Business Daily #1376 September 5, 2017

Transport Bureau says typhoon damaged 23 pct of public buses Typhoon damage Page 2

Tuesday, September 5 2017 Year VI Nr. 1376 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm CEPA

Goods exported to the Mainland under CEPA reach MOP7.68 mln in August, up 8.6 pct m-o-m Page 2

Elections

Information on candidate lists for the upcoming Legislative Assembly elections Page 4

www.macaubusiness.com

Private poll

Forecast points to strong growth in Mainland in August Page 16

Summit

BRICS condemn N. Korea’s nuclear tests Page 8

Cooling winds

Tourism

Typhoons, package tour shutdowns, hotel and casino damage - next to affect the tourism outlook for September say experts: the beginning of the school year. Package tour numbers will decrease but individual travellers will increase, say insiders, expecting occupancy rates to go down to 50 pct, from the typical 90 pct seen in August. Page 3

Palace drags on Macau Legend’s H1 Despite a 29 pct y-o-y increase in revenues, Macau Legend saw a 30.4 pct increase in losses in H1, reaching HK$228.6 mln, mostly attributed to the opening of the Legend Palace Casino and Hotel and an increase in finance costs. Gaming revenues were up 34 pct y-o-y to HK$563 mln, with a HK$137.5 mln contribution from the group’s Laos property.

Slowdown in exhibitions but growth in meetings in Q2 MICE The number of participants in MICE events was up 26.1 pct, to 405,000 in Q2, with a 37 pct increase in the number of meetings and conferences with over 200 participants. There were seven less exhibitions held, and a 14 pct reduction in the number of attendees, to 351,000. The overall length of exhibitions was 3.8 days. Page 5

China stops new cryptocurrency fundraising

Results Page 7

HK Hang Seng Index September 4, 2017

27,740.26 -212.90 (-0.76%) Worst Performers

AAC Technologies Holdings

+1.97%

China Unicom Hong Kong

+0.18%

China Shenhua Energy Co

-3.55%

Sino Land Co Ltd

-1.47%

Galaxy Entertainment Group

+1.37%

AIA Group Ltd

+0.17%

BOC Hong Kong Holdings

-1.79%

China Resources Land Ltd

-1.43%

-1.70%

China Resources Power

-1.39%

Want Want China Holdings

+0.95%

Swire Pacific Ltd

+0.06%

Bank of China Ltd

Sands China Ltd

+0.68%

Cathay Pacific Airways Ltd

+0.00%

China Merchants Port Hold-

-1.57%

Bank of Communications

-1.35%

Hong Kong & China Gas Co

+0.68%

CNOOC Ltd

Hong Kong Exchanges &

-1.49%

Cheung Kong Property

-1.08%

-0.11%

27° 30° 26° 30° 27° 30° 26° 30° 26° 30° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Blockchain The central bank of China said that initial coin offerings are illegal and have asked all related fundraising activity to be halted immediately, according to a notice from the regulator. Page 8

2 Business Daily Tuesday, September 5 2017

Macau Trade

August CEPA picking up

T

he total value of goods exported to mainland China under the CEPA (Closer Economic Partnership Arrangement) amounted to MOP7.68 million (US$952,604) in the month of August, up 8.6 per cent month-on-month when compared to MOP7.07 million in July.

The latest information released by the Macao Economic Service (DSE) revealed that the total amount of exported goods to mainland China for the past eight months reached MOP57.29 million.

Since the implementation of the zero-tariff trade policy between the SAR and the Mainland in 2004,

the accumulated exports of CEPA goods has reached MOP823.77 million.

As at the end of last month, some 625 local firms were holding Macau Service Supplier certificates, one more than the 624 recorded in July of this year.

Local firms who obtain the certificate are allowed to operate on the Mainland and enjoy zero tariff treatment.

According to the official data, 309 local certificate holders were engaged in transport services such as freight forwarding, logistics, storage and warehousing and transport, making up 49 per cent of the total number of certificate holders.

Following these firms were

those engaged in medical and dental services, accounting for 147 certificate holders

or 24 per cent of the total number.

There were also 41 firms

engaged in convention and exhibition services, and 33 in real estate services.

Transport

Society

Transport woes

Generous hand

Some 200 public buses were damaged by Typhoon Hato, with the Transport Bureau stating the current three public bus companies have reverted to back-up vehicles to ensure at least 707 buses are operating daily

The government will provide an extra hand-out of the regular allowances for individuals or family units in financial need, in order to assist with expenses resulting from the new school year and Mid-Autumn Festival

Nelson Moura nelson.moura@macaubusinessdaily.com

Typhoon Hato caused damage to 23 per cent of the around-870 public buses in the MSAR, the Transport Bureau (DSAT) told Business Daily.

According to the department’s response to Business Daily’s enquiries, 200 public buses operated by the current three public bus companies - Transmac - Transportes Urbanos de Macau, S.A.R.L.; TCM - Sociedade de Transportes Colectivos de Macau, S.A.R.; and New Era - Macau New Era Public Bus Company Limited suffered damage from the typhoon.

The department didn’t specify which company’s fleet of buses had suffered the most damage.

‘To ensure the normal functioning of the public bus service, the Traffic Bureau requested the bus companies mobilize their back-up buses and

those used in non-public transport, making it possible to have 707 buses running daily, very close to the total number of 715 buses in operation before the typhoon,’ reads the department’s response.

DSAT also added that the Gongbei Border bus terminal had been ‘hit hard’ by Typhoon Hato, with repairs currently on-going, but without being able to specify when the terminal would resume normal operations.

In regards to taxi services, the department stated that a total of nine taxis from Radio Taxi Macau Taxi Service Ltd. had been damaged by the typhoon.

The company received an eightyear ‘special taxi licence’ from the government in September of last year, allowing it to operate 100 special taxis in the city.

Last week, DSAT also stated that 700 cars and 200 motorbikes had been damaged in four underground parking lots flooded by the typhoon.

The department’s Director, Iong Kong Leong, stated that residents who had their vehicle rendered unusable could receive a repayment of their vehicle tax from the MSAR Government if they choose to purchase a new vehicle powered by sustainable energy sources.

If residents choose to purchase a vehicle powered by non-renewable energy sources, only 80 per cent of the vehicle tax would be repaid.

The Social Welfare Bureau (IAS) announced on Saturday that starting today, an extra hand-out will be provided to the approximately 4,000 households already receiving the regular allowance.

The extra subsidy aims to “help these families to deal with the extra expenses resulting from the new school year and the Mid-Autumn Festival” one of the most important celebrations in Chinese culture, which is celebrated at the beginning of October, stated the IAS. In a statement, the IAS indicated that the measure will represent a total expense in the order of MOP22 million (US$2.4 million), with the measure set to support individuals

or households considered to be in financial need, meaning people or families with an income lower than the social risk amount, a minimum amount required for survival as defined by the government.

The minimum amount for survival for a single person is set at MOP4,050 (US$502.23) per month with the maximum for families with eight or more members set at MOP18,870.

In addition to the regular allowance - which results from the difference between the value of monthly income and the value of social risk - the IAS has other forms of financial support such as special allowances for those with specific needs. Lusa

Contracts

Contract galore The MSAR Government yesterday approved two contracts to expand the Centre for Driving Lessons and Exams and the Taipa Municipal Market Th e M aca u SA R G o v e r n m e n t announced via official dispatch yesterday that it had approved a MOP34 million (US$4.2 million) contract with PAL Asia Consult Ltd to develop the plan for the first and second construction phases of the Centre for Driving Lessons and Exams in Cotai.

This year the Transport Bureau stated it would conduct a tender for the construction of a larger learning

centre for all vehicle categories next to the current one, nearby the Macau International Airport.

According to the Land, Public Works and Transport Bureau (DSSOPT) website, the contract was granted to PAL Asia in April of this year, with the company proposing to finish the project within 248 days.

A MOP30 million contract with C o m p a n h i a d e C o n st r u ç ã o e

Engenharia Kwong Yu, Lda. for the improvement and expansion works of the Taipa Municipal Market was also approved yesterday, according to a dispatch.

Meanwhile, two waste management contracts were approved, namely a MOP12.6 million contract with the Institute for the Development and Quality, Macau, for supervising the quality of waste water and solid waste treatment

facilities until 2018, and a MOP5.9 million contract for the collection and transport of large construction and demolition materials waste with Ultra Clean - Serviços de Tratamento de Resíduos, Limitada.

A MOP5 million contract with the Macau Laboratory of Civil Engineering (LECM) was also approved to provide water infiltration inspection services from September of this year until August 2018. N.M.

Business Daily Tuesday, September 5 2017 3

Macau Tourism

Tour groups cooling off With the city still recovering from a series of typhoons, and the start of the school year kicking off, tourism sector insiders believe that tours and hotel room bookings will drop in September Cecilia U cecilia.u@macaubusinessdaily.com

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espite the city having resumed receiving tours, the number of tours will not see an uptick due to the beginning of the school year, the president of the Macau Hoteliers & Innkeepers Association, Chan Chi Kit, told Business Daily.

A similar prediction was also expressed by the President of the Macau Travel Industry Council, Andy Wu Keng Kuong.

The city resumed receiving tours last Saturday, after undergoing a halt to package tour operations in the city ordered by the Macao Government Tourism Office (MGTO) in the wake of the destruction caused

by Typhoon Hato.

MGTO reported that some

410 tours groups from the Mainland were received last weekend.

“The number of tours after the resumption is similar to the numbers last year because schools started a new year,” said Wu. “There isn’t much of an impact,” Wu pointed out regarding the ongoing effects of the typhoon’s passage.

Although perceiving that the number of tour groups will decrease in September when compared to previous months, Wu expects that the number of visitors coming to the MSAR individually and not on package tours will be stronger.

Travel Department Assistant General Manager for stateowned travel agency China Travel Service (Macao) Ltd. (CTS), Patrick Puk, said many of the business tour groups requested to reschedule their tours to a later time.

“Many of them have re-scheduled tours to midmonth,” said Puk, while noting that the typhoons had reduced the number of tourists coming to Macau during the past weekends, with 200 to 300 fewer visitors.

Hotel room bookings drop

A number of hotels in the city suffered different levels of damage during the aftermath of the super typhoon.

Puk said some of the hotels that collaborate with China Travel Service had informed the group that that they could not receive tours groups after damage inflicted by the recent storms.

“Some have resumed operations, but some are still suspended,” said Puk. On the other hand, Chan reported that around 80 to 90 per cent of hotels had resumed

operations, with the resumption of water and power supply to the facilities.

“There are certain levels of damage, but they are gradually recovering,” noted Chan.

“For now we are waiting for the market to slowly warm up,” he pointed out.

According to Chan, hotels located in zones which had flooding during the typhoon might have suffered more damage but “as far as I know there aren’t any hotels suffering

from serious damage”.

However, Chan said the biggest losses would be for the businesses that were affected during the last week of August, since “August is supposed to be a peak season”.

When asked his prediction for hotel room occupancy rates in August, Chan opined that they probably dropped to around 50 to 70 per cent, as opposed to the usual 90 per cent occupancy typically seen in the month of August.

Policy

Gov’t received 980 suggestions for coping with catastrophes As of September 3, the MSAR Government had received a total of 980 suggestions in regards to handling serious crises, encompassing pre-warning systems when catastrophes happen, coordination works and the release

of information relating to civil protection, urban planning and management as well as references from overseas experiences.

In the wake of the destruction caused by Typhoon Hato, the city’s

Policy Research Office (GEP) has been collecting suggestions from the public since August 28, and will continue to do so until September 11.

Typhoon Hato swept through the city on August 23, causing 10 fatalities

and hundreds of injuries. The city also experienced a blackout of power and water supply during the aftermath of the super storm, with some parts of the city suffering a lack of power and water supply for over 24 hours. advertisement

4 Business Daily Tuesday, September 5 2017

Macau Election

New Hope: Seek truth from facts Legislator José Pereira Coutinho admits that this year’s election is going to be tough Cecilia U cecilia.u@macaubusinessdaily.com

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ed by legislators José Pereira Coutinho and Leong Veng Chai, political group New Hope (Macau) Group has advocated that the MSAR Government hand out an additional cash allowance to residents this year, and that they increase the amount of cash to MOP12,000 starting from next year.

Speaking at a press conference yesterday to introduce the group’s manifesto, Coutinho said residents deserve more financial support due to the impact from Typhoon Hato and the growing rate of inflation.

The legislator is also urging the MSAR Government to reserve land for the construction of 80,000 public

housing units.

Meanwhile, the group stated that it believes it is necessary to implement increased accountability for high officials.

A petition was submitted to the government by the group last year regarding a typhoon incident, questioning the Meteorological and Geophysical Bureau (SMG)’s forecasting system, said Coutinho, but he added that “no one cares about us”.

Coutinho also denounced the previous Legislative Assembly (AL) for being “heavily comprised of businessmen”.

The group also suggests extending the maternity leave period from 56 days to 90 days.

In addition, Coutinho also pointed out that many legislators have changing

Campaign list boards set up throughout the city detail candidate groups for the LA election

opinions when voting on passing bills.

The group, moreover, suggested making meetings held by the standing committees at the AL available to the public, to allow for more

transparency.

When asked about his expectations for this year’s election, due to the increased number of candidates competing, Coutinho admitted that the election is more

difficult, although more residents are qualified to vote this year. He pledged that he will continue to dedicate himself to the well-being of the public, even if he fails to obtain a seat in the next Legislative Assembly.

Rita Santos, the trustee of the group, said some of the votes which would typically go to their group might transfer to other groups that consist of local Macanese and civil servants.

She added that other campaigning groups, which have big companies supporting them, already started holding dinner events and giving out gifts two years ago in exchange for votes.

The group is led by Coutinho, with Leong second, while Monica Tan Si Wan and Gilberto Camacho are third and fourth, respectively.

Smoking

Almost 5,000 smoking infractions recorded from Jan to Aug As at August 31, a total of 4,961 smoking infraction cases had been recorded by the Health Bureau (SS) since the first day of this year, according to a press release posted by the Bureau.

Among the total, 4,953 cases

related to illegal smoking and eight to cases of selling unapproved tobacco products. The SS conducted a total of 225,368 inspections during the period in question, with an average of 927 daily inspections.

Broken down by gender, 93.8 per

cent - or 4,645 individuals - were male and 6.2 per cent, or 308 individuals, were female.

Among the total cases filed, 128 required the assistance of the police.

In detailed terms, 538 cases were

filed in gaming venues, of which 511 were related to males and 27 to females. Also, 451 individuals that were caught smoking in casinos were tourists, while 85 were local residents and two were blue card holders.

Business Daily Tuesday, September 5 2017    5

Macau

MICE

Strong growth in meetings compensates for slowdown in exhibitions in Q2 Official data released by the Statistics and Census Service (DSEC) showed that the MICE sector attracted 405,000 attendees during the second quarter of the year Oscar Guijarro oscar.g@macaubusinessdaily.com

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etails unveiled by the Statistics and Census Service (DSEC) show that during the second quarter of this year, 333 MICE (meetings, incentives, conferences and exhibitions) events were held in the MSAR, with a total of 308 meetings & conferences, 11 exhibitions and 14 incentives.

The number of MICE events increased by 16 year-on-year, while the overall number of participants rose by 26.1 per cent year-on-year, to 405,000, the DSEC informed.

45,000 Participants in meetings & conferences in Q2

A total of 54 meetings & conferences with 200 participants or more were held in the period, an increase of three, while the number of participants went up by 36.9 per cent to 32,000 (70.8 per cent of the total).

Meetings & conferences of four hours or more also saw an increase in number, up by 11 year-on-year to 195, with the number of participants (36,000) growing by 38.4 per cent yearly.

The overall average duration of meetings & conferences during the period was 1.4 days, the DSEC announced.

Exhibition decrease

During the period in question, a decrease was seen in the number of exhibitions held, with seven less than the previous year, totalling 11, as well as a 14 per cent reduction in the number of attendees, to 351,000.

Ten of the exhibitions held during the period were organised by non-government organisations, with the number of attendees dropping by 15 per cent year-on-year to 342,000.

The overall average duration of the exhibitions stood at 3.8 days, up by 0.4 days year-on-year, while the total floor area used for the exhibitions decreased by 2.1 per cent to 84,000 square metres, the data shows.

The number of incentives went up by six year-on-year, totalling 14, while the number of participants saw a 62.9 per cent decline, resulting in

8,670 participants during the second quarter.

The average duration of the incentives was 3.1 days and the total floor area used was 22,000 square metres.

According to information provided to the DSEC by the exhibition organisers, receipts from the 11 exhibitions held during the quarter totalled MOP77.51 million, with rental receipts of exhibition booths accounting for the majority, at 74.5 per cent. Expenditure on the exhibitions totalled MOP56.39 million, mainly incurred from production, construction & decoration (29.6 per cent), rental paid for the venue (17.4 per cent) and publicity & public relations (15.9 per cent), the DSEC informed.

Receipts from the 10 exhibitions organized by non-government organisations amounted to MOP76.4 million. Of this, 74.2 per cent was generated from the rental of the exhibition booths, while financial support from the government and other organisations made up just 4.6 per cent of the total, at MOP3.54 million, a 4.8 percentage point drop year-on-year from the same period last year.

In total, the exhibitions held during the second quarter attracted 1,140 exhibitors, with 28.7 per cent originating in the Mainland, while 28.1 per cent were from Macau. Of the total 22,000 professional visitors to the exhibitions during the time period, 36.4 per cent were from Macau.

Non-government exhibitions welcomed a total of 684 exhibitors - with 35.8 per cent of exhibitors from Hong Kong, and 15,000 professional visitors, of whom 34.5 per cent were from Macau, the DSEC data shows.

H1 results

The official information also indicates that in the first half of the year, a total of 699 MICE events were held and the total number of participants and attendees was 627,000.

The number of meetings and conferences increased by 66 year-onyear, to 652, and the number of participants also increased by 61.9 per cent, reaching 99,000. The number of exhibitions fell by four year-onyear, to 18 in the first half year, with the number of attendees down by 0.7 per cent to 514,000.

The number of incentives increased to 29, up from 20 in the same period last year, while the number of participants nearly halved, down 48.1 per cent.

According to information collected

by the DSEC from the organizers of 18 exhibitions during the first six months of the year, the receipts and expenditures of the 18 exhibitions held amounted to MOP83.01 million and MOP61.98 million, respectively. Receipts of the 17 exhibitions by non-government organisations totalled MOP81.9 million,

while expenditure amounted to MOP38.66 million. Net receipts from the exhibitions, after expenditure and support from the government and other organisations, saw a 158.3 per cent uptick year-on-year, reaching MOP38.55 million, as compared to MOP14.92 million in the same period one year ago. advertisement

6 Business Daily Tuesday, September 5 2017

Macau Opinion

Albano Martins* A city more walled-in and frightened ...

1. We have witnessed in this city, more and more walling-in about the “small deviation” in the forecasts of Fong Soi Kun, with all the mess that it caused.

But the truth is that even if he had foreseen the course of Typhoon Hato in time, it would not have prevented some of the calamities that have fallen upon us, namely the floods that the system is systematically unable to address or solve.

I can not complain as much as he did, that my last inflation forecasts for July also sinned by a small deviation of 0.01 percentage points against the already known official inflation figure - the one that makes me cry, as rents continue to fall without me understanding why.

Mine will rise 15 per cent within a short time!

With such a large official fall in prices, our official inflation rate will not begin to rise in August, as I strongly believed previously.

So, I will be wrong once more!

What can be done when we have a sympathetically-coloured inflation rate?

Nothing, but nothing in the world will happen to me, as a little deviation of another month neither kills nor causes chaos in the city.

Now, a major deviation will be that of the IMF forecast of Macau’s GDP for 2017, which has been on the rise, sometimes on the ridge and sometimes in the ditch, from 0.7 to 0.2 and then 2.8 and finally to 2.5 per cent!

Look also to Moody’s forecast of -2.5 per cent for our 2017 GDP! So, many people are flooded!

Of course, our official deflator gave a hand to our real GDP growth in the first half of this year, pulling it up to 10.9 per cent, although I do believe that by the end of the year our 2017 growth will be not as strong as that.

2. CAEAL decided that an interview given by a candidate for the legislative assembly, to the newspaper Plataforma, was simple electoral propaganda, although a diverse range of opinions was expressed by the Macau Portuguese and English Press Association (AIPIM).

When CAEAL took its first steps, a few months ago, I said that its opinions would end badly!

Somebody wants to teach the Lord’s Prayer to the Vicar!

I support the cry of ‘Ipiranga’ of the vicar general of our Press Association!

An act of courage in a city more and more walled-in and frightened. * an economist and contributor to this newspaper

Communications

Cause and effect Last year’s tariff reduction imposed by CTM on Internet and leased line services ‘notably impacted’ the overall revenues of Hong Kong communications group CITIC Telecom International Holdings Limited in the first half of this year, the group announced Nelson Moura nelson.moura@macaubusinessdaily.com

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ong Kong communications group CITIC Telecom International Holdings Limited stated in its results report for the first half of the year that its revenues were ‘notably affected’ by the price concessions implemented by Companhia de Telecomunicaçōes de Macau (CTM) last year on Internet services and leased lines.

The overall revenues recorded by CITIC Telecom for the first half of this year fell by 6.1 per cent year-on-year to HK$3.59 billion (US$58.15 million), with the group’s interim report stating they were affected by CTM’s implementation of price concessions for Internet services and Direct Internet Access and leased lines services in the last three months of last year.

In October of last year, CTM announced it would reduce its tariff on local leased circuits (LLC), international private leased circuits (IPLC) and Direct Internet Access (DIA) services for the city, by 37 per cent, 49 per cent and 50 per cent, respectively.

In statements made by the Secretary for Transport and Public Works, Raimundo Arrais do Rosário in July of this year, the tariff adjustment resulted in a reduction of MOP10 million in CTM’s monthly revenues, Portuguese newspaper Tribuna de Macau reported.

According to the CITIC Telecom filing, in order to make up for the impact of the price reduction, CTM expedited the upgrade to optical fibre Internet services for existing residential and business broadband users.

‘New users were added during the

first half of the year and the number of users registered for optical broadband as at the end of June increased by 16 per cent as compared to the number of users registered as at the end of last year,’ the filing stated.

The group also announced it would continue to increase the number of optical fibre users and raise the percentage of conversion, in order to provide speedier and higher-quality services to customers.

On August of this year, CTM stated it had178,000 broadband customers, of whom 75 per cent were optical fibre customers, with the company expecting the fibre penetration rate would increase to 90 per cent by the end of this year.

Despite the impact on revenues, CITIC Telecom’s profits still rose by almost 11 per cent yearly to reach HK$454.64 million for the first six months of this year.

Airlines

Air Macau suffers RMB15 million in losses in H1 Local airline company Air Macau registered losses of RMB15 million (MOP18 million) in the first six months of this year, an improvement from the RMB38 million in losses posted in the same period last year, according to Portuguese newspaper Tribuna de Macau.

The information was revealed by Air China - the Chinese state-owned airline that owns 66.9 per cent of Air Macau - through an interim report for the first six months of this year that the newspaper had access to.

Despite the losses, revenue from the airline increased 6.4 per cent yearly to RMB1.37 million, with the air transport segment rising 7.1 per cent year-on-year to RMB1.36 million.

The passenger volume of the company in the first half of the year also decreased by around 5.5 per cent to around 1.3 million passengers, representing a loss of some 75,000 passengers in one year.

The average rate of occupation for Air Macau flights reached 71.96 per cent in the first six months of the year, a dip of 0.62 percentage points yearly.

In 2016, despite also registering losses in the first half of the year, the local airline still managed to achieve RMB24 million in profit by year-end.

N.M.

Analysts

Goldman sees silver lining for casinos hit by typhoon Richard Frost

The MSAR’s pummelling by typhoons makes it unlikely China’s government will adopt a tougher stance toward the city, according to Goldman Sachs Group Inc. While investors are likely speculating about political implications from

China’s forthcoming Communist Party congress, there is “little likelihood for drastic policy change targeted at Macau” while the city is still clearing up, Goldman analysts led by Simon Cheung wrote in a note, reiterating a buy rating on some casino stocks.

Concern over a deeper crackdown on corruption and curbs on capital

outflows have weighed on the equities in recent years.

Credit Suisse Group AG also reiterated its bullish view of Macau, helping ensure casino stocks were among the few gainers on Hong Kong’s benchmark yesterday. Typhoon Hato swept through the region last month, causing a number of deaths in Macau. Bloomberg News

Business Daily Tuesday, September 5 2017 7

Macau Casinos

Maintaining red alert Macau Legend registered losses of HK$228.5 million (US$29.2 million) in the first half of this year, despite a 28.5 per cent year-on-year increase in revenues, reaching HK$855.9 million revenue rose by 30.7 per cent year-on-year to reach HK$426.6 million.

Nelson Moura nelson.moura@macaubusinessdaily.com

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osses for the first half-year for local hospitality and casi n o o p e rat o r Macau Legend Development Ltd increased 30.4 per cent year-on-year, reaching HK$228.55 million, according to the group’s filing with the Hong Kong Stock Exchange.

The increase in loss was attributed to a rise in operating costs and depreciation due to the opening of the group’s most recent property in the MSAR - Legend Palace Casino and Hotel - together with an increase in finance costs, the filing stated.

The company, led by local mogul David Chow Kam Fai, registered a 28.5 per cent yearly increase in revenue during the first six months of this year, reaching HK$855.9 million, with gaming revenues accounting for 65.8 per cent of total revenues.

During the period in question, the group’s gaming revenues saw a 34.3 per cent year-on-year increase, to HK$563.2 million, justified by a HK$110.3 million revenue increase from its Savan Legend Casino in Laos and

Property deals

a HK$137.5 million revenue increase from the Legend Palace Casino and Hotel since its opening in February of this year.

However the revenue increase was offset by a HK$67.1 million decrease in revenue from the group’s mass market tables at Pharaoh’s Palace Casino at The

Landmark Macau and Babylon Casino in Macau Fisherman Wharf.

The two properties, together with Legend Palace, are operated by Macau Legend under the casino license of SJM Holdings Ltd. As of June 30 of this year, the group owned a total of 194 gaming tables in Macau,

of which 171 were in operation - 136 for mass market and 35 VIP gaming tables while 49 mass market tables and 23 VIP tables were in operation in Laos.

In the first half of this year, revenue from VIP tables went down 9.1 per cent yearon-year to HK$80.6 million, while mass market gaming

The company also announced that the re-design of the construction of its planned Legendale Hotel is now in progress, in order to meet the height requirements of the relevant government authorities in Macau.

The future five-star property is part of Macau Legend’s planned third new hotel under the Macau Fisherman Wharf Redevelopment, and is expected to include 500 rooms and an in-house casino.

The filing also stated that the group had received HK$460 million in refundable deposits in aggregate in July and August of this year, related to the non-legally binding letter of intent the group signed on July 5 with a third party for the sale of The Landmark Macau.

A filing for a previous cancelled sale noted that the property was worth HK$5.47 billion as at end-2015, with the purchase deal to include the property’s hotel, dining and conference facilities, casino and car parks. advertisement

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8 Business Daily Tuesday, September 5 2017

Greater China Cryptocurrency

Beijing bans initial coin offerings as illegal fundraising Price charts showed ethereum down by about 8 per cent after the news and bitcoin off some 5 per cent

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hina yesterday banned individuals and organisations from raising funds through initial coin offerings (ICO), or launches of digital currencies, saying the practice constituted illegal fundraising.

ICOs have become a bonanza for digital currency entrepreneurs, globally and in China, allowing them to raise large sums quickly by creating and selling digital “tokens” with little or no regulatory oversight.

Individuals and organisations that have completed ICO fundraisings should make arrangements to return funds, said a joint statement from the People’s Bank of China, the securities and banking regulators and other government departments, that was posted on the central bank’s website.

The prices of bitcoin and ethereum, two of the largest cryptocurrencies, slumped after the announcement.

Zennon Kapron, Director of the Shanghai-based

financial technology consultancy Kapronasia, said he suspected regulators were putting the brakes on ICOs in order to better understand the phenomenon but could ease off in the future.

“Regulators globally are struggling to understand what ICOs are, what the risks are, and how to ring-fence and regulate them” Zennon Kapron, Director of the Shanghai based financial technology consultancy Kapronasia “ R e g u l a t o r s g l o ba l l y are struggling to understand what ICOs are, what the risks are, and how to

ring-fence and regulate them,” he said.

“China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them...I think it will be slightly a temporary measure.”

The popularity of coin offerings has surged in China this year.

In July, the state news agency Xinhua cited data from a government organisation that monitors online

financial activity to report that there had been 65 ICOs so far during the year raising a combined RMB2.62 billion (US$394.6 million) from 105,000 individuals in the country.

Reaction was swift online.

“The music has stopped,” said one member of a chat group on the social networking platform WeChat that was set up last week for an upcoming ICO for a fundraising platform called SelfSell.

“Hurry up and sell your Bitcoin,” said another.

The organizer of the ICO project, who recently went on a six-city road show, said the project had been suspended.

Kapron said the new rules apparently did not take aim at Chinese investors, who would still be able to participate in offshore ICOs. On BTCC China, one of the country’s biggest digital currency exchanges, price charts showed ethereum down by about 8 per cent after the news and bitcoin off some 5 per cent. Reuters

Summit

BRICS leaders meet in shadow of North Korea test Xi opened the BRICS summit yesterday with an address that avoided any mention of the brewing crisis Dan Martin

L

eaders of the BRICS grouping of emerging economies said yesterday they “strongly deplore” North Korea’s latest nuclear test and hydrogen-bomb claim, which has overshadowed the five-nation group’s annual summit.

Their joint statement from the summit in the Chinese city of Xiamen added to world condemnation of North Korea, which announced Sunday it had detonated a powerful hydrogen bomb that it claims can fit on a long-range missile.

“We strongly deplore the nuclear test conducted by the DPRK,” BRICS leaders said, using the initials of North Korea’s official name.

BRICS is made up of Brazil, Russia, India, South Africa and summit host China -- North Korea’s long-time patron.

“We express deep concern over the on-going tension and prolonged nuclear issue on the Korean Peninsula,” said the declaration.

It added that BRICS collectively believe the issue “should only be settled through peaceful means and direct dialogue of all the parties concerned”.

The North Korean move dramatically raised the stakes in its standoff with the world and upstaged the BRICS summit, which Chinese President Xi Jinping opened earlier yesterday and had hoped would spotlight Beijing’s

claims to developing-world leadership.

The nuclear test was a slap in the face for Beijing, and China’s foreign ministry condemned it hours after it took place. The ministry added yesterday that it had “launched stern representations” with North Korea’s embassy in China.

The summit includes Indian Prime Minister Narendra Modi and presidents Vladimir Putin of Russia, Michel Temer of Brazil and South Africa’s Jacob Zuma.

P y o n g y a n g’ s a c t i o n s marked the second time this year that North Korean leader Kim Jong-Un timed the use of his banned weapons programmes apparently to steal Xi’s thunder on the world stage.

In May, Pyongyang conducted a missile test that embarrassed Xi just as he was hosting a large international summit on trade.

Some analysts believe such provocations may be aimed at pressuring China to in turn push Washington to engage directly with Pyongyang.

The nuclear test and H-bomb claim could throw into sharper relief the divisions over how to deal with Pyongyang.

U.S. President Donald Trump, who has previously threatened to rain “fire and fury” on North Korea if it endangers America by raising the nuclear stakes, denounced the test as “very hostile and dangerous” and left open the possibility of a military response.

BRICS was already struggling to paper over doubts about its own cohesion that have spiked as nuclear-armed China and India engaged in a protracted standoff over a disputed Himalayan region.

They backed off last week -- perhaps to avoid ruining the summit -- but the issue

remains a source of tension.

BRICS nations comprise more than 40 per cent of humanity. The grouping came together a decade ago to advocate for the developing world’s interests.

But policy analysts have increasingly questioned its usefulness, pointing out that its members have little in common and are too distracted by economic challenges of their own to achieve much as a group.

China’s economic expansion is slowing while India seems on the rise.

Slumping commodity prices have hit hard the economies of exporters Russia, Brazil and South Africa, while Temer and Zuma face political turmoil at home.

Many economists view BRICS achievements to date as low-hanging fruit that take the bloc little closer to its goal of re-aligning the global economic and governance system.

Little of consequence is expected from the summit. AFP

plan pales in comparison to China’s US$124 billion pledge earlier in May in a push for Xi’s own Belt and Road initiative, which aims to expand links between Asia, Africa, Europe and beyond as a new way to boost global development.

The announcement came amid questions over the relevance of BRICS and China’s commitment to its New Development

Bank (NDB) in light of the Belt and Road initiative and the China-led Asian Infrastructure Investment Bank.

“We should redouble our efforts to comprehensively deepen BRICS partnerships and open BRICS cooperation,” he said during a plenary session at a BRICS leaders’ summit in the south-eastern Chinese city of Xiamen. Reuters

A worker walks past national flags BRICS members during the BRICS Summit at the Xiamen International Conference and Exhibition Centre in Xiamen yesterday. Source: Lusa

Russia and China, however, have pressed for a diplomatic solution.

Putin condemned the nuclear test, North Korea’s sixth and most powerful, in a phone call with Japanese Prime Minister Shinzo Abe, according to the Kremlin, but called for diplomacy.

Both Xi and Putin are due to hold press conferences today in Xiamen.

China pledges small increase in funding

China will give RMB500 million (US$76.4 million) for a BRICS economic and technology cooperation plan, and another US$4 million for projects at the BRICS countries’ New Development Bank, Chinese President Xi Jinping said yesterday.

The newly announced US$80 million funding

Family feud

Business Daily Tuesday, September 5 2017 9

Greater China Markets

In Brief

Investors can’t get enough of Mainland property developer bonds Ten leading developers that have reported first-half results saw gross margins expand to an average 30.2 per cent Annie Lee

Dollar bonds sold by China’s property developers are being lapped up by investors, lured by the companies’ stronger earnings and improving credit profiles.

Notes sold in July and August by Chinese developers attracted orders 6.3 times the issue size, compared with 2.5 times in May and June, according to data compiled by Bloomberg where deal statistics are available.

The firms are taking advantage of the better sentiment, with bond sales rising to a record US$35.2 billion this year.

“In China, we still like the property sector,” said Ken Hu, chief investment officer for Asia-Pacific fixed income at Invesco Hong Kong Ltd. Property companies’ sales and cash flows are pretty strong and their inventory levels have been improving, he said.

The revitalization of the Chinese property bond market, which has a track record of debentures and regulator scrutiny, has helped drive Asian high-yield issuance to a peak of US$39 billion in 2017, with developer debt about 60 per cent of that total. It’s also buoying the wider dollar bond market, with issuers in Asia excluding Japan selling a record US$193.6 billion of dollar notes so far this year, an 80 per cent jump from the same period last year.

Building companies’ fundamentals have been burnished in 2017, with Moody’s Investors Service saying it sees the number of negative outlooks in the sector declining slightly over

the next six to 12 months. Ten leading developers that have reported first-half results saw gross margins expand to an average 30.2 per cent, according to calculations based on earnings reports. Six of the ten developers, meanwhile, raised sales targets this earnings season, signalling ever-growing demand from buyers.

But while the bonds are finding favour with investors, the sector is still not devoid of risk, as the experience of Wanda Properties International Co. shows.

Falling yields

The firm’s US$600 million of notes due 2024 dropped by more than three cents on the dollar Aug. 28 after Chinese media reported the billionaire chairman of its parent company, Wang Jianlin, was stopped with his family at Tianjin airport near Beijing as they were about to depart for London. Dalian Wanda Group Co. later refuted the story, helping the bonds recover losses.

And at the end of June, Greenland Holdings Corp., China’s fourth-biggest developer by property sales, said it had overdue loans of RMB457.5 million (US$69.5 million) in some units in China’s northeast province of Liaoning.

Non-investment grade dollar-bond yields have been in retreat in Asia, slipping about 20 basis points from a recent high reached at the end of July, according to a JPMorgan gauge.

The subscription ratio for all dollar-denominated notes in Asia ex-Japan in August eased to 3.9 times from 4.1 times in July, according to data compiled by Bloomberg, where deal statistics are available. At 4.3 times, May had the highest subscription ratio this year.

Investment-grade bonds were covered 4.1x versus 3.9x in July Highyield offerings also had a coverage ratio of 4.1x versus 5.1x the prior month Unrated bonds were covered 3.2x last month versus 2.4x in July Bloomberg News

Financing

Hong Kong is said to check banks’ loans to HNA, Wanda

M&A

China Merchants Port to buy Brazilian operator China Merchants Port Holdings Co Ltd said yesterday it would buy 90 per cent of Brazilian port facilities operator TCP Participações S.A. for HK$7.23 billion (US$924 million), as it aims to expand into Latin America.

The deal, which would be funded by internal resources and external debt financing, is conditional on government approvals including from the Brazilian antitrust and regulatory authorities, the Chinese port operator said in a filing to the Hong Kong bourse.

China Merchants said it would buy the TCP shares from investment fund Fundo de Investimento em Participações, Soifer, Pattac, Tuc Pac, Galigrain and Grup Maritim TCB, S.L. Auto industry

Honda again outsells Toyota in Mainland Toyota Motor Corp’s sales in China grew 13.2 per cent in August from a year earlier while smaller rival Honda’s sales jumped over a fifth for the month, keeping intact a trend of Honda outselling Toyota in the world’s biggest auto market. Toyota, Japan’s No. 1 automaker by volume, sold 108,500 vehicles in August, the company reported on Monday. The jump followed an 11.4 per cent increase it posted in July. Its January-August sales totalled about 841,400 vehicles, a 7.1 per cent increase from the same period a year ago.

It’s common practice for the authority to query banks over their exposures to certain sectors Alfred Liu and Annie Lee

The Hong Kong Monetary Authority has asked banks in the city for details of their loans to HNA Group Co. and Dalian Wanda Group Co., according to people familiar with the matter.

Lenders were required to submit a survey to the city’s de facto central bank providing information such as total credit extended and outstanding loans to the two companies, said the people, who asked not to be identified as the information isn’t public.

Checks on lending to Chinese conglomerates were stepped up in recent weeks, one of the people said.

In a statement to Bloomberg, the HKMA said it engages in discussions with banks on different issues, without commenting further. It’s common

practice for the authority to query banks over their exposures to certain sectors, as it has done with property loans in recent months.

While the checks aren’t a guarantee of any regulatory action, the spotlight on real estate did lead to lending curbs in a bid to rein in Hong Kong’s rampant housing market. HNA has been expanding its presence in the territory, spending about HK$27 billion (US$3.5 billion) earlier this year on four government land sites in the former Kai Tak airport area.

Wanda declined to comment. Responding to a Bloomberg request for comment, HNA said in a statement that its Hong Kong businesses were in strict compliance with local regulations and the group’s current operating situation was in “good shape.”

The HKMA’s scrutiny on loans to

the two was reported by the Apple Daily earlier.

The move comes at a time when mainland Chinese regulators have also stepped up scrutiny of the companies behind last year’s unprecedented spree of takeovers outside the country. China has embarked on a drive to reduce leverage in financial markets and snuff out systemic risks ahead of a Communist Party leadership transition later this year, while remaining vigilant for accelerated capital outflows that threaten to weaken the nation’s currency.

‘The move comes at a time when mainland Chinese regulators have also stepped up scrutiny of the companies’ The country’s banking regulator has asked domestic lenders to provide information on overseas loans made to firms including Wanda, HNA and Anbang Insurance Group Co., people familiar with the matter said in June. Authorities followed that with a directive restricting companies from making “ irrational” overseas investments in industries such as real estate, hotels, entertainment and sports clubs. Bloomberg News

Blockchain

Sequoia, IDG are said to invest in Bitmain Sequoia Capital and IDG Capital are investing in Beijing-based Bitmain Technologies Ltd., the world’s largest bitcoin mining organization, according to people familiar with the matter. Bitmain is raising US$50 million from several venture firms to boost its profile among mainstream investors, said one of the people, who asked not to be named because the matter is private. Sequoia and the other firms also plan to provide the company with more guidance on management, the people said. Bitmain has benefited from the rise in the currency’s market value, now about US$75 billion.

10 Business Daily Tuesday, September 5 2017

Greater China

Markets

Hong Kong, Singapore in talks to grab bigger share of derivatives business Booking derivatives trades in Hong Kong and Singapore is currently expensive for global banks Michelle Price

H

ong Kong and Singapore are seeking to snare a bigger share of the US$540 trillion global derivatives business, taking advantage of tough new UK and European banking rules and uncertainty created by Britain’s plans to leave the European Union.

Over the past five months, regulators from the two Asian financial centres have been separately holding talks with the Asia Securities Industry and Financial Markets Association (ASIFMA), which represents global lenders in Asia, five people with direct knowledge of the matter told Reuters.

At the centre of the discussions is what kind of regulatory changes would be needed in Hong Kong and Singapore to get more banks to book their derivatives business in one of the two places.

If the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) are successful, they could lure billions of dollars of banking business and eventually create what could amount to thousands of jobs in Asia.

These derivatives would include products such as interest rate swaps or foreign exchange derivatives, which allow companies and investors to hedge their exposure to interest rate rises and currency swings.

Asia has traditionally accounted for less than 10 per cent of the global over-the-counter derivatives market, according to Bank for International Settlements data.

Global banks have typically held the majority of Asia-related trades on their European balance sheets,

with London being a major booking centre for such deals. This has allowed them to gain economies of scale by aggregating their capital and infrastructure in one or two locations, while London also has a deep talent pool of employees with expertise in managing and processing the trading book.

During the past three years, though, many banks have begun to review their Asia trade booking arrangements because of new UK and European rules that have made Britain less attractive as a global hub for Asian risk.

Brexit has made the situation more urgent by prompting many banks to move some of their operations, including trading books, out of London.

This has sparked broader internal discussions over whether more of the London book holding Asia trades should also be moved to Asian financial centres, the sources said.

Banks looking to book more trades in Asia include HSBC, Standard Chartered, UBS and Credit Suisse, one of the sources said.

In a statement, HSBC said it would support clients as they pursued opportunities in Asia: “Hong Kong is one of the world’s leading financial centres and continues to be at the heart of HSBC’s growth plans.”

UBS, Standard Chartered and Credit Suisse declined to comment.

Costly deals

Booking derivatives trades in Hong Kong and Singapore is currently expensive for global banks because they are not yet allowed by the HKMA and the MAS to use their own internal risk-management models, which typically allow banks to hold

less capital against such trades than standard models used by regulators.

Now, though, regulators are considering approving these internal capital calculation models.

For Hong Kong and Singapore, grabbing a much larger chunk of the global derivatives market would promote their status as global financial centres by helping them diversify away from asset management and offering them other benefits, according to one of the sources.

Key Points HKMA, MAS in separate discussions with banking lobby group Brexit, tough rules forcing banks to rethink booking models HKMA, MAS considering approving banks internal capital models

These would include boosting demand for consultancy and IT services, and potentially boosting fees for local clearing houses that sit in between trades to guarantee payment.

But it would also increase the overall level of financial risk, potentially leaving the authorities on the hook in the event a bank gets into trouble.

“The HKMA has been in discussion with ASIFMA and its member institutions to explain the HKMA’s supervisory policies and processes with regard to the establishment of a derivatives hub in Hong Kong,” a spokeswoman for the HKMA said in a statement.

Adding: “The HKMA welcomes banks to establish a derivatives hub in Hong Kong on the understanding that the risks associated with the activity will be properly managed.”

The MAS said in a statement that banks were looking to book more financial activity in Singapore due to the rapid growth of Asian markets and client preferences, among other reasons.

“In order to meet MAS’ validation standards for the use of more advanced approaches in capital computation, [financial institutions] must demonstrate that they have robust risk management systems and processes to measure and validate the accuracy and consistency of all relevant risk components,” the statement added.

A spokeswoman for ASIFMA declined to comment.

The MAS and HKMA are not working together on their separate initiatives.

The HKMA is increasing staff with the technical expertise necessary to handle the model approval process, and may also hire external professional advisors if necessary. It is also planning to issue some guidance to banks on the matter, according to two of the sources.

The regulator is also reviewing section 87 of the Hong Kong Banking Ordinance, which currently limits banks’ ability to hold large amounts of equity derivatives exposure in the city.

Banks will have to demonstrate that they will not only book the trades in Hong Kong, but also have risk management and back office staff on the ground in the city too, the people added. Reuters

Business Daily Tuesday, September 5 2017 11

Asia Salaries

Corporate Australia raises wages in Q2, but inventories a drag Figures on gross domestic product due tomorrow are forecast to show growth of 0.8 per cent Swati Pandey

A

ustralian companies doled out the biggest increase in wages and salaries in two years last quarter in a promising boost to consumer spending power, though a rundown in inventories likely dragged on overall economic growth.

Yesterday’s data from the Australian Bureau of Statistics showed gross company profits dipped 4.5 per centin the second quarter, from a gain of 6 per centin the first when earnings scaled record levels. Mining suffered a fall of more than 15 per centat pre-tax level.

Key Points Wages up 1.2 pct in Q2 - biggest rise in 2 years Gross company profits down 4.5 pct vs +6 pct in Q1 Inventories down 0.4 pct, seen dragging on GDP growth Economists see Q2 GDP growth of 0.8 pct on Wednesday But wages and salaries rose 1.2 per cent, or A$1.6 billion, in the three months to June in a sign that businesses are finally willing to share their fortunes with workers.

Household consumption accounts for about 57 per centof Australia’s gross domestic product, so workers having more money to spend is a positive development.

There are also more people in work.

Separate data out yesterday showed job advertisements climbed 2 per centin August, a sixth straight month of gains suggesting the strong pick up in employment seen so far this year could run for a while yet.

In all, corporate Australia seems to be in good shape.

An analysis by stockbroker CommSec shows 91 per centof 139 companies that reported full-year results in August posted a profit. While revenues are up only 6.5 per centon a year ago, profits have shot up over 62.9 per centand cash holdings have jumped 27 per cent.

The reporting season has also revealed a more confident Australia Inc. For just the third results period since 2012 capital expenditure was guided higher. The upgrades are big and broad based, according to Credit Suisse.

A measure of Australian business conditions and confidence were at its highest since early 2008, a survey showed last month, as company profits and employment stayed strong.

GDP bounce

The revival was badly needed as capital expenditure was a heavy drag on the economy last year.

Figures on gross domestic product (GDP) due tomorrow are forecast to show growth of 0.8 per centin Australia’s A$1.7 trillion economy, bouncing from a sluggish 0.3 per centin the March quarter.

Such an outcome would extend the country’s remarkable run of 26 years without a technical recession defined as two consecutive quarterly contractions for GDP. Yet annual growth is still seen at a tepid 1.9 per cent.

One drag on growth last quarter was business inventories, which fell 0.4 per centwhen analysts had looked for a small rise. The pullback looked to have taken around 0.7 percentage points from GDP growth in the quarter, though it also meant a bounce was likely this quarter as firms re-stocked.

The Reserve Bank of Australia (RBA) has been predicting an acceleration in growth toward 3 per centover the next couple of years, as a long slump in mining investment eases and high prices for key commodity exports percolate through the economy.

The central bank holds its September policy meeting today and is considered certain to keep interest rates at 1.5 per cent, where they have been since August last year. Reuters

Survey

Indonesia palm oil output, exports likely rose in July Domestic stockpiles in July likely increased to 2.42 million in July from 1.30 million tonnes in the previous month Bernadette Christina Munthe and Fransiska Nangoy

I

ndonesia’s crude palm oil output likely rose in July, a Reuters survey showed, as production started to increase in line with the typical rise that occurs at this point in the annual crop cycle.

Crude palm oil (CPO) production in Indonesia, the world’s top producer of the vegetable oil, likely rose to 3.5 million tonnes in July, compared to 3.2 million tonnes in June, according to the median estimate in a survey of two industry associations and a state palm research firm.

Exports of Indonesian CPO were estimated to have risen in July to 2.4 million tonnes,

from 2.2 million a month earlier.

The increase in exports is “in line with demand from India, China and even from Europe, continue to increase”, said Hasan Hasril Siregar, a director at the Indonesian Oil Palm Research Institute.

Domestic consumption likely declined to 848,500 tonnes from 937,500 tonnes in June, according to the survey median.

Meanwhile, domestic stockpiles in July likely increased to 2.42 million in July from 1.30 million tonnes in the previous month.

Indonesian Palm Oil Association (GAPKI) data showed the country exported 2.13 million tonnes of palm oil and palm kernel oil in June.

The group’s official July data is not yet available.

The July survey included responses from GAPKI, the Indonesia Palm Oil Board, and the Indonesian Oil Palm Research Institute.

Key Points Indonesia July CPO output likely 3.5 mln T vs. 3.2 mln T in June Exports likely 2.4 mln T in July vs. 2.2 mln T in June Below is a table of the median responses to the Reuters CPO survey and GAPKI palm and palm kernel oil export data going back to 2015 (in million tonnes). Reuters

12 Business Daily Tuesday, September 5 2017

Asia In Brief Cabinet reshuffle

India gets new defence minister India got a full-time defence minister after Prime Minister Narendra Modi shuffled his cabinet Sunday, a move that may speed up acquisitions as the government spends US$250 billion on everything from warplanes to submarines. Nirmala Sitharaman will be the nation’s second female defence minister, taking over the responsibility from Arun Jaitley, who had been handling the portfolio in addition to his finance duties. Previously, she was the Commerce and Industry Minister and had also fielded questions from journalists as the party spokeswoman.

Trade

Thai Q4 exports seen up Thailand’s annual exports are expected to grow no more than 5 per cent in the fourth quarter as a strong baht has affected trade competitiveness, a group of shipping firms said yesterday, as the currency hovered at 28-month highs against the dollar. The group predicts exports will rise 5 per cent for the whole of 2017, Visit Limluecha, vice-chairman of the Thai National Shippers’ Council, told a news conference. In January-July, exports, a key driver of Thailand’s growth, increased 8.2 per cent from a year earlier. Exports have just recovered in 2017 after years of weakness.

Tourism

Indonesia’s July foreign arrivals increase Indonesia’s foreign tourist arrivals in July rose 21.8 per cent from a year earlier to 1.13 million, the statistics bureau said yesterday. The increase was bigger than June’s 16.2 per cent annual rise. The total number of foreign visitors, including those passing through Indonesia’s borders from neighbouring countries and foreign workers with permits for less than one year, in July was 1.35 million, up nearly 30.85 per cent from the previous year.

Mining

Adani at odds over royalty negotiations Adani Enterprises appears to be at odds with the state of Queensland over royalties for its Carmichael coal project, according to a media report, just days after the Indian company said it would soon break ground on the Australian mine. Queensland is still negotiating with Adani over the details of its royalties agreement for the mine, despite a deal being officially reached on May 30, the Guardian Australian reported on Sunday citing a state government spokesperson.

This, even though an Adani spokesman said there were “no on-going negotiations” over royalties, the paper added.

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Indonesian President Joko Widodo Strategy

After political storm, Indonesia president faces economic clouds The government has little fiscal room to breathe life into the economy Kanupriya Kapoor and John Chalmers

D

uring the first months of this year, President Joko Widodo was an embattled leader grappling with Indonesia’s most serious political and religious tensions in two decades. Now, he has come through the storm looking stronger than ever.

His popularity is near record highs and, thanks to deft manoeuvres against foes trying to exploit a blasphemy case against one of his allies, Widodo has stamped his authority on the ruling coalition, parliament and the security forces.

The quietly spoken former furniture salesman may have proved his political mettle, but his next challenge is an economy that refuses to respond to conventional policies to fire up growth. That could dent his re-election chances in 2019, especially with a budget that won’t stretch to lavish government spending.

Senior government officials worry that Widodo has been distracted by the battles with political opponents and taken his eye off the economy.

“We are suffering from bad policy right now ... if we don’t fix it or we don’t regain the initiative I could easily see GDP growth going down, and is that a risk you want to take?” said one senior government official, who asked not to be identified.

According to a June survey, nearly 60 per cent of people polled were satisfied with Widodo’s performance, almost an all-time high. But the poll also showed high expectations that he would deliver on promises to revive the lacklustre economy.

“If he doesn’t perform on the economy, that would give ammunition to the opposition to challenge Jokowi in 2019,” said Djayadi Hanan of the Saiful Mujani Research Centre, a Jakarta-based pollster, using the president’s nickname.

Economic dangers

Indonesia’s GDP growth has shambled at around 5 per cent for the past two years, too low to lift the country out of the middle-income trap, largely because domestic consumption once the engine of the economy - and bank lending have been sluggish.

An unexpected cut in interest rates last month highlighted the struggle

to lift growth despite government initiatives, including a tax amnesty programme, an infrastructure drive, and a series of regulatory tweaks designed to make business easier.

The government has little fiscal room to breathe life into the economy: the budget deficit is already close to a legally mandated ceiling of 3 per cent of GDP and parliament could impeach Widodo if he allowed the deficit to run past that limit.

David Sumual, chief economist at Indonesia’s Bank Central Asia, said a hike in electricity tariffs and slow disbursement of subsidies to farmers have weakened the purchasing power of middle- to lower-income households. Meanwhile, higher-income groups are worried that the government is pushing for aggressive tax reform that will leave them less well off.

“The problem now is confidence in the prospect of the economy. People don’t want to spend,” Sumual said.

Key Points Next Indonesian presidential election due in 2019 Widodo in strong position after weathering political storms Some officials worry president has taken eye off economy Growth lacklustre around 5 pct for last two years Reforms of state enterprises, regulation needed to spur growth In his state-of-the-nation address last month, Widodo pledged to tackle income inequality by cutting red tape and making land acquisition easier to accelerate infrastructure projects.

And last week he urged his cabinet to focus on attracting investment to boost growth and create jobs.

But two officials who spoke to Reuters said they worried he was not matching his rhetoric with bold steps that need to be taken now for growth to be marching higher next year, when campaigning for the 2019 presidential election will begin.

On the to-do list remains finding a way to rein in the overbearing dominance of state-owned enterprises on the economy, which was

singled out by the World Bank in July as something preventing private funds flowing in.

In addition, there is a need to speed up efforts to tackle a tortuous regulatory and licensing regime to lift investment, an area where Widodo said last week, during the launch of a new policy package, “there’s so much we have to improve, so much to fix”.

Risk of complacency

Just months ago, Widodo appeared to be fighting for his political survival as political opponents joined forces with radical Islamist groups to foment popular fury over alleged blasphemous comments made by Widodo’s ally Basuki Tjahaja Purnama, the former Christian governor of Jakarta.

Amid massive protests in central Jakarta, there were rumours of treason plots and even a military takeover.

Beating the drum of Indonesia’s “unity in diversity” motto, Widodo embarked on a frenzy of public appearances at military barracks, the homes of both political rivals and allies, and at moderate Islamic boarding schools - all aimed at projecting an image of unity and control.

“He has been busy in the past six to eight months fighting back against destabilising forces,” said Endy Bayuni, editor-in-chief of the most widely read English daily, the Jakarta Post.

“He’s showed that he is very much in control of the situation and has become even more mature as a politician.”

Widodo’s latest move to regain political authority took aim at hard-line Islamist groups. By executive decree, he banned Hizb-ut Tahrir, a group that calls for Indonesia to be ruled

by Islamic sharia law, saying its ambitions ran counter to the country’s secular ideology.

Such political dominance could provide Widodo with a false sense of security, the senior government official said.

“The dark side of the story is ... the economy,” he said. “I think the biggest threat now, potentially – and it’s the flip side of the incredibly strong political position he is in – would be complacency.” Reuters

Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@‌projectasiacorp.‌com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@‌macaubusinessdaily.‌com Subscriptions sub@‌macaubusinessdaily.‌com Online www.‌macaubusinessdaily.com

Business Daily Tuesday, September 5 2017 13

Asia Japan

Former member says Bank of Japan on course to retreat from radical stimulus The BOJ may also switch its long-term interest rate target to one targeting threeor five-year yields from the 10-year yield Leika Kihara

Japan’s central bank is already in the process of winding down its radical monetary policy and may also look at making changes to its long-term interest rate target in the near future, former board member Takahide Kiuchi said yesterday.

While Governor Haruhiko Kuroda may persist in achieving his 2 per cent inflation target, BOJ (Bank of Japan) bureaucrats working under him will seek to water down the target as Kuroda’s term expires next April and the cost of its massive stimulus rises, Kiuchi said.

“The BOJ has already begun normalising policy since it shifted to yield curve control (YCC) last year, and that’s the

direction the bank seems to heading,” he told Reuters.

Kiuchi, who finished up his tenure as board member in July, was a sole proponent of tapering the BOJ’s asset purchases and long warned of the pitfalls of Kuroda’s monetary experiment.

Many of Kiuchi’s criticisms have now gained support among some market participants, lawmakers and central bankers, including his caution over setting a binding timeframe for hitting the BOJ’s elusive price target.

With inflation still subdued despite years of ultra-loose policy, the BOJ could re-define its inflation target to a more flexible one aimed over a longer timeframe, said Kiuchi, who is now executive economist at Nomura

Bank of Japan headquarters

Research Institute.

The BOJ may also switch its long-term interest rate target to one targeting threeor five-year yields from the 10-year yield, as the shorter end of the curve is easier to control with fewer bond purchases, he added.

“YCC is a very fragile framework that won’t be sustainable once the economy is hit with an external shock,” Kiuchi said.

“Reviewing YCC and targeting yields for bonds with a shorter duration is one option. It’s quite possible this could happen.”

Under a policy framework adopted last September, the BOJ guides short-term rates to minus 0.1 per cent and the 10-year bond yield around zero per cent.

The BOJ also has a loose pledge to buy bonds so its holdings increase at an

annual pace of 80 trillion yen (US$728.73 billion). But it has recently been slowing purchases to around 60 trillion yen as its huge purchases drain bond market liquidity.

Kiuchi warned the BOJ must further slow its buying to around 45 trillion yen per year, as the current pace of 60-trillion-yen would mean purchases hit the limit around mid-next year.

If the economy needs further monetary support, the only step left for the BOJ could be to abandon YCC and ramp up bond buying to finance big fiscal spending by the government, he said.

“There’s not much left monetary policy can do to prop up the economy, and the cost of ultra-easy policy is becoming huge.” Reuters

Money-laundering

Heads roll at Australia’s CBA amid scandal Robert Whitfield, a former head of institutional banking at CBA rival Westpac Banking Corp, will be appointed to the board Paulina Duran and Byron Kaye

Commonwealth Bank of Australia, the country’s biggest lender, announced a major board shake-up yesterday as it scrambles to shore up investor support following allegations it oversaw thousands of breaches of anti-money laundering rules.

But the ouster of a third of the bank’s non-executive board, including the first two directors to leave since the allegations were made public on Aug. 3, failed to impress shareholders as CBA stock touched 10-month intraday lows on the news.

The board overhaul came as CBA faced the first day of court hearings into the allegations, and while it did not deny that illicit transfers had taken place, it said it would contest its level of responsibility.

CBA has been under mounting pressure to respond more aggressively to the crisis, which has damaged its already tarnished reputation and exposed it to billions of dollars in potential fines.

Directors and audit committee members Launa Inman and Harrison Young would step down on Nov. 16, while a third director, Andrew Mohl, would leave in a year, CBA said in a statement, without giving a reason for the departures.

CBA announced on Aug. 14 that Chief Executive Officer Ian Narev would leave by mid-2018, although it said his departure was not related to the money-laundering scandal.

Narev has blamed a coding error for most of the alleged breaches.

Robert Whitfield, a former head of institutional banking at CBA rival Westpac Banking Corp, would

be appointed to the board, CBA said yesterday, without naming any other new appointees.

Whitfield could be in the running to replace Narev, said Omkar Joshi of Regal Funds Management, a CBA shareholder.

“It is unlikely now that you can really have an internal candidate for that role - rightly or wrongly internal candidates have been tainted with that same brush,” he said.

CBA shares touched 10-month intraday lows before closing down 1.42 per cent at A$74.41, while the broader market was down 0.39 per cent. The shares have dropped 12 per cent since the scandal erupted last month wiping roughly A$17 billion (US$13.55 billion) off its market value.

First hearing

Financial crime fighting agency AUSTRAC alleges CBA oversaw tens of thousands of illicit transfers amounting to A$624.7 million from 2012 to 2015, including some by known criminal gangs.

CBA’s lawyers told the Federal Court yesterday the bank would not “in large part” contest the main facts of the legal action, but said they planned to file a defence.

AUSTRAC’s lawyers told the court they expected the bank would try to prove it took reasonable precautions against money laundering and terror financing.

Judge David Yates gave CBA until Dec. 15 to file a defence. The next hearing was set for April 2, 2018.

The AUSTRAC case has triggered a landslide of bad news for CBA, with two other Australian regulators subsequently launching

investigations and a law firm threatening to file a class action on behalf of shareholders.

Last year, CBA admitted using unscrupulous practices that cheated

people out of life insurance payments, and in 2014 Narev publicly apologised after CBA advisors were found to have given customers poor financial advice. Reuters advertisement

14 Business Daily Tuesday, September 5 2017

International In Brief Election

Angola opposition parties call for recount Four opposition parties in Angola on Sunday called for a recount in last month’s general election, alleging “irregularities” during the vote that kept the ruling party in power. The MPLA of outgoing President Jose Eduardo Dos Santos won just over 61 per cent of the vote in the August 23 poll and an absolute majority with 150 of parliament’s 220 seats, according to a provisional count. The commission is due to release official results on Wednesday. Isaias Samakuva, head of the National Union for the Total Independence of Angola (UNITA), read a statement saying the process to determine definitive results “was not conducted, in a large number of cases, in accordance with the law”.

Oil industry

U.S. gasoline price sink as Harvey subsides Benchmark U.S. gasoline prices fell by more than 4 per cent yesterday as oil refineries and pipelines in the U.S. Gulf Coast slowly resumed activity after Hurricane Harvey subsided, easing concerns over supply shortages in the world’s top oil consumer. Brent crude oil futures were however trading lower, down 40 cents at US$52.35 a barrel by 0915 GMT, after a powerful North Korean nuclear test triggered a shift away from crude markets to assets perceived to be safer, such as gold. U.S. West Texas Intermediate (WTI) crude futures were more stable, up 6 cents at US$47.35 barrel.

M&A

Alexander Skora joins bidding for Air Berlin German businessman Alexander Skora is bidding for Air Berlin with unidentified international investors and aims to keep it flying with a limited route network, he said in a statement yesterday. “I mean routes such as Majorca and other selected destinations,” he said. Under his proposal, Lufthansa would take over Air Berlin’s long-haul routes and easyJet other European routes, the statement said. Air Berlin, Germany’s second-largest airline, filed for bankruptcy protection in August after shareholder Etihad Airways withdrew funding following years of losses.

Cryptocurrencies

Mobius foresees rush to gold Mark Mobius is sensing danger in the explosive growth of cryptocurrencies.

Governments will begin clamping down on digital currencies because of their use in illicit financing, with terrorist groups to drug dealers contributing to their rise, Mobius, executive chairman at Templeton Emerging Markets Group, said in an interview in Hong Kong yesterday.

“Cryptocurrencies are beginning to get out of control and it’s going to attract the attention of governments around the world,” Mobius said.

“You’re going to get a reversion back to gold because people are going to wonder, can I really trust these currencies?”

Nielsen poll

Portuguese consumer confidence rises to highest ever levels The Portuguese are mainly concerned with the balance between their personal and professional life

C

onsumer confidence rose in the second quarter of this year to previously unachieved levels, with terrorism the fastest-growing concern over the same period, according to an international report from Nielsen.

According to the “Global Consumer Confidence Survey,” the Portuguese confidence index rose 17 points year-on-year to 82 points (100 is the highest level of optimism), the highest value ever in Portugal, close to the European average (85 points) and above countries like France (75 points), Russia (70 points), Italy (58) and Greece (52 points).

One of the novelties is that most of the Portuguese (51 per cent) no longer consider that the country is in economic recession, even showing in this question an optimism higher than that observed in the European average (59 per cent of Europeans believe that their country is in recession), the study said.

Portuguese optimism extends to the professional and financial outlook,

with improvements compared to the previous year, making consumers more open to consumption.

“These results make us believe that the improvements in the national situation after the crisis period and this feeling of recovery have made the Portuguese more optimistic” Ana Paula Barbosa, of Nielsen Portugal Portuguese consumers have also changed their spending habits, but

saving is still a priority: “after paying essential expenses, 45 per cent choose to use the surplus money to make savings.”

The Portuguese are mainly concerned with the balance between their personal and professional life, unlike the remainder of Europeans, who are essentially concerned with terrorism and health issues. Even so, the concern about terrorism is the one that has increased most this quarter compared to the year-ago period, now in fourth place in terms of what worries the Portuguese population.

“These results make us believe that the improvements in the national situation after the crisis period and this feeling of recovery have made the Portuguese more optimistic, probably because they are recovering from a very negative situation in the past,” said Ana Paula Barbosa, of Nielsen Portugal, cited in the statement.

This online survey of 30,000 respondents in 63 countries was conducted in Portugal between 20 May and 10 June, with a sample of 499 respondents. Lusa

M&A

Fiat Chrysler set for parts-unit separation as big deal on hold The company has been considering options including separating components operations, which include Magneti Marelli Tommaso Ebhardt

Fiat Chrysler Automobiles NV, lacking a potential deal to combine with another carmaker anytime soon, will push ahead with separating from its components business, Chief Executive Officer Sergio Marchionne said.

Marchionne, who has actively sought a partner for Fiat Chrysler in the past, cooled speculation of a pending deal to tie up with a competitor, saying he hadn’t received any approach or offer for the Italian-American automaker. He also said that the upscale Alfa Romeo and Maserati brands aren’t ready to be independent. That puts the near-term focus on smaller portfolio adjustments. Fiat Chrysler stock dropped the most in two months.

“There are some activities at the component businesses which don’t belong,” Marchionne told Bloomberg News on Saturday in Monza, Italy.

“The group must be purified from those assets.

Marchionne, 65, is preparing his final five-year business plan before he leaves Fiat Chrysler in the first half of 2019. He acknowledged that deeper changes might be coming when he said in July that the carmaker will evaluate whether to spin off some businesses. The company is pushing to eliminate 4.2 billion euros (US$5 billion) in debt by the end of next year as part of plans to make at least 4.7 billion euros of adjusted net income.

Spinning off the components operation could reduce Fiat Chrysler’s net debt by 38 per cent, even as it reduces adjusted operating profit by 8 per cent, “further strengthening the company’s financial-risk profile,” Joel Levington, a senior credit analyst at Bloomberg Intelligence, wrote in a report Sunday.

Marchionne didn’t exclude Fiat Chrysler eventually starting talks on a tie-up before he leaves the helm.

“It is difficult to make forecasts for the next two years,” he said. “What is important is our 2018 plan, and results are coming.”

The CEO has long been a vocal

proponent of carmakers’ consolidation, arguing that the industry wastes money by developing multiple versions of the same technology. Those pressures have only intensified as countries such as the UK and France set deadlines to eliminate combustion engines, while self-driving technologies and ride-hailing services threaten to upend auto manufacturers’ traditional business model.

Fiat Chrysler has been considering options including separating components operations, which include Magneti Marelli SpA, as well as its upscale Maserati and Alfa Romeo vehicle brands, people familiar with the discussions told Bloomberg last month. The luxury-car operations could be worth as much as 7 billion euros, while Magneti Marelli and other parts businesses are valued at up to 5 billion euros, analysts estimate.

Needing ‘muscle’

Marchionne, who is also CEO of former Fiat Chrysler sports-car division Ferrari NV, was in Monza to attending the Formula One qualifying race for the Italian Grand Prix.

Alfa and Maserati are “too immature” to be separated from Fiat Chrysler, he said. “When they will have enough muscles and make enough

cash by themselves,” those brands could eventually become a standalone company.

“I understand very well the concept to separate premium brands from the mass-car unit, but we are not in the conditions to do it now” with Alfa and Maserati, he said. “If there is this option, it would eventually be done after I am gone.”

The Italian CEO, who grew up in Canada, said the auto-parts separation would “ideally” be completed by the start of Fiat Chrysler’s new five-year plan in 2019. The board will start discussing the matter at its next meeting in September, he added.

Great Wall Motor Co., China’s biggest maker of sport utility vehicles, expressed interest in Fiat Chrysler last month, especially the Jeep SUV brand. Both manufacturers later said there had been no approach, and Great Wall said there were “big uncertainties” whether it would pursue the idea any further.

“While we never believed a partial, or total, sale to a Chinese company would have worked, we still believe the spinoff of Alfa-Maserati has chances to happen during the next business plan horizon,” Massimo Vecchio, an analyst at Mediobanca, wrote in a report to clients. Bloomberg News

Business Daily Tuesday, September 5 2017 15

Opinion Business Wires

The Times of India The government will not give any immediate tax relief to stressed telecom companies, but will consider the demand only in the New Telecom Policy (NTP) that may come around the beginning of next fiscal year, a top official in the telecom ministry said. Mobile companies, which have seen a severe stress on their finances after the launch of Mukesh Ambani’s Reliance Jio in September last year, had petitioned to the government for a reduction in the 8 per cent licence fee that they need to pay to the government on their annual revenues.

How Japan needs to change to welcome immigrants Noah Smith a Bloomberg View columnist

Bangkok Post Nok Air is gearing up its China campaign with the launch of a series of new charter flight routes, a move instrumental to its business turnaround bid. The cashstrapped budget airline will start 10 more China-bound routes from next month, adding to four announced recently.

Marking the airline’s latest bid to deepen its China campaign, the carrier is using Navy-operated U-tapao airport in Rayong as a second launch pad in addition to its base at Bangkok’s Don Mueang airport.

According to the SET-listed airline, six Chinese cities -- Yinchuan, Baotou, Linyi, Yichang, Nanchang, and Haikao -- will be served non-stop from U-tapao.

The Korea Herald South Korea’s top financial regulator said yesterday it will cut the interest on overdue debt and the premiums of indemnity medical insurance in line with the government’s policy of easing the financial burdens for low-income earners. Choi Jong-ku, chairman of the Financial Services Commission, also said the FSC will actively encourage insurance firms to return unclaimed insurance benefits worth 7.6 trillion won (US$6.71 billion) to customers. Interest on overdue debt will be lowered by the end of this year after starting to revamp it this week, Choi told reporters.

Philstar The Bangko Sentral ng Pilipinas (BSP) is actively stabilizing the peso as it counters speculative plays in the foreign exchange market. BSP Governor Nestor Espenilla Jr. told The STAR the peso has sufficiently adjusted after depreciating gradually to the 51 to US$1 level last month, based on the assessment of the country’s economic fundamentals. “At its current 51 range now, that seems to be already a healthy correction. And there we are actively stabilizing to counteract speculators until a new economic fundamental emerges that warrants a shift in battleground,” he said.

T

he U.S. has been roiled by debates over immigration. Japan has the opposite problem -- not enough debate. Immigration is happening, and no one is talking about it or preparing to deal with it.

Americans tend to use Japan as an example of a country that doesn’t take in immigrants. For example, my Bloomberg View colleague Justin Fox recently wrote that “politicians have so far been unwilling to allow immigration to take up the slack” of an aging population. It’s true that Japan has a small foreign-born population compared to other countries: But this image of Japan as a closed country gets two things wrong.

First of all, Japan doesn’t actually do much to keep out immigrants. The country has no legal limits on either the number of people who can get work visas there, the number of people who can get permanent residency, or the number who can become naturalized citizens. This stands in contrast to the U.S., which still imposes legal limits on immigration. And Japan, unlike most countries, doesn’t require permanent residency as a prerequisite for becoming a naturalized citizen. It’s true that Japan, like most countries, doesn’t have birthright citizenship.

Japan also takes very few refugees. But in general, Japan has unusually lax immigration controls. The reason for Japan’s low immigration levels is that relatively few foreigners have chosen to move there.

S ec o n d o f a l l , Ja p a n ’ s immigration numbers have risen substantially in recent years: The country’s foreign-born population grew by about 150,000 in 2016, to a total of 2.3 million, with most of the increase coming from other countries in Asia. That’s about three-quarters as many as Canada. Japan’s population is much larger, so it’s not about to enter the ranks of high-immigration countries, but it’s definitely not the walled garden many in the U.S. make it out to be.

Walking around Tokyo these days, the change is palpable. Chinese exchange students work the cash registers at convenience stores and the reception desks at hotels. Indian salespeople offer Englishlanguage help at electronics stores. Brazilian chefs serve up grilled chicken at restaurants, Africans sell clothing on the street in youth districts, and Canadian and American finance workers shuffle around ritzy neighbourhoods in flip-flops and shorts.

Many believe that immigration will be a positive for Japan. It will certainly help slow the decline of the country’s aging population, giving companies more of a reason to invest there, and helping to keep the pension and healthcare systems funded. Skilled immigrants will also help Japanese technology companies compete in global markets and improve

“

its financial system.

But all is not well in the world of Japanese immigration. Unlike Canada or other highimmigration countries, neither Japan’s leaders nor its people seem prepared to deal with the flow of newcomers in a proactive way.

When I talk to Japanese government workers, and to people involved in immigration policy, I get the distinct sense that the influx of foreigners is seen as a temporary phenomenon. The government simply expects most foreign workers to stay in the country for only a short time, and then leave -- a rotating workforce that gets constantly switched out. Some believe that the new arrivals will return to their home countries after the Tokyo Olympics in 2020. Others insist that Japan isn’t the type of place that foreigners want to move to.

On the policy front, Prime Minister Shinzo Abe’s administration has made one very good step, which is to introduce a Canada-style points-based system for skilled immigrants. That’s good, because skilled workers tend to have an easier time integrating into local cultures, and are less likely to be blamed if wages fall for the working class.

But most of the government’s efforts involve guest-worker programs. Guest workers generally take low-earning, low-productivity jobs.

Worse, guest workers are temporary residents, with less of a connection to Japanese culture, fewer local ties and poorer language skills. They will therefore be slower to integrate. And if Japan suffers a disaster, war, or economic downturn, these workers could be vulnerable to scapegoating.

That in turn lead to an exodus of workers, depriving Japanese companies of labour they had counted on and exacerbating the economic pain. It would also damage the lives of many of these vulnerable workers, many of whom will by that time have spouses and children in Japan. An anti-immigrant backlash in Japan could even lead to xenophobic leaders taking power -- think Donald Trump with Japanese characteristics.

Instead of assuming that foreign workers are temporary residents who will eventually depart, Japan’s leaders should plan for the reality that many will stay. This means more active programs of assimilation, including making sure that the children of immigrants attend Japanese schools. It also means more permanent residents and fewer guest workers, and more of a shift toward skillsbased immigration. Making room for permanent residents will require government policies like language education, assistance with naturalization and urban planning to ensure adequate housing.

So there is much to be done. If managed wisely, immigration can be a boon for Japan. But if allowed to proceed in an ad hoc manner, it could present dangers in the years to come. Bloomberg View

Making room for permanent residents will require government policies like language education, assistance with naturalization and urban planning to ensure adequate housing

”

16 Business Daily Tuesday, September 5 2017

Closing Forecast

China August data to show economy solidly poised before key Party congress Most economists now forecast China’s economy to slow only moderately through the end of the year

A

fter surprising pretty much everyone with solid growth in the first half, China’s economy has continued to motor along nicely with a flurry of data for August expected to show momentum will largely hold up through to the end of the year despite tighter policy.

Annual growth in the world’s second-biggest economy picked up to 6.9 per cent in the first six months of the year, as brightening global demand boosted Chinese shipments and resilient domestic consumption helped to cushion the impact of policy makers’ efforts to reduce debt and cool the property market.

The growth momentum has surprised most China observers, especially in light of Beijing’s campaign to wean the economy off a years-long debt-fuelled binge, with early fears of a sharper downturn well and truly put to bed.

According to a Reuters poll of analysts, over the next few weeks a flurry of data for August is likely to back market expectations for growth to taper off only modestly from the first half’s pace, with some such as smaller firms seen bearing the brunt of tightening financial conditions.

On the whole, the August data set should support views that China’s economy will be in good heart

heading into a key political meeting of the ruling Communist Party and give policy makers a comfortable cushion through to the end of the year to deepen much-needed reforms.

China’s economic numbers so far have been encouraging in a boon to world trade even as risks to the global economy have increased this year from rising U.S. protectionism and growing tensions in the Korean peninsula.

Strong factory reports last week showed strength in the industrial sector continued through August, while Chinese demand has lifted commodities prices from steel to iron ore and underpinned a resurgence in global growth.

Most economists now forecast China’s economy to slow only moderately through the end of the year and handily beat the government’s 2017 growth target of around 6.5 per cent.

In a surprising period of stability, China’s gross domestic product growth has accelerated or remained stable for five consecutive quarters for the first time since at least the early 1990s.

Policy direction

That provides a welcome backdrop for the once-every-five-years congress of the Communist Party, which will start October 18, the day before

China announces third quarter GDP growth.

China watchers will likely look for signs of any new direction in economic policy after the meeting, where President Xi Jinping is expected to further strengthen his grip on power.

A stronger yuan in the face of a weak U.S. dollar has helped stabilize global markets that were spooked by a year and a half of sustained weakness in the Chinese currency, which was accompanied by capital outflows and a steep decline in the nation’s foreign currency reserves.

Analysts expect China’s foreign currency reserves, the largest in the world, to have increased for a seventh straight month to US$3.1 trillion in August from US$3.081 trillion the month before, the Reuters poll showed.

Export growth is forecast to moderate to 6.0 per cent in August from 7.2 per cent the previous month, while imports probably remained in double digits at 10.0 per cent growth, from 11.0 per cent.

Double digit growth in China’s imports this year has been good news for exporters around the world, particularly commodities exporters, who have benefited from a sustained rebound in commodity prices.

China’s trade surplus in August

was tipped at US$48.6 billion, which would be the highest since January.

The inflation rate likely picked up in August to 1.6 per cent year-on-year from 1.4 per cent, which would be the first uptick in four months.

Key Points August data to show solid growth in lead up to Party congress Exports seen +6.0 pct (July +7.2 pct) Imports seen +10.0 pct (July +11.0 pct) Industrial output f’cast +6.6 pct y/y (July +6.4 pct) PPI f’cast +5.6 pct y/y (July +5.5 pct) CPI f’cast +1.6 pct (July +1.4 pct) New loans f’cast RMB900 billion (July RMB825.5 bln) August activity indicators out on Sept 14 Producer price growth also likely accelerated in August for the first time in four months to 5.6 per cent from 5.5 per cent, as government efforts to reduce excess capacity by shutting inefficient and heavily polluting mines and mills help sustain a rally in commodity prices.

Strong exports and a more than 20 per cent increase in infrastructure investment are seen lifting industrial output 6.6 per cent year-on-year in August, up from 6.4 per cent growth in July.

Retail sales likely picked up slightly to 10.5 per cent growth while fixed asset investment growth may have slowed to 8.2 per cent in August, from 8.3 per cent in the previous month.

China’s money supply growth has dipped to the slowest on record in the past few months, hurt by a campaign to rein in leverage and the riskiest forms of non-bank lending.

Analysts expect that trend to continue, with the median forecast for 9.1 per cent year-on-year growth in M2, down from 9.2 per cent in July.

New bank lending likely totalled RMB900 billion in August, up from RMB825.5 billion in July, while the balance of outstanding loans probably fell to 13.0 per cent. Reuters

Markets

Politics

Car industry

China enthusiasm for dollar bonds easing

Taiwan’s unpopular premier resigns

Volkswagen, local partners recall 1.82 mn vehicles in Mainland

Chinese investors might have sated their appetites for now on dollar bonds, with higher returns onshore offering a better alternative, according to Deutsche Bank AG analysts after meetings in Beijing and Shanghai last week.

“Overall, enthusiasm for dollar credit has clearly dampened, especially with bank treasury desks that mainly buy investment-grade paper,” Harsh Agarwal, head of Asia credit research at Deutsche Bank in Singapore, wrote in a Sept. 4 note. “We assume that the incremental demand for high-quality China IG credits is now driven more by offshore investors than onshore,” he wrote.

That marks a shift from the theme of the first half of the year, when a surge in Chinese demand was the driver of prices in the Asian dollar-bond market, which is expanding at a record pace. The dynamic was so powerful that some foreign market participants sometimes complained privately about “crowding out” from Chinese buyers.

Smaller Chinese banks are facing higher funding costs amid a crackdown by policy makers on offbalance-sheet financing, making lower yields in the dollar bond market all the less attractive for this group, according to Agarwal. Bloomberg News

Taiwan’s Premier Lin Chuan resigned yesterday in a move aimed at reviving dwindling public support for the government of President Tsai Ing-wen.

Tsai’s office announced in a statement that Lin offered his resignation on Sunday, saying that he had “accomplished his periodic tasks”, and it was approved by the president.

Speculation had been rife that Lin would be replaced. The government’s popularity has been hit by a series of controversial policies, ranging from holiday cuts to pension reforms, as well as by worsening relations with China.

Beijing has cut all official communication with Tsai’s government since she took office in May last year.

Her Democratic Progressive Party is traditionally independence-leaning and has refused officially to accept that Taiwan is part of “one China”.

Tsai’s popularity has dropped from a high of nearly 70 per cent when she took power to below 30 per cent in several recent polls, with some in the DPP blaming the unpopular premier for dragging down her support.

In a TVBS poll released last month, Lin’s support fell to a record low of 18 per cent, while 44 per cent said he should be replaced. AFP

German car giant Volkswagen and its two Chinese joint-ventures will recall 1.82 million vehicles in China, the country’s top consumer watchdog said yesterday, in a new setback for the scandal-hit company.

The firm along with SAIC Volkswagen and FAW-Volkswagen are calling back the vehicles owing to a faulty fuel pump, the General Administration of Quality Supervision, Inspection and Quarantine said on its website.

The call-back applies to 2007-2014 Magotans and 2009-2014 Volkswagen CCs produced domestically

by FAW-Volkswagen, as well as the 2011-2015 Passat domestically produced by SAIC Volkswagen.

It also includes around 19,000 imported models.

The defect can cause the engine to stall due to the failure of electronics in the fuel pump.

The companies will replace the fuel pump control modules for free from December 25.

In March Volkswagen recalled nearly 680,000 premium Audi cars in China over defects in coolant pumps that could lead to engine fires.

The carmaker apparently became aware of the latest defect after an investigation by Chinese authorities launched in April 2016. AFP