Page 1

Imperial Palace gets extension for maintenance Hotels Page 7

Friday, December 2 2016 Year V  Nr. 1186  MOP 6.00  Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro  Retailers

Hong Kong shopping malls eye local buyers Page 16


Legislative Assembly focuses on education Page 2


Hengqin border

Commercial exchanges with Mainland shrink Page 5

Real estate

Car entry details under discussion Page 2

Chinese think tank declares 35 cities at risk Page 8

Trail of Destruction Controversial tycoon

A Chinese businessman arrested in Beijing last year. Playing a key role in various nefarious schemes around the world. Including North Korea, Venezuela, Angola and Zimbabwe. With links leading back to Macau. And the aircraft that tragically took the lives of so many this week in Colombia. Page 4

Turning the corner

Gaming revenue rose 14.4 pct in November. Confirming the stable path embarked upon following a string of disappointing results. The figures invite observers to believe that the new resorts are attracting more mass gamblers.

Gaming grumbles

Workers' mood Gaming workers in the territory are dissatisfied with their lot. An in-depth study conducted by the Tourism Research Centre analyses every sector in the city. Concluding that gaming related jobs are the worst considered among workers. Page 3

Money monitoring for Macau

Cash control Porous borders. Now the gov’t wants to monitor cash instruments flowing into Macau. A declaration system is intended to combat money laundering. Meeting international standards, says Executive Council spokesman Leong Heng Teng. Page 3

Factory output increases Gaming revenue Page 6

HK Hang Seng Index December 1, 2016 

22,878.23 +88.46 (+0.39%) Worst Performers



China Resources Land Ltd


Sino Land Co Ltd




PetroChina Co Ltd


Belle International Holdings


Galaxy Entertainment Group


China Life Insurance Co Ltd


China Unicom Hong Kong


China Mobile Ltd


MTR Corp Ltd


China Mengniu Dairy Co Ltd


China Petroleum & Chemical


Kunlun Energy Co Ltd


Power Assets Holdings Ltd


Hong Kong & China Gas Co


Hengan International Group


China Construction Bank


Wharf Holdings Ltd/The


AIA Group Ltd


18° 21° 18°  22° 19°  23° 18°  23° 16°  22° Today

Source: Bloomberg

Best Performers



I SSN 2226-8294



Source: AccuWeather

PMI China's factory activity. It grew at its fastest rate in more than two years in November. With cheap credit and improving demand helping revive industry in the world's second largest economy. The better-than-expected pick-up in the PMI index provides fresh hope for stability. Page 8

2    Business Daily Friday, December 2 2016

Macau AL

Secretary considers

Producing professionals for the future Legislators consider proposal by Secretary for Social Affairs and Culture Alexis Tam insufficient to educate future bilingual professionals and employees for the tourism sector Nelson Moura


support plan for helping language students pay loans for perfecting Mandarin and other languages abroad; establishing a formation base for Portuguese and Mandarin bilingual qualified personnel and the increase of scholarships for bilingual education were some of the measures announced yesterday at the Legislative Assembly (AL) by Secretary for Social Affairs and Culture Alexis Tam for next year. “During the 5th Ministerial Conference, Premier Li Keqiang asked us to develop Macau as an education centre for Mandarin and Portuguese bilingual professionals. We have 10 public schools, great platforms for Portuguese study(…) we will reinforce the scholarships for resident students to go study in Portugal, and (give) subsidies to schools providing Portuguese language courses,” the Secretary stated. However, Legislator Chan Melinda Mei Yi said government work in promoting Portuguese hasn’t been extensive enough, stating that currently “only 3,800 students are studying

Portuguese in Macau, less than 5 per cent of all students.” “You mentioned the base for bilingual formation - a good thought but with such a small number how can you persuade residents to study it?” the Legislator asked. Legislators also considered that the current LAG plans for the tourism sector for next year fail to address problems faced by employees in the hotel sector and the lack of human resources in the city. “We’re a tourist city but our tourist guides and drivers of tour buses have low wages and commissions. Hotel sector supervisors of housekeeping receive an average of MOP8,000 (US$1000) per month. We should provide better benefits to these employees,” Ms. Chan stated. Other legislators proposed that Macau adopt similar measures to countries such as Switzerland, Germany and Denmark where mechanisms are in place for adjusting specialised education to industry job vacancies. In his response, the Secretary stated that the population of Macau is not just “as numerous as that of a country” creating problems of filling positions. “In Macau only for one type of profession it is hard to find workers and

organise professional courses. We have specialised courses for hotels but it’s hard to organise more because the student source is an obstacle for them. It doesn’t mean we don’t do anything; we try to contact large companies for professional partnerships,” he stated.

Blue skies

Secretary Alexis Tam also stated that under the ‘Blue Skies’ project, three schools located in buildings had already been located to open spaces, estimating 10 schools will be able to change location in the next 10 to 15 years, with the extended time being due to lack of available land. “We talked to Secretary for Transport

and Public Works Raimundo Arrais do Rosário on how new land plots can be used for the construction of schools and school parks. Some land plots have already been reclaimed by the government and we have enough land for the relocations but they still need to be cleared. Realistically, right now we don’t have enough land plots,” he stated When questioned by legislators what purpose the land where the Canidrome greyhound racing track is currently located will have should it be vacated by the operator, the Secretary only stated that the land plot would be “just another possible land plot for elderly care installations or schools.”

Health issues

Chin Iao, responded that the issue could be to do with some private clinics adulterating the ‘vouchers’ application. “We will have to increase inspection. In some cases, it seems even already deceased residents are using health vouchers,” he stated.

High-tech smoking

have proposed the government install ‘high-tech’ smoking [apparatus] that “wouldn’t allow any kind of secondhand smoke”, with the government currently consulting gaming workers on the issue.

Some legislators questioned the government why around MOP100 million of the MOP300 million handed out to private clinics as ‘health vouchers’ for residents didn’t seem to have been used. The Director of the Health Bureau, Lei

Legislators also questioned the effectiveness of casino smoking lounges currently being discussed by the second sub-committee, with the Secretary responding that the six gaming operators


Winning with class Aristocrat posts 88 pct y-o-y increase in profit for fiscal 2016 Kelsey Wilhelm

The local market has helped push the ‘exceptional operational performance’ seen by Aristocrat for its 2016 financial year, according to the group’s filing with the Australia Stock Exchange (ASX). The group saw an 88 per cent increase in net profit after tax (NPAT) year-on-year for fiscal 2016, reaching AU$350 million (MOP2.07 billion/HKD2 billion) with nearly 50 per cent of its revenue derived from

recurring sources. Revenue reached AU$2.13 billion during the 12-month period,ending September 30, a 34 per cent increase year-on-year. In the filing the group highlights a ‘Significant lift in revenue and profit driven by Macau openings and churn, together with growth in Europe.’

Expanding and intensifying

The group’s earnings before interest, taxation, depreciation and amortization (EBITDA) also saw a 48 per cent

year-on-year increase as it continued to gain market share in Europe, the U.S. and throughout Asia. ‘Aristocrat’s momentum will result in competitive pressures intensifying over the next one to two years,’ notes an analyst at Telsey Advisory Group, predicting that competitors such as IGT will hone in on the slot market, EVRI will gain further market share, and Scientific Games will ‘continue compressing its product focus.’ The group’s gaming operations made up 36 per cent of its revenue during the fiscal year, with 50 per cent of revenue derived from Class 3 outright sales, which posted 29.7 per cent year-onyear growth in the group’s overall international results.

The group’s digital segment - which comprised 13 per cent of its revenue for the fiscal year as compared to 6 per cent in the previous year

- saw 82 per cent year-onyear growth in its revenue, and a 127.1 per cent increase in the group’s segment profit year-on-year.



Macao Customs officer arrested

Hengqin car details further discussed

Judiciary Police (PJ) is investigating a fake credit card syndicate involving an officer from Macao Customs Service, who has been arrested, according to a press release published by the Macao Customs Service yesterday. The case is now under judicial investigation by relevant government departments. The Macao Customs Service took immediate internal disciplinary proceedings regarding the offence. The Customs Service said that it did not involve daily duties of the officer. However, the nature of the case is considered to be serious and has a negative impact upon society, the press release noted. The official’s superiors have launched a necessary review of the case and convened meetings with other officers at all levels to ensure that the normal daily work is not affected by this incident. “This case has once again reminded

The MSAR Government has discussed further details on the policy allowing Macau licensed vehicles to enter Hengqin with the Zhuhai authorities, a press release from the Office Secretary for Security announced yesterday. The meeting, held on Wednesday in the MSAR, discussed the requirements for local vehicles entering the Mainland island, as well as the latest proposals for managing the policy. The Office said in the release that the meeting sought to ensure the policy could be implemented on

our colleagues that once they have violated the law it will be seriously dealt with and will not be tolerated,” Director-General of the Macao Customs Service Alex Vong Iao Lek (pictured) said on the sidelines of the press conference at Government Headquarters yesterday. A.L.

December 20 as announced, hoping the exact proposal and other procedures for local drivers applying for entry or purchasing insurance would be announced in the short term. The Office added that the government would continue to co-operate with the Guangdong and Zhuhai municipal governments in order to carry out measures benefiting Macau residents. The meeting was led by the Secretary for Security, Wong Sio Chak, and Zhuhai’s municipal committee member Zhang Qiang. A.L.

Business Daily Friday, December 2 2016    3

Macau Mood data

Study finds gaming workers dissatisfied But workers from all sectors tend to be more satisfied with work in 2015 when compared to the year before Cecilia U


aming workers in the city tend to be the most dissatisfied with their jobs among all available industries in the year 2015. According to the Macao Human Resource Monitor Project (MHRM) conducted by the IFT Tourism Research Centre (ITRC) workers engaged in the gaming and casino industry were generally disatisfied with their job, believed they were receiving less fair compensation and benefits (C&B), had lower intention to stay, and higher job stress in the year 2015. In comparison to the data collected in 2014, the level of the aforementioned indicators remained at the same level

except for the level for the intention to stay, which increased from the mean 3.03 to 3.17 year-on-year. Similarly, the data shows that employees involved in retail and wholesale, food & beverage (F&B) and finance have lower ratings compared to workers in other industries. However, the overall ratings, according to the results of MHRM for 2015, demonstrate improving trends. In the hotels and resorts sector the ratings of all four indicators saw increased scores, with employees working in hospitality feeling more satisfied with their jobs, more fairly paid, less stressed and with better intentions to stay. Last year, the results indicated that workers of all industries had a higher

intention to stay compared to the data collected in 2014, with F&B being the only exception as its data remained more or less unchanged.

Highest unrealistic promotion expectations

The MHRM results also reveal that individuals working in sectors such as retail, gaming, public administration and finance exhibited the higher tendency towards optimistic bias – which means the expectation to get promoted by employees is less than what is normally required - in their promotion perception. In general, workers in the city anticipate promotion within 1.31 years. On the other hand, the average

intent to stay in their current job reveals that gaming and casino workers obtain slightly higher scores at around 3.17 than the lowest score of 3.07 for construction workers. The data also reveals a significant difference between workers who work in shifts and those who do not. Workers who are not required to work shifts demonstrated a greater intention to stay. Since workers engaged in gaming and casinos are mostly required to work shifts the intention to stay as a gaming worker tends to be lower. Meanwhile, employees who work for the manufacturing industry have the highest intention to stay in comparison to the other 18 sectors in the city. In addition, the 2015 MHRM revealed that the average length of time for a worker, irrespective of the industry that the worker is involved in, is 3.26 years, which has slightly increased compared to 3.24 years recorded in 2014. Workers involved in the gaming industry, according to the 2015 data, have above average years of worker’s tenure at 4.95 years.


Gov’t: Plans for cash declaration at Immigration Cash or cheques of more than MOP120,000 will need to be declared upon entering Macau Annie Lao

The MSAR Government plans to introduce a bill for the supervision of cash brought into Macau through Immigration via a declaration system. The measure intends to combat and prevent money-laundering activities in the city, the Executive Council spokesman Leong Heng Teng said when introducing the bill at a press

conference at Government Headquarters yesterday. “This declaration requirement is in line with the international requirements of anti-money laundering and combating the finance of terrorism,” Mr Leong announced. Visitors or residents who carry cash or negotiable instruments worth equal to or more than MOP120,000 (US$15,022) must declare them via a red declaration channel at Customs,


CGD potential downgrade to junk Canadian rating agency DBRS has stated that its rating for Portuguese bank Caixa Geral de Depósitos (CGD) could be downgraded to ‘junk’ following an evaluation of the impact created by the recent resignation of the bank’s President of the Administrative Council along with six other administrators. CGD and its subsidiaries are currently ‘Under Review with Negative Implications,’ notes the rating agency in an announcement released earlier this week. DBRS will be the last of the rating agencies to shift the bank’s rating to junk, which publication Observador notes will end the chance for the European Central Bank to buy the bank’s debt through its asset purchase programme to help alleviate interest payments demanded by the bank’s investors for buying public debt. The agency notes that it ‘expects the

Group to be weakly capitalised for longer than initially envisaged’ as the group continues its recapitalisation plan with the Portuguese Government acting as sole shareholder and capital injector of up to 2.7 billion euros, among other share transfers and bond conversions. The agency notes that it will ‘consider how the recent resignation of the majority of the board of directors […] will affect the planned restructuring.’ António Domingues resigned from his role as administrative council president of the parent company of local bank BNU Macau early this week, having spent only three months in the role, after refusing to adhere to legislation passed in the Portuguese parliament mandating that administrators of the stateowned bank would have to present an asset declaration to the country’s Constitutional Court (TC). N.M. and K.W.

according to Mr Leong. “If the person is in breach of the declaration obligation, the person will be fined MOP1,000 to MOP500,000 or equivalent to 1 per cent to 5 per cent of the amount required to be declared,” Leong said. The bill will be handed to the Legislative Assembly (AL) for consideration, he added.

Civil service reform

In addition, the government will revise the current civil servant system through two phases, Mr Leong said: “In the first phase of reform, it proposes to revise the salary rate for some special civil servant positions, including marine traffic controllers, topographic surveyors and hydrologists.” Once the revision is completed, these positions will have the same entry criteria as for similar level positions, he explained. “The required education degree for senior technician positions will also be clearly listed,” Mr. Leong added. The Executive Council has now completed the first phase of discussion

on the bill, he said, while the second phase of the amendment will review general and special civil servant positions, including length of service required before being transferred to another job and revising the job descriptions. After completing consultation and evaluation of different opinions the government will present a comprehensive reform bill, Mr Leong concluded.

Bus Service

DSAT mulling future of city’s bus service Lam Hin San, Director of the Transport Bureau (DSAT), said the department is currently working on future bus management plans, including the different contract treatments for the three bus companies in the city. Director Lam said the plan intends to review the strengths and weaknesses of the current bus operational mechanism in the city as well as analyzing neighbouring regions’ bus service management. However, Director Lam said the work requires time to be completed and that the Bureau is open to different opinions. This was in response to legislator Chan Meng Kam’s written enquiry asking about the current progress of the renewal of the bus contracts and reviews to be conducted on the city’s bus service. Director Lam said that the Bureau must ensure a smooth transition of stable city bus services and reduce the impact on the city’s bus drivers by

gradually improving the bus service. According to the official DSAT data, spanning January to September this year, the daily bus capacity in the city is 553,000 passengers. In September, the average daily carrying capacity was 588,000, an increase of 3.4 per cent year-on-year, with average daily bus operation up 8 per cent. A.L.

4    Business Daily Friday, December 2 2016

Macau Opinion

Pedro Cortés*

The usual suspect One of the good things for the publishers of news in Macau and for those who try to opine, like myself, is that a particular member of the Legislative Assembly seems to have a penchant for bombastic declarations whenever he speaks for the plenary. Not infrequently these ‘speeches’ are subsequently aired in the newspapers for free. This time it was the fact that the police forces still speak in Portuguese when they swear the oath for the flag in Macau or when issuing commands. His friends find it strange that he has airtime in the house of the people of Macau to address such an ‘important’ issue. Worse than that is the fact that the Chief Executive of Macau appointed him for a 4-year term as a member of the Legislative Assembly. Fortunately, the Secretary - who appears to be catapulting himself to pole position for the next Chief Executive of Macau elections - has already responded with a stately speech, affirming that the culture and the heritage of Macau are all-inclusive and that Macau is what it is today because of that very legacy. The referred member appointed by the Chief Executive seems to forget the fact that the Portuguese language is still an official language in Macau despite all that has been done. I may even add to the wise and remarkable words of Secretary Wong that the fact that Macau is today what it is – globally recognised as the capital of gaming and entertainment – is due to the legal system and the fact that the legal concepts have been consolidated for a long time, even if sometimes those concepts and principles are not respected by the authorities. One cannot believe that a member of the Legislative Assembly does not understand that as it is stated in the Basic Law of Macau. When we hear that the Macau Government is preparing a law to prevent situations a la Hong Kong it would be good to also include in such legislation that the members of the Legislative Assembly be requested to respect the Basic Law of Macau and restrain themselves from public utterances which contradict and undermine the mini-Constitution of Macau. Luckily, or not, it might be the last term which, to speak frankly, is not good news for those who try to write some columns lacking sometimes the inspiration for that, as is my case today. *lawyer and frequent contributor to this newspaper.


Again, Sam? Sam Pa - one of the most secretive of Hong Kongbased businessmen – is familiar with Pyongyang, Macau and the airplane that crashed in Colombia. João Paulo Meneses in Portugal


he chartered plane with a Brazilian first division football team that crashed near Medellin killing 71 people was the property of Venezuelan businessman and former politician Ricardo Albacete Vidal. But the sponsor and first investor in his LaMia airline company is the renowned Sam Pa. S a m Pa, t h e c o n t r o v e r s i a l businessman.

Sam Pa, according to the Financial Times, controls a ‘secretive Hong Kong-based business network at the heart of China’s advance into Africa.’ He was detained last year in Beijing on suspicion of corruption. There are thousands of reports and news items about Sam Pa’s activities – and all of them link him to Macau. In 2004, Sam Pa and his associates arrived in Venezuela to explore the opportunities presented by oil. A few months later, Pa and his partner Lo Fung Hung were guests on ‘Alo Presidente,’ a TV programme hosted by former Venezuelan President Hugo Chavez. Chavez presented Lo as the “daughter of a Chinese general, someone who comes from a family with a military tradition and who is now the manager of a global company.” In truth, Lo is married to Wang Xiangfei, manager of several China Fund International-linked companies. China Fund International is one of the most important of Sam Pa’s enterprises. Seven years after the Chavez meeting, Ricardo Albacete Vidal said in a television interview that the LaMia airplane operation was only possible because of the financial support of Sam Pa.

North Korea, Venezuela, Zimbabwe

U.S. researcher JR Mailey describes Sam Pa’s activities as “the prototypical predatory investor” and produced a much cited report in which he describes how Pa does business: “Having allegedly bribed African government officials and engaged in illicit arms trafficking and diamond smuggling, Queensway’s [the foremost holding, in Hong Kong] deals in Africa have often had a disastrous impact on governance. (…) Promised high-profile infrastructure construction projects regularly fail to materialise. Allegations of corruption among senior government

officials who control natural resource contracts are widespread. Reputable extractive firms are cut out of the market, undermining the long-term health of the resource sector. And unaccountable governments are able to persist, propped up by the infusion of financial and material support to the regimes in power.” Scouting for local business, Sam Pa helped North Korea and its secretive KKG obtain foreign currency for the Pyongyang regime. But he was discovered and North Korean activities subsequently blocked. Another destination chosen by Sam Pa was Zimbabwe. But again, things went wrong: The U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned Pa, a well known supporter of the Mugabe regime, in 2014, saying: ‘Sam Pa is being designated for undermining democratic processes and institutions in Zimbabwe, facilitating public corruption by Zimbabwean senior officials through illicit diamond deals, and providing financial and logistical support to the Government of Zimbabwe.’

Sam Pa is an Angolan citizen, with tied connections to Eduardo dos Santos, president and creator of China Sonangol International Holdings, based in Hong Kong. Angolan vice-president Domingos Vicente is reportedly an associate.


The mysterious Chinese investment tycoon was arrested in October, 2015 in Beijing. Several sources said his arrest was linked to a major corruption enquiry involving China’s state-owned oil company Sinopec. But since the notice of his arrest nothing more has been heard. Is he languishing in prison? Charged with what?

“The acquired fields in Angola since 2008 have become black holes for Sinopec, with the company continuing to invest without generating any commercial returns” The Chinese Caixin magazine wrote a story on Sam Pa

Guangxi in Macau

He needed new markets and new perspectives for his deals and according to several sources found what he needed in Macau. It is not clear who his contacts are or who introduced him to Helder Bataglia, but it seems it was this Portuguese-Angolan businessman, founder and president of the Portuguese Escom Group, who opened the doors to Angola and Venezuela. No direct connections from Bataglia to Macau are known, but this is just one of the many hazy points in the course of these two entrepreneurs. Sam and Bataglia will be doing business together, especially in Angola, involving the Sonangol oil company. The Chinese Caixin magazine wrote a story on Sam Pa saying: ‘The acquired fields in Angola since 2008 have become black holes for Sinopec, with the company continuing to invest without generating any commercial returns.’

At the same time as his arrest, Su Shulin, the Governor of Fujian Province, and former boss of China’s state-owned oil giant Sinopec, was “accused of helping a relative to secure contracts to build a massive oil depot in China. (…) Among the deals investigators are reportedly examining is a huge deal which saw Mr. Pa act as a middleman or fixer to secure Sinopec a lucrative slice of Angola’s oilfields” (quoted from an investigative news report from The Independent). Coincidental or not, these cases were revealed as part of the anti-corruption campaign launched by President Xi Jinping. “Pa’s story captivated journalists and investigators the world over. He went from being a bankrupt arms dealer in the late 1990s to commanding a multi-billion dollar corporate empire in under a decade,” says U.S. researcher JR Mailey.

The AKA Man

Ka Leung [used in the first Hong Kong business] and Antonio Famtosonghiu Sampo Menezes, his Angolan moniker. Pa was born in February, 1958 of Chinese nationality, but also holds a British passport as well as his Angolan document.

Just one airplane

a licence to fly, according to Venezuela’s Civil Aviation Authority, quoted by the international press. That’s why Albacete later rented out the three planes to LAMIA Bolivia, a separate corporate entity. The same British-made aircraft transported Argentina’s national squad for a match earlier this month in Brazil.

When the U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned Sam Pa it also revealed some of his other names: in addition to the usual Sam Pa, he is known as Samo Hui, Xu Jinghua, Sam King, Tsui Kyung-wha, Ghiu

LaMia Venezuela is the owner of the British Aerospace 146 shorthaul plane, operated by another company called LaMia Bolivia, a charter airline with one single plane. The other two are not functioning. Albacete founded the airline in Venezuela around 2010 but his company was never granted

Business Daily Friday, December 2 2016    5

Macau Trade

MSAR-China trade slumps 38.4 pct in October But the capital used by local firms in the country surged to US$2.69 bln in the month Kam Leong


otal trade value between the Special Administrative Region and China slumped 38.4 per cent in October due to the city’s imports and exports to and from the country both being slashed, the latest official data

released by the Chinese Ministry of Commerce on Wednesday reveals. Trade value between the two parties in the month amounted to US$240 million (MOP1.92 billion), down 30.2 per cent on a month-onmonth comparison. In particular, the city saw its imports from the country slashed by 38.4 per cent year-on-year, or 30 per cent

month-on-month, amounting to US$230 million, whilst the territory’s exports to China plunged 38.2 per cent year-on-year, or 34.6 per cent month-on-month, totalling US$10 million. In the month, some 32 investment projects of local enterprises were approved by Mainland authorities, down 74.2 per cent compared to October. However, total capital used from Macau investments in the country surged 80-fold to US$2.69 billion

compared to US$37 million one month ago.

Meanwhile, some 147 other companies provide medical and dental services on the Mainland, accounting for 24 per cent of

th e t o ta l , f o l l o w e d b y 41 o f those providing convention and exhibition services, for three per cent of the total. K.L.


Accumulatively, total trade value between the MSAR and China totalled US$2.69 billion for the first ten months of the year, which means a decrease of 31.6 per cent from the same period of last year. Of the total, China’s exports to the city amounted to US$2.58 billion, a drop of 31.9 per cent year-on-year whilst its imports from the MSAR decreased 23.8 per cent year-on-year to US$110 million. In the ten months, a total of 597 investment projects of local companies have been given the green light by the country, up 80.4 per cent year-on-year. Meanwhile, total investment capital used in the Mainland from local firms soared by 291.4 per cent year-on-year to US$3.35 billion. On the other hand, the country has engaged in a total of US$430 million-worth of non-financial direct investments in the MSAR, the Ministry said, making its total non-financial investments in the city US$2.15 billion. In addition, Mainland firms were awarded 24 projects worth US$830 million in the ten months, with a total of 120,479 labourers from the Mainland working in the MSAR as at the end of October.


CEPA exports to China follow downward trend Local exports of zero tariff goods to Mainland China under the Closer Economic Partnership Arrangement (CEPA) amounted to MOP7.23 million (US$903,750) for the month of November, plunging 38.5 per cent compared to MOP11.9 million in October. On a year-on-year comparison, the city’s total CEPA exports to the country represent a slump of 40.9 per cent from MOP12.2 million one year ago. For the year so far, the country saw CEPA imports from the MSAR total MOP84.9 million, whilst accumulated exports of CEPA goods from the city to the country

reached MOP752.2 million since the agreement between the two parties implemented in January 2004. In the month, the total number o f ‘M aca u S e rvi c e S u p p l i e r’ certificates rose to 612, suggesting local authorities had granted 12 new documents for local firms and companies in the period. The certificates allow local companies and enterprises to operate their business on the Mainland and enjoy zero tariff treatment. Currently, almost half of the firms awarded such certificates are engaged in transport services, such as freight forwarding agencies, amounting to 298.

6    Business Daily Friday, December 2 2016



Best growth after a slump of over two years

Upturn in VIP boosts November gaming revenue Analysts at J.P. Morgan estimate VIP revenue grew 15 pct y-o-y in the month Kam Leong*


he city’s gaming industry saw total gross revenue post the fourth consecutive and best gain in the month of November following a slump of 26 months, up 14.4 per cent year-on-year to MOP18.8 billion (US$2.4 billion), official data released yesterday by the Gaming Inspection and Co-ordination Bureau reveals. Accumulated gross gaming revenue for the eleven months of the year has totalled MOP203.4 billion, representing a decrease of 4.3 per cent compared to the same period last year. Despite representing a month-onmonth decline of 13.8 per cent from

MOP21.8 billion in October, analysts at J.P. Morgan reckon the result is ‘quite impressive’ and is primarily driven by the turnaround of the VIP segment. ‘Average daily revenues came in at MOP626 million [per day], which is quite impressive considering November is a seasonally soft month,’ wrote the brokerage in a note yesterday. ‘Note that this is even higher than recent holiday months, such as May (MOP593 million per day) or July or August (MOP590 million per day).’

Strong VIP turnaround

The analysts, led by DS Kim, believe gross gaming revenue derived from the VIP market jumped more than


Exhibition sales and requested donation to help the blind

The Association for the Promotion and Development of the Guia Circuit is in the process of selling items from the recent ‘Pole Position’ photography and painting exhibition by Association president José L.R. Estorninho, with all proceeds to be dedicated to the Rehabilitation Centre for the Blind of the Holy House of

Mercy. In addition to the proceeds from the sale the Association is requesting a MOP250,000 donation from Sociedade de Jogos de Macau as part of the group’s annual activity programme. The exposition brought together 111 works by Estorninho, all relating to the Guia Circuit, in particular to the race car drivers, featuring champions such as Macau GP 2000 Formula 3 winner André Couto.

15 per cent year-on-year in the month, which they describe as ‘a significant turnaround’ compared to a drop of 7 per cent for the third quarter or the increase of five per cent in October. ‘Based on checks with junkets […] VIP is seemingly entering an upcycle here, as some pent up demand is finally returning after [over two] years of downturn,’ they wrote. The turnaround, in the analysts’ opinion, is boosted by ‘a combination of better macro backdrop, improved player confidence, better junket liquidity and recent new openings.’ The J.P. Morgan analysts also believe the upturn will be sustainable, as supported by a market-wide recovery in nearly all segments and properties, the return of both dormant and new high rollers, as well as continued strong growth in the city’s quality visitations such as individual travellers and overnight visitors. ‘We believe the industry has entered genuine upturns in demand, profits and cash-flows, which in turn should drive sustainable earnings upgrades and allow investors to enjoy predictable returns,’ the J.P. Morgan analysts wrote. HSBC Holdings Plc. analyst Charlene Liu also noted there is “genuine and sustained” VIP demand as rooms for those premium players re-opened for the first time in two years and the availability of credit increased. That comes as the Chinese government announced this week a 10 per cent tax on luxury cars in a bid to combat conspicuous consumption and promote more fuel efficient vehicles.

Casino shares up

Macau casino shares gained after the release, with SJM Holdings Ltd. advancing as much as 4.1 per cent,

while Sands China Ltd. increased 2.8 per cent in Hong Kong in trading on Thursday. The Bloomberg Intelligence Macau Gaming Index rose by as much as 2.5 per cent. Lawrence Ho, Melco Crown Chairman and Chief Executive Officer, said the industry is experiencing a healthy rebound. “We’re in a recovery. That recovery is not going to be the same as the recovery during the global financial crisis,” Mr. Ho said in an interview on Tuesday. “It’s going to be more of a natural recovery.” Despite positive signs of a rebound, the city’s government floated a conservative forecast for gambling revenue next year, keeping it unchanged from 2016 at MOP200 billion. That is 13 per cent below analysts’ estimates. The government has pushed operators such as Las Vegas Sands and Galaxy Entertainment Group Ltd. to focus on tourists instead of the high rollers the industry has relied upon in previous years.

Maintain upward trend

Gross gaming revenue for Macau casinos is expected to be flat to up to 10 per cent next year, versus an estimated 3-6 per cent drop this year and a sharp drop of 34 per cent in 2015, said Sophie Lin, a credit analyst at S&P global ratings. “The opening and ramping up of new casinos, better infrastructure connecting Macau with Mainland China, and stabilising regulations are the major factors that will fuel a rebound in the gaming industry,” Ms. Lin added. Meanwhile, analysts at J.P. Morgan are now projecting higher growth of between 7 per cent and 12 per cent for next year’s gaming revenue, up from the previous expected increase of 6 per cent to 9 per cent. *with Bloomberg & Reuters

Business Daily Friday, December 2 2016    7

Macau Hotels

Imperial Palace gets three-month extension for maintenance Although the authorities have not received any works requests from the hotel operator


do cleaning and maintenance works inside the venue from August 12 to November 11. In an emailed reply to Business Daily’s enquiry, MGTO said it had approved prolonging the period until

January 11 next year at the request of the hotel operator. ‘Up to [this] date, MGTO has not received any related document or application regarding projects of maintenance, restoration or

legalisation,’ the Office wrote in the email. The Beijing Imperial Palace Hotel - formerly known as New Century Hotel - is the first 5-star hotel in the city to temporarily be closed by the MSAR Government. The property may face permanent closure if it cannot meet the standards required by the authorities following the temporary shutdown, the tourism office said recently. K.L.

he Beijing Imperial Palace Hotel has been granted three more months to fix its facilities and correct irregularities; that is, until mid-January next year, Business Daily has learned from Macao Government Tourism Office (MGTO). But the tourism body noted that the operator has not filed any application or related documents for maintenance or restoration works so far. In July, the Office ordered the hotel property to close for half a year as it had committed serious administrative irregularities and failed to carry out essential fire safety measures. The hotel was then approved by the tourism body to dispatch workers to


Studio City completes US$12 bln senior secured notes offer Studio City Company Limited (SCC) has completed US$1.2 billion (MOP9.57 billion/HK$9.31 billion) in total value international offerings of

senior secured notes - loans backed by the borrower’s assets - due in 2019 and 2020 in order to help repay a HKD10.8 billion (US$1.4 billion)

loan arranged in 2013, a company release has announced. The international offering of senior secured notes consists of US$350

million in senior aggregate principal of secured notes due in 2019 with a 5.875 per cent rate of interest, and US$850 million due in 2021 at 7.25 per cent interest. SCC is a subsidiary of Studio City International Holdings Limited, a group with a 60 per cent share held by Melco Crown Entertainment Limited. The lenders’ names have still not been revealed in the new release, which also adds that an agreement with Bank of China Ltd. and its Macau branch has been entered into by the company in order to ‘amend, restate and extend’ existing senior secured credit facilities totalling HK$234 million, comprising a HK$233 million revolving credit facility and a HK$1 million term loan facility. N.M.



Neptune: Annual results further delayed

Portugal’s winning streak

Following the announcement notifying a delay in the release of its annual results earlier in November, local junket operator Neptune Group Ltd. has announced a further delay for the 2015/2016 annual results, as well as the dispatch of the 2015/2016 annual report, according to the company’s latest filing released to the Hong Kong Stock Exchange. The report is now expected to be published on December 19 this year, according to the group’s filing. The company revealed that it is seeking security for the unpaid amount of accounts receivable. The junket operator also indicated that it has entered into agreements w i th o th e r j u n k e t o p e ra t o rs

r ega r di n g p l e dg es o f c e rtai n properties in Macau to act as surety for part of the outstanding accounts receivable. According to the filing, auditors also requested, and the company has been providing, further supporting information or evidence, including Macau legal opinions on the validity and enforceability of the recent property pledges. Given the time required for the completion of registration of the pledges on the land registry in the MSAR and the finalisation of the supporting information as required by the auditors, the audit of the consolidated financial statements for 2015/2016 is still in progress. C.U.

Stanley Ho’s casino in Portugal tripled its consolidated net income y-o-y in the first nine months of 2016 Nelson Moura

Portuguese gaming and tourism group Estoril Sol, S.A. saw a 155 per cent increase in its consolidated net results year-on-year for the first nine months of 2016, reaching 6.2 million euros (MOP52.5 million/US$6.5 million) according to a company filing with the Portuguese Securities Market Commission (CMVM). Ac c o r d i n g t o t h e f i l i n g, a ‘favourable combination of game revenues growth, substantial financial bank debt reduction and cost structure stability’ brought about the increase. The group, owned by local magnate Stanley Hung Sun Ho, operates three of Portugal’s largest casinos through subsidiaries; namely, the Casino Estoril, Casino Lisbon and Casino da Póvoa. The group recorded a 3 per cent increase in gaming revenues year-on-year, to 138.7 million euros over the nine-month period. The group’s gaming operations represented 63 per cent of total gaming revenue produced by the gaming sector of Portugal in the same period, which reached 221.7 million

euros and registered a 3.2 per cent increase from last year. The group has also been authorised by the Portuguese gaming commission in July of this year to explore online gaming for a period of three years, with the group’s online segment producing 1.2 million euros during the first nine months of 2016. The group’s earnings before interest, tax, depreciation and amortisation (EBITDA) also registered a 10.8 per cent increase to 24.5 million euros in the period.

8    Business Daily Friday, December 2 2016

Greater China Official data

Manufacturing heats up while inflation pressure builds New export orders also increased, although they were barely in expansionary territory Elias Glenn


ctivity i n C h i n a’ s manufacturing sector grew more than expected in November, expanding at its strongest pace in more than two years, as the world’s second-largest economy picks up momentum heading into what promises to be a tumultuous 2017. After a rocky start to the year, China’s factories have perked up in recent months, buoyed by a government infrastructure building spree and a housing boom that is starting to show signs of fatigue. Growth has also accelerated in the services sector to levels not seen since 2014, pointing to improvement not only in heavy industries like steel but also in the broader economy. “The next move by the central bank will be an (interest rate) hike instead of a cut,” said Raymond Yeung, chief economist of Greater China for ANZ in Hong Kong. “But we believe that won’t happen over the next 12 months because the current environment is still very vulnerable.” The official Purchasing Managers’ Index (PMI) rose to 51.7 in November from previous month’s 51.2 and above the 50-point mark that separates growth from contraction on a monthly basis. November’s reading was above the prediction of a Reuters poll for 51.0 and matched a previous high in July 2014. The last time China’s PMI was higher was in April 2012, when it was 53.3. The official survey also pointed to building inflationary pressures, as the construction frenzy and reductions in excess industrial capacity have spurred a spectacular months-long rally in Chinese commodity prices. A sub-index for raw materials prices jumped to 68.3 in November from 62.6 in October, and a drop in inventories suggested a fresh round of factory restocking ahead. But ANZ’s Yeung doesn’t think the

higher producer prices will present immediate challenges for the central bank as they won’t filter through to consumers until the end of next year. Moreover, commodities’ futures prices have plunged this week, with steel seeing its worst one-day plunge on record, as major trading exchanges took further steps to curb speculation.

Economy stabilising, bracing for a bumpy ride

China’s economy expanded at a steady 6.7 per cent clip in the third quarter and looks set to hit Beijing’s full-year target of 6.5 to 7 per cent, fuelled by stronger government spending, record bank lending and the red-hot property market that are adding to its growing pile of debt. Factory output quickened in November, with the sub-index rising to 53.9 from 53.3, the official survey showed. Total new orders saw another month of solid improvement, rising to 53.2 from October’s 52.8. But large firms continued to outperform smaller ones, with the gap widening in November, highlighting that the government’s dependence on big state firms for growth this year has not changed. Indeed, an independent factory survey published by Caixin/Markit yesterday focusing on smaller companies showed more modest

growth that slowed from October. “Overall, we judge that the economy has gained momentum in the short term but the quality of growth may have deteriorated, as evidenced by a further drop in the official PMI for small enterprises and a drop in the Caixin PMI,” economists at Nomura said in a note.

Key Points China economy appears to be gaining momentum Manufacturing grows faster than expected Service sector expands at fastest pace since June 2014 Gov’t attempts to cool property market a major risk Rise of protectionism could hurt investment, trade next year A m eas u r e o f c o n st r u c t i o n industry activity in a separate nonmanufacturing survey published yesterday stood at 60.4, softening from 61.8 in October but still high as the government races to build new roads, rail lines and ports to buoy growth. But the property sector saw a nottoo-surprising fall as the sizzling housing market cools down following a slew of tightening measures

imposed by policymakers who are fearful of a property bubble. New export orders also increased, th o u gh th e y w e r e ba r e l y i n expansionary territory. Any pickup in external demand will be welcome for China’s massive factory sector as the housing boom looks set to fade and worries grow about a potential trade war with the United States as President-elect Donald Trump prepares to take charge. During the election campaign, Trump had threatened to slap high tariffs on Chinese goods and said he would brand China a currency manipulator on Jan. 20, his first day in office. Trump’s upset win has already fuelled a surge in the U.S. dollar, helping to push the yuan currency to 8-1/2-year lows and threatening China’s policymakers with a surge in capital outflows. A separate reading on the services sector also showed the pace of growth quickened in November from the previous month. The official non-manufacturing Purchasing Managers’ Index (PMI) stood at 54.7 in November, the strongest since June 2014. That compared with the previous month’s reading of 54.0 and remained well above the mark that separates growth from contraction on a monthly basis. Reuters


Think tank classifies 35 cities at “high risk” A report said the risk of falling property prices was more severe than seen in 2010 A Chinese government think tank has identified 35 major cities with over-valued property markets, saying they face more severe risks of falling home prices than seen in previous property boom cycles. Among the 35 major cities, China’s first-tier centres - Shenzhen, Shanghai, Beijing and Tianjin, and second-tier cities - Xiamen, Nanjing, Zhengzhou, Hefei, Shijiazhuang and Fuzhou were said to be the 10 cities most exposed to property market risks. “Those over-valued property markets are highly likely to see a slowdown in price growth or even a downright price fall, for which we should be on high alert,” the think tank said. The National Academy of Economic Strategy, a part of the Chinese Academy of Social Sciences (CASS),

warned in a report dated Nov.30 that an “overcorrecting” property market

would drag on economic growth and impair financial stability. It said short-term housing policies should be improved to guide a property “soft landing”. Home and residential land prices

have soared in many parts of China this year, prompting authorities to impose a range of restrictions on buyers and curbs on developers’ ability to raise funds. Shanghai and Tianjin, which were among a number of China’s first- and second-tier cities that adopted extensive tightening measures during the first week of October, introduced fresh curbs this week in what’s been dubbed the “third wave” of tightening measures. The academy’s report said the risk of falling property prices was more severe than seen in 2010, the year before the market deflated in 2011 when the government introduced multiple curbs to tame soaring prices. However, overall property risks at the national level were still “controllable”, it added, citing reasons such as the availability of “many tools” to adjust the market, without elaborating on specific options. Ding Ruxi, a researcher at the academy, said value of assessing the 35 cities most at risk was well established. They include 23 provincial capitals, five municipalities, and a few other major centres. Reuters

Business Daily Friday, December 2 2016    9

Greater China 2017 forecast

In Brief

PBOC advisor warns of risks to growth The expert said speculation in the depreciation of the yuan would curb expansionary monetary policies China’s economy faces risks to growth next year from an expected slowdown in the property market, a central bank adviser told the official China Securities Journal. Huang Yiping, a monetary policy committee member of the People’s Bank of China (PBOC) and Peking University professor, told the newspaper the fourth quarter of the year and early next year could bring fresh downward pressure on growth.

“I predict that in December and January next year economic activity will be more feeble, increasing economic risks for next year”

Huang said, underlining the risks for the world’s second largest economy despite recent signs of stabilising growth. A red-hot housing market, a big support for growth this year, is expected to have slowed in November on the back of a recent raft of curbs to cool prices, Huang said. Therefore, the property market will provide less support to growth than in the past year or so, he said, suggesting the government should set annual economic growth target at a 6-7 per cent range for 2017, compared with

third quarter growth of 6.7 per cent. Huang also told the newspaper that speculation of depreciation in the yuan would curb expansionary monetary policies. “To reverse the depreciation speculation fundamentally, we will continue to work on structural reform and stabilise the expectation for economic growth,” he said. The yuan has hit the skids in recent weeks, slumping to 8-1/2-year lows and prompting the central bank to impose curbs on capital flows and intervening in the forex market to stabilise the currency. Economists have warned the recent uptick in the economy may be shortlived and say the recovery appears to be driven more by monetary easing that reforms. Reuters

Unified rules

One-stop resource portal tested In the latest effort to simplify nationwide access to public resources, China will launch a unified public resource website on a trial basis to provide market entities with one-stop service, an official said yesterday. The hub will distribute information on construction project bidding, trading of land-use rights, government procurement, and state-owned property rights transactions, Yang Shaoliang of the State Information Center said. The portal is China’s latest move toward establishing a unified system of rules, information, experts and services by the end of June 2017 to streamline administration and let the market play a bigger role in resource allocation. M&A

Wanda plans shopping complex on Hainan Chinese property and entertainment giant Wanda Group will build its 16th shopping complex in Haikou, capital of south China’s Hainan Province. Wanda Group has signed a cooperation deal with authorities in Haikou for the RMB50-billion deal (US$7.2 billion). Wanda’s shopping complexes generally feature a shopping mall, IMAX cinemas and restaurants. Under the agreement, the complex to be built at a beach resort on the picturesque tropical island of Hainan will also boast a theme park, convention facilities, a bio-park and other tourist facilities and hotels. It is scheduled to open in late 2020.

Huang Yiping, a monetary policy committee member of the People’s Bank of China “I predict that in December and January next year economic activity will be more feeble, increasing economic risks for next year,” Huang said. He noted that freight demand had started to slow, while power generation and coal consumption were also weakening. “In the short term, the pressure can come from the property market,”

Dalai Lama row

Government slaps fees on Mongolian exporters

Currency scape

Mainlanders rush to buy insurance in Hong Kong in Q3 Visitors’ new premiums accounted for 37 per cent of the total new premiums for individual business Mainland Chinese visitors bought HK$18.8 billion (US$2.42 billion) of insurance in Hong Kong in the third quarter, more than double the amount in the same period last year, as the yuan currency skidded to 8-1/2-year lows. Buying insurance products is a popular way for mainlanders to skirt restrictions and get funds out of China as they worry about further depreciation of the yuan and a slowing economy.

New insurance premiums from mainland visitors in the first nine months of the year hit HK$48.9 billion, surpassing the total for the whole of 2015, which stood at HK$31.6 billion. Hong Kong government statistics showed yesterday. Mainland visitors’ new premiums accounted for 37 per cent of the total new premiums for individual business, according to the Office of the Commissioner of Insurance. New premiums paid by mainland

visitors rose 11 per cent in the third quarter from the previous quarter and were up 1.6 times from the third quarter of 2015. The yuan has lost 10 per cent against the U.S. dollar since Beijing unexpectedly devalued it on Aug. 11 last year. Yu a n se l l i ng i nt en sified in November as the dollar strengthened, prompting Chinese state banks to intervene in recent sessions to stem the currency’s slide. A slew of investment banks have recently revised down their forecasts of the yuan/dollar exchange rates in the coming year.

‘Premiums paid by Chinese visitors rose 11 per cent in the third quarter from the previous quarter’ Worried by the risk of a surge in capital outflows, Chinese regulators have stepped up a crackdown on legal and illegal channels that allow money to be moved abroad. China’s biggest bank card provider UnionPay said at the end of October that mainland customers were not allowed to use UnionPay cards to buy any insurance products that include investment-related contents in Hong Kong. Market players say the tightening measure may start to impact new insurance premiums from mainland visitors in the fourth quarter. Reuters

A major border crossing between China and Mongolia has imposed new fees on commodity shipments between the two countries, amid a diplomatic row sparked by the visit to Ulaanbaatar of the Tibetan spiritual leader the Dalai Lama last week. The crossing in the Chinese region of Inner Mongolia would charge vehicles a transit fee of 10 yuan (US$1.45) each time they pass through the border, and would also impose an additional charge of 8 yuan per tonne for any goods they are delivering, according to a notice issued by local authorities and published by the Mongolian Mining Journal on Wednesday. Environment

Beijing to launch orange alert for heavy air pollution Beijing Municipality yesterday issued an orange alert for air pollution in the next three days. The orange alert, the second highest in a fourtier warning system, will be effective from midnight Thursday, according to the city air pollution emergency response office. An orange alert means heavy pollution - PM2.5 density of higher than 150 micrograms per cubic meter of air - for three consecutive days. When the alert is in force, outdoor activities in schools are to be cancelled, and construction projects suspended. The smog is expected to disperse Sunday evening.

10    Business Daily Friday, December 2 2016

Greater China Outflows battle

Authorities set new rules on overseas yuan loans Hong Kong’s overnight yuan borrowing rate fixed at highest level in more than two months


hina’s central bank has circulated new rules for companies which make yuan-denominated loans to overseas entities, sources with direct knowledge of the matter said, the latest in a slew of measures by Beijing to control capital outflows. The move comes after the yuan fell to more than eight-year lows, fuelling attempts by firms to get their money out of the country and leading to Beijing taking aim at outbound investments and underground banks suspected of aiding capital flight.

Parties making a yuan loan to an overseas entity must first register the loan with the State Administration of Foreign Exchange (SAFE) - the foreign exchange regulator - and must keep the loan within a certain limit, the sources told Reuters on Thursday. The limit was not specified. While net foreign-related payments processed by Chinese banks on behalf of their clients have averaged US$24 billion a month since May, net receipts are denominated in yuan rather than dollars, according to a research note by ANZ Research.

“As onshore buying of foreign currency becomes increasingly difficult, Chinese residents will be encouraged to send funds in the local currency for conversion abroad. Thus the offshore market will face stronger yuan depreciation pressure,” said the research note. The offshore yuan edged up to 6.9050 per dollar from 6.9100 yesterday after Reuters reported the new curbs, reinforcing expectations that more capital controls are to come. Hong Kong’s overnight yuan borrowing rate was fixed at the highest level in more than two months. The CNH Hong Kong Interbank Offered Rate benchmark (CNH

Hibor), set by the city’s Treasury Markets Association (TMA), rose to 4.81833 per cent for overnight contracts. It was 2.94033 per cent on Wednesday. The People’s Bank of China (PBOC) did not immediately respond to a request for comment.

“As onshore buying of foreign currency becomes increasingly difficult, Chinese residents will be encouraged to send funds in the local currency for conversion abroad” ANZ research note The lender also has to have been registered for at least a year, and the borrower has to be a related entity, according to the guidelines. “It tightens fund outflows from onshore parent to offshore subsidiary. It is trying to eliminate the arbitrage activities through entrepot trades,” said a foreign exchange banker at a foreign lender based in Shanghai, referring to trade in which imported goods are re-exported. A lender cannot make a personal loan to an overseas borrower, and also cannot use debt financing for the purpose of an overseas loan to a foreign entity. Reuters

Business Daily Friday, December 2 2016    11

Asia GDP

Slump in Australian business investment risks contraction The futures market still suggests investors see almost no chance of a rate cut at the RBA’s next policy meeting Wayne Cole


harp cutbacks in Australian business investment has opened the real possibility the economy shrank last quarter for the first time in almost six years, a blow to the conservative government of Malcolm Turnbull which has staked its future on growth. Yesterday’s figures from the Australian Bureau of Statistics’ showed investment fell 4 per cent in the third quarter, when analysts had looked for a drop of only 2.5 per cent. The investment strike among businesses is hardly confined to Australia. Firms across the globe are reluctant to invest despite superlow interest rates, often blaming unspecified political or economic uncertainty. The broad-based weakness at home will disappoint to the Reserve Bank of Australia (RBA) which has pinned much on a revival in animal spirits outside of the hard-hit mining sector. Data on gross domestic product (GDP) loom on Dec. 7 and were already looking soggy after a poor quarter for retail sales. A contraction would be highly unusual - it has only happened three times in the past 25 years. The last negative quarter was

back in 2011 and that was caused by massive flooding in Queensland. I t w o u l d a l s o b e a s e ri o u s embarrassment to Turnbull’s Liberal National government which retained power just a few months ago on a promise to deliver jobs and growth. “There is a high risk that we will see a negative GDP outcome,” warned Shane Oliver, chief economist at AMP. “I think the Reserve Bank might end up having to cut rates again.” The RBA has been on hold since cutting rates to an all-time low of

1.5 per cent back in August, partly because it fears fuelling a debt-driven bubble in home prices. Figures from property consultant CoreLogic out yesterday showed prices across Australia’s major cities rose 9.3 per cent in the year to November, up from 7.5 per cent the month before. Sydney boasted annual growth of 13.1 per cent and Melbourne 11.3 per cent, putting the nation’s two largest cities into double-figure territory. The futures market still suggests investors see almost no chance of a rate cut at the RBA’s next policy meeting on Dec. 6, the last of the year. It also implies little chance of an easing for some months to come, though any thought of a hike has also

been priced out. The RBA has argued that the long retreat in mining investment was mostly over and the renewed strength of commodity prices in recent months would bolster sentiment. Yet there was little sign of a major turnaround in the latest survey of business spending for 2016/17 which came in well under expectations at A$106.9 billion. Analysts had looked for something around A$111 billion. “The transition towards nonmining investment is taking place at a snail’s pace,” said Paul Dales, chief economist at Capital Economics. “The RBA must be getting a little concerned the economy isn’t quite as strong as it thought.” Reuters

Biz expenditure

Japan’s corporate capex falls for first time in nearly 4 years By sector, the MOF data showed capital spending by manufacturers and non-manufacturers declined 1.4 per cent and 1.3 per cent respectively Tetsushi Kajimoto

Japanese business expenditure fell in the third quarter, the first annual decline since the start of 2013, in a worrying sign that uncertainty over the economic outlook is eroding companies’ confidence. The capital spending data, which is used to calculate revised gross domestic product (GDP) due on Dec. 8, underscores concerns about a fragile recovery in the world’s third-largest economy. A preliminary estimate last month showed the Japanese economy grew at 2.2 per cent annualised in the July-September quarter, much faster than expected by economists, as rebounding exports offset weakness in domestic demand. However, a recent run of soft indicators including exports, factory output and household spending raised doubt about sustainability in the economic growth. Capital spending in July-September fell 1.3 per cent year-on-year, slowing from a 3.1 per cent annual gain in the

previous quarter, Ministry of Finance (MOF) data showed yesterday. It was the first annual decline since January-March 2013, shortly after Prime Minister Shinzo Abe swept to power with a pledge to pull the economy out of stagnation and deflation.

Key Points Q3 capex -1.3 pct yr/yr, first decline since 2013 Seasonally adjusted capex +0.4 pct qtr/qtr Recurring profits +11.5 pct yr/yr; sales -1.5pct On the quarter, capital expenditure rose 0.4 per cent from the previous three months on a seasonally-adjusted basis after excluding software spending, up for the first time in four quarters. Analysts usually watch the MOF capex data for clues on revised GDP figures, but this time is different, some say.

“It will be virtually impossible to forecast the revised July-September GDP figures ahead of time. This is because new standards of GDP measurement are being adopted from these revisions,” said Takeshi Yamaguchi, economist at Morgan Stanley MUFG Securities wrote in a report. Japan may revise up gross domestic product data when it adopts a new base year in calculating figures for revised figures for the third quarter, Cabinet Office officials said. The new standards, which will newly include research and development, will be applied to GDP data

going back to 1994 when revised figures for the prior quarter is out Dec. 8. The revision raises the level of nominal GDP across time, but the impact on GDP growth rates will be small, the officials said. By sector, the MOF data showed capital spending by manufacturers and non-manufacturers declined 1.4 per cent and 1.3 per cent respectively in July-September from a year earlier. Corporate profits rose 11.5 per cent in July-September from a year earlier, up for the first time in four quarters, while sales fell 1.5 per cent, down for the fourth straight quarter. Reuters

12    Business Daily Friday, December 2 2016

Asia Expectations beat

S. Korea’s exports rebound to highest in nearly 2 years Exports to China expanded for the first time in 17 months


outh Korea’s exports rose in November for the first time since August and at the fastest pace in nearly two years, potentially signalling a turnaround in global demand for Korean goods. Exports handily beat analysts’ expectations, growing 2.7 per cent on-year in November while imports gained 10.1 per cent, preliminary data from the trade ministry showed yesterday. “Today’s numbers are quite meaningful. In August, there was a lack of factors to ensure a sustained rise in exports, but now we have oil prices that are expected to gain further,” said Lee Sang-jae, chief economist at Eugene Investment & Securities.

Key Points Nov exports +2.7 pct y/y, imports +10.1 pct y/y Nov inflation +1.3 pct y/y (Reuters poll +1.5 pct) Shipments to China expands for the first time in 17 mths Inflation held steady at 8-mth high Lee said if the U.S. economy were to improve under a Trump administration South Korea would be able to ramp up exports in the near term, even though Trump’s protectionist statements could

presage a medium- to long-term trade risk. Economists polled by Reuters had expected a 1.2 per cent increase in exports and a 2.9 per cent rise in imports. November’s exports were the highest since December 2014 when they grew 3.1 per cent on-year. In October, exports and imports fell 3.2 per cent and 4.8 per cent, respectively. Exports to China, South Korea’s biggest trading partner, expanded for the first time in 17 months. Shipments to the U.S., Japan and India also rose. The trade surplus rose to US$8.0 billion in November from a revised US$6.97 billion surplus in October. The average value of exports per

working day inched up to US$1.90 billion in November from a revised US$1.87 billion in October, Reuters calculations showed. November this year had 1.5 more working days than October. A private survey of South Korea’s manufacturing sector out yesterday showed new export orders rising in November to the highest since July this year, although overall activity contracted. Risks lie ahead. At a global level, South Korea is nervously watching the U.S., its second-biggest trading partner, where Trump’s election to president has created a range of policy uncertainties. Government officials in Seoul have rushed to discuss strategies it could deploy when and if the Trump

administration demands changes in the bilateral trade pact with South Korea. South Korea has run a trade surplus with the U.S. since 1998, and it has widened significantly since the bilateral free trade agreement went into force in 2013. It reached a record high of US$25.8 billion in 2015, according the Korea International Trade Association, which has data going back to 1965. Separate data yesterday showed South Korea’s annual inflation in November remained unchanged at an 8-month high, thanks to a jump food prices. Inflation was at 1.3 per cent onyear, unchanged from October and remaining at its highest since February this year. Reuters

and accelerate inflation to its 2 per cent target. Some analysts interpreted the move as a sign that the BOJ would attempt to taper its huge asset purchases in the long run, amid a growing market view the central bank will run out of bonds to buy in coming years after having already gobbled up a third of the entire market. Sakurai dismissed such views, saying that the new framework was intended to make the BOJ’s ultra-loose monetary policy sustainable. “We will continue to buy huge amounts of government bonds to control interest rates,” he said. “Our yield curve control is operating smoothly,” he told reporters later in the day, adding that bond

yields were moving roughly in line with the central bank’s intentions. Sakurai also shrugged off concerns voiced by some investors that the central bank’s huge purchases were distorting Japan’s real-estate investment trust (REIT) market. “I don’t see any big distortion to the market,” he said. Sakurai has voted with the majority of the board since joining the BOJ in April, including its decision to change its policy target to interest rates.

Monetary stance

Bank of Japan policymaker pledges to maintain huge bond buying Board member said a weak yen would help accelerate inflation but stressed that it was desirable to move in a stable manner Leika Kihara

Bank of Japan board member Makoto Sakurai said the central bank will continue to buy massive amounts of government bonds even under a new policy framework targeting interest rates, shrugging off the view that its bond-buying programme was nearing a limit. But the former academic urged the government and companies to do more to help the BOJ (Bank of Japan) beat subdued inflation and growth in Japan by raising wages and promoting innovation. “There is no magic wand” to pull Japan’s economy out of the doldrums, Sakurai said in a speech yesterday to business leaders in the city of Otsu, western Japan, signalling that monetary easing alone can’t cure the country’s economic woes. The remarks by Sakurai, regarded as among the most vocal advocates of aggressive easing in the nine-member board, underscored a dominant

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market view the central bank is done expanding stimulus for the time being. The BOJ switched its policy target to interest rates from the pace of money printing in September, after years of massive asset purchases failed to jolt the economy out of stagnation

Key Points No magic wand to cure Japan’s ills - board member Sakurai Calls for more govt, private-sector efforts for growth Adds new framework aimed at making stimulus sustainable See no big distortion to REIT market from BOJ’s buying

Bank of Japan headquarters

On the yen’s recent declines, Sakurai said a weak yen would help accelerate inflation in Japan but stressed that it was desirable for currency rates to move in a stable manner. The dollar hit a 9-1/2-month high against the yen yesterday as oil prices surged after OPEC agreed to output cuts, lifting inflation expectations and U.S. bond yields. Reuters

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Business Daily Friday, December 2 2016    13

Asia Data interrupted

In Brief

New Zealand policymakers in dark after quake upends stats bureau Statistics NZ has reiterated that it will push out the complete suite of economic figures once its systems are backed up Swati Pandey

New Zealand policy makers are flying blind as the nation’s statistics agency struggles to restore the flow of vital economic data more than two weeks after a major earthquake battered its Wellington base. Statistics New Zealand has been forced to delay a raft of releases after the 7.5 magnitude earthquake rocked the South Pacific island nation on Nov. 14. The deadly tremor damaged roads and buildings, and disrupted communication lines for days. Its current calendar is under review with economists clueless whether it will release as scheduled crucial trade and gross domestic product data, due in about two weeks. Yesterday, it released statistics on the country’s terms of trade but the

seasonally adjusted figures which policy makers focus on were still not available. Shane Oliver, chief economist at AMP Capital, said the delay and partial information release had made it harder to analyse the NZ$250 billion economy. Statistics NZ has reiterated that it will push out the complete suite of economic figures once its systems are back up, but has not given a time frame. It has put off the release of value of building work done and goods and services trade, which were both due on Dec. 2, and has yet to update its calendar for next week. “We have not lost any data but a number of our systems need to be brought back up to restore all our services,” the agency said in an email.

Some of its 500 or so staff have been moved to a temporary office in Wellington, while more will move into other floors in the same building over coming weeks. “It’s still up in the air whether they’ll be able to get GDP data on time,” said Philip Borkin, senior economist at ANZ. “It’s whether data can be collected and collated.” While the disruption makes it difficult to take the pulse of the economy, it has come at a time when the central bank was already on hold on interest rates after cutting to a record low 1.75 per cent last month.

“The Stats office is between a rock and a hard place. They cannot put out a data that’s unreliable but if you don’t release the data you don’t know what’s happening in the economy anyway” Shane Oliver, chief economist at AMP Capital “The situation would have been different if you are approaching a central bank meeting that’s a conscientious one, for example,” said JP Morgan economist Ben Jarman. “We are going into a period where the central bank is on holiday anyway. And presumably by the time they come back in the New Year, things would be back on line.” Reuters


Indonesia’s rich see their wealth rebound this year Many of the tycoons are of Chinese descent, even though they only make up just over 1 per cent of Indonesia’s 250 million people Indonesia’s 50 richest people increased their wealth by about US$7 billion this year as growth in Southeast Asia’s biggest economy recovered and the stock market raced ahead, according to a Forbes list released yesterday. The business magazine said the combined net worth of the top 50 rose to US$99 billion.

‘Indonesia’s stock market has risen 13 per cent this year’ Heading the list were Budi and Michael Hartono, whose joint wealth was put at US$17.1 billion. The brothers’ wealth was partly boosted by the rising value of their shares in PT Bank Central Asia Tbk, Indonesia’s biggest bank by market capitalisation, Forbes said. Despite a growing middle class, inequality in Indonesia is increasing faster than in most of its East Asian neighbours, the World Bank said in a report at the end of 2015. The eighth richest Indonesian man on the Forbes list, Tahir, the founder of the Mayapada Group, said the increased wealth may also be due to a tax amnesty aimed at pushing

the rich to repatriate offshore wealth, or register it with authorities. “We’re registering all our properties in Indonesia and Singapore,” said Tahir, who goes by one name and is estimated by Forbes to be worth US$3.1 billion. Indonesia’s economy is expected to grow 5 per cent this year, the central bank estimates, up from 4.8 per cent in 2015. Many of the tycoons are of Chinese descent, even though they only make up just over 1 per cent of Indonesia’s 250 million people, according to the latest census data. Their control of trade and business has in the past caused resentment. Indonesia’s stock market has risen

13 per cent this year, one of the best performers in the region. Tobacco tycoon Susilo Wonowidjojo also recorded higher net worth due to the rising value of his family’s cigarette company PT Gudang Garam Tbk. Hary Tanoesoedibjo, who runs a media-to-property empire, was 29th on the list with his wealth estimated at US$1.15 billion. The tycoon is one of the few with established links to U.S. Presidentelect Donald Trump. Trump has a partnership with Tanoesoedibjo, who controls the MNC Group conglomerate, to manage hotels on the Indonesian island of Bali and in the West Java city of Bogor. The richest Indonesians saw their combined wealth drop by $US9 billion in 2015 due to lower commodity prices and a weaker rupiah currency. Reuters


Indonesia’s foreign tourist arrivals up Indonesia attracted 913,589 foreign tourists in October, up 15.62 per cent from a year earlier, the statistics bureau said yesterday. That compares with growth in foreign tourist arrivals of 12.11 per cent in September. The total number of visitors in October, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, was 1.04 million, up 18.55 per cent from a year earlier. The government wants to expand tourism to help reduce the economy’s reliance on selling raw commodities. It aims to attract 20 million visitors a year by 2019, more than double last year’s number. Inflation

Thai consumer prices rise again Thailand’s November headline consumer prices rose on an annual basis for an eighth straight month and at their fastest pace in almost two years, driven by higher food and oil prices, commerce ministry data showed yesterday. But the inflation rate remains low, giving the central bank room to keep borrowing costs easy to help the sputtering economy. The headline CPI index increased 0.60 per cent in November from a year earlier after October’s 0.34 per cent rise. A Reuters poll had forecast an annual rise of 0.66 per cent in November. Real estate

S. Korean house price growth slows down South Korea’s annual house price growth cooled for an 11th straight month in November and marked their slowest pace in two and a half years, data from the country’s top mortgage lender showed yesterday. Kookmin Bank’s composite housing purchase price index gained 1.46 per cent from a year earlier in November, compared to a 1.64 per cent growth in October. It was the slowest rise since a 1.38 per cent rise in May 2014, the data showed. In monthly terms, prices rose 0.25 per cent in November over the previous month compared to a 0.24 per cent rise in October. Auto industry

India’s auto sales face tough month India’s Maruti Suzuki Ltd said yesterday monthly domestic sales rose about 14.2 per cent year-overyear in November, and rose 2.1 per cent month-overmonth. Indian auto makers are generally expected to report weaker transactions for November as a severe cash crunch impacts the country, hitting retail sales. Maruti Suzuki, the country’s biggest auto maker, said total domestic sales rose to 126,325 vehicles from 110,599 in the same month last year. It had clocked sales of 123,764 vehicles in October. Analysts say sales of two-wheelers are likely to be impacted the most.

14    Business Daily Friday, December 2 2016

International In Brief Lending

U.S. small business borrowing falls Borrowing by small U.S. firms slipped in October to the lowest since January, and the percentage of firms late on repaying existing loans rose to its highest in nearly four years, data released yesterday showed. The Thomson Reuters/PayNet Small Business Lending Index fell to 121.3 from a downwardly revised 128.8 in September. Measured from a year earlier, it was the fifth straight monthly decline, with the index at its lowest point since January. Companies also struggled to pay back existing debts, PayNet data showed. Loans more than 30 days past due rose in October to 1.68 per cent. Employment

Euro zone jobless hits seven-year low The unemployment rate in the euro zone fell to a seven-year low in October, according to data published yesterday, and has dropped below 10 per cent for the first time since 2011. The rate of unemployment, a lagging indicator in the economic cycle, fell to 9.8 per cent in October from a revised 9.9 per cent in September, the European Union’s statistics agency Eurostat reported. Eurostat initially estimated the September rate at 10.0 per cent. Unemployment has gradually declined since a peak of 12.1 per cent in early 2013. However, the rate is still above levels seen before the global financial crisis began in 2008.

Private poll

Institutions aim to boost bets on hedge funds, private equity A survey found that the institutions were most concerned with a low-return investing environment over the next one to two years Sam Forgione


he majority of institutional investors worldwide are seeking to increase their investments in riskier alternatives that are not publicly traded such as hedge funds, real estate and private equity over the next one to two years to combat potential low returns and choppiness in public markets, a Fidelity survey showed yesterday. The Fidelity Global Institutional Investor Survey showed that 72 per cent of institutional investors worldwide, from public pension funds to insurance companies and endowments, said they would increase their exposure to these socalled illiquid alternatives in 2017 and 2018. The survey, which included 933 institutions in 25 countries overseeing a total of US$21 trillion

in assets, found that the institutions were most concerned with a lowreturn investing environment over the next one to two years, with 28 per cent of respondents citing it as such. Market volatility was the second-biggest worry, with 27 per cent of respondents citing it as their top concern. Private sector pensions were most concerned about a low-return environment, with 38 per cent of them identifying it as their top worry, while sovereign wealth funds were most nervous about volatility, with 46 per cent identifying it as their top concern. “With the concern about the lowreturn environment as well as market volatility, as a result we’re seeing more of an interest in alternatives, where there’s a perception of higher return opportunities,” said Derek Young, vice chairman of Fidelity Institutional Asset Management and

“We would hope and would expect that institutional investors would appreciate the volatility that still exists within the underlying investments,” he said in reference to illiquid alternatives. The survey, which was conducted over the summer, found that despite their concerns, 96 per cent of the institutions believed they could achieve an 8 per cent investment return on average in coming years. U.S. public pension plans, on average, had about 12.1 per cent of their assets in real estate, private equity and hedge funds combined as of Sept. 30, according to Wilshire Trust Universe Comparison Service data. Reuters

Brazil targets Itaú in new tax probe phase


Airbnb toughens up home sharing limits in Europe Airbnb Inc. has set an automatic limit to the number of nights hosts can rent out their homes, at a time when the platform faces increasing pressure from city legislators. Hosts will now need a license to rent their homes in London for more than 90 days a year, and for 60 days a year in Amsterdam, according to statements from Airbnb yesterday. The new rules strengthen existing guidelines set up in 2015. Airbnb will automatically limit home listings on its platform from 2017.

“With the concern about the low-return environment as well as market volatility, as a result we’re seeing more of an interest in alternatives” Derek Young, vice chairman of Fidelity Institutional Asset Management


Brazil’s federal police yesterday launched a raid targeting Itaú Unibanco Holding SA as part of a probe into alleged bribery of tax officials, a source briefed on the matter said. In a statement, the police confirmed 34 search warrants are being served in the states of São Paulo, Rio de Janeiro and Pernambuco. The new phase of the socalled “Operation Zealot” investigates a banking institution which the federal police did not name. The probe relates to alleged “collusion” between a member of the CARF, a Finance Ministry body that hears appeals on tax disputes, and the unnamed banking institution, the statement said.

president of Fidelity Global Asset Allocation. Investors seek alternatives, which may invest in assets such as timber or real estate or use tactics such as betting against securities, for “uncorrelated” returns that do not move in tandem with traditional stock and bond markets. Young noted, however, that illiquid alternatives can also be volatile without it being obvious, since they lack daily pricing and as a result may give the perception of being less volatile.

PMI poll

Solid growth in German manufacturing points to rebound New order intakes rose a bit less sharply than in the previous two months German manufacturing growth slowed slightly in November, but solid demand from domestic and foreign customers kept it robust overall, a survey showed yesterday, suggesting that factories will contribute to a rebound in the fourth quarter. Markit’s Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of Europe’s largest economy, fell to 54.3 from 55.0 in October, which was the highest level in nearly three years. The November reading was a tick below a flash reading of 54.4 points, but comfortably above the 50 line that separates growth from contraction. IHS Markit economist Oliver Kolodseike said the average reading over the fourth quarter so far was the best since the beginning of 2014, suggesting manufacturing should make a positive contribution to growth at the end of the year. New order intakes rose a bit less sharply than in the previous two months. Still, the overall growth pace was robust, with panellists pointing to increased demand from both the domestic and foreign markets such

as China and Russia. Sector data showed producers of consumer and intermediate goods recorded solid growth. Manufacturers of investment goods reported weaker expansions. Supporting this mixed picture in manufacturing, orders for German machines fell by 10 per cent in real terms from the previous year in October, the VDMA engineering association said on Thursday. The drop was driven by a 15 per cent decline in orders from abroad, while demand from domestic customers rose 1 per cent. Production in engineering nearly stagnated in the first nine months of 2016, edging up by just 0.4 per cent on the year. “This meets our expectations of overall stagnating production in the engineering sector in the whole year,” VDMA chief economist Ralph Wiechers. In the broader manufacturing sector, companies continued to hire new staff in November as they tried to raise capacity, the PMI survey showed. Although the rate of job creation

slowed, it remained among the strongest seen in the past five years. “Moreover, with backlogs rising sharply and companies ramping up their purchasing activity, it is likely that the positive trend in the sector continues into the new year,” Kolodseike said. German economic growth slowed over the summer as exports weakened, with growth in gross domestic product halving to 0.2 per cent on the quarter in the three months through September. The economy is expected to rebound in the fourth quarter.

“This meets our expectations of overall stagnating production in the engineering sector in the whole year” Ralph Wiechers, VDMA chief economist For 2016 as a whole, the government expects domestic demand to propel growth of 1.8 per cent, the highest in five years. For 2017, Berlin predicts a slowdown to 1.4 per cent because of weaker exports and fewer working days. Reuters

Business Daily Friday, December 2 2016    15

Opinion OPEC starts counting the days of excess oil supply Liam Denning a Bloomberg Gadfly columnist


PEC has delivered. But now it must ... actually deliver. The oil-producer group announced a grand bargain to cut 1.2 million barrels a day from its own production, along with pledges from other countries such as Russia to pull another 600,000 barrels a day off the market. Taken together, the cuts are roughly equivalent to the combined output of OPEC members Nigeria and Gabon. Brent crude jumped by 8 per cent to just above US$50 a barrel yesterday. With the short sellers duly thwacked, further gains will depend on actual compliance with those committed cuts - something OPEC and Russia have struggled with historically. Yet, if oil producers can achieve even half the targeted cut, they will go a long way to draining the glut of stored oil weighing on prices - with one important caveat. The Energy Information Administration (EIA) recently published short-term forecasts for global oil supply, demand and inventory changes. At the end of the third quarter, there was a little more than 3 billion barrels of oil sitting in commercial storage in the countries of the OECD (for the purposes of this analysis, I use OECD inventories as a proxy for the world, as most commercial storage capacity is in those countries). That was enough to meet a little less than 65 days of forward demand, based on estimated OECD oil consumption in the fourth quarter. To get to an estimate of how much oil would be in tanks by the end of the year, I’ve adjusted the EIA’s forecast of OPEC crude oil production slightly higher, as the organization was producing about 500,000 barrels a day more in October than the forecast implied. Factoring that into the EIA’s expectation of how much oil would be drawn from OECD inventories in the fourth quarter yields an estimated yearend level of a little less than 3.1 billion barrels, enough to cover an extra day of forward demand. From there, the EIA’s forecasts suggest OECD inventories relative to forward demand will peak in the first quarter of 2017 at about 67 days, before starting to drop. But adjust the EIA’s forecasts for movements in OECD stocks during 2017 for the cuts pledged on Wednesday, and things change significantly: At full compliance, OECD inventories could drop to a little more than 56 days of forward demand by the end of the third quarter of 2017, more in line with the levels seen before the oil crash began. At half compliance, demand cover would hit about 60 days - still high relative to the good old days but moving in the right direction. One obvious takeaway from this math is that OPEC not only needs the deal to hold together but must keep it going after the initial sixmonth agreement (the organization will decide on this in May). The caveat? This cut is a capitulation of sorts. As I wrote here, supporting the market in this way hands an opportunity to U.S. exploration and production firms to hedge future production at higher prices and expand their own drilling budgets to fill some of the gap left by Saudi Arabia, Russia and others. Over the next six months, we will see if OPEC’s coalition can hold. Assume it does - a huge assumption at this point - and in the following six months we will see how much the frackers will do to undermine it. Bloomberg Gadfly

‘Supporting the market in this way hands an opportunity to U.S. exploration and production firms to ... fill some of the gap left by Saudi Arabia, Russia and others’

“Peter principle” alive and well in fund management


he idea that people succeed at work up to the point at which they are no longer much good apparently applies to fund managers too. A new study bears out the truth in asset management of the “Peter principle”, a theory coined by Laurence Peter, an academic who studied hierarchies. The Peter principle holds that managers are promoted up to the point at which they are incompetent. That’s not to say that only the worst succeed, recent political evidence perhaps to the contrary. It is instead the idea that just as industry tests business models to destruction (see: mortgagebacked derivatives), so do organizations test the abilities of their employees until they too are found wanting. I n a f u n d m a n ag e m e n t context, this means you as an investor stand a non-trivial chance of signing on with a fund manager who, despite her track record of success, is now in well over her head. Ironically, there might also be some advantage in managers who, having demonstrated incompetence at a particular level, are now given only a diminished mandate. While older studies did show a relationship between increase in size of a fund and diminishing performance, a November study by Richard Evans and Marc Lipson of the University of Virginia and Javier Gil-Bazo of Universitat Pompeu Fabra looked also at the way in which the scope of a manager’s responsibilities affects performance. The upshot is that there look to be diseconomies of scope, just as there can be diseconomies of scale in investment management. Scope of manager responsibilities in this context includes not just size of assets managed, but the number of funds and the number of fund investment objectives a manager is assigned. “We find that fund alphas are negatively related to measures of the scope of manager responsibilities,” the authors write. “Results suggest that better performing managers experience increases in scope that eliminate outperformance. In these tests we also find that worse performing managers experience scope reductions that improve performance to a degree that offsets underperformance. This reinforces our interpretation that the results are driven by manager activity.” In other words, it may be that as managers prove themselves competent they are piled with more work up to the point at which whatever outperformance they’ve demonstrated is effectively arbitraged away by volume, by distraction and by difficulty.

James Saft a Reuters columnist

The study looked at U.S. equity mutual funds between 1997 and 2015 and used a range of tests to try to establish the relationship between performance and the scope of manager responsibilities. Agency issues (as usual) It is not hard to work out why fund companies load up their better managers with more responsibilities: this is what organizations do. Fund firms presumably hope that whatever magic an active manager has demonstrated thus far can simply be applied to new and bigger mandates, thus winning the firm more business and profit. Fund firms also view larger responsibilities as a way to hold on to talent, as you can pay a manager more the more assets and functions she handles. This is the kind of agency issue which is endemic in asset management. It is in the fund management firm (the agent’s) best interest to get more out of a given manager even if the principal, the investor, will be hurt. The individual fund manager has exactly the same issue: she may know she is spreading herself too thin but be unwilling to make the economic sacrifice which placing client interests above her own entails. And unlike problems of size, which many financial advisors already acknowledge and may be on the lookout for, performance issues from managerial scope are not currently on their radar, nor do they require anyone outside the fund firm to do anything in order to happen. Taking a step backward, evidence of the Peter principle in fund management is not just one more reason to be doubtful about the wisdom of choosing active asset management over passive. Like doubts over whether managers can successfully handle bigger funds or if their outperformance can persist over time even with stable funds under management, this seems to point to a kind of efficient market hypothesis when it comes to active management. The market, at least as incentives are set up, seems to abhor outperformance and works in a variety of ways to arbitrage it away. Chasing talent, which is what fund firms do by piling on tasks to their best managers, is foolish in the same way as it is fruitless to chase returns. Reuters

It is not hard to work out why fund companies load up their better managers with more responsibilities: this is what organizations do.

16    Business Daily Friday, December 2 2016

Closing Aviation

New route launched by Far Eastern Air Transport

Taiwan-based Far Eastern Air Transport launched a new route linking Macau and Kaohsiung yesterday. Macau International Airport Co. Ltd. and Far Eastern Air Transport held an inaugural flight ceremony yesterday at Macau International Airport. The airline provides two

daily flights between the two cities. Currently, three airline companies in the MSAR offer flights linking Macau and the southern Taiwanese city: Air Macau, Taiwan’s EVA Air and Tigerair Taiwan. Daily flights are offered by Air Macau and EVA Air whilst Tigerair offers five return flights between the MSAR and Kaohsiung per week. C.U.


Hong Kong malls bet on local demand to ride out sales slump Retail market is small in comparison to the broader mainland market but remains a barometer for luxury spending Donny Kwok


ong Kong mall operators and retailers, plagued by a prolonged slump in sales, are now digging deep in to the local market to revive their business that has slowed due to a plunge in the number of visitors from mainland China. Chinese-controlled Hong Kong was once a favourite shopping destination for mainland tourists, but the numbers have dwindled since 2014 amid Beijing’s campaign against graft and shows of wealth by public officials. Pro-democracy protests in Hong Kong have hurt too, while a firm local currency means luxury goods are cheaper elsewhere such as in Japan and South Korea.

slide in September and 10.5 per cent fall in August. Hong Kong’s retail market is small in comparison to the broader mainland market, but remains a barometer for luxury spending as it has been a key hub for international brands. “The big hole left by the mainland’s big spenders is not easy to fill by local consumption all of a sudden,” said Linus Yip, chief strategist at First

Shanghai Securities. “Boosting local consumption is among the things they can do and is within their control for the time being.” To attract domestic buyers, Kerry Properties’ MegaBox mall in Kowloon has created a game zone that allows shoppers to interact with festive props like a Christmas tree using virtual and augmented reality. The Wharf’s Harbour City mall has resorted to festive lighting in Tsimshatsui, while Sino Land’s Olympian City has launched a Christmas circus based on the animation film “Madagascar” to lure family shoppers. Sun Hung Kai Properties has set

Key Points Hong Kong October retail sales fall for 20th straight month Hong Kong malls adjust tenant mix to draw in local buyers Companies spend on quirky experiences, pop-up stores Sun Hung Kai allocates 10 per cent more for Christmas promotions Hong Kong’s retail sales fell for a 20th month in October to HK$36.1 billion (US$4.65 billion), down 2.9 per cent from a year ago. The drop, however, narrowed from a 4 per cent


Individual investors

aside HK$38 million for promotional activities over Christmas across its 10 major shopping malls in the city, up 10 per cent from a year ago. “Apart from a loyalty and VIP programme, we have adjusted our tenant mix and are adding more food and beverage variety to draw in more local shoppers, while events including popular animation characters attract families,” said Fiona Chung, general manager (Leasing) of Sun Hung Kai Real Estate Agency.

Fewer tourists hurt sales

The push to attract local buyers comes at a time of weak tourist arrivals, which fell 2.4 per cent from a year earlier in October, according to the Hong Kong Tourism Board, bringing the drop to 5.7 per cent over the first ten months. Mainland China visitors, who account for 75 per cent of the total, fell 3.5 per cent in October. Fewer tourist numbers were reflected in weak retail sales for companies such as Swire Properties, which saw a 15.3 per cent drop at The Mall in the Central business district in Pacific Place over January to September. Tourist-dominated Citygate Outlets on Lantau posted an 11.2 per cent drop. China’s biggest jeweller Chow Tai Fook Jewellery, and smaller rival Luk Fook Holdings posted sharp drops in fiscal first-half profit. “We will continue to attract customers and boost local consumption by enhancing product displays, cross promotional campaigns and VIP promotional activities so as to improve sales and profit,” Luk Fook Chairman Wong Wai-sheung said. Reuters

Film industry

Sichuan theme park China gives tax breaks on Studios said to want movies to raise the Titanic, with wi-fi Shenzhen-Hong Kong stock link in homes two weeks after debut Construction of the world’s first full-size replica of the Titanic has begun in China, state media reported yesterday, where it is expected to enjoy smoother sailing as a lakeside tourist draw than its namesake. The 269-metre long, 28-metre wide ship will be docked permanently on a reservoir in a rural area of Sichuan province, the official Xinhua news agency cited a senior executive of the shipbuilder as saying. It will feature an interior reproducing some of the grandeur of the original including a ballroom, theatre, swimming pool and first-class cabins, with the addition of wifi, said Wuchang Shipbuilding Industry Group’s deputy general manager Wang Weiling. The supposedly unsinkable ocean liner, which struck an iceberg and went down in the north Atlantic in 1912, killing more than 1,500 people, is a subject of immense fascination for many in China. Interest became particularly intense after the 1997 movie starring Leonardo DiCaprio and Kate Winslet. The new ship will be the centrepiece of a theme park hundreds of kilometres from China’s coast bankrolled by Chinese energy company Seven Star Energy Investment Group. AFP

Profits made by individual investors from the link between the Shenzhen and Hong Kong stock exchanges will be temporarily exempted from personal income tax, the finance ministry said yesterday. Individual mainland investors buying shares in Hong Kong through the program will be exempt from personal income tax on profits for three years, but will still be liable for tax on dividends, according to a Ministry of Finance statement. Mainland companies buying shares in Hong Kong still pay corporate income tax, the statement added. The Shenzhen-Hong Kong Stock Connect allows mainland and Hong Kong investors to buy shares on each other’s market. The trading will start on Dec. 5. Individuals and companies in Hong Kong buying shares in Shenzhen will be temporarily exempted from paying income tax on gains for an unspecified period, according to the statement. The taxation policy is similar to that for the link between Shanghai and Hong Kong stock exchanges, which has been running for two years. Xinhua

Hollywood studios, looking to spark stagnant movie viewing, are considering offering fans highpriced home rentals of new films as little as two weeks after they debut in theatres, according to people familiar with the deliberations. The studios are looking at rental prices ranging from US$25 to US$50 per film, said the people, who asked not to be identified because the matter isn’t settled. That’s in line with a pair of tickets at theatres in cities like New York and Los Angeles. Kevin Tsujihara, head of Time Warner Inc.’s Warner Bros. unit, said at an investor conference this week he’s held “constructive” talks with exhibitors about a premium home-video offering and is prepared to move ahead. “We’re working with them to try and create a new window,” Tsujihara said. Such a plan could still trigger a fight with exhibitors. Regal Entertainment Group and Cinemark Holdings Inc., two of the largest U.S. chains, have resisted Hollywood’s efforts to cut into the exclusivity they enjoy with new movies. Last year, the companies boycotted Paramount Pictures films that were released on home video seven weeks after their debut in cinemas. Theatres still produce a major share of Hollywood’s film revenue. Bloomberg News

Business Daily #1186 December 2, 2016  

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