Business Daily #1306 May 30, 2017

Queen's Birthday Celebration Poolside BBQ Lunch Sat, 10 June 2017 │ 11:00am - 2:00pm │ The St. Regis Macao Join us in this relaxing and lighthearted get-together at a poolside BBQ lunch.

Bring your swimmers, and slip, slop & slap!

S&P discards an earlier review of China’s economy Rating Page 8

Tuesday, May 30 2017 Year VI Nr. 1306 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Construction

Remodelling market in MSAR to reach MOP6.2 bln by 2020, says engineering firm Page 5

Fair

www.macaubusinessdaily.com

Gaming

Applications for stands at Nam Van vendor area now open for Jul-Dec period Page 5

New biz

Melco’s Lawrence Ho says he prefers Osaka to Tokyo for building resorts Page 7

Sharing economy startups invade Mainland Page 16

Moving on up GDP

The 10.3 pct y-on-y increase in GDP recorded during the first quarter is mostly attributable to a lower base of comparison, says one local economist. Improving export services contributed to the growth, with exports of gaming and tourism services up 11 pct and 21 pct, while goods exports also rose by 10 pct y-o-y.

Construction and equipment capital was heavily weighted to the private sector, at US$1.6 bln in construction and MOP1.7 bln in facilities, while the gov’t only invested MOP1.25 bln in construction and MOP40 mln in equipment in the same period. Page 3

Hungry?

Party at the Roosevelt

The DICJ has received a request from the Macau Jockey Club Casino to relocate to the new Roosevelt Hotel, set to open soon. With the application currently under review, the new digs of the casino could be more table games-focused, say analysts, estimating 25 to 35 tables and 100 slots, requiring a greater allocation. Estimates are for 482 tables to be allocated overall through to 2022, assuming MGM Cotai and Grand Lisboa Palace get 150 tables each, say analysts.

Transportation The restaurant and commercial area of the new Taipa Ferry Terminal could take another year to be operational, says DSAMA director, at the second soft opening of the terminal. In the meantime? Vending machines. The five helicopter pads are also awaiting the gov’t to open a public tender, with no date for the transfer of flight routes currently going to the Outer Harbour Ferry Terminal. Berths for 1,200-seat passenger ships are “sealed’, pending a study to determine the “best use”. Page 2

Lending for property unleashed in Hong Kong

Gaming Page 4

HK Hang Seng Index May 29, 2017

25,701.63 +62.36 (+0.24%) Worst Performers

China Resources Power

+5.72%

Galaxy Entertainment Group

+1.75%

Tencent Holdings Ltd

Belle International Holdings

-0.49%

MTR Corp Ltd

+3.13%

China Overseas Land &

+1.50%

Hengan International Group

-0.72%

Kunlun Energy Co Ltd

-0.42%

Link REIT

+2.24%

Hong Kong & China Gas Co

+1.50%

CNOOC Ltd

-0.66%

Hang Seng Bank Ltd

-0.18%

China Resources Land Ltd

+2.01%

China Unicom Hong Kong

+1.43%

Lenovo Group Ltd

-0.61%

Cathay Pacific Airways Ltd

-0.17%

Hang Lung Properties Ltd

+1.94%

Geely Automobile Holdings

+1.35%

PetroChina Co Ltd

-0.57%

China Petroleum & Chemical

-0.16%

-1.15%

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

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Real estate Despite trying to relax the housing market situation, Hong Kong authorities might see unregulated loans surging. As the official financial sector struggles with stricter rules, a shadow banking army is channelling the lending services, increasing risks. Page 10

2 Business Daily Tuesday, May 30 2017

Macau

Taipa Ferry Terminal

Former ferry terminal will be demolished to make way for a fire department and a fuel depot

Very soft opening Government says that “administrative issues” led to the delay of the commercial exploration of the new Taipa Ferry Terminal by company CSI Group Ltd., with the restaurant and commerce areas to possibly only be fully operational in one year Nelson Moura nelson.moura@macaubusinessdaily.com

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he restaurant and commercial area of the new Taipa Ferry Terminal could take another year to become fully operational, the Marine and Water Bureau (DSAMA) director, Susana Wong, told the press yesterday.

Last week, the DSAMA director stated that CSI Group Ltd. - the company awarded the contract for the management of commercial areas in the terminal - would start managing the commercial area one or two months after the official terminal opening on June 1.

However, Ms. Wong stated that the normal procedures for restaurant licence applications would be followed by the CSI Group Ltd., admitting that some restaurant licences could take one year to be granted.

CSI Group Ltd. was awarded a three-year contract in April for the management and exploration of three commercial segments, with information on the DSAMA website stating that the total monthly contribution for the commercial exploration will be MOP8.1 million (US$1.01 million).

When questioned why the government wasn’t able to get the commercial and restaurant areas operational by the time of the terminal’s official opening on June 1, the Secretary for Transport and Public Works, Raimundo Arrais do Rosário, said “some administrative issues” had led to the delay, but that a “temporary food and beverage vending machine system”

would be put in place until the area is operational.

“The company that was awarded the public tender hasn’t started operations yet […] Unfortunately, that issue was not well resolved as we would want to. There were some issues that led to the process being delayed, but even with conditions not being the best we decided to maintain the inauguration date and initiate the terminal operations as soon as possible,” the Secretary told the press yesterday.

Business Daily asked the CSI Group Ltd. about its expected schedule for initiating operations in the new terminal, but no response had been received by the time this newspaper went to print.

The government also granted

three other three-year concessions for services in the new terminal, with a MOP98.4 million contract for maintenance granted to Focus Gestão, Operação e Manutenção de Instalações,. S.A; a MOP34 million contract for security services awarded to Winnerway Security Guards Company Limited; and a MOP37.5 million contract for cleaning services given to Companhia de Serviços de Limpeza Kit Pou, Limitada.

Helicopters and cruises on hold

The government officials underlined that future changes will be put in place in accordance with the registered use of the new terminal after opening.

Secretary Rosario stated that he is “confident” the user demand for the terminal will increase, with the DSAMA Director Susana Wong having said previously that she expects the terminal to receive more than 40 per cent of the total amount of visitors coming to the city by sea, with the previous terminal currently receiving 35 per cent.

The Secretary also stated that the government hasn’t yet initiated the

public tender for the exploration of the terminal’s five helicopter pads, and that the government had no date to transfer any helicopter flights currently going to the Outer Harbour Ferry Terminal to the new terminal.

The three multifunction berths originally intended for the docking of 1,200-seat passenger ships managed by Macao Dragon Company Limited - which went bankrupt in 2011 - are currently “sealed”, with the government “studying the best use to give the area”, the Secretary added.

As for the former terminal, its demolition will be initiated one or two days after the new terminal opening, initiating the third phase of the terminal’s development, with a fire department and a ferry fuel depot to be constructed in the area.

Not much change for now

Yesterday, a joint press conference organised by DSAMA, the Transport Bureau (DSAT), the Public Security Police Force (PSP) and Customs was held at the site of the new Taipa Ferry Terminal to present the preparatory works made before the terminal opening.

The temporary ferry terminal will have its last ferry departure to Hong Kong on 1am of June 1, with the new Taipa Ferry Terminal starting operations at 6am. Its first ferry will depart at 7am that day.

In the initial phase, only eight of the 16 existing docking berths will be operational, with the seven ferry routes managed by Turbo Jet, Cotai Water Jet and Yuet Tung Shipping Co to be transferred with no alterations.

The Taipa Ferry Terminal will maintain the current number of six public bus routes stopping at the terminal, with the public bus area separated from the stopping area reserved for hotel, travel agency, casino and cross-border shuttle buses.

The area for tourism related heavy vehicles will have 71 parking spaces for shuttle buses.

The Taipa Ferry Terminal parking lot will also offer a total of 936 parking spaces, with 740 for light vehicles and 196 for motorcycles.

OBOR

Educating for integration The Macau Foundation is working on two projects to link countries along the Road and beyond Sheyla Zandonai sheyla.zandonai@macaubusiness.com

The Macau Foundation is preparing two projects linked to the One Road, One Belt (OBOR) initiative, according to information provided to Business Daily by Wu Zhiliang, the foundation’s President.

One of the projects is a scholarship programme open to students from Macau and from countries of the OBOR, which the foundation officially launched on Sunday.

The second project is an international conference that the foundation

is co-organizing – to be held from June 7 to 9 in Macau – which Wu says “will count with the participation of speakers from China, Portugal, Brazil, Australia, and United States.”

According to further information provided by an employee speaking on behalf of the Macau Foundation yesterday, the other two organizers for the conference, which is themed the ‘One Belt, One Road policy and the development of Macao,’ are the Policy Research Office of the Macau SAR Government, and the Grand Thought Think Tank, a local organization.

The foundation spokesperson

explained that invited guests come from both the academic and the business sector, adding that guests from Indonesia are also expected to attend.

Wu stated that he did not take part in the OBOR Forum held in Beijing in mid-May, and therefore he could not yet provide more information on the current initiatives linked to OBOR involving the institution he spearheads.

Scholarship programme

According to information released by the Macau Foundation, the first phase of the OBOR scholarship programme is open to students from Macau, Guangdong, and Fujian for the 2017-2018 academic year. Students can apply in two different modalities, according to the rules pursuant to the grant.

Permanent residents of Macau can apply for the programme to pursue

undergraduate studies in a higher education institutions abroad in Brazil, Malaysia, Indonesia, and the Philippines. Students from Guangdong and Fujian, already enrolled in a local higher education establishment, can apply for the scholarship to pursue graduate studies (at Master’s degree level) in the same countries listed above, as well as in Portugal.

A total of 20 scholarships will be attributed, ten for Macau residents, and ten for residents from Guangdong and Fujian combined.

The second type of scholarship grant, open to students from OBOR countries willing to study in Macau, will be launched at a later stage.

In total, the scholarship programme is approved to run for an initial duration of five years and will cover a total of 150 grants, ranging from MOP60,000 to MOP80,000 depending on the target institution.

Business Daily Tuesday, May 30 2017 3

Macau Economy

GDP up 10.3 pct y-o-y in Q1 Local economist expects that the growth of gross fixed capital formation will not continue in the next quarter as more casinos complete construction Cecilia U cecilia.u@macaubusinessdaily.com

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uring the first quarter of 2017, the city saw a 10.3 per cent increase in its GDP (Gross Domestic Product) when compared to the same quarter a year ago, according to the latest data released by the Statistics and Census Service (DSEC).

The significant increase, opines economist Alberto Martins, was attributable to the relatively lower base of comparison in the same quarter during 2016.

Another major contribution to GDP

growth for the first three months was improving exports services and investment.

In terms of exports of services, the value for the first quarter increased by 13.4 per cent yearon-year, with exports of gaming services and other tourism services jumping 11.3 per cent and 20.9 per cent, respectively.

The increase in exports of gaming services, points out the economist, is also a major factor leading to the increase in GDP. The DSEC data also shows that exports of goods increased by 9.7 per cent, year-on-year.

The city also saw improvements in

Source: DSEC

investment, with gross fixed capital formation, a gauge of investment, growing 4.6 per cent year-on-year, 2 per cent higher than in the last quarter.

Mr. Martins points out that the increase in the gross fixed capital formation should be confined to the short-term, estimating that the growth will not continue to the next quarter.

“I don’t believe this growth will continue in the next quarter because casinos are almost finishing [...] I don’t believe the values will be the same as last year,” said the economist, while also adding that the positive growth in gross fixed capital formation might turn around by the end of this year.

He points out that capital formation from construction, as well as equipment, was heavily weighted to the private sector, recording a total

of MOP12.81 billion (US$1.60 billion) invested in construction and MOP1.71 billion in facilities.

In contrast, the government invested some MOP1.25 billion for construction and MOP40 million for equipment.

“The two major investments are from the private sector (construction and equipment) because the government is almost irrelevant [when comparing the amount of capital formation between the two sectors],” remarked Mr. Martins, although noting that the government’s investment in public construction and equipment skyrocketed by 73.9 per cent and 132.6 per cent, respectively, year-on-year.

During the quarter, the implicit deflator of GDP, which measures the overall changes in prices, experienced a slight increase of 0.5 per cent year-on-year.

Source: DSEC

4 Business Daily Tuesday, May 30 2017

Macau Opinion

Albano Martins* In May our inflation will be between 1.35 and 1.38 percent.

I wrote in JTM (Jornal Tribuna de Macau newspaper) on April 28 that “April 2017 inflation in Macau ... should be in the range between 1.49 to 1.52 percentage points (...)”.

I reinforced this idea again in my last JTM article on May 19, and in Business Daily on May 16, although this last article was prepared at the end of April.

On May 23, DSEC, the Statistics and Census Service of Macau, confirmed an inflation rate of 1.51 percentage points, meaning within the range of only 0.03 percentage points of error that I had advanced a month earlier!

This is the downward trend of Macau’s inflation, measured by the average CPI (consumer price index) variation of the last twelve months: 2.37 in December 2016, 2.2 in January 2017, then 1.91 in February, followed by 1.69 in March and finally 1.51 per cent last April.

And now, in May, what will our inflation rate be?

Using only the same variation of 0.03 percentage points, I believe our inflation will continue to go down and will end up in a range between 1.35 and 1.38 percentage points.

We will only know if this is correct on June 21.

It is difficult to predict how much inflation will be at the end of the year, and I must confess that this evolution is amazing, as rents continue to go down when everything else is going up!

Using only mathematics and a few economic projections, the data up to now seems to point to a number between 0.9 and 1.73 percentage points at the end of 2017, an interval that will be reduced as we move closer to it.

Really, it only means great progress if we consider that 2015 ended with an inflation rate of 4.56 percentage points, and 2016 with 2.37 per cent, and that this variable has been falling continuously since November 2014 when it reached a peak of 6.06 per cent!

To help you understand this trend, remember that 2014 was the year the casinos’ income began to go down, from June onwards.

If the warming up of the gaming and real estate is still not reflected in the CPI - and I really do not understand why - then inflation may well be below last year’s figures!

The latest forecast I know from UMAC and the Economist Intelligence Unit pointed to an inflation rate in 2017 of 2.1 and 2 per cent, respectively.

For me, it will continue to drop monthly, but somewhere in the middle of the year will start to rise gradually to reach a lower value than these two forecasts. * an economist and contributor to this newspaper

Gaming

Jockey Club Casino moves to Roosevelt Cecilia U cecilia.u@macaubusinessdaily.com

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ocal gaming oversight group, the Gaming Inspection and Coordination Bureau (DICJ), has received a request for the Macau Jockey Club (MJC) Casino to move to the new Roosevelt Hotel property, located on the grounds of the group’s land in Taipa.

The DICJ notes that it has already received the application from gaming concessionaire SJM Holdings to relocate the Casino Macau Jockey Club to the Roosevelt Hotel location.

Although the signage outside the Roosevelt Hotel property has already been changed to reflect the shift, the DICJ noted in its response to Business Daily’s enquiries that ‘the application is still under processing where no final decision has been made yet’.

Regarding the number of tables for the new casino, the MJC was unable to provide any related information by the time this story went to press.

A report by analysts at Union Gaming drew attention to the issue, with the analysts estimating that the new casino might be larger in size than the existing one, and perceiving that it will have a much greater focus on table games, with an estimate of 25 to 35 tables and around 100 slot machines.

The MJC was also unable to provide any information in regards to the

number of tables for the new casino, by the time of publication.

With only four live tables operating at the current MJC casino, it is suggested that ‘a greater allocation of tables’ will be needed for the new gaming venue.

The analyst group assumes that tables ‘would either need to come from SJM’s existing inventory or from the government’.

In terms of the general table allocation in the city, the analysts estimate that 482 tables will be the quota to be allocated by the authority as it sees fit through to 2022, as the group assumes that the two upcoming casinos - MGM Cotai and Grand Lisboa Palace - will be getting 150 tables each.

Meanwhile, there was a 16 per cent decline in 2016 for the satellite casino segment of SJM, with the analysts perceiving the drop to be attributable ‘in large part to outdated facilities and lack of amenities’. Union Gaming believe the new casino at Roosevelt might focus on the VIP segment, or could be going after the niche market of non-Chinese gamblers.

According to official data from the DICJ, for 2016, the MJC generated a total revenue from horserace betting of MOP141 million, a decline of 15 per cent from MOP166 million in 2015.

In fact, the horserace-betting operator has failed to make an annual profit since 2005. As at the end of 2015, its accumulative losses totalled

MOP3.96 billion for the past decade, according to the company’s 2015 annual report.

The MJC’s chief executive, Thomas Li Chu Kwan, said previously that he is putting efforts in to changing the company’s image to a leisure attraction, by upgrading facilities and holding international-level competitions.

Having held the monopoly for the horseracing and betting business in the city since 1978, the company will see its current horserace-betting concession expire on August 31 this year, however the chief executive said he is confident that it will obtain an extension of its business license from the government.

Meanwhile, the Macau Roosevelt Hotel continues to further postpone its opening and the exact opening date is still not officially announced.

In February, the property’s General Manager, Roberto Simone, said in an interview with local Chinese-language newspaper Macao Daily that the opening of the new property was expected to be in the middle of this month.

The hotel was initially scheduled to open in 2015. The opening date was later postponed to the first half of 2016, then to the first quarter of this year. A company representative, Arron Iu, said in July 2015 that the property would not provide any gaming venue.

The new hotel will feature a total of 368 rooms.

extension would undermine his client’s right to a speedy trial, but on the other hand believed it would give him time to contest a decision

that newly discovered classified materials related to the case were not required to be turned over to the defence. N.M.

Satellite decline

Crime

Trial delay Start of the corruption trial against Ng Lap Seng delayed by 30 days The beginning of the corruption trial against local businessman Ng Lap Seng will be delayed by 30 days, news agency Associated Press reported.

Initially scheduled to start today, the trial against the Macau businessman is now expected to start in late June, with federal Judge Vernon Broderick having agreed to a request by the Prosecution to delay the start of the trial, set to take place in New York City.

According to the report, Mr. Ng’s defence lawyer considered that the

Business Daily Tuesday, May 30 2017 5

Macau Construction

Remodelling market worth MOP6.2 bln by 2020, says engineering firm

T

he market for alteration and extension works, due to constant renovations and redecorating, and increased demand for housing units, will drive up income from such projects to MOP6.2 billion by 2020, as compared to MOP3.5 billion in 2015, according to engineering service provider FSE Engineering Holdings Limited. The

group this week opened its first retail store in the MSAR, selling ceramic tiles from Europe, according to a release.

Present in the MSAR since 1980, the group notes that its diversification away from purely engineering and management offerings is in part to ‘create a new income source for the Group’.

The most recent financials,

regarding the last half of 2016, show that the group saw a 71.7 per cent drop in revenue year-on-year, to HK$113.4 million, ‘representing a drop in geographical contribution from 24.9 per cent to 6.4 per cent,’ according to the group’s filing with the Hong Kong Stock Exchange.

This came about, in part, due to the group seeing a ‘reduction in the contribution from two major

projects’, which it names the ‘Project Cotai Resort’ and a ‘wellknown hotel in Cotai’, substantially completed in the corresponding period last year.

Given that a ‘relatively sizeable contract’ was awarded during 2016, which has ‘yet to contribute revenue to the region’, an uptick in the group’s results for the first quarter of this year is possible.

the re-construction of the office is due to the patrol station having been used for over a century, resulting in serious structural issues such as exposed steel bars.

In addition, Customs revealed that the office in question sits one metre below the newly built road, leading to constant issues of flooding and

sewage backflow.

The substantial development of Cotai, resulting in growing demand for personnel, is also another reason for the re-construction of the office, Customs reveals.

Currently, Customs has a temporary patrol station located near the Coloane Harbour. C.U.

as individuals or collectives. The IC notes that it will select the participants

according to the ‘originality and peculiarity of their products’.

Construction

Customs to reconstruct office at Taipa The refurbishment of the city’s Customs office, near the roundabout of Tenente Pedro Jose Da Silva Loureiro in Taipa, opposite the new Roosevelt Hotel, will set the city’s coffers back anywhere between MOP33.33 million

(US$4.15 million) and MOP47.38 million, according to the results of the bids submitted for the public tender for the project.

In response to Business Daily’s enquiries, Customs explained that

Fair

Anim’Arte Nam Van stands now accepting applications The next batch of applications for the Anim’Arte Nam Van artisan fair are now being accepted, for those wishing to apply for stands. Applications will be for the period between July and December of this year and must be submitted by 5pm on June 16. A release from the Cultural Affairs Bureau (IC) notes that ‘all the cultural

and creative entities, local individuals, and those from Mainland China and Hong Kong are invited to apply, to display their brands and sell their original products’.

A total of 25 stands are available, with a number of workshops also open to the public at the fair. Applications are free and can be made

6 Business Daily Tuesday, May 30 2017

Macau Luxury

World luxury goods sales growth seen up 2-4 pct in 2017-Bain In October, Bain had forecast 2017 growth of 1-2 per cent for the luxury sector, but the industry managed to grow 4 per cent year-on-year in the first quarter of 2017 Dominique Vidalon

G

lobal sales of personal luxury goods will grow by a stronger- than-expected 2-4 per cent at constant exchange rates in 2017, as higher spending in Europe and China outpace weakness in the United States and southeast Asia, a report showed on Monday.

In 2017, total revenue in the sector that includes watches, jewellery, clothes, shoes and leather goods will rise to 254 billion-259 billion euros (US$284 billion-US$289.25 billion) from 249 billion euros in 2016, the study by consultancy group Bain & Co and Italian luxury industry association Altagamma showed.

The luxury goods sector has suffered in the past couple of years from fewer tourists coming to Europe after a wave of militant attacks on the continent, less business in Hong Kong and slowing demand in China.

In October, Bain had forecast 2017 growth of 1-2 per cent for the luxury sector, but the industry managed to grow 4 per cent year-on-year in the first quarter of 2017.

“After a difficult 2016, the first quarter of 2017 brought some relief to the luxury industry. The continuous

repatriation of Chinese consumption as well as a positive outlook in Europe both for locals and tourists will help drive overall market growth during the remainder of the year,” said Claudia D’Arpizio, Bain partner and lead author of the study.

Key Points Bain previously forecast 2017 growth of 1-2 pct Europe and China seen leading, U.S. underperforming Bain: global luxury sales at 280-290 bln euros by 2020 Bain does not name specific companies, but in the first quarter of 2017 luxury giants LVMH, Kering and Hermes all posted strong results.

Bain partner Federica Levato, another of the authors of the report, told Reuters: “It’s a healthier growth than before. So we have revised our market forecast for this year. Some players who are doing well are really outperforming.”

Europe seen on top

Europe, which is starting to see tourists returning, is expected to be the

fastest growing market for luxury goods this year, with sales seen up 7-9 per cent.

Bright spots were Spain, seen as a relatively safe destination, and Britain, rendered more affordable to tourists after a post-Brexit slump in sterling, while Mainland China was also recovering with 6-8 per cent growth, said the report.

Bain predicted that sales in the rest of Asia could shrink 2-4 per cent in 2017.

Hong Kong, Macau and Singapore are on the mend but Taiwan and Southeast Asia face a fall in tourist numbers from China and South Korea, while Japan was seen as staying flat.

The United States, the largest luxury

goods market, is also set to underperform, with a strong dollar and uncertainty about the policies of President Donald Trump expected to create a challenging environment, said the Bain report.

In coming years, the luxury market is set to keep expanding at an average annual rate of 3-4 per cent to reach 280 billion-290 billion euros in sales by 2020, driven by a growing Chinese middle class and a recovery in more mature markets.

By 2025 the so-called ‘Millennials’, the tech-savy generation born after 1980 and those born after 1995, will represent 45 per cent of overall luxury consumption, with Asian consumers accounting for more than half, the study added. Reuters

Business Daily Tuesday, May 30 2017 7

Gaming

Lawrence Ho, the billionaire owner of Melco Resorts & Entertainment Ltd.

Liberalization

Local billionaire says he favours Osaka over Tokyo for casino Melco is competing for Japanese licenses with rivals that include Las Vegas Sands Corp. and MGM Resorts International, both of which are focusing on Tokyo and Yokohama in addition to Osaka Bruce Einhorn and Daniela Wei

L

awrence Ho, the billionaire owner of Melco Resorts & Entertainment Ltd., said he favors building a casino in Osaka rather than Tokyo because there are more opportunities to develop the smaller Japanese city as an entertainment destination.

Ho is among the industry heavyweights seeking entry to Japan after lawmakers voted in December to open the country to casino gambling.

The government of Prime Minister Shinzo Abe, which made casino liberalization a priority, hasn’t decided where those casinos will be built nor which companies will operate them.

The prize could be the world’s most lucrative casino market, which CLSA Ltd. estimates could generate US$25 billion annually. While Melco is considering the viability of Tokyo and nearby Yokohama, the company’s top choice is Osaka and the surrounding Kansai region, home to attractions such as Universal Studios Japan and the city of Kyoto, famed for its Buddhist temples.

“When you go to the Kansai region, it’s more fun, really, and we’re a company that focuses on fun and entertainment,” said the 40-year-old Ho, who also serves as chief executive officer, in an interview at Melco’s City of Dreams resort in Macau.

Melco is competing for Japanese licenses with rivals that include Las Vegas Sands Corp. and MGM Resorts International, both of which are focusing on Tokyo and Yokohama in addition to Osaka. To be selected, operators and municipalities will have to team up and submit a proposal to the government, according to guidelines published this month.

“MGM’s business model is to build large-scale destination resorts with lots of stuff that cost a lot of money,” Ed Bowers, executive vice president of global development for MGM Resorts, said this month. “So it needs to be in a high-density population area.”

The Tokyo metropolitan area, home to about a third of Japan’s people, is the country’s political and financial centre and the base of headquarters for the country’s biggest companies, including Sony Corp., SoftBank Group

Corp. and Hitachi Ltd. The city will also host the 2020 Summer Olympics.

That popularity is what makes Tokyo less than optimal for hosting the type of integrated casino resort popular in Las Vegas and Macau, Ho said. Those facilities typically include hotels, entertainment options, shopping and convention centres.

“I’m not so sure Tokyo needs an integrated resort,” said Ho, whose net worth is about US$2 billion, according to the Bloomberg Billionaires Index. “Tokyo by itself is amazing.

It’s like when people ask me: ‘Do you think New York and London need an integrated resort?’ No, they don’t.”

More than Macau

About an eight-hour drive from Tokyo, Osaka is a prime shopping destination and a favourite for tourists from China. Although both cities are front-runners to be selected by the government as casino locations, Tokyo’s higher costs may be a deterrent.

“Tokyo’s inflated commercial land prices are higher than the rest of Japan,” Bloomberg Intelligence analysts Margaret Huang and Carmen Lee wrote in a May 26 report. “That may dissuade casino operators from developing an integrated resort there, even with the city’s population and infrastructure.”

CLSA’s US$25 billion revenue estimate is based on the country having two urban integrated resorts and 10 regional casinos. By comparison,

gaming revenue in Macau last year was US$28 billion, while Las Vegas generated US$6.4 billion.

Melco, with US$4.5 billion in revenue in 2016, is the fourth-largest casino operator in Macau. As business from Chinese high rollers plunged in the territory after peaking in 2013, Melco expanded internationally.

It opened the City of Dreams Manila resort in the Philippines in 2015 and has invested in gaming ventures in Cyprus and Russia. Ho also plans to launch a global hotel brand, starting with a US$1 billion high-rise in Macau set to open next year.

Its U.S.-traded shares closed at a 52-week high May 16, and the stock’s 38 per cent gain this year has outperformed a Bloomberg index tracking Macau gaming operators.

Melco shares declined 0.2 per cent to US$21.95 Friday in New York.

Gaming companies interested in Japan are still waiting for lawmakers to vote on proposals establishing rules on taxation and regulation, and addressing ways to combat gambling addiction.

Until then, Melco is busy courting potential partners, Ho said. That can lead to some awkward encounters as the foreigners target some of the same Japanese companies.

“Right now, there is a lot of speed dating,” Ho said. “Sometimes, I go into a Japanese corporate’s office, and then I walk out and I see our competitors in the lobby.” Bloomberg

Online

Mega online gambling ring busted in central Vietnam Police in Vietnam’s central Thanh Hoa province have cracked down on an online gambling ring with related transactions worth nearly US$62 million, reported local media on Monday.

Ten local people, including four ring leaders, have been detained by the provincial police, and their two cars, four computers, 16 cell phones, and 461 million Vietnamese dong (US$20,400) in cash confiscated, according to daily newspaper Tien

Phong (Pioneer).

According to the police, from the beginning of 2017 until their arrest, the ring handled online betting transactions totalling over 1.4 trillion Vietnamese dong (US$62 million).

Gambling, except in government-licensed casinos, is illegal in Vietnam. Anyone found to be in violation of this law is subject to steep fines and/or a severe prison sentence.

Xinhua

8 Business Daily Tuesday, May 30 2017

Greater China In Brief Markets

China Tower invites banks to pitch for role in IPO China Tower Corp, which owns and manages the mobile phone towers for China’s three state-owned telecom operators, has invited investment banks to pitch for a role in a Hong Kong IPO worth up to US$10 billion, IFR reported yesterday.

The IPO would take place in late 2017 or early 2018, said IFR, a Thomson Reuters publication, citing people close to the deal. China Unicom Hong Kong Ltd, China Mobile Ltd and China Telecom Corp Ltd formed China Tower in October 2015 to save on infrastructure investment and cut management costs for their mobile phone towers.

HKMA

Hong Kong Exchange Fund Q1 at HK$57.1 bln Hong Kong’s Exchange Fund, which is used to back the Hong Kong dollar, posted investment income of HK$57.1 billion (US$7.33 billion) in the first quarter of 2017, the Hong Kong Monetary Authority (HKMA) said yesterday. The figure compared with a HK$25.4 billion investment gain in the same period a year earlier, and an adjusted HK$23.3 billion investment loss in the fourth quarter of 2016. In 2016, the exchange fund recorded adjusted investment income of HK$68.1 billion. The HKMA is the key manager of the Exchange Fund.

Real estate

House prices stabilize in Beijing-Tianjin-Hebei region The property market in northern China’s BeijingTianjin-Hebei region stabilized in April after authorities implemented a string of measures to contain price hikes, according to an official survey released yesterday. In Beijing and Shijiazhuang, capital of Hebei Province, new residential house prices rose 0.2 per cent and 0.1 per cent month on month in April respectively, while Tianjin saw a month-on-month decline of 0.1 per cent, according to the National Bureau of Statistics. In April, the new residential house prices in Beijing, Tianjin and Shijiazhuang saw a yearon-year growth of 17.4 per cent, 18.1 per cent and 18 per cent respectively.

Transportation

Dragon Boat Festival puts pressure on railways The Dragon Boat Festival holiday from Sunday until today is putting pressure on China’s railway system, as more and more people choose to travel by train.

Some 12.1 million passenger trips were made Sunday, up 8.8 per cent year on year, China Railway, a state-owned company, said yesterday. The company will add 253 trains Monday, when about 9.1 million passenger trips are expected.

It forecast that total railway passenger trips would reach 44.6 million between Saturday and today, up 10.5 per cent year on year.

Ratings

S&P sees no need for an out-of-schedule Mainland review Company’s Asia-Pacific senior director said nobody is expecting any form of financial instability anytime in the near future

S

tandard & Poor’s is likely to follow its regular ratings review schedule for China, and does not see any basis at this point for an out-ofschedule committee meeting, a senior director at the ratings agency told Reuters yesterday.

Moody’s Investors Service last week cut its sovereign ratings on China by a notch, putting them on par with those of Fitch Ratings.

That put S&P one step above the two agencies, holding an AA- rating with a negative outlook that it has maintained since March 2016.

“I don’t think there has been anything that could justify the calling of an out-of-schedule committee at this point in time, so we are likely to follow our regular review pattern,” Kim Eng Tan, S&P’s Asia-Pacific senior director of sovereign ratings, said in a phone interview.

Tan declined to say when the next regular review would be.

“Despite the (Moody’s) downgrade, all the major agencies have really high ratings on China, whether it’s A+ or AA-, they are both high ratings,” he said.

Government-led stimulus has been a key driver of China’s economic growth in recent years. But that has been accompanied by credit growth that has created a mountain of debt - now at nearly 300 per cent of gross domestic product (GDP).

“The key concerns that people have

are longer term,” Tan said. “Because if trends carry on as they do, from what we have seen in the past few years, then at some point in time, the risk of instability will rise to a level that will probably justify a further downgrade in the ratings.”

S&P last changed its rating on China in late 2010, when it upgraded it by one notch.

Flurry of measures

China has vowed to lower debt levels by rolling out steps 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.

Tan said the key concern is that China “is relying on a source of growth which hasn’t been sustainable in some other economies and also the fact its debt is rising fast.”

“If one day growth slows and there’s a whole pile of debt to be paid, then obviously the stresses are going to be large. But I don’t think that day is anytime soon.”

Tan said he expects China’s annual economic growth to slow to 6 per cent in the next few years, but still hold above 6 per cent for much of the next one to two years.

Moody’s expects GDP growth to slow to around 5 per cent in coming

years, but says the economy will remain robust and the likelihood of a hard landing is slim.

The Chinese government is targeting GDP growth of around 6.5 per cent this year.

The economy expanded 6.7 per cent in 2016, within the government’s expectations, though the pace was the slowest in a quarter of a century.

The probability of a ratings cut by S&P cannot be ruled out after the Moody’s downgrade, OCBC wrote in a note to clients yesterday.

Key Points S&P’s rating on China one notch above Moody’s, Fitch Financial instability in China not expected in near future - S&P S&P doesn’t see need for exceptional committee meeting for now But the Singapore bank said China’s credit risks could be well-contained in the near term by the latest wave of new regulations for de-leveraging.

S&P’s Tan said: “What could determine whether or not we actually do a downgrade depends on firstly the trend of credit growth and the trend of economic growth, as well as the composition of the drivers of growth.

“And secondly, how much we think the policy changes that we have seen over the past half a year or so are likely to lead to better trends for both the type of growth we are seeing, as well as the strength of credit growth.”

Reuters

Business Daily Tuesday, May 30 2017 9

Greater China Markets

World’s most painful short just gets worse for Evergrande bears Part of the sharp rally can be explained

by Evergrande’s plan to raise money from strategic investors ahead of a planned backdoor listing Lisa Pham and Moxy Ying

China Evergrande Group’s astonishing share rally has resulted in the world’s most painful short trade this year. To add insult to injury, bearish investors are paying higher fees to get crushed.

Fees to borrow shares of the Hong Kong-listed Chinese developer for shorting have surged by more than five times since January to about 10 per cent and have doubled since Evergrande started buying back shares in late March, according to Simon Colvin, a London-based analyst at IHS Markit Ltd. Evergrande shares available for lending have “nearly all been spoken for,” Colvin wrote in an email, resulting in higher borrowing costs.

“The momentum will remain strong until the backdoor listing is completed and after that there might be some share price correction”

in smaller Chinese cities. A buyback spree has also propelled a 123 per cent jump since late March -- when short interest started climbing from a low point.

“I wouldn’t recommend investors to short Evergrande because of the strong momentum. It’s too risky,” Raymond Cheng, Hong Kong-based analyst at CIMB Securities Ltd., said by phone. “The momentum will remain strong until the backdoor listing is completed and after that there might be some share price correction.”

Evergrande soared as much as 27 per cent to an all-time high on Monday, while peers such as Country Garden Holdings Co. and Sunac China Holdings Ltd. advanced more than 10 per cent. The acceleration in gains is raising questions, with JPMorgan Chase & Co. saying in a note received Friday that Evergrande’s business

model isn’t sustainable.

The pressures on short-sellers are mounting as investors are covering their bearish positions, said Citigroup Inc. analyst Oscar Choi, which could be contributing to higher demand for Evergrande shares. In a typical short sale, investors borrow shares and sell them with the expectation that the price will decline. In a successful trade, the investors later buy the shares back at a lower price to return to the lender, or cover the short, so they can pocket the difference.

After yesterday’s rally, Evergrande’s share price increase is the biggest among major short targets worldwide, which include companies with a market value of at least US$1 billion and short interest tracked by Markit of at least 10 per cent, according to data compiled by Bloomberg.

The only other wager that has inflicted pain of a similar magnitude is a bearish trade on Applied Optoelectronics Inc., whose shares advanced 205 per cent this year, the data show.

Still optimistic

Evergrande trades at a record 36 times

reported earnings, more than double the valuations of Country Garden and Sunac, while yesterday’s gain alone added US$5.3 billion to its market value. Bearish bets accounted for 20.7 per cent of its free float on May 25, according to IHS Market data, while its share price is 118 per cent higher than consensus analyst estimates for the next 12 months.

Some analysts are still optimistic.

Morgan Stanley analyst John Lam, one of the most bullish analysts on Evergrande with an overweight rating on the shares, has a street high price target of HK$12, according to data compiled by Bloomberg. Lam cited moves by Evergrande’s management to raise its second-round strategic investment target to RMB30 billion from RMB15 billion.

Lam expects Evergrande to lower its net gearing to 237 per cent by the end of this year, from 432 per cent at the end of 2016, according to a May 23 note. Evergrande’s six-month financial results, which will be released in August, is another potential catalyst for the share price, according to Morgan Stanley. Bloomberg News

Raymond Cheng, Hong Kong-based analyst at CIMB Securities Evergrande shares have more than tripled this year, hurting short-sellers and baffling even some of the most bullish stock analysts. Part of the sharp rally can be explained by Evergrande’s plan to raise money from strategic investors ahead of a planned backdoor listing on the Mainland and speculation that the developer will benefit from rising home sales

Investment

Yao Ming’s PE firm seeks capital for overseas sports assets with domestic angle China has ambitions to dramatically boost its domestic sports industry into a market worth RMB5 trillion annually by 2025 Julie Zhu

Yao Capital, the Chinese private equity firm co-founded by former NBA superstar Yao Ming, said it aims to raise US$250 million for its first U.S. dollar fund that will invest in overseas sports assets with relevance to the Chinese market.

The firm is in talks with prospective international investors, including university endowments and private wealth managers, about the fund which it plans to launch this year, co-founder and CEO David Han told Reuters in an interview late on Friday.

Han, a former chief investment officer at China’s Wanda Group, added that the company had decided on a U.S. dollar fund after tighter Beijing’s capital controls made it tougher to do overseas deals.

“Many of our targets are abroad.

When the government tightened late last year, things did become difficult for us,” said Han, referring to the lengthy approval process for buying foreign exchange and transferring capital out of China.

“There’s no doubt that a dollar

fund can facilitate our investments overseas.”

Yao Capital, formed early last year, is among China’s first private investors in the sports sector. It will focus on sports-related products such as sports medicine, gaming and sporting rights, said Han, adding that investments would be made in Europe and

the United States as well as at home.

“We won’t make overseas investment randomly. It must have a China angle. The targets will certainly be able to be linked to the Chinese market,” said Han. China has ambitions to dramatically boost its domestic sports industry into a market worth RMB5 trillion (US$730 billion) annually by 2025, compared with RMB1.7 trillion in 2015.

Han said he expected the country’s sports market to grow at a compound annual growth rate of about 20 per

cent over the next decade, aided by a supportive government policy and increasing consumer demand for recreational sports-related products.

The Shanghai-based firm last year raised 2 billion yuan for its maiden fund. Investors included tech giant Tencent Holdings Ltd and investment bank China International Capital Corp Ltd. It has already made six investments at home and abroad, including Singapore-based Glory Sports International, an organiser of kickboxing events, and Iovate Health Sciences International, a Canadian maker of nutritional products such as body building supplements.

Key Points Yao Capital to raise US$250 mln for its first U.S. dollar fund Company in talks with prospective investors New fund will focus on sports assets in Europe and America Han said Yao Capital plans to fully invest its first yuan fund in the next two years with a focus on growthstage investment opportunities.

In addition to Yao Capital, Wanda has led several of China’s investments in the sector, including acquiring a 20 per cent stake in Spanish soccer club Atlético de Madrid and becoming the first Chinese partner company of soccer’s global governing body FIFA. Reuters

10 Business Daily Tuesday, May 30 2017

Greater China

Property

Hong Kong property cooling moves set to fail as shadow lenders fill the gap Revenue from properties and related investments is estimated to have more than doubled in the fiscal year ended March 2017 Sumeet Chatterjee and Venus Wu

H

ong Kong’s latest attempt at cooling home prices in one of the world’s most expensive property markets is expected to send buyers scouring for loans in the unregulated shadow banking industry, spreading risk across the financial sector.

Home prices in Hong Kong, where a nano-apartment of less than 200 square feet can cost as much as US$500,000, have surged more than 137 per cent since the financial crisis in 2008, propelled by a supply shortage, low interest rates, and big flows of money from mainland Chinese investors.

They now pose a huge challenge for the territory’s incoming leader, Carrie Lam. The cost of accommodation in the financial hub, where home ownership is a distant dream for many, was among the triggers for mass protests in late 2014.

Authorities have failed to rein in prices despite eight rounds of mortgage tightening by the Hong Kong Monetary Authority (HKMA) since 2009, on top of a series of tax and regulatory policies imposed by the government.

As those measures have curbed bank lending, finance companies have leapt into the gap. They funded 8.7 per cent of mortgages for new apartments completed in 2016, according to Centaline Property Agency. For flats that have a completion date in 2017, the figure surges to 15.5 per cent and is expected to rise further, it said.

Few expect the authorities to take extreme measures - such as imposing punitive taxes on Mainland buyers - for fear of triggering a collapse in prices in a real estate industry

that accounts for 10 per cent of Hong Kong’s economic output.

Revenue from properties and related investments is estimated to have more than doubled in the fiscal year ended March 2017 from the previous year, and is the second biggest income generator for the government.

But there is a danger that if the non-bank lenders overstretch they could also hurt confidence in the real estate market. In Canada, recent problems at the nation’s biggest non-bank lender, Home Capital Group Inc, have helped to drive some buyers away from the hot Toronto residential market.

“The major concern to the government is that lower land prices would greatly affect the government’s revenue, which has been very volatile as a large part of that is from land premiums” Pascal Siu, an economist at Natixis Controlling the flood of capital flowing across the border is a huge challenge for the government - cash-rich mainland Chinese accounted for about 21 per cent of buyers of new homes last year, according to Centaline.

“The major concern to the government is that lower land prices would greatly affect the government’s revenue, which has been very volatile as a large part of that is from land premiums,” said Pascal Siu, an economist at Natixis.

The latest cooling steps announced 10 days ago - mainly making it costly for bank to make mortgage loans – were not aimed at targeting property prices but at strengthening lenders’ risk management, a spokesperson for HKMA told Reuters.

“The focus of the regulators is to ensure that the bubble in the property market doesn’t dent the bank balance sheets,” said an executive at a foreign bank with mortgage business in Hong Kong. “They don’t want to rock the boat and make the property prices correct by 10 to 20 per cent in a short span.”

Some of Hong Kong’s largest commercial banks in the mortgage loans market said they would raise interest rates following the measures, though the increases are modest.

Into the shadows

The shift in lending into unregulated shadow banking channels is a concern, analysts and industry officials warned.

“This is not healthy. When people can’t borrow from banks they are forced to turn to finance companies.

It is not healthy because the HKMA cannot regulate finance companies,” said Centaline’s research director Wong Leung-sing The HKMA spokesperson said while it did not regulate non-banking firms, last year it advised banks to ensure finance companies with whom they maintain a credit relationship comply with the central bank’s guidelines in extending mortgages to their customers.

“Given this requirement, banks should not be providing loans to finance companies which offer high LTV (loan-to-value) mortgages to property buyers.”

However, property agents said some non-banking firms lend as much as 100 per cent of an apartment’s value. Banks’ average loanto-value ratio for new mortgages was 51 per cent in December 2016, according to Standard & Poor’s.

In the first major sale since the latest HKMA measures, thousands flocked to snap up flats offered on Friday by the city’s No. 2 developer Cheung Kong Property Holdings, lured by favourable financing terms.

Cheung Kong Property offered several mortgage plans including one that partners with its subsidiary finance company to lend up to 85 per cent of an apartment’s value.

An executive director at Cheung Kong Property, Justin Chiu, said the HKMA’s new measures had little impact on sales, which were dominated by local buyers.

While the lending exposure of shadow bank firms in the property market is only around 10 per cent, industry insiders said the main risk is the regulatory vacuum in which they operate.

Shadow banks get the bulk of their funding from commercial banks, and in the event of a sharp correction banks would be forced to pare exposure to the property sector, badly squeezing liquidity for the non-banking firms, they said.

Any major distress in the sector would be a blow to incoming leader Lam, who has made affordable housing a top priority.

“Government policies are useless and I don’t expect the government to do anything to help us. Their policies will only induce counter effects - the price rises, even uphill, as seen in the last few years,” said Chung Siu-sha, 47, a Hong Kong housewife looking to buy a three-room flat at Cheung Kong Property’s sales on Friday.

“If the government has wisdom, they should completely bar non-local buyers from buying local flats.

Because non-local buyers are pushing up the property prices. They are the culprits.” Reuters

Business Daily Tuesday, May 30 2017 11

Asia GDP

Vietnam’s Premier confident on reaching growth goal In April, the premier called the first-quarter growth “very worrisome” and ordered ministries to find solutions Nguyen Dieu Tu Uyen and John Boudreau

V

ietnamese Prime Minister Nguyen Xuan Phuc said he is confident economic growth this year will meet a government goal of 6.7 per cent without adding to inflation, despite weak expansion last quarter.

Vietnam is taking steps to bolster the economy as the nation seeks to retain its status as one of the world’s fastest-growing economies, the premier said in an interview at the Government Office in Hanoi on May 27.

“Main economic indicators in May are all very good with a strong pickup in exports, foreign investment and agriculture production, laying ground for faster growth in the third and fourth quarters,” Phuc said in an interview with Bloomberg Television’s Haslinda Amin. The growth target “is difficult but it is possible”, he added.

The government must balance efforts to spur the economy with ensuring inflation doesn’t exceed its 2017 target of 4 per cent, according to Phuc. “We must curb inflation at the mandate number as we have committed to the National Assembly,” he said.

Inflation eased to a nine-month low

of 3.19 per cent in May, the statistics office reported yesterday. Exports rose 17.4 per cent in the first five months from a year earlier while pledged foreign direct investment increased 10.4 per cent.

Phuc said tourism is expected to grow 30 per cent this year, agricultural exports will beat the $32 billion shipped last year, and electronics exports are going to surge -- counter forces to the economic headwinds the nation faced in the first quarter.

Growth eased to 5.1 per cent in the three-month period after Samsung Electronics Co. cut production, underscoring the nation’s reliance on exports.

Faulty phone

“The first quarter growth slowed due to a few reasons. Firstly it’s because of a big drop in our crude oil” output, Phuc said. “The second reason is because of the electronics industry -- we suffered a loss of about US$1 billion worth of exports from Galaxy Note 7” when Samsung recalled its faulty smartphone last year, he said.

Samsung helped to turn Vietnam into an electronics manufacturing hub almost single-handedly with $15 billion in investments from the technology giant and its affiliates, including battery-maker Samsung

SDI Co. The South Korean company is Vietnam’s biggest exporter. Mobile phones and components accounted for 27 per cent of Vietnam’s exports last year, or almost $40 billion, according to Samsung.

The government is preparing strategies to increase exports of its two key products -- electronics and agriculture, the prime minister said.

“We have made detailed plans to bolster each industry, down to the product level with thorough studies of different markets to boost exports,” he said. “More importantly, we are taking steps to create a more favourable business climate to support companies.”

In April, the premier called the first-quarter growth “very worrisome” and ordered ministries to find solutions.

‘Doi moi’

Vietnam, which has completed about

16 free trade agreements, began tethering itself to global trade after introducing market-oriented “doi moi” reforms in the 1980s. Exports surged to a record US$177 billion last year, with U.S. customers accounting for about US$42 billion of that -- more than double compared with five years ago.

The government is also speeding up the restructuring of its banking sector with stronger reforms in underperforming lenders, according to Phuc.

He reiterated Vietnam’s plans to sell out from the more troubled banks.

“We will allow foreign investors to take over those banks if there is anyone interested to buy,” Phuc said.

Vietnam’s economy grew 6.21 per cent in 2016, the second consecutive year of more than 6 per cent expansion, defying a regional slowdown.

“I’m quite optimistic about the economic outlook of Vietnam this year,” the premier said. Bloomberg News

Japan

Prime minister adviser touts minimum wage hike Ito said the power of monetary policy is fading and that further government stimulus could risk loosening fiscal discipline Yoshiaki Nohara, Toru Fujioka and Shigeki Nozawa

Japan should use targeted measures to push wages and inflation higher instead of deploying additional monetary or fiscal stimulus, said Takatoshi Ito, an adviser to Prime Minister Shinzo Abe. The nation’s tight labour market is bringing long-awaited pay increases to some workers but the practice of setting wages based on looking at past price trends needs to be abandoned to achieve the pay rises needed for sustainable inflation, said Ito, who is considered a candidate to be the next central bank chief.

Japan’s core consumer prices rose 0.3 per cent in April, the government reported last week, well below the Bank of Japan’s (BOJ) 2 per cent goal.

Ito said he disagreed with former Federal Reserve Chairman Ben Bernanke, who said last week during a visit to Tokyo that if Japan continues to struggle to generate inflation, more explicit coordination of monetary

and fiscal policy could be “the most promising option.”

Ito said the power of monetary policy is fading and that further government stimulus could risk loosening fiscal discipline. Instead, Japan should consider a big, one-time jump in the minimum wage, as well as taxing cash-hoarding companies to prompt them to raise wages.

An index of profitable companies that reward workers well could be created to attract investors to these businesses, including the

Government Pension Investment Fund, he said.

According to Ito, these measures would push wages and inflation higher in tandem.

Ito also said that as U.S. rate increases pressure Japanese yields, the BOJ should let the yield on benchmark 10-year government bonds rise as high as 0.25 per cent or so. Market participants see 0.1 per cent as the upper limit to the BOJ’s tolerance for deviation from its target of about zero per cent.

The BOJ doesn’t need to keep buying Japanese government bonds at the targeted annual pace of 80 trillion yen (US$719 billion) to keep the rate around zero, according to Ito, a professor at Columbia University

and a long-time ally of BOJ Governor Haruhiko Kuroda.

“The BOJ can say it’s still around zero even when it’s beyond 0.1 per cent. They can expand the acceptable range without changing its language,” Ito said in an interview in Tokyo on Friday. “If they can let it rise to 0.2 per cent or 0.25 per cent without saying anything, their purchases can fall” incrementally to as low as 40 trillion yen annually.

‘Private economists surveyed by Bloomberg expect core inflation will rise to 0.7 per cent in the year ending in March 2018’ The BOJ can keep going with its current policy scheme, and discussions of an exit won’t be meaningful until inflation gets closer to its 2 per cent goal, Ito said.

Private economists surveyed by Bloomberg expect core inflation will rise to 0.7 per cent in the year ending in March 2018. The BOJ board has forecast 1.4 per cent Bloomberg News

12 Business Daily Tuesday, May 30 2017

Asia Forecast

India seen staying fastest growing major economy Infrastructure spending is expected to support growth Vivek Mishra

I

ndia remained the fastest growing major economy in the world last quarter, with growth buoyed by an improved performance in manufacturing and services, a Reuters poll of economists found.

Prime Minister Narendra Modi’s ban of high-value currency notes last year had a major short-term impact on demand but private and public consumption has recovered.

The median forecast from a poll of 35 economists showed the economy grew 7.1 per cent annually in the first three months of this year. Forecasts ranged from 6.5 to 7.8 per cent.

Key Points Median forecast puts GDP growth at 7.1 pct for Jan-March qtr GDP to be released at 1200 GMT on Wed, May 31 Annual growth was 7.0 per cent in the quarter ending December, and 7.9 per cent in the January-March quarter last year.

“The demonetization drive barely impacted the economic momentum in the second half of FY’17. Most of the high-frequency indicators showed only a marginal slowdown and were quick to recover,” said Tushar Arora, senior economist at HDFC Bank.

India’s industrial output rose 2.7 per cent in March from a year earlier, beating the median consensus of 1.5 per cent growth in a Reuters poll.

Factory and services activity expanded for most of the first quarter of 2017, rising to a five-month high in March, indicating the effects from demonetization were short lived.

This acceleration in economic growth was partly driven by

favourable domestic factors, including a significant improvement in the transmission of past central bank policy rate reductions into banks’ lending rates, encouraging investment.

In addition, infrastructure spending is expected to support growth, as will higher agricultural output if the monsoon rains prove favourable.

The economy is also expected to benefit from the introduction of a

nationwide goods and sales tax (GST), eliminating multiple state sales taxes, making it far easier to do business in India. The GST is expected to come into effect from July 1.

“The GST will boost Indian GDP at least by 100-150 basis points. It won’t happen right after July 1, but probably by the end of FY18,” said Karan Mehrishi, ‎lead economist at ‎SMERA Ratings Limited. Reuters

Trade

South Korea exports seen rising for 7th month A seventh month of export growth will come as a relief to policymakers Cynthia Kim

South Korea’s exports were expected to have risen in May for the seventh straight month, but at a slower rate because of fewer working days, a Reuters poll found yesterday.

The median forecast of the 13 analysts polled was for exports to rise 13.6 per cent from a year earlier, versus

24.1 per cent growth in April. Imports were expected to grow 14.6 per cent.

“The release of Galaxy S8 (by Samsung Electronics) probably improved sales of mobile devices when semiconductors and petrochemical products continue to drive up exports,” said Park Ok-hee, an economist at IBK Securities in Seoul.

“But May had the Labour Day,

Buddha’s Birthday, Children’s’ Day on top of the presidential election, and these reduced the number of working days and cut export growth,” Park said.

Pre-orders for the Galaxy S8 launched by Samsung Electronics Co Ltd in April were better than many analysts had expected, raising hopes the new flagship handset will make up for the failure of the fire-prone Note 7s.

The Bank of Korea left interest rates unchanged on May 25 at a record low

of 1.25 per cent and said it would raise its growth outlook in July from the current 2.6 per cent, citing robust exports.

A seventh month of export growth will come as a relief to policymakers whose room to move is increasingly constrained by South Korea’s soaring household debt and the U.S. Federal Reserve’s impending policy tightening.

Key Points May exports seen +13.6 pct y/y, imports +14.6 pct y/y May CPI rise seen +1.95 pct y/y April industrial output seen +0.8 pct m/m s/adj In April, semiconductor chip and flat display panel exports boosted headline export performance, rising 56.9 per cent and 10.2 per cent respectively. Ship exports rose 102.9 per cent.

The same poll showed that May annual inflation was expected to be 1.95 per cent, slightly above 1.9 per cent in April.

April factory output was forecast to increase 0.8 per cent from a month earlier after rising 1 per cent in March.

Industrial output data is due on Wednesday, while trade and inflation indicators will be published on Thursday. Reuters

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Business Daily Tuesday, May 30 2017 13

Asia Gender gap

In Brief

Australia’s macho boardrooms set for a trillion-dollar bruising Institutional investors globally are increasingly concerned that too many firms are dragging their heels in appointing women Emily Cadman and David Stringer

All-male boards take note: your biggest investors have run out of patience.

The Australian Council of Superannuation Investors (ASCI) -- whose members have over A$1.5 trillion (US$1.1 trillion) of funds under management –- have pledged to vote down boards that aren’t making sufficient progress on gender diversity.

“Our assessment is that engagement has failed,’’ ACSI Chief Executive Officer Louise Davidson said by telephone. “We’ve spent a lot of time and provided lots of opportunities for companies to really get their act together. That has not happened. So therefore we fall back to the next lever we’ve got, which is to start voting.’’

Institutional investors globally are increasingly concerned that too many firms are dragging their heels in appointing women -- despite the body of evidence that backs diversity. Companies with strong female leadership made an annual return on equity of 10.1 per cent in 2015 versus 7.4 per cent for those without, MSCI research shows. A 2016 Credit Suisse Group AG survey of over 3,000 firms found more diverse boards achieved superior stock performance.

“Investors holding companies to account for their progress on gender diversity in the boardroom will have a massive impact,” said Allyson Zimmermann, Zurich-based executive director at Catalyst Europe, a global organization focused on workplace inclusion. “We’re seeing that shareholders and investors are increasingly

focused on the risk of not having a gender diverse board.”

30 per cent target

In Australia -- as with other countries including the U.S. and the U.K. -- the pace of change has slowed.

While women hold 25 per cent of board positions, up from 8.3 per cent in 2009, three males have been appointed for every female so far this year, according to the 30 per cent Club. The group aims to reach its 30 per cent target next year.

Patricia Cross, head of the Australian chapter of the 30 per cent Club, is “deeply concerned” by the decreased appointment rate: “I think it’s time for these beneficial owners, what I’d call the ‘real’ owners, to begin to flex their muscle in the diversity agenda,” she said by email.

ACSI is taking up that call. Come this annual general meeting season, the superannuation group will start recommending its members vote against the re-election of incumbent directors –- starting with the chairman –- of ASX 200 companies which still have no women on their boards.

While ACSI members’ ownership of ASX 200 companies isn’t sufficient on its own to unseat a director, its enough to send a “very strong” message, said Davidson. “Hopefully it will set some precedents.’’

‘Fearless girl’

The action echoes similar moves in the U.S., where State Street Corp. in March said it would begin voting against boards that are not taking “concrete steps’’ to improve gender diversity. The Boston-based fund

manager also erected the statue of a “fearless girl” staring down Wall Street’s famous charging bull to draw attention to the lack of corporate diversity.

The benefits of female directors are clear. Financial services companies that support disclosure and bestin-class gender equality practices gained 6.7 per cent year to date, as measured by the Bloomberg Financial Services Gender-Equality Index.

The benchmark, which tracked the performance of companies such as Citigroup Inc., BNP Paribas SA and JPMorgan Chase & Co., more than quadruples the 1.3 per cent posted by companies in the S&P 500 Financials Index in the same period.

Dean Paatsch, co-founder of proxy voting advisory service Ownership Matters, said the initiative was already having an impact by shedding light on the appointment process and making firms explain male-only boards. “It’s got some grunt behind it,’’ he said.

There are currently 12 ASX 200 companies that would be potential targets for ACSI, including Evolution Mining Ltd. and Resolute Mining Ltd. Resolute, with gold operations in Australia and Africa, said in November it’s seeking to appoint new directors and has begun a process to find a new chairman.

The company “will make those appointments on merit, and part of assessing merit is recognizing the value that diversity in all senses brings to the board table,” Chief Executive Officer John Welborn said by phone from Perth. “It’s entirely appropriate for ACSI to not only get behind a subject like gender diversity, but to make it clear that they are serious and intend to act on it.”

Evolution’s Executive Chairman Jake Klein said by email that “in many ways, we already have a diverse board but do recognize the need to add gender diversity. A process to do that has started and we expect to appoint a new non-executive director later this year.” Bloomberg News

Cryptocurrency

Japan’s BITPoint to add bitcoin payments to retail outlets It joins a flurry of companies embracing regulations, enacted in Japan last month, that recognize digital currencies as a form of payment Chris Cooper, Kiyotaka Matsuda and Yuji Nakamura

BITPoint Japan Co., the company behind Peach Aviation Ltd.’s move to let travellers use bitcoin to pay for tickets, is planning to give hundreds of thousands of Japanese retail outlets the ability to accept the digital currency.

“We’re holding discussions with a retail-related company,” Genki Oda, BITPoint’s president, said in a recent interview. “By going through a company providing payment terminal services to shops, we have the possibility of increasing its use at one stroke. It’s easier than talking to lots of individual retailers.”

BITPoint is joining a flurry of companies embracing regulations, enacted in Japan last month, that recognize digital currencies as a form of payment. That has helped to make yen trades one of the world’s largest transaction pools, exceeding China’s pole position at the end of 2016, according to Oda. Bic Camera Inc., one of the country’s biggest electronics retailers, began accepting bitcoin at two stores in Tokyo last month.

“We’re also talking to a big convenience store operator about using it,” said Oda, 36, who also runs BITPoint parent Remixpoint Co., which had a market value of about 21 billion yen (US$189 million) on Friday. He said

he’s aiming to make an announcement by early next year.

The shares of Remixpoint rose as much as 18 per cent to their daily price limit. Last week, Remixpoint said it will convert debt issued to BITPoint into equity, raising its ownership in the subsidiary to 97.7 per cent.

Bitcoin, which debuted eight years ago, is gaining wider use as a way to pay for goods and services, and lets people transact without oversight from governments, regulators or central banks. The virtual currency has been rallying against the dollar and other fiat currencies and was trading at US$2,210 yesterday, near record highs.

While BITPoint operates as a bitcoin exchange, it’s pushing to promote the use of the cryptocurrency in stores and other retail outlets, instead of as a speculative instrument. The company currently has ties with tens of retailers and plans to expand that number, Oda said.

A change in Japanese law on April 1 formalized rules around anti-money laundering and put in place standards for security and audits. Restaurant booking site Gurunavi Inc. will start letting diners pay with bitcoin later this year, the Nikkei newspaper reported last month.

“It’s funny how the whole narrative of bitcoin being risky or dangerous has changed, and it is now seen as a

form of pride to regulate and embrace it,” said Thomas Glucksmann, head of marketing at Hong Kong-based bitcoin exchange Gatecoin.

Asked about the recent climb in bitcoin’s value, Oda said he’s wary of the sudden jump and doesn’t think it’s sustainable. At the same time, Japanese investors and day traders are taking a serious look at bitcoin as an asset class, thanks to the new regulations, he said, adding that several large foreign exchange brokerages will begin bitcoin trading in the coming months, boosting volumes.

Still, it’s unclear whether bitcoin payments can become more than a marketing gimmick. The biggest hurdles include long network confirmation times and high transaction fees. While many bitcoin community members rallied around a new proposal last week to fix the problem, deep differences within the group have led to several similar solutions falling through since 2015. Bloomberg News

Lending

Industrial loans in S. Korea hit new high Industrial loans in South Korea hit a record high on demand from manufacturing and real estate sectors, central bank data showed yesterday. Such loans amounted to 1,001.7 trillion won (US$0.9 trillion) as of end-March, up 16.1 trillion won, or 1.6 per cent, from three months earlier, according to the Bank of Korea. The industrial loans mean debts owed by industries, which include companies, self-employed, public institutions and the government, to deposit-taking financial companies such as banks, savings banks and mutual credit. The loans surpassed 1,000 trillion won for the first time since the bank began compiling the data in 2008.

Official visit

Indian PM leaves for 4-nation tour Indian Prime Minister Narendra Modi yesterday embarked on a six-day, four-nation tour of Germany, Spain, Russia and France, a visit aimed at pitching the country as a favourable destination for foreign investors. “My visits to these nations are aimed at boosting India’s economic engagement with them & to invite more investment to India,” Modi tweeted before his departure. His first stop will be Germany, where he will meet German Chancellor Angela Merkel and discuss various issues of mutual interest. He will also call on German President FrankWalter Steinmeier during his visit.

Logistics

Japan to finalise strategy for drones Japan aims to finalise on June 9 plans to allow package delivery by drone sometime from 2020 and the commercialisation of self-driving trucks by 2022, as it scrambles to breathe new life into its corporate sector, sources told Reuters.

The government also plans to encourage more usage of Big Data and artificial intelligence to help diagnose medical conditions, said several government sources, who declined to be identified because the plans have not yet been finalised.

“The priorities are improving life expectancy, revolutionising transport, modernising supply chains, improving infrastructure and using financial technology,” said one of the sources.

Infrastructure

Singapore to build bicycle network Singapore plans to build a comprehensive cycling network with bicycle paths connecting housing estates in the north, south, east and west to the city centre. It is one of the plans that were announced by the Land Transport Authority (LTA) and the Urban Redevelopment Authority on Sunday for a car-lite city centre, the Straits Times reported.

The LTA will be calling a tender in the coming months for companies to design and construct the proposed central area cycling network. But no fixed date for the project completion is unveiled.

14 Business Daily Tuesday, May 30 2017

International In Brief Financial hub

France in “serious” talks with banks looking to leave London French officials are having serious talks with financial institutions looking to leave London as Britain prepares to quit the European Union, ECB Governing Council member Francois Villeroy de Galhau said yesterday. “We are having discrete but numerous and serious contacts,” Villeroy, who is also head of the French central bank and financial sector supervisor, told journalists.

“Paris has every chance” of attracting banks, he added.

Monetary policy

Egypt says historic foreign investment inflows Egyptian Central Bank Governor Tarek Amer sought yesterday to defend a surprise decision to hike interest rates last week, saying a historic level of foreign investment of nearly US$1 billion entered the country within days of the rate increase.

The central bank raised its key interest rates by 200 basis points on May 21 in an attempt to curb soaring inflation of over 30 per cent. It was the first rate hike since a 300 basis point increase in November. The decision was heavily criticised by Egypt’s financial community, which said it would do little to curb rampant inflation while potentially sapping new investment.

Corruption

Brazil prosecutors make new leniency fine offer to J&F Brazilian federal prosecutors on Sunday made a new offer to JBS SA’s controlling shareholder, J&F Investimentos, that it pay a 10.99 billion real (US$3.37 billion) fine for its role in massive corruption scandals. The new offer is down slightly from the previous proposal by prosecutors that J&F pay 11.2 billion reais. The company rejected that and counter-offered, saying it would pay 4 billion reais. Prosecutors rejected that, as well as the company’s next offer that it would pay 8 billion reais. J&F told Reuters in an emailed statement that it had no comment on the matter.

M&A

Kuwait’s KFH said in talks to buy Bahrain’s Ahli United Kuwait Finance House (KFH) is in talks to buy Bahrain’s Ahli United Bank BSC, a person familiar with the matter said, in a deal that would create one of the Middle East’s largest Islamic lenders with about US$85 billion of assets. KFH, as the lender is known, started discussions to acquire the Bahraini lender as well as its operations in Kuwait, the person said, asking not to be identified because the information is private. There is no guarantee that a deal will take place and final agreements haven’t been reached with any of the parties, the person said.

EU’s Moscovici

Eurozone should have parliament, budget The reforms evoked by Moscovici would require the approval of EU nations in the form of making changes to the bloc’s treaties

T

he eurozone should have its own parliament and budget to cap inequalities between its richer and poorer members that could tear the bloc apart, the EU’s economy commissioner said in an interview published yesterday.

“It’s necessary to create a eurozone budget. And this will not be possible without creating a parliament for the currency union, in order to make spending subject to democratic control,” Pierre Moscovici said in an interview with Poland’s Rzeczpospolita broadsheet daily.

Deeper integration of the eurozone is “absolutely necessary in order to contain the divergence of the economies that make up the currency union,” he said of the troubled 19-country bloc.

“If we continue to have a north that is well off and a south that is in difficulty, at some point this will result in the rejection of the European project,” Moscovici added.

Eurozone member Greece, with its mountain of debt towering at 180 per cent of annual output, was nearly forced out of the common currency before agreeing to painful austerity measures in exchange for bailouts.

Moscovici told Rzeczpospolita that a eurozone “parliament and budget would also require an executive power: a eurozone finance minister”.

The European Commission intends to “present an analysis of future eurozone integration” this Wednesday before consultations with members of the bloc, he said.

The reforms evoked by Moscovici would require the approval of EU nations in the form of making changes to the bloc’s treaties.

But Poland and other younger

eastern EU members still outside the eurozone have indicated they will oppose any such moves.

Warsaw is worried that it could be left behind in the push towards a “multi-speed” EU, backed by heavyweights France and Germany as the bloc prepares for Brexit.

Moscovici however said there was “no reason for concern” insisting that he “rejects the idea of a two-speed Europe” and that “Poland is not a second class” EU member.

“I’m convinced that we can continue integration among the 27 members, while also allowing those who want to move forward -- as is the case with the eurozone -- to be able to realise their plans,” the commissioner added. AFP

Pierre Moscovici, EU’s economy commissioner

General election

Gulf in living standards at heart of UK polls battle According to the Office for National Statistics, 6.5 per cent of the British population, or 3.9 million people, was living in poverty in 2014 Jean-Baptiste Oubrier

Although Britain’s economic growth is ticking along in the run-up to the general election, flat wages and the government’s austerity programme continue to bite and cause anger among those left behind.

A world away from the glistening skyscrapers of London’s City finance district, normal life for some resembles that depicted in last year’s Cannes winner “I, Daniel Blake”.

The British film’s protagonists, in the north-eastern English city of Newcastle, battle with the impact of cuts to social services in place since 2010, struggling to make ends meet and relying on food banks.

Widening living standards is a hot topic in the looming general election due June 8, and one that analysts say played a crucial role in last year’s shock referendum vote in favour of the country’s exit from the European Union.

The Brexit verdict has been framed by some commentators as a reflection of the social divide between the haves and the have-nots in one of the world’s richest economies.

Conservative Prime Minister Theresa May, who called the general election to strengthen her hand in the coming Brexit talks, claims she wants a society that works for everyone, albeit one that is not free of austerity nor social spending cuts.

Jeremy Corbyn, leader of the main opposition Labour Party and who has gained ground in recent opinion polls, argues that the yawning gap between rich and poor needs to be addressed.

While official statistics show that Britain’s unemployment rate sits at

a 42-year low of 4.6 per cent, many workers find themselves on low wages and short-term contracts.

Median household income stood at £26,300 (30,100 euros, US$33,700) in the year to March 2016, just four per cent above the pre-financial crisis value of ten years ago.

Statistics also show that income inequality in Britain has actually declined slightly since the 2008 crisis -- reversing a sharp increase in previous decades -- as higher-income households saw their earnings fall more in real terms.

However, the statistics mask the disproportionate effect of income stagnation on the lowest earners, with the Resolution Foundation, a think-tank, warning that inequality in living standards could reach levels not seen for 30 years.

Meanwhile the Equality Trust states that in 2017, the country’s 1,000 richest people will together own more wealth than that held by 40 per cent of the poorest households combined.

Small-jobs economy

“Record numbers of people visited food banks last year, millions are locked out of a decent home, and two-thirds of children in poverty are in working households,” Equality Trust’s executive director Wanda Wyporska said this month.

According to the Office for National Statistics, 6.5 per cent of the British population, or 3.9 million people, was living in poverty in 2014, the most recent year for which data are available.

To survive, many Britons, especially the youngest, have to take on more than one low-paid and often

low-skilled job at a time, scrambling in what is often called the “gig economy”.

At the same time, the number of so-called “zero hour” contracts is breaking records at 900,000 jobs.

Such positions guarantee neither a number of hours to be worked nor a fixed rate of pay.

As a direct consequence, the TUC union calculates that over the last seven years, UK wages have not kept pace with inflation -- the longest period of time since the 1870s.

“British workers have endured the longest pay squeeze since Victorian times,” said TUC General Secretary Frances O’Grady. “And now even more pain is on the horizon.”

“British workers have endured the longest pay squeeze since Victorian times” Frances O’Grady, TUC General Secretary Ahead of the election, May has vowed to improve workers’ rights, cap energy prices, lift minimum earnings and raise the threshold at which income tax is paid.

But she has been forced to reverse a manifesto commitment on capping social care costs following heavy public criticism and opposition from within her Conservative Party.

Corbyn, meanwhile, has pledged to hike taxes on the well-off, renationalise key industries like railways, scrap university tuition fees and pump cash into the state-run National Health Service.

His critics say Labour has not properly assessed the cost of those proposals. AFP

Business Daily Tuesday, May 30 2017 15

Opinion Business Wires

Viet Nam News In the first four months of the year, the trade deficit was at quite high at around US$2.8 billion. According to the National Finance Supervision Committee, the deficit is likely to be 3.5 per cent of exports. The trade deficit with China rose from US$3.7 billion in 2013 to US$28 billion last year. The U.S. Federal Reserve (FED) is expected to increase the interest rate in June and continue to do so through 2019 to take the rate to 3 per cent.

Analysts said this is causing downward pressure on the value of the đồng against the dollar.

Works on Pearl River Delta Bridge

The promise of China’s Pearl River Delta

Taipei Times People will be able to make donations to athletes and deduct the donations from their taxes if an amendment to the Sports Industry Development Act passes the Legislative Yuan, the Sports Administration said in a statement.

The agency issued the statement after the legislature’s Education and Culture Committee on May 17 gave a preliminary approval to the amendment, which is widely seen as an incentive that would motivate people to help athletes struggling to raise money to compete in local or international events.

The Phnom Penh Post The Ministry of Commerce launched an online trademark registration gateway yesterday, allowing local and foreign individuals and firms to register their trademarks in Cambodia to protect them against infringement. The Online Mark Filing System allows trademark applicants to upload the required documents and information using an internet-connected device to register their mark. It was launched as an option for filing trademarks and will operate alongside the existing manual registration system. Minister of Commerce Pan Sorasak said the new paperless system would make it easier for companies to register their trademarks, encouraging them to build their brands.

Inquirer.net Trade and Industry Secretary Ramon M. Lopez said that US$875 million worth of private sector deals were made during the Philippine delegation’s visit to Russia, following the government’s move to seek closer ties with new allies such as Moscow. Lopez said in a phone message to reporters that business-tobusiness agreements were made between Russian and Philippine companies covering various industries and sectors.

“A number would be in the areas of iron and steel, transport, agribusiness, multipurpose vehicles, power, energy, property development, transport and construction,” he said.

J

uly 1, 2017, will mark the 20th anniversary of Hong Kong’s return to China, after more than a century of British colonial rule. It comes at a moment when China’s leaders are increasingly promoting Hong Kong’s unique role in advancing the country’s economic development.

Two months ago, Premier Li Keqiang described China’s intention to deepen economic cooperation across the Guangdong-Hong Kong-Macau Bay Area – which Hong Kong analysts have called the Pearl River Delta (PRD) – in order to reinforce its role as a major driver of sustainable development. The region includes Guangdong’s nine key cities – including Guangzhou, Foshan, and Shenzhen – plus Hong Kong and Macau.

Last year, the PRD’s population stood at 68 million, and its GDP was US$1.3 trillion.

The PRD is the southern pillar of the three Chinese coastal growth clusters. In the middle is the Yangzi River Delta (YRD), which includes Shanghai, has a population of 130 million and GDP of US$2 trillion. To the north is the Beijing/Tianjin/Bohai (BTB) corridor, covering ten key cities; it has a population of 100 million and GDP of US$1.3 trillion. Taken together, these three clusters account for 21 per cent of China’s population and just under 40 per cent of its GDP. The PRD has the lowest population of the three, but the highest income per capita, and it forms an important link between China and global supply chains. It gains a distinct advantage from the free-trade, lowtax, and highly globalized cities of Hong Kong and Macau; both are “special administrative regions” under China’s “one country, two systems” principle. Another major asset is Shenzhen, a highly innovative “special economic zone” boasting a dynamic capital market and a tradition of experimentation with private-sector-driven job creation and integration into global supply chains.

The PRD’s competitiveness is no accident. Deng Xiaoping used the region as a kind of public-policy laboratory, allowing different legal and institutional arrangements to exist concurrently, while China figured out how to approach globalization. The system clearly works, but it does suffer from a fundamental contradiction, related to the economist Ronald Coase’s concept of transaction costs.

Thanks to China’s geographic, demographic, and economic scale, “reform and opening up,” in Deng’s phrase, and technological progress naturally drive down transaction costs, improving markets’ capacity to allocate resources. This process often fuels specialization, with regional or municipal economies focusing on their own competitive advantages, in order to maximize their gains from the decline in transaction costs.

Such specialization can be seen clearly in the PRD. Hong Kong is becoming a hub of international finance and services, while Macau establishes itself as a global gambling and entertainment centre. Meanwhile, Shenzhen is focusing on technological innovation; Guangzhou is a global trading hub; and Foshan and Dongguan are major manufacturing bases. While each city appears to be imbalanced in its economic structure, the city cluster as a whole is well balanced and highly competitive.

But – and herein lies the contradiction – massive numbers of transactions can raise financial, social, and security risks, which can fuel systemic volatility and contagion across regions and sectors. To mitigate these risks, governments and regulators must intervene, potentially even imposing restrictions on markets

“

Andrew Sheng Distinguished Fellow at the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance Xiao Geng President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong

that artificially raise transaction costs. China’s leaders would do well to remember this as they attempt to take advantage of the strengths of various systems to build a more open, modern, and faster-growing economy.

Chinese policymakers certainly recognize the value of city clusters to advance economic development and ease the pressures of rapid urbanization. The urban share of the Chinese population surpassed 50 per cent in 2011, and another 300 million people could be living in urban areas within the next 20 years. In this context, city clusters could be essential to innovation and job creation, particularly in the service sector, while limiting resource wastage, avoiding further environmental degradation, and easing urban congestion from overcrowding.

Already, China has worked with Singapore and other major cities to improve urban design, water management, and environmental sustainability, as well as taking steps to tap the potential of the sharing economy. Moreover, in April, President Xi Jinping announced the formation of the Xiongan New Area, about 50 miles south of Beijing, which will serve as a venue for experimentation with policies that enable innovative start-ups to replace obsolete smokestack industries. The goal is to encourage job creation in sustainable industries while relieving urban congestion in the capital.

As for Hong Kong, China’s leaders view it as a source of valuable economic-development “software” – including an independent judiciary, a robust anti-corruption regime, a stable currency, and world-class capital markets. Hong Kong’s highquality and internationally oriented education system, and its efficient and sophisticated city-management scheme, are also important assets.

Hong Kong’s “software” complements China’s broader drive to build the “hardware” of development, exemplified in the One Belt, One Road initiative, which entails massive investment in infrastructure linking China to the rest of the world. Already, stock-connect schemes involving Hong Kong, Shanghai, Shenzhen, and London are being established to support Chinese city clusters’ ability to meet OBOR-driven demand for offshore financing.

But more must be done to help Hong Kong – and, more broadly, the PRD – meet its potential. Hong Kong’s world-class services sector currently is working below capacity, owing to physical constraints. With better cross-border transport infrastructure and more flexible schemes for delivering medical, financial, and social services, senior citizens could retire outside of Hong Kong’s city limits, creating space for younger workers.

While many observers focus on China’s credit glut, the authorities are quietly fostering the development of dynamic city clusters. But, in order to protect and sustain this progress, Chinese policymakers must work to minimize the risks associated with rapid urbanization and growing specialization. Otherwise, trends that are doing China so much good may end up undermining prosperity and social stability. Project Syndicate

Hong Kong is becoming a hub of international finance and services, while Macau establishes itself as a global gambling and entertainment centre

”

16 Business Daily Tuesday, May 30 2017

Closing New economy

China’s slam dunk “sharing economy” booms, but can it last?

Government has taken notice, and expects the “sharing economy” to grow about 40 per cent this year Yawen Chen and Ryan Woo

F

ancy shooting some hoops, but don’t have a basketball?

Caught in the rain with no umbrella? Smartphone run out of juice?

China’s rapidly expanding “sharing economy”, which already provides car rides and bicycle hire on demand, can help.

For just RMB2 (US$0.30) an hour, Nate Liu, a student at the Beijing Language and Culture University, rents a basketball from a court-side vending machine by scanning a barcode on his smartphone.

“I didn’t want to ask around and borrow a ball after losing mine, so I decided to give it a try,” Liu told Reuters.

Far away, in China’s wetter south, some 20,000 umbrellas have been released on to the streets of Shenzhen, and can be rented - unlocked by another smartphone barcode scan - for just half a yuan (US$0.07) for 30 minutes.

The umbrellas can be dropped off “wherever convenient”, though users are encouraged to keep them, says Zhao Shuping, founder of E Umbrella

Sharing, one of a handful of start-ups offering the service.

China’s government has taken notice, and expects the “sharing economy” to grow about 40 per cent this year to RMB4.83 trillion (US$705 billion). By 2020, it should account for around one tenth of GDP, illustrating China’s aspiration to become a sharing economy leader on a global scale.

PricewaterhouseCoopers predicts five sharing sectors - car sharing, travel, finance, staffing, and music and video streaming - have the potential to increase global revenue to US$335 billion by 2025 from US$15 billion today.

Most of the money behind China’s ballooning sharing economy comes from angel investors and venture capital firms.

At least RMB1.69 billion (US$247 million) in mostly series-A, or early stage, funding was invested in AprilMay in over two dozen start-ups offering sharing services, according to Reuters calculations based on data from Chinese data firm IT Juzi.

Twelve firms renting out power banks - typically compact, mobile battery chargers - secured RMB1.13 billion, while newer businesses such

as basketball and umbrella-sharing took in about RMB25 million (US$3.65 million) combined.

While mobile-savvy, convenience-obsessed Chinese welcome the innovations, some critics question whether the demand is real, or sustainable. They say the low-revenue, capital-intensive model means profitability can be elusive.

“Young people are embracing renting as a way of life instead of possessing things,” said Emma Zhu, investment director at Beijing-based Innoangel fund, who has held off investing in any of these start-ups.

“But the sharing model won’t work in every situation. In some cases, they’re trying to meet genuine demand, while in others they’re not.”

Some investors say the funding frenzy recalls the spectacular boom and bust of hundreds of Chinese Groupon apps in vogue in 2010-12, noting that most ultimately collapsed after fierce price wars, with losses of around US$1 billion.

“In China, the only barrier to entry is who can raise the most capital - that’s good and bad,” said Xu Miaocheng, an investment manager at Unity Ventures in Beijing.

“The upside is, there are funds available to launch a bunch of companies. You may not need a lot of specialization or new technology.

The downside is a lot of money could be wasted.”

“Speed is everything”

Cai Min, founder of basketball rental firm Zhulegeqiu, says he wants to expand nationwide, and quickly, offering the service at all of China’s estimated 100,000 basketball courts, and growing into a multi-billion yuan business, eventually offering all “sharable” products.

The Zhejiang-based start-up received RMB10 million (US$1.46 million) in early funding from Shanghai-based Modern Capital on May 5, less than two months after Cai came up with the idea.

“We are expanding at all cost, because speed is everything,” Cai told Reuters. “Of course this means costs

have been very high at the early stage because we have to make everything in a month.”

He declined to give specific figures, but each of the solar-powered basketball rental machines - currently in Beijing, Shanghai, Hangzhou, Tianjin and Chengdu – costs “a few thousand yuan.”

“The key to success is to get more money than your competitors and to expand faster than them,” he said.

Even some keen players, though, have their doubts, saying balls are only used occasionally, so the need to rent is marginal.

All sharing services require a onetime deposit - from RMB99 (US$14.45) for a shared basketball - that gives sharing companies a one-off financial buffer that critics say won’t be sufficient in the longer run if profits are slow to take off.

The latest wave of “sharing” entrepreneurs has been largely inspired by the rapid rise of Chinese bike-sharing firms such as Mobike and ofo, which have together raised close to RMB13 billion in a little over two years, extending their services to more Chinese cities and international markets including London and Singapore.

E Umbrella’s Zhao said he came up with the idea after his three young children rushed to try out the rental bikes that mushroomed across Shenzhen early this year. “I thought: they’re just normal bikes, if this could work, why can’t shared umbrellas?” he said.

Zhao, who patented his coded lock umbrellas in March, said umbrella and lock manufacturers are fighting for his orders, offering him payment exemption for as long as 30 days.

“My cost for the umbrellas is basically zero right now,” he said, adding he hopes to release a “modest” 30 million umbrellas across southern China this year.

He says his business has already attracted interest from potential partners such as China Life Insurance Co, which wants to replicate the model in markets from Hong Kong to Singapore. Reuters

Financial health

Aviation hub

Tax

Bank of Japan’s interest earnings fall for first time in 5 years

Thailand to take on Singapore with airport overhaul

Philippines’ Duterte pushes reform to fund infrastructure

The Bank of Japan (BOJ) saw interest payments on its huge government bond holdings decline for the first time in five years in the fiscal year that ended in March, a sign that its ultra-loose monetary policy was taking a toll on its financial health.

The central bank’s capital adequacy ratio stood at 8.07 per cent in March, barely meeting the 8 per cent threshold it considers as adequate in maintaining financial soundness, its fiscal 2016 earnings statement showed yesterday.

The results underscore the mounting cost of the BOJ’s radical stimulus programme that aims to cap short-term interest rates at minus 0.1 per cent and 10-year government bond yields around zero per cent through massive money printing.

They also highlight the potential huge loss the BOJ could incur if market expectations of a withdrawal of stimulus spark a sharp sell-off of government bonds, analysts say.

“The BOJ is sacrificing its financial health to sustain its radical monetary easing steps,” said Mari Iwashita, chief market economist at SMBC Friend Securities.

“If inflation eventually hits its 2 per cent target and pushes up bond yields, the BOJ could incur enormous losses on its bond holdings.” Reuters

Thailand is seeking to take on Singapore’s dominance in aircraft maintenance (MRO), repair and overhaul with a US$5.7 billion upgrade of a Vietnam War-era airport.

Lockheed Martin Corp.’s Sikorsky Aircraft is the latest company to study a possible increase in MRO spend in Thailand in the wake of the planned revamp of U-Tapao International Airport, said Ajarin Pattanapanchai, deputy secretary general of the nation’s Board of Investment. In March, Airbus SE signed an agreement with Thai Airways International Pcl to evaluate the development of MRO facilities at the civil-military airport near Bangkok.

“Singapore is quite tight right now,” Ajarin said in an interview at Bloomberg’s Toronto office on May 25, during a visit to Canada to woo investment. “To catch up with the demand of airlines in the region -- especially new demand from Myanmar, Vietnam, Cambodia -- and given that we have existing strengths with automotive and engineering, Thailand will be the second choice to be the MRO hub.”

The airport project is part of junta leader Prime Minister Prayuth Chan-Ocha’s goal of boosting the economy, whose expansion has lagged behind neighbours since the military seized power three years ago. Bloomberg News

Philippine President Rodrigo Duterte asked Congress yesterday to fast track a tax reform bill needed to raise funds that will soothe investors concerns over delays to a planned US$180 billion infrastructure programme.

Congress has begun giving the bill a second reading, and Duterte wants the lower house’s immediate approval, though bills receive up to three readings.

“The benefits to be derived from this tax reform measure will sustainably finance the government’s envisioned massive investments in infrastructure, thereby encouraging economic activity and job creation,” Duterte wrote in a letter to Congress.

Duterte’s party holds a super-majority in the 292-seat Congress and a majority in the upper house, but the bill has run into some resistance, particularly over plans to raise fuel duties.

The government has targeted infrastructure spending of 5.4 per cent of GDP this year, rising to 7.4 per cent of GDP by 2022.

Aside from raising fuel duties, the bill also proposes a reduction in the top income tax rate, removal of value added tax exemptions, simplification of the tax code, and changes to excise taxes on automobiles and other products. Reuters