Suncity to invest billions in Japan Gaming Page 7
Monday, September 4 2017 Year VI Nr. 1375 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Elections
Candidates ramp up election campaigns after Saturday’s midnight kick-off Page 3
Markets
Taiwan to increase corporate and foreign dividend taxes Page 8
www.macaubusiness.com
Congress
Communist Party’s crucial meeting to define new direction for Mainland Page 8
Advertising
Local companies should invest more in digital marketing tools, says expert Page 3
Capturing your audience eSports
A low interest in traditional forms of gambling, but high expectations for increased wagering on eSports for younger generations - give them something they like and they’ll bet on it, says an expert at the MSAR’s first eSports event. With large-scale venues, accommodation and amenities, Macau has the best potential in Asia for eSports development and could drive further interest. Page 2
Drafting the IR bill
Designing the outcome
Founder of Macau Creations, Wilson Chi-Ian Lam knows the challenges of working in corporate design, having left home at age 15 to pursue his field. Decades later, after setting up Macau Creations, the businessman and creative talent explains the hardships in the current market, the importance of working for someone else and the double-edged growth of talent in the field.
Japan Osaka appears to be in the lead for the first licenses for integrated resorts in Japan, say industry insiders. The Yumeshima site is already attracting interest from local operators, with plans for hotels, and convention and shopping centres. Nagasaki is also showing strength. Public hearings helped to appease the opposition, while going forward, it is still ‘difficult to assess’ popular support after a nine-city consultation. Page 6
BRICS are ready
HK Hang Seng Index September 1, 2017
27,953.16 -17.14 (-0.06%) Worst Performers
China Mengniu Dairy Co Ltd
+6.56%
PetroChina Co Ltd
+1.20%
BOC Hong Kong Holdings
-1.63%
Tencent Holdings Ltd
-0.85%
Sands China Ltd
+4.14%
MTR Corp Ltd
+1.09%
Kunlun Energy Co Ltd
-1.32%
Bank of Communications
-0.84%
Galaxy Entertainment Group
+3.87%
Cathay Pacific Airways Ltd
+1.03%
China Overseas Land &
-1.10%
China Life Insurance Co Ltd
-0.80%
Hengan International Group
+2.91%
China Petroleum & Chemical
+1.00%
Cheung Kong Property
-1.09%
China Construction Bank
-0.73%
Want Want China Holdings
+1.35%
AIA Group Ltd
+0.75%
Industrial & Commercial
-1.02%
Lenovo Group Ltd
-0.70%
27° 29° 27° 30° 27° 30° 27° 30° 27° 30° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Interview | Creative and Cultural Industries Pages 4 & 5
Summit A meeting this week will gather BRICS members in Xiamen. The reunion might reinforce a message against the protectionist drift taken by the U.S. after President Trump arrived in the White House earlier this year. Page 16
2 Business Daily Monday, September 4 2017
Macau Events
Connecting with the eSports crowd The MSAR hosted its first eSports event on Friday, with experts from the field gathering in the city to share their views on how local tourism and gaming properties can tap into a vast target market comprised of young people with disposable incomes and a low interest in traditional forms of gambling Nelson Moura nelson.moura@macaubusinessdaily.com
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osting eSport events can help MSAR casinos and hotels diversify their offerings and create the conditions to attract a younger type of customer with disposable income and less interest in traditional types of gambling, gaming experts told Business Daily. “I think Macau has the best potential for eSports development in all Asia. It doesn’t require visas to come here for Americans, mainland Chinese, everyone can come here. It has all the facilities to host large scale events and plenty of casinos for people to stay in,” Carson Knuth, Business Developer at Unikrn and Co-Founder of Leet.gg told Business Daily. “It also has a government that is starting to understand eSports and how it relates to gambling. People want to gamble on eSports and Macau can provide that opportunity, with the city providing a jurisdiction where people can come here, eat, drink, watch eSports and just have a good time,” he added. Mr. Knuth told Business Daily that casinos have the misconception that eSports fans or players are generally not interested in gambling, when they are in fact betting, but on eSports. “Millennials like to gamble, but they only gamble on things they like. Once you provide them with the tools to gamble, they’ll spend a lot of money,” he added. The eSport expert quoted statistics stating US$3 million (MOP24.2 million) in legal eSport betting has been reached so far in 2017, with that number expected to increase to US$12.9 billion by 2020. “In 2016, in one game there was an US$8 million handle that was spent wagering. That’s enormous and it’s a market that wasn’t yet tapped by casinos at all,” he added. The comments were made at the opening day of Girl Gamer eSports Festival - the first eSports event to be hosted in Macau - held at Melco Resorts and Entertainment’s Studio
Advantages of eSports events to integrated resorts -Bringing younger people with disposable income to the properties -A pivot point to differentiate an
Carson Knuth, Business Developer at Unikrn and Co-Founder of Leet.gg
City property on Friday. The event also brought to the MSAR several experts in eSports for a business conference focused on how the new sport can contribute to tourism, hospitality and gaming. “I consider this event also as a Phd course for people who don’t know anything about eSports,” the Chairman of Grow uP eSports, Frederico Santos Rosário, said at the event’s opening. The event was organised by the local eSport association Grow uP eSports, and was supported by local and international companies such as Companhia de Telecomunicaçōes de Macau (CTM), Alibaba Cloud, and government departments such as the Macau Trade and Investment Promotion Institute (IPIM).
The crowd next door
The CEO of Chinese company eLixir Gaming, Valen Zou, attended the event and described the “exploding” popularity of video games in neighbouring mainland China, with gaming revenues surpassing those in the U.S. last year, reaching RMB167.6 billion (US$25.55 billion), and with the country representing 15 per cent of worldwide gaming revenues. “In 2017, the number of gamers in mainland China is around 220 million and is expected to grow to 280 million
in 2018,” Ms. Zou stated. This popularity has led to a considerable increase in the attendance at video game competitions and events, with the final of the eSports event King Pro League attracting 13,500 to the arena and an online audience of 3 million viewers. The growth of the gaming market has also led to several known brands looking to sponsor eSports events, with Alisports - the sports unit of Alibaba Group Holding Ltd - committing last year to a three-year deal to organise the World Electronic Sports Games (WESG). The event, held in Changzhou, is one of the world’s highest paying eSports tournaments, with a prize pool of US$5.5 million, and is part of a commitment by the Alibaba Group to invest US$150 million into eSports in the coming years.
Catering to the community
One region that is currently trying to harness the eSports effect is Mr. Knuth’s hometown of Las Vegas, as it looks to diversify its entertainment offerings. “Only 60 per cent of Las Vegas revenue comes from traditional gambling, with the remaining 40 per cent coming from food, shows and nightclubs. Casinos started getting nervous about how to create more entertainment offerings. But how can we promote economic growth if we’re not promoting new ideas?” he questioned. With most properties in Las Vegas offering the same type of amenities - “excellent casinos, excellent hotel rooms, great nightclubs” - the question is how to differentiate a property from its competitors, points out the expert. The solution could lie in attempting
to target a specific community - in this case the eSports community - with Mr. Knuth mentioning the example of the Downtown Grand Hotel & Casino, which started hosting eSport professional teams to take part in competitions twice a week on their casino floor. “They saw the opportunity and they took advantage of it […] Players would come to play for money and then trickle down money for food and beverage […] They started understanding what kind of demographic and games attract people who like to gamble and drink more, and started to see extra revenues they weren’t registering before,” he added. As another example of attracting tourism diversification through eSports, Mr. Knuth mentioned the example of Polish town Katowice, a small industrial town that attracted an attendance of 175,000 people for just one eSports event. “Now 25 per cent of the Katowice’s annual tourism revenue comes from the Intel Extreme Masters event over two weekends […] With time, a whole separate economy grew around it, with hotels and internet infrastructure being set up, driving revenues to separate industries,” he added. However, for Mr. Knuth, one of the major issues still lies in how to change the mindset of traditional industry leaders and regional governments to embrace eSports. “Education is key. There’s a lot of misunderstanding of what eSports is. People think it’s gamers playing video games in their mother’s basement […] However the Nevada governor has made it a priority to make Las Vegas the eSports capital of the world. He said the city should see itself as an entertainment, gaming and eSports capital,” he added.
operator from its competitors through non-gaming aspects - A gateway for operators to establish and maintain a longterm relationships with a new type of customer
Tourism
Workers’ rights
Tours resumed
DICJ and DSAL to help gaming workers
The city resumed receiving tours on Saturday after the Macao Government Tourism Office (MGTO) had called for a halt to package tours after the destruction caused by Typhoon Hato. According to preliminary figures revealed by members of the travel industry, some 410 tours from the Mainland were received on Saturday and Sunday. The Office informed local travel agencies and hotels in advance, and issued a safety guideline to call for preparation and awareness of safety concerns in order to protect the city’s image as a travel destination. In addition, after patrolling various ports of entry and major tourist sites, inspectors from MGTO reported that the first day of tour group resumption on Saturday was generally smooth.
Last week, the city suspended the arrival of tour groups, from August 25 until September 1, after the devastation caused by Typhoon Hato, in order to allocate more resources to rescue missions and restoration work in the city. MGTO also announced earlier the cancellation of the 29th Macao International Fireworks Display Contest this year. C.U.
The city’s Gaming Inspection and Coordination Bureau (DICJ) and the Labours Affairs Bureau (DSAL) had a meeting with representatives of the six gaming operators on Friday, to help gaming workers express demands and question their rights in regards to when typhoons hit the city. During the meeting on Friday, the DICJ urged the gaming operators to consider humane treatment for workers who were absent or late for work during the typhoon period. In response, the operators reported that they had handled cases of reasonable absence of workers during the superstorm, while indicating that the safety of workers was their
primary concern. The representatives also pledged to enhance communication with employees and to set up appropriate arrangements for workers when harsh weather conditions arise. Last week, some 200 workers of Galaxy Entertainment Group approached the DSAL to lodge complaints over the working hour arrangements during the recent typhoon incidents. Workers from The Venetian had also previously complained that they were stuck on the property and continued working overtime during the typhoon period, with some workers claiming to have worked for 16 continuous hours. C.U.
Business Daily Monday, September 4 2017 3
Macau Marketing solutions
Digitalize or die Spending more on online than traditional marketing is still not a trend observed in Macau, according to a digital marketing consultant based in Hong Kong and considering opening a branch in the MSAR Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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ocal companies could reap benefits from investing more in digital instead of focusing on traditional marketing tools, suggested Lug Giroud, the co-founder of Wild, a digital marketing consultancy company, in a conversation with Business Daily. “One of the reasons why Macau is kind of behind is because companies like casinos, which obviously drive a lot of the business here, still have budgets that are disproportionate when it comes to traditional marketing,” Giroud noted. The digital consultant further claimed that companies in the casino and tourism industry that “don’t invest in digital in a proper way, will suffer greatly.” According to the co-founder of the company based in Hong Kong – who has previously lived in Macau – the main difficulty affecting local companies is that digital tools “are completely different
between the Western world and the Chinese world,” while “most businesses in Macau need both” to efficiently market their products and services. For Giroud, who spoke at a meeting organized by the French Macau Business Association (FBMA) last Friday, success in choosing adequate social media platforms depends on a company’s capacity and goals. “There is not a precise matrix where you are going to tick something and it is going to give you the answer. It is
a grey area,” he explained. During his talk, he explained that WeChat tends to yield better results in reaching out to a mainland China-customer base, while platforms such as Facebook and Linkedin continue to be widely used for Western-based markets and audiences. Yet, for Giroud, there is no question as to whether or not to go digital. “When you have a tool that is that much more efficient than the others, and your competitors start using it, if
you don’t, you die,” he said. Regarding the services Giroud’s company Wild (wild-at-heart.net) provides to some “big corporations and small and medium-sized enterprises” in Macau – on non-disclosure agreement terms – the co-founder claims they address two “bottlenecks” that agencies in Hong Kong “are not tackling”. These can be summarized as: choosing the wrong Key Performance Indicators (KPI), and not creating a strategy.
“One problem with not having a strategy is that people are not educated enough on the technology, that is too recent, and people don’t know what they want,” he said.
E-payments and the cloud
A focus on Chinese consumers and markets has been driving companies today to operate more on WeChat, although the platform is still “much less used in Hong Kong” than it is in Macau and mainland China, points out Giroud. One particular aspect of WeChat in Hong Kong highlighted by the businessman, is that it does not offer a payment feature. Accordingly, the fact that Macau is developing the cloud with Alibaba, he added, “will have a great effect in developing and changing things.” “It will happen naturally. People will go online. Some people will pull the trigger and they will reap the benefits, for sure,” Giroud claimed.
Election
Investigation
Game on
CCAC: SMG investigation slated for completion in October
Campaign for the sixth Legislative Election begins Cecilia U cecilia.u@macaubusinessdaily.com
The 14-day campaign for the sixth Legislative Election kicked-off on Saturday at midnight, bringing together a total of 24 groups of candidates to dispute 14 seats available in the local Legislative Assembly (AL). According to local broadcaster TDM Radio News, thousands gathered at Tap Seac Square on Saturday night, with some of the participants already putting up posters before the clock hit midnight. Many also waved flags and LED cards to show support for their groups, while candidates put up their candidacy posters on the official board located in the Square. Electoral Commission Chairman and judge of the Court of Second Instance, Tong Hio Fong, spoke last Friday afternoon, after the opening ceremony for the legislative election campaign, stating that the commission hopes this year’s election will be a fair competition among the candidates. This year’s election will allow 23 spots in different parts of the city for promotional purposes, and 19 spots for rallies. Speaking to the press on Friday, the head of the Commission Against Corruption, Cheong Weng Chon, said that CCAC had received 85 declarations
from legal persons regarding the holding of promotional events involving welfare distribution during the September 2 to 16 period. Some 172 participation declarations were also made, related to promotional events allegedly held by candidates. Cheong stressed that participation in promotional events should not be related to the election, saying that promoting the election when participating in events during the campaigning period would also be considered as bribery, despite declarations being made. The authorities reported that a total of 84 complaints had been recieved up until last Friday, while CCAC had received 37 complaints, adding up to a total of 121 complaints received. The complaints lodged were mainly related to suspected bribery behaviour and illegal campaigning. The commission also advised candidates to try to reduce the inconvenience to residents during the campaign period, in particular the volume level of promotional vehicles. The sixth edition of the Legislative Assembly will consist of 33 legislators, of whom 14 are to be elected directly, 12 are to be elected indirectly and to represent functional constituencies, and seven are to be appointed by the Chief Executive. The Election will take place on September 17.
The Commissioner of the Commission Against Corruption (CCAC), Cheong Weng Chon told the press on Saturday that the investigation into the Meteorological and Geophysical Bureau (SMG) regarding its typhoon forecasting procedures is slated for completion in October, local broadcaster TDM Radio reported. Cheong pledged that the investigation report will be sent to the Chief Executive (CE) and will also be available for the public. The head of the anti-graft body indicated that the investigation will look into whether the management and internal arrangements of the SMG had improved after last year’s Typhoon Nida. Cheong said CCAC will also examine issues relating to forecasting and management during Typhoon Hato’s arrival to the MSAR, as well as studying whether the leaders of the organisation should be held responsible. Meanwhile, Cheong noted that the outcome of the investigation made by CCAC will not directly result in administrative procedures or act as a legitimate administrative outcome.
He said that whether the official responsible [former SMG head Fong Soi Kun] would be held to account for potential dereliction of duty would depend on the follow-up to the report made by relevant departments. However, Cheong added that the investigation made by CCAC would be of great importance to both the government and the public. The anti-graft body announced last week its decision to commence the investigation into the accountability of the former head of the SMG regarding the forecasting system and internal management of the government body, in the wake of receiving large numbers of complaints lodged by the public. In the aftermath of Typhoon Hato, the Chief Executive announced his acceptance of the resignation of the former SMG head. The public expressed concerns that Fong was attempting to dodge responsibility for the incident, with some public opinions questioning whether Fong would still receive a pension if he resigned with an intention to retire. C.U.
4 Business Daily Monday, September 4 2017
Macau
Wilson Chi-Ian Lam displaying project mock up put together for the company of current President of the United States Donald Trump
Interview | Cultural and Creative Industries
Forge your own path Having left home at age 15 to begin his path as a corporate designer, Wilson Chi-Ian Lam - CEO and Creative Director of design and retail group Macau Creations - describes moving back to the MSAR from Canada to setup the company at a time before the cultural and creative industries were truly recognized, and explains the group’s outlook for expansion, the current status of the MSAR’s talent and what to expect politically in the near future. Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com
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re you thinking about a new location for Macau Creations? We always try to seek opportunities: where the opportunity has to be good for us, without too much expense, and so we can generate more business – that’s all we’re looking for, so we don’t limit ourselves in that aspect. I have a shop on consignment base in Macau airport, and probably will open another retail location in Sands Macao, in the peninsula, possibly in December. The Macau Tower and Cunha Bazaar are the two major shop locations. And last year, I think, we had one in a Sands China building in Cotai, but after a couple months I didn’t see that there was enough traffic, so I gave it back to my partner to run by themselves. Therefore we now only have two main locations. Have you thought about setting up at the Taipa ferry terminal? I actually gave them a call and sent them an email, but no one really replied to me. For the old ferry terminal, I haven’t seen that they have anything like [Macau Creations] so I didn’t even bother to look for it. For the Taipa ferry, I sent them an email but haven’t yet gotten a response. They might have their own people with their own plan and so on; business is always like that. Did you move back to Macau specifically to start Macau Creations? Yes. The original plan wasn’t meant to be like that (laughs). Because I was in Toronto. I moved to Toronto in 1983 – I studied there, got married there and had a family, business and all that. I felt very comfortable,
maybe too comfortable. So that’s why I thought ‘every time I come back to Macau I don’t see something that is striking for me, that interests me as representing Macau culture’. I wanted to challenge myself, and I put in a proposal in 2006. I came back in 2008 and tried to look for the investor and then a partner which could actually operate the business. I wasn’t planning to come back, I just planned the business and then helped them to set it up: my idea together with my partner at that time. Unfortunately after the 2008 financial crisis, one of the investors pulled back, but we still continued to start that [project]. Also one of my partners, who is a very famous designer who was helping me with that business, unfortunately we didn’t work out well, therefore I had to come back to Macau myself and he left the company.
“If you want to prove that you are the best designer, first you listen to what the people want, and second use your own time to do more to improve it” So I came back for that reason. Of course I wanted to come back, but not at that early a stage. Because I still had business in Toronto, I had seven or eight people working with me at that time and I felt sorry for them because in the end I had to make a choice. I had already set up here and was beginning the business.
Unfortunately I had no one to handle it and manage it, so I talked to my wife: ‘give me one year and come back to Macau and we’ll see how it goes’. After that she came back, then two or three years later my son came back to help. There has been an acceleration in recent years in the recognition of the cultural and creative industries, and you returned to Macau right before that started. Would you say that you contributed to that acceleration? I’m glad to be one of them. I believe I’m not the only one of them, of course. It just happened to come about that I was one of them at that moment. It’s just a coincidence I guess. Everybody thinks that I’m so lucky because when I came back, the Macau government suddenly said ‘oh we’d like to promote the cultural and creative industries’. I said ‘what are the cultural and creative industries?’ I’d never heard that term ever before, I just knew I was doing advertising, doing graphic design. If you’d asked me what I did, I would have said that I’m a corporate designer. This is what I studied. Corporate design is my main task, so it’s just a coincidence and I’m glad. How did that happen? There’s two parts of it; one part is that I’ve been in that business for almost 40 years: very sad, still working on that (laughs). And back then no one cared about design and being an artist and being in the creative business. My family did not really support me. When I was 15 years old they didn’t know anything about that [industry] and they very basically said ‘come back to work with your father and we’ll make sure you’re rich, you’re okay, we’ll look after you’. I said ‘no, I don’t want your business’ and I fought with him. I left home when
I was 15. I found my first job in advertising, and I stayed there and slept on the table for three or four years, because I couldn’t afford to rent a small room, because I only got paid MOP150, not per hour, per MONTH. US$20 per month.
“Everybody thinks that I’m so lucky because when I came back the Macau government suddenly said ‘oh we’d like to promote the cultural and creative industries’. I said ‘what are the cultural and creative industries?’” After three months my master, my “si fu”, my boss, asked me: ‘hey Wilson, come here’. He gave me MOP300. And I was happy, I thought I’d gotten a 100 per cent raise. No. ‘You’re out,’ he said ‘you’re too naughty, too noisy so I’m kicking you out’. I cried and said ‘give me one more chance, I have no home to go back to. I can’t go back’. I had to prove to him I loved the business, I wanted to stay. So he gave me one more chance, which changed my life. If he hadn’t wanted me to be there I would never be here.
Business Daily Monday, September 4 2017 5
Macau Just that little story changed my life. After that I was a very good boy. Everybody started work at 9am but I started at 7:30, cleaning everyone’s tables, mopping the floor, doing all the possible things. So that’s how I started. You defined yourself as being in corporate design. Would you ever call yourself an artist? They are totally different things. Artists create, they don’t need to have the answer, they don’t care about you, they don’t care about anyone else, otherwise it’s not creative; why bother to ask you what you want? They just do what they like, they believe in what they do. Designers cannot do that. The first thing designers have to learn is to listen to what the people want.
“I found [my] first job in advertising, and I stayed there and slept on the table for three or four years, because I couldn’t afford to rent a small room, because I only got paid MOP150, not per hour, per MONTH” If people ask you to give them a threeeyed cat on Wednesday at 3pm, don’t give them other animals on Thursday at 2pm. Simple as that. If you want to prove that you are the best designer, first you listen to what the people want, and second use your own time to do more to improve it. And I don’t consider myself qualified yet as a real fine-art artist. I respect the fine artists, the quality of it, what level you have to achieve to become an artist – they have to be very into it, and intimate with what they do. So I think I’m just an art lover. There is a lot of talent in Macau. How would you say that has grown in the past couple years? You’ve handpicked your team. Do you think there’s a large talent pool to choose from? No. A lot of [talented people] leave Macau. I would say that in Macau nowadays more people recognise what design is, the function of it. And a lot of people are interested in studying art and design, so yes there’s more to pick from, but I think there’s not enough. Because Macau has a very big difficulty for businesses. Because we’re facing costs which are very high: rent, benefits, everything. It’s a phenomenal cost. Very often, where before we would buy things from Macau to take to Canada, now that has reversed. The government started having a lot of funding and helping young people to start up. And the young people don’t want a long-term relationship. It’s not like in my time; my generation would work with one company for many years, have a very close relationship with the boss – like a master-mentor, father-son relationship – nowadays it’s no longer like that. It’s different nowadays. Nowadays, the cost for young people to set up their own business is a lot lower than before. Before they actually handed out the cultural and creative fund, we had to use our own money to rent out a space, start a business. But after we had spent a lot, the government later on says ‘hey, we suddenly have money’. And they become your competitors. That’s a little bit difficult, and yet not just that because the Internet, the business model, the medium, advertising
approach – everything, the behaviour – it’s all changed. Not just because of Macau and the government, what I mean is that it’s a worldwide situation. People are saying that now the world has become flat, which is true, because now you’re competing with all the people on the Internet. And also the buying habits have changed. Speaking about maybe 10 or 15 years ago, when people travelled, they very often would pick up something, because they didn’t want to miss anything, they wanted to pick up something and take it home and show it to people. Nowadays you don’t need to do that. It’s just picture, picture, picture. And then you don’t need to carry anything. It seems like many of the young people setting up these businesses don’t have the experience behind them to carry on the business in such a challenging environment. Do you think so? It’s a really bad idea. Because the young people think ‘I want to start my business’. For example, the street outside our office. Some people who’ve worked only one or two years - not enough experience - and suddenly the government says, ‘oh I’ll give you MOP300,000 for you to start a coffee shop’. They say, ‘oh I love it, I’ve always had a dream of having a coffee shop, or whatever’. So they break open their piggy bank and use whatever money they have, ask the father to give them money, bring it all together with the government funding and start the business, but they don’t have an idea. They spend a lot of money and start to open the business – after two months, three months no one comes – and it’s gone. And the worst thing is that when they’re there, they influence other businesses. And if they’re all bad…. We often talk to the young people and urge them to not jump immediately into starting a business, be really sure of what you want to do. Why? Because your boss is actually paying for your mistakes, taking all the risk. How many people do you have working in Macau Creations? The whole organisation - including the retail, the management and so on - I think around 40 to 50.
“We’re facing costs which are very high: rent, benefits, everything. It’s a phenomenal cost” Are you working with MGTO and having a presence at some of the exhibitions? Firstly, my business is not just the two retail locations. My major other business is design, still. I didn’t want to do that, but have to do it, otherwise I cannot survive (laughs). Also, taking the projects for different government groups like MGTO (Macau Government Tourism Office): they often have bidding proposals and want us to give them some design ideas for different events and so on. And very often we’ll work with them very closely. As you know, in Macau, due to the legal purchasing act, they cannot just give it [the job] to you as a client. They have to go through a public tender process. Therefore it’s important, but it’s not guaranteed. In its public tenders, the government has been known to pick the proposal with the lowest price. How do you feel about that? That’s really sad. Because I was in the Cultural and Creative Industries Committee for three terms, every term is two years. And I often talked
about this with other colleagues and said that the system is really killing the business. I very often submit proposals and they say ‘your design is great but your price is a little bit high’. They said that it would change a little bit, but I don’t know how much it will change. The Cultural and Creative Industries Committee added representatives of the gaming sector recently. Do you think that will help in expanding opportunities? I think to have different voices is important. As a government, to want to gather all the information from different angles, different career or sector points of view. I think without question that is important. Whether they really listen to what you want is a different thing. It’s a government thing. ‘We already have the committee, we asked that question, we did a study’. But everywhere is like that. So I would say that it’s hard to measure and I don’t expect that it will change completely. Politically it has to happen, and yes, eventually they will have some sort of influence for whomever, bad or good, but they will have an influence for sure. Regarding the upcoming elections, do you think at the political level that anything will change in regards to the cultural and creative industries and diversification? The direction is already set, which is that Macau wants to be less-dependent on the casino business. They want the entertainment, leisure, tourism, cultural and creative industries and so on. So they must carry that message. As a good student of the Master Xi [Jinping], they will do good homework. Whoever’s in that chair is smart enough at least to do good homework. Therefore, we still have a good opportunity, young
people still have a good opportunity. Macau businessmen are always very straightforward. They will never talk about design, they don’t care about creative culture, not ever. This is the only period in the past 600 years in Macau when these people have suddenly woken up: ‘oh we love art, we love culture’. And we’re like ‘oh yeah?’
“People are saying that now the world has become flat, which is true, because now you’re competing with all the people on the Internet” And good, at least they also want to help the government in doing that. They need to do more work, seminars, propaganda. Eventually it will add up. There are still good trends, good opportunities for people doing the creative business, so therefore I’m still here. I think there are still a lot of opportunities, such as those who are starting their businesses in Hengqin island. There’s a lot going on for the creative businesses there. Again, because there’s a flow, there’s a trend, there’s an order I would say. So it will continue for five to ten years I think. I think Macau needs that. Macau also has very good elements to do that business, because everything is close to everything else. I always said, Macau is a theme park. advertisement
6 Business Daily Monday, September 4 2017
Macau Opinion
Sheyla Zandonai* Junket twist Junkets are an important engine of Macau’s gambling-centred economy. Confirmed trends of higher VIP spending for several months in a row make the junket position and business economically justified and strengthened. Essentially, junkets operate in the lending business. This involves opening credit lines to high-end clients – mostly from mainland China – and collecting debts. Accordingly, big operators such as Suncity, Neptune, and Tak Chun move large resources around town and abroad. Because of their financial links with China and elsewhere – the Philippines, South Korea and Vietnam to name a few – the junket business is both local and international in nature. It is a trend that well-capitalized companies in the sector are gradually increasing their international profiles, while seeking diversification of activity by investing more in other trades, such as casinos, entertainment, and the socalled concierge services. Hong Kong-listed Suncity Group, which is said to operate half of the VIP rooms in Macau, has recently announced plans to bid in Japan, possibly in partnership with Las Vegas Sands Corp. and Wynn Resorts Ltd., in a minority stake ranging from 10 to 20 per cent. Because it is highly unlikely that local junkets will secure a casino operator license here in Macau – due to administrative bottlenecks and sensitive political reasons – they are bidding outside. Alvin Chau’s company took the first step when it decided to develop an Integrated Resort in Hoi An, Vietnam. Neptune recently announced it was moving its business focus from VIP rooms to the lending business proper. Though the service is not new, the approach is. Neptune – whose most recent change has been to propose a new name, Rich Goldman controlled several VIP rooms in the Venetian Macao, which were terminated this year. As for Tak Chun Group, it has started channelling some money to the arts. An agreement signed with a local art space, Art Garden, effective last Friday, entitles the space to over MOP1 million per year for a period of five years. What is interesting about Tak Chun’s deal is that it is penetrating a field for which funding was nearly exclusively raised by the government – even though, at the end of the day, it is gambling money being re-directed to support artistic and cultural activities. Such moves and new strategies send strong signs about Macau’s positive economic outlook and local companies’ capacity to re-invent themselves. A little twist with a big impact on accounts and image. * Journalist.
Results
Casino revenue growth slows after typhoon disruptions Local operators have been benefiting from an increase in overnight visitors as well as spending by high rollers Daniela Wei
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ocal casino revenue growth slowed in August after accelerating for three consecutive months as typhoons disrupted operations in the world’s biggest gambling hub. Gross gaming receipts rose 20.4 per cent to MOP22.7 billion (US$2.8 billion) last month, according to data released by the local Gaming Inspection and Coordination Bureau on Friday. That exceeds the median estimate for an 18.5 per cent increase in a Bloomberg survey of eight analysts. Gaming revenue climbed 29.2 per cent in July from a year earlier. The first of the two typhoons affected power and water supply at some casinos in the only Chinese territory where gambling is legal. The impact of the disruption, which prompted brokerage firms including Deutsche Bank AG and Sanford C. Bernstein & Co. to cut their gaming revenue
growth forecast for August, may be a blip for an industry that’s been on a year-long recovery despite China’s efforts to curb capital flows. Casino shares climbed ahead of the data, and generally held those gains after the numbers were released. Shares of Wynn Macau Ltd. surged 6.8 per cent to HK$18.34, headed for the biggest gain since Sept. 1, 2016, as of 2:06 p.m. in Hong Kong last Friday. SJM Holdings Ltd. climbed 5.1 per cent to HK$7.18, and Sands China Ltd. rose 3.9 per cent to HK$36.40. The Bloomberg Intelligence Index of Macau casino sector jumped 4.6 per cent, while the Hang Seng Index was little changed.
Resurgence
Casinos in the MSAR have been benefiting from an increase in overnight visitors as well as spending by high rollers. Overnight visitors to Macau rose 11% in July while same-day arrivals dropped. As tourists staying
overnight spend four times more than day-trippers, it will boost revenue and profit for casino operators, according to a Bloomberg Intelligence note on Aug. 25. Revenue from high rollers has driven growth of the gambling hub this year. Suncity Group, the largest junket operator in Macau, expects about 40 per cent surge in total bets last month, Andrew Lo, executive director of Suncity Group Holdings Ltd., the listed vehicle of the group, said this week. Total bets are forecast to increase by more than 30 per cent this year, he said. Still, casino and junket operators are concerned that China’s efforts to curtail capital outflows eventually will cut into their business. The People’s Bank of China imposed controls as the amount of money leaving China last year topped US$816 billion, according to data compiled by Bloomberg, with Macau considered a primary exit used by private citizens and corrupt government officials alike. China’s government said last month it would prohibit or restrict domestic companies from making overseas investments in sectors including the gaming industry, real estate, hotels and entertainment. Regulators in the world’s most lucrative gaming hub are deploying machines that require Chinese Unionpay cardholders to scan their ID cards before withdrawing cash to keep tabs on capital outflows from China and watch for potential money laundering schemes. Bloomberg
Japan gaming bid
Moving on to drafting the IR bill Osaka seems to still be leading the bid to get one of the first licenses to operate an Integrated Resort in Japan, although public hearings concluded last week raised concerns, industry insiders told Business Daily Sheyla Zandonai sheyla.zandonai@macaubusiness.com
As the two-week public hearing held in Japan to present the framework for the Integrated Resort (IR) Promotion Bill drew to an end last week, industry insiders and experts based in the country updated Business Daily about their impressions of the current stakes involved in the Japan gaming bid. “Osaka and Nagasaki demonstrated strength given the presence of dedicated administrative teams,” said Toru Mihara, an advisor to the Japanese government on the liberalisation process. Mihara’s position corroborates recent reports according to which official interest from Osaka in hosting an IR came out strong in the second round of public hearings. A site in Osaka Prefecture, Yumeshima Island, has already attracted interest from casino operators with business in Macau, including Melco Resorts & Entertainment, MGM Resorts International, and Las Vegas Sands Corp, this newspaper reported last week. In its favour, Osaka was said to have drawn up a plan with hotels, convention and shopping centres, as well as cultural facilities as part of its lobbying strategy. Another prefecture working on lobbying-through-design is Hokkaido. Speaking to Business Daily, general manager of Gaming Capital
Management Inc., Akiyoshi Tsuruoka said that the firm has been appointed by an operator as a designated representative to “conduct research on the Japanese IR project, so that the operator can enter the future IR business.” He added that the planned site “arranged for Hokkaido IR’ is located near the airport, advancing that there are current plans to develop it ‘to improve accessibility.” Yet, Gaming Capital’s general manager clarified that interested operators only have “sample plans based on tentative circumstances,” given that neither the municipalities nor the operators could present “concrete proposals since there are no detailed guidelines for IR projects.” In regards to the amount of investment proposed by bidders, both Mihara and Akiyoshi concur it is so far unclear. The “budget level is still premature to assess,” Mihara pointed out.
Public hearings questioned
Although several municipalities used the public hearings as an opportunity to intensify lobbying activities, the hearing’s main purpose was “for the government to appease the opposition,” Yasuhiro Idei, a journalist based in Tokyo, told Business Daily. “It is a mere gesture by the government, which passed the IR bill despite the fact that the majority of Japanese are opposed to it,” Yasuhiro said. A special government committee
overseeing the gaming regulatory process was created to hold consultations from August 17 to 29 in nine cities in Japan – Tokyo, Osaka, Hiroshima, Fukuoka, Sendai, Sapporo, Nagoya, Toyama, and Takamatsu. Opining on the level of popular support or opposition, Mihara claimed that it was “difficult” to assess due to the “quite vague way” in which the poll was conducted. “Asking a question like ‘Whether you accept the presence of casino in your town?’ without explaining what an IR is and what a casino within an IR is, is totally distorted, giving an unfair perception toward people in general who do not know anything at all,” about the elements involved, Mihara explained. The Diet, the upper House of the Japanese Parliament, will discuss the details of the bill this Autumn, and is expected to finalise the bill by the end of 2017.
Business Daily Monday, September 4 2017 7
Macau
Andrew Lo, executive director of Suncity Group Holdings Ltd. Photo by: Bloomberg
M&A
Local junket king plans to invest billions in Japan, Vietnam Suncity Group’s plans include owning stakes in casinos and bidding on contracts to manage others’ casinos Daniela Wei
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he MSAR’s biggest junket operator wants to be more than a middleman lender for Chinese high rollers, so it’s spending billions of dollars to transform itself into an overseas casino operator on par with Las Vegas Sands Corp. and Wynn Resorts Ltd. Suncity Group, which operates VIP rooms where monthly bets recently surpassed HK$130 billion (US$17 billion), is looking for partners in Japan after investing in a Vietnam resort scheduled to open in 2019. The company’s international plans include owning stakes in casinos and bidding on contracts to manage others’ casinos. “As a junket operator, we don’t have enough chips to play the game even in Macau,” said Andrew Lo, executive director of the group’s listed vehicle, Suncity Group Holdings Ltd. “In the future, if we own the integrated resorts, we have golf courses, swimming pools and restaurants. Our clients will stick with us more.” The ambitious expansion is planned even as Macau’s high-roller business continues the rebound that began last year. Gross gaming receipts increased 20.4 per cent in August, exceeding analyst estimates, amid the disruptions caused by two typhoons last month. The city has posted 13 straight months of gaming revenue growth, as China’s economy improved, high rollers lingered at tables and new facilities targeted families and mass-market gamblers. Suncity controls about half of the city’s junket business, Lo said. The junkets lend money, collect debts and market casino trips to high-end gamblers.
“No casino in Macau has any hope of gaining market share if they don’t have Suncity in their property,” said Ben Lee, a Macau-based managing partner at Asian gaming consultancy IGamiX. “Suncity in turn is looking to unlock the full value of their database as well as to diversify their business by expanding their footprint.” Lo expects his Macau business to grow for the next six months to a year because of improving conditions in the Chinese economy and real-estate market. The junket industry also is stronger after a consolidation sparked by regulatory actions in Macau the past two years, he said. The total bets placed at Suncity in August may grow about 40 per cent from a year earlier and is forecast to increase by more than 30 per cent this year, he said. Those projections take into account the two typhoons that swept through the gambling hub last month. “The growth will continue,” Lo said.
Capital curb
Still, casino and junket operators are concerned that China’s efforts to curtail capital outflows eventually will cut into their business. The People’s Bank of China imposed controls as the amount of money leaving China last year topped US$816 billion, according to data compiled by Bloomberg, with Macau considered a primary exit used by private citizens and corrupt government officials alike. China’s government said last month it would prohibit or restrict domestic companies from making overseas investments in sectors including the gaming industry, real estate, hotels and entertainment. That may prompt some Macau businesses to look elsewhere for opportunities, with the biggest being
presented by Japan. The Japanese government wants to approve legislation by year’s end that would let casinos operate in the country for the first time. The forecasts for annual revenue from integrated resorts reach US$25 billion. Casinos aren’t expected to be open until years after the 2020 Olympics in Tokyo, but Suncity is “actively” working to obtain a license to build a potential US$10 billion resort as part of a consortium. The company is willing to own a minority stake of between 10 per cent and 20 per cent, and has talked to potential partners within the construction, hotel and retail industries, Lo said without elaborating. “We know how to build a Japanese-style integrated resort that fits Asian customers,” he said. “We know Japanese traditional culture. I believe this is what the Japanese government wants, instead of just branding.” Japanese legislators may effectively ban junket operators from casinos by forbidding subcontractors in the gambling-related parts of the business, yet Lo said that’s not an issue because Suncity doesn’t need to rely on other junkets for high rollers. “In that case, we will start the business much faster than others,” he said. I Ga m i X’ s L e e sa i d S u n c i t y would have a better chance to enter the Japanese market if paired with another regional operator, such as Galaxy Entertainment Group Ltd. or Melco Resorts & Entertainment Ltd., and a local partner to understand the country’s politics and cultural obstacles. In Vietnam, the junket operator partnered with Hong Kong’s Chow Tai Fook Enterprises Ltd. and Vietnam-based VinaCapital Investment
Management Ltd. to build a $4 billion integrated resort in Hoi An. Suncity owns 34 per cent of the coastal project through its Hong Kong-listed subsidiary and has a management contract to operate the casino. The subsidiary’s shares have risen 118 per cent this year, compared with a 27 per cent increase for the Hang Seng Index. Vietnam could generate as much as US$1.2 billion in gross gaming revenue, according to an Aug. 9 report by Grant Govertsen, an analyst with Macau-based Union Gaming Securities Asia Ltd. Vietnam has about 30 gaming facilities with 1,900 slots and almost 400 tables, according to Govertsen. Suncity’s participation “should be transformational for the company, making it not only a gaming-centric platform but the only viable Vietnam-centric gaming platform,” Govertsen wrote. “Given Suncity’s expansive VIP connections, we would expect the project could achieve a decent ROI (return on investment) even under the current foreigners-only construct.”
Expanding clientele
Future casino projects also may be injected into the listed company, Lo said. The listed entity, which doesn’t include the junket business, has a market capitalization of about HK$2.7 billion. He stressed that Suncity’s expansion plans shouldn’t be interpreted as the company being bearish on gaming in Macau. Rather, it wants to do more business with gamblers outside China. “We are not moving out of Macau,” Lo said. “We just need to upgrade as our clients become more demanding.” Bloomberg
8 Business Daily Monday, September 4 2017
Greater China Politics
Xi’s power on parade as party congress looms Key questions include whether Xi ally and top corruption buster Wang Qishan will stay on past traditional retirement age and, whether Xi will get his supporters in all the key positions Ben Blanchard, Philip Wen and Benjamin Kang Lim
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he recent scene at a dusty Inner Mongolia military base provided evidence of Chinese President Xi Jinping’s consolidation of political power, even as he faces pushback from some quarters in his ruling Communist Party ahead of a critical gathering next month. Dressed in army fatigues, Xi reviewed a military parade on July 30 marking the 90th founding anniversary of the People’s Liberation Army (PLA). Breaking with precedent at such events, Xi – who is head of the party and the military as well as president - did not share the stage with peers or party elders. PLA General Fan Changlong, in a further departure from the norm, hailed Xi as “lingxiu”, or leader, a reverent honorific bestowed only on two others since the 1949 founding of the People’s Republic of China: Chairman Mao Zedong and his shortlived successor, Hua Guofeng. According to six sources with ties to the leadership, as well as Chinese analysts and foreign diplomats, that display and others sent a clear signal of his increasingly dominant position in the run-up to the Party’s congress starting on Oct. 18, a meeting that is only held once every five years. Rana Mitter, director of the University of Oxford China Centre, said the “lingxiu” title would suggest Xi had succeeded in one of his key aims to “centralise as much authority and charisma under his own person” as possible. But as Xi’s supporters promote his agenda, some party insiders, wary that he will accumulate too much power and effectively end three decades of collective leadership, have delayed agreement on who will end up on the party’s Standing Committee, the apex of power, currently made up of seven men.
“There is opposition to Xi getting too much power,” said a source with ties to the leadership. The State Council Information Office, which doubles as the party’s spokesman’s office, did not respond to a request for comment for this story. As is typical in the run-up to the Congress, competing name lists have been circulating in leadership circles for the Standing Committee, but sources caution they are possibilities rather than the final line-up. “There is an anti-Xi faction forming up,” said a Beijing-based diplomatic source, citing meetings he has had with Chinese officials. “It remains to be seen if he’ll get it all his own way for the Standing Committee.” Key questions include whether Xi ally and top corruption buster Wang Qishan will stay on past traditional retirement age and, whether Xi will get his supporters in all the key positions. There will also be a lot of attention on any moves that would enable Xi to stay on in some top leadership capacity after his second term
ends in 2022. Xi is required by the country’s constitution to step down as president after two five-year terms. There is no limit on his tenure as the party and military chief, though a maximum 10-year term is the norm.
‘Lingdao’ or ‘Lingxiu’?
Distinct from the standard usage of “lingdao” for leader, “lingxiu” evokes grander, almost spiritual, connotations. “The party is gearing up to put Xi on the same level as Mao,” another Beijing-based diplomatic source said, referring to the significance of the “lingxiu” term. The Central Party School, which is the top training ground for up-andcoming cadres and is influential in interpreting and disseminating party directives, has since the military parade used “lingxiu” in official party language to refer to Xi. The Study Times, the school’s official newspaper, referred to Xi as “lingxiu” for the first time on Aug. 21. “This is the choice made by history, made by the people,” it said.
The military’s official PLA Daily also referred to Xi as “lingxiu” on Aug. 25. However, the People’s Daily, the party’s official newspaper, has yet to call Xi “lingxiu”. “If Xi becomes ‘lingxiu’ at the congress, it would be tantamount to being party chairman,” another source with leadership ties said. Xi is currently the party’s general secretary, but not chairman. China’s first three leaders after the founding of the People’s Republic in 1949 all carried the title party chairman -Mao, Hua and then Hu Yaobang. It has not been used since. “It would be a life-long tenure,” the source said, adding that adopting such a title would be easier than amending the party charter to resurrect the chairmanship, which was abolished in the early 1980s to prevent another Mao-like personality cult. Xi added “core” to his slew of titles last October. If he were to be formally anointed “lingxiu” during the congress, his political clout would eclipse that of the past few presidents, the sources said. It would effectively grant him veto power on any major decision put to the Standing Committee, they said. For decades, the Communist Party general secretary has been technically first among equals in the Standing Committee under a collective leadership model designed to avoid one-man rule. While western analysts largely view Xi’s centralisation of authority as having a possibly narrowing effect on China’s potential for further radical economic reform, three sources with leadership ties said Xi wants a strong hand precisely to force through changes that are resisted by vested interests. “This kind of title is essential,” a source with ties to the leadership told Reuters. “China at this juncture needs this kind of powerful man in control.” Reuters
Reforms
Taiwan plans to raise corporate, foreign investor stock dividend tax The finance ministry said the changes are intended to achieve a more equitable distribution of the tax burden Faith Hung
Taiwan plans to raise taxes on corporate income and those from foreign investors’ share dividends but cut personal taxes as part of broader reforms, the finance ministry said on Friday. The government plans to raise the business income tax to 20 per cent from 17 per cent and lower the cap on personal income tax to 40 per cent from 45 per cent, finance minister Sheu Yu-Jer told a news conference. Foreign investors’ cash di vi d e n ds f r o m sha r es would be taxed at a rate of 21 per cent, up from 20 per cent now, he said. The ministry said the changes are intended to achieve a more equitable
distribution of the tax burden, as the government has long been criticised for favouring foreign investors
Key Points Govt plans to raise business income tax to 20 pct from 17 pct Aims to raise tax on foreign investors’ cash dividends to 21 pct Tax revenue reduction estimated at T$5.9 bln-T$6.9 bln a year Plans are subject to cabinet approval over domestic investors, while allowing companies to transfer more of their major shareholders’ income to corporate income.
“Our current business income tax of 17 per cent is relatively low compared with other major countries,” the minister said. “We are aiming to build a fair tax system that follows global trends and is more globally competitive, which would be to everyone’s benefit.” Tax on foreign investors’ cash dividends from shares would be raised as it is much lower than the current 45 per cent local investors have to pay, he said. The tax restructuring, subject to cabinet approval, would result in a net reduction in tax revenue of T$5.9 billion to T$6.9 billion (US$196.08 million - US$229.32 million) annually, the minister said. Reuters
Business Daily Monday, September 4 2017 9
Greater China C.bank official
In Brief
Property market is a major source of financial risk New home prices in major cities rose 9.7 per cent year-on-year in July China’s property market has become a major source of financial risk and Beijing cannot rely on adjustments to monetary policy alone to resolve the “serious” problems caused by the sector, a central bank official wrote on Friday. Xu Zhong, head of the People’s Bank of China’s research bureau, said in an article in a central bank publication that there should be a property tax on homeowners nationwide as a way to help control prices. Chinese homeowners do not pay a recurring property tax on their homes, which they technically lease for up to 70 years, with the exception of a very small number in property tax trials in Shanghai and Chongqing. Xu also said authorities should maintain strict controls over property markets in first and second-tier cities, where prices gains have been the strongest. His suggestions focused on the need to develop a long-term mechanism that supports the healthy development of China’s property market, which has been subject to several cycles of overheating and tight regulatory clampdowns over the past decade. New home prices in major cities rose 9.7 per cent year-on-year in July, while investment growth eased
to 4.8 percent, the statistics bureau has said. “Real estate has serious problems such as crowding out investment (from other areas), impeding the transformation and healthy development of the economy, and is also an important source of financial risks”, Xu wrote. He blamed the property bubble on lax financial market oversight and local governments’ practice of pushing up prices in land auctions, which limits supply, and said the government should drop the practice of using property policies to influence broader economic development. Xu’s suggestions for deflating the bubble include relying on
market-based reforms to improve land supply. He favours an annual property tax as part of broader tax reform that reduces local governments’ reliance on land sales for revenue. China should also consider including measurements related to home mortgage loans in its macro-prudential framework for assessing risks in the financial sector, Xu said. “We must pay attention to the impact of property prices on macro control policies,” Xu wrote. “We can consider adding indicators on volatility in broad property lending to the macro-prudential assessment system to control property price volatility from the perspective of growth of property lending.” Reuters
M&A
Legend buys Luxembourg’s BIL bank for US$1.8 bln The company said it is looking to further expand its footprint in Europe’s financial sector and provide services to companies taking part in Beijing’s Belt and Road initiative Julie Zhu
China’s Legend Holdings struck a deal on Friday to buy a 90 per cent stake in Banque Internationale a Luxembourg (BIL) for 1.48 billion euros (US$1.76 billion) in the biggest takeover of a European deposit-taking bank by a Chinese firm so far. Legend, best known as owner of computer group Lenovo Group Ltd, is acquiring 161-year-old BIL from Precision Capital, an investment vehicle of members of Qatar’s royal family, including former Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani. Legend’s biggest overseas acquisition is being made through its Hong Kong subsidiary, Beyond Leap Limited, the company said. Reuters first reported in July that Legend was in talks with Precision on a potential acquisition of BIL. Chinese companies have become increasingly interested in European banks despite the sector’s low profitability. In May, China’s HNA became the largest direct shareholder in Deutsche Bank, while Fosun holds a 24 pct stake in Portugal’s largest listed bank Millennium BCP. The BIL acquisition comes amid China’s heightened scrutiny of overseas deals by some large groups in an attempt to curb the country’s massive debt build-up. But finance is not on the restricted list of Beijing’s new rules on outbound investment. Founded in 1856 as the oldest private bank in Luxembourg, BIL employs more than 2,000 people worldwide and had some 37.7 billion euros of assets under management at the end of 2016. “This is an important strategic investment for Legend. Financial services is one of Legend Holdings’ key target industries,” Legend chairman Liu Chuanzhi said in a statement. He said Legend aimed to support the
bank and its existing management to grow BIL into a Luxembourg-based, international banking brand. “We believe that as a long-term strategic shareholder, Legend can add value to the international business development opportunities and application of financial technology of the bank,” he said. Apart from owning Lenovo, Beijing-based Legend, led by its longtime chairman Liu, one of China’s best-known entrepreneurs, is also the parent of private equity firm Hony Capital and venture capital firm Legend Capital.
Beyond computers
Legend has, in recent years, been diversifying beyond the sluggish PC sector, which Lenovo built up by acquiring IBM’s PC business in 2005, into other sectors including financial services. By teaming up with its part-owned investment firms, Legend has dipped its toe into a variety of industries from food production and car rental to dentistry and start-up incubation. Legend secured a minority interest in Britain’s Pension Insurance Corporation (PIC) last year. The Chinese company also made it to the final stages of the auction for Madrid-based mutual fund platform
BIL headquarters
Allfunds but lost out to funds GIC and Hellman & Friedman. The BIL deal is subject to regulatory approvals, including from the European Central Bank and Luxembourg’s Commission de Surveillance du Secteur Financier, and is expected to be completed in the first quarter of next year. BIL’s existing management team will stay in place while the Luxembourg government will keep the remaining 10 per cent of the bank, according to the statement. “We are very pleased that this bank has found a new buyer from China, a country with which Luxembourg has developed a lot of relations knowing that we now have seven Chinese banks established here,” Luxembourg Finance Minister Pierre Gramegna told reporters in Luxembourg. The purchase price more than doubles the 730 million euros Precision paid for BIL in 2011 when Franco-Belgian financial group Dexia, BIL’s then parent company, needed a state-led bailout by France, Belgium and Luxembourg and sold off all its active businesses. BIL’s net income fell to 110 million euros last year from 134 million in 2015, mainly due to write-downs and restructuring expenses, according to its annual report. Reuters
Graft
Beijing probes former vice-chief of securities regulator A former vice-chairman of China’s securities regulator, Yao Gang, is being investigated for taking bribes, the official China Daily said, citing the prosecutors’ office. Yao was one of the most senior figures arrested in a crackdown on suspected stock manipulation in late 2015, after the mid-year collapse of the Chinese stock market following a long bull run. Yao was subject to “coercive measures,” which can range from summons and surveillance to detention and arrest, among other actions, the Supreme People’s Procuratorate said, without specifying which he faced, the newspaper said. Trade
Mainland to allow imports from more Brazil meatpackers Chinese President Xi Jinping has authorized an increase in the number of Brazilian meatpacking plants permitted to export to China and professed a “love” for the country’s meat, Brazil’s Agriculture Minister Blairo Maggi said on Friday. “I was very gratified to hear President Xi Jinping saying the following: ‘I like Brazil’s meat, I love Brazilian meat, I am a poster boy for Brazilian meat,’” Maggi said in a video posted on Twitter following a meeting with Xi. He said the decision to allow exports from more meatpacking plants in the South American nation was the result of numerous trips to China. Car industry
Hyundai Motor replaces head of operation Hyundai Motor has replaced the head of its Chinese operation, media reports said on Saturday, as it struggles to regain a foothold in the world’s biggest auto market amid a diplomatic spat between the Asian trading partners. Tao Hung Than has been named the new head of Hyundai’s China division replacing Chang Won-shin and will take up the post today, Yonhap news agency and other local media outlets reported, citing the company. Hyundai Motor officials reached by telephone could not immediately confirm the reports. Restructure
Sunac says to slash huge debt figures Property developer Sunac China Holdings Ltd said on Friday it will slow the rate of land purchases to boost profit and slash its debt ratio, after massive acquisitions attracted attention from a government bent on reducing corporate debt. The Tianjin-based developer aims to cut net gearing to 70 per cent by the end of 2019 from 260 per cent at the end of June - a figure analysts said would be as high as 394 per cent if Sunac re-classified perpetual bonds as debt rather than equity. In January-June, Sunac’s land bank grew 36 per cent from end of last year, mainly through acquisitions of smaller firms.
10 Business Daily Monday, September 4 2017
Greater China M&A
Trump to decide on Mainlandbacked buyout of U.S. chipmaker If Trump approves the transaction, it would be unprecedented Liana B. Baker and Greg Roumeliotis
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resident Donald Trump will decide in the next two weeks whether to block a Chinese-backed private equity firm from buying a U.S. chipmaker, putting his economic and diplomatic relations with China under a spotlight. Lattice Semiconductor Corp said in a filing Friday it will seek Trump’s approval for its proposed US$1.3 billion sale to Canyon Bridge Capital Partners, gambling that the former real estate dealmaker will approve the tie-up against the advice of the Committee on Foreign Investment in the United States (CFIUS), which scrutinizes foreign deals for national security concerns. The decision, which the filing said will be made by
the White House in the next 15 days, comes at a sensitive time. Relations are already strained between Washington and Beijing over trade and North Korea, and the Chinese communist party is preparing to hold its onceevery-five-years congress next month. The odds are not good for Lattice. If Trump approves the transaction, it would be unprecedented. U.S. presidents, who have the final authority on such investments, have always sided with CFIUS Lattice makes chips known as field programmable gate arrays, which allow companies to put their own software on silicon chips for different uses. It no longer sells chips to the U.S. military, but its two biggest rivals, Xilinx Inc and Intel Corp’s Altera, do. The United States is also concerned about China’s
ability to acquire technologies with potential military applications. The U.S. Department of Defense has raised concerns about the Lattice acquisition, two U.S. officials said on the condition of anonymity. Both officials said it was unclear whether the objections would sway Trump in the face of Chinese warnings that if deals are blocked, Sino-American relations may deteriorate further. The move to seek Trump’s approval, first reported by Reuters earlier on Friday, comes after Lattice and Canyon Bridge, funded in part by China’s central government, spent eight months trying unsuccessfully to persuade CFIUS to clear the acquisition. A White House official declined to comment on the Lattice transaction and referred further questions to the Treasury Department, which chairs CFIUS.
Lattice responds
U.S. President Donald Trump. Source: Lusa
The deal’s problems underscore U.S. efforts to prevent the transfer of sensitive technology to China. Chinese suitors have faced intense regulatory scrutiny in their pursuit of U.S. chip makers, leading to some deals being quashed in recent years. “Lattice remains of the view that the proposed transaction does not raise any national security concerns that cannot be addressed by the comprehensive mitigation measures that Lattice and Canyon Bridge have
proposed to implement,” Lattice said in its filing with the U.S. Securities and Exchange Commission. Canyon Bridge supports Lattice’s decision and believes “President Trump will recognize the benefits this investment will provide - to keep and grow jobs in the U.S. as well as expand Lattice’s product portfolio,” it said in a statement.
‘The deal’s problems underscore U.S. efforts to prevent the transfer of sensitive technology to China’ Canyon Bridge had told CFIUS it will commit to almost doubling the number of Lattice’s employees, according to people familiar with the matter who asked not to be identified because details of the regulatory process are confidential. Portland, Oregon-based Lattice reported 986 full-time employees worldwide at the end of December. The latest 75-day CFIUS review of the Lattice deal, the third since it was announced in November, ended this week with the panel informing Canyon Bridge and Lattice it would recommend Trump
block the acquisition if they take it to him for review. U.S. regulatory scrutiny of the Lattice deal grew after Reuters reported in late November that Canyon Bridge, based in Palo Alto, California, was funded partly by cash coming from China’s central government and had indirect links to its space program.
Other deals at stake
Canyon Bridge’s ability to acquire other Western semiconductor companies could be diminished if the Lattice deal collapses. This is because most acquisition targets have U.S. operations, making them subject to a CFIUS review. Canyon Bridge is working on a bid for British semiconductor company Imagination Technology Group Plc, the sources said. If Canyon Bridge clinches that deal, it would be subject to CFIUS review since Imagination Technologies acquired U.S. chip designer MIPS in 2013. While Canyon Bridge could choose to divest MIPS, which accounts for a small fraction of Imagination Technologies’ business, there is no certainty that would be enough to resolve all CFIUS issues, according to the sources. Imagination Technologies did not respond to a request for comment. Chinese buyers are awaiting CFIUS approval on other technology deals, including Unic Capital Management’s US$580 million acquisition of U.S. semiconductor testing company Xcerra Corp. Reuters
Contracts
Beijing ramps up role in Brazilian transport infrastructure Brazil’s President visited Beijing seeking increased investment by Brazil’s largest trading partner Chinese companies signed commitments on Friday to finance and build railways and ports that will help Brazil export iron ore and soybeans, the two main commodities it sells to China, during a state visit by Brazilian President Michel Temer. China Communication Construction Co Ltd agreed to finance the expansion of the Amazon basin port of Itaqui in the state of Maranhão, Brazilian Transport Minister Maurício Quintella told reporters in Beijing. He gave no further details. Separately, a consortium of five Chinese companies confirmed their intention
to build a port in the city of Ilheus in Bahia state for the export of iron ore from a 20-million-tonne-per-year mine at Caetité, Quintella said in remarks broadcast on Brazilian government television. The companies plan to bid for a contract scheduled for auction next year to build and operate a railway line called FIOL to link Ilheus to the mine. It will also be used to transport soy for export. The majority owner of the mine is Kazakhstan-based Eurasian Resources Group, with the state of Bahia holding the remaining interest. Temer stopped in Kazakhstan
on his way to Beijing and met with ERG executives, who told him they planned to invest US$1 billion in the mine and contribute US$1.4 billion to build the railway, Brazil media O Globo reported. Temer visited Beijing seeking increased investment by Brazil’s largest trading partner as his government pushed ahead with privatization plans for airports, ports, roads and energy infrastructure, including Eletrobras, his country’s largest utility. According to Quintella, China’s HNA Group, which has bought 30 per cent of the concession to operate Rio de
Chinese President Xi Jinping (R) shakes hands with Brazilian President Michel Temer during the signing ceremony at the Great Hall of the People in Beijing on Friday. Source:Lusa
Janeiro’s Galeao international airport through its HNA Airport Holding Group Co Ltd subsidiary, will guarantee the
opening of a flight route from that city to China, Chairman Chen Feng said in a meeting with Temer. Reuters
Business Daily Monday, September 4 2017 11
Asia Labour market
Japan Inc turns contract workers into permanent staff Some small companies in need of specialized workers are also following suit Tetsushi Kajimoto
J
apan’s labour market is getting so tight that companies are starting to convert contract and part-time workers into full-time, regular employees to prevent them from leaving - a move that could lift wages and spending but squeeze profits. The trend is a reversal from the decades-long practice of hiring cheaper contract workers who receive few benefits and are easier to hire and fire. They now make up more than a third of the workforce. Companies are willing to reverse course and take on the extra costs that come with regular employees because of the tightest labour market since the 1970s, as Japan’s population ages and declines. “We consider this as necessary investment for the future rather than a burden,” said Mayumi Kuroda, a spokeswoman for Credit Saison Co Ltd, a credit card issuer that plans to turn 2,200 part-timers and other contract workers into regular employees in mid-September. They will qualify for bonuses and benefits, such as retirement plans, when they join the regular ranks. The company won’t disclose the cost but predicts it won’t have a big impact on earnings, Kuroda said. “We hope this will help employees keep up motivation and come up with innovations,” she said. “If we fail to deliver, only the cost will rise.”
Last year, the average monthly pay for regular workers was 321,700 yen (US$2,932) while for contract workers it was 211,800 yen (US$1,924), so a change in status can mean a big jump in pay plus benefits workers weren’t previously receiving. That isn’t across the board some will see little change in their compensation but will get more job security. Increased labour costs may squeeze corporate profits, forcing companies to either raise prices or improve labour productivity. “We are fully aware of the risk that keeping employees as regular workers will raise fixed personnel costs, but I doubt pursuing profits by exploiting workers will boost creativity,” said Takayoshi Hontao, chairman of Going. com, which develops and operates business management systems. It has turned 10 of its contractors into full-timers, making all of its 40 employees regulars.
Job security
One of the biggest positives is that it gives employees a sense of job security. “When the company offered me a permanent job last year, I felt I was needed, which has increased my motivation. It opened the doors for my promotion to a section chief, and a pay raise,” said Mami Tanaka, a 29-year-old employee at Going.com. Japan Post Holdings Co Ltd has offered full-time jobs to 3,145 contract employees this fiscal year, and Fast Retailing Co Ltd, which includes
the Uniqlo brand, has done the same with about 16,000 part-timers. At Japan Airlines Co Ltd, about 1,100 cabin attendants on contracts were offered permanent full-time jobs last year, following a similar move by its domestic rival ANA Holdings Inc. Some small companies in need of specialized workers are also following suit. “It’s very difficult nowadays to secure plasterers at a time when our business is busy thanks to the construction boom ahead of the Olympics,” said Muneaki Harada, president of plastering firm Harada Sakan. “There’s a risk of fixing costs, but I believe benefits outweigh costs,” he said.
Labour law revisions
The trend is expected to accelerate toward April 2018 when a revised labour contract law starts forcing companies to provide permanent
status for temporary workers who have served more than five years, if the workers request it. The jobs-to-applicants ratio among full-time permanent employees hit a record high of 1.01 in June and July, meaning there was slightly more than one full-time, regular job per applicant, government data shows. Including non-regular workers, the ratio was 1.52, or 1 1/2 jobs per applicant, the highest level since 1974. Japan’s lifetime employment system, which undergirded its economic growth for decades, has frayed since the early 1990s after the country’s asset bubble burst. Since then, the share of non-regular workers has almost doubled as companies saddled with excess capacity, debt and excess workers have replaced regular employees with cheaper contract workers. But that has curbed overall
wages and hurt consumer spending. “The competition for able workers will intensify, which will benefit those who are willing to work full-time with better working conditions and job security, helping spur consumption,” said Hiroshi Watanabe, economist at Sony Financial Holdings. Nationwide, the number of full-time permanent workers stopped falling for the first time in eight years in 2015. Since then, it’s grown about 800,000 to reach 33.7 million, according to the labour ministry. Last year, the share of non-regular workers stopped rising for the first time in seven years. It is still hovering at a record 37.5 per cent, reflecting the rising number of the elderly who are hired as contract workers after retirement. The unfolding trend is “a step in the right direction,” said Takahiko Uesugi, a human resources section chief at Treebell Co Ltd, a computer system services provider that has turned 90 non-regular workers into regular workers in the past two years with the help of government subsidies. It plans to offer permanent jobs to 20 more in the coming year. About 400 of its 600 employees are regular workers. “The IT industry has relied so much on contract workers. It gives a bad impression that engineers are working under a poor labour environment,” Uesugi said. “It has gone too far.” Reuters
Corruption
Vietnam prosecutes more oil firm officials Police said there would also be new charges against former PetroVietnam chairman Four more officials from Vietnam’s scandal-hit state oil firm PetroVietnam are being prosecuted over allegations of economic mismanagement linked to investment losses in a local bank, police said on Friday. PetroVietnam and Vietnam’s banking sector are at the heart of a sweeping corruption crackdown in the communist state. The four officials are accused of intentional breaches of state rules over a loss-making investment in Ocean Group’s banking unit, police said in an online
statement. Investigations into PetroVietnam made global headlines last month when Germany accused Vietnam of kidnapping Trinh Xuan Thanh, a former official of a PetroVietnam unit, from a park in Berlin and forcing him home to face charges of financial mismanagement. A Politburo member who was a former PetroVietnam chairman and a vice trade minister have also been sacked from their positions as part of the crackdown -unusual moves in a country where such senior officials
are rarely dismissed. The latest prosecutions include PetroVietnam’s vice general director Ninh Van Quynh, who was the company’s lead accountant from 2008 to 2014 during which former politburo member Dinh La Thang headed the firm. The other accused had all been PetroVietnam board members. The four could not be reached for comment. Police said there would also be new charges against former PetroVietnam chairman Nguyen Xuan Son, who had already been arrested
in 2015 over his role in the bank scandal. PetroVietnam said on its website that the prosecutions did not have any negative impact on its business and that it has been cooperating with the authorities. PetroVietnam acquired an 800 billion dong (US$35
million) stake in Ocean Group’s banking unit which was completely written off when the central bank took over it at no cost. Bank founder, tycoon Ha Van Tham, and dozens of other banking officials are on trial, accused of lending violations. Reuters
12 Business Daily Monday, September 4 2017
Asia Trade
South Korea’s soaring exports top expectations Exports to China rose 15.6 per cent from a year earlier Cynthia Kim and Christine Kim
B
ooming sales of memory chips and electronic displays in August took South Korea’s exports to their longest run of growth in almost six years, highlighting a nascent normalisation in global demand. Shipments to the United States surged 23.2 per cent from a year earlier, supported by U.S. demand for memory chips and machinery,
potentially undermining South Korea’s position in the renegotiation of a free trade agreement President Donald Trump has called “a horrible deal”. “Sales of semiconductors continue to be star performer here, and the most important thing to monitor is whether prices of memory chips hold up through the second half,” said Lee Sang-jae, an economist at Eugene Investment & Securities. “Exports growth will likely come down to single-digit in November
and December this year on base effect, as exports improved towards the end of last year.” South Korea is the first among major exporting countries to publish its monthly trade figures. Exports to China rose 15.6 per cent from a year earlier, posting the longest stretch of sales to its bigger neighbour since 2014, while shipments to the European Union surged 43.2 per cent.
Key Points Aug exports +17.4 pct (Reuters poll +14.3 pct) Aug imports +14.2 pct (Reuters poll +11.4 pct) Aug inflation +2.6 pct, fastest since 2012 April Preliminary data showed August’s exports rose 17.4 per cent from a year earlier to US$47.1 billion, but imports surged 14.2 per cent to US$40.1 billion, the Ministry of Trade, Industry and Energy said. This produced a US$7 billion trade surplus, down from the US$10.3 billion surplus seen in July. August exports beat a 14.3 per cent expansion seen in a Reuters survey and posted a double-digit growth for an eighth straight month, the
longest such expansion since September 2011, adding momentum to economic growth. Exports of semiconductors posted record sales of US$8.76 billion in August, while OLED screens also marked record overseas sales of US$860 million in the month. Sales of nine of South Korea’s 13 major export items expanded, the trade ministry said.
Rain, heat drive up fresh food prices
Separate data on Friday showed South Korea’s annual inflation surged to more than a five-year high of 2.6 per cent in August, versus 2.2 per cent in July. Heavy rain and a summer heat wave pushed up the price of fresh foods, including a 71.4 per cent jump in the price of radish. Economists including Kim Doo-un at Hana Financial Investment expect consumer prices will continue to fluctuate through the October shopping season when South Koreans celebrate the national Chuseok holiday. Inflation has remained near the central bank’s 2 per cent target this year as private consumption in Asia’s fourth-largest economy recovered and volatile weather caused spikes in fresh produce prices. Reuters
Real estate
Australia home prices cool in August A slowdown is much desired by the country’s main bank watchdog which has tightened standards on investment and interest-only loans Home prices in Australia’s major cities rose only marginally in August as Sydney’s blistering run stalled, a tentative sign of cooling that would be a relief to regulators seeking to head off a debt-driven bubble. Property consultant CoreLogic said its index of home prices for the combined capital cities rose just 0.1 per cent in August from July, when it surged 1.5 per cent. The index had also been updated using a new hedonic index methodology, CoreLogic said. Annual growth in prices slowed to
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9.7 per cent, from 10.5 per cent in July. Prices in Sydney were dead flat for August, after jumping 1.4 per cent the month before, although annual growth remained strong at 13 per cent. Melbourne saw gains of 0.5 per cent in August and 12.7 per cent for the year. A slowdown is much desired by the country’s main bank watchdog which has tightened standards on investment and interest-only loans, leading banks to raise rates on some mortgage products. The Reserve Bank of Australia (RBA) has also been concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks. “We’re seeing capital gains in markets like Sydney, which were previously very strong, now being weighed down by affordability constraints and tighter lending conditions,” said CoreLogic head of research Tim Lawless. “The knock-on effect is a curb in investment credit growth and higher mortgage rates for investment and interest only mortgages.” He noted that national home prices had risen by just 0.6 per cent in the three months to August, the smallest gain since June last year. That compared to a peak pace of 3.7 per cent in the three months to last November. The rolling three-month price rise in Sydney had fallen to 0.3 per cent,
from a peak of 6.3 per cent last year. The RBA holds its September policy meeting next week and is considered certain to keep rates steady again, in part because any further easing might only encourage more borrowing by already heavily indebted households. The inexorable price rise in the
major cities has taken homes out of the reach of many first-time buyers and become a political hot potato. The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem, while the opposition Labor Party has pointed the finger at favourable tax treatment for property investment. Reuters advertisement
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Business Daily Monday, September 4 2017 13
Asia Currency
In Brief
Slowdown-hit Indian economy counts costs of stronger rupee
Disputes
S.Korea to seek labour law revision
The Indian currency appreciated 4 per cent against the dollar during the last quarter Rajesh Kumar Singh
India’s stronger currency has become a threat for its growth aspirations, piling pressure on the central bank to aggressively intervene in the foreign exchange market even at the risk of incurring the wrath of the United States. The rupee has risen more than 6 per cent this year against the dollar, snapping six consecutive years of depreciation, with the impact magnified by the decline of many competitors’ currencies against the greenback over the same period. That is weighing on an economy that is struggling to cope with disruption caused by ambiguous rules of a recently launched Goods and Services Tax (GST), and has yet to fully recover from Prime Minister Narendra Modi’s crackdown on “black money”. While the rupee’s surge is being driven by strong capital inflows lured by India’s economic and political stability, it is making the country’s exports less competitive and is also driving up imports, prolonging a slump in manufacturing. An exports slowdown dented GDP growth by 2.6 per centage points in the last quarter. Overall economic expansion cooled to 5.7 per cent in the June quarter, data released on Thursday showed, its slackest pace in more than three years.
Hands-off approach
Previously, strong rupee appreciation would prompt policymakers to talk down the currency. But that has been absent under Modi, as many of his cabinet colleagues are keen to project
the rising rupee as an endorsement of the Indian leader’s economic stewardship. But with slowing export earnings threatening jobs and double-digit imports growth hollowing out Modi’s signature ‘Make in India’ programme, some officials are calling for action. In its mid-year economic survey, the finance ministry last month cited exchange rate appreciation as one of the downside risks for Asia’s third-largest economy. Thursday’s GDP figures have only reinforced those concerns.
in non-branded segments such as tiles, leather and garments. Service exports - a strength of the Indian economy thanks to the success of outsourcing firms such as Infosys Ltd and Tata Consultancy Services are more vulnerable to the rupee’s rise. In a recent report, citing a report by the Reserve Bank of India (RBI), DBS Bank said every 1 per cent rise in the rupee would affect the bottom-line of information-technology and outsourcing companies by as much as 40 basis points.
Struggling exporters
No easy options
Indian policymakers were banking on an improving global economy to lift demand for Indian goods, helping improve capacity utilisation levels at Indian factories, which are running nearly 30 per cent below their capacity Those hopes, however, have been belied as merchandise exports growth has slumped to 3.9 per cent year-onyear from near 28 per cent growth in March. While overseas shipments have been hurt by rising protectionism and the uncertainty created by the GST, a stronger rupee has not helped the cause either. The Indian currency appreciated 4 per cent against the dollar during the last quarter, whereas the Chinese yuan and Malaysian ringgit depreciated by 1.9 per cent and 2.9 per cent, respectively. Ajay Sahai, head of the Federation of Indian Export Organisations (FIEO), says this price differential of nearly 6 per centage points made it tougher to compete with Chinese exporters
With slowing export earnings threatening jobs and double-digit imports growth hollowing out Modi’s signature ‘Make in India’ programme, some officials are calling for action
The central bank has so far confined its interventions in the foreign exchange markets to efforts aimed at minimising volatility rather than capping the currency. But buoyant capital flows are not only putting appreciation pressure on the rupee, they are also flushing the financial markets with excess liquidity, which could pose challenges for the central bank’s monetary policy. With inflation way below its medium-term target, the RBI could look to cut interest rates to prevent further currency appreciation. It could also aggressively cap the rupee by buying dollars to build foreign exchange reserves. Such measures, however, could complicate the RBI’s inflation management and potentially also put India on Washington’s currency watch list. The U.S. Treasury is mandated by law to initiate special currency talks with any country that has “material” current account and “significant” bilateral trade surpluses, and persistent, one-sided intervention in foreign exchange markets. If a country meets two of the three conditions, it will be put on the monitoring list. India already runs a trade surplus of more than US$20 billion with the United States. The South Asian nation is currently not on the monitoring list, but President Donald Trump has ordered an investigation into the causes of the U.S. trade deficit with 12 of its trade partners, including India. “There are no easy options,” said the government official. Reuters
Subsidies
Thailand approves US$2.2 bln in help for rice farmers The government introduced similar short-term loans and cash hand-outs for rice farmers last year that cost the state US$2.3 billion Aukkarapon Niyomyat
Thailand’s government on Friday announced US$2.2 billion in loans and hand-outs to help stabilise prices for rice farmers, a politically influential group whose heartland is in regions where opposition to the military junta is strongest. Thailand’s staple food has long been a factor in its politics. The announcement by the commerce ministry came a week after former prime minister Yingluck Shinawatra fled into exile ahead of a court verdict in a criminal negligence case over a rice subsidy scheme that cost billions of dollars. The ministry said it would provide US$1.57 billion in hand-outs to farmers and US$633 million in loans that will cover 3.7 million households. The programme will span the seasonal harvest from the start of November this year to the end of February 2018.
“This is to help take 2 million tonnes of rice from the market,” Nuntawan Sakuntanaga, head of the commerce ministry’s department of internal trade, told reporters.
“The bottom line is these cash hand-outs create more debt for farmers” Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand
The government introduced similar short-term loans and cash handouts for rice farmers last year that cost the state US$2.3 billion to cover 4 million households during the
same period. “This subsidy programme is essentially similar to past rice subsidies introduced by previous governments,” said Somporn Isvilanonda, a senior fellow at the Knowledge Network Institute of Thailand who is critical of subsidies. “The bottom line is these cash hand-outs create more debt for farmers,” Somporn said. After hitting a four-year high earlier this year, the price of benchmark Thai 5-per cent broken white rice has tumbled by nearly 20 per cent over the last two months to US$372.50 per tonne, its lowest since April. Thailand’s main rice-growing areas are the north-eastern and central regions, which have traditionally been strongholds of support for the populist Shinawatra movement of Yingluck and her brother Thaksin, who was overthrown in a 2006 coup. Reuters
South Korea’s finance minister on Friday said the government will seek to revise the labour law to clarify whether regular bonuses should be counted as part of a base pay for workers, in the wake of a landmark ruling against Kia Motors. On Thursday, a court ordered Kia Motors to pay 1 trillion won (US$887.11 million) to its workers in unpaid wages, giving encouragement to unions engaged in hundreds of similar disputes against employers across the country. Unions are demanding that regular bonuses should be included in calculations of other salary-linked allowances such as pension and overtime pay. Car industry
Vingroup starts construction on car factory Vietnam’s leading property developer Vingroup said on Saturday it launched construction of a car factory in a project worth US$1-1.5 billion in the first phase. The project is part of Vingroup’s expansion plan into the heavy industry of Vietnam, its vice chairman was quoted as saying in a statement, following similar moves in other major sectors such as retail and health care. Vingroup said it hopes to become a top car manufacturer in the Southeast Asian region, making 500,000 cars per year by 2025. Investment
Petronas not interested in equity stake in Daewoo E&C Malaysian state energy firm Petroliam Nasional Berhad on Saturday denied a media report that it was interested in buying a controlling stake in South Korea’s Daewoo Engineering & Construction Co. Petronas, as the company is known, and Aramco are among potential suitors for a 50.75 per cent stake in Daewoo E&C, a deal that could fetch around 2 trillion won (US$1.78 billion), South Korea’s Maeil Business Newspaper said on Friday. “Petronas has no intention of entering into such business transaction and wishes to categorically deny the report,” a company spokesperson told Reuters in an emailed statement. Markets
Japan Post share sale as soon as this month Japan’s government plans to sell shares in Japan Post Holdings Co as soon as this month, the first sale since the company’s massive 2015 listing, a government source familiar with the deal said on Friday. The finance ministry will meet with underwriters today to discuss the sale, said this source and two other people familiar with the deal. Such meetings of an underwriter syndicate usually indicate the share offering process is nearing the final stages. The size of the sale could not be immediately confirmed.
14 Business Daily Monday, September 4 2017
International In Brief Trade
Brazil, Mexico hold talks on broadening pact Brazil and Mexico discussed ways to broaden their existing trade agreement by including new products and fine-tuning preferential tariffs on bilateral trade, as Latin America’s top two economies try to strengthen their ties. Diplomats and officials from both countries held meetings in Mexico City between Aug. 29 and Aug. 31, Brazil’s foreign relations ministry said on Friday. A broad range of trade issues including food safety, excessive bureaucracy, intellectual property and controversy solution mechanisms were part of the discussions, it said. Brazil’s foreign ministry said trade between the two countries totalled US$7.34 billion last year. Diplomacy
Russia hands note of protest to U.S. Russia’s foreign ministry has summoned a U.S. diplomat in Moscow to hand him a note of protest over plans to conduct searches in Russia’s trade mission complex in Washington, which should soon be closed, the ministry said in a statement on Saturday. It said it has summoned Anthony F. Godfrey, a deputy chief of mission at the U.S. Embassy in Moscow. The ministry called the planned “illegal inspection” of Russian diplomatic housing an “unprecedented aggressive action”, which could be used by the U.S. special services for “anti-Russian provocations” by the way of “planting compromised items”.
Oil industry
Texas refineries begin restart after hit from hurricane Pump prices last Saturday were up 3 per cent from Friday and 16.7 per cent higher on average than a year ago Ernest Scheyder and Catherine Ngai
A
number of key Texas refineries worked to reopen or resume normal operations a week after Hurricane Harvey knocked out nearly one quarter of the U.S. refining capacity and sent gasoline prices to two-year highs. While much of the region’s refining infrastructure still remained offline from Harvey, which made landfall as a Category 4 hurricane last week and drenched Texas as a tropical storm, the restarts were a first step in alleviating concerns about U.S. fuel supplies. Exxon Mobil Corp said it was restarting its 560,500 barrel per day (bpd) facility in Baytown, Texas, the second-biggest U.S. oil refinery, after it was inundated by flooding. Phillips 66 said it was working to resume operations at its 247,000 bpd Sweeny refinery as well as its Beaumont terminal. The announcements come after Valero Energy Corp said late on Friday it was ramping up production at its Corpus Christi, Texas-area refineries, as well as evaluating its 335,000 bpd Port Arthur, Texas, refinery for
damage from Harvey. The refinery was shut on Wednesday. Retail gasoline prices have risen more than 17.5 cents since Aug. 23, before Harvey hit, amid worries the storm would trigger supply shortages. Pump prices were at US$2.59 a gallon on Saturday, according to motorists advocacy group AAA, up 3 per cent from Friday and 16.7 per cent higher on average than a year ago.
Power cuts
In another positive sign for the industry, Occidental Petroleum Corp said it had loaded and shipped the first crude cargo from its Ingleside terminal in Corpus Christi after Hurricane Harvey first made landfall. The Port of Corpus Christi, a major energy industry shipping hub, was partially open and hoped to resume normal operations next week, officials said. But much energy infrastructure remained offline, including the largest U.S. refinery, the 603,000 bpd facility in Port Arthur, Texas, owned by Motiva Enterprises LLC. Motiva has told customers to prepare for fuel shortages, said a source at convenience store and gas station chain Circle K. In some Texas cities, including
Monetary meeting
Bank of Canada to hike rates in October The Bank of Canada is likely to leave interest rates unchanged at its Sept. 6 meeting and wait until October to raise them, allowing time for more data to show whether still-tame inflation pressure is picking up, a Reuters poll released on Friday showed. While 24 of 33 economists surveyed in the past few days said an October rate hike was most likely, six forecast rates would rise on Wednesday to 1.0 per cent, with several changing their view after a very strong second-quarter gross domestic product (GDP) report. Another three said the next rate hike would be in January. Private poll
Disorderly Brexit chances 25 pct The chances of Britain eventually exiting the European Union in a disorderly manner have eased a bit, according to a Reuters poll of economic forecasters, who still say a free trade deal, even if there is a transition period, is the most likely outcome. The median probability of no deal in the poll taken Aug 29-31 was 25 per cent, down from 30 per cent in a survey six weeks ago. In the meantime, UK economic growth is forecast to keep slowing despite an upturn in the broader world economy.
This aerial image provided by the Air National Guard shows extensive flooding caused by Hurricane Harvey in a residential area in Southeast Texas. Source: Lusa
Dallas, there were long lines at gas stations on Friday. At a QMart filling station west of Houston on Saturday, cars were clogging the pumps soon after a tanker arrived to replenish its pumps. “We had a half a tank, but decided to get more, just in case,” said Maria Linares, a school teacher whose husband was topping their car’s tank. The Phillips 66 brand station has not raised its fuel prices since before Harvey, said Assistant Manager Jalal Sadruddin, by policy of the station owner, Q-Mart. “Right now, we have about 4,000 gallons, maybe two or three days’ worth,” he said. The station received a tanker load of gasoline on Saturday but was out of diesel, he said. An Exxon brand station across the street was out of fuel. “In all this area, no one has it but us,” Sadruddin said. Nearly half of U.S. refining capacity is in the Gulf Coast region, an area with proximity to plentiful supplies from Texas oil fields to Mexican and Venezuelan oil imports. The majority of Texas ports remained closed to large vessels, limiting discharge of imported crude. The reduced availability of fuel forced the Colonial Pipeline, which provides fuel from refineries near the Gulf of Mexico to the U.S. Northeast, to reduce supplies. But some oil pipelines had restarted, easing the constraint. Magellan Midstream Partners announced late on Friday that it resumed operations on its BridgeTex and Longhorn crude oil pipelines. The two pipelines transport around 675,000 bpd of West Texas crude to East Houston. The company said its refined products pipeline system originating at East Houston has resumed service and will deliver gasoline and diesel to the Dallas and West Texas area. Phillips 66 also said its Pasadena refined products terminal would resume truck loading for gasoline and diesel this weekend. Reuters
M&A
EU’s Vestager says Essilor-Luxottica merger requires thorough vetting Competition Commissioner said a careful examination was necessary given the size of the two companies The proposed merger of Italian spectacles maker Luxottica with French lens manufacturer Essilor will require thorough vetting by European antitrust authorities, the head of the bloc’s competition watchdog said on Saturday. Luxottica, the world’s biggest eyewear company whose brands include Ray-Ban and Oakley, agreed in January a merger with Essilor, the biggest lens maker, to create an industry giant with a market value of 47 billion euros (US$56 billion), more than 15 billion euros in revenues and 144,000 staff. The deal needs to clear antitrust hurdles in several countries and if approved is expected to close around the end of the year. The EU Commission was officially notified on Aug. 22. EU Competition Commissioner Margrethe Vestager said it was too early to say whether approval may require the companies to make significant concessions. “These are companies that have
very big market shares and also, when it comes to sunglasses and lenses for glasses, obviously this is an important market, it is a very valuable market so I cannot say,” she told Reuters on the sidelines of the Ambrosetti business conference in Italy. A negative reaction from Essilor’s customers to the merger, which the company said in July had affected its first-half sales , has raised concerns among analysts that the two companies may be required to take more substantial concenssions to satisfy the competition regulators than initially anticipated. Exane-BNP Paribas analysts said in a recent note the examination of the deal by EU competition authorities would include sounding out competitors, clients, and professional associations as well as reviewing possible complaints. “Hence our concern over the mounting pushback from customers, recently stressed by Essilor,” they said.
A ‘vertical integration’ between two companies operating at different stages of the production chain is normally less worrying for competition watchdogs than a “horizontal” merger boosting a firm’s market share. But a vertical tie-up can still risk blocking rivals’ access to suppliers or buyers, a process known as ‘foreclosure’. Vestager said a careful examination was necessary given the size of the two companies. “Even if it is a vertical integration, when you have market shares of this kind, in the high double digits, of course we have to be thorough in our analysis to make sure you don’t foreclose,” she said. Also asked about possible competition hurdles for the purchase of the troubled Ilva steel plant in southern Italy by ArcelorMittal, the world’s biggest steelmaker, Vestager said it was a “very tricky case” but good cooperation so far with the Italian authorities boded well for the approval process ahead. Reuters
Business Daily Monday, September 4 2017 15
Opinion
Neodymium magnet ball icosahedron
Let U.S. jobs machine run hot a while longer Daniel Moss a Bloomberg View columnist
T
he employment scene in the U.S. last month was disappointing, though not because job creation was a little off the boil. Yes, 156,000 employees added to payrolls was less than many economists forecast. And, yes, the jobless rate picked up a bit to 4.4 per cent. That’s still very low by historical standards. Even 156,000 really isn’t terrible, given that economists tend to overestimate August’s growth rate. The disappointment is that, again, wage growth is anaemic. It’s especially disappointing given that the U.S. expansion is eight years old and counting at a time when the world economy is finally showing signs of an upswing. More boats rowing in the same direction ought to give workers in the mother ship a little more money. Granted, this isn’t a uniquely American problem. That isn’t an excuse for not asking hard q u esti o n s ab o u t what is going on here. Some Federal Reserve policy makers sound increasingly sceptical about the traditional argument that a tight labour market will translate into significant compensation gains and faster inflation. Philadelphia Fed economists published a paper last month that concluded this relationship was a poor one. The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve don’t really help predict inflation when unemployment is low. The link works when the labour market is weakening -- when rising unemployment can predict slower inflation -- but not so much in the other direction. And it’s that other direction that’s the concern. On balance, another month of soft wage numbers will probably strengthen the hand of those at the Fed who want to wait a while before raising interest rates again. The Fed is in a de-facto pause now anyway. Officials have widely telegraphed that this month’s Federal Open Market Committee meeting will focus on the question of balance-sheet reduction. It won’t be until December that the issue of nudging borrowing costs higher is seriously on the table. Happily, there will be a few more months of data between now and then. Things could still start to click on wages. It’s entirely possible that the models will kick in, perhaps just at a lower level of unemployment. That’s a good argument to let the U.S. job-creating machine run hot a while longer. Let’s find where that magical unemployment tipping point is: 4 per cent, 3.5 per cent or even 3 per cent. For all we know, it could be lower. We might even learn something about models and their durability. Bloomberg View
‘It’s entirely possible that the models will kick in, perhaps just at a lower level of unemployment’
Boom, bust and boom again for rare earths? Andy Home a Reuters columnist
A
ll commodity markets are prone to boom and bust cycles. But few have been as spectacular as that experienced by rare earths at the turn of the decade. Prices of such exotic components of the periodic table as dysprosium and terbium increased by multiples over 2010-2011 before collapsing just as quickly. Five subsequent years of low-scale range-trading have seen rare earths slip off the collective investment radar, their place taken by new “hot” metals such as lithium and cobalt. But now they’re back. Or at least a couple of them are. The prices of neodymium and praseodymium oxide are going stratospheric again, up by over 80 per centsince the start of the year. As ever with rare earths, this is all about what is happening in China, the world’s dominant producer of these critical materials. It is also, though, a story of a specific supply chain adapting to a fast-changing demand picture because these two particular rare earths are part of the same green technology revolution that is causing such excitement in the battery materials space.
companies involved in the rare earths sector. (“Chinese NdPr oxide - Panic or Party?”, August 2017). It’s noticeable that just about every other REE price in China is showing signs of bottoming out from the depressed price environment of 2012-2016, albeit without the same violence of the NdPr rally. If Beijing’s clamp down on its REE sector is generating higher prices, Beijing also has the means to cap those prices in the short term. It is sitting on an unknown amount of stockpiled REE and is now under pressure to release some of it to dampen bubbling spot markets. There was a high-powered meeting last month between China’s Rare Earth Industry Association, the Strategic Reserves Bureau and the National Development and Reform Commission to discuss the situation. A possible release of stocks is now under active consideration as a way of controlling the latest sign of a rare earths boom. It is, after all, in China’s own interests to contain radical price moves. The country is a leader in the green technology race.
The growth engine
Shifting supply chain
Neodymium and praseodymium, or the more manageable NdPr for short, are already two of the most commonly used rare earth elements (REE), accounting for 36 per centof global REE consumption in 2015, according to analysts at RFC Ambrian (“The Alchemist”, November 2016). They’re in the hard disc drive in your laptop and the headphones you wear on the way to work. Their most important application, however, is in the magnets used for electric motors, which is where they enter the electric vehicle supply chain. As with the lithium-ion battery, the permanent magnets that use NdPr in motors are industry standard, meaning they face a similar exponential growth in usage generated by the electrification of the global vehicle fleet. RFC Ambrian forecasts that increases in NdPr production, 45,170 tonnes in 2015, “will need to total between 15,000 tonnes (‘low case’) and 35,000 tonnes (‘high case’) by 2020.” Supply which will have to come from China.
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And that may be another hidden component in the recent NdPr price spikes. As with lithium, this is a supply chain that is having to adapt in super fast time to a new source of demand. Chinese magnet producers are ramping up capacity to feed the ambitious electric vehicle targets of global automotive manufacturers. And, to quote Adamas Intelligence, “historically, few industries are as conservative, cost-concerned and risk adverse as the auto industry.” The outcome is an increasing shift to long-term, lock-in contracts for supplies of rare earths such as NdPr, according to Adamas. It cites the example of China’s largest NdPr producer, China Northern Rare EarthGroup,whichisthecommitted supplier to Inner Mongolia Baotou Rare Earth Magnetic Material, which has just increased its magnet capacity through consolidation. As these large Chinese producer and user groups lock up future sourcing, the supply of material for the spot market is diminishing, squeezing spot prices higher. This has bullish implications for future pricing but also poses headaches for the global supply chain, particularly those parts of it that aren’t vertically integrated. The only major REE producer outside of China is Lynas Corp , which operates the Mt Weld mine in Western Australia with NdPr production of just over 5,000 tonnes per year. Much of that output, however, is committed to Japanese buyers keen to diversify their sourcing after the China Shock. The Mountain Pass mine in the United States remains on care and maintenance, although it has just been bought out of bankruptcy, ironically by a consortium built around China’s Shenghe Resources rare earths producer. That supply dearth outside of China is fuelling a rare earths rush with miners scouring the world for new sources of production. Several new operations are at the feasibility study stage but whether enough of them will make it to production remains to be seen. China, for now, has the ability to cap runaway rare earth prices. But this year’s spikes are a warning sign that this particular supply chain remains highly unstable. Rare earths, and NdPr in particular, look set for a comeback. Reuters
If Beijing’s clamp down on its REE sector is generating higher prices, Beijing also has the means to cap those prices in the short term
The China syndrome
It was China that caused the explosion and subsequent meltdown in prices earlier this decade. The country cut off exports of REE, citing the need to control illegal output in the production hub of Inner Mongolia. The rest of the world cried foul as did the World Trade Organization and China was forced into a swift about-face. Official exports have steadily increased ever since, up 26 per centin 2015 and another 34 per centin 2016. Unofficial exports initially boomed as well in response to those sky-high prices, causing a surge in supply that kept REE prices at rock-bottom levels until this year. Illegal production, however, seems to have been falling with Beijing consolidating its REE sector into six large groups and waging a war of attrition against the unofficial sector. The official heat has been raised further this year in the form of the same rolling environmental and regulatory checks that have hit other Chinese metals sectors such as aluminium. Indeed, according to Adamas Intelligence, which specialises in critical mineral markets, an explicit focus of the most recent inspections has been on 180
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16 Business Daily Monday, September 4 2017
Closing Technology
Huawei unveils mobile AI assistant at Berlin’s IFA
Richard Yu, chief executive of Huawei’s Consumer Business Group. Source: Lusa
Where is the user? Who are they and what are they doing? “You ask your personal assistant what’s the Chinese electronics giant Huawei unveiled its weather in Berlin,” Yu said. “But in-device AI first mobile personal assistant with artificial already knows that you’re in Berlin, on work intelligence in Berlin, in hopes it will rival the dominance of Samsung’s Bixby and Apple’s Siri. assignment, on your way to a meeting, and if you’re waiting outside or if you’re already inside “Smartphones are smart but they are not intelligent enough,” Richard Yu, chief executive the car”. Internet giants have been investing heavily in of Huawei’s Consumer Business Group, said at creating software to help machines think more this year’s IFA electronics fair. like people, ideally acting as virtual assistants The mobile assistant, called Kirin 970, will who get to know users and perhaps even systematically respond to three questions anticipate needs. AFP -- “the most important combination,” Yu said:
Summit
President Xi says BRICS must promote open world economy He closed his 45-minute speech by saying that Beijing encouraged Chinese companies to continue going abroad, and “warmly welcomed” other countries’ firms to invest in the world’s second-largest economy Yawen Chen and Michael Martina
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he BRICS group of emerging economies must promote trade liberalisation and an open world economy, Chinese President Xi Jinping said at a business meeting yesterday at the start of a three-day summit being held in south-eastern China. The heads of state from Brazil, Russia, India, China and South Africa will gather in the city of Xiamen through Tuesday, giving China as host its latest chance to position itself as a bulwark of globalisation in the face of U.S. President Donald Trump’s “America First” agenda. BRICS leaders will be joined
by observer countries Thailand, Mexico, Egypt, Guinea and Tajikistan, and officials will discuss a “BRICS Plus” plan to possibly expand the bloc to new members. Mexico’s President Enrique Peña Nieto is set to be in China to discuss trade and investment, as Trump has renewed threats to scrap the 23-year-old North American Free Trade Agreement (NAFTA) that he has labelled a killer of U.S. jobs. “We should push for an open world economy, promote trade liberalisation and facilitation, jointly create a new global value chain, and realise a global economic rebalancing,” Xi told BRICS business leaders and senior officials.
Xi said he still had “full confidence” in BRICS countries’ development despite claims that the bloc’s relevance had faded due to slower growth. “The development of emerging market and developing countries won’t touch anyone’s cheese, but instead will diligently grow the world economic pie,” he said. Earlier, Chinese vice trade minister, Wang Shouwen, said the BRICS meeting was expected to “reach consensus for actions” to oppose trade protectionism. He added that China was interested in possibly establishing a free trade agreement with Mexico. In July, Xi called on members of the Group of 20 (G20) nations to champion an open
world economy, and at the World Economic Forum in Davos, Switzerland, in January offered a vigorous defence of globalisation. In Xiamen, Xi closed his 45-minute speech by saying that Beijing encouraged Chinese companies to continue going abroad, and “warmly welcomed” other countries’ firms to invest in the world’s second-largest economy. But those remarks are cold comfort to some critics of China, foreign business groups and governments alike, who say China has done little to remove its discriminatory policies and market barriers that favour Chinese companies. The BRICS summit comes just a week after China and India agreed to end a more than two-month standoff between hundreds of troops in a Himalayan border area, which had put a sidelines meeting between Xi and Indian Prime Minister Narendra Modi in question. The standoff was the latest example how BRICS countries, while sharing certain development goals, are far from unified. Some have questioned the relevance of BRICS and China’s commitment to its New Development Bank (NDB) in light of Xi’s own global Belt and Road development
initiative and the China-led Asian Infrastructure Investment Bank. Set up in 20l5 as an alternative to the World Bank, the Shanghai-headquartered NDB was seen as the first major BRICS achievement after the group came together in 2009 to press for a bigger say in the post-World War Two financial order created by Western powers.
Key Points Boosting multilateral trade system to be focus for BRICS meeting Xi still confident in BRICS despite fading growth China says it is open to possible free trade deal with Mexico The bank aims to address a massive infrastructure funding gap in the member countries, which account for almost half the world’s population and about a fifth of global economic output. The NDB’s president on Friday said it aims to make about US$4 billion in loans next year. To date, it has invested in 11 projects, lending US$1.5 billion in 2016 and US$2.5 billion in loans set for this year. Reuters
Media
Tension
Demonetization
Cambodia Daily to close following tax row
North Korea tested nuclear bomb with ‘unprecedentedly big power’
India’s former RBI governor cautioned govt
One of Cambodia’s last remaining independent newspapers announced yesterday it was closing after 24 years, the latest in a series of blows to critics of strongman premier Hun Sen. The Cambodia Daily said today’s edition would be its last after it was slapped with a US$6.3 million tax bill which its publishers said was politically motivated. “The power to tax is the power to destroy. And after 24 years, one month and 15 days, the Cambodian government has destroyed The Cambodia Daily, a special and singular part of Cambodia’s free press,” the newspaper said in a statement. The paper blamed “extra-legal threats by the government to close the Daily, freeze its accounts and prosecute the new owner” for the closure. The announcement came hours after opposition leader Kem Sokha was arrested and accused of treason. The Cambodia Daily was set up in 1993 by veteran American journalist Bernard Krisher in the aftermath of Cambodia’s genocide from 1975-78 and subsequent civil war. It publishes in English but also carries some articles in Khmer. AFP
North Korea said it successfully tested a hydrogen bomb with “unprecedentedly big power” yesterday that can be loaded onto an intercontinental ballistic missile, in its first nuclear test under U.S. President Donald Trump’s watch. The test, ordered by Kim Jong Un, was a “perfect success” and confirmed the precision and technology of the hydrogen bomb, according to the Korean Central News Agency. Kim’s regime has defied Trump’s warnings as it seeks the capability to strike America with an atomic weapon. “The creditability of the operation of the nuclear warhead is fully guaranteed,” KCNA said. South Korea’s weather agency said it detected a magnitude 5.7 earthquake around 12:29 p.m. local time near the Punggye-ri nuclear test site in northeast North Korea. Energy from yesterday’s explosion was about six times stronger in force than the nuclear test conducted by Pyongyang last September, the weather agency said. Pyongyang’s actions are set to further increase tensions in Northeast Asia, where concerns have grown this year that a war of words between Trump and Kim could set off a military conflict.
Former central bank head Raghuram Rajan had cautioned the government that short-term costs of a radical ban of high-value currency notes would outweigh the long-term benefits, Times of India newspaper reported yesterday. He had first given his opinion on whether to carry out the ban in February 2016, the paper reported, citing excerpts from Rajan’s book on his stint at the Reserve Bank of India (RBI), titled “I Do What I Do: On Reforms Rhetoric and Resolve”. That was months before Prime Minister Narendra Modi stunned the country on Nov. 8 by abolishing 500- and 1,000-rupee notes, removing 86 per cent of the currency in circulation in a bid to crack down on “shadow economy”. “The RBI flagged what would happen if preparation was inadequate,” the paper cited Rajan as saying in the book that will be released next week. Rajan also told the newspaper in an interview that the demonetization had a disruptive impact on the economy. Indians returned most of the estimated 15.4 trillion rupees (US$242 billion) in high-currency bills removed from circulation last year, the RBI said in its annual report on Wednesday. Reuters
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