs should help, but they are late to the game.” Even before the missile systems row, Hyundai/Kia’s China market share tumbled to 8.1 per cent last year, the lowest in eight years. This year, it has slid further to 5 per cent. To help its identity crisis, Hyundai will in September open a brand experience centre in Beijing’s 798 Art

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District, a trendy hub of refurbished factory buildings. Hyundai has three similar centres in Seoul and one in Moscow. “We’re not going to show a real car. This space is only for focusing on brand building,” Xu Jing, the Hyundai executive in charge of the project, told Reuters. The centre was planned before the recent political tensions, but its completion is now a key plank in Hyundai’s efforts to regain a lost position in China as local automakers and European brands gain ground. Volvo-owner Geely and Great Wall Motor are also looking to move upmarket. The branding store ventures into territory traditionally held by premium names such as Daimler’s “Mercedes me” stores and BMW’s brand centres, already in China.

Making genesis

Hyundai is also considering using complete knock-down (CKD) kits shipped from South Korea to assemble Genesis cars in China - more than halving import tariffs to 10 per cent - two people familiar with the matter said. Building Genesis cars from kits in China would also prevent technology leaking to its local joint venture partner, BAIC , one of the people added. The kits are a first step, said one Hyundai insider. “We are agonizing over how to source local parts and secure enough sales to build the Genesis cars.” Hyundai launched its Genesis luxury sedan in 2008, and two years ago spun it off with the larger Equus sedan

into a standalone premium brand. Brand chief Manfred Fitzgerald said last year Genesis would launch in China within 2-3 years. Hyundai has not decided which Genesis model it will build in China first, but plans to have six models including a sports sedan and two SUVs under the premium marque by 2020. “While the Genesis brand is reviewing a variety of strategies for the China market, no specific decisions have been made yet,” Hyundai said in a statement. Hyundai sold 74 Genesis sedans in China last year, down from 1,016 in 2015. It sold a single Equus, down from 10 the previous year, according to export data seen by Reuters.

Recovery time

Hyundai may also bring forward by a month, to November, the launch of a small SUV, codenamed NU, to be built at its fourth factory in China, one of the people told Reuters. And Kia is considering launching the Stinger, its first sports sedan, in China, people with direct knowledge of the matter said, though there are no plans to build the model there. Hyundai said it also plans to apply

new, cutting-edge technologies such as connectivity and advanced driver assistance systems (ADAS) to many products from the second half of this year, and soon introduce six new-energy vehicles. Since starting to make cars in China in 2002, Hyundai has aggressively chased sales and market share by selling both older and new versions of models including the Elantra and Sonata sedans and Tucson SUV. Among foreign car brands, Hyundai’s China sales lag only those of General Motors and Volkswagen, but it’s generally seen as more lower-end than American, German and Japanese rivals. Beijing Hyundai has supplied around a fifth of the capital’s taxis. The volume sales model “did wonders for sales growth, but dented the Hyundai image in the minds of Chinese buyers,” said Michael Dunne, president of consultancy Dunne Automotive. “(Having a) weaker brand ... than Japanese automakers, I think it might take more time to restore the brand and sales,” said Han Sang-yun, director at S&P, noting Japanese car makers took a year to bounce back in China after a 2012 consumer backlash over a territorial dispute between Beijing and Tokyo. Reuters

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Business Daily Monday, May 29 2017 13

Asia In Brief Commodities

Australian gold output slumps

Commodities

Record Australian grain exports flood market China is taking higher quality Australian wheat and other feed grains such as barley and sorghum Naveen Thukral and Colin Packham

Australia’s grain exports have shot to record volumes this year as bumper crops push down prices, but levels may fade towards year-end as rival shipments step up from the Black Sea region. Wheat, canola and barley exports have been over 60 per cent higher than normal over the first five months of 2017, at 17.2 million tonnes, according to Thomson Reuters Eikon data. That flood of grain from Australia, the world’s fourth largest wheat exporter, and other suppliers is dragging

on global prices that are trading close to last September’s 10-year low. “There are two key reasons for strong flows of grain shipments from Australia,” said a Singapore-based trader with an international trading company, declining to be identified as he was not authorised to speak with media. “They had massive crops and they were cheaper than any other origin.” Australian Standard White wheat has been selling for US$185-US$195 a tonne, free on board since January, well below the price from other origins, traders said. The country’s 2016/17 wheat

production, at 35.13 million tonnes, was around 17 per cent more than the previous record of 29.6 million tonnes set in 2011/12. Barley output was 25 per cent above the prior record at 13 million tonnes, while canola production of 4.1 million tonnes was 1 per cent shy of an all-time high, according to official data. But industry sources estimate the country will be left with just 5-6 million tonnes of wheat by the end of Australia’s grain marketing year in September, similar to last year’s levels, due to the scale and pace of exports. “India has taken more wheat, China is taking lots of barley and we have got back into the Iraqi market,” said Ole Houe, an analyst with brokerage IKON Commodities in Sydney.

Key Points Australia selling record volumes of wheat, barley, canola Bumper crops have pushed down prices Strong demand from buyers in Asia, Middle East Western Australia seen selling more than it produces this year But rival Black Sea exports could dent Aus volumes later in year

“Demand is strong everywhere.” India has been buying aggressively this year to fill a supply shortfall left by two years of drought, although purchases have eased in recent months. China is taking higher quality Australian wheat and other feed grains such as barley and sorghum. “We have been seeing some strong demand from traditional markets, but also from markets that we haven’t done much business with for the past few years,” said James Foulsham, wheat trading manager at Australia’s largest grain exporter CBH Group.

Dipping in

The nation’s main wheat exporting state, Western Australia, is expected to sell close to 17 million tonnes of wheat, barley and canola, this year, against total production of 16 million tonnes, industry sources said. “Western Australia will be dipping into reserves to fulfil export commitments,” said a Sydney-based trader. But in the second half of 2017, Australian wheat will likely face stiff competition from the Black Sea region as Russia and Ukraine also look to offload bumper harvests. Last week, a miller in Indonesian bought around 60,000 tonnes of Black Sea wheat at US$190 a tonne, including cost and freight, for August arrival, traders said. A similar variety of Australian wheat was priced at US$215 a tonne. Reuters

Heavy rains and a cyclone led to an 8 per cent, or six-tonne drop in Australian gold production in the first quarter, a survey released yesterday showed. Output for the quarter from the world’s second-biggest gold mining nation after China totalled 71.5 tonnes versus 77.5 tonnes in the previous quarter, according to the survey by Australian mining consultancy Surbiton Associates. “This year heavy rain in Western Australia, which accounts for about three-quarters of Australia’s gold output, plus the effects of Cyclone Debbie in Queensland in late-March, played havoc with gold production at many operations across the country,” Surbiton director said. Content control

Vietnam says Google will cooperate Google Inc’s parent firm, Alphabet, will work with Vietnam’s communist government to stamp out “toxic” and illegal information on its platform, the Southeast Asian nation said on Friday. Vietnam tolerates little dissent and human rights groups and western countries have criticized its arrests of anti-government bloggers. In February, Vietnam complained about “toxic” anti-government and offensive content on Facebook and Google’s YouTube application, pressuring domestic firms to withhold advertising until the social media firms found a solution. Alphabet made the assurance during a meeting of Chairman Eric Schmidt and Vietnamese Prime Minister Nguyen Xuan Phuc in Hanoi on Friday. Helicopter deal

Indonesia military identifies 3 graft suspects Indonesia’s military and anti-corruption agency have identified three suspects in a corruption investigation into the controversial purchase of an AgustaWestland helicopter, the military chief said on Friday. General Gatot Nurmantyo said the investigation, in which the police, state auditors and the Corruption Eradication Commission (KPK) participated, found the deal did not follow proper procedures, causing a loss of 220 billion rupiah (US$17 million). Originally meant for the use of Indonesia’s president, the helicopter looked set to become a white elephant when he rejected the US$55-million purchase in favour of continuing to use an older helicopter, media said. Bonds

Japan’s big insurers expand their appetites for U.S. Treasuries Big Japanese life insurers, who are major bond investors globally, are primarily focusing on U.S. bonds while staying cautious on European bonds, earning reports and comments from industry executives show. U.S. bonds have become more attractive as some Japanese insurers have been able to earn extra income by lending these to Japanese banks, which in turn use Treasuries as collateral to raise dollars in repo markets. Nippon Life, Dai-ichi Life, Meiji Yasuda Life, Sumitomo Life and formerly state-owned Japan Post Insurance collectively manage more than US$2 trillion of financial assets.

14 Business Daily Monday, May 29 2017

International In Brief Energy

EU hopes closer to talks with Russia on pipeline A top European Commission official said on Friday European Union members would be asked within days to give the bloc’s executive a mandate to negotiate with Russia over the Nord Stream 2 gas pipeline, which has bitterly divided the bloc. The planned 9.5 billion euro (US$10.6 billion) pipeline project has led to a split between Eastern European and Baltic Sea states who fear it will increase their dependence on Russian gas and undermine Ukraine’s role from Germany and other beneficiaries in northern Europe who back the plan. Monetary policy

Colombia’s central bank cuts interest rate Colombia’s central bank lowered its benchmark interest rate by 25 basis points on Friday in a bid to boost a slowing economy, despite an uptick in inflation estimates and some members’ support for a more severe 50-point cut. The move to reduce the rate to 6.25 per cent, supported by four of seven policymakers, represented a more moderate position compared to the board’s 50-basis-point reduction last month, and marks the fifth cut in an easing cycle meant to bolster Latin America’s fourth-largest economy. Financing

World Bank planning US$2 bln green bonds for Peru The financial arm of the World Bank is considering issuing about $2 billion in bonds to finance environmentally friendly projects in Peru, the nation’s economy minister said on Saturday. Economy Minister Alfredo Thorne, during a state television program in which President Pedro Pablo Kuczynski interviews various personalities, said the bonds would be used to finance projects such as reforestation in the Amazon. The International Finance Corporation (IFC), an arm of the World Bank, “is thinking of doing an emission of green bonds here, and that’s going to give us US$2 billion, more or less,” Thorne said. Angola

International banks don’t trust most Angolan institutions Angolan banks need to take compliance more seriously even though it involves a relatively new profession in the country, but it is essential to resolve the current distrust of the country’s banks by international institutions, local bankers were told on Friday in Luanda. Speaking to the press at the end of an event, Ernest Honya, president of the Association of Certified Compliance Professionals, quoting 2015 figures, said that 38 per cent of Angolan banks risk being cut off from international institutions.

Summit

G7 leaders divided on climate change Trump agreed on Saturday to language in the final G7 communiqué that pledged “to fight all forms of protectionism”

nder pressure from Group of Seven allies, U.S. President Donald Trump backed a pledge to fight protectionism on Saturday, but refused to endorse a global climate change accord, saying he needed more time to decide. The summit of G7 wealthy nations pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled. However, diplomats stressed there was broad agreement on an array of foreign policy problems, including the renewal of a threat to slap further economic sanctions on Russia if its interference in neighbouring Ukraine demanded it. Trump, who has previously called global warming a hoax, came under concerted pressure from the other leaders to honour the 2015 Paris Agreement on curbing carbon emissions. Although he tweeted that he would make a decision this week, his apparent reluctance to embrace the first-ever legally binding global climate deal that was signed by 195 countries clearly annoyed German Chancellor Angela Merkel. Putting a positive spin on it, French President Emmanuel Macron said he was sure Trump, who he praised as “pragmatist”, would back the deal having listened to his G7 counterparts. Merkel, by contrast, was attending her 12th such gathering, and clearly believed she had overcome climate

(L-R) EU Council President Donald Tusk, Canadian Prime Minister Justin Trudeau, German Chancellor Angela Merkel, U.S. President Donald J. Trump, Italian Prime Minister Paolo Gentiloni, French President Emmanuel Macron, Japanese Prime Minister Shinzo Abe, British Prime Minister Theresa May and European Union Commission President Jean-Claude Juncker. Lusa

change scepticism at a 2007 summit, when she convinced the then U.S. President George W. Bush to pursue substantial cuts in greenhouse gases.

Protectionism

Disappointment over the Paris Agreement was countered by relief when Trump agreed on Saturday to language in the final G7 communiqué that pledged “to fight all forms of protectionism” and committed to a rulesbased international trade system. In a tweet after his plane took off, Trump said he had had “great meetings on everything, especially on trade”, highlighting the part of the communiqué which called “for the removal of all trade-distorting practices”. He made no mention of protectionism. The internal G7 divisions and a suicide bombing in Britain on Monday, that killed 22, overshadowed the agenda, but on Saturday five African leaders joined the world leaders to discuss their continent’s potential. Niger President Mahamadou Issoufou urged the G7 to take urgent measures to end the crisis in Libya - the point of departure for hundreds of thousands

of migrants looking for a better life in Europe. He also criticised them for not honouring aid promises to fight poverty in West Africa’s poorest regions. The final communiqué was just six pages long, against 32 pages last year, with diplomats saying the leaders wanted a simpler document to help them reach a wider audience. Security questions dominated discussions on Friday, with the leaders vowing to work harder to combat terrorism and calling on internet providers and social media firms to “substantially increase” efforts to rein in extremist content. Speaking to U.S. servicemen and women at the end of the summit, Trump promised to defeat terrorism and said he had made “extraordinary gains to advance security”. The speech was the last engagement of his first foreign tour since taking office - a trip that took him to Saudi Arabia, Israel, the Palestinian Territories, Rome, Brussels and Sicily. “I think we hit a home run no matter where we are,” Trump said, before boarding his plane back to Washington. Reuters

Growth

U.S. economy slowed less than expected in Q1 The first-quarter weakness is a blow to President Donald Trump’s ambitious goal to sharply boost economic growth The U.S. economy slowed less than initially thought in the first quarter, but softening business investment and moderate consumer spending are clouding expectations of a sharp acceleration in the second quarter. Gross domestic product increased at a 1.2 per cent annual rate instead of the 0.7 per cent pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the first three months of the year.

Key Points First-quarter GDP revised up to 1.2 per cent Consumer spending raised slightly; inventories cut Core capital goods orders unchanged in April That was the worst performance in a year and followed a 2.1 per cent growth rate in the fourth quarter. The economy’s sluggishness, however, is probably not a true reflection of its health, as first-quarter GDP tends to underperform because of difficulties with the calculation of data that the government is working to resolve. The government raised its initial estimate of consumer spending growth for the first quarter, but said inventory investment was far smaller than previously

reported. The trade deficit also was a bit smaller than estimated last month. Economists had expected that GDP growth would be revised up to a 0.9 per cent rate. Despite the tepid growth, the Federal Reserve is expected to raise interest rates next month.

April data disappointing

Though the economy appears to have regained some speed early in the second quarter, hopes of a sharp rebound have been tempered by weak business spending, a modest increase in retail sales last month, a widening of the goods trade deficit and decreases in inventory investment. In a second report on Friday, the Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged in April for a second straight month. Shipments of these so-called core capital goods dipped 0.1 per cent after rising 0.2 per cent in March. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. Second-quarter GDP growth estimates range between a rate of 2.0 per cent and 3.7 per cent rate. The GDP report also showed an acceleration in business spending equipment was not as fast as previously estimated. Spending on equipment rose at a 7.2 per cent rate in the first quarter rather than

the 9.1 per cent reported last month. Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 0.6 per cent rate instead of the previously reported 0.3 per cent pace. That was still the slowest pace since the fourth quarter of 2009 and followed the fourth quarter’s robust 3.5 per cent growth rate. With consumer sentiment hovering at lofty levels, consumer spending could pick up. But there are worries that surging household debt could cut into spending as monthly repayments squeeze paychecks. Businesses accumulated inventories at a rate of US$4.3 billion in the last quarter, rather than the US$10.3 billion reported last month. Inventory investment increased at a $49.6 billion rate in the October-December period. Inventories subtracted 1.07 percentage point from GDP growth instead of the previously estimated 0.93 percentage point. The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.5 per cent in the first quarter, hurt by legal settlements, after rising at a 2.3 per cent pace in the previous three months. Penalties imposed by the government on the U.S. subsidiaries of Credit Suisse and Deutsche Bank related to the sale of mortgage-backed securities reduced financial corporate profits by US$5.6 billion in the first quarter. In addition, a fine levied on the U.S. subsidiary of Volkswagen related to violations of U.S. environmental regulations cut US$4.3 billion from non-financial corporate profits. Reuters

Business Daily Monday, May 29 2017 15

Opinion Business Wires

The Times of India The Centre will pursue more mergers in the state-run banking space as the aim is to have a handful of strong and bigger banks of international level, finance minister Arun Jaitley has said. “Today banking is not what it used to be 10-20 years ago... Is it necessary to have 30-32 public sector banks, some of them weak? Obviously not. What will you do with weak banks,” he said on DD News. The government has expressed its intention of consolidation in the public sector banking space against the backdrop of the mountain of bad loans.

A Chinese man stands next to a restaurant in Xiamen, Fujian province, China. Lusa

Rethinking the next China

F Bangkok Post Thai tour companies complain that a new visa requirement for frequent visitors arriving by road or rail is slashing the number of tourists from Singapore. Anuwat Phetwarothai, owner of AS Tour Co in Hat Yai district, said on Friday the regulation affects visitors arriving by land who are nationals of countries other than those immediately adjoining Thailand. If it is their third or more visit in a year they must obtain a visa in advance. The requirement does not apply to repeat visitors arriving by plane or ship.

The Korea Herald South Korea’s exports of cosmetics, medicine and other major consumer goods were led by small and mediumsized enterprises last year, with the active establishment of new firms in the industry, data showed yesterday. The ratio of exports of cosmetics, medicine, clothing, agro-fishery products and household items by SMEs reached US$19.8 billion, or 84.1 per cent of the total US$23.5 billion, last year, according to the figures by the Korea International Trade Association. Big businesses shipped US$3.7 billion, or 15.9 per cent of the total.

Philstar Multilateral lender International Monetary Fund (IMF) is keeping its economic growth forecasts for the Philippines for the meantime despite the disappointing gross domestic product (GDP) growth in the first quarter. Shanaka Jayanath Peiris, resident representative to the Philippines of the IMF, said the agency is holding on to its current GDP growth forecasts for this year and next year until the release of the next World Economic Outlook (WEO) in July. “We will do an assessment of the outlook and risks for the July WEO release so unlikely to revise anything before that,” Peiris said.

or the past seven years, I have taught a popular class at Yale, called “The Next China.” From the start, the focus has been on the transitional imperatives of the modern Chinese economy – namely, the shift from a long-successful producer model to one driven increasingly by household consumption. Considerable attention is devoted to the risks and opportunities of this rebalancing – and to the related consequences for sustainable Chinese development and the broader global economy. While many of the key building blocks of China’s transitional framework have fallen into place – especially rapid growth in services and accelerated urbanization – there can be no mistaking a new and important twist: China now appears to be changing from an adapter to a driver of globalization. In effect, the Next China is upping the ante on its connection to an increasingly integrated world – and creating a new set of risks and opportunities along the way. The handwriting has been on the wall for several years. This strategic shift is very much a reflection of the leadership imprint of President Xi Jinping – in particular, his focus on the “China Dream.” Initially, the dream was something of a nationalist mantra, framed as a rejuvenation by which China would recapture its former position of global prominence, commensurate with its status as the world’s second largest economy. But now the China Dream is taking shape as a concrete plan of action, centred on China’s One Belt, One Road (OBOR) plan. This ambitious pan-regional infrastructure initiative combines ec o n o m i c assi sta n c e w i th geostrategic power projection, supported by a new set of Chinacentric financial institutions – the Asian Infrastructure Investment Bank (AIIB), the New (BRICS) Development Bank, and the Silk Road Fund. For those of us studying China’s economic transformation, this is hardly a trivial development. While the shift remains a work in progress, I would stress three tentative implications. First, China has not made a full about-face. As an economist, I am prone to placing too much emphasis on models and on the related presumption that policymakers can flip the switch from one model to another. Yet it is not that black and white – for China or for any other country. China’s leaders have, for all practical purposes, now conceded that a consumer-led growth strategy is tougher to pull off than originally thought. The consumption share of GDP has risen just 2.5 percentage points since 2010 – far short of the boost to personal incomes that might be expected from the 7.5-percentage-point increase in the share of services and a 7.3-percentage-point increase in the high-wage urban share of its population over the same period. This disconnect largely reflects a porous social safety net that continues to foster high levels of fear-driven precautionary saving, which is inhibiting the growth of discretionary consumption. While still committed to urbanization and services development, China has elected to draw on a new external source of growth to compensate for a shortfall of internal demand. Second, this global push has many of the features of the old producer model. It enables an increasingly worrisome overhang of domestic excess capacity to

“

Stephen S. Roach a faculty member at Yale University and former Chairman of Morgan Stanley Asia

be directed at OBOR’s infrastructure requirements. And it relies on state-owned enterprises (SOEs) to drive that investment, forestalling long-needed reforms in this bloated segment of Chinese industry. The flip side of this newfound support for the producer model has been a de-prioritization of consumer-led growth. In Prime Minister Li Keqiang’s annual Work Report – the official statement of economic policy – emphasis on the consumer-led structural transformation has been downgraded in each of the last two years (ranked third in both 2016 and 2017, as so-called supplyside initiatives have gained higher priority). Third, China’s new global approach reflects a recasting of governance. Xi’s consolidation of domestic power is only part of the story. The shift in economic decision-making away from the State Council’s National Development and Reform Commission (NDRC) toward Party-based Leading Small Groups is particularly important, as are the anti-corruption campaign, heightened Internet censorship, and new regulations on nongovernmental organizations (NGOs). The irony of such power centralization is unmistakable. After all, Xi issued early promises to break up deeply entrenched power blocs, and the Third Plenum reforms of November 2013 emphasized the promotion of a more decisive role for markets. But there is an even deeper irony for China’s new global push. It runs against the grain of a populist anti-globalization backlash that is brewing in many developed countries. As a producer-focused economy, China has long been the greatest beneficiary of globalization – both in terms of export-led growth and poverty reduction stemming from the absorption of surplus labour. That approach has now been stymied by China’s mounting internal imbalances, a post-crisis slowdown in global trade, and an increase in China-focused protectionism. As a result, China’s new attempts to gain increased leverage from globalization are not without serious challenges of their own. A more global China also has important ramifications for Chinese foreign policy. Territorial disputes in the South China Sea loom particularly large, but China’s footprints in Africa and Latin America are also drawing heightened scrutiny. This new strategy raises perhaps the biggest issue of all – whether China fills a hegemonic void created by the isolationist “America first” approach of U.S. President Donald Trump. In short, the Next China is shaping up to be more outwardly focused, more assertive, and more power-centric than I envisioned when I started teaching this course in 2010. At the same time, there appears to be less commitment to a market-based reform agenda featuring private consumption and SOE restructuring. The jury is out on whether this changes the final destination of Chinese rebalancing. I hope that is not the case. But that is what makes it more interesting to teach an applied course, where the focus is always a moving target. Project Syndicate

China’s leaders have, for all practical purposes, now conceded that a consumerled growth strategy is tougher to pull off than originally thought

”

16 Business Daily Monday, May 29 2017

Closing Marketing

Google linking online and offline worlds in new ad challenge

Google senior vice president Sridhar Ramaswamy, who announced that Attribution is in test mode with a limited number of partners Google is testing a way to tie online ads to and will be rolled out to more advertisers in brick-and-mortar store purchases, a move coming weeks, touted the tool as being able whetting marketing appetites while fuelling to answer the long-challenging question of privacy worries. whether marketing campaigns are working. A product called “Google Attribution” was unveiled at a marketing conference this month Real-world customer email addresses or loyalty plan information can be woven with Google in San Francisco by the internet giant. Google data from services such as AdWords, Google has long been able to determine when users click on an ads and make a purchase, but linking Analytics and DoubleClick Search to provide “a complete view” of marketing performance, online and offline habits takes its analytics a according to the company. AFP step further.

Borrowers

Young Chinese in the red as easy credit drives up debt Since 2008 household borrowing has soared and pushed China’s overall debt liabilities above 260 per cent of gross domestic product Allison Jackson

hen Wu Qi and her husband traded in their Mazda 3 for a more expensive Mercedes Benz sedan, they applied for a RMB200,000 (US$29,000) bank loan to help pay for it. They got the money within minutes. Quick and easy access to credit has encouraged many young Chinese to go into the red to buy cars and apartments they could not otherwise afford. They are the faces of China’s growing addiction to debt, which along with government and corporate borrowing, has raised fears of a looming crisis and prompted Moody’s ratings agency to slash the country’s credit score last week for the first time in nearly three decades. “It is very easy -- the car company encourages you to borrow the money and enjoy the car,” said Wu, 39, adding the couple is also paying off a RMB1 million mortgage for a three-bedroom flat in Beijing. Since Chinese leaders turned on the credit taps in late 2008 to shield the country from the global recession, household borrowing has soared and pushed China’s overall debt liabilities above 260 per cent of gross domestic product -- compared with about 140 per cent before the crisis hit. But slowing growth in the world’s second-largest economy has raised

concerns that years of risky lending could lead to a disaster worse than the U.S. sub-prime collapse. “While such debt levels are not uncommon in highly rated countries, they tend to be seen in countries which have much higher per capita incomes, deeper financial markets and stronger institutions than China’s,” Moody’s said.

Rapid rise

Household debt has become the major driver of China’s credit growth, expanding by an average of 19 per cent a year since 2011, said Chen Long, an economist at Gavekal Dragonomics. If it continues to grow at this pace, household debt would reach roughly RMB66 trillion by 2020 -- more than double the current level -- and potentially 70 per cent of GDP versus 30 per cent back in 2013. “Other countries have usually taken decades to complete such an increase,” said Chen. “For bank lending to households to rise very rapidly usually means

lending standards are loosened so credit is extended to both more and less creditworthy consumers.” Mortgages make up the bulk of household debt. Chinese have long favoured putting their savings into bricks and mortar due to the low bank deposit rates on offer, volatility in the stock market and strict rules that make it difficult to invest money abroad. “It’s a safe choice,” said homeowner Charlie Liu, 26, who also rents out her flat on Airbnb to help cover the repayments on her RMB1.4 million mortgage. But as apartment prices have soared -- often doubling within a few years, particularly in major cities -- fears of a real estate bubble have mounted. The government has responded by periodically tightening restrictions on property purchases and hiking minimum down payments -- up to 80 per cent for a second home in Beijing, according to state media -- to stabilise the market. But prices continue to rise, forcing young homebuyers deeper into debt. Wang Yuchen, 28, borrowed RMB3 million from the bank in August to buy a RMB4.75 million apartment in Beijing. Lacking enough cash, Wang turned

to his parents and friends to help pay the deposit. “In 2012 I could have bought the same apartment for RMB1.5 million,” Wang said. “I’m a little bit worried but there’s nothing I can do. Last year I was getting married and it’s tradition in China that you have to have your own house to get married.”

Cheap loans

Borrowing money for a car is also becoming more popular as consumers, particularly millennials, take advantage of very low interest rates. Auto financing has been soaring by 40 per cent a year and high-speed growth in the sector is expected to continue, said Ron Zheng, an automotive expert at Roland Berger consultancy. “Before I bought this new car I never thought I would change my old car because nowadays you can hire a car using (ride-hailing app) Didi and Uber which is quite convenient,” said Wu. “And then I found that a new car is not that expensive.” Facing dire warnings, Chinese policymakers are taking action to tighten balance sheets, halt risky lending and dispose of bad loans. But there are doubts about Beijing’s willingness to clean house given its heavy reliance on freewheeling credit to drive economic growth. “We will see how it can extricate itself from the same ‘grow now ask questions later’ trap that all other command economies have slipped into in the past,” said Michael Every, senior Asia-Pacific strategist for Rabobank. AFP

Trade

Crackdown

Ratings

Vietnam’s farm produce export increases

Beijing to prevent civil servants from using posts for personal gain

HK financial secretary questions Moody’s over downgrade

Vietnam has so far this year exported US$13.7 billion worth of farm produce, forest products and seafood, up 9.5 per cent against the same period last year. Specifically, Vietnam made seafood export turnovers of US$2.8 billion, and veggie and fruit export earnings of nearly US$1.4 billion, seeing year-on-year rises of 10.4 per cent and 38 per cent, respectively, its Ministry of Agriculture and Rural Development said yesterday. Of the seafood export turnovers, 53.5 per cent came from the American, Japanese, Chinese and South Korean markets. Vietnam is estimated to have reaped US$2.9 million from shipping abroad wood and wood-based products in the first five months of this year, up 9.9 per cent. Of the money, 35.6 per cent came from the Chinese market, the ministry said, adding that China also remained Vietnam’s biggest rice importer. In the five-month period, Vietnam exported 1.3 million tons of rice worth US$1 billion, posting respective increases of 1.6 per cent and 1.2 per cent. Meanwhile, it exported 693,000 tons of coffee worth nearly US$1.6 billion, down 15.9 per cent in volume but up 11 per cent in value. Xinhua

Chinese civil servants will face new restrictions when changing jobs as authorities move to prevent them from using official posts to make personal profit, the official Xinhua news agency reported yesterday. Those in leadership positions or at the county level and above will not be allowed to work in businesses or for-profit organisations related to their previous administration for three years after resignation. Lower-level civil servants should also follow the rules, but with a limit of two years, according to Xinhua. So-called red-collar jobs are considered stable careers with generous benefits, especially those based in major cities and economically developed regions. Competition for such jobs are notoriously intense. As of the end of 2015, China had 7.17 million civil servants, according to Xinhua. But President Xi Jinping’s sweeping anti-corruption drive in recent years has stamped out illicit perks from official posts, making the bureaucratic career path less attractive. Reuters

Moody’s Investors Service’s decision to downgrade Hong Kong’s debt rating last week was based on “shallow” evidence, Hong Kong Financial Secretary Paul Chan wrote in a blog yesterday. “The evidence on which the ratings company mechanically downgraded Hong Kong’s debt rating based on the very close economic relationship between Hong Kong and the Mainland is shallow,” Chan wrote in a blog on the official website of the financial secretary. Enhancing cooperation with the Mainland cannot be considered negative as China is the main growth engine for the global economy, he added. “Credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close and tightening economic, financial and political linkages with the Mainland,” Moody’s said in its statement. Hong Kong’s government said in a statement on its website shortly afterward that it disagreed with the decision by Moody’s, citing Chan. The ratings company overlooked Hong Kong’s “sound economic fundamentals, robust financial regulatory regime, resilient banking sector and strong fiscal position,” the government said. Bloomberg News