Chengdu selected as Number 1 Chinese city Ranking Page 9
Tuesday, September 12 2017 Year VI Nr. 1381 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Crime
Typhoon
PJ apprehends hacker allegedly involved in HK$450,000 email scam Page 5
www.macaubusiness.com
Voting
Marine authorities have multi-communication system in place for severe weather conditions Page 3
Monetary policy
Electoral affairs committee says it has backup plan for bad weather on election day Page 2
China’s central bank relaxes rules as conditions improve Page 9
Unhelpful help Flood damage
Car owners affected by flooding of underground car parks submitted a petition to DSAT, claiming the taxation relief scheme is not effectively helping, but instead leading to lump-sum payoffs of loans on damaged vehicles if disposed of. Car park operators are yet to make an appearance, with owners urging accountability for the lack of water pump systems. Gov’t relief scheme is also limiting the car recycling industry, says association chairman. Page 2
More money for infrastructure
The gov’t has signed another contract with MTR Corporation Limited regarding management and technical assistance for the LRT, but there is still no planned deadline for completion of the Macau peninsula and Seac Pai Van LRT lines. More payments were also made regarding construction work on the University of Macau and the Hengqin tunnel.
Privatise it
Gaming PAGCOR’s move to privatise 17 exclusively-run casinos could attract local investors, but mostly junkets keen on expanding their base of operations, says an expert. International operators are more likely to focus on Manila, but it depends on the potential of the properties. Privatisation methods are still under discussion. Page 7
New iPhone defying Chinese consumers
Contracts Page 4
HK Hang Seng Index September 11, 2017
27,955.13 +286.66 (+1.04%) Worst Performers
Tencent Holdings Ltd
+2.80%
AIA Group Ltd
+1.53%
Sands China Ltd
-0.67%
Henderson Land Develop-
-0.09%
AAC Technologies Holdings
+2.65%
Lenovo Group Ltd
+1.44%
Kunlun Energy Co Ltd
-0.53%
Link REIT
+0.00%
Sino Land Co Ltd
+2.59%
Sun Hung Kai Properties Ltd
+1.42%
Hengan International Group
-0.29%
Hang Lung Properties Ltd
+0.79%
WH Group Ltd
+1.72%
China Resources Power
+1.40%
CNOOC Ltd
-0.22%
China Petroleum & Chemical
+0.84%
Hong Kong Exchanges &
+1.62%
HSBC Holdings PLC
+1.34%
PetroChina Co Ltd
-0.20%
Bank of East Asia Ltd/The
+1.23%
27° 33° 27° 31° 26° 32° 26° 32° 25° 32° Today
Source: Bloomberg
Best Performers
WED
THU
I SSN 2226-8294
FRI
SAT
Source: AccuWeather
Smartphone Apple will announce its new smartphone today, however, with a price of US$1,000, the new iPhone 8 is going to pose a challenge to many pockets, especially in China. Alternatives for financing the new model are also on the rise. Page 16
2 Business Daily Tuesday, September 12 2017
Macau Typhoon aftermath
Affected car owners submit petition demanding interest-free loans Vehicle recycling association denounced the gov’t for a solution that creates more problems than it fixes Cecilia U cecilia.u@macaubusinessdaily.com
C
ar owners who were affected by the severe flooding of five underground car parks due to Typhoon Hato hitting the MSAR, submitted a petition to the Transportation Bureau (DSAT) yesterday. The spokesperson of the group, surnamed Ng, revealed that the recent taxation relief scheme proposed by the government is not effective in helping affected owners, given that owners who need to dispose of their vehicles and write off their vehicle registration would be required to pay the whole amount of the vehicle loan to the banks at once. Earlier last month, the government announced that owners of vehicles with flood damage must cancel the vehicle registration lodged with the DSAT in order to enjoy the government’s special tax relief scheme when purchasing a new vehicle. The scheme allows for a refund of up to 80 per cent on the tax that was originally paid on the now flood-damaged vehicles, to be made available when a new conventionally-powered vehicle is purchased. A 100 per cent refund on the tax that was originally paid on the now flood-damaged vehicles would be available if a new vehicle powered by alternative energy sources - liquid natural gas, hydrogen, solar power, or electricity – is purchased. As such, the group is urging the MSAR Government to introduce an interest-free loan for affected owners, similar to the support that was provided to SMEs (small and medium sized enterprises), in order to allow owners to repay the amount owed to the banks or to purchase new vehicles. “We also wish that the government could roll out the policy as soon as possible,” said Ng. “They [the government] had said that policies need legal support in order to be implemented officially,” he commented. As such, Ng stated that owners are worried whether the related legislation would have to pass through the Legislative Assembly. Meanwhile, the spokesperson said
that representatives of the affected parking lots never showed up to meet the affected owners. “We have contacted the management companies of these parking lots, but all they say is that they are waiting for the government’s decision, and they also stressed it was because of a natural disaster,” noted Ng. The group opined that the disaster relating to the parking garages was more of a man-made incident, stating that parking lots should be equipped with pumps or other equipment, indicating that it is unacceptable to have vehicles left flooded for six days. Because of the circumstances, the group is urging the government to investigate the management companies of the parking lots for accountability. “Also, these parking lots should not be operating until the government has conducted an investigation,” said Ng. On the other hand, the spokesperson also denounced the discovery of an illegal worker working in one of the parking lots in question, located near the Border Gate, while also
disclosing that there were some 700 vehicles affected by the flooding.
DSAT undermining recycling business
The chairman of the Vehicles Recycle Industries Association, U Wei Kun, said DSAT is undermining the business of recycling flood-damaged vehicles. “It is inappropriate that DSAT is forcing residents to hand their damaged cars to them for disposal,” said U. “Some of these vehicles can be re-sold to us and we could sell these vehicles outside of the country to be recycled into other materials.” According to U, in usual cases, car owners who wish to dispose of their vehicles would sell their damaged vehicles to recycling companies. “They [the government] is not allowing people to earn extra money off of their damaged vehicles,” said U. Also, given the limited time available, U said the industry is not able to handle the massive amount of vehicles in a short period of time. DSAT has urged owners to remove
their vehicles from the affected parking garages by September 18. Speaking to Business Daily, U said the government’s policies for resolving the problem are in fact creating further inconveniences. “They are trying to remove those cars from the affected parking lots as soon as possible so that these parking lots can resume operations, because many of these management companies are related to the government,” opined U. “The tax rebate is also nonsense because car owners can only benefit by purchasing a new car,” he pointed out. Moreover, U also denounced the government for using its idle land to store the damaged vehicles while the industry is running out of storage space. “And the government will not rent out their sites to us,” said U. Yesterday’s petition was organised by legislator Si Ka Lon, who said that the government should set out regulations regarding compensation for fatalities and losses incurred by the disaster.
Election
CAEL: backup plan prepared for harsh weather Cecilia U cecilia.u@macaubusinessdaily.com
The head of the Electoral Affairs Commission (CAEL), Tong Hio Fong, claimed yesterday that a backup plan has been prepared for any unexpected situations that might happen on the day of the election for the Legislative Assembly, set to take place this Sunday. The Macao Meteorological and Geophysical Bureau (SMG) reported that another super typhoon named Talim was in the process of forming and would pass Taiwan by Wednesday. The storm in question is perceived to be stronger than Typhoon Hato. After inspections of the polling station at Macau Forum yesterday, Fong spoke with the press and advised
voters to vote properly. Fong reiterated that campaigning is forbidden on September 16 and 17 while the election itself takes place. Voters are required to show their BIR when attending their corresponding polling stations, however Fong noted that voters could have their identification confirmed on election day at the Identification Bureau if they happen to lose or damage their identification document. When voting in the polling booths, the CAEL head said voters are requested to cast their ballot by placing a stamp within one box of the chosen candidate group, meaning that more than one stamp mark or vote cast would be considered as an invalid vote. Fong also reminded voters to not use any electronic recording devices
during voting, namely mobile phones, cameras and recorders. Voters are also advised not to reveal their voting decision or to ask others about their vote choice. The polling station at Macau Forum will be open to the
public until September 15 to allow voters to learn the correct way to cast their votes. Meanwhile, when asked about the recent cases of candidates campaigning in schools, Fong replied that apart from certain particular entities or departments
that are subject to neutrality, other private entities are not on the list of regulated entities. Nevertheless, Fong advised that schools should promote a fair and equal electoral atmosphere and place more attention on civic education.
Business Daily Tuesday, September 12 2017 3
Macau Tropical storm
Vessels warned The marine authorities have a multi-communication system in place to alert the industry about severe weather conditions, put into practice during Typhoon Hato Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he maritime authorities had activated the communication system to alert ship owners and those in the maritime industry about the imminent arrival of Typhoon Hato before the storm battered the city on August 23. ‘Before the typhoon came, the Marine and Water Bureau [DSAMA] reminded the maritime industry to pay attention to safety through electronic media, press releases and websites,’ the Bureau told Business Daily. The maritime authorities added that they have advised
the industry ‘to ensure the safety of vessels and the facilities at sea were securely moored, and to be aware of the safety threat caused by adverse weather and storm surge.’ As for the general matter of communications – which was one of the focuses of local critiques in the wake of the storm, with the website of the Macao Meteorological and Geophysical Bureau (SMG), for instance, being down for several hours during the highest point of Hato’s impact in the city – DSAMA explained that ‘weather and typhoon updates were transmitted via radio broadcast and the mobile app.’ It added that the attendant
industry ‘could access the website of the Bureau and the mobile app for information on real-time and predicted tides, so as to be well prepared for the typhoon.’ Yet, big vessels and business ships were only required to ‘suspend’ their activities and ‘find shelter’ after signal no. 3 was hoisted, according to the relevant authorities. Business Daily also reached out to the Civil Protection Bureau, which is operated by the Unitary Police Services (SUP), to enquire about prevention measures applied preceding the arrival of the typhoon, as well as the ways its alert and warning system was triggered, but the Bureau had not replied to our
questions by the time this story went to print. Business Daily also contacted the Macau Yacht Club in order to learn if it has
worked in collaboration with the maritime authorities, but did not hear from the people in charge before this story was printed.
Pearl Horizon
Polytex rolled out support fund for affected buyers Pearl Horizon developer Polytex Corporation Ltd has introduced interest-free loans to help Pearl Horizon buyers pay their mortgages, local Chinese language newspaper Macao Daily reported. The loan is to help buyers from two different plans, one for those who are under the installment payment plan,
and the other for the cash payment plan. Those under the first type of plan are eligible for loans comprised of four installments of MOP8,000, for a total of MOP32,000, while those under the cash payment plan are eligible for loans comprised of three instalments of MOP7,000, totalling
MOP21,000. However, legislator Zhen Anting said the amounts are less than demanded. Flat buyers were requesting the amount to be between MOP10,000 and MOP15,000 per installment. Zhen said buyers would continue to strive to extend the funding until the start of
the construction. Buyers can apply for the funding by filling out a form at the office of legislators Zhen and Mak Soi Kun, and the legislators will submit the forms to the developer. Meanwhile, Kou Meng Pok, the chairman of the Pearl Horizon Condominium Owners United Association, told
Macao Daily that they are not satisfied with either the amount or the period of the funding offered. He opined that the support funding should be continued until the buyers successfully receive the flats, adding that more details would be discussed with the developer in order to improve the offer. C.U. advertisement
4 Business Daily Tuesday, September 12 2017
Macau Opinion
Construction Government to finish four contract payments this year related to the construction
of the new campus of the University of Macau and the Hengqin underwater tunnel
Contracts for all Albano Martins*
Fairy Tales When the exchange market is attacked by speculators, economies intervene through their monetary authorities. It happens all over the globe and has already happened several times in Hong Kong, a region considered to possess the freest economy in the world. During these interventions, the monetary authorities try to penalize or discourage speculators. Nobody protests and everyone thinks that the stability of the exchange rate should be maintained at all costs. Exchange rates are prices! The fact is that speculators in this exchange market are faceless men that nobody knows, which facilitates the intervention of the authorities. Despite this intervention and the measures taken to stop speculation in this market, the economy still remains free. There is an intervention, but this does not violate the logic or the principle of a free economy or the freedom of markets. The intervention serves to regulate and keep the market and its participants under control! The question then arises: why is it not the same in the real estate market, when prices rise, distorting the internal price relations in the local economy? Why should we not intervene in a free economy? Of course there is no intervention here because men in this domestic real estate market are not faceless...! Look at the outcome of the “lease law”! Given that little is produced in Macau and the main industry is in the hands of casinos, which have created immense opportunities for Macau - although there are many people who fear spitting on their own plates by speaking out against the casino industry - the rest of the economy is mostly reserved for real estate hunters, that distort the prices of housing, offices and commercial spaces. This destruction of prices prevents the community from having access to adequate housing that does not eat through their wages over the course of their lives, and doesn’t allow them to have their own economic and commercial activity. Thus, when our parliament discussed the control of rents and the need to create a mechanism to limit their growth, I even thought that gift was too big for the poor beggar that requested it. What was not said in this parliament was that the government, if it wanted to act in the leasing market to control it, would have to act simultaneously in the buying and selling market as well. Defenders of the left free-wheeling housing market confuse the free economy with the right of unbridled exploitation of their neighbors, without rules, or ethics, or limits of social acceptance! * an economist and contributor to this newspaper
An additional MOP68.15 million contract was awarded to Hong Kong company MTR Corporation Limited yesterday for management and technical assistance for the Light Rail Transit (LRT) project
T
he MSAR Government approved a MOP68.15 million (US$8.46 million) contract with Hong Kong company MTR Corporation Limited for additional management and technical assistance for the Light Rail Transit (LRT) project, a dispatch in the Official Gazette announced. The MTR Corporation is responsible for managing the Hong Kong Mass Transit Railway (MTR), while also being engaged in property rental and management in the neighbouring SAR and in mainland China. Last year, the group was awarded a service contract worth MOP474.3 million for the provision of management and technical assistance for the city’s LRT projects, having been already awarded a MOP54.1 million contract in 2015 to provide the first stage of technical support for the contingency plans for the city’s LRT depot. The Hong Kong group was also responsible for a MOP7.5 million preliminary study on the Macau urban railway transport system requested by former Chief Executive, Edmund Ho Hau Wa, in 2002. A release yesterday also stated that a MOP32.80 million contract was signed with Ove Arup & Partners
Hong Kong Limited to create the development plan for one section of the Seac Pai Van LRT line. The Seac Pai Van LRT section will connect with the Taipa LRT Line, and is expected to go through Estrada do Istmo, Rotunda de Seac Pai Van, and Estrada de Seac Pai Van, connecting to the Seac Pai Van public housing and the Outlying Island Medical Complex. The LRT Taipa line is expected to be concluded in 2019 with an expected budget of around MOP11 billion to develop 9.3 kilometres of line and
Residual waters
The government has also approved an MOP84.64 million contract with Companhia de Construção Cheong Kong Limitada for the planning and construction of installations for diverting residual waters in the Areia Preta area into the Macau Peninsula Wastewater Treatment Plant. The project has a goal of improving of the wastewater drainage situation in the rain collectors’ exits at the coastal area near the Gongbei Border.
New construction waste sheriff
Companhia de Construção de Obras Portuárias Zhen Hwa, Limitada also saw its MOP62.91 million contract for operating the landfill for construction materials near the Macau International Airport for a twoyear period, approved by the Chief Executive yesterday.
Housing Customs
A MOP36.34 million contract was also signed with Companhia de Decoração San Kei Ip, Limitada for the construction of the new Customs building at Rua Tenente Pedro José da Silva Loureiro in Taipa. According to the public tender result, the local company vowed to finish the new Customs building near the Macau Jockey Club in 364 days.
11 stations, with the government still not having provided a deadline for the Macau Peninsula and Seac Pai Van lines. In June of this year, the Hong Kong design and engineering solutions company was also granted a MOP189 million contract to oversee and manage the project and the budget for the construction of the fourth bridge between Macau and Taipa.
Finishing UM payments
Several releases yesterday also informed that the MSAR Government will make payments amounting to MOP12.60 million this year as final payments to Chinese company Guangdong Nanyue Group for four contracts related to the development and construction of the University of Macau (UM) and the Hengqin underwater tunnel. According to the releases, this year the Macau Government will pay MOP2.06 million of the MOP4.35 billion contract with Guangdong Nanyue for the construction of department buildings, sport facilities and resident buildings for the new UM campus. A final payment of MOP4.79 million will also be made this year to the same company for the MOP1.98 billion contract for the development of the underground tunnel connecting Hengqin with Cotai, with a remaining MOP5.74 million to be paid for two contracts related to the construction of the new UM campus’ central residences, commerce buildings and main areas.
Business Awards
Last Week To Nominate For the Business Awards of Macau 2017 The deadline for nominations for this year’s Business Awards of Macau is 15 September. The awards aim to celebrate the remarkable achievements and contribution that local individuals,
enterprises and groups make in improving the economy and wellbeing of Macau. The Awards cover 11 categories including nominations for Small and Medium Enterprises, Young
The winner of 2016 Most Valuable Brand Excellence Award: DFS
Entrepreneurs and the Most Valuable Brand.
The eleven Award categories are:
- Leading by Example - Entrepreneur - Young Entrepreneur - New Talent - Most Valuable Brand - Innovation - Corporate Social Responsibility - Environmental Performance - Small and Medium Enterprise (SMEs) - Non-Profit Organisation - Grand Merit Award The Award Gala Ceremony will be held on 24 November 2017, at Grand Lisboa Hotel Grand Ballroom. Nominations for this year’s awards will close this Friday with more information regarding the nomination process available online on the Award’s website www.awardsmacau.com.
Business Daily Tuesday, September 12 2017 5
Macau Crime
Hacking the boss Hackers defrauded a Hong Kong-based group for more than HK$450,000 after taking control of the company head’s email and making employees believe the group intended to purchase a company in the MSAR Nelson Moura nelson.moura@macaubusinessdaily.com
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Hong Kong resident was arrested on September 9 at the Macau Ferry Terminal for suspected involvement in a hack that defrauded a Hong Kong-based company out of more than HK$450,000 (US$57,580), the Judiciary Police (PJ) told Business Daily yesterday. According to local authorities, on December 28 of last year, a local resident working for an unidentified Hong Kong-based group informed
the PJ that her colleagues from the group’s branch in the United Kingdom had received an email stating that the head office intended to acquire a company in Macau for HK$10 million. Since the email from the head office was sent through the company head’s email address, the employees believed the request for the company purchase was authentic, proceeding with a transfer of HK$450,243 to a bank account in the MSAR. Only after the transfer was effected did the company’s employees realise the email was fake, with the PJ stating
that after investigations were conducted, the department now believes a criminal syndicate ‘hacked into the company’s email account, got to know its operation, and then sent out the fraudulent email’. According to the PJ, the 32-year old man arrested at the Macau Ferry Terminal was a Hong Kong resident surnamed Wong, who is suspected of having opened a bank account under orders from a criminal syndicate, receiving HK$14,000 for doing so. ‘Whenever there was money deposited into the
bank account, the suspect would withdraw it immediately and hand it over to the syndicate,’ the PJ told Business Daily.
Authorities also added that they will continue the investigation, in pursuit of the ‘mastermind’ and other members of the syndicate.
Flooding
CE meets with neighbouring officials on flood-prevention A meeting between local officials and those of the neighbouring province of Guangdong has given impetus to a study geared towards the eventual construction of a seawall aimed at preventing flooding in the MSAR’s Inner Harbour area, according to an official release. The meeting took place between Macau’s top official, Chief Executive Fernando Chui Sai On, in Guangzhou, as well as the local Secretary for Transport and Public Works, Raimundo do Rosário, and the governor of Guangdong province Ma Xingrui and the vice-governor Deng Haiguang. Additional officials
from both sides were also present at the encounter, which took place yesterday afternoon. The local Chief Executive praised the provincial government for the help provided during the catastrophe, having provided urgent resources and organization to the city in its time of need. The top official also pointed out the MOP11.48 billion in damages was inflicted on the MSAR, resulting from damage incurred by flooding – which reached 5.58 metres at its highest point – and highlighted Macau’s regular problems with flooding, laid bare by the passage
Dear Sir/ Madam, My car was badly damaged during Typoon Hato, and I have ordered a new car while I consider whether to scrap the old one, or wait months for new parts to spend heavily on repairing it. As an avid reader of your publication I am pleased to be informed in last Friday’s edition that certain departments of the MSAR government are working together to provide a subsidy on vehicle taxes for people like me. Imagine my disappointment therefore when I contacted the DSF, to be told that the subsidy will be on the tax paid on the old car, rather than against tax paid on a new car, and furthermore the older the original vehicle is, the more negligible will be the tax rebate. So in my case, with a 13 year old much loved gas-guzzler, I would be refunded less than MOP5,000 as the vehicle is over 9 years old. If ever there were a misguided decision, it is this one: the government has a golden opportunity in one fell swoop to get hundreds of older, polluting cars off the road to be replaced with more fuel efficient newer vehicles, but instead is favouring the replacement of the newest and not the oldest vehicles which were damaged. I have virtually no incentive to get my older car off the road, and am left perplexed at this lack of vision by the authorities concerned. Yours faithfully, HENRY BROCKMAN
of Typhoon Hato. Pointing out that the local government has, over the years, conducted a series of ‘studies and measures’, even leading a delegation to Beijing in 2013 to speak with ministries in the central government about the matter, the top official sought the neighbouring province’s support for going ahead with the flood-prevention work. A local official explained
the project and the construction plan for potential floodgates, as well as exchanging opinions with officials from the neighbouring province. The discussions resulted in agreement to strengthen dialogue between the regions, move forward with coordination works, start indepth analysis of the flood-prevention project and work to start it ‘as soon as possible’. advertisement
6 Business Daily Tuesday, September 12 2017
Macau Gaming opportunities
Australian-based company eyeing Macau, ASEAN gaming market
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ustrali an-listed Don ac o I n t e r n ational Limited is eyeing opportunities for the expansion of its leisure and entertainment operations in different locations across Asia’s gaming markets, including Macau, South Korea, the Philippines,
and Japan, the Star Online reported. The group’s main operations are currently located in Vietnam, where it owns the Aristo International Hotel in Lao Cai, and in Cambodia, where it runs the Star Vegas Resort & Club, a casino-resort established in 1999 in Poipet, on the border with Thailand.
Both properties operate by targeting customers from neighbouring countries, since both Vietnam and Cambodia do not allow locals to patronise gaming facilities. Referring to comments by Donaco’s managing director and CEO, Joey Lim Keong Yew, in an interview with
StarBizWeek, The Star Online noted that the company is actively seeking to expand its footprint in the ASEAN (Association of South East Asian Nations) countries and Asian markets in “the next three to five years,” by developing or acquiring new casinos, and “particularly by digitising gaming experience.”
Poker
Travel
The 27th edition of Macau Poker Cup won by Michael Soyza
Hot seats
The Macau Poker Cup 27 (MPC27) came to a conclusion on Sunday, with Malaysian player Michael Christopher Soyza winning the HK$2.04 million (US$260,658) first prize in its High Roller event. Organised by online poker company PokerStars between August 25 and September 10, the MPC27 tournament was held at the PokerStars LIVE room at City of Dreams. The High Roller event on Saturday attracted 119 players competing for a slice of a HK$8.86 million prize pool, with German player Martin Finger taking the second prize of HK$1.70 million. On Friday, Chinese player Qiuming Qin finished first at the MCP27 Red Dragon event, winning a total of HK$3.14 million.
The five-day Red Dragon event is a minimum buy-in of HK$15,000 tournament, with PokerStars stating this year’s edition was the largest of its kind in the Asia-Pacific region, with 1,308 players competing for a share of the HK$17.1 million prize pool. N.M.
In addition to expanding its hotel and casino portfolio business, Donaco is also reportedly seeking to introduce real-time online gaming, as well as investing in property development. Lim is a substantial shareholder of the company, owning an equity interest of some 32 per cent. S.Z.
Air Asia will allow travellers to purchase tickets from the Philippines to Macau and Hong Kong for around MOP200 until September 17 Malaysian airline group AirAsia Group announced that around 5 million seats on its low-cost carrier Air Asia will be available at sale price for the period between March 1 and November 21 of next year, according to media website ABS-CBN News. According to the company, the sale period started yesterday and is planned to continue until September 17. The deal will allow travellers coming from the Philippines to purchase tickets at around PHP1,290 (MOP204/US$25) to Macau, Hong Kong, Taipei, Kuala
Lumpur, Kota Kinabalu, Seoul, Guangzhou, Shanghai, Singapore, and Hong Kong. “Now is the perfect opportunity for our loyal guests and Filipino travellers to connect from many places conveniently as we continuously add new routes and increase frequencies into our network,” the AirAsia Philippines CEO, Dexter Comendador, stated. The group will also offer promotional flight tickets from its hub in Kuala Lumpur to destinations such as Australia, Japan and the Maldives. N.M. advertisement
Business Daily Tuesday, September 12 2017 7
Gaming Privatization
Privatizing PAGCOR As the Philippines’ state-run gaming corporation takes its first steps to becoming just a regulator, Macau-based gaming operators and junkets may be interested in the bid, under certain conditions, analyst says Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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he Ph i l i p p i n e s Amusement and Gaming Corporation (PAGCOR) announced it will start privatizing 17 casinos exclusively run by the state-corporation next year, media outlets reported over the weekend. Reasons for privatizing the state’s gaming assets range from: the need to raise funds for public coffers to address concerns linked to conflicts of interests tied to PAGCOR’s role as both a regulator and an operator. No valuation for the 17 casinos is available at the moment, according to Malaya Business Insight. The state-run corporation currently operates 46 casino properties countrywide. The first batch of 17 casinos to be sold concerns those not run as joint ventures, but exclusively managed by PAGCOR. According to a report published by Morgan Stanley in June, gross gaming revenue generated at PAGCOR-run casinos amounted to PHP32 billion (US$628.81 million/ MOP5.06 billion) in 2016, representing 24 per cent of the total. The VIP, mass, and slot breakdown over the yearlong period was estimated at 19 per cent, 36 per cent, and 45 per cent, respectively. By law, PAGCOR is required to give 50 per cent of its annual gross earnings to the Bureau of the Treasury. The funds are earmarked for use in community and social projects of the government.
Quoted in regional media, the Philippines Finance Secretary Carlos G. Dominguez III said the government will continue to benefit from the revenue stream from casinos once they are privately-run, by collecting taxes on revenues generated.
Macau bid
Grant Govertsen, co-founder and managing director of Union Gaming, a boutique investment bank and advisory firm, told Business Daily in an email that ‘many international operations will explore their options as it relates to potentially acquiring PAGCOR assets,’ considering that gross gaming revenue in the Philippines over the recent years has recorded ‘strong growth.’ In its published report from June, Morgan Stanley estimated that gaming revenue in the Philippines could reach some US$5 billion by 2020. The group further claimed they expect ‘the Philippines to emerge as the largest entertainment market in ASEAN (Association of Southeast Asian Nations),’ […] thanks to favorable policies and infrastructure that drive the market for both locals and foreigners’. Although foreign bidders might be interested, the managing director of Union Gaming argued that ‘the larger international operators would likely only have an interest in Manila and would not likely be interested in the PAGCOR properties as these properties wouldn’t generate enough cash flow to make sense for one of the larger operators.’ The bidding equation
would also include junket businesses, ‘clearly interested in expanding their bases of operations, including transitioning from an agency to a principal model,’ commented Govertsen. Among the Macau-based junkets, Suncity Group has been more openly marketing the expansion of its operations, with the group already operating several VIP rooms in Melco properties in Manila, and developing casino-resorts in Vietnam. As with casino operators, Govertsen highlighted that junkets’ interest in acquiring casino assets in the Philippines will again ‘come down to the economics associated with any potential transaction and the cash flow potential of the properties in order for a deal to make sense.’
types of partnership models in place. ‘They lease it and operate the casino, [while for] others, they go into joint ventures with the hotel and they share their revenues,’ Dominguez was quoted as saying by Malaya Business Insight. He added that the method of privatization will be ‘figured out’ as the government
completes all the necessary studies by the end of the year, signalling that the process might take several years to complete, the Inquirer noted. The first casinos to undergo privatization are, for the most part, spread across a number of provinces, such as the one PAGCOR runs in Fort Ilocandia – some 485 kilometres north of Manila.
Case by case approach
The Philippines Finance Secretary said that casinos ‘will be treated individually’ in the privatization process, given that PAGCOR has different
Since 2007, PAGCOR has been allowed by federal regulations to establish jointventures, having granted licenses to four Integrated Resorts (IR), currently located within the vicinity of PAGCOR’s Entertainment City along the Marina Bay. These include: - City of Dreams Manila, by Melco Crown (Philippines) Resorts Corp. (opened 2015) - Solaire Resort & Casino, by Bloomberry Resorts Corp. (opened 2013) - Okada Manila, by Tiger Resort Leisure and Entertainment, Inc. (opened 2017) - Resorts World Bayshore City, by Travellers International Hotel Group (expected 2018). Source: Lex Mundi Global Gaming Law Guide
Trade
Success Universe abandons lottery sales in mainland China Cecilia U cecilia.u@macaubusinessdaily.com
Casino developer Success Universe has announced that it is pulling out of its online lottery service provider business in the Mainland. In a filing with the Hong Kong Stock Exchange, the company, which also manages the Ponte 16 property in the MSAR, announced the sale of shares and loans of the subsidiary Honour Rich, amounting to 80 per cent of the shares, as well as loans amounting to HK$12 million (US$1.54 million) to investment holding company Wide Fortune Group Limited. The reason for the transaction, stated the company, is due to the ‘sustained losses incurred by the Honour Rich Group’, the net liabilities of the company and the outlook of the online lottery business in mainland China.
According to the filing, Honour Rich suffered losses of MOP19.14 million and MOP20.77 million in 2015 and 2016, respectively, and the net liabilities of the two respective years amounted to MOP69.39 million and MOP92.76 million. The company referenced in its filings in 2015 and 2016 that the Chinese Ministry of Finance, the Ministry of Civil Affairs and the General Administration of Sports of China had announced the notice in the moratorium: ‘Issues Regarding Conducting Self-examination and Self-correction Activities of the Unauthorised Sale of Lottery through Internet’, leading to the firm’s decision to suspend the lottery business, which then resulted in an 88 per cent drop in revenue for the group in 2016. The company further wrote that the cessation of the lottery business
in the Mainland would be ‘relieving the Group from further need to inject working capital to sustain the operation of its business’ and allow for it to redeploy resources to ‘other investment opportunities’.
According to the company’s interim results posted earlier this month, Success Universe saw a 67 per cent increase in losses year-on-year, hitting HK$21.1 million for the first six months of this year.
8 Business Daily Tuesday, September 12 2017
Greater China Debt
Cracks in national Inc’s rosy earnings reveal a patchier picture Debt-to-equity ratios were little changed from last year Umesh Desai and Patturaja Murugaboopathy
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t first glance, China Inc’s earnings are off to a roaring start to 2017: firsthalf net profits surged by nearly a quarter, helped by healthy expansion in the world’s second-largest economy. Last year, the rise was a mere 6 per cent. Robust profits have been a key factor in pushing the benchmark Hong Kong index to three-year highs and its Shanghai counterpart to its strongest levels in 20-months. But the corporate investment and M&A that is driving those earnings is being fuelled by growth in debt that is too rapid for comfort, analysts say. Frequent use of one-off gains to lift results and unhealthy fundamentals in some sectors may also give investors pause for thought.
Key Points H1 net profits for China Inc jumped 24 pct -Reuters calculations But total debt at Chinese firms also surging Quality of some earnings not as robust as figures suggest One-off items lifted bottom lines at many firms Total debt at some 1,200 firms listed in Shanghai, Shenzhen and Hong Kong as of end-June grew 13 per cent from a year earlier, Reuters calculations show, much faster than the first half of 2016 when the rate was 7.5 per cent.
Profits were not used to retire debt in significant quantities over the period and cash levels at those firms, selected for the survey as they have reported earnings for at least two years in a row, shot up 12 per cent. All in all, debt-to-equity ratios were little changed from last year, an indication that hopes of a broad deleveraging for Chinese firms, widely seen as having worrisome debt levels, seem premature. “These earnings improvements are credit driven and I have doubts about the sustainability,” said Andrew Kemp Collier, managing director at independent research firm Orient Capital. China’s property developers have led the way in debt creation, and even if some of the most heavily burdened like China Evergrande did cut back, others kept borrowing. Acquisition-hungry Sunac saw contract sales almost double and gross profit climb 86 per cent, but
its total borrowing also jumped, up 60 per cent to nearly US$28 billion. “The picture is not as rosy as shown by rising earnings – credit is accumulating faster than nominal growth,” said Natixis Chief Economist Alicia Garcia Herrero, also noting that very short term debt is not captured in conventional leverage ratios. A study by Natixis shows Chinese companies on average have 68 per cent of their liabilities in loans of less than 12 months - seen as riskier due to the need to refinance - compared with a global average of 38 per cent.
A question of quality
China’s economy has surprised experts with its resilience, growing by a faster-than-expected 6.9 per cent in the first half, on resurgent exports and healthy retail sales - even if it is expected to start to lose some steam. But earnings gains in some sectors, while welcome, were not necessarily due to strength in core businesses.
Oil majors saw revenue and profits gain, but this was due to a average 28 per cent jump in oil prices, while oil and gas production volumes fell 2 per cent in the first half versus a year ago, according a Fitch ratings report. And while China’s largest banks showed improvement, smaller banks which rely on short-term borrowings from other financial institutions saw net interest margins contract and some were struggling. Shengjing Bank’s first-half operating income slid almost 17 per cent. The banking sector will also have to bear the brunt of excessive borrowing. “Credit-fuelled excess investment is building up problems with assets that are likely to yield a poor return over time, and many are likely to turn into bad debts,” said Richard Jerram, chief economist at Bank of Singapore. One-off or foreign exchange gains were also frequent across a range of industries, dressing up results even when sales or operating profit weakened. Lianhua Supermarkets, which is part-owned by Alibaba, reported a 6 per cent drop in turnover on store closures and competition from online sales, but a substantial gain on the sale of financial assets. Sun Art Retail, China’s largest bigbox retailer, posted 23 per cent jump in profit but that was largely due to gains from expired prepaid cards, while same-store sales saw a slight decline. Air China reported a small decline in net profit, partly due to by higher fuel costs. But if exceptional items, largely foreign exchange gains, are excluded, results were 60 per cent lower. Reuters
Industry body
Vehicle sales rise for third straight month August’s growth was driven by “solid demand” for passenger cars and increased commercial vehicle sales Stella Qiu and Norihiko Shirouzu
China’s vehicle sales rose for the third consecutive month in August, as “solid” demand for passenger cars and a surge in demand for trucks sustained a rebound in the world’s biggest auto market, an industry body said yesterday. Overall sales reached 2.19 million vehicles in August, 5.3 per cent more than in the same month a year earlier, showed data from the China Association of Automobile Manufacturers (CAAM). That took year-to-date growth to 17.5 million, up 4.3 per cent. The total is just short of CAAM’s full-year forecast of 5 per cent, set in January when it blamed the scaling back of a tax incentive for small-engine vehicles as well as economic
pressure for pulling growth down from 2016’s 13.7 per cent. Nevertheless, sales in recent months have been relatively strong - growing 6.2 per cent in July and 4.5 in June due to overall economic strength as well as increased incentives, market watchers said. “China’s consumer economy is still on an upswing,” said James Chao, Shanghai-based Asia-Pacific head of consultancy IHS Markit Automotive. There is plenty of demand for personal cars in lower-tier cities such as those inland, even though growth in places such as Beijing, Shanghai and Guangzhou has slowed. Sales fell 0.1 per cent in May and 2.2 per cent in April. August’s growth was driven by “solid demand” for passenger cars
and increased commercial vehicle sales, a CAAM official said at a briefing on the data yesterday. Changes in environment policy also spurred demand for trucks, the official said. Truck sales grew 15.2 per cent in August, and 21.6 per cent over January-August. Sales of so-called new-energy vehicles (NEVs) – all-electric battery
vehicles as well as plug-in petrol-electric hybrids – surged 76.3 per cent in August, taking the yearto-date total to almost half of CAAM’s full-year forecast of 700,000 NEVs. CAAM Vice Secretary General Shi Jianhua yesterday said he expected the government to unveil compulsory sales quotas for electric vehicles “this week”. Reuters advertisement
Business Daily Tuesday, September 12 2017 9
Greater China Yuan
In Brief
Central bank relaxes hedging rules as currency strengthens, capital outflows ease Analysts at Goldman Sachs said the central bank’s recent policy signals “seem to point to reduced comfort with the on-going pace of appreciation” China’s central bank yesterday scrapped two measures that were put in place to support the yuan when it was under significant selling pressure, suggesting Beijing is anxious to quash one way bets on the yuan as outflows ease and exporters face strain. The move comes as the yuan bounced sharply this year to hit a near two-year peak on the dollar last week, giving authorities the confidence to relax their grip on a currency that had stumbled badly in 2016 and raised risks to economic stability. With China’s economy humming along at a solid pace and putting to bed concerns of a sharper slowdown, the central bank is likely to pursue a more neutral yuan rate with the potential for increased two-way volatility, analysts said in the wake of the rules changes. “The central bank seems to convey the idea that China conducts a dynamic policy making process,” Commerzbank analysts Hao Zhou and Lutz Karpowitz wrote in a note. “Against this backdrop, the capital control policies could be eased somewhat if there is no undesired market turbulence following the removal of the reserve requirements.” The People’s Bank of China has scrapped reserve requirements for financial institutions settling foreign exchange forward yuan positions, it said in comments emailed to Reuters on Monday morning. The PBOC has also stopped requiring foreign banks to put aside reserves for offshore yuan deposits in China. Both changes are effective immediately. Reuters, citing sources with direct knowledge of the matter, had
reported these changes earlier. The PBOC’s statement said the changes took into consideration current market conditions, adding that the yuan strength against the dollar this year reflected an improving Chinese economy.
Lower appetite for appreciation
Markets were quick to react, with the yuan losing ground despite the PBOC setting a higher midpoint of 6.4997 per dollar, strengthening it beyond the key psychological 6.5 level for the first time since May 2016. The offshore and onshore yuan were both trading weaker than the 6.5 level yesterday. Still, around 6.52 to the dollar the onshore yuan was not too far off a 21-month high at 6.4478 set on Friday, underpinned by capital
curbs, broad dollar weakness and the PBOC’s tighter control of the midpoint. At the official local close yesterday, the onshore spot yuan was up around 6.5 per cent so far this year, which is about the same losses it suffered in 2016. Analysts at Goldman Sachs said the central bank’s recent policy signals “seem to point to reduced comfort with the on-going pace of appreciation”. They highlighted a shift in the “counter-cyclical” factor in yuan fixings that had seen it turn more reactive to market appreciation pressures, potentially pointing to a reduced propensity to accommodate much more strength in the yuan. The analysts were referring to the mysterious “counter-cyclical” factor that the PBOC added to their calculations of the yuan’s daily reference point to curb price swings in the Chinese currency. Sources have told Reuters that Chinese policymakers are beginning to worry about the strength of the yuan as exporters come under strain, risking a hit to the economy ahead of an important Communist Party gathering in the autumn. All the same, intervening to cap it could expose China to accusations of currency manipulation by U.S President Donald Trump. “One interpretation is that the pace of CNY appreciation has taken the PBoC, as well as the market by surprise,” said Iris Pang, economist at ING, in a note to clients. “We believe that CNY appreciation will continue, but at a slower pace from now on.” Reuters
Ranking
Chengdu retakes top spot as best-performing big city The capital of southwest Sichuan province reclaimed the top spot in a Milken Institute ranking of the country’s best-performing big cities Nearby Chongqing climbed to second place, while Guiyang, the capital of China’s poor-but-fast-growing Guizhou province, fell to third from first, according to a report released yesterday by the Santa Monica, California-based think tank founded by Michael Milken. Chengdu and Chongqing are among the cities benefiting from the central government-led policy push since the early 2000s to steer greater investment to interior regions, according to the analysis. Both have varied and high-value-added industries, high-quality labour markets, and lower costs than megacities such as Beijing and Shanghai, it said. “The top-ranked cities are responding robustly to the central government’s directives,” Perry Wong, managing director of research at Milken, said in the report. “The Belt and Road initiative, together with the creation of regional economic clusters, demonstrate the central government’s determination to improve the growth prospects of Chinese inland cities.” Chengdu, a manufacturing hub for companies like Intel Corp., also ranked first in 2015. A megacity of more than 30 million people, Chongqing was carved out of Sichuan two decades ago to become China’s fourth direct-controlled municipality, essentially a provincial-level city like coastal counterparts Beijing, Shanghai and
Tianjin. The city tied with Tibet in 2015 for the fastest economic expansion among 31 provincial regions, with 11 per cent growth. When Guiyang edged out financial capital Shanghai as the top performer last year, Milken also cited the benefits it receives from a central government push to connect coastal and inland regions, along with infrastructure investment related to President Xi Jinping’s initiative to revive China’s ancient trade links to Asia and Europe. The rankings of 34 first- and second-tier cities and 226 third-tier cities track urban economic and development trends in China with
nine variables, including job growth, pay gains, per capita growth, foreign direct investment, and the locations of high value-added industry. This year’s index reflects the impact of regional economic clusters, such as how Chengdu, Chongqing and Guiyang are aligned with China’s Belt and Road route. Nantong, in coastal Jiangsu province, catapulted to first place among smaller cities due to rapid job and wage growth over five years. Bengbu, Anhui, ranked second on the strength of one-year wage growth, while Foshan, a manufacturing hub in Guangdong, took third place. Bloomberg News
Anshunlang bridge and hotel in Chengdu
HR
TPG Capital names industry veteran head business Global buyout firm TPG Capital Management hired industry veteran Chang Sun as head of its China business, looking to grow beyond traditional private equity investments and into distressed opportunities and real estate, among other areas. TPG named Sun managing partner for China, where he will head the firm’s buyout, growth and social investing business, according to a statement yesterday. Sun was previously a 20-year veteran at private equity firm Warburg Pincus in China, but quit the firm in 2015 to run his own agriculture and impact investment firm, Black Soil Group Ltd. Politics relations
Lotte considers sale of supermarkets in Mainland South Korea’s Lotte Shopping is considering selling its supermarkets in China and other options should political tensions between Seoul and Beijing continue next year, an official at the retailer told Reuters yesterday. “It is natural that we should have various alternatives, but no discussions or decisions have been made regarding detailed plans,” the official said on condition of anonymity because of the sensitivity of the issue. He did not elaborate on what other options were under consideration. Oil industry
Rosneft to ship record oil to Mainland in 2017 Russia’s top oil producer Rosneft plans to export a record 40 million tonnes of crude oil to China this year, Chief Executive Igor Sechin was quoted as saying on Sunday. Rosneft said previously it planned to ship 31 million tonnes of crude to China this year. “In 2017 our company will deliver, according to our estimates, around 40 million tonnes of crude oil to China. It’s a record volume,” the RIA news agency quoted Sechin as telling Russian state television. Trip
Dalian Wanda says chairman visited HK last week Chinese conglomerate Dalian Wanda Group said yesterday its chairman Wang Jianlin was in Hong Kong on Sept. 8, just weeks after some media outlets said he had been stopped from leaving China. Wanda said on its website that Wang met with Hong Kong’s former leader, Tung Chee-hwa. Two photos published on the website showed Wang, one of China’s richest men, with Tung, standing in front of a Hong Kong Special Administrative Region logo. It is unclear what the pair discussed, but a person with knowledge of the matter said the two are long-time friends and Wang is a counsellor of the ChinaUnited States Exchange Foundation set up by Tung.
10 Business Daily Tuesday, September 12 2017
Greater China Markets
Latest bond default is a cautionary tale for investors China has been steadily opening up avenues for international investors to access its debt, but foreign holdings, while at a record, are still just 1.5 per cent of the market
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oreigners have been slow to warm to China’s domestic bond market, the world’s third-largest by value. A look at the latest corporate default may explain why. Wuyang Construction Group Co., a builder in the eastern province of Zhejiang, defaulted on two put-able notes totalling RMB1.36 billion (US$209 million) last month. Bondholders are now up in arms, claiming in an Aug. 23 filing posted on the Shanghai Stock Exchange’s website that the company didn’t disclose a raft of transgressions in sale documents for the bonds, which were sold in 2015. Three phone calls to Wuyang Constructions’ headquarters in Hangzhou went unanswered, and the company didn’t respond to a fax from Bloomberg News. The incident is a good example of the teething problems China is seeing as it works to develop its US$9 trillion bond market -- made more accessible to offshore investors via a connect with Hong Kong in July. Lulled by years of implicit government support for troubled companies, locals are now having to get acquainted with defaults, which have risen six-fold since the end of 2015 as Beijing shuts down unproductive industries. It’s also placing scrutiny on underwriters, with companies like Wuyang Construction accused by investors of holding back information and providing inconsistent financial figures. “Credit events in the onshore Chinese bond markets are a burning reminder for the need of thorough credit research,” said Luc Froehlich, head of investment directing
for Asian fixed income at Fidelity International Ltd., which has set up its own research team on the ground in China. For Wuyang Construction, the red flags were there even before last month’s default. In May 2016, the company acknowledged misusing the proceeds of the bond sale and disclosing incomplete information, violations levelled by the exchange a month earlier. The firm also delayed the release of its 2016 financial results this April.
Investors complacent
The recriminations have mounted since the missed payments. In their filing, bond holders said Wuyang Construction didn’t disclose in the 2015 bond prospectus that it had previously defaulted on loans, or that it had been placed on a list of dishonest companies by Chinese courts for missing payments. Financial data was also inconsistent, the investors say. Beijing’s bailout track record has made Chinese bond
investors complacent, according to Yu Lu, a senior analyst at China Chengxin International Credit Rating Co. in Beijing.
“Investors in China still focus too much on yields rather than risk” Yu Lu, a senior analyst at China Chengxin International Credit Rating “Investors in China still focus too much on yields rather than risk,” Yu said. “The implicit guarantee in this country has led to poor risk control -- they should enhance due diligence and strengthen their analysis of risk.” This attitude can be seen in the case of Shandong Ruyi Technology Group Co. The textile company’s
five-year dollar bonds tumbled a month after they were issued when discrepancies over its link to a state-owned enterprise emerged. While questions remain, improved earnings have since helped the notes recoup almost all of those losses.
Bond documents
But with Wuyang Construction, the issue is the bond prospectus, which didn’t disclose the previous loan defaults -- “critical information” for a debt investor, says Ivan Chung, head of Greater China credit research at Moody’s Investors Service in Hong Kong. Tebon Securities Co. was the underwriter on Wuyang Construction’s bonds. In response to queries raised by bondholders, the Shanghai-based firm said in a Sept. 4 statement that it had carefully checked Wuyang’s bond documents and there was no false information, misleading statements or major missing items. When contacted on Friday, Tebon referred Bloomberg
News to this filing, saying it will continue to protect the legitimate interests of investors and will follow up on repayment of the bonds. The company has underwritten 4.4 billion yuan of Chinese domestic bonds this year, ranking it 70th among debt arrangers, data compiled by Bloomberg show. “Investors typically rely on bond documents to make investment decisions,” Chung said. “Those documents are prepared by underwriters and lawyers and they are supposed to ensure consistencies between Wuyang’s audited financials and numbers on the bond document.” That’s not good news for foreigners, who would largely be dependent on the paperwork, unless -- like Fidelity -- they have people on the ground. China has been steadily opening up avenues for international investors to access its debt, but foreign holdings, while at a record, are still just 1.5 per cent of the market. Wuyang Construction’s bondholders are now trying to push the company into bankruptcy, the first time bond investors in China have initiated such action. The securities watchdog has met with management several times asking them to release 2016 results, but it hasn’t complied, Tebon said in a filing Aug. 7. “Lack of disclosure has been rife among private sector companies in China,” said Christopher Lee, managing director of corporate ratings at S&P Global Ratings in Hong Kong. “Investors should do more due diligence when investing in private sector companies and regulators and underwriters should also carry out their responsibilities.” Bloomberg News
Auto industry
Li Ka-shing expands investments in electric vehicles The race to sell more EVs looks set to heat up further after China said Sept. 9 that it would set a deadline for automakers to end sales of vehicles powered by fossil fuels Prudence Ho
Hong Kong billionaire Li Kashing agreed to buy an indirect stake in a Japanese maker of electric cars, expanding his investments in an area that’s set to benefit from China’s push to phase out gasoline and diesel vehicles. Li and two other investors are buying a stake in O Luxe Holdings Ltd., according to two company filings made in Hong Kong. O Luxe is a distributor of watches and jewellery that’s in the midst of acquiring Japan’s GLM Co., a maker of electric sports cars with plans to license its technology to manufacturers including those in China. Sales of electric vehicles have surged in the world’s
largest car market on the back of generous state support, prompting global manufacturers to boost their line-ups of non-emission autos. The demand has attracted investments from a flock of start-ups as well as companies from outside the industry, including a failed attempt by China’s biggest air-conditioner maker. Li’s investment in O Luxe, and by extension GLM, gets him a place in the higher-end of the EV market, a segment that Chinese start-ups like NIO and Beijing CH-Auto Technology Co. are targeting and Tesla Inc. now dominates with its imported Model S. The race to sell more EVs looks set to heat up further after China said Sept. 9 that
it would set a deadline for automakers to end sales of vehicles powered by fossil fuels. The announcement follows the government’s earmarking in 2010 of new-energy vehicles as a strategic emerging industry meriting state support. News of Li’s investment, via Ocean Dynasty Investments Ltd., helped send O Luxe shares surging as much as 6.1 per cent to HK$1.74, the highest intraday price since June 2013. This isn’t the first time the Hong Kong tycoon, whose global business empire spans ports to retail to telecommunications, has invested in electric vehicles. In 2015, he bought a stake in FDG Electric Vehicles Ltd.,
a Chinese electric-van and bus maker. Vivaldi International Ltd. and TCL Industries Holdings (H.K.) Ltd. are the other two investors subscribing for a total of 570.3 million shares
in O Luxe. In addition, Ocean Dynasty and Vivaldi agreed to buy 234 million existing shares of the company, Hong Kong-based O Luxe said in a separate filing yesterday.
Hongl Kong tycoon Li Ka-shing
Bloomberg News
Business Daily Tuesday, September 12 2017 11
Asia Industry
Japan core machinery orders rebound in July Analysts expect capital expenditure to pick up gradually Tetsushi Kajimoto
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apan’s core machinery orders rose in July at the fastest pace since January 2016, rebounding from a third straight month of falls and an encouraging sign of the increased capital investment needed for sustained economic recovery. The 8.0 per cent rise in core orders, which exclude ships and orders from electric power utilities, virtually doubled the 4.4 per cent increase expected by economists in a Reuters poll. It followed a 1.9 per cent decline in June. Orders from manufacturers rose 2.9 per cent in July, driven by railway cars, while service-sector orders grew 4.8 per cent, led by computer equipment, Cabinet Office data showed yesterday. Machinery orders - a leading indicator of capital expenditure - are highly volatile and analysts warn against reading too much into the monthly data. Nonetheless, yesterday’s news is likely to ease concerns about capital expenditure,
which has lacked momentum lately with companies hesitant to spend despite record cash holdings. “The declines in core orders until the previous month have been contrary to our view that capital expenditure is in a gradual uptrend, so the reversal is a relief,” Hidenobu Tokuda, senior economist at Mizuho Research Institute,
said. “Core orders may fluctuate from now but the broader trend is that the current high level of orders will be kept,” he said, adding that a potential slowdown in China - Japan’s key trading partner - would be a risk to the outlook. Overseas orders, which are not counted as core orders,
grew 9.1 per cent monthon-month in July, reversing from the previous two months’ declines, led by big-ticket orders including ships, railway cars, motors and computers. Government data showed last week that Japan’s economy, the world’s third largest, grew much less quickly in the April-June quarter than
initially estimated due to a sharp reduction in corporate capital spending. The Cabinet Office stuck to its assessment of machinery orders, which it described as “stalling”. An official said the government would need to see more data in coming months before changing that assessment. Analysts expect capital expenditure to pick up gradually, backed by refurbishing and infrastructure investment for the 2020 Tokyo Olympic Games and spending on labour-saving equipment as well as low borrowing costs stemming from the Bank of Japan’s negative interest rate policy. A sustained recovery in business expenditure should support the central bank’s view that a virtuous circle of private sector-led growth will take hold in the economy. Still, wages and inflation remain stubbornly low despite recent signs of rebounding private consumption, keeping the BOJ under pressure to maintain its massive monetary stimulus. Reuters
Energy
ExxonMobil slashes 20-year LNG price to India India has been aggressive in seeking cheaper deals, also renegotiating a contract with Qatar in 2015 Sonali Paul
India has won a big price cut on a 20-year liquefied natural gas (LNG) deal with global giant ExxonMobil Corp in a rare contract renegotiation, a bad sign for global producers in a heavily oversupplied market. Long-term contracts are rarely revised in the LNG market, and for a big producer to cave in shows how supply from new plants in Australia and the United States over the past two years has transformed the market, analysts said. “This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets,” said Saul Kavonic, an analyst with energy consultants Wood Mackenzie. India has been aggressive in seeking cheaper deals, also renegotiating a contract with Qatar in 2015, but the real pain for producers would
come if major Asian buyers in Japan, Korea and China followed suit. India’s oil minister, Dharmendra Pradhan, said on Saturday the country had been able to renegotiate a contract agreed in 2009 for around 1.5 million tonnes a year of LNG from ExxonMobil’s share of the Gorgon LNG project in Australia going to Petronet LNG. “Happy to share good news that India has, yet again been able to address the long term price issue of LNG from Gorgon to suit Indian market,” Pradhan said on social media. Indian consumers would soon receive LNG at an “amicable price”, he said. Gorgon began exporting LNG last year. Citing market sources, RBC analyst Ben Wilson estimated ExxonMobil would receive 15 per cent less revenue per unit on its sales to Petronet under the new deal. If ExxonMobil had not agreed to renegotiate the
contract, Petronet might have scrapped the agreement, leaving the major to pursue damages and resell the volumes on a weak spot market. “They’ve probably taken the lesser of two evils,” said Wilson, adding that it did not bode well for other LNG producers such as Australia’s Woodside Petroleum which has targeted India to diversify
its heavy exposure to Japan and South Korea. ExxonMobil had no immediate comment. Analysts said the fact India had managed to force ExxonMobil to renegotiate was the latest proof that buyers have the upper hand in a market where LNG spot prices are well below oil-linked contract prices that were signed during the oil boom.
“The risk of price renegotiations will become more acute over the next couple years as spot LNG prices remain depressed, even if oil linked prices rise,” Wood Mackenzie’s Kavonic said. “The elephant in the room will be how negotiations play out with traditional markets in Japan and Korea, and especially the Chinese national oil companies.” Reuters
12 Business Daily Tuesday, September 12 2017
Asia Adviser to regulator
Japan regional bank consolidation “inevitable” Further consolidation among Japan’s regional banks is inevitable given a rapidly ageing population and ultra-low interest rates, an adviser to the country’s financial regulator said Leika Kihara and Sumio Ito
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he Bank of Japan’s (BOJ) radical stimulus programme, which has pushed interest rates to near or below zero, is severely cutting into bank profits and could destabilise the sector in the not-so-distant future, said Naoki Ohgo, who advises Japan’s Financial Services Agency (FSA). “There are only a handful of regional banks successfully making money in niche areas,” while many others
are struggling to find new business models, Ohgo told Reuters on Friday. More regional banks should consolidate, not just to cut costs but also to restructure their businesses and boost profitability, he said. “Consolidation is inevitable and a good thing,” said Ohgo. The remarks are one of the most blunt warnings among financial regulators of the dire prospects for Japan’s crowded regional banking sector, underscoring the challenges smaller banks face in surviving a business environment made difficult
by years of ultra-low interest rates. “There’s not much time left” for regional banks to take steps to survive the hit from an ageing population and dwindling margins, said Ohgo, a private consultant who also advises several local governments. Unless regional banks boost profitability, it “might not take long” for prolonged ultra-easy policy to destabilise the country’s banking sector, he said. Ohgo is a close associate of FSA Commissioner Nobuchika Mori, who has called for speedier banking-sector
reform and is considered among one of candidates for next BOJ governor. The BOJ added yield curve control (YCC) last year to its massive asset-buying programme to achieve its elusive 2 per cent inflation target. It now buys bonds to guide short-term interest rates at minus zero per cent and long-term rates around zero.
Key Points Years of low rates could destabilise bank sector - Ohgo Not much time left for bank reform - FSA adviser Adds monetary easing not enough to generate inflation The radical monetary experiment has squeezed the more than 100 regional banks whose local economies are slumping due to an ageing population, with the younger generation leaving for bigger cities as many firms shut down factories in regional Japan. A draft FSA report obtained by Reuters showed profits from lending and fees at Japan’s smaller banks were falling faster than expected, with more than half of the institutions losing money on these core operations. “Despite abundant supply of cash in the economy, inflation did not reach 2 per cent. It’s clear monetary easing wasn’t enough to generate inflation,” said Ohgo. “When you’ve failed to meet your target and the demerits start to exceed benefits, you’ll have to focus on addressing the demerits of policy.” Reuters
Commodities
Malaysia palm oil stockpiles climb The gains in stockpiles came despite production declining 0.9 per cent from July to 1.81 million tonnes Malaysian palm oil stockpiles climbed again in August, but did not to breach the 2 million tonne mark due to stronger-than-expected exports of the commodity, used to churn out products ranging from chocolate to shampoo. Inventories of the tropical oil rose 8.79 per cent from July to 1.94 million tonnes, data from industry regulator the Malaysian Palm Oil Board (MPOB) showed yesterday, the highest level since February 2016. Growing stocks in the world’s No.2 Palm producer, could dampen benchmark prices for the oil, which gained 2 per cent last week. They stood at around 2,780 ringgit (US$662.14) a tonne yesterday. “Although we are slightly positive that stock levels are lower than expected, they are still climbing,” said Ivy Ng, an industry analyst at CIMB Research.
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The data showed that August exports had risen 6.43 per cent from July to 1.49 million tonnes, beating analyst expectations of 1.42 million tonnes.
Key Points Palm inventories rise 8.79 pct from July to 1.94 mln T-MPOB Exports up 6.43 pct at 1.49 mln T, more than expected Demand expected to be robust as key festivals approach “Exports have done better than estimated, which is why stocks were below the expected 2 million tonne level,” Ng said. Demand for palm oil is expected to be well-supported in September ahead of major festivals in top consumers India and China the following
month. “We are optimistic on demand due to the Diwali and Mid-Autumn festivals in October. We should see improvements in September exports ahead of (those celebrations),” Ng added. The gains in stockpiles came despite production declining 0.9 per cent from July to 1.81 million tonnes. Palm oil output in Malaysia is seen recovering in the second half of this year as the crop damaging effects of an El Niño weather pattern fade. Output is set to recover this quarter, but analysts and planters say trees are still seeing some lingering impact from the 2015 El Niño. A Thomson Reuters survey had pegged inventory levels rising 6.5 per cent to 1.9 million tonnes in August. Production was seen down 1.5 per cent at 1.8 million tonnes. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Tuesday, September 12 2017 13
Asia Green cars
In Brief
India’s auto industry gears up for government’s electric vehicles push Electric vehicles are expensive due to the high cost of batteries which are still not manufactured in India Aditi Shah
India’s aggressive push to electrify all new vehicles by 2030 is compelling auto part manufacturers and carmakers to draw up early plans for electrification, company executives said. A new auto policy is in the works and will include a roadmap for electric vehicles, a government official said, adding that this is likely to be made public before year-end. Engine-maker Cummins India is investing in research on electric mobility solutions for India, while Hyundai Motor Co has begun talks with some of its suppliers for components for electric cars, company executives said.
“This is going to be a major challenge but it is one we have to embrace and not duck” Anant Talaulicar, managing director Cummins India
Ashok Leyland, which launched an electric bus last year, has partnered with Indian start-up SUN Mobility to develop battery-swapping technology for cars, buses and trucks. “This is going to be a major challenge but it is one we have to embrace and not duck,” Anant Talaulicar, managing director, Cummins India said. He said commercial vehicle makers in India have asked Cummins to look into electric mobility solutions
and only once they make a proposal will the company commit to capital investments. “It will not happen so soon. First we need to demonstrate the technology,” he said, adding that the company is open to acquisitions and partnerships as it would help get access to the technology faster. Electric vehicles are expensive due to the high cost of batteries which are still not manufactured in India, and carmakers say a lack of charging stations could make the whole proposition unviable. But the government is determined to push ahead. In a stern warning to the auto industry, India’s road transport minister Nitin Gadkari on Thursday asked companies to start building electric and alternative fuel vehicles or risk being overtaken by policy changes. “Don’t get confused about policy and rules, foray into electric bikes, buses and cars. I won’t seek your suggestions over this. You have to diversify,” Gadkari said. In May India’s leading think-tank laid out a 15-year roadmap for electrifying all new vehicles in the country by limiting registration of petrol and
diesel cars while giving incentives and subsidies on sales of electric cars. Electric car sales in India, one of the world’s fastest-growing car markets, are negligible compared with annual sales of over 3 million petrol and diesel cars last fiscal year, according to industry data. Mahindra & Mahindra is the only electric car maker in India but in a few years it may be joined by Tata Motors which has explored the possibility of building electric cars on its existing platform, managing director Guenter Butschek said. Hyundai, which shelved plans to launch hybrid cars in India after the government’s electric push, said it will need to customise its existing electric cars for the Indian market. If it is unable to adapt existing products, it will look at developing new electric cars for India, said Rakesh Srivastava, director, sales and marketing. The Korean carmaker has begun talks with its existing suppliers but is also open to forming new partnerships to source components for electric cars. “We would like to take a fresh look because we will need volumes,” Srivastava said. Reuters
Trade
Bangladesh exports lifted by garment sales Exports in the previous financial year that ended in June rose 1.7 per cent from a year earlier Bangladesh’s exports in August rose 10.7 per cent from a year earlier to US$3.6 billion, driven by stronger garment sales, official data showed on Sunday. Garments are a key foreign-exchange earner for the South Asian nation, whose low wages and duty-free access to Western markets have helped make it the world’s second-largest apparel exporter after China.
Key Points Exports in July-August up 13.8 pct yr/yr on garment sales Key garment exports rise 14 pct in July-August on year Aims to raise exports to US$37.5 bln in year to June Exports for July and August, the first two months of the country’s 2017/2018 financial year, rose 13.8 per cent from a year earlier to US$6.6 billion, the Export Promotion Bureau said. Sales of garments, comprising knitwear and woven items, totalled US$5.5 billion in July and August, up 14 per cent from a year earlier. The garment industry, which
supplies many Western brands, came under scrutiny after a string of fatal factory accidents, including a 2013 building collapse that killed more than 1,130 people. The government has set an export target of US$37.5 billion for the 201718 financial year, with ready-made garments earning US$30.16 billion. Exports in the previous financial year that ended in June rose 1.7 per cent from a year earlier to US$34.7 billion, but that was the slowest growth in 15 years, with garment
sales up just 0.2 per cent growth. Exporters blamed the lacklustre growth for the previous financial year on a number of factors, including sluggish demand in key markets, structural reforms in the garment sector, a weak euro and appreciation of the local currency against the U.S. dollar. In July, Bangladesh’s central bank left key interest rates unchanged, saying it was trying to balance economic growth and inflation risks. Reuters
Industry
Malaysia factory output up Malaysia’s industrial production in July expanded at its fastest pace in eight months, government data showed yesterday, boosted by gains in all three major sectors. Factory output grew 6.1 per cent from a year earlier in July, the fastest since November 2016 and beating the 5.3 per cent annual rise forecast in a Reuters poll. Industrial output was up 4 per cent in June. July’s factory output was due to strength in the manufacturing, electricity and mining sectors, according to data from the Statistics Department. IMF
Lagarde says SK economy seen growing 3 pct International Monetary Fund chief Christine Lagarde said on Monday she sees the South Korean economy growing 3 per cent this year, in line with the government’s forecast and faster than 2.8 per cent growth recorded in 2016. Lagarde added that Asia’s fourth-largest economy looks “highly resilient” to geopolitical risks stemming from nuclear and missile provocations from North Korea. She spoke to reporters at a media conference in Seoul. Japan Post
Japan gov’t launches US$12 bln follow-up sale The Japanese government will sell an additional stake in Japan Post Holdings Co Ltd worth around US$12 billion, a regulatory filing showed yesterday, the first sale since the company’s mammoth 2015 listing. The government will sell about 914 million shares in Japan Post Holdings, according to the filing with the Kanto Local Finance Bureau. The offering would be worth around 1.3079 trillion yen (US$12.1 billion) based on yesterday’s closing share price of 1,321 yen and including options to sell additional shares in the event of strong demand. The price will be determined between Sept. 25 and Sept. 27. Results
Australia’s Macquarie sees higher H1 profit Macquarie Group, Australia’s biggest investment bank, said yesterday it expects firsthalf net profit to be higher than the same period last year due to better performance fees, sending its shares higher. Releasing presentation notes for an investor conference, the Sydney-listed bank said the first-half results would be in line with the second half of the last financial year. It did not change its outlook for the full year, saying that it expects net profit to match last year’s record of A$2.22 billion (US$1.78 billion).
14 Business Daily Tuesday, September 12 2017
International In Brief EU
Parliament chief calls for harmonising refugee benefits European Parliament president Antonio Tajani called for standardising benefits for asylum seekers across the EU, in an interview with German media yesterday. Following a complaint at the weekend by German Interior Minister Thomas de Maiziere that Berlin’s generous offer of benefits for asylum seekers was drawing more applicants to Europe’s top economy, Tajani told the Funke Mediengruppe the European Union needed a single standard. Varying standards led to “a kind of asylum shopping and to asylum seekers and refugees moving on” to countries with better conditions, Tajani was quote as saying. Markets
MSCI world stocks index returns to record high
Oil industry
Saudi Arabia says it’s open to another extension of OPEC cuts Saudi Arabian Energy Minister met with Venezuela and Kazakhstan counterparts on the weekend Wael Mahdi
S
audi Arabian Energy Minister Khalid Al-Falih agreed with his Venezuelan and Kazakh counterparts to leave all options open in their push to re-balance world oil markets, including the possible extension of output cuts beyond next March. Al-Falih agreed in separate talks with the ministers in the Kazakh capital Astana that steps by OPEC and other major crude producers such as Kazakhstan have contributed to better market stability and a re-balancing of supply and demand, according to emailed statements from the Saudi energy ministry. Saudi Arabia and Venezuela, both members of the Organization of Petroleum Exporting Countries, “agreed on the importance of leaving all
options open with regards to the voluntary re-balancing efforts, including the possible extension of these efforts beyond the first quarter of 2018, if needed,” the Saudi ministry said in one of the statements. The kingdom and Kazakhstan said an extension in cuts beyond the first quarter “would be considered in due course as market fundamentals may dictate,” according to a separate statement from the Saudi ministry. OPEC and other producers including Russia pledged to reduce production by about 1.8 million barrels a day through March in a drive to trim global oil inventories and buttress prices. Producers are seeking to strengthen their compliance with the cuts accord reached last year. Al-Falih of Saudi Arabia, the largest supplier in OPEC, met with Venezuela’s Eulogio Del Pino on Saturday
A widely-tracked index of global stocks, MSCI’s AllCountry World Index, hit a new record high in European trading yesterday. The move came as investors breathed a double sigh of relief that hurricane Irma had lost some strength in the United States and that North Korea had not conducted any further missile tests over the weekend as it celebrated its founding anniversary. The MSCI index tracks roughly 2,400 stocks in 47 countries. A total of US$2.8 trillion assets are benchmarked against it, MSCI says.
and with Kazakhstan’s Kanat Bozumbayev on Sunday.
‘OPEC and other producers including Russia pledged to reduce production by about 1.8 million barrels a day through March’ Targeted cuts
Al-Falih and Del Pino said both their countries are exceeding full conformity with their targeted production cuts and that they shared “an optimistic outlook on market fundamentals in 2018,” according to a statement. Bozumbayev told Al-Falih that “despite the gradual ramp up of the giant Kashagan field this year, Kazakhstan was able, through reducing production in other fields in August, to achieve more than full conformity with its voluntary production level,” the Saudi ministry said in a separate statement. Al-Falih agreed with Bozumbayev to expand cooperation between their two countries in all areas of the energy industry, “including two major projects in Kazakhstan in petrochemicals and renewable energy,” according to the statement. Bloomberg News
Prime minister
Tunisia to halve deficit in three years Tunisia’s government wants to halve its budget deficit and trim the public wage bill in the next three years as part of a reform package to revive the economy, Prime Minister Youssef Chahed said yesterday. “We are preparing an economic plan to relaunch and salvage the Tunisian economy,” he told parliament five days after naming a cabinet including a new minister in charge of economic reforms. “This is needed to balance our finances.” Chahed said the government aimed to reduce the deficit to 3 per cent of gross domestic product by 2020 from 6 per cent expected this year. GDP
Turkey economy picks up in second quarter Economic growth in Turkey picked up speed in the second quarter, and will likely exceed the government’s target for the whole year, official data showed yesterday. Gross domestic product (GDP) expanded by 5.1 per cent yearon-year in the period from April to June, the Turkish Statistics Institute (TUIK) calculated. That was faster than growth of 5.0 per cent recorded in the first three months of this year. Growth was driven by all main sectors, with the agricultural sector expanding by 4.7 per cent, the manufacturing industry by 6.3 per cent, the construction sector by 6.8 per cent and the services sector by 5.7 per cent, TUIK said.
Coeure
Easy ECB policy to limit firming euro’s negative impact European Central Bank policy will remain accommodative for longer than in previous cases of demand shock, likely limiting the negative impact of the euro’s appreciation, ECB Executive Board member Benoit Coeure said yesterday Coeure’s comments suggest that policymakers are relatively relaxed about the currency’s 14 per cent rise against the dollar this year, even as ECB President Mario Draghi singled out the exchange rate last week as a source of uncertainty which requires monitoring.
“Exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook” Benoit Coeure, ECB Executive Board member “Compared with past demand shocks, policy will remain more accommodative for longer, thereby likely muting further the passthrough of any growth-driven exchange rate appreciation,” Coeure told a conference in Frankfurt.
“And with the current recovery in the euro area being largely driven by domestic demand, euro strength may also have less of an impact on growth than, for example, after the Great Financial Crisis,” he added. The ECB targets inflation at almost 2 per cent over the ‘medium term’, an undefined concept that is influenced by the size of any inflation shock. The bank has undershot its price growth target for four and a half years and will not raise inflation back towards 2 per cent before 2020, its new projections from last week show. Still, it is expected to curb stimulus when policymakers meet in October as the threat of deflation is long gone and growth is far better than
policymakers expected just a few months ago. “At the current juncture, however, the policy-relevant horizon – the ‘medium term’ concept in our monetary policy strategy – is likely to be longer given the persistence of subdued inflationary pressures,” Coeure said. Although seemingly relaxed about the currency appreciation, Coeure also warned that a persistent external shock could meaningfully alter the inflation outlook. “Exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.” Reuters
Business Daily Tuesday, September 12 2017 15
Opinion
The plastic fantasy that’s propping up the oil market Julian Lee a Bloomberg Gadfly columnist
K
enya’smountainsofplasticbags might not seem central to oil’s grand narrative, but they are. Last week, the East African country banned almost everything about them: making them, importing them, selling them, using them, with penalties of up to four years in jail or fines up to US$38,000. This type of prohibition carries a warning for an oil business that’s depending on petrochemicals -- and the plastics made from them -- to pick up the slack when we all switch from gas guzzlers to electric cars. Saudi Aramco is betting its future on petrochemicals. The International Energy Agency thinks they’ll drive crude sales for decades, accounting for 44 per cent of oil demand growth between 2015 and 2040. But, as Kenya shows, the days of single-use plastic packaging may already be numbered. And with this stuff making up about a quarter of all the plastic used, that will have a profound impact on the petrochemicals industry. Environmental fears are only going to worsen. The Great Pacific Garbage Patch -- a concentration of marine debris, most of which is plastics -- is estimated to be roughly the size of Texas. There are similar areas, brought together by ocean currents, in the Atlantic and Indian Oceans and they aren’t going anywhere. Plastic doesn’t biodegrade, it just breaks down into smaller and smaller pieces. Remember all those subprime mortgages from a decade ago? They got chopped up and mixed in with “good” debt and sold on as investment-grade securities, almost bringing the financial system to its knees. Think of plastic as a chemical equivalent to those loans: no matter how much it breaks up, it’s still plastic. On the current track, by 2050 our oceans could contain more plastics than fish (by weight), according to a 2016 report by the World Economic Forum and the Ellen MacArthur Foundation. Plastic waste is moving rapidly up the agendas of countries around the world. Kenya’s ban is one of many initiatives. Last month, India reaffirmed a ban on nonbiodegradable plastic bags in Delhi, while the introduction of a 5 pence charge for single-use bags in England in October 2016 led to an 85 per cent reduction in their use. And bags are only a small part of the problem, accounting for 1 per cent of plastic waste entering the sea, according to the Green Alliance. Far worse are plastic bottles, making up onethird of marine plastic pollution. Recycling them would have a huge impact, both on the waste problem and on demand for new petrochemicals feedstock. Last week, Scotland’s First Minister Nicola Sturgeon committed to introduce a deposit and return scheme on all drinks containers in the country. A similar plan introduced in Germany in 2003 boosted recycling of refillable plastic bottles to 98.5 per cent. Several European countries have done the same and more will follow. All this undermines the petrochemicals sector’s need for oil-based feedstocks from both sides: cutting demand for its end products while boosting the supply of recycled material for the production process. Just like the electrification of passenger cars, the backlash against plastics -- particularly for single-use items such as carrier bags, food containers and bottles -- will hurt the oil sector. Yet another existential challenge for Saudi Aramco and others to wrestle with.
‘More marine plastic than fish by 2050’
Bloomberg Gadfly
China’s commodity imports show why rally in prices may stall
C
hina’s imports of major commodities in August illustrate both why prices have gained in recent months and why this rally may be running out of steam. Imports of crude oil, copper, coal and iron ore remained relatively robust in August, but the customs data released on Sept. 8 also showed a certain loss of momentum. Crude oil imports were 33.98 million tonnes, equivalent to about 8 million barrels per day (bpd), which was the lowest in about eight months and down from 8.18 million bpd in July. While an explanation can be found in maintenance closures by refineries and ramped up environmental inspections by the authorities, it does appear that China’s crude oil imports have been losing some momentum. The year-on-year increase for the first eight months of 2017 was 12.2 per cent, which is still robust. But it is also down from 13.6 per cent in July and 13.8 per cent in June, showing that while overall growth in imports is still well up in year-on-year terms, it is starting to slow somewhat. It’s a similar story for coal, which has been an area of standout strength for imports this year. China brought in 25.27 million tonnes of coal in August, which was almost 30 per cent higher than July’s 19.46 million, but down 5 per cent from August last year. In year-to-date terms, coal imports were 14.2 per cent higher for the first eight months of 2017, but this was down from 18.2 per cent in July and 23.5 per cent in June. For iron ore, August also looked quite strong, with imports of 88.66 million tonnes, up from July’s 86.25 million. But for the first eight months of the year, iron ore imports were 6.7 per cent higher than for the same period in 2016, down from July’s 7.5 per cent and June’s 9.3 per cent. Overall, the picture that emerges from China’s imports of crude, coal and iron ore is that while the growth rates still look strong, they have been tapering off in recent months. That helps justify why commodity prices rallied hard in recent months, and why they are starting to look a little stretched.
“
Clyde Russell a Reuters columnist
benchmark, rallied from a close of US$71.30 a tonne on May 16 to US$102.50 on Aug. 8, a gain of almost 44 per cent. Since then, the contract has traded sideways and was at US$102.45 at the close of Sept. 8. Singapore-traded iron ore futures, which are based on the spot price for cargoes to China, went from US$53.66 a tonne on June 13 to US$75.63 on Aug. 7, a jump of 41 per cent. Since then, they have moved in a relatively narrow band, ending on Sept. 8 at US$74.21 a tonne. Among major Chinese commodity imports, the outlier appears to be copper. Imports of unwrought copper were 390,000 tonnes in August, the exact same number as for July and June, according to customs data. In year-to-date terms, unwrought copper imports were down 12.7 per cent in August, which was actually better than July’s decline of 15.2 per cent, but both were below the gain of 3.6 per cent in June. Overall, this isn’t a picture of robust copper imports, at best it’s a steady-as-she-goes scenario, which stands in contrast to the recent strong rally in copper prices. London-traded copper futures gained 26 per cent from the low so far this year in early April to a recent closing peak of US$6,917 a tonne on Sept. 4. A 3 per cent drop on Sept. 8 knocked the price back to a close of US$6,693 a tonne, with some of the decline blamed on market disappointment with the Chinese trade figures. While China does exert influence on copper prices, it doesn’t have quite the same dominance as it does for coal and iron ore. This means copper’s recent rally has been achieved despite the mixed Chinese import data, with concerns about supply helping boost prices. But it’s difficult to see copper prices sustaining their recent rally without increasing demand from China, the top importer of the industrial metal. Overall, it’s hard to argue that China’s demand for imported commodities is weak, with most showing strong year-to-date gains. However, it is possible to argue that some of momentum appears to have been lost in recent months, and while this doesn’t mean prices are on the verge of a retreat, it does make it harder for them to sustain rallies. Reuters
Overall, the picture that emerges from China’s imports of crude, coal and iron ore is that while the growth rates still look strong, they have been tapering off in recent months
Coal, iron ore rallies stall
This is especially the case for coal and iron ore, where China’s import demand is a major driver of price, given that the country is the top importer of both, and utterly dominates iron ore, taking about two-thirds of seaborne cargoes. Newcastle thermal coal futures, a regional
”
16 Business Daily Tuesday, September 12 2017
Closing Forecaster
Economic cost of Harvey, Irma could be US$290 billion business, increased unemployment rates for significant periods of
National Oceanic and Atmospheric Administration on 10 September 2017 shows a geocolor image captured by the GOES-16 satellite of Hurricanes Irma (L) and Jose (R) in the Atlantic Ocean. Source: Lusa
The combined economic cost of Hurricanes Harvey and Irma could reach US$290 billion, equivalent to 1.5 per cent of the U.S. gross domestic product, U.S. forecaster AccuWeather said in a report Sunday. “We believe the damage estimate from Irma to be about US$100 billion, among the costliest hurricanes of all time,” said the firm’s CEO and founder Joel Myers. Harvey, which battered Texas and parts of Louisiana in late August, will be “the costliest weather disaster in U.S. history at US$190 billion or one full percentage point of GDP” which stands at US$19 trillion. The report said it arrived at the figure by calculating disruptions to
time, damage to transport and infrastructure, crop loss including a 25 per cent drop of orange crop, increased costs of fuels including gasoline, heating oil and jet fuel, household damages and loss of valuable documentation. Only a fraction of the losses would be covered by insurance, said Myers. Irma struck the Florida Keys archipelago earlier Sunday and is now bearing north, bearing down on the city of Tampa on the west coast of the Florida peninsula. Harvey made landfall in Texas in late August, causing severe damage to property and paralyzing the country’s fourth-largest city, Houston, with major flooding. AFP
Smartphone
Lucky 8? US$1,000 price tag dampens iPhone enthusiasm in China One effect of Apple’s costliest phone to date will be the rise of sales on credit Cate Cadell
A
pple Inc will launch an expected “iPhone 8” today, hoping the number’s auspicious connotations in China will help turn around fortunes in the world’s biggest smartphone market after six quarters of falling sales. Chinese shoppers, however, are already counting the cost, with the latest model tipped to have a price tag upward of US$1,000 - roughly double the average Chinese monthly salary. The success of Apple’s next iPhone in China is crucial for the Cupertino-based firm, which has seen its
once-coveted phone slip into fifth position in China behind offerings from local rivals Huawei Technologies Co Ltd, Oppo, Vivo and Xiaomi Inc. Greater China, which for Apple includes Taiwan and Hong Kong, accounted for roughly 18 per cent of iPhone sales in the quarter ended in July, making it the company’s top market after the United States and Europe. Yet those sales have been declining steadily and are down 10 per cent from a year earlier, in contrast with growth in all other regions. And the iPhone’s share of China’s smartphone shipments fell to 9 per cent in January-June, down from 14
per cent in 2015, showed data from consultancy Counterpoint Research. While the iPhone 6 took China by storm in 2014, models since have received a more muted response. “I’ll wait for a drop in price, it’s too expensive,” said Angie Chen, 23, a project manager in Nanjing and iPhone 6 owner. Chen said she might even wait for the new phone’s successor, when prices will fall. “It’s a nice number to hear, but there’s no rush.” Eight is the luckiest number in China because it sounds similar to the phrase meaning “to get rich”. “Apple really needs to launch a very innovative
product this time around,” said Mo Jia, Shanghai-based analyst at Canalys. However, the rising clout of local rivals would nevertheless make life tough for the U.S. firm, he said. “It has its work cut out.” The iPhone 7 suffered from the perception that it was too similar to earlier models. This time, despite talk of wireless charging, advanced touch screen and facial recognition technology, Chinese netizens are yet to replicate the online mania around previous iPhone launches. Mentions of “iPhone 8” on popular Chinese social media platform Weibo - an indicator of consumer interest - were running slightly ahead of the similar period before the iPhone 7 launch, but were far more muted than with the iPhone 6. Apple declined to comment on the new phone, price or supply.
Buy on credit
One effect of Apple’s costliest phone to date will be the rise of sales on credit. Wang Yang, who runs a bricks-and-mortar smartphone store in Beijing’s largest tech market, said he expected more purchases online this time, as consumers make payments by instalment. “We will continue to stock the cheaper models or we won’t sell much,” he said.
Human rights
Commodities
Fenqile, a platform backed by Tencent Holdings Ltd allowing users to pay in instalments, said shoppers buying iPhones on the site had increased alongside rising prices - spiking in the second quarter of the year.
Key Points Chinese customers, vendors balk at prospect of US$1000 iPhone Success of new iPhone critical in turning around China sales Online anticipation outstrips iPhone 7 but short of iPhone 6
Services backed by Alibaba Group Holdings Ltd and JD.com Inc have also introduced features this year aimed at price-conscious smartphone buyers, including flexible payment services and second-hand smartphone rentals. Apple itself has launched an instalments plan in China supported by three statelinked banks. “If it’s under US$1,100 then I’ll buy it,” said Liu Song, 29, who works for a fintech startup in Beijing. “It’s manageable over 12 months for me, though I know some friends who are paying off phones for longer.” Reuters
C.bank survey
UN warns Myanmar situation ‘textbook Beijing sends one of the west’s Indonesia retail sales example of ethnic cleansing’ most vital materials soaring fall 3 pct y/y in July The UN human rights chief yesterday slammed Myanmar’s apparent “systematic attack” on the Rohingya minority, warning that “ethnic cleansing” seemed to be underway. “Because Myanmar has refused access to human rights investigators the current situation cannot yet be fully assessed, but the situation seems a textbook example of ethnic cleansing,” Zeid Ra’ad Al Hussein told the UN Human Rights Council. The Rohingya are reviled in Myanmar, where the roughly one million-strong community are accused of being illegal immigrants from Bangladesh. The United Nations says 294,000 bedraggled and exhausted Rohingya refugees have arrived in Bangladesh since the militants’ attacks on Myanmar security forces in neighbouring Rakhine state on August 25 sparked a major military backlash. Tens of thousands more are believed to be on the move inside Rakhine after more than two weeks without shelter, food and water. “The operation... is clearly disproportionate and without regard for basic principles of international law,” Zeid said. AFP
The price of one of the most critical materials for the Western world’s economy and defences is spiking faster than any major commodity. Tungsten, used to harden steel in ballistic missiles and in drill bits, has surged more than 50 per cent in the last two months amid growing concern about supply cutbacks in China, where about 80 per cent of the metal comes from. The country is clamping down on polluting mines and enforcing production quotas. “The Chinese have been trying to impose control over the production in tungsten,” said Mark Seddon, senior manager at Argus Consulting (Metals). “They’ve used environmental policy to clamp down on non-quota production.” The price of tungsten in Europe has jumped 52 per cent since early July, according to Metal Bulletin Ltd. The advance has beaten all 22 major materials in the Bloomberg Commodities Index. Tungsten has gained for six straight months, the longest rally since 2012. The European Union classes tungsten as a “critical” commodity and the British Geological Survey places it at the top of its supply-risk list of materials needed to maintain the UK’s economy and lifestyle. Bloomberg News
Indonesia’s retail sales in July declined 3.3 per cent from a year earlier, the first contraction in nearly six years, a central bank survey showed yesterday. In June, retail sales grew 6.3 per cent on a yearly basis. Respondents in the survey said sales of food and beverages as well as home furnishing and electronic appliances were particularly weak in July, Bank Indonesia wrote in the survey report. The last month showing a contraction was September 2011, when BI said sales were 5.9 per cent below a year earlier. Consumption has been weak in Indonesia this year. Traditionally, there are strong sales ahead of the holidays at the end of the Muslim fasting month, and then a period of weak consumption. This year, the fasting month ended in late June. The survey of 700 retailers in 10 major cities projected that in August, retail sales would rebound and grow 5.3 per cent from a year earlier. Respondents expect price pressures to increase in the next three to six months, but they also expect better sales by January 2018, the survey found. Reuters