Business Daily #1412 October 30, 2017

First LRT carriage arrives in the city TRANSPORT Page 16

Monday, October 30 2017 YEAR VI NR. 1412 MOP 6.00 PUBLISHER PAULO A. AZEVEDO CLOSING EDITOR OSCAR GUIJARRO AL

TRADE

Legislator criticizes industry stance on smoking ban Page 3

Macau Forum fuelled by local and central govt push Page 4

MERCHANDISE

MSAR trade maintains upward trend Page 16

www.macaubusiness.com EMPLOYMENT

RESULTS

Labour figures in the city remain stable Page 3

Wynn beats forecast thanks to Palace performance Page 2

WATCHING CAPITAL FLOWS OUTFLOWS

Closing the circle

On Friday, MSAR and HK authorities signed a deal pushing trade relations.

In the first stages it will be focused on just the service sector. The deal completes trade relations pacts between the Mainland, HK and the territory.

TRADE Page 2

IPIM chases MICE

Mainland keeps roaring

REFORM | The Macao Trade and Investment Promotion Institute (IPIM) will handle all activities related to the conventions and exhibitions sector (MICE). The exhibition events were previously under the Macao Economic Services department.

Optimization triggered the reform move. Page 2

INDUSTRIAL DATA | Chinese industrial profits increased the most since 2011, official figures showed on Friday.

Statistics bureau said profits increased 27.7 percent in September from a year earlier, compared to a 24 percent jump a month earlier. The Mainland engine continues to roar despite widespread warnings.

Page 8

Sights beyond borders INTERVIEW | Local haute couture brand Chavin Art & Costume Design is setting its sights well beyond the domestic market. Its co-founders Chantelle Cheang and Kelvin Mac discuss the challenges they have faced along the way and their plans for the future. Page 6 & 7

HK Hang Seng Index October 30, 2017

28,202.38 -100.51 (-0.36%) Worst Performers

China Mengniu Dairy Co Ltd

+2.59%

Link REIT

+0.91%

Geely Automobile Holdings

-2.14%

Hengan International Group

CK Asset Holdings Ltd

+1.40%

Bank of East Asia Ltd/The

+0.58%

Sands China Ltd

-1.99%

China Unicom Hong Kong

-1.06%

WH Group Ltd

+1.28%

AIA Group Ltd

+0.51%

Tencent Holdings Ltd

-1.42%

China Construction Bank

-1.02%

Want Want China Holdings

+1.28%

AAC Technologies Holdings

+0.44%

China Life Insurance Co Ltd

-1.38%

Bank of China Ltd

Lenovo Group Ltd

+1.10%

Hang Seng Bank Ltd

+0.37%

China Shenhua Energy Co

-1.38%

Galaxy Entertainment Group

19° 25° 21° 24° 20° 26° 21° 27° 22° 27°

-1.18%

-1.01% -0.94%

TODAY

Source: Bloomberg

Best Performers

TUE

WED

I SSN 2226-8294

THU

FRID

Source: AccuWeather

A recent report by the Monetary Authority of Macau highlights the need to keep constant surveillance to avoid financial trouble.

The report comes despite a good performance of the economy, but after a remarkable net outflow in the real estate sector. Page 4

2 Business Daily Monday, October 30 2017

MACAU COMMERCE

Closer together

A bilateral free commerce agreement was signed between the MSAR and Hong Kong on Friday, with both autonomous regions and mainland China all now being covered by free trade agreements

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HE Macau SAR and H o n g K o n g g o vernments signed a bilateral agreement for free commerce on Friday, which in its initial stages will only cover the service sector.

The Macau Economic Services (DSE) announced that the Closer Economic Partnership Arrangement Hong Kong-Macau (CEPA HK-Macau) will include the free movement of goods, the easing of customs and trade procedures and the opening-up of trade in services and cooperation in the field of intellectual property.

Under the CEPA HK-Macau, the neighbouring SAR of Hong Kong has vowed to open up 105 services to Macau, which will in return open up 72 services to Hong Kong, with the release not mentioning commercial trade.

The agreement was signed

The Secretary for Economy and Finance, Mr Leong Vai Tac, and the Financial Secretary of the Hong Kong SAR, Mr Paul Chan Mo-po, witness the signing ceremony of the Hong Kong SAR and Macao SAR Closer Economic Partnership Arrangement. Source: GCS

between both Secretaries for Economy and Finance of the MSAR and Hong Kong, Lionel Leong and Paul Chan Mo-po, after the 10th high level cooperation meeting between the two SAR’s, which was held in Hong Kong on Friday.

In the previous meeting held in June last year, both Secretaries signed the ‘main document’ for the CEPA

HK-Macau, which defined the regulations to be applied to the sectors of commercial trade, services, investment and intellectual property, with a promise that the agreement would be signed by the end of that year.

The trade triangle

The three CEPA agreements - between Hong Kong and

Macau; mainland China and Hong Kong; and mainland China and Macau - ‘will contribute to a better environment of free trade and for an active synergy effect’, the official announcement said.

Since the CEPA agreement between Macau and mainland China was signed in January of 2004, several amendments have been introduced

in order to increase the number of sectors, products and services covered.

From January 2004 until December 2016, the accumulated value of trade of exported goods exempt from custom taxes reached MOP764.44 million (US$95.11 million).

In regards to the services trade, during the same period, a total of 612 certifications for service providers in Macau were granted, with almost half being related to transport service providers.

CEPA was established with the aim of ‘promoting the prosperity and common development of the Mainland and the Special Administrative Regions and enhancing mutual economic and trade cooperation’ by establishing ‘a similar relationship to free trade partners in a country with two autonomous areas of customs’. LUSA

ORGANIZATIONAL CHANGES

MICE fully integrated into IPIM Macao Economic Services terminate activities related to conventions and exhibitions under its portfolio as well as the Department of Studies.

Activities related to the conventions and exhibitions sector, usually referred to as MICE, will be exclusively handled by the Macao Trade and Investment Promotion Institute (IPIM), and will no longer be under the purvey of the Macao Economic Services (DSE), the government announced in a press conference last Friday.

“These are two interrelated projects, [so this is] a way to optimize the functioning of such public entities,” explained the SAR Government spokesperson, Leung Hing Teng.

The proposal will entail the modification of both IPIM and DSE’s organic structure, with the MICE activities to be “centralized within IPIM”, said the institute’s President, Jackson Chang.

Moreover, IPIM will have a specific department dedicated to promoting trade with and products from Portuguese-speaking countries. The department will include two divisions: one for information dissemination and promotion, and another for economic and commercial activities.

“No doubt, in order to promote the initiative further, we need human resources and [will] hire more staff accordingly. But at the current stage,

Deposit guarantee

we would rather move our bilingual colleagues to the department,” said IPIM’s president.

In regards to the “reorganization” of DSE’s organic structure, two of the main changes proposed entail organizational changes, while two others consist of changing the designation of existing functions, according to information provided by Mr. Leung.

In addition to the removal of competencies linked to MICE development, and further integration into IPIM, the new regulation proposes the creation of the Department of External Trade and Economic Co-operation, through merging the department for the Management of External Trade and that of External Economic Relations,

A new law aimed at simplifying the calculation for compensation paid to depositors is also in the pipeline.

The law proposal to change the current deposit guarantee scheme aims at “reducing the data treatment of participants and depositor entities, speeding up payments,” said Mr. Leung.

The proposal stipulates changes in the criteria to be observed in the definition of compensation values, thereby considering the balance of deposit guarantees from depositors within the participating entity, in addition to related interests. Debts contracted by depositors with the participating entity won’t be considered.

Overall, the new regime would enable “increasing the effectiveness of compensation paid by the Fund of Deposit Guarantee and enhancing the guarantees granted to depositors’ rights and reasonable interests,” added the MSAR Government spokesperson.

Mr. Leung clarified that the payment coverage could reach up to 90 per cent, adding that the initial fund foreseen for the scheme is of some MOP150 million.

RESULTS

Wynn’s sales and profits beat forecasts CEO Steve Wynn also gave details on the new Las Vegas resort Wynn Resorts reported third-quarter sales and profit that beat analysts’ estimates on renewed gains in the Asian gambling enclave of Macau and growth in Las Vegas. Profit of US$1.52 a share, excluding some items, beat the US$1.45-ashare average of analysts’ estimates.

The company announced that EBITDA of its Macau properties went up 8 per cent quarter-to-quarter to US$322 million in the third quarter of this year, with both the VIP

and mass market revenues rising by 5 per cent quarterly.

The company stated that although Wynn Palace saw better EBITDA results than expected in the third quarter, going up 58 per cent quarter-to-quarter to US$138 million, the overall results were offset by the operator’s Macau Peninsula property EBITDA, which went down 13 per cent quarterly.

New resort

Casino magnate Steve Wynn gave new details about the

US$1.6 billion resort he is building in Las Vegas, including interactive rides and attractions designed to wow non-gamblers.

Paradise Park, as the project

EBITDA of Wynn properties in Macau up 8 per cent quarter-toquarter

is called, will feature LEDlit bumper cars that make crashing sounds and are chased around an oval by fake police officers. Participants who finish the course first will get prizes, Wynn said on an earnings call with investors last week.

Non-gambling attractions are a big source of growth for Las Vegas. Wynn Resorts on Thursday posted its best third quarter ever in Las Vegas, thanks in part to shows, shopping and other outside-of-the-casino

revenue sources, Wynn said.

Wynn first announced the new resort last year. It will be built on the site of a golf course the company owns.

The course will close in December, with construction of Paradise Park slated to begin on January 3. The property, which is located between the Las Vegas and Sands convention centres, will feature a 1,500-room hotel with suites overlooking the lake.

An opening date hasn’t been announced. WITH BLOOMBERG NEWS

Business Daily Monday, October 30 2017 3

MACAU AL

Ninth time not a charm for unions A proposal to legislate trade unions in the MSAR was refused by the Legislative Assembly for the ninth time

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HE MSAR Legislative Assembly (pictured) rejected for the ninth time a union law proposal, despite complaints from several legislators relating to the government’s delay in legislating a right that is included in the Basic Law. The Macau Basic Law states in its 27th article that local residents enjoy the “freedom to organise and participate in union and strike associations,” however this right has never been regulated.

Since the handover to the Mainland in 1999, luso-descendent legislator José Pereira Coutinho has made several proposals regarding this issue, as have some representatives of workers associations.

As on previous occasions, the AL did not approve the bill, with exactly the same number of votes as the last two proposals on the subject: of the 33 members of the AL, 12 voted in favour and 15 against.

Although the majority voted against the proposal, it was legislators who supported the idea that most asked to speak.

“This right is included in the Basic Law. If we can’t produce a Trade Union Law, what are the consequences? […] Due to the lack of a Trade Union

Law, we are avoiding certain matters, namely collective bargaining,” lamented Ella Lei Cheng I. Sulu Sou, from the pro-democratic camp, recalled that this is a matter on which international organisations have been putting pressure on Macau, with the government “pushing away

the responsibility” saying there is “no consensus in society” on the issue.

“Why is the business sector so afraid? The Trade Union Law is not an instrument to be used by the labour force to generate conflicts, to threaten the boss, it is to promote an opportunity for conversation

between both sides,” he said.

At the end of last year, the government announced the launch of a public tender to award a study on the conditions for the regulation of a Trade Union Law, with the study expected to only be completed by the middle of 2018.

AL

JOBS

Getting around the law

Stable stats

Legislator and former casino dealer, Leong Sun Iok, has criticised casinos for trying to get around the requirements of the smoking law, and has requested the government to appoint permanent inspectors in gaming areas

The unemployment rate for the total MSAR labour force of 388,900 remained stable at 2.0 per cent in the JulySeptember period, with average monthly earnings in the third quarter of this year also remaining stable at MOP15,000

Newly elected legislator, Leong Sun Iok, from the Macau Federation of Trade Unions requested the government on Friday to appoint permanent inspectors in casinos to prevent infringements of the smoking law.

During the AL interpellation period, legislator Leong criticised Macau casinos, stating that the properties do everything possible to get around the smoking law enforced in 2012, with the law having gradually expanded.

The former croupier added that since smoking lounges were created in 2014, casinos have “found many methods to go around the law […] and allow customers to smoke”.

The new AL member gave as an example of misconduct, cases in which the necessary signs are not affixed in areas where smoking is not allowed, smoking areas that have been altered, as well as cases where casinos have “deceived customers”, stating that it was permissible to smoke in non-smoking areas, and even prevented their workers from telling customers that smoking was prohibited in those areas”.

“Casinos violate the law at will, and the workers can no longer tolerate it,” he criticized.

24/7 smoke control

Leong said that “tobacco control in casinos has not achieved satisfactory results” and regretted that smoking rooms continue to be allowed,

contrary to what had previously been announced by the government, which intended to ban tobacco entirely in these spaces.

To counter “the risks of smoking” for casino workers, he suggested that the government should “simplify law enforcement procedures by inspectors” and “mobilize them to stay in casinos 24 hours a day”.

The Tobacco Prevention and Control Law was enforced in 2012, being expanded to cover bars, dance halls, saunas and massage establishments in 2015.

Casinos were covered from January 1 of 2013, but only partially, since the six gaming operators were allowed to create specific smoking areas, which could not be more than 50 per cent of the total area for the public.

In October 2014, ‘smoking areas’ were replaced by closed smoking lounges with a negative pressure system and independent ventilation, with smoking being prohibited in the mass gaming areas of the casinos and permitted only in some areas of VIP rooms.

In the summer of 2015, a bill was widely passed totally prohibiting smoking in casinos, but the government backed down on the initial promise of ‘zero tolerance’.

The general unemployment rate and the unemployment rate for local residents between July and September both remained stable at 2.0 per cent and 2.7 per cent, respectively, recent data from the Statistics and Census Service (DSEC) revealed.

In the same period, the total labour force reached 388,900 - 0.8 per cent less than in the June and August period - with the participation rate remaining at 71 per cent.

The number of employed residents went down by 2,600 to 281,200 in July and September, with the participation rate of the resident labour force going down 0.6 percentage points to 65.1 per cent.

The number of unemployed people in Macau decreased by 200 to 7,700 in July and September, with fresh labour force entrants searching for their first job accounting for 14.8 per cent of the total unemployment numbers.

The Recreational, Cultural, Gaming & Other Services sector remained the largest employer in the MSAR during July and September, with

24.6 per cent of the total labour force being employed in the sector, followed by Hotels, Restaurants & Similar Activities with 14.4 per cent.

The number of people employed by Gaming & Junket Activities went down slightly by 0.2 per cent, to reach around 80,900 people in the July-September period.

Lucky residents

Average monthly employment earnings in the third quarter of this year remained stable as in the previous quarter, at MOP15,000 (US$1,866), with those engaged in Gaming & Junket Activities and Construction earning an average of MOP19,300 and MOP15,000, respectively.

However the average earnings of employed residents increased by MOP1,000 q u a r t e r-t o - q u a r t e r t o MOP19,000.

4 Business Daily Monday, October 30 2017

MACAU OPINION

ECONOMY

Sheyla Zandonai*

Multicultural practice Speaking during an event at the Macao Trade and Investment Fair (MIF) last week, Frederick Ma Chi Ngai, Permanent President of the Macao Youth Association and Vice President of China Youth Entrepreneurs Association, said that “multiculturalism” is in Macau’s DNA. Multiculturalism is a big word, which actually entails a policy-oriented framework, designed to integrate immigrants within a given society.

While we can claim Macau is multicultural by social practice, historically and presently, it is different to claim it is by political design.

Recent political episodes, such as the ones linked to public transportation proposals to separate resident from non-resident users, suggest policy is not drawing on multicultural values.

Rather, the contrary.

A more compelling case is the blue card system, which is built in a way so as to exclude immigrants from the social security system, for instance, based on the fact that they don’t have the ‘right’ passport.

Accordingly, several jobs and positions are reserved for Macau residents in the government and academic institutions. On the other hand, the private sector is leading a silent battle against the bureaucratic hurdles to recruit foreign labour, which affects big corporations and SMEs alike.

Some of the operating criteria for excluding foreigners from rights of residency are tacit, belonging to unaccountable decision-making, which leaves room for discretionary decisions.

Rules of the game, so to speak.

But that wouldn’t have to be an issue if the trade-off allowed for integration to happen in other domains of life. For integration is not only a matter of papers. It overlaps with cultural and social policies as well as the very experience of the city.

It ranges from creating language policies and juridical and medical assistance, to job placement and employment information, designed to accommodate immigrants to the needs of society and vice-versa, so that all can live in a ‘harmonious’ society, lest we miss the focal point here: locals and foreigners are human beings.

Multiculturalism is not a formula for flawless coexistence, but it is the best option at hand if we consider that cultural diversity in a city like Macau is historically binding and currently unavoidable.

In popular parlance, if you cannot beat them, join them – if only for the sake of peaceful cohabitation.

Monetary Authority of Macau headquarters

Strengthened against shocks ‘Individual economic sectors’ of the MSAR will need to be kept under ‘continuous close surveillance’ as well has having ‘enhanced prudence in supervisory management, in order to prevent unexpected economic turbulence,’ according to a report published by the Monetary Authority of Macau

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HE report comes at a time when the MSAR has recorded ‘economic recovery’, notably demonstrated through the return of year-on-year increases in gross gaming revenues, contributing to an overall increase in the city’s direct tax on gaming.

Meanwhile, the city’s other sectors have seen a ‘reversal of external capital flows or large variations in foreign assets’.

During the first quarter of this year, the net outflow of foreign direct investment in the local real estate sector ‘persisted’, notes the authority.

The report finds that ‘the net amount of Macau properties disposed by non-residents totalled MOP5.4 billion in the first half-year of 2017, compared to a disposal of MOP2.2 billion in the same period last year’. In addition, ‘non-residents’ purchases from Macau residents were MOP1.2 billion, but

their sales to Macau residents recorded a much larger amount of MOP6.2 billion in the first half of 2017’.

Trying to find a balance

‘The Macau economy is highly open, export-oriented and lacks an established capital market for domestic fund placements,’ notes the AMCM, pointing out that for local residents ‘investment in securities issued abroad and traded in overseas stock markets has inevitably become one of the major channels for applications of [their] surplus fund.’

However, there was a decrease registered between 2015 and 2016 as ‘decreases in external securities investment of the public sector, including the Macau SAR’s provisional portfolio,’ resulted in ‘the non-bank sector account[ing] for MOP7.3 billion of total portfolio investment outflows in 2016, whereas the banking sector represented the rest of MOP28.4 billion of total portfolio investment outflows’.

In the first half of 2017, the net foreign assets held in Macau’s banks rose

by MOP32.7 billion, period-to-period. This was on the back of portfolio investment rising by MOP19.7 billion, and loans, currency and deposits increasing by MOP55.6 billion, ‘due to an increase of MOP9.3 billion in non-resident deposits as well as the notable expansion of MOP64.8 billion in non-resident loans in the local banking system,’ notes the report.

Regarding the MSAR’s non-banking sectors, ‘there was a net capital inflow of MOP13.9 billion from external banks,’ as compared to net capital inflow of MOP300 million in the first half of 2016.

In total, ‘As Macau’s private and public sectors have maintained sufficient positions of net foreign assets, the SAR will continue to be a net capital exporter to the rest of the world, which strengthens its ability to withstand external shocks under extreme risk events,’ states the authority.

CO-OPERATION

Forum Macao’s outreach strategy Simultaneous support from the local and the central government are key for the commercial service platform between China and Portuguese-speaking countries to grow, says co-ordinator

The Macau SAR Government has strengthened the service reach of the Forum for Economic and Trade Co-operation between China and Portuguese-speaking countries (Macau), or Forum Macao, by implementing many areas and services to support the platform, while the central government is consolidating mechanisms framing the co-operation initiatives, according to Eco Chan, Co-ordinator of the Supporting Office to the Permanent Secretariat of the Forum.

Speaking to Business Daily on Friday on the sidelines of the closing ceremony of the 4th Symposium about Tourism, Conventions, and Exhibitions, organized by the Training Centre of the Forum, the co-ordinator pointed out that these two sectors “are very strong” in Macau and that “there is a lot of expertise and experience to share.”

Ms. Chan claimed further that “interest and the necessity to come to

Macau and share the experience” has increased since the first symposium was organized four years ago.

This year, a total of 30 participants from the eight Portuguese-speaking countries attended the symposium from October 16 to 29.

“All [participants are] from very high, and middle-high management positions in the different government or institutions in these two areas,” explained Ms. Chan.

Macau acting as a platform for facilitating this type of initiative is a “major mechanism” deployed to “enlarge exchange” between China and Portuguese-speaking countries, highlighted Echo Chan.

The co-ordinator recalled that other mechanisms currently implemented by the central government to improve the Macau SAR’s role in that regard consist of the ministerial conferences, organized every three years, when ministries from China and Portuguese-speaking countries launch and approve action plans for the next three years, drawing on

several areas of co-operation.

“From the very beginning, we had only seven, but now we have 20 areas, including investment, trade, health, and education, tourism as well,” she recalled.

Although the Forum’s action plans are open to up to 20 areas, Ms. Chan clarified that resources and strategies are allocated “according to the country and also according to China’s Macau platform-building strategy.”

In addition to the proper platform, several departments of the MSAR Government are collaborating in the development of the Forum in “teamwork” mode, Ms. Chan explained.

These will include mainly, but not exclusively, departments overseeing matters related to customs, culture, education, tourism, trade, and investment, and economy, young entrepreneurs, education for the different levels, and language training, according to Ms. Chan.

Dr. Xu Yingzhen is the current Secretary-General of the Permanent Secretariat of the Forum.

From Macau News Agency Immediate information!

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6 Business Daily Monday, October 30 2017

MACAU START-UP | INTERVIEW

A world of fashion Co-founders of a start-up specializing in haute couture in the MSAR, Chantelle Cheang and Kelvin Mac, of Chavin Art & Costume Design, reveal plans for their brand to expand beyond the city, and discuss their overall views of starting up a business in the city

W

HAT is your background in fashion?

CC: We have mainly done haute couture and some dress renting too.

I myself started designing fashion pieces for clients in 2013. Most of these pieces were costumes for performances on stage and in movies.

We have spent two years, since 2015, to officially launch the brand to work on this, using this time to create our own showroom as well as a team. The showroom was only launched during the early period of this year, and we created a workshop space in mainland China. I myself mainly do the design, Kelvin also does a bit himself, but he focuses more on marketing.

Although our team is not a big one, the production line for our products is well equipped. We have one fashion line specialising in embroidery and we have our own qualified workers to do the embroidery, so the quality is guaranteed. The production will be carried out on the Mainland, and the shop will be in Macau.

How is your customer base?

CC: We took part in the Hong Kong Fashion Week earlier during summer, and it led us to some new ideas and directions. We are thinking of setting up another line selling pieces abroad because there were several interested buyers asking whether we ship our pieces to other places.

Initially, our sales were focused locally, but we are planning to expand our sales to the Mainland or other regions outside of Macau.

Previously, the majority of my clients were casinos or hotels, like Suncity had asked me to design their uniforms. There are also clients asking me to design their wedding dresses.

How is an order placed?

CC: Usually we have two groups of clients. We have some colleagues that contact clients and clients examine our samples and try on some of the actual pieces, because not all of them will meet me to discuss design or want me to design for them. But they could ask us to make some slight changes to the piece.

The other group would be those who really want to meet me and talk about a special design for them. Clients must pay the reservation in advance so I can commence the design, and the reservation would usually be half of the total price.

Clients who come over to our showroom are served tea and cakes. We provide a service with a comfortable environment in order to allow better communication between clients and the designer.

What were some of the difficulties or challenges you encountered when starting up your business?

CC: We had huge challenges when we set up this business. First off, we had difficulty finding workers. We have a stable team in the Mainland, but it’s really difficult for us to find a suitable person for the showroom in Macau.

We want someone who knows sales and fashion marketing, since both of us are fashion-design graduates so we have limited ideas for marketing. We need someone who knows fashion marketing because we wish for this person to help us

promote our brand outside the city.

We only got to know many of the fashion buyers when we took part in the Hong Kong Fashion Week. So we might need to set up a lot of meetings and handle deals with potential buyers. Within the fashion industry, notable fashion online stores have their own buyers to outsource brands around the world that they think are suitable and sell on their websites, and we very much hope to have more contact with these buyers.

Another difficulty would be the distribution of capital. Production costs for our products are high; for instance, the cost of the cloth that we use for our dresses and working time for workers. We have been putting a lot of effort into sorting out the time and costs.

Also, one thing is that the market in Macau is too small. In Macau, there is only a minority of people who would need tailor-made high-end dresses to attend a party or ball. As such, I’m now figuring out how to make my designs more accessible. For instance, I could design a piece for the upper body that could be suitable for both special occasions when the client wears a dress, while the same piece could also be fitted for casual occasions when the client wears a pair of jeans. We wish to gain a balance between pieces that could be worn on all sorts of occasions.

KM: Since all of our products are designed by us, unlike operations run by a normal boutique, we have a lot to consider, from the design to the promotion of our products.

CC: Aside from that, there is not a big textile market in Macau and many of the times we need to outsource our materials from the Mainland or Hong Kong.

How many people are there in the workshop?

CC: Now we have five workers in the workshop in Zhuhai.

Why did you decide to start this business?

“The environment in Macau and the MSAR Government are the hindrances for start-ups, hindrances for people who want to make money out of their own business. Macau is not a suitable place for start-ups” – Kelvin Mac

“It gives me this impression that people outside of Macau are more interested in our products than people in Macau” – Chantelle Cheang

CC: I just wanted to do something that no one was doing, and in Macau there isn’t really anyone in this field.

Also, my mum used to work in clothing manufacturing, and I have been interested in design since I was a kid.

If someone had already done something similar, we wouldn’t have done it.

What approaches do you take for your business?

CC: We are planning to make another line that allows clients to buy completed pieces with different sizes.

KM: The market in Macau will be focusing on tailor-made pieces, but the market outside of Macau involves marketing, which would bring a brand from Macau to outside the city. We mentioned that we need someone who is familiar with fashion marketing, and that person has to know first- second- or even third-tier fashion brands in the world, to see which of these brands we can cooperate with.

What is the price range for your pieces?

KM: Since our products are tailor-made, our average price would be MOP3,000 to MOP8,000.

Obviously, we also create pieces such as customised wedding dresses, which could cost over MOP10,000.

Have you considered promoting a more casual line in the MSAR? CC: Definitely. Even pieces for banquets are more casual nowadays.

[We’re pursuing this option] because the evening gowns that we made before are expensive and they wouldn’t wear them when out for casual occasions or a second or third time at special occasions, because people would recognise the dress.

So we thought about creating something which could work at all times.

In the beginning, the business saw more rentals than tailored dress-making.

Business Daily Monday, October 30 2017 7

MACAU Also, clients tend to be worried when I show only my sketch of the design.

Despite our products becoming more market-oriented, I still do some personal creations in series for fashion shows. But after fashion shows, I ponder how to make my pieces more accessible to the majority of clients.

What’s your view of the fashion industry in Macau?

KM: The market in Macau is too small.

I personally think that our design is not bad and we would like to go out to the world to test our capabilities.

Going out is a long-term target and we are building that currently.

We came across a lot of different buyers at the Hong Kong Fashion Week, some of them from places like Italy and who worked in the field for over 20 years. We got comments from them that our designs have potential.

From the event we got the chance to exchange experiences and ideas, apart from making business.

And it was at this event that we got to know that our products have potential, which further enhances our goal to continue our business.

CC: There is no opportunity to develop this field in Macau. In Macau, we can only do tailor-made dresses.

For pieces that have different sizes we would not choose to sell them in Macau, because the demand is small.

Have you ever thought of creating your own market in the city?

CC: Initially we were thinking of creating this market in the city. But we realised that our market is outside of the city after taking part in Hong Kong Fashion Week. It gives me this impression that people outside of Macau are more interested in our products than people in Macau.

Do you have any concerns about competition with designers outside of the MSAR? KM: I don’t worry about competition.

I would say that in Macau you have limited demand in terms of fashion, but there are different demands outside the city.

CC: It would be more a consideration of quality. Of course it is very important to have the quality of our products up to the standards of big brands.

Do you receive any government support?

“The government is well aware of their problems, so they roll out a wide range of funding. The government knows people can’t continue businesses if they have no assistance” – Kelvin Mac

“In Macau, there is only a minority of people who would need tailormade highend dresses to attend a party or ball.

As such, I’m now figuring out how to make my designs more accessible” – Chantelle Cheang

CC: I personally applied and received funding from the design funding scheme for three years. The scheme is run by the Cultural Affairs Bureau.

I would say it helps me and our brand a lot. Prior to the launch of our brand, the scheme allowed me to produce one series, with at least eight to ten pieces, and the series provided exposure for my design. The scheme did have some significant impact on the launch of my own brand.

KM: Regarding the cultural funding, we will apply for that. Honestly speaking, people normally apply for the funding and only start creating after they receive the money, but we began creating before we received the funding.

We have applied for the loan for SMEs [small and medium sized enterprises], but we didn’t ask for help under the purpose of developing a cultural business.

What is your opinion on the government’s efforts to provide a better environment for the growth of the fashion industry?

KM: I can see the government is attempting to develop this field, but our approach is to do our own business first and only if it’s suitable then we would approach them for help; the government’s support is additional for us. We would not refuse the support but our aim is to promote the Macau brand to the rest of the world.

What is your short-term plan?

KM: I think it would be the business in Macau. Initially we didn’t put a lot of effort into promoting our brand. Since we only launched our brand after Chinese New Year of this year, people only found out about us through word of month or discovered us on their own. Now we would like to let more people to know about our brand.

CC: That would be our really shortterm goal, but the final goal would be to go out of the city. In addition, we would like to attend more Fashion Week events around the world. We made a five-year-plan a few years ago, and we are moving towards the goal step-by-step.

We had planned to open our showroom within two years and we did it. Now we are going to expand our brand to the rest of the country in three years time because the market in the Mainland is huge. We might not aim to open our own showroom

in the Mainland because it will cost a lot. Probably we could start by putting our designs in others’ shops and selling them.

What advice would you give to those who also want to build up their own businesses?

KM: Honestly speaking, the environment in Macau and the MSAR Government are the hindrances for start-ups, hindrances for people who want to make money out of their own business. Macau is not a suitable place for start-ups.

For myself, it is not the first time to start my own business. I have been running my own businesses for decades and I’ve learned a lot from that.

First of all, inevitably the size of a region’s population affects the market a lot. Second, the government’s policies [are a large deterrent]. It is alright for the fashion industry, but any businesses that require a license are a different case. If anyone does not end up closing and successfully obtains their licenses, I would congratulate them.

For example, the license requirement for playgrounds in industrial buildings. A couple of my friends who are currently working in the government themselves said that the government is always very slow in its procedures. So if you are waiting for the approval of a license in order to operate your business, you will have to provide all the documents they require, otherwise they seize the stores. When asking the government when the license will be approved, they always say ‘we don’t know because we have a lot of documents to deal with,’ while also telling us we can first pay a half-year rental for the shop, but we still can not operate until the license is issued.

The government is well aware of their problems, so they roll out a wide range of funding. The government knows people can’t continue businesses if they have no assistance.

Thirdly, the gaming operators are the biggest enemies of SMEs. Regardless of the market and obtaining resources, in particular human resources, we always compete with the gaming operators. That is the abnormality of Macau.

Although it is a fact, we still put all our best into our business.

My advice for young people who want to start their own business is not to start the business in Macau.

8 Business Daily Monday, October 30 2017

GREATER CHINA CHINA RESTRUCTURE

Industrial profits surge most in nearly six years

A breakdown of the profit data showed heavy industry continued to reap most of the benefits from the building boom Lusha Zhang and Sue-Lin Wong

P

ROFITS for China’s industrial powerhouses surged the most in nearly six years in September as a government crackdown on air pollution sparked fears of winter supply shortages and sent prices of finished goods like steel and copper sharply higher.

Sustained earnings growth will give China’s policymakers more room to restructure bloated and often inefficient state-owned enterprises, which dominate the industrial landscape and account for a hefty portion of the country’s corporate debt.

Industrial profits in September rose 27.7 per cent from a year earlier to RMB662.18 billion (US$99.46 billion), accelerating from a 24 per cent jump in August, the National Bureau of Statistics (NBS) said on its website on Friday.

That was the sharpest monthly gain since December 2011, when profits leapt 31.5 per cent.

The NBS attributed the September surge to stronger growth in production and sales and higher prices for manufactured goods, as well as a pick-up in earnings in sectors such as electricity, alcohol and electronics.

“We predict the industrial sector will remain on a steady, improving trajectory in the fourth quarter,” Zheng Lixin, a spokesman for the industry ministry, told a media briefing.

For the first nine months of the year, the firms notched up profits of 5.58 trillion yuan, a 22.8 per cent jump from the same period last year and up a touch from January-August.

Industrial firms’ liabilities increased 6.7 per cent in September on-year, compared with a rise of 6.4 per cent in the first eight months of the year.

While a year-long construction boom

is starting to show signs of fatigue, still robust industrial earnings will be good news for the country’s leaders who gathered for a key Communist Party Congress over the past week to set political and economic priorities for the next five years.

President Xi Jinping opened the gathering stressing the need to move from high-speed to high-quality growth.

While reiterating a commitment to give market forces freer rein in the world’s second-largest economy, Xi also said the government would strengthen the role of state firms, raising questions about whether Beijing will pursue painful reforms in the sector which some analysts say are long overdue.

Prices key to profit outlook

Market watchers had expected solid September earnings after producer prices rose by a higher-than-forecast 6.9 per cent on-year, boosted by strong demand for building materials.

Most analysts have maintained those price gains and industrial profits would start to moderate in coming months as measures to cool China’s heated housing market and a government crackdown on riskier lending starts to bite.

But commodity prices got a fresh leg up in recent weeks as the government pressed ahead with efforts to reduce

notorious winter smog, urging major northern industrial cities to slash steel output ahead of the official winter heating season.

That has spurred fears of shortages and pushed up steel prices, but is having the opposite effect on steel making raw materials such as iron ore and coking coal, which are sliding on worries about a supply glut.

China’s steel output dropped in September from a record high in August as mills cut production in line with Beijing’s campaign for clearer skies.

Key Points Sept profits grow 27.7 per cent y/y, up from 24 pct in August Highest single month increase since Dec 2011 Statistics bureau cites strong sales growth Industrial sector will continue to improve - gov’t official Winter pollution crackdown clouding near-term outlook

Beijing was already in the midst of a multi-year campaign to shutter older, inefficient plants and reduce profit-draining industrial overcapacity, though many analysts say they are merely being replaced with newer, cleaner factories and the country’s excess capacity issue have not been fully addressed.

Aluminum Corp of China Ltd announced a plan on Thursday to bring up to 16 billion yuan of investment into some subsidiaries after posting a more than 10-fold rise in nine-month profit. Chalco is the listed arm of China’s biggest state-run aluminium firm, Chinalco.

“Man of steel”

A breakdown of the profit data showed heavy industry continued to reap most of the benefits from the building boom, which is also being driven by heavy government infrastructure spending.

Mining industry profits surged 473.8

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MOODY’S

COMMODITIES

Focus on quality of growth to be positive for its ratings

Beijing cuts mini for first time in o

China’s focus on the quality of its growth rather than on the pace of its expansion will boost productivity and reduce financial vulnerability, developments that would be positive for the country’s ratings, Moody’s Investors Service said

The cut is not expected to imme with a lower price widely antici

China said last week that it will not set a goal of doubling its gross domestic product starting in 2021 so it can focus more on higher-quality, long-term growth, in a break from past practice.

The world’s second-largest economy is already on course to reach its target of doubling GDP by 2020 from 2010. But the pursuit of rapid growth has led to soaring corporate and local government debt, regional economic disparities and a host of environmental problems.

“China (A1 stable) will likely reach its target of doubling per capita income by 2020 from the level in 2010,” said Lillian Li, a senior analyst at Moody’s.

“The government, therefore, has more policy space to achieve its other goals, such as the sustainability of growth and the reduction of economic inequalities across Chinese society.”

In a report released on Friday, Moody’s said further consolidation of power under President Xi Jinping, following the conclusion of the 19th Communist Party congress this week, could advance economic reform and rebalancing.

One obstacle to reform has been the misalignment of incentives between the central leadership and other officials, Moody’s said.

But the ratings agency, which cut China’s sovereign rating in May for the first time in nearly 30 years, said it remains unclear whether the increased centralisation of authority will led to an acceleration of reform or a continuation of the careful balancing of policy objectives in recent years.

That said, a stronger policy focus on financial regulation should continue to rein in shadow banking, help mitigate asset risks for banks and address some key imbalances in the financial system, Moody’s said.

Chinese regulators have also committed to maintaining financial stability through greater coordination of monetary policy, including measures for liquidity management, with the macro prudential assessment framework.

All these factors will be credit-positive for China’s banking sector, Moody’s said.

Other policy announcements suggest that reforms will continue to proceed cautiously and without challenging the dominant role of state-owned enterprises in strategic industrial sectors, Moody’s said. REUTERS

Dominique Patton

China, the world’s top wheat producer, has cut its minimum purchase price for the grain for 2018 to help whittle its mammoth stockpiles and adjust to the market, the first such move since the policy was launched over a decade ago.

The government has cut the 2018 price to RMB2,300 (US$346) per tonne, down 2.5 per cent from this year, the National Development and Reform Commission said on its website on Friday.

The new price takes into account “grain production costs, market supply and demand, domestic and foreign market prices and industry development”, the state planner said.

The government buys wheat from farmers at the minimum price when the market price drops below that level.

But the policy has led to growing state stocks of the grain, even as China continues to import some types of wheat.

The government has abandoned similar programmes for cotton and corn in recent years in a bid to align output better with global prices and demand. State wheat stockpiles account

for S tim wh to t abo A doc mu to b

Business Daily Monday, October 30 2017 9

GREATER CHINA M&A

HNA in talks to buy e-commerce firm Dangdang

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IN BRIEF

China’s HNA Group Co Ltd is in talks to buy a controlling stake in E-commerce China Dangdang Inc in a deal that could value the online marketplace at over US$1 billion, two people with direct knowledge of the matter told Reuters Kane Wu and Julie Zhu

D per cent in January-September onyear, and manufacturing profits rose 19.6 per cent.

Earnings in the mining industry soared 5.9 times last month from a year earlier, but sectors such as electricity, gas and water production saw their profits fall 18.3 per cent.

China’s economy has surprised analysts with robust growth so far this year, with the rebound in its industrial sector contributing to a reflationary pulse that has boosted manufacturing worldwide.

Though GDP growth slowed slightly to 6.8 per cent in the third quarter, senior officials said last week that the economy is still on track to meet the official growth target of around 6.5 per cent for the full year, despite the punishing war on pollution.

Economists polled by Reuters expect the economy will grow 6.8 per cent this year, before slowing to 6.4 per cent in 2018. REUTERS

ANGDANG, an Amazon Inc rival in China, is also in talks with other potential investors, said the people, who declined to be identified as the matter was private.

Dangdang told Reuters it has been approached by investors and has not accepted any offer. It said, without elaborating, that other details of talks with suitors were inaccurate. HNA declined to comment.

The development comes after US$50 billion worth of deal-making over the past two years sparked public scrutiny of HNA’s opaque ownership and use of leverage, prompting the conglomerate to slow the pace of acquisitions in recent months.

The buying spree has brought HNA business interests as varied as aviation, logistics, hospitality and financial services. The Dangdang talks come as HNA looks to build e-commerce platforms.

The latest deal is likely to value Beijing-based Dangdang at RMB8 billion to RMB10 billion (US$1.2 billion to US$1.5 billion), the people said. Financial terms are not yet finalised and the talks could still collapse, they said.

HNA aims to own slightly more than 90 per cent, one of the people said.

The acquisition, if successful, would give HNA access to a major local e-commerce platform that evolved from a leading bookseller to a marketplace of over 14,000 stores selling goods as varied as DVDs, cosmetics, clothes and furniture.

China is the world’s largest e-commerce market. Online retail as a percentage of total retail has grown steadily in the last few years, with Alibaba Group Holding Ltd and JD.com Inc leading the segment.

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for about half the world’s inventory.

Shanghai JC Intelligence Co Ltd estimates there are 74 million tonnes of wheat in state reserves. That compares to the nation’s annual consumption of about 100 million tonnes.

As early as February, a key policy document had warned that the minimum purchase price for wheat needed to be “appropriately adjusted”.

Key Points Govt cuts floor price for wheat for first time since 2004 Price down 2.5 pct from last year Govt battling to reduce huge stockpiles

China is stepping up its oversight of cash loans offered through the internet amid growing concerns over rapid growth in the lightly regulated industry, a business media report said on Saturday.

Caixin, in a report on its website, quoted Ji Zhihong of the central bank’s financial markets department as saying it has developed with other authorities a special regulation for controlling online financial risk. According to Caixin, Ji told a seminar the regulation has already achieved some success. Caixin also quoted Ji as saying China will improve regulations for all online financing businesses.

North China air quality shows no improvement HNA plans to buy the majority of Dangdang from management, mainly Chairwoman Peggy Yu and Chief Executive Officer Li Guoqing, who founded the firm in 1999, the people said.

Dangdang was taken private for US$556 million last year, having debuted on the New York Stock Exchange in 2010.

HNA is also scouting for co-investors for the deal, said one of the people.

HNA and other Chinese conglomerates have come under scrutiny due to the billions of dollars spent on marquee real estate properties and global brands, with the government concerned about the impact of capital outflows on the value of the yuan.

HNA has nevertheless completed a number of long-stalled overseas acquisitions in recent weeks. It is set to complete the US$1 billion acquisition of Singapore-listed logistics firm CWT Ltd this week.

The conglomerate also obtained Ministry of Commerce approval this month for the US$775 million purchase of 51 per cent of the oil products and logistics business of Glencore PLC. REUTERS

o immediately impact the market, y anticipated, said Fan Jingya, analyst at Cofco Futures

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Central bank boosting oversight of loans offered on the internet

ENVIRONMENT

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CREDIT

Since then, officials have reiterated the need to adjust the price.

The move is a step towards bringing domestic prices more inline with the international market, and could ease some of the tensions with the United States over Beijing’s subsidies, which Washington says break international trade rules.

The United States has launched a challenge to China’s price supports for wheat, corn and rice at the World Trade Organization.

China says its agricultural support policies are consistent with WTO regulations and international practice.

The cut is not expected to immediately impact the market, with a lower price widely anticipated, said Fan Jingya, analyst at Cofco Futures.

She added that most winter wheat has already been planted so a lower price will not affect planting decisions until next year. China produced 127.35 million tonnes of wheat this year, up almost 1 per cent on 2016.

The ex-warehouse price for wheat in top wheat province Henan is currently at RMB2,520 per tonne, more than double the most active wheat contract on the Chicago Board of Trade. REUTER

Air quality in the Chinese capital and neighbouring regions showed no improvement in September compared with last year, data from the Ministry of Environmental Protection (MEP) showed on Saturday, despite a major campaign to fight pollution. The results will keep up pressure on Beijing, which has promised to show significant progress in cleaning up its filthy air by the end of this year. Of 74 cities monitored by the MEP, Beijing, Tianjin, Zhengzhou in Henan, Taiyuan in Shanxi and six cities in Hebei province, including the steel producing city of Tangshan, were China’s most polluted cities last month.

DUTIES

U.S. finds Mainland dumped aluminum foil on U.S. market The U.S. Commerce Department said on Friday it made a preliminary finding that China dumped aluminium foil on the U.S. market and imposed duties ranging from 97 per cent to 162 per cent. In 2016, U.S. aluminium foil imports from China were valued at US$389 million, it said in a statement. The department said it will issue its final determination on Feb. 23, 2018.

The decision was a victory for U.S. aluminium foil makers who filed a complaint with the department accusing Chinese producers of dumping foil into the U.S. market. In August, the department placed preliminary anti-subsidy duties of about 17 per cent to 81 per cent.

CONTRACTS

National firms in talks to bid in Brazil’s grain rail auction A group of state-owned Chinese firms plan to form a consortium to bid in an auction for the right to build and operate a railroad known as Ferrogrão, Brazil’s secretary for the government’s public-private partnerships program, Adalberto Vasconcelos, said on Friday. With 1,100 kilometres, Ferrogrão will connect grain producing regions in Brazil’s centre-west to the port of Miritituba, in the northern Pará state. The railroad is expected to be an alternative to BR-163 road, currently the only way to take grains from central Brazil to northern ports. The project is estimated to demand 12.6 billion reais (US$3.89 billion) in investments.

10 Business Daily Monday, October 30 2017

GREATER CHINA OFFICIAL TRIP

Energy, not tech or finance, in CEO line-up for Trump’s Mainland visit Some trade analysts say China has done a good job of taming Trump’s combative trade impulses Michael Martina

U

.S. energy and commodities firms will make up a major part of a business delegation visiting Beijing at the same time as U.S. President Donald Trump goes to China in November, according to an initial list seen by Reuters.

Prominent technology and financial companies are mostly absent from the list, reflecting the slow progress Washington has made in opening up China in those sectors.

Commerce Secretary Wilbur Ross, who will lead the 29 companies that have been approved to travel on the trade mission starting on Nov. 8, said they will be looking for “immediate results” and “tangible agreements”.

But, speaking at the Paley International Council Summit in New York on Wednesday, he acknowledged that market access, intellectual property rights, and tariffs are more complex and will take a longer time to negotiate.

Some major industrial companies - General Electric Co, Honeywell International Inc and Boeing Co are among the companies on the current list.

Whether executives from all the named companies end up attending could be subject to agreements or deals being negotiated in time for the visit, according to multiple sources whose companies are involved.

One of the few tech companies going with Trump is Qualcomm, which earns about half of its global revenue in China and faces a series of tricky legal issues there, including a lawsuit with Apple and the Chinese government’s review of its pending US$38 billion merger with NXP Semiconductors. Qualcomm said its CEO, Steve Mollenkopf, planned to attend.

An industry source told Reuters tech firms were reluctant to go, given China market access issues, the unpredictability of the Trump administration, and a “Section 301” U.S. trade investigation alleging Chinese abuses of intellectual property. “(These) issues are extremely sensitive for tech companies said another source in the U.S. business community.

“Very few want to stick their heads up and be perceived as complaining

directly, and even fewer trust this White House to do anything helpful on their issues,” he said.

Particularly galling to foreign tech firms are a slate of new national security and cyber security regulations, which mandate companies store crucial data within China and pass security reviews they argue could put business secrets at risk.

Testy relationship

Trump, a real estate magnate who had never before held public office, has had a sometimes testy relationship with corporate America since taking office in January.

He disbanded two high-profile business advisory councils in August after several chief executives quit in protest over his controversial remarks on racist violence in Charlottesville.

U.S. industry sources say it has been years since a major business delegation has gone to China during a U.S. presidential visit.

Calls for such a delegation during Trump’s visit originated in the China-based U.S. business community, according to several sources, who saw a need to match growing efforts

by Germany, France and Britain to promote their nation’s firms in China.

Trump, who has frequently cited the substantial U.S. trade deficit with China as a reason why Washington should take more protectionist measures, was an easy sell on incorporating a group of executives into the visit, according to the sources.

Nonetheless, some trade analysts say China has done a good job of taming Trump’s combative trade impulses. They worry the U.S. administration will be willing to paper over market access concerns during the visit in its focus on getting Beijing

to take action against North Korea over its nuclear and missile programs.

Beijing agreed in May to grant limited U.S. access in financial services in bilateral talks aimed at reducing China’s trade surplus with the United States which reached US$347 billion last year, but business groups complained it was too little, too late.

William Zarit, the chairman of the American Chamber of Commerce in China, told Reuters he didn’t expect Trump to push hard on market access issues on this trip.

“Unfortunately, I think the Chinese aren’t going to start to respond until they feel some pain,” Zarit said.

“We’re all wondering what that is going to mean.”

Scott Kennedy, at the Center for Strategic and International Studies think tank in Washington, said Beijing has deflected commercial issues “using a combination of leadership flattery, coaxing up to his (Trump’s) family, token concessions, adjusting their level of help on North Korea sanctions, and threats of retaliation should the U.S. take any unilateral action”.

Gas exports

Agribusiness and energy firms dominate the delegation list. They include Archer Daniels Midland Co (ADM), one of the world’s largest grain companies, and chemicals and agribusiness giant DowDuPont.

Ten of the companies are involved in gas or other energy fields, including Cheniere Energy Inc, which operates the only U.S. liquefied natural gas (LNG) export terminal, three that are building new projects, and Freepoint Commodities, founded and run by David Messer, who led power utility Sempra’s vaunted commodities division.

Their presence underscores the U.S. ambition to sell more of its excess gas abroad as its shale revolution contributes to a global LNG glut.

Others on the list who confirmed plans to attend include GE, Houston-based LNG company Delfin Midstream, SolarReserve, Stine Seed Company, biotech firm Drylet, wastewater-processing firm Viroment and the U.S. Soybean Export Council.

Bell Helicopter and crane-maker Terex Corp are also on the delegation list. Honeywell, DowDuPont and ADM did not respond immediately to a request for comment and Freepoint, Cheniere, Sempra Energy, and Texas LNG Brownsville LLC said they had no comment.

Boeing told Reuters it does not yet have plans to send anyone but that may change. Alaska Gasline Development Corp said it had no information to release.

The U.S. Commerce Department, which is leading the delegation, has not yet issued its own list.

At least one of the companies on the list tried to distance itself from Trump. SolarReserve told Reuters in a statement that it had been selected to participate in the commerce department’s delegation but stressed that “we are not part of the business delegation travelling to China with President Trump.”

Touting existing deals

One U.S. official told Reuters on condition of anonymity that Trump will tout deals announced during the trip, but they would have likely happened regardless.

The risk is that commercial deals “distract from long-term political solutions” to trade issues, the official said.

Evan Medeiros, former President Barack Obama’s top Asia adviser, made a similar point in Washington.

Beijing would avoid seriously addressing the “underlying systemic problems” such as market access for high-tech goods and intellectual property protection during the visit, he predicted.

“The Chinese will be happy to buy a lot of American goods. That’s what they know Trump wants – big export numbers,” he said, predicting that China would announce big business deals and allow the president to tout them during his visit. REUTERS

POLITICS

Guangdong gets new party boss, former leader likely to be promoted China on Saturday appointed a new top official for the southern export powerhouse province of Guangdong, whose former leader sources say is likely to be promoted to a vice premier, part of a reshuffle after the end of a Communist Party Congress President Xi Jinping on Wednesday unveiled a new senior leadership at the end of the twice-a-decade congress, with new members appointed to the three elite party bodies that run China.

Over the next few weeks and months, a series of other reshuffles will take place as the party moves people into new party and government positions and as others retire.

In a brief statement, the official

Xinhua news agency said that Li Xi had been moved from his post as party boss in the north-eastern province of Liaoning to run Guangdong province as its party chief, replacing the incumbent, Hu Chunhua.

Guangdong, which borders the former British colony of Hong Kong, is one of China’s most economically important provinces.

Xinhua did not say what position Hu would assume, but sources with

ties to the leadership said he is likely to be promoted to become one of China’s vice premiers.

Hu, who spent a large part of his career working in restive Tibet, had been considered a candidate for the Standing Committee, the seven-man party body that is China’s elite ruling body headed by Xi, but failed to make it on.

Three sources with leadership ties told Reuters that Jiangsu party boss Li Qiang is tipped to replace Han

Li Xi has been moved from his post as party boss in the northeastern province of Liaoning to run Guangdong province

Business Daily Monday, October 30 2017 11

GREATER CHINA IN BRIEF M&A

Alibaba’s Tsai in deal for stake in NBA’s Brooklyn Nets Joseph Tsai, vice chairman of Chinese internet conglomerate Alibaba Group Holding Ltd, has struck a deal to buy a 49 per cent stake in the Brooklyn Nets of the National Basketball Association, according to two sources familiar with the matter. Reuters reported this month that Tsai was in advanced talks to buy a stake in the Nets, which Tsai subsequently denied. The deal values the U.S. basketball team at around US$2.3 billion, the sources, who declined to speak for attribution because they are not permitted to speak to the press, said.

RESULTS

Air China profit lifted by stronger yuan

RESULTS

Baidu revenue outlook hit by Congress meeting Chinese search engine giant Baidu Inc offered a disappointing revenue outlook for the rest of the year, blaming lost advertising sales during this month’s Communist Party Congress and sending its shares sliding Cate Cadell

B

AIDU, which is seeking to get back on a firmer footing after a series of setbacks, said it had reined in marketing to show respect as Beijing held the sensitive gathering where it reaffirmed the position of President Xi Jinping.

It predicted fourth-quarter revenue growth of 22 per cent to 29 per cent from a year earlier, below an average analyst forecast of 36 per cent. For the third-quarter, revenue jumped 29 per cent to RMB23.49 billion (US$3.5 billion), in line with expectations.

Baidu’s U.S.-listed shares plummeted more than 10 per cent in extended trading, highlighting concerns over the firm’s prospects as it looks to reshape its business around artificial intelligence and autonomous driving.

“The (Congress) might be a contributing factor, but it’s not the whole picture,” said Mark Natkin, Beijing-based managing director at Marbridge Consulting, adding Baidu’s core search business was facing a saturated market.

“They need a new trick and they’ve chosen AI, which is a long game. Until that bears fruit they need to find a way to keep investors and employees on board.”

Baidu Chief Financial Officer Herman Yu told an analysts’ call that the recent sale of the firm’s loss-making food delivery unit would also mean a loss of revenue and said sales from AI would take time to come through.

In latest quarter, Baidu posted a 69 per cent jump in operating income to RMB4.7 billion (US$707 million).

Net income more than doubled to

Key Points Online ads cut in October “to show respect” for Congress Q4 revenue seen up 22-29 pct vs consensus estimate of 36 pct Operating income up 69 pct in Q3, net profit more than doubles Shares skid over 10 pct in extended trading

Congress held at Great Hall of People (pictured) in Beijing unveiled a new senior leadership last week. Source: Lusa

7.9 billion yuan, helped by the food delivery unit sale.

Baidu is trying to recover after its content and advertising businesses were hit by a recent drive to regulate and censor online media, a strategic priority under president Xi. That comes on top of a major setback last year when the death of a student with cancer was tied to healthcare advertising he had found on Baidu’s platforms. The case spurred public anger and led to strict new regulations.

Progress has, however, been slow.

Baidu said its ad business had 486,000 active online marketing customers in the third-quarter, a 3 per cent gain from the previous quarter but still down 7 per cent from a year earlier.

Baidu Chief Executive Robin Li added that the company has created China’s “largest database to combat fake news”, cooperating with 600 organisations to identify problem content.

The search firm was hit with steep penalties in September for failing to remove fake news, including content deemed offensive to the Communist Party. REUTERS

Zheng as Shanghai party secretary.

“Li is (one of) Xi Jinping’s men,” one source said.

Li, 58, a native of the eastern coastal province of Zhejiang, was secretary general of the provincial party committee under Xi when the latter was Zhejiang party boss from 2002 to 2007.

Li will be a strong contender to be further promoted to the Standing Committee at the next congress in 2022, another source said.

He was appointed to the 25-memb e r P o l i tb u r o , w h i ch i s u n der the Standing Committee, on Wednesday.

Former Shanghai leader Han, 63, is likely to become executive or first ranked vice premier next March at the annual meeting of parliament, the sources said.

The State Council Information Office, which doubles as the party’s spokesman’s office, did not immediately respond to a request for comment. REUTERS

Air China posted a 31 per cent rise in third-quarter net profit on Friday as a strengthening yuan offset lower passenger yields on international routes.

The state-owned Chinese airline said net profit rose to RMB5 billion for JulySeptember from RMB3.8 billion a year earlier. Net profit over the nine months to September rose 14.6 per cent to RMB8.3 billion.

Analysts from UOB Kay Hian and Crucial Perspective had forecast that Air China would report lower net profits of about RMB3 billion for the quarter. The strengthening of the yuan against the dollar helped its finance expenses for the quarter fall by 247.2 million yuan.

COMMODITIES

Shenhua’s quarterly profits near double as coal prices soar Profits at China’s biggest listed coal producer, China Shenhua Energy, nearly doubled in the third quarter amid a surge in coal prices and strong demand. The results, announced on Friday, are the first since the company’s parent, Shenhua Group Corp Ltd, in August announced plans to buy the country’s top utilities China Guodian Corp. Shenhua reported a net profit of RMB14.3 billion (US$2.15 billion) for July-September, compared to RMB7.5 billion in same period last year, according to Reuters calculation using company data. Its revenue rose 34.59 per cent to RMB62 billion a tonne.

FORECAST

Taiwan’s Q3 GDP to post 6th quarter of expansion Taiwan’s economy probably grew for a sixth straight quarter in July-September and at a faster pace, boosted by tech exports on the back of a global economic upswing and recovering consumption. Gross domestic product was forecast to have expanded 2.15 per cent in the third quarter from a year earlier compared with 2.10 per cent in the previous three months, according to 14 analysts surveyed in a Reuters poll. Earlier last week, the government slightly raised its 2017 economic growth forecast for the third time this year to 2.15 per cent from 2.11 per cent.

12 Business Daily Monday, October 30 2017

ASIA DIPLOMACY

U.S. seeks meeting soon to revive Asia-Pacific ‘Quad’ security forum The United States wants a meeting soon aimed at reviving a four-way dialogue between itself, Japan, India and Australia to deepen security cooperation and coordinate alternatives for regional infrastructure financing to that offered by China, a senior U.S. official said on Friday

“It’s a natural progression and convergence of interests between democratic countries in the Indo-Pacific region”

David Brunnstrom

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HE so-called “Quad” to discuss and cooperate on security emerged briefly as an initiative a decade ago much to the annoyance of China, which saw as an attempt by regional democracies to contain its advances.

In an interview with Japan’s Nikkei newspaper on Wednesday, Japanese Foreign Minister Taro Kono proposed reviving the forum, which he said he had discussed with U.S. Secretary of State Rex Tillerson and Australian Foreign Minister Julie Bishop on the sidelines of a regional meeting in Manila in August.

According to the Nikkei, the purpose would be to secure a peaceful maritime zone from Asia to Africa. It said Japanese Prime Minister Shinzo Abe would officially propose the dialogue partnership to U.S. President Donald Trump on Nov. 6, when the U.S. leader visits Japan as part of an Asian tour that will also take him to China.

Alice Wells, Washington’s acting assistant secretary of state for South Asia, told reporters after accompanying Tillerson on a visit to India that Washington was “looking at a working level quadrilateral meeting in the near term.”

Alice Wells, U.S. acting assistant secretary of state for South Asia

Secretary of State Rex Tillerson (L) shakes hands with Indian External Affairs Minister Sushma Swaraj (R) after a joint press statement in New Delhi last week. Source: Lusa

“The quadrilateral the Japanese foreign minister discussed would be building on a very productive trilateral we have with India and Japan,” she said.

Wells said the idea was to bring together countries that share the same values “to reinforce those values in the global architecture.”

“As we explore ways to deepen and

try to inculcate some of the values - freedom of navigation, maritime security, humanitarian assistance, disaster response, transparency, obviously Australia would be a natural partner in that effort.”

Wells rejected the idea the forum would be aimed at containing China, which has alarmed Asia-Pacific countries through its pursuit of

territory in the South China Sea and has launched major initiatives to develop regional infrastructure.

She said it would seek to coordinate alternatives for nations seeking investment in infrastructure and economic development, “that don’t include predatory financing or unsustainable debt.”

“It’s hard to see a meeting of diplomats from four countries as a plan to contain China,” she said.

Tillerson said before visiting India that Washington saw room to invite others, including Australia, to join U.S.-India-Japan security cooperation and to create alternatives to Chinese financing that was saddling countries with “enormous” debts and failing to create jobs. REUTERS

FISCAL POLICY

Malaysia’s Najib presents populist budget targeting voters ahead of polls Malaysian Prime Minister Najib Razak, under pressure to shore up his government’s popularity, on Friday unveiled a budget aimed at winning votes in an election that must be held by August Joseph Sipalan

Najib unveiled plans to cut personal income tax for lower-income citizens, to pay more to pensioners and spend billions on schools, hospitals and rural infrastructure to soothe voters who are unhappy with rising costs and widespread corruption.

New subsides were also revealed on goods and transportation.

“These measures are to get votes from the lower income households,” said Singapore-based ANZ Research economist Ng Weiwen.

The budget drew fire from the opposition. The speech “was littered with political sniping and peppered with a litany of election year goodies,” said Tony Pua, a leader of the opposition Democratic Action Party.

Malaysia’s economy is in a significantly stronger position than a year ago, aided by higher oil prices and solid global demand for its exports.

This has allowed Najib to propose populist steps and higher spending ahead of elections, but still target a lower fiscal deficit in 2018, of 2.8 per cent, from this year’s 3.0 per cent.

Anushka Shah, analyst at Moody’s Investors Service, said that while the budget preserves Malaysia’s ongoing deficit reduction trend - which is “credit supportive” - “it lacks any major fiscal and in particular revenue reforms”.

Malaysian Prime Minister Najib Razak

The full credit implications “will depend on whether the projected increase in revenues - the fastest since 2012 - is achievable,” Shah said.

‘Mother of all budgets’

The government will spend a total 280.25 billion ringgit (US$66.1 billion) in 2018, up 7.5 per cent from this year’s anticipated expenditure.

Spending will include 6.5 billion ringgit for farmers, fisherman and rubber tappers, the largest allocation yet for the groups who are among key voters for Najib’s ruling Barisan Nasional (BN) coalition.

A one-time cash payment of 1,500 ringgit was announced for civil

servants and 750 ringgit for government retirees.

Najib also budgeted 6.5 billion ringgit for rural infrastructure development, and waived tolls from key highways in several cities. Big allocations were also made for road projects and schools.

The prime minister, who is also finance minister, announced 6.8 billion ringgit, same as the previous year, for an annual cash handouts programme.

He allocated 3.9 billion ringgit for goods and transport subsidies and set aside 2.2 billion ringgit to help home ownership under various programme.

Income tax will be cut by 2 percentage points for Malaysians those earning 20,000–70,000 ringgit a year.

At the start of his three-hour speech, Najib said it contained “happy news” to make everyone smile, and at the end, he said the budget “has made its mark as the mother of all budgets”.

Earlier last week, Najib said it would be a “mildly expansionist” budget, and he was widely expected to present a populist one to boost support at a time former Prime Minister Mahathir Mohamad, who has quit the ruling party, leads an effort to remove the leader.

Najib has also been dogged by a multi-billion dollar scandal tied to state fund 1Malaysia Development Berhad (1MDB), a fund that he helped set up.

He has denied any wrongdoing.

Najib’s term ends in June, but many analysts expect him to call elections before then.

Growth rebounds

Southeast Asia’s third-largest economy expects full-year growth at 5.2-5.7 per cent this year, rebounding strongly from 4.2 per cent in 2016.

Growth is seen at 5.0-5.5 per cent next year.

Despite increased spending, the fiscal deficit is seen narrowing to 2.8 per cent of gross domestic product in 2018 from 3.0 per cent this year.

Najib said his administration remains committed to narrowing the fiscal deficit, saying “What is important is government maintain fiscal consolidation target.” REUTERS

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Business Daily Monday, October 30 2017 13

ASIA POLITICS

Australian PM puts foreign minister in charge amid government crisis Australian Prime Minister Malcolm Turnbull on Saturday appointed his foreign minister as acting prime minister as he tried to stem the fallout of a citizenship crisis that has cost his government its parliamentary majority Jane Wardell and Alison Bevege

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URNBULL delayed until today a long-planned trip to Israel and held an emergency Cabinet meeting to shore up support after Australia’s High Court ruled on Friday that his deputy, Barnaby Joyce, and four other lawmakers should be expelled from parliament because they held dual nationality.

The court’s shock decision had immediate ramifications, stripping the coalition government of the oneseat majority it holds in the lower house, forcing it to call a by-election in Joyce’s seat and sending the Australian dollar lower.

The opposition Labor Party has said it is considering a legal challenge to every decision made by Joyce since last year’s election.

Turnbull said on Saturday that the deputy position would remain vacant until after the Dec. 2 by-election for Joyce’s seat. The position normally goes to a member of the National Party, the junior partner in the coalition government.

Foreign Minister Julie Bishop, a member of Turnbull’s Liberal Party, would instead be acting prime minister when he travels to Israel today, three days behind schedule.

“Government goes on, good government goes on,” Turnbull told reporters in Sydney, dismissing suggestions that the inability to agree on a deputy indicated tensions within the coalition. “When times get tough, that’s when you put your arms around your mates.”

Turnbull now needs the support of one of three independent lawmakers

IN BRIEF BANK OF JAPAN

Governor Kuroda looks favoured to get second term Bank of Japan Governor Haruhiko Kuroda looks favoured to get a second fiveyear term when his current one ends in April, the Nikkei business paper reported on Saturday. Following last week’s landside election win for Prime Minister Shinzo Abe’s ruling bloc, top advisers will discuss candidates for central bank chief, with Kuroda the “leading candidate”, the newspaper reported, citing an unnamed adviser. The Nikkei quoted the adviser as saying that the next governor must be someone with “an appreciation for the present system”. Abe is seen maintaining his economic agenda.

DEADLY FIREWORKS

Indonesia detains owner after factory blaze

Australian Prime Minister Malcolm Turnbull speaks during a press conference at Parliament House in Canberra, on Friday. Source: Lusa

to keep his minority government afloat, with two sitting weeks of parliament left until it recesses for the year. At least two independent lawmakers have promised initial support, but noted that it may be conditional.

Turnbull is under particular pressure after refusing demands from the opposition to remove Joyce, who has renounced his New Zealand citizenship, from the cabinet while the court decided his fate.

Constitutional change

Turnbull said the court’s interpretation of the constitution, which bars dual citizens from parliament in a bid to prevent split allegiances, was “very strict” and “very hard”.

He added that he was considering whether to recommend a change to

the constitution, noting that more than half of the country’s population of 24 million was either born overseas or has a parent who was born overseas.

“Our objective is to ensure parliament is open to everybody,” he said.

A referendum would be needed to change the constitution.

The High Court ruled on seven lawmakers, some of whom had already resigned. All seven accepted that they were dual nationals at the time of their election but claimed they were unaware of their status. Some were conferred a second nationality by birth, others by descent.

The others dismissed were all senators in the upper house and their seats can be assigned to party-appointed alternatives. REUTERS

KOREAN CRISIS

Mattis, in Seoul, says U.S. can’t accept nuclear North Korea U.S. Defense Secretary Jim Mattis said on Saturday that he could not imagine United States ever accepting a nuclear North Korea, warning that its rapidly advancing nuclear and missile programs would undermine, not strengthen, its security Mattis has been at pains during his week-long trip to Asia to stress that diplomacy is America’s preferred course, a message he returned to after top-level military talks in Seoul on Saturday and at the tense border area with North Korea on Friday.

Still, he warned Pyongyang that its military was no match for the U.S.-South Korean alliance, and that diplomacy was most effective “when backed by credible military force.”

“Make no mistake - any attack on the United States, or our allies, will be defeated. And any use of nuclear weapons by the North will be met with a massive military response that is both effective and overwhelming,” Mattis said.

Mattis’s South Korean counterpart, Defence Minister Song Young-moo, dismissed the idea of deploying tactical nuclear weapons to the peninsula as a response to the North’s advances.

But the U.S.-Korean alliance had the ability to respond, even in the event of a nuclear attack from the North, Song added.

Tension between North Korea and the United States has been building after a series of nuclear and missile tests by Pyongyang and bellicose verbal exchanges between North Korean leader Kim Jong Un and President Donald Trump.

The CIA has said North Korea could be only months away from developing the ability to hit the United States with nuclear weapons, a scenario Trump has vowed to prevent.

Mattis, too, said Kim’s behavior had left no room to imagine accepting Pyongyang’s nuclear status.

Indonesian authorities have detained a fireworks factory owner and a manager on suspicion of negligence after explosions and fire ripped through a warehouse on the outskirts of Jakarta, killing 48 workers and injuring dozens, police said on Saturday. The blaze in the manufacturing hub of Tangerang was one of the worst industrial disasters to hit Southeast Asia’s biggest economy, where safety standards are often weakly enforced. Police said the fire started when sparks from a welding operation lit a stack of raw materials used for making fireworks, causing at least two explosions that could be heard miles away.

COMMODITIES

Malaysia 2018 palm oil output forecast to rise Palm oil production in Malaysia, the world’s second-largest producer, is expected to increase 15.5 per cent this year and will grow by 2.5 per cent in 2018, the government said on Friday.

Malaysian output is forecast to rise to 20 million tonnes this year, and to 20.5 million tonnes in 2018 due to better yields and expansion into matured areas, according to forecasts given in the government’s annual economic report released ahead of Prime Minister Najib Razak’s announcement of the 2018 budget. In 2016, production was 17.3 million tonnes, the report said.

SECURITY

Philippine mobile phone trader ‘collected funds’ for Marawi attackers U.S. Secretary of Defence James Mattis (L) and South Korean Defense Minister Song Young-moo (R) attend a joint press conference after the 49th Security Consultative Meeting (SCM) at the Defence Ministry in Seoul, South Korea, 28 October 2017. Source: Lusa

Moon, after talks with Mattis on Friday, said the “aggressive deployment” of U.S. strategic assets in the region, which have included overflights by U.S. bombers, had been effective in deterring the North Korean threat.

U.S. intelligence experts say Pyongyang believes it needs the nuclear weapons to ensure its survival and have been sceptical about diplomatic efforts, focusing on sanctions, to get Pyongyang to denuclearize.

Mattis suggested, however, that Pyongyang needed to understand that its weapons programs would not strengthen its defences. The North says it wants a nuclear-tipped missile capable of reaching the United States.

Still, any attempt to force the North to denuclearize could have devastating consequences, thanks in part to the large amount of artillery trained on Seoul. REUTERS

Philippine security forces have arrested a mobile phone trader suspected of collecting funds to help finance pro-Islamic State militants who took over a southern city for five months, police said on Friday. Rasdi Malawani, 42, was arrested in front of the press a day after security forces raided his home in Manila’s northern suburbs, where a rocket-propelled grenade and a pistol were seized, Manila police chief Oscar Albayalde said.

Malawani was not allowed to speak to reporters and no defence lawyer was present.

14 Business Daily Monday, October 30 2017

INTERNATIONAL IN BRIEF

SANCTIONS

Rouhani says Iran will continue to produce missiles Iran will continue to produce missiles for its defence and does not consider that a violation of international accords, President Hassan Rouhani said yesterday in a speech broadcast on state television.

Rouhani spoke days after the U.S. House of Representatives voted for new sanctions on Iran’s ballistic missile programme, part of an effort to clamp down on Tehran without immediately moving to undermine an international nuclear agreement. “We have built, are building and will continue to build missiles, and this violates no international agreements,” Rouhani said in a speech in parliament.

BREXIT

S&P, Fitch leave UK credit rating on hold Standard and Poor’s and Fitch held their credit ratings for Britain unchanged on Friday, but both remained gloomy about the outlook due to the likelihood of the country reaching a bad deal in its divorce talks with the European Union. Having already stripped Britain of its top-notch “AAA” rating, both agencies stuck with their “AA” rating with a negative outlook, warning they were likely to downgrade again. “The negative outlook reflects the continued institutional and economic uncertainty surrounding the Brexit negotiations and the UK’s future relationship with its largest market for goods and services, the EU,” S&P said in a statement.

FISCAL REFORM

White House sees corporate tax cut boosting economy Cutting the corporate tax rate to 20 per cent would speed up economic growth enough to eventually make the U.S. economy 3 to 5 per cent larger than it otherwise would be, according to an analysis produced by President Donald Trump’s White House Christopher Condon

T

HE analysis, released Friday

by Trump’s Council of Economic Advisers, also repeats the panel’s finding that the corporate tax cut would increase average household income by at least US$4,000. Other economists have questioned that claim.

Kevin Hassett, the chairman of the CEA, said Friday that some models show that it would take three to five years for the increase in gross domestic product to take place. Other models show it could take twice that long, he said.

The paper combines the effects of cutting the corporate rate, which is now 35 per cent, with another proposal to allow companies to immediately write off the cost of certain capital investments. Under current law, such investments are written off over years through depreciation.

In combination, the corporate rate cut and the move toward so-called “full, immediate” expensing of equipment purchases would lower the cost of capital and “generate an expected additional long-run increase in GDP of 4.2 per cent” over the current forecast by the Congressional Budget Office, according to the analysis.

Factories overseas

“Firms are locating their new factories and their machines over there in Ireland and in other countries rather than creating jobs here,” Hassett said during a Bloomberg TV interview.

The GOP framework calls for cutting tax rates on corporations, partnerships and limited liability companies “If we want to keep this recovery going then what we need to do is just get capital deepening to increase productivity, increase wages, and give us the economic growth that we need.”

The tax framework that the White House and congressional leaders released last month calls for allowing businesses to engage in full expensing “for at least five years.” Limiting the provision to that amount of time “would reduce the long-run steady

state growth effect to 3.1 per cent,” according to the analysis.

While the report twice describes the wage growth projections as “back-ofthe-envelope” estimates, Hassett said a US$4,000 boost to average income was a conservative prediction backed up by economic literature.

House Ways and Means Chairman Kevin Brady plans to introduce a tax bill on Wednesday. Hassett said he expects the bill may include details that could change the CEA’s analysis.

“I expect that as the complete plan is available, there will be changes to our analysis,” he said.

The GOP framework calls for cutting tax rates on corporations, partnerships and limited liability companies. It would also consolidate the existing seven individual tax rates to three or four -- with a decision on the highest tax bracket left up to congressional tax writers. BLOOMBERG NEWS

DIPLOMACY

Cuba to make it easier for Cuban Americans to visit Cuba will make it easier for its U.S.-based citizens to travel to the island, Foreign Minister Bruno Rodríguez said on Saturday, in a gesture to win support from Cuban Americans during a diplomatic crisis over allegations of mysterious health attacks.

“The U.S. government closes, and Cuba opens,” Rodriíguez told a meeting of pro-Havana Cuban Americans in Washington. He said Cuban citizens in the United States would no longer need to have a special review of their Cuban passports to rehabilitate them before travelling to the island.

EUROPEAN UNION

Pope urges EU to rediscover unity if it wants a future Pope Francis, in a major speech on Europe, on Saturday urged the European Union to “recover the sense of being a single community” if it wants a future of prosperity and fairness for all. Francis spoke at the end of a twoday conference at the Vatican called “Re-Thinking Europe”.

Dozens of participants attended, including European Parliament President Antonio Tajani, the vice president of the European Commission, Frans Timmermans, and religious leaders. While the pope did not specifically mention the situation in Catalonia or Britain, he spoke often of solidarity, teamwork and mutual sacrifice.

STRATEGY

South Africa’s Deputy President says new plan needed for economy South Africa needs to do what other nations do during times of economic weakness and come up with a recovery plan that grabs the imagination of investors and its people, Deputy President Cyril Ramaphosa said in an interview in Cape Town Paul Vecchiatto

In his first comments since the release of Finance Minister Malusi Gigaba’s mid-term budget last week, Ramaphosa described the South African economy as “moribund.”

“We are facing a new situation,” Ramaphosa said. “A number of economies around us are growing, the world economy is responding very positively in terms of growth, but we are moribund and we need to come up with a plan that needs to take us out of this.”

South Africa’s rand slid to the lowest in almost a year on Oct. 26 after Gigaba painted a bleak picture of the state of the country’s finances, with the economy set to expand 0.7 per cent this year, down from 1.3 per cent predicted in the February budget.

Yields on the nation’s bonds also rose as the projections raised the risk of further credit-rating downgrades, with the nation’s debt already rated junk by S&P Global Ratings and Fitch Ratings Ltd. Lower growth and revenue will feed through to a higher budget deficit. The gap is expected to jump to 4.3 per cent of gross domestic product

in the current fiscal year, up from a projected 3.1 per cent. The shortfall will probably stay at 3.9 per cent of GDP for the next three years. That’s a break from the National Treasury’s past pledges to steadily narrow the deficit.

Investment strike

“We need to come up with something that grabs the imagination of our people and the markets, so that

“A number of economies around us are growing, the world economy is responding very positively in terms of growth, but we are moribund and we need to come up with a plan that needs to take us out of this”

the markets can see that we are an economy that is worth investing in, because right now we have almost been facing a situation of an investment strike,” Ramaphosa said.

A former union leader and one of South Africa’s wealthiest black businessmen, Ramaphosa, 64, is running for the leadership of the African National Congress in December, a post that would make him the party’s presidential candidate in 2019 elections when President Jacob Zuma is due to step down. His main rival is former African Union Commission chairwoman Nkosazana Dlamini-Zuma, the president’s exwife and favored successor.

Ramaphosa has made the fight against corruption the centrepiece of his campaign and made attacks on Zuma, who’s been implicated in a series of scandals, including allegations that he allowed members of the Gupta family to loot billions of rand from state companies. Zuma and the Guptas, who are in business with the president’s son, deny wrongdoing.

“Companies are not investing in our economy. They are concerned about the political instability and so we have to reboot out economy,” Ramaphosa said. BLOOMBERG NEWS

Business Daily Monday, October 30 2017 15

OPINION

Catalonia’s secession is a symbolic move Leonid Bershidsky, Bloomberg View columnist

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ATA L O N I A’ S D E C L A R AT I O N O F independence from Spain, passed by the Catalan parliament on Friday, is a largely symbolic gesture as far as true independence goes. It will, however, require all of Spanish Prime Minister Mariano Rajoy’s experience and skill to defuse this situation.

These last couple of days, I’ve been in Barcelona trying to make sense of the complex game that’s been playing out here and the motives underlying it. For most of the day on Thursday, Catalan First Minister Carles Puigdemont appeared likely to backtrack on independence and call a regional election within the Spanish constitution instead. When reports of this came in, Antonio Banos, a leader of the most pro-independence party represented in parliament, the far-left CUP, changed the picture on his Twitter profile to an upside-down photo of Puigdemont, accusing the first minister of treachery. Pro-independence students started to gather by the government building to protest. Puigdemont’s speech was pushed back and finally cancelled. Banos turned the photo on its side. Finally, the first minister made an announcement: He was not calling an election after all. Instead, called on parliament to decide whether or not to declare independence. Banos turned Puigdemont’s picture the right way up.

Puigdemont’s dithering was actually an attempt to avert Rajoy’s next move -- Article 155 of the Spanish Constitution, which allows Madrid to impose direct rule on a region. Rajoy’s government refused to back off: It let Puigdemont know an early election wouldn’t change its plans to remove his government. Puigdemont ended the day with nothing to lose. As he left the decision to parliament, in which his electoral bloc and CUP together hold a majority, he knew it would pass the independence declaration; he chose to go down fighting.

Spain will make its promised moves in the next few days: the Spanish Senate voted Friday to use Article 155 for the first time. Immediately after the Catalan parliament’s decision, Rajoy promised to “restore legality” in Catalonia. While thousands of people, gathered on the edges of the park in Barcelona where the parliament building is located, wrapped themselves in Catalan flags and celebrated the historic vote result on Friday, there is no will in this sunny, carefree city to fight for independence. Even the independent supporters I spoke to rule out a violent scenario.

“I will not die for a flag, for a country,” Jordi Sellas, who was in charge of cultural projects in the previous Catalan government and now works as strategy director for TV production company Minoria Absoluta. Though Sellas is a

Spanish flag (L) waves next to Catalan flag (R) at the Palace of the Generalitat, headquarter of the Catalan regional presidency, a day after the declaration of the unilateral independence by the Catalan Parliament. Source: Lusa

strong independence supporter who’d attended all the secessionist rallies and who marked the vote with a jubilant tweet, he told me Catalans were a trading nation, not a fighting one, and its independence drive would always be peaceful. “People will never fight,” he said. “It’s not worth a single death.”

That’s not the kind of attitude I’ve seen in other secessionist regions or in countries determined to take their fate into their own hands. Barcelona in 2017 is not Kiev in 2014, where people were willing to die -- and did -- for Ukraine’s European choice. That’s why Alfons Lopez Tena, a lawyer who used to lead a secessionist political party and was a deputy of the Catalan parliament between 2010 and 2012, dismisses the Puigdemont government’s moves as “slapstick.”

“Catalans do not want independence, they wish independence,” he told me. “They like to feel good about themselves, and being victims for a good cause gives them this feeling.”

That’s one reason why the independence declaration is not a final break with Spain. Another is that even the secessionists understand their new nation lacks a critical element of sovereignty: international recognition. Nobody in Barcelona except a handful of far-left hotheads wants to live in an unrecognised state.

Since the pragmatic Catalans want their nation to be part of the European Union, and EU officials and member states have firmly aligned with Spain, international support is unlikely.

The Puigdemont government’s goal has been to force the EU’s hand so it would interject itself

between the sides. Sellas says that’s not going to happen. “Nobody in the EU has ever discussed what could be done about a new non-EU state with 7.5 million EU citizens.”

The EU, however, doesn’t want a problem with one of its biggest member states. Friday’s independence vote has only slightly more legitimacy than the Oct. 1 referendum Puigdemont held despite an interdiction from the Spanish constitutional court. Secession was approved by only 70 of the 135 legislators, with the pro-Spanish parties walking out of the chamber after arguing passionately against the move; even that was only possible because the electoral system in Catalonia is skewed toward the less densely populated communities where Catalan nationalism is strong. There’s no legal reason and no incentive for the EU to soften its pro-Madrid stance.

The Spanish prime minister, however, must not repeat the mistake of Oct. 1: Spanish police used disproportionate violence against the referendum voters, sparking anger in Catalonia and sympathy for the secessionists elsewhere.

More of this might play into the separatists’ hands. As he moves to take over the Catalan government, Rajoy needs to act with lenience.

Though Catalans aren’t likely to put up a fight even if arrests are made among secessionist leaders -- they protested peacefully, as usual, when some referendum organizers were arrested -- if Rajoy intends to keep his government’s threats to bring sedition charges against the separatists, he will have to do it in a way that rules out clashes with protesters. The secessionists are extremely well-organized, and as their final weapon, they can resort to crippling strikes in a region that accounts for about a fifth of Spain’s economic output and a quarter of its exports.

This time around, Madrid will also need to invest more resources into the next regional election, making a bigger effort to explain the economic disadvantages of secession, a powerful argument for well-to-do, hard-working Catalans, but one that hasn’t been made to them convincingly enough.

Ideally, the Spanish government should also consider federalization to defuse the tension.

But nobody in Barcelona expects Rajoy to take that path because it’s something his core electorate passionately opposes. Attempts at longer-term resolution will fall to future governments not run by Rajoy’s People’s Party. All this Spanish prime minister can be expected to do is go easy on hopeful Barcelona lest it turns into a city more like Kiev in 2014, only with palm trees. BLOOMBERG VIEW

For all the fanfare, China’s sovereign sale falls short Shuli Ren, a Bloomberg Gadfly columnist

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HE MORNING AFTER IS ALWAYS WHEN reality hits.

Reading the news headlines about China’s recently minted sovereign bond, one could be forgiven for thinking President Xi Jinping’s moment in the capital markets has arrived. The government’s US$1 billion of 10-year notes were priced just 25 basis points over Treasuries, with the spread narrowing to less than 10 basis points Friday morning. That puts China in the same category as AAA-rated Germany.

Beijing has said it doesn’t need any more dollars, and its first U.S. currency offering since 2004 was more to set a benchmark for state enterprises borrowing overseas.

The market isn’t buying it.

Compare China to Indonesia, a heavy and consistent dollar borrower. The 4.125 per cent 2027 debentures of PT Perusahaam Listrik Negara, a state-owned monopoly electricity distributor,

are trading about 55 basis points wide of Indonesia’s 10-year sovereign bond. Since China is considered more creditworthy than its Southeast Asian neighbour, you’d imagine its quasi-sovereign spread would be narrower.

That’s not the case. The spread over Treasuries of State Grid Corp. of China’s 2027 3.5 per cent dollar bonds narrowed just 1.5 basis points on Friday to trade 69 basis points wide of the sovereign while China Petroleum and Chemical Corp.’s 3.25 per cent 10-year notes sold in September tightened by a similar amount to a 79-basis-point spread.

Granted, both were bid up as the sovereign sale approached, with spreads of the latter falling 20 basis points this month, but nonetheless, demand for China’s government bond hasn’t helped boost prices as much as one might expect.

The issue, as I argued earlier this month, is scale: At US$2 billion, China’s sovereign sale is tiny.

Indonesia’s government, by contrast, has US$38.75 billion of dollar debt outstanding, with due dates ranging from one to 30 years. That makes a nice yield curve against which the nation’s corporates can benchmark.

If anything, China’s sovereign sale will mean more state-owned firms must test the waters for themselves. China Huarong Asset Management Co. plans to meet with investors next week for a mixed Singapore and U.S. dollar offering, according to a person familiar with the matter. The bad-debt manager has already raised US$5.6 billion from international markets this year.

For all the fanfare surrounding China’s first sovereign bond sale in more than a decade, it seems the real work of building a benchmark will fall in true communist style to the people.

BLOOMBERG GADFLY

16 Business Daily Monday, October 30 2017

CLOSING TRADE

Keeping the balance The total trade of external merchandise in the first nine months of this year increased by 6 per cent to MOP63.03 billion, with the trade deficit decreasing 4.3 per cent yearly to MOP45.90 billion

T

HE total amount of merchandise imported to Macau in September went up by 16.5 per cent year-on-year to reach MOP7.23 billion (US$899,09 million) in September, according to the latest information released by the Statistics and Census Service (DSEC).

The value of re-exported goods went up by nearly 42 per cent yearly to MOP835 million, representing 81.8 per cent of the total value of Macau exports in September.

With imports reaching MOP1.02 million in September, marking an increase of 24.6 per cent year-on-year, the city accumulated a trade deficit of MOP6.20 billion.

Trade galore

The total trade of external merchandise trade in the first nine months of this year increased by 6 per cent to MOP63.03 billion, with the trade deficit decreasing 4.3 per cent yearly to MOP45.90 billion.

From January to September, the total value of imports reached MOP54.47 billion, up 5.3 per cent from the same period last year, with food & beverage imports

representing the largest sector or 16.1 per cent of the total value.

Imports of food & beverages in the first nine months of this year rose 3.4 per cent year-on-year to MOP8.80 billion, with the second largest imported good, gold jewellery, increasing considerably by 20.7 per cent yearly to MOP4.89 billion.

H o w ev e r, i m p o rts o f watches to Macau saw the largest yearly increase during the period from the beginning

Imports from mainland China represented 32.8 per cent of the total import value in the first nine months

of the year until September, with a 20.8 per cent hike to MOP3.88 billion.

Imports from mainland China represented 32.8 per cent of the total import value in the first nine months, followed by Italy with 9.5 per cent and Hong Kong with 9 per cent.

However, while the total value of imports from mainland China decreased by 5.4 per cent yearly to MOP17.85 billion, the value of imports from the European Union

went up by 12.3 per cent to MOP14.06 billion.

Exports to Hong Kong comprised 58.7 per cent of the total export value or MOP5.02 billion from January to September, with mainland China representing the second region of destination at MOP1.62 billion.

Non-textile goods comprised the most valuable export from Macau in the first nine months of the year, going up by nearly 9 per cent to MOP7.82 billion.

LRT

Finally here The first Light Rail Transit carriages arrived in the MSAR yesterday

The first batch of Light Rail Transit (LRT) carriages arrived in Macau yesterday morning, the Transportation Infrastructure Office (GIT) announced.

According to the department, the delivery includes four train carriages and two maintenance vehicles, arriving yesterday at the Coloane Ka-Ho Harbour after a week-long trip from Japan.

After completing a series of customs clearance procedures, the carriages will be transported to the Ocean Station near Avenida dos Jogos da Ásia Oriental in Taipa, in order to initiate the trial period of the carriages.

Ocean Station is located near the

Ocean Gardens building complex and will be one of the 11 stations that comprise the 9.3 kilometre-long LRT Taipa line, expected to be completed in 2019.

During its transport to Ocean Station, temporary precautionary traffic measures will be put in place at Avenida dos Jogos da Ásia Oriental.

Developed by Japanese group Mitsubishi Heavy Industries, each carriage is 11.8 metres long, 2.8 metres wide, 3.8 metres high and weighs around 15 tonnes.

The Japanese group currently has a contract valued at almost MOP5.4 billion (US$671.8 million) for the provision of the rolling stock and systems for Phase 1 of the LRT. N.M.

POLITICS

AMCM

GRAFT

Xi ally Li Qiang named Shanghai party boss

Monetary Authority issues warning over online lending platforms

Beijing aims to set up state anti-corruption unit next year

Li Qiang, an ally of Chinese President Xi Jinping, has been named the top Communist Party official in Shanghai, replacing Han Zheng who last week joined the elite Politburo Standing Committee, the official Xinhua news agency said on Sunday.

Xinhua said in a brief notice that Li, 58, would take up the party secretary post in Shanghai and no longer serve in the top spot in Jiangsu province, according to a “decision of the Central Committee”, which at 204 members is the largest of the party’s ruling bodies.

The move puts Xi allies in China’s four major municipalities - Beijing, Shanghai, Tianjin and Chongqing - power centres on par administratively to provinces.

A native of the eastern coastal province of Zhejiang, Li was secretary general of the provincial party committee under Xi when the latter was Zhejiang party boss from 2002 to 2007.

Li was appointed to the 25-member Politburo, which is under the Standing Committee, on Wednesday, and Reuters’ sources had tipped him to take on the Shanghai job.

He is seen as a strong contender to be further promoted to the Standing Committee at the next congress in 2022. REUTERS

The local monetary authority has issued a clarification regarding the use of online lending platforms, noting that ‘follow-up actions will be taken by the Authority on those illegal acts under relevant legal provisions.’ These are denoted in the ‘Financial System Act of Macao.’ These acts include ‘the provision of lending services through the Internet or other electronic means,’ according to a release by the Monetary Authority of Macau (AMCM), noting also that promoting, marketing, or the offer of ‘any regulated financial activities or relevant financial products or services targeting at Macao residents through the Internet or other electronic means,’ is considered ‘an offence’ when infringing on the Financial System Act. The AMCM also notes that for entities ‘matching up the financial needs of borrowers and the fund availability ‘and bringing both parties together to reach private loan agreements,’ would not be the subject of financial supervision, however that these could not include granting of loans, taking deposits or fund settlement. If a dispute arose in these private loan taking cases ‘the lenders may have to settle such disputes by taking themselves civil proceedings against the borrowers,’ and that ‘participants in these platforms must pay particular attention to the relevant risks involved. KW

China aims to pass a national supervision law and set up a new commission next year to oversee an expansion of President Xi Jinping’s campaign to fight corruption in the ruling Communist Party and government, the party said yesterday.

The moves will be made during the country’s annual meeting of parliament early next year, the Central Commission for Discipline Inspection (CCDI), the party’s anti-graft watchdog, said in its report to a five-yearly party congress last week.

The report, issued by the official Xinhua news agency, had not been previously released, and gave few other details on the commission.

“All provinces, regions and cities must closely connect regional practices, integrate reform pilot scheme experience, implement the overall plan according to the decision of the party’s Central Committee, and promote organisational integration,” the report said.

The new National Supervision Commission will take over from the CCDI and merge multiple anti-graft units, according to an announcement last year. It will also expand the purview of Xi’s anti-graft campaign to include employees at statebacked institutions who are not necessarily party members. REUTERS