Beijing takes aim at trust companies Shadow banking Page 10
Monday, September 11 2017 Year VI Nr. 1380 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Results
Gaming report shows dip in 2016 gaming y-o-y Page 6
www.macaubusiness.com
Discount
Auto industry
Rebates on water and electricity bills after Typhoon Hato to start in October Page 2
China mulling date for banning traditional cars Page 16
More than a gaming company Gaming
Expanding IT development and online marketing, leveraging existing apps and launching new ones is the way forward, says the VP of IT for Suncity Group. Improving operational efficiency and guest management is key to gaining an advantage over both junkets and the six casino operators, and the group’s CEO, Alvin Chau Cheok Wa, is a “very IT-oriented guy”. Page 7
Directing talent
Allowing more non-local talents in, increasing competition for lower-level jobs and encouraging upward mobility, setting up a certification system and seeking specialisation are all crucial for developing local talents, says MPDA president Gary Kou. The gov’t needs to have a clear direction and use the MSAR as a platform effectively
Ho Chio Meng appeal denied
Courts Judge of Court of Final Instance rules against the appeal by the former top official. The 21-year sentence is to go forward as there is no higher court in the MSAR to appeal to. Although taking place in mid-August, the results were only released yesterday, for the official who served between 1999 and 2014. Page 3
Mainland prices accelerate
Inflation Factory prices climbed for another month as domestic demand remained resilient and the government continued to reduce excess industrial capacity. Consumer prices also accelerated to 1.8 per cent Page 8
Public parking meter company
Typhoon Forehap worried about meeting gov’t contract deadline after Hato destruction Page 2
HK Hang Seng Index September 8, 2017
27,668.47 +145.55 (+0.53%) Worst Performers
Henderson Land Develop-
+5.81%
China Mengniu Dairy Co Ltd
+2.10%
China Overseas Land &
-1.27%
China Unicom Hong Kong
-0.18%
New World Development
+5.65%
Want Want China Holdings
+1.54%
AAC Technologies Holdings
-1.09%
China Resources Power
-0.14%
Sun Hung Kai Properties Ltd
+4.05%
China Shenhua Energy Co
+1.37%
Kunlun Energy Co Ltd
-0.92%
Power Assets Holdings Ltd
-0.07%
Cheung Kong Property
+3.56%
Swire Pacific Ltd
+1.33%
Wharf Holdings Ltd/The
-0.48%
China Mobile Ltd
-0.06%
Sino Land Co Ltd
+3.42%
Hang Lung Properties Ltd
+1.27%
Galaxy Entertainment Group
-0.29%
China Resources Land Ltd
+0.00%
26° 31° 27° 32° 26° 31° 26° 32° 26° 31° Today
Source: Bloomberg
Best Performers
Tue
Wed
I SSN 2226-8294
Thu
Fri
Source: AccuWeather
Interview | Talents Pages 4 & 5
2 Business Daily Monday, September 11 2017
Macau
Typhoon
Soaked pages Typhoon Hato caused losses of around MOP15 million in destroyed books belonging to the Ricci Institute
Taxis
Pricier fares As of September 7, more than 800 taxis had had their taximeters updated to reflect the new increased tariff system, the Transport Bureau (DSAT) announced. The new tariff system was imposed on July 23, with the fare for the first 1,600 metres increasing from MOP17 to MOP19 (US$2.1), with an additional MOP2 now charged for every 240 metres, instead of the previous 260 metres. Tariffs for waiting periods remained unchanged, with the exception of the taxi pick-up points at the Taipa Ferry Terminal or at the University of Macau (UM), where
an additional MOP5 fee will be allowed. Taxis who haven’t yet updated their taximeters should have a tariff table visible for passengers to see, with DSAT stating that in cases where taxis don’t have either an updated taximeter or the tariff table, the old tariff system should be used. According to DSAT, currently six taxis are lacking the tariff table, but of the 200 complaints for excessive charging received between August 23 and 31 - the period after Typhoon Hato - none were related to the absence of the table in the taxis involved in the incidents. N.M. advertisement
The floods caused by the passage of Typhoon Hato destroyed the entire book collection of the Ricci Institute, around 25,000 books and magazines that were stored in the new campus of the University of Saint Joseph (USJ), the university’s rector, Peter Stilwell, announced. Mr. Stilwell estimated the expenses related to the loss of almost 28,000 editions - including 3,000 USJ books - amounted to around MOP15 million. “The flood passed and the books were all rendered irrecoverable […] When we realised the seriousness of Typhoon Hato it was too late,” the USJ rector added, confirming news first reported by local broadcaster TDM. The entire book collection of the
Tomás Pereira Library at the Ricci Institute was being stored in boxes in one of the basement areas of the new USJ campus in recent months, later meant to be transferred to the university’s library. The books remained submersed for three days in saltwater and fish brought in by the Pearl River flood. According to Stilwell, the cost of recovering the books would be higher than the cost of replacing the collection, which will take a period of at least three years. The new USJ campus will receive students and teachers this year for the first time, and is located on the Macau Peninsula, one of the areas most affected by the typhoon flooding. N.M. with Lusa
Post-typhoon
Typhoon wiped out thousands of parking meters Macau Forehap Parking Management Ltd., the company that manages the city’s public parking meters, said that the systems of some 113 new parking meters were affected by the flooding during Typhoon Hato, with some further 1,200 old meters suffering an impact from the storm. According to local Chinese language newspaper Macao Daily, the company has restored 90 per cent of the city’s parking meters, while some MOP10 million in damages was incurred due to the typhoon.
Meanwhile, the company expressed its concern over meeting the deadline as stated in the tender contract with the MSAR Government, to install 85 per cent of the city’s parking meters utilizing the new system by October. Forehap revealed that at least a further 150 meters will need to be purchased, noting that orders might take three to four months, given that the supplier is located in Australia. As such, the company plans to discuss the tender arrangements with the Transportation Bureau (DSAT). C.U.
SME
Over 3,000 post-typhoon support applications approved The Macao Economic Service (DSE) announced that a total of 3,499 applications for post-typhoon support had been received from SMEs (small and medium size enterprises) as of September 6, amounting to some MOP175 million (US$21.8 million). Among the approved applications, 5,339 were for interest-free loans for SMEs of up to MOP600,000. Under the Industrial and Commercial Development Fund, DSE had received a total of 10,869 applications. In order to expedite procedures, the
government department is cooperating with the local banking sector, with banking entities receiving applicants’ details to perform a preliminary analysis for SMEs who have applied for the interest-free loan, after written consent is received from applicants. The DSE is currently cooperating with 15 banks, including the Bank of China Macau Branch, Banco Nacional Ultramarino, Tai Fung Bank and others. The department and three stations were open over the weekend to allow SMEs to submit applications.
Expenses
Repairing society The Social Affairs and Culture budget for the second half of this year will be increased to deal with Typhoon Hato damage The Secretary for Social Affairs and Culture, Alexis Tam stated that the departmental budget would be increased for the second half of this year, in order to pay for repairs to damage created by Typhoon Hato. The expanded budget would mostly be used to support the repair of affected schools and social premises; purchase new equipment; and restore cultural,
sporting and cultural heritage facilities so they can resume operations. The amount of the increase is currently still being analysed, the Secretary added. This year’s proposed budget for the Office of the Secretary of Social Affairs and Culture was set at MOP132.2 million (US$16.4 million) in the Policy Address for the Fiscal Year 2017. N.M.
Business Daily Monday, September 11 2017 3
Macau Courts
Ho Chio Meng sentence confirmed Judge denies appeal to Court of Final Instance
A
n appeal by the defence of former Prosecutor-general Ho Chio Meng has been denied by the judge in question, causing his official sentence to go forward, according to a release by the Court of Final Instance (TUI). Although the appeal took place on August 15, the official information was not released until yesterday on the court’s website. The former official was sentenced to 21 years in prison, having been accused of over 1,500 crimes relating to abuse of power, fraud, money laundering and forming a
criminal association. In addition, Ho was fined MOP18 million for illegally awarding contracts. The former official headed the Public Prosecutions
Office from 1999 to 2014. He was taken into custody in February 2016 and his trial began in February of this year, with the sentence being handed down on July 14.
The court received the defence’s appeal on August 4, however the appeal was denied because it ‘assumes the existence of a judicial body with the power to evaluate and make judgements in a higher court’. The decision by the judge also refers back to the corruption case of former Secretary of Transport and Public Works Ao Man Long, stating that ‘when the Legislative Assembly approved law no: 9/2009 to introduce alterations to the Basic Law of Judicial Organization, in 2009, the question of appeal was not touched upon. Therefore a judicial gap does
not exist that could be filled by the [appeal to be judged in a higher court]’. This comes about due to the defence’s argument that the legislators, when deciding on the changes to the judicial framework, should have also introduced clauses so that the court could not accept appeals, given that it is the highest court in the MSAR. However, given that it can, the lawyers requested the creation of an ad hoc court to evaluate the appeal, but this was denied. The judge’s sentence of 21 years therefore, goes forward.
Typhoon
Bill support MOP2,000 support for residents’ energy and water bills will start being provided in October The rebates on energy and water bills announced after the power supply breakdown brought about by the passage of Typhoon Hato will start being provided in October. Any October invoice from local electricity supplier Companhia de Electricidade de Macau, S.A. (CEM) will receive a MOP1,500 (US$186) reduction, while bills from Macao Water
Supply Co. Ltd. for October and November will be reduced by MOP500, the Macao Foundation stated. The total amount of MOP2,000 was announced one day after Typhoon Hato hit Macau on August 23, as a measure to reduce the impact of the typhoon on the local population. More than a quarter of the MSAR land area - 29 per cent - was flooded
due to the event, with the water level estimated to have reached 5.5 metres high in the Inner Harbour area of the Macau Peninsula. A preliminary estimate provided by the MSAR Government last week established losses caused by Typhoon Hato at MOP11.47 billion, with MOP8.31 billion in direct losses and MOP3.16 indirect losses. N.M. with Lusa advertisement
th
4 Business Daily Monday, September 11 2017
Macau
Gary Kou, President of the General Assembly of the Macao Professional Development Association
Interview
Gathering talents A growing call for local talents in the city is at odds with the data available on what talents are needed, and there is also a lack of policies as to how the talent will be put to use. Although continuing education loans and subsidies are a good start, Gary Kou – President of the General Assembly of the Macao Professional Development Association – thinks that a qualifications framework, as well as a centre for people to develop and exhibit their talents, could help. Cecilia U cecilia.u@macaubusinessdaily.com
W
hen was the Macao Professional D e v e l o p m e n t Association created and what does it represent? The association was founded in 2012 because we saw there was a lot to be done and that we could do to develop talent here. At that time, there was no other group in the city focusing on this area, so the association was founded by a group of young people from different areas including the government, private companies, the education sector and other fields. MPDA advocates a number of ideas, one of the primary of which is to make our areas of interest into careers and then to specialize within these. We found out that it is not necessary for a specialist to have a rich education, so we approach those who are interested in certain areas and assist them in making their interests into a specialty. There are a lot of talents in the city, but not many of them are being discovered. For example, we held a programme called ‘The Creation of Talents’, and the participants were all local people. One of the people who was part of the programme was a scientist - Doctor Lo – who carries out research on nuclear power. The doctor is a local citizen and grew up here, but many
people were astonished to find out that there’s a nuclear scientist in the MSAR. Another example is a young man who dropped out of school at a young age. While many people assumed he would end up working as a waiter or another lower-income job, he told us that he likes dancing Hip Hop and has won a lot of prizes, but he is also interested in photography. So we encouraged him to develop his photography skills and now he’s a professional photographer, who – though still in his twenties - owns his own studio.
“There are so many people claiming they are good at certain things, but we can never know how good they are if there isn’t any certification system to confirm that” MPDA also publish studies relating to youth employment, like the one we recently published about whether
the input of resources by companies has an impact on the development of young part-timers’ career paths. What research are you currently conducting? We are planning to work on a new topic regarding a professional certification system. There are so many people claiming they are good at certain things, but we can never know how good they are if there isn’t any certification system to confirm that. Setting up standards would allow young people to gain confidence and also enable firms or the government to seek specialists with assurance. With a professional system in place, people might not need to take exams hosted by the government and the government could simply look at the certifications of the job applicants. In the gaming sector, Macau has called itself number one in gambling, but will anyone consider making Macau a place to train specialists in gaming, and are certificates from Macau valid anywhere else in the world? There is a Qualifications Framework in Hong Kong, for individuals such as craftsmen claiming to work in the field for many years but who have never taken any examinations. With the Framework, a craftsman could be certified at a certain level according to his years of experience, and employers could use this as a basis for hiring. We wonder if the government could
roll out a similar system that suits the city, in order to allow young people to be promoted to higher positions. The government could have some entities recognised, which provide short programmes. Those who finish the programmes could be qualified according to a certification system laid out by the government. At a preliminary stage, the Macau Government could reference frameworks already in place, such as those in Hong Kong or in the Mainland, and establish the city’s own framework pegged to those of the neighbouring regions.
“There are a lot of talents in the city, but not many of them are being discovered” Your group has a show called ‘The Creation of Specialist’. What is it about? It is similar to a talk or a sharing session. Like the scientist Doctor Lo that I mentioned, he shared his own experiences with other young people at the show. The doctor explained that he wasn’t good in secondary school,
Business Daily Monday, September 11 2017 5
Macau but later discovered a passion for [nuclear power] when he studied in the U.S. He shared that after that, he put a lot of effort into the area and was later hired by a big company in the U.S. Doctor Lo shared that opportunities for growth in the U.S. are limited, because he is not a U.S. citizen. So when the doctor returned to the city, did it provide adequate opportunities for him to utilize his knowledge and skills? That is one of the areas that MPDA studies – the talent environment. If there is a good environment for talents, then they choose to stay and are able to develop and grow. Otherwise, these talents are attracted to neighbouring areas that provide a better environment for their talent. Given that Macau is a small city, how can a better environment be created that allows different talents to develop? I don’t agree that Macau is a small place. Macau is part of mainland China. The Mainland has been advocating that Macau can be a platform for many things, so why can’t we make use of this and play our part? For example, Doctor Lo’s knowledge could be used in the medical field, or in the development of electronic gadgets such as mobile phones. A research centre or company could be set up to support him and he could sell his ideas to the Mainland, and these products could be exported to other places via the ports in Macau. Macau is a connection between the Mainland and other Portuguesespeaking countries, and we should make use of that.
“If the government laid out a plan or a direction, then we would know what kind of talents are needed” Previously, MPDA visited institutions on the Mainland to obtain experience. In China they have been running ‘the Thousand Talents Plan’ or ‘the Recruitment Program of Global Experts’ for years. We visited Beijing Overseas Talent Center, and they rolled out a scheme which is worth referencing. They offer RMB1 million right away to selected talents as a reward, and the centre can also assist these talents to register for residency in Beijing as it is very difficult to get it. Moreover, the centre offers a license to them in order to allow them to set up companies that relate to their fields without queuing. The centre also provides educational and housing support to families of these talents. For those who are specialised in business, the centre also helps them to seek out correspondents to support their businesses. However in Macau, never have I heard of any preferential offers to talents. If there is, it would be funny that we were never informed of this, and so promotions and advertisements are very important. Meanwhile, the centre in Beijing is an institution supported by the government and they regularly hold talks and assist those who have come back to re-adapt to life in the Mainland. With Macau focusing on a small number of industries such as gaming and tourism, how would talents in ‘uncommon’ fields succeed? I would say one could create his/her own market. Macau receives a lot of tourists every year, but apart from the souvenir shops, there are not many locally-branded products that are wellknown outside of the city. This is because in Macau, there hasn’t been a good platform for developing local brands.
It is more important to understand what we want to focus on. People are always complaining there are no talents in the city, but what exact type of talents do you want for development? If the government laid out a plan or a direction then we would know what kind of talents are needed.
“I think to develop the cultural and creative industries, it is also necessary to attract non-local talents to come to Macau” The government has been saying they need bilingual specialists - Chinese and Portuguese - but many of these specialists have no idea of how to make use of their skills. They finished their degree in translation and they only think of working with the government because there are not many companies out there that need Portuguese translators. If there was a human resource company in Macau that only did referrals for these translators and could provide data and information on countries that have a high demand for translators, I believe this would be an improvement of the environment for talents. The government has also expressed its desire to develop the cultural and creative industries. What is your opinion on their efforts in attracting related talents? The government set up funding for the development of the area, but related talents are still not interested in coming back. The reason for this is the government itself doesn’t have in-depth knowledge of the industry. For example, we have a member who is very interested in drawing Zentangle, a very abstract and uncommon type of drawing. Actually, it is a profession for which you can be certified. So this young lady took classes in the U.S. and obtained the qualification. MPDA suggested that she could make her interest into a career, so she used her skills to make her products and gained a level of
popularity. We provided a network for this young lady in order to create this growth environment for her. This environment should be created by the government. Why did it fall to us to create it? We know we shouldn’t always depend on the government, but it is necessary for the government to roll out policies to promote its talents. The government could also set up a centre run by them to provide a platform for anyone, local or overseas, who are talents within the cultural and creative industries. The centre could be an entire building where exhibitions are held and accommodation could be provided for overseas artists or designers. In Hong Kong, they revitalise industrial buildings for this sort of development. I think to develop the cultural and creative industries, it is also necessary to attract non-local talents to come to Macau. We could attract them via specialist immigration policies, and provide benefits for them to allow them to create brands in Macau and promote their brands outside of the city. Have you seen any differences in the development of talent in the past seven years of the MPDA's existence? I don’t see a huge difference. I think the government should appoint an institution like the centre in Beijing, with the government to pay a majority of support to this institution, because I don’t think any of the departments in the government can make any changes to the situation. I can see that there was an improvement when the government started to lay out plans with the consideration of talent development in its five-year plan, but the progress is too slow. Things cannot be slow in Macau, everything needs to be fast. For instance, how can we further improve specialists in the gaming industry, such as dealers? I think being a dealer could become a more specialised job by setting up recognised qualification programmes for them to improve, leading to more people respecting the job itself. But what about claims that many dealers have found it difficult to be promoted to higher positions? This is done by the government. In Macau, only Macau residents can work as dealers in casinos, and I think this policy is wrong. Why not instead protect the upper positions - like supervisors or managerial positions where they should be only taken by Macau residents? If this is instead the
case, I believe Macau people would work hard, taking examinations to obtain qualifications in order to get those positions, so the dealer positions could be taken by non-resident workers. The government has set up a Talent Development Committee. How do you think they could help in attracting talent to the city? Many of their suggested policies need to be approved by the government. The administrative procedures are too slow and we cannot keep moving slowly.
“We should always consider improving ourselves in order to be able to compete with others, instead of being protected from competition” The committee itself also carries out studies about what kinds of specialists are most in demand, but the problem is that many of their study results were from two years ago, and things have already changed. I mentioned this previously when I attended a TV programme, asking them why they would not carry out research on a quarterly basis, and create a database for the public to access. Students who are planning to continue further studies could make decisions by looking at the data, and learn what the current needs of the society are. In general, how can the city boost its level of competitiveness? There are many types of funding for students offered by the government. I mentioned previously that students should be granted loans and then scholarships after they have demonstrated themselves capable of achieving certain levels of academic performance. As a result, I believe more students would be willing to work hard and also be encouraged to become more professional in their fields. We should always consider improving ourselves in order to be able to compete with others, instead of being protected from competition.
6 Business Daily Monday, September 11 2017
Macau Opinion
Sheyla Zandonai* Concretely virtual It is a fact, or at least a strong trend, that services are going progressively more digital. Earlier this year, The Economist published a piece advocating that oil is no longer the world’s most valuable resource. Data is. The publishing industry stands as an early example of how digitization can cause pain, but also opens new venues for innovation. Although a few sectors of economic activity still have reason to maintain low-key profiles online – the arts, antiques, and high-end luxury markets, to name a few – both the private sector, from small companies to big corporations, and governments, are testing, implementing, and enhancing digital platforms to communicate and interact with customers and subjects. It is the way of no return and Macau is somewhat lagging behind. Raising the possibility of penalizing Facebook for ‘allowing’ candidates for the coming Legislative Assembly to campaign on its platform is a retrograde, if not perplexing way of tackling the unavoidable. It is also a sign that the point is being missed. Digital language and content management systems are not communication tools of the future. The future is already old in that regard. While much work is still needed here, several registrations for trademark protection that were filed locally in the last couple of months or so for digital and online products and services, show that fulfilling the trend is just a matter of time. First, it was Alipay, and then Alibaba Cloud, followed more recently by Baidu, the Chinese search engine. Casino and gaming operator brands – U.S.-based (Caesars, Trump), and those connected to local companies (Tigre de Cristal) – have also applied for the protection of online gaming and services. Accordingly, the much-awaited e-payment feature that is still lacking on the local WeChat platform, may be integrated within the platform soon. It is also noticeable that junket operators have been branding online more aggressively, following recent strategies of image re-definition and expansion of service provision. Although many local companies and groups use Facebook for advertising, their presence on Twitter is limited. Even big corporations, such as casinos and hotels, are not following the latter path. It may be a question of corporate strategy, but it wouldn’t come as a surprise if it were just a lack of awareness about the potential such a tool bears for worldwide branding. The reality, though, is that we are going virtual in a very concrete way. * Journalist.
Results
Stable receipts After a sharp drop registered in 2015, the value of receipts from the gaming sector bounced back slightly in 2016, yet still registered a fall of 1.8 per cent year-on-year reaching almost MOP229 billion Nelson Moura nelson.moura@macaubusinessdaily.com
per cent year-on-year, to MOP278 million,.
otal receipts of enterprises engaged in gaming activities in 2016 dropped by 1.8 per cent year-onyear to MOP228.99 billion (US$28.45 billion), according to the Gaming Sector Survey 2016, released last Friday by the Statistics and Census Service (DSEC). Specifically, receipts relating only to gaming also decreased by 1.8 per cent yearly to MOP227.38 billion, a much smaller decline from the 34.3 per cent year-on-year drop to MOP231.58 billion registered in 2015. The report also indicated that the gaming sector receipts from food & beverage in 2016 totalled MOP506 million, dropping by 7.6 per cent yearly, while receipts from currency exchange ended up increasing by 8.6 per cent year-on-year to reach MOP82 million. Meanwhile, with a general decline in bank deposits in 2016, interest receipts from the gaming sector dropped considerably by 40.7 per cent yearly to MOP165 million, after a fall in the previous year of 32.5
Cutting expenses
T
DSEC data also shows that total expenditure by the gaming sector decreased by 4.8 per cent yearly in 2016, to MOP 96.93 billion, as expenses related to the purchase of goods decreased. Purchases of Goods, Commission Paid & Customer Rebates, which accounted for 51 per cent of total expenditure, dropped by 13.2 per cent year-on-year to MOP49.48 billion. However, the decline in overall expenses was offset by a 12.7 per cent yearly rise in operating expenses to MOP23.94 billion ‘in spite of a decline in receipts’. Complimentary goods and services provided to customers, such as hotel accommodation and food & beverage, represented 45.2 per cent of operating expenses in 2016 for the sector, with a 10.2 per cent yearly rise to MOP10.82 billion registered. Meanwhile, a 0.8 per cent yearly decrease in the total number of full-time employees in the sector amounting to 55,794 in 2016 - led to a slight 0.4 per cent yearly decrease
in expenses related to Compensation of Employees in 2016, to MOP19.86 billion. Non-operating expenses - including depreciation and interest paid - from the gaming sector amounted to MOP3.65 billion in 2016, down by 1.3 per cent year-on-year. The contributions provided by the sector to Pension Funds, Provident Funds & Social Security went down by 1.3 per cent to MOP1.00 billion in 2016.
The gaming value
In general, Gross Value Added, which measures the sector’s contribution to the economy, amounted to MOP155.44 billion in 2016, reflecting a slight 0.5 per cent year-on-year decrease from the MOP154.74 billion registered in the previous year. The Gross Surplus of enterprises engaged in the gaming sector rose by only 0.6 per cent yearly to MOP135.32 billion. As the number of casinos in operation went up by two, to 38, between 2015 and 2016, the number of gaming tables also went up by 330, to 6,287, however the number of slot machines fell by 752, to 13,826.
Companies
Low year In the first half of this year, Hong Kong group Eagle Legend Asia Limited registered some HK$12,000 in profit from its operations in the MSAR Hong Kong investment holding company Eagle Legend Asia Limited registered around HK$12,000 (US$1,535) in profit from its operations in the MSAR in the first half of this year, with no revenue from Macau being registered in the same period, the group’s interim report informed. However the results were a
considerable improvement from the HK$113,000 in losses the group registered in the city in the first half of 2016, with Eagle Legend generating a total of HK$360,000 in revenue from Macau in that period. The group is mainly engaged in trading, repair and leasing of construction machinery, together with manufacturing and sales of
proprietary Chinese medicines and health products. The group’s operations mainly cover mainland China, Hong Kong, Taiwan, Macau, Singapore and Vietnam. In the first half of this year, Eagle Legend registered HK$155.5 million in revenue, a 22.9 per cent year-onyear increase from the same period last year. The increase in the group’s revenues was mainly attributable to the sale of a dried plant named ‘exocarpium citri grandis’ used as a cough suppressant, with revenues from its sale amounting to HK$65.9 million. However, this was partly offset by the ‘decrease of sales of machinery, rental income from leasing of machinery and service income’. Revenue from sales of machinery went down 66 per cent yearly to HK$15.6 million in the first half of the year, due to a decrease in the demand for ‘both new and used cranes in Hong Kong and Singapore’. Nevertheless, the group’s losses in the first six months of this year were reduced by more than half to reach HK$10.1 million.
Business Daily Monday, September 11 2017 7
Macau Tech business
Suncity leading the way Expanding IT development and online marketing, Suncity is not only following the digital trend, it is creating one, while becoming “more than a gaming company,” the VP of its IT Department told Business Daily in an exclusive interview Sheyla Zandonai sheyla.zandonai@macaubusiness.com
A
s several companies operating in the gaming market are gradually investing more in Information Technology (IT) and digital marketing, Suncity Group is working to improve existing apps and launching new ones, as well as implementing an internal operations system to be launched worldwide in the coming two months, the Vice President of Suncity’s IT Department, Celestino Ali, told Business Daily. “We will run everything on-system. We believe that the system can help us gain a lot of efficiency in different areas, as well as to centralize different information,” explained Ali. The Customer Relations Management (CRM) database will allow Suncity departments, clubs, and Suncity-run companies to view a variety of data on specific guests with a specifically implemented in-security web, all in real-time. The company is aiming to improve the interaction between customers and employees in order to enhance “operational efficiency” and “guest management,” according to the man overseeing the developments. According to Ali, once the system is implemented, it will give Suncity an advantage over its competitors, “not just over [other] junkets, but over the six major casinos as well. I know they have CRMs, but not such detailed ones.” As Suncity progressively becomes an “IT-oriented company,” its CEO and Chairman, Alvin Chau Cheok Wa, is closely following the developments. “Mr. Chau, our CEO, is a very IT-oriented guy. He has a lot of his things put into these apps and many of the features come from him. He is following it very closely, not just the app, but a lot of our system,” Ali told Business Daily. He was specifically referring to the revamping of Sun Finance, an app created some eight months ago to enable Suncity account holders to keep track of their account history. The current product is a new version of the previous “Suncity app,” with more details, a new name, and a completely re-designed user interface, developed with feedback from customers and closely overseen by Suncity’s CEO. Some of the new features include a detailed breakdown of individual value and a near real-time highlight section in the account login session “where you can see immediately the win-loss across all our properties, both local and overseas,” said Ali. “I would definitely say it is probably a one-of-a-kind now, especially in Macau. Our competitors have the same kind of product, but not in such detail as well as integrated with other kinds of functions,” claimed Ali. The app is available in English, traditional and simplified Chinese, Korean, and “coming is Japanese and Thai,” Ali points out.
Distant-access and IT work
Suncity is betting high on enhancing distant-access to its different “value-added services,” and as Ali puts it: “we are not just a gaming company. We do a lot of entertainment, travel, as well as high-end shopping.” Through app development, the junket operator is delivering services online – such as history account management – which previously required customers to go in situ.
Celestino Ali, the Vice President of Suncity’s IT Department
With Sun Finance, customers can request reports on accounts, “generated dynamically, in real-time through the app, and pull it and see it at home. You don’t have to go to our clubs anymore,” said Ali. Investment in IT is pushing the department Ali help found in 2012 to develop new features and services, eyeing expansion. “I started to set it up and we were supporting only 16 local sites then, all in Macau. Now the team has over 35 active team members, globally, and we are supporting 27 sites and casino projects in Vietnam as well.” In addition to the team working in Macau, Suncity has IT teams in Hong Kong and mainland China. “We do have a lot of apps in development. That’s why we are a big team, globally,” explained the VP. In particular, he pointed out that similar to the team in Macau, the team in mainland China is also working on the development of the Sun Travel platform.
Customized experience
Sun Travel is a platform which will be available to the general public, not only for Suncity account holders,
in the form of both a website and an app, according to information provided by Ali. The company is planning to launch it by the end of this year, but has not yet confirmed the date. “We hope to launch it this year, but as we go for a live testing user phase, there are sections we think we can do better, so we are working on those,” Ali told Business Daily. As for the ways the different apps and platforms will be integrated, the IT Department’s VP explained that Suncity’s current account holders will be able to access the Sun Travel platform features “through an integrated, but separately downloadable app, cost and trip.” Sun Travel will offer concierge services ranging from the booking of show tickets and hotels to flights, as well as tailor-made products, with clients being able “to request any sort of value-added service,” from private jets and travel guides to photographers to accompany them on the trips. Ali added that the difference between Sun Finance and Sun Travel, which does not support an e-payment feature, is that Sun Travel will
“support credit card and WeChat payments.”
Security matters
To enhance security and personal data protection, Suncity has adopted technology currently being used in banking security systems, by implementing a two-factor authentication process for account verification, which involves a password and an SMS sent to the customer. Regarding whether clients have refrained from signing up for the app due to matters of data sensitivity, Ali claims that following the launch of “many different financial apps, the customer, the general public, is getting used to it.” “Because a lot of things have been proven to work, and a lot of things have been rectified to improve the security. And we have made sure that we have implemented those in our apps,” explained the VP on their confidence in the system. Although Ali could not disclose more details about the storage of customers’ personal data due to “security reasons,” he confirmed that all data is stored in a “private cloud” in Macau.
8 Business Daily Monday, September 11 2017
Greater China Prices
Producer inflation jumps to 4-month high Consumer inflation rate quickened more than expected to 1.8 per cent in August from 1.4 per cent in July Kevin Yao and Lusha Zhang
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hina’s producer price inflation accelerated more than expected to a four-month high in August, fueled by strong gains in raw materials prices and pointing to strong, sustained growth for both factory profits and the economy. Consumer inflation also quickened more than forecast to a seven-month high, amid signs that upstream price gains are trickling through, but analysts said price gains remain modest and there is little pressure on the central bank to tighten policy further. “The unexpected rise in both CPI and PPI suggests that there is little hope China’s monetary policy could see some relaxation before the end of this year,” Zhou Hao, a Singapore-based analyst at Commerzbank. “We believe that the market has underestimated the inflationary pressure facing China’s economy, although inflation is unlikely to surge in the foreseeable future. That said, onshore rates are still on the rise,” he said, referring to higher financing costs. China’s price index (PPI) rose 6.3 per cent in August from a year earlier, from 5.5 per cent in July, the National Bureau of Statistics said on Saturday. Analysts polled by Reuters had expected producer inflation would edge up to 5.6 per cent, its first pickup in six months. On a month-on-month basis, the PPI rose 0.9 per cent. The price data added to a long list of upside surprises for the world’s second-largest economy this year, which has so far defied analysts’ expectations of a slowdown. A year-long, government-led construction boom, a resilient property market and a recovery in exports have offset the expected drag from a regulatory crackdown on riskier types of financing, which is slowly
driving up borrowing costs. “The pickup in PPI shows that demand remains steady, and we expect third-quarter economic growth to remain steady from the first half,” said Zhang Yiping, an economist at Merchants Securities in Shenzhen. With the industrial sector in high gear, the economy grew by a faster-than-expected 6.9 per cent in the first six months of the year. If activity remains relatively solid in coming months, China’s economic growth could accelerate for the first time in seven years in 2017. Last year’s pace of 6.7 per cent was the slowest in 26 years.
“Man of steel”
China’s industrial firms have been posting their strongest profits in years as the building boom fuels demand and prices for everything from cement and steel to glass and copper wiring. Its commodities futures markets have rallied hard and continued to surge through August, boosted by strong restocking demand and government pledges to shut inefficient and highly polluting mines and plants, which has underscored concerns over tight supply heading into winter. Activity in China’s steel industry expanded in August at the fastest pace since April 2016, reflecting high levels of production and low inventory. Prices of ferrous metal smelting and rolling processing industries jumped 29.1 per cent in August on-year while prices of non-ferrous metal sectors grew 16.3 per cent, and prices of the oil processing sector rose 16.8 per cent, the latest data showed. However, some analysts say rising prices have mainly benefited state firms which dominate upstream industries, while smaller companies further along the supply chain have been burdened by sharply higher raw materials costs.
Likewise, some economists say sharply higher commodity prices are also flattering China’s import data, possibly exaggerating the strength of domestic demand. Imports rose 13.3 per cent in August, more than expected, data showed on Friday. And, it still seems too early to tell if suddenly cash-rich “smokestack” industries are putting the money to use by paying down massive levels of debt, an issue that Beijing has made a top priority this year as it looks to contain financial risks.
Gradual spillover into consumer prices
China’s strong appetite for resources such as iron ore has helped fuel a reflationary pulse in the manufacturing sector worldwide, producing synchronized growth in many developed and developing economies alike. But despite the country’s growing string of data surprises, analysts continue to maintain that factory-gate prices will lose steam eventually if regulatory tightening continues and consumer and corporate borrowing costs inexorably rise. Saturday’s data also suggested that the year-long gains in producer prices
are starting to percolate through to the broader economy, but at a modest pace, which will be welcome news to the central bank. China’s retail inflation has been quite mild this year, raising questions about the accuracy of other official data that showed robust economic activity. But consumer inflation rate quickened more than expected to 1.8 per cent in August from 1.4 per cent in July, the first time it has accelerated in three months. The consumer price index (CPI) had been expected to rise 1.6 per cent on-year. Food prices, the biggest component of the consumer price index (CPI), fell 0.2 per cent from a year earlier. Non-food price inflation quickened to 2.3 per cent in August from 2 per cent in July. The government is targeting economic growth of around 6.5 per cent this year and inflation of 3 per cent, so the latest reading is still well within the central bank’s comfort range. China will release further August data next week on bank lending, industrial output, retail sales and investment, which are expected to point to solid growth. Reuters
Currency
Authorities worry yuan’s rebound could knock exporters and economy The yuan has gained nearly 7.8 per cent against the dollar so far this year Kevin Yao
Chinese policymakers are beginning to worry about a rallying yuan as exporters come under strain, policy insiders say, a sign the currency’s gains might lose steam after it scaled a near two-year top on the dollar as Beijing prepares for a crucial Communist Party gathering in the autumn. In a rapid turn in fortunes after last year’s slide, the yuan’s sharp rebound since May presents a fresh headache for authorities, as intervening to cap it could expose China to accusations of currency manipulation by U.S President Donald Trump. “Appreciation is better than deprecation, but the pace of appreciation cannot be too fast, otherwise it will be unfavourable for domestic firms,” said a policy insider, one of the four sources who spoke to Reuters. The yuan paused last week just above 6.5 per dollar, a level policymaker sources said was one that was being watched, but then broke through it on Thursday and
extended those gains on Friday to hit 6.4470, a 21-month high. The rally has been spurred by the dollar’s broad decline, optimism about the economy, a crackdown on capital outflows, and more recently the central bank’s tighter control of the mid-point, from which the yuan can rise or fall 2 per cent. The yuan has gained nearly 7.8 per cent against the dollar so far this year, including just over 6 per cent since late May, more than making up its losses of 6.5 per cent in 2016 - the biggest annual drop since 1994. But while the end of the downward pressure is welcome after the central bank
spent US$1 trillion of reserves over 2-1/2 years to fight the slide, the concern is that the yuan’s rapid ascent could crunch exporters and the broader economy. Any disruption to the economy would be unwelcome ahead of the Communist Party Congress in October, where President Xi Jinping hopes to strengthen and extend his leadership of the party. “It could be disastrous if the yuan rises sharply,” said another policy adviser, one of the four sources involved in internal policy discussions but are not part of the final decision-making process. “The economy has just showed some improvement
due to a stronger global economy,” the adviser said. One policy insider said commerce ministry officials - staunch advocates for exporters - had expressed concerns over the yuan’s surge. The central bank and commerce ministry did not return requests for comment.
No strong intervention
Still, the authorities are unlikely to intervene forcefully to weaken the yuan for fear of sparking fresh criticism over its currency practices from the United States, the policy insiders said. The U.S. Treasury releases its next report on currency practices of trading partners in October. In April, it said the test for Beijing would be how they handled a strengthening yuan, leaving China in a bit of bind on how to respond to a rallying currency without raising Washington’s ire. “China will need to demonstrate that its lack of intervention to resist appreciation over the last three years represents a durable policy shift by letting the (yuan) rise with market
forces once appreciation pressures resume,” the Treasury said. Some traders suspect the central bank is starting to signal a desire for the rally to moderate. On Friday, the central bank raised its official yuan midpoint for the 10th straight session - but it was much weaker than market expectations, market participants said. Citi analysts said the PBOC could weaken the currency without direct intervention, including by encouraging repatriation of funds by firms, and easing capital control measures and investment restrictions. “Overall, we think oneway RMB appreciation would face correction pressure, either induced by policy actions or driven by the market,” the analysts said. One source close to the commerce ministry said the yuan’s rise has become “excessive.” “From exporters’ perspective, 6.5 should be an important barrier. The yuan could rise to 6.3, which will be too strong.” Reuters
Business Daily Monday, September 11 2017 9
Greater China Trade
In Brief
Imports beat forecasts but exports show signs of softening
Stock exchanges
Mainland to tighten financing rules
The growth of China’s exports to the United States at 8.4 per cent in August was the slowest pace since a decline in February Elias Glenn and Stella Qiu
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hina p o st e d st r o n ger-than-expected import growth in August, reinforcing views that the world’s second-largest economy is still expanding at a healthy pace despite tighter policy. China’s imports grew 13.3 per cent from a year earlier, official data showed on Friday, handily beating analysts’ forecast of 10 per cent and accelerating from an 11.0 per cent pace in July. Purchases of industrial commodities continued to lead the way as soaring steel prices boost Chinese mills’ appetite for high-quality foreign iron ore to feed a year-long construction boom. “The strong import data suggests that domestic demand may be more resilient than expected in the second half to less accommodative monetary policy,” said Louis Kuijs at Oxford Economics in a note, referring to a clampdown on riskier forms of lending which is pushing up borrowing costs. Exports showed signs of softening, however, with growth cooling to 5.5 per cent from a year earlier, roughly in line with analysts’ forecasts for a 6.0 per cent increase but down from 7.2 per cent in July. Export growth was the slowest since shipments fell in February, but analysts don’t foresee a protracted slowdown for the world’s largest exporter as global demand still appears solid. Germany’s BGA trade association now expects German exports to rise 5 per cent in 2017, double its earlier forecast, Die Welt newspaper reported on Friday. Global manufacturing activity also expanded strongly in August, adding to views that demand was holding up in the current quarter. In addition, China has tended to lag export trends seen elsewhere in North Asia this year. Neighbouring South Korea last week reported robust shipments in August, though the
rate of growth eased slightly from July. China’s electronics exports, which tend to be higher-value and higher-margin goods, increased 7.4 per cent in August, while textile and apparel shipments fell by the single digits. The mixed performance left China with a trade surplus of US$41.99 billion for August, the General Administration of Customs said, the lowest since May. Analysts were expecting China’s trade surplus to have widened to US$48.6 billion in August from July’s US$46.73 billion.
Surplus with U.S. rises
The growth of China’s exports to the United States at 8.4 per cent in August was the slowest pace since a decline in February, while its imports of U.S. goods rose 18.1 per cent on-year after a 24.2 per cent jump in the previous month. Shipments to the European Union rose only 5.2 per cent in August, the second straight month of declining growth, while exports to Southeast Asia and Taiwan grew at a faster rate. Despite a rebound in 2017 from several lean years, China’s trade picture also continues to be clouded by persistent worries of further trade tensions with the United States, China’s largest export market. August saw China with its largest surplus with the U.S. since September 2015 at US$26.2 billion, up from US$25.2 billion in July.
That could give fresh ammunition to U.S. President Donald Trump who has long complained that the trade imbalance between the two nations hurts the U.S. economy. Trump in August authorized an inquiry into China’s alleged theft of intellectual property in the first direct trade measure by his administration against Beijing, but one that is unlikely to prompt near-term change. Beijing has responded that China will tighten controls over IP theft, admitting that its IP protection was “not perfect” as a developing country. Improving global demand, particularly for electronics, has boosted exports for China and other trade-reliant Asian economies this year. But investors have been more focused on its strong appetite for imports, particularly industrial commodities such as iron ore and coal, which have sparked a global price rally and fuelled higher earnings and share prices for many resource-related companies. Sturdy import demand is good news for the government as it prepares for a key Communist Party Congress next month. Fuelled by strong government infrastructure spending, generous bank lending and improving exports, China’s resilience has surprised investors and analysts so far this year. First-half economic growth surged to 6.9 per cent, which should provide enough momentum to easily meet or beat Bejing’s full-year growth target of around 6.5 per cent. Reuters
National bitcoin exchanges awaiting clarification China’s Bitcoin exchanges said on Saturday they are still awaiting clarification from the authorities on a media report that they will be shut down. Bitcoin fell sharply on Friday after Chinese financial publication Caixin reported that China was planning to shut down local crypto-currency exchanges, although analysts said this was just a temporary setback. The news follows China’s move earlier this week to ban so-called “initial coin offerings,” or the practice of creating and selling digital currencies or tokens to investors in order to finance start-up projects. Reuters was not immediately able to verify the report.
Paramount has not received payment from Chinese studios
Shanghai’s hard line on soft cheese could hurt European companies Cheese sales in China are expected to reach RMB5.3 billion this year
Shanghai has halted the import of cheeses such as Roquefort, Brie and Camembert in a move set to damage European exporters, diplomatic and industry sources said on Friday. It is not clear why Shanghai, one of the main entry ports for most of the products, has imposed the suspension. Such cheeses are made with cultures not authorised in China, said a European diplomat who confirmed
Closure report
Investment
Import
Dominique Patton
China’s securities regulator on Friday published draft rules that would restrict borrowing using stocks as collateral, part of efforts to reduce leverage in the financial system and ward off systemic risks. The draft rules on the so-called stock pledged repurchase business, published by the Shanghai and Shenzhen stock exchanges, will curb leverage and are aimed at reducing risk in the event of a sharp decline in stock prices. The value of shares that shareholders have pledged as collateral to borrow money, mainly from brokerages, has quadrupled over two years to more than RMB6 trillion (US$898 billion).
the decision, but the country has allowed them to come in for years. Shanghai’s inspection and quarantine bureau banned blue cheeses such as Roquefort and other soft cheeses including Brie and Camembert, said Vincent Marion, managing director of Shanghai-based online cheese shop Cheese Republic. The business had been notified of the change by its suppliers in late August, he said. The authority directed questions to the General Administration of Quality Supervision, Inspection and Quarantine in Beijing, which oversees food imports for the entire country. It did not respond to faxed questions on the matter. “The European cheese industry is extremely concerned by this ban,” said the diplomat who declined to be named because of the sensitivity of the matter. He said the ban impacts European cheeses more than others because of the large variety of cultures used in European cheese. China permits a relatively small number of edible cultures for use in food.
There was no immediate comment from the European Commission or the French farm ministry. Cheese sales in China are expected to reach RMB5.3 billion (US$821 million) this year, up 26 per cent from last year, according to research firm Euromonitor.
‘Demand for high-end products such as Brie and Camembert is growing’ More than 90 per cent of cheese sold in the market is imported, with most coming from New Zealand and Australia, which supplies the bulk of mozzarella used on pizzas. Demand for high-end products such as Brie and Camembert is growing too however, with the two cheeses accounting for about 15 per cent of sales this year, the Euromonitor data showed. Reuters
Viacom Inc’s Paramount Pictures movie studio still has not received payments from the Chinese studios it entered into a financing deal with in January, Paramount Chief Executive Jim Gianopulos told investors on Friday. The snag in the funding deal comes at a delicate time for Viacom and Paramount, which are in the midst of a turnaround strategy under Viacom’s new CEO, Bob Bakish. Paramount is one of six brands that Viacom is focusing on as part of the strategy. In January, Paramount announced a deal under which two Chinese film companies, Shanghai Film Group and Huahua Media, would invest US$1 billion in Paramount.
10 Business Daily Monday, September 11 2017
Greater China Shadow banking
Trust issues? Beijing targets a US$3 trillion industry In the first half of this year, trust loans increased by RMB1.31 trillion, which compared with RMB279.2 billion in the period last year, according to central bank figures Engen Tham
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s a flood of unregulated cash swirls through the Chinese economy, Beijing has been taking aim at the trust companies whose unrestrained lending practices are worrying regulators. The trusts, at the heart of a vast shadow banking industry, are being pressured to step up compliance and background checks, and are being pushed towards greater transparency. But the fast-growing RMB20 trillion (US$3 trillion) industry, whose lending operations are cloaked behind opaque structures, will be tough to rein in, according to employees at some trusts. A regulatory sanction against one trust, Shanghai International Trust, and a legal case against another, National Trust, offer rare insights into the industry, and reveals just how hard it will be to police it. Shanghai Trust was fined RMB200,000 for selling a product that violated leverage rules, according to a regulator’s notice in January. Regulators provided no further details about the case. Under these rules, property developers are only allowed to borrow up to three times their existing net assets. According to two people with direct knowledge of the case, an unknown sum was loaned by China Construction Bank through Shanghai Trust to Cinda Asset Management Company. Cinda then invested the cash. One of the sources said Cinda used the cash to acquire land, a sector rife with speculation that regulators have singled out as a “risky” destination for trust company loans. The source provided no further details. Shanghai Trust, Cinda, CCB and the China Banking Regulatory Commission (CBRC) declined to comment for this story.
Steel loans
The case against National Trust, which had revenue of RMB655 million in 2016, involves wealth management products linked to the steel industry. The trust was sued in June this year by eight investors who allege it misrepresented the risks involved in products it sold them and failed to adequately assess the guarantor’s creditworthiness. The trust skirted restrictions on loans to the steel industry by using the products to raise money to lend to a subsidiary of Bohai Steel Group, according to Tang Chunlin, a lawyer at Yingke Law Firm, who is representing the investors. The plaintiffs invested different sums in the wealth management products, which National Trust promised would deliver an annual return of over 9 per cent. National Trust lent the money collected to a Bohai subsidiary, Tianjin Iron and
Steel Group Co, according to documents reviewed by Reuters. Bohai Steel Group, which is undergoing a state-financed restructuring, has liabilities of around RMB192 billion. National Trust has now defaulted on the product, according to Tang and Gongyu Zhou, one of the eight investors, because Tianjin Iron and Steel is unable to pay back its loan. The products were also illegally sold via third-party non-financial institutions, Tang and Zhou said. Zhou said he invested RMB1 million in the product over two years from 2015 through 360caifu.com, an online finance platform. Bohai Steel Group, Tianjin Iron and Steel and 360caifu.com did not respond to requests for comment. National Trust declined to comment.
Structural concerns
One of the biggest challenges facing regulators is that many trusts employ a baffling array of structures, and funnel money through complex webs of beneficiaries, which makes untangling transactions extremely difficult. Nine people working at trusts, including the two with knowledge of the Shanghai Trust case, said such complex structures were often deliberately used to sidestep lending restrictions on banks and borrowers. “Really, only the project manager knows exactly how the money flows,” said a senior employee at one trust firm. The source and others at the trust firms could not be named because they were not allowed to speak to the public.
Insurance link
The practices of the trusts, and the speed at which the industry is growing, have made them a target for Beijing as it tries to keep a lid on risky lending, cool overheated markets and control corporate debt. In April, Deng Zhiyi, head of the CBRC’s trust department, warned of “severe risks” from funds flowing into the real estate, coal and steel
sectors through trusts. The industry is now roughly a tenth the size of China’s commercial banking sector. While the companies are overseen by the CBRC, they are not held to the same standards as banks. For example, they do not have to meet the same capital adequacy standards. However, the regulator set out in detail in April certain structures that the trusts should not use, such as money-pooling schemes and structuring products to avoid restrictions on leverage. That was “a signal for financial institutions that from a legal and enforcement perspective, we are entering a stricter period,” said Armstrong Chen, financial compliance partner at King & Wood Mallesons. Trust firms will also have to start registering the details of their products, identifying the ultimate borrower of funds, this year, said Chen, who is in regular contact with the regulators.
Key Points Chinese regulators putting pressure on lending by trusts Opaque structures used by trusts make them difficult to control Two deals shed light on trust operations
Chen said the requirement would improve transparency, but people at trust firms say it will still be difficult to detect the use of the under-the-table agreements typical of the industry. The Shanghai Trust case also reflected the tougher line being taken by regulators. The fine would have been negligible for the state-owned company, one of the largest trusts with a total of RMB3.89 billion in revenue at the end of 2016. But according to three different sources with direct knowledge, Shanghai Trust was also barred from selling products to insurers for
three years, a blow to a company that had made considerable sums selling products to the sector in recent years. One insurer invested as much as RMB10 billion in just one of its property projects, according to one of the sources.
Compliance efforts
Some of the trusts are already responding to the government pressure. Anxin Trust is increasing the number of onsite visits by staff and has doubled its compliance team, said a person with direct knowledge of the company’s activities. The trust is also looking at less risky deals – in healthcare, for example, rather than the more volatile property sector. A spokesman for Anxin said managing risk was a priority for the trust. China Industrial International Trust is requiring staff to include photos of site visits to prevent them from faking trips. Documents have to be signed by all participants face-to-face, said a person with direct knowledge of the company’s operations. The company declined to comment. Despite these changes, the government’s job managing the trusts keeps growing. In the first half of this year, trust loans increased by RMB1.31 trillion, which compared with RMB279.2 billion in the period last year, according to central bank figures. That growth will be a challenge for the regulator, which is already facing staff shortages as it struggles to keep up with a broader official crackdown on financial risk. The trusts see more boom times ahead. “The demand for trust loans is increasing,” an internal report at a large trust firm in May said. “In the past, state-owned-enterprises would not consider such loans, but are now considering them,” said the report, adding that the trend started in March. A source made the report available to Reuters on the condition the name of the company was not disclosed. Reuters
Business Daily Monday, September 11 2017 11
Greater China Oil industry
CEFC invests US$9.1 bln in Rosneft as Glencore, Qatar cut stakes Glencore and QIA agreed to buy a 19.5 per cent stake in Rosneft in December 2016 for over 10.2 billion euros Olesya Astakhova and Chen Aizhu
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hinese conglomerate CEFC will buy a 14.16 per cent stake in Russian oil major Rosneft for US$9.1 billion from a consortium of Glencore and the Qatar Investment Authority, strengthening the energy partnership between Moscow and Beijing. CEFC China Energy has grown in recent years from a niche oil trader into a sprawling energy conglomerate and the transaction will allow China, the world’s second largest energy consumer, to boost cooperation with the world’s top oil producer. The deal comes as the United States imposes a new round of economic sanctions on Russia, making it difficult for large Western firms such as Glencore to develop partnerships and increase ties with state-owned firms such as Rosneft. Glencore said in a statement that CEFC will buy shares at a premium of around 16 per cent to the 30day volume weighted average price of Rosneft shares without naming the price. A CEFC spokesman said the company would pay USUS$9.1 billion. Rosneft’s market capitalisation stands at USUS$57 billion and the deal makes it one of the largest investments ever made by China into Russia. Glencore and QIA will retain stakes of 0.5 per cent and 4.7 per cent in Rosneft respectively. The Kremlin has been seeking to
expand its ties with China, especially since the West imposed wide-ranging sanctions on Moscow to punish it for the annexation of Crimea and an incursion into east Ukraine in 2014. Russia tops the list of Chinese crude suppliers where it competes with its arch-rival Saudi Arabia, the world’s largest oil exporter.
Opaque deal
Glencore and QIA agreed to buy a 19.5 per cent stake in Rosneft in December 2016 for over 10.2 billion euros to help the Kremlin plug budget holes. The transaction coincided with expectations of political detente between Moscow and Washington after Donald Trump became U.S. president and pledged to improve ties with Moscow. Rosneft is run by Igor Sechin, a close ally or President Vladimir Putin, who awarded special state decorations to the head of Glencore Ivan Glasenberg for executing the transaction. Putin also awarded state decorations to the Russian head of Italian bank Intesa SanPaolo, Antonio Fallico, for helping fund the deal with a 5.2 billion euro loan. The transactions has, however, raised a lot of questions among bankers and market analysts. Glencore and QIA never disclosed the final beneficiaries of the stake and Intesa could not syndicate the loan from other banks to share risks as most lenders declined to get involved because of new sanctions on Russia. Intesa said its 5.2 billion euro loan
will be reimbursed following the CEFC deal. “It always looked as if the Qatar-Glencore deal was hastily arranged so as to allow the privatisation to take place by the end of last year and the proceeds booked to the federal budget,” said Chris Weafer from Macro Advisory consultancy. Last month, Washington imposed further sanctions on Moscow in the strongest action against Russia since 2014 - in part as a response to conclusions by U.S. intelligence agencies that Russia meddled in the presidential election. On Friday, Sechin said QIA and Glencore cut the stakes partially because of a decline in the U.S. dollar against the euro, which made debt servicing more expensive. Sechin told reporters CEFC would
get access to Rosneft’s oil fields and petrochemical projects in East Siberia to guarantee bigger synergies. “From Rosneft’s point of view, the arrival of such a partner is positive as it shows that the foreign investors still keep their interest to the Russian oil industry,” said Alexander Kornilov from Aton brokerage in Moscow. CEFC said the deal would give it annual equity oil production of 42 million tonnes (840,000 barrels per day) and access to oil and gas reserves of 2.67 billion tonnes (20 billion barrels). The deal will be China’s second largest oil and gas acquisition after the US$15.1 billion purchase of Canada’s Nexen by CNOOC in 2013. Earlier this decade, Beijing also loaned US$25 billion to Russia to help it build a pipeline from Siberia. Reuters
Shareholding
HNA Group says committed to disclosure on future shake-ups The group is committed to disclosures on future changes of its shareholding structure, the head of the conglomerate’s international unit said on Friday, as long-standing concerns persist over who runs one of the most acquisitive Chinese buyers of overseas assets Elzio Barreto and Julie Zhu
HNA has been in the spotlight together with other Chinese conglomerates for the billions of dollars they have splashed on marquee real estate properties and global brands, as Beijing cracks downs on what it deems excessive deals. The privately-owned group, which has entered into US$50 billion of deals over the last two years, however, doesn’t expect any changes to its shareholding structure in the near future, said Wang Shuang, the group’s chief investment officer and chief executive of its international unit. “If you are a private company, basically you do not need to disclose who is your shareholder. But since HNA is already a global conglomerate, our partners and investors, they are curious about who’s controlling HNA
Group,” he told a conference in Hong Kong. The sprawling conglomerate in late July announced a shareholding shake-up, saying a new New York-based charitable foundation would act as its single-biggest stakeholder with a 29.5 per cent stake, in a bid to quash concerns over its ownership. “The reason why HNA
Group tries to be transparent is because we have nothing to hide,” said Wang, adding the group will disclose such ownership changes on a regular basis. However, HNA did not provide details at the time of how the shares were placed in the new charity’s hands, how the overall foundation would be run or how it would vote or
use its shares. While uncertainty over political and economic conditions has slowed the pace of outbound deals from China, HNA will continue to look for potential targets that could create value for the group, Wang added. The HNA executive said the conglomerate looks at many different companies before making an acquisition, with the success rate of deals at only 5 per cent of what it examines. Meanwhile, he said HNA welcomes Beijing’s new guidelines on overseas investment, which supports investments in sectors including high-tech manufacturing, while restricting deals in sectors ranging from property, hotels and entertainment to sports clubs and films. “This is a guideline for us to basically have a good picture
of what you can do and what you cannot. The most uncertainty is basically there’s no direction for you. Once there’s a direction, you can find ways to follow.” Apart from Chinese banks, Wang said, HNA was also working with several foreign investment banks. JPMorgan, UBS, Credit Suisse, Barclays and Deutsche Bank were the main global banks, he said, pushing back against media reports that some Wall Street banks were shying away from its business. Reuters reported earlier this week that Goldman Sachs had suspended its preliminary work on a planned U.S. IPO for HNA’s unit Pactera. HNA said that it had not appointed any investment bank to assist in the IPO and all joint projects between the company and Goldman are “functioning normally”. Reuters
12 Business Daily Monday, September 11 2017
Asia GDP
Japan’s Q2 economic growth revised down from stellar first reading Japan’s GDP data tends to experience big revisions due to the way the Cabinet Office estimates capital expenditure, consumption and inventory in the preliminary reading Leika Kihara
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apan’s economic growth in the second quarter was much slower than seen in a stellar preliminary reading, government data showed on Friday, confounding hopes for a long awaited pick-up in domestic demand. The downgrade was widely expected after data used to revise gross domestic product (GDP) figures showed capital spending growth in April-June slowed from the previous quarter. While the disappointing data may weaken confidence in the government’s economic policies and the business outlook, analysts still expect the economy to sustain a steady recovery as robust global demand underpins exports and a tightening job market improves the prospects for higher wages. “It’s indeed a big revision, but growth in the economy and capital expenditure is still pretty fast,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “There’s no need to be pessimistic about Japan’s economy. Given strong corporate profits and improving
business sentiment, capital expenditure will remain firm.” Japan’s economy expanded at an annualised rate of 2.5 per cent in April-June, much less than an initial estimate of 4.0 per cent growth, Cabinet Office data showed. While it was lower than a median market forecast for a revision to 2.9 per cent growth, the economy still managed to post a sixth straight quarter of expansion. Ja p a n ’ s G D P d ata t e n ds t o
experience big revisions due to the way the Cabinet Office estimates capital expenditure, consumption and inventory in the preliminary reading. The downgrade in annualised GDP growth, which was the biggest since comparable data became available in 2010, was largely due to a sharp markdown in corporate capital spending. The quarter-on-quarter pace of rise in capital expenditure was revised
down to 0.5 per cent from an initial reading of 2.4 per cent, reflecting data that became available after the release of preliminary GDP. Private consumption, which makes up 60 per cent of GDP growth, rose 0.8 per cent, roughly unchanged from the preliminary 0.9 per cent increase, the data showed. The data follows a recent run of indicators that suggests economic growth should continue in the current quarter thanks to solid exports and factory output. “July data on industrial production and consumer spending point to a slowdown in the third quarter. But the bigger picture is that the economy is on track for the seventh consecutive quarter of expansion,” said Marcel Thieliant, senior Japan economist at Capital Economics. Wage growth and household spending, however, remain lacklustre despite a tight job market, keeping the Bank of Japan under pressure to maintain its massive monetary stimulus even as its U.S. and European counterparts contemplate a gradual exit from their ultra-loose monetary policies.
Anti-corruption
With Trump meeting, Malaysia’s PM seeks to put 1MDB scandal behind him The Malaysian Anti-Corruption Commission has arrested dozens of top officials under the anti-graft campaign Rozanna Latiff and Emily Chow
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n a room packed with Malaysian civil servants, foreign ministry secretary general Ramlan Ibrahim raised his right hand as he read out an anti-corruption pledge. He was among thousands of state officials nationwide to take such an oath in the past several weeks, part of an anti-graft campaign called by Prime Minister Najib Razak. “The citizens are becoming more informed … they ask for public service which is more efficient, transparent and fair,” Ramlan said after the event in Putrajaya, the administrative capital. The campaign comes as Najib prepares to meet President Donald Trump in the United States this week, where the Justice Department and the Federal Bureau of Investigation are pursuing investigations into 1Malaysia Development Berhad (1MDB), a state fund the prime minister oversaw. Najib must also call a general election by mid-2018 although some commentators have suggested he could do so this year itself. The Malaysian Anti-Corruption Commission (MACC) has arrested dozens of top officials under the anti-graft campaign, including officers at national oil company Petronas and state-controlled palm oil firm Felda. More than 600 arrests were made just this year, MACC data showed. The actions are unusual in the Southeast Asian country, where corruption is seen as widespread. Four out of five Malaysians aged 18-35 cited corruption as the most serious issue facing the country, according
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to a survey released last month by the Global Shapers Community, a programme under the World Economic Forum. But critics say the campaign ignores the elephant in the room: 1MDB. The state fund is being investigated in at least six countries for money-laundering and misappropriation of funds, including an alleged US$681 million transfer into the prime minister’s personal account. Malaysia’s attorney-general closed the 1MDB probe in January 2016, and cleared Najib of any wrongdoing. The U.S. Justice Department has sought to seize about $1.7 billion in assets allegedly bought with stolen 1MDB funds. Its lawsuits say those involved included Najib’s step-son Riza Aziz and his close associate Jho Low. In court filings last Tuesday, the FBI, which is conducting a criminal investigation, alleged that potential witnesses in the case fear for their safety and need protection. But investigations into 1MDB in Malaysia appear to have shut down. MACC had “a roomful” of files on 1MDB, a former MACC official told Reuters, but the commission could not pursue it once Malaysia’s attorney-general declared the case closed.
Reopen case
Cynthia Gabriel, director of the Kuala Lumpur-based Center to Combat Corruption and Cronyism (C4), said there was “enough substance” for MACC to reopen the case on 1MDB. MACC declined to comment on whether the commission would reopen its 1MDB investigation. “No comment on that, we are very fair in investigating anybody here,
whoever they are,” deputy chief commissioner Azam Baki told reporters in Putrajaya. Anti-corruption campaigners say they fear Trump’s invitation to Najib to visit the United States may affect the investigations in the United States. “Territorial influence and geopolitical interests of the United States appears to have hollowed out its commitment to fight international corruption, much to the detriment of the future of Malaysia and the world,” Gabriel said.
‘Anti-corruption campaigners say they fear Trump’s invitation to Najib to visit the United States may affect the investigations in the United States’ U.S.-based Human Rights Watch (HRW) said Trump’s invitation was “particularly inappropriate”, given Najib’s use of repressive laws to stifle critics. “There’s little doubt that Najib will use this White House visit to burnish his credentials going into next year’s election in Malaysia, and redouble his repression of critics using the stamp of approval from this visit,” HRW’s deputy Asia director Phil Robertson told Reuters.
Najib has said he hopes his visit will drum up more trade and investment for Malaysia. “I would like to see this as a two way mutually beneficial partnership,” he told reporters on Friday. “I hope the U.S. sees Malaysia as a reliable partner on issues such as trade and investment, security partnership, counter terrorism and I also hope that U.S. companies see us as among the best countries to invest in.” A government source said a defence agreement was also on the table, although no details were immediately available.
“Stinks to high heaven”
Senior leaders of the ruling United Malays National Organisation (UMNO) are concerned the party may suffer election losses from the string of graft scandals linked to Najib, a source aware of discussions within the party said. With Najib and the MACC’s cleanup campaign, the source said, the party hopes to appease Malaysians frustrated with the corruption and draw back foreign investors who fled as the probe into 1MDB expanded. Besides diverting attention from 1MDB, critics say Najib is also using MACC’s anti-graft campaign to target political opponents such as Lim Guan Eng, an opposition leader who is the top elected official in Penang province. He has been charged with abuse of power in the purchase of a bungalow. “You are going after all sorts of offences, but the biggest one, it stinks to high heaven,” said Lim, the secretary-general of the Democratic Action Party. “Everyone can smell it, except you.” 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 Monday, September 11 2017 13
Asia Sanctions
In Brief
Philippines suspends trade with North Korea to comply with UN resolution The Philippines has suspended trade relations with North Korea to comply with a UN Security Council resolution over its repeated missile tests, Manila’s foreign minister said on Friday Th e U n i t e d Stat es a n d o th e r Western countries have asked the United Nations to consider tough new sanctions on North Korea after its test last week that it said was of an advanced hydrogen bomb. “We can say we have suspended trade relations with North Korea,” F o r e i g n M i n i st e r A l a n P e t e r Cayetano told reporters after a meeting with the U.S. ambassador on cooperation on an anti-drugs programme. Tension on the Korean peninsula has escalated as North Korea’s young leader, Kim Jong Un, has st e p p e d u p th e d ev e l o p m e n t of weapons in defiance of UN sanctions. It has tested a series of missiles this year, including one that flew over Japan, and conducted its sixth and biggest nuclear test on Sunday. The Philippines is North Korea’s
fifth-largest trade partner, with bilateral trade from January to June this year worth US$28.8 million, according to the state-run Korea Trade-Investment Promotion Agency.
“We will fully comply with UNSC resolution including the economic sanctions” Alan Peter Cayetano, Philippine Foreign Minister
On an annual basis, North Korea i m p o rt e d US $28 .8 m i l l i on of products from the Philippines in
2016, an increase of 80 per cent from the previous year, while Manila’s imports from Pyongyang surged 170 per cent to US$16.1 million. According to the Philippine Department of Trade and Industry (DTI), the main exports to North Korea in 2015 were computers, integrated circuited boards, bananas and women’s undergarments. “The UN Security Council is quite clear,” Cayetano said. “Part of these are the economic sanctions and the Philippines w i l l c o m p l y . W e h av e b e e n communicating with the DTI s ec r eta r y a n d I thi n k i t w as yesterday and the other day, we have gotten direction from the (presidential) palace to support the UN Security Council.” Cayetano said the trade ban covered raw computer chips from the Philippines. Reuters
Banking
Australia watchdog says probe to dig deep into CBA culture It said in a statement its inquiry would examine risk management, compliance, remuneration and accountability at CBA Tom Westbrook
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ustralia’s banking regulator spelled out plans on Friday for a major investigation into back-to-back scandals at Commonwealth Bank of Australia, warning that public trust in the financial sector was at rock bottom. The watchdog, which has the authority to remove company directors, named a high-powered panel to dig into the structural failures that led to Australia’s largest lender being sued for alleged money-laundering last month. “There’s no quick fix here, it’s a deep-seated issue in the view of the community that there is a lack of trust,” Australian Prudential Regulation Authority (APRA) Chairman Wayne Byers said at a business lunch in Sydney. APRA said its probe aimed to identify whether “any core organisational and cultural drivers” had contributed to the troubles at CBA in recent years. The inquiry, launched after financial intelligence agency AUSTRAC sued Commonwealth Bank on Aug. 3 for suspected money-laundering breaches, comes amid demands for a powerful quasi-judicial inquiry into the financial sector more broadly. Reserve Bank Deputy Governor Guy Debelle said the public had a right to feel concerned about governance standards at Australia’s major lenders, four of which control 80 per cent of the market and are deemed too big to fail. “The drip feed of issue after issue after issue just reinforces the view that’s out there,” he said in a speech at the same lunch. “It’d be very nice to have some comfort actually that the cupboard is now bare, that there isn’t anything more.” In the latest scandal to engulf a major Australian bank, AUSTRAC accused Commonwealth of “serious and systemic non-compliance” with anti-money laundering rules that allowed criminals and terror
Ratings agencies
India market regulator proposes tighter rules India’s capital markets regulator proposed additional changes to credit ratings agencies on Friday, including a restriction on cross-holdings and spinning off non-ratings businesses. The move comes just months after the watchdog set tougher rules, including mandating ratings agencies to more closely monitor whether issuers are meeting their debt obligations and increasing disclosure requirements. The new proposals by the Securities and Exchange Board of India (SEBI) include requiring a ratings agency to hive off any other business it does, apart from assigning ratings and economic or financial research, to a separate entity. M&A
Bain, SK Hynix group increase bid for Toshiba unit A group including Bain Capital and South Korea’s SK Hynix has raised its offer for Toshiba Corp’s chip business to 2.4 trillion yen (US$22.3 billion) including a 200 billion yen investment in infrastructure, sources familiar with the matter said. The offer by the consortium, which is led by the U.S. private equity group and the South Korean chipmaker as well as Japanese statebacked investors, was higher than an initial offer of around 1.94 trillion yen, according to the sources who requested anonymity because the talks were confidential. Markets
Tokyo bourse approves listing of first ESG funds
financiers to wash millions of dollars through its systems. Last year, CBA admitted using unscrupulous practices to cheat people out of life insurance payments, and in 2014 Chief Executive Officer Ian Narev publicly apologised after the bank’s advisors were found to have given poor financial advice.
Key Points APRA inquiry will examine culture and governance at CBA Preliminary report due Jan. 31, final report due Apr. 30 CBA says will cooperate fully Probe follows allegations of money laundering The AUSTRAC lawsuit is the first of its kind against a major Australian bank and could expose CBA to the biggest corporate fine in Australian history, potentially amounting to billions of dollars. In addition to APRA’s follow-up probe, corporate watchdog the Australian Securities and Investments Commission has opened a separate investigation into the lender, while
a class action law firm is planning a suit on behalf of shareholders. The bank says a coding error was to blame for most of the suspicious transactions and plans to defend itself in court. Even so, in the wake of the crisis it has slashed executive bonuses, cut a third of its non-executive directors and flagged that CEO Narev would stand down by mid-2018.
Heavy hitters
APRA said in a statement its inquiry - the first time it has made an investigation public - would examine risk management, compliance, remuneration and accountability at CBA. The inquiry would be run by former Reserve Bank of Australia director Jillian Broadbent, former APRA chairman John Laker and former Australian Competition and Consumer Commission chairman Graeme Samuel. It would deliver a progress report by Jan. 31 and a final report by April 30. CBA said it would cooperate with the inquiry. The bank’s shares fell 1 per cent, with other financial stocks, while the broader market was down 0.4 per cent. Reuters
Japan Exchange Group, the operator of the Tokyo Stock Exchange, said on Friday it had approved the listing of three socially responsible exchange-traded funds - the first of their kind in Japan - created by Daiwa Asset Management. The exchange approved the listing of Daiwa ETF FTSE Blossom Japan Index, Daiwa ETF MSCI Japan ESG Select Leaders Index, and Daiwa ETF MSCI Japan Empowering Women Index. The funds will track the socially responsible indexes also known as ESG, or environmental, social, governance - that Japan’s Government Pension Investment Fund (GPIF) adopted in July. Corruption
Vietnam prosecutes former c.bank exec Vietnam police said on Friday they had charged a former central bank deputy governor with “lack of responsibility”, as the country extends its corruption crackdown in the banking and energy sectors. Vietnam’s scandal-hit energy firm PetroVietnam and the banking sector are at the heart of a sweeping high-level corruption crackdown in the communist state that has already led to the dismissal of a politburo member and a vice trade minister. The Ministry of Public Security said in an online statement it had prosecuted Dang Thanh Binh, 63, a former State Bank of Vietnam deputy governor, with “lack of responsibility that leads to serious consequences”.
14 Business Daily Monday, September 11 2017
International In Brief Brazil
Members of Temer’s party charged with criminal organization Brazil’s top prosecutor on Friday charged six lawmakers from President Michel Temer’s Brazilian Democracy Movement Party with forming a criminal organization, the latest in a barrage of charges in the country’s sprawling corruption scandal. Those accused by prosecutor Rodrigo Janot in a filing with the Supreme Court include former senator and president Jose Sarney, the government’s leader in the Senate Romero Juca and four other current senators. A corruption scandal involving cartels of companies bribing officials for public contracts has enveloped most of Brazil’s political elite with Janot expected to issue another charge against Temer in coming weeks. Congress
Trump calls for a tax reform “speed-up” U.S. President Donald Trump said on Saturday that he will ask the Republicancontrolled Congress to further speed up its efforts to overhaul the U.S. tax code, citing the potential impact of Hurricane Irma as a reason to hasten reforms. “I think now with what’s happened with the hurricane, I’m going to ask for a speedup. I wanted a speedup anyway, but now we need it even more so,” the president said at the outset of a Cabinet meeting at Camp David. The White House released a video of his remarks.
Monetary policy
ECB policymakers agree on cutting stimulus European Central Bank policymakers agreed at their meeting last week that their next step would be to begin reducing their monetary stimulus, three sources with direct knowledge of the discussion said
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fter 2-1/2 years of massive money-printing, the ECB is taking baby-steps towards weaning the euro zone off the easy cash that has helped boost the economy but is also blamed for creating bubbles in richer countries such as Germany. The ECB left its policies unchanged. But President Mario Draghi suggested October would be decision time regarding the future of the 2.3 trillion euros (US$2.8 trillion) bond-buying programme. Policymakers debated various scenarios, he said. The four options being considered for reducing its bond buying, according to sources who asked not to be named, include cutting its monthly buying from the current 60 billion euros to 20 or 40 billion from the start of 2018, with the scheme running for another six or nine months. The decision was likely to come at the Oct. 26 meeting and should be backed by a broad consensus, the sources said. One suggested a compromise could be found for setting monthly purchases somewhere between 20 billion and 40 billion euros. The sources added that much of the focus of the discussion was on the overall amount of the purchases, including the reinvestment of proceeds from maturing bonds, which will slowly rise towards 15 billion euros
per month next year, the sources said. The ECB declined to comment on the report, which pushed the euro and government bond yields in the single currency bloc higher.
Inflation
Despite solid economic growth in the euro zone, inflation has yet to rise back to the ECB’s target of almost 2 percent and has been further curbed by a recent rise in the euro against major currencies, which makes imports cheaper and exports less attractive. The rally in the euro was raising the chances that the ECB would opt to phase out quantitative easing only very slowly next year and may look for other ways to support the economy. The sources said policymakers also agreed that interest rates will not be raised before the asset buys end, indicating by default that any extension of the programme would also push out the first rate hike. Indeed, Irish central bank governor Philip Lane said on Friday the ECB would maintain its easy policy stance until it is happy with the path of inflation and cited a new round of cheap loans, or TLTRO, as one of its available tools. Even Germany’s central bank governor Jens Weidmann, who has long
Venezuela
Maduro seeks debt negotiations after U.S. sanctions Venezuelan President Nicolás Maduro has invited bondholders to unspecified “negotiations” over the country’s foreign debt in coming days, in response to recent U.S. financial sanctions. With Venezuela deep in recession and its currency reserves at their lowest in more than two decades, the Maduro government and state oil company PDVSA have to pay about US$4 billion in debt and interest during the rest of 2017. “All bondholders are invited to various rounds of negotiations over the next few weeks,” the president said last week. Trade
German surplus narrows as industrial motor sputters German imports grew far faster than exports in July, narrowing the trade surplus and suggesting Europe’s largest economy will again rely on domestic demand to drive growth in the third quarter as a stronger euro acts as a headwind for exporters. Seasonally adjusted exports rose by 0.2 per cent on the month while imports were up 2.2 per cent, data from the Federal Statistics Office released on Friday showed. Both figures came in weaker than expected. The seasonally adjusted trade surplus narrowed to 19.5 billion euros (US$23.55 billion) from 21.2 billion euros in June.
called for the ECB to step off the QE pedal, struck a conciliatory tone on Friday. This showed that policymakers are keen to avoid a repeat of the public discord that has marred the history of the quantitative easing programme since its 2015 launch, with decisions criticised by national central banks hostile to the policy and even by some within the ECB’s own Executive Board.
Limits
Any extension to the bond scheme will leave the ECB exposed to the risk of running out of eligible bonds to buy under the strict conditions it has set itself to limit market disturbance and not become a blocking minority in any country. But the sources said the so-called issuer limit, which caps any ECB buying to a third of a country’s outstanding debt, is not up for discussion because it would open the programme up to a legal challenge. Maintaining the cap and the programme’s other self-imposed constraints would curtail the purchases as the ECB is already approaching its limit in several countries - notably Germany, the euro zone’s biggest economy and the ECB’s top critic. This meant the ECB may have to deviate even farther from the national quotas adopted at the outset of the programme, which determine how much debt it can buy from each country depending on its shareholding in the central bank. Indeed, the ECB has been buying fewer German and more Italian and French bonds than it is supposed to for months, with purchases of public-sector paper issued by Germany hitting an all-time low in August. Reuters
Emerging markets
Sovereign wealth funds boost private investments Private market investments have become a crucial part of sovereign wealth funds’ (SWF) portfolios, helping them better tap the potential of key emerging markets such as China and India, a Goldman Sachs Asset Management executive said Olzhas Auyezov
Global sovereign wealth funds have been increasing their spending on alternative investments such as private equity over the last few years, in part due to lower returns on other asset classes, especially bonds. Sheila Patel, chief executive for international business at Goldman Sachs Asset Management -- whose clients include SWFs, said such investments were particularly important in leading emerging markets where there are fewer listed companies than in developed economies. “A key point of discussion at this conference and a key opportunity but also a challenge is investing in long-term assets, which include private assets, private equity, private credit,” Patel told Reuters at a SWF conference in Kazakhstan. “Given the focus and the importance of getting the emerging markets right, such as China and India, private markets play a critical role of investing in the overall strategy in these markets,” Patel said in the
interview. With some US$6.5 trillion in assets, sovereign investors already account for 19 per cent of capital committed to private equity. By the end of 2016, 61 per cent of SWFs had allocations to private equity, a record high, and 63 per cent to real estate.
Key Points Funds seek alternatives to bolster flagging returns Private equity, real estate investments increasing One of the world’s largest SWFs, the Abu Dhabi Investment Authority (ADIA), said in July it was looking for direct investment opportunities in private equity and alternative investments after returns slowed last year.
U.S. policy concerns
Patel said SWFs had the flexibility to complement or avoid index investing in markets such as China and India,
dominated by state-owned companies and traditional sectors such as energy and telecoms. “So we see quite a bit of activity from clients in both the public, listed, active and liquid markets like in China and India and emerging markets overall as well as in the private markets,” she said. Meanwhile, Patel said clients were concerned about growing protectionism in the United States and the debate about the government’s debt ceiling. “The debt ceiling’s linkage to other issues will be what clients are watching,” she said, adding that investors were concerned U.S. equity market valuations “are a bit stretched”. “Right now, you’ve seen quite a bit of strength in the U.S. equity markets so far this year. “A lot of that is predicated on some of these changes, whether it’s tax reform, the focus that everyone expected on infrastructure, some of the opportunities around that, and unfortunately none of those have had much progress yet.” Reuters
Business Daily Monday, September 11 2017 15
Opinion Business Wires
The Times of India The GST Council on Saturday formed a five-member ministerial panel to oversee the technical glitches that the tax filing portal was increasingly encountering. The return filing date deadline of GSTR-1 for July, that was to end yesterday, has also been extended by a month till October 10. In view of taxpayers increasingly complaining about the GST portal not functioning properly which was posing difficulties for them in return filing, the issue was raised by states at the Goods and Services Tax (GST) Council, state finance ministers said.
Philstar The Bangko Sentral ng Pilipinas (BSP) said the latest inflation forecasts set by the Monetary Board are still ‘doable’ even as the consumer price index in August quickened to its fastest pace in three months. BSP officer-in-charge Diwa Guinigundo said the inflation forecasts set by the Monetary Board at the rate setting meeting last Aug. 10 are still ‘doable’ despite the rise in inflation to 3.1 per cent in August from 2.8 per cent in July. He said the uptick was due to higher oil prices, power adjustment, and rice prices at the peak of the lean season.
Viet Nam News Vietnam is home to a growing number of tech-savvy “connected consumers” that global corporations will increasingly seek to court, according to a study conducted by Nielsen in cooperation with Demand Institute. The study found that companies looking for growth opportunities are increasingly unable to target the traditional middle class, whose incomes have grown sluggishly in recent years. Instead, they may turn to “a new emerging type of consumer,” said Rakesh Dayal, executive director of Consumer Insights, Nielsen Vietnam. The study found that the so-called connected consumers will account for nearly 40 per cent of the global population by 2025.
The Korea Herald South Korea’s financial regulator said yesterday it has asked private money lenders to voluntarily cut their combined volume of television ads by 30 per cent during the second-half of this year. The tightened regulation is part of the Financial Services Commission’s plan to curb speed loans at a time when the government is trying to tackle the rise in heavy debtors. In a statement, the regulator said it asked money lenders to show clearer warnings on potential defaults in their TV commercials.
Russia plays chess with Glencore, China and Saudi Arabia Liam Denning a Bloomberg Gadfly columnist
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hen it comes to oil, Russia likes to keep its friends close, its frenemies closer and, as for its customers, it invites them to just move in. CEFC China Energy Co., a closely held energy and finance conglomerate, is buying a stake of 14.16 per cent in Rosneft PJSC for roughly US$9 billion. The stake represents the majority of the 19.5 per cent stake in Russia’s national oil champion that was bought from the state only last December by a consortium consisting of Glencore Plc and Qatar’s sovereign wealth fund. That Glencore and the Qataris are offloading a hefty chunk of their holding isn’t a huge surprise. That original deal was a marriage of convenience. The Kremlin needed money. Glencore, meanwhile, wanted a multi-year supply agreement for Russian oil. Having served its purpose, Glencore retains that contract, and selling to the Chinese brings in enough to pay off the debt used in the original deal at a notional premium of 10 per cent over what the consortium paid. Rosneft, meanwhile, says it is glad the buyer was “specifically a Chinese corporation,” adding: We hope that this partner will provide the possibility to gain synergies from cooperation. Saudi Arabia, take note. Strange things have happened since the oil crash began in late 2014. Russian oil production has proven remarkably resilient both to the oil crash and sanctions -- in part because of a slump in the rouble’s value and some creative financing like that deal with Glencore. Meanwhile, Russia and Saudi Arabia have become noticeably cozy, jointly leading the current oil-supply cut agreement struck in Vienna. They aren’t really friends, though; more like frenemies. Low oil prices have provided some common ground. But it is the reality of a more competitive market for barrels that has forced them together. And both know it cannot last indefinitely. China is ground zero in the battle for market share. Growth in demand for oil in the industrialized world is effectively over; Asia is the 21st-century prize. Here is where China has been getting its crude oil imports from in recent years: China has diversified its supplies -- and Russia
“
has benefited: Rosneft has struck deals all over the place. BP Plc took a stake of about a fifth in 2012, as partial payment for its share of TNK-BP, a deal that consolidated domestic reserves and production under Russian control. It also agreed to a farreaching joint venture with Exxon Mobil Corp., designed to bring in capital and expertise to develop Russia’s offshore Arctic reserves and shale assets. Sanctions have mostly stymied that one. Still, Rosneft has also found time (and money) to prop up Venezuela’s struggling national oil company with advance payments for oil. And, just prior to Friday’s news, Rosneft signed a longterm supply and cooperation agreement with CEFC. For the global oil market, Rosneft’s manoeuvring epitomizes the sharper competition that comes with a slower growth. China, as buyer, holds more power than it once did. Saudi Arabia has been making its own moves to strengthen its ties to China, investing in downstream assets there. Focused on the planned IPO of its own national oil company, though, it expends much effort in holding together the supplycut coalition. Meanwhile, nominal partner Russia is playing the long game (it has also made big strategic moves in that other growth market, India). This is another reason why Riyadh ought to reconsider its current policy (but it probably won’t). Perhaps it even sees the potential to play Russia at its own game, offering a stake in a newly listed Saudi Arabian Oil Co., or Saudi Aramco, to a Chinese investor when the time comes. If that is being considered, though, then Riyadh may want to consider one important aspect of Rosneft’s latest deal: price. CEFC’s implied price of about US$6 a share equates to 5.5 times Rosneft’s 2017 Ebitda. That is far below the multiples garnered by the likes of Exxon -closer to 10 times -- which underpin hopes of a multi-trillion valuation for Aramco. If Saudi Arabia decides to invite China in, then it shouldn’t expect its guest to pay a premium for the privilege. Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore. Bloomberg Gadfly
For the global oil market, Rosneft’s manoeuvring epitomizes the sharper competition that comes with a slower growth. China, as buyer, holds more power than it once did
”
16 Business Daily Monday, September 11 2017
Closing Anniversary
Mythical, magic, unique: Ferrari turns 70 in style
represents the pinnacle of the sports car,” automotive historian and enthusiast Patrice Verges told AFP. It’s the black prancing horse’s 70th For luxury motor fanatics and punters birthday and gleaming Ferraris are out in alike, there is something “magic” about force in Italy this weekend to celebrate. Ferraris and their distinctive sound. Some 500 sleek, purring sports cars are gathering in Milan since Friday before the “Having a Ferrari and being watched is festivities move to Modena, where founder part of the game,” Verges says. The stallion, rearing up on its back legs, Enzo Ferrari was born, and end with an exclusive party in Maranello, where Ferraris its tail swept upwards, was chosen as a tribute to Francesco Baracca, a World War have been made since World War II. I Italian air force ace who used to paint a “Ferrari is a mythical brand: it has had prancing horse on the side of his planes. AFP a fabulous track record in speed and
Auto industry
China studying when to ban sales of traditional fuel cars The nation has set goals for electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025
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hina has begun studying when to ban the production and sale of cars using traditional fuels, the official Xinhua news agency reported, citing comments by the vice industry minister, who predicted “turbulent times” for automakers forced to adapt. Xin Guobin did not give details on when China, the world’s largest auto market,
would implement such a ban. The United Kingdom and France have said they will ban new petrol and diesel cars from 2040. “Some countries have made a timeline for when to stop the production and sales of traditional fuel cars,” Xin, vice minister of the Ministry of Industry and Information Technology, was quoted as saying at an auto industry event in the city of Tianjin
on Saturday. “The ministry has also started relevant research and will make such a timeline with relevant departments. Those measures will certainly bring profound changes for our car industry’s development,” he said. To combat air pollution and close a competitive gap between its newer domestic automakers and their global rivals, China has set goals for
electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025. Xin said the domestic auto industry faced “turbulent times” over the years to 2025 to make the switch towards new energy vehicles, and called on the country’s car makers to adapt to the challenge and adjust their strategies accordingly. Banning the sale of petrol- and diesel-powered cars would have a significant impact on oil demand in China, the world’s second-largest oil consumer. Last month, state oil major China National Petroleum Corp (CNPC) said China’s energy demand will peak by 2040, later than the previous forecast of 2035, as transportation fuel consumption rises through the middle of the century. Song Qiuling, a senior finance ministry official, said during Saturday’s event that government subsidies, intended for jump-starting the new energy auto industry, could easily be abused if held long-term and led to “mindless expansion” and excess capacity in the sector, Xinhua reported. She said China would gradually withdraw such financial subsidies for the sector, and instead speed up the establishment of a credits accumulation policy to support
the industry. Late last month, Reuters reported that China was likely to delay implementing tough new sales quotas for electric plug-in vehicles, giving global automakers more time to prepare.
‘Last month, state oil major China National Petroleum Corp said China’s energy demand will peak by 2040’ Under the latest proposals, 8 per cent of automakers’ sales would have to be battery electric or plug-in hybrid models by next year, rising to 10 per cent in 2019 and 12 per cent in 2020, but the rules would not be enforced until 2019, a year later than initially planned, the sources said. In July, Britain said it would ban the sale of new petrol and diesel cars from 2040 to cut pollution, replicating plans by France and cities such as Madrid, Mexico City and Athens. Reuters
Portugal
Smartphones
M&A
Medics clear woman’s bid to bear grandchild
Apple’s new device to be called ‘iPhone X’
Abu Dhabi weighing sale of stake in insurance firm
Portugal has approved its first surrogate mother -- a 50-year-old grandmother who will bear a child to allow her daughter to start a family, media reports said on Saturday. The Portuguese Council for Assisted Birth late Friday unanimously approved the request of a 30-year-old woman who cannot bear children following a surgical procedure for endometriosis, the Expresso weekly said. “Despite several other cases put forward, only this one was examined by the council and unanimously approved,” a statement said. Portugal’s national medical council will now review it and has 60 days to make a ruling. It is widely expected to give it the go ahead. Gestational surrogacy was legalised in Portugal in 2016 and confined to cases only where a woman cannot bear a child for medical reasons -- especially due to a dysfunctional or absent uterus. The law stipulates that surrogate motherhood should be altruistic -- the woman who agrees to carry and give birth to a child should not be paid for her services. AFP
Apple Inc.’s most important new phone for years will be called the iPhone X, according to a leak of the company’s latest mobile operating system. Strings of software code inside of the leaked operating system, first detailed by Apple news website 9to5Mac, show the expected three new phones will be called the iPhone 8, iPhone 8 Plus, and iPhone X. App and game developer Steven Troughton-Smith discovered the names in the software and tweeted about it on Saturday. The iPhone 8 and iPhone 8 Plus are successors to the current iPhone models, while the iPhone X is the premium version with an all-new design, crisper OLED screen, improved cameras, and a 3-D facial recognition scanner for unlocking the device. The “X” in the iPhone’s name may be a reference to this model being a special 10th anniversary edition. The iPhone 8 and iPhone 8 Plus will look similar to the iPhone 7 and iPhone 7 Plus, but include faster processors, Bloomberg News has reported. The new devices will be unveiled at an event on Tuesday. An Apple spokeswoman declined to comment. The leak comes not long after Apple accidentally published early HomePod speaker software that provided details on upcoming iPhone features. Bloomberg News
State-backed Abu Dhabi Investment Council is weighing the sale of its nearly 24 per cent stake in Abu Dhabi National Insurance Co (ADNIC), with Allianz among groups showing initial interest in buying it, sources familiar with the matter said. If the deal goes ahead, it will further boost Allianz’s presence in emerging markets and give the global insurer a stronger position in the United Arab Emirates (UAE), a market seen as ripe for consolidation. Abu Dhabi Investment Council might hire an adviser for the deal, one of the sources said. The council is an investment arm of the Abu Dhabi government, with holdings in several listed companies such as First Abu Dhabi Bank and Abu Dhabi Commercial Bank . Its mandate includes diversifying Abu Dhabi’s economy and the development of the corporate sector. The sale plan is still in its preliminary stages, one of the sources said, but could attract more bidders. It is the latest indication of a shake-up in the fiercely competitive local insurance market that has been suffering amid tighter regulations and losses. Reuters