Business Daily #1366 August 22, 2017

Old GCS building to be refurbished for cultural activities Official building Page 4

Tuesday, August 22 2017 Year VI Nr. 1366 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro Real estate

HK leads Chinese property investment in London Page 10

Housing

Property transactions surge in the second quarter Page 2

Gaming

Osaka pushes bid to host Japan’s casinos Page 7

www.macaubusiness.com Plots

Government consults on relocating Wine Museum Page 2

Inflation

Education pushes prices up slightly Page 5

Far away bridge Fourth bridge

The Office for the Development of Infrastructure (GDI) has released the latest information regarding the pause in the construction of the fourth bridge in the MSAR. BD consulted experts on the matter to know what the current state of the project is and what developments we can expect to see. Page 4

Environmental concerns

The ecommerce channel linking the MSAR with Nansha that opened last week is not so attractive to local merchants.

Added logistics costs make the link less competitive compared to the Zhuhai option, they say. eCommerce Page 2

Development A resort development project proposed for Queensland, Australia, is facing strong opposition from environmental groups. The project is mysteriously linked to a hard-to-find MSAR developer. Page 6

Mainland lures local graduates

Employment A survey shows a high percentage of SARs students studying in China want to develop their careers in the Mainland after finishing their studies there. However, the study by the Beijing Institute of Hong Kong and Macau Scholars shows that not so many manage to fulfill their dreams. Page 5

Strong dissatisfaction

IP China has expressed “strong dissatisfaction” with the U.S. decision to probe its intellectual-property practices and pledged to respond if needed. The U.S. is acting irresponsibly because it is conducting the review under its own domestic laws and disregarding World Trade Organization rules, the Ministry of Commerce said in a statement yesterday. Page 8

HK Hang Seng Index August 21, 2017

27,154.68 +107.11 (+0.40%) Worst Performers

AAC Technologies Holdings

+4.36%

Henderson Land Develop-

CNOOC Ltd

+3.69%

China Mengniu Dairy Co Ltd

+2.17%

Geely Automobile Holdings

China Unicom Hong Kong

+3.52%

Wharf Holdings Ltd/The

+1.79%

Sino Land Co Ltd

China Resources Land Ltd

+3.14%

China Petroleum & Chemical

+1.61%

China Overseas Land &

+2.82%

China Shenhua Energy Co

+1.51%

+2.45%

Lenovo Group Ltd

CLP Holdings Ltd

-0.73%

Hong Kong Exchanges &

-0.38%

-1.08%

AIA Group Ltd

-0.26%

Cathay Pacific Airways Ltd

-1.00%

Link REIT

Galaxy Entertainment Group

-0.84%

CK Infrastructure Holdings

-2.63% -1.18%

-0.16% +0.74%

26° 35° 27° 30° 27° 32° 26° 31° 27° 31° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Logistics take a toll

2 Business Daily Tuesday, August 22 2017

Macau E-commerce

Nansha route unfavourable due to logistics costs Local supplier believes Nansha would not be the best choice for the local development of e-commerce in the long term Cecilia U cecilia.u@macaubusinessdaily.com

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teven Lee, managing director of New World Development Co. Ltd., said he would prefer to send his products to mainland China through the border at the Industrial Zone rather than take the route to Nansha, given that the logistics cost is much more expensive there than in Zhuhai.

“The basic transportation fees will cost up to some MOP2,000 to MOP3,000 [US$248],” revealed Lee. A new logistics channel to transport products purchased through e-commerce platforms from Macau or Portuguese-speaking to Nansha via the Hengqin Border gate was inaugurated last week.

Products will be re-directed to other regions in the Mainland when they reach Nansha.

Nansha is part of the Guangdong Free Trade Zone, a 116 square kilometre area comprising Nansha New Area in Guangzhou, Qianhai and Shekou Industrial Zones in

Shenzhen, and Hengqin in Zhuhai.

The executive vice-president of Sino-Portuguese E-Commerce Chamber, Johnny Ma admitted that the cost of logistics is higher if products are re-delivered in Zhuhai, but the vice-president noted that Nansha is one of the 15 pilot zones for e-commerce, while Zhuhai is not.

“Also Nansha has connections to all the ports under the CEPA [Mainland China under the Closer Economic Partnership Arrangement],” pointed out Ma. According to Ma, the MSAR Government supports e-commerce by currently subsidising firms to send out products to the Mainland.

“The government places a lot of support in this [e-commerce to Nansha] and they would not stop trying just because of the higher logistics costs,” said Ma. Steven Lee also said that many products from Hong Kong were in fact being sent to Nansha for re-delivery, but he opined that the development of e-commerce in the city does not depend on

Nansha as the transfer spot.

On the other hand, Lee disclosed that the online orders of goods that go through the border at the Industrial Zone are not satisfying.

“There are orders of around MOP10,000 to MOP20,000 per day going through,” said Lee. “There could be problems over the procedures of clearance, given that products can be purchased under the ‘real-name system’.”

The businessman urged the MSAR Government to focus more attention on smoothing out the use of the border at the industrial zone, adding that it would create more

significant advantages to local SME (small and medium size enterprises) businesses.

In this regard, Ma said that the development could be extended to Zhuhai if the central government were to decide on it as another pilot zone in the country.

Since being launched a few days ago, Ma revealed that more Chinese platforms are interested and have approached about participating in the business.

“We need to make sure that it is feasible whenever doing business,” said Ma, while adding that the Chamber will collaborate with the Macao

Economic Services (DSE) to hold an introductory session to present the current new development of e-commerce to local SMEs. “There will be results appearing when the new system runs for another two to three weeks,” claimed Ma. Working in close co-operation with the Inspection and Quarantine Department of the Entry and Exit and Nansha Customs Service, DSE stated in a previous press release that it would add a Customs declaration channel for direct mail imports of goods transported from Macau by land.

Real estate

Property transactions point to a healthy realty sector Official figures released by the Statistics and Census Service (DSEC) yesterday showed that transactions of building units and parking spaces increased remarkably in the last quarter The DSEC reported that a total of 4,589 building units and parking spaces were purchased and sold in the second quarter of 2017 as per Stamp Duty records. The total value of transactions was MOP30.10 billion, up by 37.5 per cent and 67.9 per cent respectively quarter-to-quarter. Purchases and sales of residential units totalled 3,562 with the total value amounting to MOP25.64 billion. Meanwhile, purchases and sales of existing residential units totalled 2,879, amounting to MOP18.10 billion.

The DSEC also announced that in regards to the average price per square metre of usable area, the overall average price of residential units increased by 14.8 per cent quarter-to-quarter to MOP104,263.

The figures show that most of the transactions in Taipa were pre-sale residential units and new dwellings completed within five years or less, accounting for 57.9 per cent of the total number of transactions in the district, up notably by 38.4 percentage points from the previous

quarter. The DSEC stated that this indirectly drove up the average price of residential units in Taipa (MOP120,525) by 24.1 per cent. Meanwhile, the average prices of residential units in Coloane (MOP132,696) and Macau Peninsula (MOP90,331) went up by 8.8 per cent and 5.2 per cent respectively.

The average price of office units increased by 10.6 per cent quarter-to-quarter to MOP115,432 per square metre, while that of industrial units decreased by 9.7 per cent to MOP50,819, the DSEC states.

In the second quarter of 2017, a total of 4,102 real estate purchase and sale contracts were signed, with the number of properties involved (4,118) rising by 1.0 per cent quarter-to-quarter. Meanwhile, 3,737 mortgage contracts were signed, with the number of properties involved (5,383) going up by 26.8 per cent, the DSEC reported.

In regards to construction in the private sector, as of the second quarter of 2017, there were 20,240 residential units at the design stage, 10,179 under construction

(not yet inspected) and 1,227 under inspection. In the second quarter, 183 residential units were issued construction permits, with a total floor area of 15,000 square metres, representing quarter-to-quarter decreases of 93.7 per cent and 94.6 per cent respectively. Moreover, 2,885 residential units were issued licences of use, with a total floor area of 194,000 square metres, up substantially by 462.4 per cent and 311.6 per cent respectively quarter-to-quarter, the DSEC concluded.

according to the information posted on the Macao Government Tourism Office (MGTO) website, occupies some 1,400 square metres and features some 1,143 different wine

brands and an exposition.

The Tourism Centre located adjacent to Golden Lotus Square currently hosts both the Wine Museum and the Grand Prix Museum.

Meanwhile, there are also eight private land plots, two long-term land concessions and one land lease to be consulted on with the public.

Among these, the private plot located in Areia Preta takes up the largest area, covering a total of 794 metre squares.

The proposal suggests using the building for non-industrial activities and notes that the height of the building cannot exceed 20.50 metres.

The consultation will be held until September 1.

Land plots

Wine Museum move on the agenda Cecilia U cecilia.u@macaubusinessdaily.com

The city’s Land, Public Works and Transport Bureau (DSSOPT) has rolled out a new round of public consultation for designating the use of 12 land plots, one of them for the relocation of the Wine Museum, as previously revealed by the Secretary for Social Affairs and Culture, Alexis Tam Chong Weng.

According to the proposals posted on the official Urban Planning Information website, the plot proposed for the Wine Museum is located in Coloane, and covers an area of some 645 square metres.

The plot is separated into three different sections.

The state-owned land is protected by the Heritage Law, meaning that the facade and the roof of the structure on section A are to be reserved.

The maximum height that is allowed for section B is 8.9 metres, and buildings on section C cannot be taller than the part in section A. The current Wine Museum,

Business Daily Tuesday, August 22 2017 3

Macau

4 Business Daily Tuesday, August 22 2017

Macau

Public works

Troubled waters under the bridges It is still unclear if the Macau SAR Government will be able to move ahead with its plans for a fourth bridge linking Macau to Taipa. But if the project is cancelled, someone will have to pay the bill, and it will not be the central government, sources say Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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I

t should not be a problem, it is just a bridge,” Albert Chuck Chung Yin, a local engineer told Business Daily, regarding the recent pulling back by the central government from the plans of the Macau SAR Government to move ahead with the construction of a fourth bridge connecting Macau and Taipa.

The project is temporarily halted pending further research on the safety conditions of its waterways, according to information released last weekend by the entity in charge of the project, the Office for the Development of Infrastructure (GDI).

The project in question involves a 3.5 kilometre-long bridge linking the eastern side of the new artificial island for the Hong Kong-Zhuhai-Macau Bridge (HZMB) – reclaimed on the outer shore of the Macau peninsula (Zone A) – to the land reclaimed near the Macau International Airport in Taipa (Zone E1), with a total cross-sea section of 2.87 kilometres, according to previous information provided

by GDI. At the end of June, Business Daily reported that the feasibility study project for the bridge, completed and submitted in November 2016, was being evaluated by the central government, according to information provided to this newspaper by the same office.

GDI claimed over the weekend that the local government received an official response in July, requiring further studies on ‘the safety

conditions of navigation in channels’ to be carried out, GDI said in a release yesterday.

The office clarified that the ‘designer is communicating to the departments and committees interested to hear the opinions,’ adding that the government ‘intends to complete the complementary study as soon as possible in order to immediately submit the relevant information.’

The designer awarded the contract in early September 2016 is CCCC Highway Consultants Ltd. Macau Branch, whose parent company is headquartered in Beijing.

Calling it off?

Speaking to Business Daily, Chuck said that the local government might have “assumed” that the central government would give a “green light” for the project to begin.

“It is not the kind of project the Macau government would say yes to if there were not some indication that the project was very likely going to happen,” he suggested.

As for the safety concerns raised by the central government, the engineer claimed that it is unclear what is meant by this without further details being released by the office.

“The only element that I see could raise concern is maybe the wind, or typhoons. We don’t have earthquakes here.”

As for having to request authorization from the central government to allow the project to go ahead, a lawyer consulted by Business Daily said that it would have to do with the fact that the project was initiated before Macau was granted rights over its territorial

waters in December 2015.

“In principle, Beijing would not have to green light anything of this sort, unless the first steps were taken before the territorial waters act was enacted. Discussion about this bridge harks back to some ten years ago, still at the time of Ao Man Long,” said the lawyer, speaking on the condition of anonymity.

Money talks

In total, the money already allocated to the project amounts to nearly MOP264 million.

In particular, the contract for the initial design of the bridge, awarded to CCCC Highway Consultants last year, was settled at MOP75.19 million.

The payment was divided into three installments over three years, with two installments each worth MOP33.8 million being paid in 2016 and 2017, respectively, and the final installment of MOP7.5 million to be paid in 2019.

Chuck explained that the design cost for this type of project “normally corresponds to 5 per cent of the total cost of the project.”

Hence, according to our estimations, the structure is likely to cost some MOP1.5 billion.

The contract awarded for the oversight and management of the project and the budget for the construction, granted in late June 2017 to Ove Arup & Partners from Hong Kong, a design and engineering company solutions, amounts to some MOP189 million.

The company is to provide the service for the next five years, from 2017 to 2021, with the first payment installment being the lowest, at MOP11

million. The other four installments range from MOP29.8 million to a maximum of MOP53.35 million.

Contacted by Business Daily, Ove Arup & Partners claimed on the phone that they were “not able to provide any other information at the moment.”

The office’s spokesperson added in a written response that they ‘have forwarded [our] enquiry to the client of this project for their further handling.’

Paying the bill

In case the project is called off, there are clauses to abide by and compensations that may be sought by the companies awarded the contracts.

On the one hand, the government might yet have to allocate extra funds if they require CCCC Highways or any other company to conduct further research as required by the central government, our sources claimed.

“If a company has to provide a different service from what is stated in its contract, then it is possible that it has to be paid on the side,” said our source on legal affairs.

On the other hand, if a contract gets cancelled, there may be clauses that guarantee due compensation.

“It is necessary to know the terms of the contract in detail. In general, however, we can say that if the company has not provided the service, it cannot request to recover the totality of the amount defined in the contract.

But it might have rights to compensation,” explained the lawyer.

Contacted by Business Daily, GDI had not replied to our questions by the time this story went to print.

Infrastructure

Old GCS building for creative and cultural industry The Macao Economic Services (DSE) announced that the old Government Information Bureau (GCS) building located in Largo do São Domingos will be renovated to be used for the city’s creative and cultural industry.

The department replied to legislator Kwan Tsui Hang’s enquiry regarding the fact that the building had recently been obtained by the DSE together with the Public Security Police Force

(PSP) at the end of last May. DSE revealed that the building is suitable for normal usage after an evaluation.

Currently, the DSE and PSP have started discussions with the Land, Public Works and Transport Bureau (DSSOPT) over the renovation of the building, given that the building is experiencing severe leakage problems.

For the initial planning, the government is considering using the building

for temporary stalls for young entrepreneurs, or as a selling point for local creative and cultural products.

Moreover, the promotion of Portuguese products will also be on the agenda.

Meanwhile, the PSP will also use part of the building as a station for dedicated tourist police officers, whose job it is to enhance the security of the tourist spots in the city.

According to the interpellation made by lawmaker Kwan, the building has been empty for over a decade since GCS moved out in 2006.

In fact, the Secretary for Economy and Finance, Lionel Leong Vai Tac brought up during the policy address at the Legislative Assembly last year, the plan to use the GCS building as a sales point for products made in Macau.

Business Daily Tuesday, August 22 2017 5

Macau PRC and SAR

Mainland luring local graduates Cecilia U with AFP cecilia.u@macaubusinessdaily.com

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ome 81 per cent of surveyed students said they would be willing to stay in mainland China to work after graduating from Chinese universities, according to a study relating to the employment of Hong Kong and Macau students in mainland China.

Carried out by the Beijing Institute of Hong Kong and Macau Scholars (BIHMS), the survey however revealed that only 37 per cent

of respondents have successfully found jobs in the Mainland.

The director of BIHMS,

Terence Lin suggested that residents from Hong Kong and Macau could be granted a resident identity card to stay in the mainland for an extended period, in order to resolve the issue of not being unable to authenticate the identity of residents from the two SARs. The survey also pointed out that system barriers, like employment requirements for SARs residents and the related social benefit policies, are major considerations that SARs residents take into account when deciding whether to stay in the

Mainland.

Apart from the SARs, the Mainland also holds an appeal for youth from Taiwan, according to reports made

by AFP. Despite the recent tensions between the two regions, the monthly starting salaries for college graduates in Taiwan have remained unchanged at below T$30,000 (MOP7,967/ US$1,000) since the 1990s, while property and consumer prices have surged, leading some young Taiwanese to now eye the Mainland for better living standards.

In fact, the Mainland is

wooing young Taiwanese talent as a ‘soft power’ to change political sentiment, note some analysts.

A Taiwanese surnamed Wang established a business in Xiamen city, offering a variety of courses for young Chinese women after she quit her kindergarten teaching job in Taipei.

As an incentive, the Xiamen city government offers free housing and office space to Wang.

There is no official data in Taiwan on the number of young people currently working in mainland China.

Economy

Inflation rate reaches 1.18 per cent in July Education and Health registered the largest yearly increases in the price index in July, with the Communication price index seeing the largest decrease Nelson Moura nelson.moura@macaubusinessdaily.com

The Composite Consumer Price Index in July posted an increase of 1.03 per cent year-on-year, with the inflation rate reaching 1.18, according to the latest data released by the city’s Statistics and Census Services (DSEC) yesterday.

The DSEC noted that the minor increment observed

was mainly attributable to ‘higher charges for eating out and outpatient services, as well as increases in tuition fees’ and adult’s footwear.

Food and non-alcoholic beverages, which accounted for the largest share of household expenditure, went up by 1.8 per cent year-on-year due to higher vegetable prices and dearer charges for eating out,

but balanced by declining prices for fruit.

Meanwhile the costs for Housing & Fuels - the second largest share of household expenses - decreased by almost 1 per cent yearly, as dwelling rentals and Liquefied Petroleum Gas and gasoline prices went down, while being ‘partially offset’ by a rise in electricity charges and taxi fares.

The largest year-on-year

increases were seen in the Education price index, which went up year-onyear by a considerable 7.5 per cent, and in Health, which rose 5.2 per cent.

The largest decrease was registered in the Communication price index, with a yearly fall of 5.8 per cent in July of this year.

DSEC divides households into two groups: the CPI-A, which refers to nearly 50

per cent of the households in the city, with an average monthly expenditure of MOP10,000 to MOP29,999, and the CPI-B, which relates to some 30 per cent of local households, with an average monthly expenditure of MOP30,000 to MOP54,999.

The CPI-A and CPI-B rose 0.77 per cent and 1.05 per cent, respectively, yearon-year. advertisement

6 Business Daily Tuesday, August 22 2017

Macau Crime

Targeted prey Police authorities report that almost a third of phone scam victims in the MSAR were university students

A

lmost 30 per cent of victims affected by the recent phone scams that hit Macau, causing monetary losses of around MOP12.5 million in less than a month, were university students, the Judiciary Police (PJ) reported.

The PJ came to this conclusion following the analysis of complaints and investigation of data collected from cases registered between July 20 and August 9, which the PJ conducted to “better prevent and fight” the recent wave of phone scams.

In a statement released on Sunday, the PJ indicated that it held a meeting on August 17 with the Tertiary Education Services Office (GAES) a n d s ev e ra l e d u cat i o n

institutions to “discuss the development of several awareness and prevention campaigns in academic institutions”, due to university

students “easily falling in phone scams caused by their lack of knowledge of the issue”.

The MSAR authorities

stated that in less than a month - between July 20 and August 16 - a total of 49 phone scam cases were registered, with scammers

passing themselves off as Macau public employees.

The first suspect caught was detained on July 31, with the PJ creating, in cooperation with other departments, a “joint mechanism for preventing phone scams”, allowing telecom operators to cancel the phone numbers used by scammers.

A mechanism for communicating directly with the Monetary Authority of Macau (AMCM), the banking sector and the mainland China phone and online scam prevention centre was also launched to jointly prevent scams.

A 24-hour hotline was also created, together with the displaying of posters at border points as part of the prevention campaign. Lusa

Resorts

Eco concerns A leading environmental researcher has raised questions regarding the possible negative impact of a A$650 million project to develop an eco-resort in the Australian rainforest area of Kuranda.

The project is led by MSAR-based developer Ken Lee Nelson Moura nelson.moura@macaubusinessdaily.com

An Australian-American rainforest and environmental scientist has made claims that the A$650 million (MOP4.15 billion/US$515.6) KURWorld resort project currently being developed in the Australian state of Queensland, will have serious negative environmental impacts on the region, newspaper Cairns Post reported.

A professor at James Cook University in Cairns, Australia, William F. Laurance believes that the eco-resort project being developed by Reever & Ocean Developments Pty Ltd (R&O) - a company owned by an alleged Macau developer named Ken Lee will “ravage” the ecosystem of the Kuranda rainforest where it is being developed, the newspaper reported.

“The project is located smack in the middle of some of the most biologically rich and biogeographically important real estate at the heart of the Wet Tropics World Heritage Area,” the rainforest researcher stated.

“The project area and its immediate surroundings are chock-a-block with critically endangered species — many of which don’t occur any place else on Earth”.

In response to Mr. Laurance’s comments, KUR-World posted a statement by Neil Boland, the Principal Environmental Scientist at Natural Resource Assessments Pty Ltd, the company coordinating the environmental studies.

In the statement, Mr. Boland said “there are over 30 studies underway in relation to the Kur-World project” with field surveys undertaken by “appropriately qualified and experienced ecologists”. He added that the site areas included in the “Envirolink Corridor (a discontinuous collection of remnant and non-remnant vegetation that links the northern and southern sections of the World Heritage area” would be preserved.

Prof. Laurance said previously the project would increase pressure on “the critical Black Mountain Corridor, a vital avenue for animal movements, migration, and adaptation in response to future climate change”.

Staying in the rainforest

Described in its 2016 master plan as an ‘integrated eco-resort and innovation hub’, KUR-World will occupy a 6.26 square-kilometre site in Tropical Far North Queensland that will be transformed into a project for luxury

eco-tourism; education and business; rejuvenation, health and wellbeing; and adventure and recreation.

Developed by R&O, the project is to include a 5-star resort with 200 luxury villas; an 18-hole golf course and clubhouse; a 3-star leisure and business resort with 270 rooms, a retail and dining village hub, a tertiary education campus, a business centre, sports facilities, together with health and wellbeing services which will include a medical retreat with 70 suites.

According to the project’s website, the resort development application was submitted to Queensland authorities in May of last year, with the Australian state authorities issuing a Final Terms of Reference (ToR) after a public consultation period.

R&O is in the process of drafting an Environmental Impact Statement (EIS), which will be available for public consultation in late 2017, with Prof.

Laurance stating he expects the EIS to be “dissected to shreds” by experts, the newspaper reported.

A previous article by Cairns Post stated that the R&O Chairman announced that Sandalphon Privilege Financial Group - an investment fund registered in Hong Kong in February of this year - would fund the first stage

of development of the resort which is expected to cost A$60 million.

The newspaper also indicated that construction on the property was expected to start in July of next year with 1,830 construction jobs expected to be created.

Mysterious company

Although R&O is described in several reports as being Macau based, information on the Hong Kong business directory HKG Business states that a company named Reever And Ocean Pty Ltd was incorporated in Queensland in February of 2014, while a Reever & Ocean Developments Pty Ltd was incorporated in Queensland in May of 2016.

Meanwhile, a company named Reever & Ocean Capital Management Limited was registered in Hong Kong in August of 2014, with its status described as Live.

A Facebook page of Reever & Ocean Capital Management Limited reveals a Hong Kong address, but no phone or e-mail contact, with its last post being from March of 2016.

In some reports, The Cairns Post describes R&O’s Chairman Mr. Lee as a ‘Sydney property investor’ with other reports describing him as a Macau-based developer.

Labour

Shorter hours Gaming worker associations ask for shorter work shifts to be included in a revision of the current Labour Relations Law Gaming worker associations are demanding the MSAR Government revise the Labour Relations Law in order to solve the issue of long hours worked by casino employees, local news broadcaster TDM reported.

“Gambling staff work over 48 hours per week, they don’t have enough time to rest (…) and their working environment is not good,” the Macau Federation of Trade Unions vice-president told TDM. The MSAR Government has

stated it would improve the current labour law enforced in 2008, with gaming worker groups considering that with the first gaming concessions expected to be revised in 2020, this is the appropriate time for a labour law update.

The 20-year gaming licenses granted to Sociedade de Jogos de Macau (SJM) and MGM China Holdings Ltd are set to expire in 2020, while the licenses of Melco Resorts & Entertainment, Sands China Ltd.

(Sands China), Wynn Resorts (Macau) S.A. and Galaxy Entertainment Group are all set to expire in 2022.

Although gaming worker representatives consider that labour conditions have improved since the liberalisation of the gaming market in Macau, they believe further improvements can still be made to the working conditions of the almost 50,000 gambling employees working at the city’s 38 casinos. N.M.

Business Daily Tuesday, August 22 2017 7

Macau Gaming liberalization

Osaka on the bid Osaka bets on its bid to hold the 2015 World Expo to gain the favour of Japanese authorities in their IR licensing process Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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fficial interest in hosting an Integrated Resort (IR) in Osaka came out strong in the second round of public hearings currently being held in Japan, Japan Times reported yesterday.

Osaka’s Governor Ichiro Matsui was said to be leading the effort to get one of the first licenses for an IR in the country, which the Japanese government claims is likely to be granted to only two or three locations in the first stage.

To push its bid, it has also been reported that the municipality has already drawn up plans to host an IR on Yumeshima Island, located in Osaka Bay, in addition to expecting that its bid to host the 2025 World Expo – which will be awarded in November 2018 – leaves it in a strong position to receive one of the licenses.

During the public hearing, which drew to a close last Friday, concerns about problem gambling, floor layouts, and the places where the resorts would likely be more profitable were raised.

Business groups, which are basically in favour of casinos, have raised concerns about a recommendation issued by Japan’s special government committee conducting the hearings, that a limit needs to be set on floor space.

In a written statement to the hearing, the Kansai Association of

A panorama of Osaka

Corporate Executives suggests that capping the amount of floor space that can be used for casino services, rather than limiting the total floor space of a casino, could be considered.

Popular opposition to the bill remains, however, strong.

According to Japan Times, a Jiji Press poll conducted last week showed that some 67 per cent of the respondents were against the opening of casinos

in their neighbourhoods, fearing that it could lead to a rise in crime.

In previous comments to Business Daily, an advisor to Japan’s government on the bill, Toru Mihara, said that ‘feelings may change depending on how you explain, persuade, and present merits and demerits.’

After Tokyo and Osaka, the committee overseeing the gaming regulatory process is to hold the next

hearings in Hiroshima, Fukuoka, Sendai, Sapporo, Nagoya, Toyama, and Takamatsu.

The hearings started on August 17 and will be conducted until August 29.

The upper House of the Japanese Parliament, the Diet, will be discussing the details of the bill this autumn, and is expected to finalize the bill by the end of 2017. advertisement

8 Business Daily Tuesday, August 22 2017

Greater China Trade

Beijing calls U.S. intellectual property probe “irresponsible” U.S. administration officials have said that Chinese theft could amount to as much as US$600 million

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hina expressed “ st r o n g di ssati sfacti o n ” y esterday with the U.S. launch of an investigation into China’s alleged theft of U.S. intellectual property, calling it “irresponsible”.

“The United States’ disregard of World Trade Organization rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective” Commerce Ministry spokesperson The U.S. Trade Representative formally announced the investigation on Friday, a widely expected move following a call from President Donald Trump earlier last

week to determine whether a probe was needed.

The investigation is the administration’s first direct measure against Chinese trade practices, which the White House and U.S. business groups say are damaging American industry.

China’s Commerce Ministry said in a statement that the move sent the wrong signal to the world, and would be condemned by the international community.

“The United States’ disregard of World Trade Organization rules and use of domestic law to initiate a trade investigation against China is irresponsible, and its criticism of China is not objective,” an unnamed ministry spokesman said.

“China expresses strong dissatisfaction with the United States’ unilateral protectionist action. We urge the U.S. side to respect the facts, ... respect multilateral principles, and act prudently,” the official said, adding that Beijing would take “all appropriate measures, and resolutely defend China’s lawful interests”.

The United States should instead work with China to

find consensus and promote healthy trade relations, the ministry said.

Section 301 of the Trade Act of 1974, a popular trade tool in the 1980s that has been rarely used in the past decade, allows the U.S. president to unilaterally impose tariffs or other trade restrictions to protect U.S. industries from “unfair trade practices” of foreign countries.

Beijing would almost certainly challenge any such

measures at the WTO. But China’s policy of forcing foreign companies to turn over technology to Chinese joint venture partners and failure to crack down on intellectual property theft have been longstanding problems for several U.S. administrations.

Administration officials have said that Chinese theft could amount to as much as US$600 million, though Chinese officials deny that such

forced technology transfers exist. They say the country is continuously improving intellectual property protection.

The probe will likely further complicate the U.S. relationship with China, the country’s largest trading partner. The Trump administration has been pressing Beijing to take steps to encourage North Korea to curb its nuclear and missile programmes. Reuters

Debt-to-equity

Zombies propped up as debt swaps surpass US$100 billion The growth in such swaps has also prompted concerns that risks are being shifted to individual investors Denise Wee and Lianting Tu

Almost a year after China rolled out steps to rein in soaring corporate leverage, concerns are rising that undeserving companies are benefiting while households are getting saddled with risks.

China unveiled guidelines for debt-to-equity swaps in October, part of measures to trim the world’s biggest corporate debt loads. The idea was that healthy firms would use the program to cut interest-bearing borrowings, while bloated companies would be shunned. But it hasn’t always worked out that way, even as the total value of swaps reached RMB776 billion (US$116.3 billion) in the second quarter when volumes jumped to a record, according to Natixis SA. While China’s State Council said in October that zombie firms may not take part, 55 per cent of the swaps last quarter were in the coal and steel industries, which are plagued by overcapacity, Natixis says. The stakes are high for lenders and even individual investors, some of whom buy wealth management products repackaged from the swaps.

The absence of a clear definition of “zombie” is part of the problem, according to Fitch Ratings. Views vary on whether further guidelines on the program released this month by the banking regulator will help address these issues.

The program is attracting bad companies because they see debt-to-equity swaps as a way to get a bailout, said Chi Lo, Greater China senior economist at BNP Paribas Asset Management. “You can imagine the zombie companies will be just like cancer

cells that eat into the system.”

The swaps generally work like this: A bank agrees to take over a company’s debt from its original lenders.

The bank sets up a unit which has other shareholders that help share risk. The unit assumes the debt and conducts a transaction with the company to convert it into equity. It can then dispose of the stake.

In the most recent draft guidelines released earlier this month by the China Banking Regulatory Commission, a bank is required to own no less than a 50 per cent stake in the unit conducting the swaps. The guidelines also say that the units can sell bonds and borrow from the interbank market.

Before the bank units dispose of their equity stakes in the companies, they may struggle to manage them, according to Victor Jong, a partner at the business recovery services unit

of PricewaterhouseCoopers LLP in Shanghai.

Among struggling companies that have signed swap agreements are Sinosteel Corp., which received support from the Chinese government to avoid defaulting on its debt in 2015.

Another firm, Shandong Gold Group, signed a debt-to-equity swap agreement with Industrial & Commercial Bank of China Ltd. in December. Shares of its listed unit Shandong Gold Mining have dropped about 13 per cent since then, compared with a 1 per cent gain for the broader Shanghai Composite Index in that period.

“China intends debt equity swaps as part of corporate de-leveraging and to help clean up bank balance sheets, but the list of deals announced so far suggests China’s definition of a good versus a zombie company is

quite different from that of international investors,” said Matthew Phan, analyst at CreditSights.

The growth in such swaps has also prompted concerns that risks are being shifted to individual investors, as funds repackage equity stakes into wealth management products.

“Households are being harmed,” said Alicia Garcia Herrero, Hong Kongbased chief economist at Natixis.

China Construction Bank Corp. raised capital by repackaging swapped debt of Yunnan Tin Group and Wuhan Iron & Steel into wealth management products aimed at individual investors, according to S&P Global Ratings.

Household risk

Two calls to Li Chengyang, media officer at China Construction Bank in Beijing, went unanswered.

While debt-to-equity swaps reduce refinancing risks for firms, if there are no measures to make those companies better, the program is only “kicking the can down the road,” according to Ivan Chung, head of Greater China credit research at Moody’s Investors Service.

The debt swap program may be challenging to implement if banks see no upside to the transactions and banks may prefer to hold debt rather than subordinated equity, said Jason Bedford, banking analyst at UBS Group AG in Hong Kong.

“As a whole, I’m pretty sceptical about the debt to equity swap program and how effective it is at saving good companies,” said Phan at CreditSights. “Bad loans have been bought partly by households but in five years’ time, the companies could be in trouble again.” Bloomberg News

Business Daily Tuesday, August 22 2017 9

Greater China Reform

In Brief

Regulator says Unicom’s plan does not violate rules Chinese media had speculated the deal violated rules on private placements in terms of deal size and pricing mechanism after the CSRC revised its rules in February Donny Kwok and Sijia Jiang

China Unicom’s US$11.7 billion ownership reform plan does not violate rules, the nation’s securities regulator said, helping shares in the telecom group’s units surge as they resumed trade yesterday after speculation that the deal was under scrutiny.

The deal, in which Unicom’s Shanghai-listed unit will tap more than a dozen major investors, including Alibaba Group, Tencent Holdings and Baidu, for funds, had sown much confusion after it was first announced last Wednesday.

China Unicom had taken down a statement from the Shanghai stock exchange last week, citing technical issues, and shares in both units remained suspended last week.

But late on Sunday, the telecoms group reiterated it was planning to raise RMB77.9 billion (US$11.7 billion) through an ownership reform plan

that has been billed as a model case for revitalising Chinese state firms with private capital.

“After going through the relevant legal procedures with the National Development and Reform Commission (NDRC) and other departments, the China Securities and Reform Commission (CSRC) will treat the private placement in China Unicom’s ownership reform as an exceptional case,” the CSRC said in a statement late on Sunday.

Chinese media had speculated the deal violated rules on private placements in terms of deal size and pricing mechanism after the CSRC revised its rules in February.

Some analysts said bumps in the process were only to be expected as it was a complicated process, and the CSRC is unlikely to grant more exceptions to its rules concerning private placement.

“The confusion was likely to have

resulted from a lack of coordination among different government authorities, in this case, the NDRC and CSRC, in addressing China Unicom’s private placement plan as part of its hybrid ownership initiative,” said Wang Ying, senior director at ratings agency Fitch.

“We think future cases are more likely to involve greater communication and coordination between the NDRC and CSRC, such that the plans will be in compliance with existing regulations.”

Shares of Shanghai-listed China United Network Communications Ltd surged 10 per cent, the maximum daily limit, on Monday while those of the group’s Hong Kong unit, China Unicom Hong Kong Ltd, also climbed as much as 10 per cent to their highest level in more than two years, before ending 3.5 per cent higher.

The Shanghai unit’s shares had been suspended since April, while the Hong Kong unit’s shares were halted from Wednesday.

China Unicom Hong Kong said in a statement yesterday that all the terms of the ownership-reform plan were consistent with those announced previously.

A source familiar with the deal said not everyone was on the same page when the announcement came out on Wednesday but all parties were now fully committed. The source, who was not authorised to speak to the media, declined to be identified. Reuters

M&A

M&A

HNA boosts Dufry stake, pursues CWT purchase plan Chinese conglomerate HNA Group has completed the acquisition of a 16.2 per cent stake in Swiss airport retailer Dufry AG from Singaporean sovereign funds GIC and Temasek, Dufry and HNA said yesterday. No value for the deal was given, but the stake would be worth about US$1.4 billion, given Dufry’s current market capitalisation of US$8.5 billion. HNA’s total stake in the Swiss group will rise to 20.92 per cent, the firms said. HNA also said yesterday it is progressing its proposed US$1 billion purchase of Singapore-listed logistics firm CWT Ltd. Ride-sharing

Uber hikes Hong Kong fees amid legal troubles Uber Technologies Inc yesterday hiked its Hong Kong fees by up to 80 per cent after a review of its business there, the embattled ridesharing company said, adding it was not having issues financing its operations in the Asian financial hub. The San Francisco-based technology company, which recently suspended its services in the neighbouring Chinese city of Macau for the second time, told Reuters the price rise would benefit drivers as they pocketed most of the fares.

Starting yesterday fees for UberX and UberASSIST rides would rise by up to 80 per cent to start at HK$45 (US$5.75), and a ride with the pricier UberBLACK would start at HK$65 instead of HK$50.

China Daily

Great Wall confirms interest in Fiat Chrysler FCA Chief Executive Sergio Marchionne is seeking a partner or buyer for the world’s seventh-largest automaker Norihiko Shirouzu and Brenda Goh

China’s Great Wall Motor Co Ltd is interested in bidding for Fiat Chrysler Automobiles (FCA), a company official said yesterday, confirming earlier reports that it is pursuing all or part of the owner of brands including Jeep and truckmaker Ram. There has been speculation over Chinese interest in FCA since Automotive News reported last week that an unidentified “well-known Chinese automaker” made an offer earlier this month, triggering a jump in FCA’s Milan-listed shares.

“With respect to this case, we currently have an intention to acquire.

We are interested in (FCA),” an official at Great Wall Motor’s press relations department, who declined to give his name, told Reuters by telephone. He gave no further details.

FCA Chief Executive Sergio Marchionne is seeking a partner or buyer for the world’s seventh-largest automaker to help it manage rising costs, comply with emissions regulations and develop technology for electric and self-driving cars.

An acquisition by Great Wall Motor would be audacious, and one of China’s highest profile manufacturing deals to date.

Earlier yesterday, two people familiar with the matter said Great Wall Motor had asked for a meeting with FCA, with the aim of making an offer for all or part of the Italian-American auto group. Also yesterday, citing an email from Great Wall Motor President Wang Fengying, Automotive News reported that Great Wall Motor

had contacted FCA to express interest specifically in the Jeep brand.

The industry publication cited a Great Wall Motor spokesman confirming interest, but saying the Chinese automaker had not made a formal offer or met with FCA’s board.

“Our strategic goal is to become the world’s largest SUV maker,” Automotive News quoted the spokesman as saying, referring to sport utility vehicles. “Acquiring Jeep, a global SUV brand, would enable us to achieve our goal sooner and better (than on our own).”

FCA shares rose 3.9 per cent to 11.12 euros in early Milan trading, outperforming a flat market. Great Wall Motor shares were up almost 3 per cent in Shanghai.

FCA was not immediately available to comment on interest in the group.

Earlier, officials declined to comment on the earlier Automotive News report focused on Jeep.

“Jeep is the most logical choice

since (Great Wall) wants to be the largest SUV maker in the world,” said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.

Ram could be an option, but “the Jeep brand is recognised globally. I think Great Wall Motor is eyeing a global strategy, not just the United States,” Zhang added.

A move for FCA or one of its main brands, if successful, would allow Great Wall Motor to accelerate a planned push into the U.S. market, the two people familiar with the matter told Reuters.

They said Great Wall Motor had been making plans for some time to enter the U.S. market, mainly by upgrading some of its key products and improving branding.

The company earlier this year officially launched a new “Wei” brand of potentially U.S.-market ready vehicles. Wei is the last name of Great Wall Motor founder and chairman Wei Jianjun. Reuters

Online retailer arrested on smuggling charges The founder of an online Chinese luxury retailer has been arrested after being charged with smuggling RMB438 million (US$65.67 million) worth of goods into the country, the official China Daily reported yesterday, citing the customs authority. Ji Wenhong, the founder of Xiu. com, an online e-commerce website that specialises in imported luxury goods, was captured in Indonesia and returned to China, where he will face trial, the newspaper said. Ji is accused of being the head of a smuggling operation in which luxury clothing items purchased in Europe and the United States were carried into China via Hong Kong.

Energy

Taiwan premier pledges to minimise blackout chances Taiwan’s premier said yesterday the government will minimise the probability of another power blackout but cannot guarantee that there will be no recurrence. The government is under mounting pressure after a massive power blackout last week hit businesses and residences, raising concerns about the sustainability of the power supply on the island, a hightech hub and supplier to global names such as Apple Inc. “We should minimize the probability, but we can’t give a 100 per cent guarantee that it will not happen again,” Lin Chuan said in response to questions from a lawmaker in the legislature.

10 Business Daily Tuesday, August 22 2017

Greater China Real estate

Hong Kong property investors go trophy hunting in London despite Brexit Capital from China and Hong Kong has accounted for a third of all investment in London commercial real estate this year Esha Vaish and Dasha Afanasieva

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hinese investment in London commercial property has more than trebled since before Britain voted to leave the European Union, most of it channelled through Hong Kong at a time of heightened political uncertainty in the former British colony.

While others have pulled back from British property following last year’s Brexit referendum, investors largely from Hong Kong are snapping up the British capital’s best-known skyscrapers including the “Cheesegrater” and “Walkie Talkie”.

In the first six months of 2017 Chinese investors spent 3.96 billion pounds (US$5.10 billion) on London commercial property according to data from the CBRE real estate group, the highest amount on record and outpacing the 2.69 billion pounds spent in the whole of 2016.

Hong Kong accounted for 92 per cent of the Chinese investment, according to the Knight Frank agency.

Hong Kong food conglomerate Lee Kum Kee is set to pay 1.28 billion pounds later this month for 20 Fenchurch Street - the 34 storey skyscraper known as the Walkie Talkie - a record for an office building in Britain.

With Beijing cracking down on foreign deals by mainland companies, investors there are instead using Hong Kong as a conduit for overseas deals. China’s state planner announced on Friday that the country will strengthen rules to defuse risks for domestic companies investing abroad and curb “irrational” overseas investment.

However, Hong Kong-based investors are more significant players.

“Deals from mainland China already make up a smaller proportion of the activity from the region, with Hong Kong investors most active,” said Anthony Duggan, head of capital markets research at Knight Frank.

“We expect that Chinese investors will still look to make strategic real estate purchases that fit within their business plans.”

Hong Kong’s freedoms, including judicial independence, are constitutionally enshrined under a “one country, two systems” deal struck before Britain returned the territory to China in 1997. However, concerns have been rising in recent years and an appeals court jailed three leaders of Hong Kong’s democracy movement last week.

Tens of thousands protested in Hong Kong on Sunday against the jailing of the young activists, with many demonstrators questioning the independence of the judiciary.

Hong Kong’s legal chief has denied any “political motive” in seeking the prison terms.

Taking control

“If you’re concerned that China is taking control of Hong Kong more and more and you need to take capital out of that jurisdiction, London

A panorama of the City of London

is attractive,” said Chris Brett, head of international capital markets at CBRE. Several factors are drawing the investment, including sterling’s 12 per cent drop since the Brexit referendum against the U.S. dollar - to which the Hong Kong dollar is pegged.

“Cheaper money, the rule of law, cultural familiarity and a need to diversify out of a home market is what’s driving Hong Kong demand in the UK,” said James Beckham, head of central London investment at property consultant Cushman & Wakefield, which advised the Walkie Talkie’s buyers and Cheesegrater’s sellers.

Record Hong Kong commercial and residential property prices, along with the political concerns are pushing investors to turn to overseas markets where rental yields are higher.

The illiquidity of a building compared with other investments is also an attraction, should Beijing demand that funds be repatriated to China, Jefferies analyst Mike Prew said.

The Brexit vote means some London-based financial jobs will shift to the continent or Ireland so that banks can continue selling to clients in the EU. But this negative factor for the office market is offset by the pound’s fall, which makes property cheaper for foreign investors, and the fact that the buildings sold have come with tenants signed up to leases of around 10-15 years.

Real estate sources said other City of London landmarks, including 30 St Mary Axe - known as the Gherkin - and the Heron Tower are also attracting interest from Hong Kong investors. These prime “trophy” assets, like the Cheesegrater and Walkie Talkie, have well-known tenants and are in limited supply.

Chinese pricing of UK commercial real estate has already established an “entry premium” of about 100 basis points on yields for platinum or top grade buildings, according to Prew.

Capital from China and Hong Kong has accounted for a third of all investment in London commercial real estate this year, up from less than 10 per cent before the referendum, according to CBRE. This stands in contrast to other investors. Money raised by UK property-focused private equity funds has fallen since the Brexit vote, with US$2.9 billion raised in the first half of 2017 compared with US$3.7 billion a year earlier, according to data from Prequin.

That’s as the outlook for the London office market as a whole clouds before Britain’s EU exit in 2019. The amount of empty space has jumped since the referendum, with developers having to offer longer rent-free periods and lease breaks early into leases to secure tenants.

Central London office developer Derwent London, which has a portfolio worth 4.8 billion pounds, forecast that 2017 rental values would be anything between down 3 per cent to up 2 per cent.

Tokyo, New York and San Francisco, but they offer higher rents than most other global centres of their stature, according to Knight Frank data. “(Chinese investors) want stable and good returns and trophy buildings generally look part of that,” said Dan Norris, real estate head at Hogan Lovells, the second-largest law firm in China.

Norris helped Chinese buyers in May to buy 20 Gresham Street, a seven-floor building near St Paul’s Cathedral, for around 300 million pounds. Asian investors were choosing to avoid development deals as they remained wary of riskier projects and were most keen on London offices, he added.

Sky high

Sales of trophy assets have been a prominent feature of the central London deal market for the past six months, resulting in 29 transactions of over 100 million pounds completing, up from 19 a year ago, according to data from BNP Paribas Real Estate.

The most recently sold skyscrapers are also cheaper than the same calibre of building in Hong Kong: CBRE data show rental yields stand at about 3.4-3.5 per cent for a top-tier London building versus 1 per cent for a similar Hong Kong one. Reuters

London’s skyscraper boom of the last decade reshaped the skyline, adorning it with unusually shaped silhouettes inspiring nicknames such as the Shard and the 24-storey Can of Ham, which is due to open next year.

The largest chunk of cross-border Chinese real estate investment continues to be poured into the United States, but that proportion declined in the first half of the year while increasing in Britain.

Buildings in London are cheaper per square foot than in Hong Kong,

Key Points China demand for UK commercial property touches new record Weaker pound has made London skyscrapers cheaper Need to diversify from home market helping drive demand Tens of thousands protest in Hong Kong

Business Daily Tuesday, August 22 2017 11

Asia Survey

Japan’s manufacturers most optimistic in a decade Cool and rainy weather may dampen consumer spending in August Tetsushi Kajimoto and Izumi Nakagawa

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onfidence at Japanese manufacturers rose in August to its highest level in a decade led by producers of industrial materials, a Reuters poll showed, in a further sign of broadening economic recovery.

The Reuters’ monthly poll - which tracks the Bank of Japan’s closely watched quarterly tankan - found the service-sector mood fell but still remained at a relatively high level, underscoring the firmness in domestic demand which drove robust expansion in the second quarter.

Business sentiment was likely to sag slightly over the next three months, indicating a potential pullback from the hefty 4 per cent annualised growth in the April-June quarter driven by private consumption and capital expenditure.

The sentiment index for manufacturers rose one point to 27 in August in the poll of 548 large- and mid-sized companies, conducted Aug. 1-16, in which 265 firms responded.

It was the best reading since August 2007, just before the last global financial crisis, led by producers of industrial materials such as oil, steel and chemicals, as well as manufacturers of metals, machinery and transport equipment.

“Our business is led by overseas markets. The domestic market is

not so bad, China is recovering and America and Europe are performing well. Overall the sentiment is positive,” Keisuke Fujii, a spokesman for Fanuc Corp, a manufacturer of robotics and automation equipment, told Reuters.

The company expects current profits to rise 6.1 per cent this financial year and sales to increase 13.9 per cent, due to demand for IT-related products in China and Taiwan, and industrial robots in the United States, Europe and China, he said.

Bad weather, wariness on outlook

Reflecting some wariness on the outlook, however, the manufacturers’ index was seen slipping to 26 in November, with the yen strengthening amid concerns over developments surrounding North Korea’s missile and nuclear programmes.

“Given the ongoing strength of overseas demand, we believe sentiment will remain firm going forward,” said Yuichiro Nagai, economist at Barclays Securities.

“That said, the Japanese yen is appreciating and share prices are falling amid geopolitical risk. This trend, if it accelerates, could sharply undermine business sentiment.”

The Reuters Tankan service-sector index slipped to 29 in August from the previous month’s two-year high of 33, dragged down by sectors such

as retailing, where confidence fell for a third straight month.

The service-sector index was expected to drop further to 25 in November.

Cool and rainy weather may dampen consumer spending in August, which would be worrying as private consumption constitutes about 60 per cent of the economy and was a primary driver of the second-quarter’s robust expansion.

Still, the retailers’ sentiment index is expected to bounce in November, underlining a pick-up in

consumption with a change in the weather, and the tightening labour market keeping household incomes firm.

The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A positive figure means optimists outnumber pessimists.

The BOJ’s last tankan out July 3 showed big manufacturers’ business confidence hit its highest level in more than three years in the June quarter. Reuters

FX

Philippine c.bank says ready intervene to curb speculation Governor reiterated the central bank would continue to pursue a “flexible” and “adaptive” exchange rate policy The Philippine central bank yesterday warned traders that it would intervene in the currency market to curb any speculative activity, and said it expects the peso to stabilise following its sharp slide to 11-year lows.

Bangko Sentral ng Pilipinas Governor Nestor Espenilla described the peso’s weakness as a “healthy price correction,” and emphasised that the central bank believes a bounce against the U.S. dollar is on the cards.

“The BSP will not tolerate ... speculative behaviour and stands ready to use its very ample international reserves and deploy its full policy and regulatory arsenal if necessary,” Espenilla told reporters.

“In any case, we think that the peso has now sufficiently adjusted and can be expected to regain relative stability going forward,” Espenilla added.

The Philippine peso hit a fresh 11-year low against the dollar on Friday, a day after the country reported that it clocked a forecast-topping 6.5 per cent growth in the second quarter to make it Asia’s second fastest growing economy after China.

Financial markets were closed yesterday because of a public holiday.

A surge in the imports of capital goods - mostly infrastructure related - has pressured the peso as President Rodrigo Duterte’s administration prepares for a six year, US$180 billion spending spree to modernise and build new airports, roads, railways and ports.

Strong imports have widened the country’s trade deficit, prompting

policymakers to pencil in a first fullyear current account deficit for the Philippines in 15 years this year.

“The Philippines is doing the correct thing in prioritising a more investment-led economic growth. Allowing the peso to depreciate gradually to a more appropriate level is fully consistent with that strategy,” Espenilla said.

The central bank has kept policy settings steady since a 25-basis-point

hike in September 2014. It set the overnight borrowing rate to 3.0 per cent in June last year when it moved to an interest rate corridor framework to make policy transmission faster.

“In any case, we think that the peso has now sufficiently adjusted and can be expected to regain relative stability going forward” Nestor Espenilla, Bangko Sentral ng Pilipinas Governor

Nestor Espenilla, Bangko Sentral ng Pilipinas Governor

Espenilla reiterated the central bank would continue to pursue a “flexible” and “adaptive” exchange rate policy so it can focus its monetary policy on managing inflation and boosting economic growth. Retuers

12 Business Daily Tuesday, August 22 2017

Asia GDP

Thai growth fastest in over four years Economic growth has lagged its regional peers since 2014 Orathai Sriring and Kitiphong Thaichareon

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hailand’seconomycapped a solid performance for Southeast Asia in the second quarter, growing at its fastest clip in over four years thanks to strong exports - a common denominator for many countries still struggling to boost private consumption despite ultra-low interest rates.

Robust tourism and farm output also helped Thailand’s growth beat market expectations in the April-June quarter, prompting the government to raise its economic forecasts in a sign the recovery is gaining momentum.

Southeast Asia’s second largest economy joins a host of other countries in the region, including Singapore, Malaysia, the Philippines and Taiwan, which have seen growth speed up as an upturn in global demand hovered up the region’s electronics, home appliances and other consumer goods.

The main risks for the region, including Thailand, stems from rising U.S. trade protectionism, an expected slowdown in China’s economy and higher U.S. interest rates.

Thailand’s gross domestic product (GDP) grew a seasonally adjusted 1.3 per cent in the June quarter from the first, the National Economic and Social Development Board (NESDB) said yesterday, faster than the 1.0 per cent forecast in a Reuters poll and matched the March quarter’s pace.

On a yearly basis, growth was 3.7 per cent, the quickest rate in more than four years, and easily beating the median forecast of 3.2 per cent and the 3.3 per cent pace clocked in January-March.

“We expect growth to remain relatively strong over the next couple of quarters, helped by strong external demand and loose monetary and fiscal policy,” said Gareth Leather, senior Asia economist at Capital Economics in a client note.

Political uncertainty?

Thailand’s economic growth has lagged its regional peers since 2014, when the army seized power to end months of political turmoil. The junta has ramped up spending in a bid to boost growth, but big-ticket infrastructure projects have been slow getting off the ground.

Private investment has remained weak for more than four years while high household debt has crimped consumption.

The government has said it will hold an election later next year, although no dates have yet been set.

“The uncertain political situation is the main risk to the outlook,” Capital Economics’ Leather said.

Politics is also a risk factor in the Philippines as President Rodrigo Duterte wages a deadly war on drugs, while in Malaysia speculation is rife that Prime Minister Najib Razak will call early polls to take advantage of improving economic conditions and a fractured opposition. In Indonesia,

A tourist photographs a decoration of the Wat Arun, or Temple of Dawn, in Bangkok. More than eight million tourists visited Thailand during the high season at the end of 2016, according to a report released by the Tourism Council of Thailand (TCT). A robust tourism helped Thailand’s growth beat market expectations in the April-June quarter. Source: Lusa

the only Southeast Asian economy that failed to top expectations in the second quarter, the central bank has flagged a possibility of more monetary easing to support growth and boost private demand.

A strong baht presents an additional headwind to Thailand’s export-driven economy though the government said it sees no significant dent to growth from the currency’s rise.

The baht is Asia’s best performing currency this year, having appreciated

7.8 per cent against the dollar.

Citing the upbeat second quarter numbers, the planning agency raised its 2017 economic growth forecast to 3.5-4.0 per cent from 3.3-3.8 per cent projected earlier. Last year’s growth was 3.2 per cent.

It upgraded its export growth outlook to 5.7 per cent from 3.6 per cent.

Exports, worth about two-thirds of the economy, have started recovering in 2017 after years of weakness.

The baht’s strength has not hurt exports as global growth remains high, NESDB chief Porametee Vimolsiri told reporters In the second quarter, merchandise exports rose 5.2 per cent from a year earlier and the agricultural sector grew a strong 15.8 per cent. Private consumption rose 3.0 per cent, down from 3.2 per cent in the first quarter, and government investment fell 7 per cent.

Last week, Thailand’s central bank left its key interest rate at 1.5 per cent, where it has stayed for more than two years, and most economist expect policy to remain stimulatory for the rest of the year.

“Looking ahead, domestic demand must pick up if the recovery is to be sustained,” ANZ economist Eugenia Fabon Victorino said in a note.

“The weakness in private domestic demand is likely to keep inflationary pressures at bay. Thus, we continue to expect the Bank of Thailand to keep its policy rate unchanged through 2017”.

Reuters

Financial sector

Money laundering probe exposes Australian banks’ compliance frailties The Australian Bankers’ Association estimates the country’s four major banks have together spent A$1.73 billion in recent years on implementing regulatory changes Sumeet Chatterjee and Swati Pandey

A money laundering probe at Commonwealth Bank of Australia is the latest in a slew of scandals denting the reputation of Australian banks as simple, reliable lenders at the forefront in the battle against financial crime.

Australian banks have lagged their global peers in both their spending and their approach on anti-money laundering and know-your-customer systems as they pursued rapid growth in customer deposits, some banking officials and experts say.

“In the last few years, regulators and banks have been focused on changing the whole bank culture to get all levels of staff taking compliance seriously,” said Philippa Allen, CEO of ComplianceAsia, which advices on compliance issues.

“That is not as widespread yet in Australia,” she said. “Australian banks have not had the big fines imposed on them like their global peers have.”

Know-your-customer (KYC) and anti-money laundering (AML) processes became a key focus globally after HSBC Group and Standard Chartered were hit with hefty fines in 2012.

Major international banks are now spending between US$900 million and US$1.3 billion a year on financial crime compliance, according to analysis by corporate governance recruitment firm Barclay Simpson.

HSBC spent US$1.6 billion on regulatory and compliance programmes

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in the first half of 2017, up 12 per cent from a year ago.

In comparison, CBA’s spending on risk and compliance fell 7 per cent to A$470 million (US$371 million) in the year to June, according to the bank’s annual report.

CBA said the drop was a result of the “timing and completion of key phases of risk and compliance projects” in the prior year including roll-out of refreshed teller machines.

The bank said it has hired more than 50 compliance professionals since 2015 and is strengthening its customer background check processes while upgrading technology used to monitor accounts and transactions for suspicious activity.

Rival National Australia Bank’s spend on compliance and operational risk was nearly unchanged at A$167 million in its first half-year.

Lagging global benchmarks

The Australian Bankers’ Association estimates the country’s four major banks - CBA, NAB, Australia and New Zealand Banking Group and Westpac Banking Corp and three main regional lenders - have together spent A$1.73 billion in recent years on implementing regulatory changes including foreign account tax compliance act and anti-money laundering rules.

“There is an issue and the issue is the KYC/AML standards in Australia has lagged the global benchmarks for several years,” said a senior banker at one of Australia’s Big Four lenders.

A Thomson Reuters survey last year found that 62 per cent of Australian

financial firms had not made changes to meet the 2012 recommendations by the Financial Action Task Force (FATF), a global group of government anti-money-laundering agencies.

Most Australian firms are also less reactive to regulations: 65 per cent said regulatory change would be an influential factor that could lead them to make changes to client due diligence, compared with a global average of 76 per cent, the survey found. “(Australian) banks have clearly been behind the curve when you look at the amount of details required to open a customer account and doing periodic review of those accounts,” said the banker, declining to be named due to sensitivity of the issue.

Australian banks including CBA advertise that prospective migrants or those on short-term working holiday visas can open an account prior to arrival.

“It’s quick to open and you’ll get your bank account details straight away,” CBA says on its website.

CBA declined to comment on specific questions relating to opening accounts, but referred to a statement this month which said the bank was strengthening its KYC processes with investments of more than A$85 million.

CBA, Australia’s No.2 lender, is facing a potentially record fine over breaches of money-laundering and counter-terrorism financing laws.

It blamed a coding error for most of the issues and says it will defend the case brought by regulator AUSTRAC.

“Cultural problem”

Other scandals at Australian banks in recent years have involved interest rate rigging, product mis-selling and poor financial advice, leading to mounting pressure for a wide-ranging government inquiry into the sector.

Australian Securities & Investment Commission Chairman Greg Medcraft said this month there was a “serious cultural problem” in how the Australian banks dealt with regulators.

He accused banks of being “far too legalistic” and failing to give enough attention to non-legal risks such as reputational damage.

Such criticisms come against a backdrop of cutthroat competition to lure customer deposits, the biggest source of funding for top banks, to meet the new regulatory requirements to improve their capital buffers.

Australia’s “Big Four” banks have boosted domestic deposits to about 60 per cent of total funding from 40 per cent in 2007.

While still low compared to major lenders elsewhere in Asia, Australia’s increasing reliance on deposits has raised pressure on banks to improve their compliance systems, particularly where cash is involved.

“Anytime you’re dealing with something untraceable like cash you’ve really got to be on top of things,” said Jeremy Danon, principal at Ariel & Associates, which provides AML training to financial firms. Reuters

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Business Daily Tuesday, August 22 2017 13

Asia Labour

In Brief

Granola boom shows Japan working women are good for business The increase of female work force population in Japan has helped local companies to improve their business focus in that target group

C

albee Inc.’s granola snack had been around for 20 years, with no real change to its recipe or sales. Then a female marketing executive turned things around by pitching the cereal as a time-saver for a growing class of Japanese consumers just like her: working mothers.

The strategy clicked, revenue jumped and so did the snack maker’s stock price. Success coincided with a push by Prime Minister Shinzo Abe’s government to boost women in the workforce. More companies like Calbee, whose Chairman Akira Matsumoto is a vocal advocate of diversity, are starting to see working moms as a lucrative niche in a domestic market that’s shrinking overall.

“Some companies have woken up to the fact that the vast majority of their customers were women and perhaps having women involved in planning might be a way to increase revenue,” said Kathy Matsui, chief Japan strategist at Goldman Sachs Group Inc. Since 2012, when Abe came to office promising to eliminate waiting lists for childcare and boost the number of female managers, more Japanese women in their 20s and 30s are deciding not to quit their jobs when they have kids. The labor force participation rate for women in those age groups rose to an average of 70 per cent last year, almost 10 percentage points above the number a decade ago.

Even with that, female managers are still relatively rare in Japan. Of the 2,161 listed Japanese companies that provided the information, less than a third have even a single woman on their board, according to data compiled by Bloomberg. The World Economic Forum’s Gender Gap Report, which tracks disparities between the sexes, ranks Japan 111th out of the 144 countries it follows.

Iceland has the most equal society, according to the report.

One Japanese mother who decided to stay at work is Yumiko Aboshi, the now 42-year-old manager credited with breathing life into Calbee’s granola and who’s become something of a minor media star. One headline in a local language news website in June called her: “The woman who knows the consumer best.”

After taking a year of maternity leave in 2011, Aboshi says she returned to work to find the cereal division in a near panic over tough new revenue goals handed down by headquarters. Granola sales, which had hardly budged for years, were now somehow supposed to triple to about US$100 million. Two years later the target was doubled.

“When the second target came, we were like, ‘what?”’ Aboshi recalled in an interview this month at Calbee’s Tokyo headquarters. “Even US$100 million felt like a wall to get over.”

Granola was seen by Japanese consumers as a sweet snack, not a health advertisement

food as it’s often viewed in the U.S. and Europe. The cereal, which combines roasted grains with dry fruits, is sold by Calbee under the brand name Frugra, a shortened word for fruits granola.

Aboshi’s team led a marketing campaign, recasting the cereal as a time-saving breakfast that’s also nutritious. They got the attention of working moms -- and the Japanese media -- by holding supermarket tastings and offering free breakfasts to commuters in Tokyo’s financial district.

With that push, sales jumped seven-fold over five years to the equivalent of about US$266 million in the 12 months through March. Now the cereal contributes more than onetenth of total revenue, a big chunk for a company best known for potato chips. In the past year, Calbee announced almost US$100 million of investments in two new granola factories, partly to supply shipments to China, where it’s also becoming popular.

“Granola sales really shot up about three years ago,” said Masashi Mori, a Tokyo-based analyst at Credit Suisse Group AG. “As more and more moms continue to work, they want to be able to give their kids a meal that’s healthier and simpler.”

One recent reviewer on Amazon. com’s Japan’s website, where Frugra is the best-selling cereal, said: “It’s inexpensive and, mixed with milk or yogurt, I have it as a breakfast substitute when I’m short on time.”

Calbee hasn’t been immune to problems, though. The stock plunged 11 per cent in a single day earlier this month as earnings took a hit following a potato shortage that halted shipments of some snacks this past spring. Even after the pullback, though, the company’s shares have almost tripled in the past five years.

Other companies are also focusing on labor-saving products for working women. Japan’s biggest convenience store operator, Seven & i Holdings Co., will start a food delivery service in November offering meal kits that take less than 10 minutes to prepare.

Self-operating vacuum cleaners, like iRobot Corp.’s Roomba, are one of the only growing segments in a vacuum market that’s shrinking overall, according to researcher GfK Global.

The focus on meeting the needs of women customers is coming as more companies step up efforts to increase the number of female employees.

Matsumoto, who is also Calbee’s chief executive officer, has probably been the most outspoken Japanese executive advocating workplace diversity.

“If you don’t like diversity, ‘You’re welcome to quit,”’ he told a forum earlier this year.

In Calbee’s granola division, where women make up half of the members including Aboshi’s boss, the benefits of diversity are showing.

“If the team had been dominated by men,” Aboshi said, “it’s possible none of this might have happened.”

Bloomberg News

Inflation

S.Korea’s July producer prices rise faster South Korea’s producer prices rose for a ninth straight month in July, and by a faster annual pace than in June, as costs of electricity, tap water and gas increased due to higher-than-usual temperature, central bank data showed yesterday. The producer price index (PPI) for July rose 3 per cent from a year ago, the Bank of Korea said, compared with June’s 2.8 per cent gain. The sub-index showed that producer prices rose for all sectors with electricity, tap water, and gas growing 5.4 per cent and agricultural goods up 11.4 per cent, according to central bank data.

Car industry

Tata Motors CEO says to invest to boost sales Tata Motors will invest more than 40 billion rupees (US$625 million) to boost sales of its passenger and commercial vehicles, its chief executive said yesterday. The company has committed to invest 25 billion rupees in its passenger vehicles unit, and will pump in more than 15 billion rupees in its commercial vehicles business this year and annually over coming years, chief executive Guenter Butschek said. Tata Motors, which owns the luxury Jaguar Land Rover brand, has been trying to turn around its loss-making domestic unit by modernising products, improving efficiency, cutting costs and streamlining its organisation and supplier base.

Mortgages

Westpac under-mined by housing repossessions Rising mortgage delinquencies and repossessions in outback mining towns are starting to bite Australia’s banks, with Westpac Banking Corp the latest to report an increase yesterday. In a third-quarter update, Australia’s second-biggest bank by market value said repossessions jumped 10 per cent mainly due to weak conditions in resource-rich states Queensland and Western Australia, a development likely to worry rivals with greater exposure to such areas. “This is not yet generating much in loan losses, but if it continues it would be more of an issue for CommBank and ANZ,” CLSA banking analyst Brian Johnson said.

S.Korea

Recovery focused on just some sectors is a “problem” South Korea’s vice finance minister said yesterday the fact that the on-going economic recovery in Asia’s fourth-largest economy is focused on only some sectors is a risk that could see growth slowing going forward. “The recent uptick in the economy is focused on the IT sectors, semiconductors, construction investment and capex and the fact that the recovery has not been seen broadly and rather focused on a fraction of the economy is a problem,” Vice Finance Minister Ko Hyoungkwon told reporters at a news conference.

14 Business Daily Tuesday, August 22 2017

International In Brief Portugal

Government tax credits plan ‘lacks ambition’ parliamentary allies Portugal’s Socialist government wants to earmark €200 next year to relieve the tax burden on low earners, in line with a promise it made in 2015 and which it hopes to be able to keep in 2018, but the other two parties in its parliamentary support base, the Left Block and the Communist Party, accuse it of lacking ambition in this respect. The discussion, which will be central to the 2018 state budget, is to be resumed when negotiations restart on the contents of that document. The budget must be submitted to parliament by 15 October.

Brexit

Britain and EU clash over Brexit timetable for trade deal Britain and the European Union are at odds over how soon the Brexit talks can pivot towards a trade deal just a week before negotiations are set to resume. Adopting a provocative posture, U.K. Prime Minister Theresa May’s government declared at the weekend that it’s “ stepping up pressure” on the bloc to shift the discussions away from the terms of separation as soon as October. The use of fighting words in the past has not budged the EU and in a sign the U.K. will be disappointed, Slovenian Prime Minister Miro Cerar told the Guardian that “the process will definitely take more time than we expected.”

Commodities

Iraq plans major change to oil pricing for Asia The nation has been reforming its oil sector in what is seen as a drive to gain influence and bring in more revenue as the country seeks to rebuild its economy Florence Tan and Rania El Gamal

I

raq has informed its customers that it plans to switch its price benchmark for Basra crude in Asia to DME Oman futures from January, dropping the average of Platts’ Oman-Dubai quotes, in a major shift in the way it prices its oil.

The proposal by state-oil marketer SOMO would mark a significant change by OPEC’s second-largest producer away from fellow members Saudi Arabia, Kuwait and Iran, which have been using price assessments from global agency S&P Global Platts as their benchmark for decades.

It throws down the gauntlet on setting prices for more than 12 million barrels per day of Middle East crude in Asia, challenging the role of the world’s top exporter Saudi Arabia.

“In an effort to realize the intrinsic value of our crude exports to Asia as to be in alignment with the recent market perception, we are contemplating a change of the current pricing formula for the Asian market,” SOMO said in a letter dated Aug. 20 and sent to its customers, according to a copy seen by Reuters on Monday.

It asked customers for opinions on the plan by Aug. 31.

SOMO and the Dubai Mercantile Exchange (DME) did not immediately respond to Reuters requests for comment.

Iraq has been reforming its oil sector - including launching crude sales through auctions on DME to achieve higher prices and setting up trading and shipping joint ventures to understand market dynamics - in what is seen as a drive to gain influence and bring in more revenue as the country seeks to rebuild its economy.

Key Points Switch to DME Oman futures from Platts Oman-Dubai average SOMO to start discussions with buyers Change in benchmark may take effect from Jan 2018 “DME has shown good practice and better transparency than Platts, they also have an auction system,” one source familiar with the matter said.

The move also appears to reflect SOMO’s aim to lead a change in crude pricing rather than following Saudi Arabia, OPEC’s biggest producer

Iran

Foreign funds for Iran’s oil sector a top priority - Oil Minister Attracting foreign investment for Iran’s oil sector will continue to be a top priority during President Hassan Rouhani’s second term, Iranian Oil Minister Bijan Zanganeh said.

Zanganeh has won praise with a multi-billion-dollar deal with France’s Total to develop South Pars, the world’s largest gas field. Total will be the operator with a 50.1 per cent stake, alongside Chinese stateowned oil and gas company CNPC with 30 per cent and National Iranian Oil Co subsidiary Petropars with 19.9 per cent. The project will cost up to US$5 billion and production is expected to start within 40 months, Iran’s oil ministry said in a statement last month.

Health

New Novartis drug takes aim at tough-to-treat malaria Novartis is taking aim at drug-resistant malaria – a growing global problem – by launching clinical trials of the first new antimalarial medicine for many years in nine countries across Africa and Asia.

The Swiss drug maker, which is working on the mid-stage Phase IIb trial programme with the group Medicines for Malaria Venture (MMV), said yesterday it believed its drug KAF156 could be a “game-changer”.

New antimalarial are badly needed to fight rising parasite resistance. Resistance to today’s gold standard treatment artemisinin has been seen in Asia and there have also been sporadic cases of reduced drug sensitivity in Africa.

whose crude official selling prices (OSPs) set the trend for other major Middle East producers.

Iraqi crude grades are not used in any of the Middle East price benchmarks. Platts assesses its Dubai price based on deliveries of Dubai, Oman, Abu Dhabi’s Upper Zakum and Qatari Al-Shaheen crude.

“The Iraqis probably want to get in on the game of being a benchmark grade,” a Singapore-based oil trader said.

Good premiums

SOMO has proposed pricing crude loading in the current month using DME Oman prices from two months previously, according to SOMO’s letter to its customers.

“Such a mechanism is intended to reflect the real value of Iraqi crude oil based on the trading month in the Asia market,” SOMO said in the letter.

The change in the benchmark will affect the pricing of about 2 million barrels per day of crude that are shipped to Asia, or close to two-thirds of Iraqi crude exports from the southern port of Basra, the outlet for most of the country’s crude.

“Lately they (the Iraqis) have managed to achieve good premiums via the DME action, so there is some added value,” said an industry source at a Middle East producer.

Since April, Iraq has sold 1-2 cargoes of Basra crude per month through an auction platform on the DME as a test for future Iraqi oil sales.

Oman crude futures, launched in 2007 by the DME, are the only liquid futures contracts for Middle East crude in Asia.

SOMO is not expected to change the way it prices its oil for Europe and the United States, said one of the sources.

It prices its European exports against dated Brent, and uses the Argus Sour Crude Index (ASCI) as the benchmark for its U.S. oil sales. Reuters

Trade

Nafta nations say quick deal on table as inaugural talks end The joint statement reinforces the notion that the three nations are seeking a quick deal before politics overtakes the agenda next year.

Andrew Mayeda

The U.S., Mexico and Canada ended the first round of talks on a new North American Free Trade Agreement saying they’re committed to wrapping up the negotiations quickly with a far-reaching deal.

“While a great deal of effort and negotiation will be required in the coming months, Canada, Mexico and the United States are committed to an accelerated and comprehensive negotiation process that will upgrade our agreement and establish 21st century standards to the benefit of our citizens,” the countries said in a statement Sunday, after five days of discussions in Washington.

The next round of negotiations is scheduled for Sept. 1-5 in Mexico, with talks moving to Canada in late September and back to the U.S. in October. Additional rounds are being planned “for the remainder of the year,” the countries said.

The joint statement reinforces the notion that the three nations are seeking a quick deal before politics overtakes the agenda next year.

Mexico will hold a general election next July, while U.S. Congressional mid-terms are scheduled for November 2018.

The opening round got off to a tense start last week, when U.S. Trade Representative Robert Lighthizer served notice the U.S. wouldn’t accept a modest “tweaking” of a trade deal that President Donald Trump believes has failed Americans. While U.S. trade with its Nafta partners has more than tripled since the agreement took effect in 1994, Trump blames the pact for gutting U.S. manufacturing and sending factory jobs to Mexico.

Trade experts weren’t surprised by the cautious sense of optimism in the joint statement.

“Despite good intentions, this Nafta renegotiation may be more akin to a lengthy process of couples therapy than a quick exercise in speed dating,” said Chad Bown, a senior fellow at the Washington-based Peterson Institute of International Economics.

“The vagueness and positive tone of the concluding statement has left open the possibility of the U.S settling its differences with Mexico and

Canada, ” said Inu Manak, a visiting scholar at the Cato Institute in Washington. “The challenging part of the negotiations will come later, when the negotiators turn to sensitive issues such as dispute-resolution systems and the rules of origin that dictate local-content requirements in products, ”she said.

Negotiating groups agreed to provide additional text, comments or counter-proposals in the next two weeks, according to the joint statement.

“The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area,” according to the statement.

Lighthizer said last week the U.S. will seek improvements in a number of areas, including tighter rules of origin, stronger labour standards and protections against currency manipulation. Trump has threatened to scrap the pact if he can’t get the change he favours. Bloomberg News

Business Daily Tuesday, August 22 2017 15

Opinion Business Wires

Taipei Times Taiwanese financial holding companies’ exposure to ASEAN has grown by more than NT$100 billion (US$3.3 billion) since June last year, according to statistics released on Saturday by the Financial Supervisory Commission. The increase was mainly caused by rising lending by banks and large investments by financial companies in ASEAN members, the commission said. Statistics for 16 Taiwanese financial holding companies showed a total exposure of NT$887.51 billion at the end of June, an increase of NT$102.78 billion from a year earlier. The figure at the end of June was NT$16.41 billion higher than the March figure, the data showed.

Private equity will do a lot of good for Japan Inc. Noah Smith a Bloomberg View columnist

Korea Herald An average South Korean works 20 days a year until “tax freedom day,” with high income earners working up to four more months to cross the threshold, data showed yesterday. The Korea Economic Research Institute (KERI) analysed tax data from 2007 to 2015 based on income and effective tax rates. Results for 2015 showed that a South Korean had to work until Jan 20 to theoretically pay off their taxes for the year and start to earn money for themselves.

The Times of India The recent spate of cuts in savings rates will help Indian banks improve their net interest margins (NIMs) by 15 to 18 basis points (bps), although there is no indication just yet of a corresponding decrease in lending rates. All large banks have taken a cue from the country’s biggest lender State Bank of India and reduced their minimum savings bank rate to 3.5 per cent in the last two weeks.

The spell of reduction is the first since the rates were deregulated in October 2011.

One basis point is 0.01 percentage point.

Inquirer.net The (Philippine) Department of Finance is mulling to privatize certain tax administration activities of the Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR) as part of the comprehensive tax reform program.

In a speech before members of the Federation of Philippine Industries last Friday, DOF Assistant Secretary Mark Dennis Joven said that “if it is necessary to privatize certain aspects of the Bureau of Customs’ work, we will consider that thoughtfully.” Joven said it was part of the reforms they were eyeing in the BOC to make the agency “less vulnerable to corruption and more effective.”

B

ack in 2012, I wrote a blog post calling for more private equity in Japan.

Japanese companies are held back by a hidebound, inefficient workplace culture.

Managers are often grey elder statesmen promoted up through the ranks, instead of dynamic outsiders ready to shake things up. Shareholders are often passive owners, doing little to push companies to raise profitability, while managers build empires instead of focusing on what their companies do best.

Private equity has the potential to shake up this cosy, stagnant corporate world, and in the process help revive Japan from its long productivity slump. But several things get in the way. First, hostile takeovers are very difficult, because Japan’s corporate boards are mostly occupied by managers, and Japan’s courts are unfriendly to takeovers. Second, Japan’s government regularly steps in and bails out failing companies, essentially muscling aside private equity. These forces have blocked private equity from contributing to a much-needed overhaul of Japanese business practices.

But in the last few years, this situation has begun to change.

During my recent trip to Tokyo, friends in the finance industry were gushing over a sudden “explosion” in private-equity deals. It’s possible the dam has broken at last.

The actual value of private equity deals in Japan hasn’t risen in the last couple of years -- it was about US$8 billion in 2016, compared with more than US$10 billion in 2013 and 2014. But the number of deals is on the rise: Kohlberg Kravis Roberts has been responsible for some of the most eye-catching activity of late, acquiring car parts maker Calsonic Kansei Corp. in 2016 for US$4.5 billion, buying one unit of Hitachi Ltd. for US$1.3 billion, and tendering a bid for a second unit. Meanwhile, PE firms are reportedly raising more money, enthusiastic that the wave of deals will continue.

Why the surge in PE? Both the demand for PE money and the supply appear to be increasing.

On the supply side, Japanese interest rates remain extraordinarily low, making it very easy to do leveraged deals: More private-equity firms are entering the market too.

On the demand side, two main kinds of deals seem to be happening. The first involves small and medium-sized companies. In Japan, as in most countries, business is traditionally a family affair. But since Japanese fertility rates have been very low for a long time, many families that own businesses are finding themselves without a scion willing to take over the operation. That means there’s nothing to do but sell, and PE firms are

“

the obvious buyers.

On the larger side, big Japanese companies are starting to spin off some of their divisions. Hitachi Koki, and Hitachi Kokusai, the power-tool division that KKR bought from Hitachi and the chipmaker it’s trying to buy, fit into this category. Calsonic Kansei, although an independent company, was 41 per cent owned by automaker Nissan Motor Co., which was also Calsonic’s main customer. The government’s new corporate governance code and investor stewardship code may be helping to encourage this sort of deal. Big banks, which provide some of the loans to finance the PE deals, may also be encouraging their borrowers to spin off divisions in order to use PE firms to whip underperforming businesses into shape.

Both of these types of deals are important for changing Japan’s corporate culture. The slow decline of family-owned business may be heart-wrenching for old people who sell their companies, but it will contribute to productivity. Businesses owned by families tend to be run in more traditional ways, limiting their ability to expand into new lines of business, modernize, and adapt to various other dictates of economic necessity -- thus, they tend to be less productive.

Meanwhile, Japan’s corporate giants are prone to empirebuilding. Though giant companies that do everything under the sun make for impressive national champions, they can easily become lumbering and inefficient.

Japanese conglomerates, in trying to do everything at once, have long tolerated the existence of money-losing divisions. This unfortunate tendency was documented by Michael Porter, Hirotaka Takeuchi and Mariko Sakakibara in their landmark 2000 book “Can Japan Compete?”

Porter et al. recommended that Japanese megacorps split up, so that each division could become an independently managed company focusing on its core competence. Now, thanks to private equity, this may finally be happening.

The shift toward private equity is thus part of a larger change -- a shift in what it means to be a company in Japan. Where Japanese companies were once considered eternal entities, they’re slowly becoming more like what they are in the West -- ad-hoc arrangements, to be merged, bought, sold, split up or shut down as economic necessity demands.

That creates uncertainty and risk, but also opportunity. Family businesses and managerial empires provide comfort and stability, but often entail long-term stagnation. If Japan is going to grow again, it will need to take more risks. The PE industry will be an important part of that awakening. Bloomberg

Private equity has the potential to shake up this cosy, stagnant corporate world, and in the process help revive Japan from its long productivity slump

”

16 Business Daily Tuesday, August 22 2017

Closing Investment

Cathay Pacific agrees to buy 32 Airbus planes

two parties, will be lower than the list price, it added.

The news comes a week after Cathay Pacific Cathay Pacific Airways said yesterday it has agreed to buy 32 new planes from Airbus Group said it did not see operating conditions improving over the rest of 2017, although at a list price of US$4.06 billion, just a week after it posted its worst first-half loss in at least analysts said they believed losses had two decades as it continued to lose customers. bottomed for Hong Kong’s flagship carrier which has been hit by fierce competition from The aircraft would be operated mainly by lower-cost rivals.

Cathay Dragon, the sister airline of Cathay Pacific, it said in a statement to the Hong Kong The struggling airline is in the middle of a threeyear reorganisation plan, the benefits of which stock exchange.

Chairman John Slosar has said would begin to The aggregate consideration for the Airbus aircraft, as a result of negotiations between the surface in the second half of 2017. Reuters

Trade

Taiwan export orders grow for 12th month but China demand slows Orders are a leading indicator of demand for Asia’s exports and for hi-tech gadgets Faith Hung and Jeanny Kao

T

aiwan’s export orders rose for the 12th straight month in July, fuelled by solid demand for smartphones and other tech gadgets as global retailers and their suppliers prepare for peak-year end shopping season.

Solid demand for Asia’s exports, particularly electronics, helped drive stronger-than-expected economic expansion across most of the region in the second quarter, and has prompted Taiwan to raise its 2017 growth forecast to the strongest in years.

Taiwan last week bumped up its forecast for this year to 2.11 per cent from 2.05 per cent seen in May, and predicted further gains in 2018.

July export orders jumped 10.5 per cent year-on-year, government data showed yesterday.

While that was slightly slower than the 12.25 per cent growth analysts had expected, and the 13 per cent seen in June, the economics ministry predicted export orders by value would pick up again in August as retailers start stocking up their warehouses and shelves.

“Upcoming launches of handheld devices should strongly boost orders for

information and telecommunications, electronics products and optical equipment,” the ministry said.

“Orders for traditional products continue to shine thanks to the global economic recovery combined with the start of the seasonally (strong) period,” it added.

July export orders totalled US$38.72 billion. Demand for all major products grew on-year, with orders for information and telecommunications products as well as basic metal and optical equipment among others expanding by double digits.

Taiwan’s export orders are a leading indicator of demand for Asia’s exports and for hitech gadgets like Apple’s new iPhone 8, which is expected to be launched in September.

That is likely to keep

manufacturers busy well into the fourth quarter, as orders typically lead actual shipments by two to three months.

Tai w a n S e m i c o n d u ctor Manufacturing Co, the world’s largest contract chipmaker and a major Apple supplier, told investors in July its third-quarter revenue would rise after a traditionally weak second quarter.

Apple Inc. recently delivered surprisingly strong fiscal third-quarter earnings and signalled that its coming 10th-anniversary phone line-up was on schedule, boosting expectations of strong earnings for its suppliers in Taiwan and across the world.

Slowing down?

To be sure, some analysts

believe Asia’s broader export resurgence this year may have peaked in the second quarter. But the global electronics rally has run longer and hotter than many market watchers had predicted.

“Pervasive demand for electronics means that our markets are getting larger and substantially less cyclical,” Gary Dickerson, chief of Applied Materials Inc, said last week. The company, the world’s largest supplier of tools used to make semiconductors, reported better-than-expected quarterly profits.

Risks to the outlook include softer year-end demand for electronics than expected.

Many analysts also believe China’s economic growth will fade slightly in coming months, while the United

States has stepped up its protectionist rhetoric.

“We think exports are losing momentum in the second half due to slower consumer electronic demand. July export order data will shed light on the export outlook,” ING said in a research note published before the latest Taiwan data.

Key Points Taiwan July exports orders +10.5 pct vs +12.25 pct Reuters poll f’cast (June +13 pct) Orders from China +10.7 pct, U.S. +7.7 pct; both slowing from June Ministry sees order values rising in August vs July Export orders from China and the United States - Taiwan’s two biggest markets - did grow at a slower pace in July, rising by 10.7 per cent and 7.7 per cent, from 17.3 per cent and 13.1 per cent, respectively, in June.

A private business activity survey for July, however, suggested Taiwan’s manufacturers were cranking up production to rebuild inventories of both raw materials and finished goods to meet expected strong client demand in the second half. Reuters

M&A

Sidereal ventures

Oil industry

Total boosts North Sea business with US$7.5 billion Maersk Oil deal

Moguls worth US$513 billion join the space race

Rosneft finalises strategic deal in India

Total is buying Maersk’s oil and gas business in a US$7.45 billion deal which the French energy major said would strengthen its operations in the North Sea and boost earnings and cash flow.

For Danish company A.P. Moller Maersk, the sale of Maersk Oil, with reserves equivalent to around 1 billion barrels of oil, fits with a strategy of focusing on its shipping business and other activities announced last year.

The world’s top oil companies have been back on the takeover trail over the last year, helped by signs of a recovery in the oil market.

Total expects its biggest oil deal since it acquired Elf in 2000 to generate financial synergies of more than US$400 million per year, in particular by combining assets in the North Sea. Total has been betting on new rather than mature fields in the North Sea and the acquisition gives it further economies of scale by making it the second largest player in the region.

The deal illustrates Total’s strategy of using a strong balance sheet to acquire attractive assets from competitors having emerged from the prolonged oil downturn stronger than some of its rivals.

The purchase also signals some oil majors are prepared to invest to replenish reserves and boost production, anticipating an oil price recovery. Reuters

There are 13 others among the world’s 500 richest people who have an investment in a space enterprise, according to data compiled by the Bloomberg Billionaires Index and consulting firm Bryce Space & Technology. While technology tycoons dominate, the list also includes casino magnate Sheldon Adelson, who’s backing a lunar mission, and Mexican retail and banking billionaire Ricardo Salinas, an investor in satellite network OneWeb. All told, they have a net worth of US$513 billion.

Good thing, because space ventures such as rocket launches can involve stratospheric expenses.

Bezos, the world’s second richest man, is funding rocket company Blue Origin to the tune of US$1 billion a year. Branson’s Virgin Galactic has spent more than US$600 million to help get commercial passenger flights into suborbital space by the end of 2018.

Space Angels, a network for space investors, reckons there are more than 225 private space ventures today, up from 33 in 2009. And funding has followed suit. About US$3.1 billion was invested in these businesses in 2016, compared with US$409 million in 2011, according to Space Angels. Bloomberg News

Russia’s state-controlled oil giant Rosneft announced yesterday it had closed a deal with India’s Essar Oil that is the single largest foreign investment in India and is strategically important for Russia.

Announced in October 2016 as oil prices plunged, the deal values at US$12.9 billion the Indian group that owns one of the world’s most modern refineries -- Vadinar -- and controls over 3,500 petrol stations.

Rosneft is acquiring a 49 per cent stake, while another 49 per cent is being acquired by a consortium including global commodities giant Trafigura.

Essar in a statement called it “Russia’s single largest foreign investment made anywhere in the world” and also “the single largest foreign investment in India.”

One of the brothers who founded the company, Shashi Ruia was quoted as saying “Today is a historic day for Indo-Russian economic ties.”

He said the deal “reflects the shared vision of two of the world’s most dynamic leaders.”

India under Prime Minister Narendra Modi is one of the emerging countries with whom Russian President Vladimir Putin has built up dialogue in recent years. AFP