Business Daily #1307 May 31, 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!

Melco sells off lottery arm Gaming Page 7

Wednesday, May 31 2017 Year VI Nr. 1307 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm HKZM bridge

CE: MSAR side of HKZM Bridge going according to schedule, without controversy Page 3

Meeting

Foxconn Group founder tells CE MSAR and Hengqin ripe for health, beauty and medical tourism Page 3

www.macaubusinessdaily.com

Outlook

Early data on Mainland’s economy confirms slowdown Page 8

Employment

Japan’s jobless rate lowest for more than two decades Page 10

F&B

Value and sales of luxury liquor Kweichow Moutai are picking up on the Mainland. With its share price surpassing that of Johnnie Walker, typical bottles in the MSAR go for MOP500-1,300.

Overall volumes of Moutai liquor fell nearly 40 pct y-o-y but the average price has increased nearly 30 pct y-o-y. With top of the range going for MOP830,000 a bottle. Page 4

Altira motive

Offering a truly ‘boutique’ property. Steering strategy away from VIP players.

Focusing on F&B. And shuffling Mocha Slots around. All play a part in Altira results this year, Property President for Altira and Mocha Clubs Andy Choy tells Business Daily.

We want to work

Labour force Hotels in the city saw a near 10 pct increase in full-time personnel in Q1 as did childcare and elderly care services. Employability in the sector is strong despite the highest y-o-y increases in earnings not being in the sector. Insurance was up 8.4 pct y-o-y. With highest earnings in utilities at MOP29,960 per month. Page 7

Cyber law unsettles foreign firms

Interview | Hospitality Page 6

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%

26° 28° 26° 29° 26° 29° 26° 29° 26° 29° Today

Source: Bloomberg

Best Performers

THU

FRI

I SSN 2226-8294

SAT

SUN

Source: AccuWeather

Legislation Beijing’s new cybersecurity law takes effect on Thursday. International doubts regarding its functioning and lobby moves have been fruitless until now. Foreign firms fear exclusion from Chinese market following implementation. Page 8

2 Business Daily Wednesday, May 31 2017

Macau Labour force

Hotels driving up the job market Macau has more employees who are earning more money in Q1 2017 Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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mployees across a variety of sectors in Macau kicked off the year by earning more than in the first quarter of last year.

According to the latest data released by the Statistics and Census Service (DSEC), the hotel sector employed the largest number of fulltime personnel (54,439) in the city, having also hired more workers than any other sector examined during the period, up 9.7 per cent year-on-year.

In addition to hotels, the sectors surveyed consisted of manufacturing; restaurants; insurance; financial intermediation activities; electricity, gas and water supply; childcare and elderly care.

The second most important increase in terms of recruitment was in childcare services, up 9.6 per cent from a year before, totalling 1,132 employees, although the second largest contingent in terms of labour force under scrutiny was found in restaurants, with 24,995 fulltime employees for the first quarter, a 3.9 per cent drop year-on-year.

Manufacturing followed

third, with 9,830 full-time employees, representing an increase of 8.3 per cent year-on-year.

Speaking to Business Daily, Frida Law Chi Ming, Senior Public Relations Officer of the Institute for Tourism Studies (IFT), said that the overall employability of their graduate students is high.

“Our students have lots of hands-on experience (…) and employers generally find [they have] good practical experience and strong team spirit,” she said.

Law added that according to a survey the Institute conducted for the years 20152016, 78.1 per cent of former IFT undergraduate students were working in the tourism

and hospitality industry.

IFT – which has an Asian awarded hospitality programme – “has over 500 companies and organisations worldwide offering [their] students internship opportunities, including hotels, theme parks, the UK’s National Trust, NGOs, UNESCO, UNWTO and government departments,” said Ms. Law.

Average earnings breakdown

DSEC further noted that the most significant increase in terms of average earnings occurred in the insurance sector, up 8.4 per cent yearon-year to MOP26,770 in March 2017.

The second most important incremental increase in earnings was recorded in the sector of childcare, up 4.9 per cent from a year before,

amounting to an average to MOP14,320 during the same month.

Although posting a less significant increase in average earnings when compared to insurance and childcare, the sector of electricity, gas, and water supply, up only 3.4 per cent year-on-year, had the highest average earning as of March, at MOP29,960.

As for hotels, the largest employer amongst the categories analysed by the DSEC, monthly earnings hit an average of MOP17,010, up 4 per cent from the same period last year.

Accordingly, recent IFT graduates from the 2015-2016 class were making on average MOP14,900 in their first jobs after graduation, Law told

Business Daily.

Pay lower than the average in this case could be explained by the fact that ‘work experience’ corresponded to 52.5 per cent of the totality of recruitment prerequisites demanded in the sector, against only 5.1 per cent for ‘professional qualification.’

According to DSEC data, 100 per cent of the candidates for jobs in insurance were required to be capable of speaking English.

Business Daily also sought comments from the major local casino operators as the largest employers in the hospitality sector but several claimed they were either “not in a position to comment” or could not provide replies to our enquiries.

Business Daily Wednesday, May 31 2017 3

Macau Politics

Foxconn Group founder: Macau and Hengqin suitable for health, beauty and medical tourism

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he M S A R a n d Hengqin are ideal for developing the health, beauty and medical tourism industries, according to the chairman and founder of Foxconn Technology Group, Terry Guo, who met with Chief Executive Chui Sai On on Monday to exchange opinions on Macau’s intention to diversify its economy.

Foxconn is part of the Hon Hai Group, based out of Taiwan, and is famous for manufacturing various elements of Apple’s iPhone products.

Apart from suggesting medical-related industries, Gou also perceived that the development of MICE

(Meetings, Incentives, Conventions and Exhibitions) in the city would have a positive impact upon the MSAR’s

economic diversification.

According to official data from the Statistics and Census Bureau (DSEC) the city’s first

quarter saw an increase of 61.8 per cent in the number of participants and MICE attendees year-on-year.

Meanwhile, the CE remarked that Macau’s co-operation with Hengqin is based upon the Guangdong-Macau Framework Co-operation Agreement, saying that the co-operation demonstrates friendly long-term relations with Guangdong Province.

In particular, the co-operative development of the traditional Chinese medicine technology industrial park is positively progressing, and the CE suggested possible collaboration with Gou’s Health Care Group.

Being supported by the

MSAR Government to be developed in Hengqin, the Traditional Chinese Medicine Science and Technology Industrial Park of Co-operation between Guangdong and Macau (GMTCM) is expected to be operational in the first half of this year.

By April, the park had attracted 10 investment projects from the MSAR and already signed land-leasing contracts, with total investment hitting RMB2.3 billion (US$335.4 million/MOP2.7 billion).

The CE previously stated that the MSAR Government welcomes entrepreneurs to make use of the city as a platform to encourage mutual development. C.U.

from the Hong Kong team said the overall performance of the teams had improved when compared to past races.

For the venue itself, the Hong Kong team remarked that the event has diversified its offerings, with booths selling food and beverages as well as local creative and cultural products.

A team from Texas, in the United States, commented that the races were more organised than others they had participated in, adding that “races [in Macau] are on time”.

Several of the overseas teams told Business Daily that they were invited to the event by the MCDBA, and that the Association had organised and paid for the accommodation of the teams, many of whom stayed at the Golden Dragon Hotel. Teams were only required to pay for flights or ferry. Many of the overseas teams arrived in Macau on Monday and will depart today.

In order to attract more residents to enjoy the races, the ID organised cultural displays including dancing, music, magic shows and acrobatics as well as Dragon Boat exhibitions, food stalls and booths selling cultural and creative products.

One of the food stall purveyors disclosed that business had improved at this year’s Dragon Boat Festival, citing the good weather.

Business Daily also talked to several spectators, discovering that the majority were local residents.

Tang, an executive member of the MCDBA, said that the Dragon Boat Races have yet to be appealing enough to attract more tourists to the event, unlike events such as the Macau Grand Prix.

“I don’t think the event would attract tourists to deliberately come and watch,” said Tang, adding that the Dragon Boat Festival is a short holiday in Mainland China.

Tourism

Dragon Boat Races attract 28,000 Both the number of spectators and of overseas racing teams increased in this year’s International Dragon Boat Races vis-a-vis last year Cecilia U cecilia.u@macaubusinessdaily.com

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hi s y ea r’ s M acau International Dragon Boat Races, which ended yesterday, attracted some 28,000 spectators, an increase of 2,000 when compared to a year ago.

Vice-president of the Sports Bureau (ID) Lam Lin Kio commented that the good weather had led to a full house for the event.

When asked whether more seats will be added for spectators for future editions, Lam said it would depends if space was available at the Nam Van Lake Nautical Centre.

“As you can see, we’ve tried to make full use of the Nam Van Lake Nautical Centre,” he said. “But we will keep improving the hardware and facilities to allow [more] spectators to enjoy the event” The International Dragon Boat Race is organised by the ID, together with the Macau China Dragon Boat Association (MCDBA).

The event was also sponsored by the six gaming operators plus companies such as Sun Kian Ip Holding Company Limited, the developer of luxury residential property Windsor Arch.

Peter Tang Tak Seng, executive committee member of the MCDBA, said that the

venue of the race is small but allows for more centralised management, saying: “A small [venue] doesn’t mean things will be messy, as long as it is managed well”.

Increased number of overseas teams

Meanwhile, according to Tang, this year’s race attracted up to seven more overseas teams. After being absent for seven years, the Singaporean team returned to the races in Macau, finding a more diverse selection than previous years.

“A couple of years back [we had] a lot of commitments [and didn’t come] but this year [the race in Macau] is an opportunity for us,” said one of the paddlers from the Singaporean team, adding that the race in Macau is an important race for them.

Meanwhile, competitors

HKZM Bridge

CE: HKZM Bridge is fine Chief Executive Fernando Chui Sai On assures that the ‘quality and construction progress’ of the Hong Kong-Zhuhai-Macau Bridge ‘satisfy and obey the requirements, and are continuing at a good pace, expected to be completed at the end of this year’. The statements come seven days after Business Daily enquired of the Commission Against Corruption

whether it was investigating any element related to the case, a request which has yet to be acknowledged.

Recent arrests by the HKSAR’s anti-graft group, the Independent Commission Against Corruption, called into question the integrity of Bridge personnel, as the arrests related to contractors who allegedly falsified tests on concrete used for

Buses

Reducing traffic Starting from June 1 only tourist passenger unloading will be allowed in Rua de D. Belchior Carneiro Following a six-month trial period which yielded satisfactory results, the government has decided to make Rua de D. Belchior Carneiro only available for the unloading of tourist passengers starting from June 1, a release from the Transport Bureau (DSAT) yesterday reveals.

In order to study ways to reduce traffic near the Ruins of St Paul’s,

the government implemented the new policy in December, with Rua de D. Belchior Carneiro now to only be used for unloading passengers every day from 8:00am to 8:00pm.

Rua de S. Roque, Rua do Volong and the church of Saint Lazarus sidewalk will also be changed into pedestrian-only areas. N.M.

the Bridge.

The CE pointed out that the Infrastructure Development Office (GDI) has been closely following the case and that currently reports

‘show that the quality, the progress of construction and the security of the project satisfy the requirements and everything is running according to plan,’ notes a release.

4 Business Daily Wednesday, May 31 2017

Macau Liquor

Strong liquor and strong returns As Chinese luxury liquor company Kweichow Moutai Co., Ltd. becomes the most valuable liquor brand in the world, the company’s performance in the MSAR seems to only be positive for its more expensive offerings Nelson Moura nelson.moura@macaubusinessdaily.com

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hile sales and the value of luxury liquor brand Kweichow Moutai Co., Ltd. pick up in Mainland China, data from the government and local suppliers and businesses seem to show that the brand’s sales in the MSAR are considerable for their higher price offerings.

On May 23 the Chinese listed and partially state-owned company Kweichow Moutai, saw its shares reach their highest value ever on the Shanghai Stock Exchange, valued at RMB454(US$66/MOP531) per share, the Financial Times reported.

This rise came after Kweichow Moutai reached a total market value of US$71.5 billion (MOP573.89 billion) in April, dethroning Diageo Plc, the producer of Scotch whisky Johnnie Walker, as the most valuable liquor shares in the world.

In 2016, the Chinese company’s revenues went up by 20 per cent to reach RMB40.16 billion, while the company’s net profits rose by 8 per cent yearly to RMB16.72 billion, the publication reported.

Just in the first quarter of this year Kweichow Moutai already registered a considerable 35.7 per cent yearly increase in revenues to RMB13.91 billion, with the Financial Times noting that the spike in revenues has been created by a rise in Chinese consumption of premium brands.

This year, the company expects revenues to increase by 15 per cent year-on-year and a total sales volume of 50,000 tonnes of liquor, news agency Bloomberg reported.

However, discovering how the company is faring in the MSAR can be complex as the price ranges of Kweichow Moutai sold in the city vary considerably and most suppliers contacted choose not to disclose the amount sold.

Drinking in the MSAR

According to statements made to Business Daily by a salesman from Kweichow Moutai’s official store in the city, the most popular Moutai bottle in Macau goes for MOP1,130

(US$140) but that business in the MSAR is not “very good at the moment”.

Kweichow Moutai has two official suppliers in Macau: Nanguang Trading Co., Ltd. and Macau Wei-ho Import and Export Trade Co., Ltd., with a representative from the latter telling Business Daily the group’s flagship brand Feitian - a blend of up to 200 spirits with an alcohol level of 53 per cent - is typically sold for MOP1,380.

However, the supplier refused to reveal the number of bottles sold in the MSAR, while representatives from Macau Wei-ho were not available for comment.

In statements made to Business Daily the food and beverage representative from hotel Crowne Plaza Macau said that although the Moutai bottles available for purchase in the hotel are priced between MOP500 to MOP1,000, since the property opened one and a half years ago it has sold only one bottle of the liquor.

“This type of liquor is very popular with Mainland Chinese tourists but many times they will bring their own bottles bought in the Mainland to Macau,” the Crowne Plaza Macau F&B executive Emerson Lo told Business Daily.

The pricier the better

However, while the sales of lower-priced Moutai bottles seem to not be considerable, contacts made by Business Daily tend to indicate that the higher the price, the higher the number of Moutai sales.

According to representatives from Grand Lisboa Macau, a bottle of 50-year old Kweichow Moutai sold at the property’s banquets can reach MOP830,000, with the cheapest offer being a 15-year old bottle of the same brand for MOP26,000.

The company told Business Daily that the property has sold 100 bottles of Moutai this year so far, but that it could not reveal the number of bottles sold last year.

This increase in the sales of pricier Moutai bottles also seems to trend in data collected by the Statistics and Census Service (DSEC).

Although not specifying numbers for the import of Moutai liquor, DSEC

data reveal that while the amount of Chinese distilled liquors imported has steadily declined its total value has increased.

In 2015 a total of 332,197 litres of Chinese distilled liquors were imported to Macau, with that amount decreasing by 39 per cent to 202,687 litres in 2016. However, from the MOP104.4 million in total import value registered in 2015, at an average of MOP314 per litre, the value of Chinese distilled liquor imports to Macau went up by 29 per cent yearly to MOP133.8 million in 2016, to average MOP660 per litre.

So far in 2017, the value of Chinese liquor imported to Macau has continued its rise, with some 61,740 litres imported in the first five months of 2017 totalling MOP66 million, almost half of the total value registered last year and at an average price of MOP1,068 per litre.

The drink of business and politics

Founded in 1999 in the city of Maitou in the Chinese province of Guizhou, Kweichow Moutai is a producer of Moutai, a strong high-end Baijiu

(White Liquor) alcoholic spirit made from a blend of sorghum, wheat and barley.

The favourite drink of Chairman Mao Tse-tung, Moutai has historically been considered the drink of diplomacy, being given as a gift or offered in toasts at business and political meetings.

In 1972, when Richard Nixon became the first U.S. President to visit the People’s Republic of China, he received a toast of Moutai by Prime Minister Zhou Enlai, with President Barack Obama receiving the same treatment from Present Xi Jinping during his visit in 2013.

“Chinese lack social skills so they will use drinks as a conversation un-blocker. Normally, after negotiations there will be a dinner, where alcohol is used as a way to break barriers, discuss business details and clarify any doubts raised during the negotiations,” a Portuguese businessman who declined to reveal his name told Business Daily.

With more than 30 years experience in doing business in Mainland China and Macau, the businessman says that it is common for Chinese businessman to “challenge you” by toasting with hard liquor, and even “including business details in the challenges”.

“In Macau, that culture still exists but it’s less present due to the influence of Western culture. Sober socialising comes easier for locals but alcohol and tasting is always part of business deals,” he says.

However, just like Macau’s gaming revenues, the group presided over by chairman Yuan Renguo, was hit hard by the onset of Chinese President Xi Jinping’s anti-corruption campaign in 2012.

“The number of banquets organised by public entities and by state owned companies fell considerably [after the beginning of the corruption crackdown],” the Portuguese businessman told Business Daily.

As businessmen and government officials started avoiding offering the high-end liquor in order to avoid government attention, the company’s shares reached their lowest value towards the end of 2013.

Now the company’s luck is changing as the anti-corruption campaign lightens and Chinese consumers seek to replenish their tables with highend liquor once more.

Business Daily Wednesday, May 31 2017 5

Macau

6 Business Daily Wednesday, May 31 2017

Macau Opinion

José I. Duarte* Linkages The idea that Macau could build on its history and social character to act as a link between China and the outside world – or parts of it – is not new. Whether the ‘world’ one had in mind was the Portuguese-speaking countries, the Latin countries or, even more generally, Europe would change the geographical scope of the aspiration, but not the main thrust of it.

Macau, it is believed, has the potential and also the ability to link different places and peoples, to serve as a meeting place, a bridge, or, as it has become more popular recently, a platform where others can meet to get jobs done for mutual benefit. The world could come to see Macau as the catalyzer, the matchmaker, the facilitator, the place to find the services and support needed to broker new ventures.

This week, Macau is hosting an event that seems to fit that model. It is a forum where Mainland companies will meet officials and firms from other countries, namely from Portuguese-speaking and Latin American countries, to discuss matters related to infrastructure, construction and financing. It will bring together, it was announced, more than one thousand people from the public and private realms of over 40 countries. The government of Portugal alone sends two of its members.

Infrastructure finance around the world is a subject of obvious interest for China and a cornerstone of several of its international initiatives. The event touches upon activities of strategic importance and targets countries with which Macau can claim some cultural and historical proximity. However, somewhat surprisingly, the event seems to attract less public attention than it might deserve.

Its visibility rose following a press conference mid-May, just two weeks before the set date. Yet, it was scheduled one year in advance. People may be surprised to know that this is the eighth event of this type and that almost all of the previous ones also happened in Macau. One is scheduled for next year, also to take place here. So, is Macau fulfilling its promise and most of us are just unaware?

It would be interesting and certainly illuminating to know more about the results achieved by these events.

Namely, the specific outcomes and benefits for the participants arising from any agreements reached or actions decided there, as well as the contribution of local organisations to their accomplishment. *Economist and permanent contributor to this newspaper.

Hospitality | Gaming

Only at Altira Kelsey Wilhelm Kelsey.wilhelm@macaubusinessdaily.com

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oming from a background that merges statistics with manufacturing (before entering gaming and hospitality), the Property President of Altira Macau and Mocha Clubs, Andy Choy, reveals a pragmatic approach to the future evolution of the ‘boutique’ hotel and the more mass market slot club, sharing with Business Daily how the group will weather the “transition from pure gaming to more diversified offerings”.

In particular, noting that the MSAR is “moving away from the VIP more towards the mass market,” Choy points out that Melco’s forte is in “accentuating the differences” between properties and “not the similarities”.

“We’re trying to make each property as different from the other as possible so that we can actually segment the market and so, as a customer, you’ve got your canonical property, the one you feel most at home in”.

Changes on the horizon

In particular, two areas of the property will be undergoing changes, some of which are already underway: food and beverage offerings and Mocha.

“We’re trying to dial stuff in […] we want to get back to some of our roots here at Altira with the F&B, with really trying to provide unique experiences,” he says, reflecting that the Altira itself “is Lawrence’s vision […] the original baby”.

“We talk about Tenmasa– it was his favourite restaurant,” notes Choy, explaining that the Japanese restaurant is the “only Tenmasa outside of Tokyo,” and how the group “have to […] tell that message to the marketplace” – that Tenmasa was the originator of Tempura – “which we haven’t [yet] done”.

To add to the property’s renown on the F&B side, Choy says he’s anxious to see another award join the property’s list.

“I hear we’re hopeful that next year [Aurora] will be awarded a Michelin star. We’re told secretly we would have gotten it this year but for a technicality with how long the chef has been here,” points out the property president.

This renewed focus on promoting

its food and beverage offerings comes after last year saw a near-13 per cent drop in non-gaming revenues, year-on-year.

To turn this around, Choy aims to switch up campaigns from a past in which “we got a little bit too promotional based. We got a little bit too much of the buy-one-get-one, or couponing and so on, in an effort to try and get volume over uniqueness”.

However, within the group, certain promotional campaigns will be available to customers from other non-“boutique” properties, explaining that a month of “special culinary offerings” happening at Altira now will be open to the group’s Mocha Slots Club clients.

Hot Mocha

Additional changes coming on the slot side include Mocha moving back in to Altira, after rebranding for “a few years”.

However, a separate entrance will allow for customers seeking different experiences to access their desired zones without needing to interact.

“The idea is to have it on Level 2,” explains the president, “that will be directly accessible from a separate elevator bank, the restaurant elevators. At the same time, the area will also be accessible within the casino, so that if you’re in the casino and want to have a slot experience you can go in there. If you’re a slot experience and want to go at table games, you can pass through”.

Choy points out that the location of the elevators will also play off the group’s F&B offerings.

Future plans

Although diversifying the gaming offering is part of the property’s strategy, the looming renewal of concessions does not play much

Background

Property President of Altira and Mocha Slots since January of this year, Andy Choy previously worked with Melco International Development Ltd. as Chief Gaming Officer since August 2014 on projects in China, the Philippines and Russia. His background includes time with

part in the group’s plans, notes the president.

“Honestly, I don’t believe it does factor into our planning whatsoever.

We try focusing on what’s right for the customer and do accordingly . . . [trusting] . . . that the Macau Government, in their wisdom, will appreciate that the company (Melco) has lived up to our commitments, that we’ve been a great partner with them, that we have brought a level of economic development that is appropriate, or not just appropriate but exceeds what they were looking for”.

In addition to the offerings of Altira, the other non-gaming offerings and corporate social responsibility that Melco itself has so far displayed lead Choy to opine that “we’re pretty confident that the government will see that and that we’ll get renewed”.

Whether the Altira, given its VIP focus to date, would be less exposed to a potential non-renewal of the concession, also does not factor in, believes Choy, stating that the group sticks to its mission.

“We’re just focusing on the customers, trying to super-service the customers, and provide good product for our customers. And be a good employer for the team members that are here,” he states.

Things to look forward to? The Hong Kong-Zhuhai-Macau Bridge and its opening up of the Hong Kong International Airport to the MSAR is a “potential game changer” and the Greater Bay Area and Hengqin Island as part of the merging Pearl River Delta, says the property president.

“The ability to connect everything together has the ability to dramati­ cally increase the market,” he be­ lieves, noting: “I’m reminded at all times that . . . we are extremely lucky and privileged to be in this industry”.

Riviera Holdings Corporation as CEO and President, as well as with Las Vegas Sands Corp in both Las Vegas and Macau as Director and Senior Vice President, respectively. Mr. Choy is a graduate of Stanford University Graduate School of Business and the University of California, Berkeley.

Business Daily Wednesday, May 31 2017 7

Macau Stocks

Melco International sells its lottery business Melco International cashes in its lottery business in Mainland China to keep its focus, and pockets full, for investing in Japan Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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elco International Development Limited has announced it is cashing in its lottery business on the Mainland, MelcoLot Limited, for a total consideration of HK$322.23 million (US$41.35 million/MOP331.90 million), the company announced in a filing with the Hong Kong Stock Exchange on May

29 after trading hours.

The sale involves the totality of MelcoLot shares owned by the group.

Following the agreement, the company will no longer have interests in MelcoLot, which will cease to be a subsidiary of the company.

The share sales deal conducted between Melco LottVentures, an indirectly-owned subsidiary of Melco, and 500.com, a lottery company based in the Mainland, represents nearly 40.65 per cent of the issued

share capital of MelcoLot, amounting to nearly 1.28 billion MelcoLot shares.

The closing of the deal should take place before June 6 of this year.

The company also noted in the filing that the ‘Directors consider that the MelcoLot share sale is a good opportunity for the Group to divest its non-core investments so

that management can focus on the Group’s core operations and other business initiatives with more dynamic growth potential.’

Recent statements by Lawrence Ho Yau Lung, Melco’s CEO and Chairman, expressed his strong interest in securing investment in the Japanese gaming market.

IPO

Goldman-backed games startup aims for Vietnam’s first IPO abroad The process could take 18 to 24 months, says CEO Le Hong Minh Mai Ngoc Chau and Yoolim Lee

Communist-led Vietnam may soon have its first technology company go public in the U.S. VNG Corp., a game developer whose investors include Goldman Sachs Group Inc. and GIC Pte, signed a memorandum of understanding to list on the Nasdaq Stock Market after regulatory approval from the Vietnam government, co-founder and Chief Executive Officer Le Hong Minh said. The process could take 18

to 24 months, he said.

“No Vietnamese company has ever filed for an IPO overseas,” he said in a Skype interview from New York City. “We are anticipating it will be a challenging process.”

Minh did not disclose the timing or size of VNG’s IPO. Prime Minister Nguyen Xuan Phuc, who is in the U.S. to talk with President Donald Trump May 31, met with an executive from Nasdaq and Minh in New York City May 29 after the MOU was signed, according to VNG. His presence is an

indication the government supports the startup’s overseas IPO, Minh said.

“Vietnam’s tech sector has drawn a lot of attention from investors lately,” said Anh-Minh Do, a director at Vertex Ventures Holdings in Singapore. “The question is whether VNG’s success is repeatable in this young ecosystem.”

Silicon Valley’s 500 Startups, founded by Dave McClure, created a US$10 million Vietnam fund last year. It joined DFJ VinaCapital, whose US$30 million fund established in 2007 is managed jointly by Draper Fisher Jurvetson, a Menlo Park, California-based firm, and VinaCapital Investment Management Ltd.

VNG, founded in 2004 and based in Ho Chi Minh City, forecasts 2017 revenue of US$180 million, a rise of as much as 70 per cent from last year, Minh said. The company’s games, including Sky Garden: Farm in Paradise and Dead Target, have shipped to more than 230 countries, according to the company. Its chat app Zalo has more than 70 million users in Vietnam and countries including Myanmar, Japan, South Korea, Malaysia and Taiwan. “It’s a very good sign that a Vietnamese company can become a global company by going to a global capital market,” Minh said. “It will help attract a lot of attention and investment to Vietnam.” Bloomberg

8 Business Daily Wednesday, May 31 2017

Greater china Legislation

Beijing to launch cybersecurity law despite concerns Companies are worried that the new law could lock them out of the market Ben Dooley

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hina will implement a controversial cybersecurity law Thursday despite concerns from foreign firms worried about its impact on their ability to do business in the world’s second largest economy.

Passed last November, the law is largely aimed at protecting China’s networks and private user information at a time when the recent WannaCry ransomware attack showed any country can be vulnerable to cyber threats.

But companies have pleaded with the government to delay the legislation’s implementation amid concerns about unclear provisions and how the law would affect personal information and cloud computing.

The government appears to still be scrambling to finalise the rules.

Just two weeks ago, Zhao Zeliang,

director of the cybersecurity bureau, gathered some 200 representatives from foreign and domestic companies and industry associations at the new headquarters of the Cybersecurity Administration of China (CAC) in Beijing.

The May 19 discussion centred on a draft of the rules for transferring personal data overseas, participants told AFP. Attendees received an updated version of the document, as well as Zhao’s assurance that regulators would remove some of the language that had received strong objections, they said.

The new document, obtained by AFP, removed a contentious requirement for companies to store customers’ personal data in China.

‘Headaches for companies’

But concerns remain.

“The regulator is unprepared to

enforce the law” and it is “very unlikely” anything will happen on June 1, said one participant, who asked for anonymity to discuss the sensitive issue.

That impression was only strengthened a few days after the meeting, when authorities issued 21 new draft documents describing national standards on topics from cloud computing to financial data, noting they would be available for public comment until July 7.

More new drafts, including detailed guidelines on cross-border data transfers, were published Saturday.

It is “crystal clear that the regulatory regime is evolving and does not simply switch on like a light June 1”, said Graham Webster, an expert on Sino-U.S. relations at Yale Law School.

Beijing, he said, is “wrestling with legitimate challenges that every country faces, and ... much of the caution and ambiguity comes from a desire to get things right.”

But the process is causing “headaches for companies, Chinese and foreign alike”.

Protecting ‘national honour’

China already has some of the world’s tightest controls over web content, protected by what is called “The Great Firewall”, but even some of its universities and petrol stations were hit by the global ransomware attack in May. The draft cybersecurity rules provided at the CAC meeting address only one part of the sweeping law.

The legislation also bans internet users from publishing a wide variety of information, including anything that damages “national honour”, “disturbs economic or social order” or is aimed at “overthrowing the

socialist system”.

Companies are worried that the new law could lock them out of the market.

Paul Triolo, a cybersecurity expert at the Eurasia Group, wrote in a research note that regulators will likely introduce “new hurdles for foreign company compliance and operations” in industries, such as cloud computing, where China is actively seeking a competitive advantage.

As a result, “companies with politically well-connected competitors could see their profile raised for things such as cybersecurity reviews”.

The European Union Chamber of Commerce, among other groups, has urged Beijing to “delay the implementation of either the law or its relevant articles”.

It “will impose substantial compliance obligations on industry” and “cautious, sound, consistent and fully reasoned supporting mechanisms related to its implementation are essential,” the group said in a statement last week.

The chamber called on policymakers to follow a “transparent” process that will help eliminate “discriminatory market access barriers”.

While there is no indication the law itself will be pushed back, the draft rules distributed at the CAC meeting says companies will have until December 31, 2018 to implement some of its requirements.

“It’s been enormously difficult for our companies to prepare for the implementation of the cybersecurity law, because there are so many aspects of the law that are still unclear,” said Jake Parker, vice president of the U.S.-China Business Council.

“There’s not enough information for companies to be able to develop internal compliance practices.” AFP

Preview

Early data shows slowdown biting amid credit tightening A survey-based gauge of sales-manager sentiment hit a six-month low in May The first hints of China’s economic performance this month suggest that a slowdown in growth is taking hold, as policy makers beef up efforts to clamp down on financial risks.

The international-investor optimism that dominated in the earlier part of the year is now souring, as curbs on leverage push up the cost of domestic borrowing. Small and medium-sized companies are also reporting dented confidence, and sentiment among sales managers and in the steel market worsened.

A surprise cut in China’s debt rating

by Moody’s Investors Service last week may mark a turning point for the world’s second-largest economy, as momentum weakens following a better-than-expected expansion in the first quarter. Yet the gloom shouldn’t spread too far, with consumers still spending, factory-gate prices gaining and home prices defying predictions of a hard landing.

Here’s what May’s earliest indicators show:

Smaller businesses

Standard Chartered Plc’s Small and Medium Enterprise Confidence Index headed for a second consecutive month of decline in May, falling slightly to 56.9 from 58 in April.

“Both current performance and expectations fell,” which put pressure on the labour market and on profitability, economists Yan Se and

Ding Shuang at the bank wrote in a note. “Credit access for small- and medium-sized enterprises is tougher” and funding costs have worsened, the analysts said.

ZEW panel

Global financial market experts veered toward pessimism on the outlook for the economy, according to a survey of the China Economic Panel, a joint project of the Centre for European Economic Research (ZEW) in Mannheim, Germany, and Fudan University in Shanghai.

The reading for expectations slumped to minus 0.1 in May, down from 17.7 last month -- the highest since at least late 2015. The assessment of the current economic

situation has also dampened, falling to 12.2 in May from 17.6 in April.

“The rather optimistic sentiment witnessed in the previous survey has thus faded” although the longterm outlook remains stable, said Michael Schroeder, a senior researcher at ZEW.

The “economy continued to grow in May but at a slower rate than has been the case for some time,” analysts at the firm wrote, “even though sales have remained stable in May, sales managers have expressed worry that the overall growth trend can’t continue.”

Sales managers

A survey-based gauge of sales-manager sentiment also hit a six-month low at 51.6 in May, dragged down by a sub-index assessing the potential of market growth, according to London-based research firm World Economics Ltd. A reading above 50 indicates expansion.

Managers in services sectors were more upbeat than those in the manufacturing sector, the report said, a sign of the Chinese economy’s gradual reliance on consumption rather than investment and export-led growth.

“Both current performance and expectations fell” Yan Se and Ding Shuang, economists at Standard Chartered

Steel plummet

The S&P Global Platts China Steel Sentiment Index slumped to 33.1 this month from 45.1 in April, weighed down by the outlook for domestic steel orders. The gauge is based on a survey of between 75 and 90 China-based market participants including traders and steel- mill executives.

“China’s steel market is extremely volatile at the moment,” Paul Bartholomew, a senior managing editor at S&P Global Platts in Melbourne, wrote in a release. “Underlying demand for flat steel products has been more robust, both domestically and for exports, though overseas customers have started to resist further price hikes.” Bloomberg News

Business Daily Wednesday, May 31 2017 9

Greater China Diplomacy

Fourth round of high-level political dialogue with Japan Japanese envoy said the country is dedicated to improving its relationship with China Chinese State Councillor Yang Jiechi and Japanese National Security Advisor Shotaro Yachi co-chaired the fourth round of high-level political dialogue between the two countries on Monday.

Yang said at the meeting that China-Japan relations are currently at an important juncture with both new opportunities and outstanding challenges as this year marks the 45th anniversary of the normalization of China-Japan diplomatic relations.

The two sides should remind themselves of their original intention for normalizing ties, take history as a mirror while facing to the future, and push for the continuous enhancement of bilateral relations based on the spirit of four important political documents between China and Japan and the four-point principled agreement reached in November 2014, Yang said.

Yang also said that China attaches importance to developing its relationship with Japan and this stance has not changed. He called on the Japanese side to conform to the trend of times and implement, with specific policies and concrete actions, the consensus that the two countries are each other’s cooperative partner rather than threats, and that China’s development is an opportunity for Japan.

Yang also urged Japan to honour its words and abide by relevant rules regarding the historical and Taiwan issues and make joint efforts with China to safeguard the peace and stability in the East China Sea. He also called upon Japan to speak and act cautiously regarding the South China Sea issue and to play a constructive role as relevant countries in the region are making their efforts to solve the issue properly.

In Brief Welcoming Japan to discuss cooperation with China under the framework of the “Belt and Road” initiative, Yang said the two sides should speed up transformation and upgrade of bilateral economic and trade cooperation and to expand cooperation in new areas.

He also urged the two sides to further enhance communication between local governments and the young people, among others, so as to promote mutual understanding between the two peoples and lay solid foundation for the development of bilateral ties.

‘Chinese State Councillor said that China attaches importance to developing its relationship with Japan’ For his part, Yachi said that cooperation between China and Japan, two major countries in Asia, is vital to the region and the two sides shall fully implement the consensus that they are each other’s cooperative partner rather than threats.

He said that Japan’s stance on the Taiwan and historical issues has not changed and Japan is dedicated to improving its relationship with China and is willing to make joint efforts with China to enhance exchanges at all levels, expand positive aspects and properly manage disputes in bilateral relations.

The two sides also exchanged views on international and regional issues of common concerns. Xinhua

Poverty-relief

Big data helps in Mainland poor villages The country plans to lift 10 million people out of poverty each year from 2016 to 2020 Yang Jilin stands in front of a modern machine on the third floor of the village office and types his name to check if the government subsidies have been allocated.

“In the past, we did not know when and how much subsidies were given out,” said Yang, 53. “But now with the data machine, everything is clear.”

Yang is a resident of Shanbao village, Tongzi county. The village is tucked away in the boundless mountains of southwest China’s Guizhou Province, a place known for its grinding poverty. The government has allocated poverty-relief subsidies to cashstrapped villagers, as the country plans to lift 10 million people out of poverty each year from 2016 to 2020 to become a “moderately prosperous society.”

To make sure the subsidies are properly distributed instead of being eaten by corrupt officials, the disciplinary commission of Tongzi introduced a data supervising platform last year, which includes details of public policies and subsidies, as well as a monitoring system, a warning system regarding government funds, and a feedback system handling public complaints. The platform gives terminals all villages in the county, like the one in Yang uses.

“With the platform, I can see my subsidies anytime I want,” Yang said.

China is encouraging the development of big data, with the country’s first big data engineering laboratory launched in Guizhou Province last week to help improve government management efficiency. Guizhou is the country’s first pilot zone for big

data. The technology is being widely applied in government management, business and daily life.

“Big data really helps make poverty-relief more precise and efficient,” said Zhou Xing, an agriculture expert with the poverty-relief office of Guizhou Province.

Guizhou started using big data for precise poverty-relief in 2015, when a cloud computing platform was developed, which tracks and manages the financial status of more than 6 million poor residents across 9,000 villages. It also tracks 1.23 million residents lifted from poverty since the end of 2014.

“Before the introduction of big data, poverty relief work was difficult because the information of residents was written by hand and passed to

central authorities via a series of local officials, which could be hampered by corruption,” said Zhou Xing. “The hand-writing process was also very time-consuming.”

With big data, everything is stored in an electronic system and can be accessed quickly, a much easier process. Besides, a supervising team checks the data in random villages to prevent corruption.

In the provinces of Hubei, Hunan and Sichuan, as well as Guangxi Zhuang Autonomous Region, big data plays an increasingly important role.

In 2016, for example, a big data system in Hubei caught officials embezzling public funds. The authorities confiscated RMB2.3 million (US$335,600).

“Tight supervision is needed to make sure poverty relief work is conducted properly,” said an official of the Hubei provincial disciplinary watchdog. Xinhua

Transportation

Guangzhou to replace all buses with “new energy” vehicles Guangzhou’s petrol-powered buses will soon be a thing of the past. Starting this year, the southern Chinese city will begin replacing the thousands of public buses with greener, more energy-efficient vehicles.

According to the new plan, all buses that use petrol and diesel will be replaced with pure electric buses by 2020, meaning Guangzhou will have about 30,000 new energy public vehicles including buses and taxies by 2020. To attract individual consumers of electric cars, Guangzhou also plans to lower electric vehicles prices, reduce maintenance costs and build more charging stations.

Tourism

Mainland’s arrivals to Vietnam up Vietnam is expected to welcome 1.57 million person-times of Chinese tourists, up 55 per cent year-on-year in the first five months of 2017, according to the General Statistics Office (GSO) yesterday. China is the largest market for foreign visitors to Vietnam, accounting for nearly one third of all international arrivals to Vietnam in the five-month period, said GSO. China is followed

by South Korea with 889,200 person-times of visitors to Vietnam, up 40.9 per cent year-on-year. In total, in the first five months, Vietnam is forecast to receive 5.25 million person-times of international tourists, up 29.6 per cent yearon-year, said GSO. Expansion

Wine group buys three vinyards in Chile China’s wine company, Yantai Changyu Pioneer Wine, has signed an agreement with Chile’s Bethia group to buy three vineyards in the South American country for over US$50 million. According to the Chilean El Mercurio daily, the operation will be concluded at the end of June, once the relevant authorizations have been obtained from China.

“Through these acquisitions, Changyu, which has operations in China, France, Italy and New Zealand, wants to increase its presence in the Latin American market through Chile,” the report said.

Smugglers

Beijing busts 13 ivory trafficking cases in half year More than 520 pieces of ivory and ivory products were seized in 13 trafficking cases from October to April. Beijing Customs said yesterday. Of the 13 cases, one suspect attempted to smuggle seven pieces of ivory and ivory products through the Beijing Capital International Airport.

Beijing Customs said most of the smugglers are Chinese people working in Africa where they have access to cheap ivory and ivory products. On December 30, China announced a phased schedule to stop part of ivory processing and sales by March 31, 2017, and to eventually stop all ivory processing and sales by the end of 2017.

10 Business Daily Wednesday, May 31 2017

Asia Employment

Japan’s tight labour market offers hope for consumer spending The last time labour demand was this strong was in February 1974 Stanley White

L

abour demand in Japan rose to its strongest in more than 40 years while the unemployment rate held steady at a two-decade low in April, offering hope that a tight labour market will eventually spark a turnaround in weak consumer spending.

Separate data showed household spending fell more than expected in April due to lower spending on cars and education fees as consumer spending continues to lag behind improvement in other areas of the economy, such as exports and factory output.

Such a tight labour market could temper pessimism about consumer spending and bolster the Bank of Japan’s (BOJ) argument that rising demand for workers will eventually spur inflation.

“Consumer spending looks weak now, but the labour market continues to improve,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“As more people get work, this should support consumer spending in the future.”

The jobs-to-applicants ratio rose to 1.48 in April from 1.45 in the previous

month, meaning 1.48 vacancies are available for each person seeking a job. Labour demand has been rising steadily due to a shortage of workers and increased activity in services and construction.

The last time labour demand was this strong was in February 1974, when the ratio was 1.53.

The jobless rate held steady at 2.8 per cent in April, matching the lowest since June 1994.

The BOJ last month maintained its projection that price growth will reach its 2 per cent target in fiscal 2018 on the assumption that a tight labour market will push up wages, but not all economists are convinced.

Economists say some companies are opting to cut business hours,

which makes it difficult for wages to rise.

“Some companies are scaling back the level of services they offer instead of going out and getting the workers they need,” said Hiroaki Muto, economist at Tokai Tokyo Research Centre Co. “This is not likely to lead to higher take-home pay.”

Japanese household spending fell 1.4 per cent in April from a year earlier in price-adjusted real terms, more than the median estimate for a 0.7 per cent annual decline.

Excluding spending on autos and housing, household spending rose a seasonally-adjusted 3.5 per cent in April from the previous month versus a 2.9 per cent decline March, showing

consumer spending is stronger than the headline figures, Miyazaki said.

Separate data showed retail sales rose 3.2 per cent in April from a year earlier, more than the median estimate for a 2.3 per cent increase, but some economists say a small sample size may exaggerate the percentage change in this data.

Key Points Labour demand at highest since February 1974 Jobless rate holds steady at 2-decade low Household spending falls more than expected Retail sales rise beats forecasts Under a new policy framework adopted last year, the BOJ has pledged to guide short-term interest rates to minus 0.1 per cent and cap the 10-year government bond yield around zero per cent.

Consumer prices rose on 0.3 per cent in April from a year ago, well below the BOJ’s 2 per cent inflation target.

However, growing signs of strength in exports and factory output have presented the BOJ with a new communications challenge, pushing it to be clearer with markets on how it might dial back its stimulus - even though such action remains a long way off. Reuters

Real estate

Australian housing construction boom shows signs of slowing down The Reserve Bank of Australia has been counting on continued strength in home building to offset a lingering drag from the end of a mining investment boom Swati Pandey

Australia is witnessing a cooling off in its biggest-ever home-building boom as approvals for new projects sank 17.2 per cent in April, a turnaround that could undermine policymakers’ hopes for solid economic growth over the next two years.

Building approvals have been on a decline since last August, with the once-booming apartment sector the biggest hit, data from the Australian Bureau of Statistics shows.

Data published yesterday shows a better-than-expected gain of 4.4 per cent in April, but it follows a hefty loss of 10.3 in March.

Multi-unit approvals rose 9.6 per cent in April from March when they slumped more than 18 per cent. Approvals are still down an annual 26.5 per cent.

Analysts say the data indicates Australia’s biggest-ever construction boom is slowly unwinding.

“While the monthly update was

more positive than expected the slowdown theme remains clear,” said Matthew Hassan, senior economist at Westpac Banking Corp.

“New dwelling investment is expected to enter a decline from late this year, becoming a material drag on growth.”

Key Points April building approvals up 4.4 pct m/m, down 17.2 annually Multi-unit approvals up 9.6 pct m/m, down 26.5 pct annually Monthly update positive but slowdown theme clear - economist The Reserve Bank of Australia (RBA) has been counting on continued strength in home building to offset a lingering drag from the end of a mining investment boom.

Earlier this month, the RBA even upgraded its forecast for gross domestic product (GDP) growth by 25 basis points for mid-2018 to 2.75-3.75 per cent.

Growth in the A$1.7 trillion economy is expected to accelerate to between 2.75 per cent and 3.75 by June 2019.

But economists are not so optimistic.

“It is hard to see that kind of growth,” said Michael Turner, strategist at RBC Capital Markets.

“We are a bit more circumspect.

Consumer spending is still a bit more conservative and construction is slowing down. We’re seeing GDP of below 3 per cent over the next two years.” Reuters

Business Daily Wednesday, May 31 2017 11

Asia In Brief Pollution

S.Korea to suspend coal-fired power plants

2nd annual meeting

Finance minister says hosting AIIB summit to have great meaning The upcoming AIIB annual meeting would be attended, in principle, by finance ministers of the 77 member states Hosting the China-initiated Asian Infrastructure Investment Bank (AIIB)’s second annual meeting will have a great meaning for South Korea, Seoul’s finance ministry officials said yesterday.

The second meeting is scheduled to be held for three days from June 16 in South Korea’s southern resort island of Jeju. It would mark the first time that the AIIB’s annual meeting is held outside China.

Officials at the Ministry of Strategy and Finance held a background briefing for foreign correspondents in Seoul to explain the country’s hosting the global event.

“AIIB is an international institute, so the first annual meeting was held at the headquarters in Beijing and the next one is to be held outside the headquarters,” said a ministry official who declined to be identified.

The official said South Korea became the first country to host an

annual meeting of the AIIB outside China, which he said would “have a great meaning” for South Korea.

One of the reasons for South Korea to be picked as the host nation was that the country was the most fitted for the AIIB’s philosophy, the official noted.

The AIIB was officially launched in January 2016 with 57 founding members. The number of members currently jumped to 77, according to the ministry official.

The multilateral development bank was established to support infrastructure investment into developing countries in Asia and beyond and help those nations economically developed.

South Korea transformed itself from a war-torn country receiving development assistance from other states into a country providing official development assistance (ODA).

The ministry official said South Korea was the first case in the world to turn itself into an ODA provider from an ODA receiver.

The upcoming AIIB annual meeting would be attended, in principle, by finance ministers of the 77 member states. Official sessions would be chaired by South Korea’s finance minister who doubles as a deputy prime minister.

‘The second meeting is scheduled to be held for three days from June 16 in South Korea’s southern resort island of Jeju’ The meeting would come under the theme of “economically, environmentally, socially sustainable investment.” Reuters

World Bank

India needs more jobs for women to boost growth Female participation in India’s workforce has declined since 2007 India must reverse a trend of falling women’s participation in the job market if it is to achieve its ambition of double-digit growth, the World Bank said on Monday.

India is the world’s fastest growing major economy, but has one of the lowest rates of female employment, a trend that has worsened over the last decade.

The World Bank in its latest report said just 27 per cent of Indian women were working or actively looking for a job, a matter of “serious concern” that was holding back economic growth. “(A) higher level of women participation in the economy can help propel India closer to double digit growth,” said country director Junaid Ahmad.

The bank said the fundamentals of India’s economy remained strong and the impact of last year’s shock move to take most of the country’s currency out of circulation had been limited.

Inflation remained under control and a strong monsoon last year had boosted agriculture and rural consumption, it said, estimating growth at 6.8 per cent for the financial year

ended March 31 2017.

The government will release its official growth figures for that period today.

The World Bank report said a new national goods and services tax due to be introduced on July 1 would “yield substantial growth dividends from higher efficiencies” and increase state revenues in the long term.

But it warned India needed to create jobs for the large number of women currently not in the labour market.

“India’s female labour force participation rate is uniquely low for all levels of education,” said senior World Bank economist Frederico Gil Sander.

“Sixty five per cent of Indian

women with college degrees are not working, whereas in Bangladesh 41 per cent and in Indonesia and Brazil only 25 per cent of women graduates are not working.”

Female participation in India’s workforce has declined since 2007, particularly in rural areas.

That is partly because they are staying in education for longer, but even college-educated women are staying out of the workplace -- just 34 per cent of those with a degree are working, the bank said.

Urbanisation has also contributed to the trend because women living in cities are less likely to be in paid work than those in rural areas, where farming provides employment. AFP

South Korea will halt operations at eight of the country’s older coal-fired power plants for a month in June as part of measures to tackle air pollution, the energy ministry said yesterday. New President Moon Jae-in earlier this month announced plans to temporarily shut operations at 10 coal-fired plants that are more than 30 years old and to bring forward their permanent closure to within his presidency which ends in May 2022.

The energy ministry said in a statement that eight of the 10 older coal-fired plants will be temporarily shut down from June 1 for one month.

Currency

Thai central bank chief worried about strong baht Thailand’s central bank remains worried about a strong baht and short-term capital inflows, the governor said on Monday, as the currency traded near its highest against the dollar in more than 22 months. The central bank is ready to act on any excessive moves in the baht, Veerathai Santiprabhob told a seminar. “If there are large fund inflows, and causing high volatility in the baht, it’s the central bank’s duty to act on it with instruments available,” Veerathai said. “We are still worried about the baht’s strength and shortterm fund inflows parking in Thailand,” Veerathai said.

Environment

Formosa steel plant in Vietnam restarts after toxic spill Formosa Plastics Group’s steel plant in Vietnam restarted on Monday after its operations were halted for causing one of the country’s worst environmental disasters, local media reported. In April last year, the US$11 billion Formosa Ha Tinh Steel plant accidentally spilled toxic waste that polluted more than 200 km of coastline, devastating sea life and local economies dependent on fishing and tourism.

Taiwanese-owned Formosa paid US$500 million in compensation. Formosa has met requirements to testrun its first blast furnace, local media quoted Deputy Environment Minister Nguyen Linh Ngoc as saying.

Trade

India’s cattle trade ban to halt beef exports India’s ban on the trade of cattle for slaughter threatens US$4 billion in annual beef exports and millions of jobs if the government does not revoke the stoppage decreed last week, according to two industry officials. In the latest setback to the Muslimdominated meat industry, Prime Minister Narendra Modi’s government decreed animal markets will only be able to trade cattle for agricultural purposes such as ploughing and dairy production. The ban is likely to further alienate Muslims, who make up 14 per cent of India’s 1.3 billion people, and raise communal and religious tensions.

12 Business Daily Wednesday, May 31 2017

Asia Anti-money laundering

Singapore fines Credit Suisse, UOB over 1MDB-linked transactions 1MDB is the subject of money-laundering investigations in at least six countries including Switzerland, Singapore and the United States

S

ingapore’s central bank said yesterday it had fined Credit Suisse and United Overseas Bank (UOB) a total of S$1.6 million (US$1.15 million) for breaches of anti-money laundering rules for transactions related to Malaysia’s scandal-ridden state fund 1MDB. The Monetary Authority of Singapore (MAS) fined UOB S$900,000 and

Credit Suisse S$700,000 as it wrapped up its two-year probe into banks involved in 1MDB-related transactions, which revealed several breaches of anti-money laundering (AML) requirements and control lapses.

“These include weaknesses in conducting due diligence on customers and inadequate scrutiny of customers’ transactions and activities,” it said in a statement, adding that it

did not however detect pervasive control weaknesses at UOB and Credit Suisse.

The fines were smaller than those the authority has already imposed on other banks as part of its biggest money-laundering investigation. It has now imposed penalties of S$29.1 million on eight banks.

Last year, MAS fined DBS, UBS, Standard Chartered and private bank Coutts for breaches of Singapore’s anti-money laundering laws in connection to 1MDB transactions.

Once a pet project of Malaysian Prime Minister Najib Razak, who chaired its advisory board, 1MDB is

the subject of money-laundering investigations in at least six countries including Switzerland, Singapore and the United States.

Najib has denied any wrongdoing.

As part of a two-year review into 1MDB-related transactions, Singapore has shut down the local units of BSI Bank and Falcon Bank due to failures of money laundering controls and improper conduct by senior management, frozen millions of dollars in bank accounts and charged several private bankers.

“The price for keeping our financial centre clean as it grows in size and inter-connectedness is unstinting vigilance,” said Ravi Menon, managing director of the central bank.

The extensive review uncovered a complex web of transactions involving shell companies and individuals operating in multiple jurisdictions, including the United States, Switzerland, Hong Kong, Luxembourg and Malaysia.

“Credit Suisse takes a very serious view of our obligations in the prevention of money laundering and is firmly committed to upholding the high standards of the Singapore financial centre,” the bank said in a statement.

UOB also said it had accepted the findings by MAS. “We have instituted measures to address the areas of concern, including enhancing our training programme to raise risk and control awareness among our staff,” it said. Reuters

Taxes

Indian economy rides on consumer spending revival ahead of GST launch Some even expect a growth print as high as 7.8 per cent when the GDP figures come out today Rajesh Kumar Singh

Kaveri Shukla and her fiance are on a shopping spree ahead of their wedding next month. In just one week, the couple has bought home appliances ranging from a rice cooker to a refrigerator and are purchasing a new car.

“Marriage is a kind of big spending commitment,” said the 28-year-old financial consultant while shopping at an upscale mall in Gurugram, a satellite city and business hub near Delhi.

“It is an excuse to spend, not defer your purchases.”

Shukla is not alone. Millions like her are thronging shopping malls and stores in India, thanks to a busy wedding season. A heatwave is also boosting demand for air conditioners and refigerators.

It’s a welcome change for an economy where consumer spending, traditionally a driver of growth, took a blow after Prime Minister Narendra Modi’s shock decision last November to scrap high-value bank notes.

The prospect of another big reform - the launch of a multi-rate Goods and Services Tax (GST) from July 1 - could also be bringing forward spending into the current quarter as shoppers look to avoid rates of 28 per cent, or higher, on some consumer durables and luxury items.

The impact of the new tax regime is

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not clear -- some items are expected to be cheaper -- but the prospect of a price rise is seen pushing some people to buy ahead of July.

The risk is spending falls away after the tax is launched.

“GST is a big unknown,” said Kumar Rajagopalan, head of the Retailers Association of India. “But it could turn out to be a big fillip in the short run.”

Other headwinds loom: Layoffs in the information-technology sector are unsettling some households at a time when the economy is still not generating enough new jobs for workforce that is growing by around a million people a month.

High frequency

Economists polled by Reuters expect Asia’s third-largest economy to expand by 7.1 per cent on year in the January-March quarter, just up

from 7.0 per cent in the prior quarter and ahead of China’s 6.9 per cent growth rate.

Some even expect a growth print as high as 7.8 per cent when the GDP figures come out today.

India doesn’t publish national figures on retail sales. But high-frequency indicators such as car sales, retail lending and goods imports show consumer spending has roared back to life.

New passenger car sales grew at their fastest annual pace in at least 16 months in April. Imports of consumer goods last month surged by nearly a half from a year ago. Credit card loans growth is at its highest in at least 15 months.

Quarterly earnings of consumer goods makers from Hindustan Unilever to auto maker Maruti have also been upbeat.

The consumer rebound backs the Reserve Bank of India’s (RBI) prediction of a V-shaped recovery from the cash clampdown, whereas many in the private sector had expected a

longer slump.

With a good monsoon and government pay hikes in prospect, the outlook for a sustained recovery looks good. And as consumer spending powers more than half of India’s economic growth, the recovery has bolstered the prospects of stronger growth.

Key Points Consumer spending roars back to life after cash crunch Pent-up demand fuels sales of cars, air-conditioners Prospects of good monsoon, pay hikes seen bolstering spending GST rollout, layoffs in IT sector pose downside risks “We hope these drivers will spread the recovery far and wide,” said Kamal Nandi, business head of appliances at Godrej consumer products.

Radhika Rao, an economist with DBS Bank in Singapore, reckons spending has recovered to near pre-demonetisation levels.

It should get a leg up from the GST, she says, as the measure will reduce taxes on food and other essential items.

“Cost savings on non-discretionary items post-GST will boost discretionary spending,” she said. “An upward revision in GDP estimates might be warranted after Wednesday’s data.”

Reuters

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Business Daily Wednesday, May 31 2017 13

Asia Forecast

In Brief

Bank Indonesia: 5.4 per cent growth this year too optimistic Recent political events have undermined investor sentiment in Indonesia

S.Korea’s Jeju Air says China approves flights South Korea’s Jeju Air said yesterday China has approved a plan to double its flights to the Chinese city of Weihai from June 2, boosting hopes of easing political tension between the two countries. Relations between China and South Korea have been strained for months by a South Korean decision to deploy a U.S. anti-missile system, but have taken on a more conciliatory tone with the election this month of President Moon Jae-in. Jeju Air, South Korea’s top lowcost carrier, said it first applied to increase its flights to Weihai, to 14 a week from 7, in early April, but China had not approved the plan because of the diplomatic row.

Karlis Salna

Indonesia’s central bank said economic growth of 5.4 per cent this year is too optimistic and the nation should aspire for higher credit ratings to catch up with Southeast Asian peers.

“In our view, the 2017 growth rate should be higher than 2016,” Bank Indonesia Senior Deputy Governor Mirza Adityaswara said in an interview in Jakarta on Friday. “Maybe 5.4 per cent is still a bit too aggressive, but we think 5.1 per cent to 5.2 per cent is still a possible number to achieve in 2017.”

While Southeast Asia’s biggest economy is gradually recovering, it faces risks from a slowdown in China and weaker prices of coal and palm oil, the nation’s main commodity exports.

President Joko Widodo, known as Jokowi, has pledged to boost growth to 7 per cent during his term in office, but economists surveyed by Bloomberg predict expansion of under 5.5 per cent until 2019.

Jokowi’s government has made inroads on some economic reforms, helping it win an investment-grade score from S&P Global Ratings this month. Despite its economic size, smaller neighbours including the Philippines, Thailand and Malaysia all enjoy higher ratings from S&P. “We have to use the improvement in the credit rating to challenge ourselves to get further improvement,”

Aviation

EuroCham

Adityaswara said. Keeping the current account deficit under control is key, which means the nation needs to diversify into non-commodity exports and push for stronger tourism, he said.

Global funds poured a record US$6 billion into rupiah securities this year, helping to drive Indonesia’s 10-year yield down by the most in Asia.

Fitch Ratings and Moody’s Investors Service already rates the nation at investment grade and Goldman Sachs Group Inc. said in March an S&P upgrade may help attract as much as US$5 billion in funds from Japan alone.

“Considering that the global situation is quite stable, what we can

expect is funds from Japan, and also funds from maybe European and American pension funds that are purposely not in Indonesia yet to come,” the deputy governor said.

Political risk

Bank Indonesia has kept its benchmark interest rate unchanged at 4.75 per cent for seven months, refraining from providing more stimulus to the economy after six rate cuts last year.

Inflation accelerated to the highest in more than a year in April at 4.17 per cent, above the mid-point of the bank’s 3 per cent to 5 per cent target band.

“We have to use the improvement in the credit rating to challenge ourselves to get further improvement” Mirza Adityaswara, Bank Indonesia Senior Deputy Governor “The key for us is to maintain prudentiality in managing the macro,” Adityaswara said. “The government manages the fiscal prudentiality, while Bank Indonesia maintains prudentiality in the monetary policy, basically to make sure inflation is under control and the current account deficit is under control.”

Templeton Emerging Markets Group Executive Chairman Mark Mobius gave an upbeat assessment of Indonesia on Monday, saying the stock market continues to benefit from an improving growth outlook. The Jakarta Composite Index has gained 11 per cent in the past six months.

“Despite all its problems with terrorism and so forth, the index keeps climbing simply because the economic picture looks so good,” Mobius said in an interview in Singapore with Bloomberg TV’s Haslinda Amin.

Indonesia would be more attractive to investors if Jokowi was able to do more to curb corruption and the influence of religious conservatism, he said.

Recent political events have undermined investor sentiment in Indonesia. Basuki Tjahaja Purnama, a close ally of Jokowi, lost a bid to become the first ethnic Chinese Christian to be elected governor of Jakarta after he was accused of blasphemy. He was subsequently found guilty and jailed for two years. Reuters

Vietnam’s Business Climate Index drops The European Chamber of Commerce in Vietnam, or EuroCham, on Monday said Vietnam’s Business Climate Index (BCI) in the first quarter of this year declined 7 points from the previous quarter.

The BCI demonstrates results of EuroCham’s quarterly survey on business sentiment among European conpanies operating in Vietnam through assessments provided by representatives of its member companies. According to the results of EuroCham’s BCI for the first quarter, the index is 78, dropping 7 points from last quarter’s score, and returning to levels of the second quarter of 2016.

S.Korea

Banking services via smartphones surpass 60 pct Banking services in South Korea through smartphones accounted for more than 60 per cent in the first quarter due to the spread of smartphones usage among consumers, central bank data showed yesterday. The daily average number of banking services in the cyberspace was 9,412 in the January-March quarter, up 5.9 per cent from the previous quarter, according to the Bank of Korea (BOK). The number of banking transactions through smartphones was 5,738 on a daily average basis during the quarter, taking up 61 per cent of the total mobile banking services.

Loan

ADB, Bangladesh sign power development deal The Asian Development Bank (ADB) and the Bangladeshi government have signed agreements for US$616 million in loans to enhance the coverage and reliability of Bangladesh’s power systems.

Kazi Shofiqul Azam, secretary of Bangladesh’s Economic Relations Division (ERD), and Kazuhiko Higuchi, country director of (ADB) signed the loan agreements on behalf of their respective sides at a ceremony in Dhaka on Monday. The Power System Enhancement and Efficiency Improvement Project will contribute to the goal of the government of Bangladesh of providing 100 per cent access to electricity by 2021, said Manila-based lender in a statement.

14 Business Daily Wednesday, May 31 2017

International In Brief Diplomacy

Trump Administration nearing completion of Cuba policy review The Trump Administration is nearing completion of a policy review to determine how far it goes in rolling back former President Barack Obama’s engagement with Cuba and could make an announcement next month, according to current and former U.S. officials and people familiar with the discussions. President Donald Trump’s advisers are crafting recommendations that could call for tightening some of the trade and travel rules that Obama eased in his rapprochement with Havana but which are expected to stop short of breaking diplomatic relations restored in 2015 after more than five decades of hostility, the sources said.

Auto industry

EU ministers agree car approval rules after dieselgate EU ministers agreed on Monday on draft new rules for approving cars for sale in order to prevent a repeat of the Volkswagen emissions scandal and giving the European Commission the power to fine cheating manufacturers directly. The rules, which still have to be discussed with the European Parliament before becoming law, are a response to the 2015 dieselgate scandal when German carmaker Volkswagen was found to have used software to cheat U.S. diesel emission tests. Under the present system, national bodies such as Germany’s KBA authority, have the power to clear new vehicles for the whole European Union and can also revoke those licences.

Corruption

Brazil’s Temer pushes reform agenda in spite of political crisis Less than two weeks ago, allegations that President sought to obstruct justice and turned a blind eye to corruption roiled the country Vivianne Rodrigues

B

razil’s President Michel Temer said he has the full conditions to govern and pass reforms as a political crisis threatens to derail his government’s agenda, jeopardizing a fragile economy.

“No party has told me they are not going to support reforms,” Temer said in an interview with a group of foreign journalists, including Bloomberg, in Sao Paulo. “Resolving the pension deficit is fundamental.”

Policy makers were close to securing the votes needed to pass a crucial but unpopular pension overhaul in the lower house before the latest scandal broke.

Less than two weeks ago, allegations that President Michel Temer sought to obstruct justice and turned a blind eye to corruption roiled Brazil, prompting a market sell-off. Since then, the government has sought

to project an image of business as usual. Amid significant threats to his mandate, and widespread media speculation about a possible successor, the president gave numerous interviews on Monday insisting he is not on his way out. Cabinet ministers and government allies have given strong support for the continuation of Temer’s reform agenda while taking a more cautious view of the president’s destiny.

Earlier in the day Finance Minister Henrique Meirelles said that now was the right time to push through an overhaul of Brazil’s pension system and that he expected a vote in the lower house of Congress by midJune. Asked about the president’s position, Meirelles said that he was working with the hypothesis that Temer would stay in power.

In speeches broadcast on national television and social media, Temer has repeatedly denied all accusations of wrongdoing and said he will

not resign. The president has tried to maintain a normal agenda, announcing ministerial changes and visiting regions of the country affected by heavy rains over the weekend.

Electoral court ruling

The most direct threat to his mandate could come as early as next week.

On June 6 Brazil’s top electoral court, the TSE, is due to resume its judgment on the 2014 election campaign, when Temer ran as Dilma Rousseff’s vice-presidential candidate. The court is currently assessing whether to invalidate the results on the basis it was financed with illegal campaign donations. An adverse ruling could see Temer stripped of the presidency.

“The TSE judgement tends to create a certain amount of instability,” the president said. “The best solution would be if the TSE judged the case in three or four days.”

Temer’s team is working on a scenario whereby one of the judges would request more time to analyse the case, or else hold Rousseff solely responsible for any wrongdoing while exonerating Temer, according to one presidential aide. Bloomberg News

Tax

Mexico mulls fine for massive undeclared transfer Mexico could slap a US$90 million fine on those involved in an undeclared shipment of US$450 million from the United States to Mexico last year although the funds do not appear to be of illicit origin, Mexican tax officials said. In October, Mexico’s tax authority SAT said it had detected a package containing bearer negotiable instruments (BNI) worth US$450 million from an American company to a Mexican firm with a global presence in the central city of Toluca. BNIs are a good way to smuggle money because they are far less bulky than cash and hard to trace to their owner.

Antitrust

EU, Gazprom need more talks to settle case Gazprom and the European Commission need further talks to assess the Russian gas giant’s compliance with EU competition law, they said after a meeting on Monday in Brussels.

Gazprom’s deputy chief executive, Alexander Medvedev, met EU antitrust chief Margrethe Vestager to discuss concessions aimed at ending a six-year-long investigation into Gazprom’s alleged anti-competitive practices in the supply of gas to eastern and central Europe. “We had a very productive discussion today with Commissioner Vestager and her team. We have agreed to hold further talks at technical level in the coming weeks,” Medvedev said in a statement.

Brazil’s President Michel Temer participates in a meeting with the presidents of the country’s airport companies at the Planalto Palace in Brasilia, yesterday. Lusa

M&A

LSE to buy Citi’s bonds analysis and indexes business The Yield Book and Citi Fixed Income Indices have a client base of more than 350 institutions Noor Zainab Hussain

London Stock Exchange (LSE) has agreed to buy The Yield Book, Citigroup’s fixed-income analytics service and also its related indexing business, for US$685 million in cash, the companies said yesterday.

LSE, which had said it would be looking out for investments after the collapse of its proposed merger with Deutsche Boerse, said the deal would boost the data and analytics capabilities of its information and FTSE Russell indexes business and take assets under management using its indexes to about US$15 trillion.

The deal, which is subject to regulatory clearances and is expected to close in the second half of this year, is expected to add $30 million in synergy benefits to LSE’s revenues over the first three years after completion and bring US$18 million in cost savings over the same period, the company said.

Last year it estimated the business being acquired would have generated earnings before interest, tax,

depreciation and amortisation of US$46 million on revenue of US$107 million.

LSE, which bought stock index provider and asset manager Russell Investments in 2014, expects the EBITDA margin to rise to at least 50 per cent within three years of the deal’s completion, the company said.

Key Points Deal to boost information services and FTSE Russell businesses LSE sees US$30 mln in synergy benefits to revenue in first 3 yrs LSE sees US$18 mln in cost synergies “The acquisition of The Yield Book and Citi Fixed Income Indices supports the continued strong growth and development of London Stock Exchange Group’s Information Services division,” said Mark Makepeace, CEO of FTSE Russell.

The Yield Book and Citi Fixed Income Indices have a client base of more than 350 institutions offering services used to analyse fixed income instruments including mortgage, government, corporate and derivative securities, Citi said.

Citi Fixed Income Indices includes the World Government Bond Index.

“This represents a very sensible deal as it helps LSEG grow its highly attractive info services division and will allow it to capitalise further on key industry trends including strong growth in multi-asset solutions and passive investment strategies,” said Numis analysts, who rate LSE as “hold”.

Citi was advised on the deal by its Institutional Clients Group. Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisor to Citi.

Barclays acted as financial adviser to LSE, while Freshfields Bruckhaus Deringer LLP was counsel.

The deal, announced two months after EU regulators blocked LSE’s planned merger with Deutsche Boerse, citing concerns over a potential monopoly in the processing of bond trades, will be funded from existing cash resources and credit facilities, the LSE said. Reuters

Business Daily Wednesday, May 31 2017 15

Opinion

China’s 220 million seniors may reshape the world for example). And it’s not just tourism: In recent years, businesses ranging from car companies to online marketplaces have built features marketed to China’s elderly.

Health care is another industry that may be transformed. Unlike Japan and Western Europe, China is aging before it has grown rich enough to develop the institutions -- such as nursing homes -needed to sustain a large senior population. Increasingly, the private sector is stepping in. For those who can’t aff o r d t o t rav e l overseas, private preventative care is becoming much more common.

Elsewhere, companies are developing “smart care” products, in which internet-connected devices track the health of customers. Beijing is expanding a program that uses a discount shopping card to monitor seniors while applying data analytics to anticipate their needs.

Nestle clearly understands these trends. At the launch of its new senior milk powder, a company official told the press: “As an old Chinese saying goes, `Diet cures more than the doctors.’” Long-term, that attitude -- combined with investments in health-focused artificial intelligence and big data by companies such as Alibaba Group Holding Ltd. and Baidu Inc. -- may well reshape the

“

For decades, Nestle SA has tried to get its infant milk powder into the hands of China’s new mothers with promises of brighter, healthier babies.

Now it’s trying to do the same for the elderly. Last week, the company launched “Nestle YIYANG Fuel for brainTM senior milk powder,” a formula designed to help China’s seniors “refuel their brains and start a new smart life.”

The announcement didn’t get quite the hype that products targeted to China’s millennials do. But it may yet prove more consequential. With 222 million people over age 60, China is home to the world’s largest population of seniors, and their economic clout is set to surge in the years ahead.

By one estimate, the value of products and services geared toward them may reach 33 percent of gross domestic

product by 2050.

If that trend holds, caring for seniors will be China’s dominant industry by the middle of the century, and old folks will be its defining demographic. That presents plenty of challenges for the government -- but also some major opportunities for business.

Seniors are already playing a key role in shifting China’s economy away from exports and toward consumption. Fan Min, president of China’s biggest online travel site, predicts they’ll be the primary drivers of the country’s tourism market within a decade. About 5 million of them are traveling overseas annually, with that number expected to more than double by 2030. As they venture out, the travel industry is adjusting to their demands (by offering more group tours and cheaper accommodations,

“

industries with faster technological change. While fast technological change seems to bring big winners and concentration - see Facebook, it also brings with it the risk that companies will be supplanted by other technology in the future.

Indeed, one of the named superstar firms is Wal-Mart, which as a mostly physical retailer is now seeing its own position hollowed out by the likes of Amazon. Or consider IBM, which surely would once have been thought of as a superstar but which now is notable more for its fondness for share buybacks than its strong returns as a stock.

The reality is that a winner-take-all-society is a risky society, and that applies as much to investors as it does to college graduates or mid-career workers. It simply is not as simple as just figuring out who is ‘winning’ and climbing on board. A concentrated bet on superstar firms is very likely highly risky, not just in theory, as are all concentrated bets, but also in practice due to the rate of technological change.

It is notable too that superstar firms have risen, and wages fallen, during a period with rising globalization and a political and regulatory backdrop which allowed it to happen

”

Capturing growing margins via the index

Index investing, in contrast, will allow investors to be exposed to the rising, or persistently high, corporate

health-care industry, both in China and globally.

But the area where China will have the biggest influence on the market for senior services will likely be housing. As of 2015, China had an average of only 26 nursing beds for every 1,000 seniors. Over the coming decades, it’s unlikely that the government will be able to build -- much less staff -- nearly enough facilities to meet the demands of its growing elderly population. As a result, it will need to develop new and more creative models for senior care.

That might mean more automation (there’s at least one robotics pilot program in Hangzhou).

It could mean home care that’s supported by a network of internet-dispatched delivery services (especially for food). And it will surely mean an expansion of smart monitors and technology to interpret the data they collect. Given the size of the potential market, there’s reason for optimism that the China’s entrepreneurs can figure out low-cost models that work at home -- and quite possibly overseas.

For China’s current generation of seniors, having come of age at a time of global isolation and domestic hardship, that’s a level of influence few could have imagined in their youth.

Seniors are already playing a key role in shifting China’s economy away from exports and toward consumption

In age of ‘superstar firms,’ index investing logic holds Even in the age of “superstar firms,” the logic of index investing holds.

New research details how a small number of companies - think Google, Amazon and Apple - have come to dominate their sectors, capturing a growing share of revenues and helping to create an economy featuring high corporate profits but a lower share of the pie for workers.

Economists David Autor, David Dorn, Lawrence Katz, Christina Patterson a n d J o h n Va n Reenen find that industries have become more concentrated and while what they call “superstar firms” pay well, they make extraordinary profits. The net impact across the economy, perhaps as other firms struggle to compete, is that workers’ share of GDP falls.

Commentators have concentrated on the economic, social and policy implications of superstar firms but the investment ones are also interesting, and not obvious.

While you might think that the trick to investing in an economy with a few winners and many also-rans is to identify the Amazons and buy them, this, of course, is much more easily done looking backward than looking forward.

One problem is that the research finds that the concentration rises in

Adam Minter a Bloomberg View columnist

margins which are a feature of a more highly concentrated economy. In other words, and sadly, the wise bet may not be on Amazon or Facebook, per se, but against labour.

While rising concentration and falling wages are new, it has long been a fact that the vast majority of the money made on the stock market comes via a tiny number of firms which skyrocket in value.

Hendrik Bessembinder of Arizona State University calculated in a recent study that just 86 stocks have, over 90 years, accounted for US$16 trillion in wealth creation, or about half the total of wealth created by the entire universe of companies over that period.

The other 26,000 or so stocks created the other US$16 trillion of wealth, but even that is a misleading guide to how well an individual stock might do. The top 1,000 stocks, or less than 4 per cent of all companies traded over 86 years, account for all wealth creation.

“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” Bessembinder wrote

”

Bloomberg View

James Saft a Reuters columnist

in a draft study updated in May. It is notable too that superstar firms have risen, and wages fallen, during a period with rising globalization and a political and regulatory backdrop which allowed it to happen. It may well be that Google, Amazon and Facebook face new political and regulatory roadblocks to maintaining their position. This certainly is already true in China.

So your choices boil down to these: 1 - Try to identify some of the 86 superstars in advance. Good luck with that.

2 - Buy stocks you think are among the 86 after they so prove and hope they hold their position. This strategy misses out on all of the gains these few superstar firms make before it dawns on you they’ve arrived. It also exposes you to huge risks that they are in turn supplanted.

3 - Buy a broad stock market index, including earlier-stage companies, and slowly build wealth by collecting the equity risk premium and allowing it to compound.

The logic of choice 3 should hold as the balance between profits and labour evolves. Reuters

16 Business Daily Wednesday, May 31 2017

Closing Tourism

Dragon Boat Festival holiday sees brisk tourist traffic in Mainland

Lusa

for some segments in Beijing and Shanghai, it added.

In Beijing alone, 1.6 million travellers visited 177 tourist attractions monitored by tourism authorities Tourism was buoyant for the Dragon Boat Festival holiday, with excursions to suburban areas being the on Monday, rising 3.4 per cent year on year, it said.

About 80 million people were expected to travel most popular choice for Chinese travellers, said the over the holiday, and the domestic tourism sector China National Tourism Administration (CNTA).

On Monday, the second day of the three-day holiday, could earn RMB33 billion in business income, the CNTA predicted last week in a report.

35.8 million trips were made by tourists, and the The cities of Xi’an, Chengdu, Suzhou and Guilin are domestic tourism sector raked in a combined the top destinations for domestic trips, with 44.1 per business revenue of RMB14.7 billion (about US$2.1 cent of surveyed Chinese to choose excursions to billion), the CNTA said Monday in a statement. suburban areas during the holiday, according to the Short trips were the most popular, while the traffic report. Xinhua on most expressways nationwide was good except

Transportation

‘Dinosaur’ Philippine jeepneys face uncertain future For those who grew up riding jeepneys, there is a lot of affection for the vehicles Ayee Macaraig

P

eter Dallos shouts above the rumble of his smoke-belching engine urging passengers to clamber quickly on to his dilapidated red jeepney.

Such scenes may soon disappear from Manila’s gridlocked streets as authorities move to phase out the Philippines’ iconic World War II-era minibuses, citing pollution and safety concerns.

Dubbed ‘jeepneys’ and once hailed as the ‘King of the Road’ they are a cultural symbol in the Phillipines to rival New York’s yellow taxis -- and for decades they provided cheap and regular transport for millions.

But under a government modernisation programme, vehicles of this type that are aged 15 years or older will be taken off the streets by 2020 and replaced with a more environment-friendly version.

Dallos, 55, slaps the steering wheel as his slipper-clad foot stomps on the gas while he hands over change that is passed down a row of squished passengers fanning themselves in the summer heat.

“This is like my wife. My

jeepney are I together every day. I know what ails it, what I need to do,” Dallos told AFP. “I’m angry because I will lose my job. I will be forced to go home to my province, become a bystander and starve,” he added.

The government admits the plan will be hard to implement, affecting a micro-industry of poor drivers and owners.

Dallos has been working 14 hours a day for 20 years to provide for his jobless wife, seven kids and three grandchildren who live in an upland farming province where he has no land to till.

He earns around 500 pesos (US$10) a day.

said Finance Secretary Carlos Dominguez.

The government vows to help owners sell old jeepneys and access loans to buy new models while requiring drivers to undergo safety training, though critics question the cost of this.

Authorities say commuters deserve a better alternative.

They are designing units with engines compliant with European emission standards or solar and electric vehicles with GPS and possibly a ride-hailing app.

But at eight pesos (16 cents) per journey, jeepneys are the sole affordable option for many.

“It’s the only and the most convenient way. I can’t ride a taxi because that’s super expensive,” medical student Maria Alcid said en route to school.

For low fares, passengers pay the price of bumping their heads on the ceiling, inching their buttocks into seats, and clinging to the roof while standing on the tiny step at the back.

And yet for those who grew up riding jeepneys, there is a lot of affection for the vehicles.

They are famed for their psychedelic designs featuring everything from Mickey Mouse to the Virgin Mary and in provinces even carry people, animals and crops on roofs.

“Look at my jeepney, its frame is about to fall off but people are still riding it,” says Dallos, caressing his rusting dashboard. He adds: “Is there any other choice?” AFP

Dirty, inefficient, loved

Taking inspiration from the American jeeps left behind after the war, the jeepney is a Filipino invention, where a roof has been added and inside there are two parallel benches.

They can carry more than 20 people at a time, but run on cheap diesel and are heavy polluters, while the drivers are notorious for violating traffic rules.

“Our inefficient dinosaur, the (jeepney), must now be relegated to the museum. It is dirty, inefficient, unhealthy,”

Confidence poll

Going public

Probe

Economic sentiment for Eurozone unexpectedly slips

OECD says IPO underwriting fees “akin to tacit collusion”

S. Korean President orders investigation into missile system delivery

Euro-area economic confidence fell for the first time this year, led by weaker readings in the services and retail sectors.

The decline in the index of executive and consumer sentiment, while unexpected, still leaves the measure close to its highest level in a decade.

It fell to 109.2 in May from 109.6 in April, which compares with the median estimate in a Bloomberg survey for an increase to 110.

The report will feed into the European Central Bank’s discussion next week in Tallinn, where policy makers will assess the health of the 19-nation economy. President Mario Draghi has urged patience in outlining an exit strategy from negative rates and a 2.3 trillion-euro (US$2.6 trillion) bond-buying program even as he told European lawmakers on Monday that the upswing is becoming increasingly solid and broad-based.

The decline in the confidence gauge marks the first modest stumble by the euro-area economy, which has shown continued signs of strength this year. IHS Markit, which publishes a monthly activity index, said last week that the economy is growing at a pace that would warrant tighter monetary policy if it wasn’t for weakening inflation. Bloomberg News

Investment banks’ high underwriting fees for raising fresh capital for companies are “akin to tacit collusion” and merit review by competition authorities, the OECD said yesterday.

The Paris-based Organisation for Economic Co-operation and Development said that underwriting fees were by far the largest direct cost for an initial public offering and were an often neglected explanation for a drop in overall IPO issuance numbers.

Not only were fees high, but the OECD said it saw signs of parallel pricing, when there is little divergence in prices between companies supposed to be competing.

“High levels of fees and parallel pricing (akin to tacit collusion) appear to have increased. This increases the cost of equity and works against long-term productive investment,” the OECD said in its annual Business and Finance Outlook.

It quoted data showing the median underwriting fee for IPOs in the United States is 7 per cent of total proceeds from the IPO and has risen to 8 per cent in Japan and China, doubling in the case of China within a couple of years.

At the same time, European issuers have consistently paid less, with IPO underwriting fees running around only 3 per cent. Reuters

South Korean President Moon Jae-in yesterday ordered a thorough investigation into the unauthorized delivery of four more mobile launchers of the U.S. missile shield to the country.

Yoon Young-chan, chief presidential press secretary, told a press briefing that President Moon said it was “very shocking” after he was briefed on the unauthorized transportation.

Top presidential security advisor Chung Eui-yong reported to Moon that four more THAAD mobile launchers were secretly transported to South Korea in addition to two launchers already installed.

Moon ordered the security advisor and the senior presidential secretary for civil affairs to thoroughly look into the secret delivery.

About two weeks before the May 9 presidential by-election, two mobile launchers and a radar for the U.S. Terminal High Altitude Area Defense (THAAD) missile interception system were transported in the middle of night to a golf course at Soseong-ri village in Seongju county, North Gyeongsang province.

THAAD is composed of six mobile launchers, 48 interceptors, a AN/TPY-2 radar and a fire and control unit.

The clandestine transportation raised speculation that it was aimed to politicize security issues during the election campaign period. Xinhua